Document:

Exhibit 10.1

    
      

    

    

      Exhibit
        10.1

      

      FORM
        OF

      

      KEY
        TECHNOLOGY, INC.

      

      RESTRICTED
        STOCK BONUS AGREEMENT

      

      (Continued
        Employment Vesting)

       

      

      This
        Restricted Stock Bonus Agreement ("Agreement") is made between Key
        Technology, Inc..,
        an Oregon corporation (the "Company"), and ______________ (the "Participant")
        under the Company's 2003 Restated Employees' Stock Incentive Plan (the "Plan"),
        as amended, effective as approved on _____________ by the Compensation Committee
        of the Company's Board of Directors. Capitalized Terms not otherwise defined
        shall have the meanings ascribed in the Definitions section of this Agreement.
        

      

      SECTION
        1.  ACQUISITION
        OF SHARES

      

      (a)    Transfer.
        On the terms and conditions set forth in this Agreement, the Company agrees
        to
        issue to the Participant _______ shares of common stock of the Company (the
        "Shares"). The fair market value per Share at the date of the award is $_______,
        as determined in accordance with the Plan. The issuance will occur following
        the
        date of execution of this Agreement in coordination with the Company's Registrar
        and Transfer Agent. 

      

      (b)    Stock
        Plan and Defined Terms.
        Ownership of the Shares is subject to the Plan, a copy of which the Participant
        acknowledges having received. The provisions of the Plan are incorporated
        into
        this Agreement by this reference. Capitalized terms not elsewhere defined
        are
        defined in Section 10 of this Agreement.

      

      (c)    Withholding
        Taxes.
        In the event that the Company determines that it is required to withhold
        any tax
        as a result of the issuance of Shares pursuant to this Agreement, the
        Participant, as a condition to the receipt of such Shares, shall make
        arrangements satisfactory to the Company to enable it to satisfy all withholding
        requirements. 

       

      SECTION
        2.    VESTING
        AND FORFEITURE

      (a)    Restriction
        on Transfer of Restricted Shares.
        All of the Shares initially shall be subject to forfeiture in the event
        Participant's employment with the Company terminates prior to the specified
        Vesting Period as defined below. During the period of forfeiture, the shares
        are
        referred to herein as Restricted Shares. The Participant shall not transfer,
        assign, encumber or otherwise dispose of any Restricted Shares, except as
        provided in the following sentence. The Participant may transfer Restricted
        Shares (i) by beneficiary designation, will or intestate succession
        or
        (ii) to the Participant's spouse, children or grandchildren or to
        a trust
        established by the Participant for the benefit of the Participant or the
        Participant's spouse, children or grandchildren, provided in either case
        that
        the Transferee agrees in writing on a form prescribed by the Company to be
        bound
        by all provisions of this Agreement. If the Participant transfers any Restricted
        Share, then this Section 2 shall apply to the Transferee to the same
        extent
        as to the Participant. A purported transfer of any Restricted Shares not
        in
        compliance with this Section 2(a) shall be void and of no effect.

       

      
        
          Restricted
            Stock Agreement

        

        
          Page
            1

          
            

          

        

        
          
          

        

      

      

      (b)    Vesting.
        The Restricted Shares shall become vested based upon the Participant's continued
        employment with the Company through the period ended __________ (the "Vesting
        Period"). If the Participant's employment with the Company terminates prior
        to
        the end of the Vesting Period, all Restricted Shares automatically shall
        be
        forfeited by Participant effective as of the date of termination of employment.
        Once vested, Shares shall no longer be Restricted Shares or subject to
        forfeiture, and the transfer restrictions in Section 2(a) shall no longer
        apply.
        Notwith-standing any other provision of this Agreement to the contrary, the
        Compensation Committee of the Board of Directors may in its discretion determine
        to provide for accelerated vesting with respect to some or all of the Restricted
        Shares in the event that during the period that the shares are restricted
        a
        Change of Control event occurs with respect to the Company, on such terms
        or
        subject to such conditions as the Committee may determine.

      

      (c)    Additional
        Shares or Substituted Securities.
        In the event of the declaration of a stock dividend, a spin-off, a stock
        split,
        an adjustment in conversion ratio, a recapitalization or a similar transaction
        affecting the Company's outstanding securities without receipt of consideration,
        any new, substituted or additional securities or other property which are
        by
        reason of such transaction distributed with respect to any Restricted Shares
        or
        into which such Restricted Shares thereby become convertible shall immediately
        be subject to this Agreement. Appropriate adjustments to reflect the
        distribution of such securities or property shall be made to the number and/or
        class of the Restricted Shares.

