Document:

exv10w2

 

Exhibit 10.2

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

Region V

	 	 	 	 	 
	IN THE MATTER OF:

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	LOWER FOX RIVER AND GREEN BAY

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	SUPERFUND SITE, GREEN BAY, WI

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	OPERABLE UNITS 2-5

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	Appleton Papers Inc.

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	CBC Coating, Inc.

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	  (formerly known as Riverside Paper Corporation),

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	Georgia-Pacific Consumer Products, LP

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	  (formerly known as Port James Operating Company),

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	Menasha Corporation,

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	NCR Corporation,

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	P.H. Glatfelter Company,

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	U.S. Paper Mills Corp., and

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	WTM I Company

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	  (fomerly known as Wisconsin Tissue Mills, Inc.),

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	Respondents.

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	EPA Facility ID # WI0001954841

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	 	U.S. EPA
	 

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	 	Docket No. V-W- ’08-C-885
	Proceeding
Under Section 106(a) of the

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	Comprehensive Environmental Response,

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	Compensation, and Liability Act of 1980,

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	as
amended (42 U.S.C. § 9606(a))

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ADMINISTRATIVE ORDER

FOR REMEDIAL ACTION

I.
INTRODUCTION AND JURISDICTION

     1. This Order directs Respondents to implement the remedial action for Operable Units
2, 3, 4, and 5 of the Lower Fox River and Green Bay Superfund Site
(the “Site”), as set forth in
the Records of Decision and Record of Decision Amendment addressing those portions of the Site.
This Order is issued to Respondents by the United States Environmental Protection Agency (“U.S.
EPA”) under the authority vested in the President of the United States by Section

 

 

106(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as
amended (“CERCLA”), 42 U.S.C. § 9606(a). This
authority was delegated to the Administrator of U.S.
EPA on January 23, 1987, by Executive Order 12580 (52 Fed. Reg. 2926), and was further delegated to
Regional Administrators by EPA Headquarters Delegation No. 14-14-A on April 15, 1994, and by EPA
Headquarters Delegation No. 14-14-B on May 11, 1994, and was further delegated by the Regional
Administrator of Region 5 to the Director, Superfund Division, by Region 5 Delegation Nos. 14-14-A
and 14-14-B, both dated May 2, 1996.

II. PARTIES BOUND

     2. This
Order shall apply to and be binding upon each Respondent identified in Paragraph 7 and its successors and assigns, and each Respondent is jointly and severally
responsible for carrying out all activities required by this Order, except as specifically
provided by this Order. Failure of one or more Respondent(s) to comply with all or any part of this
Order shall not in any way excuse or justify noncompliance by any other Respondent(s). No change in
the ownership, corporate status, or other control of any Respondent shall alter any
Respondent’s responsibilities under this Order.

     3. Each Respondent shall provide a copy of this Order to any prospective owners or
successors before a controlling interest in Respondent’s assets, property rights, or stock is
transferred to the prospective owner or successor. Respondents shall provide a copy of this
Order to each contractor, subcontractor, laboratory, or consultant retained to perform any
work under this Order, within five days after the Effective Date of this Order or on the date such
services are retained, whichever is later. Respondents shall also provide a copy of this Order
to any person acting on behalf of Respondents with respect to the Site or the work and shall
ensure that all contracts and subcontracts entered into hereunder require performance under the
contract to be in conformity with the terms and work required by this Order. With regard to the
activities undertaken pursuant to this Order, each contractor and
subcontractor shall be deemed to be related by contract to the Respondents within the meaning of Section 107(b)(3) of CERCLA,
42 U.S.C. § 9607(b)(3). Notwithstanding the terms of any contract, each Respondent is responsible
for compliance with this Order and for ensuring that its contractors, subcontractors and agents
perform all work in accordance with this Order.

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     4. Not later than 30 days prior to any transfer of any interest in any real property
included within the Site, Respondents shall submit a true and correct copy of the transfer
documents to U.S. EPA, and shall identify the transferee(s) by name, principal business address and
effective date of the transfer.

III. DEFINITIONS

     5. Unless otherwise expressly provided herein, terms used in this Order which are
defined in CERCLA or in regulations promulgated under CERCLA shall have the meaning assigned to
them in the statute or its implementing regulations. Whenever terms listed below are used in this
Order or in the documents attached to this Order or incorporated by reference into this Order, the
following definitions shall apply:

          a.
“2002 ROD” shall mean the Record of Decision for Operable Unit 1 and Operable Unit 2 at the Site that was signed by U.S. EPA on December 20, 2002, and all
attachments thereto; provided, however, that as used herein, the term “2002
ROD” shall only
refer to the portions of that Record of Decision that relate to Operable Unit 2 at the Site.

          b.
“2003 ROD” shall mean the Record of Decision for Operable Unit 3,
Operable Unit 4, and Operable Unit 5 at the Site that was signed by U.S. EPA on June 30, 2003,
and all attachments thereto.

          c. “2007 ROD Amendment” shall mean the Record of Decision Amendment
for Operable Unit 2 (Deposit DD), Operable Unit 3, Operable Unit 4,
and Operable Unit 5 (River
Mouth) at the Site that was signed by U.S. EPA on June 27, 2007,
and all attachments thereto.

          d. “CERCLA” shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. §§ 9601-9675.

          e. “Day” shall mean a calendar day unless expressly stated to be a working
day. In computing any period of time under this Order, where the last day would fall on a
Saturday, Sunday, or federal holiday, the period shall run until the end of the next working
day.

          f.
“Effective Date,” as used herein, shall mean the date specified by Paragraph 92 of this Order.

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          g. “National Contingency Plan” or “NCP” shall mean the National
Contingency Plan promulgated pursuant to Section 105 of CERCLA,
42 U.S.C. § 9605, codified at 40
C.F.R. Part 300, and any amendments thereto.

          h. “Paragraph” shall mean a portion of this Order identified by an Arabic
numeral.

          i. “Performance Standards” shall mean those cleanup standards,
standards of control, and other substantive requirements, criteria or limitations, identified in
the RODs and the accompanying Statements of Work, that the remedial action and work required by
this Order must attain and maintain.

          j. “Phase 2A Work” shall mean the elements of the overall Work that
are specified by the Phase 2A SOW that is attached as Appendix 2 to this Order.

          k. “Phase 2B Work” shall mean the elements of the overall Work that are specified
by the Phase 2B SOW that is attached as Appendix 3 to this Order.

          l.
“RODs” shall mean the 2002 ROD and the 2003 ROD, as amended and
supplemented by the 2007 ROD Amendment.

          m. “Response Agencies” shall mean the United States Environmental Protection
Agency and the Wisconsin Department of Natural Resources.

          n. “Response Costs” shall mean all costs, including direct costs, indirect costs,
and interest incurred by the United States to perform or support response actions at the Site,
including, but not limited to, contract and enforcement costs.

          o. “Section” shall mean a portion of this Order identified by a Roman numeral
that includes one or more Paragraphs.

          p. “Section 106 Administrative Record” shall mean the Administrative Record
which includes all documents considered or relied upon by U.S. EPA in preparation of this Order.
The Section 106 Administrative Record includes, but is not limited to, the documents and
information upon which the Response Agencies based the selection of the response actions for the
Site, as reflected in the Administrative Record referenced in Paragraph 21 of this Order. An index
of additional documents included in the Section 106 Administrative Record is attached hereto as
Appendix 1.

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          q. “Site” shall mean the Lower Fox River and Green Bay Superfund Site,
which includes approximately 39 miles of the Lower Fox River in northeastern Wisconsin and
the bay of Green Bay in Wisconsin and Michigan, as described and
depicted in the RODs.

          r. “State” shall mean the State of Wisconsin.

          s.
“Statements of Work” or “SOWs” shall mean the
statements of work for
implementation Phase 2A and Phase 2B of the remedial action at the Site, as well as operation
and maintenance and long-term monitoring activities, as set forth in Appendix 2 and Appendix 3
to this Order. Appendix 2 is the Phase 2A SOW and
Appendix 3 is the Phase 2B SOW. Those
Statements of Work are incorporated into this Order and are an enforceable part of this Order,
as provided by Section VII of this Order.

          t.
“WDNR” shall mean the Wisconsin Department of Natural Resources.

          u. “Work” shall mean all activities Respondents are required to perform under
this Order and all attachments hereto, including, but not limited, to remedial action
activities, operation and maintenance, and long-term monitoring activities.

IV. DETERMINATIONS

     6. The Lower Fox River and Green Bay Site includes approximately 39 miles of the Lower
Fox River (the “Fox River”) as well as the bay of Green Bay
(the “Bay”). The Fox River portion of the
Site extends from the outlet of Lake Winnebago and continues downstream to the mouth of the Fox
River at the City of Green Bay. The Bay portion of the Site extends from the mouth of the Fox River
at the City of Green Bay to the point where the Green Bay enters Lake Michigan. The Site has been
divided into five geographically-defined Operable Units(
“OUs”), as described in the RODs: OU 1 -
Little Lake Butte des Morts; OU 2 — Appleton to Little Rapids; OU 3 — Little Rapids to De Pere; OU
4 — De Pere to Green Bay; and OU 5 — the Bay of Green Bay. Many paper production facilities have
operated for many years along the Fox River. Some facilities adjacent to the river manufactured a
special type of carbonless copy paper that contained polychlorinated biphenyls (“PCBs”). Other of
the facilities along the river used PCB-containing carbonless copy paper as feedstock for the
production of other paper products. By both the production of carbonless copy paper and the
reprocessing of carbonless copy paper as feedstock, PCBs were released from paper production mills
either directly to the Fox River, or

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indirectly, after passing through publicly-owned wastewater treatment plants. PCBs that were
discharged to the Fox River contaminated sediments in the Fox River and the Bay.

     7. The Respondents to this Order comprise the following parties:

          a. NCR Corporation and Appleton Papers Inc.

               i. NCR Corporation (“NCR”) is a party that is liable for payment of
response costs and performance of response activities at the Site because NCR is: (1) a successor
to at least two corporate predecessors that, at the time of disposal of hazardous substances, owned
and/or operated a facility at which such hazardous substances were disposed of, and from which
there has been a release of hazardous substances to the Site; and (2) a successor to at least two
corporate predecessors that by contract, agreement, or otherwise arranged for disposal or treatment
of hazardous substances at a facility owned or operated by another party or entity and from which
there has been a release of hazardous substances to the Site

               ii. Appleton
Papers Inc. (“API”) is a party that is liable for payment of response
costs and performance of response activities at the Site because API
is: (1) a successor to one or
more corporate predecessors that, at the time of disposal of hazardous substances, owned and/or
operated a facility at which such hazardous substances were disposed
of, and from which there has
been a release of hazardous substances to the Site; and (2) a successor to one or more corporate
predecessors that by contract, agreement, or otherwise arranged for disposal or treatment of
hazardous substances at a facility owned or operated by another party or entity and from which
there has been a release of hazardous substances to the Site.

               iii. NCR
and API and their corporate predecessors have owned and/or operated two paper
production facilities in the Fox River Valley: one located at 825 E. Wisconsin Avenue in Appleton,
Wisconsin (the “Appleton Facility”) and another located at 540 Prospect Street in Combined Locks,
Wisconsin (the “Combined Locks Facility”).

               iv. In 1953, Appleton Coated Paper Company (“ACPC”) began working with The National
Cash Register Company (which later changed its name to NCR Corporation) on the development and
production of carbonless copy paper. In 1954, NCR began marketing its NCR PAPER brand of carbonless
copy paper, which ACPC manufactured at the Appleton Facility. Between at least 1954 and 1971, that
NCR PAPER was made with an emulsion containing PCBs.

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               v. In
1969, NCR acquired Combined Paper Mills, Inc., and that
company became a wholly-owned subsidiary of NCR. Both before and after that acquisition, Combined
Paper Mills, Inc. owned and/or operated the Combined Locks Facility. PCB-containing NCR PAPER was
produced at the Combined Locks Mill between at least 1969 and 1971. In 1970, NCR acquired ACPC, and
ACPC became a wholly-owned subsidiary of NCR. In 1971, ACPC was merged into Combined Paper Mills,
Inc., which changed its name to Appleton Papers, Inc., and remained a wholly-owned subsidiary of
NCR. In 1973, Appleton Papers, Inc. merged into NCR and became known as the Appleton Papers
Division of NCR.

               vi. In
1978, Appleton Papers Inc. — a subsidiary of Germaine Monteil Cosmetiques Corp.
(“GMCC”) and its GMCC’s parent corporation B.A.T. Industries, p.l.c. (“BAT”) — acquired the assets
of the Appleton Papers Division from NCR, and Appleton Papers Inc. and BAT assumed certain
liabilities in connection with the asset purchase. BATUS, Inc. was then formed as a holding company
for BATS United States subsidiaries, including Appleton Papers Inc.
and its immediate parent GMCC.
In 1981, Appleton Papers Inc. and certain other GMCC subsidiaries
were merged into GMCC, and GMCC’s
name was changed to Appleton Papers Inc.

               vii. In
1990, API, together with The Wiggins Teape Group Ltd., was
separated from BAT and the two companies were merged to form Wiggins
Teape Appleton p.1.c. Later
that year, Wiggins Teape Appleton merged with Arjomari Prioux SA. Shortly after the merger, the
group changed its name to Arjo Wiggins Appleton p.1.c. API operated as a wholly-owned subsidiary of
Arjo Wiggins Appleton p.1.c. until 2001. In 2001, the employees of API acquired ownership of the
company from Arjo Wiggins Appleton p.1.c. through the use of an employee stock ownership plan. API
retained ownership of the Appleton Facility, but ownership of the Combined Locks Facility was
transferred to Appleton Coated, LLC, another entity owned by Arjo Wiggins Appleton p.1.c.

               viii. AT&T bought NCR in 1991 renamed the company AT&T
Global Information Solutions Company. In 1996, the company changed its name back to NCR Corporation
and NCR was spun off to AT&T’s shareholders as a separate, publicly-traded company.

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               ix. Corporate predecessors of NCR and API generated substantial
amounts of PCB-containing wastepaper “broke” during production of NCR PAPER between at least 1954
and 1971. That PCB-containing wastepaper broke was sold to other companies and then reprocessed at
other paper production facilities that discharged PCB-contaminated wastewater to the Lower Fox
River.

               x. As owners and/or operators of the Combined Locks Facility,
certain corporate predecessors of API and NCR also discharged wastewater containing PCBs directly
to the Lower Fox River in connection with: (1) the Combined Locks Facility’s reprocessing of
PCB-containing wastepaper between at least 1954 and 1966; and (2) production of PCB-containing
carbonless paper at the Combined Locks Facility between at least 1969 and 1971.

               xi. In connection with the production of PCB-containing carbonless paper at the
Appleton Facility between at least 1954 and 1971, corporate predecessors of NCR and API discharged
wastewater containing PCBs to the City of Appleton’s wastewater collection systems and
publicly-owned treatments works, and the City of Appleton in turn discharged the Appleton
Facility’s partially-treated wastewater to the Lower Fox River.

          b. P.H. Glatfelter Company

               i. P.H. Glatfelter Company (“Glatfelter”) is a party that is liable for payment of
response costs and performance of response activities at the Site
because Glatfelter is: (1) the
owner and/or operator of a facility from which there has been a release of hazardous substances to
the Site; (2) a party — and a successor to at least one corporate predecessor — that, at the time
of disposal of hazardous substances, owned and/or operated a facility at which such hazardous
substances were disposed of, and from which there has been a release of hazardous substances to the
Site; and (3) a party — and a successor to at least one
corporate predecessor — that by contract,
agreement, or otherwise arranged for disposal or treatment of hazardous substances at a facility
owned or operated by another party or entity and from which there has been a release of hazardous
substances to the Site.

               ii. Since at least 1954, Glatfelter and one of its corporate predecessors owned
and/or operated a paper production facility located at 225 W. Wisconsin Avenue in Neenah,
Wisconsin. In connection with its reprocessing of PCB-containing wastepaper during

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that time period, that Glatfelter facility discharged wastewater containing PCBs directly to the
Lower Fox River.

               iii. Between at least 1954 and 1979, the paper production facility
located at 225 W. Wisconsin Avenue in Neenah was owned and/or operated by Bergstrom Paper Company.
In 1979, Bergstrom Paper Company was merged into P.H. Glatfelter Company.

          c. WTM I Company

               i. WTM
I Company (“WTM I”) is a party that is liable for payment of response costs and
performance of response activities at the Site because WTM I is: (1) a party that, at the time of
disposal of hazardous substances, owned and/or operated a facility at which such hazardous
substances were disposed of, and from which there has been a release of hazardous substances to the
Site; and (2) a party that by contract, agreement, or otherwise arranged for disposal or
treatment of hazardous substances at a facility owned or operated by another party or entity and
from which there has been a release of hazardous substances to the Site.

               ii. Between at least 1954 and 1999, WTM I (formerly known as
Wisconsin Tissue Mills, Inc.) owned and/or operated a paper production facility located at 190
Tayco Street in Neenah, Wisconsin. In connection with its reprocessing of PCB-containing wastepaper
during that time period, that WTM I facility discharged wastewater containing PCBs to the
Neenah-Menasha Sewerage District’s wastewater collection systems and publicly-owned treatment
works, and the Neenah-Menasha Sewerage District in turn discharged WTM I’s partially-treated
wastewater to the Lower Fox River. Beginning in 1976, the WTM I facility discharged its wastewater
directly to the Lower Fox River. In 1999, WTM I transferred ownership of the Neenah Mill to
Georgia-Pacific Tissue, LLC.

          d. Menasha Corporation

               i. Menasha Corporation (“Menasha”) is a party that is liable for
payment of response costs and performance of response activities at the Site because Menasha is:
(1) a party — and a successor to at least one corporate predecessor — that, at the time of disposal
of hazardous substances, owned and/or operated a facility at which such hazardous substances were
disposed of, and from which there has been a release of hazardous substances to the Site; and (2) a
party — and a successor to at least one corporate predecessor — that by contract,

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agreement, or otherwise arranged for disposal or treatment of hazardous substances at a facility
owned or operated by another party or entity and from which there has been a release of hazardous
substances to the Site.

               ii. Between at least 1954 and 1983, Menasha and one of its corporate predecessors owned
and/or operated a paper production facility located at 69 Washington Street in Menasha, Wisconsin.
In connection with its reprocessing of PCB-containing wastepaper during that time period, that
Menasha facility discharged wastewater containing PCBs to the Neenah-Menasha Sewerage District’s
wastewater collection system and publicly-owned treatment works, and the Neenah-Menasha Sewerage
District in turn discharged WTM’s partially-treated wastewater
to the Lower Fox River. During that
time period, that Menasha facility also discharged a portion of its wastewater directly to the
Lower Fox River.

               iii. Between at least 1954 and 1969, the paper production facility located at 69
Washington Street in Menasha, Wisconsin was owned and/or operated by John Strange Paper Company. In
1969, Menasha acquired full ownership of the John Strange Paper Company and the John Strange Paper
Company was merged into Menasha Corporation in 1971. In 1983, Menasha sold the former John Strange
Paper Company facility to U.S. Paper Mills Corp.

          e.
CBC Coating, Inc. (formerly known as Riverside Paper Corp.)

               i. Riverside Paper Corp. (now known as CBC Coating, Inc.) (but referred to herein as
“Riverside”) is a party that is liable for payment of response costs and performance of response
activities at the Site because Riverside is: (1) the owner and/or operator of a facility from which
there has been a release of hazardous substances to the Site; (2) a party —and/or a successor to
one or more corporate predecessors — that, at the time of disposal of hazardous substances, owned
and/or operated a facility at which such hazardous substances were disposed of, and from which
there has been a release of hazardous substances to the Site; and (3) a party — and/or a successor
to one or more corporate predecessors — that by contract, agreement, or otherwise arranged for
disposal or treatment of hazardous substances at a facility owned or operated by another party or
entity and from which there has been a release of hazardous substances to the Site.

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     ii. Since at least 1954, Riverside (through its Kerwin Paper Co.
Division) has owned and/or operated a paper production facility located at 800 S. Lawe Street in
Appleton, Wisconsin. In connection with its reprocessing of PCB-containing wastepaper during that
time period, that Riverside facility discharged wastewater containing PCBs to the City of
Appleton’s wastewater collection system and publicly-owned treatments works, and the City of
Appleton in turn discharged Riverside’s partially-treated wastewater to the Lower Fox River.

     iii. U.S. EPA is informed and believes that Riverside Paper Corp. sold certain of its
assets to Pacon Corporation in June 2007 and changed its name to CBC Coating, Inc.

          f.
US. Paper Mills Corp.

               i. U.S.
Paper Mills Corp. “U.S. Paper”) is a party that is liable
for payment of response costs and performance of response activities at the Site because U.S. Paper is:
(1) the owner and/or operator of a facility from which there has been a release of hazardous
substances to the Site; (2) a party — and/or a successor to one or more corporate predecessors
— that, at the time of disposal of hazardous substances, owned and/or operated a facility at which
such hazardous substances were disposed of, and from which there has been a release of hazardous
substances to the Site; and (3) a party — and/or a successor to one or more corporate predecessors
— that by contract, agreement, or otherwise arranged for disposal. or treatment of hazardous
substances at a facility owned or operated by another party or entity and from which there has been
a release of hazardous substances to the Site.

               ii. Since at least 1954, U.S. Paper (and/or one or more of its corporate predecessors)
has owned and/or operated a paper production facility located at 824 Fort Howard Avenue in De Pere,
Wisconsin. In connection with its reprocessing of PCB-containing wastepaper during that time
period, that U.S. Paper facility discharged wastewater containing PCBs directly to the Lower Fox
River. Since at least 1970, that U.S. Paper facility discharged its wastewater to the City of De
Pee’s wastewater collection system and publicly-owned treatment works, and the City of De Pere in
turn discharged U.S. Paper’s partially-treated wastewater to the Lower Fox River.

               iii. In 1983, US. Paper purchased the former John Strange Paper Company facility located
at 69 Washington Street in Menasha, Wisconsin and assumed certain

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liabilities in connection with that asset purchase. U.S. Paper has owned and/or operated the former
John Strange Paper Company facility since 1983. Since 1983, wastewater generated by that facility
has been discharged to the Neenah-Menasha Sewerage District’s wastewater collection system and
publicly-owned treatment works, and the Neenah-Menasha Sewerage District in turn discharged that
facility’s partially-treated wastewater to the Lower Fox River.

               iv. In 2001, Sonoco Products Company acquired the stock of U.S.
Paper Mills Corp. and U.S. Paper was named Sonoco-U.S. Mills, Inc. The company’s name has
recently been changed back to U.S. Paper Mills Corp.

          g.
Georgia-Pacific Consumer Products LP

              [formerly known as Fort James Operating Company)

               i. Georgia-Pacific
Consumer Products LP (“Georgia-Pacific”) is a party that is liable
for payment of response costs and performance of response activities at the Site because
Georgia-Pacific is: (1) the owner and/or operator of a facility from which there has been a release
of hazardous substances to the Site; (2) a party — and a successor to at least one corporate
predecessor — that, at the time of disposal of hazardous substances, owned and/or operated a
facility at which such hazardous substances were disposed of, and from which there has been a
release of hazardous substances to the Site; and (3) a party — and a successor to at least one
corporate predecessor — that by contract, agreement, or otherwise arranged for disposal or
treatment of hazardous substances at a facility owned or operated by another party or entity and
from which there has been a release of hazardous substances to the Site.

               ii. Since at least 1954, Georgia-Pacific and at least one of its
corporate predecessors have owned and/or operated a paper production facility located at 1919 South
Broadway in Green Bay, Wisconsin. In connection with its reprocessing of PCB-containing wastepaper
during that time period, that Georgia-Pacific facility discharged wastewater containing PCBs
directly to the Lower Fox River. U.S. EPA also is informed and believes that, at certain times
during that period, a corporate predecessor of Georgia-Pacific sold wastepaper containing PCBs to
at least one other paper production facility that discharged its PCB-contaminated wastewater to the
Lower Fox River (i.e., the U.S. Paper Mills De Pere facility).

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               iii. Between at
least 1954 and 1997, the paper production facility located at 1919
South Broadway in Green Bay was owned and/or operated by Fort Howard Corporation. In 1997, Fort
Howard Corporation was merged into Fort James Operating Company, a wholly-owned subsidiary of Fort
James Corporation. The stock of Fort James Corporation was acquired by Georgia-Pacific Corporation
in 2000. In 2005, Koch Industries, Inc. acquired ownership of Georgia-Pacific Corporation (and it’s
wholly owned subsidiaries Fort James Corporation and Fort James Operating Company).

               iv. In December 2006, Fort James Operating Company converted from a Virginia corporation
to a Delaware corporation, and that Delaware corporation was in turn converted to a Delaware
limited partnership named Georgia-Pacific Consumer Products LP. Under Delaware law, the entity that
results from any such conversion is deemed to be the same entity as the original entity that was
converted.

     8. Between 1996 and 1998,
the United States Fish and Wildlife Service, under the
authority of Section 104(e) of CERCLA, 42 U.S.C. § 9604(e), issued the Respondents and other
parties information requests relating to the Site. Each Respondent submitted written responses
to those information requests.

     9. On
July 28, 1998 (63 Fed. Reg. 40247), pursuant to Section 105 of CERCLA, 42
U.S.C. § 9605, U.S. EPA proposed to place the Lower Fox River and Green Bay Superfund Site
(also called the “Fox River NRDA/PCB Releases Site”) on the National Priorities List, set
forth at 40 C.F.R. Part 300, Appendix B.

     10. On
May 26, 2000, U.S. EPA, Fort James Corporation and Fort James Operating
Company entered into an Administrative Order on Consent providing for the performance of
removal activities in connection with a portion of the Site known as Sediment Management Unit
56/57.

     11. Pursuant to
CERCLA and the National Contingency Plan, a Remedial
Investigation and Feasibility Study (“RI/FS”) for the Site was prepared under WDNR’s technical
lead, and draft RI/FS reports were released for public comment in March 1999. In October 2001,
U.S. EPA and WDNR issued and sought public comment on a proposed remedial action plan for
the Site. Final RI/FS reports for the Site were published in December 2002.

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     12. In December 2002, the Response Agencies signed and issued a Record of
Decision for Operable Units 1 and 2 at the Site.

     13. In June 2003, the Response Agencies signed and issued a Record of Decision for
Operable Units 3, 4 and 5 at the Site.

     14. On July 1, 2083, the Response Agencies and WTM I Company entered into an
Administrative Order on Consent providing for the performance of the remedial design for
Operable Unit 1 at the Site.

     15. The United States, the State of Wisconsin, P.H. Glatfelter Company and WTM I
Company entered into a consent decree providing for the performance of the remedial action at
Operable Unit 1 of the Site, and the court approved and entered that Consent Decree on
April 12, 2004.

     16. On March 5, 2004, the Response Agencies entered into an Administrative Order
on Consent with NCR Corporation and Fort James Operating Company that provided for the
performance of the remedial design for Operable Units 2 through 5 at the Site.

     17. The United States and the State of Wisconsin entered into a Consent Decree with
NCR Corporation and U.S. Paper (then called Sonoco-U.S. Mills, Inc.) that provided for
performance of an initial phase of the remedial action in Operable Unit 4 at the Site, and the
court approved and entered that Consent Decree on November 3, 2006.

     18. On February 23, 2007, the Response Agencies issued each Respondent a notice
letter captioned “General Notice of Potential Liability and Request to Participate in Remedial
Action Implementation Negotiations Relating to Operable Units 2-5.’

     19. In June 2007, the Response Agencies signed and issued a Record of Decision
Amendment for Operable Unit 2 (Deposit DD), Operable Unit 3, Operable Unit 4 and Operable
Unit 5 (River Mouth) at the Site.

     20. Pursuant
to Section 117 of CERCLA, 42 U.S.C. § 9617, U.S. EPA provided an
opportunity for public comment on all proposed remedial actions at the Site. Similarly,
Respondents were given an opportunity to comment on each proposed plan for remedial action
and to supplement the Administrative Record regarding a decision for selection of final plans
for remedial action.

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     21. The decisions by the Response Agencies on the remedial action to be
implemented at OUs 2-5 at the Site are embodied in the RODs. More specifically, the remedial
action to be implemented at OU 2 is specified by the 2002 ROD, as amended and supplemented
by the 2007 ROD Amendment, and the remedial action to be implemented at OUs 3-5 is
specified by the 2003 ROD, as amended and supplemented by the 2007 ROD Amendment. The
RODS are an enforceable part of this Order and are incorporated herein by this reference. The
RODs are supported by an Administrative Record which contains the documents and information
upon which the Response Agencies based the selection of the response actions. The Response
Agencies’ selected response actions, as set forth in the RODs, have been determined to provide
adequate protection of public health, welfare and the environment; meet all federal and State
environmental laws; and be cost effective.

     22. The Site is contaminated with PCBs, a hazardous substance and probable human
carcinogen, as a result of PCB-contaminated wastewater that the Respondents discharged to the
Fox River (either directly or indirectly).

     23. OU 2
(Deposit DD), OU 3, OU 4, and OU 5 (River Mouth) are estimated to
contain approximately 6.6 million cubic yards of PCB-contaminated sediment at levels above the
risk-based PCB Remedial Action Level of 1.0 part per million specified by the RODs. Other
areas in OU 2 and OU 5 contain significant additional volumes of PCB-contaminated sediment.

     24. As of 2002, the Lower Fox River and Green Bay areas supported a population of
595,000, about 10% of the population of Wisconsin.

     25. Because fish and wildlife are contaminated with PCBs, people who eat
contaminated fish or waterfowl may suffer adverse health effects. As noted in the 2003 ROD, a
Human Health Risk Assessment for the Site supported a determination that that cancer risks
were as high as 7.4 in 10,000 for recreational anglers and 1.0 in 1,000 for high-intake fish
consumers. Those cancer risks for recreational anglers and high-intake fish consumers are more than 20
times greater than background risks calculated for eating fish from Lake Winnebago (which is a
background location relative to the Lower Fox River and Green Bay).

     26. As
discussed in the 2003 ROD, the Human Health Risk Assessment for the Site
also led to the calculation of hazard indices (HO for human non-cancer risks that were as
high as 27.7 for recreational anglers and 38.0 far high-intake fish consumers, far exceeding the HI value

15

 

of 1.0 established to
protect people from long-term adverse non-cancer health effects. The
non-cancer health effects associated with exposure to PCBs include reproductive effects,
developmental effects, and immune system suppression. The highest non-cancer HIs for recreational
anglers and high-intake fish consumers are mere than 20 times greater than background HIs
calculated for eating fish from Lake Winnebago.

     27. Fish consumption advisories for the Site were first issued in 1976 and 1977 by
WDNR and the State of Michigan, respectively. The advisories are still in effect.

     28. Ecological
risks from PCBs include risks to benthic invertebrates, fish, fish eating
birds, carnivorous birds, and fish eating mammals. At the Site, PCB concentrations in those
organisms greatly exceed acceptable risk levels.

     29. Based on evaluations supporting the Feasibility Study for the Site, it has been
estimated that 276 to 486 pounds of PCBs are discharged from the Lower Fox River to
Green-Bay each year, and that 269 pounds of PCBs an discharged from Green Bay to Lake Michigan
each year.

     30. The RODS require sediment removal by dredging as the primary remedial
approach at the Site, Under certain eligibility criteria specified in the ROD Amendment, other
alternative remedial approaches may be used at the Site, which include a combination of
dredging and capping, capping alone, and placement of sand covers. The short-term and long-term
objectives of the RODS include: removing and containing PCB-contaminated sediment in
each OU; achieving further reductions in PCB surface concentrations through natural recovery
processes; achieving corresponding reductions in PCB levels in the water column and in fish
tissue; and ensuring continuation of those benefits to human health and the environment through
long-term operation and maintenance and institutional controls.

     31. The
Lower Fax River and Green Bay Superfund Site is a “facility” as defined in
Section 101(9) of CERCLA, 42 U.S.C. 5 9601(9). In addition, each paper production facility and
each publicly-owned treatment works referenced above in Paragraph 7 is a facility” as defined
in Section l0l(9) of CERCLA, 42 U.S.C. § 9601(9).

     32. There has been a “release” and/or a “threatened release” of a “hazardous
substance” from each “facility” referenced in the preceding Paragraph, within the meaning
CERCLA Sections 101(14), 101(22), and 107(a), 42 U.S.C. §§ 9601(14), 9601(22). and 9607(a).

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For example, PCB-containing wastewater was discharged into the environment from each paper
production facility and each publicly owned treatment works referenced above in Paragraph 7, and
PCBs are escaping and leaching into the environment from contaminated sediments at the Site.

     33. The releases and/or threatened releases referenced in the preceding Paragraph
have caused the incurrence of “response” costs, within the
meaning of CERCLA Sections 101(25) and
107(a), 42 U.S.C. § 9601(25) and 9607(a). The potential for
future migration of hazardous
substances at and from the Site also poses a threat of a “release” as defined in CERCLA Section
101(22), 42 U.S.C. § 9601(22).

     34. Each Respondent is a “person” as defined in Section 101(21) of CERCLA, 42
U.S.C. § 9601(21).

     35. For
the reasons described above in Paragraph 7, each Respondent is a liable party
as defined in Section 107(a) of CERCLA, 42 U.S.C. § 9607(a).

     36. The release or threatened release of one or more hazardous substances from the
facilities referenced above may be presenting an imminent and substantial endangerment to the
public health or welfare or the environment.

     37. The
actions required by this Order are necessary to protect the public health,
welfare, or the environment and are consistent with the National
Contingency Plan, as amended,
and CERCLA.

