FEI CO, DEF 14A, 1997-04-21

FEI CO
DEF 14A, 1997-04-21
SPECIAL INDUSTRY MACHINERY, NEC

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12

FEI COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 15, 1997

TO THE SHAREHOLDERS OF FEI COMPANY:

The annual meeting of the shareholders of FEI Company, an Oregon
corporation, will be held at 9:00 a.m., Pacific Time, on May 15, 1997, at the
OSSHE Facility, 18640 NW Walker Road, Beaverton, Oregon, for the following
purposes:

1. Electing directors to serve for the following year and until their
successors are elected;

2. Amending the Company's 1995 Stock Incentive Plan (the "Plan") (i) to
increase the total number of shares of the Company's Common Stock (the
"Shares") reserved for issuance under the plan from 800,000 to
1,300,000 Shares; (ii) to eliminate certain restrictions in the Plan
that are no longer necessary or appropriate based on recent changes to
the rules under Section 16 of the Securities Exchange Act of 1934 and
(iii) to restrict automatic grants of stock options to "independent"
directors rather than "non-employee" directors.

3. Transacting such other business as may properly come before the
meeting.

Only shareholders of record at the close of business on March 27, 1996 will
be entitled to vote at the annual meeting.

YOU ARE RESPECTFULLY REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. You may
attend the meeting in person even though you have sent in your proxy, since
retention of the proxy is not necessary for admission to or identification at
the meeting.

BY ORDER OF THE BOARD OF DIRECTORS

William G. Langley
SECRETARY

Hillsboro, Oregon
April 18, 1997
<PAGE>
FEI COMPANY
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS

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

The mailing address of the principal executive offices of the Company is
7451 NW Evergreen Parkway, Hillsboro, Oregon, 97124-5830. The approximate date
this proxy statement and the accompanying proxy form are first being sent to
shareholders is April 18, 1997.

UPON WRITTEN REQUEST TO WILLIAM G. LANGLEY, SECRETARY, ANY PERSON WHOSE
PROXY IS SOLICITED BY THIS PROXY STATEMENT WILL BE PROVIDED, WITHOUT CHARGE, A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K.

SOLICITATION AND REVOCABILITY OF PROXY

The enclosed proxy is solicited on behalf of the Board of Directors of FEI
Company, an Oregon corporation, for use at the Annual Meeting of Shareholders to
be held on May 15, 1997 and at any adjournment thereof. The Company will bear
the cost of preparing and mailing the proxy, proxy statement, and any other
material furnished to shareholders by the Company in connection with the annual
meeting. Proxies will be solicited by use of the mails, and officers and
employees of the Company may also solicit proxies by telephone or personal
contact. Copies of solicitation materials will be furnished to fiduciaries,
custodians and brokerage houses for forwarding to beneficial owners of the stock
held in their names.

Any person giving a proxy in the form accompanying this proxy statement has
the power to revoke it at any time before its exercise. The proxy may be revoked
by filing with the Company, attention William G. Langley, Secretary, an
instrument of revocation or a duly executed proxy bearing a later date. The
proxy may also be revoked by affirmatively electing to vote in person while in
attendance at the meeting. However, a shareholder who attends the meeting need
not revoke the proxy and vote in person unless he or she wishes to do so. All
valid, unrevoked proxies will be voted at the annual meeting in accordance with
the instructions given.

VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS

The Common Stock is the only outstanding authorized voting security of the
Company. The record date for determining holders of Common Stock entitled to
vote at the annual meeting is March 27, 1997. On that date there were 17,689,549
shares of Common Stock outstanding, entitled to one vote per share. The Common
Stock does not have cumulative voting rights.

The following table sets forth certain information regarding the beneficial
ownership as of April 1, 1997 of the Common Stock by (i) each person who owns
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
director of the Company, (iii) each executive officer of the Company
<PAGE>
named in the Summary Compensation Table and (iv) all executive officers and
directors as a group. This information is based on information received from or
on behalf of the named individuals.

<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE
BENEFICIAL OWNER OWNED OF SHARES
- ---------------------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
Philips Industrial Electronics International B.V. ................................ 9,729,252 55.0%
Building VP-1, PO Box 218
5600 MD Eindhoven
The Netherlands

Capital Consultants, Inc.(2) ..................................................... 909,508 5.1%
2300 SW First Avenue
Portland, OR 97201

Lynwood W. Swanson, Ph.D.(3) ..................................................... 510,913 2.9%
7451 NE Evergreen Parkway
Hillsboro, OR 97124

Lloyd R. Swenson(4) .............................................................. 494,002 2.8%
659 Martis Peak Drive
Incline Village, NV 89450

Charles T. Riddle(5).............................................................. 173,282 *

William G. Langley(6)............................................................. 100,667 *

Dr. Robert L. Gerlach(7).......................................................... 48,966 *

Joseph C. Robinson(8)............................................................. 22,000 *

Donald R. VanLuvanee(9)........................................................... 2,363 *

Alfred B. Bok..................................................................... -- --

William E. Curran................................................................. -- --

Theo J.H.J. Sonnemans............................................................. -- --

Karel D. van der Mast............................................................. -- --

William A. Whitward............................................................... -- --

All directors and executive officers as a group (16 1,393,144 7.8%
persons)(3)(4)(5)(6)(8)(9)(10)..................................................
</TABLE>

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

* Less than 1%.

(1) Shares that the person has the right to acquire within 60 days after April
1, 1997 are deemed to be outstanding in calculating the percentage ownership
of the person or group but are not deemed to be outstanding as to any other
person or group.

(2) Represents shares held by clients for which Capital Consultants, Inc. hold
investment power. None of these clients individually holds more than 5% of
the Common Stock.

(3) Includes shares held jointly by Dr. Swanson and his wife and 38,000 shares
subject to options exercisable within 60 days after April 1, 1997.

(4) Includes shares held by Mr. Swenson's wife and a trust for the benefit of
his children and 2,836 shares subject to options exercisable within 60 days
after April 1, 1997.

(5) Includes 155,282 shares held jointly by Mr. Riddle and his wife and 18,000
shares subject to options exercisable within 60 days after April 1, 1997.

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<PAGE>
(6) Includes 74,000 shares subject to options exercisable within 60 days after
April 1, 1997.

(7) Includes 38,966 shares subject to options exercisable within 60 days after
April 1, 1997.

(8) Includes 16,000 shares subject to options exercisable within 60 days after
April 1, 1997.

(9) Includes 1,863 shares subject to options exercisable within 60 days after
April 1, 1997.

(10) Includes 55,750 shares subject to options exercisable within 60 days after
April 1, 1997 held by executive officers not listed.

PROPOSAL 1: ELECTION OF DIRECTORS

The directors of the Company are elected at the Annual Meeting to serve
until their successors are elected and qualified. All current directors are
nominees for re-election. If a quorum of shareholders is present at the annual
meeting, the nominees for election as directors who receive the greatest number
of votes cast at the meeting shall be elected directors. Abstentions and broker
non-votes will have no effect on the results of the vote. Unless otherwise
instructed, proxy holders will vote the proxies they receive for the nominees
named below. If any of the nominees for director at the annual meeting becomes
unavailable for election for any reason (none being known), the proxy holders
will have discretionary authority to vote pursuant to the proxy for a suitable
substitute or substitutes. The following table briefly describes the Company's
nominees for directors.

<TABLE>
<CAPTION>
DIRECTOR
NAME, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS AGE SINCE
- ---------------------------------------------------------------------------------------------------- ----- -----------
<S> <C> <C>

ALFRED B. BOK. Mr. Bok has served as a director of the Company since February 1997. He is Chief 57 1997
Executive Officer of Philips Industrial Electronics International B.V. ("PIE"), a position he has
held since August 1992. From February 1989 to August 1992, Mr. Bok was a Vice President of Philips
Medical Systems. Mr. Bok holds an Engineers degree in applied physics and a Ph.D. in physics from
the Technical University of Delft.

WILLIAM E. CURRAN. Mr. Curran has served as a director of the Company since February 1997. He is 48 1997
Senior Vice President, Chief Financial Officer and Director of Philips Electronics North American
Corporation, a Philips affiliate. Mr. Curran has held those positions since February 1996. From
March 1993 to February 1996, he was Chief Operating Officer of Philips Medical Systems and from
February 1987 to February 1996 Mr. Curran was Chief Financial Officer of Philips Medical Systems.
Mr. Curran holds a B.S. in Management Engineering from Rensselaer Polytechnic Institute and an
M.B.A. from the University of Pennsylvania.

WILLIAM G. LANGLEY. Mr. Langley joined the Company as Vice President, Chief Financial Officer and 47 1994
in-house legal counsel in September 1992, served as President and Chief Operating Officer from
October 1994 to February 1997 and as Assistant Secretary and Assistant Treasurer from July 1993 to
February 1997, and was appointed Executive Vice President and Secretary in February 1997. In October
1994 he was elected a director of the company. From April 1990 to September 1992, Mr. Langley served
as a Vice President with the Chariot Group, Inc., an investment company specializing in the
acquisition, finance and operation of mid-size businesses. Mr. Langley holds a B.A. degree from
Albertson College, a J.D. degree from Northwestern School of Law of Lewis and Clark College and an
LL.M. degree from New York University.

THEO J.H.J. SONNEMANS. Mr. Sonnemans has served as a director of the Company since February 1997. He 53 1997
is the Chief Financial Officer of PIE, a position he has held since May 1995. From April 1984 to May
1995 Mr. Sonnemans was Chief Financial Officer of the Television Unit of Philips Sound and Vision
production division.
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS (CONTINUED) AGE SINCE
- ---------------------------------------------------------------------------------------------------- ----- -----------
<S> <C> <C>
DR. LYNWOOD W. SWANSON. Dr. Swanson co-founded the Company in 1971 and has served as a director 62 1971
since that time. He served as President of the Company until October 1994, at which time he became
Chairman of the Board of Directors. Dr. Swanson was appointed Chief Scientist in May 1990 and served
as Chief Executive Officer of the Company from May 1988 to February 1997. Dr. Swanson holds B.S.
degrees in physics and chemistry from the University of the Pacific and a Ph.D. degree in physical
chemistry from the University of California at Davis.

LLOYD R. SWENSON. Mr. Swenson co-founded the Company in May 1971 and has served as a director since 72 1971
that time. From 1985 to 1990 Mr. Swenson was President of Swenson Enterprises, Inc., a personal
money management company. Mr. Swenson holds a B.S. degree from San Jose State University, an M. Div.
degree from Princeton Theological Seminary and an M.B.A. from the University of Santa Clara.

