<PAGE>
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
VARIAN MEDICAL
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
Varian Medical Systems, Inc.
[LOGO OF VARIAN MEDICAL SYSTEMS]
3100 Hansen Way
Palo Alto, CA 94304
December 29, 1999
Dear Stockholder:
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
of Varian Medical Systems, Inc. to be held on Thursday, February 17, 2000 at
1:30 p.m. at the Sheraton Palo Alto, 625 El Camino Real, Palo Alto, California.
This will be the first annual meeting of stockholders since Varian
Associates, Inc. transferred its instruments business to Varian, Inc. and its
semiconductor equipment business to Varian Semiconductor Equipment Associates,
Inc., two wholly owned subsidiaries, and then distributed the shares of these
companies to its stockholders. Immediately following this "spinoff", which
occurred on April 2, 1999, Varian Associates, Inc. changed its name to Varian
Medical Systems, Inc. to better reflect the character of the businesses it
retained.
The Secretary's formal notice of the meeting and the Proxy Statement appear
on the following pages and describe the matters to be acted upon at the annual
meeting. You also will have the opportunity to hear what has happened in our
business in the past year and to ask questions.
We hope that you can join us. However, whether or not you plan to be there,
please sign and return your proxy in the enclosed envelope as soon as possible
so that your vote will be counted.
Sincerely,
/s/ Richard M. Levy
Richard M. Levy
President and Chief Executive Officer
<PAGE>
Varian Medical Systems, Inc.
3100 Hansen Way
Palo Alto, CA 94304
December 29, 1999
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Varian Medical Systems, Inc. will hold its Annual Meeting of Stockholders at
the Sheraton Palo Alto, 625 El Camino Real, Palo Alto, California, on Thursday,
February 17, 2000 at 1:30 p.m.
At this meeting we will ask you:
. to elect two directors to serve until the 2003 Annual Meeting of
Stockholders; and
. to transact any other business that properly comes before the meeting.
Your Board of Directors has selected December 20, 1999 as the record date for
determining stockholders entitled to vote at the meeting. A list of
stockholders on that date will be available for inspection during normal
business hours at our offices at 3100 Hansen Way, Palo Alto, California, for
ten days before the meeting.
This Proxy Statement, a proxy and the 1999 Annual Report to Stockholders are
being distributed on or about December 29, 1999 to those entitled to vote.
By Order of the Board of Directors
/s/ Joseph B. Phair
Joseph B. Phair
Secretary
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION........................................................ 1
ELECTION OF DIRECTORS...................................................... 3
Nominees for Election for Three-Year Terms Ending with the 2003 Annual
Meeting............................................................... 3
Directors Continuing in Office Until the 2001 Annual Meeting........... 3
Directors Continuing in Office Until the 2002 Annual Meeting........... 4
Committees of the Board of Directors; Meetings......................... 4
STOCK OWNERSHIP............................................................ 5
Beneficial Ownership of Certain Stockholders, Directors and Executive
Officers.............................................................. 5
Section 16(a) Beneficial Ownership Reporting Compliance................ 7
COMPENSATION OF DIRECTORS AND THE NAMED EXECUTIVE OFFICERS................. 8
Compensation of Directors.............................................. 8
Compensation of the Named Executive Officers--Summary Compensation
Table................................................................. 9
Option/SAR Grants in Last Fiscal Year.................................. 10
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Options/SAR Values.................................................... 11
Long-Term Incentive Plans--Awards in Last Fiscal Year.................. 11
Change in Control Agreements........................................... 11
CERTAIN TRANSACTIONS....................................................... 13
Management Indebtedness................................................ 13
Severance Agreements................................................... 13
Consulting Agreement................................................... 13
ORGANIZATION AND COMPENSATION COMMITTEE REPORT............................. 14
PERFORMANCE GRAPHS......................................................... 20
</TABLE>
<PAGE>
GENERAL INFORMATION
Q: Who is soliciting my proxy?
A: We--the Board of Directors of Varian Medical Systems (VMS)--are sending you
this Proxy Statement in connection with our solicitation of proxies for use
at VMS's 2000 Annual Meeting of Stockholders. Certain directors, officers
and employees of VMS also may solicit proxies on our behalf by mail, phone,
fax or in person.
Q: Who is paying for this solicitation?
A: VMS will pay for the solicitation of proxies. VMS also will reimburse banks,
brokers, custodians, nominees and fiduciaries for their reasonable charges
and expenses to forward our proxy materials to the beneficial owners of VMS
common stock.
Q: What am I voting on?
A: The election of David W. Martin, Jr. and Richard W. Vieser to the Board of
Directors.
Q: Who can vote?
A: Only those who owned VMS common stock at the close of business on December
20, 1999, the record date for the Annual Meeting, can vote. Each share of
common stock outstanding on that date is entitled to one vote on all matters
to come before the meeting, except that cumulative voting will apply in the
election of directors. Under the cumulative voting method of election, the
stockholder computes the number of votes available to him or her by
multiplying the number of shares he or she owned on the record date by the
number of directors to be elected, and may cast the votes all for a single
nominee or may distribute them in any manner among the nominees.
Q: How do I vote?
A: You may vote your shares either in person or by proxy. To vote by proxy, you
should mark, date, sign and mail the enclosed proxy in the prepaid envelope.
Giving a proxy will not affect your right to vote your shares if you attend
the Annual Meeting and want to vote in person--by voting you automatically
revoke your proxy. You also may revoke your proxy at any time before the
voting by giving our Secretary written notice of your revocation or by
submitting a later-dated proxy. If you sign and return your proxy in time,
the individuals named as proxyholders will vote your shares as you instruct.
If you sign and return your proxy but do not mark your voting instructions,
the individuals named as proxyholders will vote your shares FOR the election
of the nominees for director.
Q: What constitutes a quorum?
A: On the record date, VMS had 30,680,918 shares of common stock, $1.00 par
value, outstanding. Voting can take place at the Annual Meeting only if
stockholders owning a majority of the issued and outstanding stock entitled
to vote at the meeting are present in person or represented by proxy. We
include the shares of persons who abstain in determining those present and
entitled to vote, but exclude shares held by brokers in "street" or
"nominee" name when the broker indicates that you have not voted and it
lacks discretionary authority to vote your shares (i.e., "broker non-
votes").
Q: What vote is needed to approve the proposals?
A: The nominees receiving the most votes are elected as directors. As a result
if you withhold your authority to vote for any nominee, your vote will not
count for or against the nominee, nor will a broker "non-vote" affect the
outcome of the election.
1
<PAGE>
Q: Can I vote on other matters?
A: VMS's by-laws limit the business conducted at any annual meeting to (1)
business in the notice of the meeting, (2) business directed by the Board
of Directors and (3) business brought by a stockholder of record entitled
to vote at the meeting so long as the stockholder has notified our
Secretary in writing (at our Palo Alto headquarters) not less than 60 days
nor more than 90 days before the anniversary of the mailing of the proxy
statement for the prior year's annual meeting. The notice must briefly
describe the business to be brought and the reasons; give the name, address
and number of shares owned by the stockholder of record and any beneficial
holder for which the proposal is made; and identify any material interest
the stockholder of record or any beneficial owner has in the business.
We do not expect any matters not listed in the Proxy Statement to come
before the meeting. If any other matter is presented, your signed proxy
card gives the individuals named as proxyholders the authority to vote your
shares to the extent authorized by Rule 14a-4(c) under the Securities
Exchange Act of 1934 (which would include matters that the proxyholders did
not know were to be presented 60 days before the anniversary of last year's
proxy statement).
Q: When are stockholder proposals due for the 2001 Annual Meeting?
