UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 1999
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____ to ____
Commission File No. 0-21820
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KEY TECHNOLOGY, INC.
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(Exact name of Registrant as specified in its charter)
Oregon 93-0822509
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(State of Incorporation) (I.R.S. Employer Identification No.)
150 Avery Street, Walla Walla, Washington 99362
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(Address of principal executive offices) (Zip Code)
(509) 529-2161
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
The number of shares outstanding of the Registrant's common stock, no par
value, on April 30, 1999 was 4,708,569 shares.
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KEY TECHNOLOGY, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1999
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
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Item 1. Financial statements
Condensed consolidated balance sheets, March 31, 1999
(unaudited) and September 30, 1998..........................................................3
Condensed unaudited consolidated statements of operations for the
three months ended March 31, 1999 and 1998..................................................4
Condensed unaudited consolidated statements of operations for the
six months ended March 31, 1999 and 1998....................................................5
Condensed unaudited consolidated statements of cash flows for
the six months ended March 31, 1999 and 1998...............................................6
Notes to condensed unaudited consolidated financial statements..................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............................................14
Item 6. Exhibits and Reports on Form 8-K...............................................................14
SIGNATURES.......................................................................................................15
EXHIBIT INDEX....................................................................................................16
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2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 (UNAUDITED) AND SEPTEMBER 30, 1998
(in thousands)
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March 31, September 30,
1999 1998
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Assets
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Current assets:
Cash and cash equivalents $6,283 $ 6,333
Trade accounts receivables, net 11,048 7,051
Inventories:
Raw materials 3,040 4,726
Work-in-process and sub-assemblies 6,925 5,353
Finished goods 2,483 2,604
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Total inventories 12,448 12,683
Other current assets 1,804 1,821
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Total current assets 31,583 27,888
Property, plant and equipment, net 8,902 9,584
Other assets 1,896 1,885
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Total $42,381 $39,357
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Liabilities and Shareholders' Equity
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Current liabilities:
Accounts payable $ 3,671 $ 2,471
Accrued payroll liabilities and commissions 2,732 2,146
Income tax payable 338 279
Other accrued liabilities 1,826 2,072
Customers' deposits 2,334 1,392
Short-term borrowings and debt 502 579
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Total current liabilities 11,403 8,939
Long-term debt 879 1,103
Total shareholders' equity 30,099 29,315
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Total $42,381 $39,357
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See notes to condensed unaudited consolidated financial statements
3
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KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(in thousands, except per share data)
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1999 1998
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Net sales $15,676 $13,187
Cost of sales 9,924 8,147
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Gross profit 5,752 5,040
Operating expenses:
Selling 2,368 1,996
Research and development 1,246 1,348
General and administrative 1,422 1,207
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Total operating expenses 5,036 4,551
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Income from operations 716 489
Other income 97 43
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Earnings before income taxes 813 532
Income tax expense 266 186
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Net earnings $ 547 $ 346
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Net earnings per common share - basic $ .12 $ .07
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Net earnings per common share - diluted $ .12 $ .07
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Shares used in per share calculation - basic 4,705 4,690
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Shares used in per share calculation - diluted 4,706 4,724
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See notes to condensed unaudited consolidated financial statements
4
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KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(in thousands, except per share data)
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1999 1998
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Net sales $30,495 $25,946
Cost of sales 19,353 16,350
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Gross profit 11,142 9,596
Operating expenses:
Selling 4,731 3,942
Research and development 2,081 2,503
General and administrative 2,997 2,415
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Total operating expenses 9,809 8,860
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Income from operations 1,333 736
Other income 123 65
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Earnings before income taxes 1,456 801
Income tax expense 485 281
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Net earnings $ 971 $ 520
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Net earnings per common share - basic $ .21 $ .11
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Net earnings per common share - diluted $ .21 $ .11
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Shares used in per share calculation - basic 4,703 4,688
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Shares used in per share calculation - diluted 4,703 4,731
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See notes to condensed unaudited consolidated financial statements
5
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KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(in thousands)
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1999 1998
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Net cash provided by operating activities $ 683 $3,207
Cash flows from investing activities:
Additions to property, plant and equipment, net (571) (499)
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Net cash used in investing activities (571) (499)
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Cash flows from financing activities:
Proceeds from issuance of long-term debt - 408
Repayments of long-term debt (201) (535)
Proceeds from issuance of common stock 39 71
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Net cash used in financing activities (162) (56)
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Net increase (decrease) in cash and cash equivalents (50) 2,652
Cash and cash equivalents, beginning of the year 6,333 2,896
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Cash and cash equivalents, end of period $6,283 $5,548
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Supplemental information:
Cash paid during the period for interest $ 68 $257
Cash paid during the period for income taxes $503 $661
See notes to condensed unaudited consolidated financial statements
6
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KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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1. Condensed unaudited consolidated financial statements
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted from these condensed unaudited consolidated
financial statements. These condensed unaudited consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-K for the fiscal year ended
September 30, 1998. The results of operations for the three- and six-month
periods ended March 31, 1999 are not necessarily indicative of the
operating results for the full year.