      

      (d)    Termination
        of Rights as Stockholder.
        If any Restricted Shares are forfeited in accordance with this Section 2,
        then
        after the date of forfeiture the Participant shall no longer have any rights
        as
        a holder of such Restricted Shares. Such Restricted Shares shall be deemed
        to
        have been forfeited in accordance with the applicable provisions hereof,
        whether
        or not the certificate(s) therefor have been delivered as required by this
        Agreement.

      

      (e)    Certificate
        Retention.
        Upon issuance, the certificates for all Restricted Shares shall be retained
        by
        the Company to be held in accordance with the provisions of this Agreement.
        Any
        new, substituted or additional securities or other property described in
        subsection 2(c) above shall immediately be delivered to the Company
        to be
        similarly retained, but only to the extent the Shares are at the time Restricted
        Shares. Any cash dividends on Restricted Shares (or other securities at the
        time
        held in escrow) shall be paid directly to the Participant and shall not be
        retained by the Company. Restricted Shares, together with any other assets
        or
        securities retained by the Company hereunder, shall be (i) surrendered
        for
        cancellation upon forfeiture or (ii) released to the Participant following
        the Vesting Period to the extent the Shares are no longer Restricted
        Shares.

      

      SECTION
        3.  OTHER
        RESTRICTIONS ON TRANSFER

      

      (a)    Participant
        Representations.
        In connection with the issuance and acquisition of Shares under this Agreement,
        the Participant hereby represents and warrants to the Company as
        follows:

      

      (i)    The
        Participant is acquiring and will hold the Shares for investment for his
        account
        only and not with a view to, or for resale in connection with, any
        "distribution" thereof within the meaning of the Securities Act.

       

      
        
          Restricted
            Stock Agreement

        

        
          Page
            2

          
            

          

        

        
          
          

        

      

      

      (ii)    The
        Participant understands that the Shares have not been registered under the
        Securities Act by reason of a specific exemption therefrom and that the Shares
        must be held indefinitely, unless they are subsequently registered under
        the
        Securities Act or the Participant obtains an opinion of counsel, in form
        and
        substance satisfactory to the Company and its counsel, that such registration
        is
        not required. The Participant further acknowledges and understands that the
        Company is under no obligation to register the Shares.

      

      (iii)    The
        Participant is aware of the adoption of Rule 144 by the Securities
        and
        Exchange Commission under the Securities Act, which permits limited public
        resales of securities acquired in a non-public offering, subject to the
        satisfaction of certain conditions, including (without limitation) the
        availability of certain current public information about the issuer, the
        resale
        occurring only after the holding period required by Rule 144 has been
        satisfied, the sale occurring through an unsolicited "broker's transaction,"
        and
        the amount of securities being sold during any three-month period not exceeding
        specified limitations. 

      

      (iv)    The
        Participant will not sell, transfer or otherwise dispose of the Shares in
        violation of the Securities Act, the Securities Exchange Act of 1934, or
        the
        rules promulgated thereunder, including Rule 144 under the Securities
        Act.
        The Participant agrees that the Participant will not dispose of the Shares
        unless and until the Participant has complied with all requirements of this
        Agreement applicable to the disposition of Shares and the Participant has
        provided the Company with written assurances, in substance and form satisfactory
        to the Company, that the proposed disposition does not require registration
        of
        the Shares under the Securities Act or that all appropriate action necessary
        for
        compliance with the registration requirements of the Securities Act or with
        any
        exemption from registration available under the Securities Act (including
        Rule 144) has been taken.

      

      (v)    The
        Participant has been furnished with, and has had access to, such information
        as
        the Participant considers necessary or appropriate for deciding whether to
        invest in the Shares, and the Participant has had an opportunity to ask
        questions and receive answers from the Company regarding the terms and
        conditions of the issuance of the Shares.

      

      (b)    Securities
        Law Restrictions.
        Depending upon Participant's status with the Company at the time, the Company
        at
        its discretion may impose restrictions upon the sale, pledge or other transfer
        of the Shares (including the placement of appropriate legends on stock
        certificates or the imposition of stop-transfer instructions) if, in the
        judgment of the Company, such restrictions are necessary or desirable in
        order
        to achieve compliance with the Securities Act, the securities laws of any
        state
        or any other law.

      

      (c)    Market
        Stand-Off.
        In connection with any underwritten public offering by the Company of its
        equity
        securities pursuant to an effective registration statement filed under the
        Securities Act, the Participant shall enter into such agreements as the Company
        may request with respect to temporary restrictions on transfer of any Shares
        acquired hereunder. Such restrictions (the "Market Stand-Off") shall be in
        effect for such period of time as may be directed by the Company or its
        underwriters. In order to enforce the Market Stand-Off, the Company may impose
        stop-transfer instructions with respect to the Shares until the end of the
        applicable stand-off period. The Company's underwriters shall be beneficiaries
        of the agreement set forth in this subsection (c).

