<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 January 1, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transistion period from __________ to _________
Commission File Number: 1-7598
Exact name of registrant as specified in its charter:
VARIAN ASSOCIATES, INC.
State or other jurisdiction of IRS Employer
incorporation or organization: Identification No.:
DELAWARE 94-2359345
Address and telephone number of principal executive offices:
3050 Hansen Way, Palo Alto, California 94304-1000
(650) 493-4000
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 preceeding 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
--- ---
The number of shares of the registrant's common stock
outstanding as of January 29, 1999 was 29,985,000 shares of $1
par value common stock.
An index of exhibits filed with this Form 10-Q is located on
page 24.
<PAGE>
PART 1. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
UNAUDITED
<TABLE>
<CAPTION>
First Quarter Ended
- ------------------------------------------------------------------------------------------------------
January 1, January 2,
(In thousands except per share amounts) 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
SALES $ 282,312 $ 344,843
------------ ------------
Operating Costs and Expenses
Cost of sales 184,532 213,387
Research and development 24,301 27,320
Marketing 52,314 49,299
General and administrative 20,198 24,402
Reorganization costs 3,559 -
------------ ------------
Total Operating Costs and Expenses 284,904 314,408
------------ ------------
OPERATING (LOSS) EARNINGS (2,592) 30,435
Interest expense (2,662) (1,606)
Interest income 1,527 1,258
------------ ------------
(LOSS) EARNINGS BEFORE TAXES (3,727) 30,087
Taxes on (loss) earnings (1,290) 10,380
------------ ------------
NET (LOSS) EARNINGS $ (2,437) $ 19,707
============ ============
Average Shares Outstanding - Basic 29,848 30,086
============ ============
Average Shares Outstanding - Diluted 29,848 30,934
============ ============
Net (Loss) Earnings Per Share - Basic $ (0.08) $ 0.66
============ ============
Net (Loss) Earnings Per Share - Diluted $ (0.08) $ 0.64
============ ============
- ------------------------------------------------------------------------------------------------------
Dividends Declared Per Share $ 0.10 $ 0.09
Order Backlog $ 571,176 $ 640,582
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
-2-
<PAGE>
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
January 1, October 2,
1999 1998
(Dollars in thousands except par values) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 131,531 $ 149,667
--------------- ----------------
Accounts receivable 352,462 392,596
--------------- ----------------
Inventories
Raw materials and parts 143,282 132,341
Work in process 48,544 43,189
Finished goods 29,571 28,934
--------------- ----------------
Total inventories 221,397 204,464
--------------- ----------------
Other current assets 97,177 93,054
--------------- ----------------
Total Current Assets 802,567 839,781
--------------- ----------------
Property, Plant, and Equipment 513,108 509,089
Accumulated depreciation and amortization (302,330) (294,867)
--------------- ----------------
Net Property, Plant, and Equipment 210,778 214,222
--------------- ----------------
Other Assets 160,563 164,292
--------------- ----------------
TOTAL ASSETS $ 1,173,908 $ 1,218,295
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 46,246 $ 46,842
Accounts payable - trade 43,159 76,166
Accrued expenses 275,043 282,647
Product warranty 39,057 44,153
Advance payments from customers 64,542 55,081
--------------- ----------------
Total Current Liabilities 468,047 504,889
Long-Term Accrued Expenses 43,781 44,771
Long-Term Debt 106,164 111,090
--------------- ----------------
Total Liabilities 617,992 660,750
--------------- ----------------
Contingencies (Note 4)
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 29,909,000 shares at January 1, 1999 and 29,743,000
shares at October 2, 1998 29,909 29,743
Retained earnings 526,007 527,802
--------------- ----------------
Total Stockholders' Equity 555,916 557,545
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,173,908 $ 1,218,295
=============== ================
</TABLE>
See accompanying notes to the consolidated financial statements.
-3-
<PAGE>
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
UNAUDITED
<TABLE>
<CAPTION>
First Quarter Ended
- -------------------------------------------------------------------------------------------------------
January 1, January 2,
(Dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Cash (Used)/Provided by Operating Activities $ (2,567) $ 8,574
----------- ----------
INVESTING ACTIVITIES
Purchase of property, plant, and equipment (7,339) (9,278)
Purchase of businesses, net of cash acquired (150) (37,272)
Other, net 159 4,102
----------- ----------
Net Cash Used by Investing Activities (7,330) (42,448)
----------- ----------
FINANCING ACTIVITIES
Net (payments)/borrowings on short-term obligations (394) 3,248
Principal payments on long-term debt (5,894) (6,103)
Proceeds from common stock issued to employees 3,699 8,127
Purchase of common stock - (26,219)
Other, net (2,125) (2,706)
----------- ----------
Net Cash Used by Financing Activities (4,714) (23,653)
----------- ----------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (3,525) 874
----------- ----------
Net Decrease in Cash and Cash Equivalents (18,136) (56,653)
Cash and Cash Equivalents at Beginning of Period 149,667 142,298
----------- ----------
Cash and Cash Equivalents at End of Period $ 131,531 $ 85,645
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
-4-
<PAGE>
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
Unaudited
NOTE 1: The consolidated financial statements include the accounts of
Varian Associates, Inc. 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 first quarter ended January 1,
1999 are not necessarily indicative of the results to be expected
for a full year or for any other periods.
NOTE 2: 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 Health Care Systems (except for X-ray Tube
Products), Instruments, and Semiconductor Equipment segments. 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 $44.8 million at January 1, 1999
and $44.7 million at October 2, 1998.
NOTE 3: 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
-5-
<PAGE>
Notes to the Consolidated Financial Statements (Continued)
NOTE 3: 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 and their unrealized gains or losses as of
the first fiscal quarter ended January 1, 1999 are summarized as
follows:
<TABLE>
<CAPTION>
First Quarter Ended January 1, 1999
-----------------------------------------------------------------
Notional Value Notional Value Unrealized
Sold Purchased Gain/(Loss)
------------------ ------------------- -------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Australian dollar $ 1,600.6 $ 5,958.5 $ (41.5)
Belgian franc 3,074.2 - -
Brazilian real - 527.1 10.9
British pound 8,437.0 1,573.9 (7.8)
Canadian dollar 12,834.5 - 17.2
Dutch guilder 1,452.6 - -
Finish mark 1,014.7 - -
French franc 22,668.2 817.0 16.7
German mark 7,629.8 - 0.7
Indian rupee 411.3 - -
Italian lira 21,765.9 - 26.7
Japanese yen 14,376.6 6,833.8 73.8
Korean won 5,703.3 - (8.5)
Mexican peso 371.0 - (2.5)
Portugese escudo 4,130.7 384.4 0.6
Spanish peseta 11,888.8 753.1 8.5
Swedish kronor 1,405.7 2,578.8 (25.3)
Swiss franc - 8,668.0 (2.5)
Taiwan dollar 697.6 - 2.2
------------------ ------------------- -------------------
Totals $ 119,462.5 $ 28,094.6 $ 69.2
================== =================== ===================
</TABLE>
-6-
<PAGE>
Notes to the Consolidated Financial Statements (Continued)
NOTE 3: (Continued)
-----------
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 4: The Company is currently a defendant in a number of legal actions
and could incur an uninsured liability in one or more of them. In
the opinion of management, the outcome of such litigation will not
have a material adverse effect on the consolidated financial
position, results of operations or cash flow of the Company.
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). Expenditures for
environmental investigation and remediation amounted to $4.9
million in fiscal year 1998 compared with $2.3 million in fiscal
year 1997 and $5.2 million in fiscal year 1996.
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 January 1, 1999, the
Company nonetheless estimated that the Company's future exposure
for environmental related investigation and remediation costs for
these sites ranged in the aggregate from $20.9 million to $48.3
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 January 1, 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 $20.9 million in estimated environmental costs as of
January 1, 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 January 1, 1999,
the Company estimated that the Company's future exposure for
environmental-related investigation and remediation costs for
these sites and
-7-
<PAGE>
Notes to the Consolidated Financial Statements (Continued)
NOTE 4: (Continued)
-----------
facilities ranged in the aggregate from $39.5 million to $73.5
million. The time frame over which these costs are expected to be
incurred varies with each site, ranging up to approximately 30
years as of January 1, 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 $50.9 million at
January 1, 1999. The Company accordingly accrued $22.1 million,
which represents its best estimate of the future costs discounted
at 4%, net of inflation. This accrual is in addition to the $20.9
million described in the preceding paragragh.