A: To be considered for presentation in the proxy statement for VMS's 2001
Annual Meeting of Stockholders, a stockholder proposal must be received at
VMS's offices no later than August 30, 2000.
Q: How do I nominate someone to be a VMS director?
A: A stockholder may recommend nominees for director by notifying our
Secretary in writing (at our Palo Alto headquarters) not less than 60 nor
more than 90 days before the anniversary of the mailing of the proxy
statement for the prior year's Annual Meeting. The notice must include the
full name, age, business and residence addresses, principal occupation or
employment of the nominee, the number of shares of VMS common stock the
nominee beneficially owns, any other information about the nominee that
must be disclosed in proxy solicitations under Rule 14(a) of the Securities
Exchange Act of 1934 and the nominee's written consent to the nomination
and to serve, if elected.
Q: Will the auditors be at the meeting?
A: PricewaterhouseCoopers, our fiscal year 1999 auditors, will also be our
auditors in fiscal year 2000. A PricewaterhouseCoopers representative will
attend the meeting, have the opportunity to make a statement if he or she
desires and will be available to answer appropriate questions.
2
<PAGE>
ELECTION OF DIRECTORS
VMS's Board of Directors is divided into three classes serving staggered
three-year terms. At the Annual Meeting, you and the other stockholders will
elect two individuals to serve as directors until the 2003 Annual Meeting. Each
of the nominees is now a member of the Board of Directors.
The individuals named as proxyholders will vote your proxy for the election
of both nominees unless you direct them to withhold your votes. If any nominee
becomes unable to serve as a director before the meeting (or decides not to
serve), the individuals named as proxyholders may vote for a substitute. We
recommend a vote FOR each nominee.
Below are the names and ages of the directors, the years they became
directors, their principal occupations or employment for at least the past five
years and certain of their other directorships.
Nominees for Election for a Three-Year Term Ending with the 2003 Annual Meeting
<TABLE>
<C> <S>
. David W. Martin, Jr. Age 59, a director since 1994. President and Chief
Executive Officer of EOS Biotechnology, Inc. (a
biotechnology company) since 1997; from 1995 to 1996,
Chief Executive Officer and a director of LYNX
Therapeutics, Inc. (a biotechnology company); from
1994 to 1995, Senior Vice President of Chiron
Corporation and President of Chiron Therapeutics (a
biotechnology company); and from 1990 through 1993,
Executive Vice President for Research and Development
at The Du Pont Merck Pharmaceutical Company. Also a
director of Cubist Pharmaceuticals, Inc.
. Richard W. Vieser Age 72, a director since 1991. Retired; Chairman of
our Board of Directors since April 2, 1999; Chairman
of the Board, Chief Executive Officer and President
of Lear Siegler, Inc. (a diversified manufacturing
company) from 1987 to 1989. Also a director of Global
Industrial Technologies, Inc., Harvard Industries,
Inc., International Wire Group, Inc., Sybron
International Corporation and Viasystems Group, Inc.
</TABLE>
Directors Continuing in Office Until the 2001 Annual Meeting
<TABLE>
<C> <S>
. John Seely Brown Age 59, a director since 1998. Vice President of Xerox
Corporation since 1986, Director of the Xerox Palo
Alto Research Center since 1990 and Chief Scientist
since 1992. Also a director of Corning Incorporated
and General Instrument Corporation.
. Samuel Hellman Age 65, a director since 1992. A. N. Pritzker
Distinguished Service Professor in the Department of
Radiation and Cellular Oncology at the University of
Chicago since 1993. From 1988 to 1993, Dean of that
University's Division of Biological Sciences and its
Pritzker School of Medicine, Vice President of the
University's Medical Center and the A. N. Pritzker
Professor in the Department of Radiation and Cellular
Oncology.
. Terry R. Lautenbach Age 61, a director since 1993. Retired; Senior Vice
President of International Business Machines
Corporation from 1988 to 1992; responsible for IBM's
worldwide manufacturing and development, and North
American marketing and services from 1990 to 1992;
served on IBM's Management Committee in 1991 and 1992.
Also a director of Air Products and Chemicals, Inc.,
CVS Corporation and Footstar, Inc.
</TABLE>
3
<PAGE>
Directors Continuing in Office Until the 2002 Annual Meeting
<TABLE>
<C> <S>
. Richard M. Levy Age 61, a director since 1999. Our President and Chief
Executive Officer since April 2, 1999; our Executive Vice
President responsible for our medical systems business
from 1990 to April 2, 1999.
. Burton Richter Age 68, a director since 1990. Paul Pigott Professor in
Physical Sciences at Stanford University since 1980.
Director of the Stanford Linear Accelerator Center from
1984 to 1999.
</TABLE>
Committees of the Board of Directors; Meetings
Since the spinoff, we have had four standing committees:
Executive Committee
. Acts on matters when a meeting of the full Board is impracticable.
. Has all the powers of the Board except those powers reserved by law to
the full Board.
The current members are Richard M. Levy and Richard W. Vieser (Chairman).
The Executive Committee did not meet in fiscal year 1999 following the spinoff.
Stock Grant Committee
. Grants and administers stock options, restricted stock and other awards,
subject to certain limitations, to non-officers of VMS.
The current members are Richard M. Levy (Chairman) and Burton Richter. The
Stock Grant Committee did not meet in fiscal year 1999 following the spinoff.
Audit Committee
. Reviews the scope of VMS's annual audit by its independent auditors.
. Reviews VMS's annual financial statements and related audit report as
prepared by the independent auditors.
. Recommends to the Board selection of the independent auditors.
. Reviews any non-audit fees paid to the independent auditors.
The current members are John Seely Brown, Samuel Hellman, Terry R.
Lautenbach (Chairman), David W. Martin, Jr., Burton Richter and Richard W.
Vieser. The Audit Committee met two times in fiscal year 1999 following the
spinoff.
Organization and Compensation Committee
. Administers VMS's stock and cash incentive plans.
. Determines the compensation of the President and Chief Executive Officer
and the other senior executives.
. Recommends the establishment of policies dealing with various
compensation and employee benefit plans.
The current members are John Seely Brown, Samuel Hellman, Terry R.
Lautenbach, David W. Martin, Jr., Burton Richter and Richard W. Vieser
(Chairman). The Organization and Compensation Committee met twice in fiscal
year 1999 following the spinoff.
4
<PAGE>
STOCK OWNERSHIP
Beneficial Ownership of Certain Stockholders, Directors and Executive Officers
This table shows as of December 1, 1999: (1) the beneficial owners of more
than 5% of the common stock and the number of shares they beneficially owned;
and (2) the number of shares each director, each executive officer named in the
Summary Compensation Table on page 9 and all directors and executive officers
as a group beneficially owned, as reported by each person. Except as noted,
each person has sole voting and investment power over the shares shown in this
table.
