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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 Section 240.14a-11(c) or Section 240.14a-12
VARIAN ASSOCIATES, INC.
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(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):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] 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:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF VARIAN]
VARIAN ASSOCIATES, INC.
WORLD HEADQUARTERS
3050 HANSEN WAY
PALO ALTO, CALIFORNIA 94304-1000
(650) 493-4000
December 31, 1997
Dear Stockholder:
It is my pleasure to invite you to your Company's Annual Meeting of Stock-
holders to be held on Thursday, February 19, 1998, at 1:30 p.m.
The Secretary's formal notice of the meeting and the Proxy Statement appear
on the following pages and describe the matters to be acted upon at the meet-
ing. During the meeting, time will be provided for a review of activities of
the past year and items of general interest about the Company.
We hope that you will be able to attend the meeting in person. However, if
you cannot attend, or if you plan to be present but want the Proxy holders to
vote your shares, please complete, sign and return the enclosed Proxy at your
earliest convenience.
Sincerely,
/s/ J. TRACY O'ROURKE
--------------------------
J. TRACY O'ROURKE
Chairman of the Board
and Chief Executive Officer
<PAGE>
[LOGO OF VARIAN]
VARIAN ASSOCIATES, INC.
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 19, 1998
The Annual Meeting of Stockholders of Varian Associates, Inc., a Delaware
corporation, will be held at the SRI International Auditorium, 333 Ravenswood
Avenue, Menlo Park, California, on Thursday, February 19, 1998, at 1:30 p.m.,
for the following purposes:
1. To elect five members of the Company's Board of Directors for three-
year terms;
2. To approve an amendment to the Company's Omnibus Stock Plan; and
3. To transact such other business as may properly come before the An-
nual Meeting and any adjournment or postponement thereof.
The Board of Directors fixed December 22, 1997 as the record date for the
Annual Meeting, and only stockholders of record at the close of business on
that date are entitled to receive notice of and vote at the Annual Meeting and
any adjournment or postponement thereof. In accordance with Delaware law, a
list of the Company's stockholders entitled to vote at the Annual Meeting will
be available for examination by any stockholder for any purpose germane to the
Annual Meeting during normal business hours at the Company's offices at 3050
Hansen Way, Palo Alto, California, for ten days prior to the Annual Meeting.
It is important that your stock be represented at the Annual Meeting to as-
sure a quorum. Whether or not you now expect to be present at the Annual Meet-
ing, please complete, sign and date the enclosed Proxy and mail it promptly in
the accompanying addressed envelope, which requires no postage if mailed in
the United States. The Proxy is revocable at any time before it is voted in
the manner described in the accompanying Proxy Statement, and submitting your
Proxy now will not affect your right to vote in person if you attend the An-
nual Meeting.
By Order of the Board of Directors
/s/ JOSEPH B. PHAIR
--------------------
JOSEPH B. PHAIR
Secretary
December 31, 1997
Palo Alto, California
<PAGE>
VARIAN ASSOCIATES, INC.
3050 HANSEN WAY
PALO ALTO, CALIFORNIA 94304-1000
----------------------
PROXY STATEMENT
ANNUAL MEETING TO BE HELD ON FEBRUARY 19, 1998
This Proxy Statement is being furnished to the stockholders of Varian Asso-
ciates, Inc., a Delaware corporation (the "Company"), in connection with the
solicitation by the Board of Directors of the Company of Proxies for use at
the Annual Meeting of Stockholders to be held on February 19, 1998 and at any
adjournment or postponement thereof (the "Annual Meeting"). Shares represented
by Proxies received in time for the Annual Meeting will be voted in accordance
with the instructions set forth on the Proxies. Where no instructions are in-
dicated, such Proxies will be voted FOR the Board of Directors' nominees for
directors and FOR the Board of Directors' proposed amendment to the Company's
Omnibus Stock Plan. If any other business is properly brought for action at
the Annual Meeting, the Proxies will be voted in accordance with the judgment
of the Proxy holders as to the best interests of the Company. The Board of Di-
rectors does not know of any matters to be brought before the Annual Meeting
other than those described in this Proxy Statement. This Proxy Statement and
the accompanying form of Proxy were first sent or given to stockholders on or
about December 31, 1997.
Any person executing a Proxy may revoke it at any time prior to its exercise
by (a) filing with Joseph B. Phair, the Company's Secretary (at the Company's
address set forth above), prior to the Annual Meeting a written notice of rev-
ocation, (b) executing and duly delivering prior to the Annual Meeting a sub-
sequent Proxy bearing a later date, or (c) attending the Annual Meeting and
voting in person.
The cost of soliciting Proxies will be borne by the Company. Copies of so-
licitation material will be furnished to brokerage houses, fiduciaries and
custodians to forward to beneficial owners of the Company's Common Stock held
in their names. The Company will reimburse such persons for their reasonable
out-of-pocket expenses in forwarding solicitation materials. In addition to
solicitations by mail, some of the Company's directors, officers and other em-
ployees, without extra remuneration, might supplement this solicitation by
letter, telephone or personal interview. The Company might also retain Corpo-
rate Investor Communications, Inc., 111 Commerce Road, Carlstadt, New Jersey
07072-2586, to assist with solicitation of Proxies from brokers, bank nominees
and other holders, for a fixed retainer fee of no more than $5,000 plus rea-
sonable out-of-pocket expenses.
As of the close of business on the record date of December 22, 1997, there
were 30,044,096 shares of the Company's Common Stock outstanding. No shares of
any other class of stock are outstanding. Each share of Common Stock outstand-
ing at the close of business on such record date is entitled to one vote with
respect to matters to be voted on, except that cumulative voting will apply
with respect to the election of directors. Under the cumulative voting method
of election, the stockholder computes the number of votes available to him or
her by multiplying the number of shares he or she owned on the record date by
the
<PAGE>
number of directors to be elected, and may cast the votes all for a single nom-
inee or may distribute them in any manner among the nominees. Discretionary au-
thority to cumulate votes in the manner determined by the Proxy holders is
hereby solicited. The presence in person or by proxy of the persons entitled to
vote a majority of the shares of the Company's Common Stock at the Annual Meet-
ing constitutes a quorum. Although abstentions are counted and broker non-votes
are not counted in tabulations of the votes cast on proposals presented to
stockholders, abstentions and broker non-votes will have no effect upon the
election of directors because the five nominees receiving the highest number of
votes will be elected as directors.
ELECTION OF DIRECTORS
The Board of Directors consists of 15 members. Pursuant to the Company's Re-
stated Certificate of Incorporation, the Board is divided into three classes
and five persons are elected each year for three-year terms. The Board nomi-
nates five persons each year for consideration for election by the Company's
stockholders.
The following five persons have been nominated by the Board of Directors for
election at the Annual Meeting for terms expiring at the Annual Meeting of
Stockholders in 2001 and when their respective successors are elected and qual-
ified: John Seely Brown, Robert W. Dutton, Samuel Hellman, Terry R. Lautenbach
and David E. Mundell. The Board of Directors recommends that stockholders vote
for these nominees.
The nominees for directors have indicated their willingness to serve if
elected. The Company does not contemplate that any nominee will be unable to
serve. However, in the event that any nominee declines or becomes unable to
serve, Proxies will be voted for the remainder of the nominees and such substi-
tute nominee as shall be designated by the Proxy holders in their discretion
and in such order of preference as the Proxy holders may determine and to the
exclusion of others.
2
<PAGE>
Set forth below is certain biographical information with respect to each nom-
inee for director and each director in the classes continuing in office beyond
the Annual Meeting.
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NOMINEES FOR TERMS EXPIRING IN 2001
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JOHN SEELY BROWN
Dr. Brown is Vice President, Director of the Xerox Palo Alto Research Center
and Chief Scientist of Xerox Corporation, positions he has held since 1986,
1990 and 1992, respectively. He is a director of Corning Incorporated and
NextLevel Systems, Inc. Age: 57
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ROBERT W. DUTTON
Dr. Dutton is Director of Research at the Center for Integrated Systems and
Professor of Electrical Engineering at Stanford University, positions he has
held since 1991 and 1971, respectively. He is a director of Technology Modeling
Associates, Inc. Dr. Dutton has been a Varian director since 1996. Age: 53
- -------------------------------------------------------------------------------
SAMUEL HELLMAN
Dr. Hellman is the A. N. Pritzker Distinguished Service Professor in the
Department of Radiation and Cellular Oncology at the University of Chicago, a
position he has held since 1993. From 1988 to 1993, he was Dean of that
University's Division of Biological Sciences and its Pritzker School of
Medicine, Vice President of the University's Medical Center, and the A. N.
Pritzker Professor in the Department of Radiation and Cellular Oncology. Dr.
Hellman has been a Varian director since 1992. Age: 63
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TERRY R. LAUTENBACH
Mr. Lautenbach is a former Senior Vice President of International Business
Machines Corporation, a position he held from 1988 to 1992. He was responsible
for IBM's worldwide manufacturing and development and North American marketing
and services from 1990 to 1992, and served on IBM's Management Committee in
1991 and 1992. Mr. Lautenbach is a director of Air Products and Chemicals,
Inc., CVS Corporation and Footstar, Inc., and is a trustee of Loomis Sayles &
Company L.P.'s Mutual Funds. He has been a Varian director since 1993. Age: 59
- -------------------------------------------------------------------------------
DAVID E. MUNDELL
Mr. Mundell is Chairman of the Board of ORIX USA Corporation and Advisor (a
board-level position) to ORIX Corporation (both financial services companies),
positions he has held since 1991. He is a director of Beazer Homes USA, Inc.
and Stockton Holdings, Ltd. Mr. Mundell has been a Varian director since 1992.