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 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, 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. 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, and has a $0.5 million receivable in
Other Current Assets at January 1, 1999 which the Company believes
is recoverable based upon settlement offers received by the
Company. The
-8-
<PAGE>
Notes to the Consolidated Financial Statements (Continued)
NOTE 4: (Continued)
-----------
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 $5.5 million
receivable in Other Assets at January 1, 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.
NOTE 5: 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 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:
<TABLE>
<CAPTION>
First Quarter Ended January 1, 1999 First Quarter Ended January 2, 1998
----------------------------------- -----------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS ($2,437) 29,848 ($0.08) $19,707 30,086 $0.66
Effects of Dilutive
Securities
Employee Stock Options - 0.00 848 (0.02)
------------------------------------ ------------------------------------
Diluted EPS ($2,437) 29,848 ($0.08) $19,707 30,934 $0.64
==================================== ====================================
</TABLE>
Options to purchase 4,191,685 shares at an average exercise
price of $42.62 were outstanding during the quarter ended
January 1, 1999 but were not included in the computation of
diluted EPS because the Company incurred a net loss for the
period.
Options to purchase 35,686 shares at an average exercise price
of $60.37 were outstanding during the quarter ended January 2,
1998, but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average
market price of the shares.
-9-
<PAGE>
Notes to the Consolidated Financial Statements (Continued)
NOTE 6: Included in other assets at January 1, 1999 and October 2, 1998 is
goodwill of $130.6 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 10 to 40 years.
Whenever events or changes in circumstances indicate that the
carrying amounts of long-lived assets and goodwill related to
those assets may not be recoverable, the Company estimates the
future cash flows, undiscounted and without interest charges,
expected to result from the use of those assets and their eventual
disposition. If the sum of the future cash flows is less than the
carrying amount of those assets, the Company recognizes an
impairment loss based on the excess of the carrying amount over
the fair value of the assets.
NOTE 7: In June 1998, the Financial Accounting and Standards Board 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 8: On November 20, 1998, the Company's Board of Directors approved a
plan to reorganize the Company's core businesses in Health Care
Systems ("HCS"), Semiconductor Equipment ("SEB") and Instruments
("IB") into three separate public companies by spinning off
through a tax-free distribution two of its businesses, SEB and IB,
to stockholders. The final plan is subject to stockholder approval
as well as a favorable ruling from the U.S. Internal Revenue
Service confirming the tax-free nature of the proposed spin-offs
for the Company and its stockholders. The U.S. Internal Revenue
Service has advised the Company that it intends to issue a
favorable ruling. With stockholder approval, the Company expects
to complete the reorganization by the end of the second quarter of
fiscal 1999. Management estimates that one-time net cash outlays
of approximately $50 million will be required to complete this
reorganization.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
------------------------------------
Results of Operations
- ---------------------
First Quarter Fiscal Year 1999 Compared to First Quarter Fiscal Year 1998
Sales. In the first quarter of fiscal year 1999, the Company's sales of
$282 million declined 18% from the first quarter of fiscal year 1998 sales of
$345 million.
The Company's Health Care Systems business (HCS) sales of $105 million in
the first quarter of fiscal year 1999 were 7% higher than its sales of $98
million in the first quarter of fiscal year 1998. Oncology systems sales were
$79 million, or 75% of HCS's sales in the first quarter of fiscal year 1999,
compared to $67 million, or 68% of its sales, in the first quarter of fiscal
year 1998. X-ray tubes sales were $26 million, or 25% of HCS's sales, in the
first quarter of fiscal year 1999, compared to $31 million, or 32% of its sales,
in the first quarter of fiscal year 1998. Oncology systems sales accounted for
all of the increase in HCS's sales between the first quarter of fiscal year 1999
and the first quarter of fiscal year 1998. Oncology systems first quarter sales
rose 18% over fiscal year 1998's first quarter while x-ray tubes sales decreased
16% between the first quarters of fiscal year 1999 and fiscal year 1998.
International sales were $46 million, or 44% of HCS's total sales, in the first
quarter of fiscal year 1999, compared to $39 million, or 40% of its first
quarter sales in fiscal year 1998.
The Company's Instruments business (IB) sales of $130 million in the first
quarter of fiscal year 1999 were 4% below its sales of $136 million in fiscal
year 1998's first quarter. The lower first quarter sales were due primarily to
lower shipments in the vacuum products and nuclear magnetic resonance product
lines. First quarter fiscal year 1999 international sales of $67 million
remained unchanged from the prior year's first quarter. However, as a percent
of total IB sales, international sales were 52% of its total sales in the first
quarter of fiscal year 1999 compared to 49% of its total sales in the first
quarter of fiscal year 1998.
The Company's Semiconductor Equipment business (SEB) sales of $47 million
in the first quarter of fiscal year 1999 were 57% below its sales of $110
million in the first quarter of fiscal year 1998. International sales were $27
million, or 57% of SEB's total sales in the first quarter of fiscal year 1999,
compared to $78 million, or 71% of its total first quarter fiscal 1998 sales.
The semiconductor industry continued to experience the effects of the worldwide
slowdown in equipment demand, brought about by depressed device pricing, excess
capacity and the Asian financial situation. As a result, there has been a
reduction or delay in purchases of semiconductor manufacturing equipment and
construction of new fabrication facilities.
Gross Profit. Total Company gross profit of $98 million, or 35% of sales,
in the first quarter of fiscal year 1999 was 25% below its first quarter fiscal
year 1998 gross profit of $131 million, or 38% of sales. HCS's gross profit was
$33 million in both first quarters of fiscal years 1999 and 1998. As a percent
of total HCS's sales, gross profit was 31% of its total sales in the first
quarter of fiscal year 1999, compared to 34% of its total sales in fiscal year
1998's first quarter.
-11-
<PAGE>
IB's gross profit of $53 million in the first quarter of fiscal year 1999 was
41% of its sales, compared to $54 million, or 40% of its sales, in fiscal year
1998's first quarter. The increase in IB's gross profit as a percentage of its
total sales between the first quarter of fiscal year 1998 and the first quarter
of fiscal year 1999 was primarily attributable to improved operating
efficiencies. In the first quarter of fiscal year 1999, SEB's gross profit of
$12 million was 26% of its total sales, compared to $45 million, or 41% of its
total sales in the first quarter of fiscal year 1998. The decrease in SEB's
gross profit as a percentage of its sales between the first quarter of fiscal
year 1998 and the first quarter of fiscal year 1999 is attributable to the
volatility in product pricing, the slowdown in product demand and costs
associated with excess capacity.
Research and Development. For the Company overall, research and
development expenses declined $3 million in the first quarter of fiscal year
1999 to $24 million, or 9% of its sales, compared to $27 million, or 8% of its
sales, in the first quarter of fiscal year 1998. HCS's research and development
expenses in the first quarter of fiscal 1999 decreased 2% from fiscal 1998's
first quarter. IB's research and development expenses decreased 4% between the
first quarter of fiscal year 1998 and fiscal year 1999, reflecting the shift
away from outside consultants and the Ginzton Research Center to in-house IB
employees. SEB's research and development expenses for the first quarter of
fiscal 1999 decreased 27% from the first quarter of fiscal year 1998.
Operating Earnings. The lower level of revenues in the fiscal year 1999
first quarter resulted in operating earnings of $1 million before considering
$3.6 million of costs related to the Company's reorganization, as compared to
operating earnings of $30.4 million in the first quarter of fiscal year 1998.
Net Earnings. In the first quarter of fiscal year 1999, the Company
recorded a net loss of $2.4 million ($0.08 per diluted share), compared to net
earnings of $19.7 million ($0.64 per diluted share) in the first quarter of
fiscal year 1998.
