Document:

KEY TECHNOLOGY, INC.

                                       AND

                    CHASEMELLON SHAREHOLDER SERVICES, L.L.C.

                                WARRANT AGREEMENT

                               DATED JULY 12, 2000

<PAGE>

                                WARRANT AGREEMENT

            WARRANT AGREEMENT, dated as of July 12, 2000, by and between KEY
TECHNOLOGY, INC., an Oregon corporation (the "Company"), and CHASEMELLON
SHAREHOLDER SERVICES, L.L.C., a New Jersey limited liability company, as warrant
and transfer agent (hereinafter called the "Warrant Agent").

            WHEREAS, pursuant to the terms of an Agreement and Plan of Merger
dated February 15, 2000 between the Company and Advanced Machine Vision
Corporation ("AMVC") and KTC Acquisition Corp. ("Sub"), as amended on February
25, 2000 (the "Merger Agreement"), the parties have agreed that Sub shall merge
into AMVC and in connection therewith the shareholders of AMVC shall receive in
exchange cash, shares of the Company's Series B Convertible Preferred Stock,
$0.01 par value and warrants to purchase Common Stock (the "Warrants");

            WHEREAS, the Company desires to appoint the Warrant Agent to act on
behalf of the Company in connection with the issuance, registration, transfer,
exchange and exercise of the Warrants, and the Warrant Agent is willing to
accept such appointment.

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

   1.    Appointment of Warrant Agent.
         -----------------------------

            The Company hereby appoints the Warrant Agent to act as agent for
the Company in accordance with the instructions set forth herein, and the
Warrant Agent hereby accepts such appointment, upon the terms and conditions
hereinafter set forth.

   2.    Certain Definitions.
         --------------------

            As used  herein,  the  following  terms  shall  have  the  following
meanings:

            "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or
a day on which banking institutions in the State of Washington or the State of
New Jersey are authorized or obligated by law or executive order to close.

            "CLOSING PRICE" means the closing price per share of Common Stock on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading or, if not listed or traded on any such exchange, on the
Nasdaq National Market or if not listed or traded on any such exchange or the
Nasdaq National Market, the average of the last bid and asked prices per share
on the Nasdaq over-the-counter system or, if such quotations are not available,
the fair market value as reasonably determined by the board of directors of the
Company or any committee of such board.

Warrant Agreement
Page 1

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            "COMMISSION" means the Securities and Exchange Commission or any
successor governmental organization or entity responsible for administration of
the Securities Act.

            "COMMON STOCK" means (i) the class of stock designated as the Common
Stock, $0.01 par value per share, of the Company, on the date hereof or (ii) any
other class of stock resulting from successive changes or reclassifications of
such shares consisting solely of changes in par value, or from par value to no
par value, or from no par value to par value. Unless the context requires
otherwise, all references to Common Stock and Warrant Shares in this Agreement
and in the Warrant Certificates shall, in the event of an adjustment pursuant to
Section 12 hereof, be deemed to refer also to any other securities or property
then issuable upon exercise of the Warrants as a result of such adjustment.

            "ELIGIBLE INSTITUTION" shall have the meaning set forth in Section
8.2 hereof.

            "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

            "EXERCISE PRICE" shall have the meaning set forth in Section 5.2
hereof.

            "EXERCISE PERIOD" means the period during which the Warrants may be
exercised as set forth in Section 5.1 hereof.

            "EXPIRATION DATE" shall mean, as to each Warrant, 5:00 p.m., Pacific
Standard Time, on July 11, 2005 or such earlier date as the Warrants shall be
redeemed pursuant to Section 16 hereof; provided that if such date shall in the
State of Oregon be a holiday or a day on which banks are authorized or required
to close, then 5:00 p.m., Pacific Standard Time on the next following day which
in the State of Oregon is neither a holiday nor a day on which banks are
authorized or required to close.

            "HOLDERS" shall have the meaning set forth in Section 4.2 hereof.

            "NASD" means the National Association of Securities Dealers, Inc.

            "REDEMPTION DATE" shall have the meaning set forth in Section 16.3
hereof.

            "REDEMPTION NOTICE" shall have the meaning set forth in Section 16.2
hereof.

            "REDEMPTION PRICE" shall mean the price at which a Holder may, at
its option in accordance with the terms hereof, require the Company to redeem
the Warrants, or the Company, may at its option in accordance with the terms
hereof, redeem the Warrants, which price, in each case, shall be $10.00 per
whole share of Common Stock purchasable upon exercise of such Warrants.

            "SECURITIES ACT" means the Securities Act of 1933, as amended.

Warrant Agreement
Page 2

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            "WARRANT CERTIFICATE" shall have the meaning set forth in Section
3.1 hereof.

            "WARRANT REGISTER" means the books and records kept by the Warrant
Agent for the registration, and the registration of transfer, of the Warrant
Certificates in which shall be registered the names and addresses of Holders of
Warrants evidenced by Warrant Certificates in registered form and the
certificate numbers and denominations of such Warrant Certificates.

            "WARRANT SHARES" means the shares of Common Stock issuable upon the
exercise of a Warrant.

   3.    Form of Warrant Certificate.
         ----------------------------

            3.1 The certificates evidencing the Warrants (the "Warrant
Certificates"), and the forms of election to purchase Warrant Shares and of
assignment to be printed on the reverse thereof, shall be substantially in the
form set forth in Exhibit A hereto and may have such letters, numbers or other
                  ---------
marks of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Company reasonably
deems appropriate (but which do not affect the rights or duties of the Warrant
Agent) and as are not inconsistent with the provisions of this Agreement, or as
may be required to comply with any law, any rule or regulation related thereto,
or with any rule or regulation of the NASD, the Nasdaq National Market or any
securities exchange on which the Warrants may from time to time be listed.

            3.2 Each Warrant shall entitle the Holder thereof to purchase the
number of Warrant Shares set forth on the face of each Warrant Certificate upon
the exercise thereof at the applicable Exercise Price, subject to adjustment as
provided in Section 12 hereof, during the Exercise Period; provided, however,
                                                           --------  -------
that the Warrants are exercisable only for whole shares; cash will be paid in
lieu of fractional shares in accordance with Section 5.5 hereof. Each Warrant
Certificate shall be executed on behalf of the Company by the manual or
facsimile signature of the present or any future Chairman of the Board, Chief
Executive Officer, President or any officer of the Company, under its corporate
seal, affixed or in facsimile, attested by the manual or facsimile signature of
the present or any future Secretary or Assistant Secretary of the Company.
Warrants shall be dated as of the date of their initial issue.

   4.    Registration and Countersignature.
         ----------------------------------

            4.1 The Warrant Agent shall maintain the Warrant Register. The
Warrant Certificates shall be countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. The Warrant Certificates shall
be so countersigned, however, by the Warrant Agent and shall be delivered by the
Warrant Agent, notwithstanding whether the persons whose manual or facsimile
signatures appear thereon as proper officers of the Company shall have ceased to
be such officers at the time of such countersignature or delivery.

Warrant Agreement
Page 3

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            4.2 Prior to due presentment for registration or transfer of the
Warrant Certificates, the Company and the Warrant Agent may deem and treat the
registered holder (a "Holder") thereof as the absolute owner of the Warrant
Certificates (notwithstanding any notation of ownership or other writing made
thereon by anyone other than the Company or the Warrant Agent), for the purpose
of any exercise thereof and for all other purposes, and neither the Company nor
the Warrant Agent shall be affected by any notice to the contrary.

   5.    Duration and Exercise of Warrants.
         ----------------------------------

            5.1 Each Warrant may be exercised by the Holder thereof at any time
on or after the date hereof, but not after the Expiration Date, upon the terms
and subject to the conditions set forth herein and in the applicable Warrant
Certificate. Upon the Expiration Date, all rights evidenced by the Warrants
shall cease and the Warrants shall become void.

            5.2 Subject to the provisions of this Agreement, the Holder of each
Warrant shall have the right to purchase from the Company (and the Company shall
issue and sell to such Holder) the number (rounded down to the nearest whole
number) of fully paid and nonassessable Warrant Shares set forth on such
Holder's Warrant Certificate (or such number of Warrant Shares as may result
from adjustments made from time to time as provided in this Agreement) at the
price per share of $15.00 in lawful money of the United States of America (such
exercise price per Warrant Share, as adjusted from time to time as provided
herein, being referred to herein as the "Exercise Price"), upon (i) surrender of
the Warrant Certificates to the Company at the office of the Warrant Agent
designated by the Warrant Agent for such purpose with the exercise form on the
reverse thereof duly and properly completed and signed by the Holder or Holders
thereof or by a duly appointed legal representative thereof or by a duly
authorized attorney, such signature to be guaranteed by an Eligible Institution
(as defined in Section 8.2 hereof) and (ii) payment, in lawful money of the
United States of America, of the Exercise Price for the Warrant Share or Warrant
Shares in respect of which such Warrant is then exercised. The Exercise Price
payable upon exercise of any Warrant may be paid only by certified or, at the
option of the Holder, official bank check payable to the order of the Company,
or, in the alternative, if the Closing Price of one share of the Company's
Common Stock is greater than the Exercise Price on the date of surrender of the
Warrant for exercise, in lieu of exercising the Warrant for cash, a Holder may
exercise all or any part of the Warrant on a "cashless" basis by providing
written notice to the Warrant Agent of its intention to do so, together with the
properly endorsed Form of Subscription and stating the maximum number (the
"Maximum Number") of shares of Common Stock the Holder desires to purchase in
consideration of cancellation of Warrants in payment for such exercise. The
number of shares of Common Stock the Holder shall receive upon such exercise
pursuant to this Section 5.2 shall be equal to the number that is obtained when
the product of the Maximum Number and the difference between the Closing Price
per share on the date of surrender of the Warrant and the Exercise Price is
divided by the Closing Price per share. Upon request of the Warrant Agent, the
Company shall promptly inform in writing the Warrant Agent of the number of
shares of Common Stock that may be delivered to a Holder upon a "cashless"
exercise, and the Warrant Agent shall incur no liability and shall be fully
protected in relying on such information provided to it by the Company. The
Warrant Agent shall have no obligation to take any action under this Section
with respect to a "cashless" exercise, nor shall it incur any liability for
failing to take any such action, if it has not received all such relevant
information requested regarding such "cashless" exercise from the

Warrant Agreement
Page 4

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Company. Upon surrender of the Warrant Certificate, and payment of the Exercise
Price, the Company shall issue and cause to be delivered with all reasonable
dispatch to or upon the written order of the Holder of such Warrant and in such
name or names as such Holder may designate, a certificate or certificates for
the number of Warrant Shares so purchased upon the exercise of such Warrant,
together with a check in the amount of the value of any fraction of a Warrant
Share issuable upon such surrender pursuant to Section 5.5 hereof. The Warrant
Agent shall deliver on a weekly basis all funds received upon exercise of the
Warrants to the Company, 150 Avery Street, Walla Walla, Washington 99362,
Attention: Thomas C. Madsen, President.

            5.3 Each person in whose name any certificate for Warrant Shares is
issued upon the exercise of Warrants shall for all purposes be deemed to have
become the holder of record of the Warrant Shares represented thereby, and such
certificate shall be dated the date upon which the Warrant Certificate
evidencing such Warrants was duly surrendered and payment of the Exercise Price
(and any applicable transfer taxes pursuant to Section 9 hereof) was made;
provided, however, that if the date of such surrender and payment is a date upon
--------  -------
which the Common Stock transfer books of the Company are closed, such person
shall be deemed to have become the record holder of such Warrant Shares on, and
such certificate shall be dated, the next succeeding Business Day on which the
Common Stock transfer books of the Company are open.

            5.4 In the event that, during the Exercise Period, fewer than all of
the Warrants represented by a Warrant Certificate are exercised, a new Warrant
Certificate, duly executed by the Company, will be issued for the remaining
number of Warrant Shares purchasable pursuant to the Warrant Certificate so
surrendered, and the Warrant Agent shall countersign and deliver such new
Warrant Certificate to the Holder of such unexercised Warrants pursuant to the
provisions of this Section 5 and of Section 4 hereof.

            5.5 No fractional shares of Common Stock or scrip shall be issued to
any Holder in connection with the exercise of a Warrant. Instead of any
fractional shares of Common Stock that would otherwise be issuable to such
Holder, the Company shall pay to such Holder a cash adjustment in respect of
such fractional interest in an amount equal to that fractional interest
multiplied by the sum of $10.00. The Warrant Agent shall have no duty or
obligation with regard to the payment, calculation or valuation of fractional
shares unless and until it has received written instructions from the Company
regarding fractional shares and the Company has otherwise complied with Section
18.2.4(C) of this Agreement.