       

      
        
          Restricted
            Stock Agreement

        

        
          Page
            3

          
            

          

        

        
          
          

        

      

      

      (d)    Rights
        of the Company.
        The Company shall not be required to (i) transfer on its books any
        Shares
        that have been sold or transferred in contravention of this Agreement or
        (ii) treat as the owner of Shares, or otherwise to accord voting,
        dividend
        or liquidation rights to, any transferee to whom Shares have been transferred
        in
        contravention of this Agreement.

      

      SECTION
        4.  SUCCESSORS
        AND ASSIGNS

      

      Except
        as otherwise expressly provided to the contrary, the provisions of this
        Agreement shall inure to the benefit of, and be binding upon, the Company
        and
        its successors and assigns and be binding upon the Participant and the
        Participant's legal representatives, heirs, legatees, distributees, assigns
        and
        transferees by operation of law, whether or not any such person has become
        a
        party to this Agreement or has agreed in writing to join herein and to be
        bound
        by the terms, conditions and restrictions hereof.

      

      SECTION
        5.  NO
        RETENTION RIGHTS

      

      Nothing
        in this Agreement or in the Plan shall confer upon the Participant any right
        to
        continue employment with the Company for any period of specific duration
        or
        interfere with or otherwise restrict in any way the rights of the Company
        (or
        any Parent or Subsidiary employing or retaining the Participant) or of the
        Participant, which rights are hereby expressly reserved by each, to terminate
        employment at any time and for any reason, with or without cause.

      

      SECTION
        6.  TAX
        ELECTION

      

      The
        acquisition of the Shares following the Vesting Period and the then existing
        value of the unrestricted Shares may result in adverse tax consequences to
        the
        Participant that may be mitigated by declaring current taxable income and
        filing
        an election under Code Section 83(b). Such election may be filed only within
        30 days after the date of acquisition of the Shares. The form for
        making
        the Code Section 83(b) election is attached to this Agreement as an
        Exhibit. The
        Participant should consult with the Participant's tax advisor to determine
        the
        tax consequences of acquiring the Shares and the advantages and disadvantages
        of
        filing the Code Section 83(b) election. The Participant acknowledges that
        it is
        the Participant's sole responsibility, and not the Company's, to make and
        file a
        timely election under Code Section 83(b) if the Participant determines that
        it
        is in the best interest of the Participant to do so.

      

      SECTION
        7.  LEGENDS

      

      All
        certificates evidencing Restricted Shares shall bear the following
        legends:

      

      THE
        SHARES REPRESENTED HEREBY ARE RESTRICTED AND MAY NOT BE SOLD, ASSIGNED,
        TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE
        WITH
        THE TERMS OF A WRITTEN AGREEMENT ON FILE WITH THE SECRETARY OF THE
        COMPANY.

      

      THE
        SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
        OF
        1933, AS

       

      
        
          Restricted
            Stock Agreement

        

        
          Page
            4

          
            

          

        

        
          
          

        

      

       

      AMENDED,
        AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANS-FERRED WITHOUT AN EFFECTIVE
        REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY
        TO
        THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRA-TION IS NOT
        REQUIRED.

       

      
        SECTION
          8.  NOTICE

      

      

      Any
        notice required by the terms of this Agreement shall be given in writing
        and
        shall be deemed effective upon personal delivery or upon deposit with the
        United
        States Postal Service, by registered or certified mail, with postage and
        fees
        prepaid. Notice shall be addressed to the Company at its principal executive
        office and to the Participant at the address that he or she most recently
        provided to the Company.

      

      SECTION
        9.  ENTIRE
        AGREEMENT

      

      This
        Agreement and the Plan constitute the entire contract between the parties
        hereto
        with regard to the subject matter hereof. They supersede any other agreements,
        representations or understandings (whether oral or written and whether express
        or implied) which relate to the subject matter hereof.

       

      SECTION
        10. DEFINITIONS

      

      Capitalized
        terms not otherwise defined or below herein shall have the meanings as defined
        in the Plan.

      

      (a)    "Change
        of Control"
        shall mean the occurrence of any of the following:

      

      (i)    The
        acquisition by any individual, entity or group (within the meaning of section
        13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
        "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
        of
        Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the stock
        of
        any class or classes having by the terms thereof ordinary voting power to
        elect
        a majority of the directors of the Company (irrespective of whether at the
        time
        stock of any class or classes of the Company shall have or might have voting
        power by reason of the happening of any contingency); provided, however,
        that
        the following acquisitions will not constitute a Change of Control: (1) any
        acquisition of voting stock directly from the Company; (2) any acquisition
        of voting stock by the Company or a subsidiary of the Company; or (3) any
        acquisition of voting stock by any employee benefit plan (or related trust)
        sponsored or maintained by the Company or any corporation controlled by the
        Company.

