Document:

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                                                                   Exhibit - 4.2

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                       FORM OF AXCELIS TECHNOLOGIES, INC.

                                       and

                          EQUISERVE TRUST COMPANY N.A.

                                Rights Agreement

                            Dated as of ______, 2000

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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                              PAGE

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Section 1.  Certain Definitions .................................................................................1

Section 2.  Appointment of Rights Agent .........................................................................5

Section 3.  Issue of Right Certificates .........................................................................6

Section 4.  Form of Right Certificates ..........................................................................8

Section 5.  Countersignature and Registration ...................................................................9

Section 6.  Transfer, Split Up, Combination and Exchange of Right Certificates;
              Mutilated, Destroyed, Lost or Stolen Right Certificates ..........................................10

Section 7.  Exercise of Rights; Purchase Price; Expiration Date of Rights ......................................11

Section 8.  Cancellation and Destruction of Right Certificates .................................................13

Section 9.  Availability of Preferred Shares ...................................................................13

Section 10. Preferred Shares Record Date .......................................................................14

Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights .................................15

Section 12. Certificate of Adjusted Purchase Price or Number of Shares .........................................25

Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power ...............................25

Section 14. Fractional Rights and Fractional Shares ............................................................27

Section 15. Rights of Action ...................................................................................29

Section 16. Agreement of Right Holders .........................................................................29

Section 17. Right Certificate Holder Not Deemed a Stockholder ..................................................30

Section 18. Concerning the Rights Agent ........................................................................31

Section 19. Merger or Consolidation or Change of Name of Rights Agent ..........................................31

Section 20. Rights and Duties of Rights Agent ..................................................................32

Section 21. Chance of Rights Agent .............................................................................35

Section 22. Issuance of New Right Certificates .................................................................37

Section 23. Redemption .........................................................................................37

Section 24. Exchange ...........................................................................................38

Section 25. Notice of Certain Events ...........................................................................40

Section 26. Notices ........................................................................................ ...41

Section 27. Supplements and Amendments .........................................................................42

Section 28. Successors .........................................................................................43

Section 29. Benefits of this Agreement .........................................................................43
</TABLE>

                                      (i)
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<TABLE>

<S>                                                                                                         <C>
Section 30.  Severability........................................................................................43

Section 31.  Governing Law ......................................................................................44

Section 32.  Counterparts .......................................................................................44

Section 33.  Descriptive Headings ...............................................................................44

</TABLE>

                                      (ii)
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                  Agreement, dated as of ______ __, 2000 between Axcelis
Technologies, Inc., a Delaware corporation (the "Company"), and Equiserve Trust
Company N.A., a national banking association (the "Rights Agent").

                  The Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
Common Share (as hereinafter defined) of the Company outstanding on _____ __,
2000 (the "Record Date"), each Right representing the right to purchase one
one-hundredth of a Preferred Share (as hereinafter defined), upon the terms and
subject to the conditions herein set forth, and has further authorized and
directed the issuance of one Right with respect to each Common Share that shall
become outstanding between the Record Date and the earliest of the Distribution
Date, the Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined).

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

                  Section 1. CERTAIN DEFINITIONS. For purposes of this
Agreement, the following terms have the meanings indicated:

                  (a)      "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person, shall be the
Beneficial Owner (as such term is hereinafter defined) of 20% or more of the
Common Shares of the Company then outstanding, but shall not include (i) the
Company, (ii) any Subsidiary (as such term is hereinafter defined) of the
Company, (iii) only until such time as Eaton Corporation, an Ohio Corporation,
and its affiliates (collectively, "Eaton

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Corporation"), shall cease to be the beneficial owners of an aggregate of 20% or
more of the Common Shares of the Company then outstanding (the "Eaton Separation
Date"), Eaton Corporation, (iv) any employee benefit plan of the Company or any
Subsidiary of the Company, or (v) any entity holding Common Shares for or
pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person
shall become an "Acquiring Person" as the result of an acquisition of Common
Shares by the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such Person
to 20% or more of the Common Shares of the Company then outstanding; PROVIDED,
HOWEVER, that if a Person shall become the Beneficial owner of 20% or more of
the Common Shares of the Company then outstanding by reason of share purchases
by the Company and shall, after such share purchases by the Company, become the
Beneficial Owner of any additional Common Shares of the Company, then such
Person shall be deemed to be an "Acquiring Person." Notwithstanding the
foregoing, if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be an "Acquiring Person," as defined pursuant
to the foregoing provisions of this paragraph (a), has become such
inadvertently, and such Person divests as promptly as practicable a sufficient
number of Common Shares so that such Person would no longer be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a),
then such Person shall not be deemed to be or have ever been an "Acquiring
Person" for any purposes of this Agreement.

                  (b)      "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date of this Agreement.

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

                  (i) which such Person or any of such Person's Affiliates or
         Associates beneficially owns, directly or indirectly;

                  (ii) which such Person or any of such Person's Affiliates or
         Associates has (A) the right to acquire (whether such right is
         exercisable immediately or only after the passage of time) pursuant to
         any agreement, arrangement or understanding (other than customary
         agreements with and between underwriters and selling group members with
         respect to a bona fide public offering of securities), or upon the
         exercise of conversion rights, exchange rights, rights (other than
         these Rights), warrants or options, or otherwise; PROVIDED, HOWEVER,
         that a Person shall not be deemed the Beneficial Owner of, or to
         beneficially own, securities tendered pursuant to a tender or exchange
         offer made by or on behalf of such Person or any of such Person's
         Affiliates or Associates until such tendered securities are accepted
         for purchase or exchange; or (B) the right to vote pursuant to any
         agreement, arrangement or understanding; PROVIDED, HOWEVER, that a
         Person shall not be deemed the Beneficial Owner of, or to beneficially
         own, any security if the agreement, arrangement or understanding to
         vote such security (1) arises solely from a revocable proxy or consent
         given to such Person in response to a public proxy or consent
         solicitation made pursuant to, and in accordance with, the applicable
         rules and regulations promulgated under the Exchange Act and (2) is not
         also then reportable on Schedule 13D under the Exchange Act (or any
         comparable or successor report); or

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                  (iii) which are beneficially owned, directly or indirectly, by
         any other Person with which such Person or any of such Person's
         Affiliates or Associates has any agreement, arrangement or
         understanding (other than customary agreements with and between
         underwriters and selling group members with respect to a bona fide
         public offering of securities) for the purpose of acquiring, holding,
         voting (except to the extent contemplated by the proviso to Section 1
         (c) (ii) (B)) or disposing of any securities of the Company.

                  Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used with
reference to a Person's Beneficial Ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which such
Person would be deemed to own beneficially hereunder.

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

                  (e)      "Close of business" on any given date shall mean 5:00
P.M. Beverly, Massachusetts time, on such date; PROVIDED, HOWEVER, that if such
date is not a Business Day it shall mean 5:00 P.M. Beverly, Massachusetts time,
on the next succeeding Business Day.

                  (f)      "Common Shares" when used with reference to the
Company shall mean the shares of common stock, par value $0.001 per share, of
the Company. "Common Shares" when used with reference to any Person other than
the Company shall mean the capital stock (or equity interest) with the greatest
voting power of such other Person or, if such other Person is a

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Subsidiary of another Person, the Person or Persons which ultimately control
such first-mentioned Person.

                  (g)      "Distribution Date" shall have the meaning set forth
in Section 3 hereof.

                  (h)      "Final Expiration Date" shall have the meaning set
forth in Section 7 hereof.

                  (i)      "Person" shall mean any individual, firm, corporation
or other entity, and shall include any successor (by merger or otherwise) of
such entity.

                  (j)      "Preferred Shares" shall mean shares of Series A
Participating Preferred Stock, par value $0.001 per share, of the Company having
the rights and preferences set forth in the Form of Certificate of Designations
attached to this Agreement as Exhibit A.

                  (k)      "Redemption Date" shall have the meaning set forth in
Section 7 hereof.

                  (l)      "Shares Acquisition Date" shall mean the first date
of public announcement by the Company or an Acquiring Person that an Acquiring
Person has become such.

                  (m)      "Subsidiary" of any Person shall mean any corporation
or other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.

                  Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common

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Shares) in accordance with the terms and conditions hereof, and the Rights Agent
hereby accepts such appointment. The Company may from time to time appoint such
co-Rights Agents as it may deem necessary or desirable.

                  Section 3. ISSUE OF RIGHT CERTIFICATES. (a) Until the earlier
of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth
business day (or such later date as may be determined by action of the Board of
Directors prior to such time as any Person becomes an Acquiring Person) after
the date of the commencement by any Person (other than the Company, any
Subsidiary of the Company, Eaton Corporation (only until the Eaton Separation
Date), any employee benefit plan of the Company or of any Subsidiary of the
Company or any entity holding Common Shares for or pursuant to the terms of any
such plan) of, or of the first public announcement of the intention of any
Person (other than the Company, any Subsidiary of the Company, Eaton Corporation
(only until the Eaton Separation Date), any employee benefit plan of the Company
or of any Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) to commence, a tender or exchange offer
the consummation of which would result in any Person becoming the Beneficial
Owner of Common Shares aggregating 20% or more of the then outstanding Common
Shares (including any such date which is after the date of this Agreement and
prior to the issuance of the Rights; the earlier of such dates being herein
referred to as the "Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates for
Common Shares registered in the names of the holders thereof (which certificates
shall also be deemed to be Right Certificates) and not by separate Right
Certificates, and (y) the right to receive Right Certificates will be
transferable only in connection with the transfer of Common Shares. As soon as
practicable after the Distribution Date, the Company will prepare and execute,
the Rights

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Agent will countersign, and the Company will send or cause to be sent (and the
Rights Agent will, if requested, send) by first-class, insured, postage-prepaid
mail, to each record holder of Common Shares as of the close of business on the
Distribution Date, at the address of such holder shown on the records of the
Company, a Right Certificate, in substantially the form of Exhibit B hereto (a
"Right Certificate"), evidencing one Right for each Common Share so held. As of
the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.