            5.6 The number of Warrant Shares to be received upon the exercise of
a Warrant and the price to be paid for a Warrant Share are subject to adjustment
from time to time as hereinafter set forth.

            5.7 Warrants not exercised on or prior to the Expiration Date shall
become void and all rights in respect thereof shall cease as of such time.

   6.    Reservation of Warrant Shares; Stock Certificates.
         --------------------------------------------------

            The Company shall at all times reserve, for issuance and delivery
upon exercise of the Warrants, such number of Warrant Shares or other shares of
capital stock of the Company as may be issuable from time to time upon exercise
of the Warrants. All such shares shall be duly

Warrant Agreement
Page 5

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authorized and, when issued upon such exercise and receipt by the Company of
payment in full of the Exercise Price, shall be validly issued, fully paid and
nonassessable, free and clear of all liens, security interests, charges and
other encumbrances or restrictions on sale and free and clear of all preemptive
rights. The Warrant Agent is hereby irrevocably authorized to requisition, from
time to time from the transfer agent for the Common Stock, stock certificates
issuable upon exercise of outstanding Warrants. The Company will supply such
transfer agent with duly executed stock certificates for such purpose. All
Warrant Certificates surrendered upon exercise shall be cancelled by the Warrant
Agent and shall thereafter be delivered to the Company or otherwise disposed of
in a manner satisfactory to the Company. Unless all Warrants shall have been
exercised prior to 5:00 p.m., Pacific Standard Time, on the Expiration Date, the
Warrant Agent shall certify to the Company, as of the close of business on the
Expiration Date, the total aggregate number of Warrants then outstanding, and
thereafter no shares of Common Stock shall be subject to reservation in respect
of such Warrants. The Company shall keep a copy of this Agreement on file with
its transfer agent and with every transfer agent for any shares of Common Stock.

   7.    Transfer and Registration of the Warrants and Warrant Shares.
         -------------------------------------------------------------

            7.1 The Warrants and the Warrant Shares, and any interest in either,
may be sold, assigned, pledged, encumbered or in any other manner transferred or
disposed of, in whole or in part, only in accordance with Section 8 hereof and
in compliance with applicable United States federal and state securities laws
and the terms and conditions hereof.

            7.2 The Warrants and the Warrant Shares have been registered under
the Securities Act pursuant to a registration statement on Form S-4 (File No.
333-36920) declared effective under the Securities Act (the "Registration
Statement"). The Company covenants and agrees:

                 7.2.1 it will prepare and file with the Commission such
amendments and supplements to the Registration Statement and the prospectus used
in connection therewith as may be necessary to keep the Registration Statement
effective through the termination of the Exercise Period or until such earlier
time as no Warrants remain outstanding;

                 7.2.2 as expeditiously as possible, to register or qualify the
Warrants and the Warrant Shares under the securities or "Blue Sky" laws of each
jurisdiction in which such registration or qualification is necessary; and

                 7.2.3 to pay all expenses incurred by the Company in complying
with this Section 7.2, including, without limitation (A) all registration and
filing fees, (B) all printing expenses, (C) all fees and disbursements of
counsel and independent public accountants for the Company, (D) all NASD and
"Blue Sky" fees and expenses (including fees and expenses of counsel in
connection with any "Blue Sky" surveys) and (E) the entire expense of any
special audits incident to or required in connection with any such registration.

Warrant Agreement
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   8.    Exchange, Transfer of Assignment of Warrants.
         ---------------------------------------------

            8.1 Warrants may be exchanged, at the option of the Holder thereof,
upon presentation and surrender to the Warrant Agent of the Warrant Certificate
evidencing such Warrants, for other Warrant Certificates of different
denominations, entitling the Holder or Holders thereof to purchase in the
aggregate the same number of Warrant Shares as did such surrendered Warrant
Certificate. Subject to the preceding sentence, a Warrant Certificate may be
divided or combined with other Warrant Certificates that carry the same rights
upon presentation thereof at the office of the Warrant Agent, together with
written notice signed by the Holder or Holders thereof specifying the names and
denominations in which new Warrant Certificates are to be issued.

            8.2 Warrants may be assigned or transferred, at the option of the
Holder thereof, upon surrender of the Warrant Certificates evidencing such
Warrants to the Warrant Agent, accompanied (if so required by the Company or the
Warrant Agent) by a written instrument or instruments of transfer in form
satisfactory to the Company and the Warrant Agent, duly and properly executed by
such Holder or by a duly authorized representative or attorney, such signature
to be guaranteed by a commercial bank or trust company having an office in the
United States, by a broker or a dealer that is a member of the NASD or by a
member of a national securities exchange (any such entity, an "Eligible
Institution"). Upon any such registration of transfer, a new Warrant Certificate
shall be issued to the transferee and the surrendered Warrant Certificate shall
be cancelled by the Warrant Agent. Warrant Certificates so cancelled shall be
delivered by the Warrant Agent to the Company from time to time or otherwise
disposed of by the Warrant Agent in a manner satisfactory to the Company.

            8.3 Any transfer, exchange or assignment of Warrants (including any
new Warrants issued pursuant to Section 10 hereof) shall be without charge
(other than the cost of any transfer tax or governmental charge) to the Holder
and any new Warrant or Warrants issued pursuant to this Section 8 shall be dated
the date hereof.

   9.    Payment of Taxes.
         -----------------

            The Company shall pay all documentary stamp taxes attributable to
the original issuance of the Warrants and of Warrant Shares; provided, however,
                                                             --------  -------
that the Company shall not be required to (a) pay any tax or other governmental
charge which may be payable in respect of any transfer involving the transfer
and delivery of Warrant Certificates or the issuance or delivery of certificates
for Warrant Shares in a name other than that of the Holder of the Warrant
Certificate surrendered upon the exercise of a Warrant or (b) issue or deliver
any certificate for Warrant Shares upon the exercise of any Warrants until any
such tax or charge required to be paid under clause (a) shall have been paid,
all such tax or charge being payable by the Holder of such Warrant at the time
of surrender.

   10.   Mutilated or Missing Warrant Certificates.
         ------------------------------------------

            In the event that any Warrant Certificate shall be mutilated, lost,
stolen or destroyed, the Company may in its discretion issue, and the Warrant
Agent may countersign and deliver, upon the request of the Holder of the
Warrants evidenced by such Warrant Certificate, in

Warrant Agreement
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<PAGE>

exchange for and upon cancellation of any such mutilated Warrant Certificate, or
in substitution for any such lost, stolen or destroyed Warrant Certificate, a
new Warrant Certificate of like tenor and evidencing the same number of Warrant
Shares as were evidenced by such mutilated, lost, stolen or destroyed Warrant
Certificate, but only upon receipt of evidence satisfactory to the Company or
the Warrant Agent of such loss, theft or destruction of such Warrant Certificate
and an indemnity, if requested, satisfactory to the Company or the Warrant
Agent, as the case may be. An applicant for such substitute Warrant Certificate
shall also comply with such other reasonable regulations and pay such other
reasonable charges as the Company or the Warrant Agent may prescribe. Any such
new Warrant Certificate shall constitute an original contractual obligation of
the Company, whether or not the allegedly mutilated, lost, stolen or destroyed
Warrant Certificate shall be enforceable by any person at any time thereafter.

   11.   No Stock Rights; Limitation of Liability.
         -----------------------------------------

            No Holder of any Warrant shall, by virtue thereof, be entitled to
the rights of a shareholder of the Company, unless and until exercise of such
Warrant has occurred. No provisions of any Warrant or of this Agreement, in the
absence of affirmative action by the Holder of any such Warrant to exercise such
Warrant, and no mere enumeration herein of the rights or privileges of such
Holder, shall give rise to any liability of such Holder for the Exercise Price
or as a shareholder of the Company, whether such liability is asserted by the
Company or by its creditors.

   12.   Antidilution Provisions.
         ------------------------

            12.1 The Exercise Price and the number of Warrant Shares that may be
purchased upon the exercise of a Warrant shall be subject to change or
adjustment from time to time as follows:

                 12.1.1 Stock Splits. If at any time during the Exercise Period
                        ------------
the number of outstanding shares of Common Stock shall have been increased by a
subdivision or split-up of shares of Common Stock, then, on the record date
fixed for the determination of holders of Common Stock immediately after the
effective date of such subdivision or split-up, the number of shares to be
delivered upon exercise of any Warrant will be appropriately increased so that
each Holder thereafter will be entitled to receive the number of shares of
Common Stock that such Holder would have owned immediately following such action
had such Warrant been exercised immediately prior thereto, and the Exercise
Price will be appropriately adjusted. The time of occurrence of an event giving
rise to an adjustment made pursuant to this Section 12.1.1 shall be deemed to be
the effective date thereof.

                 12.1.2 Combination of Stock. If the number of shares of Common
                        --------------------
Stock outstanding at any time during the Exercise Period is decreased by a
combination of the outstanding shares of Common Stock, then, immediately after
the effective date of such combination, the number of shares of Common Stock to
be delivered upon exercise of any Warrant shall be appropriately decreased so
that the Holder of such Warrant thereafter will be entitled to receive the
number of shares of Common Stock that such Holder would have owned immediately
following such action had such Warrant been exercised immediately prior thereto,
and the Exercise Price shall be appropriately adjusted.

Warrant Agreement
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                 12.1.3 No Adjustments to Exercise Price. No adjustment of the
                        --------------------------------
Exercise Price in accordance with the provisions of paragraphs 12.1.1 or 12.1.2
above shall be made in an amount of less than $0.01; provided, however, that the
amount by which any adjustment is not made by reason of the provisions of this
Section shall be carried forward and taken into account at the time of any
subsequent adjustment in the Exercise Price.

                 12.1.4 Readjustments, Etc.. If an adjustment is made under
                        -------------------
paragraphs 12.1.1 or 12.1.2 above, and the event to which the adjustment relates
does not occur, then any adjustments in the Exercise Price or Warrant Shares
that were made in accordance with such paragraphs shall be adjusted back to the
Exercise Price and the number of Warrant Shares that were in effect immediately
prior to the record date for such event.

            12.2 No Impairment; Certain Events.
                 -----------------------------

                 12.2.1 The Company shall not, by amendment of its articles of
incorporation or through any reorganization, reclassification, consolidation,
merger, sale, lease or transfer of assets, issuance or sale of securities or any
other action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed under this Section 12 by the Company, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 12 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holders against impairment.

                 12.2.2 If any event occurs as to which the provisions of
Section 12.1 are not strictly applicable but with respect to which, in the
reasonable, good faith opinion of the Company, an adjustment of the Exercise
Price, and the number of Warrant Shares issuable upon the exercise of a Warrant,
would fairly protect the exercise rights of the Holders in accordance with the
basic intent and principles of such provisions or as to which an adjustment
pursuant to such provisions, if strictly applied, would not fairly protect the
purchase rights of the Holders in accordance with the basic intent and
principles of such provisions, then the Company shall make any computation
required under this Section 12.2.2 with respect to any such adjustment on a
basis consistent with the basic intent and principles established by the
provisions of this Section 12, necessary to preserve, without dilution, the
exercise rights of the Holders. The Company shall appoint a firm of independent
certified public accountants (which may be the regular auditors of the Company)
of recognized national standing, which firm shall review the computation of the
Company prepared pursuant to this Section 12.2.2 and prepare a report signed by
such firm, which shall be provided to the Company and which shall acknowledge
that the adjustment calculation prepared by the Company is arithmetically
correct. Such report shall be conclusive evidence of the correctness of the
computation made under this Section 12.2.2. Upon receipt of such report, the
Company shall forthwith cause to be made, or shall act to prevent, the
adjustments described in such calculation.

   13.   Officer's Certificate.
         ----------------------

            Whenever the number of Warrant Shares that may be purchased upon
exercise of the Warrant is adjusted as required by the provisions of this
Agreement, the Company shall file forthwith with the Warrant Agent and with its
Secretary or Assistant Secretary at its principal office an officer's
certificate indicating the adjusted number of Warrant Shares that may be

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<PAGE>

purchased upon exercise of a Warrant and the adjusted Exercise Price, determined
as herein provided, and setting forth in reasonable detail the facts requiring
such adjustment and the manner of computing such adjustment. Each such officer's
certificate shall be made available at all reasonable times for inspection by
the Holders. The Company shall, forthwith after each such adjustment, cause a
copy of such officer's certificate to be mailed to the Holders. The Warrant
Agent may rely on such certificate without further inquiry and shall not be
deemed to have knowledge of any adjustment unless and until it shall have
received such certificate.

