<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
KEY TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE> 2
[KEY TECHNOLOGY, INC. LOGO]
150 AVERY STREET
WALLA WALLA, WASHINGTON 99362
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 23, 2000
-------------------
To Our Shareholders:
The Annual Meeting of Shareholders of Key Technology, Inc. (the "Company")
will be held at 8:00 A.M. on February 23, 2000 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 2000; 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 15, 1999 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 24, 2000
<PAGE> 3
[KEY TECHNOLOGY, INC. LOGO]
150 AVERY STREET
WALLA WALLA, WASHINGTON 99362
-------------------
PROXY STATEMENT
2000 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 2000 Annual Meeting of Shareholders of the Company to be held at
8:00 A.M. on February 23, 2000 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 24, 2000.
VOTING
Holders of record of the Company's Common Stock on December 15, 1999 will
be entitled to vote at the Annual Meeting or any adjournments or postponements
thereof. As of that date, there were 4,713,995 shares of Common Stock
outstanding and entitled to vote, and a majority, or 2,356,998 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 2003, or until their respective successors are elected and
qualified, are Harold R. Frank and Michael L. Shannon. 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. FRANK AND
SHANNON.
The following table sets forth certain information about each nominee for
election to the Company's Board of Directors, each continuing director and each
executive officer who is not also a director. Stock ownership information is
shown elsewhere in this Proxy Statement under the heading Security Ownership of
Certain Beneficial Owners and Management and is based upon information furnished
by the respective individuals. The table sets forth the following, as of
December 15, 1999: (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 OR EXPIRATION OF
OFFICER CURRENT
NAME AGE POSITIONS SINCE TERM
--------------------------------- ------ --------------------------------- ------------- ---------------
<S> <C> <C> <C> <C>
NOMINEES FOR ELECTION
Harold R. Frank* 75 Chairman of the Board and 1983 2000
Director
Michael L. Shannon 49 Director -- --
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
HAS BEEN
A DIRECTOR OR EXPIRATION OF
OFFICER CURRENT
NAME AGE POSITIONS SINCE TERM
--------------------------------- ------ --------------------------------- ------------- ---------------
<S> <C> <C> <C> <C>
DIRECTORS CONTINUING IN OFFICE
John E. Pelo+ 44 Director 1998 2001
Peter H. van Oppen+ 47 Director 1998 2001
Thomas C. Madsen 52 President, Chief Executive 1982 2002
Officer and Director
Gordon Wicher+ 54 Vice President-General Manager of 1982 2002
Specialized Conveying Systems,
Secretary and Director
ADDITIONAL OFFICERS
James H. Stanton 55 Vice President-Corporate Accounts 1982
Glenn A. Waller 54 Vice President-Western Region 1982
Sales
Steven D. Evans(1) 52 Chief Financial Officer and Vice 1991
President-Finance and
Administration
Gary W. Kanegis 53 Vice President-Eastern Region 1991
Sales
Vernon L. Perry 65 Vice President-Quality Assurance 1991
Richard J. Hebel 48 Vice President-Corporate 1993
Marketing and Business
Development
Kirk W. Morton 39 Senior Vice President-Sales and 1999
Marketing
Teri A. Johnson 39 Vice President-General Manager of 1999
Automated Inspection Systems
SIGNIFICANT EMPLOYEE
Ted R. Sharp (1) 43 Controller 1993
</TABLE>
- ----------
+ Member of the Audit Committee
* Member of the Compensation Committee - The 1999 Compensation Committee
included Mr. Edfred L. Shannon, Jr. whose term of office as a director
expires in 2000. He will not be standing for re-election.
(1) As of January 1, 2000, Mr. Sharp will serve as Chief Financial Officer, and
Mr. Evans will serve as Vice President of Administration.
