<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 2000
REGISTRATION NO. 333-36920
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
KEY TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
OREGON 3551 93-0822509
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
<TABLE>
<S> <C>
THOMAS C. MADSEN
150 AVERY STREET 150 AVERY STREET
WALLA WALLA, WASHINGTON 99362 WALLA WALLA, WASHINGTON 99362
(509) 529-2161 (509) 529-2161
(ADDRESS AND TELEPHONE NUMBER (NAME, ADDRESS AND TELEPHONE
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) NUMBER OF AGENT FOR SERVICE)
</TABLE>
COPIES TO:
<TABLE>
<S> <C>
RONALD L. GREENMAN WILLIAM D. GOULD
THOMAS P. PALMER YVONNE WONG CHESTER
TONKON TORP LLP TROY & GOULD, PROFESSIONAL CORPORATION
888 S.W. FIFTH AVENUE, SUITE 1600 1801 CENTURY PARK EAST, 16TH FLOOR
PORTLAND, OREGON 97204-2099 LOS ANGELES, CALIFORNIA 90067-2367
(503) 221-1440 (310) 553-4441
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the registration statement becomes effective and the effective
time of the merger of KTC Acquisition Corp., a wholly-owned subsidiary of Key
Technology, Inc., with and into Advanced Machine Vision Corporation as described
in the Agreement and Plan of Merger, effective February 15, 2000, as amended,
attached as Annex A to the joint proxy statement/prospectus forming a part of
this registration statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE> 2
[KEY LOGO]
June , 2000
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Key Technology, Inc., which will be held on Wednesday, July 12, 2000, at 8:00
a.m., local time, at 888 S.W. Fifth Avenue, Suite 1600, Portland, Oregon 97204.
At the Key Technology Special Meeting, you will be asked to approve the
issuance to the shareholders of Advanced Machine Vision Corporation of shares of
Key Technology Series B Convertible Preferred Stock, Series C Convertible
Preferred Stock, warrants to purchase Key Technology common stock and the shares
of common stock underlying such securities (the "Issuance") pursuant to an
Agreement and Plan of Merger, effective February 15, 2000, as amended, among Key
Technology, Advanced Machine Vision and KTC Acquisition Corp., a wholly-owned
subsidiary of Key Technology. The Merger Agreement provides that, in addition to
paying cash and issuing warrants, Key Technology will issue approximately
1,576,000 shares of Key Technology Series B Convertible Preferred Shares and
119,106 shares of Series C Convertible Preferred Stock in exchange for all
outstanding shares of common and preferred stock of Advanced Machine Vision, and
KTC Acquisition Corp. will merge with and into Advanced Machine Vision.
You will also be asked to approve an amendment to the 1996 Employees' Stock
Option Plan to increase the number of shares available for issuance from 750,000
shares to 1,250,000 shares.
KEY TECHNOLOGY'S BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
ISSUANCE AND THE MERGER ARE ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF,
KEY TECHNOLOGY AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY APPROVED THE ISSUANCE
AND THE MERGER. KEY TECHNOLOGY'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE ISSUANCE AND THE AMENDMENT TO THE 1996 EMPLOYEES' STOCK OPTION
PLAN AT THE KEY TECHNOLOGY SPECIAL MEETING.
You should read carefully the accompanying Notice of Key Technology Special
Meeting of Shareholders and the joint proxy statement/prospectus for details of
the Issuance and the Merger.
Whether or not you plan to attend the Key Technology Special Meeting,
please complete, sign and date the enclosed proxy card and return it promptly in
the enclosed postage-paid envelope. If you attend the Key Technology Special
Meeting, you may vote in person if you wish, even if you previously have
returned your proxy card. Your prompt response will be greatly appreciated.
Sincerely,
/s/ Thomas C. Madsen
Thomas C. Madsen
Chairman, President and
Chief Executive Officer
<PAGE> 3
[KEY LOGO]
150 AVERY STREET
WALLA WALLA, WASHINGTON, 99362
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
JULY 12, 2000
------------------------
To the Shareholders of Key Technology, Inc.:
A Special Meeting of Shareholders of Key Technology, Inc. will be held at
8:00 a.m., local time, on Wednesday, July 12, 2000 at 888 S.W. Fifth Avenue,
Suite 1600, Portland Oregon, to consider and vote on:
1. A proposal to approve the issuance of shares of Key Technology Series B
Convertible Preferred Stock, par value $0.01 per share, Key Technology
Series C Convertible Preferred Stock, par value $0.01 per share, warrants
to purchase Key Technology common stock and the shares of common stock
underlying such securities pursuant to an Agreement and Plan of Merger (the
"Merger Agreement") effective February 15, 2000 by and among Key
Technology, KTC Acquisition Corp., an Oregon corporation and a wholly-owned
subsidiary of Key Technology, and Advanced Machine Vision Corporation, a
California corporation. A copy of the Merger Agreement is attached as Annex
A to the accompanying joint proxy statement/prospectus.
2. A proposal to amend the 1996 Employees' Stock Option Plan to increase
the number of shares available for issuance from 750,000 shares to
1,250,000 shares.
Only holders of the Key Technology common stock at the close of business on
May 31, 2000 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 SPECIAL MEETING
IN PERSON, PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN THE
ENCLOSED POSTAGE PREPAID ENVELOPE.
Walla Walla, Washington
June , 2000
<PAGE> 4
[AMVC LOGO]
June , 2000
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Advanced Machine Vision Corporation ("AMVC"), which will be held on July 12,
2000 at 8:00 a.m., local time, at the offices of AMVC's SRC VISION, Inc.
subsidiary, 2067 Commerce Drive, Medford, Oregon, 97504 (the "AMVC Special
Meeting").
At this AMVC Special Meeting, you will be asked to consider and vote upon
(1) the merger (the "Merger") of AMVC with a subsidiary of Key Technology, Inc.
("Key Technology"). As a result of the Merger, AMVC will become a wholly-owned
subsidiary of Key Technology. In the Merger, each outstanding share of AMVC
common stock will be converted into the right to receive $1.00 in cash, 1/10 of
a share of Key Technology Series B Convertible Preferred Stock, $0.01 par value,
and 1/40 of a five-year warrant to purchase one share of Key Technology common
stock at $15.00 per share, which warrant has a current redemption value of $0.25
per AMVC share as described in the enclosed joint proxy statement/ prospectus.
In addition, each share of AMVC Series B Preferred Stock will be converted into
one share of Key Technology Series C Convertible Preferred Stock accompanied by
identical warrants.
Your board of directors has carefully reviewed and considered the terms and
conditions of the Merger and is pleased to present this opportunity to you, our
shareholders. Your Board has received the opinion of Marshall & Stevens
Incorporated, its financial advisor, that as of March 15, 2000 and subject to
the assumptions and qualifications described therein, the consideration was fair
to AMVC's shareholders from a financial point of view. A copy of this opinion is
attached as Annex B to the accompanying joint proxy statement/prospectus and
should be read carefully and in its entirety.
THE BOARD OF DIRECTORS OF AMVC HAS DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF AMVC AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a joint proxy statement/prospectus relating to the
actions to be taken by AMVC shareholders at the AMVC Special Meeting (as well as
the actions to be taken by the Key Technology shareholders at their special
meeting) and a proxy card. The joint proxy statement/prospectus more fully
describes the proposed Merger and includes information about AMVC and Key
Technology.
YOUR VOTE IS VERY IMPORTANT. The Merger cannot be completed unless the
shareholders of AMVC and the shareholders of Key Technology vote in favor of the
Merger proposal. We have scheduled this AMVC Special Meeting specifically for
our shareholders to vote on the Merger. To assure your representation at the
AMVC Special Meeting, please mark your vote, sign and date the enclosed proxy
card and return it in the enclosed postage prepaid envelope marked "Proxy." This
will allow your shares to be voted whether or not you attend the AMVC Special
Meeting. The proxy is revocable by you at any time before its exercise. The
giving of the proxy will not affect your right to vote in person if you attend
the meeting.
Thank you for your attention in this important matter.
Sincerely,
ADVANCED MACHINE VISION CORPORATION
[/s/ WILLIAM J. YOUNG]
William J. Young
Chairman, President and
Chief Executive Officer
<PAGE> 5
[AMVC LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
JULY 12, 2000
To Our Shareholders:
A Special Meeting of Shareholders of Advanced Machine Vision Corporation
("AMVC") will be held at 8:00 a.m., local time, on July 12, 2000 at the offices
of AMVC's SRC VISION, Inc. subsidiary, 2067 Commerce Drive, Medford, Oregon,
97504, for the following purposes:
1. To consider and vote on a proposal to approve the Agreement and Plan of
Merger, effective February 15, 2000, by and among AMVC, Key Technology,
Inc. ("Key Technology") and KTC Acquisition Corp., a wholly-owned
subsidiary of Key Technology.
2. To transact such other business as may properly come before the Special
Meeting.
AMVC has fixed the close of business on May 31, 2000 as the record date for
the determination of shareholders entitled to vote at the Special Meeting or any
adjournment thereof. A list of such shareholders will be available for
inspection by shareholders of record during business hours at AMVC's corporate
headquarters for ten days prior to the date of the Special Meeting and will also
be available at the Special Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE TO
APPROVE THE MERGER, WHICH IS DESCRIBED IN DETAIL IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS. Approval of the proposal requires the affirmative vote of
a majority of the outstanding shares of AMVC common stock and Series B Preferred
Stock entitled to vote at the Special Meeting. Please mark your vote, sign and
promptly return the proxy card in the enclosed postage prepaid envelope marked
"Proxy" WHETHER YOU EXPECT TO ATTEND THE SPECIAL MEETING OR NOT. The proxy is
revocable by a shareholder at any time before its exercise. The giving of the
proxy will not affect a shareholder's right to vote in person if the shareholder
attends the Special Meeting. Failure to return a properly executed proxy card or
to vote at the Special Meeting will have the same effect as a vote against the
merger proposal.
By order of the Board of Directors,
[/s/ ALAN R. STEEL]
Alan R. Steel
Vice President, Finance,
Chief Financial Officer and Secretary
Medford, Oregon
June , 2000
<PAGE> 6
<TABLE>
<S> <C>
[KEY LOGO] [AMVC LOGO]
</TABLE>
JOINT PROXY STATEMENT/PROSPECTUS
<TABLE>
<S> <C>
PROXY STATEMENT/PROSPECTUS OF PROXY STATEMENT OF ADVANCED
KEY TECHNOLOGY, INC. MACHINE VISION CORPORATION
</TABLE>
The boards of directors of Key Technology and Advanced Machine Vision have
each approved and recommend to you the merger of Key Technology and Advanced
Machine Vision. After the merger, Advanced Machine Vision will operate as a
wholly-owned subsidiary of Key Technology. In the merger, Advanced Machine
Vision shareholders will receive cash, preferred stock and warrants from Key
Technology for their shares of Advanced Machine Vision common and preferred
stock. Based on the capitalization of the two companies as of May 31, 2000, and
assuming conversion of all preferred stock and exercise of all warrants issued
in connection with the merger, an aggregate of approximately 1,480,000 shares of
Key Technology common stock will be issued to Advanced Machine Vision
shareholders in connection with the merger, representing approximately 24% of
the outstanding shares of Key Technology common stock after the merger,
excluding shares issuable upon the exercise of a replacement option and new
warrants issued to the holder of Advanced Machine Vision preferred stock.
Special meetings are scheduled for Key Technology and Advanced Machine
Vision shareholders to vote on the matters described in this joint proxy
statement/prospectus. Shareholders of Key Technology are being asked to approve
the issuance of the Key Technology common stock, preferred stock and warrants
necessary to complete the merger. Shareholders of Advanced Machine Vision are
being asked to adopt the merger agreement and approve the merger.
You may vote at your special meeting if you own shares as of the close of
business on May 31, 2000, the record date. The dates, times and places of the
special meetings are set forth in the accompanying notices. YOUR VOTE IS VERY
IMPORTANT. Whether or not you plan to attend your special meeting, please take
the time to vote by completing and mailing the enclosed proxy card. If you fail
to return your proxy card, the effect will be the same as a vote against the
merger.
Key Technology common stock trades on the Nasdaq National Market under the
symbol "KTEC." Advanced Machine Vision common stock trades on the Nasdaq Small
Cap Market under the symbol "AMVC."
WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER
"RISK FACTORS" BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE ISSUED UNDER THIS
JOINT PROXY STATEMENT/PROSPECTUS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated June , 2000 and was first
mailed to shareholders on or about June , 2000.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
TABLE OF CONTENTS........................................... i
WHERE YOU CAN FIND MORE INFORMATION......................... iv
FORWARD-LOOKING STATEMENTS.................................. iv
QUESTIONS AND ANSWERS FOR KEY TECHNOLOGY SHAREHOLDERS AND
ADVANCED MACHINE VISION SHAREHOLDERS...................... v
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS............. 1
KEY TECHNOLOGY AND ADVANCED MACHINE VISION COMPARATIVE PER
SHARE DATA................................................ 6
RISK FACTORS................................................ 7
KEY TECHNOLOGY SPECIAL MEETING.............................. 16
ADVANCED MACHINE VISION CORPORATION SPECIAL MEETING......... 18
BACKGROUND OF AND REASONS FOR THE MERGER.................... 20
Background of the Merger.................................. 20
Joint Reasons for the Merger.............................. 22
Key Technology Reasons for the Merger..................... 23
Advanced Machine Vision's Reasons for the Merger.......... 24
Opinion of Marshall & Stevens Incorporated, Financial
Advisor to Advanced Machine Vision..................... 26
THE MERGER.................................................. 31
Terms of the Merger Agreement............................. 31
Effective Time of the Merger.............................. 32
Exchange of Certificates.................................. 32
Representations and Warranties............................ 33
Business of Advanced Machine Vision Pending the Merger.... 34
Certain Covenants of Key Technology....................... 35
No Solicitation of Transactions by Advanced Machine
Vision................................................. 35
Conditions................................................ 36
Amendment; Termination.................................... 37
Resale of Key Technology Series B Preferred Shares and
Warrants Issued in the Merger.......................... 38
Fees and Expenses......................................... 38
Accounting Treatment...................................... 39
Appointment of Advanced Machine Vision Nominee to Key
Technology Board....................................... 39
Management and Operations of Advanced Machine Vision After
the Merger............................................. 39
Certain Federal Income Tax Consequences................... 39
Description of FMC Corporation Agreement.................. 40
Rights of Dissenting Advanced Machine Vision
Shareholders........................................... 41
Interest of Certain Persons in the Merger................. 43
BUSINESS OF KEY TECHNOLOGY.................................. 44
General................................................... 44
Industry Background....................................... 44
Products.................................................. 44
Process and Preparation Systems........................... 47
Service/Contracts and Parts............................... 47
Customers and Markets..................................... 48
Engineering, Research and Development..................... 49
Manufacturing............................................. 49
Backlog................................................... 50
Competition............................................... 50
Patents and Trademarks.................................... 50
Employees................................................. 50
</TABLE>
i
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Properties................................................ 50
Farmco Acquisition........................................ 51
KEY TECHNOLOGY SELECTED FINANCIAL DATA...................... 52
KEY TECHNOLOGY MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 53
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF KEY TECHNOLOGY.............................. 60
MANAGEMENT OF KEY TECHNOLOGY................................ 62
Executive Compensation.................................... 64
Stock Options Granted to Certain Executive Officers During
Last Fiscal Year....................................... 65
1996 Employees' Stock Option Plan......................... 66
1996 Employee Stock Purchase Plan......................... 67
Limitation on Director's Liability........................ 68
Certain Indemnification Agreements........................ 68
BUSINESS OF ADVANCED MACHINE VISION......................... 69
History................................................... 69
Business.................................................. 69
Industry Background....................................... 70
Products.................................................. 71
Defect Detection and Removal.............................. 71
Markets, Customers and Applications....................... 72
Forest Products........................................... 73
Technology, Research and Development...................... 74
Marketing and Sales....................................... 75
Customer Strategy......................................... 76
Sales and Distribution.................................... 76
Backlog................................................... 77
Manufacturing and Supplies................................ 77
Warranty and Customer Service............................. 78
Competition............................................... 78
Patents and Trademarks.................................... 78
Employees................................................. 79
Properties................................................ 79
Legal Proceedings......................................... 79
ADVANCED MACHINE VISION SELECTED FINANCIAL DATA............. 80
ADVANCED MACHINE VISION MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 81
PRINCIPAL SHAREHOLDERS OF ADVANCED MACHINE VISION........... 86
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS........... 87
DESCRIPTION OF KEY TECHNOLOGY SECURITIES.................... 94
Common Stock.............................................. 94
Preferred Stock........................................... 94
Series A Junior Participating Preferred Stock............. 95
Series B Convertible Preferred Stock...................... 96
Series C Convertible Preferred Stock...................... 97
Warrants.................................................. 98
Provisions Affecting Acquisition of Key Technology........ 99
State Legislation......................................... 100
Transfer Agent and Registrar.............................. 101
COMPARATIVE RIGHTS OF KEY TECHNOLOGY AND ADVANCED MACHINE
VISION SHAREHOLDERS....................................... 102
</TABLE>
ii
<PAGE> 9
<TABLE>
<CAPTION>
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<S> <C>
COMPARATIVE MARKET PRICE DATA............................... 114
ADDITIONAL MATTER BEING SUBMITTED TO A VOTE OF ONLY KEY
TECHNOLOGY SHAREHOLDERS................................... 115
EXPERTS..................................................... 115
LEGAL MATTERS............................................... 115
SHAREHOLDER PROPOSALS....................................... 116
INDEX TO FINANCIAL STATEMENTS............................... F-1
ANNEX A -- MERGER AGREEMENT................................. A-1
ANNEX B -- OPINION OF ADVANCED MACHINE VISION'S FINANCIAL
ADVISOR................................................... B-1
ANNEX C -- CALIFORNIA DISSENTERS' RIGHTS STATUTE............ C-1
</TABLE>
iii
<PAGE> 10
WHERE YOU CAN FIND MORE INFORMATION
Key Technology and Advanced Machine Vision file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any reports, statements or other
information filed by either company at the Securities and Exchange Commission's
public reference rooms at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices of the Securities and Exchange
Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New York 10048.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. The companies' filings are also
available to the public at the Internet web site maintained by the Securities
and Exchange Commission at http://www.sec.gov. and from commercial document
retrieval services. Information contained on Key Technology's website, Advanced
Machine Vision's website or any other website does not constitute a part of this
joint proxy statement/prospectus.
Key Technology filed a Registration Statement on Form S-4 to register with
the Securities and Exchange Commission the Key Technology Series B convertible
preferred stock and warrants to be issued to Advanced Machine Vision
shareholders in the merger, as well as common stock issuable upon conversion or
exercise of such securities. This joint proxy statement/prospectus is a part of
that Registration Statement and constitutes a prospectus of Key Technology in
addition to being a proxy statement for each of Key Technology and Advanced
Machine Vision for their special meetings of shareholders. As allowed by the
Securities and Exchange Commission's rules, this joint proxy statement/
prospectus does not contain all of the information you can find in the
Registration Statement or the exhibits to the Registration Statement. This joint
proxy statement/prospectus summarizes some of the documents that are exhibits to
the Registration Statement, and you should refer to the exhibits for a more
complete description of the matters covered by those documents.
FORWARD-LOOKING STATEMENTS
Certain statements made in this document are forward-looking statements
which are subject to numerous risks and uncertainties. These forward-looking
statements include those as to:
- The anticipated closing date of the merger;
- The anticipated tax treatment of the merger;
- The benefits expected to result from the merger;
- The future performance of the combined company following the merger; and
- The analyses performed by the financial advisor to Advanced Machine
Vision.
Any statements contained herein -- including without limitation statements
to the effect that Key Technology, Advanced Machine Vision or their respective
managements "believe," "expect," "anticipate," "plan," "may," "will," "project,"
"continue," or "estimate," or statements concerning "potential," or
"opportunity" or other variations thereof or comparable terminology or the
negative thereof that are not statements of historical fact -- should be
considered forward-looking statements. As a result of certain factors, including
those set forth in "Risk Factors" beginning on page 7, which shareholders should
review carefully, actual results could differ materially from such expectations.
ADR(R), IntelliSort(R), Iso-Flo(R), KeyWare(R), Tegra(R), Horizon(TM),
Impulse(TM), Marathon(TM) and UpTime(TM) are trademarks of Key Technology.
VHS OPTISORT(TM), KROMA-SORT(R), SPECTRA-SORT(TM), Length and Defect
Analyzer(TM), Optical Woodchip Sorter, Quadra-View(R), ODSS II(TM), SRC
VISION(R) and Tobacco Sorter(TM) are trademarks of Advanced Machine Vision
Corporation.
This joint proxy statement/prospectus also refers to trademarks and trade
names of other companies.
iv
<PAGE> 11
QUESTIONS AND ANSWERS FOR KEY TECHNOLOGY SHAREHOLDERS AND
ADVANCED MACHINE VISION SHAREHOLDERS
Q. WHAT IS THE ADVANCED MACHINE VISION MERGER?
A. The boards of directors of Key Technology and Advanced Machine Vision have
voted to merge a wholly-owned subsidiary of Key Technology with and into
Advanced Machine Vision, resulting in Advanced Machine Vision becoming a
wholly-owned subsidiary of Key Technology.
Q. WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A. The proposed merger offers shareholders of both companies a strategic
opportunity for growth and operating efficiencies. The anticipated benefits
from the merger include the following:
- Achievement of substantial cost reductions by the combined companies
through elimination of redundancies in sales, marketing and research and
development, as well as elimination of Advanced Machine Vision's separate
public company expenses.
- Expanded geographic and market sector sales coverage, particularly in
non-food markets such as tobacco and forest products.
- Achievement of a higher level of customer service as a result of the
combination of two service organizations.
- Increased revenues resulting from sales of complete systems incorporating
Advanced Machine Vision optical sorting equipment.
- Accelerated development of food quality and safety applications for the
combined company's products.
As a result of these anticipated benefits from the merger, Key Technology
expects the transaction to be accretive to earnings in fiscal 2001.
Q. WHAT WILL ADVANCED MACHINE VISION COMMON SHAREHOLDERS RECEIVE IN THE MERGER?
A. When the Advanced Machine Vision merger is completed, a holder of one share
of Advanced Machine Vision common stock will receive (1) $1.00 in cash, (2)
1/10 of a share of Key Technology Series B convertible preferred stock, and
(3) 1/40 of a five-year warrant to purchase Key Technology common stock.
Each whole share of Key Technology Series B convertible preferred stock will
be (1) convertible at the election of the holder at any time into 2/3 of a
share of Key Technology common stock; or (2) redeemable at the election of
the holder after two years for $10.00 in cash; or (3) redeemed by Key
Technology on the fifth anniversary of the issue date, or earlier if the
average closing price of Key Technology common stock exceeds $15.00 per share
for 30 consecutive trading days, for $10.00 in cash plus declared and unpaid
dividends, if any.
Each whole warrant will be exercisable for five years to purchase one share
of Key Technology common stock for $15.00. Each whole warrant also will be
redeemable by the holder at any time prior to expiration for $10.00. The
immediate cash redemption value of the warrant is accordingly $0.25 for each
share of Advanced Machine Vision common stock surrendered in the merger.
For example:
- If you currently hold 100 shares of Advanced Machine Vision common stock,
then after the merger you will be entitled to receive $100.00 in cash, 10
shares of Key Technology Series B convertible preferred stock, a warrant
to purchase two shares of Key Technology common stock and a cash payment
of $5.00 instead of the fractional 1/2 warrant to which you would
otherwise be entitled.
- If you currently hold 100 shares of Key Technology common stock, then you
will continue to own those 100 shares after the merger.
Holders of options to purchase shares of Advanced Machine Vision common stock
will either convert such options to cash or exercise such options prior to the
closing of the merger.
v
<PAGE> 12
Q. WILL ADVANCED MACHINE VISION COMMON SHAREHOLDERS RECEIVE ANY FRACTIONAL
SHARES OR WARRANTS IN THE MERGER?
A. No. No fractional shares of the Key Technology Series B convertible preferred
stock, common stock or warrants will be issued. Instead of any fractional
share of preferred stock or fractional warrant, Advanced Machine Vision
shareholders will receive an amount of cash equal to the amount determined by
multiplying their fraction by $10.00. Instead of any fractional share of
common stock issuable upon exercise of warrants, warrant holders will receive
an amount of cash equal to the amount determined by multiplying their
fraction by the then fair market value per share of Key Technology common
stock.
Q. WHAT WILL THE ADVANCED MACHINE VISION PREFERRED SHAREHOLDER RECEIVE IN THE
MERGER?
A. When the Advanced Machine Vision merger is completed, the holder of the
Advanced Machine Vision Series B preferred stock will receive 119,106 shares
of Key Technology Series C convertible preferred stock and warrants to
purchase 29,776 shares of Key Technology common stock. In addition, an option
for Advanced Machine Vision common stock held by the holder of the Advanced
Machine Vision Series B preferred stock will convert into an option to
purchase 210,000 shares of Key Technology Series B convertible preferred
stock plus a warrant to purchase 52,500 shares of Key Technology common
stock. The holder of the Advanced Machine Vision Series B preferred stock has
agreed to vote its shares in favor of the merger at the Advanced Machine
Vision special meeting of shareholders.
Q. WHAT AM I BEING ASKED TO VOTE UPON?
A. Key Technology shareholders: You are being asked to approve the issuance
under the merger agreement of shares of Key Technology Series B and Series C
convertible preferred stock, warrants to purchase common stock and the shares
of common stock underlying such securities.
Key Technology's board of directors has unanimously approved the merger
agreement, and unanimously recommends voting FOR the issuance of shares of
Key Technology preferred stock, warrants and common stock under the merger
agreement.
Advanced Machine Vision shareholders: You are being asked to approve the
merger agreement and the transactions associated with it. If the merger is
approved by you and the Key Technology shareholders, Advanced Machine Vision
will become a wholly-owned subsidiary of Key Technology.
Advanced Machine Vision's board of directors has approved the merger
agreement and recommends voting FOR the merger agreement and the transactions
associated with it.
One director of Advanced Machine Vision abstained from voting with respect to
the recommendation of the merger to the Advanced Machine Vision shareholders.
Q. ARE THERE ANY OTHER PROPOSALS THE KEY TECHNOLOGY SHAREHOLDERS ARE BEING ASKED
TO VOTE UPON?
A. Yes. The Key Technology shareholders are also being asked to approve an
amendment the Key Technology 1996 employees' stock option plan to increase
the number of shares available for issuance under the plan by 500,000 shares.
Q. WHAT DO I NEED TO DO NOW?
A. You should complete, sign and mail your signed proxy card in the enclosed
return envelope as soon as possible, so that your shares will be represented
at your special shareholders' meeting. Both the Key Technology and Advanced
Machine Vision meetings will take place on July 12, 2000.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After the merger is completed, Advanced Machine Vision shareholders will
receive written instructions for exchanging their stock certificates. Key
Technology shareholders will keep their certificates because the merger will
not require surrender of Key Technology stock certificates.
vi
<PAGE> 13
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A. No. Your broker will not vote your Key Technology or Advanced Machine Vision
shares unless you provide instructions on how to vote. Without instructions
your shares will not be voted.
Q. ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
ADVANCED MACHINE VISION MERGER?
A. Yes. In evaluating the Advanced Machine Vision merger, you should carefully
consider the factors discussed in the section entitled "Risk Factors"
beginning on page 7.
Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A. If you want to change your vote, send the secretary of the company in which
you own stock, either Key Technology or Advanced Machine Vision, a
later-dated, signed proxy card before your meeting or attend the meeting in
person. You may also revoke your proxy by sending written notice to the
relevant corporate secretary before the meeting.
Q. WHEN DO YOU EXPECT THE ADVANCED MACHINE VISION MERGER TO BE COMPLETED?
A. Key Technology and Advanced Machine Vision are working toward completing the
Advanced Machine Vision merger as quickly as possible. We hope to complete
the merger immediately following the shareholders' meetings on July 12, 2000.
Q. WILL I RECOGNIZE AN INCOME TAX GAIN OR LOSS ON THE ADVANCED MACHINE VISION
MERGER?
A. We expect that if the Advanced Machine Vision merger is completed, Advanced
Machine Vision shareholders will recognize gain or loss for United States
federal income tax purposes in connection with the merger with respect to the
cash, preferred stock and warrants received depending upon each shareholder's
tax basis in their shares. However, all Advanced Machine Vision shareholders
are urged to consult their own tax advisor to determine their particular tax
consequences. The Key Technology shareholders will not experience directly
any tax consequences as a result of the Advanced Machine Vision merger.
Q. AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A. Yes, Advanced Machine Vision shareholders are entitled to dissenters rights.
(See page 41.)
Q. WHOM SHOULD I CALL WITH QUESTIONS?
A. If you have more questions about the merger, you should contact:
For Key Technology:
Ted R. Sharp
Chief Financial Officer
(509) 394-3314
For Advanced Machine Vision:
Alan R. Steel, Vice-President and
Chief Financial Officer
(541) 776-7700
vii
<PAGE> 14
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
This joint proxy statement/prospectus pertains to the merger of a
wholly-owned subsidiary of Key Technology with and into Advanced Machine Vision
and is being sent to the holders of common and preferred stock of both
companies. This summary may not contain all of the information that is important
to you. You should read carefully this entire document for a more complete
understanding of the Advanced Machine Vision merger. In particular, you should
read the documents attached to this proxy statement/prospectus, including the
merger agreement, which is attached as Annex A, and the opinion of Marshall &
Stevens Incorporated, which is attached as Annex B.
THE COMPANIES
[KEY LOGO]
Key Technology, Inc.
150 Avery Street
Walla Walla, Washington 99362
(509) 529-2161
www.keyww.com
Key Technology is a leading designer and manufacturer of process automation
systems, primarily for the food processing industry, which integrate
electro-optical inspection and sorting, specialized conveying and product
preparation equipment. Key Technology systems allow processors to improve
quality, increase yield and reduce cost.
[AMVC LOGO]
Advanced Machine Vision Corporation
3709 Citation Way, Suite 102
Medford, Oregon 97504
(541) 776-7700
www.amvcorp.com
Advanced Machine Vision Corporation is a leader in the design, manufacture
and sale of vision systems used to control manufacturing processes through
high-speed product inspection, and to identify and remove defects, resulting in
production and quality yield rates superior to other process and control
methods.
SUMMARY OF THE ADVANCED MACHINE VISION MERGER
THE ADVANCED MACHINE VISION MERGER (SEE PAGE 31)
In the Advanced Machine Vision merger, Advanced Machine Vision will merge
with a wholly-owned subsidiary of Key Technology, called KTC Acquisition Corp.
Advanced Machine Vision will survive the merger as a wholly-owned subsidiary of
Key Technology. Following the merger, Advanced Machine Vision common
shareholders will be entitled to receive for each share of Advanced Machine
Vision common stock (1) $1.00 in cash, (2) 1/10 of a share of a new series of
Key Technology Series B convertible preferred stock, and (3) 1/40 of a five-year
warrant exercisable to purchase one share of Key Technology common stock for
$15.00.
The holder of the Advanced Machine Vision Series B preferred stock will receive
119,106 shares of Key Technology Series C convertible preferred stock and
warrants identical to the warrants received by the Advanced Machine Vision
common shareholders to purchase 29,776 shares of Key Technology common stock.
The merger agreement is attached to the proxy statement/prospectus as Annex
A. You are encouraged to read it carefully.
CONDITIONS TO COMPLETION OF THE ADVANCED MACHINE VISION MERGER (SEE PAGE 36)
Key Technology's and Advanced Machine Vision's respective obligations to
complete the Advanced Machine Vision merger are subject to the satisfaction or
waiver of closing conditions. The conditions that must be satisfied or waived
before the completion of the merger include the following, subject to exceptions
and qualifications:
- The merger agreement and merger must be approved by a majority of the
Advanced
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<PAGE> 15
Machine Vision common and preferred shareholders voting separately.
- No injunction or order preventing the completion of the Advanced Machine
Vision merger may be in effect.
- Key Technology's and Advanced Machine Vision's respective representations
and warranties in the merger agreement must be accurate in all respects.
- No material adverse change shall have occurred with respect to Advanced
Machine Vision.
- Key Technology and Advanced Machine Vision must have complied in all
material respects with their respective covenants and agreements in the
merger agreement.
VOTE REQUIRED FOR APPROVAL
The holders of a majority of the Key Technology common stock must approve
the issuance of the Key Technology Series B and Series C convertible preferred
stock, warrants to purchase common stock and the shares of common stock
underlying such securities. As of April 30, 2000, the directors and executive
officers of Key Technology held approximately 31.1% of the outstanding shares of
common stock entitled to vote at the Key Technology special meeting of
shareholders.
The holders of a majority of the shares of Advanced Machine Vision common
stock and preferred stock outstanding voting as separate classes must approve
the merger agreement and the merger. As of April 30, 2000, the directors and
executive officers of Advanced Machine Vision held approximately 32% of the
outstanding shares of common stock entitled to vote at the Advanced Machine
Vision special meeting of shareholders. The holder of the Advanced Machine
Vision Series B preferred stock has agreed to vote to approve the merger
agreement and the merger.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 37)
The Advanced Machine Vision merger agreement may be terminated before
completion:
- By the mutual consent of Key Technology and Advanced Machine Vision.
- By Key Technology or Advanced Machine Vision, if the Advanced Machine
Vision merger is not completed before October 31, 2000, other than
through the failure of the party seeking to terminate to comply with its
obligations under the merger agreement.
- By Key Technology or Advanced Machine Vision, if the required shareholder
votes are not obtained at the Advanced Machine Vision shareholders'
meeting.
- By Key Technology or Advanced Machine Vision, if a material breach of any
provision of the merger agreement by the other party has not been waived
or cured within 10 days of notice of the breach.
- By Key Technology or Advanced Machine Vision, if the conditions precedent
to the closing of the merger have not been satisfied or waived.
- By Key Technology, if (i) the board of directors of Advanced Machine
Vision fails to recommend, withdraws, modifies or changes its
recommendation of the merger agreement or the merger in a manner adverse
to Key Technology or its shareholders, (ii) the board of directors of
Advanced Machine Vision recommends to the shareholders of Advanced
Machine Vision a Superior Proposal, (iii) a tender offer or exchange
offer for 25% or more of the outstanding shares of Advanced Machine
Vision is commenced and the board of directors of Advanced Machine Vision
has recommended that Advanced Machine Vision's shareholders tender in
such offer.
- By Advanced Machine Vision in the event Advanced Machine Vision's board
of directors has voted to approve a Superior Proposal.
2
<PAGE> 16
As used herein, a "Superior Proposal" means an unsolicited acquisition
proposal from a third-party on terms a majority of the members of Advanced
Machine Vision's board of directors determines in their good faith reasonable
judgment would be more favorable to Advanced Machine Vision's shareholders and
which is financed or capable of being financed by the third-party.
PAYMENT OF TERMINATION FEES (SEE PAGE 38)
Advanced Machine Vision will pay to Key Technology a termination fee of
$2,000,000 if:
- the merger agreement is terminated by Key Technology because:
-- the board of directors of Advanced Machine Vision fails to recommend,
withdraws, modifies or changes its recommendation of the merger
agreement or the merger;
-- the board of directors of Advanced Machine Vision shall have voted to
approve a Superior Proposal;
-- Advanced Machine Vision commits a material breach of the merger
agreement resulting in its termination.
Advanced Machine Vision will pay Key Technology $500,000 if the merger
agreement is terminated by Key Technology or Advanced Machine Vision because:
- Advanced Machine Vision's shareholders do not approve the merger
agreement; or
- the merger cannot be completed due to legal prohibition or litigation;
and before February 15, 2002 Advanced Machine Vision enters into an agreement to
be acquired or a majority of its stock is acquired in a tender offer.
Key Technology will pay Advanced Machine Vision a termination fee of
$2,000,000 if:
- the merger agreement is terminated by Advanced Machine Vision upon a
breach of any representation, warranty, covenant or agreement by Key
Technology, or
- if any of Key Technology's representations or warranties are or become
untrue so that the corresponding condition to completion of the Advanced
Machine Vision merger would not be met, unless the breach or inaccuracy
is cured within 30 days after delivery of written notice by Advanced
Machine Vision to Key Technology.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT (SEE PAGE 37)
Key Technology and Advanced Machine Vision may amend the merger agreement
before completion of the merger with the written consent of the other party.
Either Key Technology or Advanced Machine Vision may, in writing, waive any
inaccuracies in the other's representations and warranties and waive compliance
by the other with any of the agreements or conditions contained in the merger
agreement.
NO OTHER NEGOTIATIONS INVOLVING ADVANCED MACHINE VISION (SEE PAGE 35)
Advanced Machine Vision has agreed subject to very limited exceptions that
until the completion of the Advanced Machine Vision merger or unless Key
Technology consents in writing, Advanced Machine Vision will not directly or
indirectly solicit or encourage (including by way of furnishing information) the
making of any Acquisition Proposal.
Advanced Machine Vision has agreed to promptly inform Key Technology, and
in any event within one business day, as to any Acquisition Proposal, request
for information which Advanced Machine Vision receives in connection with an
Acquisition Proposal as well as the identity of the offeror and the terms and
conditions of any such request, or proposal.
As used herein, an "Acquisition Proposal" is any inquiry or proposal
regarding any merger, sale of substantial assets, sale of shares of capital
stock or similar transaction involving Advanced Machine Vision or its
subsidiaries.
OPINION OF ADVANCED MACHINE VISION'S FINANCIAL ADVISOR (SEE PAGE 26)
In deciding to approve the Advanced Machine Vision merger, Advanced Machine
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<PAGE> 17
Vision's board of directors considered the opinion of Marshall & Stevens
Incorporated as to the fairness, from a financial point of view, of the cash and
securities to be paid to the holders of Advanced Machine Vision common stock.
The full text of the written opinion of the financial advisor is attached to
this document as Annex B and should be read carefully in its entirety for a
description of the assumptions made, matters considered and limitations on the
review undertaken. The opinion of Marshall & Stevens Incorporated is directed to
the Advanced Machine Vision board of directors, and this opinion does not
address the prices at which Key Technology's common stock, preferred stock or
warrants will trade after the proposed merger and does not constitute a
recommendation as to how to vote with respect to any matter relating to the
proposed merger.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 39)
We expect that if the Advanced Machine Vision merger is completed, Advanced
Machine Vision shareholders will recognize gain or loss for United States
federal income tax purposes in connection with the merger with respect to the
cash, preferred stock and warrants received, depending upon each shareholder's
tax basis in their shares. However, each Advanced Machine Vision shareholder is
urged to consult their own tax advisor to determine their particular tax
consequences. The Key Technology shareholders will not experience directly any
tax consequences as a result of the Advanced Machine Vision merger.
ACCOUNTING TREATMENT OF THE ADVANCED MACHINE VISION MERGER (SEE PAGE 39)
Key Technology intends to account for the merger as a purchase transaction
for financial accounting purposes, in accordance with generally accepted
accounting principles.
INTERESTS OF CERTAIN PERSONS IN THE ADVANCED MACHINE VISION MERGER (SEE PAGE 43)
When considering the recommendations of Advanced Machine Vision's board of
directors, you should be aware that certain Advanced Machine Vision directors,
officers and shareholders have interests in the merger that are different from,
or are in addition to, yours. These interests include:
- FMC Corporation, the holder of all of the outstanding Series B preferred
stock of Advanced Machine Vision, has entered into an agreement with Key
Technology and Advanced Machine Vision pursuant to which FMC Corporation
has agreed to vote its shares of preferred stock in favor of the merger,
and terminate certain agreements with Advanced Machine Vision. Pursuant
to the agreement, FMC Corporation will receive shares of Key Technology
Series C preferred stock, which has certain rights and privileges
different from and superior to the Key Technology Series B preferred
stock, and an option to acquire additional Key Technology securities.
(see page 94)
- Mr. Young, Mr. Ewan and Mr. Steel, directors and officers of Advanced
Machine Vision, will receive change of control payments from Advanced
Machine Vision upon consummation of the merger aggregating approximately
$2,000,000, subject to certain tax limitations.
- The directors and officers of Advanced Machine Vision will be covered by
directors and officers liability insurance maintained by Key Technology
for six years following the merger.
RIGHTS OF DISSENTING SHAREHOLDERS (SEE PAGE 41)
Advanced Machine Vision shareholders are entitled, in certain
circumstances, to dissenters' rights with respect to the merger under the
California General Corporation Law.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE 114)
Shares of Key Technology common stock are quoted on the Nasdaq National
Market and shares of Advanced Machine Vision are quoted on the Nasdaq Small Cap
Market. On February 14, 2000, the last trading day before the announcement of
the proposed merger, the Key Technology common stock closed at 9 5/8 per share
and the Advanced Machine Vision common stock closed at 1 11/16 per share. On
June , 2000, the last trading day prior to the date of this joint proxy
statement/prospectus, Key Technology common
4
<PAGE> 18
stock closed at per share and Advanced Machine Vision common stock
closed at per share.
RESTRICTIONS ON THE ABILITY TO SELL KEY TECHNOLOGY SECURITIES (SEE PAGE 38)
Although the shares of Key Technology Series B preferred stock and warrants
to be issued to Advanced Machine Vision common shareholders in connection with
the Advanced Machine Vision merger will be freely transferable under the
Securities Act, Key Technology has only agreed to cause such securities to be
listed on the Nasdaq Stock Market within 120 days after closing.
DELISTING OF ADVANCED MACHINE VISION STOCK
Following the merger, the Advanced Machine Vision common stock will no
longer be listed on the Nasdaq SmallCap Market.
COMPARATIVE RIGHTS OF SHAREHOLDERS (SEE PAGE 102)
The rights of shareholders of Key Technology are currently governed by
Oregon law and its articles of incorporation and bylaws. The rights of
shareholders of Advanced Machine Vision are currently governed by California law
and its certificate of incorporation and bylaws. If the merger is completed, the
rights of former Advanced Machine Vision shareholders who become Key Technology
shareholders will be governed by Oregon law and Key Technology's certificate of
incorporation and bylaws, which differ in some respects from Advanced Machine
Vision's certificate of incorporation and bylaws.
5
<PAGE> 19
KEY TECHNOLOGY AND ADVANCED MACHINE VISION
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Key
Technology and Advanced Machine Vision and combined per share data on an
unaudited pro forma basis after giving effect to the merger using the purchase
method of accounting. For ease of comparison, Advanced Machine Vision historical
data has been adapted to Key Technology's fiscal year. This was done by adding
Advanced Machine Vision's fourth quarter for its fiscal year 1998 (the three
months ended December 31, 1998) to, and subtracting the fourth quarter of
Advanced Machine Vision's fiscal 1999 (the three months ended December 31, 1999)
from, Advanced Machine Vision's full fiscal year 1999. This data should be read
in conjunction with the selected historical financial data, the unaudited pro
forma combined condensed financial information and the separate historical
financial statements of Key Technology and Advanced Machine Vision and notes
thereto included elsewhere in this joint proxy statement/prospectus. The pro
forma combined financial data are not necessarily indicative of the operating
results that would have been achieved had the merger been consummated as of the
beginning of the periods presented and should not be construed as representative
of future operations.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
1999 2000
------------- ------------
<S> <C> <C>
HISTORICAL -- KEY TECHNOLOGY:
Net income per share -- basic and diluted................. $0.75 $ .20
Book value per share(1)................................... 6.93 7.03
HISTORICAL -- AMVC:
Net income (loss) per share -- basic and diluted.......... 0.01 (.30)
Book value per share(1)................................... 1.18 .89
PRO FORMA COMBINED:(2)(3)
Net income (loss) per share -- basic...................... 0.04 (0.52)
Net income (loss) per share -- diluted.................... 0.04 (0.52)
Book value per share...................................... 6.40 6.50
</TABLE>
-------------------------
(1) The historical book value per share is computed by dividing shareholders'
equity by the number shares of common stock outstanding as of the end of
each period.
(2) Key Technology and Advanced Machine Vision estimate they will incur direct
transaction costs of $600,000 associated with the merger which will be
capitalized as part of the purchase price. Key Technology is expected to
incur $2.9 million in relocation and severance costs which have also been
capitalized as part of the acquisition. In addition, Key Technology expects
to incur $1.5 million of costs related to integration of the two companies
that will be charged to operations in the first twelve months after the
merger. The pro forma combined book value per share data gives effect to the
estimated direct transaction costs and costs capitalized as part of the
merger, but does not include additional charges relating to the integration
of the two companies. These costs and charges are not included in the pro
forma net income/loss per share data. See "Unaudited Pro Forma Combined
Financial Statements" and accompanying notes thereto. The purchase price
also estimates an allocation of $2.5 million to in-process research and
development which will be written off immediately after the purchase.
(3) The pro forma book value per share is computed by dividing pro forma
shareholders' equity by the pro forma number shares of common stock
outstanding as of the end of each period. The pro forma shareholders' equity
reflects the write-off of $2.5 million of in-process research and
development.
6
<PAGE> 20
RISK FACTORS
Key Technology shareholders and Advanced Machine Vision shareholders should
consider the following factors carefully in evaluating whether to approve the
issuance and to approve the merger. These factors should be considered together
with the other information included in this joint proxy statement/prospectus.
RISKS RELATED TO THE MERGER.
DIFFICULTIES INTEGRATING KEY TECHNOLOGY AND ADVANCED MACHINE VISION MAY PREVENT
THE BENEFITS OF THE MERGER FROM BEING REALIZED.
As a result of differences between the two companies, it will be difficult
to quickly integrate the products, technologies, research and development
activities, administration, sales and marketing and other operations of the two
companies. Integration difficulties may disrupt the combined company's business
and could prevent the achievement of the potential benefits of the merger. The
difficulties, costs and delays involved in integrating the companies, which
could be substantial, may include:
- distractions to management and other key personnel, particularly sales
and marketing personnel and engineers involved in product development,
from the business of the combined company;
- costs and delays in implementing common systems and procedures;
- inability to retain and integrate key management, technical, sales and
customer support personnel;
- inability to maintain Advanced Machine Vision's existing relationships
with its customers and partners;
- disruption in the combined sales forces resulting in a loss of current
customers or the inability to close sales with potential customers;
- actions by customers to encourage alternative suppliers;
- perceived or potential adverse change in business focus or product
offerings;
- the difficulty of incorporating acquired technology and rights into the
combined company's products and services;
- unanticipated expenses relating to technology integration;
- the impairment of relationships with employees and customers as a result
of integration of new management personnel; and
- potential unknown liabilities associated with the acquired business.
These and other potential difficulties associated with the merger may lead
to potential adverse effects on Key Technology operating results.
ADVANCED MACHINE VISION COMMON SHAREHOLDERS WILL RECEIVE A FIXED NUMBER OF
SHARES OF KEY TECHNOLOGY SERIES B CONVERTIBLE PREFERRED STOCK AND WARRANTS
DESPITE CHANGES IN THE MARKET VALUE OF KEY TECHNOLOGY COMMON STOCK OR ADVANCED
MACHINE VISION COMMON STOCK.
Upon the completion of the merger, each share of Advanced Machine Vision
common stock will be exchanged for $1.00 in cash, 1/10 of a share of Key
Technology Series B Convertible Preferred Stock and 1/40 of a warrant to acquire
Key Technology common stock. There will be no adjustment for changes in the
market price of either Key Technology common stock or Advanced Machine Vision
common stock since the signing of the merger agreement. In addition, neither Key
Technology nor Advanced Machine Vision may terminate the merger agreement solely
because of changes in the market price of Key Technology
7
<PAGE> 21
common stock. Accordingly, the specific dollar value of Key Technology
securities that Advanced Machine Vision shareholders will receive upon the
completion of the merger will depend on the market value of Key Technology
common stock when the merger is completed and may decrease from the date you
submit your proxy. The share price of Key Technology common stock is subject to
the general price fluctuations in the market for publicly traded equity
securities and has experienced significant volatility. We urge you to obtain
recent market quotations for Key Technology common stock and Advanced Machine
Vision common stock. Key Technology cannot predict or give any assurances as to
the market price of Key Technology common stock at any time before or after the
completion of the merger.
THE ABSENCE OF A TRADING MARKET FOR THE SERIES B CONVERTIBLE PREFERRED STOCK AND
WARRANTS WILL ADVERSELY AFFECT THE LIQUIDITY AND VALUE OF SUCH SECURITIES.
Key Technology has agreed to list the shares of the Series B convertible
preferred stock and warrants on the Nasdaq Stock Market only within 120 days
after the closing of the merger. As a result, shareholders of Advanced Machine
Vision will likely have no market in which to sell the Key Technology Series B
convertible preferred stock and warrants received in the merger for as long as
four months after closing.
In addition, only approximately 1,576,000 Series B convertible preferred
shares and 424,000 warrants may be issued and there can be no assurance that an
active trading market for the Key Technology Series B convertible preferred
stock or warrants will develop or be sustained after the offering. Moreover, as
a result of conversion or redemption of the Key Technology Series B convertible
preferred stock, or the exercise or redemption of the warrants, at the election
of the holders, even fewer shares of the Series B convertible preferred stock
and fewer warrants may remain outstanding, further reducing the possibility of
an active trading market or further adversely affecting the value of such
securities.
THE MERGER COULD ADVERSELY AFFECT COMBINED FINANCIAL RESULTS.
Key Technology expects to incur estimated non-recurring merger costs of
$5,000,000 in connection with the merger. If the benefits of the merger do not
exceed the costs associated with the merger, including any dilution to Key
Technology's shareholders resulting from the issuance of the Series B and Series
C convertible preferred stock which is convertible into common stock of Key
Technology, and any dilution resulting from the exercise of warrants to purchase
common stock, Key Technology's financial results, including earnings per share,
could be adversely affected.
KEY TECHNOLOGY WILL INCUR SUBSTANTIAL DEBT IN ORDER TO PAY THE CASH PORTION OF
THE ACQUISITION PRICE TO BE PAID TO THE ADVANCED MACHINE VISION SHAREHOLDERS.
Key Technology has entered into a commitment with U.S. Bank National
Association to borrow up to $14,500,000 to fund the cash portion of the purchase
price to be paid to the Advanced Machine Vision shareholders and for other
purposes. As a result of the incurrence of debt in connection with the
acquisition of Advanced Machine Vision, Key Technology will be required to pay
approximately $2,000,000 in annual principal and interest payments, which will
reduce its earnings and cash available for other corporate purposes for the
foreseeable future. In addition, Key Technology may borrow additional amounts in
the future to pay the aggregate redemption price owing to holders of Series B
and Series C convertible preferred stock and warrants who elect to redeem their
securities. There can be no assurance that Key Technology will be able to borrow
such further amounts on favorable terms or at all.
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<PAGE> 22
THE MARKET PRICE OF KEY TECHNOLOGY COMMON STOCK MAY DECLINE AS A RESULT OF THE
MERGER.
The market price of Key Technology common stock may decline as a result of
the merger for a number of reasons, including if:
- the integration of Key Technology and Advanced Machine Vision is
unsuccessful;
- Key Technology does not achieve the perceived benefits of the merger as
rapidly or to the extent anticipated by financial or industry analysts;
or
- the effect of the merger on Key Technology's financial results is not
consistent with the expectations of the financial community.
ADVANCED MACHINE VISION'S OFFICERS, DIRECTORS AND PREFERRED SHAREHOLDER HAVE
CONFLICTS OF INTEREST THAT MAY INFLUENCE THEM TO SUPPORT OR APPROVE THE MERGER.
The directors and officers of Advanced Machine Vision and the holder of the
Advanced Machine Vision Series B preferred stock participate in arrangements and
have continuing insurance that provide them with interests in the merger that
are different from, or in addition to, yours, including the following:
- Mr. Young, Mr. Ewan and Mr. Steel will receive change of control payments
from Advanced Machine Vision pursuant to existing employment agreements
upon consummation of the merger aggregating up to approximately
$2,000,000, subject to the application of certain limitations under the
Internal Revenue Code.
- Messrs. Ewan, Steel and Young, directors or officers of Advanced Machine
Vision, and Veneer Technology, Inc., of which Mr. Von Voorhis, also a
director of Advanced Machine Vision, is a principal owner, pursuant to
amendments to their restricted stock agreements, will be permitted to
engage in a "cashless exercise" of their restricted stock pursuant to
which they will receive an aggregate of 234,524 shares of Advanced
Machine Vision common stock prior to the merger.
- Key Technology will cause the surviving corporation to maintain
directors' and officers' liability insurance to cover liabilities arising
out of such person's services as a director or officer of Advanced
Machine Vision for the next six years.
- FMC Corporation, the holder of all of the outstanding Series B preferred
stock of Advanced Machine Vision, has entered into an agreement with Key
Technology and Advanced Machine Vision pursuant to which FMC Corporation
has agreed to vote its shares of preferred stock in favor or the merger,
and terminate certain agreements with Advanced Machine Vision. Pursuant
to the agreement, FMC Corporation will receive shares of Key Technology
Series C preferred stock which has certain rights and privileges
different from and superior to the Key Technology Series B preferred
stock.
THE RIGHTS OF KEY TECHNOLOGY'S SERIES B AND SERIES C CONVERTIBLE PREFERRED
SHAREHOLDERS MAY ADVERSELY AFFECT THE RIGHTS OF KEY TECHNOLOGY COMMON
SHAREHOLDERS.
Holders of Key Technology's Series B and Series C convertible preferred
shares to be issued in the merger have certain rights that may adversely affect
holders of Key Technology's common stock. As a result of the proposed merger,
approximately 1,576,000 shares of Key Technology Series B convertible preferred
stock and 119,106 shares of Series C convertible preferred stock may become
outstanding.
Liquidation preference.
In the event of any liquidation, dissolution or winding up of Key
Technology, holders of shares of Series B and Series C convertible preferred
stock are entitled to be paid first, out of the assets of the
9
<PAGE> 23
corporation available for distribution, an amount equal to $10.00 per share of
Series B convertible preferred stock and $20.00 per share of Series C
convertible preferred stock before any amounts are distributed to holders of Key
Technology common stock. As a result of this liquidation preference, in the
event of the liquidation, dissolution or winding up of Key Technology, there may
be no amounts remaining after payment of the liquidation preference to the
holders of Series B or Series C convertible preferred stock, in which case
holders of Key Technology common stock would receive nothing.
Conversion rights.
Each share of Key Technology Series B convertible preferred stock is
convertible at the election of the holder at any time into 2/3 of a share of Key
Technology common stock, and each share of Series C convertible preferred stock
is convertible at the election of the holder at any time into 1 2/3 shares of
Key Technology common stock. Any conversion of Series B or Series C convertible
preferred stock into common stock will dilute the existing common shareholders
of Key Technology. As a result of a merger, approximately 1,576,000 shares of
Series B convertible preferred stock and 119,106 shares of Series C convertible
preferred stock may become outstanding and will be convertible into an aggregate
of approximately 1,249,000 shares of Key Technology common stock.
Redemption rights.
Each whole share of Key Technology Series B convertible preferred stock is
redeemable at the election of the holder after two years from the date of
issuance for $10.00 in cash. Each share of Key Technology Series C convertible
preferred stock is redeemable at the election of the holder at any time for
$20.00 in cash. Such redemption rights are a contingent liability of Key
Technology and could result in the payment in the aggregate of a large sum to
the holders of the Key Technology Series B and Series C convertible preferred
stock at a time when Key Technology might use such funds for other corporate
purposes, including investment in its business or the payment of dividends on
its common stock. As a result of the merger, there will be approximately
1,576,000 shares of Key Technology Series B convertible preferred stock and
119,106 shares of Series C convertible preferred stock outstanding, with an
aggregate potential redemption cost to Key Technology of approximately
$18,142,000. In addition, both the Series B and Series C convertible preferred
stock are required by their terms to be redeemed by Key Technology on the fifth
anniversary of the closing of the merger, and Key Technology will incur such
redemption cost on that date to the extent the preferred stock is not previously
redeemed or converted.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY AFFECT KEY TECHNOLOGY'S OR
ADVANCED MACHINE VISION'S STOCK PRICE, FUTURE BUSINESS AND OPERATIONS.
If the merger is not completed for any reason, Key Technology and Advanced
Machine Vision may be subject to a number of material risks, including the
following:
- The price of Key Technology or Advanced Machine Vision common stock may
decline to the extent that the relevant current market price reflects a
market assumption that the merger will be completed;
- Costs related to the merger, such as legal, accounting and financial
advisor fees, must be paid even if the merger is not completed; and
- Either Key Technology or Advanced Machine Vision may be required under
certain circumstances to pay the other party a termination fee of as much
as $2,000,000.
In addition, Key Technology's or Advanced Machine Vision's customers,
strategic partners or suppliers, in response to the announcement of the merger,
may delay or defer decisions concerning the relevant company. Any delay or
deferral of those decisions by customers, strategic partners or suppliers could
have a material adverse effect on the business of the relevant company,
regardless whether the
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merger is ultimately completed. Similarly, current and prospective Key
Technology or Advanced Machine Vision employees may experience uncertainty about
their future roles with Key Technology until Key Technology's plans with regard
to Advanced Machine Vision are announced or executed. This may adversely affect
Key Technology's or Advanced Machine Vision's ability to attract and retain key
management, sales, marketing and technical personnel.
Further, if the merger is terminated and Advanced Machine Vision's board of
directors determines to seek another merger or business combination, there can
be no assurance that it will be able to find a partner willing to pay an
equivalent or more attractive price than the price to be paid in the merger. In
addition, while the merger agreement is in effect, and subject to very narrowly
defined exceptions, Advanced Machine Vision is prohibited from soliciting,
initiating or encouraging or entering into certain transactions, such as a
merger, sale of assets or other business combination, with any party other than
Key Technology.
RISKS RELATED TO ADVANCED MACHINE VISION.
ADVANCED MACHINE VISION HAS A HISTORY OF LOSSES AND NEGATIVE CASH FLOW.
Prior to 1995 and in 1996 and in certain fiscal periods thereafter,
Advanced Machine Vision experienced losses and negative operating cash flow.
Advanced Machine Vision believes that it may operate at a negative cash flow for
certain periods in the future due to (a) the need to fund certain development
projects, (b) cash required to enter new market areas, (c) irregular bookings by
customers due to seasonality or economic downturns in some markets and the
relatively high per-unit cost of Advanced Machine Vision products which may
cause fluctuations in quarterly or yearly revenues, and (d) cash required for
the repayment of debt, especially $3.4 million due in 2001. If Advanced Machine
Vision is unable to consistently generate sustained positive cash flow from
operations, it must rely on debt or equity financing.
Although Advanced Machine Vision achieved profitability in 1995, 1997 and
1998, there can be no assurance as to future profitability on a quarterly or
annual basis.
ADVANCED MACHINE VISION MAY HAVE A POSSIBLE NEED FOR ADDITIONAL FINANCING.
Advanced Machine Vision may need to seek additional financing; but not be
able to obtain additional financing on satisfactory terms, if at all. Potential
increases in the number of outstanding shares of its common stock due to
convertible debt and preferred stock and stock options, substantial losses in
1996 and 1999 and debt due in 2001, may limit Advanced Machine Vision's ability
to negotiate additional debt or equity financing.
ADVANCED MACHINE VISION IS DEPENDENT UPON SIGNIFICANT CUSTOMERS AND FMC
CORPORATION FOR PRODUCT DISTRIBUTION.
Advanced Machine Vision sold equipment to two unaffiliated customers each
totaling 13% of sales in 1999, to an unaffiliated customer totaling 14% of sales
in 1997 and to two unaffiliated customers totaling 13% and 12% of sales in 1996.
Ventek's sales have been to a relatively small number of multi-location plywood
manufacturers. In the emerging pulp wood industry, Advanced Machine Vision
utilizes a single exclusive distributor for our products in North America. In
1998, FMC Corporation became Advanced Machine Vision's exclusive or
non-exclusive sales representative in much of the United States and in many
areas in the rest of the world. While Advanced Machine Vision strives to create
long-term relationships with its customers, distributors and representatives,
there can be no assurance that they will continue ordering or selling additional
systems. Advanced Machine Vision may continue to be dependent on a small number
of customers, distributors and representatives, the loss of which would
adversely affect its business.
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RISKS RELATED TO BOTH KEY TECHNOLOGY AND ADVANCED MACHINE VISION.
THERE IS THE POTENTIAL FOR PATENT-RELATED LITIGATION EXPENSES AND OTHER COSTS
RESULTING FROM CLAIMS ASSERTED AGAINST KEY TECHNOLOGY, ADVANCED MACHINE VISION
OR THEIR CUSTOMERS BY THIRD PARTIES.
The technologies used by Key Technology and Advanced Machine Vision may
infringe the patents or proprietary technology of others. After the merger, the
cost of enforcing Key Technology's patent rights in lawsuits that it may bring
against infringers or of defending itself against infringement charges by other
patent holders or other third parties, including customers, may be high and
could have an adverse effect on the combined company 's results of operations
and its customer relations.
Certain users of Key Technology's and Advanced Machine Vision's products
have received notice of patent infringement from the Lemelson Medical,
Educational and Research Foundation Limited Partnership alleging that their use
of Key Technology's and Advanced Machine Vision's products may infringe certain
patents transferred to the partnership by the late Jerome H. Lemelson. Certain
of these users have notified Key Technology and Advanced Machine Vision that, in
the event it is subsequently determined that their use of the companies'
products infringes any of the foundation's patents, they may seek
indemnification from the companies for damages or expenses resulting from this
matter. Neither Key Technology nor Advanced Machine Vision believes its products
infringe any valid and enforceable claims of the foundation's patents.
Furthermore, the foundation has stated that it is not Key Technology's or
Advanced Machine Vision's products that infringe the foundation's patents, but
rather the use of those products by those companies' customers. The companies
cannot predict the outcome of this matter nor any related litigation or other
costs related to mitigation activities that may arise in the future, the effect
of such litigation or mitigation activities on the financial results of the
combined company, or the effect upon their customer relations.
THERE ARE UNCERTAINTIES RELATING TO PATENTS AND PROPRIETARY INFORMATION.
Key Technology's and Advanced Machine Vision's competitive position may be
affected by their ability to protect their proprietary technology. Key
Technology and Advanced Machine Vision have obtained certain patents and have
filed a number of patent applications. Key Technology also anticipates filing
applications for protection of its future products and technology after the
merger. There can be no assurance that any such patents will provide meaningful
protection for the combined company's product innovations. There also can be no
assurance that the combined companies will obtain any patent for which they
apply, that existing patents to which the combined companies have rights will
not be challenged, or that the issuance of a patent will give the combined
company any material advantage over its competition in connection with any of
its products. After the merger, Key Technology may experience additional
intellectual property risks in international markets where it may lack patent
protection. The patent laws of other countries may differ from those of the U.S.
as to the patentability of the combined companies products and processes.
Moreover, the degree of protection afforded by foreign patents may be different
from that of U.S. patents.
FAILURE TO ACHIEVE PRODUCT PERFORMANCE SPECIFICATIONS AND ANY RELATED WARRANTY
EXPENSES MAY HAVE A MATERIAL ADVERSE EFFECT ON KEY TECHNOLOGY AND ADVANCED
MACHINE VISION.
Key Technology and Advanced Machine Vision provide a one-year warranty on
their products. In addition, for certain standard or custom-designed systems,
each company may contract to meet certain performance specifications for a
specific application or set of applications. In the past, the companies' have
incurred higher warranty expenses related to new products than they typically
incur with established products. There can be no assurance that the combined
companies will not incur substantial warranty expenses in the future with
respect to new products, as well as established products, or with respect to its
obligations to meet, or provide product upgrades to meet, performance
specifications, which may have an adverse effect on Key Technology's results of
operations and customer relations.
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THE SUCCESS OF KEY TECHNOLOGY'S AND ADVANCED MACHINE VISION'S INTERNATIONAL
OPERATIONS IS DEPENDENT UPON MANY FACTORS WHICH COULD ADVERSELY AFFECT THE
COMBINED COMPANY'S ABILITY TO SELL ITS PRODUCTS INTERNATIONALLY AND COULD AFFECT
ITS PROFITABILITY.
International sales represent approximately 46% of Key Technology's total
revenue during the year ended September 30, 1999 and 41% of Advanced Machine
Vision's total revenue during the year ended December 31, 1999. The
international operations are, and any expanded international operations will be,
subject to a variety of risks associated with conducting business
internationally that could adversely affect the combined company's ability to
sell its products internationally, and therefore its profitability, including
the following:
- difficulties in integrating, staffing and managing international
operations;
- problems in collecting accounts receivable;
- longer payment cycles;
- fluctuations in currency exchange rates;
- uncertainties relative to regional political and economic circumstances;
- uncertain economic environments in certain foreign countries; and
- increases in tariffs, duties, price controls or other restrictions or
trade barriers imposed by foreign countries.
THE RESULTS OF OPERATIONS OF THE COMBINED COMPANIES WILL BE ADVERSELY AFFECTED
BY INCREASES IN THE RELATIVE VALUE OF THE U.S. DOLLAR.
When competing with suppliers of similar equipment, both in the United
States and abroad, the operations of the combined companies will be affected by
changes in the relative value of the U.S. dollar in international markets. The
current relative strength of the U.S. dollar in European markets will cause the
products of the combined companies to become more expensive to foreign
customers. Additionally, foreign competitors doing business in the United States
can compete on a price basis more aggressively without eroding their own profit
margins. Each of the companies have been successful in price competitive
situations with U.S. dollar denominated sales throughout its served markets.
However, the continued strength of the U.S. dollar will limit the ability of the
combined companies to offer competitive pricing while maintaining target margins
for sales denominated in currencies other than U.S. dollars.
THE PERFORMANCE AND NEEDS OF INDUSTRIES SERVED BY KEY TECHNOLOGY AND ADVANCED
MACHINE VISION AND THE FINANCIAL CAPACITY OF CUSTOMERS IN THESE INDUSTRIES TO
PURCHASE CAPITAL EQUIPMENT MAY SIGNIFICANTLY AFFECT SALES.
A substantial portion of both of Key Technology's and Advanced Machine
Vision's historical sales have been in the potato and vegetable processing
markets. Reductions in capital equipment expenditures by processors in such
markets due to commodity surpluses, product price fluctuations, changing
consumer preferences, fluctuations in foreign currency rates or other factors
could have an adverse effect on the combined company's results of operations. In
the case of Advanced Machine Vision's Ventek subsidiary, the wood products
market served is narrow and cyclical, and saturation of that market and the
potential inability to identify and develop new markets could adversely affect
Ventek's growth rate.
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KEY TECHNOLOGY'S AND ADVANCED MACHINE VISION'S MARKETS ARE CHARACTERIZED BY
RAPID TECHNOLOGICAL CHANGE.
The markets for the companies' machine vision products are characterized by
rapidly changing technology, evolving industry standards and frequent new
product introductions and enhancements. Sales of the companies' products depend
in part on the continuing development and deployment of new technology and
services and applications. Success will depend to a significant extent upon the
companies' ability to enhance existing products and develop new products that
gain market acceptance. The companies' cannot be sure that they will be
successful in selecting, developing and manufacturing new products or enhancing
existing products on a timely or cost-effective basis or that products or
technologies developed by others will not render their products non-competitive
or obsolete. Moreover, the combined companies' may encounter technical problems
in connection with product development that could result in the delayed
introduction of new products or product enhancements. In the case of Ventek, the
wood industry continues to develop alternative products to plywood, such as
oriented strand board, which do not require vision systems for quality control.
KEY TECHNOLOGY AND ADVANCED MACHINE VISION TYPICALLY EXPERIENCE A LENGTHY SALES
CYCLE FOR THEIR PRODUCTS.
The marketing and sales cycle for the companies' machine vision systems,
especially in new markets or in a new application, is lengthy and can be as long
as three years. Even in existing markets, due to the $150,000 to $600,000 price
for each system and possibly significant ancillary costs required for a customer
to install the system, the purchase of a machine vision system can constitute a
substantial capital investment for a customer (which may need more than one
machine for its particular proposed application) requiring lengthy consideration
and evaluation. In particular, a potential customer must develop a high degree
of assurance that the product will meet its needs, successfully interface with
the customer's own manufacturing, production or processing system, and have
minimal warranty, safety and service problems. Accordingly, the time lag from
initiation of marketing efforts to final sales can be lengthy.
KEY TECHNOLOGY AND ADVANCED MACHINE VISION HAVE EXPERIENCED SIGNIFICANT
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND SIGNIFICANT SEASONALITY IN
SALES.
Key Technology and Advanced Machine Vision have experienced and may in the
future experience significant fluctuations in revenues and operating results
from quarter to quarter as a result of a number of factors, many of which are
outside either company's control. These factors include the timing of
significant orders and shipments, product mix, delays in shipment, capital
spending patterns of customers, competition and pricing, new product
introductions by competitors, the timing of research and development
expenditures, expansion of marketing and support operations, changes in material
costs, production or quality problems, currency fluctuations, disruptions in
sources of supply, regulatory changes and general economic conditions. These
factors are difficult to forecast, and these or other factors could have a
material adverse effect on the combined company's business and operating
results. Moreover, due to the relatively fixed nature of many of Key
Technology's and Advanced Machine Vision's costs, including personnel and
facilities costs, Key Technology and Advanced Machine Vision would not be able
to reduce costs in any quarter to compensate for any unexpected shortfall in net
sales, and such a shortfall would have a proportionately greater impact on
results of operations for that quarter.
In addition, the combined company's operating results may also be affected
by certain seasonal trends. For example, Key Technology and Advanced Machine
Vision may experience lower sales and order levels in the first quarter when
compared with the preceding fourth quarter due to the seasonality of certain
harvested food items and the timing of annual or semi-annual customer plant
shut-downs during which systems are installed. Key Technology expects these
patterns to continue.
