<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 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)(1) 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 LOGO]
150 AVERY STREET
WALLA WALLA, WASHINGTON 99362
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 3, 1999
-------------------
To Our Shareholders:
The Annual Meeting of Shareholders of Key Technology, Inc. (the
"Company") will be held at 8:00 A.M. on February 3, 1999 at the offices of the
Company, 150 Avery Street, Walla Walla, Washington, for the following purposes:
1. To elect two directors of the Company;
2. To ratify the selection of auditors for fiscal 1999; 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 2, 1998 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 4, 1999
<PAGE> 3
[KEY TECHNOLOGY LOGO]
150 AVERY STREET
WALLA WALLA, WASHINGTON 99362
-------------------
PROXY STATEMENT
1999 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 1999 Annual Meeting of Shareholders of the Company to be held at
8:00 A.M. on February 3, 1999 at the Company's executive offices located at 150
Avery Street, Walla Walla, Washington, 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 $1,600.00 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 4, 1999.
VOTING
Holders of record of the Company's Common Stock on December 2, 1998 will
be entitled to vote at the Annual Meeting or any adjournments or postponements
thereof. As of that date, there were 4,701,502 shares of Common Stock
outstanding and entitled to vote, and a majority, or 2,350,752 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 directors and on any
other matter that may properly come before the meeting. Shareholders are not
entitled to cumulative voting in the election of directors.
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 2002, or until their respective successors are elected and
qualified, are Thomas C. Madsen and Gordon Wicher. 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 and broker non-votes will be counted toward the quorum requirement
for the meeting but will not be counted for or against any proposal.
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. MADSEN AND
WICHER.
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 2, 1998: (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
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NOMINEES FOR ELECTION
Thomas C. Madsen 51 President, Chief Executive 1982 1999
Officer and Director
Gordon Wicher+ 52 Vice President-General 1982 1999
Manager of Specialized
Conveying Systems,
Secretary and Director
</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
Harold R. Frank* 74 Chairman of the Board and 1983 2000
Director
Edfred L. Shannon, Jr.* 72 Director 1983 2000
John E. Pelo+ 42 Director 1998 2001
Peter H. van Oppen+ 46 Director 1998 2001
ADDITIONAL OFFICERS
James H. Stanton 54 Vice President-Corporate 1982
Accounts
Glenn A. Waller 53 Vice President- Western 1982
Region Sales
Steven D. Evans 51 Chief Financial Officer and 1991
Vice President-Finance and
Administration
Gary W. Kanegis 52 Vice President-Sales 1991
Vernon L. Perry 64 Vice President-Quality 1991
Assurance
Richard J. Hebel 47 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 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 Corporation.
4
<PAGE> 6
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 beginning in 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 has served as a director of the Company since 1998. He has been
President and Chief Executive Officer of Swire Pacific Holdings, Inc., a
subsidiary of Swire Pacific Ltd., Hong Kong, since 1996. Swire Pacific Ltd. is a
diversified holding company with real estate, shipping, airline, trading,
insurance, and soft drink interests in Asia and North America. Between 1984 and
1996, he served as General Manager of one of Swire's soft drink operations in
the United States.
Mr. van Oppen has been a director of the Company since 1998. He has
served as Chairman and Chief Executive Officer of Advanced Digital Information
Corporation (ADIC), a supplier of automated tape storage libraries for client
server networks, since 1994. Between 1985 and 1996, he served in several
capacities at Interpoint Corporation, including Chairman, President and Chief
Executive Officer. Mr. van Oppen is also a director of Seattle FilmWorks, Inc.
and Spacelabs Medical, Inc.
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 beginning in
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 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 served as Vice President of Sales and Service from 1991
to 1997 and is currently Vice President of Sales. He was Director of Eastern
Regional Sales from 1987 to 1991. From 1979 to 1985, Mr. Kanegis
5
<PAGE> 7
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.
From 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, 1998, the Board of Directors
held five meetings. Each director attended all of the meetings of the Board of
Directors with the exception of Messrs. Pelo and Shannon who each were absent
from one meeting.
The Audit Committee consists of Messrs. Pelo, van Oppen 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 1998 and all members attended
both meetings.
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 stock option
plans. The Compensation Committee met twice during fiscal 1998 and all members
attended both meetings.
The Board of Directors does not have a standing nominating committee.
6
<PAGE> 8
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 are paid an annual retainer of $6,000 and
$1,000 for each board meeting attended, plus reimbursement of expenses.
