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 March 31, 1997
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
---- ----
Commission File No. 0-21820
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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 99362
(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 April 30, 1997 was 4,677,464 shares.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Condensed consolidated balance sheets, March 31, 1997
(unaudited) and September 30, 1996................................3
Condensed unaudited consolidated statements of operations
for the three months ended March 31, 1997 and 1996 ...............4
Condensed unaudited consolidated statements of operations
for the six months ended March 31, 1997 and 1996 .................5
Condensed unaudited consolidated statements of cash
flows for the six months ended March 31, 1997 and 1996............6
Notes to condensed unaudited consolidated financial
statements........................................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................11
Item 6. Exhibits and Reports on Form 8-K....................................11
SIGNATURES....................................................................12
EXHIBIT INDEX.................................................................13
<PAGE>
<TABLE>
<CAPTION>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 (UNAUDITED) AND SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
March 31, September 30,
1997 1996
---------------------- ----------------------
(in thousands)
<S> <C> <C>
Assets
- ---------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 896 $ 3,458
Short-term investments 2,995 6,070
Trade accounts and notes receivable, net 9,545 8,824
Inventories:
Raw materials 5,863 5,728
Work-in-process and sub-assemblies 7,060 5,322
Finished goods 1,822 2,436
------- -------
Total inventories 14,745 13,486
Other current assets 2,575 1,632
------- -------
Total current assets 30,756 33,470
Property, plant and equipment, net 9,545 8,703
Other assets 2,939 3,079
------- -------
Total $43,240 $45,252
======= =======
===============================================================
Liabilities and Shareholders' Equity
- ---------------------------------------------------------------
Current liabilities:
Accounts payable $ 3,466 $ 4,797
Accrued payroll liabilities and commissions 2,278 3,251
Income tax payable - 1,300
Other accrued liabilities 2,531 2,471
Customer deposits 3,409 2,992
Short-term borrowings and debt 1,726 923
-------- -------
Total current liabilities 13,410 15,734
Long-term debt 2,025 1,467
Other long-term liabilities 396 468
Total shareholders' equity 27,409 27,583
-------- -------
Total $ 43,240 $45,252
======== =======
- ---------------------------------------------------------------
</TABLE>
===========================
See notes to condensed unaudited consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
- -------------------------------------------------------------------------------------------------------------------
1997 1996
----------------- ----------------
(in thousands, except per share data)
<S> <C> <C>
Net sales $15,286 $8,084
Cost of sales 10,174 5,731
------- ------
Gross profit 5,112 2,353
Operating expenses:
Selling 1,849 1,561
Research and development 1,015 1,125
General and administrative 1,312 789
------- ------
Total operating expenses 4,176 3,475
------- ------
Income (loss) from operations 936 (1,122)
Other income 115 184
------- ------
Earnings (loss) before income taxes 1,051 (938)
Income tax benefit (expense) (362) 318
------- ------
Net earnings (loss) $ 689 $ (620)
======= ========
Net earnings (loss) per share $ .15 $ (.13)
======= ========
Weighted average common and common equivalent
shares outstanding 4,673 4,651
======= ========
=============================================
</TABLE>
See notes to condensed unaudited consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
- -------------------------------------------------------------------------------------------------------------------
1997 1996
----------------- ----------------
(in thousands, except per share data)
<S> <C> <C>
Net sales $28,703 $17,194
Cost of sales 20,053 11,210
--------- -------
Gross profit 8,650 5,984
Operating expenses:
Selling 4,100 3,381
Research and development 2,171 2,070
General and administrative 2,654 1,482
--------- -------
Total operating expenses 8,925 6,933
--------- -------
Loss from operations (275) (949)
Other income 135 449
--------- -------
Loss before income taxes (140) (500)
Income tax benefit 47 208
--------- -------
Net loss $ (93) $ (292)
========== ========
Net loss per share $ (.02) $ (.06)
========== =========
Weighted average common and common equivalent
shares outstanding 4,667 4,649
========== =========
=========================================
</TABLE>
See notes to condensed unaudited consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
- -------------------------------------------------------------------------------------------------------------------
1997 1996
--------------- --------------
(in thousands)
<S> <C> <C>
Net cash used in operating activities $(5,168) $ (843)
Cash flows from investing activities:
Proceeds from short-term investments 3,075 1,741
Additions to property, plant and equipment, net (1,982) (1,224)
-------- -------
Net cash provided by investing activities 1,093 517
-------- -------
Cash flows from financing activities:
Proceeds from short-term borrowings 937 -
Proceeds from (repayment of) long-term debt 424 (415)
Proceeds from issuance of common stock 152 26
------- ------
Net cash provided by (used in) financing activities 1,513 (389)
Net decrease in cash and cash equivalents (2,562) (715)
Cash and cash equivalents, beginning of the year 3,458 5,323
------- ------
Cash and cash equivalents, end of period $ 896 $4,608
======== =======
Supplemental information:
Cash paid during the period for interest $ 110 $ 23
Cash paid during the period for income taxes $ 1,300 $ 141
======================================
</TABLE>
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, 1996. The results of operations for the three- and six-month
periods ended March 31, 1997 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 March 31, 1997 and the results of its operations for
the three- and six-month periods ended March 31, 1997 and 1996 and its cash
flows for the six-month periods ended March 31, 1997 and 1996.
