<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Hathaway Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
[Letterhead of Hathaway Corporation]
September 17, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Hathaway Corporation to be held on Thursday, October 22, 1998, commencing at
2:00 p.m. (Mountain Time) at the Lone Tree Country Club, 9808 Sunningdale
Blvd., Littleton, Colorado. The Board of Directors and management look forward
to personally greeting those shareholders able to attend the meeting.
At the Annual Meeting you will be asked to consider and vote on the election
of six directors to serve until the next annual meeting and on approval of
director indemnification agreements.
Your Board of Directors unanimously recommends a vote FOR the election of
directors and FOR the approval of the director indemnification agreements.
Regardless of the number of shares you own and whether or not you plan to
attend, it is important that your shares are represented and voted at the
Meeting. Accordingly, you are requested to sign, date and mail the enclosed
proxy at your earliest convenience.
On behalf of the Board of Directors, thank you for your cooperation and
support.
Sincerely,
/s/ RICHARD D. SMITH
-------------------------------------
Richard D. Smith
President and Chief Executive Officer
<PAGE>
HATHAWAY CORPORATION
8228 PARK MEADOWS DRIVE
LITTLETON, COLORADO 80124
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 22, 1998
----------------
To the shareholders of
Hathaway Corporation:
You are hereby notified that the annual meeting of shareholders (the Annual
Meeting) of Hathaway Corporation, a Colorado corporation (the "Company"), will
be held on October 22, 1998 at 2:00 p.m. (Mountain Time) at the Lone Tree
Country Club, 9808 Sunningdale Blvd., Littleton, Colorado, for the following
purposes:
1. to elect six persons to the Company's Board of Directors to serve until
the next annual meeting of shareholders or until their successors are
duly elected and have qualified;
2. to approve entering into indemnification agreements with the Company's
directors;
3. to consider and act upon such other business as may properly be
presented for action at the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on August 27, 1998 as
the record date (the "Record Date") for the Annual Meeting. Only shareholders
of record at the close of business on the Record Date will be entitled to
notice of and to vote at the Annual Meeting. The Company's transfer books will
not be closed.
The Board of Directors of the Company extends a cordial invitation to all
shareholders to attend the Annual Meeting, as it is important that your shares
be represented at the meeting. Even if you plan to attend the Annual Meeting,
you are strongly encouraged to mark, date, sign and mail the enclosed proxy in
the return envelope provided as promptly as possible.
You may revoke your proxy by following the procedures set forth in the
accompanying proxy statement. If you are unable to attend, your written proxy
will assure that your vote is counted.
By Order of the Board of Directors
/s/ SUSAN M. CHAIRMONTE
----------------------------------
Susan M. Chiarmonte
Secretary
Denver, Colorado
September 17, 1998
<PAGE>
HATHAWAY CORPORATION
8228 PARK MEADOWS DRIVE
LITTLETON, COLORADO 80124
----------------
PROXY STATEMENT
----------------
This proxy statement and the accompanying proxy card are being furnished to
the holders of common stock, no par value ("Common Stock"), of Hathaway
Corporation, a Colorado corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company to be voted
at the annual meeting of shareholders (the "Annual Meeting") to be held on
October 22, 1998 at 2:00 p.m. (Mountain Time) at the Lone Tree Country Club,
9808 Sunningdale Blvd., Littleton, Colorado, for the purposes set forth in the
accompanying notice of annual meeting of shareholders. This proxy statement
and the accompanying proxy card were first mailed to shareholders on or about
September 17, 1998.
QUORUM AND VOTING RIGHTS
The presence, in person or by proxy, of the holders of a majority of the
votes entitled to be cast on the matter presented is necessary to constitute a
quorum at the Annual Meeting. Broker non-votes are shares held in street name
for which the broker indicates that instructions have not been received from
the beneficial owners or other persons entitled to vote, and the broker does
not have discretionary voting authority. Broker non-votes and abstentions will
be counted as shares present in determining whether a quorum is present. The
affirmative vote of the holders of two-thirds of the shares of Common Stock
entitled to vote at the Annual Meeting is required for the election of
directors (Item 1). Since election of directors requires the approving vote to
be measured against all shares of Common Stock entitled to vote, withholding
authority (including broker non-votes) from that vote is the equivalent of a
vote against election of nominated directors. Approval of Item 2 requires the
affirmative vote of a majority of the votes cast at the meeting. Broker non-
votes and abstentions will not be counted as affirmative or negative in
determining the number of shares voted on Item 2. The record date for
determination of shareholders entitled to notice of, and to vote at, the
Annual Meeting is the close of business on August 27, 1998 (the Record Date).
As of the close of business on the Record Date, there were 4,283,463 shares of
Common Stock outstanding, each of which is entitled to one vote at the Annual
Meeting.
All shares of Common Stock represented by properly executed proxies will,
unless such proxies have been revoked previously, be voted in accordance with
the instructions indicated in such proxies. If no such instructions are
indicated, such shares will be voted FOR the election of the six nominees for
director (Item 1), FOR approval of entering into indemnification agreements
with directors (Item 2) and in the discretion of the proxy holders on any
other matter that may properly come before the Annual Meeting (Item 3). Any
holder of Common Stock has the unconditional right to revoke his or her proxy
at any time prior to the voting thereof at the Annual Meeting by filing with
the Secretary of the Company written revocation of his or her proxy prior to
the voting thereof, giving a duly executed proxy bearing a later date, or
voting in person at the Annual Meeting. If a shareholder's shares are held by
a nominee and the shareholder seeks to vote shares in person at the Annual
Meeting, the shareholder must bring to the Annual Meeting a written statement
from the nominee confirming the shareholder's beneficial ownership of a stated
number of shares and that such shares have not been voted by the nominee.
Attendance by a shareholder at the Annual Meeting will not in itself revoke
his or her proxy.
Solicitation of proxies for use at the Annual Meeting may be made in person
or by mail, telephone or telegram, by directors, officers and regular
employees of the Company. Such persons will receive no special compensation
for any solicitation activities. In addition, the Company may retain the
services of D.F. King & Co., Inc. to aid in the solicitation of proxies in
person, by mail, telephone or telegram. If retained, the costs are not
expected to exceed $6,500 plus expenses. The Company will request banking
institutions, brokerage firms, custodians, trustees, nominees and fiduciaries
to forward solicitation materials to the beneficial owners of Common Stock
held of record by such entities, and the Company will, upon the request of
such record holders, reimburse reasonable forwarding expenses. The costs of
preparing, printing, assembling and mailing the proxy statement, proxy card
and all materials used in the solicitation of proxies to shareholders of the
Company, and all clerical and other expenses of such solicitation, will be
borne by the Company.
<PAGE>
ITEM 1: ELECTION OF DIRECTORS
The Company's articles of incorporation and bylaws provide for a board
consisting of not less than three and not more than six persons, as such
number is determined by the Board of Directors. The board has determined that
the board will consist of six directors, all of whom will be elected annually
to serve until the next annual meeting of shareholders and until their
successors are elected and qualified, or until the director resigns or is
otherwise removed.
