<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7598
----------------
VARIAN MEDICAL SYSTEMS, INC.
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
Delaware 94-2359345
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
</TABLE>
<TABLE>
<S> <C>
3100 Hansen Way, Palo Alto, California 94304-1000
(Address of principal executive offices) (Zip Code)
</TABLE>
(650) 493-4000
(Registrant's telephone number, including area code)
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 30,422,792 shares of
Common Stock, par value $1 per share, outstanding as of May 12, 1999.
- -------------------------------------------------------------------------------
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<PAGE>
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995
which provides a "safe harbor" for these types of statements. These forward-
looking statements are subject to risks and uncertainties that could cause the
actual results of Varian Medical Systems, Inc. (the "Company") to differ
materially from management's current expectations. Those risks and
uncertainties include, without limitation: product demand and market
acceptance risks; the effect of general economic conditions and foreign
currency fluctuations; the impact of competitive products and pricing; new
product development and commercialization; reliance on sole source suppliers;
the Company's ability to increase operating margins on higher sales; the
impact of managed care initiatives in the U.S. on capital expenditures and
resulting pricing pressures on medical equipment; successful implementation by
the Company and certain third parties of corrective actions to address the
impact of the Year 2000; successful consolidation of the Company's x-ray tube
manufacturing operations; the Company's ability to operate as a smaller and
less diversified business entity; the Company's ability to sell surplus assets
in connection with the recently completed reorganization; the Company's
ability to realize anticipated cost savings from the reorganization; the
Company's potential responsibility for liabilities arising out of or relating
to the reorganization which were not expressly assumed by the Company; the
possibility that indemnification for certain liabilities arising out of or
relating to the reorganization will not be available to the Company due to the
indemnifying party's insolvency or legal prohibition; increased debt leverage
resulting from the reorganization impacting the Company's ability to obtain
future financing for working capital, capital expenditures, product
development, acquisitions and general corporate purposes; the effect of
increased debt leverage on cash flow, vulnerability to economic downturns and
flexibility in responding to changing business and economic conditions;
possible exposure to fraudulent conveyance allegations arising out of the
reorganization; possible exposure to additional tax obligations in connection
with the reorganization; and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission. The Company
assumes and undertakes no obligation to update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
VARIAN MEDICAL SYSTEMS AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
---------------------- ------------------
April 2, April 3, April 2, April 3,
1999 1998 1999 1998
---------- ---------- -------- --------
(Amounts in thousands except per share
amounts)
<S> <C> <C> <C> <C>
SALES $ 149,302 $ 131,529 $254,266 $230,477
---------- ---------- -------- --------
Operating Costs and Expenses
Cost of sales 101,035 89,480 173,010 155,298
Research and development 11,107 11,449 20,529 21,476
Marketing 15,787 14,451 30,809 26,540
General and administrative 17,157 8,743 25,881 25,292
Reorganization 27,430 -- 30,989 --
---------- ---------- -------- --------
Total Operating Costs and
Expenses 172,516 124,123 281,218 228,606
---------- ---------- -------- --------
OPERATING EARNINGS (LOSS) (23,214) 7,406 (26,952) 1,871
Interest expense, net (1,306) (1,257) (2,441) (1,605)
---------- ---------- -------- --------
Earnings (Loss) from Continuing
Operations Before Taxes (24,520) 6,149 (29,393) 266
Taxes on earnings (loss) (14,370) 1,673 (17,160) 73
---------- ---------- -------- --------
Earnings (Loss) from Continuing
Operations (10,150) 4,476 (12,233) 193
Earnings (Loss) from Discontinued
Operations--Net of Taxes (30,776) 18,528 (31,130) 42,518
---------- ---------- -------- --------
Net Earnings (Loss) $ (40,926) $ 23,004 $(43,363) $ 42,711
========== ========== ======== ========
Average Shares Outstanding--Basic 30,114 29,971 29,991 30,029
========== ========== ======== ========
Average Shares Outstanding--
Diluted 30,114 30,614 29,991 30,761
========== ========== ======== ========
Net Earnings (Loss) Per Share--
Basic
Continuing Operations $ (0.34) $ 0.15 $ (0.41) $ 0.01
Discontinued Operations (1.02) 0.62 (1.04) 1.41
---------- ---------- -------- --------
Net Earnings (Loss) Per Share--
Basic $ (1.36) $ 0.77 $ (1.45) $ 1.42
========== ========== ======== ========
Net Earnings (Loss) Per Share--
Diluted
Continuing Operations $ (0.34) $ 0.15 $ (0.41) $ 0.01
Discontinued Operations (1.02) 0.60 (1.04) 1.38
---------- ---------- -------- --------
Net Earnings (Loss) Per Share--
Diluted $ (1.36) $ 0.75 $ (1.45) $ 1.39
========== ========== ======== ========
Dividends Declared Per Share $ -- $ 0.10 $ 0.10 $ 0.19
Order Backlog $383,512 $353,732
</TABLE>
See accompanying notes to the consolidated financial statements
1
<PAGE>
VARIAN MEDICAL SYSTEMS AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 2, 1999 October 2, 1998
------------- ---------------
(Dollars in thousands except par values) (Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 5,002 $ 149,667
-------- ----------
Accounts receivable 193,559 392,596
-------- ----------
Inventories
Raw materials and parts 55,932 132,341
Work in process 17,682 43,189
Finished goods 18,924 28,934
-------- ----------
Total inventories 92,538 204,464
-------- ----------
Other current assets 54,247 93,054
Net assets held for sale 10,538 --
-------- ----------
Total Current Assets 355,884 839,781
-------- ----------
Property, Plant, and Equipment 187,831 509,089
Accumulated depreciation and amortization (115,603) (294,867)
-------- ----------
Net Property, Plant, and Equipment 72,228 214,222
-------- ----------
Other Assets 70,305 164,292
-------- ----------
TOTAL ASSETS $498,417 $1,218,295
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 34,993 $ 46,842
Accounts payable-- trade 34,870 76,166
Accrued expenses 103,889 282,647
Product warranty 15,267 44,153
Advance payments from customers 55,890 55,081
-------- ----------
Total Current Liabilities 244,909 504,889
Long-Term Accrued Expenses 27,936 44,771
Long-Term Debt 58,500 111,090
-------- ----------
Total Liabilities 331,345 660,750
-------- ----------
Contingencies (Note 13)
Stockholders' Equity
Preferred stock
Authorized 1,000,000 shares, par value $1,
issued none -- --
Common stock
Authorized 99,000,000 shares, par value $1,
issued and outstanding 30,423,000 shares
at April 2, 1999 and 29,743,000 shares at
October 2, 1998 30,423 29,743
Retained earnings 136,649 527,802
-------- ----------
Total Stockholders' Equity 167,072 557,545
-------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $498,417 $1,218,295
======== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE>
VARIAN MEDICAL SYSTEMS AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For the Six Months Ended
--------------------------
April 2, April 3,
1999 1998
------------ ------------
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Cash Provided by Operating Activities $ (60,101) $ 20,948
------------ -----------
INVESTING ACTIVITIES
Proceeds from sale of property, plant, and
equipment $ 36,218 $ 1,379
Purchase of property, plant, and equipment (21,779) (20,614)
Purchase of businesses, net of cash acquired (574) (46,948)
Other, net (950) 4,697
------------ -----------
Net Cash Used by Investing Activities 12,915 (61,486)
------------ -----------
FINANCING ACTIVITIES
Net borrowings on short-term obligations 10,659 22,326
Principal payments on long-term debt -- (6,096)
Proceeds from common stock issued to employees 17,921 14,026
Purchase of common stock -- (43,712)
Cash distributed in spin-off of businesses (111,550) --
Other, net (15,766) (5,707)
------------ -----------
Net Cash (Used)/Provided by Financing Activities (98,736) (19,163)
------------ -----------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 1,257 2,753
------------ -----------
Net (Decrease)/Increase in Cash and Cash
Equivalents (144,665) (56,948)
Cash and cash equivalents at beginning of period 149,667 142,298
------------ -----------
Cash and cash equivalents at end of period $ 5,002 $ 85,350
============ ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
VARIAN MEDICAL SYSTEMS AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 1: The consolidated financial statements include the accounts of Varian
Medical Systems, Inc. (the "Company" or "VMS") and its subsidiaries
and have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The October 2, 1998 balance sheet data was derived from
audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. It is suggested
that these financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's
latest Form 10-K annual report. In the opinion of management, the
interim consolidated financial statements include all normal recurring
adjustments necessary to present fairly the information required to be
set forth therein. The results of operations for the second quarter
and six months ended April 2, 1999 are not necessarily indicative of
the results to be expected for a full year or for any other periods.
NOTE 2: On April 2, 1999, Varian Associates, Inc. reorganized into three
separate publicly traded companies by spinning off through a tax-free
distribution two of its businesses to stockholders (the
"Distribution"). The Distribution resulted in the following three
companies: 1) the Company (renamed from Varian Associates, Inc. to
Varian Medical Systems, Inc. following the Distribution); 2) Varian,
Inc. ("VI"); and 3) Varian Semiconductor Equipment Associates, Inc.
("VSEA"). On February 19, 1999, following receipt of a private letter
ruling from the Internal Revenue Service to the effect that the
Distribution would be tax-free to the Company and its stockholders and
following the approval of the plan for the Distribution by the
Company's stockholders, the Company's Board of Directors declared a
stock dividend to stockholders of record on March 24, 1999, consisting
of one share of VI common stock and one share of VSEA common stock for
each share of Company common stock held on April 2, 1999. The
Distribution resulted in a non-cash dividend that reduced the
Company's stockholders' equity by approximately $362 million.
These transactions were accomplished under the terms of an Amended and
Restated Distribution Agreement dated as of January 14, 1999 by and
among the Company, VI and VSEA. For purposes of governing certain of
the ongoing relationships between and among the Company, VI and VSEA
after the Distribution, the Company, VI and VSEA also entered into
various agreements including an Employee Benefits Allocation
Agreement, Intellectual Property Agreement, Tax Sharing Agreement and
Transition Services Agreement. These agreements set forth the
principles to be applied in allocating certain related costs and
specified portions of contingent liabilities to be shared, which, by
their nature, cannot be reasonably estimated at this time.
Pursuant to Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," the Company has reclassified its
consolidated financial statements to reflect the dispositions of VI
and VSEA. The net operating results of VI and VSEA have been reported,
net of applicable income taxes, as "Earnings (Loss) from Continuing
Operations."
The loss on the disposition was $5.4 (net of income taxes of $2.9) and
related to employee relocation, severance, retention, and other
payroll costs directly associated with the disposal of VI and VSEA.
4
<PAGE>
Summarized information for discontinued operations, excluding the above
loss on disposal, is as follows (dollars in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ---------------------------
April 2, 1999 April 3, 1998 April 2, 1999 April 3, 1998
------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue $198.4 $241.3 $375.7 $487.2
====== ====== ====== ======
Earnings (Loss) before
Taxes $(40.5) $ 29.0 $(39.5) $ 64.9
====== ====== ====== ======
Net Earnings (Loss) $(25.3) $ 18.5 $(25.7) $ 42.5
====== ====== ====== ======
</TABLE>
NOTE 3: The results for the six months ended April 2, 1999 include net non-
recurring reorganization charges of $30,989,000. Of the $30,989,000,
$27,345,000 was incurred as a result of the Distribution and
$3,644,000 was incurred as a result of the Company's restructuring of
its x-ray tube and imaging subsystems products by the closing of a
manufacturing facility in Arlington Heights, Illinois to consolidate
manufacturing at the Company's existing facility in Salt Lake City,
Utah. The $30,989,000 net charge includes $33,567,000 for retention
bonuses for employee services provided prior to April 2, 1999,
employee severance and executive compensation; $19,283,000 for legal,
accounting, printing and investment banking fees; a $27,302,000 gain
on the sale of the Company's long-term leasehold interest in certain
of its Palo Alto facilities, together with the related buildings;
$1,700,000 for foreign taxes (excluding income taxes) resulting from
the international reorganization of the Company's subsidiaries in
connection with the Distribution; and $3,741,000 in other costs
associated with the Distribution and restructuring.
The following table sets forth certain details associated with these
net reorganization charges (in thousands of dollars):
<TABLE>
<CAPTION>
Cash Payments
Reorganization (Receipts)/ Accrual at
Costs Other Reductions April 2, 1999
-------------- ---------------- -------------
<S> <C> <C> <C>
Retention bonuses,
severance, and executive
compensation $33,567 $27,571 $ 5,996
Legal, accounting,
printing and investment
banking fees 19,283 15,592 3,691
Gain on sale of real
estate (27,302) (27,302) --
Foreign taxes (excluding
income taxes) 1,700 1,006 694
Other 3,741 2,855 886
------- ------- -------
$30,989 $19,722 $11,267
======= ======= =======
</TABLE>
NOTE 4: Inventories are valued at the lower of cost or market (realizable
value) using the last-in, first-out (LIFO) cost for the U.S.
inventories of the Varian Medical Systems except for x-ray tube
products. All other inventories are valued principally at average
cost. If the first-in, first-out (FIFO) method had been used for those
operations valuing inventories on a LIFO basis, inventories would have
been higher than reported by $13.8 million at April 2, 1999 and $44.7
million at October 2, 1998.
5
<PAGE>
NOTE 5: The Company enters into forward exchange contracts to mitigate the
effects of operational (sales orders and purchase commitments) and
balance sheet exposures to fluctuations in foreign currency exchange
rates. When the Company's foreign exchange contracts hedge operational
exposure, the effects of movements in currency exchange rates on these
instruments are recognized in income when the related revenues and
expenses are recognized. All forward exchange contracts hedging
operational exposure are designated and highly effective as hedges.
The critical terms of all forward exchange contracts hedging
operational exposure and of the forecasted transactions being hedged
are substantially identical. Accordingly, the Company expects that
changes in the fair value or cash flows of the hedging instruments and
the hedged transactions (for the risk being hedged) will completely
offset at the hedge's inception and on an ongoing basis. When foreign
exchange conctracts hedge balance sheet exposure, such effects are
recognized in income when the exchange rate changes in accordance with
the requirements for other foreign currency transactions. Because the
impact of movements in currency exchange rates on foreign exchange
contracts generally offsets the related impact on the underlying items
being hedged, these instruments do not subject the Company to risk
that would otherwise result from changes in currency exchange rates.
Gains and losses on hedges of existing assets or liabilities are
included in the carrying amounts of those assets or liabilities and
are ultimately recognized in income as part of those carrying amounts.
Gains and losses related to qualifying hedges of firm commitments also
are deferred and are recognized in income or as adjustments of
carrying amounts when the hedged transaction occurs. Any deferred
gains or losses are included in Accrued Expenses in the balance sheet.
If a hedging instrument is sold or terminated prior to maturity, gains
and losses continue to be deferred until the hedged item is recognized
in income. If a hedging instrument ceases to qualify as a hedge, any
subsequent gains and losses are recognized currently in income. The
Company's forward exchange contracts generally range from one to three
months in original maturity, and no forward exchange contract has an
original maturity greater than one year. Forward exchange contracts
outstanding as of April 2, 1999 are summarized as follows:
<TABLE>
<CAPTION>
April 2, 1999
-----------------------------
Notional Value Notional Value
Sold Purchased
-------------- --------------
(Dollars in thousands)
<S> <C> <C>
Belgian franc $ 3,074 $ --
British pound 6,843 --
Canadian dollar 5,992 --
French franc 4,595 --
German mark 2,115 --
Italian lira 2,716 --
Japanese yen 1,752 --
Portugese escudo 1,139 --
Spanish peseta 3,357 753
Swedish kronor 1,929 1,415
Euro 19,097 --
------- ------
Totals $52,609 $2,168
======= ======
</TABLE>
The fair value of forward exchange contracts generally reflects the
estimated amounts that the Company would receive or pay to terminate
the contracts at the reporting date, thereby taking into account and
approximating the current unrealized and realized gains or losses of
open contracts. The notional amounts of forward exchange contracts are
not a measure of the Company's exposure.
NOTE 6: Net earnings per share is computed under two methods, basic and
diluted. Basic net earnings per share is computed by dividing earnings
available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
is computed by
6
<PAGE>
dividing earnings available to common stockholders by the sum of the
weighted average number of common shares outstanding and potential
common shares (when dilutive). A reconciliation of the numerator and
denominator used in the earnings per share calculations are presented
as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ---------------------------
April 2, 1999 April 3, 1998 April 2, 1999 April 3, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator--Basic and
Diluted:
Earnings (Loss) from
Continuing Operations $(10,150) $ 4,476 $(12,233) $ 193
Earnings (Loss) from
Discontinued Operations (30,776) 18,528 (31,130) 42,518
-------- ------- --------- -------
Net Earnings (Loss) $(40,926) $23,004 $(43,363) $42,711
======== ======= ========= =======
Denominator--Basic:
Average shares
outstanding 30,114 29,971 29,991 30,029
======== ======= ========= =======
Net Earnings (Loss) Per
Share--Basic:
Continuing Operations $ (0.34) $ 0.15 $ (0.41) $ 0.01
Discontinued Operations (1.02) 0.62 (1.04) 1.41
-------- ------- --------- -------
Net Earnings (Loss) Per
Share--Basic $ (1.36) $ 0.77 $ (1.45) $ 1.42
======== ======= ========= =======
Denominator--Diluted:
Average shares
outstanding 30,114 29,971 29,991 30,029
Dilutive stock options -- 643 -- 732
-------- ------- --------- -------
30,114 30,614 29,991 30,761
======== ======= ========= =======
Net Earnings (Loss) Per
Share--Diluted:
Continuing Operations $ (0.34) $ 0.15 $ (0.41) $ 0.01
Discontinued Operations (1.02) 0.60 (1.04) 1.38
-------- ------- --------- -------
Net Earnings (Loss) Per
Share--Diluted $ (1.36) $ 0.75 $ (1.45) $ 1.39
======== ======= ========= =======
</TABLE>
Options to purchase 4,015,000 shares were outstanding on a weighted
average basis during the three months ended April 2, 1999 but were not
included in the computation of diluted EPS because the Company had a
net loss for the period.
Options to purchase 4,111,000 shares were outstanding on a weighted
average basis during the six months ended April 2, 1999 but were not
included in the computation of diluted EPS because the Company had a
net loss for the period.
NOTE 7: Included in other assets at April 2, 1999 and October 2, 1998 is
goodwill of $51.8 million and $132.5 million, respectively, which is
the excess of the cost of acquired businesses over the sum of the
amounts assigned to identifiable assets acquired less liabilities
assumed. Goodwill is amortized on a straight-line basis over periods
ranging from 5 to 40 years.
NOTE 8: Accrued expenses comprise the following:
<TABLE>
<CAPTION>
April 2, 1999 October 2, 1998
(Dollars in millions) ------------- ---------------
<S> <C> <C>
Taxes, including taxes on earnings $ 5.1 $ 46.2
Payroll and employee benefits 32.6 84.9
Estimated loss contingencies 5.7 54.6
Deferred income 8.3 27.3
Reorganization costs 11.3 --
Other 40.9 69.6
------ ------
$103.9 $282.6
====== ======
</TABLE>
7
<PAGE>
NOTE 9: In June 1998, the Financial Accounting and Standards Board (the
"FASB") issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS 133 requires derivatives to be measured at
fair value and to be recorded as assets or liabilities on the balance
sheet. The accounting for gains or losses resulting from changes in
the fair values of those derivatives would be dependent upon the use
of the derivative and whether it qualifies for hedge accounting. SFAS
133 is effective for the Company's fiscal year 2000. The Company has
not yet determined the impact of its implementation on the Company's
consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No.131
changes current practice under SFAS No.14 by establishing a new
framework on which to base segment reporting (referred to as the
"management" approach) and also requires interim reporting of segment
information. It is effective for the Company's 1999 fiscal year. The
impact of implementation of SFAS No. 131 on the reporting of the
Company's segment information has not yet been determined.
NOTE 10: In May 1999, the Company agreed to invest up to $5 million over the
next twelve months, beginning in the third quarter of fiscal year
1999, in a consortium to participate in the acquisition of a majority
interest in an entity that supplies the Company with amorphous
silicon thin-film transistor arrays for its imaging products.
NOTE 11: Prior to the Distribution, the Company historically incurred or
managed debt at the parent level. Under the Distribution Agreement,
(1) the Company was required to contribute to VSEA such cash and cash
equivalents so that VSEA would have $100 million in cash and cash
equivalents, net worth (as defined in the Distribution Agreement) of
at least $150 million and consolidated debt (as defined in the
Distribution Agreement) of no more than $5 million and (2) VI was
required to assume 50% of the outstanding indebtedness under the
Company's term loans and have transferred to it such portion of the
indebtedness under the Company's notes payable and such amount of
cash and cash equivalents so that as of the time of the Distribution,
the Company and VI would each have net debt (defined in the
Distribution Agreement as the amount outstanding under the term loans
and the notes payable, less cash and cash equivalents) equal to
approximately 50% of the net debt of the Company and VI, subject to
such adjustment as was necessary to provide the Company with a net
worth of between 40% and 50% of the aggregate net worth of the
Company and VI, and subject to further adjustment to reflect the VI's
approximately 50% share of the estimated proceeds, if any, to be
received by the Company after the Distribution from the sale of the
Company's long-term leasehold interest at certain of its Palo Alto
facilities, together with certain related buildings and other
corporate assets and VI's obligation for approximately 50% of any
estimated transaction expenses to be paid by the Company after the
Distribution (in each case reduced for estimated taxes payable or tax
benefits received from all sales and transaction expenses). Since the
amounts allocated to VI and transferred to VSEA in connection with
the Distribution were based on estimates, adjustments may be required
within the period of up to 180 days following the Distribution. In
addition, certain other pre-Distribution transactions may require
adjustment 90 days following the Distribution under the provisions of
the Distribution Agreement. As a result of these adjustments, the
Company may be required to make cash payments to VI or VSEA, or may
be entitled to receive cash payments from VI. The amount of such
adjustments cannot be estimated.
The debt retained by the Company amounted to $93.5 million of term
loans and notes payable. As of April 2, 1999, interest rates on the
Company's outstanding term loans ranged from 6.70% to 7.15% and the
weighted average interest rate on these term loans was 6.82%. As of
April 2, 1999, the weighted average interest rate on the Company's
notes payable was 7.80%. The term loans currently contain covenants
that limit future borrowings and the payment of cash dividends and
require the maintenance of certain levels of working capital and
operating results.
8
<PAGE>
Future principal payments on the Company's notes payable and long-
term debt outstanding at April 2, 1999 are as follows: $35.0 million
during the six months ending October 1, 1999, none in fiscal years
2000-2004, and $58.5 million thereafter.
NOTE 12: As of April 2, 1999, Company management had committed to a plan to
sell approximately $10.5 million of long-term leasehold interests in
certain of the Company's Palo Alto facilities, together with the
related buildings and other corporate assets, in connection with the
Distribution. These assets have been classified as held for sale in
the accompanying balance sheet, and the Company has suspended
depreciation of these assets.
NOTE 13: The Company has been named by the U.S. Environmental Protection
Agency or third parties as a potentially responsible party under the
Comprehensive Environmental Response Compensation and Liability Act
of 1980, as amended, at eight sites where the Company is alleged to
have shipped manufacturing waste for recycling or disposal. The
Company is also involved in various stages of environmental
investigation and/or remediation under the direction of, or in
consultation with, federal, state and/or local agencies at certain
current or former Company facilities (including facilities disposed
of in connection with the Company's sale of its Electron Devices
business during 1995, and the sale of its Thin Film Systems business
during 1997). Under the terms of the Distribution Agreement, VI and
VSEA are each obligated to indemnify the Company for one-third of
these environmental-related investigation and remediation costs
(after adjusting for any insurance proceeds realized or tax benefits
recognized by the Company). Expenditures for environmental
investigation and remediation amounted to $1.7 million in fiscal year
1998 compared with $0.8 million in fiscal year 1997 and $1.8 million
in fiscal year 1996, net of amounts that would have been borne by VI
and VSEA.
For certain of these sites and facilities, various uncertainties make
it difficult to assess the likelihood and scope of further
investigation or remediation activities or to estimate the future
costs of such activities if undertaken. As of April 2, 1999, the
Company nonetheless estimated that the Company's future exposure (net
of VI and VSEA's indemnification obligations) for environmental-
related investigation and remediation costs for these sites ranged in
the aggregate from $12.2 million to $28.3 million. The time frame
over which the Company expects to incur such costs varies with each
site, ranging up to approximately 30 years as of April 2, 1999.
Management believes that no amount in the foregoing range of
estimated future costs is more probable of being incurred than any
other amount in such range and therefore accrued $12.2 million in
estimated environmental costs as of April 2, 1999. The amount accrued
has not been discounted to present value.
As to other sites and facilities, the Company has gained sufficient
knowledge to be able to better estimate the scope and costs of future
environmental activities. As of April 2, 1999, the Company estimated
that the Company's future exposure (net of VI and VSEA's
indemnification obligations) for environmental-related investigation
and remediation costs for these sites and facilities ranged in the
aggregate from $23.2 million to $42.8 million. The time frame over
which these costs are expected to be incurred varies with each site
and facility, ranging up to approximately 30 years as of April 2,
1999. As to each of these sites and facilities, management determined
that a particular amount within the range of estimated costs was a
better estimate of the future environmental liability than any other
amount within the range, and that the amount and timing of these
future costs were reliably determinable. Together, these amounts
totaled $29.8 million at April 2, 1999. The Company accordingly
accrued $12.9 million, which represents its best estimate of the
future costs discounted at 4%, net of inflation. This accrual is in
addition to the $12.2 million described in the preceding paragraph.
The foregoing amounts are only estimates of anticipated future
environmental-related costs, and the amounts actually spent may be
greater or less than such estimates. The aggregate range of cost
estimates reflects various uncertainties inherent in many
environmental investigation and remediation activities and the large
number of sites and facilities involved. The Company believes that
most of
9
<PAGE>
these cost ranges will narrow as investigation and remediation
activities progress. The Company believes that its reserves are
adequate, but as the scope of its obligations becomes more clearly
defined, these reserves (and the associated indemnification obligations
of VI and VSEA) may be modified and related charges against earnings
may be made.
Although any ultimate liability arising from environmental-related
matters described herein could result in significant expenditures
that, if aggregated and assumed to occur within a single fiscal year,
would be material to the Company's financial statements, the
likelihood of such occurrence is considered remote. Based on
information currently available to management and its best assessment
of the ultimate amount and timing of environmental-related events
(and assuming VI and VSEA satisfy their indemnification obligations),
management believes that the costs of these environmental- related
matters are not reasonably likely to have a material adverse effect
on the consolidated financial statements of the Company.
The Company evaluates its liability for environmental-related
investigation and remediation in light of the liability and financial
wherewithal of potentially responsible parties and insurance
companies with respect to which the Company believes that it has
rights to contribution, indemnity and/or reimbursement (in addition
to the obligations of VI and VSEA). Claims for recovery of
environmental investigation and remediation costs already incurred,
and to be incurred in the future, have been asserted against various
insurance companies and other third parties. In 1992, the Company
filed a lawsuit against 36 insurance companies with respect to most
of the above-referenced sites and facilities. The Company received
certain cash settlements during fiscal years 1995, 1996, 1997 and
1998 from defendants in that lawsuit. The Company has also reached an
agreement with another insurance company under which the insurance
company has agreed to pay a portion of the Company's past and future
environmental-related expenditures, and the Company therefore has a
$3.4 million receivable in Other Assets at April 2, 1999. The Company
believes that this receivable is recoverable because it is based on a
binding, written settlement agreement with a solvent and financially
viable insurance company. Although the Company intends to
aggressively pursue additional insurance and other recoveries, the
Company has not reduced any liability in anticipation of recovery
with respect to claims made against third parties.
The Company is a party to three related federal actions involving
claims by independent service organizations ("ISOs") that the
Company's policies and business practices relating to replacement
parts violate the antitrust laws (the "ISOs Litigation"). The ISOs
purchase replacement parts from the Company and compete with it for
the servicing of linear accelerators made by the Company. In response
to several threats of litigation regarding the legality of the
Company's parts policy, the Company filed a declaratory judgment
action in a U. S. District Court in 1996 seeking a determination that
its new policies are legal and enforceable and damages against two of
the ISOs for misappropriation of the Company's trade secrets, unfair
competition, copyright infringement and related claims. Subsequently,
four of the defendants filed separate claims in other jurisdictions
raising issues allegedly related to those in the declaratory relief
action and seeking injunctive relief against the Company and damages
against the Company in the amount of $10 million for each plaintiff.
The defendants' motion for a preliminary injunction in U. S. District
Court in Texas with respect to the Company's policies was defeated.
The ISOs defendants amended the complaint to include class action
allegations, allege a variety of other anti-competitive business
practices and filed a motion for class certification, which is
scheduled to be heard by the U. S. District Court in Texas in July
1999.
Following the Distribution, the Company retained the liabilities
related to the medical systems business prior to the Distribution,
including the ISOs Litigation. In addition, under the terms of the
Distribution Agreement, the Company agreed to manage and defend
liabilities related to legal proceedings and environmental matters
arising from corporate or discontinued operations of the
10
<PAGE>
Company prior to the Distribution. Under the terms of the Distribution
Agreement, VI and VSEA are each obligated to indemnify the Company for
one-third of these liabilities (after adjusting for any insurance
proceeds realized or tax benefits recognized by the Company), including
certain environmental-related liabilities described above, and to fully
indemnify the Company for liabilities arising from the operations of
the business transferred to each prior to the Distribution. The
availability of such indemnities will depend upon the future financial
strength of VI and VSEA. No assurance can be given that the relevant
company will be in a position to fund such indemnities. It is also
possible that a court would disregard this contractual allocation of
indebtedness, liabilities and obligations among the parties and require
the Company to assume responsibility for obligations allocated to
another party, particularly if such other party were to refuse or was
unable to pay or perform any of its allocated obligations. In addition,
the Distribution Agreement generally provides that if a court prohibits
a company from satisfying its indemnification obligations, then such
indemnification obligations will be shared equally between the two
other companies.
The Company is also involved in certain other legal proceedings
arising in the ordinary course of its business. While there can be no
assurances as to the ultimate outcome of any litigation involving the
Company, management does not believe any pending legal proceeding
will result in a judgment or settlement that will have a material
adverse effect on the Company's financial position, results of
operations or cash flows.
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Varian Medical
Systems, Inc.:
We have reviewed the accompanying consolidated balance sheet and related
consolidated statements of earnings and cash flows of Varian Medical Systems,
Inc. and subsidiaries as of April 2, 1999, and for the three-month and six-
month periods then ended. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
/s/ PRICEWATERHOUSECOOPERS LLP
-------------------------------------
PricewaterhouseCoopers LLP
May 17, 1999
San Jose, California
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
In August 1998, the Company (then known as Varian Associates, Inc.)
announced its intention to spin off its instruments business and its
semiconductor equipment business to its stockholders. The Company subsequently
transferred its instruments business to Varian, Inc. ("VI"), a wholly-owned
subsidiary, and transferred its semiconductor equipment business to Varian
Semiconductor Equipment Associates, Inc. ("VSEA"), a wholly owned subsidiary.
On April 2, 1999, the Company distributed to holders of shares of the common
stock of the Company all of the outstanding shares of common stock of VI and
VSEA (the "Distribution").
These transactions were accomplished under the terms of an Amended and
Restated Distribution Agreement dated as of January 14, 1999 by and among the
Company, VI and VSEA (the "Distribution Agreement"). In addition, for purposes
of governing certain ongoing relationships between and among the Company, VI
and VSEA after the Distribution, the Company, VI and VSEA entered into certain
other agreements, including an Employee Benefits Allocation Agreement, an
Intellectual Property Agreement, a Tax Sharing Agreement and a Transition
Services Agreement.
The financial statements included in this report on Form 10-Q present VI
and VSEA as discontinued operations pursuant to Accounting Principles Board
Opinion No. 30 "Reporting the Results of Operations--Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The net operating results of
VI and VSEA are reported as "Earnings (Loss) from Discontinued Operations--Net
of Taxes."
The business retained by the Company consists of its medical systems
business, principally the sales and service of oncology systems, and the sales
of x-ray tubes and imaging subsystems. Immediately following the Distribution,
the Company changed its name to Varian Medical Systems, Inc. The following
discussion and analysis pertains to the continuing operations of the Company,
unless otherwise noted.
Results of Operations
Fiscal Year
The Company's fiscal year is the 52- or 53-week period ending on the Friday
nearest September 30. Fiscal year 1999 comprises the 52-week period ending
October 1, 1999, and fiscal year 1998 comprises the 53-week period ended
October 2, 1998. The fiscal quarters ended April 2, 1999 and April 3, 1998
each comprise 13 weeks. For purposes of interim reporting, the six-month
period ended April 2, 1999 comprises 26 weeks, and the six-month period ended
April 3, 1998 comprises 27 weeks.
Second Quarter Fiscal Year 1999 Compared to Second Quarter Fiscal Year 1998
Sales. The Company's sales of $149 million in the second quarter of fiscal
year 1999 were 14% higher than its sales of $132 million in the second quarter
of fiscal year 1998. International sales were $80 million, or 54% of sales, in
the second quarter of fiscal year 1999, compared to $88 million, or 67% of
sales, in the second quarter of fiscal year 1998.
Oncology systems sales increased 20% between quarters, amounting to $116
million, or 78% of the Company's sales, in the second quarter of fiscal year
1999, compared to $97 million, or 73% of sales, in the second quarter of
fiscal year 1998. Oncology systems sales in North America, Europe, Asia and
the rest of the world amounted to $58 million, $28 million, $23 million and $7
million in the second quarter of fiscal year 1999, and $35 million, $46
million, $9 million and $7 million in the second quarter of fiscal year 1998,
respectively.
13
<PAGE>
The increase in oncology system sales was partially offset by a 3% decrease
in x-ray tubes and imaging subsystems sales, which amounted to $33 million, or
22% of the Company's sales, in the second quarter of fiscal year 1999,
compared to $34 million, or 26% of sales, in the second quarter of fiscal year
1998. Sales of x-ray tubes and imaging subsystems in North America, Europe,
Asia and the rest of the world amounted to $11 million, $7 million,
$14 million and $1 million in the second quarter of fiscal year 1999 and $9
million, $9 million, $15 million and $1 million in the second quarter of
fiscal year 1998, respectively. The weakness in x-ray tubes and imaging
subsystem sales reflected delays in new product introductions by some
customers who are facing tougher competition, a sales mix-shift toward lower-
priced products, and longer-life tubes that have slowed replacement rates.
Gross Profit. The Company recorded gross profit of $48 million in the
second quarter of fiscal year 1999 and $42 million in the second quarter of
fiscal year 1998. As a percentage of sales, gross profit was 32% of sales in
both the second quarter of fiscal year 1999 and the second quarter of fiscal
year 1998. Gross profit as a percentage of sales of oncology systems amounted
to 34% in the second quarter of fiscal year 1999, compared to 32% in the
second quarter of fiscal year 1998. The improved gross profit for oncology
systems was primarily due to increased sales in North America where margins
are higher than elsewhere. In contrast, gross profit as a percentage of sales
of x-ray tubes and imaging subsystems was 30% in the second quarter of fiscal
year 1999, compared to 33% in the second quarter of fiscal year 1998. The
decline in x-ray and imaging subsystems margin was due, in part, to a
reduction in price levels to meet competitive pressures, the previously
mentioned sales-mix shift and lower margins for imaging subsystems compared to
x-ray tubes.
Research and Development. The Company's research and development expenses
were $11 million in both the second quarter of fiscal year 1999 and the second
quarter of fiscal year 1998, amounting to 7% and 9% of sales, respectively.
Marketing. Marketing expenses were $16 million in the second quarter of
fiscal year 1999, compared to $14 million in the second quarter of fiscal year
1998, representing 11% of sales in both quarters.
General and Administrative. The Company's general and administrative
expenses of $17 million were 11% of sales in the second quarter of fiscal year
1999, compared to $9 million, or 7% of sales, in the second quarter of fiscal
year 1998. The increase over the prior fiscal year's period was due primarily
to increased costs for Group Insurance coverage, write offs of certain fixed
assets and increased legal and finance costs.
Reorganization Costs. Second quarter fiscal year 1999 expenses included net
non-recurring reorganization charges of $27 million, representing the
substantial majority of the non-recurring reorganization charges recorded in
the first half of fiscal year 1999, as described below.
Taxes on Earnings. The Company's effective tax rate was 59% in the second
quarter of fiscal year 1999, compared to 27% in the second quarter of fiscal
year 1998. The second quarter fiscal year 1999 rate is significantly higher
than the second quarter fiscal year 1998 rate principally due to the non-
deductibility of certain reorganization costs related to the Distribution.
Net Loss. The Company's net loss from continuing operations was $10 million
in the second quarter of fiscal year 1999, compared to the net earnings of $4
million in the second quarter of fiscal year 1998.
First Half Fiscal Year 1999 Compared to the First Half of Fiscal Year 1998
Sales. The Company's sales of $254 million in the first half of fiscal year
1999 were 10% higher than its sales of $230 million in the first half of
fiscal year 1998. International sales were $138 million, or 54% of sales, in
the first half of fiscal year 1999, compared to $127 million, or 55% of sales,
in the first half of fiscal year 1998.
Oncology systems sales increased 18% amounting to $194 million, or 76% of
the Company's sales, in the first half of fiscal year 1999, compared to $164
million, or 71% of sales, in the first half of fiscal year 1998. Oncology
systems sales in North America, Europe, Asia and the rest of the world
amounted to $95 million, $54 million, $32 million and $13 million in the first
half of fiscal year 1999, and $84 million, $60 million, $10 million and $10
million in the first half of fiscal year 1998, respectively.
14
<PAGE>
X-ray tubes and imaging subsystems sales were $60 million, or 24% of the
Company's sales, in the first half of fiscal year 1999, compared to $66
million, or 29% of sales, in the first half of fiscal year 1998. Sales of x-
ray tubes and imaging subsystems in North America, Europe, Asia and the rest
of the world amounted to $21 million, $12 million, $25 million and $2 million
in the first half of fiscal year 1999 and $19 million, $17 million, $28
million and $2 million in the first half of fiscal year 1998, respectively. As
in the second quarter, the 9% decrease in x-ray tubes and imaging subsystems
sales between the first half of fiscal year 1998 and the first half of fiscal
year 1999 reflected delays in new product introductions by some customers who
are facing tougher competition, a sales mix-shift toward lower-priced
products, and longer-life tubes that have slowed replacement rates.
Gross Profit. The Company recorded gross profit of $ 81 million in the
first half of fiscal year 1999 and $75 million in the first half of fiscal
year 1998. As a percentage of sales, gross profit was 32% of sales in the
first half of fiscal year 1999 compared to 33% in the first half of fiscal
year 1998. Gross profit as a percentage of sales of oncology systems remained
at 33% for both the first half of fiscal year 1999 and the first half of
fiscal year 1998. Gross profit as a percentage of sales of x-ray tubes and
imaging subsystems declined from 33% in the first half of fiscal year 1998 to
31% in the first half of fiscal year 1999. The decline in x-ray tubes and
imaging subsystems margin was due to a reduction in prices to meet competitive
pressures, the previously mentioned sales-mix shift and lower margins for
imaging subsystems compared to x-ray tubes.
Research and Development. The Company's research and development expenses
were $21 million in both the first half of fiscal year 1999 and the first half
of fiscal year 1998, amounting to 8% and 9% of sales, respectively.
Marketing. Marketing expenses were $31 million in the first half of fiscal
year 1999, compared to $27 million in the first half of fiscal year 1998,
representing 12% in both halves.
General and Administrative. The Company's general and administrative
expenses were $26 million, or 10% of sales, in the first half of fiscal year
1999 compared to $25 million, or 11% of sales in the first half of fiscal year
1998.
Reorganization Costs. First half fiscal year 1999 expenses included net
non-recurring reorganization charges of $31 million. Of the $31 million, $27
million was incurred as a result of the Distribution and $4 million was
incurred as a result of the Company's restructuring of its x-ray tube and
imaging subsystems products by the closing of a manufacturing facility in
Arlington Heights, Illinois to consolidate manufacturing at the Company's
existing facilities in Salt Lake City, Utah. The $31 million net charge
included $34 million for retention bonuses for employee services provided
prior to April 2, 1999, employee severance and executive compensation; $19
million for legal, accounting, printing and investment banking fees; a $27
million gain on the sale of the Company's long-term leasehold interest in
certain of its Palo Alto facilities, together with the related buildings; $2
million for foreign taxes (excluding income taxes) resulting from the
international reorganization of the Company's subsidiaries in connection with
the Distribution; and $4 million in other costs associated with the
Distribution and restructuring.
The following table sets forth certain details associated with these net
reorganization charges:
<TABLE>
<CAPTION>
Cash Payments
Reorganization (Receipts)/ Accrual at
Costs Other Reductions April 2, 1999
-------------- ---------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Retention bonuses,
severance, and executive
compensation $ 33,567 $ 27,571 $ 5,996
Legal, accounting, printing
and investment banking fees 19,283 15,592 3,691
Gain on sale of real estate (27,302) (27,302) --
Foreign taxes (excluding
income taxes) 1,700 1,006 694
Other 3,741 2,855 886
-------- -------- -------
$ 30,989 $ 19,722 $11,267
======== ======== =======
</TABLE>
It is anticipated that a majority of the remaining accrual will be paid by
December 31, 1999.
15
<PAGE>
Taxes on Earnings. The Company's effective tax rate was 58% in the first
half of fiscal year 1999, compared to 27% in the first half of fiscal year
1998. The fiscal year 1999 rate is significantly higher than the fiscal year
1998 rate principally due to the non-deductibility of certain reorganization
costs related to the Distribution.
Net Loss. The Company's net loss from continuing operations was $12 million
in the first half of fiscal year 1999, compared to net earnings of $200,000 in
the first half of fiscal year 1998.
Liquidity and Capital Resources
Prior to the Distribution, the Company historically incurred or managed
debt at the parent level. Under the terms of the Distribution Agreement, (1)
the Company was required to contribute to VSEA such cash and cash equivalents
so that VSEA would have $100 million in cash and cash equivalents, net worth
(as defined in the Distribution Agreement) of at least $150 million and
consolidated debt (as defined in the Distribution Agreement) of no more than
$5 million and (2) VI was required to assume 50% of the outstanding
indebtedness under the Company's term loans and have transferred to it such
portion of the indebtedness under the Company's notes payable and such amount
of cash and cash equivalents so that as of the time of the Distribution, the
Company and VI would each have net debt (defined in the Distribution Agreement
as the amount outstanding under the term loans and the notes payable, less
cash and cash equivalents) equal to approximately 50% of the net debt of the
Company and VI, subject to such adjustment as was necessary to provide the
Company with a net worth of between 40% and 50% of the aggregate net worth of
the Company and VI, and subject to further adjustment to reflect VI's
approximately 50% share of the estimated proceeds, if any, to be received by
the Company after the Distribution from the sale of the Company's long-term
leasehold interest at certain of its Palo Alto facilities, together with
certain related buildings and other corporate assets and VI's obligation for
approximately 50% of any estimated transaction expenses to be paid by the
Company after the Distribution (in each case reduced for estimated taxes
payable or tax benefits received from all sales and transaction expenses)
provided for under the Distribution Agreement. Since the amounts allocated to
VI and transferred to VSEA immediately prior to the Distribution were based on
estimates, adjustments may be required within the period of up to 180 days
following the Distribution. In addition, certain other pre-Distribution
transactions may require adjustment 90 days following the Distribution under
the provisions of the Distribution Agreement. As a result of these
adjustments, the Company may be required to make cash payments to VI or VSEA,
or may be entitled to receive cash payments from VI. The amount of such
adjustments cannot be estimated.
The debt retained by the Company amounted to $93.5 million of term loans
and notes payable. As of April 2, 1999, interest rates on the Company's
outstanding term loans ranged from 6.70% to 7.15% and the weighted average
interest rate on these term loans was 6.82%. As of April 2, 1999, the weighted
average interest rate on the Company's notes payable was 7.80%. The term loans
currently contain covenants that limit future borrowings and the payment of
cash dividends and require the maintenance of certain levels of working
capital and operating results.
At April 2, 1999, the Company had $5 million in cash and cash equivalents,
compared to $150 million at October 2, 1998. Operating activities used cash of
$60 million in the first half of fiscal year 1999, compared to providing cash
of $21 million in the first half of fiscal year 1998. Investing activities
provided $13 million in the first half of fiscal year 1999; proceeds of $36
million from the sale of the Company's long-term leasehold interests in
certain of its Palo Alto facilities and related buildings, was partially
offset by $22 million used to purchase property, plant and equipment. In
contrast, investing activities in the first half of fiscal year 1998 used $61
million of cash with, $21 million used to purchase property, plant and
equipment and $47 million used to acquire businesses, including the purchase
of the radiotherapy service business from the General Electric Company. Most
significantly, financing activities--primarily driven by the aggregate of $112
million contributed to VI and VSEA immediately prior to the Distribution--used
net cash of $99 million in the fist half of fiscal year 1999 compared to $19
million of cash used in the first half of fiscal year 1998.
16
<PAGE>
The ratio of current assets to current liabilities was 1.45 to 1 at the end
of the first half of fiscal year 1999 compared to 1.66 to 1 at fiscal year end
1998. The Company had $85 million available in unused uncommitted lines of
credit at the end of the first half of fiscal year 1999, which was
subsequently increased by $3.2 million to $88.2 million.
The Company intends to sell its long-term leasehold interest in certain of
its remaining Palo Alto facilities, together with the related building, and
other corporate assets, from which it expects to receive additional proceeds
of $18 million to $20 million in the aggregate. An estimate of VI's
approximately 50% share of this amount was included in the computation of the
cash and debt transferred to VI immediately prior to the Distribution, but is
subject to adjustment, as described above. The ability to sell the surplus
assets or the amounts realized on the sale of those assets may affect the
Company's liquidity. In addition, the Company was required to pay the net
expenses associated with the Distribution, of which approximately $11 million
was accrued but unpaid at the time of the Distribution; VI's responsibility
for one-half of any such expenses paid post-Distribution was also reflected in
determining the amount of cash and debt allocated to it at the time of the
Distribution and is similarly subject to adjustment, as described above.
The Company expects that its future capital expenditures will continue to
approximate 2.5% of sales in each fiscal year. The Company anticipates
spending an additional $5 million of capital expenditures related to its
Arlington Heights consolidation, to split the jointly owned information
technology infrastructure and to relocate its central research facility. The
Company also expects to spend up to $4 million in relocating facilities and
updating marketing communications materials. Further, in May 1999, the Company
agreed to invest up to $5 million over the following twelve months (beginning
in the third quarter of fiscal year 1999) in a consortium to participate in
the acquisition of a majority interest in an entity that supplies the Company
with amorphous silicon thin-film transistor arrays for its imaging products.
The Company is a party to three related federal actions involving claims by
independent service organizations ("ISOs") that the Company's policies and
business practices relating to replacement parts violate the antitrust laws
(the "ISOs Litigation"). The ISOs purchase replacement parts from the Company
and compete with it for the servicing of linear accelerators made by the
Company. In response to several threats of litigation regarding the legality
of the Company's parts policy, the Company filed a declaratory judgment action
in a U. S. District Court in 1996 seeking a determination that its new
policies are legal and enforceable and damages against two of the ISOs for
misappropriation of the Company's trade secrets, unfair competition, copyright
infringement and related claims. Subsequently, four of the defendants filed
separate claims in other jurisdictions raising issues allegedly related to
those in the declaratory relief action and seeking injunctive relief against
the Company and damages against the Company in the amount of $10 million for
each plaintiff. The defendants' motion for a preliminary injunction in U. S.
District Court in Texas with respect to the Company's policies was defeated.
The ISOs defendants amended the complaint to include class action allegations,
allege a variety of other anti-competitive business practices and filed a
motion for class certification, which is scheduled to be heard by the U. S.
District Court in Texas in July 1999.
Following the Distribution, the Company retained the liabilities related to
the medical systems business prior to the Distribution, including the ISOs
Litigation. In addition, under the terms of the Distribution Agreement, the
Company agreed to manage and defend liabilities related to legal proceedings
and environmental matters arising from corporate or discontinued operations of
the Company prior to the Distribution. Under the terms of the Distribution
Agreement, VI and VSEA are each obligated to indemnify the Company for one-
third of these liabilities (after adjusting for any insurance proceeds
realized or tax benefits recognized by the Company), including certain
environmental-related liabilities described below and to fully indemnify the
Company for liabilities arising from the operations of each of them prior to
the Distribution. The availability of such indemnities will depend upon the
future financial strength of VI and VSEA. No assurance can be given that the
relevant company will be in a position to fund such indemnities. It is also
possible that a court would disregard this contractual allocation of
indebtedness, liabilities and obligations among the parties and require the
Company to assume responsibility for obligations allocated to another party,
particularly if such other party were to refuse or was unable to pay or
perform any of its
17
<PAGE>
allocated obligations. In addition, the Distribution Agreement generally
provides that if a court prohibits a company from satisfying its
indemnification obligations, then such indemnification obligations will be
shared equally between the two other companies.
The Company is also involved in certain other legal proceedings arising in
the ordinary course of its business. While there can be no assurances as to
the ultimate outcome of any litigation involving the Company, management does
not believe any pending legal proceeding will result in a judgment or
settlement that will have a material adverse effect on the Company's financial
position, results of operations or cash flows.
The Company's liquidity is affected by many factors, some based on the
normal ongoing operations of the business and others related to the
uncertainties of the industry and global economies. Although the Company's
cash requirements will fluctuate based on the timing and extent of these
factors, management believes that existing cash, cash generated from
operations and the Company's borrowing capability will be sufficient to
satisfy anticipated commitments for capital expenditures and other cash
requirements for the current fiscal year and fiscal year 2000.
Environmental Matters
The Company has been named by the U.S. Environmental Protection Agency or
third parties as a potentially responsible party under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, at
eight sites where the Company is alleged to have shipped manufacturing waste
for recycling or disposal. The Company is also involved in various stages of
environmental investigation and/or remediation under the direction of, or in
consultation with, federal, state and/or local agencies at certain current or
former Company facilities (including facilities disposed of in connection with
the Company's sale of its Electron Devices business during 1995, and the sale
of its Thin Film Systems business during 1997). Under the terms of the
Distribution Agreement, VI and VSEA are each obligated to indemnify the
Company for one-third of these environmental-related investigation and
remediation costs (after adjusting for any insurance proceeds realized or tax
benefits recognized by the Company). Expenditures for environmental
investigation and remediation amounted to $1.7 million in fiscal year 1998
compared with $0.8 million in fiscal year 1997 and $1.8 million in fiscal year
1996, net of amounts that would have been borne by VI and VSEA.
For certain of these sites and facilities, various uncertainties make it
difficult to assess the likelihood and scope of further investigation or
remediation activities or to estimate the future costs of such activities if
undertaken. As of April 2, 1999, the Company nonetheless estimated that the
Company's future exposure (net of VI and VSEA's indemnification obligations)
for environmental-related investigation and remediation costs for these sites
ranged in the aggregate from $12.2 million to $28.3 million. The time frame
over which the Company expects to incur such costs varies with each site,
ranging up to approximately 30 years as of April 2, 1999. Management believes
that no amount in the foregoing range of estimated future costs is more
probable of being incurred than any other amount in such range and therefore
accrued $12.2 million in estimated environmental costs as of April 2, 1999.
The amount accrued has not been discounted to present value.
As to other sites and facilities, the Company has gained sufficient
knowledge to be able to better estimate the scope and costs of future
environmental activities. As of April 2, 1999, the Company estimated that the
Company's future exposure (net of VI and VSEA's indemnification obligations)
for environmental-related investigation and remediation costs for these sites
and facilities ranged in the aggregate from $23.2 million to $42.8 million.
The time frame over which these costs are expected to be incurred varies with
each site and facility, ranging up to approximately 30 years as of April 2,
1999. As to each of these sites and facilities, management determined that a
particular amount within the range of estimated costs was a better estimate of
the future environmental liability than any other amount within the range, and
that the amount and timing of these future costs were reliably determinable.
Together, these amounts totaled $29.8 million at April 2, 1999. The Company
accordingly accrued $12.9 million, which represents its best estimate of the
future costs discounted at 4%, net of inflation. This accrual is in addition
to the $12.2 million described in the preceding paragraph.
18
<PAGE>
The foregoing amounts are only estimates of anticipated future
environmental-related costs, and the amounts actually spent may be greater or
less than such estimates. The aggregate range of cost estimates reflects
various uncertainties inherent in many environmental investigation and
remediation activities and the large number of sites and facilities involved.
The Company believes that most of these cost ranges will narrow as
investigation and remediation activities progress. The Company believes that
its reserves are adequate, but as the scope of its obligations becomes more
clearly defined, these reserves (and the associated indemnification
obligations of VI and VSEA) may be modified and related charges against
earnings may be made.
Although any ultimate liability arising from environmental-related matters
described herein could result in significant expenditures that, if aggregated
and assumed to occur within a single fiscal year, would be material to the
Company's financial statements, the likelihood of such occurrence is
considered remote. Based on information currently available to management and
its best assessment of the ultimate amount and timing of environmental-related
events (and assuming VI and VSEA satisfy their indemnification obligations),
management believes that the costs of these environmental related matters are
not reasonably likely to have a material adverse effect on the consolidated
financial statements of the Company.
The Company evaluates its liability for environmental-related investigation
and remediation in light of the liability and financial wherewithal of
potentially responsible parties and insurance companies with respect to which
the Company believes that it has rights to contribution, indemnity and/or
reimbursement (in addition to the obligations of VI and VSEA). Claims for
recovery of environmental investigation and remediation costs already
incurred, and to be incurred in the future, have been asserted against various
insurance companies and other third parties. In 1992, the Company filed a
lawsuit against 36 insurance companies with respect to most of the above-
referenced sites and facilities. The Company received certain cash settlements
during fiscal years 1995, 1996, 1997 and 1998 from defendants in that lawsuit.
The Company has also reached an agreement with another insurance company under
which the insurance company has agreed to pay a portion of the Company's past
and future environmental related expenditures, and the Company therefore has a
$3.4 million receivable in Other Assets at April 2, 1999. The Company believes
that this receivable is recoverable because it is based on a binding, written
settlement agreement with a solvent and financially viable insurance company.
Although the Company intends to aggressively pursue additional insurance and
other recoveries, the Company has not reduced any liability in anticipation of
recovery with respect to claims made against third parties.
Year 2000
General. The "Year 2000" problem refers to computer programs and other
equipment with embedded microprocessors ("non-IT systems") which use only the
last two digits to refer to a year, and which, therefore, might not properly
recognize a year that begins with "20" instead of the familiar "19." As a
result, those computer programs and non-IT systems might be unable to operate
or process accurately certain date-sensitive data before or after January 1,
2000. Because the Company relies heavily on computer programs and non-IT
systems, and relies on third parties which themselves rely on computer
programs and non-IT systems, the Year 2000 problem, if not addressed, could
adversely effect the Company's business, results of operations or financial
condition.
State of Readiness. The Company previously initiated a comprehensive
assessment of potential Year 2000 problems with respect to (1) the Company's
internal systems, (2) the Company's products and (3) significant third parties
with which the Company does business. The Company is continuing that
assessment for its businesses, and under the terms of the Transition Services
Agreement among the Company, VSEA and VI, the Company is also taking certain
action and otherwise assisting VSEA and VI with respect to certain Year 2000
implications with internal systems.
The Company has substantially completed its assessment of potential Year
2000 problems in internal systems, which systems have been categorized as
follows, in order of importance: (a) enterprise information systems; (b)
enterprise networking and telecommunications; (c) factory-specific information
systems; (d) non-IT systems; (e) computers and packaged software; and (f)
facilities systems. With respect to enterprise information
19
<PAGE>
systems, the Company in 1994 initiated replacement of its existing systems
with a single company-wide system supplied by SAP America, Inc., which system
is designed and tested by SAP for Year 2000 capability. Installation of that
system has been staged to replace first those existing systems that are not
Year 2000 capable. Installation of the new SAP system is approximately 35%
complete, with 90% completion expected by July 1999 and full completion
expected by the end of 1999. Upgrade of enterprise information systems is
approximately 35% complete, with 94% completion expected by July 1999 and 100%
completion expected by December 1999; upgrade of networking and
telecommunications systems is complete; upgrade of factory-specific
information systems is approximately 58% complete, with 87% completion
expected by December 1999; upgrade of non-IT systems, computers and packaged
software and facilities systems is approximately 30% complete, with 85%
completion expected by July 1999 and 100% completion expected by December
1999.