Sale of Business. In June 1997, the Company completed the sale of its Thin
Film Systems business ("TFS"). Total proceeds received from the sale of the
TFS business were $146 million in cash. The gain on the sale was $33 million,
net of income taxes of $18 million. A $52 million reserve was recorded to
cover, among other items, purchase price disputes, retained liabilities,
transaction costs, employee terminations, facilities separation costs,
indemnification obligations, litigation expenses and other contingencies. The
reserve as of January 1, 1999 was $37 million and related to costs associated
with pending litigation and indemnity obligations relating to certain patent
infringement claims by Applied Materials, Inc. as well as purchase price
disputes with Novellus Systems, Inc. arising out of the sale of the TFS
business.
Recent Accounting Pronouncements
- ---------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No.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 No. 133 is
effective for the Company's fiscal year 2000. The Company has not yet
determined the impact of the implementation of SFAS No. 133 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.
-12-
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's financial condition remained strong during the first
quarter of fiscal year 1999. Cash and cash equivalents were $131.5 million at
the end of the first quarter of fiscal year 1999, compared to $85.6 million at
the end of the first quarter of fiscal year 1998 and $149.7 million at fiscal
year-end 1998. Operating activities used cash of $2.6 million in the first
quarter of fiscal year 1999 compared to providing cash of $8.6 million in the
first quarter of fiscal year 1998. Investing activities used $7.3 million in
the first quarter of fiscal year 1999, primarily for the purchase of property,
plant and equipment. Investing activities used $42.4 million in the first
quarter of fiscal year 1998, including $37.3 million for the purchase of
businesses and $9.3 million for the purchase of property, plant and equipment.
Financing activities used $4.7 million in the first quarter of fiscal year 1999
primarily for payments on long term debt. Financing activities used $23.7
million in the first quarter of fiscal year 1998 and included $18.1 million used
to buy back shares of the Company's stock (net of $8.1 million of proceeds
received from employees to purchase common stock). Total debt as a percentage
of total capital decreased to 21.5% at the end of the first quarter of fiscal
year 1999 as compared with 22.1% at fiscal year end 1998. The ratio of current
assets to current liabilities remained constant at 1.7 at the end of the first
quarter of fiscal year 1999 compared to fiscal year end 1998. The Company has
$50 million available in unused committed lines of credit at the end of the
first quarter of fiscal year 1999.
The Company's liquidity is affected by many factors, some based on normal
operations of the business and others related to the uncertainties of the
industry and global economics. Although the Company's cash requirements will
fluctuate based on the timing and extent of these factors, management believes
that cash generated from operations, together with the Company's borrowing
capability, will be sufficient to satisfy commitments for capital expenditures
and other cash requirements for the current fiscal year and fiscal year 2000.
On November 20, 1998, the Company's Board of Directors approved a plan to
reorganize the Company's core businesses into three separate public companies by
spinning off IB and SEB to stockholders through a tax-free distribution. The
final plan is subject to stockholder approval as well as a favorable ruling from
the U.S. Internal Revenue Service confirming the tax-free nature of the proposed
spin-offs for the Company and its stockholders. The U.S. Internal Revenue
Service has advised the Company that it intends to issue a favorable ruling.
With stockholder approval, the Company expects to complete the reorganization by
the end of the second quarter of fiscal 1999. Management estimates that one-time
net cash outlays of approximately $50 million will be required to complete this
reorganization.
While the capital structures of the three separate companies have not been
determined, it is expected that, upon consummation of the spin-off, each of HCS
and IB will have between $50 and $100 million of outstanding indebtedness under
the Company's term loans and notes payable, and that the Company will contribute
cash to SEB so that SEB will have approximately $100 million in cash and cash
equivalents and consolidated debt not exceeding $5 million.
-13-
<PAGE>
Environmental Matters
- ---------------------
The Company's operations are subject to various foreign, federal, state
and/or local laws regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. This includes
discharges into soil, water and air, and the generation, handling, storage,
transportation and disposal of waste and hazardous substances. In addition,
several countries are reviewing proposed regulations that would require
manufacturers to dispose of their products at the end of a product's useful
life. These laws have the effect of increasing costs and potential liabilities
associated with the conduct of such operations.
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). Expenditures for environmental
investigation and remediation amounted to $4.9 million in fiscal year 1998
compared with $2.3 million in fiscal year 1997, and $5.2 million in fiscal year
1996.
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 January 1, 1999, the Company nonetheless estimated that the
Company's future exposure for environmental related investigation and
remediation costs for these sites ranged in the aggregate from $20.9 million to
$48.3 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 January
1, 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 the Company has accrued $20.9 million in estimated
environmental costs as of January 1, 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 January 1, 1999, the Company estimated that the
Company's future exposure for environmental-related investigation and
remediation costs for these sites and facilities ranged in the aggregate from
$39.5 million to $73.5 million. The time frame over which these costs are
expected to be incurred varies with each site, ranging up to approximately 30
years as of January 1, 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 $50.9 million at
January 1, 1999. The Company accordingly has accrued $22.1 million, which
represents its best estimate of the future costs discounted at 4%, net of
inflation. This accrual is in addition to the $20.9 million described in the
preceding paragraph.
-14-
<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 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,
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. 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, and has a $0.5 million receivable in Other Current Assets at
January 1, 1999 which the Company believes is recoverable based upon settlement
offers received by the Company. 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 $5.5 million receivable in Other Assets at January
1, 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
-15-
<PAGE>
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 has initiated a comprehensive assessment
of potential Year 2000 problems with respect to (1) internal systems, (2)
products, and (3) significant third parties with which the Company does
business.
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 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 70% complete, with 90%
completion expected by July 1999 and full completion expected by the end of
1999. Upgrade of enterprise information systems is approximately 70% complete,
with 90% completion expected by July 1999 and 100% completion expected by
December 1999; upgrade of enterprise networking and telecommunications systems
is complete; upgrade of factory-specific information systems is approximately
60% complete, with 86% completion expected by July 1999 and 91% completion
expected by December 1999; upgrade of non-IT systems, computers and packaged
software, and facilities systems are well underway and the Company expects these
to be substantially completed by July 1999 (except in the case of some computers
and packaged software, which might not be completed until 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 which are subject to regulatory
requirements with respect to Year 2000, including FDA requirements for medical
devices, 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, 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 July 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 may be required to repair and/or
upgrade such products at its own expense. Schedules for completing those
corrective actions vary considerably among the
-16-
<PAGE>
Company's businesses and products, but are generally expected to be
substantially completed by July 1999.
The Company is still assessing 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 August 1999.
Costs. As of January 1, 1999, the Company estimates that it had incurred
approximately $2.6 million to assess and correct Year 2000 problems. Although
difficult to assess, based on its assessment to date, the Company estimates that
it will incur approximately $4.6 million 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 will 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 or 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 does not adequately identify and correct Year 2000 problems in
its information systems it could experience interruptions 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 identify and correct Year 2000 problems in its
non-IT systems it could experience interruptions 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 its 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 with its significant third parties it could experience
interruptions 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 will have a material adverse effect on the
Company's business, results of
-17-
<PAGE>
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 1999 and fiscal year 2000 the separation of
currently shared enterprise information systems as a result of the planned
separation of the Company's businesses into three public companies.
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 have
been corrected by December 31, 1999. It is currently anticipated that the focus
of these contingency plans will be the possible interruption of supply of key
components or services from third parties.
Forward Looking Information
- ---------------------------
This Management's Discussion and Analysis contains certain forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from those projected. Such risks and uncertainties include:
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; the ability to
increase operating margins on higher sales; the continued improvement of the
various instruments markets the company serves; the impact of economic
conditions in Korea and other Asian markets on sales in those areas,
particularly semiconductor equipment sales; the impact of managed care
initiatives in the U.S. on capital expenditures and resulting pricing pressure
on medical equipment; the timing of renewed growth in worldwide semiconductor
equipment demand;
-18-
<PAGE>
successful implementation by the Company and certain third
parties of corrective action to address the impact of the Year 2000; completion
of the planned reorganization on the current schedule within current budgets;
the ability to sell certain surplus assets in connection with the
reorganization; the ability of the three post-reorganization companies to
realize anticipated costs savings resulting from the reorganization; and other
risks detailed from time to time in the Company's filings with the Securities
and Exchange Commission.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
------- ---------------------------------------------------------
There have been no material changes in information reported in the
Registrant's Form 10-K for the fiscal year ended October 2, 1998.