   14.   Notice of Certain Events.
         -------------------------

            In the event that, at any time during the Exercise Period:

            14.1 The Company shall pay any dividend on Common Stock that is
payable in stock, or make any distribution (other than regular cash dividends)
to the holders of Common Stock;

            14.2 There shall be any capital reorganization or reclassification
of the capital stock of the Company; or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation;
or

            14.3 There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;

            Then, the Company will cause to be mailed to the Holder by
first-class mail, postage prepaid, addressed to such Holder at the address
appearing in the Warrant Register, (i) at least 10 days' prior written notice of
the date on which the books of the Company shall close or a record shall be
taken for such dividend or distribution or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up, at least 10 days' prior written notice of the date
when the same shall take place. Any notice given in accordance with the
foregoing clause (i) shall also specify, in the case of any such dividend or
distribution, the date on which a shareholder shall be entitled thereto. Any
notice given in accordance with the foregoing clause (ii) shall also specify the
date on which shareholders shall be entitled to exchange their shares for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, winding
up or conversion, as the case may be.

   15.   Listing on Securities Exchanges.
         --------------------------------

            15.1 Except as otherwise provided in Section 15.2, the Company will,
within 120 days of the issue date of the Warrants, list on each national
securities exchange or, if not so listed, will list for quotation on the Nasdaq
National Market, or such other over-the-counter quotation system on which any
Common Stock or Warrants may at any time be listed, all Warrants and shares of
the Common Stock from time to time issuable upon the exercise of the Warrants,
and will maintain such listing so long as any Warrants or other shares of Common
Stock are so listed; and the Company shall so list on each national securities
exchange or the Nasdaq National Market, or such other over-the-counter quotation
system, and shall maintain

Warrant Agreement
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<PAGE>

such listing of, any other shares of capital stock of the Company issuable upon
the exercise of the Warrants if and so long as any shares of capital stock of
the same class are listed on such national securities exchange or are traded on
the Nasdaq National Market or such over-the-counter quotation system. Any such
listing or quotation will be at the Company's expense.

            15.2 The Company shall not be obligated or required to maintain the
listing or quotation of the Warrants under Section 15.1 above, and shall, in its
sole discretion, withdraw such listing or quotation when the number of shares of
Common Stock purchasable under all outstanding Warrants falls below 100,000
shares.

   16.   Rights of Redemption.
         ---------------------

            16.1 A Holder shall at all times prior to the Expiration Date, and
except to the extent exercised, have the right to require the Company to redeem
the Warrant at the Redemption Price. To exercise the right of redemption, a
Holder must surrender the Warrant, duly and properly endorsed by such Holder or
by a duly authorized representative or attorney, such signature to be guaranteed
by an Eligible Institution, to the Company's Warrant Agent, together with the
completed form of redemption notice attached thereto.

            16.2 The Warrants shall be redeemable by and at the option of the
Company at the Redemption Price at any time when the number of shares of Common
Stock purchasable upon exercise of all outstanding Warrants is less than 100,000
shares, whether occurring by exercise or redemption, or both. If the Company
desires to exercise its right to redeem the remaining outstanding Warrants, it
shall instruct the Warrant Agent to mail, upon receipt by the Warrant Agent of
such form of notice, a notice of redemption (the "Redemption Notice") to each of
the Holders of the Warrants to be redeemed, by first class, postage prepaid, not
later than the thirtieth Business Day before the date fixed for redemption, at
his or its last address as it shall appear on the Warrant Register of the
Warrant Agent. Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given whether or not the Holder receives
such notice.

            16.3 The Redemption Notice shall specify (i) the Redemption Price,
(ii) the date fixed for redemption (the "Redemption Date"), (iii) the place
where the Warrant Certificates shall be delivered and the Redemption Price paid,
and (iv) that the right to exercise the Warrant shall terminate at 5:00 p.m.,
Pacific Standard Time on the Business Day immediately preceding the Redemption
Date. No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption except
as to a Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.

            16.4 Any right to exercise a Warrant shall terminate at 5:00 p.m.,
Pacific Standard Time on the Business Day immediately preceding the Redemption
Date. On and after the Redemption Date, Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.

Warrant Agreement
Page 11

<PAGE>

            16.5 From and after the Redemption Date, the Company shall, at the
place specified in the notice of redemption, upon presentation and surrender to
the Company by or on behalf of the Holder thereof of one or more Warrant
Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Holder a sum in cash equal to the
Redemption Price of such Warrants. From and after the Redemption Date and upon
the deposit or setting aside by the Company of a sum sufficient to redeem all
the Warrants called for redemption, such Warrants shall expire and become null
and void and all rights hereunder and under the Warrant Certificates, except the
right to receive payment of the Redemption Price, shall cease. If the Company
shall purchase or acquire any Warrant or Warrants by redemption, the Warrant
Certificate or Warrant Certificates evidencing the same shall thereupon be
delivered to the Warrant Agent and canceled by it and retired.

   17.   Availability of Information.
         ----------------------------

            The Company will comply with all applicable periodic public
information reporting requirements of the Commission to which it may from time
to time be subject.

   18.   Warrant Agent.
         --------------

            18.1 Merger, Consolidation or Change of Name of Warrant Agent.

                 18.1.1 Any entity into which the Warrant Agent may be merged or
with which it may be consolidated, or any entity resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any entity
succeeding to the business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto; provided, however, that
                                                      --------  -------
such successor entity must be otherwise eligible for appointment as a Warrant
Agent hereunder. In the event that at the time such successor to the Warrant
Agent shall succeed to the agency created by this Agreement any of the Warrant
Certificates shall have been countersigned but not delivered, any such successor
to the Warrant Agent may adopt the countersignature of such predecessor Warrant
Agent and deliver such Warrant Certificates so countersigned; and in the event
that at the time of such succession any of the Warrant Certificates shall not
have been countersigned, any such successor to the Warrant Agent may countersign
such Warrant Certificates either in the name of such predecessor Warrant Agent
or in the name of such successor Warrant Agent; and in any event, all such
Warrant Certificates shall have the full force and effect provided in such
Warrant Certificates and in this Agreement.

                 18.1.2 In the case that at any time the name of the Warrant
Agent shall be changed and at such time one or more of the Warrant Certificates
shall have been countersigned but not delivered, the Warrant Agent may adopt the
countersignature under its prior name and deliver Warrant Certificates so
countersigned; in the event that at that time one or more of the Warrant
Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name; and in all such cases such Warrant Certificates shall have the full force
and effect provided in such Warrant Certificates and in this Agreement.

Warrant Agreement
Page 12

<PAGE>

            18.2 Duties of Warrant Agent. The Warrant Agent undertakes only the
                 -----------------------
duties and obligations expressly imposed by this Agreement upon the following
terms and conditions, by which the Holders, by their acceptance of Warrants, and
the Company, shall be bound:

                 18.2.1 The Warrant Agent shall not be responsible for any
failure of the Company to comply with any of the covenants to be complied with
by the Company that are contained in this Agreement or in the Warrant
Certificates.

                 18.2.2 The Warrant Agent may consult at any time with counsel
satisfactory thereto, and the Warrant Agent shall incur no liability or
responsibility to the Company or to any Holder in respect of any action taken,
suffered or omitted by the Warrant Agent hereunder in accordance with the
opinion or the advice of such counsel, provided that the Warrant Agent shall
have exercised reasonable care in the selection and continued employment of such
counsel. Whenever in the performance of its duties hereunder the Warrant Agent
is unsure of or has questions as to what action it is required to take under
this Warrant Agreement, the Warrant Agent shall promptly seek clarification
thereof from the Company, and the Warrant Agent shall be fully protected and
incur no liability in not taking any such action prior to receiving a written
response from the Company.

                 18.2.3 The Warrant Agent shall incur no liability or
responsibility to the Company or to any Holder for any action taken in reliance
on any notice, resolution, waiver, consent, order, certificate or other paper,
document or instrument believed by the Warrant Agent to be genuine and to have
been signed, sent or presented by the party or parties thereto.

                 18.2.4 The Company shall (A) pay to the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent in the
preparation, execution, delivery, amendment and administration of this Agreement
and the exercise and performance of its duties hereunder, (B) reimburse the
Warrant Agent for all expenses, disbursements, counsel fees, taxes (other than
taxes based on such Warrant Agent's net income), governmental charges, and other
charges of any kind and nature, incurred by the Warrant Agent in the performance
of this Agreement, (C) if the Warrant Agent has been instructed in writing to
pay out fractional shares, advance to the Warrant Agent, upon request, funds to
pay cash in lieu of fractional shares of Common Stock issuable upon exercise of
Warrants and (D) indemnify the Warrant Agent and save it harmless against any
and all losses, damages, judgments, fines, penalties, claims, demands,
settlements, costs, expenses or liabilities, including counsel fees, arising out
of or in connection with its agency under this Agreement, except as a result of
its negligence or bad faith. In no case shall the Warrant Agent be liable for
special, indirect, incidental or consequential loss or damage of any kind
whatsoever (including, but not limited to, lost profits). The costs and expenses
incurred in enforcing this right of indemnification shall be paid by the
Company. Any liability of the Warrant Agent under this Warrant Agreement will be
limited to the amount of fees paid by the Company to the Warrant Agent.

                 18.2.5 The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other action
likely to involve the incurrence by the Warrant Agent of expenses unless the
Company or one or more Holders shall have furnished the Warrant Agent with
security and indemnity for any costs and expenses which may be incurred. All
rights of action under this Agreement or under any of the Warrants may be
enforced by the

Warrant Agreement
Page 13

<PAGE>

Warrant Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the Holders, as their respective rights or interests may appear.

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

                 18.2.7 The Warrant Agent shall act hereunder solely as agent,
and its duties shall be determined solely by the provisions hereof. The Warrant
Agent shall not be liable for any actions which it may take, suffer or refrain
from taking, in connection with this Agreement, except as result from its own
gross negligence or bad faith.

                 18.2.8 The Warrant Agent shall make copies of this Agreement
available for inspection at its offices at              during normal business
                                           ------------
hours and shall provide copies to Holders upon their written request.

            18.3 Change of Warrant Agent. The Warrant Agent may resign and be
                 -----------------------
discharged from its duties under this Agreement by providing 45 days' written
notice to the Company, and the Company upon 45 days' notice may discharge and
terminate the Warrant Agent, and in either instance the Warrant Agent shall send
written notice, sent at the Company's expense by first-class mail, postage
prepaid, to each Holder at such Holder's address appearing in the Warrant
Register, which notice shall specify a date when such termination of services
shall take effect and which shall be sent at least two weeks prior to the date
so specified. In all events that the Warrant Agent will cease to act as Warrant
Agent hereunder, the Company shall appoint a successor thereto. If the Company
shall fail to make such appointment within a period of 30 days after termination
of services by the Warrant Agent or by any Holder (which Holder shall, with such
notice, submit Warrant Certificates held thereby for inspection by the Company),
then any Holder may apply to any court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Pending appointment of a
successor to the Warrant Agent, either by the Company or by a court, the duties
of the Warrant Agent shall be carried out by the Company. After such
appointment, the successor Warrant Agent shall be vested with such powers,
rights, duties and responsibilities as such Warrant Agent would have been vested
had such Warrant Agent been named originally as Warrant Agent hereunder, without
further act or deed. Upon payment in full of all amounts owed to the former
Warrant Agent, the former Warrant Agent shall deliver and transfer to the
successor Warrant Agent any property at the time held by such former Warrant
Agent hereunder and shall execute and deliver any further assurance, conveyance,
act or deed necessary therefor. Failure to provide any notice called for in this
Section 18, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Warrant Agent or the appointment
of a successor Warrant Agent.

Warrant Agreement
Page 14

<PAGE>

   19.   Identity of New Transfer Agent.
         -------------------------------

            Forthwith upon the appointment after the date hereof of any new
transfer agent for the Common Stock, the Company will file with the Warrant
Agent a statement setting forth the name and address of such transfer agent.

   20.   Successors.
         -----------

            All the covenants and provisions of this Agreement by or for the
benefit of the Company, the Warrant Agent or any of the Holders shall bind and
inure to the benefit of their respective successors, assigns, heirs and personal
representatives.

   21.   Termination.
         ------------

            This Agreement shall terminate at 5 p.m., Pacific Standard Time, on
the Expiration Date except that the Warrant Agent shall account to the Company
for all cash held by it at 5 p.m., Pacific Standard Time, on such Expiration
Date.

   22.   Headings.
         ---------

            The headings of sections of this Agreement have been inserted for
convenience of reference only, are not to be considered a part hereof, and shall
in no way modify or restrict any of the terms or provisions hereof.

