<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:
[ ] 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 240.14a-11(c) or 240.14a-12
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:
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(2) Aggregate number of securities to which transaction applies:
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(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:
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(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
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[KEY TECHNOLOGY LOGO]
150 AVERY STREET
WALLA WALLA, WASHINGTON 99362
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 4, 1998
-------------------
To Our Shareholders:
The Annual Meeting of Shareholders of Key Technology, Inc. (the
"Company") will be held at 8:00 A.M. on February 4, 1998 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 1998; 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, 1997 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 5, 1998
<PAGE> 3
[KEY TECHNOLOGY LOGO]
150 AVERY STREET
WALLA WALLA, WASHINGTON 99362
-------------------
PROXY STATEMENT
1998 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 1998 Annual Meeting of Shareholders of the Company to be held at
8:00 A.M. on February 4, 1998 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 5, 1998.
VOTING
Holders of record of the Company's Common Stock on December 4, 1997 will
be entitled to vote at the Annual Meeting or any adjournments or postponements
thereof. As of that date, there were 4,687,671 shares of Common Stock
outstanding and entitled to vote, and a majority, or 2,343,836 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 2001, or until their respective successors are elected and
qualified, are John E. Pelo and Peter H. van Oppen. They will replace James H.
Stanton and Glenn A. Waller whose terms expire in 1998. Messrs. Stanton and
Waller will continue in their roles as key management employees of the Company.
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 be
counted in determining whether a quorum is present, but 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. PELO AND
VAN OPPEN.
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, 1997: (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
OR OFFICER OF CURRENT
NAME AGE POSITIONS SINCE TERM
- -------------------------- ------ ----------------------------- ------------ --------------
NOMINEES FOR ELECTION
<S> <C> <C> <C> <C>
John E. Pelo 42 Director - 2001
Peter H. van Oppen 45 Director - 2001
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
HAS BEEN
A DIRECTOR EXPIRATION
OR OFFICER OF CURRENT
NAME AGE POSITIONS SINCE TERM
- -------------------------- ------ ----------------------------- ------------ --------------
<S> <C> <C> <C> <C>
DIRECTORS CONTINUING IN
OFFICE
Thomas C. Madsen 50 President, Chief Executive 1982 1999
Officer and Director
Gordon Wicher+ 51 Vice President-General 1982 1999
Manager of Specialized
Conveying Systems,
Secretary and Director
Harold R. Frank+* 73 Chairman of the Board and 1983 2000
Director
Edfred L. Shannon, Jr.+* 71 Director 1983 2000
ADDITIONAL OFFICERS
James H. Stanton 53 Vice President-Corporate 1982 1998
Accounts and Director
Glenn A. Waller 52 Vice President- Western 1982 1998
Region Sales and Director
Steven D. Evans 50 Chief Financial Officer and 1991
Vice President-Finance and
Administration
Gary W. Kanegis 51 Vice President-Sales 1991
Vernon L. Perry 63 Vice President-Quality 1991
Assurance
Richard J. Hebel 46 Vice President-Corporate 1993
Marketing and Business
Development
Scott L. Mathews 40 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.
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
4
<PAGE> 6
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 1982. 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 1982. 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. Pelo is currently a nominee for the position of director on the
board of the Company. He is President and Chief Executive Officer of Swire
Pacific Holdings, Inc., a subsidiary of Swire Pacific Ltd., Hong Kong. Swire
Pacific Ltd. is a diversified holding company with real estate, shipping,
airline, trading, insurance, and soft drink interests in Asia and North America.
Mr. Pelo has served as President and CEO of Swire Pacific Holdings, Inc. since
1996. Between 1984 and 1996, he served as General Manager of one of Swire's soft
drink operations in the U.S. From 1979 to 1984, he was a manager in the
accounting practice of Price Waterhouse in Seattle. Mr. Pelo serves on the board
of directors of the Utah Manufacturers Association, the Coca-Cola Bottlers
Association, and the National Soft Drink Association. He is also on the Board of
Trustees of the Washington State University Foundation and is a member of the
American Institute of Certified Public Accountants. He holds a business degree
from Washington State University.