      

      (ii)    The
        consummation of a merger or consolidation involving the Company if the
        stockholders owning the voting shares of the Company immediately before such
        merger or consolidation do not, as a result of such merger or consolidation,
        own, directly or indirectly, more than 50% of the combined voting power
        of

       

      
        
          Restricted
            Stock Agreement

        

        
          Page
            5

          
            

          

        

        
          
          

        

      

       

      the
        Company, or the entity resulting from such merger or consolidation, in
        subtantially the same proportion as immediately before such merger or
        consolidation.

      

      (iii)    The
        sale or other disposition of all or substantially all of the assets of the
        Company.

      

      

      (b)    "Securities
        Act"
        shall mean the Securities Act of 1933, as amended.

      

      (c)    "Transferee"
        shall
        mean the individual to whom Restricted Shares have been transferred in
        accordance with Section 2(a).

      

      IN
        WITNESS WHEREOF, the
        parties have executed this Agreement as of the date first written
        above.

      

      

      COMPANY:  KEY
        TECHNOLOGY, INC.

      

      

      

      By
        ______________________________

      
        

      

      

      PARTICIPANT: ________________________________

      [Participant]

       

      
        
          Restricted
            Stock Agreement

        

        
          Page
            6

          
            

          

        

        
          
          

        

      

      SECTION
        83(b) ELECTION

      

      This
        statement is made under Section 83(b) of the Internal Revenue Code of 1986,
        as
        amended, pursuant to Treasury Regulations Section 1.83-2.

      

      (1)     
         The
        taxpayer who performed the services is:

      

      Name:           

      

      Address:          

      

      Social
        Security No.:         

      

      
        	
                (2)

              	
                The
                  property with respect to which the election is made is ____ shares
                  of the
                  Common Stock of Key Technology,
                  Inc.

              

      

      

      (3)      
        The
        property was transferred on ________________, ____.

      

      (4)      
        The
        taxable year for which the election is made is the calendar year
        _______.

      

      
        	
                (5)

              	
                The
                  property is subject to vesting and forfeiture if taxpayer's employment
                  with the issuer is terminated. The property vests upon achievement
                  of
                  performance measures and the taxpayer's continued employment with
                  the
                  issuer in a series of installments over a _____--year period ending
                  on
                  ________________, _____.

              

      

      

      
        	
                (6)

              	
                The
                  fair market value of such property at the time of transfer (determined
                  without regard to any restriction other than a restriction which
                  by its
                  terms will never lapse) is $___ per
                  share.

              

      

      

      
        	
                (7)

              	
                The
                  amount paid for such property is $0.00 per
                  share.

              

      

      

      
        	
                (8)

              	
                A
                  copy of this statement was furnished to Key Technology, Inc., for
                  whom
                  taxpayer rendered the services underlying the transfer of such
                  property.

              

      

      

      
        	
                (9)

              	
                This
                  statement is executed on _____________,
                  200__.

              

      

       

      __________________________             
        ______________________________
Spouse
        (if any)       Taxpayer

      

      This
        election must be filed with the Internal Revenue Service Center with which
        the
        Participant files his or her Federal income tax returns and must be filed
        within
        30 days after the date of issuance of the shares. This filing should
        be
        made by registered or certified mail, return receipt requested. The Participant
        must retain two copies of the completed form for filing with his or her Federal
        and state tax returns for the current tax year and an additional copy for
        his or
        records.

       

      Restricted
        Stock Agreement

      Page
        7Exhibit 10.2

    
      

    

    Exhibit
      10.2

    

    FORM
      OF

    

    KEY
      TECHNOLOGY, INC.

    

    RESTRICTED
      STOCK BONUS AGREEMENT

    

    (Performance
      Vesting)

    

     

    This
      Restricted Stock Bonus Agreement ("Agreement") is made between Key
      Technology, Inc.,
      an Oregon corporation (the "Company"), and _______________ (the "Participant")
      under the Company's 2003 Restated Employees' Stock Incentive Plan (the "Plan"),
      as amended, effective as approved on _______________ by the Compensation
      Committee of the Company's Board of Directors. Capitalized Terms not otherwise
      defined shall have the meanings ascribed in the Definitions section of this
      Agreement. 

     

    SECTION
      1.  ACQUISITION
      OF SHARES

    
    

     

    (a)    Transfer.
      On the terms and conditions set forth in this Agreement, the Company agrees
      to
      issue to the Participant __________ shares of common stock of the Company (the
      "Shares"). The fair market value per Share at the date of the award is $_______,
      as determined in accordance with the Plan. The issuance will occur following
      the
      date of execution of this Agreement in coordination with the Company's Registrar
      and Transfer Agent. 

