-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H30fME2++hs8/UER2W8k/vGhifg4IG0n8iBbilB6mALpIPoNkyQcIR24SPBlHTmx zYnqIAdKm5ETduN9IKeIzA== 0001012870-99-000707.txt : 19990309 0001012870-99-000707.hdr.sgml : 19990309 ACCESSION NUMBER: 0001012870-99-000707 CONFORMED SUBMISSION TYPE: 10-12G/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19990308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARIAN INC CENTRAL INDEX KEY: 0001079028 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 770501995 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-12G/A SEC ACT: SEC FILE NUMBER: 000-25393 FILM NUMBER: 99559946 BUSINESS ADDRESS: STREET 1: 3050 HANSEN WAY CITY: PALO ALTO STATE: CA ZIP: 94304-1000 BUSINESS PHONE: 6504245352 10-12G/A 1 AMENDMENT #1 TO FORM 10-12(G) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------- FORM 10/A Amendment No. 1 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------- Varian, Inc. (Exact Name of Registrant as specified in Its Charter) 77-0501995 Delaware (I.R.S. Employer (State or Other Jurisdiction of Identification No.) Incorporation or Organization) 3050 Hansen Way Palo Alto, California 94304-1000 (Zip Code) (Address of Principal Executive Offices) --------------- Registrant's telephone number, including area code: (650) 493-4000 Securities to be registered pursuant to Section 12(b) of the Act: None Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share (Title of Class) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Item 1. Business. The information required by this item is contained under the sections "Business," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors, and in the Combined Financial Statements of Instruments Business of Varian Associates, Inc. Item 2. Financial Information. The information required by this item is contained under the sections "Summary - Summary Financial Data," "Risk Factors," "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Market Risk" and "Pro Forma Condensed Combined Financial Statements." Item 3. Properties. The information required by this item is contained under the section "Business - Properties." Item 4. Security Ownership of Certain Beneficial Owners and Management. The information required by this item is contained under the section "Ownership of IB Common Stock." Item 5. Directors and Executive Officers. The information required by this item is contained under the sections "Management - Board of Directors" and " - Executive Officers." Item 6. Executive Compensation. The information required by this item is contained under the section "Management - Compensation of Directors," " - Executive Officer Compensation," " - Stock Options," and " - Change in Control Agreements." Item 7. Certain Relationships and Related Transactions. The information required by this item is contained under the sections "The Distribution - Relationship Among VMS, VSEA and IB After the Distribution" and "Management - Change in Control Agreements." Item 8. Legal Proceedings. The information required by this item is contained under the section "Business - Legal Proceedings." Item 9. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters. The information required by this item is contained under the sections "Risk Factors - No Dividends Anticipated," "The Distribution - Listing and Trading of IB Common Stock," " - Employee Benefits Allocation Agreement" and "Description of the Capital Stock." Item 10. Recent Sales of Unregistered Securities. On January 7, 1999, as part of its original incorporation, the Registrant issued one share of its common stock, for a total consideration of $1,000, to Varian Associates, Inc., which is and will be the Registrant's sole stockholder until the date of the distribution. This transaction was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, in that such transaction did not involve a public offering. Item 11. Description of Registrant's Securities to be Registered. The information required by this item is contained under the section "Description of the Capital Stock - General" and " - Common Stock." Item 12. Indemnification of Directors and Officers. The information required by this item is contained under the section "Limitation of Liability and Indemnification Matters." Item 13. Financial Statements and Supplementary Data. The information required by this item is identified in the sections "Index to Financial Statements - Instruments Business of Varian Associates, Inc." and "Pro Forma Condensed Combined Financial Statements." Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Matters. None. Item 15. Financial Statements and Exhibits. (a) Financial Statements (1) Combined Financial Statements: The information required by this item is contained in the "Index to Financial Statements and Financial Statement Schedule." (2) Combined Financial Statement Schedule: The following financial statement schedule of the Registrant for fiscal years 1998, 1997, and 1996, and the related Report of Independent Accountants are filed as a part of this Registration Statement and should be read in conjunction with the Combined Financial Statements of the Registrant. Schedule - Report of Independent Accountants on Financial Statement Schedule - Valuation and Qualifying Accounts All other required 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. (b) Exhibits The following documents are filed as exhibits hereto:
Exhibit No. Description ------------------ 2.1 Distribution Agreement among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc. dated as of January 14, 1999.+ 3.1 Form of Restated Certificate of Incorporation of Varian, Inc. to be in effect upon the effectiveness of the Distribution.+ 3.2 Form of By-Laws of Varian, Inc. to be in effect upon the effectiveness of the Distribution.* 4.1 Specimen Common Stock Certificate.* 4.2 Rights Agreement dated February 18, 1999.* 10.1 Form of Employee Benefits Allocation Agreement among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc.+ 10.2 Form of Intellectual Property Agreement among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc.+ 10.3 Form of Tax Sharing Agreement among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc.+ 10.4 Form of Transition Services Agreement among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc.+ 10.5 Form of Change in Control Agreement for CEO.*
Exhibit No. Description ------------------ 10.6 Form of Change in Control Agreement for General Counsel.* 10.7 Form of Change in Control Agreement for Senior Executives.* 10.8 Form of Indemnity Agreement with Directors and Officers.* 10.9 Varian, Inc. Omnibus Stock Plan.+ 10.10 Varian, Inc. Management Incentive Plan.+ 21 Subsidiaries of the Registrant.* 27 Financial Data Schedule.*
- ------- + Filed by Registrant with its Form 10 Registration Statement filed on February 12, 1999. * Filed herewith. Information Statement Varian, Inc. Common Stock (par value $0.01 per share) This Information Statement is being furnished in connection with the distribution (the "Distribution") by Varian Associates, Inc., a Delaware corporation ("Varian"), to holders of record of the common stock of Varian, par value $1 per share ("Varian Common Stock"), at the close of business on March 24, 1999 (the "Distribution Record Date") of one share of common stock, par value $0.01 per share (the "IB Common Stock"), of Varian, Inc., a Delaware corporation ("IB"), for each share of Varian Common Stock owned on the Distribution Record Date. At the same time Varian will distribute to such holders one share of common stock, par value $0.01 per share ("VSEA Common Stock"), of Varian Semiconductor Equipment Associates, Inc., a Delaware corporation ("VSEA"), for each share of Varian Common Stock owned on the Distribution Record Date. See "The Distribution - Manner of Effecting the Distribution." IB and VSEA are wholly-owned subsidiaries of Varian. On or prior to the Distribution, Varian will effectuate certain transactions (the "Internal Transfers") intended to allocate assets and liabilities relating to (i) the manufacture and sale of health care systems, including linear accelerators, simulators, brachytherapy systems and related data management systems and x-ray components (the "Health Care Systems Business") to Varian; (ii) the manufacture and sale of analytical and research instruments and vacuum products (the "Instruments Business") to IB and (iii) the manufacture and sale of ion implantation processing systems used in the manufacture of integrated circuits (the "Semiconductor Equipment Business") to VSEA. As of the Distribution, Varian will change its name to "Varian Medical Systems, Inc." (Varian after the Distribution being referred to herein as "VMS"). The Distribution is payable April 2, 1999 (the "Distribution Date"). Stock distribution statements reflecting ownership of IB Common Stock and VSEA Common Stock will be mailed as soon as practicable after the Distribution. No consideration will be paid by Varian's stockholders for shares of IB Common Stock and VSEA Common Stock received by them in the Distribution, nor will they be requested to surrender or exchange Varian Common Stock in order to receive IB Common Stock and VSEA Common Stock. There is currently no public market for the IB Common Stock, although it is expected that a "when issued" trading market will develop after the Distribution Record Date. Application has been made to quote the IB Common Stock on the Nasdaq National Market under the symbol "VARI." Each share of IB Common Stock will be accompanied by one right (a "Right") to purchase participating preferred stock of IB. No proxies are being solicited in connection with this Information Statement and you are requested not to send us a proxy. These securities have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission nor has the Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this information. Any representation to the contrary is a criminal offense. See "Risk Factors" beginning on page 10 for a discussion of certain factors that should be considered by recipients of IB Common Stock. This Information Statement does not constitute an offer to sell or the solicitation of an offer to buy any securities. Stockholders of Varian with inquiries related to the Distribution should contact First Chicago Trust Company of New York, the Distribution Agent for the Distribution, at 1-800-756-8200 or the Secretary of Varian at 650-493-4000. The date of this Information Statement is March 8, 1999. Cautionary Statement for Purposes of "Safe Harbor" Provisions of The Private Securities Litigation Reform Act of 1995. This Information Statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning, among other things, IB's prospects, developments and business strategies for its operations, all of which are subject to risks and uncertainties. These forward-looking statements are identified by their use of such terms and phrases as "intend," "intends," "intended," "goal," "estimate," "estimates," "estimated," "expect," "expects," "expected," "project," "projects," "projected," "projections," "plans," "anticipate," "anticipates," "anticipated," "should," "designed to," "foreseeable future," "believe," "believes," "believed" and "scheduled" and in many cases are followed by a cross reference to "Risk Factors." When a forward-looking statement includes a statement of the assumptions or bases underlying the forward-looking statement, the management of IB cautions that, while it believes such assumptions or bases to be reasonable and makes them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending upon the circumstances. Where, in any forward- looking statement, IB or its management expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. The actual results of IB may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include (i) the factors discussed under "Risk Factors" and particularly, in cases where the forward-looking statement is followed by a cross reference to "Risk Factors," the factors discussed in the section or sections under "Risk Factors" that are referred to in the cross reference, (ii) the factors discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Forecasted Capitalization," and "Business" and (iii) the following factors: product demand and market acceptance risks; the effect of general economic conditions and foreign currency fluctuations; the impact of competitive products and pricing; new product development and commercialization; the continued improvement of the various instruments markets; the ability to increase operating margins on higher sales; the impact of economic conditions in Korea and other Asian markets on sales in those areas; successful implementation by IB and certain third parties of corrective actions to address the impact of the Year 2000; completion of the Distribution on the current schedule within current budgets; the ability to sell certain surplus assets in connection with the Distribution; the ability of IB to realize anticipated cost savings resulting from the Distribution; and other risks detailed from time to time in the filings of IB with the Securities and Exchange Commission (the "Commission"). IB undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. TABLE OF CONTENTS
Page ---- Summary.................................................................. 4 Introduction............................................................. 9 Risk Factors............................................................. 10 The Distribution......................................................... 20 Selected Financial Data.................................................. 29 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 30 Market Risk.............................................................. 37 Forecasted Capitalization................................................ 39 Pro Forma Condensed Combined Financial Statements........................ 40 Business................................................................. 44
Page ---- Management................................................................. 50 The IB Omnibus Stock Plan.................................................. 57 The IB Management Incentive Plan........................................... 61 Ownership of IB Common Stock............................................... 63 Financing.................................................................. 65 Description of the Capital Stock........................................... 66 Limitation of Liability and Indemnification Matters........................ 68 Delaware Law and Certain Charter and By-Law Provisions..................... 68 Available Information...................................................... 73 Index to Financial Statements.............................................. F-1
3 SUMMARY The following is a summary of certain information contained elsewhere in this Information Statement. Reference is made to, and this summary is qualified by, the more detailed information set forth in this Information Statement, which should be read in its entirety. Unless the context otherwise requires, (i) references in this Information Statement to "IB" refer to IB and its subsidiaries after giving effect to the Internal Transfers and the Distribution and (ii) references in this Information Statement to the "Instruments Business" refer to the historical business and operations of the Instruments Business conducted by Varian prior to the Distribution. IB IB, a newly-formed, wholly-owned subsidiary of Varian, will own and operate the Instruments Business after the Distribution. IB develops, manufactures, sells and services a variety of scientific instruments and equipment. IB is a major supplier of analytical and research instruments and related equipment for studying the chemical composition of a myriad of substances, including metals, inorganic materials, organic compounds, polymers, natural substances and biochemicals. IB also develops, manufactures, sells and services nuclear magnetic resonance spectrometers for probing the structural properties of molecules and for producing non-invasive three-dimensional images of biomedical materials. IB also develops, manufactures, sells and services high vacuum products that serve a wide range of industrial and scientific applications, such as high-energy physics, surface analysis, scientific and industrial coating processes, analytical instrumentation and semiconductor manufacturing. IB is also a state-of-the-art contract manufacturer of advanced electronic assemblies and subsystems such as printed circuit boards. IB operates in 70 countries and at January 1, 1999 had approximately 3,000 employees. The principal executive offices of IB will be located at 3120 Hansen Way, Palo Alto, California 94304-1030. Its telephone number at that address will be (650) 213-8000. THE DISTRIBUTION Distributing Company...... Varian Associates, Inc., a Delaware corporation. Concurrently with the Distribution, Varian will change its name to "Varian Medical Systems, Inc." (Varian after the Distribution being referred to herein as "VMS"). Distributed Companies..... Varian, Inc. and Varian Semiconductor Equipment Associates, Inc., each a Delaware corporation and each currently a wholly-owned subsidiary of Varian. Distribution Ratio........ Each stockholder of record of Varian as of the close of business on the Distribution Record Date will receive one share of IB Common Stock and one share of VSEA Common Stock for each share of Varian Common Stock held on the Distribution Record Date and will retain the shares of Varian Common Stock held by such stockholder immediately prior to the Distribution (Varian Common Stock after the Distribution being referred to herein as "VMS Common Stock"). No consideration will be paid by Varian stockholders for shares of IB Common Stock and VSEA Common Stock to be received in the Distribution. See "The Distribution - Manner of Effecting the Distribution." Shares to be Distributed............... Approximately 30 million shares of IB Common Stock and VSEA Common Stock (based on 29,985,829 shares of Varian Common Stock outstanding on February 1, 1999). The shares to be distributed will constitute 100% of the outstanding shares of IB Common Stock and VSEA Common Stock. Distribution Record Date...................... Close of business on March 24, 1999 4 Distribution Date......... April 2, 1999. On or prior to the Distribution Date, the shares of IB Common Stock and VSEA Common Stock to be distributed in the Distribution will be delivered to First Chicago Trust Company of New York, as Distribution Agent (the "Distribution Agent"). The Distribution Agent will mail stock distribution statements reflecting ownership of shares of IB Common Stock and VSEA Common Stock as soon as practicable after the Distribution. See "The Distribution - Manner of Effecting the Distribution." Reasons for the Distribution.............. The Distribution is designed to separate three types of businesses that have different dynamics and business cycles, serve different markets and customers, are subject to different competitive forces and must be managed with different long-term and short-term strategies and goals. The Distribution will allow the management of IB to focus on its own business, organize its capital structure, evaluate its growth opportunities, achieve market recognition, rationalize its organizational structure and design equity-based compensation programs targeted to its own performance. Internal Transfers........ On or prior to the Distribution Date, Varian intends to consummate certain internal mergers and stock and asset transfers intended to allocate assets and liabilities relating to (i) the Health Care Systems Business to VMS, (ii) the Semiconductor Equipment Business to VSEA and (iii) the Instruments Business to IB (the "Internal Transfers"). See "The Distribution - Internal Mergers and Transfers" and "Pro Forma Condensed Combined Financial Statements." Relationship Among VMS, IB and VSEA After the Distribution.............. For purposes of governing certain ongoing relationships among VMS, VSEA and IB after the Distribution and to provide mechanisms for an orderly transition, Varian, IB and VSEA have entered into a Distribution Agreement dated as of January 14, 1999 providing for, among other things, the Internal Transfers, the Distribution and cross- indemnification provisions. Before the Distribution, VMS, IB and VSEA will enter into additional agreements, including (i) the Tax Sharing Agreement (as defined), (ii) the Employee Benefits Allocation Agreement (as defined), (iii) the Transition Services Agreement (as defined) and (iv) the Intellectual Property Agreement (as defined) (such agreements other than the Distribution Agreement are referred to herein collectively as the "Ancillary Agreements"). See "The Distribution - Relationship Among VMS, VSEA and IB After the Distribution." Financing................. Varian is required to renegotiate the terms of its outstanding unsecured term loans (the "Term Loans") to permit 50% of these loans to be assumed by IB in connection with the Distribution. The Term Loans contain covenants that limit future borrowings and the payment of cash dividends and require the maintenance of certain levels of working capital and operating results of the borrower. In addition, certain short-term notes payable of Varian and its subsidiaries (the "Notes Payable") will, as a result of the Internal Transfers and debt allocation provisions of the Distribution Agreement, remain outstanding as direct and indirect obligations of IB as of the Distribution Date. Based on the outstanding indebtedness of Varian 5 under the Term Loans and Notes Payable as of January 1, 1999 and Varian's projected operating results and certain other transactions through the Distribution Date, it is anticipated that at the Distribution Date, IB will have between $50 million and $100 million of outstanding indebtedness under the Term Loans and Notes Payable. Based on the assumptions stated in such section, the allocation of indebtedness to IB at the Distribution Date should approximate the amounts reflected in "Forecasted Capitalization." See "The Distribution" and "Financing." IB may enter into a credit facility for working capital and other general corporate purposes. The credit facility may contain certain representations and warranties; conditions; affirmative, negative and financial covenants; and events of default customary for such facilities. See "Financing." Tax Consequences.......... Varian has received a private letter ruling from the Internal Revenue Service to the effect, among other things, that receipt of shares of IB Common Stock and VSEA Common Stock by stockholders of Varian will be tax-free (the "Tax Ruling"). For a description of the consequences to IB and the holders of Varian Common Stock if the Distribution were not to qualify as tax-free, see "Risk Factors - Federal Income Tax Considerations." Distribution Agent........ First Chicago Trust Company of New York (the "Distribution Agent"). 6 IB AFTER THE DISTRIBUTION Board of Directors........ The following five individuals who make up the current IB Board are expected to be the members of the Board of Directors of IB as of the close of business on the Distribution Date: Allen J. Lauer, John G. McDonald, Wayne R. Moon, D.E. Mundell and Elizabeth E. Tallett. Certain of the foregoing currently serve as directors of Varian and will resign from Varian's Board of Directors effective as of the Distribution Date. See "Management - Board of Directors." Trading Market............ There is currently no public market for the IB Common Stock although a "when issued" trading market is expected to develop after the Distribution Record Date. IB has applied for quotation of the IB Common Stock on the Nasdaq National Market under the symbol "VARI." See "RiskFactors - No Current Public Market for IB Common Stock" and "The Distribution - Listing and Trading of IB Common Stock." Certain Provisions of Certificate of Incorporation, By-Laws and Rights Plan........... Certain provisions of the Certificate of Incorporation and By-Laws of IB which will be in effect at the time of the Distribution may have the effect of making more difficult an acquisition of control of IB in a transaction not approved by IB's Board of Directors. In addition, IB has adopted a stockholder rights plan (the "Rights Plan"), which, under certain circumstances, would significantly dilute the interest in IB of persons seeking to acquire control of IB without the prior approval of IB's Board of Directors. See "Risk Factors - Certain Anti-takeover Features," "Description of the Capital Stock - Rights Plan" and "Delaware Law and Certain Charter and By-Law Provisions." RISK FACTORS Stockholders should consider carefully the specific investment considerations set forth under "Risk Factors," as well as the other information set forth in this Information Statement. 7 SUMMARY FINANCIAL DATA The following table presents summary historical financial data of the Instruments Business. The information set forth below should be read in conjunction with "Pro Forma Condensed Combined Financial Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and notes thereto of the Instruments Business included elsewhere in this Information Statement. The unaudited pro forma statement of earnings data for the fiscal year ended October 2, 1998 and the quarter ended January 1, 1999, set forth below was prepared to give effect to the Distribution as if it had occurred on September 27, 1997, and the unaudited pro forma balance sheet data was prepared to give effect to the Distribution as if it had occurred on January 1, 1999, and does not purport to represent what the Instruments Business' operating results or financial position would have been or to project its operating results or financial position for any future date or period. The statement of earnings data set forth below for the fiscal years ended October 2, 1998, September 26, 1997 and September 27, 1996 and the balance sheet data at October 2, 1998 and September 26, 1997 are derived from, and are qualified by reference to, the audited financial statements of the Instruments Business included elsewhere in this Information Statement. The statement of earnings data for the quarters ended January 1, 1999 and January 2, 1998 and the balance sheet data at January 1, 1999 are derived from the Instruments Business' unaudited financial data included elsewhere in this Information Statement. The statement of earnings data for the fiscal years 1995 and 1994 and the balance sheet data at fiscal year end 1996, 1995 and 1994 are derived from unaudited financial data of the Instruments Business not included in this Information Statement. The historical financial information may not be indicative of the Instruments Business' future performance and does not necessarily reflect what the financial position and results of operations of the Instruments Business would have been had the Instruments Business operated as a separate, stand-alone entity during the periods presented.
Quarters Ended Fiscal Years -------------------------------- -------------------------------------------- Pro Forma January 1, January 1, January 2, Pro Forma 1999 1999 1998 1998 1998 1997 1996 1995 1994 ---------- ---------- ---------- --------- ------ ------ ------ ------ ------ (Dollars in millions, except per share amounts) Statement of Earnings Data Sales................... $133.3 $133.3 $140.9 $557.8 $557.8 $541.9 $504.4 $459.4 $425.7 Operating Earnings before Taxes........... $ 6.6 $ 7.7 $ 9.6 $ 34.8 $ 39.2 $ 26.8 $ 11.5 $ 2.7 $ 20.3 Taxes on earnings....... $ 3.0 $ 3.4 $ 3.8 $ 14.1 $ 15.8 $ 12.6 $ 5.3 $ 0.7 $ 10.0 Net Earnings............ $ 3.6 $ 4.3 $ 5.8 $ 20.7 $ 23.4 $ 14.2 $ 6.2 $ 2.0 $ 10.3 Pro Forma Net Earnings Per Share(/1/)......... $ 0.12 $ 0.14 $ 0.19 $ 0.69 $ 0.78 $ 0.47 $ 0.20 $ 0.06 $ 0.30
At January 1, Fiscal Year End ---------------- ---------------------------------- Pro Forma 1999 1999 1998 1997 1996 1995 1994 --------- ------ ------ ------ ------ ------ ------ (Dollars in millions) Balance Sheet Data Total assets.............. $415.6 $395.6 $404.1 $357.9 $301.0 $282.0 $272.6 Long-term debt (excluding current portion)......... $ 52.6 $ -- $ -- $ -- $ -- $ -- $ --
- ------- (1) The computation of pro forma net earnings per share is based on the weighted average number of shares of Varian Common Stock outstanding during the respective periods, reflecting the ratio of one share of IB Common Stock for each share of Varian Common Stock outstanding at the time of the Distribution. 8 INTRODUCTION On February 19, 1999, the Varian Board of Directors declared a dividend payable to each stockholder of record at the close of business on the Distribution Record Date of one share of IB Common Stock and one share of VSEA Common Stock for each share of Varian Common Stock held by such stockholder at the close of business on the Distribution Record Date. As a result of the Distribution, 100% of the outstanding shares of IB Common Stock and VSEA Common Stock will be distributed to Varian stockholders on a pro rata basis. The Distribution will be made on April 2, 1999. Stockholders of Varian with questions concerning the Distribution should contact the Distribution Agent at 1-800-756-8200 or Varian Associates, Inc., Corporate Secretary, 3050 Hansen Way, Palo Alto, California 94304, telephone number (650) 493-4000. After the Distribution Date, stockholders of IB with inquiries related to their investment in IB should contact Varian, Inc., 3120 Hansen Way, Palo Alto, California 94304, telephone number (650) 213-8000. No person is authorized by Varian or IB to give any information or to make any representations other than those contained in this Information Statement and, if given or made, such information or representations must not be relied upon as having been authorized. 9 RISK FACTORS The following factors, in conjunction with the other information included in this Information Statement, should be carefully considered. Lack of Recent Operating History as Separate Entities Upon consummation of the Distribution, IB will own and operate the Instruments Business, which does not have a recent operating history as a separate entity. After the Distribution, IB will be a smaller and less diversified company than Varian was prior to the Distribution. The ability of IB to satisfy its obligations and maintain profitability will be solely dependent upon its own future performance, and IB will not be able to rely on the capital resources and cash flows of the other two businesses. The future performance and cash flows of IB will be subject to prevailing economic conditions and to financial, business and other factors affecting its business operations, including factors beyond its control. The division of Varian may result in some temporary dislocation and inefficiencies to the business operations, as well as the organization and personnel structure, of IB, and will also result in the duplication of certain personnel, administrative and other expenses required for the operation of independent companies. In addition, although after the Distribution IB will continue to be managed primarily by its current operating management, the management of IB has not previously operated its business as a separate public company. Accordingly, there can be no assurance that the transition will not alter or disrupt the management and/or operations of IB. Potential Responsibility for Liabilities Not Expressly Assumed The Distribution Agreement and the Ancillary Agreements allocate among VMS, VSEA and IB responsibility for various indebtedness, liabilities and obligations. See "The Distribution - Relationship Among VMS, VSEA and IB after the Distribution." It is possible that a court would disregard this contractual allocation of indebtedness, liabilities and obligations among the parties and require VMS, VSEA or IB or their respective subsidiaries 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. Potential Indemnification Liabilities Under the terms of the Distribution Agreement and certain of the Ancillary Agreements, each of VMS, VSEA and IB has agreed to indemnify the other parties (and certain related persons) from and after consummation of the Distribution with respect to certain indebtedness, liabilities and obligations, which indemnification obligations could be significant. The availability of such indemnities will depend upon the future financial strength of the companies. No assurance can be given that the relevant company will be in a position to fund such indemnities. 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. See "The Distribution - Relationship Among VMS, VSEA and IB After the Distribution." Debt Leverage After the Distribution Immediately following the Distribution, IB will have somewhat greater debt leverage than Varian had prior to the Distribution. As of January 1, 1999, Varian had total long and short-term debt of approximately $152 million and total stockholders' equity of approximately $556 million. Based on Varian's outstanding indebtedness as of January 1, 1999 and projected operating results and certain other transactions through the anticipated Distribution Date, on a pro forma basis giving effect to the Distribution, IB would have total long- term debt (including current portion) and short-term debt of approximately $76 million and total stockholders' equity of approximately $195 million. The allocation of indebtedness to IB reflects, in substantial part, its expected capital requirements and cash flows. See "Forecasted Capitalization." 10 The degree to which IB is leveraged could have important consequences, including the following: (i) IB's ability to obtain additional financing in the future for working capital, capital expenditures, product development, acquisitions, general corporate purposes or other purposes may be impaired; (ii) a portion of IB's and its subsidiaries' cash flow from operations must be dedicated to the payment of the principal of and interest on its indebtedness; (iii) the Term Loans of IB will contain, and any credit agreement of IB following the Distribution may contain, certain restrictive financial and operating covenants, including, among others, requirements that IB satisfy certain financial ratios; (iv) a portion of IB's borrowings may be at floating rates of interest, causing IB to be vulnerable to increases in interest rates; (v) IB's degree of leverage may make it more vulnerable in a downturn in general economic conditions and (vi) IB's degree of leverage may limit its flexibility in responding to changing business and economic conditions. In addition, in a lawsuit by an unpaid creditor or representative of creditors, such as a trustee in bankruptcy, a court may be asked to void the Distribution (in whole or in part) as a fraudulent conveyance and to require that the stockholders return some or all of the shares of VSEA Common Stock and/or IB Common Stock to VMS or require each of IB, VSEA and VMS to fund certain liabilities of the other companies for the benefit of creditors. See " - Fraudulent Transfer Considerations; Legal Dividend Requirements." Federal Income Tax Considerations Varian has received the Tax Ruling from the Internal Revenue Service (the "IRS") to the effect that, among other things, no gain or loss will be recognized by the holders of Varian Common Stock as a result of the Distribution and no gain or loss will be recognized by Varian upon the Distribution. See "The Distribution - Federal Income Tax Aspects of the Distribution." 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. IB is not aware of any facts or circumstances that would cause such representations and assumptions to be untrue. Varian, IB and VSEA have agreed to certain restrictions on their future actions to provide further assurances that the Distribution will qualify as tax-free. See "The Distribution - Relationship Among VMS, VSEA and IB After the Distribution - Tax Sharing Agreement." If one or both of the distributions comprising the Distribution fail to qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"), then VMS will recognize gain equal to the difference between the fair market value of the stock of the nonqualifying company or companies and Varian's adjusted tax basis in such stock. If VMS were to recognize gain on one or both of the distributions, such gain and the resulting tax liability likely would be very substantial. Furthermore, if either distribution were not to qualify as a tax-free spin-off under Section 355 of the Code, each holder of Varian Common Stock who receives shares of IB Common Stock and VSEA Common Stock in the Distribution would be treated as if such stockholder received a taxable distribution in an amount equal to the fair market value of the IB Common Stock or VSEA Common Stock received, which would result in (i) a dividend to the extent of such stockholder's pro rata share of Varian's current and accumulated earnings and profits, (ii) a reduction in such stockholder's basis in Varian Common Stock to the extent the amount received exceeds such stockholder's share of earnings and profits and (iii) gain from the exchange of Varian Common Stock to the extent the amount received exceeds both such stockholder's share of earnings and profits and such stockholder's basis in such common stock. 