KAREL D. VAN DER MAST. Dr. van der Mast joined the Company as a director and as Executive Vice 49 1997
President Marketing and Technical Officer in February 1997. Dr. van der Mast served as Business
Manager and Strategic Marketing Manager of Philips Electron Optics B.V. ("PEO") from October 1995 to
February 1997. In 1988 he joined PEO as Research and Development Manager. Dr. van der Mast holds an
Engineers degree and a Ph.D. in physics from the Technical University of Delft.

DONALD R. VANLUVANEE. Mr. VanLuvanee has served as a director of the Company since November 1995. 51 1995
Mr. VanLuvanee has been President, Chief Executive Officer and a director of Electro Scientific
Industries, Inc., an electronics company, since July 1992. From August 1991 to August 1992, Mr.
VanLuvanee was President, Chief Executive Officer and a director of Mechanical Technology, Inc., a
mechanical technology development company. Mr. VanLuvanee also serves as a director of Micro
Component Technology, Inc., a semiconductor equipment manufacturing company.

WILLIAM A. WHITWARD. Mr. Whitward joined the Company as a Director and as President and Chief 58 1997
Executive Officer in February 1997. Mr. Whitward served as a General Manager of PEO from June 1993
to February 1997. He joined PEO after 14 years as manager of a former affiliate of Philips
Electronics N.V. (its Test and Measurement Unit), which produced oscilloscopes, voltmeters and
similar equipment. Mr. Whitward holds a bachelor's degree in engineering from Natal University,
South Africa.
</TABLE>

BOARD MEETINGS AND COMMITTEES

The Board of Directors of the Company met nine times during 1996. Edward H.
Cooley, a former director of the Company, attended two-thirds of the meetings of
the Board of Directors and one-half of the meetings of the Compensation
Committee during 1996. No other director attended fewer than 75% of the
aggregate of all meetings of the Board of Directors and the committees of which
the director was a member during 1996. The standing committees of the Board of
Directors are the Audit Committee and the Compensation Committee. The Company
does not have a nominating committee.

The Audit Committee makes recommendations concerning the engagement of the
independent public accountants, reviews with the independent public accountants
the plans and results of the audit engagement, approves professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of the audit and non-audit
fees and reviews the adequacy of the Company's internal accounting controls. The
Audit Committee consists of Theo J.H.J. Sonnemans, Lloyd R. Swenson and Donald
R. VanLuvanee. The Compensation Committee determines compensation for the
Company's executive officers and administers the Company's 1984 Stock Incentive
Plan, the 1995 Stock Incentive Plan (the "Plan") and the 1995 Supplemental Stock
Incentive

4
<PAGE>
Plan (the "Supplemental Plan"). The Compensation Committee consists of Alfred B.
Bok, William E. Curran, Mr. Swenson and Mr. VanLuvanee.

In 1996, non-employee directors were paid $3,600 per year for their
services, and all directors were paid $500 for attendance at each Board meeting,
$250 for participation at Board meetings by telephone conference and $250 for
attendance at committee meetings, except for the chairman of the committee, who
was paid $300 for attendance at committee meetings. Directors were also
reimbursed for reasonable expenses incurred in attending meetings. Pursuant to
the terms of the Plan, each individual who became a nonemployee director
received a non-statutory option to purchase 5,000 shares of Common Stock when
the individual became a director. In addition, each non-employee director of the
Company was automatically granted an annual non-discretionary, non-statutory
option to purchase 1,000 shares of Common Stock.

In February 1997 the Board of Directors approved the following changes to
the compensation of directors of the Company: effective February 21, 1997, only
"independent directors" (rather than all nonemployee directors) will receive
cash compensation and automatic stock option grants for service as a director of
the Company. An "independent director" is defined in accordance with Nasdaq
regulations as "a person other than an officer or employee of the company or its
subsidiaries or any other individual having a relationship which, in the opinion
of the board of directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director." The amount of cash
compensation to be paid to independent directors has not yet been determined by
the Board. All directors will be reimbursed for reasonable expenses in attending
Board of Director and committee meetings. All other fees previously paid to
directors are discontinued. The decision to provide for automatic stock option
grants only to independent directors, rather than to all nonemployee directors,
requires amendments to the Plan. These amendments are described in "Proposal 2:
Amendments to the 1995 Stock Incentive Plan."

RECOMMENDATION BY THE BOARD OF DIRECTORS

The Board of Directors recommends that shareholders vote for the election of
the nominees named in this Proxy Statement.

PROPOSAL 2: AMENDMENT TO THE 1995 STOCK INCENTIVE PLAN

The Company maintains the 1995 Stock Incentive Plan (the "Plan") for the
benefit of its employees and others who provide services to the Company. The
Board of Directors believes the availability of stock incentives is an important
factor in the Company's ability to attract and retain experienced and competent
employees and to provide an incentive for them to exert their best efforts on
behalf of the Company. As of March 31, 1997, out of a total of 800,000 shares
reserved for issuance under the Plan, only 103,692 shares remained available for
grant. The Board of Directors believes additional shares will be needed under
the Plan to provide appropriate incentives to key employees and others.
Accordingly, on February 24, 1997 the Board of Directors approved an amendment
to the Plan, subject to shareholder approval, to reserve an additional 500,000
shares for the Plan, thereby increasing the total number of shares reserved for
issuance under the Plan from 800,000 to 1,300,000 shares. The Board of Directors
also approved an amendment to the Plan to restrict automatic grants of stock
options to "independent" directors rather than "nonemployee" directors. Other
amendments approved by the Board of Directors and submitted to the shareholders
for approval principally relate to the elimination of certain restrictions in
the Plan that are no longer necessary or appropriate based on recent changes to
the rules under Section 16 of the Securities Exchange Act of 1934. In addition,
shareholder approval of this Proposal 2 will constitute a reapproval of the per-
employee limits on grants of options and stock appreciation rights under the
Plan of 200,000 shares for new hires and 50,000 shares annually otherwise. This
reapproval is required every five years for continued compliance with proposed
regulations under Section 162(m) of the Internal Revenue Code of 1986. See "Tax
Consequences."

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<PAGE>
Certain provisions of the Plan are described below. The complete text of the
Plan, marked to show the proposed amendments, is attached to this proxy
statement as Appendix A.

DESCRIPTION OF THE PLAN

ELIGIBILITY. All employees, officers and directors of the Company and its
subsidiaries are eligible to participate in the Plan. Also eligible are
non-employee agents, consultants, advisors, persons involved in the sale or
distribution of the Company's products and independent contractors of the
Company or any subsidiary.

ADMINISTRATION. The Plan is administered by the Board of Directors, which
may promulgate rules and regulations for the operation of the Plan and generally
supervises the administration of the Plan. The Board of Directors may delegate
to a committee of the Board of Directors or specified officers of the Company,
or both, authority to administer the Plan, except that only the Board of
Directors may amend, modify or terminate the Plan.

TERM OF PLAN. The Plan will continue until all shares available for
issuance under the Plan have been issued and all restrictions on such shares
have lapsed. The Board of Directors may suspend or terminate the Plan at any
time.

STOCK OPTIONS. The Board of Directors or appropriate committee or officer
determines the persons to whom options are granted, the option price, the number
of shares to be covered by each option, the period of each option, the times at
which options may be exercised and whether the option is an incentive stock
option ("ISO") or a nonqualified stock option ("NSO"). If the option is an ISO,
the option price cannot be less than the fair market value of the Common Stock
on the date of grant. If an optionee with respect to an ISO at the time of grant
owns stock possessing more than ten percent of the combined voting power of the
Company, the option price may not be less than 110 percent of the fair market
value of the Common Stock on the date of grant. No employee may be granted
options or stock appreciation rights under the Plan for more than an aggregate
of 200,000 shares in connection with the hiring of the employee or 50,000 shares
in any calendar year otherwise. In addition, the Plan limits the amount of ISOs
that may become exercisable under the Plan in any year to $100,000 per optionee
(based on the fair market value of the stock on the date of grant). No monetary
consideration is paid to the Company upon the granting of options.

Options granted under the Plan generally continue in effect for the period
fixed by the Board of Directors or appropriate committee or officer, except that
ISOs are not exercisable after the expiration of 10 years from the date of
grant. Options are exercisable in accordance with the terms of an option
agreement entered into at the time of grant and are nontransferable except on
death of a holder. Options may be exercised only while an optionee is employed
by the Company or a subsidiary or within 12 months following termination of
employment by reason of death or disability or 30 days following termination for
any other reason. The Plan provides that the Board of Directors or appropriate
committee or officer may extend the exercise period for any period up to the
expiration date of the option and may increase the number of shares for which
the option may be exercised up to the total number underlying the option. The
purchase price for each share purchased pursuant to exercise of options must be
paid in cash, including cash that may be the proceeds of a loan from the
Company, in shares of Common Stock valued at fair market value, in restricted
stock, in performance units or other contingent awards denominated in either
stock or cash, in deferred compensation credits or in other forms of
consideration, as determined by the Board of Directors or appropriate committee
or officer. Upon the exercise of an option, the number of shares subject to the
option and the number of shares available under the Plan for future option
grants are reduced by the number of shares with respect to which the option is
exercised.

STOCK OPTION GRANTS TO INDEPENDENT DIRECTORS. Pursuant to the terms of the
Plan, as it is proposed to be amended, each individual who becomes an
independent director will receive a non-statutory option to purchase 5,000
shares of Common Stock when the individual becomes a director. In addition, each

6
<PAGE>
independent director of the Company will automatically be granted an annual
non-discretionary, non-statutory option to purchase 1,000 shares of Common
Stock.

STOCK APPRECIATION RIGHTS. Stock appreciation rights ("SARs") may be
granted under the Plan. SARs may, but need not, be granted in connection with an
option grant or an outstanding option previously granted under the Plan. A SAR
gives the holder the right to payment from the Company of an amount equal in
value to the excess of the fair market value on the date of exercise of a share
of Common Stock over its fair market value on the date of grant, or if granted
in connection with an option, the option price per share under the option to
which the SAR relates.

A SAR is exercisable only at the time or times established by the Board of
Directors. If a SAR is granted in connection with an option, it is exercisable
only to the extent and on the same conditions that the related option is
exercisable. Payment by the Company upon exercise of a SAR may be made in Common
Stock valued at its fair market value, in cash, or partly in stock and partly in
cash, as determined by the Board of Directors. The Board of Directors may
withdraw any SAR granted under the Plan at any time and may impose any condition
upon the exercise of a SAR or adopt rules and regulations from time to time
affecting the rights of holders of SARs. No SARs have been granted under the
Plan.