     

    (b)    Stock
      Plan and Defined Terms.
      Ownership of the Shares is subject to the Plan, a copy of which the Participant
      acknowledges having received. The provisions of the Plan are incorporated into
      this Agreement by this reference. Capitalized terms not elsewhere defined are
      defined in Section 10 of this Agreement.

     

    (c)    Withholding
      Taxes.
      In the event that the Company determines that it is required to withhold any
      tax
      as a result of the issuance of Shares pursuant to this Agreement, the
      Participant, as a condition to the receipt of such Shares, shall make
      arrangements satisfactory to the Company to enable it to satisfy all withholding
      requirements. 

     

    SECTION
      2.  VESTING
      AND FORFEITURE

     

    (a)    Restriction
      on Transfer of Restricted Shares.
      All of the Shares initially shall be subject to forfeiture in the event
      Participant's employment with the Company terminates prior to the date specified
      below and/or in the event the performance criteria described in Section 2(b)(i)
      are not satisfied. During the period of forfeiture, the shares are referred
      to
      herein as Restricted Shares. The Participant shall not transfer, assign,
      encumber or otherwise dispose of any Restricted Shares, except as provided
      in
      the following sentence. The Participant may transfer Restricted Shares
      (i) by beneficiary designation, will or intestate succession or
      (ii) to the Participant's spouse, children or grandchildren or to a
      trust
      established by the Participant for the benefit of the Participant or the
      Participant's spouse, children or grandchildren, provided in either case that
      the Transferee agrees in writing on a form prescribed by the Company to be
      bound
      by all provisions of this Agreement. If the Participant transfers any Restricted
      Share, then this Section 2 shall apply to the Transferee to the same
      extent
      as to the Participant. A purported transfer of any Restricted Shares not in
      compliance with this Section 2(a) shall be void and of no effect.

     

    
      
        Restricted
          Stock Agreement

      

      
        Page
          1

        
          

        

      

      
        
        

      

    

     

    (b)    Vesting.
      The Restricted Shares shall become vested based upon both (i) the
      Participant's continued employment with the Company from the date hereof through
      the end of the third month following the completion of the last fiscal year
      of
      the three fiscal year performance period referenced below, and (ii) the
      achievement of the performance criteria as set forth in subsection (b)(i)
      below during the three consecutive fiscal year period that begins with the
      fiscal year in which this Agreement is executed by the Company and the
      Participant and ends with the completion of the third fiscal year (the "Vesting
      Period"). If the Participant's employment with the Company terminates prior
      to
      the end of the third month following the Vesting Period, all Restricted Shares
      automatically shall be forfeited by Participant effective as of the date of
      termination of employment. Once vested, Shares shall no longer be Restricted
      Shares or subject to forfeiture, and the transfer restrictions in Section 2(a)
      shall no longer apply.

     

    (i)    Performance
      Criteria. For
      any fiscal year during the Vesting Period in which the Company's net income
      from
      continuing operations does not equal at least 90% of the prior fiscal year's
      net
      income from continuing operations, 10% of the Restricted Shares shall be
      forfeited. The Compensation Committee of the Board of Directors shall determine
      net income from continuing operations by reference to the Company's audited
      financial statements, and shall also determine the portion, if any, of the
      Restricted Shares that have become vested as of the last day of the Vesting
      Period, based upon the Compound Annual Growth Rate ("CAGR") of the Company's
      net
      income from continuing operations during the three-year period compared to
      the
      base level of Company net income for purposes of this Agreement, which has
      been
      determined to be $3.917 million, based on the following performance
      vesting
      schedule: 

     

    
      	
              CAGR

            	
              %
                of Restricted Shares Vested

            
	
              7.5%

            	
              50%

            
	
              10.0%

            	
              80%

            
	
              25.0%

            	
              100%

            

    

    

    If
      CAGR is below 7.5%, no Restricted Shares shall vest. If the actual CAGR achieved
      is between the levels set forth above, vesting of Restricted Shares shall be
      linear between the stated levels.

     

    (ii)    Compensation
      Committee Discretionary Vesting.
      Notwithstanding the provisions of subsection (i) above, the Compensation
      Committee shall have discretion to vest in Participant up to 25% of the
      Restricted Shares that otherwise would have been forfeited, based upon such
      discretionary factors as it deems appropriate.

