<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Key Technology, Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[KEY TECHNOLOGY, INC. LOGO]
150 AVERY STREET
WALLA WALLA, WASHINGTON 99362
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 5, 1997
-------------------
To Our Shareholders:
The Annual Meeting of Shareholders of Key Technology, Inc. (the
"Company") will be held at 8:00 A.M. on February 5, 1997 at the offices of the
Company, 150 Avery Street, Walla Walla, Washington 99362, for the following
purposes:
1. To elect two directors of the Company;
2. To ratify the selection of auditors for fiscal 1997; and
3. To transact such other business as may properly come before
the meeting.
Only holders of the Company's Common Stock at the close of business on
December 4, 1996 are entitled to notice of, and to vote at, the meeting and any
adjournments or postponements thereof. Shareholders may vote in person or by
proxy. The accompanying form of proxy is solicited by the Board of Directors of
the Company.
By Order of the Board of Directors
/s/ Gordon Wicher
----------------------------
Gordon Wicher
Secretary
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING
IN PERSON, PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN THE
ENCLOSED ENVELOPE.
Walla Walla, Washington
January 6, 1997
<PAGE> 3
[KEY TECHNOLOGY, INC. LOGO]
150 AVERY STREET
WALLA WALLA, WASHINGTON 99362
-------------------
PROXY STATEMENT
1997 ANNUAL MEETING OF SHAREHOLDERS
-------------------
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Key Technology, Inc. (the "Company") of proxies to
be voted at the 1997 Annual Meeting of Shareholders of the Company to be held at
8:00 A.M. on February 5, 1997 at the Company's executive offices located at 150
Avery Street, Walla Walla, Washington 99362, and at any adjournments or
postponements thereof. If proxies in the accompanying form are properly
executed, dated and returned prior to the voting at the meeting, the shares of
Common Stock represented thereby will be voted as instructed on the proxy. If no
instructions are given on a properly executed and returned proxy, the shares of
Common Stock represented thereby will be voted for the election of the
directors, for ratification of the selection of auditors, and in support of the
recommendations of management on such other business as may properly come before
the meeting or any adjournments or postponements thereof.
Any proxy may be revoked by a shareholder prior to its exercise upon
written notice to the Secretary of the Company, by delivering a duly executed
proxy bearing a later date, or by the vote of a shareholder cast in person at
the meeting. The cost of soliciting proxies will be borne by the Company. To
assist in the proxy solicitation, the Company has engaged Allen Nelson &
Company, Incorporated for a fee of $1,500.00 plus out-of-pocket expenses. In
addition to solicitation by mail, proxies may be solicited personally by the
Company's officers and regular employees or by telephone, facsimile transmission
or express mail. The Company will reimburse brokerage houses, banks and other
custodians, nominees and fiduciaries for their reasonable expenses incurred in
forwarding proxies and proxy material to their principals. This proxy statement
and the accompanying form of proxy are first being mailed to shareholders on or
about January 6, 1997.
VOTING
Holders of record of the Company's Common Stock on December 4, 1996
will be entitled to vote at the Annual Meeting or any adjournments or
postponements thereof. As of that date, there were 4,659,334 shares of Common
Stock outstanding and entitled to vote, and a majority, or 2,329,668 of these
shares, will constitute a quorum for the transaction of business. Each share of
Common Stock entitles the holder to one vote on the election of each director
and on any other matter that may properly come before the meeting. Shareholders
are not entitled to cumulative voting in the election of either director.
2
<PAGE> 4
ITEM 1
ELECTION OF DIRECTORS
The Board of Directors is comprised of six directors. The directors are
divided into three classes, each of which is comprised of two directors. One
class is elected each year for a three-year term. The two nominees for election
as directors at this year's Annual Meeting, to serve until the Annual Meeting of
Shareholders in 2000, or until their respective successors are elected and
qualified, are Harold R. Frank and Edfred L. Shannon, Jr. Directors are elected
by a plurality of the votes cast by holders of the shares entitled to vote in
the election at a meeting at which a quorum is present.
