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ACCESSION NUMBER: 0001092388-00-000882
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 20000929
FILED AS OF DATE: 20001208
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: VARIAN MEDICAL SYSTEMS INC
CENTRAL INDEX KEY: 0000203527
STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559]
IRS NUMBER: 942359345
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-07598
FILM NUMBER: 786138
BUSINESS ADDRESS:
STREET 1: 3050 HANSEN WAY
STREET 2: MAIL STOP E 224
CITY: PALO ALTO
STATE: CA
ZIP: 94304-1000
BUSINESS PHONE: 6504934000
MAIL ADDRESS:
STREET 1: 3050 HANSEN WAY
STREET 2: MAIL STOP E 224
CITY: PALO ALTO
STATE: CA
ZIP: 94304-1000
FORMER COMPANY:
FORMER CONFORMED NAME: VARIAN ASSOCIATES INC /DE/
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: VARIAN DELAWARE INC
DATE OF NAME CHANGE: 19761123
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<TEXT>
<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 29, 2000
OR
/ / TRANSITION REPORTING PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __ TO __
COMMISSION FILE NUMBER: 1-7598
VARIAN MEDICAL SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 94-2359345
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3100 HANSEN WAY,
PALO ALTO, CALIFORNIA 94304-1030
(Address of principal executive offices) (Zip Code)
(650) 493-4000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $1 par value New York Stock Exchange
Preferred Stock Purchase Rights Pacific Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K /X/
At December 6, 2000, the aggregate market value of the Common Stock held
by non-affiliates of the registrant was approximately $1,874,920,000.
At December 6, 2000, the number of shares of Common Stock outstanding was
$32,326,211.
DOCUMENTS INCORPORATED BY REFERENCE
DEFINITIVE PROXY STATEMENT FOR THE COMPANY'S 2001 ANNUAL MEETING
OF STOCKHOLDERS--PART III OF THIS FORM 10-K
WWW.VARIAN.COM (NYSE: VAR)
================================================================================
<PAGE>
VARIAN MEDICAL SYSTEMS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 29, 2000
<TABLE>
<CAPTION>
PAGE
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PART I
<S> <C> <C>
Item 1. Business.................................................................................. 4
Item 2. Properties................................................................................ 14
Item 3. Legal Proceedings......................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders....................................... 16
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................. 18
Item 6. Selected Financial Data................................................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 20
Item 7A Quantitative and Qualitative Disclosure About Market Risk................................. 36
Item 8. Financial Statements and Supplementary Data............................................... 38
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 38
PART III
Item 10. Directors and Executive Officers of the Registrant........................................ 39
Item 11. Executive Compensation.................................................................... 39
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 39
Item 13. Certain Relationships and Related Transactions............................................ 39
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 40
</TABLE>
2
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FORWARD-LOOKING STATEMENTS
Except for historical information, this annual report on Form 10-K
contains "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995 which provides a "safe harbor" about
future events, products and future financial performance that are based on the
beliefs of, estimates made by and information currently available to our
management. The outcome of the events described in these forward-looking
statements is subject to risks and uncertainties. Actual results and the timing
of certain events may differ significantly from those projected in these
forward-looking statements and reported results should not be considered an
indication of future performance due to the factors listed below, under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Factors Affecting Our Business" and from time to time in
our other filings with the Securities and Exchange Commission. For this purpose,
statements concerning industry outlook, including market acceptance of or
transition to new products or technology such as IMRT, brachytherapy, software,
treatment techniques, and advanced x-ray products; growth drivers; Varian
Medical Systems, Inc.'s ("VMS," "we" or "our") orders, sales, backlog or
earnings growth; future financial results and any statements using the terms
"anticipate," "believe," "expect," "appear," "should," "will," "point to" or
similar statements are forward-looking statements that involve risks and
uncertainties that could cause our actual results to differ materially from
those projected or management's current expectations. Such risks and
uncertainties include, without limitation, market acceptance, demand for and
possible obsolescence of our products; our ability to successfully develop and
commercialize new products; the impact on our sales and margins of competitive
products and pricing; the effect of general economic conditions and foreign
currency exchange rates; our ability to increase operating margins on higher
sales while controlling costs; our ability to maintain manufacturing capacity to
meet demand, including the potential risk of earthquake damage to our existing
facilities; the effect of environmental claims and clean-up expenses on our
costs; our ability to protect our intellectual property and the related
competitive advantages of our products; our reliance on sole source or a limited
number of suppliers; the impact of managed care initiatives or other healthcare
reforms in the U.S. on our capital expenditures and/or limitations on third
party reimbursements and the resulting pressure on medical equipment pricing and
user demand for our products; our ability to meet U.S. FDA and other domestic or
foreign regulatory requirements or product clearances which might limit the
products we can sell or subject us to fines or other regulatory actions; our use
of distributors for a portion of our sales, the loss of which could reduce sales
and harm our financial results; continued consolidation in the x-ray tubes
market; the possibility that material product liability claims could harm our
future sales, or require us to pay uninsured claims; the availability and
adequacy of our insurance to cover future material liabilities, including any
material product liability or product recall of General Electric manufactured
products for which we provide customer service and have assumed such
liabilities; our ability to attract and retain key employees in a highly
competitive employment market; the affect which fluctuations in our operating
results may have on the price of our common stock; the possibility that certain
provisions of our Certificate of Incorporation and its stockholder rights plan
might discourage a takeover and therefore limit the price of our common stock;
our ability to meet time requirements for and implement conversion to the Euro
currency in our business dealings and operations in certain European countries;
the effect of price transparency on our business dealings in countries of the
European Community following implementation of Euro currency regulations; the
effect on our profit margins of product recycling and related regulatory
requirements in European and other countries; our potential responsibility for
additional tax obligations and other liabilities arising out of the spin-off of
segments of our former businesses; and the effect on our revenue recognition of
changes in accounting standards. By making forward-looking statements, we have
not assumed any obligation to, and you should not expect us to, update or revise
those statements because of new information, future events or otherwise.
3
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
In August 1998, we (then known as Varian Associates, Inc.) announced our
intention to spin off our instruments business and our semiconductor equipment
business to our stockholders. We later transferred our instruments business to
Varian, Inc. ("VI"), a wholly owned subsidiary, and transferred our
semiconductor equipment business to Varian Semiconductor Equipment Associates,
Inc. ("VSEA"), a wholly owned subsidiary. We retained the medical systems
business, principally the sales and service of oncology systems and the sales of
x-ray tubes and imaging subsystems. On April 2, 1999, we spun off VI and VSEA to
our common stockholders. Immediately after the spin-offs, we changed our name to
Varian Medical Systems, Inc. ("VMS"). We have been engaged in aspects of the
medical systems business since 1959.
An Amended and Restated Distribution Agreement dated as of January 14,
1999 and certain other agreements govern our ongoing relationships with VI and
VSEA.
OVERVIEW
VMS is a world leader in the design and production of equipment for
treating cancer with radiation, as well as high-quality, cost-effective x-ray
tubes for original equipment manufacturers, replacement x-ray tubes and imaging
subsystems.
In serving the market for advanced medical systems (primarily for cancer
care), we continue to broaden our offerings to address the concerns driving this
sector, including the unrelenting demand to contain costs and enhance efficacy.
In addition to developing medical hardware, we also develop clinical software
products and devices designed to enhance their productivity and quality.
Our oncology systems line encompasses a fully integrated system of
products embracing not only linear accelerators but also sophisticated ancillary
products and services. Our linear accelerators and simulators are in service
around the world, treating cancer patients daily. Our x-ray tubes are sold to
most major diagnostic equipment manufacturers and cover a range of applications
including advanced mammography and CT scanning. We are also involved in several
high-growth product development opportunities, including advanced brachytherapy
systems for cancer treatment and one of the world's first real-time, digital
x-ray fluoroscopic imager. In addition, we are pursuing technologies and
products that promise to improve disease management by employing targeted energy
to enhance the effectiveness of leading-edge molecular medicine.
CANCER-CARE MARKET
Based on a recent study by the International Atomic Energy Agency -
Directory of Radiotherapy Centres - published in September 2000, approximately
57% of all cancer patients in the U. S. receive radiation therapy at some point
during the course of their disease. The study also suggested that radiation
therapy is appropriate for approximately 50% of all cancer patients worldwide,
either alone or in combination with surgery or chemotherapy. An important
advantage of radiation therapy is that the radiation acts with some selectivity
on cancer cells. When a cell absorbs radiation, the radiation affects the cell's
genetic structure and inhibits its replication, leading to its gradual death.
Cancerous cells replicate very fast and therefore the radiation they absorb can
disproportionately damage them.
Currently, the most common type of radiotherapy uses x-rays delivered by
external beams and is administered using linear accelerators ("LINACS"). LINACS
are conventionally used for multiple (or "fractionated") treatments of a tumor
in up to 30 radiation sessions. LINACS, as used more recently in the brain,
deliver a single high dose of radiation in a procedure referred to as
stereotactic radiosurgery ("SRS"). In addition to external radiation therapy,
radioactive seeds, wires or ribbons are sometimes inserted into a tumor
("interstitially") or into a body cavity ("intracavitary"). These modalities,
known as "brachytherapy," do not require the radiation to pass through
surrounding healthy tissue.
4
<PAGE>
PRODUCTS
Our products can be broadly classified into three principal categories:
oncology systems, x-ray tubes and imaging subsystems, and other technologies
developed by our Ginzton Technology Center, primarily brachytherapy.
ONCOLOGY SYSTEMS
Our oncology systems business designs, manufactures, sells and services
hardware and software products for radiation treatment of cancer. Our products
include linear accelerators, simulators and computer systems for planning cancer
treatments and data management systems for radiation oncology centers. We offer
an integrated system of products embracing both linear accelerators and
sophisticated ancillary products and services to extend their capabilities and
efficiency. Our Clinac(TM) series of medical linear accelerators, marketed to
hospitals and clinics worldwide, generate therapeutic x-rays and radiation beams
for cancer treatment. We produce a variety of versions of these devices to suit
various facility requirements, including our new Silhouette Edition Clinac
designed to fit into older, smaller treatment rooms.
Linear accelerators are also used for industrial radiographic
applications. Our Linatron linear accelerators are used for nondestructive
examination of objects, such as cargo or luggage, and to x-ray heavy metallic
structures for quality control.
We also manufacture and market related radiotherapy products such as
imaging systems, information management systems, multi-leaf collimators,
simulators, treatment planning systems and radiosurgery products. We continually
work with physicians and technicians to develop the latest technology and
treatments.
The radiotherapy process consists of patient examination, planning of the
therapeutic approach, treatment delivery, verification that the treatments are
being delivered correctly, quality assurance of all the devices involved in the
treatment process, reporting of the results and obtaining reimbursement for the
radiotherapy services provided. We provide products that help perform each of
these tasks. We have also integrated our individual products into a complete
system that automates and enhances the entire process of treating a patient. In
addition, we store patient data and images into a single database that every
product can use, which enables each device to easily communicate with each
other.
Revenues from the oncology systems business represented 77%, 78% and 75%
of total revenues in fiscal 2000, 1999 and 1998, respectively. For a discussion
of segment financial information, see "Industry Segments" of the Notes to the
Consolidated Financial Statements.
X-RAY TUBES AND IMAGING SUBSYSTEMS
Our x-ray products business is a world leader in designing and
manufacturing subsystems for diagnostic radiology, including x-ray-generating
tubes and imaging subsystems, for the estimated worldwide $7 billion diagnostic
imaging market. X-ray tubes are a key component of x-ray imaging subsystems,
including both new system configurations and replacement tubes for the installed
base. We conduct an active research and development program to focus on new
technology and applications in both the medical and industrial x-ray tube
markets. Our extensive scientific and engineering expertise in glass and metal
center section tubes is considered state-of-the-art.
We manufacture tubes for four primary medical x-ray imaging applications:
CT scanners; radiographic/fluoroscopic; special procedures; and mammography.
Over time, we have substantially increased the heat storage capacity of CT
tubes. We developed these high heat unit tubes to respond to customers who
needed rapid, continuous scanning to accommodate continuous CT scanning
techniques over large regions of the patient, and to reduce examination times.
Innovative design and process improvements have increased tube life such that
our current tubes last twice as long as tubes did five years ago, resulting in
significant savings for the customers. Our new high output CT tube, which is
capable of supporting the requirements of the newest generation of half second
CT scanners, is the only such anode grounded half second CT scanner tube in the
market at this time.
Our mammography tubes produce high quality images at low doses. Today,
almost a third of the mammography systems and nearly a quarter of the CT scanner
systems worldwide employ our tubes. We also offer a line of industrial x-ray
tubes which consist of analytical x-ray tubes used for x-ray fluorescence and
diffraction as well as tubes used for non-destructive imaging and gauging. We
also design, manufacture and market imaging products. Our amorphous silicon
imaging technologies can be broadly applied as an alternative to image
intensifiers
5
<PAGE>
or film. We expect that imaging equipment based on amorphous silicon
semiconductors may be more stable and reliable, have far fewer adjustments, and
suffer less degradation over time.
Revenues from the x-ray tubes and imaging subsystems business represented
20%, 21% and 24% of total revenues in fiscal 2000, 1999 and 1998, respectively.
For a discussion of segment financial information, see "Industry Segments" of
the Notes to the Consolidated Financial Statements.
GINZTON TECHNOLOGY CENTER
In addition to pursuing growth opportunities in existing markets, we are
pursuing the potential of combining advances in focused energy and imaging
technology with the latest breakthroughs in biotechnology through our research
facility, the Ginzton Technology Center ("GTC"). GTC manufactures and sells our
brachytherapy products, including our high dose rate brachytherapy system
(VariSource(TM)) and our brachytherapy treatment planning products
(BrachyVision(TM) and VariSeed(TM)).
During fiscal year 2000, we entered into an agreement with Cordis
Corporation, a subsidiary of Johnson and Johnson Company, to develop, supply and
service products and radioactive sources for coronary intravascular radiotherapy
treatment to prevent restenosis (or re-clogging of the arteries once blockages
were removed) after angioplasty. In November 2000, Cordis Corporation received
U.S. Food and Drug Administration ("FDA") clearance for this treatment system.
We are also evaluating using radiation to treat other diseases. Such
efforts are designed to bring forth a whole new range of products and
technologies that allow us to take full advantage of our reputation for
technology innovation leadership in the health care field.
MARKETING AND SALES
Sales to our ten largest customers in fiscal years 2000, 1999 and 1998
accounted for approximately 19%, 24% and 24% of sales, respectively. However, we
do not have a single customer that represents 10% or more of our total sales.
We maintain direct sales forces in North America, Australia and major
parts of Asia, Europe and Latin America. We make all of our North American sales
in the oncology systems business and all of our North American and international
sales in GTC through our direct sales forces. We sell through a combination of
direct sales forces and independent distributors in the international markets
for the oncology systems business as well as in the North American and
international markets for our x-ray tube products business.
We sell our oncology system products primarily to hospitals, clinics,
private and governmental institutions and health care agencies and doctors'
offices. Total sales for oncology systems and services were $534 million, $459
million and $405 million for fiscal years 2000, 1999 and 1998, respectively. We
divide our markets for oncology systems, components and accessories by region
into North America, Europe, Asia and rest of the world, and these regions
constituted 62%, 23%, 8% and 7% of sales during fiscal year 2000 and 49%, 34%,
12% and 5% of sales during fiscal year 1999, respectively.
Historically, we have sold a high proportion of our x-ray products to a
limited number of customers and we expect that sales of these products to
relatively few customers will continue to account for a high percentage of sales
in the foreseeable future. We sell approximately 80% of our x-ray tube products
to original equipment manufacturers ("OEM's") and 20% to replacement tube
distributors. We supply tubes to such industry leaders as Toshiba, Hitachi,
Marconi, Shimadzu and General Electric Medical Systems, each of which accounted
for 5% or more of x-ray tube product sales in fiscal year 2000. Total sales for
our x-ray tubes and imaging subsystems business were $136 million, $123 million
and $131 million for fiscal years 2000, 1999 and 1998, respectively. We divide
our markets for x-ray tube products, components and accessories by region into
North America, Europe, Asia and rest of the world, and these regions constituted
32%, 15%, 51% and 2% during fiscal year 2000 and 30%, 23%, 44% and 3% of sales
during fiscal year 1999, respectively.
Although we have seen the strongest growth to date in North America, we
believe that in the foreseeable future there will be worldwide growth in the
markets for oncology systems and related services because of the underserved
market outside the U.S. With the transition from analog to digital systems, the
demand for products and
6
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services related to networking, archiving and electronic distribution of digital
images should grow in industrialized countries. We also believe there will be
continuous growth in the markets for information technology.
Our marketing strategy is to offer to customers a complete package of
products and services in the fields of radiotherapy, including equipment,
accessories and related services such as education and after-sales services. Our
marketing efforts include developing relationships with current and prospective
customers, participating in annual professional meetings for clinicians and
hospitals, advertising in trade journals, sending direct mail and marketing over
the telephone. Our growth strategy is to add products in existing markets,
expand in new high-potential markets, add product offerings through internal
research and development and alliances with other companies and grow our
international market.
CUSTOMER SUPPORT AND SERVICES
We maintain centers in Milpitas, California; Buc, France; and Tokyo,
Japan; as well as field service forces throughout the world for oncology systems
service support. Our network of service engineers and customer support
specialists provide installation, warranty, repair, training and support
services. We generate service revenue by providing service to customers on a
time and materials basis and through comprehensive service contracts and the
sale of parts. Our rates are competitive with those offered by our competitors.
We warrant most of our oncology systems for hardware parts and labor for
12 months. Under the terms of the warranty, the customer is assured of service
and parts so that the equipment will operate in accordance with specifications.
We warrant that software will perform in accordance with specifications at the
delivery date and up to three months thereafter if the customer gives notice of
any nonconformance. We offer a variety of post-warranty service agreements that
permit customers to contract for the level of equipment maintenance they
require. In addition, we offer specific software support agreements, reflecting
the growing use in our products of software that can be updated.
Systems under warranty or service contract receive periodic maintenance
by our service engineers, who also install new system capabilities or software
upgrades and respond to customer service requests. Customers who do not have a
service contract with us may also purchase these services.
Our oncology systems customers receive installation, technical training,
clinical in-service and documentation support appropriate for the product type.
Customers receive both emergency and routine maintenance from a worldwide
network of field engineers. These individuals are available to satisfy customer
requirements for service 24 hours a day. Most of these engineers are our
employees, but a few are employees of dealers and/or agents. Customers can
access our extensive service network by calling any of our service centers
located throughout North America, Europe, Asia, Australia and Latin America.
We believe customer service and support are an integral part of our
competitive strategy. Service capability, availability and responsiveness play
an important role in marketing and selling medical equipment and systems,
particularly as the technological complexity of the products increases.
Nevertheless, many hospitals use their own biomedical engineering departments
and/or independent service organizations to service equipment after the warranty
period expires. Therefore, we cannot depend on conversion of all maintenance to
service contracts after the warranty period. However, after-warranty service
does provide an on-going source of revenue for us.
We provide technical advice and consultation for x-ray tubes and imaging
subsystems products to major OEM customers from our offices in Tokyo, Japan;
Houten, The Netherlands; Salt Lake City, Utah; and Charleston, South Carolina.
Our applications specialists and engineers make recommendations to meet the
customer's technical requirements within the customer's budgetary constraints.
We often develop specifications for a unique product, which will be designed and
manufactured to meet a specific customer's requirements. We also maintain a
technical customer support group in Charleston, South Carolina to meet the
technical support requirements of independent tube installers using our x-ray
tube products.
RESEARCH AND DEVELOPMENT
Developing products, systems and services based on advanced technological
concepts is essential to our ability to compete effectively. We maintain a
product research and development and engineering staff responsible for product
design and engineering. Research and development expenditures totaled $42
million, $40 million and $39 million in fiscal years 2000, 1999 and 1998,
respectively.
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GTC maintains technical competencies in x-ray technology, imaging physics
and applications, electronic design, materials science and biosciences to prove
feasibility of new product concepts and to improve current products. Present
research topics include new x-ray imaging concepts, image-based radiotherapy
treatment planning, targeting and verification tools, combined modality therapy,
manufacturing process improvements, improved x-ray tubes and gene technology.
GTC does accept certain sponsored research contracts from external agencies such
as the government or other private sources.
Although we intend to continue conducting extensive research and
development activities, there can be no assurance that we will be able to
successfully develop and market new products on a cost-effective and timely
basis, or at all; that such products will compete favorably with products or
product enhancements developed by others; or that our existing technologies will
not be superseded by new discoveries or developments.
COMPETITION
The health care equipment markets are characterized by rapidly evolving
technology, intense competition and pricing pressure. We compete with companies
worldwide. Some of our competitors have greater financial, marketing and
management resources than we do. These competitors could develop technologies
and products that are more effective than those we currently use or produce or
that could render our products obsolete or noncompetitive. Our smaller
competitors could be acquired by companies with greater financial strength,
which could enable them to compete more aggressively. Certain of our
distributors could also be acquired by competitors, which could disrupt certain
distribution arrangements. We believe, however, that we compete favorably with
our competitors based on our continued commitment to global distribution and
customer service, value-added manufacturing, technological leadership and new
product innovation. We believe that the key to success in our markets is to
provide technologically superior products that deliver cost-effective, high
quality clinical outcomes and that meet or exceed customer quality and service
expectations. Our ability to compete successfully depends on our ability to
commercialize new products ahead of our competitors. In the sales of our
oncology systems products, we compete primarily with Siemens, Nucletron, Elekta
and Mitsubishi. We compete with independent service organizations in our service
and maintenance business and with a variety of companies in our software systems
and accessories business.
The market place for x-ray tube products is extremely competitive. All of
the major diagnostic imaging systems companies, which are the primary customers
of our x-ray tubes and imaging subsystems business, also manufacture x-ray tubes
for use in their own products. We must compete with these in-house x-ray tube
manufacturing operations that are naturally favored by their parent companies.
As a result, we must have a competitive advantage in one or more significant
areas which may include lower product cost, better product quality or superior
technology. We sell a significant volume of our x-ray tube products to companies
such as Toshiba Medical Systems, Hitachi Medical Systems, Shimadzu Medical
Systems, Philips Medical Systems and General Electric Medical Systems, all of
which have in-house x-ray tube production capability. In addition, we compete
against other stand-alone x-ray tube manufacturers such as Comet, located in
Switzerland, and IAE, located in Italy. These companies compete with us for both
the OEM business of major diagnostic imaging equipment manufacturers and
independent servicers of x-ray tube.
MANUFACTURING AND SUPPLIES
Our oncology systems business manufactures its linear accelerators in
Palo Alto, California, and its treatment simulator systems and some accelerator
subsystems in Crawley, England. In addition, the oncology systems business
manufactures certain of its ancillary products in Baden, Switzerland, Helsinki,
Finland and Buc, France. We manufacture our x-ray tube products in Salt Lake
City, Utah and Charleston, South Carolina. We manufacture our brachytherapy
systems in Crawley, England and other GTC products in Charlottesville, Virginia.
These facilities employ state-of-the-art manufacturing techniques, and several
have been honored by the press, governments and trade organizations for their
commitment to quality improvement. They are registered to ISO 9001 (or ISO 9002,
in the case of the Charleston facility), the most rigorous of the international
quality standards.
Manufacturing processes at our various facilities include machining,
fabrication, subassembly, system assembly and final testing. We have invested in
various automated and semi-automated equipment for the fabrication and machining
of the parts and assemblies that we incorporate in our products. We may from
time to time further invest in such equipment when cost justified. Our quality
assurance program includes various quality control measures from inspection of
raw material, purchased parts and assemblies through on-line inspection. We
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also get subassemblies from third-party suppliers and integrate them into a
finished system. We outsource the manufacturing of major subassemblies and
perform system design, assembly and testing in-house. We believe outsourcing
enables us to reduce fixed costs and capital expenditures while also providing
us with the flexibility to increase production capacity. We purchase material
and components from various suppliers that are either standard products or built
to our specifications. Certain components used in our existing products, as well
as products under development, are frequently purchased from single sources.
BACKLOG
Our backlog amounted to $473 million at the end of fiscal 2000, of which
$358 million is expected to ship within fiscal year 2001. Backlog at the end of
fiscal 1999 amounted to $400 million, of which $274 million shipped in fiscal
year 2000. Backlog at the end of fiscal 1998 amounted to $352 million of which
$206 million shipped in fiscal year 1999. We include in backlog only orders for
products scheduled to be shipped within two years. Orders may be revised or
canceled, either according to their terms or as a result of negotiations;
consequently, it is impossible to predict with certainty the backlog that will
result in sales.
PRODUCT LIABILITY
Our business exposes us to potential product liability claims that are
inherent in the manufacture and sale of medical devices. Because our products
involve the delivery of radiation to the human body, the possibility for
significant injury and/or death exists with any of these products. As a result,
we may face substantial liability to patients for damages resulting from any
faulty, or alleged faulty, design, manufacture and servicing of our products.
Although we maintain limited product liability insurance coverage in an amount
that we deem sufficient for our business, there can be no assurance that this
coverage will ultimately prove to be adequate or that such coverage will
continue to remain available on acceptable terms, if at all.
On December 5, 1997, we purchased General Electric's Radiotherapy Service
Business (the "RS Business"). In connection with that transaction, we agreed to
assume liability for certain product defects and personal injury matters that
might arise from RS Business products, and obtained insurance for these matters.
The insurance provides that in each annual period we are responsible for the
first $5,000,000 of expenses or liabilities related to any such claims. As of
fiscal year end 2000, one claim has been asserted related to these RS Business
products for which we may have an indemnity obligation and we have received, and
will continue to monitor, information regarding other potential claims, none of
which, to our knowledge, have been asserted against us.
GOVERNMENT REGULATION
DOMESTIC REGULATION
As a manufacturer of medical devices, we are subject to extensive
regulation by federal, state, and local governmental authorities, such as the
United States Food and Drug Administration (the "FDA"). The FDA regulates the
design, development, testing, manufacturing, packaging, labeling, distribution
and marketing of medical devices under the U.S. Food, Drug and Cosmetic Act (the
"FDC Act") and regulations promulgated by the FDA. The State of California
(through its Department of Health Services), where we maintain one of our
manufacturing facilities, as well as other states, also regulate the manufacture
of medical devices.
In general, these laws require that manufacturers adhere to certain
standards designed to ensure that the medical devices are safe and effective.
Under the FDC Act, each medical device manufacturer must comply with
requirements applicable to manufacturing practices, clinical investigations
involving humans, sale and marketing of medical devices, post-market
surveillance, repairs, replacements and refunds, recalls and other matters. The
FDA is authorized to obtain and inspect devices and their labeling and
advertising, and to inspect the facilities in which they are manufactured.
The FDC Act also requires compliance with specific manufacturing and
quality assurance standards, including regulations promulgated by the FDA with
respect to good manufacturing practices. FDA regulations require that each
manufacturer establish a quality assurance program by which the manufacturer
monitors the manufacturing process and maintains records that show compliance
with FDA regulations and the manufacturer's written specifications and
procedures relating to the devices. Compliance is necessary to receive FDA
clearance to market new products and is necessary for a manufacturer to be able
to continue to market cleared product offerings. Among other things, these
regulations require that manufacturers establish performance requirements before
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<PAGE>
production, ensure that device components are compatible, select adequate
packing materials, and perform mandatory risk analyses.
The FDA makes announced and unannounced inspections of medical device
manufacturers and may issue reports of observations where the manufacturer has
failed to comply with applicable regulations and/or procedures. Failure to
comply with applicable regulatory requirements can, among other things, result
in warning letters, civil penalties, injunctions, suspensions or losses of
regulatory clearances, product recalls, seizure or administrative detention of
products, operating restrictions through consent decrees or otherwise, and
criminal prosecution.
There has been a trend in recent years, both in the United States and
abroad, toward more stringent regulation and enforcement of requirements
applicable to medical device manufacturers. The continuing trend of more
stringent regulatory oversight in product clearance and enforcement activities
may cause medical device manufacturers to experience more uncertainty, greater
risk and higher expenses.
The FDA requires that a new medical device or a new indication for use of
or other significant change in an existing medical device obtain either 510(k)
pre-market notification clearance or an approved Pre-Market Approval Application
("PMAA") before the manufacturers can obtain orders and distribute the product
in the United States. The 510(k) clearance process is applicable when the new
product being submitted is substantially equivalent to an existing commercially
available product. The process of obtaining 510(k) clearance may take at least
three months from the date of the application filing and generally requires
submitting supporting data, which can be extensive and can extend the process
for a considerable period of time. Under the PMAA process, the applicant must
generally conduct at least one clinical investigation and submit extensive
supporting data and clinical information in the PMAA, which typically takes from
one to two years from the date the pre-market approval is accepted for filing,
but sometimes longer for the FDA to review. Generally, we have not been required
to resort to the PMAA process for approval of our products.
The FDA reviews software deemed to be a medical device - such as our
treatment planning software - in connection with its pre-market notification
clearance for the related device. Computer health information system or
stand-alone software may also be subject to FDA regulations. A draft policy
issued by the FDA in 1989 has been the applicable guidance for the regulation of
computer products intended to affect patient treatment and diagnosis. The 1989
draft policy exempts certain software from regulation on the basis of "competent
human intervention" occurring with the use of the software before any impact on
human health would occur. The FDA is considering a revised policy, which is
expected to eliminate this exemption and to base the level of regulation on the
level of risk imposed by the product. It is not clear what impact such
regulatory policies, if adopted, will have on the clinical information systems
or other medical software we offer.
We believe that we are in material compliance with all applicable
federal, state and most foreign regulations regarding the manufacture and sale
of our products. Such regulations and their enforcement are, however, constantly
undergoing change, and we cannot predict what effect, if any, changes may have
on our business. Failure to comply with FDA regulations could result in warning
letters, product clearance delays or other sanctions being imposed, including
restrictions on the marketing or the recall of our products, injunction or civil
penalties. Delays in the receipt of or failure to receive necessary regulatory
certifications or the loss of existing certifications could have a material
adverse effect on our business. We believe that our products substantially
comply with all applicable electrical safety and environmental standards, such
as those of Underwriters Laboratories and IEC 60601-1.
We are also subject to FDA and Federal Trade Commission restrictions on
advertising and numerous foreign, federal, state and local laws relating to such
matters as safe working conditions and manufacturing practices. Changes in
existing requirements, adoption of new requirements or failure to comply with
applicable requirements could have a material adverse effect on our business.
The design, manufacture, sale or service of our medical products involve
the risk of product liability claims and exposes our business to substantial
liability to patients for damages resulting from the faulty design, manufacture
or servicing of such products. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Certain Factors Affecting the
Company's Business--Because our products involve the delivery of radiation and
diagnostic imaging of the human body, product defects may result in material
product claims that could harm future sales and force us to pay material
uninsured claims."
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MEDICARE AND MEDICAID REIMBURSEMENT
The federal government regulates reimbursement for diagnostic
examinations and therapeutic procedures furnished to Medicare beneficiaries,
including related physician services and capital equipment acquisition costs.
For example, Medicare reimbursement for operating costs for radiation treatment
performed on hospital inpatients generally is set under the Medicare prospective
payment system ("PPS") diagnosis-related group ("DRG") regulations. Under PPS,
Medicare pays hospitals a fixed amount for services provided to an inpatient
based on his or her DRG, rather than reimbursing for the actual costs incurred
by the hospital. Patients are assigned to a DRG based on their principal and
secondary diagnoses, procedures performed during the hospital stay, age, gender
and discharge status.
Beginning October 1, 1991, Medicare phased in over a ten-year period a
prospective payment system for capital costs which incorporates an add-on to the
DRG-based payment to cover capital costs and which replaces the reasonable
cost-based methodology. The Balanced Budget Act of 1997 ("BBA"), enacted into
law on August 5, 1997, reduces capital payments to hospitals by 2.1% between
October 1, 1997 and September 30, 2002.
For certain hospital outpatient services, including radiation treatment,
reimbursement was historically based on the lesser of the hospital's costs or
charges, or a blended amount, 42% of which is based on the hospital's reasonable
costs and 58% of which is based on the fee schedule amount that Medicare
reimburses for such services when furnished in a physician's office. On April 7,
2000, the Health Care Financing Administration ("HCFA") published final
regulations to extend PPS to hospital outpatient services pursuant to the BBA,
as amended by the Balanced Budget Refinement Act of 1999. These regulations went
into effect in August 2000.
Under the outpatient PPS system, Medicare reimburses hospital outpatient
services according to rates calculated by Medicare for groups of covered
services known as "ambulatory payment classification" ("APC") groups.
Approximately ten APC groups involve radiation oncology services. The
reimbursement for each APC group is derived from a complicated calculation that
incorporates historical cost information, including capital acquisition costs.
Because the outpatient PPS system has only recently been implemented, it is
uncertain whether Medicare reimbursement for radiation treatments provided as
hospital outpatient services will be positively or negatively impacted.
Until January 1, 1992, Medicare generally reimbursed physicians on the
basis of their reasonable charges or, for certain physicians, including
radiologists, on the basis of a "charge-based" fee schedule. Beginning January
1, 1992, Medicare phased in over a five-year period a new system that reimburses
all physicians, based on the lower of their actual charges or a fee schedule
amount based on a "resource-based relative value scale" that includes physician
practice expenses such as equipment costs. Under the BBA, HCFA was required to
implement a revised methodology for calculating the practice expense component
of relative value from the current historical basis to a resource basis. These
new practice expense calculations will be phased in over a four-year period that
began on January 1, 2000.
HCFA's new methodology establishes two separate practice expense values
for each physician service, one for when a service is furnished in a facility
setting and another for when the service is performed in a physician's office.
Typically, for a service that could be provided in either setting, the practice
expense value would be higher when the service is performed in a physician's
office as it would cover a physician's costs such as equipment, supplies, and
overhead. Because HCFA's proposed physician fee schedules utilizing two practice
expense values have only recently been implemented, it is uncertain whether
Medicare reimbursement for radiation oncology services provided by physician
practices will be positively or negatively impacted.
Reimbursement for services rendered to Medicaid beneficiaries is
determined pursuant to each state's Medicaid plan which is established by state
law and regulations, subject to requirements of federal law and regulations. The
BBA has revised the Medicaid program to allow each state more control over
coverage and payment issues. In addition, HCFA has granted many states waivers
to allow for greater control of the Medicaid program at the state level. The
impact on our business of this greater state control on Medicaid payment for
diagnostic services is uncertain.
The sale of medical devices, the referral of patients for diagnostic
examinations utilizing such devices, and the submission of claims to third-party
payors (including Medicare and Medicaid) seeking reimbursement for such
services, are subject to various federal and state laws pertaining to health
care "fraud and abuse," including physician self-referral prohibitions,
anti-kickback laws, and false claims laws. Subject to certain enumerated
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exceptions, the federal physician self-referral law, also know as Stark II,
prohibits a physician from referring Medicare or Medicaid patients to an entity
in which the physician (or a family member) has ownership interest or
compensation relationship if the referral is for a "designated health service,"
which is defined explicitly to include radiology and radiation therapy services.
Although final regulations implementing Stark II have been postponed several
times and are currently scheduled for issuance before the end of 2000, the
proposed Stark II regulations issued in January 1998, as well as general federal
fraud and abuse laws and physician self-referral restrictions that exist in a
number of states and apply regardless of whether Medicare or Medicaid patients
are involved, may result in lower utilization of certain diagnostic procedures,
which may affect the demand for our products. Anti-kickback laws make it illegal
to solicit, offer, receive, or pay any remuneration in exchange for, or to
induce, the referral of business, including the purchase of medical devices from
a particular manufacturer or the referral of patients to a particular supplier
of diagnostic services utilizing such devices. False claims laws prohibit anyone
from knowingly and willfully presenting, or causing to be presented, claims for
payment to third party payers (including Medicare and Medicaid) that are false
or fraudulent, for services not provided as claimed, or for medically
unnecessary services. The Office of the Inspector General prosecutes violation
of fraud and abuse laws and any violations may result in criminal and/or civil
sanctions including, in some instances, imprisonment and exclusion from
participation in federal health care programs such as Medicare and Medicaid.
The executive branch of the federal government and the Congress from time
to time consider various Medicare and other health care reform proposals that
could significantly affect both private and public reimbursement for health care
services. Some of these proposals, if enacted into law, could reduce
reimbursement for certain diagnostic devices and procedures and thus could
adversely affect the demand for such diagnostic devices, including our products.
FOREIGN REGULATION
Sales of medical devices outside the United States are subject to
regulatory requirements that vary from country to country. Specifically, certain
foreign regulatory bodies have adopted regulations governing product standards,
packaging requirements, labeling requirements, import restrictions, tariff
regulations, duties and tax requirements. For example, in July 1998, the
European Union implemented a Medical Device Directive that requires us to obtain
ISO 9001 certification and affix the required CE mark to our products. The CE
mark is an international symbol of adherence to certain quality assurance
standards and compliance with applicable European medical device directives
which, once affixed, enables a product to be sold in member countries of the
European Union. Several Asian countries are reviewing the possibility of
adopting similar regulatory schemes. In addition, several countries are
reviewing proposed regulations that would require manufacturers to dispose of
their products at the end of their useful lives. We cannot be certain that we
will not be required to incur significant costs in obtaining or maintaining
non-U.S. regulatory approvals. Delays in receipt of or failure to receive such
approvals, the loss of previously obtained approvals, or failure to comply with
existing or future regulatory requirements could have a material adverse effect
on our business, financial condition and results of operation.
PATENT AND OTHER PROPRIETARY RIGHTS
As a leader in the manufacture and sale of oncology systems and x-ray
tubes, we generally rely upon patents, copyrights, trademarks and trade secret
laws to establish and maintain our propriety rights in the developments,
improvements, and inventions that we have originated that are incorporated in
our products or that fall within our fields of interest. As of September 29,
2000, we owned 70 patents issued in the United States and 118 patents issued
throughout the rest of the world, and we have 146 patent applications on file
with various patent agencies worldwide. We intend to file additional patent
applications as appropriate.
We rely on a combination of copyright, trade secret and other laws, and
contractual restrictions on disclosure, copying and transferring title to
protect our intellectual property rights. We have trademarks, both registered
and unregistered, that are maintained and enforced to provide customer
recognition for our products in the marketplace We also have agreements with
third parties to license patented or proprietary technology, including
royalty-bearing licenses and technology cross-licenses. While we place
considerable importance on licensed technology, we do not believe that the loss
of any license would have a material adverse effect on our business.
Our competitors, like companies in many high technology businesses,
routinely review other companies' products for possible conflict with their own
patent rights. Although we have, from time to time, received notices of
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claims from others alleging patent infringement, we believe that there are no
pending patent infringement claims that we believe might have a material adverse
effect on our business.
ENVIRONMENTAL MATTERS
For a discussion of environmental matters, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Environmental
Matters."
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
For a discussion of financial information about geographic areas, see
"Industry Segments" of the Notes to the Consolidated Financial Statements.
EMPLOYEES
At September 29, 2000, we had a total of 2,374 full-time and temporary
employees worldwide, 1,726 in the United States and 648 elsewhere. None of our
employees based in the United States are unionized or subject to collective
bargaining agreements. Employees based in certain foreign countries may, from
time to time, be subject to collective bargaining agreements. We currently
consider our relations with our employees to be good.
Our success depends to a significant extent upon a limited number of key
employees and other members of senior management. The loss of the service of one
or more of our key employees could have a material adverse effect on our
company. The success of our future operations depends in large part on our
ability to recruit and retain engineers and technicians, as well as marketing,
sales, service and other key personnel, who in each case are in great demand.
Our inability to attract and retain personnel could have a material adverse
effect on our results of operations.
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ITEM 2. PROPERTIES
Our executive offices and oncology management and manufacturing
facilities are located in Palo Alto, California on 30 acres of land under
leaseholds which expire from 2012 through 2058. We own these facilities which
contain 248,902 square feet of aggregate floor space. The Ginzton Technology
Center is located in Mountain View, California under a lease that expires in
2004. Our manufacturing facilities are located throughout the world, including
Salt Lake City, Utah; Charleston, South Carolina; Crawley, England; Baden,
Switzerland; Buc, France; and Helsinki, Finland. Our 40 service and sales
facilities also are located in various parts of the world, with 26 located
outside of the United States, including Argentina, Australia, Austria, Brazil,
China, Denmark, Finland, France, Germany, Hong Kong, India, Italy, Japan,
Malaysia, The Netherlands, Spain, Switzerland, and Thailand.