V. NOTICE TO THE STATE

     38. U.S. EPA has notified the State of Wisconsin, as represented by the Wisconsin
Department of Natural Resources (“WDNR”), that U.S. EPA intends to issue this Order. U.S. EPA will
consult with the State and the State will have the opportunity to consult with U.S. EPA regarding
all work to be performed under this Order, and any other issues which arise while the Order remains
in effect.

VI. CURRENT STATUS OF THE REMEDIAL DESIGN

AND THE REMEDIAL ACTION

     39. The remedial design and remedial action for OU 1 at the Site currently are being

17

 

performed and funded by Glatfelter, WTM I, and Menasha, under a Consent Decree that was approved
and entered on April 12, 2004 in the case captioned United States and the State of Wisconsin v.
P.H. Glatfelter Co. and WTM I Co., Case No. 03-C-0949 (E.D. Wis.). Under that Consent Decree,
Glatfelter and WTM have been performing the remedial action in OU 1, as required by the 2002 ROD,
since 2004. Since entry of the Consent Decree, Glatfelter, WTM I, and Menasha have agreed to provide
additional funding for the continuation of that work in OU 1 pursuant to a set of Agreed
Supplements to the Consent Decree. The sediment remediation work in OU 1 will continue, at least
through 2008 and 2009. This Administrative Order only addresses OUs 2-5, so it has no effect on the
Consent Decree with Glatfelter and WTM I for OU 1.

     40. To date, remedial design activities for OUs 2-5 at the Site have been performed
under a Settlement Agreement and Administrative Order on Consent with Georgia-Pacific and
NCR, captioned In re Lower Fox River and Green Bay Site, U.S. EPA Region 5, CERCLA
Docket No. V-W-’04-C-781 (the “RD Settlement Agreement”). The remedial design work is
continuing under the RD Settlement Agreement, so this Administrative Order does not address
remedial design requirements for OUs 2-5, and it has no effect on the RD Settlement Agreement.

     41. U.S. EPA and WDNR previously determined that the remedial action for OUs 2-5
should be conducted in two main phases to expedite the response in a particular area known as
the “Phase 1 Project Area.” The Phase 1 Project Area is just downstream from the De Pere dam,
along the west bank of the Lower Fox River, near the City of Green Bay. Phase 1 of the
remedial action addresses PCB-contaminated sediments in that area, which have especially high PCB
concentrations. U.S. EPA and WDNR concluded that the accelerated removal of PCBs in that
area would therefore have significant benefits to the environment and public health. All
remaining elements of the remedial action in OUs 2-5 would be implemented in Phase 2.

     42. Phase 1 of the remedial action is currently being implemented under a Consent Decree with
NCR and U.S. Paper in the case captioned United States and the State of Wisconsin
v. NCR Corporation and Sonoco-U.S. Mills, Inc., Case No. 06-C-484 (E.D. Wis.). Most of
work on Phase 1 of the remedial action was completed in 2007. Some additional work is expected to
be performed in 2008. This Administrative Order does not address Phase 1 of the remedial
action, and it has no effect on that Consent Decree.

     43. EPA and WDNR have determined that it will be feasible and practicable for

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Respondents to commence full-scale sediment remediation for Phase 2 of the OU 2-5 remedial
action at the start of the 2009 construction season, such that sediment remediation occurs
throughout the 2009 construction season. Full-scale sediment
remediation will then continue
throughout subsequent years, until completion of construction of the OU 2-5 remedial action. To
adhere to that project schedule, Respondents will need to perform significant preparatory
activities in 2008, including: (i) procuring certain equipment (such as dewatering and water
treatment equipment), including entering into required contracts; (ii) performing staging site
preparation work and associated infrastructure construction, including entering into required
contracts; (iii) developing landfill facilities and/or procuring landfill space for disposal of
dredged sediment, including entering into required contracts; (iv) completing site surveys (such as
historical site investigations); and (v) obtaining access agreements for performance of the
remedial action, as described by Paragraph 71. For that reason, U.S. EPA and WDNR have determined
that Phase 2 of the OU 2-5 remedial action should be subdivided and staged as follows: (i) Phase
2A consists of work to be performed before the end of 2008, in preparation for the commencement and
continuation of full-scale sediment remediation within OUs 2-5;
(ii) Phase 2B comprises all remaining work to implement the OU 2-5 remedial action (such as the
performance of full-scale sediment remediation in 2009 and subsequent years) and other related
response activities (such as operation and maintenance and long-term monitoring activities).

VII. ORDER

     44. The following parties are collectively referred to in this Order as the
“Respondents”: Appleton Papers Inc.; CBC Coating, Inc.
(formerly known as Riverside Paper
Corporation); Georgia-Pacific Consumer Products, LP (formerly known as Fort James Operating
Company); Menasha Corporation; NCR Corporation; P.H. Glatfelter Company; U.S. Paper Mills
Corp.; and WTM I Company (formerly known as Wisconsin Tissue Mills, Inc.).

     45. For the purpose of this Order, the term “Affected Respondents” shall mean only
those Respondents that are ordered to perform particular tasks under the following Paragraphs
of this Section VII of this Order, or under other corresponding provisions of this Order.

     46. Phase 2A Work. Based on the foregoing, each of the following Affected

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Respondents is ordered to comply with the provisions of this Order and to perform the Phase 2A Work
as set forth in the accompanying Phase 2A SOW (attached hereto as Appendix 2):

(i) API, NCR, Riverside, and U.S. Paper are hereby ordered to perform all tasks
referenced in the accompanying Phase 2A SOW;

(ii) Georgia-Pacific is hereby ordered to perform all tasks referenced in the accompanying
Phase 2A SOW, other than any tasks that relate solely to OU 2 and/or OU 3 at the Site.

All such work shall be completed in accordance with the schedules and requirements specified by the
Phase 2A SOW, and with any instructions from U.S. EPA’s Remedial Project Manager (“RPM”) for the
Site. This Paragraph of this Administrative Order, and the obligation to comply with the
requirements imposed by this Paragraph, shall take effect on the Effective Date specified by
Paragraph 92 of this Order.

     47. Phase 2B Work. Based on the foregoing, each of the following Affected
Respondents is ordered to comply with the provisions of this Order and to perform the Phase 2B
Work as set forth in the accompanying Phase 2B SOW (attached hereto as Appendix 3):

(i) API,
Glatfelter, Menasha, NCR, Riverside, U.S. Paper, and WTM I are hereby ordered to perform all
tasks referenced in the accompanying Phase 2B SOW;

(ii) Georgia-Pacific is hereby ordered to perform all tasks referenced in the accompanying Phase 2B
SOW, other than any tasks that date solely to OU 2 and/or OU 3 at the Site.

All such work shall be completed in accordance with the schedules and requirements specified by the
Phase 2B SOW, and with any instructions from U.S. EPA’s RPM for the Site. This Paragraph of this
Administrative Order, and the obligation to comply with the requirements imposed by this Paragraph,
shall take effect on August 15, 2008.

     48. Based
on the foregoing, each Respondent is hereby ordered to comply with all other requirements of this Order, as specified herein.

VIII. WORK TO BE PERFORMED

     49. All work plans, reports, engineering design documents, and other deliverables (“work
plans and deliverables”), as described throughout this Order, shall be submitted to WDNR (except
documents claimed to contain confidential business information) and U.S. EPA. All work plans and
deliverables will be reviewed and either approved, approved with

20

 

modifications, or disapproved by U.S. EPA, in consultation with WDNR. In the event of approval or
approval with modifications by U.S. EPA, the Affected Respondents shall proceed to take any action
required by the work plan, report, or other item, as approved or modified by U.S. EPA. If the work
plan or other deliverable is approved with modifications or disapproved, U.S. EPA will provide, in
writing, comments or modifications required for approval. The Affected Respondents shall amend the
work plan or other deliverable to incorporate only those comments or modifications required by U.S.
EPA. Within 21 days of the date of U.S. EPA’s written notification of approval with modifications
or disapproval, the Affected Respondents shall submit an amended work plan or other deliverable.
U.S. EPA shall review the amended work plan or deliverable and either approve or disapprove it.
Failure to submit a work plan, amended work plan or other deliverable shall constitute
noncompliance with this Order. Submission of an amended work plan or other deliverable which fails
to incorporate all of U.S. EPA’s required modifications, or which includes other unrequested
modifications, shall also constitute noncompliance with this Order. Approval by U.S. EPA of the
work plan or other deliverable shall cause said approved work plan or other deliverable to be
incorporated herein as an enforceable part of this Order. If any work plan or other deliverable is
not approved by U.S. EPA, the Affected Respondents shall be deemed to be in violation of this
Order.

     50. The
work performed by the Affected Respondents pursuant to this Order
shall, at a minimum, achieve the performance standards specified in the RODS and SOWS. Nothing in
this Order, or in U.S. EPA’s approval of any work plan or other deliverable, shall be deemed
to constitute a warranty or representation of any kind by U.S. EPA that full performance of the
remedial design or remedial action will achieve the performance standards set forth in the
RODs and in the SOWs. The Affected Respondents’ compliance with such approved documents does
not foreclose U.S. EPA from seeking additional work.

     51. All materials remove from the Site shall be disposed of or treated at a facility
approved in advance of removal by U.S. EPA’s RPM and in accordance with: (1)
Section 121(d)(3) of CERCLA, 42 U.S.C. § 9621(d)(3); (2) the Resource Conservation and Recovery Act
of 1976 (RCRA), 42 U.S.C. § 6901, et seq., as amended;
(3) 40 C.F.R. § 300.440; and (4) all other
applicable federal, State, and local requirements. The identity of the receiving facility and state
will be determined by Affected Respondents following the award of the

21

 

pertinent contract(s) for remedial
action construction. The Affected Respondents shall provide
written notice to the RPM which shall include all relevant information, including the information
required by Paragraph 52 below, as soon as practicable after the award of the contract(s) and
before the hazardous substances are actually shipped off-Site.

     52. Prior
to any off-site shipment of hazardous substances from the Site to an out-of-state
waste management facility, the Affected Respondents shall provide written notification
to the appropriate state environmental official in the receiving state and to U.S. EPA’s RPM of
such shipment of hazardous substances. However, the notification of shipments to the state shall
not apply to my off-Site shipments when the total volume of all shipments from the Site to the
state will not exceed 10 cubic yards. The notification shall be in writing, and shall include the
following information, where available: (1) the name and location of the facility to which the
hazardous substances are to be shipped; (2) the type and quantity of the hazardous substances
to be shipped; (3) the expected schedule for the shipment of the hazardous substances; and (4)
the method of transportation. The Affected Respondents shall notify the receiving state of major
changes in the shipment plan, such as a decision to ship the hazardous substances to another
facility within the same state, or to a facility in another state.

     53. The Affected Respondents shall cooperate with U.S. EPA in providing
information regarding the work to the public. When requested by U.S. EPA, the Affected
Respondents shall participate in the preparation of such information for distribution to the
public and in public meetings which may be held or sponsored by U.S. EPA to explain activities at or
relating to the Site.

     54. Within
30 days after the Respondents conclude that all phases of the remedial
action have been fully performed, Respondents shall so notify U.S. EPA and shall schedule and
conduct a pre-certification inspection to be amended by Respondents and U.S. EPA. The pre-
certification inspection shall be followed by a written report submitted within 30 days of the
inspection by a registered professional engineer and the Respondents’ Project Coordinator(s)
certifying that the remedial action has been completed in full satisfaction of the requirements
of this Order. If, after completion of the pre-certification inspection and receipt and review of
the written report, U.S. EPA determines that the remedial action or any portion thereof has not
been completed in accordance with this Order, U.S. EPA shall notify the Affected Respondents in

22

 

writing of the activities that must be undertaken to complete the remedial action and shall set
forth in the notice a schedule for performance of such activities. Consistent with this Order, the
Affected Respondents shall perform all activities described in the notice in accordance with he
specifications and schedules established therein. If U.S. EPA concludes, following the initial or
any subsequent certification of completion by Respondents that the remedial action has been fully
performed in accordance with this Order, U.S. EPA may notify Respondents that the remedial action
has been fully performed. U.S. EPA’s notification shall be based on present knowledge and
Respondents’ certification to U.S. EPA, and shall not limit U.S. EPA’s right to perform periodic
reviews pursuant to Section 121(c) of CERCLA, 42 U.S.C. § 9621(c), or to take or require any action
that in the judgment of U.S. EPA is appropriate at the Site, in accordance with 42 U.S.C. §§ 9604,
9606, or 9607. Even after certification of completion of the remedial action by U.S. EPA, the
Affected Respondents shall continue to perform any ongoing elements of the Phase 2B Work, including
and operation, maintenance, and monitoring activities required by the Phase 2B Work Plan.

IX. PERIODIC REVIEW

     55. Under
Section 121(c) of CERCLA, 42 U.S.C. § 9621(c), and my applicable regulations,
where hazardous substances will remain on Site at the completion of the remedial action, U.S. EPA
may review the Site to assure that the work performed pursuant to this Order adequately protects
human health and the environment. Until such time as U.S. EPA certifies completion of the work, the
Affected Respondents shall conduct the requisite studies, investigations, or other response actions
as determined necessary by U.S. EPA in order to permit U.S. EPA to conduct the review under Section
121(c) of CERCLA. As a result of any review performed under this Paragraph, the Affected
Respondents may be required to perform additional work or to modify work previously performed.

X. ADDITIONAL RESPONSE ACTIONS

     56. In
the event that U.S. EPA determines that additional work or modifications to work
are necessary to meet performance standards, to maintain consistency with the final remedy, or to
otherwise protect human health or the environment, U.S. EPA will notify

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Respondents that additional response actions are necessary and U.S. EPA’s notice will identify the
Affected Respondents that will be required to perform such additional response actions. U.S. EPA
may also require the Affected Respondents to modify any plan, design, or other deliverable required
by this Order, including any approved modifications.

     57. Within 30 days of receipt of notice from U.S. EPA that additional response
activities are necessary, the Affected Respondents shall submit for approval an Additional RD/RA
Work Plan pursuant to Paragraph 49 herein. Upon U.S. EPA’s approval of the Additional RD/RA Work
Plan, the Additional RD/RA Work Plan shall become an enforceable part of this Order, and the
Affected Respondents shall implement the Additional RD/RA Work Plan for additional response
activities in accordance with the standards, specifications, and schedule contained therein.
Failure to submit an Additional RD/RA Work Plan shall constitute noncompliance with this Order.

XI. ENDANGERMENT AND EMERGENCY RESPONSE

     58. In the event of any event during the performance of the work which causes or
threatens to cause a release of a hazardous substance or which may present an immediate
threat to public health or welfare or the environment, the Affected Respondents shall immediately
take all appropriate action to prevent, abate, or minimize the threat, and shall immediately notify
U.S. EPA’s RPM or alternate RPM. If neither of these persons is available, the Affected Respondents
shall notify the U.S. EPA Emergency Response Unit, Region V. The Affected Respondents shall
take further action in consultation with U.S. EPA’s RPM and in accordance with all applicable
provisions of this Order, including but not limited to the health and safety plan and the
contingency plan. In the event that the Affected Respondents fail to take appropriate response
action as required by this Paragraph, and U.S. EPA takes that action instead, the Affected
Respondents shall reimburse U.S. EPA for all costs of the response action not inconsistent
with the NCP. The Affected Respondents shall pay the response costs in the manner described in
Section XIX (Reimbursement of Response Costs) of this Order, within 30 days of U.S. EPA’s
demand for payment.

     59. Nothing
in the preceding Paragraph shall be deemed to limit any authority of the
United States to take, direct, or order all appropriate action to protect human health and the

24

 

environment or to prevent, abate, or minimize an actual or threatened release of hazardous
substances on, at, or from the Site.

XII. PROGRESS REPORTS

     60. In addition to the other deliverables set forth in this Order, the Respondents hall
provide monthly progress reports to U.S. EPA and WDNR with respect to actions and activities undertaken
pursuant to this Order. More specifically: (1) the Affected Respondents that are responsible for
performing the Phase 2A Work shall submit monthly progress reports on the Phase 2A Work until that
work is completed; and (2) the Affected Respondents that are responsible for performing the Phase
2B Work shall submit monthly progress reports on the Phase 2B Work until that work is completed and
U.S. EPA gives Respondents written notice under Paragraph 94 of this Order. The progress reports
shall be submitted on or before the 10th day of each month following the Effective Date of this
Order. At a minimum these progress reports shall: (1) describe the actions which have been taken to
comply with this Order during the prior month; (2) include all results of sampling and tests and
all other data received by the Affected Respondents and not previously submitted to U.S. EPA; (3)
describe all work planned for the next 90-days with schedules relating such work to the overall
project schedule for RD/RA completion; and (4) describe all problems encountered and any anticipated
problems, any actual or anticipated delays, and solutions developed and implemented to address any
actual or anticipated problems or delays. Upon request by U.S. EPA, the Affected Respondents shall
also provide more frequent progress reports on certain activities undertaken pursuant to this Order
(e.g. daily and/or weekly reports on particular activities).

XIII. COMPLIANCE WITH AFTLTCABLE LAWS

     61. All
activities by Respondents pursuant to this Order shall be performed in
accordance with the requirements of all federal and State laws and regulations. U.S. EPA has
determined that the activities contemplated by this Order are consistent with the National
Contingency Plan.

     62. Except
as provided in Section 121(e) of CERCLA and the NCP, no permit shall
be required for any portion of the work conducted entirely on-Site. Where any portion of the

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work requires a federal or State permit, the Affected Respondents shall submit timely applications
and take all other actions necessary to obtain and to comply with all such permits or approvals.

     63. This
Order is not and shall not be construed to be, a permit issued pursuant to any
federal or State statute or regulation.

XIV. REMEDIAL PROJECT MANAGER AND STATE PROJECT COORDINATOR

     64. All communications, whether written or oral, from Respondents to U.S. EPA shall be
directed to U.S. EPA’s Remedial Project Manager and to WDNR’s Project Coordinator. Respondents shall
submit five copies of all documents — including plans, reports, and other correspondence which are
developed pursuant to this Order — to both U.S. EPA and WDNR, and shall send those documents by
overnight delivery service.

U.S. EPA’S Remedial Project Manager is:

James Hahnenberg

Remedia1 Project Manager

Superfund Division, Mail Code: SR-6J

U.S. Environmental Protection Agency

77 West Jackson Blvd.

Chicago, IL 60604

WDNR’s Project Coordinator is:

Gregory Hill

Project Coordinator

Wisconsin Department of Natural Resources

101 S.Webster St.

Madison, WI 53703

U.S. EPA may also designate an Alternate Remedial Project Manager and WDNR may designate an
Alternative Project Coordinator by sending written notice of any such designation to the Affected
Respondents.

     65. U.S. EPA may change its Remedial Project Manager or Alternate Remedial Project
Manager and WDNR may change its Project Coordinator or Alternative Project Coordinator. If U.S. EPA
changes its Remedial Project Manager or Alternate Remedial Project Manager, U.S. EPA will inform
the Affected Respondents in writing of the name, address, and telephone number of the new Remedial
Project Manager or Alternate Remedial Project Manager.

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If WDNR changes its Project Coordinator or Alternate Project Coordinator, WDNR will inform the
Affected Respondents in writing of the name, address, and telephone number of the new Project
Coordinator or Alternate Project Coordinator.

     66. U.S. EPA’s RPM and Alternate RPM shall have the authority lawfully vested in a
Remedial Project Manager and On-Scene Coordinator by the National Contingency Plan. U.S. EPA’s RPM
or Alternate RPM shall have authority, consistent with the NCP, to
halt any work required by this
Order, and to take any necessary response action.

XV. PROJECT COORDINATORS, CONTRACTORS, AND FINANCIAL ASSURANCE

     67. Project Coordinators.

          a. All aspects of the work to be performed by Affected Respondents pursuant to this Order
shall be under the direction and supervision of a Project Coordinator qualified to undertake and
complete the pertinent requirements of this Order. The Affected
Respondents may select separate
Project Coordinators for the Phase 2A Work and the Phase 2B Work. The Project Coordinator(s) shall
be the RPM’s primary point of contact concerning any work being
performed by Affected Respondents and shall possess sufficient technical expertise regarding
all aspects of the work. U.S. EPA reserves the right to disapprove any proposed Project
Coordinator under this Order. With respect to any proposed Project Coordinator, the Affected Respondents
shall demonstrate that the proposed Project Coordinator has a quality system that complies
with ANSI/ASQC E4-1994, “Specifications and Guidelines for Quality
Systems for Environmental
Data Collection and Environmental Technology Programs,” (American National Standard,
January 5, 1995), by submitting a copy of the proposed Project Coordinator’s
Quality Management Plan (“QMP”). The QMP should be prepared in accordance with the specifications
set forth in “EPA Requirements for Quality Management Plans (QA/R-2);” (EPA/240/B-01/002)
or equivalent documentation as determined by U.S. EPA.

          b.
Within 15 days after the Effective Date of this Order, the Affected Respondents shall notify U.S. EPA and WDNR in writing of the name and qualifications of the
Project Coordinator, including primary support entities and staff, proposed to be
used in carrying out the Phase 2A Work under this Order.

          c. By no later than September 1, 2008, the Affected Respondents shall notify

27

 

U.S. EPA
and WDNR in writing of the name and qualifications of the Project Coordinator, including
primary support entities and staff, proposed to be used in carrying
out the Phase 2B Work under
this Order.

     68. Contractors.

          a. Contractors for Phase 2A Work.

               i. Within
30 days after U.S. EPA approves the Phase 2A Work Plan that is prepared
pursuant to the Phase 2A SOW, the Affected Respondents shall identify a proposed construction
contractor and notify U.S. EPA and WDNR in writing of the name, title, and qualifications of the
construction contractor proposed to be used in carrying out Phase 2A Work under this Order. With
respect to any proposed construction contractor, the Affected Respondents shall demonstrate that
the proposed construction contractor has a quality system that
complies with ANSI/ASQC E4-1994,
“Specifications and Guidelines for Quality Systems for Environmental Data Collection and
Environmental Technology Programs,” (American National Standard, January 5, 1995, by submitting a
copy of the proposed construction contractor’s Quality Management Plan (“QMP”). The QMP should be
prepared in accordance with the specifications set forth in “EPA Requirements for Quality
Management Plans (QA/R-2),” (EPA/240/B-01/002) or equivalent documentation as determined by U.S.
EPA.

               ii. The Affected Respondents shall submit a copy of the
construction contractor solicitation documents for Phase 2A Work to U.S. EPA and WDNR not later than five days
after publishing the solicitation documents. Upon U.S. EPA’s request, Respondents shall submit
complete copies of all bid packages received from all contract bidders.

          b. Contractors for Phase 2B Work.

               i. Within
30 days after U.S. EPA approves the Phase 2B Work Plan that is prepared
pursuant to the Phase 2B SOW, the Affected Respondents shall identify a proposed construction
contractor and notify U.S. EPA and WDNR in writing of the name, title, and qualifications of the
construction contractor proposed to be used in carrying out Phase 2B Work under this Order. With
respect to any proposed construction contractor, the Affected Respondents shall demonstrate that
the proposed construction contractor has a quality system that
complies with ANSI/ASQC E4-1994,
“Specifications and Guidelines for Quality Systems for Environmental Data Collection and
Environmental Technology Programs,” (American National

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Standard, January 5, 1995), by submitting a copy of the proposed construction contractor’s
Quality Management Plan (“QMP”). The QMP should be prepared in accordance with the
specifications set forth in “EPA Requirements for Quality
Management Plans (QA/R-2),” (EPA/240/B-01/002) or equivalent documentation as determined by U.S. EPA.

               ii. The Affected Respondents shall submit a copy of the construction contractor
solicitation documents for Phase 2B Work to U.S. EPA and WDNR not later than five days after
publishing the solicitation documents. Upon U.S. EPA’s request, Respondents shall submit complete
copies of all bid packages received from all contract bidders.

     69. Disapproval of Project Coordinators or Contractors. U.S. EPA retains the right to
disapprove of the Project Coordinator and any contractor, including but not limited to
construction contractors retained by the Affected Respondents. In the event U.S. EPA
disapproves a Project Coordinator or contractor, the Affected Respondents shall retain a new
project coordinator or contractor to perform the work, and such selection shall be made within
15 days following the date of U.S. EPA’s disapproval. If at any time Affected Respondents purpose
to use a new Project Coordinator or contractor, the Affected Respondents shall notify U.S. EPA of
the identity of the new Project Coordinator or contractor at least 15 days before the new Project
Coordinator or contractor performs any work under this Order.

     70. Insurance and Financial Assurance.

          a. Insurance for Phase 2A Work. At least seven days prior to commencing
any Phase 2A Work at the Site pursuant to this Order, the Affected Respondents shall submit to
U.S. EPA a certification that the Affected Respondents or their contractors and subcontractors
have adequate insurance coverage or have indemnification for liabilities for injuries or
damages to persons or property which may result from the Phase 2A Work activities to be conducted by
or on behalf of the Affected Respondents pursuant to this Order. The Affected Respondents shall
ensure that such insurance or indemnification is maintained for the
duration of the Phase 2A
Work required by this Order.

          b. Insurance for Phase 2B Work. At least seven days prior to commencing
any Phase 2B Work at the Site pursuant to this Order, the Affected Respondents shall submit to
U.S. EPA a certification that the Affected Respondents or their
contractors and subcontractors
have adequate insurance coverage or have indemnification for liabilities for injuries or
damages

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to persons
or property which may result from the Phase 2B Work activities to be conducted by or on
behalf of the Affected Respondents pursuant to this Order. The Affected Respondents shall ensure
that such insurance or indemnification is maintained for the duration of the Phase 2B Work required
by this Order.

     c. Financial
Assurance for Phase 2B Work. The Affected Respondents shall
demonstrate their ability to complete the Phase 2B Work required by
this Order and to pay all
claims that arise from the performance of the Phase 2B Work by
obtaining and presenting to U.S.
EPA, by no later than January 15, 2009, one or more of the following forms of financial assurance,
which must be satisfactory in form and substance to U.S. EPA:

(i) a
surety bond unconditionally guaranteeing payment and/or performance
of the
Phase 2B Work that is issued by a surety company among those listed as acceptable
sureties on Federal bonds as set forth in Circular 570 of the U.S. Department of the
Treasury;

(ii) one or more irrevocable letters of credit, payable to or at the direction of U.S.
EPA, that is issued by one or more financial institution(s) that has the authority to issue
letters of credit and whose letter-of-credit operations are regulated and examined by a
United States federal or state agency;

(iii) a trust fund established for the benefit of U.S. EPA that is administered by a
trustee that has the authority to act as a trustee and whose trust operations are regulated
and examined by a United States federal or state agency;

(iv) a policy of insurance that provides U.S. EPA with acceptable rights as a
beneficiary thereof and is issued by an insurance carrier that has
the authority to issue insurance policies in the applicable jurisdiction(s) and whose insurance operations are
regulated and examined by a state agency;

(v) a demonstration by one or more Affected Respondents that each such Affected
Respondent meets the financial test criteria of 40 C.F.R. §
264.143(f) with respect to the estimated cost of the Phase 2B Work, provided that all other requirements of 40 C.F.R. §
264.143(f) are satisfied, or

(vi) a written guarantee to fund or perform the Phase 2B Work executed in favor of
U.S. EPA by direct or indirect parent company of an Affected Respondent or a company

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that has a “substantial business relationship” (as defined in 40 C.F.R. § 264.141(h)) with
at least one Affected Respondent; provided, however, that any company
providing such a guarantee must demonstrate to the satisfaction of U.S. EPA that it
satisfies the financial test requirements of 40 C.F.R. § 264.143(f) with respect to the
estimated cost of the Phase 2B Work that it proposes to guarantee.

The Affected Respondents shall demonstrate financial assurance in an amount no less than the total
estimated cost of the Phase 2B Work under the RODs (including the net
present value of the
estimated cost of all required operation and maintenance and long-term monitoring activities). If any
Affected Respondent seeks to provide financial assurance by means of internal financial
information, or by guarantee of a third party, that Affected Respondent shall re-submit such
information annually, in August of each year. If U.S. EPA determines that such financial information
is inadequate, Respondents shall, within 30 days after receipt of U.S. EPA’s notice of
determination, obtain and present to U.S. EPA for approval one of the other forms of financial
assurance listed above.

XVI. SITE ACCESS AND DOCUMENT AVAILABILITY

     71. If any property subject to or affected by the Phase 2A Work, or any other property
where access is needed for performance of the Phase 2A Work, is owned
in whole or in part by parties
other than the Respondents, the Affected Respondents will obtain, or use their best efforts to
obtain, access agreements from the present owners within 90 days of the Effective Date specified by
Paragraph 94 of this Order, as required by the Phase 2A SOW. If any property subject to or affected
by the Phase 2B Work, or any other property where access is needed for performance of the Phase 2B
Work, is owned in whole or in part by parties other than the Respondents, the Affected Respondents
will obtain, or use their best efforts to obtain, access agreements from the present owners, by no
later than January 15, 2009, as required by the Phase 2B SOW. Said agreements shall provide access
for U.S. EPA, its contractors and oversight officials, the State and its contractors, and the
Affected Respondents or the Affected Respondents’ authorized representatives and contractors. Said
agreements shall specify that the Affective Respondents are not U.S.
EPA’s representative with
respect to liability associated with Site activities. Affected Respondents’ best efforts shall
include providing reasonable

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compensation to any property owner. If access agreements are not obtained within the time
referenced above, the Affected Respondents shall immediately notify
U.S. EPA of their failure to
obtain access.

     72. If the Affected Respondents cannot obtain the necessary access agreements, U.S.
EPA may exercise non-reviewable discretion and: (1) use its legal authorities to obtain access
for the Affected Respondents; (2) conduct response actions at the
property in question; or (3) terminate this Order. If U.S. EPA
conducts a response action and does not terminate the Order,
the Affected Respondents shall perform all other activities not requiring access to that
property. The Affected Respondents shall integrate the results of any such tasks undertaken by U.S. EPA
into its reports and deliverables. The Affected Respondents shall reimburse U.S. EPA, pursuant
to Section XIX (Reimbursement of Response Costs) of this Order, for all response costs
(including attorney fees) incurred by the United States to obtain access for Affected
Respondents.

     73. Respondents shall allow U.S. EPA and its authorized representatives and
contractors to enter and freely move about all property at the Site and off-Site areas subject
to or affected by the work under this Order or where documents required to be prepared or maintained
by this Order are located, for the purposes of inspecting conditions, activities, the results of
activities, records, operating logs, and contracts related to the
Site or Respondents and
their representatives or contractors pursuant to this Order; reviewing the progress of the
Respondents in carrying out the terms of this Order; conducting tests as U.S. EPA or its authorized
representatives or contractors deem necessary; using a camera, sound recording device or other
documentary type equipment; and verifying the data submitted to U.S. EPA by Respondents.
Respondents shall allow U.S. EPA and its authorized representatives to enter the Site, to
inspect and copy all records, files, photographs, documents, sampling and monitoring data, and
other writings related to work undertaken in carrying out this Order.
Nothing herein shall limit U.S.
EPA’s right of entry or inspection authority under federal law,
and U.S. EPA retains all of its
information gathering and enforcement authorities and rights under CERCLA, RCRA, and any
other applicable statutes and regulations.

XVII. RECORD PRESERVATION

     74. On or before the Effective Date of this Order, Respondents shall submit a written

32

 

certification to U.S. EPA that they have not altered, mutilated, discarded, destroyed or otherwise
disposed of any records, documents or other information relating to their potential liability with
regard to the Site since the time of their notification of potential liability by the United States
or the State. Respondents shall not dispose of any such documents without prior approval by U.S.
EPA. Upon U.S. EPA’s request, Respondents shall make all such documents available to U.S. EPA and
shall submit a log of any such documents claimed to be privileged for any reason. This privilege
log shall list, for each document, the date, author, addressees
(including courtesy copies or “cc”s
and “bcc”s) and subject matter of the document.

     75. Respondents shall provide to U.S. EPA upon request, copies of all documents and
information within their possession or control (or their contractors’, subcontractors’ or
agents’ possession or control) relating to activities at the Site or to the implementation of this
Order, including but not limited to sampling, analysis, chain of custody records, manifests, trucking
logs, receipts, reports, traffic routing, correspondence, or other documents or information.
Respondents shall also make available to U.S. EPA their employees, agents, or representatives
for purposes of investigation, information gathering or testimony concerning the performance
of the work.

     76. Until 10 years after U.S. EPA provides notice pursuant to Paragraph 94 of this
Order, Respondents shall preserve, and shall instruct their contractors and agents to
preserve, all documents, records, and information of whatever kind, nature or description relating to the
performance of the work. Upon the conclusion of this document retention period, Respondents
shall notify the United States at least 90 days prior to the destruction of any such records,
documents or information, and, upon request of the United States, Respondents shall deliver
all such documents, records and information to U.S. EPA.

     77. Respondents may assert a claim of business confidentiality covering part or all of
the information submitted to U.S. EPA pursuant to the terms of this Order under 40 C.F.R. §
2.203, provided such claim is not inconsistent with
Section 104(e)(7) of CERCLA, 42 U.S.C.
§ 9604(e)(7) or other provisions of law. This claim shall be asserted in the manner described by 40
C.F.R. § 2.203(b) and substantiated by Respondents at the time the claim is made. Information
determined to be confidential by U.S. EPA will be given the protection specified in 40 C.F.R. Part
2. If no such claim accompanies the information when it is submitted to U.S.

33

 

EPA, it may be made available to the public by U.S. EPA or by the State without further notice to
the Respondents. Respondents shall not assert confidentiality claims with respect to any data or
documents related to Site conditions, sampling, or monitoring.