Unless marked otherwise, proxies received will be voted FOR the
election of each of the nominees named below. As with all matters to be voted
upon, abstentions will be counted toward the quorum requirement for the meeting
but will not be counted for or against any proposal, and broker non-votes will
not be counted in determining whether a quorum is present and will not be
counted either for or against the proposal at issue.
If either nominee is unable or unwilling to serve as a director at the
date of the Annual Meeting or any postponement or adjournment thereof, the
proxies may be voted for a substitute nominee, designated by the proxy holders
or by the present Board of Directors to fill such vacancy, or for the other
nominee named without nomination of a substitute, or the Board may be reduced
accordingly. The Board of Directors has no reason to believe that either of the
nominees will be unwilling or unable to serve if elected a director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MESSRS. FRANK AND
SHANNON.
The following table sets forth certain information about each nominee
for election to the Company's Board of Directors, each continuing director and
each executive officer who is not also a director. Stock ownership information
is shown elsewhere in this Proxy Statement under the heading Security Ownership
of Certain Beneficial Owners and Management and is based upon information
furnished by the respective individuals. The table sets forth the following, as
of December 4, 1996: (i) age; (ii) all positions and offices held with the
Company; (iii) the period of time served as a director or officer of the
Company; and (iv) the expiration of his current term as a director of the
Company.
<TABLE>
<CAPTION>
HAS BEEN
A DIRECTOR EXPIRATION OF
OR OFFICER CURRENT
NAME AGE POSITIONS SINCE TERM
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NOMINEES FOR ELECTION
Harold R. Frank+* 72 Chairman of the Board and 1983 1997
Director
Edfred L. Shannon, Jr.+* 70 Director 1983 1997
</TABLE>
+ Member of the Audit Committee
* Member of the Compensation Committee
3
<PAGE> 5
<TABLE>
<CAPTION>
HAS BEEN
A DIRECTOR EXPIRATION OF
OR OFFICER CURRENT
NAME AGE POSITIONS SINCE TERM
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Directors Continuing in
Office
James H. Stanton 52 Vice President-Product 1983 1998
Management, Specialized
Conveying Systems and
Director
Glenn A. Waller 51 Vice President of Western 1983 1998
Region Sales and Director
Thomas C. Madsen 49 President, Chief Executive 1983 1999
Officer and Director
Gordon Wicher+ 50 Vice President-General 1983 1999
Manager of Specialized
Conveying Systems, Secretary
and Director
ADDITIONAL OFFICERS
Steven D. Evans 49 Chief Financial Officer and 1991
Vice President of Finance and
Administration
Gary W. Kanegis 50 Vice President of Sales and 1991
Service
Vernon L. Perry 62 Vice President of Quality 1991
Assurance
Richard J. Hebel 45 Vice President of Corporate 1993
Marketing and Business
Development
Scott L. Mathews 39 Vice President-General 1996
Manager of Automated
Inspection Systems
</TABLE>
+ Member of the Audit Committee
* Member of the Compensation Committee
-------------------
Mr. Frank, a founder of the Company, has been Chairman of the Company
and a director since 1983. Mr. Frank is Chairman Emeritus and a director of
Applied Magnetics Corporation, a producer of magnetic recording heads for the
computer industry. He served as Chairman of Applied Magnetics Corporation from
1957 until 1995. Mr. Frank is also a director of Circon Corporation, a medical
instruments company.
4
<PAGE> 6
Mr. Shannon, a founder of the Company, has served as a director of the
Company since 1983. He is currently a private investor. Mr. Shannon joined Santa
Fe International Corporation, an oil drilling and exploration company in 1953,
and was President and Chief Executive Officer of Santa Fe International
Corporation from 1963 to 1991. He served as non-executive Chairman from 1991 to
1993. Mr. Shannon is also a director of Edison International.
Mr. Madsen, a founder of the Company, has been President and Chief
Executive Officer of the Company and a director since 1983. He served in various
executive capacities with the Company's predecessor from 1972, including
President from 1980 to 1983, Vice President of Operations from 1979 to 1980 and
Vice President of Engineering from 1975 to 1979.
