UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
-------------------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 1996
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-21820
-------------------------------------
KEY TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
Oregon 93-0822509
(State of Incorporation) (I.R.S. Employer Identification No.)
150 Avery Street, Walla Walla, Washington 93-0822509
(Address of principal executive offices) (Zip Code)
(509) 529-2161
(Registrant's telephone number, including area code)
---------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
The number of shares outstanding of the Registrant's common stock, no par
value, on July 31, 1996 was 4,654,885 shares.
<PAGE>
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial statements
Condensed consolidated balance sheets, June 30, 1996
(unaudited) and September 30,1995.......................... 3
Condensed unaudited consolidated statements of earnings
for the three months ended June 30, 1996 and 1995.......... 4
Condensed unaudited consolidated statements of earnings
for the nine months ended June 30, 1996 and 1995 .......... 5
Condensed unaudited consolidated statements of cash
flows for the nine months ended June 30, 1996 and 1995..... 6
Notes to condensed unaudited consolidated financial
statements................................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 11
SIGNATURES................................. ........................... 12
EXHIBIT INDEX.......................................................... 13
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995
- -------------------------------------------------------------------------------
June 30, September 30,
1996 1995
------------- -------------
(in thousands)
Assets
- --------------------------------------
Current assets:
Cash and cash equivalents $ 6,609 $ 5,323
Short-term investments 5,667 8,376
Trade accounts receivable, net 7,040 2,929
Inventories:
Raw materials 4,736 2,762
Work-in-process and sub-assemblies 6,310 3,615
Finished goods 1,694 2,412
------- -------
Total inventories 12,740 8,789
Other current assets 1,216 840
------- -------
Total current assets 33,272 26,257
Property, plant and equipment, net 5,087 4,096
Other assets 1,168 1,203
------- -------
Total $39,527 $31,556
======= =======
Liabilities and Shareholders' Equity
- --------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 8,033 $ 5,952
Customer deposits 4,783 1,107
Other current liabilities 536 415
------- -------
Total current liabilities 13,352 7,474
Long-term debt 541 825
Other long-term liabilities 443 497
Total shareholders' equity 25,191 22,760
------- -------
Total $39,527 $31,556
======= =======
See notes to condensed unaudited consolidated financial statements.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
- -------------------------------------------------------------------------------
1996 1995
------------- -------------
(in thousands,
except per share data)
Net sales $17,304 $14,355
Cost of sales 9,632 8,332
------- -------
Gross profit 7,672 6,023
Total operating expenses 3,870 3,501
------- -------
Income from operations 3,802 2,522
Other income 97 199
------- -------
Earnings before income taxes 3,899 2,721
Income tax expense (1,120) (933)
------- -------
Net earnings $ 2,779 $ 1,788
======= =======
Net earnings per share $ .60 $ .38
======= =======
Weighted average common and common equivalent
shares outstanding 4,653 4,638
======= =======
See notes to condensed unaudited consolidated financial statements.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995
- -------------------------------------------------------------------------------
1996 1995
------------- -------------
(in thousands,
except per share data)
Net sales $34,498 $32,596
Cost of sales 20,842 19,178
------- -------
Gross profit 13,656 13,418
Total operating expenses 10,803 10,072
------- -------
Income from operations 2,853 3,346
Other income 546 562
------- -------
Earnings before income taxes 3,399 3,908
Income tax expense (912) (1,344)
------- -------
Net earnings $ 2,487 $ 2,564
======= =======
Net earnings per share $ .54 $ .55
======= =======
Weighted average common and common equivalent
shares outstanding 4,651 4,638
======= =======
See notes to condensed unaudited consolidated financial statements.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995
- -------------------------------------------------------------------------------
1996 1995
------------ -------------
(in thousands)
Net cash provided by operating activities $ 694 $ 3,286
Cash flows from investing activities:
Proceeds from (purchases of)
short-term investments 2,709 (6,440)
Additions to property, plant and
equipment, net (1,740) (678)
------- -------
Net cash provided by (used in)
investing activities 969 (7,118)
------- -------
Cash flows from financing activities:
Repayments of long-term debt (437) (385)
Proceeds from issuance of common stock 60 3
------- -------
Net cash provided by (used in) financing (377) (382)
activities ------- -------
Net increase (decrease) in cash and cash equivalents 1,286 (4,214)
Cash and cash equivalents, beginning of the year 5,323 8,535
------- -------
Cash and cash equivalents, end of period $ 6,609 $ 4,321
======= =======
Supplemental information:
Cash paid during the period for interest $ 36 $ 53
Cash paid during the period for income taxes $ 253 $ 787
Equipment obtained through lease financing $ 274 $ -
See notes to condensed unaudited consolidated financial statements.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. Condensed unaudited consolidated financial statements
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted from these condensed unaudited consolidated financial
statements. These condensed unaudited consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Form 10-K for the fiscal year ended September 30, 1995. The
results of operations for the three- and nine-month periods ended June 30, 1996
are not necessarily indicative of the operating results for the full year.
In the opinion of management, all adjustments, consisting only of normal
recurring accruals, have been made to present fairly the Company's financial
position at June 30, 1996 and the results of its operations for the three- and
nine-month periods ended June 30, 1996 and 1995 and its cash flows for the
nine-month periods ended June 30, 1996 and 1995.
The balance sheet at September 30, 1995 has been condensed from the audited
balance sheet as of that date.
2. Income taxes
The provision for income taxes is based on the estimated effective income
tax rate for the year.
3. Earnings per share
Earnings per share are based on the weighted average number of common
shares outstanding during the period after adjusting for the dilutive effect of
outstanding stock options.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
Results of Operations
- ---------------------
For the three-month period ended June 30, 1996, net earnings were $2.8
million or $.60 per share on net sales of $17.3 million compared to net earnings
of $1.8 million or $.38 per share on net sales of $14.4 million for the
corresponding period in fiscal 1995. For the nine months ended June 30, 1996,
the Company's net earnings were $2.5 million or $.54 per share on net sales of
$34.5 million compared to net earnings of $2.6 million or $.55 per share on net
sales of $32.6 million for the corresponding period in fiscal 1995.
The increase in net sales of approximately $2.9 million or 20% in the more
recent three-month period resulted principally from increased sales of automated
inspection systems. The increased sales of automated inspection systems resulted
principally from significant deliveries of Tegra (Trademark) automated
inspection systems during the period. Tegra is the Company's newest generation
of automated inspection systems and was introduced first to the U.S. market
during the first quarter of fiscal 1996 and subsequently to the European market
during the most recent fiscal quarter. Initial deliveries of these systems began
late in the second quarter of fiscal 1996. During the third quarter, the
manufacturing process and component supply channels for these systems were
ramped up from lower production quantities to full production rates. Sales of
Tegra systems have essentially replaced the Company's third generation
Opti-Sort (registered trademark) and ColorSort (registered trademark) systems.