In the opinion of management, all adjustments, consisting only of normal
recurring accruals, have been made to present fairly the Company's
financial position at March 31, 1999 and the results of its operations for
the three- and six-month periods ended March 31, 1999 and 1998 and its cash
flows for the six-month periods ended March 31, 1999 and 1998.
The balance sheet at September 30, 1998 has been condensed from the audited
balance sheet as of that date.
2. Income taxes
The provision for income taxes is based on the estimated effective income
tax rate for the year.
3. Comprehensive Income
On October 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." The Company's
consolidated comprehensive income was $308,000 and $242,000 for the three
months ended March 31, 1999 and 1998, respectively, and $743,000 and
$479,000 for the six months ended March 31, 1999 and 1998, respectively.
The differences between the net earnings reported in the consolidated
statement of earnings and the consolidated comprehensive net income for the
periods consisted of changes in foreign currency translation adjustments.
4. Segment Information
On October 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company's business
units serve customers in its primary market - the food processing and
agricultural products industry - through common sales and distribution
channels. Therefore, the Company reports on one segment.
7
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PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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COMMENTS INCLUDED IN THIS DOCUMENT MAY INCLUDE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. THESE STATEMENTS AS TO
ANTICIPATED FUTURE RESULTS ARE BASED ON CURRENT EXPECTATIONS AND ARE SUBJECT TO
A NUMBER OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED OR DISCUSSED HERE. SUCH RISKS AND UNCERTAINTIES
INCLUDE, BUT ARE NOT LIMITED TO: THE IMPACT ON QUARTERLY REVENUES OF BEGINNING
BACKLOG LEVELS AND ORDER-TO-SHIPMENT LEAD TIME INTERVALS IN CERTAIN PRODUCT
LINES; THE MIX OF PRODUCTS INCLUDED IN THOSE REVENUES AND THE RESULTING EFFECT
UPON GROSS MARGINS; AND THE RECEIPT OF LARGE ORDERS THAT MAY NOT BE REPEATED IN
SUBSEQUENT PERIODS. ADDITIONAL RISKS AND UNCERTAINTIES ARE DETAILED IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FILED WITH THE SEC IN DECEMBER 1998 AND ARE
INCORPORATED HEREIN BY REFERENCE. THE COMPANY CAUTIONS READERS NOT TO PLACE
UNDUE RELIANCE UPON ANY SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF
THE DATE HEREOF. THE COMPANY DISCLAIMS ANY OBLIGATION SUBSEQUENTLY TO REVISE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF
SUCH STATEMENTS OR TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED
EVENTS.
RESULTS OF OPERATIONS
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For the three-month period ended March 31, 1999, net earnings increased by 58%
to $547,000 or $.12 per share on net sales of $15.7 million compared to net
earnings of $346,000 or $.07 per share on net sales of $13.2 million for the
comparable period in fiscal 1998. Net earnings were 3.5% and 2.6% of net sales
in the two periods, respectively. For the six months ended March 31, 1999, the
Company's operating activities resulted in net income of $971,000 or $.21 per
share on net sales of $30.5 million compared to net income of $520,000 or $.11
per share on net sales of $25.9 million for the corresponding period in fiscal
1998.