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THE MARKETS FOR KEY TECHNOLOGY'S AND ADVANCED MACHINE VISION'S PRODUCTS ARE
HIGHLY COMPETITIVE.
The markets for Key Technology's and Advanced Machine Vision's products are
highly competitive. Some of the companies' competitors may have substantially
greater financial, technical, marketing and other resources than the companies.
Important competitive factors in the companies' markets include price,
performance, reliability, customer support and service. Although Key Technology
and Advanced Machine Vision believe that they currently compete effectively with
respect to these factors, there can be no assurance that the combined company
will be able to continue to compete effectively in the future.
UNUSUAL PRICING AND TERMS OFFERED BY CERTAIN COMPETITORS MAY RESULT IN LOSS OF
MARKET SHARE BY THE COMBINED COMPANIES.
Key Technology's total European bookings for the six-month period ended
March 31, 2000 decreased 5% when compared to the same period of last year. The
combined companies are committed to maintaining market share in Europe in the
short term. The result may be an erosion of margins on product sales into that
market.
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KEY TECHNOLOGY SPECIAL MEETING
PURPOSE
The purpose of the Key Technology special meeting is to consider and vote
upon a proposal to approve the issuance of shares of Key Technology Series B
convertible preferred stock, Key Technology Series C convertible preferred
stock, warrants to purchase Key Technology common stock and the shares of common
stock underlying such securities, which issuances collectively are referred to
as the "Issuance." Shareholder approval of the Issuance, which may result in the
issuance of more than 20% of the number of shares of Key Technology common stock
outstanding immediately before the merger, is required under the rules of The
Nasdaq Stock Market and provisions of the Oregon Business Corporation Act
applicable to Key Technology.
In addition, Key Technology shareholders are also being asked to approve an
amendment to the Key Technology 1996 employees' stock option plan to increase
the number of shares of common stock available for issuance under the plan from
750,000 shares to 1,250,000 shares.
DATE, TIME AND PLACE OF MEETING
The Key Technology special meeting will be held on Wednesday, July 12,
2000, at 8:00 a.m., local time, at 888 S.W. Fifth Avenue, Suite 1600, Portland,
Oregon.
THE KEY TECHNOLOGY BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
ISSUANCE AND THE MERGER ARE ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF,
KEY TECHNOLOGY AND THE KEY TECHNOLOGY SHAREHOLDERS AND HAS UNANIMOUSLY APPROVED
THE ISSUANCE AND THE MERGER. THE KEY TECHNOLOGY BOARD OF DIRECTORS RECOMMENDS
THAT THE KEY TECHNOLOGY SHAREHOLDERS VOTE "FOR" APPROVAL OF THE ISSUANCE AND THE
AMENDMENT TO THE 1996 EMPLOYEES' STOCK OPTION PLAN AT THE KEY TECHNOLOGY SPECIAL
MEETING. SEE "BACKGROUND OF AND REASONS FOR THE MERGER."
RECORD DATE; VOTING RIGHTS
Only holders of record of Key Technology common shares at the close of
business on May 31, 2000, which has been fixed as the Key Technology record
date, are entitled to notice of and to vote at the Key Technology Special
Meeting. At the close of business on the Key Technology record date, 4,729,514
Key Technology common shares were outstanding, each of which entitles the
registered holder thereof to one vote.
QUORUM; VOTE REQUIRED
The presence in person or by proxy of holders representing a majority of
the voting power of the Key Technology common shares entitled to vote is
necessary to constitute a quorum for the transaction of business at the Key
Technology special meeting. Under Rule 4460(i) of the National Association of
Securities Dealers, Inc. and the restated articles of incorporation of Key
Technology, as amended, the affirmative vote of holders representing a majority
of the Key Technology common shares present in person or represented by proxy
and entitled to vote at the Key Technology special meeting is required to
approve the Issuance and the amendment to the 1996 employees' stock option plan.
An abstention with respect to approval of the Issuance or the amendment to
the 1996 employees' stock option plan will be counted for purposes of
establishing a quorum, but will not be counted as a vote for or as a vote cast
against the Issuance or the amendment. Brokers who hold Key Technology common
shares as nominees will not have discretionary authority to vote such shares in
the absence of instructions from the beneficial owners thereof. Any such broker
non-votes will be counted for purposes of establishing a quorum, but will not be
counted for or against the Issuance or the amendment.
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PROXIES
Key Technology common shares represented by properly executed proxies
received at or prior to the Key Technology special meeting that have not been
revoked will be voted at the Key Technology special meeting in accordance with
the instructions contained therein. The Key Technology shareholders are required
to complete, sign, date and return promptly the enclosed proxy card in the
postage-prepaid envelope provided for this purpose to ensure that their shares
are voted. A Key Technology Shareholder may revoke a proxy at any time before it
is voted by signing and returning a later-dated proxy with respect to the same
shares, by filing with the Secretary of Key Technology a written revocation
bearing a later date or by attending and voting in person at the Key Technology
special meeting. Mere attendance at the Key Technology Special Meeting will not
in and of itself revoke a proxy.
If the Key Technology special meeting is postponed or adjourned for any
reason, at any subsequent reconvening of the Key Technology special meeting all
proxies (except for any proxies that have theretofore effectively been revoked
or withdrawn) will be voted in the same manner as such proxies would have been
voted at the original convening of the Key Technology special meeting,
notwithstanding that such proxies may have been effectively voted on the same or
any other matter at a previous meeting.
Key Technology will bear the cost of soliciting proxies from the Key
Technology shareholders, except that Advanced Machine Vision has agreed to pay
all such expenses in the event the Merger Agreement is terminated under
circumstances requiring Advanced Machine Vision to pay a termination fee
pursuant to the Merger Agreement, or if the merger is not approved by the
holders of Advanced Machine Vision common stock and Series B preferred stock.
See "THE MERGER -- Fees and Expenses." In addition to solicitation by mail,
directors, officers and employees of Key Technology may solicit proxies by
telephone, facsimile or otherwise. Such directors, officers and employees of Key
Technology will not receive additional compensation for such solicitation, but
may be reimbursed for out-of-pocket expenses incurred in connection therewith.
Brokerage firms, fiduciaries and other custodians who forward soliciting
material to the beneficial owners of Key Technology common shares held of record
by them will be reimbursed for their reasonable expenses incurred in forwarding
such material.
Key Technology has retained Allen Nelson & Company, Inc. to assist it with
the solicitation of proxies for the Key Technology special meeting. Pursuant to
its agreement with Allen Nelson & Company, Inc., Key Technology will pay $1,600
in fees plus out-of-pocket expenses.
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ADVANCED MACHINE VISION CORPORATION SPECIAL MEETING
PURPOSE OF THE ADVANCED MACHINE VISION SPECIAL MEETING
The purpose of the Advanced Machine Vision special meeting is to consider
and vote upon the approval and adoption of the merger agreement and approval of
the merger. The merger will occur only if the proposal is approved.
THE ADVANCED MACHINE VISION BOARD OF DIRECTORS, WITH THE EXCEPTION OF THE
BOARD MEMBER REPRESENTING FMC CORPORATION WHO ABSTAINED FROM THE VOTE,
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER, AND RECOMMENDS A VOTE
FOR ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND FOR APPROVAL OF THE
MERGER.
PROXIES
The Advanced Machine Vision proxy accompanying this joint proxy
statement/prospectus is being solicited on behalf of the Advanced Machine Vision
board of directors for use at the Advanced Machine Vision special meeting.
DATE, TIME AND PLACE OF MEETING
The Advanced Machine Vision special meeting will be held on July 12, 2000
at 8:00 a.m., local time, at the offices of Advanced Machine Vision's SRC
VISION, Inc. subsidiary, 2067 Commerce Drive, Medford, Oregon 97504.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Advanced Machine Vision common stock at the close
of business on May 31, 2000 (the "Advanced Machine Vision Record Date") are
entitled to notice of and to vote at the Advanced Machine Vision special
meeting. At the close of business on the Advanced Machine Vision record date,
there were 119,106 shares of Advanced Machine Vision Series B Preferred Stock
(with ten (10) votes per each share) and 12,926,753 shares of Advanced Machine
Vision common stock outstanding (with one (1) vote per each share) and entitled
to vote. Except for the shareholders identified as principal shareholders in the
information provided herein, as of the Advanced Machine Vision record date, no
other person beneficially owned more than 5% of the outstanding Advanced Machine
Vision common stock. Each holder of record of Advanced Machine Vision Series B
preferred stock and common stock on the Advanced Machine Vision record date will
be entitled to vote on all matters to be voted upon at the Advanced Machine
Vision special meeting.
SOLICITATION
This joint proxy statement/prospectus was mailed to all Advanced Machine
Vision shareholders of record on or about the Advanced Machine Vision record
date and constitutes notice of the Advanced Machine Vision special meeting in
conformity with the requirements of the General Corporation Law of the State of
California (the "CGCL").
The cost of the solicitation of proxies from holders of Advanced Machine
Vision common stock and all related costs will be borne by Advanced Machine
Vision. In addition, Advanced Machine Vision may reimburse brokerage firms and
other persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of
Advanced Machine Vision. No additional compensation will be paid to directors,
officers or
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other regular employees for such services. Advanced Machine Vision may employ a
proxy solicitation firm to assist in the solicitation process.
VOTE REQUIRED
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Advanced Machine Vision Series B preferred
stock and common stock entitled to vote at the Advanced Machine Vision special
meeting is necessary to constitute a quorum. Approval of the merger requires the
approval of a majority of the outstanding shares of Advanced Machine Vision
Series B preferred stock and common stock. Therefore, anyone voting against,
abstaining or not voting at all will have the same effect of not being counted
in the majority approval required for the merger. However, an abstention with
respect to approval of the merger will be counted for purposes of establishing a
quorum.
Brokers who hold Advanced Machine Vision common stock as nominees will not
have discretionary authority to vote such shares in the absence of instructions
from the beneficial owners thereof. Any such broker non-votes will be counted
for purposes of establishing a quorum but will not be counted for or against the
merger.
If the Advanced Machine Vision special meeting is postponed or adjourned
for any reason, at any subsequent reconvening of the Advanced Machine Vision
special meeting, all proxies (except for any proxies that have theretofore
effectively been revoked or withdrawn) will be voted in the same manner as such
proxies would have been voted at the original convening of the Advanced Machine
Vision special meeting, notwithstanding that such proxies may have been
effectively voted on the same or any other matter at a previous meeting.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
corporate secretary of Advanced Machine Vision at Advanced Machine Vision's
principal offices, a written notice of revocation or a duly executed proxy
bearing a later date, or it may be revoked by attending the Advanced Machine
Vision special meeting and voting in person. Attendance at the Advanced Machine
Vision special meeting will not, by itself, revoke a proxy.
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BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER
On December 15, 1999, Advanced Machine Vision announced that it was
considering retaining the services of an investment banking firm to explore
strategic alternatives. Advanced Machine Vision was anticipating a loss for the
year ended December 31, 1999, and its board of directors wished to explore
alternatives for enhancing shareholder value. Advanced Machine Vision did not
engage an investment banking firm because of the following events.
On December 17, 1999, Thomas C. Madsen, Chairman, President and Chief
Executive Officer of Key Technology, called William J. Young, Chairman,
President and Chief Executive Officer of Advanced Machine Vision, to discuss the
potential for an acquisition of Advanced Machine Vision by Key Technology. Both
Mr. Madsen and Mr. Young acknowledged there would be unique synergies in a Key
Technology/Advanced Machine Vision combination. Specific terms were not
discussed, but they agreed to arrange a meeting within the next two weeks to
begin discussions.
On December 27, 1999, Mr. Young met with Mr. Madsen in Portland. Mr. Young
told Mr. Madsen that the Advanced Machine Vision board was prepared to entertain
alternatives for a business relationship which might include an offer for the
acquisition of Advanced Machine Vision. Mr. Madsen and Mr. Young discussed
Advanced Machine Vision's recent business operations, including the operations
of its Ventek, Inc. subsidiary. Mr. Young and Mr. Madsen agreed to meet with
their respective management teams and counsel on January 4, 2000.
On January 4, 2000, Mr. Madsen, Ted R. Sharp, Chief Financial Officer of
Key Technology, and Steven D. Evans, Vice President-Administration of Key
Technology, met with Mr. Young and Alan R. Steel, Vice-President Finance and
Chief Financial Officer of Advanced Machine Vision, together with counsel for
both Key Technology and Advanced Machine Vision. Mr. Young and Mr. Steel
provided summary information regarding Advanced Machine Vision's capital
structure and the business operations of both SRC VISION and Ventek. At the
conclusion of the meeting, Mr. Madsen presented an oral proposal, subject to due
diligence and the approval of Key Technology's board of directors, of $1.00 per
share in cash and preferred stock that would be convertible into Key Technology
common stock at a $15.00 per share conversion price and that would be redeemable
for cash in five years at a redemption price of $1.00 per Advanced Machine
Vision common share. Mr. Madson stated he believed the offer was worth
approximately $2.00 for each Advanced Machine Vision common share. The Advanced
Machine Vision Series B preferred stock was proposed to be redeemed for cash.
Mr. Young advised he was willing to take the proposal to the Advanced Machine
Vision board of directors.
On January 6, the Key Technology board of directors held a telephone
conference call at which they voted to proceed with the Advanced Machine Vision
negotiations under the terms proposed at the January 4 meeting.
On January 7, Mr. Steel provided certain information to Mr. Sharp
concerning outstanding shares, convertible securities and stock options.
On January 14, Richard J. Hebel, Vice President-Corporate Marketing and
Business Development of Key Technology, had a dialogue with James Ewan,
President, SRC VISION and a Director of Advanced Machine Vision, concerning
business issues related to SRC VISION products and customer markets.
On January 17 and 18, Messrs. Young, Ewan, Steel from Advanced Machine
Vision and Rodger A. Van Voorhis, President of Ventek, Inc. and a Director of
Advance Machine Vision, met in Portland with Messrs. Madsen, Sharp, Evans,
Hebel, Kirk W. Morton, Senior Vice President-Sales and Marketing and Gordon
Wicher, Vice President-General Manager, Specialized Conveying Systems, and Teri
A. Johnson, Vice President-General Manager, Automated Inspection Systems, from
Key Technology, together with
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Key Technology's counsel. The representatives from the two companies shared
information regarding their respective areas of responsibilities. The parties
agreed to a preliminary schedule for the transaction. Mr. Young and Mr. Madsen
also discussed a potential severance program designed to retain Advanced Machine
Vision employees pending completion of the merger.
In January 2000, Key Technology purchased 15,000 shares of Advanced Machine
Vision common stock on the open market for an average purchase price of $0.97
per share.
On January 24, 2000, Messrs. Madsen, Young, Steel and their respective
counsel spoke by telephone. They discussed issues concerning Advanced Machine
Vision's stock option plans and proposal for retaining employees pending
completion of the merger. Mr. Young advised that Advanced Machine Vision's board
of directors was pursuing obtaining a fairness opinion concerning the Key
Technology merger proposal.
On January 24, 2000, counsel for Key Technology delivered a draft of the
Merger Agreement.
On January 26, 2000, Mr. Madsen and Mr. Young spoke by telephone and
discussed several issues addressed in the draft merger agreement. They also
discussed the Advanced Machine Vision shareholder vote that would be required to
approve the merger. Mr. Young advised Mr. Madsen that he was contacting Advanced
Machine Vision directors for purposes of scheduling a board meeting.
On January 31, 2000, Messrs. Madsen, Morton and Sharp, and Ms. Johnson of
Key Technology, and Messrs. Young and Steel of Advanced Machine Vision, together
with their respective counsel, met in Portland to discuss various aspects of the
first draft of the merger agreement, including due diligence, timing, sales
representation, listing of the Key Technology securities to be issued in the
merger, severance and tax matters.
Between January 26 and February 4, representatives of Key Technology and
Advanced Machine Vision had several telephone conversations to pursue due
diligence issues relating to the merger transaction. Counsel for Key Technology
and Advanced Machine Vision worked toward finalizing the terms of the merger
agreement.
On February 4, 2000, FMC Corporation announced in a press release that it
proposed to Advanced Machine Vision's board of directors to acquire Advanced
Machine Vision for a cash price of $1.75 per share.
On February 6, 2000, Mr. Sharp and Craig Elia, SEC, Audit and Tax Manager,
and Kathy Priester, Corporate Accounting Supervisor, of Key Technology toured
the Advanced Machine Vision and SRC VISION facilities. They and Key Technology
counsel conducted due diligence at the offices of Advanced Machine Vision on
February 7 and 8.
On February 9, 2000, counsel for Key Technology advised counsel for
Advanced Machine Vision that Key Technology proposed to make a revised offer for
the acquisition of Advanced Machine Vision at the Advanced Machine Vision board
of directors meeting scheduled for February 10.
On February 10, 2000, a meeting of Advanced Machine Vision's board of
directors was held at the offices of Advanced Machine Vision's legal counsel. A
representative of Marshall & Stevens Incorporated also attended the meeting. At
the meeting, counsel for Key Technology presented a written offer presenting the
cash, convertible preferred stock and warrants in the form and on the terms as
set forth in this joint proxy statement/prospectus. The FMC Corporation
representative on Advanced Machine Vision's board of directors asked that the
board meeting be adjourned to February 14, 2000 to allow FMC Corporation time to
respond to the revised Key Technology offer. Advanced Machine Vision's directors
unanimously approved the revised Key Technology offer (with the FMC Corporation
board representative abstaining) subject to the board's fiduciary obligations in
the event of a superior offer, subject to reconfirmation by the board at the
February 14, 2000 meeting. Prior to the February 14, 2000 Advanced Machine
Vision board meeting, FMC Corporation made an offer of $2.10 cash per Advanced
Machine Vision common share. On February 14, the Advanced Machine Vision board
of directors met to consider
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<PAGE> 35
the two offers. Given the relatively equal cash values of the two offers, and
the potential for enhanced value through the potential appreciation in value of
Key Technology common stock due to the probable synergies of combining the two
businesses, the Advanced Machine Vision board of directors concluded the
proposed merger with Key Technology was in the best interest of Advanced Machine
Vision shareholders and authorized Advanced Machine Vision management to
conclude negotiations and to sign the merger agreement.
On February 15, 2000, Key Technology and Advanced Machine Vision exchanged
signed copies of the Merger Agreement and the transaction was announced.
On March 22, 2000, Mr. Madsen and Peter van Oppen, a director of Key
Technology, and counsel for Key Technology, met with Charles H. Cannon, Vice
President General Manager, of FMC FoodTech, Joseph H. Netherland, Jr., President
of FMC Corporation, and counsel for FMC Corporation, in Denver, Colorado to
discuss FMC's rights under its agreements with Advanced Machine Vision. On March
23, 2000, Mr. Madsen wrote a letter to Mr. Cannon outlining the general terms
discussed at their meeting.
On March 28 and 29, 2000, Messrs. Madsen and Cannon engaged in telephone
negotiations regarding the terms of the securities to be received by FMC
Corporation in exchange for its Advanced Machine Vision Series B preferred stock
and the option to acquire Key Technology securities to be issued by Key
Technology to replace FMC Corporation's existing option to acquire Advanced
Machine Vision securities.
On March 31, 2000, counsel for FMC corporation forwarded a term sheet to
Mr. Madsen and counsel for Key Technology. The term sheet outlined terms
providing for the issuance of Key Technology preferred stock and warrants to FMC
Corporation and an option to acquire Key Technology securities. The term sheet
also proposed that FMC Corporation would covenant to vote in favor of the merger
and that certain mutual releases be given. On the basis of the term sheet,
counsel for the respective parties further negotiated the term sheet and the FMC
Agreement, which was entered into on April 24, 2000.
JOINT REASONS FOR THE MERGER
The section contains numerous forward-looking statements that involved
risks and uncertainties. See "Risk Factors."
In order to evaluate the proposed merger, the Key Technology board of
directors and the Advanced Machine Vision board of directors consulted with
their respective management teams and professional advisors, independently
reviewed each other's business operations and considered combination of those
operations. The boards of directors of Key Technology and Advanced Machine
Vision determined that the combined company would have the potential to realize
long-term improved operating and financial results and a stronger competitive
position in the markets for automated inspection systems and food processing
equipment.
The Key Technology board of directors and the Advanced Machine Vision board
of directors identified the following mutual reasons for engaging in the merger:
- The companies share strategic objectives and goals, particularly in
automated inspection systems;
- The companys' product offerings, markets served and development plans are
complementary;
- The combined company would have the potential to increase shareholder
value by competing more effectively in the markets for automated
inspection systems and specialized conveying systems;
- The merger would provide the combined company with the potential for
greater depth of skilled personnel, strengthened research and development
activity and expanded sales and marketing capacity;
- Customers of both companies would be able to choose from a more complete
product line;
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<PAGE> 36
- Customers of both companies potentially would have access to expanded
customer support and services; and
- The creation of a larger customer base, a higher market profile and
greater financial strength would present opportunities for marketing the
products and services of the combined company.
Each board of directors recognized that the potential benefits of the
merger may not be realized. See "Risk Factors -- Risks Related to the Merger"
beginning on page 7.
KEY TECHNOLOGY REASONS FOR THE MERGER
The Key Technology board of directors has approved the issuance of the Key
Technology Series B convertible preferred stock and the warrants to purchase
common stock, the merger agreement and the transactions associated with it and
has determined that the merger agreement and merger are in the best interests of
Key Technology and its shareholders. During the course of its deliberations, the
board of directors of Key Technology considered, with the assistance of
management and legal counsel, a number of factors that the board of directors
believes makes the merger attractive to Key Technology's shareholders and could
contribute to the success of the combined companies.
The board of directors of Key Technology believes that the merger will
offer a strategic opportunity for growth and bring operating efficiencies to Key
Technology and thereby benefit its shareholders. The Key Technology board of
directors considered among others, the following potential benefits of the
merger:
- The combined companies expect to be able to achieve substantial cost
reductions, and Key Technology expects the transaction to be accretive to
earnings in fiscal 2001.
- Redundancies in sales, marketing, research and development and corporate
staffing will be able to be eliminated.
- The combination will also facilitate expanded geographic and market
sector sales coverage, particularly in non-food markets such as tobacco
and forest products.
- The combination of two service organizations will permit a higher level
of customer service.
- The merger will provide Key Technology access to certain complementary
technologies.
- Key Technology also expects a higher level of conveying systems revenues
from the sale of Advanced Machine Vision optical sorting equipment.
In addition, Key Technology's shareholders would have the opportunity to
participate in the potential for growth of the combined companies after the
merger. The merger will result in a combined company with greater financial,
technological and human resources to develop new generations of products and
greater marketing resources to develop and promote Key Technology's products.
Additional shares of Key Technology common stock may be issued upon
conversion of the Key Technology Series B convertible preferred stock and
exercise of warrants issued in the merger. As a result of such conversion or
exercise, Key Technology's common shareholders will have a significantly larger
market float and average trading volume, and there may be greater liquidity in
the trading of the Key Technology common stock than at present.
This discussion of factors considered by the Key Technology board of
directors is not intended to be exhaustive, but is intended to include the
material factors considered. The Key Technology board of directors did not find
it practical to and did not quantify or otherwise assign relative weight to the
specific factors considered and individual directors may have given different
weight to different factors.
After due consideration, the Key Technology board of directors approved the
issuance of the Key Technology Series B and Series C convertible preferred
stock, the warrants, and the shares of common
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<PAGE> 37
stock underlying such securities, the merger agreement and the transactions
associated with it, by a unanimous vote and determined that the issuance, the
merger agreement and the transactions associated with it were in the best
interests of Key Technology and its shareholders. Accordingly, Key Technology
board of directors unanimously recommends that the Key Technology shareholders
vote FOR approval of the issuance.
In reaching its recommendation in favor of the merger, the Key Technology
board of directors also considered a number of uncertainties, including the
challenges of combining the businesses of the two corporations and the risk of
diverting management resources from other strategic opportunities and
operational matters for an extended period of time. For a further discussion of
these risks, see "Risk Factors."
ADVANCED MACHINE VISION'S REASONS FOR THE MERGER
In addition to the anticipated joint benefits described above, the Advanced
Machine Vision board of directors believes that the following are additional
reasons the merger will be beneficial to Advanced Machine Vision, and recommends
the shareholders of Advanced Machine Vision vote FOR approval and adoption of
the merger agreement and approval of the merger:
- The combined company will have enhanced resources, with cash and
investments of over $12,000,000 on a pro forma basis. Completion of the
Merger will give Advanced Machine Vision shareholders the opportunity to
hold securities (i.e., Key preferred stock and warrants) that may be
valued in the public markets based on past and future potential earnings,
where Advanced Machine Vision separately reported a loss in its fiscal
year ended December 31, 1999.
- The combined company will offer a broader line of machine vision products
and other food processing equipment to better address customers' quality
control needs.
- The combined company's product offerings will provide sales
representatives and distributors an opportunity for one-stop shopping for
vision-based product needs.
- The combined company will be able to deploy its product development
resources more productively by eliminating the development of duplicative
products and focusing its resources on developing alternative, new
products and product improvements.
- By combining the resources of Advanced Machine Vision and Key Technology,
it is expected that costs will be reduced through higher-volume
purchasing.
- The combined company will have broader channels of distribution, and
Advanced Machine Vision will have access to Key Technology's sales
channels, and Key Technology will gain access to Advanced Machine
Vision's strong channel/key account relationships (although no decision
has been made about which products will be offered through which channel,
because the products of Key Technology and Advanced Machine Vision are
highly complementary, the potential exists for cross-selling
opportunities to be exploited).
- The merger should produce both production and operating cost savings,
including the elimination of duplicative public-company costs.
- Advanced Machine Vision and Key have considerable human resources that
should enable the combined company to compete more effectively in the
machine vision systems market.
In considering the proposed merger, the Advanced Machine Vision board of
directors has acknowledged that there are certain risks associated with the
merger, including (i) the possibility that the potential benefits set forth
above may not be realized or that there might be high costs associated with
realizing such benefits; (ii) the factors set forth under "Risk Factors;" and
(iii) the possibility that the merger might not be consummated, resulting in a
potential adverse effect on the market price of the
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<PAGE> 38
Advanced Machine Vision common stock and on Advanced Machine Vision's
relationships with certain of its employees. Notwithstanding the risks, the
Advanced Machine Vision board of directors concluded that the positive factors
outlined above outweighed the negative considerations.
In addition to the factors set forth above, in the course of its
deliberations during the Advanced Machine Vision board meetings held on February
4, February 10, February 14 and March 7, 2000, the Advanced Machine Vision board
of directors reviewed with Advanced Machine Vision management a number of
additional factors relevant to the merger, including:
- Information concerning Advanced Machine Vision's and Key Technology's
respective businesses, historical financial performance and condition,
operations, technology, products, customers, positions in the industry,
prospects and management;
- Advanced Machine Vision management's view as to the financial condition,
results of operations and business and financial potential of Advanced
Machine Vision and Key Technology before and after giving effect to the
merger, based on management's due diligence;
- Current financial market conditions and historical market prices,
volatility and trading information (including the risk of being delisted
from the Nasdaq Stock Market) with respect to the Advanced Machine Vision
common stock;
- The consideration to be received by the Advanced Machine Vision public
shareholders in the merger, including the cash value and the market value
of the Key Technology common stock issuable upon conversion of Key
Technology Series B convertible preferred stock or exercise of the Key
Technology warrants to be issued as part of the consideration for each
share of Advanced Machine Vision common stock;
- The belief that the terms of the merger agreement, including the parties'
representations, warranties and covenants, and the conditions to their
respective obligations, are reasonable;
- Reports from management and legal and financial advisors as to the
results of their due diligence investigation of Key Technology;
- The potential impact of the merger on customers and employees of Advanced
Machine Vision and Key Technology;
- The likely reaction to the merger in the financial markets; and
- Other information with respect to the companies presented by Advanced
Machine Vision management and Key Technology in Advanced Machine Vision
board of directors presentations, including preliminary discussions with
Marshall & Stevens, Incorporated, which were confirmed in Marshall &
Stevens Incorporated's opinion that, as of March 15, 2000, the purchase
price was fair to the Advanced Machine Vision public shareholders from a
financial point of view (see "-- Opinion of Advanced Machine Vision's
Financial Advisor"). A copy of Marshall & Stevens Incorporated's written
opinion, dated March 15, 2000, setting forth the assumptions made,
matters considered and review undertaken, is attached to this joint proxy
statement/prospectus as Annex B. The full text of such opinion is
incorporated herein by reference, and the foregoing description thereof
is qualified in its entirety by such reference. Advanced Machine Vision
public shareholders are urged to read such opinion in its entirety.
The Advanced Machine Vision board of directors also considered that the
merger agreement provides that Advanced Machine Vision may not solicit any
superior proposal (as defined in the merger agreement). To the extent that
Advanced Machine Vision receives an unsolicited superior proposal, Advanced
Machine Vision may, before the merger is consummated, provide information to,
engage in discussions with, and enter into an agreement with a third-party
related to an unsolicited superior proposal that the Advanced Machine Vision
board of directors reasonably believes is superior to the Advanced
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Machine Vision public shareholders from a financial point of view to the terms
of the merger, if the Advanced Machine Vision board of directors, upon advice of
its counsel and financial advisor, determines that the failure to do so would
result in a breach of fiduciary duty under applicable law. The Advanced Machine
Vision board of directors noted that the merger agreement provides for the
payment to Key Technology of a termination fee of up to $2,000,000 in certain
circumstances as described under "The Merger -- Fees and Expenses," and was
aware that Key Technology probably would not have agreed to enter into the
merger agreement without such provision. The Advanced Machine Vision board of
directors concluded that, while the existence of the termination fee provision
might reduce the likelihood that a third-party would propose an alternative
merger with Advanced Machine Vision pending completion of the merger, the
increased costs to a third-party would not be material, and that the benefits of
the merger to Advanced Machine Vision outweighed the risks.
The Advanced Machine Vision board of directors also considered the terms of
the proposed merger agreement regarding Advanced Machine Vision's right to
consider, negotiate and undertake other acquisition proposals that might arise
following announcement of the merger. In the course of these deliberations,
legal counsel to Advanced Machine Vision advised the Advanced Machine Vision
board of directors as to its fiduciary obligations in the context of considering
the proposed transaction.
The foregoing discussion of the factors considered by the Advanced Machine
Vision board of directors is not intended to be exhaustive, but is intended to
include many of the material factors considered by the Advanced Machine Vision
board of directors. In view of the complexity and variety of factors considered
by the Advanced Machine Vision board of directors, the Advanced Machine Vision
board of directors did not consider it practical to quantify or otherwise
attempt to assign any relative or specific weights to the specific factors
considered, and individual directors may have given differing weights to
different factors.
OPINION OF MARSHALL & STEVENS INCORPORATED, FINANCIAL ADVISOR TO ADVANCED
MACHINE VISION
Advanced Machine Vision retained Marshall & Stevens Incorporated to act as
its financial advisor in connection with the Merger and to render an opinion as
to the fairness of the aggregate consideration, from a financial point of view,
to the Advanced Machine Vision shareholders. The full text of Marshall &
Stevens' opinion dated March 15, 2000 is attached to this joint proxy
statement/prospectus as Annex B and is incorporated herein by reference, and the
summary of the opinion set forth below is qualified in its entirety by reference
to the full text of such opinion. The Advanced Machine Vision shareholders are
urged to read such opinion carefully and in its entirety for a description of
the procedures followed, the factors considered, the assumptions made and the
scope of review undertaken, as well as limitations on the review undertaken, by
Marshall & Stevens in rendering its opinion.
On February 10, 2000, Marshall & Stevens discussed with Advanced Machine
Vision's board of directors its methodology in evaluating the fairness of the
transaction from a financial point of view, which was subsequently confirmed in
writing on March 15, 2000, that, as of such date and based on the matters
described therein, the aggregate consideration was fair, from a financial point
of view, to the Advanced Machine Vision shareholders. Marshall & Stevens'
opinion to the Advanced Machine Vision board of directors addresses only the
fairness of the aggregate consideration to the shareholders, from a financial
point of view, and does not constitute a recommendation to any such shareholder
as to how such shareholder should vote at the Advanced Machine Vision special
meeting. Marshall & Stevens expresses no opinion as to the tax consequences of
the merger, and Marshall & Stevens' opinion as to the fairness of the aggregate
consideration from a financial point of view does not take into account the
particular tax status or position of any shareholder of Advanced Machine Vision.
In furnishing its opinion, Marshall & Stevens was not engaged as an agent or
fiduciary of Advanced Machine Vision's shareholders or any other third party.
Marshall & Stevens did not recommend to the Advanced Machine Vision board of
directors that any specific purchase price should constitute the aggregate
consideration. No limitations were imposed by the Advanced Machine Vision board
of directors on Marshall & Stevens with respect to the investigations made or
procedures followed by it in furnishing its opinion.
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In connection with the preparation of its opinion dated March 15, 2000,
Marshall & Stevens, among other things: (i) discussed certain financial
information relating to Advanced Machine Vision with the management of Advanced
Machine Vision, including certain forecasts; (ii) inspected certain publicly
available information relating to Advanced Machine Vision, including SEC
filings, stock price and trading histories; (iii) held discussions with the
management of Advanced Machine Vision concerning the businesses, past and
current business operations, financial condition and results of operations and
future prospects of Advanced Machine Vision; (iv) reviewed the merger agreement
and certain related documents; (v) analyzed publicly traded companies that
Marshall & Stevens deemed comparable to Advanced Machine Vision; (vi) prepared
discounted debt-free cash flow analyses of Advanced Machine Vision; (vii)
analyzed other merger and acquisition transactions that Marshall & Stevens
deemed relevant; and (viii) made such other studies and inquires, and reviewed
other such data, as Marshall & Stevens deemed relevant.
Marshall & Stevens noted, based upon and subject to its analyses and the
assumptions and limiting conditions, that as of the date of its opinion,
aggregate consideration in the range of $27,800,000 to $28,200,000 is fair to
the Advanced Machine Vision shareholders from a financial point of view pursuant
to the terms and subject to the conditions set forth in the merger agreement.
The following paragraphs summarize the material analyses performed by
Marshall & Stevens in arriving at its opinion and reviewed with the Advanced
Machine Vision board of directors, but do not purport to be a complete
description of the analyses performed by Marshall & Stevens.
Selected Comparable Company Analysis. Using publicly available information
with respect to Advanced Machine Vision and the comparable companies (defined
below), Marshall & Stevens performed analysis of publicly traded companies
considered comparable to Advanced Machine Vision with regard to industry,
performance and/or markets exploited. This analysis was predicated on the theory
that the market value of a company can be estimated by deriving market multiples
from publicly traded companies that relate their stock prices to earnings, cash
flows or other measures and then applying these market multiples to the
respective earnings, cash flows or other measures of Advanced Machine Vision.
While no publicly traded companies were found that were identical in all
respects to Advanced Machine Vision, the following comparable companies were
companies sufficiently comparable to be considered alternative investment
possibilities, making them useful benchmarks for valuation purposes: Adept
Technology, Inc., Cognex Corporation, Electro Scientific Industries, Inc.,
Integral Vision, Inc., Key Technology, Inc., Perceptron, Inc., PPT Vision, Inc.,
Quad Systems, Inc., Robotic Vision Systems, Inc., Thermedics Detection, Inc.,
Zygo Corporation and Stocker & Yale Incorporated.
Marshall & Stevens computed market value multiples of invested
capital-to-revenues; invested capital-to-earnings before interest, taxes,
depreciation and amortization (EBITDA) and invested capital-to-book capital, and
applied these multiples to the corresponding earnings measures for Advanced
Machine Vision based on the projected first year and three-year average.
Marshall & Stevens also computed a market value multiple for invested
capital-to-book capital based on the latest fiscal year. These multiples ranged
from: (1) invested capital-to-revenues, high 16.28, median 3.58 and low 0.36;
(2) invested capital-to-EBITDA multiple, high 19.80, median 9.40 and low 6.2;
and (3) invested capital-to-book capital, high 38.80, median 2.60 and low 0.70.
Marshall & Stevens utilized these invested capital multiples (also referred
to as debt-free multiples) because they permit an Advanced Machine Vision
valuation irrespective of the variations inherent in its capital structure and
income tax rates as compared to the comparable companies.
In Marshall & Stevens' opinion, publicly traded companies larger than
Advanced Machine Vision tend to have more solid market shares, to be more
diversified and to have more prominent public identities, so they are more
likely to command correspondingly higher multiples. Marshall & Stevens
therefore, chose multiples below the median range to apply to the corresponding
financial measures for
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Advanced Machine Vision. Marshall & Stevens also considered Advanced Machine
Vision's size, diversification, financial condition, revenue growth and
performance relative to Key Technology.
After multiplying the respective revenue measures of Advanced Machine
Vision by the selected multiples and then subtracting any interest-bearing debt,
Marshall & Stevens generated a preliminary indicated equity value, which
represented the aggregate minority value (minority interests traded in the
public marketplace) of Advanced Machine Vision before estimated transaction
costs.
Because Marshall & Stevens was valuing Advanced Machine Vision on a
controlling basis, the preceding preliminary minority value was adjusted to
reflect control. Market data demonstrate that investors who seek to acquire
controlling interests in publicly traded companies in order to set company
policies and direct operations pay prices higher than investors trading minority
shareholdings in the public marketplace.
In order to derive the appropriate control premium, Marshall & Stevens
reviewed statistical information from a publication, Mergerstat Review,
regarding acquisitions of either controlling interests in or total ownership of
public companies considered comparable to Advanced Machine Vision. In its
selection of the control premium, Marshall & Stevens also considered that its
adjustments to normalize Advanced Machine Vision's historical earnings were not
made to the comparable companies. Based on the above-mentioned factors and data
contained in the Marshall & Stevens opinion, Marshall & Stevens selected 20% as
the appropriate control premium.
As a result of its analysis utilizing comparable publicly traded companies,
Marshall & Stevens concluded that the indicated market value of the
shareholders' equity of Advanced Machine Vision on a controlling interest basis
as of March 15, 2000 was $18,700,000.
Discounted Cash Flow Analysis. Marshall & Stevens performed a discounted
cash flow analysis of projected net debt-free cash flow (EBIT less taxes,
capital expenditures, changes in working capital plus non-cash charges) of
Advanced Machine Vision based on certain operating and financial assumptions.
This projection incorporated various assumptions as to revenue growth ranging
from 10% to 19%, operating margins, income taxes at 40%, officer compensation,
depreciation, capital expenditures, working capital levels and capitalization
rate.
NET DEBT-FREE CASH FLOW ("NDCF") PROJECTION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------------------
(000S) 1999 2000 2001 2002 2003 2004
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $24,312 $29,012 $31,913 $35,105 $38,615 $42,476
EBIT......................... Negative 1,230 2,722 3,574 4,707 6,024
NDCF......................... N/A 3,011 1,211 1,580 2,132 2,975
</TABLE>
The above projection is heavily dependent and contingent upon future events
with respect to industry performance, economic conditions and the ability of
Advanced Machine Vision to meet these cash flow projections. Overall, this
projection reflects significant increases in revenues and earnings before
interest and taxes (EBIT) when compared to historical operations.
This debt-free cash flow was discounted and summed at a discount rate
assumption of 15% by utilization of the weighted average cost of capital. The
weighted average cost of capital is a function of (1) cost of debt; (2) cost of
equity; (3) industry capital structure; and (4) cumulative federal and state
taxes. The cost of equity considers such factors as equity risk premiums,
inflation rates, interest rates and the inherent business risk of Advanced
Machine Vision and the industry as a whole. Marshall & Stevens then added a
residual year (year beyond the discrete projection time period to reflect the
going concern value of Advanced Machine Vision into perpetuity) to derive a
present value. From this present value, Marshall & Stevens subtracted the
interest-bearing debt to arrive at an equity value.
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<PAGE> 42
As a result of its analysis utilizing discounted cash flow, Marshall &
Stevens determined that the indicated market value of the shareholders' equity
of Advanced Machine Vision on a controlling interest basis as of March 15, 2000
was $17,600,000.
Other Factors Unique to Advanced Machine Vision. Marshall & Stevens also
included the impact of dilution triggered by the potential exercise of vested
stock options outstanding as of March 15, 2000. The proceeds from the exercise
of 3,217,529 options at a weighted average exercise price of $1.41 would be
$4,536,716.
In deriving a final conclusion, Marshall & Stevens reconciled the value
indications by weighting their relative significance depending upon the
circumstances and the quantity of reliable market data. The selected comparable
company analysis reflects the consensus of many investors relative to the
historical profitability of public companies considered comparable to Advanced
Machine Vision. The discounted cash flow analysis considers the future profit
potential coupled with the riskiness of that return, and avoids the difficulty
in identifying public companies considered comparable to Advanced Machine
Vision. In its analysis, Marshall & Stevens applied various sensitivity
weightings to the selected comparable company and discounted cash flow analyses:
50-50%, 70-30% and 30-70%, respectively.
The final steps in Marshall & Stevens' analysis are to add back the value
of Advanced Machine Vision's minority interest of approximately 10% in a
non-operating investment in SourceNet Corporation, and the present value of the
tax benefit of acquiring Advanced Machine Vision's net operating loss ("NOL")
carryover.
In the calculation of the value of SourceNet, Marshall & Stevens considered
the sale of a 25% investment position to a venture capital firm for $5,000,000,
which equates to an enterprise value of $20,000,000 for SourceNet. Advanced
Machine Vision had originally purchased a 15% investment position in SourceNet
in 1997 for $280,000. Marshall & Stevens utilized this aforementioned sale as an
indicator of value in its determination of the market value of Advanced Machine
Vision's 10% investment position, which equates to $2,000,000. (Subsequent to
the date of the Marshall & Stevens opinion, Advanced Machine Vision, with the
consent of Key Technology, sold its minority investment in SourceNet Corporation
for approximately $1.6 million.)
In the calculation of the market value of Advanced Machine Vision's NOL
carryover, Marshall & Stevens assumed that an acquiring company would be able to
absorb the maximum annual NOL limitation pursuant to Section 382 of the Internal
Revenue Code. The maximum annual NOL limitation is based on the value of
Advanced Machine Vision times the highest published long-term federal tax exempt
rates pursuant to Revenue Rulings 2000-1, 2000-9 and 2000-11, determined to be
5.84%. Marshall & Stevens then performed a discounted cash flow analysis of the
annual projected tax benefit (annual NOL limitation times the federal tax rate)
for all subsequent years until the NOL is fully exhausted. This cash flow was
discounted and summed at a discount rate assumption of 15%. Marshall & Stevens
determined that the present value of the tax benefit of acquiring Advanced
Machine Vision's NOL carryover to be $3,300,000.
Marshall & Stevens considered the closing price of Advanced Machine Vision
common stock of $1.094 on the trading date immediately preceding the public
announcement date of FMC Corporation's initial offer on February 4, 2000, and
the per share trading price of $1.6875 for Advanced Machine Vision's common
shares on a fully-diluted basis on the date of the opinion, March 15, 2000.
Utilizing the March 15, 2000 trading price and the $22 per share price for
Advanced Machine Vision's Series B Preferred shares, the indicated market value
of Advanced Machine Vision's shareholders' equity would be $29,400,000.
In summary, Marshall & Stevens' opinion was that the market value of the
shareholders' equity of Advanced Machine Vision, on a fully diluted controlling
interest basis as of March 15, 2000 would range between $27,800,000 and
$28,200,000.
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The preparation of fairness opinions involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analysis and the application of those methods to the particular
circumstances; therefore, such opinions are not readily susceptible to summary
description. In arriving at its opinion, Marshall & Stevens did not attribute
any particular weight to any analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Marshall & Stevens believes that its analysis must be
considered as a whole and that considering any portion of such analysis and
certain factors could create a misleading or incomplete view of the process
underlying its opinion. In its analysis, Marshall & Stevens made numerous
assumptions with respect to industry performance, general business and other
conditions and matters, many of which are beyond the control of Advanced Machine
Vision. Any estimates contained in these analyses are not necessarily indicative
of actual values or predictive future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.
In connection with its opinion, Marshall & Stevens did not independently
verify any of the foregoing information and has relied on all such information
being complete and accurate in all material respects, whether such information
was furnished to Marshall & Stevens orally or otherwise discussed with Marshall
& Stevens by the management of Advanced Machine Vision. Marshall & Stevens has
relied upon the assurances of management of Advanced Machine Vision that it is
not aware of any facts that would make such information inaccurate or
misleading. Furthermore, Marshall & Stevens did not obtain or make, or assume
responsibility for obtaining or making, any independent appraisal of the
properties, assets or liabilities (contingent or otherwise) of Advanced Machine
Vision, nor was Marshall & Stevens furnished with any such evaluations or
appraisals. With respect to the financial and operating forecasts (and the
assumptions and bases therefor) of Advanced Machine Vision that Marshall &
Stevens discussed with management, Marshall & Stevens assumed that such
forecasts were based on reasonable assumptions, and reflect the best currently
available estimates and judgments of the management of Advanced Machine Vision
of the future financial condition and performance of Advanced Machine Vision,
and Marshall & Stevens further assumed that such projections and forecasts will
be realized in the amounts and in the time periods currently estimated by the
management of Advanced Machine Vision. Marshall & Stevens assumed that the
merger will be consummated upon the terms set forth in the merger agreement
without material alteration thereof.
Marshall & Stevens was retained based on Marshall & Stevens' experience as
a financial advisor in connection with mergers and acquisitions and in
securities valuations generally. Advanced Machine Vision engaged Marshall &
Stevens pursuant to a letter agreement dated February 2, 2000. The agreement
provides that for its services, Marshall & Stevens was entitled to receive a fee
equal to $42,000 upon delivery of its fairness opinion. No portion of Marshall &
Stevens' fee was contingent upon the successful completion of the merger or any
related transaction. Advanced Machine Vision has also agreed to reimburse
Marshall & Stevens for certain expenses and to indemnify Marshall & Stevens for
certain liabilities relating to or arising out of services provided by Marshall
& Stevens as financial advisor to Advanced Machine Vision, including certain
liabilities under the federal securities laws.
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THE MERGER
The description of the merger agreement set forth below does not purport to
be complete and is qualified in its entirety by reference to the merger
agreement, a copy of which is attached hereto as Annex A.
TERMS OF THE MERGER AGREEMENT
The Merger. Subject to the terms and conditions of the merger agreement,
upon the closing of the merger KTC Acquisition Corp. will merge into Advanced
Machine Vision, the surviving corporation, at which time the separate corporate
existence of KTC Acquisition Corp. will cease. Advanced Machine Vision will
become a wholly-owned subsidiary of Key Technology.
Conversion of Advanced Machine Vision Stock in the Merger. Upon
consummation of the merger, a holder of one share of Advanced Machine Vision
common stock would receive:
- $1.00 in cash;
- 1/10 of a share of Key Technology Series B convertible preferred
stock; and
- 1/40 of a warrant to purchase one share of Key Technology common
stock.
Each whole share of Key Technology Series B convertible preferred stock
will be:
- convertible at the election of the holder at any time for 2/3 of a
share of Key Technology common stock; or
- redeemable at the election of the holder after two years from the
effective time for $10.00 in cash; or
- redeemed by Key Technology on the fifth anniversary of the issue date,
or may be redeemed earlier if the average closing price of Key
Technology common stock exceeds $15.00 per share for 30 consecutive
trading days, for $10.00 in cash plus declared and unpaid dividends,
if any.
Each whole warrant will be exercisable for five years to purchase one share
of Key Technology common stock for $15.00. Each whole warrant will be redeemable
by the holder at any time prior to expiration for $10.00.
The shares of Advanced Machine Vision Series B mandatorily redeemable
preferred stock, pursuant to an agreement with FMC Corporation which holds all
of the outstanding shares of the series, will be converted into the right to
receive 119,106 shares of Key Technology Series C convertible preferred stock
and warrants to purchase 29,776 shares of Key Technology common stock. Each
Series C share is convertible at the election of the holder into 1 2/3 shares of
Key Technology common stock, and may be redeemed at the election of the holder
at any time after issuance for $20.00 per share. In addition, Key Technology is
required to redeem any Series C convertible preferred stock remaining
outstanding on the fifth anniversary of the closing for $20.00 per share. The
warrants issued to FMC Corporation are identical to the warrants issued to the
holders of Advanced Machine Vision common stock. FMC Corporation will also
receive certain other consideration described under "Description of FMC
Corporation Agreement" on page 39.
Each share of Advanced Machine Vision common stock subject to an Advanced
Machine Vision option will either convert into a right to receive cash or be
exercised prior to the closing of the merger. Certain non-plan options will
terminate on their expiration dates.
Accordingly, Key Technology will issue approximately 1,576,000 Key
Technology Series B convertible preferred shares and approximately 539,000
warrants for all outstanding shares of Advanced Machine Vision common stock.
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If, prior to the closing, Key Technology should split or combine the Key
Technology common shares, or pay a stock dividend or other stock distribution in
Key Technology common shares, or otherwise change the Key Technology common
shares into any other securities, or make any other dividend on or distribution
of the Key Technology common shares, the total number of Key Technology
securities to be issued in the merger will be appropriately adjusted to reflect
such split, combination, dividend or other distribution or change.
Fractional Shares. No fractional shares of Key Technology Series B
convertible preferred stock or warrants will be issued in the merger. In lieu of
any such fractional shares, each holder of Advanced Machine Vision common stock
who otherwise would be entitled to receive a fractional share of Key Technology
Series B convertible preferred stock or warrant pursuant to the merger agreement
will be paid an amount in cash, without interest, determined in the case of both
fractional shares of preferred stock and warrants by multiplying such fractional
amount by $10.00 rounded to the nearest whole cent. In lieu of any fractional
share of common stock issuable upon exercise of warrants, each holder of a
warrant that would otherwise be entitled to receive a fractional share of Key
Technology common stock will be paid an amount in cash, without interest,
determined by multiplying such fractional amount by the then fair market value
per share of Key Technology common stock, rounded to the nearest whole cent.
Articles of Incorporation and Bylaws. The merger agreement provides that
the articles of incorporation of Advanced Machine Vision, as in effect
immediately prior to the closing, will be amended at the closing to provide that
the total number of authorized shares will be 100 shares of common stock,
without par value. From and after the closing, such articles of incorporation,
as so amended, will be the articles of incorporation of the surviving
corporation. The bylaws of Advanced Machine Vision, as in effect immediately
prior to the closing, will continue to be the bylaws of the surviving
corporation.
Directors and Officers. At the closing, Thomas C. Madsen and Gordon Wicher
will become the directors of the surviving corporation, to serve in accordance
with the bylaws of the surviving corporation. At the closing, the officers of
the surviving corporation will be Thomas C. Madsen, president, and Gordon
Wicher, secretary, to serve in accordance with the bylaws of the surviving
corporation.
EFFECTIVE TIME OF THE MERGER
Following receipt of all required approvals and satisfaction or waiver
(where permissible) of the other conditions to the merger, the merger will
become effective at the time at which the merger documents are accepted for
filing by the appropriate governmental authorities, or such later date and time
as may be specified in the merger documents. This time is referred to as the
effective time of the merger. See "-- Conditions."
EXCHANGE OF CERTIFICATES
At the effective time, holders of Advanced Machine Vision securities will
no longer have any interest in Advanced Machine Vision. If any certificates
representing Advanced Machine Vision common stock are presented for exchange
after the effective time in excess of the number of shares of Advanced Machine
Vision common stock represented to be outstanding in the merger agreement at
closing, such shares will be converted into the right to receive $0.001 in cash
per share.
Promptly after the effective time of the merger, ChaseMellon Shareholder
Services, Seattle, Washington, the exchange agent, will mail to each shareholder
of Advanced Machine Vision a letter of transmittal confirming instructions for
the surrender of certificates representing Advanced Machine Vision common and
preferred stock in exchange for certificates representing Key Technology
preferred stock and warrants.
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REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of
Advanced Machine Vision and Key Technology, subject to qualifications in the
merger agreement. In the merger agreement, Advanced Machine Vision represents
and warrants as to:
- its corporate organization, valid existence, good standing and
corporate power and authority;
- approvals by its board of directors and the authorization and
enforceability of the merger agreement;
- its noncontravention of any laws, regulations and orders, charter or
bylaw provision or other agreements or instruments;
- the noncontravention of any laws, regulations and orders, charter or
bylaw provision or other agreements or instruments resulting from the
execution and performance of the merger agreement;
- the absence of any required governmental or third-party consents to
the merger;
- its capitalization;
- the accuracy of its financial statements;
- timely filing of tax returns and other related tax matters;
- the accuracy and completeness of its books and records;
- its title to real property;
- the condition of its assets;
- the validity of its accounts receivable;
- the absence of undisclosed liabilities;
- compliance with certain legal requirements;
- the absence of pending or threatened litigation;
- the compliance with applicable law of its employee benefit plans, and
certain other matters relating to the Employee Retirement Income
Security Act of 1974;
- the absence of material adverse changes;
- compliance with environmental laws;
- certain insurance matters;
- its ownership of and rights to use certain intellectual property;
- the absence of certain payments;
- the absence of defaults under certain of its contracts and leases;
- the absence of certain transactions with affiliates;
- the absence of undisclosed brokers and finders;
- the accuracy of information to be supplied by it for inclusion in this
joint proxy statement/prospectus;
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- its compliance with labor and employment laws;
- the accuracy of information provided by it regarding customer and
supplier lists, orders, backlog, returns, accounts receivable and bank
accounts; and
- the accuracy and completeness of disclosure made by representatives of
Advanced Machine Vision in connection with the merger agreement.
The merger agreement also includes representations and warranties by Key
Technology as to:
- its corporate organization, valid existence, good standing and
corporate power;
- the authorization and enforceability of the merger agreement;
- the absence of certain pending or threatened litigation related to the
merger;
- its noncontravention of any laws, regulations and orders, charter or
bylaw provision or other agreements or instruments;
- the noncontravention of any laws, regulations and orders, charter or
bylaw provision or other agreements or instruments resulting from the
execution and performance of the merger agreement;
- the absence of any required governmental or third-party consents to
the merger;
- the interim operations of KTC Acquisition Corp.;
- the absence of undisclosed brokers and finders employed by it;
- the absence of ownership of any Advanced Machine Vision stock except
as disclosed; and
- the accuracy of information to be supplied by it for inclusion in this
joint proxy statement/prospectus.
BUSINESS OF ADVANCED MACHINE VISION PENDING THE MERGER
Advanced Machine Vision has agreed that, prior to the effective time or
earlier termination of the merger agreement, except as contemplated by the
merger agreement, it will:
- conduct its operations according to its ordinary course of business
consistent with past practice;
- not grant, nor accelerate the vesting of, any options with respect to
any shares of its capital stock, except as required by its stock
option plans;
- seek to preserve intact its current business organizations;
- keep available the service of its current officers and employees;
- preserve its relationships with customers, suppliers and others;
- confer with Key Technology concerning operational matters of a
material nature; and
- report periodically to Key Technology concerning the status of its
business, operations and finances.
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Advanced Machine Vision has also agreed that, prior to the effective time,
unless Key Technology agrees in writing or as otherwise permitted by the merger
agreement, it will conduct its business only in the ordinary course and it will
not:
- change its authorized or issued capital stock; grant any stock
options; issue any additional shares or securities convertible into
its capital stock; grant any registration rights; reacquire any shares
of its capital stock; or declare or pay any dividend or other
distribution in respect of shares of its capital stock;
- amend its articles of incorporation or bylaws;
- pay or increase any bonuses, salaries, or other compensation to any
shareholder, director, officer, or employee (except in the ordinary
course of business) or enter into any employment, severance, or
similar contract or commitment with any director, officer, or employee
or adopt any severance policy applicable to employees in general;
- adopt or increase benefits under any profit sharing, bonus, deferred
compensation, savings, insurance, pension, retirement, or other
employee benefit plan;
- damage, destroy or lose any of its material assets or property,
whether or not covered by insurance;
- enter into or, terminate, or receive notice of termination of (i) any
material license, distributorship, dealer, sales representative, joint
venture, credit, or similar agreement, or (ii) any contract or
transaction involving a total remaining commitment by or to it of at
least $10,000 (except for contracts or transactions entered into in
the ordinary course of business with its customers or vendors which do
not individually exceed $50,000);
- sell (other than sales of inventory in the ordinary course of
business), lease, or dispose of any of its assets or property or
mortgage, pledge, or impose any lien on any of its material assets or
property including intellectual property assets, in any case greater
than $10,000;
- cancel or waive any claims or rights with a value to Advanced Machine
Vision in excess of $10,000;
- materially change any of its accounting methods;
- hire any new employees subject to certain exceptions; or
- agree, orally or in writing, to do any of the foregoing.
CERTAIN COVENANTS OF KEY TECHNOLOGY
Key Technology has agreed that, prior to the effective time or earlier
termination of the merger agreement, it will afford Advanced Machine Vision full
and free access to the Key Technology books and records, and furnish Advanced
Machine Vision with copies of all such books and records as Advanced Machine
Vision may reasonably request. Within 120 days following the closing, Key
Technology will cause the Series B convertible preferred stock and warrants
issued in the merger to be listed on the Nasdaq Stock Market.
NO SOLICITATION OF TRANSACTIONS BY ADVANCED MACHINE VISION
Under the merger agreement, Advanced Machine Vision has agreed that, prior
to the closing or earlier termination of the merger agreement, neither it nor
any of its subsidiaries nor any of their respective officers, directors,
employees, representatives or agents will, directly or indirectly, solicit or
encourage the initiation of any acquisition proposal. The merger agreement
defines an "acquisition
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proposal" to mean any inquiry or proposal regarding any merger, sale of
substantial assets, sale of shares of capital stock or similar transaction
involving Advanced Machine Vision or its subsidiaries. Advanced Machine Vision
has agreed to notify Key Technology immediately of any acquisition proposal
received by, or any such negotiations or discussions that are sought to be
initiated with it. The Advanced Machine Vision board of directors is not
prevented, however, from considering, negotiating, approving or recommending a
superior proposal if, after consultation with advisors and counsel, the Advanced
Machine Vision board determines that it must do so in order to discharge its
fiduciary duties. The merger agreement defines a "superior proposal" to mean an
unsolicited acquisition proposal from a third-party on terms a majority of the
members of the Advanced Machine Vision board determines in their good faith
reasonable judgment would be more favorable to Advanced Machine Vision's
shareholders and which is financed or capable of being financed by the
third-party.
CONDITIONS
Conditions to Each Party's Obligations to Effect the Merger. The respective
obligations of Advanced Machine Vision, Key Technology and KTC Acquisition Corp.
to effect the merger are subject to the satisfaction or waiver of the following
conditions:
- the merger agreement shall have been approved by the requisite holders
of Advanced Machine Vision common stock and preferred stock;
- all required authorizations in connection with the execution and
delivery of the merger agreement and the consummation of the
transactions thereunder shall have been obtained;
- there shall not be in effect any judgment, order or injunction of any
court or governmental body that prohibits the merger or prevents
consummation of the transactions contemplated by the merger agreement;
and
- the registration statement filed with respect to the issuance of the
Series B convertible preferred stock and warrants shall have been
declared effective.
Conditions to the Obligations of Key Technology and KTC Acquisition
Corp. The respective obligations of Key Technology and KTC Acquisition Corp to
effect the merger are subject to the satisfaction or waiver of the following
additional conditions:
- each of the representations and warranties of Advanced Machine Vision
are true and correct, in all material respects, when made and as of
the closing date;
- Advanced Machine Vision shall have performed or complied in all
material respects with all agreements and conditions required of it at
or prior to the closing;
- all required consents and approvals, and all required filings shall
have been obtained and made by Advanced Machine Vision;
- certain contracts between Advanced Machine Vision and FMC Corporation
shall have been terminated;
- Advanced Machine Vision shall have terminated its rights plan;
- Key Technology shall have received a certificate from Advanced Machine
Vision that specified closing conditions have been satisfied and
certain authorizations obtained;
- Key Technology shall have received resignations of each of the
existing directors and officers of Advanced Machine Vision, to be
effective upon the closing date; and
- Key Technology shall have received a legal opinion from Troy & Gould,
P.C. in form and substance reasonably satisfactory to Key Technology.
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Conditions to the Obligations of Advanced Machine Vision. The
obligations of Advanced Machine Vision to effect the merger are subject to the
satisfaction or waiver of the following additional conditions:
- each of the representations and warranties of Key Technology and KTC
Acquisition Corp. are true and correct, in all material respects, when
made and as of the closing date;
- Key Technology shall have performed or complied in all material
respects with all agreements and conditions required of it at or prior
to the closing;
- all required material consents and approvals and all required filings
shall have been obtained and made by Key Technology and Merger Sub;
- Advanced Machine Vision shall have received a certificate from Key
Technology that specified closing conditions have been satisfied and
certain authorizations obtained;
- Advanced Machine Vision shall have received a legal opinion from
Tonkon Torp LLP in form and substance reasonably satisfactory to
Advanced Machine Vision; and
- Advanced Machine Vision shall have received an opinion as to the
fairness of the merger transaction to Advanced Machine Vision's
shareholders in form acceptable to Advanced Machine Vision's board of
directors.
AMENDMENT; TERMINATION
The merger agreement may not be amended, except by an instrument in writing
signed by the party against whom enforcement is sought.
The merger agreement may be terminated at any time prior to the effective
time, before or after approval of the Issuance by the Key Technology
shareholders or of the merger by the Advanced Machine Vision shareholders, by
the mutual consent of Key Technology and Advanced Machine Vision. The merger
agreement also may be terminated by either Key Technology or Advanced Machine
Vision:
- if the merger has not been consummated by October 31, 2000 so long as
the party seeking to terminate did not prevent the consummation of the
merger by failing to perform any of its obligations under the merger
agreement;
- if any of the conditions to be performed by the other party have not
been satisfied by the closing date or the satisfaction of such
condition becomes impossible (other than through the fault of the
party seeking to terminate) and the other party has not waived such
condition;
- if the requisite vote of the Advanced Machine Vision common and
preferred shareholders has not been obtained;
- upon a material breach of any provision of the merger agreement by
either Advanced Machine Vision, Key Technology or KTC Acquisition
Corp. and such breach has not been waived by the other party or has
not be cured within ten days of receipt of notice of the breach; or
- if the Advanced Machine Vision board shall have resolved to accept a
superior proposal.
An addition, Key Technology may terminate the merger agreement if:
- the Advanced Machine Vision board of directors shall fail to recommend
or withdraws, modifies or changes its recommendation of the merger in
a manner adverse to Key Technology;
- the Advanced Machine Vision board recommends a superior proposal to
the Advanced Machine Vision shareholders; or
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- the Advanced Machine Vision board recommends that the Advanced Machine
Vision shareholders tender their shares pursuant to any tender offer
or exchange offer for 25% or more of the outstanding Advanced Machine
Vision stock.
RESALE OF KEY TECHNOLOGY SERIES B PREFERRED SHARES AND WARRANTS ISSUED IN THE
MERGER
Although the Key Technology Series B convertible preferred stock and
warrants to be issued to Advanced Machine Vision common shareholders in
connection with the merger will be freely transferable under the Securities Act,
Key Technology has only agreed to cause such securities to be listed on the
Nasdaq Stock Market within 120 days after closing. See "Risk Factors -- Risks
related to the merger -- The absence of a trading market for the Series B
convertible preferred stock and warrants will adversely affect the liquidity and
value of such securities." If the holder is considered an affiliate of either
Key Technology or Advanced Machine Vision under the Securities Act, shares of
Key Technology held by such persons may only be sold pursuant to a registration
statement or an exemption from the Securities Act.
FEES AND EXPENSES
All fees and expenses incurred in connection with the merger agreement and
the transactions contemplated thereby shall be paid by the party incurring such
expenses, whether or not the merger is consummated, except that Key Technology
and Advanced Machine Vision have agreed that Key Technology will pay all fees
and expenses (other than Advanced Machine Vision's attorneys and accountants
fees) incurred in relation to the printing and filing of this joint proxy
statement/prospectus and any amendments or supplements. Advanced Machine Vision
will pay such printing and filing expenses in the event the merger is not
approved by the Advanced Machine Vision shareholders.
Advanced Machine Vision has agreed to pay Key Technology a fee of
$2,000,000, plus expenses incurred by Key Technology in connection with the
printing and filing of this joint proxy statement/ prospectus and the
registration statement, upon the first to occur of:
- the termination of the merger agreement by Key Technology if the
Advanced Machine Vision board withdraws or modifies its recommendation
of the Merger Agreement in a manner adverse to Key Technology, the
Advanced Machine Vision board recommends a superior proposal or
recommends a tender or exchange offer for 25% or more of the
outstanding Advanced Machine Vision Stock;
- the termination of the merger agreement by Key Technology after a
material breach by Advanced Machine Vision of any provision of the
merger agreement; or
- the termination of the merger agreement by Advanced Machine Vision or
Key Technology upon Advanced Machine Vision's resolution to accept a
superior proposal.
Advanced Machine Vision will pay Key Technology a fee of $500,000 if the
merger agreement is terminated:
- by Key Technology or Advanced Machine Vision as a result of failure to
receive the requisite approval of Advanced Machine Vision's common
stock or preferred stock; or
- by Advanced Machine Vision based on Key Technology's failure to meet a
closing condition regarding the absence of certain litigation; or
- by Key Technology based on Advanced Machine Vision's failure to meet a
closing condition regarding the absence of certain litigation; and
if within 24 months from the date of the merger agreement Advanced Machine
Vision enters into an agreement to be acquired by any third-party (including any
current Advanced Machine Vision
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shareholder) or a majority of Advanced Machine Vision's common stock is acquired
by a third-party in a tender offer.
Key Technology similarly has agreed to pay Advanced Machine Vision a fee of
$2,000,000 upon the first to occur of:
- the termination of the merger agreement by Advanced Machine Vision
after a material breach by Key Technology of any provision of the
merger agreement; or
- the termination of the merger agreement by Advanced Machine Vision if
Key Technology fails to meet certain closing conditions, including
conditions related to the accuracy of Key Technology's representations
and warranties, compliance with Key Technology's and KTC Acquisition
Corp's covenants, procurement of required authorizations and consents
and delivery of certain items at closing.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase transaction for financial
accounting purposes in accordance with generally accepted accounting principles.
See "Pro Forma Financial Statements."
APPOINTMENT OF ADVANCED MACHINE VISION NOMINEE TO KEY TECHNOLOGY BOARD
The merger agreement provides that, within 30 days of the effective time,
the Key Technology board will take all requisite action to increase the size of
the Key Technology board by one position and will fill that vacancy by the
appointment of a nominee designated by Advanced Machine Vision's board of
directors who is acceptable to Key Technology's chief executive officer.
MANAGEMENT AND OPERATIONS OF ADVANCED MACHINE VISION AFTER THE MERGER
After the merger, Advanced Machine Vision will be a wholly-owned subsidiary
of Key Technology. Advanced Machine Vision will operate as one of Key
Technology's business units. After the merger, Advanced Machine Vision will have
access to resources generally available to Key Technology's other business
units, will participate in appropriate activities with other Key Technology
business units and will operate under the direction and guidance of Key
Technology's senior management and the Key Technology board of directors.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The exchange of Advanced Machine Vision common stock and preferred stock
for cash, if any, and securities pursuant to the merger agreement will be a
taxable transaction for U.S. federal income tax purposes. A shareholder who
exchanges Advanced Machine Vision common stock for cash or securities will
recognize gain or loss on such exchange measured by the difference between (i)
the sum of the cash and the fair market value, determined as of the time of such
exchange, of the Key Technology convertible preferred stock and warrant received
in the exchange, and (ii) such shareholder's basis in the Advanced Machine
Vision common stock surrendered in the exchange. A shareholder who exchanges
Advanced Machine Vision preferred stock for securities will recognize gain or
loss on such exchange measured by the difference between (i) the fair market
value, determined as of the time of such exchange, of the Key Technology Series
C convertible preferred stock and warrant received in the exchange, and (ii)
such shareholder's basis in the Advanced Machine Vision preferred stock
surrendered in the exchange. A shareholder generally must calculate gain or loss
separately for each block of Advanced Machine Vision common stock or preferred
stock (i.e., Advanced Machine Vision common stock or preferred stock acquired
with the same tax basis in a single transaction) that is exchanged pursuant to
the merger. In the case of a shareholder who holds Advanced Machine Vision
common stock or preferred stock as a capital
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asset, any gain or loss will be long-term capital gain or loss if the holding
period of the surrendered stock exceeds one year on the date of the merger.
The foregoing paragraph presents the material federal income tax
consequences of the merger to the holders of Advanced Machine Vision common and
preferred stock. The foregoing discussion does not discuss tax consequences
under the laws of states or local governments or of any other jurisdiction or
tax consequences to categories of shareholders that may be subject to special
rules, such as foreign persons, tax-exempt entities, insurance companies,
financial institutions and dealers in stocks and securities. The foregoing
discussion may not be applicable to a shareholder who acquired shares of
Advanced Machine Vision common stock pursuant to the exercise of stock options
or otherwise as compensation. Each holder of shares of Advanced Machine Vision
common stock or preferred stock is urged to obtain, and should rely upon, such
holder's own tax advice.
DESCRIPTION OF FMC CORPORATION AGREEMENT
In 1998, Advanced Machine Vision sold 119,106 shares of its Series B
mandatorily redeemable preferred stock to FMC Corporation, which stock is
convertible into 1,191,000 shares of common stock of Advanced Machine Vision.