Sales to European customers during the third quarter decreased from the
corresponding quarter in 1995 due principally to a reduction in sales of earlier
generation automated inspection systems. Sales in the fiscal quarter ended June
30, 1996 to international markets other than Europe were moderately improved
over the corresponding prior period.
Backlog at the end of the most recent quarter was approximately $18.4
million, an increase of 136% compared to the backlog of $7.8 million at June 30,
1995. The increase in backlog over the prior period resulted from increased
orders, principally for the Company's Tegra automated inspection system, and
also for its specialized conveying system products. The Company believes that
its present manufacturing capability will permit timely delivery of its products
against these purchase orders. Moreover, the Company has undertaken to expand
its manufacturing capacity. See "Financial Condition" below. The Company
includes in backlog only those customer orders for which it has accepted
purchase orders. The Company schedules production based on firm customer
commitments and forecasted requirements.
Gross profit increased by $1.7 million or 28% to $7.7 million in the three
months ended June 30, 1996 compared to $6.0 million for the corresponding period
in fiscal 1995. A shift in product mix to higher margined systems, primarily
within the automated inspection system product line, was a principal
contributing factor to this increase in gross profit. Additionally, gross profit
contribution also benefited from improved margins on most other product lines.
Manufacturing overhead as a percentage of sales decreased as a result of the
increased sales volume during the quarter. Operating expenses were $3.9 million
compared to $3.5 million for the three-month periods ended June 30, 1996 and
1995, respectively. Operating expenses increased primarily due to an increase of
$230,000 in selling and marketing expense reflecting increased product promotion
expenses and increased commission expense resulting from the increased sales
levels between the corresponding periods. Increased general and administrative
expenses were due principally to increased employee payroll and recruitment
expenses, increased costs related to the Company's management information system
and expenses related to acquisition activities.
<PAGE>
Income tax expense for the three months ended June 30, 1996 benefited from
favorable revisions to estimates related to the Company's foreign operations and
the foreign sales corporation (FSC) tax benefit due to an increased level of
international sales thus far in the current fiscal year. For the fiscal quarter
ended June 30, 1996, the effective income tax expense rate was 29% as a result
of these favorable adjustments compared to 34% for the corresponding period in
fiscal 1995.
Net sales for the nine-month period ended June 30, 1996 increased 6% to
$34.5 million from $32.6 million in the corresponding period last year.
Increased sales of automated inspection systems, principally due to sales of
Tegra systems, was the primary contributor to the increase in net sales. This
increase was partially offset by decreased sales of both specialized conveying
systems and processing systems and increased discounts related to a higher level
of systems sold through international distributors.
For the nine months ended June 30, 1996, gross profit contribution
increased by $238,000 or 2% to $13.7 million from $13.4 million in the nine
months ended June 30, 1995. The increase in gross profit contribution was due
principally to increased sales volume of higher margin products. This increase
was partially offset by increased manufacturing variances related to the startup
of the production of Tegra systems and increased manufacturing overhead as a
percentage of sales in the first two quarters of the current fiscal year. Gross
profit decreased as a percentage of sales by 2% from the comparable period in
the previous fiscal year principally as a result of these factors.
Operating expenses, including research and development, sales and marketing
and general and administrative costs, increased by 7% to $10.8 million in the
nine-month period ended June 30, 1996 from $10.1 million in the comparable
period in the previous fiscal year. This increase was generally shared across
each of the three operating expense groups. Increased research and development
expenses reflected the effect of increased expenditures related to the Tegra
development. Increased selling and marketing expenses between the comparable
periods resulted principally from increased product promotion and travel
expenses. General and administrative expenses also increased as a result of
increased personnel expenses due to increased staffing, recruitment and travel
costs, increased charges to bad debt reserves and increased contract maintenance
expenses.
For the nine-month period ended June 30, 1996, other income was $546,000
compared to $562,000 for the corresponding period in fiscal 1995. Interest
income, net of interest expense, combined with a pre-tax gain of $150,000
resulting from the sale of the Company's Thermo-Flo (trademark) Steam Peeling
System product line in the first quarter of the current fiscal year, less
certain other miscellaneous expenses, were the primary sources of other income
for the nine-month period ended June 30, 1996.
<PAGE>
Net earnings for the nine months ended June 30, 1996 were $2.5 million
compared to net earnings of $2.6 million for the corresponding period in fiscal
1995. Net earnings were 7.2% and 7.9% of net sales in the two periods,
respectively.
Financial Condition
- -------------------
For the nine-month period ended June 30, 1996, net cash provided by
operating activities totaled $694,000. Working capital increased by $1.1 million
to $19.9 million during this period. The major factors affecting the increase in
working capital were increases in accounts receivable of $4.1 million and
inventory of $4.0 million and in other current assets of $376,000, offset by
increases in customer deposits of $3.7 million and accounts payable and accrued
liabilities of $2.1 million. The increases in accounts receivable, inventory,
customer deposits and accounts payable resulted from an increased volume of
sales and orders from customers. Additionally, net cash resources totaling
approximately $1.7 million were used to fund the acquisition of capital
equipment. The Company's operating activities, expenditures for capital
equipment and increases in inventory, accounts receivable and other current
assets, offset by the increase in customer deposits and accounts payable and
accrued liabilities, resulted in a $1.4 million decrease in cash and cash
equivalents and short-term investments. At the end of the period, the balance of
cash and cash equivalents totaled $6.6 million and short-term investments
totaled $5.7 million.
The Company has undertaken to expand its manufacturing capacity in
anticipation of future growth. Accordingly, it has entered into a ten-year lease
agreement with the Port of Walla Walla for an additional facility of
approximately 100,000 square feet in size. While it is currently utilizing this
new facility on a limited basis to fabricate certain of its product
subassemblies, the Company expects to begin full manufacturing operations in the
new facility during the first quarter of fiscal 1997. Prior to the end of that
period, the Company expects to commit resources totaling approximately $2.5
million for equipment and improvements related to this expansion of its
manufacturing capability.
Subsequent to June 30, 1996, the Company utilized cash resources totaling
approximately $3.3 million to complete the acquisition of the equity and retire
certain long-term debt of Suplusco Holding B.V. and its wholly-owned subsidiary
Superior B.V., both located in the Netherlands. Also subsequent to the end of
the period, the Company utilized cash resources totaling approximately $377,000
to acquire the I-300 Pharmaceutical Inspection Product Line from the Imaging
Division of Oncor, Inc.
The Company has a $4.0 million revolving line of credit with a domestic
bank. At June 30, 1996 there were no outstanding borrowings under the line of
credit.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
- -------------------------------------------------------------------------------
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(10.1) Lease Agreement dated April 18, 1996 between the Port of Walla
Walla and Registrant.
(b) Report on Form 8-K
No Current Reports on Form 8-K were filed during the three months
ended June 30, 1996.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
SIGNATURES
- -------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements 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.
KEY TECHNOLOGY, INC.