Mr. Wicher, a founder of the Company, has been Secretary and a director
since 1983. In 1996 he became Vice President-General Manager of Specialized
Conveying Systems. He served as Chief Financial Officer from 1983 to 1994, and
as Vice President of Manufacturing from 1991 to 1996. Mr. Wicher served as
Controller of the Company's predecessor from 1980 to 1983 and served from 1977
to 1980 as Controller of the telecommunications division of California
Microwave, a communications equipment manufacturer.
Mr. Stanton, a founder of the Company, has been Vice President-Product
Management, Specialized Conveying Systems since 1994 and a director since 1983.
He served as the Company's Vice President of Corporate Accounts from 1992 to
1994, and as Vice President of International Marketing from 1983 to 1992. Mr.
Stanton served in various capacities with the Company's predecessor from 1972,
including General Sales Manager from 1980 to 1983 and International Manager from
1977 to 1980.
Mr. Waller, a founder of the Company, has served as Vice President of
Western Region Sales since 1992 and has been a director since 1983. He served as
Vice President/Manager of Optical Products Marketing and Sales from 1990 to 1992
and as Vice President/Product Engineering Manager from 1986 to 1990. He was Vice
President of Engineering from 1983 to 1986. Mr. Waller served in various
engineering management capacities with the Company's predecessor from 1972 to
1983.
Mr. Evans has served as Chief Financial Officer since 1994. He has
served as Vice President of Finance and Administration since joining the Company
in 1991. From 1988 until 1990 he was employed as Vice President of Finance and
Chief Financial Officer by NeuroCom International, Inc., a medical equipment
manufacturer, and from 1986 until 1988, he served as Corporate Controller of
Synektron Corp., a disk drive component manufacturer.
Mr. Kanegis joined the Company in 1985 and served as Director of
Optical Products until 1987. He was Director of Eastern Regional Sales from 1987
to 1991 and has served since that time as Vice President of Sales and Service.
From 1979 to 1985, Mr. Kanegis was Vice President of Marketing of Spectron
Engineering, a manufacturer of electro-optical instruments and machine vision
systems for inspection of parts on manufactured goods.
Mr. Perry has served as Vice President of Quality Assurance since 1991.
He was the Company's Director of Quality Control from 1988 to 1991 and its
Director of Customer Service/Quality Assurance from 1983 until 1988. He served
as Director of Research and Development for the Company's predecessor from 1975
to 1982 and as its Product Sales Manager from 1982 to 1983.
5
<PAGE> 7
Mr. Hebel joined the Company in 1993 as Vice President of Marketing,
and is currently Vice President of Corporate Marketing and Business Development.
In 1996, the scope of Mr. Hebel's position was broadened to include Business
Development as well as Corporate Marketing. From 1992 to 1993, he was a
management consultant with Integral Management Resources, providing consulting
services on marketing and strategic planning to food processing and packaging
equipment companies. From 1988 to 1992, he served as Director of Marketing for
INEX Vision Systems, a manufacturer of automated visual inspection systems.
Mr. Mathews joined the Company in 1996 as Vice President-General
Manager of Automated Inspection Systems. From 1982 to 1996, he worked for
General Electric Medical Systems in several sales and marketing management
capacities. Most recently, 1994 to 1996, he served as General Manager of Global
Positron Emission Tomography, a business division of General Electric.
- - -------------------
During the fiscal year ended September 30, 1996, the Board of Directors
held four meetings. Each director attended all of the meetings of the Board of
Directors.
The Audit Committee consists of Messrs. Frank, Shannon and Wicher. The
function of the Audit Committee is to recommend to the Board of Directors the
appointment of the Company's independent public accountants, to review and
approve the scope of the yearly audit and proposed budget for audit fees, to
review the Company's internal controls and to consult with, and review
recommendations made by, the accounting firm with respect to financial
statements, financial records and internal controls, and to make such other
recommendations to the Board of Directors as it deems appropriate from time to
time. The Audit Committee met twice during fiscal 1996 and all members attended.
The Compensation Committee consists of Messrs. Frank and Shannon. Mr.
Madsen participates in meetings as an ex officio member. The Compensation
Committee considers recommendations of the Company's management regarding the
compensation of the senior executives of the Company, considers management's
proposals regarding stock incentive grants and their consistency with policies
established by the Board of Directors and administers the Company's 1996
Employees' Stock Option Plan. The Compensation Committee met twice during fiscal
1996 and all members attended.