   23.   Amendments.
         -----------

            This Agreement may be amended only by both (i) the written consent
of the Company and (ii) the affirmative vote or the written consent of Holders
holding not less than a majority in interest of the then outstanding Warrants;
provided, however, that, except as expressly provided herein, this Agreement may
--------  -------
not be amended to change (a) the Exercise Price, (b) the Exercise Period, (c)
the Redemption Price, (d) the number or type of securities to be issued upon the
exercise of the Warrants, (e) the provisions of this Section 23, without the
consent of each Holder, or (f) any provisions which affect the rights, duties or
obligations of the Warrant Agent without the consent of the Warrant Agent.

   24.   Counterparts.
         -------------

            This Agreement may be executed in any number of counterparts each of
which when so executed shall be deemed to be an original, but all of which taken
together shall constitute one and the same agreement.

   25.   Notices.
         --------

            Any notice required by the provisions of this Agreement to be
provided to the Company by the Warrant Agent or by any Holder shall be deemed
given if deposited in the United States mail, first class postage prepaid,
addressed (until another address is filed in writing by the Company with the
Warrant Agent) as follows:

Warrant Agreement
Page 15

<PAGE>

                  Key Technology, Inc.
                  150 Avery Street
                  Walla Walla, WA  99362
                  Attention:  Corporate Secretary

            Any notice required by the provisions of this Agreement to be
provided to the Warrant Agent by the Company or by any Holder shall be deemed
given if deposited in the United States mail, first class postage prepaid,
addressed (until another address is filed in writing by the Warrant Agent with
the Company or notice of the address of a successor Warrant Agent is provided
pursuant to this Agreement) as follows:

                  ChaseMellon Shareholder Services, L.L.C.
                  520 Pike Street, Suite 1220
                  Seattle, WA  98101
                  Attn:  Relationship Manager

            Any notice required by the provisions of this Agreement to be
provided to any Holder by the Company or by the Warrant Agent shall be deemed
given if deposited in the United States mail, first class postage prepaid,
addressed to such Holder at its address set forth in the Warrant Register. Any
notice given in conformity with this Section 25 shall be deemed effective three
days after mailing.

   26.   Benefits of this Agreement.
         ---------------------------

            Nothing in this Agreement shall be construed to give to any person
or corporation, other than the Company, the Warrant Agent and the Holders, 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
Warrant Agent and the Holders.

   27.   Governing Law.
         --------------

            This Agreement shall be governed by and construed in accordance with
the laws of the State of Oregon, without reference to principles of conflict of
laws; provided, however, that all provisions regarding the rights, duties and
obligations of the Warrant Agent shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such state.

Warrant Agreement
Page 16

<PAGE>

            IN  WITNESS  WHEREOF,  the  parties  hereto  have duly  caused  this
Agreement to be signed by its duly authorized officers.

                              KEY TECHNOLOGY, INC.

                              By /s/Thomas C. Madsen
                                 ------------------------------
                              Name Thomas C. Madsen
                                   ----------------------------
                              Title Chairman, President, CEO
                                    ---------------------------

                              CHASEMELLON SHAREHOLDER
                              SERVICES, L.L.C. as Warrant Agent

                              By /s/ Dennis Treibel
                                 ------------------------------
                              Name Dennis Treibel
                                   ----------------------------
                              Title Vice President
                                    ---------------------------

Warrant Agreement
Page 17

<PAGE>

                                    EXHIBIT A

                    [FORM OF FACE OF WARRANT CERTIFICATE]

                WARRANT TO PURCHASE SHARES OF COMMON STOCK OF
                             KEY TECHNOLOGY, INC.

                               CUSIP
                                     ------------

            This certifies that                            , the registered
                                --------------------------
holder (the "Holder") is entitled to purchase from Key Technology, Inc., an
Oregon corporation (the "Company"),         fully paid and nonassessable shares
                                    -------
of the Company's Common Stock, subject to adjustment as provided herein, at any
time or from time to time up to and including 5:00 p.m. (Pacific Time) on
             , 2005, such date being referred to herein as the "Expiration
-------------
Date," upon surrender to the Company's Transfer Agent (or at such other location
as the Company may advise the Holder in writing) of this Warrant properly
endorsed with the Form of Subscription attached hereto duly filled in and signed
and upon payment of the purchase price for the number of shares for which this
Warrant is being exercised times a per-share purchase price of $15.00 per share
(referred to herein as the stock purchase price). The per-share stock purchase
price and the number of shares purchasable hereunder are subject to adjustment
as provided herein.
            This Warrant is subject to the following terms and conditions:

      1.    Exercise; Issuance of Certificates; Payment for Shares.
            ------------------------------------------------------

            1.1 This Warrant is exercisable at the option of the holder of
record hereof, at any time or from time to time, up to the Expiration Date, for
all or any part of the shares of Common Stock which may be purchased hereunder.
Shares of Common Stock purchased under this Warrant shall be issued to the
Holder hereof as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been surrendered, properly endorsed,
together with the completed Subscription Form attached hereto and payment for
such shares. Certificates for the shares of Common Stock so purchased shall be
delivered to the Holder hereof by the Company at the Company's expense within a
reasonable time after this Warrant has been so exercised. In case of a purchase
of less than all the shares which may be purchased under this Warrant, the
Company shall cancel this Warrant and execute and deliver a new Warrant or
Warrants of like tenor for the balance of the shares purchasable under the
Warrant surrendered upon such purchase to the Holder hereof within a reasonable
time. Each stock certificate so delivered shall be in such denominations of
Common Stock as may be requested by the Holder hereof and shall be registered in
the name of such Holder.

            1.2 Net Issue Exercise. Notwithstanding any provisions herein to the
                ------------------
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the stock purchase price (at the date of calculation as set forth
below), in lieu of exercising this Warrant for cash, the Holder may elect to
receive shares equal to the value (as determined

<PAGE>

below) of this Warrant (or the portion thereof being cancelled) by surrender of
this Warrant at the principal office of the company together with the properly
endorsed Subscription Form and notice of such election in which event the
Company shall issue to the Holder a number of shares of Common Stock computed
using the following formula:

                                    X = Y (A-B)
                                        -------
                                          A

            Where X =   the number of shares of Common Stock to be issued to
                        the Holder

                  Y =   the  number of shares  of Common  Stock  purchasable
                        under the  Warrant  or, if only a portion of the Warrant
                        is being  exercised,  the portion of the  Warrant  being
                        cancelled (at the date of such calculation)

                  A =   the  Closing  Price  (as  defined  in  the  Warrant
                        Agreement) of one share of the  Company's  Common Stock,
                        as applicable (at the date of such calculation)

                  B =   Exercise Price (as defined in the Warrant
                        Agreement) (as adjusted to the date of such
                        calculation)

      2.    Shares to be Fully Paid; Reservation of Shares.
            ----------------------------------------------

            The Company covenants and agrees that all shares of Common Stock
which may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be duly authorized, validly issued, fully paid and
nonassessable and free from all preemptive rights of any shareholder and free of
all taxes, liens and charges with respect to the issue thereof. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, a sufficient number of shares of
authorized but unissued Common Stock will be reserved to provide for the
exercise of the rights represented by this Warrant. The Company will take all
such action as may be necessary to assure that such shares may be issued as
provided herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange upon which the Company's Common
Stock or this Warrant may be listed.

      3.    Adjustment of Stock Purchase Price and Number of Shares.
            -------------------------------------------------------

            In case the Company shall at any time split or subdivide its
outstanding shares of Common Stock into a greater number of shares, the stock
purchase price in effect immediately prior to such subdivisions shall be
proportionately reduced, and conversely, in case the outstanding shares of the
Common Stock of the Company shall be combined into a smaller number of shares,
the stock purchase price in effect immediately prior to such combination shall
be proportionately increased. Upon each adjustment of the stock purchase price,
the Holder of this Warrant shall thereafter be entitled to purchase, at the
stock purchase price resulting from

                                       19
<PAGE>

such adjustment, the number of shares obtained by multiplying the stock purchase
price in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the stock purchase price resulting from such adjustment.

            Upon any adjustment of the stock purchase price or any increase or
decrease in the number of shares purchasable upon the exercise of this Warrant,
the Company shall give written notice thereof, by first-class mail, postage
prepaid, addressed to the registered Holder of this Warrant at the address of
such Holder as shown on the books of the Company. The notice shall be signed by
the Company's President or Chief Financial Officer and shall state the stock
purchase price resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.

      4.    Notice of Certain Events.
            ------------------------

            If at any time:

                 (a) the Company shall declare any dividend upon its Common
Stock payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;

                 (b) there shall be any capital reorganization or
reclassification of the capital stock of the Company; or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation; or

                 (c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;

then, in any one or more of said cases, the Company shall give, by first-class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company (i) at least 10 days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding up, at least
10 days' prior written notice of the date when the same shall take place. Any
notice given in accordance with the foregoing clause (i) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which a shareholder shall be entitled thereto. Any notice given in accordance
with the foregoing clause (ii) shall also specify the date on which shareholders
shall be entitled to exchange their shares for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, winding up, conversion or public offering, as
the case may be.

                                       20
<PAGE>

      5.    No Voting or Dividend Rights.
            ----------------------------

            Nothing contained in this Warrant shall be construed as conferring
upon the Holder hereof the right to vote or to consent to receive notice as a
shareholder of the Company or any other matters or any rights whatsoever as a
shareholder of the Company. No dividends or interest shall be payable or accrued
in respect of this Warrant or the interest represented hereby or the shares
purchasable hereunder until, and only to the extent that, this Warrant shall
have been exercised.

      6.    Fractional Shares.
            -----------------

            No fractional shares shall be issued upon exercise of this Warrant.
The Company shall, in lieu of issuing any fractional share, pay the holder
entitled to such fraction a sum in cash equal to such fraction multiplied by the
then fair market value per share.

      7.    Right of Redemption.
            -------------------

            The Holder shall at all times prior to the Expiration Date and
except to the extent exercised have the right to require the Company to redeem
this Warrant for cash at a price equal to $10.00 for each whole share of Company
Common Stock that may be purchased under this Warrant. Upon any surrender for
redemption, any fractional share interests represented by this Warrant will be
redeemed for cash. To exercise this right of redemption, the Holder shall
surrender this Warrant, properly endorsed, to the Company's Transfer Agent,
together with the completed form of redemption notice attached hereto.

      8.    Warrant Agreement.
            -----------------

            This Warrant Certificate is subject to all of the terms, provisions
and conditions of the Warrant Agreement, dated as of             , 2000 (the
                                                     ------------
"Warrant Agreement"), between the Company and the Warrant Agent, to all of which
terms, provisions and conditions the registered holder of this Warrant
Certificate consents by acceptance hereof. The Warrant Agreement is incorporated
herein by reference and made a part hereof and reference is made to the Warrant
Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities of the Warrant Agent, the Company and the
holders of the Warrant Certificates. Copies of the Warrant Agreement are
available for inspection at the stock transfer office of the Warrant Agent or
may be obtained upon written request addressed to the Company.

            IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized, this     day of
                                                          ---
           , 2000.
-----------

                                    KEY TECHNOLOGY, INC.

                                    By
                                      ---------------------
                                         Thomas C. Madsen
                                         President

                                       21
<PAGE>

                   [FORM OF REVERSE OF WARRANT CERTIFICATE]

                                SUBSCRIPTION FORM

                   To Be Executed by the Registered Holder
                   in Order to Exercise or Redeem Warrants

(Check One)

            [ ] The undersigned Registered Holder hereby irrevocably elects to
purchase          Warrant Shares represented by this Warrant Certificate, and
         ---------
requests that certificates for such securities shall be issued in the name of

            [ ] The undersigned Registered Holder, pursuant to Section 5.2 of
the Warrant Agreement dated as of by and between Key Technology, Inc. (the
"Company") and ChaseMellon Shareholder Services, L.L.C (the "Warrant
Agreement"), hereby irrevocably elects to exchange          Warrants represented
                                                   --------
by this Warrant Certificate for such number of Warrant Shares as are obtained by
applying the provisions of Section 5.2 of the Warrant Agreement, and requests
that certificates for such securities shall be issued in the name of

            [ ] The undersigned Registered Holder, pursuant to Section 16.1 of
the Warrant Agreement and Section 7 of the Warrant Certificate, hereby
irrevocably (i) elects to have       Warrants redeemed by the Company for cash
                               -----
at a price of $10.00 for each whole share of Company Common Stock that may be
purchased under the portion of the Warrant being redeemed, (ii) surrenders such
Warrants and all right, title and interest therein and (iii)directs that
promptly after the Company's receipt of this notice the cash amount deliverable
upon exercise of this redemption right be delivered to the address specified
below. The undersigned also hereby represents, warrants, and certifies that the
undersigned (a) has marketable and unencumbered title to such Warrants, free and
clear of the rights of or interest of any other person or entity, (b) has the
full right, power and authority to surrender for redemption such Warrants as
provided herein and (c) has obtained the consent or approval of all persons or
entities, if any, having the right to consult or approve such surrender for
redemption.

          PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER

          ---------------------------------------------------------
          ---------------------------------------------------------
          ---------------------------------------------------------
          ---------------------------------------------------------
                   [please print or type name and address]

                                       22
<PAGE>

and be delivered to

          ---------------------------------------------------------
          ---------------------------------------------------------
          ---------------------------------------------------------
          ---------------------------------------------------------
                   [please print or type name and address]

and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.

The undersigned represents that the exercise of the within Warrant was solicited
by a member of the National Association of Securities Dealers, Inc. Specify the
name of the NASD member below. If not solicited by an NASD member, please write
"unsolicited" in the space below.

                                    ------------------------------------
                                    (Name of NASD Member)

Dated:                               X
      ------------------------        -----------------------------------

                                      -----------------------------------

                                      -----------------------------------
                                      Address

                                      -----------------------------------
                                      Taxpayer Identification Number

                                      -----------------------------------
                                      Signature Guaranteed

                                      -----------------------------------

                                       23
<PAGE>

                                   ASSIGNMENT

                   To Be Executed by the Registered Holder
                           in Order to Assign Warrants

FOR VALUE RECEIVED,                                                 hereby
                    -----------------------------------------------
sells, assigns and transfers unto

          PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER

          ---------------------------------------------------------
          ---------------------------------------------------------
          ---------------------------------------------------------
          ---------------------------------------------------------
                   [please print or type name and address]

                        of the Warrants represented by this Warrant
-----------------------
Certificate, and hereby irrevocably constitutes and appoints
                                                             ------------------

-------------------------------------------------------------------------------
Attorney to transfer this Warrant Certificate on the books of the Company,  with
full power of substitution in the premises.

Dated:                                  X
      -----------------------------      -----------------------------------

                                          Signature Guaranteed

                                         -----------------------------------

THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.

Pouch 16
004002\00131\353987 V001<PAGE>

                                                                    EXHIBIT 10.1

                                                                  EXECUTION COPY

                         EXCHANGE AGREEMENT dated as of August 31, 2000 (this
                    "AGREEMENT"), among BURNHAM PACIFIC PROPERTIES, INC. (the
                    "COMPANY"), BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P. (the
                    "OPERATING PARTNERSHIP"), WESTBROOK BURNHAM HOLDINGS, L.L.C.
                    ("WESTBROOK HOLDINGS"), WESTBROOK BURNHAM CO-HOLDINGS,
                    L.L.C. ("WESTBROOK CO-HOLDINGS", and, together with
                    Westbrook Holdings, "WESTBROOK"), BLACKACRE SMC MASTER
                    HOLDINGS, LLC ("BLACKACRE").

          WHEREAS the parties hereto wish to set forth certain agreements
relating to the liquidation of the assets of the Company, the rights of the
Preferred Stockholders (as defined below) regarding such liquidation;

          NOW, THEREFORE, for and in consideration of the mutual agreements
contained in this Agreement and other good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, the parties hereto
hereby agree as follows:

          SECTION 1. DEFINITIONS. As used in this Agreement, the following terms
have the meanings specified below:

          "ACQUISITION PROPOSAL" means any proposal made by a third party to
     acquire, directly or indirectly, including pursuant to a tender offer,
     exchange offer, merger, consolidation, business combination,
     recapitalization, liquidation, dissolution or similar transaction, for
     consideration consisting of cash and/or securities, more than 20% of the
     combined voting power of the shares of the Company's capital stock then
     outstanding or all or substantially all the assets of the Company.

          "AGREEMENT TO CONTRIBUTE" means the Agreement to Contribute dated as
     of December 5, 1997 among Blackacre, the Operating Partnership, the Company
     and the other parties thereto.

          "ANNUAL MEETING" means the next annual meeting of the Company's
     stockholders after the date hereof.

          "APPROVED MODIFICATION" means a modification to the Plan or the Plan
     Details required due to or resulting from a failure to consummate the
     Coventry Sale or the Golden State Sale in accordance with the Plan Details;
     PROVIDED that any replacement or alternate plan and/or arrangements for the
     liquidation of the assets involved in the Coventry Sale or the Golden State
     Sale, as the case may be, or any modification in Section 6 of the Plan
     shall be subject to the approval of the Preferred Stockholders in their
     sole discretion.

          "ARTICLES SUPPLEMENTARY" means the Articles Supplementary of the
     Company relating to the Series 2000-C Convertible Preferred Stock, attached
     hereto as Exhibit C.

          "BOARD" has the meaning assigned to such term in Section 3(e).

<PAGE>
                                                                               2

          "CERTIFICATE AND CONSENT" means the Certificate and Consent of Special
     Committee of the Board, dated December 30, 1997, making the Voting Rights
     Resolution irrevocable.

          "CHANGE OF CONTROL PREFERENCE" has the meaning assigned to such term
     in the Articles Supplementary.

          "COVENTRY SALE" means the sale of the assets listed on Exhibit B of
     the Plan Details to Coventry or an affiliate or designee thereof currently
     expected to be consummated by November 30, 2000.

          "EXCHANGE" has the meaning assigned to such term in Section 2(a).

          "EXCHANGE DATE" has the meaning assigned to such term in Section 2(a).

          "FORBEARANCE AGREEMENT" means an agreement between the Company GECC,
     and the other lenders under the GE Facility, whereby GECC and such other
     lenders agree not to exercise any of their remedies under the GE Facility
     and related collateral arrangements for a period of time (the "FORBEARANCE
     PERIOD"), except for any such exercise of remedies during the Forbearance
     Period that would not have a material adverse affect on the amount of
     proceeds from asset dispositions available for distribution to the
     Preferred Stockholders pursuant to Section 3(n) during the Forbearance
     Period and that would not result in the repayment of more than $120,000,000
     of the principal amount of loans outstanding under the GE Facility.

          "GE FACILITY" has the meaning assigned to such term in Section 3(n).

          "GECC" means General Electric Capital Corporation.

          "GOLDEN STATE SALE" means the sale of the assets listed on Exhibit C
     of the Plan Details to GMS or an affiliate or designee thereof currently
     expected to be consummated by January 15, 2001.

          "GROSS REVENUES" means, for any period, all revenues of the Company,
     determined on a cash basis, derived from the ownership, operation, use,
     leasing and occupancy of the Company's properties during such period,
     excluding lease payments that are more than thirty (30) days in arrears for
     such period, PROVIDED, HOWEVER, that in no event shall Gross Revenues
     include (i) any gain arising from any write-up of assets; (ii) any proceeds
     of long-term indebtedness; (iii) proceeds or payments under insurance
     policies (except that proceeds of business interruption insurance covering
     the Company's properties actually received by the Company shall be included
     in Gross Revenues); (iv) gross receipts earned by licensees,
     concessionaires or similar third parties except for any portion of such
     receipts which are shared with the Company; (v) condemnation proceeds or
     sales proceeds in lieu of and/or under threat of condemnation; (vi) any
     security deposits received from tenants of the Company's properties, unless
     and until the same are applied to rent or other obligations in accordance
     with such tenant's lease; or (vii) any other extraordinary items which are
     received by the Company other than in the ordinary course of the Company's
     business.

<PAGE>
                                                                               3

          "INITIAL EXEMPTION RESOLUTION" means the resolutions of the Board,
     dated May 6, 1997, providing for an exemption from Section 3-601 and
     following sections of the Maryland General Corporation Law.

          "JUNIOR SHARES" means all partnership interests in the Operating
     Partnership other than Preferred Units and those partnership interests held
     of record and beneficially owned by the Company, all shares of common stock
     of the Company and all shares of any other class or series of stock of the
     Company to which the Series 2000 Shares are prior in rank with regard to
     payment of dividends or payments upon the liquidation, dissolution or
     winding-up of the Company.

          "LIQUIDATION PREFERENCE" has the meaning assigned to such term in the
     Articles Supplementary.

          "MANAGEMENT PARTICIPATION AGREEMENTS" means, collectively, the
     Management Participation Agreement dated the date hereof between the
     Company and Westbrook Real Estate Co-Investment Partnership II, L.P. and
     the Management Participation Agreement dated the date hereof between the
     Company and Westbrook Real Estate Fund II, L.P., each of which is attached
     hereto as Exhibit G.

          "NOMINEE" means any individual listed on Exhibit A attached hereto.

          "OPERATING CASH" means, for any period, the amount by which Gross
     Revenue calculated on a cash basis for such period exceeds Operating
     Expenses for such period calculated on an accrual basis in accordance with
     GAAP.

          "OPERATING EXPENSES" means, for any period, the actual costs and
     expenses or pro forma costs and expenses, as applicable, of owning,
     operating, managing and maintaining the Company's properties during such
     period incurred by the Company, determined on an accrual basis in
     accordance with GAAP, including, without limitation, management fees, real
     estate taxes, special assessments, insurance premiums, utility costs (other
     than utility costs paid directly to utility companies by tenants), other
     expenses paid by the Company as reasonable and appropriate to operate and
     maintain the Company's properties, and state and local excise (but not
     income) taxes paid by the Company with respect to the Company's properties;
     PROVIDED, HOWEVER, that in no event shall Operating Expenses include (i)
     interest due on long-term indebtedness, (ii) any fees paid in connection
     with long-term indebtedness, (iii) Tenant Improvements, except to the
     extent such expenditures are included in special assessments as set forth
     above, or (iv) depreciation, amortization and other non-cash items.

          "OPERATING PARTNERSHIP AGREEMENT" means the Agreement of Limited
     Partnership of the Operating Partnership as amended.

          "PARTNERSHIP UNIT" has the meaning assigned to such term in the
     Operating Partnership Agreement.

          "PLAN" means the plan of liquidation of the Company, attached hereto
     as Exhibit B as amended from time to time pursuant to the definition of
     "APPROVED

<PAGE>
                                                                               4

     MODIFICATION" or with the consent of the Preferred Stockholders in their
     sole discretion.

          "PLAN DETAILS" means details of the Plan, attached hereto as Exhibit H
     as amended from time to time pursuant to the definition of "APPROVED
     MODIFICATION" or with the consent of the Preferred Stockholders in their
     sole discretion.

          "PREFERRED UNITS" means the Series 1997-A Preferred Units issued
     pursuant to the Operating Partnership Agreement.

          "PREFERRED STOCKHOLDERS" means Blackacre, Westbrook, their respective
     successors, and, except for purposes of Section 3 and Section 6(f), Section
     6(j) and Section 6(o) below, their respective assigns and transferees
     permitted under Section 13.

          "REDEMPTION EVENT" has the meaning assigned to such term in Section
     3(t).

          "RIGHTS AGREEMENT" has the meaning assigned to such term in Section
     6(q).

          "SEC" has the meaning assigned to such term in Section 3(g).

          "SERIES 1997 SHARES" means shares of the Series 1997-A Convertible
     Preferred Stock, par value $.01 per share, of the Company.

          "SERIES 2000 SHARES" means shares of the Series 2000-C Convertible
     Preferred Stock, par value $.01 per share, of the Company.

          "SLATE" has the meaning assigned to such term in Section 3(e).

          "STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement dated
     December 5, 1997, by and among Westbrook, the Company and the Operating
     Partnership, as amended on or prior to the date hereof.

          "SUPERIOR PROPOSAL" means any proposal made by a third party to
     acquire, directly or indirectly, including pursuant to a tender offer,
     exchange offer, merger, consolidation, business combination,
     recapitalization, liquidation, dissolution or similar transaction, for
     consideration consisting of cash and/or securities, more than 50% of the
     combined voting power of the shares of the Company's capital stock then
     outstanding or all or substantially all the assets of the Company and
     otherwise on terms which the Board determines in its good faith judgement
     (after consulting with a financial advisor of nationally recognized
     reputation) (A) is reasonably capable of being completed, taking into
     account all legal, financial, regulatory and other aspects of the proposal
     and the third party making such proposal, and (B) presents, in its
     entirety, more favorable terms, after considering both financial and
     non-financial factors, taken as a whole, to the Company and the Company's
     stockholders, than the terms of the Plan, as amended.

          "SUPERIOR PROPOSAL NOTICE" shall have the meaning assigned to such
     term in Section 3(g).

<PAGE>
                                                                               5

          "TENANT IMPROVEMENTS" means (i) the costs and expenses of
     construction, renovation, leasing commissions and, if required by
     applicable law, asbestos removal to be performed by the Company in
     connection with any lease or (ii) the reimbursement of any tenant by the
     Company for construction or renovation performed by such tenant, including
     leasing commissions payable in connection therewith.