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 pursuant to 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 pursuant to 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 Varian to the IRS in connection with the Tax Ruling is the representation that each of the distributions is not part of such a plan or series of related transactions. If VMS, IB or VSEA were to undergo a 50% Ownership Shift, particularly if such 50% Ownership 11 Shift occurred within two years after the Distribution Date, there can be no assurance that the IRS will not assert that such ownership shift occurred pursuant to a plan or series of related transactions and therefore that the Distribution is taxable under Section 355(e). If a distribution is taxable solely under Section 355(e), VMS will recognize gain equal to the difference between the fair market value of the VSEA Common Stock and the IB Common Stock and Varian's adjusted tax basis in such stock. However, holders of Varian Common Stock would not recognize gain or loss as a result of the Distribution. If VMS were to recognize gain on the distributions, such gain and the resulting tax liability likely would be very substantial. The Tax Sharing Agreement will allocate responsibility for the possible corporate tax burden resulting from the Distribution. Each of VMS, IB and VSEA will be responsible for any corporate taxes resulting from the Distribution attributable to action taken or permitted by that entity or its affiliates after the Distribution. If the Distribution is found to be taxable but none of VMS, IB and VSEA has done anything to cause the Distribution to be taxable, each company generally will be liable for one-third of those taxes. See "The Distribution - Relationship Among VMS, VSEA and IB After the Distribution - Tax Sharing Agreement." No Current Public Market for IB Common Stock There is not currently a public market for the IB Common Stock, although a "when-issued" trading market is expected to develop after the Distribution Record Date. There can be no assurance as to the prices at which trading in IB Common Stock will occur after the Distribution. Until the IB Common Stock is fully distributed and an orderly market develops, the prices at which trading in such stock occurs may fluctuate significantly. IB has applied for quotation of the IB Common Stock on the Nasdaq National Market. See "The Distribution - Listing and Trading of IB Common Stock." No Dividends Anticipated Following the Distribution, IB does not anticipate paying dividends on the IB Common Stock. The Term Loans of IB will contain, and any credit agreement entered into by IB may contain, provisions that limit the ability of IB (and/or its subsidiaries) to pay cash dividends. Any determination to pay cash dividends in the future will be at the discretion of the Board of Directors of IB and will be dependent upon IB's results of operations, financial condition, contractual restrictions and other factors deemed relevant at that time by IB's Board of Directors. See "Financing." Certain Anti-takeover Features The Certificate of Incorporation and By-Laws of IB that will be in effect at the time of the Distribution will contain several provisions that may make the acquisition of control of IB more difficult or expensive. The Certificate of Incorporation and By-Laws, among other things, will (i) classify the Board of Directors into three classes, with directors of each class serving for a staggered three-year period, (ii) provide that directors may be removed only for cause and only upon the affirmative vote of the holders of at least a majority of the outstanding shares of IB Common Stock entitled to vote for such directors, (iii) permit the remaining directors (but not IB's stockholders) to fill vacancies and newly created directorships on the Board, (iv) eliminate the ability of stockholders to act by written consent and (v) require the vote of stockholders holding at least 66 2/3% of the outstanding shares of IB Common Stock to amend, alter or repeal the By-Laws and certain provisions of the Certificate of Incorporation, including the provisions described in the foregoing clauses (i) through (iv) and this clause (v). Such provisions would make the removal of incumbent directors more difficult and time-consuming and may have the effect of discouraging a tender offer or other takeover attempt not previously approved by the Board of Directors. Under the Certificate of Incorporation which will be in effect at the time of the Distribution, the Board of Directors of IB also has the authority to issue shares of preferred stock in one or more series and to fix the powers, preferences and rights of any such series without stockholder approval. The Board of Directors of IB could, therefore, issue, without stockholder approval, preferred stock with voting and other rights that could adversely affect the voting power of the holders of IB Common Stock and could make it more difficult for a third party to gain control of IB. In addition, IB has adopted a stockholder rights plan which, under certain circumstances, would significantly dilute the equity interest in IB of persons seeking to acquire control of IB without the prior approval 12 of IB's Board of Directors. See "Description of the Capital Stock - Rights Plan" and "Delaware Law and Certain Charter and By-Law Provisions." Certain Consent Requirements Consummation of the Distribution and related transactions could result in a violation of Varian's existing debt and other contractual arrangements or require the consent of a third party to effect the necessary transfers of such arrangements to IB and its subsidiaries. In a substantial number of situations, an amendment, consent or waiver from third parties will be required. Although Varian believes that no single agreement for which an amendment, consent or waiver is being sought is material, the failure of Varian or IB to receive a significant number of such amendments, waivers or consents with respect to contractual arrangements relating to the Instruments Business could have a material adverse effect on the ability of IB to continue to conduct its business as currently being conducted. Fraudulent Transfer Considerations; Legal Dividend Requirements If a court in a lawsuit by an unpaid creditor or representative of creditors, such as a trustee in bankruptcy, were to find that at the time Varian effected the Distribution, Varian, VMS, VSEA or IB, as the case may be, (i) was insolvent, (ii) was rendered insolvent by reason of the Distribution, (iii) was engaged in a business or transaction for which Varian's, VMS's, VSEA's or IB's, as the case may be, remaining assets constituted unreasonably small capital or (iv) intended to incur, or believed it would incur, debts beyond its ability to pay such debts as they matured, such court may be asked to void the Distribution (in whole or in part) as a fraudulent conveyance and require that the stockholders return some or all of the shares of VSEA Common Stock and IB Common Stock to VMS, or require VMS, VSEA or IB, as the case may be, to fund certain liabilities of the other companies for the benefit of creditors. The measure of insolvency for purposes of the foregoing will vary depending upon the jurisdiction whose law is being applied. Generally, however, each of Varian, VMS, VSEA and IB, as the case may be, would be considered insolvent if the fair value of its assets were less than the amount of its liabilities or if it incurred debt beyond its ability to repay such debt as it matures. In addition, under Section 170 of the Delaware General Corporation Law (the "DGCL") (which is applicable to Varian in the Distribution), a corporation generally may make distributions to its stockholders only out of its surplus (net assets minus capital) and not out of capital. Varian's Board of Directors and management believe that (i) Varian, and each of VMS, VSEA and IB, will be solvent before and after the Distribution (in accordance with the foregoing definitions), will be able to repay its debts as they mature following the Distribution and will have sufficient capital to carry on its businesses and (ii) the Distribution will be made entirely out of surplus, as provided under Section 170 of the DGCL. Transitioning to New Information Technology Infrastructure VMS, IB and VSEA currently share a common information technology ("IT") infrastructure. This IT infrastructure is essential to the daily operation of the companies' marketing, manufacturing, distribution, billing and collections and financial reporting processes. After the Distribution, IB will establish a separate IT infrastructure as appropriate for its separate business and will transition to this new IT infrastructure from the currently shared IT infrastructure. During this transition, certain IT services will be provided by Varian pursuant to the Transition Services Agreement described herein. This transition is not unlike transitions carried out previously by Varian in the process of divesting discontinued operations and/or integrating the operations of newly acquired companies. Consequently, management of IB believes that Varian possesses the skills and resources to design and implement and assist IB in transitioning to the new IT infrastructure. However, these activities are inherently complex and because of their significance to IB's business, unforeseen problems or errors in the transition to this new IT infrastructure could adversely affect the business and results of operations of IB. Assessment and correction of Year 2000 problems could complicate transition to this new infrastructure. See "Risk Factors - Potential Impact of the Year 2000 Issue." 13 Technological Change and New Products The markets for IB's products are characterized by changing technology, evolving industry standards and new product introductions and enhancements. While many of IB's products are based on more mature technologies, IB's future success will depend in part upon its ability to enhance its existing products with new technologies, to develop and introduce new products and technologies and to successfully expand its aftermarket support services for such new or enhanced products in order to meet changing customer requirements and serve broader industry segments. IB has devoted significant resources to the enhancement of its existing products, the development of new products and technologies and the expansion of its maintenance and aftermarket support activities. Due to the risks inherent in transitioning to new products, IB will be required to accurately forecast demand for new products while managing the transition from older products. If new products have reliability or quality problems, reduced orders, higher manufacturing costs, delays in acceptance of and payment for new products and additional service and warranty expenses may result. There can be no assurance that IB will successfully develop and manufacture new products, or that new products introduced by it will be accepted in the marketplace. If IB does not successfully introduce new products, IB's results of operations will be materially adversely affected. See "Business - Competition." Product Liability IB's business exposes it to potential product liability claims that are inherent in the manufacturing, marketing and sale of its products, and IB may face substantial liability for damages resulting from the faulty design or manufacture of its products. Varian maintains limited product liability insurance coverage in an amount it deems sufficient for each of its businesses. Such insurance is subject to deductibles and self-insured retentions. Product liability insurance is expensive and in the future may not be available on acceptable terms or in sufficient amounts or may be unavailable. Although IB will obtain insurance coverage after the Distribution, the amount of such insurance coverage has not yet been determined and no assurance can be given that it will be adequate. A successful claim brought against IB in excess of its insurance coverage or any material claim for which insurance coverage is denied or limited and for which indemnification is not available could have a material adverse effect on IB's business, results of operations and financial condition. There can be no assurance that IB would have sufficient resources to satisfy any liability resulting from these claims. Uncertainty of Market Acceptance of New Products Certain of IB's products represent alternatives to traditional instruments and methods and as a result may be slow to achieve, or may not achieve, market acceptance, as customers may seek further validation of the efficiency and efficacy of IB's technology. This is particularly true where the purchase of the product requires a significant capital commitment. While many of IB's products are based on more mature technologies, most of the enhancements to such products are based on relatively new, emerging technologies. IB believes that, to a significant extent, its growth prospects depend on its ability to gain acceptance by a broader group of customers of the efficiency and efficacy of IB's innovative technologies. There can be no assurance that IB will be successful in obtaining such broad acceptance. Dependence on Capital Spending Policies and Government Funding IB products are used in environmental laboratories; pharmaceutical and chemical industries; chemical, life science and academic research; government laboratories; and specific areas of the health care industry. The capital spending policies of these companies and institutions can have a significant effect on the demand for IB's products. Such policies are based on a wide variety of factors, including the resources available to make such purchases, the spending priorities among various types of research equipment and the policies regarding capital expenditures during recessionary periods. Any decrease in capital spending by these companies or institutions could have a material adverse effect on IB's business and results of operations. A portion of IB's sales are to universities, government research laboratories, private foundations and other institutions where funding is dependent on grants from governmental agencies. If government funding necessary to purchase IB's products were to become unavailable to researchers for any extended period of time, or if overall research funding were 14 to decrease, IB's business and results of operations could be adversely affected. In addition, a portion of sales of IB's products is made to various governmental agencies. Any decline in purchases by those governmental agencies, including, without limitation, declines as the result of budgeting limitations, could have an adverse effect on IB's business and results of operation See "Business - Marketing and Sales." Variability of Operating Results Certain of IB's products require significant capital expenditures and other products have short delivery turnaround. The timing of sales of these products could affect IB's quarterly earnings. A delay in a shipment in any quarter due, for example, to an unanticipated shipment rescheduling, to cancellations by customers or to unexpected manufacturing difficulties experienced by IB, may cause sales in such quarter to fall significantly below IB's expectations and may thus adversely affect IB's operating results for such quarter. Further, IB's quarterly operating results may also vary significantly depending on a number of other factors, including changes in pricing by IB or its competitors, discount levels, foreign currency exchange rates, the mix of products sold, the timing of the announcement, introduction and delivery of new product enhancements by IB and its competitors, and general economic conditions. Generally IB recognizes product revenues upon shipment of its products. Because certain operating expenses of IB are based on anticipated capacity levels and a high percentage of IB's 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. There can be no assurance that any of these factors will not have a material adverse effect on IB's business or results of operations. Competition IB encounters and expects to continue to encounter intense competition in the sale of its products. Competition in IB's markets is based upon the performance capabilities of IB's products, technical support and after-market service, the manufacturer's reputation as a technological leader and the selling price. Management believes that performance capabilities are the most important of these criteria. The markets in which IB competes are highly competitive and are characterized by the application of advanced technology. There are numerous companies that specialize in, and a number of larger companies that devote a significant portion of their resources to, the development, manufacture and sale of products that compete with those manufactured or sold by IB. Many of IB's competitors are well-known manufacturers with a high degree of technical proficiency. In addition, competition is intensified by the ever-changing nature of the technologies in the industries in which IB is engaged. IB's competitors can be expected to continue to improve the design and performance of their products and to introduce new products with competitive price and performance characteristics. An increase in competition could result in price reductions and loss of market share, which could have a material adverse effect on IB's business, financial condition or results of operations. Although IB's management believes that IB enjoys certain technological and other advantages over its competitors, realizing and maintaining such advantages will require continued investment by IB in engineering, research and development, marketing and customer service and support. There can be no assurance that IB will have sufficient resources to continue to make such investments or that IB will be successful in maintaining such advantages. See "Business - Competition." International Sales and Manufacturing The markets in which IB competes are becoming increasingly globalized. International sales accounted for approximately 47%, 47% and 50%, respectively, of IB's sales in fiscal years 1998, 1997 and 1996. In the first quarter of fiscal year 1999, international sales accounted for 50% of IB's sales as compared to 48% in the first quarter of fiscal year 1998. As a result, IB's customers increasingly require service and support on a worldwide basis. IB has manufacturing operations in Australia, Italy and The Netherlands as well as sales and service offices located throughout Europe, Asia and Latin America. IB has invested substantial financial and management resources to develop an international infrastructure to meet the needs of its customers worldwide. IB intends to continue to expand its presence in international markets. There can be no assurance that IB will be able to compete successfully in the international market or to 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 15 through a foreign country's legal system; foreign customers may have longer payment cycles; foreign countries may impose additional withholding taxes or otherwise tax IB's 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 IB in foreign markets where payment for IB's 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. There can be no assurance that any of these factors will not have a material adverse impact on IB's business and results of operations. A portion of IB's revenue is derived from sales in Asia. Asia is experiencing a severe economic crisis, which has been characterized by sharply reduced economic activity and liquidity, highly volatile foreign-currency exchange and interest rates and unstable stock markets. Until the Asian economic uncertainty is resolved, IB's sales to Asia could be adversely affected by the region's unstable economic conditions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations." On January 1, 1999, the Euro was adopted as the national currency of certain members of the European Monetary Union. The existing national currencies of the participating countries will continue to be acceptable until January 1, 2002, after which the Euro will be the sole legal tender for the participating countries. Because IB sells its products in Europe, the Euro conversion raises several economic and operational issues, such as the modification of information systems to accommodate Euro-denominated transactions, the recalculation of currency risk, the competitive impact of cross-border price transparency, the continuity of material contracts and potential tax and accounting consequences. IB has made changes in its information systems to be able to conduct Euro-denominated transactions (although full information system capability for financial reporting in Euro will not be accomplished until October 2001). IB does not expect any change in currency risk due to its existing hedging practices. IB is still evaluating the potential impact of price transparency for its products. Based on its evaluation to date, IB does not expect the Euro conversion to have a material adverse effect on its business, results of operations or financial condition. Foreign Currency Risks Varian has historically entered into forward exchange contracts in respect of the Instruments Business to mitigate the effects of operational (sales orders and purchase commitments) and balance sheet exposures to fluctuations in foreign currency exchange rates. IB'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. At October 2, 1998, IB had forward exchange contracts to sell foreign currencies totaling $31.4 million and to buy foreign currencies totaling $23.5 million. See "Market Risk." Uncertain Protection of Patent and Other Proprietary Rights IB places considerable importance on obtaining and maintaining patent, 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. IB intends to continue to file applications as appropriate for patents covering new products and manufacturing processes. No assurance can be given that patents now owned or that will issue from any pending or future patent applications owned by, or licensed to, IB or that the claims allowed under any issued patents, will be sufficiently broad to protect its technology position against competitors. In addition, no assurance can be given that any issued patents owned by, or licensed to, IB will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide competitive advantages to it. IB could incur substantial costs and diversion of management resources in defending itself in suits brought against it or in suits in which it may assert its patent rights against others. If the outcome of any such litigation is unfavorable to IB, its business and results of operations could be materially adversely affected. 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. There may also be pending or issued patents of which IB is not aware held by parties not affiliated with IB that relate to its products or technologies. In the event that a claim relating to proprietary technology or information is asserted 16 against IB, it 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 IB would prevail in any such contest. If the outcome of any such contest is unfavorable to IB, its business and results of operations could be materially adversely affected. From time to time, IB has received notices from, and has issued notices to, third parties alleging infringement of patent or other intellectual property rights relating to its products. Such claims are often, but not always, settled by mutual agreement on a satisfactory basis without litigation. IB relies on a combination of copyright, trade secret and other laws, and contractual restrictions on disclosure, copying and transferring title, including confidentiality agreements with its vendors, strategic partners, co- developers, employees, consultants and other third parties, to protect its proprietary rights. There can be no assurance that such protections will prove adequate and that contractual agreements will not be breached, that IB will have adequate remedies for any such breaches, or that its trade secrets will not otherwise become known to or independently developed by others. IB has trademarks, both registered and unregistered, that are maintained and enforced to provide customer recognition for its products in the marketplace. There can be no assurance that IB's trademarks will not be used by unauthorized third parties. IB 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. See "Business - Patent and Other Proprietary Rights." Environmental Liabilities IB's operations are subject to various foreign, federal, state and/or local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. This includes discharges into soil, water and air, and the generation, handling, storage, transportation and disposal of waste and hazardous substances. In addition, several countries are reviewing proposed regulations that would require manufacturers to dispose of their products at the end of a product's useful life. These laws have the effect of increasing costs and potential liabilities associated with the conduct of such operations. Varian 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 is alleged to have shipped manufacturing waste for recycling or disposal. Varian is also involved in various stages of environmental investigation and/or remediation under the direction of, or in consultation with, foreign, federal, state and/or local agencies at certain current or former Varian facilities (including facilities disposed of in connection with Varian's sale of its Electron Devices business during fiscal year 1995, and the sale of its Thin Film Systems ("TFS") business during fiscal year 1997). Expenditures by Varian for environmental investigation and remediation amounted to $5 million in fiscal year 1998, compared with $2 million in fiscal year 1997 and $5 million in fiscal year 1996. For certain of these sites and facilities, various uncertainties make it difficult to assess the likelihood and scope of further investigation or remediation activities or to estimate the future costs of such activities if undertaken. As of January 1, 1999, Varian nonetheless estimated that the future exposure for environmental investigation and remediation costs for these sites and facilities ranged in the aggregate from $21 million to $48 million. The time frame over which these costs are expected to be incurred varies with each site or facility, ranging up to approximately 30 years as of January 1, 1999. Management of Varian 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 Varian accrued $21 million in estimated environmental costs as of January 1, 1999. The amount accrued has not been discounted to present value. As to other sites and facilities, Varian has gained sufficient knowledge to be able to better estimate the scope and costs of future environmental activities. As of January 1, 1999, Varian estimated that the future exposure for environmental investigation and remediation costs for these sites and facilities ranged in the aggregate from $40 million to $74 million. The time frame over which Varian expects to incur these costs varies with each site and facility, ranging up to approximately 30 years as of January 1, 1999. As to each of these sites and facilities, management of Varian determined that a particular amount within the range of estimated costs was a better estimate of the future environmental liability 17 than any other amount within the range, and that the amount and timing of these future costs were reliably determinable. Together, these amounts totaled $51 million at January 1, 1999. Varian accordingly accrued $22 million, which represents its best estimate of the future costs discounted at 4%, net of inflation. This reserve is in addition to the $21 million described in the preceding paragraph. The Distribution Agreement provides that each of VMS, IB and VSEA will indemnify the others for one-third of these environmental investigation and remediation costs, as adjusted for any insurance proceeds and tax benefits expected to be realized upon payment of these costs. For a discussion of IB's environmental liabilities, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters." The foregoing amounts are only estimates of anticipated future environmental related costs, and the amounts actually spent may be greater or less than such estimates. The aggregate range of cost estimates reflects various uncertainties inherent in many environmental investigation and remediation activities and the large number of sites and facilities involved. IB believes that most of these cost ranges will narrow as investigation and remediation activities progress. IB's present and past facilities have been in operation for many years, and over that time in the course of those operations, such facilities have used substances which are or might be considered hazardous, and IB has 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 IB cannot now predict. Reliance on Suppliers Certain of the components and subassemblies included in IB's products are obtained from a limited group of suppliers, or in some cases a single-source supplier, including packaging materials, superconducting magnets, integrated circuits, microprocessors, microcomputers and certain detector and data analysis modules. The loss of any of these suppliers, including any single- source supplier, would require obtaining one or more replacement suppliers as well as potentially requiring a significant level of product development to incorporate new parts into IB's products. IB believes that alternative sources for such components may generally be obtained when necessary, although the need to change suppliers or to alternate between suppliers might cause material delays in delivery or significantly increase its costs. Although Varian has historically obtained and IB expects to obtain limited insurance to protect against loss due to business interruption from these and other sources, 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 IB seeks to reduce its 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 IB's business and results of operations and could result in damage to customer relationships. See "Business - Raw Materials." Dependence on Key Personnel IB's future success depends to a significant extent on the continued service of certain of its key managerial, technical and engineering personnel, and its continuing ability to attract, train and retain highly qualified engineering, technical and managerial personnel. Competition for such personnel is intense, particularly in the labor markets around the IB facilities in Palo Alto, California. The available pool of qualified candidates is limited and there can be no assurance that IB can retain its key engineering, technical and managerial personnel or that it can attract, train, assimilate or retain other highly qualified engineering, technical and managerial personnel in the future. The loss of any of IB's key personnel or the inability of IB to hire, train or retain qualified personnel could have a material adverse effect on IB's business, results of operations and financial condition. Risk of Business Interruption IB conducts a portion of its activities at facilities located in seismically active areas that have experienced major earthquakes in the past. Varian currently maintains limited earthquake insurance on these facilities. After the Distribution, it is likely that IB will not carry earthquake insurance on its facilities due to its prohibitive cost and limited available coverage. In the event of a major earthquake or other disaster affecting IB's facilities, the operations and operating results of IB could be adversely affected. 18 Potential Impact of the Year 2000 Issue The "Year 2000" problem refers to computer programs and other equipment with embedded microprocessors ("non-IT systems") which use only the last two digits to refer to a year, and which therefore might not properly recognize a year that begins with "20" instead of the familiar "19." As a result, those computer programs and non-IT systems might be unable to operate or process accurately certain date-sensitive data before or after January 1, 2000. Because IB relies heavily on computer programs and non-IT systems, and on third parties which themselves rely on computer programs and non-IT systems, the Year 2000 problem if not addressed could adversely affect IB's business, results of operations and financial condition. Failure to accurately assess and correct IB's Year 2000 problems and/or those of its key suppliers would likely result in interruption of certain of IB's normal business operations, which could have a material adverse effect on IB's business, results of operations and financial condition. If IB does not adequately identify and correct Year 2000 problems in its information systems it could experience interruptions in its operations, including manufacturing, order processing, receivables collection and accounting, such that there would be delays in product shipments, lost data and a consequential impact on revenues, expenditures and financial reporting. If IB does not adequately identify and correct Year 2000 problems in its non-IT systems it could experience interruptions in its manufacturing and related operations, such that there would be delays in product shipments and a consequential impact on revenues. If IB does not adequately identify and correct Year 2000 problems in its previously-sold products it could experience warranty or product liability claims by users of products which do not function correctly. If IB does not adequately identify and correct Year 2000 problems of the significant third parties with which it does business it could experience interruptions in the supply of key components or services from those parties, such that there would be delays in product shipments or service and a consequential impact on revenues. IB does not expect to be 100% Year 2000 compliant by the end of 1999 and given the inherent complexity of the Year 2000 problem, there can be no assurance that actual costs will not be higher than currently anticipated or that corrective actions will not take longer than currently anticipated to complete. Risk factors which might result in higher costs or delays include the ability to identify and correct in a timely fashion Year 2000 problems; regulatory or legal obligations to correct Year 2000 problems in previously- sold products; possible liability for personal injury if a safety hazard relating to Year 2000 problems is not identified and corrected; ability to retain and hire qualified personnel to perform assessments and corrective actions; the willingness and ability of critical suppliers to assess and correct their own Year 2000 problems, including the products they supply to IB; and the additional complexity which will likely be caused by undertaking during fiscal year 1999 and fiscal year 2000 the separation of currently shared enterprise information systems as a result of the Distribution. Because of uncertainties as to the extent of Year 2000 problems with IB's previously-sold products and the extent of any legal obligation of IB to correct Year 2000 problems in those products, IB cannot yet assess its risks with respect to those products. Because its assessments are not yet complete, IB cannot yet conclude that the failure of critical suppliers to assess and correct Year 2000 problems is not reasonably likely to have a material adverse effect on its results of operations. For a discussion regarding IB's state of readiness, costs associated with becoming Year 2000 compliant and contingency plans relating to Year 2000, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Year 2000." 