FMC Corporation also acquired a five-year option to purchase a number of shares
of common stock equal to 15% of the shares of Advanced Machine Vision common
stock outstanding on the exercise date, and obtained certain contractual rights,
including the right to act as a sales representative of Advanced Machine Vision
for certain products and the right to approve a merger or other sale of Advanced
Machine Vision.
On April 24, 2000, Key Technology, Advanced Machine Vision and FMC
Corporation entered into an agreement relating to FMC's investment and
contractual rights. Pursuant to the agreement, the shares of Advanced Machine
Vision Series B mandatorily redeemable preferred stock held by FMC Corporation
will be converted into the right to receive 119,106 shares of Key Technology
Series C convertible preferred stock and warrants to purchase 29,776 shares of
Key Technology common stock. Each Series C share is convertible at any time at
the election of the holder into 1 2/3 shares of Key Technology common stock, and
may be redeemed at the election of the holder at any time after issuance for
$20.00 per share. In addition, Key Technology is required to redeem any Series C
convertible preferred stock remaining outstanding on the fifth anniversary of
the closing for $20.00 per share. The warrants issued to FMC Corporation are
identical to the warrants issued to the holders of Advanced Machine Vision
common stock.
In addition, FMC Corporation's option to purchase shares of common stock of
Advanced Machine Vision will be converted upon the closing of the merger into an
option expiring on October 14, 2003 to purchase 210,000 shares of Key Technology
Series B convertible preferred stock and warrants to purchase 52,500 shares of
Key Technology common stock for $2,520,000. The Key Technology warrants issued
in connection with the conversion of the option held by FMC Corporation are
identical to the warrants issued to the holders of the Advanced Machine Vision
common stock.
The agreement among Key Technology, Advanced Machine Vision and FMC
Corporation also provides that FMC Corporation will vote its shares of Advanced
Machine Vision Series B mandatorily redeemable preferred stock in favor of the
merger at the special meeting of shareholders of Advanced Machine Vision. FMC
Corporation will also terminate at the effective time of the merger its sales
representation agreement and its agreement providing it the right to approve a
merger or sale of Advanced Machine Vision. Key Technology has also agreed to
register the Series B convertible preferred stock, warrants and shares of common
stock underlying such securities under the Securities Act and cause the
underlying common stock to be authorized for listing on The Nasdaq Stock Market.
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RIGHTS OF DISSENTING ADVANCED MACHINE VISION SHAREHOLDERS
Advanced Machine Vision Shareholders have the right to dissent from the
Merger and, in certain circumstances, to receive payment for their shares in
accordance with the terms of Sections 1300 through 1312 of the California
General Corporation Law.
Holders of Advanced Machine Vision common stock are, in certain
circumstances, entitled to dissenters' rights to respect to the merger under the
CGCL. A person having a beneficial interest in shares of Advanced Machine Vision
common stock held of record in the name of another person, such as a broker or
nominee, must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect whatever dissenters'
rights the beneficial owner may have.
The following discussion is not a complete summary of the law pertaining to
dissenters' rights under the CGCL and you should read the full text of Chapter
13 of the CGCL, sections of which are reprinted as Annex C to this joint proxy
statement/prospectus. Such sections should be read carefully and in their
entirety.
If the merger is approved by the affirmative vote of the holders of a
majority of the outstanding shares of Advanced Machine Vision common stock and
preferred stock and is not terminated in accordance with the merger agreement,
Advanced Machine Vision's shareholders who do not vote in favor of the Merger
and who have fully complied with all applicable provisions of Chapter 13 of the
CGCL and whose shares constitute dissenting shares (as defined below), will have
the right to require Advanced Machine Vision to purchase the shares of Advanced
Machine Vision common stock held by them for cash at the fair market value of
the shares on the day before the announcement of the merger, excluding any
appreciation or depreciation because of the merger but adjusted for any stock
split, reverse stock split or share dividend which becomes effective thereafter.
To qualify as dissenting shares, such shareholders must not vote their shares in
favor of the transaction and must also provide Advanced Machine Vision with a
written demand (described below) prior to the Advanced Machine Vision special
meeting. Under the CGCL, no shareholder of Advanced Machine Vision who is
entitled to exercise dissenters' rights has any right at law or in equity to
contest the validity of the merger or to have the merger set aside or rescinded,
except in an action to test whether the number of shares required to authorize
or approve the merger had legally been voted in favor of the merger. "Dissenting
Shares" means those shares of Advanced Machine Vision common stock with respect
to which the holders have not voted in favor of the merger and have perfected
their purchase demand in accordance with the CGCL.
For a holder of Advanced Machine Vision common stock to exercise
dissenters' rights, the procedures to be followed under Chapter 13 of the CGCL
include the following requirements:
(1) The shareholder of record must not have voted the shares in favor
of the merger. It is sufficient to abstain from voting. A shareholder may
also abstain as to part of his or her shares and vote part of those shares
for the merger without losing the right to exercise dissenters' rights as
to other shares which were not voted in favor of the merger.
(2) Any such shareholder who does not vote in favor of the merger, and
who wishes to have those shares that were not voted in favor of the merger
purchased, must make a written demand to have Advanced Machine Vision
purchase those shares for cash at their fair market value. The demand must
include the information specified below and must be received by Advanced
Machine Vision not later than the date of the Advanced Machine Vision
special meeting. Merely voting against or abstaining or delivering a proxy
directing a vote against the approval of the merger or indicating an
abstention does not constitute a demand for purchase. A written demand is
essential.
The written demand that the dissenting shareholder must deliver to Advanced
Machine Vision must:
(1) Be made by the person who was the shareholder of record on the
Advanced Machine Vision record date (or such shareholder's duly authorized
representative) and not by someone who is merely
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a beneficial owner of the shares and not by a shareholder who acquired the
shares subsequent to the Advanced Machine Vision record date;
(2) State the number and class of dissenting shares held of record by
the dissenting shareholder; and
(3) Include a demand that Advanced Machine Vision purchase the shares
at the dollar amount that the shareholder claims to be the fair market
value of such shares on the last trading day before the terms of the merger
were first announced, excluding any appreciation or depreciation because of
the proposed Merger but adjusted for any stock split, reverse stock split
or share dividend which becomes effective thereafter. Advanced Machine
Vision believes that this day is February 14, 2000, since the first
announcement of the proposed merger was made by Advanced Machine Vision on
February 15, 2000. A shareholder may take the position in the written
demand that a different date is applicable. The shareholder's statement of
fair market value constitutes an offer by such dissenting shareholder to
sell the shares to Advanced Machine Vision at such price.
The written demand should be delivered to Advanced Machine Vision at
Advanced Machine Vision's principal offices, Attention: Mr. Alan R. Steel, Chief
Financial Officer.
A shareholder may not withdraw a demand for payment without the consent of
Advanced Machine Vision. Under the terms of the CGCL, a demand by a shareholder
is not effective for any purpose unless it is received by Advanced Machine
Vision (or any transfer agent thereof).
Within ten days after the approval of the merger by Advanced Machine
Vision's shareholders, Advanced Machine Vision must notify all holders of
dissenting shares of the approval and must offer all of such shareholders a cash
price for their shares which Advanced Machine Vision considers to be the fair
market value of the shares. The notice also must contain a brief description of
the procedures to be followed under Chapter 13 of the CGCL to dispute the price
offered and attach a copy of the relevant provision of the CGCL in order for a
shareholder to exercise the right to have Advanced Machine Vision purchase his
or her shares.
Within 30 days after the date on which the notice of the approval of the
merger is mailed by Advanced Machine Vision to holders of dissenting shares, the
shareholder's certificates, representing any shares which the shareholder
demands be purchased, must be submitted to Advanced Machine Vision, at its
principal office, or at the office of any transfer agent, to be stamped or
endorsed with a statement that the shares are dissenting shares or to be
exchanged for certificates of appropriate denomination so stamped or endorsed.
Upon subsequent transfer of those shares, the new certificates will be similarly
stamped, together with the name of the original dissenting shareholder.
If Advanced Machine Vision and a holder of dissenting shares agree that the
shares held by such shareholder are eligible for dissenters' rights and agree
upon the price of such shares, such holder of dissenting shares is entitled to
receive from Advanced Machine Vision the agreed price with interest thereon at
the legal rate on judgments from the date of such agreement. Any agreement
fixing the fair market value of dissenting shares as between Advanced Machine
Vision and the holders thereof must be filed with Mr. Alan R. Steel, Chief
Financial Officer of Advanced Machine Vision at the address set forth herein.
Subject to certain provisions of Section 1306 and Chapter 5 of the CGCL, payment
of the fair market value of the dissenting shares shall be made within 30 days
after the amount has been agreed upon or within 30 days after any statutory or
contractual conditions to the mergers is satisfied, whichever is later, subject
to the surrender of the certificate therefor, unless provided otherwise by
agreement.
If Advanced Machine Vision and a holder of dissenting shares fail to agree
on either the fair market value of the shares or on the eligibility of the
shares to be purchased, then either such holder of dissenting shares or Advanced
Machine Vision may file a complaint for judicial resolution of the dispute in
the superior court of the proper county. The complaint must be filed within six
months after the date on which the respective notice of approval is mailed to
Advanced Machine Vision shareholders. If a complaint is not
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filed within six months, the shares will lose their status as dissenting shares.
Two or more holders of dissenting shares may join as plaintiffs or be joined as
defendants in such an action. If the eligibility of the shares is at issue, the
court must first have decided that issue. If the fair market value of the shares
is in dispute, the court must determine, or shall appoint one or more impartial
appraisers to assist in its determination of, the fair market value. The cost of
the action will be assessed or apportioned as the court considers equitable. If,
however, the appraised value of the dissenting shares exceeds the price offered
by Advanced Machine Vision, Advanced Machine Vision must pay the costs.
Any demands, notices, certificates or other documents required to be
delivered to Advanced Machine Vision may be sent to the Advanced Machine
Vision's principal offices, Attention: Mr. Alan R. Steel, Chief Financial
Officer.
INTEREST OF CERTAIN PERSONS IN THE MERGER
The directors and officers of Advanced Machine Vision and the holder of the
Advanced Machine Vision Series B preferred stock participate in arrangements and
have continuing insurance and indemnification against liabilities that provide
them with interests in the merger that are different from, or in addition to,
yours, including the following:
- Mr. Young, Mr. Ewan and Mr. Steel will receive change of control
payments from Advanced Machine Vision pursuant to existing employment
agreements upon consummation of the merger aggregating up to
approximately $2,000,000, subject to the application of certain
limitations under the Internal Revenue Code.
- Messrs. Ewan, Steel and Young, directors or officers of Advanced
Machine Vision, and Veneer Technology, Inc., of which Mr. Van Voorhis,
also a director of Advanced Machine Vision, is a principal owner,
pursuant to amendments to their restricted stock agreements, will be
permitted to engage in a "cashless exercise" of their restricted stock
pursuant to which they will receive an aggregate of 234,524 shares of
Advanced Machine Vision common stock prior to the merger.
- Key Technology will cause the surviving corporation to maintain
directors' and officers' liability insurance to cover liabilities
arising out of such person's services as a director or officer of
Advanced Machine Vision for the next six years.
- FMC Corporation, the holder of all of the outstanding Series B
preferred stock of Advanced Machine Vision, has entered into an
agreement with Key Technology and Advanced Machine Vision pursuant to
which FMC Corporation has agreed to vote its shares of preferred stock
in favor or the merger and terminate certain agreements with Advanced
Machine Vision. Pursuant to the agreement, FMC Corporation will
receive shares of Key Technology Series C preferred stock which has
certain rights and privileges different from and superior to the Key
Technology Series B preferred stock.
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BUSINESS OF KEY TECHNOLOGY
GENERAL
Key Technology designs, manufactures, sells and services process automation
systems, primarily for the food processing industry, that process product
streams of discrete pieces to improve food safety and quality. These systems
integrate electro-optical automated inspection and sorting systems, specialized
conveying systems and process and preparation systems.
Key Technology's domestic operations are headquartered in Walla Walla,
Washington and are organized into business units comprised of Key Technology's
two major product groups: Automated Inspection Systems (AIS) and Specialized
Conveying Systems (SCS). Both of these business units continue to serve
customers in Key Technology's primary market through common sales and
distribution channels. Key Technology's European business unit operations are
conducted by its indirect, wholly-owned European subsidiary, KEY/Superior B.V.
KEY/Superior B.V. is a manufacturer of specialized conveying systems sold
primarily within Europe. Key Technology also utilizes KEY/Superior B.V. as the
primary sales and service organization for its AIS products sold to European
customers. KEY/Superior B.V. is located in Beusichem, The Netherlands. Key
Technology was incorporated in Oregon in 1982 to acquire a vegetable processing
equipment business originally founded in 1948 by Claude Key.
INDUSTRY BACKGROUND
Historically, defect removal and quality control in the food processing
industry have been labor intensive and dependent upon and limited by the
variability of the work force. Food processors must process large quantities of
raw product through different stages, including sorting to remove defective
pieces and inspection for product quality and safety. The frequency and severity
of defects in the raw product is highly variable depending upon local factors
affecting crops. The industry has sought to replace manual methods with
automated systems that achieve higher yield, better product quality and safety
and reduced cost.
Key Technology's strategy is to solve processing industry problems of high
labor costs, inadequate yields and inconsistent quality and safety by providing
automated inspection systems and specialized conveying systems. Key Technology's
automated inspection systems use advanced optical inspection technology to
improve product yield (more of the good product recovered) and quality (higher
percentage of defective product being removed) over the manual sorting and
defect removal methods historically used by food processors. In a typical
application, a single automated inspection system can replace 25 to 75
processing line employees, resulting in labor cost savings and improved yield
sufficient to pay for the system in less than one year, as well as providing
significant improvements in product quality.
PRODUCTS
Key Technology has developed a modular family of product lines that can be
configured in a variety of ways and integrated to provide complete solutions for
specific applications. Advances in any one module can therefore benefit a number
of Key Technology's products that incorporate optical scanning and image
analysis. Despite the incorporation of sophisticated technology, Key
Technology's products can be operated by plant personnel with minimal
specialized training and are built to withstand the harsh environments found in
processing plants.
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The following table sets forth sales by product category for the periods
indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
------------------------------------
1999 1998 1997
------- -------------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Automated inspection systems...................... $22,342 $21,388 $20,400
Specialized conveying systems..................... 28,422 21,807 25,366
Processing and preparation systems................ 5,528 1,687 4,068
Service/contracts and parts....................... 11,736 8,251 7,434
------- ------- -------
Net sales....................................... $68,028 $53,133 $57,268
======= ======= =======
</TABLE>
The following table sets forth the percent of the total gross margin
contributed by each product category for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Automated inspection systems................................ 39% 44% 33%
Specialized conveying systems............................... 38% 36% 45%
Processing and preparation systems.......................... 3% 2% 5%
Service/contracts and parts................................. 20% 18% 17%
--- --- ---
Total gross margin........................................ 100% 100% 100%
=== === ===
</TABLE>
AUTOMATED INSPECTION SYSTEMS
Automated inspection systems are used in processing applications to detect
and eliminate defects during raw product processing. Key Technology's systems
within this group include the ADR(R) and Tegra(R) systems, representing Key
Technology's third and fourth generation, respectively, of automated inspection
systems.
All systems in this group use proprietary linear array charged coupled
device mono-chromatic (black and white), color or multi-spectral cameras. Each
of the cameras scan the product-streams, which move at five or ten feet per
second, at the rate of 1,500 or 4,000 times per second and can identify defects
as small as 1/16 of an inch (1.5 mm) in diameter. Systems with monochromatic
cameras generally are sold at lower price levels and are most effective for
product that has a marked disparity in shade between the defective and the good
product. Systems with color cameras are required when a variety of defect and
product colors occur simultaneously or when the difference in shading between
the defective and the good product is more subtle. In 1997, Key Technology
developed multi-spectral systems which utilize either infra-red or ultraviolet
technologies, individually or in combination with visible light, to identify
defects that may not be detectable by solely using visible light spectra.
Tegra Automated Inspection System. In fiscal 1996, Key Technology
introduced its fourth generation of automated inspection system sorters. Named
Tegra, this generation of automated inspection systems incorporates a number of
technological and mechanical advances that result in significant improvements to
processing efficiency and product throughput with higher recovery and
defect-removal rates. Tegra was designed to provide a technology platform for
future product development and potential entry into applications and markets not
previously served by Key Technology. Certain present and potential applications
for Tegra systems include potato products, green beans, dried beans, corn,
carrots, peas, spinach and other leafy vegetables, peaches, pears, nuts, grains,
coffee and tobacco.
During fiscal 1999, Key Technology sold Tegra optical sorter systems to
coffee processors in remote areas of Brazil, Colombia and the Ivory Coast of
Africa. Those systems will allow the processors to produce consistent quality
coffee. In other markets, such as meat and poultry processing and fresh-cut
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produce, Key Technology committed funds to researching new technology that, if
successful, could assist its customers in assuring the quality and safety of
their products.
Tegra incorporates object-specific IntelliSort technology. IntelliSort
sorting technology recognizes not only color and size, but also shape. This
capability provides a solution to previously difficult sorting problems, such as
differentiation between green beans and green bean stems. Tegra cameras are
capable of high fidelity color-image processing to scan product at a rate of
over 4,000 times per second, offering a sensitivity to color subtleties beyond
human vision. Tegra also incorporates KeyWare(R) software that substantially
reduces operational complexity. KeyWare consists of application packages, each
specifically designed for a single product category that, together with the
system's computer hardware capability and networking software, support all
standard factory control and automation interfaces. These features allow Tegra
to establish data connectivity and communication with a processing plant's
computer network system.
ADR Systems. Key Technology's ADR systems are used to transport, inspect
and remove defects from french fry potatoes. Key Technology believes its ADR
system is the principal optical inspection and defect removal system used in the
french fry processing market. Key Technology's full-capacity ADR systems can
process up to 26,000 pounds of product per hour.
As a result of product development activities in fiscal 1998 and 1999, Key
Technology has introduced a fourth generation of the ADR system to the frozen
french fry industry early in fiscal 2000. In addition to allowing processors to
automatically detect and trim defects from french fries, this new product will
also custom-cut the fries to meet customer demand for length distribution.
Selective length cutting of the french fries will also allow them to be packed
more densely. The denser packaging will reduce shipping expense, which is a
significant contributor to the cost of the delivered product.
Pharmaceutical Inspection System. In fiscal 1996, Key Technology purchased
certain inventory, trademarks and patents related to a pharmaceutical inspection
product line, the I-300 Pharmaceutical Inspection System, from the Imaging
Division of Oncor, Inc. Using patented spatial color analysis technology, this
product line inspects solid-dose pharmaceuticals, including tablets, capsules
and soft gels for broken or missing pieces, foreign products, discoloration or
coating defects, as well as the integrity of capsules. The pharmaceutical
inspection system also verifies labels and the presence of printing, and detects
color, size, location and shape defects at processing rates over one million
pieces per hour. Key Technology expects sales of this product line will be a
moderate contributor to automated inspection system revenues during fiscal 2000.
SPECIALIZED CONVEYING SYSTEMS
Conveying systems are utilized throughout the food industry, as well as
other industries, to move large quantities of product within a processing plant.
Key Technology's specialized conveying systems include the Iso-Flo(R) vibratory
conveyor systems, food pumping systems and belt conveyors. The acquisition of
Superior B.V. in fiscal 1996 added electromagnetic conveyor and spiral elevator
technologies to Key Technology's conveying systems product line.
Iso-Flo Vibratory Conveying Systems. Key Technology's principal specialized
conveying system is its Iso-Flo vibratory conveyor system, which was introduced
in 1978. The Iso-Flo conveyor is a type of pan conveyor. Pan conveyors are
common throughout industries that process product streams of discrete pieces,
especially the food processing industry. Pan conveyors move product pieces by
vibrating the pan at high frequency along a diagonal axis, upward and forward.
This action propels the product ahead in small increments and distributes it
evenly for close control of movement and presentation.
Most Iso-Flo conveyors are custom designed and engineered by Key Technology
to customer specifications. Iso-Flo systems are used in a variety of processing
applications, including potato products, vegetables and fruits (green beans,
peas, carrots, corn, peaches, pears, cranberries and apples), snack foods,
cereals, pet foods, poultry, seafood and certain nonfood products.
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Key Technology's patent on its Iso-Flo vibratory conveyor system expired in
fiscal 1999. There can be no assurance that the expiration of the Iso-Flo patent
will not result in increased competition and decreased sales of the product
line.
Key Technology considers its vibratory conveyor technology to be a
proprietary core competency. Consequently, investment in research and
development activities related to specialized conveying systems increased in
fiscal 1999 compared to 1998. Research and development activities for this
product group are expected to increase moderately in fiscal 2000 compared to
1999. As a result of Key Technology's research and development activities in
fiscal 1999, it has expanded its family of vibratory conveyors with the
introduction of three new products in the first quarter of fiscal 2000. These
products include the Horizon(TM), the Impulse(TM) and the Marathon(TM) conveying
systems.
The Horizon is a horizontal motion vibratory conveyor that uses a gentle
conveying action to move fragile foods, such as snacks, cereals and
seasoned/coated products, through the processing stages. The design of the
Horizon eliminates vertical bounce of the processor's product. This feature
results in reduced costs to the processor due to minimized product damage,
reduced seasoning/coating loss and elimination of condiment build-up on the
conveyor bed.
The Impulse is a line of electromagnetic conveyors which combine the
advantage of starting and stopping in milliseconds with precise metering
control. Additionally, the Impulse conveyor drive systems are oil free which
limits the potential for contamination and improves the safety of edible food
products. This conveyor system was developed for packaging applications in snack
food, dry ingredient, chemical and pharmaceutical processing.
The Marathon is Key Technology's longest conveyor and moves product up to
100 feet or more on a single conveyor bed. This conveyor is targeted for use in
high volume applications such as corn, green beans and other bulk conveying
markets to maximize the processor's production efficiency.
Food Pumping Systems and Belt Conveyors. Key Technology's hydro food
pumping systems are used to transport food items over distances and elevations
in processing plants. A typical pumping system consists of a stainless steel
contoured tank and food pump to propel the product, lengths of piping to reach
the destination, and a water removal/product spreading subsystem at the
destination. The systems can be configured so that food processing functions,
such as blanching, cooling and cutting, can also occur during pumping. Key
Technology also designs and manufactures belt conveyors using a variety of belt
materials.
PROCESS AND PREPARATION SYSTEMS
Key Technology designs and manufactures raw food preparation systems to
prepare vegetables prior to freezing, canning or other processing. Products in
this group include blanchers, air cleaners, air coolers, froth flotation
cleaners, vegetable metering systems, and bulk handling equipment. These
products represent Key Technology's most mature product line. Sales of these
products over the years have formed a customer base for sales of other Key
Technology products and are also establishing a customer base in developing
country markets.
Process and preparation system revenues also include a variety of
third-party supplied equipment and installation services which are sold as
components of larger processing lines, for which Key Technology has assumed
turn-key sales responsibility. In fiscal 1999, these third-party supplied
products accounted for approximately $3.1 million of the $5.5 million in total
net sales of process and preparation systems.
SERVICE/CONTRACTS AND PARTS
Key Technology generates revenues from the sale of spare parts and
post-sale field and telephone-based repair services to support its customers'
routine maintenance requirements and seasonal equipment startup and
winterization processes. In response to increasing customer demand for
maintenance and parts services, Key Technology introduced a new multi-level
service product offering named UpTime(TM) in the
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first quarter of fiscal 1999. The UpTime program was a principal contributor to
a 52% increase in maintenance service revenues in fiscal 1999 compared to fiscal
1998. Key Technology considers its parts and maintenance service sales to be
important potential sources of future revenue growth and expects to continue to
devote additional resources in fiscal 2000 to increase such sales. Key
Technology also typically provides system installation support services which
are included in the sales price of certain of its products, principally the AIS
systems.
CUSTOMERS AND MARKETS
Key Technology's primary market is the food processing industry. The
largest market segments for Key Technology's products have been potatoes,
vegetables and snack foods. Key Technology has also penetrated other food market
segments, including fruits, cereals and pet foods. Key Technology believes many
additional applications for its systems exist in both food and nonfood markets.
The principal potato market served by Key Technology's systems is french
fries. French fries comprise approximately 90% of the over eight billion pounds
of frozen potato products processed annually in the United States. The expansion
of American-style fast food chains in foreign countries is resulting in parallel
development of the frozen french fry market overseas.
Key Technology's products are used in the fruit and vegetable processing
market where field-harvested products are cleaned, graded, automatically sorted,
blanched and processed prior to freezing, canning or packaging for sale to
institutional and retail markets. Principal fruit and vegetable market segments
for Key Technology are green beans, corn, carrots, peas, onions, apples, pears,
cranberries and peaches. Key Technology also sells pharmaceutical systems,
together with other products, to pharmaceutical manufacturers in the United
States, Puerto Rico and Europe.
In fiscal 1998, Key Technology expanded its addressable markets by
introducing Tegra-based product applications into the coffee and tobacco
markets. During fiscal 1999, Key Technology sold Tegra systems to coffee
processors located in Brazil and Colombia in South America and the Ivory Coast
in Africa. Several Tegra systems were also installed in fiscal 1999 on either
rental or trial placements in tobacco processing applications. Additionally, Key
Technology expects that the coffee and tobacco markets may provide opportunities
for expanded sales of specialized conveying systems. During fiscal 1999, Key
Technology both hired new employees and assigned existing personnel specifically
to focus additional sales and marketing resources on the coffee and tobacco
industries.
The acquisition of Superior B.V. in fiscal 1996 provided Key Technology
with a manufacturing base from which it can more rapidly manufacture and deliver
conveying systems to European customers. Export and international sales for the
fiscal years ended September 30, 1999, 1998 and 1997 accounted for 46%, 37% and
32% of net sales in each such year, respectively. Nearly all export sales of
products manufactured in the United States have been denominated in U.S.
dollars. Sales in Europe of spare parts and service, as well as products
manufactured in Europe, are generally denominated in European currencies. In its
export and foreign sales, Key Technology is subject to the risks of conducting
business internationally, including unexpected changes in regulatory
requirements; fluctuations in the value of the U.S. dollar, which could increase
the sales prices in local currencies of Key Technology's products in
international markets; tariffs and other barriers and restrictions; and the
burdens of complying with a variety of international laws. Additional
information regarding export and foreign sales is set forth in Note 11 to Key
Technology's Consolidated Financial Statements for the year ended September 30,
1999.
Key Technology does not rely on annual recurring sales to particular
customers. However, Key Technology's customers often make periodic large
purchases of complete systems. Therefore, while in any given fiscal year sales
to a single customer might represent 10 percent or more of Key Technology's
consolidated revenues, Key Technology believes the loss of such customer would
not have a material adverse effect on Key Technology. During fiscal 1999, sales
to one customer amounted to approximately
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11% of total net sales. No single customer accounted for more than 10% of net
sales during fiscal 1998 and 1997.
Key Technology markets its products directly and through independent sales
representatives. In North America, Key Technology operates sales offices in
Walla Walla, Washington; Rockville, Maryland; and Beaver Dam, Wisconsin. Key
Technology's subsidiary, Key/Superior B.V., provides sales and service to
European customers. Sales in Australia and New Zealand are made through an
independent distributor, which Key Technology also licenses to manufacture
certain of its products.
ENGINEERING, RESEARCH AND DEVELOPMENT
At September 30, 1999, Key Technology's engineering departments had 92
technical and support employees who conduct new product research and
development, sustaining engineering for released products and project
engineering for custom systems. The department includes electronic, mechanical
and software engineers, mathematicians and technical support personnel.
Key Technology's project engineering teams are responsible for engineering
and designing the details of each custom order. A document control team
maintains and controls product documentation and the product modeling database
for the development engineering and project engineering teams as well as the
manufacturing department.
In fiscal 1999, Key Technology's engineering, research and development
expenses were approximately $4.3 million, compared to $4.8 million and $4.4
million in 1998 and 1997, respectively.
MANUFACTURING
Key Technology maintains two domestic manufacturing facilities, both
located in Walla Walla, and a European manufacturing facility located in The
Netherlands. Key Technology's current manufacturing facilities and its product
design and manufacturing processes integrate Computer Aided Engineering (CAE),
Computer Aided Design (CAD), Computer Aided Manufacturing (CAM) and Computer
Integrated Manufacturing (CIM) technologies. Manufacturing activities include
process engineering; cutting, welding, fabrication and assembly of
custom-designed stainless steel systems; camera and electronics assembly;
subsystem assembly; and system test and integration. Key Technology manufactures
products for its AIS business unit in a 150,000 square foot facility constructed
in 1990. In response to increased market demand for its products, Key Technology
increased its manufacturing capacity by leasing another 100,000 square foot
facility in Walla Walla in early 1996. Key Technology initiated full-scale
production operations for its SCS business unit in this facility during early
fiscal 1997. Key Technology also increased its manufacturing capacity as a
result of the acquisition in July 1996 of Superior B.V. During the fourth
quarter of fiscal 1998, Key Technology further expanded KEY/Superior B.V.'s
manufacturing capacity by leasing and occupying a 45,000 square foot facility
adjacent to its original 18,000 square foot building, which is now used for
other purposes.
Key Technology manufactures certain of its products to Underwriters
Laboratories, United States Department of Agriculture and Occupational Safety
and Health Administration standards and its domestic manufacturing processes
became qualified in January 1995 for certification to the ISO-9001 quality
management and assurance standards. The merger of Key Technology's European
operations will require re-certification of that combined entity to the ISO-9001
standards, which is currently under review. Key Technology's products also
comply with the Canadian Standards Association (CSA) and European CE (Conformite
Europeene) safety standards. Key Technology does not believe that environmental
regulations materially affect its operations.
Certain components and subassemblies included in Key Technology's products
are obtained from single-source or sole-source suppliers. Key Technology
attempts to ensure that adequate supplies are available to maintain
manufacturing schedules. Although Key Technology seeks to reduce its dependence
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on sole and limited source suppliers, the partial or complete loss of certain
sources of supply could have an adverse effect on Key Technology's results of
operations and relations with customers.
BACKLOG
Key Technology's backlog as of March 31, 2000 and March 31, 1999 was
approximately $12.6 million and $14.9 million, respectively. Key Technology
schedules production based on firm customer commitments and forecasted
requirements. Key Technology includes in backlog only those customer orders for
which it has accepted purchase orders. However, Key Technology believes that
backlog is not necessarily a meaningful indicator of future financial results as
it typically ships products ordered within eight to thirteen weeks from the date
of receipt of the order. Large multiple-unit system orders or orders for systems
in high demand may, however, result in longer delivery times.
COMPETITION
The markets for automated inspection systems and specialized conveying
systems are highly competitive. Important competitive factors include price,
performance, reliability, and customer support and service. Key Technology
believes that it currently competes effectively with respect to these factors,
although there can be no assurance that existing or future competitors will not
introduce comparable or superior products at lower prices. Certain of Key
Technology's competitors may have substantially greater financial, technical,
marketing and other resources.
PATENTS AND TRADEMARKS
Key Technology currently owns 23 outstanding United States patents issued
from 1982 through 1999 and 11 outstanding patents issued by foreign countries.
As of December 15, 1999, 17 United States and foreign patent applications had
been filed and are pending. Key Technology has 23 registered trademarks and an
application pending for one trademark.
Key Technology also attempts to protect its trade secrets and other
proprietary information through proprietary information agreements with
employees and consultants and other security measures. The laws of certain
countries in which Key Technology's products are or may be manufactured or sold
may not protect Key Technology's products and intellectual property rights to
the same extent as the laws of the United States.
EMPLOYEES
At March 31, 2000, Key Technology had 484 full-time employees, including
233 in manufacturing, 90 in engineering, research and development, 111 in
marketing, sales and service and 50 in general administration and finance. None
of Key Technology's employees in the United States are represented by a labor
union. Key Technology has never experienced a work stoppage, slowdown or strike.
Key Technology considers its employee relations to be excellent.
PROPERTIES
Key Technology's corporate headquarters and the manufacturing and research
and development facilities for its AIS business unit are in a 150,000 square
foot building located on a 20-acre site in Walla Walla, Washington. This
facility was custom designed and built for Key Technology, with construction
completed in October 1990. Key Technology occupies the facility under a lease
expiring in 2010. Key Technology has the option to purchase the facility and
related real property at any time during the remaining lease term. Key
Technology increased its manufacturing capacity by occupying another 100,000
square foot facility in Walla Walla beginning in 1996 under a lease expiring in
2005. Key Technology may extend the lease until 2010. Key Technology
manufactures the majority of its SCS products in this facility.
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Key Technology also manufactures SCS products in a 45,000 square foot leased
facility it occupied in 1998 in Beusichem, The Netherlands. This facility also
serves as the headquarters for Key Technology's sales and service functions in
Europe. The lease on the facility expires in 2008. In addition, Key Technology
still owns an 18,000 square foot manufacturing facility, located adjacent to its
leased facility in The Netherlands, which it vacated in 1998 but currently uses
as warehouse space and intends to hold for future expansion. Key Technology
leases office space in the United States in Rockville, Maryland and Beaver Dam,
Wisconsin.
FARMCO ACQUISITION
Key Technology entered into a stock purchase agreement on May 16, 2000 to
acquire for $4,990,200 in cash all of the issued and outstanding common stock of
each of Farmco, Inc. and its sister corporation, Ro-Tech, Inc., both Oregon
corporations. Key Technology will finance the cash purchase price from cash on
hand, short-term investments and existing lines of credit.
Farmco is headquartered in Redmond, Oregon, and supplies and services
mechanical sizing, sorting, separating and grading machines to the processed
fruit, vegetable and potato industries. Ro-Tech performs all of the engineering
and equipment design for the products manufactured by Farmco.
The acquisition of Farmco and Ro-Tech closed on June 1, 2000.
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KEY TECHNOLOGY SELECTED FINANCIAL DATA
The selected consolidated financial information set forth below for each of
the five years in the period ended September 30, 1999 has been derived from the
audited consolidated financial statements of Key Technology. The selected
consolidated financial information as of March 31, 2000 and for the six month
periods ended March 31, 2000 and 1999 are unaudited. In the opinion of
management, all adjustments, consisting of only normal recurring accruals, have
been made. The results of operations for the six month period ended March 31,
2000 are not necessarily indicative of the operating results for the full year.
The information below should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations and Key
Technology's Consolidated Financial Statements and Notes thereto as provided
elsewhere in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, FISCAL YEAR ENDED SEPTEMBER 30,
----------------- -----------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales....................... $32,160 $30,495 $68,028 $53,133 $57,268 $54,341 $42,653
Cost of sales................... 20,285 19,353 42,281 33,838 39,451 33,050 25,063
------- ------- ------- ------- ------- ------- -------
Gross profit.................... 11,875 11,142 25,747 19,295 17,817 21,291 17,590
Operating expenses.............. 10,775 9,809 21,022 18,085 17,648 15,226 13,638
------- ------- ------- ------- ------- ------- -------
Income from operations.......... 1,100 1,333 4,725 1,210 169 6,065 3,952
Other income -- net............. 279 123 436 179 450 1,061 1,175
------- ------- ------- ------- ------- ------- -------
Earnings before income taxes.... 1,379 1,456 5,161 1,389 619 7,126 5,127
Income tax expense.............. 455 485 1,632 464 197 2,252 1,589
------- ------- ------- ------- ------- ------- -------
Net earnings.................... $ 924 $ 971 $ 3,529 $ 925 $ 422 $ 4,874 $ 3,538
======= ======= ======= ======= ======= ======= =======
Earnings per share -- Basic..... $ 0.20 $ 0.21 $ 0.75 $ 0.20 $ 0.09 $ 1.05 $ 0.76
======= ======= ======= ======= ======= ======= =======
Earnings per share -- Diluted... $ 0.20 $ 0.21 $ 0.75 $ 0.20 $ 0.09 $ 1.02 $ 0.76
======= ======= ======= ======= ======= ======= =======
Shares used in per share
calculation -- Basic.......... 4,717 4,703 4,707 4,692 4,674 4,652 4,639
======= ======= ======= ======= ======= ======= =======
Shares used in per share
calculation -- Diluted........ 4,720 4,703 4,711 4,721 4,760 4,777 4,639
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
MARCH 31, -----------------------------------------------
2000 1999 1998 1997 1996 1995
------------ ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and
short-term investments.............. $ 8,836 $ 6,403 $ 6,333 $ 2,896 $ 9,528 $13,699
Working capital....................... 23,528 22,973 18,949 17,308 17,736 18,783
Property, plant and equipment, net.... 8,073 8,582 9,584 9,380 8,703 4,096
Total assets.......................... 45,980 44,420 39,357 39,441 45,252 31,556
Current portion of long-term debt..... 291 304 579 852 923 415
Long-term debt, less current
portion............................. 510 722 1,103 1,293 1,467 825
Shareholders' equity.................. 33,216 32,657 29,315 28,031 27,583 22,760
</TABLE>
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KEY TECHNOLOGY MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations as of March 31, 2000 and for the six months ended March
31, 2000 and 1999 should be read in conjunction with the sections of Key
Technology financial statements and related notes included elsewhere in this
joint proxy statement/prospectus. In addition, the portion of this Management's
Discussion and Analysis of Financial Condition and Results of Operations as of
September 30, 1999 and for the years ended September 30, 1999, 1998 and 1997
should be read in conjunction with the sections of Key Technology's audited
financial statements and related notes included elsewhere in this joint proxy
statement/prospectus.
INTRODUCTION
Key Technology and its wholly-owned subsidiaries design, manufacture and
sell process automation systems, integrating electro-optical inspection and
sorting, specialized conveying and process and preparation equipment.
Key Technology implemented a new strategy in fiscal 1999 to respond to
increasing customer demand for "turn-key" systems. The objective of the strategy
was to sell more Company-manufactured systems by combining those systems with
third-party supplied equipment and design and installation services to provide
entire processing lines from one supplier. This strategy contributed to the
growth in sales and profitability in 1999, which was led by a 30% increase in
sales of specialized conveying systems that contributed 38% of Key Technology's
total gross margin for the year.
Sales of automated inspection systems grew modestly in fiscal 1999 over
1998. However, the gross margin resulting from these sales contributed 39% of
Key Technology's total gross margin. As a percent of automated inspection
systems sales in fiscal 1999, the gross margin for this product line increased
six percentage points while warranty costs decreased 41% from the previous
fiscal year.
The ownership structure of Key Technology's European operations is held
through its wholly-owned domestic subsidiary, Key Technology Holdings U.S.A.,
LLC. Suplusco Holding B.V. is a wholly-owned European subsidiary of Key
Technology Holdings U.S.A., LLC and in turn owns KEY/Superior B.V. In fiscal
1998, KEY/Superior B.V. was formed through the merger of Key Technology B.V. and
Superior B.V., Suplusco Holding B.V.'s former subsidiaries. Suplusco Holding
B.V. and its subsidiary are located in Beusichem, The Netherlands. Additionally,
Key Technology has a wholly-owned foreign sales corporation (FSC) subsidiary,
Key Technology FSC, Inc., through the maintenance of which a portion of Key
Technology's domestically originated foreign trade income is exempt from tax at
the corporate level.
RESULTS OF OPERATIONS
SIX MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
Net sales for the six-month period ended March 31, 2000 increased 6% to a
record $32 million from $30.5 million in the comparable period last year. The
increase in net sales resulted principally from increased sales of parts and
service, and automated inspection products. Decreased sales of specialized
conveying systems products in the European market offset increases in that
product line in other parts of the world. Based upon the results of the most
recent six-month period, current sales expectations and the acquisition of AMVC,
Key Technology expects to achieve its objective of 15% to 20% growth in net
sales for fiscal 2000 over fiscal 1999.
For the six months ended March 31, 2000, gross profit increased by
$733,000, or 7%, to $11.9 million, or 36.9% of net sales, compared to $11.1
million, or 36.5% of net sales, in the six months ended March 31, 1999. Gross
profit contribution during the six-month period ended March 31, 2000 increased
over the corresponding period in 1999 due principally to the shift in product
mix to higher margin optical inspection systems, somewhat offset by sales of
lower margined third-party equipment provided through turn-key
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projects. Gross margin for the six-month period ended March 31, 2000 benefited
from a 18% decrease in warranty costs compared to the corresponding period in
fiscal 1999, even though sales increased between the respective periods. This
benefit was offset by the effect of the lower margin third-party supplied
equipment, increased installation costs and increased inventory write-off due to
anticipated inventory obsolescence for phased-out products or components when
compared to the same period a year ago.
The results of operations of Key Technology are affected by changes in the
relative value of the U.S. dollar in international markets, as well as other
factors, when competing with suppliers of similar equipment, both in the U.S.
and abroad. During the six-month period ended March 31, 2000, the relative
strength of the U.S. dollar was most notable in European markets. As measured
against the dollar, the euro and the Dutch guilder have each lost nearly 12% of
their value respectively during the six-month period. As a result of the
stronger dollar, Key Technology's products have become more expensive on a
relative basis to foreign customers. Additionally, foreign competitors doing
business in the United States can compete on a price basis more aggressively
without eroding their own profit margins.
Key Technology has been successful in price competitive situations with
U.S. dollar denominated sales throughout its served markets. However, the
continued strength of the dollar has limited Key Technology's ability to offer
competitive pricing while maintaining target margins for sales denominated in
currencies other than dollars. Additionally, certain competitors have offered
unusual pricing and terms to selected customers in an effort to recapture market
share gained by Key Technology in previous quarters. Total European bookings for
the six-month period ended March 31, 2000 decreased 5% when compared to the same
period of last year, with a larger decrease in automated inspection systems
offset by an increase in specialized conveying systems being manufactured by Key
Technology's European subsidiary.
While the long-term view of Key Technology looks toward success of its
products through superior performance, reliability and other product
differentiation, Key Technology is committed to maintaining market share in
Europe in the short term. The result may be an erosion of margins on product
sales into that market. For fiscal 2000, Key Technology's objective is to
achieve a gross profit margin of at least 39% of net sales compared to 37.8% in
fiscal 1999. The expected improvement in gross profit margin is due principally
to increased manufacturing efficiencies anticipated from increased sales for the
remainder of fiscal 2000 compared to fiscal 1999.
Total operating expenses increased by $966,000 to $10.8 million in the
six-month period ended March 31, 2000 from $9.8 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 research and
development expenses, which were partially offset by decreased general and
administrative expenditures. Key Technology continues to maintain as its
objective for fiscal 2000 to invest approximately 29% to 32% of net sales in
operating expenses compared to 34% invested in such expenses during the first
six months of fiscal 2000 and 32% invested in such expenses for the comparable
period last year. Key Technology expects operating expenses for the remainder of
fiscal 2000 to be lower as a percentage of anticipated higher sales for the
second half of the year. For the six-month period ended March 31, 2000, other
income was $279,000 compared to other income of $123,000 for the corresponding
period in fiscal 1999 principally as a result of increased net interest income.
Interest income increased as a result of increased cash, cash equivalents and
short term investments, while interest expense decreased between the
corresponding periods.
Net income for the six months ended March 31, 2000 was $924,000 or $0.20
per share compared to a net income of $971,000 or $0.21 per share for the
corresponding period in fiscal 1999. The principal reason for the decrease in
net income for the more recent period was the increase in operating expenses
described above. Net income was 2.9% and 3.2% of net sales in the two periods,
respectively.
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YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
For the fiscal years ended September 30, 1999, 1998 and 1997, Key
Technology's net sales were $68.0 million, $53.1 million, and $57.3 million,
respectively. Net sales in fiscal 1999 increased by 28% compared to fiscal 1998.
The increased sales in fiscal 1999 resulted principally from a $6.6 million or
30% increase in specialized conveying systems followed by a 228% increase in
process and preparation systems and a 42% increase in service/contracts and
parts. Sales of automated inspection systems increased by 4% in fiscal 1999
compared to fiscal 1998. The increases in sales during fiscal 1999 for both the
specialized conveying systems and the process and preparation systems resulted
principally from sales of larger "turn-key" processing line systems. These
turn-key processing lines incorporate Key Technology's conveying and processing
systems together with other third-party supplied equipment into entire
processing lines. The increase in sales of service/contracts and parts in fiscal
1999 compared to 1998 was principally the result of the introduction early in
fiscal 1999 of a new multi-level service product offering named UpTime. The
increase in sales of automated inspection systems resulted principally from
increased sales of AccuScan(R) and ADR systems, partially offset by decreased
sales of Tegra systems. Sales of automated inspection systems to European and
other international customers increased by 77%.
Net sales in fiscal 1998 decreased by 7% compared to fiscal 1997. The
decreased sales in fiscal 1998 resulted principally from a 14% decrease in
specialized conveying systems followed by a 59% decrease in process and
preparation equipment, partially offset by a 5% increase in automated inspection
systems and an 11% increase in service/contracts and parts sales. The decrease
in specialized conveying systems and other processing equipment occurred
principally from decreased sales of these products to domestic customers
compared to 1997. The increase in sales in 1998 of automated inspection systems
resulted principally from increased sales of ADR systems and, to a lesser
amount, increased sales of pharmaceutical systems partially offset by a decrease
in total Tegra sales for the period compared to fiscal 1997. The decrease in
total sales volume of Key Technology's Tegra automated inspection systems in
fiscal 1998 was due principally to decreased sales of monochromatic Tegra
systems, which were partially offset by increased sales of color and
multi-spectral systems.
Export and foreign sales accounted for 46%, 37% and 32% of total net sales
in fiscal 1999, 1998 and 1997, respectively. The largest market for such foreign
sales in each of the three fiscal years was to European customers. Sales in
fiscal 1999 to European customers and to customers in other foreign markets
increased by 47% and 82 %, respectively, over the prior year.
Gross profit was 38%, 36% and 31% of sales in fiscal 1999, 1998 and 1997,
respectively. The gross margin improvement, as a percentage of net sales in
fiscal 1999 compared to fiscal 1998, benefited from improved margins in the
automated inspection and specialized conveying systems and in service contracts,
partially offset by decreased gross margins in process and preparation systems.
Automated inspection system gross margins, as a percent of sales, improved six
percentage points, principally the result of a 41% decrease in warranty costs.
Improved specialized conveying system gross margins benefited principally from a
decrease in manufacturing overhead resulting from increased production volumes
between the two comparable periods. The gross margins for service contracts also
improved principally as a result of decreased overhead expenses as a percentage
of revenues, which increased significantly in fiscal 1999 compared to 1998.
Process and preparation system revenues in fiscal 1999 included a variety of
third-party supplied equipment and installation services which were sold at very
low margins as components of larger processing lines. During fiscal 1999, the
third-party supplied products accounted for approximately $3.1 million of the
$5.5 million in total net sales of process and preparation systems and were the
principal cause of the decrease in gross margins for that product group. Sales
of this product group during 1998 were $1.7 million and included minimal
third-party supplied products. The improved gross profit margin, as a percentage
of net sales in fiscal 1998 compared to fiscal 1997, resulted principally from a
shift in product mix toward higher margin products combined with improved
margins in most product groups. The improved gross margin in 1998 also benefited
from decreased warranty and installation expenses and decreased manufacturing
labor and other manufacturing costs as percentages of sales.
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Operating expenses increased to $21.0 million in fiscal 1999 from $18.1
million in fiscal 1998 and from $17.6 million in fiscal 1997 and represented
31%, 34% and 31% of net sales in each such year, respectively.
Selling and marketing expenses were $11.1 million in fiscal 1999, $8.0
million in fiscal 1998 and $8.1 million in fiscal 1997, and represented 16%, 15%
and 14% of net sales in each such year, respectively. In fiscal 1999, selling
and marketing expenses increased 39% compared to 1998, resulting principally
from increased commission expenses related to the higher level of product sales
combined with an increased volume and percentage of those sales sold through
outside representatives to whom Key Technology pays higher commission rates,
increased staffing costs and increased advertising and product promotion
expenses. Selling and marketing expenses in fiscal 1998 decreased compared to
fiscal 1997 principally as a result of decreased commission expenses related to
a lower level of product sales combined with a decreased volume and percentage
of those sales sold through outside representatives. The effect of the decreased
commission expenses were partially offset by increased product promotion and
advertising expenses in fiscal 1998 compared to 1997.
Research, development and engineering expenses decreased in fiscal 1999 to
$4.3 million from $4.8 million in fiscal 1998 and $4.4 million in fiscal 1997,
and represented 6%, 9% and 8% of net sales in each such year, respectively.
Research and development expenses in fiscal 1999 decreased by approximately 10%
compared to 1998 principally as a result of in increased level of engineering
costs charged to cost of sales as a direct result of the increased sales volume,
particularly in Key Technology's SCS business unit. However, research and
development expenses related to new product development projects increased by 7%
in fiscal 1999 compared to 1998 as a result of activities devoted to developing
a new fourth generation ADR product and new specialized conveying system
products. The increase in research and development expenses in fiscal 1998
compared to 1997 resulted from activities to extend the capabilities of Tegra
into other applications and markets, such as coffee and tobacco, and in the
development of a new product for the potato industry. Additional research and
development expenditures were incurred in 1998 in the development of an
adaptation of Key Technology's Vis/IR (multi-spectral) scanning cameras that
simultaneously uses visible and infrared illumination for detecting defects in
french fries while ignoring the potato skin.
General and administrative expenses increased to $5.6 million in fiscal
1999 from $5.2 million in fiscal 1998 and $5.1 million in fiscal 1997, and
represented 8%, 10% and 9% of net sales in each such year, respectively. During
fiscal 1999, general and administrative expenses increased approximately 6%
compared to fiscal 1998 due principally to increased incentive compensation
related to Key Technology's increased level of profitability and increased
consulting and professional service expenses, partially offset by decreased
costs for doubtful accounts receivable. General and administrative expenses
increased very modestly in fiscal 1998 compared to the prior fiscal year
principally as a result of expenses related to consulting and training services
to improve Key Technology's processes and product reliability.
Other income and expense includes interest income and expense, royalty
income and other income from miscellaneous sources. Net interest income in
fiscal 1999 was $210,000 compared to $88,000 in fiscal 1998 and $34,000 in 1997.
Increased interest earnings on increased balances of funds invested in cash
equivalents and short-term investments and decreased long-term debt resulted in
the increased net interest income in fiscal 1999 compared to fiscal 1998 and
1997. During fiscal 1999, Key Technology received royalty payments of $77,000
compared to total royalty income of $62,000 in fiscal 1998. In fiscal 1997,
royalty income totaled $225,000, which included $125,000 as part of an agreement
to sell certain equipment to one customer, pursuant to which Key Technology may
receive royalty payments through 2001.
Key Technology's effective income tax rate was 31.6%, 33.5%, and 32.0% for
fiscal 1999, 1998 and 1997, respectively.
Net earnings after tax were $3.5 million in fiscal 1999 compared to
$925,000 in fiscal 1998 and $422,000 in fiscal 1997. Basic and diluted net
earnings per share were $0.75, $0.20 and $0.09 in fiscal
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years 1999, 1998 and 1997, respectively. The increase in net earnings in fiscal
1999 compared to 1998 resulted principally from the increased gross margins due
to the increased level of sales, decreased warranty expenses, and decreased
manufacturing costs as a percentage of sales. The increased gross margin in
fiscal 1999 was partially offset by increased selling and marketing and general
and administrative expenses compared to fiscal 1998. In spite of decreased sales
volume in fiscal 1998 compared to 1997, net earnings in fiscal 1998 improved
over the prior year due to increases in gross margin resulting principally from
a shift in product mix toward higher margin products, improved margins in most
product groups, decreased warranty and installation expenses, and decreased
manufacturing labor and other manufacturing costs as percentages of sales.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
Net cash provided by operating activities during the six-month period ended
March 31, 2000, totaled $3.6 million compared to net cash provided by operating
activities totaling $683,000 in the corresponding period in fiscal 1999. During
the six-month period ended March 31, 2000, working capital increased by $555,000
to $23.5 million. Trade accounts receivable increased by the net amount of $1.4
million, principally as a result of a high level of shipments at the end of the
period. Inventories decreased by $1.5 million, again primarily as a result of
the increased product sales late in the second fiscal quarter. Trade accounts
payable increased by $413,000 as the result of the timing of payments for
general operating commitments during the period. Accrued payroll and commission
liabilities decreased by $610,000 due principally to payment of commissions on a
large project which had been accrued prior to the period, and deposits from
customers increased by $1 million.
Cash flows from investing activities for the six-month period ended March
31, 2000 included the use of cash to purchase net short-term investments of $1.5
million and to fund the acquisition of capital equipment of $771,000 compared to
$586,000 expended for capital equipment in the corresponding period last year.
At March 31, 2000, Key Technology had no material commitments for capital
expenditures.
Key Technology's cash flows from financing activities for the six months
ended March 31, 2000 were principally affected by repayments of $145,000 in
long-term debt compared to a net decrease of $201,000 in total consolidated
long-term debt during the first six months of fiscal 1999. Proceeds from the
issuance of common stock during the most recent six-month period under Key
Technology's employee stock option and stock purchase plans totaled $63,000.
Key Technology's facility with a domestic commercial bank provides for an
operating line of credit up to $4.0 million. At March 31, 2000, Key Technology
had no borrowings under this credit facility. The line of credit is subject to
an annual renewal and was extended in January 2000, in March 2000 and again in
April 2000 pending approval of a larger borrowing arrangement to facilitate the
pending acquisition of Advanced Machine Vision. The line of credit under the
most recent extension of terms remains unsecured and provides for interest at
one-quarter percent below the bank's prevailing prime rate of interest.
Key Technology also maintains a credit facility with a Dutch bank which
provides for operating lines of credit totaling 1.5 million guilders, or
approximately $625,000, to Key Technology's subsidiaries in the Netherlands. At
March 31, 2000, Key Technology had no borrowings under this credit facility.
Key Technology has a commitment with U.S. Bank National Association that
provides for an operating line of credit and a revolving credit loan totalling
$14,500,000. The interest rate is a floating 7.8% which can be tied, at the
election of Key Technology, to the bank's prime lending rate, or LIBOR, or the
federal funds borrowing rate. The credit facility will be used to fund the cash
payments to be made and any redemption of the warrants issued to the Advanced
Machine Vision shareholders as part of the merger. Key Technology expects this
facility will replace its present facility.
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Key Technology's operating, investing and financing activities resulted in
a $932,000 increase in cash and cash equivalents during the six-month period
ended March 31, 2000. At the end of the period, the balance of cash and cash
equivalents totaled $6.4 million. Key Technology believes that its cash and cash
equivalents, cash generated from operations, available borrowings under its
operating lines of credit and pending borrowing arrangements will be sufficient
to provide for its working capital needs and to fund its planned acquisition and
future growth.
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
During fiscal 1999, net cash provided by operating activities totaled $1.9
million compared to $5.1 million provided by operating activities in fiscal 1998
and net cash used totaling $3.9 million in fiscal 1997. During fiscal 1999, cash
used due to an increase in accounts receivable totaled $3.8 million and resulted
principally from an increase in sales volume, compared to cash provided by a
decrease in accounts receivable totaling $1.6 million during fiscal 1998, due
principally to a decrease in sales volume and improved accounts receivable
management. Accounts receivable balances during fiscal 1997 increased, and cash
decreased, by $73,000. Operating activities during 1999 utilized $2.1 million in
cash to fund an increase in inventory compared to $1.2 million provided in 1998
from a decrease in inventories and the use of $360,000 to fund an increase in
inventories in 1997. Increases in trade accounts payable, accrued payroll
liabilities and accrued income taxes, partially offset by a decrease in accrued
customer support and warranty costs, provided cash during fiscal 1999 totaling
$2.0 million. By comparison, Key Technology used cash during fiscal 1998 and
1997 in the amounts of $846,000 and $4.0 million, respectively, to decrease
trade accounts payable balances and accrued customer support and warranty costs
and to pay accrued income taxes and certain accrued payroll liabilities which
had been accrued in previous fiscal years.
Net cash resources from investing activities totaling $1.3 million, $2.0
million and $2.5 million were used to fund the acquisition of capital equipment
during 1999, 1998 and 1997, respectively. At September 30, 1999, Key Technology
had no material commitments for capital expenditures. During fiscal 1998, Key
Technology received net cash resources totaling $653,000 from the sale of a
previously vacated facility. Cash flows were used in 1999 to purchase short-term
investments in the net amount of $984,000 compared to no such investments in
1998 and compared to the liquidation of short-term investments in the net amount
of $6.1 million used to partially fund Key Technology's operating requirements
in fiscal 1997.
Key Technology's cash flows from financing activities were affected by the
repayment of long-term debt during fiscal 1999, 1998 and 1997 totaling $539,000,
$904,000 and $1.6 million, respectively. Separately, cash flows from the
issuance of long-term debt totaled $409,000 and $1.3 million in fiscal 1998 and
1997, respectively. There were no such proceeds from the issuance of long-term
debt in fiscal 1999. Proceeds from the issuance of common stock under Key
Technology's employee stock option and stock purchase plans during fiscal 1999,
1998 and 1997 totaled $77,000, $137,000 and $239,000, respectively.
Key Technology's operating, investing and financing activities during
fiscal 1999 resulted in decreases in cash and cash equivalents totaling $914,000
compared to increases totaling $3.4 million in 1998 and decreases in 1997
totaling $562,000. The balance of cash and cash equivalents totaled $5.4
million, $6.3 million and $2.9 million at the end of fiscal 1999, 1998 and 1997,
respectively. Key Technology 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.
Key Technology has assessed its exposure to market risks for its financial
instruments at December 31, 1999 and determined that its exposures to such risks
are not material.
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THE EURO CONVERSION
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. Key Technology's
European subsidiary's information systems software currently accommodates
multiple currency transactions.
The terms of sales to European customers are either denominated in Euros,
dollars, Dutch guilders or the respective legacy currencies of the customer. For
sales transactions between international customers and Key Technology's domestic
operations which are denominated in currencies other than U.S. dollars, Key
Technology assesses its currency exchange risk and may enter into a currency
hedging transaction to minimize such risk. At March 31, 2000, Key Technology was
not a party to any currency hedging transaction.
59
<PAGE> 73
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF KEY TECHNOLOGY
The following table sets forth information, as of April 30, 2000, with
respect to the beneficial ownership of Key Technology's common stock (the only
class of shares of outstanding voting securities of Key Technology) 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 Key
Technology to be the beneficial owner of more than five percent of Key
Technology's outstanding common stock. Unless otherwise indicated, each person
has sole voting power and sole investment power.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------------------------ -------------------- --------
<S> <C> <C>
Thomas C. Madsen........................................ 542,071(1) 11.4
150 Avery Street
Walla Walla, Washington 99362
Gordon Wicher........................................... 254,146(1) 5.3
150 Avery Street
Walla Walla, Washington 99362
Harold R. Frank......................................... 148,500(1) 3.1
6054 La Goleta
Goleta, California 93117
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, Washington 98073-9757
Michael L. Shannon...................................... 196,400(2) 4.2
1000 South Fremont Avenue
Alhambra, California 93117
James A. Frank.......................................... 298,927 6.3
P.O. Box 6527
Santa Barbara, California 93160
Robert K. Frank......................................... 322,000 6.8
P.O. Box 202
Los Alamos, California 93440
Kirk W. Morton.......................................... 3,750(1) *
150 Avery Street
Walla Walla, Washington 99362
Steven D. Evans......................................... 45,146(1) *
150 Avery Street
Walla Walla, Washington 99362
Gary W. Kanegis(3)...................................... 41,500(1) *
150 Avery Street
Walla Walla, Washington 99362
All executive officers and directors as a group (14
persons).............................................. 1,554,129 31.1
</TABLE>
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<PAGE> 74
-------------------------
* Less than one percent.
(1) Includes shares purchasable under options exercisable within 60 days of
April 30, 2000 in the following amounts:
<TABLE>
<S> <C> <C> <C>
Thomas C. Madsen................. 50,000 Peter H. van Oppen............... 3,750
Gordon Wicher.................... 46,250 Kirk W. Morton................... 3,750
Harold R. Frank.................. 22,500 Steven D. Evans.................. 30,875
John E. Pelo..................... 3,750 Gary W. Kanegis.................. 40,500
</TABLE>
(2) Includes 26,400 shares owned by a trust, the beneficiaries are the children
of Michael L. Shannon. Mr. Shannon disclaims beneficial ownership of these
shares.
(3) Mr. Kanegis resigned as Vice President -- Eastern Region Sales effective May
19, 2000.
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<PAGE> 75
MANAGEMENT OF KEY TECHNOLOGY
The following table sets forth, as of May 22, 2000 certain information
regarding the directors and executive officers of Key Technology.
<TABLE>
<CAPTION>
HAS BEEN
A DIRECTOR
OR OFFICER EXPIRATION OF
NAME AGE POSITIONS SINCE CURRENT TERM
---- --- --------- ---------- -------------
<S> <C> <C> <C> <C>
Thomas C. Madsen................... 53 Chairman, President and 1982 2002
Chief Executive Officer
Gordon Wicher...................... 54 Vice President -- General Manager 1982 2002
of Specialized Conveying Systems,
Secretary and Director
James H. Stanton................... 56 Vice President -- Corporate 1982
Accounts
Glenn A. Waller.................... 55 Vice President -- Western Region 1982
Sales
Steven D. Evans.................... 52 Vice President -- Administration 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 1999
of Automated Inspection Systems
Ted R. Sharp....................... 43 Chief Financial Officer 2000
Harold R. Frank*+.................. 76 Director 1983 2003
Michael L. Shannon*................ 49 Director 2000 2003
John E. Pelo+...................... 44 Director 1998 2001
Peter H. van Oppen+................ 47 Director 1998 2001
</TABLE>
-------------------------
* Member of the Compensation Committee
+ Member of the Audit Committee
Mr. Madsen, a founder of Key Technology, has been President and Chief
Executive Officer of Key Technology and a director since 1982. He became
Chairman in 2000. Mr. Madsen served in various executive capacities with Key
Technology'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 Key Technology, 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 Key Technology's predecessor from 1980 to 1983.
Mr. Stanton, a founder of the Company, has been Vice President of Corporate
Accounts since 1997 and was a director from 1982 to 1998. He was Vice
President -- Product Management, Specialized Conveying Systems from 1994 to
1997. He served as Key Technology'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 Key Technology's predecessor
beginning in 1972, including General Sales Manager from 1980 to 1983 and
International Manager from 1977 to 1980.
Mr. Waller, a founder of Key Technology, 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 Key Technology's predecessor from 1972 to
1983.
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<PAGE> 76
Mr. Evans has served as Vice President -- Administration since January 1,
2000. He was Chief Financial Officer from 1994 to 1999, and Vice President of
Finance and Administration from 1991 through 1999.
Mr. Hebel has served the Company as Vice President of Corporate Marketing
and Business Development since 1996. From 1993 to 1996, he was Vice President of
Marketing. He was a management consultant with Integral Management Resources
from 1992 to 1993, providing consulting services on marketing and strategic
planning to food processing and packaging equipment companies.
Mr. Morton joined Key Technology 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.
Ms. Johnson was appointed Vice President-General Manager of Automated
Inspection Systems in 1999. Over the past 15 years with Key Technology, 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.
Mr. Sharp has served as Chief Financial Officer since January 1, 2000. He
was Controller from 1993 - 1999. From 1998 to 1999, Mr. Sharp also served as
Managing Director of Key Technology's European operations, KEY/Superior B.V., in
the Netherlands. He joined Key Technology in 1989 as Accounting Manager and
served in that capacity until 1991, when he was appointed Assistant Controller.
Mr. Frank, a founder of Key Technology, is a director and was Chairman of
Key Technology from 1983 through 1999. 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 has been a director of Key Technology since February 2000. He
is a principal of the General Counsel Law Firm, located in Alhambra, California,
which he founded in 1994. 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.
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 Key Technology 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 Key Technology 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.
The Audit Committee consists of Messrs. Pelo, van Oppen and Frank. The
function of the Audit Committee is to recommend to the board of directors the
appointment of Key Technology's independent auditors, to review and approve the
scope of the yearly audit and proposed budget for audit fees, to review Key
Technology'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.
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<PAGE> 77
The Compensation Committee consists of Messrs. Harold R. Frank and Michael
L. Shannon. Mr. Madsen participates in meetings as an ex officio member. The
Compensation Committee considers recommendations of Key Technology's management
regarding the compensation of the senior executives of Key Technology, considers
management's proposals regarding stock incentive grants and their consistency
with policies established by the board of directors and administers Key
Technology's stock option plans.
The board of directors does not have a standing nominating committee.
Members of the board of directors who are employees of Key Technology are
not separately compensated for serving on the board of directors. Directors who
are not employees of Key Technology are paid an annual retainer of $6,000 and
$1,000 for each board meeting attended, plus reimbursement of expenses.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended September 30,
1999, 1998 and 1997, compensation information with respect to Key Technology's
Chief Executive Officer and each of the four other most highly compensated
executive officers, based on the salary and bonus earned during fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------ ----------------------------
(a) (b) (c) (d) (e) (f) (g)
SECURITIES
UNDERLYING
OTHER ANNUAL OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1)($) BONUS($) COMPENSATION($) SARS(#) COMPENSATION($)
--------------------------- ---- ------------ -------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. Madsen.............................. 1999 266,432 55,000 * 0 7,948(2)
Chairman, President and Chief Executive
Officer 1998 255,000 0 * 20,000 8,924(2)
1997 250,294 101 * 20,000 20,566(2)
Gordon Wicher................................. 1999 165,150 45,000 * 0 5,704(4)
Vice President-General Manager, 1998 161,731 0 * 15,000 7,119(4)
Specialized Conveying Systems 1997 160,102 101(3) * 15,000 17,907(4)
Kirk W. Morton................................ 1999 107,692(5) 25,000 34,759(6) 15,000 166(7)
Senior Vice President, Sales and Marketing 1998 -- -- -- -- --
1997 -- -- -- -- --
Steven D. Evans............................... 1999 125,727 25,000 * 0 3,808(8)
Chief Financial Officer and Vice President, 1998 121,246 0 * 7,000 3,810(8)
Finance and Administration 1997 117,409 101 * 8,000 16,543(8)
Gary W. Kanegis(12)........................... 1999 117,212 23,000 * 0 3,575(11)
Vice President, Eastern Region Sales 1998 115,000 3,000(9) * 6,000 3,616(11)
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 Key Technology's
profit sharing and 401(k) plan.
(2) Consists of the following: $5,166, $5,401, and $18,208 contributed by Key
Technology 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.
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<PAGE> 78
(4) Consists of the following: $3,768, $4,625, and $15,823 contributed by Key
Technology 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 Key
Technology 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.
(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 Key
Technology under its Profit Sharing and 401(k) Plan in 1999, 1998, and
1997, respectively; and term life insurance premiums of $767, $892, and
$874 in 1999, 1998, and 1997, respectively.
(12) Mr. Kanegis resigned as Vice President -- Eastern Region Sales effective
May 19, 2000.
STOCK OPTIONS GRANTED TO CERTAIN EXECUTIVE OFFICERS DURING LAST FISCAL YEAR
The following table sets forth certain information regarding options for
the purchase of Key Technology's common stock that were awarded to Key
Technology's Chief Executive Officer and each of the four other most highly
compensated executive officers in fiscal 1999.
OPTION/SAR GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANT FOR OPTION TERMS
----------------------------------------------------------- --------------------
(a) (b) (c) (d) (e) (f) (g)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/
OPTIONS/ SARS GRANTED EXERCISE OR
SARS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ----------- --------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Kirk W. Morton............... 15,000 33.33% $8.19 1/18/04 $33,941 $75,001
</TABLE>
The following table sets forth certain information concerning options held
by each of the named executive officers and the value of such options at
September 30, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. Madsen................. 0 0 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(2)............... 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.
(2) Mr. Kanegis resigned as Vice President -- Eastern Region Sales effective May
19, 2000.
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<PAGE> 79
1996 EMPLOYEES' STOCK OPTION PLAN
Key Technology's 1996 employees' stock option plan was adopted by its board
of directors and approved by the shareholders in 1989, was subsequently amended
in 1991, restated in 1993, amended in 1994 and 1996. A total of 750,000 shares
of common stock are currently reserved for issuance under the 1996 employees'
stock option plan. The 1996 employees' stock option plan will terminate no later
than December 31, 2004.
The 1996 employees' stock option plan provides for the discretionary grant
of incentive stock options to employees and the grant of nonstatutory stock
options to employees, directors and consultants.
The 1996 employees' stock option plan is administered by the compensation
committee and board of directors. The compensation committee has the authority
to determine the terms of the options granted, including:
- the persons who are eligible for options and those to whom options will
be granted;
- the number of shares subject to each option;
- the terms and provisions of the instruments evidencing options; and
- the fair market value of shares under the option from time to time.
In addition, the board of directors may amend, modify or terminate the 1996
employees' stock option plan at any time subject to the requirement of
shareholder approval of certain material changes.
The exercise price of all incentive stock options granted under the 1996
employees' stock option plan must be at least equal to the fair market value of
the common stock on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of its
outstanding capital stock, the exercise price of any incentive stock option
granted must be at least equal 110% of the fair market value on the grant date
and the term of this incentive stock option must not exceed five years. The term
of all other incentive stock options granted under the 1996 employees' stock
option plan may not exceed ten years.
On the date of each annual shareholders meeting, each director then serving
on the compensation committee of the board of directors receives a nonstatutory
stock option to purchase 5,000 shares of common stock, referred to as "the
annual options." These automatic and nondiscretionary annual grants are designed
to comply with certain regulatory requirements. Compensation Committee members
are not eligible to receive options under the plan other than the annual
options. The exercise price of the annual options is the closing price of the
common stock on the date of grant as quoted on the Nasdaq Stock Market. The
annual options have a ten-year term, unless earlier terminated as provided under
the plan, and become exercisable at the rate of 25% per year, beginning on the
first anniversary or the date of grant and continuing on each subsequent
anniversary until fully exercisable.