THREE MONTHS. Net sales increased approximately $2.5 million or 19% in the
three-month period ended March 31, 1999 compared to the corresponding period in
fiscal 1998. The increase in net sales between the two periods resulted
principally from increased sales in the processing equipment, parts and service
and specialized conveying system product groups, partially offset by decreased
sales of automated inspection systems. The Company continues to experience an
increased level of demand to supply turn-key processing lines which include
significant components of the Company's specialized conveying systems and
processing equipment, together with automated inspection systems and other
third-party supplied equipment. Sales of automated inspection systems resulted
principally from shipments of the Company's Tegra(TM) sorting systems. Sales to
European customers increased by 35% in the second quarter of fiscal 1999 over
the same period last year.
Orders for the second quarter of fiscal 1999 totaled a record $23.1 million,
which were more than double the Company's fiscal 1999 first quarter orders and
represented a 45% increase over orders received from customers during the
corresponding period last year, which had totaled $15.9 million.
8
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The order receipt activity in the most recent quarter was broadly based. All
three operating business units, the AIS and SCS business units in Walla Walla
and Key/Superior in Europe, contributed to the record quarter. The Walla Walla
operations booked approximately 80% of the total orders, with the AIS and SCS
business unit order totals being essentially equal in volume. Approximately
one-half of the total order volume for the quarter was received from
international customers.
As a result of the strong order activity, backlog increased to $14.9 million,
almost doubling from the level at the start of the quarter and up by 46% over
the $10.2 million in backlog one year ago. Given the strength of demand for the
specialized conveying systems product group, domestically and in Europe, the
backlog for this product line accounted for approximately 54% of the backlog
level at quarter-end and increased by over 70% from a year ago. Automated
inspection system backlog represented about 33% of the backlog at quarter-end
and increased by about 20% over the backlog of one year ago. The backlog at
March 31, 1999 included a previously announced order of approximately $7 million
from one customer which is expected to be shipped principally in the third and
fourth quarters of fiscal 1999.
Gross profit contribution for the three-month period ended March 31, 1999
increased to $5.8 million compared to $5.0 million in last year's second quarter
as a result of increased sales volume between the periods. However, the gross
profit rate as a percentage of sales decreased slightly to 37% of sales in the
more recent period from 38% of sales in the corresponding fiscal quarter last
year. The decrease in gross margin as a percentage of sales was due principally
to the shift in product mix to an increased volume of lower margin processing
equipment and conveying systems, including the effect of the third-party
supplied equipment which carry lower "pass-through" margins, as components of
the larger turn-key systems.
Operating expenses were $5.0 million in the three-month period ended March 31,
1999 compared to $4.6 million for the three-month period ended March 31, 1998.
Selling expenses increased by 19% or $372,000 to $2.4 million in the more recent
period due principally to increased staffing, commission and travel expenses.
The increase in commission expenses related to the higher level of product sales
combined with an increased volume of those sales sold through outside
representatives, to whom the Company pays higher commission rates. Management
expects that selling expenses during the next several quarters will continue to
increase with respect to both the level of expenditures anticipated and the rate
of increase compared to corresponding periods last year. General and
administrative expenses increased by 18% to $1.4 million in the more recent
quarter from $1.2 million in the corresponding period last year as a result of a
variety of factors, including increased expense levels for outside services,
personnel and payroll expenses, offset somewhat by decreased bad debts expense.
Research and development expenses during the March 1999 quarter decreased
moderately to $1.2 million compared to $1.3 million in the second quarter of
fiscal 1998, reflecting an increased level of systems engineering costs charged
to cost of sales in support of the increased production volumes of sold systems.
Management expects that expenditures for research and development and for
general and administrative expenses over the next several quarters will
generally remain consistent with the levels experienced in the second quarter of
9
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the current fiscal year. For the fiscal quarter ended March 31, 1999, other
income was $97,000 compared to $43,000 for the corresponding period in fiscal
1998.
SIX MONTHS. Net sales for the six-month period ended March 31, 1999 increased
18% to $30.5 million from $25.9 million in the comparable period last year. The
increase in net sales resulted principally from increased sales of products in
the specialized conveying systems and processing equipment product group
followed by increased sales of parts and service. In the more recent six-month
period, the increase in sales resulted principally from a higher volume of sales
to European customers of all three product groups, followed by increased sales
of specialized conveying systems to other international customers, compared to
the corresponding period last year. Based upon the results of the most recent
six-month period and current market expectations, the Company continues to
maintain its objective for 15% to 20% growth in net sales for fiscal 1999 over
fiscal 1998.