The Company has initiated an assessment of potential Year 2000 problems in
its current and previously-sold products. With respect to current products,
that assessment and corrective actions are substantially complete, and the
Company believes that all of its current products are Year 2000 capable;
however, that conclusion is based in part on Year 2000 assurances or
warranties from suppliers of computer programs and non-IT systems which are
integrated into or sold with the Company's current products.
With respect to previously-sold products, the Company does not intend to
assess Year 2000 preparedness of every product it has ever sold, but rather is
focusing its assessments on products that are subject to regulatory
requirements with respect to Year 2000, including FDA requirements for medical
devices. The Company is also focusing its assessments on products that will be
under written warranties or are still relatively early in their useful life,
are more likely to be dependent on non-IT systems that are not Year 2000
capable and cannot be easily upgraded with readily available externally-
utilized computers and packaged software and/or could pose a safety hazard.
These assessments are expected to be substantially completed by January 1999.
Where the Company identifies previously-sold products that are not Year 2000
capable, the Company intends in some cases to develop and offer to sell
upgrades or retrofits, identify corrective measures which the customer could
itself undertake or identify for the customer other suppliers of upgrades or
retrofits. There may be instances where the Company will be required to repair
and/or upgrade such products at its own expense. Schedules for completing
those corrective actions vary considerably among the Company's businesses and
products, but are generally expected to be substantially completed by July
1999.
The Company is still assessing the potential Year 2000 problems of third
parties with which the Company has material relationships, which are primarily
suppliers of products or services. These assessments will identify and
prioritize critical suppliers, review those suppliers' written assurances on
their own assessments and correction of Year 2000 problems, and develop
appropriate contingency plans for those suppliers which might not be
adequately prepared for Year 2000 problems. These assessments are expected to
be substantially completed by July 1999.
Costs. As of April 2, 1999, the Company estimates that it had incurred
approximately $970,000 to assess and correct Year 2000 problems. Although
difficult to assess, based on its assessments to date the Company estimates
that it will incur approximately $2,530,000 in additional costs to assess and
correct Year 2000 problems, which costs are expected to be incurred throughout
fiscal year 1999 and the first half of fiscal year 2000. All of these costs
have been and will continue to be expensed as incurred.
This estimate of future costs has not been reduced by expected recoveries
from certain third parties, which are subject to indemnity, reimbursement or
warranty obligations for Year 2000 problems. In addition, the Company expects
that certain costs may be offset by revenues generated by the sale of upgrades
and retrofits and other customer support services relating to Year 2000
problems. However, there can be no assurance that the Company's actual costs
to assess and correct Year 2000 problems will not be higher than the foregoing
estimate.
Risks. Failure by the Company and its key suppliers to accurately assess
and correct Year 2000 problems, would likely result in interruption of certain
of the Company's normal business operations, which could have a material
adverse effect on the Company's business, results of operations or financial
condition. If the Company
20
<PAGE>
does not adequately identify and correct Year 2000 problems in its information
systems, it could experience an interruption in its operations, including
manufacturing, order processing, receivables collection and accounting, such
that there would be delays in product shipments, lost data and a consequential
impact on revenues, expenditures and financial reporting. If the Company does
not adequately identity and correct Year 2000 problems in its non-IT systems,
it could experience an interruption in its manufacturing and related
operations, such that there would be delays in product shipments and a
consequential impact on revenues. If the Company does not adequately identify
and correct Year 2000 problems in previously-sold products, it could
experience warranty or product liability claims by users of products which do
not function correctly. If the Company does not adequately identify and
correct Year 2000 problems of the significant third parties with which it does
business, it could experience an interruption in the supply of key components
or services from those parties, such that there would be delays in product
shipments or services and a consequential impact on revenues.
Management believes that appropriate corrective actions have been or will
be accomplished within the cost and time estimates stated above. Although the
Company does not expect to be 100% Year 2000 compliant by the end of 1999, the
Company does not currently believe that any Year 2000 non-compliance in the
Company's information systems would have a material adverse effect on the
Company's business, results of operations or financial condition. However,
given the inherent complexity of the Year 2000 problem, there can be no
assurance that actual costs will not be higher than currently anticipated or
that corrective actions will not take longer than currently anticipated to
complete. Risk factors which might result in higher costs or delays include
the ability to identify and correct in a timely fashion Year 2000 problems;
regulatory or legal obligations to correct Year 2000 problems in previously-
sold products; possible liability for personal injury if a safety hazard
relating to Year 2000 is not identified and corrected; ability to retain and
hire qualified personnel to perform assessments and corrective actions; the
willingness and ability of critical suppliers to assess and correct their own
Year 2000 problems, including in products they supply to the Company; and the
additional complexity which will likely be caused by undertaking during fiscal
year 1999and fiscal year 2000 the separation of currently shared enterprise
information systems as a result of the Distribution.
Because of uncertainties as to the extent of Year 2000 problems with the
Company's previously-sold products and the extent of any legal obligation of
the Company to correct Year 2000 problems in those products, the Company
cannot yet assess risks to the Company with respect to those products. Because
its assessments are not yet complete, the Company also cannot yet conclude
that the failure of critical suppliers to assess and correct Year 2000
problems is not reasonably likely to have a material adverse effect on the
Company's results of operations.
Contingency Plans. With respect to the Company's enterprise information
systems, the Company has a contingency plan if the SAP system is not fully
installed by December 31,1999. That plan primarily involves installation where
necessary of a Year 2000 capable upgrade of existing information systems
pending complete installation of the SAP system. That upgrade is currently in
acceptance testing and, if functional, will be held for contingency purposes.
With respect to products and significant third parties, the Company intends,
as part of its on-going assessment of potential Year 2000 problems, to develop
contingency plans for the more critical problems that might not be corrected
before December 31, 1999. It is currently anticipated that the focus of these
contingency plans will be the possible interruption of the supply of key
components or services from third parties.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange
As a global concern, the Company faces exposure to adverse movements in
foreign currency exchange rates. These exposures may change over time as
business practices evolve and could have a material adverse impact on the
Company's financial results. Historically, the Company's primary exposures
have related to non-U.S. dollar denominated sales and purchases throughout
Europe, Asia and Australia. The Euro was adopted as a common currency for
members of the European Monetary Union on January 1, 1999. The Company is
21
<PAGE>
evaluating, among other issues, the impact of the Euro conversion on its
foreign currency exposure. Based on its evaluation to date, the Company does
not expect the Euro conversion to create any change in its currency exposure
due to the Company's existing hedging practices.
At the present time, the Company hedges those currency exposures associated
with certain assets and liabilities denominated in non-functional currencies
and with anticipated foreign currency cash flows. The Company does not enter
into forward exchange contracts for trading purposes. The hedging activity
undertaken by the Company is intended to offset the impact of currency
fluctuations on certain anticipated foreign currency cash flows and certain
non-functional currency assets and liabilities. The success of this activity
depends upon estimation of balance sheets denominated in various currencies.
To the extent that these forecasts are overstated or understated during
periods of currency volatility, the Company could experience unanticipated
currency gains or losses.
The Company's forward exchange contracts generally range from one to three
months in original maturity, and no forward exchange contract has an original
maturity greater than one year. Forward exchange contracts outstanding as of
April 2, 1999 are summarized as follows:
<TABLE>
<CAPTION>
April 2, 1999
------------------
Notional Notional
Value Value
Sold Purchased
-------- ---------
(Dollars In
thousands)
<S> <C> <C>
Belgian franc $ 3,074 $ --
British pound 6,843 --
Canadian dollar 5,992 --
French franc 4,595 --
German mark 2,115 --
Italian lira 2,716 --
Japanese yen 1,752 --
Portuguese escudo 1,139 --
Spanish peseta 3,357 753
Swedish kronor 1,929 1,415
Euro 19,097 --
------- ------
Totals $52,609 $2,168
======= ======
</TABLE>
The fair value of forward exchange contracts generally reflects the
estimated amounts that the Company would receive or pay to terminate the
contracts at the reporting date, thereby taking into account and approximating
the current unrealized and realized gains or losses of open contracts. The
notional amounts of forward exchange contracts are not a measure of the
Company's exposure.
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio, notes payable and long-term
debt obligations. The Company does not use derivative financial instruments in
its investment portfolio, and the Company's investment portfolio only includes
highly liquid instruments with an original maturity to the Company of three
months or less. The Company primarily enters into debt obligations to support
general corporate purposes, including working capital requirements, capital
expenditures and acquisitions.
The Company is subject to fluctuating interest rates that may impact,
adversely or otherwise, its results of operations or cash flows for its
variable rate notes payable and cash and cash equivalents. Fluctuations in
interest rates may also impact, adversely or otherwise, the estimated fair
value of the Company's fixed rate long-term debt obligations. The Company has
no cash flow exposure due to rate changes for long-term debt obligations.
22
<PAGE>
The table below presents principal amounts and related weighted average
interest rates by year of maturity for the Company's investment portfolio and
debt obligations.
<TABLE>
<CAPTION>
Six months
ending Fiscal year
October 1, -----------------------------------------
1999 2000 2001 2002 2003 2004 Thereafter Total
---------- ---- ---- ---- ---- ---- ---------- -----
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and cash
equivalents $ 5.0(1) -- -- -- -- -- -- $ 5.0
Liabilities
Notes payable $35.0 -- -- -- -- -- -- $35.0
Average interest rate 7.8% -- -- -- -- -- -- 7.8%
Long-term debt -- -- -- -- -- -- $58.5 $58.5
Average interest rate -- -- -- -- -- -- 6.8% 6.8%
</TABLE>
- --------
(1) Cash and cash equivalents at April 2, 1999 primarily consist of non-
interest bearing accounts.
The estimated fair value of the Company's cash and cash equivalents
approximates the principal amounts reflected above based on the short
maturities of these financial instruments. The estimated fair value of the
Company's debt obligations approximates the principal amounts reflected above
based on rates currently available to the Company for debt with similar terms
and remaining maturities.
Although payments under certain of the Company's operating leases for its
facilities are tied to market indices, the Company is not exposed to material
interest rate risk associated with its operating leases.
23
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Set forth below is information on the current status of previously reported
legal proceedings.
The Company is a party to three related federal actions involving claims by
independent service organizations ("ISOs") that the Company's policies and
business practices relating to replacement parts violate the antitrust laws
(the "ISOs Litigation"). The ISOs purchase replacement parts from the Company
and compete with it for the servicing of linear accelerators made by the
Company. In response to several threats of litigation regarding the legality
of the Company's parts policy, the Company filed a declaratory judgment action
in a U. S. District Court in 1996 seeking a determination that its new
policies are legal and enforceable and damages against two of the ISOs for
misappropriation of the Company's trade secrets, unfair competition, copyright
infringement and related claims. Subsequently, four of the defendants filed
separate claims in other jurisdictions raising issues allegedly related to
those in the declaratory relief action and seeking injunctive relief against
the Company and damages against the Company in the amount of $10 million for
each plaintiff. The defendants' motion for a preliminary injunction in U. S.
District Court in Texas with respect to the Company's policies was defeated.
The ISOs defendants amended the complaint to include class action allegations,
allege a variety of other anti-competitive business practices and filed a
motion for class certification, which is scheduled to be heard by the U. S.
District Court in Texas in July 1999.
Following the Distribution, the Company retained the liabilities related to
the medical systems business prior to the Distribution, including the ISOs
Litigation. In addition, under the terms of the Distribution Agreement, the
Company agreed to manage and defend liabilities related to legal proceedings
and environmental matters arising from corporate or discontinued operations of
the Company prior to the Distribution. Under the terms of the Distribution
Agreement, VI and VSEA are each obligated to indemnify the Company for one-
third of these liabilities (after adjusting for any insurance proceeds
realized or tax benefits recognized by the Company), including certain
environmental-related liabilities described below, and to fully indemnify the
Company for liabilities arising from the operations of the business
transferred to each prior to the Distribution. The availability of such
indemnities will depend upon the future financial strength of VI and VSEA. No
assurance can be given that the relevant company will be in a position to fund
such indemnities. It is also possible that a court would disregard this
contractual allocation of indebtedness, liabilities and obligations among the
parties and require the Company to assume responsibility for obligations
allocated to another party, particularly if such other party were to refuse or
was unable to pay or perform any of its allocated obligations. In addition,
the Distribution Agreement generally provides that if a court prohibits a
company from satisfying its indemnification obligations, then such
indemnification obligations will be shared equally between the two other
companies.
The Company is also involved in certain other legal proceedings arising in
the ordinary course of its business. While there can be no assurances as to
the ultimate outcome of any litigation involving the Company, management does
not believe any pending legal proceeding will result in a judgment or
settlement that will have a material adverse effect on the Company's financial
position, results of operations or cash flows.
The Company has been named by the U.S. Environmental Protection Agency or
third parties as a potentially responsible party under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, at
eight sites where the Company is alleged to have shipped manufacturing waste
for recycling or disposal. The Company is also involved in various stages of
environmental investigation and/or remediation under the direction of, or in
consultation with, federal, state and/or local agencies at certain current or
former Company facilities (including facilities disposed of in connection with
the Company's sale of its Electron Devices business during 1995, and the sale
of its Thin Film Systems business during 1997). Under the terms of the
Distribution Agreement, VI and VSEA are each obligated to indemnify the
Company for one-third of these environmental-related investigation and
remediation costs (after adjusting for any insurance proceeds realized or tax
benefits recognized by the Company). Expenditures for environmental
investigation and remediation
24
<PAGE>
amounted to $1.7 million in fiscal year 1998 compared with $0.8 million in
fiscal year 1997 and $1.8 million in fiscal year 1996, net of amounts that
would have been borne by VI and VSEA.
For certain of these sites and facilities, various uncertainties make it
difficult to assess the likelihood and scope of further investigation or
remediation activities or to estimate the future costs of such activities if
undertaken. As of April 2, 1999, the Company nonetheless estimated that the
Company's future exposure (net of VI and VSEA's indemnification obligations)
for environmental-related investigation and remediation costs for these sites
ranged in the aggregate from $12.2 million to $28.3 million. The time frame
over which the Company expects to incur such costs varies with each site,
ranging up to approximately 30 years as of April 2, 1999. Management believes
that no amount in the foregoing range of estimated future costs is more
probable of being incurred than any other amount in such range and therefore
accrued $12.2 million in estimated environmental costs as of April 2, 1999.
The amount accrued has not been discounted to present value.
As to other sites and facilities, the Company has gained sufficient
knowledge to be able to better estimate the scope and costs of future
environmental activities. As of April 2, 1999, the Company estimated that the
Company's future exposure (net of VI and VSEA's indemnification obligations)
for environmental-related investigation and remediation costs for these sites
and facilities ranged in the aggregate from $23.2 million to $42.8 million.
The time frame over which these costs are expected to be incurred varies with
each site and facility, ranging up to approximately 30 years as of April 2,
1999. As to each of these sites and facilities, management determined that a
particular amount within the range of estimated costs was a better estimate of
the future environmental liability than any other amount within the range, and
that the amount and timing of these future costs were reliably determinable.
Together, these amounts totaled $29.8 million at April 2, 1999. The Company
accordingly accrued $12.9 million, which represents its best estimate of the
future costs discounted at 4%, net of inflation. This accrual is in addition
to the $12.2 million described in the preceding paragraph.
The foregoing amounts are only estimates of anticipated future
environmental-related costs, and the amounts actually spent may be greater or
less than such estimates. The aggregate range of cost estimates reflects
various uncertainties inherent in many environmental investigation and
remediation activities and the large number of sites and facilities involved.
The Company believes that most of these cost ranges will narrow as
investigation and remediation activities progress. The Company believes that
its reserves are adequate, but as the scope of its obligations becomes more
clearly defined, these reserves (and the associated indemnification
obligations of VI and VSEA) may be modified and related charges against
earnings may be made.
Although any ultimate liability arising from environmental-related matters
described herein could result in significant expenditures that, if aggregated
and assumed to occur within a single fiscal year, would be material to the
Company's financial statements, the likelihood of such occurrence is
considered remote. Based on information currently available to management and
its best assessment of the ultimate amount and timing of environmental-related
events (and assuming VI and VSEA satisfy their indemnification obligations),
management believes that the costs of these environmental related matters are
not reasonably likely to have a material adverse effect on the consolidated
financial statements of the Company.
The Company evaluates its liability for environmental-related investigation
and remediation in light of the liability and financial wherewithal of
potentially responsible parties and insurance companies with respect to which
the Company believes that it has rights to contribution, indemnity and/or
reimbursement (in addition to the obligations of VI and VSEA). Claims for
recovery of environmental investigation and remediation costs already
incurred, and to be incurred in the future, have been asserted against various
insurance companies and other third parties. In 1992, the Company filed a
lawsuit against 36 insurance companies with respect to most of the above-
referenced sites and facilities. The Company received certain cash settlements
during fiscal years 1995, 1996, 1997 and 1998 from defendants in that lawsuit.
The Company has also reached an agreement with another insurance company under
which the insurance company has agreed to pay a portion of the Company's past
and future environmental-related expenditures, and the Company therefore has a
$3.4 million receivable in Other Assets at April 2, 1999. The Company believes
that this receivable is recoverable because it is based on a binding, written
settlement agreement with a solvent and financially viable insurance company.
Although the
25
<PAGE>
Company intends to aggressively pursue additional insurance and other
recoveries, the Company has not reduced any liability in anticipation of
recovery with respect to claims made against third parties.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's Combined Annual and Special Meeting of Stockholders held
on February 18, 1999 (the "Stockholders' Meeting") the stockholders of the
Company considered and voted on the following ten proposals:
PROPOSAL ONE: Approval of: (i) the internal mergers and stock and asset
transfers intended to allocate the assets and liabilities relating to (a)
the Instruments Business to Varian, Inc., (b) the Semiconductor Equipment
Business to Varian Semiconductor Equipment Associates, Inc. ("VSEA"), and
(c) the Health Care Systems Business to the Company; (ii) a special
dividend, consisting of the distribution to the holders of the Company's
outstanding shares of common stock, all the outstanding shares of common
stock of Varian, Inc. and of VSEA, on the basis described in the
Registrant's Definitive Proxy Statement; and (iii) the Distribution
Agreement, dated as of January 14, 1999, among the Company, Varian, Inc.
and VSEA;
PROPOSAL TWO: Approval of an amendment to the Certificate of
Incorporation of the Company to change the name of the Company to Varian
Medical Systems, Inc. after the Distribution;
PROPOSAL THREE: Approval of an amendment to the Certificate of
Incorporation of the Company to provide that the specific number of
directors comprising the Company's Board of Directors be fixed by
resolution of the Board of Directors;
PROPOSAL FOUR: Approval of an amendment to the Certificate of
Incorporation of the Company to (i) provide that directors may only be
removed for cause upon the affirmative vote of at least a majority of the
outstanding shares of the Company's Common Stock entitled to vote for such
directors; (ii) provide that vacancies in the Board of Directors and newly
created directorships on the Board may be filled only by the affirmative
vote of a majority of the remaining directors; (iii) eliminate action by
written consent of stockholders; (iv) remove cumulative voting for
directors and (v) require the vote of stockholders holding at least 66 2/3%
of the outstanding shares of the Company Common Stock to amend, alter or
repeal the By-Laws and certain provisions of the Company's Certificate of
Incorporation, including the provisions described in the foregoing clauses
(i) through (iii) and this clause (v);
PROPOSAL FIVE: Approval of the adoption by Varian, Inc. of the Varian,
Inc. Omnibus Stock Plan;
PROPOSAL SIX: Approval of the adoption by Varian, Inc. of the Varian,
Inc. Management Incentive Plan;
PROPOSAL SEVEN: Approval of the adoption by VSEA of the VSEA Omnibus
Stock Plan;
PROPOSAL EIGHT: Approval of the adoption by VSEA of the VSEA Management
Incentive Plan;
PROPOSAL NINE: Approval of the amendment and restatement by the Company
of the Company Omnibus Stock Plan; and
PROPOSAL TEN: Approval of the amendment and restatement by the Company
of the Company Management Incentive Plan.
26
<PAGE>
The voting on each proposal was as follows:
<TABLE>
<CAPTION>
Broker
Proposal Votes For Votes Against Abstentions Non-votes(1) Outcome
-------- ---------- ------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
One 23,175,014 221,008 93,444 3,571,002 Passed
Two 23,272,678 152,454 64,334 3,571,002 Passed
Three 15,097,059 8,203,048 189,359 3,571,002 Passed
Four 12,423,027 9,597,693 1,468,746 3,571,002 Not Passed
Five 18,858,138 4,522,019 109,309 3,571,002 Passed
Six 23,038,042 344,444 106,980 3,571,002 Passed
Seven 14,615,718 8,768,570 105,178 3,571,002 Passed
Eight 21,253,274 2,129,454 106,738 3,571,002 Passed
Nine 17,031,815 6,363,412 94,239 3,571,002 Passed
Ten 21,631,014 1,766,333 92,119 3,571,002 Passed
</TABLE>
- --------
(1) Under the rules of the New York Stock Exchange, brokers were not allowed
to vote on proposals one through ten without specific instructions from
the beneficial owner of the Company's Common Stock.
At the Stockholders' Meeting, the stockholders also voted on the election
of five directors to the Company's Board of Directors for three-year terms.
The voting on each such nominee for director was as follows:
<TABLE>
<CAPTION>
Broker
Director Votes For Withheld Non-votes(2)
-------- ---------- --------- ------------
<S> <C> <C> <C>
Angus A. McNaughton..................... 25,494,757 1,565,711 N/A
John G. McDonald........................ 25,495,457 1,565,011 N/A
Wayne R. Moon........................... 25,495,581 1,564,887 N/A
Burton Richter.......................... 25,494,581 1,565,887 N/A
Elizabeth E. Tallett.................... 25,492,853 1,567,615 N/A
</TABLE>
- --------
(2) Pursuant to the rules of the New York Stock Exchange, this election of
directors constituted a routine matter. Therefore, brokers were permitted
to vote without receipt of instructions from clients.
Item 5. Other Information.
In connection with the Distribution, the Company has amended its By-Laws,
effective as of April 3, 1999. Pursuant to such amended By-Laws, and in
accordance with SEC Rule 14a-5(e), (1) stockholder proposals submitted
pursuant to the requirements of SEC Rule 14a-8 must be received by the
Company's Secretary not later than September 17, 1999 at the Company's address
set forth on the cover page of this Form 10-Q and must otherwise meet the
requirements of SEC Rule 14a-8, and (2) stockholder proposals submitted
outside the processes of SEC Rule 14a-8 must be received by the Company's
Secretary not later than November 16, 1999 and not earlier than October 17,
1999 at the Company's address set forth on the cover page of this Form 10-Q
and must otherwise meet the requirements set forth in the Company's By-Laws.
In addition, in accordance with SEC Rule 14a-4(c)(1), stockholder proxies
obtained by the Board of Directors of the Company in connection with the
Company's 2000 Annual Meeting of Stockholders will confer on the proxy holders
discretionary authority to vote on any matters presented at the meeting,
unless notice of the matter is provided to the Company's Secretary not later
than December 1, 1999 at the Company's address set forth on the cover page of
this Form 10-Q.
27
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
3-A.1 Registrant's Restated Certificate of Incorporation, as amended.
3-A.2 Certificate of Designation and Terms of Participating Preferred
Stock.
3-B Registrant's By-Laws, as amended.
4.1 Specimen Common Stock Certificate.
10.1 Registrant's Omnibus Stock Plan.
10.2 Registrant's Management Incentive Plan.
10.3 Registrant's form of Indemnity Agreement with Directors and
Executive Officers.
10.4 Registrant's form of Change in Control Agreement with certain
Executive Officers other than the Chief Executive Officer and the
Chief Financial Officer.
10.5 Registrant's Change in Control Agreement with the Chief Executive
Officer.
10.6 Registrant's Change in Control Agreement with the Chief Financial
Officer.
10.7 Amended and Restated Note Purchase and Private Shelf Agreement,
dated as of April 2, 1999, between Registrant and Prudential
Insurance Company of America (certain exhibits and schedules
omitted).
15 Letter Regarding Unaudited Interim Financial Information.
27.1 Financial Data Schedule for the six months ended April 2, 1999.
27.2 Financial Data Schedule for the six months ended April 2, 1998.
</TABLE>
(b) Reports on Form 8-K filed during the quarter ended April 2, 1999:
Reports on Form 8-K were filed on January 21, 1999 regarding execution
of the Distribution Agreement and on March 8, 1999, attaching the
Registrant's Information Statement.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Varian Medical Systems, Inc. has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
VARIAN MEDICAL SYSTEMS, INC.
(Registrant)
/s/ Elisha W. Finney
By __________________________________
Elisha W. Finney
Vice President, Finance and
Chief Financial Officer
(Duly authorized officer and
Principal Financial Officer)
Dated: May 17, 1999
29
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
3-A.1 Registrant's Restated Certificate of Incorporation, as amended.
3-A.2 Certificate of Designation and Terms of Participating Preferred
Stock.
3-B Registrant's By-Laws, as amended.
4.1 Specimen Common Stock Certificate.
10.1 Registrant's Omnibus Stock Plan.
10.2 Registrant's Management Incentive Plan.
10.3 Registrant's form of Indemnity Agreement with Directors and
Executive Officers.
10.4 Registrant's form of Change in Control Agreement with certain
Executive Officers other than the Chief Executive Officer and the
Chief Financial Officer.
10.5 Registrant's Change in Control Agreement with the Chief Executive
Officer.
10.6 Registrant's Change in Control Agreement with the Chief Financial
Officer.
10.7 Amended and Restated Note Purchase and Private Shelf Agreement,
dated as of April 2, 1999, between Registrant and Prudential
Insurance Company of America (certain exhibits and schedules
omitted).
15 Letter Regarding Unaudited Interim Financial Information.
27.1 Financial Data Schedule for the six months ended April 2, 1999.
27.2 Financial Data Schedule for the six months ended April 2, 1998.
</TABLE>
<PAGE>
EXHIBIT 3-A.1
RESTATED CERTIFICATE OF INCORPORATION
OF
VARIAN ASSOCIATES, INC.
This corporation was originally incorporated under the name "VARIAN
DELAWARE, INC." on January 22, 1976.
ARTICLE I
The name of this corporation is VARIAN ASSOCIATES, INC.
ARTICLE II
Its registered office is located at 1209 Orange Street, City of
Wilmington, County of New Castle, State of Delaware. The name of its registered
agent at that address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
this corporation is to engage in research, development, manufacture, service and
sale of electronic and related products and to engage in any other act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
This corporation shall be authorized to issue two classes of stock to
be designated, respectively, "Common" and "Preferred." The total number of
shares which this corporation shall have authority to issue shall be one hundred
million (100,000,000). The total number of shares of Common Stock shall be
ninety-nine million (99,000,000) and the par value of each share of Common Stock
shall be One Dollar ($1). The total number of shares of Preferred Stock shall
be one million (1,000,000) and the par value of each share of Preferred Stock
shall be One Dollar ($1).
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby expressly vested with authority to fix
by resolution or resolutions the designations and the powers, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof (including, without
limitation, the voting powers, if any, the dividend rate, conversion rights,
redemption price, or liquidation preference of any series of Preferred Stock),
to fix the number of shares constituting any such series, and to increase or
decrease the number of shares of any such series (but not below the number of
shares thereof then outstanding). In case the number of shares of any such
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution or resolutions
originally fixing the number of shares of such series.
The number of authorized shares of any class or classes of stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the stock
of the corporation entitled to vote in the election of directors.
ARTICLE V
The number of directors which shall constitute the whole Board of
Directors of this corporation shall be 15. The directors shall be divided into
three classes, Class I, Class II and Class III. The number of directors in each
class shall be 5. Directors of each class shall serve for a term ending on the
third annual meeting of stockholders following the annual meeting at which such
class was elected, except that the term of office of the initial Class I
directors shall expire on the date of the annual meeting in 1977, the term of
office of the initial Class II directors shall expire on the date of the annual
meeting in 1978, the term of office of the initial Class III directors shall
expire on the date of the annual meeting in 1979. The foregoing
notwithstanding, each director shall serve until his successor shall have been
duly elected and qualified, unless he shall die, resign, or be removed.
At each annual election the directors chosen to succeed those whose
terms then expire shall be identified as being of the same class as the
directors they succeed. If for any reason the number of directors in the
various classes shall not conform with the formula set forth in the preceding
paragraph, the Board of Directors may redesignate any director into a different
class in order that the balance of directors in such classes shall conform
thereto.
At all elections of directors of this corporation, each holder of
Common Stock shall be entitled to as many votes as shall equal the number of
votes which, except for this provision as to cumulative voting, he would be
entitled to cast for the election of directors with respect to his shares of
Common Stock, multiplied by the number of directors to be elected, and he may
cast all of such votes for a single nominee for director or may distribute them
among the number to be voted for, or for any two or more of them as he sees fit.
Eight (8) directors shall constitute a quorum for the transaction of
business, and if at any meeting of the Board of Directors there shall be less
than a quorum of eight (8), a majority of those present may adjourn the meeting
from time to time. Every act or decision done or made by a majority of the whole
Board of Directors, acting at a meeting duly held at which a quorum is present,
or acting by written consent, shall be regarded as the act of the Board of
Directors unless a greater number be required by law or by this Certificate of
Incorporation.
<PAGE>
ARTICLE VI
In furtherance and not in limitation of the powers conferred by law,
the Board of Directors is expressly authorized, by resolution passed by a
majority of the whole board, to make, amend, alter or repeal the Bylaws of this
corporation.
ARTICLE VII
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation in any manner now
or hereafter prescribed by law, and all rights herein conferred upon the
stockholders are granted subject to this reservation.
ARTICLE VIII
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
ARTICLE IX
Meetings of stockholders may be held outside the State of Delaware, if
the Bylaws so provide. The books of this corporation may be kept (subject to
any provision of law) outside the State of Delaware. Elections of directors
need not be by ballot unless the Bylaws of this corporation shall so provide.
ARTICLE X
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for any matter in respect of which such director
shall be liable under Section 174 of the General Corporation Law of the State of
Delaware or shall be liable by reason that, in addition to any and all other
requirements for such liability, he (i) shall have breached his duty of loyalty
to the corporation or its stockholders, (ii) shall not have acted in good faith
or, in failing to act, shall not have acted in good faith, (iii) shall have
acted in a manner involving intentional misconduct or a knowing violation of the
law, or (iv) shall have derived an improper personal benefit. Neither the
amendment nor repeal of this Article X, nor the adoption of any provision of the
certificate of incorporation inconsistent with this Article X shall eliminate or
reduce the effect of this Article X in respect of the matter occurring, or any
cause of action, suit or claim that but for this Article X would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
THIS RESTATED CERTIFICATE OF INCORPORATION OF VARIAN ASSOCIATES, INC.
was adopted by the Board of Directors of this corporation in accordance with
Section 245 of the General Corporation Law of the State of Delaware. It only
restates and integrates and does not further amend the provisions of this
corporation's Restated Certificate of Incorporation as heretofore amended, and
there is no discrepancy between those provisions and the provisions of this
Restated Certificate of Incorporation.
VARIAN ASSOCIATES, INC.
Dated: June 26, 1987
By: /s/ Thomas D. Sege
------------------------------------
Thomas D. Sege,
Chairman of the Board
Attest: /s/ William R. Moore
--------------------------------
William R. Moore,
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
VARIAN ASSOCIATES, INC.
A Delaware Corporation
Varian Associates, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Varian Associates, Inc. and the
name under which the Corporation was originally incorporated was Varian
Delaware, Inc. The Corporation's original Certificate of Incorporation was filed
with the Secretary of State of Delaware on January 22, 1976.
SECOND: The Board of Directors of the Corporation (the "Board of
Directors") duly adopted resolutions at a meeting of the Board of Directors
setting forth proposed amendments of the Restated Certificate of Incorporation
of the Corporation, declaring such amendments to be advisable and directing that
such amendments be considered at a meeting of the stockholders of the
Corporation. The resolutions setting forth the proposed amendments are as
follows:
RESOLVED, that the Restated Certificate of Incorporation of the
Corporation be amended by amending and restating ARTICLE I
thereof to read in its entirety as follows:
ARTICLE I
The name of this corporation is Varian Medical Systems, Inc.
FURTHER RESOLVED, that the Restated Certificate of Incorporation
of the Corporation be amended by amending and restating ARTICLE V
thereof to read in its entirety as follows:
ARTICLE V
Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specified circumstances, the number of
directors of this corporation shall be fixed from time to time exclusively
by the Board of Directors pursuant to a resolution adopted by a majority of
the then authorized number of directors of this corporation, but in no
event shall the number of directors be fewer than three. The directors,
other than those who may be elected solely by the holders of any series of
Preferred Stock (unless the relevant Preferred Stock certificate of
designation shall so provide), shall be divided into three classes, as
nearly equal in number as possible, designated "Class I," "Class II" and
"Class III." Directors of each class shall serve for a term ending on the
third annual meeting of stockholders following the annual meeting at which
such class was elected. The foregoing notwithstanding, each director shall
serve until his or her
<PAGE>
successor shall have been duly elected and
qualified, unless such director shall die, resign, retire or be
disqualified or removed.
At each annual election the directors chosen to succeed
those whose terms then expire shall be identified as being of the
same class as the directors they succeed. If for any reason the
number of directors in the various classes shall not be as nearly
equal as possible, the Board of Directors may redesignate any
director into a different class in order that the balance of
directors in such classes shall be as nearly equal as possible.
At all elections of directors of this corporation, each
holder of Common Stock shall be entitled to as many votes as
shall equal the number of votes which, except for this provision
as to cumulative voting, he would be entitled to cast for the
election of directors with respect to his shares of Common Stock,
multiplied by the number of directors to be elected, and he may
cast all of such votes for a single nominee for director or may
distribute them among the number to be voted for, or for any two
or more of them as he sees fit.
Every act or decision done or made by a majority of the
whole Board of Directors, acting at a meeting duly held at which
a quorum is present, or acting by written consent, shall be
regarded as the act of the Board of Directors unless a greater
number be required by law or by this Certificate of
Incorporation.
THIRD: Thereafter, the necessary number of shares as required by
statute were voted in favor of such amendments at the combined annual and
special meeting of stockholders of the Corporation held on February 18, 1999
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware.
FOURTH: Such amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FIFTH: Pursuant to Section 103 (d) of the Delaware General
Corporation Law, this Certificate of Amendment to Restated Certificate of
Incorporation shall be effective as of 12:01 a.m. Pacific Standard Time on April
3, 1999.
IN WITNESS WHEREOF, we have hereunto set our hands as President and
Secretary, respectively, of Varian Associates, Inc. and hereby affirm under
penalties of perjury that the foregoing is our act and deed and the facts herein
stated are true, and accordingly have hereunto set forth our hands this 29th day
of March, 1999.
/s/ Richard M. Levy
--------------------------------------
Richard M. Levy, President
ATTEST: /s/ Joseph B. Phair
------------------------------
Joseph B. Phair, Secretary
<PAGE>
EXHIBIT 3-A.2
CERTIFICATE OF DESIGNATION AND TERMS
OF PARTICIPATING PREFERRED STOCK
OF
VARIAN ASSOCIATES, INC.
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
----------------------------------------
We, the undersigned, J. Tracy O'Rourke and Joseph B. Phair, the
Chairman of the Board and Chief Executive Officer, and the Secretary,
respectively, of Varian Associates, Inc., a Delaware corporation (the
"Corporation"), do hereby certify as follows:
Pursuant to authority granted by Article IV of the Restated
Certificate of Incorporation, as amended, of the Corporation and in accordance
with the provisions of Section 151 of the General Corporation Law of the State
of Delaware, the Board of Directors of the Corporation has adopted the following
resolutions fixing the designation and certain terms, powers, preferences and
other rights of a new series of the Corporation's Preferred Stock, par value $1
per share, and certain qualifications, limitations and restrictions thereon:
RESOLVED, that there is hereby established a series of Preferred
Stock, par value $1 per share, of the Corporation, and the designation and
certain terms, powers, preferences and other rights of the shares of such
series, and certain qualifications, limitations and restrictions thereon,
are hereby fixed as follows:
(i) The distinctive serial designation of this series shall be
"Participating Preferred Stock" (hereinafter called "this Series").
Each share of this Series shall be identical in all respects with the
other shares of this Series except as to the dates from and after
which dividends thereon shall be cumulative.
(ii) The number of shares in this Series shall initially be
50,000, which number may from time to time be increased or decreased
(but not below the number then outstanding) by the Board of Directors.
Shares of this Series purchased by the Corporation shall be cancelled
and shall revert to authorized but unissued shares of Preferred Stock
undesignated as to series. Shares of this Series may be issued in
fractional shares, which fractional shares shall entitle the holder,
in proportion to such holder's fractional share, to all rights of a
holder of a whole share of this Series.
<PAGE>
(iii) The holders of full or fractional shares of this Series
shall be entitled to receive, when and as declared by the Board of
Directors, but only out of funds legally available therefor,
dividends, (A) on each date that dividends or other distributions
(other than dividends or distributions payable in Common Stock of the
Corporation) are payable on or in respect of Common Stock comprising
part of the Reference Package (as defined below), in an amount per
whole share of this Series equal to the aggregate amount of dividends
or other distributions (other than dividends or distributions payable
in Common Stock of the Corporation) that would be payable on such date
to a holder of the Reference Package (as hereinafter defined) and (B)
on the last day of March, June, September and December in each year,
in an amount per whole share of this Series equal to the excess (if
any) of $2.50 over the aggregate dividends paid per whole share of
this Series during the three month period ending on such last day.
Each such dividend shall be paid to the holders of record of shares of
this Series on the date, not exceeding sixty days preceding such
dividend or distribution payment date, fixed for the purpose by the
Board of Directors in advance of payment of each particular dividend
or distribution. Dividends on each full and each fractional share of
this Series shall be cumulative from the date such full or fractional
share is originally issued; provided that any such full or fractional
share originally issued after a dividend record date and on or prior
to the dividend payment date to which such record date relates shall
not be entitled to receive the dividend payable on such dividend
payment date or any amount in respect of the period from such original
issuance to such dividend payment date.
The term "Reference Package" shall initially mean 1,000 shares of
Common Stock, par value $1 per share ("Common Stock"), of the
Corporation. In the event the Corporation shall at any time after the
close of business on December 4, 1998 (A) declare of pay a dividend on
any Common Stock payable in Common Stock, (B) subdivide any Common
Stock or (C) combine any Common Stock into a smaller number of shares,
then and in each such case the Reference Package after such event
shall be the Common Stock that a holder of the Reference Package
immediately prior to such event would hold thereafter as a result
thereof.
Holders of shares of this Series shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of
full cumulative dividends, as herein provided on this Series.
So long as any shares of this series are outstanding, no
dividends (other than a dividend in Common Stock or in any other stock
ranking junior to this Series as to dividends and upon liquidation)
shall be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock or upon any other
stock ranking junior to this Series as to dividends or upon
liquidation, nor shall any Common Stock nor any other stock of the
Corporation ranking junior to or on a parity with this Series as
2
<PAGE>
to dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any
such stock) by the Corporation (except by conversion into or exchange
for stock of the Corporation ranking junior to this Series as to
dividends and upon liquidation), unless, in each case, the full
cumulative dividends (including the dividend to be due upon payment of
such dividend, distribution, redemption, purchase or other
acquisition) on all outstanding shares of this Series shall have been,
or shall contemporaneously be, paid.
(iv) In the event of any merger, consolidation, reclassification
or other transaction in which the shares of Common Stock are exchanged
for or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of this Series shall at the
same time be similarly exchanged or changed in an amount per whole
share equal to the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, that a
holder of the Reference Package would be entitled to receive as a
result of such transaction.
(v) In the event of any liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or involuntary,
the holders of full and fractional shares of this Series shall be
entitled, before any distribution or payment is made on any date to
the holders of the Common Stock or any other stock of the Corporation
ranking junior to this Series upon liquidation, to be paid in full an
amount per whole share of this Series equal to the greater of (A) $100
or (B) the aggregate amount distributed or to be distributed prior to
such date in connection with such liquidation, dissolution or winding
up to a holder of the Reference Package (such greater amount being
hereinafter referred to as the "Liquidation Preference"), together
with accrued dividends to such distribution or payment date, whether
or not earned or declared. If such payment shall have been made in
full to all holders of shares of this Series, the holders of shares of
this Series as such shall have no right or claim to any of the
remaining assets of the Corporation.
In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to the first
paragraph of this Section (v), no such distribution shall be made on
account of any shares of any other class or series of Preferred Stock
ranking on a parity with the shares of this Series upon such
liquidation, dissolution or winding up unless proportionate
distributive amounts shall be paid on account of the shares of this
Series, ratably in proportion to the full distributable amounts for
which holders of all such parity shares are respectively entitled upon
such liquidation, dissolution or winding up.
3
<PAGE>
Upon the liquidation, dissolution or winding up of the
Corporation, the holders of shares of this Series then outstanding
shall be entitled to be paid out of assets of the Corporation
available for distribution to its Stockholders all amounts to which
such holders are entitled pursuant to the first paragraph of this
Section (v) before any payment shall be made to the holders of Common
Stock or any other stock of the Corporation ranking junior upon
liquidation to this Series.
For the purposes of this Section (v), the consolidation or merger
of, or binding share exchange by, the Corporation with any other
corporation shall not be deemed to constitute a liquidation,
dissolution or winding up of the Corporation.
(vi) The shares of this Series shall not be redeemable.
(vii) In addition to any other vote or consent of Stockholders
required by law or by the Restated Certificate of Incorporation, as
amended, of the Corporation, each whole share of this Series shall, on
any matter, vote as a class with any other capital stock comprising
part of the Reference Package and voting on such matter and shall have
the number of votes thereon that a holder of the Reference Package
would have.
IN WITNESS WHEREOF, the undersigned have signed and attested this
certificate on the 20th day of November, 1998.
/s/ J. Tracy O'Rourke
-------------------------------------
J. Tracy O'Rourke
Chairman of the Board and
Chief Executive Officer
Attest:
/s/ Joseph B. Phair
----------------------------------
Joseph B. Phair
Vice President, General Counsel
and Secretary
4
<PAGE>
Exhibit 3-B
BY-LAWS
OF
VARIAN MEDICAL SYSTEMS, INC.
A Delaware Corporation
As adopted on February 19, 1999, to be effective on April 3, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I OFFICES.................................................... 1
Section 1. Registered Office........................................ 1
Section 2. General Office and Other Offices......................... 1
ARTICLE II STOCKHOLDERS' MEETINGS..................................... 1
Section 3. Annual Meeting........................................... 1
Section 4. Business to be Conducted at Annual Meeting............... 1
Section 5. Special Meetings......................................... 2
Section 6. Place of Meetings........................................ 2
Section 7. Notice of Meetings....................................... 2
Section 8. Nominations of Directors................................. 3
Section 9. List of Stockholders..................................... 4
Section 10. Quorum................................................... 4
Section 11. Voting and Required Vote................................. 5
Section 12. Proxies.................................................. 5
Section 13. Inspectors of Election; Polls............................ 5
Section 14. Organization............................................. 5
ARTICLE III BOARD OF DIRECTORS......................................... 6
Section 15. General Powers, Number, Term of Office................... 6
Section 16. Vacancies................................................ 6
Section 17. Chairman of the Board.................................... 6
Section 18. Regular Meetings......................................... 7
Section 19. Special Meetings......................................... 7
Section 20. Notices.................................................. 7
Section 21. Conference Telephone Meetings............................ 7
Section 22. Quorum................................................... 7
Section 23. Organization............................................. 8
Section 24. Resignations............................................. 8
Section 25. Removal.................................................. 8
Section 26. Action Without a Meeting................................. 8
Section 27. Location of Books........................................ 8
Section 28. Dividends................................................ 8
i
<PAGE>
TABLE OF CONTENTS
(continued)
Page
Section 29. Compensation of Directors................................ 8
Section 30. Additional Powers........................................ 9
ARTICLE IV COMMITTEES OF DIRECTORS.................................... 9
Section 31. Designation, Power, Alternate Members.................... 9
Section 32. Quorum, Manner of Acting................................. 9
Section 33. Minutes.................................................. 9
ARTICLE V ADVISORY DIRECTORS......................................... 9
Section 34. Advisory Directors....................................... 9
ARTICLE VI OFFICERS................................................... 10
Section 35. Designation.............................................. 10
Section 36. Election and Term........................................ 10
Section 37. Removal.................................................. 10
Section 38. Resignations............................................. 10
Section 39. Vacancies................................................ 10
Section 40. Chief Executive Officer.................................. 10
Section 41. President................................................ 11
Section 42. Vice Presidents.......................................... 11
Section 43. Secretary................................................ 11
Section 44. Assistant Secretaries.................................... 11
Section 45. Chief Financial Officer.................................. 11
Section 46. Treasurer................................................ 11
Section 47. Assistant Treasurers..................................... 12
Section 48. Controller............................................... 12
Section 49. Assistant Controllers.................................... 12
ARTICLE VII CONTRACTS, INSTRUMENTS AND PROXIES......................... 12
Section 50. Contracts and Other Instruments.......................... 12
Section 51. Proxies.................................................. 12
ARTICLE VIII CAPITAL STOCK.............................................. 13
Section 52. Stock Certificates; Book-Entry Accounts.................. 13
Section 53. Record Ownership......................................... 13
Section 54. Record Dates............................................. 13
Section 55. Transfer of Stock........................................ 13
ii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
Section 56. Lost, Stolen or Destroyed Certificates................... 13
Section 57. Terms of Preferred Stock................................. 14
ARTICLE IX INDEMNIFICATION............................................ 14
Section 58. Right of Indemnification Generally....................... 14
Section 59. Written Request; Determination of Entitlement............ 14
Section 60. Recovery of Unpaid Claim................................. 15
Section 61. Exclusivity; Subsequent Modification..................... 15
Section 62. Insurance................................................ 15
Section 63. Other Indemnification Rights............................. 15
Section 64. Illegality; Unenforceability............................. 16
Section 65. Form and Delivery of Communications...................... 16
ARTICLE X MISCELLANEOUS.............................................. 16
Section 66. Corporate Seal........................................... 16
Section 67. Fiscal Year.............................................. 16
Section 68. Auditors................................................. 16
Section 69. Waiver of Notice......................................... 16
ARTICLE XI AMENDMENT TO BY-LAWS....................................... 17
Section 70. Amendments............................................... 17
iii
<PAGE>
BY-LAWS
OF
VARIAN MEDICAL SYSTEMS, INC.
A Delaware Corporation
As adopted on February 19, 1999, to be effective on April 3, 1999
ARTICLE I
OFFICES
Section 1. Registered Office. The name of the registered agent of Varian
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Medical Systems, Inc. (the "Corporation") is The Corporation Trust Company and
the registered office of the Corporation shall be located in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. General Office and Other Offices. The Corporation shall have its
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General Offices in the City of Palo Alto, State of California (the "General
Offices"), and may also have offices at such other places in or outside the
State of Delaware as the Board of Directors of the Corporation (the "Board of
Directors") may from time to time designate or the business of the Corporation
may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
Section 3. Annual Meeting. An annual meeting of stockholders shall be held
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on such day and at such time as may be designated by the Board of Directors for
the purpose of electing directors and for the transaction of such other business
as properly may come before such meeting. Any previously scheduled annual
meeting of the stockholders may be postponed by resolution of the Board of
Directors upon public notice given on or prior to the date previously scheduled
for such annual meeting of stockholders.
Section 4. Business to be Conducted at Annual Meeting.
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(a) At an annual meeting of stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) pursuant to the
Corporation's notice of the meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder of the Corporation who is a stockholder of
record at the time of giving of the notice provided for in this By-Law, who
shall be entitled to vote at such meeting and who shall have complied with the
notice procedures set forth in this By-Law.
(b) For business to be properly brought before an annual meeting by a
stockholder pursuant to Section 4(a)(iii) of this By-Law, notice in writing must
be delivered or mailed to the Secretary and received at the General Offices, not
less than 60 days nor more than 90 days prior to the first anniversary of the
date on which the Corporation first mailed its proxy materials for the preceding
year's annual meeting of stockholders; provided, however, that in the
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event that the date of the meeting is advanced by more than 30 days or delayed
by more than 60 days from such meeting's anniversary date, notice by the
stockholder must be received not earlier than the 90/th/ day prior to such date
of mailing of proxy materials and not later than the close of business on the
later of the 60/th/ day prior to such date of mailing of proxy materials or the
10/th/ day following the day on which public announcement of the date of the
annual meeting is first made. Such stockholder's notice shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business to be brought before the annual meeting and
the reasons for conducting such business at such meeting; (ii) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, and the name and address of the beneficial owner, if any, on
whose behalf the proposal is made; (iii) the class and number of shares of the
Corporation's stock which are beneficially owned by the stockholder, and by the
beneficial owner, if any, on whose behalf the proposal is made; and (iv) any
material interest of the stockholder, and of the beneficial owner, if any, on
whose behalf the proposal is made, in such business. For purposes of these By-
Laws, "public announcement" shall mean disclosure in a press release reported by
the Dow Jones News Service, Associated Press or comparable news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(c) Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this By-Law. The chairman of the meeting may, if the
facts warrant, determine that the business was not properly brought before the
meeting in accordance with the provisions of this By-Law; and if the chairman
should so determine, the chairman shall so declare to the meeting, and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this By-Law, a stockholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this By-Law.
Nothing in this By-Law shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act, and any such proposal so included shall be
deemed timely given for purposes of this By-Law.
Section 5. Special Meetings. Special meetings of stockholders for any
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proper purpose or purposes, unless otherwise provided by the General Corporation
Law of the State of Delaware, may be called by the Chairman of the Board or the
Chief Executive Officer, or in the absence of each of them, by the Vice Chairman
of the Board, or by the Secretary at the written request of a majority of the
directors. Business transacted at a special meeting of stockholders shall be
confined to the purpose or purposes of the meeting as stated in the notice of
the meeting. Any previously scheduled special meeting of the stockholders may be
postponed by resolution of the Board of Directors upon notice by public
announcement given on or prior to the date previously scheduled for such special
meeting of stockholders.
Section 6. Place of Meetings. All meetings of stockholders shall be held at
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such place as may be determined by resolution of the Board of Directors.
Section 7. Notice of Meetings. Except as otherwise required by applicable
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law, notice of each meeting of the stockholders, whether annual or special,
shall, at least 10 days but
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not more than 60 days before the date of the meeting, be given to each
stockholder of record entitled to vote at the meeting by mailing such notice in
the U.S. mail, postage prepaid, addressed to such stockholder at such
stockholder's address as the same appears on the records of the Corporation.
Such notice shall state the place, date and hour of the meeting, and in the case
of a special meeting, shall also state the purpose or purposes thereof.
Section 8. Nominations of Directors.
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(a) Only persons who are nominated in accordance with the procedures
set forth in these By-Laws shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors may be made at a
meeting of stockholders (i) by or at the direction of the Board of Directors or
(ii) by any stockholder of the Corporation who is a stockholder of record at the
time of giving of the notice provided for in this By-Law, who shall be entitled
to vote for the election of directors at the meeting and who complies with the
notice procedures set forth in this By-Law.
(b) Nominations by stockholders shall be made pursuant to notice in
writing, delivered or mailed to the Secretary and received at the General
Offices (i) in the case of an annual meeting, not less than 60 days nor more
than 90 days prior to the first anniversary of the date on which the Corporation
first mailed its proxy materials for the preceding year's annual meeting of
stockholders, provided, however, that in the event that the date of the meeting
is advanced by more than 30 days or delayed by more than 60 days from such
anniversary date, notice by the stockholder must be received not earlier than
the 90/th/ day prior to such date of mailing of proxy materials and not later
than the close of business on the later of the 60/th/ day prior to such date of
mailing of proxy materials or the 10/th/ day following the day on which public
announcement of the date of the meeting is first made; or (ii) in the case of a
special meeting at which directors are to be elected, not earlier than the
90/th/ day prior to such special meeting and not later than the close of
business on the later of the 60/th/ day prior to such special meeting or the
10/th/ day following the day on which public announcement of the date of the
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting is first made. In the case of a special meeting of stockholders at
which directors are to be elected, stockholders may nominate a person or persons
(as the case may be) for election only to such position(s) as are specified in
the Corporation's notice of meeting as being up for election at such meeting.
Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director, all
information relating to such person that would be required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Exchange Act (including such
person's written consent to being named as a nominee and to serving as a
Director if elected); (ii) as to the stockholder giving the notice, the name and
address, as they appear on the Corporation's books, of such stockholder and the
class and number of shares of the Corporation's stock which are beneficially
owned by such stockholder; and (iii) as to any beneficial owner on whose behalf
the nomination is made, the name and address of such person and the class and
number of shares of the Corporation's stock which are beneficially owned by such
person. At the request of the Board of Directors, any person nominated by the
Board of Directors for election as a director shall furnish to the Secretary
that information required to be set forth in a stockholder's notice of
nomination that pertains to the nominee. Notwithstanding anything in this By-Law
to the contrary, in the event that the number of directors to be elected to
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the Board of Directors of the Corporation is increased and there is no public
statement naming all the nominees for Director or specifying the size of the
increased Board of Directors made by the Corporation at least 70 days prior to
the first anniversary of the preceding year's annual meeting, a stockholder's
notice required by this By-Law shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the Secretary at the General Offices not later than the close of
business on the 10/th/ day following the day on which such public announcement
is first made by the Corporation.
(c) No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in
these By-Laws. The chairman of the meeting may, if the facts warrant, determine
that a nomination was not made in accordance with the procedures prescribed in
this By-Law; and if the chairman should so determine, the chairman shall so
declare to the meeting, and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this By-Law, a stockholder shall
also comply with all applicable requirements of the Exchange Act, and the rules
and regulations thereunder with respect to the matters set forth in this By-Law.
Section 9. List of Stockholders.
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(a) The Secretary of the Corporation shall prepare, at least 10 days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
(b) The stock ledger of the Corporation shall be the only evidence as
to the identity of the stockholders entitled (i) to vote in person or by proxy
at any meeting of stockholders, or (ii) to exercise the rights in accordance
with applicable law to examine the stock ledger, the list required by this By-
Law or the books and records of the Corporation.
Section 10. Quorum. The holders of a majority of the stock issued and
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outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of any business at all
meetings of the stockholders, except as otherwise provided by applicable law, by
the Certificate of Incorporation or by these By-Laws. The stockholders present
at any duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of sufficient stockholders to render
the remaining stockholders less than a quorum. Whether or not a quorum is
present, either the Chairman of the meeting or a majority of the stockholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting. At such
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adjourned meeting at which the requisite amount of voting stock shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally noticed.
Section 11. Voting and Required Vote. Subject to the provisions of the
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Certificate of Incorporation, each stockholder shall, at every meeting of
stockholders, be entitled to one vote for each share of capital stock held by
such stockholder. Subject to the provisions of the Certificate of Incorporation
and applicable law, directors shall be chosen by the vote of a plurality of the
shares present in person or represented by proxy at the meeting; and all other
questions shall be determined by the affirmative vote of the majority of shares
present in person or represented by proxy at the meeting. Elections of
directors shall be by written ballot.
Section 12. Proxies. Each stockholder entitled to vote at a meeting of
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stockholders may authorize another person or persons to act for such stockholder
by proxy, provided the instrument authorizing such proxy to act shall have been
executed in writing in the manner prescribed by applicable law. No proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period.
Section 13. Inspectors of Election; Polls. Before each meeting of
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stockholders, the Chairman of the Board or another officer of the Corporation
designated by resolution of the Board of Directors shall appoint one or more
inspectors of election for the meeting and may appoint one or more inspectors to
replace any inspector unable to act. If any of the inspectors appointed shall
fail to attend, or refuse or be unable to serve, substitutes shall be appointed
by the chairman of the meeting. Each inspector shall have such duties as are
provided by applicable law, and shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of such person's ability. The chairman of the meeting shall fix and
announce at the meeting the date and time of the opening and closing of the
polls for each matter upon which the stockholders will vote at the meeting.