Options granted under the 1996 employees' stock option plan are generally
not transferable by the optionee, except by will or the laws of descent or
distribution, and are exercisable during the lifetime of the optionee only by
that optionee. Options granted under the 1996 employees' stock option plan must
generally expire at the date of termination of employment, or within 90 days
after the optionee's termination by disability or death, but in no event later
than the expiration of the option's terms.
The 1996 employees' stock option plan provides that in the event of a
merger of Key Technology with or into another corporation, or a sale of
substantially all of its assets, the board of directors may make all outstanding
options immediately exercisable.
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<PAGE> 80
1996 EMPLOYEE STOCK PURCHASE PLAN
The board of directors adopted the Key Technology 1996 employee stock
purchase plan on December 15, 1995 and it was approved by the shareholders on
February 6, 1996. The plan allows eligible employees to purchase Key Technology
common stock at a discount from fair market value. A total of 500,000 shares of
common stock has been reserved for issuance under this plan.
This plan is administered by the Key Technology board of directors, or a
specifically designated committee of the board of directors, which group is
sometimes referred to as the plan administrator. The plan administrator may
interpret the plan and may prescribe, amend and rescind rules and make all other
determinations necessary or desirable for the administration of the plan,
subject to the provisions of the plan.
Employees are eligible to participate if they are employed by Key
Technology or any participating subsidiary for two or more years and who
customarily work for at least 20 hours per week and more than five months in any
calendar year. However, an employee may not be granted the right to purchase
stock under this plan if the employee:
- immediately after the grant would own stock possessing 5% or more of the
total combined voting power or value of all classes of our capital stock;
or
- holds rights to purchase stock under the plan that accrues at a rate
which exceeds $25,000 worth of stock for each calendar year;
This plan permits each employee to purchase common stock through payroll
deductions of up to 15% of the employee's "compensation." Compensation is
defined as the total cash compensation paid to an employee as salary, wages or
other compensation.
Amounts deducted and accumulated by the employee are used to purchase
shares of common stock at a price equal to 85% of the fair market value of the
common stock at the end of each calendar quarter. Employees may end their
participation in this plan at any time during an offering period. In that event,
any amounts withheld through payroll deductions and not otherwise used to
purchase shares will be returned to them. Participation ends automatically upon
termination of employment with Key Technology.
In the event of a subdivision or consolidation of common stock or the
payment of a stock dividend on common stock, the plan administrator determines
whether an adjustment to the number of shares covered by the plan should be made
and the manner of any adjustment. In the event of a consolidation or merger or
sale by Key Technology of substantially all its assets, the successor may
continue the plan and if not continued, the plan will terminate. The Key
Technology board of directors has the authority to amend or terminate the plan
at any time, except that no amendment or termination may materially affect any
outstanding rights under the plan.
401(k) Profit Sharing Plan
Key Technology sponsors a 401(k) profit sharing plan. All employees who are
at least 21 and meet other eligibility requirements are eligible to participate.
Each employee may elect to contribute, on a pre-tax basis, up to 15% of the
employee's compensation for each year, subject to statutory limitations on the
maximum amount of contributions. Key Technology makes matching contributions
under the 401(k) plan of 50% of the employee's contribution, up to a maximum of
2% of the employee's base compensation. The 401(k) plan also permits Key
Technology to make discretionary profit sharing contributions for the account of
all eligible employees.
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<PAGE> 81
LIMITATION ON DIRECTOR'S LIABILITY
In 1987, Key Technology adopted provisions in its restated articles of
incorporation that limit the liability of its directors to the fullest extent
permitted by the Oregon Business Corporation Act. Under Key Technology's
restated articles of incorporation, and as permitted by the Oregon Business
Corporation Act, no director is liable to Key Technology or its shareholders for
monetary damages for breaches of fiduciary duty as a director of Key Technology.
Such limitation of liability does not affect a director's liability for a breach
of a director's duty of loyalty to Key Technology or its shareholders, an act or
omission not in good faith or that involved intentional misconduct or a knowing
violation of the law, any unlawful distributions to shareholders, or a
transaction from which a director receives an improper personal benefit. Such
limitation of liability also does not affect the availability of equitable
remedies such as injunctive relief or rescission.
CERTAIN INDEMNIFICATION AGREEMENTS
Key Technology has entered into indemnification agreements with each of its
directors and its executive officers. Under the agreements, Key Technology has
agreed to hold harmless and indemnify each of them generally to the full extent
permitted under the Oregon Business Corporation Act or otherwise and against any
and all liabilities, expenses, judgments, fines, penalties and costs in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, to which the director
or executive officer is made a party by reason of the fact that he is or was a
director or officer of Key Technology or any other entity if serving at the
request of Key Technology. These agreements do not cover liability arising out
of a breach of the duty of loyalty, acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of the law, any act in which
an improper personal benefit is derived, the unlawful payment of dividends or
repurchase of stock, or if a court determines that such indemnification is not
lawful. In addition, the restated articles of incorporation and restated bylaws
of Key Technology provide for indemnification of all officers and directors of
Key Technology to the full extent permitted by the Oregon Business Corporation
Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons pursuant to the
foregoing provisions, Key Technology has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
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<PAGE> 82
BUSINESS OF ADVANCED MACHINE VISION
HISTORY
From inception in 1987 until early 1990, Advanced Machine Vision's
predecessor company, Applied Laser Systems, was principally engaged in research
and development and organizational activities, and its revenues were
insignificant. Beginning in early 1990, Applied Laser Systems engaged in the
business of designing, developing, manufacturing and marketing laser diode
devices. In March 1992, Applied Laser Systems completed its initial public
offering, the proceeds of which were used to repay bridge financing and other
loans, and for working capital.
In February 1994, Advanced Machine Vision acquired all of the issued and
outstanding capital stock of Simco/Ramic Corporation, now SRC VISION, Inc., for
$8.1 million in cash. During late 1993 and early 1994, Advanced Machine Vision
entered into a number of other proposed acquisition transactions. In Spring
1994, a new management team was hired for Advanced Machine Vision. By September
1994, Advanced Machine Vision terminated the other acquisition transactions
resulting in significant losses in 1994. Following these terminations, Advanced
Machine Vision restructured to concentrate on its SRC VISION business. In
October 1995, Advanced Machine Vision sold the Applied Laser Systems operation
for cash. In March 1996, Advanced Machine Vision acquired Netherlands-based
Pulsarr Holding BV and, in July 1996, Advanced Machine Vision acquired the
assets and operations of Ventek, Inc., both of which were also engaged in
designing and marketing automated vision systems. In May 1997, Advanced Machine
Vision sold Pulsarr after receiving an unsolicited offer. The current operating
subsidiaries of Advanced Machine Vision are SRC VISION and Ventek.
BUSINESS
Advanced Machine Vision designs, develops, manufactures and markets machine
vision systems that process images not discernible to the human eye. These
systems combine technologies in four key areas (lighting, cameras, processors
and software) to improve quality, enhance yield, reduce production costs and
increase throughput in a variety of markets and applications where human vision
is inadequate due to fatigue, visual acuity or speed. Where needed, Advanced
Machine Vision employs highly specialized mechanical technologies to help
customers integrate machine vision systems into their production processes.
Applications include quality control in the processing of food, pulp wood,
tobacco, and plastics for recycling, and quality control and automated process
control in wood panel production.
Since its founding in 1964, SRC VISION has evolved from a single-product
company serving the timber industry into a provider of machine vision systems
for a number of processing industries. In 1984, SRC VISION released its first
machine vision product, a fully automated defect removal system for the french
fry processing industry, designed to improve productivity and quality. SRC
VISION built upon its experience in potato processing to develop machine vision
systems for other food processing customers. These new systems increasingly
possessed more sophisticated capabilities, such as fully automated sorting and
continuous high volume product analysis.
Following the acquisition of SRC VISION in 1994, Advanced Machine Vision
embarked upon a plan to revitalize its growth potential through significantly
increased research and development efforts and a reassessment of marketing
goals. At the same time, Advanced Machine Vision established a new management
team dedicated to identifying untapped markets for machine vision systems. New
management targeted marketing efforts at niche markets in non-food processing
industries such as plastics for recycling, pulp wood and tobacco, which have
resulted in higher average per unit sales prices. Ventek's experience in wood
panel production complements Advanced Machine Vision's lighting, camera,
processing and software capabilities. The addition of Ventek in July 1996 gave
Advanced Machine Vision its first machine vision system application in the wood
panel production industry. Advanced Machine Vision has enhanced the level of
precision by incorporating SRC VISION's high-speed line-scan camera into
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<PAGE> 83
Ventek's veneer scanning systems, thereby increasing their ability to separate
the product into various grades, as well as to detect and remove defects.
This improved grading capability is expected to increase the yield of high
margin grades by correctly identifying them and minimizing waste, enabling
customers to increase margins on the product produced from any given amount of
raw inputs.
INDUSTRY BACKGROUND
Machine Vision
Like human vision, machine vision requires sensing elements and image
processors. The camera and lighting components of machine vision systems are
capable of sensing images beyond the region of the electromagnetic energy
spectrum called "visible light." Machine vision systems working outside the
visible light range can often provide significantly enhanced discrimination
capabilities beyond that detectable to the human eye. In addition, machine
vision systems are capable of clearly viewing and reacting to objects moving at
speeds of up to 1,200 feet per minute. The processor and software components of
machine vision systems are capable of rapidly processing and analyzing signals
with a high level of uniformity. Because machine vision systems do not fatigue,
they are often preferable for high-speed, repetitive scanning or viewing of
objects over indefinite periods of time, as required in many production
processes.
Quality Control
Processing applications typically combine a computer-based conveyor system
with a machine vision system. The conveyor presents a moving stream of raw
product to a high-speed inspection camera. Data gathered by the camera is
processed by the computer using specially developed software with the goal of
identifying the location on the conveyor of defective items for the express
purpose of rejecting such defective material. Processors of food, pulp wood,
tobacco and recycled plastics products must process large quantities of raw
product through different stages, including defect detection and sorting to
remove defective pieces and inspect for quality. In the agricultural area, the
frequency and severity of defects in the raw product is highly variable,
depending upon a variety of factors affecting crops.
Historically, defect detection, removal and quality control in the
industries addressed by Advanced Machine Vision have been labor intensive and
dependent upon and limited by the variability of the work force. These functions
are performed by a work force that is frequently unskilled and subject to a high
turnover rate. Large numbers of individual workers stand along a conveyor and
visually identify and manually remove defective pieces from the stream of moving
product. These manual methods cause inconsistent defect removal, as well as
limited throughput that varies based upon the number and abilities of the
workers. Manual methods also usually cause excessive amounts of good product to
be discarded along with defective product. The industry has sought to replace
these manual methods with automated systems that achieve higher yield and better
quality at reduced costs.
Advanced Machine Vision Solutions
Advanced Machine Vision seeks to provide its customers with a competitive
advantage by reducing high labor costs, increasing yields and throughput and
improving quality control. Advanced Machine Vision's machine vision systems are
capable of automated defect detection and removal and real-time quality
analysis. These machine vision systems use advanced optical inspection
technology to help customers recover more of the good product (higher yield) and
remove a higher percentage of defective product (quality control) than the
manual sorting and defect removal methods historically used by food processors.
In the wood panel production industry, increasing the number of decisions made
by machine vision systems can also result in increased throughput, higher yield
and more accurate grading with fewer line workers. Machine vision systems of the
type produced by Advanced Machine Vision can add
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significant value in environments where raw product is highly variable by
improving the uniformity of finished product.
Machine vision technology used for inspection and control of processes
(beyond defect removal) throughout manufacturing can eliminate adding value to
defective products, thereby reducing the finished product scrap rate. Machine
vision systems can be used for automated process control to add value and
improve efficiency in highly repetitive processes, such as grading and
statistical collection, that require speed, accuracy and rapid throughput. In
addition, machine vision systems are capable of providing real-time feedback
that could enable manufacturers to rapidly alter or modify production
specifications to achieve a high level of consistent quality not previously
achievable. Thus, automated process control applications present an opportunity
for Advanced Machine Vision to achieve higher margins, while achieving
substantial cost savings for customers through the reduction of direct labor and
improved product quality.
PRODUCTS
Advanced Machine Vision currently offers the following products:
<TABLE>
<CAPTION>
PRODUCT INDUSTRY APPLICATIONS
------- -------- ------------
<S> <C> <C>
VHS OPTISORT(TM) Food processing, Potato Chips, French Fries, Whole Potatoes,
Plastics recycling Vegetables, Polyethyl Teraphthalate Green/Clear
KROMA-SORT(R) Food processing, Vegetables, Plastic Flake
Plastics recycling
SPECTRA-SORT(TM) Food processing, Potato Products, Cereals, Vegetables
Plastics recycling
Prism(TM) Food processing Potato Products, Vegetables and other Food Items
Pulp Wood Sorter Forest industry Wood Chips
Tobacco Sorter II Tobacco Tobacco, Dry Food Products
"New Vision" Veneer Plywood Veneer Softwood Veneer Production
Scanning System
"Sequoia Sentry" Plywood Veneer Softwood Veneer Production
Dryer Control System
GS2000 Veneer Grading Plywood Veneer Softwood Veneer Production
System
</TABLE>
Advanced Machine Vision's machine vision systems utilize lighting, camera
and software components, and housing and structural components made principally
of stainless steel. They are modular in design, which provides flexibility in
configuration to allow adaptability to products of many types of industries. The
mechanical design of these systems is extremely sturdy and conforms to various
industry regulations and standards.
DEFECT DETECTION AND REMOVAL
The technology used in Advanced Machine Vision's machine vision systems is
capable of viewing, discriminating between usable versus defective pieces in
periods ranging from 20 to 60 milliseconds, and removing the defect while the
product is traveling at speeds of 500 to 1,200 feet per minute. Initially, the
product stream is arranged into a single layer by a vibrating infeed conveyor
belt, and fed onto the main conveyor by a steep infeed chute. The chute
accelerates the product to separate product units in the flow direction. Once
separated, product is moved through the system by the high-speed main belt
conveyor. Customers select the belt color to provide a sharp contrast with the
product being sorted. Lighting is selected to maximize the difference in the
images reflected by acceptable and defective pieces of product.
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During the scanning and analysis, the system processor monitors the
conveyor belt position of each defective piece and tracks it through the short
distance to the downstream end of the main conveyor. The distance between the
point at which the camera detects the moving product and the point at which the
jet of air expels the defective piece ranges from two to 25 inches. As each
defective piece is leaving the main conveyor, a short jet of air is released
from one or more of the finely tuned ejectors. This jet of air rapidly changes
the paths of the defective pieces downward so that they miss the main outfeed
chute. Accepts are unaffected, pass across the gap to be gently decelerated on
the outfeed chute, and then travel on to downstream processing equipment.
Advanced Machine Vision's machine vision systems allow the customer to
establish basic sorting criteria prior to running the system and are easily
fine-tuned for day-to-day changes in product characteristics and light levels.
MARKETS, CUSTOMERS AND APPLICATIONS
The Automated Imaging Association estimated the North American machine
vision market to be about $1.3 billion in 1998. Until recently, Advanced Machine
Vision marketed its machine vision systems primarily for quality control in
sorting applications. However, Advanced Machine Vision believes that many
additional applications for its machine vision systems exist in both food and
non-food markets, particularly in the area of automated process control.
Food
Advanced Machine Vision's largest market is the food processing industry.
Within food processing, the largest market sectors for Advanced Machine Vision's
products have been potatoes (principally french fries), vegetables and snack
foods. Advanced Machine Vision has also penetrated fruits, cereals and
confections, as well as a variety of other market sectors. Customers in the food
industry include McCain, Lamb Weston, Del Monte Foods, PepsiCo, Inc. (Frito-Lay,
Inc.) and Hershey Chocolate USA.
Advanced Machine Vision's systems are used by fruit and vegetable
processors where field-harvested products are cleaned, graded, automatically
sorted, blanched and processed prior to freezing, canning or packaging for sale
to institutional and retail markets. Principal fruit and vegetable market
sectors for Advanced Machine Vision are potato products, green beans, peas,
corn, carrots, onions, raisins and peaches. Advanced Machine Vision's prospects
for sales in the vegetable and fruit industry benefit from its proprietary color
automated defect removal systems, since defect detection in most fruit and
vegetable applications requires color analysis. In contrast, the potato industry
has been able to achieve effective detection of good and bad product using black
and white optical scanning technology.
Snack food processors use Advanced Machine Vision's machine vision systems
in a variety of applications. Candy manufacturers scan product to remove
partially wrapped pieces. Potato chip manufacturers use Advanced Machine
Vision's vision capabilities to ensure consistent color and quality.
Tobacco
Advanced Machine Vision's machine vision systems provide tobacco companies
sorting capability to remove impurities and foreign matter from a stream of raw
tobacco. Advanced Machine Vision has sold systems to leading U.S. and
international tobacco companies, particularly in Japan. Advanced Machine Vision
believes market growth for tobacco systems shows great promise based upon the
high degree of acceptance demonstrated by its customers and the significant size
of the worldwide tobacco processing market. Advanced Machine Vision utilizes the
services of several manufacturers and sellers of tobacco processing machinery
systems worldwide, whereby such entities represent Advanced Machine Vision on a
non-exclusive basis in all areas of the world outside of North America and
Japan.
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Plywood Veneer
Advanced Machine Vision has targeted the need for detecting and eliminating
defects (edge cuts, knots and dark color) from the peeled ribbon of veneer used
in wood panel production for the plywood market. Since its introduction in 1994,
Advanced Machine Vision's New Vision veneer scanning system has gained wide
acceptance in the North American plywood industry. Advanced Machine Vision
believes that it has placed systems in approximately 85% of the North American
softwood veneer production lines, but has not yet penetrated foreign markets to
any significant extent with only eleven systems sold outside of North America.
The New Vision veneer scanning machine vision system allows identification
of open voids, wane and closed defects in a fast-moving stream of wood veneer
used in plywood production after a log is peeled. After defect identification,
the New Vision instructs a clipper (manufactured by another company) to cut the
veneer immediately before and after the defect. The New Vision system reduces
the amount of good wood attached to the defect and ensures complete defect
identification at the beginning of the plywood production process, which
decreases the number of downgraded panels, increases dryer efficiency by
eliminating material that ultimately becomes dry waste and reduces re-clipping
of previously undetected defects. The savings provided by the New Vision system
in the form of higher portions of good wood recovered create significant added
value for customers. Major customers include Georgia-Pacific, Boise Cascade,
Champion International and Columbia Forest Products.
Advanced Machine Vision believes that its market share in green veneer
scanning reflects the level of confidence that customers have for the
reliability and performance of its products. However, green veneer scanning or
initial inspection of the veneer represents only one point in the wood vertical
panel production market. There are approximately eight other potential defect
detection applications in both the green and dry (i.e., after the veneer has
been dried before lay-up and lamination) veneer processing. In addition,
Advanced Machine Vision believes that further market potential exists in grading
and matching of hardwood and furniture-grade veneers. Thus, existing and
potential new customers who process wood at other steps in the multi-step panel
production process are an untapped market for Advanced Machine Vision's machine
vision systems. For example, in 1998 Advanced Machine Vision introduced its
Sequoia Sentry veneer dryer control system that measures moisture in veneer
exiting the dryer to determine if additional time in the dryer is necessary. In
1999, Advanced Machine Vision introduced its GS2000 veneer grading system that
enables a more consistent grading of panels than human inspection. Advanced
Machine Vision will seek to leverage Ventek's brand name recognition in green
veneer scanning to reach customers at multiple points in the vertical market for
wood panel production so that existing and new customers can benefit from the
full range of Advanced Machine Vision's technological capabilities.
FOREST PRODUCTS
The pulp wood industry is beginning to recognize the benefits of using
machine vision to separate contaminants in pulp wood. Heavy duty Advanced
Machine Vision systems, such as the Pulp Wood Sorter, have been developed to
sort bark, rot and other undesirable wood parts from high quality wood chips
used in making paper. The sorter is able to identify bark, rot and trash and
automatically remove unwanted material from a fast-moving, continuous stream of
wood chips. As a result, high value chips can be economically recovered from
lower quality and formerly unusable limbs and small trees. After sorting for
bark and darker content, the wood chips command a higher market price because
they require less chemical processing in the manufacture of paper products. CAE
Machinery, Ltd. is Advanced Machine Vision's exclusive distributor of the Pulp
Wood Sorter in North America.
Plastics Recycling
Because different types of plastics used in consumer products have
different characteristics, they must be separated prior to use in recycled
products. Advanced Machine Vision's proprietary lighting and camera technologies
take advantage of different reflective properties of these plastics to enable
producers of
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recycled plastics to accurately separate valuable materials that could otherwise
be wasted. Plastics used in recycled plastics products include PET (polyethyl
teraphthalate) used for transparent soda bottles, NHDPE (natural high-density
polyethylene) used for translucent milk and other fluid bottles, and colored
HDPE used for a variety of opaque, colored bottles, such as those used for motor
oil and dishwashing detergent. Another type of plastic, PVC (polyvinyl
chloride), has melting characteristics different from PET or HDPE. Advanced
Machine Vision has developed technologies that (i) separate plastics by melting
point, which is necessary to ensure purity of the recycled material and to
prevent costly shut-downs of equipment used by recyclers in the processes, and
(ii) separate plastics by color, which is vital to the remarketing of the
recycled material. Customers in the plastics recycling market include Union
Carbide, Inc. and Wellman Industries.
Worldwide demand for plastics drives the need for Advanced Machine Vision's
machine vision systems in the recycling business. Key factors that may impact
the demand for recycled plastics are the cost for virgin plastics and recycling
regulations. If the price of petroleum products and virgin plastics increases in
the future, the demand for recycled plastics may increase. Management of
worldwide petroleum supplies (e.g., foreign country production cutbacks) may
also lead to increased U.S. and foreign government regulations regarding the use
of recycled plastics. If the demand for recycled plastics products increases due
to price or regulations, demand for Advanced Machine Vision's machine vision
sorting systems may also rise. However, there can be no assurance that the use
of recycled plastics will reach a level that would create an opportunity for
Advanced Machine Vision to increase sales of systems to that market.
TECHNOLOGY, RESEARCH AND DEVELOPMENT
Technology
Advanced Machine Vision has developed a number of proprietary technologies
that form the foundation of its vision systems, particularly in the areas of
lighting and cameras. The performance of machine vision systems is analogous to
human vision insofar as the ability to see is only as good as the lighting and
optics permit. However, machine vision performance can be optimized through the
use of specialized lighting to improve the contrast between one part of an
object and another part of the same object, with the two parts having differing
reflection properties. Advanced Machine Vision has developed proprietary
lighting technology to enhance the contrast discrimination for objects that have
nearly identical visual properties in the visible light range. Advanced Machine
Vision's proprietary lighting systems are manufactured in-house.
Machine vision systems that have full color perception capability are
limited by the camera's ability to represent true color. True color means that
the color seen by both the human observer and the machine vision system's camera
must result in the same interpretation. Advanced Machine Vision's full color
cameras use three fundamental colors: red, green and blue. The best color
representation can be achieved when each of the red, green, and blue sensor
elements (i.e. pixels) are optically coincident. This means that when the
red-green-blue camera is looking at a specific point on an object, all three
sensor arrays (charged coupled devices) have corresponding red, green and blue
pixels looking at the same spot. Color accuracy and, therefore, performance
depends on the ability of its camera to accurately align the red-green-blue
charged coupled devices. SRC VISION has a patented alignment process for
building its commercial full color line-scan cameras.
An accurate interpretation of images created using lighting and cameras
also depends on the image processing capabilities of the rest of the machine
vision system. Real-time image processing is accomplished by high-speed
electronic signal processors (hardware) and detection algorithms (software).
Successive generations of Advanced Machine Vision vision systems have grown from
pan-chromatic/gray-scale systems to full color vision. The current generation
product makes extensive use of digital signal processor chips that allow
commonality within the machine with very high throughput performance and highly
flexible functional expansion capability.
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Advanced Machine Vision's current generation processor, the Advanced Vision
Platform, has been designed so that it can be kept current with only minor
design changes and upgrades. This allows the bulk of ongoing engineering efforts
to concentrate on value-added engineering. The Advanced Vision Platform is a
combination of a Windows NT 5.0/Intel Pentium 2 base and a "super-pipelined"
sorter engine. This industry standard platform allows us to make easy upgrades
to new technology (Pentium 3, off-the-shelf communication cards, Windows 2000,
etc.). The "super-pipelined" sorter allows Advanced Machine Vision to
concentrate significant computational speed in the sorter engine. The three-inch
by five-inch cards that make up the individual stages of the pipeline sorter
enable fast and inexpensive upgrades to incorporate new technology, allow field
upgrades to new hardware and give Advanced Machine Vision the flexibility to
expand the pipeline where needed for a specific customer application.
The Advanced Vision Platform, in its current configuration, has eight times
the color recognition capability of its predecessor, while simultaneously
running faster cameras and more sophisticated sort algorithms, and will allow
the opportunity to provide shape recognition. The flexible pipeline architecture
allows Advanced Machine Vision to expand any subsection of the pipeline that
requires additional power to meet specific needs.
High-speed vision requires efficient software algorithms. Advanced Machine
Vision maintains a software group that develops specialized proprietary
detection algorithms to achieve real-time signal processing. Multiple
generations of detection algorithms have resulted in continual refinement of
image processing capability. This in-house software resource is also responsible
for the creation of user-friendly Graphics User Interfaces that make Advanced
Machine Vision products easy to learn, use and maintain. This enables workers in
a customer's production process to achieve the benefits of Advanced Machine
Vision's systems without extensive and time-consuming training.
Research and Development
Advanced Machine Vision's research and development group conducts new
product research and development, provides support engineering for released
products and project engineering for custom systems. The research and
development group includes electronic, mechanical and software engineers,
mathematicians and technical support personnel. Ongoing development activities
include improvements to current products and development of new products.
Advanced Machine Vision provides engineering support for products in all of its
locations.
Some of the more significant research and development projects undertaken
in recent years were the development of an application-specific tobacco machine
vision system for sorting, and processing enhancements for existing and new
systems. Further research and development efforts are expected to flow from
these activities, including faster cameras, a more cost-effective material
handling system and enhanced lighting.
Advanced Machine Vision's research and development expenses, of which
greater than 95% relate to new products or new applications, have been as
follows: fiscal year ended December 31, 1997: $3,950,000; fiscal year ended
December 31, 1998: $5,024,000; and fiscal year ended December 31, 1999:
$4,758,000.
MARKETING AND SALES
A principal Advanced Machine Vision marketing strategy is to determine
which new niche market or application to pursue, and to form a strategic
relationship with a leading company in that market. Advanced Machine Vision's
objective in such an alliance is (i) to interest the leader in purchasing
Advanced Machine Vision's machine vision systems, which may lead to further
sales to other companies in the field that follow industry trends, and (ii) to
obtain the benefit of direct customer input and participation during the product
design phase of adapting the Advanced Machine Vision system to the new market or
application. Advanced Machine Vision has identified new niche market
opportunities for
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application of its machine vision technology initially in each of its food, pulp
wood, tobacco and plastics for recycling markets.
CUSTOMER STRATEGY
In recent years, Advanced Machine Vision has established certain
contractual and non-contractual relationships with existing customers, potential
customers, sales representatives, distributors and others. The purpose of this
customer strategy is to access such customers' knowledge and contacts within the
applicable industries to identify customer needs and expand sales. Relationships
entered into since 1994 include the following:
<TABLE>
<CAPTION>
NAME AND/OR POTENTIAL
TYPE OF COMPANY INDUSTRY APPLICATION DESCRIPTION OF RELATIONSHIP
--------------- ----------- ----------------- ---------------------------
<C> <S> <C> <C> <C>
1. FMC Corporation Food Fruit and An exclusive and non-exclusive sales
vegetable sorting representative agreement for the sale of
machine vision systems to the food industry in
many areas of the world.
2. CAE Machinery, Ltd. Pulp wood Wood chip sorting Advanced Machine Vision seeks to capitalize on
(major supplier to the reputation of CAE in the technologically
the North American conservative forest products industry in North
wood products America to speed the adoption of machine vision
industry) sorting technology by that industry.
3. Columbia Forest Wood veneer Further Agreement to mutually explore further
Products automation of automation of hardwood plywood manufacturing
veneer processing processes.
4. Boise Cascade Wood veneer Further Agreement to develop dryer temperature control
automation of and moisture detection for dried veneer panels.
veneer processing
5. COMAS, S.p.A. Tobacco Tobacco sorting COMAS contributes market access as well as
(manufacturer of extensive product handling experience for
tobacco processing improving Advanced Machine Vision sorter
equipment) designs to accelerate market penetration with
better performing machines.
6. Union Carbide Plastics Recycling whole Processing of post-consumer colored HDPE to
recycling bottles and create PRISMA(TM) standard plastics (PRISMA(TM)
plastic flakes is a set of color standards that allows for
manufacture of consistently colored HDPE
containers which require certain portions of
post-consumer material).
</TABLE>
Advanced Machine Vision believes that adapting current Advanced Machine
Vision machine vision systems for new applications through strategic
relationships such as these will contribute to base business growth and
accelerate entry into new niche markets.
SALES AND DISTRIBUTION
Advanced Machine Vision has a direct sales force of nine employees. It also
markets its products through sales representatives pursuant to various
agreements covering different geographical areas. Prior to September 30, 1996,
Advanced Machine Vision offered its products for sale outside the United States
and Canada through Ham & Hak Engineering BV and its Foodectronics subsidiary. On
September 30, 1996, SRC VISION and Ham & Hak terminated their ten-year exclusive
distribution contract. In June 1997, Advanced Machine Vision established SRC
VISION BV in Eindhoven, The Netherlands, as its sales and service center in
Europe. In 1998, Advanced Machine Vision entered a representation agreement with
FMC Corporation to sell machine vision systems to the food industry in many
areas of the world.
Advanced Machine Vision occasionally enters into site lease agreements with
potential customers that provide for a trial period (generally from two to four
months, but in some cases, up to one year) for the
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customer to test a system. The potential customer pays a monthly rental fee for
the trial units, which is then credited against the purchase price when the
customer purchases the system. Due to the high success rate in customer sales
resulting from the use of these trial units as a marketing tool, Advanced
Machine Vision intends to seek to increase the placement of trial units in new
potential customer sites.
International sales for the years ended December 31, 1999, 1998 and 1997
accounted for 41%, 33% and 33% of net sales, respectively. Foreign sales are
primarily denominated in U.S. dollars, or, in some cases, Dutch guilders.
Additional information regarding export and foreign sales is set forth in Note
11 to Advanced Machine Vision's Consolidated Financial Statements for the year
ended December 31, 1999.
BACKLOG
Advanced Machine Vision's backlog for its products was approximately
$4,102,000 at March 31, 2000, as compared to $5,645,000 at March 31, 1999.
Shipment of all the backlog orders is scheduled to take place within nine
months. Backlog includes only those orders for which a purchase order has been
received and for which a delivery schedule has been established by Advanced
Machine Vision. However, such orders can be subject to cancellation by the
customer. Because of the timing of orders, customer changes in delivery
schedule, cancellation of orders and trial period programs that are not included
in backlog, backlog as of any particular date may not be representative of
Advanced Machine Vision's actual sales for any succeeding fiscal period.
MANUFACTURING AND SUPPLIES
Advanced Machine Vision manufactures, assembles and ships its products from
its facilities in Medford and Eugene, Oregon. Advanced Machine Vision's Medford
facility has a vertically integrated manufacturing process, beginning with
sheets and bars of stainless steel that are cut and configured, then welded to
Advanced Machine Vision's specifications for its components and machines. The
Medford operation also manufactures or assembles many of the components and
subassemblies used in its machines, such as the processing unit, air jet
expulsion component, frames and related systems. Additionally, all proprietary
components are manufactured by Advanced Machine Vision in Medford, such as its
RGB Cyclops(TM) color cameras used for optical scanning in the KROMA-SORT(R)
systems, and various lights and lamps developed by Advanced Machine Vision for
certain of the systems. Advanced Machine Vision's Ventek operation integrates
hardware components manufactured by outside suppliers. Advanced Machine Vision's
machine vision systems incorporate its proprietary software and algorithms.
Basic system assembly is relatively consistent among product models using
similarly fabricated parts for the machine structure. Most systems are
customized as to number of cameras, lighting configurations and certain other
features.
Advanced Machine Vision has a computerized manufacturing inventory control
system that integrates and monitors purchasing, inventory control and
production. Each vision system is tested prior to delivery to a customer.
Advanced Machine Vision's quality control process tests for reliability and
conformance with product specifications.
Advanced Machine Vision is dependent on outside unaffiliated suppliers for
some of the components and parts used in its vision automation systems. Most
major parts and components are available from multiple sources; however, the
prisms and lenses required in RGB Cyclops(TM) color cameras are obtained from a
single source supplier. Although such supplier has not indicated any intention
to limit or reduce sales of parts to Advanced Machine Vision, if it were to do
so, Advanced Machine Vision's business, results of operations and financial
condition could be adversely affected. Historically, Advanced Machine Vision has
generally been able to obtain parts and components for its systems, as needed,
either from its then-current suppliers or replacement vendors. Advanced Machine
Vision believes that it will continue to be able to obtain required components
and parts from various suppliers, although there can be no assurance that it
will be able to do so.
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WARRANTY AND CUSTOMER SERVICE
Advanced Machine Vision generally provides a one-year limited warranty on
its products. Since 1994, there have not been any claims under Advanced Machine
Vision's warranty program that materially affected Advanced Machine Vision's
operations. Advanced Machine Vision also provides telephone customer support
services and offers annual service agreements.
In addition, for certain custom-designed systems, Advanced Machine Vision
contracts to meet certain performance specifications for specific applications.
Advanced Machine Vision has incurred higher warranty expenses related to new
products, especially on products that have not yet been proven to be
commercially viable, than it typically incurs with established products. There
can be no assurance that Advanced Machine Vision will not incur substantial
warranty expenses in the future related to new products as well as established
products, which may have an adverse effect on its results of operations and
customer relationships.
COMPETITION
The vision automation system industry is subject to intense competition.
Some of Advanced Machine Vision's major competitors are substantially larger in
size and have greater financial resources than Advanced Machine Vision. Some of
its competitors sell machines that are less expensive than Advanced Machine
Vision's. In some instances, a potential customer may select the less expensive
alternative even though the Advanced Machine Vision system provides greater
sorting capability. Currently, Pulsarr and Elbicon (owned by Barco NV of
Belgium), Sortex, Allen Machinery, ESM/Satake, Oldenburg, Morvue Electronics and
Coe International are believed to be Advanced Machine Vision's direct
competitors. There may be other competitors of Advanced Machine Vision in
addition to the ones listed above. Advanced Machine Vision competes with its
competitors on the basis of quality, technology, systems solutions and price.
There can be no assurance that Advanced Machine Vision will continue to
successfully differentiate its products from those of its competitors.
PATENTS AND TRADEMARKS
Advanced Machine Vision has been issued or assigned approximately 28 United
States patents, and has applied for five other United States patents relating to
its products, including various inspection and detection systems. In addition,
Advanced Machine Vision has obtained or has applied for patent protection for
certain of these systems in selected foreign countries. Advanced Machine Vision
believes that two of these patents, a system for stabilizing articles on a
conveyor and an RGB camera, are important to its business. These two patents
expire in March 2011 and September 2008, respectively. Other than the two
patents described in the previous sentence, Advanced Machine Vision does not
consider any of the present patents significant to its current operations. These
patents expire at various times over a six-year period commencing in April 2005.
SRC VISION trademarks include, among others, VHS OPTISORT(TM), KROMA-SORT(R),
SPECTRA-SORT(TM), Length and Defect Analyzer(TM), Optical Woodchip Sorter,
Quadra-View(R), ODSS II(TM), SRC VISION(R), Tobacco Sorter(TM).
Advanced Machine Vision also attempts to protect its trade secrets and
other proprietary information through proprietary information agreements with
employees and consultants and other security measures. There can be no assurance
that these measures will be successful in protecting Advanced Machine Vision's
proprietary rights. The laws of certain countries in which Advanced Machine
Vision's products are or may be manufactured or sold may not protect Advanced
Machine Vision's products and intellectual property rights to the same extent as
the laws of the United States.
There can be no assurance that third parties will not assert infringement
of other claims against Advanced Machine Vision with respect to existing or
future products or that licenses will be available on reasonable terms, or at
all, with respect to Advanced Machine Vision patents or any third-party
technology. Litigation to prevent infringement of Advanced Machine Vision
patents or to determine the
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validity of any third-party claims could result in significant expense to
Advanced Machine Vision and divert the efforts of Advanced Machine Vision's
technical and management personnel, whether or not such litigation is determined
in favor of Advanced Machine Vision. Advanced Machine Vision is not aware of any
threatened or pending patent actions other than that of the Lemelson Medical,
Educational and Research Foundation, Limited Partnership described in Risk
Factors -- "Risks related to both Key Technology and Advanced Machine
Vision -- There is the potential for patent-related litigation expenses and
other costs resulting from claims asserted against Key Technology, Advanced
Machine Vision or their customers by third parties."
EMPLOYEES
At March 31, 2000, Advanced Machine Vision had 176 full-time employees,
including 45 in manufacturing, 39 in engineering, research and development, 58
in marketing, sales and service and 34 in general administration and finance.
None of Advanced Machine Vision's employees is represented by a labor union.
Advanced Machine Vision considers its employee relations to be excellent.
PROPERTIES
Advanced Machine Vision's corporate offices occupy approximately 2,600
square feet of rented space in Medford, Oregon pursuant to a three-year lease
expiring in 2001. The lease is renewable.
The principal executive office and manufacturing facilities of SRC VISION
(a total of approximately 82,000 square feet) are located on an approximately
6.4 acre parcel of land in Medford, Oregon. SRC VISION owns the land and
building, subject to a deed of trust securing an approximately $3 million loan
made by Bank of America National Trust and Savings Association. The loan bears
interest at 8.3% and is due May 1, 2008. SRC VISION also owns 3.4 acres of land
adjacent to its facility for possible future expansion.
Ventek occupies approximately 12,000 square feet of a building located in
Eugene, Oregon that also houses a principal supplier of mechanical components
for its vision systems. The space is leased at a monthly base rent of $6,610
pursuant to a three-year agreement, with the right to extend the term an
additional two years.
LEGAL PROCEEDINGS
See "Risks related to both Key Technology and Advanced Machine Vision" for
a description of a notice of patent infringement from the Lemelson Medical,
Educational and Research Foundation.
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ADVANCED MACHINE VISION SELECTED FINANCIAL DATA
The selected financial data for Advanced Machine Vision as of 1999 and 1998
and for the three years ended 1999 presented below is derived from Advanced
Machine Vision's audited financial statements included elsewhere in this joint
proxy statement/prospectus. The selected financial data as of 1997, 1996 and
1995 and for each of the years ended 1996 and 1995 is derived from audited
financial statements not included in this document. The selected consolidated
financial information as of March 31, 2000 and for the three month periods ended
March 31, 2000 and 1999 is unaudited. In the opinion of management, all
adjustments, consisting of only normal accruals, have been made. The results of
operations for the three month period ended March 31, 2000 are not necessarily
indicative of the operating results for the full year. In October 1995, Advanced
Machine Vision sold its laser operations. The laser operations have been treated
as a discontinued business in the selected financial data.
In February 1994, Advanced Machine Vision acquired SRC VISION. In March and
July of 1996, Advanced Machine Vision acquired Pulsarr and Ventek, respectively.
In May 1997, Advanced Machine Vision sold Pulsarr. Purchased entity operations
account for a large portion of the fluctuation in amounts between fiscal years.
Selected financial data should be read in light of these facts and in
conjunction with the financial statements, notes to financial statements and
management's discussion and analysis included elsewhere in this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ -----------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 5,388 $ 5,158 $24,312 $27,041 $31,974 $29,938 $19,394
Cost of sales........................... 2,822 2,504 12,212 12,585 16,042 15,794 11,194
------- ------- ------- ------- ------- ------- -------
Gross profit............................ 2,566 2,654 12,100 14,456 15,932 14,144 8,200
Operating expenses...................... 4,046 3,181 14,617 13,894 12,914 12,882 7,546
Charge for acquired in-process
technology............................ -- -- -- -- -- 4,915 --
Charge for royalty expense.............. -- -- -- -- -- 647 --
Gain on sale of Pulsarr................. -- -- -- -- 4,989 -- --
Interest and other (expense) -- net..... (109) (73) (378) (403) (892) (960) 461
------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing
operations............................ (1,589) (600) (2,895) 159 7,115 (5,260) 1,115
Loss from discontinued operations....... -- -- -- -- -- -- (173)
Provision for (benefit from) income
taxes................................. -- (24) -- (2,083) 99 -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)....................... $(1,589) $ (576) $(2,895) $ 2,242 $ 7,016 $(5,260) $ 942
======= ======= ======= ======= ======= ======= =======
Basic earnings (loss) per share:
Continuing operations................. $ (0.13) $ (0.05) $ (0.24) $ 0.21 $ 0.64 $ (0.49) $ 0.12
Discontinued operations............... -- -- -- -- -- -- (0.02)
------- ------- ------- ------- ------- ------- -------
Total............................... $ (0.13) $ (0.05) $ (0.24) $ 0.21 $ 0.64 $ (0.49) $ 0.10
======= ======= ======= ======= ======= ======= =======
Diluted earnings (loss) per share:
Continuing operations................. $ (0.13) $ (0.05) $ (0.24) $ 0.18 $ 0.49 $ (0.49) $ 0.11
Discontinued operations............... -- -- -- -- -- -- (0.02)
------- ------- ------- ------- ------- ------- -------
Total............................... $ (0.13) $ (0.05) $ (0.24) $ 0.18 $ 0.49 $ (0.49) $ 0.09
======= ======= ======= ======= ======= ======= =======
Weighted average number of common stock
outstanding -- basic.................. 12,285 11,520 12,084 10,517 11,002 10,704 9,451
-- diluted................. 12,285 11,520 12,084 14,735 14,888 10,704 10,221
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, -----------------------------------------------
2000 1999 1998 1997 1996 1995
--------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................................. $14,645 $16,965 $17,231 $14,075 $15,411 $10,391
Current liabilities............................ 4,989 6,024 5,131 4,942 9,498 3,501
Working capital................................ 9,656 10,941 12,100 9,133 5,913 6,890
Total assets................................... 25,305 28,020 29,839 25,235 30,938 17,628
Long-term debt................................. 6,284 6,294 7,862 8,342 14,940 4,875
Mandatorily redeemable preferred stock......... 2,579 2,579 2,579 -- -- --
Total nonredeemable shareholders' equity....... 11,453 13,123 14,267 11,951 6,500 9,252
</TABLE>
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<PAGE> 94
ADVANCED MACHINE VISION MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Advanced Machine Vision acquired Pulsarr and Ventek in March 1996 and July
1996, respectively. Pulsarr was subsequently sold in May 1997. The operations of
the acquired entities are included in the financial statements from their
respective acquisition dates, and in the case of Pulsarr, through its
disposition date.
The following table sets forth the results of operations for the last three
years as a percentage of net sales (amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------------- ---------------------------------------------------
2000 1999 1999 1998 1997
--------------- -------------- --------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 5,388 100.0% $5,158 100.0% $24,312 100.0% $27,041 100.0% $31,974 100.0%
Cost of sales.................. 2,822 52.4% 2,504 48.5% 12,212 50.2% 12,585 46.5% 16,042 50.2%
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
Gross profit................. 2,566 47.6% 2,654 51.5% 12,100 49.8% 14,456 53.5% 15,932 49.8%
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
Operating expenses:
Selling and marketing........ 1,422 26.4% 947 18.4% 5,948 24.5% 4,762 17.6% 4,930 15.4%
Research and development..... 1,253 23.3% 1,260 24.4% 4,758 19.6% 5,024 18.6% 3,950 12.4%
General and administrative... 1,191 22.1% 794 15.4% 3,191 13.1% 3,413 12.6% 3,303 10.3%
Goodwill amortization........ 180 3.3% 180 3.5% 720 3.0% 695 2.6% 731 2.3%
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
4,046 75.1% 3,181 61.7% 14,617 60.1% 13,894 51.4% 12,914 40.4%
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
Income (loss) before other
income and expense........... (1,480) (27.5)% (527) (10.2)% (2,517) (10.4)% 562 2.1% 3,018 9.4%
Gain on sale of Pulsarr........ -- -- -- -- -- -- -- 4,989 15.6%
Investment and other income.... 59 1.1% 67 1.3% 191 0.8% 286 1.1% 371 1.2%
Interest expense............... (168) (3.1)% (140) (2.7)% (569) (2.3)% (689) (2.5)% (1,263) (4.0)%
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
Income (loss) before income
taxes........................ (1,589) (29.5)% (600) (11.6)% (2,895) (11.9)% 159 0.6% 7,115 22.3%
Provision for (benefit from)
income taxes................. -- -- (24) (0.5)% -- -- (2,083) (7.7)% 99 (0.3)%
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
Net income (loss)............ $(1,589) (29.5)% $(576) (11.2)% $(2,895) (11.9)% $ 2,242 8.3% $ 7,016 21.9%
======= ===== ====== ===== ======= ===== ======= ===== ======= =====
</TABLE>
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 2000 COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 1999
Sales for the three months ended March 31, 2000 were $5,388,000, up 4% when
compared to sales for the three months ended March 31, 1999 of $5,158,000. The
$230,000 increase in sales is primarily due to increased sales relating to
veneer processing applications.
Gross profit decreased by $88,000 to $2,566,000 in the first quarter of
2000 when compared to $2,654,000 of gross profit in the first quarter of 1999.
Gross profit as a percentage of sales was 47.6% in the first quarter of 2000 and
51.5% in the first quarter of 1999. The decrease in gross profit as a percentage
of sales is due to a change in the product mix to lower margin products and
discounts granted with the introduction of new products.
Selling and marketing expense increased by $475,000 in the first quarter of
2000 from the first quarter of 1999 to $1,422,000 amounting to 26.4% of sales in
the first quarter of 2000. Similar expenses in the first quarter of 1999 were
$947,000, or 18.4% of sales. The increase in selling and marketing expenses in
terms of both the dollar amount and as a percentage of sales is due to an
increase in marketing activities associated with the introduction of new
products and the penetration of new geographic areas.
Research and development expenses were $1,253,000 and $1,260,000 in the
first quarter of 2000 and the first quarter of 1999, or 23.3% and 24.4% of
sales, respectively.
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<PAGE> 95
General and administrative expenses increased $397,000 to $1,191,000 in the
first quarter of 2000 from $794,000 in the first quarter of 1999. The increase
is primarily a result of $180,000 of legal fees related to the possible merger
with Key Technology and $150,000 of stock compensation expense. The stock
compensation expense was recorded to reflect 300,000 variable plan options
granted to certain directors. The market price of the Company's common stock
exceeded the exercise price of these options at March 31, 2000.
The net loss for the first quarter of 2000 was $1,589,000 as compared to
net loss of $576,000 in the first quarter of 1999.
FISCAL 1999 COMPARED TO FISCAL 1998
Sales for 1999 were $24,312,000, down 10% when compared to sales for 1998
of $27,041,000. The decrease in sales in 1999 resulted primarily from an 18%
decrease, or $2,548,000 to $11,733,000, in sales of food machine vision systems.
Sales of non-food machine vision systems decreased by 1%, or $181,000 to
$12,579,000.
Cost of sales was 50.2% of sales in 1999 and 46.5% in 1998.
Gross profit decreased by 16% to $12,100,000 in 1999 when compared to
$14,456,000 of gross profit in 1998. In 1999, gross profit was 49.8%, as
compared to 53.5% in 1998. The decrease in gross profit as a percentage of sales
is due to the introduction of new products and the penetration of new
geographical markets. The initial unit cost of sales of the new products were
higher due to higher material costs resulting from smaller quantity purchasing
and higher labor costs due to the lack of learning curve efficiencies. To
penetrate new geographical markets, Advanced Machine Vision granted some initial
discounts, which also decreased gross profit as a percentage of sales.
Selling and marketing expenses increased $1,186,000 in 1999 to $5,948,000
when compared to $4,762,000 in 1998. The increase in selling and marketing
expenses in terms of both the dollar amount and as a percentage of sales is due
to higher personnel costs and marketing activities associated with the
introduction of new products and the penetration of new geographical areas.
Research and development expenses were $4,758,000 and $5,024,000 in 1999
and 1998, or 19.6% and 18.6% of sales, respectively. The increase in research
and development expenses as a percentage of sales is due to the distribution of
fixed research and development costs over a smaller sales base.
General and administrative expenses decreased $222,000 to $3,191,000 in
1999 from $3,413,000 in 1998. The decrease is due principally to costs
associated with a 1998 project of reevaluating the financial and operational
processes and procedures at SRC VISION in anticipation of possible future growth
of SRC VISION's business. General and administrative expenses do not include any
of these costs in 1999.
The decrease in investment and other income is the result of lower cash
balances available for investment during most of the year.
The decrease in interest expense is primarily due to lower outstanding debt
balances in 1999.
The net loss for 1999 was $2,895,000 as compared to net income of
$2,242,000 in 1998. Net income in 1998 includes a benefit from deferred income
taxes of $2,100,000.
FISCAL 1998 COMPARED TO FISCAL 1997
Sales for 1998 were $27,041,000, down 15% when compared to sales for 1997
of $31,974,000. Sales of non-food machine vision systems decreased 15% or
$2,164,000 to $12,760,000. Sales of food machine vision systems decreased 16% or
$2,769,000 to $14,281,000. Pulsarr sales, which were composed entirely of food
machine vision systems, aggregated $2,558,000 in 1997 and represent the primary
cause for the decrease in sales of food machine vision systems.
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<PAGE> 96
Cost of sales was 46.5% of sales in 1998 and 50.2% in 1997.
Gross profit decreased by 9% to $14,456,000 in 1998 when compared to
$15,932,000 of gross profit in 1997. In 1998, gross profit was 53.5%, as
compared to 49.8% in 1997. The increase in gross profit as a percentage of sales
in 1998 as compared to 1997 is primarily related to the exclusion of the
lower-margin Pulsarr products as well as a change in sales mix to higher-margin
products.
Selling and marketing expenses decreased $168,000 in 1998 to $4,762,000
when compared to $4,930,000 in 1997. Selling and marketing expenses in 1997
included $260,000 relating to Pulsarr as compared to none in 1998. This decrease
was partially offset by increased sales and service personnel at both SRC VISION
and Ventek.
Research and development expenses were $5,024,000 and $3,950,000 in 1998
and 1997, or 18.6% and 12.4% of sales, respectively. Research and development
expenses in 1997 included $178,000 relating to Pulsarr as compared to none in
1998. The increased expenses were incurred to accelerate completion of Advanced
Machine Vision's next generation of food sorter and vision system processor, as
well as to develop new products for the processing of softwood veneer.
General and administrative expenses increased $110,000 to $3,413,000 in
1998 from $3,303,000 in 1997. General and administrative expenses in 1997
included $343,000 relating to Pulsarr as compared to none in 1998. The increase
is primarily the result of costs associated with a project of reevaluating the
financial and operational processes and procedures in preparation for possible
future growth in business, as well as an increase in personnel costs.
The decrease in goodwill amortization is due to the exclusion of goodwill
related to Pulsarr in 1998 as compared to 1997.
The decrease in investment and other income is the result of lower cash
balances available for investment.
The decrease in interest expense is primarily due to lower debt balances
outstanding. Additionally, interest expense in 1997 included $233,000 of
deferred debt issuance costs written off as the result of the early repayment of
$2,500,000 of convertible notes payable.
The benefit from income taxes of $2,083,000 is composed of a benefit from
deferred income taxes of $2,100,000 to recognize a deferred tax asset, partially
offset by a provision for current income taxes of $17,000 due pursuant to the
alternative minimum tax rules of the Internal Revenue Code. Advanced Machine
Vision has assessed its past earnings history and trends, budgeted sales and the
expiration dates of carry-forwards and determined that it is more likely than
not that $2,100,000 of the deferred tax asset will be realized. A valuation
allowance is maintained against the remaining deferred tax asset. The valuation
allowance increased $1,058,000 in 1999. The increase occurred as the result of
management's assessment of the asset's ultimate ability to be realized.
Net income for 1998 was $2,242,000 as compared to $7,016,000 in 1997. Net
income for 1998 includes a benefit from deferred taxes of $2,100,000, while net
income for 1997 includes a gain on the sale of Pulsarr of $4,989,000 and a
charge relating to the write-off of deferred debt issuance costs. Income before
special items was $142,000 for 1998 compared to $2,260,000 for 1997 as a result
of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
The Company's cash balance and working capital were $2,298,000 and
$9,656,000, respectively, at March 31, 2000 as compared to $5,889,000 and
$10,941,000, respectively, at December 31, 1999.
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<PAGE> 97
During the first quarter of 2000, net cash used in operating activities
totaled $1,456,000 compared to cash used for operating activities of $585,000 in
the first quarter of 1999. The first quarter of 2000 usage was due to the net
loss and increases in receivables and inventories. The first quarter of 1999
usage was due to the net loss and increase in inventory.
Cash used in investment activities totaled $55,000 in the first quarter of
2000 compared to cash used in investment activities of $22,000 in the first
quarter of 1999. The Company has no material commitments for capital
expenditures at March 31, 2000.
Cash used in financing activities totaled $2,060,000 in the first quarter
of 2000 as compared to cash used in financing activities of $759,000 in the
first quarter of 1999. In January 2000, the Company purchased 42,800 shares of
its common stock for $50,000 on the open market. In February 2000, the Company
repaid the $2,000,000 outstanding under its line of credit. In February 1999,
the Company paid $750,000 of a $1,000,000 note and issued 1,800,000 shares of
Class A Common Stock in payment of a $1,529,000 note as part of the Ventek debt
restructuring.
In October 1998, the Company received $2,620,000 from FMC Corporation for
119,106 shares of newly issued Preferred Stock (see Note 10 to Consolidated
Financial Statements).
In April 1999, the Company entered into a Business Loan Agreement providing
up to $2,000,000 of working capital financing (see Note 6 to Consolidated
Financial Statements).
Management believes that the Company has sufficient cash to enable the
Company to sustain its operations and to adequately fund the cash flow expected
to be used in operating activities for the next twelve months.
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Advanced Machine Vision's cash balance and working capital was $5,889,000
and $10,941,000, respectively, at December 31, 1999 compared to $4,423,000 and
$12,100,000, respectively, at December 31, 1998. Advanced Machine Vision's
debt-to-equity ratio (excluding mandatorily redeemable preferred stock) was 0.64
at December 31, 1999 and 0.61 at December 31, 1998.
During 1999, net cash provided by operating activities totaled $693,000
compared to cash used in operating activities of $3,109,000 in 1998 and cash
provided by operating activities of $3,797,000 in 1997. The change in accounts
receivable generated cash of $2,472,000 in 1999 and used cash of $1,363,000 in
1998, and resulted primarily from the granting of longer payment terms to one
customer in 1998. The balance owed from this customer as of December 31, 1998
was entirely collected in 1999. Operating activities utilized $1,020,000,
$2,199,000 and $499,000 in 1999, 1998 and 1997, respectively, in cash to fund an
increase in inventories. A decrease in prepaid expenses and other assets
provided cash of $699,000 in 1999 as compared to increases in prepaid expenses
and other assets that used cash of $760,000 and $186,000 in 1998 and 1997,
respectively. Reductions in accounts payable, accrued liabilities, accrued
payroll and warranty reserve, partially offset by an increase in customer
deposits, used cash of $113,000 and $539,000 in 1999 and 1998, respectively.
Cash used in investment activities totaled $438,000 in 1999 compared to
cash used in investment activities of $1,383,000 in 1998 and cash provided by
investment activities of $5,996,000 in 1997. Cash resources of $438,000,
$1,383,000 and $1,014,000 were used to acquire property and equipment in 1999,
1998 and 1997, respectively. Advanced Machine Vision has no material commitments
for capital expenditures at December 31, 1999.
Cash provided by financing activities totaled $1,211,000 in 1999 as
compared to cash provided by financing activities of $2,870,000 in 1998 and cash
used by financing activities of $5,657,000 in 1997. In November 1999, Advanced
Machine Vision completely drew down its $2,000,000 line of credit. In February
1999, an agreement was reached with the former owners of Ventek pursuant to
which Advanced
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<PAGE> 98
Machine Vision prepaid $750,000 of debt that would have otherwise been due on
July 23, 1999, and issued 1,800,000 shares of restricted common stock in
prepayment of another note. The maturity date of the remaining $2,500,000 was
changed to July 23, 2000. A second extension, until July 23, 2001, of the
$2,500,000 debt was obtained in December 1999 (see Note 6). In 1998, Advanced
Machine Vision received net proceeds of $2,579,000 from the sale of preferred
stock to FMC Corporation, and in April, refinanced its 9.75% $2,680,000 mortgage
with a new 8.3% $3,000,000 mortgage. In 1997, cash generated from operations and
the sale of Pulsarr was used to repay the remaining $1,265,000 principal balance
of Advanced Machine Vision's 10.25% Convertible Note in April 1997, to repay
early $2,500,000 of its $3,400,000 6.75% Convertible Note, at par, in September
1997 and to purchase 1,001,640 shares of Advanced Machine Vision's Class A
common stock and 640,000 warrants to purchase common stock for $1,962,000 in
August 1997.
Due to operating losses incurred in 1999, Advanced Machine Vision was in
violation of a cash flow covenant with respect to the $2,000,000 line of credit
and the $3,000,000 mortgage note as of December 31, 1999. The bank waived
compliance with the covenant for the line of credit subject to Advanced Machine
Vision's amending the line to secure future borrowings with cash instruments
satisfactory to the bank. In February 2000, the amendment was executed and the
$2,000,000 previously borrowed was paid off. The bank also waived compliance
with the covenant for the mortgage note.
Advanced Machine Vision believes it will operate at a negative cash flow
during certain periods in the future due to payment of notes issued in
connection with prior financings and acquisitions, working capital requirements,
the need to fund certain development projects, cash required to enter new market
areas and possible cash needed to fully integrate Ventek's operations.
Management believes that Advanced Machine Vision has sufficient cash to enable
Advanced Machine Vision to sustain its operations and to adequately fund the
cash flow expected to be used in operating activities for the next twelve
months. If Advanced Machine Vision is unable to consistently generate sustained
positive cash flow from operations, Advanced Machine Vision may have to rely on
debt or equity financing. There can be no assurance Advanced Machine Vision will
be able to obtain future financing on terms satisfactory to Advanced Machine
Vision. Potential increases in the number of outstanding shares of our common
stock due to convertible debt and preferred stock and stock options, substantial
losses in 1996 and 1999 and debt due in 2001, may limit our ability to negotiate
additional debt or equity financing.
Advanced Machine Vision does not hold material amounts of derivative
financial instruments, other financial instruments or derivative commodity
instruments, and accordingly, has no material market risk to report under this
item.
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<PAGE> 99
PRINCIPAL SHAREHOLDERS OF ADVANCED MACHINE VISION
The following table sets forth certain information regarding the beneficial
ownership of common stock as of April 30, 2000, by (i) each person who is known
by Advanced Machine Vision to own beneficially more than 5% of outstanding
common stock; (ii) each of Advanced Machine Vision's directors and named
executive officers; and (iii) all executive officers and directors of Advanced
Machine Vision as a group:
<TABLE>
<CAPTION>
SHARES ACQUIRABLE PURSUANT TO:(2)
---------------------------------------
SHARES OWNED CONVERSION APPROXIMATE
----------------------------- OF DEBT OR PERCENT OF
NAME AND ADDRESS UNRESTRICTED RESTRICTED(1) OPTIONS PREFERRED STOCK TOTAL OWNERSHIP
---------------- ------------ -------------- --------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
FMC Corporation(3)................ -- -- 1,598,282 1,191,060 2,789,342 17.9%
200 East Randolph Drive
Chicago, IL 60601
Ashford Capital Management,
Inc.(4)......................... 960,000 -- -- -- 960,000 7.5%
P. O. Box 4172
Wilmington, DE 19807
William J. Young.................. 291,378 117,222 500,000 -- 908,600 6.8%
3709 Citation Way #102
Medford, OR 97504
Rodger A. Van Voorhis(5).......... 74,000 2,250,000 -- 333,333 2,657,333 20.0%
4030 West First Avenue, #100
Eugene, OR 97402
Dr. James Ewan.................... 50,000 57,000 300,000 -- 407,000 3.1%
2067 Commerce Drive
Medford, OR 97504
Alan R. Steel..................... 31,500 48,000 250,000 -- 329,500 2.5%
3709 Citation Way #102
Medford, OR 97504
Jack Nelson, Esq.................. -- -- 100,000 -- 100,000 *
281 E. Linden Avenue
Englewood, NJ 07631
Vikram Dutt....................... -- -- 100,000 -- 100,000 *
432 N. Clark, #003
Chicago, IL 60610
Robert M. Bagerdjian.............. -- -- 100,000 -- 100,000 *
10701 Wilshire Blvd. #1401
Los Angeles, CA 90024
Haig S. Bagerdjian................ -- -- 100,000 -- 100,000 *
6464 Canoga Avenue
Woodland Hills, CA 91367
All executive officers and
directors as a group (ten
persons)........................ 4,702,433 32.0%
</TABLE>
-------------------------
* Less than 1%.
(1) The restricted shares have the same voting and dividend rights as all other
Class A common stock.
(2) Represents shares acquirable as of December 31, 1999 and 60 days thereafter.
(3) Pursuant to Schedule 13G, filed with the Securities and Exchange Commission
on April 25, 2000.
(4) Pursuant to Schedule 13G, filed with the Securities and Exchange Commission
on February 9, 2000.
(5) 25,000 of the unrestricted shares are owned by Whamdyne. 2,250,000
restricted shares are owned by Veneer Technology, Inc. The shares acquirable
upon conversion relate to convertible debt issued to Veneer Technology, Inc.
Mr. Van Voorhis is a 25% owner of both Whamdyne LLC and Veneer Technology,
Inc. and is, therefore, deemed to be a beneficial owner of such shares.
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<PAGE> 100
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Effective February 15, 2000, Key Technology entered into an agreement and
plan of merger with Advanced Machine Vision. Under the terms of the agreement,
Advanced Machine Vision will become a wholly-owned subsidiary of Key Technology.
Each outstanding share of Advanced Machine Vision common stock will be converted
into the right to receive $1.00 in cash, 1/10 of a share of Key Technology
Series B convertible preferred stock, and 1/40 of a five-year warrant to
purchase one share of Key Technology common stock for $15.00 per share. Each
share of Advanced Machine Vision Series B preferred stock will be converted into
one share of Key Technology Series C convertible preferred stock accompanied by
identical warrants. Key Technology will account for the merger using the
purchase method of accounting.
The financial statements of Advanced Machine Vision use a different fiscal
year than the financial statements of Key Technology. For purposes of the pro
forma information, Advanced Machine Vision's financial statements were adapted
to Key Technology's fiscal year by adding the results of Advanced Machine
Vision's fourth quarter for its fiscal 1998 (the three months ended December 31,
1998) to, and subtracting the fourth quarter of Advanced Machine Vision's fiscal
1999 (the three months ended December 31, 1999) from, the results of Advanced
Machine Vision's fiscal year ended December 31,1999. The Unaudited Pro Forma
Condensed Combined Balance Sheet is prepared as of March 31, 2000 and
illustrates the effects of the merger as if it had occurred on that date. The
Unaudited Pro Forma Condensed Combined Statements of Earnings are prepared for
the six months ended March 31, 2000 and for the year ended September 30, 1999
and illustrate the effects of the merger as if they had occurred as of the
beginning of the earliest period presented. The Unaudited Pro Forma Condensed
Combined Financial Statements should be read in conjunction with the historical
financial statements and accompanying notes of Key Technology, included
elsewhere herein, and the historical financial statements and accompanying notes
of Advanced Machine Vision, also included elsewhere herein. The pro forma
condensed financial information is presented for illustrative purposes only and
is not necessarily indicative of the financial position or the results of
operations that would have actually been reported had the merger occurred at the
beginning of the periods presented, nor is it necessarily indicative of future
financial positions or results of operations.
In addition to not reflecting any cost savings or synergies potentially
resulting from the merger, the pro forma financial statements do not reflect the
following one-time charges: (a) an estimated $1,700,000 of dilution in gross
margins related to the write-up of work-in-process and finished goods acquired
which is expected to be realized primarily during the first 12 months following
the merger; (b) an allocation of $2,500,000 to in process research and
development which will be written off immediately after the merger; and (c)
approximately $1,500,000 of costs expected to be incurred during the first 12
months following the merger associated with the integration of the two
companies, primarily related to reorganization, staff integration and training.
In determining the purchase price of the acquisition, management has
estimated the fair value of the preferred stock and warrants to be given as
consideration by using the discounted present value of potential cash flows of
such equity instruments. The cost of the acquisition has been allocated to the
assets acquired and liabilities assumed based on their estimated fair values as
determined by management. The determination of the purchase price as well as the
allocation of the costs of the acquisition are preliminary. Prior to completion
of the merger, a valuation of the purchase price and allocations of acquisition
costs will be performed. Key Technology management believes this valuation may
derive a purchase price and an allocation of costs that is different than that
shown in the pro forma financial statements.
87
<PAGE> 101
KEY TECHNOLOGY, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
KEY AMVC ADJUSTMENTS COMBINED
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents.................. $ 6,351 $ 2,298 $ (4,673)(1)(2) $ 3,976
Short-term Investments..................... 2,485 0 2,485
Trade Accounts Receivable, net............. 11,939 2,687 14,626
Inventories................................
Raw Materials........................... 4,694 3,433 8,127
Work-in-process and sub-assemblies...... 5,625 1,835 1,187(2) 8,647
Finished Goods.......................... 2,753 3,304 550(2) 6,607
------- ------- -------- -------
Total Inventories..................... 13,072 8,572 1,737 23,381
Other Current Assets....................... 1,935 1,088 1,044(2) 4,067
------- ------- -------- -------
Total Current Assets.................. 35,782 14,645 (1,892) 48,535
Property, Plant, and Equipment, Net.......... 8,073 4,713 814(2) 13,600
Goodwill and Other Intangibles, Net.......... 1,501 3,995 11,867(2) 17,363
Other Assets................................. 624 1,952 7,101(2) 9,677
------- ------- -------- -------
Total................................. $45,980 $25,305 $ 17,890 $89,175
======= ======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities... $ 9,404 $ 3,029 $ 2,900(2) $15,333
Customer Deposits.......................... 2,559 1,917 4,476
Short-term Borrowings and Debt............. 291 43 1,000(2) 1,334
------- ------- -------- -------
Total Current Liabilities............. 12,254 4,989 3,900 21,143
Long-term Debt............................... 510 6,284 9,000(2) 15,794
Other Long-term Liabilities.................. 0 0 4,090(2) 4,090
Mandatorily Redeemable Preferred Stock and
Warrants................................... 0 2,579 14,853(2) 17,432
Total Shareholder's Equity................... 33,216 11,453 (13,953)(1)(2)(3) 30,716
------- ------- -------- -------
Total................................. $45,980 $25,305 $ 17,890 $89,175
======= ======= ======== =======
</TABLE>
88
<PAGE> 102
KEY TECHNOLOGY INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
Adjustments
(1) To record the assumed exercise of 1,139,000 Advanced Machine Vision stock
options for Advanced Machine Vision common stock in a cashless exercise and
the use of $415,000 to repurchase 1,260,000 shares exercisable under the
stock option plans.
(2) To record the acquisition and adjust the purchased assets to fair market
value, including the recognition of goodwill. For illustrative purposes the
acquisition price has been calculated as follows:
<TABLE>
<S> <C>
Purchase Price:
Cash, mandatorily redeemable preferred stock and warrants
issued for 13,658,491 shares of Advanced Machine Vision
common stock.............................................. $ 28,410,000
Redeemable preferred stock and warrants issued in exchange
for Advanced Machine Vision mandatorily redeemable
preferred stock........................................... 2,680,000
Acquisition costs........................................... 600,000
------------
Total purchase price...................................... $ 31,690,000
============
Financing:
Cash........................................................ $ 4,258,000
Long-term debt.............................................. 10,000,000
Mandatorily redeemable preferred stock and warrants......... 17,432,000
------------
Total..................................................... $ 31,690,000
============
The purchase price is allocated as follows:
Cash........................................................ $ 1,883,000
Trade accounts receivable................................... 2,687,000
Inventories................................................. 10,309,000
Other current assets........................................ 2,132,000
Property, plant and equipment............................... 5,527,000
Goodwill and other intangibles.............................. 18,362,000
Other assets................................................ 9,053,000
Liabilities assumed (including $2,900,000 of relocation and
severance accruals)....................................... (18,263,000)
------------
Total..................................................... $ 31,690,000
============
</TABLE>
Included in goodwill and other intangibles is $2,500,000 of in-process
research and development which would be written off immediately upon
consummation of the merger, $5,000,000 of existing patents and technology and
approximately $11,000,000 of goodwill. These allocations were based on
preliminary valuations performed by Key Technology management. The allocation of
the purchase price may change pending a final analysis of the value of the
assets acquired and liabilities assumed. The effect of such changes could be
material and any increases in the amounts allocated to acquired technology and
other identified intangible assets and goodwill resulting from changes could
increase the negative effect of the amortization on earnings per share.