All incumbent directors have been nominated to succeed themselves as
directors. The affirmative vote of the holders of two-thirds of the shares of
Common Stock entitled to vote at the Annual Meeting is required for the
election of directors. If the number of votes required for the election of
directors is not received, directors will continue in office until the next
annual meeting or until resignation or removal. Unless authority is withheld,
it is intended that the shares represented by proxy at the Annual Meeting will
be voted in favor of the six nominees named below. All nominees have agreed to
serve if elected.
If any nominee becomes unable or unwilling to serve at the time of the
Annual Meeting, the shares of Common Stock represented by proxy at the Annual
Meeting will be voted for the election of such other person as the Board of
Directors of the Company may recommend.
MANAGEMENT RECOMMENDS A VOTE "FOR" EACH NOMINEE NAMED.
NOMINEES
The following information concerning the nominees for election as directors
has been provided by the respective nominee:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<C> <C> <S>
Eugene E. Prince.......... 66 Chairman of the Board of Directors
Richard D. Smith.......... 51 President, Chief Executive Officer,
Treasurer, Chief Financial Officer and
Director
Chester H. Clarridge...... 68 Director
Delwin D. Hock............ 63 Director
Graydon D. Hubbard........ 64 Director
George J. Pilmanis........ 60 Director
</TABLE>
Mr. Prince has served as a director of the Company since October 1975 and as
Chairman of the Board of Directors since January 1981. He served as President
of the Company since October 1975 and as Chief Executive Officer since
September 1976 until his resignation from those offices on August 13, 1998. He
retired from his employment with the Company effective August 31, 1998. He
will remain as Chairman of the Board of Directors.
Mr. Smith was appointed President and Chief Executive Officer of the Company
on August 13, 1998. He was Executive Vice President from August 1993 until
August 1998. Mr. Smith served as Vice-President of Finance from June 1983 to
August 1993. He has served as Treasurer and as Chief Financial Officer since
June 1983. From January 1990 until October 1996, Mr. Smith was the Company's
Secretary. He has served as a director since August 1996.
Mr. Clarridge has served as a director of the Company since 1989. He has
been a private consultant in the instrumentation and control industry since
1978.
Mr. Hock has served as a director of the Company since February 1997. He
retired from his position as Chief Executive Officer of Public Service Company
of Colorado, a gas and electric utility, in January 1996 and as Chairman of
the Board of Directors in July 1997. From September 1962 to January 1996, Mr.
Hock held various management positions at Public Service Company. He serves as
a director of J.D. Edwards & Company, Rocky Mountain Internet Inc., and on six
separate entities overseeing the operation of 31 funds in the American Century
Investors fund complex.
2
<PAGE>
Mr. Hubbard has served as a director of the Company since 1991. He is a
retired certified public accountant and was a partner of Arthur Andersen LLP,
the Company's independent public accountants, in its Denver office for more
than five years prior to his retirement in November 1989. Mr. Hubbard is also
an author.
Mr. Pilmanis has served as a director of the Company since 1993. He is
chairman and president of Balriga International Corp., a privately held
company concerned with business development in the Far East and Eastern
Europe. From April 1989 to June 1994 he was president, CEO and a director of
Novatank Corp, a privately held company which manufactures fiberglass storage
tanks. In October 1994 Novatank Corp, which was then in voluntary liquidation,
filed for bankruptcy under Federal bankruptcy laws.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings during the fiscal year ended June
30, 1998. Each director attended 75% or more of the total number of meetings
of the board held during the period for which he has been a director and all
committees of the board on which such director served.
The Board of Directors has established an Audit Committee and a Compensation
Committee, each of which is composed of directors who are not employees of the
Company. No nominating committee has been established. The Board of Directors
selects the Company's nominees for election to the board. The board will
consider nominees recommended by shareholders who meet the requirements for
shareholder proposals set forth on the last page of the Proxy Statement.
The principal responsibilities of the Audit Committee are to make
recommendations to the Board of Directors concerning the selection of the firm
of independent auditors and the scope of auditing and accounting matters and
to consult with the Company's independent auditors regarding auditing and
accounting matters. The members of the Audit Committee during the fiscal year
ended June 30, 1998 were Messrs. Clarridge (Chairman) and Hock. The Audit
Committee held one meeting during the fiscal year ended June 30, 1998.
Representatives from the Company's independent auditors make a presentation
annually to the Board of Directors after the completion of the fiscal year end
audit. At that time, the entire Board has an opportunity to discuss issues
with or ask questions of the auditors.
The principal responsibility of the Compensation Committee is to make
recommendations to the Board of Directors concerning the compensation of the
Company's management employees including its executive officers. The members
of the Compensation Committee are Messrs. Hubbard (Chairman) and Pilmanis. The
Compensation Committee held one meeting during the fiscal year ended June 30,
1998.
EXECUTIVE OFFICER
Set forth below is information regarding the Executive Officer of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<C> <C> <S>
Richard D. Smith ................... 51 President, Chief Executive Officer,
Treasurer, Chief Financial Officer
and Director
</TABLE>
Information with respect to employment experience is provided above.
INDEBTEDNESS OF MANAGEMENT
The Company encourages officers and directors to own shares in the Company
and has lent money to officers and directors for the purpose of purchasing
shares. During fiscal year 1998, Richard D. Smith, who was then a Director,
Executive Vice President, Treasurer and CFO had an outstanding loan in the
principal amount of $133,652 which he obtained for the purpose of exercising
stock options. Interest is payable at the applicable
3
<PAGE>
treasury rate which was 5.62% per annum during the first six months and 5.48%
per annum during the last six months. The largest aggregate amount of
indebtedness, including accrued interest outstanding during fiscal year 1998
was $141,468. The amount outstanding, including accrued interest, as of August
27, 1998, was $138,594. Mr. Smith paid accrued interest of $7,816 on December
31, 1997. The difference between interest paid by Mr. Smith and interest at a
fair market value rate is considered compensation to Mr. Smith.
The loan described above was made pursuant to an Officer and Director Loan
Plan which was approved by shareholders on October 26, 1989. The loan is due
October 26, 1998. The Board of Directors proposes to authorize an extension of
the due date of the loan to October 31, 2001 with all other terms of the loan
to remain the same. The authorization will be made after October 15, 1998.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and notes set forth, as of the Record Date (except for
Mr. Albert for whom information is provided as of August 20, 1998), the
beneficial ownership, as defined by the regulations of the Securities and
Exchange Commission, of Common Stock by each person known to the Company to be
the beneficial owner of more than 5% of the outstanding shares of Common Stock
(based on the records of the Company's stock transfer agent or a
representation by the beneficial owner), each director and nominee, each
executive officer and all persons who serve as executive officers and
directors of the Company, as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS(2)
- ------------------------------------ ----------------------- -----------
<S> <C> <C>
Eugene E. Prince........................... 1,060,458(3) 24.5%
7560 Panorama Drive
Boulder, Colorado 80303
Ira Albert................................. 508,700(4) 11.9%
1304 SW 160th Avenue, Suite 209
Ft. Lauderdale, FL 33326
Richard D. Smith........................... 277,391(5) 6.4%
8228 Park Meadows Drive
Littleton, Colorado 80124
Chester H. Clarridge....................... 169,458(6) 3.9%
Graydon D. Hubbard......................... 26,000(7) --
George J. Pilmanis......................... 13,500(8) --
Delwin D. Hock............................. 10,500(9) --
Directors and executive officers of the
Company as a group (6 persons)............ 1,427,399(10) 32.2%
</TABLE>
- --------
(1) All beneficial ownership is sole and direct unless otherwise noted.