19 THE DISTRIBUTION General The Board of Directors of Varian declared a special dividend, payable on the Distribution Date, of one share of IB Common Stock and one share of VSEA Common Stock for each share of Varian Common Stock held on the Distribution Record Date. Each holder also would retain the shares of Varian Common Stock held by such holder immediately prior to the Distribution. Reasons for the Distribution The Board of Directors of Varian approved the Distribution for the following principal reasons: Management Focus. Varian's three businesses have different dynamics and business cycles, serve different marketplaces and customer bases, are subject to different competitive forces and must be managed with different long-term and short-term strategies and goals. Varian believes that separating its businesses into independent public companies, each with its own management team and board of directors, is necessary to address current and future management issues and considerations that result from operating these diverse businesses within a single company. The separation will enable the management of each business to manage that business, and to adopt and implement strategies for that business, solely with regard to the needs and objectives of that business. In addition, as a result of the separation, the management of each business will be able to devote its full attention to managing that business. Capital Structure. Varian believes that the Distribution will allow each of the companies to organize its capital structure and allocate its resources to support the very different needs and goals of the particular business. The stock buy-back program can be discontinued, or dividends eliminated, freeing cash for acquisition and growth opportunities for IB and VMS and permitting VSEA to conserve cash for use in the cyclical downturns in its industry. Capital borrowings can be tailored to the specific needs of the various business units. Each business will be able to allocate its resources without considering the needs of the other businesses. Attracting and Retaining Key Employees. Varian's management believes that the ability to attract and retain key personnel is fundamental to its ability to further the technology required to maintain a leadership position in its business. In particular, under the existing corporate structure, Varian has been unable to offer equity-based compensation linked specifically to the performance of each separate business. The Distribution would enable each company to establish focused equity-based compensation programs that should enable each of them to better attract and retain key personnel. Acquisition Activities. Varian believes that growth through acquisition is an important ingredient of the future success of IB and VMS. Such acquisitions and growth would be financed in part through the issuance of capital stock. It is expected that the Distribution will increase the availability and decrease the cost of raising equity capital. Varian's management believes that, as a result of the Distribution, each company will have a more attractive currency, its stock, through which to make acquisitions. Investor Understanding. Debt and equity investors and securities analysts should be able to better evaluate the financial performance of each company and their respective strategies, thereby enhancing the likelihood that each will achieve appropriate market recognition. The stock of each of the three companies will also appeal to investors with differing investment objectives and risk tolerance, and will allow potential investors to focus their investments more directly to the areas of their primary interest. Cost Savings. Each company should be able to rationalize better its organizational structure after the Distribution. Accordingly, the administrative and organizational costs of each company, taken together, should be reduced from the aggregate levels experienced by Varian prior to the Distribution. Manner of Effecting the Distribution The distribution of IB Common Stock and VSEA Common Stock will be made on the Distribution Date to stockholders of record as of the Distribution Record Date. 20 On or prior to the Distribution Date, all outstanding shares of IB Common Stock and VSEA Common Stock will be delivered to the Distribution Agent. As soon as practicable after the IB Common Stock and VSEA Common Stock have been distributed, stock distribution statements reflecting ownership of shares of IB Common Stock and VSEA Common Stock will be mailed by the Distribution Agent to holders of record as of the Distribution Record Date to reflect the distribution of one share of IB Common Stock and one share of VSEA Common Stock for each share of Varian Common Stock held on the Distribution Record Date. All such shares will be fully paid and nonassessable and the holders thereof will not be entitled to preemptive rights. The shares of IB Common Stock and VSEA Common Stock to be transferred to Varian's stockholders in the Distribution will be initially issued to Varian as consideration for the transfer of the Instruments Business and the Semiconductor Equipment Business, respectively. No holder of Varian Common Stock will be required to pay any cash or other consideration for the shares of IB Common Stock and VSEA Common Stock received in the Distribution or to surrender or exchange shares of Varian Common Stock in order to receive shares of IB Common Stock or VSEA Common Stock. The Board of Directors of IB has adopted the Rights Plan. Stock distribution statements evidencing shares of the IB Common Stock issued in the Distribution will therefore include the same number of Rights issued under the Rights Plan. See "Description of the Capital Stock - Rights Plan." Federal Income Tax Aspects of the Distribution Varian has received a Tax Ruling from the IRS substantially to the following effect: (1) No gain or loss will be recognized by (and no amount will otherwise be included in the income of) any holder of Varian Common Stock as a result of the Distribution. (2) The aggregate basis of the Varian Common Stock, IB Common Stock and VSEA Common Stock in the hands of each holder of Varian Common Stock will be the same as the basis of Varian Common Stock held by the holder immediately before the Distribution, allocated in proportion to the fair market value of each. (3) The holding period of the VSEA Common Stock and IB Common Stock received in the Distribution by each holder of Varian Common Stock will include the period during which such holder held Varian Common Stock with respect to which the Distribution is made, provided that such common stock is held as a capital asset by such holder on the Distribution Date. (4) No gain or loss will be recognized by Varian upon the Distribution. The Tax Ruling, while generally binding upon the IRS, is based on certain factual representations and assumptions. If such factual representations and assumptions were incorrect in any material respect, the holdings of such ruling would be jeopardized. Varian is not aware of any facts or circumstances that would cause such representations and assumptions to be incorrect in any material respect. Each of Varian, IB and VSEA has agreed to certain restrictions on their future actions to provide further assurances that Section 355 of the Code will apply to the Distribution. See " - Relationship Among VMS, VSEA and IB After the Distribution - Tax Sharing Agreement." If one or both of the distributions comprising the Distribution fail to qualify as a tax-free spin-off under Section 355 of the Code, then VMS will recognize gain equal to the difference between the fair market value of the stock of the nonqualifying company or companies and Varian's adjusted tax basis in such stock. If VMS were to recognize gain on one or more of the distributions, such gain and the resulting tax liability likely would be very substantial. Furthermore, if either distribution were not to qualify as a tax-free spin-off under Section 355 of the Code, each holder of Varian Common Stock who receives shares of IB Common Stock and VSEA Common Stock in the Distribution would be treated as if such stockholder received a taxable distribution in an amount equal to the fair market value of the IB Common Stock or VSEA Common Stock received, which would result in (i) a dividend to the extent of such stockholder's pro rata share of Varian's current and accumulated earnings and profits, (ii) a reduction in such stockholder's basis in Varian Common Stock to the extent the amount received exceeds such stockholder's share of 21 earnings and profits and (iii) gain from the exchange of Varian Common Stock to the extent the amount received exceeds both such stockholder's share of earnings and profits and such stockholder's basis in such common stock. 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 pursuant to a plan or series of related transactions that includes the spin-off. Stock acquired by certain related persons is aggregated in determining whether the 50% test is met. 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 pursuant to 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 Varian to the IRS in connection with the Tax Ruling is the representation that each of the distributions is not part of such a plan or series of related transactions. If VMS, IB or VSEA were to undergo a 50% Ownership Shift, particularly if such 50% Ownership Shift occurred within two years after the Distribution Date, there can be no assurance that the IRS will not assert that such ownership shift occurred pursuant to a plan or series of related transactions and therefore that the Distribution is taxable under Section 355(e). If a distribution is taxable solely under Section 355(e), VMS will recognize gain equal to the difference between the fair market value of the VSEA Common Stock and the IB Common Stock and Varian's adjusted tax basis in such stock. However, holders of Varian Common Stock would not recognize gain or loss as a result of the distributions. If VMS were to recognize gain on the distributions, such gain and the resulting tax liability likely would be very substantial. VMS, IB and VSEA will enter into the Tax Sharing Agreement to allocate responsibility for the possible corporate tax burden resulting from the Distribution. Neither VMS, IB, nor VSEA has agreed to indemnify holders of Varian Common Stock for any taxes or other losses should either or both of the distributions fail to qualify under Section 355 of the Code. The Tax Sharing Agreement will provide that each of VMS, IB and VSEA will be responsible for any such corporate taxes to the extent that such taxes are attributable to action taken or permitted by that entity or its affiliates after the Distribution that is inconsistent with the tax treatment contemplated in the Tax Ruling. Under the Tax Sharing Agreement, if either distribution is found to be taxable but none of VMS, IB and VSEA has done anything to cause the distribution to be taxable, each company generally will be liable for one-third of those taxes. See " - Relationship Among VMS, VSEA and IB After the Distribution - Tax Sharing Agreement." Current Treasury regulations require each holder of Varian Common Stock who receives IB Common Stock or VSEA Common Stock pursuant to the Distribution to attach to his or her federal income tax return for the year in which the Distribution occurs a detailed statement setting forth such data as may be appropriate in order to show the applicability of Section 355 of the Code to the Distribution. Varian will convey the appropriate information to each holder of record of Varian Common Stock as of the Distribution Record Date. The foregoing summary of federal income tax consequences does not purport to cover all federal income tax consequences of the Distribution. The tax consequences may differ for stockholders that are not U.S. citizens or residents or that are otherwise subject to special treatment under the Code. Each stockholder should consult its own tax advisor regarding the federal, foreign, state and local tax consequences of the Distribution in its particular circumstances, including the application of state, local and foreign tax laws. Listing and Trading of IB Common Stock There is not currently a public market for IB Common Stock. It is presently anticipated that IB Common Stock may commence trading on a "when-issued" basis after the Distribution Record Date. The term "when-issued" means that shares can be traded by Varian stockholders prior to the time that they receive the shares of IB Common Stock and VSEA Common Stock in the Distribution. Prices at which IB Common Stock may trade prior to the Distribution on a "when-issued" basis or after the Distribution cannot be predicted. Until the IB Common Stock is fully distributed and an orderly market develops, the prices at which trading in such stock occurs may fluctuate significantly. The prices at which IB Common Stock trades will be determined by the marketplace and may be influenced by many factors, including, among others, the depth and liquidity of the market for such stock, investor perception of IB and the industry 22 in which it participates, IB's dividend policy and general economic and market conditions. Such prices may also be affected by certain provisions of the Certificate of Incorporation and By-Laws of IB in effect at the time of the Distribution, which will have an anti-takeover effect. See "Delaware Law and Certain Charter and By-Law Provisions." Shares of IB Common Stock distributed to Varian's stockholders will be freely transferable, except for shares of IB Common Stock received by persons who may be deemed to be "affiliates" of IB under the Securities Act of 1933 (the "Securities Act"). Persons who may be deemed to be affiliates of IB after the Distribution generally include individuals or entities that control, are controlled by, or are under common control with, IB and may include certain officers and directors of IB, as well as principal stockholders of IB. Persons who are affiliates of IB will be permitted to sell their shares of IB Common Stock only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act. IB has applied for quotation of the IB Common Stock on the Nasdaq National Market. IB initially will have approximately 4,556 stockholders of record based upon the number of stockholders of record of Varian as of February 1, 1999. For certain information regarding options to purchase IB Common Stock that will be outstanding after the Distribution, see "Management," and "The IB Omnibus Stock Plan." Future Management Following the Distribution it is intended that IB will continue to conduct the Instruments Business in substantially the same manner in which it is currently operated. Allen J. Lauer, who is currently Executive Vice President of Varian, will serve as President and Chief Executive Officer of IB following the Distribution. The other executive officers of IB following the Distribution will be primarily drawn from the current management of Varian. See "Management - Executive Officers." Internal Mergers and Transfers On or prior to the Distribution Date, Varian will effectuate certain transactions intended to allocate assets and liabilities relating to the Health Care Systems Business to VMS, assets and liabilities relating to the Semiconductor Equipment Business to VSEA and assets and liabilities relating to the Instruments Business to IB. See " - Distribution Agreement." On the Distribution Date, following the completion of the foregoing transactions, Varian will distribute the IB Common Stock and VSEA Common Stock to the holders of Varian Common Stock on the Distribution Record Date. Relationship Among VMS, VSEA and IB After the Distribution For the purpose of governing certain of the ongoing relationships among VMS, VSEA and IB after the Distribution and to provide mechanisms for an orderly transition, Varian, IB and VSEA have entered or will enter into various agreements, and will adopt policies, as described in this section. Varian, IB and VSEA believe that the agreements are fair to each of the parties. The services to be provided by each of the companies pursuant to the various agreements described below will be billed at their fully burdened cost to the provider and in each case the terms of these agreements have been reviewed by individuals who will have senior management positions at IB, VMS or VSEA after the Distribution. The Distribution Agreement and the forms of the Ancillary Agreements have been filed as exhibits to the Registration Statement in respect of the registration of the IB Common Stock under the Securities Exchange Act of 1934, as amended (the "Exchange Act") of which this Information Statement is a part. See "Available Information." The following descriptions include a summary of all material terms of these agreements, but do not purport to be complete and are qualified by reference to the texts of such agreements, which are incorporated herein by reference. Distribution Agreement The Distribution Agreement provides for the terms and conditions of the Distribution, the various actions to be taken prior to the Distribution (see " - - Internal Mergers and Transfers") and the relationships among the parties subsequent to 23 the Distribution. The Distribution Agreement provides that, from and after the Distribution Date, (i) IB shall assume, pay, perform and discharge all Instruments Liabilities (as defined in the Distribution Agreement) in accordance with their terms, (ii) VMS shall assume, pay, perform and discharge all Health Care Systems Liabilities (as defined in the Distribution Agreement) in accordance with their terms and (iii) VSEA shall assume, pay, perform and discharge all Semiconductor Equipment Liabilities (as defined in the Distribution Agreement) in accordance with their terms. In addition, the Distribution Agreement provides for cross-indemnities that require (i) IB to indemnify VMS and VSEA (and their respective subsidiaries, directors, officers, employees and agents and certain other related parties) against all losses arising out of or in connection with Instruments Liabilities or the breach of the Distribution Agreement or any Ancillary Agreement by IB, (ii) VMS to indemnify IB and VSEA (and their respective subsidiaries, directors, officers, employees and agents and certain other related parties) against all losses arising out of or in connection with the Health Care Systems Liabilities or the breach of the Distribution Agreement or any Ancillary Agreement by VMS and (iii) VSEA to indemnify IB and VMS (and their respective subsidiaries, directors, officers, employees and agents and certain other related parties) against all losses arising out of or in connection with the Semiconductor Equipment Liabilities or the breach of the Distribution Agreement or any Ancillary Agreement by VSEA, and, in each case, for contribution in certain circumstances. Each of IB, VMS and VSEA also agrees to indemnify each other for one-third of the costs and expenses associated with liabilities that are unrelated to their businesses, including certain discontinued operations and environmental liabilities associated with Varian's Palo Alto facilities. Pursuant to the Distribution Agreement, each of the parties has agreed to use commercially reasonable efforts to take or cause to be taken all action, and do or cause to be done all things, reasonably necessary or appropriate to consummate the transactions contemplated by the Distribution Agreement. As such, the Distribution Agreement provides that if any contemplated pre- Distribution transfers have not been effected on or prior to the Distribution Date, the parties will cooperate to effect such transfers as promptly thereafter as practicable. The entity retaining any asset or liability which should have been transferred prior to the Distribution Date will continue to hold that asset for the benefit of the party entitled thereto or that liability for the account of the party required to assume it, and must take such other action as may be reasonably requested by the party to whom such asset was to be transferred or by whom such liability was to be assumed in order to place such party, insofar as reasonably possible, in the same position as would have existed had such asset or liability been transferred or assumed as contemplated by the Distribution Agreement. The Distribution Agreement (i) requires that Varian renegotiate the Term Loans, (ii) requires that Varian contribute cash to VSEA so that at the time of the Distribution VSEA will have $100 million in cash and cash equivalents and a Net Worth (as defined in the Distribution Agreement) of at least $150 million, and its Consolidated Debt (as defined in the Distribution Agreement) will not exceed $5 million, (iii) requires that IB assume 50% of the outstanding indebtedness under the Term Loans and have transferred to it such portion of the indebtedness under the Notes Payable and such amount of cash and cash equivalents, so that as of the time of the Distribution IB and VMS will each have Net Debt (as defined in the Distribution Agreement) equal to approximately 50% of the aggregate Net Debt of IB and VMS, subject to such adjustments as may be necessary to provide VMS with a Net Worth of between 40% and 50% of the aggregate Net Worth of VMS and IB, (iv) governs the conduct of the post- Distribution audit to be undertaken to ascertain the Net Worth of VMS, IB and VSEA upon consummation of the Distribution, (v) requires that post-Distribution payments be made between the parties if, and to the extent that, as of the time of the Distribution (a) VMS has a Net Worth that is less than 40% or more than 50% of the aggregate Net Worth of VMS and IB, (b) VSEA has Consolidated Debt exceeding $5 million, or less than $100 million of cash and cash equivalents or a Net Worth of less than $150 million or (c) VSEA has more than $100 million of cash and cash equivalents and a Net Worth of at least $150 million or VSEA has a Net Worth in excess of $225 million and (vi) entitles IB to receive approximately 50% of the estimated proceeds, if any, to be received by VMS after the Distribution from the sale of Varian's long-term leasehold interest at certain of its Palo Alto facilities, together with certain related buildings and other corporate assets and requires IB to pay approximately 50% of any estimated transaction expenses to be paid by VMS after the Distribution (in each case reduced for estimated taxes payable or tax benefits received from all sales and transaction expenses). The Distribution Agreement also provides for the execution and delivery of certain other agreements governing the relationship among IB, VMS and VSEA at and following the Distribution. See " - Employee Benefits Allocation Agreement," " - Tax Sharing Agreement," " - Transition Services Agreement," and " - Intellectual Property Agreement." 24 Employee Benefits Allocation Agreement On or prior to the Distribution Date, Varian, IB and VSEA will enter into an employee benefits allocation agreement (the "Employee Benefits Allocation Agreement") providing for the allocation of certain liabilities and responsibilities with respect to employee compensation, benefits and labor matters. The allocation of responsibility and adjustments to be made pursuant to the Employee Benefits Allocation Agreement are substantially consistent with the existing rights of Varian's employees under Varian's various compensation plans, with the understanding that each party will have sole responsibility for determining the benefits it will provide its employees following the Distribution. The Employee Benefits Allocation Agreement will generally provide that, effective as of the Distribution Date, each of IB and VSEA will, or will cause one or more of its subsidiaries to, assume or retain, as the case may be, all liabilities of Varian, to the extent unpaid as of the Distribution Date, under Varian's employee benefit plans, policies, arrangements, contracts and agreements, including collective bargaining agreements, with respect to employees who on or after the Distribution Date will be employees of IB or its subsidiaries or VSEA or its subsidiaries. The Employee Benefits Allocation Agreement will also provide that VMS generally will, or will cause one of its subsidiaries to, assume or retain, as the case may be, all liabilities under Varian's employee benefit plans, policies, arrangements, contracts and agreements, including collective bargaining agreements, with respect to employees who on or after the Distribution Date will be employees of VMS or its subsidiaries. The Employee Benefits Allocation Agreement will also provide that each of IB, VSEA and VMS will generally indemnify the others for one-third of the administrative costs associated with liabilities to individuals who were former Varian employees as of the Distribution Date. Defined Contribution Plans Active participation in the Varian Associates, Inc. Retirement and Profit- Sharing Program (the "Varian Profit-Sharing Plan") by IB and VSEA employees will terminate on the Distribution Date. Effective as of the Distribution Date, IB will establish a defined contribution plan for the benefit of its employees. As promptly as practicable after the Distribution, VMS will cause to be transferred to the IB defined contribution plan the account balances in, and the liabilities of, the Varian Profit-Sharing Plan to each employee of IB who elects to so transfer. IB will assume the administrative costs associated with the Varian Profit-Sharing Plan accounts of IB employees who do not elect a transfer. IB, VSEA and VMS will also each indemnify the others for one-third of the administrative costs associated with the accounts of individuals who were former Varian employees as of the Distribution Date or whose employment will terminate pursuant to severance agreements in connection with the Distribution. Non-U.S. Employee Benefits Non-U.S. employee benefits will be subject to the general principles of the Employee Benefits Allocation Agreement. To the extent practicable, IB or its subsidiaries will each assume or retain, as the case may be, any and all pension liabilities and attendant plans and their assets related to the employees of IB or its subsidiaries post-Distribution. If a person is employed by a non-U.S. subsidiary of IB but the associated liabilities are held by VMS or VSEA, IB will indemnify the entity holding the liabilities. IB, VSEA and VMS will also each indemnify the others for one-third of the employee benefit liabilities associated with former employees of non-U.S. subsidiaries. Stock Options and Other Awards Stock options and restricted stock awards (collectively, "stock awards") of Varian are currently outstanding under Varian's 1982 Non-Qualified Stock Option Plan and the Varian Omnibus Stock Plan (collectively, the "Plans"). The treatment after the Distribution of stock awards that are outstanding prior to the Distribution is designed to preserve, as a general matter, the economic value of each stock award. In addition, the treatment of outstanding stock awards of individuals who will continue their employment with IB is designed to provide an incentive for such employees to remain employed with IB and to benefit by their efforts to increase the market value of the IB Common Stock. 25 Treatment of Awards Held by Employees of IB It is expected that the Varian stock options held by those individuals who will become employees of IB will be replaced with substitute stock options to purchase IB Common Stock under the IB Omnibus Stock Plan discussed below under "The IB Omnibus Stock Plan." Although such individuals are not contractually required to surrender their Varian stock options, it is expected that such individuals will do so in order to have their stock options relate to shares of the company with which they are employed after the Distribution, to preserve unvested options and to maintain the ability to exercise stock options that would otherwise expire due to termination of their employment with Varian. The surrender of such stock options will be encouraged by Varian and IB because Varian's and IB's management believe the efforts of key employees should be directed toward enhancing the value of their employer's stock. Such substitute options will be designed to preserve the economic value of the related Varian stock options, and the vesting and expiration dates and other terms of the related awards will remain in effect under the IB substitute stock options. In order to obtain such substitute stock options, the employees will be required to surrender their unexercised Varian stock options. Replacement of surrendered Varian stock options is believed to be beneficial to IB and its stockholders because it will allow IB to provide meaningful compensation incentives to its key employees. Since, except for option price and number of shares, all terms and conditions of Varian stock options will apply to the substitute stock options, the vesting provisions of the substitute options are expected to provide a continuing incentive for key employees to remain in the employ of IB after the Distribution. If an IB employee does not elect to receive a substitute option, the unvested portion of the employee's Varian option will expire upon the Distribution Date and the employee will generally have three months to exercise the vested portion for VMS Common Stock. The option exercise price of substitute IB stock options will be determined by multiplying the exercise price of the Varian stock option by a fraction, the numerator of which will be the closing price of IB Common Stock on the Distribution Date and the denominator of which will be the closing price of Varian Common Stock on the Distribution Date. The number of shares of IB Common Stock subject to substitute options will be determined by multiplying the number of shares of Varian Common Stock covered by the Varian stock option by a fraction, the numerator of which will be the closing price of Varian Common Stock on the Distribution Date and the denominator of which will be the closing price of IB Common Stock on the Distribution Date. If the Distribution Date is not a trading day for the New York Stock Exchange or the Nasdaq National Market, the foregoing prices will be calculated based on the closing price for the trading day immediately preceding the Distribution Date. Unvested Varian restricted stock held by continuing employees of IB will vest prior to the Distribution. As of February 1, 1999, there were approximately 1,215,656 shares of Varian Common Stock subject to outstanding stock options held by individuals who will be employees of IB. It is impossible to predict with certainty how many shares of IB Common Stock will be subject to substitute IB stock options after the Distribution Date, since it is expected that some Varian stock options held by individuals who will become employees of IB will be exercised prior to the Distribution Date. The balance of unexercised Varian stock options will be adjusted according to the formula described above, but the stock prices upon which the adjustment will be based will not be known until the Distribution Date. Stockholders of IB are, however, likely to experience some dilutive impact from the above-described adjustments. Treatment of Awards Held by Employees Whose Employment will Terminate in Connection with the Distribution Employees of Varian whose employment will terminate in connection with the Distribution (other than seven employees whose employment will terminate pursuant to severance agreements) will be permitted to elect to exchange their Varian stock options for stock options with respect to VMS Common Stock, VSEA Common Stock and IB Common Stock. Individuals who so elect will have one-third of the unexercised portion of their Varian stock options exchanged for each of VMS stock options, VSEA stock options and IB stock options. The seven employees whose employment will terminate pursuant to severance agreements will receive this exchange on a mandatory basis. Employees whose options are exchanged in this manner will have the unvested portion of their Varian options as of the Distribution Date vested immediately prior to the Distribution or, if later, immediately prior to termination of the employment of such employees. 26 As of February 1, 1999, there were approximately 570,596 shares of Varian Common Stock subject to outstanding stock options held by employees whose employment will terminate in connection with the Distribution (excluding stock options held by Mr. O'Rourke, a current director of Varian who is expected to serve as a director of VSEA following the Distribution). It is impossible to predict with certainty how many shares of IB Common Stock will be subject to these stock options after the Distribution Date, since it is expected that some Varian stock options held by these individuals will be exercised prior to the Distribution Date. In addition, the balance of unexercised Varian stock options will be adjusted according to the formula described above, but the stock prices upon which the adjustment will be based will not be known until the Distribution Date. Stockholders of IB are, however, likely to experience some dilutive impact from the above-described adjustments. Treatment of Awards Held by Directors Varian stock options held by directors of Varian will be adjusted in the same manner as Varian stock options held by employees whose employment will terminate in connection with the Distribution; provided that the unvested portion of their Varian options will not vest immediately prior to the Distribution. Accordingly, these individuals will exchange their Varian stock options for stock options with respect to VMS Common Stock, VSEA Common Stock and IB Common Stock. As of February 1, 1999, there were approximately 791,000 shares of Varian Common Stock subject to outstanding stock options held by current directors (including Mr. O'Rourke). It is impossible to predict with certainty how many shares of IB Common Stock will be subject to these stock options after the Distribution Date, since it is expected that some Varian stock options held by these individuals will be exercised prior to the Distribution Date. In addition, the balance of unexercised Varian stock options will be adjusted pursuant to the formula described above, but the stock prices upon which the adjustment will be based will not be known until the Distribution Date. Stockholders of IB are, however, likely to experience some dilutive impact from the above-described adjustments. Tax Sharing Agreement Varian, IB and VSEA will enter into a tax sharing agreement (the "Tax Sharing Agreement") that defines the parties' rights and obligations with respect to federal, state, foreign and other income or franchise taxes relating to Varian's businesses for tax periods prior to, including and following the Distribution and with respect to certain other tax matters. In general, VMS will be responsible for consolidated federal income taxes, consolidated or combined state income taxes and separate state income taxes of Varian and its subsidiaries through the Distribution Date. Liability through the Distribution Date will be determined based on a closing of the books. Liability for foreign income taxes and non-income taxes will generally be allocated to the legal entity on which such taxes are imposed, except for taxes transferred on the closing balance sheets. Adjustments to the reported tax liability for tax periods through the Distribution Date will be shared equally by the three companies. In general, and except as provided below, taxes resulting from the Distribution will be the responsibility of the legal entity on which such taxes are imposed. However, each of VSEA and IB will be responsible for any such taxes resulting from income or gain from the Distribution to the extent that such taxes are attributable to action taken or permitted by that entity or its affiliates after the Distribution that is inconsistent with the tax treatment contemplated in the Tax Ruling requested from the IRS. Each of VMS, IB and VSEA will covenant and agree not to take or permit certain actions inconsistent or potentially inconsistent with the Tax Ruling before January 1, 2002, unless such action has been consented to by the other companies or approved by a supplemental ruling from the IRS or an unqualified opinion of independent nationally recognized tax counsel acceptable to each of the companies. These agreements could restrict the ability of VMS, IB or VSEA to engage in certain corporate transactions, redeem stock, dispose of assets except in the ordinary course of business, or be the target of an acquisition transaction, during that period. Adjustments to the anticipated income taxes resulting from the Distribution that are not attributable to action inconsistent with the Tax Ruling will be shared equally by the three companies. Furthermore, if with respect to VMS, IB or VSEA, the aggregate taxes shown on the initial tax returns filed after the Distribution (or the amounts paid with respect to such taxes) relating to periods prior to the Distribution Date exceed the aggregate amounts accrued with respect thereto on the closing 27 balance sheets, by more than $1,000,000, the company with the unanticipated tax burden may propose a sharing of such amounts among the three companies. If the three companies cannot agree to a fair and equitable sharing of the excess taxes, the matter will be submitted to a mutually acceptable nationally recognized accounting firm for resolution. See " - Federal Income Tax Aspects of the Distribution." Transition Services Agreement On or prior to the Distribution Date, Varian, IB and VSEA will enter into a Transition Services Agreement providing for (i) the sharing of facilities and equipment for a temporary period not to exceed one year, (ii) the provision of employees and sharing of certain third-party services to provide treasury, tax, accounting, payroll, human resources and similar and related functions for a temporary period not to exceed one year and (iii) the provision of information services personnel for a period extending until June 30, 2000. Compensation for all services and facilities provided under the Transition Services Agreement will be on a fully burdened cost reimbursement basis. The management of each of VMS, VSEA and IB presently expects that its company will be able to provide these services for itself after the applicable transition period without additional material expense, although no assurance can be given that this will be the case. Each party has the right to terminate certain transition services arrangements upon a material breach by the other party thereto. Intellectual Property Agreement On or prior to the Distribution Date, Varian, IB and VSEA will enter into an Intellectual Property Agreement providing for allocation among these companies and their respective subsidiaries and associated companies of rights in the Intellectual Property (as defined in the Distribution Agreement), including patents, copyrights, trademarks, software and trade secrets, owned by Varian prior to the Distribution and for the licensing of certain of such Intellectual Property thereafter. The Intellectual Property Agreement is to provide VMS, IB and VSEA, and their respective subsidiaries and associated companies, with those continuing rights and licenses in such Intellectual Property following the Distribution Date necessary for the continued conduct of their respective businesses. Under the terms of the Intellectual Property Agreement, the Intellectual Property that relates primarily to the Instruments Business and the Semiconductor Equipment Business will be transferred to IB and VSEA, respectively, with VMS retaining the Intellectual Property that relates primarily to the Health Care Systems Business. Each company will grant a non- exclusive, perpetual, royalty-free license under the Intellectual Property that it owns to the other two companies for use in their respective fields. More specifically, as of the Distribution Date, each of VMS, IB and VSEA will hold certain rights in the mark "VARIAN," the "VA" logo and other rights to various trademarks, service marks, and trade names containing the word "VARIAN." 28 SELECTED FINANCIAL DATA The following table presents selected historical financial data of the Instruments Business. The information set forth below should be read in conjunction with "Pro Forma Condensed Combined Financial Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and notes thereto of the Instruments Business included elsewhere in this Information Statement. The statement of earnings data set forth below for the fiscal years ended October 2, 1998, September 26, 1997 and September 27, 1996 and the balance sheet data at October 2, 1998 and September 26, 1997 are derived from, and are qualified by reference to, the audited financial statements of the Instruments Business included elsewhere in this Information Statement. The statement of earnings data for the quarters ended January 1, 1999 and January 2, 1998 and the balance sheet data at January 1, 1999 are derived from the Instruments Business' unaudited financial data included elsewhere in this Information Statement. The statement of earnings data for the fiscal years 1995 and 1994 and the balance sheet data at fiscal year end 1996, 1995 and 1994 are derived from unaudited financial data of the Instruments Business not included in this Information Statement. The historical financial information may not be indicative of the Instruments Business' future performance and does not necessarily reflect what the financial position and results of operations of the Instruments Business would have been had the Instruments Business operated as a separate, stand-alone entity during the periods presented.
