The Compensation Committee of the Board of Directors has the oversight and administration responsibility for our executive compensation programs. Mr. Hardis chairs the Committee, and during 2001 membership included Mr. Cutler, Mr. Tooker, Mr. Takahashi, Mr. Paul, Mr. Lautenbach, and Mr. Nettles.

This report is submitted by the Compensation Committee and addresses the compensation policies for 2001 as they affected Mr. Bachman, as Chief Executive Officer, and the other top four executive officers named in the Summary Compensation Table below.

Compensation Philosophy

During 2001, the Committee was responsible for recommending and approving the compensation package of each of the executive officers. In making decisions regarding executive compensation, the Committee considered a variety of competitive market benchmarking sources completed by external consulting firms including Executive Alliance (a division of Clark/Bardes Consulting), Watson Wyatt Worldwide and Iquantic (a division of Buck Consulting Group). Additionally, the Committee engaged outside consulting services to conduct a comprehensive review of its executive compensation programs and processes to ensure both competitiveness and regulatory compliance. This review found the programs to be sound in their design, emphasizing a pay-for-performance philosophy as well as an alignment of executive and shareholder interests.

In order to attract, retain and motivate the talented personnel it needs to meet corporate objectives, Axcelis has structured its executive compensation program to provide its executives with base compensation at the 50th percentile of the compensation paid by other similar sized technology companies. Incentive compensation targets are set at the 75th percentile of the levels paid by similar sized technology companies. If such objectives are met, Axcelis' compensation program is designed to deliver total compensation at or above the 75th percentile for total compensation paid by our peer group. Any bonuses are funded primarily based on corporate performance, and actual awards may vary greatly from year to year according to the Company's overall performance and the individual's impact on that performance. In the year 2001, there were no bonuses paid under this plan as the Company failed to meet its profitability objectives for the year.

The Company's executive compensation program consists of base salary, cash bonuses and stock option awards. In certain cases, restricted stock grants are part of an executive's compensation package. All of these components are designed with the objective of attracting and retaining executives and motivating management to meet and exceed Company growth and profitability goals. In determining the total amount and mix of the compensation package for each executive officer, the Committee members subjectively consider the overall value to the Company of each executive in light of numerous factors such as contributions to the Company's competitive position in the marketplace, individual performance, and the past and expected contribution by each executive officer toward the achievement of the Company's performance objectives. Additionally, a review of external competitive practices is considered when setting the individual targets.

Base Salary

The Company's base salaries are structured to be within the median range of salaries paid by similar companies for comparable positions. The Committee believes that the Company's most direct competitors for executive positions are not necessarily the same as the peer companies in the Philadelphia Semiconductor index, but, depending upon the position, may represent a broader group of similar sized technology companies. The Company actively participates in survey groups facilitated by Iquantic and Executive Alliance. While data from these surveys is categorized by industry type, revenue, and/or geographic locale, the Committee emphasizes the survey cut representing companies with revenues between $300 million and $1 billion, as this most accurately represents companies in a similar position to Axcelis.

As a result of market conditions, the Committee decided not to make adjustments in executive salaries during 2001.

Cash Bonuses

Cash bonus targets are set based upon a variety of factors, including market data and anticipated impact of the individual. For the elected officers these targets range from 30% up to 50% in the case of the Chief Executive Officer.

For 2001, the Committee adopted a cash bonus plan with two components. The first component is the growth component. This measures the Axcelis performance versus identified "peer" companies in the area of annual sales growth. Included in this index are Applied Materials, KLA-Tencor, Lam Research, Mattson, Novellus, Semitool, Varian Semiconductor, FSI International and Teradyne. The second component measures our financial performance against our annual operating plan, and determines the funding mechanism. Because we did not achieve the requisite profitability to fund under the plan, there were no awards made under the plan for 2001.

Stock Options and Restricted Stock Grants

The Committee believes it is in the best interests of the Company and its shareholders to grant stock options and restricted stock as a long-term component of executive and key employee compensation program. Stock option and restricted stock grants to executive officers and other key employees are intended to keep employee financial interests in line with long-term shareholder value.

Stock option awards are at the discretion of the Committee, taking into account the individual's past performance and long-term potential to contribute to achieving Company goals. Excluding options granted to replace options issued by Eaton Corporation which terminated in the spin-off of the Company in December 2000, all option grants under our 2000 Stock Plan have an exercise price equal to the closing price of the Company's common stock on the date of grant. Except for those Eaton replacement options and the "bridge" options described below, all options granted to executive officers vest over a period of four years and expire on the 10th anniversary of the date of grant. Eaton replacement options have terms of less than 10 years, since they expire on the original expiration date of the option they replace.

In 2001, an annual grant of options was approved by the Committee to four executives selected by the Committee as requiring additional stock options to supplement their holdings in the Company in light of benchmarking data and other factors. As in the case of cash compensation benchmarking, external data was used to assess our competitive position. Options with special vesting and termination provisions were granted to two executive officers who held only stock options issued at the time of our initial public offering (which have exercise prices of $22.00 per share) and who are believed to be essential to the Company's long term success. These special options, referred to by the Company as "bridge options," become exercisable after the 20th consecutive day on which Nasdaq reports a closing price of $22.00 or more for our common stock and remain exercisable for six months. In the event the $22.00 price point does not occur prior to the fourth anniversary of the date of grant, the bridge options will become exercisable on that date, and will expire one year later. The effect of these special provisions are:

  •  to give the recipient the benefit of an appreciation in our stock price from July 2001 up to $22.00, but by forcing the exercise six months after the $22.00 price point is met, to cut off any significant further appreciation, since the executive already holds options to compensate him or her after that point, or

  •  if the $22.00 price point is not reached by the fourth anniversary of the date of grant, to permit exercise for only one year to the extent of any appreciation over the grant price, which eliminates any long term dilutive effect of these options.

The Committee felt these grants were important in light of the fact that the Company did not expect to increase salaries or pay any bonus compensation for 2001. Options for a total of 51,000 shares were granted to executives with these "bridge" option terms.