(2) No percent of class is shown for holdings of less than 1%.
(3) Includes 45,000 shares of Common Stock which Mr. Prince has the right to
acquire within 60 days of the Record Date upon exercise of options and
129,908 shares of Common Stock held by the Employees' Stock Ownership Plan
and Trust (the "ESOP") as of the Record Date, as to which Mr. Prince could
be deemed to have shared investment power as a trustee of the ESOP, (this
same number of shares is included under Mr. Smith's beneficial ownership
in footnote (7)) which includes 19,668 shares of Common Stock credited to
the ESOP account of Mr. Prince. Includes 88,800 shares of Common Stock
held by the Prince Children's Trusts, of which Mr. Prince's wife is
trustee and as to which Mr. Prince disclaims beneficial ownership.
4
<PAGE>
(4) Based on Schedule 13D filed by Mr. Albert with the Securities and
Exchange Commission on or about August 20, 1998; includes 238,000 shares
of Common Stock, held by Albert Investment Associates, L.P., as to which
Mr. Albert has sole voting and dispositive power; includes 238,200 shares
of Common Stock held by various accounts as to which Mr. Albert has
discretionary authority.
(5) Includes 54,000 shares of Common Stock which Mr. Smith has the right to
acquire within 60 days of the Record Date upon exercise of outstanding
options and 129,908 shares of Common Stock held by the ESOP as of the
Record Date, as to which Mr. Smith could be deemed to have shared
investment power as a trustee of the ESOP (this same number of shares is
included under Mr. Prince's beneficial ownership in footnote (3)), which
includes 4,179 shares of Common Stock credited to the ESOP account of Mr.
Smith. Includes 92,583 shares of Common Stock held by Smith Family Trust,
of which Mr. Smith is trustee.
(6) Includes 16,500 shares of Common Stock which Mr. Clarridge has the right
to acquire within 60 days of the Record Date upon exercise of outstanding
options. Includes 17,212 shares of Common Stock owned by a trust of which
Mr. Clarridge's wife is trustee, as to which Mr. Clarridge disclaims
beneficial ownership. Includes 135,746 shares of common stock held by a
trust as to which Mr. Clarridge shares voting and investment powers as a
trustee.
(7) Includes 13,500 shares of Common Stock which Mr. Hubbard has the right to
acquire within 60 days of the Record Date upon exercise of outstanding
options. Includes 5,000 shares of Common Stock held by Hubbard Family
Partnership as to which Mr. Hubbard is managing general partner.
(8) Consists of 13,500 shares of Common Stock which Mr. Pilmanis has the
right to acquire within 60 days of the Record Date upon exercise of
outstanding options.
(9) Includes 4,500 shares of Common Stock which Mr. Hock has the right to
acquire within 60 days of the Record Date upon exercise of outstanding
options.
(10) Includes 147,000 shares of Common Stock which directors and executive
officers have the right to acquire within 60 days of the Record Date upon
exercise of outstanding options and 129,908 shares of Common Stock held
by the ESOP as to which Mr. Prince and Mr. Smith have shared investment
power as trustees of the ESOP, which includes 23,847 shares of Common
Stock held by the ESOP for the accounts of Messrs. Prince and Smith.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The Board of Directors holds four full day meetings each year. Through
August 1998, non-employee directors received $3,000 per full day meetings of
the board, $900 for one-half day meetings, $400 per hour for a telephone
meeting, $900 per committee meeting and $900 per half day for official travel
to locations outside the Denver area. After August 1998 non-employee directors
are compensated at the rate of $3,300 per full day meeting of the board,
$1,000 for each additional one-half day meeting, $450 per hour for a telephone
meeting, $1,000 per committee meeting, and $1,000 per half day for official
travel to locations outside the Denver area.
Board members were compensated at the rate of $225 per hour ($250 per hour
after August 1998) for the time spent consulting with the Company at the
request of the Board of Directors or the President, preparing minutes of the
Audit or Compensation Committees and on special assignment of such committees.
During the 1998 fiscal year, Mr. Clarridge and Mr. Hubbard each received $225
for preparation of Committee Minutes.
The Company entered into a Consulting Agreement with Mr. Prince effective
after his retirement from employment on August 31, 1998. Under the Agreement,
Mr. Prince will provide consulting services to the Company primarily on
matters involving the Company's motion control products, but also on other
matters as requested by the President. He will be compensated at the rate of
$250 per hour. It is expected that Mr. Prince will provide consulting of about
40 hours per month on motion control products and about 20 hours per month on
other matters.
5
<PAGE>
Mr. Clarridge provides consulting services for the Company primarily
focusing on the acquisition of products and/or companies in the process
instrumentation area. Mr. Clarridge's consulting involvement will be phased
out over the next two years. As an incentive for his consulting services for
fiscal years 1998, 1999 and 2000, Mr. Clarridge was granted an option on
February 4, 1997 to purchase 36,000 shares at fair market value on the date of
grant ($4.3125) of the Company's Common Stock exercisable over three years at
one-third each year starting one year from the date of grant with an
expiration date of thirty-nine months from the date of grant or upon
discontinuance as a board member.
Mr. Pilmanis currently performs consulting services for the Company with
respect to its joint venture investments in China. Mr. Pilmanis received
$11,000 for his services during fiscal 1998.
Subsequent to fiscal 1998, each non-employee director (including Mr. Prince)
was granted an option to purchase 12,000 shares of the Company's Common Stock
at the quoted market price on the date of grant.
SUMMARY OF CASH AND OTHER COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation earned by the Chief Executive
Officer and one other executive officer (the "Named Executive Officers") whose
total annual salary and bonus exceeded $100,000 for services to the Company
during fiscal year 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
------------ -------------------
SECURITIES ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY UNDERLYING OPTIONS COMPENSATION
- ------------------------- ---- ------------ ------------------- ------------
<S> <C> <C> <C> <C>
Eugene E. Prince........... 1998 $260,000 0 $ 14,149 (1)
Chairman, CEO, President 1997 $260,000 67,500 $ 14,939
1996 $258,794 0 $(21,658)
Richard D. Smith........... 1998 $149,125 0 $ 15,628 (2)
Exec. V.P., Treasurer, CFO 1997 $143,000 81,000 $ 15,590
1996 $142,362 0 $ (2,419)
</TABLE>
- --------
(1) All other compensation for Mr. Prince during fiscal year 1998 consists of
Company contributions to defined- contribution plans of $2,389 and
Company paid life insurance premiums of $11,760.
(2) All other compensation for Mr. Smith during fiscal year 1998 consists of
Company contributions to defined contribution plans of $3,136, Company
paid life insurance premiums of $10,845, and interest on a loan to Mr.
Smith under the Officer and Director Loan Plan of $1,647 calculated as
the difference between interest accrued and the fair market rate at the
time the interest rate was set.
OPTION GRANTS IN LAST FISCAL YEAR
There were no options granted to the Named Executive Officers during fiscal
year 1998 under the Company's stock option plans.
See discussion under COMPENSATION COMMITTEE REPORT regarding options granted
to Mr. Smith subsequent to fiscal year 1998.
