Key Technology Signs Definitive Agreement to Sell Forest Products Business and Lowers Fiscal 2001 Projections.

Business Editors

WALLA WALLA, Wash.--(BUSINESS WIRE)--Nov. 2, 2001

Key Technology, Inc. (Nasdaq/NMS:KTEC) announced today that it has signed definitive agreements to sell Ventek, Inc., and that it is lowering its expectations for revenue growth and earnings.

The company has agreed to sell Ventek, Inc., a wholly owned subsidiary that supplies machine vision systems to the forest products industry, to Veneer Technology, Inc., a company comprised of four current managers of Ventek including Rodger Van Voorhis, President. Ventek was acquired by Key as part of its acquisition of Advanced Machine Vision Corporation (AMVC) in July 2000. Mr. Van Voorhis, who was appointed to the Key Technology Board of Directors in July 2000 as a result of the AMVC acquisition, resigned as a director effective August 31, 2001.

The terms of the sale include a cash payment of approximately $3.5 million, a note for $.75 million and the cashless tender of Veneer Technology's holdings of Key Technology Series B convertible preferred stock having a stated redemption value of $2.0 million. As a result of the sale of Ventek, Key anticipates that it will incur a one-time charge in the range of $2.0 to $2.2 million which is expected to be included in fiscal 2001 results.

Thomas C. Madsen, Chairman and CEO said, "Our strategic objective when we purchased AMVC was to acquire SRC Vision and we have been pleased with the synergies that have emerged between Key and SRC. However, we have not experienced the same synergies with Ventek which serves different markets, and we believe that we can create more shareholder value by selling this business. The sale of Ventek will allow Key to focus on returning to profitability and expanding our core business growth opportunities in the food processing and industrial markets. Ventek, which represented less than ten percent of Key's revenues, has been adversely affected by the slowdown in the economy over the past year resulting in a lack of financial contribution to the consolidated group. Our strategic decision to sell Ventek continues the efforts we have taken throughout the year to reduce costs and improve the financial results of the Company."

The sale is subject to the buyer obtaining financing and is expected to close before November 30, 2001.

During fiscal year 2001, the Company redeemed warrants and Series C convertible preferred stock totaling $4.5 million and reduced its long-term debt balance by $2.6 million. Upon the closing of the sale of Ventek, Key's redemption obligations with respect to redeemable securities will be reduced by an additional $2.0 million and it is anticipated that the $3.5 million cash payment will be used to retire debt and increase cash reserves. Upon closing of the sale of Ventek, Key will have an estimated 1,138,904 shares of Series B convertible preferred stock outstanding having a redemption value of approximately $11. 4 million and 82,200 warrants outstanding. The Series B shares, at the option of the holders, may be tendered for redemption in July 2002.

In commenting on the Company's core business, Mr. Madsen continued, "While we have taken the necessary steps to adjust our business to reduced revenue levels, our customers continue their cautious stance on capital expenditures, resulting in weaker than anticipated sales for Key during the fourth quarter. The company had previously provided guidance for annual revenue growth at the low end of a 20% to 30% range, in large part as the result of the acquisition of AMVC, but we now expect our fiscal year 2001 revenues to be approximately $77.9 million, which reflects 15% growth when compared to Key's fiscal 2000 revenues.

"We have not yet completed the closing of our books for the fiscal year ended September 30, 2001, but we expect to report a net loss in the range of $2.8 to $3.1 million for the year, not including the charge discussed above related to the sale of Ventek. The loss is comprised of non-recurring integration charges of $725,000 reported in the first quarter related to the acquisition and integration of AMVC and operating losses that were incurred in the first, second and fourth quarters of fiscal 2001. The operating losses resulted from lower than anticipated revenues due to the softness in each of the Company's capital equipment markets, with expense reductions lagging the projected revenue shortfall. The Company expects to announce its fourth quarter and fiscal year 2001 results on November 15, 2001."

Key Technology, Inc., headquartered in Walla Walla, Washington, is a worldwide leader in the design and manufacture of process automation systems for the food processing and industrial markets. The Company's products integrate electro-optical inspection and sorting, specialized conveying and product preparation equipment, which allow processors to improve quality, increase yield and reduce cost. Key has manufacturing facilities in Washington, Oregon and the Netherlands and worldwide sales and service coverage.

Ventek, located in Eugene, Oregon, designs and assembles machine vision systems for automated inspection and process control in the plywood and wood panel industries.

This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations or beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The forward-looking statements in this release address the following subjects: future financial and operating results and disposition of corporate assets.

The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements:

-- the ability of Veneer Technology, Inc. to secure financing for the
acquisition of Ventek;

-- further deterioration of general economic conditions;

-- the continued access to existing credit facilities in light of the Company's
recent financial performance, including the failure to achieve required
financial covenants under the loan agreements at September 30, 2001;

-- ability of the Company to access new capital required to finance future
redemption obligations;

-- ability to further identify, develop and achieve commercial success for new
products and services;

-- increased competition and its effects on pricing and customer capital
spending;

-- risks associated with adverse fluctuations in foreign currency exchange
rates; and

-- inability to penetrate anticipated new markets.

For a detailed discussion of these and other cautionary statements, please refer to the Company's filings with the Securities and Exchange Commission, particularly in Exhibit 99.1 "Forward-Looking Statement Risk and Uncertainty Factors" of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2000 and the Risk Factors sections of the Company's Registration Statement on Form S-4, Post-Effective Amendment No. 3, filed August 17, 2001.

Note: News releases and other information on Key Technology, Inc. can be accessed at www.keyww.com on the Internet.