Other executives, including Mr. Bachman and the executive officers named in the Summary Compensation Table, did not receive any option grants in 2001 in light of the significant option grants made to them at the time of our initial public offering and options issued to them to in December 2000 to replace terminating Eaton Corporation options.

In addition, in 2001, the Committee approved restricted stock grants to two executive officers, totaling 64,000 shares. The Committee's philosophy is to make restricted stock grants on a selective basis to ensure appropriate incentives are in place to reward past performance and create the proper long term incentives to retain critical executives. The shares covered by these grants are subject to forfeiture to the Company if the recipient terminates employment, with 20% of the shares being released annually from such forfeiture provision beginning on the second anniversary of the date of grant.

Compensation of Chief Executive Officer and Chief Operating Officer

Mr. Bachman and Ms. Puma received base compensation during 2001 in accordance with the minimum base compensation due to them under their respective Employment Agreements. Neither officer received any bonus payment in respect of services during 2001.

Neither Mr. Bachman nor Ms. Puma received stock options or restricted stock grants during 2001.

Compensation Deductibility

Section 162(m) of the Internal Revenue Code denies a tax deduction to a public corporation for annual compensation in excess of one million dollars paid to its Chief Executive Officer and its four other highest compensated officers. This provision excludes certain types of "performance based compensation" from the compensation subject to the limitation on deductibility.

The 2000 Stock Plan contains an individual annual limit on the number of stock options that may be granted under the plan so that the awards will qualify for the exclusion from the limitation on deductibility for performance-based compensation, assuming that we obtain stockholder ratification for the 2000 Stock Plan at the 2002 annual meeting of shareholders. The Committee will continue to assess the impact of Section 162(m) on its compensation practices and determine what further action, if any, is appropriate.

The following tables contain information on compensation paid for 2001 to our Chief Executive Officer and the four other most highly paid executive officers. None of Messrs. Luttati, Mionis or Moses was an executive officer of the Company during 1999. In January 2002, Ms. Puma replaced Mr. Bachman as our Chief Executive Officer, following Mr. Bachman's resignation.

No stock options were granted under our Stock Plan during fiscal 2001 to the executive officers named in the Summary Compensation Table.

The following table provides information on options exercised during 2001 by the officers named in the Summary Compensation Table and the total number of exercisable and unexercisable stock options held at December 31, 2001 by those officers.

Agreements with Mr. Bachman. We entered into an Employment Agreement with Mr. Bachman effective in July 2000. His agreement provided for a three-year term of employment, setting a minimum annual base salary of $600,000 and a target incentive compensation of 50% of that amount. The agreement provided that Mr. Bachman would also participate in the Stock Plan, the 401(k) savings plan and the welfare benefit plans that we sponsor.

In January 2002, Mr. Bachman resigned as an officer of the Company, terminating his employment and triggering certain benefits under his Employment Agreement. In a Settlement Agreement and Release entered into in January 2002, Mr. Bachman received $1,125,000, less applicable taxes, reflecting his base compensation through the end of the three-year term plus a target bonus payment of 25% of such base compensation for the same period. He also received an additional amount of $65,000 to cover expenses incidental to his resignation and may receive a contingent payment of $500,000, if a defined change of control of the Company occurs in the 12 month period following his resignation. Finally, as contemplated by the Employment Agreement, all of Mr. Bachman's options became exercisable for the full remaining term of such options. In the Settlement Agreement, Mr. Bachman agreed that he will not compete with us for a period of 12 months after his resignation and confirmed his covenants not to disclose our confidential information. This Settlement Agreement superceded all provisions of Mr. Bachman's Employment Agreement, as well as of his Change of Control Agreement discussed below.

Agreements with Ms. Puma. We entered into an Employment Agreement with Ms. Puma effective in July 2000. Her agreement provides for a three-year term of employment, at a minimum annual base salary of $380,000 and an annual target incentive compensation opportunity of 45% of base salary. Actual incentive compensation for any year may be greater or less if actual performance is greater or less than the target. Base salary and incentive opportunities can be increased by our Board of Directors. The term of Ms. Puma's agreement will automatically renew unless one party notifies the other that the agreement will not be extended. The agreement also provides that Ms. Puma will participate in the Stock Plan, the 401(k) savings plan and the welfare benefit plans that we sponsor.

In the event Ms. Puma's employment is terminated prior to the end of the term for reasons other than cause, death, disability or voluntary resignation, she is entitled to receive all compensation accrued to date, acceleration of vesting of options and other equity rights and base compensation and target bonus for two years from the date of termination of employment. In her agreement, Ms. Puma has agreed not to compete with us for a period of 12 months after termination of her active employment or the remaining term of her agreement, whichever is longer, and not to reveal confidential information for a specified period of time.

In connection with our separation from Eaton Corporation in 2000, Eaton assigned to us a note payable by Ms. Puma in the principal amount of $175,000, which bears interest at the rate of 9% per annum. Principal and accrued interest on the Note will be due on the earlier of (A) January 1, 2011 or (B) the date 90 days after the termination of her employment with us. The Note provides that we will forgive the principal amount of $58,334 on December 31 of each of 2001 and 2002, and the remaining outstanding principal amount on December 31, 2003, in each case together with the accrued interest, provided Ms. Puma is still employed by us.

Change of Control Agreements. We also have entered into Change of Control Agreements with each of our executive officers, including Mr. Bachman and Ms. Puma. Mr. Bachman's Change of Control Agreement was superseded by his Settlement Agreement discussed above. These Change of Control Agreements provide that in the event there is both a change in control and a termination of employment within three years of that change in control for reasons other than voluntary resignation, cause, death or disability, the officer would be entitled to severance compensation. Under the change in control agreement, a resignation by a senior officer for reasons of a demotion or reduction in compensation, benefits or position is a termination by us and is not a voluntary resignation. If severance compensation is payable, it would consist of (i) a cash payment equal to the sum of (a) incentive compensation for the completed portion of the incentive period and (b) the amount determined by multiplying the employee's then salary and average bonus by three, and (ii) continuation of our medical, life and other welfare benefits for up to three years. We will also reimburse the employee for the effects, including federal, state and local income tax consequences, of any excise tax due on severance compensation.