6
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information regarding option exercises during
the 1998 fiscal year and unexercised stock options held as of the 1998 fiscal
year end by each of the Named Executive Officers:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) AT FY-END($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eugene E. Prince........ 0 $0 45,000 22,500 $0 $ 0
Richard D. Smith........ 0 $0 54,000 27,000 $0 $ 0
</TABLE>
- --------
(1) Fair market value of unexercised in-the-money options at fiscal year end
is based on the closing price of $2.250 of Common Stock on June 30, 1998.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
Long-term incentives are provided through stock option grants. There were no
long-term incentive plan awards during fiscal 1998. See the discussion under
COMPENSATION COMMITTEE REPORT.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
Employment Agreements with Eugene E. Prince and Richard D. Smith became
effective July 1, 1993 for an initial term of five years and continue
subsequently on a year-to-year basis unless the Company or the officer gives
termination notice at least 60 days prior to expiration of the initial or
subsequent terms. The long-term incentive plan provisions were revised by
informal action in 1997. Mr. Prince's Agreement terminated upon his retirement
on August 31, 1998, and a new five-year Agreement with Mr. Smith is pending.
Base Salary. The Agreements provide a base salary of not less than $260,000
for Mr. Prince and, as of August 1997 $150,000 for Mr. Smith, and may be
reviewed annually for increase on a merit basis. On August 31, 1998, Mr.
Prince's salary terminated and effective August 13, 1998, Mr. Smith's was
increased to $180,000.
Annual Incentive Plan. Through fiscal year 1998 the Agreements provided that
annual incentive bonuses were paid based on achievement levels established
annually by the Board of Directors for return on equity and total shareholder
return. No annual bonuses are paid if the Company has a net loss. The new
Agreement with Mr. Smith will provide for an annual incentive bonus based on
corporate performance. See COMPENSATION COMMITTEE REPORT.
Long-Term Incentive Plan Payment. The Company utilizes stock options for
long-term incentives based on criteria described in the COMPENSATION COMMITTEE
REPORT.
Certain Dispositions. (None have occurred since 1994). Separate incentive
bonuses are payable on dispositions of subsidiaries or divisions of the
Company. Through fiscal year 1998, the bonus for Mr. Prince was an amount
equal to a percentage of the accumulative pre-tax gain recognized on a
disposition in an amount equal to 2% of the first $5 million of accumulative
pre-tax gain; 1.75% of the next $4 million of pre-tax gain; 1.5% of the next
$3 million of pre-tax gain; 1.25% of the next $2 million of pre-tax gain; and
1% of any additional amount of pre-tax gain. Amounts for Mr. Smith were one-
half the amounts stated for Mr. Prince. The bonus payable under the new
Agreement with Mr. Smith is being developed.
Other Provisions. (Now terminated with respect to Mr. Prince). Executive
officers participate in other benefits and perquisites as are generally
provided by the Company to its employees. In addition, the Company provides
executives with a long-term disability insurance program, and provides to Mr.
Smith $500,000 of life insurance and an automobile.
7
<PAGE>
In the event of death, disability or termination by the Company prior to a
change in control, other than for cause, the Agreement with Mr. Smith provides
for limited continuations of salary and insurance benefits and for bonus
prorations or settlements.
CHANGE IN CONTROL ARRANGEMENTS
In 1989 the Company entered into agreements with Messrs. Prince (now
terminated with respect to Mr. Prince) and Smith pursuant to which, upon
termination by the Company (other than for cause as defined in the Agreements)
or by the executive for good reason (as defined in the Agreements) within 90
days prior to or 24 months following a change in control of the Company, each
is entitled to receive a severance payment equal to 2.5 times the sum of
current annual base salary plus the amount paid under the Incentive
Compensation Plan for the preceding fiscal year, an allocation for incentive
compensation for the current year up to the date of termination and two year
continuation of insurance benefits. These agreements expire December 31 of
each year, however, they are extended automatically on January 1 of each year
for a term of two years, unless notice of non-renewal is given by the Company
not later than the September 30 immediately preceding renewal. The Company has
similar agreements (providing lower severance multiples) with other key
managers. The change in control agreements require the key executives to
remain in the employ of the Company for a specified period in the event of a
potential change in control of the Company and provide employment security to
them in the face of current pressures to sell the Company or in the event of
take-over threats, so that they can devote full time and attention to the
Company's efforts free of concern about discharge in the event of a change in
control of the Company. These agreements are common at other public companies.
They are not excessive and are within industry standards. In 1998, the Board
of Directors considered termination of these agreements and determined that
the reasons for executing change in control agreements in 1989 continue to be
valid and concluded that notices of non-renewal would not be in the best
interests of shareholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1998 the Compensation Committee was comprised of Messrs.
Hubbard and Pilmanis who are both non employees. See the caption EXECUTIVE
COMPENSATION--COMPENSATION OF DIRECTORS for information concerning
compensation paid to directors for attending and participating in board and
committee meetings and special assignments.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934 that might incorporate future filings, including this proxy
statement, in whole or in part, the following report and the performance graph
on page shall not be incorporated by reference into any such filings.
COMPENSATION COMMITTEE REPORT
Base salaries for executive officers are reviewed for increase annually in
relation to corporate performance and enlarged responsibilities and they are
also compared to a national compensation survey under a policy to maintain
salaries within a general range of 80% to 120% of the survey median. Increases
of 5% and 20% to recognize increased responsibilities were recommended for Mr.
Smith in August 1997 and 1998, respectively.
In recommending target levels of achievement for the Annual Incentive Plan,
the Committee reviews past operating results and stock prices and the
forecasts and business plans of the Company for the ensuing year. No bonuses
were paid under the plan for fiscal 1998, because threshold performance levels
were not achieved and because the Company incurred operating losses. For
fiscal 1999 the Committee recommended target achievement levels to be based on
two components of the Company's performance, one relating to systems
automation and the other to the balance of the Company's operations.
Recommendations related to the performance of systems automation have not yet
been finalized. For the balance of the Company, the Committee recommended a
target achievement level of a 15% improvement in pretax net income over 1998
results.
8
<PAGE>
The Company's long-term incentive program is based on stock options. In
making its recommendations for grants of stock options, the Committee
considers customary business practices, the direct link between option share
benefits and improving shareholder values, the enlarged operating
responsibilities of Mr. Smith, the prior level of stock option grants, the
current level of share options held by executive officers, the shares
available for option and the total shares under option grants. The Committee
also considers the Company's current operating conditions under which it is
vitally important to all shareholder interests to have strong long-term
incentives for management to remain positive and dedicated, well motivated and
business focused. In August 1998, Mr. Smith was granted an option to purchase
100,000 shares of the Company's Common Stock at the quoted market price on the
date of grant.
GRAYDON D. HUBBARD
GEORGE J. PILMANIS
PERFORMANCE GRAPH
The following performance graph reflects change in the Company's cumulative
total stockholder return on common stock as compared with the cumulative total
return of the NASDAQ Stock Market Index and the NASDAQ Measuring and
Controlling Devices Index for the period of five fiscal years ended June 30,
1998.