<TABLE>
<CAPTION>
Amount and Nature of
Common Stock
Beneficially Owned
--------------------------
Number of
Shares
Beneficially Percent of
Owned(1) Class
------------ ----------
<S> <C> <C>
Stockholders
IG Investment Management Ltd.; Investors Group
Trust Co. Ltd.;
Investors Group, Inc.; Investors Group Trustco
Inc............................................... 2,774,000(2) 9.0
One Canada Centre
447 Portage Avenue
Winnipeg, Manitoba R3C 3B6
FMR Corp./Edward C. Johnson........................ 3,305,860(3) 10.8
3d/Abigail P. Johnson
82 Devonshire Street
Boston, Massachusetts 02109
State Treasurer.................................... 2,075,760(4) 6.8
State of Michigan
c/o Director of Investments
P.O. Box 1128
Lansing, Michigan 48901
Merrill Lynch & Co., Inc. (Merrill Lynch Asset
Management Group)................................. 1,756,000(5) 5.7
Merrill Lynch Capital Fund, Inc. 1,756,000(5) 5.7
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Directors and Other Named Executive Officers
John Seely Brown................................... 20,389(6) *
Samuel Hellman..................................... 33,874(7) *
Terry R. Lautenbach................................ 32,674(8) *
David W. Martin, Jr................................ 27,017(9) *
Burton Richter..................................... 32,261(10) *
Richard W. Vieser.................................. 137,630(11) *
Richard M. Levy.................................... 490,969(12) 1.6
J. Tracy O'Rourke.................................. 207,396(13) *
John C. Ford....................................... 90,764(14) *
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of
Common Stock
Beneficially Owned
--------------------------
Number of
Shares
Beneficially Percent of
Owned(1) Class
------------ ----------
<S> <C> <C>
Timothy E. Guertin................................. 96,058(15) *
Robert H. Kluge.................................... 78,641(16) *
Joseph B. Phair.................................... 89,280(17) *
Richard A. Aurelio................................. 0 *
Allen J. Lauer..................................... 23,610 *
All VMS directors and executive officers as a group
(16 persons)...................................... 1,422,325(18) 4.6
</TABLE>
- --------
* The percentage of shares of VMS's common stock beneficially owned does not
exceed one percent of the shares of VMS's common stock outstanding at
December 1, 1999.
(1) Based on 30,661,388 shares outstanding on December 1, 1999. Includes
shares the officers and directors could acquire by exercising stock
options within 60 days of December 1, 1999.
(2) According to an amendment to a Schedule 13G dated June 21, 1999, each of
these entities has shared voting and disposition power over all of these
shares. Power Financial Corporation owns 67.4% of the common stock of the
Investors Group, Inc. Power Corporation of Canada, of which Paul Desmaris
controls 67.7% of the voting power, owns 67.5% of the common stock of
Power Financial. Any of Mr. Desmaris or these entities may therefore be
deemed to beneficially own the shares referenced.
(3) According to an amendment to a Schedule 13G dated February 1, 1999, FMR
Corp. has sole voting power over 113,900 of these shares and sole
dispositive power over all 3,305,860 shares. Fidelity Management &
Research, a wholly owned subsidiary of FMR, is the beneficial owner of
3,143,860 of these shares as a result of acting as investment adviser to
certain investment companies. Edward C. Johnson 3d and Abigail P. Johnson
own 12.0% and 24.5%, respectively, of the voting stock of FMR Corp. and
therefore may be deemed to beneficially own the shares referenced.
(4) Based on a Schedule 13D dated August 12, 1997.
(5) According to an amendment to a Schedule 13G dated January 29, 1999,
Merrill Lynch & Co., Inc (through Merrill Lynch Asset Management, L.P.)
has shared voting power and shared dispositive power over all 1,756,000
shares. Also according to that Schedule 13G, Merrill Lynch Capital Fund,
Inc. has shared voting power and shared dispositive power over 1,750,000
of such shares.
(6) Includes 20,189 shares which may be acquired under exercisable stock
options.
(7) Includes (a) 27,474 shares which may be acquired under exercisable stock
options and (b) 2,500 shares held by Dr. Hellman's wife; voting and
investment powers are shared with Dr. Hellman's wife.
(8) Includes 27,474 shares which may be acquired under exercisable stock
options.
(9) Includes 26,017 shares which may be acquired under exercisable stock
options.
(10) Includes (a) 27,661 shares which may be acquired under exercisable stock
options and (b) 3,800 shares held in a trust of which Dr. Richter is co-
trustee with his wife; voting and investment powers are shared with Dr.
Richter's wife.
(11) Includes 132,030 shares which may be acquired under exercisable stock
options.
(12) Includes (a) 408,404 shares which may be acquired under exercisable stock
options and (b) 82,565 shares held in a trust of which Dr. Levy is co-
trustee with his wife; voting and investment powers are shared with Dr.
Levy's wife.
(13) Includes 207,396 shares which may be acquired under exercisable stock
options.
(14) Includes 84,414 shares which may be acquired under exercisable stock
options.
6
<PAGE>
(15) Includes 96,058 shares which may be acquired under exercisable stock
options.
(16) Includes 74,591 shares which may be acquired under exercisable stock
options.
(17) Includes (a) 62,583 shares which may be acquired under exercisable stock
options, (b) 1,135 shares held by Mr. Phair's daughter, (c) 1,790 shares
held by Mr. Phair's son and (d) 1,785 shares held by Mr. Phair's second
son. Mr. Phair shares voting and investment powers over the 1,135 shares
held by his daughter and the 1,790 shares held by his first son. Mr. Phair
has sole voting and investment power over the shares held by Mr. Phair's
second son.
(18) Includes (a) 1,252,001 shares which may be acquired under exercisable
stock options and (b) 91,790 shares as to which voting and/or investment
power is shared (see footnotes).
Section 16(a) Beneficial Ownership Reporting Compliance
Under U.S. securities laws, directors, certain executive officers and
persons holding more than 10% of VMS's common stock must report their initial
ownership of the common stock and any changes in that ownership to the
Securities and Exchange Commission. The Securities and Exchange Commission has
designated specific due dates for these reports and VMS must identify in this
Proxy Statement those persons who did not file these reports when due. Based
solely on its review of copies of the reports filed with the Securities and
Exchange Commission and written representations of its directors and executive
officers, VMS believes all persons subject to reporting filed the required
reports on time in fiscal year 1999.
7
<PAGE>
COMPENSATION OF DIRECTORS AND THE NAMED EXECUTIVE OFFICERS
Compensation of Directors
Annual Compensation. The non-employee Chairman of the Board receives an
annual retainer of $70,000. Each other director who is not a VMS employee--an
"outside director"--currently receives an annual retainer of $30,000, plus
$1,000 for each VMS Board and committee meeting he attends. Directors who are
VMS employees receive no compensation for their services as directors.
A director may convert his annual retainer to stock options at the rate of
$1 deferred cash to $4 of stock options (based on exercise price). The options
have an exercise price equal to the fair market value of the common stock on
the grant date, are immediately exercisable and expire ten years after the
grant date unless earlier terminated.
During fiscal year 1999, we paid to directors (or deferred on their behalf)
before and after the spinoff, a total of $234,207 in fees. We also reimbursed
the directors for their out-of-pocket expenses in attending Board and committee
meetings. The Board met twice before the spinoff and twice after the spinoff in
fiscal year 1999. Each director attended at least 75% of the total Board and
applicable committee meetings, with the exception of Mr. Lautenbach, who
attended 73% of the applicable meetings.
Stock Options. At the time of the spinoff, the Chairman of the Board
received an initial non-qualified stock option grant to acquire 100,000 shares
of common stock; each other outside director received a non-qualified stock
option to acquire 10,000 shares. (Future non-employee Chairmen and outside
directors will receive comparable awards at the time first elected.) All
outside directors will receive annually thereafter a non-qualified stock option
to acquire 5,000 shares of VMS common stock.