The existence of SARs, as well as certain bonus rights described below,
would require charges to income over the life of the right based upon the amount
of appreciation, if any, in the market value of the common stock of the Company
over the exercise price of shares subject to exercisable SARs or bonus rights.

STOCK BONUS AWARDS. The Board of Directors may award Common Stock as a
stock bonus under the Plan. The Board of Directors may determine the persons to
receive awards, the number of shares to be awarded and the time of the award.
Stock received as a stock bonus is subject to the terms, conditions and
restrictions determined by the Board of Directors at the time the stock is
awarded.

RESTRICTED STOCK. The Plan provides that the Company may issue restricted
stock in such amounts, for such consideration, subject to such restrictions and
on such terms as the Board of Directors may determine.

CASH BONUS RIGHTS. The Board of Directors may grant cash bonus rights under
the Plan in connection with (i) options granted or previously granted, (ii) SARs
granted or previously granted, (iii) stock bonuses awarded or previously awarded
and (iv) shares sold or previously sold under the Plan. Bonus rights may be used
to provide cash to employees for the payment of taxes in connection with awards
under the Plan. No bonus rights have been granted under the Plan.

PERFORMANCE UNITS. The Board of Directors may grant performance units
consisting of monetary units that may be earned in whole or in part if the
Company achieves goals established by the Board of Directors over a designated
period of time, but in any event not more than 10 years. Payment of an award
earned may be in cash or stock or both and may be made when earned, or vested
and deferred, as the Board of Directors determines. No performance units have
been granted under the Plan.

FOREIGN QUALIFIED GRANTS. Awards under the Plan may be granted to eligible
persons residing in foreign jurisdictions. The Board of Directors may adopt
supplements to the Plan necessary to comply with the applicable laws of foreign
jurisdictions and to afford participants favorable treatment under those laws,
but no award may be granted under any supplement with terms that are more
beneficial to the participants than the terms permitted by the Plan.

CHANGES IN CAPITAL STRUCTURE. The Plan provides that if the outstanding
Common Stock is increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation by reason of any recapitalization, stock split or certain
other transactions, appropriate adjustment will be made by the Board of
Directors in the number and kind of

7
<PAGE>
shares available for awards under the Plan. In the event of a merger,
consolidation or plan of exchange to which the Company is a party or a sale of
all or substantially all of the Company's assets (each a "Transaction"), the
Board of Directors will, in its sole discretion and to the extent possible under
the structure of the Transaction, select one of the following alternatives for
treating outstanding options under the Plan: (i) outstanding options will remain
in effect in accordance with their terms; (ii) outstanding options shall be
converted into options to purchase stock in the corporation that is the
surviving or acquiring corporation in the Transaction; or (iii) the Board of
Directors will provide a 30-day period prior to the consummation of the
Transaction during which outstanding options shall be exercisable to the extent
exercisable and upon the expiration of such 30-day period, all unexercised
options shall immediately terminate. The Board of Directors may, in its sole
discretion, accelerate the exercisability of options so that they are
exercisable in full during such 30-day period. In the event of the dissolution
of the Company, options shall be treated in accordance with clause (iii) above.

TAX CONSEQUENCES

Certain options authorized to be granted under the Plan are intended to
qualify as ISOs for federal income tax purposes. Under federal income tax law
currently in effect, the optionee will recognize no income upon grant or upon a
proper exercise of the ISO. If an employee exercises an ISO and does not dispose
of any of the option shares within two years following the date of grant and
within one year following the date of exercise, any gain realized on subsequent
disposition of the shares will be treated as income from the sale or exchange of
a capital asset. If an employee disposes of shares acquired upon exercise of an
ISO before the expiration of either the one-year holding period or the two-year
waiting period, any amount realized will be taxable as ordinary compensation
income in the year of such disqualifying disposition to the extent that the
lesser of the fair market value of the shares on the exercise date or the fair
market value of the shares on the date of disposition exceeds the exercise
price. The Company will not be allowed any deduction for federal income tax
purposes at either the time of the grant or exercise of an ISO. Upon any
disqualifying disposition by an employee, the Company will generally be entitled
to a deduction to the extent the employee realized ordinary income.

Certain options authorized to be granted under the Plan will be treated as
NSOs for federal income tax purposes. Under federal income tax law currently in
effect, no income is realized by the grantee of an NSO until the option is
exercised. At the time of exercise of an NSO, the optionee will realize ordinary
compensation income, and the Company will generally be entitled to a deduction,
in the amount by which the market value of the shares subject to the option at
the time of exercise exceeds the exercise price. The Company is required to
withhold on the income amount. Upon the sale of shares acquired upon exercise of
an NSO, the excess of the amount realized from the sale over the market value of
the shares on the date of exercise will be taxable.

An employee who receives stock in connection with the performance of
services will generally realize taxable income at the time of receipt unless the
shares are substantially nonvested for purposes of section 83 of the Internal
Revenue Code of 1986, as amended, and no section 83(b) election is made. If the
shares are not vested at the time of receipt, the employee will realize taxable
income in each year in which a portion of the shares substantially vest, unless
the employee elects under section 83(b) within 30 days after the original
transfer. The Company will generally be entitled to a tax deduction in the
amount includable as income by the employee at the same time or times as the
employee recognizes income with respect to the shares. The Company is required
to withhold on the income amount. A participant who receives a cash bonus right
under the Plan will generally recognize income equal to the amount of the cash
bonus paid at the time of receipt, and the Company will generally be entitled to
a deduction equal to the income recognized by the participant.

Section 162(m) of the Internal Revenue Code of 1986, as adopted in 1993,
limits to $1,000,000 per person the amount that the Company may deduct for
compensation paid to any of its most highly compensated officers in any year.
Under IRS regulations, compensation received through the exercise of

8
<PAGE>
an option or a SAR is not subject to the $1,000,000 limit if the option or SAR
and the Plan meet certain requirements. One requirement is shareholder approval
at least once every five years of per-employee limits on the number of shares as
to which options and SARs may be granted. Other requirements are that the option
or SAR be granted by a committee of at least two outside directors and that the
exercise price of the option or SAR be not less than fair market value of the
Common Stock on the date of grant.

RECOMMENDATION BY THE BOARD OF DIRECTORS

The Board of Directors recommends that the amendments to the Plan be
approved. The affirmative vote of the holders of a majority of the shares of
Common Stock present and entitled to vote on the matter is required to approve
this Proposal 2. Abstentions have the same effect as "no" votes in determining
whether the amendment is approved. Broker non-votes are counted for purposes of
determining whether a quorum exists at the Special Meeting but are not counted
and have no effect on the results of the vote on Proposal 2. The proxies will be
voted for or against the proposal or as an abstention, in accordance with the
instructions specified on the proxy form. If no instructions are given, proxies
will be voted for approval of amendments to the Plan.

9
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth all compensation paid by the Company with
respect to the last three years to the persons who were the Chief Executive
Officer and the most highly compensated four other executive officers and two
key employees in 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------- ALL OTHER
NAME AND PRINCIPAL POSITION IN 1996 YEAR SALARY BONUS COMPENSATION(1)
- ------------------------------------------------------------------ --------- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Dr. Lynwood W. Swanson,........................................... 1996 $ 202,917 -- --
Chairman, Chief Executive Officer and 1995 158,150 -- --
Chief Scientist 1994 157,893 $ 300 --

William G. Langley,............................................... 1996 159,852 -- --
President, Chief Financial Officer and 1995 135,000 -- --
Chief Operating Officer 1994 114,666 300 --

Dr. Robert L. Gerlach,............................................ 1996 126,340 -- --
Vice President, Engineering/Research and 1995 115,920 -- --
Development 1994 113,215 300 --

Joseph C. Robinson,............................................... 1996 120,129 300 --
Executive Vice President, Sales and 1995 2,280 -- --
Marketing(2) 1994 -- -- --

Charles T. Riddle,................................................ 1996 109,847 -- --
Executive Vice President, Strategic 1995 108,675 -- --
Planning 1994 105,613 300 --

R. Brent Townsend(3).............................................. 1996 97,704 300 30,979
1995 98,436 14,583 51,535
1994 -- -- --

Thomas G. Richards(4)............................................. 1996 85,200 300 33,250
1995 15,104 -- 1,388
1994 -- -- --
</TABLE>

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

(1) Represents sales commissions.

(2) Mr. Robinson joined FEI as Executive Vice President, Sales and Marketing in
December 1995.

(3) Mr. Townsend joined FEI as Asia Regional Manager in January 1995.

(4) Mr. Richards joined FEI as Eastern Regional Sales Manager, Systems Group, in
October 1995.

10
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information regarding all stock options granted
in 1996 to the executive officers and key employees named in the Summary
Compensation Table.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SHARES PERCENT OF APPRECIATION OF
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(1)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ---------------------------------------------- ----------- ------------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dr. Lynwood W. Swanson........................ 10,000(2) 4.6% $ 15.00 4/18/01 $ 41,400 $ 94,300

William G. Langley............................ 10,000(2) 4.6% 15.00 4/18/01 41,400 94,300

Dr. Robert L. Gerlach......................... 3,750(2) 1.7% 15.00 4/18/01 15,525 35,363

Joseph C. Robinson............................ 20,000(3) 9.2% 12.00 4/05/01 66,400 146,600

5,000(2) 2.3% 15.00 4/18/01 20,700 45,800

Charles T. Riddle............................. 0 -- -- -- -- --

R. Brent Townsend............................. 9,200(4) 4.2% 10.50 1/18/01 26,680 58,972

10,000(5) 4.6% 10.50 1/18/01 29,000 64,100

Thomas G. Richards............................ 10,000(3) 4.6% 12.00 4/05/01 33,200 73,300
</TABLE>

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

(1) In accordance with rules of the Securities and Exchange Commission, these
amounts re the hypothetical gains or "option spreads" that would exist for
the respective options based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the options were granted over the
full option term.

(2) This option became immediately exercisable with respect to 20% of the total
shares granted on April 18, 1996, and the remaining shares become
exercisable at the rate of 20% of the total shares per year over the
subsequent four-year period.

(3) This option became immediately exercisable with respect to 20% of the total
shares granted on April 5, 1996, and the remaining shares became exercisable
at the rate of 20% of the total shares per year over the subsequent
four-year period.