-------------------
EXECUTIVE COMPENSATION
CASH AND NON-CASH COMPENSATION PAID TO CERTAIN EXECUTIVE OFFICERS
The following table sets forth, for the fiscal years ended September 30,
1998, 1997 and 1996, compensation information with respect to the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers, based on the salary and bonus earned during fiscal 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
COMPENSATION
AWARDS
-------------------------------------------------------
(A) (B) (C) (D) (E) (F) (G)
SECURITIES
UNDERLYING
OTHER ANNUAL OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION SARS COMPENSATION
($) ($) ($) (#) ($)
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. Madsen 1998 255,000 0 * 20,000 8,924 (2)
President and Chief 1997 250,294 101 * 20,000 20,566 (2)
Executive Officer 1996 227,866 100,101 * 25,000 15,879 (2)
Gordon Wicher 1998 161,731 0 * 15,000 7,119 (3)
Vice President- 1997 160,102 101 * 15,000 17,907 (3)
General Manager, 1996 135,720 40,101 * 15,000 14,521 (3)
Specialized
Conveying Systems
Scott L. Mathews 1998 161,731 0 * 15,000 4,128 (5)
Vice President- 1997 158,178 101 15,000 1,146 (5)
General Manager, 1996 61,066 30,101 34,920 (4) 30,000 109 (5)
Automated *
Inspection Systems
Steven D. Evans 1998 121,246 0 * 7,000 3,810 (6)
Chief Financial 1997 117,409 101 * 8,000 16,543 (6)
Officer and Vice 1996 105,791 35,101 * 10,000 12,730 (6)
President, Finance and
Administration
Gary W. Kanegis 1998 115,000 3,000 * 6,000 3,616 (9)
Vice President, Sales 1997 113,755 101 (7) * 10,000 16,657 (9)
1996 107,538 52,101 (8) * 10,000 45,398 (9)
</TABLE>
------------------
*Benefits and perquisites received totaled less than 10% of combined salary and
bonus.
7
<PAGE> 9
(1) Includes amounts deferred by the executive officers under the Company's
Profit Sharing and 401(k) Plan.
(2) Consists of the following: $5,401, $18,208, and $14,168 contributed by
the Company under its Profit Sharing and 401(k) Plan in 1998, 1997, and
1996, respectively; and term life insurance premiums of $3,523, $2,358,
and $1,712 in 1998, 1997, and 1996, respectively.
(3) Consists of the following: $4,625, $15,823, and $12,668 contributed by
the Company under its Profit Sharing and 401(k) Plan in 1998, 1997, and
1996, respectively; and term life insurance premiums of $2,494, $2,084,
and $1,853 in 1998, 1997, and 1996, respectively.
(4) Consists of reimbursed moving expenses of $29,520 and auto allowance of
$5,400.
(5) Consists of the following: $3,763 and $889 contributed by the Company
under its Profit Sharing and 401(k) Plan in 1998 and 1997, respectively;
and term life insurance premiums of $365, $257 and $109 in 1998, 1997
and 1996, respectively.
(6) Consists of the following: $2,842, $15,744, and $12,266 contributed by
the Company under its Profit Sharing and 401(k) Plan in 1998, 1997, and
1996, respectively; and term life insurance premiums of $968, $799, and
$464 in 1998, 1997, and 1996, respectively.
(7) Consists of a $3,000 incentive bonus outside the Management Incentive
Plan.
(8) Includes a $12,000 incentive bonus outside the Management Incentive
Plan.
(9) Consists of the following: $2,724, $15,783, and $12,514 contributed by
the Company under its Profit Sharing and 401(k) Plan in 1998, 1997, and
1996, respectively; and term life insurance premiums of $892, $874, and
$499 in 1998, 1997, and 1996, respectively; and a phantom stock payment
of $32,385 deferred from prior years in 1996.
STOCK OPTIONS GRANTED TO CERTAIN EXECUTIVE OFFICERS DURING LAST FISCAL YEAR
The following table sets forth certain information regarding options for
the purchase of the Company's Common Stock that were awarded to the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers.
OPTION/SAR GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION
FOR OPTION
TERMS
- - --------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/
OPTIONS/ SARS GRANTED EXERCISE OR
SARS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. Madsen 20,000 12.8% $11.75 5/22/08 $147,790 $374,529
Gordon Wicher 15,000 9.6% $11.75 5/22/08 $110,843 $280,897
Scott L. Mathews 15,000 9.6% $11.75 5/22/08 $110,843 $280,897
Steven D. Evans 7,000 4.5% $11.75 5/22/08 $51,727 $131,085
Gary W. Kanegis 6,000 3.8% $11.75 5/22/08 $44,337 $112,359
</TABLE>
8
<PAGE> 10
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) AT FY-END($)(1)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. Madsen 0 0 33,500 49,500 0 0
Gordon Wicher 0 0 22,500 35,000 $ 2,813 0
Scott L. Mathews 0 0 18,750 41,250 0 0
Steven D. Evans 0 0 17,250 19,125 $ 1,125 0
Gary W. Kanegis 0 0 26,250 19,750 $ 2,625 0
</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, 1998, and the exercise price of the
options.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
With respect to fiscal 1998, 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.
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 1998, 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 1998 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 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 comparable
9
<PAGE> 11
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 elected not to increase the
base salary for Mr. Madsen and approved salary increases recommended for the
other named executive officers averaging approximately 2.0 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.
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
1998 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 1998, 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.
10
<PAGE> 12
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, 82 individuals were granted options during fiscal
1998 to purchase 156,200 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 in
one-quarter increments 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 1998," "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 John E. Pelo
Edfred L. Shannon, Jr. Gordon Wicher Peter H. van Oppen
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 with respect to compensation recommendations for the executive
officers other than himself. To the extent the responsibilities of the
Compensation Committee were performed by the Board of Directors, Mr. Wicher, who
is both a director and an executive officer of the Company, did not participate
in the deliberations regarding executive officer compensation.