___________________
4
<PAGE> 6
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. Shannon is a nominee for director with the Company. He is a principal
of the General Counsel Law Firm, located in Alhambra, California, which he
founded in 1994. His law practice includes financial, tax and corporate
securities transactions, international business, governmental advocacy,
corporate governance, litigation and mediation. Mr. Shannon received his B.A.
degree from Stanford University and his Juris Doctor from the University of
California, Davis. Between 1985 and 1993, he worked for the Santa Fe
International Corporation as Associate General Counsel and, in 1989, was
appointed Senior Vice President, General Counsel, and Secretary of that company.
From 1976 to 1985, he practiced at the firm of McCutchen, Black, Verleger, and
Shea, becoming a partner in 1984. Mr. Shannon is a principal in Data Access
Technologies, Inc., a start-up software company, and on the board of directors
of A Sport, Inc., a sporting goods 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. 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. 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.
5
<PAGE> 7
Mr. Waller, a founder of the Company, has served as Vice President of
Western Region Sales since 1992 and was a director from 1982 to 1998. He served
as Vice President/Manager of Optical Products Marketing and Sales from 1990 to
1992 and as Vice President/Product Engineering Manager from 1986 to 1990. He was
Vice President of Engineering from 1983 to 1986. Mr. Waller served in various
engineering management capacities with the Company's predecessor from 1972 to
1983.
Mr. Evans has served as Chief Financial Officer since 1994, and has been
Vice President of Finance and Administration since joining the Company in 1991.
From 1988 until 1990, he was employed as Vice President of Finance and Chief
Financial Officer for 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. As of January 1, 2000, Mr.
Evans will serve as Vice President of Administration, responsible for Human
Resources, Information Systems, Quality Assurance, e-commerce development, and
process improvement.
Mr. Kanegis joined the Company in 1985 and is currently the Vice President
of Eastern Region Sales. He served as Vice President of Sales from 1997 until
1999, and as Vice president of Sales and Service from 1991 to 1997. He was
Director of Eastern Regional Sales from 1987 to 1991, and Director of Optical
Products from 1985 until 1987. From 1979 to 1985, Mr. Kanegis was Vice President
of Marketing at 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. Morton joined the Company in 1999 as Senior Vice President of Sales and
Marketing. From 1998 to 1999, he served as Vice President of Sales and Marketing
for Stein, Inc., a business unit of FMC Corporation. He served as Director of
Sales and Marketing of the Citrus Processing business unit of FMC Corporation
from 1995 to 1997, and as Product manager of that business unit in 1995. From
1993 to 1994, Mr. Morton served as Business Planner for FMC Corporation.
Ms. Johnson was appointed Vice President-General Manager of Automated
Inspection Systems in September 1999. Over the past 15 years with the Company,
she has served in various engineering and managerial capacities, including
Customer Service Manager from 1997 to 1999, Sales Engineering and Project
Engineering Manager from 1996 to 1997, Inside Sales Manager from 1992 to 1996,
Documentation Manager from 1990 to 1992, Systems Engineer in Research and
Development from 1988 to 1990, and Material Handling Product Specialist from
1987 to 1988. She joined the company in 1984 as a Designer.
6
<PAGE> 8
Mr. Sharp has served as Controller since 1993. From 1998 to 1999, Mr. Sharp
served as Managing Director of the Company's European operations, KEY/Superior
B.V. in the Netherlands. He joined the Company in 1989 as Accounting Manager and
served in that capacity until 1991, when he was appointed Assistant Controller.
From 1987 to 1989, he was a CPA consultant, providing tax planning, employee
benefit and retirement plan administration, and accounting services. From 1984
to 1987, he served as Controller of Varsity Contractors, Inc., and from 1982 to
1984, he was the Senior Tax Accountant for Beckstead Cooper Company, Certified
Public Accountants. As of January 1, 2000, Mr. Sharp will serve the Company as
Chief Financial Officer.
___________________
During the fiscal year ended September 30, 1999, the Board of Directors
held six meetings. Each director attended all of the meetings of the Board of
Directors with the exception of Mr. Pelo who was 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 1999 and all members attended
both meetings.