(Registrant)
Date: August 7, 1996 /s/Thomas C. Madsen
---------------------------------------
Thomas C. Madsen,
President and Chief Executive Officer
Date: August 7, 1996 /s/Steven D. Evans
---------------------------------------
Steven D. Evans,
Vice President of Finance and
Administration and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED JUNE 30, 1996
- -------------------------------------------------------------------------------
EXHIBIT INDEX
Exhibit Page
- ------- ----
10.1 Lease Agreement dated April 18, 1996 between the
Port of Walla Walla and Registrant.......................... 14
LEASE AGREEMENT
This Lease agreement, made and entered into this 18th day of April, 1996,
by and between PORT OF WALLA WALLA, a municipal corporation of the State of
Washington (hereinafter referred to as "Lessor"), and KEY TECHNOLOGY, INC., a
Washington corporation (hereinafter referred to as "Lessee"),
WITNESSETH:
1. Leased Premises.
---------------
The Lessor hereby leases to the Lessee and the Lessee hereby leases from
the Lessor the real property and buildings, and all appurtenances thereto,
within the black bordered area and as described on attached Exhibit A, all of
the same being herein referred to as the "premises".
2. Term.
----
This Lease shall be for a term of 10 years, commencing at 12:01 a.m. on
January 1, 1996. Lessee shall have the option of renewal of this Lease at the
termination hereof, for a further term of five years commencing immediately upon
expiration of the original term of this Lease, which renewal term shall be upon
the same conditions as herein expressed, except the rental for said renewal term
which shall be set forth in Section 3 below for years 11 through 15. IN the
event Lessee desires to renew the Lease, the Lessee shall give written notice of
its intention to renew at least 180 days prior to the termination of the
original lease period.
3. Rent.
----
A. Lessee agrees to pay as rental for the leased premises a monthly rental
as follows:
Year 1 - $10,000 per month Year 11 - $22,000 per month
Year 2 - $10,000 per month Year 12 - $22,000 per month
Year 3 - $12,000 per month Year 13 - $24,000 per month
Year 4 - $12,000 per month Year 14 - $24,000 per month
Year 5 - $13,000 per month Year 15 - $26,000 per month
Year 6 - $13,000 per month
Year 7 - $14,000 per month
Year 8 - $16,000 per month
Year 9 - $18,000 per month
Year 10- $20,000 per month
<PAGE>
B. As part of this Lease agreement, Lessee has agreed to create 50 new jobs
within 3 years of occupancy with wage levels averaging no lower than $25,000 per
year per employee at the above referenced premises. At the end of the 3rd year
of this Lease agreement, Lessee shall certify to the Lessor in writing that such
employment levels and wage rates have been reached. In the event such levels
have not been reached, and/or drop below such levels during the remainder of
the lease term, Lessee shall pay a rent surcharge of $1,000 per month for each
and every month levels are not reached and/or maintained.
C. Lease payments shall be due and payable monthly in advance on the first
day of each month. Payments postmarked or delivered ten days after the due date
may, at the option of Lessor, be subject to late payment charges of 1 percent of
the rental arrearage and 1 percent per month thereafter, until paid.
4. Bond Or Other Security.
----------------------
A. The Lessee shall, upon the effective date of this lease, file with the
Lessor a letter of credit issued by a recognized national banking association in
an amount equal to the current fiscal year's rental required hereunder, or such
other form of security as may be acceptable to Lessor and as is sufficient to
satisfy any applicable requirements of the laws of the State of Washington with
respect to securing performance by Lessee hereunder. The form of security
provided by the Lessee is referred as the "Bond" for purposes of this lease. The
amount of the Bond shall be based upon the rents payable hereunder during the
then current fiscal year and shall be maintained throughout the term of the
lease. If the Bond is not maintained as required hereunder, Lessee shall be
considered in default hereunder, and subject to Lessor's rights under Section 17
below.
B. Until such time as Lessee furnishes the Bond in accordance with the
provisions of subsection A above and in the event Lessee at any time or times
during the stated terms of this lease shall cease to be in compliance with the
provisions of this Section 4, the Lessor, at its sole option, may elect to
exercise any or all of its rights under Section 17 below. Pending Lessee's cure
of its default or the effective date of any termination for default so elected
by the Lessor, Lessee shall pay rent and all other sums owing to the Lessor
under this lease.
5. Use of Premises.
---------------
Lessee shall use the premises for manufacturing, warehousing or
distribution of equipment and other supplies used in connection with the
Lessee's business, or such other business which is consistent with the
improvements on said premises, and in conformance with all zoning, building and
use ordinances or other statutes or ordinances affecting said premises. Lessee
shall use the premises for the conduct of said business in a first class manner
continuously during the entire term of this Lease, with the exception of
<PAGE>
temporary closures for such period as may reasonably be necessary for repairs or
redecorating or for reasons beyond Lessee's reasonable control. Lessee agrees
that it will not disturb the Lessor or any other tenant of the Lessor by making
or permitting any unreasonable disturbance or any unusual noise, vibration or
other condition on or in the premises. The Lessor understands that the Lessee is
a manufacturer and that the resulting noise from manufacturing operations and
related truck traffic to and from the property are permitted uses under this
Lease.
6. Utilities.
---------
The Lessee shall be liable for and shall pay throughout the term of this
Lease Agreement all charges for all utilities services furnished to the
premises, including, but not limited to, light, heat, electricity, gas, water,
telephone, communications, sewerage and garbage/waste disposal services.
7. Acceptance of Premises.
----------------------
The Lessee has heretofore thoroughly inspected the buildings and
improvements ("premises"). The Lessee accepts said premises "As Is" and the
Lessor makes no warranty, expressed or implied, regarding the condition thereof,
including, without limitation any warranty of habitability, merchantability or
fitness for particular use; provided, that the Lessor shall remove the blue dust
collection/woodchip collection structure and system, including the underground
conveyor system, at its sole cost, on or before June 30, 1996. And provided
further, that the Lessor shall upgrade (if needed) the existing fire suppression
system to meet the applicable fire codes.
8. Maintenance and Repair.
----------------------
At the expiration or sooner termination of this Lease, Lessee shall return
the premises to the Lessor in the same condition in which received (or if
altered by Lessee with the Lessor's consent, then the premises shall be returned
in such altered condition), reasonable wear and tear and compensated damages by
fire or other unavoidable casualty excepted. Lessee shall, at its own expense,
at all times, keep the premises and the adjoining platforms, grounds, parking
areas, roadways and tracts, if any, neat, clean, free from weeds and in a safe
and sanitary condition and shall maintain and keep the leased premises in good
state of repair and shall commit no waste of any kind and shall keep the
electrical, mechanical and structural systems, all pipes and drains, if any,
clean and in good state of repair. Lessor shall be responsible for all
maintenance and necessary repairs to the roof, the weatherproof membrane, the
foundation, the flooring, the bearing columns, and the bearing walls and other
exterior walls of the demised premises to such extent that it may be necessary
to maintain the structural soundness of the building, provided that if such
repairs are required due to modifications to or alterations of same by Lessee
the cost thereof shall be solely borne by the Lessee. To the extent that the
Lessor is required to make any such repairs, the premises shall be repaired with
<PAGE>
due diligence and in the meantime the monthly rent shall be abated in the same
proportion that the untenable portion of the premises bears to the whole
thereof, for the period from the occurrence of the damage to the completion of
the repairs. Lessee shall be responsible for all other maintenance of, and
necessary repairs to, the premises. The maintenance and repair requirements of
the Lessee shall be in full force and effect whether the repairs required may be
the result of the negligence of the Lessee or its agents, employees, invitees or
licensees or from any other cause, except that if the Lessor shall cause such
repairs to be necessary by any act upon the part of the Lessor, then such act
shall excuse the Lessee. Lessee shall not permit or suffer any undue
accumulation of waste material on the premises nor dispose of any waste material
on any property owned by the Lessor.