                  The Company shall notify the Rights Agent in writing
immediately upon the occurrence of the Distribution Date and, if such
notification is given orally, the Company shall confirm same in writing on or
prior to the Business Day next following. Until such notice is received by the
Rights Agent, the Rights Agent may presume conclusively for all purposes that
the Distribution Date has not occurred.

                  (b)      On the Record Date, or as soon as practicable
thereafter, the Company will send a copy of a Summary of Rights to Purchase
Preferred Shares, in substantially the form of Exhibit C hereto (the "Summary of
Rights"), by first-class, postage-prepaid mail, to each record holder of Common
Shares as of the close of business on the Record Date, at the address of such
holder shown on the records of the Company. With respect to certificates for
Common Shares outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such certificates registered in the names of the
holders thereof together with a copy of the Summary of Rights attached thereto.
Until the Distribution Date (or the earlier of the Redemption Date or the Final
Expiration Date), the surrender for transfer of any certificate for Common
Shares outstanding on the Record Date, with or without a copy of the Summary of
Rights attached thereto, shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby.

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                  (c)      Certificates for Common Shares which become
outstanding (including, without limitation, reacquired Common Shares referred to
in the last sentence of this paragraph (c)) after the Record Date but prior to
the earliest of the Distribution Date, the Redemption Date or the Final
Expiration Date shall have impressed on, printed on, written on or otherwise
affixed to them the following legend:

                   This certificate also evidences and entitles the holder
                  hereof to certain rights as set forth in a Rights Agreement
                  between Axcelis Technologies, Inc. and Equiserve Trust Company
                  N.A., dated as of _____ __, 2000 (the "Rights Agreement"), the
                  terms of which are hereby incorporated herein by reference and
                  a copy of which is on file at the principal executive offices
                  of Axcelis Technologies, Inc. Under certain circumstances, as
                  set forth in the Rights Agreement, such Rights will be
                  evidenced by separate certificates and will no longer be
                  evidenced by this certificate. Axcelis Technologies, Inc. will
                  mail to the holder of this certificate a copy of the Rights
                  Agreement without charge after receipt of a written request
                  therefor. Under certain circumstances, as set forth in the
                  Rights Agreement, Rights issued to any Person who becomes an
                  Acquiring Person (as defined in the Rights Agreement) may
                  become null and void.

With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.

                  Section 4. FORM OF RIGHT CERTIFICATES. The Right Certificates
(and the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto and may have such marks of identification or

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designation and such legends, summaries or endorsements printed thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any applicable law or with
any rule or regulation made pursuant thereto or with any rule or regulation of
any stock exchange on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of Section 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-hundredths of a Preferred Share as shall be set forth therein at the price
per one one-hundredth of a Preferred Share set forth therein (the "Purchase
Price"), but the number of such one one-hundredths of a Preferred Share and the
Purchase Price shall be subject to adjustment as provided herein.

                  Section 5. COUNTERSIGNATURE AND REGISTRATION. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President, any of its Vice Presidents,
or its Treasurer, either manually or by facsimile signature, shall have affixed
thereto the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate,

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although at the date of the execution of this Rights Agreement any such person
was not such an officer.

                  Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.

                  Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF
RIGHT CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.
Subject to the provisions of Section 14 hereof, at any time after the close of
business on the Distribution Date, and at or prior to the close of business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the principal office of the
Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the
person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that

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may be imposed in connection with any transfer, split up, combination or
exchange of Right Certificates.

                  Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.

                  Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE
OF RIGHTS. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent,
together with payment of the Purchase Price for each one one-hundredth of a
Preferred Share as to which the Rights are exercised, at or prior to the
earliest of (i) the close of business on June ______, 2010 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as provided in
Section 23 hereof (the "Redemption Date"), or (iii) the time at which such
Rights are exchanged as provided in Section 24 hereof.

                  (b)      The Purchase Price for each one one-hundredth of a
Preferred Share purchasable pursuant to the exercise of a Right shall initially
be $____, and shall be subject to

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adjustment from time to time as provided in Section 11 or 13 hereof and shall be
payable in lawful money of the United States of America in accordance with
paragraph (c) below.

                  (c)      Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable transfer tax required to be paid by the holder
of such Right Certificate in accordance with Section 9 hereof by certified
check, cashier's check, money order or wire transfer payable to the order of the
Company, the Rights Agent shall thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Shares certificates for the number of Preferred
Shares to be purchased and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests, or (B) requisition from the
depositary agent depositary receipts representing such number of one
one-hundredths of a Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Company
hereby directs the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof, (iii)
after receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Right Certificate.

                  (d)      In case the registered holder of any Right
Certificate shall exercise less than all the Rights evidenced thereby, a new
Right Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder of

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such Right Certificate or to his duly authorized assigns, subject to the
provisions of Section 14 hereof.

                  Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Right Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.

                  Section 9. AVAILABILITY OF PREFERRED SHARES. The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.

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                  The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.

                  Section 10. PREFERRED SHARES RECORD DATE. Each person in whose
name any certificate for Preferred Shares is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
Preferred Shares represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; PROVIDED, HOWEVER, that if the date of such surrender and
payment is a date upon which the Preferred Shares transfer books of the Company
are closed, such person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Shares transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Shares for which
the Rights shall be exercisable, including, without limitation, the right to
vote, to receive dividends or other

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distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.

                  Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR
NUMBER OF RIGHTS. The Purchase Price, the number of Preferred Shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.

                  (a)(i)   In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, he would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; PROVIDED, HOWEVER, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right.

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                  (ii)     Subject to Section 24 of this Agreement, in the event
any Person becomes an Acquiring Person, each holder of a Right shall thereafter
have a right to receive, upon exercise thereof at a price equal to the then
current Purchase Price multiplied by the number of one one-hundredths of a
Preferred Share for which a Right is then exercisable, in accordance with the
terms of this Agreement and in lieu of Preferred Shares, such number of Common
Shares of the Company as shall equal the result obtained by (x) multiplying the
then current Purchase Price by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable and dividing that product by (y) 50%
of the then current per share market price of the Company's Common Shares
(determined pursuant to Section 11(d) hereof) on the date of the occurrence of
such event. In the event that any Person shall become an Acquiring Person and
the Rights shall then be outstanding, the Company shall not take any action
which would eliminate or diminish the benefits intended to be afforded by the
Rights.

                  From and after the occurrence of such event, any Rights that
are or were acquired or beneficially owned by any Acquiring Person (or any
Associate or Affiliate of such Acquiring Person) shall be void and any holder of
such Rights shall thereafter have no right to exercise such Rights under any
provision of this Agreement. No Right Certificate shall be issued pursuant to
Section 3 that represents Rights beneficially owned by an Acquiring Person whose
Rights would be void pursuant to the preceding sentence or any Associate or
Affiliate thereof; no Right Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate; and any Right
Certificate delivered to the Rights Agent for transfer to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence shall be
cancelled.

                                      -16-
<PAGE>   20

                  (iii)    In the event that there shall not be sufficient
issued but not outstanding Common Shares, or in the event that there shall not
sufficient authorized but unissued Common Shares, to permit the exercise in full
of the Rights in accordance with the foregoing subparagraph (ii), the Company
shall take all such action as may be necessary to authorize additional Common
Shares for issuance upon exercise of the Rights. In the event the Company shall,
after good faith effort, be unable to take all such action as may be necessary
to authorize such additional Common Shares, the Company shall substitute, for
each Common Share that would otherwise be issuable upon exercise of a Right, a
number of Preferred Shares or fraction thereof such that the current per share
market price of one Preferred Share multiplied by such number or fraction is
equal to the current per share market price of one Common Share as of the date
of issuance of such Preferred Shares or fraction thereof.

                  (b)      In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then current per share market price of the Preferred Shares (as defined in
Section 11(d)) on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of

                                      -17-
<PAGE>   21

Preferred Shares and/or equivalent preferred shares so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); PROVIDED, HOWEVER, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.

                  (c)      In case the Company shall fix a record date for the
making of a distribution to all holders of the Preferred Shares (including any
such distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date

                                      -18-
<PAGE>   22

by a fraction, the numerator of which shall be the then current per share market
price of the Preferred Shares on such record date, less the fair market value
(as determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent) of
the portion of the assets or evidences of indebtedness so to be distributed or
of such subscription rights or warrants applicable to one Preferred Share and
the denominator of which shall be such current per share market price of the
Preferred Shares; PROVIDED, HOWEVER, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record date
is fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.

                  (d)      (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the 30 consecutive Trading
Days (as such term is hereinafter defined) immediately prior to such date;
PROVIDED, HOWEVER, that in the event that the current per share market price of
the Security is determined during a period following the announcement by the
issuer of such Security of (A) a dividend or distribution on such Security
payable in shares of such Security or securities convertible into such shares,
or (B) any subdivision, combination or reclassification of such Security and
prior to the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to

                                      -19-
<PAGE>   23

reflect the current market price per share equivalent of such Security. The
closing price for each day shall be the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or such other system then in use, or, the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if on any such date
the Security is not listed or quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Security selected by the Board of Directors of the
Company. The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
open for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day.

                  (ii)     For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date

                                      -20-
<PAGE>   24

hereof), multiplied by one hundred. If neither the Common Shares nor the
Preferred Shares are publicly held or so listed or traded, "current per share
market price" shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent.

                  (e)      No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; PROVIDED, HOWEVER, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one one-millionth
of a Preferred Share or one ten-thousandth of any other share or security as the
case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the date of the expiration of the right to exercise any
Rights.

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

                                      -21-
<PAGE>   25

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

                  (h)      Unless the Company shall have exercised its election
as provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number
of one one-hundredths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.