The following is a summary of our properties at September 29, 2000:
<TABLE>
<CAPTION>
LAND (ACRES) BUILDINGS (000'S SQ.FT.) NUMBER OF BUILDINGS
---------------------- ---------------------- ----------------------
OWNED LEASED OWNED LEASED OWNED LEASED
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States............................ 38 30 521 158 7 18
International............................ 2 -- 46 126 1 31
---------- ---------- ---------- ---------- ---------- ----------
40 30 567 284 8 49
</TABLE>
Our facilities, as utilized by our various segments, are shown in the
following table:
<TABLE>
<CAPTION>
BUILDINGS (000'S SQ. FT.)
----------------------------------------------------------
MANUFACTURING,
ADMINISTRATIVE AND
RESEARCH & DEVELOPMENT
-------------------------------
MARKETING AND
U.S. NON-U.S. TOTAL SERVICE TOTAL
--------- ---------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Oncology systems..................................... 185 66 251 180 431
X-ray tubes and imaging subsystems................... 305 3 308 8 316
Ginzton Technology Center............................ 21 2 23 4 27
--------- ---------- -------- ------------- ---------
Total Operations................................ 511 71 582 192 774
Other operations (including manufacturing support)... 67 10 77 -- 77
--------- ---------- -------- ------------- ---------
Total........................................... 578 81 659 192 851
</TABLE>
We are utilizing substantially all of our currently available productive
space to develop, manufacture and market our products. We believe that our
facilities and equipment generally are well maintained, in good operating
condition and adequate for present operations.
ITEM 3. LEGAL PROCEEDINGS
The following summarizes the current status of our previously reported
legal proceedings.
We are a party to three related federal actions involving claims by
independent service organizations ("ISOs") that our policies and business
practices relating to replacement parts violate the antitrust laws (the "ISOs
Litigation"). ISOs purchase replacement parts from us and compete with us in
servicing the linear accelerators we manufacture. In response to several threats
of litigation regarding the legality of our parts policy, we filed a declaratory
judgment action in the U. S. District Court for the Northern District of
California in 1996 asking for a determination that our new policies are legal
and enforceable and damages against two of the ISOs for misappropriation of our
trade secrets, unfair competition, copyright infringement and related claims.
Later, four defendants filed separate claims in other jurisdictions raising
issues allegedly related to those in the declaratory relief action and seeking
injunctive relief and damages against us for $10 million for each plaintiff. We
defeated the defendants' motion for a preliminary injunction in U. S. District
Court in Texas about our policies. The ISOs defendants amended the complaint to
include class action allegations, alleged a variety of other anti-competitive
business practices and filed a motion for class certification, which the U. S.
District Court in Texas heard in July 1999. No decision, however, has been
entered. The parties have agreed to consolidate our claims from the Northern
District of California to the action in the U.S. District Court in Texas.
After the spin-offs of VI and VSEA, we retained the liabilities related
to the medical systems business before the spin-offs, including the ISOs
Litigation. In addition, under the Amended and Restated Distribution Agreement,
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we agreed to manage and defend liabilities related to legal proceedings and
environmental matters arising from corporate or discontinued operations. Under
the Amended and Restated Distribution Agreement, each of VI and VSEA must
generally indemnify us for one-third of these liabilities (after adjusting for
any insurance proceeds we realize or tax benefits we receive), including certain
environmental-related liabilities described below and to fully assume and
indemnify us for liabilities arising from each of their operations before the
spin-offs. The availability of such indemnities will depend upon the future
financial strength of VI and VSEA. Given the long-term nature of some of the
liabilities, either company may not be in a position to fund indemnities in the
future. A court could also disregard the contractual allocation of indebtedness,
liabilities and obligations among the parties and require us to assume
responsibility for obligations allocated to another party, particularly if such
other party were to refuse or was unable to pay or perform any of its allocated
obligations. In addition, the Amended and Restated Distribution Agreement
generally provides that if a court prohibits any of the companies from
satisfying its indemnification obligations, then such indemnification
obligations will be shared equally between the two other companies.
From time to time, we are involved in certain other legal proceedings
arising in the ordinary course of our business. While we cannot be certain about
the ultimate outcome of any litigation, management does not believe any pending
legal proceeding will result in a judgment or settlement that will have a
material adverse effect on our financial position, results of operations or cash
flows.
There are a variety of environmental laws around the world regulating the
handling, storage, transport and disposal of hazardous materials that do or may
create increased costs for some of our operations. In addition, several
countries are proposing to or do require manufacturers to take back and dispose
of or recycle products at the end of the equipment's useful life. These laws
create increased costs for our operations.
From the time we began operating, we handled and disposed of hazardous
materials and wastes following procedures that were considered appropriate under
regulations, if any, existing at the time. We also hired companies to dispose of
wastes generated by our operations. Under various laws (such as the federal
"Superfund" law) and under our obligations concerning operations before the
spin-offs, we are overseeing environmental cleanup projects from our
pre-spun-off operations and as applicable reimbursing third parties (such as the
U.S. Environmental Protection Agency or other responsible parties) for cleanup
activities. Under the terms of the Amended and Restated Distribution Agreement,
we are obligated to pay one-third of certain environmental liabilities caused by
operations before the spin-offs, with VI and VSEA obligated for the balance. The
cleanup projects we are overseeing are being conducted under the direction of or
in consultation with relevant regulatory agencies. We estimated these cleanup
projects will take up to 30 years to complete. As described below, we have
accrued a total of $22.3 million to cover our liabilities for these cleanup
projects:
o We have developed a range of potential costs covering a
variety of cleanup activities, including three cleanup projects,
reimbursements to third parties, project management costs and
legal costs. There are, however, various uncertainties in these
estimates that make it difficult to develop a best estimate. Our
estimate of future costs to complete these cleanup activities
ranges from $4.6 million to $14.5 million. For these estimates,
we have not discounted the costs to present dollars because of
the uncertainties that make it difficult to develop a best
estimate and have accrued $4.6 million, which is the amount at
the low end of the range.
o For seven cleanup projects, we have sufficient knowledge to
develop better estimates of our future costs. While our estimate
of future costs to complete these cleanup projects, including
third party claims, ranges from $23.1 million to $52.3 million,
our best estimate within that range is $36.0 million. For these
projects we have accrued $17.7 million; which is our best
estimate of the $36.0 million discounted to present dollars at
4%, net of inflation.
When we develop these estimates above, we consider the financial strength
of other potentially responsible parties. These amounts are, however, only
estimates and may be revised in the future as we get more information on these
projects. We may also spend more or less than these estimates. Based on current
information, we believe that our reserves are adequate. At this time, management
believes that it is remote that any single environmental event would have a
materially adverse impact on our financial statements in any single fiscal year.
We spent $3.5 million (net of amounts borne by VI and VSEA) during fiscal year
2000 on environmental investigation, cleanup and third party claim costs. We
spent $1.7 million and $2.9 million in fiscal year 1999 and 1998, respectively,
net of amounts that would have been borne by VI and VSEA on similar activities.
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<PAGE>
In 1992, we filed a lawsuit against 36 insurance companies for recovery
of our environmental investigation, cleanup and third party claim costs. We
reached cash settlements with various insurance companies in 1995, 1996, 1997
and 1998. In addition, we have an agreement with an insurance company to pay a
portion of our past and future expenditures. As a result of this agreement, we
have included a $4.5 million receivable in Other Assets as of September 29,
2000. We believe that this receivable is recoverable because it is based on a
binding, written settlement agreement with a financially viable insurance
company. Although we continue to aggressively pursue additional insurance
recoveries, we have not reduced our liability in anticipation of recovery from
third parties for claims that we made.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
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EXECUTIVE OFFICERS
Set forth below are biographical summaries of our executive officers as
of December 8, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard M. Levy....................... 62 Dr. Levy became President and Chief Executive Officer of VMS on April 3, 1999.
President and Chief Executive Prior to April 2, 1999, he was the Executive Vice President of the Company
Officer responsible for the medical systems business. Dr. Levy also oversaw our Ginzton
Technology Center in Palo Alto. He joined the company in 1968, and became
Executive Vice President in 1990.
Timothy E. Guertin.................... 51 Mr. Guertin became Corporate Vice President of VMS on April 3, Corporate Vice
Corporate Vice President President 1999. Prior to April 2, 1999, he was Corporate Vice President and
President of Varian's oncology systems business, positions he held from 1992
and 1990, respectively. Mr. Guertin has held various other positions in the
medical systems business during his 25 years with the company.
John C. Ford.......................... 56 Dr. Ford became Corporate Vice President of VMS on April 3, 1999. Prior to
Corporate Vice President April 2, 1999, he was Senior Vice President, Business Development, for Varian's
medical systems business, a position he held from 1992. Dr. Ford has held various
other positions in the medical systems business during his 28 years with the
company.
Robert H. Kluge....................... 54 Mr. Kluge became Corporate Vice President of VMS on April 13, 1999. Prior to
Corporate Vice President April 2, 1999, he was Vice President and General Manager of Varian's x-ray
products business, positions he held from 1993. Before joining the company in
1993, he held various positions with Picker International (an x-ray systems
manufacturer).
Elisha W. Finney...................... 39 Ms. Finney became Corporate Vice President and Chief Financial Officer of VMS
Corporate Vice President, Chief on April 3, 1999. She has been Treasurer of the company since January 1998. From
Financial Officer and Treasurer 1988 to 1998, she was Varian's Risk Manager and from 1995 to 1998, Ms. Finney also
served as Assistant Treasurer. Ms. Finney held various other positions during her
12 years with the company.
Joseph B. Phair....................... 53 Mr. Phair became Corporate Vice President, Administration of VMS on August 20,
Corporate Vice President, 1999. Between April 2, 1999 and August 20, 1999, he was a consultant to the
Administration, General Counsel company. Mr. Phair has been General Counsel of the company since 1990 and
and Secretary Secretary since 1991. Mr. Phair was a Vice President of the company from 1990
until April 2, 1999, and has held various other positions in our legal department
during his 21 years with the company.
Crisanto C. Raimundo.................. 53 Mr. Raimundo became Corporate Controller of VMS on April 5, 2000. For six months
Corporate Controller prior to April 5, 2000, he was the company's Operations Controller. Since joining
the company in 1979, Mr. Raimundo has held various finance positions including
Controller for the oncology systems business, Director of Corporate Audit, and
Manager of Corporate Financial Analysis and Planning.
</TABLE>
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock is traded on the New York Stock Exchange and Pacific
Exchange under the symbol VAR. The following table sets forth the high and low
closing sales prices for our common stock as reported in the consolidated
transaction reporting system for the New York Stock Exchange for the first half
of fiscal year 1999.
FISCAL YEAR 1999 HIGH LOW
----------- -----------
First Quarter................................ $ 41 1/16 $ 32 7/16
Second Quarter............................... 43 31 3/4
On April 2, 1999, the end of the first half of fiscal year 1999, we spun
off VI and VSEA to our stockholders. The high and low closing sales prices for
our common stock for the last half of fiscal year 1999 and in fiscal year 2000
were:
FISCAL YEAR 1999 HIGH LOW
----------- -----------
Third Quarter............................... $ 25 1/4 $ 16 5/8
Fourth Quarter.............................. 24 3/16 19 7/16
FISCAL YEAR 2000
First Quarter............................... 29 13/16 20 3/16
Second Quarter.............................. 47 1/4 28 9/16
Third Quarter............................... 48 38 1/2
Fourth Quarter.............................. 48 13/16 39 11/16
We declared cash dividends of $0.10 in the first quarter of fiscal year
1999. Since the spin-offs, we have not paid any dividends on our common stock
and do not currently anticipate paying dividends on the common stock for the
foreseeable future. Further, our existing financing arrangements contain
provisions that limit our ability to pay dividends.
As of December 6, 2000, there were approximately 4,474 holders of record
of our common stock.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
We derived the following selected statements of earnings and balance
sheet data as of and for the fiscal years ended September 29, 2000, October 1,
1999, October 2, 1998, September 26, 1997 and September 27, 1996 from our
audited consolidated financial statements. The financial data set forth below
should be read in conjunction with our consolidated financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------------------------------------
2000 1999 1998 1997 1996
--------- ---------- --------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
SUMMARY OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Sales....................................................... $ 689.7 $ 590.4 $ 541.5 $ 474.3 $ 467.5
--------- ---------- --------- ---------- ----------
Earnings from Continuing Operations before Taxes............ 84.9 18.2 36.0 29.2 25.0
Taxes on Earnings........................................ 31.8 10.0 9.9 9.2 7.4
--------- ---------- --------- ---------- ----------
Earnings from Continuing Operations......................... 53.0 8.2 26.1 20.0 17.6
Earnings (Loss) from Discontinued Operations, Net of Taxes.. -- (32.4) 47.7 95.6 104.5
--------- ---------- --------- ---------- ----------
Net Earnings (Loss)......................................... $ 53.0 $ (24.2) $ 73.8 $ 115.6 $ 122.1
========= ========== ========= ========== ==========
Net Earnings (Loss) Per Share-Basic
Continuing Operations.................................... $ 1.71 $ 0.27 $ 0.87 $ 0.66 $ 0.57
Discontinued Operations.................................. -- (1.07) 1.60 3.13 3.36
--------- ---------- --------- ---------- ----------
Net Earnings (Loss) Per Share-Basic......................... $ 1.71 $ (0.80) $ 2.47 $ 3.79 $ 3.93
========= ========== ========= ========== ==========
Net Earnings (Loss) Per Share-Diluted
Continuing Operations.................................... $ 1.64 $ 0.27 $ 0.86 $ 0.64 $ 0.55
Discontinued Operations.................................. -- (1.06) 1.57 3.03 3.26
--------- ---------- --------- ---------- ----------
Net Earnings (Loss) Per Share-Diluted....................... $ 1.64 $ (0.79) $ 2.43 $ 3.67 $ 3.81
========= ========== ========= ========== ==========
Dividends Declared Per Share................................ $ -- $ 0.10 $ 0.39 $ 0.35 $ 0.31
========= ========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL POSITION AT YEAR END:
<S> <C> <C> <C> <C> <C>
Working capital......................................... $ 200.7 $ 112.4 $ 334.9 $ 349.2 $ 293.9
Total assets............................................ 602.6 539.2 1,218.3 1,104.3 1,018.9
Short-term borrowings................................... 0.6 35.6 46.8 18.7 4.4
Long-term borrowings.................................... 58.5 58.5 111.1 73.2 60.3
Stockholders' equity.................................... 270.4 185.0 557.5 524.6 467.9
</TABLE>
WE HAVE RESTATED THE SUMMARY OF OPERATIONS DATA PRESENTED ABOVE FOR
FISCAL YEARS 1996 THROUGH 1999 TO REFLECT AS DISCONTINUED OPERATIONS THE
ACTIVITIES ASSOCIATED WITH OUR FORMER SEMICONDUCTOR EQUIPMENT BUSINESS AND
INSTRUMENT BUSINESS WHICH WERE TRANSFERRED TO VSEA AND VI, RESPECTIVELY, AS PART
OF THE APRIL 2, 1999 SPIN-OFFS. THE BALANCE SHEET DATA AS OF OCTOBER 1, 1999
ALSO REFLECTS THE RESULTS OF THE APRIL 2, 1999 SPIN-OFFS. FISCAL YEAR 2000
RESULTS FROM CONTINUING OPERATIONS INCLUDE ACQUISITION-RELATED EXPENSES OF $2.0
MILLION ($1.2 MILLION AFTER-TAX OR $0.03 PER DILUTED SHARE.) FISCAL YEAR 1999
RESULTS FROM CONTINUING OPERATIONS INCLUDE NET REORGANIZATION RELATED CHARGES OF
$29.7 MILLION ($25.7 MILLION AFTER-TAX OR $0.84 PER DILUTED SHARE.) THIS
SELECTED FINANCIAL DATA SHOULD BE READ IN CONJUNCTION WITH THE RELATED
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
In August 1998, we (then known as Varian Associates, Inc.) announced our
intention to spin off our instruments business and our semiconductor equipment
business to our stockholders. We later transferred our instruments business to
Varian, Inc. ("VI"), a wholly owned subsidiary, and transferred our
semiconductor equipment business to Varian Semiconductor Equipment Associates,
Inc. ("VSEA"), a wholly owned subsidiary. We retained the medical systems
business, principally the sales and service of oncology systems and the sales of
x-ray tubes and imaging subsystems. On April 2, 1999, we spun off VI and VSEA to
our common stockholders. Immediately after the spin-offs, we changed our name to
Varian Medical Systems, Inc.
An Amended and Restated Distribution Agreement dated as of January 14,
1999 and certain other agreements govern our ongoing relationships with VI and
VSEA.
The financial statements for fiscal years 1999 and 1998 included in this
report present VI and VSEA as discontinued operations under Accounting
Principles Board Opinion No. 30 "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." The line item "Earnings
(Loss) from Discontinued Operations-Net of Taxes" in the fiscal year 1999
financial statements reflects the net operating results of the spun-off
businesses, VI and VSEA. In determining the items belonging to the spun-off
businesses, we allocated certain corporate assets (including pension assets),
liabilities (including profit-sharing and pension benefits), and expenses
(including legal, accounting, employee benefits, insurance, information
technology services, treasury and other corporate overhead) to VI and VSEA.
While we believe that the methods we used to allocate the amounts to VI and VSEA
are reasonable, the balances we retained may not be indicative of the amounts
that we would have recorded had the spin-offs occurred before or after April 2,
1999. The following discussion and analysis pertains to our continuing
operations, unless otherwise noted.
On June 6, 2000, we announced an agreement to acquire privately held
IMPAC Medical Systems, Inc. On November 6, 2000, we abandoned the acquisition to
avoid a protracted legal proceeding after the U.S. Department of Justice
announced its intention to challenge the transaction on anti-trust grounds.
Fourth quarter fiscal year 2000 results included a charge of approximately $2
million for costs related to this acquisition.
This discussion and analysis of financial condition and results of
operations is based upon and should be read in conjunction with the consolidated
financial statements and the notes included elsewhere in this report, as well as
the information contained under "Certain Factors Affecting Our Business" below.
We discuss our results of continuing operations below.
RESULTS OF OPERATIONS
FISCAL YEAR
Our fiscal year is the 52- or 53-week period ending on the Friday nearest
September 30. Fiscal year 2000 is the 52-week period ended September 29, 2000.
Fiscal year 1999 is the 52-week period ended October 1, 1999. Fiscal year 1998
is the 53-week period ended October 2, 1998.
20
<PAGE>
FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999
SALES: Our sales of $690 million in fiscal year 2000 were 17% higher than
our sales of $590 million in fiscal year 1999. International sales were
$301 million, or 43% of sales, in fiscal year 2000, compared to $318
million, or 54% of sales, in fiscal year 1999. For fiscal year 2001, we
expect total sales to grow about 14% or approximately $100 million over
fiscal year 2000 results with a shift toward international sales,
particularly in Europe.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SALES (BY SEGMENT AND REGION) FISCAL YEAR 2000 FISCAL YEAR 1999
---------------- ----------------
- ------------------------------------------------------------------------------------------------------
ONCOLOGY SYSTEMS:
<S> <C> <C>
- -- North America $332 million $229 million
- -- Europe 124 million 155 million
- -- Asia 42 million 54 million
- -- Rest of the world 36 million 21 million
------------- --------------
Total oncology systems $534 million $459 million
- ------------------------------------------------------------------------------------------------------
X-RAY TUBES AND IMAGING
SUBSYSTEMS:
- -- North America $ 43 million $ 38 million
- -- Europe 20 million 28 million
- --Asia 70 million 54 million
- --Rest of the world 3 million 3 million
------------- -------------
Total x-ray tubes and $136 million $123 million
imaging subsystems
- ------------------------------------------------------------------------------------------------------
GTC $ 20 million $ 8 million
- ------------------------------------------------------------------------------------------------------
</TABLE>
Oncology systems sales: Oncology systems sales increased 16% to
$534 million (77% of sales) in fiscal
year 2000, compared to $459 million (78%
of sales) in fiscal year 1999. Our North
American sales growth of 45% reflects
the increased demand in the U.S. for
advanced digital radiotherapy equipment
that emerged in fiscal year 1999 and
continued through fiscal year 2000. The
decrease in European sales is primarily
due to the weakness of the European
market and currencies that made our
products relatively more expensive in
those countries. The decrease in Asian
sales primarily resulted from a one-time
multi-system sale in Japan in the second
quarter of fiscal year 1999. The rest of
the world showed continuing strength,
primarily Latin America and Mexico.
X-ray tubes and imaging
subsystems sales: X-ray tubes and imaging subsystems sales
increased 10% to $136 million (20% of
sales) in fiscal year 2000, compared to
$123 million (21% of sales) in fiscal
year 1999. The increase is primarily
attributable to strong demand for our CT
tube products, particularly demand for
our newer high-end CT scanner tubes from
a large Japanese customer. Fiscal year
2000 results also reflect the impact of
the ongoing consolidation of some of our
European customers who purchase our
x-ray tube products and the shifting of
purchases from Europe to North America
by two of our major European OEM
customers following their business
combinations with U.S. customers.
GTC sales: GTC sales were $20 million for fiscal
year 2000, compared to $8 million in
fiscal year 1999. The increase was split
among new sales attributable to our June
1999 acquisition of Multimedia Medical
Systems' business in treatment planning
software for low dose rate
brachytherapy, increased sales of our
existing high dose rate brachytherapy
product (particularly in North America),
and research contracts.
21
<PAGE>
GROSS PROFIT: We recorded gross profit of $257 million in fiscal year
2000 and $210 million in fiscal year 1999. As a percentage of sales,
gross profit was 37% in fiscal year 2000 compared to 36% in fiscal year
1999. Gross profit as a percentage of sales of oncology systems amounted
to 38% in fiscal year 2000 compared to 37% in fiscal year 1999. Oncology
systems margins improved primarily because of the higher sales to North
America which traditionally have better margins, although the margin
improvement was somewhat restrained by weaker currencies overseas,
particularly in Europe. Gross profit as a percentage of sales of x-ray
tubes and imaging subsystems decreased to 32% in fiscal year 2000 from
34% in fiscal year 1999. The gross margin decline in fiscal year 2000 was
primarily due to a sales-mix shift toward our newer high-end CT scanner
tubes that cost more to manufacture. We also incurred higher warranty and
scrap costs related to these tubes during fiscal year 2000. For fiscal
year 2001, we expect gross profit as a percentage of sales at the total
company level to remain flat with fiscal year 2000 results.
RESEARCH AND DEVELOPMENT: Research and development expenses were $42
million in fiscal year 2000 compared to $40 million in the same period of
fiscal year 1999, representing 6% and 7% of sales, respectively .
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses were $125 million (18% of sales) in fiscal year 2000, compared
to $116 million (20% of sales) in fiscal year 1999. The decrease in the
percentage of sales that selling, general and administrative expenses
represent reflects the faster growth of sales over expenses in fiscal
year 2000. The increase (in absolute dollars) in selling, general and
administrative expenses in fiscal year 2000 was primarily driven by
higher marketing and selling expenses that are in line with increased
market activity, particularly in North America, and higher expenditures
for employee profit-sharing and management incentives that are consistent
with improving financial performance. In addition, selling, general and
administrative expenses in fiscal year 1999 included corporate costs
incurred before the spin-offs that we could not allocate under generally
accepted accounting principles to discontinued operations.
REORGANIZATION COSTS: Fiscal year 2000 expenses included net
reorganization charges of $0.2 million primarily attributable to legal
fees incurred in excess of the related accrual established as part of the
April 2, 1999 spin-offs of our instruments and semiconductor equipment
businesses. Fiscal year 1999 expenses included net reorganization charges
of $29.7 million. Of the $29.7 million, $24.9 million related to the
April 2, 1999 spin-offs and $4.8 million related to the consolidation of
our x-ray manufacturing operations.
The following table sets forth certain details associated with these net
reorganization charges (in thousands of dollars):
<TABLE>
<CAPTION>
ACCRUAL AT ACCRUAL AT
OCTOBER 1, CASH RECLASSIFICATION SEPTEMBER 29,
1999 PAYMENTS ADJUSTMENTS 2000
------------- ---------- ---------------- -------------
<S> <C> <C> <C> <C>
Retention bonuses, severance, and $ 4,507 $ (2,473) $ (451) $ 1,583
executive compensation..................
Legal, accounting, printing and investment
banking fees............................ 1,792 (2,253) 561 100
Gain on sale of real estate and corporate
assets..................................... -- -- -- --
Foreign taxes (excluding income taxes)..... 676 -- -- 676
Other...................................... 1,368 (1,485) 117 --
------------- ---------- ---------------- -------------
$ 8,343 $ (6,211) $ 227 $ 2,359
============= ========== ================ =============
</TABLE>
ACQUISITION-RELATED EXPENSES: We incurred transaction costs of
approximately $2.0 million in fiscal year 2000 associated with our
proposed (and later abandoned) acquisition of IMPAC Medical Systems, Inc.
The transaction costs were largely made up of legal, accounting and
investment adviser expenses.
INTEREST EXPENSE, NET: Our net interest expense was $2.8 million for
fiscal year 2000 compared to $6.1 million in fiscal year 1999. The
decrease in net interest expense resulted primarily from a
22
<PAGE>
$750,000 one-time interest payment received in connection with a federal
income tax refund in the fourth quarter of fiscal year 2000 and a
decrease in interest expense. We had lower levels of debt during fiscal
year 2000 compared to fiscal year 1999 when we contributed a substantial
amount of cash and debt to VI and VSEA as part of the spin-offs. We also
paid down $35 million of short-term debt in fiscal year 2000.
TAXES ON EARNINGS: Our effective tax rate was 37.5% in fiscal year 2000,
compared to 55% in fiscal year 1999. The fiscal year 1999 rate was
significantly higher principally due to certain reorganization costs
related to the spin-offs that were non-deductible.
NET EARNINGS: Our net earnings from continuing operations were $53
million in fiscal year 2000, compared to $8 million in fiscal year 1999.
The increase in net earnings is primarily attributable to increased sales
in fiscal year 2000 and the inclusion in fiscal year 1999 of substantial
reorganization-related net expenses incurred as part of the spin-offs.
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
SALES: Our sales of $590 million in fiscal year 1999 were 9% higher than
our sales of $541 million in fiscal year 1999. International sales were
$318 million, or 54% of sales, in fiscal year 1999, compared to $229
million, or 55% of sales, in fiscal year 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SALES (BY SEGMENT AND REGION) FISCAL YEAR 1999 FISCAL YEAR 1998
---------------- ----------------
- ------------------------------------------------------------------------------------------------------
ONCOLOGY SYSTEMS:
<S> <C> <C>
- -- North America $229 million $202 million
- -- Europe 155 million 149 million
- -- Asia 54 million 31 million
- -- Rest of the world 21 million 23 million
------------- --------------
Total oncology systems $459 million $405 million
- ------------------------------------------------------------------------------------------------------
X-RAY TUBES AND IMAGING
SUBSYSTEMS:
- -- North America $ 38 million $ 38 million
- -- Europe 28 million 33 million
- --Asia 54 million 56 million
- --Rest of the world 3 million 4 million
------------- -------------
Total x-ray tubes and $123 million $131 million
imaging subsystems
- ------------------------------------------------------------------------------------------------------
GTC $ 8 million $ 5 million
- ------------------------------------------------------------------------------------------------------
</TABLE>
Oncology systems sales: Oncology systems sales increased 13% to
$459 million (78% of sales) in fiscal
year 1999, compared to $405 million (75%
of sales) in fiscal year 1998.
X-ray tubes and imaging
subsystems sales: X-ray tubes and imaging subsystems sales
decreased 6% to $123 million (21% of
sales) in fiscal year 1999, compared to
$131 million (24% of sales) in fiscal
year 1999. The 6% decrease in x-ray
tubes and imaging subsystems sales
between fiscal year 1999 and fiscal year
1998 reflected continuing decrease in
x-ray tube sales volumes due to
consolidation of our original equipment
manufacturer customers that began in
fiscal year 1998 and continued into
fiscal year 1999.
GTC sales: GTC sales were $8 million for fiscal
year 1999, compared to $5 million in
fiscal year 1999. The increase was due
to an increase in brachytherapy sales.
GROSS PROFIT: We recorded gross profit of $210 million in fiscal year
1999 and $195 million in fiscal year 1998. As a percentage of sales,
gross profit was 36% of sales in both fiscal year 1999 and fiscal
23
<PAGE>
year 1998. Gross profit as a percentage of sales of oncology systems and
x-ray tubes and imaging subsystems were 37% and 34%, respectively, in
both fiscal year 1999 and fiscal year 1998.
RESEARCH AND DEVELOPMENT: Research and development expenses were $40
million in fiscal year 1999 compared to $39 million in fiscal year 1998,
amounting to 7% of sales in both years.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses were $116 million (20% of sales) in fiscal year 1999 compared to
$118 million (22% of sales) in fiscal year 1998. The decrease related
primarily to the inclusion of allocated general overhead costs for all of
fiscal year 1998 compared to only the first six months of fiscal year
1999. These expenses consisted primarily of corporate costs incurred
prior to our April 2, 1999 spin-offs that cannot be allocated to
discontinued operations under generally accepted accounting principles.
Selling expenses increased proportionally to the increase in sales from
fiscal year 1998 to fiscal year 1999.
REORGANIZATION COSTS: Fiscal year 1999 expenses included net
reorganization charges of $29.7 million, of which $24.9 million was
incurred as a result of our April 2, 1999 spin-offs and $4.8 million was
incurred as a result of the restructuring of our x-ray tubes and imaging
subsystems business by closing a manufacturing facility in Arlington
Heights, Illinois to consolidate manufacturing at our existing facilities
in Salt Lake City, Utah. The $29.7 million net charge included $34.3
million for retention bonuses for employee services provided prior to
October 1, 1999, employee severance and executive compensation; $21.0
million for legal, accounting, printing and investment banking fees; $1.7
million for foreign taxes (excluding income taxes) resulting from the
international reorganization of our subsidiaries in connection with the
spin-offs; and $6.8 million in other costs associated with the spin-offs
and restructuring; partially offset by a $34.1 million gain on the sale
of our aircraft and long-term leasehold interests in certain of the Palo
Alto facilities, together with the related buildings, and other corporate
assets.
The following table sets forth certain details associated with these net
reorganization charges (in thousands of dollars):
<TABLE>
<CAPTION>
REORGANIZATION CASH
COSTS AS OF (PAYMENTS) NON-CASH ACCRUAL AT
OCTOBER 1, 1999 RECEIPTS TRANSACTION OCTOBER 1, 1999
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Retention bonuses, severance, and $ 34,307 $ (29,800) $ -- $ 4,507
executive compensation.........
Legal, accounting, printing and
investment banking fees........ 20,982 (19,190) -- 1,792
Gain on sale of real estate and
corporate assets............... (34,098) 50,948 (16,850) --
Foreign taxes (excluding income
taxes)......................... 1,700 (18) (1,006) 676
Other............................. 6,777 (4,393) (1,016) 1,368
--------------- --------------- -------------- --------------
$ 29,668 $ (2,453) $ (18,872) $ 8,343
=============== =============== ============== ==============
</TABLE>
A majority of the remaining accrual as of October 1, 1999 was paid during
fiscal year 2000.
INTEREST EXPENSE, NET: Our net interest expense was $6.1 million in
fiscal year 1999 compared to $2.4 million in fiscal year 1998. In
connection with the spin-offs, we contributed $119 million of cash to
VSEA and VI, resulting in lower cash balances and lower interest income.
In addition, interest expense also increased due primarily to higher
levels of short-term borrowings in fiscal year 1999.
TAXES ON EARNINGS: Our effective tax rate was 55% in fiscal year 1999,
compared to 27% in fiscal year 1998. The fiscal year 1999 rate was
significantly higher than the fiscal year 1998 rate principally due to
certain reorganization costs related to the spin-offs that are
non-deductible. The fiscal year 1998 effective tax rate is lower than the
U.S federal statutory rate due to the impact of higher earnings in
certain foreign countries that have lower taxes.
NET EARNINGS: Our net earnings from continuing operations were $8 million
in fiscal year 1999, compared to $26 million in fiscal year 1998. The
decrease in net earnings is primarily attributable to
reorganization-related net expenses associated with the spin-offs.
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the measurement of our ability to meet potential cash
requirements, including ongoing commitments to repay borrowings, purchases of
business assets and funding of continuing operations. Our sources of cash
include sales, net interest income and borrowings under short-term notes payable
and long-term loans. Our liquidity is actively managed on a daily basis to
ensure the maintenance of sufficient funds to meet our needs.
Before the spin-offs, we historically incurred or managed debt at the
parent level. As part of the spin-offs, the parties agreed to the following
terms in the Distribution Agreement:
(1) Varian Associates, Inc. would contribute to VSEA $100 million in
cash and cash equivalents.
(2) Varian Associates, Inc. would provide VSEA with net worth (as
defined in the Distribution Agreement) of at least $150 million
and consolidated debt (as defined in the Distribution Agreement)
of no more than $5 million.
(3) VI would assume 50% of the remaining outstanding indebtedness
under Varian Associates, Inc.'s term loan.
(4) Varian Associates, Inc. would transfer cash and cash equivalents
to VI such that VI and Varian Associates, Inc., then renamed VMS,
would each have approximately 50% of the net debt of both VMS and
VI at the time of the Distribution.
(5) Subject to necessary adjustments, VMS would have a net worth of
between 40% and 50% of the aggregate net worth of VMS and VI.
As a result, we transferred $119 million in cash and cash equivalents to
VSEA and VI, and VSEA and VI assumed $69 million in debt during fiscal year
1999. However, the amounts allocated to VI and transferred to VSEA as a result
of the spin-offs were based on estimates. We may be required to make cash
payments to VI or VSEA, or may be entitled to receive cash payments from VI or
VSEA. We do not believe that any future payments would be material to our
consolidated financial statements.
At September 29, 2000, we had $58.5 million of long-term loans and $0.6
million of short-term notes payable. Interest rates on the outstanding long-term
loans on this date ranged from 6.70% to 7.15%. The weighted average interest
rate on these long-term loans was 6.82%. As of September 29, 2000, the weighted
average interest rate on the short-term notes payable was 5.56%. The long-term
loans currently contain covenants that limit future borrowings and cash
dividends payments. The covenants also require us to maintain certain levels of
working capital and operating results.
At September 29, 2000, we had $83.3 million in cash and cash equivalents
(approximately 44% of which was held abroad and would be subject to additional
taxation if it was repatriated to the U.S.) compared to $25.1 million at October
1, 1999.
Our primary cash inflows and outflows for fiscal year 2000, 1999 and 1998
were as follows:
o We generated cash from operating activities of $83.8 million in
fiscal year 2000, compared to using net cash of $33.6 million in
fiscal year 1999 and generating cash of $127.8 million in fiscal
year 1998. The primary reason for the positive operating cash flow
during fiscal year 2000 was our net earnings. We had $53.0 million
in net earnings in fiscal year 2000, compared to a $24.2 million
net loss (including discontinued operations) in fiscal year 1999.
The following items also contributed to our operating cash flows
in fiscal year 2000: $22.0 million in non-cash depreciation and
amortization charges, $12.2 million increase in accrued expenses
net of foreign currency adjustments, $5.9 million increase in
advance payments from customers, partially offset by additions to
inventory of $14.2 million to respond to the increased demand for
products. The largest difference between our fiscal year 1999 and
fiscal year 1998 operating cash flows results relates to the
decrease in net income, including discontinued operations, from a
$24.2 million net loss in fiscal year 1999, compared to $73.8
million in net earnings in fiscal year 1998. The net loss in
fiscal year 1999 was largely due to losses from our spun-off
businesses as recorded under generally accepted accounting
principles.
25
<PAGE>
o Investing activities used $21.6 million of net cash in fiscal year
2000, compared to providing $12.9 million of net cash in fiscal
year 1999 and using $143.1 million in fiscal year 1998. Almost all
of the net cash used in fiscal year 2000 was for purchases of
property, plant and equipment. The $12.9 million of net cash
provided in fiscal year 1999 included proceeds of $54.3 million
from the sale of our long-term leasehold interests in certain Palo
Alto facilities, related buildings and certain other corporate
assets, which was partially offset by $39.4 million used to
purchase property, plant and equipment and the Multimedia Medical
Systems' business in June 1999. In contrast, investing activities
in fiscal year 1998 used $143.1 million of cash, with $47.0
million used to purchase property, plant and equipment and $105.5
million used to acquire businesses, including the purchase of the
RS Business.
o Financing activities used net cash of $11.2 million in fiscal year
2000 and $104.7 million in fiscal year 1999, compared to providing
net cash of $19.3 million in fiscal year 1998. We used $35.0
million to pay down short-term debt during fiscal year 2000. This
was partially offset by $23.7 million of proceeds from stock
option exercises and employee stock purchases. The $104.7 million
net cash outlay in fiscal year 1999 was primarily attributable to
the aggregate of $119.3 million we contributed to VI and VSEA in
connection with the spin-offs, which was somewhat offset by $15.7
million proceeds from stock option exercises and employee stock
purchase plan purchases. Financing activities in fiscal year 1998
provided net cash of $19.3 million. We had additional long-term
borrowings of $38.0 million and net short-term borrowings of $27.6
million, partially offset by $34.5 million used to repurchase
shares of our stock (net of $19.7 million of proceeds received
from employees to purchase common stock) and $14.3 million used to
pay dividends in fiscal year 1998.
Total debt as a percentage of total capital decreased from 33.7% at
fiscal year end 1999 to 17.9% at September 29, 2000 largely due to repayments on
our short-term notes payable during fiscal year 2000. The ratio of current
assets to current liabilities improved from 1.42 to 1 at fiscal year end 1999 to
1.80 to 1 at September 29, 2000. At September 29, 2000, we had $70.3 million
available in unused uncommitted lines of credit. During the first quarter of
fiscal year 2000, we added an additional $50 million committed revolving credit
facility of which the entire balance was unused and available at September 29,
2000.
We expect that our future capital expenditures will continue to
approximate 2.5% of sales in each fiscal year. We spent $2.6 million in capital
expenditures related to facilities changes required after the spin-offs during
fiscal year 2000 and anticipate spending an additional $0.1 million in fiscal
year 2001.
In May 1999, we agreed to invest $5 million in a consortium to
participate in the acquisition of a minority interest in dpiX LLC ("dpiX"),
which supplies us with amorphous silicon thin-film transistor arrays for our
imaging products and for our oncology system's Portal Vision imagers. We funded
$2.5 million in July 1999 and the remaining $2.5 million in July 2000. The
investment was recorded under the equity method of accounting. Under the
agreement governing the consortium, each equity partner absorbs the consortium's
share of the gains and losses of dpiX based on a designated sequential order. We
are required to absorb our portion of the consortium's cumulative share of
dpiX's losses when it exceeds $20 million. At this time, management believes it
is reasonably possible that we will recognize a loss of up to $5 million on this
investment in fiscal year 2001. The $5 million represents the maximum share of
the consortium's losses that we are obligated to take based on the initial level
of contributions into the consortium.
We are a party to three related federal actions involving claims by
independent service organizations ("ISOs") that our policies and business
practices relating to replacement parts violate the antitrust laws (the "ISOs
Litigation"). ISOs purchase replacement parts from us and compete with us in
servicing the linear accelerators we manufacture. In response to several threats
of litigation regarding the legality of our parts policy, we filed a declaratory
judgment action in the U. S. District Court for the Northern District of
California in 1996 asking for a determination that our new policies are legal
and enforceable and damages against two of the ISOs for misappropriation of our
trade secrets, unfair competition, copyright infringement and related claims.
Later, four defendants filed separate claims in other jurisdictions raising
issues allegedly related to those in the declaratory relief action and seeking
injunctive relief and damages against us for $10 million for each plaintiff. We
defeated the defendants' motion for a preliminary injunction in U. S. District
Court in Texas about our policies. The ISOs defendants amended the complaint to
include class action allegations, alleged a variety of other anti-competitive
business practices and filed a motion for class certification, which the U. S.