HATHAWAY CORPORATION
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG NASDAQ (U.S. COMPANIES), NASDAQ MEASURING DEVICES AND THE COMPANY
<TABLE>
<CAPTION>
6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NASDAQ (U.S.) 100 101.0 134.8 226.2 210.4 277.7
NASDAQ MEASURING DEVICES 100 102.9 172.6 173.0 287.2 230.2
HATHAWAY CORPORATION 100 171.4 116.3 178.4 143.9 103.6
</TABLE>
9
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than ten percent of
the Company's Common Stock to report their ownership and any changes in that
ownership to the Securities and Exchange Commission. The Company believes that
all Section 16(a) filing requirements applicable to its directors, executive
officers and greater than ten percent beneficial owners have been met.
ITEM 2: APPROVAL OF INDEMNIFICATION AGREEMENTS WITH DIRECTORS
GENERAL
The Company's bylaws provide that the Company shall indemnify any director
against liability incurred in any proceeding in which he is made a party to
the proceeding because he is a director of the Company. The Board of Directors
has determined that entering into contractual indemnification agreements with
directors was in the Company's best interest and a proposed form of
indemnification agreement is attached hereto as Exhibit A (the
"Indemnification Agreement"). The purpose of indemnifying directors is to
attract and retain the best available personnel as directors of the Company
and to encourage their continued service to the Company. The shareholders are
being requested to consider and approve entering into Indemnification
Agreements with all directors.
SUMMARY OF FORM OF INDEMNIFICATION AGREEMENT
The Indemnification Agreements provide that directors will be indemnified to
the fullest extent permitted by law against all reasonable expenses (including
attorneys fees), judgments, fines, penalties and settlement amounts paid or
incurred by them in any action or proceeding, including any action by or in
the right of the Company, arising out of such person's services as a director,
officer, consultant, employee, agent or fiduciary of the Company, any
subsidiary of the Company, or any other company or enterprise to which the
person provides services at the request of the Company. However, the
Indemnification Agreements permit indemnification only if there is a
determination by a reviewing party (which may be a quorum of disinterested
directors, a disinterested committee of the board, independent legal counsel,
or the shareholders) that the person seeking indemnification acted in good
faith and in a manner reasonably believed to be in, or not opposed to the best
interests of, the Company, and in the case of a criminal proceeding, the
director had no reasonable cause to believe his conduct was unlawful. Even if
it is determined the director met the required standard of conduct, payment of
the indemnification must be authorized by a separate vote. Without court
approval, no indemnification may be made with respect to any derivative action
in which the director is adjudged liable to the Company and, in the case of
derivative actions in which the director received an improper personal
benefit, indemnification is limited to reasonable expenses incurred in
connection with the proceeding and in obtaining court ordered indemnification.
The Indemnification Agreement requires indemnification of expenses when the
director is successful in defending any action, claim, issue or matter
therein, on the merits or otherwise.
The Indemnification Agreements provide that expenses incurred by a director
in defending an action may be paid in advance if such director undertakes to
repay such amounts if it is ultimately determined the director is not entitled
to indemnification.
The Indemnification Agreements do not provide for indemnification in excess
of that permitted by statute. Further, the Indemnification Agreements state
that the indemnification provided shall not be deemed exclusive of any other
rights under any statute, bylaw, vote of shareholders or disinterested
directors, or otherwise. Finally, the Indemnification Agreements provide that
such agreements should be interpreted to include within their purview future
changes in Colorado law that expand the permissible scope of indemnification
of directors of Colorado corporations. The Indemnification Agreements may be
amended in the future by board action.
The favorable vote of a majority of the votes cast on Item 2 is required for
approval of entering into Indemnification Agreements with directors. If
indemnification of directors is approved by the shareholders, the
10
<PAGE>
Company intends to execute Indemnification Agreements with each director. If
entering into Indemnification Agreements is not approved, the board will
consider what further action to take.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF ENTERING INTO INDEMNIFICATION
AGREEMENTS WITH DIRECTORS.
ITEM 3: OTHER MATTERS
The Board of Directors knows of no business to be presented for action at
the Annual Meeting except as described above. However, if other matters are
properly presented for a vote, the proxies will be voted upon such matters in
accordance with the judgment of the persons acting under the proxies.
YEAR 2000 MATTERS
Some computers and computer-based systems use only the last two digits to
identify a year in the date field and cannot distinguish the year 2000 from
the year 1900. The Company recognizes that the Year 2000 poses a challenge to
the smooth functioning of computer systems included in its product sales,
purchased from its suppliers and used in its application software systems. The
Company is taking appropriate steps necessary in preparation of Year 2000
issues. The Company has assessed its products and application software systems
and has concluded that no major changes or updates are required. Minor
modifications and updates are being made as needed. An assessment of its
suppliers and service providers is ongoing and is expected to be completed by
June 30, 1999. The Company does not anticipate the overall costs of adaptation
of its products and systems will be material, however the Company will
continue to review on an ongoing basis whether it needs to further address any
anticipated costs, problems and uncertainties associated with Year 2000
consequences.
INDEPENDENT PUBLIC ACCOUNTANT
Arthur Andersen LLP served as independent auditors of the Company for the
fiscal year ended June 30, 1998. A representative of Arthur Andersen LLP is
expected to be present at the Annual Meeting. He will have an opportunity to
make a statement if he so desires, and is expected to be available to respond
to appropriate questions.
The Audit Committee of the Board of Directors has not yet made a
recommendation to the Board of Directors with respect to the selection of
independent certified public accountants for fiscal 1999.
ANNUAL REPORT
The Company's Annual Report for the year ended June 30, 1998 has been mailed
to shareholders with this Proxy statement.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Shareholders' proposals for the 1999 annual meeting of shareholders must be
submitted in writing to the Secretary of the Company at the address of the
Company set forth on the first page of this Proxy Statement no later than May
20, 1999 in order to be presented at the annual meeting or be considered for
inclusion in the Company's 1999 proxy statement and proxy card.
PLEASE SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY.
HATHAWAY CORPORATION
September 17, 1998
11
<PAGE>
EXHIBIT A
HATHAWAY CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made on , 1998,
between Hathaway Corporation, a Colorado corporation ("Company"), and
("Director").
RECITALS
A. Director is a member of Company's Board of Directors and Company desires
Director to continue in such capacity.
B. Company's Bylaws obligate it to indemnify its directors and officers.
C. Company has furnished, at its expense, directors and officers liability
insurance ("D&O Insurance") protecting its directors in connection with their
performance of services for Company.
D. Company believes that (i) litigation against corporate directors,
regardless of whether meritorious, is expensive and time-consuming for the
director to defend; (ii) there is a risk of a judgment or settlement in
litigation in which a corporate director was neither culpable nor profited
personally to the detriment of the Company; (iii) it is increasingly difficult
to attract and keep qualified directors because of such potential liabilities;
(iv) it is important for a director to have assurance that indemnification
will be available if the director acts in accordance with reasonable business
standards; and (v) because available D&O Insurance and the indemnification
available from Company may not be adequate to fully protect Company's
directors against the problems described above, it is in the best interest of
Company and its shareholders for Company to contractually obligate itself to
indemnify its directors and to set forth the details of the indemnification
process.
E. Based upon the conclusions stated in Recital D above, to induce Director
to continue to serve on Company's Board of Directors and in consideration of
Director's continued service as a director, Company wishes to enter into this
Agreement with Director.