Age: 66
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3
<PAGE>
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DIRECTORS WHOSE TERMS EXPIRE IN 2000
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RUTH M. DAVIS
Dr. Davis is President and Chief Executive Officer of The Pymatuning Group,
Inc. (a technology management company), positions she has held since 1981. She
is a director of Air Products and Chemicals, Inc., BTG, Inc., Ceridian
Corporation, Premark International, Inc., Principal Mutual Life Insurance
Company, Sprint Corporation and Tupperware Corporation. Dr. Davis is also a
trustee of Consolidated Edison Company of New York, Inc., Vice Chairman of the
Board of Betac Corporation, and Chairman of the Board of The Aerospace
Corporation. She has been a Varian director since 1981. Age: 69
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DAVID W. MARTIN, JR.
Dr. Martin is President and Chief Executive Officer of EOS Biotechnology, Inc.
(a biotechnology company), positions he has held since 1997. From 1995 to 1996,
he was President, Chief Executive Officer and director of LYNX Therapeutics,
Inc. (a biotechnology company), and from 1994 to 1995, he was Senior Vice
President of Chiron Corporation and President of Chiron Therapeutics (both
biotechnology companies). From 1990 through 1993, Dr. Martin was Executive Vice
President for Research and Development at The Du Pont Merck Pharmaceutical
Company. He is a director of Cubist Pharmaceuticals, Inc. Dr. Martin has been a
Varian director since 1994. Age: 56
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J. TRACY O'ROURKE
Mr. O'Rourke is Chairman of the Board and Chief Executive Officer of the
Company, positions he has held since 1990. He is a director of National
Semiconductor Corporation and NextLevel Systems, Inc. Mr. O'Rourke has been a
Varian director since 1990. Age: 62
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JON D. TOMPKINS
Mr. Tompkins is Chief Executive Officer and a director of KLA/Tencor
Corporation (a semiconductor equipment company), positions he has held since
1997. From 1993 to 1997, he was Chairman of Tencor Instruments, Inc. (a
semiconductor equipment company), where he also served as President, Chief
Executive Officer and director from 1991 to 1997. Mr. Tompkins has been a
Varian director since 1997. Age: 57
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RICHARD W. VIESER
Mr. Vieser is former Chairman of the Board, Chief Executive Officer and
President of Lear Siegler, Inc. (a diversified manufacturing company),
positions he held from 1987 to 1989. He is a director of Berg Electronics
Corp., Ceridian Corporation, Dresser Industries, Inc., Global Industrial
Technologies, Inc., International Wire Group, Inc. and Sybron International
Corporation. Mr. Vieser has been a Varian director since 1991. Age: 70
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4
<PAGE>
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DIRECTORS WHOSE TERMS EXPIRE IN 1999
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ANGUS A. MACNAUGHTON
Mr. MacNaughton is President of Genstar Investment Corporation (a private
investment company), a position he has held since 1987. He is a director of
Canadian Pacific Limited, Sun Life Assurance Company of Canada, Sun Life
Assurance Company of Canada (U.S.) and Sun Life Insurance and Annuity Company
of New York. Mr. MacNaughton is also Vice-Chairman of the Board of Barrick Gold
Corporation. He has been a Varian director since 1986. Age: 66
- -------------------------------------------------------------------------------
JOHN G. MCDONALD
Professor McDonald is The Industrial Bank of Japan Professor of Finance at
Stanford University's Graduate School of Business, where he has served since
1968. He is a director of American Balanced Fund, EuroPacific Growth Fund, The
Growth Fund of America, Inc., The Income Fund of America, Inc., The Investment
Company of America, New Perspective Fund, Inc., Emerging Markets Growth Fund,
Inc., Scholastic Corporation and TriNet Corporate Realty Trust, Inc. Professor
McDonald has been a Varian director since 1988. Age: 60
- -------------------------------------------------------------------------------
WAYNE R. MOON
Mr. Moon is Chairman of the Board and Chief Executive Officer of Blue Shield of
California (a health care company), positions he has held since 1993. From 1990
to 1993, he served as President and Chief Operating Officer of Kaiser
Foundation Health Plan, Inc. and Kaiser Foundation Hospitals (health
maintenance organizations). Mr. Moon has been a Varian director since 1995.
Age: 57
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BURTON RICHTER
Dr. Richter is Director of the Stanford Linear Accelerator Center and Paul
Pigott Professor in Physical Sciences at Stanford University, positions he has
held since 1984 and 1980, respectively. He has been a Varian director since
1990. Age: 66
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ELIZABETH E. TALLETT
Ms. Tallett is President and Chief Executive Officer of Dioscor Inc. (a
biopharmaceutical company), positions she has held since 1996, and is President
and Chief Executive Officer of Gryphon Pharmaceuticals Inc. (a biotechnology
company), positions she has held since 1997. From 1992 to 1996, she was
President and Chief Executive Officer of Transcell Technologies, Inc. (a
biotechnology company). Ms. Tallett is a director of Principal Mutual Life
Insurance Company. She has been a Varian director since 1996. Age: 49
- -------------------------------------------------------------------------------
Stockholder suggestions of persons to be nominated by the Board for election
as a director should be in writing and sent to the Secretary, Nominating Com-
mittee, c/o Chairman of the Board, at the Company's address set forth above.
Stockholder suggestions of potential nominees should reach the Secretary of
the Nominating Committee by May 15 in any given year in order to receive con-
sideration by that Committee for possible nomination by the Board for election
at the Annual Meeting of Stockholders in the following year.
Under the Company's Bylaws, nominations of persons for election as directors
may be made by a stockholder entitled to vote at an Annual Meeting of Stock-
holders only if written notice of such stockholder's intent to make such nomi-
nation is given by personal delivery or by United States mail, postage pre-
paid, to the Company's Secretary not later than 60 days in advance of such An-
nual Meeting, or in the case of a special meeting of stockholders for the
election of directors, not later than the close of business on the seventh day
following the date on which notice of such special meeting is first given to
stockholders. The notice must set forth
5
<PAGE>
certain information concerning each proposed nominee and the stockholder pro-
posing each nominee, including their respective names and addresses; a repre-
sentation that such stockholder is a holder of record of the Company's stock
entitled to vote at such meeting and intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the notice; a
description of all arrangements or understandings between the stockholder and
each proposed nominee and any other person pursuant to which the nomination is
to be made by the stockholder; such other information as would be required to
be included in a proxy statement soliciting proxies for the election of each
proposed nominee; and the consent of each proposed nominee to serve if elect-
ed. No such notice was received with respect to the Annual Meeting. The chair-
man of the Annual Meeting may refuse to acknowledge the nomination of any per-
son which is not made in compliance with the foregoing procedure.
ORGANIZATION AND COMPENSATION OF THE BOARD OF DIRECTORS
The Board of Directors has six standing committees: The Executive Committee;
the Audit and Corporate Responsibility Committee; the Finance Committee; the
Nominating Committee; the Organization and Compensation Committee; and the
Technology and Environmental Committee.
The Executive Committee consists of directors MacNaughton, McDonald (Chair-
man), Moore, O'Rourke and Richter. This Committee is delegated all powers of
the Board of Directors, except certain powers reserved by law to the full
Board, and it meets between regular Board meetings when convening a full Board
meeting is impracticable. The Executive Committee held two meetings during
fiscal year 1997.
The Audit and Corporate Responsibility Committee consists of directors
Dutton, MacNaughton, McDonald (Chairman), Moon, Moore and Mundell. This Com-
mittee is the principal link between the Board of Directors and the Company's
independent auditors, works with the Company's internal and external auditors
and counsel, reviews the scope and results of internal and external auditing,
and reviews certain compliance policies and programs. The Audit and Corporate
Responsibility Committee held three meetings during fiscal year 1997.
The Finance Committee consists of directors Davis, MacNaughton (Chairman),
McDonald, Mundell and Vieser. This Committee considers significant financial
policies and actions of the Company, and reviews and makes recommendations on
financial matters requiring Board of Directors approval. The Finance Committee
held four meetings during fiscal year 1997.
The Nominating Committee consists of directors Davis, Martin (Chairman),
Moore, Richter and Tallett. This Committee identifies and recommends to the
Board of Directors prospective candidates for nominees for election to the
Board, considers stockholder suggestions for Board nominees, and recommends
Board committee assignments to the Board. The Nominating Committee held four
meetings during fiscal year 1997.
The Organization and Compensation Committee consists of directors Hellman,
Lautenbach, MacNaughton, Moon, Moore, Tompkins and Vieser (Chairman). This
Committee consults with management and advises the Board of Directors on orga-
nizational matters, ap-
6
<PAGE>
proves officer compensation, approves all salary and compensation actions in
excess of specified levels, and is responsible for the administration of the
Company's stock plans and certain other employee compensation and benefit
plans. The Organization and Compensation Committee held four meetings during
fiscal year 1997.
The Technology and Environmental Committee consists of directors Davis
(Chairman), Dutton, Hellman, Lautenbach, Martin, Moore, Richter, Tallett and
Tompkins. This Committee reviews the Company's technological and research and
development activities, considers the Company's products from a technological
perspective, and reviews significant environmental and safety issues affecting
the Company. The Technology and Environmental Committee held four meetings
during fiscal year 1997.
The Board of Directors held four meetings during fiscal year 1997. Each di-
rector attended at least 75% of the total number of meetings of the Board and
committees of the Board.
Each director who is not a Company employee receives an annual retainer fee
of $19,000, plus $1,000 for each Board and committee meeting attended. Direc-
tors chairing standing committees of the Board each receive an additional an-
nual retainer fee of $7,000. Under the Company's Omnibus Stock Plan, each di-
rector who is not a Company employee also receives annually (a) a grant of 200
shares of the Company's Common Stock, subject to payment to the Company of the
aggregate par value of such shares ($1 per share), and (b) a non-qualified
stock option (exercisable after one year from the date of grant and with a
ten-year term) to acquire 2,000 shares of the Company's Common Stock. Direc-
tors who are Company employees receive no fees for their services as direc-
tors.