The Board of Directors does not have a standing nominating committee.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are officers of the Company are
not separately compensated for serving on the Board of Directors. Directors who
are not officers of the Company are paid a fee of $1,250 per quarter, plus
reimbursement of expenses.
-------------------
6
<PAGE> 8
EXECUTIVE COMPENSATION
CASH AND NON-CASH COMPENSATION PAID TO CERTAIN EXECUTIVE OFFICERS
The following table sets forth, for the fiscal years ended September
30, 1994, 1995 and 1996, compensation information with respect to the Company's
(a) Chief Executive Officer and (b) each of the four other most highly
compensated executive officers, based on the salary and bonus earned during
fiscal 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
COMPENSATION
AWARDS
----------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
SECURITIES
UNDERLYING
OTHER ANNUAL OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION Salary (1) BONUS COMPENSATION SARS COMPENSATION (2)
Year ($) ($) ($) (#) ($)
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. Madsen 1996 242,033 100,101 * 25,000 1,712
President and Chief Executive Officer 1995 214,100 85,101 * 8,000 2,035
1994 201,368 15,000 * 10,000 2,982
Gordon Wicher 1996 148,388 40,101 * 15,000 1,853
Vice President-General Manager, 1995 122,206 35,101 * 5,000 1,459
Specialized Conveying Systems 1994 115,212 8,000 * 7,500 2,541
Gary W. Kanegis 1996 120,052 52,101(3) * 10,000 32,884(6)
Vice President, Sales and Service 1995 104,469 41,101(4) * 5,000 24,100(7)
1994 100,676 15,000(5) * 7,000 22,298(8)
Steven D. Evans 1996 118,057 35,101 * 10,000 465
Chief Financial Officer and Vice 1995 104,224 30,101 * 4,500 433
President, Finance and Administration 1994 99,783 8,000 * 6,000 494
Richard J. Hebel 1996 108,888 35,101 * 8,000 258
Vice President, Corporate Marketing 1995 95,765 27,101 * 4,000 217
and Business Development 1994 89,233 8,000 * 6,000 225
</TABLE>
------------------
*Benefits and perquisites received totaled less than 10% of combined salary and
bonus.
(1) Includes amounts deferred by the executive officers under the Company's
401(k) plan.
(2) Excludes amounts to be contributed by the Company under the Company's
401(k) profit sharing plan. Includes term life insurance premiums.
(3) Includes a $12,000 incentive bonus outside the Management Incentive
Plan.
(4) Includes a $9,000 incentive bonus outside the Management Incentive
Plan.
(5) Includes a $3,000 incentive bonus outside the Management Incentive
Plan.
(6) Includes a phantom stock payment of $32,385 deferred from prior years.
(7) Includes a phantom stock payment of $23,658 deferred from prior years.
(8) Includes a phantom stock payment of $21,804 deferred from prior years.
7
<PAGE> 9
STOCK OPTIONS GRANTED TO CERTAIN EXECUTIVE OFFICERS DURING LAST FISCAL YEAR
The following table sets forth certain information regarding options
for the purchase of the Company's Common Stock that were awarded to the
Company's (a) Chief Executive Officer and (b) each of the four other most highly
compensated executive officers.