District Court in Texas heard in
26
<PAGE>
July 1999. No decision, however, has been entered. The parties have agreed to
consolidate our claims from the Northern District of California to the action in
the U.S. District Court in Texas.
After the spin-offs, we retained the liabilities related to the medical
systems business before the spin-offs, including the ISOs Litigation. In
addition, under the Amended and Restated Distribution Agreement, we agreed to
manage and defend liabilities related to legal proceedings and environmental
matters arising from corporate or discontinued operations. Under the Amended and
Restated Distribution Agreement, each of VI and VSEA must generally indemnify us
for one-third of these liabilities (after adjusting for any insurance proceeds
we realize or tax benefits we receive), including certain environmental-related
liabilities described below and to fully assume and indemnify us for liabilities
arising from each of their operations before the spin-offs. The availability of
such indemnities will depend upon the future financial strength of VI and VSEA.
Given the long-term nature of some of the liabilities, either company may not be
in a position to fund indemnities in the future. A court could also disregard
the contractual allocation of indebtedness, liabilities and obligations among
the parties and require us to assume responsibility for obligations allocated to
another party, particularly if such other party were to refuse or was unable to
pay or perform any of its allocated obligations. In addition, the Amended and
Restated Distribution Agreement generally provides that if a court prohibits any
of the companies from satisfying its indemnification obligations, then such
indemnification obligations will be shared equally between the two other
companies.
From time to time, we are involved in certain other legal proceedings
arising in the ordinary course of our business. While we cannot be certain about
the ultimate outcome of any litigation, management does not believe any pending
legal proceeding will result in a judgment or settlement that will have a
material adverse effect on our financial position, results of operations or cash
flows.
Our liquidity is affected by many factors, some of which are based on the
normal ongoing operations of our business and some of which arise from
uncertainties and conditions in the U.S. and global economies. Although our cash
requirements will fluctuate (positively and negatively) as a result of the
shifting influences of these factors, we believe that existing cash, cash
generated from operations and our borrowing capability will be sufficient to
satisfy anticipated commitments for capital expenditures and other cash
requirements for fiscal year 2001.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the balance sheet and measurement of
those instruments at fair value. The accounting for changes in the fair values
of those derivatives would be dependent upon the use of the derivative and
whether it qualifies for hedge accounting. The statement, as amended by SFAS
137, is effective for fiscal years beginning after June 15, 2000. We are
required to adopt the standard in the first quarter of fiscal year 2001. As
discussed in our Notes to the Consolidated Financial Statements, the initial
adoption of this statement, as amended, will result in a cumulative after-tax
increase in net income of approximately $228,000, reflecting the time value on
forward contracts that we have elected to exclude from effectiveness testing
under SFAS 133. The adoption will also impact assets and liabilities recorded on
the balance sheet. On a prospective basis after the initial adoption, we do not
expect the impact to our consolidated financial statements to be material.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. The staff
accounting bulletin outlines the basic criteria that we must meet to recognize
revenue and provides guidance for disclosures related to revenue recognition
policies. The staff accounting bulletin was amended in June 2000 to delay the
implementation date to the fourth quarter of our fiscal year 2001. In October
2000, the SEC released written guidance to assist with implementing this staff
accounting bulletin. We are in the process of determining the impact that
adoption will have on our consolidated financial statements.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the
European Union adopted the Euro as their common legal currency. Following the
introduction of the Euro, the local currencies are scheduled to remain legal
tender in the participating countries until January 1, 2002. During this
transition period, goods and services may be
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paid for by using either the Euro or the participating country's local currency.
Thereafter, the local currencies will be cancelled and the Euro will be used for
all transactions by and between the eleven participating members of the European
Union. We have implemented systems to begin conducting business with our
customers in both the Euro and the respective national currency. Systems and
processes that are initially impacted by this dual currency requirement are
customer billing and receivables, payroll and cash management activities,
including cash collections and disbursements. To accomplish compliance, we are
making the necessary systems and process changes and are working with our
financial institutions on various cash management issues. We have modified our
systems to accommodate recording transactions in the Euro and are commencing
recording transactions in the Euro in the eight countries of the European
community in which we currently do business.
We currently believe that the costs associated with implementing and
completing the Euro conversion, as well as business and market implications, if
any, associated with the Euro conversion, will not be material to our results of
operations or financial condition in any year or in the aggregate. The
competitive impact of increased cross-border price transparency, however, is
uncertain both with respect to products sold by us as well as products and
services which we purchase.
Our ongoing efforts with respect to the Euro conversion, and those of
our significant customers and suppliers, including financial institutions may,
at some time in the future, reveal as yet unidentified or not fully understood
issues that may not be addressable in a timely fashion, or that may cause
unexpected competitive or market effects. These issues, if not resolved
favorably, could have a material adverse effect on our results of operations or
financial condition in the future.
ENVIRONMENTAL MATTERS
There are a variety of environmental laws around the world regulating the
handling, storage, transport and disposal of hazardous materials that do or may
create increased costs for some of our operations. In addition, several
countries are proposing to require manufacturers to take back, recycle and
dispose of products at the end of the equipment's useful life. These laws create
increased costs for our operations.
From the time we began operating, we handled and disposed of hazardous
materials and wastes following procedures that were considered appropriate under
regulations, if any, existing at the time. We also hired companies to dispose of
wastes generated by our operations. Under various laws (such as the federal
"Superfund" law) and under our obligations concerning operations before the
spin-offs, we are overseeing environmental cleanup projects from our
pre-spun-off operations and as applicable reimbursing third parties (such as the
U.S. Environmental Protection Agency or other responsible parties) for cleanup
activities. Under the terms of the Amended and Restated Distribution Agreement,
we are obligated to pay one-third of certain environmental liabilities caused by
operations before the spin-offs, with VI and VSEA obligated for the balance. The
cleanup projects we are overseeing are being conducted under the direction of or
in consultation with relevant regulatory agencies. We estimated these cleanup
projects will take up to 30 years to complete. As described below, we have
accrued a total of $22.3 million to cover our liabilities for these cleanup
projects:
o We have developed a range of potential costs covering a
variety of cleanup activities, including three cleanup projects,
reimbursements to third parties, project management costs and
legal costs. There are, however, various uncertainties in these
estimates that make it difficult to develop a best estimate. Our
estimate of future costs to complete these cleanup activities
ranges from $4.6 million to $14.5 million. For these estimates,
we have not discounted the costs to present dollars because of
the uncertainties that make it difficult to develop a best
estimate and have accrued $4.6 million, which is the amount at
the low end of the range.
o For seven cleanup projects, we have sufficient knowledge to
develop better estimates of our future costs. While our estimate
of future costs to complete these cleanup projects, including
third party claims, ranges from $23.1 million to $52.3 million,
our best estimate within that range is $36.0 million. For these
projects we have accrued $17.7 million; which is our best
estimate of the $36.0 million discounted to present dollars at
4%, net of inflation.
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At September 29, 2000, our reserve for environmental liabilities, based
upon future environmental related costs estimated as of that date, was
calculated as follows:
<TABLE>
<CAPTION>
TOTAL
RECURRING NON-RECURRING ANTICIPATED
COSTS COSTS FUTURE COSTS
--------------- --------------- ---------------
(DOLLARS IN MILLIONS)
FISCAL YEAR:
-------------
<S> <C> <C> <C>
2001.................................................. $ 1.2 $ 1.8 $ 3.0
2002.................................................. 1.1 2.4 3.5
2003.................................................. 1.1 0.5 1.6
2004.................................................. 1.1 -- 1.1
2005.................................................. 1.1 -- 1.1
Thereafter............................................ 28.6 1.7 30.3
--------------- --------------- ---------------
Total costs........................................... $ 34.2 $ 6.4 40.6
=============== ===============
Less imputed interest................................. (18.3)
---------------
Reserve amount........................................ $ 22.3
===============
</TABLE>
When we develop these estimates, we consider the financial strength of
other potentially responsible parties. These amounts are, however, only
estimates and may be revised in the future as we get more information on these
projects. We may also spend more or less than these estimates. Based on current
information, we believe that our reserves are adequate. At this time, management
believes that it is remote that any single environmental event would have a
materially adverse impact on our financial statements in any single fiscal year.
We spent $3.5 million (net of amounts borne by VI and VSEA) during fiscal year
2000 on environmental investigation, cleanup and third party claim costs. We
spent $1.7 million and $2.9 million in fiscal year 1999 and 1998, respectively,
net of amounts that would have been borne by VI and VSEA on similar activities.
In 1992, we filed a lawsuit against 36 insurance companies for recovery
of our environmental investigation, cleanup and third party claim costs. We
reached cash settlements with various insurance companies in 1995, 1996, 1997
and 1998. In addition, we have an agreement with an insurance company to pay a
portion of our past and future expenditures. As a result of this agreement, we
have included a $4.5 million receivable in Other Assets as of September 29,
2000. We believe that this receivable is recoverable because it is based on a
binding, written settlement agreement with a financially viable insurance
company. Although we continue to aggressively pursue additional insurance
recoveries, we have not reduced our liability in anticipation of recovery from
third parties for claims that we made.
Our present and past facilities have been in operation for many years,
and over that time in the course of those operations, these facilities have used
substances which are or might be considered hazardous, and we have generated and
disposed of wastes which are or might be considered hazardous. Therefore, it is
possible that additional environmental issues may arise in the future that we
cannot now predict.
CERTAIN FACTORS AFFECTING OUR BUSINESS
The following factors, in conjunction with the other information included
in this Annual Report, should be carefully considered.
IF THE SPIN-OFF OF VI AND VSEA DID NOT QUALIFY AS A TAX-FREE SPIN-OFF, WE COULD
INCUR A SIGNIFICANT TAX LIABILITY
We received a Tax Ruling from the Internal Revenue Service (the "IRS") in
connection with the spin-offs to the effect, among other things, that neither
VMS nor the holders of Varian common stock would recognize a gain or loss as a
result of the spin-offs. Such rulings, while generally binding upon the IRS, are
subject to certain factual representations and assumptions. If such factual
representations and assumptions were incorrect in any material respect, such
ruling would be jeopardized. We are not aware of any facts or circumstances that
would cause such representations and assumptions to be untrue. VMS, VI and VSEA
have agreed to certain restrictions on their future actions to further assure
that the spin-offs will qualify as tax-free.
If one or both of the April 2, 1999 spin-offs failed to qualify as a
tax-free spin-off under Section 355 of the Internal Revenue Code of 1986, as
amended (the "Code"), then we will recognize a gain equal to the difference
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between the fair market value of the stock of the non-qualifying company (or
companies) and our adjusted tax basis in such stock. If we were to recognize
gain on one or both of the spin-offs, such gain and the resulting tax liability
likely would be very substantial.
Section 355(e), which was added to the Code in 1997, generally provides
that a company that distributes shares of a subsidiary in a spin-off that is
otherwise tax-free will incur federal income tax liability if 50% or more, by
vote or value, of the capital stock of either the company making the
distribution or the spun-off subsidiary is acquired (a "50% Ownership Shift") by
one or more persons acting with a plan or series of related transactions that
includes the spin-off. There is a presumption that any acquisition of 50% or
more, by vote or value, of the capital stock of the company or the subsidiary
that occurs within two years before or after the spin-off is done with a plan
that includes the spin-off. However, the presumption may be rebutted by
establishing that the spin-off and the acquisition are not part of a plan or
series of related transactions. Among the factual representations made by our
company to the IRS related to the Tax Ruling is the representation that each of
the spin-offs was not part of such a plan or series of related transactions. If
VMS, VI or VSEA were to undergo a 50% Ownership Shift, particularly if such 50%
Ownership Shift occurred within two years after the date of the spin-offs, there
can be no assurance that the IRS will not assert that such ownership shift
occurred as part of a plan or series of related transactions and therefore that
the spin-offs are taxable under Section 355(e).
If the spin-offs are taxable solely under Section 355(e), we would
recognize a gain equal to the difference between the fair market value of the
VSEA and VI common stock and VMS's adjusted tax basis in such stock. However,
holders of Varian common stock would not recognize a gain or loss resulting from
the spin-offs. If we were to recognize gain on the spin-offs, such gain and the
resulting tax liability likely would be very substantial.
The Tax Sharing Agreement between VMS, VSEA and VI allocates
responsibility for the possible corporate tax burden resulting from the
spin-offs. Each of the three companies is responsible for any corporate taxes
resulting from the spin-offs attributable to action taken or permitted by that
entity or its affiliates after the spin-offs. If the spin-offs are found to be
taxable but none of VMS, VI and VSEA has done anything to cause the spin-offs to
be taxable, each company generally will be liable for one-third of those taxes.
OUR STOCKHOLDER RIGHTS PLAN AND CERTAIN PROVISIONS OF OUR CERTIFICATE OF
INCORPORATION MAY DISCOURAGE A TAKE-OVER AND THEREFORE LIMIT THE PRICE OF OUR
COMMON STOCK
We have a stockholder rights plan which, under certain circumstances,
would significantly dilute the equity interest in our company of a person (or
persons) who is seeking to acquire control of our company without the prior
approval of our Board of Directors. Certain provisions of our Certificate of
Incorporation may also make more difficult an acquisition of control of our
company without the approval of our Board of Directors.
IF THE HEALTH CARE MARKET DOES NOT ACCEPT OUR NEW PRODUCTS, OR IF OUR PRODUCTS
BECOME OBSOLETE, OUR REVENUES WILL NOT GROW
We cannot be sure that any products we develop will gain any significant
market acceptance and market share among physicians, patients and health care
payors, even if required regulatory approvals are obtained. Market acceptance
may depend on a variety of factors, including educating physicians about the use
of a new procedure, overcoming physician objections to certain effects of the
product or its related treatment regimen and convincing health care payors that
the benefits of the product and its related treatment regimen outweigh its
costs. When our competitors introduce their products into the market also
affects market acceptance and market share of our products. Accordingly, the
relative speed with which we can develop products, gain regulatory approval and
reimbursement acceptance and supply commercial quantities of the product to the
market are expected to be important factors in market acceptance and market
participation.
In addition, rapid change and technological innovation characterize the
marketplace for medical products. Our products may therefore become obsolete,
whether from long development or government approval cycles or our competitors
having developed improved products or processes. In addition, the marketplace
could conclude that the task our product was designed to do is no longer an
element of a generally accepted diagnostic or treatment regimen. Any development
adversely affecting the market for our equipment would result in us having to
reduce production volumes or to discontinue manufacturing, which could harm our
business, results of operations and financial condition.
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IF WE ARE UNABLE TO DEVELOP ENHANCEMENTS AND NEW GENERATIONS OF PRODUCTS, WE MAY
BE UNABLE TO ATTRACT OR RETAIN CUSTOMERS
Rapid and significant technological change, evolving industry standards
and new product introductions characterize the market for our products. Many of
our products are technologically innovative and require significant planning,
design, development and testing at the technological, product and manufacturing
process levels. These activities require significant capital commitments and
investment on our part.
New product developments and new business opportunities in the health
care industry are inherently risky and unpredictable. These risks include: proof
of feasibility; time required from proof of feasibility to routine production;
timing and cost of regulatory approvals; inventory overruns caused by phase-in
of new products and phase-out of old products; manufacturing, installation,
warranty and maintenance cost overruns; customer acceptance and payment;
customer demands for retrofits of both new and old products; and competitors'
reaction. In addition, the high cost of technological innovation is matched by
the rapid and significant change in the technologies governing the products that
compete in our market, by the industry standards that may change on short
notice, and by the introduction of new products and technologies which may
render existing products and technologies uncompetitive. We cannot be sure we
will be able to successfully develop, manufacture and phase in new products.
Without successful new product introductions, our revenues will likely suffer.
Additionally, even if customers accept new products or sales volume increases on
new or existing products, the costs associated with making such products
available to customers may reduce or prevent us from increasing our operating
margins.
OUR FAILURE OR DELAY IN OBTAINING REGULATORY APPROVALS OR OUR FAILURE TO COMPLY
WITH APPLICABLE REGULATIONS MAY LIMIT THE PRODUCTS WE CAN SELL OR SUBJECT US TO
FINES
As a manufacturer of medical devices, our products and manufacturing
activities are subject to extensive and rigorous government regulation,
including the provisions of the FDC Act. Our commercial distribution activities
in certain foreign countries are also subject to government regulation.
Obtaining FDA market clearances or certifications can be time consuming,
expensive and uncertain. We may not obtain the necessary clearances or
certifications or obtain them without undue delay. Furthermore, even if we are
granted regulatory clearances, the clearances may include significant
limitations on the indicated uses of the product. The FDA review process
typically requires extended proceedings pertaining to the safety and efficacy of
new products, which may delay or hinder a product's timely entry into the
marketplace. The FDA and the U.S. Federal Trade Commission also regulate the
content of advertising and marketing materials relating to medical devices. The
advertising and marketing materials for our products may not always comply with
these regulations.
We are also subject to other federal, state, local and foreign laws,
regulations and recommendations relating to medical devices, safe working
conditions and laboratory and manufacturing practices. If we do not comply with
applicable regulatory requirements, it can result in, among other things, fines,
suspensions of approvals, seizures or recalls of products, operating
restrictions and criminal prosecutions. In addition, changes in existing
regulations or adoption of new regulations could affect the timing of, or
prevent us from obtaining, future regulatory approvals. Government regulation
also may delay for a considerable period of time or prevent the marketing and
full commercialization of future products or services that we may develop,
and/or impose costly requirements on our business. There can also be no
assurance that additional regulations will not be adopted or current regulations
amended in such a manner as will materially adversely affect our business.
HEALTH CARE REFORMS AND CHANGES TO THIRD PARTY REIMBURSEMENTS FOR RADIATION
ONCOLOGY SERVICES MAY AFFECT DEMAND FOR OUR PRODUCTS
The U.S. government has in the past, and may in the future, consider (and
certain state and local as well as a number of foreign governments are
considering or have adopted) health care policies intended to curb rising health
care costs. These policies include rationing of government-funded reimbursement
for health care services and imposing price controls on medical products and
services providers. We cannot predict what health care reform legislation or
regulation, if any, will be enacted in the United States or elsewhere.
Significant changes in the health care systems in the United States or elsewhere
would likely have a significant impact on the demand for our products and
services and the way we conduct business. We are unable to predict whether such
proposals will be enacted, whether other health care legislation or regulation
affecting our business may be proposed or enacted in the future, or what effect
any such legislation or regulation would have on our business, financial
condition and results of operations.
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In addition, sales of certain of our products indirectly depend on
whether adequate reimbursement is available to our customers for the treatment
provided by those products from third-party health care payors, such as
government and private insurance plans, health maintenance organizations and
preferred provider organizations. The availability of such reimbursement affects
our customers' decisions to purchase capital equipment. Third-party payors are
increasingly challenging the pricing of medical procedures or limiting or
prohibiting reimbursement for certain services or devices or through other
means, and we cannot be sure that they will reimburse our customers at levels
sufficient to enable us to achieve or maintain sales and price levels for our
products. Without adequate support from third-party payors, the market for our
products may be limited. There is no uniform policy on reimbursement among
third-party payors, nor are there any assurances that procedures using our
products will qualify for reimbursement from third-party payors. Foreign
countries also have their own health care reimbursement systems, and there can
be no assurance that third-party reimbursement will be made available with
respect to our products under any foreign reimbursement system.
Specifically, recent changes in Medicare reimbursement for hospital
outpatient services and physician fee schedules were implemented under the
Balanced Budget Act of 1997 (as amended by the Balanced Budget Refinement Act of
1999), which could have a positive or negative impact on reimbursement for
radiation oncology services and may affect the demand for our products.
Furthermore, legislative proposals to reform government health care insurance
programs, including the Medicare and Medicaid programs, could significantly
impact the purchase of health care services and products and affect demand for
our products. We are unable to predict whether such proposals will be enacted,
whether other health care legislation or regulation affecting our business may
be proposed or enacted in the future, or what effect any such legislation or
regulation would have on our business, financial condition and results of
operations.
BECAUSE OUR PRODUCTS INVOLVE THE DELIVERY OF RADIATION AND DIAGNOSTIC IMAGING OF
THE HUMAN BODY, PRODUCT DEFECTS MAY RESULT IN MATERIAL PRODUCT LIABILITY CLAIMS
THAT COULD HARM FUTURE SALES AND FORCE US TO PAY MATERIAL UNINSURED CLAIMS
The tolerance for error in the design, manufacture or use of our systems
may be small or nonexistent. If a system we designed or manufactured is
defective, whether due to design or manufacturing defects, improper use of the
system or other reasons, the system may need to be recalled, possibly at our
expense. Furthermore, the adverse effect of a product recall might not be
limited to the cost of the recall. For example, a product recall could cause
applicable regulatory authorities to investigate us as well as cause other
customers to review and potentially terminate their relationships with us.
Recalls, especially if accompanied by unfavorable publicity or termination of
customer contracts, could result in our incurring substantial costs, losing
revenues and loss of reputation, each of which could harm our business, results
of operations and financial condition.
Our business exposes us to potential product liability claims that are
inherent in the manufacture and sale of medical devices. Because our products
involve the delivery of radiation to the human body or are involved in
diagnostic imaging of the human body, the possibility for significant injury
and/or death exists. As such, we may face substantial liability to patients for
damages resulting from the faulty design, manufacture and servicing of our
products.
We have historically maintained limited product liability insurance
coverage in an amount we deem sufficient for each of our businesses. These
product liability insurance policies are expensive and have deductible amounts
and self-insured retentions. In the future, it may not be on acceptable terms or
in sufficient amounts, if at all. We cannot give assurance that the insurance
coverage we obtained is adequate. A successful claim brought against us in
excess of our insurance coverage or any material claim for which insurance
coverage is denied or limited and for which indemnification is not available
could harm our business, results of operations and financial condition.
On December 5, 1997, we purchased General Electric's Radiotherapy Service
Business (the "RS Business"). In connection with that transaction, we agreed to
assume liability for certain product defects and personal injury matters that
might arise from RS Business products, and obtained limited insurance for these
matters. The insurance provides that in each annual period we are responsible
for the first $5,000,000 of expenses or liabilities related to any such claims.
As of fiscal year end 2000, one claim has been asserted related to these RS
Business products for which we may have an indemnity obligation and we have
received, and will continue to monitor, information regarding other potential
claims, none of which, to our knowledge, have been asserted against us.
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WE UTILIZE DISTRIBUTORS FOR A PORTION OF OUR SALES, THE LOSS OF WHICH COULD HARM
OUR RESULTS, AS COULD CONTINUED CONSOLIDATION IN THE MARKET FOR X-RAY TUBES
We have significant strategic relationships with a number of key
distributors principally in foreign countries. If these strategic relationships
are terminated and not replaced, it could adversely harm us. We have noticed a
trend toward consolidation in the OEM markets of our x-ray tubes business over
the past few years. The ongoing consolidation of customers who purchase our
x-ray tube products, including the consolidation of such customers into
companies that already manufacture x-ray tubes, may lead to more variability in
our operating results and could harm our business, operating results, and
financial condition.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY CAUSE OUR STOCK PRICE TO BE VOLATILE,
WHICH COULD CAUSE LOSSES TO OUR STOCKHOLDERS
We have and expect in the future to experience fluctuations in our
operating results. The timing and amount of revenues are subject to a number of
factors that make it difficult to estimate revenues and operational results
prior to the end of any quarter. Many of our products require significant
capital expenditures, and the timing of sales of these products could affect our
quarterly earnings. A delay in a shipment in any quarter due, for example, to
unanticipated construction delays, cancellations by customers or unexpected
manufacturing difficulties, may cause sales in that quarter to fall
significantly below our expectations and may therefore adversely affect our
operating results for that quarter. Because some of our sales are quite large in
dollar amounts, an unexpected change in a customer's financial solvency or
ability to obtain financing for capital expenditures may also harm sales.
Furthermore, our quarterly operating results may also vary significantly
depending on a number of other factors, including changes in our pricing or our
competitors' pricing, discount levels, seasonality of revenue, foreign currency
exchange rates, the mix of products sold, the timing of the announcement,
introduction and delivery of new product enhancements by us and by our
competitors, and general economic conditions. Because certain of our operating
expenses are based on anticipated capacity levels and a high percentage of such
expenses are fixed for the short term, a small variation in the timing of
recognition of revenue can cause significant variations in operating results
from quarter to quarter. Any of these factors may harm our results. In addition,
our orders and backlog cannot necessarily be relied upon as accurate predictors
of future revenues as the timing of such revenues is dependent upon completion
of customer site preparation and construction, installation scheduling, customer
capital budgeting and financing, receipt of applicable regulatory approvals and
other factors. Accordingly, there can be no assurance if or when the orders will
mature into revenue. Our operating results in one or more future quarters may
fall below the expectations of securities analysts and investors. In that event,
the trading price of our common stock would almost certainly decline.
OUR MARKET IS HIGHLY COMPETITIVE AND WE MAY LOSE MARKET SHARE TO COMPANIES WITH
GREATER RESOURCES OR WHO ARE ABLE TO DEVELOP MORE EFFECTIVE TECHNOLOGIES OR
COULD BE FORCED TO REDUCE OUR PRICES
The markets we serve are characterized by rapidly evolving technology,
intense competition and pricing pressure. There are a number of companies that
currently offer, or are in the process of developing, products that compete with
the products we offer. Our products and services compete with those of a
substantial number of foreign and domestic companies, some with greater
resources, financial or otherwise, than we have, and the rapid technological
changes occurring in our markets are expected to lead to the entry of new
competitors. Our ability to anticipate technological changes and introduce
enhanced products on a timely basis will be a significant factor in our ability
to expand and remain competitive. Existing competitors' actions and new entrants
may have an adverse impact on our sales and profitability. These competitors
could develop technologies and products that are more effective than those we
currently use or market or that could render our products obsolete or
noncompetitive.
OUR HIGH PERCENTAGE OF INTERNATIONAL SALES MAKES THOSE SALES SUBJECT TO
VARIABILITY THAT WE NO NOT FACE DOMESTICALLY
We conduct business globally. International sales accounted for
approximately 43%, 54% and 55% of sales in fiscal years 2000, 1999 and 1998,
respectively. As a result, we must provide significant service and support on a
worldwide basis. We have manufacturing and research operations in England,
Switzerland, Finland and France as well as sales and service offices located
throughout Europe, Asia, Latin America and Australia. We have invested
substantial financial and management resources to develop an international
infrastructure to meet the needs of our customers. We intend to continue to
expand our presence in international markets, although we cannot be sure we
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will able to compete successfully in the international market or meet the
service and support needs of such customers. International sales are subject to
a number of risks, including the following: agreements may be difficult to
enforce and receivables difficult to collect through a foreign country's legal
system; foreign customers may have longer payment cycles; foreign countries may
impose additional withholding taxes or otherwise tax our foreign income, impose
tariffs or adopt other restrictions on foreign trade; fluctuations in exchange
rates may affect product demand and adversely affect the profitability in U.S.
dollars of products and services provided by us in foreign markets where payment
for our products and services is made in the local currency; U.S. export
licenses may be difficult to obtain; and the protection of intellectual property
in foreign countries may be more difficult to enforce.
OUR RESULTS MAY BE HARMED BY SHIFTS IN EXHANGE RATES
We sell our products internationally and are subject to market risk due
to fluctuations in foreign currency exchange rates. We manage this risk through
established policies and procedures that include the use of derivative financial
instruments. We have historically entered 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. Our
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. At September 29, 2000, we had forward exchange contracts to sell
foreign currencies totaling $129.3 million and to buy foreign currencies
totaling $30.5 million.
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. The statement, as amended by SFAS 137, is effective for us beginning
the first quarter of fiscal year 2001. Upon adoption of SFAS 133, as amended, we
will continue to sell product throughout the world in foreign currencies and
will continue our policy of hedging foreign currency exposures that result from
international sales backlog with forward exchange contracts. Although we engage
in hedging transactions that may offset the effect of fluctuations in foreign
currency exchange rates, financial exposure may nonetheless result, primarily
from the timing of transactions, from the effectiveness of the hedges (measured
by how closely the changes in fair value of the hedging instrument offset the
changes in fair value of the hedged item), from forecast volatility and from the
movement of exchange rates. In addition, any significant changes in the exchange
rates and/or the political, regulatory or economic environment where we conduct
international operations may have a material impact on our revenues and profits.
IF WE ARE NOT ABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR COMPETITIVE
ADVANTAGES WILL BE REDUCED
We place considerable importance on obtaining and maintaining copyright
and trade secret protection for significant new technologies, products and
processes because of the length of time and expense associated with bringing new
products through the development process and to the marketplace.
We file applications as appropriate for patents covering new products and
manufacturing processes. We cannot be sure, however, that patents now owned or
patents that will issue from any pending or future patent applications owned by,
or licensed to, VMS, or that the claims allowed under any issued patents, will
be sufficiently broad to protect our technology position against competitors. In
addition, issued patents owned by, or licensed to, VMS may be challenged,
invalidated or circumvented, or the rights granted under the patent may not
provide us with competitive advantages. We could incur substantial costs and
diversion of management resources if we have to defend our business in suits
brought against us or in suits in which we may assert our patent rights against
others. An unfavorable outcome to any such litigation could harm us. In
addition, the laws of some foreign countries do not protect proprietary rights
to the same extent as do the laws of the United States.
We may also not be aware of pending or issued patents held by parties not
affiliated with us that relate to our products or technologies. If a claim
relating to proprietary technology or information is asserted against us, we may
need to acquire licenses to, or contest the validity of, a competitor's
proprietary technology. There can be no assurance that any license required
under any such competitor's proprietary technology would be made available on
acceptable terms or that we would prevail in any such contest. If the outcome of
any such contest is unfavorable to us, it could materially adversely affect our
business and results of operations. From time to time, we have received notices
from, and have issued notices to, third parties alleging infringement of patent
or other intellectual property
34
<PAGE>
rights relating to their products. Such claims are often, but not always,
settled by mutual agreement satisfactorily without litigation.
We rely on a combination of copyright, trade secret and other laws, and
contractual restrictions on disclosure, copying and transferring title,
including confidentiality agreements with vendors, strategic partners,
co-developers, employees, consultants and other third parties, to protect our
proprietary rights. There can be no assurance that such protections will prove
adequate and that contractual agreements will not be breached, that we will have
adequate remedies for any such breaches, or that our trade secrets will not
otherwise become known to or independently developed by others. We have
trademarks, both registered and unregistered, that are maintained and enforced
to provide customer recognition for our products in the marketplace. There can
be no assurance that our trademarks will not be used by unauthorized third
parties. We also have agreements with third parties that provide for licensing
of patented or proprietary technology. These agreements include royalty-bearing
licenses and technology cross-licenses.
THE NATURE OF OUR BUSINESS EXPOSES US TO ENVIRONMENTAL CLAIMS OR CLEANUP
EXPENSES, WHICH COULD CAUSE US TO PAY SIGNIFICANT AMOUNTS
For a discussion of environmental matters, see "--Environmental Matters."
SINCE WE DEPEND UPON A LIMITED GROUP OF SUPPLIERS, OUR LOSS OF A SUPPLIER COULD
REDUCE OUR ABILITY TO MANUFACTURE PRODUCTS OR INCREASE OUR COSTS
We obtain certain of the components and subassemblies included in our
products from a limited group of suppliers, or in some cases a single-source
supplier, including the source wires for high-dose afterloaders, klystrons for
linear accelerators, solid state imaging panels and specialized integrated
circuits for imaging subassemblies. If we lose of any of these suppliers
(including any single-source supplier), we would be required to obtain one or
more replacement suppliers as well as potentially requiring a significant level
of product development to incorporate new parts into our products. We believe
that we may be able to obtain alternative sources for such components when
necessary, although the need to change suppliers or to alternate between
suppliers might cause material delays in delivery or significantly increase
costs. Although we have obtained limited insurance to protect against business
interruption loss, there can be no assurance that such coverage will be adequate
or that such coverage will continue to remain available on acceptable terms, if
at all. Although we seek to reduce our dependence on these limited-source
suppliers, disruptions or loss of certain of these sources, including the ones
referenced above, could have a material adverse effect on our business and
results of operations and could result in damage to customer relationships.
WE MAY NOT BE ABLE TO MAINTAIN AND EXPAND OUR BUSINESS IF WE ARE NOT ABLE TO
RETAIN, HIRE AND INTEGRATE SUFFICIENT QUALIFIED PERSONNEL
Our future success depends to a significant extent on the continued
service of certain of our key executive, technical, sales, marketing and
engineering personnel. It also depends on our ability to attract, expand,
integrate train and retain our management team, qualified engineering personnel
and technical personnel. The loss of services of key employees could adversely
affect our business, operating results or financial condition. Competition for
such personnel is intense, particularly in the labor markets around our
facilities in Palo Alto, California and Salt Lake City, Utah. If we fail to
hire, train or retain qualified personnel, we will not be able to maintain and
expand our business.
THE LOCATION OF SOME OF OUR FACILITIES SUBJECTS US TO THE RISK OF EARTHQUAKES
We conduct a portion of our activities including manufacturing,
administration and data processing at facilities located in seismically active
areas that have experienced major earthquakes in the past. We carry limited
earthquake insurance on our facilities. However, such coverage may not be
adequate or continue to be available at commercially reasonable rates and terms.
In the event of a major earthquake or other disaster affecting our facilities,
our operations and our operating results could be adversely affected.
35
<PAGE>
CONVERSION TO THE EURO AFFECTS VARIOUS ASPECTS OF OUR BUSINESS
On January 1, 1999, eleven of the fifteen member countries of the
European Union adopted the Euro as their common legal currency. Following the
introduction of the Euro, the local currencies are scheduled to remain legal
tender in the participating countries until January 1 2002. During this
transition period, goods and services may be paid for by using either the Euro
or the participating country's local currency. Thereafter, the local currencies
will be cancelled and the Euro will be used for all transactions by and between
the eleven participating members of the European Union. Our ability to convert
our software applications to support Euro requirements, implement sales
documentation, quotations, price lists and catalogs, contracts, accounting and
tax records and related historical documents in the Euro over the required time
periods, and associated costs of accomplishing these actions, could have a
material adverse affect on our business and results of operations and could
damage customer relationships. Additionally, competitive impact of cross-border
price transparency resulting from product pricing in a common currency in
multiple European countries could adversely affect margins on sales to customers
in those countries.
CHANGES TO ACCOUNTING STANDARDS AND RULES COULD EITHER DELAY OUR RECOGNITION OF
REVENUES OR REDUCE THE AMOUNT OF REVENUES THAT WE MAY RECOGNIZE AT A SPECIFIC
TIME, DEFERRING OR REDUCING OUR PROFITABILITY
Recent actions and comments from the SEC have focused on the integrity of
financial reporting. In addition, the FASB and other regulatory accounting
agencies have recently introduced several new or proposed accounting standards,
some of which represent a significant change from current industry practices.
For example, in December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements." SAB 101 provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements of
all public registrants. In response to numerous requests for interpretive
guidance of SAB 101, the effective date of the standard has been delayed twice.
We currently expect SAB 101 to become effective in the fourth quarter of fiscal
2001. In October 2000, the SEC released written guidance to assist with
implementing this staff accounting bulletin. We are in the process of
determining the impact of its adoption. The adoption of SAB 101 may have a
material effect on our reported revenues and results of operations for any
particular quarter.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to two primary types of market risks: foreign currency
exchange rate risk and interest rate risk.
FOREIGN CURRENCY EXCHANGE
As a global concern, we are exposed to adverse movements in foreign
currency exchange rates. These exposures may change over time as business
practices evolve and could have a material adverse impact on our financial
results. Historically, our primary exposures related to non-U.S. dollar
denominated sales and purchases throughout Europe, Asia and Australia. On
January 1, 1999, eleven of the fifteen member countries of the European Monetary
Union adopted the Euro as their common legal currency. Following the
introduction of the Euro, the local currencies of the participating countries
are scheduled to remain legal tender until June 30, 2002. During this transition
period, goods and services may be paid for in either Euro or the participating
country's local currencies. Thereafter, only the Euro will be the legal tender
in the participating countries. We continue to evaluate, among other issues, the
impact of the Euro conversion on our foreign currency exposure. Based on the
evaluation to date, we do not expect the Euro conversion to create any change in
currency exposure due to our existing hedging practices.
36
<PAGE>
We hedge the currency exposures associated with certain assets and
liabilities denominated in non-functional currencies and with anticipated
foreign currency cash flows. We do not enter into forward exchange contracts for
trading purposes. We intend our hedging activity to offset the impact of
currency fluctuations on certain anticipated foreign currency cash flows and
certain non-functional currency assets and liabilities. Our success, however,
depends upon estimating balance sheets denominated in various currencies. If
forecasts are overstated or understated during periods when currency is
volatile, we could experience unanticipated currency gains or losses. Our
forward exchange contracts generally range from one to three months in original
maturity. We do not have any forward exchange contract with an original maturity
greater than one year. Forward exchange contracts outstanding, their unrealized
gains or losses and their fair values as of the fiscal year-end 2000 are
summarized as follows:
<TABLE>
<CAPTION>
FISCAL YEAR-END 2000
-------------------------------------------------------------------
NOTIONAL NOTIONAL
VALUE VALUE UNREALIZED FAIR
SOLD PURCHASED GAIN/(LOSS) VALUE
-------------- --------------- ----------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Australian dollar......................... $ 7.1 $ 1.3 $ 0.1 $ 0.3
Brazilian real............................ -- 0.7 -- --
British pound............................. 18.0 3.9 0.8 0.7
Canadian dollar........................... 19.5 2.7 -- 0.1
Danish krona.............................. 0.7 2.2 -- --
Euro dollar............................... 62.2 8.6 1.0 1.5
Japanese yen.............................. 14.4 1.7 -- 0.2
Swedish krona............................. 3.2 -- -- --
Swiss franc............................... 2.5 9.4 -- --
Thailand baht............................. 1.7 -- 0.1 --
-------------- --------------- ----------------- ------------
Totals............................... $ 129.3 $ 30.5 $ 2.0 $ 2.8
============== =============== ================= ============
</TABLE>
The fair value of forward exchange contracts generally reflects the
estimated amounts that we 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 the open contracts. The notional
amounts of forward exchange contracts are not a measure of our exposure.
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates
primarily to our investment portfolio and notes payable. We do not use
derivative financial instruments in our investment portfolio, and the investment
portfolio only includes highly liquid instruments with an original maturity of
three months or less. We primarily enter into debt obligations to support
general corporate purposes, including working capital requirements, capital
expenditures and acquisitions.
The fair value of our investment portfolio or related income would not be
significantly impacted by interest rates since the investment maturities are
short. Our long-term debt of $58.5 million at September 29, 2000 carries a
weighted average fixed interest rate of 6.82% per annum with principal payments
due in various installments over a ten-year period, beginning in 2005. Our notes
payable to bank of $0.6 million carry a weighted average fixed interest rate of
5.56% per annum with principal payable semiannually through January 2003.
37
<PAGE>
The table below presents principal amounts and related weighted average
interest rates by year for our cash and cash equivalents and debt obligations.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
--------------------------------------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL
-------- -------- --------- -------- --------- ----------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets..............................
Cash and cash equivalents........ $ 83.3 -- -- -- -- -- $ 83.3
Average interest rate............ 5.56 % 5.56 %
Liabilities.........................
Notes payable.................... $ 0.6 -- -- -- -- -- $ 0.6
Average interest rate............ 5.56 % -- -- -- -- -- 5.56 %
Long-term debt................... -- -- -- -- $ 5.3 $ 53.2 $ 58.5
Average interest rate............ -- -- -- -- 6.82 % 6.82 % 6.82 %
</TABLE>
The estimated fair value of our cash and cash equivalents (the majority
of which was held abroad at September 29, 2000 and would be subject to
additional taxation if it was repatriated in the U.S.) approximates the
principal amounts reflected above based on the short maturities of these
financial instruments.
The fair value of our long-term debt is estimated based on the current
rates available to us for debt of similar terms and remaining maturities. Under
this method, the fair value of our long-term debt is estimated to be $56.5
million. We determined the estimated fair value amount by using available market
information and commonly accepted valuation methodologies. However, it requires
considerable judgment in interpreting market data to develop estimates of fair
value. Accordingly, the fair value estimate presented is not necessarily
indicative of the amount that we or holders of the instrument could realize in a
current market exchange. The use of different assumptions and/or estimation
methodologies may have a material effect on the estimated fair value.