Fiscal Quarters Ended Years --------------- ---------------------------------- January January 1, 2, 1999 1998 1998 1997 1996 1995 1994 ------- ------- ------ ------ ------ ------ ------ (Dollars in millions, except per share amounts) Statement of Earnings Data Sales...................... $133.3 $140.9 $557.8 $541.9 $504.4 $459.4 $425.7 Operating Earnings before Taxes..................... $ 7.7 $ 9.6 $ 39.2 $ 26.8 $ 11.5 $ 2.7 $ 20.3 Taxes on earnings.......... $ 3.4 $ 3.8 $ 15.8 $ 12.6 $ 5.3 $ 0.7 $ 10.0 Net Earnings............... $ 4.3 $ 5.8 $ 23.4 $ 14.2 $ 6.2 $ 2.0 $ 10.3 Pro Forma Net Earnings Per Share(/1/)................ $ 0.14 $ 0.19 $ 0.78 $ 0.47 $ 0.20 $ 0.06 $ 0.30
Fiscal Year End At January 1, ---------------------------------- 1999 1998 1997 1996 1995 1994 ------------- ------ ------ ------ ------ ------ (Dollars in millions) Balance Sheet Data Total assets................... $395.6 $404.1 $357.9 $301.0 $282.0 $272.6 Long-term debt................. $ -- $ -- $ -- $ -- $ -- $ --
- ------- (1) The computation of pro forma net earnings per share is based on the weighted average number of shares of Varian Common Stock outstanding during the respective periods, reflecting the ratio of one share of IB Common Stock for each share of Varian Common Stock outstanding at the time of the Distribution. 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis of financial condition and results of operations is based upon and should be read in conjunction with the combined financial statements of the Instruments Business and notes thereto included elsewhere in this Information Statement, as well as the information contained under "Business" and "Risk Factors." The combined financial statements of the Instruments Business generally reflect the results of operations, financial position and cash flows of the operations expected to be transferred to IB in connection with the Internal Transfers and Distribution. Accordingly, the Instruments Business' combined financial statements have been carved out from the consolidated financial statements of Varian using the historical results of operations and historical basis of the assets and liabilities of the Instruments Business. The combined financial statements include, among other things, allocations of certain Varian corporate assets (including pension assets), liabilities (including profit-sharing and pension benefits) and expenses (including legal, accounting, employee benefits, insurance services, information technology services, treasury and other Varian corporate overhead) to the Instruments Business using the allocation methodology described in Note 1 of the Notes to the Instruments Business Combined Financial Statements. The combined financial statements do not reflect any changes that may occur in the financing and operations of IB as a result of the Distribution. Results Of Operations Fiscal Year IB's fiscal years reported are the 52- or 53-week periods which ended on the Friday nearest September 30. Fiscal year 1998 comprises the 53-week period ended on October 2, 1998. Fiscal years 1997 and 1996 comprise the 52-week periods ended on September 26, 1997 and September 27, 1996, respectively. First Quarter Fiscal Year 1999 Compared to First Quarter Fiscal Year 1998 Sales. IB's sales of $133 million in the first quarter of fiscal year 1999 were 6% lower than its sales of $141 million in the first quarter of fiscal year 1998. The lower first quarter sales were due primarily to lower shipments in the Vacuum Products and NMR Instruments lines. Lower Vacuum Product sales reflected the slowdown in the semiconductor industry, while lower NMR Instruments sales resulted from a supplier's delay that limited first quarter shipments. Geographically, sales in North America of $69 million and Europe of $43 million in the first quarter of fiscal year 1999 represented a decrease of 10% and an increase of 3%, respectively, as compared to the first quarter of fiscal year 1998, while sales in Asia of $15 million in the first quarter of fiscal year 1999 declined 5% as compared to the first quarter of fiscal year 1998. Gross Profit. IB's gross profit of $53 million in the first quarter of fiscal year 1999 was 40% of sales, compared to $55 million, or 38% of sales, in the first quarter of fiscal year 1998. Research and Development. Research and development expenses were $7 million, representing 5% of sales, in both the first quarter of fiscal year 1998 and 1999. Marketing. IB's marketing expenses of $30 million in the first quarter of fiscal year 1999 and $27 million in the first quarter of fiscal year 1998, were 23% of sales in the first quarter of fiscal year 1999 and 19% of sales in the first quarter of fiscal year 1998. The primary reason for the increase was the acquisition of Chrompack International B.V. in July 1998. General and Administrative. General and administrative expenses of $8 million, or 6% of sales, in the first quarter of fiscal year 1999, were lower than the $10 million, or 7% of sales, in the first quarter of fiscal year 1998. The decrease in general and administrative expenses in the first quarter of fiscal year 1999 was due to lower profit-sharing and management incentive compensation costs in the first quarter of fiscal year 1999 than in the first quarter of fiscal year 1998. 30 Taxes on Earnings. IB's effective income tax rate was 44.5% in the first quarter of fiscal year 1999, compared to 40.2% in the first quarter of fiscal year 1998. The fiscal year 1999 rate is higher than the fiscal year 1998 rate because IB expects to realize a larger proportion of high-tax foreign country income during fiscal year 1999 than it did during fiscal year 1998. Net Earnings. Net earnings of $4 million ($0.14 pro forma per share) in the first quarter of fiscal year 1999 decreased from the $6 million ($0.19 pro forma per share) earned in the first quarter of fiscal year 1998. The decrease in net earnings is primarily due to the lower level of sales and increased marketing expenses described above. Fiscal Year 1998 Compared to Fiscal Year 1997 Sales. IB's sales of $558 million in fiscal year 1998 were 3% higher than its sales of $542 million in fiscal year 1997. Fiscal year 1998 sales were driven largely by IB's Analytical Instruments and NMR Instruments lines. The effect of the stronger U.S. dollar and a softening Asian market slowed sales growth during fiscal year 1998. Geographically, sales in North America of $312 million and Europe of $163 million in fiscal year 1998 represented increases of 3% and 15%, respectively, as compared to fiscal year 1997, while sales in Asia of $57 million in fiscal year 1998 declined 18% as compared to fiscal year 1997. IB expects its sales in the United States and Europe to continue to grow but is uncertain as to the timing of any economic recovery, or increased sales, in Asia. Gross Profit. IB's gross profit of $221 million in fiscal year 1998 was 40% of sales, compared to $211 million, or 39% of sales, in fiscal year 1997. The increase in gross profit as a percentage of sales from fiscal year 1997 to fiscal year 1998 was primarily attributable to improved operating efficiencies. Research and Development. Research and development expenses of $30 million in fiscal year 1998 were 5% of sales compared to $32 million, or 6% of sales, in fiscal year 1997. This decrease reflected the shift away from outside consultants and the Ginzton Research Center to in-house employees. Marketing. Marketing expenses of $114 million in fiscal year 1998 and $110 million in fiscal year 1997, were 20% of sales in fiscal years 1998 and 1997, as increases in expenses in the United States in fiscal year 1998 were offset by lower foreign marketing expenses due to the strengthening U.S. dollar. General and Administrative. General and administrative expenses of $39 million, or 7% of sales, in fiscal year 1998, decreased from $42 million, or 8% of sales, in fiscal year 1997. The decrease in general and administrative expenses in fiscal year 1998 was due primarily to improved employee productivity and the effect of the stronger U.S. dollar on IB's expenses outside the United States. Taxes on Earnings. IB's effective income tax rate was 40.2% in fiscal year 1998, compared to 47.0% in fiscal year 1997. These rates were higher than the U.S. federal statutory rate because IB had significant earnings in high-tax foreign countries. The fiscal year 1997 rate was greater than the fiscal year 1998 rate due to the larger portion of high-taxed foreign earnings in fiscal year 1997. Future tax rates may vary from the historic rates depending on the worldwide allocation of earnings and tax planning strategies. Net Earnings. Net earnings of $23 million ($0.78 pro forma per share) in fiscal year 1998 increased from the $14 million ($0.47 pro forma per share) earned in fiscal year 1997. The increase in net earnings was due primarily to revenue growth in excess of marketing and general and administrative expenses and the other factors described above. Fiscal Year 1997 Compared to Fiscal Year 1996 Sales. IB's sales of $542 million in fiscal year 1997 were 7% higher than its sales of $504 million in fiscal year 1996. All of IB's product lines contributed to the higher sales in fiscal year 1997. Geographically, sales in fiscal year 1997 in North America of $302 million and Asia of $70 million both increased 11% from fiscal year 1996, while sales in Europe of $142 million declined 3% in fiscal year 1997. 31 Gross Profit. IB's gross profit of $211 million in fiscal year 1997 was 39% of sales, compared to $194 million, or 38% of sales, in fiscal year 1996. The increase in gross profit was attributable primarily to improved sales volume and relatively constant fixed costs. Research and Development. Research and development expenses of $32 million in fiscal year 1997 were 6% of sales compared to $30 million, or 6% of sales, in fiscal year 1996. The increase in research and development expenses, in absolute terms, was primarily due to increased consultancy costs. Marketing. Marketing expenses of $110 million in fiscal year 1997 were 20% of sales compared to $107 million, or 21% of sales in fiscal year 1996. The increase in marketing expenses, in absolute terms, was primarily due to increased new product introductions and new sales offices in Latin America. General and Administrative. General and administrative expenses of $42 million were 8% of sales in fiscal year 1997, compared to $45 million, or 9% of sales, in fiscal year 1996. The decrease in general and administrative expenses was due primarily to a reduction in corporate overhead expenses. Taxes on Earnings. IB's effective income tax rate was 47.0% in fiscal year 1997, compared to 46.1% in fiscal year 1996. These rates were higher than the U.S. federal statutory rate because IB had significant earnings in high-tax foreign countries. Net Earnings. Net earnings of $14 million ($0.47 pro forma per share) in fiscal year 1997 increased from the $6 million ($0.20 pro forma per share) earned in fiscal year 1996. The increase in net earnings was due primarily to revenue growth in excess of marketing and general and administrative expenses and the other factors described above. Recent Accounting Pronouncements In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 changes current practice under SFAS No. 14 by establishing a new framework on which to base segment reporting (referred to as the "management" approach) and also requires interim reporting of segment information. It is effective for IB's 1999 fiscal year. The impact of the implementation of SFAS No. 131 on the reporting of IB's segment information has not yet been determined. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and is effective for IB's 2000 fiscal year. The impact of the implementation of SFAS No. 133 on the combined financial statements of IB has not yet been determined. Liquidity and Capital Resources IB's debt has historically been incurred or managed at the parent level. In connection with the Distribution, a portion of Varian's debt will be assumed by IB. IB will not be able to rely on the earnings, assets or cash flows of VMS or VSEA after the Distribution to service this debt nor, however, will its earnings, assets or cash flows be used to contribute to the capital requirements of those entities. The debt to be assumed by or transferred to IB at the time of the Distribution will consist of between $50 and $100 million of Term Loans and Notes Payable, based on Varian's outstanding indebtedness as of January 1, 1999 and projected operating results and certain other transactions through the Distribution Date. See "Forecasted Capitalization." As of January 1, 1999, interest rates on Varian's outstanding Term Loans ranged from 6.70% to 7.29%, and the weighted average interest rate on these Term Loans was 7.02%. As of January 1, 1999, interest rates on Varian's outstanding Notes Payable ranged from 1.50% to 9.75%, and the weighted average interest rate on these Notes Payable was 1.93%. While IB will assume 50% of the Term Loans, the specific Term Loans and Notes Payable that IB will assume in connection with the Distribution will be determined in accordance with the Distribution Agreement. See 32 "The Distribution - Distribution Agreement." The Term Loans currently contain covenants that limit future borrowings and the payment of cash dividends and require the maintenance of certain levels of working capital and operating results. In connection with the assumption of the Term Loans by IB, the lender may revise existing or impose additional restrictive covenants. IB may enter into one or more credit facilities for working capital and other general corporate purposes after the Distribution. Any such credit facility may contain certain representations and warranties, conditions, affirmative, negative and financial covenants and events of default customary for such facilities. Varian has used a centralized cash management system to finance its operations. Cash deposits from the businesses are transferred to Varian on a daily basis, and Varian funds Varian's required disbursements. As a result, IB reported no cash and cash equivalents, at January 1, 1999, January 2, 1998, October 2, 1998 and September 26, 1997, respectively. Pursuant to the Distribution Agreement, IB will be entitled to receive a cash contribution from Varian in such amount so that as of the time of the Distribution, IB will have Net Debt equal to approximately 50% of the aggregate Net Debt of IB and VMS, subject to such adjustments as may be necessary to provide VMS with a Net Worth of between 40% and 50% of the aggregate Net Worth of IB and VMS and subject to further adjustment to reflect IB's approximately 50% share of the estimated proceeds, if any, to be received by VMS after the Distribution from the sale of Varian's long-term leasehold interest at certain of its Palo Alto facilities, together with certain related buildings and other corporate assets and IB's obligation for approximately 50% of any estimated transaction expenses to be paid by VMS after the Distribution (in each case reduced for estimated taxes payable or tax benefits received from all sales and transaction expenses). See "The Distribution - Distribution Agreement." During the first quarter of fiscal year 1999, IB generated $1 million of cash from operations, compared to $10 million in the first quarter of fiscal year 1998. Increased inventories and lower earnings accounted for substantially all of the change between quarters. IB generated $37 million of cash from operations in fiscal year 1998, compared to $17 million in fiscal year 1997 and $23 million in fiscal year 1996. Fiscal year 1998 net earnings plus non-cash charges for depreciation totaling $41 million, which was offset by a decrease of $7 million in liabilities and a $5 million decrease in customer advances, respectively, between fiscal year 1997 and fiscal year 1998, accounted for most of the cash generated. During the first quarter of fiscal year 1999, IB used $5 million of cash for investing activities, compared to $10 million during the first quarter of fiscal year 1998, reflecting reduced purchases of property, plant and equipment. IB used $54 million of cash for investing activities in fiscal year 1998, primarily for the acquisition of Chrompack International B. V., the remaining minority interest in Varian Iberica, S. L., as well as the replacement of machinery and equipment. This compares to $52 million used for investing activities in fiscal year 1997, primarily for the acquisitions of a product line from each of Rainin Instruments Company, Inc. and Otsuka Electronics (USA) Inc., as well as the replacement of machinery and equipment. IB used $22 million for investing activities in fiscal year 1996, primarily for capital expenditures. IB currently has no plans to materially modify or expand its facilities or to make other material capital expenditures. Restructuring plans are currently being developed and are expected to result in additional costs and expenditures, the timing and amount of which have not yet been determined. In addition, the Distribution Agreement provides that IB is responsible for certain litigation described under "Business - Legal Proceedings" and further provides that IB will indemnify VSEA and VMS for one-third of the costs, expenses and other liabilities of Varian relating to certain discontinued operations of Varian, including certain environmental liabilities. See " - Environmental Matters." IB's liquidity is affected by many factors, some based on the normal ongoing operations of the business and others related to the uncertainties of the industry and global economies. Although IB's cash requirements will fluctuate based on the timing and extent of these factors, IB's management believes that cash generated from operations, together with IB's borrowing capability, will be sufficient to satisfy commitments for capital expenditures and other cash requirements for the current fiscal year and fiscal year 2000. 33 Environmental Matters IB's operations are subject to various foreign, federal, state and/or local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. This includes discharges into soil, water and air, and the generation, handling, storage, transportation and disposal of waste and hazardous substances. In addition, several countries are reviewing proposed regulations that would require manufacturers to dispose of their products at the end of their useful life. These laws have the effect of increasing costs and potential liabilities associated with the conduct of such operations. Varian has been named by the U.S. Environmental Protection Agency or third parties as a potentially responsible party under CERCLA at eight sites where Varian is alleged to have shipped manufacturing waste for recycling or disposal. Varian is also involved in various stages of environmental investigation and/or remediation under the direction of, or in consultation with, foreign, federal, state and/or local agencies at certain current or former Varian facilities (including facilities disposed of in connection with Varian's sale of its Electron Devices business during fiscal year l995 and the sale of its TFS business during fiscal year 1997). Expenditures by Varian for environmental investigation and remediation amounted to $5 million in fiscal year 1998, compared with $2 million in fiscal year 1997 and $5 million in fiscal year 1996. For certain of these sites and facilities, various uncertainties make it difficult to assess the likelihood and scope of further investigation or remediation activities or to estimate the future costs of such activities if undertaken. As of January 1, 1999, Varian nonetheless estimated that the future exposure for environmental-related investigation and remediation costs for these sites and facilities ranged in the aggregate from $21 million to $48 million. The time frame over which these costs are expected to be incurred varies with each site and facility, ranging up to approximately 30 years as of January 1, 1999. Management of Varian 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 Varian had accrued $21 million in estimated environmental costs as of January 1, 1999. The amount accrued has not been discounted to present value. As to other sites and facilities, Varian has gained sufficient knowledge to be able to better estimate the scope and costs of future environmental activities. As of January 1, 1999, Varian estimated that the future exposure for environmental related investigation and remediation costs for these sites and facilities ranged in the aggregate from $40 million to $74 million. The time frame over which these costs are expected to be incurred varies with each site and facility, ranging up to approximately 30 years as of January 1, 1999. As to each of these sites and facilities, management of Varian 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 futures costs were reliably determinable. Together, these amounts totaled $51 million at January 1, 1999. Accordingly, Varian had accrued $22 million as of January 1, 1999, which represents its best estimate of the future costs discounted at 4%, net of inflation. This accrual is in addition to the $21 million described in the preceding paragraph. Under the Distribution Agreement, IB has agreed to indemnify VMS and VSEA for one-third of these environmental investigation and remediation costs, as adjusted for any insurance proceeds and tax benefits expected to be realized upon the payment of these costs. Accordingly, IB had recorded $8 million as its portion of these estimated future costs for environmental liabilities as of January 1, 1999. The foregoing amounts are only estimates of anticipated future environmental related costs, and the amounts actually spent may be greater or less than such estimates. The aggregate range of cost estimates reflects various uncertainties inherent in many environmental investigation and remediation activities and the large number of sites and facilities involved. IB believes that most of these cost ranges will narrow as investigation and remediation activities progress. IB believes that its reserves are adequate, but as the scope of its obligation becomes more clearly defined, these reserves may be modified and related charges against earnings may be made. Although any ultimate liability arising from environmental related matters described herein could result in significant expenditures that, if aggregated and assumed to occur within a single fiscal year, would be material to IB's financial statements, the likelihood of such occurrence is considered remote. Based on information currently available to IB's management and its best assessment of the ultimate amount and timing of environmental related events, IB's 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 IB. 34 Year 2000 General. The "Year 2000" problem refers to computer programs and other equipment with embedded microprocessors ("non-IT systems") which use only the last two digits to refer to a year, and which therefore might not properly recognize a year that begins with "20" instead of the familiar "19." As a result, those computer programs and non-IT systems might be unable to operate or process accurately certain date-sensitive data before or after January 1, 2000. Because IB relies heavily on computer programs and non-IT systems, and relies on third parties which themselves rely on computer programs and non-IT systems, the Year 2000 problem, if not addressed, could adversely effect IB's business, results of operations and financial condition. State of Readiness. IB has initiated a comprehensive assessment of potential Year 2000 problems with respect to (1) internal systems, (2) products and (3) significant third parties with which IB does business. IB has substantially completed its assessment of potential Year 2000 problems in internal systems, which systems have been categorized as follows, in order of importance: (a) enterprise information systems; (b) enterprise networking and telecommunications; (c) factory-specific information systems; (d) non-IT systems; (e) computers and packaged software; and (f) facilities systems. With respect to enterprise information systems, Varian in 1994 initiated replacement of its existing systems with a single company-wide system supplied by SAP America, Inc., which system is designed and tested by SAP for Year 2000 capability. Installation of that system has been staged to replace first those existing systems that are not Year 2000 capable. Installation of the new SAP system is approximately 70% complete, with 90% completion expected by July 1999 and full completion expected by the end of 1999. Upgrade of enterprise information systems is approximately 67% complete, with 80% completion expected by July 1999 and 100% completion expected by December 1999; upgrade of networking and telecommunications systems is complete, with 100%; upgrade of factory-specific information systems is approximately 70% complete, with 91% completion expected by July 1999 and 93% completion expected by December 1999; and upgrade of non-IT systems, computers and packaged software, and facilities systems are approximately 80% complete, with 100% completion expected by July 1999. IB has initiated an assessment of potential Year 2000 problems in its current and previously-sold products. With respect to current products, that assessment and corrective actions are complete, and IB believes that all of its current products are Year 2000 capable; however, that conclusion is based in part on Year 2000 assurances or warranties from suppliers of computer programs and non-IT systems which are integrated into or sold with IB's current products. With respect to previously-sold products, IB does not intend to assess Year 2000 preparedness of every product it has ever sold, but rather is focusing its assessments on products that will be under written warranties or are still relatively early in their useful life, are more likely to be dependent on non- IT systems that are not Year 2000 capable, and/or cannot be easily upgraded with readily available externally-utilized computers and packaged software. These assessments are expected to be substantially completed by July 1999. Where IB identifies previously-sold products that are not Year 2000 capable, IB intends in some cases to develop and offer to sell upgrades or retrofits, identify corrective measures which the customer could itself undertake or identify for the customer other suppliers of upgrades or retrofits. There may be instances where IB will be required to repair and/or upgrade such products at its own expense. Schedules for completing those corrective actions vary considerably among IB's businesses and products, but are generally expected to be substantially completed by July 1999. IB is still assessing potential Year 2000 problems of third parties with which IB has material relationships, which will be primarily suppliers of products or services. These assessments will identify and prioritize critical suppliers, review those suppliers' written assurances on their own assessments and correction of Year 2000 problems and develop appropriate contingency plans for those suppliers which might not be adequately prepared for Year 2000 problems. These assessments are expected to be substantially completed by April 1999. Costs. As of January 1, 1999, IB estimates that it had incurred approximately $785,000 to assess and correct Year 2000 problems. Although difficult to assess, based on its assessment to date, IB estimates that it will incur approximately $465,000 in additional costs to assess and correct Year 2000 problems, which costs are expected to be incurred throughout fiscal year 1999 and the first half of fiscal year 2000. All of these costs have been and will continue to be expensed as incurred. 35 This estimate of future costs has not been reduced by expected recoveries from certain third parties, which are subject to indemnity, reimbursement or warranty obligations for Year 2000 problems. In addition, IB expects that certain costs will be offset by revenues generated by the sale of upgrades and retrofits and other customer support services relating to Year 2000 problems. However, there can be no assurance that IB's actual costs to assess and correct Year 2000 problems will not be higher than the foregoing estimate. Risks. Failure of IB or its key suppliers to accurately assess and correct Year 2000 problems would likely result in interruption of certain of IB's normal business operations, which could have a material adverse effect on IB's business, results of operations and financial condition. If IB does not adequately identify and correct Year 2000 problems in its information systems, it could experience an interruption in its operations, including manufacturing, order processing, receivables collection and accounting, such that there would be delays in product shipments, lost data and a consequential impact on revenues, expenditures and financial reporting. If IB does not adequately identify and correct Year 2000 problems in its non-IT systems, it could experience an interruption in its manufacturing and related operations, such that there would be delays in product shipments and a consequential impact on revenues. If IB does not adequately identify and correct Year 2000 problems in previously-sold products, it could experience warranty or product liability claims by users of products which do not function correctly. If IB does not adequately identify and correct Year 2000 problems of the significant third parties with which it does business, it could experience an interruption in the supply of key components or services from those parties, such that there would be delays in product shipments or services and a consequential impact on revenues. Management of IB believes that appropriate corrective actions have been or will be accomplished within the cost and time estimates stated above. Although IB does not expect to be 100% Year 2000 compliant by the end of 1999, IB does not currently believe that any Year 2000 non-compliance in IB's information systems would have a material adverse effect on IB's business, results of operations or financial condition. However, given the inherent complexity of the Year 2000 problem, there can be no assurance that actual costs will not be higher than currently anticipated or that corrective actions will not take longer than currently anticipated to complete. Risk factors which might result in higher costs or delays include the ability to identify and correct in a timely fashion Year 2000 problems; regulatory or legal obligations to correct Year 2000 problems in previously-sold products; ability to retain and hire qualified personnel to perform assessments and corrective actions; the willingness and ability of critical suppliers to assess and correct their own Year 2000 problems, including the products they supply to IB; and the additional complexity which will likely be caused by undertaking during fiscal year 1999 and fiscal year 2000 the separation of currently shared enterprise information systems as a result of the Distribution. See "Risk Factors - Transitioning to New Information Technology Infrastructure." Because of uncertainties as to the extent of Year 2000 problems with IB's previously-sold products and the extent of any legal obligation of IB to correct Year 2000 problems in those products, IB cannot yet assess risks to IB with respect to those products. Because its assessments are not yet complete, IB also cannot yet conclude that the failure of critical suppliers to assess and correct Year 2000 problems is not reasonably likely to have a material adverse effect on IB's results of operations. Contingency Plans. With respect to IB's enterprise information systems, IB has a contingency plan if the SAP system is not fully installed before December 31, 1999. That plan primarily involves installation where necessary of a Year 2000 capable upgrade of existing information systems pending complete installation of the SAP system. That upgrade is currently in acceptance testing, and, if functional, will be held for contingency purposes. With respect to products and significant third parties, IB intends, as part of its on-going assessment of potential Year 2000 problems, to develop contingency plans for the more critical problems that might not be corrected December 31, 1999. It is currently anticipated that the focus of these contingency plans will be the possible interruption of supply of key components or services from third parties. 36 MARKET RISK Foreign Currency Exchange Risk As a global concern, IB faces exposure to adverse movements in foreign currency exchange rates. This exposure may change over time as IB's business practices evolve and could have a material adverse impact on IB's financial results. Historically, IB's primary exposures have related to non-U.S. dollar denominated sales and purchases throughout Europe and Asia. The Euro was adopted as a common currency for members of the European Monetary Union on January 1, 1999. IB is evaluating, among other issues, the impact of the Euro conversion on its foreign currency exposure. Based on its evaluation to date, IB does not expect the Euro conversion to create any change in its currency exposure due to IB's existing hedging practices. At the present time, Varian hedges its currency exposures in respect of the Instruments Business that are associated with certain assets and liabilities denominated in non-functional currencies and with anticipated foreign currency cash flows. Varian does not enter into forward exchange contracts for trading purposes. IB's forward exchange contracts generally range from one to three months in original maturity, and no forward exchange contract has an original maturity greater than one year. Forward exchange contracts outstanding and their unrealized gains and losses as of October 2, 1998 are summarized as follows:
Notional Value Notional Unrealized Purchased Value Sold Gain/(Loss) Fair Value --------- ---------- ---------- ---------- (Dollars in thousands) Japanese yen....................... $ -- $ 1,637 $ 5 $ 31 French francs...................... -- 11,550 -- (467) Canadian dollars................... -- 7,042 206 260 British pounds..................... 12,044 4,050 537 515 Italian lira....................... -- 4,196 -- (217) German marks....................... -- 1,955 -- (100) Spanish pesetas.................... -- 691 -- (38) Korean won......................... -- 283 -- 1 Australian dollars................. 6,396 -- -- 23 Swiss francs....................... 246 -- -- 10 Swedish kronor..................... 4,789 -- -- (5) ------- ------- ---- ----- Total............................ $23,475 $31,404 $748 $ 13 ======= ======= ==== =====
The fair value of forward exchange contracts generally reflects the estimated amounts that IB 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 IB's exposure. Interest Rate Risk Although payments under certain of the operating leases for IB's facilities are tied to market indices, IB is not exposed to material interest rate risk associated with its operating leases. There have been no material changes in the Market Risk information reported above as of January 1, 1999. 37 SUMMARY OF SIGNIFICANT CAPITALIZATION FORECAST ASSUMPTIONS The following financial forecast of the capitalization of IB is based on forecasts and assumptions by Varian's management concerning events and circumstances that are expected to occur subsequent to the latest historical balance sheet date but prior to and including April 2, 1999 (the Distribution Date), including future results of operations and other events. For purposes of the forecasted capitalization at April 2, 1999, net earnings in the second quarter of fiscal year 1999 are assumed to be the same as the net earnings in the second quarter of fiscal year 1998. In addition, restructuring plans are currently being developed and may result in additional charges to IB's equity. Assumptions with respect to events that will occur between January 2, 1999 and April 2, 1999 include the following: . Receipt of a cash contribution from Varian of $20 million and the assumption of long-term debt (including current portion) of $58.5 million from Varian and the transfer of $17 million of Notes Payable from Varian. . Amendment of IB's Certificate of Incorporation to give IB authorized capital stock of (i) 99,000,000 shares of IB Common Stock of which approximately 30,344,000 shares will be issued and outstanding upon the Distribution (based upon the number of shares of Varian Common Stock outstanding as of January 1, 1999, increased by shares issued pursuant to Varian's Employee Stock Purchase Plan and anticipated stock option exercises from January 2, 1999 through April 2, 1999) and (ii) 1,000,000 shares of preferred stock, $.01 par value per share, none of which will be issued and outstanding upon the Distribution. In Varian's management's judgment, the listed assumptions and forecasts reflect those material events or transactions that occurred since January 2, 1999 or are expected to occur prior to the Distribution Date, other than the potential restructuring charge discussed in the first paragraph above. There have been no changes in accounting principles anticipated in this capitalization forecast nor are any such changes currently contemplated. Limitations On Projections And Forecasts The assumptions and estimates underlying the projected and forecasted data and information in this Information Statement are inherently uncertain and, although considered reasonable by management of Varian, are subject to significant business, economic and competitive uncertainties, many of which are beyond the control of Varian and its subsidiaries. Accordingly, there can be no assurance that the projected and forecasted financial results will be realized. In fact, actual results in the future usually will differ from the forecasted financial results and the differences may be material. Neither IB nor any of its subsidiaries intends after the date of this Information Statement to update any forecasted or projected financial data or information contained in this Information Statement and the absence of such an update should not be construed as any indication regarding the views or beliefs of management of Varian (or of IB after the Distribution) concerning the forecasted or projected data or information contained in this Information Statement. 38 FORECASTED CAPITALIZATION The following table sets forth the combined capitalization of IB as of January 1, 1999 on a historical basis, forecasted at April 2, 1999 (the Distribution Date), and as adjusted to give effect to the Distribution and the other transactions contemplated by the Distribution Agreement. The significant assumptions used below have been described in "Summary of Significant Capitalization Forecast Assumptions" on the preceding page. The following data is qualified in its entirety by the financial statements of the Instruments Business and other information contained elsewhere in this Information Statement.