(4) This option became immediately exercisable on January 18, 1996.

(5) This option became immediately exercisable with respect to 20% of the total
shares granted on January 18, 1996, and the remaining shares become
exercisable at the rate of 20% of the total shares per year over the
subsequent four-year period.

11
<PAGE>
OPTION EXERCISES AND YEAR-END OPTION VALUES

The following table sets forth, for each of the executive officers and key
employees named in the Summary Compensation Table, the shares acquired and the
value realized on each excise of stock options during the year ended December
31, 1996 and the fiscal year-end number and value of unexercised options:

<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT
TO UNEXERCISED OPTIONS VALUE OF UNEXERCISED
NUMBER OF AT IN-THE-MONEY OPTIONS AT
SHARES FY-END FY-END(2)
ACQUIRED ----------------------- -----------------------
NAME ON EXERCISE VALUE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------- ----------- ----------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Dr. Lynwood W. Swanson......... 0 $ -- 36,000/59,000 $ 4,000/$6,000

William G. Langley............. 0 -- 76,000/59,000 44,000/6,000

Dr. Robert L. Gerlach.......... 10,000 18,750 29,283/35,801 10,667/6,000

Joseph C. Robinson............. 6,000 48,750 11,000/28,000 6,000/18,000

Charles T. Riddle.............. 0 -- 12,000/18,000 --/--

R. Brent Townsend.............. 0 -- 16,000/15,200 --/--

Thomas G. Richards............. 0 -- 4,000/11,000 --/--
</TABLE>

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

(1) Calculated based on the aggregate price at which the shares acquired on
exercise were sold, less the aggregate exercise price.

(2) Calculated based on the December 31, 1996 closing stock price of $9.375,
less the exercise price, multiplied by the number of shares underlying the
option.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In October 1988 the Company borrowed $50,000 from Lloyd R. Swenson, a
director of the Company, and $25,000 from June Swenson, the wife of Lloyd
Swenson, as trustee of the Pond Living Trust. Interest on these loans ranged
from 9% to 10% per annum, and the loans were repaid in September 1993. In
connection with these loans the Company issued warrants (i) to Mr. Swenson to
purchase 33,334 shares of Common Stock and (ii) to Ms. Swenson to purchase
16,667 share of Common Stock, in each case for $3.00 per share. These warrants
were exercised in full before October 3, 1996. The holders of the Common Stock
issued on exercise of these warrants are entitled to certain registration
rights.

Capital Consultants, Inc. ("Capital Consultants") acted as agent for the
United Association Union Local 290, Plumbers, Steamfitters and Shipfitters
Industry Pension Trust (the "Pension Trust"), an investor advised by Capital
Consultants, in connection with the execution of the lease between the Company
and the Pension Trust dated as of November 2, 1992 for the Company's
headquarters facility. The Company borrowed $500,000 from the Pension Trust for
tenant improvements. The loan bears interest at an annual rate of 9% and is
payable ratably over the initial five-year lease term. The Company believes the
terms of the lease are no less favorable to the Company than could have been
obtained from an unaffiliated party.

In August 1993 the Company entered into a Note Purchase Agreement (the "Note
Purchase Agreement") and certain related agreements with Capital Consultants as
agent for the Pension Trust. Pursuant to the Note Purchase Agreement, the
Company borrowed $1.5 million from the Pension Trust. In October 1994 the Note
Purchase Agreement and the note were amended and restated to provide for
borrowings of up to an additional $3 million from the Pension Trust. Amounts
advanced under the Note

12
<PAGE>
Purchase Agreement were convertible at maturity or upon prepayment or default
into shares of Common Stock at the rate of $7.50 per share for the first $3.5
million (466,667 shares) and $6.00 per share for the last $1.0 million (166,667
shares), subject to certain limitations. At December 31, 1995, $3.5 million
principal amount was outstanding under the Note Purchase Agreement. On March 1,
1996 the note was converted to 466,667 shares of Common Stock of the Company.
The holder of Common Stock issued on conversion of the note is entitled to
certain registration rights. See Note 12 of Notes to Consolidated Financial
Statements of FEI Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1996 Mr. Swenson served on the Company's Compensation Committee. Mr.
Swenson also served as Secretary and Treasurer of the Company during this
period. In October 1988 the Company borrowed $50,000 from Mr. Swenson and
$25,000 from June Swenson, the wife of Mr. Swenson, as trustee of the Pond
Living Trust. The loans were repaid in September 1993. In connection with these
loans, the Company issued warrants to Mr. Swenson to purchase 33,334 shares of
Common Stock and to Mr. Swenson to purchase 16,667 shares of Common Stock, in
each case for $3.00 per share. These warrants were exercised before October 3,
1996. See "Certain Relationships and Related Transactions."

COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION(1)

The Compensation Committee consists of three directors and, pursuant to
authority delegated by the Board of Directors, determines and administers the
compensation of the Company's executive officers. In setting the compensation
for the executive officers other than the President and Chief Executive Officer,
the Compensation Committee works closely with the chairman and Chief Executive
Officer, who makes specific recommendations to the committee concerning
compensation for each of the other executive officers. Although the Board of
Directors has granted the Compensation Committee full authority to set executive
compensations, in practice the decisions of the Compensation Committee are
usually reported as recommendations to the full Board of Directors, which has in
the past generally approved the recommendations.

Internal Revenue Code Section 162(m), as adopted in 1993, limits to
$1,000,000 per person the amount that the Company may deduct for compensation
paid to any of its most highly compensated officers in any year after 1993. The
levels of salary and bonus paid by the Company have not exceeded this limit.
Upon the exercise of nonstatutory incentive stock options, however, the excess
of the current market price over the option price (option spread) is treated as
compensation and, therefore, it may be possible for option exercises by an
officer in any year to cause the officer's total compensation to exceed
$1,000,000. Under certain regulations, option spread compensation from options
that meet certain requirements will not be subject to the $1,000,000 cap on
deductibility, and it is the Company's current policy generally to grant options
that meet those requirements.

COMPENSATION PRINCIPLES

Executive compensation is based on several general principles, which are
summarized below:

- Provide competitive total compensation that enables the Company to attract
and retain key executives.

- Link corporate and individual performance to compensation.

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

(1) This Section is not "soliciting material," is not deemed "filed" with the
Securities and Exchange Commission and is not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933, or
the Securities Exchange Act of 1934, regardless of date or any general
incorporation language in such filing.

13
<PAGE>
- Encourage long-term success and align shareholder interests with
management interests by giving executives the opportunity to acquire stock
in the Company.

- Reward initiative.

COMPENSATION COMPONENTS

The primary components of the Company's executive officer compensation
program are base salary, annual incentive arrangements and long-term incentive
compensation in the form of stock options.

BASE SALARY. The Company attempts to establish base salary levels for the
Company's executive officers that are competitive with those established by
companies of similar size in the electronics industry, but no consideration was
given to the executive compensation paid by electronics companies included in
the Nasdaq Stock Market Index reported in the Comparison of Cumulative Total
Return Table set forth below. When determining salaries, the Compensation
Committee also takes into account individual experience levels, job
responsibility and individual performance. Each executive officer's salary is
reviewed annually, and increases to base salary are made to reflect competitive
market increases and the individual factors described above.

STOCK OPTIONS. The Plan is intended as a long-term incentive plan for
executive officers, managers and other key employees of the Company. The
objectives of the Plan are to align employee and shareholder long-term interests
by creating a direct link between compensation and shareholder value. The
Compensation Committee administers the Plan and recommends to the full Board of
Directors awards of stock options to executive officers and other employees of
the Company. Options granted under the Plan generally have been granted at an
exercise price equal to the fair market value of the Common Stock on the date of
grant, based on the closing price as reported on the Nasdaq National Market on
the date of grant. Options generally become exercisable over a four-year period
with 20% of the options exercisable immediately upon the date of grant. Stock
options generally have a five-year term, but terminate earlier if employment is
terminated. Initial option grants to executive officers depend upon the level of
responsibility and position, and subsequent grants are made based on the
Compensation Committee's subjective assessment of performance, among other
factors. In 1996 the Board of Directors, upon recommendation of the Compensation
Committee, made the following option grants under the Plan of Common Stock to
officers of the Company: Philip T. Fischer--3,750, Robert L. Gerlach--3,750,
Frederick A.M. Gordon-- 8,750, Charles F. Lake--3,750, William G. Langley -
10,000, John M. Lindquist--3,750, Douglas S. Rathkey--3,750, Joseph C.
Robinson--25,000, and Lynwood W. Swanson--10,000. The Compensation Committee
expects that in the future, if additional grants are made, consideration will be
given to the number of options granted in the past and the exercise price of
such grants.

COMPENSATION OF CHIEF EXECUTIVE OFFICER

In setting compensation for Dr. Swanson for 1996, the Board of Directors
employed the same criteria that it used to set compensation for other executive
officers. The Board believes Dr. Swanson's salary is competitive with salary
levels for executives with similar experience and ability and recognizes Dr.
Swanson's individual performance and important contributions to the Company's
increased revenue and earnings growth.

COMPENSATION COMMITTEE MEMBERS

Alfred B. Bok

William E. Curran

Lloyd R. Swenson

Donald R. VanLuvanee

14
<PAGE>
PERFORMANCE GRAPH(1)

Set forth below is a line graph comparing the cumulative total shareholder
return of the Common Stock, assuming reinvestment of dividends, with the
cumulative total return of the Nasdaq Stock Market Index ("Nasdaq Index") and
the Non-Financial Nasdaq Index.

[GRAPH]

<TABLE>
<CAPTION>
5/95 12/95 12/96
--- ----- -----
<S> <C> <C> <C>
FEI.......................................................................................... 100 119 104
US Nasdaq.................................................................................... 100 123 151
Non-financial Nasdaq......................................................................... 100 121 147
</TABLE>

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

(1) This Section is not "soliciting material," is not deemed "filed" with the
Securities and Exchange Commission and is not to be incorporated by
reference in any filing of the Company under the Securities Act of 1993 or
the Securities Exchange Act of 1934, regardless of date or any general
incorporation language in such filing.