The Compensation Committee consists of Messrs. Harold R. Frank and Edfred
L. Shannon, Jr. (Mr. Shannon's term of office as a director will expire in 2000,
and he will not be standing for re-election.) 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 1999 and all members attended
both meetings.
The Board of Directors does not have a standing nominating committee.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are employees of the Company are not
separately compensated for serving on the Board of Directors. Directors who are
not employees of the Company are paid an annual retainer of $6,000 and $1,000
for each board meeting attended, plus reimbursement of expenses.
___________________
7
<PAGE> 9
EXECUTIVE COMPENSATION
CASH AND NON-CASH COMPENSATION PAID TO CERTAIN EXECUTIVE OFFICERS
The following table sets forth, for the fiscal years ended September 30,
1999, 1998 and 1997, compensation information with respect to the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers, based on the salary and bonus earned during fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
COMPENSATION
AWARDS
------------------------------------------------------- -------------
(a) (b) (c) (d) (e) (f) (g)
SECURITIES
UNDERLYING
OTHER ANNUAL OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALAR (1) BONUS COMPENSATION SARS COMPENSATION
($) ($) ($) (#) ($)
- ---------------------------------- ---- --------- ------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. Madsen 1999 266,432 55,000 * 0 7,948(2)
President and Chief 1998 255,000 0 * 20,000 8,924(2)
Executive Officer 1997 250,294 101 * 20,000 20,566(2)
Officer
Gordon Wicher 1999 165,150 45,000(3) * 0 5,704(4)
Vice President-General 1998 161,731 0 * 15,000 7,119(4)
Manager, Specialized 1997 160,102 101 * 15,000 17,907(4)
Conveying Systems
Kirk W. Morton 1999 107,692(5) 25,000 34,759(6) 15,000 166(7)
Senior Vice President, 1998 -- -- -- -- --
Sales and Marketing 1997 -- -- -- -- --
Steven D. Evans 1999 125,727 25,000 * 0 3,808(8)
Chief Financial Officer and 1998 121,246 0 * 7,000 3,810(8)
Vice President, Finance and 1997 117,409 101 * 8,000 16,543(8)
Administration
Gary W. Kanegis 1999 117,212 23,000(9) * 0 3,575(11)
Vice President, Eastern 1998 115,000 3,000 * 6,000 3,616(11)
Region Sales 1997 113,755 101(10) * 10,000 16,657(11)
</TABLE>
- ----------
* Benefits and perquisites received totaled less than 10% of combined salary
and bonus.
(1) Includes amounts deferred by the executive officers under the Company's
Profit Sharing and 401(k) Plan.
(2) Consists of the following: $5,166, $5,401, and $18,208 contributed by the
Company under its Profit Sharing and 401(k) Plan in 1999, 1998, and 1997,
respectively; and term life insurance premiums of $2,783, $3,523, and
$2,358 in 1999, 1998, and 1997, respectively.
(3) Includes a $10,000 incentive bonus outside the Management Incentive Plan.
(4) Consists of the following: $3,768, $4,625, and $15,823 contributed by the
Company under its Profit Sharing and 401(k) Plan in 1999, 1998, and 1997,
respectively; and term life insurance premiums of $1,936, $2,494, and
$2,084 in 1999, 1998, and 1997, respectively.
(5) Mr. Morton was hired on January 18, 1999.
(6) Consists of reimbursed moving expenses of $30,259 and auto allowance of
$4,500.
(7) Consists of term life insurance premium of $166 in 1999.
(8) Consists of the following: $2,927, $2,842, and $15,744 contributed by the
Company under its Profit Sharing and 401(k) Plan in 1999, 1998, and 1997,
respectively; and term life insurance premiums of $882, $968, and $799 in
1999, 1998, and 1997, respectively.
8
<PAGE> 10
(9) Includes an $8,000 incentive bonus outside the Management Incentive Plan.