The balance sheet at September 30, 1996 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 (loss) per share
Earnings (loss) 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. During periods of net loss,
the effect of outstanding stock options is anti-dilutive and excluded from
the calculation of loss per share.
4. Accounting pronouncement
In October 1995, the Financial Accounting Standards Board issued SFAS NO.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires
expanded disclosures of stock-based compensation arrangements with
employees and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," which recognized compensation cost based on the intrinsic value
of the equity instrument awarded. The Company will continue to apply APB
Opinion No. 25 to its stock-based compensation awards to employees and will
disclose the required pro forma effect on net income and earnings per share
in its financial statements for the year ended September 30, 1997.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." SFAS 128 changes the standards for computing and
presenting earnings per share (EPS) and supersedes APB Opinion No. 15,
"Earnings per Share." SFAS 128 simplifies the standards for computing
earnings per share and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. This Statement requires
restatement of all prior-period EPS data presented. In the opinion of
management, the effect of adopting SFAS No. 128 on earnings per share for
all periods reported will be immaterial.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Comments included in this document may include "forward-looking statements"
within the meaning of the federal securities laws, including statements as to
anticipated future results that are based on current expectations and subject to
a number of risks and uncertainties. The following factors, among others, could
cause actual results or outcomes to differ materially from current expectations:
the ability of new products to compete successfully in either existing or new
markets, product development activities, achievement of product performance
specifications and related warranty expense, future costs of materials and other
operating expenses, competitive factors, the performance and needs of industries
served by the Company and the financial capacity of customers in these
industries to purchase capital equipment.
Results of Operations
For the three-month period ended March 31, 1997, net earnings were $689,000 or
$.15 per share on net sales of $15.3 million compared to a net loss of $620,000
or $.13 per share on net sales of $8.1 million for the comparable period in
fiscal 1996. Net earnings (loss) were 4.5% and (7.7%) of net sales in the two
periods, respectively. For the six months ended March 31, 1997, the Company's
net loss was $93,000 or $.02 per share on net sales of $28.7 million compared to
a net loss of $292,000 or $.06 per share on net sales of $17.2 million for the
corresponding period in fiscal 1996.
Net sales increased approximately $7.2 million or 89% in the three-month period
ended March 31, 1997 compared to the corresponding period in fiscal 1996. The
increase in net sales between the two periods resulted from increased sales in
all three major product groups, with the most significant increases occurring in
sales of automated inspection systems followed by increased sales of specialized
conveying systems and processing equipment. Sales of automated inspection
systems resulted principally from shipments of the Company's Tegra(TM) sorting
systems. The initial deliveries of Tegra systems began in the corresponding
quarter of the previous fiscal year; only a modest number of systems were
shipped during that period. The increase in sales in the second quarter of
fiscal 1997 of the Company's specialized conveying systems and other processing
equipment over the prior corresponding period resulted principally from the
receipt of increased orders for these products during the first quarter of the
current fiscal year, which was seasonally atypical. Sales to European customers
increased by 50% in the second quarter of fiscal 1997 over the same period last
year. Sales of specialized conveying systems to European customers by the
Company's recently acquired Dutch subsidiary, Superior B.V., was a significant
factor contributing to this increase.
Backlog at the end of the most recent quarter was approximately $14.5 million
compared to backlog of $21.7 million at March 31, 1996. The decrease in backlog
was partially the result of the increased level of shipments in the more recent
period. The backlog level at the corresponding date one year ago, which remains
as the Company's record for a quarter-end, had principally resulted from a high
volume of orders for the Company's Tegra automated inspection system following
its introduction during the first quarter of fiscal 1996.