                  (i)      The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of one one-hundredths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of

                                      -22-
<PAGE>   26

Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.

                  (j)      Irrespective of any adjustment or change in the
Purchase Price or the number of one one-hundredths of a Preferred Share issuable
upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the Purchase Price and the number of
one one-hundredths of a Preferred Share which were expressed in the initial
Right Certificates issued hereunder.

                  (k)      Before taking any action that would cause an
adjustment reducing the Purchase Price below one one-hundredth of the then par
value, if any, of the Preferred Shares issuable upon exercise of the Rights, the
Company shall take any corporate action which may, in

                                      -23-
<PAGE>   27

the opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable Preferred Shares at such adjusted
Purchase Price.

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

                  (m)      Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it in its sole discretion shall determine
to be advisable in order that any consolidation or subdivision of the Preferred
Shares, issuance wholly for cash of any Preferred Shares at less than the
current market price, issuance wholly for cash of Preferred Shares or securities
which by their terms are convertible into or exchangeable for Preferred Shares,
dividends on Preferred Shares payable in Preferred Shares or issuance of rights,
options or warrants referred to hereinabove in Section 11(b), hereafter made by
the Company to holders of its Preferred Shares shall not be taxable to such
stockholders.

                  (n)      In the event that at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i) declare or
pay any dividend on the Common Shares

                                      -24-
<PAGE>   28

payable in Common Shares or (ii) effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares) into a greater or lesser number of Common
Shares, then in any such case (A) the number of one one-hundredths of a
Preferred Share purchasable after such event upon proper exercise of each Right
shall be determined by multiplying the number of one one-hundredths of a
Preferred Share so purchasable immediately prior to such event by a fraction,
the numerator of which is the number of Common Shares outstanding immediately
before such event and the denominator of which is the number of Common Shares
outstanding immediately after such event, and (B) each Common Share outstanding
immediately after such event shall have issued with respect to it that number of
Rights which each Common Share outstanding immediately prior to such event had
issued with respect to it. The adjustments provided for in this Section 11(n)
shall be made successively whenever such a dividend is declared or paid or such
a subdivision, combination or consolidation is effected.

                  Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER
OF SHARES. Whenever an adjustment is made as provided in Section 11 or 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof.

                  Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF
ASSETS OR EARNING POWER. In the event, directly or indirectly, at any time after
a Person has become an Acquiring Person, (a) the Company shall consolidate with,
or merge with and into, any other Person, (b) any Person shall consolidate with
the Company, or merge with and into the Company and the

                                      -25-
<PAGE>   29

Company shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Shares shall be changed
into or exchanged for stock or other securities of any other Person (or the
Company) or cash or any other property, or (c) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person other than the Company or one or more of
its wholly-owned Subsidiaries, then, and in each such case, proper provision
shall be made so that (i) each holder of a Right (except as otherwise provided
herein) shall thereafter have the right to receive, upon the exercise thereof at
a price equal to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of such other Person (including the Company as
successor thereto or as the surviving corporation) as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (B) 50% of the then current per share market price of
the Common Shares of such other Person (determined pursuant to Section 11(d)
hereof) on the date of consummation of such consolidation, merger, sale or
transfer; (ii) the issuer of such Common Shares shall thereafter be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this Agreement; (iii) the
term "Company" shall thereafter be deemed to refer to such issuer; and (iv) such
issuer shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to

                                      -26-
<PAGE>   30

assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the Common Shares thereafter deliverable upon
the exercise of the Rights. The Company shall not consummate any such
consolidation, merger, sale or transfer unless prior thereto the Company and
such issuer shall have executed and delivered to the Rights Agent a supplemental
agreement so providing. The Company shall not enter into any transaction of the
kind referred to in this Section 13 if at the time of such transaction there are
any rights, warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights. The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.

                  Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, the last sale price, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock

                                      -27-
<PAGE>   31

Exchange or, if the Rights are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or, if
on any such date the Rights are not listed or quoted by any such organization,
the average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined in good faith by
the Board of Directors of the Company shall be used.

                  (b)      The Company shall not be required to issue fractions
of Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share).
Fractions of Preferred Shares in integral multiples of one one-hundredth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; PROVIDED, that such agreement shall provide that the
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-hundredth of a Preferred
Share, the Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of one Preferred Share. For the
purposes of this Section 14(b), the current market value of a Preferred Share
shall be the

                                      -28-
<PAGE>   32

closing price of a Preferred Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.

                  (c)      The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).

                  Section 15. RIGHTS OF ACTION. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.

                  Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:

                                      -29-
<PAGE>   33

                  (a)      prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;

                  (b)      after the Distribution Date, the Right Certificates
are transferable only on the registry books of the Rights Agent if surrendered
at the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and

                  (c)      the Company and the Rights Agent may deem and treat
the person in whose name the Right Certificate (or, prior to the Distribution
Date, the associated Common Shares certificate) is registered as the absolute
owner thereof and of the Rights evidenced thereby (notwithstanding any notations
of ownership or writing on the Right Certificates or the associated Common
Shares certificate made by anyone other than the Company or the Rights Agent)
for all purposes whatsoever, and neither the Company nor the Rights Agent shall
be affected by any notice to the contrary.

                  Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or

                                      -30-
<PAGE>   34

subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.

                  Section 18. CONCERNING THE RIGHTS AGENT. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense (including, without
limitation, the reasonable expenses of legal counsel), incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of its duties under this Agreement.

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

                  Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF
RIGHTS AGENT. Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to

                                      -31-
<PAGE>   35

which the Rights Agent or any successor Rights Agent shall be a party, or any
corporation succeeding to the stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; PROVIDED, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.

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

                  Section 20. RIGHTS AND DUTIES OF RIGHTS AGENT. The Rights
Agent undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by

                                      -32-
<PAGE>   36

all of which the Company and the holders of Right Certificates, by their
acceptance thereof, shall be bound:

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

                  (b)      Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.

                  (c)      The Rights Agent shall be liable hereunder to the
Company and any other Person only for its own negligence, bad faith or willful
misconduct.

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

                                      -33-
<PAGE>   37

                  (e)      The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any Right
Certificate; nor shall it be responsible for any change in the exercisability of
the Rights (including the Rights becoming void pursuant to Section 11(a)(ii)
hereof) or any adjustment in the terms of the Rights (including the manner,
method or amount thereof) provided for in Section 3, 11, 13, 23 or 24, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after actual notice that such change or adjustment is required);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Preferred Shares to be
issued pursuant to this Agreement or any Right Certificate or as to whether any
Preferred Shares will, when issued, be validly authorized and issued, fully paid
and nonassessable.

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

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

                                      -34-
<PAGE>   38

accordance with instructions of any such officer or for any delay
in acting while waiting for those instructions.

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

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

                  Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or

                                      -35-
<PAGE>   39

be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or of the States of Delaware or New York (or of any other state of the
United States so long as such corporation is authorized to do business as a
banking institution in the States of Delaware or New York), in good standing,
having an office in the States of Delaware or New York, which is authorized
under such laws to exercise corporate trust or stock transfer powers and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares or Preferred Shares, and mail a notice thereof in writing to
the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall

                                      -36-
<PAGE>   40

not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.

                  Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.

                  Section 23. REDEMPTION. (a) The Board of Directors of the
Company may, at its option, at any time prior to such time as any Person becomes
an Acquiring Person, redeem all but not less than all the then outstanding
Rights at a redemption price of $0.001 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such redemption price being hereinafter referred to as the
"Redemption Price"). The redemption of the Rights by the Board of Directors may
be made effective at such time, on such basis and with such conditions as the
Board of Directors in its sole discretion may establish.

                  (b)      Immediately upon the action of the Board of Directors
of the Company ordering the redemption of the Rights pursuant to paragraph (a)
of this Section 23, and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; PROVIDED, HOWEVER, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption.

                                      -37-
<PAGE>   41

Within 10 days after such action of the Board of Directors ordering the
redemption of the Rights, the Company shall mail a notice of redemption to all
the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
Neither the Company nor any of its Affiliates or Associates may redeem, acquire
or purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24 hereof, and other
than in connection with the purchase of Common Shares prior to the Distribution
Date.

                  Section 24. EXCHANGE. (a) The Board of Directors of the
Company may, at its option, at any time after any Person becomes an Acquiring
Person, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the provisions
of Section 11(a)(ii) hereof) for Common Shares at an exchange ratio of one
Common Share per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding
the foregoing, the Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, Eaton Corporation (only until the Eaton Separation Date), any
employee benefit plan of the Company or any such Subsidiary or any entity
holding Common Shares for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the Common Shares then outstanding.

                                      -38-
<PAGE>   42

                  (b)      Immediately upon the action of the Board of Directors
of the Company ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of Common Shares equal to
the number of such Rights held by such holder multiplied by the Exchange Ratio.
The Company shall promptly give public notice of any such exchange; PROVIDED,
HOWEVER, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.

                  (c)      In the event that there shall not be sufficient
Common Shares issued but not outstanding or authorized but unissued to permit
any exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exchange of the Rights. In the event the Company
shall, after good faith effort, be unable to take all such action as may be
necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exchange
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied

                                      -39-

<PAGE>   43

by such number or fraction is equal to the current per share market price of one
Common Share as of the date of issuance of such Preferred Shares or fraction
thereof.

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

                  Section 25. NOTICE OF CERTAIN EVENTS. (a) In case the Company
shall propose (i) to pay any dividend payable in stock of any class to the
holders of its Preferred Shares or to make any other distribution to the holders
of its Preferred Shares (other than a regular quarterly cash dividend), (ii) to
offer to the holders of its Preferred Shares rights or warrants to subscribe for
or to purchase any additional Preferred Shares or shares of stock of any class
or any other securities, rights or options, (iii) to effect any reclassification
of its Preferred Shares (other than a reclassification involving only the
subdivision of outstanding Preferred Shares), (iv) to effect any consolidation
or merger into or with, or to effect any sale or other transfer (or to permit
one or more of its Subsidiaries to effect any sale or other transfer), in one or
more transactions, of 50% or more of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to

                                      -40-
<PAGE>   44

effect a subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.