OPTION/SAR GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
Individual Grants FOR OPTION TERMS
- - ----------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/
OPTIONS/ SARS GRANTED EXERCISE OR
SARS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. Madsen 25,000 14.2% $22.50 5/08/06 $353,751 $896,478
Gordon Wicher 15,000 8.5% $22.50 5/08/06 $212,249 $537,886
Gary W. Kanegis 10,000 5.7% $22.50 5/08/06 $141,500 $358,591
Steven D. Evans 10,000 5.7% $22.50 5/08/06 $141,500 $358,591
Richard J. Hebel 8,000 4.5% $22.50 5/08/06 $113,200 $286,873
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END($) (1)
---------------------------------------------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. Madsen 0 0 7,000 36,000 $127,200 $293,600
Gordon Wicher 0 0 5,000 22,500 $ 95,000 $198,750
Gary W. Kanegis 0 0 13,750 19,250 $254,415 $207,975
Steven D. Evans 0 0 10,625 17,875 $194,012 $183,137
Richard J. Hebel 1,500 $10,688 2,500 14,000 $ 46,750 $143,000
</TABLE>
------------------
(1) The dollar values were calculated by determining the difference between
the closing market price of the securities underlying the options at
fiscal year end, September 30, 1996, and the exercise price of the
options.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
With respect to fiscal 1996, the Compensation Committee, who are
non-employee members of the Board of Directors, reviewed and assumed
responsibility for oversight of the determination of the salary, incentive and
stock option compensation for the executive officers of the Company. The two
members of the Compensation Committee are not eligible to participate in any of
the incentive compensation plans, but
8
<PAGE> 10
will receive nondiscretionary grants under the 1996 Employees' Stock Option
Plan. Mr. Madsen makes recommendations to the members of the Compensation
Committee regarding the compensation of the other executive officers of the
Company, but does not participate in the determination of his own compensation.
As used in this report, the term "Compensation Committee" refers to Messrs.
Frank and Shannon.
It is the Company's policy to offer competitive compensation
opportunities for its employees based on a combination of factors, including
corporate performance, business unit performance and the individual's personal
contribution to the business. With respect to fiscal 1996, the Compensation
Committee did not consider or adopt compensation policies for the President that
were different from the compensation policies considered and adopted for the
executive officers as a group.
There are three basic elements to executive officer compensation: base
salary, management incentive compensation, and stock incentives in the form of
stock options granted at market value.
Base Salary
In reaching the determinations concerning fiscal 1996 executive officer
base salaries, the Compensation Committee considered the recommendations of the
President, individual performance and the Company's financial performance. Among
other factors, the recommendations of the President were based upon review of
competitive compensation information published by the American Electronics
Association, the Cascade Employers' Association, and information provided by an
independent compensation consultant. In making his recommendations, the
President compared the Company to a self-selected group of companies of similar
size and considered compensation only for executives with similar job
descriptions. Compensation recommendations were targeted to fall at the
mid-point of the comparative group. The comparative group companies considered
for compensation purposes are not the same as the peer companies utilized in the
Stock Performance Graph included elsewhere herein because the President believes
the Company's most direct competitors for executives are not necessarily the
same companies that would be included in a peer group established to compare
shareholder return.
In addition to the recommendations of the President, the Compensation
Committee considered its own assessment of the individual performance of the
executives and its own subjective assessment of the Company's overall financial
performance. There is no fixed relationship between base salary and corporate
performance or between base salary and the competitive range of salaries that
may be offered by competitive companies. The members of the Compensation
Committee consider their business judgment in light of their experience to be an
important factor in establishing executive compensation. After consideration of
the foregoing factors, the Compensation Committee established an approximately
9.5 percent increase in base salary for Mr. Madsen and approved salary increases
recommended for the other named executive officers averaging approximately 9.0
percent over prior base salary.
Management Incentive Compensation
The Company's bonus program, in the form of its Management Incentive
Plan, is designed to tie executive compensation to the Company's performance.
The program blends objective factors for funding the Management Incentive Plan
with subjective evaluations of each participant's contributions to the success
of the Company.
9
<PAGE> 11
Funding of the Management Incentive Plan bonus pool is based on three
factors: (1) new bookings; (2) profitability; and (3) return on net assets. For
each of these three factors, the Company establishes annual goals for the
eligible group of executives and other employees. An amount equal to 10 percent
of the salary pool is added to the bonus pool for each of the three factors if
the Company achieves the maximum goals. Therefore, a maximum of 30 percent of
the salary pool could be added to the bonus pool with respect to a particular
fiscal year. If the Company attains a certain level of performance but does not
reach the stated goal, an amount equal to the corresponding proportion of the
salary pool will be added to the Management Incentive Plan bonus pool.
The participants in the Management Incentive Plan are selected on the
basis of perceived contribution to the success of the Company by the
Compensation Committee upon the recommendation of the President. The amount of
base salaries eligible for the Management Incentive Plan bonus pool for fiscal
1996 was $1,650,000. Therefore, the maximum amount allocable to the Incentive
Plan was $495,000.