(3) Reflects the elimination of Advanced Machine Vision's shareholders' equity
of $11,453,000 and write-off of $2,500,000 of purchased in-process research
and development.
89
<PAGE> 103
KEY TECHNOLOGY, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
KEY AMVC ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales..................................... $68,028 $24,307 $92,335
Cost of Sales................................. 42,281 11,196 53,477
------- ------- -------- -------
Gross Profit.................................. 25,747 13,111 0 38,858
Operating Expenses:
Selling and Marketing....................... 11,125 5,584 16,709
Research and Development.................... 4,347 5,521 9,868
General and Administrative.................. 5,550 3,716 526(1)(2) 9,792
------- ------- -------- -------
Total Operating Expense....................... 21,022 14,821 526 36,369
------- ------- -------- -------
Income (Loss) From Operations................. 4,725 (1,710) (526) 2,489
Other Income (Expense)........................ 436 (323) (780)(3) (667)
------- ------- -------- -------
Earnings (Loss) Before Income Taxes........... 5,161 (2,033) (1,306) 1,822
Income Tax Expense (Benefit).................. 1,632 (2,152) 1,017(4)(5) 497
------- ------- -------- -------
Net Earnings (Loss)........................... $ 3,529 $ 119 $ (2,323) $ 1,325
======= ======= ======== =======
Net Earnings Per Share -- Basic............... $ 0.75 $ 0.01 (6) $ 0.04
======= ======= ======== =======
Net Earnings Per Share -- Diluted............. $ 0.75 $ 0.01 (6) $ 0.04
======= ======= ======== =======
Shares used in Per Share
Calculation -- Basic........................ 4,707 12,005 (12,005)(7) 4,707
======= ======= ======== =======
Shares used in Per Share
Calculation -- Diluted...................... 4,711 12,005 (12,005)(7) 4,711
======= ======= ======== =======
</TABLE>
90
<PAGE> 104
KEY TECHNOLOGY INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
Adjustments
(1) To record the depreciation associated with a $435,000 fair market value
purchase adjustment to buildings, taken over a 20-year life on a straight
line basis.
(2) To record amortization of purchased intangibles and goodwill, net of amounts
already recorded in Advanced Machine Visions' historical financial
statements. This adjustment consists of the following:
<TABLE>
<S> <C>
Amortization of patents and existing technologies over 10
years on a straight line basis............................ $ 500,000
Amortization of goodwill over 15 years on a straight line
basis..................................................... 724,000
Less: amounts recorded in Advanced Machine Vision's
historical statements..................................... (720,000)
---------
Total..................................................... $ 504,000
=========
</TABLE>
(3) To record interest expense assuming an interest rate of 7.8% on the
$10,000,000 debt incurred as part of the acquisition. An increase of 1/8%
in the assumed interest rate would increase interest expense recorded by
$12,500 annually.
(4) To record the income tax effect of pro forma adjustments using the statutory
tax rate of 34%.
(5) To adjust income taxes to eliminate the effect of Advanced Machine Vision
income tax asset revaluation reserves. Advanced Machine Vision recorded
income tax benefits based upon expected utilization of temporary differences
and a portion of net operating loss carry-forwards. This adjustment has been
reversed and income taxes recalculated using the statutory tax rate of 34%.
The net adjustment increases income tax expense by $1,461,000. This
adjustment is required, as had the merger been in effect as of the beginning
of the fiscal year, these income tax benefits would have already been
recorded as part of the acquisition. Consequently, the income tax benefit of
Advanced Machine Vision's operating loss would have been $691,000 on a
consolidated basis using the statutory tax income tax rate.
(6) The mandatorily redeemable preferred stock has been recorded at the
discounted present value of cash flows. As this amount is less than the
mandatory redemption value, the difference must be accreted to retained
earnings over the mandatory two-year holding period. This amount is
estimated to be $1,115,000 in the first fiscal year. For purposes of
computing basic earnings per share this amount is treated as a dividend to
preferred shareholders, and as such, is a reduction in net income available
to common shareholders.
(7) To eliminate Advanced Machine Vision shares purchased. The effects of
assuming full conversion of Key Technology preferred stock and stock
warrants are anti-dilutive and are therefore not assumed to convert in
calculating diluted earnings per share. An additional 1,480,000 Key
Technology shares would be issued assuming full conversion of the Key
Technology preferred stock and stock warrants according to the conversion
terms described in the merger agreement.
91
<PAGE> 105
KEY TECHNOLOGY, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED MARCH 31, 2000
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
KEY TECH AMVC ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales........................................ $32,160 $10,698 $ -- $42,858
Cost of Sales.................................... 20,285 5,934 -- 26,219
------- ------- -------- -------
Gross Profit..................................... 11,875 4,764 0 16,639
Operating Expenses:
Selling and Marketing.......................... 5,739 3,571 -- 9,310
Research and Development....................... 2,404 2,217 -- 4,621
General and Administrative..................... 2,632 2,361 263(1)(2) 5,256
------- ------- -------- -------
Total Operating Expense.......................... 10,775 8,149 263 19,187
------- ------- -------- -------
Income (Loss) From Operations.................... 1,100 (3,385) (263) (2,548)
Other Income (Expense)........................... 279 (233) (351)(3) (305)
------- ------- -------- -------
Earnings (Loss) Before Income Taxes.............. 1,379 (3,618) (614) (2,853)
Income Tax Expense (Benefit)..................... 455 16 (1,455)(4)(5) (984)
------- ------- -------- -------
Net Earnings (Loss).............................. $ 924 $(3,634) $ 841 $(1,869)
======= ======= ======== =======
Net Earnings (Loss) Per Share -- Basic........... $ 0.20 $ (0.30) --(6) $ (0.52)
======= ======= =======
Net Earnings (Loss) Per Share -- Diluted......... $ 0.20 $ (0.30) --(6) $ (0.52)
======= ======= =======
Shares used in Per Share Calculation -- Basic.... 4,717 12,285 (12,285)(7) 4,717
======= ======= ======== =======
Shares used in Per Share Calculation --Diluted... 4,720 12,285 (12,288)(7) 4,717
======= ======= ======== =======
</TABLE>
92
<PAGE> 106
KEY TECHNOLOGY INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED MARCH 31, 2000
Adjustments
(1) To record the depreciation associated with a $435,000 fair market value
purchase adjustment to buildings, taken over a 20-year life on a straight
line basis.
(2) To record amortization of purchased intangibles and goodwill, net of amounts
already recorded in Advanced Machine Visions' historical financial
statements. This adjustment consists of the following:
<TABLE>
<S> <C>
Amortization of patents and existing technologies over 10
years on a straight line basis............................ $ 250,000
Amortization of goodwill over 15 years on a straight line
basis..................................................... 362,000
Less: amounts recorded in Advanced Machine Vision's
historical statements..................................... (360,000)
---------
Total..................................................... $ 252,000
=========
</TABLE>
(3) To record interest expense assuming an interest rate of 7.80% on the
$9,000,000 remaining of debt incurred as part of the acquisition. An
increase of 1/8% in the assumed interest rate would increase interest
expense recorded by $11,250 annually.
(4) To record the income tax effect of pro forma adjustments using the statutory
tax rate of 34%.
(5) To adjust income taxes to eliminate the effect of Advanced Machine Vision
income tax asset revaluation reserves. During this interim period, Advanced
Machine Vision recorded no income tax benefit associated with the net
operating loss as they did not expect to be able to utilize the operating
loss for tax purposes. An income tax benefit of $1,230,000 has been recorded
as an adjustment to reflect the income tax benefit of the net operating loss
using an the statutory tax rate of 34%. This adjustment is required, as had
the merger been in effect as of the beginning of fiscal year, these income
tax benefits would now be realized on a consolidated basis.
(6) The mandatorily redeemable preferred stock has been recorded at the
discounted present value of cash flows. As this amount is less than the
mandatory redemption value, the difference must be accreted to retained
earnings over the mandatory two-year holding period. This amount is
estimated to be $600,000 in the first six months of this fiscal year. For
purposes of computing basic earnings per share this amount is treated as a
dividend to preferred shareholders, and as such, is a reduction in net
income available to common shareholders.
(7) To eliminate Advanced Machine Vision shares purchased. The effects of
assuming full conversion of Key Technology preferred stock and stock
warrants are anti-dilutive and are therefore not assumed to convert in
calculating diluted earnings per share. An additional 1,480,000 Key
Technology shares would be issued assuming full conversion of the Key
Technology preferred stock and stock warrants according to the conversion
terms described in the merger agreement.
93
<PAGE> 107
DESCRIPTION OF KEY TECHNOLOGY SECURITIES
Key Technology's restated articles of incorporation authorize the issuance
of up to 15,000,000 shares of common stock and 5,000,000 shares of preferred
stock. The following descriptions of Key Technology's capital stock are not
complete and are subject to, and qualified in all respects by reference to the
articles, which have been filed as an exhibit to the registration statement.
COMMON STOCK
The holders of common stock are entitled to receive dividends when and as
declared by the board of directors out of any funds lawfully available therefore
and, in the event of liquidation or distribution of assets, are entitled to
participate ratably in the distribution of such assets remaining after payment
of liabilities, in each case subject to any preferential rights granted to any
series of preferred stock that may then be outstanding. The common stock does
not have any preemptive rights or redemption or sinking fund provisions. The
issued and outstanding shares of common stock are fully paid and nonassessable.
Holders of common stock are entitled to vote at all meetings of
shareholders of Key Technology for the election of directors and for other
purposes. Each shareholder has one vote for each share of common stock owned.
Key Technology does not have cumulative voting in the election of directors,
which means that the holders of more than 50% of the shares voting can elect all
directors. The articles provide for staggered terms for directors whenever the
Board is comprised of six or more members, meaning that at each election of the
board of directors, one-third of Key Technology's directors will be elected for
staggered terms of three years.
PREFERRED STOCK
The articles authorize 5,000,000 shares of preferred stock and permit the
board of directors, without further shareholder authorization, to issue
preferred stock in one or more series and to designate the rights, preferences
and privileges of each series. The effect of the issuance of any shares of
preferred stock upon the rights of holders of the common stock cannot be
predicted until the board of directors determines the specific rights of the
holders of the preferred stock. The issuance of any series of preferred stock
under certain circumstances could have the effect of delaying, deferring or
preventing a change of control of Key Technology and could adversely affect the
rights of the holders of common stock. The terms and provisions of each series
that the board of directors can set include one or more of the following:
- dividend rights and preferences;
- conversion rights;
- voting rights;
- redemption rights; and
- rights on liquidation, including preferences over common stock.
The board of directors has authorized the following series of preferred
stock:
- 15,000 shares of Series A Junior Participating preferred stock, par
value $0.01 per share; and
- 1,765,044 shares of Series B convertible preferred stock, par value
$0.01 per share;
- 119,106 shares of Series C Convertible preferred stock, par value
$0.01 per share.
94
<PAGE> 108
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
In 1998, the Key Technology board of directors adopted a shareholder rights
plan with the intent to protect and enhance shareholder value. A dividend was
declared effective on the common stock in the form of one right to purchase
1/1,000ths of a share of Series A Junior Participating Preferred Stock, par
value $0.01 per share, for each share of common stock outstanding on the close
of business on June 30, 1998. The Series A, in addition to the specific features
discussed below, has the following distinct features:
- The Series A ranks junior to all series of preferred stock and ranks
senior to the common stock in regards to payment of dividends and the
distribution of assets on liquidation, dissolution or winding up.
- The holders of at least a majority of the Series A voting separately
as a class must approve any amendments to the articles of
incorporation that adversely affect the Series A.
- Series A may be issued in fractional shares which entitle the holder
to proportionately exercise voting rights, receive dividends,
participate in distribution and to have the benefit of all other
rights of Series A holders.
Dividends
When declared by the board, the holders of Series A are entitled to
quarterly dividends out of funds legally available. The quarterly dividend is
the greater of:
- $0.01 per share; or
- 1,000 times the aggregate per share amount of cash or asset dividends
payable in kind (excluding stock dividends payable in shares of common
stock) declared on common stock since the immediately preceding
quarterly dividend payment date.
If common stock receives a stock dividend or is subdivided or combined, the
dividend payable to holders of Series A shall be adjusted.
Whenever dividends payable to holders of Series A are in arrears, Key
Technology generally cannot do the following:
- declare or pay dividends on or make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares
of stock ranking junior to or on parity with the Series A preferred
stock;
- redeem, purchase or acquire for consideration shares ranking on parity
with the Series A except for parity stock exchanged for shares ranking
junior to the Series A;
- purchase or acquire for consideration any shares of Series A or any
share of stock ranking on parity with Series A, except if a purchase
offer is made in writing or by publication to all holders upon terms
the board in good faith determines will result in fair and equitable
treatment among the respective series or classes.
Liquidation, Dissolution or Winding Up Preference
Prior to any stock on parity with or ranking junior to the Series A
receiving a distribution upon any liquidation, dissolution or winding up of the
business, the holders of Series A must receive the higher of:
- $0.01 per share plus accrued but unpaid dividends and distributions;
or
- an aggregate amount per share equal to 1,000 times the aggregate
adjusted amount to be distributed per share to holders of common
stock.
95
<PAGE> 109
When a stock dividend is declared on common stock, or when outstanding
shares of common stock are subdivided, combined or consolidated into a greater
or smaller number of shares, the amount payable to Series A holders upon
liquidation is appropriately adjusted.
Voting Power
The holders of Series A and holders of common stock vote as one class,
however the holders of Series A have greater voting power than the holders of
common shares. Each share of Series A is entitled to 1,000 votes on all matters
submitted to the vote of the shareholders. If a stock dividend is declared on
common stock or if the common stock is subdivided or combined, the number of
votes per share to which holders of Series A are entitled is appropriately
adjusted.
If the dividends payable to Series A shall have accrued for six quarterly
periods without payment, the holders of all preferred stock with dividends six
months in arrears shall have the right to elect two directors in addition to any
other number of directors the holders of preferred stock are entitled to elect.
Redemption
Series A is not redeemable but Key Technology may acquire shares in any
other manner permitted by law, its articles of incorporation, or the Series A
certificate of designation. All shares of Series A purchased or otherwise
acquired are retired and promptly cancelled. The shares become authorized but
unissued shares of preferred stock.
Consolidation or Merger
In a consolidation, merger, combination or other exchange in which shares
of common stock are exchanged for or changed into other stock or securities,
cash and/or any other property, the holders of Series A are entitled to have
their shares similarly exchanged for or changed into an amount per share equal
to 1,000 times the aggregate amount of stock, securities, cash and/or any other
property. This number is adjusted for stock dividends declared on common and any
subdividing or combining of outstanding common stock.
SERIES B CONVERTIBLE PREFERRED STOCK
Conversion
The shares of Series B preferred stock, par value $0.01 per share, may be
converted into 2/3 of a share of Key Technology common stock in two instances:
- by the holders of such shares at any time; or
- by Key Technology upon a merger, consolidation, share exchange or sale
of substantially all of its assets.
The original conversion rate is adjusted for stock dividends or stock
splits and recapitalizations or reclassifications of common stock. Upon
conversion to common stock, holders of Series B preferred stock have the right
to receive any dividends, other than cash dividends or common stock dividends,
previously paid to common stock holders in Key Technology securities or assets.
Upon the closing of a merger, consolidation, share exchange or sale of
assets and upon 30 days written notice, Key Technology may convert the
outstanding shares of Series B into shares of common stock. Holders of Series B
may convert their shares to common stock prior to the expiration of the 30 day
notice period.
96
<PAGE> 110
Dividends
Series B is not entitled to any dividends. If a dividend is declared
payable on the outstanding common stock, the holders of Series B are entitled to
the dividend that would be payable on the common stock into which the Series B
could convert.
Liquidation, Dissolution or Winding Up Preference
In the event of any liquidation, dissolution or winding up of Key
Technology's business, the holders of Series B are entitled to a payment of
$10.00 per share plus all accrued but unpaid dividends before any amount is
distributed to holders of common stock. If the assets are insufficient to permit
this payment to the holders of Series B, then the entire assets available for
distribution to holders of capital stock shall be distributed ratably among the
holders of Series B and Series C preferred stock.
Voting Power
The holders of Series B are entitled to vote on all matters. Series B
holders vote the number of whole shares of common stock into which the holder's
Series B preferred stock could be converted.
Redemption
Key Technology must redeem the Series B preferred stock for $10.00 per
share plus accrued and unpaid dividends on the fifth anniversary of the first
day shares of Series B were issued. The redemption date may be accelerated if
the average closing price of Key Technology common stock, as listed on the
Nasdaq National Market, is $15.00 or more for thirty consecutive trading days.
Holders of Series B preferred stock have a put right requiring Key
Technology to purchase at any time after the second anniversary of the first
date shares of Series B were issued any or all of their Series B at the
redemption price of $10.00.
SERIES C CONVERTIBLE PREFERRED STOCK
Conversion
The shares of Series C preferred stock, par value $0.01 per share, may be
converted into 1 2/3 shares of Key Technology common stock in two instances:
- by the holders of such shares at any time; or
- by Key Technology upon certain qualifying mergers, consolidations, share
exchanges or sales of substantially all of our assets.
A merger, consolidation or share exchange is deemed to occur only if the
holders of capital stock immediately preceding the merger, consolidation or
share exchange cease to own at least 50% of the equity value of the surviving
corporation. Key Technology must give 30 days' notice to the holders of Series C
preferred stock if it intends to convert the shares at the time of a merger,
consolidation, share exchange or sale of substantially all of its assets. During
the 30 day period, the holders of Series C preferred stock may choose to redeem
their Series C at the liquidation value or to convert to common stock.
The original conversion rate is adjusted for stock dividends or stock
splits and recapitalizations or reclassifications of common stock. Upon
conversion to common stock, holders of Series C preferred stock have the right
to receive any dividends, other than cash dividends or common stock dividends,
previously paid to common stock holders in Key Technology's securities or
assets.
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<PAGE> 111
Dividends
Series C is not entitled to any dividends. If a dividend is declared
payable on the outstanding common stock, the holders of Series C are entitled to
the dividend that would be payable on the common stock into which the Series C
could convert.
Liquidation, Dissolution or Winding Up Preference
In the event of any liquidation, dissolution or winding up of Key
Technology business, the holders of Series C are entitled to a payment of $20.00
per share plus all accrued but unpaid dividends before any amount is distributed
to holders of common stock. If the assets are insufficient to permit this
payment to the holders of Series C, then the entire assets available for
distribution to the holders of capital stock shall be distributed ratably among
the holders of Series C and Series B preferred stock.
Voting Power
The holders of Series C are entitled to vote on all matters. Series C
holders vote the number of whole shares of common stock into which the holder's
Series C preferred stock could be converted.
Redemption
Key Technology must redeem the Series C preferred stock for $20.00 per
share plus accrued but unpaid dividends on the fifth anniversary of the first
day shares of Series C were issued.
Holders of Series C preferred stock have a put right requiring Key
Technology to purchase at any time any or all of their Series C at the
redemption price of $20.00.
WARRANTS
The following is a brief summary of certain provisions of the purchase
warrants to be issued in the merger. The summary does not purport to be complete
and is qualified in all respects by reference to the actual text of the purchase
warrant. The warrants are subject to the warrant agreement between the transfer
agent and Key Technology.
Exercise Price and Terms
The warrant entitles its holder to purchase at any time for a period of
five years the specified number of shares of common stock at $15.00 per share,
subject to adjustment. The holder of a warrant may exercise the warrant by
surrendering the warrant certificate to the transfer agent, endorsing the
subscription form and paying the exercise price.
The warrant permits the holder to engage in a net exercise of the warrant
if the fair market value of one share of common stock is greater than $15.00 per
share on the date of exercise. The effect of a net issue exercise is that the
holder receives a number of shares of common stock computed using the following
formula:
X = Y (A-B)
-------
A
Where X = the number of shares of common stock to be issued to the holder
Y = the number of shares of common stock purchasable under the
warrant or, if only a portion of the warrant is being exercised,
the portion of the warrant being cancelled (at the date of such
calculation)
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<PAGE> 112
A = the fair market value of one share of common stock, as
determined by the closing price on the Nasdaq National Market on
the date the warrant is surrendered for exercise
B = stock purchase price (as adjusted to the date of exercise)
Upon exercise of the warrant, fractional shares will not be issued but the
holder will receive a sum in cash equal to such fraction multiplied by the then
fair market value per share. Prior to the expiration date of the warrant, the
holder may require Key Technology to redeem the warrant for cash at a price
equal to $10.00 for each whole share of common stock that may be purchased under
the warrant. To exercise the right of redemption, the holder of the warrant must
surrender the warrant properly endorsed to the transfer agent along with a
completed redemption notice form.
Adjustments
The exercise price and the number of shares of common stock purchasable
upon exercise of the purchase warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassification of the common stock. Upon any adjustment to the
stock purchase price or any increase or decrease in the number of shares
purchasable upon the exercise of the warrant, Key Technology must give written
notice to the warrant holders.
Notice
Key Technology must give at least 10 days' prior written notice of the date
its books will close of record for a dividend, distribution or subscription
rights or for determining rights to vote for a merger, reorganization,
reclassification, consolidation, sale, dissolution, liquidation or winding up.
Upon such merger, reorganization, reclassification, consolidation, sale,
dissolution, liquidation or winding up, Key Technology must give at least 10
days' prior written notice of the date when such event will occur.
Warrant Holder Not a Shareholder
The warrant holder does not have the right to vote or participate in any
other matters as a shareholder. The warrant does not accrue any dividends or
interest until it is exercised and then only to the extent it is exercised.
PROVISIONS AFFECTING ACQUISITION OF KEY TECHNOLOGY
The articles provide that any business combination must be approved by the
vote of at least 75% of the outstanding common stock, with such approving votes
to include at least 51% of the common stock held by persons other than the major
shareholder (defined below), unless (a) the proposed business combination is
approved by a majority of the directors (referred to as "continuing directors")
who are unaffiliated with such major shareholder and who were directors before
such major shareholder became a major shareholder or who were designated (before
initial election as a director) as a continuing director by a two-thirds vote of
the continuing directors, or (b) is solely between Key Technology and any
corporation in which Key Technology owns 50% or more of the voting stock or
interest and the shareholders of Key Technology retain their proportionate
voting and equity interests in the surviving entity. The articles define a
"business combination" as (i) any merger or consolidation (whether in a single
transaction or a series of related transactions) of Key Technology or any
subsidiary of Key Technology with or into any person or entity which, together
with affiliates or associates or group of persons that have agreed to act
together, is or becomes the beneficial owner of 5% or more of Key Technology's
outstanding common stock (a "major shareholder"), (ii) any sale, exchange,
shareholder distribution, pledge, mortgage (or use of other security device to
create a lien upon) or lease of all or substantially all of the assets of Key
Technology or a subsidiary to a major shareholder, whether in a single
transaction or a series of related transactions, (iii) any purchase, exchange,
lease or other acquisition by Key Technology or any of its subsidiaries of all
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or substantially all of the assets of a major shareholder, whether in a single
transaction or a series of related transactions, (iv) any issuances of any
securities of Key Technology (or warrants, options or other rights to purchase
the same) to, the reclassification or recapitalization of the securities of Key
Technology owned by, or the exchange of securities with, a major shareholder,
(v) any other transaction with a major shareholder for which approval of the
shareholders is required by law or by an agreement between Key Technology and
any national securities exchange or rule of any such exchange or NASDAQ, and
(vi) any contract or other agreement providing for any of the foregoing.
The determination of whether a proposed business combination is within the
scope of the articles is made by a two-thirds majority of the continuing
directors, whose determination is conclusive and binding for all purposes of the
articles.
The articles also provide that if and for so long as a major shareholder
exists, a resolution to voluntarily dissolve Key Technology may be adopted only
upon the consent of all shareholders, or the affirmative vote of at least
two-thirds of the total number of continuing directors, and the affirmative vote
of the holders of at least 75% of the shares of Key Technology entitled to vote
thereon.
The articles also provide that, notwithstanding the foregoing provisions,
the requisite vote necessary to approve a business combination with a major
shareholder increases to 95% unless the terms of the transaction are such that
all of Key Technology's shareholders are to receive as a result of the business
combination the same amount, kind and composition of cash or securities payment
on a per-share basis in exchange for their shares as was received by any other
former shareholder of Key Technology whose shares were acquired during the
preceding 12-month period by the major shareholder with whom the business
combination is to be consummated.
The provisions of the articles requiring staggered terms for directors,
supermajority approval of the business combinations involving major shareholders
and providing for supermajority voting to amend such provisions may not be
amended without approval of the holders of at least 75% of Key Technology's
outstanding common stock.
The foregoing provisions of the articles, as well as the staggered terms
for directors and the availability of preferred stock for issuance without
shareholder approval, may deter any potential unfriendly offers or other efforts
to obtain control of Key Technology that are not approved by the board of
directors and could thereby deprive the shareholders of opportunities to realize
a premium on their common stock and could make removal of incumbent management
more difficult. At the same time, these provisions may have the effect of
inducing any persons seeking control of Key Technology or a business combination
with Key Technology to negotiate terms acceptable to the board of directors.
STATE LEGISLATION
Oregon Control Share and Business Combination Statutes. Oregon law may
restrict the ability of significant shareholders of Key Technology to exercise
voting rights. The law generally applies to a person who acquires voting stock
of an Oregon corporation in a transaction that results in such person holding
more than 20%, 33 1/3% or 50% of the total voting power of the corporation. If
such a transaction occurs, the person cannot vote the shares unless voting
rights are restored to those shares by:
- a majority of the outstanding voting shares, including the acquired
shares; and
- the holders of a majority of the outstanding voting shares, excluding
the acquired shares and shares held by the corporation's officers and
inside directors.
This law is construed broadly and may apply to persons acting as a group.
The restricted shareholder may, but is not required to, submit to the
company a statement setting forth information about itself and its plans with
respect to the company. The statement may request that the company call a
special meeting of shareholders to determine whether voting rights will be
granted to
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the shares acquired. If a special meeting of shareholders is not requested, the
issue of voting rights of the acquired shares will be considered at the next
annual or special meeting of shareholders. If the acquired shares are granted
voting rights and they represent a majority of all voting power, shareholders
who do not vote in favor of granting such voting rights will have the right to
receive the appraised fair value of their shares. The appraised fair value will,
at a minimum, be equal to the highest price paid per share for the acquired
shares.
Key Technology is also subject to provisions of Oregon law that govern
business combinations between corporations and interested shareholders. These
provisions generally prohibit a corporation from entering into a business
combination transaction with a person, or affiliate of such person, for a period
of three years from the date such person acquires 15% or more of the voting
stock of the corporation. For the purpose of this law, the prohibition generally
applies to the following:
- a merger or plan of share exchange;
- any sale, lease, mortgage or other disposition of 10% or more of the
assets of the corporation; and
- transactions that result in the issuance of capital stock of the
corporation to the 15% shareholder.
However, the general prohibition does not apply if:
- the 15% shareholder, as a result of the transaction in which such
person acquired 15% of the shares, owns at least 85% of the
outstanding voting stock of the corporation;
- the board of directors approves the share acquisition or business
combination before the shareholder acquired 15% or more of the
corporation's outstanding voting stock; or
- the board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation, excluding shares owned by
the 15% shareholder, approve the transaction on or after the date the
shareholder acquires 15% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock, preferred stock and
warrants of Key Technology is ChaseMellon Shareholder Services, Seattle,
Washington.
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COMPARATIVE RIGHTS OF KEY TECHNOLOGY
AND ADVANCED MACHINE VISION SHAREHOLDERS
Key Technology and Advanced Machine Vision are incorporated in Oregon and
California, respectively. Shareholders of Advanced Machine Vision receiving Key
Technology's Series B preferred stock in connection with the merger, whose
rights as shareholders are currently governed by the California Corporations
Code, Advanced Machine Vision's articles of incorporation and Advanced Machine
Vision's bylaws will, upon the effective time of the merger, automatically
become shareholders of Key Technology, and their rights will be governed by the
Oregon Business Corporation Act, Key Technology's articles of incorporation, as
amended and restated and Key Technology's bylaws. The following is a summary of
material similarities and differences between the rights of Key Technology's
shareholders under Key Technology's articles and Key Technology's bylaws and
Oregon law, on the one hand, and Advanced Machine Vision's shareholders under
Advanced Machine Vision's articles and Advanced Machine Vision's bylaws and
California law on the other hand.
<TABLE>
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KEY TECHNOLOGY (OREGON) ADVANCED MACHINE VISION (CALIFORNIA)
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Classes Of Stock...... Oregon law authorizes a corporation California law also authorizes a
to have one or more classes of corporation to have one or more
stock. Key Technology's articles classes of stock. All rights of
authorize 15,000,000 shares of shares of a class must have voting,
common stock, par value $0.01 per conversion and redemption rights,
share, and 5,000,000 shares of and other rights, preferences,
preferred stock, par value $0.01 per privileges and restrictions
share, of which 15,000 have been identical to those of other shares
designated Series A junior of the same class, unless the class
participating preferred stock. See is divided into series. Advanced
"Description of Key Technology's Machine Vision's articles of
Securities." incorporation provide for four
classes of stock: 5,000,000 shares
of preferred stock, 60,000,000
shares of Class A common stock,
3,000,000 shares of Class B common
stock and 3,000,000 shares of Class
E common stock.
Dividends............. Dividends on Key Technology common Dividends on Advanced Machine Vision
stock may be declared as if and when common stock may be declared as if
declared by the respective board of and when declared by the respective
directors. board of directors.
Voting Rights......... Each share of Key Technology common Each share of Advanced Machine
stock is entitled to one vote per Vision common stock is entitled to
share. one vote per share.
Redemption
Provisions.......... Key Technology common stock is not Advanced Machine Vision common stock
subject to any redemption is not subject to any redemption
provisions. provisions.
Cumulative
Voting.............. Under Oregon law, shareholders do In an election of directors under
not have a right to cumulative cumulative voting, each share of
voting unless the articles of stock normally having one vote is
incorporation provide otherwise. entitled to a number of votes equal
Under its existing articles of to the number of directors to be
incorporation and bylaws, Key elected. A shareholder may then cast
Technology's shareholders may not all such votes for a single
cumulate votes in connection with candidate or may allocate them among
the election of directors. as many candidates as the
shareholder
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<TABLE>
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KEY TECHNOLOGY (OREGON) ADVANCED MACHINE VISION (CALIFORNIA)
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may choose. Without cumulative
voting, the holders of a majority of
the shares present at an annual
meeting or any special meeting held
to elect directors would have the
power to elect all the directors to
be elected at that meeting, and no
person could be elected without the
support of holders of a majority of
the shares voting at such meeting.
Under California law, the
availability of the option of
cumulative voting in the election of
directors is mandatory. Advanced
Machine Vision's shareholders may
cumulate votes in connection with
the election of directors.
Quorum Requirements... Under Oregon law, unless the Under California law, unless
articles of incorporation or the otherwise provided in the articles
Oregon Business Corporation Act of incorporation, a majority of the
provide for a lesser or greater shares entitled to vote shall
number, a majority of votes entitled constitute a quorum. In no event may
to be cast on the matter by the a quorum constitute less than one-
voting group constitutes a quorum of third of, or more than a majority
that voting group for action on that of, the shares entitled to vote.
matter. Key Technology's articles of Advanced Machine Vision's bylaws
incorporation do not specify a provide that a majority of the
quorum requirement at any meeting of shares entitled to vote, represented
shareholders. in person or by proxy, shall
constitute a quorum at any meeting
of shareholders.
Amendments To Articles
Of Incorporation And
Bylaws.............. Under Oregon law, an amendment to California law authorizes a
the articles of incorporation is corporation's board of directors to
approved if, upon approval by the adopt certain amendments to the
board of directors and referral to corporation's articles of
the shareholders, a quorum exists incorporation without shareholder
and the votes cast favoring the action, including, but not limited
amendment exceed the votes cast to, deleting the names and addresses
opposing the action, unless the of the initial directors or the
amendment would create dissenters' initial agent, and effecting only a
rights, in which case a majority of stock split (unless the corporation
the votes entitled to be cast is has more than one class of shares
required for approval. Supermajority outstanding). The board of directors
voting requirements may be imposed may propose other amendments to the
and maintained by the articles of shareholders. Unless California law
incorporation. Key Technology's or the corporation's articles of
articles contain supermajority incorporation require a greater
rights with respect to the staggered proportion, the amendment must
terms of directors. Under Oregon generally be approved by the holders
law, a corporation's board of of a majority of the outstanding
directors may amend or repeal the shares. Amendments that would make
corporation's bylaws unless the shares assessable, however, or
corporation's articles of authorize a remedy by judicial
incorporation or action for collecting
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<TABLE>
<CAPTION>
KEY TECHNOLOGY (OREGON) ADVANCED MACHINE VISION (CALIFORNIA)
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Oregon law reserves the power to an assessment on fully paid shares,
amend the bylaws exclusively to the must be approved by all outstanding
shareholders in whole or in part, or shares. Furthermore, certain
the shareholders, in amending or amendments to the articles of
repealing a particular bylaw, incorporation that particularly
provide expressly that the board of affect one class of shares, such as
directors may not amend or repeal amendments that change the rights,
that bylaw. Key Technology's bylaws preferences, privileges or
grant the board of directors the restrictions of that class, must be
authority to alter, amend or repeal, approved by the holders of a
and adopt new bylaws, subject to majority of the outstanding shares
repeal or change by action of the of that class. Notwithstanding the
shareholders. foregoing, provisions in the
articles of incorporation that
require approval of a larger
proportion or all of the shares may
be amended or repealed only by such
greater vote, unless the articles of
incorporation provide otherwise
California law generally authorizes
either a corporation's board of
directors or its shareholders (by
majority vote) to amend, repeal or
adopt new bylaws. The bylaws,
articles of incorporation or
California law may require
shareholder approval, however, on
all amendments that: (i) change a
fixed number of directors; (ii)
change the maximum or minimum number
of directors; or (iii) change a
fixed number of directors to a
variable number of directors, or
vice versa, must be approved by a
majority of the outstanding shares
Furthermore, an amendment reducing
the fixed number or the minimum
number of directors to a number less
than five cannot be adopted if more
than 16 2/3% of the outstanding
voting shares are voted against such
amendment.
Shareholder Power To
Call Special
Shareholders'
Meeting............. Oregon law provides that a special California law provides that a
meeting of shareholders may be special meeting of shareholders may
called by the holders of at least be called by a corporation's board
10% of all the votes entitled to be of directors, the Chairman of the
cast on any issue proposed to be Board, the President, the holders of
considered at the proposed special at least 10% of all the votes
meeting, or by a corporation's board entitled to be cast on any issue
of directors, or by such other proposed to be considered at the
persons as are authorized under the proposed special meeting, or such
corporation's articles of other persons as are authorized
incorporation or bylaws. Key under the corporation's articles of
Technology's bylaws authorize the incorporation or bylaws. The bylaws
Chief Executive Officer, board of of Advanced Machine Vision authorize
directors or Advanced
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<TABLE>
<CAPTION>
KEY TECHNOLOGY (OREGON) ADVANCED MACHINE VISION (CALIFORNIA)
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shareholders holding at least 10% of Machine Vision's chairman of the
the corporation's shares entitled to board, president, the board of
vote to call a special meeting of directors or shareholders holding
shareholders. not less than 10% of the voting
power of the corporation to call a
special meeting of shareholders.
Shareholder Action
Without A Meeting... Under Oregon law, any action Under California law, unless
required or permitted to be taken at otherwise provided for in a
a meeting of the shareholders may be corporation's articles of
taken without a meeting if the incorporation, any action by a
action is taken by all shareholders corporation's shareholders must be
entitled to vote on the action. The taken at a meeting of the
action must be evidenced by one or shareholders, unless the
more written consents describing the shareholders of the corporation sign
action taken and signed by all the a consent in writing setting forth
shareholders entitled to vote on the the action so taken having not less
action. Key Technology's bylaws than the minimum number of votes
contain a provision allowing necessary to authorize or take the
shareholder action without a action at a meeting at which all
meeting. shares entitled to vote on the
action were present and voted.
Advanced Machine Vision's bylaws
contain a provision allowing
shareholder action without a
meeting.
Approval Of Certain
Corporate
Transactions........ Under Oregon law, an agreement of Under California law, a merger
merger must be approved by the board agreement must generally be approved
of directors and by a majority of by the corporation's board of
the outstanding shares entitled to directors of each constituent
vote thereon, unless Oregon law, the corporation and the principal terms
corporation's articles of must be approved by the holders of
incorporation or the board of both a majority of outstanding
directors requires a greater shares entitled to vote thereon and
proportion. Oregon law also by the holders of a majority of the
generally provides that a merger shares of each class of each
need not be authorized by the constituent corporation, unless
shareholders of the surviving California law otherwise requires a
corporation if (i) the agreement of greater proportion or the
merger does not amend the articles corporation's articles of
of incorporation, (ii) each incorporation require a greater
shareholder of the surviving proportion. Advanced Machine Vision
corporation before the merger will has three classes of stock
hold the same number and identical outstanding. Common stock Class A
shares of stock of the surviving and Class B vote together as one
corporation after the merger, (iii) class. The Series B Preferred stock
generally, the number of voting votes as a separate class.
shares outstanding immediately after California law provides that, in
the merger, plus the voting shares general, a corporation may sell,
issuable as a result of the merger, lease, exchange or otherwise dispose
will not exceed by more than 20% the of all, or substantially all, of its
total number of voting shares of the property or assets outside of its
surviving corporation outstanding ordinary course of business, if the
immediately prior to the merger, and board of directors and holders of a
(iv) generally, the number of majority of the outstanding voting
participating shares shares approve the principal terms
of the transaction, unless
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<TABLE>
<CAPTION>
KEY TECHNOLOGY (OREGON) ADVANCED MACHINE VISION (CALIFORNIA)
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outstanding immediately after the a greater proportion is otherwise
merger, plus the participating specified under California law or
shares issuable as a result of the the corporation's articles of
merger, will not exceed by more than incorporation.
20% the total number of
participating shares of the
surviving corporation outstanding
immediately prior to the merger.
Oregon law provides that, in
general, a corporation may at any
meeting of its board of directors
sell, lease or exchange all, or
substantially all, of its property
and assets, when and as authorized
by a resolution adopted by the
holders of a majority of the
outstanding shares entitled to vote
thereon.
Dissenters' Rights.... Under Oregon law, a stockholder is Under California law, a shareholder
entitled to dissent from, and obtain is entitled to dissent from certain
payment of the fair value of the corporate actions and obtain payment
stockholder's shares in the event of the fair market value of his or
of, any of the following corporate her shares, provided the shareholder
acts: (i) consummation of a plan of complies with certain procedures.
merger to which the corporation is a The actions which trigger a
party if stockholder approval is shareholder's dissenter rights
required and the stockholder is include reorganizations where
entitled to vote on the merger or if shareholder approval is required,
the corporation is a subsidiary that such as certain mergers, share
is merged with its parent; (ii) exchanges, sales of all or
consummation of a plan of share substantially all of the
exchange to which the corporation is corporation's assets in exchange for
a party as the corporation whose the acquiror's securities, and share
shares will be acquired, if the exchange tender offers. Dissenters'
stockholder is entitled to vote on rights generally do not apply to
the plan; (iii) consummation of a shares that are listed on a national
sale or exchange of all or securities exchange certified by the
substantially all of the property of Commissioner of Corporations or
the corporation other than in the listed on the list of OTC margin
usual and regular course of business stocks issued by the Board of
if the stockholder is entitled to Governors of the Federal Reserve
vote on the sale or exchange, unless System. For a description of
the sale is for cash pursuant to Advanced Machine Vision shareholders
which all or substantially all of rights of dissent in the Merger, see
the net proceeds will be distributed "THE MERGER -- Rights of Dissenting
to shareholders within one year; Advanced Machine Vision
(iv) an amendment of the articles of Shareholders" on page 41.
incorporation that materially and
adversely affects rights in respect
of a dissenter's shares because it
(A) alters or abolishes a preemptive
right of the holder of the shares to
acquire shares or other securities
or (B) reduces the number of shares
owned by the stockholder to a
fraction of a share if the
fractional share so created is to be
acquired for cash under Oregon law;
or
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<TABLE>
<CAPTION>
KEY TECHNOLOGY (OREGON) ADVANCED MACHINE VISION (CALIFORNIA)
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(v) any corporate action taken
pursuant to a stockholder vote to
the extent the articles of
incorporation, bylaws or a
resolution of the board of directors
provides that voting or nonvoting
shareholders are entitled to dissent
and obtain payment for their shares.
Unless the articles of incorporation
provide otherwise, dissenters'
rights do not apply to the holders
of shares of any class or series if
the shares of the class or series
were registered on a national
securities exchange or quoted on the
Nasdaq National Market on the record
date for the meeting of shareholders
at which the corporate action giving
rise to dissenters' rights is to be
approved.
Anti-Takeover
Provisions.......... Oregon law regulates the process by California law does not contain any
which a person may acquire control "anti-takeover" provisions.
of any Oregon-based corporation with California law does, however, permit
100 or more shareholders without the corporations to adopt certain
consent and cooperation of the board provisions in their articles of
of directors. This law would apply incorporation that might discourage
to persons seeking to acquire unfriendly takeover bids -- for
control of Key Technology. The law example, requiring the approval of a
restricts the ability to vote shares supermajority of the board of
of stock acquired in a transaction directors or the shareholders for
that causes the acquiring person to certain transactions. The Advanced
control at least one-fifth, Machine Vision articles do not
one-third or one-half of the votes contain such "anti-takeover"
entitled to be cast in the election provisions. However, Advanced
of directors. Shares acquired in a Machine Vision has issued certain
control share acquisition have no shareholder rights commonly known as
voting rights except as authorized a "poison pill."
by a vote of the shareholders.
Although a corporation may elect not
to be governed by this law by
amendment to its articles of
incorporation or bylaws, Key has not
made such an election. In addition,
Oregon has enacted a business
combination statute that applies to
Key Technology and whose material
terms are discussed below. Oregon's
business combination statute
provides that any person who
acquires 15% or more of a
corporation's voting stock (thereby
becoming an "interested
stockholder") may not engage in
certain "business combinations" with
the target corporation for a period
of three years following the date
the person became an interested
stockholder, unless (1) the
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<TABLE>
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KEY TECHNOLOGY (OREGON) ADVANCED MACHINE VISION (CALIFORNIA)
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board of directors of the
corporation has approved, prior to
that acquisition date, either the
business combination or the
transaction that resulted in the
person becoming an interested
stockholder, (2) upon consummation
of the transaction that resulted in
the person becoming an interested
stockholder, that person owns at
least 85% of the corporation's
voting stock outstanding at the time
the transaction is commenced
(excluding shares owned by persons
who are both directors and officers
and shares owned by employee stock
plans in which participants do not
have the right to determine
confidentially whether shares will
be tendered in a tender or exchange
offer), or (3) the business
combination is approved by the board
of directors and authorized by the
affirmative vote (at an annual or
special meeting and not by written
consent) of at least two-thirds of
the outstanding voting stock not
owned by the interested stockholder.
For purposes of determining whether
a person is the "owner" of 15% or
more of a corporation's voting stock
for the business combination
statute, ownership is defined
broadly to include the right,
directly or indirectly, to acquire
the stock or to control the voting
or disposition of the stock. A
"business combination" is also
defined broadly to include (1)
mergers and sales or other
dispositions of 10% or more of the
assets of a corporation with or to
an interested stockholder, (2)
certain transactions resulting in
the issuance or transfer to the
interested stockholder of any stock
of the corporation or its
subsidiaries, (3) certain
transactions which would result in
increasing the proportionate share
of the stock of a corporation or its
subsidiaries owned by the interested
stockholder, and (4) receipt by the
interested stockholder of the
benefit (except proportionately as a
stockholder) of any loans, advances,
guarantees, pledges, or other
financial benefits. These
restrictions placed on interested
shareholders by the business
combination
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<TABLE>
<CAPTION>
KEY TECHNOLOGY (OREGON) ADVANCED MACHINE VISION (CALIFORNIA)
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statute do not apply under certain
circumstances, including, but not
limited to, the following: (1) if
the corporation's original articles
of incorporation contain a provision
expressly electing not to be
governed by the business combination
statute, (2) if the corporation, by
action of its shareholders, adopts
an amendment to its bylaws or
articles of incorporation expressly
electing not to be governed by the
business combination statute,
provided that such an amendment is
approved by the affirmative vote of
not less than a majority of the
outstanding shares entitled to vote
and that such an amendment will not
be effective until 12 months after
its adoption and will not apply to
any business combination with a
person who became an interested
stockholder at or prior to such
adoption, or (3) if the corporation
does not have a class of voting
stock that is listed on a national
securities exchange, authorized for
quotation on an interdealer
quotation system of a registered
national securities association, or
held by more than 2,000
shareholders. In addition, Key
Technology's articles provide that
the approval of 75% of the
outstanding shares is required to
approve a business combination (as
defined in Key Technology's
articles) with any person or entity
which is the beneficial owner of 5%
or more of the outstanding common
stock of Key Technology. The 75%
vote must include not less than 51%
of the common stock held by persons
other than the major shareholder in
the proposed business combination.
"Blank Check"
Preferred Stock..... Key Technology's articles contain a Advanced Machine Vision's articles
provision granting authority to contain a provision granting
issue "blank check" preferred stock. authority to issue "blank check"
preferred stock authority.
Removal Of
Directors........... Under Oregon law, a director may be Under California law, shareholders
removed with or without cause unless may remove one or more directors of
the articles of incorporation a corporation without cause subject
provide that directors may be to certain restrictions and
removed only for cause. Key requirements under California law.
Technology's articles do not provide In addition, the superior court of
that the directors may be removed the proper county may,
only
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<TABLE>
<CAPTION>
KEY TECHNOLOGY (OREGON) ADVANCED MACHINE VISION (CALIFORNIA)
------------------------------------ ------------------------------------
<S> <C> <C>
for cause. A director may be removed at the suit of shareholders holding
by the shareholders only at a at least ten percent (10%) of the
meeting called for the purpose of number of outstanding shares of any
removing the director and the class, remove from office any
meeting notice must state that the director for fraud, dishonesty or
purpose, or one of the purposes of gross abuse of authority or
the meeting, is removal of the discretion with respect to the
director. corporation and may bar such removed
director from re-election for a
prescribed period.
Classified Board Of
Directors........... Oregon law permits a corporation California law permits a listed
that has six (6) or more directors corporation (that is, a corporation
to establish in the corporation's whose shares are listed on the New
articles of incorporation or bylaws, York Stock Exchange or American
a board of directors under which Stock Exchange, or on NASDAQ if the
directors can be divided into as corporation has at least 800
many as three (3) classes to serve shareholders) to establish in the
for terms of as many as three (3) corporation's articles of
years. If the corporation has incorporation or bylaws, a board of
cumulative voting, terms of directors under which directors can
directors may only be staggered if be divided into as many as three (3)
there are at least three (3) members classes to serve for terms of as
of each group of directors. Key many as three (3) years. A listed
Technology's articles provide that corporation may also amend its
if there are six (6) or more articles of incorporation or bylaws
directors, they will be divided into to eliminate cumulative voting. An
three (3) groups with each group unlisted corporation may amend its
serving a three (3) year term. Key articles of incorporation or bylaws
Technology's articles require the to provide for a classified board of
affirmative vote of at least 75% of directors and/or to eliminate
the outstanding shares to amend or cumulative voting when it becomes a
repeal the staggered terms of listed corporation. Advanced Machine
directors. Vision's articles of incorporation
do not provide for classes of
directors.
Size Of Board Of
Directors........... Oregon law provides that the size of California law provides that the
a corporation's board of directors size of a corporation's board of
may be specified in, or fixed in directors may be specified in, or
accordance with, the corporation's fixed in accordance with, the
bylaws. Oregon law also states that corporation's bylaws. California law
the number of directors may also be also states that the number of
specified in the corporation's directors may also be specified in
articles of incorporation, and if so the corporation's articles of
specified, the number may only be incorporation, and if so specified,
changed by an amendment to the the number may only be changed by an
articles of incorporation. Key amendment to the articles of
Technology's articles provided that incorporation. The bylaws of
the number of directors shall not be Advanced Machine Vision provide that
less than three and Key Technology's the number of directors shall be not
bylaws provide that the number of less than five nor more than nine,
directors shall be not less than one with the board fixing the number of
nor more than seven. The number of directors within such range. The
Key Technology directors is number of Advanced Machine Vision
presently set at six. directors is presently set at eight.
</TABLE>
110
<PAGE> 124
<TABLE>
<CAPTION>
KEY TECHNOLOGY (OREGON) ADVANCED MACHINE VISION (CALIFORNIA)
------------------------------------ ------------------------------------
<S> <C> <C>
Dividends And
Repurchase Of
Shares.............. Under Oregon law, the board of California law generally prohibits a
directors of a corporation may corporation from making a
authorize and the corporation may distribution to its shareholders,
make distributions (including unless the amount of the proposed
dividends) to shareholders only if distribution is less than or equal
after giving effect to the to the corporation's retained
distribution (i) the corporation earnings immediately prior thereto
would be able to pay its debts as or unless, after giving effect to
they become due in the usual course such distribution, (i) the current
of business and (ii) the assets of the corporation would be
corporation's total assets would at at least equal to its current
least equal the sum of the total liabilities, and (ii) the sum of the
liabilities plus, unless the corporation's assets would be equal
corporation's articles of to at least one and one-quarter
incorporation permit otherwise, the times its liabilities. In addition,
amount that would be needed if the a corporation may not make any
corporation were to be dissolved at distribution (including a repurchase
the time of the distribution to of its own shares) if the
satisfy the preferential rights upon corporation is, or after the
dissolution of shareholders whose distribution would be, likely to be
preferential rights are superior to unable to pay its debts as they
those receiving the distribution. mature.
Class Voting.......... Oregon law provides that the holders California law provides that the
of outstanding shares of a class are holders of outstanding shares of a
entitled to vote as a separate class are entitled to vote as a
voting group with respect to separate voting group with respect
amendments to the corporation's to amendments to the corporation's
articles of incorporation that would articles of incorporation that would
affect such class in certain ways, affect such class in certain ways,
including, without limitation: including, without limitation:
changing the aggregate number of changing the aggregate number of
authorized shares of such class, authorized shares of such class,
except for certain specified except for certain specified
increases (with respect to increases (with respect to
California law only); effecting an California law only); effecting an
exchange, reclassification or exchange, reclassification or
cancellation of all or part of the cancellation of all or part of the
shares of such class, other than a shares of such class, other than a
stock split (with respect to stock split (with respect to
California law only); effecting an California law only); effecting an
exchange or creating a right of exchange or creating a right of
exchange of all or part of the exchange of all or part of the
shares of another class into the shares of another class into the
shares of such class; changing the shares of such class; changing the
rights, preferences, privileges or rights, preferences, privileges or
restrictions of the shares of such restrictions of the shares of such
class; or creating a new class of class; or creating a new class of
shares having rights, preferences or shares having rights, preferences or
privileges prior to the shares of privileges prior to the shares of
such class. such class.
Limitation Of
Liability Of
Directors........... Oregon law permits a corporation, California law permits a
subject to limitations described corporation, subject to limitations
below, to include a provision in its described below, to include a
articles of incorporation limiting provision in its articles of
the personal incorporation limiting the personal
liability
</TABLE>
111
<PAGE> 125
<TABLE>
<CAPTION>
KEY TECHNOLOGY (OREGON) ADVANCED MACHINE VISION (CALIFORNIA)
------------------------------------ ------------------------------------
<S> <C> <C>
liability of a director or officer of a director or officer to the
to the corporation or its corporation or its shareholders for
shareholders for damages for a damages for a breach of the
breach of the director's fiduciary director's fiduciary duty. Advanced
duty. While such a provision Machine Vision's articles of
provides directors with protection incorporation include such a
from awards for monetary damages for provision. While such a provision
breaches of their duty of care, it provides directors with protection
does not eliminate such duty. from awards for monetary damages for
Accordingly, such a provision will breaches of their duty of care, it
have no effect on the availability does not eliminate such duty.
of equitable remedies such as an Accordingly, such a provision will
injunction or rescission based on a have no effect on the availability
director's breach of his or her duty of equitable remedies such as an
of care. injunction or rescission based on a
director's breach of his or her duty
of care.
Indemnification Of
Directors And
Officers............ Under Oregon law, a corporation may California law permits a corporation
indemnify a director for actions to indemnify officers, directors,
taken in good faith and which the employees and agents for actions
individual reasonably believed to be taken in good faith and in a manner
in the best interests of the they reasonably believed to be in
corporation. In the case of a the best interests of the
criminal proceeding, the individual corporation. With respect to any
may not have had any reasonable criminal action, the indemnified
cause to believe the conduct was party may not have had any
unlawful. A director may not be reasonable cause to believe the
indemnified in connection with a action was unlawful. California law
proceeding in which the director was provides, upon receipt of an
found liable to the corporation or undertaking to reimburse the
in which the director was found to corporation if indemnification is
have improperly received a personal not appropriate, that a corporation
benefit. Oregon law provides for may advance expenses of defense. In
mandatory indemnification of addition, a corporation must
officers and directors when the reimburse a successful defendant for
indemnified party is wholly expenses, including attorneys' fees,
successful in the defense of the actually and reasonably incurred.
proceeding. Key Technology's California law also permits a
articles of incorporation provide corporation to purchase liability
indemnification rights to the insurance for its directors and
fullest extent permitted by law. officers. California law provides
These indemnification rights are not that a corporation may not indemnify
exclusive of any other right to for any matter as to which a person
which persons seeking has been adjudged to be liable to
indemnification may be entitled the corporation, but only to the
under any law, bylaw, agreement, extent a court determines that the
vote of shareholders or person is entitled to indemnity.
disinterested directors or Advanced Machine Vision's bylaws
otherwise. provide that Advanced Machine Vision
will indemnify and hold harmless
each person who is involved in any
actual or threatened proceeding,
whether civil, criminal,
administrative or investigative, by
reason of the fact that he or she,
or a person of whom he or she is the
legal representative, was an agent
of Advanced
</TABLE>
112
<PAGE> 126
<TABLE>
<CAPTION>
KEY TECHNOLOGY (OREGON) ADVANCED MACHINE VISION (CALIFORNIA)
------------------------------------ ------------------------------------
<S> <C> <C>
Machine Vision or was serving at the
request of Advanced Machine Vision
as a director, officer or employee
of another person, to the full
extent permitted by California law
against all expenses, liabilities
and losses, including, attorneys'
fees, judgments, fines, settlements
and amounts expended in seeking
indemnification. These
indemnification rights are not
exclusive of any other right to
which persons seeking
indemnification may be entitled
under any law, bylaw, agreement,
vote of shareholders or
disinterested directors or
otherwise. Advanced Machine Vision
has purchased insurance on behalf of
its directors and officers.
</TABLE>
113
<PAGE> 127
COMPARATIVE MARKET PRICE DATA
Key Technology's common stock is traded on the Nasdaq National Market under
the symbol "KTEC". Advanced Machine Vision's common stock is traded on the
Nasdaq Small Cap Market under the symbol "AMVC." The following table sets forth
for the periods indicated the quarterly high and low sales prices for each of
Key Technology and Advanced Machine Vision reported on The Nasdaq National
Market and the Nasdaq Small Cap Market, respectively.
<TABLE>
<CAPTION>
ADVANCED
KEY MACHINE
TECHNOLOGY VISION
COMMON COMMON
STOCK PRICES STOCK PRICES
------------------ --------------
HIGH LOW HIGH LOW
------- ------- ----- -----
<S> <C> <C> <C> <C>
1998*
First Quarter......................................... $12.50 $ 9.875 $2.34 $1.78
Second Quarter........................................ 12.00 10.00 2.38 1.81
Third Quarter......................................... 10.875 6.00 2.16 1.50
Fourth Quarter........................................ 7.75 5.25 1.56 1.06
1999*
First Quarter......................................... $ 9.50 $ 6.125 $1.25 $0.97
Second Quarter........................................ 9.375 4.75 1.44 0.94
Third Quarter......................................... 12.50 5.188 1.28 1.09
Fourth Quarter........................................ 9.12 7.00 1.19 0.75
2000*
First Quarter......................................... 11.188 8.125 2.25 0.75
</TABLE>
-------------------------
* Calendar quarters; Key Technology's fiscal year ends September 30 and Advanced
Machine Vision's year end is December 31.
On February 14, 2000, the last full trading day prior to the first public
announcement of the execution of the merger agreement, the reported high and low
sale prices per share and closing price per share of Key Technology common stock
and Advanced Machine Vision common stock on the Nasdaq were as follows:
<TABLE>
<CAPTION>
HIGH LOW CLOSE
----- ------ ------
<S> <C> <C> <C>
Key Technology.................................... $9.75 $8.891 $9.625
Advanced Machine Vision........................... $1.94 $ 1.66 $ 1.69
</TABLE>
On , 2000, the last full trading day prior to the date of this
joint proxy statement/prospectus, the reported high and low sale prices per
share and closing price per share of Key Technology common stock and Advanced
Machine Vision common stock on Nasdaq were as follows:
<TABLE>
<CAPTION>
HIGH LOW CLOSE
----- ----- -----
<S> <C> <C> <C>
Key Technology...................................... $ $ $
Advanced Machine Vision............................. $ $ $
</TABLE>
Shareholders are urged to obtain current market quotations for shares of
Key Technology common stock and Advanced Machine Vision common stock.
114
<PAGE> 128
ADDITIONAL MATTER BEING SUBMITTED TO A VOTE OF ONLY KEY
TECHNOLOGY SHAREHOLDERS
APPROVAL OF AMENDMENT TO 1996 EMPLOYEES' STOCK OPTION PLAN
Key Technology shareholders are being asked to approve an amendment to the
1996 employees' stock option plan to increase in the number of shares of common
stock available for issuance from 750,000 shares to 1,250,000 shares. The board
believes that if the Advanced Machine Vision merger is completed, adding shares
to the plan is in the best interests of Key Technology because it will allow Key
Technology to attract and retain employees by providing them with appropriate
equity incentives. The plan plays an important role in Key Technology's efforts
to attract and retain employees of outstanding ability.
DESCRIPTION OF THE STOCK OPTION PLAN
For a description of the terms of the 1996 employees' stock option plan,
see the section entitled "Management of Key Technology -- 1996 Employees' Stock
Option Plan" beginning on page 65. Key Technology will provide, without charge,
to each person to whom a proxy statement is delivered, upon request of such
person and by first class mail within three business days of receipt of such
request, a copy of the option plan. Any such request should be directed as
follows: Chief Financial Officer, Key Technology, 150 Avery Street, Walla Walla,
WA 99362; telephone number (509) 529-2161.
REQUIRED VOTE
The plan requires the approval of the proposed amendment by an affirmative
vote of the holders representing a majority of Key Technology's common shares
present or represented by proxy at the meeting and entitled to vote on this
proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
AMENDMENT TO THE 1996 EMPLOYEES' STOCK OPTION PLAN.
EXPERTS
The consolidated financial statements of Key Technology as of September 30,
1999 and 1998, and for the three years in the period ended September 30, 1999,
included in the Registration Statement on Form S-4 and this joint proxy
statement/prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein, and are included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Advanced Machine Vision as of
December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999 included in this Registration Statement on Form S-4 and this
joint proxy statement/prospectus have been so included in reliance upon the
report (which includes an explanatory paragraph relating to the restatement of
the 1998 financial statement as described in Note 1 to the financial statements)
of PricewaterhouseCoopers LLP, independent accountants, given on authority of
said firm as experts in accounting and auditing.
LEGAL MATTERS
Tonkon Torp LLP will issue an opinion concerning the validity of the Key
Technology Series B convertible preferred stock, common stock and warrants to be
issued by Key Technology pursuant to the merger. A member of Tonkon Torp LLP is
the Assistant Secretary of Key Technology and owns 10,000 shares of Key
Technology's common stock.
115
<PAGE> 129
SHAREHOLDER PROPOSALS
Shareholders may properly present proposals for inclusion in Key
Technology's proxy statement and for consideration at the next annual meeting of
its shareholders by submitting proposals to Key Technology in a timely manner.
As noted in Key Technology's proxy statement relating to its 2000 annual meeting
of shareholders, in order to be included for the 2001 annual meeting,
shareholder proposals must be received by Key Technology no later than September
26, 2000, and must otherwise have complied with the requirements of the
Securities Exchange Act and Key Technology's restated bylaws.
Advanced Machine Vision shareholders may properly present proposals for
inclusion in Advanced Machine Vision's proxy statement and for consideration at
the next annual meeting of its shareholders by submitting proposals to Advanced
Machine Vision in a timely manner. As noted in Advanced Machine Vision's proxy
statement relating to its 2000 annual meeting of shareholders, in order to be
included for the 2001 annual meeting, in the event that the merger has not been
consummated before the meeting, shareholder proposals must have been received by
Advanced Machine Vision no later than January 15, 2001 and must otherwise have
complied with the requirements of the Securities Exchange Act and Advanced
Machine Vision's bylaws.
116
<PAGE> 130
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
KEY TECHNOLOGY, INC.
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets at March 31, 2000 (unaudited),
September 30, 1999 and 1998............................... F-3
Consolidated Statements of Earnings for the three years
ended September 30, 1999 and the six months ended March
31, 2000 and 1999 (unaudited)............................. F-4
Consolidated Statements of Shareholders' Equity for the
three years ended September 30, 1999 and the six months
ended March 31, 2000 (unaudited).......................... F-5
Consolidated Statements of Cash Flows for the three years
ended September 30, 1999 and the six months ended March
31, 2000 and 1999 (unaudited)............................. F-6
Notes to Consolidated Financial Statements.................. F-7
ADVANCED MACHINE VISION CORPORATION
Report of Independent Accountants........................... F-18
Financial Statements:
Consolidated Balance Sheets -- March 31, 2000 (unaudited),
December 31, 1999 and 1998............................. F-19
Consolidated Statements of Operations -- Fiscal Years
Ended December 31, 1999, 1998 and 1997 and the three
months ended March 31, 2000 and 1999 (unaudited)....... F-20
Consolidated Statements of Mandatorily Redeemable
Preferred Stock and Non-Redeemable Shareholders'
Equity -- Fiscal Years Ended December 31, 1999, 1998
and 1997 and the three months ended March 31, 2000
(unaudited)............................................ F-21
Consolidated Statements of Cash Flows -- Fiscal Years
Ended December 31, 1999, 1998 and 1997 and the three
months ended March 31, 2000 and 1999 (unaudited)....... F-22
Notes to Consolidated Financial Statements................ F-23
Financial Statement Schedule:
Schedule VIII -- Valuation and Qualifying Accounts........ F-41
</TABLE>
F-1
<PAGE> 131
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Key Technology, Inc.
Walla Walla, Washington
We have audited the accompanying consolidated balance sheets of Key
Technology, Inc. and subsidiaries as of September 30, 1999 and 1998, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended September 30, 1999. The
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Key Technology, Inc. and
subsidiaries as of September 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
November 3, 1999
F-2
<PAGE> 132
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
MARCH SEPTEMBER SEPTEMBER
2000 1999 1998
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 6,351 $ 5,419 $ 6,333
Short-term investments................................... 2,485 984 --
Trade accounts and notes receivable, net................. 11,939 10,762 7,051
Inventories.............................................. 13,072 14,618 12,683
Deferred income taxes.................................... 1,214 1,182 1,205
Prepaid expenses......................................... 721 1,049 616
------- ------- -------
Total current assets.................................. 35,782 34,014 27,888
PROPERTY, PLANT, AND EQUIPMENT, Net........................ 8,073 8,582 9,584
DEFERRED INCOME TAXES...................................... 466 207 18
GOODWILL AND OTHER INTANGIBLES, Net........................ 1,659 1,617 1,867
------- ------- -------
TOTAL...................................................... $45,980 $44,420 $39,357
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 3,166 $ 2,753 $ 2,471
Accrued payroll liabilities and commissions.............. 3,191 3,801 2,146
Accrued customer support and warranty costs.............. 740 797 1,043
Income tax payable....................................... 1,058 507 279
Other accrued liabilities................................ 1,249 1,344 1,029
Customers' deposits...................................... 2,559 1,535 1,392
Current portion of long-term debt........................ 291 304 579
------- ------- -------
Total current liabilities............................. 12,254 11,041 8,939
LONG-TERM DEBT............................................. 510 722 1,103
COMMITMENTS AND CONTINGENCIES (Note 7)..................... -- -- --
SHAREHOLDERS' EQUITY:
Preferred stock -- no par value; 5,000,000 shares
authorized; none issued and outstanding............... -- -- --
Common stock -- no par value; 15,000,000 shares
authorized; 4,722,514 (unaudited), 4,713,995 and
4,701,502 issued and outstanding at March 31, 2000,
September 30, 1999 and 1998, respectively............. 9,246 9,183 9,106
Retained earnings........................................ 24,862 23,938 20,409
Accumulated comprehensive loss........................... (892) (464) (200)
------- ------- -------
Total shareholders' equity............................ 33,216 32,657 29,315
------- ------- -------
TOTAL...................................................... $45,980 $44,420 $39,357
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 133
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, SEPTEMBER 30,
-------------------------- -----------------------------
2000 1999 1999 1998 1997
----------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES.......................... $32,160 $30,495 $68,028 $53,133 $57,268
COST OF SALES...................... 20,285 19,353 42,281 33,838 39,451
------- ------- ------- ------- -------
Gross profit.................. 11,875 11,142 25,747 19,295 17,817
------- ------- ------- ------- -------
OPERATING EXPENSES:
Selling.......................... 5,739 4,731 11,125 8,025 8,104
Research and development......... 2,404 2,081 4,347 4,846 4,417
General and administrative....... 2,632 2,997 5,550 5,214 5,127
------- ------- ------- ------- -------
Total operating expenses...... 10,775 9,809 21,022 18,085 17,648
------- ------- ------- ------- -------
INCOME FROM OPERATIONS............. 1,100 1,333 4,725 1,210 169
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Royalty income................... 35 36 77 62 225
Interest income.................. 210 111 318 227 280
Interest expense................. (33) (58) (108) (139) (246)
Other, net....................... 67 34 149 29 191
------- ------- ------- ------- -------
Total other income -- net..... 279 123 436 179 450
------- ------- ------- ------- -------
Earnings before income taxes....... 1,379 1,456 5,161 1,389 619
Income tax expense................. 455 485 1,632 464 197
------- ------- ------- ------- -------
NET EARNINGS....................... $ 924 $ 971 $ 3,529 $ 925 $ 422
======= ======= ======= ======= =======
EARNINGS PER SHARE --
Basic............................ $ 0.20 $ 0.21 $ 0.75 $ 0.20 $ 0.09
======= ======= ======= ======= =======
EARNINGS PER SHARE --
Diluted.......................... $ 0.20 $ 0.21 $ 0.75 $ 0.20 $ 0.09
======= ======= ======= ======= =======
SHARES USED IN PER SHARE
CALCULATION -- Basic............. 4,717 4,703 4,707 4,692 4,674
======= ======= ======= ======= =======
SHARES USED IN PER SHARE
CALCULATION -- Diluted.......... 4,720 4,703 4,711 4,721 4,760
======= ======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 134
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED SEPTEMBER 30, 1999 AND THE
SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
------------------- RETAINED COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME (LOSS) TOTAL
--------- ------ -------- ------------- -------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1996................ 4,657,822 $8,730 $19,062 $(209) $27,583
Components of comprehensive income:
Net earnings.............................. 422 422
Comprehensive loss -- foreign currency
translation adjustment, net of tax...... (213) (213)
--------- ------ ------- ----- -------
Total comprehensive income............ 209
--------- ------ ------- ----- -------
Issuance of common stock upon Exercise of
stock options........................... 20,425 149 -- -- 149
Issuance of stock for Employee Stock
Purchase Plan........................... 6,199 90 -- -- 90
--------- ------ ------- ----- -------
Balance at September 30, 1997............. 4,684,446 8,969 19,484 (422) 28,031
Components of comprehensive income:
Net earnings.............................. 925 925
Comprehensive income -- foreign currency
translation adjustment, net of tax...... 222 222
--------- ------ ------- ----- -------
Total comprehensive income............ 1,147
--------- ------ ------- ----- -------
Issuance of common stock upon Exercise of
stock options........................... 6,475 51 -- -- 51
Issuance of stock for Employee Stock
Purchase Plan........................... 10,581 86 -- -- 86
--------- ------ ------- ----- -------
Balance at September 30, 1998............. 4,701,502 9,106 20,409 (200) 29,315
Components of comprehensive income:
Net earnings............................ 3,529 3,529
Comprehensive loss -- foreign currency
translation adjustment, net of tax.... (264) (264)
--------- ------ ------- ----- -------
Total comprehensive income.......... 3,265
--------- ------ ------- ----- -------
Issuance of common stock upon Exercise of
stock options........................... 100 1 -- -- 1
Issuance of stock for Employee Stock
Purchase Plan........................... 12,393 76 -- -- 76
--------- ------ ------- ----- -------
Balance at September 30, 1999............. 4,713,995 $9,183 $23,938 $(464) $32,657
--------- ------ ------- ----- -------
Components of comprehensive income:
Net earnings............................ 924 924
Comprehensive loss -- foreign currency
translation adjustment, net of tax.... (428) (428)
--------- ------ ------- ----- -------
Total comprehensive income.......... 496
--------- ------ ------- ----- -------
Issuance of stock for Employee Stock
Purchase Plan........................... 8,519 63 -- -- 63
--------- ------ ------- ----- -------
Balance at March 31, 2000 (unaudited)..... 4,722,514 $9,246 $24,862 $(892) $33,216
========= ====== ======= ===== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 135
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, SEPTEMBER 30,
------------------------- ---------------------------
2000 1999 1999 1998 1997
----------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.......................................... $ 924 $ 971 $ 3,529 $ 925 $ 422
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Foreign exchange (gain) loss........................ 67 (59) (58) (61) (44)
Depreciation and amortization....................... 1,180 1,197 2,371 2,187 2,145
Deferred income taxes, net.......................... (70) (105) (30) 7 (557)
Deferred rent....................................... 25 21 42 50 70
Bad debt expense.................................... -- (25) (117) 156 181
Changes in assets and liabilities:
Trade accounts and notes receivable................. (1,410) (4,096) (3,768) 1,626 (73)
Inventories......................................... 1,340 51 (2,125) 1,230 (360)
Prepaid expenses.................................... 301 75 (452) 1 106
Goodwill and other intangibles...................... (157) -- -- 6 83
Accounts payable.................................... 461 1,263 354 (85) (2,301)
Accrued payroll liabilities and commission.......... (567) 598 1,665 (194) (919)
Accrued customer support and warranty costs......... (47) (124) (246) (86) (242)
Income taxes payable................................ 574 81 256 (481) (562)
Other accrued liabilities........................... (103) (139) 280 (121) (60)
Customers' deposits................................. 1,055 974 189 (64) (1,648)
Other liabilities................................... -- -- -- -- (121)
------- ------- ------- ------- -------
Cash provided by (used in) operating activities... 3,573 683 1,890 5,096 (3,880)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments.................. (2,501) -- (984) -- --
Maturities of short-term investments................ 1,000 -- -- -- 6,070
Proceeds from sale of property...................... -- -- -- 653 --
Purchases of property, plant, and equipment......... (771) (586) (1,338) (2,032) (2,526)
------- ------- ------- ------- -------
Cash provided by (used in) investing activities... (2,272) (586) (2,322) (1,379) 3,544
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.............. 63 -- 77 137 239
Payments on long-term debt.......................... (145) (201) (539) (904) (1,608)
Proceeds from issuance of long-term debt............ -- 39 -- 409 1,312
------- ------- ------- ------- -------
Cash used in financing activities................. (82) (162) (462) (358) (57)
------- ------- ------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............... (287) 15 (20) 78 (169)
------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... 932 (50) (914) 3,437 (562)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.......... 5,419 6,333 6,333 2,896 3,458
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR................ $ 6,351 $ 6,283 $ 5,419 $ 6,333 $ 2,896
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest.............. $ 39 $ 68 $ 148 $ 256 $ 240
Cash paid (refunded) during the year for income
taxes........................................... (46) 503 1,408 800 1,266
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Equipment obtained through capital leases........... $ -- $ -- $ -- $ -- $ 51
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 136
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED SEPTEMBER 30, 1999
1. THE COMPANY
Key Technology, Inc. and its wholly-owned subsidiaries (the "Company")
design, manufacture, and sell process automation systems, integrating
electro-optical inspection and sorting, specialized conveying and product
preparation equipment. The consolidated financial statements include the
accounts of Key Technology, Inc. and its wholly-owned subsidiaries, Key
Technology Holdings U.S.A., LLC, and Key Technology FSC, Inc., a foreign sales
corporation (FSC). Suplusco Holding B.V., a wholly-owned European subsidiary of
Key Technology Holdings U.S.A., LLC includes the accounts of Key Technology B.V.
and Superior B.V. During 1998, Key Technology B.V. was merged with and into
Superior B.V. to form KEY/Superior B.V. All significant intercompany accounts
and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Sales revenue net of allowances is recognized at the time equipment is
shipped to customers or when title passes or, in the case of trial units, upon
the customer's acceptance of the product. Revenue from maintenance and support
contracts is recognized ratably over the period the service is provided. Revenue
from other service contracts is recognized at the time the service is provided.