9. Alterations and Improvements.
----------------------------
Lessee shall make no alterations or improvements to or upon the premises
or install any fixtures (other than trade fixtures which can be removed without
injury to the premises), without first obtaining written approval from the
Lessor, which approval shall not be unreasonably withheld and subject to any and
all conditions in such approval. In the event any alterations or improvements
shall be made or fixtures (other than improvements and trade fixtures, including
without limitation overhead cranes, sandblast booths, boilers, metal working
machinery, and laboratory fixtures, which can be removed without injury to the
premises) installed by Lessee, they shall at the termination of the Lease become
a part of the realty and become the property of the Lessor subject, however, to
the provisions of Section 32 herein. All moveable furniture, trade fixtures and
equipment, as above described, brought onto the premises by Lessee, and which
are removable without injury to the premises, should at all times remain the
property of Lessee, who may remove the same upon termination of the lease.
10. Inspection.
----------
The Lessor or his/her designated agents reserves the right to inspect the
premises at any and all reasonable times throughout the term of this Lease;
provided, that any inspection by the Lessor of the premises after occupancy by
the Lessee shall require reasonable advance notice from the Lessor, shall be
made only during normal business hours, and shall not interfere unduly with
Lessee's operations. Lessor may not take photographs of the premises showing
equipment without Lessee's prior written approval. Furthermore, the Lessor shall
do its utmost to protect the proprietary rights of the Lessee.
The right of inspection reserved to the Lessor hereunder shall impose no
obligation on the Lessor to make inspections to ascertain the condition of the
premises, and shall impose no liability upon the Lessor for failure to make such
inspections.
<PAGE>
11. Damage or Destruction of Facilities.
-----------------------------------
A. Should the premises or the buildings or structures of which the premises
are a part be partially damaged by fire or other casualty, or rendered partially
unfit for use by reason of fire or other casualty, the premises shall be
repaired with due diligence by the Lessor, and in the meantime, the monthly rent
shall be abated in the same proportion that the untenable portion of the
premises bears to the whole thereof, for the period from the occurrence of the
damage to the completion of the repairs.
B. Should the premises or the buildings or structures of which the premises
are a part be completely destroyed by fire or other casualty or should they be
damaged to such an extent that the premises are rendered wholly unfit for their
customary use, the Lessor shall have the option to terminate this Lease on 30
days' notice, effective as of any date not more than 60 days after the
occurrence. In the event that this subsection shall become applicable, the
Lessor shall advise Lessee within 30 days after the happening of any such damage
whether the Lessor has elected to continue the Lease in effect or terminate it.
If the Lessor shall elect to continue this Lease in effect, it shall commence
and prosecute with due diligence any work necessary to restore or repair the
premises. If the Lessor shall fail to notify Lessee of its election within said
30-day period, the Lessor shall be deemed to have elected to continue this
Lease. For the period from the occurrence of any damage to the premises to the
date of completion of the repairs to the premises (or to the date of termination
of the Lease if the Lessor and the Lessee shall elect not to restore the
premises) the monthly rent shall be abated in the same proportion as the
untenable portion of the premises bears to the whole thereof. Any other
provision of this paragraph notwithstanding, if Lessor elects not to rebuild
and to terminate this Lease, it shall first offer to Lessee to make available
for the sole purpose of reconstructing the premises all insurance proceeds
received or otherwise available to Lessor or Lessee as a result of such casualty
unless such offer shall be in violation of applicable Washington state law. If
within 30 days of the date of such notice, Lessee advises that it desires to
reconstruct the premises and continue the Lease, all available insurance
proceeds shall be made available for the purpose and any additional cost shall
be borne by the Lessee unless the Lessor in its discretion determines upon
request of the Lessee to pay for such costs and add such amounts to the rental
calculation. The ownership of the reconstructed or repaired improvements shall
remain solely that of the Lessor subject to any right of Lessee otherwise set
forth herein.
12. Fire and Casualty Insurance.
---------------------------
Lessee agrees to insure the improvements on said property for loss or
damage by fire with extended coverage endorsement, including boiler coverage, in
an amount equal to the full replacement cost thereof, with loss payable to the
Lessor to the extent of its interest. In the event the Lessee determines to
continue the lease after destruction of the property, in whole or in part, the
insurance proceeds realized from the insurance policy allocable to the building
and premises will be required to be used in rebuilding and/or repairing the
damaged premises. Lessee agrees to provide Lessor each year evidence of having
<PAGE>
valid insurance for the ensuing year and without lapse during the full term of
this Lease.
Lessee further agrees to provide Loss of Rental Income insurance coverage
for the period that the property is being repaired due to fire or other casualty
on said property, with loss payable to the Lessor in an amount equal to the
required lease payments. No such insurance will be allowed to lapse.
13. Indemnification/Liability Insurance.
-----------------------------------
The Lessor, its employees and agents, shall not be liable for any injury
(including death) to any persons or for damage to any property regardless of how
such injury or damage be caused, sustained or alleged to have been sustained by
Lessee or by others as a result of any condition (including existing or future
defects in the premises), or occurrence whatsoever related in any way to the
premises and the areas adjacent thereto or related in any way to Lessee's use or
occupancy of the premises and of the areas adjacent thereto. Lessee agrees to
defend and to hold and save the Lessor harmless from all liability or expenses
(including expense of litigation) in connection with any such items of actual or
alleged injury or damage except for occurrences of injury or damage resulting
from willful malfeasance or gross negligence on the part of the Lessor or its
employees. In addition, Lessee shall at its own expense, maintain proper
liability insurance with a reputable insurance company or companies satisfactory
to Lessor in the minimum limits of $1 million (per person) and $5 million (per
accident or occurrence) for bodily injuries and death, and in the minimum limit
of $1 million (per accident) for property damage, and hereafter in such
increased amounts as the parties may from time to time mutually agree upon, to
indemnify both the Lessor and Lessee against any such liability or expense. The
Lessor shall be named as an additional insured and shall be furnished with
appropriate evidence to establish (1) that Lessee's insurance obligations as
herein provided have been met, and (2) that the insurance policy or policies as
herein required are not subject to cancellation without at least 30 days'
advance written notice to Lessor. Lessee shall furnish to Lessor from time to
time evidence of renewal or insurance as required.