For the six months ended March 31, 1999, gross profit increased by $1.5 million
or 16% to $11.1 million, or 36.5% of net sales, compared to $9.6 million, or 37%
of sales, in the six months ended March 31, 1998. Gross profit contribution
during the six-month period ended March 31, 1999 increased over the
corresponding period in 1998 due principally to the increased volume of net
sales. As a percentage of sales, however, gross margin decreased slightly as a
result of a shift in product mix to lower margined systems. Gross margin for the
six-month period ended March 31, 1999 benefited from a 36% decrease in warranty
and installation expenses compared to the corresponding period in fiscal 1998
even though sales increased by 18% between the respective periods. For fiscal
1999, the Company's objective is to improve gross margins to at least 38% of net
sales compared to 36% in fiscal 1998.
Total operating expenses increased by $949,000 to $9.8 million in the six-month
period ended March 31, 1999 from $8.9 million in the comparable period of the
previous fiscal year. The increase in operating expenses was principally as a
result of increased selling costs followed by increased general and
administrative expenses, both of which were partially offset by decreased
research and development expenditures, as discussed above. The Company continues
to maintain its objective for fiscal 1999 to invest approximately 29% to 32% of
net sales in operating expenses compared to 32% invested in such expenses during
the first six months of fiscal 1999 and 34% invested in such expenses last year.
For the six-month period ended March 31, 1999, other income was $123,000
compared to other income of $65,000 for the corresponding period in fiscal 1998
principally as a result of increased net interest income. Interest income was
stable while of interest expense decreased between the corresponding periods.
The results of operations for the six months ended March 31, 1999 were net
income of $971,000 compared to a net income of $520,000 for the corresponding
period in fiscal 1998. The results of operations were 3.2% and 2.0% of net sales
in the two periods, respectively.
10
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LIQUIDITY AND CAPITAL RESOURCES
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Net cash provided by operating activities during the six-month period ended
March 31, 1999, totaled $683,000 compared to net cash provided by operating
activities totaling $3.2 million in the corresponding period in fiscal 1998. The
principal sources of cash provided during the six months ended March 31, 1999
were increases of $1.2 million in accounts payable, $942,000 in customers'
deposits and $586,000 in accrued payroll liabilities, offset by an increase of
$4.0 million in accounts receivable. In the corresponding period last year, two
primary sources of cash were provided by an increase of $1.8 million in
customers' deposits and a decrease in inventories of $1.3 million.
Cash flows from investing activities for the six-month period ended March 31,
1999 included the use of net cash resources totaling $571,000 to fund the
acquisition of capital equipment compared to $499,000 expended for capital
equipment in the corresponding period last year. At March 31, 1999, the Company
had no material commitments for capital expenditures.
The Company's cash flows from financing activities for the six months ended
March 31, 1999 were principally affected by repayments of $201,000 in long-term
debt compared to a net decrease of $127,000 in total consolidated long-term debt
during the first six months of fiscal 1998. Proceeds from the issuance of common
stock during the most recent six-month period under the Company's employee stock
option and stock purchase plans totaled $39,000.
During the six-month period ended March 31, 1999, working capital increased by
$1.2 million to $20.2 million. Trade accounts receivable increased by the net
amount of $4.0 million, principally as a result of a high level of shipments at
the end of the period. Inventories decreased by $235,000 primarily as a result
of the increased product sales late in the second fiscal quarter. Trade accounts
payable increased by $1.2 million, principally as the result of the timing of
payments for purchased inventory received during the period, and deposits from
customers increased by $942,000. The increases in trade accounts payable and
customers' deposits during the period were primarily in response to the
increased customer order and backlog levels. Accrued payroll liabilities
increased by $586,000 principally due to increased accrued commissions,
incentive compensation resulting from the increased sales volume and
profitability during the period, together with increased accrued workers'
compensation taxes.
The Company's facility with a domestic commercial bank provides for an operating
line of credit up to $4.0 million. At March 31,1999, the Company had no
borrowings under this credit facility. The line of credit is subject to an
annual renewal and was renewed in January 1999. The line of credit under the
most recent renewal remains unsecured and provides for interest at one-quarter
percent below the bank's prevailing prime rate of interest.