7
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of December 1, 1997
regarding beneficial ownership of the Company's Common Stock by (a) each per-
son who, to the Company's knowledge, beneficially owned more than 5% of the
outstanding shares, (b) each of the executive officers named in the Summary
Compensation Table on page 11, (c) each director and nominee for director, and
(d) all executive officers and directors as a group:
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<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS (IF APPLICABLE) OF BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OWNERSHIP SHARES(1)
- -------------------------------------------------------------------------------
<S> <C> <C>
Neuberger & Berman, LLC........................ 2,890,943(2) 9.61%
605 Third Avenue
New York, NY 10158-3698
State Treasurer,
State of Michigan............................. 2,075,760(3) 6.90
c/o Director of Investments
P.O. Box 1128
Lansing, MI 48901
Oppenheimer & Co. L.P.......................... 1,918,450(4) 6.38
1295 State Street
Springfield, MA 01111
Sound Shore Management Inc..................... 1,600,400(5) 5.32
8 Sound Shore Drive
Greenwich, CT 06836
Merrill Lynch Asset Management................. 1,580,000(6) 5.25
P.O. Box 9011
Princeton, NJ 08543
J. Tracy O'Rourke, Chairman of the Board and
Chief Executive Officer....................... 689,500(7) 2.25
Richard A. Aurelio, Executive Vice President... 89,103(8) 0.30
Allen J. Lauer, Executive Vice President....... 197,510(9) 0.65
Richard M. Levy, Executive Vice President...... 109,202(10) 0.36
Robert A. Lemos, Vice President, Finance, Chief
Financial Officer and Treasurer............... 64,530(11) 0.21
- -------------------------------------------------------------------------------
</TABLE>
(1) Based on the 30,092,576 shares outstanding on December 1, 1997. The number
of outstanding shares for purposes of computing the respective percentages
shown for the named executive officers, directors and nominees for direc-
tor is the number of shares outstanding on December 1, 1997 plus the
shares which may be acquired by the named executive officer, director or
nominee on or within 60 days thereafter under stock options. The number of
outstanding shares for purposes of computing the percentage shown for all
executive officers and directors as a group is the total number of shares
outstanding as of December 1, 1997 plus the shares which may be acquired
by those executive officers and directors on or within 60 days thereafter
under stock options. Fractional shares are rounded to the nearest whole
share. Unless otherwise indicated, the beneficial owner has sole voting
and investment power or shares such voting and/or investment power with
such person's spouse or children.
(2) As of September 30, 1997, based on Form 13Fs filed by the beneficial owner
and affiliated organizations, which Form 13Fs indicate that 1,623,186 of
such shares are held without any voting authority and all such shares are
held subject to shared investment authority.
(3) As of September 30, 1997, based on a report provided to the Company on the
basis of a Form 13F filed by the beneficial owner.
8
<PAGE>
(4) As of September 30, 1997, based on a report provided to the Company on the
basis of a Form 13F filed by the beneficial owner, which report indicates
that 1,873,500 of such shares are held subject to shared voting authority
and 44,950 of such shares are held without any voting authority.
(5) As of September 30, 1997, based on a report provided to the Company on the
basis of a Form 13F filed by the beneficial owner, which report indicates
that 1,523,900 of such shares are held with sole voting authority and
76,500 of such shares are held without any voting authority.
(6) As of September 30, 1997, based on a report provided to the Company on the
basis of a Form 13F filed by the beneficial owner.
(7) Shares deemed beneficially owned by Mr. O'Rourke include (a) 16,000 shares
of restricted stock granted pursuant to the Omnibus Stock Plan, and (b)
599,000 shares which may be acquired on or within 60 days of December 1,
1997 under stock options granted pursuant to the 1982 Non-Qualified Stock
Option Plan and the Omnibus Stock Plan.
(8) Shares deemed beneficially owned by Mr. Aurelio include (a) 8,400 shares
of restricted stock granted pursuant to the Omnibus Stock Plan, and (b)
66,000 shares which may be acquired on or within 60 days of December 1,
1997 under stock options granted pursuant to the Omnibus Stock Plan.
(9) Shares deemed beneficially owned by Mr. Lauer include (a) 8,400 shares of
restricted stock granted pursuant to the Omnibus Stock Plan, (b) 126,000
shares which may be acquired on or within 60 days of December 1, 1997 un-
der stock options granted pursuant to the Omnibus Stock Plan, and (c)
58,910 shares held in a trust of which Mr. Lauer is co-trustee with his
wife.
(10) Shares deemed beneficially owned by Dr. Levy include (a) 8,400 shares of
restricted stock granted pursuant to the Omnibus Stock Plan, (b) 96,000
shares which may be acquired on or within 60 days of December 1, 1997 un-
der stock options granted pursuant to the 1982 Non-Qualified Stock Option
Plan and the Omnibus Stock Plan, and (c) 173 shares held in a trust of
which Dr. Levy is co-trustee with his wife.
(11) Shares deemed beneficially owned by Mr. Lemos include (a) 4,800 shares of
restricted stock granted pursuant to the Omnibus Stock Plan, and (b)
39,334 shares which may be acquired on or within 60 days of December 1,
1997 under stock options granted pursuant to the Omnibus Stock Plan.
9
<PAGE>
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<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS (IF APPLICABLE) OF BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OWNERSHIP SHARES(/1/)
- -------------------------------------------------------------------------------
<S> <C> <C>
John Seely Brown, Nominee for Director......... 0 *
Ruth M. Davis, Director ....................... 8,249(1) *
Robert W. Dutton, Director..................... 2,400(2) *
Samuel Hellman, Director....................... 9,200(3) *
Terry R. Lautenbach, Director.................. 13,000(4) *
Angus A. MacNaughton, Director ................ 24,600(5) *
David W. Martin, Jr., Director................. 6,800(6) *
John G. McDonald, Director..................... 17,600(7) *
Wayne R. Moon, Director........................ 4,636(8) *
Gordon E. Moore, Director...................... 17,600(9) *
David E. Mundell, Director..................... 14,200(10) *
Burton Richter, Director ...................... 16,400(11) *
Elizabeth E. Tallett, Director................. 2,900(12) *
Jon D. Tompkins, Director...................... 200 *
Richard W. Vieser, Director ................... 17,400(13) *
All Executive Officers and Directors as a Group
(22 persons).................................. 1,441,209(14) 4.61%
- -------------------------------------------------------------------------------
</TABLE>
* Less than 1%.
(1) Includes 6,000 shares which may be acquired under exercisable stock op-
tions granted pursuant to the Omnibus Stock Plan.
(2) Includes 2,000 shares which may be acquired under exercisable stock op-
tions granted pursuant to the Omnibus Stock Plan.
(3) Includes 8,000 shares which may be acquired under exercisable stock op-
tions granted pursuant to the Omnibus Stock Plan.
(4) Includes 8,000 shares which may be acquired under exercisable stock op-
tions granted pursuant to the Omnibus Stock Plan.
(5) Includes (a) 14,000 shares which may be acquired under exercisable stock
options granted pursuant to the Omnibus Stock Plan and (b) 5,000 shares
held in a trust of which Mr. MacNaughton is co-trustee with his wife.
(6) Includes 6,000 shares which may be acquired under an exercisable stock
option granted pursuant to the Omnibus Stock Plan.
(7) Includes 14,000 shares which may be acquired under exercisable stock op-
tions granted pursuant to the Omnibus Stock Plan.
(8) Includes 4,000 shares which may be acquired under exercisable stock op-
tions granted pursuant to the Omnibus Stock Plan.
(9) Includes 14,000 shares which may be acquired under exercisable stock op-
tions granted pursuant to the Omnibus Stock Plan.
(10) Includes (a) 10,000 shares which may be acquired under exercisable stock
options granted pursuant to the Omnibus Stock Plan, and (b) 3,400 shares
held in a trust of which Mr. Mundell is co-trustee with his wife.
(11) Includes (a) 12,000 shares which may be acquired under exercisable stock
options granted pursuant to the Omnibus Stock Plan, and (b) 3,600 shares
held in a trust of which Dr. Richter is co-trustee with his wife.
(12) Includes 2,000 shares which may be acquired under exercisable stock op-
tions granted pursuant to the Omnibus Stock Plan.
(13) Includes 12,000 shares which may be acquired under exercisable stock op-
tions granted pursuant to the Omnibus Stock Plan.
(14) Includes (a) 57,400 shares of restricted stock granted to executive offi-
cers pursuant to the Omnibus Stock Plan, (b) 1,141,334 shares which may
be acquired on or within 60 days of December 1, 1997 by executive offi-
cers and directors under stock options granted pursuant to the 1982 Non-
Qualified Stock Option Plan and the Omnibus Stock Plan, and (c) 76,505
shares as to which voting and/or investment power is shared (see certain
of the foregoing footnotes).
10
<PAGE>
CERTAIN EXECUTIVE OFFICER COMPENSATION AND OTHER INFORMATION
The following tables set forth certain information with respect to the
Company's chief executive officer and the four other most highly compensated
executive officers in fiscal year 1997 for services rendered in all capacities
to the Company for the fiscal years indicated:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- -------------------------------
AWARDS PAYOUTS
--------------------- ---------
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
NAME AND SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) ($)(4) (#)(5) ($)(6) ($)(7)
------------------ ---- -------- --------- -------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Tracy O'Rourke....... 1997 799,160 972,085 199,255 465,500 75,000 1,575,120 343,716
Chairman of the Board 1996 769,290 1,556,897 203,313 389,000 75,000 1,512,720 298,168
and Chief Executive 1995 744,150 1,492,976 144,394 389,000 60,000 1,460,200 221,515
Officer
Richard A. Aurelio...... 1997 323,148 533,492 20,602 244,388 36,000 653,016 122,904
Executive Vice 1996 310,990 645,915 21,258 204,225 36,000 628,056 105,818
President 1995 298,154 618,400 57,787 204,225 30,000 605,488 69,821
Allen J. Lauer.......... 1997 323,148 359,300 22,594 244,388 36,000 461,552 117,958
Executive Vice 1996 310,990 532,363 35,458 204,225 36,000 628,056 93,274
President 1995 300,364 418,785 16,876 204,225 30,000 605,488 81,971
Richard M. Levy......... 1997 323,148 206,984 18,249 244,388 36,000 391,810 108,374
Executive Vice 1996 310,990 432,879 43,736 204,225 36,000 628,056 99,753
President 1995 300,364 484,905 19,946 204,225 30,000 605,488 81,864
Robert A. Lemos......... 1997 245,960 232,027 37,783 139,650 18,000 372,762 81,480
Vice President, 1996 236,930 372,172 20,094 116,700 18,000 358,566 70,455
Finance, 1995 229,372 406,891 19,677 116,700 16,000 346,788 51,713
Chief Financial Officer
and Treasurer
</TABLE>
- ---------
(1) Amounts reported for Mr. Aurelio include $2,500 per month in mortgage as-
sistance payments for two months in fiscal year 1995.