Forecasted January 1, At April 1999 2, Pro Forma After Historical 1999(/1/) Distribution(/1/) ---------- ---------- ----------------- (Dollars in millions) Cash and cash equivalents.............. $ -- $ -- $ 20.0 ====== ====== ====== Notes payable.......................... $ -- $ -- $ 17.0 ====== ====== ====== Long-term Debt, including current portion............................... $ -- $ -- $ 58.5 ------ ------ ------ Equity: Divisional Equity.................... $245.8 $ -- $ -- Common stock, par value $.01 per share: authorized - 99,000,000 shares issued and outstanding - none historical and 30,344,000 pro forma........................... -- 0.3 0.3 Preferred stock, par value $.01 per share: authorized - 1,000,000 shares issued and outstanding - none historical or pro forma............. Capital in Excess of Par Value....... 250.5 195.0 ------ ------ ------ Total Equity....................... 245.8 250.8 195.3 ------ ------ ------ Total Capitalization............. $245.8 $250.8 $253.8 ====== ====== ======
- ------- (1) See "Summary of Significant Capitalization Forecast Assumptions" on the preceding page. 39 PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The unaudited pro forma condensed combined financial statements of the Instruments Business, which will become Varian, Inc. following the Distribution, set forth below consist of a pro forma balance sheet as of January 1, 1999 and a pro forma statement of earnings for the year ended October 2, 1998 and for the quarter ended January 1, 1999. The pro forma balance sheet was prepared to give effect to the Distribution as if it had occurred on January 1, 1999 and the pro forma statement of earnings was prepared to give effect to the Distribution as if it had occurred on September 27, 1997. The unaudited pro forma balance sheet set forth below does not purport to represent what the Instruments Business' financial position actually would have been had the Distribution occurred on the date indicated or to project the Instruments Business' financial position for any future date. The unaudited pro forma statement of earnings set forth below does not purport to represent what the Instruments Business' operations actually would have been or to project the Instruments Business' operating results for any future period. The unaudited pro forma adjustments are based upon currently available information and certain assumptions that the Instruments Business' management believes are reasonable. The unaudited pro forma statements should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements of the Instruments Business and the notes thereto appearing elsewhere in this Information Statement. 40 Unaudited Pro Forma Condensed Combined Balance Sheet January 1, 1999
IB Pro Forma IB Pro Historical Adjustments(/1/) Forma ---------- ---------------- ------ (Dollars in millions) Assets Current Assets Cash and cash equivalents................. $ -- $ 20.0 $ 20.0 Other current assets...................... 243.3 -- 243.3 ------ ------ ------ Total current assets...................... 243.3 20.0 263.3 Property, Plant and Equipment, net........ 87.8 -- 87.8 Other Assets.............................. 64.5 -- 64.5 ------ ------ ------ Total Assets.............................. $395.6 $ 20.0 $415.6 ====== ====== ====== Liabilities And Stockholders' Equity Current Liabilities Notes payable and current portion of long- term debt................................ $ -- $ 22.9 $ 22.9 Other current liabilities................. 138.8 -- 138.8 ------ ------ ------ Total Current Liabilities................. 138.8 22.9 161.7 Long-term Debt............................ -- 52.6 52.6 Other liabilities......................... 11.1 -- 11.1 ------ ------ ------ Total Liabilities......................... 149.9 75.5 225.4 Equity.................................... 245.7 (55.5) 190.2 ------ ------ ------ Total Liabilities and Equity.............. $395.6 $ 20.0 $415.6 ====== ====== ======
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet (1) Assumes a cash contribution by Varian to IB of $20.0 million, the transfer to IB of $17.0 million in Notes Payable from Varian, and the assumption by IB of $58.5 million in long-term debt, including current portion, from Varian in connection with the Distribution. 41 Unaudited Pro Forma Condensed Combined Statement of Earnings Quarter Ended January 1, 1999
IB Pro Forma IB Pro Historical Adjustments(/1/) Forma ---------- ---------------- ------ (Dollars in millions, except per share amounts) Sales..................................... $133.3 $ -- $133.3 ------ ----- ------ Operating Costs and Expenses Cost of sales............................. 80.7 -- 80.7 Research and development.................. 7.2 -- 7.2 Marketing................................. 30.0 -- 30.0 General and administrative................ 7.7 -- 7.7 ------ ----- ------ Total operating costs and expenses........ 125.6 -- 125.6 ------ ----- ------ Operating Earnings........................ 7.7 -- 7.7 Interest expense.......................... -- (1.1) (1.1) ------ ----- ------ Operating Earnings before Taxes........... 7.7 (1.1) 6.6 Taxes on earnings......................... 3.4 (0.4) 3.0 ------ ----- ------ Net Earnings.............................. $ 4.3 $(0.7) $ 3.6 ====== ===== ====== Pro Forma Net Earnings Per Share(/2/)..... $ 0.14 $ 0.12 ====== ======
Notes to Unaudited Pro Forma Condensed Combined Statement of Earnings (1) Reflects pro forma adjustment for interest expense on $58.5 million of long-term debt at an estimated annual rate of interest of 7.02% and on $17.0 million of Notes Payable at an estimated annual rate of interest of 1.93%. A change of 25 basis points in this estimated annual rate of interest would impact pro forma interest expense by $47,000. The pro forma adjustment for income taxes is based upon statutory income tax rates. (2) The computation of pro forma net earnings per share is based on the weighted average number of shares of Varian Common Stock outstanding during the quarter ended January 1, 1999, reflecting the ratio of one share of IB Common Stock for each share of Varian Common Stock outstanding at the time of the Distribution. 42 Unaudited Pro Forma Condensed Combined Statement of Earnings Fiscal Year 1998
IB Pro Forma IB Pro Historical Adjustments(/1/) Forma ---------- ---------------- ------ (Dollars in millions, except per share amounts) Sales..................................... $557.8 $ -- $557.8 ------ ----- ------ Operating Costs and Expenses Cost of sales............................. 336.4 -- 336.4 Research and development.................. 29.6 -- 29.6 Marketing................................. 113.9 -- 113.9 General and administrative................ 38.7 -- 38.7 ------ ----- ------ Total operating costs and expenses........ 518.6 -- 518.6 ------ ----- ------ Operating Earnings........................ 39.2 -- 39.2 Interest expense.......................... -- (4.4) (4.4) ------ ----- ------ Operating Earnings before Taxes........... 39.2 (4.4) 34.8 Taxes on earnings......................... 15.8 (1.7) 14.1 ------ ----- ------ Net Earnings.............................. $ 23.4 $(2.7) $ 20.7 ====== ===== ====== Pro Forma Net Earnings Per Share(/2/)..... $ 0.78 $ 0.69 ====== ======
Notes to Unaudited Pro Forma Condensed Combined Statement of Earnings (1) Reflects pro forma adjustment for interest expense on $58.5 million of long-term debt at an estimated annual rate of interest of 7.02% and on $17.0 million of Notes Payable at an estimated annual rate of interest of 1.93%. A change of 25 basis points in this estimated annual rate of interest would impact pro forma interest expense by $189,000. The pro forma adjustment for income taxes is based upon statutory income tax rates. (2) The computation of pro forma net earnings per share is based on the weighted average number of shares of Varian Common Stock outstanding during fiscal year 1998, reflecting the ratio of one share of IB Common Stock for each share of Varian Common Stock outstanding at the time of the Distribution. 43 BUSINESS General IB, a newly-formed, wholly-owned subsidiary of Varian, will own and operate the Instruments Business after the Distribution. References in this section to "IB" refer to IB and its subsidiaries after giving effect to the Internal Transfers and the Distribution. References in this section to the "Instruments Business" refer to the historical business and operations of the Instruments Business conducted by Varian prior to the Distribution. Overview IB develops, manufactures, sells and services a variety of scientific instruments and equipment. IB is a major supplier of analytical and research instruments and related equipment for studying the chemical composition of a myriad of substances, including metals, inorganic materials, organic compounds, polymers, natural substances and biochemicals. IB also develops, manufactures, sells and services nuclear magnetic resonance spectrometers for probing the structural properties of molecules and for producing non-invasive three- dimensional images of biomedical materials. IB also develops, manufactures, sells and services high vacuum products that serve a wide range of industrial and scientific applications, such as high-energy physics, surface analysis, scientific and industrial coating processes, analytical instrumentation and semiconductor manufacturing. IB is also a state-of-the-art contract manufacturer of advanced electronic assemblies and subsystems such as printed circuit boards. IB operates in 70 countries and at February 1, 1999 had approximately 3,183 employees. Products IB's products can be broadly classified into the following categories: analytical instruments, nuclear magnetic resonance instruments, vacuum products and electronic components assembly. Analytical Instruments Analytical Instruments includes Chromatography Systems and Optical Spectroscopy Instruments operations, which manufacture liquid and gas chromatographs, gas chromatograph/mass spectrometers, ultraviolet/visible/near-infrared spectrometers, atomic absorption spectrometers, inductively coupled plasma spectrometers, inductively coupled plasma/mass spectrometers, data management systems and small disposable tools used to prepare chemical samples for analysis. These products are used in environmental monitoring and analysis, biological and biochemical research, and quality control and research in such industries as pharmaceuticals, foods, metals, chemicals and petroleum as well as in independent test laboratories. They are employed in analyzing chemical substances including metals, inorganic materials, organic compounds, polymers, natural substances and biochemicals. The Chromatography Systems operation ("CS") is a major international supplier of gas and liquid chromatographs, data management systems and gas chromatograph/mass spectrometer systems, as well as sample preparation products and other consumable supplies. Chromatography is a technique that separates a mixture of substances by taking advantage of the characteristics specific to each component. CS's systems are used for chemical analysis, industrial hygiene, pollution monitoring, pharmaceutical analysis and drug discovery and monitoring applications. CS supplies a complete line of products to provide all analytical and preparative requirements. CS's manufacturing facilities are located in Walnut Creek, California, Woburn, Massachusetts, Middelburg, The Netherlands and Harbor City, California. The Optical Spectroscopy Instruments operation ("OSI") is a leading worldwide supplier of atomic absorption, inductively coupled plasma, inductively coupled plasma/mass spectrometers and ultraviolet/visible/near-infrared spectrophotometers - instruments that are used to measure compounds and some 66 different metals in various substances. Optical spectroscopy is a method of chemical analysis based on the absorption, or emission, by matter of electromagnetic radiation of a specific wavelength or frequency. OSI's manufacturing facility is located in Melbourne, Australia. 44 Nuclear Magnetic Resonance Instruments Nuclear Magnetic Resonance Instruments ("NMRI") is a leading worldwide supplier of nuclear magnetic resonance ("NMR") spectrometers for advanced biomolecular, chemical and material science research, as well as for the more routine analytical work typically performed in industrial and academic environments. NMRI's manufacturing facilities are located in Palo Alto, California, and Fort Collins, Colorado. NMR spectroscopy gives researchers the ability to determine the structure of many biomolecules including proteins, nucleic acids (DNA and RNA) and carbohydrates. NMRI's systems are used in a variety of laboratories, including those conducting basic research and larger facilities that are creating new pharmaceuticals. NMRI's systems can be found in all major pharmaceutical companies worldwide, where they are key tools in developing new drugs to fight disease. Approximately 80% of NMRI's systems are used for analysis on liquids, 15% on solids and 5% on imaging (producing pictures). The imaging capability of NMR allows researchers to non-invasively capture a cross-sectional view of an object, for example the brain, to map and understand its various parts. Solid sample NMR research allows researchers to determine the microstructure of crystals, plastics, rubbers, ceramics, polymers and other solids. Vacuum Products Vacuum Products is a worldwide supplier of products used to create, maintain and contain a vacuum environment. These include vacuum pumps, helium leak detectors and related instruments and gauges, which are used in many commercial and scientific applications, including industrial processes, semiconductor manufacturing, high-energy physics, surface analysis and space research. Vacuum Products' manufacturing facilities are located in Lexington, Massachusetts, and Torino, Italy. Vacuum Products offers four types of vacuum pumps: primary, diffusion, turbo- molecular and ion. Primary pumps include rotary vane and dry diaphragm mechanical pumps, sorption pumps and dry scroll pumps. Diffusion pumps include the Very High Speed-Series products. Turbo-molecular pumps provide a high speed/compression ratio in a compact package. Ion pumps, used to achieve ultra- high vacuum environments, are used primarily to create ultra-high vacuum in a variety of applications, from electron microscopes to linear accelerators. Vacuum Products also has been a worldwide leader in helium mass spectrometer leak detectors since the 1960s. These products are used in many commercial and scientific applications, including industrial processes, analytical instruments and high-energy physics. Vacuum Products also produces an extensive line of vacuum instruments and gauges. Its gauge controllers and gauge tubes are designed for industrial use, where simplicity of operation and rugged design are important, as well as for research applications. Electronic Components Assembly The Electronics Center ("EC") is a contract electronic manufacturer of printed wiring assemblies. It supplies components to each of Varian's businesses; however, 80% of its sales are to customers other than Varian. Services range from design layout to total system integration, shipping to end customers and repair depot facilities. EC has expertise in high-mix manufacturing, producing up to 1,800 different products each month. In addition to printed wiring assemblies, EC performs electronic subassembly contract manufacturing and integrates complete systems. EC serves a wide range of industries, including telecommunications, medical, network products, gaming, industrial controls, avionics and satellite communications. EC's manufacturing facilities are located in Tempe, Arizona. Marketing and Sales In the United States, IB markets the largest portion of its products directly through its own sales and distribution organizations, although certain products are marketed through independent distributors and sales representatives. Sales 45 to major markets outside the United States are generally made by IB's foreign- based sales and service staff, although some sales are made directly from the United States to foreign customers. In certain foreign countries, sales are made through various representative and distributorship arrangements. IB owns or leases sales and service offices in strategic regional locations in the United States and in foreign countries through its foreign sales subsidiaries and distribution operations. None of IB's products are distributed through retail outlets. The markets in which IB competes are globalized. International sales accounted for 47%, 47% and 50% of sales for fiscal years 1998, 1997 and 1996, respectively. As a result, IB's customers increasingly require service and support on a worldwide basis. In addition to the United States, IB has manufacturing operations in Australia, Italy and The Netherlands as well as sales and service offices located throughout Europe, Asia and Latin America. IB has invested substantial financial and management resources to develop an international infrastructure to meet the needs of its customers worldwide. IB intends to continue to expand its presence in international markets. Demand for IB's products is dependent upon the size of the markets for its products, the level of capital expenditures of IB's customers, the rate of economic growth in IB's major markets and competitive considerations. IB believes that demand for its products does not exhibit any significant seasonal pattern. No single customer accounted for 10% or more of IB's sales in fiscal year 1998. Virtually all new analytical methods and tests originate in academic research in universities and medical schools. If the utility of a new method or test is demonstrated by fundamental research, it often will then be used by pharmaceutical investigators, biotechnology companies, teaching hospitals or specialized clinical laboratories in an investigatory mode. In some cases, these new techniques eventually emerge in routine, high-volume clinical testing at hospitals and research labs. Generally, devices used at each stage from research to routine clinical applications employ the same fundamental processes but may differ in operating features such as number of tests performed per hour and degree of automation. By serving several customer groups with differing needs related through common science and technology, IB has the opportunity to broadly apply and leverage its expertise. IB's customers are continually searching for processes and systems that can perform tests faster, more efficiently and at lower costs. IB believes that its focus on automated and high throughput systems positions it to capitalize on this need. Backlog IB's recorded backlog was $130 million at January 1, 1999, $125 million at October 2, 1998 and $132 million at September 26, 1997. It is IB's general policy to include in backlog only purchase orders or production releases that have firm delivery dates within one year. Recorded backlog may not result in sales because of cancellations or other factors. It is anticipated that all orders included in the October 2, 1998 backlog will be delivered before the close of fiscal year 1999. Competition Competition in IB's markets is based upon the performance capabilities of IB's products, technical support and after-market service, the manufacturer's reputation as a technological leader and the selling price. Management believes that performance capabilities are the most important of these criteria. The markets in which IB competes are highly competitive and are characterized by the application of mature but advanced technology. There are numerous companies that specialize in, and a number of larger companies that devote a significant portion of their resources to, the development, manufacture and sale of products that compete with those manufactured or sold by IB. Many of IB's competitors are well-known manufacturers with a high degree of technical proficiency. In addition, competition is intensified by the ever-changing nature of the technologies in the industries in which IB is engaged. The markets for IB's products are characterized by specialized manufacturers that often have strength in narrow segments of these markets. While the absence of reliable statistics makes it difficult to determine IB's relative market position in its industry segments, IB is confident it is one of the principal manufacturers in its primary fields. See "Risk Factors - Technological Change and New Products." Each of IB's major businesses competes with many companies that address the same markets. In Analytical Instruments, IB competes with Hewlett-Packard, Waters Corporation, Perkin-Elmer, Thermo Electron, Shimadzu Corporation and 46 numerous local suppliers. NMRI has two major competitors: Bruker and JEOL. In Vacuum Products, the primary competitors are Edwards High Vacuum, Pfeiffer, Leybold-Balzers and Alcatel. High-mix contract manufacturers that compete with the Tempe Electronics Center include EFTCX Corporation, Xetel Corporation, CMC Industries, Sigmatron International and Smartflex Systems. See "Risk Factors - Competition." Manufacturing IB's principal manufacturing activities consist of precision assembly, test, calibration and machining activities. IB subcontracts a portion of its assembly, machining and printed circuit board assembly and testing. All other assembly, test and calibration functions are performed by IB. Some critical assembly activities are performed in clean-room environments at IB's facilities. IB believes that the ability to manufacture reliable products in a cost- effective manner is critical to meeting the "just-in-time" delivery and other demanding requirements of its original equipment manufacturer ("OEM") and end- use customers. IB monitors and analyzes product lead times, warranty data, process yields, supplier performance, field data on mean time between failures, inventory turns, repair response time and other indicators so that it can continuously improve its manufacturing processes. IB has adopted a total quality management process. IB has ten manufacturing facilities located throughout the world. Analytical Instruments has manufacturing facilities in Walnut Creek, California, Woburn, Massachusetts, Middelburg, The Netherlands, Harbor City, California, and Melbourne, Australia. NMRI has manufacturing facilities in Palo Alto, California, and Fort Collins, Colorado. Vacuum Products has manufacturing facilities in Lexington, Massachusetts, and Torino, Italy. Tempe Electronics Center has manufacturing facilities in Tempe, Arizona. In 1993, the member states of the European Union ("EU") began implementation of their plan for a new unified EU market with reduced trade barriers and harmonized regulations. The EU adopted a significant international quality standard, the International Organization for Standardization Series 9000 Quality Standards ("ISO 9000"). All of IB's manufacturing facilities have been certified as complying with the requirements of ISO 9000. Raw Materials There are no specialized raw materials that are particularly essential to the operation of IB's business. IB's manufacturing operations require a wide variety of raw materials, electronic and mechanical components, chemical and biochemical materials and other supplies, some of which are occasionally found to be in short supply. Many components used in IB's products, including proprietary analog and digital circuitry, are manufactured by IB. Other components, including packaging materials, superconducting magnets, integrated circuits, microprocessors, microcomputers and certain detector and data analysis modules, are acquired from other manufacturers. Most of the raw materials, components and supplies purchased by IB are available from a number of different suppliers; however, a number of items are purchased from limited or single sources of supply, and disruption of these sources could have a temporary adverse effect on shipments and the financial results of IB. IB believes alternative sources could ordinarily be obtained to supply these materials, but a prolonged inability to obtain certain materials or components could have an adverse effect on IB's financial condition and results of operations and could result in damage to its relationships with its customers. See "Risk Factors - Reliance on Suppliers." Research and Development IB is actively engaged in basic and applied research, development and engineering programs designed to develop new products and to improve existing products. During fiscal years 1998, 1997 and 1996, IB spent $29.6 million, $32.0 million and $29.9 million, respectively (net of customer funding), on company-sponsored research, development and engineering activities. 47 Although IB intends to continue to conduct extensive research and development activities, there can be no assurance that it will be able to develop and market new products on a cost-effective and timely basis, that such products will compete favorably with products developed by others or that IB's existing technology will not be superseded by new discoveries or developments. See "Risk Factors - Uncertainty of Market Acceptance of New Products." Customer Support and Service IB believes that its customer service and support are an integral part of its competitive strategy. As part of its support services, IB's technical support staff provides, typically at no additional cost, individual assistance in solving analysis problems, integrating vacuum components, designing circuit boards, etc., depending on the business. IB offers training courses and periodically sends its customers information on applications development. IB's products generally include a 90-day to one-year warranty, installation and certain user training, all at no additional cost. Service contracts may be purchased by customers to cover equipment no longer under warranty. Service work not performed under warranty or service contract is performed on a time and materials basis. IB installs and services its products primarily through its own field service organization. Patent and Other Proprietary Rights As a leader in the manufacture and sale of analytical and research instruments and vacuum products, IB has pursued a policy of seeking patent, copyright, trademark and trade secret protection in the United States and other countries for developments, improvements and inventions originating within its organization that are incorporated in IB's products or that fall within its fields of interest. As of February 1, 1999, IB owned approximately 205 patents in the United States and approximately 260 patents throughout the world, and had approximately 272 patent applications on file with various patent agencies worldwide. IB intends to file additional patent applications as appropriate. IB relies on a combination of copyright, trade secret and other laws, and contractual restrictions on disclosure, copying and transferring title, to protect its proprietary rights. IB has trademarks, both registered and unregistered, that are maintained and enforced to provide customer recognition for its products in the marketplace. IB also has agreements with third parties that provide for licensing of patented or proprietary technology. These agreements include royalty-bearing licenses and technology cross-licenses. While IB places considerable importance on its licensed technology, IB does not believe that the loss of any license would have a material adverse effect on IB's business. IB's competitors, like companies in many high-technology businesses, routinely review the products of others for possible conflict with their own patent rights. Although IB has from time to time received notices of claims from others alleging patent infringement, IB believes that there are no pending patent infringement claims that might have a material adverse effect on the business of IB. See "Risk Factors - Uncertain Protection of Patent and Other Proprietory Rights." Environmental Matters For a discussion of environmental matters, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters." Employees At February 1, 1999, IB had a total of approximately 3,183 full-time and temporary employees worldwide - 1,978 in North America, 602 in Western Europe, 128 in Asia, 377 in Australia and 98 in Latin America. IB's employees based in certain foreign countries may, from time to time, be subject to collective bargaining agreements. IB's OSI employees based in Australia conducted a strike in 1997, which was quickly resolved. Those employees are subject to a collective bargaining agreement that is up for renewal and is currently being negotiated. IB currently considers its employee relations to be good. IB's success depends to a significant extent upon a limited number of key employees and other members of senior management of IB. The loss of the service of one or more of these key employees could have a material adverse effect on IB. The success of IB's future operations depends in large part on IB's ability to recruit and retain engineers and 48 technicians, as well as marketing, sales, service and other key personnel, who in each case are in great demand. IB's inability to attract and retain the personnel it requires could have a material adverse effect on IB's results of operations. Properties IB has manufacturing, warehouse, research and development, sales, service and administrative facilities which have an aggregate floor space of 661,000 and 506,500 square feet located in the United States and abroad, respectively, for a total of 1,167,500 square feet worldwide. Of these facilities, aggregate floor space of approximately 332,750 square feet is leased, and the remainder is owned by IB. The management of IB does not believe that there is any material long-term excess capacity in its facilities, although utilization is subject to change based on customer demand. The management of IB believes that the Instruments Business' facilities and equipment generally are well maintained, in good operating condition and suitable for IB's purposes and adequate for present operations. IB has ten manufacturing facilities located throughout the world. IB's facilities are located in Palo Alto, California, Walnut Creek, California, Harbor City, California, Woburn, Massachusetts, Lexington, Massachusetts, Fort Collins, Colorado, Tempe, Arizona, Melbourne, Australia, Middelburg, The Netherlands, and Torino, Italy. IB has 70 sales and service facilities located throughout the world, sixty-one of which are located outside the United States, including facilities located in Argentina, Australia, Austria, Belgium, Brazil, Canada, France, Japan, Korea, Mexico, The Netherlands, Spain, Sweden, Switzerland, Taiwan, the United Kingdom and Venezuela. Legal Proceedings Pursuant to the Distribution Agreement, IB has agreed to indemnify VSEA and VMS for any costs, liabilities or expenses with respect to any legal proceedings relating to the Instruments Business. In addition, IB has agreed to pay for one-third of the costs, liabilities and expenses of VSEA and VMS with respect to certain legal proceedings relating to discontinued operations of Varian. See "The Distribution - Distribution Agreement." IB 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 IB, IB's management does not believe any pending legal proceeding will result in a judgment or settlement that will have a material adverse effect on IB's financial position, results of operations or cash flow. 49 MANAGEMENT Board Of Directors The five persons identified below constitute the board of directors of IB (the "IB Board"). Each individual listed below (other than Allen J. Lauer) is currently a director of Varian and will resign from the Board of Directors of Varian effective as of the Distribution Date. The IB Board will be divided into three classes. Directors for each class will be elected at the annual meeting of stockholders held in the year in which the term for such class expires and will serve thereafter for three years. The following table sets forth names, in alphabetical order, and information about the IB Board:
Initial Name, Age and Current Term Principal Occupation Expires Information --------------------- --------- ----------- Allen J. Lauer, 61.................. 2000 Mr. Lauer is the Executive Executive Vice President of Varian Vice President of Varian responsible for the Instruments Business. In more than 30 years with Varian, Mr. Lauer has served in numerous key management roles. He was named a corporate Vice President of Varian in 1981, was elevated to Senior Vice President of Varian in 1989, and became Executive Vice President of Varian in 1990. John G. McDonald, 61................ 2001 Professor McDonald is The The Industrial Bank of Japan Industrial Bank of Japan Professor of Finance at Stanford Professor of Finance at University's Graduate School of Stanford University's Graduate Business School of Business, where he has served on the faculty since 1968. He is a director of Golden State Vintners, Inc., Scholastic Corporation and TriNet Corporate Realty Trust, Inc., and is an independent trustee of eight mutual funds managed by Capital Research & Management Co. and its affiliates. Professor McDonald has been a director of Varian since 1988. Wayne R. Moon, 59 .................. 2001 Mr. Moon is Chairman of the Chairman of the Board and Chief Board and Chief Executive Executive Officer of Blue Shield of Officer of Blue Shield of California California (a health care company), positions he has held since 1993. From 1990 to 1993, he served as President and Chief Operating Officer of Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals (health maintenance organizations). Mr. Moon has been a director of Varian since 1995. D.E. Mundell, 67.................... 2002 Mr. Mundell is Chairman of the Chairman of the Board of ORIX USA Board of ORIX USA Corporation Corporation and Advisor (a board-level position) to ORIX Corporation (both financial services companies), positions he has held since 1991. He is director of Beazer Homes USA, Inc. and Stockton Holdings, Ltd. Mr. Mundell has been a director of Varian since 1992. Elizabeth E. Tallett, 49............ 2002 Ms. Tallett is President and President and Chief Executive Chief Executive Officer of Officer of Dioscor, Inc., and of Dioscor, Inc. (a Ellard Pharmaceuticals Inc. biopharmaceutical company), positions she has held since 1996. Ms. Tallett is also President and Chief Executive Officer of Ellard Pharmaceuticals Inc. (a pharmaceutical company), positions she has held since 1998. From 1992 to 1996, Ms. Tallett served as President and Chief Executive Officer of Transcell Technologies, Inc. (a biotechnology company). Ms. Tallett is a director of The Principal Mutual Life Insurance Company, Coventry Health Care Inc. and Integrated America Inc., and is Chairman of the Board of Huma Scan, Inc. She has been a director of Varian since 1996.
50 Compensation Of Directors Each director who is not an IB employee will receive an annual retainer fee of $20,000, plus $1,000 for each IB Board and committee meeting attended. The non- employee Chairman of the IB Board will receive a retainer fee of $90,000 (in lieu of any other annual retainer or committee chair fee), and directors chairing standing committees of the IB Board will each receive a retainer fee of $5,000. Under the IB Omnibus Stock Plan, each director who is not an IB employee will also receive, upon initial appointment or election to the IB Board, a non-qualified stock option to acquire 10,000 shares of IB Common Stock, and will receive annually thereafter a non-qualified stock option to acquire 5,000 shares of IB Common Stock. In lieu of these grants, any non- employee Chairman will receive upon initial appointment a non-qualified stock option to acquire 50,000 shares of IB Common Stock. Such stock options will be granted with an exercise price equal to the fair market value of IB Common Stock on the date of grant, becoming exercisable immediately on the date of grant and having a ten-year term. Directors who are IB employees will receive no compensation for their services as directors. Committees of the IB Board Of Directors The business of IB will be managed under the direction of the IB Board. The IB Board will have Audit and Compensation Committees. Members of the Audit and Compensation Committees will not be employees of IB. Audit Committee The Audit Committee's principal functions will be to review the scope of the annual audit of IB by its independent auditors, review the annual financial statements of IB and the related audit report as prepared by the independent auditors, recommend to the IB Board selection of the independent auditors each year and review any non-audit fees paid to the independent auditors. The members of the Audit Committee are the following non-employee directors: John G. McDonald (Chairman), Wayne R. Moon, D.E. Mundell and Elizabeth E. Tallett. Compensation Committee The Compensation Committee will administer the stock and cash incentive plans of IB and in this capacity it will make option grants or awards under these plans. In addition, the Compensation Committee will determine the compensation of the President and Chief Executive Officer and the other senior executives. The Compensation Committee will also recommend the establishment of policies dealing with various compensation and employee benefit plans for IB. The members of the Compensation Committee are the following non-employee directors: John G. McDonald, Wayne R. Moon, D.E. Mundell (Chairman) and Elizabeth E. Tallett. 51 Executive Officers Set forth below is certain information with respect to the persons who are expected to serve as executive officers of IB immediately following the Distribution. Those persons listed below who are currently officers of Varian will relinquish their positions with Varian effective as of the Distribution Date.
Business Experience Prior to Becoming an Executive Name and Title Age Officer of IB -------------- --- ------------------------- Allen J. Lauer................................ 61 Mr. Lauer is the Executive President and Chief Executive Officer Vice President of Varian responsible for the Instruments Business. In more than 30 years with Varian, Mr. Lauer has served in numerous key management roles. He was named a corporate Vice President of Varian in 1981, was elevated to Senior Vice President of Varian in 1989, and became Executive Vice President of Varian in 1990. Garry W. Rogerson............................. 46 Mr. Rogerson is Vice Vice President, Analytical Instruments President of Varian's Analytical Instruments business, which includes the Chromatography Systems business and Optical Spectroscopy Instruments business, a position he has held since 1998. Mr. Rogerson has been Vice President and General Manager of Varian's Chromatography Systems business (which is expected to be a continuing responsibility) since 1994. Prior to this, Mr. Rogerson served as Sales and Marketing Manager for Varian's NMR Instruments business. Mr. Rogerson has held various other positions in the Instruments Business during his 19 years with Varian. Raymond J. Shaw............................... 49 Mr. Shaw is Vice President Vice President, NMR Instruments and General Manager of Varian's NMR Instruments business, positions he has held since 1989. Mr. Shaw has held various other positions in the Instruments Business during his 20 years with Varian. Arthur W. Homan............................... 39 Mr. Homan is Associate Vice President, General Counsel and Secretary General Counsel and Assistant Secretary of Varian, positions he has held since 1998 and 1993, respectively. From 1993 to 1998, he served as Senior Corporate Counsel. Mr. Homan has held various positions in the legal department during his 10 years with Varian. James L. Colbert.............................. 52 Mr. Colbert is Controller Controller of Varian's NMR Instruments business, a position he has held since 1992. Mr. Colbert has held various other positions during his 26 years with Varian.