During the fiscal year ended December 31, 2001, the Compensation Committee of the Board of Directors consisted of Mr. Hardis, Mr. Cutler, Mr. Tooker, Mr. Paul, Mr. Lautenbach and Mr. Takahashi, with Mr. Nettles joining the Committee upon his election in July 2001.

Mr. Takahashi, one of our directors, is a director and officer of Sumitomo Heavy Industries, Ltd. Each of Sumitomo and Axcelis own 50% of the equity of a Japanese corporation known as Sumitomo Eaton Nova, or SEN. We have granted SEN an exclusive royalty-bearing license in Japan to use our current and future ion implantation technology and to manufacture, use and sell products. We have also granted SEN a non-exclusive license to sell ion implantation products outside of Japan, subject to the terms of an Export Sales Agreement under which we are exclusive marketing agent. The license agreement expires on December 31, 2004 and is automatically renewable for successive five-year periods unless either party has provided one year's prior notice of termination. We also have a trademark license agreement with SEN which will terminate on December 31, 2004 and which obligates SEN to pay us an additional 0.5% royalty on net sales. In 2001, we recognized royalty income from SEN under these license agreements of approximately $5.8 million. From time to time, we sell ion implantation equipment and other products to SEN. In 2001, our net sales of products to SEN amounted to $8.4 million.

The following graph compares the cumulative total return for our Common Stock to that of the Philadelphia Semiconductor Index (known as "SOXX") and the Nasdaq Composite Index at each fiscal year end following July 11, 2000, the date the Company's Common Stock first traded on the Nasdaq National Market. The comparison assumes an investment of $100 on July 11, 2000 at the closing price in each of our Common Stock and the two indices and assumes reinvestment of dividends, if any. The stock performance shown on the graph below is not necessarily indicative of future price performance.

Mr. Takashashi is a director and officer of Sumitomo Heavy Industries, Ltd. with whom Axcelis has a joint venture in Japan. See "Compensation Committee Interlocks and Insider Participation" above.

We hold a promissory note from Ms. Puma, which is discussed under "Executive Agreements--Agreements with Ms. Puma" above.

Mr. Moses was an executive officer of Bradlees, Inc. within two years of such corporation's bankruptcy filing in January 2001.

Section 16(a) of the Exchange Act requires our directors, executive officers and persons owning more than 10% of our registered equity securities, to file with the SEC reports of their initial ownership and of changes in their ownership of our common stock and to provide us with copies of all Section 16(a) reports they file.

To our knowledge, based solely on our review of copies of reports furnished to us and written representations that no other reports were required during the fiscal year ended December 31, 2001, we believe that during the 2001 fiscal year, our directors, officers, and 10% stockholders complied with all Section 16(a) filing requirements.

Overview of Proposal

On June 9, 2000, the Board of Directors unanimously adopted the 2000 Stock Plan. The purpose of the 2000 Stock Plan is to assist Axcelis in attracting and retaining highly competent employees, directors and consultants and to act as an incentive in motivating selected employees, directors and consultants to achieve long-term corporate objectives. The 2000 Stock Plan became effective on July 10, 2000 and will remain in effect until terminated by action of the Board, although no incentive stock options may be granted after July 10, 2010.

Prior to the spin-off of Axcelis from Eaton Corporation, the 2000 Stock Plan was approved by Eaton as the sole shareholder of the Company at that time. The Plan is now being submitted for ratification by our public shareholders in order to maintain the deductibility for the Company, for federal income tax purposes, of compensation arising from certain awards under the Plan and to preserve our ability to grant incentive stock options to employees.

Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to publicly traded companies for compensation in excess of $1 million accrued with respect to a company's chief executive officer or any of the other four most highly compensated officers. However, qualifying performance-based compensation, such as stock options, will not be subject to the deduction limit if the shareholders approve the plan and certain criteria are met, including that awards are determined in the discretion of a compensation committee comprised of two or more "outside directors" and payment of awards only occurs on satisfaction of one or more pre-established, non-discretionary, objective performance goals.

Section 422 of the Internal Revenue Code permits us to grant incentive stock options, which are eligible for the favorable tax treatment described below if the plan under which the options are granted meets certain requirements, including approval by our shareholders.

If the 2000 Stock Plan is not approved, we would be unable to deduct compensation above the 162(m) limit arising from options granted under the Plan after the 2002 annual meeting of shareholders, and we would be unable to grant incentive stock options. Whether or not the Plan is approved by our shareholders for these purposes, the Plan will continue in full force and effect as will our ability to make grants thereunder. Options granted before the 2002 annual meeting would continue to be exempt from the Section 162(m) deduction limit.

Summary of the Plan

The following summary of the principal provisions of the 2000 Stock Plan is not intended to be exhaustive and is qualified in its entirety by the terms of the Plan, a copy of which is attached hereto as Appendix A and incorporated herein by reference.

Administration and Eligibility. The 2000 Stock Plan is administered by the Board of Directors, who have delegated such responsibility to the Compensation Committee. As of March 1, 2002, all of our 1,876 employees were eligible for grants under the Plan. Our 8 non-employee directors are eligible for automatic initial and annual option grants as well as discretionary awards under the Plan. Awards may also be made to consultants to the Company.

Shares Subject to the Plan. All awards under the 2000 Stock Plan relate to the Company's Common Stock, $0.001 par value. The closing price of one share of Common Stock, as reported by Nasdaq National Market on March 1, 2002 was $13.33. An aggregate of 18,500,000 shares of Common Stock was initially approved for issuance under the Plan. This number is subject to adjustment in the event of stock splits, combinations and other similar transactions and, for the purposes of granting Awards other than incentive stock options, shall be increased annually, beginning in July 2001, by the lesser of (i) five (5%) percent of the then number of outstanding shares of Common Stock of the Company, (ii) 5,000,000 shares or (iii) such lesser amount determined by the Board. As of March 1, 2002, the number of shares that may be granted under the Stock Plan was 23,375,742, although the aggregate number of shares which may be subject to incentive stock options is limited to 18,500,000.