Although payments under certain of our operating leases for our
facilities are tied to market indices, we are not exposed to material interest
rate risk associated with our operating leases.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this
report. See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
38
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to the Company's
executive officers is set forth in Item 1 of this report. The balance of the
information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement for the 2001 Annual Meeting of Stockholders
under the captions "Election of Directors" and "Stock Ownership--Section 16(a)
Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Company's Definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders under the caption "Compensation of Directors and the Named
Executive Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the Company's Definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders under the caption "Stock Ownership--Beneficial Ownership of Certain
Stockholders and Executive Officers."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the Company's Definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders under the captions "Compensation of Directors and the Named
Executive Officers--Certain Transactions" and "Change in Control Agreements."
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements: (see index on page F-1 of
this report)
o Report of Independent Accountants
o Consolidated Statements of Earnings
o Consolidated Balance Sheets
o Consolidated Statements of Stockholders' Equity
o Consolidated Statements of Cash Flows
o Notes to the Consolidated Financial Statements
(2) Consolidated Financial Statement Schedule: (see index on page
F-1 of this report)
The following financial statement schedule of the Registrant and its
subsidiaries for fiscal years 2000, 1999 and 1998 is filed as a part of this
report and should be read in conjunction with the Consolidated Financial
Statements of the Registrant and its subsidiaries.
SCHEDULE
--------
II Valuation and Qualifying Accounts
All other schedules are omitted because of the absence of conditions
under which they are required or because the required information is given in
the financial statements or the notes thereto.
(3) Exhibits:
See attached Exhibit Index.
(b) The Company filed no reports on Form 8-K during the fourth quarter of
fiscal 2000.
40
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
Dated: December 8, 2000
VARIAN MEDICAL SYSTEMS, INC.
By: /s/ Elisha W. Finney
------------------------------------
Elisha W. Finney
Vice President, Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Richard M. Levy President and Chief Executive December 8, 2000
- --------------------------------- Officer (Principal Executive
RICHARD M. LEVY Officer)
/s/ Elisha W. Finney Vice President, Finance and December 8, 2000
- --------------------------------- Chief Financial Officer
ELISHA W. FINNEY (Principal Financial Officer)
/s/ Crisanto C. Raimundo Controller (Principal December 8, 2000
- --------------------------------- Accounting Officer)
CRISANTO C. RAIMUNDO
JOHN SEELY BROWN* Director
SAMUEL HELLMAN* Director
TERRY R. LAUTENBACH* Director
DAVID W. MARTIN, JR.* Director
BURTON RICHTER* Director
RICHARD W. VIESER* Director
*By /s/ Elisha W. Finney December 8, 2000
--------------------
ELISHA W. FINNEY
Attorney-in-Fact
</TABLE>
41
<PAGE>
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES
FORM 10-K
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
The following financial statements of the registrant and its subsidiaries
are required to be included in Item 8:
PAGE
----
Report of Independent Accountants.......................................... F-2
Consolidated Statements of Earnings........................................ F-3
Consolidated Balance Sheets................................................ F-4
Consolidated Statements of Stockholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to the Consolidated Financial Statements............................. F-7
The following financial statement schedule of the Registrant and its
subsidiaries for fiscal years 2000, 1999 and 1998 is filed as a part of this
report as required to be included in Item 14(a) and should be read in
conjunction with the Consolidated Financial Statements of the Registrant and its
subsidiaries:
SCHEDULE PAGE
- -------- ----
II Valuation and Qualifying Accounts................................ F-25
All other schedules are omitted because of the absence of conditions
under which they are required or because the required information is given in
the financial statements or the notes thereto.
F-1
<PAGE>
VARIAN MEDICAL SYSTEMS, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Varian Medical Systems, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 40 present fairly, in all material
respects, the financial position of Varian Medical Systems, Inc. and its
subsidiaries at September 29, 2000 and October 1, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
September 29, 2000 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 14(a)(2) on page 40
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PricewaterhouseCoopers LLP
San Jose, California
November 9, 2000
F-2
<PAGE>
VARIAN MEDICAL SYSTEMS AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------------
2000 1999 1998
----------- ----------- -----------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Sales.................................................................... $ 689,700 $ 590,440 $ 541,461
----------- ----------- -----------
Operating Costs and Expenses
Cost of sales....................................................... 432,603 380,435 346,298
Research and development............................................ 42,083 39,895 39,255
Selling, general and administrative................................. 125,107 116,131 117,528
Reorganization...................................................... 227 29,668 --
Acquisition-related expenses........................................ 1,977 -- --
----------- ----------- -----------
Total Operating Costs and Expenses.................................. 601,997 566,129 503,081
----------- ----------- -----------
Operating Earnings....................................................... 87,703 24,311 38,380
Interest expense.................................................... (5,161) (9,980) (8,835)
Interest income..................................................... 2,333 3,908 6,418
----------- ----------- -----------
Earnings from Continuing Operations Before Taxes......................... 84,875 18,239 35,963
Taxes on earnings................................................... 31,826 10,021 9,819
----------- ----------- -----------
Earnings from Continuing Operations...................................... 53,049 8,218 26,144
Earnings (Loss) from Discontinued Operations--Net of Taxes................ -- (32,456) 47,696
----------- ----------- -----------
Net Earnings (Loss)...................................................... $ 53,049 $ (24,238) $ 73,840
=========== =========== ===========
Average Shares Outstanding--Basic......................................... 31,104 30,219 29,910
=========== =========== ===========
Average Shares Outstanding--Diluted....................................... 32,432 30,527 30,419
=========== =========== ===========
Net Earnings (Loss) Per Share--Basic
Continuing Operations............................................... $ 1.71 $ 0.27 $ 0.87
Discontinued Operations............................................. -- (1.07) 1.60
----------- ----------- -----------
Net Earnings (Loss) Per Share--Basic........................... $ 1.71 $ (0.80) $ 2.47
=========== =========== ===========
Net Earnings (Loss) Per Share--Diluted
Continuing Operations............................................... $ 1.64 $ 0.27 $ 0.86
Discontinued Operations............................................. -- (1.06) 1.57
----------- ----------- -----------
Net Earnings (Loss) Per Share--Diluted......................... $ 1.64 $ (0.79) $ 2.43
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FISCAL YEAR-END
---------------------------
SEPTEMBER 29, OCTOBER 1,
2000 1999
------------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PAR VALUES)
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents........................................................ $ 83,321 $ 25,126
Accounts receivable, net......................................................... 226,442 233,785
Inventories...................................................................... 92,482 78,324
Other current assets............................................................. 48,343 45,011
------------- ------------
Total Current Assets...................................................... 450,588 382,246
------------- ------------
Property, Plant and Equipment......................................................... 206,614 200,386
Accumulated depreciation and amortization........................................ (126,515) (120,138)
------------- ------------
Net Property, Plant and Equipment......................................... 80,099 80,248
------------- ------------
Other Assets.......................................................................... 71,863 76,689
------------- ------------
Total Assets.............................................................. $ 602,550 $ 539,183
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable.................................................................... $ 616 $ 35,587
Accounts payable--trade........................................................... 41,351 40,141
Accrued expenses................................................................. 128,391 121,165
Product warranty................................................................. 19,975 18,152
Advance payments from customers.................................................. 59,563 54,757
------------- ------------
Total Current Liabilities................................................. 249,896 269,802
Long-Term Accrued Expenses............................................................ 23,795 25,890
Long-Term Debt........................................................................ 58,500 58,500
------------- ------------
Total Liabilities......................................................... 332,191 354,192
------------- ------------
Commitments and Contingencies
Stockholders' Equity..................................................................
Preferred stock..................................................................
Authorized 1,000,000 shares, par value $1, issued and outstanding none....... -- --
Common stock.....................................................................
Authorized 99,000,000 shares, par value $1, issued and outstanding
31,769,000 shares at September 29, 2000 and 30,563,000 shares at
October 1, 1999.............................................................. 31,769 30,563
Capital in excess of par value................................................... 50,869 20,185
Retained earnings................................................................ 187,721 134,243
------------- ------------
Total Stockholders' Equity................................................ 270,359 184,991
------------- ------------
Total Liabilities and Stockholders' Equity................................ $ 602,550 $ 539,183
============= ============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
VARIAN MEDICAL SYSTEMS AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN
COMMON STOCK EXCESS OF TREASURY
--------------------- PAR RETAINED STOCK AT
SHARES AMOUNT VALUE EARNINGS COST TOTAL
--------- ---------- ---------- ----------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCES, FISCAL YEAR-END, 1997........... 30,108 $ 30,108 $ -- $ 494,469 $ -- $ 524,577
Net earnings for the year................. -- -- -- 73,840 -- 73,840
Issuance of stock under omnibus stock,
stock option, and employee stock
purchase plans (including tax benefit
of $5,321)............................. 646 646 24,407 -- -- 25,053
Purchase of common stock.................. -- -- -- -- (54,276) (54,276)
Retirement of treasury stock.............. (1,011) (1,011) (24,407) (28,858) 54,276 --
Dividends declared ($0.39 per share)...... -- -- -- (11,649) -- (11,649)
--------- ---------- ---------- ----------- ---------- -----------
BALANCES, FISCAL YEAR-END, 1998........... 29,743 29,743 -- 527,802 -- 557,545
Net loss for the year..................... -- -- -- (24,238) -- (24,238)
Issuance of stock under omnibus stock,
stock option, and employee stock
purchase plans (including tax benefit
of $5,338)............................. 820 820 20,185 -- -- 21,005
Dividends declared ($0.10 per share)...... -- -- -- (2,991) -- (2,991)
Spin Distribution......................... -- -- -- (366,330) -- (366,330)
--------- ---------- ---------- ----------- ---------- -----------
BALANCES, FISCAL YEAR-END, 1999........... 30,563 30,563 20,185 134,243 -- 184,991
Net earnings for the year................. -- -- -- 53,049 -- 53,049
Issuance of stock under omnibus stock,
stock option, and employee stock
purchase plans (including tax benefit
of $7,970)............................. 1,206 1,206 30,494 -- -- 31,700
Non-cash stock-based compensation......... -- -- 190 -- -- 190
Spin Distribution......................... -- -- -- 429 -- 429
--------- ---------- ---------- ----------- ---------- -----------
BALANCES, FISCAL YEAR-END, 2000........... 31,769 $ 31,769 $ 50,869 $ 187,721 $ -- $ 270,359
========= ========== ========== =========== ========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
VARIAN MEDICAL SYSTEMS AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS
------------------------------------
2000 1999 1998
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Cash Provided/(Used) by Operating Activities......................... $ 83,839 $ (33,557) $ 127,753
----------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment...................... 1,786 54,260 2,321
Purchase of property, plant and equipment................................ (19,234) (39,402) (46,954)
Purchase of businesses, net of cash acquired............................. -- (5,849) (105,470)
Other, net............................................................... (4,124) 3,851 7,035
----------- ----------- -----------
Net Cash (Used)/Provided by Investing Activities............ (21,572) 12,860 (143,068)
----------- ----------- -----------
FINANCING ACTIVITIES
Net (repayments)/borrowings on short-term obligations.................... (34,971) 11,253 27,624
Proceeds from long-term borrowings....................................... -- -- 38,000
Principal payments on long-term debt..................................... -- (12,138) (96)
Proceeds from common stock issued to employees........................... 23,730 15,667 19,732
Purchase of common stock................................................. -- -- (54,276)
Dividends paid........................................................... -- (2,991) (14,348)
Cash distributed in spin-off of businesses............................... -- (119,273) --
Other, net............................................................... -- 2,792 2,692
----------- ----------- -----------
Net Cash (Used)/Provided by Financing Activities............ (11,241) (104,690) 19,328
----------- ----------- -----------
Effects of Exchange Rate Changes on Cash................................. 7,169 846 3,356
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents.............. 58,195 (124,541) 7,369
Cash and Cash Equivalents at Beginning of Fiscal Year............. 25,126 149,667 142,298
----------- ----------- -----------
Cash and Cash Equivalents at End of Fiscal Year................... $ 83,321 $ 25,126 $ 149,667
=========== =========== ===========
DETAIL OF NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES
Net Earnings/(Loss)...................................................... $ 53,049 $ (24,238) $ 73,840
Adjustments to reconcile net earnings/(loss) to net cash provided/(used)
by operating activities:
Depreciation....................................................... 17,794 30,879 42,663
Allowances for doubtful accounts................................... 1,142 2,704 3,020
Loss/(gain) from sale of assets.................................... 73 (30,565) 62
Amortization of intangibles........................................ 4,162 6,519 4,993
Deferred taxes..................................................... (1,062) (20,850) (5,166)
Non-cash stock-based compensation.................................. 190 -- --
Changes in assets and liabilities:
Accounts receivable........................................... (8,802) (32,600) 30,770
Inventories................................................... (14,158) 3,295 (18,098)
Other current assets.......................................... 1,811 (14,098) (2,458)
Accounts payable--trade........................................ 3,121 6,558 (16,728)
Accrued expenses.............................................. 12,192 23,097 (3,671)
Product warranty.............................................. 2,000 (2,961) 2,061
Advance payments from customers............................... 5,938 13,319 186
Long-term accrued expenses.................................... (2,095) (3,056) 9,019
Tax benefits from employee stock option plan.................. 7,970 5,338 5,321
Other............................................................. 514 3,102 1,939
----------- ----------- -----------
Net Cash Provided/(Used) by Operating Activities.................. $ 83,839 $ (33,557) $ 127,753
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal years reported are the 52- or 53- week periods
ending on the Friday nearest September 30. Fiscal years 2000 and 1999 comprised
the 52-week periods ended on September 29, 2000 and October 1, 1999,
respectively. Fiscal year 1998 comprised the 53-week period ended on October 2,
1998.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include those of the Company and
its subsidiaries. Significant intercompany balances, transactions, and stock
holdings have been eliminated in consolidation. Investments in affiliated
companies over whose operations the Company has significant influence but not
control are accounted for under the equity method.
DISTRIBUTION
On April 2, 1999, Varian Associates, Inc. reorganized into three separate
publicly traded companies by spinning off, through a tax-free distribution, two
of its businesses to stockholders (the "Distribution"). The Distribution
resulted in the following three companies: 1) the Company (renamed from Varian
Associates, Inc. to Varian Medical Systems, Inc. following the Distribution); 2)
Varian, Inc. ("VI"); and 3) Varian Semiconductor Equipment Associates, Inc.
("VSEA"). The Distribution resulted in a non-cash dividend to stockholders.
The Distribution was accomplished under the terms of an Amended and
Restated Distribution Agreement dated as of January 14, 1999 by and among the
Company, VI and VSEA (the "Distribution Agreement"). For purposes of governing
certain of the ongoing relationships between and among the Company, VI and VSEA
after the Distribution, the Company, VI and VSEA also entered into various
agreements (the "Distribution-Related Agreements") that set forth the principles
to be applied in allocating certain related costs and specified portions of
contingent liabilities to be shared, which, by their nature, could not be
reasonably estimated at the time.
Under the Distribution Agreement, (1) the Company was required, among
other things, to contribute to VSEA cash and cash equivalents such that VSEA
would have $100 million in cash and cash equivalents and consolidated debt (as
defined in the Distribution Agreement) of no more than $5 million and (2) VI was
required to assume 50% of the outstanding indebtedness under the Company's term
loans and have transferred to it such portion of the indebtedness under the
Company's notes payable and such amounts of cash and cash equivalents so that as
of the time of the Distribution, the Company and VI would each have net debt
(defined in the Distribution Agreement as the amount outstanding under the term
loans and the notes payable, less cash and cash equivalents) equal to
approximately 50% of the net debt of the Company and VI, subject to such
adjustment as was necessary to provide the Company with a net worth of between
40% and 50% of the aggregate net worth of the Company and VI. As a result, the
Company transferred $119 million in cash and cash equivalents to VSEA and VI,
and VSEA and VI assumed $69 million in debt during fiscal year 1999. However,
the amounts allocated to VI and transferred to VSEA in connection with the
Distribution were based on estimates. Certain future adjustments or payments may
be required under the provisions of the Distribution Agreement or the
Distribution-Related Agreements. The Company may be required to make cash
payments to VI or VSEA, or may be entitled to receive cash payments from VI or
VSEA. The Company does not believe that any future payments would be material to
the Company's consolidated financial statements.
In fiscal year 1999, the Company reported results of operations pursuant
to Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
Accordingly, the Company reclassified its fiscal year 1999 and fiscal year 1998
consolidated financial statements to reflect the dispositions of VI and VSEA.
The net operating results of VI and VSEA have been reported, net of applicable
income taxes, as "Earnings (Loss) from Discontinued Operations."
F-7
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the fiscal year 1999 results of operations, the Company recorded a
loss on disposition pertaining to VI and VSEA of $5.5 million (net of income
taxes of $3.0 million). The loss on disposition related to employee relocation,
severance, retention, and other payroll costs directly associated with the
disposition of VI and VSEA.
Summarized information for discontinued operations, excluding the above
loss on disposition, is as follows (dollars in millions):
FISCAL YEARS
----------------------------------
2000 1999 1998
---------- ---------- ----------
Sales........................... $ -- $ 375.7 $ 880.7
========== ========== ==========
Earnings (Loss) before Taxes.... $ -- $ (39.5) $ 76.8
========== ========== ==========
Net Earnings (Loss)............. $ -- $ (27.0) $ 47.7
========== ========== ==========
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments including
cash and cash equivalents, accounts receivable and accounts payable approximate
fair value due to their short maturities.
FOREIGN CURRENCY TRANSLATION
For non-U.S. operations, the U.S. dollar is the functional currency.
Monetary assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at current exchange rates. Non-monetary assets such as inventories and
property, plant and equipment are translated at historical rates. Income and
expense items are translated at effective rates of exchange prevailing during
each year, except that inventories and depreciation charged to operations are
translated at historical rates. The aggregate exchange loss included in selling,
general and administrative expenses for 2000, 1999 and 1998 was $1.8 million,
$4.4 million and $2.2 million, respectively.
REVENUE RECOGNITION
Sales and related cost of sales for hardware are generally recognized
upon shipment of products which in some cases precedes customer acceptance, as
the performance of installation obligations is essentially perfunctory and there
is a demonstrated history of customer acceptance following shipment. Sales and
related cost of sales for software products are generally recognized at the time
of customer acceptance, which normally is within 30 days after installation. The
Company's products are generally subject to installation and warranty, and the
Company provides for the estimated future costs of installation, repair,
replacement, or customer accommodation in cost of sales when sales are
recognized. Service revenue is recognized ratably over the period of the related
contract.
CASH AND CASH EQUIVALENTS
The Company considers currency on hand, demand deposits, and all highly
liquid investments with an original maturity of three months or less to be cash
and cash equivalents. Cash and cash equivalents are deposited in demand and
money market accounts in various financial institutions in the United States and
internationally. Deposits held with financial institutions may exceed the amount
of insurance provided on such deposits. The Company has not experienced any
losses on its deposits of cash, cash equivalents or marketable securities.
ACCOUNTS RECEIVABLE
Accounts receivable are stated net of allowances for doubtful accounts of
$1.9 million at the end of fiscal year 2000 and $1.1 million at the end of
fiscal year 1999.
F-8
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financial instruments that potentially expose the Company to
concentrations of credit risk consist principally of trade accounts receivable.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers comprising the Company's customer
base and their dispersion across many geographies. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral
from its customers.
INVENTORIES
Inventories are valued at the lower of cost or market (realizable value)
using last-in, first-out (LIFO) cost for the U.S. inventories (except X-ray
Products). All other inventories are valued principally at average cost. If the
first-in, first-out (FIFO) method had been used for those operations valuing
inventories on a LIFO basis, inventories would have been higher than reported by
$14.9 million in fiscal 2000, $14.2 million in fiscal 1999 and $44.7 million in
fiscal 1998. The main components of inventories are as follows:
2000 1999
-------- ---------
(DOLLARS IN MILLIONS)
Raw materials and parts............... $ 67.4 $ 61.9
Work-in-process....................... 10.7 7.8
Finished goods........................ 14.4 8.6
-------- ---------
Total Inventories.................. $ 92.5 $ 78.3
======== =========
The Company's inventories include high technology parts and components
that may be specialized in nature or subject to rapid technological
obsolescence. While the Company has programs to minimize the required
inventories on hand and considers technological obsolescence in estimating the
required allowance to reduce recorded amounts to market values, such estimates
could change in the future.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Major improvements are
capitalized, while maintenance and repairs are expensed currently. Plant and
equipment are depreciated over their estimated useful lives, ranging from three
to forty years, using the straight-line method for financial reporting purposes
and accelerated methods for tax purposes. Leasehold improvements are amortized
using the straight-line method over their estimated useful lives, or the
remaining term of the lease, whichever is less. Assets subject to lease are
amortized using the straight-line method over the term of the lease. When assets
are retired or otherwise disposed of, the assets and related accumulated
depreciation are removed from the accounts. Gains or losses resulting from
retirements or disposals are included in earnings.
The main components of property, plant and equipment are as follows:
2000 1999
---------- ----------
(DOLLARS IN MILLIONS)
Land and land improvements.................. $ 5.5 $ 5.4
Buildings................................... 59.7 58.7
Machinery and equipment..................... 132.3 124.4
Construction in progress.................... 6.5 11.9
Assets subject to lease..................... 2.6 --
---------- ----------
Total Property, Plant and Equipment...... $ 206.6 $ 200.4
========== ==========
GOODWILL AND OTHER LONG-LIVED ASSETS
Goodwill, which is the excess of the cost of acquired businesses over the
sum of the amounts assigned to identifiable assets acquired less liabilities
assumed, is amortized on a straight-line basis over periods ranging from 5 to 40
years. Included in other assets at September 29, 2000 and October 1, 1999 is
goodwill of $53.1 million and $56.1 million, respectively (net of accumulated
amortization of $10.1 million and $7.1 million, respectively).
F-9
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
ENVIRONMENTAL LIABILITIES
Liabilities are recorded when environmental assessments and/or remedial
efforts are probable, and the costs can be reasonably estimated. Generally, the
timing of these accruals coincides with completion of a feasibility study or the
Company's commitment to a formal plan of action. The Company records the
environmental liabilities in accordance with AICPA's SOP 96-1, "Environmental
Remediation Liabilities."
TAXES ON EARNINGS
The Company's provision for income taxes comprises its estimated tax
liability currently payable and the change in its deferred income taxes.
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts.
RESEARCH AND DEVELOPMENT
Company-sponsored research and development costs related to both present
and future products are expensed currently. Costs related to research and
development contracts are included in inventory and charged to cost of sales
upon recognition of related revenue. Included in sales for fiscal 2000, 1999 and
1998, were customer funded research and development projects of $1.9 million,
$1.2 million and $1.6 million, respectively.
COMPUTATION OF EARNINGS PER SHARE
Earnings per share (EPS) is computed under two methods, basic and
diluted. Basic net earnings (loss) per share is computed by dividing earnings
(loss) available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings (loss) per share is computed
by dividing earnings (loss) 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 is presented as follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
FISCAL YEARS
---------------------------------------
2000 1999 1998
----------- ------------- ------------
<S> <C> <C> <C>
NUMERATOR--BASIC AND DILUTED:
Earnings from Continuing Operations...................... $ 53,049 $ 8,218 $ 26,144
Earnings (Loss) from Discontinued Operations............. -- (32,456) 47,696
----------- ------------- ------------
Net Earnings (Loss)............................... $ 53,049 $ (24,238) $ 73,840
=========== ============= ============
DENOMINATOR--BASIC:
Average shares outstanding............................... 31,104 30,219 29,910
=========== ============= ============
NET EARNINGS (LOSS) PER SHARE--BASIC:
Continuing Operations.................................... $ 1.71 $ 0.27 $ 0.87
Discontinued Operations.................................. -- (1.07) 1.60
----------- ------------- ------------
Net Earnings (Loss) Per Share--Basic.............. $ 1.71 $ (0.80) $ 2.47
=========== ============= ============
DENOMINATOR--DILUTED:
Average shares outstanding............................... 31,104 30,219 29,910
Dilutive stock options................................... 1,328 308 509
----------- ------------- ------------
32,432 30,527 30,419
=========== ============= ============
NET EARNINGS (LOSS) PER SHARE--DILUTED:
Continuing Operations.................................... $ 1.64 $ 0.27 $ 0.86
Discontinued Operations.................................. -- (1.06) 1.57
----------- ------------- ------------
Net Earnings (Loss) Per Share--Diluted............ $ 1.64 $ (0.79) $ 2.43
=========== ============= ============
</TABLE>
F-10
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Options to purchase 41,643 shares, 2,446,756 shares and 1,741,459 shares
at average exercise prices of $41.53, $23.69 and $48.59, respectively, were
outstanding on a weighted average basis during fiscal 2000, 1999 and 1998,
respectively, but were not included in the computation of diluted EPS in their
respective years because the options' exercise price was greater than the
average market price of the shares.
RECLASSIFICATIONS
Certain financial statement items have been reclassified to conform to
the current year's format. These reclassifications had no impact on previously
reported net earnings.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting and Standards Board ("FASB")
issued Statement of Financial Accounting Standards (SFAS) No. 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. The
statement, as amended by SFAS 137, is effective for fiscal years beginning after
June 15, 2000. The Company will adopt the standard in the first quarter of
fiscal year 2001. The Company will continue to sell products throughout the
world in foreign currencies and will continue its policy of hedging foreign
currency exposures that result from international firmly committed sales orders
with forward contracts. In addition, the Company hedges the balance sheet
exposures from its various foreign subsidiaries having U.S. dollar functional
currencies. Upon initial adoption of this statement, as amended, on September
30, 2000, the Company will record the fair value of foreign currency forward
contracts previously held off-balance-sheet as $2.5 million of current assets
with a credit to earnings and record the change in fair value of the related
firm commitments as $2.1 million of current liabilities with a charge to
earnings. This will result in a cumulative after-tax increase to net income of
approximately $228,000, reflecting the time value on forward contracts that the
Company has elected to exclude from effectiveness testing under SFAS 133. Gains
and losses resulting from changes in the fair values of hedge instruments
meeting the definition of derivatives will be reflected in "Cost of Sales." The
Company does not expect the prospective application of this statement to have a
material impact on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. SAB 101 was amended in June 2000 to
delay the implementation date to the fourth quarter of fiscal year 2001, however
earlier adoption is permitted. In October 2000, the SEC released written
guidance to assist with implementing this staff accounting bulletin. The Company
is in the process of determining the impact that adoption will have on our
consolidated financial statements.
OTHER ASSETS
In May 1999, the Company agreed to invest $5 million in a consortium to
participate in the acquisition of a minority interest in dpiX LLC ("dpiX"),
which supplies the Company with amorphous silicon thin-film transistor arrays
for its imaging products and for its oncology system's Portal Vision imagers.
The Company funded $2.5 million in July 1999 and the remaining $2.5 million in
July 2000. These amounts are included in "Other Assets" on the Company's
consolidated balance sheets. The investment is accounted for under the equity
method. Under the agreement governing the consortium, each equity partner
absorbs the consortium's share of the gains and losses of dpiX based on a
designated sequential order. The Company is required to absorb its portion of
the consortium's cumulative share of dpiX's losses when it exceeds $20 million.
At this time, management believes it is reasonably possible that it will
recognize a loss of up to $5 million on this investment in fiscal year 2001. The
$5 million represents the maximum share of the consortium's losses that the
Company is obligated to take based on the initial level of contributions into
the consortium.
F-11
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCRUED EXPENSES
2000 1999
--------- --------
(DOLLARS IN MILLIONS)
Taxes, including taxes on earnings...................... $ 27.0 $ 17.6
Payroll and employee benefits........................... 34.9 29.0
Estimated loss contingencies............................ 14.8 14.6
Deferred income......................................... 10.9 10.2
Reorganization costs.................................... 2.4 8.3
Other................................................... 38.4 41.5
--------- --------
Total Accrued Expenses........................... $ 128.4 $ 121.2
========= ========
NOTES PAYABLE
Short-term notes payable amounted to $0.6 million and $35.6 million at
the end of fiscal years 2000 and 1999, respectively. The weighted average
interest rates on short-term borrowings were 5.6% and 6.1% at the end of fiscal
years 2000 and 1999, respectively. Total debt is subject to limitations included
in long-term debt agreements. The Company had $70.3 million available in unused,
uncommitted lines of credit at September 29, 2000.
LONG-TERM ACCRUED EXPENSES
Long-term accrued expenses are comprised primarily of accruals for
environmental costs not expected to be expended within the next year. The
current portion is recorded within accrued expenses.
LONG-TERM DEBT
<TABLE>
<CAPTION>
2000 1999
--------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Unsecured term loan, 6.70% due in installments of $6.25 payable in fiscal years
2008, 2010, 2012, and 2014...............................................................
$ 25.0 $ 25.0
Unsecured term loan, 6.76% due in semiannual installments of $5.25 payable in
fiscal years 2005, 2007, 2009, and 2011..................................................
21.0 21.0
Unsecured term loan, 7.15% due in installments of $2.5 payable in fiscal years
2006-2010................................................................................
12.5 12.5
--------- --------
Long-term debt.............................................................................. $ 58.5 $ 58.5
========= ========
</TABLE>
The unsecured term loans contain covenants that limit future borrowings
and require the Company to maintain certain levels of working capital and
operating results. For fiscal year 2000, the Company was in compliance with all
restrictive covenants of the loan agreements. The financing agreements restrict
the payment of dividends.
Interest paid (in millions) on short and long-term debt was $4.7, $7.6
and $8.2 in fiscal years 2000, 1999 and 1998, respectively.
The fair value of the Company's long-term debt is estimated based on the
current rates available to the Company for debt of similar terms and remaining
maturities. Under this method, the Company's fair value of long-term debt is
estimated to be $56.5 million. The Company determined the estimated fair value
amount by using available market information and commonly accepted valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop estimates of fair value. Accordingly, the estimate presented
herein is not necessarily indicative of the amount that the Company or holders
of the instrument could realize in a current market exchange. The use of
different assumptions and/or estimation methodologies may have a material effect
on the estimated fair value.
FORWARD EXCHANGE CONTRACTS
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. For example, the
value of the foreign currency against the U.S. dollar may increase or decrease
between the time when
F-12
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Company enters into a contract and when the contract is completed. When the
Company's foreign exchange contracts hedge that operational exposure by locking
in a rate of exchange, 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 contracts hedge balance sheet exposure, such effects are recognized in
income when the exchange rate changes in accordance with the requirements for
other foreign currency transactions. Because the impact of movements in currency
exchange rates on foreign exchange contracts generally offsets the related
impact on the underlying items being hedged, these instruments do not subject
the Company to risk that would otherwise result from changes in currency
exchange rates. Gains and losses on hedges of existing assets or liabilities are
included in the carrying amounts of those assets or liabilities and are
ultimately recognized in income as part of those carrying amounts. Gains and
losses related to qualifying hedges of firm commitments also are deferred and
are recognized in income or as adjustments of carrying amounts when the hedged
transaction occurs. Any deferred gains or losses are included in accrued
expenses in the balance sheet. If a hedging instrument is sold or terminated
prior to maturity, gains and losses continue to be deferred until the hedged
item is recognized in income. If a hedging instrument ceases to qualify as a
hedge, any subsequent gains and losses are recognized currently in income. The
Company's forward exchange contracts generally range from one to three months in
original maturity, and no forward exchange contract has an original maturity
greater than one year. Forward exchange contracts outstanding, their unrealized
gains or losses and their fair values as of fiscal year-end 2000 are summarized
as follows:
FISCAL YEAR-END 2000
------------------------------------------
NOTIONAL NATIONAL
VALUE VALUE UNREALIZED FAIR
SOLD PURCHASED GAIN/LOSS VALUE
--------- ----------- ----------- -------
(DOLLARS IN MILLIONS)
Australian dollar........... $ 7.1 $ 1.3 $ 0.1 $ 0.3
Brazilian real.............. -- 0.7 -- --
British pound............... 18.0 3.9 0.8 0.7
Canadian dollar............. 19.5 2.7 -- 0.1
Danish krona................ 0.7 2.2 -- --
Euro dollar................. 62.2 8.6 1.0 1.5
Japanese yen................ 14.4 1.7 -- 0.2
Swedish krona............... 3.2 -- -- --
Swiss franc................. 2.5 9.4 -- --
Thailand baht............... 1.7 -- 0.1 --
--------- ----------- ----------- -------
Totals............... $ 129.3 $ 30.5 $ 2.0 $ 2.8
========= =========== =========== =======
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.
OMNIBUS STOCK AND EMPLOYEE STOCK PURCHASE PLANS
Prior to fiscal 1991, the Company had in place the 1982 Non-Qualified
Stock Option Plan (the "1982 Plan"). During fiscal 1991, the Company adopted the
Omnibus Stock Plan (the "Plan"), which was amended and restated as of the
Distribution, under which shares of common stock can be issued to officers,
directors, key employees and consultants. The maximum number of shares of common
stock available for awards under the Plan is 5,000,000 exclusive of substitute
options issued in connection with the Distribution. The exercise price for
incentive and nonqualified stock options granted under the Plan may not be less
than 100% of the fair market value of the common stock at the date of the grant.
For employees holding more than 10% of the voting rights of all classes of
stock, the exercise price of incentive stock options may not be less than 110%
of the fair market value of the
F-13
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
common stock at the date of grant. Options granted will be exercisable at such
times and be subject to such restrictions and conditions as determined by the
Organization and Compensation Committee of the Company's Board of Directors, but
no option shall be exercisable later than five years from the date of grant for
incentive stock options for which the grantee owns greater than 10% of the
voting power of all classes of stock and no longer than ten years from the date
of grant for all other options. Options granted are generally exercisable in
cumulative installments of one-third each year, commencing one year following
date of grant, and expire if not exercised within seven or ten years from date
of grant. Restricted stock grants may be awarded at prices ranging from 0% to
50% of the fair market value of the stock on the date of grant and may be
subject to restrictions on transferability and continued employment as
determined by the Organization and Compensation Committee.
Option activity under the 1982 Plan and the Plan is presented below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------------
<S> <C> <C>
Options outstanding, September 26, 1997...................... 3,742 $36.43
Granted................................................... 1,041 56.68
Terminated or expired..................................... (116) 49.21
Exercised................................................. (416) 23.21
---------
Options outstanding, October 2, 1998......................... 4,251 42.33
Granted................................................... 61 37.28
Terminated or expired..................................... (70) 47.47
Exercised................................................. (531) 15.78
---------
Options outstanding, April 1, 1999........................... 3,711 43.40
Attributable to discontinued operations................... (2,133) 46.44
---------
Options Outstanding, April 1, 1999, prior to conversion...... 1,578 45.36
---------
Options converted at April 2, 1999........................... 3,445 20.78
Granted................................................... 2,676 18.32
Terminated or expired..................................... (32) 22.71
Exercised................................................. (140) 23.01
---------
Options Outstanding October 1, 1999.......................... 5,949 19.92
Granted................................................... 114 35.19
Terminated or expired..................................... (314) 16.26
Exercised................................................. (1,069) 19.00
---------
Options Outstanding September 29, 2000....................... 4,680 $20.51
=========
</TABLE>
At fiscal year-end 2000, 1999 and 1998, options for 2,979,000, 2,939,000
and 2,406,000 shares of common stock were exercisable and 2,511,000, 2,356,000
and 580,000 shares were available for future grants under the plans,
respectively.
In April 1999, in conjunction with the Distribution, those individuals
who became employees of VI or VSEA were granted substitute awards in the stock
of their new employer, and any stock options held by them in respect of the
Company are reflected as surrendered attributable to discontinued operations in
the above table. Options held by certain individuals whose employment was
terminated in connection with the Distribution were granted substitute options
in VMS, VI and VSEA equal in each case to one third of the unexercised options
held as of the Distribution. The number of shares subject to options and the
option exercise price were adjusted immediately following the Distribution to
preserve, as closely as possible, the economic value of the options that existed
prior to the Distribution. For the remaining holders of unexercised options, the
number of shares subject to options and the option exercise price was adjusted
immediately following the Distribution to preserve, as closely as possible, the
economic value of the options that existed prior to the Distribution.
During fiscal years 2000, 1999 and 1998, 0, 22,000 and 52,000 shares,
respectively, were awarded under restricted stock grants at no cost to the
employees. The restricted stock grants vest generally over a three-year
F-14
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
period, however, restricted stock was vested for all employees immediately prior
to the Distribution. As no such restricted stock grants have been made from the
date of the Distribution, no compensation expense was recognized in fiscal year
2000. Compensation expense from restricted stock was $2.7 million and $3.0
million in fiscal years 1999 and 1998, respectively.
The following tables summarize information concerning outstanding and
exercisable options under the 1982 Plan and the Plan at the end of fiscal 2000
(in thousands, except number of years and per share amounts):
OPTIONS OUTSTANDING
------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (IN YEARS) PRICE
- ---------------------- ----------- --------------- -------------
$ 6.94-$18.16.................... 639 2.9 $ 15.70
18.31........................... 2,051 8.5 18.31
18.50-22.13..................... 740 5.7 22.03
22.16-25.68..................... 560 5.6 22.40
26.64-30.15..................... 614 6.8 26.69
32.00-46.59..................... 76 9.4 41.58
-----------
Total.......................... 4,680 6.8 $ 20.51
===========
OPTIONS EXERCISABLE
-----------------------------
WEIGHTED
NUMBER AVERAGE
RANGE OF EXERCISE PRICES EXERCISABLE EXERCISE PRICE
- ---------------------- ----------- ----------------
$ 6.94-$18.16........................... 632 $ 15.68
18.31.................................. 648 18.31
18.50-22.13............................ 661 22.06
22.16-25.68............................ 558 22.39
26.64-30.15............................ 450 26.70
32.00-46.59............................ 30 41.06
-----------
Total................................. 2,979 $ 20.85
===========
The Employee Stock Purchase Plan (the ESPP) covers substantially all
employees in the United States and Canada. Beginning in fiscal year 2000, the
participants' purchase price is the lower of 85% of the closing market price on
the first trading day of the each six-month period in the fiscal year or the
first trading day of the next six-month period. Prior to fiscal year 2000, the
participants' purchase price was the lower of 85% of the closing market price on
the first trading day of the fiscal quarter or the first trading day of the next
fiscal quarter. The discount is treated as equivalent to the cost of issuing
stock for financial reporting purposes. During fiscal 2000, 1999 and 1998,
136,000 shares, 130,000 shares and 176,000 shares were issued under the ESPP for
$3.4 million, $3.7 million and $7.2 million, respectively. At fiscal year-end
2000, the Company had a balance of 1,321,000 shares reserved for the ESPP. The
ESPP was suspended effective January 4, 1999 and reinstated October 4, 1999.
F-15
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has adopted the pro forma disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." Accordingly, the Company applies
APB Opinion 25 and related interpretations in accounting for its stock
compensation plans. If the Company had elected to recognize compensation cost
based on the fair value of the options granted at grant date as prescribed by
SFAS No. 123, net earnings and net earnings per share would have been reduced to
the pro forma amounts shown below for fiscal years 2000, 1999 and 1998:
<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------
2000 1999 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Earnings from Continuing Operations--as reported................................. $ 53,049 $ 8,218 $ 26,144
========= ========= =========
Earnings from Continuing Operations--pro forma................................... $ 48,227 $ 6,264 $ 24,666
========= ========= =========
Earnings from Continuing Operations per share--basic, as reported................ $ 1.71 $ 0.27 $ 0.87
========= ========= =========
Earnings from Continuing Operations per share--basic, pro forma.................. $ 1.55 $ 0.21 $ 0.82
========= ========= =========
Earnings from Continuing Operations per share--diluted, as reported.............. $ 1.64 $ 0.27 $ 0.86
========= ========= =========
Earnings from Continuing Operations per share--diluted, pro forma................ $ 1.49 $ 0.21 $ 0.81
========= ========= =========
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
EMPLOYEE STOCK
EMPLOYEE STOCK OPTION PURCHASE PLAN
----------------------- ----------------------
2000 1999 1998 2000 1999 1998
------ ------- ------ ------ ------ ------
Expected dividend yield....... -- -- 0.8% -- -- 0.8%
Risk-free interest rate....... 6.5% 5.3% 5.6% 6.0% 4.4% 5.0%
Expected volatility........... 41.0% 29.0% 24.0% 41.0% 29.0% 24.0%
Expected life (in years):
Employees.................. 4 4 4 .50 .25 .25
Executive Officers......... 7 7 7 .50 .25 .25
The weighted average estimated fair values of employee stock options
granted during fiscal 2000, 1999 and 1998 were $17.86, $5.38 and $18.06 per
share, respectively. The weighted average estimated fair values of the ESPP
awards issued during fiscal 2000, 1999 and 1998 were $20.39, $9.90 and $7.76 per
share, respectively.