The Company also maintains a credit facility with a Dutch bank which provides
for operating lines of credit totaling 1.5 million guilders, or approximately
$735,000, to the Company's subsidiaries in the Netherlands. At March 31, 1999,
the Company had no borrowings under this credit facility.
11
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The Company's operating, investing and financing activities resulted in a
$50,000 decrease in cash and cash equivalents during the six-month period ended
March 31, 1999. At the end of the period, the balance of cash and cash
equivalents totaled $6.3 million. The Company believes that its cash and cash
equivalents, cash generated from operations and available borrowings under its
operating lines of credit will be sufficient to provide for its working capital
needs and to fund future growth.
YEAR 2000 CONVERSION
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The Company has initiated an enterprise-wide program to prepare its computer
systems, applications and products for the year 2000 date conversion. The
Company expects to incur internal staff costs as well as consulting expenses,
investments in capital equipment and other remediation expenditures related to
enhancements necessary to achieve a year 2000 date conversion with no effect on
customers or disruption to business operations. The total cost of compliance and
its effect on the Company's future results of operations continues to be
determined as a part of the detailed and on-going compliance-planning program.
Management currently believes that total expenditures for the Company's year
2000 compliance program will range between $200,000 and $275,000, including both
capital equipment and operating expense. Expenditures through March 31, 1999
totaled approximately $175,000.
The Company's year 2000 assessment program that addresses internal issues for
its domestic operations was substantially completed by January 1999 and contains
only a low level of risk. The Company's European operation continues to make
progress toward completion of its year 2000 assessment program, which is
expected to be fully completed prior to the end of fiscal 1999. The Company also
expects to continue its assessment of external issues related to suppliers,
customers, utilities and other third parties. These activities are expected to
continue throughout 1999 and beyond, as applicable. The Company assigns a higher
level of risk to such issues since they are outside of its immediate control.
The Company expects to implement contingency plans as the requirements for such
plans are identified. The costs, if any, for such contingency plans are expected
to be incremental to the Company's estimated year 2000 compliance program
expenditures.
In that regard, management continues to monitor and assess the year 2000
compliance status of the sources of supply for its raw material and purchased
component inventories. This assessment has indicated that the Company may need
to purchase and stockpile selected inventory components, as a contingency
measure, in advance of their typical delivery lead times. Although the ultimate
requirements for, and value of, such advance inventory purchases will be subject
to a number of factors, management currently estimates that it may place orders
with its vendors for inventory valued in a range of $500,000 to $750,000.
Delivery of these inventory items is expected during the first quarter of fiscal
2000 prior to December 31, 1999.
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THE EURO CONVERSION
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On January 1, 1999, certain member countries of the European Union, including
the Netherlands, established fixed conversion rates between their existing
sovereign (legacy) currencies and the euro, leading to the adoption of the euro
by these countries as their common legal currency. The legacy currencies are
scheduled to remain legal tender in the participating countries as denominations
of the euro from the date of adoption until January 1, 2002. The Company
continues its assessment of the effect, if any, that the adoption of the euro by
these countries will have upon its business.
The terms of sales to European and other international customers of products
manufactured by the Company's domestic operations are typically denominated in
U.S. dollars, although exceptions do occur on an individual case basis. The
Company expects that its standard terms of sales to international customers will
continue substantially in their present form. For the infrequent sales
transactions between international customers and the Company's domestic
operations which are denominated in currencies other than U.S. dollars, the
Company assesses its currency exchange risk and may enter into a currency
hedging transaction to minimize such risk. At March 31, 1999, the Company was
not a party to any currency hedging transaction. The Company does not believe
that it should experience a material effect on its business as a result of the
euro conversion which would be inherently different than risks that currently
exist.
The terms of sales to European customers by KEY/Superior are typically
denominated in either Dutch guilders or the respective legacy currencies of its
customers. KEY/Superior's information systems software currently accommodates
such multiple currency transactions and is expected to integrate euro
denominated transactions with relatively minor difficulty. The Company's
European subsidiary expects to implement a complete conversion of its business
systems to the euro on or about October 1, 1999, well before the January 1, 2002
deadline.
The Company's European subsidiaries maintain long-term credit facilities with a
Dutch bank and also long-term facility and equipment leases, all of which
currently specify periodic debt service or lease payments denominated in Dutch
guilders. Although the Company expects modifications to such agreements will
occur within calendar 1999, there can be no assurance that such modifications
will be accomplished within such time frame or that the interest rates or other
terms of such agreements will be unaffected.