                  (b)      In case the event set forth in Section 11(a)(ii)
hereof shall occur, then the Company shall as soon as practicable thereafter
give to each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of the occurrence of such event, which notice shall describe
such event and the consequences of such event to holders of Rights under Section
11(a)(ii) hereof.

                  Section 26. NOTICES. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:

                                      -41-
<PAGE>   45

                           Axcelis Technologies, Inc.
                           55 Cherry Hill Drive
                           Beverly, Massachusetts  01915
                           Attention:  Office of the Secretary

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

                           Equiserve Trust Company N.A.
                           525 Washington Boulevard
                           Jersey City, New Jersey  07310
                           Attention:  Tenders and Exchanges

Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.

                  Section 27. SUPPLEMENTS AND AMENDMENTS. The Company may from
time to time supplement or amend this Agreement without the approval of any
holders of Right Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, or to make any other provisions with respect
to the Rights which the Company may deem necessary or desirable, any such
supplement or amendment to be evidenced by a writing signed by the Company and
the Rights Agent; PROVIDED, HOWEVER, that from and after such time as any Person
becomes an Acquiring Person, this Agreement shall not be amended in any manner
which would adversely affect the interests of the holders of Rights. Without
limiting the foregoing, the Board of Directors of the Company may at any time
prior to such time as any Person becomes an

                                      -42-
<PAGE>   46

Acquiring Person amend this Agreement to lower the thresholds set forth in
Sections 1(a) and 3(a) to not less than the greater of (i) the sum of .001% and
the largest percentage of the outstanding Common Shares then known by the
Company to be beneficially owned by any Person (other than the Company, any
Subsidiary of the Company, Eaton Corporation (only until the Eaton Separation
Date), any employee benefit plan of the Company or any Subsidiary of the Company
or any entity holding Common Shares for or pursuant to the terms of any such
plan) and (ii) 10%.

                  Section 28. SUCCESSORS. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.

                  Section 29. BENEFITS OF THIS AGREEMENT. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Shares) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares).

                  Section 30. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.

                                      -43-
<PAGE>   47

                  Section 31. GOVERNING LAW. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware, except that Sections 18-21 hereof shall be deemed
to be a contract made in accordance with the laws of the State of New York. For
all purposes this Agreement and those sections hereof shall be governed by and
construed in accordance with the laws of such States applicable to contracts to
be made and performed entirely within such States.

                  Section 32. COUNTERPARTS. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.

                  Section 33. DESCRIPTIVE HEADINGS. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.

                                      -44-
<PAGE>   48

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

Attest:                                          AXCELIS TECHNOLOGIES, INC.

By                                               By
  ----------------------------                     ----------------------------
     Title:  Secretary                             Title:

                                                 EQUISERVE TRUST COMPANY N.A.
Attest:                                              as Rights Agent

By                                               By
  ----------------------------                     ----------------------------
     Title:  Secretary                             Title:

                                      -45-
<PAGE>   49
                                                                      EXHIBIT A

                                      FORM

                                       of

                           CERTIFICATE OF DESIGNATIONS

                                       of

                     SERIES A PARTICIPATING PREFERRED STOCK

                                       of

                           AXCELIS TECHNOLOGIES, INC.

                         (Pursuant to Section 151 of the
                        Delaware General Corporation Law)

                  Axcelis Technologies, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (hereinafter
called the "Corporation"), hereby certifies that the following resolution was
adopted by the Board of Directors of the Corporation as required by Section 151
of the General Corporation Law at a meeting duly called and held on _______ __,
2000.

                  RESOLVED, that, pursuant to the authority granted to and
vested in the Board of Directors of this Corporation (hereinafter called the
"Board of Directors" or the "Board") in accordance with the provisions of the
Restated Certificate of Incorporation, the Board of Directors hereby creates a
series of Preferred Stock, par value $0.001 per share (the "Preferred Stock"),
of the Corporation and hereby states the designation and number of shares and
fixes the relative rights, preferences, and limitations thereof as follows:

                  Section 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series A Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be _________.

                  Section 2.  DIVIDENDS AND DISTRIBUTIONS.

                  (A) Subject to the rights of the holders of any shares of any
class of preferred stock ranking prior and superior to the Series A Preferred
Stock with respect to dividends, the holders of shares of Series A Preferred
Stock, in preference to the holders of Common Stock, par value $0.001 per share
(the "Common Stock"), of the Corporation, and of any other junior stock, shall
be entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends payable in cash
on the first day of March, June, September and December in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b)
subject to

                                      A-1
<PAGE>   50

the provision for adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions, other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

                  (B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.

                  (C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.

                  Section 3. VOTING RIGHTS. The holders of shares of Series A
Preferred Stock shall have the following voting rights:

                  (A) Each share of Series A Preferred Stock shall entitle the
holder thereof to one vote on all matters submitted to a vote of the
stockholders of the Corporation. The holders

                                      A-2
<PAGE>   51

of fractional Series A Preferred Stock shall not be entitled to any vote on any
matter submitted to a vote of the shareholders of the Corporation.

                  (B) The holders of Series A Preferred Stock shall be entitled
to elect two directors of the Corporation whenever dividends payable on any
series of Series A Preferred Stock shall be in default as qualified therein. For
purposes of the holders of Series A Preferred Stock exercising such right, the
provisions of the Corporation's By-Laws and other provisions of law shall apply,
as if the Series A Preferred Stock were the only class of shares of the
Corporation outstanding.

                  (C) Except as otherwise provided herein, in the Restated
Certificate of Incorporation, in any other Certificate of Amendment creating a
series of Preferred Stock or any similar stock, or by law, the holders of shares
of Series A Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of stockholders of the
Corporation.

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

                  Section 4.  CERTAIN RESTRICTIONS.

                  (A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:

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

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

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

                                      A-3
<PAGE>   52

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

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

                  Section 5. REACQUIRED SHARES. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Restated Certificate of Incorporation, or in any other
Certificate of Amendment creating a series of Preferred Stock or any similar
stock or as otherwise required by law.

                  Section 6. LIQUIDATION DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

                  Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common

                                      A-4
<PAGE>   53

Stock are exchanged for or changed into other stock or securities, cash and/or
any other property, then in any such case each share of Series A Preferred Stock
shall at the same time be similarly exchanged or changed into an amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.

                  Section 8. NO REDEMPTION. The shares of Series A Preferred
Stock shall not be redeemable except as provided in that certain Rights
Agreement dated as of June______, 2000 between Axcelis Technologies, Inc. and
Equiserve Trust Company N.A.

                  Section 9. RANK. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, on a parity
with any other series of Serial Preferred Shares and shall rank junior to any
series of any other class of preferred stock of the Corporation which by its
terms is senior to the Serial Preferred Shares.

                  Section 10. AMENDMENT. Subject to the provisions of Article 4
of the Corporation's Restated Certificate of Incorporation, the Corporation's
Restated Certificate of Incorporation shall not be amended, altered or repealed
in any manner which would affect adversely the voting powers, rights or
preferences of the holders of the Series A Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of at least two-thirds of
the outstanding shares of Series A Preferred Stock, voting together as a single
class.
                  IN WITNESS WHEREOF, this Certificate of Designation is
executed on behalf of the Corporation by the undersigned duly authorized officer
this ______ day of June____________, 2000.

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

Attest:

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

                                      A-5
<PAGE>   54

                                                                       EXHIBIT B

                            Form of Right Certificate

Certificate No. R-                                               ______ Rights

            NOT EXERCISABLE AFTER _________ __, ______ OR EARLIER IF
                  REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE
                SUBJECT TO REDEMPTION AT $0.001 PER RIGHT AND TO
            EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.

                                Right Certificate

                           AXCELIS TECHNOLOGIES, INC.

                  This certifies that ____________________________________, or
registered assigns, is the registered owner of the number of Rights set forth
above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement, dated as of _______ __, _____
(the "Rights Agreement"), between Axcelis Technologies, Inc., a Delaware
corporation (the "Company"), and Equiserve Trust Company N.A. (the "Rights
Agent"), to purchase from the Company at any time after the Distribution Date
(as such term is defined in the Rights Agreement) and prior to 5:00 P.M.,
Beverly, Massachusetts time, on _____ __, ____ at the principal office of the
Rights Agent, or at the office of its successor as Rights Agent, one
one-hundredth of a fully paid non-assessable share of Series A Participating
Preferred Stock, par value $0.001 per share (the "Preferred Shares"), of the
Company, at a purchase price of $___ per one one-hundredth of a Preferred Share
(the "Purchase Price"), upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase duly executed. The number of
Rights evidenced by this Right Certificate (and the number of one one-hundredths
of a Preferred Share which may be purchased upon exercise hereof) set forth
above, and the Purchase Price set forth above, are the number and Purchase Price
as of _____ __, ____, based on the Preferred Shares as constituted at such date.
As provided in the Rights Agreement, the Purchase Price and the number of one
one-hundredths of a Preferred Share which may be purchased upon the exercise of
the Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events.

                  This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned offices of the Rights Agent.

                  This Right Certificate, with or without other Right
Certificates, upon surrender at the principal office of the Rights Agent, may be
exchanged for another Right Certificate or Right

                                      B-1

<PAGE>   55

Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of Preferred Shares as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.

                  Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $0.001 per Right or (ii) may be exchanged in whole or in part for
Preferred Shares or shares of the Company's Common Stock, par value $0.001 per
share.

                  No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.

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

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

                  WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of _____________, 2000.

ATTEST:                                    AXCELIS TECHNOLOGIES, INC.

                                           By
--------------------------------             ---------------------------------

Countersigned:

Equiserve Trust Company, N.A.