     

    (iii)    Acceleration
      of Vesting in Change of Control.
      Notwithstanding any other provision of this Agreement to the contrary, the
      Compensation Committee may in its discretion determine to provide for
      accelerated vesting with respect to some or all of the Restricted Shares based
      upon Company performance and other criteria in the event that during the period
      that the shares are restricted a Change of Control event occurs with respect
      to
      the Company, on such terms or subject to such conditions as the Committee may
      determine. If a Change of Control event occurs after the Company has completed
      at least one fiscal year of the Vesting Period, the Participant will be entitled
      to accelerated vesting up to one-third of the Restricted Shares that the
      Participant would have earned had the performance criteria been applied after
      the first fiscal year, and as to two-thirds of the Restricted
      Shares

     

    
      
        Restricted
          Stock Agreement

      

      
        Page
          2

        
          

        

      

      
        
        

      

    

     

    that
      the Participant would have earned if the event occurred after the second fiscal
      year of the Vesting Period and the performance criteria were applied to the
      two-year performance of the Company.

     

    (c)    Additional
      Shares or Substituted Securities.
      In the event of the declaration of a stock dividend, a spin-off, a stock split,
      an adjustment in conversion ratio, a recapitalization or a similar transaction
      affecting the Company's outstanding securities without receipt of consideration,
      any new, substituted or additional securities or other property which are by
      reason of such transaction distributed with respect to any Restricted Shares
      or
      into which such Restricted Shares thereby become convertible shall immediately
      be subject to this Agreement. Appropriate adjustments to reflect the
      distribution of such securities or property shall be made to the number and/or
      class of the Restricted Shares.

     

    (d)    Termination
      of Rights as Stockholder.
      If any Restricted Shares are forfeited in accordance with this Section 2, then
      after the date of forfeiture the Participant shall no longer have any rights
      as
      a holder of such Restricted Shares. Such Restricted Shares shall be deemed
      to
      have been forfeited in accordance with the applicable provisions hereof, whether
      or not the certificate(s) therefor have been delivered as required by this
      Agreement.

     

    (e)    Certificate
      Retention.
      Upon issuance, the certificates for all Restricted Shares shall be retained
      by
      the Company to be held in accordance with the provisions of this Agreement.
      Any
      new, substituted or additional securities or other property described in
      subsection 2(c) above shall immediately be delivered to the Company
      to be
      similarly retained, but only to the extent the Shares are at the time Restricted
      Shares. Any cash dividends on Restricted Shares (or other securities at the
      time
      held in escrow) shall be paid directly to the Participant and shall not be
      retained by the Company. Restricted Shares, together with any other assets
      or
      securities retained by the Company hereunder, shall be (i) surrendered
      for
      cancellation upon forfeiture or (ii) released to the Participant following
      the Vesting Period to the extent the Shares are no longer Restricted
      Shares.

     

    SECTION
      3.  OTHER
      RESTRICTIONS ON TRANSFER

     

    (a)    Participant
      Representations.
      In connection with the issuance and acquisition of Shares under this Agreement,
      the Participant hereby represents and warrants to the Company as
      follows:

     

    (i)    The
      Participant is acquiring and will hold the Shares for investment for his account
      only and not with a view to, or for resale in connection with, any
      "distribution" thereof within the meaning of the Securities Act.

     

    (ii)    The
      Participant understands that the Shares have not been registered under the
      Securities Act by reason of a specific exemption therefrom and that the Shares
      must be held indefinitely, unless they are subsequently registered under the
      Securities Act or the Participant obtains an opinion of counsel, in form and
      substance satisfactory to the Company and its counsel, that such registration
      is
      not required. The Participant further acknowledges and understands that the
      Company is under no obligation to register the Shares.

     

    
      
        Restricted
          Stock Agreement

      

      
        Page
          3

        
          

        

      

      
        
        

      

    

     

    (iii)    The
      Participant is aware of the adoption of Rule 144 by the Securities and
      Exchange Commission under the Securities Act, which permits limited public
      resales of securities acquired in a non-public offering, subject to the
      satisfaction of certain conditions, including (without limitation) the
      availability of certain current public information about the issuer, the resale
      occurring only after the holding period required by Rule 144 has been
      satisfied, the sale occurring through an unsolicited "broker's transaction,"
      and
      the amount of securities being sold during any three-month period not exceeding
      specified limitations. 

     

    (iv)    The
      Participant will not sell, transfer or otherwise dispose of the Shares in
      violation of the Securities Act, the Securities Exchange Act of 1934, or the
      rules promulgated thereunder, including Rule 144 under the Securities
      Act.
      The Participant agrees that the Participant will not dispose of the Shares
      unless and until the Participant has complied with all requirements of this
      Agreement applicable to the disposition of Shares and the Participant has
      provided the Company with written assurances, in substance and form satisfactory
      to the Company, that the proposed disposition does not require registration
      of
      the Shares under the Securities Act or that all appropriate action necessary
      for
      compliance with the registration requirements of the Securities Act or with
      any
      exemption from registration available under the Securities Act (including
      Rule 144) has been taken.