-19-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors of Varian Associates, Inc.:
We have reviewed the consolidated balance sheet of Varian Associates, Inc. and
its subsidiaries as of January 1, 1999, and the related consolidated statements
of earnings and the condensed consolidated statements of cash flows for the
quarters ended January 1, 1999 and January 2, 1998. These financial statements
are the responsibility of the Company's management.
We conducted our reviews 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 reviews, we are not aware of any material modifications that should
be made to the aforementioned financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
-------------------------------
PricewaterhouseCoopers LLP
San Jose, California
February 12, 1999
-20-
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 6 Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits:
---------
Exhibit 10.7.A Registrant's form of Change in Control Agreement with
Richard A. Aurelio, Allen J. Lauer and Richard M. Levy,
as amended and effective as of November 1, 1998.
Exhibit 10.7.B Registrant's form of Change in Control Agreement with
Robert A. Lemos, as amended and effective as of November
1, 1998.
Exhibit 10.8 Registrant's Change in Control Agreement with J. Tracy
O'Rourke, as amended and effective as of November 1,
1998.
Exhibit 10.12 Registrant's Severance Agreement with J. Tracy O'Rourke.
Exhibit 10.13 Registrant's Severance Agreement with Robert A. Lemos.
Exhibit 15 Letter Regarding Unaudited Interim Financial Information.
Exhibit 27 Financial Data Schedule for the quarter ended January 1,
1999 (EDGAR filing only).
(b) Reports on Form 8-K:
A report on Form 8-K was filed on November 24, 1998 regarding the
approval of a Stockholder Rights Plan by the Registrant's Board of
Directors.
-21-
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VARIAN ASSOCIATES, INC.
---------------------------------
Registrant
February 12, 1999
---------------------------------
Date
/s/ Wayne P. Somrak
---------------------------------
Wayne P. Somrak
Vice President and Controller
(Chief Accounting Officer)
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<PAGE>
INDEX OF EXHIBITS
-----------------
Exhibit
Number
- ------
10.7.A Registrant's form of Change in Control Agreement with Richard A.
Aurelio, Allen J. Lauer and Richard M. Levy, as amended and effective
as of November 1, 1998.
10.7.B Registrant's form of Change in Control Agreement with Robert A. Lemos,
as amended and effective as of November 1, 1998.
10.8 Registrant's Change in Control Agreement with J. Tracy O'Rourke, as
amended and effective as of November 1, 1998.
10.12 Registrant's Severance Agreement with J. Tracy O'Rourke.
10.13 Registrant's Severance Agreement with Robert A. Lemos.
15 Letter Regarding Unaudited Interim Financial Information.
27 Financial Data Schedule for the quarter ended January 1, 1999 (EDGAR
filing only).
-23-
<PAGE>
EXHIBIT 10.7.A
FORM OF CHANGE IN CONTROL AGREEMENT
FOR RICHARD A. AURELIO, ALLEN J. LAUER AND RICHARD M. LEVY
AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT
------------------------------------------------
THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT ("Agreement") is
---------
entered into effective as of November 1, 1998, by and between VARIAN ASSOCIATES,
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 7(e) or which otherwise becomes bound by the terms and
conditions of this Agreement by operation of law or otherwise.
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<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
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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
3 of 14
<PAGE>
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; provided further, however, that a "Change
-------- ------- ------- ------
in Control" shall not include the contemplated reorganization of the Company
- ----------
(the "Triple Spin") into three distinct corporate entities with separate
-----------
management (the "Post-Spin Companies").
-------------------
"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.
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<PAGE>
"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 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; provided,
--------
that the use by Employee of aircraft owned or leased by the Company shall not be
considered in determining whether Good Reason exists under this clause (iii); 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);
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(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 7(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 resolution of any such
-------- -------
Dispute, the Company shall pay 75% of any amounts which would
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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 and (B) the highest annual bonus paid
to Employee in any of the three years ending prior to the date of
termination under the Company's Management Incentive Plan (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 year in which the termination occurs)
of Employee's target bonus under the Company's Management Incentive Plan
(MIP) for the year 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
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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 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
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<PAGE>
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
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<PAGE>
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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<PAGE>
6. LONG TERM INCENTIVE PLAN.
-------------------------
Upon the occurrence of a Change in Control, each of Employee's
outstanding awards under the Long Term Incentive feature of the Company's
Omnibus Stock Plan (the "LTIP") shall be settled for an amount equal to each
----
such award's target payout within five (5) days of the date of the Change in
Control; provided, however, that if the LTIP and the outstanding LTIP awards are
-------- -------
assumed by the Company's successor, such awards shall remain outstanding and be
settled in accordance with their terms; provided further, however, that upon the
-------- ------- -------
termination of Employee's employment under circumstances described in Section
3(a), each then outstanding LTIP award of Employee shall be settled in the
manner described above. LTIP awards settled on an accelerated basis shall not be
discounted to take into account such early settlement.
7. 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, any Post-Spin
Company or a subsidiary of any of them (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 7(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 7(b) or such other relief as may be
required to specifically enforce any of the covenants in this Section 7(b).
Employee agrees to and hereby does submit to in personam
-- --------
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<PAGE>
jurisdiction before each and every such court in the State of California, County
of Santa Clara, for that purpose. This Section 7(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 (i) Employee's heirs, successors and assigns and (ii) the Post-Spin
Companies. 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:
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<PAGE>
Varian Associates, Inc.
3050 Hansen Way
Palo Alto, CA 94303-1000
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 7(i)
shall survive any termination of this Agreement described in Section 2(b).
(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.
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<PAGE>
(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.
(m) It is anticipated that after the Triple Spin the Employee will
be employed in an executive capacity with one of the resulting entities. The
Company agrees to provide for the assumption of this Agreement by such resulting
entity upon the consummation of the Triple Spin.
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 November 1, 1998.
VARIAN ASSOCIATES, INC. EMPLOYEE
______________________________________ ______________________________________
Name:
Title:
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<PAGE>
EXHIBIT 10.7.B
FORM OF CHANGE IN CONTROL AGREEMENT
FOR ROBERT A. LEMOS
AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT
------------------------------------------------
THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT ("Agreement") is
---------
entered into effective as of November 1, 1998, by and between VARIAN
ASSOCIATES, 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 7(e) or which otherwise becomes bound by the
terms and conditions of this Agreement by operation of law or otherwise.
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<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
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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;
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<PAGE>
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; provided further,
-------- -------
however, that a "Change in Control" shall not include the contemplated
- ------- -----------------
reorganization of the Company (the "Triple Spin") into three distinct corporate
-----------
entities with separate management (the "Post-Spin Companies").
-------------------
"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.
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<PAGE>
"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 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; provided, that the use by Employee of aircraft owned or leased by the
--------
Company shall not be considered in determining whether Good Reason exists
under this clause (iii); 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
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<PAGE>
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 7(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.
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<PAGE>
(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 reaching 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 and (B) the highest
annual bonus paid to Employee in any of the three years ending prior to
the date of termination under the Company's Management Incentive Plan
(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 year in which the termination occurs)
of Employee's target bonus under the Company's Management Incentive Plan
(MIP) for the year 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
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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.
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<PAGE>
"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 to contest the claim, Employee
shall: (i) give the Company any information reasonably requested
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<PAGE>
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
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<PAGE>
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. LONG TERM INCENTIVE PLAN.
-------------------------
Upon the occurrence of a Change in Control, each of Employee's
outstanding awards under the Long Term Incentive feature of the Company's
Omnibus Stock Plan (the "LTIP") shall be settled for an amount equal to each
----
such award's target payout within five (5) days of the date of the Change in
Control; provided, however, that if the LTIP and the outstanding LTIP awards are
-------- -------
assumed by the Company's successor, such awards shall remain outstanding and be
settled in accordance with their terms; provided further, however, that upon the
-------- ------- -------
termination of Employee's employment under circumstances described in Section
3(a), each then outstanding LTIP award of Employee shall be settled in the
manner described above. LTIP awards settled on an accelerated basis shall not
be discounted to take into account such early settlement.