(2) Consists of Management Incentive Plan awards and Cash Profit-Sharing Plan
allocations. The fiscal year 1995 amount reported for Mr. Lemos also in-
cludes a special cash bonus.
(3) Consists of amounts reimbursed for the payment of taxes on certain perqui-
sites and personal benefits. The amounts reported for Mr. O'Rourke also
include aggregate incremental costs of perquisites and personal benefits
(including $127,056, $99,593 and $45,199 for his use of the Company air-
craft in fiscal years 1997, 1996 and 1995, respectively).
(4) Consists of restricted Common Stock valued at $58.1875 per share (the
closing market price on the date of grant) and which will be released from
restrictions in three equal installments over a three-year period (the
principal restriction being continued employment until the respective re-
lease dates), during which dividends are paid on such stock. The number
and value (at $60.3125 per share) of the aggregate restricted stock hold-
ings at the end of fiscal year 1997 were as follows: Mr. O'Rourke, 16,000
shares, $965,000; Mr. Aurelio, 8,400 shares, $506,625; Mr. Lauer, 8,400
shares, $506,625; Dr. Levy, 8,400 shares, $506,625; and Mr. Lemos, 4,800
shares, $289,500. Shares of restricted stock awarded in fiscal years 1997,
1996 and 1995, respectively, which partially vest in under three years
were as follows: Mr. O'Rourke, 8,000 shares, 8,000 shares and 8,000
shares; Mr. Aurelio, 4,200 shares, 4,200 shares and 4,200 shares; Mr.
Lauer, 4,200 shares, 4,200 shares and 4,200 shares; Dr. Levy, 4,200
shares, 4,200 shares and 4,200 shares; and Mr. Lemos, 2,400 shares, 2,400
shares and 2,400 shares.
11
<PAGE>
(5) Consists of shares of Common Stock which may be acquired under stock op-
tions granted pursuant to the Omnibus Stock Plan (no stock appreciation
rights have been granted).
(6) Consists of cash payouts in fiscal years 1998, 1997 and 1996 under the
long-term incentive feature of the Omnibus Stock Plan for three-year cy-
cles ended with fiscal years 1997, 1996 and 1995, respectively.
(7) Consists of (a) Company contributions (including interest) to Retirement
and Profit-Sharing Program and Supplemental Retirement Plan accounts for
fiscal years 1997, 1996 and 1995, respectively (Mr. O'Rourke, $319,654,
$274,832 and $198,298; Mr. Aurelio, $121,103, $104,378 and $68,664; Mr.
Lauer, $116,157, $91,816 and $80,726; Dr. Levy, $106,573, $98,313 and
$80,619; and Mr. Lemos, $80,108, $69,359 and $50,770); (b) Company-paid
premiums for group term life insurance in fiscal years 1997, 1996 and
1995, respectively (Mr. O'Rourke, $2,784, $2,316 and $2,082; Mr. Aurelio,
$1,801, $1,440 and $1,157; Mr. Lauer, $1,801, $1,458 and $1,245; Dr. Levy,
$1,801, $1,440 and $1,245; and Mr. Lemos, $1,372, $1,097 and $943); and
(c) Company-paid premiums for supplemental disability insurance for Mr.
O'Rourke in fiscal years 1997, 1996 and 1995, respectively ($21,278,
$21,019 and $21,135).
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
NUMBER OF
SECURITIES POTENTIAL REALIZABLE VALUE
UNDERLYING PERCENT OF AT ASSUMED ANNUAL RATES
OPTIONS/ TOTAL OPTIONS/ OF STOCK PRICE APPRECIATION
SARS SARS GRANTED EXERCISE OR FOR OPTION TERM(2)
GRANTED TO EMPLOYEES BASE PRICE EXPIRATION ----------------------------
NAME (#)(1) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- -------------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
J. Tracy O'Rourke....... 75,000 7.06% $48.625 11/14/06 $ 2,293,500 $ 5,812,180
Richard A. Aurelio...... 36,000 3.39 48.625 11/14/06 1,100,880 2,789,846
Allen J. Lauer.......... 36,000 3.39 48.625 11/14/06 1,100,880 2,789,846
Richard M. Levy......... 36,000 3.39 48.625 11/14/06 1,100,880 2,789,846
Robert A. Lemos......... 18,000 1.69 48.625 11/14/06 550,440 1,394,923
All Optionees(/3/)...... 1,062,950 100 48.625 11/14/06 32,505,012 82,374,083
All Stockholders(/4/)... 30,755,424 48.625 11/14/06 940,500,904 2,383,413,946
All Optionees' Gain as a
Percentage of All
Stockholders' Gain..... 3.5% 3.4%
</TABLE>
- ---------
(1) Consists of stock options, which were granted at an exercise price of 100%
of the market price of the underlying shares on the date of grant, become
exercisable over three years at the rate of approximately one-third each
year and expire ten years from the date of grant. Payment of the exercise
price may be made under a promissory note or by delivery of already-owned
shares.
(2) The 5% and 10% assumed annual rates of stock price appreciation would re-
sult from per share prices of $79.20 and $125.62, respectively. Such as-
sumed rates are not intended to represent a forecast of possible future
appreciation of the Company's Common Stock or total stockholder return.
(3) For "All Optionees," the number of options granted is the total of all op-
tions granted to Company employees in fiscal year 1997, and the potential
realizable value is based on the $48.625 per share exercise price of the
options granted to the named executive officers on November 14, 1996, a
November 14, 1996 grant date, and a ten-year option term (the term of all
options granted to employees in fiscal year 1997).
(4) For "All Stockholders," the potential realizable value is based on ten-
year appreciation of the 30,755,424 shares outstanding on November 14,
1996 and the $48.625 per share price of the options granted to the named
executive officers on that date.
12
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED VALUE FISCAL YEAR-END(#) FISCAL YEAR-END($)(2)
ON EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Tracy O'Rourke....... 100,000 $3,415,750 679,000 145,000 $29,596,855 $1,962,813
Richard A. Aurelio...... 0 0 42,000 70,000 979,925 951,875
Allen J. Lauer.......... 24,000 626,220 92,000 70,000 2,903,650 951,875
Richard M. Levy......... 54,000 1,805,595 62,000 70,000 1,679,275 951,875
Robert A. Lemos......... 0 0 22,000 35,334 517,834 484,058
</TABLE>
- ---------
(1) Based on the fair market value of the underlying shares on the exercise
date.
(2) Based on the closing market price of the underlying shares at the end of
fiscal year 1997 ($60.3125 per share).
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE
SHARES, OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
UNITS OR PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
OTHER RIGHTS MATURATION ------------------------------------------------
NAME (#) OR PAYOUT THRESHOLD($)(2) TARGET($)(3) MAXIMUM($)(4)
- ---- ------------ ------------ ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
J. Tracy O'Rourke....... N/A 1997-1999 $242,352 $1,615,680 --
Richard A. Aurelio...... N/A 1997-1999 $100,401 $ 669,344 --
Allen J. Lauer.......... N/A 1997-1999 $100,401 $ 601,740 --
Richard M. Levy......... N/A 1997-1999 $100,401 $ 334,672 --
Robert A. Lemos......... N/A 1997-1999 $ 57,591 $ 383,944 --
</TABLE>
- ---------
(1) Determinations by the Committee that a named executive officer may partic-
ipate in the long-term incentive feature of the Omnibus Stock Plan ("LTI")
and might receive a payout for a specified period is an award for purposes
of this table. Awards (i.e., the determination of participation in the
LTI) for the 1997-1999 cycle were made in fiscal year 1997. Under the LTI,
each named executive officer is eligible to receive compensation payable
in cash or in Common Stock, or a combination thereof, based upon the
Company's achievement of objectives for average annual return on net as-
sets ("RONA") over a three-year cycle. No estimate or assumption made in
connection with this table is intended to represent a forecast of possible
future performance of the Company.
(2) If the minimum level of RONA established by the Committee at the beginning
of the three-year cycle is achieved, the minimum amount payable is 30% of
annual base salary (except for Mr. Lemos, whose minimum amount payable is
22.5% of his annual base salary) as of the end of the last fiscal year of
the cycle. If the RONA for the three-year cycle does not at least equal
such minimum level, no amount will be paid. The minimum amount payable, if
any amount is paid at all, depends on each named executive's base salary
in the last year of the cycle, and the amounts set forth above assume that
each named executive officer's annual base salary at the end of fiscal
year 1999 will be identical to the executive officer's 1998 annual base
salary.
(3) A "Target" award is not determinable under the LTI. The amounts shown are
estimates of the payout for the three-year cycle assuming (a) that the
level of RONA for the cycle is the same as the RONA for fiscal year 1996
(an assumption made pursuant to Securities and Exchange Commission rules),
and (b) that each named executive officer's annual base salary at the end
of fiscal year 1999 will be identical to his 1998 annual base salary. The
actual payment for the three-year cycle may be greater or lesser than the
estimates shown in this column, depending upon the actual RONA for fiscal
years 1997, 1998 and 1999, the actual base salary of the named executive
officer at the end of fiscal year 1999, and the aggregate payout to all
participants (see footnote 4 below).