15
<PAGE>
INDEPENDENT ACCOUNTANTS

Representatives of Deloitte & Touche LLP will be present at the Annual
Meeting and will be available to respond to appropriate questions. They do not
plan to make any statement but will have the opportunity to make a statement if
they wish.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires the Company's executive officers,
directors and persons who own more than ten percent of the Common Stock to file
reports of ownership and changes in ownership with the SEC. Executive officers,
directors and beneficial owners of more than ten percent of the Common Stock are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely on a review of the copies of such forms
received by the Company and on written representations from certain reporting
persons that they have complied with the relevant filing requirements, the
Company believes that during 1996 all Section 16(a) filing requirements
applicable to its executive officers and directors were complied with.

DISCRETIONARY AUTHORITY

While the Notice of Annual Meeting of Shareholders provides for transaction
of such other business as may properly come before the meeting, the Board of
Directors has no knowledge of any matters to be presented at the meeting other
than those referred to herein. However, the enclosed proxy gives discretionary
authority to the proxy holders to vote in accordance with the recommendation of
management if any other matters are presented.

SHAREHOLDER PROPOSALS

Any shareholder proposals to be considered for inclusion in proxy material
for the Company's next annual meeting in May 1998 must be received at the
principal executive office of the Company no later than December 16, 1997.

BY ORDER OF THE BOARD OF DIRECTORS

William G. Langley
SECRETARY

Hillsboro, Oregon

April 18, 1997

16
<PAGE>
APPENDIX A
1995 STOCK INCENTIVE PLAN, AS AMENDED [F1]

[F1] Bracketed text indicates proposed deletions to the 1995 Stock Incentive
Plan, as amended.

17
<PAGE>
FEI COMPANY
1995 STOCK INCENTIVE PLAN
AS AMENDED MAY 15, [1996] 1997

1. PURPOSE. The purpose of this Stock Incentive Plan (the "Plan") is to
enable FEI Company (the "Company") to attract and retain the services of (1)
selected employees, officers and directors of the Company or of any subsidiary
of the Company and (2) selected nonemployee agents, consultants, advisors,
persons involved in the sale or distribution of the Company's products and
independent contractors of the Company or any subsidiary.

2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below and
in paragraph 13, the shares to be offered under the Plan shall consist of Common
Stock of the Company, and the total number of shares of Common Stock that may be
issued under the Plan shall not exceed 800,000 shares. The shares issued under
the Plan may be authorized and unissued shares or reacquired shares. If an
option, stock appreciation right or performance unit granted under the Plan
expires, terminates or is canceled, the unissued shares subject to such option,
stock appreciation right or performance unit shall again be available under the
Plan. If shares sold or awarded as a bonus under the Plan are forfeited to the
Company or repurchased by the Company, the number of shares forfeited or
repurchased shall again be available under the Plan.

3. EFFECTIVE DATE AND DURATION OF PLAN.

(a) EFFECTIVE DATE. The Plan shall become effective as of April 21,
1995. No option, stock appreciation right or performance unit granted under
the Plan [to an officer who is subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended (an "Officer") or a director, and no
incentive stock option,] shall become exercisable, however, until the Plan
is approved by the affirmative vote of the holders of a majority of the
shares of Common Stock represented at a shareholders meeting at which a
quorum is present and any such awards under the Plan prior to such approval
shall be conditioned on and subject to such approval. Subject to this
limitation, options, stock appreciation rights and performance units may be
granted and shares may be awarded as bonuses or sold under the Plan at any
time after the effective date and before termination of the Plan.

(b) DURATION. The Plan shall continue in effect until all shares
available for issuance under the Plan have been issued and all restrictions
on such shares have lapsed. The Board of Directors may suspend or terminate
the Plan at any time except with respect to options, performance units and
shares subject to restrictions then outstanding under the Plan. Termination
shall not affect any outstanding options, any right of the Company to
repurchase shares or the forfeitability of shares issued under the Plan.

4. ADMINISTRATION.

(a) BOARD OF DIRECTORS. The Plan shall be administered by the Board of
Directors of the Company, which shall determine and designate from time to
time the individuals to whom awards shall be made, the amount of the awards
and the other terms and conditions of the awards. Subject to the provisions
of the Plan, the Board of Directors may from time to time adopt and amend
rules and regulations relating to administration of the Plan, advance the
lapse of any waiting period, accelerate any exercise date, waive or modify
any restriction applicable to shares (except those restrictions imposed by
law) and make all other determinations in the judgment of the Board of
Directors necessary or desirable for the administration of the Plan. The
interpretation and construction of the provisions of the Plan and related
agreements by the Board of Directors shall be final and conclusive. The
Board of Directors may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any related agreement in the
manner and to the extent it shall deem expedient to carry the Plan into
effect, and it shall be the sole and final judge of such expediency.

18
<PAGE>
(b) COMMITTEE. The Board of Directors may delegate to a committee of the
Board of Directors or specified officers of the Company, or both (the
"Committee") any or all authority for administration of the Plan. If
authority is delegated to a Committee, all references to the Board of
Directors in the Plan shall mean and relate to the Committee except (i) as
otherwise provided by the Board of Directors, (ii) that only the Board of
Directors may amend or terminate the Plan as provided in paragraphs 3 and 15
and (iii) that a Committee including officers of the Company shall not be
permitted to grant options to persons who are officers of the Company. [If
awards are to be made under the Plan to Officers or directors, authority for
selection of Officers and directors for participation and decisions
concerning the timing, pricing and amount of a grant or award, if not
determined under a formula meeting the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, shall be delegated to a
committee consisting of two or more disinterested directors.]

5. TYPES OF AWARDS; ELIGIBILITY. The Board of Directors may, from time to
time, take the following action, separately or in combination, under the Plan:
(i) grant Incentive Stock Options, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), as provided in paragraphs 6(a)
and 6(b); (ii) grant options other than Incentive Stock Options ("Non-Statutory
Stock Options") as provided in paragraphs 6(a) and 6(c); (iii) award stock
bonuses as provided in paragraph 7; (iv) sell shares subject to restrictions as
provided in paragraph 8; (v) grant stock appreciation rights as provided in
paragraph 9; (vi) grant cash bonus rights as provided in paragraph 10; (vii)
grant performance units as provided in paragraph 11 and (viii) grant foreign
qualified awards as provided in paragraph 12. Any such awards may be made to
employees, including employees who are officers or directors, and to other
individuals described in paragraph 1 who the Board of Directors believes have
made or will make an important contribution to the Company or any subsidiary of
the Company; provided, however, that only employees of the Company shall be
eligible to receive Incentive Stock Options under the Plan. The Board of
Directors shall select the individuals to whom awards shall be made and shall
specify the action taken with respect to each individual to whom an award is
made. At the discretion of the Board of Directors, an individual may be given an
election to surrender an award in exchange for the grant of a new award. No
employee may be granted options or stock appreciation rights under the Plan for
more than an aggregate of 200,000 shares of Common Stock in connection with the
hiring of the employee or 50,000 shares of Common Stock in any calendar year
otherwise.

6. OPTION GRANTS.

(a) GENERAL RULES RELATING TO OPTIONS.

(i) TERMS OF GRANT. The Board of Directors may grant options under
the Plan. With respect to each option grant, the Board of Directors shall
determine the number of shares subject to the option, the option price,
the period of the option, the time or times at which the option may be
exercised and whether the option is an Incentive Stock Option or a
Non-Statutory Stock Option. At the time of the grant of an option or at
any time thereafter, the Board of Directors may provide that an optionee
who exercised an option with Common Stock of the Company shall
automatically receive a new option to purchase additional shares equal to
the number of shares surrendered and may specify the terms and conditions
of such new options.

(ii) EXERCISE OF OPTIONS. Except as provided in paragraph 6(a)(iv)
or as determined by the Board of Directors, no option granted under the
Plan may be exercised unless at the time of such exercise the optionee is
employed by or in the service of the Company or any subsidiary of the
Company and shall have been so employed or provided such service
continuously since the date such option was granted. Absence on leave or
on account of illness or disability under rules established by the Board
of Directors shall not, however, be deemed an interruption of employment
or service for this purpose. Unless otherwise determined by the Board of
Directors, vesting of options shall not continue during an absence on
leave (including an extended illness) or on account of disability. Except
as provided in paragraphs 6(a)(iv) and 13, options granted under the

19
<PAGE>
Plan may be exercised from time to time over the period stated in each
option in such amounts and at such times as shall be prescribed by the
Board of Directors, provided that options shall not be exercised for
fractional shares. Unless otherwise determined by the Board of Directors,
if the optionee does not exercise an option in any one year with respect
to the full number of shares to which the optionee is entitled in that
year, the optionee's rights shall be cumulative and the optionee may
purchase those shares in any subsequent year during the term of the
option. [Unless otherwise determined by the Board of Directors, if an
Officer exercises an option within six months of the grant of the option,
the shares acquired upon exercise of the option may not be sold until six
months after the date of grant of the option.]

(iii) NONTRANSFERABILITY. Each Incentive Stock Option and, unless
otherwise determined by the Board of Directors [with respect to an option
granted to a person who is neither an Officer nor a director of the
Company,] each other option granted under the Plan by its terms shall be
nonassignable and nontransferable by the optionee, either voluntarily or
by operation of law, except by will or by the laws of descent and
distribution of the state or country of the optionee's domicile at the
time of death.

(iv) TERMINATION OF EMPLOYMENT OR SERVICE.

(A) GENERAL RULE. Unless otherwise determined by the Board of
Directors, in the event the employment or service of the optionee
with the Company or a subsidiary terminates for any reason other than
because of physical disability or death as provided in subparagraphs
6(a)(iv)(B) and (C), the option may be exercised at any time prior to
the expiration date of the option or the expiration of 30 days after
the date of such termination, whichever is the shorter period, but
only if and to the extent the optionee was entitled to exercise the
option at the date of such termination.

(B) TERMINATION BECAUSE OF TOTAL DISABILITY. Unless otherwise
determined by the Board of Directors, in the event of the termination
of employment or service because of total disability, the option may
be exercised at any time prior to the expiration date of the option
or the expiration of 12 months after the date of such termination,
whichever is the shorter period, but only if and to the extent the
optionee was entitled to exercise the option at the date of such
termination. The term "total disability" means a medically
determinable mental or physical impairment which is expected to
result in death or which has lasted or is expected to last for a
continuous period of 12 months or more and which causes the optionee
to be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties as an employee, director,
officer or consultant of the Company and to be engaged in any
substantial gainful activity. Total disability shall be deemed to
have occurred on the first day after the Company and the two
independent physicians have furnished their opinion of total
disability to the Company.