14. Leasehold and Other Taxes: Assessments.
--------------------------------------
Lessee shall be liable for, and shall pay throughout the term of this
Lease, all license and excise fees and occupation taxes covering the business
conducted by Lessee on the premises and all taxes on personal property of Lessee
maintained on the premises, and any taxes on the leasehold interest created by
this Lease or measured by the rent payments hereunder pursuant to Section 3A
above, whether imposed on Lessee or on the Lessor. The rents payable hereunder
to the Lessor shall include such leasehold tax and Lessor shall make payment
thereof to the State of Washington in accordance with said tax as from time to
time assessed. Lessee shall further be liable for any other tax or assessment
<PAGE>
applicable to the premises, including any tax or assessment imposed after the
effective date of this Lease by any local authority or improvement district. Any
tax amounts for which Lessor is or will be entitled to be reimbursed by Lessee
shall be payable by Lessee to Lessor at least FIFTEEN (15) days prior to the due
dates of the respective amounts involved; provided, the Lessee shall be entitled
to a minimum of TEN (10) days written notice of the amounts payable by it. The
Lessor, however, agrees to be solely responsible for any and all costs
associated with the 1996 Alder-Tausick Way-Airport Road street development
project.
15. Compliance with Regulations and with all Laws.
---------------------------------------------
Lessee agrees to comply with all applicable federal, state and municipal
laws, ordinances and regulations, including without limitation those relating to
environmental matters. Any fees for any inspection of the premises during the
lease term by any federal, state or municipal officer shall be paid by Lessee.
16. Assignment or Sublease.
----------------------
Lessee shall not assign or transfer this Lease or any interest therein nor
sublet the whole or any part of the premises, nor shall this Agreement or any
interest thereunder be assignable or transferable by operation of laws or by any
process or proceeding in any court, or otherwise, without the written consent of
the Lessor, which consent shall not be unreasonably withheld. If the Lessor
shall give its consent to any assignment or sublease, this section shall
nevertheless continue in full force and effect and no further assignment or
sublease shall be made without the Lessor's consent.
17. Defaults.
--------
Time is of the essence of this Agreement. Lessee shall pay interest monthly
at the rate of 12 percent per anum on all sums owing to Lessor under this Lease,
commencing 30 days after the date each sum is due and payable. In the event of
the failure of Lessee to pay the rents, interest and any and all other charges
provided for in this Lease at the time and in the manner herein specified, or to
keep any of the covenants or agreements herein set forth to be kept and
performed, including without limitation the provision of Section 4 relating to
the Bond which must be furnished by Lessee and maintained through the term of
the Lease, the Lessor may elect to terminate this Lease and re-enter and take
possession of the premises with or without process of law; provided, however,
that Lessee shall be given 30 days' notice in writing stating the nature of the
default in order to merit such default to be remedied by Lessee within said
30-day period. If the default at issue is of such nature as to not be possible
to remedy within said 30-day period, then Lessee shall be required to only have
diligently initiated a cure of default within such period and to diligently
pursue the cure thereof the completion. Payment by Lessee to Lessor of interest
on rents and/or other charges due and owing under this Lease shall not cure or
excuse Lessee's default in connection with such rents and/or charges. Interest,
<PAGE>
default and all other remedies of the Lessor hereunder are cumulative and not
alternative. If upon such re-entry there remains any personal property of Lessee
or of any other person upon the premises, the Lessor may, but without the
obligations so to do, remove said personal property and hold it for the owners
hereof or may place the same in a public garage or warehouse, all at the expense
and risk of the owners thereof, and Lessee shall reimburse Lessor for any
expense incurred by Lessor in connection with removal and storage. The Lessor
shall have the right to sell such stored property without notice to Lessee,
after it has been stored for a period of 30 days or more, the proceeds of such
sale to be applied first to the cost of such sale, second to the payment of the
charges for storage, and third to the payment of any other amounts which may
then be due from Lessee to Lessor, and the balance, if any, shall be paid to
Lessee. Notwithstanding any such re-entry, the liability of Lessee for the full
rents and interests provided for herein shall not be extinguished for the
balance of the term of this lease, and Lessee shall make good to Lessor any
deficiency arising from a re-letting of the premises at a lesser rental than
that herein agreed upon. Lessee shall pay such deficiency each month as the
amount thereof is ascertained by Lessor.
18. Data Required of Lessee.
-----------------------
If the Lessee is late in making any Lease payment required hereunder, the
Lessor shall provide written notice to Lessee as provided in Section 17 of the
Lease, unless such Lease payment is thereafter brought current within 30 days of
the date of notice, the Lessee shall thereafter supply any and all data
requested by Lessor which pertains to Lessee's operations on the premises. The
data to be provided shall be all publicly available information and such other
information as the parties may mutually agree; provided, that this "publicly
available" exception shall not apply to the employment level data and wage rate
information to be provided by Lessee to Lessor as called for in Section 3(B)
above.
19. Termination Because of Court Decree.
-----------------------------------
In the event that any court having jurisdiction in the matter shall render
a decision which has become final and which will prevent the performance by
Lessor of any of its obligations under this Lease, then either party hereto may
terminate this Lease by written notice, and all rights and obligations hereunder
(with the exception of any undischarged rights and obligations that occurred
prior to the effective date of termination) shall thereupon terminate. If Lessee
is not in default under any of the provisions of this Lease on the effective
date of such termination, any rent prepaid by Lessee shall, to the extent
allocable to any period subsequent to the effective date of the termination, be
promptly refunded to Lessee.
<PAGE>
20. Signs.
-----
No signs or other advertising matter, symbols, canopies or awnings shall be
attached to or painted on or within the premises, including the windows and
doors thereof, which would not be in compliance with applicable ordinances. Any
signs placed on the premises by Lessor shall be with Lessee's express written
consent. At the termination or sooner expiration of this lease, all such signs,
advertising matter, symbols, canopies or awnings attached to or painted by
Lessee shall be removed by Lessee at its own expense, and Lessee shall repair
any damage or injury to the premises and correct any unsightly condition caused
by the maintenance and removal of said signs.
21. Insolvency.
----------
If lessee shall file a petition in bankruptcy, or if Lessee shall be
adjudged bankrupt or insolvent by any court, or if a receiver of the property of
Lessee shall be appointed in any proceeding brought by or against Lessee, or if
Lessee shall make an assignment for the benefit of creditors or if any
proceeding shall be commenced to foreclose any mortgage or any other lien on
Lessee's interest in the premises or on any personal property kept or maintained
on the premises by Lessee, Lessor may, at its option, declare this Lease in
default and terminate the same in accordance with Section 17.
22. Nonwaiver.
---------
The acceptance of rent by Lessor for any period or periods after a default
by Lessee hereunder shall not be deemed a waiver of such default unless Lessor
shall so intend and shall so advise Lessee in writing. No waiver by Lessor of
any default hereunder by Lessee shall be construed to be or act as a waiver of
any subsequent default by Lessee. After any default shall have been timely cured
by Lessee, it shall not thereafter be used by Lessor as a ground for the
commencement of any action under the provisions of Section 17 hereof.