AGREEMENT
Therefore, Company and Director agree as follows:
1. AGREEMENT TO SERVE. Director will serve as a member of the Board of
Directors of Company so long as Director is duly elected and qualified to so
serve or until Director resigns or is removed from Company's Board of
Directors.
2. INDEMNIFICATION.
(a) Company will indemnify Director to the fullest extent permitted under
applicable law if Director was or is a party or threatened to be made a
party to any threatened, pending or completed action, suit or proceeding of
any kind including alternative dispute resolution, whether civil, criminal,
administrative or investigative and whether formal or informal (including
actions by or in the right of Company and any preliminary inquiry or claim
by any person or authority), by reason of the fact that Director is or was
a director, officer, trustee, employee, consultant or agent of Company or
is or was serving at Company's request as a director, officer, consultant,
employee, agent, associate, fiduciary, manager, member, partner, promoter,
or trustee of another corporation (including a Subsidiary), limited
liability Company, partnership, joint venture, trust, employee benefit plan
or other enterprise or person, whether or not for profit, or by reason of
anything done or not done by Director in any such capacity (collectively,
"Covered Matters").
A-1
<PAGE>
Such indemnification will cover all Expenses (as defined in section 5(a)
below), liabilities, judgments (including punitive and exemplary damages),
penalties, fines (including excise taxes relating to employee benefit plans
and civil penalties) and amounts paid in settlement which are incurred or
imposed upon Director in connection with a Covered Matter (collectively,
"Indemnified Amounts").
(b) Director will be indemnified for all Indemnified Amounts and Company
will defend Director against claims (including threatened claims and
investigations) in any way related to Director's service as described in
section 2(a) including claims brought by or on behalf of Company or any
Subsidiary, except if it is finally determined by the court of last resort
(or by a lower court if not timely appealed) that the payment is prohibited
by applicable law. To the extent permitted by applicable law, Covered
Matter includes a breach of fiduciary duties (including duties of loyalty
or care) or violations of disclosure or reporting requirements of federal
securities laws.
(c) If Director is entitled under this Agreement to indemnification for
less than all of the amounts incurred by Director in connection with a
Covered Matter, Company will indemnify Director for the indemnifiable
amount.
3. CLAIMS FOR INDEMNIFICATION. Director will give Company written notice of
any claim for indemnification under this Agreement. Payment requests will
include a schedule setting forth in reasonable detail the amount requested and
will be accompanied (or, if necessary, followed) by copies of the relevant
invoices or other documentation. Upon Company's request, Director will provide
Company with a copy of the document or pleading, if any, notifying Director of
the Covered Matter. To the extent practicable, Company will pay Indemnified
Amounts directly without requiring Director to make any prior payment.
4. AUTHORITY TO INDEMNIFY DIRECTORS. Except as provided in subsection (f) of
this section 4, the Company will indemnify Director pursuant to section 2 only
after the Company has authorized the payment pursuant to section 5(b)(8) and a
determination has been made in accordance with section 5(b) that Director has
met the following standard of conduct:
(a) Director conducted himself in good faith; and
(b) Director reasonably believed:
(1) in the case of conduct in his official capacity as a director of
the Company that his conduct was in the Company's best interest; and
(2) in all other cases, that his conduct was at least not opposed to
the Company's best interest; and
(c) In the case of any criminal proceeding Director had no reasonable
cause to believe his conduct was unlawful.
(d) Director's conduct with respect to an employee benefit plan for a
purpose he reasonably believed to be in the interests of the participants
in or beneficiaries of the plan is conduct that satisfies the requirement
of section 4(b)(2). Director's conduct with respect to an employee benefit
plan for a purpose that he did not reasonably believe to be in the best
interests of the participants in or beneficiaries of the plan shall be
deemed not to satisfy the requirement of section 4(a).
(e) The termination of a proceeding by judgment, order, settlement,
conviction, or upon the plea of nolo contendere or its equivalent is not,
of itself, determinative that Director did not meet the standard of conduct
described in this section 4.
(f) The Company may not indemnify Director under this section 4:
(1) in connection with a proceeding by or in the right of the Company
in which Director was adjudged liable to the Company; or
A-2
<PAGE>
(2) in connection with any other proceeding charging that Director
derived an improper personal benefit, whether or not involving action
in an official capacity, in which proceeding Director was adjudged
liable on the basis that he derived an improper personal benefit.
(g) Indemnification permitted under this section 4 in connection with a
proceeding by or in the right of the Company is limited to reasonable
expenses incurred in connection with the proceeding.
5. DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) Director will be presumed to be entitled to indemnification under this
Agreement and, if permitted by applicable law, will receive such
indemnification, subject to section 5(b) below, irrespective of whether the
Covered Matter involves alleged violations of Section 16(b) of the Securities
Exchange Act of 1934, alleged violations of Section 10(b) of the Securities
Exchange Act of 1934 (including Rule 10b-5 thereunder), breach of Director's
fiduciary duties (including duties of loyalty or care) or any other claim.
(b) If, in the opinion of counsel to Company, applicable law permits
indemnification in a Covered Matter only as authorized in the specific case
upon a determination that indemnification is proper in circumstances because
Director has met the standard of conduct described in section 4, the following
will apply:
(1) Company will give Director notice that a determination and evaluation
will be made under this section 5(b); such notice will be given immediately
after receipt of counsel's opinion that such a determination and evaluation
is necessary and will include a copy of such opinion.
(2) Such determination and evaluation will be made in good faith, as
follows:
(A) by the Board of Directors by a majority vote of those present at
a meeting at which a quorum is present, and only those directors not
parties to the proceeding shall be counted in satisfying the quorum; or
(B) if a quorum cannot be obtained, by a majority vote of a committee
of the Board of Directors designated by the Board of Directors, which
committee shall consist of two or more directors not parties to the
proceeding; except that directors who are parties to the proceeding may
participate in the designation of directors for the committee.
(3) If a quorum cannot be obtained as contemplated in the clause (A)
above, and a committee cannot be established under clause (B) above, or,
even if a quorum is obtained or a committee is designated, if a majority of
the directors constituting such quorum or such committee so directs, and in
all cases if there has been a change in control of the Company as defined
in Section 5(b)(9), the determination required to be made by paragraph 5(b)
shall be made:
(A) by independent legal counsel selected by a vote of the Board of
Directors or the committee in the manner specified in clause (A) or (B)
of section 5(b)(2) or, if a quorum of the full Board cannot be obtained
and a committee cannot be established, by independent legal counsel
selected by a majority vote of the full Board of Directors; or
(B) by the shareholders.
(4) Director will be entitled to a hearing before the entire Board of
Directors of Company and any other person or persons making the
determination and evaluation under section 5(b). Director will be entitled
to be represented by counsel at such hearing.
(5) The cost of a determination and evaluation under this section 5(b)
(including attorney's fees and other expenses incurred by Director in
preparing for and attending the hearing contemplated by clause (4) above
and otherwise in connection with the determination and evaluation under
this section 5(b)) will be borne by Company.
(6) The determination will be made as promptly as possible after final
adjudication of the Covered Matter.
A-3
<PAGE>
(7) Director will be presumed to have met the required standard of
conduct under this section 5(b) unless it is clearly demonstrated to the
determining body that Director has not met the required standard of
conduct.