(10) Consists of a $3,000 incentive bonus outside the Management Incentive Plan.
(11) Consists of the following: $2,808, $2,724, and $15,783 contributed by the
Company under its Profit Sharing and 401(k) Plan in 1999, 1998, and 1997,
respectively; and term life insurance premiums of $767, $892, and $874 in
1999, 1998, and 1997, respectively.
STOCK OPTIONS GRANTED TO CERTAIN EXECUTIVE OFFICERS DURING LAST FISCAL YEAR
The following table sets forth certain information regarding options for
the purchase of the Company's Common Stock that were awarded to the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers.
OPTION/SAR GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
FOR OPTION
INDIVIDUAL GRANTS TERMS
- -------------------------------------------------------------------------------------------- ------------------------
(a) (b) (c) (d) (e) (f) (g)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/
OPTIONS/ SARS GRANTED EXERCISE OR
SARS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ----------------------- ----------- --------------- ----------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Kirk W. Morton 15,000 33.33% $8.19 1/18/04 $33,941 $75,001
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FY-END (#) AT FY-END($)(1)
ON VALUE -------------------------------- --------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. Madsen 0 0 41,750 31,250 $ 0 0
Gordon Wicher 0 0 35,000 22,500 $ 2,813 0
Kirk W. Morton 0 0 0 15,000 $ 0 0
Steven D. Evans 0 0 24,625 11,750 $ 1,125 0
Gary W. Kanegis 0 0 34,000 12,000 $ 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, 1999, and the exercise price of the options.
9
<PAGE> 11
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
With respect to fiscal 1999, 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 do 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 1999, 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 1999 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. The comparable 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.
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.
10
<PAGE> 12
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 $250,000 is
added to the bonus pool for each of the three factors if the Company achieves
the maximum goals. Therefore, a maximum of $750,000 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 total goal 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 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 1999, the Compensation Committee approved funding of
the bonus pool in the amount of $350,000.
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, formerly the 1989 Employees' Stock Option
Plan (the "Plan").
Pursuant to this Plan, six individuals were granted options during fiscal
1999 to purchase 45,000 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 five- or ten-year terms. For
additional information regarding stock option grants and exercises see the
"Option/SAR Grants in Fiscal 1999," "Aggregated Option/SAR Exercises in Last
Fiscal Year and FY-End Option/SAR Values," and "Summary Compensation" tables
included elsewhere herein.
11
<PAGE> 13
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.
12
<PAGE> 14
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
TOTAL RETURN TO STOCKHOLDERS
(ASSUMES $100 INVESTMENTON 9/30/94)
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
TOTAL RETURN ANALYSIS
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98 9/30/99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
KEY TECHNOLOGY $100.00 $250.00 $504.76 $304.76 $140.48 $140.48
PEER GROUP $100.00 $153.62 $156.89 $193.64 $104.68 $137.06
RUSSELL 2000 $100.00 $121.19 $134.91 $175.26 $144.08 $162.85
NASDAQ COMPOSITE* $100.00 $136.51 $160.50 $220.52 $221.59 $359.25
S&P 500* $100.00 $129.70 $156.06 $119.16 $139.01 $205.42
</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.
*Beginning with next year's Proxy Statement, the Company will no longer include
the S&P 500 Index or the Nasdaq Composite Index in the Stock Performance Graph.
The Company will maintain the Russell 2000 Index, which it believes is a more
appropriate index for comparing to the performance of Key Technology.