23. Dispute Resolution.
------------------
This Lease Agreement is made with reference to and shall be construed in
accordance with the laws of the State of Washington. All questions relative to
execution, validity, interpretation of performance of this Agreement, shall be
governed by the laws of the State of Washington. If dispute arises under this
Agreement, resort shall be to litigation, and jurisdiction and venue shall be in
the superior Court of Walla Walla County, State of Washington. Jurisdiction and
venue as set forth shall be exclusive. In the event the dispute(s) is referred
to counsel or legal action is taken, declaratory or otherwise, or any dispute
arising out of or relating to this Agreement, the prevailing party shall be
entitled to recovery of all costs including the actual attorney fees which costs
shall be determined and taxed by the trial and appellate courts, as applicable,
as part of the cost of such actions.
<PAGE>
24. Holding Over.
------------
If Lessee shall, with the consent of Lessor, hold over after the expiration
or sooner termination of the term of this Lease, the resulting tenancy shall,
unless otherwise mutually agreed, be for an indefinite period of time on a
month-to-month basis. During such month-to-month tenancy, Lessee shall pay to
Lessor the same rate of rent as set forth herein, unless a different rate shall
be agree upon, and shall be bound by all of the additional provisions of this
Lease insofar as they may be pertinent.
25. Advances by Lessor for Lessee.
-----------------------------
If Lessee shall fail to do anything required to be done by it under the
terms of this Lease, except to pay rent, Lessor may, at its sole option, do such
act or thing on behalf of Lessee following 30 days' notice to Lessee of its
intention so to do, and upon notification to Lessee of the cost thereof to
Lessor, Lessee shall promptly pay Lessor the amount of that cost.
26. Liens and Encumbrances.
----------------------
Lessee shall keep the premises free and clear of any liens and encumbrances
arising or growing out of the use and occupancy of the said premises by Lessee.
At Lessor's request Lessee shall furnish Lessor with written proof of payment of
any item which would or might constitute the basis for such a lien on the
premises if not paid or in the alternative, supply written proof that validity
of the lien is being diligently contested. If a court of competent jurisdiction
finally determines the lien to be valid, Lessee shall promptly pay the same or
shall be in default hereunder.
27. Notices.
-------
All notices and payments hereunder may be delivered or mailed. If mailed,
they shall be sent to the following respective addresses:
To Lessor: Port of Walla Walla
P.O. Box 1077
Walla Walla, WA 99362
To Lessee: Key Technology, Inc.
150 Avery
Walla Walla, WA 99362
or to such other respective address as either party hereto may hereafter from
time to time designate in writing. Notices and payments sent by certified or
<PAGE>
registered mail and subsequently received by Lessor shall be deemed to have been
give when and if properly mailed, and the postmark affixed shall be conclusive
evidence of the date of mailing.
28. Invalidity of Particular Provisions.
-----------------------------------
If any term or provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Lease or the application of such term or provision to persons
or circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby and shall continue in full force and
effect.
29. Nondiscrimination/Services.
--------------------------
A. Lessee agrees that it will not discriminate by segregation or otherwise
against any person or persons because of race, sex, age, creed, color or
national origin in furnishing, or by refusing to furnish to such person or
persons, the use of the facility herein provided, including any and all
services, privileges, accommodations and activities provided thereby.
B. It is agreed that Lessee's continued noncompliance with the provisions
of this clause after written notice and passage of a reasonable time to comply
shall constitute a material breach of this Lease. In the event of such
noncompliance, Lessor may take appropriate action to enforce compliance, may
terminate this lease, or may pursue such other remedies as may be provided by
law.
30. Nondiscrimination/Employment.
----------------------------
Lessee covenants and agrees that in all matters pertaining to the
performance of this Lease, Lessee shall at all times conduct its business in a
manner which assures fair, equal and nondiscriminatory treatment of all persons
without respect to race, sex, age, color, creed or national origin and, in
particular:
A. Lessee will maintain open hiring and employment practices and will
welcome applications for employment in all positions from qualified individuals
who are members of racial or other minorities.
B. Lessee will comply strictly with all requirements of applicable federal,
state and local laws or regulations issued pursuant thereto relating to the
establishment of nondiscriminatory requirements in hiring and employment
practices and assuring the service of all patrons or customers without
discrimination as to any person's race, sex, age, creed, color or national
origin.
C. It is agreed that Lessee's continued noncompliance with the provisions
of this clause after written notice and passage of a reasonable time to comply
<PAGE>
shall constitute a material breach of this Lease. In the event of such
noncompliance, Lessor may take appropriate action to enforce compliance, may
terminate this Lease, or may pursue such other remedies as may be provided by
law.
31. Labor Unrest.
------------
Subject to Lessee's right to respond in any lawful manner to any labor
unrest initiated by a third party, Lessee agrees to join with Lessor and use its
best efforts in avoiding labor unrest, or in the event of a wild-cat strike or
other labor difficulty, to use its best efforts in negotiating and bringing to a
swift and satisfactory conclusion any kind of labor dispute that may affect the
interest of the Lessor.
32. Rights of Lessee in Improvements Constructed by Lessee.
------------------------------------------------------
Upon termination of this Lease, either by forfeiture, expiration, or any
other means, the Lessee shall have the option to:
A. Providing that all rentals shall have been fully paid, Lessee may remove
all buildings, fixtures, structures and erections placed upon said premises by
Lessee other than alterations or additions to Lessor-owned improvements not
readily removable without damage thereto. Lessee shall leave said premises and
every part thereof, in the same condition in which they were at the time of the
completion of construction of the improvements to be made pursuant to this
Lease, free and clear of all debris, hazardous waste, pollutants and obstruction
of any kind; or
B. Abandon said premises, together with all buildings, fixtures,
structures, and erections of every kind and character placed thereon by Lessee,
in which event all of said buildings, fixtures, structures, erections and
improvements shall automatically become the absolute property of the Lessor
without further claim thereto or right thereon on the part of the Lessee. If the
Lessee shall elect to remove structures, fixtures, buildings and improvements
upon said premises, or any part thereof, the same shall be totally and finally
removed from said premises within 90 days from the expiration or prior
termination of this lease, and if not so removed within said 90 days, then any
such structure, fixtures, erection or improvements remaining on said premises
shall automatically become the absolute property of the Lessor.
33. Hazardous Waste and Pollutant Indemnification.
---------------------------------------------
A. The Phase I Environmental Site Assessment prepared by Northwest
Environcon, Inc. referred to in Paragraph B below is attached as Exhibit B to
this Lease. Lessor is expressly responsible for all environmental issues
identified in such report. The Lessee shall indemnify and hold harmless Lessor
and its consultants, agents and employees from and against all claims, damages,
losses and expenses, fees and charges of attorneys and court costs, arising out
<PAGE>
of or resulting from hazardous waste or pollutants being created, stored or
discharged on the premises during Lessee's occupancy of the premises.