(8) Authorization of indemnification and advance of Expenses shall be
made in the same manner as the determination of indemnification or advance
of Expenses is permissible; except that, if the determination that
indemnification or advance of Expenses is permissible is made by
independent legal counsel, authorization of indemnification and advance of
Expenses shall be made by the body that selected such counsel.
(9) For purposes of section 5(b)(3), a "change in control of the Company"
shall be deemed to have occurred (A) if any person (as such term is used in
sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") other than (1) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any person or
entity organized, appointed or established by the Company for or pursuant
to the terms of any such plan, or (2) any person who, on the date hereof,
is a director of officer of the Company or whose shares of common stock of
the Company are treated as beneficially owned (as defined in Rule 13(d)-3
under the Exchange Act) by any such director or officer, is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing more than 45% of the combined voting power of the Company's
then outstanding securities; or (B) upon the first purchase of outstanding
shares of the Company's outstanding common stock pursuant to a tender or
exchange offer (other than a tender or exchange offer made by the Company,
by an employee benefit plan established or maintained by the Company or by
any of their respective affiliates); or (C) If during any period of two
consecutive years individuals who, at the beginning of such period,
constitute the Company's Board of Directors and any new director (other
than a director designated by a person who has entered into an Agreement
with the Company to effect a transaction described in clauses (A) or (D) of
this section) whose election by the Company's Board of Directors or
nomination for election by the Company's shareholders was approved by a
vote of at least two-thirds of the Company's directors then still in office
who either (1) were directors of the Company at the beginning of the period
or (2) whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or (D) if
the shareholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 80% of the combined voting power of the voting securities
of the Company or such other surviving entity outstanding immediately after
such merger or consolidation; or (E) the shareholders of the Company
approve a plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or substantially all of the
Company's assets.
6. ADVANCE OF EXPENSES.
(a) Before final adjudication of a Covered Matter, upon Director's
request pursuant to section 3, Company will promptly either advance
Expenses directly or reimburse Director for all Expenses. As used in this
Agreement, "Expenses" means all reasonable costs and expenses (including,
without limitation, attorneys' fees, expert fees, other professional fees
and court costs, interest, assessments, and other charges) incurred by
Director in connection with a Covered Matter other than judgments,
penalties, fines and settlement amounts.
(b) If, in the opinion of counsel to Company, applicable law permits
advancement of Expenses only as authorized in the specific case upon a
determination that Director has met a standard of conduct established by
section 4, the determination will be made at Company's cost, in good faith
and as promptly as possible after Director's request, in accordance with
section 5(b). Such advance will be made if:
(1) the Director furnishes to the Company a written affirmation of
the Director's good faith belief that he or she has met the required
standard of conduct;
A-4
<PAGE>
(2) the Director furnishes to the Company a written undertaking,
executed personally or on the Director's behalf, to repay the advance
if it is ultimately determined that he or she did not meet the required
standard of conduct; and
(3) a determination is made that the facts then known to those making
the determination would not preclude indemnification under this
Agreement.
The undertaking required by section 6(b)(2) shall be an unlimited general
obligation of the Director, but need not be secured and may be accepted
without reference to financial ability to make repayment. Determinations
and authorizations of payments under this section shall be made in the
manner specified in section 5(b).
(c) Director will repay any Expenses that are advanced under this section
6 if it is ultimately determined, in a final, non-appealable judgment
rendered by the court of last resort (or by a lower court if not timely
appealed), that Director is not entitled to be indemnified against such
Expenses. This undertaking by Director is an unlimited general undertaking
but no security for such undertaking will be required.
7. DEFENSE OF CLAIM.
(a) Except as provided in section 7(c), Company, jointly with any other
indemnifying party, will be entitled to assume the defense of any Covered
Matter as to which Director requests indemnification.
(b) Counsel selected by Company to defend any Covered Matter will be
subject to Director's advance written approval, which will not be
unreasonably withheld.
(c) Director may employ Director's own counsel in a Covered Matter and be
fully reimbursed therefor if (i) Company approves, in writing, the
employment of such counsel or (ii) either (A) Director has reasonably
concluded that there may be a conflict of interest between Company and
Director or between Director and other parties represented by counsel
employed by Company to represent Director in such action or (B) Company has
not employed counsel reasonably satisfactory to Director to assume the
defense of such Covered Matter promptly after Director's request. Director
may employ Director's own counsel in connection with a covered matter at
the expense of the Company, if such counsel serves in a review, observer,
advice, and counseling capacity and does not otherwise materially control
or participate in the defense of the proceeding. Director may employ
Director's own counsel at Director's expense at any time.
(d) Neither Company nor Director will settle any Covered Matter without
the other's written consent, which will not be unreasonably withheld.
(e) If Director is required to testify (in court proceedings,
depositions, informal interviews or otherwise), consult with counsel,
furnish documents, or take any other reasonable action in connection with a
Covered Matter or in a proceeding at a time when Director has not been
named defendant or respondent, Company will pay Director a fee for
Director's efforts at a rate equal to the amount payable to Director for
consulting with the Company at its request, plus reimbursement for all
reasonable expenses incurred by Director in connection therewith.
8. DISPUTES; ENFORCEMENT.
(a) If there is a dispute relating to the validity or enforceability of
this Agreement or a denial of indemnification, advance of Expenses or
payment of any other amounts due under this Agreement or Company's Articles
of Incorporation or Bylaws, or any D&O Insurance referred to in section 9,
Company will provide such indemnification, advance of Expenses, or other
payment until a final, non-appealable judgment that Director is not
entitled to such indemnification, advance of Expenses or other payment has
been rendered by the court of last resort (or by a lower court if not
timely appealed). Director will repay such amounts if such final, non-
appealable judgment so requires.
(b) Company will reimburse all of Director's reasonable Expenses
(including attorneys' fees) in pursuing an action to enforce Director's
rights under this Agreement unless a final, non-appealable judgment
A-5
<PAGE>
against Director has been rendered in such action by the court of last
resort (or by a lower court if not timely appealed). At Director's request,
such Expenses will be advanced by Company to Director as incurred before
final resolution of such action by the court of last resort; such Expenses
will be repaid by Director if a final, non-appealable judgment in Company's
favor is rendered in such action by the court of last resort (or by a lower
court if not timely appealed).
(c) Director's obligation to repay amounts under this section 8 shall be
unsecured and no interest shall be charged thereon.
9. D&O INSURANCE.
(a) Company represents that it currently has in full force and effect the
D&O Insurance listed on the schedule which is attached to this Agreement.
(b) Except as provided in section 9(c) below, Company will purchase and
maintain D&O Insurance with a policy limit of at least $1 million without
deductible or co-insurance in excess of the amounts set forth on the
schedule which is attached to this Agreement, insuring Director against any
liability arising out of Director's status as a director of Company,
regardless of whether Company has the power to indemnify Director against
such liability under applicable law.
(c) Company will not be required to purchase and maintain D&O Insurance
if the Board of Directors of Company determines, after diligent inquiry,
that (i) such insurance is not available; or (ii) the premiums for
available insurance are disproportionate to the amount of coverage and to
the premiums paid by other corporations similarly situated. The Board of
Directors of Company will, at least twice annually, in good faith review
its decision not to maintain D&O Insurance and will purchase such insurance
at any time that the conditions of this section 9(c) cease to apply.