7. 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, any Post-Spin
Company or a subsidiary of any of them (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 7(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
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<PAGE>
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 7(b) or such
other relief as may be required to specifically enforce any of the covenants
in this Section 7(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 7(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 (i) Employee's heirs, successors and assigns and (ii) the Post-
Spin Companies. 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
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<PAGE>
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 Associates, Inc.
3050 Hansen Way
Palo Alto, CA 94303-1000
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 7(i) shall survive any termination of
this Agreement described in Section 2(b).
(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,
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<PAGE>
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.
(m) It is anticipated that in connection of the consummation of the
Triple Spin the Employee's employment with the Company will be terminated. Upon
the earlier of the consummation of the Triple Spin and any such termination, the
Employee will be entitled solely to the benefits provided under the severance
agreement dated as of the date hereof between the Employee and the Company and
this Agreement shall be of no further force and effect.
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 November 1, 1998.
VARIAN ASSOCIATES, INC. EMPLOYEE
______________________________________ ______________________________________
Name:
Title:
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<PAGE>
EXHIBIT 10.8
AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT
------------------------------------------------
THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT ("Agreement") is
---------
entered into effective as of November 1, 1998, by and between VARIAN ASSOCIATES,
INC., a Delaware corporation (the "Company")/1/, and J. Tracy O'Rourke, 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 7(e) or which otherwise becomes bound by the
terms and conditions of this Agreement by operation of law or otherwise.
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<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.
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<PAGE>
(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
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actions or events in which Employee is a participant in a capacity other than
solely as an officer, employee or director of the Company; provided further,
-------- -------
however, that a "Change in Control" shall not include the contemplated
- ------- -----------------
reorganization of the Company (the "Triple Spin") into three distinct corporate
-----------
entities with separate management (the "Post-Spin Companies").
-------------------
"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
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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 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; provided,
--------
that the use by Employee of aircraft owned or leased by the Company shall not be
considered in determining whether Good Reason exists under this clause (iii); 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 7(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
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(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 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.
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<PAGE>
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 2.99 multiplied by
the sum of (A) Employee's Base Salary and (B) the highest annual bonus paid
to Employee in any of the three years ending prior to the date of
termination under the Company's Management Incentive Plan (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 year in which the termination occurs)
of Employee's target bonus under the Company's Management Incentive Plan
(MIP) for the year 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.
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<PAGE>
(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.
(c) Following Employee's termination of employment for any reason,
Employee shall no longer be entitled to (i) the use of aircraft owned or leased
by the Company or (ii) property tax subsidies from 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
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<PAGE>
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
9 of 14
<PAGE>
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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<PAGE>
6. LONG TERM INCENTIVE PLAN.
-------------------------
Upon the occurrence of a Change in Control, each of Employee's
outstanding awards under the Long Term Incentive feature of the Company's
Omnibus Stock Plan (the "LTIP") shall be settled for an amount equal to each
----
such award's target payout within five (5) days of the date of the Change in
Control; provided, however, that if the LTIP and the outstanding LTIP awards are
-------- -------
assumed by the Company's successor, such awards shall remain outstanding and be
settled in accordance with their terms; provided further, however, that upon the
-------- ------- -------
termination of Employee's employment under circumstances described in Section
3(a), each then outstanding LTIP award of Employee shall be settled in the
manner described above. LTIP awards settled on an accelerated basis shall not
be discounted to take into account such early settlement.
7. 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:
(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, any Post-Spin Company or a subsidiary of any of them (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 Company or the
applicable Post-Spin Company, in any geographic area in which the Company
or a Post-Spin Company 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 Company, any Post-
Spin Company or
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<PAGE>
any subsidiary of any of them is actively engaged at the time; provided,
--------
however, that the restrictions in this Section 7(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 7(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 7(b) or such other relief as may be
required to specifically enforce any of the covenants in this Section 7(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 7(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.
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<PAGE>
(f) This Agreement shall inure to the benefit of and be
enforceable by (i) Employee's heirs, successors and assigns and (ii) the Post-
Spin Companies. 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:
J. Tracy O'Rourke Varian Associates, Inc.
145 Fawn Lane 3050 Hansen Way
Portola Valley, CA 94028 Palo Alto, CA 94303-1000
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 7(i) shall survive any termination of
this Agreement described in Section 2(b).
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<PAGE>
(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.
(m) It is anticipated that in connection with the consummation of
the Triple Spin the Employee's employment with the Company will be terminated.
Upon the earlier of the consummation of the Triple Spin and any such
termination, the Employee will be entitled solely to the benefits provided
under the severance agreement dated as of the date hereof between the Employee
and the Company and this Agreement shall be of no further force and effect.
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 November 1, 1998.
VARIAN ASSOCIATES, INC. EMPLOYEE
/s/ Ernie Felago /s/ J. Tracy O'Rourke
- -------------------------------------- -----------------------------------
Name: Ernie Felago J. Tracy O'Rourke
Title: Vice-President, Human Resoures
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<PAGE>
EXHIBIT 10.12
-------------
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (Agreement) is entered into effective as of
---------
November 20, 1998, by and between VARIAN ASSOCIATES, INC., a Delaware
corporation (the Company), and J. Tracy O'Rourke, 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 engage
in a reorganization (the "Triple Spin") pursuant to which the Company will be
-----------
divided into three distinct entities with separate management (the "Post-Spin
---------
Companies"). The Board has further determined that the services of Employee
- ---------
will no longer be required after the consummation of the Triple Spin and
believes that it is appropriate to reward the Employee for Employees previous
service to the Company and to provide Employee with an incentive to remain in
the employ of the Company pending the successful completion of the Triple Spin.
In view of the foregoing, the Company and Employee agree as follows:
1. RESIGNATION; OTHER TERMINATIONS.
-------------------------------
(a) Upon the consummation of the Triple Spin or upon such earlier
date as mutually agreed by the parties (the "Termination Date"), Employee shall
----------------
resign as a director and/or officer of the Companies with respect to which
Employee held such a position on such date, and will become an inactive employee
of the Company (in which capacity Employee will not be expected to perform any
regular work for the Company), and will remain an inactive employee for the
period set forth in Section 3.(a)(iv) , upon conclusion of which Employee shall,
at Employee's election, either resign or retire from the Company. In
addition, Employee shall resign as of the Termination Date as a member of each
committee of the Companies on which he was then serving and as a director,
officer, trustee or member of any third-party organization in which he was then
serving as a delegate or representative of any of the Companies. For purposes
of this Agreement, the term "Companies" shall include the Company and each of
---------
its direct or indirect majority-owned subsidiaries.
(b) It is anticipated that Employee will remain in the employ of the
Company and continue to perform Employees regular duties until the Termination
Date. If prior to the Termination Date Employee voluntarily terminates
employment for any reason or Employees employment is terminated by the Company
for Cause, or in the event of the death, Disability or Retirement of Employee
prior to the Termination Date, this Agreement shall lapse upon such termination
of employment and be of no further force or effect. If the Company terminates
the employment of Employee prior to the Termination Date without Cause, Employee
shall be
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<PAGE>
entitled to the payments and benefits provided herein and for purposes of
determining such payments and benefits, the date of such termination shall be
the Termination Date.
(c) If the Company terminates Employees employment for Cause, the
Company shall pay Employees 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) Any termination of employment by the Company or by Employee prior
to the Termination Date as described in Section 1(b) or (c) (other than death)
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.
(e) 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 3 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.
2. DEFINITIONS.
-----------
For purposes of this Agreement:
"Base Salary" shall mean the annual base salary paid to Employee
-------------
immediately prior to the Termination Date, 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 Termination Date.
"Cause" shall mean:
-------
(i) The continued willful failure of Employee to perform
Employees duties to the Company (other than any such failure resulting from
Employees 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
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<PAGE>
(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 Employees duties on behalf of the Company;
or
(iii) The conviction of Employee for commission of a felony in
connection with the performance of Employees 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 Employees employment by the
Company.