Mr. van Oppen is also a nominee for the position of director on the
board of the Company. He is Chairman and Chief Executive Officer of Advanced
Digital Information Corporation (ADIC), a publicly held leading supplier of
automated tape storage libraries for client server networks. Mr. van Oppen has
been on the board of ADIC since 1986, and has served as chairman since 1994 when
ADIC was acquired by Interpoint Corporation. Between 1985 and 1996, he served in
several capacities at Interpoint, including Chairman, President and Chief
Executive Officer. Prior to joining Interpoint, he served as Vice
President-International for Advanced Technology Labs, a medical products
company, and later spent three years in venture capital. From 1976 to 1980, he
was a manager with the consulting practices of Price Waterhouse in Seattle and
New York, and with Bain & Company in Boston and London. Mr. van Oppen is also a
director of Seattle Filmworks, Inc. and serves on the Board of Overseers at
Whitman College. He holds a BA degree from Whitman College and an MBA from
Harvard University.
Mr. Stanton, a founder of the Company, has been Vice President of
Corporate Accounts since 1997. He was Vice President-Product Management,
Specialized Conveying Systems from 1994 to 1997, and was a director from 1982 to
1998. 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.
5
<PAGE> 7
Mr. Waller, a founder of the Company, has served as Vice President of
Western Region Sales since 1992 and was a director from 1982 to 1998. 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, and has been
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. He served as Vice President of Sales and Service from 1991 to 1997 and is
currently Vice President of Sales. 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
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.
Mr. Hebel joined the Company in 1993 as Vice President of Marketing, and
is currently Vice President of Corporate Marketing and Business Development.
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, 1997, 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 1997 and all members attended.
6
<PAGE> 8
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
1997 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 employees of the Company are
not separately compensated for serving on the Board of Directors. Directors who
are not employees of the Company were paid a fee of $1,250 per quarter, plus
reimbursement of expenses.
-------------------
EXECUTIVE COMPENSATION
CASH AND NON-CASH COMPENSATION PAID TO CERTAIN EXECUTIVE OFFICERS
The following table sets forth, for the fiscal years ended September 30,
1995, 1996 and 1997, compensation information with respect to the Company's (a)
Chief Executive Officer and (b) each of the four other most highly compensated
executive officers, based on the salary and bonus earned during fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
COMPENSATION
AWARDS
------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
SECURITIES
UNDERLYING
OTHER ANNUAL OPTIONS/ ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION SARS COMPENSATION
POSITION YEAR (1) ($) ($) (#) ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. Madsen 1997 250,294 101 * 20,000 20,566
President and Chief 1996 227,866 100,101 * 25,000 15,879
Executive Officer 1995 210,500 85,101 * 8,000 5,636
Gordon Wicher 1997 160,102 101 * 15,000 17,907(3)
Vice President-General Manager, 1996 135,720 40,101 * 15,000 14,521(3)
Specialized Conveying Systems 1995 120,106 35,101 * 5,000 3,559
</TABLE>
(continued)
7
<PAGE> 9
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Scott L. Mathews 1997 158,178 101 34,920 15,000 1,146(5)
Vice President-General Manager, 1996 61,066 30,101 * 30,000 109(5)
Automated Inspection Systems 1995 -- -- -- -- --
Steven D. Evans 1997 117,409 101 * 8,000 16,543(6)
Chief Financial Officer and Vice 1996 105,791 35,101 * 10,000 12,730(6)
President, Finance and 1995 102,019 30,101 * 4,500 2,638(6)
Administration
Gary W. Kanegis 1997 113,755 101 * 10,000 16,657(9)
Vice President, Sales 1996 107,538 52,101(7) * 10,000 45,398(9)
1995 102,423 41,101(8) * 5,000 26,146(9)
</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
Profit Sharing and 401(k) Plan.
(2) Consists of the following: $18,208, $14,168 and $3,600 contributed by
the Company under its Profit Sharing and 401(k) Plan in 1997, 1996 and
1995, respectively; and term life insurance premiums of $2,358, $1,712
and $2,035 in 1997, 1996 and 1995, respectively.