As of December 31, 2001, non-qualified options for 9,497,254 shares had been granted under the Stock Plan, net of terminations, of which 133,163 shares had been exercised, leaving options for 9,364,091 shares outstanding. As of December 31, 2001, 130,727 shares of restricted stock were issued and outstanding under the Plan.

Types of Awards. The 2000 Stock Plan gives our Compensation Committee the discretion to approve the grant of equity-based awards, including incentive stock options (which are designed to comply with tax-advantaged rules under Section 422 of the Internal Revenue Code), non-qualified stock options (all options which are not incentive stock options), restricted stock, stock appreciation rights and performance awards. To date, the Company has granted only non-qualified stock options and restricted stock under the Stock Plan. The Plan establishes some of the terms of awards, leaving other terms to the discretion of the Compensation Committee.

Terms of Stock Options. Subject to certain limitations, the Committee has discretion under the 2000 Stock Plan to determine who among eligible participants will receive an option grant, the number of shares subject to a grant, the vesting provisions, if any, and the exercise price. No participant may be granted an option to purchase more than 1,250,000 shares of Common Stock in any fiscal year of the Company. Under the Plan, except for options granted to replace options issued by Eaton Corporation that terminated as a result of our spin-off from Eaton at the end of 2000, the exercise price of an option grant may not be less than the closing price of the Common Stock as reported by Nasdaq on the date of grant. The exercise price of the Eaton replacement options was determined under a formula set forth in an agreement between Axcelis and Eaton which took into account the relative market prices of Axcelis and Eaton shares on December 29, 2000 and the exercise price of the Eaton options being replaced.

The Compensation Committee approves all grants to executive officers reporting under Section 16(a) of the Securities Exchange Act of 1934, as amended. The Committee also approves other grants under the plan, as recommended by management based on performance and position, such as an annual broad-based grant to employees. Subject to annual and per grant limits and periodic reporting to the Committee, the Committee has delegated to the Chief Executive Officer the ability to make grants to employees (other than executive officers) at the time of hire and on an interim basis.

The exercise price of options granted under the Stock Plan is to be paid in cash, unless the Compensation Committee, in its discretion, allows full or partial payment in shares of our Common Stock or other consideration. To date, all option exercises have been for cash.

Under the Stock Plan, unless otherwise specified in the option agreement, the vesting of all outstanding options will accelerate upon a change of control of the Company, as defined in the plan.

The term of a non-qualified option is in the discretion of the Committee, while the terms of incentive stock options are limited by the Internal Revenue Code to ten years. All option grants to date have had not more than a 10-year term. The right to exercise vested options terminates immediately upon termination of employment for any reason other than death, disability or retirement, unless such right is extended by the Compensation Committee, in its discretion. In the case of termination of employment for reason of death, disability or retirement, the optionee will have up to one year to exercise vested shares.

Federal Income Tax Consequences Relating to Options.

Non-Qualified Options. An optionee does not realize taxable income when a non-qualified option is granted. When the option is exercised, the optionee will recognize ordinary income in an amount equal to the difference between the amount paid for the shares and the fair market value of the shares on the date of exercise. Subject to Sections 162(m) and 280G (relating to certain payments made in connection with a change in control) of the Internal Revenue Code, we are allowed a tax deduction for the same amount. When the shares are disposed of, any additional gain or loss relative to the market value of the shares on the date of exercise is treated as short-term or long-term capital gain or loss. We are not allowed any additional tax deduction. Capital gain is short-term if the shares have been held one year or less, and long-term if held more than one year.

Incentive Stock Options. An optionee does not realize taxable income when an incentive stock option is granted or, except as discussed in the next paragraph, exercised. A taxable event occurs when the shares are disposed of. The tax treatment depends on how long the shares are held before disposition. When shares that have been held for two years from the date of grant and one year from the date of exercise are disposed of, any amount realized in excess of the amount paid for the shares will be taxed to the optionee as long-term capital gain and any loss will be a long-term capital loss. We are not allowed a tax deduction for the amount realized by the optionee. If an optionee disposes of the shares before meeting the one-year and two-year holding periods, known as a "disqualifying disposition," the amount realized in excess of the amount paid for the shares is taxed to the optionee as ordinary income. Subject to Sections 162(m) and 280G of the Internal Revenue Code, we are allowed a tax deduction for the income realized by an optionee in a disqualifying disposition.

The excess of the fair market value of the option shares on the date of exercise of an incentive stock option over the exercise price will be included in alternative minimum taxable income for the purpose of calculating the optionee's alternative minimum tax ("AMT") in the year of exercise. AMT is based on the amount of the taxpayer's alternative minimum taxable income that exceeds an exemption amount. Alternative minimum taxable income is the taxpayer's taxable income with adjustments to reflect special tax treatment of certain items (including incentive stock options), plus specified items of tax preference. The taxpayer is required to pay the higher of the regular income tax or AMT. For purposes of computing AMT in the year the stock is sold, any gain on the sale is reduced by the amount included in alternative minimum taxable income in the year of exercise. AMT attributable to the exercise of an incentive stock option can be credited against the taxpayer's regular tax liability in a later year to the extent that the regular tax exceeds the alternative minimum tax for that later year. A disqualifying disposition in the year of exercise will generally avoid the AMT consequences of exercise of an incentive stock option.

Terms of Other Awards. In addition to options, the Compensation Committee may make grants of restricted stock, stock appreciation rights and performance awards under the 2000 Stock Plan. A grant of restricted stock is the immediate transfer to the recipient of ownership of a specific number of shares of Common Stock in consideration of the performance of services, entitling the recipient to voting, dividend and other ownership rights in the shares. The stock may be issued with or without payment by the recipient, but will be subject to some risk of forfeiture back to us as may be established by the Committee and set forth in the award agreement.