Upon receipt of an order, the Company generally receives a deposit which is
recorded as customers' deposits. The Company makes periodic evaluations of the
creditworthiness of its customers and generally does not require collateral. An
allowance for credit losses is provided based upon historical experience and
anticipated losses.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of 90 days or less at date of acquisition to be cash equivalents. The
Company invests from time-to-time in short-term investments which consist
primarily of bankers acceptances and commercial paper with original maturities
of greater than 90 days and less than one year. These short-term investments are
typically held to maturity and the carrying value approximates fair value.
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Property, Plant, and Equipment are recorded at cost and depreciated over
estimated useful lives on the straight-line method. The range in lives for the
assets is as follows:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings and improvements.................................. 7 to 40
Manufacturing equipment..................................... 7 to 10
Office equipment, furniture, and fixtures................... 3 to 7
</TABLE>
GOODWILL AND OTHER INTANGIBLES
Goodwill is amortized over 10 years. Patent costs are amortized over the
estimated useful lives of the related patents or 17 years, whichever is shorter.
Management periodically evaluates the recoverability of goodwill and other
intangibles based upon current and anticipated net income and undiscounted
future cash flows. Amortization of goodwill and other intangibles was $237,000,
$237,000, and $244,000 for the years ended September 30, 1999, 1998, and 1997,
respectively.
F-7
<PAGE> 137
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCRUED CUSTOMER SUPPORT AND WARRANTY COSTS
The Company provides customer support services consisting of installation
and training to its customers. The Company also provides a warranty on its
products for one year following the date of shipment. Management establishes the
reserve for customer support and warranty costs based upon the types of products
shipped, customer support and product warranty experience and estimates such
costs for related new products where experience is not available. The provision
of customer support and warranty costs is charged to cost of sales at the time
such costs are known or estimable.
INCOME TAXES
Deferred income taxes are provided for the effects of temporary differences
arising from differences in the reporting of revenues and expenses for financial
statement and income tax purposes under the asset and liability method using
currently enacted tax rates.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in a foreign currency are translated to
U.S. dollars at the exchange rate on the balance sheet date. Translation
adjustments are shown separately in shareholders' equity. Revenues, costs, and
expenses are translated using an average rate. Realized and unrealized foreign
currency transaction gains and losses are included in the consolidated statement
of earnings and are not material.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, Disclosures
About Fair Value of Financial Instruments, requires disclosure of the estimated
fair value of financial instruments. The carrying value of the Company's cash,
receivables, trade payables, and other accrued liabilities approximates their
estimated fair values due to the short maturities of those instruments.
IMPAIRMENT OF LONG LIVED ASSETS
The Company evaluates its long-lived assets for financial impairments and
will continue to evaluate them if events or changes in circumstance indicate the
carrying amount of such assets may not be fully recoverable.
EARNINGS PER SHARE
Basic earnings per share ("EPS") has been computed by dividing net income
by the weighted average number of shares outstanding during each period. Diluted
EPS has been computed by dividing net income by the weighted average common and
common equivalent shares outstanding during each period using the treasury stock
method, if the common equivalent shares were not antidilutive. The difference
between the basic and diluted weighted average shares is due to common stock
equivalent shares resulting from outstanding stock options and warrants. Net
income for the calculation of both basic and diluted EPS
F-8
<PAGE> 138
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
is the same for each period presented. The calculation of the weighted average
outstanding shares is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, SEPTEMBER 30,
-------------------------- -----------------------
2000 1999 1999 1998 1997
----------- ----------- ----- ----- -----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average shares
outstanding -- basis...................... 4,717 4,703 4,707 4,692 4,674
Common stock options and warrants........... 3 -- 4 29 86
----- ----- ----- ----- -----
Weighted average shares
outstanding -- diluted.................... 4,720 4,703 4,711 4,721 4,760
===== ===== ===== ===== =====
</TABLE>
For the six months ended March 31, 2000 and 1999 (unaudited), options for
519,683 and 610,883 shares, respectively, of common stock were not included in
the computation of diluted EPS because the options' exercise prices were greater
than the average market price of the common stock.
Options to purchase 509,183 shares were outstanding as of September 30,
1999, but were not included in the computation of diluted EPS for the year then
ended because the options' exercise prices were greater than the average market
price of the common stock. These options expire on dates beginning February 2003
through May 2009.
For the years ended September 30, 1998 and 1997, options for 467,250 and
172,100 shares, respectively, of common stock were not included in the
computation of diluted EPS because the options' exercise prices were greater
than the average market price of the common stock.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The accompanying interim financial statements as of March 31, 2000 and for
the six months ended March 31, 2000 and 1999 are unaudited. In the opinion of
management, the unaudited interim financial statements have been prepared on the
same basis as the annual audited financial statements and reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the Company's financial position as of March 31, 2000 and its
results of operations and its cash flows for the six months ended March 31, 2000
and 1999. The results for the six months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 2000.
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The implementation of this
statement has been postponed by SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137, has postponed implementation of SFAS No. 133
until fiscal year ending September 30, 2002. Currently, this statement is not
applicable under the Company's current operating condition.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, which
the Company is required to adopt in the third quarter of fiscal year 2000. The
Company believes that the effect, if any, of the adoption of this standard will
not be material to the Company's consolidated financial position, results of
operations or cash flows.
F-9
<PAGE> 139
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. TRADE ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable consist of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1999 1998
------- ------
<S> <C> <C>
Trade accounts and notes receivable....................... $11,098 $7,657
Allowance for doubtful accounts........................... (336) (606)
------- ------
Total trade accounts and notes receivable, net.......... $10,762 $7,051
======= ======
</TABLE>
4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1999 1998
------- -------
<S> <C> <C>
Purchased components and raw materials................... $ 6,202 $ 4,726
Sub-assemblies........................................... 1,851 2,054
Work-in-process.......................................... 3,481 3,299
Finished goods........................................... 3,084 2,604
------- -------
Total inventories...................................... $14,618 $12,683
======= =======
</TABLE>
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Land................................................... $ 230 $ 252
Buildings and improvements............................. 3,233 2,422
Manufacturing equipment................................ 9,223 8,956
Office equipment, furniture, and fixtures.............. 8,012 7,022
Building improvements and equipment purchases in
process.............................................. 106 1,178
-------- --------
20,804 19,830
Accumulated depreciation............................... (12,222) (10,246)
-------- --------
Total property, plant, and equipment -- net.......... $ 8,582 $ 9,584
======== ========
</TABLE>
6. FINANCING AGREEMENTS
The Company has a domestic credit accommodation with a commercial bank
which provides for an unsecured operating line up to $4,000,000, at the bank's
prime interest rate (8.25% at September 30, 1999) less 1/4%. This accommodation
expires February 1, 2000. At September 30, 1999 and 1998, the Company had no
borrowings under the domestic operating line. The domestic credit accommodation
contains covenants which require certain levels of tangible equity and working
capital and ratios of current assets to current liabilities and debt to equity.
The Company was in compliance with all such covenants.
The Company also maintains a credit facility with a Dutch bank which
provides for operating lines of credit up to 1.5 million guilders or
approximately $728,000 at an interest rate of 4.75%. Collateral for this credit
facility is certain receivables and inventories of the Company's Dutch
subsidiaries and a guarantee provided by the Company. At September 30, 1999 and
1998, there were no borrowings outstanding.
F-10
<PAGE> 140
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1999 1998
------ ------
<S> <C> <C>
Note payable, interest rate of 6%, due in quarterly
principal and interest installments through October 2006,
secured by certain land and buildings..................... $ 563 $ 702
Note payable, interest rate of 5.625%, due in quarterly
principal and interest installments through October 2001,
secured by receivables.................................... 218 345
Note payable, interest rate of 7%, due in annual principal
and interest installments through July 1999, secured by
letter of credit.......................................... -- 218
Unsecured borrowing through assignment of lease with limited
recourse through July 2001................................ 222 332
Equipment note payable, interest rate of 4.9%, due in
monthly principal and interest installments through April
1999, secured by certain office equipment................. -- 48
Other capital leases, interest rates of 6% and 11%, due in
monthly principal and interest installments through
December 2001 and March 2002, respectively, secured by
certain office equipment.................................. 23 37
------ ------
1,026 1,682
Current portion............................................. (304) (579)
------ ------
Total long-term debt...................................... $ 722 $1,103
====== ======
</TABLE>
Principal payments on long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
-------------
<S> <C>
2000............................................. $ 304
2001............................................. 286
2002............................................. 106
2003............................................. 78
2004............................................. 78
Thereafter.......................................... 174
------
Total............................................. $1,026
======
</TABLE>
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of long-term debt at
September 30, 1999 approximates carrying value.
7. LEASES
The Company has agreements with the Port of Walla Walla to lease two
operating facilities which expire in 2010. The Company currently has the option
to purchase the land and plant under one of the agreements. The purchase price
is determined by reducing the original plant construction costs of approximately
$8,800,000 by one thirty-fifth for each lease year prior to the exercise of the
option and adding $600,000 for the land, subject to further reductions if
exercised after the fifteenth year of the lease. The Company has leased an
operating facility in The Netherlands, which expires in 2008. Rental expense for
the Company's operating leases referred to above was $1,133,000 for the year
ended September 30, 1999, $1,061,000 for the year ended September 30, 1998, and
$925,000 for the year ended September 30, 1997.
F-11
<PAGE> 141
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a schedule of future minimum rental payments required
under the operating leases and future rental expense (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING RENTAL RENTAL
SEPTEMBER 30, PAYMENTS EXPENSE
------------- -------- -------
<S> <C> <C>
2000................................................. $ 1,088 $ 1,120
2001................................................. 1,087 1,114
2002................................................. 1,098 1,114
2003................................................. 1,122 1,114
2004................................................. 1,148 1,114
Thereafter.............................................. 6,759 6,278
------- -------
Total................................................. $12,302 $11,854
======= =======
</TABLE>
8. INCOME TAXES
The provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1999 1998 1997
------- ----- ------
<S> <C> <C> <C>
Current:
Federal........................................ $1,520 $415 $ 680
State.......................................... 142 42 74
------ ---- -----
1,662 457 754
------ ---- -----
Deferred:
Federal........................................ (32) 8 (505)
State.......................................... 2 (1) (52)
------ ---- -----
(30) 7 (557)
------ ---- -----
Total....................................... $1,632 $464 $ 197
====== ==== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1999 1998
------ ------
<S> <C> <C>
Deferred tax asset:
Reserves and accruals.................................... $1,659 $1,510
Deferred tax liability:
Accumulated depreciation................................. (270) (287)
------ ------
Net deferred tax asset................................ $1,389 $1,223
====== ======
Deferred tax:
Current asset............................................ $1,182 $1,205
Long-term asset.......................................... 207 18
------ ------
Net deferred tax asset................................ $1,389 $1,223
====== ======
</TABLE>
F-12
<PAGE> 142
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income tax expense is computed at rates different than statutory rates. The
reconciliation between effective and statutory rates is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1999 1998 1997
----- ----- ------
<S> <C> <C> <C>
Statutory rates............................................. 34.0% 34.0% 34.0%
Increase (reduction) in income taxes resulting from:
FSC commissions........................................... (5.0) (6.8) (3.7)
FSC tax................................................... 1.7 2.4 1.9
R&D credit................................................ -- -- (11.3)
State income taxes, net of federal benefit................ 1.8 1.9 2.4
Other permanent differences............................... 0.8 2.5 6.9
Other..................................................... (1.7) (0.5) 1.8
---- ---- -----
Income tax combined effective rate..................... 31.6% 33.5% 32.0%
==== ==== =====
</TABLE>
9. SHAREHOLDERS' EQUITY
EMPLOYEE STOCK PURCHASE PLAN
Effective February 6, 1996, the Company adopted an Employee Stock Purchase
Plan (the "Plan"). Most employees are eligible to participate in the Plan.
Shares are not available to employees who already own 5% or more of the
Company's stock. Employees can withhold, by payroll deductions, up to 5% of
their regular compensation to purchase shares. The purchase price is 85% of the
fair market value of the common stock on the purchase date. There were 500,000
shares reserved for purchase under the Plan. During the years ended September
30, 1999, 1998 and 1997, the Company issued 12,393, 10,581, and 6,199 shares,
respectively, under the Plan.
EMPLOYEES' STOCK OPTION PLAN
Under the 1996 Employees' Stock Option Plan (the "1996 Plan"), eligible
employees may receive either incentive stock options or nonstatutory stock
options and such options may be exercised only after an employee has remained in
continuous employment for one year after the date of grant. Thereafter, the
options become exercisable as stipulated by the individual option agreements,
generally 25% per year on
F-13
<PAGE> 143
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the anniversary date of the grant. The option price is determined to be fair
market value at date of grant. The following table summarizes activity under
this Plan:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------
WEIGHTED
AVERAGE
NUMBER OF PRICE
SHARES PER SHARE
--------- ---------
<S> <C> <C>
Balance at September 30, 1996.......................... 336,683 $15.37
Options granted...................................... 148,450 $17.20
Options exercised.................................... (20,425) $ 7.28
Options forfeited.................................... (1,375) $14.52
-------
Balance at September 30, 1997.......................... 463,333 $16.31
Options granted...................................... 156,200 $11.77
Options exercised.................................... (6,475) $ 7.79
Options forfeited.................................... (10,275) $17.92
-------
Balance at September 30, 1998.......................... 602,783 $15.19
Options granted...................................... 45,000 $ 8.23
Options exercised.................................... (100) $ 7.00
Options forfeited.................................... (91,700) $16.09
-------
Balance at September 30, 1999.......................... 555,983 $14.48
=======
</TABLE>
At September 30, 1999, the total of number shares reserved for option
exercises was 698,983, of which 143,000 were available for grant. At September
30, 1999, options for 320,780 shares were exercisable at prices from $7.00 to
$23.25 per share. At September 30, 1998, the total number of shares reserved for
option exercises was 699,083, of which 96,300 were available for grant. At
September 30, 1998, options for 240,568 shares were exercisable at prices from
$7.00 to $23.25 per share. At September 30, 1997, options for 137,308 shares
were exercisable at prices from $7.00 to $23.25 per share.
During 1995, FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which defines a fair value based method of accounting for employee
stock options and similar equity instruments and encourages all entities to
adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the method of accounting prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"). Entities electing to remain with the
accounting in APB 25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value based method of accounting
defined in SFAS No. 123 has been adopted.
The Company has elected to account for its stock-based compensation plans
under APB 25. The Company has computed, for pro forma disclosure purposes, the
value of all stock and stock options granted under the Employee Stock Purchase
Plan and the 1996 Employees' Stock Option Plan during 1999, 1998, and 1997 using
the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the
following weighted average assumptions for the years ended September 30, 1999,
1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate......................... 5.0% 5.0% 5.5%
Expected dividend yield......................... 0% 0% 0%
Expected lives.................................. 6 years 6 years 6 years
Expected volatility............................. 66% 62% 61%
</TABLE>
F-14
<PAGE> 144
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Using the Black-Scholes methodology, the total value of stock options
granted during 1999, 1998, and 1997 was $225,000, $1,097,000, and $1,525,000,
respectively, which would be amortized on a pro forma basis over the vesting
period of the options (typically five years). The weighted average fair value of
options granted under the 1996 Employees' Stock Option Plan during 1999, 1998,
and 1997 was $5.28 per share, $7.27 per share, and $10.64 per share,
respectively.
The total compensatory value of stock purchased under the Employee Stock
Purchase Plan during 1999, 1998, and 1997 was $13,000, $15,000, and $16,000,
respectively. The weighted average fair value of the stock purchased during
1999, 1998, and 1997 was $1.08 per share, $1.42 per share, and $2.63 per share,
respectively.
If the Company had accounted for its 1996 Plan and Employee Stock Purchase
Plan in accordance with SFAS No. 123, the Company's net earnings and earnings
per share would approximate the pro forma disclosures below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
----------------------- ----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net earnings (loss)........ $3,529 $2,633 $ 925 $ 186 $ 422 $ (104)
Earnings (loss) per
share --
basic and diluted........ $ 0.75 $ 0.56 $0.20 $0.04 $0.09 $(0.02)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
October 1, 1995, and additional awards are anticipated in future years.
The following table summarizes information about stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 7.00-$10.00 150,433 5.1 $ 8.37 115,433 $ 8.41
$10.01-$15.00 149,500 8.3 11.70 44,872 11.54
$15.01-$20.00 136,250 7.5 17.17 70,625 17.13
$20.01-$23.25 119,800 6.6 22.55 89,850 22.55
------------- ------- --- ------ ------- ------
$ 7.00-$23.25.. 555,983 6.9 $14.48 320,780 $14.73
============= ======= === ====== ======= ======
</TABLE>
10. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit sharing plan which covers substantially all
employees. The Company is required to match 50% of employee contributions up to
2% of each participating employee's compensation. The Company contributed
$200,000, $222,000, and $247,000 in matching funds to the plan for the years
ended September 30, 1999, 1998, and 1997, respectively.
The 401(k) plan also permits the Company to make discretionary profit
sharing contributions to all employees. Discretionary profit sharing
contributions are determined annually by the board of directors. Profit sharing
plan expense was $506,000 for the year ended September 30, 1999. There was no
profit sharing plan expense for the years ended September 30, 1998 and 1997.
F-15
<PAGE> 145
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company had a phantom stock plan for certain key employees and the
Company's estimated purchase price of the phantom stock units was included in
other liabilities. No additional awards of phantom stock units could occur and
final settlement occurred in fiscal 1998. The Company paid zero, $46,000, and
$75,000 in settlement of certain phantom stock unit awards during the years
ended September 30, 1999, 1998, and 1997, respectively.
11. SEGMENT INFORMATION
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, as of the fiscal year ended September 30,
1999. 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. The
following is information about products and services (in thousands).
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net sales by product category:
Automated inspection systems................ $22,342 $21,388 $20,400
Specialized conveying systems............... 28,422 21,807 25,366
Process and preparation systems............. 5,528 1,687 4,068
Service/contracts and parts................. 11,736 8,251 7,434
------- ------- -------
Total net sales by product category...... $68,028 $53,133 $57,268
======= ======= =======
</TABLE>
Net sales for service/contracts were less than 10% of total net sales for
the years ended September 30, 1999, 1998 and 1997, respectively.
The following is information about geographic areas:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net sales:
Domestic.................................... $37,026 $33,306 $39,196
International............................... 31,002 19,827 18,072
------- ------- -------
Total net sales.......................... $68,028 $53,133 $57,268
======= ======= =======
Long-lived assets
Domestic.................................... $ 6,192 $ 6,852 $ 7,708
International............................... 4,007 4,599 3,774
------- ------- -------
Total long-lived assets.................. $10,199 $11,451 $11,482
======= ======= =======
</TABLE>
During 1999, net sales to one major customer amounted to approximately 11%
of total net sales. No single customer accounted for more than 10% of net sales
during the years ended September 30, 1998 and 1997.
During 1999, net sales to various customers in Canada accounted for
approximately 11% of total net sales. During 1998, net sales to various
customers in The Netherlands accounted for approximately 11% of total net sales.
No single international country accounted for more than 10% of net sales during
the year ended September 30, 1997. Location of the customer is the basis for
identification of net sales.
International long-lived assets are located in The Netherlands.
F-16
<PAGE> 146
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. ROYALTY INCOME
As part of a settlement agreement entered into during 1997, the Company may
receive royalty payments through 2001 related to the sale of certain equipment
to a selected market. The payment may be reduced by a percentage of the
purchases of equipment from the Company by the other party. The Company
recognized royalty income from this agreement of $26,000, $7,000, and $125,000
during the years ended September 30, 1999, 1998, and 1997, respectively.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of operating results by quarter for the years
ended September 30, 1999 and 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 QUARTER ENDED
-----------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, TOTAL
------------ --------- -------- ------------- -------
<S> <C> <C> <C> <C> <C>
Net sales......................... $14,819 $15,676 $15,836 $21,697 $68,028
Gross profit...................... 5,390 5,752 6,874 7,731 25,747
Net earnings...................... 424 547 1,196 1,362 3,529
Net earnings per share -- basic
and diluted..................... 0.09 0.12 0.25 0.29 0.75
</TABLE>
<TABLE>
<CAPTION>
1998 QUARTER ENDED
-----------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, TOTAL
------------ --------- -------- ------------- -------
<S> <C> <C> <C> <C> <C>
Net sales......................... $12,758 $13,187 $14,431 $12,757 $53,133
Gross profit...................... 4,556 5,040 5,497 4,202 19,295
Net earnings (loss)............... 174 346 621 (216) 925
Net earnings (loss) per
share -- basic and diluted...... 0.04 0.07 0.13 (0.05) 0.20
</TABLE>
* * * * * *
F-17
<PAGE> 147
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Advanced Machine Vision Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of mandatorily redeemable
preferred stock and non-redeemable shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Advanced
Machine Vision Corporation and its subsidiaries (the "Company") at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed more fully in Note 1, the Company has restated its 1998
financial statements to account for a redemption feature included in the October
1998 Preferred Stock agreement with FMC Corporation. The carrying value of the
Preferred Stock of $2,579,000, which was previously presented as a component of
stockholders' equity, has been reclassified as mandatorily redeemable preferred
stock, outside of shareholders' equity, at December 31, 1998. The restatement of
the 1998 financial statements had no effect on the Company's net income, total
assets or total liabilities.
/s/ PRICEWATERHOUSECOOPERS LLP
---------------------------------------------------------
PricewaterhouseCoopers LLP
Portland, Oregon
February 29, 2000
F-18
<PAGE> 148
ADVANCED MACHINE VISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
2000 1999 1998
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 2,298 $ 5,889 $ 4,423
Accounts receivable, net of allowance for doubtful
accounts of $205,000 at March 31, 2000, December 31,
1999 and $230,000 at December 31, 1998............... 2,687 1,601 4,073
Inventories (Note 2).................................... 8,572 8,399 7,379
Prepaid expenses........................................ 218 206 181
Current deferred tax asset (Note 7)..................... 870 870 1,175
-------- -------- --------
Total current assets............................... 14,645 16,965 17,231
Property, plant and equipment -- net (Notes 3 and 6)...... 4,713 4,860 5,274
Intangible assets, net (Note 4)........................... 3,995 4,175 4,894
Deferred tax asset (Note 7)............................... 1,230 1,230 925
Other assets.............................................. 722 790 1,515
-------- -------- --------
$ 25,305 $ 28,020 $ 29,839
======== ======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND NON-REDEEMABLE SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 1,375 $ 937 $ 984
Short-term borrowings (Note 6).......................... -- 2,000 --
Accrued liabilities (Notes 5 and 9)..................... 638 388 997
Customer deposits....................................... 1,917 1,569 1,151
Accrued payroll......................................... 665 714 761
Warranty reserve........................................ 351 373 448
Current portion of notes payable (Note 6)............... 43 43 790
-------- -------- --------
Total current liabilities.......................... 4,989 6,024 5,131
-------- -------- --------
Notes payable to related parties, less current portion
(Note 6)................................................ 2,500 2,500 4,779
Notes payable, less current portion (Note 6).............. 3,784 3,794 3,083
-------- -------- --------
Total notes payable................................ 6,284 6,294 7,862
-------- -------- --------
Commitments and contingencies (Note 9)....................
Mandatorily redeemable preferred stock (Note 10):
Series B -- No par value; 119,106 shares authorized and
outstanding at March 31, 2000, December 31, 1999 and
1998 (aggregate liquidation preference of
$2,620,000).......................................... 2,579 2,579 2,579
-------- -------- --------
Non-redeemable shareholders' equity (Notes 8 and 10):
Common stock:
Class A and B -- No par value; 63,000,000 shares
authorized; 12,927,000, 12,970,000 and 10,720,000
shares issued and outstanding at March 31, 2000,
December 31, 1999 and 1998, respectively........... 26,053 26,103 24,329
Common stock warrants................................... -- -- 110
Additional paid in capital.............................. 5,020 5,020 4,910
Accumulated deficit..................................... (19,596) (18,007) (15,112)
Accumulated other comprehensive income.................. (24) 7 30
-------- -------- --------
Total non-redeemable shareholders' equity.......... 11,453 13,123 14,267
-------- -------- --------
$ 25,305 $ 28,020 $ 29,839
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-19
<PAGE> 149
ADVANCED MACHINE VISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------
2000 1999 1999 1998 1997
----------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................................. $ 5,388 $ 5,158 $24,312 $27,041 $31,974
Cost of sales......................................... 2,822 2,504 12,212 12,585 16,042
------- ------- ------- ------- -------
Gross profit.......................................... 2,566 2,654 12,100 14,456 15,932
------- ------- ------- ------- -------
Operating expenses:
Selling and marketing............................... 1,422 947 5,948 4,762 4,930
Research and development............................ 1,253 1,260 4,758 5,024 3,950
General and administrative.......................... 1,191 794 3,191 3,413 3,303
Goodwill amortization............................... 180 180 720 695 731
------- ------- ------- ------- -------
4,046 3,181 14,617 13,894 12,914
------- ------- ------- ------- -------
Income (loss) before other income and expense......... (1,480) (527) (2,517) 562 3,018
Other income and expense:
Gain on sale of Pulsarr............................. -- -- -- -- 4,989
Investment and other income......................... 59 67 191 286 371
Interest expense.................................... (168) (140) (569) (689) (1,263)
------- ------- ------- ------- -------
Income (loss) before income taxes..................... (1,589) (600) (2,895) 159 7,115
Provision for (benefit from) income taxes (Note 7).... -- (24) -- (2,083) 99
------- ------- ------- ------- -------
Net income (loss)..................................... $(1,589) $ (576) $(2,895) $ 2,242 $ 7,016
======= ======= ======= ======= =======
Earnings (loss) per share (Note 10):
Basic............................................... $ (0.13) $ (0.05) $ (0.24) $ 0.21 $ 0.64
Diluted............................................. $ (0.13) $ (0.05) $ (0.24) $ 0.18 $ 0.49
Shares used in per-share calculations:
Basic............................................... 12,285 11,520 12,084 10,517 11,002
Diluted............................................. 12,285 11,520 12,084 14,735 14,888
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-20
<PAGE> 150
ADVANCED MACHINE VISION CORPORATION
CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE PREFERRED STOCK
AND NON-REDEEMABLE SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1999 AND THE THREE MONTHS ENDED MARCH 31,
2000 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-REDEEMABLE SHAREHOLDER'S EQUITY
MANDATORILY REDEEMABLE ---------------------------------------
PREFERRED STOCK
------------------------
SERIES B COMMON STOCK COMMON
------------------------ --------------------------- STOCK
SHARES AMOUNT SHARES AMOUNT WARRANTS
---------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996........... -- $ -- 11,250,000 $ 25,720 $ 2,403
Issuance of restricted stock......... -- -- 2,000,000 -- --
Retirement of restricted stock....... -- -- (1,800,000) -- --
Repurchase of Class A Common Stock
and Class F and H Warrants......... -- -- (1,001,000) (1,782) (180)
Exercise of options.................. -- -- 97,000 97 --
Partial conversion of note payable... -- -- 133,000 250 --
Expiration of warrants............... -- -- -- -- (26)
Translation adjustment............... -- -- -- -- --
Net income........................... -- -- -- -- --
---------- ---------- ----------- ------------ --------
Balance, December 31, 1997........... -- -- 10,679,000 24,285 2,197
Comprehensive income 1997............
Expiration of warrants............... -- -- -- -- (2,087)
Exercise of options.................. -- -- 8,000 8 --
Issuance of restricted stock......... -- -- 33,000 36 --
Issuance of mandatorily redeemable
preferred stock.................... 119,106 2,579 -- -- --
Translation adjustment............... -- -- -- -- --
Net income........................... -- -- -- -- --
---------- ---------- ----------- ------------ --------
Balance, December 31, 1998........... 119,106 2,579 10,720,000 24,329 110
Comprehensive income 1998............
Conversion of note payable........... -- -- 1,800,000 1,774 --
Expiration of warrants............... -- -- -- -- (110)
Issuance of restricted stock......... -- -- 450,000 -- --
Translation adjustment............... -- -- -- -- --
Net (loss)........................... -- -- -- -- --
---------- ---------- ----------- ------------ --------
Balance, December 31, 1999........... 119,106 $ 2,579 12,970,000 $ 26,103 $ --
Comprehensive (loss) 1999............
Repurchase of Common Stock........... -- (43,000) (50) --
Translation adjustment............... -- -- -- -- --
Net (loss)........................... -- -- -- -- --
Balance, March 31, 2000.............. 119,106 $ 2,579 12,927,000 $ 26,053 $
========== ========== =========== ============ ========
Comprehensive (loss) for the three
months ended March 31, 2000........
<CAPTION>
NON-REDEEMABLE SHAREHOLDER'S EQUITY
-------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
PAID IN ACCUMULATED COMPREHENSIVE COMPREHENSIVE
CAPITAL DEFICIT INCOME INCOME
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996........... $ 2,797 $ (24,370) $ (50)
Issuance of restricted stock......... -- -- --
Retirement of restricted stock....... -- -- --
Repurchase of Class A Common Stock
and Class F and H Warrants......... -- -- --
Exercise of options.................. -- -- --
Partial conversion of note payable... -- -- --
Expiration of warrants............... 26 -- --
Translation adjustment............... -- -- 50 $ 50
Net income........................... -- 7,016 -- 7,016
----------- ----------- -------- -----------
Balance, December 31, 1997........... 2,823 (17,354) --
Comprehensive income 1997............ $ 7,066
===========
Expiration of warrants............... 2,087 -- --
Exercise of options.................. -- -- --
Issuance of restricted stock......... -- -- --
Issuance of mandatorily redeemable
preferred stock.................... --
Translation adjustment............... -- -- 30 $ 30
Net income........................... -- 2,242 -- 2,242
----------- ----------- -------- -----------
Balance, December 31, 1998........... 4,910 (15,112) 30
Comprehensive income 1998............ $ 2,272
===========
Conversion of note payable........... -- -- --
Expiration of warrants............... 110 -- --
Issuance of restricted stock......... -- -- --
Translation adjustment............... -- -- (23) $ (23)
Net (loss)........................... -- (2,895) -- (2,895)
----------- ----------- -------- -----------
Balance, December 31, 1999........... $ 5,020 $ (18,007) $ 7
Comprehensive (loss) 1999............ $ (2,918)
===========
Repurchase of Common Stock........... -- -- --
Translation adjustment............... -- -- (31) $ (31)
Net (loss)........................... -- (1,589) (1,589)
Balance, March 31, 2000.............. $ 5,020 $ (19,596) $ (24)
=========== =========== ======== ===========
Comprehensive (loss) for the three
months ended March 31, 2000........ $ (1,620)
===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-21
<PAGE> 151
ADVANCED MACHINE VISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------
2000 1999 1999 1998 1997
----------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $(1,589) $ (576) $(2,895) $ 2,242 $ 7,016
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Benefit from deferred income taxes....... -- -- -- (2,100) --
Gain on sale of Pulsarr.................. -- -- -- -- (4,989)
Charge for deferred debt issuance
costs.................................. -- -- -- -- 233
Depreciation and amortization............ 371 373 1,550 1,610 1,369
Changes in assets and liabilities (net of
amounts purchased/sold in
acquisition/divesture):
Accounts receivable.................... (1,086) 35 2,472 (1,363) 11
Inventories............................ (173) (447) (1,020) (2,199) (499)
Prepaid expenses and other assets...... 56 119 699 (760) (186)
Accounts payable, accrued liabilities,
customer deposits, accrued payroll
and warranty reserve................ 965 (89) (113) (539) 842
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities................ (1,456) (585) 693 (3,109) 3,797
------- ------- ------- ------- -------
Cash (used in) provided by investing
activities:
Proceeds from sale of Pulsarr............... -- -- -- -- 7,010
Purchases of property and equipment......... (55) (22) (438) (1,383) (1,014)
------- ------- ------- ------- -------
Net cash (used in) provided by
investing activities................ (55) (22) (438) (1,383) 5,996
------- ------- ------- ------- -------
Cash (used in) provided by financing
activities:
Proceeds from (repayment of) line of credit
borrowings............................... (2,000) -- 2,000 -- --
Notes payable to bank and others -- net..... (10) (759) (789) 283 (3,792)
Proceeds from issuance of mandatorily
redeemable preferred stock............... -- -- -- 2,579 --
Proceeds from exercise of stock options..... -- -- -- 8 97
Repurchase of Common Stock and Warrants..... (50) -- -- -- (1,962)
------- ------- ------- ------- -------
Net cash (used in) provided by
financing activities................ (2,060) 759 1,211 2,870 (5,657)
------- ------- ------- ------- -------
Effect of exchange rate changes on cash....... (20) -- -- -- --
=======
Net increase (decrease) in cash............... 3,591 (1,366) 1,466 (1,622) 4,136
Cash and cash equivalents, beginning of the
period...................................... 5,889 4,423 4,423 6,045 1,909
------- ------- ------- ------- -------
Cash and cash equivalents, end of the
period...................................... $ 2,298 $ 3,057 $ 5,889 $ 4,423 $ 6,045
======= ======= ======= ======= =======
Supplemental disclosures of cash flow
information:
Cash paid for:
Interest................................. $ 181 $ 143 $ 532 $ 583 $ 939
Income taxes............................. $ -- $ -- $ -- $ 62 $ 20
Supplemental disclosures of non-cash investing
and financing activities:
Conversion of debt, including accrued
interest, to equity...................... $ -- $ 1,774 $ 1,774 $ -- $ --
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-22
<PAGE> 152
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Advanced
Machine Vision Corporation ("AMV" or the "Company") and its four wholly-owned
subsidiaries: SRC VISION, Inc. and its wholly-owned SRC VISION BV subsidiary
("SRC"); Ventek, Inc. ("Ventek"); ARC Netherlands BV (inactive) and its
respective wholly-owned subsidiary, Pulsarr Holding BV ("Pulsarr"), from its
March 1, 1996 acquisition date to its May 6, 1997 disposition date (see Note 4);
and Applied Laser Systems, Inc. (inactive).
Through its subsidiaries, the Company designs, manufactures and markets
computer-aided vision defect detection and sorting and defect removal equipment
for use in a variety of applications, including food processing, wood products
and recycling. The Company's systems combine optical and mechanical systems
technologies to perform diverse scanning, analytical sensing, measuring and
sorting applications on a variety of products such as food, wood and plastics.
The Company sells its products throughout the world (see Note 11).
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The accompanying interim financial statements as of March 31, 2000 and for
the three months ended March 31, 2000 and 1999 are unaudited. In the opinion of
management, the unaudited financial statements have been prepared on the same
basis as the annual audited financial statements and reflect all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
Company's financial position at March 31, 2000, its results of operations and
its cash flows for the three-month periods ended March 31, 2000 and 1999. The
results for the three months ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000.
EFFECTS OF RESTATEMENTS
As described in Note 10, the Company issued 119,106 shares of Series B
Preferred Stock ("Preferred Stock") to FMC Corporation in October 1998.
The Preferred Stock is subject to redemption requirements that are outside
the control of the Company under certain change-in-control circumstances as
defined in the preferred stock purchase agreement. Those circumstances include
(i) a sale of all or substantially all of the assets of the Company, (ii) a
liquidation or dissolution of the Company, (iii) the consummation of any
transaction resulting in a new "beneficial owner" of more than 37.5 percent of
the Company's common stock, (iv) a change in the majority of the Company's board
of directors, and (v) a combination or merger of the Company with or into a new
entity in which the Company's common shareholders hold less than 80 percent of
the surviving entity. Under such circumstances, the holders of Preferred Stock
are entitled to receive, prior to and in preference to any distribution of any
of the assets of the Company to the holders of common stock, an amount equal to
the greater of (a) $22.00 per share or (b) the market value of the Company's
common stock issuable upon conversion of such shares of Preferred Stock,
calculated as the average of the closing price of the common stock for the
forty-five consecutive trading days immediately preceding the date of
repurchase.
The Company has restated its 1998 financial statements to account for the
redemption features of the Preferred Stock. The carrying value of the Preferred
Stock of $2,579,000, which was previously presented as a component of
shareholders' equity, has been reclassified as mandatorily redeemable, outside
of shareholders' equity, at December 31, 1998.
F-23
<PAGE> 153
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The restatement of the 1998 financial statements for the matter described
above had no effect on the Company's net income, total assets or total
liabilities.
The following table sets forth the overall effect of the restatement on the
Company's shareholders' equity:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Shareholders' equity prior to restatement................... $16,846,000
Non-redeemable shareholders' equity after restatement....... $14,267,000
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCOUNTING PERIOD
The Company utilizes a 52- to 53-week fiscal year ending on the Sunday
closest to the end of the fiscal period. Fiscal periods shown ended January 2,
2000, January 3, 1999 and December 27, 1997. In these financial statements, the
fiscal periods are shown as December 31 for clarity of presentation.
CASH EQUIVALENTS
For financial reporting purposes, cash equivalents consist primarily of
money market instruments and bank certificates of deposit that have original
maturities of three months or less.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of money market instruments
and trade receivables. The Company invests its excess cash in money market
instruments and certificates of deposit with high credit quality financial
institutions, and by policy, limits the amount of credit exposure to any one
issuer. Concentrations of credit risk with respect to trade receivables exist
because the Company's subsidiaries rely heavily on a relatively small number of
customers (see Note 11). The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses, to date, have been within
management's expectations.
INVENTORIES
Inventories are stated at the lower of cost or net realizable value, with
cost determined principally by use of the first-in, first-out method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed by either the straight-line or an accelerated method
over the estimated useful lives of the assets, which range
F-24
<PAGE> 154
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
from three to twenty years. When assets are retired or otherwise disposed of,
the cost and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is recognized in operations for the period. The cost
of maintenance and repairs is charged to expense as incurred; significant
renewals and betterments are capitalized.
INTANGIBLE ASSETS
Intangible assets primarily represent the excess of the purchase price of
acquisitions over the fair value of net assets acquired ("goodwill"). The gross
cost of intangible assets aggregated $7,536,000 as of December 31, 1999 and
1998. Intangible assets are being amortized on the straight-line basis over
seven to fifteen years (see Note 4). Accumulated amortization aggregated
$3,361,000 and $2,642,000 as of December 31, 1999 and 1998, respectively. The
Company assesses the recoverability of its intangible assets and to date has not
had any significant impairments.
LONG-LIVED ASSETS
Statement of Financial Accounting Standard No. 121 (FAS 121), Accounting
for the Impairment of Long-Lived Assets and For Long-Lived Assets to Be Disposed
Of, requires that long-lived assets and certain identifiable intangible assets
to be held and used by a company be reviewed for impairment whenever events or
changes in circumstances indicate that expected future cash flows (undiscounted
and without interest charges) for individual subsidiaries may not be sufficient
to support the recorded assets. If undiscounted cash flows are not sufficient to
support the recorded assets, an impairment is recognized to reduce the carrying
value of the assets based on expected discounted cash flows of the subsidiary.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of products or, in the case of
trial units, upon the customer's acceptance of the product. Customer deposits
represent monies received in advance of shipment of products.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Research and
development expense is related to developing new products and to improving
existing products or processes.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share for 1999, 1998 and 1997 have been computed in
accordance with Statement of Financial Accounting Standards No. 128 (FAS 128),
"Earnings per Share."
CHANGES IN CLASSIFICATION
Certain reclassifications have been made to the fiscal 1998 and 1997
financial statements to conform with the financial statement presentation for
fiscal 1999. Such reclassifications had no effect on the Company's results of
operations or shareholders' equity.
F-25
<PAGE> 155
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes.
FAS 109 requires the recognition of deferred tax assets and liabilities for the
expected tax effects from differences between the financial reporting and tax
bases of assets and liabilities. In estimating future tax effects, FAS 109
generally considers all expected future events other than enactments of changes
in tax law or statutorily imposed rates.
STOCK-BASED COMPENSATION
The Company uses the intrinsic value based method in accounting for its
stock option plans as prescribed by Accounting Principle Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees (see Note 8).
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires disclosure of the fair value of certain
financial assets and liabilities. The Company estimates the fair value of its
monetary assets and liabilities based upon the existing interest rates related
to such assets and liabilities compared to current market rates of interest for
similar nature and degree of risk. The Company estimates that the carrying value
of all of its monetary assets and liabilities approximates fair value as of
December 31, 1999.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of foreign subsidiaries are translated into U.
S. dollars at fiscal year-end exchange rates. Income and expense items are
translated at average exchange rates prevailing during the fiscal year. The
resulting translation adjustments are recorded as a component of other
comprehensive income.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" as of January 1, 1998. Translation
adjustments represent the Company's only Other Comprehensive Income item.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes new accounting
treatment for derivatives and hedging activities and supercedes and amends a
number of existing accounting standards. For the Company, this pronouncement, as
amended by SFAS 137, will be effective in 2001 and is not anticipated to have a
material effect on the consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition, which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to
F-26
<PAGE> 156
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
revenue recognition policies. The Company believes that the impact of SAB 101
will not have a material effect on the consolidated financial statements.
NOTE 2 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Raw materials....................................... $3,034,000 $2,837,000
Work-in-process..................................... 1,603,000 1,563,000
Finished goods...................................... 3,762,000 2,979,000
---------- ----------
$8,399,000 $7,379,000
========== ==========
</TABLE>
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Land.............................................. $ 1,338,000 $ 1,338,000
Buildings......................................... 3,970,000 3,734,000
Machinery and equipment........................... 883,000 869,000
Furniture, fixtures and office equipment.......... 1,983,000 2,026,000
----------- -----------
8,174,000 7,967,000
Less: accumulated depreciation.................... (3,314,000) (2,693,000)
----------- -----------
$ 4,860,000 $ 5,274,000
=========== ===========
</TABLE>
Substantially all of the property, plant and equipment is secured by a note
payable (see Note 6). Depreciation expense aggregated $830,000, $915,000 and
$638,000, respectively, for 1999, 1998 and 1997.
NOTE 4 -- ACQUISITIONS
SRC VISION
On February 2, 1994, the Company purchased all of the outstanding shares of
stock of SRC VISION for $8.1 million in cash. The Company has accounted for this
acquisition using the purchase method. The cost of the acquisition was allocated
to the assets acquired and liabilities assumed on the bases of their fair values
at the date of acquisition. Goodwill of $2.6 million was recorded as the
difference between the acquisition cost and the fair values of the assets
acquired and liabilities assumed. The Company is amortizing goodwill over seven
years using the straight-line method.
PULSARR
On March 1, 1996, the Company acquired all of the outstanding capital stock
of Pulsarr for cash of $6.5 million and notes payable aggregating $1.3 million.
The acquisition was accounted for under the purchase method of accounting. The
$7.8 million purchase price was allocated based on the fair values of the
identifiable assets of Pulsarr as follows: $1.1 million represented the fair
values of net tangible assets of
F-27
<PAGE> 157
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pulsarr, $4.9 million represented acquired in-process technology that was
charged to operations, and the remainder of $1.8 million represented existing
technologies and goodwill to be amortized over fifteen years. The fair values of
the acquired in-process technology and existing technologies and goodwill were
determined from independent appraisals received by the Company.
On May 6, 1997, the Company sold its Pulsarr subsidiary to Barco NV of
Belgium for $8.4 million resulting in a gain of approximately $5 million. The
sale resulted in net cash proceeds to AMV of approximately $7 million and a
reduction of current and long-term debt of approximately $4.6 million. The gain
on the sale of Pulsarr is largely a result of the previous reduction in the
carrying value of the Company's investment in Pulsarr due to the $4.9 million
charge for acquired in-process technology the Company recorded in the quarter
ended March 31, 1996 in conjunction with this acquisition.
VENTEK
On July 24, 1996, the Company acquired certain assets and the business of
Ventek, subject to certain liabilities. The purchase price was approximately
$5.1 million in notes and other securities (see Note 6). The Company also issued
a warrant to purchase 1,000,000 shares of common stock. In 1998, the warrant was
reduced to 250,000 fully vested shares, and was subsequently eliminated upon the
restructuring of the acquisition notes (see Note 6). The acquisition was
accounted for under the purchase method of accounting. The $5.1 million purchase
price was allocated based on the fair values of the identifiable assets of
Ventek as follows: $.2 million represented the fair values of net tangible
assets of Ventek, and the remaining $4.9 million represented goodwill to be
amortized over fifteen years.
The consolidated results of operations for the Company include SRC
VISION's, Pulsarr's and Ventek's results of operations from their respective
acquisition dates, and in the case of Pulsarr, through its disposition date in
May 1997.
NOTE 5 -- ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Commissions............................................ $111,000 $359,000
Interest............................................... 75,000 317,000
Legal and accounting fees.............................. 90,000 176,000
Income taxes........................................... 34,000 34,000
Other.................................................. 78,000 111,000
-------- --------
$388,000 $997,000
======== ========
</TABLE>
NOTE 6 -- FINANCING ARRANGEMENTS
As of December 31, 1999, the Company had a borrowing facility with a
commercial bank that provided for a secured operating line of credit up to
$2,000,000. At the option of the Company, interest is stated at the prime rate
plus .50% or at an "offshore rate" plus 2.35%. The Business Loan Agreement
governing the line of credit contains covenants requiring certain levels of cash
flow, tangible equity and working capital. At December 31, 1999, the Company had
borrowed the entire $2,000,000 under the line and was not in compliance with the
cash flow covenant. The bank waived compliance with the covenant subject to an
amendment being executed by the Company, which would require that security for
the line
F-28
<PAGE> 158
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
be changed from receivables, inventory and machinery and equipment to cash
instruments. On February 29, 2000, the Company executed the amendment and paid
back the entire amount borrowed. The amended line expires on April 30, 2000.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Mortgage note (SRC VISION).......................... $2,937,000 $2,973,000
6.75% convertible note.............................. 900,000 900,000
6.75% note (Ventek)................................. 250,000 1,000,000
6.75% convertible note (Ventek)..................... 2,250,000 2,250,000
Ventek note......................................... -- 1,529,000
---------- ----------
6,337,000 8,652,000
Less: current maturities............................ (43,000) (790,000)
---------- ----------
$6,294,000 $7,862,000
========== ==========
</TABLE>
The SRC VISION mortgage note is payable to a bank in monthly installments
of $24,000 including interest at 8.3%, with the remaining unpaid balance due on
May 1, 2008. The note is secured by substantially all of SRC VISION's property,
plant and equipment and is guaranteed by the Company. The loan agreement
contains certain covenants and restrictions including limitations on incurrence
of debt. At December 31, 1999, the Company was in violation of the cash flow
covenant of the mortgage loan agreement. The Company has obtained a temporary
waiver of this covenant through December 31, 2000.
In April 1996, in connection with the acquisition of Pulsarr, the Company
raised a net of $3,000,000 in a private placement of $3,400,000 of convertible
secured notes. The notes presently bear interest at 10.75% payable quarterly.
The interest rate may be adjusted upward on each anniversary date of the notes
if the market price of the Company's common stock fails to reach certain levels.
The maximum possible coupon interest rate is 11.25% if none of the market price
thresholds are met. The principal amount will be due in April 2001. The notes
are secured by 54% of the stock of ARC Netherlands BV, a wholly-owned subsidiary
of the Company established to purchase Pulsarr. The notes are convertible into
the Company's common stock at $2.125 per share. In connection with the
borrowing, the Company paid a finder's fee of $400,000 and issued 340,000
warrants to purchase common stock at $2.125 per share. In September 1997, the
Company prepaid $2,500,000 of the note. The 340,000 warrants issued in
conjunction with this borrowing were repurchased in August 1997.
AMV issued the following notes in connection with the acquisition of
Ventek: (i) a 6.75% $1,000,000 note due July 23, 1999; (ii) a 6.75% $2,250,000
note due July 23, 1999 convertible into the Company's common stock at $2.25 per
share; and (iii) a $1,125,000 note and stock appreciation rights payable (a) by
issuance of up to 1,800,000 shares of common stock or, at the Company's option,
in cash on July 23, 1999, or (b) solely in cash in the event AMV common stock is
delisted from the Nasdaq Stock Market. The $1,125,000 note and stock
appreciation rights payable were valued at $1,529,000 on the acquisition date
based upon an independent appraisal received by the Company. All three notes are
secured by all of the issued and outstanding shares of Ventek. The three notes
are payable to Veneer Technology, Inc., a company owned by the four former
shareholders of Ventek, all of whom are current employees of the Company.
In February 1999, the Ventek notes were restructured. $750,000 of the
$1,000,000 note was prepaid, and the maturity date of the remaining $250,000 was
extended to July 23, 2000. The maturity date of the
F-29
<PAGE> 159
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2,250,000 note was extended to July 23, 2000. The $1,125,000 note was paid in
full by delivery of 1,800,000 restricted shares (see Note 10) and the stock
appreciation rights were cancelled.
In December 1999, the Ventek notes were again restructured by extending the
due dates to July 23, 2001 and increasing the interest rate by 1% to 7.75%.
As of December 31, 1999, the aggregate amount of minimum maturities of
long-term debt, as adjusted for the Ventek debt restructuring, are as follows:
2000 -- $43,000; 2001 -- $3,446,000; 2002 -- $50,000; 2003 -- $55,000; 2004 --
$59,000 and thereafter $2,684,000.
NOTE 7 -- INCOME TAXES
Income (loss) before income taxes is composed of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- ----------
<S> <C> <C> <C>
Domestic...................................... $(2,843,000) $ 366,000 $2,143,000
Foreign....................................... (52,000) (207,000) 4,972,000
----------- --------- ----------
$(2,895,000) $ 159,000 $7,115,000
=========== ========= ==========
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ---------
<S> <C> <C> <C>
Federal:
Current..................................... $ -- $ 17,000 $ 99,000
Deferred.................................... (947,000) 59,000 870,000
---------- ----------- ---------
Total federal............................ (947,000) 76,000 969,000
---------- ----------- ---------
State:
Deferred.................................... (111,000) 15,000 107,000
---------- ----------- ---------
Total state.............................. (111,000) 15,000 107,000
---------- ----------- ---------
Increase (decrease) in valuation allowance.... 1,058,000 (2,174,000) (977,000)
---------- ----------- ---------
Total provision.......................... $ -- $(2,083,000) $ 99,000
========== =========== =========
</TABLE>
The tax effect of temporary differences between financial reporting and the
tax bases of assets and liabilities relate to the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax asset:
Loss carry-forwards..................................... $ 5,913,000 $ 4,686,000
Property basis differences.............................. 1,005,000 876,000
Reserves and accruals................................... 290,000 563,000
Research and development costs.......................... 47,000 69,000
Alternative minimum taxes............................... 74,000 77,000
----------- -----------
7,329,000 6,271,000
Deferred tax asset valuation allowance.................... (5,229,000) (4,171,000)
----------- -----------
Net deferred tax asset.................................. $ 2,100,000 $ 2,100,000
=========== ===========
</TABLE>
F-30
<PAGE> 160
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has recognized a deferred tax asset of $2,100,000. The
recognized deferred tax asset is based upon expected utilization of the
temporary differences as well as a portion of the net operating loss
carry-forwards.
The Company has assessed its past earnings history and trends, budgeted
sales and the expiration dates of carry-forwards and has determined that it is
more likely than not that $2,100,000 of the deferred tax asset will be realized.
The remaining valuation allowance of $5,229,000 as of December 31, 1999 is
maintained against the net operating loss carry-forwards, which the Company has
determined may not be realized.
The increase in the valuation allowance of $1,058,000 in 1999 was the
result of the net increase in temporary differences that was caused primarily
from the losses incurred in 1999.
The net reduction in the valuation allowance of $2,174,000 in 1998 was the
result of the utilization of the net operating loss carry-forwards to reduce
current income taxes, partially offset by the net changes in temporary
differences.
The Company has net operating loss carry-forwards of approximately
$15,500,000. Such carry-forwards may be used to offset taxable income, if any,
in future years through their expirations in 2005 to 2015. Because of the
substantial change in the Company's ownership, which occurred as a result of the
initial public offering in March 1992, the annual amount of tax loss
carry-forward that can be utilized is limited. Utilization of approximately
$2,700,000 of the above carry-forwards is limited to approximately $475,000 per
year. Such limitation could result in the expiration of a part of the
carry-forwards before their utilization.
The provision for (benefit from) income taxes differs from an amount
computed using the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- ----------- -----------
<S> <C> <C> <C>
Provision for (benefit from) income taxes at
federal statutory rate..................... $(967,000) $ 124,000 $ 2,419,000
State taxes (benefit)........................ -- 15,000 107,000
Non-taxable gain on sale of Pulsarr.......... -- -- (1,696,000)
Realized benefit from utilizing net operating
loss carry-forward......................... -- (271,000) (1,302,000)
Deferred tax valuation allowance............. 1,058,000 (1,903,000) 370,000
Alternative Minimum Tax...................... -- 17,000 99,000
Other........................................ (91,000) (65,000) 102,000
--------- ----------- -----------
$ -- $(2,083,000) $ 99,000
========= =========== ===========
</TABLE>
NOTE 8 -- EMPLOYEE BENEFIT AND STOCK OPTION PLANS
The Company sponsors a defined contribution 401(k) plan covering
substantially all employees. Pursuant to the provisions of the plan, eligible
participants may elect to contribute up to 15% of their base compensation,
subject to certain limitations, and the Company may, at its option, match
employee contributions up to a certain percentage. No Company matching has
occurred under the plan.
The Company maintains several stock option plans under which non-qualified
and incentive stock options for the Company's common stock have been granted to
directors, officers and other employees.
F-31
<PAGE> 161
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The plans are administered by the Stock Option Committee of the board of
directors (the "Committee"). Additionally, the Company has occasionally granted
non-plan options to directors, officers or consultants on terms similar to plan
options. The stock option price per share for options granted is determined by
the Committee and is based on the market price of the Company's common stock on
the date of grant, and each option is exercisable within the period and in the
increments as determined by the Committee, except that no option can be
exercised later than ten years from the date it was granted. The stock options
generally vest over one to four years. The terms of non-plan options are
determined by the full board of directors or the Compensation Committee of the
Board.
The following table sets forth the options granted, forfeited and exercised
during the three years ended December 31, 1999, and their respective weighted
average exercise price per share:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDER OPTION PRICE PER SHARE
------------ ---------------
<S> <C> <C>
Balance at December 31, 1996..................... 3,127,000 $2.00
Granted........................................ 1,194,000 1.75
Exercised...................................... (97,000) 1.00
Canceled....................................... (775,000) 2.21
--------- -----
Balance at December 31, 1997..................... 3,449,000 $1.89
Granted........................................ 528,000 1.86
Exercised...................................... (8,000) 1.00
Canceled....................................... (539,000) 4.05
--------- -----
Balance at December 31, 1998..................... 3,430,000 $1.55
Granted........................................ 205,000 1.22
Canceled....................................... (417,000) 2.50
--------- -----
Balance at December 31, 1999..................... 3,218,000 $1.41
========= =====
</TABLE>
The following table sets forth information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
-------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
0.81-1.00 1,333,000 5 years 1.00 1,300,000 1.00
1.03-2.19 1,810,000 7 years 1.64 639,000 1.53
3.00 75,000 4 years 3.00 75,000 3.00
--------- ---------
3,218,000 2,014,000
========= =========
</TABLE>
At December 31, 1998 and 1997, 1,911,000 and 2,172,000 options,
respectively, were exercisable. As of December 31, 1999, there were 641,000
shares available for future grants.
In September 1999, the Company decreased the exercise price on 300,000
options previously granted to three members of the board of directors from $1.69
to $1.25 per share. These options will now be accounted for pursuant to a
variable stock option plan, and compensation expense will be recorded to the
extent that the quoted market price of the Company's common stock exceeds the
revised exercise price.
F-32
<PAGE> 162
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1997, the Company established an SRC VISION stock option plan
(the "SRC VISION Plan") under which incentive and non-qualified stock options
for SRC VISION's common stock may be granted to directors, officers and other
employees. The plan is administered by the Stock Option Committee of the board
of directors of SRC VISION (the "SRC VISION Committee"). The stock option price
per share for options granted under the SRC VISION Plan is determined by the SRC
VISION Committee and is based on the fair market value of the Company's common
stock on the date of grant, and each option is exercisable within the period and
in the increments as determined by the SRC VISION Committee, except that no
option may be exercised before the ninth anniversary date of grant unless there
shall have been an IPO of SRC VISION's common stock, and except that no option
can be exercised later than ten years from the date it was granted.
In January 1997, SRC VISION granted a total of 342,000 options under the
SRC VISION Plan to purchase SRC VISION common stock at $1.86 per share. The
options become exercisable on January 10, 2006 and expire one year thereafter.
Upon completion of an initial public offering of SRC VISION's common stock, the
vesting of such options will accelerate so that 100% will be exercisable on the
third anniversary date of the IPO. As of December 31, 1999, there were 291,000
options under grant and 105,000 shares available for future grant under the SRC
VISION Plan.
DISCLOSURE REQUIREMENTS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
("FAS 123")
The Company has elected to account for its stock-based compensation plans
under APB 25. FAS 123 requires that the Company provide proforma information
regarding net income and earnings per share as if the Company had accounted for
the stock options granted under the fair value method of the statement. The fair
value of options granted was estimated using the Black-Scholes model. The
Company's proforma information follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Proforma net income (loss).................... $(3,231,000) $1,746,000 $6,807,000
Proforma diluted earnings (loss) per share.... $ (0.27) $ 0.14 $ 0.46
</TABLE>
The fair value of the options granted was $0.66 and $1.05 in 1999 and 1998,
respectively, and estimated using the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate................................. 5.65% 5.32% 6.12%
Dividend yield.......................................... 0% 0% 0%
Expected life of option................................. 5 years 5 years 5 years
Volatility factor....................................... 58% 61% 63%
</TABLE>
The above information is based on historical activity and may not represent
future trends.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
Numerous users of the Company's products have received notice of patent
infringement from Lemelson Medical, Educational and Research Foundation, Limited
Partnership ("Lemelson") alleging that their use of the Company's products
infringes certain patents transferred to Lemelson by the late Jerome H.
Lemelson. Certain of these users have notified the Company that, in the event it
is subsequently determined that their use of the Company's products infringes
any of the Lemelson's patents,
F-33
<PAGE> 163
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
they may seek indemnification from the Company for damages or expenses resulting
from this matter. The amount of liability, if any, that may result from this
matter cannot be estimated at this time.
NOTE 10 -- MANDATORILY REDEEMABLE AND NON-REDEEMABLE SHAREHOLDERS' EQUITY AND
EARNINGS (LOSS) PER SHARE
PREFERRED STOCK
In October 1998, the Company sold 119,106 shares of mandatorily redeemable
Preferred Stock ("Preferred Stock") (the entire authorized number of such
shares) to FMC Corporation for $2,579,000. The Preferred Stock is convertible
into 1,191,060 shares of common stock, which, if converted, represents a 10%
ownership position based on the number of common shares outstanding on the
transaction date. Each share of Preferred Stock is allowed ten votes in matters
placed before the common shareholders except in the election of directors, in
which case FMC Corporation has the right to elect one director. The Preferred
Stock pays no dividends. The Preferred Stock has a $22-per-share liquidation
preference. Upon the occurrence of a change in control (as defined), FMC
Corporation has the right to require the Company to repurchase all or part of
the Preferred Stock at a price in cash equal to the greater of (a) $22.00 per
share or (b) the market value of the Company's common stock issuable upon
conversation of the Preferred Stock, calculated as the average of the closing
bid price of the common stock for the 45 consecutive trading days immediately
preceding the date of repurchase, subject to the Company's ability to legally do
so under California General Corporation Law. FMC Corporation also has a
five-year one-time option to purchase a number of shares of common stock equal
to 15% of the shares outstanding on the exercise date at a price equal to the
greater of the then-current market value (as defined) of the common stock or
$2.20 per share.
So long as any shares of Preferred Stock are outstanding, the Company must
obtain the consent of the holders of a majority of the then-outstanding shares
of Preferred Stock to (i) take any action which adversely alters or changes or
may adversely alter or change the rights, preferences or privileges of the
Preferred Stock; (ii) increase or decrease the authorized number of shares of
Preferred Stock; (iii) create (by reclassification or otherwise) any class or
series of shares having rights, preferences or privileges senior to or on a
parity with the Preferred Stock; (iv) redeem or repurchase any shares of capital
stock except in certain instances; (v) merge with or into any other entity or
enter into any other corporate reorganization, recapitalization, sale of control
or any transaction that, directly or indirectly, results in the sale, license,
lease, transfer, conveyance or other disposition of all or substantially all of
the assets or properties of the Company; (vi) sell, license, lease, transfer,
convey or otherwise dispose of the Company's intellectual property in which FMC
Corporation received a security interest; (vii) amend or waive any provision of
the Company's Articles of Incorporation or By-laws; (viii) acquire assets or
securities of another person or entity if the aggregate consideration paid in
all such transactions (other than those in the ordinary course of business)
combined exceeds $2,000,000 or any one such transaction exceeds $500,000; (ix)
issue any additional equity securities or any other securities convertible or
exchangeable into equity securities (other than issuance of shares of common
stock pursuant to employee stock options or other employee stock plans in effect
as of the FMC Corporation transaction date and, with the approval of the board
of directors, shares of common stock to unrelated third parties, in arms-length
transactions that do not exceed 100,000 shares for any fiscal year); or (x)
approve the liquidation, dissolution or winding up of the Company.
The provisions of the preferred stock also provide that if FMC Corporation
desires to transfer the preferred stock, the Company has the right of first
refusal to acquire such shares. For as long as the preferred stock is
outstanding, if the Company intends to issue equity securities other than to FMC
F-34
<PAGE> 164
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Corporation, or as permitted, FMC Corporation shall have the right to acquire a
portion of such securities to retain its percentage ownership immediately prior
to such issuance.
The Company and FMC Corporation also entered a Representative Agreement
whereby FMC Corporation would undertake to sell the Company's machine vision
products to the food processing industry in many areas of the world. The
Representative Agreement may be terminated for or without cause. Each share of
Series B Preferred Stock shall automatically be converted into shares of common
stock upon the later of (i) the third anniversary of the date of issuance or
(ii) the sixtieth day after the termination of the Representative Agreement.
COMMON STOCK
The authorized number of shares of no par value Class A common stock and no
par value Class B common stock are 60,000,000 and 3,000,000, respectively. Upon
sale or transfer, each share of Class B common stock is automatically
convertible into one share of Class A common stock. Both the Class A and Class B
common stock are entitled to one vote per share. As of December 31, 1999, there
were 12,922,000 shares of Class A common stock and 48,000 shares of Class B
common stock outstanding. For purposes of this report, the Class A and B shares
are referred to as "common stock."
SCHEDULE OF OUTSTANDING STOCK, CONVERTIBLE DEBT, PREFERRED STOCK AND POTENTIAL
DILUTION
The following table summarizes outstanding common stock as of December 31,
1999, potential dilution to the outstanding common stock upon the conversion of
convertible debt or preferred stock, and proforma proceeds from the debt
conversion. The table also sets forth the conversion prices and debt due dates.
<TABLE>
<CAPTION>
NUMBER OR PRINCIPAL COMMON STOCK PROFORMA
AMOUNT OUTSTANDING AFTER CONVERSION DEBT
SECURITY AT DECEMBER 31, 1999 CONVERSION PRICE REDUCTION
-------- -------------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
COMMON STOCK: 12,970,000
----------
CONVERTIBLE DEBT (DUE DATE):
6.75% Notes (4/16/01)............. $ 900,000 423,000 $2.13 900,000
6.75% Ventek Note (7/23/01)....... $2,250,000 1,000,000 2.25 2,250,000
---------- ----------
1,423,000 3,150,000
---------- ----------
PREFERRED STOCK: 119,100 1,191,000
----------
Potentially outstanding shares and
proforma proceeds and reduction of
debt.............................. 15,584,000 $3,150,000
========== ==========
</TABLE>
The proforma amounts above are for illustrative purposes only. Unless the
market price of the Company's common stock rises significantly above the
conversion prices, it is unlikely that the debt or preferred stock will be
converted.
In addition, on December 31, 1999, the Company had outstanding options to
purchase 3,218,000 shares of common stock, 2,586,000 of which are under its
stock option plans (see Note 8).
The existence of these outstanding options, convertible debt and preferred
stock, including options that may be granted under the Company's stock option
plans or otherwise, could adversely affect the Company's ability to obtain
future financing. The price that the Company may receive for the common
F-35
<PAGE> 165
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock issued upon exercise of options, or amount of debt forgiven in the case of
conversion of debt, may be less than the market price of the common stock at the
time such options are exercised or debt is converted. For the life of the
options, convertible debt and preferred stock, the holders are given, at little
or no cost, the opportunity to profit from a rise in the market price of the
common stock without assuming the risk of ownership. Moreover, the holders of
the options might be expected to exercise them at a time when the Company would,
in all likelihood, be able to obtain needed capital by a new offering of its
securities on terms more favorable than those provided for by the options.
1997 RESTRICTED STOCK PLAN
The 1997 Restricted Stock Plan ("1997 Plan") was established to retain the
services of selected employees, officers and directors of the Company and
provide them with strong incentives to enhance the the Company's growth and
stock price. The total number of shares of common stock issuable under the 1997
Plan shall not exceed 2,000,000.
In January 1997, the Company's board of directors awarded 2,000,000 shares
of restricted common stock to three key employees of the Company. In September
1997, 1,800,000 shares were donated back to the Company and retired. The
remaining 200,000 shares cannot be traded or transferred unless a payment of
$1.80 per share is made by the employee to Advanced Machine Vision. If payment
is not made, the related shares of stock will be forfeited and returned to the
Company.
In February 1999 and December 1999, the Company's board of directors
awarded 350,000 and 100,000 shares of restricted common stock, respectively, to
four key employees of the Company. The shares cannot be traded or transferred
unless a payment of $1.25 per share is made by the employee to the Company
between February 1, 2000 and January 31, 2001 for the 350,000 shares, and
payment of $.75 per share is made by the employee to the Company before July 23,
2002 for the 100,000 shares. If these conditions are not met, the related shares
will be forfeited and returned to the Company.