(4) The maximum amount payable is not determinable or estimable prior to the
end of the three-year cycle for the following reason: If the maximum level
of RONA established by the Committee at the beginning of the three-year
cycle is achieved or exceeded, the maximum amount payable is 200% of an-
nual base salary (except for Mr. Lemos, whose maximum amount payable is
150% of his annual base salary) as of the end of the last fiscal year of
the cycle. The maximum amount payable is reduced, however, if the aggre-
gate LTI payout to all participants (including the named executive offi-
cers) would exceed 5% (before such payouts) of the Company's operating
earnings in the last fiscal year of the three-year cycle. This variable
makes the maximum amount not determinable or estimable.
13
<PAGE>
MANAGEMENT INDEBTEDNESS AND CERTAIN TRANSACTIONS
In connection with the February 1990 recruitment and subsequent relocation
of Mr. O'Rourke, the Company provided to Mr. O'Rourke financing in the amount
of $1,260,000 to purchase a residence in California. This financing is evi-
denced by two promissory notes, each secured by a deed of trust on the proper-
ty. One note is for $700,000 and bears an interest rate based on the apprecia-
tion of the property, and no interest is payable (nor can the actual interest
rate be determined) until the note becomes due. The other note is for $560,000
and does not bear interest. Periodic payments of principal are not required
and the notes become due (a) upon sale of the property, (b) one year after Mr.
O'Rourke's employment by the Company terminates, or (c) 30 years after the
date of the notes, whichever occurs first. Mr. O'Rourke may, while employed by
the Company, substitute the property securing the notes with a replacement
principal residence. If Mr. O'Rourke retires while the notes remain unpaid, he
may convert the notes to a replacement note at a principal amount determined
by an appraisal of the property and a calculation of the outstanding principal
and interest as if the property had been sold at the appraised value within
one year after Mr. O'Rourke's retirement. The replacement note would bear in-
terest at an annual rate of 8%, with principal and interest amortized in equal
monthly payments over 15 years from the first anniversary of Mr. O'Rourke's
retirement, principal and interest being due upon sale of the property or use
of the property other than as Mr. O'Rourke's residence.
In connection with the March 1991 recruitment and subsequent relocation of
Mr. Aurelio, the Company provided to Mr. Aurelio financing in the amount of
$500,000 to purchase a residence in California. This financing is evidenced by
a promissory note secured by a deed of trust on the property. The note bears
an interest rate based on the appreciation of the property, and no interest is
payable under the note (nor can the actual interest rate be determined) until
the note becomes due. Periodic payments of principal are not required and the
note becomes due (a) upon sale of the property, (b) either one year or three
years after Mr. Aurelio's employment by the Company terminates (depending on
the circumstances of that termination), or (c) 30 years after the date of the
note, whichever occurs first.
CHANGE IN CONTROL ARRANGEMENTS
The Board of Directors has approved agreements ("Agreements") between the
Company and Mr. O'Rourke and the four other executive officers named in the
Summary Compensation Table (the "Senior Executives") which provide for the
payment of specified compensation and benefits upon certain terminations of
their employment following a change in control of the Company. Each Agreement
is in effect unless and until terminated by the Board of Directors in accor-
dance with the Agreement.
A change in control of the Company is defined in each Agreement to occur (a)
if any individual or group acquires 30% or more of the combined voting power
of the Company's outstanding securities, (b) if "continuing directors" (de-
fined as the directors of the Company as of December 12, 1986 and any succes-
sor to any such directors who was nominated by a majority of the directors in
office at the time of his nomination or selection and who is not associated in
any way with an individual or group who is a beneficial owner of more than 10%
of the combined voting power of the Company's outstanding securities) cease to
constitute at
14
<PAGE>
least a majority of the Board of Directors, or (c) if the Board of Directors
approves a sale of all or substantially all of the Company's assets, or any
merger, consolidation or similar business combination or reorganization of the
Company.
In their respective Agreements, Mr. O'Rourke and Senior Executives agreed
that they will not voluntarily leave the Company's employ during a tender or
exchange offer, proxy solicitation in opposition to the Board of Directors or
other effort by any party to effect a change in control of the Company. This
is intended to assure that management will continue to act in the interest of
the stockholders rather than be affected by personal uncertainties during any
attempts to effect a change in control of the Company, and to enhance the
Company's ability to attract and to retain executives.
The Agreement with Mr. O'Rourke provides that if within 18 months of a
change in control (1) the Company terminates his employment other than by rea-
son of his death, disability, retirement or for cause (as defined in the
Agreement), or (2) he terminates his employment for any reason, he will re-
ceive a lump sum severance payment equal to 2.99 times his annual base salary.
Each Agreement with a Senior Executive provides that if within 18 months of
a change in control (i) the Company terminates the Senior Executive's employ-
ment other than by reason of his death, disability, retirement or for cause
(as defined in the Agreement), or (ii) the Senior Executive terminates his em-
ployment for "good reason," the Senior Executive will receive a lump sum sev-
erance payment equal to 2.99 times his annual base salary. "Good reason" is
defined as the following after a change in control of the Company: certain ma-
terial changes in assignment of duties; a reduction in total compensation;
certain material changes in employee benefits and perquisites; a change in the
site of employment; the Company's failure to obtain the written assumption by
its successor of the obligations contained in the Agreement; attempted termi-
nation of employment for cause on grounds insufficient to constitute a basis
of termination for cause under the terms of the Agreement; or the Company's
failure to promptly make any payment required under the terms of the Agreement
in the event of a dispute relating to employment termination.
Each Agreement provides that upon termination or resignation occurring under
the circumstances described above, the employee will receive a continuation of
all insurance and other benefits on the same terms as if he remained an em-
ployee or equivalent benefits will be provided until the earlier to occur of
commencement of substantially equivalent full-time employment with a new em-
ployer or 24 months after the date of termination of employment with the Com-
pany. Each Agreement also provides that all stock options granted become exer-
cisable in full according to their terms, and that any unreleased restricted
stock be released from restrictions. Each Agreement further provides that in
the event that any payments and benefits received by the employee from the
Company would subject that person to the excise tax contained in Section 280G
of the Internal Revenue Code of 1986, as amended, the total payments to the
employee will be no higher than the amount not subject to such tax.
15
<PAGE>
REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Organization and Compensation Committee of the Board of Directors (the
"Committee") is responsible for compensation of the Company's executive offi-
cers. The Committee is comprised of the seven outside directors whose names
appear at the conclusion of this report.
COMPENSATION POLICIES APPLICABLE TO EXECUTIVE OFFICERS
Overall Philosophy. The Committee's executive compensation philosophy is
that compensation programs should:
. be closely aligned with the interests of the Company's stockholders;
. be linked with the Company's business goals and strategies;
. be competitive within the Company's industry and community so that
the Company can attract and retain high quality executives;
. base a substantial portion of executive officer compensation on the
Company's financial performance measured against pre-determined ob-
jective; and
. reward executive officers for good performance.
The Committee believes that the Company's executive compensation programs
contributed to the Company's strong financial performance in fiscal year 1997
and during the five-year period covered by the graph on page 20 of the Proxy
Statement.
Base Salaries. Annual base salaries are designed primarily to attract and
retain executives, but are intended to contribute less to total compensation
than incentive-based compensation. Executive officer salaries in fiscal year
1997 were determined by the Committee after consideration of each executive
officer's fiscal year 1996 compensation (including the relative mix of fixed,
annual incentive and long-term incentive compensation), each executive offi-
cer's potential incentive compensation in fiscal year 1997, each executive of-
ficer's position and responsibilities, survey data on 1996 salaries paid to 55
"Group Head" executives of electrical/electronic businesses with comparable
sales volume (the Committee approved increases in Executive Vice President
salaries which placed them at approximately the 75th percentile), published
market data on other companies' anticipated salary increases for 1997 (the
Committee approved increases which were slightly above the survey average),
and the Company's financial performance in fiscal year 1996 (record orders,
sales and profits, improved net earnings and improved earnings per share).
Annual Incentive Awards. Annual incentives for executives are created
through potential cash awards under the Company's Management Incentive Plan,
which is intended to link compensation directly to improved financial perfor-
mance. Executive officer awards for fiscal year 1997 were determined by a for-
mula which measured Company and business unit performance against pre-deter-
mined objectives for return on sales ("ROS"). For executive officers with op-
erational responsibilities, 50% of their award formula was based on business
unit ROS and the other 50% was based on Company ROS (this was a change from
the previous fiscal year,
16
<PAGE>
when only 40% was based on business unit ROS). Awards could have ranged from
zero to 200% of an executive officer's annual base salary, depending on the
ROS achieved and the pre-determined participation level for that executive of-
ficer. Fiscal year 1997 objectives for ROS were determined by the Committee
after consideration of historical ROS (which were compared with historical ROS
of 21 other companies in the same industries or which were identified as
"world class"), historical ROS objectives and ROS forecasts. Each executive
officer's participation level was determined by the Committee after considera-
tion of the executive officer's relative position and responsibilities, rela-
tive mix of fixed and incentive compensation in fiscal year 1996, previous
awards and potential award for that participation level.