Performance awards are the right to receive a payment in cash or stock (as determined by the Committee) contingent upon the extent to which certain predetermined performance targets have been met during a specified period. The payment may be fixed or based on increases in the market price of our Common Stock over some period of time. To date, no performance awards have been granted under the 2000 Stock Plan.

A stock appreciation right is the right to receive a payment in cash or stock in an amount calculated by multiplying a specified number of shares of Common Stock subject to the right by the excess of the market value of a share of Common Stock at the time of exercise over the exercise price fixed by the Compensation Committee for such share. As with options, stock appreciation rights may be subject to vesting provisions established by the Committee in the award. To date, no stock appreciation rights have been granted under the 2000 Stock Plan.

Benefits Under the Plan.

Since all grants under the 2000 Stock Plan (other than to non-employee directors) are discretionary, it is not possible to determine the awards that will be granted in the future. The total number of options that may be granted to non-executive directors under the automatic grant provisions will depend on the number of new outside directors and the total number of outside directors on each future grant date.

The following chart provides grant information for the term of the Plan through December 31, 2001 and during 2001 for the each of the executive officers named in the Summary Compensation table, each of the directors nominated for election at the 2002 annual meeting, all current executive officers, all current non-executive directors and all employees other than executive officers. Except as indicated in the footnotes to the table, all grants were of non-qualified stock options having an exercise price equal to the closing price of the Common Stock on the date of grant.

In addition to the discretion granted to the Compensation Committee to determine award recipients, award sizes, and other terms of awards under the 2000 Stock Plan, the Plan may be amended by the Board of Directors to change the amount of the automatic grants to non-executive directors or otherwise to fix the allocation of benefits among the persons and groups eligible to participate in the Plan.

Shareholder approval of the 2000 Stock Plan is required for us to grant incentive stock options and to comply with the performance-based compensation exception set forth in Section 162(m) of the Internal Revenue Code so as to permit us the maximum tax deduction for the compensation paid under the Plan.

The affirmative vote of a majority of the shares represented in person or by proxy at the annual meeting and entitled to vote is required for this ratification of the 2000 Stock Plan.

The Board of Directors recommends a vote for ratification of the 2000 Stock Plan.

Upon the recommendation of its Audit Committee, the Board of Directors has appointed the accounting firm of Ernst & Young LLP as independent auditors to conduct the annual audit of our financial statements for 2002 and is seeking shareholder ratification of the appointment. Ernst & Young LLP is an internationally recognized public accounting firm that audited the Company's books in 2001 and which the Audit Committee believes is well qualified to continue.

Representatives of Ernst & Young are expected to attend the annual meeting and be available to respond to appropriate questions. They will also have the opportunity to make a statement if they desire. The fees for services provided by Ernst & Young to the Company in 2001 were as follows:

"Audit Related Fees" included statutory audits for subsidiaries operating in Germany, Malaysia and the United Kingdom and a registered branch in Singapore, and internal audit services provided to management. Approximately half of the "All Other Fees" are related to domestic human resource consulting and expatriate tax planning and compliance services, which are largely non-recurring and related to the establishment of the Company as an independent company from Eaton Corporation. The other half of "All Other Fees" are related to tax analysis and consulting work, which in part is non-recurring. Ernst & Young LLP concluded that there was no effect on the firm's independence as a result of such consulting services.

The submission of this matter to the shareholders at the annual meeting is not required by law or by our bylaws. The Board of Directors is nevertheless submitting it to the shareholders to ascertain their views. If this proposal is not approved at the annual meeting by the affirmative vote of holders of a majority of the shares present or represented at the meeting, the Board intends to reconsider its appointment of Ernst & Young LLP as independent auditors. The Board may retain the firm for 2002 notwithstanding a negative stockholder vote.

The Board of Directors recommends a vote for ratification of the appointment of Ernst & Young LLP.

Assuming the 2003 annual meeting is not more than 30 days before or 30 days after May 1, 2003, if you wish to bring business before or propose director nominations at the 2003 annual meeting, you must give written notice to Axcelis by January 31, 2003 (the date 90 days before the anniversary of the 2002 annual meeting).

If you intend to bring such a proposal or nomination at the 2003 annual meeting, and you would like us to consider the inclusion of your proposal or nomination in our proxy statement for the meeting, you must provide written notice to Axcelis of such proposal or nomination prior to November 20, 2002 (120 days before the anniversary date of the mailing of this proxy statement), assuming the 2003 annual meeting is not more than 30 days before or 30 days after May 1, 2003.

Notices of stockholder proposals and nominations shall be given in writing to Axcelis Technologies, Inc., 55 Cherry Hill Drive, Beverly, Massachusetts 01915, Attn: Corporate Secretary.

1.01 Purpose. The purpose of the Axcelis Technologies, Inc. 2000 Stock Plan (hereinafter referred to as the "Plan") is to assist in attracting and retaining highly competent employees, directors and consultants and to act as an incentive in motivating selected employees, directors and consultants of Axcelis Technologies, Inc. and its Subsidiaries (as defined below) to achieve long-term corporate objectives.

1.02 Adoption and Term. The Plan has been approved by the Board of Directors of Axcelis Technologies, Inc. and its stockholder to be effective as of the date of the consummation of an initial public offering of the Company's common stock (the "Effective Date"). The Plan shall remain in effect until terminated by action of the Board; provided, however, that no Incentive Stock Option (as defined below) may be granted hereunder after the tenth anniversary of the Effective Date.

For the purposes of this Plan, capitalized terms shall have the following meanings:

2.01 Award means any grant to a Participant of one or a combination of Non-Qualified Stock Options or Incentive Stock Options described in Article VI, Stock Appreciation Rights described in Article VI, Restricted Shares described in Article VII and Performance Awards described in Article VIII.

2.02 Award Agreement means a written agreement between the Company and a Participant or a written notice from the Company to a Participant specifically setting forth the terms and conditions of an Award granted under the Plan.