     78. Respondents shall maintain, for the period during which this Order is in effect, an
index of documents submitted to U.S. EPA under this Order that Respondents claim contain
confidential business information (“CBI”). The index shall contain, for each document, the date,
author, addressee, and subject of the document. Respondents shall submit an updated copy of the
index to U.S. EPA with each new set of documents claimed to be CBI. The updated index shall also
indicate any documents for which CBI claims have been withdrawn.

XVIII. DELAY IN PERFORMANCE

     79. Any
delay in performance of this Order according to its terms and schedules that
is not properly justified by the Affected Respondents under the terms of this section shall be
considered a violation of this Order by the Affected Respondents. Any delay in performance of
this Order shall not affect the Affected Respondents’ obligation to fully perform all
obligations imposed upon such Affected Respondents under the terms and conditions of this Order.

     80. The
Affected Respondents shall notify U.S. EPA of any delay or anticipated delay
in performing any requirement of this Order. Such notification shall be made by telephone to
U.S. EPA’s RPM or Alternate RPM within 48 hours after the
Affected Respondents first knew or
should have known that a delay might occur. Affected Respondents shall adopt all reasonable
measures to avoid or minimize any such delay. Within seven days after
notifying U.S. EPA by
telephone, the Affected Respondents shall provide written notification fully describing the
nature of the delay, any justification for delay, any reason why the Affected Respondents should not
be held strictly accountable for failing to comply with any relevant requirements of this Order,
the measures planned and taken to minimize the delay, and a schedule for implementing the
measures that will be taken to mitigate the effect of the delay.
Increased costs or expenses
associated with implementation of the activities called for in this Order is not a
justification for any delay in performance.

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XIX. REIMBURSEMENT OF RESPONSE COSTS

     81. Respondents
shall reimburse U.S. EPA, upon written demand, for all response
costs incurred by the United States in overseeing Respondent’s implementation of the
requirements of this Order. U.S. EPA may submit to Respondents on a periodic basis a written
demand and an accounting of unreimbursed oversight response costs incurred by the United
States with respect to this Order. U.S. EPA’s Itemized Cost Summary Reports, or such other
summary as may be certified by U.S. EPA, shall serve as the accounting and basis for payment
demands.

     82. Respondents
shall remit payment of the demanded amount within 30 days of
receipt of each demand for payment. Interest shall accrue from either the date that payment of
a specified amount is demanded in writing, or the date of the expenditure, whichever is later.
The interest rate is the rate established by the Department of the Treasury pursuant to 31 U.S.C.
§ 3717 and 4 C.F.R. § 102.13.

     83. Payment shall be made to U.S. EPA by Electronic Funds Transfer (“EFT”) in
accordance with current EFT procedures that U.S. EPA Region 5 will provide Respondents, and
shall be accompanied by a statement identifying the name and address of the parties making
payment, the Site name, U.S. EPA Region 5, and the Site/Spill ID Number A565 and the U.S.
EPA docket number for this action. If the response costs demanded under the preceding
Paragraph are less than $10,000, payment may, in lieu of the described EFT method, be made by
certified or cashier’s check made payable to “U.S. EPA Hazardous Substance Superfund.” Each
check, or a letter accompanying each check, shall identify the name and address of the parties
making payment, the Site name, and Site/Spill ID Number A565, and the U.S. EPA docket
number for this action, and shall be sent to:

U. S. Environmental Protection Agency

Superfund Payments

Cincinnati Finance Center

P.O. Box 979076

St. Louis, MO 63197-9000

Respondents shall send copies of each transmittal letter and check to the U.S. EPA’s RPM.

35

 

XX. UNITED STATES NOT LIABLE

     84. The United States is not to be construed as a party to, and does not assume any
liability for, any contract entered into by any of the Respondents to carry out the activities
pursuant to this Order. The proper completion of the work under this Order is solely the
responsibility of the Respondents. The United States, by issuance of this Order, also assumes no
liability for any injuries or damages to persons or property resulting from acts or omissions by
Respondents, or their directors, officers, employees, agents, representatives, successors, assigns,
contractors, or consultants in carrying out any action or activity required by this Order.

XXI. ENFORCEMENT AND RESERVATIONS

     85. U.S. EPA reserves the right to bring an action against Respondents under Section
107 of CERCLA, 42 U.S.C. § 9607, for recovery of any response costs incurred by the United
States related to this Order and not reimbursed by Respondents. This reservation shall include but
not be limited to past costs, direct costs, indirect costs, the costs of oversight, the costs of
compiling the cost documentation to support oversight cost demand, as well as accrued interest
as provided in Section 107(a) of CERCLA.

     86. Notwithstanding any other provision of this Order, at any time during the response
action, U.S. EPA may perform its own studies, complete the response action (or any portion of
the response action) as provided in CERCLA and the NCP, and seek reimbursement from Respondents
for its costs, or seek any other appropriate relief.

     87. Nothing in this Order shall preclude U.S. EPA from taking any additional
enforcement actions, including modification of this Order or issuance of additional Orders,
and/or additional remedial or removal actions as U.S. EPA may deem necessary, or from requiring
Respondents in the future to perform additional activities pursuant to Section 106(a) of
CERCLA, 42 U.S.C. § 9606(a), or any other applicable law. This Order shall not affect any Respondent’s
liability under CERCLA Section 107(a), 42 U.S.C. § 9607(a), for the costs of any such
additional actions.

     88. Notwithstanding any provision of this Order, the United States hereby retains all of
its information gathering, inspection and enforcement authorities and rights under CERCLA,

36

 

RCRA and any other applicable statutes or regulations.

     89. Nothing in
this Order shall constitute or be construed as a release from any
claim, cause of action or demand in law or equity against any person for any liability it may have
arising out of or relating in any way to the Site.

     90. If
a court issues an order that invalidates any provision of this Order or finds that
any Respondent has sufficient cause not to comply with one or more provisions of this Order,
Respondents shall remain bound to comply with all provisions of this Order not invalidated by the
court’s order.

XXII.
ACCESS TO ADMINISTRATIVE RECORD

     91. The Section 106 Administrative Record for this Order is available for review on
normal business days between the hours of 9:00 a.m. and 5:00 p.m. at the U.S. EPA, Region V, 77
West Jackson Boulevard, Chicago, Illinois. An Administrative Record Index is attached hereto as
Appendix 1.

XXIII.
EFFECTIVE DATE AND TERMINATION

     92. Except as specifically provided by Paragraph 47, this Order shall become effective 30
days after the date of its issuance.

     93. As specified by Paragraph 47, the provisions of this Order relating to the Phase 2B
Work shall take effect on August 15, 2008.

     94. Within 30 days
after Respondents conclude that all phases of the work have been fully
performed, that the performance standards have been attained, and that all operation and
maintenance activities have been completed, Respondents shall submit to U.S. EPA a written
report by a registered professional engineer certifying that the work has been completed in full
satisfaction of the requirements of this Order. U.S. EPA shall require such additional activities as may be
necessary to complete the work or U.S. EPA may, based upon present knowledge and Respondents’
certification to U.S. EPA, issue written notification to Respondents that the work has been
completed, as appropriate, in accordance with the procedures set forth in Paragraph 54 for
Respondents’ certification of completion of the remedial action. U.S. EPA’s notification
shall not limit U.S. EPA’s right to perform periodic reviews pursuant to Section 121(c) of CERCLA,

37

 

42 U.S.C. § 9621(c), or to take or require any action that in the judgment of U.S. EPA is
appropriate at the Site, in accordance with 42 U.S.C. §§ 9604, 9606, or 9607. The provisions of
this Order shall be deemed to be satisfied when U.S. EPA notifies Respondents in writing that
Respondents have demonstrated, to U.S. EPA’s satisfaction, that
all terms of the Order have been
completed. This notice shall not, however, terminate Respondents’ obligation to comply with Section
XVII of this Order (record preservation).

XXIV. NOTICE OF INTENT TO COMPLY

     95. Initial Notice. Within 30 days after the date of issuance of this Order, each
Respondent must submit to U.S. EPA: (1) a written notice stating its unequivocal intention to
comply with all terms and requirements of this Order that will be applicable to such
Respondent, aside from the requirement to perform the Phase 2B Work under Paragraph 47; and (2) the
written notice required by Paragraph 74.

     96. Subsequent Notice. By no later than August 1, 2008, each Respondent must submit
to U.S. EPA a written notice stating its unequivocal intention to comply with all terms and
requirements of this Order relating to the requirement to perform the Phase 2B Work under
Paragraph 47.

     97. In the event any Respondent fails to provide any notice required by the preceding
Paragraphs, said Respondent shall be deemed to have refused to comply with the pertinent
portions of this Order. A Respondent which fails to provide timely
notice of its intent to comply with
this Order shall thereafter have no authority to perform any response action at Operable Units 2-5
at the Site, pursuant to Sections 104(a) and 122(e)(6) of CERCLA. In the event such a Respondent
subsequently changes its decision and desires to acquire authority from U.S. EPA under
Sections 104(a) and 122(e)(6) of CERCLA to undertake the work described in this Order, said Respondent
must provide the notice required by the preceding Paragraphs to U.S. EPA and receive from U.S.
EPA written permission and authority to proceed with work under this Order.

XXV. PENALTIES

     98. Each Respondent shall be subject to civil penalties under Section 106(b) of
CERCLA, 42 U.S.C. § 9606(b), of not more than $32,500 for each day in which said Respondent

38

 

willfully violates, or fails or refuses to comply with this Order without sufficient cause. In
addition, failure to properly provide response action under this Order, or any portion hereof, may
result in liability under Section 107(c)(3) of CERCLA, 42 U.S.C. § 9607(c)(3), for punitive damages
in an amount at least equal to, and not more than three times the mount of any costs incurred by
the Fund as a result of such failure to take proper action.

XXVI. OPPORTUNITY TO COMMENT AND CONFER

     99. Within 15 days after the date of issuance of this Order,
each Respondent may submit written comments to U.S. EPA. Respondents asserting a “sufficient cause” defense under
Section 106(b) of CERCLA shall describe the nature of any “sufficient cause” defense using
facts that exist on or prior to the Effective Date of this Order. The absence of a response by U.S
EPA shall not be deemed to be acceptance of a Respondent’s assertions.

     100. Within 10 days after the date of issuance of this Order, Respondents may request a
conference with the U.S. EPA to discuss this Order. If requested, the conference shall occur
within 20 days of the date of issuance of this Order, at the
office of U.S. EPA, Region 5, in
Chicago, Illinois.

     101. The purpose and scope of the conference shall be limited to issues involving the
implementation of the response actions required by this Order and the extent to which
Respondents intend to comply with this Order. This conference is not an evidentiary hearing
and does not constitute a proceeding to challenge this Order. It does not give Respondents a right
to seek review of this Order or to seek resolution of potential liability. No record of the
conference (e.g., stenographic, tape or other physical record) will be made. At any conference
held pursuant to Respondents’ request, Respondents may appear in person or by an attorney or other
representative. Requests for a conference must be by telephone followed by written
confirmation to U.S. EPA’s RPM.

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ADMINISTRATIVE ORDER FOR REMEDIAL ACTION
FOR OPERABLE UNITS 2-5 OF THE LOWER FOX RIVER AND GREEN BAY SITE

So Ordered, this 13 day of November, 2007.

	 	 	 	 	 
	BY:

	 	/s/ Richard C. Karl
	 	 
	 

	 	 	 	 
	 

	 	Director	 	 
	 

	 	SuperFund Division	 	 
	 

	 	U.S. Environmental Protection Agency, Region V	 	 

40

 

APPENDIX 1

INDEX OF ADDITIONAL DOCUMENTS INCLUDED IN THE

SECTION 106 ADMINISTRATIVE RECORD

1. U.S. Environmental Protection Agency and Wisconsin Department of Natural
Resources, Record of Decision for Operable Unit 1 and Operable
Unit 2, Lower Fox River
and Green Bay Superfund Site, dated December 20, 2002

2. U.S. Environmental Protection Agency and Wisconsin Department of Natural
Resources, Record of Decision for Operable Unit 3, Operable Unit 4, and Operable Unit 5,
Lower Fox River and Green Bay Superfund Site, dated June 30, 2003

3. U.S. Environmental Protection Agency and Wisconsin Department of Natural
Resources, Record of Decision Amendment for Operable Unit 2
(Deposit DD), Operable
Unit 3, Operable Unit 4, and Operable Unit 5, Lower Fox River and
Green Bay Superfund Site, dated June 27, 2007

4. U.S. Fish and Wildlife Service, Injuries to Fishery Resources, Lower Fox River/Green
Bay Natural Resource Damage Assessment, dated November 8, 1999

5. U.S.
Fish and Wildlife Service, Injuries to Surface Water Resources, Lower Fox
River/Green Bay Natural Resource Damage Assessment, dated
November 8, 1999

6. U.S. Fish and Wildlife Service, Injuries to Avian Resources, Lower Fox River/Green
Bay Natural Resource Damage Assessment, dated May 7, 1999

7. U.S. Fish and Wildlife Service, Fish Consumption Advisories in the Lower Fox
River/Green Bay Assessment Area, dated November 24, 1998

8. U.S. Fish and Wildlife Service, PCB Pathways Determination for the Lower Fox
River/Green Bay Natural Resource Damage Assessment, dated August 30, 1999

9. M.G.
Barron et al., Association between PCBs, Liver Lesions, and Biomarker
Responses in Adult Walleye (Stizostedium vitreum vitreum) Collected from Green Bay,
Wisconsin, dated April 13, 1999

10. Wisconsin Department of Natural Resources, Lower Fox River and Green Bay PCB
Fate and Transport Model Evaluation, Technical Memorandum 2d: Compilation and
Estimation of Historical Discharges of Total Suspended Solids and Polychlorinated
Biphenyls from Lower Fox River Point Sources, dated February 23, 1999

11. Geomega, Inc., An Evaluation of PCB Loading from the John Strange Paper Mill to the Lower
Fox River, dated August 4, 2005

12. Environmental Resources Management, Arrowhead Park Landfill Evaluation — P.H. Glatfelter
Company, Neenah, Wisconsin, April 1999

1

 

13. Environmental Resources Management, Mass Balance Report; Polychlorinated
Biphenyls (PCBs) in P.H. Glatfelter’s Bergstrom Mill Paper Production Cycle — Fox River,
Wisconsin, dated July 2000

14. S. Kleinert, “Sources of Polychlorinated Biphenyls in Wisconsin,” published in U.S.
Environmental Protection Agency, Conference Proceedings: National Conference on
Polychlorinated Biphenyls, pages 124-26, dated March 1976

15. P. Trout, “The View of the Paper Industry on the Occurrence of PCB’s in the
Environment and the Need for Regulation,” published in U.S. Environmental Protection
Agency, Conference Proceedings: National Conference on Polychlorinated Biphenyls,
pages 359-361, dated March 1976

16. J. Harvey, “Statement Relating to Polychlorinated Biphenyls on Behalf of the
Wisconsin Paper Council,” published in U.S. Environmental Protection Agency,
Conference Proceedings: National Conference on Polychlorinated
Biphenyls, pages 362-64, dated March 1976

17. Institute of Paper Chemistry, Polychlorinated Biphenyls in Pulp and Paper Mills — Part
II. Distribution and Removal, July 22, 1977

18. Institute of Paper Chemistry, Interlaboratory Study of the Determination
of Polychlorinated Biphenyls in a Paper Mill Effluent, dated August 1979

19. Institute of Paper Chemistry, Determination of Polychlorinated Biphenyls in Paper Mill
Effluents and Process Streams, dated March 1977

20. Response of Appleton Papers Inc. to USFWS CERCLA 104(e) Request for
Information, dated May 6, 1996

21. Response of Appleton Papers Inc. to USFWS CERCLA 104(e) Request for
Information, dated September 25, 1997

22. Response of Appleton Papers Inc. to USFWS CERCLA 104(e) Request for
Information, dated October 16, 1997

23. Supplement to Response of Appleton Papers, Inc. to the USFWS CERCLA l04(e)
Request for Information, dated September 14, 1998

24.
Response of Appleton Papers Inc. to USFWS CERCLA 104(e) Request for
Information, dated March 10, 1999

25. Response of Appleton Papers Inc. to USFWS CERCLA 104(e) Request for
Information, dated April 5, 1999

26. Response of Appleton Papers Inc. to USFWS CERCLA 104(e) Request for
Information, dated September 9, 1998

27. Response of Appleton Papers Inc. to USFWS CERCLA 104(e) Request for
Information, dated September 14, 1998

2

 

28. Response of Appleton Papers Inc. to USFWS CERCLA 104(e) Request for
Information, dated October 16, 1999

29. Response of Appleton Papers Inc. and NCR to USFWS CERCLA 104(e) Request for
Information, dated August 21, 2000

30. Response of Fort Howard Corp. to USFWS CERCLA 104(e) Request for Information,
dated May 3, 1996

31. Response of Fort Howard Corp. to USFWS CERCLA 104(e) Request for Information,
dated September 12, 1997

32. Response of Fort James Corp. to USFWS CERCLA 104(e) Request for Information,
dated September 11, 1998

33.
Response of NCR Corp. to USFWS CERCLA 104(e) Request for Information, dated
May 6, 1996

34.
Response of NCR Corp. to USFWS CERCLA 104(e) Request for Information, dated
August 29, 1997

35.
Response of NCR Corp. to USFWS CERCLA 104(e) Request for Information, dated
April 7, 1999

36.
Response of NCR Corp. to USFWS CERCLA 104(e) Request for Information, dated
April 12, 1999

37. Response of U.S. Paper Mills Corp. to USFWS CERCLA 104(e) Request for
Information, dated May 6, 1996

38 Response of U.S. Paper Mills, Corp. to USFWS CERCLA 104(e) Request for
Information, dated September 2, 1997

39. Response of U.S. Paper Mills Corp. to USFWS CERCLA 104(e) Request for
Information, dated August 31, 1998

40. Supplemental Response of Sonoco-U.S. Mills Inc. to USFWS CERCLA 104(e) Request
for Information, dated February 9, 2007

41. Response of Menasha Corp. to USFWS CERCLA 104(e) Request for Information,
dated May 3, 1996

42. Response of Menasha Corp. to USFWS CERCLA 104(e) Request for Information,
dated October 16, 1997

43.
Response of P.H. Glatfelter Co. to USWS CERCLA 104(e) Request for
Information,
dated May 2, 1996

44.
Response of P.H. Glatfelter Co. to USFWS CERCLA 104(e) Request for Information,
dated May 31, 1996

3

 

45. Response of P.H.
Glatfelter Co. to USFWS CERCLA 104(e) Request for Information,
dated August 28, 1997

46. Response of P.H. Glatfelter Co. to USFWS CERCLA 104(e) Request for Information,
dated August 13, 1998

47. Exhibit 1, of Response of P.H. Glatfelter Co. to USFWS CERCLA 104(e) Request for
Information, dated August 12, 1998

48. Exhibit 2, of Response of P.H.
Glatfelter Co. to USFWS CERCLA 104(e) Request for
Information, dated August 12, 1998

49. Response of Riverside Paper
Co. to USFWS CERCLA 104(e) Request for Information,
dated April 3, 1996

50. Response of
Riverside Paper Co. to USFWS CERCLA 104(e) Request for Information,
dated September 19, 1997

51. Response of Riverside Paper Co. to USFWS CERCLA 104(e) Request for Information,
dated August 21, 1997

52. Response of
Riverside Paper Co. to USFWS CERCLA 104(e) Request for Information,
dated July 29, 1998

53. Response of Wisconsin Tissue Mills to USFWS CERCLA l04(e) Request for
Information, dated May 3, 1996

54. Response of Wisconsin Tissue Mills with exhibits to USFWS CERCLA 104(e) Request
for Information, dated September 30, 1997

55. Response of Wisconsin Tissue Mills to USFWS CERCLA 104(e) Request for
Information, dated October 6, 1997

56. Response of Wisconsin Tissue Mills with exhibits to USFWS CERCLA 104(e) Request
for Information, dated October 9, 1998

57. Supplemental
Response of Wisconsin Tissue Mills to USFWS CERCLA 104(e)
Request for Information, dated October 6, 1997

58. Response of City of Appleton, WI to USFWS CERCLA 104(e) Request for
Information, dated September 14, 1998

59. Response of City of Appleton, WI to USFWS CERCLA 104(e) Request for
Information, dated August 26, 1997

60. Response of Neenah-Menasha Sewerage Commission and Cities of Neenah and
Menasha, WI to USFWS CERCLA 104(e) Request for Information, dated September 29,
1997

4

 

61. Response of Neenah-Menasha Sewerage
Commission and Cities of Neenah and
Menasha, WI to USFWS CERCLA 104(e) Request for Information, dated November 20,
1998.

62. Response of City of De Pere, WI to
USFWS CERCLA 104(e) Request for Information,
dated July 28, 1998

63. Response of City of De Pere, WI to
USFWS CERCLA 104(e) Request for Information,
Request 5, dated July 28, 1998

64.
Response of City of De Pere, WI to
USFWS CERCLA 104(e) Request for Information,
Request 6, dated July 28, 1998

65. Response of City of De Pere, WI to
USFWS CERCLA 104(e) Request for Information,
dated September 2, 1997

66. Response of Scherman Pulp &
Paper to USFWS CERCLA 104(e) Request for
Information, dated April 27, 1999

67. Response of Consolidated Fibers to
USFWS CERCLA 104(e) Request for Information,
dated April 28, 1999

68. Response of Pioneer Paper Stock Co.
to USFWS CERCLA 104(e) Request for
Information, dated April 28, 1999

69. Response of Panhandle Recycling to
USFWS CERCLA 104(e) Request for
Information, dated April 28, 1999

70. Response of Donco Paper Supply Co. to USFWS CERCLA 104(e) Request for
Information, dated April 30, 1999

71. Response of FLOM Corp. to USFWS
CERCLA 104(e) Request for Information, dated
May 18, 1999

72. Response of Paper Recycling Inc.
to USFWS CERCLA 104(e) Request for Information,
dated May 19, 1999

73. Response of Batliner Paper Stock Co to
USFWS CERCLA 104(e) Request for
Information, dated May 26, 1999

74.
Response of Continental Paper Grading Co. to USFWS CERCLA 104(e) Request for
Information, dated May 28, 1999

75. Response of National Fiber Supply Co. to USFWS CERCLA 104(e) Request for
Information, dated June 4, 1999

76. Response of Peltz Group Inc. to USFWS CERCLA 104(e) Request for Information,
dated June 9, 1999

77.
Response of Louis Padnos Iron & Metal Co. to USFWS CERCLA 104(e) Request for
Information, dated June 7, 1999

5

 

78. Response of Golper Supply Co. to USFWS CERCLA 104(e) Request for Information,
dated May 4, 1999

79.
Response of Royal Paper Stock Co. to USFWS CERCLA l04(e) Request for
Information, dated June 16,1999

80. Response of Buffalo Paperboard Corp. to USFWS CERCLA 104(e) Request for
Information, dated June 14,1999

81.
Response of IVEX Packaging Corp. to USFWS CERCLA 104(e) Request for
Information, dated June 25, 1999

82. Response of Mead Corp. to USFWS CERCLA 104(e) Request for Information, dated
June 25, 1999

83. Response of Jefferson Smurfit Corp. to USFWS CERCLA l04(e) Request for
Information, dated June 18, 1999.

84. Response of 3M to USWS CERCLA 104(e) Request for Information, dated
June 28, 1999

6

 

STATEMENT OF WORK

FOR COMPLETION. OF PHASE 2A OF THE REMEDIAL ACTION FOR

OPERABLE UNITS 2, 3, 4 AND 5 AT THE

LOWER FOX RIVER AND GREEN BAY SITE

BROWN, OUTAGAMIE, AND WINNEBAGO COUNTIES, WISCONSIN

1. PURPOSE

     This
Statement of Work for completion of Phase 2A of the remedial action (the “Phase 2A SOW”)
specifies requirements for performance of certain response activities relating to Operable Units
(“OUs”) 2, 3, 4 and 5 at the Lower Fox River and Green Bay Site (the “Site”) between the
Effective Date of the accompanying Administrative Order for Remedial
Action (the “Order”) and December 31, 2008.

     The selected remedy For OUs 2-5 at the Site is set forth in two Records of Decision and a
Record of Decision Amendment issued by the U.S. Environmental Protection Agency (“U.S. EPA”)
and the Wisconsin Department of Natural Resources (“WDNR”). The Record of
Decision for OUs 1 and 2 at the Site was signed in December 2002 (the “2002 ROD”), and
the original Record of Decision for OUs 3-5 at the Site was signed on June 30, 2003 (the “2003
ROD”). A Record of Decision Amendment, signed June 26, 2007 (the “2007 ROD Amendment”),
modified certain aspects of the selected remedy for OUs 2-5. The 2002 ROD, the 2003 ROD, and the
2007 ROD Amendment are collectively referred to herein as the “RODs”.

     The remedial design for OUs 2-5 is being prepared under a separate Settlement Agreement and
Administrative Order on Consent, captioned In re Lower Fox River and Green Bay Site, U.S.
EPA Region 5, CERCLA Docket No. V-W-’04-C-781 (the “RD Settlement Agreement”). The remedial
design work is continuing under the RD Settlement Agreement, so this Phase 2A SOW and the
accompanying Order do not address remedial design requirements for OUs 2-5. However, in performing
the work under the Order and this Phase 2A SOW, the Affected Respondents shall coordinate their
activities with the activities being performed under the RD Settlement Agreement,

Appendix 2 - Page 1 

 

and all work to implement this Phase 2A SOW shall be consistent with all plans that are prepared
and approved under the RD Settlement Agreement.

     EPA and WDNR previously determined that the remedial action for OUs 2-5 should be conducted in
two main phases to expedite the response in a particular area known as the “Phase 1 Project Area.”
The Phase 1 Project Area is just downstream from the De Pere dam, along the west bank of the Lower
Fox River, near the City of Green Bay. Phase 1 of the remedial action addresses PCB-contaminated
sediments   in that area, which have especially high PCB
concentrations. EPA and WDNR concluded
that the accelerated removal of PCBs in that area would therefore have significant benefits to the
environment and public health. Phase 1 of the remedial action is
currently being implemented under
a Consent Decree in the case captioned United States and the State of Wisconsin v. NCR
Corporation and Sonoma-U.S. Mills, Inc., Case No. 06-C-484 (E.D. Wis.). All remaining elements of
the remedial action in OUs 2-5 will be implemented in Phase 2.

     The Statement of Work that accompanies the RD Settlement Agreement recognizes that many
elements of the remedial action for OUs 2-5 will be designed in a traditional, stepwise fashion (i.e.,
through sequential development of a Preliminary Design, Intermediate Design, Pre-Final Design, and
Final Design), but it also specifies that certain other elements of remedial action that require
long lead time planning shall be designed on an expedited basis, as necessary to permit
commencement of full-scale sediment remediation for Phase 2 of the OU 2-5 remedial action at the
start of the 2009 construction season. A specific plan and schedule for designing all elements of
the remedial action that require long lead time planning will be set forth in an RD Work Plan
Addendum that is due to be submitted on December 31, 2007. That plan and schedule must be designed
to permit commencement of full-scale sediment remediation for Phase 2 of the OU 2-5 remedial action
at the start of the 2009 construction season, such that sediment remediation occurs throughout the
2009 construction season. Full-scale sediment remediation will then continue throughout subsequent
years, until completion of construction of the OU 2-5 remedial action.

     To adhere to that project schedule, the Affected Respondents will need to perform
significant preparatory activities in 2008. EPA and WDNR have therefore determined that Phase
2 of the OU 2-5 remedial action should be subdivided and

Appendix 2 - Page 2 

 

staged as follows: (i) Phase 2A consists of work to be performed before the end of 2008, in
preparation for the commencement and continuation of full-scale sediment remediation within OUs
2-5; (ii) Phase 2B comprises all remaining work to implement the OU 2-5 remedial action (such as
the performance of full-scale sediment remediation in 2009 and subsequent years) and other related
response activities (such as operation and maintenance and long-term monitoring activities). Section
III of this Phase 2A SOW identifies the tasks that the Affected Respondents shall perform to
implement the Phase 2A Work as required by Paragraph 46 and other corresponding provisions of the
Order. Any and all remedial action work that is commenced under this Phase 2A SOW but not
completed in Phase 2A shall be completed during Phase 2B pursuant to the to the Order and the separate
Statement of Work for Phase 2B.

II. THE REMEDIAL ACTION

     The accompanying Order requires the Affected Respondents to implement all aspects of the remedy
for OUs 2-5 as necessary to meet the Performance Standards and specifications set forth in the
RODs, as summarized below.

     The Remedy in OU2 (Excluding Deposit DD). This portion of the remedy was
unchanged by the 2007 ROD Amendment. The selected remedy is Monitored
Natural Recovery (“MNR”). An
institutional control plan and a long-term monitoring plan for PCB levels and possibly for mercury
levels in water, sediment, and biota will be developed during the remedial design process, and the
Affected Respondents will need to implement such institutional controls and long-term monitoring
plans as part of the remedial action

     The
Remedy in OU2 (Deposit DD), OU3, OU4, and OU5 (River Mouth).
In these areas, the 2007 ROD Amendment adopted sediment dredging as the primary remedial
approach for sediments exceeding the 1.0 ppm PCB Remedial Action Level (“RAL”),
but permitted the use of other alternative remedial approaches (i.e., a combination of
dredging and capping, capping alone, and/or placement of a sand
cover) if certain performance standards specified by the 2007 ROD
Amendment are met. The short-term and long-term objectives of the
Amended Remedy include: removing and containing PCB-contaminated sediment in each OU to meet
the RAL performance standard and/or the SWAC goal upon construction completion, as set forth in the
2007

Appendix 2 - Page 3 

 

ROD Amendment; achieving further reductions in PCB surface water and sediment concentrations through
natural recovery processes; achieving corresponding reductions  in PCB levels in the water column and in
fish tissue; and ensuring improvement in PCB levels in surface water at the Site through long-term
operation and maintenance and institutional controls. Pursuant to the accompanying Order, the
Affected Respondants will need to perform all required sediment remediation in OUs 2-5 using the
primary remedial approach and alternative remedial approaches in
accordance with the RODs.

     The Remedy in OU5 (Excluding the River Mouth). This portion of the remedy
was unchanged by the 2007 ROD Amendment. The selected remedy is MNR. An institutional control plan
and a long-term monitoring plan for PCB levels and possibly for mercury levels in water, sediment,
and biota will be developed during the remedial design process, and the Respondents will need to
implement such institutional controls and long-term monitoring plans as part of the remedial action

     As
discussed below, some aspects of the OU 2-5 remedial action shall be performed under this
Phase 2A SOW and all other elements of the overall remedy will be performed under a separate
Statement of Work for Phase 2B of the Remedial Action (the “Phase 2B SOW”).

III. THE PHASE 2A WORK

     A. Timing

     The Affected Respondents shall commence the work required by this Phase 2A SOW by no later
than the Effective Date of the Order and shall continue such work through December 31, 2008 (the
“Phase 2A Performance Period”).

     B. Scope of the Phase 2A Work and the Phase 2A Work Plan

     This Phase 2A SOW requires the Affected Respondents to perform all
preparatory activities and all other elements of the remedial action that need to be performed
during the Phase 2A Performance Period in order to permit commencement of full-scale sediment
remediation at the start of the 2009 construction season, such that sediment remediation occurs
throughout the 2009 construction season (hereinafter the “Phase 2A Work”).

     The Affected Respondents shall prepare a work plan that establishes detailed plans and
schedules for performance of all elements of the Phase 2A Work (hereinafter

Appendix 2 - Page 4 

 

the “Phase 2A Work Plan”), and shall submit that work plan to U.S. EPA and WDNR in
accordance with Paragraph 49 of the Order and the schedule specified by Section IV of this Phase 2A
SOW. The Phase 2A Work Plan shall include, but shall not be limited to, plans and schedules for:

-
Taking all necessary steps during the Phase 2A Performance Period to procure required
equipment (including entering into required contracts and making arrangements for timely
delivery and installation), in order to ensure that such equipment will be
available as needed for the Phase 2B Work, including:

- Taking all necessary steps to procure
any and all equipment that will be required for commencement of full-scale sediment
remediation at the start of the 2009 construction season (such as any
dewatering and water
treatment equipment that would be used at the start of the 2009 construction season), to the
extent that such equipment needs to be ordered and/or purchased during the Phase 2A
Performance Period to ensure timely availability for Phase 2B;

- Taking all necessary steps to procure any and all equipment that will be
required for continuation of full-scale sediment remediation throughout the 2009
construction season and throughout subsequent years (such as any other dewatering
and/or water treatment equipment that would be used later in the 2009 construction
season or in 2010), to the extent that such equipment needs to be ordered and/or
purchased during the Phase 2A Performance Period to ensure timely availability in
Phase 2B;

- Securing on-shore staging areas and performing staging site preparation work and
associated infrastructure construction (including entering into required contracts) in order
to ensure that such staging areas will be ready as needed for the Phase 2B Work, including:

- Securing and preparing any staging areas that will be used for full-scale
sediment remediation at the start of the 2009 construction season;

-
Securing and preparing any staging areas that will be used for continuation of
full-scale sediment remediation throughout the 2009 construction season and
throughout subsequent years, to the extent that

Appendix 2 - Page 5 

 

such staging areas need to be prepared during the Phase 2A
Performance Period to ensure timely availability in Phase 2B;

- Developing landfill facilities and/or procuring landfill space for disposal of
sediment to be dredged under the RODs (including entering into required contracts),
including:

- Developing landfill facilities and/or procuring landfill space for
disposal of all sediment to be dredged during the 2009 construction
season;

- Developing landfill facilities and/or procuring landfill space for
disposal of sediment to be dredged subsequent years, to the extent that
such disposal arrangements need to be made during the Phase 2A
Performance Period to ensure timely disposal of dredged sediment in
Phase 2B;

- Completing site surveys (including in-water and upland archaeological surveys in all
pertinent areas near OUs 2-5); and

- Obtaining all access agreements required for performance of the Phase 26 Work, as
described by Paragraph 71 of the Order.