Stock Options. Non-qualified stock options are granted annually under the
Company's Omnibus Stock Plan in order to retain talented executive officers
and to closely align their compensation with stockholder value. Because stock
options are granted with an exercise price equal to the market price of the
Company's stock on the grant date and vest in equal installments over three
years assuming continued employment, stock options compensate executive offi-
cers only if the Company's stock price increases after the date of grant and
the executive officer remains employed for the periods required for the stock
option to become exercisable. Executive officer grants in fiscal year 1997
were determined by the Committee after consideration of each executive offi-
cer's position and responsibilities, stock option grants in each of the four
previous fiscal years and unexercised option shares from prior grants. In de-
termining grants to the Company's Chief Executive Officer and next four most
highly compensated executive officers, the Committee also considered the po-
tential realizable value of stock options granted in fiscal year 1996, stock
options exercised during fiscal year 1996, and the value of outstanding stock
options at the end of fiscal year 1996; survey data showing that stock options
granted to those executive officers in the prior fiscal year were slightly
above the 75th percentile; and a May 1996 report from a compensation consul-
tant retained for the Committee showing that the Company's stock option
grants, when valued at the time of grant and compared with the grant value of
stock options granted to the five most highly compensated executed officers at
11 comparable companies, were generally below the average reflected in the
survey (the Committee did not attempt to determine grants in any relationship
to that data).
Restricted Stock. The Committee has structured the restricted stock feature
of the Company's Omnibus Stock Plan to create incentives for executives to im-
prove financial performance, to promote stockholder value and to remain with
the Company. Restricted stock is granted only if pre-determined financial ob-
jectives are achieved, and once granted requires continued employment in order
to vest (in equal installments over three years). Executive officer grants for
fiscal year 1997 were determined by a formula which measured Company perfor-
mance against pre-determined objectives for return on equity ("ROE"). Fiscal
year 1997 objectives for ROE were determined by the Committee after considera-
tion of historical ROE (which were compared with historical ROE of 21 other
companies in the same industries or which were identified as "world class"),
historical ROE objectives and forecasted ROE. Each executive officer's partic-
ipation level (the number of shares which could be granted to that executive
officer upon achieving specified ROE objectives) was determined by the Commit-
tee after consideration of the executive officer's relative position and re-
sponsibilities; with respect to the Company's Chief Executive Officer and the
next four most highly compensated execu-
17
<PAGE>
tive officers, the Committee also considered the actual and relative mix of
their fixed and incentive compensation in fiscal year 1996.
Long-Term Incentive Awards. Additional long-term retention and performance
incentives for executives are created through potential cash and/or stock
awards under the long-term incentive feature of the Company's Omnibus Stock
Plan. Executive officer awards (which were paid in cash) for a three-year cy-
cle beginning with fiscal year 1995 and ending with fiscal year 1997 were de-
termined by a formula which measured Company and business unit performance
against pre-determined objectives for return on net assets ("RONA"). For exec-
utive officers with operational responsibilities, 40% of their award formula
was based on core business RONA and the other 60% was based on Company RONA.
Awards could have ranged from zero to 200% of an executive officer's base sal-
ary, depending on the RONA achieved and the pre-determined level of that exec-
utive officer's participation. The fiscal years 1995-1997 objectives for RONA
were determined by the Committee after consideration of historical RONA, his-
torical RONA objectives and RONA forecasts. Each executive officer's partici-
pation level was determined by the Committee after consideration of the execu-
tive officer's relative position and responsibilities and potential award for
that participation level. As is explained in pages 21-26 of the Proxy State-
ment, subject to stockholder approval at the Annual Meeting, the Committee has
added revenue growth as an additional performance measure for possible use by
the Committee in determining long-term incentive awards, and has established
pre-determined objectives for RONA and revenue growth during the fiscal years
1998-2000 cycle.
Other Compensation. In order to attract and retain talented executive offi-
cers, the Committee has also approved arrangements providing executive offi-
cers with certain perquisites, such as use and purchase of an automobile under
the Company's Executive Car Program, use of the Company aircraft, reimburse-
ment for tax planning and return preparation and financial counseling servic-
es, reimbursement for the payment of taxes on certain perquisites and reim-
bursement for annual medical examinations. In order to make retirement contri-
butions which could not be contributed to executive officers' qualified re-
tirement plan accounts due to Internal Revenue Code limitations, the Committee
has also approved the Supplemental Retirement Plan under which the Company
makes unfunded supplemental retirement contributions. Executive officers are
also eligible to participate in compensation and benefit programs generally
available to other employees, such as the Company's Cash Profit-Sharing Plan,
Employee Stock Purchase Plan, Retirement and Profit-Sharing Program and sup-
plemental life and disability insurance programs.
Tax Deductibility of Executive Compensation. Section 162(m) of the Internal
Revenue Code of 1986, as amended, generally provides that publicly-held corpo-
rations may not deduct in any taxable year certain compensation in excess of
$1,000,000 paid to the chief executive officer and the next four most highly
compensated executive officers. At the 1995 Annual Meeting of Stockholders,
the Company's stockholders approved amendments to the Company's Omnibus Stock
Plan and adoption of the Management Incentive Plan in order for awards under
those Plans to be eligible for continued tax deductibility. Awards under those
Plans for fiscal year 1997 were made in accordance with the requirements of
Section 162(m) so as to be tax deductible. However, the Committee considers
one of its primary responsibilities to be structuring a compensation program
that will attract, retain and reward executive
18
<PAGE>
talent necessary to maximize stockholder return. Accordingly, the Committee
believes that the Company's interests are best served in some circumstances by
providing compensation (such as salary and perquisites) which might be subject
to the tax deductibility limitation of Section 162(m).
BASES FOR CEO COMPENSATION
The same policies and programs described above were followed by the Commit-
tee in determining fiscal year 1997 compensation for Mr. O'Rourke, the
Company's Chairman and Chief Executive Officer.
The Committee set Mr. O'Rourke's annual base salary in fiscal year 1997
(which was increased by 4% from the previous year) in accordance with the pol-
icy and considerations described above, also taking into account Mr.
O'Rourke's salary and other compensation paid in each of the previous six fis-
cal years and a general market survey of chief executive officer salaries at
27 electrical/electronic companies with comparable sales volume (which survey
showed that Mr. O'Rourke's previous year's salary was slightly above the 90th
percentile).
Mr. O'Rourke was paid an annual incentive award for fiscal year 1997 in ac-
cordance with the Management Incentive Plan described above. Fiscal year 1997
ROS and the pre-determined formula resulted in a cash award to Mr. O'Rourke
equal to 119.9% of his annual base salary. Mr. O'Rourke was also paid a long-
term incentive award for the three-year cycle ended with fiscal year 1997 in
accordance with the long-term incentive feature of the Omnibus Stock Plan de-
scribed above. Fiscal years 1995-97 RONA and the pre-determined formula re-
sulted in a cash award to Mr. O'Rourke equal to 200% of his annual base sala-
ry.
Mr. O'Rourke was granted restricted stock for fiscal year 1997 in accordance
with the restricted stock feature of the Omnibus Stock Plan described above.
Fiscal year 1997 ROE and the pre-determined formula resulted in a grant of
8,000 shares (which will vest in equal installments over three years). Mr.
O'Rourke was also granted a 75,000 share stock option in fiscal year 1997
(which will vest in equal installments over three years, with an exercise
price equal to the market price of the Company's stock on the grant date),
based on the policy and considerations described above and Mr. O'Rourke's
overall compensation package.
Samuel Hellman Wayne R. Moon
Terry R. Lautenbach Gordon E. Moore
Angus A. MacNaughton Jon D. Tompkins
Richard W. Vieser
19
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG THE COMPANY,
STANDARD & POOR'S 500 COMPOSITE INDEX AND
STANDARD & POOR'S HIGH TECHNOLOGY COMPOSITE INDEX
The following graph compares the cumulative total return (change in stock
price plus reinvested dividends) of the Company's Common Stock in fiscal years
1993 through 1997 (from October 3, 1992 through September 26, 1997) with the
Standard & Poor's 500 Composite Index and the Standard & Poor's High Technol-
ogy Composite Index. The graph assumes that the value of the investment in the
Company's Common Stock and in each index on October 3, 1992 was $100. Standard
& Poor's is the source of the data on the indices. The comparisons in this
graph are not intended to represent a forecast of possible future performance
of the Company's Common Stock or stockholder returns.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
VARIAN $100 $140 $209 $308 $277 $351
-------------------------------------------------------------------------------
S&P 500 100 112 113 143 167 230
-------------------------------------------------------------------------------
S&P HIGH TECHNOLOGY 100 123 140 219 269 433
</TABLE>
20
<PAGE>
PROPOSAL TO APPROVE AN AMENDMENT TO THE OMNIBUS STOCK PLAN
The Board of Directors has approved an amendment to the Company's Omnibus
Stock Plan (the "Plan"), as set forth in the Proposed Amendment to the Varian
Associates, Inc. Omnibus Stock Plan attached as Exhibit A to this Proxy State-
ment (the "Amendment"). Adoption of the Amendment is subject to the approval
of a majority of the shares of the Company's Common Stock which are present in
person or represented by proxy and entitled to vote at the Annual Meeting, and
the Amendment will not be effective unless such stockholder approval is ob-
tained. If approved, the Amendment will be effective as of September 27, 1997.
SUMMARY OF AMENDMENT AND REASONS FOR ADOPTION
The Amendment modifies the Plan so that, for purposes of the long-term in-
centive feature of the Plan, return on net assets ("RONA") and/or revenue
growth ("Revenue Growth") are performance measures which may be used in set-
ting performance goals for the granting of long-term incentive awards ("LTI
Awards"). The Plan defines RONA as annual operating earnings expressed as a
percentage of annual average net assets (RONA for a multi-year performance pe-
riod is defined to mean the average of RONA calculated separately for each
fiscal year of that multi-year period). The Amendment provides that Revenue
Growth means growth in revenues during a specified period expressed as a per-
centage of revenues in a prior period.
The purpose of the Amendment is to permit the Organization and Compensation
Committee of the Company's Board of Directors (the "Committee") to base LTI
Awards on RONA, Revenue Growth or a combination thereof, as the Committee de-
termines in its sole discretion. The Amendment replaces the previous Plan pro-
vision which contemplated use of only RONA as a performance measure for pur-
poses of LTI Awards. The Board of Directors believes that the Amendment gives
the Committee the flexibility necessary to grant LTI Awards based on perfor-
mance goals which more closely align the recipients' compensation with Company
and/or business unit performance.