8
<PAGE>
Compensation of the Named Executive Officers--Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------------
Annual Compensation Awards Payouts
---------------------------- ----------------------- ---------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
Principal Position Year ($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
------------------ ---- ------- ------- ------------ ---------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard M. Levy........ 1999 450,451 535,436 24,043 79,800 400,000 503,535 80,139
President and Chief 1998 338,910 250,607 21,620 0 36,000 195,763 85,676
Executive Officer 1997 323,148 206,984 18,249 244,388 36,000 391,810 108,374
J. Tracy O'Rourke...... 1999 433,883 412,000 369,796 152,000 0 1,785,333 7,534,997
Chairman of the Board 1998 838,300 371,309 245,193 0 75,000 787,563 289,671
and Chief Executive 1997 799,160 972,085 199,255 465,500 75,000 1,575,120 343,716
Officer of Varian
Associates Inc. until
April 2, 1999
John C. Ford........... 1999 228,306 171,027 0 0 52,000 0 40,560
Corporate Vice
President 1998 203,138 101,013 1,448 0 8,500 0 36,068
1997 192,984 84,940 14,712 0 8,000 0 28,247
Timothy E. Guertin..... 1999 245,192 218,274 0 45,600 88,000 254,970 46,141
Corporate Vice
President 1998 216,680 112,526 8,288 0 15,000 93,988 45,434
1997 205,858 125,253 30,117 139,650 15,000 124,800 50,384
Robert H. Kluge........ 1999 209,715 127,413 0 17,100 50,000 135,213 23,697
Corporate Vice
President 1998 176,382 50,216 8,455 0 8,500 34,128 21,526
1997 165,514 45,935 7,458 52,369 7,500 67,018 23,043
Joseph B. Phair........ 1999 134,590 111,973 149,843 45,600 70,000 339,668 1,667,436
Corporate Vice
President 1998 194,724 295,044 15,284 0 13,099 284,310 42,722
Administration,
Secretary 1997 193,315 183,961 21,730 139,650 13,099 295,542 55,247
and General Counsel
Richard A. Aurelio..... 1999 173,772 322,817 107,989 79,800 0 720,072 46,232
Executive Vice
President 1998 338,910 80,995 34,319 0 36,000 463,501 110,863
of Varian Associates 1997 323,148 533,492 20,602 244,388 36,000 653,016 122,904
Inc. until April 2,
1999
Allen J. Lauer......... 1999 175,449 145,087 21,915 79,800 0 503,535 62,846
Executive Vice
President 1998 338,910 232,936 33,050 0 36,000 347,454 101,096
of Varian Associates 1997 323,148 359,300 22,594 244,388 36,000 461,552 17,958
Inc. until April 2,
1999
</TABLE>
- --------
(1) Consists of Management Incentive Plan awards and Cash Profit-Sharing Plan
allocations, including payments made in fiscal year 1999 under the
Management Incentive Plan in connection with the spinoff, and (in some
cases) special cash bonuses.
(2) Consists of amounts reimbursed for the payment of taxes on certain
perquisites and personal benefits and (in some cases) cash payments for
unused accrued vacation time. The amounts reported for Mr. O'Rourke also
include aggregate incremental costs of perquisites and personal benefits
(including $38,078, $127,056 and $99,593 for his use of the company's
aircraft in fiscal years 1999, 1998 and 1997 and $81,944 for the purchase
of his company-leased vehicle in 1999). The amounts for Mr. Phair also
include aggregate incremental costs for perquisites and personal benefits
(including $53,671 for the purchase of his company-leased vehicle in 1999).
The amounts for Mr. Aurelio also include aggregate incremental costs for
perquisites and personal benefits (including $36,812 for the purchase of
his company-leased vehicle in 1999).
(3) Consists of restricted shares of common stock (valued at the closing market
price on the date of grant). All such shares vested in full on April 2,
1999.
9
<PAGE>
(4) Consists of shares of common stock that may be acquired or formerly could
be acquired under stock options granted pursuant to the Omnibus Stock Plan.
(No stock appreciation rights have been granted.) At the spinoff the
outstanding fiscal year 1998 and 1997 options for the employees and
officers remaining with VMS, including Dr. Levy, Mr. Guertin, Mr. Ford and
Mr. Kluge, were adjusted as to number and exercise price to preserve as
closely as possible their economic values immediately before the spinoff.
The oustanding options for Mr. O'Rouke and Mr. Phair were accelerated and
one-third exchanged for options in Varian Inc. and Varian Semiconductor
Equipment Associates, Inc.; the one-third remaining options in VMS were
adjusted. The outstanding options for Mr. Aurelio were exchanged for
options in Varian Semiconductor Equipment Associates, Inc. and those of Mr.
Lauer were exchanged for options in Varian, Inc. See "Organization and
Compensation Committee Report--Stock Options" on page 16.
(5) Consists of cash payouts in fiscal years 2000, 1999 and 1998 under the
long-term incentive feature of the Omnibus Stock Plan for three-year cycles
ended with fiscal years 1999, 1998 and 1997, respectively, and payouts made
in fiscal year 1999 in connection with the spinoff.
(6) Consists of (a) company contributions (including interest) to Retirement
and Profit-Sharing Program and Supplemental Retirement Plan accounts for
fiscal years 1999, 1998 and 1997, respectively (Dr. Levy, $76,365, $83,521
and $106,573; Mr. O'Rourke, $139,897, $264,897 and $319,654; Dr. Ford,
$38,557, $34,770 and $27,158; Mr. Guertin, $43,818, $44,053 and $49,224;
Mr. Kluge, $21,855, $20,397 and $22,101; Mr. Phair, $30,182, $40,919 and
$53,622; Mr. Aurelio, $139,897, $110,847 and $121,103; and Mr. Lauer,
$61,112, $98,941 and $116,157) ; (b) company-paid premiums for group term
life insurance in fiscal years 1999, 1998 and 1997, respectively (Dr. Levy,
$2,987, $2,155 and $1,801; Mr. O'Rourke, $3,361, $3,210 and $2,784; Dr.
Ford, $1,646, $1,298 and $1,089; Mr. Guertin, $1,765, $1,281 and $1,160;
Mr. Kluge, $1,515, $1,129 and $942; Mr. Phair, $1,542, $1,311 and $1,098;
Mr. Aurelio, $9, $17 and $1,801; and Mr. Lauer, $1,278, $2,155 and $1,801;
); (c) company-paid premiums for supplemental disability insurance for Mr.
O'Rourke in fiscal years 1999, 1998 and 1997, respectively ($21,877,
$21,564 and $21,278) (d) cash severance payments to Mr. O'Rourke and Mr.
Phair in fiscal year 1999 (Mr. O'Rourke $7,391,280 and Mr. Phair
$1,306,418) and (e) consulting payments to Mr. Phair in fiscal year 1999
($329,045).
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants(1)
------------------------------------------- Potential Realizable
Percent of Value at Assumed
Number of Total Annual Rate of Stock
Securities Options/SARs Exercise Price Appreciation for
Underlying Granted to Price Option Term(2)
Options/ Employees in Per Expiration -----------------------
Name Granted Fiscal Year Share Date 5% 10%
- ---- ---------- ------------ -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Levy......... 400,000 15.800 $18.3125 4/5/2009 $11,929,600 $18,998,800
J. Tracy O'Rourke....... 0 0 $18.3125 4/5/2009 0 0
John C. Ford............ 52,000 2.0552 $18.3125 4/5/2009 $ 1,550,848 $ 2,469,844
Timothy E. Guertin...... 88,000 3.4780 $18.3125 4/5/2009 $ 2,624,512 $ 4,179,736
Robert H. Kluge......... 50,000 1.9761 $18.3125 4/5/2009 $ 1,491,200 $ 2,374,850
Joseph B. Phair......... 70,000 2.7666 $22.0625 8/20/2009 $ 2,525,624 $ 4,005,711
Richard A. Aurelio...... 0 0 $18.3125 4/5/2009 0 0
Allen J. Lauer.......... 0 0 $18.3125 4/5/2009 0 0
</TABLE>
- --------
(1) Consists of stock options, which were granted at an exercise price of 100%
of the fair market value of the underlying shares on the grant date and
expire ten years from the grant date. Except for Dr. Levy, whose options
vest for one-third of the shares six, eighteen and thirty months after
grant, the options vest for one-third of the shares one, two and three
years after grant. The optionee may pay the exercise price in cash,
promissory note or by delivery of already-owned shares. If a "change of
control" of VMS occurs, the options become exercisable in full. What
constitutes a "change in control" for this purpose is described on page 12.