The Phase 2A Work Plan shall also include a description of qualifications of key personnel
performing the Phase 2A Work, including contractor personnel.

     C. Other Phase 2A Work Requirements

          1. Phase 2A Health and Safety Plan

     The Affected Respondents shall prepare a Health and Safety Plan for the Phase 2A Work, and
shall submit that Plan to U.S. EPA and WDNR in accordance with Paragraph 49 of the Order and the
schedule specified by Section IV of this Phase 2A SOW. The Plan shall be designed to protect on-site
personnel and area residents from physical, chemical and all other hazards posed by activities
conducted as part of the Phase 2A Work. The Affected Respondents shall perform the Phase 2A Work in
accordance with the approved Phase 2A Health and Safety Plan.

          2. Phase 2A Contingency Plan

     The Affected Respondents shall prepare a Contingency Plan for the Phase 2A Work, and shall
submit that Plan to U.S. EPA and WDNR in accordance with Paragraph 49 of the Order and the schedule
specified by Section IV of this Phase 2A

Appendix 2 - Page 6 

 

SOW. The Plan shall describe procedures to be followed in the event of an accident or emergency
related to the Phase 2A Work. The Plan shall include, at a minimum, the following: (i) the name of
the person or entity responsible for responding in the event of an emergency incident; (ii) plans
for meeting with the local community, including local, State and Federal agencies involved in the
remedial action, as well as local emergency squads and hospitals; and (iii) first aid medical
information. The Affected Respondents shall perform the Phase 2A Work in accordance with the approved
Phase 2A Contingency Plan.

          3. Phase 2A Construction Quality Assurance Project Plan

     The Affected Respondents shall prepare a Construction Quality Assurance
Project Plan for the Phase 2A Work activities to be performed at the Site, and shall submit that Plan
to U.S. EPA and WDNR in accordance with Paragraph 49 of the Order and the schedule specified by
Section IV of this Phase 2A SOW. The Plan shall describe the site-specific components of the
quality assurance program that the Affected Respondents shall use to ensure that the completed
project meets or exceeds all design criteria, plans, and specifications. The Affected Respondents
shall perform the Phase 2A Work in accordance with the approved Phase 2A Construction Quality
Assurance Project Plan.

          4. Site Surveys Report

     The Affected Respondents shall prepare a Site Surveys Report, and shall submit that report to
U.S. EPA and WDNR in accordance with Paragraph 49 of the Order and the schedule specified by Section
IV of this Phase 2A SOW. The Site Surveys Report shall provide a description of the results of the
site surveys conducted under the Phase 2A Work Plan (including in-water and upland
archaeological surveys in all pertinent areas near OUs 2-5) and a description of any required
historic preservation measures.

          5. Community Relations Support

     U.S. EPA shall implement a community relations program. The Affected Respondents shall
cooperate with the U.S. EPA and at the request of U.S. EPA, shall participate in the
preparation of appropriate information to be disseminated by U.S EPA to the public. At the request
of U.S. EPA, the Affected Respondents shall participate in public meetings that may be held or
sponsored by U.S. EPA to explain activities at or concerning the Site.

Appendix 2 - Page 7 

 

     Community relations support will be consistent with Superfund community relations policy, as stated
in the “Guidance for Implementing the Superfund Program” and Community Relations in Superfund -
A handbook.

          6. Progress Reports

     The Affected Respondents shall submit monthly progress reports on the Phase 2A Work pursuant
to Paragraph 63 of the Order.

     D. Implementation of the Phase 2A Work

     The Affected Respondents shall implement the Phase 2A Work in accordance with the RODs, this
Phase 2A SOW, and the plans and schedules contained in the approved Phase 2A Work Plan.

IV. SUMMARY OF MAJOR MILESTONES AND DEADLINES

     A summary of certain major milestones for the Phase 2A Work is presented below. The Affected
Respondents shall adhere to the following schedule unless it is modified in writing by U.S. EPA’s
Remedial Project Manager.

Appendix 2 - Page 8 

 

	 	 	 
	Milestone	 	Schedule
	 
	 	 
	Monthly Progress Reports

	 	Due on a monthly basis, as described

in the Order
	 
	 	 
	Draft Phase 2A Work Plan

	 	Due by no later than December 31, 2007
	 
	 	 
	Final Phase 2A Work Plan

	 	Due no later than 21 calendar days
after receipt of U.S. EPA’s comments on
the Draft Phase Work Plan
	 
	 	 
	Phase 2A Health and
Safety Plan and Phase
2A Contingency Plan

	 	Due no later than 45 calendar days
after receipt of U.S. EPA’s comments on
the Draft Phase 2A Work Plan
	 
	 	 
	Site Surveys Report

	 	Due by no later than November 30, 2008
	 
	 	 
	Performance of all
other elements of the
Phase 2A Work

	 	Due to be performed in accordance
with the schedule contained in the
approved Phase 2A Work Plan
	 
	 	 
	End of the Phase 2A
Performance Period

	 	December 31, 2008

Appendix 2 - Page 9 

 

STATEMENT OF WORK

FOR COMPLETION OF PHASE 2B OF THE REMEDIAL ACTION

AND OTHER RELATED RESPONSE ACTIVITIES FOR

OPERABLE UNITS 2, 3, 4 AND 5 AT THE

LOWER FOX RIVER AND GREEN BAY SITE

BROWN, OUTAGAMIE, AND WINNEBAGO COUNTIES, WISCONSIN

I. PURPOSE

     This
Statement of Work for completion of Phase 2B of the remedial action and other related
response activities (the “Phase 2B SOW”) specifies requirements under the accompanying
Administrative Order for Remedial Action (the “Order”) for performance of certain
response activities relating to Operable Units (“OUs”) 2, 3, 4 and 5 at the Lower Fox River and
Green Bay Site (the “Site”) between August 15, 2008 and the completion of the work in OUs 2-5.

     The selected remedy for OUs 2-5 at the Site is set forth in two Records of Decision and a
Record of Decision Amendment issued by the U.S. Environmental Protection Agency (“US. EPA”) and the
Wisconsin Department of Natural Resources (“WDNR”). The Record of Decision for OUs 1 and 2 at the Site
was signed in December 2002 (the “2002 ROD”), and the original Record of Decision for OUs 3-5 at
the Site was signed on June 30, 2003 (the “2003 ROD”). A Record of Decision Amendment, signed June
26, 2007 (the “2007 ROD Amendment”), modified certain aspects of the selected remedy for OUs 2-5.
The 2002 ROD, the 2003 ROD, and the 2007 ROD Amendment are collectively referred to herein as the
“RODs”.

     The remedial design for OUs 2-5 is being prepared under a separate Settlement Agreement and
Administrative Order on Consent, captioned In re Lower Fox River and Green Bay Site, U.S.
EPA Region 5, CERCLA Docket No. V-W-’04-C-781 (the “RD Settlement Agreement”). The remedial design
work is continuing under the RD Settlement Agreement, so this Phase 2B SOW and the accompanying
Order do not address remedial design requirements for OUs 2-5. However, in performing the work

Appendix 3 - Page 1 

 

under the
Order and this Phase 2B SOW, the Affected Respondents shall coordinate their activities
with the activities being performed under the RD Settlement Agreement, and all work to implement
this Phase 2B SOW shall be consistent with all plans that are prepared and approved under the RD
Settlement Agreement.

     EPA and WDNR previously determined that the remedial action for OUs 2-5 should be conducted in
two main phases to expedite the response in a particular area known as the “Phase 1 Project Area.”
The Phase 1 Project Area is just downstream from the De Pere dam, along the west bank of the Tower
Fox River, near the City of Green Bay. Phase 1 of the remedial action addresses PCB-contaminated
sediment in that area, which have especially high PCB concentrations. EPA and WDNR concluded that
the accelerated removal of PCBs in that area would therefore have significant benefits to the
environment and public health. Phase 1 of the remedial action is currently being implemented under
a Consent Decree in the case captioned United States and the State of Wisconsin v. NCR
Corporation and Sonoco-U.S. Mills. Inc., Case No. 06-C-484 (E.D. Wis.). All remaining elements
of the remedial action in OUs 2-5 will be implemented in Phase 2.

     The Statement of Work that accompanies the RD Settlement Agreement recognizes that many
elements of the remedial action for OUs 2-5 will be designed in a
traditional, stepwise fashion (i.e.,
through sequential development of a Preliminary Design, Intermediate Design, Pre-Final Design, and
Final Design), but it also specifies that certain other elements of remedial action that require
long lead time planning shall be designed on an expedited basis, as necessary to permit
commencement of full-scale sediment remediation for Phase 2 of the OU 2-5 remedial action at the
start of the 2009 construction season. A specific plan and schedule for designing all elements of
the remedial action that require long lead time planning will be set forth in an RD Work Plan
Addendum that is due to be submitted on December 31, 2007. That plan and schedule must be designed
to permit commencement of full-scale sediment remediation for Phase 2 of the OU 2-5 remedial action
at the start of the 2009 construction season, such that sediment remediation occurs throughout the
2009 construction season. Full-scale sediment remediation will then continue throughout subsequent
years, until completion of construction of the OU 2-5 remedial action.

Appendix 3 - Page 2 

 

     To adhere to that project schedule, certain Affected Respondents will need to perform
significant preparatory activities in 2008. EPA and WDNR have therefore determined that Phase 2 of
the OU 2-5 remedial action should be subdivided and staged as follows: (i) Phase 2A consists of
work to be performed before the end of 2008, in preparation for the commencement and continuation
of full-scale sediment remediation within OUs 2-5; (ii) Phase 2B comprises all remaining work to
implement the OU 2-5 remedial action (such as the performance of full-scale sediment remediation in
2009 and subsequent years) and other related response activities (such as operation and maintenance
and long-term monitoring activities). Section III of this Phase 2B SOW identifies tasks that the
Affected Respondents shall perform to implement the Phase 2B Work as required by Paragraph 47 and
other corresponding provisions of the Order. Any and all remedial action work that is commenced
under the separate Statement of Work for Phase 2A, but not completed in Phase 2A, shall be
completed during Phase 2B pursuant to the Order and this Phase 2B SOW.

II. THE REMEDIAL ACTION

     The accompanying Order requires the Affected Respondents to implement all aspects of the
remedy for OUs 2-5 as necessary to meet the Performance Standards and specifications set forth in
the RODs, as summarized below.

     The Remedy in OU2 (Excluding Deposit DD). This portion of the remedy was
unchanged by the 2007 ROD Amendment. The selected remedy is Monitored Natural Recovery (“MNR”). An
institutional control plan and a long-term monitoring plan for PCB levels and possibly for mercury
levels in water, sediment, and biota will be developed during the remedial design process, and the
Affected Respondents will need to implement such institutional controls and long-term monitoring
plans as part of the remedial action

     The Remedy in OU2 (Deposit DD), OU3, OU4, and OU5 (River Mouth).
In these areas, the 2007 ROD Amendment adopted sediment dredging as the primary remedial
approach for sediments exceeding the 1.0 ppm PCB Remedial Action Level (“RAL”),
but permitted the use of other alternative remedial approaches (i.e., a combination of
dredging and capping, capping alone, and/or placement of a sand cover) if certain

Appendix 3 - Page 3 

 

performance standards specified by the 2007 ROD Amendment are met. The short-term and long-term
objectives of the Amended Remedy include: removing and containing PCB-contaminated sediment in each
OU to meet the RAL performance standard and/or the SWAC goal upon construction completion, as set
forth in the 2007 ROD Amendment; achieving further reductions in PCB surface water and sediment
concentrations through natural recovery processes; achieving corresponding reductions in PCB levels
in the water column and in fish tissue; and ensuring improvement in PCB levels in surface water at
the Site through long-term operation and maintenance and institutional controls. Pursuant to the
accompanying Order, the Affected Respondents will need to perform all required sediment
remediation in OUs 2-5 using the primary remedial approach and alternative remedial approaches in
accordance with the RODs.

     The Remedy in OU5 (Excluding the River Mouth). This portion of the remedy was
unchanged by the 2007 ROD Amendment. The selected remedy is MNR. An institutional control plan and
a long-term monitoring plan for PCB levels and possibly for mercury levels in water, sediment, and
biota will be developed during the remedial design process, and the Respondents will need to
implement such institutional controls and long-term monitoring plans as part of the remedial action

     As discussed below, some aspects of the OU 2-5 remedial action will be performed under a
separate Statement of Work for Phase 2A (the “Phase 2A SOW”) and all other elements of the overall
remedy will be performed under this Phase 2B SOW.

III. THE PHASE 2B WORK

     A. Timing

     The Affected Respondents shall commence the work required by this Phase 2B SOW by no later
than August 15, 2008 and shall continue such work until all requirements under the RODs have been
met and the performance standards set forth in the RODs have been achieved. Among other things, the
Affected Respondents will be required to prepare and submit a draft and final work plan for Phase
2B (hereinafter the “Phase 2B Work Plan”) by December 15, 2008, and the Affected Respondents will
need to implement the approved Phase 2B Work Plan and perform other aspects of

Appendix 3 - Page 4 

 

Phase 2B of the remedial action after the Phase 2A Performance Period ends on December
31, 2008.

     B. Scope of Phase 2B Work

     This
Phase 2B SOW requires the Affected Respondents to: (i) prepare and submit a draft and
final work plan for Phase 2B of the remedial action (the “Phase 2B Work Plan”) and
certain other plans in accordance with the schedule specified by Section IV of this Phase 2B SOW;
(ii) continue and complete all preparatory activities and all other remedial action activities that
were required to be commenced under the Phase 2A SOW, but that were not completed during Phase 2A,
after the Phase 2A Performance Period ends on December 31, 2008; (iii) perform all remaining
aspects of the remedial action for OUs 2-5 in accordance with the RODs, Phase 2B Work Plan, and
this Phase 2B SOW; and (iv) perform all other response activities — such as operation and
maintenance and long-term monitoring activities — specified by the RODs, the Phase 2B Work Plan,
and all pertinent plans approved under the RD Settlement Agreement (hereinafter the “Phase 2B Work”).
The Phase 2B Work shall include commencement of full-scale sediment remediation at the start of the
2009 construction season (such that sediment remediation occurs throughout the 2009 construction
season), continuation of full-scale sediment remediation throughout subsequent years (until
completion of construction of the OU 2-5 remedy), and performance of operation and maintenance and
long-term monitoring activities (during and after construction of the remedy, as required by the
RODs, the Phase 2B Work Plan, and all pertinent plans approved under the RD Settlement Agreement).

     C. The Phase 28 Work Plan

     The
Affected Respondents shall prepare a Phase 20 Work Plan that establishes detailed plans and
schedules for performance of all elements of the Phase 2B Work, and shall submit that work plan to
U.S. EPA and WDNR in accordance with Paragraph 49 of the Order and the schedule specified by Section
IV of this Phase 2B SOW. The Phase 2B Work Plan shall include, but shall not be limited to, plans
and schedule for:

- Continuing and completing all preparatory activities and all other remedial
action activities that were required to be commenced under the Phase 2A SOW,

Appendix 3 - Page 5 

 

but that were not completed during Phase 2A, after the Phase 2A Performance Period ends on
December 31, 2008;

- Implementing all aspects of the approved Final Design prepared under the RD
Settlement Agreement, including:

- Providing an overall schedule for performing all aspects of the remedial action
in OUs 2-5, with dates for major interim milestones and for completing construction
of the remedy;

- Providing detailed plans for performing the remedial action over multiple
construction seasons, with dredging, capping, and cover target quantities broken
out by season, OU, and OU sub-area (such as dredge management unit);

- Providing a detailed description of sediment load out,
transportation, and disposal plans; and

- Implementing all aspects of the approved Final Operation, Maintenance and Monitoring
Plan and the approved Final Long-Term Monitoring Plan prepared under the RD Settlement
Agreement.

The Phase 2B Work Plan shall also include a description of qualifications of key personnel
performing the Phase 2B Work, including contractor personnel.

     D. Other Phase 2B Work Requirements

          1. Phase 2B Health and Safety Plan

     The Affected Respondents shall prepare a Health and Safety Plan for the Phase 2B Work, and
shall submit that Plan to U.S. EPA and WDNR in accordance with Paragraph 49 of the Order and the
schedule specified by Section IV of this Phase 2B SOW. The Plan shall be designed to protect
on-site personnel and area residents from physical, chemical and all other hazards posed by
activities conducted as part of the Phase 2B Work, and shall cover
health and safety matters not
addressed by the Community Health and Safety Plan that will be prepared pursuant to the RD
Settlement Agreement. The Affected Respondents shall perform the Phase 2B Work in accordance with
the approved Phase 2B Health and Safety Plan.

          2. Financial Assurance

     By no later than January 15, 2009, the Affected Respondents shall comply with

Appendix 3 - Page 6 

 

the
financial assurance requirements specified by Subparagraph 70.c of the Order.

          3. Access Agreements

     By no later than January 15, 2009, the Affected Respondents shall obtain all access agreements
required for performance of the Phase 26 Work, as described by Paragraph 71 of the Order.

          4. Community Relations Support

     U.S. EPA shall implement a community relations program. The Affected
Respondents shall cooperate with the U.S. EPA and at the request of U.S. EPA, shall
participate in the preparation of appropriate information to be disseminated by U.S.
EPA to the public. At the request of U.S. EPA, the Affected Respondents shall
participate in public meetings that may be held or sponsored by U.S.
EPA to explain activities at or concerning the Site.

     Community relations support will be consistent with Superfund community, relations policy, as
stated in the “Guidance for Implementing the Superfund Program” and Community Relations in
Superfund — A handbook.

          5. Progress Reports

     The Affected Respondents shall submit monthly progress reports on the Phase 2B Work pursuant to
Paragraph 60 of the Order. Upon request by U.S. EPA, the Affected Respondents shall also provide
more frequent progress reports (e.g., daily and/or weekly reports on sediment remediation progress and
production).

     E. Implementation of the Phase 2B Work

     The Affected Respondents shall implement the Phase 28 Work in accordance with the RODS, this
Phase 2B SOW, and the plans and schedules contained in the approved
Phase 2B Work Plan. The
Affected Respondents also shall perform the Phase 2B Work in accordance with all pertinent plans
approved under the Phase 2A SOW and the RD Settlement Agreement,
including: (i) the Final Design;
(ii) the Phase 2A Health and Safety Plan; (iii) the Phase 2A Contingency Plan; (iv) the Phase 2A
Construction Quality Assurance Project Plan; (v) the Community Health and Safety Plan prepared under
the RD Settlement Agreement; (vi) the Contingency Plan prepared under the RD Settlement Agreement;
(vii) the Construction Quality Assurance Project Plan prepared under the RD Settlement Agreement;
(viii) the Mitigation Plan prepared

Appendix 3 - Page 7 

 

under the
RD Settlement Agreement; (ix) the Institutional Control
Implementation and Assurance
Plan; (x) the Sediment Removal Verification/Capping and Covering
Plan; (xi) the Operation,
Maintenance, and Monitoring Plan; and (xii) the Long-Term
Monitoring Plan.

IV. SUMMARY OF MAJOR MILESTONES AND DEADLINES

     A summary of major milestones for the Phase 2B Work is presented below. The
Affected Respondents shall adhere to the following schedule unless it
is modified in writing by
U.S. EPA’s Remedial Project Manager.

Appendix 3 - Page 8 

 

	 	 	 
	Milestone	 	Schedule
	 
	 	 
	Monthly Progress Reports

	 	Due on a monthly basis, as
described in the Order
	 
	 	 
	Draft Phase 2B Work Plan

	 	Due by no later than October 1, 2008
	 
	 	 
	Final Phase 2B Work Plan

	 	Target Date: December 15,
2008

Due Date: Due no later than 30
calendar days after receipt of U.S.
EPA’s comments on the Draft Phase 2B
Work Plan
	 
	 	 
	Final Phase 2B Health
and Safety Plan

	 	Due by no later than December 15, 2008
	 
	 	 
	Deadline for compliance
with financial
assurance requirements
under Subparagraph 70.c
of the Order

	 	January 15, 2009
	 
	 	 
	Deadline for obtaining
access agreements under
Paragraph 71 of the
Order

	 	January 15, 2009
	 
	 	 
	Performance of all
other elements of the
Phase 2B Work

	 	Due to be performed in accordance with
the schedule contained in the approved
Phase 2B Work Plan

Appendix 3 - Page 9ex10-1.htm

     
      

    

    Exhibit
      10.1

     

    

    

    

    KEY
      TECHNOLOGY, INC.

    (an
      Oregon corporation)

    

    

    

    and

    

    

    

    AMERICAN
      STOCK TRANSFER & TRUST COMPANY

    Rights
      Agent

    

    

    

    

    

    

    

    

    

    

    Second
      Amended and Restated

    Rights
      Agreement

    

    Dated
      as
      of November 13, 2007

    

    

    

    

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    TABLE
      OF
      CONTENTS

    

    Section                                                                                                                                                   
      Page

    

    

    1.                 Certain
      Definitions                                                                                                               
1

    

    2.                 Appointment
      of Rights
      Agent                                                                                           
5

    

    3.                 Issue
      of Rights
      Certificates                                                                                                
5

    

    4.                 Form
      of Rights
      Certificates                                                                                                 
6

    
 

    5.                 Countersignature
      and
      Registration                                                                                  
 7

    

    6.                 Transfer,
      Split Up, Combination and Exchange of Rights

    Certificates;
      Mutilated, Destroyed,
      Lost or Stolen

    Rights
      Certificates                                                                                                            
8

    

    7.                 Exercise
      of Rights; Purchase Price; Expiration Date

    of
      Rights                                                                                                                            
9

    

    8.                 Cancellation
      and Destruction of Rights
      Certificates                                                      11

    

    9.                 Reservation
      and Availability of Capital
      Stock                                                               
 11

    

    10.                 Preferred
      Stock Record
      Date                                                                                            13

    

    11.                 Adjustment
      of Purchase Price, Number and Kind of

    Shares
      or Number of
      Rights                                                                                           13

    

    12.                 Certificate
      of Adjusted Purchase Price or Number of

    Shares                                                                                                                               
       21

    

    13.                 Consolidation,
      Merger or Sale or Transfer

    of
      Assets or Earning
      Power                                                                                            22

    

    14.                 Fractional
      Rights and Fractional
      Shares                                                                         24

    

    15.                 Rights
      of
      Action                                                                                                                 25

    

    16.                 Agreement
      of Rights
      Holders                                                                                           26

    

    17.                 Rights
      Holder and Rights Certificate Holder Not Deemed a
      Shareholder                  26

    
      
        
           KEY
            TECHNOLOGY, INC.                                                                                            PAGE
            i

           SECOND
            AMENDED AND RESTATED RIGHTS PLAN

                                       

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    18.                 Concerning
      the Rights
      Agent                                                                                           
27

    

    19.                 Merger
      or Consolidation or Change of Name of Rights
      Agent                                    27

    

    20.                 Duties
      of Rights
      Agent                                                                                                      
28

    

    21.                 Change
      of Rights Agent                                                            
      30

    

    22.                 Issuance
      of New Rights
      Certificates                                                                                
31

    

    23.                 Redemption
      and
      Termination                                                                                             31

    

    24.                 Exchange                                                                                                                              
      32

    

    25.                 Notice
      of Certain
      Events                                                                                                    
33

    

    26.                 Notices                                                                                                                                  
      34

    

    27.                 Supplements
      and
      Amendments                                                                                         35

    

    28.                 Successors                                                                                                                            35

    

    29.                 Determinations
      and Actions by the Board of Directors,
      Etc.                                        35

    

    30.                 Benefits
      of This
      Agreement                                                                                                36

    

    31.                 Severability                                                                                                                            36

    

    32.                 Governing
      Law                                                                                                                      36

    

    33.                 Counterparts                                                                                                                          37

    

    34.                 Descriptive
      Headings                                                                                                           37

    

    Exhibit
      A     --    Designation of Terms of
      Series A Junior

        Participating
      Preferred Stock

    

    Exhibit
      B     --    Form of Rights
      Certificate

    

    
      
         KEY
          TECHNOLOGY,
          INC.                                                                                                                                                        PAGE
          ii

           SECOND AMENDED AND RESTATED RIGHTS
            PLAN                      

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    TABLE
      OF
      DEFINED TERMS

    

    

    
      	
              Term
                Defined                                                                                                               
                 Section

              Acquiring
                Person .................................................................................................             
                1(a)

              Adjustment
                Shares ...............................................................................................      
                11(a)(ii)

              Adverse
                Person ....................................................................................................             
                1(b)

              Affiliate ..................................................................................................................           
                   1(c)

              Agreement .............................................................................................................            
                Intro

              Associate ...............................................................................................................              
                1(c)

              Beneficial
                Owner; beneficially
                own ....................................................................             
                1(d)

              Board
                of Directors
                .................................................................................................           
                Intro

              Business
                Day .........................................................................................................             
                1(e)

              Close
                of
                Business ..................................................................................................  
                           
                1(f)

              Common
                Stock .......................................................................................................   Intro; 1(g)

              Common
                Stock Equivalents
                .................................................................................      
                11(a)(iii)

              Company
                (Key Technology,
                Inc.) .......................................................................           
                Intro

              Company
                (following a

              Section 13
                Event) ...................................................................................................           
                13(a)

              Current
                Value ..........................................................................................................      11(a)(iii)

              Current
                Market
                Price ..............................................................................................          
                20(b)

              Distribution
                Date ....................................................................................................             
                3(a)

              equivalent
                preferred stock
                ....................................................................................           
                11(b)

              Exchange
                Act ..........................................................................................................             
                1(a)

              Exchange
                Date ........................................................................................................             
                7(a)

              Exchange
                Ratio .......................................................................................................           
                24(a)

              Expiration
                Date .......................................................................................................             
                7(a)

              Final
                Expiration
                Date .............................................................................................             
                7(a)

            	
              Term
                Defined                                                                                                                   Section

              Original
                Rights ....................................................................................................             
                1(d)(i)

              Person ..................................................................................................................                 
                1(h)

              Preferred
                Stock ...................................................................................................        
                Intro; 1(i)

              Principal
                Party .....................................................................................................               
                13(b)

              Purchase
                Price1...........................................................................         
                (j); 4(a); 11(a)(ii); 13(a)

              Qualifying
                Offer ..................................................................................................       1(a)(ii)(A)

              Record
                Date .........................................................................................................               Intro

              Redemption
                Date ................................................................................................                
                7(a)

              Redemption
                Price ................................................................................................               23(a)

              Restated
                Articles of
                Incorporation ...................................................................         11(a)(iii)

              Rights ....................................................................................................................              Intro

              Rights
                Agent ........................................................................................................             
                Intro

              Rights
                Certificates ...............................................................................................               
                3(a)

              Rights
                Dividend Declaration
                Date ....................................................................             
                Intro

              Section
                11(a)(ii) Event
                .........................................................................................         11(a)(ii)

              Section
                11(a)(ii) Trigger Date
                .............................................................................        11(a)(iii)

              Section
                13
                Event ..................................................................................................         
                    13(a)

              Securities
                Act .......................................................................................................               
                7(c)

              Spread ....................................................................................................................        11(a)(iii)

              Stock
                Acquisition
                Date .......................................................................................              1(m)

              Subsidiary .............................................................................................................               1(n)

              Substitution
                Period .............................................................................................        11(a)(iii)

              Trading
                Day ........................................................................................................          
                11(d)(i)

              Triggering
                Event ................................................................................................                
                1(o)

            

    

    
      
         KEY
          TECHNOLOGY, INC.                                                                                            PAGE
          iii
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN         
            

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    SECOND
      AMENDED AND RESTATED

    RIGHTS
      AGREEMENT

    

    SECOND
      AMENDED AND RESTATED RIGHTS
      AGREEMENT, dated as of November 13, 2007 (this "Agreement"), between Key
      Technology, Inc., an Oregon corporation (the "Company"), and American Stock
      Transfer & Trust Company, a New York banking corporation (the "Rights
      Agent").

    

    W
      I T N E
      S E T H

    

    WHEREAS,
      on May 4, 1998 (the "Rights
      Dividend Declaration Date"), the Board of Directors of the Company (the "Board
      of Directors") authorized and declared a dividend distribution of one Right
      (as
      defined below) for each share of the Company's common stock, par value $.01
      per
      share (the "Common Stock"), outstanding at the close of business on June 30,
      1998 (the "Record Date"), and authorized the issuance of one Right (as such
      number may hereinafter be adjusted pursuant to the provisions of
      Section 11(p) hereof) for each share of Common Stock of the Company issued
      between the Record Date and the Distribution Date (as defined below), each
      Right
      initially representing the right to purchase 1/1,000 of a share of the Company's
      Series A Junior Participating Preferred Stock (the "Preferred Stock") having
      the
      rights, powers and preferences set forth in Exhibit A attached hereto, upon
      the
      terms and subject to the conditions hereinafter set forth (each a "Right" and
      collectively, the "Rights");

    

    WHEREAS,
      the Company entered into a Rights Agreement with ChaseMellon Shareholder
      Services, L.L.C., a New Jersey limited liability company ("ChaseMellon") dated
      June 20, 1998 and appointed ChaseMellon as the initial rights
      agent;

    

    WHEREAS,
      on April 1, 2001, the Company amended and restated the Rights Agreement (the
      "First Amended and Restated Rights Agreement") whereby the Company removed
      ChaseMellon as the rights agent and appointed American Stock Transfer &
Trust Company as the successor rights agent, and the Company appointed the
      Rights Agent to act on behalf of the Company in connection with the
      Rights;

    

    WHEREAS,
      the First Amended and Restated Rights Agreement provides for its amendment
      from
      time to time without the consent of the holders of the Rights; and

    

    WHEREAS,
      on or about October 8, 2007, the Board of Directors of the Company authorized
      and directed the officers of the Company to amend and restate the First Amended
      and Restated Rights Agreement on the terms and conditions set forth in this
      Agreement.

    

    NOW,
      THEREFORE, in consideration of the
      premises and the mutual agreements herein set forth, the parties hereby agree
      as
      follows:

     

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE
          1
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN                

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Section
      1.                      Certain
      Definitions.

    

    For
      purposes of this Agreement, the following terms have the meanings
      indicated:

    

    (a)           "Acquiring
      Person" shall mean any Person who or which, together with all Affiliates and
      Associates of such Person, shall be the Beneficial Owner of 15% or more of
      the
      shares of Common Stock then outstanding, but shall not include:

    

    (i)           the
      Company;

    

    (ii)           any
      Subsidiary of the Company;

    

    (iii)           any
      employee benefit plan of the Company or of any Subsidiary of the
      Company;

    

    (iv)           any
      Person or entity organized, appointed or established by the Company for or
      pursuant to the terms of any such plan; or

    

    (v)           any
      such Person who has reported or is required to report Beneficial Ownership
      of
      15% or more (but less than 25%) of the shares of Common Stock then outstanding
      on Schedule l3G under the Exchange Act of 1934, as amended (the "Exchange Act")
      (or any comparable or successor report), or on Schedule 13D under the Exchange
      Act (or any comparable or successor report) which Schedule 13D does not state
      any intention to or reserve the right to control or influence the management
      or
      policies of the Company or engage in any of the actions specified in Item 4
      of
      such Schedule (other than the disposition of the Common Stock) and, within
      10
      Business Days of being requested by the Company to advise it regarding the
      same,
      certifies to the Company that such Person acquired shares of Common Stock in
      excess of l4.9% inadvertently or without knowledge of the terms of the Rights
      or
      consequences of such Beneficial Ownership under this Agreement and who, together
      with all Affiliates and Associates, thereafter does not acquire additional
      shares of Common Stock while the Beneficial Owner of 15% or more of the shares
      of Common Stock then outstanding; provided, however, that if the
      Person requested to so certify fails to do so within 10 Business Days, then
      such
      Person shall become an Acquiring Person immediately after such 10 Business
      Day
      Period.

    

    Notwithstanding
      the foregoing, no Person shall become an "Acquiring Person" solely as the result
      of an acquisition of Common Stock by the Company which, by reducing the number
      of shares outstanding, increases the proportionate number of shares beneficially
      owned by a Person to l5% or more of the Common Stock of the Company then
      outstanding as determined above; provided, however, that if a
      Person becomes the Beneficial Owner of l5% or more of the Common Stock of the
      Company then outstanding (as determined above) solely by reason of acquisitions
      of Common Stock by the Company and shall, after such acquisitions by the
      Company, become the Beneficial Owner of any additional shares of Common Stock
      by
      any means whatsoever, then such Person shall be deemed to be an "Acquiring
      Person." Any

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 2
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN                

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    determination
      made by the Board of Directors as to whether any Person is or is not an
      "Acquiring Person" shall be conclusive and binding upon all holders of
      Rights.

    

    (b)           "Adverse
      Person" shall mean any Person declared to be an Adverse Person by the Board
      of
      Directors upon determination that the criteria set forth in
      Section 11(a)(ii)(B) apply to such Person; provided, however,
      that the Board of Directors shall not declare any Person who is the Beneficial
      Owner of 10% or more of the outstanding Common Stock of the Company to be an
      Adverse Person if such Person has reported or is required to report such
      ownership on Schedule 13G under the Exchange Act (or any comparable or successor
      report) or on Schedule 13D under the Exchange Act (or any comparable or
      successor report) which Schedule 13D does not state any intention to or reserve
      the right to control or influence the management or policies of the Company
      or
      engage in any of the actions specified

    in
      Item 4
      of such Schedule (other than the disposition of the Common Stock) so long as
      such Person neither reports nor is required to report such ownership other
      than
      as described in this paragraph (b).