This indemnification provision extends to claims against the Lessor which
arise out of, are related to, or are based upon the dispersal, discharge,
escape, release or saturation of smoke, vapors, soot, fumes, acids, alkali,
toxic chemicals, liquids, gases or any other material, irritant, contaminant or
pollutant in or into the atmosphere, or on, onto, upon, in or into the surface
or atmosphere, or on, onto, upon, in or into the surface or subsurface (a) soil,
(b) water or water course, (c) objects, or (d) any tangible or intangible
matter, whether sudden or not.
B. Lessor does not know of any environmental problems associated with the
premises which are not disclosed in the Phase I Environmental Site Assessment
prepared by Northwest Environcon, Inc. The Lessor hereby warrants that at the
time the Lessee takes possession of the premises, the premises shall be free and
clear of any and all hazardous waste and pollutants. The Lessor shall indemnify
and hold harmless the Lessee and its consultants, agents and employees from and
against all claims, damages, losses and expenses, fees and charges of attorneys
and court costs, arising out of or resulting from the creation, storage,
discharge, placement or location of hazardous waste or pollutants on the
premises prior to the time Lessee takes possession thereof.
C. Should the Lessee leave or otherwise vacate the premises, the Lessee
shall certify to the Lessor in writing that said premises are free and clear of
any and all hazardous waste and pollutants created, stored or discharged during
the Lessee's occupancy of the premises.
34. Easements.
---------
A. The parties recognize that Lessor's facilities are continuously being
modified to improve the utilities, services and premises used and provided by
Lessor. Lessor, or its agents, shall have the right to enter the premises of
Lessee, outside the Building lines and to cross over, construct, move,
reconstruct, rearrange, alter, maintain, repair and operate the sewer, water and
drainage lines, and the electrical service, and all other services and
facilities required by Lessor for its use. Lessor is hereby granted a continuous
easement or easements that it believes are necessary within the premises of
Lessee, without any additional cost to Lessor for the purposes expressed
hereinabove. Provided, however, that Lessor by virtue of such use, does not
substantially deprive Lessee of its beneficial use or occupancy of its leased
area (except for the minimum disruption of access or utilities necessary to
accomplish Lessor's objective) for an unreasonable period of time without
consent of Lessee and provided that Lessor shall promptly restore the premises
and leasehold improvements situated thereon to their previously existing
condition following completion of its activities upon the property.
<PAGE>
B. In the event that Lessor permanently deprives Lessee of beneficial use
or occupancy of a portion of its premises, then an equitable adjustment in rent
shall be made by Lessor. In the event that entry by Lessor is temporary in
nature, then Lessor shall reimburse Lessee for the cost required to modify its
premises for the temporary period that Lessee is inconvenienced by such Lessor
entry. Lessor will not be responsible to Lessee for any reduced efficiency or
loss of business occasioned by such entry.
35. Quiet Enjoyment.
---------------
Upon due performance of the covenants and agreements to be performed by
Lessee under this Lease, Lessor covenants that Lessee shall and may at all times
peaceably and quietly have, hold and enjoy the premises during the term of this
Lease.
36. Option to Purchase.
------------------
Commencing January 1, 2002, and for the remainder of the lease period, the
Lessee shall have the right to purchase all of the real property and
improvements described on attached Exhibit C in its entirety. The purchase price
shall be determined by an MAI appraisal, the appraiser to be mutually agreed
upon by the Lessor and Lessee. The cost of the appraisal shall be shared equally
by both parties. If either party disagrees with the MAI appraisal, an MAI peer
review appraisal shall be conducted. The peer review appraiser to be mutually
agreed upon by the Lessor and Lessee. The cost of the peer review appraisal
shall be equally shared by both parties. The average by the two appraisals shall
establish the sale price.
In case of sale, the Lessor agrees to furnish Lessee a merchantable title,
free of all encumbrances, except those created by Lessee. The conveyance shall
be by Statutory Warranty Deed.
In the event Lessee desires to exercise its option to purchase, Lessee
shall provide to Lessor written notice of its intention to purchase, and the
parties shall thereafter have 120 days from the date of the MAI appraisal and/or
peer review MAI appraisal to close the transaction. Such sale shall be subject
to and conditioned upon compliance by the Lessor with all applicable laws, rules
and regulations pertaining to the Lessor as a municipal Corporation of the State
of Washington.
37. Miscellaneous.
-------------
A. During the first year of Lessee's occupancy of the premises, the Lessor
shall be responsible at its costs to replace the existing boiler with a boiler
suitable for Lessee's operations to be conducted from the premises, which boiler
shall be approved in advance by Lessee; provided, that Lessor's total
investment, including installation, shall not exceed $45,000.00, with Lessee
being responsible for any costs incurred over said amount. Maintenance of the
<PAGE>
new boiler when installed and operating shall be the responsibility of the
Lessee.
B. Lessee shall utilize the fenced storage yard east of the main
manufacturing building in such a manner as to not block the required line of
sight distance needed for the safe passage of cars, trucks and buses crossing
the railroad tracks on the Airport Road.
38. Entire Agreement/Amendments.
---------------------------
Prior to signing this Lease, the parties modified printed paragraphs(s)
xxxxx, deleted printed paragraph(s) xxxxx, added typewritten paragraph(s) xxxxx
set forth on the attached Addendum to this Lease which is incorporated herein
and made a part hereof by this reference, and added attached Exhibits xxxx. This
printed Lease, together with any attached Addendum incorporated by the preceding
sentence and any and all exhibits expressly incorporated herein by reference and
attached hereto shall constitute the whole agreement between the parties. There
are no terms, obligations, covenants or conditions other than those contained
herein. No modifications or amendment of this Agreement shall be valid or
effective unless evidenced by an agreement in writing signed by both parties.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement the day
and year first above written.
Lessor PORT OF WALLA WALLA, a municipal corporation
By:/s/James M. Kuntz
------------------------------------------
James M. Kuntz, Manager
Lessee KEY TECHNOLOGY, INC.
By:/s/Thomas C. Madsen
------------------------------------------
Thomas C. Madsen, President and
Chief Executive Officer
<PAGE>
STATE OF WASHINGTON )
)ss.
County of Walla Walla )
NOW ALL MEN BY THESE PRESENTS that James M. Kuntz appeared before me this
29th day of April, 1996, and stated and acknowledged that he is the Manager of
the Port of Walla Walla, and he was duly authorized to and did execute the
foregoing Lease Agreement for and on behalf of said municipal corporation as its
free and voluntary act and deed and within the scope of its municipal corporate
powers.
GIVEN under my hand and official seal this 29th day of April, 1996.
/s/Becky Kay Hulse
---------------------------------------
Notary Public in and for the State of
Washington, residing at Walla Walla
STATE OF WASHINGTON )
)ss.
County of Walla Walla )
On this 18th day of April, 1996, before me, the undersigned Notary Public
in and for the State of Washington, duly commissioned and sworn, personally
appeared Thomas C. Madsen, to me known to be the President and Chief Executive
Officer of the corporation that executed the foregoing Lease Agreement, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned, and on oath
stated that he is authorized to execute the said instrument.