STOCK RIGHTS PLAN
In February 1998, the Company implemented a stock rights program. Pursuant
to the program, shareholders of record on February 27, 1998 received a dividend
of one right to purchase for $15.00 one one-hundredth of a share of a newly
created Series A Junior Participating Preferred Stock. The rights are attached
to the Company's common stock and will also become attached to shares issued in
the future. The rights will not be traded separately and will not become
exercisable until the occurrence of a triggering event, defined as an
accumulation by a single person or group of 20% or more of the Company's common
stock. The rights will expire on February 26, 2008 and are redeemable at $.0001
per right.
After a triggering event, the rights will detach from the common stock. If
the Company is then merged into, or is acquired by, another corporation, the
Company has the opportunity to either (i) redeem the rights or (ii) permit the
rights holder to receive in the merger stock of the Company or the acquiring
company equal to two times the exercise price of the right (i.e., $30). In the
latter instance, the rights attached to the acquirer's stock become null and
void. The effect of the rights program is to make a potential acquisition of the
Company more expensive for the acquirer if, in the opinion of the Company's
board of directors, the offer is inadequate.
In December 1998, the Rights Plan was amended to permit FMC Corporation to
acquire up to 1,600,000 shares of the Company common stock on the open market
without causing a triggering event.
In February 2000, the Company's board of directors determined that the
proposed merger with Key Technology, Inc. ("Key") (see Note 13) will not
constitute a triggering event.
F-36
<PAGE> 166
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK REPURCHASE
On December 29, 1999, the Company's board of directors authorized the
Company to purchase, from time to time, up to $1,000,000 of the Company's common
stock in the open market. 42,800 shares were repurchased subsequent to December
31, 1999.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share, calculated in accordance with FAS 128, is
presented in the following table:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
2000 1999
----------------- ----------------
(LOSS) SHARES (LOSS) SHARES
------- ------- ------ -------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C>
CALCULATION OF EPS
Income (loss) available to common shareholders............. $(1,589) 12,935 $(576) 11,914
Reduction for contingently returnable shares as all
conditions were not met as of period end................. -- (650) -- (394)
------- ------- ----- -------
Income (loss) available to common shareholders............. $(1,589) 12,285 $(576) 10,520
Basic EPS.................................................. $ (0.13) $ (0.05)
EFFECT OF DILUTIVE SECURITIES:
Stock options and warrants................................. $ -- -- $ -- --
Preferred stock............................................ -- -- -- --
Note and stock appreciation rights agreement............... -- -- -- --
Convertible debt........................................... -- -- -- --
------- ------- ----- -------
Income (loss) available to common shareholders and assumed
conversions.............................................. $(1,589) 12,285 $(576) 10,520
======= ======= ===== =======
Diluted EPS................................................ $ (0.13) $ (0.05)
</TABLE>
F-37
<PAGE> 167
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997
----------------- ---------------- ----------------
(LOSS) SHARES INCOME SHARES INCOME SHARES
------- ------- ------ ------- ------ -------
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CALCULATION OF EPS
Income (loss) available to common
shareholders............................. $(2,895) 12,639 $2,242 10,717 $7,016 11,202
Reduction for contingently returnable
shares as all conditions were not met as
of period end............................ -- (555) -- (200) -- (200)
------- ------- ------ ------- ------ -------
Income (loss) available to common
shareholders............................. $(2,895) 12,084 $2,242 10,517 $7,016 11,002
Basic EPS.................................. $ (0.24) $ 0.21 $ 0.64
EFFECT OF DILUTIVE SECURITIES:
Stock options and warrants................. -- -- -- 744 -- 663
Preferred stock............................ -- -- -- 251 -- --
Note and stock appreciation rights
agreement................................ -- -- 100 1,800 100 1,800
Convertible debt........................... -- -- 252 1,423 252 1,423
------- ------- ------ ------- ------ -------
Income (loss) available to common
shareholders and assumed conversions..... $(2,895) 12,084 $2,594 14,735 $7,368 14,888
======= ======= ====== ======= ====== =======
Diluted EPS................................ $ (0.24) $ 0.18 $ 0.49
</TABLE>
The number of shares of common stock, along with their respective exercise
prices, underlying options, warrants, convertible debt and preferred stock,
which were excluded from the computation of diluted EPS because their exercise
prices were greater than the average market price of common stock or inclusion
of such shares would be antidilutive, are listed below.
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Number of shares of common stock
exercisable from:
Options................................ 3,218,000 2,113,000 1,135,000
Warrants............................... -- 790,000 13,215,000
Convertible debt....................... 1,423,000 -- --
Preferred stock........................ 1,191,000 -- --
------------- ------------- -------------
5,832,000 2,903,000 14,350,000
============= ============= =============
Exercise price ranges.................. $0.81 - $3.00 $1.41 - $3.00 $2.00 - $4.94
</TABLE>
NOTE 11 -- BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry -- designing, manufacturing and
marketing of computer-aided vision defect detection and sorting and defect
removal equipment. Advanced Machine Vision has subsidiaries located in the
United States and The Netherlands.
F-38
<PAGE> 168
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue transfers between geographic areas, and other intergeographical
eliminations are not material. Net sales and long-lived assets by geographic
areas are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
Domestic.................................. $14,308,000 $18,215,000 $21,417,000
International............................. 10,004,000 8,826,000 10,557,000
----------- ----------- -----------
Total net sales........................ $24,312,000 $27,041,000 $31,974,000
=========== =========== ===========
Long-lived assets:
Domestic.................................. $ 9,705,000 $11,498,000 $11,107,000
International............................. 120,000 185,000 53,000
----------- ----------- -----------
Total long-lived assets................ $ 9,825,000 $11,683,000 $11,160,000
=========== =========== ===========
</TABLE>
During 1999, the Company sold equipment to two different customers, each
approximating 13% of total net sales. No single customer accounted for more than
10% of total net sales in 1998. During 1997, the Company sold equipment to a
single customer approximating 14% of total net sales.
During 1999, net sales to one customer, located in Russia, approximated 13%
of total net sales. No single international country accounted for more than 10%
of net sales in 1998 or 1997. Location of the customer is the basis for
identification of net sales.
International long-lived assets are located in the Netherlands.
NOTE 12 -- QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE
DATA)
<TABLE>
<CAPTION>
QUARTERS ENDED MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL
-------------- --------- -------- ------------- ------------ -------
<S> <C> <C> <C> <C> <C>
FISCAL 1999
Sales...................................... $5,158 $7,198 $6,646 $ 5,310 $24,312
Gross profit............................... 2,654 4,233 3,015 2,198 12,100
Net income (loss).......................... (576) 210 (484) (2,045) (2,895)
Basic earnings (loss) per share............ (0.05) 0.02 (0.04) (0.17) (0.24)
Diluted earnings (loss) per share.......... (0.05) 0.02 (0.04) (0.17) (0.24)
FISCAL 1998
Sales...................................... $7,103 $9,087 $5,546 $ 5,305 $27,041
Gross profit............................... 3,333 5,035 2,879 3,209 14,456
Net income................................. 182 1,016 75 969 2,242
Basic earnings per share................... 0.02 0.10 0.01 0.09 0.21
Diluted earnings per share................. 0.02 0.08 0.01 0.07 0.18
</TABLE>
F-39
<PAGE> 169
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- SUBSEQUENT EVENT
On February 15, 2000, the Company entered into an Agreement and Plan of
Merger with Key Technology, whereby the Company would be acquired by Key
Technology. Key Technology is a public company and its stock is traded on the
Nasdaq National Market under the symbol "KTEC." Pursuant to the agreement, Key
Technology would pay the following for each the Company common share:
a. Cash of $1.00.
b. 1/10 of a new share of Key Technology convertible preferred stock that
can be sold back to Key Technology after two years for the equivalent of
$1.00.
c. 1/40 of a new warrant to purchase a share of Key Technology common stock
that can be sold back to Key Technology immediately for the equivalent
of $0.25.
The agreement specifies other terms, conditions, representations and
warranties for each party. Completion of the transaction is contingent upon
approval of the Company's common shareholders and FMC Corporation, the holder of
all the Company's Series B Preferred Stock.
As part of the acquisition process, registration documents will be filed by
Key Technology with the Securities and Exchange Commission ("SEC"). Completion
of the transaction, which is subject to SEC and other approvals as indicated
above, is expected by mid-2000. Reference is made to the Company's recent
filings with the SEC for a more complete description of the transaction.
F-40
<PAGE> 170
ADVANCED MACHINE VISION CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER
31, 1997, 1998 AND 1999 (IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE --------------------- BALANCE
AT CHARGED TO CHARGED AT END
BEGINNING COST AND TO OTHER OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
--------- ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for excess and obsolete inventory.... $ 436 $ 271 $ -- $ -- $ 707
========= ===== ====== ========== ======
Allowance for doubtful accounts................ $ 280 $ -- $ (100) $ -- $ 180
========= ===== ====== ========== ======
Deferred tax asset valuation................... $ 7,322 $ -- $ -- $ (977) $6,345
========= ===== ====== ========== ======
Year ended December 31, 1998:
Allowance for excess and obsolete inventory.... $ 707 $(145) $ -- $ -- $ 562
========= ===== ====== ========== ======
Allowance for doubtful accounts................ $ 180 $ 50 $ -- $ -- $ 230
========= ===== ====== ========== ======
Deferred tax asset valuation................... $ 6,345 $ -- $ -- $ (2,174) $4,171
========= ===== ====== ========== ======
Year ended December 31, 1999:
Allowance for excess and obsolete inventory.... $ 562 $(199) $ -- $ -- $ 363
========= ===== ====== ========== ======
Allowance for doubtful accounts................ $ 230 $ (25) $ -- $ -- $ 205
========= ===== ====== ========== ======
Deferred tax asset valuation................... $ 4,171 $ -- $1,058 $ -- $5,299
========= ===== ====== ========== ======
</TABLE>
F-41
<PAGE> 171
ANNEX A -- MERGER AGREEMENT
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is made as of February 15, 2000 (this
"Agreement"), by and among KEY TECHNOLOGY, INC., an Oregon corporation
("Parent"), KTC ACQUISITION CORP., an Oregon corporation ("Sub"), and ADVANCED
MACHINE VISION CORPORATION, a California corporation ("AMVC" or "Company").
RECITALS
A. The authorized capital stock of Parent consists of 5 million shares of
Series Preferred Stock, $.01 par value, of which 15,000 shares have been
designated as Series A Junior Participating Preferred Stock, none of which are
issued and outstanding, and 15 million shares of Common Stock ("Parent Common
Stock"), $.01 par value, of which 4,716,460 shares were issued and outstanding
on the close of business on December 31, 1999.
B. The authorized capital stock of Sub consists of 100 shares of Common
Stock, $.001 par value ("Sub Common Stock"), all of which are issued and
outstanding.
C. The authorized capital stock of the Company consists of 60 million
shares of Common Stock, without par value ("Company Common Stock" or the
"Shares"), of which 12,921,884 shares of Class A Common Stock and 47,669 shares
of Class B Common Stock were issued and outstanding at the close of business on
December 31, 1999 and 3,217,529 additional shares were subject to issuance
pursuant to outstanding stock options or warrants ("Company Options")
outstanding, and 3 million shares of Preferred Stock, of which 400,000 shares
have been designated as Series A Junior Participating Preferred Stock, none of
which are issued and outstanding, and 119,106 shares of Series B Preferred Stock
which were issued and outstanding on December 31, 1999.
D. All of the issued and outstanding shares of Sub Common Stock are owned
by Parent.
E. The respective Boards of Directors of Parent, Sub and the Company deem
it advisable and in the best interests of their respective stockholders that Sub
shall merge into the Company pursuant to the articles and certificate of merger
attached hereto as Exhibit A (the "Articles of Merger") and the applicable
provisions of the laws of the States of Oregon and California and have, by
resolutions duly adopted, approved the principal terms of such merger which are
herein set forth, and Sub and the Company have directed that the principal terms
of such merger be submitted to their respective stockholders for approval.
F. The parties desire to state the terms and conditions of such merger, the
mode of carrying the same into effect, the consideration which the holders of
Company Common Stock, Company Options, Company Series B Stock and Sub Common
Stock are to receive in exchange for such shares upon the merger and such other
details and provisions as are deemed necessary or desirable.
A-1
<PAGE> 172
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. Definitions.
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Accounts Receivable" -- as defined in Section 3.8.
"Affiliate" -- as defined by the Commission.
"Agreement" -- as defined in the first paragraph of this Agreement.
"Applicable Contract" -- any Contract (a) under which the Company has or
may acquire any rights, (b) under which the Company has or may become subject to
any obligation or liability, or (c) by which the Company or any of the assets
owned or used by it are or may become bound.
"Articles of Merger" -- as defined in the Recitals of this Agreement.
"Balance Sheet" -- as defined in Section 3.4.
"Best Efforts" -- the efforts that a prudent Person desirous of achieving a
result would use in similar circumstances to ensure that such result is achieved
as expeditiously as possible; provided, however, that an obligation to use Best
Efforts under this Agreement does not require the Person subject to that
obligation to take actions that would result in a materially adverse change in
the benefits to such Person of this Agreement and the Contemplated Transactions.
"Breach" -- a "Breach" of a representation, warranty, covenant, obligation,
or other provision of this Agreement or any instrument delivered pursuant to
this Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"CCL" -- as defined in Section 2.1.
"Closing" -- as defined in Section 2.3.
"Closing Date" -- as defined in Section 2.3.
"Commission" -- the United States Securities and Exchange Commission.
"Company" -- as defined in the first paragraph of this Agreement. Unless
otherwise indicated herein, the term "Company" includes in all instances the
Company and all of its subsidiaries, including without limitation SRC Vision,
Inc. and Ventek, Inc.
"Company Common Stock" -- as defined in the Recitals of this Agreement.
"Company Options" -- as defined in the Recitals of this Agreement.
"Company Series B Stock" -- the Company's Series B Preferred Stock.
"Company Stock Rights Plan" -- The stock rights plan set forth in the
Rights Agreement entered into with American Stock Transfer and Trust Company
dated February 27, 1998.
A-2
<PAGE> 173
"Consent" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" -- all of the transactions contemplated by this
Agreement, including:
(a) the Merger;
(b) the performance by Parent, Sub, Company and the Surviving
Stockholders of their respective covenants and obligations under this
Agreement; and
(c) Parent's acquisition and exercise of control over the Company.
"Contract" -- any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"Conversion Ratio" -- as defined in Section 2.5(a)(i).
"Copyrights" -- as defined in Section 3.21(a)(iii).
"Disclosure Letter" -- the disclosure letter referenced in Section 3 and to
be delivered by the Company to Parent concurrently with the execution of this
Agreement.
"Dissenting Share" -- means any share of Company Common Stock which any
Stockholder who has exercised his or her dissenter's rights under the CCL holds
of record.
"Effective Time" -- as defined in Section 2.2.
"Employee Benefit Plan" -- as defined in Section 3.12(b)(i).
"Encumbrance" -- any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, restriction on use, voting, transfer, receipt of income, or exercise of
any other attribute of ownership.
"Environment" -- soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities" -- any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law, Occupational Safety and Health Law or any other Legal
Requirement and consisting of or relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or
response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for
any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health
Law.
A-3
<PAGE> 174
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. sec. 9601 et seq., as amended
("CERCLA").
"Environmental Law" -- as defined in Section 3.18.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"ERISA Affiliate" -- as defined in Section 3.12.
"Facilities" -- any real property, leaseholds, or other interests currently
or formerly owned or operated by the Company and any buildings, plants, or
structures currently or formerly owned or operated by the Company.
"Financial Statements" -- as defined in Section 3.4.
"GAAP" -- generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4 were prepared.
"Governmental Authorization" -- any approval, consent, license, permit,
waiver, or other authorization issued, granted, or given by or under the
authority of any Governmental Body or pursuant to any Legal Requirement.
"Governmental Body" -- any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity
and any court or other tribunal); or
(d) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature.
"Hazardous Activity" -- the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Company.
"Hazardous Materials" -- as defined in Section 3.18.
"Intellectual Property Assets" -- as defined in Section 3.21(a).
"IRC" -- the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS" -- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
A-4
<PAGE> 175
"Knowledge" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonable investigation concerning the existence of such fact or other
matter.
The Company will be deemed to have "Knowledge" of a particular fact or other
matter if any individual who is serving as a director or officer of the Company
has Knowledge of such fact or other matter.
"Legal Requirement" -- any federal, state, local, or municipal
administrative order, constitution, law, ordinance, principle of common law,
regulation, statute, or treaty.
"Marks" -- as defined in Section 3.21(a)(i).
"Material Adverse Change" -- a material adverse change in the business,
operations, properties, assets or condition of the Company.
"Material Adverse Effect" -- something that has caused or would be likely
to cause a Material Adverse Change.
"Merger" -- as defined in Section 2.1.
"Multiemployer Plan" -- as defined in Section 3.12(b)(i).
"Nasdaq" -- the National Association of Securities Dealers Automated
Quotation System.
"Occupational Safety and Health Law" -- any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational safety
and health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if:
(a) such action is substantially consistent with the past practices of
such Person and is taken in the ordinary course of the normal day-to-day
operations of such Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority) and is not required to be specifically authorized by the
parent company (if any) of such Person; and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or
by any Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
"Organizational Documents" -- (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
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"Parent's Advisors" -- as defined in Section 5.1.
"Parent Disclosure Letter" -- as defined in Section 4.
"Person" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Plan" -- as defined in Section 3.12.
"Proceeding" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Related Person" -- with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and (d) any Person with respect to which such individual or one
or more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse and former spouses, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 5% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity securities or
equity interests in a Person.
"Release" -- any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Representative" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
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"Rights in Mask Works" -- as defined in Section 3.21.
"Securities Act" -- the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Series B Preferred" -- as defined in Section 2.5.
"Shares" -- as defined in the Recitals of this Agreement.
"Stockholder" -- any Person who owns at the relevant time one or more of
the Shares.
"Subsidiary" -- with respect to any Person (the "Owner"), any corporation
or other Person of which securities or other interests having the power to elect
a majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"Tax" -- any tax (including any income tax, capital gains tax, value-added
tax, sales tax, property tax, gift tax, or estate tax), levy, assessment,
tariff, duty (including any customs duty), deficiency, or other fee, and any
related charge or amount (including any fine, penalty, interest, or addition to
tax), imposed, assessed, or collected by or under the authority of any
Governmental Body or payable pursuant to any tax-sharing agreement or any other
Contract relating to the sharing or payment of any such tax, levy, assessment,
tariff, duty, deficiency, or fee.
"Tax Return" -- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threat of Release" -- a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Threatened" -- a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"Trade Secrets" -- as defined in Section 3.21(a)(v).
"Transfer Agent" -- the Parent's transfer agent as of the Effective Time.
"Warrant" -- as defined in Section 2.5.
"Welfare Plan" -- as defined in Section 3.12(b)(i).
"Wholly Owned Subsidiary" -- as defined in Section 3.3.
2. Merger and Effective Time; Articles of Incorporation; Bylaws; Directors and
Officers; Conversion and Exchange of Shares.
2.1 The Merger. At the Effective Time (as defined in Section 2.2 hereof),
Sub shall be merged (the "Merger") into the Company, which shall be (and is
hereinafter sometimes referred to as) the "Surviving Corporation." The corporate
existence of the Company with all its rights, privileges, powers and
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franchises shall continue unaffected and unimpaired by the Merger, and as the
Surviving Corporation it shall be governed by the laws of the State of
California and succeed to all rights, privileges, powers, franchises, assets,
liabilities and obligations of Sub in accordance with the Oregon Business
Corporation Act (the "OBCA") and the California Corporation Law (the "CCL"). The
separate existence and corporate organization of Sub shall cease at the
Effective Time and thereupon the Company and Sub shall be a single corporation,
the Company.
2.2 Effective Time of the Merger. The Merger shall become effective at the
time (the "Effective Time") of filing with the Oregon Secretary of State and the
California Secretary of State of Articles of Merger in such form as is required
by, and executed in accordance with, the applicable provisions of the OBCA and
the CCL or at such later time as may be agreed to by Parent and the Company and
specified in the Articles of Merger. The parties will cause the Articles of
Merger to be filed with the Oregon Secretary of State and the California
Secretary of State as soon as practicable after the Closing.
2.3 Closing. On the same day as, but immediately prior to the filing of
the Articles of Merger, a closing (the "Closing") will take place for the
purpose of confirming the satisfaction or waiver of the conditions set forth in
Sections 7, 8 and 9 hereof. The Closing will take place as soon as practicable
but not later than three business days after the satisfaction or waiver of the
conditions set forth in such Sections (the date and time of the Closing being
hereinafter referred to as the "Closing Date"), at the offices of Tonkon Torp
LLP, 1600 Pioneer Tower, 888 SW Fifth Avenue, Portland, OR 97904-2099, unless
another time or place is agreed to by the parties hereto.
2.4 Articles of Incorporation; Bylaws; Directors and Officers.
(a) Articles of Incorporation. The Articles of Incorporation of the
Company, as in effect immediately prior to the Effective Time, shall be amended
at the Effective Time to change Article III thereof to read in full as follows:
"Authorized Stock. The total number of shares of stock which the corporation
shall have the authority to issue is 100 shares of common stock, without par
value." From and after the Effective Time, such Articles of Incorporation, as so
amended, shall continue as the Articles of Incorporation of the Surviving
Corporation, until amended as provided by law.
(b) Bylaws. The Bylaws of the Company, as in effect at the Effective Time,
shall continue to be the Bylaws of the Surviving Corporation, until altered,
amended or repealed in accordance with law, the Articles of Incorporation of the
Surviving Corporation and such Bylaws.
(c) Directors and Officers. The directors of the Surviving Corporation at
and immediately following the Effective Time shall be Thomas C. Madsen and
Gordon Wicher, to serve in accordance with the Bylaws of the Surviving
Corporation. The officers of the Surviving Corporation at and immediately
following the Effective Time shall be Thomas C. Madsen, President and Gordon
Wicher, Secretary, to serve in accordance with the Bylaws of the Surviving
Corporation.
2.5 Conversion and Exchange of Shares. The manner and basis of converting
at the Effective Time Company Common Stock into cash and shares of Parent's
Series B Convertible Preferred Stock, $10.00 par value, having the rights and
preferences set forth in the attached Exhibit 2.5A (the "Series B Preferred")
with the attached redeemable Warrant to purchase shares of Parent's Common Stock
in the form attached as Exhibit 2.5B, the exchange of certificates therefor, the
manner and basis of converting the Company's Series B Stock into cash, and the
manner and basis of converting Company Options outstanding at the Effective Time
shall be as set forth herein.
(a) Conversion of Shares.
(i)(A) Each share of Company Common Stock (both Class A and Class
B) issued and outstanding immediately prior to the Effective Time
(except Dissenting Shares) shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the
right to receive $1.00 in cash and one-tenth of a share of Series B
Preferred, with each share of Series B Preferred to be accompanied by a
Warrant, redeemable at any time by the holder for
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$2.50 in cash and exercisable at any time to purchase .25 of a share of
Parent's Common Stock at a price of $15.00 per share (such Series B
Preferred shares and attached Warrants to be issued for each share of
Company Common Stock constituting the "Conversion Ratio").
(B) Each Dissenting Share shall be converted into the right to
receive payment from the Surviving Corporation with respect thereto in
accordance with the provisions of the CCL.
(ii) Each share of the Company Series B Preferred Stock outstanding
at the Effective Date will be converted into the right to receive $22.00
per share in cash.
(iii) Each share of Sub Common Stock issued and outstanding as of the
Effective Time, shall, by virtue of the Merger and without any action
on the part of Parent, the sole stockholder of Sub, be converted into
one share of legally and validly issued, fully paid and nonassessable
Common Stock, without par value, of the Surviving Corporation. The
stock certificate of Sub evidencing ownership of Sub Common Stock shall
by virtue of the Merger evidence ownership of Common Stock of the
Surviving Corporation.
(iv) In the event of any stock split, combination,
reclassification, recapitalization, exchange, stock dividend or other
distribution payable in Parent Common Stock with respect to shares of
Parent Common Stock (or if a record date with respect to any of the
foregoing should occur) during the period between the date of this
Agreement and the Effective Time, then the Conversion Ratio will be
appropriately adjusted to reflect such stock split, combination,
reclassification, recapitalization, exchange, stock dividend or other
distribution.
2.6 Exchange of Certificates; Payment. Series B Preferred and attached
Warrants into which Company Common Stock shall be converted pursuant to the
Merger shall be deemed to have been issued at the Effective Time. At the
Closing, Parent shall deliver to the Transfer Agent certificates evidencing the
number of shares of Series B Preferred and attached Warrants to which that
Stockholder is entitled under Section 2.5, together with the cash payment
applicable thereto. The Company will cause to be delivered such transmittal
letters, documents and instruments as Parent or Parent's transfer agent may
reasonably request, each in form reasonably acceptable to Parent or such
transfer agent. Parent shall also deliver to the Transfer Agent the payment to
be made pursuant to Section 2.5(a)(ii) above with respect to any shares of
Company Series B Stock outstanding on the Effective Date.
2.7 No further Ownership Rights in Company Common Stock. All shares of
Series B Preferred and attached Warrants issued upon the surrender for exchange
of shares of Company Common Stock in accordance with the terms hereof and the
cash amount per share to be paid pursuant to Section 2.5 shall be deemed to have
been issued and paid in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and, on and after the Effective Time, there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Section 2, except that
any validly issued shares of Company Common Stock presented for exchange after
the Effective Time in excess of the number of shares of Common Stock represented
to be outstanding under Section 3.3 as updated at the Closing will by virtue of
the Merger be converted into the right to receive $.001 in cash per share.
2.8 Cash in Lieu of Fractional Shares. No fractional shares of Series B
Preferred shall be issued in the Merger but, in lieu of any such fractional
shares, each Stockholder who would otherwise have been entitled to a fractional
share of Series B Preferred will be paid an amount of cash (without interest)
determined by multiplying such fractional amount by $10.00.
2.9 Company Stock Options. All outstanding Company Options are listed by
holder and amount on Schedule 2.9 hereto. All such options will have been
exercised prior to Closing or will by virtue of the Merger be deemed cancelled.
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2.10 Dissenters' Rights. Any issued and outstanding Company Shares held by
any Shareholder who, in accordance with California Law, dissents from the Merger
(a "Dissenting Shareholder") and requires appraisal of such Dissenting
Shareholder's shares ("Dissenting Shares") shall not be converted or cancelled
as described elsewhere in this Section 2 but instead shall become the right to
receive from the Surviving Corporation such consideration as may be determined
to be due to such dissenting Shareholder pursuant to California Law; provided,
however, that Dissenting Shares outstanding at the Effective Time and held by a
Dissenting Shareholder who shall after the Effective Time withdraw such
Dissenting Shareholder's demand for appraisal or lose such Dissenting
Shareholder's right of appraisal as provided by California Law shall be deemed
to be converted as of the Effective Time into the right to receive the
consideration that would otherwise have been payable in respect thereof if no
dissent had been made.
3. Representations and Warranties of the Company.
The Company hereby represents and warrants to Parent that, except as
otherwise provided in the Disclosure Letter by reference in each instance to the
specific subsection numbers of this Section 3:
3.1 Organization and Good Standing.
(a) Part 3.1 of the Disclosure Letter contains a complete and accurate
description of the Company name, jurisdiction of incorporation and other
jurisdictions in which it is authorized to do business. The Company is a
corporation duly organized and validly existing under the laws of California,
with full corporate power and authority to conduct its business as it is now
being conducted, to own or use the properties and assets that it purports to own
or use, and to perform all its obligations under Applicable Contracts. The
Company is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification except where any failure
to so qualify would not have a Material Adverse Effect.
(b) The Company has delivered to Parent correct and complete copies of its
Organizational Documents, as currently in effect.
3.2 Authority; No Conflict.
(a) The Company has the requisite corporate power and authority to execute
and deliver this Agreement and all other agreements and documents contemplated
hereby and to carry out its obligations hereunder. The execution, delivery and
performance of this Agreement and all other agreements and documents
contemplated hereby and the consummation of the Merger and of the other
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement and all
other agreements and documents contemplated hereby or to consummate the
transactions so contemplated (other than, with respect to the Merger, the
approval and adoption of this Agreement by the Company's stockholders in
accordance with the CCL and the Company's Articles of Incorporation). The
affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock and the approving vote of any Company Series B Stock
outstanding in compliance with the CCL is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve this
Agreement and the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company and constitutes, and all agreements and
documents contemplated hereby when executed and delivered pursuant hereto for
value received will constitute, the valid and binding obligations of the
Company.
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(b) Except as set forth in Part 3.2 of the Disclosure Letter, neither the
execution and delivery of this Agreement by the Company nor the consummation or
performance of any of the Contemplated Transactions by the Company will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Company, or (B) any
resolution adopted by the board of directors or the stockholders of the
Company;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which the Company or any
Stockholder, or any of the assets owned or used by the Company, may be
subject that would be likely to have a Material Adverse Effect;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to the
business of, or any of the assets owned or used by, the Company;
(iv) cause Parent, Sub or the Company to become subject to, or to
become liable for the payment of, any material Tax;
(v) cause any of the assets owned by the Company to be reassessed or
revalued in any material way by any taxing authority or other Governmental
Body;
(vi) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Applicable Contract that would have
a Material Adverse Effect; or
(vii) result in the imposition or creation of any material charge,
claim, community property interest, condition, equitable interest, lien,
option, pledge, security interest or encumbrance upon or with respect to
any of the assets owned or used by the Company.
Except as set forth in Part 3.2 of the Disclosure Letter, the Company will not
be required to give any notice to or obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
3.3 Capitalization. The authorized equity securities of AMVC consist of 60
million shares of common stock, without par value, of which 12,870,000 shares
are issued and outstanding and 3 million shares of Preferred Stock, of which
119,106 shares of Company Series B Stock are issued and outstanding. Schedule
2.9 sets forth all outstanding options or other rights to acquire any securities
of the Company, together with the exercise prices therefor. All of the
outstanding equity securities of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. There are no Contracts
relating to the issuance, sale, or transfer of any equity securities or other
securities of the Company. Since January 1, 1994, none of the outstanding equity
securities or other securities of the Company was issued in violation of the
Securities Act or any applicable securities laws. The Company owns 100% of all
of the outstanding securities, and there are no outstanding rights to acquire
any securities, of Applied Laser Systems, Inc.; SRC Vision, Inc.; ARC
Netherlands BV and Ventek, Inc. (the "Wholly Owned Subsidiaries"). All
representations made in this Section 3 with respect to the Company are also made
with respect to each Wholly Owned Subsidiary when taken in the context of having
a Material Adverse Effect on the Company. Except as set forth in Part 3.3 of the
Disclosure Letter, the Company does not own, and does not have any Contract to
acquire, any equity securities or other securities of any Person (including any
Subsidiary) or any direct or indirect equity or ownership interest in any other
business.
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3.4 Financial Statements. Company has delivered to Parent: an audited
balance sheet of the Company as at December 31, 1999 (the "Balance Sheet") and
the related statements of income, stockholders' equity, and cash flow for the
fiscal year then ended, together with the report thereon of Pricewaterhouse
Coopers LLP, independent certified public accountants (such financial statements
are collectively referred to herein as the "Financial Statements"). The
Financial Statements fairly present the financial condition and the results of
operations, changes in stockholders' equity, and cash flow of the Company as at
the dates of and for the periods referred to therein, all in accordance with
GAAP. The Financial Statements reflect the consistent application of such
accounting principles throughout the periods involved, except as disclosed in
the notes to such financial statements. No financial statements of any Person
other than the Company are required by GAAP to be included in the consolidated
financial statements of the Company.
3.5 Books and Records. Except as described in Part 3.5 to the Disclosure
Letter, the books of account, minute books, stock record books, and other
records of the Company specifically requested by Parent or its Representatives,
all of which have been or prior to the Closing Date will be made available to
Parent, are complete and correct in all material respects. Except as described
in Part 3.5 to the Disclosure Letter, the minute books of the Company contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the Boards of Directors, and committees of the
Boards of Directors of the Company, and no meeting of any such stockholders,
Board of Directors, or committee has been held for which minutes have not been
prepared and are not contained in such minute books. At the Closing Date, all of
those books and records will be in the possession of the Company.
3.6 Title to Properties; Encumbrances. Part 3.6 of the Disclosure Letter
contains a complete and accurate list of all real property, leaseholds, or other
interests therein, if any, owned by the Company. Upon request, Company will
deliver to Parent copies of the deeds and other instruments (as recorded) by
which the Company acquired such real property and interests, and copies of all
title insurance policies, opinions, abstracts, and surveys in the possession of
the Company and relating to such property or interests. All material properties
and assets reflected in the Balance Sheet are free and clear of all charges,
claims, community property interests, conditions, equitable interests, liens,
options, pledges, security interests and encumbrances except, with respect to
all such properties and assets, (a) mortgages or security interests shown on the
Balance Sheet as securing specified liabilities or obligations, with respect to
which no default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) mortgages or security interests incurred in
connection with the purchase of property or assets after the date of the Balance
Sheet (such mortgages and security interests being limited to the property or
assets so acquired), with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default) exists and which
mortgages or security interests are listed and described in Part 3.6 of the
Disclosure Letter, and (c) liens for current taxes not yet due.
3.7 Condition and Sufficiency of Assets. As of the date of this Agreement,
the buildings, plants, structures, and equipment of the Company are to the
Company's Knowledge structurally sound, are in good operating condition and
repair, and are adequate for the uses to which they are being put, and none of
such buildings, plants, structures, or equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost. The building, plants, structures, and equipment of
the Company are sufficient for the continued conduct of the Company's business
after the Closing Date in substantially the same manner as conducted prior to
the Closing Date.
3.8 Accounts Receivable. All accounts receivable of the Company that are
reflected on the Balance Sheet or on the accounting records of the Company
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. There is no material contest, claim, or right
of set-off, other than returns in the Ordinary Course of Business, under any
Contract with any obligor of an Accounts Receivable relating to the amount or
validity of such Accounts Receivable.
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3.9 No Undisclosed Liabilities. Except as set forth in Part 3.9 of the
Disclosure Letter, the Company has no material liabilities or obligations of any
nature (whether known or unknown and whether absolute, accrued, contingent, or
otherwise) except for liabilities or obligations reflected or reserved against
in the Financial Statements for the year ended December 31, 1999 and current
liabilities incurred in the Ordinary Course of Business since the date thereof.
3.10 Taxes.
(a) Except as described in Part 3.10 of the Disclosure Letter, the Company
has filed or caused to be filed all Tax Returns that are or were required to be
filed by it pursuant to applicable Legal Requirements. Part 3.10 of the
Disclosure Letter contains a complete and accurate list of all such Tax Returns
filed since January 1, 1997. The Company has paid, or made sufficient provision
for the full payment of, all Taxes that have or may have become due pursuant to
those Tax Returns or otherwise, or pursuant to any assessment received by the
Company, except such Taxes, if any, as are listed in Part 3.10 of the Disclosure
Letter and are being contested in good faith and as to which adequate reserves
(determined in accordance with GAAP) have been provided in the Financial
Statements for the year ended December 31, 1999 and the Interim Financial
Statements.
(b) All deficiencies which have been or may be proposed as a result of
audits of the United States federal and state income Tax Returns of the Company
have been paid, reserved against, settled, or, as described in Part 3.10 of the
Disclosure Letter, are being contested in good faith by appropriate proceedings.
Except as described in Part 3.10 of the Disclosure Letter, the Company has not
given or been requested to give waivers or extensions (or is or would be subject
to a waiver or extension given by any other Person) of any statute of
limitations relating to the payment of Taxes of the Company or for which the
Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the books
of the Company are adequate (determined in accordance with GAAP). There exists
no proposed or unpaid actual Tax assessment against the Company except as
disclosed in the Financial Statements for the year ended December 31, 1999, or
in Part 3.10 of the Disclosure Letter. Except as disclosed in Part 3.10 to the
Disclosure Letter, all Taxes that the Company is or was required by Legal
Requirements to withhold or collect have been duly withheld or collected and, to
the extent required, have been paid to the proper Governmental Body or other
Person.
(d) Except as disclosed in Part 3.10 to the Disclosure Letter, all Tax
Returns filed by the Company are true, correct, and complete in all material
respects. There is no tax sharing agreement that will require any payment by the
Company after the date of this Agreement.
3.11 No Material Adverse Change. Since the date of the Balance Sheet, and
except as set forth in the Disclosure Letter, there has not been any Material
Adverse Change.
3.12 Employee Benefits.
(a) The Company has no ownership interest in, and does not contribute to,
any credit union which has been established by the Company for any of its
employees.
(b)
(i) Neither the Company nor any affiliate of the Company as determined
under IRC sec. 414(b), (c), (m) or (o) ("ERISA Affiliate") maintains,
administers or contributes to, nor do the employees of the Company or any
ERISA Affiliate receive or expect to receive as a condition of employment,
benefits pursuant to: any employee pension benefit plan (as defined in
sec. 3(2) of ERISA) ("Plan"), including, without limitation, any
multiemployer plan as defined in IRC sec. 3(37) of ERISA ("Multiemployer
Plan"); any employee welfare benefit plan (as defined in IRC sec. 3(1) of
ERISA) ("Welfare Plan"); or any bonus, deferred compensation, stock
purchase, stock option, stock appreciation, severance, salary continuation,
vacation, sick leave, fringe benefit, incentive, insurance,
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welfare or similar plan or arrangement ("Employee Benefit Plan") other than
those Plans, Welfare Plans and Employer Benefit Plans described in Part
3.12 of the Disclosure Letter. Except as required by IRC sec. 4980B or as
disclosed in Part 3.12 of the Disclosure Letter, neither the Company nor
any ERISA Affiliate has promised any former employee or other individual
not employed by the Company or any ERISA Affiliate medical or other benefit
coverage, maintains or contributes to any plan or arrangement providing
medical benefits to former employees, their spouses or dependents or any
other individual not employed by the Company.
(ii) All Plans, Welfare Plans and Employee Benefit Plans and any
related trust agreements or annuity contracts (or any related trust
instruments) comply with and are and have been operated in accordance with
each applicable provision of ERISA, the IRC (including, without limitation,
the requirements of IRC sec. 401(a) to the extent any Plan is intended to
conform to that section), other Federal statutes, state law (including,
without limitation, state insurance law) and the regulations and rules
promulgated pursuant thereto or in connection therewith. The Company has no
Knowledge of any violation of any of the foregoing by any Plan, Welfare
Plan, or Employee Benefit Plan. Each Welfare Plan which is a group health
plan (within the meaning of sec. 5000(b)(1) of the Code) complies with and
has been maintained and operated in accordance with each of the
requirements of IRC sec. 162(k) as in effect for years beginning prior to
1989, IRC sec. 4980B for years beginning after December 31, 1988 and Part 6
of Subtitle B of Title I of ERISA. A favorable determination as to the
qualification under the Code of the Company's Profit Sharing or 401(k) Plan
and each amendment thereto has been made by the IRS, the Profit Sharing
Plan at all times has been and remains qualified under the IRC, and the
related trust at all times has been and remains tax exempt.
(iii) Neither any Plan or Welfare Plan fiduciary nor any Plan or
Welfare Plan has engaged in any transaction in violation of sec. 406 of
ERISA or any "prohibited transaction" (as defined in sec. 4975(c)(1) of the
IRC and there has been no "reportable event" (as defined in sec. 4043(b) of
ERISA) with respect to any Plan. Neither the Company nor any ERISA
Affiliate has failed to make any contributions or to pay any amounts due
and owing as required by the terms of any Plan, Welfare Plan or Employee
Benefit Plan, or collective bargaining agreement or ERISA or any other
applicable law.
(iv) True and complete copies of each Plan, Welfare Plan and Employee
Benefit Plan, related trust agreements, annuity contracts, determination
letters, summary plan descriptions, all communication to employees
regarding any Plan, Welfare Plan, or Employee Benefit Plan, annual reports
on Form 5500 for the last three years, and each plan, agreement, instrument
and commitment referred to herein, have been identified in writing and made
available to Parent; all of the foregoing are legally valid, binding, in
full force and effect, and there are no defaults thereunder, and none of
the rights of the Company thereunder will be impaired by this Agreement or
the consummation of the transaction contemplated hereby. The annual reports
on Form 5500 fully and accurately set forth the financial and actuarial
condition of each Plan and each trust funding any Welfare Plan. With
respect to each Plan, Welfare Plan and Employee Benefit Plan, the
Disclosure Letter sets forth the name and address of the administrator and
trustees and the policy number and insurer under all insurance policies.
(v) There are no pending or threatened claims by or on behalf of any
of the Plans, Welfare Plans, or Employee Benefit Plans by any employee or
beneficiary covered under any Plans, Welfare Plans or Employee Benefit
Plans or otherwise involving any Plan, Welfare Plan or Employee Benefit
Plan (other than routine claims for benefits).
3.13 Compliance with Legal Requirements; Governmental Authorizations.
(a) To the Knowledge of the Company, except as set forth in Part 3.13 of
the Disclosure Letter:
(i) the Company is, and at all times has been, in material compliance
with each material Legal Requirement that is or was applicable to it or to
the conduct or operation of its business or the ownership or use of any of
its assets;
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(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result in a
violation by the Company of, or a failure on the part of the Company to
comply with, any material Legal Requirement, or (B) may give rise to any
obligation on the part of the Company to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature, that with
respect to either of the preceding, is likely to have a Material Adverse
Effect; and
(iii) since January 1, 1997, the Company has not received any notice
or other communication (whether oral or written) from any Governmental Body
or any other Person regarding (A) any actual, alleged, possible, or
potential violation of, or failure to comply with, any Legal Requirement,
or (B) any actual, alleged, possible, or potential obligation on the part
of the Company to undertake, or to bear all or any portion of the cost of,
any remedial action of any nature, that with respect to either of the
preceding, is likely to have a Material Adverse Effect.
(b) Part 3.13 of the Disclosure Letter contains a complete and accurate
list of each material Governmental Authorization that is held by the Company.
Each material Governmental Authorization listed or required to be listed in Part
3.13 of the Disclosure Letter is valid and in full force and effect. Except as
set forth in Part 3.13 of the Disclosure Letter:
(i) the Company is, and at all times has been, in material compliance
with all of the terms and requirements of each Governmental Authorization
identified or required to be identified in Part 3.13 of the Disclosure
Letter;
(ii) to the Knowledge of the Company, no event has occurred or
circumstance exists that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of or a failure
to comply with any term or requirement of any Governmental Authorization
listed or required to be listed in Part 3.13 of the Disclosure Letter, or
(B) result directly or indirectly in the revocation, withdrawal,
suspension, cancellation, or termination of, or any modification to, any
Governmental Authorization listed or required to be listed in Part 3.13 of
the Disclosure Letter, that with respect to either of the preceding, is
likely to have a Material Adverse Effect;
(iii) since January 1, 1997, the Company has not received, at any
time, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental Authorization, that
with respect to either of the preceding, is likely to have a Material
Adverse Effect; and
(iv) all applications required to have been filed for the renewal of
the material Governmental Authorizations listed or required to be listed in
Part 3.13 of the Disclosure Letter have been duly filed on a timely basis
with the appropriate Governmental Bodies, and all other filings required to
have been made with respect to such Governmental Authorizations have been
duly made on a timely basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Part 3.13 of the Disclosure Letter
collectively constitute all of the material Governmental Authorizations
necessary to permit the Company to lawfully conduct and operate its business in
the manner it currently conducts and operates such business and to permit the
Company to own and use its assets in the manner in which it currently owns and
uses such assets, except where the failure to have such Governmental
Authorizations would not be reasonably likely to have a Material Adverse Effect.
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3.14 Legal Proceedings; Orders.
(a) Except as set forth in Part 3.14 of the Disclosure Letter, there is no
pending Proceeding:
(i) that has been commenced by or against the Company or that
otherwise relates to or may affect the business of, or any of the assets
owned or used by, the Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
To the Knowledge of the Company, (1) no such Proceeding has been Threatened, and
(2) no event has occurred or circumstance exists that may give rise to or serve
as a basis for the commencement of any such material Proceeding. Company has
delivered to Parent copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Part 3.14 of the Disclosure Letter. The
Proceedings listed in Part 3.14 of the Disclosure Letter taken collectively will
not have a material adverse effect on the business, operations, assets,
condition, or prospects of the Company.
(b) To the Knowledge of the Company,
(i) there is no Order to which the Company, or any of the assets owned
or used by the Company, is specifically subject; and
(ii) no officer, director, agent, or employee of the Company is
specifically subject to any Order that prohibits such officer, director,
agent, or employee from engaging in or continuing any conduct, activity, or
practice relating to the business of the Company.
3.15 Absence of Certain Changes and Events. Except as set forth in Part
3.15 of the Disclosure Letter, since the date of the Balance Sheet, the Company
has conducted its business only in the Ordinary Course of Business and there has
not been any:
(a) change in the Company's authorized or issued capital stock; grant
of any stock option or right to purchase shares of capital stock of the
Company; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or
other acquisition by the Company of any shares of any such capital stock;
or declaration or payment of any dividend or other distribution or payment
in respect of shares of capital stock;
(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by the Company of any bonuses, salaries, or
other compensation to any stockholder, director, officer, or (except in the
Ordinary Course of Business) employee or entry into any employment,
severance, or similar Contract or commitment with any director, officer, or
employee or the adoption of any severance policy applicable to employees in
general;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of the
Company;
(e) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or
prospects of the Company, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of
(i) any material license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement, or (ii) any Contract or
transaction involving a total remaining commitment by or to the Company of
at least $10,000 (except for Contracts or transactions entered into in the
Ordinary Course of Business with the Company's customers or vendors which
do not exceed, individually, a commitment of $50,000);
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(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of the
Company or mortgage, pledge, or imposition of any lien or other encumbrance
on any material asset or property of the Company, including the sale,
lease, or other disposition of any of the Intellectual Property Assets, in
any case greater than $10,000;
(h) cancellation or waiver of any claims or rights with a value to the
Company in excess of $10,000;
(i) material change in the accounting methods used by the Company;
(j) any hiring of new employees except as replacements for persons
whose employment with the Company terminated since such date, or the hiring
of any employee at an annual compensation rate of $75,000 or more per year;
or
(k) agreement, whether oral or written, by the Company to do any of
the foregoing.
3.16 Contracts; No Defaults.
(a) Part 3.16(a) of the Disclosure Letter contains a complete and accurate
list of each, and except as so disclosed there is no:
(i) applicable Contract that involves performance of services or
delivery of goods or materials by the Company of an amount or value in
excess of $25,000;
(ii) applicable Contract that involves performance of services or
delivery of goods or materials to the Company of an amount or value in
excess of $25,000;
(iii) applicable Contract that was not entered into in the Ordinary
Course of Business and that involves expenditures or receipts of the
Company in excess of $5,000;
(iv) lease, rental or occupancy agreement, license, installment and
conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property (except personal property leases
and installment and conditional sales agreements having a value per item or
aggregate payments of less than $15,000 and with terms of less than one
year);
(v) contract relating to Intellectual Property Assets to which the
Company is a party or by which the Company is bound, except for any license
implied by the sale of a product and perpetual, paid-up licenses for
commonly available software programs with a value of less than $2,500 under
which the Company is the licensee, including agreements with current or
former employees, consultants, or contractors regarding the appropriation
or the non-disclosure of any of the Intellectual Property Assets;
(vi) collective bargaining agreement and other Applicable Contract to
or with any labor union or other employee representative of a group of
employees;
(vii) joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by the Company with any other Person;
(viii) applicable Contract containing covenants that in any material
way purport to restrict the business activity of the Company or any
Affiliate of the Company or limit the freedom of the Company or any
Affiliate of the Company to engage in any line of business or to compete
with any Person;
(ix) applicable Contract providing for payments to or by any Person
based on sales, purchases, or profits, other than direct payments for
goods;
(x) power of attorney that is currently effective and outstanding;
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(xi) applicable Contract for capital expenditures which, by its terms,
provides for an aggregate balance payable thereunder since December 31,
1999 in excess of $15,000 for any such Contract;
(xii) written warranty, guaranty, and or other similar undertaking
with respect to contractual performance extended by the Company other than
in the Ordinary Course of Business; and
(xiii) amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) To the Knowledge of the Company, except as set forth in Part 3.16(b) of
the Disclosure Letter, with respect to each Contract identified or required to
be identified in Part 3.16(a) of the Disclosure Letter:
(i) the Company is, and at all times has been, in material compliance
with all applicable terms and requirements of each such Contract under
which the Company has or had any obligation or liability or by which the
Company or any of the assets owned or used by the Company is or was bound;
and
(ii) each other Person that has or had any obligation or liability
under any material Contract under which the Company has or had any rights
is, and at all times has been, in full material compliance with all
applicable terms and requirements of such Contract.
3.17 Insurance.
(a) Company has delivered to or otherwise made available for inspection by
Parent:
(i) true and complete copies of all policies of insurance to which the
Company is a party or under which the Company, or any director of the
Company, is or has been covered at any time preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for policies
of insurance; and
(iii) any statement by the Company's auditors with regard to the
adequacy of such entity's coverage or of the reserves for claims.
(b) Part 3.17(b) of the Disclosure Letter describes:
(i) any self-insurance arrangement by or affecting the Company,
including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance,
for the transfer or sharing of any risk by the Company; and
(iii) all obligations of the Company to third parties with respect to
insurance (including such obligations under leases and service agreements)
and identifies the policy under which such coverage is provided.
(c) Part 3.17(c) of the Disclosure Letter sets forth, by year, for the
current policy year and each of the three preceding policy years:
(i) a summary of the loss experience under each policy in excess of
$5,000; and
(ii) a statement describing the loss experience for all claims that
were self-insured, including the number and aggregate cost of such claims.
(d) Except as set forth on Part 3.17(d) of the Disclosure Letter:
(i) All policies to which the Company is a party or that provide
coverage to the Company, or any Company-funded policy providing coverage to
any director or officer of the Company: (A) to the
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Company's Knowledge, are valid, outstanding, and enforceable; (B) are
sufficient for compliance with all Legal Requirements and Contracts to
which the Company is a party or by which it is bound; (C) will continue in
full force and effect following the consummation of the Contemplated
Transactions; and (D) do not provide for any retrospective premium
adjustment or other experienced-based liability on the part of the Company.
(ii) To the Company's Knowledge, the Company has not received (A) any
refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any policy is not willing or
able to perform its obligations thereunder in connection with any policy of
the Company.
(iii) The Company has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to which the Company is
a party or that provides coverage to the Company or any director thereof.
(iv) To the Company's Knowledge, the Company has given notice to the
insurer of all claims as to which it has notice that may be insured
thereby.
3.18 Environmental Matters. Except as set forth in Part 3.18 of the
Disclosure Letter, to the Knowledge of the Company, the Company is not in
violation, or aware, of any imminent or alleged violation by the Company, of any
federal, state or local law, statute, rule, regulation, judgment, consent decree
or ordinance relating to public health, safety, conservation, waste management,
pollution or the indoor or outdoor Environment, including relating to the
release, discharge, emission, storage, treatment, handling or disposal of
Hazardous Materials (defined below) ("Environmental Law"). The Company is not a
party to, or threatened by, and has not been subject to, any judicial,
administrative or regulatory litigation, claim, notice, proceeding or
investigation arising from the operation or violation of any applicable
Environmental Law, or is aware after diligent inquiry of any grounds or basis
for such a claim. The Company does not have or currently use, store, treat,
dispose or otherwise handle hazardous, toxic, radioactive, infectious or harmful
substances or materials, including, without limitation, asbestos and petroleum,
including, crude oil or any fraction thereof and any material prohibited or
regulated by any Environmental Law ("Hazardous Material") except in compliance
with Environmental Law, or know of any release, threat of release, disposal,
cleanup or presence of any Hazardous Material at, on or under any real property
owned, occupied or operated by the Company except in compliance with
Environmental Law.
3.19 Employees.
(a) Part 3.19 of the Disclosure Letter contains a complete and accurate
list of the following information for each employee or director of the Company,
including each employee on leave of absence or layoff status, in each instance
identified by employer as to the applicable Wholly Owned Subsidiary or AMVC:
employee name; job title; current compensation paid or payable; vacation
accrued; and vested and unvested Company Options.
(b) To the Knowledge of the Company, no director or employee of the Company
is a party to, or is otherwise bound by, any agreement or arrangement, including
any confidentiality, noncompetition, or proprietary rights agreement, between
such director or employee and any other Person ("Proprietary Rights Agreement")
that in any way adversely affects or will affect (i) the performance of his
duties as an employee or director of the Company, or (ii) the ability of the
Company to conduct its business, including any confidentiality or proprietary
rights agreement with the Company. To the Company's Knowledge, no director,
officer, or other key employee of the Company intends to terminate his
employment with the Company, except as set forth in Part 3.19 of the Disclosure
Letter.
(c) Part 3.19 of the Disclosure Letter also contains a complete and
accurate list of the following information, if applicable, for each former
employee or director of the Company, or their dependents, receiving benefits or
scheduled to receive benefits from the Company or Company Plans in the future:
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name, pension benefit, pension option election, retiree medical insurance
coverage, retiree life insurance coverage, and other benefits.
3.20 Labor Relations; Compliance. The Company has not been, and is not, a
party to any collective bargaining or other labor Contract. There has not been,
there is not presently pending or existing, and to the Company's Knowledge there
is not Threatened, (a) any strike, slowdown, picketing, work stoppage, or
employee grievance process, (b) any Proceeding against or affecting the Company
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable Governmental Body, organizational
activity, or other labor or employment dispute against or affecting the Company
or its premises, or (c) any application for certification of a collective
bargaining agent. To the Knowledge of the Company, no event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute. There is no lockout of any employees by the Company, and no such
action is contemplated by the Company. Except as disclosed in Part 3.20 of the
Disclosure Letter, the Company has complied in all material respects with all
Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. The Company is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.21 Intellectual Property.
(a) Intellectual Property Assets. The term "Intellectual Property Assets"
includes:
(i) the Company's name, all fictional business names, trade names,
registered and unregistered trademarks, service marks, and applications
(collectively, "Marks");
(ii) patents, patent applications, and inventions and discoveries that
may be patentable (collectively, "Patents");
(iii) all copyrights and registrations and applications therefor in
both published works and unpublished works (collectively, "Copyrights");
(iv) all rights in mask works (collectively, "Rights in Mask Works");
and
(v) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, "Trade Secrets");
owned, used, or licensed by the Company as licensee or licensor. All such
Intellectual Property Assets are listed by category as part of Part 3.21 of the
Disclosure Letter.
(b) Agreements. Part 3.21 of the Disclosure Letter sets forth a complete
and accurate list of all Contracts relating to the Intellectual Property Assets
to which the Company is a party or by which the Company is bound, except for any
license implied by the sale of a product and perpetual, paid-up licenses for
commonly available software programs with a value of less than $2,500 under
which the Company is the licensee. There are no outstanding or Threatened
disputes or disagreements with respect to any such agreement.
(c) Know-How Necessary for the Business. Except as described in Part 3.21
of the Disclosure Letter:
(i) The Intellectual Property Assets are all those necessary for the
operation of the Company's business as it is currently conducted. The
Company is the owner of all right, title, and interest in and to each of
the material Intellectual Property Assets, free and clear of all material
liens, security interests, charges, encumbrances, equities, and other
adverse claims, and has the right to use without payment to a third party
all of the Intellectual Property Assets.
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(ii) Except as set forth in Part 3.21 of the Disclosure Letter, since
January 1, 1994 all of the former and current employees of the Company have
executed written Contracts with the Company that assign to the Company all
rights to any inventions, improvements, discoveries, or information
relating to the business of the Company. To the Company's Knowledge, no
employee of the Company has entered into any Contract that restricts or
limits in any way the scope or type of work in which the employee may be
engaged or requires the employee to transfer, assign, or disclose
information concerning his work to anyone other than the Company.
(d) Patents. Except as described in Part 3.21 of the Disclosure Letter:
Part 3.21(d) of the Disclosure Letter contains a complete and accurate list
(including identifying numbers and dates of issuance) and summary description of
all Patents.
(e) Trademarks. Except as described in Part 3.21 of the Disclosure Letter:
(i) Part 3.21(e) of Disclosure Letter contains a complete and accurate
list (including identifying numbers and dates of issuance) and summary
description of all Marks that have been registered with the United States
Patent and Trademark Office or that have been submitted to such Office for
registration. The Company is the owner of all right, title, and interest in
and to each of the trademark applications listed thereon, free and clear of
all liens, security interests, charges, encumbrances, equities, and other
adverse claims.
(ii) To the Company's Knowledge, no Mark has been or is now involved
in any opposition and, to the Company's Knowledge, no such action is
Threatened with the respect to any of the Marks.
(iii) To the Company's Knowledge, there is no potentially interfering
trademark or trademark application of any third party.
(iv) No Mark is infringed or, to the Company's Knowledge, has been
challenged or threatened in any way. To the Company's Knowledge, none of
the Marks used by the Company infringes or is alleged to infringe any trade
name, trademark, or service mark of any third party.
(v) All products and materials containing a registered Mark bear the
proper federal registration notice where permitted by law.
(f) Copyrights. The Company has filed no copyright applications with the
United States Copyright Office except as set forth on Part 3.21(f) of the
Disclosure Letter. No Copyright is infringed or, to Stockholder's Knowledge, has
been challenged or threatened in any way. To the Company's Knowledge, none of
the subject matter of any of the Copyrights infringes or is alleged to infringe
any copyright of any third party or is a derivative work based on the work of a
third party.
(g) Trade Secrets.
(i) With respect to each material Trade Secret, the documentation
relating to such Trade Secret is current, accurate, and sufficient in
detail and content to identify and explain it and to allow its full and
proper use without reliance on the knowledge or memory of any individual.
(ii) The Company has taken all reasonable precautions to protect the
secrecy, confidentiality, and value of their Trade Secrets.
(iii) The Company has good title and an absolute (but not necessarily
exclusive) right to use the Trade Secrets. No Trade Secret is subject to
any adverse claim or has been challenged or threatened in any way that is
likely to have a Material Adverse Effect on the Company's business, assets
or financial condition.
(h) Compliance with Legal and Contractual Requirements. Except as disclosed
on Part 3.21(h) of the Disclosure Letter, the Company has all material software
and other Intellectual Property Asset licenses, and has paid all royalties and
fees with respect thereto required to be paid prior to the date of
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this Agreement, necessary to operate its business in compliance with all
material contractual requirements and Legal Requirements to which it may be
subject.
3.22 Certain Payments. Since January 1, 1997, to the Knowledge of the
Company neither the Company nor any director, officer, agent, or employee of the
Company, or any other Person associated with or acting for or on behalf of the
Company, has directly or indirectly, in violation of any Legal Requirement, (a)
made any contribution, gift, bribe, rebate, payoff, influence payment, kickback,
or other payment to any Person, private or public, regardless of form, whether
in money, property, or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, or (iii) to
obtain special concessions or for special concessions already obtained, for or
in respect of the Company or any Affiliate of the Company, or (b) established or
maintained any fund or asset that has not been recorded in the books and records
of the Company.
3.23 Relationships with Related Persons. No director or officer of the
Company has, or since January 1, 1997 has had, any interest in any property
(whether real, personal, or mixed and whether tangible or intangible), used in
or pertaining to the Company's business. Except as described in Part 3.23 to the
Disclosure Letter, no director or officer of the Company is, or since January 1,
1997 has owned (of record or as a beneficial owner) an equity interest or any
other financial or profit interest in, a Person that has (i) had business
dealings or a material financial interest in any transaction with the Company
other than business dealings or transactions conducted in the Ordinary Course of
Business with the Company at substantially prevailing market prices and on
substantially prevailing market terms, or (ii) engaged in competition with the
Company with respect to any line of the products or services of the Company (a
"Competing Business") in any market presently served by the Company. Except as
set forth in Part 3.23 of the Disclosure Letter, no director or officer of the
Company is a party to any Contract with, or has any claim or right against, the
Company.
3.24 Brokers or Finders. The Company has incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement.
3.25 S-4 Registration Statement and Proxy Statement/Prospectus. None of
the information supplied by the Company for inclusion or incorporation by
reference in the S-4 Registration Statement or the Proxy Statement/Prospectus
will (a) in the case of the S-4 Registration Statement, at the time it becomes
effective, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading or (b) in the case of the Proxy Statement/Prospectus, at the time
of mailing the Proxy Statement/Prospectus, and at the time of the Company
Shareholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event with
respect to the Company or its Principal Shareholders, officers or directors
shall occur that is required to be described in the Proxy Statement/Prospectus
or the S-4 Registration Statement, the Company shall notify Parent thereof by
reference to this Section 3.25 and cooperate with Parent in preparing and filing
with the Commission and, as required by law, disseminating to the shareholders
of the Company an amendment or supplement which accurately describes such event
or events in compliance with all provisions of applicable law.
3.26 Customers and Suppliers. Part 3.26 of the Disclosure Letter sets
forth: (a) a complete and accurate list of the customers of the Company
accounting for 2% or more of the Company's sales during the 24-month period
ended December 31, 1999, showing the approximate total sales by the Company to
each such customer during such period and (b) a complete and accurate list of
the suppliers of the Company from whom the Company has purchased 5% or more of
the goods or services purchased by the Company during the 24-month period ended
December 31, 1999.
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3.27 Orders, Commitments and Returns. Part 3.27 of the Disclosure Letter
contains (a) an accurate summary of the company's total backlog of orders as of
December 31, 1999 (including all accepted and unfulfilled sales orders) and (b)
the aggregate of all outstanding purchase orders issued by the Company as of
December 31, 1999 (which include all contracts or commitments for the purchase
by the Company of merchandise, materials or other supplies). A list of all
outstanding purchase orders for inventory components in excess of $10,000 as of
December 31, 1999, categorized by vendor, has been provided by the Company to
Parent in writing. All such sale and purchase commitments were made in the
Ordinary Course of Business. Except as set forth in Part 3.27 of the Disclosure
Letter, there are no outstanding claims in excess of $50,000 in the aggregate or
$10,000 individually against the Company to return products or merchandise by
reason of alleged failure to conform to customer expectations, defective
products, missed delivery dates or otherwise, or of products in the possession
of customers under an understanding that such products would be returnable.
3.28 Disclosure. No representation or warranty of the Company in this
Agreement and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
4. Representations and Warranties of Parent.
Except as provided in the Parent's Disclosure Letter (the "Parent
Disclosure Letter"), Parent represents and warrants to the Company as follows:
4.1 Organization and Good Standing. Each of Parent and Sub is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Oregon, with full corporate power and authority to conduct
its business as it is now being conducted and to own or use the properties and
assets that it purports to own or use. Each of Parent and Sub is duly qualified
to do business as a foreign corporation and is in good standing under the laws
of each state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such qualification.
4.2 Authority; No Conflict.
(a) Each of Parent and Sub has the requisite corporate power and authority
to execute and deliver this Agreement and all other agreements and documents
contemplated hereby and to carry out its obligations hereunder. The execution,
delivery and performance of this Agreement and all other agreements and
documents contemplated hereby and the consummation of the Merger and of the
other transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of each of Parent and Sub and no other
corporate proceedings on the part of Parent or Sub are necessary to authorize
this Agreement and all other agreements and documents contemplated hereby or to
consummate the transactions so contemplated. This Agreement has been duly
executed and delivered by each of Parent and Sub and constitutes, and all
agreements and documents contemplated hereby when executed and delivered
pursuant hereto for value received will constitute, the valid and binding
obligations of each of Parent and Sub.
(b) Neither the execution and delivery of this Agreement by Parent and Sub,
nor the consummation or performance of any of the Contemplated Transactions by
Parent or Sub, will, directly or indirectly (with or without notice or lapse of
time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of either Parent or Sub, or (B)
any resolution adopted by the board of directors or the stockholders of
either Parent or Sub;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or
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obtain any relief under, any Legal Requirement or any Order to which Parent
or Sub, or any of the assets owned or used by Parent or Sub, may be
subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by Parent or Sub or that otherwise relates to
the business of, or any of the assets owned or used by, Parent or Sub;
(iv) cause Parent, Sub or the Company to become subject to, or to
become liable for the payment of, any Tax;
(v) cause any of the assets owned by the Company to be reassessed or
revalued by any taxing authority or other Governmental Body;
(vi) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any contract to which Parent or Sub is
a party; or
(vii) result in the imposition or creation of any charge, claim,
community property interest, condition, equitable interest, lien, option,
pledge, security interest or encumbrance upon or with respect to any of the
assets owned or used by Parent or Sub.
Except as set forth in Part 4.2 of the Parent Disclosure Letter, neither Parent
nor Sub is or will be required to give any notice to or obtain any Consent from
any Person in connection with the execution and delivery of this Agreement or
the consummation or performance of any of the Contemplated Transactions.
4.3 Commission Reports. Parent has heretofore delivered or made available
to the Company true and complete copies of all reports, registration statements
and other documents (in each case together with all amendments thereto) filed by
Parent with the Commission since January 1, 1998 (such reports, registration
statements, definitive proxy statements and other documents, together with any
amendments thereto, are sometimes collectively referred to as the "Parent
Commission Filings"). The Parent Commission Filings constitute all of the
documents (other than preliminary material) that Parent was required to file
with the Commission since such date. As of their respective dates, each of the
Parent Commission Filings complied in all material respects with the applicable
requirements of the Securities Act, the Exchange Act and the rules and
regulations under each such Act, and none of the Parent Commission Filings
contained as of such date any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.4 Certain Proceedings. There is no pending Proceeding that has been
commenced against Parent or Sub that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Parent's Knowledge, no such Proceeding has been
Threatened.
4.5 Brokers or Finders. Neither Parent, Sub nor their respective agents
have incurred any obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other similar payment in
connection with this Agreement.
4.6 Interim Operations of Sub. Sub was formed solely for the purpose of
engaging in the transactions contemplated hereby and has not engaged in any
business activities or conducted any operations other than in connection with
the transactions contemplated hereby.
4.7 Company Stock Ownership. Neither Parent nor any of its Subsidiaries
owns any shares of Company Common Stock or any securities convertible into
Company Common Stock except as set forth in Part 4.7 of the Parent Disclosure
Letter.
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4.8 S-4 Registration Statement and Proxy Statement/Prospectus. None of the
information supplied by Parent for inclusion or incorporation by reference in
the S-4 Registration Statement will at the time it becomes effective contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. If at any
time prior to the Effective Time any event with respect to Parent shall occur
that is required to be described in the S-4 Registration Statement, Parent shall
notify Company thereof by reference to this Section 4.8 and cooperate with
Company in preparing and filing with the Commission and, as required by law,
disseminating to the shareholders of the Company an amendment or supplement
which accurately describes such event or events in compliance with all
provisions of applicable law.
4.9 Disclosure. No representation or warranty of Parent in this Agreement
and no statement in Parent's Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
5. Covenants of Company Prior to Effective Time.
5.1 Access and Investigation. Between the date of this Agreement and the
earlier to occur of the Effective Time or termination of this Agreement under
Section 10, Company will, and will cause its Representatives to, (a) afford
Parent and its Representatives (collectively, "Parent's Advisors") full and free
access to the Company's personnel, properties (including subsurface testing),
contracts, books and records, and other documents and data, (b) furnish Parent
and Parent's Advisors with copies of all such contracts, books and records, and
other existing documents and data as Parent may reasonably request, and (c)
furnish Parent and Parent's Advisors with such additional financial, operating,
and other data and information as Parent may reasonably request.
5.2 Operation of the Businesses of the Company. Between the date of this
Agreement and the earlier to occur of the Effective Time or termination of this
Agreement under Section 10, Company will:
(a) conduct the business of the Company only in the Ordinary Course of
Business;
(b) not grant, nor (except as required under applicable Company plans)
accelerate the vesting of, any options with respect to any shares of the
capital stock of the Company;
(c) use its Best Efforts to preserve intact the current business
organization of the Company, keep available the services of the current
officers, employees, and agents of the Company, and maintain the relations
and goodwill with suppliers, customers, landlords, creditors, employees,
agents, and others having business relationships with the Company;
(d) confer with Parent concerning operational matters of a material
nature; and
(e) otherwise report periodically to Parent concerning the status of
the business, operations, and finances of the Company.
5.3 Negative Covenant. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the earlier to occur of the
Effective Time and termination of this Agreement under Section 10, Company will
not, without the prior consent of Parent, take any affirmative action, or fail
to take any reasonable action within its control, as a result of which any of
the changes or events (including without limitation the entering into of any
applicable Contract described therein) listed in Section 3.15 is likely to
occur.
5.4 Required Approvals. As promptly as practicable after the date of this
Agreement, Company will make all filings required by Legal Requirements to be
made by them in order to consummate the Contemplated Transactions. Between the
date of this Agreement and the earlier to occur of the Effective Time or
termination of this Agreement under Section 10, Company will (a) cooperate with
Parent with respect to all filings that Parent elects to make or is required by
Legal Requirements to make in
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connection with the Contemplated Transactions, and (b) cooperate with Parent in
obtaining all required consents.