    

    (c)           "Affiliate"
      and "Associate" shall have the respective meanings ascribed to such terms in
      Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as
      in
      effect on the date of this Agreement.

    

    (d)           A
      Person shall be deemed the "Beneficial Owner" of, and shall be deemed to
      "beneficially own," any securities:

    

    (i)           which
      such Person or any of such Person's Affiliates or Associates, directly or
      indirectly, has the right to acquire (whether such right is exercisable
      immediately or only after the passage of time) pursuant to any agreement,
      arrangement or understanding (whether or not in writing) or upon the exercise
      of
      conversion rights, exchange rights, rights, warrants or options, or otherwise;
      provided, however, that a Person shall not be deemed the
      "Beneficial Owner" of, or to "beneficially own:"  (A) securities
      tendered pursuant to a tender or exchange offer made by such Person or any
      of
      such Person's Affiliates or Associates until such tendered securities are
      accepted for purchase or exchange; or (B) securities

    issuable
      upon exercise of Rights at any time prior to the occurrence of a Triggering
      Event; or (C) securities issuable upon exercise of Rights from and after
      the occurrence of a Triggering Event which Rights were acquired by such Person
      or any of such Person's Affiliates or Associates prior to the Distribution
      Date
      or pursuant to Section 3(a) or Section 22 hereof (the "Original Rights") or
      pursuant to Section 11(i) hereof in connection with an adjustment made with
      respect to any Original Rights;

    

    (ii)           which
      such Person or any of such Person's Affiliates or Associates, directly or
      indirectly, has the right to vote or dispose of or has "beneficial ownership"
      of
      (as determined pursuant to Rule 13d-3 of the General Rules and Regulations
      under
      the Exchange Act, as in effect on the date of this Agreement), including
      pursuant to any agreement, arrangement or understanding, whether or not in
      writing; provided, however, that a Person shall not be deemed the
      "Beneficial Owner" of, or to "beneficially own," any security under
      this

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 3
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN                

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    subparagraph
      (ii) as a result of an agreement, arrangement or understanding to vote such
      security if such agreement, arrangement or
      understanding:  (A) arises solely from a revocable proxy given in
      response to a public proxy or consent solicitation made pursuant to, and in
      accordance with, the applicable provisions of the General Rules and Regulations
      under the Exchange Act, and (B) is not also then reportable by such Person
      on Schedule 13D under the Exchange Act (or any comparable or successor report);
      or

    

    (iii)           which
      are beneficially owned, directly or indirectly, by any other Person (or an
      Affiliate or Associate thereof) with which such Person (or any of such Person's
      Affiliates or Associates) has any agreement, arrangement or understanding
      (whether or not in writing), for the purpose of acquiring, holding, voting
      (except pursuant to a revocable proxy as described in the proviso to
      subparagraph (ii) of this paragraph (c)) or disposing of any voting securities
      of the Company; provided, however, that nothing in this paragraph
      (c) shall cause a person engaged in business as an underwriter of securities
      to
      be the "Beneficial Owner" of, or to "beneficially own," any securities acquired
      through such person’s participation in good faith in a firm commitment
      underwriting until the expiration of 40 days after the date of such
      acquisition.

    

    (e)           "Business
      Day" shall mean any day other than a Saturday, Sunday or a day on which banking
      institutions in the State of Oregon are authorized or obligated by law or
      executive order to close.

    

    (f)           "Close
      of Business" on any given date shall mean 5:00 p.m., Pacific time, on such
      date; provided, however, that if such date is not a Business Day
      it shall mean 5:00 p.m., Pacific time, on the next succeeding Business
      Day.

    

    (g)           "Common
      Stock" shall mean the common stock, par value $.01 per share, of the Company,
      except that "Common Stock" when used with reference to any Person other than
      the
      Company shall mean the capital stock of such Person with the greatest voting
      power, or the equity securities or other equity interest having power to control
      or direct the management, of such Person.

    

    (h)           "Person"
      shall mean any individual, firm, corporation, partnership, limited liability
      company or other entity.

    

    (i)           "Preferred
      Stock" shall mean shares of Series A Junior Participating Preferred Stock of
      the
      Company, and, to the extent that there is not a sufficient number of shares
      of
      Series A Junior Participating Preferred Stock authorized to permit the full
      exercise of the Rights, any other series of Preferred Stock of the Company
      designated for such purpose containing terms substantially similar to the terms
      of the Series A Junior Participating Preferred Stock.

    

    (j)           "Purchase
      Price" shall mean the price to be paid for each 1/1,000 of a share of Preferred
      Stock pursuant to the exercise of a Right, which price is, as of the
      date

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 4
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    hereof,
      as set forth in Section 7(b) hereof.  The Purchase Price is
      subject to adjustment from time to time as set forth in Sections 11 and 13
      hereof.

    

    (k)           "Section
      11(a)(ii) Event" shall mean any event described in Section 11(a)(ii)
      hereof.

    

    (l)           "Section
      13 Event" shall mean any event described in clauses (i),(ii) or (iii) of Section
      13(a) hereof.

    

    (m)           "Stock
      Acquisition Date" shall mean the first date of public announcement (which,
      for
      purposes of this definition, shall include, without limitation, a report filed
      pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring
      Person that an Acquiring Person has become such.

    

    (n)           "Subsidiary"
      shall mean, with reference to any Person, any corporation of which an amount
      of
      voting securities sufficient to elect at least a majority of the directors
      of
      such corporation is beneficially owned, directly

    or
      indirectly, by such Person, or otherwise controlled by such Person.

    

    (o)           "Triggering
      Event" shall mean any Section 11(a)(ii) Event or any Section 13
      Event.

    

    Section
      2.                      Appointment
      of Rights Agent.

    

    The
      Company hereby appoints the Rights
      Agent to act as agent for the Company in accordance with the terms and
      conditions hereof, and the Rights Agent hereby accepts such
      appointment.  The Company may from time to time appoint such Co-Rights
      Agents as it may deem necessary or desirable.  The Rights Agent shall
      in no way be held responsible for the actions of any such Co-Rights
      Agent.

    

    Section
      3.                      Issue
      of Rights Certificates.

    

    (a)           Until
      the earliest of:  (i) the Close of Business on the twentieth
      Business Day after the Stock Acquisition Date; (ii) the Close of Business
      on the tenth Business Day (or such later date as the Board of Directors shall
      determine) after the date that a tender or exchange offer by any Person (other
      than the Company, any Subsidiary of the Company, any employee benefit plan
      of
      the Company or of any Subsidiary of the Company, or any Person or entity
      organized, appointed or established by the Company for or pursuant to the terms
      of any such plan) is first published or sent or given within the meaning of
      Rule
      14d-2(a) of the General Rules and Regulations under the Exchange Act, as in
      effect on the date of this Agreement, if upon consummation thereof, such Person
      would be the Beneficial Owner of l5% or more of the shares of Common Stock
      then
      outstanding; or (iii) the Close of Business on the tenth Business Day after
      the Board of Directors determines, pursuant to the criteria set forth in
      Section 11(a)(ii)(B) hereof, that a Person is an Adverse Person (the
      earliest of (i), (ii) and (iii)

    
      
         KEY
          TECHNOLOGY, INC.                                                                                            PAGE 5
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    being
      herein referred to as the "Distribution Date"), then the following shall
      apply:  (x) the Rights will be evidenced (subject to the
      provisions of paragraph (b) of this Section 3) by the certificates for
      the Common Stock registered in the names of the holders of the Common Stock
      (which certificates for Common Stock shall be deemed also to be certificates
      for
      Rights) and not by separate certificates, and (y) the Rights will be
      transferable only in connection with the transfer of the underlying shares
      of
      Common Stock (including a transfer to the Company).  As soon as
      practicable after the Distribution Date, the Rights Agent will send by
      first-class, postage prepaid mail, to each holder of the Common Stock as of
      the
      Close of Business on the Distribution Date, at the address of such holder shown
      on the records of the Company, one or more right certificates, in substantially
      the form of Exhibit B hereto (the "Rights Certificates"), evidencing one Right
      for each share of Common Stock so held, subject to adjustment as provided
      herein.  In the event that an adjustment in the number of Rights per
      share of Common Stock has been made pursuant to Section 11(p) hereof, at
      the time of distribution of the Rights Certificates, the Company shall make
      the
      necessary and appropriate rounding adjustments (in accordance with
      Section 14(a) hereof) so that Rights Certificates representing only whole
      numbers of Rights are distributed and cash is paid in lieu of any fractional
      Rights.  As of and after the Distribution Date, the Rights will be
      evidenced solely by such Rights Certificates.

    

    (b)           With
      respect to certificates for the shares of Common Stock outstanding as of the
      Record Date, until the Distribution Date, the Rights will be evidenced by such
      certificates for the Common Stock and the registered holders of the Common
      Stock
      shall also be the registered holders of the associated Rights.  Until
      the earlier of the Distribution Date or the Expiration Date (as such term is
      defined in Section 7 hereof), the transfer of any certificates representing
      shares of Common Stock in respect of which Rights have been issued shall also
      constitute the transfer of the Rights associated with such shares of Common
      Stock.

    

    (c)           Rights
      shall be issued in respect of all shares of Common Stock which are issued
      (whether originally issued or from the Company's treasury) after the Record
      Date
      but prior to the earlier of the Distribution Date or the Expiration Date or
      in
      certain circumstances provided in Section 22 hereof, after the Distribution
      Date.  Certificates representing such shares of Common Stock shall
      also be deemed to be certificates for Rights, and shall bear the following
      legend:

    

    This
      certificate also evidences and entitles the holder hereof to certain Rights
      as
      set forth in the Second Amended and Restated Rights Agreement between Key
      Technology, Inc. (the "Corporation") and American Stock Transfer & Trust
      Company (the "Rights Agent"), dated as of November 13, 2007, as amended from
      time to time (the "Rights Agreement"), the terms of which are hereby
      incorporated herein by reference and a copy of which is on file at the principal
      offices of the Corporation.  Under certain circumstances, as set forth
      in the Rights Agreement, such Rights will be evidenced by separate certificates
      and will no longer be evidenced by this certificate.  The Corporation
      will mail to the

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 6
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            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    holder
      of
      this certificate a copy of the Rights Agreement, as in effect on the date of
      mailing, without charge promptly after receipt of a written request
      therefor.  Under certain circumstances set forth in the Rights
      Agreement, Rights issued to, or held by, any Person who is, was or becomes
      an
      Acquiring Person or an Adverse Person or any Affiliate or Associate thereof
      (as
      such terms are defined in the Rights Agreement), whether currently held by
      or on
      behalf of such Person or by any subsequent holder, may become null and
      void.

    

    With
      respect to certificates containing the foregoing legend, until the earlier
      of
      (i) the Distribution Date or (ii) the Expiration Date, the Rights associated
      with the Common Stock represented by such certificates shall be evidenced by
      such certificates alone and registered holders of Common Stock shall also be
      the
      registered holders of the associated Rights, and the transfer of any of such
      certificates shall also constitute the transfer of the Rights associated with
      the Common Stock represented by such certificates.

    

    Section
      4.                      Form
      of Rights Certificates.

    

    (a)           The
      Rights Certificates (and the forms of election to purchase and of assignment
      to
      be printed on the reverse thereof), when, as and if issued, shall each be
      substantially in the form set forth in Exhibit B hereto and may have such
      marks of identification or designation and such legends, summaries or
      endorsements printed thereon as the Company may deem appropriate and as are
      not
      inconsistent with the provisions of this Agreement, or as may be required to
      comply with any applicable law or with any rule or regulation made pursuant
      thereto or with any rule or regulation of any stock exchange or transaction
      reporting system on which the Rights may from time to time be listed or traded,
      or to conform to usage.  Subject to the provisions of Sections 11
      and 22 hereof, the Rights Certificates, whenever issued, which are issued in
      respect of Common Stock which was issued and outstanding as of the Close of
      Business on the Distribution Date, shall be dated as of the Distribution Date,
      and on their face shall entitle the holders thereof to purchase such number
      of
      1/1,000s of a share of Preferred Stock as shall be set forth therein at the
      price set forth therein (such exercise price per 1/1,000 of a share, the
      "Purchase Price"), but the amount and type of securities purchasable upon the
      exercise of each Right and the Purchase Price thereof shall be subject to
      adjustment as provided herein.

    

    (b)           Any
      Rights Certificate issued pursuant to Section 3(a) or 22 hereof that represents
      Rights beneficially owned by:  (i) an Acquiring Person or Adverse
      Person or any Associate or Affiliate of an Acquiring Person or Adverse Person;
      (ii) a transferee of an Acquiring Person or Adverse Person (or of any such
      Associate or Affiliate) who becomes a transferee after the Acquiring Person
      or
      Adverse Person becomes such; or (iii) a transferee of an Acquiring Person
      or Adverse Person (or of any such Associate or Affiliate) who becomes a
      transferee prior to or concurrently with the Acquiring Person or Adverse Person
      becoming such and receives such Rights pursuant to either (A) a transfer
      (whether or not for consideration) from the Acquiring Person or Adverse Person
      to holders of equity interests in such Acquiring Person or

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 7
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            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Adverse
      Person or to any Person with whom such Acquiring Person or Adverse Person has
      any continuing agreement, arrangement or understanding regarding the transferred
      Rights or (B) a transfer which the Board of Directors of the Company has
      determined is part of a plan, arrangement or understanding which has as a
      primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
      Certificate issued pursuant to Section 6 or 11 hereof upon transfer,
      exchange, replacement or adjustment of any other Rights Certificate referred
      to
      in this sentence, shall contain (to the extent feasible) the following
      legend:

    

    The
      Rights represented by this Rights Certificate are or were beneficially owned
      by
      a Person who was or became an Acquiring Person or Adverse Person or an Affiliate
      or Associate of an Acquiring Person or Adverse Person (as such terms are defined
      in the Rights Agreement).  Accordingly, this Rights Certificate and
      the Rights represented hereby may become null and void in the circumstances
      specified in Section 7(e) of such Agreement.

    

    Section
      5.                      Countersignature
      and Registration.

    

    (a)           The
      Rights Certificates shall be executed on behalf of the Company by its Chairman
      of the Board, its President or any Vice President, manually or by facsimile
      signature, and shall have affixed thereto the Company's seal or a facsimile
      thereof which shall be attested by the Secretary or an Assistant Secretary
      of
      the Company, either manually or by facsimile signature.  The Rights
      Certificates shall be countersigned by the Rights Agent, either manually or
      by
      facsimile signature, and shall not be valid for any purpose unless so
      countersigned.  In case any officer of the Company who shall have
      signed any of the Rights Certificates shall cease to be such officer of the
      Company before countersignature by the Rights Agent and issuance and delivery
      by
      the Company, such Rights Certificates, nevertheless, may be countersigned by
      the
      Rights Agent and issued and delivered by the Company with the same force and
      effect as though the person who signed such Rights Certificates had not ceased
      to be such officer of the Company; and any Rights Certificates may be signed
      on
      behalf of the Company by any person who, at the actual date of the execution
      of
      such Rights Certificate, shall be a proper officer of the Company to sign such
      Rights Certificate, although at the date of the execution of this Rights
      Agreement any such person was not such an officer.

    

    (b)           Following
      the Distribution Date, the Rights Agent will keep or cause to be kept, at its
      principal office or offices designated as the appropriate place for surrender
      of
      Rights Certificates upon exercise or transfer, books for registration and
      transfer of the Rights Certificates issued hereunder.  Such books
      shall show the names and addresses of the respective holders of the Rights
      Certificates, the number of Rights evidenced on its face by each of the Rights
      Certificates and the date of each of the Rights Certificates.

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 8
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Section
      6.                      Transfer,
      Split Up, Combination and Exchange of Rights Certificates;

    Mutilated,
      Destroyed, Lost or Stolen Rights Certificates.

    

    (a)           Subject
      to the provisions of Sections 4(b), 7(e) and l4 hereof, at any time after
      the Close of Business on the Distribution Date, and at or prior to the Close
      of
      Business on the Expiration Date, any Rights Certificate (other than a Rights
      Certificate representing Rights that have been exchanged pursuant to Section
      24
      hereof) may be transferred, split up, combined or exchanged for another Rights
      Certificate, entitling the registered holder to purchase a like number of
      1/1,000s of a share of Preferred Stock (or, following a Triggering Event, Common
      Stock, other securities, cash or other assets, as the case may be) as the Rights
      Certificate surrendered then entitled such holder (or former holder in the
      case
      of a transfer) to purchase.  Any registered holder desiring to
      transfer, split up, combine or exchange any Rights Certificate or Certificates
      shall make such request in writing delivered to the Rights Agent, and shall
      surrender the Rights Certificate to be transferred, split up, combined or
      exchanged at the principal office or offices of the Rights Agent designated
      for
      such purpose.  Neither the Rights Agent nor the Company shall be
      obligated to take any action whatsoever with respect to the transfer of any
      such
      surrendered Rights Certificate until the registered holder shall have completed
      and signed the certificate contained in the form of assignment on the reverse
      side of such Rights Certificate and shall have provided such additional evidence
      of the identity of the Beneficial Owner (or former Beneficial Owner) or
      Affiliates or Associates thereof as the Company or Rights Agent shall reasonably
      request.  Thereupon the Rights Agent shall, subject to
      Sections 4(b), 7(e), 14 and 24 hereof, countersign and deliver to the
      Person entitled thereto a Rights Certificate or Rights Certificates, as the
      case
      may be, as so requested.  The Company may require payment of a sum
      sufficient to cover any tax or governmental charge that may be imposed in
      connection with any transfer, split up, combination or exchange of Rights
      Certificates.

    

    (b)           Upon
      receipt by the Company and the Rights Agent of evidence reasonably satisfactory
      to them of the loss, theft, destruction or mutilation of a Rights Certificate,
      and, in case of loss, theft or destruction, of indemnity or security reasonably
      satisfactory to them, and reimbursement to the Company and the Rights Agent
      of
      all reasonable expenses incidental thereto, and upon surrender to the Rights
      Agent and cancellation of the Rights Certificate if mutilated, the Company
      will
      execute and deliver a new Rights Certificate of like tenor to the Rights Agent
      for countersignature and delivery to the registered owner in lieu of the Rights
      Certificate so lost, stolen, destroyed or mutilated.

    

    Section
      7.                      Exercise
      of Rights; Purchase Price; Expiration Date of Rights.

    

    (a)           Subject
      to Section 7(e) hereof, the registered holder of any Rights Certificate may
      exercise the Rights evidenced thereby (except as otherwise provided herein
      including, without limitation, the restrictions on exercisability set forth
      in
      Sections 9(c), 11(a)(iii) and 23(a) hereof) in whole or in part at any time
      after the Distribution Date upon surrender of the Rights Certificate, with
      the
      form of election to purchase and the certificate on the reverse side thereof
      duly executed, to the Rights Agent at the principal office or offices of the
      Rights Agent

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 9
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    designated
      for such purpose, together with payment of the aggregate Purchase Price with
      respect to the total number of 1/1,000s of a share (or other securities, cash
      or
      other assets, as the case may be) as to which such surrendered Rights are then
      exercisable, at or prior to the earliest of:  (i) the Close of
      Business on November 13, 2017 (the "Final Expiration Date"); (ii) the time
      at which the Rights are redeemed (the "Redemption Date"), as provided in Section
      23 hereof; or (iii) the time at which such Rights are exchanged (the
      "Exchange Date"), as provided in Section 24 hereof (the earliest of (i),
      (ii) and (iii) being herein referred to as the "Expiration Date").

    

    (b)           The
      Purchase Price for each 1/1,000 of a share of Preferred Stock pursuant to the
      exercise of a Right shall initially be $45.00, and shall be subject to
      adjustment from time to time as provided in Sections 11 and 13(a) hereof and
      shall be payable in accordance with paragraph (c) below.

    

    (c)           Upon
      receipt of a Rights Certificate representing exercisable Rights, with the form
      of election to purchase and the certificate duly executed, accompanied by
      payment, with respect to each Right so exercised, of the Purchase Price per
      1/1,000 of a share of Preferred Stock (or other shares, securities, cash or
      other assets, as the case may be) to be purchased as set forth below and an
      amount equal to any applicable transfer tax, the Rights Agent shall, subject
      to
      Section 20(k) hereof, thereupon promptly:  (i)(A) requisition from any
      transfer agent of the shares of Preferred Stock (or make available, if the
      Rights Agent is the transfer agent for such shares) certificates for the total
      number of 1/1,000s of a share of Preferred Stock to be purchased and the Company
      hereby irrevocably authorizes its transfer agent to comply with all such
      requests, or (B) if the Company shall have elected to deposit the total number
      of shares of Preferred Stock issuable upon exercise of the Rights hereunder
      with
      a depository agent, requisition from the depository agent depository receipts
      representing such number of 1/1,000s of a share of Preferred Stock as are to
      be
      purchased (in which case certificates for the shares of Preferred Stock
      represented by such receipts shall be deposited by the transfer agent with
      the
      depository agent) and the Company will direct the depository agent to comply
      with such request; (ii) requisition from the Company the amount of cash, if
      any, to be paid in lieu of fractional shares in accordance with Section 14
      hereof; (iii) after receipt of such certificates or depository receipts,
      cause the same to be delivered to or upon the order of the registered holder
      of
      such Rights Certificate, registered in such name or names as may be designated
      by such holder; and (iv) after receipt thereof, deliver such cash, if any,
      to or upon the order of the registered holder of such Rights
      Certificate.  The payment of the Purchase Price (as such amount may be
      adjusted pursuant to Section 11(a)(iii) hereof) shall be made in cash or by
      certified bank check or bank draft payable to the order of the
      Company.  In the event that the Company is obligated to issue other
      securities (including Common Stock) of the Company, pay cash and/or distribute
      other property pursuant to Section 11(a) hereof, the Company will make all
      arrangements necessary so that such other securities, cash and/or other property
      are available for distribution by the Rights Agent, if and when
      appropriate.  The Company reserves the right to require prior to the
      occurrence of a Triggering Event that, upon any exercise of Rights, a number
      of
      Rights be exercised so that only whole shares of Preferred Stock would be
      issued.  Notwithstanding the foregoing provisions of this
      Section 7(c), the Company may suspend the issuance of
      Preferred

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 10
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Stock
      upon exercise of Rights for a reasonable period, not in excess of 120 days,
      during which the Company seeks to register under the Securities Act of 1933,
      as
      amended (the "Securities Act"), and any applicable securities law of any
      jurisdiction, the Preferred Stock to be issued pursuant to the Rights;
provided, however, that nothing contained in this
      Section 7(c) shall relieve the Company of its obligations under
      Section 9(c) hereof.

    

    (d)           In
      case the registered holder of any Rights Certificate shall exercise less than
      all the Rights evidenced thereby, a new Rights Certificate evidencing Rights
      equivalent to the Rights remaining unexercised shall be issued by the Rights
      Agent and delivered to, or upon the order of, the registered holder of such
      Rights Certificate, registered in such name or names as may be designated by
      such holder, subject to the provisions of Section 14 hereof.

    

    (e)           Notwithstanding
      anything in this Agreement to the contrary, from and after the first occurrence
      of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring
      Person or Adverse Person or an Associate or Affiliate of an Acquiring Person
      or
      Adverse Person, (ii) a transferee of an Acquiring Person or Adverse Person
      (or
      of any such Associate or Affiliate) who becomes a transferee after the Acquiring
      Person or Adverse Person becomes such, or (iii) a transferee of an Acquiring
      Person or Adverse Person (or of any such Associate or Affiliate) who becomes
      a
      transferee prior to or concurrently with the Acquiring Person or Adverse Person
      becoming such and receives such Rights pursuant to either (A) a transfer
      (whether or not for consideration) from the Acquiring Person or Adverse Person
      to holders of equity interests in such Acquiring Person or Adverse Person or
      to
      any Person with whom the Acquiring Person or Adverse Person has any continuing
      agreement, arrangement or understanding regarding the transferred Rights or
      (B)
      a transfer which the Board of Directors of the Company has determined is part
      of
      a plan, arrangement or understanding which has as a primary purpose or effect
      the avoidance of this Section 7(e), shall become null and void without any
      further action, and no holder of such Rights (whether or not such holder is
      an
      Acquiring Person or an Adverse Person or an Affiliate or Associate of an
      Acquiring Person or Adverse Person) shall have any rights whatsoever with
      respect to such Rights, whether under any provision of this Agreement or
      otherwise.  The Company shall use all reasonable efforts to ensure
      that the provisions of this Section 7(e) and Section 4(b) hereof are complied
      with, but shall have no liability to any holder of Rights Certificates or other
      Person as a result of the Company's failure to make any determination with
      respect to an Acquiring Person or Adverse Person or any of their respective
      Affiliates, Associates or transferees hereunder.

    

    (f)           Notwithstanding
      anything in this Agreement to the contrary, neither the Rights Agent nor the
      Company shall be obligated to undertake any action with respect to a registered
      holder upon the occurrence of any purported exercise as set forth in this
      Section 7 unless such registered holder shall
      have:  (i) completed and signed the certificate contained in the
      form of election to purchase set forth on the reverse side of the Rights
      Certificate surrendered for such exercise; and (ii) provided such
      additional evidence of the identity of the Beneficial Owner (or former
      Beneficial Owner) or Affiliates or Associates thereof as the Company or Rights
      Agent shall reasonably request.

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 11
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            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Section
      8.                      Cancellation
      and Destruction of Rights Certificates.

    

    All
      Rights Certificates surrendered for
      the purpose of exercise, transfer, split up, combination or exchange shall,
      if
      surrendered to the Company or any of its agents, be delivered to the Rights
      Agent for cancellation or in cancelled form, or, if surrendered to the Rights
      Agent, shall be cancelled by it, and no Rights Certificates shall be issued
      in
      lieu thereof except as expressly permitted by any provision of this
      Agreement.  The Company shall deliver to the Rights Agent for
      cancellation and retirement, and the Rights Agent shall so cancel and retire,
      any other Rights Certificate purchased or acquired by the Company otherwise
      than
      upon the exercise thereof.  The Rights Agent shall deliver all
      cancelled Rights Certificates to the Company or shall, at the written request
      of
      the Company, destroy such cancelled Rights Certificates, and in such case shall
      deliver a certificate of destruction thereof to the Company.

    

    Section
      9.                      Reservation
      and Availability of Capital Stock.

    

    (a)           The
      Company covenants and agrees that it will cause to be reserved and kept
      available out of its authorized and unissued shares of Preferred Stock (and,
      following the occurrence of a Triggering Event, out of its authorized and
      unissued shares of Common Stock and/or other securities or out of its authorized
      and issued shares held in its treasury), the number of shares of Preferred
      Stock
      (and, following the occurrence of a Triggering Event, Common Stock and/or other
      securities) that, as provided in this Agreement including Section 11(a)(iii)
      hereof, will be sufficient to permit the exercise in full of all outstanding
      Rights.

    

    (b)           So
      long as the shares of Preferred Stock (and, following the occurrence of a
      Triggering Event, Common Stock and/or other securities) issuable and deliverable
      upon the exercise of the Rights may be listed on any national securities
      exchange or included for quotation on any transaction reporting system, the
      Company shall use its best efforts to cause, from and after such time as the
      Rights become exercisable (but only to the extent that it is reasonably likely
      that the Rights will be exercised), all shares reserved for such issuance to
      be
      listed on such exchange or included for quotation on such transaction reporting
      system upon official notice of issuance upon such exercise.

    

    (c)           The
      Company shall use its best efforts to:  (i) file, as soon as
      practicable following the earliest date after the first occurrence of a Section
      11(a)(ii) Event on which the consideration to be delivered by the Company upon
      exercise of the Rights has been determined in accordance with
      Section 11(a)(iii) hereof, a registration statement under the Securities
      Act with respect to the securities purchasable upon exercise of the Rights
      on an
      appropriate form; (ii) cause such registration statement to become
      effective as soon as practicable after such filing; and (iii) cause such
      registration statement to remain effective (with a prospectus at all times
      meeting the requirements of the Securities Act) until the earlier of
      (A) the date as of which the Rights are no longer exercisable for such
      securities, and (B) the Expiration Date.  The Company may
      temporarily suspend, for a period of time not to exceed 120 days after the
      date
      set forth in clause (i) of the first sentence of this Section 9(c), the
      exercisability of the Rights in order to prepare and file such registration
      statement and permit it to become effective.  Upon any
      such

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 12
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    suspension,
      the Company shall issue a public announcement stating that the exercisability
      of
      the Rights has been temporarily suspended, as well as a public announcement
      at
      such time as the suspension is no longer in effect.  In addition, if
      the Company shall determine that a registration statement is required following
      the Distribution Date, the Company may temporarily suspend the exercisability
      of
      the Rights until such time as a registration statement has been declared
      effective.  Notwithstanding any provision of this Agreement to the
      contrary, the Rights shall not be exercisable in any jurisdiction if the
      requisite qualification in such jurisdiction shall not have been obtained,
      the
      exercise thereof shall not be permitted under applicable law or a registration
      statement shall not have been declared effective.

    

    (d)           The
      Company covenants and agrees that it will take all such action as may be
      necessary to ensure that all 1/1,000s of a share of Preferred Stock (and,
      following the occurrence of a Triggering Event, Common Stock and/or other
      securities) delivered upon exercise of Rights shall, at the time of delivery
      of
      the certificates for such shares (subject to payment of the Purchase Price),
      be
      duly and validly authorized and issued and fully paid and
      nonassessable.

    

    (e)           The
      Company further covenants and agrees that it will pay when due and payable
      any
      and all federal and state transfer taxes and charges which may be payable in
      respect of the issuance or delivery of the Rights Certificates and of any
      certificates for a number of 1/1,000s of a share of Preferred Stock (or Common
      Stock and/or other securities, as the case may be) upon the exercise of
      Rights.  The Company shall not, however, be required to pay any
      transfer tax which may be payable in respect of any transfer or delivery of
      Rights Certificates to a Person other than, or the issuance or delivery of
      a
      number of 1/1,000s of a share of Preferred Stock (or Common Stock and/or other
      securities, as the case may be) in respect of a name other than that of, the
      registered holder of the Rights Certificates evidencing Rights surrendered
      for
      exercise or to issue or deliver any certificates for a number of 1/1,000s of
      a
      share of Preferred Stock (or Common Stock and/or other securities, as the case
      may be) in a name other than that of the registered holder upon the exercise
      of
      any Rights until such tax shall have been paid (any such tax being payable
      by
      the holder of such Rights Certificate at the time of surrender) or until it
      has
      been established to the Company’s satisfaction that no such tax is
      due.

    

    Section
      10.                                Preferred
      Stock Record Date.

    

    Each
      Person in whose name any
      certificate for a number of 1/1,000s of a share of Preferred Stock (or for
      Common Stock and/or other securities, as the case may be) is issued upon the
      exercise of Rights shall for all purposes be deemed to have become the holder
      of
      record of the Preferred Stock (or Common Stock and/or other securities, as
      the
      case may be) represented thereby on, and such certificate shall be dated, the
      date upon which the Rights Certificate evidencing such Rights was duly
      surrendered and payment of the Purchase Price (and all applicable transfer
      taxes) was made; provided, however, that if the date of such
      surrender and payment is a date upon which the Preferred Stock (or Common Stock
      and/or other securities, as the case may be) transfer books of the Company
      are
      closed, such Person shall be deemed to have become the record holder of such
      shares (fractional or otherwise) on, and such certificate shall
      be

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 13
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    dated,
      the next succeeding Business Day on which the Preferred Stock (or Common Stock
      and/or other securities, as the case may be) transfer books of the Company
      are
      open.  Prior to the exercise of the Rights evidenced thereby, the
      holder of a Rights Certificate shall not be entitled to any rights of a
      shareholder of the Company with respect to shares for which the Rights shall
      be
      exercisable, including, without limitation, the right to vote, to receive
      dividends or other distributions or to exercise any preemptive rights, and
      shall
      not be entitled to receive any notice of any proceedings of the Company, except
      as provided herein.

    

    Section
      11.                                Adjustment
      of Purchase Price, Number and Kind of

    Shares
      or Number of Rights.

    

    The
      Purchase Price, the number and kind
      of shares covered by each Right and the number of Rights outstanding are subject
      to adjustment from time to time as provided in this Section 11.

    

    (a)           (i)           In
      the event the Company shall at any time after the date of this Agreement
      (A) declare a dividend on the Preferred Stock payable in shares of
      Preferred Stock, (B) subdivide the outstanding Preferred Stock,
      (C) combine the outstanding Preferred Stock into a smaller number of
      shares, or (D) issue any shares of its capital stock in a reclassification
      of the Preferred Stock (including any such reclassification in connection with
      a
      consolidation or merger in which the Company is the continuing or surviving
      corporation), then and in each such event, except as otherwise provided in
      this
      Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the
      time
      of the record date for such dividend or of the effective date of such
      subdivision, combination or reclassification, and the number and kind of shares
      of Preferred Stock or capital stock, as the case may be, issuable on such date,
      shall be proportionately adjusted so that the holder of any Right exercised
      after such time shall be entitled to receive, upon payment of the Purchase
      Price
      then in effect, the aggregate number and kind of shares of Preferred Stock
      or
      capital stock, as the case may be, which, if such Right had been exercised
      immediately prior to such date and at a time when the Preferred Stock transfer
      books of the Company were open, he or she would have owned upon such exercise
      and been entitled to receive by virtue of such dividend, subdivision,
      combination or reclassification.  If an event occurs which would
      require an adjustment under both this Section 11(a)(i) and
      Section 11(a)(ii) hereof, the adjustment provided for in this
      Section 11(a)(i) shall be in addition to, and shall be made prior to, any
      adjustment required pursuant to Section 11(a)(ii) hereof.