By
  -----------------------------

                                      B-2
<PAGE>   56

                    Form of Reverse Side of Right Certificate

                               FORM OF ASSIGNMENT

                (To be executed by the registered holder if such
               holder desires to transfer the Right Certificate.)

                  FOR VALUE RECEIVED___________________________________________
hereby sells, assigns and transfers unto ______________________________________
_______________________________________________________________________________
                    (Please print name and address of transferee)

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

Dated:  ______________________, 2000

                                             __________________________________
                                                         Signature

Signature Guaranteed:

                  Signatures must be guaranteed by a participant in the
Securities Transfer Agent Medallion Program, the Stock Exchanges Medallion
Program or the New York Stock Exchange, Inc. Medallion Signature Program.

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

                  The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).

                                               ________________________________
                                                        Signature

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

                                     B-3
<PAGE>   57

             Form of Reverse Side of Right Certificate -- continued

                          FORM OF ELECTION TO PURCHASE

            (To be executed if holder desires to exercise Rights represented by
the Right Certificate.)

To:  AXCELIS TECHNOLOGIES, INC.

                  The undersigned hereby irrevocably elects to exercise
____________________ Rights represented by this Right Certificate to purchase
the Preferred Shares issuable upon the exercise of such Rights and requests that
certificates for such Preferred Shares be issued in the name of:

Please insert social security or other identifying number

-------------------------------------------------------------------------------
                         (Please print name and address)
-------------------------------------------------------------------------------

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

Please insert social security or other identifying number

-------------------------------------------------------------------------------
                         (Please print name and address)
-------------------------------------------------------------------------------

Dated:  ______________________, 2000

                                         --------------------------------------
                                                        Signature

                                      B-4

<PAGE>   58

Signature Guaranteed:

                  Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.

                                      B-5
<PAGE>   59

             Form of Reverse Side of Right Certificate -- continued

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

                  The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).

                                                  -----------------------------
                                                   Signature

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

                                     NOTICE

                  The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.

                  In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.

                                      B-6
<PAGE>   60

                                                                       EXHIBIT C

                 SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES

INTRODUCTION

                  On ______ __, 2000, the Board of Directors of Axcelis
Technologies, Inc. (the "Company") declared a dividend of one preferred share
purchase right (a "Right") for each outstanding common share, par value $0.001
per share (the "Common Shares"), of the Company. The dividend is payable on
_____ __, 2000 (the "Record Date") to the shareholders of record on that date.
The description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and Equiserve Trust Company N.A., as
Rights Agent (the "Rights Agent"). The Rights contain important "flip-over" and
"flip-in" features designed to protect the Company from unfair takeovers.

PURCHASE PRICE

                  Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Participating Preferred Stock,
par value $0.001 per share (the "Preferred Shares"), of the Company at a price
of $_____ per one one-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustment.

FLIP-OVER

                  If the Company is acquired in a merger or other business
combination or 50% or more of its consolidated assets or earning power are sold
after a person or group has become an Acquiring Person (as defined below), each
holder of a Right will thereafter have the right to receive, upon exercise, that
number of shares of common stock of the acquiring company which then will have a
market value of two times the exercise price of the Right.

FLIP-IN

                  If any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of Common Shares
having a market value of two times the exercise price of the Right.

TRANSFER AND DETACHMENT

                  Until the Distribution Date, the Rights will be evidenced,
with respect to any of the Common Share certificates outstanding as of the
Record Date, by such Common Share certificate with a copy of this Summary of
Rights attached thereto. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the Rights will be transferred with and only with the
Common Shares, and transfer of those certificates will also constitute transfer
of those Rights.

                                      C-1
<PAGE>   61

                  As soon as practicable following the Distribution Date,
separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the Common Shares as of the close of business on
the Distribution Date and such separate Right Certificates alone will thereafter
evidence the Rights.

DISTRIBUTION DATE

                  The "Distribution Date" is the earlier of:

                  (i) 10 days following a public announcement that a person or
         group of affiliated or associated persons (an "Acquiring Person") have
         acquired beneficial ownership of 20% or more of the outstanding Common
         Shares; or

                  (ii) 10 business days (or such later date as may be determined
         by action of the Board of Directors before any person or group becomes
         an Acquiring Person) following the commencement of, or announcement of
         an intention to make, a tender offer or exchange offer the consummation
         of which would result in the beneficial ownership by a person or group
         of 20% or more of the outstanding Common Shares.

EXERCISABILITY

                  The Rights are not exercisable until the Distribution Date.
The Rights will expire on _____ __, 2010 (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Rights are earlier redeemed
or exchanged by the Company, as described below.

ADJUSTMENTS

                  The Purchase Price, and the number of Preferred Shares or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution, in the event of:

                  (i) a stock dividend on, or a subdivision, combination or
         reclassification of, the Preferred Shares,

                  (ii) the grant to holders of the Preferred Shares of certain
         rights to subscribe for or purchase Preferred Shares at a price, or
         securities convertible into Preferred Shares with a conversion price,
         less than the then-current market price of the Preferred Shares, or

                  (iii) the distribution to holders of the Preferred Shares of
         evidences of indebtedness or assets (excluding regular periodic cash
         dividends paid out of earnings or retained earnings or dividends
         payable in Preferred Shares) or of subscription rights or warrants
         (other than those referred to above).

                  The number of outstanding Rights is also subject to adjustment
upon certain occurrences prior to the Distribution Date.

                  With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at least
1% in such Purchase Price. No

                                      C-2
<PAGE>   62

fractional Preferred Shares will be issued (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.

PREFERRED SHARES

                  Preferred Shares purchasable upon exercise of the Rights will
not be redeemable. Each Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1 per share but will be entitled to
an aggregate dividend of 100 times the dividend declared per Common Share. In
the event of liquidation, the holders of the Preferred Shares will be entitled
to a minimum preferential liquidation payment of $100 per share but will be
entitled to an aggregate payment of 100 times the payment made per Common Share.
Each Preferred Share will have one vote, voting together with the Common Shares.
Finally, in the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share will be entitled to receive
100 times the amount received per Common Share. The dividend and liquidation
rights and rights upon a merger, consolidation or other transaction are
protected by customary antidilution provisions.

                  The value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should, because of the nature of
the Preferred Shares' dividend and liquidation rights, approximate the value of
one Common Share.

EXCHANGE

                  At any time after any person or group becomes an Acquiring
Person, and prior to the acquisition by that person or group of 50% or more of
the outstanding Common Shares, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by the Acquiring Person, which will
have become void), in whole or in part, at an exchange ratio of one Common
Share, or one one-hundredth of a Preferred Share (or of a share of a class or
series of the Company's preferred stock having equivalent rights, preferences
and privileges), per Right (subject to adjustment).

REDEMPTION

                  At any time prior to any person or group becoming an Acquiring
Person, the Board of Directors of the Company may redeem all the Rights at a
price of $0.001 per Right (the "Redemption Price"). The redemption may be made
effective at such time, on such basis and with such conditions as the Board of
Directors in its sole discretion may establish. Immediately upon any redemption,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.

AMENDMENTS

                  The terms of the Rights may be amended by the Board of
Directors of the Company without the consent of the holders of the Rights,
including an amendment to lower the 20% threshold described above to not less
than the greater of (i) the sum of 0.001% and the largest percentage of the
outstanding Common Shares then known to the Company to be

                                      C-3
<PAGE>   63

beneficially owned by any person or group of affiliated or associated persons
and (ii) 10%, except that after any person or group becomes an Acquiring Person
no such amendment may adversely affect the interests of the holders of the
Rights.

RIGHTS AS HOLDERS

                  Until a Right is exercised, the holder thereof, as such, will
have no rights as a shareholder of the Company, including, without limitation,
the right to vote or to receive dividends.

FURTHER INFORMATION

                  A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Registration Statement on
Form 8-A dated ____________, 2000. A copy of the Rights Agreement is available
free of charge from the Company's Shareholder Relations Department. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement, which is hereby incorporated
herein by reference.

                                      C-4<PAGE>   1
                                                                  Exhibit - 10.1

                       FORM OF AXCELIS TECHNOLOGIES, INC.
                                 2000 STOCK PLAN

                                    ARTICLE I

                        PURPOSE AND ADOPTION OF THE PLAN

         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.

                                   ARTICLE II
                                   DEFINITIONS

         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

<PAGE>   2

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 after Eaton Corporation
disposes of substantially all of its interest in the Company:

                  (a) 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 25% or more of
                  either (i) the then outstanding shares of common stock of the
                  Company (the "Outstanding Company Common Stock") or (ii) the
                  combined voting power of the then outstanding voting
                  securities of the Company entitled to vote generally in the
                  election of directors (the "Outstanding Company Voting
                  Securities"); provided, however, that for purposes of this
                  subsection (a), the following acquisitions shall not
                  constitute a Change of Control: (i) any acquisition directly
                  from the Company, (ii) any acquisition by the Company, or
                  (iii) any acquisition by any employee benefit plan (or related
                  trust) sponsored or maintained by the Company or any
                  corporation controlled by the Company; or

                  (b) Individuals who, as of the date hereof, constitute the
                  Board (the "Incumbent Board") cease for any reason to
                  constitute at least a majority of the Board; provided,
                  however, that any individual becoming a director subsequent to
                  the date hereof whose election, or nomination for election by
                  the Company's shareholders, was approved by a vote of at least
                  two-thirds of the directors then comprising the Incumbent
                  Board shall be considered as though such individual were a
                  member of the Incumbent Board, but excluding, for this
                  purpose, any such individual whose initial assumption of
                  office occurs as a result of an actual or threatened election
                  contest with respect to the election or removal of directors
                  or other actual or threatened solicitation of proxies or
                  consents by or on behalf of a Person other than the Board; or