The President makes recommendations to the Compensation Committee
concerning distribution of the Management Incentive Plan bonus pool funds. The
recommendations are based on the participants' contributions to the Company for
the fiscal year, giving primary consideration to the same factors used in
determining the funding of the Management Incentive Plan bonus pool.
The Compensation Committee may amend, modify or approve the recommended
distributions. In fiscal 1996, the Company's booked orders, profitability, and
return on net assets were in excess of the minimum level to qualify for funding
of the Management Incentive Plan. The Compensation Committee approved a funding
level for the Management Incentive Plan bonus pool of $495,000 and approved
distributions to the President and other named executives in the form of bonus
payments averaging 37 percent of base salary. In determining Management
Incentive Plan distributions, the Compensation Committee did not consider any
deferred compensation which might be payable to an executive officer under the
Company's former Phantom Stock Plan that was terminated in 1988.
Stock Incentive Compensation
The Board of Directors believes that stock ownership by executive
officers and key employees provides valuable incentives for such persons to
benefit as the Company's Common Stock price increases and that stock
option-based incentive compensation arrangements help align the interests of
executives, employees and shareholders. To facilitate these objectives, the
Board of Directors, since 1989, has granted stock options to executive officers
and key employees through the 1996 Employees' Stock Option Plan (the "Plan").
Pursuant to this Plan, 43 individuals were granted options during
fiscal 1996 to purchase 176,200 shares at a price equal to fair market value at
the date of grant. In determining the number of options granted to executive
officers, the Board of Directors considered the person's opportunity to affect
the share price of the Company's Common Stock, the level of the person's
performance based on past performance and the anticipated incentive effect of
the number of options granted. The grants provided that one-quarter of such
options were to become exercisable one year from the date of grant and
one-quarter on the anniversary date of the original grant in each of the
Company's next three succeeding fiscal years. The options have a ten-year term.
For additional information regarding stock option grants and exercises see
10
<PAGE> 12
the "Option/SAR Grants in Fiscal 1996," "Aggregated Option/SAR Exercises in Last
Fiscal Year and FY-End Option/SAR Values," and "Summary Compensation" tables
included elsewhere herein.
Messrs. Frank and Shannon, and the other directors, believe that the
policies and plans described above provide competitive levels of compensation
and effectively link executive and shareholder interests. Moreover, the
directors believe such policies and plans are consistent with the long-term
investment objectives appropriate to the business in which the Company is
engaged.
Respectfully submitted,
Harold R. Frank Gordon Wicher
Edfred L. Shannon James H. Stanton
Thomas C. Madsen Glenn A. Waller
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Madsen, the President and Chief Executive Officer, is not a voting
member but does participate as an ex officio member of the Compensation
Committee. To the extent the responsibilities of the Compensation Committee were
performed by the Board of Directors, each of Messrs. Wicher, Stanton and Waller,
who are all both directors and executive officers of the Company, did not
participate in the deliberations regarding executive officer compensation.
11
<PAGE> 13
STOCK PERFORMANCE GRAPH
COMPARISON OF 38 MONTH CUMULATIVE TOTAL RETURN*
AMONG KEY TECHNOLOGY, INC., THE S & P 500 INDEX,
THE NASDAQ STOCK MARKET-US INDEX AND A PEER GROUP
[GRAPH]
<TABLE>
<CAPTION>
7/23/93 9/93 9/94 9/95 9/96
------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
KEY TECHNOLOGY, Inc. 100 103 58 146 294
PEER GROUP 100 110 122 169 178
S & P 500 100 104 107 139 167
NASDAQ STOCK MARKET-US 100 135 137 189 224
</TABLE>
* $100 INVESTED ON 7/23/93 IN STOCK OR INDEX - INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING
SEPTEMBER 30.
PEER GROUP CONSISTS OF: COGNEX CORP., DURIRON CO., INC., MTS SYSTEMS
CORP., NORDSON CORP., THERMO ELECTRON CORP., BALDWIN TECHNOLOGY CO., INC., CEM
CORP., IDEX CORP., PERCEPTRON, INC., FLIR SYSTEMS, INC., FIGGIE INTERNATIONAL,
INC., FLOW INTERNATIONAL CORP., FMC CORP. (RECOGNITION INTERNATIONAL, INC. IS
NOT INCLUDED IN THE PEER GROUP AS THEY ARE NO LONGER TRADING.)