13
<PAGE> 15
PRINCIPAL SHAREHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 15, 1999, 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>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ---------------------------------- -------------------- ----------
<S> <C> <C>
Thomas C. Madsen 533,821(1) 11.2
150 Avery Street
Walla Walla, Washington 99362
Gordon Wicher 244,406(1) 5.1
150 Avery Street
Walla Walla, Washington 99362
Harold R. Frank 152,500(1) 3.2
6054 La Goleta
Goleta, California 93117
Edfred L. Shannon, Jr. 62,500(1) 1.3
1000 South Fremont Avenue
Alhambra, California 91802
John E. Pelo 7,000(1) *
#6 Gatehouse Lane
Sandy, Utah 84092
Peter H. van Oppen 8,750(1) *
Advanced Digital Information
Corporation
P.O. Box 97057
Redmond, WA 98073-9757
Michael L. Shannon 170,000 3.6
1000 South Fremont Avenue
Alhambra, California 93117
James A. Frank 298,927 6.3
P.O. Box 6527
Santa Barbara, Calif. 93160-6527
Robert K. Frank 335,410 7.1
P.O. Box 202
Los Alamos, California 93440
Kirk W. Morton 3,750(1) *
150 Avery Street
Walla Walla, Washington 99362
Steven D. Evans 38,731(1) *
150 Avery Street
Walla Walla, Washington 99362
Gary W. Kanegis 35,000(1) *
150 Avery Street
Walla Walla, Washington 99362
All executive officers and directors 1,391,954 28.0
as a group (14 persons)
</TABLE>
- ----------
* Less than one percent.
14
<PAGE> 16
(1) Includes shares purchasable under options exercisable within 60 days of
December 15, 1999 in the following amounts:
<TABLE>
<S> <C> <C> <C>
Thomas C. Madsen 41,750 Peter H. van Oppen 3,750
Gordon Wicher 35,000 Kirk W. Morton 3,750
Harold R. Frank 22,500 Steven D. Evans 24,625
Edfred L. Shannon Jr. 22,500 Gary W. Kanegis 34,000
John E. Pelo 3,750
</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 1999 were
complied with except that Mr. Harold R. Frank filed one late report with respect
to the disposition of 100,000 shares.
ITEM 2
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected Deloitte & Touche LLP, independent
public accountants, to audit the consolidated financial statements of the
Company for the fiscal year ending September 30, 2000. 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 2000 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 2000 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 2000 Annual Meeting by a shareholder,
notice of the proposed business must be given to the Secretary of the
15
<PAGE> 17
Company in writing on or before the close of business on February 3, 2000. The
notice to the Secretary must set forth as to each matter that the shareholder
proposes to bring before the meeting: (a) a brief description of the business;
(b) the shareholder's name and address as they appear on the Company's books;
(c) the class and number of shares beneficially owned by the shareholder; and
(d) any material interest of the shareholder in such business. The presiding
officer at any annual meeting 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 2001
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 26, 2000 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 24, 2000
16
<PAGE> 18
PROXY
KEY TECHNOLOGY, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS, FEBRUARY 23, 2000
The undersigned hereby appoints Thomas C. Madsen and Gordon Wicher, and each of
them, proxies with full power of substitution, to represent and vote, as
designated below, on behalf of the undersigned, all shares which the undersigned
may be entitled to vote at the Annual Meeting of Shareholders of KEY
TECHNOLOGY, INC. on February 23, 2000, and any adjournment or postponement
thereof. A majority of the proxies or substitutes present at the meeting, or if
only one person shall be present then that one, may exercise all powers granted
hereby.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE
(CONTINUED AND TO BE SIGNED IN REVERSE SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 19
PLEASE MARK
YOUR VOTE AS
INDICATED IN [X]
THIS EXAMPLE.
PROPOSAL TO ELECT HAROLD R. FRANK AND MICHAEL L. SHANNON AS DIRECTORS (TO
WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE OUT THAT NOMINEE'S
NAME ABOVE:
<TABLE>
<S> <C>
FOR all nominees WITHHOLD AUTHORITY
listed (except to vote for
as withheld) nominees listed
[ ] [ ]
</TABLE>
PROPOSAL TO RATIFY SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
FOR THE 2000 FISCAL YEAR:
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
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.
Signature(s) Dated: , 2000
--------------------------- ---------
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.
- --------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