(3) Consists of the following: $15,823, $12,668 and $2,100 contributed by
the Company under its Profit Sharing and 401(k) Plan in 1997, 1996 and
1995, respectively; and term life insurance premiums of $2,084, $1,853
and $1,459 in 1997, 1996 and 1995, respectively.
(4) Includes reimbursed moving expenses of $29,520 and auto allowance of
$5,400.
(5) Consists of the following: $889 contributed by the Company under its
Profit Sharing and 401(k) Plan in 1997; and term life insurance premiums
of $257 and $109 in 1997 and 1996, respectively.
(6) Consists of the following: $15,744, $12,266 and $2,205 contributed by
the Company under its Profit Sharing and 401(k) Plan in 1997, 1996 and
1995, respectively; and term life insurance premiums of $799, $464 and
$433 in 1997, 1996 and 1995, respectively.
(7) Includes a $12,000 incentive bonus outside the Management Incentive
Plan.
(8) Includes a $9,000 incentive bonus outside the Management Incentive Plan.
(9) Consists of the following: $15,783, $12,514 and $2,046 contributed by
the Company under its Profit Sharing and 401(k) Plan in 1997, 1996 and
1995, respectively; and term life insurance premiums of $874, $499 and
$442 in 1997, 1996 and 1995, respectively; and phantom stock payment of
$32,385 and $23,658 deferred from prior years in 1996 and 1995,
respectively.
STOCK OPTIONS GRANTED TO CERTAIN EXECUTIVE OFFICERS DURING LAST FISCAL YEAR
The following table sets forth certain information regarding options for
the purchase of the Company's Common Stock that were awarded to the Company's
(a) Chief Executive Officer and (b) each of the four other most highly
compensated executive officers.
8
<PAGE> 10
OPTION/SAR GRANTS IN FISCAL 1997
<TABLE>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
FOR OPTION
INDIVIDUAL GRANTS TERMS
- --------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
NUMBER OF
SECURITIES
UNDERLYING % OF TOTAL
OPTIONS/ OPTIONS/
SARS SARS GRANTED EXERCISE OR
GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ------------------ ---------------- ----------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. Madsen 20,000 13.5% $17.00 5/06/07 $213,824 $541,872
Gordon Wicher 15,000 10.1% $17.00 5/06/07 $160,368 $406,404
Scott L. Mathews 15,000 10.1% $17.00 5/06/07 $160,368 $406,404
Steven D. Evans 8,000 5.4% $17.00 5/06/07 $ 85,530 $216,749
Gary W. Kanegis 10,000 6.7% $17.00 5/06/07 $106,912 $270,936
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END($) (1)
ACQUIRED ON VALUE -------------------------- ---------------------------
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. Madsen 0 0 17,750 45,250 $ 86,650 $45,150
Gordon Wicher 0 0 11,875 30,625 $ 68,125 $34,375
Scott L. Mathews 0 0 7,500 37,500 0 0
Steven D. Evans 7,125 $118,306 10,125 19,250 $ 54,125 $29,250
Gary W. Kanegis 3,000 $ 57,490 18,250 21,750 $117,150 $33,250
</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, 1997, and the exercise price of the
options.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
With respect to fiscal 1997, 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 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.
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<PAGE> 11
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 1997, 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 1997 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
10.8 percent increase in base salary for Mr. Madsen and approved salary
increases recommended for the other named executive officers averaging
approximately 5.9 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.
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
10
<PAGE> 12
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
1997 was $2,000,000. Therefore, the maximum amount that could have been
allocated to the Incentive Plan was $600,000.
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 1997, the Company's booked orders, profitability, and
return on net assets did not meet the minimum level to qualify for funding of
the Management Incentive Plan and, therefore, no bonuses were paid.
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, 60 individuals were granted options during fiscal
1997 to purchase 148,450 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 the
"Option/SAR Grants in Fiscal 1997," "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 Thomas C. Madsen James H. Stanton
Edfred L. Shannon Gordon Wicher Glenn A. Waller
11
<PAGE> 13
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.
STOCK PERFORMANCE GRAPH
[GRAPH]
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.