(2) The 5% and 10% assumed annual rates of stock appreciation would result from
per share prices of $29.824 and $47.497, respectively, except for Mr.
Phair's rates, whose stock appreciation would result from per share prices
of $35.932 and $57.21, respectively. These assumed rates are not intended
to represent a forecast of possible future appreciation of the common stock
or total stockholder return.
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<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Options/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Exercised
Shares Options/SARs In-the-Money Options/SARs
Acquired on Value at Fiscal Year-End (#) at Fiscal Year-End ($)
Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Levy......... 65,493 $ 788,974 408,404 292,865 $3,155,719 $ 0
J. Tracy O'Rourke....... 436,000 $9,349,426 207,369 0 $1,274,479 $ 0
John C. Ford............ 13,000 $ 206,520 84,414 58,186 $ 733,509 $ 0
Timothy E. Guertin...... 0 $ 0 96,058 98,916 $ 539,965 $ 0
Robert H. Kluge......... 0 $ 0 74,591 56,186 $ 619,113 $ 0
Joseph B. Phair......... 8,733 $ 153,146 62,583 70,000 $ 514,115 $ 0
Richard A. Aurelio...... 0 $ 0 0 0 $ 0 $ 0
Allen J. Lauer.......... 30,000 $ 573,765 0 0 $ 0 $ 0
</TABLE>
Long-Term Incentive Plans--Awards in Last Fiscal Year(1)
<TABLE>
<CAPTION>
Performance or Estimated Future Payouts under
Number of Other Period Non-Stock Price-Based Plans
Shares, Units Until -------------------------------------
or Other Maturation Threshold
Name Rights (#) or Payout ($) Target $ Maximum $
- ---- ------------- -------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Richard M. Levy......... N/A 1999-2001 N/A N/A N/A
J. Tracy O'Rourke....... N/A 1999-2001 N/A N/A N/A
John C. Ford............ N/A N/A N/A N/A N/A
Timothy E. Guertin...... N/A 1999-2001 N/A N/A N/A
Robert H. Kluge......... N/A 1999-2001 N/A N/A N/A
Joseph B. Phair......... N/A 1999-2001 N/A N/A N/A
Allen J. Lauer.......... N/A 1999-2001 N/A N/A N/A
Richard A. Aurelio...... N/A 1999-2001 N/A N/A N/A
</TABLE>
- --------
(1) In November 1998, the Board determined the participants in the long-term
incentive feature of the Omnibus Stock Plan for the three-year cycle
beginning with fiscal year 1999 and ending with fiscal year 2001. Awards
were determined by a formula that measured company and business unit
performance against pre-determined objectives for return on net assets or
"RONA" and revenue growth or "RG." For executive officers with operational
responsibilities 25% of their award formula was to be based on each of
company RONA and core business RONA and 25% was to be based on each of
company RG and core business RG. Awards to business unit participants were
to be based 30% on each of core business RONA and RG and 20% on each of
company RONA and RG. Awards to corporate participants were to be based 50%
on each of company RONA and company RG. Awards could have ranged from zero
to 200% of an executive officer's base salary, depending on the RONA and
RG achieved and the pre-determined level of that executive officer's
participation. In light of the spinoff, however, we determined to pay
these awards in cash at the time of the spinoff, based on each person's
target, pro-rated to reflect the period from the first day of the cycle to
the date of the spinoff as a percentage of the three year-cycle. The
amounts paid in lieu of the November awards were: Dr. Levy, $503,535; Mr.
O'Rouke, $1,785,333; Mr. Guertin, $254,970; Mr. Kluge, $135,213; Mr.
Phair, $339,668; Mr. Aurelio, $493,641; and Mr. Lauer, $503,335.
Change in Control Agreements
Under change of control agreements with senior executives, including the
Chief Executive Officer and Chief Financial Officer, VMS will pay any of these
executives who are terminated other than for "cause" or who resign for "good
reason" within 18 months after a change in control a lump sum severance amount
equal to 3.0 (in the case of the CEO) or 2.50 (in the case of the other senior
executives) times the sum of the executive's annual base salary, plus the
highest annual and multi-year bonuses paid to the individual in any of
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<PAGE>
the three years ending before the termination date. "Good reason" includes
generally a change in duties, a reduction in compensation, a material change in
employee benefits, relocation and certain VMS breaches of the agreement.
Under the agreements, unvested stock options will become immediately
exercisable and restrictions on restricted stock will be released as of the
termination date. In addition, VMS will continue the insurance and other
benefits of the executive under the then-existing terms for up to 24 months
(or, if earlier, the start of full- time employment). If any of the payments
are subject to excise tax under the excess parachute provisions of the Internal
Revenue Code, VMS will increase the payments so that the person is in the same
after-tax economic position.
In general, a "change in control" occurs when (a) a person becomes the
beneficial owner of 30% or more of VMS's voting power, (b) "continuing
directors"--generally those already on the Board or nominated by those on the
Board--are no longer a majority of the directors, (c) we engage in a merger or
similar transaction after which our stockholders do no hold more than 50% of
the resulting company or (d) VMS dissolves, liquidates or sells all or
substantially all of its assets. The officers agree not to voluntarily leave
VMS when VMS is faced with a transaction that might result in a change in
control.
12
<PAGE>
CERTAIN TRANSACTIONS
Management Indebtedness
When we hired Mr. O'Rourke as Chief Executive Officer in 1991 and relocated
him to California, we provided him with $1,260,000 in financing to purchase a
residence. The financing took the form of two promissory notes, each secured by
a deed of trust on the property. One, for $700,000, bore interest (payable when
the note became due) at a rate based on the appreciation of the property, the
other bore no interest. Periodic principal payments were not required. Mr.
O'Rourke paid both notes in full at the time of the spinoff.
We also provided Mr. Aurelio with $500,000 in financing to purchase a
residence when we recruited and relocated him in 1991. His promissory note was
secured by a deed of trust on the property and bore interest (payable when the
note became due) at a rate based on the appreciation of the property. Periodic
principal payments were not required. At the time of the spinoff, Mr. Aurelio
became employed by Varian Semiconductor Equipment Associates, Inc. and his
obligation became an asset of that company.
Severance Agreements
In connection with the spinoff, we executed severance agreements with
certain then executive officers (Mr. O'Rourke, Mr. Phair, Robert A. Lemos (then
Vice President Finance and Chief Financial Officer) and Wayne P. Somrak (then
Vice President and Controller)) that provided for the resignation or retirement
of these executives and the payment of specified compensation and benefits at
the time of the spinoff.
Under the agreements, we paid these executives lump sum severance amounts
equal to 2.99 (in the case of Mr. O'Rourke), 2.50 (in the case of Mr. Lemos and
Mr. Phair) and 2.00 (in the case of Mr. Somrak) times the sum of the
executive's base salary and his highest management incentive plan bonus in any
of the three years ended before the spinoff.
We also made lump sum payments of the pro rata portion (based on the number
of days elapsed in the fiscal year) of the executive's target bonus under the
management incentive plan for fiscal year 1999 and of the target payment
amounts for the 1997-99, 1998-00 and 1999-01 cycles under the long-term
incentive feature of the pre-spinoff omnibus stock plan (pro-rated in the case
of the 1999-01 cycle for the number of days elapsed in the cycle). Under the
agreements, at the time of the spinoff unvested stock options became
immediately exercisable and restrictions on restricted stock were released. In
addition, we permitted each of the executives to continue his insurance and
other benefits under then-existing terms for up to 24 months (or, if earlier,
start of full-time employment) and to purchase his company car at the residual
set forth in the lease.