Disability shall mean Employees 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
Termination Date.
Dispute shall mean a disagreement between Employee and the
-------
Company regarding the existence of Disability or Cause.
Retirement shall mean Employees 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 Employees termination of
employment.
Severance Period shall mean the whole and partial number of years
----------------
determined by multiplying (i) the Severance Factor by (ii) one (1) year.
3. PAYMENTS AND BENEFITS UPON RESIGNATION.
--------------------------------------
(a) Upon the resignation or Retirement of Employee on the Termination
Date in accordance with Section 1(a) and Employees satisfaction of the Release
Delivery Requirement, 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 Employees
satisfaction of the Release Delivery Requirement, a lump sum severance
payment (the "Cash Severance") equal to 2.99 (the "Severance Factor")
--------------- ----------------
multiplied by the sum of (A) Employees Base Salary and (B) the highest
annual bonus paid to Employee in any of the three years ending prior to the
"Termination Date" under the Company's Management Incentive Plan (MIP).
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<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 year in which the "Termination Date"
occurs) of Employees target bonus under the Company's Management Incentive
Plan (MIP) for the year in which the "Termination Date" 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. In the event that Employees combined age and service with the
Company as of the Termination Date satisfy the definition of "Retirement",
the resignations described in Section 1 hereof shall constitute
"retirement" for purposes of the Company's Omnibus Stock Plan.
(iv) Employees participation as of the Termination Date 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 Employees
commencement of substantially equivalent full-time employment with a new
employer or twenty-four (24) months after the Termination Date; provided,
--------
however, that after the Termination Date, 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 Employees participation in such insurance
plans, the participation of Employees surviving spouse and family in the
Company's insurance plans shall continue throughout such period.
(v) Employee may elect upon the "Termination Date" 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 Employee hereunder.
(vi) Each of Employees outstanding awards under the Long Term
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<PAGE>
Incentive feature of the Company's Omnibus Stock Plan (the LTIP) shall,
----
within five (5) days of Employee's satisfaction of the Release Delivery
Requirement, be settled as follows:
(A) for the 1997 to 1999 and the 1998 to 2000 LTIP cycles, an
amount equal to each such award's target payout shall be
paid; and
(B) for the 1999 to 2001 LTIP cycle, an amount equal to a pro
rata portion (based on the number of days elapsed during
such award cycle as of the "Termination Date") of such
award's target payout shall be paid.
All LTIP awards settled on an accelerated basis shall not be discounted to
take into account such early settlement.
(vii) All payments and benefits provided under this Agreement
shall be subject to applicable tax withholding.
(b) Following Employees 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.
(c) Any amount of Cash Severance paid to Employee pursuant to Section
3(a)(i) shall be offset proportionately by any amount of Related Income (defined
below) received by Employee during the Severance Period and Employee shall be
obligated to repay any such Related Income to Company on an after-tax basis as
soon as practicable after Employees receipt thereof. Related Income means any
--------------
salary and/or bonus paid to Employee by a Post-Spin Company for services
performed in Employees capacity as an employee, but shall not include (i) any
fees earned by Employee in connection with Employees service as a non-employee
officer or member of the board of directors of or a consultant to a Post-Spin
Company or (ii) any amount of salary and/or bonus in excess of the product of
(A) the Cash Severance and (B) a fraction, the numerator of which is the number
of whole and partial years over which such salary and/or bonus was earned and
the denominator of which is Employees Severance Factor.
For example, assume Employees Severance Factor is 2.50 and Employees
Cash Severance paid under Section 3(a)(i) is $500,000. Assume further that (i)
Employee obtains employment with a Post-Spin Company as of the second
anniversary of his termination of employment hereunder and works for at least
six months thereafter and (ii) the Post-Spin
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<PAGE>
Company pays Employee $125,000 in salary and bonus for services rendered as an
employee during such six-month period. Employee would be obligated to pay to the
Company $100,000 (on an after-tax basis) and would be permitted to retain the
excess $25,000. The Related Income ($100,000) is calculated by multiplying the
Cash Severance ($500,000) by the fraction described above (.5/2.5). The excess
($25,000) is not included in Related Income and may be retained by Employee.
(d) Following Employees termination of employment for any reason,
Employee shall no longer be entitled to (i) the use of aircraft owned or leased
by the Company or (ii) property tax subsidies from the Company.
4. RELEASE.
-------
In recognition of the consideration recited above, Employee hereby
agrees to execute a release effective as of the Termination Date in favor of the
Company in substantially the form attached hereto as Exhibit A and Employee
acknowledges that no payments are required to be made by the Company hereunder
until Employee satisfies the Release Delivery Requirement. For purposes of this
Agreement, "Release Delivery Requirement" shall mean (i) the delivery of the
----------------------------
release on the Termination Date in substantially the form attached hereto as
Exhibit A and (ii) the expiration of the seven-day period commencing on the date
of such delivery without the Executive having revoked the release.
5. 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 him 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 the Company other
than for Cause) for a period of two (2) years, Employee shall not:
(i) whether for Employees 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, any Post-Spin Company or a subsidiary of any of them (each, a
Protected Party), or otherwise interfere with the
---------------
6 of 12
<PAGE>
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 Company or the
applicable Post-Spin Company, in any geographic area in which the Company
or a Post-Spin Company 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 Company, any Post-
Spin Company or any subsidiary of any of them is actively engaged at the
time; provided, however, that the restrictions in this Section 5(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 5(b) may result in material irreparable injury to the Company
for which there may be 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 5(b) or such other relief as may be
required to specifically enforce any of the covenants in this Section 5(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 5(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
Employees reasonable attorneys 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.
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<PAGE>
(d) Except as provided in Section 3, 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) This Agreement shall inure to the benefit of and be enforceable
by (i) Employees heirs, successors and assigns and (ii) the Post-Spin Companies.
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 Employees heirs, successors and
assigns.
(f) 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:
J. Tracy O'Rourke
145 Fawn Lane Varian Associates, Inc.
Portola Valley, CA 94028 100 Hansen Way
Palo Alto, CA 94303-1000
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.
(g) This Agreement shall constitute the entire agreement between
Employee and the Company concerning the subject matter of this Agreement.
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<PAGE>
(h) 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 5(h)
shall survive any termination of this Agreement.
(i) 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.
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 November 1, 1998.
VARIAN ASSOCIATES, INC. EMPLOYEE
/s/Ernie Felago /s/ J. Tracy O'Rourke
------------------------------------- -----------------------------------
Name: Ernie Felago J. Tracy O'Rourke
Title: Vice-President, Human Resources
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<PAGE>
EXHIBIT A
---------
RELEASE
-------
RELEASE, dated as of the Termination Date (as defined in the Severance
Agreement), by J. Tracy O'Rourke (Employee) in favor of Varian Associates, Inc.,
--------
a Delaware corporation (the Company).
-------
WHEREAS, the Company and Employee entered into the Severance Agreement
dated as of November 20, 1998 (the Severance Agreement);
-------------------
WHEREAS, pursuant to the terms of the Severance Agreement, Employees
employment is scheduled to terminate upon the Termination Date, at which time
Employee shall become an inactive employee entitled to the benefits provided
therein, subject to Employees execution and delivery of this Release and the
expiration of the seven-day revocation period provided herein without Employee
having revoked this Release.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and consideration set forth in the Severance
Agreement, Employee agrees as follows:
1. Release of Claims and Consultation with Attorneys. In recognition
-------------------------------------------------
of the consideration recited in the Severance Agreement, Employee hereby
releases and discharges the Company and its present, former and future partners,
affiliates, direct and indirect parents, subsidiaries, successors, directors,
officers, employees, agents, attorneys, heirs and assigns (the "Released
--------
Parties"), from any and all claims, actions and causes of action that Employee
- -------
may have or in the future may possess with respect to the Released Parties,
including without limitation, claims, actions and causes of action arising out
of Employees employment relationship with the Company, or the termination of
such employment, and including without limitation any claims arising under Title
VII of the Civil Rights Act of 1964, the Rehabilitation Act of 1973, the
Americans With Disabilities Act of 1990, the Civil Rights Act of 1866, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, the
Family and Medical Leave Act of 1993, the California Fair Employment and Housing
Act, the California Unruh Civil Rights Act, the California Equal Pay Law, any
contract or agreement, or any federal, state or local law, whether such claim
arises under statute or common law and whether or not Employee is presently
aware of the existence of such claim, damage, action and cause of action, suit
or demand. Employee also forever releases, discharges and waives any right
Employee may have to recover in any proceeding brought by any federal, state or
local agency against the Released Parties to enforce any laws. Employee agrees
that the value received as described in
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<PAGE>
the Severance Agreement shall be in full satisfaction of any and all claims,
actions or causes of action for payment or other benefits of any kind that
Employee may have against the Released Parties, other than any claims Employee
may have with regard to vested benefits under any of the Company's employee
benefit plans.