RETIREMENT PLANS
The Company has defined contribution retirement plans covering
substantially all of its United States and Canadian employees. The Company's
major obligation is to contribute an amount based on a percentage of each
participant's base pay. For fiscal year 1998, the Company contributed 5% of its
consolidated earnings from continuing operations before taxes, as adjusted for
discretionary items, as retirement plan profit sharing. For fiscal year 1999, no
retirement plan profit sharing contribution was made due to the Company's net
loss resulting from the Distribution. Effective at the beginning of fiscal year
2000, the Company terminated its retirement plan profit sharing contribution.
Participants are entitled, upon termination or retirement, to their portion of
the retirement fund assets, which are held by a third-party custodian. In
addition, a number of the Company's foreign subsidiaries have defined benefit
retirement plans for regular full-time employees. Total pension expense for all
plans amounted to $5.7 million, $5.5 million and $8.2 million, for fiscal 2000,
1999 and 1998, respectively.
F-16
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TAXES ON EARNINGS
Taxes on earnings from continuing operations are as follows:
2000 1999 1998
------ ------- ------
(DOLLARS IN MILLIONS)
Current
U.S. federal.................................. $16.0 $ 7.1 $ 2.9
Non-U.S....................................... 13.4 15.3 7.9
State and local............................... 3.5 (0.8) 1.7
------ ------- ------
Total current............................... 32.9 21.6 12.5
------ ------- ------
Deferred
U.S. federal.................................. (0.4) (11.0) (3.1)
Non-U.S....................................... (0.7) (0.6) 0.4
------ ------- ------
Total deferred.............................. (1.1) (11.6) (2.7)
------ ------- ------
Taxes on Earnings................................ $31.8 $ 10.0 $ 9.8
====== ======= ======
Significant items making up deferred tax assets and liabilities are as
follows:
2000 1999
------- -------
(DOLLARS IN
MILLIONS)
Assets:
Product warranty.......................................... $ 6.7 $ 5.5
Deferred compensation.................................. 4.0 2.3
Special provisions..................................... 18.7 21.0
Inventory adjustments.................................. 6.4 6.5
Deferred income........................................ 1.6 1.7
Accelerated depreciation............................... -- 1.7
Credit carryforwards................................... 0.9 5.8
State deferred taxes................................... 2.1 --
Capitalized research and development................... 8.4 --
Other.................................................. 2.1 3.6
------- -------
50.9 48.1
------- -------
Liabilities:
Accelerated depreciation............................... 1.7 --
Net undistributed profits of foreign subsidiaries...... 5.4 5.4
Other.................................................. 2.2 2.2
------- -------
9.3 7.6
------- -------
Net Deferred Tax Asset.................................... $ 41.6 $ 40.5
======= =======
The classification of the net deferred tax asset on the consolidated
balance sheet is as follows:
<TABLE>
<CAPTION>
2000 1999
------- -------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Net current deferred tax asset (included in other current assets).............................. $ 39.3 $ 34.3
Net long-term deferred tax asset (included in other assets).................................... 2.3 6.2
------- -------
Net Deferred Tax Asset......................................................................... $ 41.6 $ 40.5
======= =======
</TABLE>
At September 29, 2000, the Company had federal tax carryforwards of
approximately $0.9 million, which expire in 2004, if not utilized.
F-17
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effective tax rate on continuing operations differs from the U.S.
federal statutory tax rate as a result of the following:
2000 1999 1998
-------- ------ -------
Federal statutory income tax rate................... 35.0% 35.0% 35.0%
State and local taxes, net of federal tax benefit... 2.7 (3.0) 2.9
Foreign taxes, net.................................. 1.5 1.9 (5.5)
Foreign sales corporation........................... (1.2) (7.0) (3.1)
Research and development credit..................... (0.5) (0.9) (0.5)
Non-deductible transaction costs.................... -- 32.0 --
Other............................................... -- (3.1) (1.5)
-------- ------ -------
Effective Tax Rate............................... 37.5% 54.9% 27.3%
======== ====== =======
Income taxes paid are as follows:
2000 1999 1998
-------- ------- -------
(DOLLARS IN MILLIONS)
Federal income taxes paid, net...................... $ 1.7 $(12.7) $ 8.0
State income taxes paid, net........................ 1.5 (0.2) 7.0
Foreign income taxes paid, net...................... 9.6 23.1 12.8
-------- ------- -------
Total Paid....................................... $ 12.8 $ 10.2 $ 27.8
======== ======= =======
LEASE COMMITMENTS
At fiscal year-end 2000, the Company was committed to minimum rentals
under noncancelable operating leases for fiscal years 2001 through 2005 and
thereafter, as follows, in millions: $5.2, $6.0, $5.6, $5.1, $4.4 and $2.6.
Rental expense for fiscal years 2000, 1999 and 1998, in millions, was $8.6,
$11.0 and $10.1, respectively.
CONTINGENCIES
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
("CERCLA"), at eight sites where Varian Associates, Inc. is alleged to have
shipped manufacturing waste for recycling or disposal. The Company is overseeing
environmental cleanup projects and as applicable, reimbursing third parties for
cleanup activities. The cleanup projects that the Company is overseeing are
conducted under the direction of, or in consultation with, federal, state and/or
local agencies at certain current VMS or former Varian Associates, Inc.
facilities (including facilities disposed of in connection with the Company's
sale of its Electron Devices business during 1995, and the sale of its Thin Film
Systems business during 1997). Under the terms of the Distribution Agreement, VI
and VSEA are each obligated to indemnify the Company for one-third of these
environmental cleanup costs (after adjusting for any insurance proceeds realized
or tax benefits recognized by the Company). The Company spent $3.5 million (net
of amounts borne by VI and VSEA) during fiscal year 2000 on environmental
investigation, cleanup and third party claim costs. The Company spent $1.7
million and $2.9 million in fiscal year 1999 and 1998, respectively, net of
amounts that would have been borne by VI and VSEA on similar activities.
For certain of these sites and facilities, various uncertainties make it
difficult to assess the likelihood and scope of further cleanup activities or to
estimate the future costs of such activities (including cleanup costs,
reimbursements to third parties, project management costs and legal costs) if
undertaken. As of September 29, 2000, the Company nonetheless estimated that the
Company's future exposure (net of VI's and VSEA's indemnification obligations)
to complete the cleanup projects for these sites ranged in the aggregate from
$4.6 million to $14.5 million. The time frame over which the Company expects to
complete the cleanup projects varies with each site, ranging up to approximately
30 years as of September 29, 2000. 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 $4.6 million as of
September 29, 2000. The amount accrued has not been discounted to present value.
F-18
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As to other sites and facilities, the Company has gained sufficient
knowledge to be able to better estimate the scope and costs of future cleanup
activities. As of September 29, 2000, the Company estimated that the Company's
future exposure (net of VI and VSEA's indemnification obligations) to complete
the cleanup projects including paying third party claims for these sites and
facilities ranged in the aggregate from $23.1 million to $52.3 million. The time
frame over which these cleanup projects are expected to be complete varies with
each site and facility, ranging up to approximately 30 years as of September 29,
2000. 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 $36.0 million at September 29, 2000. The Company
accordingly accrued $17.7 million, which represents its best estimate of the
future costs discounted at 4%, net of inflation. This accrual is in addition to
the $4.6 million described in the preceding paragraph.
At September 29, 2000, the Company's reserve for environmental
liabilities, based upon future environmental-related costs estimated as of that
date, was calculated as follows:
TOTAL
RECURRING NON-RECURRING ANTICIPATED
COSTS COSTS FUTURE COSTS
--------------- --------------- ---------------
(DOLLARS IN MILLIONS)
FISCAL YEAR:
- -------------
2001..................... $ 1.2 $ 1.8 $ 3.0
2002..................... 1.1 2.4 3.5
2003..................... 1.1 0.5 1.6
2004..................... 1.1 -- 1.1
2005..................... 1.1 -- 1.1
Thereafter............... 28.6 1.7 30.3
--------------- --------------- ---------------
Total costs........... $ 34.2 $ 6.4 40.6
=============== ===============
Less imputed interest.... (18.3)
---------------
Reserve amount........... $ 22.3
===============
The amounts set forth in the foregoing table are only estimates of
anticipated future environmental-related costs to cover the known cleanup
projects, 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 cleanup activities, the large number of sites and
facilities involved and the amount of third party claims. The Company believes
that most of these cost ranges will narrow as cleanup activities progress. The
Company believes that its reserves are adequate, but as the scope of its
obligations becomes more clearly defined, these reserves (and the associated
indemnification obligations of VI and VSEA) may be modified and related charges
against earnings may be made.
Although any ultimate liability arising from environmental-related
matters described herein could result in significant expenditures that, if
aggregated and assumed to occur within a single fiscal year, would be material
to the Company's financial statements, the likelihood of such occurrence is
considered remote. Based on information currently available to management and
its best assessment of the ultimate amount and timing of environmental-related
events (and assuming VI and VSEA satisfy their indemnification obligations),
management believes that the costs of these environmental-related matters are
not reasonably likely to have a material adverse effect on the consolidated
financial statements of the Company.
The Company evaluates its liability for environmental-related
investigation and cleanup costs in light of the liability and financial
wherewithal of potentially responsible parties and insurance companies with
respect to which the Company believes that it has rights to contribution,
indemnity and/or reimbursement (in addition to the obligations of VI and VSEA).
Claims for recovery of environmental investigation and cleanup costs already
incurred, and to be incurred in the future, have been asserted against various
insurance companies and other third parties. In 1992, the Company filed a
lawsuit against 36 insurance companies with respect to most of the
above-referenced sites and facilities. The Company received certain cash
settlements during fiscal years 1995, 1996, 1997 and 1998 from defendants in
that lawsuit. The Company has also reached an agreement with another insurance
F-19
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $4.5 million receivable in Other Assets at September 29, 2000.
The Company believes that this receivable is recoverable because it is based on
a binding, written settlement agreement with a solvent and financially viable
insurance company. Although the Company intends to aggressively pursue
additional insurance and other recoveries, the Company has not reduced any
liability in anticipation of recovery with respect to claims made against third
parties.
The Company is a party to three related federal actions involving claims
by independent service organizations ("ISOs") that the Company's policies and
business practices relating to replacement parts violate the antitrust laws (the
"ISOs Litigation"). The ISOs purchase replacement parts from the Company and
compete with it for the servicing of linear accelerators made by the Company. In
response to several threats of litigation regarding the legality of the
Company's parts policy, the Company filed a declaratory judgment action in the
U. S. District Court for the Northern District of California in 1996 seeking a
determination that its new policies are legal and enforceable and damages
against two of the ISOs for misappropriation of the Company's trade secrets,
unfair competition, copyright infringement and related claims. Subsequently,
four of the defendants filed separate claims in other jurisdictions raising
issues allegedly related to those in the declaratory relief action and seeking
injunctive relief against the Company and damages against the Company in the
amount of $10 million for each plaintiff. The defendants' motion for a
preliminary injunction in U. S. District Court in Texas with respect to the
Company's policies was defeated. The ISOs defendants amended the complaint to
include class action allegations, allege a variety of other anti-competitive
business practices and filed a motion for class certification, which was heard
by the U. S. District Court in Texas in July 1999. No decision, however, has
been entered. The parties have agreed to consolidate its claims from the
Northern District of California to the action in the District Court in Texas.
Following the Distribution, the Company retained the liabilities related
to the medical systems business prior to the Distribution, including the ISOs
Litigation. In addition, under the terms of the Distribution Agreement, the
Company agreed to manage and defend liabilities related to legal proceedings and
environmental matters arising from corporate or discontinued operations of the
Company prior to the Distribution. Under the terms of the Distribution
Agreement, VI and VSEA generally are each obligated to indemnify the Company for
one-third of these liabilities (after adjusting for any insurance proceeds
realized or tax benefits recognized by the Company), including certain
environmental-related liabilities described above, and to fully indemnify the
Company for liabilities arising from the operations of the business transferred
to each prior to the Distribution. The availability of such indemnities will
depend upon the future financial strength of VI and VSEA. Given the long-term
nature of some of the liabilities, no assurance can be given that the relevant
company will be in a position to fund such indemnities. It is also possible that
a court would disregard this contractual allocation of indebtedness, liabilities
and obligations among the parties and require the Company to assume
responsibility for obligations allocated to another party, particularly if such
other party were to refuse or was unable to pay or perform any of its allocated
obligations. In addition, the Distribution Agreement generally provides that if
a court prohibits a company from satisfying its indemnification obligations,
then such indemnification obligations will be shared equally between the two
other companies.
The Company is also involved in certain other legal proceedings arising
in the ordinary course of its business. While there can be no assurances as to
the ultimate outcome of any litigation involving the Company, management does
not believe any pending legal proceeding will result in a judgment or settlement
that will have a material adverse effect on the Company's financial position,
results of operations or cash flows.
REORGANIZATION CHARGES
Fiscal year 2000 expenses included net reorganization charges of $0.2
million primarily attributable to legal fees incurred in excess of the accrual
established as part of the Distribution that occurred on April 2, 1999.
Fiscal year 1999 expenses included net reorganization charges of $29.7
million, of which $24.9 million was incurred as a result of the Distribution and
$4.8 million was incurred as a result of the Company's restructuring of its
X-ray Products segment by the closing of a manufacturing facility in Arlington
Heights, Illinois to consolidate manufacturing at the Company's existing
facility in Salt Lake City, Utah. The $29.7 million net charge includes $34.3
million for retention bonuses for employee services provided prior to October 1,
1999, employee severance
F-20
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and executive compensation; $21.0 million for legal, accounting, printing and
investment banking fees; $1.7 million for foreign taxes (excluding income taxes)
resulting from the international reorganization of the Company's subsidiaries in
connection with the Distribution; and $6.8 million in other costs associated
with the Distribution and restructuring; partially offset by a $34.1 million
gain on the sale of the Company's aircraft and long-term leasehold interests in
certain of its Palo Alto facilities, together with the related buildings and
other corporate assets.
The following table sets forth certain details associated with these net
reorganization charges (in thousands of dollars):
<TABLE>
<CAPTION>
ACCRUAL AT ACCRUAL AT
OCTOBER 1, CASH RECLASSIFICATIONS SEPTEMBER 29,
1999 PAYMENTS /ADJUSTMENTS 2000
--------------- ------------ ----------------- --------------
<S> <C> <C> <C> <C>
Retention bonuses, severance, and executive $ 4,507 $ (2,473) $ (451) $ 1,583
compensation...................................
Legal, accounting, printing and investment
banking fees................................... 1,792 (2,253) 561 100
Foreign taxes (excluding income taxes)............ 676 -- -- 676
Other............................................. 1,368 (1,485) 117 --
--------------- ------------ --------------- --------------
$ 8,343 $ (6,211) $ 227 $ 2,359
=============== ============ =============== ==============
</TABLE>
ACQUISITION-RELATED EXPENSES
On June 6, 2000, the Company announced an agreement to acquire privately
held IMPAC Medical Systems, Inc. ("IMPAC"). The Company incurred transaction
costs of approximately $2.0 million. The transaction costs were largely made up
of legal, accounting and investment adviser expenses. On November 6, 2000, the
Company announced the abandonment of its proposed acquisition of IMPAC to avoid
a protracted legal proceeding after the U.S. Department of Justice declared its
intention to challenge the transaction on antitrust grounds. As a result of the
abandonment of the proposed acquisition in November 2000, the Company recognized
the $2.0 million of transaction costs in its fiscal year 2000 results of
operations.
PURCHASE BUSINESS COMBINATIONS
During fiscal years 1999 and 1998, the Company acquired the assets and
liabilities of two businesses. The consolidated financial statements include the
operating results of each acquired business from the date of acquisition. Pro
forma results of operations have not been presented, because the effects of
these acquisitions were not material on either an individual or an aggregated
basis. The Company did not participate in any purchase business combinations in
fiscal year 2000.
Amounts allocated to goodwill are amortized on a straight-line basis over
periods ranging from 7 to 40 years.
Summary of purchase transactions (dollars in millions):
<TABLE>
<CAPTION>
ENTITY NAME CONSIDERATION CLOSING DATE
------------- ------------- -----------------
<S> <C> <C>
Therapy Planning Division of Multimedia Medical Systems, Inc.-Brachytherapy.... $ 7.5 July 1999
GE Medical Systems--Radiotherapy Service and Parts............................. $ 45.0 December 1997
</TABLE>
INDUSTRY SEGMENTS
The Company's operations are grouped into two reportable segments:
Oncology Systems and X-ray Products. These segments were determined based on how
management views and evaluates the Company's operations. The Company's Ginzton
Technology Center (GTC) including its brachytherapy business, is reflected in an
"other" category. Other factors included in segment determination were similar
economic characteristics, distribution channels, manufacturing environment,
technology and customers. The Company evaluates performance and
F-21
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
allocates resources based on earnings from continuing operations before interest
and taxes. The accounting policies of the reportable segments are the same as
those disclosed in the summary of significant accounting policies.
Oncology Systems designs, manufactures, sells and services hardware and
software products for radiation treatment of cancer, including linear
accelerators, simulators and computer systems for planning cancer treatments and
data management systems for radiation oncology centers. Oncology Systems also
manufactures and markets related radiotherapy products such as imaging systems,
information management systems, multi-leaf collimators, simulators and
radiosurgery products. X-ray Products is involved in the design and manufacture
of subsystems for diagnostic radiology, including x-ray-generating tubes and
imaging subsystems. X-ray Products manufactures tubes for medical x-ray imaging
applications including CT scanner, radiographic/fluoroscopic, special
procedures; and mammography and industrial x-ray tubes consisting of analytical
x-ray tubes used for x-ray fluorescence and diffraction as well as tubes used
for non-destructive imaging and gauging. GTC, the Company's research and
development facility for breakthrough technologies, also manufactures and sells
the Company's brachytherapy products and services. In addition, GTC conducts
externally funded contract research related to developing new medical
technologies.
Corporate includes shared costs of legal, tax, accounting, human
resources, real estate, insurance, information technology, treasury and other
management costs. A portion of the indirect and common costs has been allocated
through the use of estimates. Accordingly, the following information is provided
for purposes of achieving an understanding of operations, but may not be
indicative of the financial results of the reported segments were they
independent organizations. In addition, comparisons of the Company's operations
to similar operations of other companies may not be meaningful.
The Company operates various manufacturing and marketing operations
outside the United States. Sales to customers located in Japan were $81 million
in fiscal 2000, $75 million in fiscal 1999 and $68 million in fiscal 1998. Sales
between geographic areas are accounted for at cost plus prevailing markups
arrived at through negotiations between profit centers. Related profits are
eliminated in consolidation. No single customer represents 10% or more of the
Company's total sales. Sales under prime contracts from the U.S. Government were
approximately $4.3 million in fiscal 2000, $4.4 million in fiscal 1999 and $6.1
million in fiscal 1998.
For fiscal 2000, 1999 and 1998, no single country outside the United
States accounted for more than 10% of total assets.
<TABLE>
<CAPTION>
EARNINGS FROM
CONTINUING
OPERATIONS
SALES BEFORE TAXES
------------------------------ ------------------------------
2000 1999 1998 2000 1999 1998
--------- ---------- --------- ---------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Oncology Systems................ $ 534 $ 459 $ 405 $ 93 $ 70 $ 60
X-ray Products.................. 136 123 131 18 11 20
Other........................... 20 8 5 (5) (8) (9)
--------- ---------- --------- ---------- --------- ---------
Total Industry Segments...... 690 590 541 106 73 71
Corporate....................... -- -- -- (18) (49) (33)
Interest, net................... -- -- -- (3) (6) (2)
--------- ---------- --------- ---------- --------- ---------
Total Company................ $ 690 $ 590 $ 541 $ 85 $ 18 $ 36
========= ========== ========= ========== ========= =========
</TABLE>
F-22
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION ABOUT PROFIT/(LOSS) AND ASSETS
<TABLE>
<CAPTION>
CAPITAL DEPRECIATION
TOTAL ASSETS EXPENDITURES* AMORTIZATION*
----------------------- ------------------- --------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998
------- ------ -------- ----- ------ ------ ------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oncology Systems.............................. $ 340 $ 333 $ 302 $ 8 $ 10 $ 7 $ 9 $ 9 $ 8
X-ray Products................................ 90 84 79 6 8 6 7 9 7
Other......................................... 20 18 6 1 3 1 2 1 1
------- ------ -------- ----- ----- ----- ----- ----- -----
Total Industry Segments.................... 450 435 387 15 21 14 18 19 16
Corporate..................................... 153 104 831 4 7 6 4 5 6
------- ------ -------- ----- ----- ----- ----- ----- -----
Total Company.............................. $ 603 $ 539 $ 1,218 $ 19 $ 28 $ 20 $ 22 $ 24 $ 22
======= ====== ======== ===== ===== ===== ===== ===== =====
</TABLE>
- --------------
* Amounts may not agree to the consolidated financial statements due to
amounts associated with discontinued operations.
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
LONG-LIVED
SALES ASSET
-------------------------------- ------------------------------
2000 1999 1998 2000 1999 1998
--------- ---------- --------- --------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States................................. $ 379 $ 267 $ 234 $ 111 $ 124 $ 228
International................................. 311 323 307 41 33 91
--------- ---------- --------- --------- -------- ---------
Total Company.............................. $ 690 $ 590 $ 541 $ 152 $ 157 $ 379
========= ========== ========= ========= ======== =========
</TABLE>
Sales are based on final destination of products sold.
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------- ---------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- ------ -------- -------- --------- -------- -------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.............. $ 141.3 $ 169.7 $ 170.7 $ 208.0 $689.7 $ 105.0 $ 149.3 $ 144.5 $ 191.6 $590.4
-------- -------- -------- -------- ------ -------- -------- --------- -------- -------
Gross Profit....... $ 50.4 $ 61.0 $ 62.1 $ 83.6 $257.1 $ 32.8 $ 49.4 $ 51.3 $ 76.5 $210.0
-------- -------- -------- -------- ------ -------- -------- --------- -------- -------
Net Earnings (Loss)
Continuing
Operations.... $ 5.2 $ 10.4 $ 14.0 $ 23.4 $ 53.0 $ (2.0) $ (10.2) $ 6.6 $ 13.8 $ 8.2
Discontinued
Operations.... -- -- -- -- -- (0.4) (30.8) -- (1.2) (32.4)
-------- -------- -------- -------- ------ -------- -------- --------- -------- -------
Net Earnings (Loss) $ 5.2 $ 10.4 $ 14.0 $ 23.4 $ 53.0 $ (2.4) $ (41.0) $ 6.6 $ 12.6 $(24.2)
======== ======== ======== ======== ====== ======== ======== ========= ======== =======
Net Earnings
(Loss) Per
Share-Basic.....
Continuing
Operations.... $ 0.17 $ 0.33 $ 0.45 $ 0.74 $ 1.71 $ (0.07) $ (0.34) $ 0.22 $ 0.46 $ 0.27
Discontinued
Operations.... -- -- -- -- -- (0.01) (1.02) -- (0.05) (1.07)
-------- -------- -------- -------- ------ -------- -------- --------- -------- -------
Basic.............. $ 0.17 $ 0.33 $ 0.45 $ 0.74 $ 1.71 $ (0.08) $ (1.36) $ 0.22 $ 0.41 $(0.80)
======== ======== ======== ======== ====== ======== ======== ========= ======== =======
Net Earnings
(Loss) Per
Share-Diluted...
Continuing
Operations.... $ 0.17 $ 0.32 $ 0.43 $ 0.71 $ 1.64 $ (0.07) $ (0.34) $ 0.21 $ 0.45 $ 0.27
Discontinued
Operations.... -- -- -- -- -- (0.01) (1.02) -- (0.04) (1.06)
-------- -------- -------- -------- ------ -------- -------- --------- -------- -------
Diluted............ $ 0.17 $ 0.32 $ 0.43 $ 0.71 $ 1.64 $ (0.08) $ (1.36) $ 0.21 $ 0.41 $(0.79)
======== ======== ======== ======== ====== ======== ======== ========= ======== =======
</TABLE>
The four quarters for net earnings (loss) per share may not add to the
total year because of differences in the weighted average number of shares
outstanding during the quarters and the year.
Net earnings from continuing operations for the fourth quarter of fiscal
year 2000 include net after tax acquisition-related expenses of $1.2 million and
related diluted loss per share of $0.03.
F-23
<PAGE>
VARIAN MEDICAL SYSTEMS, INC., AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net earnings (loss) from continuing operations for the first through the
fourth quarters of fiscal year 1999 include net after tax reorganization related
charges (income) of $3.0 million, $23.1 million, $0.3 million, and ($0.7)
million, respectively, and related diluted (earnings) loss per share of $0.10,
$0.77, $0.01, and ($0.02), respectively.
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS (UNAUDITED)
The Company's common stock is traded on the New York Stock Exchange and
Pacific Exchange under the symbol VAR. The following table sets forth the high
and low closing sales prices for the Company's common stock as reported in the
consolidated transaction reporting system for the New York Stock Exchange for
the first half of fiscal year 1999.
FISCAL YEAR 1999 HIGH LOW
----------- ------------
First Quarter.................... $ 41 1/16 $ 32 7/16
Second Quarter................... 43 31 3/4
On April 2, 1999, the end of the first half of fiscal year 1999, the
Company distributed to its stockholders all of the outstanding shares of common
stock of each of VI and VSEA. The high and low closing sales prices for the
Company's common stock for the last half of fiscal year 1999 and in fiscal year
2000 were:
FISCAL YEAR 1999 HIGH LOW
----------- -----------
Third Quarter....................... $ 25 1/4 $ 16 5/8
Fourth Quarter...................... 24 3/16 19 7/16
FISCAL YEAR 2000
First Quarter....................... 29 13/16 20 3/16
Second Quarter...................... 47 1/4 28 9/16
Third Quarter....................... 48 38 1/2
Fourth Quarter...................... 48 13/16 39 11/16
The Company declared cash dividends of $0.10 in the first quarter of
fiscal year 1999. Since the Distribution, the Company has not paid any dividends
on the common stock and does not currently anticipate paying dividends on the
common stock for the foreseeable future. Further, the existing term loans of the
Company's financing agreements contain provisions that limit the ability of the
Company to pay dividends.
F-24
<PAGE>
SCHEDULE II
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS (1)
FOR THE FISCAL YEARS ENDED 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED DEDUCTIONS BALANCE
BEGINNING COSTS AND ----------------------------- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIPTION AMOUNT PERIOD
- -------------------------------------------- ----------- ------------ ---------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL NOTES & ACCOUNTS
RECEIVABLE:
Write-offs &
Fiscal year ended 2000..................... $ 1,138 $ 1,142 Adjustments $ 420 $ 1,860
=========== ============ ============ ==========
Write-offs &
Fiscal year ended 1999..................... $ 2,644 $ 2,704 Adjustments $ 4,210(2)$ 1,138
=========== ============ ============ ==========
Write-offs &
Fiscal year ended 1998..................... $ 2,715 $ 3,020 Adjustments $ 3,091 $ 2,644
=========== ============ ============ ==========
ESTIMATED LIABILITY FOR PRODUCT WARRANTY:
Actual
Warranty
Fiscal year ended 2000..................... $ 18,152 $ 27,670 Expenditures $ 25,847 $ 19,975
=========== ============ ============ ==========
Actual
Warranty
Fiscal year ended 1999..................... $ 44,153 $ 56,389 Expenditures $ 82,390(3)$ 18,152
=========== ============ ============ ==========
Actual
Warranty
Fiscal year ended 1998..................... $ 37,620 $ 59,433 Expenditures $ 52,900 $ 44,153
=========== ============ ============ ==========
- --------------
(1) As to column omitted the answer is "none."
(2) Includes a $2,420 deduction due to the spin-offs of the Company's instruments and semiconductor businesses
on April 2, 1999.
(3) Includes a $22,437 deduction due to the spin-offs of the Company's instruments and semiconductor
businesses on April 2, 1999.
</TABLE>
F-25
<PAGE>
EXHIBIT INDEX
Set forth below is a list of exhibits that are being filed or
incorporated by reference into this Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C> <C>
2 Amended and Restated Distribution Agreement, dated as of January 14, 1999, by and among Varian
Associates, Inc. (which has been renamed Varian Medical Systems, Inc.), Varian, Inc. and Varian
Semiconductor Equipment Associates, Inc. (incorporated by reference to Exhibit 2 to the
registrant's Form 8-K Current Report dated as of April 2, 1999, File No. 1-7598).
3.1 Registrant's Restated Certificate of Incorporation.
3.2 Registrant's By-Laws, as amended (incorporated by reference to Exhibit 3-B to the registrant's
Form 10-Q Quarterly Report for the quarter ended April 2, 1999. File No. 1-7598).
4.1 Specimen Common Stock Certificate.*
10.1+ Registrant's Omnibus Stock Plan.
10.2+ Registrant's Management Incentive Plan.*
10.3+ Registrant's form of Indemnity Agreement with Directors and Executive Officers.*
10.4+ Registrant's form of Change in Control Agreement with certain Executive Officers other than the
Chief Executive Officer and the Chief Financial Officer.*
10.5+ Registrant's Change in Control Agreement with the Chief Executive Officer.*
10.6+ Registrant's Change in Control Agreement with the Chief Financial Officer *
10.7+ Registrant's Change in Control Agreement with General Counsel.**
10.8 Amended and Restated Note Purchase and Private Shelf Agreement, dated as of April 1, 1999,
between Registrant and Prudential Insurance Company of America (certain exhibits and schedules
omitted).*
10.9 Employee Benefits Allocation Agreement, dated April 2, 1999, by and among Varian Associates, Inc.
(which has been renamed Varian Medical Systems, Inc.), Varian, Inc. and Varian Semiconductor
Equipment Associates, Inc. (incorporated by reference to Exhibit No. 99.1 to the registrant's
Form 8-K Current Report dated as of April 2, 10.9 1999, File No. 1-7598).
10.10 Intellectual Property Agreement, dated April 2, 1999, by and among Varian Associates, Inc. (which
has been renamed Varian Medical Systems, Inc.), Varian, Inc. and Varian Semiconductor Equipment
Associates, Inc. (incorporated by reference to Exhibit No. 99.2 to the registrant's Form 8-K
Current Report dated as of April 2, 1999, File No. 1-7598).
10.11 Tax Sharing Agreement, dated April 2, 1999, by and among Varian Associates, Inc. (which has been
renamed Varian Medical Systems, Inc.), Varian, Inc. and Varian Semiconductor Equipment
Associates, Inc. (incorporated by reference to Exhibit No. 99.3 to the registrant's Form 8-K
Current Report dated as of April 2, 1999, File No. 1-7598).
10.12 Transition Services Agreement, dated April 2, 1999, by and among Varian Associates, Inc. (which
has been renamed Varian Medical Systems, Inc.), Varian, Inc. and Varian Semiconductor Equipment
Associates, Inc. (incorporated by reference to Exhibit No. 99.4 to the registrant's Form 8-K
Current Report dated as of April 2, 1999, File No. 1-7598).
10.13+ Amended and Restated Severance Agreement between the registrant and Joseph B. Phair dated as of
August 20, 1999.**
10.14+ Registrant's Supplemental Retirement Plan.**
10.15+ Description of Certain Compensatory Arrangements between registrant and directors.**
10.16+ Description of Certain Compensatory Arrangements between registrant and executive officers.**
10.17+ Registrant's Deferred Compensation Plan.
21 List of Subsidiaries.
23 Consent of Independent Accountants.
24 Power of Attorney by directors of the Company authorizing certain persons to sign this Annual Report
Report on Form 10-K on their behalf.
27 Financial Data Schedule for the fiscal year ended September 29, 2000.
- --------------
* Incorporated by reference from the exhibit of the same number to the registrant's Form 10-Q Quarterly Report for the
quarter ended April 2, 1999, File No. 1-7598.
** Incorporated by reference from the exhibit of the same number to the registrant's Form 10-K Annual Report for the fiscal
year ended October 1, 1999, File No. 1-7598.
+ Management contract or compensatory arrangement.
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>EXHIBIT 3.1
<TEXT>
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
VARIAN MEDICAL SYSTEMS, INC.
A DELAWARE CORPORATION
Varian Medical Systems, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: The name of the Corporation is Varian Medical Systems,
Inc. and the name under which the Corporation was originally incorporated was
Varian Delaware, Inc. The Corporation's original Certificate of Incorporation
was filed with the Secretary of State of Delaware on January 22, 1976.
SECOND: The Restated Certificate of Incorporation of Varian
Medical Systems, Inc. in the form attached hereto as EXHIBIT A restates and
integrates but does not further amend the Certificate of Incorporation of Varian
Medical Systems, Inc. and there is no discrepancy between the provisions of the
Corporation's Certificate of Incorporation as heretofore amended or supplemented
and the provisions of the Restated Certificate of Incorporation attached hereto,
which has been duly adopted in accordance with the provisions of Sections 245
and 141(b) of the General Corporation Law of the State of Delaware by the
affirmative vote of a majority of the directors of the Corporation at a meeting
of the Board of Directors duly noticed and held on August 20, 1999, at which a
quorum was present.
THIRD: The Restated Certificate of Incorporation so
adopted reads in full as set forth in EXHIBIT A attached hereto and
incorporated herein by this reference.
IN WITNESS WHEREOF, we have hereunto set our hands as
President and Secretary, respectively, of Varian Medical Systems, Inc. and
hereby affirm under penalties of perjury that the foregoing is our act and deed
and the facts herein stated are true, and accordingly have hereunto set forth
our hands this 23rd day of May, 2000.
/s/ Richard M. Levy
------------------------------------------------
Richard M. Levy, President
ATTEST: /s/ Joseph B. Phair
-----------------------------------
Joseph B. Phair, Secretary
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
VARIAN MEDICAL SYSTEMS, INC.
A DELAWARE CORPORATION
ARTICLE I
The name of this corporation is Varian Medical Systems, Inc.
ARTICLE II
Its registered office is located at 1209 Orange Street, City
of Wilmington, County of New Castle, State of Delaware. The name of its
registered agent at that address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted by this corporation is to engage in research, development, manufacture,
service and sale of electronic and related products and to engage in any other
act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE IV
This corporation shall be authorized to issue two classes of
stock to be designated, respectively, "Common" and "Preferred." The total number
of shares which this corporation shall have authority to issue shall be one
hundred million (100,000,000). The total number of shares of Common Stock shall
be ninety-nine million (99,000,000) and the par value of each share of Common
Stock shall be One Dollar ($1). The total number of shares of Preferred Stock
shall be one million (1,000,000) and the par value of each share of Preferred
Stock shall be One Dollar ($1).
The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby expressly vested with authority to
fix by resolution or resolutions the designations and the powers, preferences
and relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof (including, without
limitation, the voting powers, if any, the dividend rate, conversion rights,
redemption price, or liquidation preference of any series of Preferred Stock),
to fix the number of shares constituting any such series, and to increase or
decrease the number of shares of any such series (but not below the number of
shares thereof then outstanding). In case the number of shares of any such
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution or resolutions
originally fixing the number of shares of such series.
The number of authorized shares of any class or classes of
stock may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative
<PAGE>
vote of the holders of a majority of the stock of the corporation entitled to
vote in the election of directors.
The Certificate of Designation heretofore adopted is attached
as Attachment 1.
ARTICLE V
Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, the
number of directors of this corporation shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the then authorized number of directors of this corporation, but in
no event shall the number of directors be fewer than three. The directors, other
than those who may be elected solely by the holders of any series of Preferred
Stock (unless the relevant Preferred Stock certificate of designation shall so
provide), shall be divided into three classes, as nearly equal in number as
possible, designated "Class I," "Class II" and "Class III." Directors of each
class shall serve for a term ending on the third annual meeting of stockholders
following the annual meeting at which such class was elected. The foregoing
notwithstanding, each director shall serve until his or her successor shall have
been duly elected and qualified, unless such director shall die, resign, retire
or be disqualified or removed.
At each annual election the directors chosen to succeed those
whose terms then expire shall be identified as being of the same class as the
directors they succeed. If for any reason the number of directors in the various
classes shall not be as nearly equal as possible, the Board of Directors may
redesignate any director into a different class in order that the balance of
directors in such classes shall be as nearly equal as possible.
At all elections of directors of this corporation, each holder
of Common Stock shall be entitled to as many votes as shall equal the number of
votes which, except for this provision as to cumulative voting, he would be
entitled to cast for the election of directors with respect to his shares of
Common Stock, multiplied by the number of directors to be elected, and he may
cast all of such votes for a single nominee for director or may distribute them
among the number to be voted for, or for any two or more of them as he sees fit.
Every act or decision done or made by a majority of the whole
Board of Directors, acting at a meeting duly held at which a quorum is present,
or acting by written consent, shall be regarded as the act of the Board of
Directors unless a greater number be required by law or by this Certificate of
Incorporation.
ARTICLE VI
In furtherance and not in limitation of the powers conferred
by law, the Board of Directors is expressly authorized, by resolution passed by
a majority of the whole board, to make, amend, alter or repeal the By-Laws of
this corporation.
ARTICLE VII
This corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in any
manner now or hereafter prescribed by law, and all rights herein conferred upon
the stockholders are granted subject to this reservation.
2
<PAGE>
ARTICLE VIII
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
ARTICLE IX
Meetings of stockholders may be held outside the State of
Delaware, if the By-Laws so provide. The books of this corporation may be kept
(subject to any provision of law) outside the State of Delaware. Elections of
directors need not be by ballot unless the By-Laws of this corporation shall so
provide.
ARTICLE X
A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for any matter in respect of which such
director shall be liable under Section 174 of the General Corporation Law of the
State of Delaware or shall be liable by reason that, in addition to any and all
other requirements for such liability, he (i) shall have breached his duty of
loyalty to the corporation or its stockholders, (ii) shall not have acted in
good faith or, in failing to act, shall not have acted in good faith, (iii)
shall have acted in a manner involving intentional misconduct or a knowing
violation of the law, or (iv) shall have derived an improper personal benefit.
Neither the amendment nor repeal of this Article X, nor the adoption of any
provision of the Certificate of Incorporation inconsistent with this Article X
shall eliminate or reduce the effect of this Article X in respect of the matter
occurring, or any cause of action, suit or claim that but for this Article X
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
3
<PAGE>
CERTIFICATE OF DESIGNATION AND TERMS
OF PARTICIPATING PREFERRED STOCK
OF
VARIAN ASSOCIATES, INC.
Pursuant to Section 151 of the General
CORPORATION LAW OF THE STATE OF DELAWARE
We, the undersigned, J. Tracy O'Rourke and Joseph B. Phair, the Chairman of
the Board and Chief Executive Officer, and the Secretary, respectively, of
Varian Associates, Inc., a Delaware corporation (the "Corporation"), do hereby
certify as follows:
Pursuant to authority granted by Article IV of the Restated Certificate of
Incorporation, as amended, of the Corporation and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation has adopted the following
resolutions fixing the designation and certain terms, powers, preferences and
other rights of a new series of the Corporation's Preferred Stock, par value $1
per share, and certain qualifications, limitations and restrictions thereon:
RESOLVED, that there is hereby established a series of Preferred
Stock, par value $1 per share, of the Corporation, and the designation and
certain terms, powers, preferences and other rights of the shares of such
series, and certain qualifications, limitations and restrictions thereon,
are hereby fixed as follows:
(i) The distinctive serial designation of this series shall be
"Participating Preferred Stock" (hereinafter called "this Series").
Each share of this Series shall be identical in all respects with the
other shares of this Series except as to the dates from and after
which dividends thereon shall be cumulative.