2.03 Award Period means, with respect to an Award, the period of time set forth in the Award Agreement during which specified target performance goals must be achieved or other conditions set forth in the Award Agreement must be satisfied.

2.04 Beneficiary means an individual, trust or estate who or which, by a written designation of the Participant filed with the Company or by operation of law, succeeds to the rights and obligations of the Participant under the Plan and an Award Agreement upon the Participant's death.

2.05 Board means the Board of Directors of the Company.

2.06 Change in Control means, and shall be deemed to have occurred upon the occurrence of any one of the following events:

2.07 Code means the Internal Revenue Code of 1986, as amended. References to a section of the Code include that section and any comparable section or sections of any future legislation that amends, supplements or supersedes said section.

2.08 Company means Axcelis Technologies, Inc., a Delaware corporation, and its successors.

2.09 Common Stock means Common Stock of the Company, par value $0.001 per share.

2.10 Company Voting Securities means the combined voting power of all outstanding securities of the Company entitled to vote generally in the election of directors of the Company.

2.11 Date of Grant means the date designated by the Board as the date as of which it grants an Award, which shall not be earlier than the date on which the Board approves the granting of such Award.

2.12 Disability means a total and permanent disability such that, due to physical or mental illness, injury or disease, a Participant is unable to perform any services for the Company and its Subsidiaries and, in the opinion of a qualified physician designated by the Board, such disability will be permanent and continuous during the remainder of the Participant's life.

2.13 Effective Date shall have the meaning given to such term in Section 1.02.

2.14 Exchange Act means the Securities Exchange Act of 1934, as amended.

2.15 Exercise Price means, with respect to a Stock Appreciation Right, the amount established by the Board in the related Award Agreement as the amount to be subtracted from the Fair Market Value on the date of exercise in order to determine the amount of the payment to be made to the Participant, as further described in Section 6.02(b).

2.16 Fair Market Value means, as of any applicable date, the closing price of a share of the Common Stock on the Nasdaq National Market System ("NMS") or, if not then authorized for trading on the NMS but traded on a nationally recognized exchange, the closing price of a share of the Common on such exchange or, if not then authorized or traded on any nationally recognized exchange, the fair market value of the Common Stock as determined in good faith under procedures established by the Board.

2.17 Incentive Stock Option means a stock option within the meaning of Section 422 of the Code.

2.18 Merger means any merger, reorganization, consolidation, share exchange, transfer of assets or other transaction having similar effect involving the Company.

2.19 Non-Employee Director means a member of the Board who is not also a common law employee of Company. A member of the Board who is a common law employee of the Company shall become a Non-Employee Director as of the date he or she ceases to be an active employee of the Company. For purposes of this Plan, a member of the Board who receives deferred compensation or benefits, whether through a qualified plan or other arrangement, will not be deemed to be an active employee of the Company solely on account of the receipt of such deferred compensation or benefits.

2.20 Non-Qualified Stock Option means a stock option which is not an Incentive Stock Option.

2.21 Options means all Non-Qualified Stock Options and Incentive Stock Options granted at any time under the Plan.

2.22 Participant means a person designated to receive an Award under the Plan in accordance with Section 5.01.

2.23 Performance Awards means Awards granted in accordance with Article VIII.

2.24 Plan means the Axcelis Technologies, Inc. 2000 Stock Plan as described herein, as the same may be amended from time to time.

2.25 Purchase Price, with respect to Options, shall have the meaning set forth in Section 6.01(c).

2.26 Restricted Shares means Common Stock subject to restrictions imposed in connection with Awards granted under Article VII.

2.27 Retirement means a Participant's voluntary Termination of Employment with the consent of the Board.

2.28 Stock Appreciation Rights means Awards granted in accordance with Article VI.

2.29 Subsidiary means a subsidiary of the Company within the meaning of Section 424(f) of the Code.

2.30 Termination of Employment means the voluntary or involuntary termination of a Participant's employment with the Company or a Subsidiary for any reason, including death, Disability, Retirement or as the result of the divestiture of the Participant's employer or any similar transaction in which the Participant's employer ceases to be the Company or one of its Subsidiaries. Whether entering military or other government service shall constitute Termination of Employment, or whether a Termination of Employment shall occur as a result of Disability, shall be determined in each case by the Board in its sole discretion. In the case of a Member of the Board or consultant who is not an employee of the Company or a Subsidiary, Termination of Employment shall mean voluntary or involuntary termination of Board service or the consulting relationship, as the case may be, for any reason.

3.01 Administration. The Plan shall be administered by the Board, except (i) awards to Non-Employee Directors under Section 6.01(b) shall be automatic and granted under the terms set forth for Non-Employee Directors under the Plan without power or authority of the Board (or if applicable a committee) to alter or amend the number, terms or conditions of such awards and (ii) awards intended to qualify as exempt from the limitations on deductible compensation imposed by Section 162(m) of the Code shall be granted and administered by a committee appointed by the Board consisting of no fewer than two members of the Board who meet each and all requirements to serve as outside directors within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder (the "162(m) Committee"). Except to the extent of matters reserved for the 162(m) Committee, the Board (or its designee, as described below) shall have exclusive and final authority in each determination, interpretation or other action affecting the Plan and its Participants. The Board (or its designee, as described below) shall have the sole discretionary authority to interpret the Plan, to establish and modify administrative rules for the Plan, to impose such conditions and restrictions on Awards as it determines appropriate, and to take such steps in connection with the Plan and Awards granted hereunder as it may deem necessary or advisable. The Board may, subject to compliance with applicable legal requirements, delegate to a person or a committee, none of whom need be members of the Board of the Company, such of its powers and authority under the Plan as it deems appropriate to designated officers or employees of the Company. The Board may appoint such person or committee to exercise any of the authority conferred upon the Board hereunder and, if a person or committee is designated to so serve, the term "Board" as used in this Plan shall include such committee. In the event of any such delegation of authority or exercise of authority by a person or committee so designated, references in the Plan to the Board shall be deemed to refer to the delegate of the Board or such committee, as the case may be.