          "VOTING AGREEMENT TERMINATION EVENT" has the meaning assigned to such
     term in Section 4(b).

          "VOTING RIGHTS RESOLUTION" means the resolutions of the Board, dated
     November 19, 1997, providing for an exemption from Section 3-601 and
     following sections of the Maryland General Corporation Law with respect to
     transactions contemplated by the Agreement to Contribute and the Stock
     Purchase Agreement.

          SECTION 2. EXCHANGE OF SERIES 1997 SHARES FOR SERIES 2000 SHARES. (a)
Subject to the terms and conditions of this Agreement, each Preferred
Stockholder shall transfer and deliver to the Company on the date hereof (the
"EXCHANGE DATE") all the Series 1997 Shares, if any, held by such Preferred
Stockholder in exchange for an equal number of Series 2000 Shares, which shall
be issued and delivered to such Preferred Stockholder by the Company
(collectively, the "EXCHANGE").

          (b) Subject to the terms and conditions of this Agreement, the Company
shall issue and deliver Series 2000 Shares on the Exchange Date to the Preferred
Stockholders as required by Section 2(a).

          (c) The Company shall pay all stamp duties, stamp duty reserve tax and
other similar taxes and levies imposed in connection with the issuance or
creation of any Series 2000 Shares or as a result of the Exchange.

          (d) Concurrently with the Exchange, (i) each Preferred Stockholder
shall deliver to the Company for cancellation stock certificates representing
all Series 1997 Shares, if any, then held by such Preferred Stockholder, (ii)
the Company shall deliver to each Preferred Stockholder certificates
representing the Series 2000 Shares issuable and deliverable to such Preferred
Stockholder pursuant to Sections 2(a) and 2(b), which shall be registered in the
name of such Preferred Stockholder and shall bear a legend stating that such
shares are subject to this Agreement and (iii) the Company shall cancel all
Series 1997 Shares.

          SECTION 3. AGREEMENTS OF THE COMPANY. For so long as any Series 2000
Shares remain outstanding, each of the Company and the Operating Partnership
covenants and agrees with each Preferred Stockholder that:

          (a) The Company shall not amend the severance agreement between the
Company and J. David Martin, a copy of which has been provided to the Preferred
Stockholders, without the written consent of the Preferred Stockholders. The
Company shall not make any payments to or on behalf of Mr. Martin that are not
provided for in such severance agreement.

<PAGE>
                                                                               6

          (b) The Company shall not remove Scott C. Verges as the interim chief
executive officer of the Company other than for cause, and shall use
commercially reasonable efforts to retain Mr. Verges in such position, from the
date hereof until at least the date of the Annual Meeting.

          (c) The Company shall use its reasonable efforts to negotiate
decreases in the severance compensation of Scott C. Verges, Daniel B. Platt and
James W. Gaube. The terms of any such decrease in severance compensation and the
terms of any new compensation or severance agreements for such individuals or
any other member of senior management shall be subject to the approval of the
Preferred Stockholders, such approval not to be unreasonably withheld. The
Company shall also reduce other staff as the Board deems appropriate in
connection with the liquidation of the Company.

          (d) The Company shall close each of its offices except for the San
Diego office and either the Los Angeles or San Francisco office as soon as
reasonably practicable, but in no event later than December 31, 2000, in a
manner reasonably anticipated by the Company to minimize the costs associated
with such closures.

          (e) The Company shall (i) cause the Board of Directors of the Company
(the "BOARD") to propose a slate (as modified from time to time with the consent
of the Preferred Stockholders, the "SLATE") of nominees comprised solely of
Nominees for election to the Board at the Annual Meeting, subject to such
Nominees' willingness to serve on the Board, to recommend to the Company's
stockholders that they vote in favor of the Slate at the Annual Meeting and to
solicit and vote proxies at the Annual Meeting in favor of the Slate, (ii)
unless otherwise required, in the good faith judgment of the Board (after
consultation with Ballard Spahr Andrews & Ingersoll, LLP or other counsel
reasonably acceptable to the Preferred Stockholders), by the Board's duties
under Maryland law to the Company's stockholders due to the existence of a
Superior Proposal and unless the Company shall, as soon as possible after such
judgment is made, deliver a notice to such effect (a "SUPERIOR PROPOSAL NOTICE")
to each Preferred Stockholder, cause the Board to propose the Plan and to
recommend to the Company's stockholders that they vote in favor of the Plan at
the Annual Meeting, to solicit and vote proxies at the Annual Meeting in favor
of the Plan and to not terminate the Plan if the Plan has received the requisite
approval of the Company's stockholders at the Annual Meeting, and (iii) execute,
deliver and file all agreements, instruments and other documents, and take all
other action necessary or advisable so that the Company's stockholders may vote
on and grant proxies in favor of the Plan and the Slate at the Annual Meeting in
compliance with the charter and By-laws of the Company and all applicable laws,
including, without limitation, the laws of the State of Maryland and the Federal
securities laws of the United States. If the Company or the Board fails to take
any action set forth in this paragraph for any reason, including, without
limitation, due to the Board's duties under Maryland law, such failure shall not
affect the exercise by any Preferred Stockholder of any of its rights under the
Articles Supplementary, hereunder or otherwise, including, without limitation,
the right to elect a Change of Control Preference. The Company shall promptly
notify each Preferred Stockholder of any Acquisition Proposal received by the
Company or any of its representatives.

          (f) The Company shall hold the Annual Meeting on or prior to November
14, 2000 unless (a) the Company has been enjoined by a court of competent
jurisdiction from holding such meeting and is contesting such injunction
diligently and in good faith or (b) the Board makes a good faith determination
(such determination to be supported by

<PAGE>
                                                                               7

an opinion of Ballard Spahr Andrews & Ingersoll, LLP or other counsel reasonably
acceptable to the Preferred Stockholders) that, in order to comply with the
Board's duties owed to the Company's stockholders under Maryland law, the Board
or the Company's stockholders need additional time to consider a bona fide
proposal for the sale of all or substantially all of the Company's assets or a
merger, reorganization or other comparable transaction involving the Company, in
which case the Annual Meeting shall be delayed until the Company is no longer so
enjoined or until the Board has satisfied such duties, as the case may be. No
such delay shall affect the exercise by any Preferred Stockholder of any of its
rights under the Articles Supplementary, hereunder or otherwise, including,
without limitation, the right to elect a Change of Control Preference.

          (g) The Company shall consult with the Preferred Stockholders on any
distributions of information or materials (including a proxy statement or other
solicitation materials) regarding the Plan, the Slate or the Annual Meeting to
the Company's stockholders or the United States Securities and Exchange
Commission ("SEC") and shall, upon the request of the Preferred Stockholders,
afford the Preferred Stockholders the opportunity to review and comment on such
information or materials in advance of any such distribution; PROVIDED that such
opportunity to review and comment shall not cause a material delay in
distributing such information or materials (assuming timely preparation and
distribution of draft materials so as to permit advance review). Promptly after
the date hereof, the Company shall prepare and file with the SEC a preliminary
proxy statement (such statement, whether in preliminary or final form, the
"Proxy Statement") relating to the Plan and the Slate, and the Company shall
respond promptly to any comments of the SEC with respect thereto. The Company
shall cause the Proxy Statement to be mailed to the Company's stockholders as
soon as practicable after filing with the SEC and the completion of the SEC's
review process, if any. The Company shall notify the Preferred Shareholders of
the receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to the Proxy Statement and shall
supply the Preferred Stockholders with copies of all correspondence between the
Company and any of its representatives, on the one hand, and the SEC and its
staff, on the other hand, with respect to the Proxy Statement. If at any time
prior to the Annual Meeting there shall occur any event that should be set forth
in an amendment or supplement to the Proxy Statement, the Company shall promptly
prepare and mail to its stockholders such an amendment or supplement.
Furthermore, if any person proposes or nominates an individual or group of
individuals (other than a Nominee) for election to the Board, or proposes any
action that is inconsistent with or prevents the election of the Slate or the
approval of the Plan by the stockholders of the Company, the Company and the
Preferred Stockholders will consult as to the appropriate action to take in
light of such proposal or nomination and the Company shall take such appropriate
action and vigorously contest such proposal or nomination, subject, in the case
of a proposal or action that is inconsistent with or prevents the approval by
the Company's stockholders of the Plan, to the Board's duties under Maryland law
to the Company's stockholders and to the delivery by the Company of a Superior
Proposal Notice to each Preferred Stockholder. The Company shall provide the
Preferred Stockholders and their representatives with access during normal
business hours to the Company's officers and employees and to its books and
records, and shall facilitate the Preferred Stockholders and their
representatives obtaining reasonable access to the Company's customers and
suppliers, so that each Preferred Stockholder may conduct such due diligence as
such Preferred Stockholder may consider appropriate or advisable in light of
Section 20 of the Securities Exchange Act of 1934.

<PAGE>
                                                                               8

          (h) Without the prior written consent of the Preferred Stockholders,
the Company shall not amend the By-laws of the Company to increase the maximum
number of directors on the Board.

          (i) The Company shall enter into an agreement (an "Indemnity
Agreement") with each director elected to the Board pursuant to a class vote of
the holders of the Series 2000 Shares (each such director, a "SERIES 2000
DIRECTOR") whereby the Company shall (i) agree to provide such Series 2000
Director with director's liability insurance substantially similar in all
respects to such insurance provided to the other members of the Board and (ii)
indemnify such Series 2000 Director to the same extent that the other members of
the Board are indemnified by the Company. Each Indemnity Agreement shall provide
that the Series 2000 Directors shall receive the benefit of any increase in the
scope or amount of insurance or indemnification provided to the other members of
the Board. In no event shall the Company at any time reduce the scope or amount
of the insurance (unless such reduction is made with respect to all members of
the Board) or indemnity provided under an Indemnity Agreement, even if the
indemnification provided by the Company is reduced with respect to the other
members of the Board. Unless the Board (including the Series 2000 Directors)
shall unanimously determine otherwise, the Company shall retain counsel
satisfactory to the Board to advise the members of the Board in their capacity
as directors of the Company, and the Company shall pay for the reasonable fees
and expenses of such counsel.

          (j) The Company shall consult the Preferred Stockholders with respect
to retaining legal, financial, strategic or other professional advisors.

          (k) Without the prior written consent of each Preferred Stockholder,
which consent may be given or withheld in such Preferred Stockholder's sole
discretion, neither the Company nor the Operating Partnership shall make any
distribution, cause a redemption (other than a redemption of Partnership Units
in accordance with paragraph (m) below), or pay any dividend, or set aside any
funds for the payment of a dividend, with regard to any Junior Shares except for
quarterly dividends or distributions not exceeding the average quarterly
dividend or distribution paid to the holders of the Company's common stock over
the last four fiscal quarter period ending immediately prior to the date hereof;
PROVIDED that (1) such dividend or distribution is paid solely out of Operating
Cash and (2) the Company has paid, or pays on the same date, all Accrued
Dividends (as defined in the Articles Supplementary) owing to the Preferred
Stockholders as of the date of such quarterly dividend.

          (l) The Company shall allow a representative of each Preferred
Stockholder to observe all meetings of the Board, including, without limitation,
any executive session; PROVIDED that a Preferred Stockholder's representative
may be excluded from the portion of any meeting where (A) arrangements between
the Company, on the one hand, and such Preferred Stockholder, on the other hand,
or specific actions with respect to such Preferred Stockholder, are being
discussed or (B) the presence of the Company's counsel is required in order to
advise the Board on threatened, pending or ongoing litigation and the presence
of the Preferred Stockholder's representative would eliminate the
attorney-client privilege between the Company and such counsel; PROVIDED,
FURTHER, that if an agent, employee or officer of a Preferred Stockholder or an
affiliate thereof is elected a director pursuant to Section 3 of the Articles
Supplementary, such Preferred Stockholder shall not be entitled to an observer
at meetings of the Board for so long as such director serves on the Board and
remains an agent, officer or an employee of

<PAGE>
                                                                               9

such Preferred Stockholder or an affiliate thereof. For purposes of this Section
(l), Westbrook shall be deemed to be a single Preferred Stockholder.

          (m) The Company shall, in its capacity as general partner of the
Operating Partnership, elect to issue (i) Series 2000 Shares to the holders of
Preferred Units and (ii) common stock of the Company to holders of Partnership
Units, in each case upon the exercise of any such holder's "Redemption Right"
(as defined in the Operating Partnership Agreement or Exhibit B to the
Thirteenth Amendment to the Operating Partnership Agreement, as the case may
be).