Gross profit increased by 113% to $5.1 million in the three months ended March
31, 1997 compared to $2.4 million for the corresponding period in fiscal 1996.
Gross profit contribution improved, and manufacturing overhead as a percentage
of sales decreased, as a result of the increased sales volume during the
quarter. A shift in product mix to higher margined systems and improved margins
on these systems, primarily within the automated inspection system product
group, were also contributing factors to this increase in gross profit. Gross
profit for the period was unfavorably affected by an increased level of charges
to warranty expense. The Company expects that its warranty expenses will
continue at a somewhat higher level than it has experienced in prior periods due
primarily to the extended warranties offered on newer products.
<PAGE>
Operating expenses were $4.2 million compared to $3.5 million for the
three-month periods ended March 31, 1997 and 1996, respectively. Selling and
marketing expenses increased by 18% to $1.8 million in the more recent period
principally due to increased sales commissions resulting from the increased
volume of shipments, increased staffing and consulting expenses associated with
the business unit reorganization, development of the pharmaceutical inspection
system market and other activities, including increased trade show expenses,
related to expanding the Company's presence in new markets and product
applications. The expense levels in research and development decreased by 10% to
$1.0 million reflecting a moderate reduction in overall R&D spending as certain
improvements to the Tegra product line were completed during the quarter.
Management expects that expenditures for research and development activities
will increase to moderately higher levels over the next several quarters.
General and administrative expenses increased by 66% to $1.3 million in the more
recent quarter and principally reflected the effect of increased expense and
staffing levels resulting from the reorganization of the Company into two
separate business units. Certain of these increased general and administrative
expenses had been classified as manufacturing overhead expenses in the
comparable period in fiscal 1996. General and administrative expenses also
increased as a result of expenses associated with the Company's new European
subsidiaries which were not included in the comparable period of fiscal 1996.
Management expects that almost all such increased general and administrative
expenses will also be incurred in future periods. For the reasons outlined
above, operating expenses, including research and development, selling and
marketing and general and administrative costs, increased by 29% to $8.9 million
in the six-month period ended March 31, 1997 from $6.9 million in the comparable
period in the previous fiscal year.
For the fiscal quarter ended March 31, 1996, other income was $115,000 compared
to $184,000 for the corresponding period in fiscal 1996. For the six-month
period ended March 31, 1997, other income was $135,000 compared to other income
of $449,000 for the corresponding period in fiscal 1996. Decreased interest
income on reduced invested cash balances combined with increased interest
expense on increased short- and long-term borrowings were significant
contributors to the decrease in other income. In the more recent quarterly
period, other income also benefited from moderately improved royalty and other
miscellaneous income compared to the corresponding quarter last year. In the
more recent six-month period, other income also decreased from the corresponding
period in fiscal 1996 due to a gain on the sale of a product line which
benefited the first quarter of fiscal 1996.
Net sales for the six-month period ended March 31, 1997 increased 67% to $28.7
million from $17.2 million in the comparable period last year. Net sales
increased due to increased sales of products in all three primary product
groups: automated inspection systems, specialized conveying systems and the
processing equipment product groups. The increased sales in these product groups
were generally spread across the various market segments to which the Company
sells.
For the six months ended March 31, 1997, gross profit increased by $2.7 million
or 45% to $8.7 million from $6.0 million in the six months ended March 31, 1996.
Gross profit contribution during the six-month period ended March 31, 1997
increased over the corresponding period in 1996 due principally to the increased
sales volume, the shift in product mix to higher margined systems and improved
margins on these systems, and decreased manufacturing overhead as a percentage
of sales experienced in the more recent fiscal quarter. These favorable factors
which benefited gross margin contribution were offset somewhat by the increased
warranty expenses discussed above.
The results of operations for the six months ended March 31, 1997 were a net
loss of $93,000 compared to a net loss of $292,000 for the corresponding period
in fiscal 1996. Net losses were 0.3% and 1.7% of net sales in the two periods,
respectively.
<PAGE>
Liquidity and Capital Resources
For the six-month period ended March 31, 1997, net cash used in operating
activities totaled $5.2 million compared to $843,000 in the corresponding period
in fiscal 1996. Upon their maturity, short-term investments in a net amount of
$3.1 million were utilized to partially fund these operating requirements during
the six-month period ended March 31, 1997. The Company used $3.6 million in cash
to decrease trade accounts payable balances and pay accrued income taxes and
certain accrued payroll liabilities, including profit sharing and incentive
compensation expenses, which had been accrued in the previous fiscal year.