    

    (ii)           In
      the event that:

    

    (A)  any
      Person (other than
      the Company, any Subsidiary of the Company, any employee benefit plan of the
      Company or of any Subsidiary of the Company, or any Person or entity organized,
      appointed or established by the Company for or pursuant to the terms of any
      such
      plan), alone or together with its Affiliates and Associates, shall become an
      Acquiring Person, unless the event causing the Person to become an Acquiring
      Person is (l) a transaction set forth in Section 13(a) hereof or (2) an
      acquisition of shares of Common Stock pursuant to

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 14
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    a
      tender
      offer or an exchange offer for all outstanding shares of Common Stock at a
      price
      and on terms determined by at least a majority of the members of the Board
      of
      Directors who are not officers of the Company and who are not representatives,
      nominees, Affiliates or Associates of an Acquiring Person, after receiving
      advice from one or more reputable investment banking firms, to be (a) at a
      price
      which is fair to shareholders (taking into account all factors which such
      members of the Board of Directors deem relevant including, without limitation,
      prices which could reasonably be achieved if the Company or its assets were
      sold
      on an orderly basis designed to realize maximum value) and (b) otherwise in
      the
      best interests of the Company and its shareholders (a "Qualifying Offer");
      or

    

    (B)  the
      Board of Directors
      of the Company shall declare any Person to be an Adverse Person, upon a
      determination that such Person, alone or together with its Affiliates and
      Associates, has, at any time after this Agreement has been filed with the
      Securities and Exchange Commission as an exhibit to a filing under the
      Securities Act or Exchange Act, become the Beneficial Owner of a number of
      shares of Common Stock which the Board of Directors of the Company determines
      to
      be substantial (which number of shares shall in no event represent less than
      l0%
      of the outstanding shares of Common Stock) and a determination by the Board
      of
      Directors of the Company, after reasonable inquiry and investigation, including
      consultation with such persons as such directors shall deem appropriate and
      consideration of such factors as are permitted by applicable law, that (a)
      such
      Beneficial Ownership by such Person is intended to cause the Company to
      repurchase the shares of Common Stock beneficially owned by such Person or
      to
      cause pressure on the Company to take action or enter into a transaction or
      series of transactions intended to provide such Person with short-term financial
      gain under circumstances where the Board of Directors determines that the best
      long-term interests of the Company would not be served by taking such action
      or
      entering into such transaction or series of transactions at the time or (b)
      such
      Beneficial Ownership is causing or reasonably likely to cause a material adverse
      impact (including, but not limited to, impairment of relationships with
      customers or impairment of the Company’s ability to maintain its competitive
      position) on the business or prospects of the Company;

    

    then,
      promptly following the occurrence of any event described in Section 11(a)(ii)(A)
      or (B) hereof (a "Section 11(a)(ii) Event"), proper provision shall be made
      so that each holder of a Right (except as provided below and in
      Section 7(e) hereof) shall thereafter have the right to receive, upon
      exercise thereof at the then current Purchase Price in accordance with the
      terms
      of this Agreement, in lieu of a number of 1/1,000s of a share of Preferred
      Stock, such number of shares of Common Stock of the Company as shall equal
      the
      result obtained by (x) multiplying the then current Purchase Price by the then
      number of 1/1,000s of a share of Preferred Stock for which a Right was
      exercisable immediately prior to the first occurrence of a Section 11(a)(ii)
      Event, and (y) dividing that product (which, following such first occurrence,
      shall thereafter be referred to as the "Purchase Price" for each Right and
      for
      all purposes of this Agreement) by 50% of the current

    
      
        
           KEY TECHNOLOGY, INC.                                                                                            PAGE 15 

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            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    market
      price (determined pursuant to Section 11(d) hereof) per share of Common Stock
      on
      the date of such first occurrence (such number of shares, the "Adjustment
      Shares").

    

    (iii)           In
      the event that the number of shares of Common Stock which are authorized by
      the
      Company's Restated Articles of Incorporation, as amended at the time (the
      "Restated Articles of Incorporation"), but not outstanding or reserved for
      issuance for purposes other than upon exercise of the Rights are not sufficient
      to permit the exercise in full of the Rights in accordance with the foregoing
      subparagraph (ii) of this Section 11(a), the Company
      shall:  (A) determine the value of the Adjustment Shares issuable
      upon the exercise of a Right (the "Current Value"); and (B) with respect to
      each Right (subject to Section 7(e) hereof), make adequate provision to
      substitute for the Adjustment Shares, upon the exercise of a Right and payment
      of the applicable Purchase Price: (l) cash, (2) a reduction in the
      Purchase Price, (3) Common Stock or other equity securities of the Company
      (including, without limitation, shares, or units of shares, of preferred stock,
      such as the Preferred Stock, which the Board has deemed to have essentially
      the
      same value or economic rights as shares of Common Stock (such shares of
      preferred stock being referred to as "Common Stock Equivalents")), (4) debt
      securities of the Company, (5) other assets, or (6) any combination of
      the foregoing, having an aggregate value equal to the Current Value (less the
      amount of any reduction in the Purchase Price), where such aggregate value
      has
      been determined by the Board of Directors based upon the advice of a reputable
      investment banking firm selected by the Board of Directors; provided,
however, that if the Company shall not have made adequate provision
      to
      deliver value pursuant to clause (B) above within 30 days following the
      later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the
      date
      on which the Company's right of redemption pursuant to Section 23(a) expires
      (the later of (x) and (y) being referred to herein as the "Section 11(a)(ii)
      Trigger Date"), then the Company shall be obligated to deliver, upon the
      surrender for exercise of a Right and without requiring payment of the Purchase
      Price, shares of Common Stock (to the extent available) and then, if necessary,
      cash, which shares and/or cash have an aggregate value equal to the
      Spread.  For purposes of the preceding sentence, the term "Spread"
      shall mean the excess of (i) the Current Value over (ii) the Purchase
      Price.  If the Board determines in good faith that it is likely that
      sufficient additional shares of Common Stock could be authorized for issuance
      upon exercise in full of the Rights, the 30-day period set forth above may
      be
      extended to the extent necessary, but not more than 90 days after the
      Section 11(a)(ii) Trigger Date, in order that the Company may seek shareholder
      approval for the authorization of such additional shares (such 30-day period,
      as
      it may be extended, is herein called the "Substitution Period").  To
      the extent that action is to be taken pursuant to the first and/or third
      sentences of this Section 11(a)(iii), the Company (l) shall provide, subject
      to
      Section 7(e) hereof, that such action shall apply uniformly to all outstanding
      Rights, and (2) may suspend the exercisability of the Rights until the
      expiration of the Substitution Period in order to seek such shareholder approval
      for such authorization of additional shares and/or to decide the appropriate
      form of distribution to be made pursuant to such first sentence and to determine
      the value thereof.  In the event of any such suspension, the Company
      shall issue a public announcement stating that the exercisability of the Rights
      has been temporarily suspended, as well as a public announcement at such time
      as
      the suspension is no longer in effect.  For purposes of this Section
      11(a)(iii), the value of each Adjustment Share shall be the Current Market
      Price
      per share of the Common Stock on the Section 11(a)(ii) Trigger
      Date

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 16 
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    and
      the
      per-share or per-unit value of any Common Stock Equivalent shall be deemed
      to
      equal the Current Market Price per share of the Common Stock on such
      date.

    

    (b)           In
      case the Company shall fix a record date for the issuance of rights (other
      than
      the Rights), options or warrants to all holders of Preferred Stock entitling
      them to subscribe for or purchase (for a period expiring within 45 calendar
      days after such record date) Preferred Stock (or shares having the same rights,
      privileges as the shares of Preferred Stock ("equivalent preferred stock"))
      or
      securities convertible into Preferred Stock or equivalent preferred stock at
      a
      price per share of Preferred Stock or per share of equivalent preferred stock
      (or having a conversion price per share, if a security convertible into
      Preferred Stock or equivalent preferred stock) less than the Current Market
      Price (as determined pursuant to Section 11(d) hereof) per share of Preferred
      Stock on such record date, the Purchase Price to be in effect after such record
      date shall be determined by multiplying the Purchase Price in effect immediately
      prior to such record date by a fraction, the numerator of which shall be the
      number of shares of Preferred Stock outstanding on such record date, plus the
      number of shares of Preferred Stock which the aggregate offering price of the
      total number of shares of Preferred Stock and/or equivalent preferred stock
      so
      to be offered (and/or the aggregate initial conversion price of the convertible
      securities so to be offered) would purchase at such Current Market Price, and
      the denominator of which shall be the number of shares of Preferred Stock
      outstanding on such record date, plus the number of additional shares of
      Preferred Stock and/or equivalent preferred stock to be offered for subscription
      or purchase (or into which the convertible securities so to be offered are
      initially convertible).  In case such subscription price may be paid
      by delivery of consideration part or all of which may be in a form other than
      cash, the value of such consideration shall be as determined in good faith
      by
      the Board of Directors of the Company, whose determination shall be described
      in
      a statement filed with the Rights Agent and shall be binding on the Rights
      Agent
      and the holders of the Rights.  Shares of Preferred Stock owned by or
      held for the account of the Company shall not be deemed outstanding for the
      purpose of any such computation.  Such adjustments shall be made
      successively whenever such a record date is fixed, and in the event that such
      rights or warrants are not so issued, the Purchase Price shall be adjusted
      to be
      the Purchase Price which would then be in effect if such record date had not
      been fixed.

    

    (c)           In
      case the Company shall fix a record date for a distribution to all holders
      of
      Preferred Stock (including any such distribution made in connection with a
      consolidation or merger in which the Company is the continuing corporation)
      of
      evidences of indebtedness, cash (other than a regular quarterly cash dividend
      out of the earnings or retained earnings of the Company), assets (other than
      a
      dividend payable in Preferred Stock, but including any dividend payable in
      stock
      other than Preferred Stock) or subscription rights or warrants (excluding those
      referred to in Section 11(b) hereof), the Purchase Price to be in effect after
      such record date shall be determined by multiplying the Purchase Price in effect
      immediately prior to such record date by a fraction, the numerator of which
      shall be the Current Market Price (as determined pursuant to Section 11(d)
      hereof) per share of Preferred Stock on such record date, less the fair market
      value (as determined in good faith by the Board of Directors of the Company,
      whose determination shall be described in a statement filed with the Rights
      Agent and shall be

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 17 
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            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    binding
      on the Rights Agent and the holders of the Rights) of the portion of the cash,
      assets or evidences of indebtedness so to be distributed or of such subscription
      rights or warrants applicable to a share of Preferred Stock and the denominator
      of which shall be such Current Market Price (as determined pursuant to Section
      11(d) hereof) per share of Preferred Stock.  Such adjustments shall be
      made successively whenever such a record date is fixed, and in the event that
      such distribution is not so made, the Purchase Price shall be adjusted to be
      the
      Purchase Price which would have been in effect if such record date had not
      been
      fixed.

    

    (d)           (i)           For
      the purpose of any computation hereunder, other than computations made pursuant
      to Section 11(a)(iii) hereof, the Current Market Price per share of Common
      Stock on any date shall be deemed to be the average of the daily closing prices
      per share of such Common Stock for the 30 consecutive Trading Days
      immediately prior to such date, and for purposes of computations made pursuant
      to Section 11(a)(iii) hereof, the Current Market Price per share of Common
      Stock
      on any date shall be deemed to be the average of the daily closing prices per
      share of such Common Stock for the 10 consecutive Trading Days immediately
      following such date; provided, however, that in the event that the
      Current Market Price per share of the Common Stock is determined during a period
      following the announcement by the issuer of such Common Stock of (A) a dividend
      or distribution on such Common Stock payable in shares of such Common Stock
      or
      securities convertible into shares of such Common Stock (other than the Rights),
      or (B) any subdivision, combination or reclassification of such Common Stock,
      and the ex-dividend date for such dividend or distribution, or the record date
      for such subdivision, combination or reclassification shall not have occurred
      prior to the commencement of the requisite 30 Trading Day or 10 Trading Day
      period, as set forth above, then, and in each such case, the Current Market
      Price shall be properly adjusted to take into account ex-dividend trading or
      the
      subdivision, combination or reclassification, as the case may be.  The
      closing price for each day shall be the last sale price, regular way, or, in
      case no such sale takes place on such day, the average of the closing bid and
      asked prices, regular way, in either case as reported in the principal
      consolidated transaction reporting system with respect to securities listed
      or
      admitted to trading on the principal national securities exchange on which
      the
      shares of Common Stock are listed or admitted to trading or, if on any such
      date
      the shares of Common Stock are not quoted by any such exchange, the average
      of
      the closing bid and asked prices as furnished by a professional market maker
      making a market in the Common Stock selected by the Board of Directors of the
      Company.  If on any such date no market maker is making a market in
      the Common Stock, the fair va1ue of the Common Stock on such date as determined
      in good faith by the Board of Directors shall be used.  The term
      "Trading Day" shall mean a day on which the principal national securities
      exchange on which the shares of Common Stock are listed or admitted to trading
      is open for the transaction of business or, if the shares of Common Stock are
      not listed or admitted to trading on any national securities exchange, a
      Business Day.  If the Common Stock is not publicly held or not so
      listed or traded, Current Market Price per share shall mean the fair value
      per
      share as determined in good faith by the Board of Directors, whose determination
      shall be described in a statement filed with the Rights Agent and shall be
      conclusive for all purposes.

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 18 
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            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (ii)           For
      the purpose of any computation hereunder, the Current Market Price per share
      (or
      per 1/1,000 of a share) of Preferred Stock shall be determined in the same
      manner as set forth above for the Common Stock in clause (i) of this
      Section 11(d) (other than the last sentence thereof).  If the
      Current Market Price per share of Preferred Stock cannot be determined in the
      manner provided above or if the Preferred Stock is not publicly held or listed
      or traded in a manner described in clause (i) of this Section 11(d), the Current
      Market Price per share of Preferred Stock shall be conclusively deemed to be
      an
      amount equal to 1,000 (as such number may be appropriately adjusted for such
      events as stock splits, stock dividends, combinations, reclassifications,
      recapitalizations and similar transactions with respect to the Common Stock
      occurring after the date of this Agreement) multiplied by the Current Market
      Price per share of the Common Stock.  If neither the Common Stock nor
      the Preferred Stock is publicly held or so listed or traded, Current Market
      Price per share of the Preferred Stock shall mean the fair value per share
      as
      determined in good faith by the Board of Directors, whose determination shall
      be
      described in a statement filed with the Rights Agent and shall be conclusive
      for
      all purposes.

    

    (e)           Anything
      herein to the contrary notwithstanding, no adjustment in the Purchase Price
      shall be required unless such adjustment would require an increase or decrease
      of at least 1% in the Purchase Price; provided, however, that any
      adjustments which by reason of this Section 11(e) are not required to be
      made shall be carried forward and taken into account in any subsequent
      adjustment.  All calculations under this Section 11 shall be made to
      the nearest cent or to the nearest 1/10,000 of a share of Common Stock or other
      share or 1/1,000,000 of a share of Preferred Stock, as the case may
      be.

    

    (f)           If,
      as a result of an adjustment made pursuant to Section 11(a)(ii) or Section
      13(a)
      hereof, the holder of any Right thereafter exercised shall become entitled
      to
      receive any shares of capital stock other than Preferred Stock, thereafter
      the
      number of such other shares so receivable upon exercise of any Right and the
      Purchase Price thereof shall be subject to adjustment from time to time in
      a
      manner and on terms as nearly equivalent as practicable to the provisions with
      respect to the Preferred Stock contained in this Section 11, and the
      provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
      Stock shall apply on like terms to any such other shares.

    

    (g)           All
      Rights originally issued by the Company subsequent to any adjustment made to
      the
      Purchase Price hereunder shall evidence the right to purchase, at the adjusted
      Purchase Price, the number of 1/1,000s of a share of Preferred Stock purchasable
      from time to time hereunder upon exercise of the Rights, all subject to further
      adjustment as provided herein.

    

    (h)           Unless
      the Company shall have exercised its election as provided in Section 11(i),
      upon
      each adjustment of the Purchase Price as a result of the calculations made
      in
      Sections 11(b) and (c), each Right outstanding immediately prior to the
      making of such adjustment shall thereafter evidence the right to purchase,
      at
      the adjusted Purchase Price, that number of 1/1,000s of a share of Preferred
      Stock (calculated to the nearest 1/1,000,000) obtained

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 19 
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    by
      (i)
      multiplying (x) the number of 1/1,000s of a share covered by a Right immediately
      prior to this adjustment, by (y) the Purchase Price in effect immediately prior
      to such adjustment of the Purchase Price, and (ii) dividing the product so
      obtained by the Purchase Price in effect immediately after such adjustment
      of
      the Purchase Price.

    

    (i)           The
      Company may elect on or after the date of any adjustment of the Purchase Price
      to adjust the number of Rights, in lieu of any adjustment in the number of
      1/1,000s of a share of Preferred Stock purchasable upon the exercise of a
      Right.  Each of the Rights outstanding after the adjustment in the
      number of Rights shall be exercisable for the number of 1/1,000s of a share
      of
      Preferred Stock for which a Right was exercisable immediately prior to such
      adjustment.  Each Right held of record prior to such adjustment of the
      number of Rights shall become that number of Rights (calculated to the nearest
      1/10,000) obtained by dividing the Purchase Price in effect immediately prior
      to
      adjustment of the Purchase Price by the Purchase Price in effect immediately
      after adjustment of the Purchase Price.  The Company shall make a
      public announcement of its election to adjust the number of Rights, indicating
      the record date for the adjustment, and, if known at the time, the amount of
      the
      adjustment to be made.  This record date may be the date on which the
      Purchase Price is adjusted or any day thereafter, but, if the Rights
      Certificates have been issued, shall be at least 10 days later than the date
      of
      the public announcement.  If Rights Certificates have been issued,
      upon each adjustment of the number of Rights pursuant to this
      Section 11(i), the Company shall, as promptly as practicable, cause to be
      distributed to holders of record of Rights Certificates on such record date
      Rights Certificates evidencing, subject to Section 14 hereof, the
      additional Rights to which such holders shall be entitled as a result of such
      adjustment, or, at the option of the Company, shall cause to be distributed
      to
      such holders of record in substitution and replacement for the Rights
      Certificates held by such holders prior to the date of adjustment, and upon
      surrender thereof, if required by the Company, new Rights Certificates
      evidencing all the Rights to which such holders shall be entitled after such
      adjustment.  Rights Certificates so to be distributed shall be issued,
      executed and countersigned in the manner provided for herein (and may bear,
      at
      the option of the Company, the adjusted Purchase Price) and shall be registered
      in the names of the holders of record of Rights Certificates on the record
      date
      specified in the public announcement.

    

    (j)           Irrespective
      of any adjustment or change in the Purchase Price or the number of 1/1,000s
      of a
      share of Preferred Stock issuable upon the exercise of the Rights, the Rights
      Certificates theretofore and thereafter issued may continue to express the
      Purchase Price per 1/1,000 of a share and the number of 1/1,000s of a share
      which were expressed in the initial Rights Certificates issued
      hereunder.

    

    (k)           Before
      taking any action that would cause an adjustment reducing the Purchase Price
      below the then stated value, if any, of the number of 1/1,000s of a share of
      Preferred Stock issuable upon exercise of the Rights, the Company shall take
      any
      corporate action which may, in the opinion of its counsel, be necessary in
      order
      that the Company may validly and legally issue fully paid and nonassessable such
      number of 1/1,000s of a share of Preferred Stock at such adjusted Purchase
      Price.

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 20 
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            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (l)           In
      any case in which this Section 11 shall require that an adjustment in the
      Purchase Price be made effective as of a record date for a specified event,
      the
      Company may elect to defer until the occurrence of such event the issuance
      to
      the holder of any Right exercised after such record date the number of 1/1,000s
      of a share of Preferred Stock and other capital stock or securities of the
      Company, if any, issuable upon such exercise over and above the number of
      1/1,000s of a share of Preferred Stock and other capital stock or securities
      of
      the Company, if any, issuable upon such exercise on the basis of the Purchase
      Price in effect prior to such adjustment; provided, however, that
      the Company shall deliver to such holder a due bill or other appropriate
      instrument evidencing such holder’s right to receive such additional shares
      (fractional or otherwise) or securities upon the occurrence of the event
      requiring such adjustment.

    

    (m)           Anything
      in this Section 11 to the contrary notwithstanding, the Company shall be
      entitled to make such further adjustments in the number of 1/1,000s of a share
      of Preferred Stock which may be acquired upon exercise of the Rights, and such
      adjustments in the Purchase Price, in addition to those adjustments expressly
      required by this Section 11, as and to the extent that in its good faith
      judgment the Board of Directors of the Company shall determine to be advisable
      in order that any (i) consolidation or subdivision of the Preferred Stock,
      (ii) issuance wholly for cash of any shares of Preferred Stock at less than
      the current market price, (iii) issuance wholly for cash of shares of
      Preferred Stock or securities which by their terms are convertible into or
      exchangeable for shares of Preferred Stock, (iv) stock dividends or
      (v) issuance of rights, options or warrants referred to in this Section 11,
      hereafter made by the Company to holders of its Preferred Stock shall not be
      taxable to such shareholders or shall reduce the taxes payable by such
      holders.

    

    (n)           The
      Company covenants and agrees that it shall not, at any time after the
      Distribution Date, (i) consolidate with any other Person (other than a
      Subsidiary of the Company in a transaction which complies with Section 11(o)
      hereof), (ii) merge with or into any other Person (other than a Subsidiary
      of the Company in a transaction which complies with Section 11(o) hereof),
      or
      (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in
      one transaction, or a series of related transactions, assets or earning power
      aggregating more than 50% of the assets or earning power of the Company and
      its
      Subsidiaries (taken as a whole) to any other Person or Persons (other than
      the
      Company and/or any of its Subsidiaries in one or more transactions each of
      which
      complies with Section 11(o) hereof), if (x) at the time of or immediately after
      such consolidation, merger or sale there are any rights, warrants or other
      instruments or securities outstanding or agreements in effect which would
      substantially diminish or otherwise eliminate the benefits intended to be
      afforded by the Rights or (y) prior to, simultaneously with or immediately
      after
      such consolidation, merger or sale, the shareholders of the Person who
      constitutes, or would constitute, the "Principal Party" for purposes of Section
      13(a) hereof shall have received a distribution of Rights previously owned
      by
      such Person or any of its Affiliates and Associates; provided,
however, that this Section 11(n) shall not affect the ability of any
      Subsidiary of the Company to consolidate with, merge with or into, or sell
      or
      transfer assets or earning power to, any other Subsidiary of the
      Company.

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 21 
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    (o)           The
      Company covenants and agrees that, after the Distribution Date, it will not,
      except as permitted by Section 23 or 27 hereof, take (or permit any
      Subsidiary to take) any action if at the time such action is taken it is
      reasonably foreseeable that such action will diminish substantially or otherwise
      eliminate the benefits intended to be afforded by the Rights.

    

    (p)           Anything
      in this Agreement to the contrary notwithstanding, in the event that the Company
      shall at any time after the Rights Dividend Declaration Date and prior to the
      Distribution Date (i) declare a dividend on the outstanding shares of
      Common Stock payable in shares of Common Stock, (ii) subdivide the
      outstanding shares of Stock, or (iii) combine the outstanding shares of
      Common Stock into a smaller number of shares, the number of Rights associated
      with each share of Common Stock then outstanding, or issued or delivered
      thereafter but prior to the Distribution Date, shall be proportionately adjusted
      so that the number of Rights thereafter associated with each share of Common
      Stock following any such event shall equal the result obtained by multiplying
      the number of Rights associated with each share of Common Stock immediately
      prior to such event by a fraction the numerator which shall be the total number
      of shares of Common Stock outstanding immediately prior to the occurrence of
      the
      event and the denominator of which shall be the total number of shares of Common
      Stock outstanding immediately following the occurrence of such
      event.

    

    (q)           The
      failure of the Board of Directors of the Company to declare a Person to be
      an
      Adverse Person following such Person becoming the Beneficial Owner of shares
      of
      Common Stock representing 10% or more of the outstanding shares of Common Stock
      shall not imply that such Person is not an Adverse Person or limit the Board
      of
      Directors’ right at any time in the future to declare such Person to be an
      Adverse Person.

    

    Section
      12.                                Certificate
      of Adjusted Purchase Price or Number of Shares.

    

    Whenever
      an adjustment is made as
      provided in Sections 11 and 13 hereof, the Company
      shall:  (a) promptly prepare a certificate setting forth such
      adjustment and a brief statement of the facts accounting for such adjustment;
      (b) promptly file with the Rights Agent, and with each transfer agent for
      the Preferred Stock and the Common Stock, a copy of such certificate; and
      (c) mail a brief summary thereof to each holder of a Rights Certificate
      (or, if prior to the Distribution Date, to each holder of a certificate
      representing shares of Common Stock) in accordance with Section 26
      hereof.  The Rights Agent shall be fully protected in relying on any
      such certificate and on any adjustment therein contained.

    

    Section
      13.                                Consolidation,
      Merger or Sale or Transfer of Assets or Earning Power.

    

    (a)           In
      the event that, following the Stock Acquisition Date, directly or indirectly,
      (i) the Company shall consolidate with, or merge with and into, any other
      Person (other than a Subsidiary of the Company in a transaction which complies
      with Section 11(o) hereof), and the Company shall not be the continuing or
      surviving corporation of such consolidation or merger, (ii) any Person
      (other than a Subsidiary of the Company in a transaction

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 22 
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    which
      complies with Section 11(o) hereof) shall consolidate with, or merge with or
      into, the Company, and the Company shall be the continuing or surviving
      corporation of such consolidation or merger and, in connection with such
      consolidation or merger, all or part of the outstanding shares of Common Stock
      shall be changed into or exchanged for stock or other securities of the Company
      or any other Person or cash or any other property, or (iii) the Company
      shall sell or otherwise transfer (or one or more of its Subsidiaries shall
      sell
      or otherwise transfer), in one transaction or a series of related transactions,
      assets or earning power aggregating more than 50% of the assets or earning
      power
      of the Company and its Subsidiaries (taken as a whole) to any Person or Persons
      (other than the Company or any Subsidiary of the Company in one or more
      transactions each of which complies with Section 11(o) hereof) (any event
      described in clauses (i), (ii) or (iii) of this Section 13(a) being a
      "Section 13 Event"), then, and in each such case (except as may be
      contemplated by Section 13(d) hereof), proper provision shall be made so
      that:  (A) each holder of a Right, except as provided in Section
      7(e) hereof, shall thereafter have the right to receive, upon the exercise
      thereof at the then current Purchase Price in accordance with the terms of
      this
      Agreement, such number of validly authorized and issued, fully paid,
      nonassessable and freely tradable shares of Common Stock of the Principal Party
      (as such term is hereinafter defined), not subject to any liens, encumbrances,
      rights of first refusal or other adverse claims, as shall be equal to the result
      obtained by (1) multiplying the then current Purchase Price by the number of
      1/1,000s of a share of Preferred Stock for which a Right is exercisable
      immediately prior to the first occurrence of a Section 13 Event (or, if a
      Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section
      13 Event, multiplying the number of such 1/1,000s of a share for which a Right
      was exercisable immediately prior to the first occurrence of such Section
      11(a)(ii) Event by the Purchase Price in effect immediately prior to such first
      occurrence), and dividing that product (which, following the first occurrence
      of
      a Section 13 Event, shall be referred to as the "Purchase Price" for each Right
      and for all purposes of this Agreement) by (2) 50% of the Current Market Price
      (determined pursuant to Section 11(d)(i) hereof) per share of the Common Stock
      of such Principal Party on the date of consummation of such Section 13 Event;
      (B) such Principal Party shall thereafter be liable for, and shall assume,
      by virtue of such Section 13 Event, all the obligations and duties of the
      Company pursuant to this Agreement; (C) the term "Company" shall thereafter
      be deemed to refer to such Principal Party, it being specifically intended
      that
      the provisions of Section 11 hereof apply only to such Principal Party following
      the first occurrence of a Section 13 Event; (D) such Principal Party shall
      take such steps (including, but not limited to, the reservation of a sufficient
      number of shares of its Common Stock) in connection with the consummation of
      any
      such transaction as may be necessary to assure that the provisions hereof shall
      thereafter be applicable, as nearly as reasonably may be, in relation to its
      shares of Common Stock thereafter deliverable upon the exercise of the Rights;
      and (E) the provisions of Section 11(a)(ii) hereof shall be of no effect
      following the first occurrence of any Section 13 Event.

    

    (b)           "Principal
      Party" shall mean

    

    
      	
              (i)

            	
              in
                the case of any transaction described in clause (i) or (ii) of the
                first
                sentence of Section 13(a) hereof, the Person that is the issuer of
                any securities into which shares of Common Stock of the Company are
                converted in such merger or

            

    

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 23 
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              consolidation,
                and if no securities are so issued, the Person that is the other
                party to
                such consolidation or merger; and

            

    

    

    
      	
              (ii)

            	
              in
                the case of any transaction described in clause (iii) of the first
                sentence of Section 13(a) hereof, the Person that is the party receiving
                the largest portion of the assets or earning power transferred pursuant
                to
                such transaction or transactions;

            

    

    

    provided,
      however, that in any such case, (1) if the Common Stock of such Person is
      not at such time and has not been continuously over the preceding 12-month
      period registered under Section 12 of the Exchange Act, and such Person is
      a direct or indirect Subsidiary of another Person the Common Stock of which
      is
      and has been so registered, "Principal Party" shall refer to such other Person;
      and (2) in case such Person is a Subsidiary, directly or indirectly, of more
      than one Person, the Common Stocks of two or more of which are and have been
      so
      registered, "Principal Party" shall refer to whichever of such Persons is the
      issuer of the Common Stock having the greatest aggregate market
      value.

    

    (c)           The
      Company shall not consummate any such consolidation, merger, sale or transfer
      unless the Principal Party shall have a sufficient number of authorized shares
      of its Common Stock which have not been issued or reserved for issuance to
      permit the exercise in full of the Rights in accordance with this Section 13
      and
      unless prior thereto the Company and such Principal Party shall have executed
      and delivered to the Rights Agent a supplemental agreement providing for the
      terms set forth in paragraphs (a) and (b) of this Section 13 and further
      providing that, as soon as practicable after the date of any consolidation,
      merger, or sale or transfer mentioned in paragraph (a) of this
      Section 13, the Principal Party will:

    

    
      	
              (i)

            	
              prepare
                and file a registration statement under the Securities Act, with
                respect
                to the Rights and the securities purchasable upon exercise of the
                Rights
                on an appropriate form, and will use its best efforts to cause such
                registration statement to (A) become effective as soon as practicable
                after such filing and (B) remain effective (with a prospectus at
                all times
                meeting the requirements of the Securities Act) until the Expiration
                Date,
                and similarly comply with applicable state securities
                laws;

            

    

    

    
      	
              (ii)

            	
              use
                its best efforts to list (or continue the listing of) the Rights
                and the
                securities purchasable upon exercise of the Rights on a national
                securities exchange or to meet the eligibility requirements for quotation
                on Nasdaq or such other system then in use;
                and

            

    

    

    
      	
              (iii)

            	
              will
                deliver to holders of the Rights historical financial statements
                for the
                Principal Party and each of its Affiliates which comply in all respects
                with the requirements for registration on Form 10 (or any successor
                form)
                under the Exchange Act.

            

    

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 24 
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            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              The
                provisions of this Section 13 shall similarly apply to successive
                consolidations, mergers, sales or other transfers.  In the event
                that a Section 13 Event shall occur at any time after the occurrence
                of a
                Section 11(a)(ii) Event, the Rights which have not theretofore been
                exercised shall thereafter become exercisable in the manner described
                in
                Section 13(a).

            

    

    

    (d)           Notwithstanding
      anything in this Agreement to the contrary, Section 13 shall not be
      applicable to a transaction described in subparagraphs (i) and (ii) of
      Section 13(a) if:  (i) such transaction is consummated with a
      Person or Persons who acquired shares of Common Stock pursuant to a Qualifying
      Offer (or a wholly owned Subsidiary of any such Person or Persons);
      (ii) the price per share of Common Stock offered in such transaction is not
      less than the price per share of Common Stock paid to all holders of shares
      of
      Common Stock whose shares were purchased pursuant to such tender offer or
      exchange offer; and (iii) the form of consideration being offered to the
      remaining holders of shares of Common Stock pursuant to such transaction is
      the
      same as the form of consideration paid pursuant to such tender offer or exchange
      offer.  Upon consummation of any such transaction contemplated by this
      Section 13(d), all Rights hereunder shall expire.

    

    Section
      14.                                Fractional
      Rights and Fractional Shares.

    

    (a)           The
      Company shall not be required to issue fractions of Rights, except prior to
      the
      Distribution Date as provided in Section 11(p) hereof, or to distribute Rights
      Certificates which evidence fractional Rights (i.e., Rights to acquire less
      than
      1/1,000 of a share of Preferred Stock).  In lieu of such fractional
      Rights, there shall be paid to the registered holders of the Rights Certificates
      with regard to which such fractional Rights would otherwise be issuable, an
      amount in cash equal to the same fraction of the current market value of a
      whole
      Right.  For purposes of this Section 14(a), the current market value
      of a whole Right shall be the closing price of the Rights for the Trading Day
      immediately prior to the date on which such fractional Rights would have been
      otherwise issuable.  The closing price of the Rights for any day shall
      be the last sale price, regular way, or, in case no such sale takes place on
      such day, the average of the closing bid and asked prices, regular way, in
      either case as reported in the principal consolidated transaction reporting
      system with respect to securities listed or admitted to trading on the principal
      national securities exchange on which the Rights are listed or admitted to
      trading, or, if the Rights are not listed or admitted to trading on any national
      securities exchange, the last quoted price or, if not so quoted, the average
      of
      the high bid and low asked prices, as reported by Nasdaq or such other system
      then in use or, if on any such date the Rights are not quoted by any such
      organization, the average of the closing bid and asked prices as furnished
      by a
      professional market maker making a market in the Rights selected by the Board
      of
      Directors of the Company.  If on any such date no such market maker is
      making a market in the Rights, the fair value of the Rights on such date as
      determined in good faith by the Board of Directors of the Company shall be
      used.