2. ADEA Release. In further recognition of the consideration
------------
recited in the Severance Agreement, Employee hereby releases and discharges the
Released Parties from any and all claims, actions and causes of action that
Employee may have against the Released Parties arising under the federal Age
Discrimination in Employment Act of 1967, as amended (ADEA), and the applicable
----
rules and regulations promulgated thereunder. If Employee fails to revoke this
Release during the applicable seven-day revocation period described below, this
Release shall become effective and binding upon the parties hereto.
3. Representations. By executing this Release, Employee represents
---------------
that:
(a) Employee has been given the opportunity to consult with the
attorney(s) of Employees choice;
(b) Employee has been given a period of at least 21 days within which
to consider the terms and provisions of the Severance Agreement and this
Release;
(c) Employee is aware that for a period of seven days following
Employee's execution of this Release, Employee has the option to revoke this
Release by providing notice to the Company in accordance with the terms set
forth below;
(d) Employee has knowingly and voluntarily accepted the terms of the
Severance Agreement and this Release; and
(e) Employee has read and expressly waives any rights Employee may
have under Section 1542 of the California Civil Code, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
4. General.
-------
(a) For the purposes of this Release, notices and all other
communications provided for in this Release shall be in writing and shall be
deemed to have been duly given
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<PAGE>
when delivered or mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to Employee: If to the Company:
J. Tracy O'Rourke Varian Associates, Inc.
145 Fawn Lane 3100 Hansen Way
Portola Valley, CA 94028 Palo Alto, CA 94303-1000
Attn: Vice President, Human
Resources
(b) This Release shall inure to the benefit of and be enforceable by
the Post-Spin Companies.
(c) This Release 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.
VARIAN ASSOCIATES, INC. EMPLOYEE
/s/ Ernie Felago /s/ J. Tracy O'Rourke
- --------------------------------------- -----------------------------------
Name: Ernie Felago J. Tracy O'Rourke
Title: Vice-President, Human Resources
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<PAGE>
EXHIBIT 10.13
--------------
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (Agreement) is entered into effective as of
---------
November 20, 1998, by and between VARIAN ASSOCIATES, INC., a Delaware
corporation (the Company), and Robert Lemos, 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 engage
in a reorganization (the "Triple Spin") pursuant to which the Company will be
-----------
divided into three distinct entities with separate management (the "Post-Spin
---------
Companies"). The Board has further determined that the services of Employee
- ---------
will no longer be required after the consummation of the Triple Spin and
believes that it is appropriate to reward the Employee for Employee's previous
service to the Company and to provide Employee with an incentive to remain in
the employ of the Company pending the successful completion of the Triple Spin.
In view of the foregoing, the Company and Employee agree as follows:
1. RESIGNATION; OTHER TERMINATIONS.
-------------------------------
(a) Upon the consummation of the Triple Spin or upon such earlier
date as mutually agreed by the parties (the "Termination Date"), Employee shall
----------------
resign as a director and/or officer of the Companies with respect to which
Employee held such a position on such date, and will become an inactive employee
of the Company (in which capacity Employee will not be expected to perform any
regular work for the Company), and will remain an inactive employee for the
period set forth in Section 3.(a)(iv), or upon conclusion of which Employee
shall, at Employee's election, either resign or retire from the Company. In
addition, Employee shall resign as of the Termination Date as a member of each
committee of the Companies on which he was then serving and as a director,
officer, trustee or member of any third-party organization in which he was then
serving as a delegate or representative of any of the Companies. For purposes
of this Agreement, the term "Companies" shall include the Company and each of
---------
its direct or indirect majority-owned subsidiaries.
(b) It is anticipated that Employee will remain in the employ of the
Company and continue to perform Employee's regular duties until the Termination
Date. If prior to the Termination Date Employee voluntarily terminates
employment for any reason or Employee's employment is terminated by the Company
for Cause, or in the event of the death, Disability or Retirement of Employee
prior to the Termination Date, this Agreement shall lapse upon such termination
of employment and be of no further force or effect. If the Company terminates
the employment of Employee prior to the Termination Date without Cause, Employee
shall be
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<PAGE>
entitled to the payments and benefits provided herein and for purposes of
determining such payments and benefits, the date of such termination shall be
the Termination Date.
(c) If the Company terminates Employee's employment for Cause, 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) Any termination of employment by the Company or by Employee prior
to the Termination Date as described in Section 1(b) or (c) (other than death)
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.
(e) 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 3 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.
2. DEFINITIONS.
-----------
For purposes of this Agreement:
Base Salary shall mean the annual base salary paid to Employee
-----------
immediately prior to the Termination Date, 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 Termination Date.
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
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<PAGE>
(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.
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
Termination Date.
Dispute shall mean a disagreement between Employee and the
-------
Company regarding the existence of Disability or Cause.
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.
Severance Period shall mean the whole and partial number of years
----------------
determined by multiplying (i) the Severance Factor by (ii) one (1) year.
3. PAYMENTS AND BENEFITS UPON RESIGNATION.
--------------------------------------
(a) Upon the resignation or Retirement of Employee on the Termination
Date in accordance with Section 1(a) and Employee's satisfaction of the Release
Delivery Requirement, 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
Employee's satisfaction of the Release Delivery Requirement, a lump sum
severance payment (the "Cash Severance") equal to 2.50 (the "Severance
--------------- ---------
Factor") multiplied by the sum of (A) Employee's Base Salary and (B) the
------
highest annual bonus paid to Employee in any of the three years ending
prior to the Termination Date under the Company's Management Incentive Plan
(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
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<PAGE>
sum payment equal to a pro rata portion (based on the number of days
elapsed during the year in which the "Termination Date" occurs) of
Employee's target bonus under the Company's Management Incentive Plan (MIP)
for the year in which the "Termination Date" 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. In the event that Employee's combined age and service with the
Company as of the Termination Date satisfy the definition of "Retirement",
the resignations described in Section 1 hereof shall constitute
"retirement" for purposes of the Company's Omnibus Stock Plan.
(iv) Employee's participation as of the Termination Date 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 Termination Date; provided,
--------
however, that after the Termination Date, 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 the "Termination Date" 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 Employee hereunder.
(vi) Each of Employee's outstanding awards under the Long Term
Incentive feature of the Company's Omnibus Stock Plan (the LTIP) shall, within
----
five (5) days of Employee's satisfaction of the Release Delivery Requirement, be
settled as follows:
(A) for the 1997 to 1998 and the 1998 to 2000 LTIP cycles, an
amount equal to each such award's target payout shall be
paid; and
4 of 11
<PAGE>
(B) for the 1999 to 2001 LTIP cycle, an amount equal to a pro
rata portion (based on the number of days elapsed during
such award cycle as of the "Termination Date") of such
award's target payout shall be paid.
All LTIP awards settled on an accelerated basis shall not be discounted to take
into account such early settlement
.
(vii) 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.
(c) Any amount of Cash Severance paid to Employee pursuant to Section
3(a)(i) shall be offset proportionately by any amount of Related Income (defined
below) received by Employee during the Severance Period and Employee shall be
obligated to repay any such Related Income to Company on an after-tax basis as
soon as practicable after Employee's receipt thereof. Related Income means any
--------------
salary and/or bonus paid to Employee by a Post-Spin Company for services
performed in Employee's capacity as an employee, but shall not include (i) any
fees earned by Employee in connection with Employee's service as a non-employee
officer or member of the board of directors of or a consultant to a Post-Spin
Company or (ii) any amount of salary and/or bonus in excess of the product of
(A) the Cash Severance and (B) a fraction, the numerator of which is the number
of whole and partial years over which such salary and/or bonus was earned and
the denominator of which is Employee's Severance Factor.