                  (c) Consummation by the Company of a reorganization, merger or
                  consolidation or sale or other disposition of all or
                  substantially all of the assets of the Company or the
                  acquisition of assets of another corporation (a "Business
                  Combination"), in each case, unless, following such Business
                  Combination, (i) all or substantially all of the individuals
                  and entities who were the beneficial owners, respectively, of
                  the Outstanding Company Common Stock and Outstanding Company
                  Voting Securities immediately prior to such Business
                  Combination beneficially own, directly or indirectly, more
                  than 75% of, respectively, the then outstanding shares of
                  common stock and the combined voting power of the then
                  outstanding voting securities entitled to vote generally in
                  the election of directors, as the case may be, of the
                  corporation resulting from such Business Combination
                  (including, without limitation, a corporation which as a
                  result of such transaction

                                       2
<PAGE>   3

                  owns the Company or all or substantially all of the Company's
                  assets either directly or through one or more subsidiaries) in
                  substantially the same proportions as their ownership,
                  immediately prior to such Business Combination of the
                  Outstanding Company Common Stock and Outstanding Company
                  Voting Securities, as the case may be, (ii) no Person
                  (excluding any employee benefit plan (or related trust) of the
                  Company or such corporation resulting from such Business
                  Combination) beneficially owns, directly or indirectly, 25% or
                  more of, respectively, the then outstanding shares of common
                  stock of the corporation resulting from such Business
                  Combination or the combined voting power of the then
                  outstanding voting securities of such corporation except to
                  the extent that such ownership existed prior to the Business
                  Combination and (iii) at least a majority of the members of
                  the board of directors of the corporation resulting from such
                  Business Combination were members of the Incumbent Board at
                  the time of the execution of the initial agreement, or of the
                  action of the Board, providing for such Business Combination;
                  or

                  (d) Approval by the shareholders of the Company of a complete
                  liquidation or dissolution of the Company.

Neither the initial public offering of common stock of the Company nor the
disposition by Eaton of all or any portion of its interest in the Company shall
be a Change in Control for purposes of this Agreement.

         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.

                                       3

<PAGE>   4

         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 or of Eaton Corporation. A member of the Board
who is an employee of Eaton Corporation shall be deemed a Non-Employee Director
upon the earlier to occur of (i) his or her Retirement from Eaton Corporation or
(ii) the date at which Eaton Corporation's ownership of the Common Stock of the
Company is less than 20% of all then outstanding shares of Common Stock of the
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 or
Eaton Corporation 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.

                                       4
<PAGE>   5

         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.

                                   ARTICLE III

                                 ADMINISTRATION

         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

                                       5
<PAGE>   6

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.

                                   ARTICLE IV

                                     SHARES

         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.

         4.03 SPECIAL SECTION 368(c) LIMITATION. Notwithstanding any other
provision of this Plan to the contrary, no award shall be converted into shares
of Common Stock (including, but not limited to, upon exercise of an Option) if
the effect of such conversion would cause Eaton Corporation to not be in control
of the Company for purposes of Section 368(c) of the Code or prevent Eaton
Corporation from filing a consolidated federal income tax return with the
Company. Any purported conversion (including, but not limited to, an attempt to
exercise an Option) shall be void and without force or effect. The Award
purported to be converted into shares of Common Stock shall remain outstanding
without any change in rights or obligations or the Participant or the Company.
No cash or other form of consideration shall be paid or delivered in connection
with any conversion prevented by this limitation. If Eaton disposes of all or
substantially all of its interest in the Company, this Section 4.03 shall be
without further force or effect.

                                       6
<PAGE>   7

                                    ARTICLE V

                                  PARTICIPATION

         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.

                                   ARTICLE VI

                   STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

6.01 OPTION AWARDS.

         (a) GRANT OF OPTIONS. The Board may grant, to such Participants as the
Board may select, Options entitling the Participants to purchase shares of
Common Stock from the Company in such numbers, at such prices, and on such terms
and subject to such conditions, not inconsistent with the terms of the Plan, as
may be established by the Board. The terms of any Option granted under the Plan
shall be set forth in an Award Agreement. 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, except that in his or her initial year of service, a Participant
may be granted an Option to purchase up to 1,250,000 shares of Common Stock.

         (b) NON-EMPLOYEE DIRECTOR OPTIONS. As of the date of the initial public
offering of the Common Stock of the Company, each person then serving as a
Non-Employee Director shall be automatically granted a Non-Qualified Stock
Option to purchase 24,000 shares of Common Stock. Each calendar year thereafter
that a Non-Employee Director is then serving as a Non-Employee Director, he or
she will be granted a Non-Qualified Stock Option to purchase 12,000 shares of
Common Stock of the Company as of the day in such year that grants of options or
other Awards are first considered. Each such option shall be evidenced by a
written Award Agreement that shall set forth the following terms:

                  (1) The per share Purchase Price shall be equal to the Fair
Market Value of a share of Common Stock on the date of grant;

                  (2)  The Option shall expire on the 10th anniversary of the
date of grant;

                  (3) The Option shall be fully vested on the 181st day after
the date of grant; and

                  (4) The Option shall be exercisable in accordance with Section
6.04 of this Plan but subject to Section 4.03 of this Plan.

                                       7
<PAGE>   8

         If a member of the Board of Directors becomes a Non-Employee Director
(including as a result of the operation of the second or third sentences of
Section 2.19 of this Plan) on a day other than the day of the initial public
offering of the Common Stock of the Company, (i) he or she shall be granted a
Non-Qualified Option to purchase up to 24,000 shares of Common Stock as of the
date he or she first becomes a Non-Employee Director subject to the terms set
forth in (1) through (4) above and (ii) he or she shall be eligible to receive a
grant of a Non-Qualified Stock Option as provided above on the day in the
subsequent calendar year and each calendar year thereafter on which grants of
options or other Awards under this Plan are first considered as long as he or
she serves as a Non-Employee Director. Nothing set forth in this section shall
prevent the Board from considering Non-Employee Directors for other awards under
this Plan and from making any Awards to Non-Employee Directors.

         (c) PURCHASE PRICE OF OPTIONS. Subject to Section 6.01(e) with respect
to certain Incentive Stock Options, the Purchase Price of each share of Common
Stock which may be purchased upon exercise of any Option granted under the Plan
shall be determined by the Board; provided, however, that the Purchase Price
shall in all cases be equal to or greater than the Fair Market Value on the Date
of Grant.

         (d)) DESIGNATION OF OPTIONS. Except as otherwise expressly provided in
the Plan, the Board may designate, at the time of the grant of an Option, such
Option as an Incentive Stock Option or a Non-Qualified Stock Option; provided,
however, that an Option may be designated as an Incentive Stock Option only if
the applicable Participant is an employee of the Company or a Subsidiary on the
Date of Grant.

         (e) SPECIAL INCENTIVE STOCK OPTION RULES. No Participant may be granted
Incentive Stock Options under the Plan (or any other plans of the Company and
its Subsidiaries) that would result in Incentive Stock Options to purchase
shares of Common Stock with an aggregate Fair Market Value (measured on the Date
of Grant) of more than $100,000 first becoming exercisable by such Participant
in any one calendar year. Notwithstanding any other provision of the Plan to the
contrary, no Incentive Stock Option shall be granted to any person who, at the
time the Option is granted, owns stock (including stock owned by application of
the constructive ownership rules in Section 424(d) of the Code) possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary, unless at the time the Incentive Stock Option is
granted the Option price is at least 110% of the Fair Market Value of the Common
Stock subject to the Incentive Stock Option and the Incentive Stock Option by
its terms is not exercisable for more than five (5) years from the Date of
Grant.

         (f) RIGHTS AS A SHAREHOLDER. A Participant or a transferee of an Option
pursuant to Section 9.04 shall have no rights as a shareholder with respect to
the shares of Common Stock covered by an Option until that Participant or
transferee shall have become the holder of record of any such shares, and no
adjustment shall be made with respect to any such shares of Common Stock for
dividends in cash or other property or distributions of other rights on the
Common Stock for which the record date is prior to the date on which that
Participant or transferee shall have become the holder of record of any shares
covered by such Option; provided, however, that Participants are entitled to
share adjustments to reflect capital changes under Section 9.07.

                                       8
<PAGE>   9

6.02 STOCK APPRECIATION RIGHTS.

         (a) STOCK APPRECIATION RIGHT AWARDS. The Board is authorized to grant
to any Participant one or more Stock Appreciation Rights. Such Stock
Appreciation Rights may be granted either independent of or in tandem with
Options granted to the same Participant. Stock Appreciation Rights granted in
tandem with Options may be granted simultaneously with, or, in the case of
Non-Qualified Stock Options, subsequent to, the grant to such Participant of the
related Options; provided, however, that: (i) any Option covering any share of
Common Stock shall expire and not be exercisable upon the exercise of any Stock
Appreciation Right with respect to the same share, (ii) any Stock Appreciation
Right covering any share of Common Stock shall expire and not be exercisable
upon the exercise of any Option with respect to the same share, and (iii) an
Option and a Stock Appreciation Right covering the same share of Common Stock
may not be exercised simultaneously. Upon exercise of a Stock Appreciation Right
with respect to a share of Common Stock, the Participant shall be entitled to
receive an amount equal to the excess, if any, of (A) the Fair Market Value of a
share of Common Stock on the date of exercise over (B) the Exercise Price of
such Stock Appreciation Right established in the Award Agreement, which amount
shall be payable as provided in Section 6.02(c).

         (b) EXERCISE PRICE. The Exercise Price established for any Stock
Appreciation Right granted under this Plan shall be determined by the Board, but
in the case of Stock Appreciation Rights granted in tandem with Options shall
not be less than the Purchase Price of the related Options. Upon exercise of
Stock Appreciation Rights, the number of shares issuable upon exercise under any
related Options shall automatically be reduced by the number of shares of Common
Stock represented by such Options which are surrendered as a result of the
exercise of such Stock Appreciation Rights.