Section 14. Organization. The Chairman of the Board of Directors, or in the
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Chairman's absence, (i) the Chief Executive Officer, (ii) the Vice Chairman of
the Board of Directors, (iii) the President, or (iv) in the absence of each of
them, a chairman chosen by a majority of the directors present, shall act as
chairman of the meetings of the stockholders, and the Secretary or, in the
Secretary's absence, an Assistant Secretary or any employee of the Corporation
appointed by the chairman of the meeting, shall act as secretary of the meeting.
The order of business and the procedure at any meeting of stockholders shall be
determined by the chairman of the meeting.
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ARTICLE III
BOARD OF DIRECTORS
Section 15. General Powers, Number, Term of Office. The business of the
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Corporation shall be managed under the direction of its Board of Directors.
Subject to the rights of the holders of any series of preferred stock, $0.01 par
value per share, of the Corporation ("Preferred Stock") to elect additional
directors under specified circumstances, the number of directors of the
Corporation shall be fixed from time to time exclusively by resolution of a
majority of the then authorized number of directors of the Corporation (the
number of then authorized directors of the Corporation is referred to herein as
the "Whole Board"), but in no event shall the number of directors be fewer than
three. The directors, other than those who may be elected solely by the holders
of any series of Preferred Stock (unless the relevant Certificate of Designation
for such Preferred Stock so provides), shall be divided into three classes, as
nearly equal in number as possible, designated "Class I," "Class II" and "Class
III." Directors of each class shall serve for a term ending on the third annual
meeting of stockholders following the annual meeting at which such class was
elected. The foregoing notwithstanding, each director shall serve until his or
her successor shall have been duly elected and qualified, unless such director
shall die, resign, retire or be disqualified or removed. At each annual
election, the directors chosen to succeed those directors whose terms then
expire shall be identified as being of the same class as the directors they
succeed. If for any reason the number of directors in the various classes shall
not be as nearly equal as possible, the Board of Directors may redesignate any
director into a different class in order that the balance of directors in such
classes shall be as nearly equal as possible.
Section 16. Vacancies. Subject to the rights of the holders of any series of
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Preferred Stock to elect additional directors under specified circumstances,
vacancies resulting from one or more directors' death, resignation, retirement,
disqualification, removal from office or other cause, and newly created
directorships resulting from any increase in the authorized number of directors,
may be filled only by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the Board of Directors, or by a sole
remaining director, and directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the Board of Directors shall shorten the
term of any incumbent director.
Section 17. Chairman of the Board. The Chairman of the Board of Directors
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shall be chosen from among the directors. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors,
except as may be otherwise required under applicable law. The Chairman shall
act in an advisory capacity with respect to matters of policy and other matters
of importance pertaining to the affairs of the Corporation. The Chairman, alone
or with the Chief Executive Officer, the President, and/or the Secretary shall
sign and send out reports and other messages which are to be sent to
stockholders from time to time. The Chairman shall also perform such other
duties as may be assigned to the Chairman by these By-Laws or the Board of
Directors. The Board of Directors may also choose a Vice Chairman of the Board
of Directors from among the directors, which Vice Chairman if chosen shall
perform
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such duties as may be assigned by these By-Laws, the Board of Directors or the
Chairman of the Board.
Section 18. Regular Meetings. Following the annual meeting of stockholders,
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the first meeting of each newly elected Board of Directors may be held, without
notice, on the same day and at the same place as such stockholders' meeting.
The Board of Directors by resolution may provide for the holding of regular
meetings and may fix the times and places at which such meetings shall be held.
Notice of regular meetings shall not be required, provided that whenever the
time or place of regular meetings shall be fixed or changed, notice of such
action shall be given promptly to each director, as provided in Section 21
below, who was not present at the meeting at which such action was taken.
Section 19. Special Meetings. Special meetings of the Board of Directors
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shall be held whenever called by the Chairman of the Board of Directors, the
Vice Chairman of the Board, the Chief Executive Officer, the President, or in
the absence of each of them, by the Secretary at the written request of a
majority of the directors.
Section 20. Notices. Notice of any special meeting of the Board of Directors
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shall be addressed to each director at such director's residence or business
address and shall be sent to such director by mail, electronic mail, telecopier,
telegram or telex or telephoned or delivered to such director personally. If
such notice is sent by mail, it shall be sent not later than three days before
the day on which the meeting is to be held. If such notice is sent by
electronic mail, telecopier, telegram or telex, it shall be sent not later than
24 hours before the time at which the meeting is to be held. If such notice is
delivered personally, it shall be received not later than 24 hours before the
time at which the meeting is to be held. If such notice is telephoned, it shall
be to such telephone number or numbers of which the director from time to time
shall advise the Secretary for receiving such notice. If given by telephone
call, notice shall be deemed given to a director when a message stating the
time, place and purpose of the meeting is left with a person answering the
telephone at any such number with a request that the director be so informed, or
if no such telephone number is answered, then when at least two attempts have
been made to reach each telephone number designated by the director for
receiving telephonic notice, with an interval of not less than one hour. A
certification shall be prepared and filed with the minutes stating the date,
time and results of telephonic notice given to any director not present at a
meeting with respect to which his waiver of notice of meeting is not filed with
the minutes. In all cases, such notice shall state the time, place and purpose
or purposes of the meeting.
Section 21. Conference Telephone Meetings. Members of the Board of Directors
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or any committee thereof, may participate in a meeting of the Board of Directors
or such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at such meeting.
Section 22. Quorum. One-half of the total number of directors constituting
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the Whole Board, but not less than two, shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if less
than such required number of directors for a quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice. Except as otherwise specifically provided by applicable
law,
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the Certificate of Incorporation or these By-Laws, the act of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 23. Organization. At each meeting of the Board of Directors, the
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Chairman of the Board or, in the Chairman's absence, (i) the Chief Executive
Officer, if a member of the Board of Directors, (ii) the Vice Chairman of the
Board, (iii) the President, if a member of the Board of Directors, or (iv) in
the absence of each of them, a chairman chosen by a majority of the directors
present, shall act as chairman of the meeting, and the Secretary or, in the
Secretary's absence, an Assistant Secretary or any employee of the Corporation
appointed by the chairman of the meeting, shall act as secretary of the meeting.
Section 24. Resignations. Any director may resign at any time by giving
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written notice to the Chairman of the Board, the Chief Executive Officer, the
President or the Secretary of the Corporation. Such resignation shall take
effect upon receipt thereof or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 25. Removal. Subject to the rights of the holders of any series of
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Preferred Stock to elect additional directors under specified circumstances, any
director may be removed from office at any time, but only for cause and only by
the affirmative vote of the holders of at least a majority of the voting power
of the then outstanding Voting Stock, voting together as a single class. For
purposes of these By-Laws, "Voting Stock" shall mean the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors.
Section 26. Action Without a Meeting. Unless otherwise restricted by the
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Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 27. Location of Books. Except as otherwise provided by resolution of
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the Board of Directors and subject to applicable law, the books of the
Corporation may be kept at the General Offices and at such other places as may
be necessary or convenient for the business of the Corporation.
Section 28. Dividends. Subject to the provisions of the Certificate of
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Incorporation and applicable law, dividends upon the capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
Section 29. Compensation of Directors. Directors shall receive such
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compensation and benefits as may be determined by resolution of the Board of
Directors for their services as members of the Board of Directors and
committees. Directors shall also be reimbursed for their expenses of attending
Board of Directors and committee meetings. Nothing contained herein shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
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Section 30. Additional Powers. In addition to the powers and authorities by
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these By-Laws expressly conferred upon it, the Board of Directors may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done by the stockholders.
ARTICLE IV
COMMITTEES OF DIRECTORS
Section 31. Designation, Power, Alternate Members. The Board of Directors
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may, by resolution or resolutions passed by a majority of the Whole Board,
designate an Executive Committee and one or more additional committees, each
committee to consist of one or more of the directors of the Corporation. Any
such committee, to the extent provided in said resolution or resolutions and
subject to any limitations provided by applicable law, shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. If at a meeting of any
committee one or more of the members thereof is absent or disqualified, and if
either the Board of Directors has not so designated any alternate member or
members, or the number of absent or disqualified members exceeds the number of
alternate members who are present at such meeting, then the member or members of
such committee (including alternates) present at any meeting and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another director to act at the meeting in the place of such
absent or disqualified member. The term of office of the members of each
committee shall be as fixed from time to time by the Board of Directors;
provided, however, that any committee member who ceases to be a member of the
Board of Directors shall automatically cease to be a committee member.
Section 32. Quorum, Manner of Acting. At any meeting of a committee, the
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presence of one-half of its members then in office shall constitute a quorum for
the transaction of business; and the act of a majority of the members present at
a meeting at which a quorum is present shall be the act of the committee. Each
committee may provide for the holding of regular meetings, make provision for
the calling of special meetings and, except as otherwise provided in these By-
Laws or by resolution of the Board of Directors, make rules for the conduct of
its business.
Section 33. Minutes. The committees shall keep minutes of their proceedings
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and report the same to the Board of Directors when required; but failure to keep
such minutes shall not affect the validity of any acts of the committee or
committees.
ARTICLE V
ADVISORY DIRECTORS
Section 34. Advisory Directors. The Board of Directors may, by resolution
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adopted by a majority of the Whole Board, appoint such Advisory Directors as the
Board of Directors
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may from time to time determine. The Advisory Directors shall have such
advisory responsibilities as the Chairman of the Board may designate and the
term of office of such Advisory Directors shall be as fixed by the Board of
Directors.
ARTICLE VI
OFFICERS
Section 35. Designation. The officers of the Corporation shall be the Chief
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Executive Officer, a President, a Secretary, a Chief Financial Officer, a
Treasurer and a Controller. The Board of Directors may also elect one or more
Executive Vice Presidents, Senior Vice Presidents, Group Vice Presidents, Vice
Presidents, Assistant Secretaries, Assistant Treasurers, Assistant Controllers
and such other officers as it shall deem necessary. Any number of offices may be
held by the same person.
Section 36. Election and Term. At its first meeting after each annual
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meeting of stockholders, the Board of Directors shall elect the officers of the
Corporation and at any time thereafter the Board of Directors may elect
additional officers of the Corporation, and each such officer shall hold office
until the officer's successor is elected and qualified or until the officer's
earlier death, resignation or removal. Alternatively, at the last regular
meeting of the Board of Directors prior to an annual meeting of stockholders,
the Board of Directors may elect the officers of the Corporation, contingent
upon the election of the persons nominated to be directors by the Board of
Directors; and each such officer so elected shall hold office until the
officer's successor is elected and qualified or until the officer's earlier
death, resignation or removal.
Section 37. Removal. Any officer shall be subject to removal or suspension
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at any time, for or without cause, by the affirmative vote of a majority of the
Whole Board.
Section 38. Resignations. Any officer may resign at any time by giving
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written notice to the Chairman of the Board, the President or to the Secretary.
Such resignation shall take effect upon receipt thereof or at any later time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 39. Vacancies. A vacancy in any office because of death,
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resignation, removal or any other cause may be filled for the unexpired portion
of the term by the Board of Directors.
Section 40. Chief Executive Officer. The Chief Executive Officer shall have
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the general and active management and supervision of the business of the
Corporation. The Chief Executive Officer, if a member of the Board of
Directors, shall, in the absence of the Chairman of the Board, preside at all
meetings of the stockholders and of the Board of Directors. The Chief Executive
Officer shall see that all orders and resolutions of the Board of Directors are
carried into effect. The Chief Executive Officer shall also perform such other
duties as may be assigned to the Chief Executive Officer by these By-Laws or the
Board of Directors. The Chief Executive Officer shall designate who shall
perform the duties of the Chief Executive Officer in the Chief Executive
Officer's absence.
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Section 41. President. The President shall perform such duties as may be
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assigned to the President by these By-Laws, the Board of Directors or, if
applicable, the Chief Executive Officer.
Section 42. Vice Presidents. Each Executive Vice President, Senior Vice
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President, Group Vice President and each other Vice President shall perform the
duties and functions and exercise the powers assigned to such officer by these
By-Laws, the Board of Directors, the Chief Executive Officer or the President.
Section 43. Secretary. The Secretary shall attend all meetings of the Board
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of Directors and of the stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose. The Secretary shall give, or
cause to be given, notice of all meetings of the stockholders and special
meetings of the Board of Directors and, when appropriate, shall cause the
corporate seal to be affixed to any instruments executed on behalf of the
Corporation. The Secretary shall also perform all duties incident to the office
of Secretary and such other duties as may be assigned to the Secretary by these
By-Laws, the Board of Directors, the Chairman of the Board, the Chief Executive
Officer or the President.
Section 44. Assistant Secretaries. The Assistant Secretaries shall, during
---------------------
the absence of the Secretary, perform the duties and functions and exercise the
powers of the Secretary. Each Assistant Secretary shall perform such other
duties as may be assigned to such Assistant Secretary by these By-Laws, the
Board of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or the Secretary.
Section 45. Chief Financial Officer. The Chief Financial Officer shall have
-----------------------
overall responsibility for causing (1) the funds and securities of the
Corporation to be deposited in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors or by any
officer or officers authorized by the Board of Directors to designate such
depositories; (2) the disbursement of funds of the Corporation when properly
authorized by vouchers prepared and approved by the Controller; (3) the
investment of funds of the Corporation when authorized by the Board of Directors
or a committee thereof; and (4) to be kept full and accurate account of receipts
and disbursements in books of the Corporation. The Chief Financial Officer shall
render to the Board of Directors, the Chief Executive Officer, or the President,
whenever requested, an account of all transactions as Chief Financial Officer
and shall also perform all duties incident to the office of Chief Financial
Officer and such other duties as may be assigned to the Chief Financial Officer
by these By-Laws, the Board of Directors, the Chief Executive Officer, or the
President.
Section 46. Treasurer. The Treasurer shall have the custody of the funds and
---------
securities of the Corporation and shall deposit them in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors or by any officer or officers authorized by the Board of Directors
to designate such depositories; disburse funds of the Corporation when properly
authorized by vouchers prepared and approved by the Controller; and invest funds
of the Corporation when authorized by the Board of Directors or a committee
thereof. The Treasurer shall render to the Board of Directors, the Chief
Executive Officer, the President or the Chief Financial Officer, whenever
requested, an account of all transactions as Treasurer and shall also perform
all duties incident to the office of Treasurer and
11
<PAGE>
such other duties as may be assigned to the Treasurer by these By-Laws, the
Board of Directors, the Chief Executive Officer, the President or the Chief
Financial Officer.
Section 47. Assistant Treasurers. The Assistant Treasurers shall, during the
--------------------
absence of the Treasurer, perform the duties and functions and exercise the
powers of the Treasurer. Each Assistant Treasurer shall perform such other
duties as may be assigned to the Assistant Treasurer by these By-Laws, the Board
of Directors, the Chief Executive Officer, the President, the Chief Financial
Officer or the Treasurer.
Section 48. Controller. The Controller shall serve as the principal
----------
accounting officer of the Corporation and shall keep full and accurate account
of receipts and disbursements in books of the Corporation and render to the
Board of Directors, the Chief Executive Officer, the President, the Chief
Financial Officer, whenever requested, an account of all transactions as
Controller and of the financial condition of the Corporation. The Controller
shall also perform all duties incident to the office of Controller and such
other duties as may be assigned to the Controller by these By-Laws, the Board of
Directors, the Chief Executive Officer, or the President.
Section 49. Assistant Controllers. The Assistant Controllers shall, during
---------------------
the absence of the Controller, perform the duties and functions and exercise the
powers of the Controller. Each Assistant Controller shall perform such other
duties as may be assigned to such officer by these By-Laws, the Board of
Directors, the Chief Executive Officer, the President or the Controller.
ARTICLE VII
CONTRACTS, INSTRUMENTS AND PROXIES
Section 50. Contracts and Other Instruments. Except as otherwise required by
-------------------------------
applicable law, the Certificate of Incorporation or these By-Laws, any contracts
or other instruments may be signed by such person or persons as from time to
time may be designated by the Board of Directors or by any officer or officers
authorized by the Board of Directors to designate such signers; and the Board of
Directors or such officer or officers may determine that the signature of any
such authorized signer may be facsimile. Such authority may be general or
confined to specific instances as the Board of Directors or such officer or
officers may determine.
Section 51. Proxies. Except as otherwise provided by resolution of the Board
-------
of Directors, the Chairman of the Board, the Chief Executive Officer, the
President, the Vice Chairman of the Board, any Vice President, the Treasurer and
any Assistant Treasurer, the Controller and any Assistant Controller, the
Secretary and any Assistant Secretary of the Corporation, shall each have full
power and authority, in behalf of the Corporation, to exercise any and all
rights of the Corporation with respect to any meeting of stockholders of any
corporation in which the Corporation holds stock, including the execution and
delivery of proxies therefor, and to consent in writing to action by such
corporation without a meeting.
12
<PAGE>
ARTICLE VIII
CAPITAL STOCK
Section 52. Stock Certificates; Book-Entry Accounts. The interest of each
---------------------------------------
stockholder of the Corporation shall be evidenced by (a) certificates signed by,
or in the name of the Corporation by, the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Chief Financial
Officer or the Treasurer, and by the Secretary or any Assistant Secretary of the
Corporation, certifying the number of shares owned by such holder in the
Corporation, or (b) registration in book-entry accounts without certificates for
shares of stock in such form as the appropriate officers of the Corporation may
from time to time prescribe. Any of or all the signatures on a stock
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
Section 53. Record Ownership. The Corporation shall be entitled to treat the
----------------
person in whose name any share, right or option is registered as the owner
thereof, for all purposes, and shall not be bound to recognize any equitable or
other claim to or interest in such share, right or option on the part of any
other person, whether or not the Corporation shall have notice thereof, except
as otherwise provided by applicable law.
Section 54. Record Dates. In order that the Corporation may determine the
------------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors and which shall not be more than 60 nor less than 10
days before the date of such meeting, nor more than 60 days prior to any other
action.
Section 55. Transfer of Stock. Transfers of shares of stock of the
-----------------
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by the registered holder's attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or a transfer agent
of the Corporation, and on surrender of the certificate or certificates for such
shares properly endorsed and the payment of all taxes thereon, or by appropriate
book-entry procedures.
Section 56. Lost, Stolen or Destroyed Certificates. The Board of Directors
--------------------------------------
may authorize a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of the fact
by the person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or the owner's legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that
13
<PAGE>
may be made against the Corporation on account of the alleged loss, theft or
destruction of such certificate or the issuance of such new certificate.
Section 57. Terms of Preferred Stock. The provisions of these By-Laws,
------------------------
including those pertaining to voting rights, election of directors and calling
of special meetings of stockholders, are subject to the terms, preferences,
rights and privileges of any then outstanding class or series of Preferred Stock
as set forth in the Certificate of Incorporation and in any resolutions of the
Board of Directors providing for the issuance of such class or series of
Preferred Stock; provided, however, that the provisions of any such Preferred
Stock shall not affect or limit the authority of the Board of Directors to fix,
from time to time, the number of directors which shall constitute the Whole
Board as provided in Section 16 above, subject to the right of the holders of
any class or series of Preferred Stock to elect additional directors as and to
the extent specifically provided by the provisions of such Preferred Stock.
ARTICLE IX
INDEMNIFICATION
Section 58. Right of Indemnification Generally.
----------------------------------
(a) Directors, Officers, Employees and Agents. Each person who was or
is made a party or is threatened to be made a party to or is involved in any
action, suit, or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, limited liability company, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
shall be indemnified and held harmless by the Corporation to the fullest extent
permitted by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended (but, if permitted by applicable law, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), and any other applicable
laws as presently or hereafter in effect, against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith; provided, however, that except
as provided in Section 60 below, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors.
(b) Contract Right. The right to indemnification conferred in this
Article IX shall be a contract right.
Section 59. Written Request; Determination of Entitlement. To obtain
---------------------------------------------
indemnification under this Article IX, a claimant shall submit to the
Corporation a written request, including therein or therewith such documentation
and information as is reasonably available to the claimant and is reasonably
necessary to determine whether and to what extent the
14
<PAGE>
claimant is entitled to indemnification. Any determination regarding whether
indemnification of any person is proper in the circumstances because such person
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware shall be made at the option of the person seeking
indemnification, by the directors as set forth in the General Corporation Law of
the State of Delaware or by independent legal counsel selected by such person
with the consent of the Corporation (which consent shall not unreasonably be
withheld).
Section 60. Recovery of Unpaid Claim. If a claim under Section 59 above is
------------------------
not paid in full by the Corporation within 60 days after a written claim
pursuant to Section 60 above has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than actions brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its directors, independent
legal counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its directors, independent legal
counsel or stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 61. Exclusivity; Subsequent Modification. The right to
------------------------------------
indemnification conferred in this Article IX shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, By-Laws, agreement, vote of
stockholders or directors or otherwise. No repeal or modification of this
Article IX shall in any way diminish or adversely affect the rights hereunder of
any director, officer, employee or agent in respect of any occurrence or matter
arising prior to any such repeal or modification.
Section 62. Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, limited liability company, partnership,
joint venture, trust or other enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the General Corporation Law of the
State of Delaware or otherwise. To the extent that the Corporation maintains any
policy or policies providing such insurance, each such director, officer,
employee and agent shall be covered by such policy or policies in accordance
with its or their terms to the maximum extent of the coverage thereunder for any
such director, officer, employee or agent.
Section 63. Other Indemnification Rights. The Corporation may, to the extent
----------------------------
authorized from time to time by the Board of Directors, grant additional rights
to indemnification, including rights to be paid by the Corporation the expenses
incurred in
15
<PAGE>
defending any proceeding in advance of its final disposition, to any agent of
the Corporation to the fullest extent permitted by the General Corporation Law
of the State of Delaware as the same exists or may hereafter be amended (but, if
permitted by applicable law, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide prior
to such amendment).
Section 64. Illegality; Unenforceability. If any provision or provisions of
----------------------------
this Article IX shall be held to be invalid, illegal or unenforceable for any
reason whatsoever: (1) the validity, legality and enforceability of the
remaining provisions of this Article IX (including, without limitation, each
portion of any Section or subsection of this Article IX containing any such
provision held to be invalid, illegal or unenforceable, that is not itself held
to be invalid, illegal or unenforceable) shall not in any way be affected or
impaired thereby; and (2) to the fullest extent possible, the provisions of this
Article IX (including, without limitation, each such portion of any Section or
subsection of this Article IX containing any such provision held to be invalid,
illegal or unenforceable that is not itself held to be invalid, illegal or
unenforceable) shall be construed so as give effect to the intent manifested by
the provision held invalid, illegal or unenforceable.
Section 65. Form and Delivery of Communications. Any notice, request or
-----------------------------------
other communication required or permitted to be given to the Corporation under
this Article IX shall be in writing and either delivered in person or sent by
telecopy, telex, telegram, overnight mail or courier service, or certified or
registered mail, postage prepaid, return receipt requested, to the Secretary of
the Corporation.
ARTICLE X
MISCELLANEOUS
Section 66. Corporate Seal. The seal of the Corporation shall be circular in
--------------
form, containing the words "Varian Medical Systems, Inc." and the word
"Delaware" on the circumference surrounding the word "Seal." Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.
Section 67. Fiscal Year. The fiscal year of the Corporation is the 51- to
-----------
53-week period that ends on the Friday nearest September 30.
Section 68. Auditors. The Board of Directors shall select certified public
--------
accountants to audit the books of account and other appropriate corporate
records of the Corporation annually and at such other times as the Board of
Directors shall determine by resolution.
Section 69. Waiver of Notice. Whenever notice is required to be given
----------------
pursuant to applicable law, the Certificate of Incorporation or these By-Laws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting of stockholders or the Board of Directors or
a committee thereof shall constitute a waiver of notice of such meeting, except
when the stockholder or Director attends such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not
16
<PAGE>
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders or the Board of
Directors or committee thereof need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation or by these By-Laws.
ARTICLE XI
AMENDMENT TO BY-LAWS
Section 70. Amendments. These By-Laws may be amended or repealed, or new By-
----------
Laws may be adopted, at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a notice
given not less than 24 hours prior to the meeting.
17
<PAGE>
EXHIBIT 4.1
COMMON COMMON
STOCK STOCK
par value $1.00 This certificate is transferable
per share [LOGO] in New York, NY
see reverse for certain definitions
NUMBER SHARES
BU
varian medical systems, inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
this certifies that CUSIP 92220P 10 5
is the record holder of
fully paid and non-assessable shares of the common stock of
Varian Medical Systems, Inc., transferable on the books of this Corporation upon
surrender of this certificate properly endorsed. This certificate is not valid
until countersigned by a transfer agent and registered by a registrar.
In Witness Whereof the duly authorized officers of the Corporation have
hereunto subscribed their names in facsimile on behalf of the Corporation.
[ARTWORK]
Dated:
/s/ Richard M. Levy
-----------------------
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Countersigned and Registered:
First Chicago Trust Company of New York
Transfer Agent and Registrar
/s/ Joseph F. [illegible]
- ------------------------
Authorized Signature
/s/ Joseph B. Phair
-----------------------
SECRETARY
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT-.........Custodian.........
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to
JT TEN - as joint tenants with Minors Act..................
right of survivorship (State)
and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
VARIAN MEDICAL SYSTEMS, INC.
The corporation is authorized to issue shares of Common Stock, par value
$1 per share, and Preferred Stock, par value $1 per share. Shares of Preferred
Stock may be issued from time to time in one or more series. The Board of
Directors is authorized to fix the designations and the powers, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof (including, without
limitation, the voting powers, if any, the dividend rate, conversion rights,
redemption price, or liquidation preference of any series of Preferred Stock),
to fix the number of shares constituting any such series, and to increase or
decrease the number of shares of any such series (but not below the number of
shares thereof then outstanding).
A statement (which may include a summary with proper references to the
provisions of the Restated Certificate of Incorporation of the corporation or
the resolution or resolutions of the Board of Directors fixing preferences) of
the designations and the powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, granted to, or imposed upon the respective classes or
series of shares of the corporation and upon the holders thereof as established
by the Restated Certificate of Incorporation or by the resolution or resolutions
of the Board of Directors determining preferences, and the number of shares
constituting each series of preferred stock and the designation thereof, is
available upon request and without charge at the principal office of the
corporation, 3100 Hansen Way, Palo Alto, California 94304-1030.
For value received, _____________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER TAXPAYER IDENTIFYING NUMBER OF ASSIGNEE
_____________________________
_____________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________________
__________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Until the Separation Time (as defined in the Rights Agreement referred
to below), this certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement, dated as of November 20, 1998
(as such may be amended from time to time, the "Rights Agreement"), between
Varian Medical Systems, Inc. (the "Company") and First Chicago Trust Company of
New York, as Rights Agent, the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices of
the Company. Under certain circumstances, as set forth in the Rights Agreement,
such Rights may be redeemed, may be exchanged for shares of Common stock or
other securities or assets of the Company or a Subsidiary of the Company, may
expire, may become void (if they are "Beneficially Owned" by an "Acquiring
Person" or an Affiliate or Associate thereof, as such terms are defined in the
Rights Agreement, or by any transferee of any of the foregoing) or may
be evidenced by separate certificates and may no longer be evidenced by this
certificate. The Company will mail or arrange for the mailing of a copy of the
Rights Agreement to the holder of this certificate without charge within five
days after the receipt of a written request therefor.
Signature(s) Guaranteed:
By_________________________________
THE SIGNATURE SHOULD BE GUARANTEED
BY A BROKERAGE FIRM OR A FINANCIAL
INSTITUTION THAT IS A MEMBER OF A
SECURITIES APPROVED MEDALLION PROGRAM,
SUCH AS SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM (STAMP), STOCK
EXCHANGES MEDALLION PROGRAM (SEMP) OR
NEW YORK STOCK EXCHANGE,
INC. MEDALLION SIGNATURE PROGRAM (MSP).
<PAGE>
Exhibit 10.1
VARIAN MEDICAL SYSTEMS, INC.
OMNIBUS STOCK PLAN
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 BACKGROUND, PURPOSE AND DURATION........................... 1
1.1 Effective Date............................................... 1
1.2 Purpose of the Plan.......................................... 1
SECTION 2 DEFINITIONS................................................ 1
2.1 "1934 Act"................................................... 1
2.2 "Affiliate".................................................. 1
2.3 "Award"...................................................... 1
2.4 "Award Agreement"............................................ 1
2.5 "Board"...................................................... 1
2.6 "Code"....................................................... 1
2.7 "Committee".................................................. 1
2.8 "Company".................................................... 1
2.9 "Consultant"................................................. 1
2.10 "Director"................................................... 2
2.11 "Disability"................................................. 2
2.12 "EBIT"....................................................... 2
2.13 "EBITDA"..................................................... 2
2.14 "Earnings Per Share"......................................... 2
2.15 "Employee"................................................... 2
2.16 "Exercise Price"............................................. 2
2.17 "Fair Market Value".......................................... 2
2.18 "Fiscal Year"................................................ 2
2.19 "Grant Date"................................................. 2
2.20 "Incentive Stock Option"..................................... 2
2.21 "Net Income"................................................. 2
2.22 "Non-employee Director"...................................... 2
2.23 "Non-qualified Stock Option"................................. 2
2.24 "Operating Cash Flow"........................................ 2
2.25 "Option"..................................................... 2
2.26 "Participant"................................................ 3
2.27 "Performance Goals".......................................... 3
2.28 "Performance Period"......................................... 3
2.29 "Performance Share".......................................... 3
2.30 "Performance Unit"........................................... 3
2.31 "Period of Restriction"...................................... 3
2.32 "Plan"....................................................... 3
2.33 "Restricted Stock"........................................... 3
2.34 "Retirement"................................................. 3
2.35 "Return on Assets"........................................... 3
2.36 "Return on Equity"........................................... 3
2.37 "Return on Sales"............................................ 3
2.38 "Revenue".................................................... 3
2.39 "Rule 16b-3"................................................. 3
2.40 "Section 16 Person".......................................... 4
2.41 "Shareholder Return"......................................... 4
2.42 "Shares"..................................................... 4
2.43 "Stock Appreciation Right"................................... 4
2.44 "Subsidiary"................................................. 4
2.45 "Termination of Service"..................................... 4
2.46 "VAI"........................................................ 4
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<PAGE>
TABLE OF CONTENTS
Page
SECTION 3 ADMINISTRATION............................................. 4
3.1 The Committee................................................ 4
3.2 Authority of the Committee................................... 4
3.3 Delegation by the Committee.................................. 4
3.4 Non-employee Directors....................................... 5
3.5 Decisions Binding............................................ 5
SECTION 4 SHARES SUBJECT TO THE PLAN................................. 5
4.1 Number of Shares............................................. 5
4.2 Lapsed Awards................................................ 5
4.3 Adjustments in Awards and Authorized Shares.................. 5
SECTION 5 STOCK OPTIONS.............................................. 5
5.1 Grant of Options............................................. 5
5.2 Award Agreement.............................................. 5
5.3 Exercise Price............................................... 5
5.3.1. Non-qualified Stock Options........................... 6
5.3.2. Incentive Stock Options............................... 6
5.3.3. Substitute Options.................................... 6
5.4 Expiration of Options........................................ 6
5.4.1. Expiration Dates...................................... 6
5.4.2. Death of Participant.................................. 6
5.4.3. Committee Discretion.................................. 6
5.5 Exercisability of Options.................................... 6
5.6 Payment...................................................... 7
5.7 Restrictions on Share Transferability........................ 7
5.8 Certain Additional Provisions for Incentive Stock Options.... 7
5.8.1. Exercisability........................................ 6
5.8.2. Termination of Service................................ 6
5.8.3. Company and Subsidiaries Only......................... 6
5.8.4. Expiration............................................ 6
5.9 Grant of Reload Options...................................... 7
SECTION 6 STOCK APPRECIATION RIGHTS.................................. 8
6.1 Grant of SARs................................................ 8
6.2 Exercise Price and Other Terms............................... 8
6.3 SAR Agreement................................................ 8
6.4 Expiration of SARs........................................... 8
6.5 Payment of SAR Amount........................................ 8
6.6 Payment Upon Exercise of SAR................................. 8
SECTION 7 RESTRICTED STOCK........................................... 8
7.1 Grant of Restricted Stock.................................... 8
7.2 Restricted Stock Agreement................................... 8
7.3 Transferability.............................................. 8
7.4 Other Restrictions........................................... 8
7.4.1. General Restrictions................................. 9
7.4.2. Section 162(m) Performance Restrictions.............. 9
7.4.3. Legend on Certificates............................... 9
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<PAGE>
TABLE OF CONTENTS
Page
7.5 Removal of Restrictions...................................... 9
7.6 Voting Rights................................................ 9
7.7 Dividends and Other Distributions............................ 9
7.8 Return of Restricted Stock to Company........................ 9
SECTION 8 PERFORMANCE UNITS AND PERFORMANCE SHARES................... 9
8.1 Grant of Performance Units and Shares........................ 9
8.2 Initial Value................................................ 9
8.3 Performance Objectives and Other Terms....................... 10
8.3.1 General Performance Objectives........................ 10
8.3.2 Section 162(m) Performance Objectives................. 10
8.4 Earning of Performance Units and Performance Shares.......... 10
8.5 Form and Timing of Payment................................... 10
8.6 Cancellation................................................. 10
SECTION 9 NON-EMPLOYEE DIRECTORS..................................... 10
9.1 Granting of Options.......................................... 10
9.1.1 Non-employee Directors................................ 10
9.1.2 Chairman.............................................. 10
9.2 Terms of Options............................................. 11
9.2.1 Option Agreement...................................... 11
9.2.2 Exercise Price........................................ 11
9.2.3 Exercisability........................................ 11
9.2.4 Expiration of Options................................. 11
9.2.5 Death of Director..................................... 11
9.2.6 Not Incentive Stock Options........................... 11
9.2.7 Other Terms........................................... 11
9.3 Substitute Options........................................... 11
9.4 Elections by Non-employee Directors.......................... 12
SECTION 10 MISCELLANEOUS.............................................. 12
10.1 No Effect on Employment or Service........................... 12
10.2 Participation................................................ 12
10.3 Indemnification.............................................. 12
10.4 Successors................................................... 12
10.5 Beneficiary Designations..................................... 12
10.6 Nontransferability of Awards................................. 12
10.7 No Rights as Stockholder..................................... 12
10.8 Withholding Requirements..................................... 13
10.9 Withholding Arrangements..................................... 13
10.10 Deferrals.................................................... 13
SECTION 11 AMENDMENT, TERMINATION AND DURATION........................ 13
11.1 Amendment, Suspension or Termination......................... 13
11.2 Duration of the Plan......................................... 13
SECTION 12 LEGAL CONSTRUCTION......................................... 13
12.1 Gender and Number............................................ 13
12.2 Severability................................................. 14
12.3 Requirements of Law.......................................... 14
12.4 Governing Law................................................ 14
12.5 Captions..................................................... 14
-iii-
<PAGE>
VARIAN MEDICAL SYSTEMS, INC.
OMNIBUS STOCK PLAN
SECTION 1
BACKGROUND, PURPOSE AND DURATION
1.1 Effective Date. This amended and restated Plan is effective as
--------------
of the date on which VAI distributes the shares of the common stock of Varian,
Inc. and Varian Semiconductor Equipment Associates, Inc. to the stockholders of
VAI, subject to the approval of the Plan by a majority of the shares of the
common stock of VAI which are present in person or by proxy and entitled to vote
at the 1999 Annual and Special Meeting of the Stockholders of VAI.
1.2 Purpose of the Plan. The Plan is intended to increase incentives
-------------------
and to encourage Share ownership on the part of (1) employees of the Company and
its Affiliates, (2) consultants who provide significant services to the Company
and its Affiliates, and (3) directors of the Company who are employees of
neither the Company nor any Affiliate. The Plan also is intended to further the
growth and profitability of the Company. The Plan is intended to permit the
grant of Awards that qualify as performance-based compensation under section
162(m) of the Code.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings
unless a different meaning is plainly required by the context:
2.1 "1934 Act" means the Securities Exchange Act of 1934, as amended.
--------
Reference to a specific section of the 1934 Act or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
2.2 "Affiliate" means any corporation or any other entity (including,
---------
but not limited to, partnerships and joint ventures) controlling, controlled by,
or under common control with the Company.
2.3 "Award" means, individually or collectively, a grant under the
-----
Plan of Non-qualified Stock Options, Incentive Stock Options, SARs, Restricted
Stock, Performance Units or Performance Shares.
2.4 "Award Agreement" means the written agreement setting forth the
---------------
terms and provisions applicable to each Award granted under the Plan.
2.5 "Board" means the Board of Directors of the Company.
-----
2.6 "Code" means the Internal Revenue Code of 1986, as amended.
----
Reference to a specific section of the Code or regulation thereunder shall
include such section or regulation, any valid regulation promulgated thereunder,
and any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
2.7 "Committee" means the committee appointed by the Board (pursuant
---------
to Section 3.1) to administer the Plan.
2.8 "Company" means Varian Medical Systems, Inc., a Delaware
-------
corporation, or any successor thereto.
2.9 "Consultant" means any consultant, independent contractor, or
----------
other person who provides significant services to the Company or its Affiliates,
but who is neither an Employee nor a Director.
<PAGE>
2.10 "Director" means any individual who is a member of the Board.
--------
2.11 "Disability" means a permanent and total disability within the
----------
meaning of section 22(e)(3) of the Code, provided that in the case of Awards
other than Incentive Stock Options, the Committee in its discretion may
determine whether a permanent and total disability exists in accordance with
uniform and non-discriminatory standards adopted by the Committee from time to
time.
2.12 "EBIT" means as to any Performance Period, the Company's or a
----
business unit's income before reductions for interest and taxes, determined in
accordance with generally accepted accounting principles.
2.13 "EBITDA" means as to any Performance Period, the Company's or a
------
business unit's income before reductions for interest, taxes, depreciation and
amortization, determined in accordance with generally accepted accounting
principles.
2.14 "Earnings Per Share" means as to any Performance Period, the
------------------
Company's or a business unit's Net Income, divided by a weighted average number
of common shares outstanding and dilutive common equivalent shares deemed
outstanding, determined in accordance with generally accepted accounting
principles.
2.15 "Employee" means any employee of the Company or of an Affiliate,
--------
whether such employee is so employed at the time the Plan is adopted or becomes
so employed subsequent to the adoption of the Plan.
2.16 "Exercise Price" means the price at which a Share may be
--------------
purchased by a Participant pursuant to the exercise of an Option.
2.17 "Fair Market Value" means the last quoted per share selling price
-----------------
for Shares on the relevant date, or if there were no sales on such date, the
arithmetic mean of the highest and lowest quoted selling prices on the nearest
day before and the nearest day after the relevant date, as determined by the
Committee. Notwithstanding the preceding, for federal, state and local income
tax reporting purposes, fair market value shall be determined by the Committee
in accordance with uniform and nondiscriminatory standards adopted by it from
time to time.
2.18 "Fiscal Year" means the fiscal year of the Company.
-----------
2.19 "Grant Date" means, with respect to an Award, the date that the
----------
Award was granted.
2.20 "Incentive Stock Option" means an Option to purchase Shares which
----------------------
is designated as an Incentive Stock Option and is intended to meet the
requirements of section 422 of the Code.
2.21 "Net Income" means as to any Performance Period, the Company's or
----------
a business unit's income after taxes, determined in accordance with generally
accepted accounting principles.
2.22 "Non-employee Director" means a Director who is an employee of
---------------------
neither the Company nor of any Affiliate.
2.23 "Non-qualified Stock Option" means an option to purchase Shares
--------------------------
which is not intended to be an Incentive Stock Option.
2.24 "Operating Cash Flow" means as to any Performance Period, the
-------------------
Company's or a business unit's sum of Net Income plus depreciation and
amortization less capital expenditures plus changes in working capital comprised
of accounts receivable, inventories, other current assets, trade accounts
payable, accrued expenses, product warranty, advance payments from customers and
long-term accrued expenses, determined in accordance with generally acceptable
accounting principles.
2.25 "Option" means an Incentive Stock Option or a Non-qualified Stock
------
Option.
2
<PAGE>
2.26 "Participant" means an Employee, Consultant, or Non-employee
-----------
Director who has an outstanding Award.
2.27 "Performance Goals" means the goal(s) (or combined goal(s))
-----------------
determined by the Committee (in its discretion) to be applicable to a
Participant with respect to an Award. As determined by the Committee, the
Performance Goals applicable to an Award may provide for a targeted level or
levels of achievement using one or more of the following measures: (a) EBIT, (b)
EBITDA, (c) Earnings Per Share, (d) Net Income, (e) Operating Cash Flow, (f)
Return on Assets, (g) Return on Equity, (h) Return on Sales, (i) Revenue, and
(j) Shareholder Return. The Performance Goals may differ from Participant to
Participant and from Award to Award. Prior to the Determination Date, the
Committee shall determine whether any significant element(s) shall be included
in or excluded from the calculation of any Performance Goal with respect to any
Participant. "Determination Date" means the latest possible date that will not
jeopardize an Award's qualification as performance-based compensation under
section 162(m) of the Code. Notwithstanding the previous sentence, for Awards
not intended to qualify as performance-based compensation, "Determination Date"
shall mean such date as the Committee may determine in its discretion.
2.28 "Performance Period" means any fiscal period not to exceed three
------------------
consecutive Fiscal Years, as determined by the Committee in its sole discretion.
2.29 "Performance Share" means a Performance Share granted to a
-----------------
Participant pursuant to Section 8.
2.30 "Performance Unit" means a Performance Unit granted to a
----------------
Participant pursuant to Section 8.
2.31 "Period of Restriction" means the period during which shares of
---------------------
Restricted Stock are subject to forfeiture and/or restrictions on
transferability.
2.32 "Plan" means the Varian Medical Systems, Inc. Omnibus Stock Plan,
----
as set forth in this instrument and as hereafter amended from time to time.
2.33 "Restricted Stock" means an Award granted to a Participant
----------------
pursuant to Section 7.
2.34 "Retirement" means, in the case of an Employee or a Non-employee
----------
Director, "Retirement" as defined pursuant to the Company's or the Board's
Retirement Policies, as they may be established from time to time. With respect
to a Consultant, no Termination of Service shall be deemed to be on account of
"Retirement."
2.35 "Return on Assets" means as to any Performance Period, the
----------------
percentage equal to the Company's or a business unit's EBIT before incentive
compensation, divided by average net Company or business unit, as applicable,
assets, determined in accordance with generally accepted accounting principles.
2.36 "Return on Equity" means as to any Performance Period, the
----------------
percentage equal to the Company's Net Income divided by average stockholder's
equity, determined in accordance with generally accepted accounting principles.
2.37 "Return on Sales" means as to any Performance Period, the
---------------
percentage equal to the Company's or a business unit's EBIT before incentive
compensation, divided by the Company's or the business unit's, as applicable,
Revenue, determined in accordance with generally accepted accounting principles.
2.38 "Revenue" means as to any Performance Period, the Company's or a
-------
business unit's net sales, determined in accordance with generally accepted
accounting principles.
2.39 "Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act, as
----------
amended, and any future regulation amending, supplementing or superseding such
regulation.
3
<PAGE>
2.40 "Section 16 Person" means a person who, with respect to the
-----------------
Shares, is subject to section 16 of the 1934 Act.
2.41 "Shareholder Return" means as to any Performance Period, the
------------------
total return (change in share price plus reinvestment of any dividends) of a
Share.
2.42 "Shares" means shares of the Company's common stock, $.01 par
------
value.
2.43 "Stock Appreciation Right" or "SAR" means an Award, granted
------------------------
alone, in connection or in tandem with a related Option, that pursuant to
Section 6 is designated as a SAR.
2.44 "Subsidiary" means any corporation in an unbroken chain of
----------
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
2.45 "Termination of Service" means (a) in the case of an Employee, a
----------------------
cessation of the employee-employer relationship between an Employee and the
Company or an Affiliate for any reason, including, but not by way of limitation,
a termination by resignation, discharge, death, Disability, Retirement, or the
disaffiliation of an Affiliate, but excluding any such termination where there
is a simultaneous reemployment by the Company or an Affiliate; (b) in the case
of a Consultant, a cessation of the service relationship between a Consultant
and the Company or an Affiliate for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, Disability, or the
disaffiliation of an Affiliate, but excluding any such termination where there
is a simultaneous re-engagement of the consultant by the Company or an
Affiliate; and (c) in the case of a Non-employee Director, a cessation of the
Non-employee Director's service on the Board for any reason.
2.46 "VAI" means Varian Associates, Inc., a Delaware corporation.
---
SECTION 3
ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Committee.
-------------
The Committee shall consist of not less than two (2) Directors. The members of
the Committee shall be appointed from time to time by, and serve at the pleasure
of, the Board. Each member of the Committee shall qualify as (a) a "non-
employee director" under Rule 16b-3, and (b) an "outside director" under section
162(m) of the Code. If it is later determined that one or more members of the
Committee do not so qualify, actions taken by the Committee prior to such
determination shall be valid despite such failure to qualify.
3.2 Authority of the Committee. It shall be the duty of the
--------------------------
Committee to administer the Plan in accordance with the Plan's provisions. The
Committee shall have all powers and discretion necessary or appropriate to
administer the Plan and to control its operation, including, but not limited to,
the power to (a) determine which Employees and Consultants shall be granted
Awards, (b) prescribe the terms and conditions of the Awards (other than the
Options granted to Non-employee Directors pursuant to Section 9), (c) interpret
the Plan and the Awards, (d) adopt such procedures and subplans as are necessary
or appropriate to permit participation in the Plan by Employees, Consultants and
Directors who are foreign nationals or employed outside of the United States,
(e) adopt rules for the administration, interpretation and application of the
Plan as are consistent therewith, and (f) interpret, amend or revoke any such
rules. Notwithstanding any contrary provision of the Plan, the Committee may
reduce the amount payable under any Award (other than an Option) after the grant
of such Award.
3.3 Delegation by the Committee. The Committee, in its sole
---------------------------
discretion and on such terms and conditions as it may provide, may delegate all
or any part of its authority and powers under the Plan to one or more directors
and/or officers of the Company; provided, however, that the Committee may not
delegate its authority and powers (a) with respect to Section 16 Persons, (b) in
any way which would jeopardize the Plan's qualification under Rule 16b-3, or (c)
with respect to awards which are intended to qualify as performance-based
compensation under section 162(m) of the Code.
4
<PAGE>
3.4 Non-employee Directors. Notwithstanding any contrary provision
----------------------
of this Section 3, the Board shall administer Section 9 of the Plan, and the
Committee shall exercise no discretion with respect to Section 9. In the
Board's administration of Section 9 and the Options and any Shares granted to
Non-employee Directors, the Board shall have all of the authority and discretion
otherwise granted to the Committee with respect to the administration of the
Plan.
3.5 Decisions Binding. All determinations and decisions made by the
-----------------
Committee, the Board, and any delegate of the Committee pursuant to the
provisions of the Plan shall be final, conclusive, and binding on all persons,
and shall be given the maximum deference permitted by law.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section
----------------
4.3, the total number of Shares available for grant under the Plan shall not
exceed 5,000,000, plus such number of Shares as are granted pursuant to
substitute Options under Sections 5.3.3 and 9.3 in connection with the
distribution of Shares to the stockholders of VAI. Shares granted under the
Plan may be either authorized but unissued Shares or treasury Shares.
4.2 Lapsed Awards. If an Award terminates, expires, or lapses for
-------------
any reason, any Shares subject to such Award again shall be available to be the
subject of an Award. In addition, if any Shares are tendered to the Company
(whether by physical delivery or attestation) as full or partial payment for the
exercise of an Option or in satisfaction of a tax withholding obligation
pursuant to an Award, only the net Shares issued shall be deemed granted for
purposes of determining the maximum number of Shares that may be granted under
Section 4.1. Also, Shares granted pursuant to Awards assumed or granted in
substitution of other awards in connection with the acquisition by the Company
of an unrelated entity shall not reduce the maximum number of Shares issuable
under Section 4.1.
4.3 Adjustments in Awards and Authorized Shares. In the event of any
-------------------------------------------
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, or other change in the
corporate structure of the Company affecting the Shares, the Committee shall
adjust the number and class of Shares which may be delivered under the Plan, the
number, class, and price of Shares subject to outstanding Awards, and the
numerical limit of Section 5.1 in such manner as the Committee (in its sole
discretion) shall determine to be appropriate to prevent the dilution or
diminution of such Awards. In the case of Options granted to Non-employee
Directors pursuant to Section 9, the foregoing adjustments shall be made by the
Board, and any such adjustments also shall apply to the future grants provided
by Section 9. Notwithstanding the preceding, the number of Shares subject to any
Award always shall be a whole number.
SECTION 5
STOCK OPTIONS
5.1 Grant of Options. Subject to the terms and provisions of the
----------------
Plan, Options may be granted to Employees and Consultants at any time and from
time to time as determined by the Committee in its sole discretion. The
Committee, in its sole discretion, shall determine the number of Shares subject
to each Option, provided that during any Fiscal Year, no Participant shall be
granted Options covering more than 1,000,000 Shares. The Committee may grant
Incentive Stock Options, Non-qualified Stock Options, or a combination thereof.
5.2 Award Agreement. Each Option shall be evidenced by an Award
---------------
Agreement that shall specify the Exercise Price, the expiration date of the
Option, the number of Shares to which the Option pertains, any conditions to
exercise of the Option, and such other terms and conditions as the Committee, in
its discretion, shall determine. The Award Agreement shall specify whether the
Option is intended to be an Incentive Stock Option or a Non-qualified Stock
Option.
5.3 Exercise Price. Subject to the provisions of this Section 5.3,
--------------
the Exercise Price for each Option shall be determined by the Committee in its
sole discretion.
5
<PAGE>
5.3.1 Non-qualified Stock Options. In the case of a Non-qualified
---------------------------
Stock Option, the Exercise Price shall be not less than one hundred percent
(100%) of the Fair Market Value of a Share on the Grant Date.
5.3.2 Incentive Stock Options. In the case of an Incentive Stock
-----------------------
Option, the Exercise Price shall be not less than one hundred percent (100%)
of the Fair Market Value of a Share on the Grant Date; provided, however, that
if on the Grant Date, the Employee (together with persons whose stock
ownership is attributed to the Employee pursuant to section 424(d) of the
Code) owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any of its
Subsidiaries, the Exercise Price shall be not less than one hundred and ten
percent (110%) of the Fair Market Value of a Share on the Grant Date.
5.3.3 Substitute Options. Notwithstanding the provisions of
------------------
Sections 5.3.1 and 5.3.2, in the event that the Company or an Affiliate
consummates a transaction described in section 424(a) of the Code (e.g., the
acquisition of property or stock from an unrelated corporation), persons who
become Employees or Consultants on account of such transaction may be granted
Options in substitution for options granted by their former employer. If such
substitute Options are granted, the Committee, in its sole discretion and
consistent with section 424(a) of the Code, shall determine the exercise price
of such substitute Options.
5.4 Expiration of Options.
---------------------
5.4.1 Expiration Dates. Each Option shall terminate no later than
----------------
the first to occur of the following events:
(a) The expiration of ten (10) years from the Grant Date; or
(b) The expiration of three (3) months from the date of the
Participant's Termination of Service for a reason other than the Participant's
death, Disability or Retirement; or
(c) The expiration of one (1) year from the date of the
Participant's Termination of Service by reason of Disability; or
(d) The expiration of three (3) years from the date of the
Participant's Retirement (subject to Section 5.8.2 regarding Incentive Stock
Options); or
(e) The date of the Participant's Termination of Service by
the Company for cause (as determined by the Company); or
(f) The date for termination of the Option determined by the
Committee in its sole discretion and set forth in the written Award Agreement.
5.4.2 Death of Participant. Notwithstanding Section 5.4.1, if a
--------------------
Participant who is an Employee dies prior to the expiration of his or her
Options, his or her Options shall be exercisable until the expiration of three
(3) years after the date of death. If a Participant who is a Consultant dies
prior to the expiration of his or her Options, the Committee, in its discretion,
may provide that his or her Options shall be exercisable for up to three (3)
years after the date of death.
5.4.3 Committee Discretion. Subject to the limits of Sections
--------------------
5.4.1 and 5.4.2, the Committee, in its sole discretion, (a) shall provide in
each Award Agreement when each Option expires and becomes unexercisable, and (b)
may, after an Option is granted and before such Option expires, extend the
maximum term of the Option (subject to Section 5.8.4 regarding Incentive Stock
Options).
5.5 Exercisability of Options. Options granted under the Plan shall be
-------------------------
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall determine in its sole discretion. After an Option is
granted, the Committee, in its sole discretion, may accelerate the
exercisability of the Option. If a
6
<PAGE>
Participant dies while an Employee, the exercisability of his or her Options
shall be fully accelerated to the date of Termination of Service.
5.6 Payment. Options shall be exercised by the Participant's
-------
designee), setting forth the number of Shares with respect to which the Option
is to be exercised, accompanied by full payment for the Shares.
Upon the exercise of any Option, the Exercise Price shall be payable
to the Company in full in cash or its equivalent. The Committee, in its sole
discretion, also may permit exercise (a) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price, or (b) by any other means which the Committee, in its sole
discretion, determines to both provide legal consideration for the Shares, and
to be consistent with the purposes of the Plan.
As soon as practicable after receipt of a written notification of
exercise and full payment for the Shares purchased, the Company shall deliver to
the Participant (or the Participant's designated broker), Share certificates
(which may be in book entry form) representing such Shares.
5.7 Restrictions on Share Transferability. The Committee may impose
-------------------------------------
such restrictions on any Shares acquired pursuant to the exercise of an Option
as it may deem advisable, including, but not limited to, restrictions related to
applicable Federal securities laws, the requirements of any national securities
exchange or system upon which Shares are then listed or traded, or any blue sky
or state securities laws.
5.8 Certain Additional Provisions for Incentive Stock Options.
---------------------------------------------------------
5.8.1 Exercisability. The aggregate Fair Market Value
--------------
(determined on the Grant Date(s)) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by any Employee during any
calendar year (under all plans of the Company and its Subsidiaries) shall not
exceed $100,000.
5.8.2 Termination of Service. If any portion of an Incentive
----------------------
Stock Option is exercised more than three (3) months after the Participant's
Termination of Service for any reason other than Disability or death (unless
(a) the Participant dies during such three-month period, and (b) the Award
Agreement or the Committee permits later exercise), the portion so exercised
shall be deemed a Non-qualified Stock Option.
5.8.3 Company and Subsidiaries Only. Incentive Stock Options
-----------------------------
may be granted only to persons who are employees of the Company or a Subsidiary
on the Grant Date.
5.8.4 Expiration. No Incentive Stock Option may be exercised
----------
after the expiration of ten (10) years from the Grant Date; provided, however,
that if the Option is granted to an Employee who, together with persons whose
stock ownership is attributed to the Employee pursuant to section 424(d) of the
Code, owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of the stock of the Company or any of its
Subsidiaries, the Option may not be exercised after the expiration of five (5)
years from the Grant Date.
5.9 Grant of Reload Options. The Committee may provide in an Award
-----------------------
Agreement that a Participant who exercises all or part of an Option by payment
of the Exercise Price with already-owned Shares, shall be granted an additional
option (a "Reload Option") for a number of shares of stock equal to the number
of Shares tendered to exercise the previously granted Option plus, if the
Committee so determines, any Shares withheld or delivered in satisfaction of any
tax withholding requirements. As determined by the Committee, each Reload
Option shall (a) have a Grant Date which is the date as of which the previously
granted Option is exercised, and (b) be exercisable on the same terms and
conditions as the previously granted Option, except that the Exercise Price
shall be determined as of the Grant Date.
7
<PAGE>
SECTION 6
STOCK APPRECIATION RIGHTS
6.1 Grant of SARs. Subject to the terms and conditions of the Plan,
-------------
SARs may be granted to Employees and Consultants at any time and from time to
time as shall be determined by the Committee, in its sole discretion. The
Committee shall have complete discretion to determine the number of SARs granted
to any Participant, provided that during any Fiscal Year, no Participant shall
be granted SARs covering more than 1,000,000 Shares.
6.2 Exercise Price and Other Terms. The Committee, subject to the
------------------------------
provisions of the Plan, shall have complete discretion to determine the terms
and conditions of SARs granted under the Plan. However, the exercise price of
an SAR shall be not less than one hundred percent (100%) of the Fair Market
Value of a Share on the Grant Date.