11
<PAGE> 13
STOCK PERFORMANCE GRAPH
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG KEY TECHNOLOGY, INC., THE S&P 500 INDEX, THE NASDAQ STOCK MARKET
(U.S.) AND A PEER GROUP
[GRAPH]
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------
TOTAL RETURN ANALYSIS
9/30/93 9/30/94 9/29/95 9/30/96 9/30/97 9/30/98
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEY TECHNOLOGY, INC. $ 100.00 $ 56.00 $ 140.00 $ 282.67 $ 170.67 $ 78.67
- - --------------------------------------------------------------------------------------------------
PEER GROUP $ 100.00 $ 110.91 $ 150.91 $ 159.09 $ 186.36 $ 109.85
- - --------------------------------------------------------------------------------------------------
NASDAQ COMPOSITE (US) $ 100.00 $ 101.48 $ 140.00 $ 165.93 $ 227.41 $ 228.51
- - --------------------------------------------------------------------------------------------------
S&P 500 $ 100.00 $ 103.69 $ 134.49 $ 161.82 $ 227.24 $ 247.82
- - --------------------------------------------------------------------------------------------------
</TABLE>
Source: Carl Thompson Associates www.ctaonline.com (800) 959-9677. Data from
Bloomberg Financial Markets
PEER GROUP CONSISTS OF: COGNEX CORP., 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., FLOWSERVE CORP.
12
<PAGE> 14
PRINCIPAL SHAREHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 2, 1998, 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
NAME AND ADDRESS OF NATURE OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------------------------------------------------------
<S> <C> <C>
Thomas C. Madsen 534,321(1) 11.3
150 Avery Street
Walla Walla, Washington 99362
Gordon Wicher 237,906(1) 5.0
150 Avery Street
Walla Walla, Washington 99362
Harold R. Frank 242,500(1) 5.1
6054 La Goleta
Goleta, California 93117
Edfred L. Shannon, Jr. 35,500(1) *
1000 South Fremont Avenue
Alhambra, California 91802
John E. Pelo 1,250 *
#6 Gatehouse Lane
Sandy, Utah 84092
Peter H. van Oppen 5,000 *
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 396,000 8.4
P.O. Box 202
Los Alamos, California 93440
Scott L. Mathews 24,250(1) *
150 Avery Street
Walla Walla, Washington 99362
Steven D. Evans 29,934(1) *
150 Avery Street
Walla Walla, Washington 99362
Gary W. Kanegis 30,473(1) *
150 Avery Street
Walla Walla, Washington 99362
All executive officers and 1,421,605 29.1
directors as a group (13 persons)
</TABLE>
- - ------------------
*Less than one percent.
13
<PAGE> 15
(1) Includes shares purchasable under options exercisable within 60 days of
December 2, 1998 in the following amounts:
<TABLE>
<S> <C> <C> <C>
Thomas C. Madsen 33,500 Scott L. Mathews 18,750
Gordon Wicher 22,500 Steven D. Evans 17,250
Harold R. Frank 12,500 Gary W. Kanegis 26,250
Edfred L. Shannon Jr. 12,500
</TABLE>
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 1998 were
complied with.
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, 1999. 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 1999 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 1999 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 1999 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 14, 1999. The notice to
the Secretary must set forth as to each matter that the shareholder proposes to
bring before the meeting: (a) a brief
14
<PAGE> 16
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 will 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 the
matter will not be considered or acted upon.
SHAREHOLDER PROPOSALS
To be eligible for inclusion in the Company's proxy materials for the
2000 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, 1999 by the Secretary of the Company at the Company's principal
executive offices, 150 Avery Street, Walla Walla, Washington 99362.
-------------------
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.
By order of the Board of Directors,
/s/ GORDON WICHER
Gordon Wicher
Secretary
Dated: January 4, 1999
15
<PAGE> 17
KEY TECHNOLOGY, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS, FEBRUARY 3, 1999
PLEASE MARK, The undersigned hereby appoints Thomas C. Madsen and Gordon
DATE, SIGN Wicher, and each of them, proxies with full power of substitution,
AND to represent and vote, as designated below, on behalf of the
RETURN undersigned, all shares which the undersigned may be entitled to
THIS vote at the Annual Meeting of Shareholders of KEY TECHNOLOGY, INC.
PROXY on February 3, 1999, and any adjournment or postponement thereof.
IN THE A majority of the proxies or substitutes present at the meeting,
ENCLOSED or if only one person shall be present then that one, may exercise
ENVELOPE all powers granted hereby.
PROPOSAL TO ELECT THOMAS C. MADSEN AND GORDON WICHER 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> 18
(continued from other side)
P
R
O
X
Y
PROPOSAL TO RATIFY SELECTION OF DELOITTE & TOUCHE LLP
AS INDEPENDENT AUDITORS FOR THE 1999 FISCAL YEAR:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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:
-----------------------------, 1999
-----------------------------------
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.