52 Executive Officer Compensation Summary of Compensation Table I below sets forth a summary of the compensation paid by Varian for the last three fiscal years to the chief executive officer of IB, and the four additional most highly compensated individuals (based on their fiscal year 1998 compensation from Varian) who are expected to be executive officers of IB immediately after the Distribution. Table I Summary Compensation Table
Long-Term Compensation ------------------------------------ Awards Payouts --------------------------- -------- Annual Compensation Securities ---------------------------------- Underlying Other Annual Options/ LTIP All Other Name and Salary Bonus Compensation Restricted Stock SARs Payouts Compensation Principal Position Year ($) ($)(/1/) ($)(/2/) Award(s)($)(/2/) (#)(/4/) ($)(/5/) ($)(/6/) - ------------------ ---- ------ -------- ------------ ---------------- ---------- -------- ------------ Allen J. Lauer 1998 338,910 232,936 33,050 0 36,000 347,454 101,096 President and Chief 1997 323,148 359,300 22,594 244,388 36,000 461,552 117,958 Executive Officer 1996 310,990 532,363 35,458 204,225 36,000 628,056 93,274 Garry W. Rogerson 1998 166,388 62,566 7,791 0 8,500 98,969 20,516 Vice President, 1997 156,024 89,372 8,796 52,369 7,200 88,644 15,487 Analytical Instruments 1996 148,564 108,864 9,307 43,763 5,500 83,344 17,419 Raymond J. Shaw 1998 164,731 63,210 5,232 0 7,500 87,125 22,853 Vice President, 1997 156,494 104,812 6,309 52,369 7,200 88,586 25,149 NMR Instruments 1996 150,522 124,416 6,164 43,763 6,000 152,048 23,438 Arthur W. Homan 1998 150,836 29,221 4,476 20,366 8,000 0 16,669 Vice President, General 1997 122,770 62,273 4,764 14,588 6,000 0 15,857 Counsel and Secretary 1996 117,233 66,372 3,057 37,125 5,000 0 12,872 James L. Colbert 1998 120,330 28,802 0 0 1,050 0 13,280 Controller 1997 115,703 33,386 0 0 1,050 0 14,655 1996 112,211 27,111 0 0 1,000 0 12,374
- ------- (1) Consists of Varian Management Incentive Plan awards, Cash Profit-Sharing Plan allocations and (in some cases) special cash bonuses. (2) Consists of amounts reimbursed for the payment of taxes on certain perquisites and personal benefits and (in some cases) cash payments for unused accrued vacation time. (3) Consists of restricted shares of Varian Common Stock (valued at the closing market price on the date of grant), which shares are released from restrictions in three equal installments over a three-year period (the principal restriction being continued employment until the respective release dates), during which dividends, if any, are paid on such shares. The number and value (at $34.375 per share) of aggregate restricted stock holdings at the end of fiscal year 1998 were as follows: Mr. Lauer, 8,400 shares, $288,750; Mr. Rogerson, 1,800 shares, $61,875; Mr. Shaw, 1,800 shares, $61,875; Mr. Homan, 800 shares, $27,500; and Mr. Colbert, 0 shares, $0. Shares of restricted stock awarded for fiscal years 1998, 1997 and 1996, respectively, which partially vest in under three years were as follows: Mr. Lauer, 0 shares, 4,200 shares and 4,200 shares; Mr. Rogerson 0 shares, 900 shares and 900 shares; Mr. Shaw, 0 shares, 900 shares and 900 shares; Mr. Homan, 350 shares, 300 shares and 750 shares; and Mr. Colbert, 0 shares, 0 shares and 0 shares. (4) Consists of shares of Varian Common Stock that may be acquired under stock options granted pursuant to the Varian Omnibus Stock Plan (no stock appreciation rights have been granted). (5) Consists of cash payouts in fiscal years 1999, 1998 and 1997 under the long-term incentive feature of the Varian Omnibus Stock Plan for three-year cycles ended with fiscal years 1998, 1997 and 1996, respectively. (6) Consists of (a) Varian contributions (including interest) to Retirement and Profit-Sharing Program and Supplemental Retirement Plan (or similar plan in Australia for Mr. Shaw) accounts for fiscal years 1998, 1997 and 1996, respectively (Mr. Lauer, $98,941, $116,157 and $91,816; Mr. Rogerson, $19,389, $14,604 and $16,718; Mr. Shaw, $22,836, $25,134 and $23,424; Mr. Homan, $16,184, $15,603 and $12,677; and Mr. Colbert, $12,516, $14,020 and $11,861); and (b) Varian-paid premiums for group term life insurance in fiscal years 1998, 1997 and 1996, respectively (Mr. Lauer, $2,155, $1,801 and $1,458; Mr. Rogerson, $1,127, $883 and $701; Mr. Shaw, $17, $15 and $14; Mr. Homan, $485, $254 and $195; and Mr. Colbert, $764, $635 and $513). 53 Stock Options Grant of Options Table II below sets forth information with respect to grants of options to purchase Varian Common Stock during the fiscal year ended October 2, 1998 to the individuals listed in Table I. These grants were made pursuant to the Varian Omnibus Stock Plan and are reflected in Table I. Table II Option/SAR Grants In Last Fiscal Year
Individual Grants --------------------------------------------------- Potential Realizable Percent of Value at Assumed Number of Total Options/ Annual Rates of Stock Securities SARs Granted Exercise Price Appreciation for Underlying to or Base Option Term(2) Options/SARs Employees in Price Expiration ----------------------- Name Granted (#)(/1/) Fiscal Year ($/Sh) Date 5% ($) 10% ($) - ---- ---------------- -------------- -------- ---------- ----------- ----------- Allen J. Lauer.......... 36,000 3.55 58.1563 11/20/07 1,316,671 3,336,702 Garry W. Rogerson....... 8,500 0.84 58.1563 11/20/07 310,881 787,832 Raymond J. Shaw......... 7,500 0.74 58.1563 11/20/07 274,306 695,146 Arthur W. Homan......... 8,000 0.79 58.1563 11/20/07 292,593 741,489 James L. Colbert........ 1,050 0.10 58.1563 11/20/07 38,403 97,330
- ------- (1) Consists of stock options, which were granted at an exercise price of 100% of the market price of the underlying shares on the date of grant, become exercisable over three years at the rate of approximately one-third each year and expire ten years from the date of grant. Payment of the exercise price may be made under a promissory note or by delivery of already-owned shares. (2) The 5% and 10% assumed annual rates of stock price appreciation would result from per share prices of $94.73 and $150.84, respectively. Such assumed rates are not intended to represent a forecast of possible future appreciation of Varian Common Stock or total stockholder return. Aggregated Option Exercises and Year-End Values Table III sets forth as of October 2, 1998, for each of the individuals listed in Table I (i) the total number of shares of Varian Common Stock received upon exercise of options during fiscal year 1998, (ii) the value realized upon such exercise (based on the fair market value of the underlying shares of Varian Common Stock on the exercise date), (iii) the total number of unexercised options to purchase Varian Common Stock (exercisable and unexercisable) and (iv) the value of such options which were in-the-money at October 2, 1998 (based on the closing price of Varian Common Stock at October 2, 1998, $34.375). 54 Table III Aggregated Option/SAR Exercises In Last Fiscal Year and Fiscal Year-End Option/SAR Values
Number of Securities Value of Unexercised Shares Underlying Unexercised In-the-Money Acquired Options/SARs at Fiscal Options/SARs on Value Year-End(#) at Fiscal Year-End ($) Exercise Realized ------------------------- ------------------------- Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable - ---- -------- -------- ----------- ------------- ----------- ------------- Allen J. Lauer.......... 0 0 126,000 72,000 717,150 0 Garry W. Rogerson....... 0 0 6,284 15,134 0 0 Raymond J. Shaw......... 0 0 19,600 14,300 65,016 0 Arthur W. Homan......... 1,000 27,875 6,333 13,667 0 0 James L. Colbert........ 1,000 19,500 1,566 2,084 0 0
Long-Term Incentive Plans--Awards In Last Fiscal Year(/1/)
Number of Estimated Future Payouts under Shares, Performance or Non-Stock Price-Based Plans Units or Other Period -------------------------------------- Other Until Maturation Threshold Target Maximum Name Rights (#) or Payout ($)(/2/) ($)(/2/) ($)(/4/) - ---- ---------- ---------------- ----------- ----------- --------- Allen J. Lauer.......... N/A 1998-2000 25,604 67,423 -- Garry W. Rogerson....... N/A 1998-2000 5,717 22,582 -- Raymond J. Shaw......... N/A 1998-2000 5,033 19,880 -- Arthur W. Homan......... N/A N/A N/A N/A -- James L. Colbert........ N/A N/A N/A N/A --
- ------- (1) Determinations by Varian's Organization and Compensation Committee (the "Varian Committee") that a named executive officer may participate in the long-term incentive feature of the Varian Omnibus Stock Plan ("LTI") and might receive a payout for a specified period is an award for purposes of this table. Awards (i.e., the determination of participation in the LTI) for the 1998-2000 cycle were made in fiscal year 1998. Under the LTI, each named executive officer is eligible to receive compensation payable in cash or in Varian Common Stock, or a combination thereof, based upon Varian's achievement of objectives for average annual return on net assets ("RONA") and revenue growth ("RG") over a three-year cycle. No estimate or assumption made in connection with this table is intended to represent a forecast of possible future performance of Varian. (2) If the minimum level of RONA or RG established by the Varian Committee at the beginning of the three-year cycle is achieved, the minimum amount payable ranges from 3% to 7.5% of annual base salary as of the end of the last fiscal year of the cycle. If neither RONA nor RG for the three-year cycle equals the applicable minimum level, no amount will be paid. The minimum amount payable, if any amount is paid at all, depends on each named executive's base salary in the last year of the cycle, and the amounts set forth above assume that each named executive officer's annual base salary at the end of fiscal year 2000 will be identical to the executive officer's calendar year 1999 annual base salary. (3) A "Target" award is not determinable under the LTI. The amounts shown are estimates of the payout for the three-year cycle assuming (a) that the RONA and revenues for the remaining years of the cycle are the same as RONA and revenues for fiscal year 1998 and (b) that each named executive officer's annual base salary at the end of fiscal year 2000 will be identical to his calendar year 1999 annual base salary. The actual payment for the three- year cycle may be greater or less than the estimates shown in this column, depending upon the actual RONA and revenues for fiscal years 1998, 1999 and 2000, the actual base salary of the named executive officer at the end of fiscal year 2000, and the aggregate payout to all participants (see footnote 4 below). (4) The maximum amount payable is not determinable or estimable prior to the end of the three-year cycle for the following reason: If the maximum levels of RONA and RG established by the Varian Committee at the beginning of the three-year cycle are achieved or exceeded, the maximum amount payable ranges from 100% to 200% of annual base salary as of the end of the last fiscal year of the cycle. The maximum amount payable is reduced, however, if the aggregate LTI payout to all participants (including the named executive officers) would exceed 5% (before such payouts) of Varian's pre- tax operating earnings in the last fiscal year of the three-year cycle. This variable makes the maximum amount not determinable or estimable. 55 Change In Control Agreements Certain IB executive officers are already parties to change in control agreements with Varian which provide for the payment of specified compensation and benefits upon certain terminations of their employment following a change in control of Varian. These change in control agreements, which are required to be assumed by IB pursuant to the terms of such agreements, will be amended and restated as of the Distribution Date (the "Agreements") to reflect the executive officers' new and increased responsibilities with IB. In addition, IB executive officers not already parties to change in control agreements with Varian will be offered similar change in control agreements with IB effective as of the Distribution Date. Under the Agreements, a change in control will be defined to occur (a) if any individual or group becomes the beneficial owner of 30% or more of the combined voting power of IB's outstanding securities, (b) if "continuing directors" (defined as the directors of IB as of the date of the Agreement and any successor to any such director who was nominated or selected by a majority of the directors in office at the time of his nomination or selection and who is not affiliated or associated in any way with an individual or group who is a beneficial owner of more than 10% of the combined voting power of IB's outstanding securities) cease to constitute at least a majority of the board of directors, or (c) if there occurs a reorganization, merger, consolidation or other corporate transaction involving IB in which the stockholders of IB do not own more than 50% of the combined voting power of IB or other corporation resulting from such transaction, or (d) if all or substantially all of IB's assets are sold, liquidated or distributed. In the Agreements, the affected executive officers will agree not to voluntarily leave IB's employ during a tender or exchange offer, proxy solicitation in opposition to the board of directors or other effort by any party to effect a change in control of IB. This is intended to assure that management will continue to act in the interest of the stockholders rather than be affected by personal uncertainties during any attempts to effect a change in control of IB, and to enhance IB's ability to attract and to retain executives. Each Agreement will provide that if within 18 months of a change in control (i) IB terminates the employee's employment other than by reason of his death, disability, retirement or for cause (as defined in the Agreement) or (ii) the employee terminates his employment for "good reason," the employee will receive a lump sum severance payment equal to 2.99 (in the case of the Chief Executive Officer) or 2.50 (in the case of the other senior executives) times the sum of the employee's annual base salary plus the highest annual and multi-year bonuses paid to the employee in any of the three years ending prior to the date of termination. "Good reason" is defined as the following after a change in control of IB: certain material changes in assignment of duties; certain reductions in compensation; certain material changes in employee benefits and perquisites; a change in the site of employment; IB's failure to obtain the written assumption by its successor of the obligations contained in the Agreement; attempted termination of employment for cause on grounds insufficient to constitute a basis of termination for cause under the terms of the Agreement; or IB's failure to promptly make any payment required under the terms of the Agreement in the event of a dispute relating to employment termination. In addition, in the case of the Chief Executive Officer, "good reason" is defined to exist if he is not made the chief executive officer of the combined or acquiring entity; and in the case of the General Counsel, "good reason" is defined to exist if he is not given an "equivalent position" as defined in this Agreement. Each Agreement will provide that upon termination or resignation occurring under the circumstances described above, the employee will receive a continuation of all insurance and other benefits on the same terms as if he remained an employee or equivalent benefits will be provided until the earlier to occur of commencement of substantially equivalent full-time employment with a new employer or 24 months after the date of termination of employment with the company. Each Agreement will also provide that all stock options granted will become exercisable in full according to their terms, and that any unreleased restricted stock will be released from restrictions. Each Agreement will further provide that in the event that any payments and benefits received by the employee from the company would subject that person to the excise tax contained in Section 280G of the Code the employee will be entitled to receive an additional payment that will place the employee in the same after-tax economic position that the employee would have enjoyed if such excise tax had not applied. 56 THE IB OMNIBUS STOCK PLAN The IB Omnibus Stock Plan has been adopted by the IB Board effective as of the Distribution. Purpose of the IB Omnibus Stock Plan The IB Omnibus Stock Plan is intended to promote the success of IB by providing a vehicle under which a variety of stock-based incentive and other awards can be granted to employees and consultants and to directors of IB who are not employees of IB or any affiliate ("non-employee directors"). Description of the IB Omnibus Stock Plan The following paragraphs provide a summary of the principal features of the IB Omnibus Stock Plan and its operation. The IB Omnibus Stock Plan has been filed as an exhibit to the Registration Statement of which this Information Statement is a part. See "Available Information." General The IB Omnibus Stock Plan provides for the granting of stock options, stock appreciation rights ("SARs"), restricted stock, performance units and performance shares (collectively, "IB Awards") to eligible IB Omnibus Stock Plan participants. The maximum number of shares of IB Common Stock available for IB Awards under the IB Omnibus Stock Plan will be 4,200,000, plus such number of shares as may be granted in substitution for other options in connection with the Distribution. Administration of the IB Omnibus Stock Plan The IB Omnibus Stock Plan will be administered by the Compensation Committee of the IB Board. The members of the Compensation Committee must qualify as "non- employee directors" under Rule 16b-3 under the Exchange Act, and as "outside directors" under Section 162(m) of the Code ("Section 162(m)") (for purposes of qualifying the IB Omnibus Stock Plan as performance-based compensation under Section 162(m)). Subject to the terms of the IB Omnibus Stock Plan, the Compensation Committee has the sole discretion to determine the employees and consultants who will be granted IB Awards, the size and types of such IB Awards, and the terms and conditions of such IB Awards. The Compensation Committee may delegate its authority to grant and administer awards to one or more officers or directors appointed by the Compensation Committee, but only the Compensation Committee can make awards to participants who are subject to Section 16 of the Exchange Act. Eligibility to Receive Awards Employees and consultants of IB and its affiliates are eligible to be selected to receive one or more IB Awards. The actual number of individuals who will receive IB Awards under the IB Omnibus Stock Plan cannot be determined because eligibility for participation in the IB Omnibus Stock Plan is in the discretion of the Compensation Committee. The IB Omnibus Stock Plan also provides for the grant of non-qualified stock options to IB's non-employee directors. Such options will be granted pursuant to an automatic, non-discretionary formula. Options The Compensation Committee may grant non-qualified stock options, incentive stock options (which are entitled to favorable tax treatment), or a combination thereof. The number of shares covered by each option will be determined by the Compensation Committee, but during any fiscal year of IB, no participant may be granted options for more than 1,000,000 shares. The price of the shares of IB Common Stock subject to each stock option is set by the Compensation Committee but cannot be less than 100% of the fair market value (on the date of grant) of the shares covered by the option. In addition, the exercise price of an incentive stock option must be at least 110% of fair market value if (on the grant date) the participant owns stock possessing more than 10% of the total combined voting power of all classes of stock of IB or any 57 of its subsidiaries. Nevertheless, substitute options may be granted at less than fair market value to employees or consultants who receive such options in connection with a corporate reorganization. Also, the aggregate fair market value of the shares (determined on the grant date) covered by incentive stock options which first become exercisable by any participant during any calendar year may not exceed $100,000. The exercise price of each option must be paid in full at the time of exercise. The Compensation Committee also may permit payment through the tender of shares of IB Common Stock that are already owned by the participant, or by any other means which the Compensation Committee determines to be consistent with the IB Omnibus Stock Plan's purpose. Any taxes required to be withheld must be paid by the participant at the time of exercise. Options become exercisable at the times and on the terms established by the Compensation Committee. Options expire at the times established by the Compensation Committee but not later than 10 years after the date of grant (except in certain cases involving the death of the optionee). The Compensation Committee may extend the maximum term of any option granted under the IB Omnibus Stock Plan, subject to the preceding limits. Non-Employee Director Options Under the IB Omnibus Stock Plan, each non-employee director automatically will receive, as of the later of (a) the non-employee director's appointment or election to the IB Board, or (b) ten business days after the effective date of the IB Omnibus Stock Plan, a non-qualified stock option to purchase 10,000 shares. Each non-employee director will also automatically receive a non- qualified stock option to purchase 5,000 shares coincident with each subsequent annual meeting of IB, provided the non-employee director serves continuously as a director through the next grant date. In lieu of the above grants, any non- employee Chairman of the IB Board automatically will receive, as of the later of (a) the date he or she becomes Chairman or (b) ten business days after the effective date of the IB Omnibus Stock Plan, a non-qualified stock option to purchase 50,000 shares. The exercise price of each non-employee director and Chairman option will be 100% of the fair market value (on the date of grant) of the shares covered by the option. Nevertheless, substitute options may be granted at less than fair market value to non-employee directors who receive such options in connection with a corporate reorganization. Each option will become exercisable on the grant date. All options granted to non-employee directors generally will have a term of ten years from the date of grant. If a director terminates service on the IB Board prior to an option's normal expiration date, the period of exercisability of the option may be shorter, depending upon the reason for the termination. In addition, non-employee directors may elect to receive shares of IB Common Stock under the IB Omnibus Stock Plan in lieu of cash compensation. Stock Appreciation Rights The Compensation Committee determines the terms and conditions of each SAR. SARs may be granted in conjunction with an option, or may be granted on an independent basis. The number of shares covered by each SAR will be determined by the Compensation Committee, but during any fiscal year of IB, no participant may be granted SARs for more than 1,000,000 shares. Upon exercise of an SAR, the participant will receive payment from IB in an amount determined by multiplying: (1) the difference between the fair market value of a share on the date of exercise over the grant price (fair market value of a share on the grant date), times (2) the number of shares with respect to which the SAR is exercised. SARs may be paid in cash or shares of IB Common Stock, as determined by the Compensation Committee. SARs are exercisable at the times and on the terms established by the Compensation Committee. Restricted Stock Awards Restricted stock awards are shares of IB Common Stock that vest in accordance with terms and conditions established by the Compensation Committee. The number of shares of restricted stock granted to a participant (if any) will be determined by the Compensation Committee, but during any fiscal year of IB, no participant may be granted more than 100,000 shares. 58 In determining whether an award of restricted stock should be made and/or the vesting schedule for an award, the Compensation Committee may impose whatever conditions to vesting it determines to be appropriate. For example, the Compensation Committee may determine to grant restricted stock only if performance goals established by the Compensation Committee are satisfied. Any performance goals may be applied on a company-wide or an individual business unit basis, as determined by the Compensation Committee. See discussion below of " - Performance Goals." Performance Units And Performance Shares Performance Units and Performance Shares are IB Awards which will result in a payment to a participant only if performance goals established by the Compensation Committee are satisfied. The initial value of each Performance Unit and each Performance Share shall not exceed the fair market value (on the date of grant) of a share of IB Common Stock. The applicable performance goals will be determined by the Compensation Committee, and may be applied on a company-wide or an individual business unit basis, as deemed appropriate in light of the participant's specific responsibilities. See " - Performance Goals." In addition to the performance requirements discussed above, Performance Units and Performance Shares are subject to additional limits set forth in the IB Omnibus Stock Plan. During any fiscal year of IB, no participant shall receive more than 100,000 Performance Units or Performance Shares. Performance Goals The Compensation Committee in its discretion may make performance goals applicable to a participant with respect to an IB Award. At the Compensation Committee's discretion, one or more of the following performance goals may apply: EBIT, EBITDA, earnings per share, net income, operating cash flow, return on assets, return on equity, return on sales, revenue and stockholder return. The Compensation Committee may also use other performance goals. EBIT means IB's or a business unit's income before reductions for interest and taxes. EBITDA means IB's or a business unit's income before reductions for interest, taxes, depreciation and amortization. Earnings per share means IB'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. Net income means IB's or a business unit's income after taxes. Operating cash flow means IB's or a business unit's sum of net income plus depreciation and amortization less capital expenditures plus certain specified changes in working capital. Return on assets means the percentage equal to IB's or a business unit's EBIT (but before incentive compensation), divided by IB's or a business unit's, as applicable, average net assets. Return on equity means the percentage equal to IB's net income, divided by average stockholders' equity. Return on sales means the percentage equal to IB's or a business unit's EBIT (but before incentive compensation), divided by IB's or the business unit's, as applicable, revenue. Revenue means IB's or a business unit's sales. Stockholder return means the total return (change in share price plus reinvestment of any dividends) of a share of the IB Common Stock. Nontransferability of IB Awards IB Awards granted under the IB Omnibus Stock Plan may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the applicable laws of descent and distribution. Tax Aspects A recipient of a stock option or SAR will not have taxable income upon the grant of the option. For options and SARs other than incentive stock options, the participant will recognize ordinary income upon exercise in an amount equal to the excess of the fair market value of the shares over the exercise price (the "appreciation value") on the date of exercise. Any gain or loss recognized upon any later disposition of the shares generally will be capital gain or loss. Purchase of shares upon exercise of an incentive stock option will not result in any taxable income to the participant, except for purposes of the alternative minimum tax. Gain or loss recognized by the participant on a later sale or other disposition will either be long-term capital gain or loss or ordinary income depending upon whether the participant 59 holds the shares transferred upon the exercise for a specified period. Any ordinary income recognized will be in the amount, if any, by which the lesser of the fair market value of such shares on the date of exercise or the amount realized from the sale exceeds the option price. Unless the participant elects to be taxed at the time of receipt of restricted stock, Performance Units or Performance Shares, the participant will not have taxable income upon the receipt of the IB Award, but upon vesting will recognize ordinary income equal to the fair market value of the shares or cash at the time of vesting. At the discretion of the Compensation Committee, the IB Omnibus Stock Plan allows a participant to satisfy tax withholding requirements under federal and state tax laws in connection with the exercise or receipt of an IB Award by electing to have shares of IB Common Stock withheld, or by delivering to IB already-owned shares, having a value equal to the amount required to be withheld. IB generally will be entitled to a tax deduction in connection with an IB Award under the IB Omnibus Stock Plan only in an amount equal to the ordinary income realized by the participant and at the time the participant recognizes such income. However, IB may not be entitled to a deduction in connection with certain substitute stock options issued in connection with the Distribution. In addition, Section 162(m) contains special rules regarding the federal income tax deductibility of compensation paid to IB's Chief Executive Officer and to each of the other four most highly compensated executive officers. The general rule is that annual compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1 million. However, IB can preserve the deductibility of certain compensation in excess of $1 million if it complies with conditions imposed by Section 162(m), including the establishment of a maximum number of shares with respect to which IB Awards may be granted to any one employee during one year, and for IB Awards other than options and SARs, the IB Omnibus Stock Plan sets forth performance goals which must be achieved prior to payment of the IB Awards. The IB Omnibus Stock Plan has been designed to permit the Compensation Committee to grant IB Awards which satisfy the requirements of Section 162(m), thereby permitting IB to continue to receive a federal income tax deduction in connection with such IB Awards. Amendment and Termination of the IB Omnibus Stock Plan The IB Board generally may amend or terminate the IB Omnibus Stock Plan at any time and for any reason. 60 THE IB MANAGEMENT INCENTIVE PLAN The IB Management Incentive Plan has been adopted by the IB Board effective as of the Distribution. Background and Reasons for Adoption Under Section 162(m), the federal income tax deductibility of compensation paid to IB's Chief Executive Officer and to each of its next four most highly compensated executive officers may be limited to the extent that it exceeds $1 million in any one year. IB can deduct compensation in excess of that amount if it qualifies as "performance-based compensation" under Section 162(m). The IB Management Incentive Plan is intended to permit IB to pay incentive compensation which qualifies as performance-based compensation, thereby permitting IB to receive a federal income tax deduction for the payment of such incentive compensation. Description of the IB Management Incentive Plan The following paragraphs provide a summary of the principal features of the IB Management Incentive Plan and its operation. The IB Management Incentive Plan has been filed as an exhibit to the Registration Statement of which this Information Statement is a part. Purpose of the IB Management Incentive Plan The IB Management Incentive Plan is intended to motivate IB's key employees to increase stockholder value by (1) linking a portion of their cash compensation to IB's financial performance, (2) providing rewards for improving IB's financial performance and (3) helping to attract and retain key employees. Administration of the IB Management Incentive Plan The IB Management Incentive Plan will be administered by the Compensation Committee. The members of the Compensation Committee must qualify as "outside directors" under Section 162(m) (for purposes of qualifying the IB Management Incentive Plan as performance-based compensation under such section). Subject to the terms of the IB Management Incentive Plan, the Compensation Committee has the sole discretion to determine the key employees who will be granted awards, and the amounts, terms and conditions of each award. The Compensation Committee may delegate its authority to grant and administer awards to one or more officers or directors appointed by the Compensation Committee, but only with respect to awards that are not intended to qualify as performance-based compensation under Section 162(m). Eligibility to Receive Awards Eligibility for the IB Management Incentive Plan is determined in the discretion of the Compensation Committee. In selecting participants for the IB Management Incentive Plan, the Compensation Committee will choose key employees of IB and its affiliates who are likely to have a significant impact on IB performance. Awards and Performance Goals Under the IB Management Incentive Plan, the Compensation Committee will establish (1) the performance goals which must be achieved in order for the participant to actually be paid an award and (2) a formula or table for calculating a participant's award, depending upon how actual performance compares to the preestablished performance goals. A participant's award will increase or decrease as actual performance increases or decreases. The Compensation Committee also will determine the periods for measuring actual performance (the "performance period"). Performance periods may last as long as three fiscal years of IB. The Compensation Committee may set performance periods and performance goals which differ from participant to participant. For example, the Compensation Committee may choose performance goals based on either company-wide or business unit results, as deemed appropriate in light of the participant's specific responsibilities. For purposes of qualifying awards as performance-based compensation under Section 162(m), the Compensation Committee will specify performance goals from the following list: EBIT, EBITDA, earnings per share, net income, operating cash flow, return on assets, return on equity, return on sales, revenue and stockholder return. 61 EBIT means IB's or a business unit's income before reductions for interest and taxes. EBITDA means IB's or a business unit's income before reductions for interest, taxes, depreciation and amortization. Earnings per share means IB'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. Net income means IB's or a business unit's income after taxes. Operating cash flow means IB's or a business unit's sum of net income plus depreciation and amortization less capital expenditures plus certain specified changes in working capital. Return on assets means the percentage equal to IB's or a business unit's EBIT (but before incentive compensation), divided by IB's or a business unit's, as applicable, average net assets. Return on equity means the percentage equal to IB's net income, divided by average stockholders' equity. Return on sales means the percentage equal to IB's or a business unit's EBIT (but before incentive compensation), divided by IB's or the business unit's, as applicable, revenue. Revenue means IB's or a business unit's sales. Stockholder return means the total return (change in share price plus reinvestment of any dividends) of a share of IB Common Stock. For any performance period, no participant may receive an award of more than the lesser of (1) 200% of the participant's annualized salary rate on the last day of the performance period or (2) $2 million. Also, the total of all awards for any performance period cannot exceed 8% of IB's EBIT before incentive compensation for the most recent completed fiscal year of IB. Awards which exceed this overall limit will be pro-rated so that the total does not exceed such limit. Determination of Actual Awards After the end of each performance period, a determination will be made as to the extent to which the performance goals applicable to each participant were achieved or exceeded. The actual award (if any) for each participant will be determined by applying the formula to the level of actual performance which was achieved. However, the Compensation Committee retains discretion to eliminate or reduce the actual award payable to any participant below that which otherwise would be payable under the applicable formula. Awards under the IB Management Incentive Plan generally will be payable in cash or IB Common Stock within 120 days after the performance period during which the award was earned. Amendment and Termination of the IB Management Incentive Plan The IB Board may amend or terminate the IB Management Incentive Plan at any time and for any reason. 62 OWNERSHIP OF IB COMMON STOCK IB is currently a wholly owned subsidiary of Varian. Table IV sets forth information as to the beneficial ownership of IB Common Stock as of the Distribution Date (and following the Distribution) as if the Distribution took place on February 1, 1999, by (a) each officer named in Table I, (b) each director of IB, (c) all directors and executive officers of IB as a group and (d) each person who, to IB's knowledge, beneficially owned more than 5% of the outstanding shares. The information in Table IV is based on the ownership of Varian Common Stock as of February 1, 1999 and the number of shares of IB Common Stock expected to be distributed to each existing stockholder of Varian in the Distribution. Table IV