(ii) The number of shares in this Series shall initially be
50,000, which number may from time to time be increased or decreased
(but not below the number then outstanding) by the Board of Directors.
Shares of this Series purchased by the Corporation shall be cancelled
and shall revert to authorized but unissued shares of Preferred Stock
undesignated as to series. Shares of this Series may be issued in
fractional shares, which fractional shares shall entitle the holder,
in proportion to such holder's fractional share, to all rights of a
holder of a whole share of this Series.
4
<PAGE>
(iii) The holders of full or fractional shares of this Series
shall be entitled to receive, when and as declared by the Board of
Directors, but only out of funds legally available therefor,
dividends, (A) on each date that dividends or other distributions
(other than dividends or distributions payable in Common Stock of the
Corporation) are payable on or in respect of Common Stock comprising
part of the Reference Package (as defined below), in an amount per
whole share of this Series equal to the aggregate amount of dividends
or other distributions (other than dividends or distributions payable
in Common Stock of the Corporation) that would be payable on such date
to a holder of the Reference Package (as hereinafter defined) and (B)
on the last day of March, June, September and December in each year,
in an amount per whole share of this Series equal to the excess (if
any) of $2.50 over the aggregate dividends paid per whole share of
this Series during the three month period ending on such last day.
Each such dividend shall be paid to the holders of record of shares of
this Series on the date, not exceeding sixty days preceding such
dividend or distribution payment date, fixed for the purpose by the
Board of Directors in advance of payment of each particular dividend
or distribution. Dividends on each full and each fractional share of
this Series shall be cumulative from the date such full or fractional
share is originally issued; provided that any such full or fractional
share originally issued after a dividend record date and on or prior
to the dividend payment date to which such record date relates shall
not be entitled to receive the dividend payable on such dividend
payment date or any amount in respect of the period from such original
issuance to such dividend payment date.
The term "Reference Package" shall initially mean 1,000 shares of
Common Stock, par value $1 per share ("Common Stock"), of the
Corporation. In the event the Corporation shall at any time after the
close of business on December 4, 1998 (A) declare of pay a dividend on
any Common Stock payable in Common Stock, (B) subdivide any Common
Stock or (C) combine any Common Stock into a smaller number of shares,
then and in each such case the Reference Package after such event
shall be the Common Stock that a holder of the Reference Package
immediately prior to such event would hold thereafter as a result
thereof.
Holders of shares of this Series shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of
full cumulative dividends, as herein provided on this Series.
So long as any shares of this series are outstanding, no
dividends (other than a dividend in Common Stock or in any other stock
ranking junior to this Series as to dividends and upon liquidation)
shall be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock or upon any other
stock ranking junior to this Series as to dividends or upon
liquidation, nor shall any Common Stock nor any other stock of the
Corporation ranking junior to or on a parity with this Series as
5
<PAGE>
to dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any
such stock) by the Corporation (except by conversion into or exchange
for stock of the Corporation ranking junior to this Series as to
dividends and upon liquidation), unless, in each case, the full
cumulative dividends (including the dividend to be due upon payment of
such dividend, distribution, redemption, purchase or other
acquisition) on all outstanding shares of this Series shall have been,
or shall contemporaneously be, paid.
(iv) In the event of any merger, consolidation, reclassification
or other transaction in which the shares of Common Stock are exchanged
for or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of this Series shall at the
same time be similarly exchanged or changed in an amount per whole
share equal to the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, that a
holder of the Reference Package would be entitled to receive as a
result of such transaction.
(v) In the event of any liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or involuntary, the
holders of full and fractional shares of this Series shall be
entitled, before any distribution or payment is made on any date to
the holders of the Common Stock or any other stock of the Corporation
ranking junior to this Series upon liquidation, to be paid in full an
amount per whole share of this Series equal to the greater of (A) $100
or (B) the aggregate amount distributed or to be distributed prior to
such date in connection with such liquidation, dissolution or winding
up to a holder of the Reference Package (such greater amount being
hereinafter referred to as the "Liquidation Preference"), together
with accrued dividends to such distribution or payment date, whether
or not earned or declared. If such payment shall have been made in
full to all holders of shares of this Series, the holders of shares of
this Series as such shall have no right or claim to any of the
remaining assets of the Corporation.
In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to the first
paragraph of this Section (v), no such distribution shall be made on
account of any shares of any other class or series of Preferred Stock
ranking on a parity with the shares of this Series upon such
liquidation, dissolution or winding up unless proportionate
distributive amounts shall be paid on account of the shares of this
Series, ratably in proportion to the full distributable amounts for
which holders of all such parity shares are respectively entitled upon
such liquidation, dissolution or winding up.
6
<PAGE>
Upon the liquidation, dissolution or winding up of the
Corporation, the holders of shares of this Series then outstanding
shall be entitled to be paid out of assets of the Corporation
available for distribution to its Stockholders all amounts to which
such holders are entitled pursuant to the first paragraph of this
Section (v) before any payment shall be made to the holders of Common
Stock or any other stock of the Corporation ranking junior upon
liquidation to this Series.
For the purposes of this Section (v), the consolidation or merger
of, or binding share exchange by, the Corporation with any other
corporation shall not be deemed to constitute a liquidation,
dissolution or winding up of the Corporation.
(vi) The shares of this Series shall not be redeemable.
(vii) In addition to any other vote or consent of Stockholders
required by law or by the Restated Certificate of Incorporation, as
amended, of the Corporation, each whole share of this Series shall, on
any matter, vote as a class with any other capital stock comprising
part of the Reference Package and voting on such matter and shall have
the number of votes thereon that a holder of the Reference Package
would have.
IN WITNESS WHEREOF, the undersigned have signed and attested this
certificate on the 20th day of November, 1998.
/s/ J. Tracy O'Rouke
----------------------------------------------
J. Tracy O'Rourke
Chairman of the Board and
Chief Executive Officer
Attest:
/s/ Joseph B. Phair
- --------------------------------
Joseph B. Phair
Vice President, General Counsel
and Secretary
7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>EXHIBIT 10.1
<TEXT>
<PAGE>
EXHIBIT 10.1
VARIAN MEDICAL SYSTEMS, INC.
OMNIBUS STOCK PLAN
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 BACKGROUND, PURPOSE AND DURATION...........................1
1.1 Effective Date.............................................1
1.2 Purpose of the Plan........................................1
SECTION 2 DEFINITIONS................................................1
2.1 "1934 Act".................................................1
2.2 "Affiliate"................................................1
2.3 "Award"....................................................1
2.4 "Award Agreement"..........................................1
2.5 "Board"....................................................1
2.6 "Code".....................................................1
2.7 "Committee"................................................1
2.8 "Company"..................................................1
2.9 "Consultant"...............................................1
2.10 "Director".................................................2
2.11 "Disability"...............................................2
2.12 "EBIT".....................................................2
2.13 "EBITDA"...................................................2
2.14 "Earnings Per Share".......................................2
2.15 "Employee".................................................2
2.16 "Exercise Price"...........................................2
2.17 "Fair Market Value"........................................2
2.18 "Fiscal Year"..............................................2
2.19 "Grant Date"...............................................2
2.20 "Incentive Stock Option"...................................2
2.21 "Net Income"...............................................2
2.22 "Non-employee Director"....................................2
2.23 "Non-qualified Stock Option"...............................2
2.24 "Operating Cash Flow"......................................2
2.25 "Option"...................................................2
2.26 "Participant"..............................................3
2.27 "Performance Goals"........................................3
2.28 "Performance Period".......................................3
2.29 "Performance Share"........................................3
2.30 "Performance Unit".........................................3
2.31 "Period of Restriction"....................................3
2.32 "Plan".....................................................3
2.33 "Restricted Stock".........................................3
2.34 "Retirement"...............................................3
2.35 "Return on Assets".........................................3
2.36 "Return on Equity..........................................3
2.37 "Return on Sales"..........................................3
2.38 "Revenue"..................................................3
2.39 "Rule 16b-3"...............................................3
2.40 "Section 16 Person"........................................4
2.41 "Shareholder Return".......................................4
2.42 "Shares"...................................................4
2.43 "Stock Appreciation Right".................................4
2.44 "Subsidiary"...............................................4
2.45 "Termination of Service"...................................4
2.46 "VAI"......................................................4
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
SECTION 3 ADMINISTRATION.............................................4
3.1 The Committee..............................................4
3.2 Authority of the Committee.................................4
3.3 Delegation by the Committee................................4
3.4 Non-employee Directors.....................................5
3.5 Decisions Binding..........................................5
SECTION 4 SHARES SUBJECT TO THE PLAN.................................5
4.1 Number of Shares...........................................5
4.2 Lapsed Awards..............................................5
4.3 Adjustments in Awards and Authorized Shares................5
SECTION 5 STOCK OPTIONS..............................................5
5.1 Grant of Options...........................................5
5.2 Award Agreement............................................5
5.3 Exercise Price.............................................5
5.3.1 Non-qualified Stock Options..........................6
5.3.2 Incentive Stock Options..............................6
5.3.3 Substitute Options...................................6
5.4 Expiration of Options......................................6
5.4.1 Expiration Dates.....................................6
5.4.2 Death of Participant.................................6
5.4.3 Committee Discretion.................................6
5.5 Exercisability of Options..................................6
5.6 Payment....................................................7
5.7 Restrictions on Share Transferability......................7
5.8 Certain Additional Provisions for Incentive Stock Options..7
5.8.1 Exercisability.......................................7
5.8.2 Termination of Service...............................7
5.8.3 Company and Subsidiaries Only........................7
5.8.4 Expiration...........................................7
5.9 Grant of Reload Options....................................7
SECTION 6 STOCK APPRECIATION RIGHTS..................................8
6.1 Grant of SARs..............................................8
6.2 Exercise Price and Other Terms.............................8
6.3 SAR Agreement..............................................8
6.4 Expiration of SARs.........................................8
6.5 Payment of SAR Amount......................................8
6.6 Payment Upon Exercise of SAR...............................8
SECTION 7 RESTRICTED STOCK...........................................8
7.1 Grant of Restricted Stock..................................8
7.2 Restricted Stock Agreement.................................8
7.3 Transferability............................................8
7.4 Other Restrictions.........................................8
7.4.1 General Restrictions.................................9
7.4.2 Section 162(m) Performance Restrictions..............9
7.4.3 Legend on Certificates...............................9
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
7.5 Removal of Restrictions....................................9
7.6 Voting Rights..............................................9
7.7 Dividends and Other Distributions..........................9
7.8 Return of Restricted Stock to Company......................9
SECTION 8 PERFORMANCE UNITS AND PERFORMANCE SHARES...................9
8.1 Grant of Performance Units and Shares......................9
8.2 Initial Value..............................................9
8.3 Performance Objectives and Other Terms....................10
8.3.1 General Performance Objectives......................10
8.3.2 Section 162(m) Performance Objectives...............10
8.4 Earning of Performance Units and Performance Shares.......10
8.5 Form and Timing of Payment................................10
8.6 Cancellation..............................................10
SECTION 9 NON-EMPLOYEE DIRECTORS....................................10
9.1 Granting of Options.......................................10
9.1.1 Non-employee Directors..............................10
9.1.2 Chairman............................................10
9.2 Terms of Options..........................................11
9.2.1 Option Agreement....................................11
9.2.2 Exercise Price......................................11
9.2.3 Exercisability......................................11
9.2.4 Expiration of Options...............................11
9.2.5 Death of Director...................................11
9.2.6 Not Incentive Stock Options.........................11
9.2.7 Other Terms.........................................11
9.3 Substitute Options........................................11
9.4 Elections by Non-employee Directors.......................12
SECTION 10 MISCELLANEOUS............................................12
10.1 No Effect on Employment or Service........................12
10.2 Participation.............................................12
10.3 Indemnification...........................................12
10.4 Successors................................................12
10.5 Beneficiary Designations..................................12
10.6 Nontransferability of Awards..............................12
10.7 No Rights as Stockholder..................................13
10.8 Withholding Requirements..................................13
10.9 Withholding Arrangements..................................13
10.10 Deferrals................................................13
SECTION 11 AMENDMENT, TERMINATION AND DURATION......................13
11.1 Amendment, Suspension or Termination......................13
11.2 Duration of the Plan......................................13
SECTION 12 LEGAL CONSTRUCTION.......................................13
12.1 Gender and Number.........................................13
12.2 Severability..............................................14
12.3 Requirements of Law.......................................14
12.4 Governing Law.............................................14
12.5 Captions..................................................14
-iii-
<PAGE>
VARIAN MEDICAL SYSTEMS, INC.
OMNIBUS STOCK PLAN
SECTION 1
BACKGROUND, PURPOSE AND DURATION
1.1 EFFECTIVE DATE. This amended and restated Plan is effective as of the
date on which VAI distributes the shares of the common stock of Varian, Inc. and
Varian Semiconductor Equipment Associates, Inc. to the stockholders of VAI,
subject to the approval of the Plan by a majority of the shares of the common
stock of VAI which are present in person or by proxy and entitled to vote at the
1999 Annual and Special Meeting of the Stockholders of VAI.
1.2 PURPOSE OF THE PLAN. The Plan is intended to increase incentives
and to encourage Share ownership on the part of (1) employees of the Company and
its Affiliates, (2) consultants who provide significant services to the Company
and its Affiliates, and (3) directors of the Company who are employees of
neither the Company nor any Affiliate. The Plan also is intended to further the
growth and profitability of the Company. The Plan is intended to permit the
grant of Awards that qualify as performance-based compensation under section
162(m) of the Code.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
2.1 "1934 ACT" means the Securities Exchange Act of 1934, as amended.
Reference to a specific section of the 1934 Act or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
2.2 "AFFILIATE" means any corporation or any other entity (including, but
not limited to, partnerships and joint ventures) controlling, controlled by, or
under common control with the Company.
2.3 "AWARD" means, individually or collectively, a grant under the Plan of
Non-qualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Performance Units or Performance Shares.
2.4 "AWARD AGREEMENT" means the written agreement setting forth the terms
and provisions applicable to each Award granted under the Plan.
2.5 "BOARD" means the Board of Directors of the Company.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended. Reference
to a specific section of the Code or regulation thereunder shall include such
section or regulation, any valid regulation promulgated thereunder, and any
comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
2.7 "COMMITTEE" means the committee appointed by the Board (pursuant to
Section 3.1) to administer the Plan.
2.8 "COMPANY" means Varian Medical Systems, Inc., a Delaware corporation,
or any successor thereto.
2.9 "CONSULTANT" means any consultant, independent contractor, or other
person who provides significant services to the Company or its Affiliates, but
who is neither an Employee nor a Director.
1
<PAGE>
2.10 "DIRECTOR" means any individual who is a member of the Board
2.11 "DISABILITY" means a permanent and total disability within the meaning
of section 22(e)(3) of the Code, provided that in the case of Awards other than
Incentive Stock Options, the Committee in its discretion may determine whether a
permanent and total disability exists in accordance with uniform and
non-discriminatory standards adopted by the Committee from time to time.
2.12 "EBIT" means as to any Performance Period, the Company's or a business
unit's income before reductions for interest and taxes, determined in accordance
with generally accepted accounting principles.
2.13 "EBITDA" means as to any Performance Period, the Company's or a
business unit's income before reductions for interest, taxes, depreciation and
amortization, determined in accordance with generally accepted accounting
principles.
2.14 "EARNINGS PER SHARE" means as to any Performance Period, the Company's
or a business unit's Net Income, divided by a weighted average number of common
shares outstanding and dilutive common equivalent shares deemed outstanding,
determined in accordance with generally accepted accounting principles.
2.15 "EMPLOYEE" means any employee of the Company or of an Affiliate,
whether such employee is so employed at the time the Plan is adopted or becomes
so employed subsequent to the adoption of the Plan.
2.16 "EXERCISE PRICE" means the price at which a Share may be purchased by
a Participant pursuant to the exercise of an Option.
2.17 "FAIR MARKET VALUE" means the last quoted per share selling price for
Shares on the relevant date, or if there were no sales on such date, the
arithmetic mean of the highest and lowest quoted selling prices on the nearest
day before and the nearest day after the relevant date, as determined by the
Committee. Notwithstanding the preceding, for federal, state and local income
tax reporting purposes, fair market value shall be determined by the Committee
in accordance with uniform and nondiscriminatory standards adopted by it from
time to time.
2.18 "FISCAL YEAR" means the fiscal year of the Company.
2.19 "GRANT DATE" means, with respect to an Award, the date that the Award
was granted.
2.20 "INCENTIVE STOCK OPTION" means an Option to purchase Shares which is
designated as an Incentive Stock Option and is intended to meet the requirements
of section 422 of the Code.
2.21 "NET INCOME" means as to any Performance Period, the Company's or a
business unit's income after taxes, determined in accordance with generally
accepted accounting principles.
2.22 "NON-EMPLOYEE DIRECTOR" means a Director who is an employee of neither
the Company nor of any Affiliate.
2.23 "NON-QUALIFIED STOCK OPTION" means an option to purchase Shares which
is not intended to be an Incentive Stock Option.
2.24 "OPERATING CASH FLOW" means as to any Performance Period, the
Company's or a business unit's sum of Net Income plus depreciation and
amortization less capital expenditures plus changes in working capital comprised
of accounts receivable, inventories, other current assets, trade accounts
payable, accrued expenses, product warranty, advance payments from customers and
long-term accrued expenses, determined in accordance with generally acceptable
accounting principles.
2.25 "OPTION" means an Incentive Stock Option or a Non-qualified Stock
Option.
2
<PAGE>
2.26 "PARTICIPANT" means an Employee, Consultant, or Non-employee Director
who has an outstanding Award.
2.27 "PERFORMANCE GOALS" means the goal(s) (or combined goal(s)) determined
by the Committee (in its discretion) to be applicable to a Participant with
respect to an Award. As determined by the Committee, the Performance Goals
applicable to an Award may provide for a targeted level or levels of achievement
using one or more of the following measures: (a) EBIT, (b) EBITDA, (c) Earnings
Per Share, (d) Net Income, (e) Operating Cash Flow, (f) Return on Assets, (g)
Return on Equity, (h) Return on Sales, (i) Revenue, and (j) Shareholder Return.
The Performance Goals may differ from Participant to Participant and from Award
to Award. Prior to the Determination Date, the Committee shall determine whether
any significant element(s) shall be included in or excluded from the calculation
of any Performance Goal with respect to any Participant. "Determination Date"
means the latest possible date that will not jeopardize an Award's qualification
as performance-based compensation under section 162(m) of the Code.
Notwithstanding the previous sentence, for Awards not intended to qualify as
performance-based compensation, "Determination Date" shall mean such date as the
Committee may determine in its discretion.
2.28 "PERFORMANCE PERIOD" means any fiscal period not to exceed three
consecutive Fiscal Years, as determined by the Committee in its sole discretion.
2.29 "PERFORMANCE SHARE" means a Performance Share granted to a Participant
pursuant to Section 8.
2.30 "PERFORMANCE UNIT" means a Performance Unit granted to a Participant
pursuant to Section 8.
2.31 "PERIOD OF RESTRICTION" means the period during which shares of
Restricted Stock are subject to forfeiture and/or restrictions on
transferability.
2.32 "PLAN" means the Varian Medical Systems, Inc. Omnibus Stock Plan, as
set forth in this instrument and as hereafter amended from time to time.
2.33 "RESTRICTED STOCK" means an Award granted to a Participant pursuant to
Section 7.
2.34 "RETIREMENT" means, in the case of an Employee or a Non-employee
Director, "Retirement" as defined pursuant to the Company's or the Board's
Retirement Policies, as they may be established from time to time. With respect
to a Consultant, no Termination of Service shall be deemed to be on account of
"Retirement."
2.35 "RETURN ON ASSETS" means as to any Performance Period, the percentage
equal to the Company's or a business unit's EBIT before incentive compensation,
divided by average net Company or business unit, as applicable, assets,
determined in accordance with generally accepted accounting principles.
2.36 "RETURN ON EQUITY" means as to any Performance Period, the percentage
equal to the Company's Net Income divided by average stockholder's equity,
determined in accordance with generally accepted accounting principles.
2.37 "RETURN ON SALES" means as to any Performance Period, the percentage
equal to the Company's or a business unit's EBIT before incentive compensation,
divided by the Company's or the business unit's, as applicable, Revenue,
determined in accordance with generally accepted accounting principles.
2.38 "REVENUE" means as to any Performance Period, the Company's or a
business unit's net sales, determined in accordance with generally accepted
accounting principles.
2.39 "RULE 16B-3" means Rule 16b-3 promulgated under the 1934 Act, as
amended, and any future regulation amending, supplementing or superseding such
regulation.
3
<PAGE>
2.40 "SECTION 16 PERSON" means a person who, with respect to the Shares, is
subject to section 16 of the 1934 Act.
2.41 "SHAREHOLDER RETURN" means as to any Performance Period, the total
return (change in share price plus reinvestment of any dividends) of a Share.
2.42 "SHARES" means shares of the Company's common stock, $1.00 par value.
2.43 "STOCK APPRECIATION RIGHT" or "SAR" means an Award, granted alone, in
connection or in tandem with a related Option, that pursuant to Section 6 is
designated as a SAR.
2.44 "SUBSIDIARY" means any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
2.45 "TERMINATION OF SERVICE" means (a) in the case of an Employee, a
cessation of the employee-employer relationship between an Employee and the
Company or an Affiliate for any reason, including, but not by way of limitation,
a termination by resignation, discharge, death, Disability, Retirement, or the
disaffiliation of an Affiliate, but excluding any such termination where there
is a simultaneous reemployment by the Company or an Affiliate; (b) in the case
of a Consultant, a cessation of the service relationship between a Consultant
and the Company or an Affiliate for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, Disability, or the
disaffiliation of an Affiliate, but excluding any such termination where there
is a simultaneous re-engagement of the consultant by the Company or an
Affiliate; and (c) in the case of a Non-employee Director, a cessation of the
Non-employee Director's service on the Board for any reason.
2.46 "VAI" means Varian Associates, Inc., a Delaware corporation.
SECTION 3
ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Committee. The
Committee shall consist of not less than two (2) Directors. The members of the
Committee shall be appointed from time to time by, and serve at the pleasure of,
the Board. Each member of the Committee shall qualify as (a) a "non-employee
director" under Rule 16b-3, and (b) an "outside director" under section 162(m)
of the Code. If it is later determined that one or more members of the Committee
do not so qualify, actions taken by the Committee prior to such determination
shall be valid despite such failure to qualify.
3.2 AUTHORITY OF THE COMMITTEE. It shall be the duty of the Committee to
administer the Plan in accordance with the Plan's provisions. The Committee
shall have all powers and discretion necessary or appropriate to administer the
Plan and to control its operation, including, but not limited to, the power to
(a) determine which Employees and Consultants shall be granted Awards, (b)
prescribe the terms and conditions of the Awards (other than the Options granted
to Non-employee Directors pursuant to Section 9), (c) interpret the Plan and the
Awards, (d) adopt such procedures and subplans as are necessary or appropriate
to permit participation in the Plan by Employees, Consultants and Directors who
are foreign nationals or employed outside of the United States, (e) adopt rules
for the administration, interpretation and application of the Plan as are
consistent therewith, and (f) interpret, amend or revoke any such rules.
Notwithstanding any contrary provision of the Plan, the Committee may reduce the
amount payable under any Award (other than an Option) after the grant of such
Award.
3.3 DELEGATION BY THE COMMITTEE. The Committee, in its sole discretion and
on such terms and conditions as it may provide, may delegate all or any part of
its authority and powers under the Plan to one or more directors and/or officers
of the Company; provided, however, that the Committee may not delegate its
authority and powers (a) with respect to Section 16 Persons, (b) in any way
which would jeopardize the Plan's qualification under Rule 16b-3, or (c) with
respect to awards which are intended to qualify as performance-based
compensation under section 162(m) of the Code.
4
<PAGE>
3.4 NON-EMPLOYEE DIRECTORS. Notwithstanding any contrary provision of this
Section 3, the Board shall administer Section 9 of the Plan, and the Committee
shall exercise no discretion with respect to Section 9. In the Board's
administration of Section 9 and the Options and any Shares granted to
Non-employee Directors, the Board shall have all of the authority and discretion
otherwise granted to the Committee with respect to the administration of the
Plan.
3.5 DECISIONS BINDING. All determinations and decisions made by the
Committee, the Board, and any delegate of the Committee pursuant to the
provisions of the Plan shall be final, conclusive, and binding on all persons,
and shall be given the maximum deference permitted by law.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3, the
total number of Shares available for grant under the Plan shall not exceed
5,000,000, plus such number of Shares as are granted pursuant to substitute
Options under Sections 5.3.3 and 9.3 in connection with the distribution of
Shares to the stockholders of VAI. Shares granted under the Plan may be either
authorized but unissued Shares or treasury Shares.
4.2 LAPSED AWARDS. If an Award terminates, expires, or lapses for any
reason, any Shares subject to such Award again shall be available to be the
subject of an Award. In addition, if any Shares are tendered to the Company
(whether by physical delivery or attestation) as full or partial payment for the
exercise of an Option or in satisfaction of a tax withholding obligation
pursuant to an Award, only the net Shares issued shall be deemed granted for
purposes of determining the maximum number of Shares that may be granted under
Section 4.1. Also, Shares granted pursuant to Awards assumed or granted in
substitution of other awards in connection with the acquisition by the Company
of an unrelated entity shall not reduce the maximum number of Shares issuable
under Section 4.1.
4.3 ADJUSTMENTS IN AWARDS AND AUTHORIZED SHARES. In the event of any
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, or other change in the
corporate structure of the Company affecting the Shares, the Committee shall
adjust the number and class of Shares which may be delivered under the Plan, the
number, class, and price of Shares subject to outstanding Awards, and the
numerical limit of Section 5.1 in such manner as the Committee (in its sole
discretion) shall determine to be appropriate to prevent the dilution or
diminution of such Awards. In the case of Options granted to Non-employee
Directors pursuant to Section 9, the foregoing adjustments shall be made by the
Board, and any such adjustments also shall apply to the future grants provided
by Section 9. Notwithstanding the preceding, the number of Shares subject to any
Award always shall be a whole number.
SECTION 5
STOCK OPTIONS
5.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Employees and Consultants at any time and from time to
time as determined by the Committee in its sole discretion. The Committee, in
its sole discretion, shall determine the number of Shares subject to each
Option, provided that during any Fiscal Year, no Participant shall be granted
Options covering more than 1,000,000 Shares. The Committee may grant Incentive
Stock Options, Non-qualified Stock Options, or a combination thereof.
5.2 AWARD AGREEMENT. Each Option shall be evidenced by an Award Agreement
that shall specify the Exercise Price, the expiration date of the Option, the
number of Shares to which the Option pertains, any conditions to exercise of the
Option, and such other terms and conditions as the Committee, in its discretion,
shall determine. The Award Agreement shall specify whether the Option is
intended to be an Incentive Stock Option or a Non-qualified Stock Option.
5.3 EXERCISE PRICE. Subject to the provisions of this Section 5.3, the
Exercise Price for each Option shall be determined by the Committee in its sole
discretion.
5
<PAGE>
5.3.1 NON-QUALIFIED STOCK OPTIONS. In the case of a Non-qualified
Stock Option, the Exercise Price shall be not less than one hundred percent
(100%) of the Fair Market Value of a Share on the Grant Date.
5.3.2 INCENTIVE STOCK OPTIONS. In the case of an Incentive Stock
Option, the Exercise Price shall be not less than one hundred percent
(100%) of the Fair Market Value of a Share on the Grant Date; provided,
however, that if on the Grant Date, the Employee (together with persons
whose stock ownership is attributed to the Employee pursuant to section
424(d) of the Code) owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or
any of its Subsidiaries, the Exercise Price shall be not less than one
hundred and ten percent (110%) of the Fair Market Value of a Share on the
Grant Date.
5.3.3 SUBSTITUTE OPTIONS. Notwithstanding the provisions of Sections
5.3.1 and 5.3.2, in the event that the Company or an Affiliate consummates
a transaction described in section 424(a) of the Code (e.g., the
acquisition of property or stock from an unrelated corporation), persons
who become Employees or Consultants on account of such transaction may be
granted Options in substitution for options granted by their former
employer. If such substitute Options are granted, the Committee, in its
sole discretion and consistent with section 424(a) of the Code, shall
determine the exercise price of such substitute Options.
5.4 EXPIRATION OF OPTIONS.
5.4.1 EXPIRATION DATES. Each Option shall terminate no later than the
first to occur of the following events:
(a) The expiration of ten (10) years from the Grant Date; or
(b) The expiration of three (3) months from the date of the
Participant's Termination of Service for a reason other than the
Participant's death, Disability or Retirement; or
(c) The expiration of one (1) year from the date of the
Participant's Termination of Service by reason of Disability; or
(d) The expiration of three (3) years from the date of the
Participant's Retirement (subject to Section 5.8.2 regarding Incentive
Stock Options); or
(e) The date of the Participant's Termination of Service by the
Company for cause (as determined by the Company); or
(f) The date for termination of the Option determined by the
Committee in its sole discretion and set forth in the written Award
Agreement.
5.4.2 DEATH OF PARTICIPANT. Notwithstanding Section 5.4.1, if a
Participant who is an Employee dies prior to the expiration of his or her
Options, his or her Options shall be exercisable until the expiration of
three (3) years after the date of death. If a Participant who is a
Consultant dies prior to the expiration of his or her Options, the
Committee, in its discretion, may provide that his or her Options shall be
exercisable for up to three (3) years after the date of death.
5.4.3 COMMITTEE DISCRETION. Subject to the limits of Sections 5.4.1
and 5.4.2, the Committee, in its sole discretion, (a) shall provide in each
Award Agreement when each Option expires and becomes unexercisable, and (b)
may, after an Option is granted and before such Option expires, extend the
maximum term of the Option (subject to Section 5.8.4 regarding Incentive
Stock Options).
5.5 EXERCISABILITY OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall determine in its sole discretion. After an Option is
granted, the Committee, in its sole discretion, may accelerate the
exercisability of the Option. If a
6
<PAGE>
Participant dies while an Employee, the exercisability of his or her Options
shall be fully accelerated to the date of Termination of Service.
5.6 PAYMENT. Options shall be exercised by the Participant's delivery of a
written notice of exercise to the Secretary of the Company (or its designee),
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.
Upon the exercise of any Option, the Exercise Price shall be payable to the
Company in full in cash or its equivalent. The Committee, in its sole
discretion, also may permit exercise (a) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price, or (b) by any other means which the Committee, in its sole
discretion, determines to both provide legal consideration for the Shares, and
to be consistent with the purposes of the Plan.
As soon as practicable after receipt of a written notification of exercise
and full payment for the Shares purchased, the Company shall deliver to the
Participant (or the Participant's designated broker), Share certificates (which
may be in book entry form) representing such Shares.
5.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option as it
may deem advisable, including, but not limited to, restrictions related to
applicable Federal securities laws, the requirements of any national securities
exchange or system upon which Shares are then listed or traded, or any blue sky
or state securities laws.
5.8 CERTAIN ADDITIONAL PROVISIONS FOR INCENTIVE STOCK OPTIONS.
5.8.1 EXERCISABILITY. The aggregate Fair Market Value (determined on
the Grant Date(s)) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by any Employee during any
calendar year (under all plans of the Company and its Subsidiaries) shall
not exceed $100,000.
5.8.2 TERMINATION OF SERVICE. If any portion of an Incentive Stock
Option is exercised more than three (3) months after the Participant's
Termination of Service for any reason other than Disability or death
(unless (a) the Participant dies during such three-month period, and (b)
the Award Agreement or the Committee permits later exercise), the portion
so exercised shall be deemed a Non-qualified Stock Option.
5.8.3 COMPANY AND SUBSIDIARIES ONLY. Incentive Stock Options may be
granted only to persons who are employees of the Company or a Subsidiary on
the Grant Date.
5.8.4 EXPIRATION. No Incentive Stock Option may be exercised after the
expiration of ten (10) years from the Grant Date; provided, however, that
if the Option is granted to an Employee who, together with persons whose
stock ownership is attributed to the Employee pursuant to section 424(d) of
the Code, owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of the stock of the Company or any of
its Subsidiaries, the Option may not be exercised after the expiration of
five (5) years from the Grant Date.
5.9 GRANT OF RELOAD OPTIONS. The Committee may provide in an Award
Agreement that a Participant who exercises all or part of an Option by payment
of the Exercise Price with already-owned Shares, shall be granted an additional
option (a "Reload Option") for a number of shares of stock equal to the number
of Shares tendered to exercise the previously granted Option plus, if the
Committee so determines, any Shares withheld or delivered in satisfaction of any
tax withholding requirements. As determined by the Committee, each Reload Option
shall (a) have a Grant Date which is the date as of which the previously granted
Option is exercised, and (b) be exercisable on the same terms and conditions as
the previously granted Option, except that the Exercise Price shall be
determined as of the Grant Date.
7
<PAGE>
SECTION 6
STOCK APPRECIATION RIGHTS
6.1 GRANT OF SARS. Subject to the terms and conditions of the Plan, SARs
may be granted to Employees and Consultants at any time and from time to time as
shall be determined by the Committee, in its sole discretion. The Committee
shall have complete discretion to determine the number of SARs granted to any
Participant, provided that during any Fiscal Year, no Participant shall be
granted SARs covering more than 1,000,000 Shares.
6.2 EXERCISE PRICE AND OTHER TERMS. The Committee, subject to the
provisions of the Plan, shall have complete discretion to determine the terms
and conditions of SARs granted under the Plan. However, the exercise price of an
SAR shall be not less than one hundred percent (100%) of the Fair Market Value
of a Share on the Grant Date.
6.3 SAR AGREEMENT. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the exercise price, the term of the SAR, the conditions of
exercise, and such other terms and conditions as the Committee, in its sole
discretion, shall determine.
6.4 EXPIRATION OF SARS. A SAR granted under the Plan shall expire upon the
date determined by the Committee, in its sole discretion, and set forth in the
Award Agreement. Notwithstanding the foregoing, the rules of Section 5.4 also
shall apply to SARs.
6.5 PAYMENT OF SAR AMOUNT. Upon exercise of a SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the
date of exercise over the exercise price; times
(b) The number of Shares with respect to which the SAR is exercised.
6.6 PAYMENT UPON EXERCISE OF SAR. At the discretion of the Committee,
payment for a SAR may be in cash, Shares or a combination thereof.
SECTION 7
RESTRICTED STOCK
7.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Employees and Consultants in such amounts as the Committee,
in its sole discretion, shall determine. The Committee, in its sole discretion,
shall determine the number of Shares to be granted to each Participant, provided
that during any Fiscal Year, no Participant shall be granted more than 100,000
Shares of Restricted Stock.
7.2 RESTRICTED STOCK AGREEMENT. Each Award of Restricted Stock shall be
evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares granted, any price to be paid for the Shares, and such
other terms and conditions as the Committee, in its sole discretion, shall
determine. Unless the Committee determines otherwise, Shares of Restricted Stock
shall be held by the Company as escrow agent until the restrictions on such
Shares have lapsed.
7.3 TRANSFERABILITY. Shares of Restricted Stock may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable Period of Restriction.
7.4 OTHER RESTRICTIONS. The Committee, in its sole discretion, may impose
such other restrictions on Shares of Restricted Stock as it may deem advisable
or appropriate, in accordance with this Section 7.4.
8
<PAGE>
7.4.1 GENERAL RESTRICTIONS. The Committee may set restrictions based
upon the achievement of specific performance objectives (Company-wide,
business unit or individual), applicable federal or state securities laws,
or any other basis determined by the Committee in its discretion.
7.4.2 SECTION 162(M) PERFORMANCE RESTRICTIONS. For purposes of
qualifying grants of Restricted Stock as "performance-based compensation"
under section 162(m) of the Code, the Committee, in its discretion, may set
restrictions based upon the achievement of Performance Goals. The
Performance Goals shall be set by the Committee on or before the latest
date permissible to enable the Restricted Stock to qualify as
"performance-based compensation" under section 162(m) of the Code. In
granting Restricted Stock which is intended to qualify under section 162(m)
of the Code, the Committee shall follow any procedures determined by it
from time to time to be necessary or appropriate to ensure qualification of
the Restricted Stock under section 162(m) of the Code (e.g., in determining
the Performance Goals).
7.4.3 LEGEND ON CERTIFICATES. The Committee, in its discretion, may
legend the certificates representing Restricted Stock to give appropriate
notice of such restrictions. For example, the Committee may determine that
some or all certificates representing Shares of Restricted Stock shall bear
the following legend:
"The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer as set forth in the Varian
Medical Systems, Inc. Omnibus Stock Plan, and in a Restricted Stock
Agreement. A copy of the Plan and such Restricted Stock Agreement may
be obtained from the Secretary of Varian Medical Systems, Inc."
7.5 REMOVAL OF RESTRICTIONS. Shares of Restricted Stock covered by each
Restricted Stock grant made under the Plan shall be released from escrow as soon
as practicable after the last day of the Period of Restriction. The Committee,
in its discretion, may accelerate the time at which any restrictions shall
lapse, and remove any restrictions. After the restrictions have lapsed, the
Participant shall be entitled to have any legend or legends under Section 7.4
removed from his or her Share certificate, and the Shares shall be freely
transferable by the Participant.
7.6 VOTING RIGHTS. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares, unless otherwise provided in the Award Agreement.
7.7 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock shall be entitled to receive all
dividends and other distributions paid with respect to such Shares unless
otherwise provided in the Award Agreement. If any such dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
7.8 RETURN OF RESTRICTED STOCK TO COMPANY. On the date set forth in the
Award Agreement, the Restricted Stock for which restrictions have not lapsed
shall revert to the Company and again shall become available for grant under the
Plan.
SECTION 8
PERFORMANCE UNITS AND PERFORMANCE SHARES
8.1 GRANT OF PERFORMANCE UNITS AND SHARES. Performance Units and
Performance Shares may be granted to Employees and Consultants at any time and
from time to time, as shall be determined by the Committee, in its sole
discretion. The Committee shall have complete discretion in determining the
number of Performance Units and Performance Shares granted to any Participant,
provided that during any Fiscal Year, no more than 100,000 Performance Shares or
Performance Units may be granted to any Participant.
9
<PAGE>
8.2 INITIAL VALUE. Each Performance Unit shall have an initial value that
is established by the Committee on or before the Grant Date, provided that such
value shall not exceed the Fair Market Value of a Share on the Grant Date. Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the Grant Date.
8.3 PERFORMANCE OBJECTIVES AND OTHER TERMS. The Committee shall set
performance objectives in its discretion which, depending on the extent to which
they are met, will determine the number or value of Performance Units or Shares
that will be paid out to the Participants. The Committee may set performance
objectives based upon the achievement of Company-wide, business unit, or
individual goals, or any other basis determined by the Committee in its
discretion. The time period during which the performance objectives must be met
shall be called the "Performance Period." Each Award of Performance Units or
Shares shall be evidenced by an Award Agreement that shall specify the
Performance Period, and such other terms and conditions as the Committee, in its
sole discretion, shall determine.
8.3.1 GENERAL PERFORMANCE OBJECTIVES. The Committee may set
performance objectives based upon the achievement of Company-wide, business
unit or individual goals, or any other basis determined by the Committee in
its discretion.
8.3.2 SECTION 162(M) PERFORMANCE OBJECTIVES. For purposes of
qualifying grants of Performance Units or Shares as "performance-based
compensation" under section 162(m) of the Code, the Committee, in its
discretion, may determine that the performance objectives applicable to
Performance Units or Shares shall be based on the achievement of
Performance Goals. The Performance Goals shall be set by the Committee on
or before the latest date permissible to enable the Performance Units or
Shares to qualify as "performance-based compensation" under section 162(m)
of the Code. In granting Performance Units or Shares which are intended to
qualify under section 162(m) of the Code, the Committee shall follow any
procedures determined by it from time to time to be necessary or
appropriate to ensure qualification of the Performance Units or Shares
under section 162(m) of the Code (e.g., in determining the Performance
Goals).