6.3 SAR Agreement. Each SAR grant shall be evidenced by an Award
-------------
Agreement that shall specify the exercise price, the term of the SAR, the
conditions of exercise, and such other terms and conditions as the Committee, in
its sole discretion, shall determine.
6.4 Expiration of SARs. A SAR granted under the Plan shall expire
------------------
upon the date determined by the Committee, in its sole discretion, and set forth
in the Award Agreement. Notwithstanding the foregoing, the rules of Section 5.4
also shall apply to SARs.
6.5 Payment of SAR Amount. Upon exercise of a SAR, a Participant
---------------------
shall be entitled to 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 exercise over the exercise price; times
(b) The number of Shares with respect to which the SAR is
exercised.
6.6 Payment Upon Exercise of SAR. At the discretion of the Committee,
----------------------------
payment for a SAR may be in cash, Shares or a combination thereof.
SECTION 7
RESTRICTED STOCK
7.1 Grant of Restricted Stock. Subject to the terms and provisions
-------------------------
of the Plan, the Committee, at any time and from time to time, may grant Shares
of Restricted Stock to Employees and Consultants in such amounts as the
Committee, in its sole discretion, shall determine. The Committee, in its sole
discretion, shall determine the number of Shares to be granted to each
Participant, provided that during any Fiscal Year, no Participant shall be
granted more than 100,000 Shares of Restricted Stock.
7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall
--------------------------
be evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares granted, any price to be paid for the Shares, and such
other terms and conditions as the Committee, in its sole discretion, shall
determine. Unless the Committee determines otherwise, Shares of Restricted
Stock shall be held by the Company as escrow agent until the restrictions on
such Shares have lapsed.
7.3 Transferability. Shares of Restricted Stock may not be sold,
---------------
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable Period of Restriction.
7.4 Other Restrictions. The Committee, in its sole discretion, may
------------------
impose such other restrictions on Shares of Restricted Stock as it may deem
advisable or appropriate, in accordance with this Section 7.4.
8
<PAGE>
7.4.1 General Restrictions. The Committee may set restrictions
---------------------
based upon the achievement of specific performance objectives (Company-wide,
business unit or individual), applicable federal or state securities laws, or
any other basis determined by the Committee in its discretion.
7.4.2 Section 162(m) Performance Restrictions. For purposes of
---------------------------------------
qualifying grants of Restricted Stock as "performance-based compensation" under
section 162(m) of the Code, the Committee, in its discretion, may set
restrictions based upon the achievement of Performance Goals. The Performance
Goals shall be set by the Committee on or before the latest date permissible to
enable the Restricted Stock to qualify as "performance-based compensation" under
section 162(m) of the Code. In granting Restricted Stock which is intended to
qualify under section 162(m) of the Code, the Committee shall follow any
procedures determined by it from time to time to be necessary or appropriate to
ensure qualification of the Restricted Stock under section 162(m) of the Code
(e.g., in determining the Performance Goals).
7.4.3 Legend on Certificates. The Committee, in its
-----------------------
discretion, may legend the certificates representing Restricted Stock to give
appropriate notice of such restrictions. For example, the Committee may
determine that some or all certificates representing Shares of Restricted Stock
shall bear the following legend:
"The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer as set forth in the Varian,
Inc. Omnibus Stock Plan, and in a Restricted Stock Agreement. A copy of the
Plan and such Restricted Stock Agreement may be obtained from the Secretary
of Varian, Inc."
7.5 Removal of Restrictions. Shares of Restricted Stock covered by
-----------------------
each Restricted Stock grant made under the Plan shall be released from escrow as
soon as practicable after the last day of the Period of Restriction. The
Committee, in its discretion, may accelerate the time at which any restrictions
shall lapse, and remove any restrictions. After the restrictions have lapsed,
the Participant shall be entitled to have any legend or legends under Section
7.4 removed from his or her Share certificate, and the Shares shall be freely
transferable by the Participant.
7.6 Voting Rights. During the Period of Restriction, Participants
-------------
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares, unless otherwise provided in the Award
Agreement.
7.7 Dividends and Other Distributions. During the Period of
---------------------------------
Restriction, Participants holding Shares of Restricted Stock shall be entitled
to receive all dividends and other distributions paid with respect to such
Shares unless otherwise provided in the Award Agreement. If any such dividends
or distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
7.8 Return of Restricted Stock to Company. On the date set forth in
-------------------------------------
the Award Agreement, the Restricted Stock for which restrictions have not lapsed
shall revert to the Company and again shall become available for grant under the
Plan.
SECTION 8
PERFORMANCE UNITS AND PERFORMANCE SHARES
8.1 Grant of Performance Units and Shares. Performance Units and
-------------------------------------
Performance Shares may be granted to Employees and Consultants at any time and
from time to time, as shall be determined by the Committee, in its sole
discretion. The Committee shall have complete discretion in determining the
number of Performance Units and Performance Shares granted to any Participant,
provided that during any Fiscal Year, no more than 100,000 Performance Shares or
Performance Units may be granted to any Participant.
8.2 Initial Value. Each Performance Unit shall have an initial value
-------------
that is established by the Committee on or before the Grant Date, provided that
such value shall not exceed the Fair Market Value of a Share
9
<PAGE>
on the Grant Date. Each Performance Share shall have an initial value equal to
the Fair Market Value of a Share on the Grant Date.
8.3 Performance Objectives and Other Terms. The Committee shall set
--------------------------------------
performance objectives in its discretion which, depending on the extent to which
they are met, will determine the number or value of Performance Units or Shares
that will be paid out to the Participants. The Committee may set performance
objectives based upon the achievement of Company-wide, business unit, or
individual goals, or any other basis determined by the Committee in its
discretion. The time period during which the performance objectives must be met
shall be called the "Performance Period." Each Award of Performance Units or
Shares shall be evidenced by an Award Agreement that shall specify the
Performance Period, and such other terms and conditions as the Committee, in its
sole discretion, shall determine.
8.3.1 General Performance Objectives. The Committee may set
------------------------------
performance objectives based upon the achievement of Company-wide, business unit
or individual goals, or any other basis determined by the Committee in its
discretion.
8.3.2 Section 162(m) Performance Objectives. For purposes of
-------------------------------------
qualifying grants of Performance Units or Shares as "performance-based
compensation" under section 162(m) of the Code, the Committee, in its
discretion, may determine that the performance objectives applicable to
Performance Units or Shares shall be based on the achievement of Performance
Goals. The Performance Goals shall be set by the Committee on or before the
latest date permissible to enable the Performance Units or Shares to qualify as
"performance-based compensation" under section 162(m) of the Code. In granting
Performance Units or Shares which are intended to qualify under section 162(m)
of the Code, the Committee shall follow any procedures determined by it from
time to time to be necessary or appropriate to ensure qualification of the
Performance Units or Shares under section 162(m) of the Code (e.g., in
determining the Performance Goals).
8.4 Earning of Performance Units and Performance Shares. After the
---------------------------------------------------
applicable Performance Period has ended, the Participant shall be entitled to
receive a payout of the number of Performance Units or Shares earned during the
Performance Period, depending upon the extent to which the applicable
performance objectives have been achieved. After the grant of a Performance
Unit or Share, the Committee, in its sole discretion, may reduce or waive any
performance objectives for Award.
8.5 Form and Timing of Payment. Payment of earned Performance Units
--------------------------
or Performance Shares shall be made as soon as practicable after the expiration
of the applicable Performance Period. The Committee, in its sole discretion,
may pay such earned Awards in cash, Shares or a combination thereof.
8.6 Cancellation. On the date set forth in the Award Agreement, all
------------
unearned or unvested Performance Units or Performance Shares shall be forfeited
to the Company, and again shall be available for grant under the Plan.
SECTION 9
NON-EMPLOYEE DIRECTORS
9.1 Granting of Options.
-------------------
9.1.1 Non-employee Directors. Each Non-employee Director shall
----------------------
be granted an Option to purchase 10,000 Shares (an "Initial Grant") on the later
of the Effective Date of the Plan or the date of the Non-employee Director's
appointment or election as a Non-employee Director. Thereafter, for so long as
the Non-employee Director serves as such, he or she annually shall be granted an
Option for an additional 5,000 Shares (each a "Subsequent Grant"). Each such
Subsequent Grant shall be made on the first business day after each Annual
Meeting of Stockholders occurring after the date of the Initial Grant or
previous Subsequent Grant, but only if the Non-employee Director has
continuously served as such through the Grant Date.
9.1.2 Chairman. Each Chairman of the Company who is a Non-
--------
employee Director shall be granted an Option to purchase 100,000 Shares (an
"Initial Chairman's Grant") on the later of the Effective
10
<PAGE>
Date of the Plan or the date such individual becomes Chairman. Thereafter, for
so long as such individual serves as Chairman, he or she annually will be
granted an Option for an additional 5,000 Shares (each a "Subsequent Chairman's
Grant"). Each such Subsequent Chairman's Grant shall be made on the first
business day after each Annual Meeting of Stockholders occurring after the date
of the Initial Chairman's Grant or previous Subsequent Chairman's Grant, but
only if the individual has continuously served as Chairman through the Grant
Date. Any Initial Chairman's Grant or Subsequent Chairman's Grant shall be in
lieu of any Initial Grant or Subsequent Grant the Chairman otherwise would be
entitled to under Section 9.1.1.
9.2 Terms of Options.
----------------
9.2.1 Option Agreement. Each Option granted pursuant to this
----------------
Section 9 shall be evidenced by a written stock option agreement which shall be
executed by the Non-employee Director and the Company.
9.2.2 Exercise Price. The Exercise Price for the Shares
---------------
subject to each Option granted pursuant to this Section 9 shall be one hundred
percent (100%) of the Fair Market Value of such Shares on the Grant Date.
9.2.3 Exercisability. Each Option granted pursuant to this
--------------
Section 9 shall be fully exercisable on the Grant Date.
9.2.4 Expiration of Options. Each Option shall terminate upon
---------------------
the first to occur of the following events:
(a) The expiration of ten (10) years from the Grant
Date; or
(b) The expiration of three (3) months from the date of
the Non-employee Director's Termination of Service for a reason other than
death, Disability, resignation or Retirement; or
(c) The expiration of three (3) years from the date of
the Non-employee Director's Termination of Service by reason of completion of
the Participant's term as a Director, Disability or Retirement; or
(d) The expiration of one (1) month from the date of the
Non-employee Director's Termination of Service by reason of resignation.
9.2.5 Death of Director. Notwithstanding Section 9.2.4, if a
-----------------
Non-employee Director dies prior to the expiration of his or her options in
accordance with Section 9.2.4, his or her options shall terminate three (3)
years after the date of his or her death.
9.2.6 Not Incentive Stock Options. Options granted pursuant to
---------------------------
this Section 9 shall not be designated as Incentive Stock Options.
9.2.7 Other Terms. All provisions of the Plan not
------------
inconsistent with this Section 9 shall apply to Options granted to Non-employee
Directors; provided, however, that Section 5.2 (relating to the Committee's
discretion to set the terms and conditions of Options) shall be inapplicable
with respect to Non-employee Directors.
9.3 Substitute Options. Notwithstanding the provisions of Section
------------------
9.2.2, in the event that the Company or an Affiliate consummates a transaction
described in section 424(a) of the Code (e.g., the acquisition of property or
stock from an unrelated corporation), persons who become Non-employee Directors
on account of such transaction may be granted Options in substitution for
options granted by their former employer. If such substitute Options are
granted, the Committee, in its sole discretion and consistent with section
424(a) of the Code, shall determine the exercise price of such substitute
Options.
11
<PAGE>
9.4 Elections by Non-employee Directors. Pursuant to such procedures
-----------------------------------
as the Board (in its discretion) may adopt from time to time, each Non-employee
Director may elect to forego receipt of all or a portion of the annual retainer,
committee chair fees, meeting attendance fees and other cash compensation
otherwise due to the Non-employee Director in exchange for Shares. The number
of Shares received by any Non-employee Director shall equal the amount of
foregone compensation divided by the Fair Market Value of a Share on the date
that the compensation otherwise would have been paid to the Non-employee
Director, rounded up to the nearest whole number of Shares. In addition,
pursuant to such procedures as the Board (in its discretion) may adopt from time
to time, each Non-employee Director may elect to forego receipt of all or a
portion of the annual retainer, committee chair and meeting attendance fees and
other cash compensation otherwise due to the Non-employee Director in exchange
for an Option to purchase Shares. The number of Shares subject to such an
Option received by any Non-employee Director shall equal the amount of foregone
compensation multiplied by four (4) and divided by the Fair Market Value of a
Share on the date that the compensation otherwise would have been paid to the
Non-employee Director, rounded up to the nearest whole number of Shares. All
Options granted pursuant to this Section 9.4 shall be subject to the
restrictions of Section 9.2.
SECTION 10
MISCELLANEOUS
10.1 No Effect on Employment or Service. Nothing in the Plan shall
----------------------------------
interfere with or limit in any way the right of the Company to terminate any
Participant's employment or service at any time, with or without cause. For
purposes of the Plan, transfer of employment of a Participant between the
Company and any one of its Affiliates (or between Affiliates) shall not be
deemed a Termination of Service. Employment with the Company and its Affiliates
is on an at-will basis only.
10.2 Participation. No Employee or Consultant shall have the right to
-------------
be selected to receive an Award under this Plan, or, having been so selected, to
be selected to receive a future Award.
10.3 Indemnification. Each person who is or shall have been a member
---------------
of the Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any Award Agreement, and (b) from any and all
amounts paid by him or her in settlement thereof, with the Company's approval,
or paid by him or her in satisfaction of any judgment in any such claim, action,
suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Certificate of Incorporation or Bylaws, by contract, as a matter of law, or
otherwise, or under any power that the Company may have to indemnify them or
hold them harmless.
10.4 Successors. All obligations of the Company under the Plan, with
----------
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation or otherwise, of all or substantially
all of the business or assets of the Company.
10.5 Beneficiary Designations. If permitted by the Committee, a
------------------------
Participant under the Plan may name a beneficiary or beneficiaries to whom any
vested but unpaid Award shall be paid in the event of the Participant's death.
Each such designation shall revoke all prior designations by the Participant and
shall be effective only if given in a form and manner acceptable to the
Committee. In the absence of any such designation, any vested benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate and, subject to the terms of the Plan and of the applicable Award
Agreement, any unexercised vested Award may be exercised by the administrator or
executor of the Participant's estate.
10.6 Nontransferability of Awards. No Award granted under the Plan
----------------------------
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will, by the laws of descent and
12
<PAGE>
distribution, or to the limited extent provided in Section 10.5. All rights with
respect to an Award granted to a Participant shall be available during his or
her lifetime only to the Participant.
10.7 No Rights as Stockholder. Except to the limited extent provided
------------------------
in Sections 7.6 and 7.7, no Participant (nor any beneficiary) shall have any of
the rights or privileges of a stockholder of the Company with respect to any
Shares issuable pursuant to an Award (or exercise thereof), unless and until
certificates representing such Shares shall have been issued, recorded on the
records of the Company or its transfer agents or registrars, and delivered to
the Participant (or beneficiary).
10.8 Withholding Requirements. Prior to the delivery of any Shares or
------------------------
cash pursuant to an Award (or exercise thereof), the Company shall have the
power and the right to deduct or withhold, or require a Participant to remit to
the Company, an amount sufficient to satisfy federal, state, local and foreign
taxes (including the Participant's FICA obligation) required to be withheld with
respect to such Award (or exercise thereof). Notwithstanding any contrary
provision of the Plan, if a Participant fails to remit to the Company such
withholding amount within the time period specified by the Committee (in its
discretion), the Participant's Award may, in the Committee's discretion, be
forfeited and in such case the Participant shall not receive any of the Shares
subject to such Award.
10.9 Withholding Arrangements. The Committee, in its sole discretion
------------------------
and pursuant to such procedures as it may specify from time to time, may permit
or require a Participant to satisfy all or part of the tax withholding
obligations in connection with an Award by (a) having the Company withhold
otherwise deliverable Shares, or (b) delivering to the Company already-owned
Shares having a Fair Market Value equal to the amount required to be withheld.
The amount of the withholding requirement shall be deemed to include any amount
which the Committee determines, not to exceed the amount determined by using the
maximum federal, state, local and foreign jurisdiction marginal income tax rates
applicable to the Participant with respect to the Award on the date that the
amount of tax to be withheld is to be determined. The Fair Market Value of the
Shares to be withheld or delivered shall be determined as of the date that the
taxes are required to be withheld.
10.10 Deferrals. The Committee, in its sole discretion, may permit a
---------
Participant to defer receipt of the payment of cash or the delivery of Shares
that would otherwise be delivered to a Participant under the Plan. Any such
deferral elections shall be subject to such rules and procedures as shall be
determined by the Committee in its sole discretion.
SECTION 11
AMENDMENT, TERMINATION AND DURATION
11.1 Amendment, Suspension or Termination. The Board, in its sole
------------------------------------
discretion, may amend or terminate the Plan, or any part thereof, at any time
and for any reason. The amendment, suspension or termination of the Plan shall
not, without the consent of the Participant, alter or impair any rights or
obligations under any Award theretofore granted to such Participant. No Award
may be granted during any period of suspension or after termination of the Plan.
11.2 Duration of the Plan. The Plan shall commence on the date
--------------------
specified herein, and subject to Section 11.1 (regarding the Board's right to
amend or terminate the Plan), shall remain in effect thereafter. However,
without further stockholder approval, no Incentive Stock Option may be granted
under the Plan after ten (10) years from the Effective Date.
SECTION 12
LEGAL CONSTRUCTION
12.1 Gender and Number. Except where otherwise indicated by the
-----------------
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
13
<PAGE>
12.2 Severability. In the event any provision of the Plan shall be
------------
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
12.3 Requirements of Law. The granting of Awards and the issuance of
-------------------
Shares under the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
12.4 Governing Law. The Plan and all Award Agreements shall be
-------------
construed in accordance with and governed by the laws of the State of
California, but without regard to its conflict of law provisions.
12.5 Captions. Captions are provided herein for convenience only,
---------
and shall not serve as a basis for interpretation or construction of the Plan.
EXECUTION
IN WITNESS WHEREOF, Varian Medical Systems, Inc., by its duly
authorized officer, has executed the Plan on the date indicated below.
VARIAN MEDICAL SYSTEMS, INC.
Dated: April 2, 1999 By /s/ Joseph B. Phair
---------------------------
Name: Joseph B. Phair
Title: Secretary
14
<PAGE>
EXHIBIT 10.2
VARIAN MEDICAL SYSTEMS, INC.
MANAGEMENT INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 BACKGROUND, PURPOSE AND DURATION....................... 1
1.1 Effective Date............................................ 1
1.2 Purpose of the Plan....................................... 1
SECTION 2 DEFINITIONS............................................ 1
2.1 "Actual Award"............................................ 1
2.2 "Affiliate"............................................... 1
2.3 "Base Salary"............................................. 1
2.4 "Board"................................................... 1
2.5 "Code".................................................... 1
2.6 "Committee"............................................... 1
2.7 Company".................................................. 1
2.8 "Disability".............................................. 1
2.9 "EBIT".................................................... 1
2.10 "EBITDA".................................................. 2
2.11 "Earnings Per Share"...................................... 2
2.12 "Employee"................................................ 2
2.13 "Fiscal Year"............................................. 2
2.14 "Maximum Award"........................................... 2
2.15 "Net Income".............................................. 2
2.16 "Operating Cash Flow"..................................... 2
2.17 "Participant"............................................. 2
2.18 "Payout Formula".......................................... 2
2.19 "Performance Goals"....................................... 2
2.20 "Performance Period"...................................... 2
2.21 "Plan".................................................... 2
2.22 "Retirement".............................................. 2
2.23 "Return on Assets"........................................ 3
2.24 "Return on Equity"........................................ 3
2.25 "Return on Sales"......................................... 3
2.26 "Revenue"................................................. 3
2.27 "Shareholder Return"...................................... 3
2.28 "Shares".................................................. 3
2.29 "Target Award"............................................ 3
2.30 "VAI"..................................................... 3
SECTION 3 SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS.. 3
3.1 Selection of Participants................................. 3
3.2 Determination of Performance Goals........................ 3
3.3 Determination of Target Awards............................ 3
3.4 Determination of Payout Formula or Formulae............... 3
3.5 Determination of Actual Awards............................ 3
SECTION 4 PAYMENT OF AWARDS...................................... 4
4.1 Right to Receive Payment.................................. 4
4.2 Timing of Payment......................................... 4
4.3 Form of Payment........................................... 4
4.4 Payment in the Event of Death............................. 4
SECTION 5 ADMINISTRATION......................................... 4
5.1 Committee is the Administrator............................ 4
5.2 Committee Authority....................................... 4
5.3 Decisions Binding......................................... 4
5.4 Delegation by the Committee............................... 5
-i-
<PAGE>
SECTION 6 GENERAL PROVISIONS.................................... 5
6.1 Tax Withholding.......................................... 5
6.2 No Effect on Employment or Service....................... 5
6.3 Participation............................................ 5
6.4 Indemnification.......................................... 5
6.5 Successors............................................... 5
6.6 Beneficiary Designations................................. 5
6.7 Nontransferability of Awards............................. 5
6.8 Deferrals................................................ 6
SECTION 7 AMENDMENT, TERMINATION AND DURATION................... 6
7.1 Amendment, Suspension or Termination..................... 6
7.2 Duration of the Plan..................................... 6
SECTION 8 LEGAL CONSTRUCTION.................................... 6
8.1 Gender and Number........................................ 6
8.2 Severability............................................. 6
8.3 Requirements of Law...................................... 6
8.4 Governing Law............................................ 6
8.5 Captions................................................. 6
-ii-
<PAGE>
VARIAN MEDICAL SYSTEMS, INC.
MANAGEMENT INCENTIVE PLAN
SECTION 1
BACKGROUND, PURPOSE AND DURATION
1.1 Effective Date. This amended and restated Plan is effective as
--------------
of the date on which VAI distributes shares of the common stock of Varian, Inc.
and Varian Semiconductor Equipment Associates, Inc. to the stockholders of VAI,
subject to the approval of the Plan by a majority of the shares of the common
stock of VAI which are present in person or by proxy and entitled to vote at the
1999 Annual and Special Meeting of Stockholders of VAI.
1.2 Purpose of the Plan. The Plan is intended to increase
-------------------
shareholder value and the success of the Company by motivating key executives
(1) to perform to the best of their abilities, and (2) to achieve the Company's
objectives. The Plan's goals are to be achieved by providing such executives
with incentive awards based on the achievement of goals relating to the
performance of the Company and its business units. The Plan is intended to
permit the grant of awards that qualify as performance-based compensation under
section 162(m) of the Code.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings
unless a different meaning is plainly required by the context:
2.1 "Actual Award" means as to any Performance Period, the actual award (if
------------
any) payable to a Participant for the Performance Period. Each Actual Award is
determined by the Payout Formula for the Performance Period, subject to the
Committee's authority uder Section 3.5 to reduce the award otherwise determined
by the Payout Formula.
2.2 "Affiliate" means any corporation or other entity (including, but not
---------
limited to, partnerships and joint ventures) controlling, controlled by, or
under common control with the Company.
2.3 "Base Salary" means as to any Performance Period, the Participant's
-----------
annualized salary rate on the last day of the Performance Period. Such Base
Salary shall be before both (a) deductions for taxes or benefits, and (b)
deferrals of compensation pursuant to Company-sponsored plans.
2.4 "Board" means the Board of Directors of the Company.
-----
2.5 "Code" means the Internal Revenue Code of 1986, as amended. Reference
----
to a specific section of the Code or regulation thereunder shall include such
section or regulation, any valid regulation promulgated thereunder, and any
comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
2.6 "Committee" means the committee appointed by the Board (pursuant to
---------
Section 5.1) to administer the Plan.
2.7 Company" means Varian Medical Systems, Inc., a Delaware corporation,
or any successor thereto.
2.8 "Disability" means a permanent and total disability determined in
----------
accordance with uniform and nondiscriminatory standards adopted by the Committee
from time to time.
2.9 "EBIT" means as to any Performance Period, the Company's or a business
----
unit's income before reductions for interest and taxes, determined in accordance
with generally accepted accounting principles.
<PAGE>
2.10 "EBITDA" means as to any Performance Period, the Company's or a
------
business unit's income before reductions for interest, taxes, depreciation and
amortization, determined in accordance with generally accepted accounting
principles.
2.11 "Earnings Per Share" means as to any Performance Period, the Company's
------------------
or a business unit's Net Income, divided by a weighted average number of common
shares outstanding and dilutive common equivalent shares deemed outstanding,
determined in accordance with generally accepted accounting principles.
2.12 "Employee" means any employee of the Company or of an Affiliate,
--------
whether such employee is so employed at the time the Plan is adopted or becomes
so employed subsequent to the adoption of the Plan.
2.13 "Fiscal Year" means any fiscal year of the Company.
-----------
2.14 "Maximum Award" means as to any Actual Award to any Participant
-------------
for any Performance Period, the lesser of two hundred percent (200%) of Base
Salary or $2 million.
2.15 "Net Income" means as to any Performance Period, the Company's or a
----------
business unit's income after taxes, determined in accordance with generally
accepted accounting principles.
2.16 "Operating Cash Flow" means as to any Performance Period, the
-------------------
Company's or a business unit's sum of Net Income plus depreciation and
amortization less capital expenditures plus changes in working capital comprised
of accounts receivable, inventories, other current assets, trade accounts
payable, accrued expenses, product warranty, advance payments from customers and
long-term accrued expenses, determined in accordance with generally acceptable
accounting principles.
2.17 "Participant" means as to any Performance Period, an Employee who
-----------
has been selected by the Committee for participation in the Plan for that
Performance Period.
2.18 "Payout Formula" means as to any Performance Period, the formula
--------------
or payout matrix established by the Committee pursuant to Section 3.4 in order
to determine the Actual Awards (if any) to be paid to Participants. The formula
or matrix may differ from Participant to Participant.
2.19 "Performance Goals" means the goal(s) (or combined goal(s)) determined
-----------------
by the Committee (in its discretion) to be applicable to a Participant for a
Target Award for a Performance Period. As determined by the Committee, the
Performance Goals for any Target Award applicable to a Participant may provide
for a targeted level or levels of achievement using one or more of the following
measures: (a) EBIT, (b) EBITDA, (c) Earnings Per Share, (d) Net Income, (e)
Operating Cash Flow, (f) Return on Assets, (g) Return on Equity, (h) Return on
Sales, (i) Revenue, and (j) Shareholder Return. The Performance Goals may differ
from Participant to Participant and from award to award. Prior to the
Determination Date, the Committee shall determine whether any significant
element(s) shall be included in or excluded from the calculation of any
Performance Goal with respect to any Participants. "Determination Date" means
the latest possible date that will not jeopardize a Target Award's qualification
as performance-based compensation under section 162(m) of the Code.
2.20 "Performance Period" means any fiscal period not to exceed three
------------------
consecutive Fiscal Years, as determined by the Committee in its sole discretion.
2.21 "Plan" means the Varian Medical Systems, Inc. Management Incentive
----
Plan, as set forth in this instrument and as hereafter amended from time to
time.
2.22 "Retirement" means, with respect to any Participant, "Retirement"
----------
as defined by the Company's Retirement Policies, as they may be established from
time to time.
2
<PAGE>
2.23 "Return on Assets" means as to any Performance Period, the percentage
----------------
equal to the Company's or a business unit's EBIT before incentive compensation,
divided by average net Company or business unit, as applicable, assets,
determined in accordance with generally accepted accounting principles.
2.24 "Return on Equity" means as to any Performance Period, the percentage
----------------
equal to the Company's Net Income divided by average stockholder's equity,
determined in accordance with generally accepted accounting principles.
2.25 "Return on Sales" means as to any Performance Period, the percentage
---------------
equal to the Company's or a business unit's EBIT before incentive compensation,
divided by the Company's or the business unit's, as applicable, Revenue,
determined in accordance with generally accepted accounting principles.
2.26 "Revenue" means as to any Performance Period, the Company's or a
-------
business unit's net sales, determined in accordance with generally accepted
accounting principles.
2.27 "Shareholder Return" means as to any Performance Period, the total
------------------
return (change in share price plus reinvestment of any dividends) of a Share.
2.28 "Shares" means shares of the Company's common stock, $.01 par value.
------
2.29 "Target Award" means the target award payable under the Plan to a
------------
Participant for the Performance Period, expressed as a percentage of his or her
Base Salary, as determined by the Committee in accordance with Section 3.3.
2.30 "VAI" means Varian Associates, Inc., a Delaware corporation.
---
SECTION 3
SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS
3.1 Selection of Participants. The Committee, in its sole discretion,
-------------------------
shall select the Employees of the Company who shall be Participants for any
Performance Period. Participation in the Plan is in the sole discretion of the
Committee, and on a Performance Period by Performance Period basis.
Accordingly, an Employee who is a Participant for a given Performance Period in
no way is guaranteed or assured of being selected for participation in any
subsequent Performance Period or Periods.
3.2 Determination of Performance Goals. The Committee, in its sole
----------------------------------
discretion, shall establish the Performance Goals for each Participant for the
Performance Period. Such Performance Goals shall be set forth in writing.
3.3 Determination of Target Awards. The Committee, in its sole discretion,
------------------------------
shall establish a Target Award for each Participant. Each Participant's Target
Award shall be determined by the Committee in its sole discretion, and each
Target Award shall be set forth in writing.
3.4 Determination of Payout Formula or Formulae. On or prior to the
-------------------------------------------
Determination Date, the Committee, in its sole discretion, shall establish a
Payout Formula or Formulae for purposes of determining the Actual Award (if any)
payable to each Participant. Each Payout Formula shall (a) be in writing, (b)
be based on a comparison of actual performance to the Performance Goals, (c)
provide for the payment of a Participant's Target Award if the Performance Goals
for the Performance Period are achieved, and (d) provide for an Actual Award
greater than or less than the Participant's Target Award, depending upon the
extent to which actual performance exceeds or falls below the Performance Goals.
Notwithstanding the preceding, no Participant's Actual Award under the Plan may
exceed his or her Maximum Award.
3.5 Determination of Actual Awards. After the end of each Performance
------------------------------
Period, the Committee shall certify in writing the extent to which the
Performance Goals applicable to each Participant for the Performance Period were
achieved or exceeded. The Actual Award for each Participant shall be determined
by
3
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applying the Payout Formula to the level of actual performance which has been
certified by the Committee. Notwithstanding any contrary provision of the Plan,
the Committee, in its sole discretion, may (a) eliminate or reduce the Actual
Award payable to any Participant below that which otherwise would be payable
under the Payout Formula, and (b) determine what Actual Award, if any, will be
paid in the event of a termination of employment prior to the end of the
Performance Period. The total aggregate Actual Awards under the Plan with
respect to any Performance Period shall not exceed eight percent (8%) of the
Company's EBIT (but before incentive compensation) for the most recent completed
Fiscal Year. If the total aggregate Actual Awards with respect to a Performance
Period would exceed this aggregate limit, all such Actual Awards shall be pro-
rated on an equal basis among all Participants according to a formula
established by the Committee.
SECTION 4
PAYMENT OF AWARDS
4.1 Right to Receive Payment. Each Actual Award that may become payable
------------------------
under the Plan shall be paid solely from the general assets of the Company.
Nothing in this Plan shall be construed to create a trust or to establish or
evidence any Participant's claim of any right other than as an unsecured general
creditor with respect to any payment to which he or she may be entitled.
4.2 Timing of Payment. Payment of each Actual Award shall be made within
-----------------
120 days after the end of the Performance Period during which the Award was
earned.
4.3 Form of Payment. Each Actual Award normally shall be paid in cash (or
---------------
its equivalent) in a single lump sum. However, the Committee, in its sole
discretion, may declare any Actual Award, in whole or in part, payable in stock
granted under the Company's Omnibus Stock Plan. The number of Shares granted
shall be determined by dividing the cash amount foregone by the fair market
value of a Share on the date that the cash payment otherwise would have been
made. For this purpose, "fair market value" shall mean the closing price on the
Nasdaq National Market for the day in question.
4.4 Payment in the Event of Death. If a Participant dies prior to the
-----------------------------
payment of an Actual Award earned by him or her prior to death for a prior
Performance Period, the Award shall be paid to his or her estate.
SECTION 5
ADMINISTRATION
5.1 Committee is the Administrator. The Plan shall be administered by the
------------------------------
Committee. The Committee shall consist of not less than two (2) members of the
Board. The members of the Committee shall be appointed from time to time by, and
serve at the pleasure of, the Board. Each member of the Committee shall qualify
as an "outside director" under section 162(m) of the Code. If it is later
determined that one or more members of the Committee do not so qualify, actions
taken by the Committee prior to such determination shall be valid despite such
failure to qualify.
5.2 Committee Authority. It shall be the duty of the Committee to
-------------------
administer the Plan in accordance with the Plan's provisions. The Committee
shall have all powers and discretion necessary or appropriate to administer the
Plan and to control its operation, including, but not limited to, the power to
(a) determine which Employees shall be granted awards, (b) prescribe the terms
and conditions of awards, (c) interpret the Plan and the awards, (d) adopt such
procedures and subplans as are necessary or appropriate to permit participation
in the Plan by Employees who are foreign nationals or employed outside of the
United States, (e) adopt rules for the administration, interpretation and
application of the Plan as are consistent therewith, and (f) interpret, amend or
revoke any such rules.
5.3 Decisions Binding. All determinations and decisions made by the
-----------------
Committee, the Board, and any delegate of the Committee pursuant to the
provisions of the Plan shall be final, conclusive, and binding on all persons,
and shall be given the maximum deference permitted by law.
4
<PAGE>
5.4 Delegation by the Committee. The Committee, in its sole discretion and
---------------------------
on such terms and conditions as it may provide, may delegate all or part of its
authority and powers under the Plan to one or more directors and/or officers of
the Company; provided, however, that the Committee may delegate its authority
and powers only with respect to awards that are not intended to qualify as
performance-based compensation under section 162(m) of the Code.
SECTION 6
GENERAL PROVISIONS
6.1 Tax Withholding. The Company shall withhold all applicable taxes
---------------
from any Actual Award, including any federal, state and local taxes (including
the Participant's FICA obligation).
6.2 No Effect on Employment or Service. Nothing in the Plan shall
----------------------------------
interfere with or limit in any way the right of the Company to terminate any
Participant's employment or service at any time, with or without cause. For
purposes of the Plan, transfer of employment of a Participant between the
Company and any one of its Affiliates (or between Affiliates) shall not be
deemed a Termination of Service. Employment with the Company and its Affiliates
is on an at-will basis only. The Company expressly reserves the right, which may
be exercised at any time and without regard to when during a Performance Period
such exercise occurs, to terminate any individual's employment with or without
cause, and to treat him or her without regard to the effect which such treatment
might have upon him or her as a Participant.
6.3 Participation. No Employee shall have the right to be selected to
-------------
receive an award under this Plan, or, having been so selected, to be selected to
receive a future award.
6.4 Indemnification. Each person who is or shall have been a member of the
---------------
Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any award, and (b) from any and all amounts
paid by him or her in settlement thereof, with the Company's approval, or paid
by him or her in satisfaction of any judgment in any such claim, action, suit,
or proceeding against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf. The foregoing right
of indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under
any power that the Company may have to indemnify them or hold them harmless.
6.5 Successors. All obligations of the Company under the Plan, with
----------
respect to awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business or assets of the Company.
6.6 Beneficiary Designations. If permitted by the Committee, a Participant
-------------------------
under the Plan may name a beneficiary or beneficiaries to whom any vested but
unpaid award shall be paid in the event of the Participant's death. Each such
designation shall revoke all prior designations by the Participant and shall be
effective only if given in a form and manner acceptable to the Committee. In the
absence of any such designation, any vested benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
6.7 Nontransferability of Awards. No award granted under the Plan may be
----------------------------
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will, by the laws of descent and distribution, or to the limited
extent provided in Section 6.6. All rights with respect to an award granted to a
Participant shall be available during his or her lifetime only to the
Participant.
5
<PAGE>
6.8 Deferrals. The Committee, in its sole discretion, may permit a
---------
Participant to defer receipt of the payment of cash that would otherwise be
delivered to a Participant under the Plan. Any such deferral elections shall be
subject to such rules and procedures as shall be determined by the Committee in
its sole discretion.
SECTION 7
AMENDMENT, TERMINATION AND DURATION
7.1 Amendment, Suspension or Termination. The Board, in its sole
------------------------------------
discretion, may amend or terminate the Plan, or any part thereof, at any time
and for any reason. The amendment, suspension or termination of the Plan shall
not, without the consent of the Participant, alter or impair any rights or
obligations under any Target Award theretofore granted to such Participant. No
award may be granted during any period of suspension or after termination of the
Plan.
7.2 Duration of the Plan. The Plan shall commence on the date specified
--------------------
herein, and subject to Section 7.1 (regarding the Board's right to amend or
terminate the Plan), shall remain in effect thereafter.
SECTION 8
LEGAL CONSTRUCTION
8.1 Gender and Number. Except where otherwise indicated by the context,
------------------
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
8.2 Severability. In the event any provision of the Plan shall be held
------------
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
8.3 Requirements of Law. The granting of awards under the Plan shall be
-------------------
subject to all applicable laws, rules and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be required.
8.4 Governing Law. The Plan and all awards shall be construed in
-------------
accordance with and governed by the laws of the State of California, but without
regard to its conflict of law provisions.
8.5 Captions. Captions are provided herein for convenience only, and shall
--------
not serve as a basis for interpretation or construction of the Plan.
EXECUTION
IN WITNESS WHEREOF, Varian Medical Systems, Inc., by its duly
authorized officer, has executed the Plan on the date indicated below.
VARIAN MEDICAL SYSTEMS, INC.
Dated: April 2, 1999 By: /s/ Joseph B. Phair
------------------------------
Name: Joseph B. Phair
Title: Secretary
6
<PAGE>
Exhibit 10.3
FORM OF INDEMNITY AGREEMENT
---------------------------
This Agreement made and entered into this ____ day of ______, 1999, by and
between Varian Medical Systems, Inc., a Delaware corporation (the "Company"),
and ___________________ ("Indemnitee"):
WHEREAS, there is a general awareness that competent and experienced
persons are becoming more reluctant to serve as directors or officers of a
publicly-held corporation unless they are provided with adequate protection
against claims and actions against them for their activities on behalf of the
corporation, generally through insurance and indemnification; and
WHEREAS, the uncertainties in the interpretations of the statutes and
regulations, laws and public policies, relating to indemnification of corporate
directors and officers are such as to make adequate, reliable assessment of the
risks to which directors and officers of publicly-held corporations may be
exposed difficult, particularly in light of the proliferation of lawsuits
against directors and officers; and
WHEREAS, the Board of Directors of the Company, based upon its business
experience, has concluded that the continuation of present trends in litigation
against corporate directors and officers will inevitably make it more difficult
for the Company to retain directors and officers of the highest competence
committed to the active and effective direction and supervision of the business
and affairs of the Company and its subsidiaries and affiliates and the operation
of their facilities, and the Board deems such consequences to be so detrimental
to the best interests of the Company's stockholders that it has concluded that
the Company should act to assure its directors and officers of maximum
protection against inordinate risks attendant on their positions in order to
ensure that the most capable persons otherwise available will be attracted to
such positions and, therefore, said directors have further concluded that it is
not only reasonable and prudent but necessary for the Company to contractually
obligate itself to indemnify to the fullest extent permitted by applicable law
its directors and officers and the directors and officers of its affiliates and
to assume to the maximum extent permitted by law liability for expenses and
liabilities which might be incurred by its directors and officers in connection
with claims lodged against them for their decisions and actions as directors or
officers; and
WHEREAS, Section 145 of the General Corporation Law of the State of
Delaware, under which law the Company is organized, empowers corporations to
indemnify persons serving as a director, officer, employee or agent of the
corporation or a person who serves at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, employee benefit plan, trust, or other enterprise, and further
specifies that the indemnification provided by said section "shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise", and further empowers a corporation to "purchase and
maintain insurance" (on behalf of such persons) "against any liability asserted
against him or
1
<PAGE>
incurred by him in any such capacity, or arising out of Indemnitee's status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of (said laws); and
WHEREAS, the Company has investigated the type of insurance available, to
insure the directors and officers of the Company and of its affiliates against
expenses (including attorneys' fees), costs, judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with any
action, suit or proceeding to which they are or are threatened to be made a
party by reason of their status and/or decisions or actions in such positions,
has studied the nature and extent of the coverage provided by such insurance and
the cost thereof to the Company, and has purchased such insurance to the extent
reasonably available; however, upon receiving such information, and
notwithstanding the purchase of such insurance when reasonably available, which
insurance is subject to certain significant exclusions and may cease to be
available (even with such exclusions), the directors of the Company have
concluded that it would be in the best interests of the stockholders for the
Company to contract to indemnify such persons as hereinafter provided; and
WHEREAS, the Company desires to have Indemnitee serve or continue to serve
as a director or officer of the Company and/or a director, officer, partner,
trustee, agent or fiduciary of such other corporations, partnerships, joint
ventures, employee benefit plans, trusts or other enterprises (herein
collectively called "Affiliate of the Company") of which Indemnitee has been or
is serving, or will serve at the request of or for the convenience of or to
represent the interests of the Company, free from undue concern for
unpredictable, inappropriate or unreasonable claims for damages by reason of
Indemnitee's being a director or officer of the Company or a director, officer,
employee, trustee, partner, agent or fiduciary of an Affiliate of the Company,
or by reason of Indemnitee's decisions or actions on their behalf; and
WHEREAS, Indemnitee is willing to serve, or to continue to serve, or to
take on additional service for, the Company and/or the Affiliates in such
aforesaid capacities on the condition that Indemnitee be indemnified as provided
for herein;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Services to the Company. Indemnitee will serve and/or continue to
-----------------------
serve, at the will of the Company or under separate contract, if any such
contract exists, as a director and/or officer of the Company and/or as a
director, officer, employee, trustee, partner, agent or fiduciary of an
Affiliate of the Company faithfully and to the best of Indemnitee's ability so
long as Indemnitee is duly elected and qualified in accordance with the
provisions of the Bylaws or other applicable constitutive documents thereof;
provided that Indemnitee may at any time and for any reason resign from such
position (subject to any contractual obligation which Indemnitee shall have
assumed apart from this Agreement) and further provided that neither the Company
nor any Affiliate shall have any obligation under this Agreement to continue the
Indemnitee in any such position.
2. Indemnification. The Company shall indemnify Indemnitee to the fullest
---------------
extent permitted, and in the manner required, by applicable law as in effect as
of the date hereof or as such
2
<PAGE>
laws may from time to time, be amended:
(a) If Indemnitee is a person who was or is made a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative in
nature, other than an action by or in the right of the Company, by reason of the
fact that Indemnitee is or was a director, officer, employee, trustee, partner,
agent, or fiduciary of the Company or is or was serving at the request of the
Company as a director, officer, employee, trustee, partner, agent or fiduciary
of an Affiliate of the Company, or by reason of anything done or not done by
Indemnitee in any such capacity, against expenses (including attorneys' fees),
costs, judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with such action, suit or
proceeding (including, but not limited to, the investigation, defense or appeal
thereof) if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
Indemnitee's conduct was unlawful, or
(b) If Indemnitee is a person who was or is made a party or is
threatened to be made a party to any threatened, pending or completed action or
suit brought in the right of the Company to procure a judgment in its favor by
reason of the fact that Indemnitee is or was a director, officer, employee,
trustee, partner, agent or fiduciary of the Company or an Affiliate of the
Company or by reason of anything done or not done by Indemnitee in any such
capacity, against expenses (including attorneys' fees) and costs actually and
reasonably incurred by Indemnitee in connection with such action or suit
(including, but not limited to, the investigation, defense, settlement or appeal
thereof) if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company, except
that no such indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for gross
negligence or misconduct in the performance of Indemnitee's duty to the Company
unless, and only to the extent that, the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such expenses and costs as such court shall deem proper.
(c) Notwithstanding any other provisions of this Agreement, to the
extent Indemnitee (i) has prepared to serve or has served as a witness or (ii)
has been successful on the merits or otherwise in defense of any action, suit,
investigation or proceeding referred to in subsections (a) or (b) of this
section, or in the defense of any claim, issue or matter described therein, the
Company shall indemnify Indemnitee against expenses (including attorneys' fees)
and costs actually and reasonably incurred by Indemnitee in connection therewith
(including, but not limited to, the preparation, service, investigation, defense
or appeal of such action, suit, investigation or proceeding).
(d) Notwithstanding anything to the contrary in the foregoing
provisions of this Section 2, Indemnitee shall not be entitled, as a matter of
right, to indemnification pursuant to this Section 2 (i) against costs and
expenses incurred in connection with any action, suit or proceeding commenced by
Indemnitee against the Company or any person who is or was a director or officer
3
<PAGE>
of the Company or any of its affiliates, as defined in Rule 405 under the
Securities Act of 1933 ("Securities Act Affiliate") or any Affiliate of the
Company, but such indemnification may be provided by the Company in a specific
case as contemplated by Section 6 hereof; or (ii) in the event that Indemnitee
has served as a witness in cooperation with any party or entity which has
threatened or brought any action, suit or proceeding, whether civil, criminal,
administrative, or investigative, against the Company, any Securities Act
Affiliate, any Affiliate of the Company, or any director, officer, employee,
trustee, partner, agent or fiduciary of any thereof, but such indemnification
may be provided by the Company in a specific case as contemplated by Section 6
hereof.
3. Partial Indemnification. If Indemnitee is only partially successful in
-----------------------
the defense, investigation, settlement or appeal of any action, suit,
investigation or proceeding described in Section 2 hereof and therefore not
entitled hereunder to indemnification by the Company for the total amount of the
expenses (including attorneys' fees), costs, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by Indemnitee, the
Company shall nevertheless indemnify Indemnitee to the extent Indemnitee has
been partially successful.
4. Determination of Entitlement to Indemnification.
-----------------------------------------------
(a) Upon written request by Indemnitee for indemnification pursuant
to Section 2 hereof, the determination as to whether or not Indemnitee shall be
entitled to indemnification by reason of satisfying the applicable standard of
conduct as set forth in Section 2 shall be made (i) by the Board of Directors of
the Company by a majority vote of a quorum consisting of Disinterested Directors
(as hereinafter defined) or, (ii) if such a quorum is not obtainable or, even if
obtainable, if the Board of Directors by the majority vote of Disinterested
Directors so directs, by Independent Counsel in a written opinion to the Board
of Directors, a copy of which shall be delivered to the Indemnitee, or (iii) by
the stockholders. A determination as to the entitlement of Indemnitee to
indemnification pursuant to Section 2 hereof shall be made as aforesaid not
later than 60 days after the Company shall have received a written request for
indemnification. Indemnitee shall cooperate with the Company in making its
determination as aforesaid of Indemnitee's entitlement to indemnification,
including providing to the Company upon reasonable advance request any
documentation or information reasonably available to Indemnitee and material to
such determination. Any costs (including attorneys' fees) or expenses incurred
by Indemnitee in so cooperating with the Company shall be borne by the Company
and the Company hereby indemnifies and agrees to hold Indemnitee harmless
therefrom irrespective of the outcome of the determination as to Indemnitee's
satisfaction of the applicable standard of conduct set forth in Section 2.
(b) The termination of any action, suit, investigation or proceeding
described in Section 2 hereof by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption for the purposes of this Agreement that Indemnitee did not act in
good faith and in a manner which Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, that Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
4
<PAGE>
(c) In making a determination pursuant to Section 4(a) hereof as to
whether or not Indemnitee satisfied the applicable standard of conduct set forth
in Section 2 hereof, the person or persons making such determination shall
presume that Indemnitee met the applicable standard of conduct set forth in
Section 2(a), 2(b), or 2(c), as the case may be, absent evidence to the contrary
and the absence or unavailability of evidence on the matter to be decided
Indemnitee shall be entitled to the benefit of such presumption. The Company
shall have the burden of proof in the making of any determination contrary to
such presumption.
(d) For purposes of this Agreement:
(i) "Disinterested Director" with respect to any request by
Indemnitee for indemnification hereunder shall mean a director of the Company
who is or was not a party to or a subject of the action, suit, investigation or
proceeding in respect of which indemnification is being sought by Indemnitee.
(ii) "Independent Counsel" shall mean a law firm or a member of
a law firm that neither is nor in the past five years has been retained to
represent in any material matter the Company or any Securities Act Affiliate or
Indemnitee or any other party to the action, suit, investigation or proceeding
giving rise to a claim for indemnification hereunder and which, under applicable
standards of professional conduct then prevailing, would not have a conflict of
interest in representing either the Company or Indemnitee in an action to
determine Indemnitee's right to indemnification under this Agreement and that is
reasonably acceptable to the Company and Indemnitee. For purposes hereof,
counsel shall not be deemed to regularly represent any government or
governmental entity which may have commenced any action, suit, investigation or
proceeding or be asserting any claim against Indemnitee solely by reason of
having regularly represented any department, commission, authority, subdivision
or public benefit corporation of or created by such government or governmental
entity which is a party to such action, suit, investigation or proceeding or
before which it is being prosecuted or which is making any such claim. In the
event that the parties are unable to agree on the selection of Independent
Counsel, such counsel shall be selected by lot from among the Wilmington,
Delaware law firms having more than ten attorneys and having a rating of "av" or
better in the then current Martindale-Hubbell Law directory. Such selection
shall be made in the presence of Indemnitee (or Indemnitee's representative),
and the parties shall contact, in the order of their selection by lot, such law
firms, requesting each such firm to accept engagement to make the determination
required hereunder until one of such firms accepts such engagement. The fees and
expenses of counsel in connection with making any determination contemplated
hereunder shall be paid by the Company and, if requested by such counsel, the
Company shall give such counsel an appropriate written agreement with respect to
the payment of their fees and expenses and such other matters as may be
reasonably requested by counsel.
(e) In the event that a determination shall be made pursuant to (i)
Section 4(a) hereof that Indemnitee shall not be entitled to indemnification
hereunder in respect of any claim made by Indemnitee therefor by reason of
Indemnitee's failing to satisfy the applicable standard set forth in Section 2
hereof, or (ii) Section 5 hereof not to pay Indemnitee's expenses and costs, or
in the event such determination is not made, Indemnitee shall be entitled, at
Indemnitee's option, to a final judicial determination or determination in
arbitration of Indemnitee's entitlement to indemnification
5
<PAGE>
hereunder in respect of such claim (including application of the standards set
forth in Section 4(b) and (c) hereof to the making of such determination) or
Indemnitee's entitlement to such an advancement of expenses and costs pursuant
to Section 5 hereof. In the event Indemnitee seeks a judicial determination,
Indemnitee may initially seek such determination by commencing an appropriate
action in an appropriate court of the State of Delaware or any other court of
competent jurisdiction. In the event Indemnitee seeks a determination in
arbitration, such arbitration shall be conducted pursuant to the rules of the
American Arbitration Association and any such determination shall be made within
60 days of following the filing of the demand for arbitration. The Company shall
not raise as a defense in any such judicial determination or determination in
arbitration of the entitlement of Indemnitee to indemnification hereunder any
prior determination made pursuant to this Agreement of Indemnitee's right to
indemnification under this Agreement or advancement of expenses and costs on
such claim or any other claim, and for all purposes of this Agreement any such
judicial determination or determination in arbitration shall be made de novo and
without prejudice by reason of any such prior determination. The Company further
agrees to stipulate to any court or arbitrator in which such action or
arbitration shall have been commenced or appealed that the Company agrees to be
bound, for the purposes of such judicial determination or determination in
arbitration, by the presumption and burden of proof provisions set forth in
Section 4(c) hereof. If the court or arbitrator shall determine that Indemnitee
is entitled to indemnification or advancements hereunder as to any expenses
(including attorneys' fees) costs, judgments, penalties, fines and amounts paid
in settlement in respect of any claim, issue or matter involved in the action,
suit, investigation or proceeding in respect of which indemnification is sought
hereunder, the Company shall pay all expenses (including attorneys' fees) and
costs actually incurred by Indemnitee in connection with such judicial
determination or determination in arbitration (including, but not limited to,
any appellate proceedings).
(f) If, and to the extent it is finally determined hereunder that
Indemnitee is not entitled to indemnification, or is entitled only to partial
indemnification, Indemnitee agrees to reimburse the Company for all expenses and
costs advanced or prepaid hereunder, or the proper proportion thereof, as the
case may be, within 180 days after receipt of an itemized written statement
therefor from the Company, other than the expenses of (i) obtaining the judicial
determination referred to in Sections 4(e) and 5 hereof, (ii) cooperating with
the Company in making its determination, as set forth in Section 4(a) hereof, or
(iii) obtaining the opinion of Independent Counsel pursuant to Section 4(a)
hereof.
5. Advancement of Expenses and Costs. All reasonable expenses (including
---------------------------------
attorneys' fees) and costs incurred by Indemnitee in preparing to serve or
serving as a witness or in investigating, defending, or appealing any
threatened, pending or completed civil or criminal action, suit or proceeding,
administrative or investigative, described in Section 2 hereof and not excluded
by clauses (i) or (ii) of Section 2(d), or in connection with a judicial
determination or determination in arbitration pursuant to Section 4(e) or 5
hereof, shall be paid by the Company (in advance of the final disposition of
such action, suit or proceeding) at the request of Indemnitee within 20 days
after the receipt by the Company from the Indemnitee of a statement reasonably
evidencing the expenses and costs incurred by Indemnitee in connection
therewith, and averring that they do not relate to matters described in the
aforesaid clauses (i) or (ii) of Section 2(d), together with a written
undertaking by or on behalf of Indemnitee to repay such amount if it is
ultimately determined that
6
<PAGE>
Indemnitee is not entitled to be indemnified against such expenses and costs by
the Company as provided by this Agreement, the Company's Certificate of
Incorporation or By-Laws, applicable law or otherwise. Except when such advances
relate to service as a witness only, the Board of Directors shall make a
determination in the specific case regarding Indemnitee's entitlement to such
advancements of expenses and costs within 14 days after receipt of the aforesaid
statement and undertaking. In the event the Board of Directors determines not to
so pay Indemnitee's expenses and costs, Indemnitee shall be entitled, at
Indemnitee's option, to a judicial determination or determination in arbitration
Indemnitee's right to such advancement of expenses and costs as set forth in
Section 4(e) hereof.
6. Other Rights to Indemnification. The indemnification and advancement
-------------------------------
of expenses (including attorneys' fees) and costs provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may now or
in the future be entitled under any provision of law, the Certificate of
Incorporation or any Bylaw of the Company or any other agreement or any vote of
stockholders or directors or otherwise, whether as to action in Indemnitee's
official capacity or in another capacity while occupying any of the positions or
having any of the relationships referred to in Section 2 of this Agreement;
provided, however, that Indemnitee hereby acknowledges and agrees that the
reorganization transactions and the distribution of shares of the Company's
common stock to the stockholders of Varian Associates, Inc. ("Varian") pursuant
to the Distribution Agreement by and among the Company, Varian, Inc., a Delaware
corporation, and Varian Semiconductor Equipment Associates, Inc., a Delaware
corporation, dated January 14, 1999 (the "Distribution") does not constitute a
transaction contemplated by Section 7(b) of the Indemnity Agreement by and
between Indemnitee and Varian dated ____________________, 19__ and that such
Section 7(b) does not apply to the Distribution.
7. Merger or Consolidation of the Company.
--------------------------------------
(a) In the event that the Company or a Securities Act Affiliate of
the Company shall be a constituent corporation in a consolidation or a merger,
whether or not the Company or such Securities Act Affiliate of the Company, as
the case may be, is the resulting or surviving corporation, Indemnitee shall
stand in the same position under this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to the Company if
its separate existence had continued or with respect to the Securities Act
Affiliate of the Company if such affiliation had continued.