(C) TERMINATION BECAUSE OF DEATH. Unless otherwise determined
by the Board of Directors, in the event of the death of an optionee
while employed by or providing service to the Company or a
subsidiary, the option may be exercised at any time prior to the
expiration date of the option or the expiration of 12 months after
the date of death, whichever is the shorter period, but only if and
to the extent the optionee was entitled to exercise the option at the
date of death and only by the person or persons to whom such
optionee's rights under the option shall pass by the optionee's will
or by the laws of descent and distribution of the state or country of
domicile at the time of death.

(D) AMENDMENT OF EXERCISE PERIOD APPLICABLE TO TERMINATION. The
Board of Directors, at the time of grant or, with respect to an
option that is not an Incentive Stock Option, at any time thereafter,
may extend the 30-day and 12-month exercise periods any length of
time not longer than the original expiration date of the option, and
may increase the portion

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<PAGE>
of an option that is exercisable, subject to such terms and
conditions as the Board of Directors may determine.

(E) FAILURE TO EXERCISE OPTION. To the extent that the option
of any deceased optionee or of any optionee whose employment or
service terminates is not exercised within the applicable period, all
further rights to purchase shares pursuant to such option shall cease
and terminate.

(v) PURCHASE OF SHARES. Unless the Board of Directors determines
otherwise, shares may be acquired pursuant to an option granted under the
Plan only upon receipt by the Company of notice in writing from the
optionee of the optionee's intention to exercise, specifying the number
of shares as to which the optionee desires to exercise the option and the
date on which the optionee desires to complete the transaction, and if
required in order to comply with the Securities Act of 1933, as amended,
containing a representation that it is the optionee's present intention
to acquire the shares for investment and not with a view to distribution.
Unless the Board of Directors determines otherwise, on or before the date
specified for completion of the purchase of shares pursuant to an option,
the optionee must have paid the Company the full purchase price of such
shares in cash (including, with the consent of the Board of Directors,
cash that may be the proceeds of a loan from the Company (provided that,
with respect to an Incentive Stock Option, such loan is approved at the
time of option grant)) or, with the consent of the Board of Directors, in
whole or in part, in Common Stock of the Company valued at fair market
value, restricted stock, performance units or other contingent awards
denominated in either stock or cash, promissory notes and other forms of
consideration. The fair market value of Common Stock provided in payment
of the purchase price shall be determined by the Board of Directors. If
the Common Stock of the Company is not publicly traded on the date the
option is exercised, the Board of Directors may consider any valuation
methods it deems appropriate and may, but is not required to, obtain one
or more independent appraisals of the Company. If the Common Stock of the
Company is publicly traded on the date the option is exercised, the fair
market value of Common Stock provided in payment of the purchase price
shall be the closing price of the Common Stock as reported in THE WALL
STREET JOURNAL on the last trading day preceding the date the option is
exercised, or such other reported value of the Common Stock as shall be
specified by the Board of Directors. No shares shall be issued until full
payment for the shares has been made. With the consent of the Board of
Directors (which, in the case of an Incentive Stock Option, shall be
given only at the time of option grant), an optionee may request the
Company to apply automatically the shares to be received upon the
exercise of a portion of a stock option (even though stock certificates
have not yet been issued) to satisfy the purchase price for additional
portions of the option. Each optionee who has exercised an option shall
immediately upon notification of the amount due, if any, pay to the
Company in cash amounts necessary to satisfy any applicable federal,
state and local tax withholding requirements. If additional withholding
is or becomes required beyond any amount deposited before delivery of the
certificates, the optionee shall pay such amount to the Company on
demand. If the optionee fails to pay the amount demanded, the Company may
withhold that amount from other amounts payable by the Company to the
optionee, including salary, subject to applicable law. With the consent
of the Board of Directors an optionee may satisfy this obligation, in
whole or in part, by having the Company withhold from the shares to be
issued upon the exercise that number of shares that would satisfy the
withholding amount due or by delivering to the Company Common Stock to
satisfy the withholding amount. Upon the exercise of an option, the
number of shares reserved for issuance under the Plan shall be reduced by
the number of shares issued upon exercise of the option.

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<PAGE>
(b) INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be subject to the
following additional terms and conditions:

(i) LIMITATION ON AMOUNT OF GRANTS. No employee may be granted Incentive
Stock Options under the Plan if the aggregate fair market value, on the date
of grant, of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by that employee during any calendar year
under the Plan and under all incentive stock option plans (within the
meaning of Section 422 of the Code) of the Company or any parent or
subsidiary of the Company exceeds $100,000.

(ii) LIMITATIONS ON GRANTS TO 10 PERCENT SHAREHOLDERS. An Incentive
Stock Option may be granted under the Plan to an employee possessing more
than 10 percent of the total combined voting power of all classes of stock
of the Company or of any parent or subsidiary of the Company only if the
option price is at least 110 percent of the fair market value, as described
in paragraph 6(b)(iv), of the Common Stock subject to the option on the date
it is granted and the option by its terms is not exercisable after the
expiration of five years from the date it is granted.

(iii) DURATION OF OPTIONS. Subject to paragraphs 6(a)(ii) and 6(b)(ii),
Incentive Stock Options granted under the Plan shall continue in effect for
the period fixed by the Board of Directors, except that no Incentive Stock
Option shall be exercisable after the expiration of 10 years from the date
it is granted.

(iv) OPTION PRICE. The option price per share shall be determined by the
Board of Directors at the time of grant. Except as provided in paragraph
6(b)(ii), the option price shall not be less than 100 percent of the fair
market value of the Common Stock covered by the Incentive Stock Option at
the date the option is granted. The fair market value shall be determined by
the Board of Directors. If the Common Stock of the Company is not publicly
traded on the date the option is granted, the Board of Directors may
consider any valuation methods it deems appropriate and may, but is not
required to, obtain one or more independent appraisals of the Company. If
the Common Stock of the Company is publicly traded on the date the option is
exercised, the fair market value shall be deemed to be the closing price of
the Common Stock as reported in THE WALL STREET JOURNAL on the day preceding
the date the option is granted, or, if there has been no sale on that date,
on the last preceding date on which a sale occurred or such other value of
the Common Stock as shall be specified by the Board of Directors.

(v) LIMITATION ON TIME OF GRANT. No Incentive Stock Option shall be
granted on or after the tenth anniversary of the effective date of the Plan.

(vi) CONVERSION OF INCENTIVE STOCK OPTIONS. The Board of Directors may
at any time without the consent of the optionee convert an Incentive Stock
Option to a Non-Statutory Stock Option.

(c) NON-STATUTORY STOCK OPTIONS. Non-Statutory Stock Options shall be
subject to the following terms and conditions in addition to those set forth in
Section 6(a) above:

(i) OPTION PRICE. The option price for Non-Statutory Stock Options shall
be determined by the Board of Directors at the time of grant and may be any
amount determined by the Board of Directors.

(ii) DURATION OF OPTIONS. Non-Statutory Stock Options granted under the
Plan shall continue in effect for the period fixed by the Board of
Directors.

7. STOCK BONUSES. The Board of Directors may award shares under the Plan
as stock bonuses. Shares awarded as a bonus shall be subject to the terms,
conditions, and restrictions determined by the Board of Directors. The
restrictions may include restrictions concerning transferability and forfeiture
of the shares awarded, together with such other restrictions as may be
determined by the Board of Directors. If shares are subject to forfeiture, all
dividends or other distributions paid by the Company with respect to the shares
shall be retained by the Company until the shares are no longer subject to
forfeiture, at which time

22
<PAGE>
all accumulated amounts shall be paid to the recipient. The Board of Directors
may require the recipient to sign an agreement as a condition of the award, but
may not require the recipient to pay any monetary consideration other than
amounts necessary to satisfy tax withholding requirements. The agreement may
contain any terms, conditions, restrictions, representations and warranties
required by the Board of Directors. The certificates representing the shares
awarded shall bear any legends required by the Board of Directors. [Unless
otherwise determined by the Board of Directors, shares awarded as a stock bonus
to an Officer may not be sold until six months after the date of the award.] The
Company may require any recipient of a stock bonus to pay to the Company in cash
upon demand amounts necessary to satisfy any applicable federal, state or local
tax withholding requirements. If the recipient fails to pay the amount demanded,
the Company may withhold that amount from other amounts payable by the Company
to the recipient, including salary or fees for services, subject to applicable
law. With the consent of the Board of Directors, a recipient may deliver Common
Stock to the Company to satisfy this withholding obligation. Upon the issuance
of a stock bonus, the number of shares reserved for issuance under the Plan
shall be reduced by the number of shares issued.

8. RESTRICTED STOCK. The Board of Directors may issue shares under the
Plan for such consideration (including promissory notes and services) as
determined by the Board of Directors. Shares issued under the Plan shall be
subject to the terms, conditions and restrictions determined by the Board of
Directors. The restrictions may include restrictions concerning transferability,
repurchase by the Company and forfeiture of the shares issued, together with
such other restrictions as may be determined by the Board of Directors. If
shares are subject to forfeiture or repurchase by the Company, all dividends or
other distributions paid by the Company with respect to the shares shall be
retained by the Company until the shares are no longer subject to forfeiture or
repurchase, at which time all accumulated amounts shall be paid to the
recipient. All Common Stock issued pursuant to this paragraph 8 shall be subject
to a purchase agreement, which shall be executed by the Company and the
prospective recipient of the shares prior to the delivery of certificates
representing such shares to the recipient. The purchase agreement may contain
any terms, conditions, restrictions, representations and warranties required by
the Board of Directors. The certificates representing the shares shall bear any
legends required by the Board of Directors. [Unless otherwise determined by the
Board of Directors, shares issued under this paragraph 8 to an Officer may not
be sold until six months after the shares are issued.] The Company may require
any purchaser of restricted stock to pay to the Company in cash upon demand
amounts necessary to satisfy any applicable federal, state or local tax
withholding requirements. If the purchaser fails to pay the amount demanded, the
Company may withhold that amount from other amounts payable by the Company to
the purchaser, including salary, subject to applicable law. With the consent of
the Board of Directors, a purchaser may deliver Common Stock to the Company to
satisfy this withholding obligation. Upon the issuance of restricted stock, the
number of shares reserved for issuance under the Plan shall be reduced by the
number of shares issued.

9. STOCK APPRECIATION RIGHTS.

(a) GRANT. Stock appreciation rights may be granted under the Plan by
the Board of Directors, subject to such rules, terms, and conditions as the
Board of Directors prescribes.

(b) EXERCISE.