          (n) The Company shall distribute the net proceeds of all asset
dispositions, except for reasonable reserves taken in good faith and proceeds
otherwise distributed or paid in accordance with the Plan Details, to the
Preferred Stockholders within 30 days of receipt by the Company of such
proceeds. Such distributions shall be made in respect of the Change of Control
Preference or the Liquidation Preference, at the option of the Preferred
Stockholder to whom such distribution is made. The Company shall not amend or
modify any of its existing agreements governing indebtedness in any manner that
would reduce the net proceeds available for distribution pursuant to this
paragraph, except that the Company may (i) modify the Loan Agreement dated as of
November 19, 1999 between the Operating Partnership, BPP/Cameron Park, L.P.,
BPP/Riley, L.P., GECC and the lenders party thereto (the "GE Facility") so long
as any such modification does not increase the collateral securing such facility
as of the date hereof (it being understood that the Company may modify the
definition of "Minimum Release Price" set forth in the GE Facility by deleting
"90%" in clause (b) of such definition and replacing it with any percentage less
than or equal to 100%) and (ii) refinance existing mortgage debt so long as any
such refinancing does not increase the outstanding principal amount or release
price of such mortgage debt or otherwise materially adversely affect the
Preferred Stockholders.

          (o) The Company shall carry out the liquidation of the Company's
assets in accordance with the Plan Details except for deviations that do not
materially change the Plan Details, taken as a whole.

          (p) Upon the request of any Preferred Stockholder, the Company shall
promptly enter into a registration rights agreement with the holders of the
Series 2000 Shares, substantially in the form of the Registration Rights
Agreement dated as of December 31, 1997, between the Company and Westbrook, that
shall provide for the public registration of the sale of the securities issued
or issuable with respect to the Series 2000 Shares pursuant to the Securities
Act of 1933.

          (q) Upon the request of any holder of Preferred Units, the Company
shall promptly enter into a registration rights agreement with the holders of
the Preferred Units, substantially in the form of the Registration Rights
Agreement dated as of December 31, 1997, between the Company and certain
partners of the Operating Partnership, that shall provide for the registration
of the sale of the securities issued or issuable with respect to the Series 2000
Shares issuable upon a redemption of the Preferred Units, pursuant to the
Securities Act of 1933.

          (r) The Company shall not amend, modify, rescind or revoke the
resolutions of the Board referenced in Section 6(f) and Section 6(o) below.

<PAGE>
                                                                              10

          (s) The Company acknowledges that the amount of "ACCRUED
DISTRIBUTIONS" (as such term is defined in the Operating Partnership Agreement)
and all "ACCRUED DIVIDENDS" (as such term is defined in the Articles
Supplementary relating to the Series 1997 Shares) owing to each of the Preferred
Stockholders immediately prior to the redemption by the Company of such
Preferred Stockholder's Preferred Units and immediately prior to the Exchange,
as applicable, shall be included in the calculation of Accrued Dividends as
provided in the Articles Supplementary.

          (t) Except for Approved Modifications, the Company shall not modify
the Plan or the Plan Details without the consent of the Preferred Stockholders
in their sole discretion. If (i) the Company modifies the Plan or the Plan
Details in violation of the preceding sentence or the definition of Approved
Modification, (ii) the GE Facility is not renewed or refinanced on substantially
similar terms and a Forbearance Period provided for in a Forbearance Agreement
is not in effect, or (iii) the Golden State Sale and the Coventry Sale result in
principal prepayments in respect of the GE Facility exceeding $120,000,000 (any
of the events or actions described in the foregoing clauses (i), (ii), or (iii)
a "REDEMPTION EVENT") then the Preferred Stockholders may require the Company to
redeem their Series 2000 Shares in accordance with Section 9 of the Articles
Supplementary.

          SECTION 4. STOCKHOLDER AGREEMENTS. Each Preferred Stockholder agrees
with the Company and the Operating Partnership as follows:

          (a) No Preferred Stockholder shall reinstate any election of a Change
of Control Preference currently suspended by such Preferred Stockholder unless
(i) the Plan does not receive the requisite approval of the Company's
stockholders at the Annual Meeting, (ii) the Slate does not receive the
requisite approval of the Company's stockholders at the Annual Meeting or (iii)
the Annual Meeting does not occur (without any adjournment thereof) on or prior
to November 14, 2000.

          (b) From the date hereof through November 14, 2000, no Preferred
Stockholder shall deliver an election of Change of Control Preference relating
to the Plan or any other proposal that would give rise to a right of such
Preferred Stockholder to make such an election unless (i) the Company delivers a
Superior Proposal Notice to any Preferred Stockholder or would have been
required to deliver such notice pursuant to Section 3(e), such other proposal is
supported by the Board or such other proposal is not expressly rejected by the
Board within five business days after receipt thereof, (ii) the Company modifies
the Plan or the Plan Details without the consent of the Preferred Stockholders,
in their sole discretion, (iii) the Company fails to comply with its obligations
set forth in Section 3(o) (such failure, together with any event specified in
clause (i) or (ii) of this Section 4(b), a "VOTING AGREEMENT TERMINATION
EVENT"), (iv) the Plan does not receive the requisite approval of the Company's
stockholders at the Annual Meeting, (v) the Slate does not receive the requisite
approval of the Company's stockholders at the Annual Meeting or (vi) the Annual
Meeting does not occur (without any adjournment thereof) on or prior to November
14, 2000.

          (c) If the Plan and the Slate receive the requisite approval of the
Company's stockholders on or prior to November 14, 2000, no Preferred
Stockholder shall deliver prior to April 1, 2001 an election of Change of
Control Preference with respect to the Plan or any event consistent with or
pursuant to the Plan and, if delivered, such election shall be void. The
obligations of the Preferred Stockholders set forth in this

<PAGE>
                                                                              11

paragraph (c) shall terminate and have no further force and effect if the Plan
is terminated by the Board after the Plan has received the requisite approval of
the Company's stockholders at the Annual Meeting or if the Plan or the Plan
Details are modified without the consent of the Preferred Stockholders, in their
sole discretion.

          (d) Subject to Section 4(a) and Section 4(b), this Agreement shall not
restrict in any manner the right of a Preferred Stockholder to elect or
reinstate a Change of Control Preference with respect to any event other than
the Plan or any event consistent with or pursuant to the Plan.

          (e) At the Annual Meeting, each Preferred Stockholder shall vote all
voting securities of the Company which such Preferred Stockholder owns, directly
or indirectly, including, without limitation, all Series 2000 Shares issued to
them in connection with the Exchange, in favor of the Plan and the Slate and
shall vote all such securities against any plan of liquidation of the Company
other than the Plan, provided the Annual Meeting occurs and concludes on or
prior to November 14, 2000 (other than due solely to any adjournment thereof
solely for the purpose of tabulating and announcing the stockholders' vote); and
PROVIDED, FURTHER, that on the date of the Annual Meeting the Company shall have
delivered a certificate of the chief executive officer or chief financial
officer of the Company to the Preferred Stockholders certifying that the Company
has complied with the Plan Details, except for deviations that do not materially
change the Plan Details, taken as a whole, through the date of the Annual
Meeting. The Preferred Stockholders shall not be required to vote for any plan
of liquidation of the Company, other than the Plan, notwithstanding the Board's
approval of such other plan. The Preferred Stockholders shall not sell, assign,
dispose or otherwise transfer any of the Series 2000 Shares until the day
following the record date established for determining stockholders of the
Company entitled to receive notice of and to vote at the Annual Meeting and
shall not in any event restrict or limit, in any manner, their right and ability
to vote their Series 2000 Shares and other voting securities of the Company in
favor of the Plan and the Slate at the Annual Meeting. The obligations of the
Preferred Stockholders set forth in this paragraph (e) shall terminate and have
no further force and effect upon the occurrence of a Voting Agreement
Termination Event.

          (f) At the request of the Company or any Preferred Stockholder, the
Company shall, and each Preferred Stockholder shall consent to, amend the
Company's Bylaws to increase the number of members of the Board by two in the
event that either the Company or the Preferred Stockholders nominate two
individuals selected by Schottenstein Stores Corporation and Michael L. Ashner
to serve on the Board; PROVIDED that both the Company and the Preferred
Stockholders approve such nomination in their sole discretion.

          (g) Each Preferred Stockholder hereby consents to the proposal of the
Slate and the Plan to the Company's Stockholders as required under Section 3(c)
of the Articles Supplementary.

          SECTION 5. STOCK PURCHASE AGREEMENT; AGREEMENT TO CONTRIBUTE.
Westbrook, the Company and the Operating Partnership hereby amend the Stock
Purchase Agreement in every and any respect necessary to cause the Company, the
Preferred Stockholders and the Series 2000 Shares to have the benefit of
Sections 5.1 (solely with respect to any registration rights agreement described
in Section 3(p) if the Preferred Stockholders request that the Company enter
into a registration rights

<PAGE>
                                                                              12

agreement pursuant to Section 3(p)),5.3, 5.5, 6.1, 6.2, 6.4, 6.7, 6.8, 6.9, 6.10
and the first sentence of the last paragraph of Section 6.5(a) thereof. In
furtherance and not in limitation of the foregoing, Westbrook, the Company and
the Operating Partnership hereby amend the Stock Purchase Agreement so that the
definition of "Buyer" shall include each Preferred Stockholder and the
definition of "Company Preferred Stock" shall include the Series 2000 Shares for
purposes of Sections 5.1 (solely with respect to any registration rights
agreement described in Section 3(p) if the Preferred Stockholders request that
the Company enter into a registration rights agreement pursuant to Section
3(p)), 5.3, 5.5, 6.1, 6.2, 6.4, 6.7, 6.8, 6.9, 6.10 and the first sentence of
the last paragraph of Section 6.5(a) thereof and such provisions (and any other
provisions referred to in such provisions) are hereby further amended to give
proper effect to the amendment of such definitions. In the event of any
inconsistency between the terms of this Agreement and the terms of the Stock
Purchase Agreement or the Agreement to Contribute, in each case as amended
hereby, the terms of this Agreement shall supercede such inconsistent terms.

          SECTION 6. REPRESENTATIONS AND WARRANTIES. (a) Each party hereto
represents and warrants to the other parties hereto as of the date of this
Agreement that:

          (i) such party is duly organized, validly existing and in good
     standing under the laws of its respective jurisdiction of organization and
     has all requisite corporate or similar power and authority, and has been
     duly authorized by all necessary approvals and orders, to own, operate and
     lease its properties and assets and to carry on its business as presently
     conducted and is duly qualified to do business and is in good standing in
     each jurisdiction where the ownership, operation or leasing of its assets
     or properties or conduct of its business requires such qualification except
     where the failure to be so organized, qualified or in good standing, or to
     have such power or authority, would not, individually or in the aggregate,
     have a material adverse effect on such party or on its ability to perform
     its obligations hereunder;

          (ii) such party has all requisite corporate, limited partnership, or
     limited liability company power and authority to execute, deliver and
     perform its obligations under this Agreement and to consummate the
     transactions contemplated hereby, and the execution, delivery and
     performance of this Agreement has been duly authorized by all necessary
     corporate, limited partnership, or limited liability company action on its
     part;

          (iii) this Agreement constitutes a valid and binding agreement of such
     party, enforceable against such party in accordance with its terms, subject
     to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
     and similar laws of general applicability relating to or affecting
     creditors' rights and to general equity principles; and

          (iv) the execution, delivery and the performance by such party of this
     Agreement do not constitute or result in (A) a breach or violation of, or a
     default under, the organizational documents of such party (as amended from
     time to time), (B) a breach or violation of, or a default under, the
     acceleration of any obligations or rights of third parties or the creation
     of any lien, encumbrance, charge or security interest on the assets of such
     party (with or without notice, lapse of time or both) pursuant to any
     indenture, agreement or other instrument

<PAGE>
                                                                              13

     binding upon such party or any law, ordinance, regulation, judgment, order,
     decree, arbitration, award, license or permit of any governmental authority
     applicable to such party or non-governmental permit or license to which
     such party is subject, or (C) any change in the rights or obligations of
     such party under any of its indentures, agreements or other instruments,
     except, in the case of clause (B) or (C) above, for any breach, violation,
     default, acceleration, creation or change that, individually or in the
     aggregate, would not reasonably be expected to have a material adverse
     effect on such party or on the legality, validity, binding effect or
     enforceability of this Agreement or on the material rights or ability of
     the other parties hereto to realize the material benefits intended to be
     created by this Agreement. No filings, notices, declarations and/or
     decisions are required to be made by such party with, nor are any permits,
     authorization, approvals or other confirmations or consents required to be
     obtained by such party from, any governmental authority or other third
     party, in connection with the execution, delivery or performance by such
     party of this Agreement, except those the failure of which to make, give or
     obtain would not, individually or in the aggregate, reasonably be expected
     to have a material adverse effect on such party or on the legality,
     validity, binding effect or enforceability of this Agreement or on the
     material rights or ability of the other parties hereto to realize the
     material benefits intended to be created by this Agreement.