Under these agreements, we may require these executives (other than Mr.
Phair) to repay to VMS a portion (declining over time) of the compensation he
receives if he becomes an employee (rather than a consultant to) any of VMS,
Varian, Inc. or Varian Semiconductor Equipment Associates, Inc.
The agreements prohibit the executives from soliciting or interfering with
any customer or client of the three companies. In the case of Mr. O'Rourke, the
non-compete clause also prohibits him from participating in any way with an
entity that is engaged in any business in which VMS, Varian, Inc. or Varian
Semiconductor Equipment Associates, Inc. is actively engaged at the time.
Consulting Agreement
After the spinoff and before his reemployment on August 20, 1999, Mr. Phair
served as our Corporate Secretary, General Counsel and administrative manager
of our human resources, facilities and environmental services departments under
the terms of a Consulting Agreement. Under this agreement, we paid Mr. Phair a
fee of $275 per hour plus additional cash compensation equal to $50 multiplied
by the return on sales used to determine payments under our Management
Incentive Plan for fiscal year, 1999, times the number of hours billed,
reimbursed him for certain expenses (including $300 for vehicle expenses), and
provided certain secretarial, office space and office supplies (subject in the
case of office space, to payment by Mr. Phair for the space he occupied in our
corporate headquarters). We also indemnified Mr. Phair against certain
liabilities and released him from liabilities other than those resulting from
intentional acts damaging us or breaches of his non-competition, non-
interference and confidentiality obligations.
13
<PAGE>
ORGANIZATION AND COMPENSATION COMMITTEE REPORT
The Organization and Compensation Committee of the Board--the Committee--
determines the compensation of executive officers. It has provided you with
this report to help you to understand the goals, policies and procedures it
follows in making its determinations.
The Board established the present Committee, which consists of the six
outside directors whose names appear at the end of this report, in February
1999 in contemplation of the spinoff. The prior Committee consisted of outside
directors Richard W. Vieser (Chairman), John Seely Brown, Samuel Hellman, Terry
R. Lautenbach, Angus A. MacNaughton, Wayne R. Moon, Burton Richter, and Jon D.
Tompkins.
In establishing and administering compensation policies and programs after
the spinoff, the Committee considered the compensation policies and
arrangements established by Varian Associates before the spinoff, including the
levels of individual compensation, and commitments made by Varian Associates
and the Board before the spinoff that were described in the proxy statement for
last year's combined annual and special meeting, as well as factors relevant to
VMS after the spinoff.
The Committee's executive compensation philosophy has been and continues to
be that compensation programs should:
. be closely aligned with the interests of the stockholders;
. be linked with business goals and strategies;
. be competitive within our industry and community so that we can attract
and retain high quality executives;
. base a substantial portion of executive officer compensation on our
financial performance measured against pre-determined objectives; and
. reward executive officers for good performance.
Compensation of executive officers, including the Chief Executive Officer,
is comprised of four elements--base salary, annual bonuses, stock ownership and
other compensation.
Base Salaries
Base salary is designed primarily to provide compensation at competitive
levels so as to attract and retain the executive, in conjunction with our
overall philosophy which continues to emphasize variable compensation and
incentives for executive officers.
Pre-spinoff Base Salaries
In determining pre-spinoff salaries for Dr. Levy, Mr. Aurelio, Mr. Lauer,
Mr. Guertin and Mr. Phair for fiscal year 1999, the Committee considered each
executive officer's fiscal year 1998 compensation (including the relative mix
of fixed, annual incentive and long-term incentive compensation), each
executive officer's potential incentive compensation in fiscal year 1999, each
executive officer's position and responsibilities, published market data on
other companies' anticipated salary increases for 1999 and the Company's
financial performance in fiscal year 1998. (Since Mr. Ford and Mr. Kluge were
not executive officers before the spinoff, Dr. Levy as the Executive Vice
President responsible for the medical systems business, principally the sales
and service of Oncology systems and the sale of x-ray products, rather than the
Committee, determined their salaries in accordance with market compensation
data.) In the cases of Dr. Levy, Mr. Aurelio and Mr. Lauer, the Committee
reviewed 1998 survey data on salaries paid to 68 "Group Head" executives at
electrical/electronic businesses with comparable sales volumes. The Committee
fixed salaries that placed each slightly above the 75th percentile. The
Committee awarded Mr. Phair and Mr. Guertin salary increases of 3%, which was
slightly below general market increases at the time.
14
<PAGE>
Post-Spinoff Base Salaries
After the spinoff, the Committee awarded the new or continuing executive
officers, including Mr. Ford, Mr. Guertin and Mr. Kluge, base salary increases.
Management's recommendations and the Committee's response were intended to more
closely align the compensation of these executive officers with their new
responsibilities and were based on 1998 executive compensation surveys on
salaries paid to executive officers of electrical/electronic business and
medical companies with comparable sales volume and peer group proxy surveys. As
was the case before the spinoff, the Committee fixed these officers' salaries
at approximately the 75th percentile for executives of comparable positions and
responsibilities. When Mr. Phair rejoined VMS as an employee in August 1999,
the Committee, using the same survey data, fixed his salary at approximately
the 75th percentile.
Annual Incentive Awards
Both before and after the spinoff, we created annual incentives for
executive officers through potential cash awards under a management incentive
plan intended to link compensation directly to improved financial performance.
Pre-Spinoff Annual Incentive Awards
The Committee based executive officer awards for fiscal year 1999 under the
pre-spinoff management incentive plan on a formula that measured Varian
Associates and business unit performance against pre-determined objectives for
return on sales or "ROS." For Dr. Levy, Mr. Aurelio, Mr. Lauer and Mr. Guertin,
the Committee based 50% of their award formula on their business unit ROS and
the other 50% on Varian Associates ROS. For Mr. Kluge and Mr. Ford the
Committee based 60% of their awards on their business unit ROS and the other
40% on Varian Associates ROS. The Committee based 100% of Mr. Phair's award on
Varian Associates ROS. Awards could have ranged from zero to 200% of the
executive officer's annual base salary, depending on the ROS achieved and the
pre-determined participation level for that executive officer. The Committee
considered historical ROS (which the Committee compared to the historical ROS
of 21 other companies similar to the three businesses Varian Associates then
owned), historical ROS objectives and ROS forecasts in determining fiscal year
1999 objectives. The Committee determined each executive officer's
participation level after taking into account the executive officer's relative
position and responsibilities, relative mix of fixed and incentive compensation
in fiscal year 1998, previous awards and potential award for that participation
level. The Committee, however, determined in light of the spinoff to pay the
annual incentive awards at the time of the spinoff at the target rate (which
ranged from 50% to 100% of the annual base salary), pro-rated to reflect base
salaries for the first six months of fiscal year 1999.
Post-Spinoff Annual Incentive Awards
We amended and restated our management incentive plan at the time of the
spinoff, with the initial performance period the last six months of fiscal year
1999. The Committee based executive officer awards for the last six months of
fiscal year 1999 on oncology business ROS or x-ray tube business ROS or a
"company ROS" which was equal to the sum of 80% of the oncology ROS and 20% of
the x-ray tube ROS. For Mr. Guertin, the Committee based 50% of his award on
oncology ROS and 50% on company ROS. For Mr. Ford and Mr. Kluge, the Committee
based 60% of their awards on their respective business's ROS and 40% on company
ROS. The Committee based 100% of Mr. Phair's award on company ROS. Awards
targets for VMS's executive officers listed in the Summary Compensation Table
could have ranged from zero to 200% of the executive officer's base salary for
the last six months of fiscal year 1999 depending on the ROS achieved and the
predetermined participation level for that executive. The Committee determined
each executive officer's participation level based on the amounts fixed for
comparably situated officers for the first six months of fiscal year 1999.