13
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KEY TECHNOLOGY, INC. AND SUBSIDIARIES
SIGNATURES
Part II. OTHER INFORMATION
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Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Shareholders on February 3,
1999. Voting common shareholders took the following actions at the
meeting:
1. The shareholders voted to elect the following nominees to the
Company's Board of Directors:
Votes Votes
For Abstaining
----------------- -------------------
Thomas C. Madsen 4,248,496 22,815
Gordon Wicher 4,249,289 22,022
There were no broker non-votes.
Other directors whose term of office as a director continued
after the meeting are as follows:
Harold R. Frank
Edfred L. Shannon Jr.
John E. Pelo
Peter H. van Oppen
2. The shareholders voted to ratify management's selection of
independent auditors for the 1999 fiscal year by the
affirmative vote of 4,254,809 shares, with 7,235 shares voting
against the proposal and 9,267 shares abstaining.
There were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(10.1) Business Loan Agreement dated January 25, 1999 between
Registrant and U.S. Bank National Association.
(27.1) Financial Data Schedule for the six-month period ended
March 31, 1999.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the three
months ended March 31, 1999.
14
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KEY TECHNOLOGY, INC. AND SUBSIDIARIES
SIGNATURES
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEY TECHNOLOGY, INC.
(Registrant)
Date: May 12, 1999 By /s/ Thomas C. Madsen
------------------------------------------
Thomas C. Madsen,
President and Chief Executive Officer
Date: May 12, 1999 By /s/ Steven D. Evans
------------------------------------------
Steven D. Evans,
Vice President of Finance and
Administration and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
15
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KEY TECHNOLOGY, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1999
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EXHIBIT INDEX
Exhibit Page
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10.1 Business Loan Agreement..........................................17
27.1 Financial Data Schedule for the six-month
period ended March 31, 1999......................................31
16
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<CAPTION>
U.S. BANK
BUSINESS LOAN AGREEMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$4,000,000.00 01-25-1999 02-01-2000 251-158 001 4663012967 RHB04
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References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: Lender:
KEY TECHNOLOGY, INC. U.S. BANK NATIONAL ASSOCIATION
150 AVERY STREET Tri-Cities Business Banking
WALLA WALLA, WA 99360 552 North Colorado, Suite 204
Kennewick, WA 99336
THIS BUSINESS LOAN AGREEMENT BETWEEN KEY TECHNOLOGY, INC. ("BORROWER") AND U.S.
BANK OF WASHINGTON, NATIONAL ASSOCIATION ("LENDER") IS MADE AND EXECUTED ON THE
FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS
FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER
FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT
OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (A) IN
GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B)
THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE
SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL
BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS
AGREEMENT.
TERM. This Agreement shall be effective as of January 22, 1999, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means KEY TECHNOLOGY, INC. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates
of Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
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COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a
security interest, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise. DEBT.
The word "Debt" means all of Borrower's liabilities excluding Subordinated
Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all
Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may
be liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon such
Indebtedness may be or hereafter may become barred by any statue of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.
LENDER. The word "Lender" means U.S. BANK NATIONAL ASSOCIATION, its
successors and assigns.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations
in favor of Lender, as well as any substitute, replacement or refinancing
note or notes therefor.
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PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet delinquent;
(d) purchase money liens or purchase money security interests upon or in
any property acquired or held by Borrower in the ordinary course of
business to secure Indebtedness outstanding on the date of this Agreement
or permitted to be incurred under the paragraph of this Agreement titled
"Indebtedness and Liens"; (e) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the
Lender in writing; and (f) those liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the
Lender in writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended
as a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean Indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to Indebtedness owed by Borrower to Lender in form and substance
acceptable to Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible
items, but including leaseholds and leasehold improvements) less total
Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security interests; (d) evidence
of insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel.