          (b) The Company represents and warrants that the Series 2000 Shares
have been duly authorized, validly issued and, when issued in accordance with
Section 2 hereof, shall be fully paid or credited as fully paid, free and clear
of any lien, encumbrance, charge or security interest created by the Company.

          (c) The Company represents and warrants that the filing of the
Articles Supplementary with the State Department of Assessments and Taxation of
Maryland has been duly authorized by the Company and that upon the issuance of
the Series 2000 Shares, the Articles Supplementary will constitute a legal,
valid and binding obligation of the Company, enforceable in accordance with
their terms.

          (d) The Company represents and warrants that the Articles
Supplementary have been duly filed with the State Department of Assessments and
Taxation of Maryland and are in full force and effect and that the Preferred
Stockholders have been provided a certified copy of the Articles Supplementary,
as filed with the State Department of Assessments and Taxation of the State of
Maryland.

          (e) The Company represents and warrants that the Exchange, the
issuance of the Series 2000 Shares and the listing with the New York Stock
Exchange of common shares of the Company issuable upon any conversion of the
Series 2000 Shares do not require any approval of the Company's Stockholders
pursuant to the rules of the New York Stock Exchange or any approval of the New
York Stock Exchange, in each case, that has not already been obtained.

          (f) The Company represents and warrants that the Board has exempted,
by duly adopted resolution, each of the Preferred Stockholders that has
delivered the representations and undertakings required under Section 7.2.7(a)
of the Company's charter, and that, upon delivery of such representations and
underwritings, each other Preferred Stockholder shall be so exempted pursuant to
such resolution, from the ownership limit and common stock ownership limit set
forth in Article VII thereof,

<PAGE>
                                                                              14

pursuant to Section 7.2.7 thereof, and that such exemption shall be effective in
the event that the Preferred Stockholders are deemed to be a group for purposes
of such limits.

          (g) [Intentionally Omitted.]

          (h) The Company represents and warrants that the Management
Participation Agreements have been duly and validly authorized, executed and
delivered by the Company and are in full force and effect.

          (i) The Company represents and warrants that (i) (A) the Bylaws of the
Company have been duly amended to provide that the Board shall be comprised of a
maximum of seven directors, plus, if elected pursuant to Section 3 of the
Articles Supplementary, two (for a maximum total of nine directors) and (B) the
Bylaws of the Company may not be amended to increase the number of directors on
the Board without the consent of the Preferred Stockholders, and (ii) Exhibit E
attached hereto sets forth the individuals who are directors of the Company as
of the date hereof.

          (j) The Company represents and warrants that the Shareholder Rights
Agreement (the "Rights Agreement") dated as of June 19, 1999 between the Company
and First Chicago Trust Company of New York has been amended by the First
Amendment thereto, attached hereto as Exhibit I and that such amendment provides
that no Preferred Stockholder, either in its individual capacity or together
with any other Preferred Stockholder as a "group" (as such term is used in
Section 13(d)3 of the Securities Exchange Act of 1934), shall be an "ACQUIRING
PERSON" as such term is defined in the Rights Agreement solely by virtue of such
Preferred Stockholder's acquisition of Series 2000 Shares issued pursuant to the
Exchange or any securities of the Company issued or issuable with respect to
such Series 2000 Shares..

          (k) Each of the Company and Blackacre represents and warrants that the
Operating Partnership Agreement has been amended in the form attached hereto as
Exhibit F.

          (l) The Company and each Preferred Stockholder represents and warrants
that such Preferred Stockholder has exchanged all Preferred Units that such
Preferred Stockholder holds for Series 1997 Shares.

          (m) As of the date hereof and assuming consummation of the Exchange,
each Preferred Stockholder represents and warrants that it is (i) the beneficial
owner of and has, together with the other Preferred Stockholders, the sole power
to vote at meetings of stockholders of the Company in accordance with the
Articles Supplementary the number of shares of Series 2000 Shares set forth
beside its name on Exhibit D attached hereto, and (ii) not directly or
indirectly the beneficial owner of any other securities of the Company or the
Operating Partnership.

          (n) The Company represents and warrants that (i) the Board has
approved the Slate, the Plan and the Plan Details, (ii) subject to Section 3(e),
the Board has recommended or will recommend to the Company's stockholders that
they vote in favor of the Slate and the Plan and (iii) each member of the Board
currently intends to vote all voting securities of the Company which such member
has the power to vote in favor of the Plan and the Slate.

<PAGE>
                                                                              15

          (o) The Company represents and warrants that (i) none of the
Certificate and Consent, the Voting Rights Resolution or the Initial Exemption
Resolution has been altered or repealed as of the date hereof, and the
applicable provisions of the Annotated Code of Maryland (or any successor
statute) referred to therein do not apply to the Preferred Stockholders and the
acquisition by the Preferred Stockholders pursuant to the Exchange of the Series
2000 Shares issued pursuant to this Agreement and (ii) the Certificate and
Consent renders the Initial Exemption Resolution irrevocable with respect to any
business combination involving Westbrook or Blackacre.

          (p) Each of Westbrook and Blackacre represents and warrants that it is
an "accredited investor" as that term is defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933 and intends to acquire the Series
2000 Shares for investment purposes and not with a view towards distribution
thereof.

          SECTION 7. APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF MARYLAND. EACH PARTY
HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS
PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
MARYLAND LOCATED WITHIN THE CITY OF BALTIMORE, OF THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF MARYLAND (NORTHERN DIVISION), AND ANY APPELLATE COURT
FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH
MARYLAND STATE, OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL, COURT. EACH
OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS
AGREEMENT SHALL AFFECT ANY RIGHT THAT ANY PARTY HERETO MAY OTHERWISE HAVE TO
BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT IN THE COURTS OF ANY
JURISDICTION.

          SECTION 8. NOTICES. All notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:

          (a) if to the Company, to Burnham Pacific Properties, Inc., 100 Bush
     Street, San Francisco, CA 94104, Attention: Scott C. Verges, Chief
     Executive Officer (Telecopy No. 415-352-1711); with a copy to Stephen W.
     Carr, Goodwin, Procter & Hoar, LLP, Exchange Place, Boston, MA 02109-2881
     (Telecopy No. 617-523-1231);

          (b) if to the Westbrook Holdings or Westbrook Co-Holdings, to Allen
     Curtis Greer II, Westbrook Real Estate Counsel, LLC, 265 Franklin Street,
     Suite 1800, Boston, Massachusetts 02110 (Telecopy No. 617-439-9580); with a
     copy to

<PAGE>
                                                                              16

     Patrick K. Fox, Westbrook Real Estate Partners, LLC, 13155 Noel Road, LB54,
     Suite 2300, Dallas, Texas 75240 (Telecopy No. 972-934-8333); and

          (c) if to Blackacre, to Ron Kravit, Blackacre Capital Management, 450
     Park Avenue, New York, NY 10022 (Telecopy No. 212-891-1540); with a copy to
     Steven Lichtenfeld, Proskauer Rose LLP, 1585 Broadway, New York, NY 10036
     (Telecopy No. 212-969-2900);

Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.

          SECTION 9. EXPENSES. The Company shall pay all reasonable
out-of-pocket expenses incurred by each Preferred Stockholder and its respective
members, and each of their respective directors, officers, employees and agents,
including the reasonable fees, charges and disbursements of counsel for the
Preferred Stockholders, their members, and their respective directors, officers,
employees and agents, in connection with this Agreement and the actions and
transactions contemplated hereby.

          SECTION 10. WAIVERS; AMENDMENTS. (a) No failure or delay by any party
hereto in exercising any right or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the parties hereto are cumulative and
are not exclusive of any rights or remedies that they would otherwise have.

          (b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by each party hereto.

          SECTION 11. DESCRIPTIVE HEADINGS. The descriptive headings used herein
are inserted for convenience and are not intended to be part of or to affect the
meaning or interpretation of this Agreement.

          SECTION 12. COUNTERPARTS; INTEGRATION. This Agreement may be executed
in counterparts (and by different parties hereto on different counterparts),
each of which shall constitute an original, but all of which when taken together
shall constitute a single contract. This Agreement constitutes the entire
contract among the parties hereto relating to the subject matter hereof and
supersedes any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof. Delivery of an executed counterpart of a
signature page of this Agreement by telecopy shall be effective as delivery of a
manually executed counterpart of this Agreement.

          SECTION 13. SUCCESSORS, ASSIGNS AND TRANSFEREES. The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns and transferees. This Agreement
and the rights and obligations set forth herein shall not be assigned or
transferred by any Preferred Stockholder except in conjunction with a sale,
assignment or transfer permitted under Section 4(e) and only to such purchaser,
assignee or transferee. The rights of Blackacre

<PAGE>
                                                                              17

and Westbrook under Section 3 shall not be assigned or transferred in connection
with any such sale, assignment or transfer and Blackacre and Westbrook shall
retain all such rights for so long as any Series 2000 Shares remain outstanding.

          SECTION 14. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, including, without
limitation, specific performance to enforce this Agreement, in addition to any
other remedy at law or equity. The parties further agree to waive any
requirement for the posting of any bond in connection with any such remedy.

          SECTION 15. CONSENTS. The parties hereto agree that the execution of
this Agreement shall constitute all consents and approvals that are necessary or
required to be given by any of the parties hereto, whether individually or as
part of a group, in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, the issuance of the Series
2000 Shares and the Exchange, whether under the Company's charter, By-laws, or
any agreement to which any of them is a party, and if appropriate or necessary
such parties agree to execute and deliver additional documents, consents and
approvals to evidence the foregoing; PROVIDED that nothing in this Section 15
shall constitute a consent, approval or waiver of any right with respect to any
action, event or any other circumstance occurring after the date hereof that
requires the consent or approval of the Preferred Stockholders, including,
without limitation, any consent or approval with respect to any matters set
forth in Sections 3(b) or (c) of the Articles Supplementary and the approval of
a plan of liquidation of the Company at the Annual Meeting.

          SECTION 16. NO FURTHER RIGHTS OR OBLIGATIONS. The parties hereto agree
that upon the consummation of the Exchange, dividends shall cease to accrue on
the Preferred Units and the Series 1997 Shares that the Preferred Stockholders
held immediately prior to the Exchange, the Preferred Stockholders shall cease
to have any interest on or claims against the Company or the Operating
Partnership by virtue of or with respect to such Preferred Units or Series 1997
Shares and the Preferred Stockholders shall cease to have any voting or other
rights with respect to such Preferred Units or Series 1997 Shares.

          SECTION 17. APPROVALS AND CONSENTS. Except as shall otherwise be
expressly stated in this Agreement, any right of a party hereto granted pursuant
to the terms hereof to consent to or approve of any action shall be deemed to be
a right to consent to or approve of such action in such party's sole discretion.

<PAGE>
                                                                              18

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first written above.

                                      BURNHAM PACIFIC PROPERTIES,
                                      INC.,

                                      by /s/ Scott C. Verges
                                         ---------------------------------------
                                         Name: Scott C. Verges
                                         Title: President

                                      BURNHAM PACIFIC OPERATING
                                      PARTNERSHIP, L.P.,

                                      by /s/ Scott C. Verges
                                        ----------------------------------------
                                         Name: Scott C. Verges
                                         Title: President

                                      WESTBROOK BURNHAM HOLDINGS,
                                      L.L.C. and WESTBROOK BURNHAM
                                      CO-HOLDINGS, L.L.C.,

                                      by /s/ William H. Walton, III
                                        ----------------------------------------
                                        Name: William H. Walton, III

<PAGE>
                                                                              19

                                      BLACKACRE SMC MASTER
                                      HOLDINGS, LLC

                                      by Blackacre SMC Holdings, L.P., its
                                         managing member

                                         by Blackacre Capital Group, L.P., its
                                            general partner

                                         by Blackacre Capital Management
                                            Corp., its general partner

                                         /s/ Ronald J. Kravit
                                         ---------------------------------------
                                         Name: Ronald J. Kravit

                                      by Blackacre SMC II Holdings, LLC, its
                                         managing member

                                         by Blackacre Capital Group, L.P., its
                                            managing member

                                         by Blackacre Management
                                               Corp., its general partner

                                         /s/ Ronald J. Kravit
                                         ---------------------------------------
                                         Name: Ronald J. Kravit

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