15
<PAGE>
Stock Options
We believe that executive officers and other employees who are in a position
to make a substantial contribution to our long-term success and to build
stockholder value, should have a significant stake in our on-going success. As
a result, we have granted non-qualified stock options under an omnibus stock
plan in order to retain talented executive officers and to align their
compensation with stockholder value. Because the stock options have an exercise
price equal to the market price of our stock on the grant date and generally
vest in equal installments over three years assuming continued employment,
stock options compensate executive officers only if the stock price increases
after the date of grant and the executive officer remains employed for the
periods required for the stock option to become exercisable.
Pre-Spinoff Stock Options
Since by early in fiscal year 1999 the Board had substantially finalized its
plans for the spinoff of Varian, Inc. and Varian Semiconductor Equipment
Associates, Inc., the Committee determined not to grant further options to
purchase Varian Associates common stock before the spinoff. The Committee's
rationale was that, given the purposes behind the grants, it would be more
appropriate for the eventual employers to make these determinations. Upon the
spinoff, the outstanding options for officers and employees remaining with VMS,
including Dr. Levy, Mr. Guertin, Mr. Ford and Mr. Kluge, were adjusted as to
number of shares and exercise price to preserve as closely as possible their
economic values immediately before the spinoff. The outstanding Varian
Associates options of those who became employees of Varian, Inc. and Varian
Semiconductor Equipment Associates, Inc. (including Mr. Aurelio and Mr. Lauer)
were replaced by stock options in those companies. The outstanding options of
those whose employment terminated at the time of the spinoff (including Mr.
O'Rourke and Mr. Phair), were accelerated and one-third exchanged for options
in each of Varian, Inc. and Varian Semiconductor Equipment Associates, Inc. The
one-third remaining options in VMS were adjusted.
Post-Spinoff Stock Options
The Committee granted the options set forth in the Summary Compensation
Table to each of Mr. Guertin, Mr. Ford and Mr. Kluge effective immediately
after the spinoff and, when he rejoined VMS as an employee in August 1999, to
Mr. Phair under an amended and restated omnibus stock plan. The Committee
determined the number of shares subject to the options granted to each of these
officers after consideration of certain data from iQuantic High-Tech Equity
Practices Survey of stock option practices at 70 high technology companies, and
stock option data reported in proxy statements for 11 comparable companies. The
Committee did not attempt to determine grants in any relationship to that data.
The Committee also considered each executive officer's new position and
responsibilities.
Restricted Stock
Pre-Spinoff Restricted Stock
We structured the restricted stock feature of the omnibus stock plan to
create incentives for executive officers to improve financial performance, to
promote stockholder value and to remain in our employ. Except for significant
promotions or initial retentions, the Committee has awarded restricted stock to
executive officers only if pre-determined financial objectives have been
achieved, and required continued employment for the shares to vest in full. The
Committee determined executive officer grants for fiscal year 1999 by a formula
which measured Varian Associate's performance against pre-determined objectives
for return on equity or "ROE." The Committee determined the objectives for ROE
after considering historical ROE (which were compared with historical ROE of 21
other companies similar to Varian Associate's three businesses), historical ROE
objectives and forecasted ROE. The Committee decided on each executive
officer's participation level (the number of shares which could be granted to
that executive officer upon achieving specified ROE objectives) after
considering the executive officer's relative position and responsibilities; the
Committee
16
<PAGE>
also considered the actual and relative mix of the executive officer's fixed
and incentive compensation in fiscal year 1998. The Committee later decided, in
light of the spinoff, to award restricted stock equal to the pro rata portion
of the target award (reflecting the six-month period from the first day of the
1999 fiscal year to the date of the spinoff) immediately prior to the spinoff.
The restrictions on these shares (and all other shares which were still
restricted) were released by the spinoff date.
Post Spinoff Restricted Stock
We have not awarded any restricted stock since the spinoff and are not
currently using this feature of the omnibus stock plan as part of our
compensation package.
Long-Term Incentive Awards
Pre-Spinoff Long Term Incentive Awards
Before the spinoff, we created additional long-term retention and
performance incentives for executives through potential cash and/or stock
awards under the long-term incentive feature of the omnibus stock plan.
Executive officer awards for a three-year cycle beginning with fiscal year 1999
and ending with fiscal year 2001 were to be determined by a formula that
measured company and business unit performance against pre-determined
objectives for return on net assets or "RONA" and revenue growth or "RG". For
executive officers with operational responsibilities (including Dr. Levy, Mr.
Aurelio and Mr. Lauer), 25% of their award formula was to be based on each of
company RONA and core business RONA and 25% was to be based on each of company
RG and core business RG. Awards to business unit participants (including Mr.
Kluge) were to be based 30% on each of core business RONA and RG and 20% on
each of company RONA and RG. Awards to corporate participants (including Mr.
O'Rourke and Mr. Phair) were to be based 50% on each of company RONA and
company RG. Awards could have ranged from zero to 200% of an executive
officer's base salary, depending on the RONA and RG achieved and the pre-
determined level of that executive officer's participation. The Committee
decided on fiscal years 1999-2001 objectives for RONA and RG after considering
historical RONA and RG, historical RONA and RG objectives and RONA and RG
forecasts. The Committee set each executive officer's participation level after
consideration of the executive officer's relative position and
responsibilities, relative mix of fixed and incentive compensation in fiscal
year 1998, and potential awards (including for pending cycles). Mr. Ford did
not participate in the pre-spinoff long-term incentive plan. Similar to the
other incentive compensation arrangements, the Committee decided in light of
the spinoff to pay the fiscal years 1997-1999, 1998-2000 and 1999-2001 awards
at the time of the spinoff at the applicable target rates, prorated to reflect
the period from the first day of the cycle to the date of the spinoff as a
percentage of the three year-cycle, except for Mr. O'Rourke and Mr. Phair and
others who were parties to separation agreements who received payment of the
full 1997-1999 and 1998-2000 targets.
Post-Spinoff Long Term Incentive Award
We are not currently using this feature of the omnibus stock plan as part of
our compensation package.
Other Compensation
To attract and retain talented executive officers, the Committee also has
approved arrangements giving executive officers certain perquisites, such as
use and purchase of an automobile under our executive car program,
reimbursement for tax planning and return preparation and financial counseling
services, reimbursement for any taxes paid on certain perquisites and
reimbursement for annual medical examinations, and, before its sale in
connection with the spinoff, use of our aircraft. In order to make retirement
contributions which could not be contributed to executive officers' qualified
retirement plan accounts due to Internal Revenue Code limitations, we also
maintain a Supplemental Retirement Plan under which we make unfunded
supplemental retirement contributions. We also permit executive officers to
participate in compensation and benefit programs generally available to other
employees, such as the Cash Profit-Sharing Plan, Retirement and Profit-Sharing
Program and supplemental life and disability insurance program.
17
<PAGE>
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code generally provides that publicly
held corporations may not deduct in any taxable year certain compensation in
excess of $1,000,000 paid to the chief executive officer and the next four most
highly compensated executive officers. Stockholders approved the omnibus stock
and management incentive plans under which fiscal year 1999 awards were made
before the spinoff and the amended and restated omnibus stock and management
incentive plans under which fiscal year 1999 awards were made after the spinoff
so that awards under those plans would be eligible for continued tax
deductibility. However, the Committee considers one of its primary
responsibilities to be structuring a compensation program that will attract,
retain and reward executive talent necessary to maximize stockholder return.
Accordingly, the Committee believes that the Company's interests are best
served in some circumstances by providing compensation (such as salary,
perquisites and special cash bonuses) which might be subject to the tax
deductibility limitation of Section 162(m). A portion of Dr. Levy's
compensation in fiscal year 1999 was not deductible.