(b) In addition to any other provision of this Agreement, the Company
hereby covenants and agrees that it will not consummate any consolidation,
merger or other business combination nor will it transfer 50% or more of its
assets (in one or a series of related transactions) unless the ultimate parent
of the other party to such transaction, whether or not in the event of a
business combination the Company is the surviving entity, shall have executed an
agreement stating that such party (i) shall use its best efforts to maintain any
director and officer insurance policy in an amount and with coverage no less
favorable than that which exists as of the date hereof, or the closest
practicable equivalent thereto, (ii) shall indemnify Indemnitee, except in the
circumstances set forth in Section 2(d)(i) and (ii) of this Agreement against
any expenses (including attorneys' fees), costs, judgments, penalties, fines and
amounts paid in settlement actually and reasonably
7
<PAGE>
incurred by Indemnitee in connection with any suit or proceeding, whether civil,
criminal, administrative or investigative in nature, to which Indemnitee was or
is made a party or witness or is threatened to be made a party or witness, by
reason of the fact that Indemnitee is or was a director, officer, employee,
trustee, partner, agent or fiduciary of the Company or is or was serving at the
request of the Company as a director, officer, employee, trustee, partner, agent
or fiduciary of an Affiliate of the Company, or by reason of anything done or
not done by Indemnitee in such capacity, and (iii) shall pay, except in the
circumstances set forth in Section 2(d)(i) and (ii) (in advance of the final
disposition of the action, suit or proceeding) all reasonable expenses
(including attorneys' fees) and costs incurred by Indemnitee in preparing to
serve or serving as a witness or in investigating, defending or appealing any
threatened, pending or completed civil or criminal action, suit or proceeding,
administrative or investigative, in each case within 20 days of the submission
by Indemnitee of a statement requesting the payment of such expenses and costs
and reasonably evidencing the expenses and costs incurred by Indemnitee in
connection therewith, and (iv) shall maintain irrevocable standby letters of
credit in the aggregate amount of $5 million for all directors and officers.
8. Attorneys' Fees. In the event that Indemnitee is subject to or
---------------
intervenes in any legal action in which the validity or enforceability of this
Agreement is at issue or institutes any legal action to enforce Indemnitee's
rights under, or to recover damages for breach of, this Agreement (other than an
action referred to in Section 4(e) hereof), Indemnitee, if Indemnitee prevails
in whole or in part in such action, shall be entitled to recover from the
Company and shall be indemnified by the Company against, any actual expenses for
attorneys' fees and disbursements reasonably incurred by Indemnitee.
9. Duration of Agreement; Successors and Assigns.
---------------------------------------------
(a) This Agreement shall continue until and terminate upon the later
of: (i) ten years after Indemnitee has ceased to occupy any of the positions or
have any of the relationships referred to in Section 2 of this Agreement or (ii)
the termination of all pending or threatened actions, suits, proceedings or
investigations.
(b) This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and
Indemnitee's spouse, heirs, devisees, executors and administrators.
10. Severability. If any provision or provisions of this Agreement shall
------------
be held to be invalid, illegal or unenforceable for any reason whatsoever (i)
the validity, legality and enforceability of the remaining provisions of this
Agreement (including, without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable that are not themselves invalid, illegal
or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
8
<PAGE>
11. Identical Counterparts. This Agreement may be executed ln one or more
----------------------
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute one and the same Agreement. Only one
such counterpart signed by the party against whom enforceability is sought needs
to be produced to evidence the existence of this Agreement.
12. Headings. The headings of the paragraphs of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
13. Use of Certain Terms. As used in this Agreement, the words "herein,"
--------------------
"hereof," and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Section, paragraph, subparagraph
or other subdivision. For purposes of this Agreement, references to "fines"
shall include any excise taxes assessed on Indemnitee with respect to any
employee benefit plan; and references to "serving at the request of the Company"
shall include any service as a director, officer, employee, trustee, partner,
agent or fiduciary of the Company which imposes duties on, or involves services
by, Indemnitee with respect to any employee benefit plan, its participants or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan Indemnitee shall be deemed to have acted in a manner
"not opposed to the best interests of the Company" as referred to in this
Agreement.
14. Modification and Waiver. No supplement, modification or amendment of
-----------------------
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
15. Notice by Indemnitee. Indemnitee agrees to promptly notify the
--------------------
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any matter
which maybe subject to indemnification covered hereunder, either civil, criminal
or investigative.
16. Notices. All notices, requests, demand and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed or if (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, at the address indicated on the signature page
hereof.
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<PAGE>
(b) If to the Company to:
Varian Medical Systems, Inc.
3100 Hansen Way
Palo Alto, CA 94304
Attn: General Counsel
or to such other address as either may subsequently furnish to the other in
writing.
17. Governing Law. The parties hereto agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware, without regard to the conflicts of law principles thereof.
18. Subrogation. In the event of any payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
VARIAN MEDICAL SYSTEMS, INC. INDEMNITEE
- ------------------------- -----------------------------
[Name] [Name]
[Title] [Address]
ATTEST:
Name:____________________
10
<PAGE>
Exhibit 10.4
FORM OF CHANGE IN CONTROL AGREEMENT
FOR SENIOR EXECUTIVES
OTHER THAN THE CHIEF EXECUTIVE OFFICER
AND THE CHIEF FINANCIAL OFFICER
SECOND AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT
-------------------------------------------------------
THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT ("Agreement") is
entered into effective as of April 2, 1999, by and between VARIAN MEDICAL
SYSTEMS, INC., a Delaware corporation (the "Company")/1/, and _____________, an
employee of the Company ("Employee").
The Company's Board of Directors (the "Board") has determined that it is in
the best interest of the Company and its stockholders for the Company to agree
to pay Employee termination compensation in the event Employee should leave the
employ of the Company under the circumstances described below. The Board
recognizes that the possibility of a proposal from a third person, whether or
not solicited by the Company, concerning a possible "Change in Control" of the
Company (as such language is defined in Section 3(d)) will be unsettling to
Employee. Therefore, the arrangements set forth in this Agreement are being
made to help assure a continuing dedication by Employee to Employee's duties to
the Company notwithstanding the proposal or occurrence of a Change in Control.
The Board believes it imperative, should the Company receive any proposal from a
third party, that Employee, without being influenced by the uncertainties of
Employee's own situation, be able to assess and advise the Board whether such
proposals are in the best interest of the Company and its stockholders, and to
enable Employee to take action regarding such proposals as the Board might
determine to be appropriate. The Board also wishes to demonstrate to key
personnel that the Company desires to enhance management relations and its
ability to retain and, if needed, to attract new management, and intends to
ensure that loyal and dedicated management personnel are treated fairly.
In view of the foregoing, the Company and Employee agree as follows:
1. EFFECTIVE DATE AND TERM OF AGREEMENT.
------------------------------------
This Agreement is effective and binding on the Company and Employee as of
the date hereof; provided, however, that, subject to Section 2(d), the
provisions of Sections 3 and 4 shall become operative only upon the Change in
Control Date.
- -------------------------
/1/ "Company" shall include the Company, any successor to the Company's
business and/or assets, and any party which executes and delivers the agreement
required by Section 6(e) or which otherwise becomes bound by the terms and
conditions of this Agreement by operation of law or otherwise.
<PAGE>
2. EMPLOYMENT OF EMPLOYEE.
----------------------
(a) Except as provided in Sections 2(b), 2(c) and 2(d), nothing in this
Agreement shall affect any right which Employee may otherwise have to terminate
Employee's employment, nor shall anything in this Agreement affect any right
which the Company may have to terminate Employee's employment at any time in any
lawful manner.
(b) In the event of a Potential Change in Control, to be entitled to
receive the benefits provided by this Agreement, Employee will not voluntarily
leave the employ of the Company, and will continue to perform Employee's regular
duties and the services specified in the recitals of this Agreement until the
Change in Control Date. Should Employee voluntarily terminate employment prior
to the Change in Control Date, this Agreement shall lapse upon such termination
and be of no further force or effect.
(c) If Employee's employment terminates on or after the Change in Control
Date, the Company will provide to Employee the payments and benefits as provided
in Sections 3 and 4.
(d) If Employee's employment is terminated by the Company prior to the
Change in Control Date but on or after a Potential Change in Control Date, then
the Company will provide to Employee the payments and benefits as provided in
Sections 3 and 4 unless the Company reasonably demonstrates that Employee's
termination of employment neither (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change in Control nor (ii)
arose in connection with or in anticipation of a Change in Control. Solely for
purposes of determining the timing of payments and the provision of benefits in
Sections 3 and 4 under the circumstances described in this Section 2(d),
Employee's date of termination shall be deemed to be the Change in Control Date.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
---------------------------------------
(a) If a Change in Control shall have occurred, Employee shall be entitled
to the benefits provided in Section 4 upon the subsequent termination of
Employee's employment within the applicable period set forth in Section 4 unless
such termination is due to Employee's death, Retirement or Disability or is for
Cause or is effected by Employee other than for Good Reason (as such terms are
defined in Section 3(d)).
(b) If following a Change in Control, Employee's employment is terminated
by reason of Employee's death or Disability, Employee shall be entitled to death
or long-term disability benefits from the Company no less favorable than the
most favorable benefits to which Employee would have been entitled had the death
or Disability occurred at any time during the period commencing one (1) year
prior to the Change in Control.
(c) If Employee's employment shall be terminated by the Company for Cause
or by Employee other than for Good Reason during the term of this Agreement, the
Company shall pay Employee's Base Salary through the date of termination at the
rate in effect at the time notice of
2
<PAGE>
termination is given, and the Company shall have no further obligations to
Employee under this Agreement.
(d) For purposes of this Agreement:
"Base Salary" shall mean the annual base salary paid to Employee
immediately prior to a Change in Control, provided that such amount shall in no
event be less than the annual base salary paid to Employee during the one (1)
year period immediately prior to the Change in Control.
A "Change in Control" shall be deemed to have occurred if:
(i) Any individual or group constituting a "person", as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act (other than (A) the
Company or any of its subsidiaries or (B) any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or of any of its
subsidiaries), is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing thirty percent (30%) or more of the
combined voting power of the Company's outstanding securities then entitled
ordinarily (and apart from rights accruing under special circumstances) to vote
for the election of directors; or
(ii) Continuing Directors cease to constitute at least a majority of
the Board; or
(iii) there occurs a reorganization, merger, consolidation or other
corporate transaction involving the Company (a "Transaction"), in each case with
respect to which the stockholders of the Company immediately prior to such
Transaction do not, immediately after the Transaction, own more than 50% of the
combined voting power of the Company or other corporation resulting from such
Transaction; or
(iv) all or substantially all of the assets of the Company are sold,
liquidated or distributed;
provided, however, that a "Change in Control shall not be deemed to have
occurred under this Agreement if, prior to the occurrence of a specified event
that would otherwise constitute a Change in Control hereunder, the disinterested
Continuing Directors then in office, by a majority vote thereof, determine that
the occurrence of such specified event shall not be deemed to be a Change in
Control with respect to Employee hereunder if the Change in Control results from
actions or events in which Employee is a participant in a capacity other than
solely as an officer, employee or director of the Company.
"Change in Control Date" shall mean the date on which a Change in Control
occurs.
3
<PAGE>
"Cause" shall mean:
(i) The continued willful failure of Employee to perform Employee's
duties to the Company (other than any such failure resulting from Employee's
incapacity due to physical or mental illness) after written notice thereof
(specifying the particulars thereof in reasonable detail) and a reasonable
opportunity to be heard and cure such failure are given to Employee by the Board
or a committee thereof; or
(ii) The willful commission by Employee of a wrongful act that
caused or was reasonably likely to cause substantial damage to the Company, or
an act of fraud in the performance of Employee's duties on behalf of the
Company; or
(iii) The conviction of Employee for commission of a felony in
connection with the performance of Employee's duties on behalf of the Company;
or
(iv) The order of a federal or state regulatory authority having
jurisdiction over the Company or its operations or by a court of competent
jurisdiction requiring the termination of Employee's employment by the Company.
"Continuing Directors: shall mean the directors of the Company in
office on the date hereof and any successor to any such director who was
nominated or selected by a majority of the Continuing Directors in office at the
time of the director's nomination or selection and who is not an "affiliate" or
"associate" (as defined in Regulation 12B under the Exchange Act) of any person
who is the beneficial owner, directly or indirectly, of securities representing
ten percent (10%) or more of the combined voting power of the Company's
outstanding securities then entitled ordinarily to vote for the election of
directors.
"Disability" shall mean Employee's incapacity due to physical or mental
illness such that Employee shall have become qualified to receive benefits under
the Company's long-term disability plan as in effect on the date of the Change
in Control.
"Dispute" shall mean, in the case of termination of Employee's employment
for Disability or Cause, that Employee challenges the existence of Disability or
Cause, and in the case of termination of Employee's employment for Good Reason,
that the Company challenges the existence of Good Reason for termination of
Employee's employment.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
4
<PAGE>
"Good Reason" shall mean:
(i) The assignment of Employee to duties which are materially
different from Employee's duties immediately prior to the Change in Control and
which result in a material reduction in Employee's authority and responsibility
when compared to the highest level of authority and responsibility assigned to
Employee at any time during the six (6) month period prior to the Change in
Control Date; or
(ii) A reduction of Employee's total compensation as the same may
have been increased from time to time after the Change in Control Date other
than (A) a reduction implemented with the consent of Employee or (B) a reduction
that is generally comparable (proportionately) to compensation reductions
imposed on senior executives of the Company generally; or
(iii) The failure to provide to Employee the benefits and
perquisites, including participation on a comparable basis in the Company's
stock option, incentive, and other similar plans in which employees of the
Company of comparable title and salary grade participate, as were provided to
Employee immediately prior to a Change in Control, or with a package of benefits
and perquisites that are substantially comparable in all material respects to
such benefits and perquisites provided prior to the Change in Control; or
(iv) The relocation of the office of the Company where Employee is
employed immediately prior to the Change in Control Date (the "CIC Location") to
a location which is more than 50 miles away from the CIC Location or the
Company's requiring Employee to be based more than 50 miles away from the CIC
Location (except for required travel on the Company's business to an extent
substantially consistent with Employee's customary business travel obligations
in the ordinary course of business prior to the Change in Control Date);
(v) The failure of the Company to obtain promptly upon any Change
in Control the express written assumption of an agreement to perform this
Agreement by any successor as contemplated in Section 6(e); or
(vi) The attempted termination of Employee's employment for Cause on
grounds insufficient to constitute a basis of termination for Cause under this
Agreement; or
(vii) The failure of the Company to promptly make any payment into
escrow when so required by Section 3(f).
"Potential Change in Control" shall mean the earliest to occur of (a) the
execution of an agreement or letter of intent, the consummation of the
transactions described in which would result in a Change in Control, (b) the
approval by the Board of a transaction or series of transactions, the
consummation of which would result in a Change in Control, or (c) the public
announcement of a tender offer for the Company's voting stock, the completion of
which would result in a Change in Control; provided, that no such event shall be
a "Potential Change in
5
<PAGE>
Control" unless (i) in the case of any agreement or letter of intent described
in clause (a), the transaction described therein is subsequently consummated by
the Company and the other party or parties to such agreement or letter of intent
and thereupon constitutes a "Change in Control", (ii) in the case of any Board-
approved transaction described in clause (b), the transaction so approved is
subsequently consummated and thereupon constitutes a "Change in Control" or
(iii) in the case of any tender offer described in clause (c), such tender offer
is subsequently completed and such completion thereupon constitutes a "Change in
Control".
"Potential Change in Control Date" shall mean the date on which a
Potential Change in Control occurs.
"Retirement" shall mean Employee's actual retirement after reaching the
normal or early retirement date provided for in the Company's Retirement and
Profit-Sharing Program as in effect on the date of Employee's termination of
employment.
(e) Any termination of employment by the Company or by Employee shall be
communicated by written notice, specify the date of termination, state the
specific basis for termination and set forth in reasonable detail the facts and
circumstances of the termination in order to provide a basis for determining the
entitlement to any payments under this Agreement.
(f) If within thirty (30) days after notice of termination is given, the
party to whom the notice was given notifies the other party that a Dispute
exists, the parties will promptly pursue resolution of such Dispute with
reasonable diligence; provided, however, that pending resolution of any such
Dispute, the Company shall pay 75% of any amounts which would otherwise be due
Employee pursuant to Section 4 if such Dispute did not exist into escrow pending
resolution of such Dispute and pay 25% of such amounts to Employee. Employee
agrees to return to the Company any such amounts to which it is ultimately
determined that he is not entitled.
4. PAYMENTS AND BENEFITS UPON TERMINATION.
--------------------------------------
(a) If within eighteen (18) months after a Change in Control, the Company
terminates Employee's employment other than by reason of Employee's death,
Disability, Retirement or for Cause, or if Employee terminates Employee's
employment for Good Reason, then the Employee shall be entitled to the following
payments and benefits:
(i) The Company shall pay to Employee as compensation for services
rendered, no later than five (5) business days following the date of
termination, a lump sum severance payment equal to 2.50 multiplied by the sum
of: (A) Employee's Base Salary; (B) the highest annual bonus that was paid to
Employee in any of the three fiscal years ending prior to the date of
termination under the Company's Management Incentive Plan (the "MIP") or Varian
Associates, Inc.'s Management Incentive Plan; and (C) the highest cash bonus for
a performance period of more than one fiscal year that was paid to Employee in
any of the three fiscal years ending prior to the date of termination under the
MIP.
6
<PAGE>
(ii) The Company shall pay to Employee as compensation for services
rendered, no later than five (5) business days following the date of
termination, a lump sum payment equal to a pro rata portion (based on the number
of days elapsed during the fiscal year and/or other bonus performance period in
which the termination occurs) of Employee's target bonus under the MIP for the
fiscal year and for any other partially completed bonus performance period in
which the termination occurs.
(iii) All waiting periods for the exercise of any stock options
granted to Employee and all conditions or restrictions of any restricted stock
granted to Employee shall terminate, and all such options shall be exercisable
in full according to their terms, and the restricted stock shall be transferred
to Employee as soon as reasonably practicable thereafter.
(iv) Employee's participation as of the date of termination in the
life, medical/dental/vision and disability insurance plans and financial/tax
counseling plan of the Company shall be continued on the same terms (including
any cost sharing) as if Employee were an employee of the Company (or equivalent
benefits provided) until the earlier of Employee's commencement of substantially
equivalent full-time employment with a new employer or twenty-four (24) months
after the date of termination; provided, however, that after the date of
termination, Employee shall no longer be entitled to receive Company-paid
executive physicals or, upon expiration of the applicable memberships, Company-
paid airline memberships. In the event Employee shall die before the expiration
of the period during which the Company is required to continue Employee's
participation in such insurance plans, the participation of Employee's surviving
spouse and family in the Company's insurance plans shall continue throughout
such period.
(v) Employee may elect upon termination to purchase any automobile
then in the possession of Employee and subject to a lease of which the Company
is the lessor by payment to the Company of the residual value set forth in the
lease, without any increase for remaining lease payments during the term or
other lease breakage costs. Employee may elect to have any such payment
deducted from any payments due the Employee hereunder.
(vi) All payments and benefits provided under this Agreement shall
be subject to applicable tax withholding.
(b) Following Employee's termination of employment for any reason, the
Company shall have the unconditional right to reduce any payments owed to
Employee hereunder by the amount of any due and unpaid principal and interest on
any loans by the Company to Employee and Employee hereby agrees and consents to
such right on the part of the Company.
5. GROSS-UP PAYMENT.
-----------------
(a) Notwithstanding anything herein to the contrary, if it is determined
that any Payment would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or
penalties with respect to such excise tax (such excise tax, together with any
interest or penalties thereon, is herein referred to as an
7
<PAGE>
"Excise Tax"), then Employee shall be entitled to an additional payment (a
"Gross-Up Payment") in an amount that will place Employee in the same after-tax
economic position that Employee would have enjoyed if the Excise Tax had not
applied to the Payment. The amount of the Gross-Up Payment shall be determined
by a nationally-recognized independent public accounting firm designated by
agreement between Employee and the Company (the "Accounting Firm"). No Gross-Up
Payments shall be payable hereunder if the Accounting Firm determines that the
Payments are not subject to an Excise Tax.
"Payment" means (i) any amount due or paid to Employee under this
Agreement, (ii) any amount that is due or paid to Employee under any plan,
program or arrangement of the Company and its subsidiaries and (iii) any amount
or benefit that is due or payable to Employee under this Agreement or under any
plan, program or arrangement of the Company and its subsidiaries not otherwise
covered under clause (i) or (ii) hereof which must reasonably be taken into
account under Section 280G of the Code in determining the amount the "parachute
payments" received by Employee, including, without limitation, any amounts which
must be taken into account under Section 280G of the Code as a result of (A) the
acceleration of the vesting of any option, restricted stock or other equity
award, (B) the acceleration of the time at which any payment or benefit is
receivable by Employee or (C) any contingent severance or other amounts that are
payable to Employee.
(b) Subject to the provisions of Section 5(c), all determinations required
under this Section 5, including whether a Gross-Up Payment is required, the
amount of the Payments constituting excess parachute payments, and the amount of
the Gross-Up Payment, shall be made by the Accounting Firm, which shall provide
detailed supporting calculations both to Employee and the Company within fifteen
days of the date reasonably requested by Employee or the Company on which a
determination under this Section 5 is necessary or advisable. The Company shall
pay to Employee the initial Gross-Up Payment within 5 days of the receipt by
Employee and the Company of the determination of the Accounting Firm. If the
Accounting Firm determines that no Excise Tax is payable by Employee, the
Company shall cause its accountants to provide Employee with an opinion that the
Accounting Firm has substantial authority under the Code not to report an Excise
Tax on Employee's federal income tax return. Any determination by the
Accounting Firm shall be binding upon Employee and the Company. If the initial
Gross-Up Payment is insufficient to cover the amount of the Excise Tax that is
ultimately determined to be owing by Employee with respect to any Payment
(hereinafter an "Underpayment"), the Company, after exhausting its remedies
under Section 5(c) below, shall promptly pay to Employee an additional Gross-Up
Payment in respect of the Underpayment.
(c) Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of a Gross-Up Payment. Such notice shall be given as soon as
practicable after Employee knows of such claim and shall apprise the Company of
the nature of the claim and the date on which the claim is requested to be paid.
Employee agrees not to pay the claim until the expiration of the thirty (30) day
period following the date on which Employee notifies the Company, or such
shorter period ending on the date the Taxes with respect to such claim are due
(the "Notice Period"). If the Company notifies Employee in writing prior to the
expiration of the Notice Period that it desires
8
<PAGE>
to contest the claim, Employee shall: (i) give the Company any information
reasonably requested by the Company relating to the claim; (ii) take such action
in connection with the claim as the Company may reasonably request, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company and reasonably acceptable to
Employee; (iii) cooperate with the Company in good faith in contesting the
claim; and (iv) permit the Company to participate in any proceedings relating to
the claim. Employee shall permit the Company to control all proceedings related
to the claim and, at its option, permit the Company to pursue or forgo any and
all administrative appeals, proceedings, hearings, and conferences with the
taxing authority in respect of such claim. If requested by the Company, Employee
agrees either to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner and to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts as the Company shall determine; provided, however,
that, if the Company directs Employee to pay such claim and pursue a refund, the
Company shall advance the amount of such payment to Employee on an after-tax and
interest-free basis (an "Advance"). The Company's control of the contest related
to the claim shall be limited to the issues related to the Gross-Up Payment and
Employee shall be entitled to settle or contest, as the case may be, any other
issues raised by the Internal Revenue Service or other taxing authority. If the
Company does not notify Employee in writing prior to the end of the Notice
Period of its desire to contest the claim, the Company shall pay to Employee an
additional Gross-Up Payment in respect of the excess parachute payments that are
the subject of the claim, and Employee agrees to pay the amount of the Excise
Tax that is the subject of the claim to the applicable taxing authority in
accordance with applicable law.
(d) If, after receipt by Employee of an Advance, Employee becomes entitled
to a refund with respect to the claim to which such Advance relates, Employee
shall pay the Company the amount of the refund (together with any interest paid
or credited thereon after Taxes applicable thereto). If, after receipt by
Employee of an Advance, a determination is made that Employee shall not be
entitled to any refund with respect to the claim and the Company does not
promptly notify Employee of its intent to contest the denial of refund, then the
amount of the Advance shall not be required to be repaid by Employee and the
amount thereof shall offset the amount of the additional Gross-Up Payment then
owing to Employee.
(e) The Company shall indemnify Employee and hold Employee harmless, on an
after-tax basis, from any costs, expenses, penalties, fines, interest or other
liabilities ("Losses") incurred by Employee with respect to the exercise by the
Company of any of its rights under this Section 5, including, without
limitation, any Losses related to the Company's decision to contest a claim or
any imputed income to Employee resulting from any Advance or action taken on
Employee's behalf by the Company hereunder. The Company shall pay all legal
fees and expenses incurred under this Section 5, and shall promptly reimburse
Employee for the reasonable expenses incurred by Employee in connection with any
actions taken by the Company or required to be taken by Employee hereunder. The
Company shall also pay all of the fees and expenses of the Accounting Firm,
including, without limitation, the fees and expenses related to the opinion
referred to in Section 5(b).
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6. GENERAL.
-------
(a) Employee shall retain in confidence under the conditions of the
Company's confidentiality agreement with Employee any proprietary or other
confidential information known to Employee concerning the Company and its
business so long as such information is not publicly disclosed and disclosure is
not required by an order of any governmental body or court. If required,
Employee shall return to the Company any memoranda, documents or other materials
proprietary to the Company.
(b) While employed by the Company and following the termination of such
employment (other than a termination of employment by Employee for Good Reason
or by the Company other than for Cause) for a period of two (2) years, Employee
shall not, whether for Employee's own account or for the account of any other
individual, partnership, firm, corporation or other business organization,
intentionally solicit, endeavor to entice away from the Company or a subsidiary
of the Company (each, a "Protected Party"), or otherwise interfere with the
relationship of a Protected Party with, any person who is employed by a
Protected Party or any person or entity who is, or was within the then most
recent twelve (12) month period, a customer or client of a Protected Party.
Employee acknowledges that a breach of any of the covenants contained in
this Section 6(b) may result in material irreparable injury to the Company for
which there is no adequate remedy at law, that it may not be possible to measure
damages for such injuries precisely and that, in the event of such a breach, any
payments remaining under the terms of this Agreement shall cease and the Company
may be entitled to obtain a temporary restraining order and/or a preliminary or
permanent injunction restraining Employee from engaging in activities prohibited
by this Section 6(b) or such other relief as may be required to specifically
enforce any of the covenants in this Section 6(b). Employee agrees to and
hereby does submit to in personam jurisdiction before each and every such court
in the State of California, County of Santa Clara, for that purpose. This
Section 6(b) shall survive any termination of this Agreement.
(c) If litigation is brought by Employee to enforce or interpret any
provision contained in this Agreement, the Company shall indemnify Employee for
Employee's reasonable attorney's fees and disbursements incurred in such
litigation and pay prejudgment interest on any money judgment obtained by
Employee calculated at the prime rate of interest in effect from time to time at
the Bank of America, San Francisco, from the date that payment should have been
made under the Agreement, provided that Employee shall not have been found by
the court in which such litigation is pending to have had no cause in bringing
the action, or to have acted in bad faith, which finding must be final with the
time to appeal therefrom having expired and no appeal having been taken.
(d) Except as provided in Section 4, the Company's obligation to pay to
Employee the compensation and to make the arrangements provided in this
Agreement shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, any setoff, counterclaim,
recoupment, defense or other right which the Company may have against Employee
or anyone else. All amounts payable by the Company hereunder shall be paid
without
10
<PAGE>
notice or demand. Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment.
(e) The Company shall require any successor, whether direct or indirect,
by purchase, merger, consolidation or otherwise, to all or substantially all of
the business and/or assets of the Company, by written agreement to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
(f) This Agreement shall inure to the benefit of and be enforceable by
Employee's heirs, successors and assigns. If Employee should die while any
amounts would still be payable to Employee hereunder if Employee had continued
to live, all such amounts shall be paid in accordance with the terms of this
Agreement to Employee's heirs, successors and assigns.
(g) For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to Employee: If to the Company:
Varian Medical Systems, Inc.
3100 Hansen Way
Palo Alto, CA 94304-1000
Attn: Vice President, Human Resources
or to such other address as either party furnishes to the other in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
(h) This Agreement shall constitute the entire agreement between Employee
and the Company concerning the subject matter of this Agreement.
(i) The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of California without
giving effect to the provisions, principles or policies thereof relating to
choice or conflict of laws. The invalidity or unenforceability of any provision
of this Agreement in any circumstance shall not affect the validity or
enforceability of such provision in any other circumstance or the validity or
enforceability of any other provision of this Agreement, and, except to the
extent such provision is invalid or unenforceable, this Agreement shall remain
in full force and effect. Any provision in this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating or affecting the remaining provisions hereof in such jurisdiction,
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
This Section 6(i) shall survive any termination of this
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<PAGE>
Agreement.
(j) This Agreement may be terminated by the Company pursuant to a
resolution adopted by the Board at any time prior to a Potential Change in
Control Date. After a Change in Control Date or a Potential Change in Control
Date, this Agreement may only be terminated with the consent of Employee.
(k) No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement and this Agreement
shall supersede all prior agreements, negotiations, correspondence, undertakings
and communications of the parties, oral or written, with respect to the subject
matter hereof including, without limitation, the Change in Control Agreement
between Employee and the Company.
(l) In the event that the Company becomes party to a transaction that is
intended to qualify for "pooling of interests" accounting treatment and, but for
one or more of the provisions of this Agreement would so qualify, then this
Agreement shall be interpreted so as to preserve such accounting treatment, and
to the extent that any provision of this Agreement would disqualify the
transaction from pooling of interests accounting treatment, then such provision
shall be null and void. All determinations to be made in connection with the
preceding sentence shall be made by the independent accounting firm whose
opinion with respect to "pooling of interests" treatment is required as a
condition to the Company's consummation of such transaction.
IN WITNESS WHEREOF, the parties acknowledge that they have read and
understand the terms of this Agreement and have executed this Agreement to be
effective as of April 2, 1999.
VARIAN MEDICAL SYSTEMS, INC. EMPLOYEE
______________________________________ ______________________
By: Richard M. Levy
Title: President and Chief Executive Officer
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Exhibit 10.5
CHANGE IN CONTROL AGREEMENT
FOR CHIEF EXECUTIVE OFFICER
SECOND AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT
-------------------------------------------------------
THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT ("Agreement") is
entered into effective as of April 2, 1999, by and between VARIAN MEDICAL
SYSTEMS, INC., a Delaware corporation (the "Company")/1/, and Richard M. Levy,
an employee of the Company ("Employee").
The Company's Board of Directors (the "Board") has determined that it is in
the best interest of the Company and its stockholders for the Company to agree
to pay Employee termination compensation in the event Employee should leave the
employ of the Company under the circumstances described below. The Board
recognizes that the possibility of a proposal from a third person, whether or
not solicited by the Company, concerning a possible "Change in Control" of the
Company (as such language is defined in Section 3(d)) will be unsettling to
Employee. Therefore, the arrangements set forth in this Agreement are being
made to help assure a continuing dedication by Employee to Employee's duties to
the Company notwithstanding the proposal or occurrence of a Change in Control.
The Board believes it imperative, should the Company receive any proposal from a
third party, that Employee, without being influenced by the uncertainties of
Employee's own situation, be able to assess and advise the Board whether such
proposals are in the best interest of the Company and its stockholders, and to
enable Employee to take action regarding such proposals as the Board might
determine to be appropriate. The Board also wishes to demonstrate to key
personnel that the Company desires to enhance management relations and its
ability to retain and, if needed, to attract new management, and intends to
ensure that loyal and dedicated management personnel are treated fairly.
In view of the foregoing, the Company and Employee agree as follows:
1. EFFECTIVE DATE AND TERM OF AGREEMENT.
------------------------------------
This Agreement is effective and binding on the Company and Employee as of
the date hereof; provided, however, that, subject to Section 2(d), the
provisions of Sections 3 and 4 shall become operative only upon the Change in
Control Date.
- ------------------------
/1/ "Company" shall include the Company, any successor to the Company's
business and/or assets, and any party which executes and delivers the
agreement required by Section 6(e) or which otherwise becomes bound by the
terms and conditions of this Agreement by operation of law or otherwise.
<PAGE>
2. EMPLOYMENT OF EMPLOYEE.
----------------------
(a) Except as provided in Sections 2(b), 2(c) and 2(d), nothing in this
Agreement shall affect any right which Employee may otherwise have to terminate
Employee's employment, nor shall anything in this Agreement affect any right
which the Company may have to terminate Employee's employment at any time in any
lawful manner.
(b) In the event of a Potential Change in Control, to be entitled to
receive the benefits provided by this Agreement, Employee will not voluntarily
leave the employ of the Company, and will continue to perform Employee's regular
duties and the services specified in the recitals of this Agreement until the
Change in Control Date. Should Employee voluntarily terminate employment prior
to the Change in Control Date, this Agreement shall lapse upon such termination
and be of no further force or effect.
(c) If Employee's employment terminates on or after the Change in Control
Date, the Company will provide to Employee the payments and benefits as provided
in Sections 3 and 4.
(d) If Employee's employment is terminated by the Company prior to the
Change in Control Date but on or after a Potential Change in Control Date, then
the Company will provide to Employee the payments and benefits as provided in
Sections 3 and 4 unless the Company reasonably demonstrates that Employee's
termination of employment neither (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change in Control nor (ii)
arose in connection with or in anticipation of a Change in Control. Solely for
purposes of determining the timing of payments and the provision of benefits in
Sections 3 and 4 under the circumstances described in this Section 2(d),
Employee's date of termination shall be deemed to be the Change in Control Date.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
---------------------------------------
(a) If a Change in Control shall have occurred, Employee shall be
entitled to the benefits provided in Section 4 upon the subsequent termination
of Employee's employment within the applicable period set forth in Section 4
unless such termination is due to Employee's death, Retirement or Disability
or is for Cause or is effected by Employee other than for Good Reason (as such
terms are defined in Section 3(d)).
(b) If following a Change in Control, Employee's employment is terminated
by reason of Employee's death or Disability, Employee shall be entitled to death
or long-term disability benefits from the Company no less favorable than the
most favorable benefits to which Employee would have been entitled had the death
or Disability occurred at any time during the period commencing one (1) year
prior to the Change in Control.
(c) If Employee's employment shall be terminated by the Company for Cause
or by Employee other than for Good Reason during the term of this Agreement, the
Company shall pay Employee's Base Salary through the date of termination at the
rate in effect at the time notice of
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<PAGE>
termination is given, and the Company shall have no further obligations to
Employee under this Agreement.
(d) For purposes of this Agreement:
"Base Salary" shall mean the annual base salary paid to Employee
immediately prior to a Change in Control, provided that such amount shall in no
event be less than the annual base salary paid to Employee during the one (1)
year period immediately prior to the Change in Control.
A "Change in Control" shall be deemed to have occurred if:
(i) Any individual or group constituting a "person", as such term
is used in Sections 13(d) and 14(d)(2) of the Exchange Act (other than (A) the
Company or any of its subsidiaries or (B) any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or of any of
its subsidiaries), is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing thirty percent (30%) or more of the
combined voting power of the Company's outstanding securities then entitled
ordinarily (and apart from rights accruing under special circumstances) to
vote for the election of directors; or
(ii) Continuing Directors cease to constitute at least a majority
of the Board; or
(iii) there occurs a reorganization, merger, consolidation or other
corporate transaction involving the Company (a "Transaction"), in each case with
respect to which the stockholders of the Company immediately prior to such
Transaction do not, immediately after the Transaction, own more than 50% of the
combined voting power of the Company or other corporation resulting from such
Transaction; or
(iv) all or substantially all of the assets of the Company are
sold, liquidated or distributed;
provided, however, that a "Change in Control" shall not be deemed to have
occurred under this Agreement if, prior to the occurrence of a specified event
that would otherwise constitute a Change in Control hereunder, the disinterested
Continuing Directors then in office, by a majority vote thereof, determine that
the occurrence of such specified event shall not be deemed to be a Change in
Control with respect to Employee hereunder if the Change in Control results from
actions or events in which Employee is a participant in a capacity other than
solely as an officer, employee or director of the Company.
"Change in Control Date" shall mean the date on which a Change in Control
occurs.
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<PAGE>
"Cause" shall mean:
(i) The continued willful failure of Employee to perform
Employee's duties to the Company (other than any such failure resulting from
Employee's incapacity due to physical or mental illness) after written notice
thereof (specifying the particulars thereof in reasonable detail) and a
reasonable opportunity to be heard and cure such failure are given to Employee
by the Board or a committee thereof; or
(ii) The willful commission by Employee of a wrongful act that
caused or was reasonably likely to cause substantial damage to the Company, or
an act of fraud in the performance of Employee's duties on behalf of the
Company; or
(iii) The conviction of Employee for commission of a felony in
connection with the performance of Employee's duties on behalf of the Company;
or
(iv) The order of a federal or state regulatory authority having
jurisdiction over the Company or its operations or by a court of competent
jurisdiction requiring the termination of Employee's employment by the Company.
"Continuing Directors" shall mean the directors of the Company in office
on the date hereof and any successor to any such director who was nominated or
selected by a majority of the Continuing Directors in office at the time of
the director's nomination or selection and who is not an "affiliate" or
"associate" (as defined in Regulation 12B under the Exchange Act) of any
person who is the beneficial owner, directly or indirectly, of securities
representing ten percent (10%) or more of the combined voting power of the
Company's outstanding securities then entitled ordinarily to vote for the
election of directors.
"Disability" shall mean Employee's incapacity due to physical or mental
illness such that Employee shall have become qualified to receive benefits
under the Company's long-term disability plan as in effect on the date of the
Change in Control.
"Dispute" shall mean, in the case of termination of Employee's employment
for Disability or Cause, that Employee challenges the existence of Disability or
Cause, and in the case of termination of Employee's employment for Good Reason,
that the Company challenges the existence of Good Reason for termination of
Employee's employment.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Good Reason" shall mean:
(i) The failure to appoint Employee as Chief Executive Officer
of the combined or acquiring entity, reporting to its Board of Directors; or
(ii) A reduction of Employee's total compensation as the same may
have been
4
<PAGE>
increased from time to time after the Change in Control Date other than (A)
a reduction implemented with the consent of Employee or (B) a reduction that is
generally comparable (proportionately) to compensation reductions imposed on
senior executives of the Company generally; or
(iii) The failure to provide to Employee the benefits and
perquisites, including participation on a comparable basis in the Company's
stock option, incentive, and other similar plans in which employees of the
Company of comparable title and salary grade participate, as were provided to
Employee immediately prior to a Change in Control, or with a package of benefits
and perquisites that are substantially comparable in all material respects to
such benefits and perquisites provided prior to the Change in Control; or
(iv) The relocation of the office of the Company where Employee is
employed immediately prior to the Change in Control Date (the "CIC Location") to
a location which is more than 50 miles away from the CIC Location or the
Company's requiring Employee to be based more than 50 miles away from the CIC
Location (except for required travel on the Company's business to an extent
substantially consistent with Employee's customary business travel obligations
in the ordinary course of business prior to the Change in Control Date);
(v) The failure of the Company to obtain promptly upon any
Change in Control the express written assumption of an agreement to perform
this Agreement by any successor as contemplated in Section 6(e); or
(vi) The attempted termination of Employee's employment for Cause
on grounds insufficient to constitute a basis of termination for Cause under
this Agreement; or
(vii) The failure of the Company to promptly make any payment into
escrow when so required by Section 3(f).
"Potential Change in Control" shall mean the earliest to occur of (a) the
execution of an agreement or letter of intent, the consummation of the
transactions described in which would result in a Change in Control, (b) the
approval by the Board of a transaction or series of transactions, the
consummation of which would result in a Change in Control, or (c) the public
announcement of a tender offer for the Company's voting stock, the completion of
which would result in a Change in Control; provided, that no such event shall be
a "Potential Change in Control" unless (i) in the case of any agreement or
letter of intent described in clause (a), the transaction described therein is
subsequently consummated by the Company and the other party or parties to such
agreement or letter of intent and thereupon constitutes a "Change in Control",
(ii) in the case of any Board-approved transaction described in clause (b), the
transaction so approved is subsequently consummated and thereupon constitutes a
"Change in Control" or (iii) in the case of any tender offer described in clause
(c), such tender offer is subsequently completed and such completion thereupon
constitutes a "Change in Control".
"Potential Change in Control Date" shall mean the date on which a
Potential Change in Control occurs.
5
<PAGE>
"Retirement" shall mean Employee's actual retirement after reaching the
normal or early retirement date provided for in the Company's Retirement and
Profit-Sharing Program as in effect on the date of Employee's termination of
employment.
(e) Any termination of employment by the Company or by Employee shall be
communicated by written notice, specify the date of termination, state the
specific basis for termination and set forth in reasonable detail the facts and
circumstances of the termination in order to provide a basis for determining the
entitlement to any payments under this Agreement.
(f) If within thirty (30) days after notice of termination is given, the
party to whom the notice was given notifies the other party that a Dispute
exists, the parties will promptly pursue resolution of such Dispute with
reasonable diligence; provided, however, that pending resolution of any such
Dispute, the Company shall pay 75% of any amounts which would otherwise be due
Employee pursuant to Section 4 if such Dispute did not exist into escrow pending
resolution of such Dispute and pay 25% of such amounts to Employee. Employee
agrees to return to the Company any such amounts to which it is ultimately
determined that he is not entitled.
4. PAYMENTS AND BENEFITS UPON TERMINATION.
--------------------------------------
(a) If within eighteen (18) months after a Change in Control, the Company
terminates Employee's employment other than by reason of Employee's death,
Disability, Retirement or for Cause, or if Employee terminates Employee's
employment for Good Reason, then the Employee shall be entitled to the following
payments and benefits:
(i) The Company shall pay to Employee as compensation for
services rendered, no later than five (5) business days following the date of
termination, a lump sum severance payment equal to 3.00 multiplied by the sum
of: (A) Employee's Base Salary; (B) the highest annual bonus that was paid to
Employee in any of the three fiscal years ending prior to the date of
termination under the Company's Management Incentive Plan (the "MIP") or
Varian Associates, Inc.'s Management Incentive Plan; and (C) the highest cash
bonus for a performance period of more than one fiscal year that was paid to
Employee in any of the three fiscal years ending prior to the date of
termination under the MIP.
(ii) The Company shall pay to Employee as compensation for
services rendered, no later than five (5) business days following the date of
termination, a lump sum payment equal to a pro rata portion (based on the
number of days elapsed during the fiscal year and/or other bonus performance
period in which the termination occurs) of Employee's target bonus under the
MIP for the fiscal year and for any other partially completed bonus
performance period in which the termination occurs.
(iii) All waiting periods for the exercise of any stock options
granted to Employee and all conditions or restrictions of any restricted stock
granted to Employee shall terminate, and all such options shall be exercisable
in full according to their terms, and the
6
<PAGE>
restricted stock shall be transferred to Employee as soon as reasonably
practicable thereafter.
(iv) Employee's participation as of the date of termination in the
life, medical/dental/vision and disability insurance plans and financial/tax
counseling plan of the Company shall be continued on the same terms (including
any cost sharing) as if Employee were an employee of the Company (or equivalent
benefits provided) until the earlier of Employee's commencement of substantially
equivalent full-time employment with a new employer or twenty-four (24) months
after the date of termination; provided, however, that after the date of
termination, Employee shall no longer be entitled to receive Company-paid
executive physicals or, upon expiration of the applicable memberships, Company-
paid airline memberships. In the event Employee shall die before the expiration
of the period during which the Company is required to continue Employee's
participation in such insurance plans, the participation of Employee's surviving
spouse and family in the Company's insurance plans shall continue throughout
such period.
(v) Employee may elect upon termination to purchase any automobile
then in the possession of Employee and subject to a lease of which the Company
is the lessor by payment to the Company of the residual value set forth in the
lease, without any increase for remaining lease payments during the term or
other lease breakage costs. Employee may elect to have any such payment
deducted from any payments due the Employee hereunder.
(vi) All payments and benefits provided under this Agreement
shall be subject to applicable tax withholding.
(b) Following Employee's termination of employment for any reason, the
Company shall have the unconditional right to reduce any payments owed to
Employee hereunder by the amount of any due and unpaid principal and interest
on any loans by the Company to Employee and Employee hereby agrees and
consents to such right on the part of the Company.
5. GROSS-UP PAYMENT.
-----------------
(a) Notwithstanding anything herein to the contrary, if it is determined
that any Payment would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or
penalties with respect to such excise tax (such excise tax, together with any
interest or penalties thereon, is herein referred to as an "Excise Tax"), then
Employee shall be entitled to an additional payment (a "Gross-Up Payment") in an
amount that will place Employee in the same after-tax economic position that
Employee would have enjoyed if the Excise Tax had not applied to the Payment.
The amount of the Gross-Up Payment shall be determined by a nationally-
recognized independent public accounting firm designated by agreement between
Employee and the Company (the "Accounting Firm"). No Gross-Up Payments shall be
payable hereunder if the Accounting Firm determines that the Payments are not
subject to an Excise Tax.
"Payment" means (i) any amount due or paid to Employee under this
Agreement, (ii) any amount that is due or paid to Employee under any plan,
program or arrangement of the Company and its subsidiaries and (iii) any amount
or benefit that is due or payable to Employee under this
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<PAGE>
Agreement or under any plan, program or arrangement of the Company and its
subsidiaries not otherwise covered under clause (i) or (ii) hereof which must
reasonably be taken into account under Section 280G of the Code in determining
the amount the "parachute payments" received by Employee, including, without
limitation, any amounts which must be taken into account under Section 280G of
the Code as a result of (A) the acceleration of the vesting of any option,
restricted stock or other equity award, (B) the acceleration of the time at
which any payment or benefit is receivable by Employee or (C) any contingent
severance or other amounts that are payable to Employee.
(b) Subject to the provisions of Section 5(c), all determinations
required under this Section 5, including whether a Gross-Up Payment is
required, the amount of the Payments constituting excess parachute payments,
and the amount of the Gross-Up Payment, shall be made by the Accounting Firm,
which shall provide detailed supporting calculations both to Employee and the
Company within fifteen days of the date reasonably requested by Employee or
the Company on which a determination under this Section 5 is necessary or
advisable. The Company shall pay to Employee the initial Gross-Up Payment
within 5 days of the receipt by Employee and the Company of the determination
of the Accounting Firm. If the Accounting Firm determines that no Excise Tax
is payable by Employee, the Company shall cause its accountants to provide
Employee with an opinion that the Accounting Firm has substantial authority
under the Code not to report an Excise Tax on Employee's federal income tax
return. Any determination by the Accounting Firm shall be binding upon
Employee and the Company. If the initial Gross-Up Payment is insufficient to
cover the amount of the Excise Tax that is ultimately determined to be owing
by Employee with respect to any Payment (hereinafter an "Underpayment"), the
Company, after exhausting its remedies under Section 5(c) below, shall
promptly pay to Employee an additional Gross-Up Payment in respect of the
Underpayment.
(c) Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of a Gross-Up Payment. Such notice shall be given as soon as
practicable after Employee knows of such claim and shall apprise the Company of
the nature of the claim and the date on which the claim is requested to be paid.
Employee agrees not to pay the claim until the expiration of the thirty (30) day
period following the date on which Employee notifies the Company, or such
shorter period ending on the date the Taxes with respect to such claim are due
(the "Notice Period"). If the Company notifies Employee in writing prior to the
expiration of the Notice Period that it desires to contest the claim, Employee
shall: (i) give the Company any information reasonably requested by the Company
relating to the claim; (ii) take such action in connection with the claim as the
Company may reasonably request, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
the Company and reasonably acceptable to Employee; (iii) cooperate with the
Company in good faith in contesting the claim; and (iv) permit the Company to
participate in any proceedings relating to the claim. Employee shall permit the
Company to control all proceedings related to the claim and, at its option,
permit the Company to pursue or forgo any and all administrative appeals,
proceedings, hearings, and conferences with the taxing authority in respect of
such claim. If requested by the Company, Employee agrees either to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner and
to prosecute such contest to a determination before any administrative
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tribunal, in a court of initial jurisdiction and in one or more appellate
courts as the Company shall determine; provided, however, that, if the Company
directs Employee to pay such claim and pursue a refund, the Company shall
advance the amount of such payment to Employee on an after-tax and interest-
free basis (an "Advance"). The Company's control of the contest related to the
claim shall be limited to the issues related to the Gross-Up Payment and
Employee shall be entitled to settle or contest, as the case may be, any other
issues raised by the Internal Revenue Service or other taxing authority. If
the Company does not notify Employee in writing prior to the end of the Notice
Period of its desire to contest the claim, the Company shall pay to Employee
an additional Gross-Up Payment in respect of the excess parachute payments
that are the subject of the claim, and Employee agrees to pay the amount of
the Excise Tax that is the subject of the claim to the applicable taxing
authority in accordance with applicable law.
(d) If, after receipt by Employee of an Advance, Employee becomes
entitled to a refund with respect to the claim to which such Advance relates,
Employee shall pay the Company the amount of the refund (together with any
interest paid or credited thereon after Taxes applicable thereto). If, after
receipt by Employee of an Advance, a determination is made that Employee shall
not be entitled to any refund with respect to the claim and the Company does
not promptly notify Employee of its intent to contest the denial of refund,
then the amount of the Advance shall not be required to be repaid by Employee
and the amount thereof shall offset the amount of the additional Gross-Up
Payment then owing to Employee.
(e) The Company shall indemnify Employee and hold Employee harmless, on
an after-tax basis, from any costs, expenses, penalties, fines, interest or
other liabilities ("Losses") incurred by Employee with respect to the exercise
by the Company of any of its rights under this Section 5, including, without
limitation, any Losses related to the Company's decision to contest a claim or
any imputed income to Employee resulting from any Advance or action taken on
Employee's behalf by the Company hereunder. The Company shall pay all legal
fees and expenses incurred under this Section 5, and shall promptly reimburse
Employee for the reasonable expenses incurred by Employee in connection with
any actions taken by the Company or required to be taken by Employee
hereunder. The Company shall also pay all of the fees and expenses of the
Accounting Firm, including, without limitation, the fees and expenses related
to the opinion referred to in Section 5(b).
6. GENERAL.
--------
(a) Employee shall retain in confidence under the conditions of the
Company's confidentiality agreement with Employee any proprietary or other
confidential information known to Employee concerning the Company and its
business so long as such information is not publicly disclosed and disclosure is
not required by an order of any governmental body or court. If required,
Employee shall return to the Company any memoranda, documents or other materials
proprietary to the Company.
(b) While employed by the Company and following the termination of such
employment (other than a termination of employment by Employee for Good Reason
or by the Company other than for Cause) for a period of two (2) years, Employee
shall not:
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(i) whether for Employee's own account or for the account of
any other individual, partnership, firm, corporation or other business
organization, intentionally solicit, endeavor to entice away from the
Company or a subsidiary of the Company (each, a "Protected Party"), or
otherwise interfere with the relationship of a Protected Party with, any
person who is employed by a Protected Party or any person or entity who
is, or was within the then most recent twelve (12) month period, a
customer or client of a Protected Party; or
(ii) without the prior written consent of the Protected
Party, in any geographic area in which the Protected Party is then
conducting business, directly or indirectly own an interest in, manage,
operate, join, control, lend money or render financial or other
assistance to or participate in or be connected with, as an officer,
employee, partner, stockholder, consultant or otherwise, any individual,
partnership, firm, corporation or other business organization or entity
that is engaged in any business in which the Protected Party is actively
engaged at the time; provided, however, that the restrictions in this
Section 6(b)(ii) shall not apply to (A) any non-employee directorships
held by Employee as of the date hereof or (B) ownership by Employee for
personal investment purposes only of not in excess of 1% of the voting
stock of any publicly held corporation.
Employee acknowledges that a breach of any of the covenants contained in
this Section 6(b) may result in material irreparable injury to the Company for
which there is no adequate remedy at law, that it may not be possible to measure
damages for such injuries precisely and that, in the event of such a breach, any
payments remaining under the terms of this Agreement shall cease and the Company
may be entitled to obtain a temporary restraining order and/or a preliminary or
permanent injunction restraining Employee from engaging in activities prohibited
by this Section 6(b) or such other relief as may be required to specifically
enforce any of the covenants in this Section 6(b). Employee agrees to and
hereby does submit to in personam jurisdiction before each and every such court
in the State of California, County of Santa Clara, for that purpose. This
Section 6(b) shall survive any termination of this Agreement.
(c) If litigation is brought by Employee to enforce or interpret any
provision contained in this Agreement, the Company shall indemnify Employee for
Employee's reasonable attorney's fees and disbursements incurred in such
litigation and pay prejudgment interest on any money judgment obtained by
Employee calculated at the prime rate of interest in effect from time to time at
the Bank of America, San Francisco, from the date that payment should have been
made under the Agreement, provided that Employee shall not have been found by
the court in which such litigation is pending to have had no cause in bringing
the action, or to have acted in bad faith, which finding must be final with the
time to appeal therefrom having expired and no appeal having been taken.
(d) Except as provided in Section 4, the Company's obligation to pay to
Employee the compensation and to make the arrangements provided in this
Agreement shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, any
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<PAGE>
setoff, counterclaim, recoupment, defense or other right which the Company may
have against Employee or anyone else. All amounts payable by the Company
hereunder shall be paid without notice or demand. Employee shall not be
required to mitigate the amount of any payment provided for in this Agreement
by seeking other employment.
(e) The Company shall require any successor, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all of the business and/or assets of the Company, by written
agreement to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
(f) This Agreement shall inure to the benefit of and be enforceable by
Employee's heirs, successors and assigns. If Employee should die while any
amounts would still be payable to Employee hereunder if Employee had continued
to live, all such amounts shall be paid in accordance with the terms of this
Agreement to Employee's heirs, successors and assigns.
(g) For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to Employee: If to the Company:
Richard M. Levy Varian Medical Systems, Inc.
394 Golden Hills Drive 3100 Hansen Way
Portola Valley, CA 94028 Palo Alto, CA 94304-1000
Attn: Vice President, Human Resources
or to such other address as either party furnishes to the other in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
(h) This Agreement shall constitute the entire agreement between Employee
and the Company concerning the subject matter of this Agreement.
(i) The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of California without
giving effect to the provisions, principles or policies thereof relating to
choice or conflict of laws. The invalidity or unenforceability of any provision
of this Agreement in any circumstance shall not affect the validity or
enforceability of such provision in any other circumstance or the validity or
enforceability of any other provision of this Agreement, and, except to the
extent such provision is invalid or unenforceable, this Agreement shall remain
in full force and effect. Any provision in this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating or affecting the remaining provisions hereof in such jurisdiction,
and any such
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<PAGE>
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. This Section
6(i) shall survive any termination of this Agreement.
(j) This Agreement may be terminated by the Company pursuant to a
resolution adopted by the Board at any time prior to a Potential Change in
Control Date. After a Change in Control Date or a Potential Change in Control
Date, this Agreement may only be terminated with the consent of Employee.
(k) No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement and this Agreement
shall supersede all prior agreements, negotiations, correspondence, undertakings
and communications of the parties, oral or written, with respect to the subject
matter hereof including, without limitation, the Change in Control Agreement
between Employee and the Company.
(l) In the event that the Company becomes party to a transaction that is
intended to qualify for "pooling of interests" accounting treatment and, but for
one or more of the provisions of this Agreement would so qualify, then this
Agreement shall be interpreted so as to preserve such accounting treatment, and
to the extent that any provision of this Agreement would disqualify the
transaction from pooling of interests accounting treatment, then such provision
shall be null and void. All determinations to be made in connection with the
preceding sentence shall be made by the independent accounting firm whose
opinion with respect to "pooling of interests" treatment is required as a
condition to the Company's consummation of such transaction.
IN WITNESS WHEREOF, the parties acknowledge that they have read and
understand the terms of this Agreement and have executed this Agreement to be
effective as of April 2, 1999.
VARIAN MEDICAL SYSTEMS, INC. EMPLOYEE
/s/ Richard W. Vieser /s/ Richard M. Levy
- ---------------------------- ----------------------------
By: Richard W. Vieser Richard M. Levy
Title: Chairman of the Board of Directors
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Exhibit 10.6
CHANGE IN CONTROL AGREEMENT
FOR CHIEF FINANCIAL OFFICER
SECOND AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT
-------------------------------------------------------
THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT ("Agreement") is
entered into effective as of April 2, 1999, by and between VARIAN MEDICAL
SYSTEMS, INC., a Delaware corporation (the "Company")/1/, and Elisha Wade
Finney, an employee of the Company ("Employee").