         (c) PAYMENT OF INCREMENTAL VALUE. Any payment that may become due from
the Company by reason of a Participant's exercise of a Stock Appreciation Right
may be paid to the Participant as determined by the Board (i) all in cash, (ii)
all in Common Stock, or (iii) in any combination of cash and Common Stock. In
the event that all or a portion of the payment is to be made in Common Stock,
the number of shares of Common Stock to be delivered in satisfaction of such
payment shall be determined by dividing the amount of such payment or portion
thereof by the Fair Market Value on the date of exercise . No fractional share
of Common Stock shall be issued to make any payment in respect of Stock
Appreciation Rights; if any fractional share would otherwise be issuable, the
combination of cash and Common Stock payable to a Participant shall be adjusted
as directed by the Board to avoid the issuance of any fractional share.

                                       9
<PAGE>   10

6.03 TERMS OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.

         (a) CONDITIONS ON EXERCISE. In addition to the conditions imposed under
Section 4.03 of this Plan, an Award Agreement with respect to Options and/or
Stock Appreciation Rights may contain such waiting periods, exercise dates and
restrictions on exercise (including, but not limited to, periodic installments)
as may be determined by the Board at the time of grant. Without limiting the
applicability of Section 4.03, no Option shall be exercisable prior to the date
of consummation of a disposition by Eaton Corporation of all or substantially
all of its interest in the Company.

         (b) DURATION OF OPTIONS AND STOCK APPRECIATION RIGHTS. Options and
Stock Appreciation Rights shall terminate after the first to occur of the
following events:

                  (i) Expiration of the Option or Stock Appreciation Right as
         provided in the related Award Agreement; or

                  (ii) Termination of the Award as provided in Section 6.03(e),
         following the applicable Participant's Termination of Employment; or

                  (iii) In the case of an Incentive Stock Option, ten years from
         the Date of Grant (five years in certain cases, as described in Section
         6.01(e)) Non-Qualified Stock Options may, if so approved by the Board,
         have a stated term in excess of ten years, but such Options shall in
         all events be subject to termination in accordance with clauses (i) and
         (ii) above); or

                  (iv) Solely in the case of a Stock Appreciation Right granted
         in tandem with an Option, upon the expiration of the related Option.

         (c) ACCELERATION OF EXERCISE TIME. The Board, in its sole discretion,
shall have the right (but shall not in any case be obligated), exercisable at
any time after the Date of Grant, to permit the exercise of any Option or Stock
Appreciation Right prior to the time such Option or Stock Appreciation Right
would otherwise become exercisable under the terms of the related Award
Agreement.

         (d) EXTENSION OF EXERCISE TIME. In addition to the extensions permitted
under Section 6.03(e) in the event of Termination of Employment, the Board, in
its sole discretion, shall have the right (but shall not in any case be
obligated), exercisable on or at any time after the Date of Grant, to permit the
exercise of any Option or Stock Appreciation Right after its expiration date
described in Section 6.03(e), subject, however, to the limitations described in
Sections 6.03(b)(i), (iii) and (iv).

         (e) EXERCISE OF OPTIONS OR STOCK APPRECIATION RIGHTS UPON TERMINATION
OF EMPLOYMENT. Unless an Optionee's Award Agreement provides otherwise, the
following rules shall govern the treatment of Options and Stock Appreciation
Rights upon Termination of Employment:

                                       10
<PAGE>   11

                  (i) TERMINATION OF VESTED OPTIONS AND STOCK APPRECIATION
RIGHTS UPON TERMINATION OF EMPLOYMENT.

                           (a) REASONS OTHER THAN DEATH, DISABILITY OR
                  RETIREMENT. In the event of a Participant's voluntary or
                  involuntary Termination of Employment for any reason other
                  than death, Disability or Retirement, the right of the
                  Participant to exercise any Option or Stock Appreciation Right
                  shall terminate on the date of such Termination of Employment,
                  unless the exercise period is extended by the Board in
                  accordance with Section 6.03(d).

                           (b) DEATH, DISABILITY OR RETIREMENT. In the event of
                  a Participant's Termination of Employment by reason of death,
                  Disability or Retirement, the right of the Participant to
                  exercise any Option or Stock Appreciation Right which he or
                  she was entitled to exercise upon Termination of Employment
                  (or which became exercisable pursuant to Section 6.03(e)(ii))
                  shall, unless the exercise period is extended by the Board in
                  accordance with Section 6.03(d), terminate upon the earlier of
                  (i) the later to occur of (A) first anniversary of the date of
                  such Termination of Employment and (B) the first anniversary
                  of the date of consummation of a public offering of the Common
                  Stock and (ii) the date of expiration of the Option determined
                  pursuant to Section 6.03(b)(i), (iii) or (iv).

                  (ii) TERMINATION OF UNVESTED OPTIONS OR STOCK APPRECIATION
         RIGHTS UPON TERMINATION OF EMPLOYMENT. Subject to Section 6.03(c), to
         the extent the right to exercise an Option or a Stock Appreciation
         Right, or any portion thereof, has not accrued as of the date of
         Termination of Employment, such right shall expire at the date of such
         Termination of Employment regardless of the reason for such Termination
         of Employment. Notwithstanding the foregoing, the Board, in its sole
         discretion and under such terms as it deems appropriate, may permit,
         for a Participant who terminates employment by reason of Retirement and
         who will continue to render significant services to the Company or one
         of its Subsidiaries after his or her Termination of Employment, the
         continued vesting of his or her Options and Stock Appreciation Rights
         during the period in which that individual continues to render such
         services.

         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

                                       11
<PAGE>   12

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.

                                   ARTICLE VII

                                RESTRICTED SHARES

         7.01 RESTRICTED SHARE AWARDS. Subject to Section 4.03 of this Plan, 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.

                  (a) ISSUANCE OF RESTRICTED SHARES. As soon as practicable
         after the Date of Grant of a Restricted Share Award by the Board, the
         Company shall cause to be transferred on the books of the Company or
         its agent, shares of Common Stock, registered on behalf of the
         Participant, evidencing the Restricted Shares covered by the Award,
         subject to forfeiture to the Company as of the Date of Grant if an
         Award Agreement with respect to the Restricted Shares covered by the
         Award is not duly executed by the Participant and timely returned to
         the Company. All shares of Common Stock covered by Awards under this
         Article VII shall be subject to the restrictions, terms and conditions
         contained in the Plan and the applicable Award Agreements entered into
         by the appropriate Participants. Until the lapse or release of all
         restrictions applicable to an Award of Restricted Shares the share
         certificates representing such Restricted Shares may be held in custody
         by the Company, its designee, or, if the certificates bear a
         restrictive legend, by the Participant. Upon the lapse or release of
         all restrictions with respect to an Award as described in

                                       12
<PAGE>   13

         Section 7.01(d), one or more share certificates, registered in the name
         of the Participant, for an appropriate number of shares as provided in
         Section 7.01(d), free of any restrictions set forth in the Plan and the
         related Award Agreement shall be delivered to the Participant.

                  (b) SHAREHOLDER RIGHTS. Beginning on the Date of Grant of a
         Restricted Share Award and subject to execution of the related Award
         Agreement as provided in Section 7.01(a), and except as otherwise
         provided in such Award Agreement, the Participant shall become a
         shareholder of the Company with respect to all shares subject to the
         Award Agreement and shall have all of the rights of a shareholder,
         including, but not limited to, the right to vote such shares and the
         right to receive dividends; provided, however, that any shares of
         Common Stock distributed as a dividend or otherwise with respect to any
         Restricted Shares as to which the restrictions have not yet lapsed,
         shall be subject to the same restrictions as such Restricted Shares and
         held or restricted as provided in Section 7.01(a).

                  (c) RESTRICTION ON TRANSFERABILITY. None of the Restricted
         Shares may be assigned or transferred (other than by will or the laws
         of descent and distribution or to an inter vivos trust with respect to
         which the Participant is treated as the owner under Sections 671
         through 677 of the Code), pledged or sold prior to the lapse of the
         restrictions applicable thereto.

                  (d) DELIVERY OF SHARES UPON VESTING. Upon expiration or
         earlier termination of the forfeiture period without a forfeiture and
         the satisfaction of or release from any other conditions prescribed by
         the Board, or at such earlier time as provided under the provisions of
         Section 7.03, the restrictions applicable to the Restricted Shares
         shall lapse. As promptly as administratively feasible thereafter,
         subject to the requirements of Section 9.05, the Company shall deliver
         to the Participant or, in case of the Participant's death, to the
         Participant's Beneficiary, one or more share certificates for the
         appropriate number of shares of Common Stock, free of all such
         restrictions, except for any restrictions that may be imposed by law.

         7.02 TERMS OF RESTRICTED SHARES.

                  (a) FORFEITURE OF RESTRICTED SHARES. Subject to Sections
         7.02(b) and 7.03, Restricted Shares shall be forfeited and returned to
         the Company and all rights of the Participant with respect to such
         Restricted Shares shall terminate unless the Participant continues in
         the service of the Company or a Subsidiary as an employee until the
         expiration of the forfeiture period for such Restricted Shares and
         satisfies any and all other conditions set forth in the Award
         Agreement. The Board shall determine the forfeiture period (which may,
         but need not, lapse in installments) and any other terms and conditions
         applicable with respect to any Restricted Share Award.

                  (b) WAIVER OF FORFEITURE PERIOD. Notwithstanding anything
         contained in this Article VII to the contrary, the Board may, in its
         sole discretion, waive the forfeiture period and any other conditions
         set forth in any Award Agreement under appropriate

                                       13
<PAGE>   14

         circumstances (including the death, Disability or Retirement of the
         Participant or a material change in circumstances arising after the
         date of an Award) and subject to such terms and conditions (including
         forfeiture of a proportionate number of the Restricted Shares) as the
         Board shall deem appropriate.