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01-25-1999 BUSINESS LOAN AGREEMENT Page 2
Loan No 251/158 (Continued)
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BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Washington
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified
as a foreign corporation and is in good standing in all states in which
the failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of
any other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change
in Borrower's financial condition subsequent to the date of the most
recent financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and
as accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has
not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
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HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the "CERCLA,"
"SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing. Except as
disclosed to and acknowledged by Lender in writing, Borrower represents
and warrants that: (a) During the period of Borrower's ownership of the
properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of
any of the properties, or (ii) any actual or threatened litigation or
claims of any kind by any person relating to such matters. (c) Neither
Borrower nor any tenant, contractor, agent or other authorized user of any
of the properties shall use, generate, manufacture, store, treat, dispose
of, or release any hazardous waste or substance on, under, about or from
any of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender and
its agents to enter upon the properties to make such inspections and tests
as Lender may deem appropriate to determine compliance of the properties
with this section of the Agreement. Any inspections or tests made by
Lender shall be at Borrower's expense and for Lender's purposes only and
shall not be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous substances.
Borrower hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the Agreement
or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release of hazardous waste or substance on
the properties. The provisions of this section of the Agreement, including
the obligation to indemnify, shall survive the payment of the Indebtedness
and the termination or expiration of this Agreement and shall not be
affected by Lender's acquisition of any interest in any of the properties,
whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
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LIEN PROPERTY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of
the Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (ii) Borrower has not withdrawn from any such
plan or initiated steps to do so, (iii) no steps have been taken to
terminate any such plan, and (iv) there are no unfunded liabilities other
than those previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more than
one place of business, is located at 150 AVERY STREET, WALLA WALLA, WA
99360. Unless Borrower has designated otherwise in writing this location
is also the office or offices where Borrower keeps its records concerning
the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to
make such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force
and effect until such time as Borrower's Indebtedness shall be paid in
full, or until this Agreement shall be terminated in the manner provided
above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
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01-25-1999 BUSINESS LOAN AGREEMENT Page 3
Loan No 251/158 (Continued)
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FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, audited
by a certified public accountant satisfactory to Lender, and, as soon as
available, but in no event later than thirty (30) days after the end of
each month, Borrower's balance sheet and profit and loss statement for the
period ended, prepared and certified by Borrower as being true and
correct.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and ratios:
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less than
$7,000,000.00.
NET WORTH RATIO. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 2.50 to 1.00.
WORKING CAPITAL. Maintain Working Capital in excess of $4,000,000.00.
CURRENT RATIO. Maintain a ratio of Current Assets to Current Liabilities
in excess of 1.20 to 1.00.
CASH FLOW REQUIREMENTS. Maintain Cash Flow at not less than the following
level: 1.25 to 1.00 defined as follows: (Earnings before Interest,
Depreciation, Amortization - unfunded Capital Expenditures) divided by
(Current Portion Long Term Debt plus interest plus Capital Expenditures
plus Lease). This definition shall supersede any in consistent definitions
in this agreement. Except as provided above, all computations made to
determine compliance with the requirements contained in this paragraph
shall be made in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as being true and
correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies
or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
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OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
Indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every kind
and nature, imposed upon Borrower or its properties, income, or profits,
prior to the date on which penalties would attach, and all lawful claims
that, if unpaid, might become a lien or charge upon any of Borrower's
properties, income, or profits. Provided however, Borrower will not be
required to pay and discharge any such assessment, tax, charge, levy, lien
or claim so long as (a) the legality of the same shall be contested in
good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, will
furnish to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate governmental
official to deliver to Lender at any time a written statement of any
assessments, taxes, charges, levies, liens and claims against Borrower's
properties, income or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provided written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act
and with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party
to permit Lender free access to such records at all reasonable times and
to provide Lender with copies of any records it may request, all at
Borrower's expense.
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COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
QUARTERLY and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true and
correct as of the date of the certificate and further certifying that, as
of the date of the certificate, no Event of Default exists under this
Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part
or on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
CAPITAL EXPENDITURES. Make or contract to make capital expenditures,
including leasehold improvements, in any fiscal year in excess of
$2,000,000.00 or incur liability for rentals of property (including both
real and personal property) in an amount which, together with capital
expenditures, shall in any fiscal year exceed such sum.