(i) Each stock appreciation right shall entitle the holder, upon
exercise, to receive from the Company in exchange therefor an amount
equal in value to the excess of the fair market value on the date of
exercise of one share of Common Stock of the Company over its fair market
value on the date of grant (or, in the case of a stock appreciation right
granted in connection with an option, the excess of the fair market value
of one share of Common Stock of the Company over the option price per
share under the option to which the stock appreciation right relates),
multiplied by the number of shares covered by the stock appreciation
right or the option, or portion thereof, that is surrendered. No stock
appreciation right shall be exercisable at a time

23
<PAGE>
that the amount determined under this subparagraph is negative. Payment
by the Company upon exercise of a stock appreciation right may be made in
Common Stock valued at fair market value, in cash, or partly in Common
Stock and partly in cash, all as determined by the Board of Directors.

(ii) A stock appreciation right shall be exercisable only at the
time or times established by the Board of Directors. If a stock
appreciation right is granted in connection with an option, the following
rules shall apply: (1) the stock appreciation right shall be exercisable
only to the extent and on the same conditions that the related option
could be exercised; (2) the stock appreciation rights shall be
exercisable only when the fair market value of the stock exceeds the
option price of the related option; (3) the stock appreciation right
shall be for no more than 100 percent of the excess of the fair market
value of the stock at the time of exercise over the option price; (4)
upon exercise of the stock appreciation right, the option or portion
thereof to which the stock appreciation right relates terminates; and (5)
upon exercise of the option, the related stock appreciation right or
portion thereof terminates. [Unless otherwise determined by the Board of
Directors, no stock appreciation right granted to an Officer or director
may be exercised during the first six months following the date it is
granted.]

(iii) The Board of Directors may withdraw any stock appreciation
right granted under the Plan at any time and may impose any conditions
upon the exercise of a stock appreciation right or adopt rules and
regulations from time to time affecting the rights of holders of stock
appreciation rights. Such rules and regulations may govern the right to
exercise stock appreciation rights granted prior to adoption or amendment
of such rules and regulations as well as stock appreciation rights
granted thereafter.

(iv) For purposes of this paragraph 9, the fair market value of the
Common Stock shall be determined as of the date the stock appreciation
right is exercised, under the methods set forth in paragraph 6(b)(iv).

(v) No fractional shares shall be issued upon exercise of a stock
appreciation right. In lieu thereof, cash may be paid in an amount equal
to the value of the fraction or, if the Board of Directors shall
determine, the number of shares may be rounded downward to the next whole
share.

(vi) Each stock appreciation right granted in connection with an
Incentive Stock Option, and unless otherwise determined by the Board of
Directors [with respect to a stock appreciation right granted to a person
who is neither an Officer nor a director of the Company,] each other
stock appreciation right granted under the Plan by its terms shall be
nonassignable and nontransferable by the holder, either voluntarily or by
operation of law, except by will or by the laws of descent and
distribution of the state or country of the holder's domicile at the time
of death, and each stock appreciation right by its terms shall be
exercisable during the holder's lifetime only by the holder.

(vii) Each participant who has exercised a stock appreciation right
shall, upon notification of the amount due, pay to the Company in cash
amounts necessary to satisfy any applicable federal, state and local tax
withholding requirements. If the participant fails to pay the amount
demanded, the Company may withhold that amount from other amounts payable
by the Company to the participant including salary, subject to applicable
law. With the consent of the Board of Directors a participant may satisfy
this obligation, in whole or in part, by having the Company withhold from
any shares to be issued upon the exercise that number of shares that
would satisfy the withholding amount due or by delivering Common Stock to
the Company to satisfy the withholding amount.

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<PAGE>
(viii) Upon the exercise of a stock appreciation right for shares, the
number of shares reserved for issuance under the Plan shall be reduced by
the number of shares issued. Cash payments of stock appreciation rights
shall not reduce the number of shares of Common Stock reserved for
issuance under the Plan.

10. CASH BONUS RIGHTS.

(a) GRANT. The Board of Directors may grant cash bonus rights under the
Plan in connection with (i) options granted or previously granted, (ii)
stock appreciation rights granted or previously granted, (iii) stock bonuses
awarded or previously awarded and (iv) shares sold or previously sold under
the Plan. Cash bonus rights will be subject to rules, terms and conditions
as the Board of Directors may prescribe. Unless otherwise determined by the
Board of Directors [with respect to a cash bonus right granted to a person
who is neither an Officer nor a director of the Company,] each cash bonus
right granted under the Plan by its terms shall be nonassignable and
nontransferable by the holder, either voluntarily or by operation of law,
except by will or by the laws of descent and distribution of the state or
country of the holder's domicile at the time of death. The payment of a cash
bonus shall not reduce the number of shares of Common Stock reserved for
issuance under the Plan.

(b) CASH BONUS RIGHTS IN CONNECTION WITH OPTIONS. A cash bonus right
granted in connection with an option will entitle an optionee to a cash
bonus when the related option is exercised (or terminates in connection with
the exercise of a stock appreciation right related to the option) in whole
or in part if, in the sole discretion of the Board of Directors, the bonus
right will result in a tax deduction that the Company has sufficient taxable
income to use. If an optionee purchases shares upon exercise of an option
and does not exercise a related stock appreciation right, the amount of the
bonus, if any, shall be determined by multiplying the excess of the total
fair market value of the shares to be acquired upon the exercise over the
total option price for the shares by the applicable bonus percentage. If the
optionee exercises a related stock appreciation right in connection with the
termination of an option, the amount of the bonus, if any, shall be
determined by multiplying the total fair market value of the shares and cash
received pursuant to the exercise of the stock appreciation right by the
applicable bonus percentage. The bonus percentage applicable to a bonus
right, including a previously granted bonus right, may be changed from time
to time at the sole discretion of the Board of Directors but shall in no
event exceed 75 percent.

(c) CASH BONUS RIGHTS IN CONNECTION WITH STOCK BONUS. A cash bonus right
granted in connection with a stock bonus will entitle the recipient to a
cash bonus payable when the stock bonus is awarded or restrictions, if any,
to which the stock is subject lapse. If bonus stock awarded is subject to
restrictions and is repurchased by the Company or forfeited by the holder,
the cash bonus right granted in connection with the stock bonus shall
terminate and may not be exercised. The amount and timing of payment of a
cash bonus shall be determined by the Board of Directors.

(d) CASH BONUS RIGHTS IN CONNECTION WITH STOCK PURCHASES. A cash bonus
right granted in connection with the purchase of stock pursuant to paragraph
8 will entitle the recipient to a cash bonus when the shares are purchased
or restrictions, if any, to which the stock is subject lapse. Any cash bonus
right granted in connection with shares purchased pursuant to paragraph 8
shall terminate and may not be exercised in the event the shares are
repurchased by the Company or forfeited by the holder pursuant to applicable
restrictions. The amount of any cash bonus to be awarded and timing of
payment of a cash bonus shall be determined by the Board of Directors.

(e) TAXES. The Company shall withhold from any cash bonus paid pursuant
to paragraph 10 the amount necessary to satisfy any applicable federal,
state and local withholding requirements.

11. PERFORMANCE UNITS. The Board of Directors may grant performance units
consisting of monetary units which may be earned in whole or in part if the
Company achieves certain goals established by the

25
<PAGE>
Board of Directors over a designated period of time, but not in any event more
than 10 years. The goals established by the Board of Directors may include
earnings per share, return on shareholders' equity, return on invested capital,
and such other goals as may be established by the Board of Directors. In the
event that the minimum performance goal established by the Board of Directors is
not achieved at the conclusion of a period, no payment shall be made to the
participants. In the event the maximum corporate goal is achieved, 100 percent
of the monetary value of the performance units shall be paid to or vested in the
participants. Partial achievement of the maximum goal may result in a payment or
vesting corresponding to the degree of achievement as determined by the Board of
Directors. Payment of an award earned may be in cash or in Common Stock or in a
combination of both, and may be made when earned, or vested and deferred, as the
Board of Directors determines. Deferred awards shall earn interest on the terms
and at a rate determined by the Board of Directors. Unless otherwise determined
by the Board of Directors [with respect to a performance unit granted to a
person who is neither an Officer nor a director of the Company,] each
performance unit granted under the Plan by its terms shall be nonassignable and
nontransferable by the holder, either voluntarily or by operation of law, except
by will or by the laws of descent and distribution of the state or country of
the holder's domicile at the time of death. Each participant who has been
awarded a performance unit shall, upon notification of the amount due, pay to
the Company in cash amounts necessary to satisfy any applicable federal, state
and local tax withholding requirements. If the participant fails to pay the
amount demanded, the Company may withhold that amount from other amounts payable
by the Company to the participant, including salary or fees for services,
subject to applicable law. With the consent of the Board of Directors a
participant may satisfy this obligation, in whole or in part, by having the
Company withhold from any shares to be issued that number of shares that would
satisfy the withholding amount due or by delivering Common Stock to the Company
to satisfy the withholding amount. The payment of a performance unit in cash
shall not reduce the number of shares of Common Stock reserved for issuance
under the Plan. The number of shares reserved for issuance under the Plan shall
be reduced by the number of shares issued upon payment of an award.

12. FOREIGN QUALIFIED GRANTS. Awards under the Plan may be granted to such
officers and employees of the Company and its subsidiaries and such other
persons described in paragraph 1 residing in foreign jurisdictions as the Board
of Directors may determine from time to time. The Board of Directors may adopt
such supplements to the Plan as may be necessary to comply with the applicable
laws of such foreign jurisdictions and to afford participants favorable
treatment under such laws; provided, however, that no award shall be granted
under any such supplement with terms which are more beneficial to the
participants than the terms permitted by the Plan.

13. CHANGES IN CAPITAL STRUCTURE.

(a) STOCK SPLITS; STOCK DIVIDENDS. If the outstanding Common Stock of
the Company is hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company
by reason of any stock split, combination of shares or dividend payable in
shares, recapitalization or reclassification appropriate adjustment shall be
made by the Board of Directors in the number and kind of shares available
for grants under the Plan. In addition, the Board of Directors shall make
appropriate adjustment in the number and kind of shares as to which
outstanding options, or portions thereof then unexercised, shall be
exercisable, so that the optionee's proportionate interest before and after
the occurrence of the event is maintained. Notwithstanding the foregoing,
the Board of Directors shall have no obligation to effect any adjustment
that would or might result in the issuance of fractional shares, and any
fractional shares resulting from any adjustment may be disregarded or
provided for in any manner determined by the Board of Directors. Any such
adjustments made by the Board of Directors shall be conclusive.