Additionally, operating activities resulted in the use of $1.3 million to fund
an increase in inventories. Net cash resources totaling $2.0 million were also
used to fund the acquisition of capital equipment. At March 31, 1997, the
Company had no material commitments for capital expenditures.
Cash flows from financing activities for the six months ended March 31,1997
included $937,000 in borrowings under the Company's operating lines of credit.
In the first quarter of fiscal 1997, the Company's Dutch subsidiary, Suplusco
B.V., refinanced certain long-term debt and borrowed an additional 1.6 million
guilders or approximately $850,000 from a Dutch bank. The subsidiary used
proceeds from this debt to retire a note to the Company issued during the
acquisition of Suplusco B.V. and its subsidiary, Superior B.V., in the fourth
quarter of fiscal 1996. As a result, total consolidated long-term debt increased
by $424,000 for the six months ended March 31,1997. Proceeds from the issuance
on common stock during the period under the Company's employee stock option and
stock purchase plans totaled $152,000.
During the six-month period ended March 31, 1997, working capital decreased by
$390,000 to $17.3 million. Short-term borrowings increased by $803,000
principally the result of the timing of the maturity dates of the short-term
investments which generally extended beyond the end of the quarter, making these
invested balances unavailable to fund operating requirements. Inventory
increased $1.3 million principally as a result of forecasted orders for Tegra
systems and the increased level of orders for specialized conveying systems. The
Company is attempting to achieve a better balance of its inventory to sales
ratio. Trade accounts receivable increased $721,000 as a result of a high level
of shipments at the end of the period. Other current assets increased $943,000
as a result of deposits paid to third-party manufacturers of equipment which
will be resold to customers.
The Company's facility with a domestic commercial bank provides for an operating
line of credit up to $4.0 million. At March 31,1997 outstanding borrowings under
this line of credit totaled $1.0 million. The line of credit is subject to an
annual renewal and was renewed in January 1997. The line of credit under the
most recent renewal remains unsecured with terms at one-quarter percent below
the bank's prime rate of interest.
The Company also maintains a credit facility with a Dutch bank which provides
for operating lines of credit totaling 1.5 million guilders, or approximately
$800,000, to the Company's subsidiaries in the Netherlands. At March 31,1997,
the Company had no borrowings under this credit facility.
The Company's operating, investing and financing activities resulted in a $2.6
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 $896,000 and
short-term investments totaled $3.0 million. The Company believes that its cash
and short-term investments, cash generated from operations and borrowings under
its operating lines of credit will be sufficient to provide for its working
capital needs and to fund future growth.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Shareholders on February 5,
1997. Voting common shareholders took the following actions at the
meeting:
1. The shareholders voted to elect the following nominees to the
Company's Board of Directors:
Votes Votes
For Abstaining
----------------- -------------------
Harold R. Frank 4,278,761 17,244
Edfred L. Shannon Jr. 4,278,561 17,444
Other directors whose term of office as a director continued
after the meeting are as follows:
Thomas C. Madsen
James H. Stanton
Glenn A. Waller
Gordon Wicher
2. The shareholders voted to ratify management's selection of
independent auditors for the 1997 fiscal year by the
affirmative vote of 4,284,300 shares, with 2,955 shares voting
against the proposal and 8,750 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(10.1) Business Loan Agreement dated January 29, 1997 between
Registrant and U.S. Bank of Washington, N.A.
(27) Financial Data Schedule
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the three
months ended March 31, 1997.
<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: May 14, 1997 By /s/ Thomas C. Madsen
----------------------------
Thomas C. Madsen,
President and Chief Executive
Officer
Date: May 14, 1997 By /s/ Steven D. Evans
---------------------------
Steven D. Evans,
Vice President of Finance and
Administration and Chief Financial
(Principal Financial and Accounting
Officer)
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
EXHIBIT INDEX
Exhibit Page
- -------
10.1 Business Loan Agreement...................................16
27 Financial Data Schedule...................................32
<TABLE>
<CAPTION>
U.S. BANK
BUSINESS LOAN AGREEMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$4,000,000.00 01-29-1997 01-23-1998 251-158 001 4663012967 38913
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: Lender:
KEY TECHNOLOGY, INC. U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
150 AVERY STREET Tri-Cities Business Banking
WALLA WALLA, WA 99360 552 No. Colorado #204
P.O. Box 7327
Kennewick, WA 99336
THIS BUSINESS LOAN AGREEMENT BETWEEN KEY TECHNOLOGY, INC. ("BORROWER") AND U.S.