Witness my hand and official seal hereto affixed the day and year first
above written.
/s/Michele R. Walters
---------------------------------------
Notary Public in and for the State of
Washington, residing at Walla, Walla
<PAGE>
EXHIBIT A
[DRAWING OF LEGAL DESCRIPTION]
LEGAL DESCRIPTION:
COMMENCING AT THE NORTHEAST CORNER OF THE SOUTH HALF OF THE SOUTHEAST
QUARTER OF SECTION 15 IN TOWNSHIP 7 NORTH, RANGE 36 EAST OF THE WILLAMETTE
MERIDIAN, AND RUNNING THENCE WEST, ALONG THE NORTH LINE OF SAID SUBDIVISION, A
DISTANCE OF 9.40 CHAINS; THENCE SOUTH, PARALLEL TO THE EAST LINE OF SAID
SUBDIVISION, A DISTANCE OF 8.80 CHAINS TO THE CENTER OF THE MILL CREEK COUNTY
ROAD; THENCE NORTHEASTERLY, ALONG THE CENTER OF SAID COUNTY ROAD TO THE POINT OF
INTERSECTION OF SAID CENTER LINE WITH THE EAST LINE OF SAID SECTION 15; THENCE
NORTH, ALONG THE EAST LINE OF SAID SECTION 15, TO THE POINT OF BEGINNING.
EXCEPTING THEREFROM THOSE PORTIONS LYING WITHIN MELROSE STREET, ALSO KNOWN
AS MILL CREEK ROAD ON THE SOUTH AND AIRPORT WAY ON THE EAST.
<PAGE>
EXHIBIT B
Phase I Environmental Site Assessment conducted by Northwest Envirocon,
Inc. dated February 26, 1996 was delivered to Key Technology, Inc. on March 20,
1996.
<PAGE>
EXHIBIT C
[DRAWING OF LEGAL DESCRIPTION]
COMMENCING AT THE NORTHEAST CORNER OF THE SOUTH HALF OF THE SOUTHEAST
QUARTER OF SECTION 15 IN TOWNSHIP 7 NORTH, RANGE 36 EAST OF THE WILLAMETTE
MERIDIAN, AND RUNNING THENCE WEST, ALONG THE NORTH LINE OF SAID SUBDIVISION, A
DISTANCE OF 9.40 CHAINS; THENCE SOUTH, PARALLEL TO THE EAST LINE OF SAID
SUBDIVISION, A DISTANCE OF 8.80 CHAINS TO THE CENTER OF THE MILL CREEK COUNTY
ROAD; THENCE NORTHEASTERLY, ALONG THE CENTER OF SAID COUNTY ROAD TO THE POINT
OF INTERSECTION OF SAID CENTER LINE WITH THE EAST LINE OF SAID SECTION 15;
THENCE NORTH, ALONG THE EAST LINE OF SAID SECTION 15, TO THE POINT OF BEGINNING.
EXCEPTING THEREFROM THOSE PORTIONS LYING WITHIN MELROSE STREET, ALSO KNOWN
AS MILL CREEK ROAD ON THE SOUTH AND AIRPORT WAY ON THE EAST.
<PAGE>
ADDENDUM TO LEASE AGREEMENT
This Addendum is executed and delivered by the Port of Walla Walla, a
municipal corporation of the State of Washington (the "Lessor"), and Key
Technology, Inc. (the "Lessee") in connection with and as a part of a
simultaneous Lease Agreement being entered into between the parties for the
Port's facilities located on Melrose Street as described in the Lease Agreement.
Notwithstanding any provision to the contrary in the Lease Agreement, the
parties expressly agree to the following additional provisions concerning the
Lease. In the case of any conflict between the language in the Lease and the
language in this Addendum, the language in this Addendum shall be controlling.
1. The Lessor agrees that it is its responsibility to relocate the fencing
alongside the property abutting Airport Road after installation of the curbs and
storm gutters to be installed as part of the 1996 Alder - Tausick Way - Airport
Road street development project. All costs incurred in connection with such
relocation and improvement shall be borne by the Lessor.
2. The Lessor agrees to provide at its expense any landscaping required to
meet existing code or ordinance requirements based on the Lessor's current use
of the property. In the event the Lessee expands the building and/or provides
additional parking or other improvements which generate landscaping code
requirements, the cost of same shall be solely borne by Lessee.
3. The Lessor shall be responsible for the appropriate sealing and caulking
of all wall seams. Thereafter, Lessee shall be responsible for maintaining same.
4. In the event that the present storm drainage system is inadequate for
the premises "as is," the Lessor shall be responsible for installing additional
storm drainage or drywells for the property. However, in the event the Lessee
alters existing site conditions which thereby require additional storm drainage
or drywells for the property, the cost of same shall be solely borne by Lessee.
5. The Lessor shall be responsible for replacing certain damaged sound
boards in the building as agreed upon by the parties. Such replacements shall be
completed on or before June 30, 1996.
<PAGE>
6. The Lessor will provide a heating unit for the lower room core area
appropriate for the room's ultimate use as determined by the Lessee.
Installation of same shall be completed on or before June 30, 1996.
IN WITNESS WHEREOF, the parties have executed this Addendum to Lease
Agreement this 18th day of April, 1996.
LESSOR
PORT OF WALLA WALLA, a municipal corporation,
By:/s/James M. Kuntz
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James M. Kuntz, Port Manager
LESSEE
KEY TECHNOLOGY, INC.
By:/s/Thomas C. Madsen
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Thomas C. Madsen, President and
Chief Executive Officer
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STATE OF WASHINGTON )
)ss.
County of Walla Walla )
KNOW ALL MEN BY THESE PRESENTS that James M. Kuntz appeared before me this
29th day of April, 1996, and stated and acknowledged that he is the Manager of
the Port of Walla Walla, and he is duly authorized to and did execute the
foregoing Addendum of Lease Agreement for and on behalf of said municipal
corporation as its free and voluntary act and deed and within the scope of its
municipal corporate powers.
GIVEN under my hand and official seal this 29th day of April, 1996.
/s/Becky Kay Hulse
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Notary Public in and for the State of
Washington, residing at Walla Walla
STATE OF WASHINGTON )
)ss.
County of Walla Walla )
On this 18th day of April, 1996, before me, the undersigned Notary Public
in and for the State of Washington, duly commissioned and sworn, personally
appeared Thomas C. Madsen, to me known to be the President and Chief Executive
Officer of the corporation that executed the foregoing Addendum of Lease
Agreement, and acknowledged the signing of said instrument to be the free and
voluntary act and deed of said corporation, for the uses and purposes therein
mentioned, and on oath stated that he is authorized to execute the said
instrument.
GIVEN under my hand and official seal this 18th day of April, 1996.
/s/Michele R. Walters
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Notary Public in and for the State of
Washington, residing at Walla, Walla