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and Indebtedness to Lender contemplated by this
Agreement, create, incur or assume Indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in,
or encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c)
pay any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower
may pay cash dividends on its stock to its shareholders from time to time
in amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholders
<PAGE>
01-25-1999 BUSINESS LOAN AGREEMENT Page 4
Loan No 251/158 (Continued)
- --------------------------------------------------------------------------------
of a Subchapter S Corporation because of their ownership of shares of
stock of Borrower, or (d) purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
DISCLOSURE. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
YEAR 2000. Borrower has reviewed and assessed its business operations and
computer systems and applications to address the "year 2000 problem" (that is,
that computer applications and equipment used by Borrower, directly or
indirectly through third parties, may be unable to properly perform
date-sensitive functions before, during and after January 1, 2000). Borrower
reasonably believes that the year 2000 problem will not result in a material
adverse change in Borrower's business condition (financial or otherwise),
operations, properties or prospects or ability to repay Lender. Borrower is in
the process of implementing a plan to remediate year 2000 problems and will
complete implementation of such plan with respect to any material year 2000
problems, and testing thereof, by September 30, 1999. Borrower agrees that this
representation will be true and correct on and shall be deemed made by Borrower
on each date Borrower requests any advance under this Agreement or Note or
delivers any information to Lender. Borrower will promptly deliver to Lender
such information relating to this representation and covenant as Lender requests
from time to time..
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on the Indebtedness against any and all such accounts,
and, at Lender's option, to administratively freeze all such accounts to allow
Lender to protect Lender's charge and setoff rights provided on this paragraph.
<PAGE>
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or Borrower's
or any Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or become false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the Indebtedness,
or by any governmental agency. This includes a garnishment, attachment, or
levy on or of any of Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
<PAGE>
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of Washington. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts
of Benton County, the State of Washington. Subject to the provisions on
arbitration, this Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of
the American Arbitration Association, upon request of either party. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief of a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Judgment upon any award rendered by any arbitrator may be entered
in any court having jurisdiction. Nothing in this Agreement shall preclude
any party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches, and
similar doctrines which would otherwise be applicable in an action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement
of an action for these purposes. The Federal Arbitration Act shall apply
to the construction, interpretation, and enforcement of this arbitration
provision.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any rights to
<PAGE>
01-25-1999 BUSINESS LOAN AGREEMENT Page 5
Loan No 251/158 (Continued)
- --------------------------------------------------------------------------------
privacy it may have with respect to such matters. Borrower additionally
waives any and all notices of sale of participation interests, as well as
all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will
be considered as the absolute owners of such interests in the Loans and
will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower
further waives all rights of offset or counterclaim that it may have now
or later against Lender or against any purchaser of such a participation
interest and unconditionally agrees that either Lender or such purchaser
may enforce Borrower's obligation under the Loans irrespective of the
failure or insolvency of any holder of any interest in the Loans. Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more than
one Borrower, notice to any Borrower will constitute notice to all
Borrowers. For notice purposes, Borrower will keep Lender informed at all
times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower"
as used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
<PAGE>
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure
to the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made
by Lender or on Lender's behalf.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or between
Lender and any Grantor, shall constitute a waiver of any of Lender's
rights or of any obligations of Borrower or of any Grantor as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall
not constitute continuing consent in subsequent instances where such
consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
JANUARY 25, 1999.
BORROWER:
KEY TECHNOLOGY, INC.
BY: /s/ Steven D. Evans C.F.O.
--------------------------------
AUTHORIZED OFFICER TITLE
LENDER:
U.S. BANK NATIONAL ASSOCIATION
BY: /s/ Roddy Baze
--------------------------------
AUTHORIZED OFFICER
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KEY
TECHNOLOGY, INC.'S CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY
REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 6,283
<SECURITIES> 0
<RECEIVABLES> 11,616
<ALLOWANCES> (568)
<INVENTORY> 12,448
<CURRENT-ASSETS> 31,583
<PP&E> 20,196
<DEPRECIATION> (11,294)
<TOTAL-ASSETS> 42,381
<CURRENT-LIABILITIES> 11,403
<BONDS> 879
0
0
<COMMON> 9,146
<OTHER-SE> 20,953
<TOTAL-LIABILITY-AND-EQUITY> 42,381
<SALES> 30,495
<TOTAL-REVENUES> 30,676
<CGS> 19,353
<TOTAL-COSTS> 19,353
<OTHER-EXPENSES> 9,834
<LOSS-PROVISION> (25)
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> 1,456
<INCOME-TAX> 485
<INCOME-CONTINUING> 971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 971
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