BANK OF WASHINGTON, NATIONAL ASSOCIATION ("LENDER") IS MADE AND EXECUTED ON THE
FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS
FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER
FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT
OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (A) IN
GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B)
THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE
SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL
BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS
AGREEMENT.
TERM. This Agreement shall be effective as of January 29, 1997, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means KEY TECHNOLOGY, INC. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates
of Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
<PAGE>
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a
security interest, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise. DEBT.
The word "Debt" means all of Borrower's liabilities excluding Subordinated
Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all
Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may
be liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon such
Indebtedness may be or hereafter may become barred by any statue of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.
<PAGE>
LENDER. The word "Lender" means U.S. BANK OF WASHINGTON, NATIONAL
ASSOCIATION, its successors and assigns.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations
in favor of Lender, as well as any substitute, replacement or refinancing
note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet delinquent;
(d) purchase money liens or purchase money security interests upon or in
any property acquired or held by Borrower in the ordinary course of
business to secure Indebtedness outstanding on the date of this Agreement
or permitted to be incurred under the paragraph of this Agreement titled
"Indebtedness and Liens"; (e) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the
Lender in writing; and (f) those liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the
Lender in writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
<PAGE>
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended
as a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean Indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to Indebtedness owed by Borrower to Lender in form and substance
acceptable to Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible
items, but including leaseholds and leasehold improvements) less total
Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security interests; (d) evidence
of insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
<PAGE>
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Washington
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified
as a foreign corporation and is in good standing in all states in which
the failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of
any other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change
in Borrower's financial condition subsequent to the date of the most
recent financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and
as accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has
not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
<PAGE>
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the "CERCLA,"
"SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing. Except as
disclosed to and acknowledged by Lender in writing, Borrower represents
and warrants that: (a) During the period of Borrower's ownership of the
properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of
any of the properties, or (ii) any actual or threatened litigation or
claims of any kind by any person relating to such matters. (c) Neither
Borrower nor any tenant, contractor, agent or other authorized user of any
of the properties shall use, generate, manufacture, store, treat, dispose
of, or release any hazardous waste or substance on, under, about or from
any of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender and
its agents to enter upon the properties to make such inspections and tests
as Lender may deem appropriate to determine compliance of the properties
with this section of the Agreement. Any inspections or tests made by
Lender shall be at Borrower's expense and for Lender's purposes only and
shall not be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous substances.
Borrower hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the Agreement
or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release occurring prior to Borrower's
ownership or interest in the properties, whether or not the same was or
should have been known to Borrower. The provisions of this section of the
Agreement, including the obligation to indemnify, shall survive the
payment of the Indebtedness and the termination or expiration of this
Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or otherwise.
<PAGE>
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PROPERTY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of
the Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (ii) Borrower has not withdrawn from any such
plan or initiated steps to do so, (iii) no steps have been taken to
terminate any such plan, and (iv) there are no unfunded liabilities other
than those previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more than
one place of business, is located at 150 AVERY STREET, WALLA WALLA, WA
99360. Unless Borrower has designated otherwise in writing this location
is also the office or offices where Borrower keeps its records concerning
the Collateral.
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INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to
make such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force
and effect until such time as Borrower's Indebtedness shall be paid in
full, or until this Agreement shall be terminated in the manner provided
above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, audited
by a certified public accountant satisfactory to Lender, and, as soon as
available, but in no event later than thirty (30) days after the end of
each month, Borrower's balance sheet and profit and loss statement for the
period ended, prepared and certified by Borrower as being true and
correct.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
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FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and ratios:
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less than
$7,000,000.00.
NET WORTH RATIO. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 2.50 to 1.00.
WORKING CAPITAL. Maintain Working Capital in excess of $4,000,000.00.
CURRENT RATIO. Maintain a ratio of Current Assets to Current Liabilities
in excess of 1.20 to 1.00.
OTHER RATIO. Maintain a ratio of ADDITIONAL FINANCIAL COVENANTS; DEBT
COVERAGE of 1.25 to 1.00. Except as provided above, all computations made
to determine compliance with the requirements contained in this paragraph
shall be made in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as being true and
correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies
or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
<PAGE>
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
Indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every kind
and nature, imposed upon Borrower or its properties, income, or profits,
prior to the date on which penalties would attach, and all lawful claims
that, if unpaid, might become a lien or charge upon any of Borrower's
properties, income, or profits. Provided however, Borrower will not be
required to pay and discharge any such assessment, tax, charge, levy, lien
or claim so long as (a) the legality of the same shall be contested in
good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, will
furnish to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate governmental
official to deliver to Lender at any time a written statement of any
assessments, taxes, charges, levies, liens and claims against Borrower's
properties, income or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provided written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act
and with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
<PAGE>
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party
to permit Lender free access to such records at all reasonable times and
to provide Lender with copies of any records it may request, all at
Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
QUARTERLY and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true and
correct as of the date of the certificate and further certifying that, as
of the date of the certificate, no Event of Default exists under this
Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part
or on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.