     

    (v)    The
      Participant has been furnished with, and has had access to, such information
      as
      the Participant considers necessary or appropriate for deciding whether to
      invest in the Shares, and the Participant has had an opportunity to ask
      questions and receive answers from the Company regarding the terms and
      conditions of the issuance of the Shares.

     

    (b)    Securities
      Law Restrictions.
      Depending upon Participant's status with the Company at the time, the Company
      at
      its discretion may impose restrictions upon the sale, pledge or other transfer
      of the Shares (including the placement of appropriate legends on stock
      certificates or the imposition of stop-transfer instructions) if, in the
      judgment of the Company, such restrictions are necessary or desirable in order
      to achieve compliance with the Securities Act, the securities laws of any state
      or any other law.

     

    (c)    Market
      Stand-Off.
      In connection with any underwritten public offering by the Company of its equity
      securities pursuant to an effective registration statement filed under the
      Securities Act, the Participant shall enter into such agreements as the Company
      may request with respect to temporary restrictions on transfer of any Shares
      acquired hereunder. Such restrictions (the "Market Stand-Off") shall be in
      effect for such period of time as may be directed by the Company or its
      underwriters. In order to enforce the Market Stand-Off, the Company may impose
      stop-transfer instructions with respect to the Shares until the end of the
      applicable stand-off period. The Company's underwriters shall be beneficiaries
      of the agreement set forth in this subsection (c). 

     

    (d)    Rights
      of the Company.
      The Company shall not be required to (i) transfer on its books any Shares
      that have been sold or transferred in contravention of this Agreement or
      (ii) treat as the owner of Shares, or otherwise to accord voting, dividend
      or liquidation rights to, any transferee to whom Shares have been transferred
      in
      contravention of this Agreement.

     

    SECTION
      4.  SUCCESSORS
      AND ASSIGNS

     

    Except
      as otherwise expressly provided to the contrary, the provisions of this
      Agreement shall inure to the benefit of, and be binding upon, the Company and
      its successors and assigns and be

     

    
      
        Restricted
          Stock Agreement

      

      
        Page
          4

        
          

        

      

      
        
        

      

    

     

    binding
      upon the Participant and the Participant's legal representatives, heirs,
      legatees, distributees, assigns and transferees by operation of law, whether
      or
      not any such person has become a party to this Agreement or has agreed in
      writing to join herein and to be bound by the terms, conditions and restrictions
      hereof.

     

    SECTION
      5.  NO
      RETENTION RIGHTS

     

    Nothing
      in this Agreement or in the Plan shall confer upon the Participant any right
      to
      continue employment with the Company for any period of specific duration or
      interfere with or otherwise restrict in any way the rights of the Company (or
      any Parent or Subsidiary employing or retaining the Participant) or of the
      Participant, which rights are hereby expressly reserved by each, to terminate
      employment at any time and for any reason, with or without cause.

     

    SECTION
      6.  TAX
      ELECTION

     

    The
      acquisition of the Shares following the Vesting Period and the then existing
      value of the unrestricted Shares may result in adverse tax consequences to
      the
      Participant that may be mitigated by declaring current taxable income and filing
      an election under Code Section 83(b). Such election may be filed only within
      30 days after the date of acquisition of the Shares. The form for making
      the Code Section 83(b) election is attached to this Agreement as an Exhibit.
      The
      Participant should consult with the Participant's tax advisor to determine
      the
      tax consequences of acquiring the Shares and the advantages and disadvantages
      of
      filing the Code Section 83(b) election. The Participant acknowledges that it
      is
      the Participant's sole responsibility, and not the Company's, to make and file
      a
      timely election under Code Section 83(b) if the Participant determines that
      it
      is in the best interest of the Participant to do so.

     

    SECTION
      7.  LEGENDS

     

    All
      certificates evidencing Restricted Shares shall bear the following
      legends:

    

    THE
      SHARES REPRESENTED HEREBY ARE RESTRICTED AND MAY NOT BE SOLD, ASSIGNED,
      TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE
      WITH
      THE TERMS OF A WRITTEN AGREEMENT ON FILE WITH THE SECRETARY OF THE
      COMPANY.

    

    THE
      SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
      OF
      1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANS-FERRED
      WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF
      COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION
      IS
      NOT REQUIRED.

     

    
      
        Restricted
          Stock Agreement

      

      
        Page
          5

        
          

        

      

      
        
        

      

    

     

    SECTION
      8.  NOTICE

     

    Any
      notice required by the terms of this Agreement shall be given in writing and
      shall be deemed effective upon personal delivery or upon deposit with the United
      States Postal Service, by registered or certified mail, with postage and fees
      prepaid. Notice shall be addressed to the Company at its principal executive
      office and to the Participant at the address that he or she most recently
      provided to the Company.