Bases for CEO Compensation
The Committee followed generally the same policies and programs described
above for compensation of executive officers before the spinoff in determining
fiscal year 1999 compensation for Mr. O'Rourke as Chairman and Chief Executive
Officer until April 2, 1999, the date of the spinoff, and in determining
Dr. Levy's compensation as President and Chief Executive Officer after the
spinoff.
Mr. O'Rourke
The Committee set Mr. O'Rourke's annual base salary in fiscal year 1999
(which was increased by 2% from the previous year) according to the policies
and considerations described above. The Committee also took into account
generally Mr. O'Rourke's salary and other compensation paid in each of the
previous eight fiscal years, the relative mix of Mr. O'Rourke's salary and
other compensation paid in each of the previous eight fiscal years, the
relative mix of Mr. O'Rourke's fixed, annual incentive and long-term incentive
compensation in the previous year and a general survey of chief executive
officer salaries at 24 electrical/ electronic companies with comparable sales
volume (which survey showed that Mr. O'Rourke's previous year's salary was
above the 90th percentile).
Based on the Committee's determination to pay management incentive plan
awards at the time of the spinoff, we paid Mr. O'Rourke an incentive award for
the first six months of fiscal year 1999 equal to 100% of his six-month base
salary. We also paid Mr. O'Rourke a long-term incentive award equal to 200% of
his annual base salary. The Committee did not grant Mr. O'Rouke any options for
fiscal year 1999, but as a result of the pro-rated award of restricted stock
described above, he received 4,000 shares of restricted stock (the restrictions
on which were released by the spinoff date). Further, as of the spinoff, his
unvested options accelerated, one-third were exchanged for options to purchase
shares of each of Varian, Inc. and Varian Semiconductor Equipment Associates,
Inc., and the one-third remaining options to purchase VMS shares were adjusted.
Dr. Levy
The Committee set Dr. Levy's annual base salary following the spinoff in
accordance with the policies and considerations used to determine the post-
spinoff salaries of the other executive officers. In line with other VMS
executive officers, this salary placed him slightly below the 75th percentile
of chief executive officers based on the survey data that the Committee
considered.
In his capacity as Chief Executive Officer, we paid Dr. Levy an incentive
award for the last six months of fiscal year 1999 (in accordance with the post-
spinoff management incentive plan described above) equal to 142% of his base
salary during that six-month period.
18
<PAGE>
The Committee also granted Dr. Levy an option to purchase 400,000 shares of
VMS common stock with an exercise price equal to the fair market value of our
stock on the first trading day after the spinoff, based on the policy and
considerations described above. Dr. Levy's options, however, vest one-third on
each of the dates that are six, eighteen and thirty months after grant.
<TABLE>
<S> <C>
John Seely Brown David W. Martin
Samuel Hellman Burton Richter
Terry R. Lautenbach Richard W. Vieser (Chairman)
</TABLE>
19
<PAGE>
PERFORMANCE GRAPHS
Varian Associates, Inc.
This graph shows the total return on Varian Associates, Inc. common stock
and certain indices from September 30, 1994 until the date of the spinoff,
April 2, 1999.
[GRAPH]
<TABLE>
<CAPTION>
09/30/94 09/29/95 09/27/96 09/26/97 10/02/98 04/01/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
VARIAN ASSOCIATES, INC. 100 148 133 169 97 110
S & P 500 100 130 156 219 239 304
S & P TECHNOLOGY SECTOR 100 158 194 315 356 535
</TABLE>
Assumes $100 was invested September 30, 1994.
Total return assumes quarterly reinvestment of dividends.
20
<PAGE>
Varian Medical Systems, Inc.
This graph shows the total return on Varian Medical Systems, Inc. common
stock and certain indices from April 5, 1999, the date VMS common stock began
trading on the New York Stock Exchange and the last day of fiscal year 1999.
<TABLE>
<CAPTION>
Cumulative
Total Return
--------------
4/5/99 10/1/99
------ -------
<S> <C> <C>
VARIAN MEDICAL SYSTEMS, INC. 100 120
S & P SMALLCAP 600 100 110
HAMBRECHT & QUIST MEDICAL PRODUCTS 100 91
</TABLE>
Assumes $100 was invested April 5, 1999.
Total return assumes quarterly reinvestment of dividends, if any.
21
<PAGE>
VARIAN MEDICAL SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS-FEBRUARY 17, 2000
P THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
R
O The undersigned stockholder of Varian Medical Systems, Inc. hereby
X constitutes and appoints RICHARD M. LEVY and JOSEPH B. PHAIR, and each
Y of them, proxies and attorneys-in-fact of the undersigned, with full
power of substitution, to vote all the shares of Common Stock of Varian
Medical Systems, Inc. standing in the name of the undersigned, at the
Annual Meeting of Stockholders of Varian Medical Systems, Inc. to be
held at the Sheraton Palo Alto, 625 El Camino Real, Palo Alto,
California, on February 17, 2000, at 1:30 p.m., and at any
adjournment(s) or postponement(s) thereof.
Unless a contrary direction is indicated, this Proxy will be voted
FOR all nominees listed in Proposal 1 and in accordance with the
judgment of the proxies as to the best interests of the Company upon
such other business as may properly come before the meeting or any
adjournment or postponement thereof. If specific instructions are
indicated, this Proxy will be voted in accordance therewith. With
respect to Proposal 1, the proxies shall have full discretion and
authority to vote cumulatively and to allocate votes among any or all
of the nominees of the Board of Directors in such order as they may
determine.
------------------------------------------------------------------------
------------------------------------------------------------------------
(If you have written in the above space, please mark the
corresponding box on the reverse side of this card)
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY IN THE
ENCLOSED POSTAGE-PAID RETURN ENVELOPE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE -----------
SEE REVERSE
SIDE
-----------
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[SHERATON LOGO APPEARS HERE]
Sheraton Palo Alto
------------------
H O T E L
[MAP APPEARS HERE]
Locater Map
The Sheraton Palo Alto
Hotel is easily
accessible from
625 EL CAMINO REAL . PALO ALTO, CA 94301 Highway 101 and from
PHONE: (650) 328-2800 . FAX: (650) 327-7362 Interstate 280.
. From Highway 101
in either
direction, exit
Embarcadero Rd.
WEST to El Camino
Real. Turn right
on El Camino Real.
The hotel is
located 3 blocks
down on the right.
. From Interstate
280 in either
direction, exit
Page Mill Rd. EAST
to El Camino Real.
Turn left on El
Camino Real.
Travel
approximately 2
miles on El Camino
Real. The hotel is
located on the
right.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Please mark 6314
[X] votes as in this
example
The Board of Directors Recommends a Vote "FOR" proposal 1.
- ------------------------------------------------------------------------------------------------------------------------------------
FOR WITHHELD
1. Election of [_] [_] Nominees: David W. Martin, Jr 2. The proxies are authorized to vote on such other
Directors and Richard W. Vieser business as is properly brought before the Annual
Meeting for action in accordance with their
judgment as to the best interests of the Company.
For, except vote withheld from the following nominee(s):
- ------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Comments/Change of Address
SIGNATURE (S)_____________________________________________________ DATE ________________
NOTE: Please sign exactly as name appears on your stock certificate. If the stock is registered in the
names of two or more persons, each should sign. Executors, administrators, trustees, guardians,
attorneys and corporate officers should insert their name.
- ------------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
VARIAN MEDICAL SYSTEMS, INC.
Annual Meeting of Stockholders
February 17, 2000
1:30 p.m.
Sheraton Palo Alto
625 El Camino Real
Palo Alto, California
(Map on reverse side)
</TABLE>