(b) MERGERS, REORGANIZATIONS, ETC. In the event of a merger,
consolidation, plan of exchange, acquisition of property or stock,
separation, reorganization or liquidation to which the Company or a
subsidiary is a party or a sale of all or substantially all of the Company's
assets (each, a "Transaction"),

26
<PAGE>
the Board of Directors shall, in its sole discretion and to the extent
possible under the structure of the Transaction, select one of the following
alternatives for treating outstanding options under the Plan:

(i) Outstanding options shall remain in effect in accordance with
their terms.

(ii) Outstanding options shall be converted into options to purchase
stock in the corporation that is the surviving or acquiring corporation
in the Transaction. The amount, type of securities subject thereto and
exercise price of the converted options shall be determined by the Board
of Directors of the Company, taking into account the relative values of
the companies involved in the Transaction and the exchange rate, if any,
used in determining shares of the surviving corporation to be issued to
holders of shares of the Company. Unless otherwise determined by the
Board of Directors, the converted options shall be vested only to the
extent that the vesting requirements relating to options granted
hereunder have been satisfied.

(iii) The Board of Directors shall provide a 30-day period prior to
the consummation of the Transaction during which outstanding options may
be exercised to the extent then exercisable, and upon the expiration of
such 30-day period, all unexercised options shall immediately terminate.
The Board of Directors may, in its sole discretion, accelerate the
exercisability of options so that they are exercisable in full during
such 30-day period.

(c) DISSOLUTION OF THE COMPANY. In the event of the dissolution of the
Company, options shall be treated in accordance with paragraph 13(b)(iii).

(d) RIGHTS ISSUED BY ANOTHER CORPORATION. The Board of Directors may
also grant options, stock appreciation rights, performance units, stock
bonuses and cash bonuses and issue restricted stock under the Plan having
terms, conditions and provisions that vary from those specified in this Plan
provided that any such awards are granted in substitution for, or in
connection with the assumption of, existing options, stock appreciation
rights, stock bonuses, cash bonuses, restricted stock and performance units
granted, awarded or issued by another corporation and assumed or otherwise
agreed to be provided for by the Company pursuant to or by reason of a
Transaction.

14. AMENDMENT OF PLAN. The Board of Directors may at any time, and from
time to time, modify or amend the Plan in such respects as it shall deem
advisable because of changes in the law while the Plan is in effect or for any
other reason. Except as provided in paragraphs 6(a)(iv), 9, 10 and 13, however,
no change in an award already granted shall be made without the written consent
of the holder of such award.

15. APPROVALS. The obligations of the Company under the Plan are subject
to the approval of state and federal authorities or agencies with jurisdiction
in the matter. The Company will use its best efforts to take steps required by
state or federal law or applicable regulations, including rules and regulations
of the Securities and Exchange Commission and any stock exchange on which the
Company's shares may then be listed, in connection with the grants under the
Plan. The foregoing notwithstanding, the Company shall not be obligated to issue
or deliver Common Stock under the Plan if such issuance or delivery would
violate applicable state or federal securities laws.

16. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any subsidiary or interfere in any
way with the right of the Company or any subsidiary by whom such employee is
employed to terminate such employee's employment at any time, for any reason,
with or without cause, or to decrease such employee's compensation or benefits,
or (ii) confer upon any person engaged by the Company any right to be retained
or employed by the Company or to the continuation, extension, renewal, or
modification of any compensation, contract, or arrangement with or by the
Company.

17. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any Common Stock until the
date of issue to the recipient of a stock certificate for such shares. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date occurs prior to the date
such stock certificate is issued.

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<PAGE>
18. OPTION GRANTS TO [NON-EMPLOYEE] INDEPENDENT DIRECTORS.
(a) INITIAL BOARD GRANTS. Each person who is [a Non-Employee] an
Independent Director when the Plan is adopted or who becomes a
[Non-Employee] an Independent Director thereafter shall be automatically
granted an option to purchase 5,000 shares of Common Stock on the date the
Plan is approved by the shareholders of the Company or when he or she
becomes a [Non-Employee] an Independent Director. [A "Non-Employee] An
"Independent Director" is a director who is not an officer or employee of
the Company or any of its subsidiaries and who does not have a relationship
which, in the opinion of the Board of Directors of the Company, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director.

(b) ADDITIONAL GRANTS. Each [Non-Employee] Independent Director shall
be automatically granted an option to purchase additional shares of Common
Stock in each calendar year subsequent to the year in which such
[Non-Employee] Independent Director was granted an option pursuant to
paragraph 18(a), such option to be granted as of the date of the Company's
annual meeting of shareholders held in such calendar year, provided that the
[Non-Employee] Independent Director continues to serve in such capacity as
of such date. The number of shares subject to each additional grant shall be
1,000 shares for each [Non-Employee] Independent Director.

(c) EXERCISE PRICE. The exercise price of options for 5,000 shares
granted pursuant to paragraph 18(a) as of the date the Plan is approved by
the Shareholders of the Company shall be equal to the price per share to the
public in the Company's initial public offering, unless otherwise determined
by the Board. The exercise price of all other options granted pursuant to
this paragraph 19 shall be equal to 100 percent of the fair market value of
the Common Stock determined pursuant to paragraph 6(b)(iv).

(d) TERM OF OPTION. The term of each option granted pursuant to this
paragraph 18 shall be 10 years from the date of grant.

(e) EXERCISABILITY. Until an option expires or is terminated and
except as provided in paragraphs 18(f) and 13, an option granted under this
paragraph 19 shall be exercisable according to the following schedule: 2.78%
for each complete month of continuous service after the date of grant,
rounded up to the next full share, until fully vested.

For purposes of this paragraph 18(e), a complete month shall be deemed
to be the period which starts on the day of grant and ends on the same day
of the following calendar month, so that each successive "complete month"
ends on the same day of each successive calendar month (or, in respect of
any calendar month which does not include such a day, that "complete month"
shall end on the first day of the next following calendar month).

(f) TERMINATION AS A DIRECTOR. If an optionee ceases to be a director
of the Company for any reason, including death, the option may be exercised
at any time prior to the expiration date of the option or the expiration of
30 days (or 12 months in the event of death) after the last day the optionee
served as a director, whichever is the shorter period, but only if and to
the extent the optionee was entitled to exercise the option as of the last
day the optionee served as a director.

(g) NONTRANSFERABILITY. Each option by its terms shall be
nonassignable and nontransferable by the optionee, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution
of the state or country of the optionee's domicile at the time of death, and
each option by its terms shall be exercisable during the optionee's lifetime
only by the optionee.

28
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(h) EXERCISE OF OPTIONS. Options may be exercised upon payment of cash
or shares of Common Stock of the Company in accordance with paragraph
6(a)(v).

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<S> <C>
Adopted: April 21, 1995
Amended: May 5, 1995
May 15, 1996
May 15, 1997
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29
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PROXY

FEI COMPANY
ANNUAL MEETING, MAY 15, 1997

PROXY SOLICITED BY BOARD OF DIRECTORS

PLEASE SIGN AND RETURN THIS PROXY

The undersigned hereby appoints Lynwood W. Swanson, William G. Langley
and Lloyd R. Swenson, and each of them, proxies with power of substitution to
vote on behalf of the undersigned all shares that the undersigned may be
entitled to vote at the annual meeting of shareholders of FEI Company (the
"Company") on May 15, 1997 and any adjournments thereof, with all powers that
the undersigned would possess if personally present, with respect to the
following.

The shares represented by this proxy will be voted as specified on the
reverse hereof, but if no specification is made, this proxy will be voted for
the election of directors and for the amendments to the Plan. THE PROXIES MAY
VOTE IN THEIR DISCRETION AS TO OTHER MATTERS THAT MAY COME BEFORE THIS
MEETING.

(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE.)

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<S> <C>
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Please mark
your votes as /X/
indicated in
this example

FOR ALL NOMINEES WITHHOLD AUTHORITY
EXCEPT AS MARKED TO VOTE FOR ALL
TO THE CONTRARY BELOW. NOMINEES LISTED BELOW. FOR AGAINST ABSTAIN

1. Election of Directors: / / / / 2. Amendment of the Company's / / / / / /
1995 Stock Incentive
Plan to increase the
(Instructions: To withhold authority to vote for any individual, total number of shares
strike a line through the nominee's name below.) reserved for issuance
under the plan from
800,000 to 1,300,000
Alfred B. Bok, William E. Curran, William G. Langley, Theo J.H.J. shares and to make
Sonnemans, Lynwood W. Swanson, Lloyd R. Swenson, Karel D. van der Mast, other changes
Donald R. VanLuvanee, William A. Whitward described in the
Company's Proxy
Statement for the 1997
Annual Meeting of
Shareholders.

3. Transaction of any business that properly
comes before the meeting or any adjournments
thereof. A majority of the proxies or
substitutes at the meeting may exercise all the
powers granted hereby.

The Annual Meeting of Shareholders of
FEI Company will be held on May 15,
1997 at 9:00 a.m., Pacific Time, at
the OSSHE Facility, 18640 NW Walker
Road, Beaverton, Oregon.

PLEASE NOTE: ANY SHARES OF STOCK OF
THE COMPANY HELD IN THE NAME OF
FIDUCIARIES, CUSTODIANS OR BROKERAGE
HOUSES FOR THE BENEFIT OF THEIR
______ CLIENTS MAY ONLY BE VOTED BY THE
| FIDUCIARY, CUSTODIAN OR BROKERAGE
| HOUSE ITSELF -- THE BENEFICIAL OWNER
| MAY NOT DIRECTLY VOTE OR APPOINT A
PROXY TO VOTE THE SHARES AND MUST
INSTRUCT THE PERSON OR ENTITY IN
WHOSE NAME THE SHARES ARE HELD HOW TO
VOTE THE SHARES HELD FOR THE
BENEFICIAL OWNER. THEREFORE, IF ANY
SHARES OF STOCK OF THE COMPANY ARE
HELD IN "STREET NAME" BY A BROKERAGE
HOUSE, ONLY THE BROKERAGE HOUSE, AT
THE INSTRUCTIONS OF ITS CLIENT, MAY
VOTE OR APPOINT A PROXY TO VOTE THE
SHARES.

Date: , 1997 Signature or Signatures
-------------- ----------------------
Please date and sign as name is imprinted hereon, including designation as
executor, trustee, etc., if applicable. A corporation must sign its name by
the president or other authorized officer.
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