Summary of KEY TECHNOLOGY INC

Entry into a Material Definitive Agreement, Creation of a Direct Financial Obl

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

On December 16, 2008, Key Technology, Inc. (the "Company") completed borrowing arrangements under a Loan Agreement with Bank of America, N.A. ("the Lender"). Under the Loan Agreement, the Lender will provide a revolving line of credit facility to the Company in the maximum principal amount of $10,000,000 and a credit sub-facility of up to $6,000,000 for standby letters of credit. The revolving line of credit facility matures on December 1, 2009. The credit facility bears interest, at the Company's option, of either the Lender's prime rate minus 1.75% or the British Bankers Association LIBOR Rate ("BBA LIBOR") plus 1.0% per annum. The revolving line of credit is secured by all U.S. accounts receivable, inventory, equipment, and fixtures. At December 16, 2008, the Company had no outstanding borrowings under the revolving line of credit facility.

The Loan Agreement also provides for a 15-year term loan in the amount of $6.4 million. The term loan provides for a mortgage on the Company's Avery Street headquarters' land and building located in Walla Walla, Washington. The term loan bears interest at the BBA LIBOR rate plus 1.4% and matures on January 2, 2024. The Company has also simultaneously entered into an interest rate swap agreement with the Lender to fix the interest rate at 4.27%, resulting in an initial quarterly interest expense of approximately $68,000.

The credit facilities contain covenants which require the maintenance of a funded debt to EBITDA ratio, a fixed charge coverage ratio and minimum working capital levels. The Loan Agreement permits capital expenditures up to a certain level, and contains customary default and acceleration provisions. The credit facilities also restrict acquisitions, incurrence of additional indebtedness and lease expenditures above certain levels without the prior consent of the Lender.

The Company's prior credit facility with a domestic lender is expected to be terminated prior to December 31, 2008.

The description set forth above is qualified in its entirety by reference to the Loan Agreement, a copy of which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.