4.01 Number of Shares Issuable. The total number of shares initially authorized to be issued under the Plan shall be 18,500,000 shares of Common Stock. The number of shares available for issuance under the Plan shall be subject to adjustment in accordance with Section 9.07 and, for the purposes of granting Awards other than Incentive Stock Options, shall be increased annually by the lesser of (i) five (5%) percent of the then number of outstanding shares of Common Stock of the Company, (ii) 5,000,000 shares or (iii) such lesser amount determined by the Board. The shares to be offered under the Plan shall be authorized and unissued shares of Common Stock, or issued shares of Common Stock which will have been reacquired by the Company.

4.02 Shares Subject to Terminated Awards. Shares of Common Stock covered by any unexercised portions of terminated Options (including canceled Options) granted under Article VI, shares of Common Stock forfeited as provided in Section 7.02(a) and shares of Common Stock subject to any Award that are otherwise surrendered by a Participant may be subject to new Awards under the Plan. Shares of Common Stock subject to Options, or portions thereof, that have been surrendered in connection with the exercise of Stock Appreciation Rights shall not be available for subsequent Awards under the Plan, but shares of Common Stock issued in payment of such Stock Appreciation Rights shall not be charged against the number of shares of Common Stock available for the grant of Awards hereunder.

Participants in the Plan shall be such employees, directors and consultants of the Company and its Subsidiaries as the Board, in its sole discretion, may designate from time to time. The Board's designation of a Participant in any year shall not require the Board to designate such person to receive Awards in any other year. The designation of a Participant to receive an Award under one portion of the Plan does not require the Board to include such Participant under other portions of the Plan. The Board shall consider such factors as it deems pertinent in selecting Participants and in determining the types and amounts of their respective Awards.

6.04 Exercise Procedures. Each Option and Stock Appreciation Right granted under the Plan shall be exercised by written notice to the Company which must be received by the officer or employee of the Company designated in the Award Agreement at or before the close of business on the expiration date of the Award. The Purchase Price of shares purchased upon exercise of an Option granted under the Plan shall be paid in full in cash by the Participant pursuant to the Award Agreement; provided, however, that the Board may (but shall not be required to) permit payment to be made by delivery to the Company of either (a) shares of Common Stock held by the Participant for at least six months (which may include Restricted Shares, subject to such rules as the Board deems appropriate) or (b) any combination of cash and Common Stock or (c) such other consideration as the Board deems appropriate and in compliance with applicable law (including payment in accordance with a cashless exercise program under which, if so instructed by a Participant, shares of Common Stock may be issued directly to the Participant's broker or dealer upon receipt of an irrevocable written notice of exercise from the Participant). In the event that any shares of Common Stock shall be transferred to the Company to satisfy all or any part of the Purchase Price, the part of the Purchase Price deemed to have been satisfied by such transfer of shares of Common Stock shall be equal to the product derived by multiplying the Fair Market Value as of the date of exercise times the number of shares of Common Stock transferred to the Company. The Participant may not transfer to the Company in satisfaction of the Purchase Price any fractional share of Common Stock. Any part of the Purchase Price paid in cash upon the exercise of any Option shall be added to the general funds of the Company and may be used for any proper corporate purpose. Unless the Board shall otherwise determine, any shares of Common Stock transferred to the Company as payment of all or part of the Purchase Price upon the exercise of any Option shall be held as treasury shares.

6.05 Change in Control. Unless otherwise provided by the Board in the applicable Award Agreement, in the event of a Change in Control, all Options and Stock Appreciation Rights outstanding on the date of such Change in Control shall become immediately and fully exercisable. The provisions of this Section 6.05 shall not be applicable to any Options or Stock Appreciation Rights granted to a Participant if any Change in Control results from such Participant's beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of Company Voting Securities.

7.01 Restricted Share Awards. The Board may grant to any Participant an Award of such number of shares of Common Stock on such terms, conditions and restrictions, whether based on performance standards, periods of service, retention by the Participant of ownership of purchased or designated shares of Common Stock or other criteria, as the Board shall establish. The terms of any Restricted Share Award granted under this Plan shall be set forth in an Award Agreement which shall contain provisions determined by the Board and not inconsistent with this Plan.

7.03 Change in Control. Unless otherwise provided by the Board in the applicable Award Agreement, in the event of a Change in Control, all restrictions applicable to the Restricted Share Award shall terminate fully and the Participant shall immediately have the right to the delivery of share certificates for such shares in accordance with Section 7.01(d).

8.03 Change in Control. Unless otherwise provided by the Board in the applicable Award Agreement, in the event of a Change in Control, all Performance Awards for all Award Periods shall immediately become fully vested and payable to all Participants and shall be paid to Participants within 30 days after such Change in Control.

9.01 Plan Provisions Control Award Terms. The terms of the Plan shall govern all Awards granted under the Plan, and in no event shall the Board have the power to grant any Award under the Plan the terms of which are contrary to any of the provisions of the Plan. In the event any provision of any Award granted under the Plan shall conflict with any term in the Plan as constituted on the Date of Grant of such Award, the term in the Plan as constituted on the Date of Grant of such Award shall control. Except as provided in Section 9.03 and Section 9.07, the terms of any Award granted under the Plan may not be changed after the Date of Grant of such Award so as to materially decrease the value of the Award without the express written approval of the holder.

9.02 Award Agreement. No person shall have any rights under any Award granted under the Plan unless and until the Company and the Participant to whom such Award shall have been granted shall have executed and delivered an Award Agreement or the Participant shall have received and acknowledged notice of the Award authorized by the Board expressly granting the Award to such person and containing provisions setting forth the terms of the Award.

9.03 Modification of Award After Grant. No Award granted under the Plan to a Participant may be modified (unless such modification does not materially decrease the value of that Award) after its Date of Grant except by express written agreement between the Company and such Participant, provided that any such change (a) may not be inconsistent with the terms of the Plan, and (b) shall be approved by the Board.