8.4 EARNING OF PERFORMANCE UNITS AND PERFORMANCE SHARES. After the
applicable Performance Period has ended, the Participant shall be entitled to
receive a payout of the number of Performance Units or Shares earned during the
Performance Period, depending upon the extent to which the applicable
performance objectives have been achieved. After the grant of a Performance Unit
or Share, the Committee, in its sole discretion, may reduce or waive any
performance objectives for Award.
8.5 FORM AND TIMING OF PAYMENT. Payment of earned Performance Units or
Performance Shares shall be made as soon as practicable after the expiration of
the applicable Performance Period. The Committee, in its sole discretion, may
pay such earned Awards in cash, Shares or a combination thereof.
8.6 CANCELLATION. On the date set forth in the Award Agreement, all
unearned or unvested Performance Units or Performance Shares shall be forfeited
to the Company, and again shall be available for grant under the Plan.
SECTION 9
NON-EMPLOYEE DIRECTORS
9.1 GRANTING OF OPTIONS.
9.1.1 NON-EMPLOYEE DIRECTORS. Each Non-employee Director shall be
granted an Option to purchase 10,000 Shares (an "Initial Grant") on the
later of the Effective Date of the Plan or the date of the Non-employee
Director's appointment or election as a Non-employee Director. Thereafter,
for so long as the Non-employee Director serves as such, he or she annually
shall be granted an Option for an additional 5,000 Shares (each a
"Subsequent Grant"). Each such Subsequent Grant shall be made on the first
business day after each Annual Meeting of Stockholders occurring after the
date of the Initial Grant or previous Subsequent Grant, but only if the
Non-employee Director has continuously served as such through the Grant
Date.
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<PAGE>
9.1.2 CHAIRMAN. Each Chairman of the Company who is a Non-employee
Director shall be granted an Option to purchase 100,000 Shares (an "Initial
Chairman's Grant") on the later of the Effective Date of the Plan or the
date such individual becomes Chairman. Thereafter, for so long as such
individual serves as Chairman, he or she annually will be granted an Option
for an additional 5,000 Shares (each a "Subsequent Chairman's Grant"). Each
such Subsequent Chairman's Grant shall be made on the first business day
after each Annual Meeting of Stockholders occurring after the date of the
Initial Chairman's Grant or previous Subsequent Chairman's Grant, but only
if the individual has continuously served as Chairman through the Grant
Date. Any Initial Chairman's Grant or Subsequent Chairman's Grant shall be
in lieu of any Initial Grant or Subsequent Grant the Chairman otherwise
would be entitled to under Section 9.1.1.
9.2 TERMS OF OPTIONS.
9.2.1 OPTION AGREEMENT. Each Option granted pursuant to this Section 9
shall be evidenced by a written stock option agreement which shall be
executed by the Non-employee Director and the Company.
9.2.2 EXERCISE PRICE. The Exercise Price for the Shares subject to
each Option granted pursuant to this Section 9 shall be one hundred percent
(100%) of the Fair Market Value of such Shares on the Grant Date.
9.2.3 EXERCISABILITY. Each Option granted pursuant to this Section 9
shall be fully exercisable on the Grant Date.
9.2.4 EXPIRATION OF OPTIONS. Each Option shall terminate upon the
first to occur of the following events:
(a) The expiration of ten (10) years from the Grant Date; or
(b) The expiration of three (3) months from the date of the
Non-employee Director's Termination of Service for a reason other than
death, Disability, resignation or Retirement; or
(c) The expiration of three (3) years from the date of the
Non-employee Director's Termination of Service by reason of completion
of the Participant's term as a Director, Disability or Retirement; or
(d) The expiration of one (1) month from the date of the
Non-employee Director's Termination of Service by reason of
resignation.
9.2.5 DEATH OF DIRECTOR. Notwithstanding Section 9.2.4, if a
Non-employee Director dies prior to the expiration of his or her options in
accordance with Section 9.2.4, his or her options shall terminate three (3)
years after the date of his or her death.
9.2.6 NOT INCENTIVE STOCK OPTIONS. Options granted pursuant to this
Section 9 shall not be designated as Incentive Stock Options.
9.2.7 OTHER TERMS. All provisions of the Plan not inconsistent with
this Section 9 shall apply to Options granted to Non-employee Directors;
provided, however, that Section 5.2 (relating to the Committee's discretion
to set the terms and conditions of Options) shall be inapplicable with
respect to Non-employee Directors.
9.3 SUBSTITUTE OPTIONS. Notwithstanding the provisions of Section 9.2.2, in
the event that the Company or an Affiliate consummates a transaction described
in section 424(a) of the Code (e.g., the acquisition of property or stock from
an unrelated corporation), persons who become Non-employee Directors on account
of such transaction may be granted Options in substitution for options granted
by their former employer. If such substitute
11
<PAGE>
Options are granted, the Committee, in its sole discretion and consistent with
section 424(a) of the Code, shall determine the exercise price of such
substitute Options.
9.4 ELECTIONS BY NON-EMPLOYEE DIRECTORS. Pursuant to such procedures as the
Board (in its discretion) may adopt from time to time, each Non-employee
Director may elect to forego receipt of all or a portion of the annual retainer,
committee chair fees, meeting attendance fees and other cash compensation
otherwise due to the Non-employee Director in exchange for Shares. The number of
Shares received by any Non-employee Director shall equal the amount of foregone
compensation divided by the Fair Market Value of a Share on the date that the
compensation otherwise would have been paid to the Non-employee Director,
rounded up to the nearest whole number of Shares. In addition, pursuant to such
procedures as the Board (in its discretion) may adopt from time to time, each
Non-employee Director may elect to forego receipt of all or a portion of the
annual retainer, committee chair and meeting attendance fees and other cash
compensation otherwise due to the Non-employee Director in exchange for an
Option to purchase Shares. The number of Shares subject to such an Option
received by any Non-employee Director shall equal the amount of foregone
compensation multiplied by four (4) and divided by the Fair Market Value of a
Share on the date that the compensation otherwise would have been paid to the
Non-employee Director, rounded up to the nearest whole number of Shares. All
Options granted pursuant to this Section 9.4 shall be subject to the
restrictions of Section 9.2.
SECTION 10
MISCELLANEOUS
10.1 NO EFFECT ON EMPLOYMENT OR SERVICE. Nothing in the Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant's employment or service at any time, with or without cause. For
purposes of the Plan, transfer of employment of a Participant between the
Company and any one of its Affiliates (or between Affiliates) shall not be
deemed a Termination of Service. Employment with the Company and its Affiliates
is on an at-will basis only.
10.2 PARTICIPATION. No Employee or Consultant shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
10.3 INDEMNIFICATION. Each person who is or shall have been a member of the
Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any Award Agreement, and (b) from any and all
amounts paid by him or her in settlement thereof, with the Company's approval,
or paid by him or her in satisfaction of any judgment in any such claim, action,
suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Certificate of Incorporation or Bylaws, by contract, as a matter of law, or
otherwise, or under any power that the Company may have to indemnify them or
hold them harmless.
10.4 SUCCESSORS. All obligations of the Company under the Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation or otherwise, of all or substantially
all of the business or assets of the Company.
10.5 BENEFICIARY DESIGNATIONS. If permitted by the Committee, a Participant
under the Plan may name a beneficiary or beneficiaries to whom any vested but
unpaid Award shall be paid in the event of the Participant's death. Each such
designation shall revoke all prior designations by the Participant and shall be
effective only if given in a form and manner acceptable to the Committee. In the
absence of any such designation, any vested benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate and, subject to
the terms of the Plan and of the applicable Award Agreement, any unexercised
vested Award may be exercised by the administrator or executor of the
Participant's estate.
12
<PAGE>
10.6 NONTRANSFERABILITY OF AWARDS. No Award granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will, by the laws of descent and distribution, or to the limited
extent provided in Section 10.5. All rights with respect to an Award granted to
a Participant shall be available during his or her lifetime only to the
Participant.
10.7 NO RIGHTS AS STOCKHOLDER. Except to the limited extent provided in
Sections 7.6 and 7.7, no Participant (nor any beneficiary) shall have any of the
rights or privileges of a stockholder of the Company with respect to any Shares
issuable pursuant to an Award (or exercise thereof), unless and until
certificates representing such Shares shall have been issued, recorded on the
records of the Company or its transfer agents or registrars, and delivered to
the Participant (or beneficiary).
10.8 WITHHOLDING REQUIREMENTS. Prior to the delivery of any Shares or cash
pursuant to an Award (or exercise thereof), the Company shall have the power and
the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy federal, state, local and foreign taxes
(including the Participant's FICA obligation) required to be withheld with
respect to such Award (or exercise thereof). Notwithstanding any contrary
provision of the Plan, if a Participant fails to remit to the Company such
withholding amount within the time period specified by the Committee (in its
discretion), the Participant's Award may, in the Committee's discretion, be
forfeited and in such case the Participant shall not receive any of the Shares
subject to such Award.
10.9 WITHHOLDING ARRANGEMENTS. The Committee, in its sole discretion and
pursuant to such procedures as it may specify from time to time, may permit or
require a Participant to satisfy all or part of the tax withholding obligations
in connection with an Award by (a) having the Company withhold otherwise
deliverable Shares, or (b) delivering to the Company already-owned Shares having
a Fair Market Value equal to the amount required to be withheld. The amount of
the withholding requirement shall be deemed to include any amount which the
Committee determines, not to exceed the amount determined by using the maximum
federal, state, local and foreign jurisdiction marginal income tax rates
applicable to the Participant with respect to the Award on the date that the
amount of tax to be withheld is to be determined. The Fair Market Value of the
Shares to be withheld or delivered shall be determined as of the date that the
taxes are required to be withheld.
10.10 DEFERRALS. The Committee, in its sole discretion, may permit a
Participant to defer receipt of the payment of cash or the delivery of Shares
that would otherwise be delivered to a Participant under the Plan. Any such
deferral elections shall be subject to such rules and procedures as shall be
determined by the Committee in its sole discretion.
SECTION 11
AMENDMENT, TERMINATION AND DURATION
11.1 AMENDMENT, SUSPENSION OR TERMINATION. The Board, in its sole
discretion, may amend or terminate the Plan, or any part thereof, at any time
and for any reason. The amendment, suspension or termination of the Plan shall
not, without the consent of the Participant, alter or impair any rights or
obligations under any Award theretofore granted to such Participant. No Award
may be granted during any period of suspension or after termination of the Plan.
11.2 DURATION OF THE PLAN. The Plan shall commence on the date specified
herein, and subject to Section 11.1 (regarding the Board's right to amend or
terminate the Plan), shall remain in effect thereafter. However, without further
stockholder approval, no Incentive Stock Option may be granted under the Plan
after ten (10) years from the Effective Date.
SECTION 12
LEGAL CONSTRUCTION
12.1 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13
<PAGE>
12.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
12.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
12.4 GOVERNING LAW. The Plan and all Award Agreements shall be construed in
accordance with and governed by the laws of the State of California, but without
regard to its conflict of law provisions.
12.5 CAPTIONS. Captions are provided herein for convenience only, and shall
not serve as a basis for interpretation or construction of the Plan.
EXECUTION
IN WITNESS WHEREOF, Varian Medical Systems, Inc., by its duly authorized
officer, has executed the Plan on the date indicated below.
VARIAN MEDICAL SYSTEMS, INC.
Dated: April 2, 1999 By
-----------------------------
Name: Joseph B. Phair
Title:
14
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>EXHIBIT 10.17
<TEXT>
<PAGE>
Exhibit 10.17
- --------------------------------------------------------------------------------
DEFERRED COMPENSATION PLAN
VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT
- --------------------------------------------------------------------------------
EFFECTIVE SEPTEMBER 30, 2000
(PRINTED NOVEMBER 1, 2000)
COPYRIGHT (C) 2000
BY WESTPORT WORLDWIDE, LLC
ALL RIGHTS RESERVED
<PAGE>
VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
TABLE OF CONTENTS
<TABLE>
<S><C>
PAGE
-----
Purpose..................................................................................................... 1
ARTICLE 1 Definitions............................................................................ 1
ARTICLE 2 Selection, Enrollment, Eligibility..................................................... 7
2.1 Selection by Committee................................................................. 7
2.2 Enrollment Requirements................................................................ 7
2.3 Eligibility; Commencement of Participation............................................. 7
2.4 Termination of Participation and/or Deferrals.......................................... 7
ARTICLE 3 Deferral Commitments/Company Matching/Crediting/Taxes.................................. 9
3.1 Minimum Deferral....................................................................... 10
3.2 Maximum Deferral...................................................................... 10
3.3 Election to Defer; Effect of Election Form............................................ 11
3.4 Withholding of Annual Deferral Amounts................................................ 11
3.5 Annual Company Contribution Amount.................................................... 11
3.6 Annual Company Matching Account....................................................... 11
3.7 Investment of Trust Assets............................................................. 11
3.8 Vesting................................................................................ 12
3.9 Crediting/Debiting of Account Balances................................................. 12
3.10 FICA and Other Taxes................................................................... 14
3.11 Distributions.......................................................................... 15
3.12 Deferrals from Other Plans..............................................................15
3.13 Prior Plan..............................................................................15
ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election............ 16
4.1 Short-Term Payout...................................................................... 16
4.2 Other Benefits Take Precedence Over Short-Term Payout.................................. 16
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies.................. 16
4.4 Withdrawal Election.................................................................... 17
ARTICLE 5 Retirement Benefit..................................................................... 17
5.1 Retirement Benefit..................................................................... 17
</TABLE>
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MASTER PLAN DOCUMENT CONTINUED...
<TABLE>
<S><C>
5.2 Payment of Retirement Benefit.......................................................... 17
5.3 Death Prior to Completion of Retirement Benefit........................................ 18
ARTICLE 6 Pre-Retirement Survivor Benefit........................................................ 18
6.1 Pre-Retirement Survivor Benefit........................................................ 18
6.2 Payment of Pre-Retirement Survivor Benefit............................................. 18
ARTICLE 7 Termination Benefit.................................................................... 19
7.1 Termination Benefit.................................................................... 19
7.2 Payment of Termination Benefit......................................................... 19
ARTICLE 8 Disability Waiver and Benefit.......................................................... 19
8.1 Disability Waiver...................................................................... 19
8.2 Continued Eligibility; Disability Benefit.............................................. 20
ARTICLE 9 Beneficiary Designation................................................................ 20
9.1 Beneficiary............................................................................ 20
9.2 Beneficiary Designation; Change; Spousal Consent....................................... 20
9.3 Acknowledgment......................................................................... 20
9.4 No Beneficiary Designation............................................................. 20
9.5 Doubt as to Beneficiary................................................................ 20
9.6 Discharge of Obligations............................................................... 21
ARTICLE 10 Leave of Absence....................................................................... 21
10.1 Paid Leave of Absence.................................................................. 21
10.2 Unpaid Leave of Absence................................................................ 21
ARTICLE 11 Termination, Amendment or Modification................................................. 21
11.1 Termination............................................................................ 21
11.2 Amendment.............................................................................. 22
11.3 Plan Agreement......................................................................... 22
11.4 Effect of Payment...................................................................... 22
ARTICLE 12 Administration......................................................................... 22
12.1 Committee Duties....................................................................... 22
12.2 Agents................................................................................. 23
</TABLE>
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MASTER PLAN DOCUMENT CONTINUED...
<TABLE>
<S><C>
12.3 Binding Effect of Decisions............................................................ 23
12.4 Indemnity of Committee................................................................. 23
12.5 Employer Information................................................................... 23
ARTICLE 13 Other Benefits and Agreements.......................................................... 23
13.1 Coordination with Other Benefits....................................................... 23
ARTICLE 14 Claims Procedures...................................................................... 23
14.1 Presentation of Claim.................................................................. 24
14.2 Notification of Decision............................................................... 24
14.3 Review of a Denied Claim............................................................... 24
14.4 Decision on Review..................................................................... 24
14.5 Legal Action........................................................................... 25
ARTICLE 15 Trust.................................................................................. 25
15.1 Establishment of the Trust............................................................. 25
15.2 Interrelationship of the Plan and the Trust............................................ 25
15.3 Distributions from the Trust........................................................... 25
ARTICLE 16 Miscellaneous.......................................................................... 25
16.1 Status of Plan......................................................................... 25
16.2 Unsecured General Creditor............................................................. 26
16.3 Employer's Liability................................................................... 26
16.4 Nonassignability....................................................................... 26
16.5 Not a Contract of Employment........................................................... 26
16.6 Furnishing Information................................................................. 26
16.7 Terms.................................................................................. 26
16.8 Captions............................................................................... 27
16.9 Governing Law.......................................................................... 27
16.10 Notice................................................................................. 27
16.11 Successors............................................................................. 27
16.12 Spouse's Interest...................................................................... 27
16.13 Validity............................................................................... 27
16.14 Incompetent............................................................................ 27
16.15 Court Order............................................................................ 28
16.16 Distribution in the Event of Taxation.................................................. 28
16.17 Insurance.............................................................................. 28
</TABLE>
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MASTER PLAN DOCUMENT CONTINUED...
<TABLE>
<S><C>
16.18 Legal Fees To Enforce Rights After Change in Control................................... 28
</TABLE>
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VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
VARIAN MEDICAL SYSTEMS, INC.
DEFERRED COMPENSATION PLAN
Effective September 30, 2000
PURPOSE
The purpose of this Plan is to provide specified benefits to a select
group of management and highly compensated Employees and Directors who
contribute materially to the continued growth, development and future business
success of Varian Medical Systems, Inc. (the "Employer"), a Delaware
corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan
shall be unfunded for tax purposes and for purposes of Title I of ERISA.
ARTICLE 1
DEFINITIONS
For purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, a credit
on the records of the Employer equal to the sum of (i) the Deferral
Account balance, (ii) the vested Company Contribution Account balance
and (iii) the Company Matching Account balance. The Account Balance,
and each other specified account balance, shall be a bookkeeping entry
only and shall be utilized solely as a device for the measurement and
determination of the amounts to be paid to a Participant, or his or her
designated Beneficiary, pursuant to this Plan.
1.2 "Annual Company Contribution Amount" shall mean, for any one
Plan Year, the amount determined in accordance with Section 3.5.
1.3 "Annual Company Matching Amount" for any one Plan Year shall be the
amount determined in accordance with Section 3.6.
1.4 "Annual Deferral Amount" shall mean that portion of a Participant's
Base Annual Salary, Incentive Payments, Directors Fees,
plus amounts deferred, if any, pursuant to Section 3.12, that a
Participant elects to have, and is deferred, in accordance with Article
3, for any one Plan Year. In the event of a Participant's Retirement,
Disability (if deferrals cease in accordance with Section 8.1), death
or a Termination of Employment prior to the end of a Plan Year, such
year's Annual Deferral Amount shall be the actual amount withheld prior
to such event.
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VARIAN MEDICAL SYSTEMS, INC.
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1.5 "Base Annual Salary" shall mean the annual cash compensation
relating to services performed during any calendar year, whether or not
paid in such calendar year or included on the Federal Income Tax Form
W-2 for such calendar year, excluding bonuses, commissions, overtime,
fringe benefits, stock options, relocation expenses, incentive
payments, non-monetary awards, Directors Fees and other fees,
automobile and other allowances paid to a Participant for employment
services rendered (whether or not such allowances are included in the
Employee's gross income). Base Annual Salary shall be calculated after
reduction for compensation voluntarily deferred or contributed by the
Participant pursuant to all qualified or non-qualified plans of the
Employer and shall be calculated to exclude amounts not otherwise
included in the Participant's gross income under Code Sections 125,
402(e)(3), 402(h), or 403(b) pursuant to plans established by the
Employer.
1.6 "Beneficiary" shall mean one or more persons, trusts, estates or
other entities, designated in accordance with Article 9, that are
entitled to receive benefits under this Plan upon the death of a
Participant.
1.7 "Beneficiary Designation Form" shall mean the form established
from time to time by the Committee that a Participant completes, signs
and returns to the Committee to designate one or more Beneficiaries.
1.8 "Board" shall mean the board of directors of the Company.
1.9 "Change in Control" shall be deemed to have occurred if:
(a) 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
(b) Continuing Directors cease to constitute at least a majority
of the Board; or
(c) 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
(d) 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 Plan 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
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VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
shall not be deemed to be a Change in Control with respect
to an Employee hereunder if the Change in Control results
from actions or events in which an Employee is a participant
in a capacity other than solely as an officer, employee or
Director of the Company.
1.10 "Claimant" shall have the meaning set forth in Section 14.1.
1.11 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.12 "Committee" shall mean the committee described in Section 12.1.
1.13 "Company" shall mean Varian Medical Systems, Inc. a Delaware
corporation, and any successor to all or substantially all of the
Company's assets or business.
1.14 "Company Contribution Account" shall mean (i) the sum of the
Participant's Annual Company Contribution Amounts, plus (ii) amounts
credited in accordance with all the applicable crediting provisions of
this Plan that relate to the Participant's Company Contribution
Account, less (iii) all distributions made to the Participant or his or
her Beneficiary pursuant to this Plan that relate to the Participant's
Company Contribution Account.
1.15 "Company Matching Account" shall mean (i) the sum of all of a
Participant's Annual Company Matching Amounts, plus (ii) amounts
credited in accordance with all the applicable crediting provisions of
this Plan that relate to the Participant's Company Matching Account,
less (iii) all distributions made to the Participant or his or her
Beneficiary pursuant to this Plan that relate to the Participant's
Company Matching Account.
1.16 "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 Regulation12B 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.
1.17 "Deduction Limitation" shall mean the following described
limitation on a benefit that may otherwise be distributable pursuant to
the provisions of this Plan. Except as otherwise provided, this
limitation shall be applied to all distributions that are "subject to
the Deduction Limitation" under this Plan. If the Employer determines
in good faith prior to a Change in Control that there is a reasonable
likelihood that any compensation paid to a Participant for a taxable
year of the Employer would not be deductible by the Employer solely by
reason of the limitation under Code Section 162(m), then to the extent
deemed necessary by the Employer to ensure that the entire amount of
any distribution to the Participant pursuant to this Plan prior to the
Change in Control is deductible, the Employer may defer all or any
portion of a distribution under this Plan. Any amounts deferred
pursuant to this limitation shall continue to be credited/debited with
additional amounts in accordance with Section 3.9 below, even if such
amount is
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VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
being paid out in installments. The amounts so deferred and
amounts credited thereon shall be distributed to the Participant or his
or her Beneficiary (in the event of the Participant's death) at the
earliest possible date, as determined by the Employer in good faith, on
which the deductibility of compensation paid or payable to the
Participant for the taxable year of the Employer during which the
distribution is made will not be limited by Section 162(m), or if
earlier, the effective date of a Change in Control. Notwithstanding
anything to the contrary in this Plan, the Deduction Limitation shall
not apply to any distributions made after a Change in Control.
1.18 "Deferral Account" shall mean (i) the sum of all of a
Participant's Annual Deferral Amounts, plus (ii) amounts credited in
accordance with all the applicable crediting provisions of this Plan
that relate to the Participant's Deferral Account, less (iii) all
distributions made to the Participant or his or her Beneficiary
pursuant to this Plan that relate to his or her Deferral Account.
1.19 "Director" shall mean any member of the Board.
1.20 "Directors Fees" shall mean the fees paid by the Employer,
including retainer fees and meetings fees, as compensation for serving
on the Board.
1.21 "Disability" shall mean a period of disability during which a
Participant qualifies for permanent disability benefits under the
Participant's Employer's long-term disability plan, or, if a
Participant does not participate in such a plan, a period of disability
during which the Participant would have qualified for permanent
disability benefits under such a plan had the Participant been a
participant in such a plan, as determined in the sole discretion of the
Committee. If the Participant's Employer does not sponsor such a plan,
or discontinues to sponsor such a plan, Disability shall be determined
by the Committee in its sole discretion.
1.22 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.23 "Election Form" shall mean the form established from time to time
by the Committee that a Participant completes, signs and returns to the
Committee to make an election under the Plan.
1.24 "Employee" shall mean a person who is an employee of the Employer.
1.25 "Employer" shall mean the Company and/or any of its subsidiaries
(now in existence or hereafter formed or acquired) that have been
selected by the Board to participate in the Plan and have adopted the
Plan as a sponsor.
1.26 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
1.27 "First Plan Year" shall mean the period beginning September 30, 2000
and ending December 31, 2000.
1.28 "401(k) Plan" shall be that certain Varian Medical Systems, Inc.
Retirement Plan, dated October 2, 1999 adopted by the Company.
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VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
1.29 "Incentive Payments" shall mean any compensation paid to a
participant under the Management Incentive Plan, Employee Incentive
Plan or any Marketing, Sales or Service Incentive Plan, relating to
services performed during any calendar year, whether or not paid in
such calendar year or included on the Federal Income Tax Form W-2 for
such calendar year.
1.30 "Maximum 401(k) Amount" with respect to a Participant, shall be
the maximum amount of elective contributions that can be made by such
Participant, consistent with Code Section 402(g) and the limitations of
Code Section 401(k)(3), for a given plan year under the 401(k) Plan.
1.31 "Participant" shall mean any Employee or Director (i) who is
selected to participate in the Plan, (ii) who elects to participate in
the Plan, (iii) who signs a Plan Agreement, an Election Form and a
Beneficiary Designation Form, (iv) whose signed Plan Agreement,
Election Form and Beneficiary Designation Form are accepted by the
Committee, (v) who commences participation in the Plan, and (vi) whose
Plan Agreement has not terminated. A spouse or former spouse of a
Participant shall not be treated as a Participant in the Plan or have
an Account Balance under the Plan, even if he or she has an interest in
the Participant's benefits under the Plan as a result of applicable law
or property settlements resulting from legal separation or divorce.
1.32 "Plan" shall mean the Company's Deferred Compensation Plan, which
shall be evidenced by this instrument and by each Plan Agreement, as
they may be amended from time to time.
1.33 "Plan Agreement" shall mean a written agreement, as may be
amended from time to time, which is entered into by and between the
Employer and a Participant. Each Plan Agreement executed by a
Participant and the Employer shall provide for the entire benefit to
which such Participant is entitled under the Plan; should there be more
than one Plan Agreement, the Plan Agreement bearing the latest date of
acceptance by the Employer shall supersede all previous Plan Agreements
in their entirety and shall govern such entitlement. The terms of any
Plan Agreement may be different for any Participant, and any Plan
Agreement may provide additional benefits not set forth in the Plan or
limit the benefits otherwise provided under the Plan; provided,
however, that any such additional benefits or benefit limitations must
be agreed to by both the Employer and the Participant.
1.34 "Plan Year" shall, except for the First Plan Year, mean a period
beginning on January 1 of each calendar year and continuing through
December 31 of such calendar year.
1.35 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.36 "Retirement", "Retire(s)" or "Retired" shall mean, with respect
to an Employee, severance from employment from the Employer for any
reason other than a leave of absence, death or Disability on or after
the earlier of the attainment of (a) age sixty-five (65) or (b) age
fifty-five (55) with ten (10) Years of Service; and shall mean with
respect to a Director who is not an Employee, severance of his or her
directorships with the Employer on or after the later of (a) the
attainment of age seventy (70), or (b) in the sole discretion of the
Committee, an age later than age seventy (70). If a
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VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
Participant is both an Employee and a Director, Retirement shall not
occur until he or she Retires as both an Employee and a Director,
which Retirement shall be deemed to be a Retirement as a Director;
provided, however, that such a Participant may elect, at least three
years prior to Retirement and in accordance with the policies and
procedures established by the Committee, to Retire for purposes of
this Plan at the time he or she Retires as an Employee, which
Retirement shall be deemed to be a Retirement as an Employee.
1.37 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.38 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
1.39 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.40 "Termination of Employment" shall mean the severing of employment
with the Employer, or service as a Director of the Employer,
voluntarily or involuntarily, for any reason other than Retirement,
Disability, death or an authorized leave of absence. If a Participant
is both an Employee and a Director, a Termination of Employment shall
occur only upon the termination of the last position held; provided,
however, that such a Participant may elect, at least three years before
Termination of Employment and in accordance with the policies and
procedures established by the Committee, to be treated for purposes of
this Plan as having experienced a Termination of Employment at the time
he or she ceases employment with the Employer as an Employee.
1.41 "Trust" shall mean one or more trusts established pursuant to
that certain Master Trust Agreement, dated as of September 30, 2000
between the Company and the trustee named therein, as amended from time
to time.
1.42 "Unforeseeable Financial Emergency" shall mean an unanticipated
emergency that is caused by an event beyond the control of the
Participant that would result in severe financial hardship to the
Participant resulting from (i) a sudden and unexpected illness or
accident of the Participant or a dependent of the Participant, (ii) a
loss of the Participant's property due to casualty, or (iii) such other
extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant, all as determined in the
sole discretion of the Committee.
1.43 "Yearly Installment Method" shall be a yearly installment payment
over the number of years selected by the Participant in accordance with
this Plan, calculated as follows: The Account Balance of the
Participant shall be calculated as of the close of business on the last
business day of the year. The yearly installment shall be calculated by
multiplying this balance by a fraction, the numerator of which is one,
and the denominator of which is the remaining number of yearly payments
due the Participant. By way of example, if the Participant elects a 10
year Yearly Installment Method, the first payment shall be 1/10 of the
Account Balance, calculated as described in this definition. The
following year, the payment shall be 1/9 of the Account Balance,
calculated as described in this definition. Each yearly installment
shall be paid on or as soon as practicable after the last business day
of the applicable year.
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VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
1.44 "Years of Service" shall mean the total number of full years in
which a Participant has been employed by one or more Employers. For
purposes of this definition, a year of employment shall be a 365 day
period (or 366 day period in the case of a leap year) that, for the
first year of employment, commences on the Employee's date of hiring
and that, for any subsequent year, commences on an anniversary of that
hiring date. Any partial year of employment shall not be counted.
ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be
limited to a select group of management and highly compensated
Employees and Directors of the Employer, as determined by the Committee
in its sole discretion. From that group, the Committee shall select, in
its sole discretion, Employees and Directors to participate in the
Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each
selected Employee or Director shall complete, execute and return to the
Committee a Plan Agreement, an Election Form and a Beneficiary
Designation Form, all within 30 days after he or she is selected to
participate in the Plan. In addition, the Committee shall establish
from time to time such other enrollment requirements as it determines
in its sole discretion are necessary.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee
or Director selected to participate in the Plan has met all enrollment
requirements set forth in this Plan and required by the Committee,
including returning all required documents to the Committee within the
specified time period, that Employee or Director shall commence
participation in the Plan on the first day of the month following the
month in which the Employee or Director completes all enrollment
requirements. If an Employee or a Director fails to meet all such
requirements within the period required, in accordance with Section
2.2, that Employee or Director shall not be eligible to participate in
the Plan until the first day of the Plan Year following the delivery to
and acceptance by the Committee of the required documents.
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee
determines in good faith that a Participant no longer qualifies as a
member of a select group of management or highly compensated employees,
as membership in such group is determined in accordance with Sections
201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the
right, in its sole discretion, to (i) terminate any deferral election
the Participant has made for the remainder of the Plan Year in which
the Participant's membership status changes, (ii) prevent the
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VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
Participant from making future deferral elections and/or (iii)
immediately distribute the Participant's then Account Balance as a
Termination Benefit and terminate the Participant's participation in
the Plan.
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VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
ARTICLE 3
DEFERRAL COMMITMENTS/COMPANY MATCHING/CREDITING/TAXES
3.1 MINIMUM DEFERRALS.
(a) BASE ANNUAL SALARY, INCENTIVE PAYMENTS, DIRECTORS FEES,
STOCK OPTION GAIN. For each Plan Year, a Participant may elect
to defer, as his or her Annual Deferral Amount, Base Annual
Salary, Incentive Payments, Directors Fees (in the case of a
Participant who is also a Director), and/or stock option gain,
if any, in the following minimum amounts for each deferral
elected:
<TABLE>
<S><C>
---------------------------------- ---------------------------
MINIMUM
DEFERRAL AMOUNT
---------------------------------- ---------------------------
Base Annual Salary $2,000
---------------------------------- ---------------------------
Incentive Payments $2,000
---------------------------------- ---------------------------
Directors Fees $ 0
---------------------------------- ---------------------------
Stock Option Gain $20,000
---------------------------------- ---------------------------
</TABLE>
If an election is made for less than stated minimum amounts,
or if no election is made, the amount deferred shall be zero.
(b) SHORT PLAN YEAR. Notwithstanding the foregoing, if a
Participant first becomes a Participant after the first day of
a Plan Year, or in the case of the First Plan Year of the Plan
itself, the minimum Base Annual Salary deferral shall be an
amount equal to the minimum set forth above, multiplied by a
fraction, the numerator of which is the number of complete
months remaining in the Plan Year and the denominator of which
is 12.
Notwithstanding anything in this Plan to the contrary, deferrals of
stock option gains may only take place after the Committee has
determined to permit Participants to make such deferrals to this Plan.
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VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
3.2 MAXIMUM DEFERRAL
(a) BASE ANNUAL SALARY, INCENTIVE PAYMENTS, DIRECTORS FEES,
STOCK OPTION GAIN. For each Plan Year, a Participant may elect
to defer, as his or her Annual Deferral Amount, Base Annual
Salary, Incentive Payments, Directors Fees (in the case of a
Participant who is also a Director) and/or stock option gain,
if any, up to the following maximum percentages for each
deferral elected:
<TABLE>
<S><C>
---------------------------------- ---------------------------
MAXIMUM
DEFERRAL AMOUNT
---------------------------------- ---------------------------
Base Annual Salary 75%
---------------------------------- ---------------------------
Incentive Payments 100%
---------------------------------- ---------------------------
Directors Fees 100%
---------------------------------- ---------------------------
Stock Option Gain 100%
---------------------------------- ---------------------------
</TABLE>
(b) Notwithstanding the foregoing, if a Participant first
becomes a Participant after the first day of a Plan Year, or
in the case of the First Plan Year of the Plan itself, the
maximum Annual Deferral Amount, with respect to Base Annual
Salary, Incentive Payments, Directors Fees and/or stock option
gain, if any, shall be limited to the amount of compensation
not yet earned by the Participant as of the date the
Participant submits a Plan Agreement and Election Form to the
Committee for acceptance. The preceding sentence is not
intended to limit any deferral accepted under other
arrangements sponsored by the Company pursuant to Section
3.12.
Notwithstanding anything in this Plan to the contrary, deferrals of
stock option gains may only take place after the Committee has
determined to permit Participants to make such deferrals to this Plan.
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM.
(a) FIRST PLAN YEAR. In connection with a Participant's
commencement of participation in the Plan, the Participant
shall make an irrevocable deferral election for the Plan Year
in which the Participant commences participation in the Plan,
along with such other elections as the Committee deems
necessary or desirable under the Plan. For these elections to
be valid, the Election Form must be completed and signed by
the Participant, timely delivered to the Committee (in
accordance with Section 2.2 above) and accepted by the
Committee.
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VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
(b) SUBSEQUENT PLAN YEARS. For each succeeding Plan Year, an
irrevocable deferral election for that Plan Year, and such
other elections as the Committee deems necessary or
desirable under the Plan, shall be made by timely delivering
to the Committee, in accordance with its rules and
procedures, before the end of the Plan Year preceding the
Plan Year for which the election is made, a new Election
Form. If no such Election Form is timely delivered for a
Plan Year, the Annual Deferral Amount shall be zero for that
Plan Year.
3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the
Base Annual Salary portion of the Annual Deferral Amount shall be
withheld from each regularly scheduled Base Annual Salary payroll in
equal amounts, as adjusted from time to time for increases and
decreases in Base Annual Salary. The Incentive Payments and/or
Directors Fees portion of the Annual Deferral Amount shall be withheld
at the time the Incentive Payments or Directors Fees are or otherwise
would be paid to the Participant, whether or not this occurs during the
Plan Year itself.
3.5 ANNUAL COMPANY CONTRIBUTION AMOUNT. For each Plan Year, an
Employer, in its sole discretion, may, but is not required to, credit
any amount it desires to any Participant's Company Contribution Account
under this Plan, which amount shall be for that Participant the Annual
Company Contribution Amount for that Plan Year. The amount so credited
to a Participant may be smaller or larger than the amount credited to
any other Participant, and the amount credited to any Participant for a
Plan Year may be zero, even though one or more other Participants
receive an Annual Company Contribution Amount for that Plan Year. The
Annual Company Contribution Amount, if any, shall be credited as of the
last day of the Plan Year. If a Participant is not employed by the
Employer as of the last day of a Plan Year other than by reason of his
or her Retirement or death while employed, the Annual Company
Contribution Amount for that Plan Year shall be zero.
3.6 ANNUAL COMPANY MATCHING AMOUNT. A Participant's Annual Company
Matching Amount for any Plan Year shall be equal to 6% of the
Participant's Base Annual Salary and/or the applicable Incentive
Payments that are earned for such Plan Year, reduced by the amount of
any matching contributions that would be made to the 401(k) Plan on his
or her behalf for the plan year of the 401(k) Plan that corresponds to
the Plan Year if the Participant had contributed the Maximum 401(k)
Amount for that Plan Year. If a Participant is not employed by the
Employer, or is no longer providing services as a Director, as of the
last day of the calendar quarter of a Plan Year other than by reason of
his or her Retirement or death, the Annual Company Matching Amount for
such calendar quarter of the Plan Year shall be zero. In the event of
Retirement or death, a Participant shall be credited with the Annual
Company Matching Amount for the calendar quarter of the Plan Year in
which he or she Retires or dies. The Annual Company Matching Amount
shall be credited as of the close of business on the last business day
of each calendar quarter of the Plan Year to which it relates.
3.7 INVESTMENT OF TRUST ASSETS. The trustee of the Trust shall be
authorized, upon written instructions received from the Committee or
investment manager appointed by the Committee, to invest and reinvest
the assets of
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the Trust in accordance with the applicable Master Trust
Agreement, including the disposition of stock and reinvestment of the
proceeds in one or more investment vehicles designated by the
Committee.
3.8 VESTING
(a) A Participant shall at all times be 100% vested in his or her
Deferral Account.
(b) A Participant shall at all times be 100% vested in his
or her Company Contribution Account unless a vesting schedule
is approved and documented by the Committee at the time the
Annual Company Contribution Amount is credited to the
Participant's Company Contribution Account for that Plan Year.
(c) A Participant shall at all times be 100% vested in his or her
Company Matching Account.
(d) Notwithstanding anything to the contrary contained in
this Section 3.8, in the event of a Change in
Control, a Participant's Company Contribution Account shall
immediately become 100% vested (if it is not already vested in
accordance with a vesting schedule).
3.9 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with, and
subject to, the rules and procedures that are established from time to
time by the Committee, in its sole discretion, amounts shall be
credited or debited to a Participant's Account Balance in accordance
with the following rules:
(a) ELECTION OF MEASUREMENT FUNDS. A Participant, in connection
with his or her initial deferral election in accordance
with Section 3.3(a) above, shall elect, on the Election
Form, one or more Measurement Fund(s) (as described in
Section 3.9(c) below) to be used to determine the additional
amounts to be credited to his or her Account Balance for the
first calendar month or portion thereof in which the
Participant commences participation in the Plan and
continuing thereafter for each subsequent calendar month in
which the Participant participates in the Plan, unless
changed in accordance with the next sentence. Commencing
with the first calendar month that follows the Participant's
commencement of participation in the Plan and continuing
thereafter for each subsequent calendar month in which the
Participant participates in the Plan, no later than the next
to last business day of the calendar month, the Participant
may (but is not required to) elect, by submitting an
Election Form to the Committee that is accepted by the
Committee, to add or delete one or more Measurement Fund(s)
to be used to determine the additional amounts to be
credited to his or her Account Balance, or to change the
portion of his or her Account Balance allocated to each
previously or newly elected Measurement Fund. If an election
is made in accordance with the previous sentence, it shall
apply to the next calendar month and continue thereafter for
each subsequent calendar month in which the Participant
participates in the Plan, unless changed in accordance with
the previous sentence.
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(b) PROPORTIONATE ALLOCATION. In making any election described
in Section 3.9(a) above, the Participant shall specify on
the Election Form, in increments of five percentage points
(5%), the percentage of his or her Account Balance to be
allocated to a Measurement Fund (as if the Participant was
making an investment in that Measurement Fund with that
portion of his or her Account Balance).