    

    (b)           The
      Company shall not be required to issue fractions of shares of Preferred Stock
      (other than fractions which are integral multiples of 1/1,000 of a share of
      Preferred Stock) upon exercise of the Rights or to distribute certificates
      which
      evidence

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 25 
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            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    fractional
      shares of Preferred Stock (other than fractions which are integral multiples
      of
      1/1,000 of a share of Preferred Stock).  In lieu of fractional shares
      of Preferred Stock that are not integral multiples of 1/1,000 of a share of
      Preferred Stock, the Company may pay to the registered holders of Rights
      Certificates at the time such Rights are exercised as herein provided an amount
      in cash equal to the same fraction of the current market value of 1/1,000 of
      a
      share of Preferred Stock.  For purposes of this Section 14(b),
      the current market value of 1/1,000 of a share of Preferred Stock shall be
      1/1,000 of the closing price of a share of Preferred Stock (as determined
      pursuant to Section 11(d)(ii) hereof) for the Trading Day immediately prior
      to
      the date of such exercise.

    

    (c)           Following
      the occurrence of a Triggering Event, the Company shall not be required to
      issue
      fractions of shares of Common Stock upon exercise of the Rights or to distribute
      certificates which evidence fractional shares of Common Stock.  In
      lieu of fractional shares of Common Stock, the Company may pay to the registered
      holders of Rights Certificates at the time such Rights are exercised as herein
      provided an amount in cash equal to the same fraction of the current market
      value of one share of Common Stock.  For purposes of this
      Section 14(c), the current market value of one share of Common Stock shall
      be the closing price of one share of Common Stock (as determined pursuant to
      Section 11(d)(i) hereof) for the Trading Day immediately prior to the date
      of
      such exercise.

    

    (d)           The
      holder of a Right by the acceptance of the Rights expressly waives his or her
      right to receive any fractional Rights or any fractional shares upon exercise
      of
      a Right, except as permitted by this Section 14.

    

    Section
      15.                                Rights
      of Action.

    

    All
      rights of action in respect of this
      Agreement are vested in the respective registered holders of the Rights
      Certificates (and, prior to the Distribution Date, the registered holders of
      the
      Common Stock); and any registered holder of any Rights Certificate (or, prior
      to
      the Distribution Date, of the Common Stock), without the consent of the Rights
      Agent or of the holder of any other Rights Certificate (or, prior to the
      Distribution Date, of the Common Stock), may, in his or her own behalf and
      for
      his or her own benefit, enforce, and may institute and maintain any suit, action
      or proceeding against the Company to enforce, or otherwise act in respect of,
      his or her right to exercise the Rights evidenced by such Rights Certificate
      in
      the manner provided in such Rights Certificate and in this
      Agreement.  Without limiting the foregoing or any remedies available
      to the holders of Rights, it is specifically acknowledged that the holders
      of
      Rights would not have an adequate remedy at law for any breach of this Agreement
      and shall be entitled to specific performance of the obligations hereunder
      and
      injunctive relief against actual or threatened violations of the obligations
      hereunder of any Person subject to this Agreement.

    

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 26 
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    Section
      16.                                Agreement
      of Rights Holders.

    

    Every
      holder of a Right by accepting
      the same consents and agrees with the Company and the Rights Agent and with
      every other holder of a Right that:

    

    (a)           prior
      to the Distribution Date, the Rights will be evidenced by the certificates
      for
      shares of Common Stock registered in the name of the holders of the Common
      Stock
      (which certificates for Common Stock shall also constitute certificates for
      Rights) and each Right will be transferable only in connection with the transfer
      of Common Stock;

    

    (b)           after
      the Distribution Date, the Rights Certificates are transferable only on the
      registry books of the Rights Agent if surrendered at the principal office or
      offices of the Rights Agent designated for such purposes, duly endorsed or
      accompanied by a proper instrument of transfer and with the appropriate forms
      and certificates fully executed;

    

    (c)           subject
      to Sections 6(a) and 7(f) hereof, the Company and the Rights Agent may deem
      and treat the Person in whose name a Rights Certificate (or, prior to the
      Distribution Date, the associated Common Stock certificate) is registered as
      the
      absolute owner thereof and of the Rights evidenced thereby (notwithstanding
      any
      notations of ownership or writing on the Rights Certificates or the associated
      Common Stock certificate made by anyone other than the Company or the Rights
      Agent) for all purposes whatsoever, and neither the Company nor the Rights
      Agent, subject to the last sentence of Section 7(e) hereof, shall be required
      to
      be affected by any notice to the contrary; and

    

    (d)           notwithstanding
      anything in this Agreement to the contrary, neither the Company nor the Rights
      Agent shall have any liability to any holder of a Right or other Person as
      a
      result of its inability to perform any of its obligations under this Agreement
      by reason of any preliminary or permanent injunction or other order, decree
      or
      ruling issued by a court of competent jurisdiction or by a governmental,
      regulatory or administrative agency or commission, or any statute, rule,
      regulation or executive order promulgated or enacted by any governmental
      authority, prohibiting or otherwise restraining performance of such obligation;
      provided, however, the Company must use its best efforts to have
      any such order, decree or ruling lifted or otherwise overturned as soon as
      possible.

    

    Section
      17.                                Rights
      Holder and Rights Certificate Holder Not Deemed a Shareholder.

    

    No
      holder, as such, of any Right or
      Rights Certificate shall be entitled to vote, receive dividends or be deemed
      for
      any purpose the holder of the number of 1/1,000s of a share of Preferred Stock
      or any other securities of the Company which may at any time be issuable on
      the
      exercise of the Rights represented thereby, nor shall anything contained herein
      or in any Rights Certificate be construed to confer upon the holder of any
      Right
      or Rights Certificate, as such, any of the rights of a shareholder of the
      Company or any right to vote for the election of directors or upon any matter
      submitted to shareholders at any meeting thereof, or to give or withhold consent
      to any corporate action, or to receive notice of meetings or other
      actions

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 27 
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            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    affecting
      shareholders (except as provided in Section 25 hereof), or to receive dividends
      or subscription rights, or otherwise, until the Right or Rights evidenced by
      such Rights Certificate shall have been exercised in accordance with the
      provisions hereof.

    

    Section
      18.                                Concerning
      the Rights Agent.

    

    (a)           The
      Company agrees to pay to the Rights Agent reasonable compensation for all
      services rendered by it hereunder and, from time to time, on demand of the
      Rights Agent, its reasonable expenses and attorney fees and disbursements and
      other disbursements incurred in the administration and execution of this
      Agreement and the exercise and performance of its duties
      hereunder.  The Company also agrees to indemnify the Rights Agent for,
      and to hold it harmless against, any loss, liability or expense, incurred
      without negligence, bad faith or willful misconduct on the part of the Rights
      Agent, for anything done or omitted by the Rights Agent in connection with
      the
      acceptance and administration of this Agreement, including the costs and
      expenses of defending against any claim of liability arising
      therefrom.  Anything to the contrary notwithstanding, in no event
      shall the Rights Agent be liable for special, indirect, consequential or
      incidental loss or damage of any kind whatsoever (including but not limited
      to
      lost profits), even if the Rights Agent has been advised of the likelihood
      of
      such loss or damage.

    

    (b)           The
      Rights Agent shall be protected and shall incur no liability for or in respect
      of any action taken, suffered or omitted by it in connection with its
      administration of this Agreement in reliance upon any Rights Certificate or
      certificate representing Preferred Stock or Common Stock or other securities
      of
      the Company, instrument of assignment or transfer, power of attorney,
      endorsement, affidavit, letter, notice, direction, consent, certificate,
      statement, or other paper or document believed by the Rights Agent to be genuine
      and to be signed, executed and, where necessary, verified or acknowledged,
      by
      the proper Person or Persons, or otherwise upon the advice of its counsel as
      set
      forth in Section 20 hereof.

    

    Section
      19.                                Merger
      or Consolidation or Change of Name of Rights Agent.

    

    (a)           Any
      corporation into which the Rights Agent or any successor Rights Agent may be
      merged or with which it may be consolidated, or any corporation resulting from
      any merger or consolidation to which the Rights Agent or any successor Rights
      Agent shall be a party, or any corporation succeeding to the corporate trust
      or
      shareholder services business of the Rights Agent or any successor Rights Agent,
      shall be the successor to the Rights Agent under this Agreement without the
      execution or filing of any paper or any further act on the part of either of
      the
      parties hereto; provided, however, that such corporation would be
      eligible for appointment as a successor Rights Agent under the provisions of
      Section 21 hereof.  If at the time such successor Rights Agent
      shall succeed to the agency created by this Agreement, any of the Rights
      Certificates shall have been countersigned but not delivered, any such successor
      Rights Agent may adopt the countersignature of a predecessor Rights Agent and
      deliver such Rights Certificates so countersigned; and if at that time any
      of
      the Rights Certificates shall not have been countersigned, any successor Rights
      Agent may countersign such Rights Certificates

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 28 
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    either
      in
      the name of the predecessor or in the name of the successor Rights Agent; and
      in
      all such cases such Rights Certificates shall have the full force provided
      in
      the Rights Certificates and in this Agreement.

    

    (b)           If
      at any time the name of the Rights Agent shall be changed and at such time
      any
      of the Rights Certificates shall have been countersigned but not delivered,
      the
      Rights Agent may adopt the countersignature under its prior name and deliver
      Rights Certificates so countersigned; and if at that time any of the Rights
      Certificates shall not have been countersigned, the Rights Agent may countersign
      such Rights Certificates either in its prior name or in its changed name; and
      in
      all such cases such Rights Certificates shall have the full force provided
      in
      the Rights Certificates and in this Agreement.

    

    Section
      20.                                Duties
      of Rights Agent.

    

    The
      Rights Agent undertakes the duties
      and obligations imposed by this Agreement upon the following terms and
      conditions, by all of which the Company and the holders of Rights Certificates,
      by their acceptance thereof, shall be bound:

    

    (a)           The
      Rights Agent may consult with legal counsel (who may be legal counsel for the
      Company), and the opinion of such counsel shall be full and complete
      authorization and protection to the Rights Agent as to any action taken or
      omitted by it in good faith and in accordance with such opinion.

    

    (b)           Whenever
      in the performance of its duties under this Agreement the Rights Agent shall
      deem it necessary or desirable that any fact or matter (including, without
      limitation, the identity of any Acquiring Person or Adverse Person and the
      determination of "current market price") be proved or established by the Company
      prior to taking or suffering any action hereunder, such fact or matter (unless
      other evidence in respect thereof be herein specifically prescribed) may be
      deemed to be conclusively proved and established by a certificate signed by
      the
      Chairman of the Board, the President, any Vice President, the Chief Financial
      Officer or the Secretary of the Company and delivered to the Rights Agent;
      and
      such certificate shall be full authorization to the Rights Agent for any action
      taken or suffered in good faith by it under the provisions of this Agreement
      in
      reliance upon such certificate.

    

    (c)           The
      Rights Agent shall be liable hereunder only for its own negligence, bad faith
      or
      willful misconduct.

    

    (d)           The
      Rights Agent shall not be liable for or by reason of any of the statements
      of
      fact or recitals contained in this Agreement or in the Rights Certificates
      or be
      required to verify the same (except as to its countersignature on such Rights
      Certificates), but all such statements and recitals are and shall be deemed
      to
      have been made by the Company only.

    

    (e)           The
      Rights Agent shall not be under any responsibility in respect of the validity
      of
      this Agreement or the execution and delivery hereof (except the due
      execution

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 29 
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            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    hereof
      by
      the Rights Agent) or in respect of the validity or execution of any Rights
      Certificate (except its countersignature thereof); nor shall it be responsible
      for any breach by the Company of any covenant or condition contained in this
      Agreement or in any Rights Certificate; nor shall it be responsible for any
      change in the exercisability of the Rights (including the Rights becoming void
      pursuant to Section 7(e) hereof); nor shall it be responsible for any adjustment
      required under the provisions of Section 11, 13 or 24 hereof or responsible
      for the manner, method or amount of any such adjustment or the ascertaining
      of
      the existence of facts that would require any such adjustment (except with
      respect to the exercise of Rights evidenced by Rights Certificates after actual
      notice of any such adjustment or change in exercisability); nor shall it by
      any
      act hereunder be deemed to make any representation or warranty as to the
      authorization or reservation of any shares of Common Stock or Preferred Stock
      to
      be issued pursuant to this Agreement or any Rights Certificate or as to whether
      any shares of Common Stock or Preferred Stock will, when so issued, be validly
      authorized and issued, fully paid and nonassessable.

    

    (f)           The
      Company agrees that it will perform, execute, acknowledge and deliver or cause
      to be performed, executed, acknowledged and delivered all such further and
      other
      acts, instruments and assurances as may reasonably be required by the Rights
      Agent for the carrying out or performing by the Rights Agent of the provisions
      of this Agreement.

    

    (g)           The
      Rights Agent is hereby authorized and directed to accept instructions with
      respect to the performance of its duties hereunder from the Chairman of the
      Board, the President, any Vice President, the Chief Financial Officer or the
      Secretary of the Company, and to apply to such officers for advice or
      instructions in connection with its duties, and it shall not be liable for
      any
      action taken or suffered to be taken by it in good faith in accordance with
      instructions of any such officer.

    

    (h)           The
      Rights Agent and any shareholder, director, officer, member or employee of
      the
      Rights Agent may buy, sell or deal in any of the Rights or other securities
      of
      the Company or become pecuniarily interested in any transaction in which the
      Company may be interested, or contract with or lend money to the Company or
      otherwise act as fully and freely as though it were not Rights Agent under
      this
      Agreement.  Nothing herein shall preclude the Rights Agent from acting
      in any other capacity for the Company or for any other legal
      entity.

    

    (i)           The
      Rights Agent may execute and exercise any of the rights or powers hereby vested
      in it or perform any duty hereunder either itself or by or through its attorneys
      or agents, and the Rights Agent shall not be answerab1e or accountable for
      any
      act, default, neglect or misconduct of any such attorneys or agents or for
      any
      loss to the Company resulting from any such act, default, neglect or misconduct;
      provided, however, reasonable care was exercised in the selection
      and continued employment thereof.

    

    (j)           No
      provision of this Agreement shall require the Rights Agent to expend or risk
      its
      own funds or otherwise incur any financial liability in the performance of
      any
      of its duties hereunder or in the exercise of its rights if there shall be
      reasonable grounds for

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 30 
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    believing
      that repayment of such funds or adequate indemnification against such risk
      or
      liability is not reasonably assured to it.

    

    (k)           If,
      with respect to any Rights Certificate surrendered to the Rights Agent for
      exercise or transfer, the certificate attached to the form of assignment or
      form
      of election to purchase, as the case may be, has either not been completed
      or
      indicates an affirmative response to clause l and/or 2 thereof, the Rights
      Agent
      shall not take any further action with respect to such requested exercise of
      transfer without first consulting with the Company.

    

    Section
      21.                                Change
      of Rights Agent.

    

    The
      Rights Agent or any successor
      Rights Agent may resign and be discharged from its duties under this Agreement
      upon 30 days' notice in writing mailed to the Company and to each transfer
      agent of the Common Stock and Preferred Stock, by registered or certified mail,
      and to the holders of the Rights Certificates by first-class
      mail.  The Company may remove the Rights Agent or any successor Rights
      Agent upon 30 days' notice in writing, mailed to the Rights Agent or
      successor Rights Agent, as the case may be, and to each transfer agent of the
      Common Stock and Preferred Stock, by registered or certified mail, and to the
      holders of the Rights Certificates by first-class mail.  If the Rights
      Agent shall resign or be removed or shall otherwise become incapable of acting,
      the Company shall appoint a successor to the Rights Agent.  If the
      Company shall fail to make such appointment within a period of 30 days
      after giving notice of such removal or after it has been notified in writing
      of
      such resignation or incapacity by the resigning or incapacitated Rights Agent
      or
      by the holder of a Rights Certificate (who shall, with such notice, submit
      his
      or her Rights Certificate for inspection by the Company), then any registered
      holder of any Rights Certificate may apply to any court of competent
      jurisdiction for the appointment of a new Rights Agent.  Any successor
      Rights Agent, whether appointed by the Company or by such a court, shall be
      either (a) a corporation organized and doing business under the laws of the
      United States or any state of the United States, so long as such corporation
      is
      authorized to do business as a banking institution, is authorized to exercise
      corporate trust powers, is in good standing, is subject to supervision or
      examination by federal or state authority, and has at the time of its
      appointment as Rights Agent a combined capital and surplus of at least $100
      million, or (b) an affiliate of such a corporation.  After
      appointment, the successor Rights Agent shall be vested with the same powers,
      rights, duties and responsibilities as if it had been originally named as Rights
      Agent without further act or deed; but the predecessor Rights Agent shall
      deliver and transfer to the successor Rights Agent any property at the time
      held
      by it hereunder, and execute and deliver any further assurance, conveyance,
      act
      or deed necessary for the purpose.  Not later than the effective date
      of any such appointment, the Company shall file notice thereof in writing with
      the predecessor Rights Agent and each transfer agent of the Common Stock and
      the
      Preferred Stock, and mail a notice thereof in writing to the registered holders
      of the Rights Certificates.  Failure to give any notice provided for
      in this Section 21, however, or any defect therein, shall not affect the
      legality or validity of the resignation or removal of the Rights Agent or the
      appointment of the successor Rights Agent, as the case may be.

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 31 
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            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Section
      22.                                Issuance
      of New Rights Certificates.

    

    Notwithstanding
      any of the provisions
      of this Agreement or of the Rights to the contrary, the Company may, at its
      option, issue new Rights Certificates evidencing Rights in such form as may
      be
      approved by its Board of Directors to reflect any adjustment or change in the
      Purchase Price and the number or kind or class of shares or other securities
      or
      property purchasable under the Rights Certificates made in accordance with
      the
      provisions of this Agreement.  In addition, in connection with the
      issuance or sale of shares of Common Stock following the Distribution Date
      and
      prior to the redemption or expiration of the Rights, the Company (a) shall,
      with
      respect to shares of Common Stock so issued or sold pursuant to the exercise
      of
      stock options or under any employee plan or arrangement, granted or awarded
      as
      of the Distribution Date, or upon the exercise, conversion or exchange of
      securities hereinafter issued by the Company, and (b) may, in any other case,
      if
      deemed necessary or appropriate by the Board of Directors, issue Rights
      Certificates representing the appropriate number of Rights in connection with
      such issuance or sale; provided, however, that (i) no such Rights
      Certificate shall be issued if, and to the extent that, the Company shall be
      advised by counsel that such issuance would create a significant risk of
      material adverse tax consequences to the Company or the Person to whom such
      Rights Certificate would be issued, and (ii) no such Rights Certificate
      shall be issued if, and to the extent that, appropriate adjustment shall
      otherwise have been made in lieu of the issuance thereof.

    

    Section
      23.                                Redemption
      and Termination.

    

    (a)           The
      Board of Directors of the Company may, at its option, at any time prior to
      the
      earlier of (i) the Close of Business on the twentieth Business Day
      following the Stock Acquisition Date, or (ii) the Close of Business on the
      Final Expiration Date, redeem all, but not less than all, the then outstanding
      Rights at a redemption price of $.01 per Right, as such amount may be
      appropriately adjusted to reflect any stock split, stock dividend or similar
      transaction occurring after the date hereof (such redemption price being
      hereinafter referred to as the "Redemption Price").  The Board of
      Directors may not redeem any Rights following a determination pursuant to
      Section 11(a)(ii)(B) that any Person is an Adverse
      Person.  Notwithstanding anything contained in this Agreement to the
      contrary, the Rights shall not be exercisable after the first occurrence of
      a
      Section 11(a)(ii) Event until such time as the Company's right of
      redemption hereunder has expired.  The Company may, at its option, pay
      the Redemption Price in cash, shares of Common Stock (based on the Current
      Market Price, as defined in Section 11(d)(i) hereof, of the Common Stock at
      the
      time of redemption) or any other form of consideration deemed appropriate by
      the
      Board of Directors.

    

    (b)           Immediately
      upon the action of the Board of Directors of the Company ordering the redemption
      of the Rights, evidence of which shall have been filed with the Rights Agent
      and
      without any further action and without any notice, the right to exercise the
      Rights will terminate and the only right thereafter of the holders of Rights
      shall be to receive the Redemption Price for each Right so
      held.  Promptly after the action of the Board of
      Directors

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 32 
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ordering
      the redemption of the Rights, the Company shall give notice of such redemption
      to the Rights Agent and the holders of the then outstanding Rights by mailing
      such notice to all such holders at each holder’s last address as it appears on
      the registry books of the Rights Agent or, prior to the Distribution Date,
      on
      the registry books of the transfer agent for the Common Stock.  Any
      notice which is mailed in the manner herein provided shall be deemed given,
      whether or not the holder receives the notice.  Each such notice of
      redemption will state the method by which the payment of the Redemption Price
      will be made.

    

    Section
      24.                                Exchange.

    

    (a)           The
      Board of Directors of the Company may, at its option, at any time after any
      Person becomes an Acquiring Person or is determined to be an Adverse Person
      pursuant to Section 11(a)(ii)(B), exchange all or part of the then outstanding
      and exercisable Rights (which shall not include Rights that have become void
      pursuant to the provisions of Section 7(e) hereof) for shares of Common
      Stock at an exchange ratio of one share of Common Stock per Right, appropriately
      adjusted to reflect any stock split, stock dividend or similar transaction
      occurring after the date hereof (such exchange ratio being hereinafter referred
      to as the "Exchange Ratio").  Notwithstanding the foregoing, the Board
      of Directors of the Company shall not be empowered to effect such exchange
      at
      any time after any Person (other than the Company, any Subsidiary of the
      Company, any employee benefit plan of the Company or any such Subsidiary, or
      any
      entity holding Common Stock for or pursuant to the terms of any such plan),
      together with all Affiliates and Associates of such Person, becomes the
      Beneficial Owner of 50% or more of the Common Stock then
      outstanding.

    

    (b)           Immediately
      upon the action of the Board of Directors of the Company ordering the exchange
      of any Rights pursuant to Section 24(a) hereof and without any further
      action and without any notice, the right to exercise such Rights shall terminate
      and the only right thereafter of a holder of such Rights shall be to receive
      that number of shares of Common Stock equal to the number of such Rights held
      by
      such holder multiplied by the Exchange Ratio.  The Company shall
      promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall
      not affect the validity of such exchange.  The Company promptly shall
      mail a notice of any such exchange to all of the holders of such Rights at
      their
      last addresses as they appear on the registry books of the Rights
      Agent.  Any notice which is mailed in the manner herein provided shall
      be deemed given, whether or not the holder receives the notice.  Each
      such notice of exchange will state the method by which the exchange of the
      Common Stock for Rights will be effected and, in the event of any partial
      exchange, the number of Rights which will be exchanged.  Any partial
      exchange shall be effected pro rata based on the number of Rights (other than
      Rights which have become void pursuant to the provisions of Section 7(e) hereof)
      held by each holder of Rights.

    

    (c)           In
      any exchange pursuant to this Section 24, the Company, at its option, may
      substitute shares of Preferred Stock (or equivalent preferred stock, as such
      term is defined in Section 11(b) hereof) for shares of Common Stock
      exchangeable for Rights, at the initial rate of 1/1,000 of a share of Preferred
      Stock (or equivalent preferred stock) for each share

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 33
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    of
      Common
      Stock, as appropriately adjusted to reflect adjustments in the voting rights
      of
      the Preferred Stock pursuant to Section 3(A) of the rights, powers and
      preferences attached hereto as Exhibit A, so that the fraction of a share
      of Preferred Stock delivered in lieu of each share of Common Stock shall have
      the same voting rights as one share of Common Stock.

    

    (d)           In
      the event that there shall not be sufficient shares of Common Stock issued
      but
      not outstanding or authorized but unissued to permit any exchange of Rights
      as
      contemplated in accordance with this Section 24, the Company shall take all
      such
      action as may be necessary to authorize additional shares of Common Stock for
      issuance upon exchange of the Rights.

    

    (e)           The
      Company shall not be required to issue fractions of shares of Common Stock
      or to
      distribute certificates which evidence fractional shares of Common
      Stock.  In lieu of such fractional shares of Common Stock, there shall
      be paid to the registered holders of the Right Certificates, with regard to
      which such fractional share of Common Stock would otherwise be issuable, an
      amount in cash equal to the same fraction of the current market value of a
      whole
      share of Common Stock.  For the purposes of this paragraph (e),
      the current market value of a whole share of Common Stock shall be the closing
      price of a share of Common Stock (as determined pursuant to the second sentence
      of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date
      of
      exchange pursuant to this Section 24.

    

    Section
      25.                                Notice
      of Certain Events.

    

    (a)           In
      case the Company shall propose, at any time after the Distribution Date,
      (i) to pay any dividend payable in stock of any class to the holders of
      Preferred Stock or to make any other distribution to the holders of Preferred
      Stock (other than a regular quarterly cash dividend out of earnings or retained
      earnings of the Company), or (ii) to offer to the holders of Preferred
      Stock rights or warrants to subscribe for or to purchase any additional shares
      of Preferred Stock or shares of stock of any class or any other securities,
      rights or options, or (iii) to effect any reclassification of its Preferred
      Stock (other than a reclassification involving only the subdivision of
      outstanding shares of Preferred Stock), or (iv) to effect any consolidation
      or
      merger into or with any other Person (other than a Subsidiary of the Company
      in
      a transaction which complies with Section 11(o) hereof), or to effect any sale
      or other transfer (or to permit one or more of its Subsidiaries to effect any
      sale or other transfer), in one transaction or a series of related transactions,
      of more than 50% of the assets or earning power of the Company and its
      Subsidiaries (taken as a whole) to, any other Person or Persons (other than
      the
      Company and/or any of its Subsidiaries in one or more transactions each of
      which
      complies with Section 11(o) hereof), or (v) to effect the liquidation,
      dissolution or winding up of the Company, then, in each such case, the Company
      shall give to each holder of a Rights Certificate, to the extent feasible and
      in
      accordance with Section 26 hereof, a notice of such proposed action, which
      shall specify the record date for the purposes of such stock dividend,
      distribution of rights or warrants, or the date on which such reclassification,
      consolidation, merger, sale, transfer, liquidation, dissolution, or winding
      up
      is to take place and the date of participation therein by the holders of the
      shares of Preferred Stock, if any such date is to be fixed, and such notice
      shall be so given in the case of

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 34
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    any
      action covered by clause (i) or (ii) above at least 20 days prior to
      the record date for determining holders of the shares of Preferred Stock for
      purposes of such action, and in the case of any such other action, at least
      20
      days prior to the date of the taking of such proposed action or the date of
      participation therein by the holders of the shares of Preferred Stock, whichever
      shall be the earlier.

    

    (b)           If
      any Section 11(a)(ii) Event shall occur, then, in any such case,
      (i) the Company shall as soon as practicable thereafter give to each holder
      of a Rights Certificate, to the extent feasible and in accordance with
      Section 26 hereof, a notice of the occurrence of such event, which shall
      specify the event and the consequences of the event to holders of Rights under
      Section 11(a)(ii) hereof, and (ii) all references in the preceding
      paragraph to Preferred Stock shall be deemed thereafter to refer to Common
      Stock
      and/or, if appropriate, other securities.

    

    Section
      26.                                Notices.

    

    Notices
      or demands authorized by this
      Agreement to be given or made by the Rights Agent or by the holder of any Rights
      Certificate to or on the Company shall be sufficiently given or made if sent
      by
      first-class mail, postage prepaid, addressed (until another address is filed
      in
      writing with the Rights Agent) as follows:

    

    Key
      Technology, Inc.

    150
      Avery
      Street

    Walla
      Walla, WA 99362

    Attention:  Chief
      Financial Officer

    

    Subject
      to the provisions of Section 21, any notice or demand authorized by this
      Agreement to be given or made by the Company or by the holder of any Rights
      Certificate to or on the Rights Agent shall be sufficiently given or made if
      sent by first-class mail, postage prepaid, addressed (until another address
      is
      filed in writing with the Company) as follows:

    

    American
      Stock Transfer & Trust Company

    59
      Maiden
      Lane

    Plaza
      Level

    New
      York,
      NY  10038

    Attention: _________________________                                                               

    

    Notices
      or demands authorized by this Agreement to be given or made by the Company
      or
      the Rights Agent to the holder of any Rights Certificate (or, if prior to the
      Distribution Date, to the holder of certificates representing shares of Common
      Stock) shall be sufficiently given or made if sent by first-class mail, postage
      prepaid, addressed to such holder at his or her address as shown on the registry
      books of the Company.

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 35
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            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Section
      27.                                Supplements
      and Amendments.

    

    Prior
      to the Distribution Date and
      subject to the penultimate sentence of this Section 27, the Company may by
      action of the Board of Directors, and the Rights Agent shall if the Company
      so
      directs, supplement or amend any provision of this Agreement in any manner
      without the approval of any holders of Common Stock.  From and after
      the Distribution Date and subject to the penultimate sentence of this
      Section 27, the Company may by action of the Board of Directors, and the
      Rights Agent shall if directed by the Company, from time to time, supplement
      or
      amend this Agreement without the approval of any holders of Rights Certificates
      in order (i) to cure any ambiguity, (ii) to correct or supplement any
      provision contained herein which may be defective or inconsistent with any
      other
      provisions herein, (iii) to shorten or lengthen any time period herein or
      (iv) to change or supplement any other provisions herein in any manner
      which the Board of Directors may deem necessary or desirable so long as the
      interests of the holders of the Rights or Rights Certificates (other than an
      Acquiring Person or Adverse Person or any Affiliate or Associate of an Acquiring
      Person or Adverse Person) shall not be materially and adversely affected
      thereby; provided, however, this Agreement may not be supplemented
      or amended to lengthen, pursuant to clause (iii) of this sentence, (A) a
      time period relating to when the Rights may be redeemed at such time and the
      Rights are not then redeemable, or (B) any other time period unless such
      lengthening is for the purpose of protecting, enhancing or clarifying the rights
      of, and/or the benefits to, the holders of Rights (other than an Acquiring
      Person or Adverse Person or any Affiliate or Associate of an Acquiring Person
      or
      Adverse Person).  Upon the delivery of a certificate from an
      appropriate officer of the Company, which states that the proposed supplement
      or
      amendment is in compliance with the terms of this Section 27, the Rights
      Agent shall execute such supplement or amendment.  Prior to the
      Distribution Date, the interests of the holders of Rights shall be deemed
      coincident with the interests of the holders of Common Stock of the
      Company.

    

    Section
      28.                                Successors.

    

    All
      the covenants and provisions of
      this Agreement by or for the benefit of the Company or the Rights Agent shall
      bind and inure to the benefit of their respective successors and assigns
      hereunder.

    

    Section
      29.                                Determinations
      and Actions by the Board of Directors, Etc.

    

    For
      all purposes of this Agreement,
      any calculation of the number of shares of Common Stock outstanding at any
      particular time, including for purposes of determining the particular percentage
      of such outstanding shares of Common Stock of which any Person is the Beneficial
      Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(l)(i)
      of the General Rules and Regulations under the Exchange Act, as in effect on
      the
      date of this Agreement.  The Board of Directors of the Company have
      the exclusive power and authority to administer this Agreement and to exercise
      all rights and powers specifically granted to the Board of Directors or to
      the
      Company, or as may be necessary or advisable in the administration of this
      Agreement, including, without limitation, the right and power to
      (a) interpret provisions of this Agreement, and (b) make all
      determinations deemed necessary or advisable for the

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 36
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    administration
      of this Agreement (including a determination to redeem or not redeem the Rights
      or to amend this Agreement).  All such actions, calculations,
      interpretations and determinations (including, for purposes of clause (ii)
      below, all omissions with respect to the foregoing) which are done or made
      by
      the Board of Directors in good faith, shall (i) be final, conclusive and binding
      on the Company, the Rights Agent, the holders of the Rights and all other
      parties, and (ii) not subject the Board of Directors to any liability to the
      holders of the Rights.

    

    Section
      30.                                Benefits
      of this Agreement.

    

    Nothing
      in this Agreement shall be
      construed to give to any Person other than the Company, the Rights Agent and
      the
      registered holders of the Rights Certificates (and, prior to the Distribution
      Date, registered holders of the Common Stock) any legal or equitable right,
      remedy or claim under this Agreement; but this Agreement shall be for the sole
      and exclusive benefit of the Company, the Rights Agent and the registered
      holders of the Rights Certificates (and, prior to the Distribution Date,
      registered holders of the Common Stock).

    

    Section
      31.                                Severability.