9.04 Limitation on Transfer. Except as provided in Section 7.01(c) in the case of Restricted Shares, a Participant's rights and interest under the Plan may not be assigned or transferred other than by will or the laws of descent and distribution and, during the lifetime of a Participant, only the Participant personally (or the Participant's personal representative) may exercise rights under the Plan. The Participant's Beneficiary may exercise the Participant's rights to the extent they are exercisable under the Plan following the death of the Participant. Notwithstanding the foregoing, the Board may grant Non-Qualified Stock Options that are transferable, without payment of consideration, to such persons, including, but not limited to, immediate family members of the Participant or to trusts or partnerships for such family members, and the Board may also amend outstanding Non-Qualified Stock Options to provide for such transferability.

9.05 Taxes. The Company shall be entitled, if the Board deems it necessary or desirable, to withhold (or secure payment from the Participant in lieu of withholding) the amount of any withholding or other tax required by law to be withheld or paid by the Company with respect to any amount payable and/or shares issuable under such Participant's Award or with respect to any income recognized upon a disqualifying disposition (i.e. a disposition prior to the expiration of the requisite holding periods) of shares received pursuant to the exercise of an Incentive Stock Option, and the Company may defer payment of cash or issuance of shares upon exercise or vesting of an Award unless indemnified to its satisfaction against any liability for any such tax. The amount of such withholding or tax payment shall be determined by the Board and shall be payable by the Participant in cash at such time as the Board determines; provided, however, that with the approval of the Board, the Participant may elect to meet his or her withholding requirement, in whole or in part, by having withheld from such Award at the appropriate time that number of shares of Common Stock, rounded up to the next whole share, the Fair Market Value of which is equal to the amount of withholding taxes due.

9.08 Certain Conditions on Awards. The Board may cancel any unexpired Awards at any time the Participant is not in compliance with any agreement between the Company and the Participant or any other legal obligation of the Participant relating to non-competition, confidentiality or proprietary interests and failure to comply with such agreements or obligations prior to, or during the twelve (12) months after, any exercise of an Option or Stock Appreciation Right shall result in the rescission of the exercise and the difference between the Fair Market Value on the date of exercise of the subject shares of Common Stock and the Purchase Price or Exercise Price, as the case may be, shall be returned to the Company by the Participant in cash within ten (10) days after notice of the rescission has been given to the Participant by the Company. Such notice may be given at any time within two years of the date of exercise.

9.09 Initial Public Offering. As a condition of participation under this Plan, each Participant shall be obligated to cooperate with the Company and the underwriters in connection with any public offering of the Company's securities and any transactions relating thereto and shall execute and deliver such agreements and documents, including without limitation, a lock-up agreement, as may be requested by the Company or the underwriters. The Participants' obligations under this Section 9.09 shall apply to any shares of Common Stock issued under the Plan as well as to any and all other securities of the Company or its successor for which such Common Stock may be exchanged or into which such Common Stock may be converted.

9.10 No Right to Employment. No employee or other person shall have any claim of right to be granted an Award under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of the Company or any of its Subsidiaries.

9.11 Awards Not Includable for Benefit Purposes. Payments received by a Participant pursuant to the provisions of the Plan shall not be included in the determination of benefits under any pension, group insurance or other benefit plan applicable to the Participant which is maintained by the Company or any of its Subsidiaries, except as may be provided under the terms of such plans or determined by the Board.

9.12 Governing Law. All determinations made and actions taken pursuant to the Plan shall be governed by the internal laws of the State of Delaware, except for its principles of conflict of laws, and construed in accordance therewith.

9.13 No Strict Construction. No rule of strict construction shall be implied against the Company, the Board or any other person in the interpretation of any of the terms of the Plan, any Award granted under the Plan or any rule or procedure established by the Board.

9.14 Captions. The captions (i.e., all Section headings) used in the Plan are for convenience only, do not constitute a part of the Plan, and shall not be deemed to limit, characterize or affect in any way any provisions of the Plan, and all provisions of the Plan shall be construed as if no captions had been used in the Plan.

9.15 Severability. Whenever possible, each provision in the Plan and every Award at any time granted under the Plan shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Plan or any Award at any time granted under the Plan shall be held to be prohibited by or invalid under applicable law, then (a) such provision shall be deemed amended to accomplish the objectives of the provision as originally written to the fullest extent permitted by law and (b) all other provisions of the Plan, such Award and every other Award at any time granted under the Plan shall remain in full force and effect.

X

Please mark your votes as in this example.

8938

This proxy when properly executed will be voted in the manner directed herein. If no direction is made, this proxy will be voted FOR Proposals 1, 2 and 3.

The Board of Directors recommends a vote FOR Company Proposals 1, 2 and 3.

FOR

WITHHELD

FOR

AGAINST

ABSTAIN

1. Election of Directors. (see reverse)

2. Approval of 2000 Stock Plan.

For, except vote withheld from the following nominee(s):

3. Ratification of appointment of independent auditors.

Change of Address/ Comments on Reverse Side

All as more particularly described in the Proxy Statement relating to such meeting, receipt of which is hereby acknowledged. Please sign exactly as name appears herein. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.

SIGNATURE (S)

DATE

^ FOLD AND DETACH HERE ^

Axcelis Technologies, Inc.

THIS IS YOUR PROXY. YOUR VOTE IS IMPORTANT

DO YOU NEED ASSISTANCE IN ANY OF THE FOLLOWING AREAS?

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ADDRESS CHANGES – LEGAL TRANSFERS

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CONSOLIDATION OF ACCOUNTS – ELIMINATE MULTIPLE ACCOUNTS FOR ONE HOLDER AND CERTAIN DUPLICATE SHAREHOLDERS MAILINGS GOING TO ONE ADDRESS.

JUST CALL OUR TRANSFER AGENT'S TELEPHONE RESPONSE CENTER: (201) 324-1225 OR WRITE TO: EQUISERVE TRUST CO., L.L.P. P.O. BOX 2500 JERSEY CITY, NJ 07303-2500