The Amendment is designed to permit LTI Awards under the Plan to continue to
qualify under Section 162(m) of the Internal Revenue Code of 1986, as amended
("Section 162(m)"). Under Section 162(m), the federal income tax deductibility
of compensation paid to the Company's Chief Executive Officer and to each of
its next four most highly compensated executive officers may be limited to the
extent that the compensation paid to any such individual exceeds $1,000,000 in
any one year. However, compensation in excess of that amount still may be de-
ducted if it qualifies as "performance-based compensation" under Section
162(m). Accordingly, the Amendment would permit the Company to continue to re-
ceive a federal income tax deduction for LTI Awards paid under the Plan, to
the extent such awards are based on the performance measures contained in the
Amendment.
GENERAL
The Plan is intended to promote the Company's success by providing a vehicle
under which a variety of stock-based incentive and other awards can be granted
to employees and certain stock-based incentives can be granted to directors of
the Company who are employees of neither the Company nor any affiliate ("non-
employee directors"). The Plan provides for the granting of stock options,
stock appreciation rights ("SARs"), restricted stock awards and LTI Awards
(collectively, "Awards") to eligible Plan participants.
21
<PAGE>
The following paragraphs provide a summary of the principal features of the
Plan and its operation as amended by the Amendment. The Plan as so amended is
set forth in its entirety as an exhibit to the Company's Annual Report on Form
10-K, which was filed with the Securities and Exchange Commission on December
19, 1997. The following summary is qualified in its entirety by reference to
the full text of the Plan as set forth in such exhibit.
ADMINISTRATION OF THE PLAN
The Plan is administered by the Committee. The members of the Committee must
qualify as "non-employee directors" under Rule 16b-3 under the Securities Ex-
change Act of 1934, as amended, and as "outside directors" under Section
162(m) (for purposes of qualifying the Plan as performance-based compensation
under Section 162(m)).
Subject to the terms of the Plan, the Committee has the sole discretion to
determine which employees will receive Awards, the sizes and types of such
Awards, and the terms and conditions of such Awards. The Committee may dele-
gate its authority to grant and administer Awards to a separate committee ap-
pointed by the Committee, but only the Committee may make Awards to partici-
pants who are executive officers of the Company. The Committee also would be
responsible for making adjustments in Awards, shares available for Awards and
numerical limitations for Awards (including as to non-employee directors) to
reflect transactions such as stock splits and stock dividends.
ELIGIBILITY TO RECEIVE AWARDS
Employees of the Company and its affiliates are eligible to be selected to
receive one or more Awards. The actual number of employees who will receive
Awards under the Plan cannot be determined because eligibility for participa-
tion in the Plan is in the discretion of the Committee. However, 815 employees
received Awards under the Plan in fiscal year 1997. The Plan also provides for
the grant of stock and stock options to the Company's non-employee directors.
Such stock and options are granted pursuant to an automatic, non-discretionary
formula.
STOCK OPTIONS
The Committee may grant non-qualified stock options, incentive stock options
(which are entitled to favorable tax treatment), or a combination thereof. The
number of shares covered by each option is determined by the Committee, but
during any fiscal year of the Company, no participant may be granted options
for more than 1,000,000 shares.
The price of the shares of the Company's Common Stock subject to each stock
option is set by the Committee but cannot be less than 100% of the fair market
value on the date of grant of the shares covered by the option. In addition,
the exercise price of an incentive stock option must be at least 110% of fair
market value if on the grant date the participant owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any of its subsidiaries. Also, the aggregate fair market value of
the shares (determined on the grant date) covered by incentive stock options
which first become exercisable by any participant during any calendar year may
not exceed $100,000.
22
<PAGE>
The exercise price of each option must be paid in full at the time of exer-
cise. The Committee also may permit payment through the tender of shares of
the Company's Common Stock that are already owned by the participant, or by
any other means which the Committee determines to be consistent with the
Plan's purpose. Any taxes required to be withheld must be paid by the partici-
pant at the time of exercise.
Options become exercisable at the times and on the terms established by the
Committee. Options expire at the times established by the Committee but not
later than ten years after the date of grant. The Committee may extend the
maximum term of any option granted under the Plan, subject to the preceding
limit.
NON-EMPLOYEE DIRECTOR AWARDS
Under the Plan, each non-employee director automatically receives, as of the
first business day of each fiscal year, 200 shares of the Company's Common
Stock and an option to purchase 2,000 shares. The exercise price of each such
option is 100% of the fair market value on the date of grant of the shares
covered by the option. Each such option becomes exercisable on the first anni-
versary of the grant date (assuming the non-employee director remains on the
Board on such anniversary date, otherwise the option will be forfeited). All
options granted to non-employee directors have a term of no greater than ten
years from the date of grant. If a director terminates service on the Board
prior to an option's normal expiration date, the period of exercisability of
the option will be shorter, depending upon the reason for the termination.
STOCK APPRECIATION RIGHTS
The Committee determines the terms and conditions of each SAR. SARs may be
granted in conjunction with an option, or may be granted on an independent ba-
sis. The number of shares covered by each SAR is determined by the Committee,
but during any fiscal year of the Company, no participant may be granted SARs
for more than 1,000,000 shares. Upon exercise of an SAR, the participant will
receive payment from the Company in an amount determined by multiplying (a)
the difference between the fair market value of a share on the date of exer-
cise over the grant price, times (b) the number of shares with respect to
which the SAR is exercised. SARs may be paid in cash or shares of the
Company's Common Stock, as determined by the Committee. SARs are exercisable
at the times and on the terms established by the Committee. To date, no SARs
have been granted under the Plan.
RESTRICTED STOCK AWARDS
Restricted stock Awards are shares of the Company's Common Stock that vest
in accordance with terms and conditions established by the Committee. The num-
ber of shares of restricted stock granted to a participant is determined by
the Committee, but during any fiscal year of the Company, no participant may
be granted more than 25,000 shares.
In determining whether an Award of restricted stock should be made and/or
the vesting schedule for an Award, the Committee may impose whatever condi-
tions to vesting as it determines to be appropriate. For example, the Commit-
tee may determine to grant restricted stock
23
<PAGE>
only if performance goals established by the Committee are satisfied. In par-
ticular, the Committee may (but is not required to) provide that restricted
stock will be granted only if goals for return on equity ("ROE") are satis-
fied. However, the Committee retains discretion to eliminate or reduce the ac-
tual restricted stock Award granted to any participant below that which would
otherwise be payable under the applicable formula. For purposes of the Plan,
ROE means the Company's annual earnings expressed as a percentage of the
Company's average shareholders equity, as reported in the Company's Annual Re-
port to Stockholders.
LONG-TERM INCENTIVE AWARDS
LTI Awards are Awards which will result in a payment to a participant only
if performance goals established by the Committee are satisfied. The Committee
may, but is not required to, base LTI Awards on RONA, Revenue Growth or any
combination thereof. The applicable performance goals determined by the Com-
mittee may be applied on a Company-wide or a business unit basis, as deemed
appropriate in light of the participant's specific responsibilities. The Com-
mittee retains discretion to eliminate or reduce the actual LTI Award payable
to any participant below that which would otherwise be payable under the ap-
plicable formula.
In addition, LTI Awards are subject to the following limitations set forth
in the Plan: During any fiscal year of the Company, no participant shall re-
ceive an LTI Award of more than the lesser of (a) 200% of the participant's
annual base salary at the end of the performance period, or (b) $5,000,000.
Moreover, aggregate LTI Awards for any performance period may not exceed 5% of
the Company's pre-tax operating earnings for the last fiscal year of the per-
formance period. If aggregate LTI Awards for a performance period would exceed
this amount, all such Awards for the performance period will be pro-rated. LTI
Awards may be paid in cash or shares of the Company's Common Stock, as deter-
mined by the Committee.
For the fiscal years 1998-2000 cycle, the Committee granted LTI Awards which
are payable only if certain targets for RONA and Revenue Growth are achieved
(and if the Amendment is approved by stockholders at the Annual Meeting). For
the fiscal years 1996-98 and 1997-99 cycles currently underway (as well as
previous cycles), the Committee granted LTI Awards which are payable only if
certain targets for RONA are achieved.
The following table sets forth estimates of the LTI Awards that would have
been earned by each of the following persons and groups if the Amendment had
been in effect and applied by the Committee for the just-completed cycle for
fiscal years 1995-1997.(1) The amounts set forth in the table were calcu-
lated by (a) applying the RONA performance goals adopted by the Committee for
the fiscal years 1995-1997 cycle to the fiscal years 1995-1997 actual RONA
performance, (b) applying the Revenue Growth performance goals adopted by the
Committee for the fiscal years 1998-2000 cycle to the fiscal years 1995-97 ac-
tual Revenue Growth performance, and (c) applying the LTI Award formulae
(i.e., participation levels, weighting between RONA and Revenue Growth and
weighting between Company and business unit
- ---------
(1) Actual LTI Awards for the 1995-97 cycle (which were based solely on RONA
performance objectives) are shown in the "LTIP Payouts" column of the Sum-
mary Compensation Table on page 11 of this Proxy Statement. LTI Award
amounts for the 1996-98, 1997-99 and 1998-2000 cycles are not determin-
able, because RONA (and Revenue Growth in the case of the latter cycle)
for certain years of those cycles is not determinable.
24
<PAGE>
performance objectives) adopted by the Committee for the fiscal years 1998-
2000 cycle to the fiscal years 1995-97 cycle. There can be no assurance that
the pre-established goals for RONA for the fiscal years 1996-98, 1997-99 and
1998-2000 cycles, and Revenue Growth for the 1998-2000 cycle, will be
achieved, and therefore there can be no assurance that the estimated LTI
Awards shown below will be paid for any of those cycles.