The Company's Board of Directors (the "Board") has determined that it is in
the best interest of the Company and its stockholders for the Company to agree
to pay Employee termination compensation in the event Employee should leave the
employ of the Company under the circumstances described below. The Board
recognizes that the possibility of a proposal from a third person, whether or
not solicited by the Company, concerning a possible "Change in Control" of the
Company (as such language is defined in Section 3(d)) will be unsettling to
Employee. Therefore, the arrangements set forth in this Agreement are being
made to help assure a continuing dedication by Employee to Employee's duties to
the Company notwithstanding the proposal or occurrence of a Change in Control.
The Board believes it imperative, should the Company receive any proposal from a
third party, that Employee, without being influenced by the uncertainties of
Employee's own situation, be able to assess and advise the Board whether such
proposals are in the best interest of the Company and its stockholders, and to
enable Employee to take action regarding such proposals as the Board might
determine to be appropriate. The Board also wishes to demonstrate to key
personnel that the Company desires to enhance management relations and its
ability to retain and, if needed, to attract new management, and intends to
ensure that loyal and dedicated management personnel are treated fairly.
In view of the foregoing, the Company and Employee agree as follows:
- ----------------
/1/ "Company" shall include the Company, any successor to the Company's
business and/or assets, and any party which executes and delivers the agreement
required by Section 6(e) or which otherwise becomes bound by the terms and
conditions of this Agreement by operation of law or otherwise.
<PAGE>
1. EFFECTIVE DATE AND TERM OF AGREEMENT.
------------------------------------
This Agreement is effective and binding on the Company and Employee as of
the date hereof; provided, however, that, subject to Section 2(d), the
provisions of Sections 3 and 4 shall become operative only upon the Change in
Control Date.
2. EMPLOYMENT OF EMPLOYEE.
----------------------
(a) Except as provided in Sections 2(b), 2(c) and 2(d), nothing in this
Agreement shall affect any right which Employee may otherwise have to terminate
Employee's employment, nor shall anything in this Agreement affect any right
which the Company may have to terminate Employee's employment at any time in any
lawful manner.
(b) In the event of a Potential Change in Control, to be entitled to
receive the benefits provided by this Agreement, Employee will not voluntarily
leave the employ of the Company, and will continue to perform Employee's regular
duties and the services specified in the recitals of this Agreement until the
Change in Control Date. Should Employee voluntarily terminate employment prior
to the Change in Control Date, this Agreement shall lapse upon such termination
and be of no further force or effect.
(c) If Employee's employment terminates on or after the Change in Control
Date, the Company will provide to Employee the payments and benefits as provided
in Sections 3 and 4.
(d) If Employee's employment is terminated by the Company prior to the
Change in Control Date but on or after a Potential Change in Control Date, then
the Company will provide to Employee the payments and benefits as provided in
Sections 3 and 4 unless the Company reasonably demonstrates that Employee's
termination of employment neither (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change in Control nor (ii)
arose in connection with or in anticipation of a Change in Control. Solely for
purposes of determining the timing of payments and the provision of benefits in
Sections 3 and 4 under the circumstances described in this Section 2(d),
Employee's date of termination shall be deemed to be the Change in Control Date.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
---------------------------------------
(a) If a Change in Control shall have occurred, Employee shall be entitled
to the benefits provided in Section 4 upon the subsequent termination of
Employee's employment within the applicable period set forth in Section 4 unless
such termination is due to Employee's death, Retirement or Disability or is for
Cause or is effected by Employee other than for Good Reason (as such terms are
defined in Section 3(d)).
(b) If following a Change in Control, Employee's employment is terminated
by reason of Employee's death or Disability, Employee shall be entitled to death
or long-term disability benefits from the Company no less favorable than the
most favorable benefits to which
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<PAGE>
Employee would have been entitled had the death or Disability occurred at any
time during the period commencing one (1) year prior to the Change in Control.
(c) If Employee's employment shall be terminated by the Company for Cause
or by Employee other than for Good Reason during the term of this Agreement, the
Company shall pay Employee's Base Salary through the date of termination at the
rate in effect at the time notice of termination is given, and the Company shall
have no further obligations to Employee under this Agreement.
(d) For purposes of this Agreement:
"Base Salary" shall mean the annual base salary paid to Employee
immediately prior to a Change in Control, provided that such amount shall in no
event be less than the annual base salary paid to Employee during the one (1)
year period immediately prior to the Change in Control.
A "Change in Control" shall be deemed to have occurred if:
(i) Any individual or group constituting a "person", as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act (other than (A) the
Company or any of its subsidiaries or (B) any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or of any of its
subsidiaries), is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing thirty percent (30%) or more of the
combined voting power of the Company's outstanding securities then entitled
ordinarily (and apart from rights accruing under special circumstances) to vote
for the election of directors; or
(ii) Continuing Directors cease to constitute at least a majority of
the Board; or
(iii) there occurs a reorganization, merger, consolidation or other
corporate transaction involving the Company (a "Transaction"), in each case with
respect to which the stockholders of the Company immediately prior to such
Transaction do not, immediately after the Transaction, own more than 50% of the
combined voting power of the Company or other corporation resulting from such
Transaction; or
(iv) all or substantially all of the assets of the Company are sold,
liquidated or distributed;
provided, however, that a "Change in Control" shall not be deemed to have
occurred under this Agreement if, prior to the occurrence of a specified event
that would otherwise constitute a Change in Control hereunder, the disinterested
Continuing Directors then in office, by a majority vote thereof, determine that
the occurrence of such specified event shall not be deemed to be a Change in
Control with respect to Employee hereunder if the Change in Control results from
actions or events in which Employee is a participant in a capacity other than
solely as an officer,
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<PAGE>
employee or director of the Company.
"Change in Control Date" shall mean the date on which a Change in Control
occurs.
"Cause" shall mean:
(i) The continued willful failure of Employee to perform Employee's
duties to the Company (other than any such failure resulting from Employee's
incapacity due to physical or mental illness) after written notice thereof
(specifying the particulars thereof in reasonable detail) and a reasonable
opportunity to be heard and cure such failure are given to Employee by the Board
or a committee thereof; or
(ii) The willful commission by Employee of a wrongful act that caused
or was reasonably likely to cause substantial damage to the Company, or an act
of fraud in the performance of Employee's duties on behalf of the Company; or
(iii) The conviction of Employee for commission of a felony in
connection with the performance of Employee's duties on behalf of the Company;
or
(iv) The order of a federal or state regulatory authority having
jurisdiction over the Company or its operations or by a court of competent
jurisdiction requiring the termination of Employee's employment by the Company.
"Continuing Directors" shall mean the directors of the Company in office on
the date hereof and any successor to any such director who was nominated or
selected by a majority of the Continuing Directors in office at the time of the
director's nomination or selection and who is not an "affiliate" or "associate"
(as defined in Regulation 12B under the Exchange Act) of any person who is the
beneficial owner, directly or indirectly, of securities representing ten percent
(10%) or more of the combined voting power of the Company's outstanding
securities then entitled ordinarily to vote for the election of directors.
"Disability" shall mean Employee's incapacity due to physical or mental
illness such that Employee shall have become qualified to receive benefits under
the Company's long-term disability plan as in effect on the date of the Change
in Control.
"Dispute" shall mean, in the case of termination of Employee's employment
for Disability or Cause, that Employee challenges the existence of Disability or
Cause, and in the case of termination of Employee's employment for Good Reason,
that the Company challenges the existence of Good Reason for termination of
Employee's employment.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Equivalent Position" shall mean an employment position that:
4
<PAGE>
(i) is in a substantive area of competence (e.g., finance, accounting,
legal, operations management or human resources) that is consistent with
Employee's experience and not materially different from the substantive area of
competence of Employee's position with the Company prior to the Change in
Control;
(ii) requires that Employee serve in a role and perform duties that
are functionally equivalent to the role and duties performed by Employee for the
Company prior to the Change in Control;
(iii) carries a title that does not connote a lesser rank or
corporate role than is connoted by Employee's title with the Company prior to
the Change in Control;
(iv) does not constitute a material, adverse change in Employee's
responsibilities or duties, when compare to Employee's responsibilities or
duties with the Company prior to the Change in Control;
(v) requires that Employee be deemed an executive officer (for
purposes of the rules promulgated under Section 16 of the Securities Exchange
Act of 1934) of a publicly-traded successor entity having net assets or annual
revenues that are no less than those of the Company prior to the Change in
Control; and
(vi) has Employee reporting directly to the Chief Executive Officer of
the combined or acquiring company.
"Good Reason" shall mean:
(i) The assignment to Employee of a position, title, responsibilities
or duties such that he no longer holds an Equivalent Position; or
(ii) A reduction of Employee's total compensation as the same may have
been increased from time to time after the Change in Control Date other than (A)
a reduction implemented with the consent of Employee or (B) a reduction that is
generally comparable (proportionately) to compensation reductions imposed on
senior executives of the Company generally; or
(iii) The failure to provide to Employee the benefits and
perquisites, including participation on a comparable basis in the Company's
stock option, incentive, and other similar plans in which employees of the
Company of comparable title and salary grade participate, as were provided to
Employee immediately prior to a Change in Control, or with a package of benefits
and perquisites that are substantially comparable in all material respects to
such benefits and perquisites provided prior to the Change in Control; or
(iv) The relocation of the office of the Company where Employee is
employed immediately prior to the Change in Control Date (the "CIC Location") to
a location which is
5
<PAGE>
more than 50 miles away from the CIC Location or the Company's requiring
Employee to be based more than 50 miles away from the CIC Location (except for
required travel on the Company's business to an extent substantially consistent
with Employee's customary business travel obligations in the ordinary course of
business prior to the Change in Control Date);
(v) The failure of the Company to obtain promptly upon any Change in
Control the express written assumption of an agreement to perform this Agreement
by any successor as contemplated in Section 6(e); or
(vi) The attempted termination of Employee's employment for Cause on
grounds insufficient to constitute a basis of termination for Cause under this
Agreement; or
(vii) The failure of the Company to promptly make any payment into
escrow when so required by Section 3(f).
"Potential Change in Control" shall mean the earliest to occur of (a) the
execution of an agreement or letter of intent, the consummation of the
transactions described in which would result in a Change in Control, (b) the
approval by the Board of a transaction or series of transactions, the
consummation of which would result in a Change in Control, or (c) the public
announcement of a tender offer for the Company's voting stock, the completion of
which would result in a Change in Control; provided, that no such event shall be
a "Potential Change in Control" unless (i) in the case of any agreement or
letter of intent described in clause (a), the transaction described therein is
subsequently consummated by the Company and the other party or parties to such
agreement or letter of intent and thereupon constitutes a "Change in Control",
(ii) in the case of any Board-approved transaction described in clause (b), the
transaction so approved is subsequently consummated and thereupon constitutes a
"Change in Control" or (iii) in the case of any tender offer described in clause
(c), such tender offer is subsequently completed and such completion thereupon
constitutes a "Change in Control".
"Potential Change in Control Date" shall mean the date on which a
Potential Change in Control occurs.
"Retirement" shall mean Employee's actual retirement after reaching the
normal or early retirement date provided for in the Company's Retirement and
Profit-Sharing Program as in effect on the date of Employee's termination of
employment.
(e) Any termination of employment by the Company or by Employee shall be
communicated by written notice, specify the date of termination, state the
specific basis for termination and set forth in reasonable detail the facts and
circumstances of the termination in order to provide a basis for determining the
entitlement to any payments under this Agreement.
(f) If within thirty (30) days after notice of termination is given, the
party to whom the notice was given notifies the other party that a Dispute
exists, the parties will promptly pursue resolution of such Dispute with
reasonable diligence; provided, however, that pending
6
<PAGE>
resolution of any such Dispute, the Company shall pay 75% of any amounts which
would otherwise be due Employee pursuant to Section 4 if such Dispute did not
exist into escrow pending resolution of such Dispute and pay 25% of such amounts
to Employee. Employee agrees to return to the Company any such amounts to which
it is ultimately determined that he is not entitled.
4. PAYMENTS AND BENEFITS UPON TERMINATION.
--------------------------------------
(a) If within eighteen (18) months after a Change in Control, the Company
terminates Employee's employment other than by reason of Employee's death,
Disability, Retirement or for Cause, or if Employee terminates Employee's
employment for Good Reason, then the Employee shall be entitled to the following
payments and benefits:
(i) The Company shall pay to Employee as compensation for services
rendered, no later than five (5) business days following the date of
termination, a lump sum severance payment equal to 2.50 multiplied by the sum
of: (A) Employee's Base Salary; (B) the highest annual bonus that was paid to
Employee in any of the three fiscal years ending prior to the date of
termination under the Company's Management Incentive Plan (the "MIP") or Varian
Associates, Inc.'s Management Incentive Plan; and (C) the highest cash bonus for
a performance period of more than one fiscal year that was paid to Employee in
any of the three fiscal years ending prior to the date of termination under the
MIP.
(ii) The Company shall pay to Employee as compensation for services
rendered, no later than five (5) business days following the date of
termination, a lump sum payment equal to a pro rata portion (based on the number
of days elapsed during the fiscal year and/or other bonus performance period in
which the termination occurs) of Employee's target bonus under the MIP for the
fiscal year and for any other partially completed bonus performance period in
which the termination occurs.
(iii) All waiting periods for the exercise of any stock options
granted to Employee and all conditions or restrictions of any restricted stock
granted to Employee shall terminate, and all such options shall be exercisable
in full according to their terms, and the restricted stock shall be transferred
to Employee as soon as reasonably practicable thereafter.
(iv) Employee's participation as of the date of termination in the
life, medical/dental/vision and disability insurance plans and financial/tax
counseling plan of the Company shall be continued on the same terms (including
any cost sharing) as if Employee were an employee of the Company (or equivalent
benefits provided) until the earlier of Employee's commencement of substantially
equivalent full-time employment with a new employer or twenty-four (24) months
after the date of termination; provided, however, that after the date of
termination, Employee shall no longer be entitled to receive Company-paid
executive physicals or, upon expiration of the applicable memberships, Company-
paid airline memberships. In the event Employee shall die before the expiration
of the period during which the Company is required to continue Employee's
participation in such insurance plans, the participation of
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<PAGE>
Employee's surviving spouse and family in the Company's insurance plans shall
continue throughout such period.
(v) Employee may elect upon termination to purchase any automobile
then in the possession of Employee and subject to a lease of which the Company
is the lessor by payment to the Company of the residual value set forth in the
lease, without any increase for remaining lease payments during the term or
other lease breakage costs. Employee may elect to have any such payment
deducted from any payments due the Employee hereunder.
(vi) All payments and benefits provided under this Agreement shall be
subject to applicable tax withholding.
(b) Following Employee's termination of employment for any reason, the
Company shall have the unconditional right to reduce any payments owed to
Employee hereunder by the amount of any due and unpaid principal and interest on
any loans by the Company to Employee and Employee hereby agrees and consents to
such right on the part of the Company.
5. GROSS-UP PAYMENT.
-----------------
(a) Notwithstanding anything herein to the contrary, if it is determined
that any Payment would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or
penalties with respect to such excise tax (such excise tax, together with any
interest or penalties thereon, is herein referred to as an "Excise Tax"), then
Employee shall be entitled to an additional payment (a "Gross-Up Payment") in an
amount that will place Employee in the same after-tax economic position that
Employee would have enjoyed if the Excise Tax had not applied to the Payment.
The amount of the Gross-Up Payment shall be determined by a nationally-
recognized independent public accounting firm designated by agreement between
Employee and the Company (the "Accounting Firm"). No Gross-Up Payments shall be
payable hereunder if the Accounting Firm determines that the Payments are not
subject to an Excise Tax.
"Payment" means (i) any amount due or paid to Employee under this
Agreement, (ii) any amount that is due or paid to Employee under any plan,
program or arrangement of the Company and its subsidiaries and (iii) any amount
or benefit that is due or payable to Employee under this Agreement or under any
plan, program or arrangement of the Company and its subsidiaries not otherwise
covered under clause (i) or (ii) hereof which must reasonably be taken into
account under Section 280G of the Code in determining the amount the "parachute
payments" received by Employee, including, without limitation, any amounts which
must be taken into account under Section 280G of the Code as a result of (A) the
acceleration of the vesting of any option, restricted stock or other equity
award, (B) the acceleration of the time at which any payment or benefit is
receivable by Employee or (C) any contingent severance or other amounts that are
payable to Employee.
(b) Subject to the provisions of Section 5(c), all determinations required
under this
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Section 5, including whether a Gross-Up Payment is required, the amount of the
Payments constituting excess parachute payments, and the amount of the Gross-Up
Payment, shall be made by the Accounting Firm, which shall provide detailed
supporting calculations both to Employee and the Company within fifteen days of
the date reasonably requested by Employee or the Company on which a
determination under this Section 5 is necessary or advisable. The Company shall
pay to Employee the initial Gross-Up Payment within 5 days of the receipt by
Employee and the Company of the determination of the Accounting Firm. If the
Accounting Firm determines that no Excise Tax is payable by Employee, the
Company shall cause its accountants to provide Employee with an opinion that the
Accounting Firm has substantial authority under the Code not to report an Excise
Tax on Employee's federal income tax return. Any determination by the Accounting
Firm shall be binding upon Employee and the Company. If the initial Gross-Up
Payment is insufficient to cover the amount of the Excise Tax that is ultimately
determined to be owing by Employee with respect to any Payment (hereinafter an
"Underpayment"), the Company, after exhausting its remedies under Section 5(c)
below, shall promptly pay to Employee an additional Gross-Up Payment in respect
of the Underpayment.
(c) Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of a Gross-Up Payment. Such notice shall be given as soon as
practicable after Employee knows of such claim and shall apprise the Company of
the nature of the claim and the date on which the claim is requested to be paid.
Employee agrees not to pay the claim until the expiration of the thirty (30) day
period following the date on which Employee notifies the Company, or such
shorter period ending on the date the Taxes with respect to such claim are due
(the "Notice Period"). If the Company notifies Employee in writing prior to the
expiration of the Notice Period that it desires to contest the claim, Employee
shall: (i) give the Company any information reasonably requested by the Company
relating to the claim; (ii) take such action in connection with the claim as the
Company may reasonably request, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
the Company and reasonably acceptable to Employee; (iii) cooperate with the
Company in good faith in contesting the claim; and (iv) permit the Company to
participate in any proceedings relating to the claim. Employee shall permit the
Company to control all proceedings related to the claim and, at its option,
permit the Company to pursue or forgo any and all administrative appeals,
proceedings, hearings, and conferences with the taxing authority in respect of
such claim. If requested by the Company, Employee agrees either to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner and
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts as the
Company shall determine; provided, however, that, if the Company directs
Employee to pay such claim and pursue a refund, the Company shall advance the
amount of such payment to Employee on an after-tax and interest-free basis (an
"Advance"). The Company's control of the contest related to the claim shall be
limited to the issues related to the Gross-Up Payment and Employee shall be
entitled to settle or contest, as the case may be, any other issues raised by
the Internal Revenue Service or other taxing authority. If the Company does not
notify Employee in writing prior to the end of the Notice Period of its desire
to contest the claim, the Company shall pay to Employee an additional Gross-Up
Payment in respect of the excess parachute payments that are
9
<PAGE>
the subject of the claim, and Employee agrees to pay the amount of the Excise
Tax that is the subject of the claim to the applicable taxing authority in
accordance with applicable law.
(d) If, after receipt by Employee of an Advance, Employee becomes entitled
to a refund with respect to the claim to which such Advance relates, Employee
shall pay the Company the amount of the refund (together with any interest paid
or credited thereon after Taxes applicable thereto). If, after receipt by
Employee of an Advance, a determination is made that Employee shall not be
entitled to any refund with respect to the claim and the Company does not
promptly notify Employee of its intent to contest the denial of refund, then the
amount of the Advance shall not be required to be repaid by Employee and the
amount thereof shall offset the amount of the additional Gross-Up Payment then
owing to Employee.
(e) The Company shall indemnify Employee and hold Employee harmless, on an
after-tax basis, from any costs, expenses, penalties, fines, interest or other
liabilities ("Losses") incurred by Employee with respect to the exercise by the
Company of any of its rights under this Section 5, including, without
limitation, any Losses related to the Company's decision to contest a claim or
any imputed income to Employee resulting from any Advance or action taken on
Employee's behalf by the Company hereunder. The Company shall pay all legal
fees and expenses incurred under this Section 5, and shall promptly reimburse
Employee for the reasonable expenses incurred by Employee in connection with any
actions taken by the Company or required to be taken by Employee hereunder. The
Company shall also pay all of the fees and expenses of the Accounting Firm,
including, without limitation, the fees and expenses related to the opinion
referred to in Section 5(b).
6. GENERAL.
--------
(a) Employee shall retain in confidence under the conditions of the
Company's confidentiality agreement with Employee any proprietary or other
confidential information known to Employee concerning the Company and its
business so long as such information is not publicly disclosed and disclosure is
not required by an order of any governmental body or court. If required,
Employee shall return to the Company any memoranda, documents or other materials
proprietary to the Company.
(b) While employed by the Company and following the termination of such
employment (other than a termination of employment by Employee for Good Reason
or by the Company other than for Cause) for a period of two (2) years, Employee
shall not, whether for Employee's own account or for the account of any other
individual, partnership, firm, corporation or other business organization,
intentionally solicit, endeavor to entice away from the Company or a subsidiary
of the Company (each, a "Protected Party"), or otherwise interfere with the
relationship of a Protected Party with, any person who is employed by a
Protected Party or any person or entity who is, or was within the then most
recent twelve (12) month period, a customer or client of a Protected Party.
Employee acknowledges that a breach of any of the covenants contained in
this Section
10
<PAGE>
6(b) may result in material irreparable injury to the Company for which there is
no adequate remedy at law, that it may not be possible to measure damages for
such injuries precisely and that, in the event of such a breach, any payments
remaining under the terms of this Agreement shall cease and the Company may be
entitled to obtain a temporary restraining order and/or a preliminary or
permanent injunction restraining Employee from engaging in activities prohibited
by this Section 6(b) or such other relief as may be required to specifically
enforce any of the covenants in this Section 6(b). Employee agrees to and hereby
does submit to in personam jurisdiction before each and every such court in the
State of California, County of Santa Clara, for that purpose. This Section 6(b)
shall survive any termination of this Agreement.
(c) If litigation is brought by Employee to enforce or interpret any
provision contained in this Agreement, the Company shall indemnify Employee for
Employee's reasonable attorney's fees and disbursements incurred in such
litigation and pay prejudgment interest on any money judgment obtained by
Employee calculated at the prime rate of interest in effect from time to time at
the Bank of America, San Francisco, from the date that payment should have been
made under the Agreement, provided that Employee shall not have been found by
the court in which such litigation is pending to have had no cause in bringing
the action, or to have acted in bad faith, which finding must be final with the
time to appeal therefrom having expired and no appeal having been taken.
(d) Except as provided in Section 4, the Company's obligation to pay to
Employee the compensation and to make the arrangements provided in this
Agreement shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, any setoff, counterclaim,
recoupment, defense or other right which the Company may have against Employee
or anyone else. All amounts payable by the Company hereunder shall be paid
without notice or demand. Employee shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment.
(e) The Company shall require any successor, whether direct or indirect, by
purchase, merger, consolidation or otherwise, to all or substantially all of the
business and/or assets of the Company, by written agreement to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place.
(f) This Agreement shall inure to the benefit of and be enforceable by
Employee's heirs, successors and assigns. If Employee should die while any
amounts would still be payable to Employee hereunder if Employee had continued
to live, all such amounts shall be paid in accordance with the terms of this
Agreement to Employee's heirs, successors and assigns.
(g) For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
11
<PAGE>
If to Employee: If to the Company:
Elisha W. Finney Varian Medical Systems, Inc.
791 Crystal Springs Road 3100 Hansen Way
San Mateo, CA 94402 Palo Alto, CA 94304-1000
Attn: Vice President, Human Resources
or to such other address as either party furnishes to the other in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
(h) This Agreement shall constitute the entire agreement between Employee
and the Company concerning the subject matter of this Agreement.
(i) The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of California without
giving effect to the provisions, principles or policies thereof relating to
choice or conflict of laws. The invalidity or unenforceability of any provision
of this Agreement in any circumstance shall not affect the validity or
enforceability of such provision in any other circumstance or the validity or
enforceability of any other provision of this Agreement, and, except to the
extent such provision is invalid or unenforceable, this Agreement shall remain
in full force and effect. Any provision in this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating or affecting the remaining provisions hereof in such jurisdiction,
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
This Section 6(i) shall survive any termination of this Agreement.
(j) This Agreement may be terminated by the Company pursuant to a
resolution adopted by the Board at any time prior to a Potential Change in
Control Date. After a Change in Control Date or a Potential Change in Control
Date, this Agreement may only be terminated with the consent of Employee.
(k) No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement and this Agreement
shall supersede all prior agreements, negotiations, correspondence, undertakings
and communications of the parties, oral or written, with respect to the subject
matter hereof including, without limitation, the Change in Control Agreement
between Employee and the Company.
(l) In the event that the Company becomes party to a transaction that is
intended to qualify for "pooling of interests" accounting treatment and, but for
one or more of the provisions of this Agreement would so qualify, then this
Agreement shall be interpreted so as to preserve such accounting treatment, and
to the extent that any provision of this Agreement would
12
<PAGE>
disqualify the transaction from pooling of interests accounting treatment, then
such provision shall be null and void. All determinations to be made in
connection with the preceding sentence shall be made by the independent
accounting firm whose opinion with respect to "pooling of interests" treatment
is required as a condition to the Company's consummation of such transaction.
IN WITNESS WHEREOF, the parties acknowledge that they have read and
understand the terms of this Agreement and have executed this Agreement to be
effective as of April 2, 1999.
VARIAN MEDICAL SYSTEMS, INC. EMPLOYEE
/s/ Richard M. Levy /s/ Elisha Wade Finney
- ------------------- ----------------------
By: Richard M. Levy Elisha Wade Finney
Title: Chief Executive Officer
13
<PAGE>
EXHIBIT 10.7
EXECUTION COPY
- --------------------------------------------------------------------------------
VARIAN ASSOCIATES, INC.
To Be Known as
VARIAN MEDICAL SYSTEMS, INC.
Effective April 3, 1999
AMENDED AND RESTATED
NOTE PURCHASE AND PRIVATE SHELF AGREEMENT
$12,500,000
7.15% Series A Senior Notes due April 2, 2010
$25,000,000
6.70% Series B Senior Notes due April 30, 2014
$21,000,000
6.76% Series C Senior Notes due April 2, 2011
and
$50,000,000
Private Shelf Facility
Dated as of April 2, 1999
<PAGE>
TABLE OF CONTENTS
(not part of agreement)
<TABLE>
<CAPTION>
Page
<S> <C>
1. AUTHORIZATION OF ISSUE OF NOTES.............................................................. 3
1A. Authorization of Issue of Series A Notes............................................ 3
1B. Authorization of Issue of Series B Notes............................................ 3
1C. Authorization of Issue of Series C Notes............................................ 3
1D. Authorization of Issue of Shelf Notes............................................... 4
2. AMENDMENT AND RESTATEMENT OF EXISTING NOTES; PURCHASE
AND SALE OF SERIES C NOTES AND SHELF NOTES................................................... 4
2A(1). Amendment and Restatement of Existing 7.21% Notes and Issuance of
Series A Notes...................................................................... 4
2A(2). Amendment and Restatement of Existing 6.70% Notes and Issuance of
Series B Notes...................................................................... 5
2A(3). Purchase and Sale of Series C Notes................................................. 5
2B. Purchase and Sale of Shelf Notes.................................................... 5
3. CONDITIONS OF CLOSING........................................................................ 10
3A. Conditions to Amendments and Restatements, Release of Company and Issuance of
Series C Notes...................................................................... 10
3B. Conditions to Purchase of Notes..................................................... 11
4. PREPAYMENTS.................................................................................. 13
4A. Required Prepayments of Series A Notes, Series B Notes and Series C Notes........... 13
4B. Required Prepayments of Shelf Notes................................................. 14
4C. Optional Prepayment With Yield-Maintenance Amount................................... 14
4D. Notice of Optional Prepayment....................................................... 14
4E. Application of Prepayments.......................................................... 14
4F. Retirement of Notes................................................................. 15
5. AFFIRMATIVE COVENANTS........................................................................ 15
5A. Financial Statements; Notice of Defaults............................................ 15
5B. Information Required by Rule 144A................................................... 16
5C. Inspection of Property.............................................................. 16
5D. Covenant to Secure Notes Equally.................................................... 17
5E. Maintenance of Insurance............................................................ 17
5F. Compliance with Laws................................................................ 17
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
6. NEGATIVE COVENANTS........................................................................... 17
6A. Certain Financial Requirements...................................................... 17
6B. Dividend Limitation................................................................. 18
6C. Lien, Funded Debt and Other Restrictions............................................ 18
7. EVENTS OF DEFAULT............................................................................ 22
7A. Acceleration........................................................................ 22
7B. Rescission of Acceleration.......................................................... 25
7C. Notice of Acceleration or Rescission................................................ 25
7D. Other Remedies...................................................................... 25
8. REPRESENTATIONS, COVENANTS AND WARRANTIES.................................................... 25
8A. Organization........................................................................ 25
8B. Financial Statements................................................................ 26
8C. Actions Pending..................................................................... 27
8D. Outstanding Funded Debt............................................................. 27
8E. Title to Properties................................................................. 27
8F. Taxes............................................................................... 27
8G. Conflicting Agreements and Other Matters............................................ 27
8H. Offering of Notes................................................................... 28
8I. Use of Proceeds..................................................................... 28
8J. ERISA............................................................................... 28
8K. Governmental Consent................................................................ 29
8L. Environmental Compliance............................................................ 29
8M. Disclosure.......................................................................... 29
8N. Hostile Tender Offers............................................................... 30
8O. Year 2000 Compliance................................................................ 30
9. REPRESENTATIONS OF THE PURCHASERS............................................................ 30
9A. Nature of Purchase.................................................................. 30
9B. Source of Funds..................................................................... 30
10. DEFINITIONS; ACCOUNTING MATTERS.............................................................. 31
10A. Yield-Maintenance Terms............................................................. 31
10B. Other Terms......................................................................... 32
10C. Accounting Principles, Terms and Determinations..................................... 41
11. MISCELLANEOUS................................................................................ 41
11A. Note Payments....................................................................... 41
11B. Expenses............................................................................ 42
11C. Consent to Amendments............................................................... 42
11E. Persons Deemed Owners; Participations............................................... 45
11F. Survival of Representations and Warranties; Entire Agreement........................ 45
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
11G. Successors and Assigns.............................................................. 45
11H. Disclosure to Other Persons......................................................... 45
11I. Independence of Covenants........................................................... 46
11J. Notices............................................................................. 46
11K. Payments Due on Non-Business Days................................................... 47
11L. Severability........................................................................ 47
11M. Descriptive Headings................................................................ 47
11N. Satisfaction Requirement............................................................ 47
11O. Governing Law....................................................................... 47
11P. Severalty of Obligations............................................................ 47
11Q. Counterparts........................................................................ 48
11R. Binding Agreement................................................................... 48
11S. Amendment and Restatement of Existing Agreements; Release of the Company............ 48
</TABLE>
Exhibits and Schedules
<TABLE>
<CAPTION>
Purchaser Schedule for Series A Notes, Series B Notes and Series C Notes
Information Schedule
<S> <C>
Exhibit A-1......................................................... Form of Series A Note
Exhibit A-2......................................................... Form of Series B Note
Exhibit A-3......................................................... Form of Series C Note
Exhibit A-4......................................................... Form of Shelf Note
Exhibit B........................................................... Form of Disbursement Direction Letter
Exhibit C........................................................... Form of Request for Purchase
Exhibit D........................................................... Form of Confirmation of Acceptance
Exhibit E-1......................................................... Form of Opinion of Company Counsel, Series C Note
Closing
Exhibit E-2......................................................... Form of Opinion of Company Counsel, Shelf Note Closing
Exhibit F-1......................................................... Form of Prudential Confidentiality Agreement
Exhibit F-2......................................................... Form of Non-Prudential Confidentiality Agreement
Exhibit G........................................................... Investment Policy of Company Board of Directors
Schedule 8G......................................................... Agreements Restricting Debt
</TABLE>
-iii-
<PAGE>
VARIAN ASSOCIATES, INC.
to be known as
VARIAN MEDICAL SYSTEMS, INC.
Effective April 3, 1999
3050 Hansen Way
Palo Alto, California 94304-1000
As of April 2, 1999
The Prudential Insurance Company
of America ("Prudential")
Pruco Life Insurance Company ("Pruco")
Pruco Life Insurance Company of New Jersey ("Pruco-NJ")
Each Prudential Affiliate (as hereinafter
defined) which becomes bound by certain
provisions of this Agreement as hereinafter
provided (together with Prudential, Pruco and
Pruco-NJ, the "Purchasers")
c/o Prudential Capital Group
Four Embarcadero Center
Suite 2700
San Francisco, California 94111
Ladies and Gentlemen:
The undersigned, Varian Associates, Inc., a Delaware corporation (to
be known as Varian Medical Systems, Inc. effective April 3, 1999) (herein called
the "Company"), hereby agrees with you as set forth below. Reference is made
to paragraph 10 hereof for definitions of capitalized terms used herein and not
otherwise defined herein.
INTRODUCTION
The Company and Prudential are parties to (i) the Master Shelf
Agreement, dated as of May 11, 1992 (as heretofore amended, the "1992 Note
Agreement"), under which the Company issued, and there are now outstanding and
held by Prudential (a) the Company's 7.49% Senior Notes due June 9, 2002, in the
original aggregate principal amount of $40,000,000, of which $28,000,000
aggregate principal amount are now outstanding (the "Existing 7.49% Notes"), and
(b) the Company's 6.90% Senior Notes due June 9, 2002, in the original aggregate
principal amount of $20,000,000, of which $14,000,000 aggregate principal amount
are now outstanding (the "Existing 6.90% Notes"), and (ii) the Note Purchase and
Private Shelf Agreement, dated as of October 18, 1996 (as heretofore amended,
the "1996 Note Agreement"), under which the Company issued, and
<PAGE>
there are now outstanding and held by Prudential (a) the Company's 7.21% Series
A Senior Notes due June 9, 2007 in the aggregate principal amount of $25,000,000
(the "Existing 7.21% Notes"), and (b) the Company's 6.70% Series B Senior Notes
due April 30, 2018 in the aggregate principal amount of $50,000,000 (the
"Existing 6.70% Notes").
The Company has advised Prudential that it intends to distribute all
of the shares of the capital stock of the Company's subsidiary, Varian, Inc., a
Delaware corporation ("Varian, Inc."), to the shareholders of the Company (the
"Spin Off"). In connection with the Spin Off, the Company will prepay
$14,000,000 principal amount of the Existing 7.49% Notes and $7,000,000
principal amount of the Existing 6.90% Notes, and the Company and Varian, Inc.
have requested that Prudential agree to the following effective upon the
consummation of the Spin Off:
(1) to purchase $21,000,000 principal amount of the Company's Series C
Notes (as defined in paragraph 1C hereof) the proceeds of which will be used by
the Company to make such prepayments of the Existing 7.49% Notes and the
Existing 6.90% Notes;
(2) to amend the terms of $12,500,000 principal amount of the Existing
7.21% Notes to extend the maturity thereof and change the interest rate thereon,
as more specifically set forth in paragraph 2A(1) hereof (such $12,500,000
principal amount of the Existing 7.21% Notes amended pursuant to paragraph 2A(1)
hereof being herein called the "Series A Notes", which term shall include each
Series A Note delivered pursuant to any provision of this Agreement and each
promissory note of the Company delivered in substitution or exchange for any
Series A Note pursuant to any such provision);
(3) to shorten the maturity of the Existing 6.70% Notes to April 30,
2014 and to amend the interest rate on $25,000,000 principal amount of the
Existing 6.70% Notes, as more specifically set forth in paragraph 2A(2) hereof
(such $25,000,000 principal amount of the Existing 6.70% Notes the interest rate
on which is amended pursuant to paragraph 2A(2) hereof being herein called the
"Series B Notes", which term shall include each Series B Note delivered pursuant
to any provision of this Agreement and each promissory note of the Company
delivered in substitution or exchange for any Series B Note pursuant to any such
provision);
(4) the assumption by Varian, Inc. of the Company's obligations under,
and the release of the Company from any obligation under, (A) the $14,000,000
principal amount of the Existing 7.49% Notes and the $7,000,000 principal amount
of the Existing 6.90% Notes not prepaid by the Company (the $14,000,000
principal amount of the Existing 7.49% Notes to be so assumed by Varian, Inc.
being herein called the "Varian, Inc. Series C Notes" and the $7,000,000
principal amount of the Existing 6.90% Notes to be so assumed by Varian, Inc.
being herein called the "Varian, Inc. Series D Notes"), (B) the $12,500,000
principal amount of the Existing 7.21% Notes not constituting the Series A Notes
(the $12,500,000 principal amount of the Existing 7.21% Notes to be so assumed
by Varian, Inc. being herein called the "Varian, Inc. Series A Notes") and (C)
the $25,000,000 principal amount of the Existing 6.70% Notes not constituting
Series B Notes (the
2
<PAGE>
$25,000,000 principal amount of the Existing 6.70% Notes to
be so assumed by Varian, Inc. being herein called the "Varian, Inc. Series B
Notes");
(5) to amend and restate the 1992 Note Agreement and the 1996 Note
Agreement as they relate to the Series A Notes and the Series B Notes in their
entireties as set forth herein, including to provide for a new private shelf
facility as set forth in paragraph 2B hereof, and to provide that the Series A
Notes, the Series B Notes, the Series C Notes and any Shelf Notes shall be
subject to the terms of this Agreement; and
(6) to enter into the Varian, Inc. Amended and Restated Note Agreement
to provide for a new private shelf facility for Varian, Inc. as set forth in
paragraph 2B thereof and to provide that the Varian, Inc. Notes and any Varian,
Inc. Private Shelf Notes shall be subject to the terms of the Varian, Inc.
Amended and Restated Note Agreement.
Subject to the terms and conditions hereof, Prudential is willing to
agree to the foregoing. Accordingly, the Company and the Purchasers agree as
follows:
1. AUTHORIZATION OF ISSUE OF NOTES.
1A. Authorization of Issue of Series A Notes. The Company will authorize
the issue of the Series A Notes in the aggregate principal amount of
$12,500,000, to be dated the date of issue thereof, to mature April 2, 2010, to
bear interest (computed on the basis of a 360 day year-30 day month) on the
unpaid balance thereof from the date thereof until the principal thereof shall
have become due at the rate of 7.15% per annum, and on overdue principal, Yield-
Maintenance Amount and interest at the rate and at the time specified therein,
and to be substantially in the form of Exhibit A-1 attached hereto.
1B. Authorization of Issue of Series B Notes. The Company will authorize
the issue of the Series B Notes in the aggregate principal amount of
$25,000,000, to be dated the date of issue thereof, to mature April 30, 2014, to
bear interest (computed on the basis of a 360 day year-30 day month) on the
unpaid balance thereof from the date thereof until the principal thereof shall
have become due at the rate of 6.70% per annum, and on overdue principal, Yield-
Maintenance Amount and interest at the rate and at the time specified therein,
and to be substantially in the form of Exhibit A-2 attached hereto.
1C. Authorization of Issue of Series C Notes. The Company will authorize
the issue of its senior promissory notes (the "Series C Notes") in the aggregate
principal amount of $21,000,000, to be dated the date of issue thereof, to
mature April 2, 2011 to bear interest (computed on the basis of a 360 day year -
30 day month) on the unpaid balance thereof from the date thereof until the
principal thereof shall have become due at the rate of 6.76% per annum, and on
overdue principal, Yield-Maintenance Amount and interest at the rate and at the
time specified therein, and to be substantially in the form of Exhibit A-3
attached hereto. The terms "Series C Note" and "Series C Notes" as used herein
shall include each Series C Note delivered pursuant to any
3
<PAGE>
provision of this Agreement and each promissory note of the Company delivered in
substitution or exchange for any Series C Note pursuant to any such provision.
1D. Authorization of Issue of Shelf Notes. The Company may authorize the
issue of its additional senior promissory notes (the "Shelf Notes") in the
aggregate principal amount of $50,000,000, to be dated the date of issue
thereof, to mature, in the case of each Shelf Note so issued, no more than
fifteen years after the date of original issuance thereof, to have an average
life, in the case of each Shelf Note so issued, of no more than twelve years
after the date of original issuance thereof, to bear interest on the unpaid
balance thereof from the date thereof at the rate per annum, and to have such
other particular terms, as shall be set forth, in the case of each Shelf Note so
issued, in the Confirmation of Acceptance with respect to such Shelf Note
delivered pursuant to paragraph 2B(5), and to be substantially in the form of
Exhibit A-4 attached hereto. The terms "Shelf Note" and "Shelf Notes" as used
herein shall include each Shelf Note delivered pursuant to any provision of this
Agreement and each Shelf Note delivered in substitution or exchange for any such
Shelf Note pursuant to any such provision. The terms "Note" and "Notes" as used
herein shall include each Series A Note, each Series B Note, each Series C Note
and each Shelf Note delivered pursuant to any provision of this Agreement and
each Note delivered in substitution or exchange for any such Note pursuant to
any such provision. Notes which have (i) the same final maturity, (ii) the same
principal prepayment dates, (iii) the same principal prepayment amounts (as a
percentage of the original principal amount of each Note), (iv) the same
interest rate, (v) the same interest payment periods and (vi) the same date of
issuance (which, in the case of a Note issued in exchange for another Note,
shall be deemed for these purposes the date on which such Note's ultimate
predecessor Note was issued), are herein called a "Series" of Notes.
2. AMENDMENT AND RESTATEMENT OF EXISTING NOTES; PURCHASE AND SALE OF SERIES
C NOTES AND SHELF NOTES.
2A(1). Amendment and Restatement of Existing 7.21% Notes and Issuance of
Series A Notes. Subject to the terms and conditions herein set forth, the
Company and Prudential agree that, effective on the Series C Closing Day,
$12,500,000 principal amount of the Existing 7.21% Notes will be amended and
restated in their entirety to be a like principal amount of Series A Notes
having the terms described in paragraph 1A hereof and to be in the form of
Exhibit A-1 hereto. On the Series C Closing Day, the Company will deliver to
Prudential, in substitution and exchange for the Existing 7.21% Notes being so
amended and restated, at the offices of Schiff Hardin & Waite, 6600 Sears Tower,
Chicago, Illinois 60606, one or more Series A Notes registered in the name of
Prudential, evidencing the aggregate principal amount of the Existing 7.21%
Notes held by Prudential being so amended and restated, and in the denomination
or denominations, specified in the Purchaser Schedule attached hereto. The
Series A Notes (i) are given in exchange and substitution for, and not as
payment of the indebtedness evidenced by, the $12,500,000 principal amount of
the Existing 7.21% Notes being amended and restated pursuant to this paragraph
2A(1), (ii) merely re-evidence the indebtedness evidenced by such $12,500,000
principal amount of the Existing 7.21% Notes, and (iii) are not intended to
constitute a novation or discharge of the indebtedness evidenced by such
$12,500,000 principal amount of the Existing 7.21% Notes.
4
<PAGE>
Promptly after the Series C Closing Day Prudential agrees to mark such Existing
7.21% Notes "Replaced" and to return such Existing 7.21% Notes to the Company.
2A(2). Amendment and Restatement of Existing 6.70% Notes and Issuance of
Series B Notes. Subject to the terms and conditions herein set forth, the
Company and Prudential agree that, effective on the Series C Closing Day, (i)
the maturity date of all of the Existing 6.70% Notes is amended to be April 30,
2014 and (ii) $25,000,000 principal amount of the Existing 6.70% Notes will be
amended and restated in their entirety to be a like principal amount of Series B
Notes having the terms described in paragraph 1B hereof and to be in the form of
Exhibit A-2 hereto. On the Series C Closing Day, the Company will deliver to
Prudential, in substitution and exchange for the Existing 6.70% Notes being
amended and restated by both clauses (i) and (ii) of this paragraph 2A(2), at
the offices of Schiff Hardin & Waite, 6600 Sears Tower, Chicago, Illinois 60606,
one or more Series B Notes registered in the name of Prudential, evidencing the
aggregate principal amount of the Existing 6.70% Notes held by Prudential being
so amended and restated, and in the denomination or denominations, specified in
the Purchaser Schedule attached hereto. The Series B Notes (i) are given in
exchange and substitution for, and not as payment of the indebtedness evidenced
by, the $25,000,000 principal amount of the Existing 6.70% Notes being amended
and restated by both clauses (i) and (ii) of this paragraph 2A(2), (ii) merely
re-evidence the indebtedness evidenced by such $25,000,000 principal amount of
the Existing 6.70% Notes, and (iii) are not intended to constitute a novation or
discharge of the indebtedness evidenced by such $25,000,000 principal amount of
the Existing 6.70% Notes. Promptly after the Series C Closing Day Prudential
agrees to mark such Existing 6.70% Notes "Replaced" and to return such Existing
6.70% Notes to the Company.
2A(3). Purchase and Sale of Series C Notes. The Company hereby agrees to
sell to Prudential and, subject to the terms and conditions herein set forth,
Prudential agrees to purchase from the Company the aggregate principal amount of
Series C Notes set forth opposite its name on the Purchaser Schedule attached
hereto at 100% of such aggregate principal amount. On April 2, 1999 or any other
date prior to April 2, 1999 upon which the Company and Prudential may agree
(herein called the "Series C Closing Day"), the Company will deliver to
Prudential at the offices of Schiff Hardin & Waite, 6600 Sears Tower, Chicago,
Illinois 60606, one or more Series C Notes registered in its name, evidencing
the aggregate principal amount of Series C Notes to be purchased by Prudential
and in the denomination or denominations specified in the Purchaser Schedule
attached hereto, against payment of the purchase price thereof by transfer of
immediately available funds as specified in a letter on the Company's
letterhead, in substantially the form of Exhibit B attached hereto, from the
Company to the Prudential delivered prior to the Series C Closing Day.
2B. Purchase and Sale of Shelf Notes.
2B(1). Facility. Prudential is willing to consider, in its sole discretion
and within limits which may be authorized for purchase by Prudential and
Prudential Affiliates from time to time, the purchase of Shelf Notes pursuant to
this Agreement. The willingness of Prudential to consider such purchase of Shelf
Notes is herein called the "Facility". At any time, the aggregate
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principal amount of Shelf Notes stated in paragraph 1D, minus the aggregate
-----
principal amount of Shelf Notes purchased and sold pursuant to this Agreement
prior to such time, minus the aggregate principal amount of Accepted Notes (as
-----
hereinafter defined) which have not yet been purchased and sold hereunder prior
to such time, is herein called the "Available Facility Amount" at such time.
NOTWITHSTANDING THE WILLINGNESS OF PRUDENTIAL TO CONSIDER PURCHASES OF SHELF
NOTES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS UNDERSTANDING THAT NEITHER
PRUDENTIAL NOR ANY PRUDENTIAL AFFILIATE SHALL BE OBLIGATED TO MAKE OR ACCEPT
OFFERS TO PURCHASE SHELF NOTES, OR TO QUOTE RATES, SPREADS OR OTHER TERMS WITH
RESPECT TO SPECIFIC PURCHASES OF SHELF NOTES, AND THE FACILITY SHALL IN NO WAY
BE CONSTRUED AS A COMMITMENT BY PRUDENTIAL OR ANY PRUDENTIAL AFFILIATE.
2B(2). Issuance Period. Shelf Notes may be issued and sold pursuant to this
Agreement until the earlier of (i) the third anniversary of the date of this
Agreement (or if such anniversary is not a Business Day, the Business Day next
preceding such anniversary) and (ii) the thirtieth day after Prudential shall
have given to the Company, or the Company shall have given to Prudential,
written notice stating that it elects to terminate the issuance and sale of
Shelf Notes pursuant to this Agreement (or if such thirtieth day is not a
Business Day, the Business Day next preceding such thirtieth day). The period
during which Shelf Notes may be issued and sold pursuant to this Agreement is
herein called the "Issuance Period".
2B(3). Request for Purchase. The Company many from time to time during the
Issuance Period make requests for purchases of Shelf Notes (each such request
being herein called a "Request for Purchase"). Each Request for Purchase shall
be made to Prudential by telecopier or overnight delivery service, and shall (i)
specify the aggregate principal amount of Shelf Notes covered thereby, which
shall not be less than $5,000,000 and not be greater than the Available Facility
Amount at the time such Request for Purchase is made, (ii) specify the principal
amounts, final maturities, principal prepayment dates and amounts and interest
payment periods (quarterly or semi-annual in arrears) of the Shelf Notes covered
thereby, (iii) specify the use of proceeds of such Shelf Notes, (iv) specify the
proposed day for the closing of the purchase and sale of such Shelf Notes, which
shall be a Business Day during the Issuance Period not less than 5 Business Days
and not more than 30 Business Days after the making of such Request for
Purchase, (v) specify the number of the account and the name and address of the
depository institution to which the purchase prices of such Shelf Notes are to
be transferred on the Closing Day for such purchase and sale, (vi) certify that
the representations and warranties contained in paragraph 8 are true on and as
of the date of such Request for Purchase (except to the extent caused by the
transactions herein contemplated) and that there exists on the date of such
Request for Purchase no Event of Default or Default, (vii) specify the
Designated Spread for such Shelf Notes and (viii) be substantially in the form
of Exhibit C attached hereto. Each Request for Purchase shall be in writing and
shall be deemed made when received by Prudential.
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2B(4). Rate Quotes. Not later than two Business Days after the Company
shall have given Prudential a Request for Purchase pursuant to paragraph 2B(3),
Prudential may, but shall be under no obligation to, provide to the Company by
telephone or telecopier, in each case between 9:30 A.M. and 1:30 P.M. New York
City local time (or such later time as Prudential may elect) interest rate
quotes for the several principal amounts, maturities, principal prepayment
schedules, and interest payment periods of Shelf Notes specified in such Request
for Purchase. Each quote shall represent the interest rate per annum payable on
the outstanding principal balance of such Shelf Notes at which Prudential or a
Prudential Affiliate would be willing to purchase such Shelf Notes at 100% of
the principal amount thereof.
2B(5). Acceptance. Within 5 minutes after Prudential shall have provided
any interest rate quotes pursuant to paragraph 2B(4) or such shorter period as
Prudential may specify to the Company (such period herein called the "Acceptance
Window"), the Company may, subject to paragraph 2B(6), elect to accept such
interest rate quotes as to not less than $5,000,000 aggregate principal amount
of the Shelf Notes specified in the related Request for Purchase. Such election
shall be made by an Authorized Officer of the Company notifying Prudential by
telephone or telecopier within the Acceptance Window that the Company elects to
accept such interest rate quotes, specifying the Shelf Notes (each such Shelf
Note being herein called an "Accepted Note") as to which such acceptance (herein
called an "Acceptance") relates. The day the Company notifies an Acceptance with
respect to any Accepted Notes is herein called the "Acceptance Day" for such
Accepted Notes. Any interest rate quotes as to which Prudential does not receive
an Acceptance within the Acceptance Window shall expire, and no purchase or sale
of Shelf Notes hereunder shall be made based on such expired interest rate
quotes. Subject to paragraph 2B(6) and the other terms and conditions hereof,
the Company agrees to sell to Prudential or a Prudential Affiliate, and
Prudential agrees to purchase, or to cause the purchase by a Prudential
Affiliate of, the Accepted Notes at 100% of the principal amount of such Notes.
As soon as practicable following the Acceptance Day, the Company, Prudential and
each Prudential Affiliate which is to purchase any such Accepted Notes will
execute a confirmation of such Acceptance substantially in the form of Exhibit D
attached hereto (herein called a "Confirmation of Acceptance"). If the Company
should fail to execute and return to Prudential within three Business Days
following receipt thereof a Confirmation of Acceptance with respect to any
Accepted Notes, Prudential may at its election at any time prior to its receipt
thereof cancel the closing with respect to such Accepted Notes by so notifying
the Company in writing.
2B(6). Market Disruption. Notwithstanding the provisions of paragraph
2B(5), if Prudential shall have provided interest rate quotes pursuant to
paragraph 2B(4) and thereafter prior to the time an Acceptance with respect to
such quotes shall have been notified to Prudential in accordance with paragraph
2B(5) the domestic market for U.S. Treasury securities or derivatives shall have
closed or there shall have occurred a general suspension, material limitation,
or significant disruption of trading in securities generally on the New York
Stock Exchange or in the domestic market for U.S. Treasury securities or
derivatives, then such interest rate quotes shall expire, and no purchase or
sale of Shelf Notes hereunder shall be made based on such expired interest rate
quotes. If the Company thereafter notifies Prudential of the Acceptance of any
such interest rate quotes, such
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Acceptance shall be ineffective for all purposes of this Agreement, and
Prudential shall promptly notify the Company that the provisions of this
paragraph 2B(6) are applicable with respect to such Acceptance.
2B(7). Facility Closings. Not later than 11:30 A.M. (New York City local
time) on the Closing Day for any Accepted Notes, the Company will deliver to
each Purchaser listed in the Confirmation of Acceptance relating thereto at the
offices of Prudential Capital Group, Four Embarcadero Center, Suite 2700, San
Francisco, California 94111, the Accepted Notes to be purchased by such
Purchaser in the form of one or more Notes in authorized denominations as such
Purchaser may request for each Series of Accepted Notes to be purchased on the
Closing Day, dated the Closing Day and registered in such Purchaser's name (or
in the name of its nominee), against payment of the purchase price thereof by
transfer of immediately available funds for credit to the Company's account
specified in the Request for Purchase of such Notes. If the Company fails to
tender to any Purchaser the Accepted Notes to be purchased by such Purchaser on
the scheduled Closing Day for such Accepted Notes as provided above in this
paragraph 2B(7), or any of the conditions specified in paragraph 3 shall not
have been fulfilled by the time required on such scheduled Closing Day, the
Company shall, prior to 1:00 P.M., New York City local time, on such scheduled
Closing Day notify Prudential (which notification shall be deemed received by
each Purchaser) in writing whether (i) such closing is to be rescheduled (such
rescheduled date to be a Business Day during the Issuance Period not less than
one Business Day and not more than 30 Business Days after such scheduled Closing
Day (the "Rescheduled Closing Day")) and certify to Prudential (which
certification shall be for the benefit of each Purchaser) that the Company
reasonably believes that it will be able to comply with the conditions set forth
in paragraph 3 on such Rescheduled Closing Day and that the Company will pay the
Delayed Delivery Fee in accordance with paragraph 2B(8)(iii) or (ii) such
closing is to be canceled. In the event that the Company shall fail to give such
notice referred to in the preceding sentence, Prudential (on behalf of each
Purchaser) may at its election, at any time after 1:00 P.M., New York City local
time, on such scheduled Closing Day, notify the Company in writing that such
closing is to be canceled. Notwithstanding anything to the contrary appearing in
this Agreement, the Company may not elect to reschedule a closing with respect
to any given Accepted Notes on more than one occasion, unless Prudential shall
have otherwise consented in writing.
2B(8). Fees.
2B(8)(i). Structuring Fee; Rate Reduction Fee; Credit Adjustment Fee. In
consideration for the time, effort and expense involved in the preparation,
negotiation and execution of this Agreement, the Company shall pay to Prudential
on the Series C Closing Day in immediately available funds a fee (herein called
the "Structuring Fee") in the amount of (a) $234,000 less (b) the amount of fees
and expenses paid by the Company pursuant to paragraph 3A(6) hereof. In
consideration of the agreement by Prudential to change the rate of interest on
the Existing 7.21% Notes, the Company shall pay to Prudential on the Series C
Closing Day a fee (herein called the "Rate Reduction Fee") in the amount of
$141,735.07. In consideration of the agreement by Prudential to accept the
assumption by Varian, Inc. of obligations being assumed by Varian, Inc.
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<PAGE>
pursuant to paragraph 2A(1) of the Varian, Inc. Amended and Restated Note
Agreement and the release of the Company from the obligations assumed by Varian,
Inc., the Company shall pay Prudential on the Series C Closing Day in
immediately available funds a fee (herein called the "Credit Adjustment Fee") in
the amount of $992,244.