Percent of Shares of IB Common Stock Outstanding Shares Expected to be Expected to be Directors and Officers Beneficially Owned(/1/)(/2/) Beneficially Owned(/1/) - ---------------------- ---------------------------- ----------------------- Name - ---- John G. McDonald........ 19,800(/8/) * Wayne R. Moon........... 6,836(/4/) * D.E. Mundell............ 16,400(/5/) * Elizabeth F. Tallett.... 5,100(/6/) * Allen J. Lauer.......... 233,510(/7/) * Garry W. Rogerson....... 16,051(/8/) * Raymond J. Shaw......... 34,626(/9/) * Arthur W. Homan......... 14,998(/10/) * James L. Colbert........ 4,000(/11/) * All Directors and Executive Officers of IB as a Group (9 persons)............... 351,321(/12/) 1.2 Principal Stockholders Name and Address of Beneficial Owner - ------------------- FMR Corp./Edward C. Johnson 3d/Abigail P. Johnson................ 3,305,860(/13/) 11.0 82 Devonshire Street Boston, Massachusetts 02109 State Treasurer......... 2,075,760(/14/) 6.9 State of Michigan c/o Director of Investments P.O. Box 1128 Lansing, Michigan 48901 Merrill Lynch & Co., Inc. (Merrill Lynch Asset Management Group)................. 1,756,000(/15/) 5.9 Merrill Lynch Capital Fund, Inc.............. 1,750,000(/15/) 5.8 800 Scudders Mill Road Plainsboro, New Jersey 08536 Sound Shore Management, Inc.................... 1,506,500(/16/) 5.0 8 Sound Shore Drive Greenwich, Connecticut 06836
- ------- * The percentage of shares of IB Common Stock expected to be beneficially owned does not exceed one percent of the shares of IB Common Stock expected to be outstanding. (1) For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of IB Common Stock which such person has the right to acquire within 60 days following February 1, 1999. For purposes of computing the percentage of outstanding shares of IB Common Stock held by each person or group of persons named above, any security which such person or persons has or have the right to acquire within 60 days following February 1, 1999 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Fractional shares are rounded down to the nearest whole share. 63 (2) To IB's knowledge, unless otherwise indicated, the person named in the table has sole voting and investment power with respect to the shares or shares such voting and investment power with such person's spouse or children. (3) Includes 16,000 shares which may be acquired under exercisable stock options granted pursuant to the Varian Omnibus Stock Plan. (4) Includes 6,000 shares which may be acquired under exercisable stock options granted pursuant to the Varian Omnibus Stock Plan. (5) Includes (a) 12,000 shares which may be acquired under exercisable stock options granted pursuant to the Varian Omnibus Stock Plan and (b) 3,400 shares held in a trust of which Mr. Mundell is co-trustee with his wife. (6) Includes 4,000 shares which may be acquired under exercisable stock options granted pursuant to the Varian Omnibus Stock Plan. (7) Includes (a) 4,200 shares of restricted stock granted pursuant to the Varian Omnibus Stock Plan, (b) 162,000 shares which may be acquired on or within 60 days of February 1, 1999 under stock options granted pursuant to the Varian Omnibus Stock Plan and (c) 63,110 shares held in a trust of which Mr. Lauer is co-trustee with his wife. (8) Includes (a) 900 shares of restricted stock granted pursuant to the Varian Omnibus Stock Plan and (b) 13,351 shares which may be acquired on or within 60 days of February 1, 1999 under stock options granted pursuant to the Varian Omnibus Stock Plan. (9) Includes (a) 900 shares of restricted stock granted pursuant to the Varian Omnibus Stock Plan and (b) 26,500 shares which may be acquired on or within 60 days of February 1, 1999 under stock options granted pursuant to the Varian Omnibus Stock Plan. (10) Includes (a) 584 shares of restricted stock granted pursuant to the Varian Omnibus Stock Plan and (b) 11,666 shares which may be acquired on or within 60 days of February 1, 1999 under stock options granted pursuant to the Varian Omnibus Stock Plan. (11) Includes 2,600 shares which may be acquired on or within 60 days of February 1, 1999 under stock options granted pursuant to the Varian Omnibus Stock Plan. (12) Includes (a) 6,584 shares of restricted stock granted to executive officers pursuant to the Varian Omnibus Stock Plan, (b) 254,117 shares which may be acquired on or within 60 days of February 1, 1999 by executive officers and directors under stock options granted pursuant to the Varian Omnibus Stock Plan and (c) 66,510 shares as to which voting and/or investment power is shared (see certain of the foregoing footnotes). To IB's knowledge, unless otherwise indicated, the person named in the table has sole voting and investment power with respect to the shares. (13) According to an amendment to a Schedule 13G dated February 1, 1999, FMR Corp. has sole voting power over 113,900 of these shares and sole dispositive power over all 3,305,860 shares. Fidelity Management & Research, a wholly owned subsidiary of FMR, is the beneficial owner of 3,143,860 of these shares as a result of acting as investment adviser to certain investment companies. Edward C. Johnson 3d and Abigail P. Johnson own 12.0% and 24.5%, respectively, of the voting stock of FMR Corp. and therefore may be deemed to have beneficial ownership of the shares referenced. (14) Based on a Schedule 13D dated August 12, 1997. (15) According to an amendment to a Schedule 13G dated January 29, 1999, Merrill Lynch & Co., Inc (through Merrill Lynch Asset Management, L.P.) has shared voting power and shared dispositive power over all 1,756,000 shares. Also according to that Schedule 13G, Merrill Lynch Capital Fund, Inc. has shared voting power and shared dispositive power over 1,750,000 of such shares. (16) According to an amendment to a Schedule 13G dated January 22, 1999, Sound Shore Management, Inc. has sole voting power over 1,378,800 of such shares, shared voting power over 24,200 of such shares and sole dispositive power over all 1,506,500 shares. 64 FINANCING On an historical basis, Varian incurred or managed indebtedness at the parent level, and IB was not allocated any of Varian's debt as Varian used a centralized approach to cash management and the financing of its operations. The amount of debt to be retained by VMS and assumed by or transferred to IB and VSEA and the determination of the initial capital structures of IB, VSEA and VMS as of the Distribution Date are based upon the goals of maximizing combined stockholder value for Varian's present stockholders while enabling VSEA to maintain sufficient cash flow to cover anticipated operating deficits caused by the current downturn in the semiconductor equipment market. Varian is required to renegotiate the terms of the Term Loans to permit 50% of the outstanding indebtedness under the Term Loans to be assumed by IB in connection with the Distribution. The Term Loans contain covenants that limit future borrowings and the payment of cash dividends and require the maintenance of certain levels of working capital and operating results of the borrower. In addition, it is expected that certain Notes Payable will, as a result of the Internal Transfers and debt allocation provisions of the Distribution Agreement, remain outstanding as direct and indirect obligations of IB as of the Distribution Date. Based on the outstanding indebtedness of Varian under the Term Loans and Notes Payable as of January 1, 1999 and Varian's projected operating results and certain other transactions through the Distribution Date, it is anticipated that at the Distribution Date, IB will have between $50 million and $100 million of outstanding indebtedness under the Term Loans and Notes Payable. In connection with the Distribution, IB will be entitled to a cash contribution from Varian so that IB would have Net Debt equal to approximately 50% of the aggregate Net Debt of IB and VMS, subject to such adjustments as may be necessary to provide VMS with a Net Worth of between 40% and 50% of the aggregate Net Worth of IB and VMS. To the extent that Varian does not sell its long-term leasehold interest in its Palo Alto facilities, together with the related buildings and the corporate assets (from which it expects to receive proceeds of $55 million) or pay all the net expenses of the Distribution (estimated at approximately $50 million) before the Distribution, the amount of cash paid and Notes Payable transferred to IB at the time of the Distribution also will assume that IB receives 50% of any post-Distribution proceeds and pays for 50% of post-Distribution expenses (in each case reduced for estimated taxes payable or tax benefits received from all sales and transaction expenses). Based on the assumptions stated under "Forecasted Capitalization," the allocation of indebtedness to IB at the Distribution Date should approximate the amounts reflected in such section. Management of IB believes that there is sufficient financing capability in respect of IB to accomplish the contemplated allocation of indebtedness. See "Forecasted Capitalization." IB may enter into a credit facility for working capital and other general corporate purposes. The credit facility may contain certain customary financial and operating covenants, including restrictions upon incurring indebtedness and liens, making certain fundamental changes, selling assets and paying dividends. 65 DESCRIPTION OF THE CAPITAL STOCK General Pursuant to IB's Certificate of Incorporation which will be in effect at the time of the Distribution, the authorized capital stock of IB will consist of (i) 99,000,000 shares of IB Common Stock of which approximately 29,985,829 million shares will be issued and outstanding upon consummation of the Distribution (based on the number of shares of Varian Common Stock outstanding as of February 1, 1999) and (ii) 1,000,000 shares of preferred stock, $.01 par value per share ("Preferred Stock"), none of which will be issued and outstanding upon consummation of the Distribution. All outstanding shares of IB Common Stock are, and the shares to be issued in the Distribution will be, validly issued, fully paid and nonassessable. Common Stock Each holder of IB Common Stock is entitled to one vote for each share owned of record on all matters submitted to a vote of stockholders. There are no cumulative voting rights. Accordingly, the holders of a majority of the shares voting for the election of directors can elect all the directors if they choose to do so, subject to any voting rights of holders of Preferred Stock to elect directors. Subject to the preferential rights of any outstanding series of Preferred Stock, and to the restrictions on payment of dividends imposed by the Term Loans and any credit facilities that may be entered into by IB, the holders of IB Common Stock will be entitled to such dividends as may be declared from time to time by the IB Board from funds legally available therefor, and will be entitled, after payment of all prior claims, to receive pro rata all assets of IB upon the liquidation, dissolution or winding up of IB. Holders of IB Common Stock have no redemption or conversion rights or preemptive rights to purchase or subscribe for securities of IB. Certain provisions of the Certificate of Incorporation and By-Laws of IB that will be in effect at the time of the Distribution may have the effect of making more difficult an acquisition of control of IB in a transaction not approved by the IB Board. See "Delaware Law and Certain Charter and By-Law Provisions." IB has applied for quotation of the IB Common Stock on the Nasdaq National Market under the symbol "VARI." Preferred Stock The authorized capital stock of IB includes shares of Preferred Stock, none of which are currently issued or outstanding. The IB Board is authorized to divide the Preferred Stock into series and, with respect to each series, to determine the preferences and rights and the qualifications, limitations or restrictions thereof, including the dividend rights, conversion rights, voting rights, redemption rights and terms, liquidation preferences, sinking fund provisions, the number of shares constituting the series and the designation of such series. The IB Board could, without stockholder approval, issue Preferred Stock with voting and other rights that could adversely affect the voting power of the holders of IB Common Stock and which could have certain anti-takeover effects. In connection with the Rights Plan, the IB Board has authorized 50,000 shares of Participating Preferred (the "Participating Preferred"). For a description of the rights, powers and preferences of the Participating Preferred for IB, see " - Rights Plan." Rights Plan The IB Board has adopted the Rights Plan, pursuant to which one right (a "Right") to purchase one one-thousandth of a share of Participating Preferred at a purchase price of $75 (substantially above the expected current trading value for IB) to be determined, subject to adjustment, will be distributed with the IB Common Stock in the Distribution. The Rights will be issuable on the terms and subject to the conditions set forth in the Rights Plan. The Rights will expire no later than April 2, 2009. The Rights will be exercisable on the earlier to occur of (i) the first date of public announcement (or such earlier or later date as the IB Board may determine) that a person or "group" has acquired beneficial ownership of 15% or more of the outstanding IB Common Stock (an "Acquiring Person") and (ii) ten business days (or such later date as the IB Board may determine) following the commencement of a tender or exchange offer the consummation of which would result in a person or group becoming an Acquiring Person. 66 If any person or group becomes an Acquiring Person or commences a tender or exchange offer upon consummation of which such person or group would become an Acquiring Person, each Right not owned by such Acquiring Person or certain related parties would entitle its holder to purchase, at the Right's then current exercise price, shares of IB Common Stock, or, in the discretion of the IB Board, shares of Participating Preferred, having a value equal to twice the Right's then current exercise price. The effect would be to significantly dilute the equity interest of the Acquiring Person. In addition, if, after a person or group becomes an Acquiring Person, IB is involved in a merger or other business combination transaction in which (i) the holders of all of the outstanding IB Common Stock immediately prior to the consummation of the transaction are not the holders of the surviving corporation's voting power or (ii) more than 50% of IB's assets or earning power is sold or transferred, each Right will entitle its holder to purchase, at the Right's then current exercise price, common shares of the acquiring company having a value equal to twice the Right's then current exercise price. The purchase price payable, and the shares issuable, upon exercise of the Rights will be subject to adjustment from time to time as specified in the Rights Plan. IB will generally be entitled to redeem the Rights in whole, but not in part, at $0.001 per Right at any time prior to the earlier to occur of (i) a person becoming an Acquiring Person or (ii) expiration of the Rights. Shares of Participating Preferred purchasable upon exercise of the Rights will not be redeemable and will be designed so that each one one-thousandth of a share has economic and voting terms similar to one share of IB Common Stock. Each share of Participating Preferred will be entitled to a minimum preferential quarterly dividend payment of $2.50 per share but, if greater, will be entitled to an aggregate dividend per share of 1,000 times the dividend declared per share of IB Common Stock. In the event of liquidation of IB, the holders of Participating Preferred will be entitled to a minimum preferential liquidation payment of $100.00, provided that they will be entitled to an aggregate payment per share of at least 1,000 times the aggregate payment made per share of IB Common Stock. Each share of Participating Preferred will have one thousand votes, voting together with the IB Common Stock. These rights are protected by customary anti-dilution provisions. Transfer Agent and Rights Agent The transfer agent for the IB Common Stock is First Chicago Trust Company of New York. First Chicago Trust Company of New York will also be the Rights Agent under the Rights Plan. 67 LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Certificate of Incorporation of IB that will be in effect at the time of the Distribution (the "IB Charter") will provide that a director will not be personally liable to IB or its stockholders for monetary damages for any breach of fiduciary duty as a director, except in certain cases where liability is mandated by the Delaware General Corporation Law (the "DGCL"). The IB Charter and/or By-Laws of IB that will be in effect as of the Distribution also provide for indemnification, to the fullest extent permitted by law, of any person who is or was involved in any manner in any pending, threatened or completed investigation, claim or other proceeding by reason of the fact that such person is or was a director, officer, employee or agent of IB, or, at the request of IB, is or was serving as a director, officer, employee or agent of another entity, against all expenses, liabilities, losses and claims incurred or suffered by such person in connection with the investigation, claim or other proceeding. IB has entered into, or intends to enter into, agreements to provide indemnification for directors and officers in addition to the indemnification provided for in the IB Charter and By-Laws. These agreements, among other things, will indemnify directors and officers to the fullest extent permitted by law for certain expenses (including attorneys' fees) and all losses, claims, liabilities, judgments, fines and settlement amounts incurred by such person arising out of or in connection with such person's service as a director or officer of IB or another entity for which such person was serving as an officer or director at the request of IB and will provide for advancement of such expenses to such persons. Other than as described herein, there is no pending litigation or proceeding involving a director, officer, employee or other agent of IB or any other entity as to which indemnification is being sought under these provisions from IB, and IB is not aware of any pending or threatened litigation that may result in claims for indemnification under these provisions by a director, officer, employee or other agent. DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS Delaware Law IB is subject to the provisions of Section 203 of the DGCL ("Section 203"). In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or, in certain cases, within three years prior, did own) 15% or more of the corporation's voting stock. Under Section 203, a business combination between the corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions: (i) the board of directors must have previously approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; or (ii) on consummation of the transaction that resulted in the stockholders becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation, outstanding at the time the transaction commenced (excluding, for purposes of determining the number of shares outstanding, shares owned by (a) persons who are directors and also officers and (b) employee stock plans, in certain instances); or (iii) the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Certain Charter and By-Law Provisions The IB Charter contains provisions that will make more difficult the acquisition of control of IB by means of a tender offer, open market purchases, a proxy fight or otherwise that are not approved by the IB Board. The IB By- Laws also contain provisions that could have an anti-takeover effect. The purposes of such provisions of the IB Charter and By-Laws are to discourage certain types of transactions, described below, which may involve an actual or threatened change of control of IB and to encourage persons seeking to acquire control of IB to negotiate the terms of any proposed business combination or offer with the IB Board. The provisions are designed to reduce the vulnerability of IB to an unsolicited proposal for a takeover that does not contemplate the acquisition of all outstanding shares or is otherwise unfair to stockholders of IB, or an unsolicited proposal for the restructuring or sale of all or part of IB. IB believes that, as a general rule, such proposals would not be in the best 68 interests of IB or its stockholders. These provisions will help ensure that the IB Board, if confronted by a surprise proposal from a third party which has acquired a block of stock, will have sufficient time to review the proposal and appropriate alternatives to the proposal and to act in what it believes to be the best interests of the stockholders. There has been a marked increase in hostile takeover activity during the last several years. IB believes that the provisions discussed herein may provide some measure of protection for stockholders against certain potentially coercive takeover tactics. Such takeover tactics include the accumulation of substantial stock positions in public companies by third parties as a prelude to proposing a takeover, a restructuring or sale of all or part of the company or another similar extraordinary corporate action. Such actions are often undertaken by a third party without advance notice to, or consultation with, the management or board of directors of a company. In many cases, the purchaser seeks representation on a company's board of directors in order to increase the likelihood that its proposal will be implemented by a company. If a company resists the efforts of the purchaser to obtain representation on the company's board, a purchaser may commence a proxy contest to have its nominees elected to the board of directors in place of certain directors or in place of the entire board of directors. In some cases, a purchaser may not truly be interested in taking over a company, but may use the threat of a proxy fight and/or a bid to take over a company as a means of forcing the company to repurchase its equity position at a substantial premium over market price. IB believes that the threat of imminent removal of the IB management or IB Board in such situations would severely curtail the ability of management or the IB Board to negotiate effectively with such purchasers. Management or the IB Board would be deprived of the time and information necessary to evaluate the takeover proposal, to study alternative proposals and to help ensure that the best price is obtained in any transaction involving IB that may ultimately be undertaken. If the real purpose of a takeover bid were to force IB to repurchase an accumulated stock interest at a premium price, management or the IB Board would face the risk that, if it did not repurchase the purchaser's stock interest, IB's business and management would be disrupted, perhaps irreparably. These provisions, individually and collectively, may impede or discourage a merger, tender offer or proxy fight, even if such transaction or occurrence may be favorable to the interests of the stockholders, and may delay or frustrate the assumption of control by a holder of a large block of IB Common Stock and the removal of incumbent management, even if such removal might be beneficial to stockholders. Furthermore, these provisions may deter or could be used to frustrate a future takeover attempt which is not approved by the incumbent board of directors, but which the holders of a majority of the shares may deem to be in their best interests or in which stockholders may receive a substantial premium for their stock over prevailing market prices of such stock. By discouraging takeover attempts these provisions might have the incidental effect of inhibiting certain changes in management (some or all of the members of which might be replaced in the course of a change of control) and also the temporary fluctuations in the market price of the stock which often result from actual and rumored takeover attempts. Set forth below is a description of such provisions in the IB Charter and By- Laws. Such description is intended as a summary only and is qualified in its entirety by reference to the IB Charter and By-Laws, which have been filed as exhibits to the Registration Statement. Capitalized terms used and not defined herein are defined in the IB Charter or By-Laws. Classified Boards of Directors The IB Charter provides for the IB Board to be divided into three classes serving staggered terms. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of the board of directors in a relatively short period of time. At least two annual meetings of stockholders, instead of one, will generally be required to effect a change in a majority of the board of directors. Such a delay may help ensure that the IB Board, if confronted by a stockholder's attempt to force a stock repurchase at a premium above market price, a proxy contest or an extraordinary corporate transaction, will have sufficient time to review the proposal and appropriate alternatives to the proposal and to act in what they believe are the best interests of the stockholders. IB also believes that a classified board of directors will help to assure the continuity and stability of the IB Board and the business strategies and policies of IB as determined by the IB Board, because generally a majority of the directors at any given time will have had prior experience as directors of IB. 69 The classified board provision could have the effect of discouraging a third party from making a tender offer or otherwise attempting to obtain control of IB as the case may be, even though such an attempt might be beneficial to IB and its stockholders. The classified board provision could thus increase the likelihood that incumbent directors will retain their positions. Number of Directors; Removal; Filling Vacancies The IB Charter provides that the specific number of directors (which must be at least three) shall be fixed by resolution of the IB Board. In addition, the IB Charter provides that, subject to any rights of the holders of preferred stock, only a majority of the IB Board then in office shall have the authority to fill any vacancies on the IB Board. Accordingly, the existing board members could prevent any stockholder from obtaining majority representation on the respective IB Board by enlarging the IB Board and filling the new directorships with its own nominees. Moreover, the IB Charter provides that directors may be removed only for cause by the affirmative vote of holders of at least a majority of the voting power of all of the then-outstanding shares of IB Common Stock. This provision, when coupled with the provisions of the IB Charter authorizing only the IB Board to fill vacant directorships, would preclude stockholders from removing incumbent directors without cause and filling the vacancies created by such removal with their own nominees. These provisions reflect existing Delaware law absent a contrary provision in a company's charter. Limitations on Stockholder Action by Written Consent; Special Meetings Under the DGCL, unless otherwise provided in the certificate of incorporation, any action required or permitted to be taken by the stockholders of a Delaware corporation may be taken without a meeting, without prior notice and without a stockholder vote if a written consent setting forth the action to be taken is signed by the holders of outstanding stock having the requisite number of shares that would be necessary to authorize such action at a meeting at which all shares entitled to vote thereon were present and voted. The IB Charter provides that stockholder action can be taken only at an annual or special meeting of stockholders, and prohibit stockholder action by written consent in lieu of a meeting. The IB By-Laws provide that, subject to the rights of holders of any series of Preferred Stock, special meetings of stockholders can be called only by the Chairman of the Board, the Chief Executive Officer, the Vice Chairman of the Board (if any), the President or the IB Board. Stockholders are not permitted to call a special meeting or to require that the IB Board call a special meeting of stockholders. Moreover, the business permitted to be conducted at any special meeting of stockholders will be limited to the purpose or purposes of the meeting as stated in the notice of the meeting. The provisions of the IB Charter restricting stockholder action by written consent may have the effect of delaying consideration of a stockholder proposal until the next annual meeting unless a special meeting is called by the Chairman of the Board, the Chief Executive Officer, the Vice Chairman of the Board (if any), the President or pursuant to a board resolution. These provisions would also prevent the holders of a majority of the voting power of IB Common Stock from using the written consent procedure to take stockholder action and from taking action by consent without giving all the stockholders entitled to vote on a proposed action the opportunity to participate in determining such proposed action. Moreover, a stockholder could not force stockholder consideration of a proposal over the opposition of the IB Board by calling a special meeting of stockholders prior to the time the IB Board believed such consideration to be appropriate. Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals The IB By-Laws establish an advance notice procedure with regard to the nomination, other than by or at the direction of the IB Board, of candidates for election as directors (the "Nomination Procedure") and with regard to certain matters to be brought before an annual meeting of stockholders (the "Business Procedure"). Pursuant to the IB By-Laws, the Nomination Procedure provides that only persons who are nominated by, or at the direction of, the IB Board or by a stockholder of record who has given timely prior written notice to the Secretary prior to the meeting at which directors are to be elected will be eligible for election as directors. The Business Procedure provides that at an annual meeting only such business can be conducted as has been brought before the meeting pursuant to the notice of the meeting, by, or at the direction of, the IB Board or by a stockholder of record who has 70 given timely prior written notice to the Secretary of such stockholder's intention to bring such business before the meeting. To be timely, notice must generally be received by not less than 60 days nor more than 90 days prior to the first anniversary of the mailing of the proxy statement in connection with the previous year's annual meeting. For notice of a stockholder nomination to be made at a special meeting at which directors are to be elected to be timely, such notice must be received not earlier than the 90th day before such meeting and not later than the later of (1) the 60th day prior to such meeting and (2) the tenth day after public announcement of the date of such meeting is first made. Under the Nomination Procedure, notice from a stockholder who proposes to nominate a person at a meeting for election as director must contain certain information about that person, including such person's consent to be nominated and such information as would be required to be included in a proxy statement soliciting proxies for the election of the proposed nominee, and certain information about the stockholder proposing to nominate that person or the beneficial owner, if any, on whose behalf the nomination is made. Under the Business Procedure, notice relating to the conduct of business must contain certain information about such business and about the stockholder who proposes to bring the business before the meeting including a brief description of the business the stockholder proposes to bring before the meeting, the reasons for conducting such business at such meeting, the class and number of shares of stock beneficially owned by such stockholder, and by the beneficial owner, if any, on whose behalf the proposal is made, and any material interest of such stockholder, and such beneficial owner in the business so proposed. If the Chairman or other officer presiding at a meeting determines that a person was not nominated in accordance with the Nomination Procedure, such person will not be eligible for election as a director, or if he or she determines that other business was not properly brought before such meeting in accordance with the Business Procedure, such business will not be conducted at such meeting. The purpose of the Nomination Procedure is, by requiring advance notice of nominations by stockholders, to afford the IB Board a meaningful opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary or desirable by the IB Board, to inform stockholders about such qualifications. The purpose of the Business Procedure is, by requiring advance notice of proposed business, to provide a more orderly procedure for conducting annual meetings of stockholders and, to the extent deemed necessary or desirable by the IB Board to provide the IB Board with a meaningful opportunity to inform stockholders, prior to such meeting, of any business proposed to be conducted at such meetings, together with any recommendation as to the IB Board's position or belief as to action to be taken with respect to such business, so as to enable stockholders better to determine whether they desire to attend such meeting or grant a proxy to the IB Board as to the disposition of any such business. Although the IB By-Laws will not give the IB Board any power to approve or disapprove stockholder nominations for the election of directors or of any other business desired by a stockholder to be conducted at an annual meeting, the By-Laws may have the effect of precluding a nomination for the election of directors or precluding the conducting of business at a particular annual meeting if the proper procedures are not followed, and may discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of IB, even if the conduct of such solicitation or such attempt might be beneficial to IB and its stockholders. Amendment of Certain Charter and By-Law Provisions The IB Charter contains provisions requiring the affirmative vote of the holders of at least 66 2/3% of the outstanding IB Common Stock to amend the provisions of such charter pertaining to classification of the IB Board, filling vacancies in the IB Board, removal of directors and the requirement that stockholders can act only at annual or special meetings and not by written consent. The IB Charter and By-Laws also require the vote of at least 66 2/3% of the outstanding IB Common Stock for stockholders to adopt, amend or repeal any provision of the IB By-Laws. These provisions will make it more difficult for stockholders to change the IB Charter and By-Laws, including changes designed to facilitate the exercise of control over IB. In addition, the requirement for approval by at least a 66 2/3% stockholder vote will enable the holders of a minority of IB's capital stock to prevent holders of a less than 66 2/3% majority from amending the indicated provisions of the IB Charter and By-Laws. 71 Preferred Stock The IB Charter authorizes the IB Board to establish series of Preferred Stock and to determine, with respect to any series of Preferred Stock, the voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as are stated in the board resolutions providing for such series. The number of authorized shares of Preferred Stock will be 1,000,000. IB believes that the availability of such Preferred Stock will provide IB with increased flexibility in structuring possible future financing and acquisitions, and in meeting other corporate needs which might arise. Having such authorized shares available for issuance will allow IB to issue shares of Preferred Stock without the expense and delay of a special stockholders' meeting. The authorized shares of Preferred Stock, as well as shares of IB Common Stock, will be available for issuance without further action by stockholders, unless such action is required by applicable law or the rules of any stock exchange on which the securities may be listed. Although the IB Board does not have any intention at the present time of doing so, it could issue a series of Preferred Stock that could, subject to certain limitations imposed by the securities laws and stock exchange rules, depending on the terms of such series, impede the completion of a merger, tender offer or other takeover attempt. For instance, such series of Preferred Stock might impede a business combination by including class-voting rights that would enable the holder to block such a transaction. The IB Board will make any determination to issue such shares based on its judgment as to the best interests of IB and its then existing stockholders. The board, in so acting, could issue Preferred Stock having terms which could discourage an acquisition attempt or other transaction that some, or a majority, of the stockholders might believe to be in their best interests or in which stockholders might receive a premium for their stock over the then-market price of such stock. The authorized and unissued Preferred Stock of IB as well as the authorized and unissued IB Common Stock would be available, and the IB Charter explicitly authorizes use of capital stock, for the above purposes. In connection with the Rights Plan, the IB Board has authorized 50,000 shares of Participating Preferred. No such shares of Participating Preferred are currently outstanding. For a description of the rights, powers and preferences of the Participating Preferred, see "Description of the Capital Stock - Rights Plan." Common Stock The IB Charter will authorize the IB Board to issue up to 99,000,000 shares of IB Common Stock. The authorized but unissued IB Common Stock will provide IB with the ability to meet future capital needs and to provide shares for possible acquisitions and stock dividends or stock splits. The IB Board would have the ability, in the event of a proposed merger, tender offer or other attempt to gain control of IB that was not approved by such board, to issue additional common stock that would dilute the stock ownership of the acquiror. Rights Plan IB has entered into the Rights Plan. The Rights to be distributed in accordance with the Rights Plan will have certain anti-takeover effects. Each of the Rights will cause substantial dilution to a person or group that attempts to acquire IB and thereby effect a change in the composition of the IB Board on terms not approved by the IB Board, including by means of a tender offer at a premium to the market price. The Rights should not interfere with any merger or business combination approved by the IB Board, since the Rights may be redeemed by IB, at the applicable redemption price, prior to the time that a person or group has become an Acquiring Person. See "Description of the Capital Stock - Rights Plan." 72 AVAILABLE INFORMATION IB has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement under the Exchange Act with respect to the IB Common Stock being received by the stockholders of Varian Common Stock in the Distribution. This Information Statement does not contain all of the information set forth in the Registration Statement and the exhibits thereto, to which reference is hereby made. Statements made in this Information Statement as to the contents of any contract, agreement or other documents referred to herein are not necessarily complete. With respect to each such contract, agreement or other documents filed as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement and the exhibits thereto filed by IB with the Commission may be inspected at the public reference facilities of the Commission listed below. After the Distribution, IB will be subject to the information requirement of the Exchange Act, and in accordance therewith will file reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at its principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material maybe obtained at prescribed rates from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Such material may also be accessed electronically by means of the Commission's home page on the Internet at http://www.sec.gov. IB intends to furnish its stockholders with annual reports containing consolidated financial statements (beginning with fiscal year 1999) audited by independent accountants. No person is authorized by Varian or IB to give any information or to make any representations other than those contained in this Information Statement and, if given or made, such information or representations must not be relied upon as having been authorized. 73 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Instruments Business of Varian Associates, Inc. - ----------------------------------------------- Report of Independent Accountants........................................ F-2 Combined Statements of Earnings for the first quarters ended January 1, 1999 (unaudited) and January 2, 1998 (unaudited) and for the three fiscal years ended October 2, 1998...................................... F-3 Combined Balance Sheets at January 1, 1999 (unaudited) and at October 2, 1998 and September 26, 1997............................................. F-4 Combined Statements of Divisional Equity for the first quarter ended January 1, 1999 (unaudited) and for the three fiscal years ended October 2, 1998................................................................. F-5 Combined Statements of Cash Flows for the first quarters ended January 1, 1999 (unaudited) and January 2, 1998 (unaudited) and for the three fiscal years ended October 2, 1998...................................... F-6 Notes to Combined Financial Statements................................... F-7 Report of Independent Accountants on Financial Statement Schedule........ S-I Schedule II - Valuation and Qualifying Accounts.......................... S-II