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NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and Indebtedness to Lender contemplated by this
Agreement, create, incur or assume Indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in,
or encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c)
pay any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower
may pay cash dividends on its stock to its shareholders from time to time
in amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholders
of a Subchapter S Corporation because of their ownership of shares of
stock of Borrower, or (d) purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
<PAGE>
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
STATUTE OF FRAUDS DISCLOSURE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
NEGATIVE COVENANTS. CAPITAL EXPENDITURES. MAKE OR CONTRACT TO MAKE CAPITAL
EXPENDITURES, INCLUDING LEASEHOLD IMPROVEMENTS, IN ANY FISCAL YEAR IN EXCESS OF
$2,000,000.00 OR INCUR LIABILITY FOR RENTALS OF PROPERTY (INCLUDING BOTH REAL
AND PERSONAL PROPERTY) IN AN AMOUNT WHICH, TOGETHER WITH CAPITAL EXPENDITURES,
SHALL IN ANY FISCAL YEAR EXCEED SUCH SUM.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
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DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or Borrower's
or any Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or become false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the Indebtedness,
or by any governmental agency. This includes a garnishment, attachment, or
levy on or of any of Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness.
ADVERSE CHANGE. A material change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
<PAGE>
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of Washington. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts
of Benton County, the State of Washington. Subject to the provisions on
arbitration, this Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of
the American Arbitration Association, upon request of either party. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief of a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Judgment upon any award rendered by any arbitrator may be entered
in any court having jurisdiction. Nothing in this Agreement shall preclude
any party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches, and
similar doctrines which would otherwise be applicable in an action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement
of an action for these purposes. The Federal Arbitration Act shall apply
to the construction, interpretation, and enforcement of this arbitration
provision.
<PAGE>
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any rights to
privacy it may have with respect to such matters. Borrower additionally
waives any and all notices of sale of participation interests, as well as
all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will
be considered as the absolute owners of such interests in the Loans and
will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower
further waives all rights of offset or counterclaim that it may have now
or later against Lender or against any purchaser of such a participation
interest and unconditionally agrees that either Lender or such purchaser
may enforce Borrower's obligation under the Loans irrespective of the
failure or insolvency of any holder of any interest in the Loans. Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
<PAGE>
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more than
one Borrower, notice to any Borrower will constitute notice to all
Borrowers. For notice purposes, Borrower will keep Lender informed at all
times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower"
as used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure
to the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made
by Lender or on Lender's behalf.
<PAGE>
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or between
Lender and any Grantor, shall constitute a waiver of any of Lender's
rights or of any obligations of Borrower or of any Grantor as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall
not constitute continuing consent in subsequent instances where such
consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
JANUARY 29, 1997.
BORROWER:
KEY TECHNOLOGY, INC.
BY: /s/ Steven D. Evans
--------------------------------
TITLE Chief Financial Officer
------------------------
LENDER:
U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
BY: /s/ E. H. Willborne
--------------------------------
AUTHORIZED OFFICER
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KEY
TECHNOLOGY, INC.'S CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY
REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 896
<SECURITIES> 2,995
<RECEIVABLES> 9,849
<ALLOWANCES> (304)
<INVENTORY> 14,745
<CURRENT-ASSETS> 30,756
<PP&E> 17,209
<DEPRECIATION> (7,664)
<TOTAL-ASSETS> 43,240
<CURRENT-LIABILITIES> 13,410
<BONDS> 2,025
0
0
<COMMON> 8,882
<OTHER-SE> 18,527
<TOTAL-LIABILITY-AND-EQUITY> 43,240
<SALES> 28,703
<TOTAL-REVENUES> 28,981
<CGS> 20,053
<TOTAL-COSTS> 20,053
<OTHER-EXPENSES> 8,886
<LOSS-PROVISION> 39
<INTEREST-EXPENSE> 143
<INCOME-PRETAX> (140)
<INCOME-TAX> (47)
<INCOME-CONTINUING> (93)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