5.5 Notification. Between the date of this Agreement and the earlier to
occur of the Effective Time or termination of this Agreement under Section 10,
Company will promptly notify Parent in writing if Company becomes aware of any
fact or condition that causes or constitutes a Breach of any of Company's
representations and warranties as of the date of this Agreement. Should any such
fact or condition require any change in the Disclosure Letter if the Disclosure
Letter were dated the date of the occurrence or discovery of any such fact or
condition, Company will promptly deliver to Parent a supplement to the
Disclosure Letter specifying such change. During the same period, Company will
promptly notify Parent of the occurrence of any Breach of any covenant of
Company in this Section 5 or of the occurrence of any event that may make the
satisfaction of the conditions in Sections 7 or 9 impossible or unlikely.
5.6 Payment of Indebtedness by Related Persons. Except for the
indebtedness listed on Schedule 5.6 or as expressly provided otherwise in this
Agreement, Company will cause all indebtedness owed by any Stockholder or any
Related Person of Company to be paid in full prior to the Closing Date.
5.7 No Solicitations.
(a) The Company shall not, directly or indirectly, through any Shareholder,
officer, director, employee, representative or agent of the Company or any of
its Subsidiaries, solicit or encourage (including by way of furnishing
information) the initiation of any inquiries or proposals regarding any merger,
sale of substantial assets, sale of shares of capital stock (including, without
limitation, by way of a tender offer) or similar transactions involving the
Company or any of its Subsidiaries (any of the foregoing inquiries or proposals
being referred to herein as an "Acquisition Proposal"); provided, however, that
nothing contained in this Agreement shall prevent the Board of Directors of the
Company from referring any Third Party to this Section 5.7 or from making a copy
of this Section 5.7 available to any Third Party. Nothing contained in this
Section 5.7 shall prevent the Board of Directors of the Company from
considering, negotiating, approving and recommending to the shareholders of the
Company (after consulting with its financial advisors, and determining after
consulting with counsel that the Board of Directors is required to do so in
order to discharge properly its fiduciary duties) a Superior Proposal. A
"Superior Proposal" shall mean an unsolicited bona fide Acquisition Proposal
made by a Third Party on terms that a majority of the members of the Company's
Board of Directors determines in their good faith reasonable judgment (based on
the advice of an independent financial advisor) would be more favorable to the
Company's shareholders than the transactions contemplated by this Agreement and
for which any required financing is committed or which, in the good faith
reasonable judgment of a majority of such members (after consultation with an
independent financial advisor), is reasonably capable of being financed by such
Third Party.
(b) The Company shall promptly (but in no case later than one business day)
notify Parent after receipt of any Acquisition Proposal or any request for
nonpublic information relating to the Company or any of its Subsidiaries in
connection with an Acquisition Proposal or for access to the properties, books
or records of the Company or any of its Subsidiaries by any Person that informs
the Board of Directors of the Company or such Subsidiary that it is considering
making, or has made, an Acquisition Proposal. Such notice to Parent shall be
made orally and in writing and shall indicate in reasonable detail the identity
of the offeror and the terms and conditions of such proposal, inquiry or
contact.
(c) If the Board of Directors of the Company receives a request for
material nonpublic information by a party who makes a bona fide Acquisition
Proposal and the Board of Directors of the Company determines that such proposal
is a Superior Proposal then, and only in such case, the Company may, subject to
the execution of a confidentiality agreement substantially similar to that then
in effect between the Company and Parent, provide such party with access to
information regarding the Company. The Company will promptly (but in no case
later than 24 hours) notify Parent of any determination by the Company's Board
of Directors that a "Superior Proposal" has been made.
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(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any parties (other than Parent and
Sub) conducted heretofore with respect to any of the foregoing. The Company
agrees not to release any Third Party from an confidentiality or standstill
agreement to which the Company is a party.
(e) The Company shall ensure that the officers, directors and employees of
the Company and its Subsidiaries, and any investment banker or other advisor or
representative retained by the Company, are aware of the restrictions described
in this Section 5.7.
5.8 Meeting of Shareholders. The Company will take all action necessary in
accordance with applicable law and its Articles of Incorporation and Bylaws to
convene a meeting of its Shareholders (the "Company Shareholders Meeting") as
promptly as practicable to consider and vote upon the Merger. Subject to the
fiduciary duties of the Company's Board of Directors under applicable law as
advised by counsel, the Board of Directors of the Company shall recommend and
declare advisable such approval, and the Company shall as promptly as possible
following dissemination of the Proxy Statement/Prospectus take all lawful action
to solicit, and use all reasonable efforts to obtain, such approval.
5.9 Registration Statement/Proxy Materials. The Company will, as promptly
as practicable, cooperate with Parent to prepare and file with the Commission
preliminary proxy materials that will constitute a proxy statement in connection
with the vote of Company's Shareholders with respect to the Merger, together
with any amendments thereof or supplements thereto (in each case, in the form or
forms mailed to the Company's shareholders, the "Proxy Statement/Prospectus").
Parent will also prepare and file with the SEC a registration statement on Form
S-4 (the "S-4 Registration Statement"), containing the definitive Proxy
Statement/Prospectus, in connection with the registration under the Securities
Act of the Series B Preferred shares issuable upon conversion of the Company
Shares and the other transactions contemplated hereby. Parent and the Company
will use all reasonable efforts to have the S-4 Registration Statement declared
effective as promptly as practicable, and also will take any other action
required to be taken under federal or state securities laws, and will use all
reasonable efforts to cause the Proxy Statement/Prospectus to be mailed to
shareholders of the Company at the earliest practicable date. If at any time
prior to the Effective Time any event relating to or affecting the Company or
Parent shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for Parent, to supplement or amend the S-4
Registration Statement in order to make such document not misleading in light of
the circumstances existing at the time approval of the shareholders of the
Company is sought, the Company and Parent will forthwith prepare and file with
the SEC an amendment or supplement to the S-4 Registration Statement so that
such document, as so supplemented or amended, will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
5.10 Termination of Company Stock Rights Plan. Between the date hereof and
the Effective Time, the Company's Board of Directors will terminate the Company
Stock Rights Plan.
5.11 Best Efforts. Between the date of this Agreement and the earlier to
occur of the Effective Time and termination of this Agreement under Section 10,
Company will use its Best Efforts to cause the conditions in Sections 7, 8 and 9
to be satisfied.
6. Covenants of Parent and Sub Prior to Effective Time.
6.1 Approval of Parent. Parent, as the sole shareholder of Sub, will act
by written consent to approve the Merger and the adoption of this Agreement by
Sub, which consent Parent and Sub represent and warrant will constitute the
requisite approval of the Merger and this Agreement by Sub.
6.2 Approvals of Governmental Bodies. As promptly as practicable after the
date of this Agreement, Parent and Sub will, and will cause each of their
Related Persons to, make all filings required by Legal Requirements to be made
by them to consummate the Contemplated Transactions. Between the date of this
Agreement and the earlier to occur of the Effective Time, Parent will, and will
cause each
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Related Person to, (a) cooperate with Company and Stockholders with respect to
all filings that Company elect to make or are required by Legal Requirements to
make in connection with the Contemplated Transactions, and (b) cooperate with
Company in obtaining all required consents.
6.3 Conduct of Business of Sub. During the period from the date of this
Agreement to the earlier to occur of the Effective Time or termination of this
Agreement under Section 10, Sub shall not engage in any activities of any nature
except as provided in or contemplated by this Agreement.
6.4 Access and Investigation. Between the date of this Agreement and the
earlier to occur of the Effective Time or termination of this Agreement under
Section 10, Parent will, and will cause its Representatives to, (a) afford
Company and its Representatives (collectively, "Company's Advisors") full and
free access to the Company's books and records, and other documents and data,
(b) furnish Company and Company's Advisors with copies of all such documents and
data as Company may reasonably request, and (c) furnish Company and Company's
Advisors with such additional financial, operating, and other data and
information as Company may reasonably request.
6.5 Notification. Between the date of this Agreement and the earlier to
occur of the Effective Time or termination of this Agreement under Section 10,
Parent will promptly notify Company in writing if Parent becomes aware of any
fact or condition that causes or constitutes a Breach of any of Parent's
representations and warranties as of the date of this Agreement. Should any such
fact or condition require any change in the Parent Disclosure Letter if the
Disclosure Letter were dated the date of the occurrence or discovery of any such
fact or condition, Parent will promptly deliver to Company a supplement to the
Disclosure Letter specifying such change. During the same period, Parent will
promptly notify Company of the occurrence of any Breach of any covenant of
Parent in this Section 6 or of the occurrence of any event that may make the
satisfaction of the conditions in Sections 8 or 9 impossible or unlikely.
6.6 Registration Statement/Proxy Materials. Parent will prepare and file
with the SEC a registration statement on Form S-4 (the "S-4 Registration
Statement"), containing the definitive Proxy Statement/Prospectus, in connection
with the registration under the Securities Act of the Series B Preferred shares
issuable upon conversion of the Company Shares and the other transactions
contemplated hereby. Parent will use all reasonable efforts to have the S-4
Registration Statement declared effective as promptly as practicable, and also
will take any other action required to be taken under federal or state
securities laws, and will use all reasonable efforts to assist the Company to
cause the Proxy Statement/ Prospectus to be mailed to shareholders of the
Company at the earliest practicable date. If at any time prior to the Effective
Time any event relating to or affecting the Parent shall occur as a result of
which it is necessary, in the opinion of counsel for the Company or of counsel
for Parent, to supplement or amend the S-4 Registration Statement in order to
make such document not misleading in light of the circumstances existing at the
time approval of the shareholders of the Company is sought, Parent will with
Company's cooperation forthwith prepare and file with the SEC an amendment or
supplement to the S-4 Registration Statement so that such document, as so
supplemented or amended, will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
6.7 Best Efforts. Between the date of this Agreement and the earlier to
occur of the Effective Time or termination of this Agreement under Section 10,
Parent and Sub will use their Best Efforts to cause the conditions in Sections
7, 8 and 9 to be satisfied.
6.8 Nasdaq Listing. Within 120 days following the Closing, the Company
will cause the Series B Shares and attached Warrants issued in the Merger to be
listed on Nasdaq.
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7. Conditions Precedent to Parent's and Sub's Obligation to Close.
The obligation of Parent and the obligation of Sub to effect the Merger and
the other Contemplated Transactions shall be subject to the fulfillment, at or
prior to the Closing Date, of the following conditions:
7.1 Representations and Warranties True at the Effective Time. Each of the
Company's representations and warranties in this Agreement must have been
accurate in all respects as of the date of this Agreement, and the
representations and warranties contained in Sections 3.2, 3.3, 3.11, 3.14 (to
the extent of any Proceeding under Section 3.14(a)(ii) or any Proceeding under
Section 3.14(a)(i), excluding matters set forth in the Disclosure Letter, that
may result in an uninsured loss in excess of $2 million), 3.24 and 3.25 must be
accurate in all respects as of the Closing Date as if made on and as of the
Closing Date, without giving effect to any supplement to the Disclosure Letter,
and the Company shall have delivered to Parent a certificate to such effect
signed by the Chief Executive Officer of the Company.
7.2 The Company's Performance. All of the covenants and obligations of the
Company to be performed or complied with pursuant to the terms of this Agreement
on or before the Closing Date shall have been fully performed in all material
respects, and at the Closing Date the Company shall have delivered to Parent a
certificate to such effect signed by the Chief Executive Officer of the Company.
7.3 Authority. All action required to be taken by, or on the part of, the
Company and its stockholders to authorize the execution, delivery and
performance of this Agreement and the Articles of Merger and the consummation of
the transactions contemplated hereby and thereby shall have been duly and
validly taken by the Company's Board of Directors and by the holders of the
Company's outstanding Common Stock and Preferred Stock.
7.4 Deliveries. Company shall have delivered to Parent the following:
(a) The corporate minute book and stock book of Company.
(b) Resignations of the each of the existing directors and officers of
the Company, to be effective upon the Closing Date.
(c) An opinion of Troy & Gould, P.C., counsel to the Company, dated
the Closing Date, substantially in the form of Exhibit 7.4(c) hereto.
(d) A certificate of the Secretary of the Company, dated the Closing
Date, in the form of Exhibit 7.4(d) hereto.
7.5 Certain Litigation. There must not be in effect any Legal Requirement
or any injunction or other Order that (a) prohibits the Merger or the other
Contemplated Transactions, and (b) has been adopted or issued, or has otherwise
become effective, since the date of this Agreement.
7.6 Consents Obtained. All consents and approvals of Governmental Entities
or third parties necessary for consummation of the Merger shall have been
obtained.
7.7 Termination of Agreements. The agreements listed on Exhibit 7.7
between the Company and FMC Corporation shall have been terminated prior to the
Effective Date. The Company shall have terminated the Company Stock Rights Plan.
7.8 Action by Company Series B Stock. Either (i) all shares of the Company
Series B Stock shall have been redeemed prior to the shareholders meeting
referenced in Section 5.8 or the holder thereof shall have voted in favor of the
Merger as part of such meeting.
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8. Conditions Precedent to Company's Obligation to Close.
The obligation of the Company to effect the Merger and the other
Contemplated Transactions is subject to the satisfaction, at or prior to the
Closing, of each of the following conditions:
8.1 Accuracy of Representations. Each of Parent's representations and
warranties in this Agreement must have been accurate in all respects as of the
date of this Agreement and must be accurate in all respects as of the Closing
Date as if made at the Closing Date and Parent shall have delivered to Company a
certificate to such effect signed by the Chief Executive Officer of the Parent.
8.2 Parent's and Sub's Performance. All of the covenants and obligations
of the Parent and of Sub to be performed or complied with pursuant to the terms
of this Agreement on or before the Closing Date shall have been fully performed
in all material respects, and at the Closing Date the Parent and Sub shall have
delivered to Company a certificate to such effect signed by the Chief Executive
Officer of the Parent.
8.3 Authority. All action required to be taken by, or on the part of, the
Parent and Sub to authorize the execution, delivery and performance of this
Agreement and the Articles of Merger and the consummation of the Contemplated
Transactions shall have been duly and validly taken by Parent and Sub.
8.4 Deliveries. Parent and Sub shall have delivered to Company and
Stockholders the following:
(a) An opinion of Tonkon Torp LLP, counsel to Parent and Sub, dated
the Closing Date, substantially in the form of Exhibit 8.4(a) hereto.
(b) A certificate of the Secretary of each of Parent and of Sub, dated
the Closing Date, in the form of Exhibit 8.4(b) hereto.
8.5 Fairness Opinion. The Company shall have received an opinion as to the
fairness of the Merger transaction to the Company's stockholders in form
acceptable to the Company's board of directors.
8.6 Certain Litigation. There must not be in effect any Legal Requirement
or any injunction or other Order that (a) prohibits the Merger or the other
Contemplated Transactions, and (b) has been adopted or issued, or has otherwise
become effective, since the date of this Agreement.
9. Conditions to Obligations of Each Party.
The obligations of each party to effect the Merger and the other
Contemplated Transactions shall be subject to the fulfillment, at or prior to
the Closing Date, of the following conditions:
9.1 Commission Approval. The S-4 Registration Statement with respect to
the issuance of the Series B Preferred shares issuable pursuant to the Merger
shall have been declared effective.
9.2 Approval by Company's Common and Preferred Stock. The holders of the
requisite number of the Company's Common Stock under the CCL and the holder of
any Company Series B Stock outstanding at the date of the Company's special
meeting of shareholders held pursuant to Section 5.8 shall have voted such
shares in favor of the transaction.
10. Termination.
10.1 Termination Events. This Agreement may, by notice given prior to or
at the Closing, be terminated after the date hereof and prior to the Closing:
(a) by Parent if a material Breach of any provision of this Agreement
has been committed by Company, and in any such case such Breach has not
been waived by Parent or is not cured by Company within ten days following
receipt of notice of the Breach;
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(b) by Parent if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Parent to comply
with its obligations under this Agreement) and Parent has not waived such
condition on or before the Closing Date;
(c) by Parent or the Company if at the Company Shareholders Meeting
(including any adjournment or postponement thereof), the requisite vote of
the holders of the Company's Common Stock or Preferred Stock shall not have
been obtained;
(d) by Parent if (i) the Board of Directors of the Company shall fail
to recommend, or shall withdraw, modify or change its recommendation of,
this Agreement or the Merger in a manner adverse to Parent or shall have
resolved to do any of the foregoing; (ii) the Board of Directors of the
Company shall have resolved to recommend, or have recommended, to the
shareholders of the Company an Superior Proposal; or (iii) a tender offer
or exchange offer for 25% or more of the outstanding shares of Company
voting stock is commenced and the Board of Directors of the Company has
resolved to recommend, or has recommended, that the shareholders of the
Company tender their shares in such tender offer or exchange offer;
(e) by Company if a material Breach of any provision of this Agreement
has been committed by Parent or Sub, and in any such case such Breach has
not been waived or is not cured within ten days following receipt of notice
of the Breach;
(f) by Company if any of the conditions in Section 8 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Company to comply
with their obligations under this Agreement) and Company has not waived
such condition on or before the Closing Date;
(g) by Company or Parent if Company's Board of Directors has voted to
approve a Superior Proposal;
(h) by mutual consent of Parent and Company; or
(i) by Parent or Company if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or prior to
October 31, 2000, or such later date as the parties may agree upon.
10.2 Effect of Termination. Except as expressly provided otherwise herein,
each party's right of termination is in addition to any other rights it may have
under this Agreement or otherwise, and the exercise of a right of termination
will not be an election of remedies. If this Agreement is terminated by a party
because the other party failed to satisfy a condition, then termination of this
Agreement shall be deemed to be an election of remedies, and neither party shall
have any further right or claim with respect to the other party; provided,
however, that if this Agreement is terminated by a party because of the other
party's failure to comply with any of its covenants under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
11. General Provisions.
11.1 Fees and Expenses.
(a) Except as set forth in subsection (b) of this Section 11.1 or as
otherwise provided herein, all fees and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses, whether or not the Merger is consummated;
provided, however, that Parent shall pay 100% of all fees and expenses, other
than attorneys and accountants fees (as to which each party shall bear its own
expenses), incurred in connection with the printing and filing of the Proxy
Statement/Prospectus (including any preliminary materials relating thereto) and
the S-4 Registration Statement (including financial statements and exhibits) and
any amendments or
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supplements thereto (together, the "Proxy Expenses"); provided further, however,
that Company shall pay 100% of the Proxy Expenses in the event the Merger is not
approved by the holders of the Company's Common Stock and Preferred Stock.
(b) The Company shall pay Parent a fee of $2 million upon the earliest to
occur of any of the following events:
(i) the termination of this Agreement by Parent pursuant to Section
10.1(d);
(ii) the termination of this Agreement by Parent pursuant to Section
10.1(a); or
(iii) the termination of this Agreement by the Company or Parent
pursuant to Section 10.1(g).
(c) The Company shall pay Parent a fee of $500,000 upon the termination of
this Agreement by Parent or the Company pursuant to Section 10.1(c) as a result
of the failure to receive the requisite approval of the Company's outstanding
Common Stock or Preferred Stock, or by Parent pursuant to Section 10.1(b) based
on a failure of the condition in Section 7.5, or by the Company pursuant to
Section 10.1(f) based on the failure of the condition set forth in Section 8.6,
if in any such event within 24 months from the date of this Agreement the
Company enters into an agreement to be acquired by any third party (including
any current AMVC shareholder) or a majority of AMVC Common Stock is acquired by
a third party in a tender offer.
(d) Parent shall pay the Company a fee of $2 million upon termination of
this Agreement by the Company pursuant to Section 10.1(e) after a Breach by
Parent of this Agreement, or pursuant to Section 10.1(f) based upon a failure of
the conditions set forth in Sections 8.1 through 8.4.
(e) The fees payable pursuant to Sections 11.1(b), (c) or 11.1(d) shall be
paid within one business day after the first to occur of the events described in
Sections 11.1(b), (c) or 11.1(d), as the case may be, and the expenses payable
pursuant to Section 11.1(a) shall be paid within five business days after
receipt of written documentation of the amount of expenses so payable; provided,
however, that in no event shall Parent or the Company, as the case may be, be
required to pay such fees or expenses to the other, if, immediately prior to the
termination of this Agreement, the party to receive the fees or expenses was in
material breach of its obligations under this Agreement.
11.2 Public Announcements. Any public announcement or similar publicity
with respect to this Agreement or the Contemplated Transactions will be issued,
if at all, at such time and in such manner as Parent and Company mutually
determine. The Company and Parent will consult with each other concerning the
means by which the Company's employees, customers, and suppliers and others
having dealings with the Company will be informed of the Contemplated
Transactions.
11.3 Legal Proceedings. In the event any legal proceeding is initiated by
either party in connection with this Agreement the parties expressly consent to
exclusive jurisdiction and venue with the state or federal courts located in
Portland, Oregon, with the prevailing party entitled to recover attorney fees
and other costs incurred in all pretrial, trial or appellate proceedings.
11.4 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand, (b) sent by facsimile, provided that a copy is
mailed by certified mail, return receipt requested, (c) received by the
addressee, if sent by certified mail, return receipt requested, or (d) when
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate
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addresses and facsimile numbers set forth below (or to such other addresses and
facsimile numbers as a party may designate by notice to the other parties):
Company:
Advanced Machine Vision Corporation
Attn: William J. Young
2709 Citation Way, Suite 102
Medford, OR 97504
With copy to:
Troy & Gould, P.C.
Attn: William D. Gould
1801 Century Park East, 16th Floor
Los Angeles, CA 90067
Parent:
Key Technology, Inc.
Attn: Thomas C. Madsen
150 Avery Street
Walla Walla, WA 99362
With copy to:
Tonkon Torp LLP
Attn: Ronald L. Greenman
1600 Pioneer Tower
888 SW Fifth Avenue
With copy to: Portland, OR 97204-2099
11.5 Further Assurances. The parties agree (i) to furnish upon request to
each other such further information, (ii) to execute and deliver to each other
such other documents, and (iii) to do such other acts and things, all as the
other party may reasonably request for the purpose of carrying out the intent of
this Agreement and the documents referred to in this Agreement.
11.6 Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
11.7 Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
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11.8 Assignments, Successors, and No Third-Party Rights. Neither party may
assign any of its rights under this Agreement without the prior consent of the
other parties, which will not be unreasonably withheld, except that Parent may
assign any of its rights under this Agreement to any present or future
Subsidiary of Parent. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and assigns.
11.9 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
11.10 Section Headings; Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
11.11 Time of Essence. With regard to all dates and time periods set forth
or referred to in this Agreement, time is of the essence.
11.12 Governing Law. This Agreement will be governed by the laws of the
State of Oregon without regard to conflicts of laws principles.
[Remainder of Page Intentionally Left Blank]
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11.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
KEY TECHNOLOGY, INC.
By: /s/ THOMAS C. MADSEN
-------------------------------------
Thomas C. Madsen
KTC ACQUISITION CORP.
By: /s/ THOMAS C. MADSEN
-------------------------------------
Thomas C. Madsen
ADVANCED MACHINE VISION CORPORATION
By: /s/ WILLIAM J. YOUNG
-------------------------------------
William J. Young
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<PAGE> 206
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
Key Technology, Inc. ("Parent"), KTC Acquisition Corp. ("Sub") and Advanced
Machine Vision Corporation ("Company") entered into an Agreement and Plan of
Merger effective February 15, 2000. The parties hereby enter into this Amendment
No. 1 as of February 25, 2000 to provide for the following additions and
modifications to the Merger Agreement:
1. Insurance Coverage.
Parent shall cause the Surviving Corporation to provide, for an aggregate
period of not less than six years from the Effective Time, the Company's current
directors and officers an insurance and indemnification policy that provides
coverage for events occurring prior to the Effective Time (the "D&O Insurance")
that is substantially similar to the Company's existing policy or, if
substantially equivalent insurance coverage is unavailable, the best available
coverage; provided, however, that the Surviving Corporation shall not be
required to pay an annual premium for the D&O Insurance in excess of 200% of the
last annual premiums paid prior to the date hereof but in such case shall
purchase as much coverage as possible for such amount.
2. Increase in Board of Directors.
Within 30 days of the Effective Date, or the date that Key acquires a
majority of the outstanding Common Stock of AMVC if such event occurs prior to
the Effective Date, Key's Board of Directors will create a vacancy by expanding
the size of the Board of Directors by one member and will fill that vacancy by
the appointment of a nominee designated by AMVC's Board of Directors who is
acceptable to Key's chief executive officer.
3. Amendment of Section 7.1.
Section 7.1 of the Merger Agreement is restated in its entirety to read as
follows:
"7.1 Representations and Warranties True at the Effective Time. Each
of the Company's representations and warranties in this Agreement must have
been accurate in all respects as of the date of this Agreement, and the
representations and warranties contained in Sections 3.2, 3.3, 3.11, 3.14
(to the extent of any Proceeding under Section 3.14(a)(ii) or any
Proceeding under Section 3.14(a)(i), excluding matters set forth in the
Disclosure Letter, that may result in an uninsured loss in excess of $2
million), 3.24 and 3.25 must be accurate in all respects as of the Closing
Date as if made on and as of the Closing Date, without giving effect to any
supplement to the Disclosure Letter, and the Company shall have delivered
to Parent a certificate to such effect signed by the Chief Executive
Officer of the Company."
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4. Construction.
This Amendment is part of the Merger Agreement, and is governed by the
general terms and conditions thereof.
KEY TECHNOLOGY, INC.
By /s/ THOMAS C. MADSEN
--------------------------------------
Thomas C. Madsen
President
KTC ACQUISITION CORP.
By /s/ THOMAS C. MADSEN
--------------------------------------
Thomas C. Madsen
President
ADVANCED MACHINE VISION CORPORATION
By /s/ WILLIAM J. YOUNG
--------------------------------------
William J. Young
President
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<PAGE> 208
AMENDMENT NO. 2 TO
AGREEMENT AND PLAN OF MERGER
Key Technology, Inc. ("Parent"), KTC Acquisition Corp. ("Sub") and Advanced
Machine Vision Corporation ("Company") entered into an Agreement and Plan of
Merger effective February 15, 2000 and Amendment No. 1 effective February 25,
2000. The parties hereby enter into this Amendment No. 2 effective as of April
24, 2000 to provide for the following modifications to the Merger Agreement:
1. Amendment of Sections 2.5 and 2.6.
Key, Sub and AMVC hereby agree that, effective with the execution and
delivery of this Agreement, Sections 2.5 and 2.6 of the Merger Agreement are
amended and restated to read as follows:
"2.5 Conversion and Exchange of Shares. The manner and basis of
converting at the Effective Time Company Common Stock into cash and shares
of Parent's Series B Convertible Preferred Stock, $10.00 par value, having
the rights and preferences set forth in the attached Exhibit 2.5A (the
"Series B Preferred") with the attached redeemable Warrant to purchase
shares of Parent's Common Stock in the form attached as Exhibit 2.5B, the
exchange of certificates therefor, the manner and basis of converting the
Company Series B Preferred Stock into Parent's Series C Convertible
Preferred Stock, $20.00 par value, having the rights and preferences set
forth in the attached Exhibit 2.5C (the "Series C Preferred") with the
attached redeemable Warrant to purchase shares of Parent's Common Stock in
the form attached as Exhibit 2.5B and the manner and basis of converting
Company Options outstanding at the Effective Time shall be as set forth
herein.
Conversion of Shares.
(i)(A) Each share of Company Common Stock (both Class A and Class
B) issued and outstanding immediately prior to the Effective Time
(except Dissenting Shares) shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the
right to receive $1.00 in cash and one-tenth of a share of Series B
Preferred, with each share of Series B Preferred to be accompanied by a
Warrant, redeemable at any time by the holder for $2.50 in cash and
exercisable at any time to purchase .25 of a share of Parent's Common
Stock at a price of $15.00 per share (such Series B Preferred shares and
attached Warrants to be issued for each share of Company Common Stock
constituting the "AMVC Common Conversion Ratio").
(B) Each Dissenting Share shall be converted into the right to
receive payment from the Surviving Corporation with respect thereto in
accordance with the provisions of the CCL.
(ii) Each share of the Company Series B Preferred Stock outstanding
at the Effective Date shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to
receive one share of Series C Preferred, with each share of Series C
Preferred to be accompanied by a Warrant, redeemable at any time by the
holder for $2.50 in cash and exercisable at any time to purchase .25 of
a share of Parent's Common Stock at a price of $15.00 per share (such
Series C Preferred shares and attached Warrants to be issued for each
share of Company Series B Preferred Stock constituting the "Series B
Conversion Ratio" and, together with the AMVC Conversion Ratio, the
"Conversion Ratios").
(iii) Each share of Sub Common Stock issued and outstanding as of
the Effective Time, shall, by virtue of the Merger and without any
action on the part of Parent, the sole stockholder of Sub, be converted
into one share of legally and validly issued, fully paid and
nonassessable Common Stock, without par value, of the Surviving
Corporation. The stock certificate of Sub evidencing ownership of Sub
Common Stock shall by virtue of the Merger evidence ownership of Common
Stock of the Surviving Corporation.
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<PAGE> 209
(iv) In the event of any stock split, combination,
reclassification, recapitalization, exchange, stock dividend or other
distribution payable in Parent Common Stock with respect to shares of
Parent Common Stock (or if a record date with respect to any of the
foregoing should occur) during the period between the date of this
Agreement and the Effective Time, then the Conversion Ratios will be
appropriately adjusted to reflect such stock split, combination,
reclassification, recapitalization, exchange, stock dividend or other
distribution.
2.6 Exchange of Certificates; Payment. Series B Preferred and attached
Warrants into which Company Common Stock shall be converted pursuant to the
Merger and Series C Preferred and attached Warrants into which Company Series B
Preferred Stock shall be converted pursuant to the Merger shall be deemed to
have been issued at the Effective Time. At the Closing, Parent shall deliver to
the Transfer Agent certificates evidencing the number of shares of Series B
Preferred and attached Warrants to which that Stockholder is entitled under
Section 2.5, together with the cash payment applicable thereto. The Company will
cause to be delivered such transmittal letters, documents and instruments as
Parent or Parent's transfer agent may reasonably request, each in form
reasonably acceptable to Parent or such transfer agent. Parent shall also
deliver to the Transfer Agent certificates evidencing the number of shares of
Series C Preferred and attached Warrants to be issued pursuant to section
2.5(ii) above with respect to any shares of Company Series B Preferred Stock
outstanding on the Effective Date."
2. Construction.
This Amendment is part of the Merger Agreement, and is governed by the
general terms and conditions thereof.
KEY TECHNOLOGY, INC.
By /s/ THOMAS C. MADSEN
--------------------------------------
Thomas C. Madsen
President
KTC ACQUISITION CORP.
By /s/ THOMAS C. MADSEN
--------------------------------------
Thomas C. Madsen
President
ADVANCED MACHINE VISION CORPORATION
By /s/ WILLIAM J. YOUNG
--------------------------------------
William J. Young
President
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<PAGE> 210
ANNEX B -- OPINION OF ADVANCED MACHINE VISION'S FINANCIAL ADVISOR
March 17, 2000 File Reference: 11-20004
The Board of Directors of
Advanced Machine Vision Corporation
3709 Citation Way #102
Medford, Oregon 97504
Attention: William J. Young
President
It is our understanding that an Agreement of Merger (the "Merger
Agreement") dated February 15, 2000 as amended, was entered into, by and among
Key Technology, Inc. ("KEY"), an Oregon corporation; KTC Acquisition Corp.
("KTC"), an Oregon corporation and wholly-owned subsidiary of KEY; and Advanced
Machine Vision Corporation ("AMVC"). The terms and conditions of the Merger are
more fully described in the aforementioned Agreement. Pursuant to the Agreement
each outstanding share of AMVC common stock would receive: 1) $1 per share in
cash; 2) $1 per share in the form of one share of KEY Series B preferred stock
for each 10 shares of AMVC common stock redeemable for cash at $10 per share at
any time subsequent to the second anniversary of the issue date or convertible
at any time into 2/3 of a share of KEY common stock for each 10 shares of AMVC
common stock; and 3) a 5-year common stock warrant attached to each share of KEY
Series B preferred stock having a cash redeemable value of $2.50 or $.25 per
AMVC share or exercisable to purchase .025 shares of KEY common stock per AMVC
share at an exercise price of $15 per share of common stock; or in a cumulative
estimated amount of $2.09 per AMVC share (comprised of $1 in cash, of the
present value of the preferred stock redemption value due in 2 years at a
discount rate of 9% and of the warrant redemption value of $.25). Additionally,
each outstanding share of AMVC Series B preferred stock would receive $22 per
share. It is our understanding that 16,187,082 common shares of AMVC on a fully
diluted basis are outstanding and 119,106 shares of AMVC Series B preferred
stock are outstanding.
Therefore, for purposes of our preliminary Opinion, we have assumed that
the Transaction Price ("Aggregate Consideration") will be in rounded amount
$31,900,000, calculated as follows:
<TABLE>
<CAPTION>
DESCRIPTION $ PER SHARE $
----------- ----------- -----------
<S> <C> <C>
Outstanding Common Stock:
Class A Common Stock........................................ 12,921,884
Class B Common Stock........................................ 47,669
Options -- Class A Common Stock............................. 3,217,529
-----------
Outstanding Common Stock -- Fully Diluted................. 16,187,082
X
-----------
Consideration -- Outstanding Common Stock................... $ 2.09 $33,831,001
Less: Exercise of Options (weighted average price per
December 31, 1999 Financial Statements)................... $ 1.41 (4,536,716)
-----------
Aggregate Consideration to Common......................... 29,294,285
Add: Series B Preferred Stock (119,106 outstanding
shares)................................................... $22.00 2,620,332
-----------
Aggregate Consideration................................... $31,914,617
===========
Rounded................................................ $31,900,000
===========
</TABLE>
You have requested our Opinion as to whether the Aggregate Consideration to
be received in the proposed Merger ("Transaction") of Advanced Machine Vision
Corporation ("AMVC") with Key Technology, Inc. ("KEY") is fair to the
shareholders from a financial point of view pursuant to the terms
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and subject to the conditions set forth in the Merger Agreement. We have not
been engaged to give advice on whether the shareholders should engage in the
Transaction, nor have we been requested to seek or identify alternatives. The
date of this Opinion is March 15, 2000.
"Market value" is defined as the price at which an asset or business
enterprise would change hands between a willing buyer and a willing seller when
the former is not under any compulsion to buy, the latter is not under any
compulsion to sell, and both parties are well informed about all pertinent facts
of the asset and the market for such asset. Market value is synonymous with the
legal term fair market value.
It is our understanding that you and any other recipient of our Opinion of
market value will consult with and rely solely upon your own legal counsel with
respect to said definition. No representation is made herein as to any legal
matter or the sufficiency of said definition for any purpose other than setting
forth the scope of this Opinion.
"Minority Interest" is defined as any number of shares that is less than a
controlling interest in a firm and does not represent a swing block of shares.
For purposes of this Opinion, any number of shares that constitutes less than a
50% of the total outstanding common stock (voting) is by definition a minority
interest.
"Controlling Interest" is defined as any number of shares owned, either
directly or indirectly, that, when exercised, can influence the selection of the
entity's management group, the direction of existing or future operations (sale,
divestiture, or acquisition), the declaration of dividends, etc. Typically, this
interest constitutes more than a 50% interest in the outstanding common shares
(voting).
In connection with this Opinion, we have made such reviews, analyses, and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we:
1. Analyzed and inspected AMVC's 10-Ks as of December 31, 1995 through
December 31, 1999 ("Draft"); and Annual reports from 1995 through 1998,
identified by AMVC's Management as the most current financial documents
available. Inspected SourceNet's financial statements prepared by Washoe
Ledger as of September 30, 1997 identified by AMVC's Management as the
most current financial documents available.
2. Inspected copies of the following documents:
- Form 8-K filed by AMVC as of March 10, 2000 including Amended
Agreement of Merger dated February 15, 2000, as amended.
- Federal Tax Return for the year ended December 31, 1998.
- Letters of intent to acquire AMVC for all-cash initial offer of $1.75
and a revised all-cash offer of $2.10 dated February 4, 2000 and
February 14, 2000, respectively, from FMC Corporation.
- Various product brochures and other literature relative to AMVC's
services.
3. Performed a search of companies considered comparable to AMVC utilizing
Moody's and Compustat's Databases and Mergerstat Review.
4. Utilized Standard & Poor's Corporate Ratings Criteria.
5. Analyzed weekly stock prices for AMVC utilizing America-On-Line.
6. Analyzed Standard & Poor's stock guide for yields on publicly traded
preferred issues.
7. Visited AMVC headquarters and conducted telephone interviews with and
relied upon the representations of Chief Financial Officer, Alan Steel,
concerning the operations, closing costs for
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the Transaction, financial condition, future prospects, and projected
operations and performance of AMVC.
8. Discussed internal projections with the Chief Financial Officers of both
AMVC and Key.
In rendering our Opinion, we have not independently verified the accuracy
and completeness of the information supplied to us with respect to AMVC and we
do not assume any responsibility with respect to it. We advise the recipients of
this Opinion that nothing has come to our attention in the course of this
engagement that has caused us to believe it unreasonable to utilize and rely
upon the expectations and representations of AMVC's management regarding AMVC's
future performance. In addition, we have not considered the tax impact to the
individual shareholders and our Opinion is based on business, economic, market
and other conditions as they exist as of the date of this Opinion.
This Opinion has been prepared for the Board of Directors of AMVC in
connection with its consideration of the Merger and may not be used for any
other purpose without Marshall and Stevens Incorporated's express, prior,
written consent; provided that, this Opinion may be included in the proxy
statement sent by AMVC to its shareholders concerning the merger so long as the
Opinion is reproduced in full in such proxy statement and any summary of the
Opinion in the proxy statement is reasonably acceptable to Marshall & Stevens
Incorporated. Other than the Opinion, Marshall & Stevens Incorporated had been
engaged to render valuation consulting services limited to the AMVC's Board of
Directors' meeting February 10, 2000 and this Opinion confirms the discussions
with the Board. Our fee for these services is not contingent upon the
consummation of the aforementioned transaction.
Based upon and subject to the attached summary of our analyses and the
assumptions and limiting conditions, it is our Opinion that as of the date of
this Opinion, Aggregate Consideration in the range of $27,800,000 to $28,200,000
is fair to the AMVC shareholders from a financial point of view to such
shareholders pursuant to the terms and subject to the conditions set forth in
the Merger Agreement.
Very truly yours,
MARSHALL & STEVENS INCORPORATED
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<PAGE> 213
ASSUMPTIONS AND LIMITING CONDITIONS
TITLE
No investigation of legal title was made, and we render no opinion as to
ownership of AMVC or the underlying assets.
DATE OF VALUE
The date of this Opinion is March 15, 2000. The dollar amount of any value
reported is based on the purchasing power of the U.S. dollar as of that date.
The appraiser assumes no responsibility for economic or physical factors
occurring subsequent to the date of value that may affect the Opinion reported.
VISITATION
AMVC was visited by an employee of Marshall and Stevens on February 15,
2000. When the date of our visit differs from the date of our Opinion, we assume
no material change in the operations of AMVC or the underlying assets unless
otherwise noted in the report.
TRADING PRICE
Based upon our analysis of the trading history of AMVC, from March 15, 1999
to March 15, 2000, the common stock of AMVC was traded over the counter ranging
from a high of $1.875 to a low of $0.75 per share. For the trading period 30
days prior to the initial February 7, 2000 public announcement date of FMC
Corporation's ("FMC") initial offer, the common stock of AMVC was traded over
the counter ranging from a high of $1.813 to a low of $1 per share. The closing
price of AMVC common stock was $1.094 on the trading date immediately preceding
the FMC announcement on February 4, 2000, and the closing price was $1.719 on
the first trading date subsequent to the FMC announcement on February 7, 2000.
As of the date of this Opinion, the closing price was $1.656 per share.
NON-APPRAISAL EXPERTISE
No opinion is intended to be expressed for matters that require legal or
specialized expertise, investigation, or knowledge beyond that customarily
employed by appraisers.
INFORMATION AND DATA
Information supplied by others that was considered in this valuation is
from sources believed to be reliable, and no further responsibility is assumed
for its accuracy. We reserve the right to make such adjustments to the valuation
herein reported based upon consideration of additional or more reliable data
that may become available subsequent to the issuance of this report.
LITIGATION SUPPORT
Depositions, expert testimony, attendance in court, and all
preparations/support for same arising from this Opinion shall not be required
unless arrangements for such services have been previously made.
MANAGEMENT
The Opinion expressed herein assumes the continuation of prudent management
policies over whatever period of time is deemed reasonable and necessary to
maintain the character and integrity of AMVC or the underlying assets.
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PURPOSE
We have presented Marshall & Stevens Incorporated's considered Opinion
based on the facts and data obtained during the course of this investigation.
This report has been prepared for the sole purpose stated herein and shall not
be used for any other purpose.
UNEXPECTED CONDITIONS
We assume there are no hidden or unexpected conditions associated with AMVC
or the underlying assets that might adversely affect value. We also assume no
responsibility for changes in market condition that may require an adjustment to
our Opinion.
HAZARDOUS SUBSTANCES
Hazardous substances, if present within a business, can introduce an actual
or potential liability that may adversely affect the marketability and value of
AMVC or the underlying assets. In this Opinion, no consideration has been given
to such liability or its impact on value.
CONTINGENT LIABILITIES
Our conclusions do not consider the impact of any contingent liabilities of
the Company, either known or unknown, except as discussed in the Opinion.
According to AMVC's Management, as of the date of this Opinion, the only
asserted contingent liability is the Lemelson matter, which is not currently
considered material.
FUTURE EVENTS/PROJECTIONS
The reader is advised that this Opinion is heavily dependent upon future
events with respect to industry performance, economic conditions, and the
ability of AMVC to meet certain operating projections. In this Opinion, the
operating projections have been developed from information supplied by AMVC
Management. The operating projections incorporate various assumptions including,
but not limited to, net sales, net sales growth, profit margins, income taxes,
depreciation, capital expenditures, working capital levels, and discount rates,
all of which are critical to the Opinion. The operating projections are deemed
to be reasonable and valid at the date of this Opinion; however, there is no
assurance or implied guarantee that the assumed facts will be validated or that
the circumstances will actually occur. We reserve the right to make adjustments
to this Opinion herein reported as may be required by any modifications in the
prospective outlook for the economy, the industry, and/or the operations of
AMVC.
SUMMARY OF OUR ANALYSES
In preparing our Opinion, we performed a variety of financial and
comparative analyses. A fairness opinion is a complex analytical process
involving various subjective determinations as to the most relevant valuation
methods and the application of these methods. Our financial analyses should be
considered as a whole; selecting only portions of these analyses could create a
misleading view of our Opinion. We made assumptions in conjunction with
Management with respect to assets, financial conditions, and other matters, many
of which are beyond the control of AMVC. Thus, the estimates of value arrived at
by such analyses and the valuation results from any particular analysis are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty.
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The analyses made in conjunction with our Opinion included those factors
and considerations specified in IRS Revenue Ruling 59-60. This ruling is most
commonly prescribed as a guide for the valuation of closely held businesses or
thinly traded public companies and securities.
SELECTED COMPARABLE COMPANY ANALYSIS. The comparable company analysis
requires that an analysis be made of publicly traded companies considered
comparable to the appraised company with regard to industry, performance, and/or
markets exploited. This analysis is predicated on the theory that the market
value of a company can be estimated by deriving market multiples from publicly
traded companies that relate their stock prices to earnings, cash flows, or
other measures and then applying these market multiples to the respective
earnings, cash flows, or other measures of the appraised company.
We conducted a search of Moody's database of over 15,000 publicly traded
companies to determine if any could be utilized in our analysis. After screening
applicable SIC codes and other relevant criteria, we selected public companies
that most closely resembled AMVC in terms of lines of business and markets
served. While this screening process did not provide any public companies that
were identical in all respects to AMVC, it did provide several that were
sufficiently comparable to be considered alternative investment possibilities,
making them useful benchmarks for valuation purposes. These companies are listed
as follows:
- Adept Technology, Inc.
- Cognex Corporation
- Electro Scientific Industries, Inc.
- Integral Vision, Inc.
- Key Technology, Inc.
- Perceptron, Inc.
- PPT Vision, Inc.
- Quad Systems, Inc.
- Robotic Vision Systems, Inc.
- Thermedics Detection, Inc.
- Zygo Corporation
- Stocker & Yale Incorporated
We computed market value multiples of invested capital-to-revenues;
invested capital-to-earnings before interest, taxes, depreciation and
amortization (EBITDA); and invested capital-to-book capital of the
aforementioned public companies and applied these multiples to the corresponding
earnings measures for AMVC based on the projected first year, and 3 year
average. We also computed a market value multiple for invested capital-to-book
capital based on the latest fiscal year. These multiples ranged from: 1)
invested capital-to-revenue, High 16.28, Median 3.58 and Low .36; 2) invested
capital-to-EBITDA, High 19.80, Median 9.40 and Low 6.2; and 3) invested
capital-to-book capital, High 38.80, Median 2.60 and Low .70.
We utilized these invested capital multiples (also referred to as debt-free
multiples) because they permit us to value AMVC irrespective of the variations
inherent in its capital structure and income tax rates as compared to the public
companies.
Historically, publicly traded companies larger than AMVC tend to be more
sophisticated with solid market shares, more diversified and more prominent
public identities, so they are more likely to command correspondingly higher
multiples. We have therefore chosen multiples below the median range to apply to
the corresponding financial measures for AMVC. We also considered AMVC's size,
diversification, financial condition, revenue growth and performance relative to
their primary competitor, Key Technology, Inc.
After multiplying the respective revenue measures of AMVC by the selected
multiples and then subtracting any interest-bearing debt, we generate a
preliminary indicated equity value, which represents
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the aggregate minority value (minority interests traded in the public
marketplace) of AMVC before estimated transaction costs of $400,000 (per AMVC
Management).
Because we are valuing the Company on a controlling basis, the preceding
preliminary minority value must be adjusted to reflect control. Market data
demonstrate that investors who seek to acquire controlling interests in publicly
traded companies in order to set company policies and direct operations pay
prices higher than investors trading minority shareholdings in the public
marketplace.
In order to derive the appropriate control premium, we reviewed statistical
information from a publication, Mergerstat Review, regarding acquisitions of
either controlling interests in or total ownership of public companies in
industries similar to the Company. In our selection of the control premium, we
also considered that our adjustments to normalize AMVC's historical earnings
were not made to the aforementioned public companies. Based on the
above-mentioned factors and data contained in this report, we selected 20% as
the appropriate control premium.
As a result of our analysis utilizing comparable publicly traded companies,
the indicated market value of the shareholders' equity of AMVC on a controlling
interest basis, as of March 15, 2000, was $18,700,000.
DISCOUNTED CASH FLOW ANALYSIS. We performed a discounted cash flow analysis
of projected net debt-free cash flow (EBIT less taxes, capital expenditures,
changes in working capital plus noncash charges) of AMVC based on certain
operating and financial assumptions. provided by AMVC Management. This
projection incorporated various assumptions as to revenue growth ranging from
10% to 19%, operating margins, income taxes at 40%, officer compensation,
depreciation, capital expenditures, working capital levels and capitalization
rate, all of which are critical to the Opinion.
NET DEBT FREE CASH FLOW ("NDFCF") PROJECTION
<TABLE>
<CAPTION>
DRAFT DEC. 31,
($000S) 1999 2000 2001 2002 2003 2004
------- --------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................... $24,312 $29,012 $31,913 $35,105 $38,615 $42,476
EBIT................................... Negative 1,230 2,722 3,574 4,707 6,024
NDFCF.................................. N/A 4,462 1,356 1,740 2,308 2,975
</TABLE>
In summary, the above projection is forward-looking information prepared by
Management and thus, is heavily dependent and contingent upon future events with
respect to industry performance, economic conditions, and the ability of the
Company to meet these cash flow projections. Overall, this projection reflects
significant increases in revenues and earnings before interest and taxes (EBIT)
when compared to historical operations.
This debt-free cash flow was discounted and summed at a discount rate
assumption of 15% by utilization of the weighted average cost of capital (WACC).
The WACC is a function of 1) cost of debt; 2) cost of equity; 3) industry
capital structure; and 4) cumulative federal and state taxes. The cost of equity
considers such factors as equity risk premiums, inflation rates, interest rates,
and the inherent business risk of AMVC and the industry as a whole. We then
added a residual year (year beyond the discrete projection time period to
reflect the going concern value of AMVC into perpetuity) to derive a present
value. From this present value, we subtracted the interest-bearing debt to
arrive at an equity value.
As a result of our analysis utilizing discounted cash flow, the indicated
market value of the shareholders' equity of AMVC on a controlling interest
basis, as of March 15, 2000, was $17,600,000.
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RECAPITULATION
<TABLE>
<CAPTION>
ANALYSIS MARKET VALUE
-------- ------------
<S> <C>
Selected Comparable Company................................. $18,700,000
Discounted Cash Flow........................................ $17,600,000
</TABLE>
We also included the impact of dilution triggered by the potential exercise
of the vested stock options outstanding as of the Opinion date. The proceeds
from the exercise of 3,217,529 options at a weighted average exercise price of
$1.41 would be $4,536,716.
In deriving a final conclusion, we reconciled the value indications by
weighting their relative significance depending upon the circumstances and the
quantity of reliable market data. The selected comparable company analysis
reflects the consensus of many investors relative to the historical
profitability of public companies considered comparable to the Company. The
discounted cash flow analysis considers the future profit potential coupled with
the riskiness of that return, and avoids the difficulty in identifying public
companies considered comparable to the Company. In our analyses, we have applied
various sensitivity weightings to the Selected Comparable Company and Discounted
Cash Flow analyses: 1) 50-50%, 70-30% and 30-70%, respectively. Based on the
aforementioned weightings and the inclusion of the proceeds from the exercise of
the vested stock options, the preliminary indicated value on a fully diluted
controlling interest basis would range between $22,500,000 and $22,900,000.
NON-OPERATING ASSETS. The final steps in our analyses are to add back the
value of AMVC's 10% minority interest in a non-operating investment, SourceNet,
and the present value of the tax benefit of acquiring AMVC's net operating loss
("NOL") carryover.
In regards to SourceNet, we considered the initial funding of $5,000,000
paid to acquire a 25% minority interest position by an affiliate of Ridgewood
Capital Management LLC pursuant to a Press Release dated December 16, 1999. This
interest consisted of the issuance of Series A Convertible Preferred Stock
("Series A") that would equate to an estimated enterprise value of $20,000,000.
It is important to note that AMVC originally purchased a 15% minority interest
in SourceNet's common stock in 1997 for $280,000 that would equate to an
estimated enterprise value of $1,870,000.
SourceNet's Series A was issued with many features similar to SourceNet
common stock with notable exceptions of: 1) an 8% non-cumulative dividend right;
2) a conversion right to convert Series A for SourceNet common on a 1-for-1
basis at any time; 3) an anti-dilution provision; and 4) a preference in
liquidation over SourceNet common stock. Even though Series A contains many
features superior to the SourceNet common stock and also represents a larger
minority interest than AMVC, we utilized this aforementioned initial funding as
a conservative proxy in our determination of an estimated market value of
SourceNet. Thus, AMVC's 10% minority interest would equate to an estimated
market value of $2,000,000.
In the calculation of the market value of AMVC's NOL carryover, we assumed
that an acquiring Company would be able to absorb the maximum annual NOL
limitation pursuant to Section 382 of the Internal Revenue Code. The maximum
annual NOL limitation is based on the value of AMVC times the highest published
long-term Federal tax exempt rates pursuant to Revenue Rulings 2000-1, 2000-9,
and 2000-11 determined to be 5.84%. We then performed a discounted cash flow
analysis of the annual projected tax benefit (annual NOL limitation times the
federal tax rate) for all subsequent years until the NOL is fully exhausted.
This cash flow was discounted and summed at a discount rate assumption of 15% as
previously discussed in the discounted cash flow analysis. We have determined
that the market value of the tax benefit of acquiring AMVC's NOL carryover to be
$3,300,000.
CLOSING STOCK PRICE ANALYSIS. The closing price of AMVC common stock was
$1.094 on the trading date immediately preceding the public announcement date of
FMC Corporation's initial offer on February 4, 2000.
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The closing price was $1.656 per share as of the date of this Opinion. We
considered this closing price for AMVC's common shares as if fully-diluted
(16,187,082 shares) as a reasonableness check in support of our conclusion.
Utilizing this $1.656 per share and the $22 per share price for AMVC's Preferred
Series B shares (119,106 shares), the indicated market value of AMVC's
shareholders' equity would be in rounded amount $29,400,000.
CONCLUSION. Therefore, based on the information and analyses summarized in
this Opinion, various sensitivity weightings and non-operating assets, it is our
Opinion that the market value of the shareholders' equity of the business
enterprise known as AMVC, on a fully diluted controlling interest basis, as of
March 15, 2000, would range between $27,800,000 to $28,200,000.
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ANNEX C -- CALIFORNIA DISSENTERS' RIGHTS STATUTE
SEC.1300. RIGHT TO REQUIRE PURCHASE-"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter. (b) As used
in this chapter, "dissenting shares" means shares which come within all of the
following descriptions: (1) Which were not immediately prior to the
reorganization or short-form merger either (A) listed on any national securities
exchange certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the National Market System of the NASDAQ Stock
Market, and the notice of meeting of shareholders to act upon the reorganization
summarizes this section and Sections 1301, 1302, 1303 and 1304; provided,
however, that this provision does not apply to any shares with respect to which
there exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for payment
are filed with respect to 5 percent or more of the outstanding shares of that
class. (2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation purchase
at their fair market value, in accordance with Section 1301. (4) Which the
dissenting shareholder has submitted for endorsement, in accordance with Section
1302. (c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SEC.1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309. (b)
Any shareholder who has a right to require the corporation to purchase the
shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares
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pursuant to subdivision (a) or the notice pursuant to subdivision (i) of Section
1110 was mailed to the shareholder. (c) The demand shall state the number and
class of the shares held of record by the shareholder which the shareholder
demands that the corporation purchase and shall contain a statement of what such
shareholder claims to be the fair market value of those shares as of the day
before the announcement of the proposed reorganization or short-form merger. The
statement of fair market value constitutes an offer by the shareholder to sell
the shares at such price.
SEC.1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SEC.1303. AGREED PRICE-TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation. (b) Subject to the
provisions of Section 1306, payment of the fair market value of dissenting
shares shall be made within 30 days after the amount thereof has been agreed or
within 30 days after any statutory or contractual conditions to the
reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SEC.1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint. (b) Two or more dissenting shareholders may
join as plaintiffs or be joined as defendants in any such action and two or more
such actions may be consolidated. (c) On the trial of the action, the court
shall determine the issues. If the status of the shares as dissenting shares is
in issue, the court shall first determine that issue. If the fair market value
of the dissenting shares is in issue, the court shall determine, or shall
appoint one or more impartial appraisers to determine, the fair market value of
the shares.
SEC.1305. APPRAISER'S REPORT-PAYMENT-COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the
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report shall be submitted to the court and considered on such evidence as the
court considers relevant. If the court finds the report reasonable, the court
may confirm it. (b) If a majority of the appraisers appointed fail to make and
file a report within 10 days from the date of their appointment or within such
further time as may be allowed by the court or the report is not confirmed by
the court, the court shall determine the fair market value of the dissenting
shares. (c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered. (d) Any such judgment
shall be payable forthwith with respect to uncertificated securities and, with
respect to certificated securities, only upon the endorsement and delivery to
the corporation of the certificates for the shares described in the judgment.
Any party may appeal from the judgment. (e) The costs of the action, including
reasonable compensation to the appraisers to be fixed by the court, shall be
assessed or apportioned as the court considers equitable, but, if the appraisal
exceeds the price offered by the corporation, the corporation shall pay the
costs (including in the discretion of the court attorneys' fees, fees of expert
witnesses and interest at the legal rate on judgments from the date of
compliance with Sections 1300, 1301 and 1302 if the value awarded by the court
for the shares is more than 125 percent of the price offered by the corporation
under subdivision (a) of Section 1301).
SEC.1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SEC.1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SEC.1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SEC.1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following: (a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles. (c) The dissenting shareholder
and the corporation do not agree upon the status of the shares as dissenting
shares or upon the purchase price of the shares, and neither files a complaint
or intervenes in a pending action as provided in Section 1304, within six months
after the date on which notice of the approval by the outstanding shares or
notice pursuant to subdivision (i) of Section 1110 was
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mailed to the shareholder. (d) The dissenting shareholder, with the consent of
the corporation, withdraws the shareholder's demand for purchase of the
dissenting shares.
SEC.1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SEC.1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SEC.1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization. (b) If
one of the parties to a reorganization or short-form merger is directly or
indirectly controlled by, or under common control with, another party to the
reorganization or short-form merger, subdivision (a) shall not apply to any
shareholder of such party who has not demanded payment of cash for such
shareholder's shares pursuant to this chapter; but if the shareholder institutes
any action to attack the validity of the reorganization or short-form merger or
to have the reorganization or short-form merger set aside or rescinded, the
shareholder shall not thereafter have any right to demand payment of cash for
the shareholder's shares pursuant to this chapter. The court in any action
attacking the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not restrain or
enjoin the consummation of the transaction except upon 10 days' prior notice to
the corporation and upon a determination by the court that clearly no other
remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member. (c) If one of the parties to
a reorganization or short-form merger is directly or indirectly controlled by,
or under common control with, another party to the reorganization or short-form
merger, in any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, (1) a party to a reorganization or short-form merger which controls
another party to the reorganization or short-form merger shall have the burden
of proving that the transaction is just and reasonable as to the shareholders of
the controlled party, and (2) a person who controls two or more parties to a
reorganization shall have the burden of proving that the transaction is just and
reasonable as to the shareholders of any party so controlled.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Oregon Business Corporation Act (the "Act") authorizes the
indemnification of an officer or director made party to a proceeding because the
officer or director is or was an officer or director against liability
(including amounts paid in settlement) incurred in the proceeding and against
expenses with respect to the proceeding (including attorney fees) if: (a) the
conduct of the officer or director was in good faith, (b) the officer or
director reasonably believed that his conduct was in the best interests of the
corporation or at least not opposed to its best interests, (c) in the case of a
criminal proceeding, the officer or director had no reasonable cause to believe
his conduct was unlawful, (d) in the case of any proceeding by or in the right
of the corporation, unless a court otherwise determines, if such officer or
director shall not have been adjudged liable, and (e) in connection with any
other proceeding charging improper personal benefit to the director or officer,
unless a court otherwise determines, in which the director or officer was not
adjudged liable on the basis that personal benefit was improperly received by
the director or officer. The Company's Restated Articles of Incorporation, as
amended, and Restated Bylaws, as amended, allow the Company to indemnify
officers and directors to the fullest extent permissible by law.
The Act further provides that the articles of incorporation of a
corporation may provide that no director shall be personally liable to a
corporation or its shareholders for monetary damages for conduct as a director,
except that such provision does not eliminate the liability of a director (i)
for any breach of the directors' duty of loyalty to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) for any unlawful
distribution as defined under the Act, or (iv) for any transaction from which
the director derived an improper personal benefit. The Company's Restated
Articles of Incorporation, as amended, provide that, to the fullest extent
permissible by law, no director shall be personally liable to the Company or its
shareholders for monetary damages.
The Company has entered into indemnification agreements with each director
and certain officers which indemnify them to the full extent authorized or
permitted by the Act.
The Company has purchased directors' and officers' liability insurance.
Subject to conditions, limitations and exclusions in the policy, the insurance
covers amounts required to be paid for a claim or claims made against directors
and officers for any act, error, omission, misstatement, misleading statement or
breach of duty by directors and officers in their capacity as directors and
officers of the Company.
The effect of these provisions is to indemnify the directors and officers
of the Registrant against all costs and expenses of liability incurred by them
in connection with any action, suit or proceeding in which they are involved by
reason of their affiliation with the Registrant, to the fullest extent permitted
by law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2 Agreement and Plan of Merger dated February 15, 2000;
Amendment No. 1 dated February 25, 2000; and Amendment No. 2
effective April 24, 2000 (attached as Annex A to the joint
proxy statement/prospectus contained in this registration
statement)
3.1 Restated Articles of Incorporation (filed as Exhibit 3.1 to
the Registration Statement on Form S-1 (Registration No.
33-63194) filed with the Securities and Exchange Commission
on May 24, 1993 and incorporated herein by reference)
3.2 Restated Bylaws, as amended (#)
</TABLE>
II-1
<PAGE> 224
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1 Reference is made the Restated Articles of Incorporation,
Exhibit 3.1
4.2 Form of Certificate of Designation for Series B Convertible
Preferred Stock
4.3 Form of Certificate of Designation for Series C Convertible
Preferred Stock
4.4 Form of Warrant to Purchase Shares of Common Stock of Key
Technology, Inc.
4.5 Form of Warrant Agreement
4.6 Form of Series B Convertible Preferred Stock Certificate
4.7 Form of Series C Convertible Preferred Stock Certificate
4.8 Form of FMC Corporation Option
5 Tonkon Torp LLP Legal Opinion
10.1 Construction and Lease Agreement dated October 17, 1989
between the Port of Walla Walla and Registrant (filed as
Exhibit 10.1 to the Registration Statement on Form S-1
(Registration No. 33-63194) filed with the Securities and
Exchange Commission on May 24, 1993 and incorporated herein
by reference)
10.2 Indenture of Trust dated as of February 1, 1993 between Port
of Walla Walla Public Corporation and Key Bank of
Washington, as Trustee (filed as Exhibit 10.2 to the
Registration Statement on Form S-1 (Registration No.
33-63194) filed with the Securities and Exchange Commission
on May 24, 1993 and incorporated herein by reference)
10.3 Loan Agreement dated February 1, 1993 between Port of Walla
Walla Public Corporation and Registrant (filed as Exhibit
10.3 to the Registration Statement on Form S-1 (Registration
No. 33-63194) filed with the Securities and Exchange
Commission on May 24, 1993 and incorporated herein by
reference)
10.4 Pledge and Security Agreement dated as of February 1, 1993
between Registrant and U.S. Bank of Washington, N.A. (filed
as Exhibit 10.4 to the Registration Statement on Form S-1
(Registration No. 33-63194) filed with the Securities and
Exchange Commission on May 24, 1993 and incorporated herein
by reference)
10.5* Registrant's 401(k) Profit Sharing Plan dated May 11, 1992
(filed as Exhibit 10.6 to Amendment No. 1 to Form S-1
(Registration No. 33-63194) filed with the Securities and
Exchange Commission on May 24, 1993 and incorporated herein
by reference)
10.6* Registrant's Restated Phantom Stock Plan, as amended (filed
as Exhibit 10.7 to the Registration Statement on Form S-1
(Registration No. 33-63194) filed with the Securities and
Exchange Commission on May 24, 1993 and incorporated herein
by reference)
10.7* Registrant's 1996 Employees' Stock Option Plan (filed as
Exhibit 10.1 to the Form 10-Q filed with the Securities and
Exchange Commission on May 2, 1996 and incorporated herein
by reference)
10.8* Registrant's 1996 Employees Stock Purchase Plan (filed as
Exhibit 10.2 to the Form 10-Q filed with the Securities and
Exchange Commission on May 2, 1996 and incorporated herein
by reference)
10.9 Lease Agreement dated April 18, 1996 between the Port of
Walla Walla and Registrant (filed as Exhibit 10.1 to the
Form 10-Q filed with the Securities and Exchange Commission
on August 7, 1996 and incorporated herein by reference)
10.10 Business Loan Agreement dated as of January 25, 1999 between
Registrant and U.S. Bank National Association (filed as
Exhibit 10.1 to the Form 10-Q filed with the Securities and
Exchange Commission on May 14, 1999 and incorporated herein
by reference)
21 List of Subsidiaries (#)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Marshall & Stevens for Opinion attached as Annex
B to the joint proxy statement/prospectus contained in this
registration statement (included as part of Annex B)
23.4 Consent of Tonkon Torp LLP (included as part of Exhibit 5)
</TABLE>
II-2
<PAGE> 225
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
24 Power of attorney (included as part of the signature page to
the Registration Statement)
99.1 Form of Key Technology, Inc. proxy card
99.2 Form of Advanced Machine Vision Corporation proxy card
</TABLE>
-------------------------
* Management contract or compensatory plan or arrangement.
(#) Previously filed.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(1) that prior to any public reoffering of securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) that every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(4) insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to the Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Portland, State of Oregon, on June 2, 2000.
KEY TECHNOLOGY, INC.
By: /s/ THOMAS C. MADSEN
------------------------------------
Thomas C. Madsen
President and Chief Executive
Officer
By: /s/ TED R. SHARP
------------------------------------
Ted R. Sharp
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<S> <C>
* June 2, 2000
------------------------------------------------------------
Harold R. Frank, Director
/s/ Thomas C. Madsen June 2, 2000
------------------------------------------------------------
Thomas C. Madsen, Director, President and
Chief Executive Officer
June 2, 2000
------------------------------------------------------------
John E. Pelo, Director
* June 2, 2000
------------------------------------------------------------
Michael L. Shannon, Jr., Director
* June 2, 2000
------------------------------------------------------------
Peter H. van Oppen, Director
/s/ Gordon Wicher June 2, 2000
------------------------------------------------------------
Gordon Wicher, Director
*By: /s/ Ted R. Sharp June 2, 2000
----------------------------------------------------
Ted R. Sharp
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 227
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2 Agreement and Plan of Merger dated February 15, 2000;
Amendment No. 1 dated February 25, 2000; and Amendment No. 2
effective April 24, 2000 (attached as Annex A to the joint
proxy statement/prospectus contained in this registration
statement)
3.1 Restated Articles of Incorporation (filed as Exhibit 3.1 to
the Registration Statement on Form S-1 (Registration No.
33-63194) filed with the Securities and Exchange Commission
on May 24, 1993 and incorporated herein by reference)
3.2 Restated Bylaws, as amended (#)
4.1 Reference is made the Restated Articles of Incorporation,
Exhibit 3.1
4.2 Form of Certificate of Designation for Series B Convertible
Preferred Stock
4.3 Form of Certificate of Designation for Series C Convertible
Preferred Stock
4.4 Form of Warrant to Purchase Shares of Common Stock of Key
Technology, Inc.
4.5 Form of Warrant Agreement
4.6 Form of Series B Convertible Stock Certificate
4.7 Form of Series C Convertible Preferred Stock Certificate
4.8 Form of FMC Corporation Option
5 Tonkon Torp LLP Legal Opinion
10.1 Construction and Lease Agreement dated October 17, 1989
between the Port of Walla Walla and Registrant (filed as
Exhibit 10.1 to the Registration Statement on Form S-1
(Registration No. 33-63194) filed with the Securities and
Exchange Commission on May 24, 1993 and incorporated herein
by reference)
10.2 Indenture of Trust dated as of February 1, 1993 between Port
of Walla Walla Public Corporation and Key Bank of
Washington, as Trustee (filed as Exhibit 10.2 to the
Registration Statement on Form S-1 (Registration No.
33-63194) filed with the Securities and Exchange Commission
on May 24, 1993 and incorporated herein by reference)
10.3 Loan Agreement dated February 1, 1993 between Port of Walla
Walla Public Corporation and Registrant (filed as Exhibit
10.3 to the Registration Statement on Form S-1 (Registration
No. 33-63194) filed with the Securities and Exchange
Commission on May 24, 1993 and incorporated herein by
reference)
10.4 Pledge and Security Agreement dated as of February 1, 1993
between Registrant and U.S. Bank of Washington, N.A. (filed
as Exhibit 10.4 to the Registration Statement on Form S-1
(Registration No. 33-63194) filed with the Securities and
Exchange Commission on May 24, 1993 and incorporated herein
by reference)
10.5* Registrant's 401(k) Profit Sharing Plan dated May 11, 1992
(filed as Exhibit 10.6 to Amendment No. 1 to Form S-1
(Registration No. 33-63194) filed with the Securities and
Exchange Commission on May 24, 1993 and incorporated herein
by reference)
10.6* Registrant's Restated Phantom Stock Plan, as amended (filed
as Exhibit 10.7 to the Registration Statement on Form S-1
(Registration No. 33-63194) filed with the Securities and
Exchange Commission on May 24, 1993 and incorporated herein
by reference)
10.7* Registrant's 1996 Employees' Stock Option Plan (filed as
Exhibit 10.1 to the Form 10-Q filed with the Securities and
Exchange Commission on May 2, 1996 and incorporated herein
by reference)
10.8* Registrant's 1996 Employees Stock Purchase Plan (filed as
Exhibit 10.2 to the Form 10-Q filed with the Securities and
Exchange Commission on May 2, 1996 and incorporated herein
by reference)
10.9 Lease Agreement dated April 18, 1996 between the Port of
Walla Walla and Registrant (filed as Exhibit 10.1 to the
Form 10-Q filed with the Securities and Exchange Commission
on August 7, 1996 and incorporated herein by reference)
</TABLE>
<PAGE> 228
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.10 Business Loan Agreement dated as of January 25, 1999 between
Registrant and U.S. Bank National Association (filed as
Exhibit 10.1 to the Form 10-Q filed with the Securities and
Exchange Commission on May 14, 1999 and incorporated herein
by reference)
21 List of Subsidiaries (#)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Marshall & Stevens for Opinion attached as Annex
B to the joint proxy statement/prospectus contained in this
registration statement (included as part of Annex B)
23.4 Consent of Tonkon Torp LLP (included as part of Exhibit 5)
24 Power of attorney (included as part of the signature page to
the Registration Statement)
99.1 Form of Key Technology, Inc. proxy card
99.2 Form of Advanced Machine Vision Corporation proxy card
</TABLE>
-------------------------
* Management contract or compensatory plan or arrangement.
(#) Previously filed.
