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Exhibit 10.1

July 16, 2008

Mr. Edward A. Wagner

Dear Ed:

It gives me great pleasure to extend an employment offer to you as Sr. Vice
President of Global Operations for Key Technology.  In this capacity, you will
report directly to me and be located at the company headquarters in Walla Walla.

Everyone with whom you interacted at Key, including Board members, was
exceedingly impressed with your general management and operations experience,
your demonstrated capacity to grow global enterprises across diverse markets,
and your strong interest in the Key organization.  We believe your contributions
to the future of the company will be significant and we judge your fit with the
organization to be very good.

As the SVP Global Operations, you will be responsible for the corporation’s
operations strategy and execution, and its alignment with the overall strategic
vision.  This will include accountability for key operational areas on a
worldwide basis, including manufacturing and delivery, manufacturing
engineering, materials/supply chain, project engineering, and manufacturing
quality.  You will be responsible for budgeting, forecasting, reporting, and
analysis of operational results.  And you will participate as an important
member of an executive team charged with growing this business and increasing
shareholder value.

As we’ve previously discussed, the elements of our offer package are as follows:

Exempt Base Salary

$ 210,000 per year, paid bi-weekly at a rate of $8,076.92.  Your first
performance review and any associated merit adjustment to your salary will occur
in November of 2008.

Note: Your employment with Key Technology is contingent upon successfully
completing a drug screen, criminal history, social security, education and
reference check all scheduled for you by the Human Resources Department.

Annual Incentive Plan

Effective with the 2009 fiscal year, you will be eligible for full participation
in the Annual Executive Incentive Plan.  The potential payout under this
incentive plan is tied to achieving the Net Income target established in the
2009 operating plan, as well as performance against other predefined metrics to
which we agree.  Reward thresholds for over-plan performance on Net Income will
be communicated to you at a later time.   There will be no incentive payout for
the 2008 fiscal year.

Under the Executive Incentive Plan, your target 2009 bonus will be 75% of your
base salary.  Should achievement of the Net Income goal exceed the defined
performance target, there is upside earning potential that would allow you to
receive as much as 120% of base salary bonus (maximum).

Long-Term Incentive Plan

Key has a Long-Term Incentive Plan that takes the form of restricted stock
grants.  The restricted stock grants to Executive Staff are awarded on an annual
basis.  The number of shares awarded each individual is determined as a function
of their personal contribution and the stock price at point of grant.
 

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I am pleased to offer you a restricted stock hiring grant of 6,575 shares, the
current value of which will approximate your starting annual salary.  This grant
is effective on your start date.  One third of the shares will vest over a
three-year period (annually) based on continuous employment (service). The
remaining two thirds of the shares will cliff-vest at the completion of the same
three-year period, based on meeting three-year performance targets (cumulative
net income), to be defined in the near future.  You will be eligible for
additional annual grants, commencing in FY 2009.

The overall objective of the incentive plan for senior executives is to
structure a plan where we can earn substantial incentive compensation for
exceptional performance.

Benefits

Provided we receive your completed enrollment forms, your group health, life,
disability,
and other standard benefit coverages will begin on your first day of employment.
Beginning with your first pay period you will accrue vacation at the rate of
6.15 hours (160 hours per year).  Human Resources will forward a packet of
information to you about these benefit programs under separate cover.

You will be eligible to participate in the company’s 401K Plan on the first of
the month following hire.  The company matches 50% of up to an 8% employee
contribution to the plan.

You will also be eligible to participate in our Employee Stock Purchase Plan at
the first quarterly enrollment date following the first 30-days of employment,
in accordance with the plan document.  This plan allows employees to purchase
Key Technology stock at a 15% discount to market price and is administered
through payroll deduction.

Relocation

Human Resources will arrange for packing and transport of normal household goods
to Walla Walla through Corporate Relocation Services.  You will receive a
housing allowance of $40,000, paid in 12 monthly payments of $3,333.  This
allowance is intended for your use in securing housing in Walla Walla and will
be grossed-up for tax purposes.  Separately, the Company will pay for a suite at
the Marcus Whitman from July 27th through September 4th.

For a period of three months, the Company will reimburse the transportation
costs for trips home on weekends, or in the alternative, for your wife to
venture to Walla Walla for visits and/or house hunting.

This program does not cover expenses related to selling your current home or
expenses related to the purchase of a home in Walla Walla.  Key will provide you
with an Incidental Relocation Expense Allowance in the amount of $50,000, to be
paid to you within 30 days of completing the relocation of your primary
residence to Walla Walla.  Relocation costs will be provided without tax
consequence to you.  Expenses viewed as taxable income under IRS guidelines will
be grossed up for tax purposes.

It’s our expectation that you and your wife will move and establish residence in
Walla Walla.  We would therefore expect your move to Walla Walla to be fully
completed within twelve months of your hire date.  All elements of the offered
relocation support will remain in effect through that date.

I-9 Requirement

It is required by law that all persons working in the United States must provide
proof of their employment eligibility by furnishing their employer with
appropriate documentation on the first day of employment.  Therefore, should you
accept our offer; we will need to verify the appropriate identification detailed
in the lists attached (one from List A – or – one from List B and one from List
C).  Please let us know in advance of any complications.
 

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LIST A
LIST B
LIST C
U.S. Passport
Driver License or I.D. Card
Social Security Card
Certificate of U.S. Citizenship
U.S. Military Card
Birth Certificate
Certificate of naturalizations
Other (must specify)
Unexpired INS Employment
Unexpired foreign passport
   
Alien Registration card with photograph
   

Ed, we are exceedingly pleased with your acceptance of our offer and we look
forward to your joining the company on July 28th.  Should you have questions or
need clarification about any of the terms in this offer, please don’t hesitate
to contact me.   In order to officially confirm your acceptance of employment,
please sign the attached confirmation page and return it to the Human Resources
department as soon as possible. The letter is yours to keep.

 

Sincerely,

/s/  David Camp
Chief Executive Officer
 

 
BE ADVISED: Only offers that are made in writing and signed by an authorized
Company representative will be considered valid and honorable by the
Company.  Verbal offers will not be acknowledged or honored for any reason or
from any person.
 

 

 

 
Employment Confirmation
 

 

I, Ed Wagner, accept Key Technology, Inc.’s offer of employment for the position
of Sr. Vice President of Global Operations.  I understand the terms and
conditions of the employment offer as described in my offer letter.  I also
acknowledge that the employment is of an “at will” nature, which means that I
may resign at anytime and my Employer may discharge me at any time, with or
without cause.
 
/s/ Ed
Wagner                                                          7/16/08                                
Ed Wagner                                                                Date
 
/s/ David
Camp                                                        7/17/08                                
David Camp                                                              Date
Chief Executive Officer
 
 

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