12
<PAGE> 14
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 4, 1996,
with respect to the beneficial ownership of the Company's Common Stock (the only
class of shares of outstanding voting securities of the Company) by each
director or nominee for director, by each named executive officer, by all
directors and officers as a group, and by each person who is known to the
Company to be the beneficial owner of more than five percent of the Company's
outstanding Common Stock. Unless otherwise indicated, each person has sole
voting power and sole investment power.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
- - --------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas C. Madsen 500,821 (1) 10.7
150 Avery Street
Walla Walla, Washington 99362
Gordon Wicher 225,406 (1) 4.8
150 Avery Street
Walla Walla, Washington 99362
Glenn A. Waller 118,553 (1) 2.5
150 Avery Street
Walla Walla, Washington 99362
James H. Stanton 123,518 (1) 2.6
150 Avery Street
Walla Walla, Washington 99362
Harold R. Frank 230,000 (1) 4.9
6054 La Goleta
Goleta, California 93117
Edfred L. Shannon, Jr. 25,000 (1) *
1000 South Fremont Avenue
Alhambra, California 91802
James A. Frank 298,927 6.4
336 S. Fairview Avenue
Goleta, California 93117
Robert K. Frank 430,000 9.2
P.O. Box 202
Los Alamos, California 93440
Gary W. Kanegis 14,374 (1) *
150 Avery Street
Walla Walla, Washington 99362
Steven D. Evans 12,685 (1) *
150 Avery Street
Walla Walla, Washington 99362
Richard J. Hebel 2,500 (1) *
150 Avery Street
Walla Walla, Washington 99362
Michael L. Shannon 334,200 (2) 7.2
1000 South Fremont Avenue
Alhambra, California 91803-1366
Bruce L. Shannon 315,000 6.8
1501 Tucker Court
Liberal, Kansas 67901
</TABLE>
13
<PAGE> 15
<TABLE>
<S> <C> <C>
Kathryn S. Johnson 320,000 6.9
01017 Southwest Comus Street
Portland, OR 97219
All executive officers and directors as 1,265,292 27.2
a group (11 persons)
</TABLE>
------------------
*Less than one percent.
(1) Includes shares purchasable under options exercisable within 60 days in
the following amounts:
<TABLE>
<S> <C> <C> <C>
Gary W. Kanegis 13,750 Edfred L. Shannon Jr. 5,000
Steven D. Evans 10,625 Harold R. Frank 5,000
Thomas C. Madsen 7,000 Gordon Wicher 5,000
Richard J. Hebel 2,500 James H. Stanton 2,500
Glenn A. Waller 2,750
</TABLE>
(2) Includes 15,000 shares owned by a trust, the beneficiaries of which are
the children of Michael L. Shannon. Mr. Shannon disclaims beneficial
ownership of these shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, directors and greater than ten percent beneficial
owners are required by Commission regulations to furnish the Company with copies
of all forms they file pursuant to Section 16(a).
Based solely on the Company's review of the copies of such forms it
received and written representations from reporting persons required to file
reports under Section 16(a), to the Company's knowledge all of the section 16(a)
filing requirements applicable to such persons with respect to fiscal 1996 were
complied with except (1) Mr. Robert K. Frank, at the time a beneficial owner of
more than ten percent of the common stock of the Company, filed one report in
fiscal 1996 covering the sale of 15,000 shares in fiscal 1995; (2) Mr. Bruce L.
Shannon, at the time a joint beneficial owner of more than ten percent of the
common stock of the Company, filed one late report covering the sale of 11,000
shares; (3) Mr. Madsen filed one late report with respect to a grant of stock
options; and (4) Mr. Wicher filed one late report with respect to the sale of
10,000 shares and filed one late report with respect to a grant of stock
options.