2B(8)(ii). Issuance Fee. The Company will pay to Prudential in immediately
available funds a fee (herein called the "Issuance Fee") on each Closing Day
(other than the Series C Closing Day or any other Closing Day which occurs prior
to the date which is three months after the Series C Closing Day) in an amount
equal to 0.15% of the aggregate principal amount of Notes sold on such Closing
Day.
2B(8)(iii). Delayed Delivery Fee. If the closing of the purchase and sale
of any Accepted Note is delayed for any reason beyond the original Closing Day
for such Accepted Note, the Company will pay to Prudential (a) on the
Cancellation Date or actual closing date of such purchase and sale and (b) if
earlier, the next Business Day following 90 days after the Acceptance Day for
such Accepted Note and on each Business Day following 90 days after the prior
payment hereunder, a fee (herein called the "Delayed Delivery Fee") calculated
as follows:
(BEY - MMY) X DTS/360 X PA
where "BEY" means Bond Equivalent Yield, i.e., the bond equivalent yield per
annum of such Accepted Note; "MMY" means Money Market Yield, i.e., the yield per
annum on a commercial paper investment of the highest quality selected by
Prudential on the date Prudential receives notice of the delay in the closing
for such Accepted Note having a maturity date or dates the same as, or closest
to, the Rescheduled Closing Day or Rescheduled Closing Days (a new alternative
investment being selected by Prudential each time such closing is delayed);
"DTS" means Days to Settlement, i.e., the number of actual days elapsed from and
including the original Closing Day with respect to such Accepted Note (in the
case of the first such payment with respect to such Accepted Note) or from and
including the date of the next preceding payment (in the case of any subsequent
delayed delivery fee payment with respect to such Accepted Note) to but
excluding the date of such payment; and "PA" means Principal Amount, i.e., the
principal amount of the Accepted Note for which such calculation is being made.
In no case shall the Delayed Delivery Fee be less than zero. Nothing contained
herein shall obligate any Purchaser to purchase any Accepted Note on any day
other than the Closing Day for such Accepted Note, as the same may be
rescheduled from time to time in compliance with paragraph 2B(7).
2B(8)(iv). Cancellation Fee. If the Company at any time notifies Prudential
in writing that the Company is canceling the closing of the purchase and sale of
any Accepted Note, or if Prudential notifies the Company in writing under the
circumstances set forth in the last sentence of paragraph 2B(5) or the
penultimate sentence of paragraph 2B(7) that the closing of the purchase and
sale of such Accepted Note is to be canceled, or if the closing of the purchase
and sale of such Accepted Note is not consummated on or prior to the last day of
the Issuance Period (the date of any such notification, or the last day of the
Issuance Period, as the case may be, being herein called the
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<PAGE>
"Cancellation Date"), the Company will pay to Prudential in immediately
available funds an amount (the "Cancellation Fee") calculated as follows:
PI X PA
where "PI" means Price Increase, i.e., the quotient (expressed in decimals)
obtained by dividing (a) the excess of the ask price (as determined by
Prudential) of the Hedge Treasury Note(s) on the Cancellation Date over the bid
price (as determined by Prudential) of the Hedge Treasury Notes(s) on the
Acceptance Day for such Accepted Note by (b) such bid price; and "PA" has the
meaning ascribed to it in paragraph 2B(8)(iii). The foregoing bid and ask
prices shall be as reported by Bridge Telerate Services (Telerate) (or, if such
data for any reason ceases to be available through Bridge Telerate Services
(Telerate), any publicly available source of similar market data). Each price
shall be based on a U.S. Treasury security having a par value of $100.00 and
shall be rounded to the second decimal place. In no case shall the Cancellation
Fee be less than zero.
3. CONDITIONS OF CLOSING.
3A. Conditions to Amendments and Restatements, Release of Company and
Issuance of Series C Notes. The effectiveness of the amendment and restatement
of the $12,500,000 principal amount of Existing 7.21% Notes pursuant to
paragraph 2A(1) hereof, the amendment to the maturity date of the Existing 6.70%
Notes and the amendment and restatement of the $25,000,000 principal amount of
the Existing 6.70% Notes pursuant to paragraph 2A(2) hereof, the amendment and
restatement of the 1992 Note Agreement and the 1996 Note Agreement and the
release of the Company from any obligations with respect to the Varian, Inc.
Notes pursuant to paragraph 11S hereof and the obligation of Prudential to
purchase and pay for the Series C Notes are subject to the satisfaction, on or
before the Series C Closing Day, of (i) each of the conditions to the
obligations to purchase and pay for the Series C Notes set forth in paragraph 3B
hereof, and (ii) each of the following conditions:
3A(1). Spin Off. All agreements and instruments relating to the Spin Off
shall be in form and substance reasonably satisfactory to the Purchasers and
shall have been duly executed and delivered by the parties thereto, the
Purchasers shall have received copies of all such agreements and instruments
together with an Officer's Certificate certify that such agreements and
instrument are correct and complete, and the Spin Off shall have been
consummated in accordance with the terms of such agreements and instruments.
3A(2). Consummation of Sale of Series C Notes and Prepayment of Existing
Notes. The Company shall have consummated the sale of the Series C Notes to the
Purchasers in accordance with the terms hereof and, concurrently therewith, the
Company shall have prepaid $14,000,000 principal amount of the Existing 7.49%
Notes and $7,000,000 principal amount of the Existing 6.90% Notes, and together
with such prepayment, shall have paid the accrued interest thereon to the date
of prepayment and the Yield-Maintenance Amount (as defined in the 1992 Note
Agreement), if any, with respect thereto, in accordance with paragraph 4A of the
1992 Note
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Agreement. Notwithstanding the provisions of the 1992 Note Agreement, if the
Company shall prepay such principal amounts of the Existing 7.49% Notes and
Existing 6.90% Notes from the proceeds of the sale of the Series C Notes as
contemplated by this Agreement, then, for the purposes of calculating such
Yield-Maintenance Amount due on such prepayment, the "Reinvestment Yield", as
defined in the 1992 Note Agreement, shall be 0.50% plus the amount of such
Reinvestment Yield otherwise determined in accordance with definition thereof in
the 1992 Note Agreement.
3A(3). Payment of Accrued Interest. To the extent not paid pursuant to
paragraph 3A(2), the Company shall have paid all accrued interest on the
Existing 7.49% Notes, the Existing 6.90% Notes, the Existing 7.21% Notes and the
Existing 6.70% Notes as of the Series C Closing Day.
3A(4). Varian, Inc. Amended and Restated Note Agreement. Prudential and
Varian, Inc shall have duly executed and delivered the Varian, Inc. Amended and
Restated Note Agreement and the Varian, Inc. Amended and Restated Note Agreement
shall be in full force and effect. All conditions to the effectiveness of the
amendment and restatement of the 1992 Note Agreement and the 1996 Note
Agreement, as they relate to the Varian Notes, under the Varian, Inc. Amended
and Restated Note Agreement shall have been satisfied.
3A(5). Restated Notes. Prudential shall have received the Series A Notes
and the Series B Notes, as contemplated by paragraphs 2A(1) and 2A(2) hereof,
duly executed and delivered by the Company.
3A(6). Fees and Expenses. Without limiting the provisions of paragraph 11B
hereof, the Company shall have paid the reasonable fees, charges and
disbursements of special counsel to the Purchasers in connection with the
transactions contemplated thereby.
3A(7). Securities Valuation Office Questionnaire. The Company will have
delivered to the Purchasers a copy of the Company's response to the Year 2000
Due Diligence Questionnaire supplied by the Securities Valuation Office of the
National Association of Insurance Commissioners.
3B. Conditions to Purchase of Notes. The obligation of any Purchaser to
purchase and pay for any Notes is subject to the satisfaction (i) on or before
the Series C Closing Day, of each of the conditions set forth in paragraph 3A,
and (ii) on or before the Closing Day for such Notes, of the following
additional conditions:
3B(1). Certain Documents. Such Purchaser shall have received the following,
each dated the date of the applicable Closing Day:
(i) The Note(s) to be purchased by such Purchaser.
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(ii) Certified copies of the resolutions of the Boards of Directors of
the Company authorizing the execution and delivery of this Agreement and
the issuance of the Notes, and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to this
Agreement and the Notes.
(iii) Certificates of the Secretary or an Assistant Secretary and one
other officer of the Company certifying the names and true signatures of
the officers of the Company authorized to sign this Agreement and the Notes
and the other documents to be delivered hereunder.
(iv) Certified copies of the Charter and By-laws of the Company.
(v) A favorable opinion from the general counsel of the Company (or
such other counsel designated by the Company and acceptable to the
Purchaser(s)) satisfactory to such Purchaser and substantially in the form
of Exhibit E-1 (in the case of the Series C Notes) or E-2 (in the case of
any Shelf Notes) attached hereto and as to such other matters as such
Purchaser may reasonably request. The Company hereby directs each such
counsel to deliver such opinion, agrees that the issuance and sale of any
Notes will constitute a reconfirmation of such direction, and understands
and agrees that each Purchaser receiving such an opinion will and is hereby
authorized to rely on such opinion.
(vi) Good standing certificates for the Company from the Secretaries
of State of Delaware and California dated as of a recent date and such
other evidence of the status of the Company as such Purchaser may
reasonably request.
(vii) In the case of Closing Days other than the Series C Closing Day,
additional documents or certificates with respect to legal matters or
corporate or other proceedings related to the transactions contemplated
hereby as may be reasonably requested by such Purchaser at least two
Business Days prior to the Closing Day.
3B(2). Opinion of Purchaser's Special Counsel. Such Purchaser shall have
received from James F. Evert, Assistant General Counsel of Prudential or such
other counsel who is acting as special counsel for it in connection with this
transaction, a favorable opinion satisfactory to such Purchaser as to such
matters incident to the matters herein contemplated as it may reasonably
request.
3B(3). Representations and Warranties; No Default. The representations and
warranties of the Company contained in paragraph 8 hereof shall be true on and
as of such Closing Day, except to the extent of changes caused by the
transactions herein contemplated; there shall exist on such Closing Day no Event
of Default or Default; and the Company shall have delivered to such Purchaser an
Officer's Certificate, dated such Closing Day, to both such effects.
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3B(4). Purchase Permitted by Applicable Laws. The purchase of and payment
for the Notes to be purchased by such Purchaser on the terms and conditions
herein provided (including the use of the proceeds of such Notes by the Company)
shall not violate any applicable law or governmental regulation (including,
without limitation, Section 5 of the Securities Act or Regulation T, U or X of
the Board of Governors of the Federal Reserve System) and shall not subject such
Purchaser to any tax, penalty, liability or other onerous condition under or
pursuant to any applicable law or governmental regulation, and such Purchaser
shall have received such certificates or other evidence as it may request to
establish compliance with this condition.
3B(5). Payment of Fees. The Company shall have paid to Prudential any fees
due it pursuant to or in connection with this Agreement, including the
Structuring Fee, the Rate Reduction Fee and the Credit Adjustment Fee due
pursuant to paragraph 2B(8)(i), any Issuance Fee due pursuant to paragraph
2B(8)(ii) and any Delayed Delivery Fee due pursuant to paragraph 2B(8)(iii).
4. PREPAYMENTS. The Series A Notes, the Series B Notes, the Series C Notes
and any Shelf Notes shall be subject to required prepayment as and to the extent
provided in paragraphs 4A and 4B, respectively. The Series A Notes, the Series B
Notes, the Series C Notes and any Shelf Notes shall also be subject to
prepayment under the circumstances set forth in paragraph 4C.
4A. Required Prepayments of Series A Notes, Series B Notes and Series C
Notes.
4A(1). Required Prepayments of Series A Notes. Until the Series A Notes
shall be paid in full, the Company shall apply to the prepayment of the Series A
Notes, without Yield Maintenance Amount, the sum of $2,500,000 on April 2 in
each year, commencing April 2, 2006 through and including April 2, 2009, and
such principal amounts of the Series A Notes, together with interest accrued
thereon to the payment dates, shall become due on such payment dates. The
remaining unpaid principal amount of the Series A Notes, together with interest
accrued thereon, shall become due on the maturity date of the Series A Notes.
4A(2). Required Prepayments of Series B Notes. Until the Series B Notes
shall be paid in full, the Company shall apply to the prepayment of the Series B
Notes, without Yield-Maintenance Amount, the sum of $6,250,000 on each of April
30, 2008, April 30, 2010 and April 30, 2012, and such principal amounts of the
Series B Notes, together with interest accrued thereon to the payment dates,
shall become due on such payment dates. The remaining unpaid principal amount of
the Series B Notes, together with interest accrued thereon, shall become due on
the maturity date of the Series B Notes.
4A(3). Required Prepayments of Series C Notes. Until the Series C Notes
shall be paid in full, the Company shall apply to the prepayment of the Series C
Notes, without Yield-Maintenance Amount, the sum of $5,250,000 on each of April
2, 2005, April 2, 2007 and April 2,
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2009, and such principal amounts of the Series C Notes, together with interest
accrued thereon to the payment dates, shall become due on such payment dates.
The remaining unpaid principal amount of the Series C Notes, together with
interest accrued thereon, shall become due on the maturity date of the Series C
Notes.
4B. Required Prepayments of Shelf Notes. Each Series of Shelf Notes shall
be subject to the required prepayments, if any, set forth in the Notes of such
Series.
4C. Optional Prepayment With Yield-Maintenance Amount. The Notes of each
Series shall be subject to prepayment, in whole at any time or from time to time
in part (in integral multiples of $100,000 and in a minimum amount of
$1,000,000), at the option of the Company, at 100% of the principal amount so
prepaid plus interest thereon to the prepayment date and the Yield-Maintenance
Amount, if any, with respect to each such Note. Notwithstanding paragraphs
4A(1), 4A(2), 4A(3) and 4B, upon any partial prepayment of Notes of a Series
pursuant to this paragraph 4C, the principal amount of each required prepayment
of the Notes of such Series under paragraph 4A(1), 4A(2), 4A(3) or 4B, as the
case may be, becoming due after the date of such prepayment shall be reduced in
the same proportion as the aggregate unpaid principal amount of the Notes of
such Series is reduced as a result of such prepayment pursuant to this paragraph
4C.
4D. Notice of Optional Prepayment. The Company shall give the holder of
each Note of a Series to be prepaid pursuant to paragraph 4C irrevocable written
notice of such prepayment not less than 5 Business Days prior to the prepayment
date, specifying such prepayment date, the aggregate principal amount of the
Notes of such Series to be prepaid on such date, the principal amount of the
Notes of such Series held by such holder to be prepaid on that date and that
such prepayment is to be made pursuant to paragraph 4C. Notice of prepayment
having been given as aforesaid, the principal amount of the Notes specified in
such notice, together with interest thereon to the prepayment date and together
with the Yield-Maintenance Amount, if any, herein provided, shall become due and
payable on such prepayment date. The Company shall, on or before the day on
which it gives written notice of any prepayment pursuant to paragraph 4C, give
telephonic notice of the principal amount of the Notes to be prepaid and the
prepayment date to each Significant Holder which shall have designated a
recipient for such notices in the Purchaser Schedule attached hereto or in the
applicable Confirmation of Acceptance or by notice in writing to the Company.
4E. Application of Prepayments. In the case of each prepayment of less than
the entire unpaid principal amount of all outstanding Notes of any Series
pursuant to paragraph 4A, 4B or 4C, the amount to be prepaid shall be applied
pro rata to all outstanding Notes of such Series according to the respective
unpaid principal amounts thereof.
4F. Retirement of Notes. The Company shall not, and shall not permit any of
its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in
part prior to their stated final maturity (other than by prepayment pursuant to
paragraph 4A, 4B or 4C or upon acceleration of such final maturity pursuant to
paragraph 7A), or purchase or otherwise acquire, directly or indirectly, Notes
of any Series held by any holder.
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5. AFFIRMATIVE COVENANTS. During the Issuance Period and so long thereafter
as any Note is outstanding and unpaid, the Company covenants as follows:
5A. Financial Statements; Notice of Defaults. The Company covenants that it
will deliver to each Significant Holder in duplicate:
(i) as soon as practicable and in any event within 45 days after the
end of each of the first three quarterly periods in each fiscal year,
consolidated statements of earnings, cash flows and shareholders' equity of
the Company and its Subsidiaries for the period from the beginning of the
current fiscal year to the end of such quarterly period, and a consolidated
balance sheet of the Company and its Subsidiaries as at the end of such
quarterly period, setting forth in each case in comparative form figures
for the corresponding period in the preceding fiscal year, all in
reasonable detail and certified by an authorized financial officer of the
Company, subject to changes resulting from year-end adjustments; provided,
--------
however, that delivery pursuant to clause (iii) below of copies of the
-------
Quarterly Report on Form 10-Q of the Company for such quarterly period
filed with the Securities and Exchange Commission shall be deemed to
satisfy the requirements of this clause (i);
(ii) as soon as practicable and in any event within 90 days after the
end of each fiscal year, consolidated statements of earnings, cash flows
and shareholders' equity of the Company and its Subsidiaries for such year,
and a consolidated balance sheet of the Company and its Subsidiaries as at
the end of such year, setting forth in each case in comparative form
corresponding consolidated figures from the preceding annual audit, all in
reasonable detail and satisfactory in form to the Required Holder(s) and
containing an unqualified opinion by independent nationally recognized
public accountants selected by the Company; provided, however, that
-------- -------
delivery pursuant to clause (iii) below of copies of the Annual Report on
Form 10-K of the Company for such fiscal year filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of this
clause (ii);
(iii) promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as it shall send to its
stockholders and copies of all registration statements (without exhibits
and exclusive of any registration statement on From S-8 or any successor
thereto) and all reports which it files with the Securities and Exchange
Commission (or any governmental body or agency succeeding to the functions
of the Securities and Exchange Commission);
(iv) promptly upon any amendment or other modification thereof which
changes the types or amounts of investments or classes of investments
permitted thereby, a copy of the Investment Policy reflecting such
amendment or other modification; and
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(v) with reasonable promptness, such other financial data as such
Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each Significant Holder an Officer's
Certificate demonstrating (with computations in reasonable detail) compliance by
the Company and its Subsidiaries with the provisions of paragraphs 6A, 6B, 6C(2)
and 6C(3) and stating that there exists no Event of Default or Default, or, if
any Event of Default or Default exists, specifying the nature and period of
existence thereof and what action the Company proposes to take with respect
thereto. Together with each delivery of financial statements required by clause
(ii) above, the Company will deliver to each Significant Holder a certificate of
such accountants stating that, in making the audit necessary for their report on
such financial statements, they have obtained no knowledge of any Event of
Default or Default, or, if they have obtained knowledge of any Event of Default
or Default, specifying the nature and period of existence thereof. Such
accountants, however, shall not be liable to anyone by reason of their failure
to obtain knowledge of any Event of Default or Default which would not be
disclosed in the course of such audit.
The Company also covenants that immediately after any Designated
Officer obtains knowledge of an Event of Default or Default, it will deliver to
each Significant Holder an Officer's Certificate specifying the nature and
period of existence thereof and what action the Company proposes to take with
respect thereto.
5B. Information Required by Rule 144A. The Company covenants that it will,
upon the request of the holder of any Note, provide such holder, and any
qualified institutional buyer designated by such holder, such financial and
other information as such holder may reasonably determine to be necessary in
order to permit compliance with the information requirements of Rule 144A under
the Securities Act in connection with the resale of Notes, except at such times
as the Company is subject to and in compliance with the reporting requirements
of section 13 or 15(d) of the Exchange Act. For the purpose of this paragraph
5B, the term "qualified institutional buyer" shall have the meaning specified in
Rule 144A under the Securities Act.
5C. Inspection of Property. The Company covenants that it will permit any
Person designated by any Significant Holder in writing, at such Significant
Holder's expense, to visit and inspect any of the properties of the Company and
its Subsidiaries, to examine the corporate books and financial records of the
Company and its Subsidiaries and make copies thereof or extracts therefrom
(provided making copies or taking extracts of any such documents with the
consent of the Company is not prohibited by any federal, state or local law) and
to discuss the affairs, finances and accounts of any of such corporations with
(x) the principal officers of the Company and (y) during the pendency of an
Event of Default and so long as an officer of the Company is provided an
opportunity to attend, its independent public accountants, all at such
reasonable times and as often as such Significant Holder may reasonably request;
provided, however, that (i) the foregoing provisions of this paragraph 5C shall
be subject to compliance with applicable security regulations of the United
States Government, (ii) matters which the Company in good faith has determined
are
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subject to the attorney/client privilege, information from third parties which
the Company is required to maintain as confidential and confidential research
and design information of the Company or of any Subsidiary shall not be subject
to such inspection, examination, copying and discussion and (iii) disclosure of
any other material non-public information of the Company or its Subsidiaries
requested by such Person may be conditioned upon such Person's execution and
delivery of a confidentiality agreement in the form of Exhibit F-1 (in the case
of Prudential or any Prudential Affiliate) or in the form of Exhibit F-2 or such
other form as is reasonably satisfactory to the Company and such Person (in the
case of any other holder of Notes).
5D. Covenant to Secure Notes Equally. The Company covenants that, if it or
any Subsidiary shall create or assume any Lien upon any of its property or
assets, whether now owned or hereafter acquired, other than Liens permitted by
the provisions of paragraph 6C(1) (unless prior written consent to the creation
or assumption thereof shall have been obtained pursuant to paragraph 11C), it
will, if requested by the Required Holders, make or cause to be made effective
provision whereby the Notes will be secured by such Lien equally and ratably
with any and all other Funded Debt thereby secured so long as any such other
Funded Debt shall be so secured.
5E. Maintenance of Insurance. The Company covenants that it will, and will
cause its Subsidiaries to, maintain insurance in such amounts and against such
hazards and liabilities as customarily is maintained by other companies
operating similar businesses and, from time to time, upon the written request of
any Significant Holder, will deliver an Officer's Certificate specifying the
details of such insurance then in effect.
5F. Compliance with Laws. The Company covenants that it will, and will
cause each of the Subsidiaries to, comply in a timely fashion with, or operate
pursuant to valid waivers of the provisions of, all applicable statutes, rules,
regulations and orders of all federal, state, local and foreign governments,
courts, agencies or regulatory bodies, including all Environmental Laws, except
where noncompliance would not materially adversely affect the business,
condition (financial or otherwise) or operations of the Company and the
Subsidiaries taken as a whole.
6. NEGATIVE COVENANTS. During the Issuance Period and so long thereafter as
any Note or other amount due hereunder is outstanding and unpaid, the Company
covenants as follows:
6A. Certain Financial Requirements. The Company covenants that it will not
permit:
(i) Consolidated Working Capital at any time to be less than
$50,000,000;
(ii) the ratio of (A) the sum of Consolidated Cash and Cash
Equivalents plus Consolidated Receivables to (B) Consolidated Current
Liabilities at any time to be less than 50%; or
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(iii) the ratio of (A) the sum of (1) Consolidated Net Earnings plus
(2) Consolidated income taxes plus (3) Consolidated Interest Expense to (B)
Consolidated Interest Expense for the five immediately preceding
consecutive fiscal quarters at any time to be less than 300%.
6B. Dividend Limitation. The Company covenants that it will not and will
not permit any Subsidiary to (i) pay or declare any dividend on any class of its
stock, or make any other distribution on account of any class of its stock
(other than the distribution of the stock of Varian, Inc. to the stockholders of
the Company in the Spin-Off), or (ii) redeem, purchase or otherwise acquire,
directly or indirectly, any shares of its stock (all of the foregoing being
herein called "Restricted Payments") except any such Restricted Payment which,
when added to all prior Restricted Payments made by the Company or any
Subsidiary after September 30, 1998, does not exceed Consolidated Net Earnings
Available for Restricted Payments. There shall not be included in Restricted
Payments (i) dividends paid, or distributions made, in its own stock by the
Company or a Subsidiary; (ii) exchanges of stock of one or more classes of the
Company or a Subsidiary for its common stock or for its stock of the same class,
except to the extent that cash or other value is involved in such exchange;
(iii) the cost of stock of the Company repurchased by the Company in any year
for the issuance of new stock to employees and directors under the employee
stock plans and programs described in the Company's proxy statement dated
January 16, 1992, and any successor or replacement programs, but not to exceed
the proceeds received by the Company from the issuance of stock under such plans
and programs during such year; or (iv) dividends or distributions paid by a
Subsidiary to the Company. The term "stock" as used in this paragraph 6B shall
include warrants, rights or options to purchase stock.
6C. Lien, Funded Debt and Other Restrictions. The Company covenants that it
will not and will not permit any Subsidiary to:
6C(1). Liens. Create, assume or suffer to exist at any time any Lien upon
any of its property or assets, whether now owned or hereafter acquired (whether
or not provision is made for the equal and ratable securing of the Note in
accordance with the provisions of paragraph 5C), except
(i) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
established in accordance with generally accepted accounting principles;
(ii) other Liens incidental to the conduct of its business or the
ownership of its property and assets which were not incurred in connection
with the borrowing of money or the obtaining of advances or credit, and
which do not in the aggregate materially detract from the value of its
property or assets or materially impair the use thereof in the operation of
its business;
(iii) Liens on property or assets of a Subsidiary to secure
obligations of such Subsidiary to the Company or another Subsidiary; and
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<PAGE>
(iv) any Lien on property of the Company or any Subsidiary securing
Funded Debt permitted by paragraph 6C(2), provided that Funded Debt secured
by all such Liens shall not at any time exceed 15% of Consolidated Tangible
Net Worth;
6C(2). Consolidated Funded Debt. Create, incur, assume or suffer to exist
at any time any Funded Debt, except to the extent that (i) Consolidated Funded
Debt is less than or equal to 55% of Consolidated Tangible Gross Worth, (ii)
Consolidated Funded Debt secured by Liens is less than or equal to 15% of
Consolidated Tangible Net Worth, and (iii) Funded Debt of Subsidiaries
(including Guarantees of Funded Debt of the Company) to Persons other than the
Company or another Subsidiary is less than or equal to 10% of Consolidated
Tangible Net Worth;
6C(3). Loans, Advances, Investments and Contingent Liabilities. Make or
permit to remain outstanding any loan or advance to, or Guarantee, endorse or
otherwise voluntarily be or become contingently liable, directly or indirectly,
in connection with the obligations, stock or dividends of, or own, purchase or
acquire any stock, obligations or securities of, or any other interest in, or
make any capital contribution to, any Person (provided that for purposes of this
Agreement down payments and progress payments in the ordinary course of business
shall not be considered as advances), except that the Company or any Subsidiary
may:
(i) make or permit to remain outstanding loans or advances to any
Subsidiary,
(ii) own, purchase or acquire stock, obligations or securities of a
Subsidiary, or of a corporation which immediately after such purchase or
acquisition will be a Subsidiary,
(iii) acquire and own stock, obligations or securities received in
settlement of debts (created in the ordinary course of business) owing to
the Company or any Subsidiary,
(iv) endorse negotiable instruments for collection in the ordinary
course of business,
(v) make or permit to remain outstanding (A) travel advances in the
ordinary course of business to, and (B) loans and Guarantees pursuant to
employee relocation and housing programs approved by the Company's Board of
Directors to or on behalf of, officers and employees of the Company or any
Subsidiary,
(vi) Guarantee obligations of other Persons, provided the Funded Debt
represented by such Guarantees does not violate any provision of this
Agreement, including paragraph 6C(2),
(vii) make investments as permitted by the investment policy (the
"Investment Policy") adopted by the Board of Directors of the Company and
which is attached hereto as Exhibit G, as amended from time to time,
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<PAGE>
(viii) make Restricted Payments in compliance with paragraph 6B,
(ix) guarantee obligations of Varian, Inc. and VSEA constituting
"shared liabilities" as that term is defined in the Amended and Restated
Distribution Agreement, dated as of January 14, 1999 by and among the
Company, Varian, Inc. and VSEA, and
(x) make other loans, advances and investments, provided that the
aggregate dollar amount thereof shall not at any time exceed 20% of
Consolidated Tangible Net Worth;
6C(4). Sale of Stock and Funded Debt of Subsidiaries. Sell, issue or
otherwise dispose of any shares of stock (other than director's or shareholder's
qualifying shares) or Funded Debt of any Subsidiary, except (i) to the Company
or another Subsidiary, (ii) that all shares of stock and Funded Debt of any
Subsidiary at the time owned by or owed to the Company and all Subsidiaries may
be sold as an entirety for a consideration which represents the fair value (as
determined in good faith by the Board of Directors of the Company) at the time
of sale of the shares of stock and Funded Debt so sold, provided that such sale
shall be subject to and shall not violate paragraph 6C(5), and further provided
that, at the time of such sale, such Subsidiary shall not own, directly or
indirectly, any shares of stock or Funded Debt of any other Subsidiary (unless
all of the shares of stock and Funded Debt of such other Subsidiary owned,
directly or indirectly, by the Company and all Subsidiaries are simultaneously
being sold as permitted by this paragraph 6C(4)) and (iii) less than all shares
of stock in a Subsidiary may be sold for a consideration of not less than fair
value (as determined in good faith by the Board of Directors of the Company) so
long as the Company's remaining investment in such former Subsidiary is treated
as an investment and can be held in compliance with paragraph 6C(3);
6C(5). Merger and Sale of Assets. Enter into any transaction of merger or
consolidation with any other corporation or sell, lease or transfer or otherwise
dispose of all or a substantial part of its assets to any Person, except that
(i) any Subsidiary wholly-owned by the Company may merge with the
Company (provided that the Company shall be the continuing or surviving
corporation) or with any one or more other Subsidiaries,
(ii) any Subsidiary may sell, lease, transfer or otherwise dispose of
(collectively, "Transfer") any of its assets to the Company or another
Subsidiary,
(iii) any Subsidiary may Transfer all or substantially all of its
assets subject to the conditions specified in paragraphs 6C(4)(ii) and the
remainder of this 6C(5) with respect to the sale of the stock of such
Subsidiary,
(iv) the Company may merge or consolidate with any other corporation
provided that the Company shall be the continuing or surviving corporation
and that immediately after
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such merger or consolidation, there shall exist no Event of Default or
Default under this Agreement, and
(v) the Company or any Subsidiary may Transfer any of its assets
provided that (x) the book value of all such assets Transferred, together
with the book value of all shares of stock and Funded Debt of any
Subsidiary Transferred pursuant to the provisions of paragraph 6C(4) and
assets Transferred pursuant to clause (iii) of this paragraph 6C(5), in any
fiscal year does not exceed 20% of Consolidated Tangible Net Worth as of
the last day of the immediately preceding fiscal year, and (y) the assets,
including any assets Transferred pursuant to clause (iii) of this paragraph
6C(5) and any Subsidiary Transferred pursuant to the provisions of
paragraph 6C(4), Transferred in any fiscal year shall have contributed less
than 10% of the average amount of Consolidated Net Earnings for the three
fiscal years immediately preceding the fiscal year in which such
determination takes place;
provided, however, that notwithstanding any provision of paragraphs 6C(4) and
6C(5) to the contrary, (A) the Company and its Subsidiaries shall not Transfer
assets, on a cumulative basis from the date of this Agreement, either with a
book value in excess of 40% of Consolidated Tangible Net Worth (measured as of
the last day of the fiscal year immediately preceding the fiscal year in which
such determination takes place) or that contributed Consolidated Net Earnings
(calculated as set forth in clause (v) (y) above) in excess of 20% of
Consolidated Net Earnings for the three fiscal years immediately preceding the
fiscal year in which such determination takes place, and (B) the Company may
discontinue the operation of, or sell, any division of its business or any
Subsidiary if such division or Subsidiary is unprofitable and the Board of
Directors of the Company in good faith has determined that the business of such
division or Subsidiary should be so discontinued or otherwise abandoned;
6C(6). Sale or Discount of Receivables. Discount or sell with recourse, or
sell for less than the face value thereof, any of its notes or accounts
receivable, except that the Company or any Subsidiary may (i) sell notes or
------
accounts receivable with recourse provided that the aggregate face amount of
such notes and accounts receivable sold in any fiscal year does not exceed 5% of
Consolidated gross sales for the fiscal year then most recently ended, and (ii)
discount notes or accounts receivable provided that the amount of such discount
reflects only customary finance charges paid by the Company or such Subsidiary
in the normal course of business;
6C(7). Transactions with Stockholders. Directly or indirectly, purchase,
acquire or lease any property from, or Transfer any property to, or otherwise
deal with, in the ordinary course of business or otherwise (i) any Affiliate or
(ii) any Substantial Stockholder, except that (a) the Company may sell to, or
purchase (within the limitations of paragraph 6B) from, any such person shares
of the Company's stock, (b) such acts and transactions prohibited by this
paragraph 6C(7) may be performed or engaged in if made upon terms not less
favorable than if no such relationship described in clauses (i) and (ii) above
existed, (c) the foregoing shall not apply to cash compensation, stock option
and other stock-based incentive compensation, employee relocation and other
employee benefit plans approved by the Company's Board of Directors, (d) the
Company and its Subsidiaries
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<PAGE>
may, in the ordinary course of business, directly or indirectly, purchase,
acquire or lease property from, or Transfer property to, or otherwise deal with
Affiliates provided that such transaction with any such Affiliate shall be not
less favorable to the Company and its Subsidiaries than if such transactions
were entered into with non-Affiliates and (e) the Company and Subsidiaries may
engage in such transactions if approved by a majority of the outside,
disinterested members of the Company's Board of Directors.
7. EVENTS OF DEFAULT.
7A. Acceleration. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of or Yield
Maintenance Amount on any Note when the same shall become due, either by the
terms thereof or otherwise as herein provided; or
(ii) the Company defaults in the payment of any interest on any Note
for more than 10 days after the date due; or
(iii) the Company or any Subsidiary defaults (whether as primary
obligor, as guarantor or other surety) in any payment of principal of or
interest on any other obligation for money borrowed (or any Capitalized Lease
Obligation, any obligation under a conditional sale or other title retention
agreement, any obligation issued or assumed as full or partial payment for
property whether or not secured by a purchase money mortgage or any obligation
under notes payable or drafts accepted representing extensions of credit) beyond
any period of grace provided with respect thereto, or the Company or any
Subsidiary fails to perform or observe any other agreement, term or condition
contained in any agreement under which any such obligation is created (or if any
other event thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to cause, or to
permit the holder or holders of such obligation (or a trustee on behalf of such
holder or holders) to cause, such obligation to become due (or to be repurchased
by the Company or any Subsidiary) prior to any stated maturity, provided that
--------
the aggregate amount of all obligations as to which such a payment default shall
occur and be continuing or such a failure or other event causing or permitting
acceleration (or resale to the Company or any Subsidiary) shall occur and be
continuing exceeds $5,000,000; or
(iv) any representation or warranty made by the Company herein or by
the Company or any of its officers in any writing furnished in connection with
or pursuant to this Agreement shall be false in any material respect on the date
as of which made; or
(v) the Company fails to perform or observe any agreement contained in
paragraph 6; or
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(vi) the Company fails to perform or observe any other agreement, term
or condition contained herein and such failure shall not be remedied within 30
days after any Designated Officer obtains actual knowledge thereof; or
(vii) the Company or any Subsidiary makes an assignment for the
benefit of creditors or is generally not paying its debts as such debts become
due; or
(viii) any decree or order for relief in respect of the Company or any
Subsidiary is entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation or
similar law, whether now or hereafter in effect (herein called the "Bankruptcy
Law"), of any jurisdiction; or
(ix) the Company or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of the Company or
any Subsidiary, or of any substantial part of the assets of the Company or any
Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United
States or any proceedings (other than proceedings for the voluntary liquidation
and dissolution of a Subsidiary) relating to the Company or any Subsidiary under
the Bankruptcy Law of any other jurisdiction; or
(x) any such petition or application is filed, or any such proceedings
are commenced, against the Company or any Subsidiary and the Company or such
Subsidiary by any act indicates its approval thereof, consent thereto or
acquiescence therein, or an order, judgment or decree is entered appointing any
such trustee, receiver, custodian, liquidator or similar official, or approving
the petition in any such proceedings, and such order, judgment or decree remains
unstayed and in effect for more than 30 days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such order,
judgment or decree remains unstayed and in effect for more than 60 days; or
(xii) any order, judgment or decree is entered in any proceedings
against the Company or any Subsidiary decreeing a split-up of the Company or
such Subsidiary which requires the divestiture of assets with a book value, or
the divestiture of the stock of a Subsidiary whose assets have a book value, in
excess of 20% of Consolidated Tangible Net Worth (measured at the end of the
fiscal year immediately preceding the fiscal year in which such divestiture
occurs) or which requires the divestiture of assets, or stock of a Subsidiary,
which shall have contributed in excess of 10% of the average amount of
Consolidated Net Earnings for the three completed fiscal years immediately
preceding the fiscal year in which such divestiture occurs, and such order,
judgment or decree remains unstayed and in effect for more than 60 days; or
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(xiii) one or more final judgments in an aggregate amount in excess of
$5,000,000 is rendered against the Company or any Subsidiary and, within 60 days
after entry thereof, any such judgment is not discharged or execution thereof
stayed pending appeal, or within 60 days after the expiration of any such stay,
any such judgment is not discharged; or
(xiv) if (a) any Plan shall fail to satisfy any applicable minimum
funding standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought or
granted under section 412 of the Code, (b) a notice of intent to terminate any
Plan shall have been or is reasonably expected to be filed with the PBGC or the
PBGC shall have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a subject of any such
proceedings, (c) the aggregate "amount of unfunded benefit liabilities" (within
the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in
accordance with Title IV of ERISA, shall exceed $1,000,000, (d) the Company or
any ERISA Affiliate shall have incurred or is reasonably expected to incur any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, (e) the Company or
any ERISA Affiliate withdraws from any Multiemployer Plan, or (f) the Company or
any Subsidiary establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would increase the
liability of the Company or any Subsidiary thereunder; and any such event or
events described in clauses (a) through (f) above, either individually or
together with any other such event or events, would reasonably be expected to
have a material adverse effect on the financial condition of the Company and its
Subsidiaries taken as a whole;
then (a) if such event is an Event of Default specified in clause (i) or (ii) of
this paragraph 7A, any holder of any Note may at its option during the
continuance of such Event of Default, by notice in writing to the Company,
declare all of the Notes held by such holder to be, and all of the Notes held by
such holder shall thereupon be and become, immediately due and payable at par
together with interest accrued thereon, without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Company, (b) if such
event is an Event of Default specified in clause (viii), (ix) or (x) of this
paragraph 7A with respect to the Company, all of the Notes at the time
outstanding shall automatically become immediately due and payable together with
interest accrued thereon and together with the Yield-Maintenance Amount, if any,
with respect to each Note, without presentment, demand, protest or notice of any
kind, all of which are hereby waived by the Company, and (c) with respect to any
event constituting an Event of Default, the Required Holder(s) of the Notes of
any Series may at its or their option during the continuance of such Event of
Default, by notice in writing to the Company, declare all of the Notes of such
Series to be, and all of the Notes of such Series shall thereupon be and become,
immediately due and payable together with interest accrued thereon and together
with the Yield-Maintenance Amount, if any, with respect to each Note of such
Series, without presentment, demand, protest or notice of any kind, all of which
are hereby waived by the Company.
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7B. Rescission of Acceleration. At any time after any or all of the Notes
of any Series shall have been declared immediately due and payable pursuant to
paragraph 7A, the Required Holder(s) of the Notes of such Series may, by notice
in writing to the Company, rescind and annul such declaration and its
consequences if (i) the Company shall have paid all overdue interest on the
Notes of such Series, the principal of and Yield-Maintenance Amount, if any,
payable with respect to any Notes of such Series which have become due otherwise
than by reason of such declaration, and interest on such overdue interest and
overdue principal and Yield-Maintenance Amount at the rate specified in the
Notes of such Series, (ii) the Company shall not have paid any amounts which
have become due solely by reason of such declaration, (iii) all Events of
Default and Defaults, other than non-payment of amounts which have become due
solely by reason of such declaration, shall have been cured or waived pursuant
to paragraph 11C, and (iv) no judgment or decree shall have been entered for the
payment of any amounts due pursuant to the Notes of such Series or this
Agreement. No such rescission or annulment shall extend to or affect any
subsequent Event of Default or Default or impair any right arising therefrom.
7C. Notice of Acceleration or Rescission. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each Note
of each Series at the time outstanding.
7D. Other Remedies. If any Event of Default or Default shall occur and be
continuing, the holder of any Note may proceed to protect and enforce its rights
under this Agreement and such Note by exercising such remedies as are available
to such holder in respect thereof under applicable law, either by suit in equity
or by action at law, or both, whether for specific performance of any covenant
or other agreement contained in this Agreement or in aid of the exercise of any
power granted in this Agreement. No remedy conferred in this Agreement upon the
holder of any Note is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy conferred herein or now or hereafter existing at law or in equity or by
statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants as follows (all such representations, warranties and
covenants being made both immediately before and after giving effect to the Spin
Off and all references to "Subsidiary" and "Subsidiaries" in this paragraph 8
shall be deemed omitted if the Company has no Subsidiaries at the time the
representations herein are made or repeated):
8A. Organization. The Company is a corporation duly organized and existing
in good standing under the laws of the State of Delaware, each Subsidiary is
duly organized and existing in good standing under the laws of the jurisdiction
in which it is incorporated, and the Company has and each Subsidiary has the
corporate power to own its respective property and to carry on its respective
business as now being conducted, and the Company is and each Subsidiary is duly
qualified as a foreign corporation to do business and in good standing in every
jurisdiction in which the nature of the respective business conducted by it
makes such qualification necessary,
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excepting jurisdictions where failure to qualify would on a consolidated basis
have no material effect on the Company. The issuance of any Notes pursuant to
this Agreement is in compliance with the authorizing resolutions of the Board of
Directors then in effect and will not result in the aggregate outstanding amount
of Notes, debt obligations and other borrowings authorized by such resolutions,
after giving effect to the issuance of, and application of the proceeds from,
such Notes, to exceed the aggregate limitation contained in such authorizing
resolutions.
8B. Financial Statements. The Company has furnished each Purchaser of the
Series C Notes and any Accepted Notes with the following financial statements,
identified by a principal financial officer of the Company: (i) a consolidated
balance sheet of the Company and its Subsidiaries as at the last day of each of
the two fiscal years of the Company most recently completed prior to the date as
of which this representation is made or repeated to such Purchaser (other than
fiscal years completed within 90 days prior to such date for which audited
financial statements have not been released) and consolidated statements of
earnings, cash flows and shareholders' equity of the Company and its
Subsidiaries for each such year, all reported on by PricewaterhouseCoopers LLP
(or another nationally recognized independent accounting firm), (ii) a proforma
consolidated balance sheet of the Company and its Subsidiaries after giving
effect to the Spin-Off as of the last day of the fiscal year ending October 2,
1998 and proforma consolidated statements of earnings and cash flows of the
Company and its Subsidiaries after giving effect to the Spin-Off for such year,
(iii) a consolidated balance sheet of the Company and its Subsidiaries as at the
end of the quarterly period (if any) most recently completed prior to such date
and after the end of such fiscal year (other than quarterly periods completed
within 45 days prior to such date for which financial statements have not been
released) and the comparable quarterly period in the preceding fiscal year and
consolidated statements of earnings and cash flows for the periods from the
beginning of the fiscal years in which such quarterly periods are included to
the end of such quarterly periods, prepared by the Company. Such financial
statements (including any related schedules and/or notes) are complete (subject,
as to interim statements, to changes resulting from audits and year-end
adjustments), have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods involved and
show all liabilities, direct and contingent, of the Company and its Subsidiaries
required to be shown in accordance with such principles. The balance sheets
fairly present the condition of the Company and its Subsidiaries as at the dates
thereof, and the statements of earnings, stockholders' equity and cash flows
fairly present the results of the operations of the Company and its Subsidiaries
and their cash flows for the periods indicated. Other than as a result of the
Spin-Off, there has been no material adverse change in the business, property or
assets, condition (financial or otherwise) or operations of the Company and its
Subsidiaries taken as a whole since the end of the most recent fiscal year for
which such audited financial statements have been furnished.
8C. Actions Pending. There is no action, suit, investigation or proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries, or any properties or rights of the Company or any of
its Subsidiaries, by or before any court, arbitrator or administrative or
governmental body which could reasonably be expected to
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result in any material adverse change in the business, property or assets,
condition (financial or otherwise) or operations of the Company and its
Subsidiaries taken as a whole.
8D. Outstanding Funded Debt. Neither the Company nor any of its
Subsidiaries has outstanding any Funded Debt except as permitted by paragraph
6C(2). There exists no default under the provisions of any instrument evidencing
such outstanding Funded Debt or of any agreement relating thereto.
8E. Title to Properties. The Company has and each of its Subsidiaries has
good and marketable title to its respective real properties (other than
properties which it leases) and good title to all of its other respective
properties and assets, other than any immaterial assets with respect to which it
will diligently attempt to obtain good and marketable title after the Spin Off,
in both cases to the extent material to the Company's Consolidated business,
including the properties and assets reflected in the most recent audited balance
sheet referred to in paragraph 8B (other than properties and assets disposed of
in the ordinary course of business, properties and assets of Varian, Inc. and
its Subsidiaries as of the date of the Spin-Off, properties and assets of VSEA
and its Subsidiaries as of the Spin-Off and, to the extent disclosure thereof
has been made in writing to Prudential, other properties and assets disposed of
in compliance with the terms of this Agreement), subject to no Lien of any kind
except Liens permitted by paragraph 6C(1). All leases necessary in any material
respect for the conduct of the Consolidated business of the Company and its
Subsidiaries are valid and subsisting and are in full force and effect.
8F. Taxes. The Company has and each of its Subsidiaries has filed all
federal, state and other income tax returns which, to the best knowledge of the
officers of the Company and its Subsidiaries, are required to be filed, and each
has paid all taxes as shown on such returns and on all assessments received by
it to the extent that such taxes have become due and the failure to either file
such returns or pay such taxes or assessments could have a material adverse
effect on the Company and its Subsidiaries, taken as a whole, except such taxes
as are being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with generally accepted
accounting principles.
8G. Conflicting Agreements and Other Matters. Neither the Company nor any
of its Subsidiaries is a party to any contract or agreement or subject to any
charter or other corporate restriction which materially and adversely affects
the Company's Consolidated business, property or assets, condition (financial or
otherwise) or operations. Neither the execution nor delivery of this Agreement
or the Notes, nor the offering, issuance and sale of the Notes, nor fulfillment
of nor compliance with the terms and provisions hereof and of the Notes
(including, without limitation, the consummation of the Spin Off and the
assumption by Varian, Inc. of certain of the obligations of the Company under
the Existing 7.49% Notes, the Existing 6.90% Notes, the Existing 7.21% Notes and
the Existing 6.70% Notes as contemplated by the Varian, Inc. Amended and
Restated Note Agreement) will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any Lien upon any of the properties
or assets of the Company or any of its Subsidiaries pursuant to, the charter or
by-
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laws of the Company or any of its Subsidiaries, any material award of any
arbitrator or any material agreement (including any agreement with
shareholders), instrument, order, judgment, decree, statute, law, rule or
regulation to which the Company or any of its Subsidiaries is subject. Neither
the Company nor any of its Subsidiaries is a party to, or otherwise subject to
any provision contained in, any instrument evidencing Funded Debt of the Company
or such Subsidiary, any agreement relating thereto or any other contract or
agreement (including its charter) which limits the amount of, or otherwise
imposes restrictions on the incurring of, Funded Debt of the Company of the type
to be evidenced by the Notes, except in each case as set forth in the agreements
listed in Schedule 8G attached hereto (as such Schedule 8G may have been
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modified from time to time subsequent to the Series C Closing Day by written
supplements thereto delivered by the Company to Prudential).
8H. Offering of Notes. Neither the Company nor any agent acting on its
behalf has, directly or indirectly, offered the Notes or any similar security of
the Company for sale to, or solicited any offers to buy the Notes or any similar
security of the Company from, or otherwise approached or negotiated with respect
thereto with, any Person other than Institutional Investors, and neither the
Company nor any agent acting on its behalf has taken or will take any action
which would subject the issuance or sale of the Notes to the provisions of
Section 5 of the Securities Act or to the provisions of any securities or Blue
Sky law of any applicable jurisdiction.
8I. Use of Proceeds. The proceeds of the Series C Notes will be used to
fund the prepayment of a portion of the Existing 7.49% Notes and the Existing
6.90% Notes as contemplated by paragraph 3A(2) hereof. None of the proceeds of
the sale of any Notes will be used, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of purchasing or carrying any "margin
stock" as defined in Regulation U (12 CFR Part 221) of the Board of Governors of
the Federal Reserve System (herein called "margin stock") or for the purpose of
maintaining, reducing or retiring any indebtedness which was originally incurred
to purchase or carry any stock that is then currently a margin stock (other than
retiring indebtedness incurred to acquire stock of the Company, which stock is
retired promptly upon the Company's acquisition thereof) or for any other
purpose which might constitute the purchase of such Notes a "purpose credit"
within the meaning of such Regulation U, unless the Company shall have delivered
to the Purchaser which is purchasing such Notes, on the Closing Day for such
Notes, an opinion of counsel satisfactory to such Purchaser stating that the
purchase of such Notes does not constitute a violation of such Regulation U.
Neither the Company nor any agent acting on its behalf has taken or will take
any action which might cause this Agreement or the Notes to violate Regulation
T, Regulation U or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the Exchange Act, in each case as in effect now or
as the same may hereafter be in effect.
8J. ERISA. No accumulated funding deficiency (as defined in section 302 of
ERISA and section 412 of the Code), whether or not waived, exists with respect
to any Plan (other than a Multiemployer Plan) that is or would be materially
adverse to the business, property or assets, condition (financial or otherwise)
or operations of the Company and its Subsidiaries taken as a whole. No liability
to the PBGC has been or is expected by the Company or any ERISA Affiliate to be
incurred with respect to any Plan (other than a Multiemployer Plan) by the
Company, any
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Subsidiary or any ERISA Affiliate which is or would be materially adverse to the
business, property or assets, condition (financial or otherwise) or operations
of the Company and its Subsidiaries taken as a whole. Neither the Company, any
Subsidiary nor any ERISA Affiliate has incurred or presently expects to incur
any withdrawal liability under Title IV of ERISA with respect to any
Multiemployer Plan which is or would be materially adverse to the business,
property or assets, condition (financial or otherwise) or operations of the
Company and its Subsidiaries taken as a whole. The execution and delivery of
this Agreement and the issuance and sale of the Notes will be exempt from or
will not involve any transaction which is subject to the prohibitions of section
406 of ERISA and will not involve any transaction in connection with which a
penalty could be imposed under section 502(i) of ERISA or a tax could be imposed
pursuant to section 4975 of the Code. The representation by the Company in the
next preceding sentence is made in reliance upon and subject to the accuracy of
the representation of each Purchaser in paragraph 9B as to the source of funds
to be used by it to purchase any Notes.
8K. Governmental Consent. Neither the nature of the Company or of any
Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Notes is such as to require any authorization, consent, approval, exemption or
any action by or notice to or filing with any court or administrative or
governmental body (other than routine filings after the Closing Day for any
Notes with the Securities and Exchange Commission and/or state Blue Sky
authorities) in connection with the execution and delivery of this Agreement,
the offering, issuance, sale or delivery of the Notes or fulfillment of or
compliance with the terms and provisions hereof or of the Notes. To the extent
pertaining to the Securities Act and state Blue Sky laws, the representation by
the Company in the next preceding sentence is made in reliance upon and subject
to the accuracy of the representation of each Purchaser in paragraph 9A hereof.
8L. Environmental Compliance. The Company and its Subsidiaries and all of
their respective properties and facilities have complied at all times and in all
respects with all Environmental Laws, except, in any such case, where failure to
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comply would not result in a material adverse effect on the business, condition
(financial or otherwise) or operations of the Company and its Subsidiaries taken
as a whole.
8M. Disclosure. Neither this Agreement nor any other document, certificate
or statement furnished to any Purchaser by or on behalf of the Company in
connection herewith contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. To the knowledge of any Designated Officer, there is
no fact peculiar to the Company or any of its Subsidiaries which materially
adversely affects or in the future may (so far as the Company can now foresee)
materially adversely affect the business, property or assets, condition
(financial or otherwise) or operations of the Company and its Subsidiaries taken
as a whole and which has not been set forth in this Agreement and the schedules
hereto (or in any certificate or other document required to be delivered
subsequent to the execution and delivery of this Agreement).
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8N. Hostile Tender Offers. None of the proceeds of the sale of any Notes
will be used to finance a Hostile Tender Offer.
8O. Year 2000 Compliance. The Company has and its Subsidiaries have
conducted an analysis of, and developed or are developing a compliance program
with respect to, the effect of Year 2000 upon the key software, tradeware,
telecommunications, physical plant and automated processes of the Company and
its Subsidiaries and have made appropriate inquiry of the key customers and
suppliers of the Company and its Subsidiaries. The Company anticipates that
such compliance program will be completed on a timely basis and that the impact
of Year 2000 on the Company, its Subsidiaries and the key customers and
suppliers of the Company and its Subsidiaries will not be such as to have a
material adverse effect on the business, condition (financial or otherwise) or
operations of the Company and its Subsidiaries taken as a whole.
9. REPRESENTATIONS OF THE PURCHASERS.
Each Purchaser represents as follows:
9A. Nature of Purchase. Such Purchaser is acquiring the Notes purchased by
it hereunder for investment only, with neither an intention at the time of such
purchase to sell or distribute such Notes nor with a view to or for sale in
connection with any distribution thereof within the meaning of the Securities
Act, provided that the disposition of such Purchaser's property shall at all
times be and remain within its control.
Such Purchaser acknowledges that the Notes being purchased by it have
not been registered under the Securities Act, and cannot be transferred except
in compliance with the Securities Act and applicable state securities laws.
9B. Source of Funds. At least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used by
such Purchaser to pay the purchase price of the Notes to be purchased by it
hereunder: (i) the Source is the "insurance company general account" of such
Purchaser (as such term is defined under Section V of the United States
Department of Labor's Prohibited Transaction Class Exemption ("PTCE") 95-60),
and as of the date of the purchase of the Notes such Purchaser satisfies all of
the applicable requirements for relief under Sections 1 and IV of PTCE 95-60;
(ii) the Source is a separate account maintained by such Purchaser in which no
employee benefit plan, other than employee benefit plans identified on a list
which has been furnished by such Purchaser to the Company, participates to the
extent of 10% or more; (iii) the Source constitutes assets of an "investment
fund" (within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of Part V
of the QPAM Exemption), no employee benefit plan's assets that are included in
such investment fund, when combined with the assets of all other employee
benefit plans established or maintained by the same employer or by an affiliate
(within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer
or by the same employee organization and managed by such QPAM, exceed 20% of the
total client assets managed by such QPAM, the
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conditions of Part 1(c) and (g) of the QPAM Exemption are satisfied, neither the
QPAM nor a person controlling or controlled by the QPAM (applying the definition
of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest
in the Company and (a) the identity of such QPAM and (b) the names of all
employee benefit plan whose assets are included in such investment fund have
been disclosed to the Company in writing pursuant to this clause (iii); (iv) the
Source is a governmental plan; (v) the Source is one or more employee benefit
plans, or a separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in writing
pursuant to this clause (v); or (vi) the Source does not include assets of any
employee benefit plan, other than a plan exempt from the coverage of ERISA. For
the purpose of this paragraph 9B, the terms "separate account", "governmental
plan", "party in interest" and "employee benefit plan" shall have the respective
meanings specified in section 3 of ERISA.
10. DEFINITIONS; ACCOUNTING MATTERS. For the purpose of this Agreement, the
terms defined in paragraphs 10A and 10B (or within the text of any other
paragraph) shall have the respective meanings specified therein.
10A. Yield-Maintenance Terms.
"Called Principal" shall mean, with respect to any Note, the principal
of such Note that is to be prepaid pursuant to paragraph 4C or is declared to be
immediately due and payable pursuant to paragraph 7A, as the context requires.
"Designated Spread" shall mean 0 in the case of each Series A Note,
each Series B Note and each Series C Note and 0 in the case of each Note of any
other Series unless the Confirmation of Acceptance with respect to the Notes of
such Series specifies a different Designated Spread in which case it shall mean,
with respect to each Note of such Series, the Designated Spread so specified.