    

    If
      any term, provision, covenant or
      restriction of this Agreement is held by a court of competent jurisdiction
      or
      other authority to be invalid, void or unenforceable, the remainder of the
      terms, provisions, covenants and restrictions of this Agreement shall remain
      in
      full force and effect and shall in no way be affected, impaired or invalidated;
      provided, however, that notwithstanding anything in this Agreement
      to the contrary, if any term, provision, covenant or restriction is held by
      such
      court or authority to be invalid, void or unenforceable and the Board of
      Directors of the Company determines in its good faith judgment that severing
      the
      invalid language from this Agreement would adversely affect the purpose or
      effect of this Agreement, the right of redemption set forth in Section 23 hereof
      shall be reinstated and shall not expire until the Close of Business on the
      tenth Business Day following the date of such determination by the Board of
      Directors.  Without limiting the foregoing, if any provision requiring
      a majority of the members of the Board of Directors who are not officers of
      the
      Company and who are not representatives, nominees, Affiliates or Associates
      of
      an Acquiring Person to act is held by any court of competent jurisdiction or
      other authority to be invalid, void or unenforceable, such determination shall
      be made by the Board of Directors of the Company in accordance with applicable
      law and the Company's Restated Articles of Incorporation and Restated Bylaws,
      as
      in effect at that time.

    

    Section
      32.                                Governing
      Law.

    

    This
      Agreement, each Right and each
      Rights Certificate issued hereunder shall be deemed to be a contract made under
      the laws of the State of Oregon and for all purposes shall be governed by and
      construed in accordance with the laws of such state applicable to contracts
      made
      and to be performed entirely within such state, including, without limitation,
      the provisions of ORS 60.157.

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 37
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Section
      33.                                Counterparts.

    

    This
      Agreement may be executed in any
      number of counterparts and each of such counterparts shall for all purposes
      be
      deemed to be an original, and all such counterparts shall together constitute
      but one and the same instrument.

    

    Section
      34.                                Descriptive
      Headings

    

    Descriptive
      headings of the several
      sections of this Agreement are inserted for convenience only and shall not
      control or affect the meaning or construction of any of the provisions
      hereof.

    

    IN
      WITNESS WHEREOF, the parties hereto
      have caused this Rights Agreement to be duly executed and attested as of the
      date first written above.

    

    KEY
      TECHNOLOGY, INC.

    Attest:

    

    By__________________________                                                                                               
      By ________________________________

                    Secretary                                                                                                                                
      Title _______________________________

    

    

    

                                                          AMERICAN
      STOCK TRANSFER & TRUST COMPANY

    Attest:

    

    By__________________________                                                                                                By
      ________________________________

                       Secretary                                                                                                                              Title
      _______________________________

    

    

    

    

    

    

     

    004002\00111\795405
      V001

     

    

    
      
         KEY TECHNOLOGY, INC.                                                                                            PAGE 38
           SECOND
            AMENDED AND RESTATED RIGHTS PLAN                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

    

    SERIES
      A
      JUNIOR PARTICIPATING PREFERRED STOCK

    

    BY
      DIRECTORS

    PURSUANT
      TO ARTICLES OF AMENDMENT TO

    THE
      RESTATED ARTICLES OF INCORPORATION

    OF

    KEY
      TECHNOLOGY, INC.

    

    

    Article
      II of the Corporation's
      Restated Articles of Incorporation is amended to add a section providing for
      a
      series of Series A Junior Participating Preferred Stock, and that the
      designation and amount thereof and the voting powers, preferences, limitations
      and relative and special rights of the shares of such series, and the
      qualifications, limitations or restrictions thereof are as follows:

    

    ARTICLE
      II

    

    SERIES
      A
      JUNIOR PARTICIPATING PREFERRED STOCK

    

    Section
      1.                      Designation,
      Amount and Par Value.

    

    The
      shares of such series shall be
      designated as "Series A Junior Participating Preferred Stock" and the number
      of
      shares constituting such series shall be 15,000.  Such series is
      hereinafter referred to as the "Series A Preferred Stock."  The par
      value of the Series A Preferred Stock shall be $.01 per share.

    

    Section
      2.                      Dividends
      and Distributions.

    

    (A)           The
      holders of shares of Series A Preferred Stock shall be entitled to receive,
      when, as and if declared by the Board of Directors out of funds legally
      available for the purpose, quarterly dividends payable in cash on the last
      day
      of March, June, September and December in each year (each such date being
      referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
      first Quarterly Dividend Payment Date after the first issuance of a share or
      fraction of a share of Series A Preferred Stock, in an amount per share (rounded
      to the nearest cent) equal to the greater of (a) $.01 or (b) subject to the
      provisions for adjustment hereinafter set forth, 1,000 times the aggregate
      per
      share amount of all cash dividends, and 1,000 times the aggregate per share
      amount (payable in kind) of all non-cash dividends or other distributions other
      than a dividend payable in shares of Common Stock or a subdivision of the
      outstanding shares of Common Stock (by reclassification or otherwise), declared
      on the Common Stock, par value $.01 per share, of the Corporation (the "Common
      Stock") since the immediately preceding Quarterly Dividend Payment Date or,
      with
      respect to the first Quarterly Dividend Payment Date, since the first issuance
      of any share or fraction of a share

    
      
        
            SECOND
            AMENDED AND RESTATED RIGHTS PLAN

           
            EXHIBIT A                    

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    of
      Series
      A Preferred Stock.  In the event the Corporation shall at any time
      after May 4, 1998 (the "Rights Declaration Date") (i) declare any
      dividend on Common Stock payable in shares of Common Stock, (ii) subdivide
      the outstanding Common Stock, or (iii) combine the outstanding Common Stock
      into a smaller number of shares, then in each such case the amount to which
      holders of shares of Series A Preferred Stock were entitled immediately prior
      to
      such event under clause (b) of the preceding sentence shall be adjusted by
      multiplying such amount by a fraction the numerator of which is the number
      of
      shares of Common Stock outstanding immediately after such event and the
      denominator of which is the number of shares of Common Stock that were
      outstanding immediately prior to such event.

    

    (B)           The
      Corporation shall declare a dividend or distribution on the Series A Preferred
      stock as provided in Paragraph (A) above immediately after it declares a
      dividend or distribution on the Common Stock (other than a dividend payable
      in
      shares of Common Stock).

    

    (C)           Dividends
      shall begin to accrue and be cumulative on outstanding shares of Series A
      Preferred Stock from the Quarterly Dividend Payment Date next preceding the
      date
      of issue of such shares of Series A Preferred Stock, unless the date of issue
      of
      such shares is prior to the record date for the first Quarterly Dividend Payment
      Date, in which case dividends on such shares shall begin to accrue from the
      date
      of issue of such shares, or unless the date of issue is a Quarterly Dividend
      Payment Date or is a date after the record date for the determination of holders
      of shares of Series A Preferred Stock entitled to receive a quarterly dividend
      and before such Quarterly Dividend Payment Date, in either of which events
      such
      dividends shall begin to accrue and be cumulative from such Quarterly Dividend
      Payment Date.  Accrued but unpaid dividends shall not bear
      interest.  Dividends paid on the shares of Series A Preferred Stock in
      an amount less than the total amount of such dividends at the time accrued
      and
      payable on such shares shall be allocated pro rata on a share-by-share basis
      among all such shares at the time outstanding.  The Board of Directors
      may fix a record date for the determination of holders of shares of Series
      A
      Preferred Stock entitled to receive payment of a dividend or distribution
      declared thereon, which record date shall be no more than 30 days prior to
      the
      date fixed for the payment thereof.

    

    Section
      3.                      Voting
      Rights.

    

    The
      holders of shares of Series A
      Preferred stock shall have the following voting rights:

    

    (A)           Subject
      to the provision for adjustment hereinafter set forth, each share of Series
      A
      Preferred Stock shall entitle the holder thereof to 1,000 votes (and each
      1/1,000 of a share of Series A Preferred Stock shall entitle the holder thereof
      to one vote) on all matters submitted to a vote of the shareholders of the
      Corporation.  In the event the Corporation shall at any time after the
      Rights Declaration Date (i) declare any dividend on Common Stock payable in
      shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
      combine the outstanding Common Stock into a smaller number of shares, then
      in
      each such case the number of votes per share to which holders of shares of
      Series A Preferred Stock were entitled

    
      
         SECOND AMENDED AND
          RESTATED RIGHTS PLAN
           
            EXHIBIT A         

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    immediately
      prior to such event shall be adjusted by multiplying such number by a fraction
      the numerator of which is the number of shares of Common Stock outstanding
      immediately after such event and the denominator of which is the number of
      shares of Common Stock that were outstanding immediately prior to such
      event.

    

    (B)           Except
      as otherwise provided herein or by law, the holders of shares of Series A
      Preferred Stock and the holders of shares of Common Stock shall vote together
      as
      one class on all matters submitted to a vote of shareholders of the
      Corporation.

    

    (C)           (i)           If
      at any time dividends on any Series A Preferred Stock shall be in arrears in
      an
      amount equal to six quarterly dividends thereon, the occurrence of such
      contingency shall mark the beginning of a period (herein called a "default
      period") which shall extend until such time when all accrued and unpaid
      dividends for all previous quarterly dividend periods and for the current
      quarterly dividend period on all shares of Series A Preferred Stock then
      outstanding shall have been declared and paid or set apart for
      payment.  During each default period, all holders of Preferred Stock
      (including holders of the Series A Preferred Stock) with dividends in arrears
      in
      an amount equal to six quarterly dividends thereon, voting as a class,
      irrespective of series, shall have the right to elect two directors in addition
      to any number of directors that the holders of any series of Preferred Stock
      may
      otherwise be entitled to elect.

    

    (ii)           During
      any default period, such voting right of the holders of Series A Preferred
      Stock
      may be exercised initially at a special meeting called pursuant to subparagraph
      (iii) of this Section 3(C) or at any annual meeting of shareholders, and
      thereafter at annual meetings of shareholders, provided that such voting right
      shall not be exercised unless the holders of 10% in number of shares of
      Preferred Stock outstanding shall be present at the meeting in person or by
      proxy.  The absence of a quorum of the holders of Common Stock shall
      not affect the exercise by the holders of Preferred Stock of such voting
      right.  At any meeting at which the holders of Preferred Stock shall
      exercise such voting right initially during an existing default period, they
      shall have the right, voting as a class, to elect directors to fill such
      vacancies, if any, in the Board of Directors as may then exist up to two
      directors or, if such right is exercised at an annual meeting, to elect two
      directors.  If the number which may be so elected at any special
      meeting does not amount to the required number, the holders of the Preferred
      Stock shall have the right to make such increase in the number of directors
      as
      shall be necessary to permit the election by them of the required
      number.  After the holders of the Preferred Stock shall have exercised
      their right to elect directors in any default period and during the continuance
      of such period, the number of directors shall not be increased or decreased
      except by vote of the holders of Preferred Stock as herein provided or pursuant
      to the rights of any equity securities ranking senior to or pari passu with
      the
      Series A Preferred Stock.

    

    (iii)           Unless
      the holders of Preferred Stock shall, during an existing default period, have
      previously exercised their right to elect directors, the Board of Directors
      may
      order, or any shareholder or shareholders owning in the aggregate not less
      than
      10% of the total number of shares of Preferred Stock outstanding, irrespective
      of series, may request, the calling of a special meeting of the holders of
      Preferred Stock, which meeting shall thereupon be called

    
      
         SECOND AMENDED AND
          RESTATED RIGHTS PLAN
           
            EXHIBIT A          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    by
      the
      Chairman, President, a Vice President or the Secretary of the
      Corporation.  Notice of such meeting and of any annual meeting at
      which holders of Preferred Stock are entitled to vote pursuant to this paragraph
      (C)(iii) shall be given to each holder of record of Preferred Stock by mailing
      a
      copy of such notice to the holder at the holder's last address appearing on
      the
      books of the Corporation.  Such meeting shall be called for a time not
      earlier than 10 days and not later than 50 days after such order or request
      or
      in default of the calling of such meeting within 50 days after such order or
      request, such meeting may be called on similar notice by any shareholder or
      shareholders owning in the aggregate not less than 10% of the total number
      of
      shares of Preferred Stock outstanding.  Notwithstanding the provisions
      of this paragraph (C)(iii), no such special meeting shall be called during
      the
      period within 50 days immediately preceding the date fixed for the next annual
      meeting of the shareholders.

    

    (iv)           In
      any default period, the holders of Common Stock, and other classes of stock
      of
      the Corporation, if applicable, shall continue to be entitled to elect the
      whole
      number of directors until the holders of Preferred Stock shall have exercised
      their right to elect two directors voting as a class, after the exercise of
      which right (x) the directors so elected by the holders of Preferred Stock
      shall
      continue in office until their successors shall have been elected by such
      holders or until the expiration of the default period, and (y) any vacancy
      in
      the Board of Directors may, except as provided in paragraph (C)(ii) of this
      Section 3, be filled by vote of a majority of the remaining directors
      theretofore elected by the holders of the class of stock which elected the
      director whose office shall have become vacant.  References in this
      paragraph (C) to directors elected by the holders of a particular class of
      stock
      shall include directors elected by such directors to fill vacancies, as provided
      in clause (y) of the foregoing sentence.

    

    (iv)           Immediately
      upon the expiration of a default period, (x) the right of the holders of
      Preferred Stock as a class to elect directors shall cease, (y) the term of
      any
      directors elected by the holders of Preferred Stock as a class shall terminate,
      and (z) the number of directors shall be such number as may be provided for
      in
      the Restated Articles of Incorporation or Restated Bylaws irrespective of any
      increase made pursuant to the provisions of paragraph (C)(ii) of this Section
      3
      (such number being subject, however, to change thereafter in any manner provided
      by law or in the Restated Articles of Incorporation or Restated
      Bylaws).  Any vacancies in the Board of Directors effected by the
      provisions of clauses (y) and (z) in the preceding sentence may be filled by
      a
      majority of the remaining directors.

    

    (D)           Except
      as set forth herein, holders of Series A Preferred Stock shall have no special
      voting rights and their consent shall not be required (except to the extent
      they
      are entitled to vote with holders of Common Stock as set forth herein) for
      taking any corporate action.

    

    Section
      4.                      Certain
      Restrictions.

    

    (A)           Whenever
      quarterly dividends or other dividends or distributions payable on the Series
      A
      Preferred Stock as provided in Section 2 are in arrears, thereafter and until
      all

    
      
         SECOND AMENDED AND
          RESTATED RIGHTS PLAN
           
            EXHIBIT A         

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    accrued
      and unpaid dividends and distributions, whether or not declared, on shares
      of
      Series A Preferred Stock outstanding shall have been paid in full, the
      Corporation shall not:

    

    (i)           declare
      or pay dividends on, make any other  distributions on, or redeem or
      purchase or otherwise acquire for consideration any shares of stock ranking
      junior (either as to dividends or upon liquidation, dissolution or winding
      up)
      to the Series A Preferred Stock;

    

    (ii)           declare
      or pay dividends on or make any other   distributions on any
      shares of stock ranking on a parity (either as to dividends or upon liquidation,
      dissolution or winding up) with the Series A Preferred Stock, except dividends
      paid ratably on the Series A Preferred Stock and all such parity stock on which
      dividends are payable or in arrears in proportion to the total amounts to which
      the holders of all such shares are then entitled;

    

    (iii)           redeem
      or purchase or otherwise acquire for consideration shares of any stock ranking
      on a parity (either as to dividends or upon liquidation, dissolution or winding
      up) with the Series A Preferred Stock, provided that the Corporation may
      at any time redeem, purchase or otherwise acquire shares of any such parity
      stock in exchange for shares of any stock of the Corporation ranking junior
      (either as to dividends or upon dissolution, liquidation or winding up) to
      the
      Series A Preferred Stock; or

    

    (iv)           purchase
      or otherwise acquire for consideration any shares of Series A Preferred Stock,
      or any shares of stock ranking on a parity with the Series A Preferred Stock,
      except in accordance with a purchase offer made in writing or by publication
      (as
      determined by the Board of Directors) to all holders of such shares upon such
      terms as the Board of Directors, after consideration of the respective annual
      dividend rates and other relative rights and preferences of the respective
      series and classes, shall determine in good faith will result in fair and
      equitable treatment among the respective series or classes.

    

    (B)           The
      Corporation shall not permit any subsidiary of the Corporation to purchase
      or
      otherwise acquire for consideration any shares of stock of the Corporation
      unless the Corporation could, under Section 4(A), purchase or otherwise acquire
      such shares at such time and in such manner.

    

    Section
      5.                      Reacquired
      Shares.

    

    Any
      shares of Series A Preferred Stock
      purchased or otherwise acquired by the Corporation in any manner whatsoever
      shall be retired and cancelled promptly after the acquisition
      thereof.  All such shares shall upon their cancellation become
      authorized but unissued shares of Preferred Stock, without designation as to
      series, and may be reissued as part of a new series of Preferred Stock to be
      created by resolution or resolutions of the Board of Directors, subject to
      the
      conditions and restrictions on issuance set forth herein or in the Restated
      Articles of Incorporation.

    
      
         SECOND AMENDED AND
          RESTATED RIGHTS PLAN
           
            EXHIBIT A         

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Section
      6.                      Liquidation,
      Dissolution or Winding Up.

    

    (A)           Upon
      any liquidation (voluntary or otherwise), dissolution or winding up of the
      Corporation, no distribution shall be made to:

    

    (i)           the
      holders of shares of stock ranking junior (either as to dividends or upon
      liquidation, dissolution or winding up) to the Series A Preferred Stock, unless,
      prior thereto, the holders of shares of Series A Preferred Stock shall have
      received the higher of (a) $0.01 per share, plus an amount equal to accrued
      and unpaid dividends and distributions thereon, whether or not declared, to
      the
      date of such payment, or (b) an aggregate amount per share, subject to the
      provision for adjustment hereinafter set forth, equal to 1,000 times the
      aggregate amount to be distributed per share to holders of Common Stock;
      or

    

    (ii)           the
      holders of stock ranking on a parity (either as to dividends or upon
      liquidation, dissolution or winding up) with the Series A Preferred Stock,
      except distributions made ratably on the Series A Preferred Stock and all other
      such parity stock in proportion to the total amounts to which the holders of
      all
      such shares are entitled upon such liquidation, dissolution or winding
      up.

    

    (B)           In
      the event the Corporation shall at any time (i) declare any dividend on
      Common Stock payable in shares of Common Stock, or (ii) subdivide, combine
      or
      consolidate the outstanding shares of Common Stock (by reclassification or
      otherwise) into a greater or smaller number of shares, then in each such case
      the aggregate amount to which holders of shares of Series A Preferred Stock
      are
      entitled under clause (i)(b) of Section 6(A) hereof shall be adjusted
      by multiplying such amount by a fraction the numerator of which is the number
      of
      shares of Common Stock outstanding immediately after such event and the
      denominator of which is the number of shares of Common Stock that were
      outstanding immediately prior to such event.

    

    Section
      7.                      Consolidation,
      Merger, Etc.

    

    In
      case the Corporation shall enter
      into any consolidation, merger, combination or other transaction in which shares
      of Common Stock are exchanged for or changed into other stock or securities,
      cash and/or any other property, then in any such case the shares of Series
      A
      Preferred Stock shall at the same time be similarly exchanged or changed in
      an
      amount per share (subject to the provision for adjustment hereinafter set forth)
      equal to 1,000 times the aggregate amount of stock, securities, cash and/or
      any
      other property (payable in kind), as the case may be, into which or for which
      each share of Common Stock is changed or exchanged.  In the event the
      Corporation shall at any time (i) declare any dividend on Common Stock payable
      in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or
      (iii)
      combine the outstanding Common Stock into a smaller number of shares, then
      in
      each such case the amount set forth in the preceding sentence with respect
      to
      the exchange or change of shares of Series A Preferred Stock shall be adjusted
      by multiplying such amount by a fraction the numerator of which is the number
      of
      shares of Common Stock outstanding immediately after such event and
      the

    
      
         SECOND AMENDED AND
          RESTATED RIGHTS PLAN
           
            EXHIBIT A         

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    denominator
      of which is the number of shares of Common Stock that were outstanding
      immediately prior to such event.

    

    Section
      8.                      No
      Redemption.

    

    The
      shares of Series A Preferred Stock
      shall not be redeemable.  Notwithstanding the foregoing, the
      Corporation may acquire shares of Series A Preferred Stock in any other manner
      permitted by law, the Restated Articles of Incorporation or this amendment
      thereof.

    

    Section
      9.                      Rank.

    

    Unless
      otherwise provided in the
      Restated Articles of Incorporation or an amendment thereof relating to a
      subsequent series of Preferred Stock of the Corporation, the Series A Preferred
      Stock shall rank junior to all other series of the Corporation's Preferred
      Stock
      as to the payment of dividends and the distribution of assets on liquidation,
      dissolution or winding up, and senior to the Common Stock of the
      Corporation.

    

    Section
      10.                    Amendment.

    

    The
      Restated Articles of Incorporation
      shall not be further amended in any manner which would materially alter or
      change the powers, preferences or special rights of the Series A Preferred
      Stock so as to affect them adversely without the affirmative vote of the holders
      of at least a majority of the outstanding shares of Series A Preferred Stock,
      voting separately as a class.

    

    Section
      11.                    Fractional
      Shares.

    

    Series
      A Preferred Stock may be issued
      in fractions of a share which shall entitle the holder, in proportion to such
      holder’s fractional shares, to exercise voting rights, receive dividends,
      participate in distributions and to have the benefit of all other rights of
      holders of Series A Preferred Stock.

    

    

    
      
         SECOND AMENDED AND
          RESTATED RIGHTS PLAN
           
            EXHIBIT A         

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
      B

    

    Form
      of
      Rights Certificate

    

    Certificate
      No.
      R-__                                                                                                                                                                                 _______
      Rights

    

    

    

    NOT
      EXERCISABLE AFTER November 13, 2017, OR EARLIER IF REDEEMED BY THE
      COMPANY.  THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
      COMPANY, AT $0.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS
      AGREEMENT.  UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY
      AN ACQUIRING PERSON OR ADVERSE PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
      AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND
      VOID.  {THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
      BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR ADVERSE
      PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON OR ADVERSE PERSON
      (AS
      SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).  ACCORDINGLY, THIS
      RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID
      IN
      THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.}1

    

    

    

    

    Rights
      Certificate

    

    KEY
      TECHNOLOGY, INC.

    

    This
      certifies that ________________________________, or registered assigns, is
      the
      registered owner of the number of Rights set forth above, each of which entitles
      the owner thereof, subject to the terms, provisions and conditions of the Rights
      Agreement, dated as of November 13, 2007 (the "Rights Agreement"), between
      Key
      Technology, Inc., an Oregon corporation (the "Company"), and American Stock
      Transfer & Trust Company (the "Rights Agent"), to purchase from the Company
      at any time prior to 5:00 p.m. (Pacific time) on November 13, 2017 at the
      office or offices of the Rights Agent designated for such purpose, or its
      successors as Rights Agent, 1/1,000 of a fully paid, nonassessable share of
      Series A Junior Participating Preferred Stock (the "Preferred Stock") of the
      Company, at a purchase price of $___ per 1/1,000 of a share (the "Purchase
      Price"), upon presentation and surrender of this Rights

    

      

    

      
      1
        The portion of the
        legend in brackets shall be inserted only if applicable and shall replace
        the
        preceding sentence.

    

    
      
         SECOND AMENDED AND
          RESTATED RIGHTS PLAN
           
            EXHIBIT B         

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Certificate
      with the Form of Election to Purchase and related Certificate duly
      executed.  The number of Rights evidenced by this Rights Certificate
      (and the number of shares which may be purchased upon exercise thereof) set
      forth above, and the Purchase Price per share set forth above, are the number
      and Purchase Price as of ___________, based on the Preferred Stock as
      constituted at such date.  The Company reserves the right to require
      prior to the occurrence of a Triggering Event (as such term is defined in the
      Rights Agreement) that a number of Rights be exercised so that only whole shares
      of Preferred Stock will be issued.

    

    Upon
      the
      occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights
      Agreement), if the Rights evidenced by this Rights Certificate are beneficially
      owned by (i) an Acquiring Person or Adverse Person or an Affiliate or Associate
      of any such Acquiring Person or Adverse Person (as such terms are defined in
      the
      Rights Agreement), (ii) a transferee of any such Acquiring Person or Adverse
      Person, Associate or Affiliate, or (iii) under certain circumstances specified
      in the Rights Agreement, a transferee of a person who, after such transfer,
      became an Acquiring Person or Adverse Person, or an Affiliate or Associate
      of an
      Acquiring Person or Adverse Person, such Rights shall become null and void
      and
      no holder hereof shall have any right with respect to such Rights from and
      after
      the occurrence of such Section 11(a)(ii) Event.

    

    As
      provided in the Rights Agreement, the Purchase Price and the number and kind
      of
      shares of Preferred Stock or other securities which may be purchased upon the
      exercise of the Rights evidenced by this Rights Certificate are subject to
      modification and adjustment upon the happening of certain events, including
      Triggering Events.  In certain circumstances described in the Rights
      Agreement, the Rights evidenced hereby may entitle the holder hereof to purchase
      capital stock of an entity other than the Company or receive cash or other
      assets, all as prescribed in the Rights Agreement.

    

    This
      Rights Certificate is subject to all of the terms, provisions and conditions
      of
      the Rights Agreement, which terms, provisions and conditions are hereby
      incorporated herein by reference and made a part hereof and to which Rights
      Agreement reference is hereby made for a full description of the rights,
      limitations of rights, obligations, duties and immunities hereunder of the
      Rights Agent, the Company and the holders of the Rights Certificates, which
      limitations of rights include the temporary suspension of the exercisability
      of
      such Rights under the specific circumstances set forth in the Rights
      Agreement.  Copies of the Rights Agreement are on file at the
      principal executive offices of the Company and are also available upon written
      request to the Rights Agent.

    

    This
      Rights Certificate, with or without other Rights Certificates, upon surrender
      at
      the principal office or offices of the Rights Agent designated for such purpose,
      may be exchanged for another Rights Certificate or Rights Certificates of like
      tenor and date evidencing Rights entitling the holder to purchase a like
      aggregate number of 1/1,000s of a share of Preferred Stock as the Rights
      evidenced by the Rights Certificate or Rights Certificates surrendered shall
      have entitled such holder to purchase.  If this Rights Certificate
      shall be

    
      
         SECOND AMENDED AND
          RESTATED RIGHTS PLAN
           
            EXHIBIT B         

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    exercised
      in part, the holder shall be entitled to receive upon surrender hereof another
      Rights Certificate or Rights Certificates for the number of whole Rights not
      exercised.

    

    Subject
      to the provisions of the Rights Agreement, the Rights evidenced by this
      Certificate may be redeemed by the Company at its option at a redemption price
      of $0.01 per Right at any time prior to the earlier of the close of business
      on
      (i) the twentieth business day following the Stock Acquisition Date (as such
      time period may be extended pursuant to the Rights Agreement), and (ii) the
      Final Expiration Date.  In addition, the Rights may be exchanged, in
      whole or in part, for shares of the Common Stock, or shares of preferred stock
      of the Company having essentially the same value or economic rights as such
      shares.  Immediately upon the action of the Board of Directors of the
      Company authorizing any such exchange, and without any further action or any
      notice, the Rights (other than Rights which are not subject to such exchange)
      will terminate and the Rights will only enable holders to receive the shares
      issuable upon such exchange.

    

    No
      fractional shares of Preferred Stock will be issued upon the exercise of any
      Right or Rights evidenced hereby (other than fractions which are integral
      multiples of 1/1,000 of a share of Preferred Stock, which may, at the election
      of the Company, be evidenced by depository receipts), but in lieu thereof a
      cash
      payment will be made, as provided in the Rights Agreement.

    

    No
      holder
      of this Rights Certificate shall be entitled to vote or receive dividends or
      be
      deemed for any purpose the holder of shares of Preferred Stock or of any other
      securities of the Company which may at any time be issuable on the exercise
      hereof, nor shall anything contained in the Rights Agreement or herein be
      construed to confer upon the holder hereof, as such, any of the rights of a
      shareholder of the Company or any right to vote for the election of directors
      or
      upon any matter submitted to shareholders at any meeting thereof, or to give
      or
      withhold consent to any corporate action, or, to receive notice of meetings
      or
      other actions affecting shareholders (except as provided in the Rights
      Agreement), or to receive dividends or subscription rights, or otherwise, until
      the Right or Rights evidenced by this Rights Certificate shall have been
      exercised as provided in the Rights Agreement.

    

    This
      Rights Certificate shall not be valid or obligatory for any purpose until it
      shall have been countersigned by the Rights Agent.

    

    
      
         SECOND AMENDED AND
          RESTATED RIGHTS PLAN
           
            EXHIBIT B         

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    WITNESS
      the facsimile signature of the proper officers of the Company and its corporate
      seal.

    

    Dated
      as
      of ______________________

     

    ATTEST:                                                                                                                                                  
      KEY TECHNOLOGY, INC.

    

    

    By
      ___________________________                                                                                                By
      ___________________________

    Secretary                                                                                                                                   
      Title __________________________

    

    

    Countersigned:

    

    AMERICAN
      STOCK TRANSFER

      &
      TRUST COMPANY

    

    

    By
      ____________________________

         Authorized
      Signature

    

    
      
         SECOND AMENDED AND
          RESTATED RIGHTS PLAN
           
            EXHIBIT B         

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Form
      of
      Reverse Side of Rights Certificate

    

    FORM
      OF
      ASSIGNMENT

    

    (To
      be
      executed by the registered holder if such

    holder
      desires to transfer the Rights Certificate.)

    

    

    

    FOR
      VALUE
      RECEIVED ______________________________________________ hereby sells, assigns
      and transfer unto
      ______________________________________________________________

    _________________________________________________________________________________________________

    (Please
      print name and address of transferee)

    

    

    this
      Rights Certificate, together with all right, title and interest therein, and
      does hereby irrevocably constitute and appoint _________________ Attorney,
      to
      transfer the within Rights Certificate on the books of the within-named Company,
      with full power of substitution.

    

    

    

    Dated:
      _________________

    

    

    

                                                                           
      ___________________________

    Signature

    

    Signature
      Guaranteed:

    
      
         SECOND AMENDED AND
          RESTATED RIGHTS PLAN
           
            EXHIBIT B         

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    CERTIFICATE

    

    The
      undersigned hereby certifies by checking the appropriate boxes
      that:

    

    (1)           this
      Rights Certificate [  ] is [  ] is not being sold, assigned
      and transferred by or on behalf of a Person who is or was an Acquiring Person
      or
      Adverse Person or an Affiliate or Associate of any such Acquiring Person or
      Adverse Person (as such terms are defined pursuant to the Rights
      Agreement);

    

    (2)           after
      due inquiry and to the best knowledge of the undersigned, it [  ]
      did

    [  ] did
      not acquire the Rights evidenced by this Rights Certificate from any Person
      who
      is, was or subsequently became an Acquiring Person or Adverse Person or an
      Affiliate or Associate of an Acquiring Person or Adverse Person.

    

    

    Dated: _____________________                                                   _________________________________________  

    Signature

    

    

    Signature
      Guaranteed:

    

    

    

    

    

    

    

    

    NOTICE

    

    The
      signature to the foregoing Assignment and Certificate must correspond to the
      name as written upon the face of this Rights Certificate in every particular,
      without alteration or enlargement or any change whatsoever.

    

    
      
         SECOND AMENDED AND
          RESTATED RIGHTS PLAN
           
            EXHIBIT B         

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    FORM
      OF
      ELECTION TO PURCHASE

    

    (To
      be
      executed if holder desires to

    exercise
      Rights represented by the

    Rights
      Certificate)

    

    To:  KEY
      TECHNOLOGY, INC.

    

    The
      undersigned hereby irrevocably elects to exercise ____ Rights represented by
      this Rights Certificate to purchase the shares of Preferred Stock issuable
      upon
      the exercise of the Rights (or such other securities of the Company or of any
      other person which may be issuable upon the exercise of the Rights) and requests
      that certificates for such shares be issued in the name of and delivered
      to:

    

    Please
      insert social security

    or
      other
      identifying number: 
____________________________                                                                

    

    

    __________________________________________________________________________________________________________________________________________
(Please
      print name and address)

     

    ___________________________________________________________________________________________________________________________________________

    

    

    

    If
      such
      number of Rights shall not be all the Rights evidenced by this Rights
      Certificate, a new Rights Certificate for the balance of such Rights shall
      be
      registered in the name of and delivered to:

    

    Please
      insert social security

    or
      other
      identifying
      number: _____________________________                                                               

    

    

    ___________________________________________________________________________________________________________________________________________
(Please
      print name and address)

     

    ___________________________________________________________________________________________________________________________________________

    

    

    

    Dated: _______________________                                                               

     

                                                                                            
Signature
      __________________________

    

    Signature
      Guaranteed:

    
      
          SECOND AMENDED AND
          RESTATED RIGHTS PLAN
           
            EXHIBIT B         

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    CERTIFICATE

    

    The
      undersigned hereby certifies by
      checking the appropriate boxes that:

    

    (1)           the
      Rights evidenced by this Rights Certificate [  ] are [  ]
      are not being exercised by or on behalf of a Person who is or was an Acquiring
      Person or Adverse Person or an Affiliate or Associate of any such Acquiring
      Person or Adverse Person (as such terms are defined pursuant to the Rights
      Agreement);

    

    (2)           after
      due inquiry and to the best knowledge of the undersigned, it [  ]
      did

    [  ]
      did not acquire the Rights evidenced by this Rights Certificate from any Person
      who is, was or became an Acquiring Person or Adverse Person or an Affiliate
      or
      Associate of an Acquiring Person or Adverse Person.

    

    

    Dated:                      _____________________                                                                ___________________________________

    Signature

    

    

    Signature
      Guaranteed:

    

    

    

    

    

    

    NOTICE

    

    The
      signature to the foregoing Election to Purchase and Certificate must correspond
      to the name as written upon the face of this Rights Certificate in every
      particular, without alteration or enlargement or any change
      whatsoever.

    

    

    

    SECOND
      AMENDED AND RESTATED RIGHTS PLAN

    EXHIBIT B

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