                  (c) REPURCHASE RIGHTS. The Board may, but shall not be
         required to, grant to Participants who promptly inform the Board of
         their intention to elect federal income taxation under Section 83(b) of
         the Code, the right to require the Company to repurchase upon their
         termination of employment for any reason other than cause the shares
         for which federal income tax treatment under Section 83(b) of the Code
         was elected. Such repurchase right, if granted, may be exercised by the
         Participant at any time after his or her termination of employment at a
         price to be determined by the Board at the date of grant but in no
         event greater than the fair market value of such shares at the time
         federal income tax treatment under Section 83(b) of the Code was
         elected.

         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).

                                  ARTICLE VIII

                               PERFORMANCE AWARDS

         8.01     PERFORMANCE AWARDS.

                  (a) AWARD PERIODS AND CALCULATIONS OF POTENTIAL INCENTIVE
         AMOUNTS. Subject to Section 4.03 of this Plan, the Board may grant
         Performance Awards to Participants. A Performance Award shall consist
         of the right to receive a payment (measured by the Fair Market Value of
         a specified number of shares of Common Stock, increases in such Fair
         Market Value during the Award Period and/or a fixed cash amount)
         contingent upon the extent to which certain predetermined performance
         targets have been met during an Award Period. Performance Awards may be
         made in conjunction with, or in addition to, any other Awards made
         under this Plan. The Award Period shall be two or more fiscal or
         calendar years as determined by the Board. The Board, in its discretion
         and under such terms as it deems appropriate, may permit newly eligible
         employees, such as those who are promoted or newly hired, to receive
         Performance Awards after an Award Period has commenced.

                  (b) PERFORMANCE TARGETS. The performance targets may include
         such goals related to the performance of the Company and/or the
         performance of a Participant as may be established by the Board in its
         discretion. The performance targets established by the Board may vary
         for different Award Periods and need not be the same for each
         Participant receiving a Performance Award in an Award Period. The
         Board, in its discretion, but only under extraordinary circumstances as
         determined by the Board, may

                                       14
<PAGE>   15

         change any prior determination of performance targets for any Award
         Period at any time prior to the final determination of the value of a
         related Performance Award when events or transactions occur to cause
         such performance targets to be an inappropriate measure of achievement.

                  (c) EARNING PERFORMANCE AWARDS. The Board, on or as soon as
         practicable after the Date of Grant, shall prescribe a formula to
         determine the percentage of the applicable Performance Award to be
         earned based upon the degree of attainment of performance targets.

                  (d) PAYMENT OF EARNED PERFORMANCE AWARDS. Payments of earned
         Performance Awards shall be made in cash or shares of Common Stock or a
         combination of cash and shares of Common Stock, in the discretion of
         the Board. The Board, in its sole discretion, may provide such terms
         and conditions with respect to the payment of earned Performance Awards
         as it may deem desirable.

         8.02 TERMS OF PERFORMANCE AWARDS.

                  (a) TERMINATION OF EMPLOYMENT. Unless otherwise provided below
         or in Section 8.03, in the case of a Participant's Termination of
         Employment prior to the end of an Award Period, the Participant will
         not have earned any Performance Awards for that Award Period.

                  (b) RETIREMENT. If a Participant's Termination of Employment
         is because of Retirement prior to the end of an Award Period, the
         Participant will not be paid any Performance Award, unless the Board,
         in its sole and exclusive discretion, determines that an Award should
         be paid. In such a case, the Participant shall be entitled to receive a
         pro-rata portion of his or her Award as determined under subsection
         (d).

                  (c) DEATH OR DISABILITY. If a Participant's Termination of
         Employment is due to death or to Disability (as determined in the sole
         and exclusive discretion of the Board) prior to the end of an Award
         Period, the Participant or the Participant's personal representative
         shall be entitled to receive a pro-rata share of his or her Award as
         determined under subsection (d).

                  (d) PRO-RATA PAYMENT. The amount of any payment to be made to
         a Participant whose employment is terminated by Retirement, death or
         Disability (under the circumstances described in subsections (b) and
         (c)) will be the amount determined by multiplying (i) the amount of the
         Performance Award that would have been earned through the end of the
         Award Period had such employment not been terminated by (ii) a
         fraction, the numerator of which is the number of whole months such
         Participant was employed during the Award Period, and the denominator
         of which is the total number of months of the Award Period. Any such
         payment made to a Participant whose employment is terminated prior to
         the end of an Award Period shall be made at the end of such Award
         Period, unless otherwise determined by the Board in its sole
         discretion. Any partial payment previously made or credited to a
         deferred account for the benefit of a

                                       15
<PAGE>   16

         Participant in accordance with Section 8.01(d) of the Plan shall be
         subtracted from the amount otherwise determined as payable as provided
         in this Section 8.02(d).

                  (e) OTHER EVENTS. Notwithstanding anything to the contrary in
         this Article VIII, the Board may, in its sole and exclusive discretion,
         determine to pay all or any portion of a Performance Award to a
         Participant who has terminated employment prior to the end of an Award
         Period under certain circumstances (including the death, Disability or
         Retirement of the Participant or a material change in circumstances
         arising after the Date of Grant), subject to such terms and conditions
         as the Board shall deem appropriate.

         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.

                                   ARTICLE IX

              TERMS APPLICABLE TO ALL AWARDS GRANTED UNDER THE PLAN

         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

                                       16
<PAGE>   17

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.

         9.06 REDEMPTION OF AWARDS. Upon ten (10) days' prior written notice to
a Participant, the Company, by action of the Board, may redeem any Award granted
under the Plan, whether or not vested, in the manner described below. In the
case of an Option or Stock Appreciation Right, the redemption shall be for an
amount in cash or other consideration determined by the Board equal to the
excess of (i) the aggregate Fair Market Value of the shares of Common Stock
subject to such Option or Stock Appreciation Right over (ii) the aggregate
Purchase Price of such Option or Exercise Price of such Stock Appreciation
Right. In the case of Restricted Shares and Performance Awards, the redemption
shall be for an amount in cash or other consideration determined by the Board
equal to the aggregate Fair Market Value of the shares of Common Stock subject
to such Award.

         9.07 ADJUSTMENTS TO REFLECT CAPITAL CHANGES.

                  (a) RECAPITALIZATION. The number and kind of shares subject to
         outstanding Awards, the Purchase Price or Exercise Price for such
         shares, the number and kind of shares available for Awards subsequently
         granted under the Plan and the maximum number of shares in respect of
         which Awards can be made to any Participant in any calendar year shall
         be appropriately adjusted to reflect any stock dividend, stock split,
         combination or exchange of shares, merger, consolidation or other
         change in capitalization with a similar substantive effect upon the
         Plan or the Awards granted under the Plan. The Board shall have the
         power and sole discretion to determine the amount of the adjustment to
         be made in each case.

                                       17
<PAGE>   18

                  (b) MERGER. After any Merger in which the Company is the
         surviving corporation, each Participant shall, at no additional cost,
         be entitled upon any exercise of an Option or receipt of any other
         Award to receive (subject to any required action by shareholders), in
         lieu of the number of shares of Common Stock receivable or exercisable
         pursuant to such Award prior to such Merger, the number and class of
         shares or other securities to which such Participant would have been
         entitled pursuant to the terms of the Merger if, at the time of the
         Merger, such Participant had been the holder of record of a number of
         shares of Common Stock equal to the number of shares of Common Stock
         receivable or exercisable pursuant to such Award. Comparable rights
         shall accrue to each Participant in the event of successive Mergers of
         the character described above. In the event of a Merger in which the
         Company is not the surviving corporation, the surviving, continuing,
         successor or purchasing corporation, as the case may be (the "Acquiring
         Corporation"), will either assume the Company's rights and obligations
         under outstanding Award Agreements or substitute awards in respect of
         the Acquiring Corporation's stock for outstanding Awards, provided,
         however, that if the Acquiring Corporation does not assume or
         substitute for such outstanding Awards, the Board shall provide prior
         to the Merger that any unexercisable and/or unvested portion of the
         outstanding Awards shall be immediately exercisable and vested as of a
         date prior to such Merger, as the Board so determines. The exercise
         and/or vesting of any Award that was permissible solely by reason of
         this Section 9.07(b) shall be conditioned upon the consummation of the
         Merger. Any Options which are neither assumed by the Acquiring
         Corporation not exercised as of the date of the Merger shall terminate
         effective as of the effective date of the Merger.

                  (c) OPTIONS TO PURCHASE SHARES OR STOCK OF ACQUIRED COMPANIES.
         After any merger in which the Company or a Subsidiary shall be a
         surviving corporation, the Board may grant substituted options under
         the provisions of the Plan, pursuant to Section 424 of the Code,
         replacing old options granted under a plan of another party to the
         merger whose shares of stock subject to the old options may no longer
         be issued following the merger. The manner of application of the
         foregoing provisions to such options and any appropriate adjustments
         shall be determined by the Board in its sole discretion. Any such
         adjustments may provide for the elimination of any fractional shares
         which might otherwise become subject to any Options.

         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

                                       18
<PAGE>   19

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.

         9.16 AMENDMENT AND TERMINATION.

                  (a) AMENDMENT. The Board shall have complete power and
         authority to amend the Plan at any time. No termination or amendment of
         the Plan may, without the consent of the Participant to whom any Award
         shall theretofore have been granted under the Plan, materially
         adversely affect the right of such individual under such Award.

                                       19
<PAGE>   20

                  (b) TERMINATION. The Board shall have the right and the power
         to terminate the Plan at any time. No Award shall be granted under the
         Plan after the termination of the Plan, but the termination of the Plan
         shall not have any other effect and any Award outstanding at the time
         of the termination of the Plan may be exercised after termination of
         the Plan at any time prior to the expiration date of such Award to the
         same extent such Award would have been exercisable had the Plan not
         been terminated.

                                      20

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