(c) MEASUREMENT FUNDS. The Participant may elect one or more of
the measurement funds set forth on Schedule A (the
"Measurement Funds"), for the purpose of crediting
additional amounts to his or her Account Balance. As
necessary, the Committee may, in its sole discretion,
discontinue, substitute or add a Measurement Fund. Each such
action will take effect as of the first day of the calendar
quarter that follows by thirty (30)days the day on which the
Committee gives Participants advance written notice of such
change.
(d) CREDITING OR DEBITING METHOD. The performance of each
elected Measurement Fund (either positive or negative) will
be determined by the Committee, in its sole discretion,
based on the performance of the Measurement Funds
themselves. A Participant's Account Balance shall be
credited or debited on a daily basis based on the
performance of each Measurement Fund selected by the
Participant, or as otherwise determined by the Committee in
its sole discretion, as though (i) a Participant's Account
Balance were invested in the Measurement Fund(s) selected by
the Participant, in the percentages applicable to such
calendar month, as of the close of business on the first
(1st) business day of such calendar month, at the closing
price on such date; (ii) the portion of the Annual Deferral
Amount that was actually deferred during any calendar month
were invested in the Measurement Fund(s) selected by the
Participant, in the percentages applicable to such calendar
month, no later than the close of business on the third
(3rd) business day after the day on which such amounts are
actually deferred from the Participant's Base Annual Salary,
Incentive Payments, and Directors Fees through reductions in
his or her payroll, at the closing price on such date; and
(iii) any distribution made to a Participant that decreases
such Participant's Account Balance ceased being invested in
the Measurement Fund(s), in the percentages applicable to
such calendar month, no earlier than three (3) business days
prior to the distribution, at the closing price on such
date.
(e) NO ACTUAL INVESTMENT. Notwithstanding any other provision
of this Plan that may be interpreted to the contrary, the
Measurement Funds are to be used for measurement purposes
only, and a Participant's election of any such Measurement
Fund, the allocation to his or her Account Balance thereto,
the calculation of additional amounts and the crediting or
debiting of such amounts to a Participant's Account Balance
shall not be considered or construed in any manner as an
actual investment of his or her Account Balance in any such
Measurement Fund. In the event that the Company or the
trustee (as that term is defined in the Trust), in its own
discretion, decides to invest funds in any or all of the
Measurement Funds, no Participant shall have any rights in
or to such investments themselves. Without limiting the
foregoing, a Participant's Account Balance shall at all
times be a bookkeeping entry only and shall not represent
any investment made on his
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or her behalf by the Company or the Trust; the Participant
shall at all times remain an unsecured creditor of the
Company.
3.10 FICA AND OTHER TAXES.
(a) ANNUAL DEFERRAL AMOUNTS. For each Plan Year in which an
Annual Deferral Amount is being withheld from a Participant,
the Participant's Employer(s) shall withhold from that
portion of the Participant's Base Annual Salary, Incentive
Payments and Directors Fees that is not being deferred, in a
manner determined by the Employer, the Participant's share
of FICA and other employment taxes on such Annual Deferral
Amount. If necessary, the Committee may reduce the Annual
Deferral Amount in order to comply with this Section 3.10.
(b) ANNUAL COMPANY MATCHING AMOUNTS. When a Participant becomes
vested in a portion of his or her Company Matching Account,
the Participant's Employer shall withhold from the
Participant's Base Annual Salary and/or Incentive Payments
that is not deferred, in a manner determined by the
Employer, the Participant's share of FICA and other
employment taxes. If necessary, the Committee may reduce the
vested portion of the Participant's Company Matching Account
in order to comply with this Section 3.10.
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(c) ANNUAL COMPANY CONTRIBUTION AMOUNTS. When a Participant
becomes vested in his or her Company Contribution Account,
the Employer shall withhold from the Participant's Base
Annual Salary and/or Incentive Payments that is not
deferred, in a manner determined by the Employer, the
Participant's share of FICA and other employment taxes. If
necessary, the committee may reduce the vested portion of
the Participant's Company Contribution Account in order to
comply with this Section 3.10.
3.11 DISTRIBUTIONS. The Participant's Employer, or the trustee of the
Trust, shall withhold from any payments made to a Participant under
this Plan all federal, state and local income, employment and other
taxes required to be withheld by the Employer, or the trustee of the
Trust, in connection with such payments, in amounts and in a manner to
be determined in the sole discretion of the Employer and the trustee of
the Trust.
3.12 DEFERRALS FROM OTHER PLANS. The Plan may accept the transfer of
amounts or assets deferred by a Participant under any other deferral
arrangement provided by the Company, including without limitation any
shares of common stock of the Employer which but for such deferral
would (i) be issued to the Participant upon the exercise of a stock
option granted by the Company or (ii) be vested and nonforfeitable in
the case of restricted stock issued to the Participant. Any amounts
deferred representing shares of Company common stock shall be accounted
for on a share by share basis, with appropriate adjustments to reflect
changes in the capital structure of the Company, and shall, when
distributed, be distributed in the form of common stock from the
Company. In addition, any dividends that would have been paid on such
shares of Company common stock if such shares were outstanding, shall
be credited to the Deferral Account. Notwithstanding any of the
provisions of the Plan to the contrary, the Participant shall not have
any right to elect to have any amounts deferred in the form of Company
stock measured by reference to any Measurement Fund.
3.13 PRIOR PLAN. Effective September 30, 2000, participants who are
participants under the Varian Medical Systems, Inc. Amended and
Restated Supplemental Retirement Plan (the "SRP") become Participants
under this Plan and their respective Company Matching Accounts shall be
credited with their respective account balances under the SRP. Such
account balances shall be payable at Retirement and shall not be
treated as Short-Term Payout amounts under Section 4.1 of this Plan.
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ARTICLE 4
SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION
4.1 SHORT-TERM PAYOUT. In connection with each election to defer an Annual
Deferral Amount, a Participant may irrevocably elect to receive a
future "Short-Term Payout" from the Plan with respect to such Annual
Deferral Amount. Subject to the Deduction Limitation, the Short-Term
Payout shall be a lump sum payment in an amount that is equal to the
Annual Deferral Amount, plus amounts credited or debited in the manner
provided in Section 3.9 above on that amount, plus related Annual
Company Contribution Amounts, determined at the time that the
Short-Term Payout becomes payable (rather than the date of a
Termination of Employment). Subject to the Deduction Limitation and the
other terms and conditions of this Plan, each Short-Term Payout elected
shall be paid out during a period beginning one (1) day and ending
sixty (60) days after the last day of any Plan Year designated by the
Participant that is at least three Plan Years after the Plan Year in
which the Annual Deferral Amount is actually deferred, as specifically
elected by Participant. By way of example, if a three year Short-Term
Payout is elected for Annual Deferral Amounts that are deferred in the
Plan Year commencing January 1, 2001, the three year Short-Term Payout
would become payable during a sixty (60) day period commencing January
1, 2005. Notwithstanding the preceding sentences or any other provision
of this Plan that may be construed to the contrary, a Participant who
is an active Employee may, with respect to each Short-Term Payout, in a
form determined by the Committee, make no more than one additional
deferral election (a "Second Election") to defer payment of such
Short-Term Payout to a Plan Year subsequent to the Plan Year originally
elected; provided, however, any such Second Election will be null and
void unless accepted by the Committee no later than one (1) year prior
to the first day of the Plan Year originally elected by the Participant
for payment of such Short-Term Payout, and such Second Election is at
least two (2) Plan Years from the Plan Year originally elected.
4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM PAYOUT. Should an
event occur that triggers a benefit under Article 5, 6, 7 or 8, any
Annual Deferral Amount, plus amounts credited or debited thereon, that
is subject to a Short-Term Payout election under Section 4.1 shall not
be paid in accordance with Section 4.1 but shall be paid in accordance
with the other applicable Article.
4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL
EMERGENCIES. If the Participant experiences an Unforeseeable Financial
Emergency, the Participant may petition the Committee to (i) suspend
any deferrals required to be made by a Participant and/or (ii) receive
a partial or full payout from the Plan. The payout shall not exceed the
lesser of the Participant's Account Balance, calculated as if such
Participant were receiving a Termination Benefit, or the amount
reasonably needed to satisfy the Unforeseeable Financial Emergency. If,
subject to the sole discretion of the Committee, the petition for a
suspension and/or payout is approved, suspension shall take effect upon
the date of approval and any payout shall be made within sixty (60)
days
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of the date of approval. The payment of any amount under this
Section 4.3 shall not be subject to the Deduction Limitation.
4.4 WITHDRAWAL ELECTION. A Participant (or, after a Participant's
death, his or her Beneficiary) may elect, at any time, to withdraw all
of his or her Account Balance, calculated as if there had occurred a
Termination of Employment as of the day of the election, less a
withdrawal penalty equal to 10% of such amount (the net amount shall be
referred to as the "Withdrawal Amount"). This election can be made at
any time, before or after Retirement, Disability, death or Termination
of Employment, and whether or not the Participant (or his or her
Beneficiary) is in the process of being paid pursuant to an installment
payment schedule. If made before Retirement, Disability or death, a
Participant's Withdrawal Amount shall be his or her Account Balance
calculated as if there had occurred a Termination of Employment as of
the day of the election. No partial withdrawals of the Withdrawal
Amount shall be allowed. The Participant (or his or her Beneficiary)
shall make this election by giving the Committee advance written notice
of the election in a form determined from time to time by the
Committee. The Participant (or his or her Beneficiary) shall be paid
the Withdrawal Amount within sixty (60) days of his or her election.
Once the Withdrawal Amount is paid, the Participant's participation in
the Plan shall terminate and the Participant shall not be eligible to
participate in the Plan for one year from the date of the withdrawal
election. The payment of this Withdrawal Amount shall not be subject to
the Deduction Limitation.
ARTICLE 5
RETIREMENT BENEFIT
5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a
Participant who Retires shall receive, as a Retirement Benefit, his
or her Account Balance.
5.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with
his or her commencement of participation in the Plan, shall elect on an
Election Form to receive the Retirement Benefit in a lump sum or
pursuant to a Yearly Installment Method of five (5), ten (10) or
fifteen (15) years. The Participant may annually change his or her
election to an allowable alternative payout period by submitting a new
Election Form to the Committee, provided that any such Election Form is
submitted at least one (1) year prior to the Participant's Retirement
and is accepted by the Committee in its sole discretion. The Election
Form most recently accepted by the Committee shall govern the payout of
the Retirement Benefit. If a Participant does not make any election
with respect to the payment of the Retirement Benefit, then such
benefit shall be payable in a lump sum. The lump sum payment shall be
made, or installment payments shall commence, no later than 60 days
after the last day of the Plan Year in which the Participant Retires.
Any payment made shall be subject to the Deduction Limitation.
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant dies
after Retirement but before the Retirement Benefit is paid in full,
the Participant's unpaid Retirement Benefit payments shall continue
and shall be paid to the Participant's Beneficiary (a) over the
remaining number of
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years and in the same amounts as that benefit
would have been paid to the Participant had the Participant survived,
or (b) in a lump sum, if requested by the Beneficiary and allowed in
the sole discretion of the Committee, that is equal to the
Participant's unpaid remaining Account Balance.
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction
Limitation, the Participant's Beneficiary shall receive a
Pre-Retirement Survivor Benefit equal to the Participant's Account
Balance if the Participant dies before he or she Retires, experiences a
Termination of Employment or suffers a Disability.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. A Participant, in
connection with his or her commencement of participation in the Plan,
shall elect on an Election Form whether the Pre-Retirement Survivor
Benefit shall be received by his or her Beneficiary in a lump sum or
pursuant to a Yearly Installment Method of five (5), ten (10) or
fifteen (15) years. The Participant may annually change this election
to an allowable alternative payout period by submitting a new Election
Form to the Committee, which form must be accepted by the Committee in
its sole discretion. The Election Form most recently accepted by the
Committee prior to the Participant's death shall govern the payout of
the Participant's Pre-Retirement Survivor Benefit. If a Participant
does not make any election with respect to the payment of the
Pre-Retirement Survivor Benefit, then such benefit shall be paid in a
lump sum. Despite the foregoing, if the Participant's Account Balance
at the time of his or her death is less than $50,000, payment of the
Pre-Retirement Survivor Benefit may be made, in the sole discretion of
the Committee, in a lump sum or pursuant to a Yearly Installment Method
of not more than five (5) years. The lump sum payment shall be made, or
installment payments shall commence, no later than 60 days after the
last day of the Plan Year in which the Committee is provided with proof
that is satisfactory to the Committee of the Participant's death. Any
payment made shall be subject to the Deduction Limitation.
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ARTICLE 7
TERMINATION BENEFIT
7.1 TERMINATION BENEFIT. Subject to the Deduction Limitation, the
Participant shall receive a Termination Benefit, which shall be equal
to the Participant's Account Balance if a Participant experiences a
Termination of Employment prior to his or her Retirement, death or
Disability.
7.2 PAYMENT OF TERMINATION BENEFIT. If the Participant's Account
Balance at the time of his or her Termination of Employment is less
than $50,000, payment of his or her Termination Benefit shall be paid
in a lump sum. If his or her Account Balance at such time is equal to
or greater than that amount, the Committee, in its sole discretion, may
cause the Termination Benefit to be paid in a lump sum or pursuant to a
Yearly Installment Method of not more than five (5) years. The lump sum
payment shall be made, or installment payments shall commence, no later
than 60 days after the last day of the Plan Year in which the
Participant experiences the Termination of Employment. Any payment made
shall be subject to the Deduction Limitation.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
8.1 DISABILITY WAIVER.
(a) WAIVER OF DEFERRAL. A Participant who is determined by
the Committee to be suffering from a Disability shall be
excused from fulfilling that portion of the Annual Deferral
Amount commitment that would otherwise have been withheld from
a Participant's Base Annual Salary, Incentive Payments and/or
Directors Fees for the Plan Year during which the Participant
first suffers a Disability. During the period of Disability,
the Participant shall not be allowed to make any additional
deferral elections, but will continue to be considered a
Participant for all other purposes of this Plan.
(b) RETURN TO WORK. If a Participant returns to employment,
or service as a Director, with the Employer, after a
Disability ceases, the Participant may elect to defer an
Annual Deferral Amount for the Plan Year following his or her
return to employment or service and for every Plan Year
thereafter while a Participant in the Plan; provided such
deferral elections are otherwise allowed and an Election Form
is delivered to and accepted by the Committee for each such
election in accordance with Section 3.3 above.
8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant
suffering a Disability shall, for benefit purposes under this Plan,
continue to be considered to be employed, or in the service of the
Employer as a Director, and shall be eligible for the benefits provided
for in Articles 4, 5, 6 or 7 in accordance with the provisions of those
Articles. Notwithstanding the above, the Committee shall have the right
to, in its sole and absolute discretion and for purposes of this Plan
only, and must in the case of a Participant who is otherwise eligible
to Retire, deem the
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Participant to have experienced a Termination of Employment, or in the
case of a Participant who is eligible to Retire, to have Retired, at
any time (or in the case of a Participant who is eligible to Retire, as
soon as practicable) after such Participant is determined to be
suffering a Disability, in which case the Participant shall receive a
Disability Benefit equal to his or her Account Balance at the time of
the Committee's determination; provided, however, that should the
Participant otherwise have been eligible to Retire, he or she shall be
paid in accordance with Article 5. The Disability Benefit shall be paid
in a lump sum within sixty (60) days of the Committee's exercise of
such right. Any payment made shall be subject to the Deduction
Limitation.
ARTICLE 9
BENEFICIARY DESIGNATION
9.1 BENEFICIARY. Each Participant shall have the right, at any time,
to designate his or her Beneficiary(ies) (both primary as well as
contingent) to receive any benefits payable under the Plan to a
beneficiary upon the death of a Participant. The Beneficiary designated
under this Plan may be the same as or different from the Beneficiary
designation under any other plan of the Employer in which the
Participant participates.
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A Participant
shall designate his or her Beneficiary by completing and signing the
Beneficiary Designation Form, and returning it to the Committee or its
designated agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the
terms of the Beneficiary Designation Form and the Committee's rules and
procedures, as in effect from time to time. If the Participant names
someone other than his or her spouse as a Beneficiary, a spousal
consent, in the form designated by the Committee, must be signed by
that Participant's spouse and returned to the Committee. Upon the
acceptance by the Committee of a new Beneficiary Designation Form, all
Beneficiary designations previously filed shall be canceled. The
Committee shall be entitled to rely on the last Beneficiary Designation
Form filed by the Participant and accepted by the Committee prior to
his or her death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a
Beneficiary shall be effective until received and acknowledged in
writing by the Committee or its designated agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate
a Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be deemed to be his or her
surviving spouse. If the Participant has no surviving spouse, the
benefits remaining under the Plan to be paid to a Beneficiary shall be
payable to the executor or personal representative of the Participant's
estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to
the proper Beneficiary to receive payments pursuant to this Plan, the
Committee shall have the right, exercisable in its discretion, to cause
the Participant's Employer to withhold such payments until this matter
is resolved to the Committee's satisfaction.
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9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan
to a Beneficiary shall fully and completely discharge the Employer and
the Committee from all further obligations under this Plan with respect
to the Participant, and that Participant's Plan Agreement shall
terminate upon such full payment of benefits.
ARTICLE 10
LEAVE OF ABSENCE
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of absence
from the employment of the Employer, the Participant shall continue to
be considered employed by the Employer and the Annual Deferral Amount
shall continue to be withheld during such paid leave of absence in
accordance with Section 3.4.
10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of
absence from the employment of the Employer, the Participant shall
continue to be considered employed by the Employer and the Participant
shall be excused from making deferrals until the earlier of the date
the leave of absence expires or the Participant returns to a paid
employment status. Upon such expiration or return, deferrals shall
resume for the remaining portion of the Plan Year in which the
expiration or return occurs, based on the deferral election, if any,
made for that Plan Year. If no election was made for that Plan Year, no
deferral shall be withheld.
ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION
11.1 TERMINATION. Although the Employer anticipates that it will
continue the Plan for an indefinite period of time, there is no
guarantee that the Employer will continue the Plan or will not
terminate the Plan at any time in the future. Accordingly, the Employer
reserves the right to discontinue its sponsorship of the Plan and/or to
terminate the Plan at any time with respect to any or all of its
participating Employees and Directors, by action of its Board. Upon the
termination of the Plan with respect to the Employer, the Plan
Agreements of the affected Participants who are employed by the
Employer, or in the service of the Employer as Directors, shall
terminate and their Account Balances, determined as if they had
experienced a Termination of Employment on the date of Plan termination
or, if Plan termination occurs after the date upon which a Participant
was eligible to Retire, then with respect to that Participant as if he
or she had Retired on the date of Plan termination, shall be paid to
the Participants as follows: Prior to a Change in Control, if the Plan
is terminated with respect to all of its Participants, the Employer
shall have the right, in its sole discretion, and notwithstanding any
elections made by the Participant, to pay such benefits in a lump sum
or pursuant to a Yearly Installment Method of up to fifteen (15) years,
with amounts credited and debited during the installment period as
provided herein. If the Plan is terminated with respect to less than
all of its Participants, the Employer shall be required to pay such
benefits in a lump sum. After a Change in Control, the Employer shall
be
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required to pay such benefits in a lump sum. The termination of the
Plan shall not adversely affect any Participant or Beneficiary who has
become entitled to the payment of any benefits under the Plan as of the
date of termination; provided however, that the Employer shall have the
right to accelerate installment payments without a premium or
prepayment penalty by paying the Account Balance in a lump sum or
pursuant to a Yearly Installment Method using fewer years (provided
that the present value of all payments that will have been received by
a Participant at any given point of time under the different payment
schedule shall equal or exceed the present value of all payments that
would have been received at that point in time under the original
payment schedule).
11.2 AMENDMENT. The Employer may, at any time, amend or modify the
Plan in whole or in part with respect to the Employer by the action of
its Board; provided, however, that no amendment or modification shall
be effective to decrease or restrict the value of a Participant's
Account Balance in existence at the time the amendment or modification
is made, calculated as if the Participant had experienced a Termination
of Employment as of the effective date of the amendment or modification
or, if the amendment or modification occurs after the date upon which
the Participant was eligible to Retire, the Participant had Retired as
of the effective date of the amendment or modification. The amendment
or modification of the Plan shall not affect any Participant or
Beneficiary who has become entitled to the payment of benefits under
the Plan as of the date of the amendment or modification; provided,
however, that the Employer shall have the right to accelerate
installment payments by paying the Account Balance in a lump sum or
pursuant to a Yearly Installment Method using fewer years (provided
that the present value of all payments that will have been received by
a Participant at any given point of time under the different payment
schedule shall equal or exceed the present value of all payments that
would have been received at that point in time under the original
payment schedule).
11.3 PLAN AGREEMENT. Despite the provisions of Sections 11.1 and 11.2
above, if a Participant's Plan Agreement contains benefits or
limitations that are not in this Plan document, the Employer may only
amend or terminate such provisions with the consent of the Participant.
11.4 EFFECT OF PAYMENT. The full payment of the applicable benefit
under Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge
all obligations to a Participant and his or her designated
Beneficiaries under this Plan and the Participant's Plan Agreement
shall terminate.
ARTICLE 12
ADMINISTRATION
12.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee
which shall consist of a Committee of the Board which initially shall
be the Organization and Compensation Committee, or such committee as
the Board shall designate or appoint from time to time. Members of the
Committee may be Participants under this Plan. The Committee shall also
have the discretion and authority to (i) make, amend, interpret, and
enforce all appropriate rules and regulations for the administration of
this Plan and (ii) decide or resolve any and all questions including
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VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
interpretations of this Plan, as may arise in connection with the Plan.
Any individual serving on the Committee who is a Participant shall not
vote or act on any matter relating solely to himself or herself. When
making a determination or calculation, the Committee shall be entitled
to rely on information furnished by a Participant or the Company.
12.2 AGENTS. In the administration of this Plan, the Committee may,
from time to time, employ agents and delegate to them such
administrative duties as it sees fit (including acting through a duly
appointed representative) and may from time to time consult with
counsel who may be counsel to the Employer.
12.3 BINDING EFFECT OF DECISIONS. The decision or action of the
Committee with respect to any question arising out of or in connection
with the administration, interpretation and application of the Plan and
the rules and regulations promulgated hereunder shall be final and
conclusive and binding upon all persons having any interest in the
Plan.
12.4 INDEMNITY OF COMMITTEE. The Employer shall indemnify and hold
harmless the members of the Committee, and any Employee to whom the
duties of the Committee may be delegated, against any and all claims,
losses, damages, expenses or liabilities arising from any action or
failure to act with respect to this Plan, except in the case of willful
misconduct by the Committee or any of its members or any such Employee.
12.5 EMPLOYER INFORMATION. To enable the Committee to perform its
functions, each Employer shall supply full and timely information to
the Committee on all matters relating to the compensation of its
Participants, the date and circumstances of the Retirement, Disability,
death or Termination of Employment of its Participants, and such other
pertinent information as the Committee may reasonably require.
ARTICLE 13
OTHER BENEFITS AND AGREEMENTS
13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
Participant or a Participant's Beneficiary under the Plan are in
addition to any other benefits available to such Participant under any
other plan or program for employees of the Participant's Employer. The
Plan shall supplement and shall not supersede, modify or amend any
other such plan or program except as may otherwise be expressly
provided.
ARTICLE 14
CLAIMS PROCEDURES
14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a
deceased Participant (such Participant or Beneficiary being referred to
below as a "Claimant") may deliver to the Committee a written claim for
a determination
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VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
with respect to the amounts distributable to such Claimant from the
Plan. If such a claim relates to the contents of a notice received by
the Claimant, the claim must be made within sixty (60) days after such
notice was received by the Claimant. All other claims must be made
within one hundred and eighty (180) days of the date on which the
event that caused the claim to arise occurred. The claim must state
with particularity the determination desired by the Claimant.
14.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's
claim within a reasonable time, and shall notify the Claimant in
writing: (a) that the Claimant's requested determination has been
made, and that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary,
in whole or in part, to the Claimant's requested
determination, and such notice must set forth in a manner
calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or
any part of it;
(ii) specific reference(s) to pertinent provisions of the
Plan upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is
necessary; and
(iv) an explanation of the claim review procedure set forth
in Section 14.3 below.
14.3 REVIEW OF A DENIED CLAIM. Within sixty (60) days after receiving
a notice from the Committee that a claim has been denied, in whole or
in part, a Claimant (or the Claimant's duly authorized representative)
may file with the Committee a written request for a review of the
denial of the claim. Thereafter, but not later than thirty (30) days
after the review procedure began, the Claimant (or the Claimant's duly
authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
14.4 DECISION ON REVIEW. The Committee shall render its decision on
review promptly, and not later than sixty (60) days after the filing of
a written request for review of the denial, unless a hearing is held or
other special circumstances require additional time, in which case the
Committee's decision must be rendered within one hundred and twenty
(120) days after such date. Such decision must be written in a manner
calculated to be understood by the Claimant, and it must contain:
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<PAGE>
VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon
which the decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions
of this Article 14 is a mandatory prerequisite to a Claimant's right
to commence any legal action with respect to any claim for benefits
under this Plan.
ARTICLE 15
TRUST
15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the
Trust, and the Employer shall at least annually transfer over to the
Trust such assets as the Employer determines, in its sole discretion,
are necessary to provide, on a present value basis, for its respective
future liabilities created with respect to the Annual Deferral Amounts,
Annual Company Contribution Amounts, and Company Matching Amounts for
the Employer's Participants for all periods prior to the transfer, as
well as any debits and credits to the Participants' Account Balances
for all periods prior to the transfer, taking into consideration the
value of the assets in the Trust at the time of the transfer.
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of
the Plan and the Plan Agreement shall govern the rights of a
Participant to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the Employers,
Participants and the creditors of the Employers to the assets
transferred to the Trust. The Employer shall at all times remain liable
to carry out its obligations under the Plan.
15.3 DISTRIBUTIONS FROM THE TRUST. The Employer's obligations under
the Plan may be satisfied with Trust assets distributed pursuant to the
terms of the Trust, and any such distribution shall reduce the
Employer's obligations under this Plan.
ARTICLE 16
MISCELLANEOUS
16.1 STATUS OF PLAN. The Plan is intended to be a plan that is not
qualified within the meaning of Code Section 401(a) and that "is
unfunded and is maintained by an employer primarily for the purpose of
providing deferred compensation for a select group of management or
highly compensated employee" within the meaning of ERISA Sections
201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and
interpreted to the extent possible in a manner consistent with that
intent.
-25-
<PAGE>
VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
16.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries,
heirs, successors and assigns shall have no legal or equitable rights,
interests or claims in any property or assets of the Employer. For
purposes of the payment of benefits under this Plan, any and all of the
Employer's assets shall be, and remain, the general, unpledged
unrestricted assets of the Employer. The Employer's obligation under
the Plan shall be merely that of an unfunded and unsecured promise to
pay money in the future.
16.3 EMPLOYER'S LIABILITY. The Employer's liability for the payment of
benefits shall be defined only by the Plan and the Plan Agreement, as
entered into between the Employer and a Participant. The Employer shall
have no obligation to a Participant under the Plan except as expressly
provided in the Plan and his or her Plan Agreement.
16.4 NONASSIGNABILITY. Neither a Participant nor any other person
shall have any right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer, hypothecate,
alienate or convey in advance of actual receipt, the amounts, if any,
payable hereunder, or any part thereof, which are, and all rights to
which are expressly declared to be, unassignable and non-transferable.
No part of the amounts payable shall, prior to actual payment, be
subject to seizure, attachment, garnishment or sequestration for the
payment of any debts, judgments, alimony or separate maintenance owed
by a Participant or any other person, be transferable by operation of
law in the event of a Participant's or any other person's bankruptcy or
insolvency or be transferable to a spouse as a result of a property
settlement or otherwise.
16.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this
Plan shall not be deemed to constitute a contract of employment between
the Employer and the Participant. Such employment is hereby
acknowledged to be an "at will" employment relationship that can be
terminated at any time for any reason, or no reason, with or without
cause, and with or without notice, unless expressly provided in a
written employment agreement. Nothing in this Plan shall be deemed to
give a Participant the right to be retained in the service of the
Employer, either as an Employee or a Director, or to interfere with the
right of the Employer to discipline or discharge the Participant at any
time.
16.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary
will cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be
requested in order to facilitate the administration of the Plan and the
payments of benefits hereunder, including but not limited to taking
such physical examinations as the Committee may deem necessary.
16.7 TERMS. Whenever any words are used herein in the masculine, they
shall be construed as though they were in the feminine in all cases
where they would so apply; and whenever any words are used herein in
the singular or in the plural, they shall be construed as though they
were used in the plural or the singular, as the case may be, in all
cases where they would so apply.
-26-
<PAGE>
VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
16.8 CAPTIONS. The captions of the articles, sections and paragraphs
of this Plan are for convenience only and shall not control or affect
the meaning or construction of any of its provisions.
16.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan
shall be construed and interpreted according to the internal
laws of the State of California without regard to its conflicts
of laws principles.
16.10 NOTICE. Any notice or filing required or permitted to be given to
the Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the address
below:
Vice President, Human Resources
3100 Hansen Way
Palo Alto, California 94304
With Copy To:
General Counsel
3100 Hansen Way
Palo Alto, California 94304
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered,
or sent by mail, to the last known address of the Participant.
16.11 SUCCESSORS. The provisions of this Plan shall bind and inure to
the benefit of the Participant's Employer and its successors and
assigns and the Participant and the Participant's designated
Beneficiaries.
16.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a
spouse of a Participant who has predeceased the Participant shall
automatically pass to the Participant and shall not be transferable by
such spouse in any manner, including but not limited to such spouse's
will, nor shall such interest pass under the laws of intestate
succession.
16.13 VALIDITY. In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect
the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal or invalid provision had never been
inserted herein.
16.14 INCOMPETENT. If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of
that person's property, the Committee may direct payment of such
benefit to the guardian, legal representative or person having the care
and custody of such minor, incompetent or incapable person. The
Committee may require proof of minority, incompetence,
-27-
<PAGE>
VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
incapacity or guardianship, as it may deem appropriate prior to
distribution of the benefit. Any payment of a benefit shall be a
payment for the account of the Participant and the Participant's
Beneficiary, as the case may be, and shall be a complete discharge of
any liability under the Plan for such payment amount.
16.15 COURT ORDER. The Committee is authorized to make any payments
directed by court order in any action in which the Plan or the
Committee has been named as a party. In addition, if a court determines
that a spouse or former spouse of a Participant has an interest in the
Participant's benefits under the Plan in connection with a property
settlement or otherwise, the Committee, in its sole discretion, shall
have the right, notwithstanding any election made by a Participant, to
immediately distribute the spouse's or former spouse's interest in the
Participant's benefits under the Plan to that spouse or former spouse.
16.16 DISTRIBUTION IN THE EVENT OF TAXATION.
(a) IN GENERAL. If, for any reason, all or any portion of a
Participant's benefits under this Plan becomes
taxable to the Participant prior to receipt, a Participant
may petition the Committee before a Change in Control, or
the trustee of the Trust after a Change in Control, for a
distribution of that portion of his or her benefit that has
become taxable. Upon the grant of such a petition, which
grant shall not be unreasonably withheld (and, after a
Change in Control, shall be granted), a Participant's
Employer shall distribute to the Participant immediately
available funds in an amount equal to the taxable portion of
his or her benefit (which amount shall not exceed a
Participant's unpaid Account Balance under the Plan). If the
petition is granted, the tax liability distribution shall be
made within ninety (90) days of the date when the
Participant's petition is granted. Such a distribution shall
affect and reduce the benefits to be paid under this Plan.
(b) TRUST. If the Trust terminates in accordance with
Section 3.6(e) of the Trust and benefits are distributed
from the Trust to a Participant in accordance with that
Section, the Participant's benefits under this Plan shall be
reduced to the extent of such distributions.
16.17 INSURANCE. The Employer, on its own behalf or on behalf of the
trustee of the Trust, and, in its sole discretion, may apply for and
procure insurance on the life of the Participant, in such amounts and
in such forms as the Trust may choose. The Employer or the trustee of
the Trust, as the case may be, shall be the sole owner and beneficiary
of any such insurance. The Participant shall have no interest
whatsoever in any such policy or policies, and at the request of the
Employer shall submit to medical examinations and supply such
information and execute such documents as may be required by the
insurance company or companies to whom the Employer has applied for
insurance.
16.18 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company
and the Employer is aware that upon the occurrence of a Change in
Control, the Board or the board of directors of a
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<PAGE>
VARIAN MEDICAL SYSTEMS, INC.
MASTER PLAN DOCUMENT CONTINUED...
Participant's Employer (which might then be composed of new members) or
a shareholder of the Company or the Participant's Employer, or of any
successor corporation might then cause or attempt to cause the Company,
the Participant's Employer or such successor to refuse to comply with
its obligations under the Plan and might cause or attempt to cause the
Company or the Participant's Employer to institute, or may institute,
litigation seeking to deny Participants the benefits intended under the
Plan. In these circumstances, the purpose of the Plan could be
frustrated. Accordingly, if, following a Change in Control, it should
appear to any Participant that the Company, the Participant's Employer
or any successor corporation has failed to comply with any of its
obligations under the Plan or any agreement thereunder or, if the
Company, the Employer or any other person takes any action to declare
the Plan void or unenforceable or institutes any litigation or other
legal action designed to deny, diminish or to recover from any
Participant the benefits intended to be provided, then the Company and
the Participant's Employer irrevocably authorize such Participant to
retain counsel of his or her choice at the expense of the Company and
the Participant's Employer (who shall be jointly and severally liable)
to represent such Participant in connection with the initiation or
defense of any litigation or other legal action, whether by or against
the Company, the Participant's Employer or any Director, officer,
shareholder or other person affiliated with the Company, the
Participant's Employer or any successor thereto in any jurisdiction.
IN WITNESS WHEREOF, the Company has signed this Plan document as of
September 30, 2000.
"Company"
Varian Medical Systems, Inc., a Delaware corporation By: _______________________
Title: _______________________
-29-
<PAGE>
SCHEDULE A
MEASUREMENT FUNDS
Pursuant to Section 3.9(c), the Participant may elect one or more of the
Measurement Funds:
<TABLE>
<S><C>
- -------------------------- -----------------------------------------------------------------------
FUND CLASS MEASUREMENT FUND
- -------------------------- -----------------------------------------------------------------------
Money Market Fidelity (VIP) Money Market
- -------------------------- -----------------------------------------------------------------------
Intermediate-Term Bond PIMCO (VIT) Total Return Bond
- -------------------------- -----------------------------------------------------------------------
Large Blend Deutsche Asset Management (formerly Bankers Trust) Equity 500 Index
- -------------------------- -----------------------------------------------------------------------
Large Growth Fidelity (VIP) Growth
- -------------------------- -----------------------------------------------------------------------
Large Growth INVESCO (VIF) Blue Chip Growth
- -------------------------- -----------------------------------------------------------------------
Large Growth Janus Aspen Series Capital Appreciation
- -------------------------- -----------------------------------------------------------------------
Mid Cap Growth INVESCO VIF Dynamics
- -------------------------- -----------------------------------------------------------------------
Small Growth INVESCO (VIF) Small Company Growth
- -------------------------- -----------------------------------------------------------------------
World Stock Janus Aspen Series Worldwide Growth
- -------------------------- -----------------------------------------------------------------------
Company Stock Company Phantom Stock Shares
- -------------------------- -----------------------------------------------------------------------
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>EXHIBIT 21
<TEXT>
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
State or Other
Name Jurisdiction Of Incorporation
- ---- -----------------------------
Varian Associates Limited USA, CA
Varian Realty, Inc USA, CA
Varian BioSynergy, Inc. USA, DE
Varian UK Ltd. USA, DE
Varian Medical Systems Latin America, Ltd. USA, DE
Varian Oncology Systems China, Ltd. USA, DE
Varian Medical Systems India Pvt. Ltd. USA, DE
Varian Medical Systems Pacific, Inc. USA, DE
Varian Medical Systems Canada, Inc. USA, DE
Healthcare Technologies International, L.L.C. USA, DE
Page Mill Corporation USA, MA
Mansfield Insurance Company USA, VT
Varian Medical Systems Australasia Pty Ltd. Australia
Varian Medical Systems Gesellschaft m.b.H. Austria
Varian Medical Systems Belgium N.V. Belgium
Varian Medical Systems Brazil Limitada Brazil
Varian Oncology Services Scandinavia AS Denmark
Varian Oncology Services Finland OY Finland
Varian Medical France S.A.S. France
Varian Oncology Services Generale, SARL France
Varian Medical Systems Deutschland G.m.b.H Germany
Varian Medical Systems Italia S.p.A Italy
Varian Medical Systems K.K Japan & Delaware
Nippon Oncology Systems, Ltd. Japan
Varian FSC B.V. Netherlands
Varian Medical Systems Nederland B.V. Netherlands
Varian Medical Systems Iberica S.L. Spain
Varian Medical Systems International A.G. Switzerland
Varian Medical Systems UK Ltd. United Kingdom
Varian TVT Limited (not active) United Kingdom
Varian Philippines, Ltd. (not active) USA, DE
Varian Medical Systems New Zealand (not active) USA, DE
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>EXHIBIT 23
<TEXT>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-75531) of Varian Medical Systems, Inc. of our
report dated November 9, 2000 relating to the financial statements and
financial statement schedule, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
San Jose, California
December 8, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>EXHIBIT 24
<TEXT>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned directors of Varian Medical Systems, Inc., a Delaware
corporation ("Company"), hereby constitute and appoint Elisha W. Finney and
Joseph B. Phair, and each of them with full power to act without the other, the
undersigned's true and lawful attorney-in-fact, with full power of substitution
and resubstitution, for the undersigned and in the undersigned's name, place and
stead in the undersigned's capacity as a director of the Company, to execute in
the name and on behalf of the undersigned of the Company's Annual Report on Form
10-K for the fiscal year ended September 29, 2000 ("Report"), under the
Securities and Exchange Act of 1934, as amended, and to file such Report, with
exhibits thereto and other documents in connection therewith and any and all
amendments thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact, and each of them, full power and authority to do and
perform each and every act and thing necessary or desirable to be done and to
take any other action of any type whatsoever in connection with the foregoing
which, in the opinion of such attorney-in-fact, may be of benefit to, in the
best interest of, or legally required of, the undersigned, it being understood
that the documents executed by such attorney-in-fact on behalf of the
undersigned pursuant to this Power of Attorney shall be in such form and shall
contain such terms and conditions as such attorney-in-fact may approve in such
attorney-in-fact's discretion. This Power of Attorney may be executed in any
number of counterparts, all of which together shall constitute one and the same
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of December,
2000.
/s/ JOHN SEELY BROWN
- ---------------------------------
John Seely Brown
/s/ SAMUEL HELLMAN
- ---------------------------------
Samuel Hellman
/s/ TERRY R. LAUTENBACH
- ---------------------------------
Terry R. Lautenbach
/s/ DAVID W. MARTIN, JR.
- ---------------------------------
David W. Martin, Jr.
/s/ BURTON RICHTER
- ---------------------------------
Burton Richter
/s/ RICHARD W. VIESER
- ---------------------------------
Richard W. Vieser
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>ARTICLE 5 FINANCIAL DATA SCHEDULE
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDAED STATEMENTS OF EARNINGS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-29-2000
<PERIOD-START> OCT-02-1999
<PERIOD-END> SEP-29-2000
<CASH> 83,321
<SECURITIES> 0
<RECEIVABLES> 226,442
<ALLOWANCES> 0
<INVENTORY> 92,482
<CURRENT-ASSETS> 450,588
<PP&E> 206,614
<DEPRECIATION> 126,515
<TOTAL-ASSETS> 602,550
<CURRENT-LIABILITIES> 249,896
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 31,769
<OTHER-SE> 238,590
<TOTAL-LIABILITY-AND-EQUITY> 602,550
<SALES> 689,700
<TOTAL-REVENUES> 689,700
<CGS> 432,603
<TOTAL-COSTS> 601,997
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,161
<INCOME-PRETAX> 84,875
<INCOME-TAX> 31,826
<INCOME-CONTINUING> 53,049
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,049
<EPS-BASIC> 1.71
<EPS-DILUTED> 1.64
</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----