For example, assume Employee's Severance Factor is 2.50 and Employee's
Cash Severance paid under Section 3(a)(i) is $500,000. Assume further that (i)
Employee obtains employment with a Post-Spin Company as of the second
anniversary of his termination of employment hereunder and works for at least
six months thereafter and (ii) the Post-Spin Company pays Employee $125,000 in
salary and bonus for services rendered as an employee during such six-month
period. Employee would be obligated to pay to the Company $100,000 (on an
after-tax basis) and would be permitted to retain the excess $25,000. The
Related Income ($100,000) is calculated by multiplying the Cash Severance
($500,000) by the fraction described above (.5/2.5). The excess ($25,000) is
not included in Related Income and may be retained by Employee.
5 of 11
<PAGE>
4. RELEASE.
-------
In recognition of the consideration recited above, Employee
hereby agrees to execute a release effective as of the Termination Date in favor
of the Company in substantially the form attached hereto as Exhibit A and
Employee acknowledges that no payments are required to be made by the Company
hereunder until Employee satisfies the Release Delivery Requirement. For
purposes of this Agreement, "Release Delivery Requirement" shall mean (i) the
----------------------------
delivery of the release on the Termination Date in substantially the form
attached hereto as Exhibit A and (ii) the expiration of the seven-day period
commencing on the date of such delivery without the Executive having revoked the
release.
5. 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 him 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 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, any Post-Spin Company or a subsidiary
of any of them (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 the covenant contained in this
Section 5(b) may result in material irreparable injury to the Company for which
there may be 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 5(b) or such other relief as may be required to specifically
enforce any of the covenants in this Section 5(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 5(b) shall survive any termination of this Agreement.
6 of 11
<PAGE>
(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 attorneys 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 3, 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) This Agreement shall inure to the benefit of and be enforceable
by (i) Employee's heirs, successors and assigns and (ii) the Post-Spin
Companies. 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.
(f) 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:
Robert Lemos
4145 Creekwood Court Varian Associates, Inc.
Pleasanton, CA 94588 3100 Hansen Way
Palo Alto, CA 94303-1000
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.
7 of 11
<PAGE>
(g) This Agreement shall constitute the entire agreement between
Employee and the Company concerning the subject matter of this Agreement.
(h) 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 5(h)
shall survive any termination of this Agreement.
(i) 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.
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 November 1, 1998.
VARIAN ASSOCIATES, INC. EMPLOYEE
/s/ Ernie Felago /s/ Robert Lemos
- --------------------------------- --------------------------------
Name: Ernie Felago Robert Lemos
Title: Vice-President, Human Resources
8 of 11
<PAGE>
EXHIBIT A
---------
RELEASE
-------
RELEASE, dated as of the Termination Date (as defined in the Severance
Agreement), by Robert Lemos (Employee) in favor of Varian Associates, Inc., a
--------
Delaware corporation (the Company).
-------
WHEREAS, the Company and Employee entered into the Severance Agreement
dated as of November 20, 1998 (the Severance Agreement);
-------------------
WHEREAS, pursuant to the terms of the Severance Agreement, Employees
employment is scheduled to terminate upon the Termination Date, at which time
Employee shall become an inactive employee entitled to the benefits provided
therein, subject to Employees execution and delivery of this Release and the
expiration of the seven-day revocation period provided herein without Employee
having revoked this Release.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and consideration set forth in the Severance
Agreement, Employee agrees as follows:
1. Release of Claims and Consultation with Attorneys. In recognition
-------------------------------------------------
of the consideration recited in the Severance Agreement, Employee hereby
releases and discharges the Company and its present, former and future partners,
affiliates, direct and indirect parents, subsidiaries, successors, directors,
officers, employees, agents, attorneys, heirs and assigns (the "Released
--------
Parties"), from any and all claims, actions and causes of action that Employee
- -------
may have or in the future may possess with respect to the Released Parties,
including without limitation, claims, actions and causes of action arising out
of Employees employment relationship with the Company, or the termination of
such employment, and including without limitation any claims arising under Title
VII of the Civil Rights Act of 1964, the Rehabilitation Act of 1973, the
Americans With Disabilities Act of 1990, the Civil Rights Act of 1866, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, the
Family and Medical Leave Act of 1993, the California Fair Employment and Housing
Act, the California Unruh Civil Rights Act, the California Equal Pay Law, any
contract or agreement, or any federal, state or local law, whether such claim
arises under statute or common law and whether or not Employee is presently
aware of the existence of such claim, damage, action and cause of action, suit
or demand. Employee also forever releases, discharges and waives any right
Employee may have to recover in any proceeding brought by any federal, state or
local agency against the Released Parties to enforce any laws. Employee agrees
that the value received as described in the Severance Agreement shall be in full
satisfaction of any and all claims, actions or causes of
9 of 11
<PAGE>
action for payment or other benefits of any kind that Employee may have against
the Released Parties, other than any claims Employee may have with regard to
vested benefits under any of the Company's employee benefit plans.
2. ADEA Release. In further recognition of the consideration
------------
recited in the Severance Agreement, Employee hereby releases and discharges the
Released Parties from any and all claims, actions and causes of action that
Employee may have against the Released Parties arising under the federal Age
Discrimination in Employment Act of 1967, as amended (ADEA), and the applicable
----
rules and regulations promulgated thereunder. If Employee fails to revoke this
Release during the applicable seven-day revocation period described below, this
Release shall become effective and binding upon the parties hereto.
3. Representations. By executing this Release, Employee represents
---------------
that:
(a) Employee has been given the opportunity to consult with the
attorney(s) of Employees choice;
(b) Employee has been given a period of at least 21 days within which
to consider the terms and provisions of the Severance Agreement and this
Release;
(c) Employee is aware that for a period of seven days following
Employee's execution of this Release, Employee has the option to revoke this
Release by providing notice to the Company in accordance with the terms set
forth below;
(d) Employee has knowingly and voluntarily accepted the terms of the
Severance Agreement and this Release; and.
(e) Employee has read and expressly waives any rights Employee may
have under Section 1542 of the California Civil Code, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
10 of 11
<PAGE>
4. General.
--------
(a) For the purposes of this Release, notices and all other
communications provided for in this Release 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:
Robert Lemos Varian Associates, Inc.
4145 Creekwood Court 3100 Hansen Way
Pleasanton, CA 94588 Palo Alto, CA 94303-1000
Attn: Vice President, Human
Resources
(b) This Release shall inure to the benefit of and be enforceable by
the Post-Spin Companies.
(c) This Release 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.
VARIAN ASSOCIATES, INC. EMPLOYEE
/s/ Ernie Felago /s/ Robert Lemos
- ------------------------------------ -----------------------------------
Name: Ernie Felago Robert Lemos
Title: Vice-President, Human Resources
11 of 11
<PAGE>
EXHIBIT 15
----------
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Varian Associates, Inc.
Registrations on Forms S-8 and S-3
We are aware that our report dated January 20, 1999 on our reviews of the
interim financial information of Varian Associates, Inc. for the quarters ended
January 1, 1999 and January 2, 1998 included in this Form 10-Q is incorporated
by reference in the Company's registration statements on Forms S-8, Registration
Statement Numbers 33-46000, 33-33661, 33-33660, and 2-95139 and Forms S-8 and S-
3, Registration Statement Number 33-40460. Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statements prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
/s/ PricewaterhouseCoopers LLP
-------------------------------
PricewaterhouseCoopers LLP
San Jose, California
February 12, 1999
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-01-1999
<PERIOD-START> OCT-03-1998
<PERIOD-END> JAN-01-1999
<CASH> 131,531
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<INVENTORY> 221,397
<CURRENT-ASSETS> 802,567
<PP&E> 513,108
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0
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<SALES> 282,312
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