ITEM 2
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected Deloitte & Touche LLP, independent
public accountants, to audit the consolidated financial statements of the
Company for the fiscal year ending September 30, 1997. Deloitte & Touche LLP has
acted as independent public accountants for the Company since 1985. A
representative of Deloitte & Touche LLP is expected to be present at the Annual
Meeting, will have the opportunity to make a statement, and will be available to
respond to appropriate questions.
14
<PAGE> 16
Unless marked to the contrary, proxies received will be voted FOR
ratification of the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the 1997 fiscal year.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR
THE 1997 FISCAL YEAR.
OTHER BUSINESS
Management knows of no other matters that will be presented for action
at the Annual Meeting. However, the enclosed proxy gives discretionary authority
to the persons named in the proxy in the event that any other matters should be
properly presented to the meeting.
Shareholders may only bring business before an annual meeting if the
shareholder proceeds in compliance with the Company's Restated Bylaws. For
business to be properly brought before the 1997 Annual Meeting by a shareholder,
notice of the proposed business must be given to the Secretary of the Company in
writing on or before the close of business on January 16, 1997. The notice to
the Secretary must set forth as to each matter that the shareholder proposes to
bring before the meeting: (a) a brief description of the business; (b) the
shareholder's name and address as they appear on the Company's books; (c) the
class and number of shares beneficially owned by the shareholder; and (d) any
material interest of the shareholder in such business. The presiding officer at
any annual meeting shall determine whether any matter was properly brought
before the meeting in accordance with the above provisions. If he should
determine that any matter has not been properly brought before the meeting, he
will so declare at the meeting and any such matter will not be considered or
acted upon.
SHAREHOLDER PROPOSALS
To be eligible for inclusion in the Company's proxy materials for the
1998 Annual Meeting of Shareholders, a proposal intended to be presented by a
shareholder for action at that meeting must, in addition to complying with the
shareholder eligibility and other requirements of the Securities and Exchange
Commission's rules governing such proposals, be received not later than
September 6, 1997 by the Secretary of the Company at the Company's principal
executive offices, 150 Avery Street, Walla Walla, Washington 99362.
-------------------
15
<PAGE> 17
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING.
THEREFORE, WHETHER OR NOT YOU EXPECT TO BE PRESENT IN PERSON, YOU ARE
RESPECTFULLY REQUESTED TO MARK, SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY
RETURN IT IN THE ENCLOSED ENVELOPE.
Respectfully submitted,
By order of the Board of Directors,
/s/ Gordon Wicher
Gordon Wicher
Secretary
Dated: January 6, 1997
16
<PAGE> 18
KEY TECHNOLOGY, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS, FEBRUARY 5, 1997
The undersigned hereby appoints Thomas C. Madsen and Gordon
Wicher, and each of them, proxies with full power of
substitution, to represent and vote, as designated below, on
behalf of the undersigned, all shares which the undersigned may
be entitled to vote at the Annual Meeting of Shareholders of
PLEASE KEY TECHNOLOGY, INC. on February 5, 1997, and any adjournment
MARK, or postponement thereof. A majority of the proxies or
DATE, substitutes present at the meeting, or if only one person shall
SIGN be present then that one, may exercise all powers granted
AND hereby.
RETURN
THIS PROPOSAL TO ELECT HAROLD R. FRANK AND EDFRED L. SHANNON, JR. AS
PROXY DIRECTORS
IN THE
ENCLOSED (TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
ENVELOPE STRIKE OUT THAT NOMINEE'S NAME ABOVE.):
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL TO RATIFY SELECTION OF DELOITTE & TOUCHE LLP AS
INDEPENDENT AUDITORS FOR THE 1997 FISCAL YEAR:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 19
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON
THE ABOVE MATTERS, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR
APPROVAL OF THE SELECTION OF AUDITORS. IN ADDITION, THE PROXIES MAY
VOTE IN THEIR DISCRETION AS TO OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE ANNUAL MEETING.
Dated: , 1997
--------------------------------
--------------------------------
Signature or Signatures
Please sign above exactly as
your name or names appear on
this card. If more than one name
appears, all should sign.
Persons signing as executor,
administrator, trustee,
guardian, corporate officer or
in any other official or
representative capacity, should
also provide full title.