(d) The parties will cooperate to obtain advances of Expenses,
indemnification payments and consents from D&O Insurance carriers in any
Covered Matter to the full extent of applicable D&O Insurance. The
existence of D&O Insurance coverage will not diminish or limit Company's
obligation to make indemnification payments to Director. Amounts paid
directly to Director with respect to a Covered Matter by Company's D&O
Insurance carriers will be credited to the amounts payable by Company to
Director under this Agreement.
(e) To the extent Company maintains D&O Insurance applicable to
directors, Director shall be covered by such policies so as to provide to
Director the same rights and benefits as are provided to the most favorably
insured of the Company's directors.
10. LIMITATIONS OF ACTIONS. No action will be brought by or on behalf of
Company against Director or Director's heirs or personal representatives
relating to Director's service as a director, after the expiration of one year
from the date Director ceases (for any reason) to serve as a director of
Company, and any claim or cause of action of Company will be extinguished and
deemed released unless asserted by the filing of a legal action before the
expiration of such period.
11. RIGHTS NOT EXCLUSIVE. The indemnification provided to Director under
this Agreement will be in addition to any indemnification provided to Director
by any law, agreement, Board resolution, provision of the Articles of
Incorporation or Bylaws of Company or otherwise.
12. SUBROGATION. Upon payment of any Indemnified Amount under this
Agreement, Company will be subrogated to the extent of such payment to all of
Director's rights of recovery therefor and Director will take all reasonable
actions requested by Company (at no cost or penalty to Director) to secure
Company's rights under this section 12 including executing documents.
13. CONTINUATION OF INDEMNITY. All of Company's obligations under this
Agreement will continue as long as Director is subject to any actual or
possible Covered Matter, notwithstanding Director's termination of service as
a director.
A-6
<PAGE>
14. AMENDMENTS. Neither Company's Articles of Incorporation nor its Bylaws
will be changed to increase liability of directors or to limit Director's
indemnification. In the event of any change after the date of this Agreement
in any applicable law which expands the rights of a Colorado corporation to
indemnify a director, it is the intent of the parties hereto that Director
shall have the greater benefits afforded by such change. Any repeal or
modification of the relevant provisions of any applicable law will not in any
way diminish any of Director's rights or Company's obligations under this
Agreement. This Agreement cannot be amended except with the written consent of
Company and Director.
15. GOVERNING LAW. This Agreement will be governed by Colorado law.
16. SUCCESSORS.
(a) This Agreement will be binding upon and inure to the benefit of the
parties and their respective heirs and legal representatives and successors
and assigns.
(b) Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business or assets of the Company to assume all of Company's
obligations under this Agreement. Such assumption will not release Company
from its obligations under this Agreement.
(c) This Agreement will continue in effect regardless of whether Director
continues to serve as a director of the Company or of any other entity at
the Company's request.
17. SEVERABILITY. The provisions of this Agreement will be deemed severable,
and if any part of any provision is held illegal, void or invalid under
applicable law, such provision may be changed to the extent reasonably
necessary to make the provision, as so changed, legal, valid and binding. If
any provision of this Agreement is held illegal, void or invalid in its
entirety, the remaining provisions of this Agreement will not in any way be
affected or impaired but will remain binding in accordance with their terms.
18. NOTICES. All notices given under this Agreement will be in writing and
delivered either personally, by registered or certified mail (return receipt
requested, postage prepaid), by recognized overnight courier or by telecopy
(if promptly followed by a copy delivered personally, by registered or
certified mail or overnight courier), as follows:
If to Director:
----------------------
----------------------
----------------------
If to Company: Hathaway Corporation
8228 Park Meadows Drive
Littleton, Colorado 80124
Attention: President
or to such other address as either party furnishes to the other in writing.
19. INTERPRETATION OF AGREEMENT. The parties intend this Agreement to be
interpreted and enforced so as to provide indemnification and advancement of
expenses to Director to the fullest extent now or hereafter permitted by law.
20. DEFINITIONS.
(a) Terms used herein shall have the same meaning provided in Article
109, Title 7, Colorado Revised Statutes, and shall be interpreted in this
Agreement consistently with such Article.
(b) As used in this Agreement, the term "Subsidiary" means any
corporation in which Company owns a majority interest.
A-7
<PAGE>
In witness whereof, the parties have executed this Agreement on the date
written above.
Hathaway Corporation
By: _________________________________
Name: _______________________________
Its: ________________________________
_____________________________________
Name:
Director
A-8
<PAGE>
D&O INSURANCE SCHEDULE
<TABLE>
<CAPTION>
POLICY
POLICY DEDUCTIBLE/ EXPIRATION
COMPANY NO. AMOUNT CO-INSURANCE DATE
------- ------ ------ ------------ ----------
<S> <C> <C> <C> <C>
</TABLE>
A-9
<PAGE>
HATHAWAY CORPORATION
8228 PARK MEADOWS DRIVE
LITTLETON, COLORADO 80124
The undersigned hereby appoints Eugene E. Prince and Richard D. Smith, or
either of them, proxies of the undersigned, each with the power of
substitution, and hereby authorizes them to vote, as designated below, all the
shares of common stock, no par value, of the undersigned at the annual meeting
of shareholders of Hathaway Corporation (the "Company") to be held on October
22, 1998, and at all adjournments thereof, with respect to the following:
ITEM 1. ELECTION OF DIRECTORS--Nominees of the Board:
E.E. Prince, R.D. Smith, C.H. Clarridge, D.D. Hock, G.D. Hubbard, and G.J.
Pilmanis,
[_] FOR all nominees [_] WITHHOLD AUTHORITY
(except as indicated to to vote for all
the contrary below). nominees.
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
PRINT THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW. IF AUTHORITY TO VOTE
FOR NOMINEES IS NOT EXPRESSLY WITHHELD, IT SHALL BE DEEMED GRANTED.
----------------------------------------------------------------------------
(to be signed and dated on other side)
<PAGE>
(continued from other side)
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE APPROVAL OF INDEMNIFYING
DIRECTORS.
ITEM 2. APPROVAL OF INDEMNIFICATION AGREEMENTS WITH DIRECTORS
FOR [_] AGAINST [_] ABSTAIN [_]
SHARES WILL BE VOTED FOR THE PROPOSAL IF INSTRUCTIONS ARE NOT GIVEN.
ITEM 3. OTHER MATTERS--In the proxies discretion on such other business matters
as may properly come before the Annual Meeting.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY, and may be revoked prior to its exercise. This proxy, when properly
executed, will be voted as directed above by the undersigned shareholder. If no
direction is made, it will be voted FOR the nominees named in Item 1, FOR
approval of indemnification agreements with directors, in Item 2, and in the
proxies' discretion on such other business as may properly come before the
annual meeting.
..................................
By:...............................
Your signature should appear
exactly as your name appears in
the space at the left. For joint
accounts, all owners should sign.
When signing in a fiduciary or
representative capacity, please
give your full title as such.
Date: ....................... 1998
PLEASE SIGN AND RETURN THIS PROXY
IN THE ENCLOSED POSTAGE PAID
ENVELOPE AS PROMPTLY AS POSSIBLE.