12
<PAGE> 14
PRINCIPAL SHAREHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 4, 1997, 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 504,571(1) 10.8
150 Avery Street
Walla Walla, Washington 99362
Gordon Wicher 228,281(1) 4.9
150 Avery Street
Walla Walla, Washington 99362
Glenn A. Waller 117,771(1) 2.5
150 Avery Street
Walla Walla, Washington 99362
James H. Stanton 124,092(1) 2.6
150 Avery Street
Walla Walla, Washington 99362
Harold R. Frank 234,750(1) 5.0
6054 La Goleta
Goleta, California 93117
Edfred L. Shannon, Jr. 63,750(1) 1.4
1000 South Fremont Avenue
Alhambra, California 91802
John E. Pelo 1,250 *
#6 Gatehouse Lane
Sandy, Utah 84092
Peter H. van Oppen 0 *
Advanced Digital Information
Corporation
P.O. Box 97057
Redmond, WA 98073-9757
James A. Frank 298,927 6.4
P.O. Box 6527
Santa Barbara, Calif. 93160-6527
Robert K. Frank 430,000 9.2
P.O. Box 202
Los Alamos, California 93440
Scott L. Mathews 10,000(1) *
150 Avery Street
Walla Walla, Washington 99362
Steven D. Evans 20,484 (1) *
150 Avery Street
Walla Walla, Washington 99362
</TABLE>
13
<PAGE> 15
<TABLE>
<S> <C> <C>
Gary W. Kanegis 21,757(1) *
150 Avery Street
Walla Walla, Washington 99362
Michael L. Shannon 295,600(2) 6.3
c/o The General Counsel
Law Firm
1000 South Fremont Avenue
Alhambra, California 91803-1366
Bruce L. Shannon 247,000 5.3
P.O. Box 6026
Liberal, Kansas 67901
Kathryn S. Johnson 287,000 6.1
c/o The General Counsel
Law Firm
1000 South Fremont Avenue
Alhambra, California 91803-1366
All executive officers and 1,344,690 28.7
directors as a group (13
persons)
</TABLE>
- ------------------
*Less than one percent.
(1) Includes shares purchasable under options exercisable within 60 days in the
following amounts:
Gary W. Kanegis 18,250 Edfred L. Shannon Jr. 8,750
Steven D. Evans 10,125 Harold R. Frank 8,750
Thomas C. Madsen 17,750 Gordon Wicher 11,875
Scott L. Mathews 7,500 James H. Stanton 4,500
Glenn A. Waller 5,250
(2) Includes 20,400 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 1997 were
complied with except Mr. Edfred L. Shannon, Jr. filed one late report with
respect to the purchase of 35,000 shares.
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, 1998.
14
<PAGE> 16
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.
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 1998 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 1998 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 1998 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 15, 1998. 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
1999 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 7, 1998 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 5, 1998
16
<PAGE> 18
KEY TECHNOLOGY, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE ANNUAL MEETING OF SHAREHOLDERS, FEBRUARY 4, 1998
MARK,
DATE, The undersigned hereby appoints Thomas C. Madsen
SIGN and Gordon Wicher, and each of them, proxies with full
AND power of substitution, to represent and vote, as designated below,
RETURN on behalf of the undersigned, all shares which the undersigned may
THIS be entitled to vote at the Annual Meeting of Shareholders of KEY
PROXY TECHNOLOGY, INC. on February 4, 1998, and any adjournment or
IN THE postponement thereof. A majority of the proxies or substitutes
ENCLOSED present at the meeting, or if only one person shall be present then
ENVELOPE that one, may exercise all powers granted hereby.
PROPOSAL TO ELECT JOHN E. PELO AND PETER H. VAN OPPEN AS DIRECTORS
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
OUT THAT NOMINEE'S NAME ABOVE.):
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 19
PROPOSAL TO RATIFY SELECTION OF DELOITTE & TOUCHE LLP AS
INDEPENDENT AUDITORS FOR THE 1998 FISCAL YEAR:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
P
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON
R THE ABOVE MATTERS, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR
O APPROVAL OF THE SELECTION OF AUDITORS. IN ADDITION, THE PROXIES MAY
VOTE IN THEIR DISCRETION AS TO OTHER MATTERS AS MAY PROPERLY COME
X BEFORE THE ANNUAL MEETING
Y _____________________________ Dated:___________________, 1998
_____________________________
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.