"Discounted Value" shall mean, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (as converted to reflect
the periodic basis on which interest on such Note is payable, if payable other
than on a semi-annual basis) equal to the Reinvestment Yield with respect to
such Called Principal.
"Reinvestment Yield" shall mean, with respect to the Called Principal
of any Note, the Designated Spread over the yield to maturity implied by (i) the
yields reported, as of 10:00 A.M. (New York City local time) on the Business Day
next preceding the Settlement Date with respect to such Called Principal, on the
display designated as "Page 678" on Bridge Telerate Services (Telerate) (or such
other display as may replace page 678 on Bridge Telerate Services (Telerate))
for actively traded U.S. Treasury securities having a maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date, or
if such yields shall not be reported as of such time or the yields reported as
of such time shall not be ascertainable, (ii) the Treasury Constant
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Maturity Series yields reported, for the latest day for which such yields shall
have been so reported as of the Business Day next preceding the Settlement Date
with respect to such Called Principal, in Federal Reserve Statistical Release H.
15 (519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied yield
shall be determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between yields reported for various
maturities.
"Remaining Average Life" shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest one-
twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) each Remaining Scheduled Payment of
such Called Principal (but not of interest thereon) by (b) the number of years
(calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"Settlement Date" shall mean, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4C or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"Yield-Maintenance Amount" shall mean, with respect to any Note, an
amount equal to the excess, if any, of the Discounted Value of the Called
Principal of such Note over the sum of (i) such Called Principal plus (ii)
interest accrued thereon as of (including interest due on) the Settlement Date
with respect to such Called Principal. The Yield-Maintenance Amount shall in no
event be less than zero.
10B. Other Terms.
"Acceptance" shall have the meaning specified in paragraph 2B(5).
"Acceptance Day" shall have the meaning specified in paragraph 2B(5).
"Acceptance Window" shall have the meaning specified in paragraph
2B(5).
"Accepted Note" shall have the meaning specified in paragraph 2B(5).
"Affiliate" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company,
except a Subsidiary. A Person shall be
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deemed to control a corporation if such Person either (i) possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise or (ii) owns beneficially, directly or
indirectly, 10% or more of the voting stock of such corporation.
"Authorized Officer" shall mean (i) in the case of the Company, a
Designated Officer, any other officer of the Company designated as an
"Authorized Officer" of the Company in the Information Schedule attached hereto
or any vice president of the Company designated as an "Authorized Officer" of
the Company for the purpose of this Agreement in an Officer's Certificate
executed by a Designated Officer and delivered to Prudential, and (ii) in the
case of Prudential, any officer of Prudential designated as its "Authorized
Officer" in the Information Schedule or any officer of Prudential designated as
its "Authorized Officer" for the purpose of this Agreement in a certificate
executed by one of its Authorized Officers. Any action taken under this
Agreement on behalf of the Company by any individual who on or after the date of
this Agreement shall have been an Authorized Officer of the Company and whom
Prudential in good faith believes to be an Authorized Officer of the Company at
the time of such action shall be binding on the Company even though such
individual shall have ceased to be an Authorized Officer of the Company, and any
action taken under this Agreement on behalf of Prudential by any individual who
on or after the date of this Agreement shall have been an Authorized Officer of
Prudential and whom the Company in good faith believes to be an Authorized
Officer of Prudential at the time of such action shall be binding on Prudential
even though such individual shall have ceased to be an Authorized Officer of
Prudential.
"Available Facility Amount" shall have the meaning specified in
paragraph 2B(1).
"Bankruptcy Law" shall have the meaning specified in clause (viii) of
paragraph 7A.
"Business Day" shall mean any day other than (i) a Saturday or a
Sunday, (ii) a day on which commercial banks in New York City or San Francisco
are required or authorized to be closed and (iii) for purposes of paragraph
2B(3) hereof only, a day on which The Prudential Insurance Company of America is
not open for business.
"Cancellation Date" shall have the meaning specified in paragraph
2B(8)(iv).
"Cancellation Fee" shall have the meaning specified in paragraph
2B(8)(iv).
"Capitalized Lease Obligation" shall mean any rental obligation which,
under generally accepted accounting principles, is or will be required to be
capitalized on the books of the Company or any Subsidiary, taken at the amount
thereof accounted for as indebtedness (net of interest expenses) in accordance
with such principles.
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"Closing Day" shall mean, with respect to the Series C Notes, the
Series C Closing Day and, with respect to any Accepted Note, the Business Day
specified for the closing of the purchase and sale of such Accepted Note in the
Request for Purchase of such Accepted Note, provided that (i) if the Company and
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the Purchaser which is obligated to purchase such Accepted Note agree on an
earlier Business Day for such closing, the "Closing Day" for such Accepted Note
shall be such earlier Business Day, and (ii) if the closing of the purchase and
sale of such Accepted Note is rescheduled pursuant to paragraph 2B(7), the
Closing Day for such Accepted Note, for all purposes of this Agreement except
references to "original Closing Day" in paragraph 2B(8)(iii), shall mean the
Rescheduled Closing Day with respect to such Accepted Note.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Confirmation of Acceptance" shall have the meaning specified in
paragraph 2B(5).
"Consolidated" when used in connection with an accounting term,
including all defined terms herein, shall mean the combined account of the type
defined by the accounting term for the Company and all Subsidiaries determined
in accordance with generally accepted accounting principles.
"Consolidated Cash and Cash Equivalents" shall mean, with respect to
the Company and its Subsidiaries (i) all amounts from time to time on deposit in
demand deposit accounts, along with interest thereon, and all other amounts
shown as part of "Cash and Cash Equivalents" on the Company's consolidated
balance sheet in accordance with generally accepted accounting principles, (ii)
all certificates of deposit at banks or other financial institutions, net of any
penalty or fees for early withdrawal and (iii) marketable securities, as
determined by generally accepted accounting principles and that are within the
parameters of the Investment Policy; provided, however, that "Consolidated Cash
and Cash Equivalents" shall not include any of the foregoing to the extent that
such amounts are on deposit for or otherwise subject to a claim or right of
another Person superior or pari passu in right of priority to that of the
Company or any Subsidiary, such as escrow or performance deposits.
"Consolidated Current Assets" shall mean, with respect to the Company
and its Subsidiaries, the consolidated current assets thereof determined in
accordance with generally accepted accounting principles.
"Consolidated Current Liabilities" shall mean, with respect to the
Company and its Subsidiaries, the consolidated current liabilities thereof
determined in accordance with generally accepted accounting principles.
"Consolidated Interest Expense" shall mean Consolidated gross interest
expense, as determined by generally accepted accounting principles.
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"Consolidated Net Earnings" shall mean the consolidated gross revenues
of the Company and its Subsidiaries less all operating and non-operating
expenses of the Company and its Subsidiaries including all charges of a proper
character (including current and deferred taxes on income, provision for taxes
on unremitted foreign earnings which are included in gross revenues, and current
additions to revenues), but not including in gross revenues any gains (net of
expenses and taxes applicable thereto) in excess of losses resulting from the
sale, conversion or other disposition (other than in the ordinary course of
business) of capital assets (i.e., assets other than current assets), any gains
resulting from the write-up (other than in the ordinary course of business) of
assets, any extraordinary gains, any equity of the Company and its Subsidiaries
in the undistributed earnings of any corporation which is not a Subsidiary, any
earnings of any other corporation acquired by the Company or any Subsidiary
through purchase, merger, or consolidation or otherwise for any year prior to
the year of acquisition, or any equity in any Subsidiary at the date of
acquisition over the cost of the investment in such Subsidiary and not including
in expenses any extraordinary losses, or any equity of the Company and its
Subsidiaries in the undistributed earnings of all such corporations, all
determined in accordance with generally accepted accounting principles
consistently applied. With respect to any determination of Consolidated Net
Earnings hereunder for any period of determination which includes any period
prior to the Spin-Off, Consolidated Net Earnings for such period of
determination shall be calculated on a proforma basis as though the Spin-Off had
been consummated immediately prior to the beginning of the period of
determination.
"Consolidated Net Earnings Available for Restricted Payments" shall
mean an amount equal to (i) $30,000,000 plus (ii) 65% (or minus 100% in case of
a deficit) of Consolidated Net Earnings for the period (taken as one accounting
period) commencing on October 3, 1998 and terminating at the end of the last
fiscal quarter immediately preceding the date of any proposed Restricted
Payment.
"Consolidated Receivables" shall mean the Company's consolidated
accounts receivable, determined in accordance with generally accepted accounting
principles.
"Consolidated Tangible Net Worth" shall mean the amount shown on the
books of the Company and all Subsidiaries as total shareholders' equity
(determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied, less (without duplication) goodwill,
trade names, trademarks, patents, organization expenses, unamortized debt
discount expenses and other intangibles.
"Consolidated Tangible Gross Worth" shall mean the sum of (i)
Consolidated Funded Debt, and (ii) Consolidated Tangible Net Worth.
"Consolidated Working Capital" shall mean the excess of Consolidated
Current Assets over Consolidated Current Liabilities.
"Credit Adjustment Fee" shall have the meaning specified in paragraph
2(B)(8)(i).
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"Delayed Delivery Fee" shall have the meaning specified in paragraph
2B(8)(iii).
"Demand" shall have the meaning specified in paragraph 11B.
"Designated Officer" shall mean the Chairman of the Board of
Directors, President, Chief Financial Officer, Treasurer, Assistant Treasurer
and Controller of the Company.
"Environmental Laws" shall mean all federal, state, local and foreign
laws relating to pollution or protection of the environment, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including, without limitation,
ambient air, surface water, ground water or land), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes, and any and all regulations, codes,
plans, orders, decrees, judgments, injunctions, notices or demand letters
issued, entered, promulgated or approved thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean any corporation which is a member of the
same controlled group of corporations as the Company within the meaning of
section 414(b) of the Code, or any trade or business which is under common
control with the Company within the meaning of section 414(c) of the Code.
"Event of Default" shall mean any of the events specified in paragraph
7A, provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act, and "Default" shall mean any of such
events, whether or not any such requirement has been satisfied.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Persons" shall mean those Persons and their respective
Affiliates set forth on the list provided by the Company to a holder of a Note
pursuant to paragraph 11D(2). "Excluded Persons" shall not include, except if
otherwise agreed to in writing by the Company and such holder, any Person of the
type specified in clause (i) of the definition of Institutional Investors.
"Existing 6.70% Notes" shall have the meaning specified in the
Introduction.
"Existing 6.90% Notes" shall have the meaning specified in the
Introduction.
"Existing 7.21% Notes" shall have the meaning specified in the
Introduction.
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"Existing 7.49% Notes" shall have the meaning specified in the
Introduction.
"Facility" shall have the meaning specified in paragraph 2B(1).
"Funded Debt" shall mean, without duplication, (i) any obligation
payable more than one year from the date of the creation thereof (or which is
renewable or extendable at the option of the obligor for a period of more than
one year from the date of creation), (ii) all indebtedness having a maturity of
less than one year, provided such indebtedness is incurred pursuant to revolving
credit arrangements or other financing commitments with a final, non-extendable
maturity more than one year from the date of creation thereof, (iii) any
obligation for borrowed money (and any notes payable, drafts accepted or
advances representing extensions of credit (other than trade payables) whether
or not representing obligations for borrowed money) payable on demand or within
a period of one year from the date or creation thereof, (iv) seasonal credit
facilities, (v) Capitalized Lease Obligations, (vi) obligations of third parties
secured by a Lien on the property or other assets of the Company or any
Subsidiary, (vii) obligations of partnerships and joint ventures of which the
Company or any Subsidiary is a general partner or coventurer and which is not
expressly non-recourse to the Company or such Subsidiaries, (viii) unfunded
vested benefits under each Plan maintained for employees of the Company or any
Subsidiary and covered by Title IV of ERISA, (ix) Guarantees by the Company or
any Subsidiary of the foregoing (excluding letters of credit and other
contingent liabilities for advance payments and performance bonds) and (x)
modifications, renewals and extensions of the above.
"Guarantee" shall mean, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed, endorsed
(other than for collection or deposit in the ordinary course of business) or
discounted or sold with recourse by such Person, or in respect of which such
Person is otherwise directly or indirectly liable, including, without
limitation, any such obligation in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire
such obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or for
any transportation or service, regardless of the non-delivery or non- furnishing
thereof, in any such case if the purpose or intent of such agreement is to
provide assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof. The amount of any
Guarantee shall be equal to the outstanding principal amount of the obligation
guaranteed or such lesser amount to which the maximum exposure of the guarantor
shall have been specifically limited.
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"Hedge Treasury Note(s)" shall mean, with respect to any Accepted
Note, the United States Treasury Note or Notes whose duration (as determined by
Prudential) most closely matches the duration of such Accepted Note.
"Hostile Tender Offer" shall mean, with respect to the use of proceeds
of any Note, any offer to purchase, or any purchase of, shares of capital stock
of any corporation or equity interests in any other entity, or securities
convertible into or representing the beneficial ownership of, or rights to
acquire, any such shares or equity interests, if such shares, equity interests,
securities or rights are of a class which is publicly traded on any securities
exchange or in any over-the-counter market, other than purchases for portfolio
investment purposes of such shares, equity interests, securities or rights
which, together with any such shares, equity, interests, securities or rights
then held, represent less than 5% of the equity interests or beneficial
ownership of such corporation or other entity, and such offer or purchase has
not been duly approved by the board of directors of such corporation or the
equivalent governing body of such other entity prior to the date on which the
Company makes the Request for Purchase of such Note.
"Including" shall mean, unless the context clearly requires otherwise,
"including without limitation."
"Institutional Investors" shall mean (i) banks, finance companies,
insurance companies, pension funds and other commercial lenders, (ii)
"accredited investors," as such term is defined under Regulation D promulgated
under the Securities Act and (iii) "qualified institutional buyers", as such
term is defined in Rule 144A promulgated under the Securities Act.
"Investment Policy" shall have the meaning specified in paragraph
6C(3)(vii).
"Issuance Fee" shall have the meaning specified in paragraph
2B(8)(ii).
"Issuance Period" shall have the meaning specified in paragraph 2B(2).
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien (statutory or otherwise) or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction) or any other type of preferential arrangement for the purpose,
or having the effect, of protecting a creditor against loss or securing the
payment or performance of an obligation.
"Multiemployer Plan" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA.
"1992 Note Agreement" shall have the meaning specified in the
Introduction.
"1996 Note Agreement" shall have the meaning specified in the
Introduction.
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"Notes" shall have the meaning specified in paragraph 1D.
"Officer's Certificate" shall mean a certificate signed in the name of
the Company by an Authorized Officer of the Company.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor replacement entity thereto under ERISA.
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
"Plan" shall mean any employee pension benefit plan (as such term is
defined in section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any ERISA
Affiliate.
"Prudential" shall mean The Prudential Insurance Company of America.
"Prudential Affiliate" shall mean (i) any Person which, directly or
indirectly, controls, is controlled by, or is under common control with,
Prudential and (ii) any investment fund which is managed by Prudential or a
Prudential Affiliate described in clause (i) of this definition.
"Purchasers" shall mean Prudential with respect to the Series A Notes,
the Series B Notes and the Series C Notes and, with respect to any Accepted
Notes, Prudential and/or the Prudential Affiliate(s), which are purchasing such
Accepted Notes.
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"Rate Reduction Fee" shall have the meaning specified in paragraph
2B(8)(i)
"Request for Purchase" shall have the meaning specified in paragraph
2B(3).
"Required Holder(s)" shall mean the holder or holders of more than 50%
of the aggregate principal amount of the Notes or of a Series of Notes, as the
context may require, from time to time outstanding.
"Rescheduled Closing Day" shall have the meaning specified in
paragraph 2B(7).
"Restricted Payments" shall have the meaning specified to such term in
paragraph 6B.
"Securities Act" shall mean the Securities Act of 1933, as amended.
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"Series" shall have the meaning specified in paragraph 1D.
"Series A Notes" shall have the meaning specified in the Introduction.
"Series B Notes" shall have the meaning specified in the Introduction.
"Series C Closing Day" shall have the meaning specified in paragraph
2A(3).
"Series C Note(s)" shall have the meaning specified in paragraph 1C.
"Shelf Notes" shall have the meaning specified in paragraph 1D.
"Significant Holder" shall mean (i) Prudential, so long as Prudential
or any Prudential Affiliate shall hold (or be committed under this Agreement to
purchase) any Note, or (ii) any other holder of at least 10% of the aggregate
principal amount of the Notes of any Series from time to time outstanding.
"Spin Off" shall have the meaning specified in the Introduction.
"Structuring Fee" shall have the meaning provided in paragraph
2B(8)(i).
"Subsidiary" shall mean any corporation, association or other business
entity in which the Company or one or more of its Subsidiaries or the Company
and one or more of its Subsidiaries owns at least 75% of the equity or voting
interests of such entity (and such equity or voting interests so owned enable
the Company and/or Subsidiaries to elect at least a majority of the directors,
or persons performing similar functions, of such entity), and any partnership or
joint venture if more than a 75% interest in the profits or capital thereof is
owned by the Company or one or more of its Subsidiaries or the Company and one
or more of its Subsidiaries (unless such partnership can and does ordinarily
take major business actions without the prior approval of the Company or one or
more of its Subsidiaries).
"Substantial Stockholder" shall mean (i) any Person owning
beneficially, directly or indirectly, either individually or together with all
other Persons to whom such Person is related by blood, adoption or marriage, 5%
or more of the outstanding voting stock of the Company, or (ii) any Person
related by blood, adoption or marriage to any Person coming within clause (i) of
this definition.
"Transfer" shall have the meaning specified in paragraph 6C(5)(ii).
"Transferee" shall mean any direct or indirect transferee of all or
any part of any Note purchased by any Purchaser under this Agreement.
"Varian, Inc." shall have the meaning specified in the Introduction.
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"Varian, Inc. Amended and Restated Note Agreement" shall mean the
Amended and Restated Note Purchase and Private Shelf Agreement and Assumption,
dated as of April 2, 1999, among Varian, Inc., Prudential and each Prudential
Affiliate which becomes bound by the provisions thereof.
"Varian, Inc. Notes" shall mean the Varian, Inc. Series A Notes, the
Varian, Inc. Series B Notes, the Varian, Inc. Series C Notes and the Varian,
Inc. Series D Notes.
"Varian, Inc. Series A Notes" shall have the meaning specified in the
Introduction.
"Varian, Inc. Series B Notes" shall have the meaning specified in the
Introduction.
"Varian, Inc. Series C Notes" shall have the meaning specified in the
Introduction.
"Varian, Inc. Series D Notes" shall have the meaning specified in the
Introduction.
"VSEA" shall mean Varian Semiconductor Equipment Associates, Inc., a
Delaware corporation.
"Voting Stock" shall mean, with respect to any corporation, any shares
of stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
10C. Accounting Principles, Terms and Determinations. All references in
this Agreement to "generally accepted accounting principles" shall be deemed to
refer to generally accepted accounting principles in effect in the United States
at the time of application thereof. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all unaudited
financial statements and certificates and reports as to financial matters
required to be furnished hereunder shall be prepared, in accordance with
generally accepted accounting principles applied on a basis consistent with the
most recent audited financial statements delivered pursuant to clause (ii) of
paragraph 5A or, if no such statements have been so delivered, the most recent
audited financial statements referred to in clause (i) of paragraph 8B. Any
reference herein to any specific citation, section or form of law, statute, rule
or regulation shall refer to such new, replacement or analogous citation,
section or form should citation, section or form be modified, amended or
replaced.
11. MISCELLANEOUS.
11A. Note Payments. The Company agrees that, so long as any Purchaser shall
hold any Note, it will make payments of principal of, interest on, and any
Yield-Maintenance Amount payable with respect to, such Note, which comply with
the terms of this Agreement, by wire transfer of immediately available funds for
credit to (i) the account or accounts of such Purchaser
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specified in the Purchaser Schedule attached hereto in the case of any Series A
Note, Series B Note or Series C Note, (ii) the account or accounts of such
Purchaser specified in the Confirmation of Acceptance with respect to such Note
in the case of any Shelf Note or (iii) such other account or accounts in the
United States as such Purchaser may from time to time designate in writing,
notwithstanding any contrary provision herein or in any Note with respect to the
place of payment. Each Purchaser agrees that, before disposing of any Note, it
will make a notation thereon (or on a schedule attached thereto) of all
principal payments previously made thereon and of the date to which interest
thereon has been paid. The Company agrees to afford the benefits of this
paragraph 11A to any Transferee which shall have made the same agreement as the
Purchasers have made in this paragraph 11A.
11B. Expenses. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save Prudential, each
Purchaser and any Transferee harmless against liability for the payment of' all
reasonable out-of-pocket expenses arising in connection with the following: (i)
all document negotiation, drafting and duplication charges and the fees and
expenses of any special counsel engaged by (A) Prudential and the Purchasers in
connection with entering into this Agreement and (B) Prudential, any Purchaser
or any Transferee in connection with any subsequent transaction contemplated by,
proposed modification of, or proposed consent under, this Agreement, if such
proposed transaction, modification or consent (1) is requested by the Company,
whether or not such transaction occurs, such modification becomes effective or
such consent is granted or (2) results from or relates to the occurrence of a
Default or Event of Default, or in order to avert, waive, consent to or cure the
same; provided, however, that in each such case the Company shall be responsible
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for the fees and expenses of only one firm of outside counsel for Prudential,
the Purchasers and the Transferees at any one time; and (ii) the costs and
expenses, including attorneys' fees, incurred by Prudential, any Purchaser or
any Transferee in (A) responding to any subpoena or other legal process,
including in connection with litigation, or informal investigative demand
(collectively, "Demands"), provided, however, that such Demand (1) is issued
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principally in connection with this Agreement, the transactions contemplated
hereby or by reason of any Purchaser's or Transferee's having acquired any Note
or having acquired information regarding the Company or any Subsidiary in
connection with its acquisition of any Note, (2) does not arise out of any
litigation between the Purchaser and its Transferee and (3) is not issued in
connection with any inquiry, audit or investigation by any governmental
authority that relates principally to the business, operations or investments
of the entity that received such Demand and (B) enforcing (or determining
whether or how to enforce) any rights under this Agreement or the Notes,
including without limitation costs and expenses incurred in any workout,
restructuring or bankruptcy case.
The obligations of the Company under this paragraph 11B shall survive
the transfer of any Note or portion thereof or interest therein by any Purchaser
or any Transferee and the payment of any Note.
11C. Consent to Amendments. This Agreement may be amended, and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be
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performed by it, if the Company shall obtain the written consent to such
amendment, action or omission to act, of the Required Holder(s) of the Notes of
each Series except that, (i) with the written consent of the holders of all
Notes of a particular Series, and if an Event of Default shall have occurred and
be continuing, of the holders of all Notes of all Series, at the time
outstanding (and not without such written consents), the Notes of such Series
may be amended or the provisions thereof waived to change the maturity thereof,
to change or affect the principal thereof, or to change or affect the rate or
time of payment of interest on or any Yield-Maintenance Amount payable with
respect to the Notes of such Series, (ii) without the written consent of the
holder or holders of all Notes at the time outstanding, no amendment to or
waiver of the provisions of this Agreement shall change or affect the provisions
of paragraph 7A or this paragraph 11C insofar as such provisions relate to
proportions of the principal amount of the Notes of any Series, or the rights of
any individual holder of Notes, required with respect to any declaration of
Notes to be due and payable or with respect to any consent, amendment, waiver or
declaration, (iii) with the written consent of Prudential (and not without the
written consent of Prudential) the provisions of paragraph 2B may be amended or
waived (except insofar as any such amendment or waiver would affect any rights
or obligations with respect to the purchase and sale of Notes which shall have
become Accepted Notes prior to such amendment or waiver), and (iv) with the
written consent of all of the Purchasers which shall have become obligated to
purchase Accepted Notes of any Series (and not without the written consent of
all such Purchasers), any of the provisions of paragraphs 2B and 3 may be
amended or waived insofar as such amendment or waiver would affect only rights
or obligations with respect to the purchase and sale of the Accepted Notes of
such Series or the terms and provisions of such Accepted Notes. Each holder of
any Note at the time or thereafter outstanding shall be bound by any consent
authorized by this paragraph 11C, whether or not such Note shall have been
marked to indicate such consent, but any Notes issued thereafter may bear a
notation referring to any such consent. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. As used herein and in the Notes, the term "this Agreement" and references
thereto shall mean this Agreement as it may from time to time be amended or
supplemented.
11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes. The
Notes are issuable as registered notes without coupons in denominations of at
least $1,000,000, except as may be necessary to reflect any principal amount not
evenly divisible by $1,000,000. The Company shall keep at its principal office a
register in which the Company shall provide for the registration of Notes and of
transfers of Notes. Upon surrender for registration of transfer of any Note at
the principal office of the Company, the Company shall, at its expense, execute
and deliver one or more new Notes of like tenor and of a like aggregate
principal amount, registered in the name of such transferee or transferees. At
the option of the holder of any Note, such Note may be exchanged for other Notes
of like tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Note to be exchanged at the principal office of
the Company. Whenever any Notes are so surrendered for exchange, the Company
shall, at its expense, execute and deliver the Notes which the holder making the
exchange is entitled to receive. Each prepayment of principal payable on each
prepayment date upon each new Note issued upon any such transfer or exchange
shall be in the same proportion to the unpaid principal amount of such new Note
as the
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prepayment of principal payable on such date on the Note surrendered for
registration of transfer or exchange bore to the unpaid principal amount of such
Note. No reference need be made in any such new Note to any prepayment or
prepayments of principal previously due and paid upon the Note surrendered for
registration of transfer or exchange. Every Note surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Note or such
holder's attorney duty authorized in writing. Any Note or Notes issued in
exchange for any Note or upon transfer thereof shall carry the rights to unpaid
interest and Interest to accrue which were carried by the Note so exchanged or
transferred, so that neither gain nor loss of interest shall result from any
such transfer or exchange. Upon receipt of written notice from the holder of any
Note of the loss, theft, destruction or mutilation of such Note and, in the case
of any such loss, theft or destruction, upon receipt of such holder's indemnity
agreement (which shall be unsecured if such holder is Prudential, a Prudential
Affiliate or an Institutional Investor with a tangible net worth in excess of
$200,000,000), or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a new Note, of like
tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
11D(1). Prior Notice to Company Regarding Resale; Excluded Transferees.
Anything contained in paragraph 11D(1) or paragraph 11E to the contrary
notwithstanding, if any holder of any Note wishes to sell all or any portion of
its Note or grant any participation or other interest therein to any Person
other than Prudential or a Prudential Affiliate, it shall (a) give the Company
written notice of (i) such intent (a "Resale Notice") at the time such
determination is made and (ii) as soon as such information is available, but in
no event later than 10 days prior to any such sale, either a list of Persons to
whom it intends to offer the Notes, if available, or, if such holder is selling
its Notes through another Person, the identity of such Person, (b) for a five-
day period commencing on the date such holder provides to the Company the
information described in clause (a)(ii), consult with the Company in good faith
regarding the acceptability to the Company of any prospective purchasers of such
Notes or participations therein prior to soliciting bids for such sale or
participation, and (c) solicit, accept and consider in good faith bids from the
Company to repurchase such holder's Notes during the same time period as such
holder is soliciting offers for such Notes from third parties (as part of its
bid, the Company shall certify that no Event of Default exists or would exist
after giving effect to its repurchase of such Notes). If such holder has not
entered into a commitment to sell its Note (or portion thereof) within 90 days
after the expiration of such ten-day period, such holder shall again be
obligated to give notice required by this paragraph 11D(2). Prudential and
Prudential Affiliates shall not be liable for any failure to provide any Resale
Notice that results from such Person's negligence. The foregoing right of
notice, consultation and bidding is in addition to the obligations set forth in
the next succeeding paragraph regarding Excluded Persons.
The Company may, at any time, provide to the holders of the Notes a
list of Excluded Persons and update such list from time to time. In designating
Excluded Persons, the Company shall act reasonably and in good faith. If such
list of Excluded Persons is provided or updated, as the case may be, within two
Business Days of the Company's receipt of a Resale Notice, the selling holder
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will not knowingly sell all or any portion of or participation in its Note to
any Excluded Person or any Affiliate thereof.
11E. Persons Deemed Owners; Participations. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of and interest on, and any Yield-Maintenance
Amount payable with respect to, such Note and for all other purposes whatsoever,
whether or not such Note shall be overdue, and the Company shall not be affected
by notice to the contrary. Subject to the preceding sentence and to the
requirements set forth in paragraph 11D, the holder of any Note may from time to
time grant participations in all or any part of such Note to any Person on such
terms and conditions as may be determined by such holder in its sole and
absolute discretion. The Company shall be justified in dealing only with the
holder of the Note who grants any participation, and shall not, except if an
event of the type described in clauses (viii) through (xi) of paragraph 7A
occurs with respect to such holder, be obligated to deal with such participants.
11F. Survival of Representations and Warranties; Entire Agreement. All
representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Notes, the transfer by any Purchaser of any
Note or portion thereof or interest therein and the payment of any Note, and may
be relied upon by any Transferee, regardless of any investigation made at any
time by or on behalf of any Purchaser or any Transferee. Subject to the
preceding sentence, this Agreement and the Notes embody the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings relating to such
subject matter.
11G. Successors and Assigns. All covenants and other agreements in this
Agreement contained by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not.
11H. Disclosure to Other Persons. The Company acknowledges that Prudential,
each Purchaser and each holder of any Note (each being a "Delivering Person")
may deliver copies of any financial statements and other documents delivered to
it, and disclose any other information disclosed to it, by or on behalf of the
Company or any Subsidiary in connection with or pursuant to this Agreement to
(i) its directors, officers, employees, agents and professional consultants,
(ii) any Purchaser or holder of any Note, (iii) any Person (other than an
Excluded Person) to which it offers to sell any Note or any part thereof, (iv)
any Person (other than an Excluded Person) to which it sells or offers to sell a
participation in all or any part of any Note, (v) to the extent that it has a
legal obligation to disclose such information, any Person from which it offers
to purchase any security of the Company; provided, however, that in the case of
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clause (iii), (iv) or (v), such holder will obtain from such Person an executed
confidentiality agreement in the form of Exhibit F-2 before disclosing any
material non-public information with respect to the Company or any Subsidiary,
(vi) any federal
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or state regulatory authority having jurisdiction over it, (vii) the National
Association of Insurance Commissioners or any similar organization, or (viii)
any other Person to which such delivery or disclosure may be required (a) to
comply with any law, rule, regulation or order applicable to it, (b) to respond
sufficiently to Demand served on it, provided, however, that with respect to
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material, nonpublic information regarding the Company and/or its Subsidiaries,
except as prohibited by law, such Delivering Person shall provide notice to the
Company of such legal requirement or Demand at least ten Business Days (or such
shorter period of time as is set forth therein) prior to the date such
information must be produced so that the Company can intervene on its own behalf
in such proceeding to prevent, postpone or restrict such disclosure; provided
--------
further, however, that (1) not earlier than the third Business Day prior to the
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date specified in such Demand for such document or information delivery or
disclosure, such Delivering Person shall be free to comply with such Demand if
the Company has not at such time obtained any protective or similar order
preventing, postponing or restricting such disclosure and (2) Prudential and any
Prudential Affiliate shall not be liable for any failure to provide any such
notice to the Company that results from such Person's negligence; or (c) with
the prior consent of the Company (which, if given orally initially by an
Authorized Officer, shall be promptly confirmed, in writing), which consent
shall not be reasonably withheld, in order to protect the investment of such
Delivering Person in its Notes.
11I. Independence of Covenants. Except to the extent the context
specifically requires otherwise, all covenants hereunder shall be given
independent effect so that if a particular action or condition is prohibited by
any one of such covenants, the fact that it would be permitted by an exception
to, or otherwise be in compliance within the limitations of' another covenant
shall not (i) avoid the occurrence of a Default or Event of Default if such
action is taken or such condition exists or (ii) in any way prejudice an attempt
by the holder of any Note to prohibit, through equitable action or otherwise,
the taking of any action by the Company or any Subsidiary which would result in
a Default or Event of Default.
11J. Notices. All written communications provided for hereunder (other than
communications provided for under paragraph 2) shall be sent by first class mail
or nationwide overnight delivery service (with charges prepaid) and (i) if to
any Purchaser, addressed as specified for such communications in the Purchaser
Schedule attached hereto (in the case of the Series A Notes, Series B Notes or
Series C Notes) or the Purchaser Schedule attached to the applicable
Confirmation of Acceptance (in the case of any Shelf Notes) or at such other
address as any such Purchaser shall have specified to the Company in writing,
(ii) if to any other holder of any Note, addressed to it at such address as it
shall have specified in writing to the Company or, if any such holder shall not
have so specified an address, then addressed to such holder in care of the last
holder of such Note which shall have so specified an address to the Company and
(iii) if to the Company, addressed to it at 3050 Hansen Way, Palo Alto,
California 94304-1000, Attention: Chief Financial Officer, provided, however,
-------- -------
that any such communication to the Company may also, at the option of the Person
sending such communication, be delivered by any other means either to the
Company at its address specified above or to any Authorized Officer of the
Company. Any communication pursuant to paragraph 2 shall be made by the method
specified for such communication in paragraph 2, and shall be effective to
create any rights or obligations under this Agreement only if, in the case
46
<PAGE>
of a telephone communication, an Authorized Officer of the party conveying the
information and of the party receiving the information are parties to the
telephone call, and in the case of a telecopier communication, the communication
is signed by an Authorized Officer of the party conveying the information,
addressed to the attention of an Authorized Officer of the party receiving the
information, and in fact received at the telecopier terminal the number of which
is listed for the party receiving the communication in the Information Schedule
or at such other telecopier terminal as the party receiving the information
shall have specified in writing to the party sending such information.
So long as Prudential is the holder of any Note outstanding, the
Company shall be deemed to have given any required notices or information to
Noteholders who are Prudential Affiliates so long as it timely provides such
notice or information to Prudential in the manner specified by the applicable
provision of this Agreement.
11K. Payments Due on Non-Business Days. Anything in this Agreement or the
Notes to the contrary notwithstanding, any payment of principal of or interest
on, or Yield-Maintenance Amount payable with respect to, any Note that is due on
a date other than a Business Day shall be made on the next succeeding Business
Day. If the date for any payment is extended to the next succeeding Business
Day by reason of the preceding sentence, the period of such extension shall not
be included in the computation of the interest payable on such Business Day.
11L. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof' and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
11M. Descriptive Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11N. Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to any Purchaser, to any holder of Notes or to the
Required Holder(s), the determination of such satisfaction shall be made by such
Purchaser, such holder or the Required Holder(s), as the case may be, in the
sole and exclusive judgment (exercised in good faith) of the Person or Persons
making such determination.
11O. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
INTERNAL LAW OF THE STATE OF CALIFORNIA.
11P. Severalty of Obligations. The sales of Notes to the Purchasers are to
be several sales, and the obligations of Prudential and the Purchasers under
this Agreement are several obligations. No failure by Prudential or any
Purchaser to perform its obligations under this
47
<PAGE>
Agreement shall relieve any other Purchaser or the Company of any of its
obligations hereunder, and neither Prudential nor any Purchaser shall be
responsible for the obligations of, or any action taken or omitted by, any other
such Person hereunder.
11Q. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
11R. Binding Agreement. When this Agreement is executed and delivered by
the Company and Prudential, it shall become a binding agreement between the
Company and Prudential. This Agreement shall also inure to the benefit of each
Purchaser which shall have executed and delivered a Confirmation of Acceptance,
and each such Purchaser shall be bound by this Agreement to the extent provided
in such Confirmation of Acceptance.
11S. Amendment and Restatement of Existing Agreements; Release of the
Company. Upon satisfaction of the conditions specified in paragraph 3A hereof,
(i) each of the 1992 Note Agreement and the 1996 Note Agreement, insofar as the
same relate to the Series A Notes or the Series B Notes, shall be amended and
restated in their entirety to read as set forth herein, the Series A Notes, the
Series B Notes, the Series C Notes and any Shelf Notes shall be subject to the
terms hereof, and the Varian, Inc. Notes shall not be subject to the terms
hereof, and (ii) the Company shall be released from any obligations with respect
to the Varian, Inc. Notes or the 1992 Note Agreement or the 1996 Note Agreement,
insofar as the same relate to the Varian, Inc. Notes.
Very truly yours,
VARIAN ASSOCIATES, INC.
By: /s/ Robert A. Lemos
---------------------------------------
Its: Chief Financial Officer
--------------------------------------
Vice President, Finance
And by: /s/ Elisha W. Finney
------------------------------------
Its: Treasurer
---------------------------------------
48
<PAGE>
The foregoing Agreement is hereby
accepted as of the date first above written.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: /s/ Jeffrey L. Dickson
-------------------------------------------
Vice President
PRUCO LIFE INSURANCE COMPANY
By: /s/ Jeffrey L. Dickson
-----------------------------------------
Vice President
PRUCO LIFE INSURANCE COMPANY OF
NEW JERSEY
By: /s/ Jeffrey L. Dickson
----------------------------------------
Vice President
49
<PAGE>
INFORMATION SCHEDULE
Authorized Officers for Prudential
----------------------------------
Allen A. Weaver Jeffrey L. Dickson
Senior Managing Director Managing Director
Prudential Capital Group Prudential Capital Group
Two Prudential Plaza Four Embarcadero Center
Suite 5600 Suite 2700
Chicago, Illinois 60601 San Francisco, California 94111
Telephone: (312) 540-4211 Telephone: (415) 291-5054
Facsimile: (312) 540-4222 Facsimile: (415) 421-6233
Joseph Y. Alouf Stephen J. DeMartini
Senior Vice President Senior Vice President
Prudential Capital Group Prudential Capital Group
Four Embarcadero Center Four Embarcadero Center
Suite 2700 Suite 2700
San Francisco, California 94111 San Francisco, California 94111
Telephone: (415) 291-5056 Telephone:(415) 291-5056
Facsimile: (415) 421-6233 Facsimile:(415) 421-6233
Authorized Officers for the Company
-----------------------------------
Each "Designated Officer" of the Company as such term is defined in paragraph
10B of the Agreement.
Varian Medical Systems, Inc.
3100 Hansen Way
Palo Alto, California
Telephone: (650) 493-4000
Facsimile: (650) 424-5358
<PAGE>
PURCHASER SCHEDULE
Series A Notes, Series B Notes and Series C Notes
-------------------------------------------------
VARIAN MEDICAL SYSTEMS, INC.
<TABLE>
<CAPTION>
Aggregate principal
amount of Series A
Notes and Series B
Notes to be issued in
exchange for Existing
7.21% Notes and
Existing 6.70% Notes,
respectively, and
aggregate principal
amount of Series C Note
Notes to be purchased Denomination(s)
--------------------- ---------------
<S> <C> <C>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA $12,500,000 of $12,500,000 of
Series A Notes Series A Notes
(1) All payments on account of Series A Notes, $25,000,000 of $20,000,000 and
Series B Notes in the original principal amount Series B Notes $5,000,000 of
of $20,000,000 and Series C Notes held by such Series B Notes
Purchaser shall be made by wire transfer of
immediately available funds for credit to: $16,000,000 of $16,000,000 of
Series C Notes Series C Notes
Account No. 890-0304-391
Bank of New York
New York, New York
(ABA No.: 021-000-018)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
All payments on account of the Series B Notes
in the original principal amount of
$5,000,000 held by such Purchaser shall be
made by wire transfer of immediately
available funds for credit to:
Account No. 890-0304-944
Bank of New York
New York, New York
(ABA No.: 021-000-018)
</TABLE>
Each such wire transfer shall set forth the
name of the Company, a reference to "7.15%
Series A Senior Notes due April 2, 2010,
Security No. "PPN92220P\B INV6523", 6.70%
Series B Senior Notes due April 30, 2014,
Security No. "!INV______!", or 6.76% Series C
Senior Notes due April 2, 2011, Security No.
"PPN92220P\A INV6523", as the case may be,
and the due date and application (as among
principal, interest and Yield-Maintenance
Amount) of the payment being made
(2) Address for all notices relating to payments:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
Attention: Manager, Investment Operations Group
Telephone: (973) 802-5260
Telecopy: (973) 802-8055
2
<PAGE>
(3) Address for all other communications and
notices:
The Prudential Insurance Company of America
c/o Prudential Capital Group - Corporates
Four Embarcadero Center
Suite 2700
San Francisco, California 94111
Attention: Managing Director
Telecopy: (415) 421-6233
(4) Recipient of telephonic prepayment notices:
Manager, Investment Structure and Pricing
Telephone: (201) 802-6660
Telecopy: (201) 802-9425
(5) Tax Identification No.: 22-1211670
3
<PAGE>
PURCHASER SCHEDULE
(continued)
<TABLE>
<CAPTION>
Aggregate
Principal
Amount of
Series C
Notes to Be Note
Purchased Denomination(s)
--------------------- -------------------
<S> <C> <C>
PRUCO LIFE INSURANCE COMPANY
1. All payments on account of the Series C Notes $3,000,000 $3,000,000
held by such purchaser shall be made by wire
transfer of immediately available funds for credit
to:
Pruco Life Private Placement
Account No. 890-0304-421
Bank of New York
New York, New York
(ABA No.: 021-000-018)
Each such wire transfer shall set forth the name
of the Company, a reference to 6.76% Series C
Notes due April 2, 2011, "PPN92220P\A INV6523"
and the due date and application (as among
principal, interest and Yield-Maintenance
Amount) of the payment being made.
2. Address for all communications and notices:
Pruco Life Insurance Company
c/o Prudential Capital Group - Corporate Finance
Four Embarcadero Center, Suite 2700
San Francisco, California 94111-4180
Attention: Managing Director
Telephone: (415) 291-5054
Telecopy: (415) 521-6233
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Principal
Amount of
Series C
Notes to Be Note
Purchased Denomination(s)
----------- ---------------
<S> <C> <C>
With a copy to:
Pruco Life Insurance Company
c/o Trade Management
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4077
Attention: Manager
Telephone: (973) 367-3141
Telecopy: (973) 802-9245
3. Recipient of telephonic prepayment notices with
respect to Notes:
Manager, Investment Structuring and Pricing
Telephone: (973) 802-7398
Telecopy: (973) 802-9425
4. Tax Identification No.: 22-1944557
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Principal
Amount of
Series C
Notes to Be Note
Purchased Denomination(s)
----------- ----------------
<S> <C> <C>
PRUCO LIFE INSURANCE COMPANY OF
NEW JERSEY
1. All payments on account of Series C Notes held $2,000,000 $2,000,000
by such purchaser shall be made by wire transfer of
immediately available funds for credit to:
Pruco Life New Jersey Placement
Account No. 890-0304-754
Bank of New York
New York, New York
(ABA No.: 021-000-018)
Each such wire transfer shall set forth the name
of the Company, a reference to 6.76% Series C
Notes due April 2, 2011, "PPN92220P\A INV6523"
and the due date and application (as among
principal, interest and Yield-Maintenance
Amount) of the payment being made.
2. Address for all communications and notices:
Pruco Life Insurance Company of New Jersey
c/o Prudential Capital Group - Corporate Finance
Four Embarcadero Center, Suite 2700
San Francisco, California 94111-4180
Attention: Managing Director
Telephone: (415) 291-5054
Telecopy: (415) 521-6233
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Principal
Amount of
Series C
Notes to Be Note
Purchased Denomination(s)
----------- ----------------
<S> <C> <C>
With a copy to:
Pruco Life Insurance Company of New Jersey
c/o Trade Management
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4077
Attention: Manager
Telephone: (973) 367-3141
Telecopy: (973) 802-9245
3. Recipient of telephonic prepayment notices with
respect to Notes:
Manager, Investment Structuring and Pricing
Telephone: (973) 802-7398
Telecopy: (973) 802-9425
4. Tax Identification No.: 22-2426019
</TABLE>
7
<PAGE>
Exhibit A-1
-----------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND CANNOT
BE TRANSFERRED EXCEPT IN COMPLIANCE WITH
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS.
[FORM OF SERIES A NOTE]
VARIAN ASSOCIATES, INC.
to be known as
VARIAN MEDICAL SYSTEMS, INC.
effective April 3, 1999
7.15% SERIES A SENIOR NOTE DUE APRIL 2, 2010
No. ________ _______________
$ ________________ _______________
FOR VALUE RECEIVED, the undersigned, Varian Associates, Inc. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to _____________________________,
or registered assigns, the principal of ____________________________________
($____________) on April 2, 2010 with interest (computed on the basis of a 360-
day year--30-day month) (a) on the unpaid balance thereof at the rate of 7.15%
per annum from the date hereof, payable quarterly on the second day of April,
July, October and January in each year, commencing with the January 2, April 2,
July 2 or October 2 next succeeding the date hereof, until the principal hereof
shall have become due and payable, and (b) on any overdue payment (including any
overdue prepayment) of principal, any overdue payment of Yield Maintenance
Amount and any overdue payment of interest, payable quarterly as aforesaid (or,
at the option of the registered holder hereof, on demand), at a rate per annum
[from time to time]1 equal to [the greater of (i)]/1/ 9.15% [or (ii) 2% over the
rate of interest publicly announced by Bank of New York from time to time in New
York City as its prime rate].
Payments of principal, Yield Maintenance Amount, if any, and interest
are to be made at the main office of Bank of New York in New York City or at
such other place as the holder hereof shall designate to the Company in writing,
in lawful money of the United States of America.
- ------------------------
/1/ Delete in the case of holder not exempt from California usury law.
A-1-1
<PAGE>
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to an Amended and Restated Note Purchase and Private
Shelf Agreement, dated as of April 2, 1999 (herein called the "Agreement"),
between the Company, on the one hand, and The Prudential Insurance Company of
America and each Prudential Affiliate which becomes party thereto, on the other
hand, and is entitled to the benefits thereof. As provided in the Agreement,
this Note is subject to prepayment, in whole or from time to time in part, in
certain cases without Yield Maintenance Amount and in other cases with the Yield
Maintenance Amount specified in the Agreement. Each holder of this Note will be
deemed by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in paragraph 11H of the Agreement, (ii) to have made the
representation set forth in paragraph 9B of the Agreement, and (iii) to have
agreed to the limitations on transfers set forth in paragraph 11D of the
Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for the then outstanding principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner and with the effect provided in the
Agreement.
This Note (i) merely re-evidences a portion of the indebtedness
previously evidenced by the Company's 7.21% Series A Senior Notes due June 9,
2007 (the "Existing 7.21% Notes"), (ii) is given in exchange for, and not as
payment of, Existing 7.21% Note(s), and (iii) is in no way intended to
constitute a novation of any Existing 7.21% Notes.
Capitalized terms used and not otherwise defined herein shall have the
meanings provided in the Agreement.
This Note shall be construed and enforced in accordance with the
internal law of the State of California.
VARIAN ASSOCIATES, INC.
By:
----------------------------------------------
Title:
-------------------------------------------
A-1-2
<PAGE>
And by:
-------------------------------------------
Title:
-------------------------------------------
A-1-3
<PAGE>
Exhibit A-2
-----------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND CANNOT
BE TRANSFERRED EXCEPT IN COMPLIANCE WITH
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS.
[FORM OF SERIES B NOTE]
VARIAN ASSOCIATES, INC.
to be known as
VARIAN MEDICAL SYSTEMS, INC.
effective April 3, 1999
6.70% SERIES B SENIOR NOTE DUE APRIL 30, 2014
No. ________ _______________
$ ________________ _______________
FOR VALUE RECEIVED, the undersigned, Varian Associates, Inc. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to ______________________________,
or registered assigns, the principal sum of ________________________________ on
April 30, 2014 with interest (computed on the basis of a 360-day year--30-day
month) (a) on the unpaid balance thereof at the rate of 6.70% per annum from the
date hereof, payable quarterly on January 31, April 30, July 31 and October 31
in each year, commencing with the January 31, April 30, July 31 or October 31
next succeeding the date hereof, until the principal hereof shall have become
due and payable, and (b) on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of Yield Maintenance Amount and
any overdue payment of interest, payable quarterly as aforesaid (or, at the
option of the registered holder hereof, on demand), at a rate per annum [from
time to time]1 equal to [the greater of (i)]/1/ 8.70% [or (ii) 2% over the rate
of interest publicly announced by Bank of New York from time to time in New York
City as its prime rate].
Payments of principal, Yield Maintenance Amount, if any, and interest
are to be made at the main office of Bank of New York in New York City or at
such other place as the holder hereof shall designate to the Company in writing,
in lawful money of the United States of America.
- ---------------------
/1/ Delete in the case of holder not exempt from California usury law.
A-2-1
<PAGE>
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to an Amended and Restated Note Purchase and Private
Shelf Agreement, dated as of April 2, 1999 (herein called the "Agreement"),
between the Company, on the one hand, and The Prudential Insurance Company of
America and each Prudential Affiliate which becomes party thereto, on the other
hand, and is entitled to the benefits thereof. As provided in the Agreement,
this Note is subject to prepayment, in whole or from time to time in part, in
certain cases without Yield Maintenance Amount and in other cases with the Yield
Maintenance Amount specified in the Agreement. Each holder of this Note will be
deemed by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in paragraph 11H of the Agreement, (ii) to have made the
representation set forth in paragraph 9B of the Agreement, and (iii) to have
agreed to the limitations on transfers set forth in paragraph 11D of the
Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for the then outstanding principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner and with the effect provided in the
Agreement.
This Note (i) merely re-evidences a portion of the indebtedness
previously evidenced by the Company's 6.70% Series B Senior Notes due April 30,
2018 (the "Existing 6.70% Notes"), (ii) is given in exchange for, and not as
payment of, Existing 6.70% Note(s), and (iii) is in no way intended to
constitute a novation of any Existing 6.70% Notes.
Capitalized terms used and not otherwise defined herein shall have the
meanings provided in the Agreement.
This Note shall be construed and enforced in accordance with the
internal law of the State of California.
VARIAN ASSOCIATES, INC.
By:
---------------------------------------------
Title:
------------------------------------------
A-2-2
<PAGE>
And by:
----------------------------------------
Title:
-----------------------------------------
A-2-3
<PAGE>
Exhibit A-3
-----------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND CANNOT
BE TRANSFERRED EXCEPT IN COMPLIANCE WITH
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS.
[FORM OF SERIES C NOTE]
VARIAN ASSOCIATES, INC.
to be known as
VARIAN MEDICAL SYSTEMS, INC.
effective April 3, 1999
6.76% SERIES C SENIOR NOTE DUE APRIL 2, 2011
No. ________ _______________
$ ________________ _______________
FOR VALUE RECEIVED, the undersigned, Varian Associates, Inc. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to ______________________________,
or registered assigns, the principal sum of ________________________________ on
April 2, 2011 with interest (computed on the basis of a 360-day year--30-day
month) (a) on the unpaid balance thereof at the rate of 6.76% per annum from the
date hereof, payable quarterly on the second day of April, July, October and
January in each year, commencing with the January 2, April 2, July 2 or October
2 next succeeding the date hereof, until the principal hereof shall have become
due and payable, and (b) on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of Yield Maintenance Amount and
any overdue payment of interest, payable quarterly as aforesaid (or, at the
option of the registered holder hereof, on demand), at a rate per annum [from
time to time]/1/ equal to [the greater of (i)]1 8.76% [or (ii) 2% over the rate
of interest publicly announced by Bank of New York from time to time in New York
City as its prime rate].
Payments of principal, Yield Maintenance Amount, if any, and interest
are to be made at the main office of Bank of New York in New York City or at
such other place as the holder hereof shall designate to the Company in writing,
in lawful money of the United States of America.
- -------------------------
/1/ Delete in the case of holder not exempt from California usury law.
A-3-1
<PAGE>
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to an Amended and Restated Note Purchase and Private
Shelf Agreement, dated as of April 2, 1999 (herein called the "Agreement"),
between the Company, on the one hand, and The Prudential Insurance Company of
America and each Prudential Affiliate which becomes party thereto, on the other
hand, and is entitled to the benefits thereof. As provided in the Agreement,
this Note is subject to prepayment, in whole or from time to time in part, in
certain cases without Yield Maintenance Amount and in other cases with the Yield
Maintenance Amount specified in the Agreement. Each holder of this Note will be
deemed by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in paragraph 11H of the Agreement, (ii) to have made the
representation set forth in paragraph 9B of the Agreement, and (iii) to have
agreed to the limitations on transfers set forth in paragraph 11D of the
Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for the then outstanding principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner and with the effect provided in the
Agreement.
Capitalized terms used and not otherwise defined herein shall have the
meanings provided in the Agreement.
This Note shall be construed and enforced in accordance with the
internal law of the State of California.
VARIAN ASSOCIATES, INC.
By:
---------------------------------------------
Title:
------------------------------------------
A-3-2
<PAGE>
And by:
----------------------------------------
Title:
-----------------------------------------
A-3-3
<PAGE>
Exhibit A-4
-----------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND CANNOT
BE TRANSFERRED EXCEPT IN COMPLIANCE WITH
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS.
[FORM OF SHELF NOTE]
VARIAN MEDICAL SYSTEMS, INC.
SENIOR SERIES ___ NOTE
No. __
ORIGINAL PRINCIPAL AMOUNT:
ORIGINAL ISSUE DATE:
INTEREST RATE:
INTEREST PAYMENT DATES:
FINAL MATURITY DATE:
PRINCIPAL PREPAYMENT DATES AND AMOUNTS:
FOR VALUE RECEIVED, the undersigned, Varian Medical Systems, Inc.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Delaware, hereby promises to pay to ______________________,
or registered assigns, the principal sum of _______________________ DOLLARS [on
the Final Maturity Date specified above] [, payable on the Principal Prepayment
Dates and in the amounts specified above, and on the Final Maturity Date
specified above in an amount equal to the unpaid balance of the principal
hereof,] with interest (computed on the basis of a 360-day year--30-day month)
(a) on the unpaid balance thereof at the Interest Rate per annum specified
above, payable on each Interest Payment Date specified above and on the Final
Maturity Date specified above, commencing with the Interest Payment Date next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (b) on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of Yield Maintenance Amount and any overdue
payment of interest, payable on each Interest Payment Date as aforesaid (or, at
the option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (i) 2% over the Interest Rate specified
above or (ii) 2% over the rate of interest publicly announced by [Morgan
Guaranty Trust Company of New York] from time to time in New York City as its
prime rate.
A-4-1
<PAGE>
Payments of principal, Yield Maintenance Amount, if any, and interest
are to be made at the main office of Bank of New York in New York City or at
such other place as the holder hereof shall designate to the Company in writing,
lawful money of the United States of America.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to an Amended and Restated Note Purchase and Private
Shelf Agreement, dated as of April 2, 1999 (herein called the "Agreement"),
between the Company, on the one hand, and The Prudential Insurance Company of
America and each Prudential Affiliate (as defined in the Agreement) which
becomes party thereto, on the other hand, and is entitled to the benefits
thereof. Each holder of this Note will be deemed by its acceptance hereof, (i)
to have agreed to the confidentiality provisions set forth in paragraph 11H of
the Agreement, (ii) to have made the representation set forth in paragraph 9B of
the Agreement, and (iii) to have agreed to the limitations on transfers set
forth in paragraph 11D of the Agreement.
This Note is subject to optional prepayment, in whole or from time to
time in part, on the terms specified in the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for the then outstanding principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the
principal of this Note may be declared or otherwise become due and payable in
the manner and with the effect provided in the Agreement.
Capitalized terms used and not otherwise defined herein shall have the
meanings provided in the Agreement.
A-4-2
<PAGE>
This Note shall be construed and enforced in accordance with the
internal law of the State of California.
VARIAN MEDICAL SYSTEMS, INC.
By:
---------------------------------------------
Title:
------------------------------------------
And by:
----------------------------------------
Title:
-----------------------------------------
A-4-3
<PAGE>
Exhibit 15
May 17, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated May 17, 1999 on our review of interim
financial information of Varian Medical Systems, Inc. for the three and six
month periods ended April 2, 1999 and included in the Company's quarterly report
on Form 10-Q for the periods then ended is incorporated by reference in its
Registration Statements on Form S-8 (Nos. 33-46000, 33-33661, 33-33660, and 2-
95139) and on Forms S-8 and S-3 (No. 33-40460).
Yours very truly,
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
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