LONG-TERM INCENTIVE AWARDS
<TABLE>
<CAPTION>
DOLLAR
NAME AND POSITION AMOUNT
- ----------------- ----------
<S> <C>
J. Tracy O'Rourke, Chairman of the Board and Chief Executive
Officer........................................................... $1,006,895
Richard A. Aurelio, Executive Vice President....................... $ 371,974
Allen J. Lauer, Executive Vice President........................... $ 399,238
Richard M. Levy, Executive Vice President.......................... $ 246,432
Robert A. Lemos, Vice President, Finance, Chief Financial Officer
and Treasurer..................................................... $ 238,288
Executive Group.................................................... $2,665,341
Non-Executive Director Group(1).................................... N/A
Non-Executive Officer Employee Group............................... $1,175,604
</TABLE>
- ---------
(1) The Company's non-employee directors are not eligible for LTI Awards.
OTHER AWARDS
The Committee may approve the use of other forms of awards that are consis-
tent with the purpose of the Plan.
NONTRANSFERABILITY OF AWARDS
Awards granted under the Plan may not be sold, transferred, pledged, as-
signed or otherwise alienated or hypothecated, other than by will or by the
applicable laws of descent and distribution.
TAX ASPECTS
A recipient of a stock option or SAR will not have taxable income upon the
grant of the option. For options and SARs other than incentive stock options,
the participant will recognize ordinary income upon exercise in an amount
equal to the excess of the fair market value of the shares over the exercise
price on the date of exercise. Any gain or loss recognized upon any later dis-
position of the shares generally will be capital gain or loss.
The purchase of shares upon exercise of an incentive stock option will not
result in any taxable income to the participant, except for purposes of the
alternative minimum tax. Gain or loss recognized by the participant on a later
sale or other disposition will either be long-term capital gain or loss or or-
dinary income depending upon whether the participant holds the
25
<PAGE>
shares transferred upon the exercise for a specified period. Any ordinary in-
come recognized will be in the amount, if any, by which the lesser of the fair
market value of such shares on the date of exercise or the amount realized
from the sale exceeds the option price.
Unless the participant elects to be taxed at the time of receipt of re-
stricted stock or an LTI Award, the participant will not have taxable income
upon the receipt of the Award, but upon vesting will recognize ordinary income
equal to the fair market value of the shares or cash at the time of vesting.
At the discretion of the Committee, the Plan allows a participant to satisfy
tax withholding requirements under federal and state tax laws in connection
with the exercise or receipt of an Award by electing to have shares of Common
Stock withheld, or by delivering to the Company already-owned shares, having a
value equal to the amount required to be withheld.
The Company will be entitled to a tax deduction in connection with an Award
under the Plan only in an amount equal to the ordinary income realized by the
participant and at the time the participant recognizes such income, and if ap-
plicable withholding requirements are met. In addition, Section 162(m) con-
tains special rules regarding the federal income tax deductibility of compen-
sation paid to the Company's Chief Executive Officer and to each of the other
four most highly compensated executive officers. The general rule is that an-
nual compensation paid to any of these specified executives will be deductible
only to the extent that it does not exceed $1,000,000. However, the Company
can preserve the deductibility of certain compensation in excess of $1,000,000
if it complies with conditions imposed by Section 162(m) rules, including
stockholder approval of the maximum number of shares with respect to which
Awards may be granted to any one employee during one year, and if (for Awards
other than stock options and SARs) the Plan sets forth performance goals which
must be achieved prior to payment of the Awards. The Plan and the Amendment
are designed to permit the Committee to grant Awards which satisfy the re-
quirements of Section 162(m), thereby permitting the Company to continue to
receive a federal income tax deduction in connection with such Awards. Accord-
ingly, in order to qualify LTI Awards which might be paid under the Plan for
the fiscal years 1998-2000 and subsequent cycles as performance-based compen-
sation under Section 162(m), the Company is seeking stockholder approval of
the Amendment.
AMENDMENT AND TERMINATION OF THE PLAN
The Board generally may amend or terminate the Plan at any time and for any
reason.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE PROPOSED AMENDMENT TO THE OMNIBUS STOCK PLAN
26
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors and executive officers file reports of ownership and
changes in ownership of Company securities with the Securities and Exchange
Commission. Based solely on the Company's review of the reporting forms and
written representations received by it from such directors and executive offi-
cers, the Company believes that for the period May 1, 1993 through Septem-
ber 26, 1997, all reporting requirements applicable to such directors and ex-
ecutive officers were timely satisfied.
ANNUAL REPORT
The Company's Annual Report for fiscal year 1997, which includes financial
statements for the periods specified therein, was mailed to all stockholders
concurrently with the mailing of this Proxy Statement.
STOCKHOLDER PROPOSALS
Any stockholder who wishes to present a proposal for action at the Company's
1999 Annual Meeting of Stockholders and who wishes to have it set forth in the
Proxy Statement and identified in the form of Proxy prepared by the Company
must notify the Company in such a manner that such notice is received by the
Company's Secretary not later than September 3, 1998 at the Company's address
set forth on the first page of this Proxy Statement. In addition, such a pro-
posal must be in such form as is required under the rules and regulations
promulgated by the Securities and Exchange Commission.
AUDITORS
The firm of Coopers & Lybrand, L.L.P. has been selected by the Board of Di-
rectors as the Company's independent public auditors for fiscal year 1998.
Coopers & Lybrand also acted as the Company's independent auditors for fiscal
year 1997. A Coopers & Lybrand representative will attend the Annual Meeting
and will have the opportunity to make a statement if he or she so desires and
to respond to appropriate questions from stockholders.
By Order of the Board of Directors
/s/ JOSEPH B. PHAIR
--------------------
JOSEPH B. PHAIR
Secretary
December 31, 1997
Palo Alto, California
27
<PAGE>
EXHIBIT A
PROPOSED AMENDMENT TO THE
VARIAN ASSOCIATES, INC.
OMNIBUS STOCK PLAN
2.DEFINITIONS
* * *
P. "Revenue Growth" means growth in revenues during a specified period ex-
pressed as a percentage of revenues in a prior period.
10.LONG-TERM INCENTIVE AWARDS
* * *
C. For purposes of qualifying long-term incentive awards as performance-
based compensation under Section 162(m) of the Code, the Committee may in its
discretion determine that such awards shall be conditioned on the achievement
of pre-established Company and/or business unit goals for Return on Net Assets
and/or Revenue Growth, provided that any such goals for purposes of an Award
to the Company's Chief Executive Officer shall be Company goals for Return on
Net Assets and/or Revenue Growth. The target goals for Return on Net Assets
and/or Revenue Growth and the amounts which may be awarded upon achievement of
such target goals, shall be set by the Committee on or before the latest date
permissible so as to qualify under Section 162(m) of the Code. In granting
long-term incentive awards which are intended to qualify under Section 162(m)
of the Code, the Committee shall follow any procedures determined by it to be
necessary or appropriate to ensure such qualification. No long-term incentive
award intended to qualify under Section 162(m) of the Code shall be paid un-
less and until the Committee certifies in writing that the pre-established
performance goals have been satisfied.
A-1
<PAGE>
[LOGO OF RECYCLED PAPER]
<PAGE>
PROXY
VARIAN ASSOCIATES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- FEBRUARY 19, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Varian Associates, Inc. hereby
constitutes and appoints J. TRACY O'ROURKE AND JOSEPH B. PHAIR, and each of
them, proxies and attorneys-in-fact of the undersigned, with full power of
substitution, to vote all the shares of Common Stock of Varian Associates, Inc.
standing in the name of the undersigned, at the Annual Meeting of Stockholders
of Varian Associates, Inc. to be held at the SRI International Auditorium, 333
Ravenswood Avenue, Menlo Park, California, on February 19, 1998, at 1:30 p.m.,
and at any adjournment(s) or postponement(s) thereof.
Unless a contrary direction is indicated, this Proxy will be voted FOR
all nominees listed on Proposal 1, FOR Proposal 2 and in accordance with the
judgement of the proxies as to the best interests of the Company upon such other
business as may properly come before the meeting or any adjournment or
postponement thereof. If specific instructions are indicated, this Proxy will be
voted in accordance therewith. With respect to Proposal 1, the proxies shall
have full discretion and authority to vote cumulatively and to allocate votes
among any or all of the nominees of the Board of Directors in such order as they
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(If you have written in the above space, please mark the corresponding box on
the reverse side of this card)
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY IN THE
ENCLOSED POSTAGE-PAID RETURN ENVELOPE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
FOLD AND DETACH HERE SEE
REVERSE
SIDE
[MAP OF MENLO PARK APPEARS HERE WITH DIRECTIONS
TO SRI INTERNATIONAL CONFERENCE CENTER AUDITORIUM]
<PAGE>
X Please mark votes as in this example.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
The Board of Directors Recommends a Vote FOR Proposals 1 and 2.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of Nominees: John Seely Brown, 2. Proposal to approve
Directors: Robert W. Dutton, an amendment to the
Samuel Hellman, Omnibus Stock Plan
Terry R. Lautenbach
and David E. Mundell
For, except vote withheld from the following nominee(s):
- -------------------------------------------------------
3. The proxies are authorized to vote on such other
business as is properly brought before the Annual
Meeting for action in accordance with their
judgment as to the best interests of the Company.
Comments/Change of Address
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Signature(s): Date
-------------------------------------------------- -----------
Please sign exactly as name appears on your stock certificate. If the stock is
registered in the names of two or more persons, each should sign. Executors,
administrators, trustees, guardians, attorneys and corporate officers should
insert their titles.
FOLD AND DETACH HERE
VARIAN ASSOCIATES, INC.
Annual Meeting of Stockholders
February 19, 1998
1:30 P.M.
SRI International Auditorium
333 Ravenswood Avenue
Menlo Park, California
(Map on Reverse Side)