     

    SECTION
      9.  ENTIRE
      AGREEMENT

     

    This
      Agreement and the Plan constitute the entire contract between the parties hereto
      with regard to the subject matter hereof. They supersede any other agreements,
      representations or understandings (whether oral or written and whether express
      or implied) which relate to the subject matter hereof.

     

    SECTION
      10. DEFINITIONS

     

    Capitalized
      terms not otherwise defined or below herein shall have the meanings as defined
      in the Plan.

     

    (a)    "Change
      of Control"
      shall mean the occurrence of any of the following:

     

    (i)    The
      acquisition by any individual, entity or group (within the meaning of section
      13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
      "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of
      Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the stock
      of
      any class or classes having by the terms thereof ordinary voting power to elect
      a majority of the directors of the Company (irrespective of whether at the
      time
      stock of any class or classes of the Company shall have or might have voting
      power by reason of the happening of any contingency); provided, however, that
      the following acquisitions will not constitute a Change of Control: (1) any
      acquisition of voting stock directly from the Company; (2) any acquisition
      of voting stock by the Company or a subsidiary of the Company; or (3) any
      acquisition of voting stock by any employee benefit plan (or related trust)
      sponsored or maintained by the Company or any corporation controlled by the
      Company.

    

    (ii)    The
      consummation of a merger or consolidation involving the Company if the
      stockholders owning the voting shares of the Company immediately before such
      merger or consolidation do not, as a result of such merger or consoli-dation,
      own, directly or indirectly, more than 50% of the combined voting power of
      the
      Company, or the entity resulting from such merger or consolidation, in
      sub-stantially the same proportion as immediately before such merger or
      consolidation.

    

    (iii)    The
      sale or other disposition of all or substantially all of the assets of the
      Company.

    

    
    

    (b)    "Securities
      Act"
      shall mean the Securities Act of 1933, as amended.

     

    
      
        Restricted
          Stock Agreement

      

      
        Page
          6

        
          

        

      

      
        
        

      

    

     

    
    

    (c)    "Transferee"
      shall
      mean the individual to whom Restricted Shares have been transferred in
      accordance with Section 2(a).

     

    IN
      WITNESS WHEREOF, the
      parties have executed this Agreement as of the date first written
      above.

     

    COMPANY:  KEY
      TECHNOLOGY, INC.

     

    

    By
      ______________________________

    
       

       

       

    

    

    PARTICIPANT: ________________________________

    [Participant]

    

    
      
        Restricted
          Stock Agreement

      

      
        Page
          7

        
          

        

      

      
        
        

      

    

    SECTION
      83(b) ELECTION

    

    This
      statement is made under Section 83(b) of the Internal Revenue Code of 1986,
      as
      amended, pursuant to Treasury Regulations Section 1.83-2.

    

    (1)   The
      taxpayer who performed the services is:

    

    Name:           

    

    Address:          

    

    Social
      Security No.:         

    

    
      	
              (2)

            	
              The
                property with respect to which the election is made is ____ shares
                of the
                Common Stock of Key Technology,
                Inc.

            

    

    

    (3)      
      The
      property was transferred on ________________, ____.

    

    (4)      
      The
      taxable year for which the election is made is the calendar year
      _______.

    

    
      	
              (5)

            	
              The
                property is subject to vesting and forfeiture if taxpayer's employment
                with the issuer is terminated. The property vests upon achievement
                of
                performance measures and the taxpayer's continued employment with
                the
                issuer in a series of installments over a _____--year period ending
                on
                ________________, _____.

            

    

    

    
      	
              (6)

            	
              The
                fair market value of such property at the time of transfer (determined
                without regard to any restriction other than a restriction which
                by its
                terms will never lapse) is $___ per
                share.

            

    

    

    
      	
              (7)

            	
              The
                amount paid for such property is $0.00 per
                share.

            

    

    

    
      	
              (8)

            	
              A
                copy of this statement was furnished to Key Technology, Inc., for
                whom
                taxpayer rendered the services underlying the transfer of such
                property.

            

    

    

    
      	
              (9)

            	
              This
                statement is executed on _____________,
                200__.

            

    

    

    __________________________         
      _________________________________

    Spouse
      (if any)      Taxpayer

    

    This
      election must be filed with the Internal Revenue Service Center with which
      the
      Participant files his or her Federal income tax returns and must be filed within
      30 days after the date of issuance of the shares. This filing should
      be
      made by registered or certified mail, return receipt requested. The Participant
      must retain two copies of the completed form for filing with his or her Federal
      and state tax returns for the current tax year and an additional copy for his
      or
      records.

     

    
      
        Restricted
          Stock Agreement

      

      
        Page
          8

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