F-1 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholders of Varian Associates, Inc.: In our opinion, the accompanying combined balance sheets and the related combined statements of earnings, divisional equity, and cash flows present fairly, in all material respects, the financial position of the Instruments Business of Varian Associates, Inc. (the "Company") at October 2, 1998 and September 26, 1997, and the results of its operations and its cash flows for each of the three years in the period ended October 2, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards 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 the opinion expressed above. /s/ PricewaterhouseCoopers LLP ------------------------------- PricewaterhouseCoopers LLP San Jose, California October 31, 1998 F-2 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Combined Statements of Earnings
Quarter Ended Fiscal Years ----------------------- -------------------------- January 1, January 2, 1999 1998 1998 1997 1996 ----------- ----------- -------- -------- -------- (unaudited) (unaudited) (In thousands, except per share amounts) Sales....................... $133,296 $140,948 $557,770 $541,946 $504,394 -------- -------- -------- -------- -------- Operating Costs and Expenses Cost of sales............... 80,666 86,432 336,387 330,845 310,753 Research and development.... 7,163 7,230 29,620 31,987 29,897 Marketing................... 30,096 27,272 113,854 110,009 107,244 General and administrative.. 7,702 10,384 38,745 42,303 45,053 -------- -------- -------- -------- -------- Total operating costs and expenses................... 125,627 131,318 518,606 515,144 492,947 -------- -------- -------- -------- -------- Operating Earnings before Taxes...................... 7,669 9,630 39,164 26,802 11,447 Taxes on earnings........... 3,413 3,869 15,736 12,597 5,277 -------- -------- -------- -------- -------- Net Earnings................ $ 4,256 $ 5,761 $ 23,428 $ 14,205 $ 6,170 ======== ======== ======== ======== ======== Pro Forma Net Earnings Per Share...................... $ 0.14 $ 0.19 $ 0.78 $ 0.47 $ 0.20 ======== ======== ======== ======== ======== Shares used in pro forma per share computations......... 29,848 30,086 29,910 30,451 31,024 ======== ======== ======== ======== ========
See accompanying Notes to the Combined Financial Statements. F-3 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Combined Balance Sheets
Fiscal Year-End -------------------- January 1, 1999 1998 1997 ----------- --------- --------- (unaudited) (Dollars in thousands) ASSETS Current Assets Accounts receivable......................... $ 140,096 $ 143,836 $ 131,641 Inventories................................. 75,822 71,575 64,797 Other current assets........................ 27,363 26,260 24,723 --------- --------- --------- Total Current Assets........................ 243,281 241,671 221,161 --------- --------- --------- Property, Plant, and Equipment.............. 208,789 219,385 201,373 Accumulated depreciation and amortization... (121,030) (124,666) (114,448) --------- --------- --------- Net Property, Plant, and Equipment.......... 87,759 94,719 86,925 --------- --------- --------- Other Assets................................ 64,584 67,709 49,820 --------- --------- --------- Total Assets................................ $ 395,624 $ 404,099 $ 357,906 ========= ========= ========= LIABILITIES AND DIVISIONAL EQUITY Current Liabilities Accounts payable - trade.................... $ 20,874 $ 34,320 $ 34,968 Accrued expenses............................ 100,971 102,470 92,704 Product warranty............................ 7,397 7,608 7,173 Advance payments from customers............. 9,606 5,180 9,214 --------- --------- --------- Total Current Liabilities................... 138,848 149,578 144,059 Long-Term Accrued Expenses.................. 6,828 6,862 6,245 Deferred Taxes.............................. 4,192 4,192 4,306 --------- --------- --------- Total Liabilities........................... 149,868 160,632 154,610 --------- --------- --------- Commitments and Contingencies (Notes 9 and 10) Divisional Equity........................... 245,756 243,467 203,296 --------- --------- --------- Total Liabilities and Divisional Equity..... $ 395,624 $ 404,099 $ 357,906 ========= ========= =========
See accompanying Notes to the Combined Financial Statements. F-4 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Combined Statements of Divisional Equity
(Dollars in thousands) Balance, Fiscal Year-End, 1995...................................... $150,813 Net earnings for the year........................................... 6,170 Net transfers (to) from Varian Associates, Inc...................... (2,090) -------- Balance, Fiscal Year-End, 1996...................................... 154,893 Net earnings for the year........................................... 14,205 Net transfers (to) from Varian Associates, Inc...................... 34,198 -------- Balance, Fiscal Year-End, 1997...................................... 203,296 Net earnings for the year........................................... 23,428 Net transfers (to) from Varian Associates, Inc...................... 16,743 -------- Balance, Fiscal Year-End, 1998...................................... 243,467 Net earnings for the period......................................... 4,256 Net transfers (to) from Varian Associates, Inc...................... (1,967) -------- Balance, January 1, 1999 (unaudited)................................ $245,756 ========
See accompanying Notes to the Combined Financial Statements. F-5 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Combined Statements of Cash Flows
Quarter Ended Fiscal Years ------------------------ ---------------------------- January 1, January 2, 1999 1998 1998 1997 1996 ----------- ----------- -------- -------- -------- (unaudited) (unaudited) (Dollars in thousands) Operating Activities Net Cash Provided by Operating Activities... $ 952 $ 9,645 $ 36,856 $ 16,627 $ 22,779 -------- ------- -------- -------- -------- Investing Activities Purchase of property, plant, and equipment... (5,122) (9,670) (19,358) (20,803) (17,915) Purchase of businesses, net of cash acquired... -- -- (34,707) (30,998) (4,396) -------- ------- -------- -------- -------- Net Cash Used in Investing Activities... (5,122) (9,670) (54,065) (51,801) (22,311) -------- ------- -------- -------- -------- Financing Activities Net transfers (to) from Varian Associates, Inc. .................. 5,445 129 16,743 34,198 (2,090) -------- ------- -------- -------- -------- Net Cash Provided by (Used in) Financing Activities............. 5,445 129 16,743 34,198 (2,090) -------- ------- -------- -------- -------- Effects of Exchange Rate Changes on Cash........ (1,275) (104) 466 976 1,622 -------- ------- -------- -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents............ -- -- -- -- -- Cash and Cash Equivalents at Beginning of Period.... -- -- -- -- -- -------- ------- -------- -------- -------- Cash and Cash Equivalents at End of Period................. $ -- $ -- $ -- $ -- $ -- ======== ======= ======== ======== ======== Detail of Net Cash Provided by Operating Activities Net Earnings............ $ 4,256 $ 5,761 $ 23,428 $ 14,205 $ 6,170 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation............ 4,670 4,682 17,541 19,449 15,975 Deferred taxes.......... -- -- (2,225) (811) (458) Changes in assets and liabilities Accounts receivable..... 5,755 6,570 2,063 (15,201) (12,997) Inventories............. (4,247) 2,534 (1,269) (6,172) (3,942) Other current assets.... (1,046) (1,088) 98 (125) 1,689 Accounts payable-- trade.................. (13,731) (7,217) (9,012) 7,531 2,884 Accrued expenses........ (1,928) (7,762) 958 3,893 (750) Product warranty........ (285) 535 637 1,578 714 Advance payments from customers.............. 4,417 (115) (4,511) (3,384) 6,425 Long-term accrued expenses............... (34) (42) 617 284 5,961 Other................... 3,125 5,787 8,531 (4,620) 1,108 -------- ------- -------- -------- -------- Net Cash Provided by Operating Activities... $ 952 $ 9,645 $ 36,856 $ 16,627 $ 22,779 ======== ======= ======== ======== ========
See accompanying Notes to the Combined Financial Statements. F-6 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Notes to Combined Financial Statements Note 1. Basis of Presentation On August 21, 1998, the Board of Directors of Varian Associates, Inc. ("VAI") announced a plan to reorganize into three publicly traded independent companies by spinning off two of its businesses to stockholders in a tax-free distribution (the "Distribution"). The Distribution is subject to final approval by VAI's Board of Directors. Among other things, this approval is conditioned upon the receipt of a ruling from the Internal Revenue Service that the spin-off of the two businesses will be a tax free transaction for VAI stockholders, VAI, the Semiconductor Equipment Business of VAI ("VSEA"), and the Instruments Business of VAI (the "Company") and upon the approval of the plan for the Distribution by VAI stockholders. Under the plan for the Distribution, the Company and VSEA will be incorporated as Varian, Inc. and Varian Semiconductor Equipment Associates, Inc., respectively, and will become publicly traded companies. Also under the plan for the Distribution, each of VAI and the Company will have between $50 and $100 million of outstanding indebtedness under VAI's term loans and notes payable, and VAI will contribute cash to VSEA so that at the Distribution, VSEA will have approximately $100 million in cash and cash equivalents and consolidated debt not exceeding $5 million. The Company will include VAI's business units that manufacture and sell analytical and research instrumentation and related equipment for studying the chemical composition of substances. Significant products of the VAI business units that will comprise the Company include nuclear magnetic resonance instruments, chromatography systems, optical spectroscopy instruments, vacuum products, and printed wiring assemblies. The Company will be incorporated in Delaware in December 1998, with 99,000,000 shares of common stock and 1,000,000 shares of preferred stock authorized. Upon incorporation, all outstanding shares of the Company's common stock will be owned by VAI. For purposes of these financial statements and notes to these financial statements, the Company includes the assets, liabilities, operating results and cash flows of the VAI business units described above that will comprise the Company under the plan for the Distribution. The combined financial statements of the Company have been prepared using VAI's historical bases in the assets and liabilities and historical results of operations of the Company's businesses, except for the accounting for income taxes (see Note 2). The combined financial statements of the Company include the accounts of the Company's businesses after elimination of inter-business balances and transactions. The Company's fiscal years reported are the 52- or 53-week period ended on the Friday nearest September 30. Fiscal year 1998 comprises the 53-week period ended on October 2, 1998. Fiscal years 1997 and 1996 comprise the 52-week periods ended on September 26, 1997 and September 27, 1996, respectively. The combined financial statements generally reflect the financial position, operating results, and cash flows of the Company as if it were a separate entity for all periods presented. Where it was practicable to identify specifically VAI corporate amounts with the activities of the Company, such amounts have been included in the accounts of the Company. The combined financial statements also include allocations of certain VAI corporate assets (including pension assets), liabilities (including profit sharing and pension benefits), and expenses (including legal, accounting, employee benefits, insurance services, information technology services, treasury, and other VAI corporate overhead) to the Company. These amounts have been allocated to the Company on the basis that is considered by management to reflect most fairly or reasonably the utilization of the services provided to or the benefit obtained by the Company. Typical measures and activity indicators used for allocation purposes include headcount, sales revenue, and payroll expense. Management believes that the methods used to allocate these amounts are reasonable. However, these allocations are not necessarily indicative of the amounts that would have been or that will be recorded by the Company on a stand-alone basis. For purposes of governing certain of the ongoing relationships between the Company, VAI, and VSEA after the Distribution and to provide for an orderly transition, the Company, VAI, and VSEA have entered or will enter F-7 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Notes to Combined Financial Statements--(Continued) into various agreements including a distribution agreement, tax sharing agreement, employee benefits allocation agreement, intellectual property agreement, and transition services agreement (collectively, the "Distribution Related Agreements"). Note 2. Summary of Significant Accounting Policies 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. 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. Nonmonetary 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 general and administrative expenses for fiscal years 1998, 1997, and 1996 was $2.0 million, $2.6 million, and $.3 million, respectively. Revenue Recognition Sales and related costs of sales are recognized upon shipment of products.The Company's products are generally subject to warranty, and the Company provides for the estimated future costs of repair, replacement, or customer accommodation in costs of sales. Sales and related costs of sales under long- term contracts to commercial customers and the U.S. Government are recognized as units are delivered. Service revenue is recognized ratably over the period of the related contract. Legal Expenses The Company accrues estimated amounts for legal fees expected to be incurred in connection with loss contingencies. Financial Instruments The Company considers currency on hand, demand deposits, and all highly liquid debt securities with an original maturity of three months or less to be cash and cash equivalents. Financial instruments that potentially subject the Company to concentrations of credit risk comprise trade accounts receivable and forward exchange contracts. The Company sells its products and extends trade credit to a large number of customers, who are dispersed across many different industries and geographies. The Company performs ongoing credit evaluations of these customers and generally does not require collateral from them. Trade accounts receivable are stated net of allowances for doubtful accounts of $713,000 at the end of fiscal year 1998 and $321,000 at the end of fiscal year 1997. 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. The Company does not enter into forward exchange contracts for trading purposes. When the Company's foreign exchange contracts hedge operational exposure, the effects of movements in currency exchange rates on these instruments are recognized in F-8 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Notes to Combined Financial Statements--(Continued) 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 that is 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. 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. Because the impact of movements in currency exchange rates on foreign exchange contracts generally offsets the related impact on the underlying items being hedged, forward exchange contracts do not subject the Company to risk that would otherwise result from changes in currency exchange rates. The Company's forward exchange contracts contain credit risk in that its banking counter- parties may be unable to meet the terms of the agreements. The Company seeks to minimize such risk by limiting its counter-parties to major financial institutions. Also, the potential risk of loss with any one party resulting from this type of credit risk is monitored by management of the Company. 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. Pro Forma Net Earnings per Share The computation of pro forma net earnings per share for fiscal years 1998, 1997, and 1996 is based on the weighted average number of shares of VAI common stock outstanding during the respective periods, reflecting the anticipated ratio of one share of Company common stock for each share of VAI common stock at the time of Distribution. Divisional Equity Divisional equity includes historical investments and advances from VAI, including net transfers to/from VAI, third party liabilities paid on behalf of the Company by VAI, amounts due from affiliates related to sales, amounts due to/from VAI for services and other charges, and current period net earnings of the Company. Interim Financial Statements (Unaudited) The unaudited condensed combined interim financial statements and information reflect all adjustments, which consist of only normal, recurring adjustments, necessary to present fairly the financial position of the Company at January 1, 1999, the results of its operations for each quarter during fiscal years 1998 and 1997, and its cash flows for the quarters ended January 1, 1999 and January 2, 1998. 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. All other inventories are valued principally at average cost. If the first-in, first-out (FIFO) method had been used for those operations valuing inventories on a LIFO basis, inventories would have been higher than reported by $13.7 million in fiscal 1998, $14.0 million in fiscal 1997, and $12.7 million in fiscal 1996. F-9 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Notes to Combined Financial Statements--(Continued) 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 using the straight- line method for financial reporting purposes and accelerated methods for tax purposes. Machinery and equipment lives vary from 1 to 40 years, and buildings are depreciated from 3 to 40 years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives, or the remaining term of the lease, whichever is less. 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 from operations. Other 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 3 to 40 years. Investments in affiliated companies over whose operations the Company has significant influence but not control are accounted for under the equity method. Impairment of Long-Lived Assets 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. 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. Total expenditures on research and development for fiscal years 1998, 1997, and 1996, were $31.2 million, $33.1 million, and $31.2 million, respectively, of which $1.6 million, $1.1 million, and $1.3 million, respectively, were funded by customers. Taxes on Earnings The Company's operating results historically have been included in VAI's consolidated U.S. and state income tax returns and in tax returns of certain VAI foreign subsidiaries. Except for the utilization of foreign tax credits, the provision for income taxes in the Company's combined financial statements has been determined on a separate-return basis, under which the Company's provision for income taxes comprises its estimated tax liability and the change in its deferred income taxes. Foreign tax credits are benefited to the extent they were utilized in VAI's consolidated tax returns. 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. Income taxes paid on behalf of the Company by VAI are included in divisional equity. Effective after the Distribution, the Company will file separate income tax returns. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general- purpose financial statements. It is effective for the Company's fiscal year 1999. The impact of the implementation of SFAS No. 130 on the combined financial statements of the Company has not yet been determined. F-10 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Notes to Combined Financial Statements--(Continued) In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 changes current practice under SFAS No. 14 by establishing a new framework on which to base segment reporting (referred to as the "management" approach) and also requires interim reporting of segment information. It is effective for the Company's fiscal year 1999. The Company has not determined the impact of its implementation on the reporting of the Company's segment information. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and is effective for the Company's fiscal year 2000. The impact of the implementation of SFAS No. 133 on the combined financial statements of the Company has not yet been determined. Note 3. Balance Sheet Detail Inventories
1998 1997 ------ ------ (Dollars in millions) Raw materials and parts.......................................... $ 42.6 $ 54.3 Work in process.................................................. 8.9 6.4 Finished goods................................................... 20.1 4.1 ------ ------ Total Inventories.............................................. $ 71.6 $ 64.8 ====== ====== Property, Plant, and Equipment 1998 1997 ------ ------ (Dollars in millions) Land and land improvements....................................... $ 5.3 $ 5.1 Buildings........................................................ 76.8 65.0 Machinery and equipment.......................................... 135.4 127.3 Construction in progress......................................... 1.9 4.0 ------ ------ Total Property, Plant, and Equipment........................... $219.4 $201.4 ====== ====== Other Assets 1998 1997 ------ ------ (Dollars in millions) Goodwill......................................................... $ 66.1 $ 44.7 Less accumulated amortization.................................... 6.5 5.1 ------ ------ Net goodwill..................................................... 59.6 39.6 ------ ------ Other............................................................ 8.1 10.2 ------ ------ Total Other Assets............................................. $ 67.7 $ 49.8 ====== ======
Amortization expense for goodwill was $1.4 million, $1.0 million, and $0.5 million for fiscal years 1998, 1997, and 1996, respectively. F-11 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Notes to Combined Financial Statements--(Continued) Accrued Expenses
1998 1997 ------ ----- (Dollars in millions) Payroll and employee benefits..................................... $ 33.1 $35.1 Foreign income taxes payable...................................... 19.2 13.6 Deferred income................................................... 14.7 13.1 Group and risk insurance.......................................... 7.7 7.8 Other............................................................. 27.8 23.1 ------ ----- Total Accrued Expenses.......................................... $102.5 $92.7 ====== =====
Note 4. Acquisitions In July 1998, the Company acquired all of the outstanding common stock of Chrompack International B.V. ("Chrompack") for approximately $28.9 million in cash and the extinguishment of debt. Chrompack is a manufacturer of chromatography products and analytical instruments used by scientific and industrial laboratories. This acquisition has been accounted for under the purchase method; accordingly, the Company's combined operating results include 100% of the operating results of Chrompack subsequent to the acquisition date. The Company is amortizing acquired goodwill of $20.9 million over 40 years. In June 1998, the Company acquired the outstanding minority ownership interest of Varian Iberica, S.L. ("Iberica") for approximately $6.7 million in cash. Iberica is engaged in the business of buying and selling scientific apparatuses, products for laboratories, and chemical and medical products in general. The acquisition of the minority ownership interest has been accounted for using the purchase method; accordingly, the Company's combined operating results include the operating results of Iberica subsequent to the acquisition date. The Company is amortizing acquired goodwill of $0.8 million over 13 years. In October 1996, the Company acquired the principal assets and properties of the high pressure liquid chromatography and columns business of Rainin Instrument Company, Inc. ("Rainin") for approximately $24.0 million in cash and the extinguishment of debt. This acquisition has been accounted for under the purchase method; accordingly, the Company's combined operating results include 100% of the operating results of Rainin subsequent to the acquisition date. The Company is amortizing acquired goodwill of $21.7 million over 40 years. Pro forma sales, earnings from operations, net earnings, and net earnings per share have not been presented because the effects of these acquisitions were not material on either an individual or an aggregated basis. F-12 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Notes to Combined Financial Statements--(Continued) Note 5. Forward Exchange Contracts Forward exchange contracts outstanding and their unrealized gains and losses as of fiscal year-end 1998 are summarized as follows:
Notional Notional Value Value Unrealized Fair Purchased Sold Gain/(Loss) Value --------- -------- ---------- ----- (Dollars in thousands) Japanese yen............................. $ - $ 1,637 $ 5 $ 31 French francs............................ - 11,550 - (467) Canadian dollars......................... - 7,042 206 260 British pounds........................... 12,044 4,050 537 515 Italian lira............................. - 4,196 - (217) German marks............................. - 1,955 - (100) Spanish pesetas.......................... - 691 - (38) Korean won............................... - 283 - 1 Australian dollars....................... 6,396 - - 23 Swiss francs............................. 246 - - 10 Swedish kronor........................... 4,789 - - (5) ------- ------- ---- ----- Total.................................. $23,475 $31,404 $748 $ 13 ======= ======= ==== =====
Note 6. Employee Stock Plans Under VAI's Omnibus Stock and Employee Stock Purchase Plans, certain employees of the Company are eligible for the grant of stock options and restricted stock and are eligible to purchase VAI common stock. The exercise price for incentive and non-qualified stock options granted under the Omnibus Stock Plan may not be less than 100% of the fair market value of VAI common stock at the date of grant. Options granted are exercisable at such times and are subject to such restrictions and conditions as determined by the Organization and Compensation Committee of the Board of Directors of VAI, but no option shall be exercisable later than ten years from the date of grant. Options granted are generally exercisable in cumulative installments of one-third each year, commencing one year following the date of grant, and expire if not exercised within seven or ten years from the date of grant. Restricted stock grants may be awarded at prices ranging from 0% to 50% of the fair market value of VAI common stock and may be subject to restrictions on transferability and continued employment as determined by the Organization and Compensation Committee. Participants in the Employee Stock Purchase Plan are eligible to purchase VAI common stock at the lower of 85% of the closing market price of VAI common stock on the first trading day of the VAI fiscal quarter of the first trading day of the next VAI fiscal quarter. This discount is treated as equivalent to the cost of issuing common stock for financial reporting purposes. VAI intends to suspend the Employee Stock Purchase Plan prior to the Distribution. At fiscal year-end 1998, outstanding options for VAI common stock held by Company employees totaled approximately 958,000, of which approximately 506,000 had vested and were exercisable. At fiscal year-end 1998, the exercise prices of outstanding options range from $10.91 to $61.31. At fiscal year-end 1997, outstanding options for VAI common stock held by Company employees totaled approximately 740,000, of which approximately 332,000 had vested and were exercisable. At fiscal year-end 1997, the exercise prices of outstanding options range from $10.91 to $61.31. At fiscal year-end 1996, outstanding options for VAI common stock held by Company employees totaled approximately 748,000, of which approximately 327,000 had vested and were exercisable. At fiscal year-end 1996, the exercise prices of outstanding options range from $10.60 to $61.31. F-13 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Notes to Combined Financial Statements--(Continued) Immediately following the Distribution, it is anticipated that the majority of outstanding awards under the VAI Omnibus Stock Plan held by Company employees will be replaced by substitute awards under the IB Omnibus Stock Plan. The substitute awards will have the same ratio of the exercise price per share to the market value per share, the same aggregate difference between market value and exercise price, and the same vesting provisions, option periods, and other terms and conditions as the awards they replace. The Company will comply with the pro forma disclosure requirements set forth in SFAS No. 123, "Accounting for Stock-Based Compensation," once the number of shares and related exercise prices under substitute awards are determined. These determinations cannot be made until subsequent to the Distribution. Note 7. Retirement Plans Certain employees of the Company in the United States and Canada are eligible to participate in the VAI-sponsored defined contribution plan. The Company's major obligation is to contribute an amount based on a percentage of each participant's base pay. The Company also contributes 5% of its combined operating earnings, as adjusted for discretionary items, as retirement plan profit sharing. Participants are entitled, upon termination or retirement, to their portion of the retirement fund assets, which are held by a third-party trustee. Included in the accompanying combined statements of earnings is an allocation of total pension expense for Company employees under the VAI- sponsored defined contribution plan of $5.9 million, $5.6 million, and $6.6 million, for fiscal years 1998, 1997, and 1996, respectively. At the Distribution, the Company will assume responsibility for pension and postretirement benefits for active employees of the Company; the responsibility for all others, principally retirees of VAI, will remain with VAI. An allocation of assets and liabilities for foreign defined benefit pension, postemployment, and postretirement benefits, which are not material to the Company's financial statements, has been included in these combined financial statements. Note 8. Taxes on Earnings Taxes on earnings from operations are as follows:
1998 1997 1996 ----- ----- ----- (Dollars in millions) Current U.S. federal............................................ $ -- $ 0.4 $ -- Non-U.S................................................. 16.7 11.4 9.8 State and local......................................... 1.5 1.6 0.5 ----- ----- ----- Total current......................................... 18.2 13.4 10.3 ----- ----- ----- Deferred U.S. federal............................................ (2.7) (1.1) (4.6) Non-U.S................................................. 0.2 0.3 (0.4) ----- ----- ----- Total deferred........................................ (2.5) (0.8) (5.0) ----- ----- ----- Taxes on Earnings......................................... $15.7 $12.6 $ 5.3 ===== ===== =====
F-14 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Notes to Combined Financial Statements--(Continued) Significant items making up deferred tax assets and liabilities are as follows:
1998 1997 ----- ----- (Dollars in millions) Assets: Product warranty................................................. $ 1.9 $ 1.5 Deferred compensation............................................ 1.3 2.5 Inventory adjustments............................................ 8.6 5.2 Deferred income.................................................. 3.7 3.6 Other............................................................ 4.0 5.2 ----- ----- 19.5 18.0 ----- ----- Liabilities: Accelerated depreciation......................................... 3.1 3.2 Other............................................................ 1.1 1.1 ----- ----- 4.2 4.3 ----- ----- Net deferred tax asset......................................... $15.3 $13.7 ===== =====
The classification of the net deferred tax asset on the combined balance sheets is as follows:
1998 1997 ----- ----- (Dollars in millions) Net current deferred tax asset (included in other current assets)......................................................... $19.5 $18.0 Net long-term deferred tax liability............................. (4.2) (4.3) ----- ----- Net deferred tax asset......................................... $15.3 $13.7 ===== =====
Operating earnings before taxes consist of the following:
1998 1997 1996 --------------------- (Dollars in millions) U.S..................................................... $ 5.0 $ 7.9 $(14.2) Foreign................................................. 34.2 18.9 25.6 ------ ------ ------- $39.2 $26.8 $ 11.4 ====== ====== =======
The effective tax rate on earnings from operations differs from the U.S. federal statutory tax rate as a result of the following:
1998 1997 1996 ---- ---- ---- Federal statutory income tax rate............................. 35.0% 35.0% 35.0% State and local taxes, net of federal tax benefit............. 2.6 3.9 2.7 Foreign taxes in excess of U.S. statutory rate, net........... 5.3 13.9 7.8 Foreign sales corporation..................................... (1.2) (2.4) (3.6) Other......................................................... (1.5) (3.4) 4.2 ---- ---- ---- Effective tax rate.......................................... 40.2% 47.0% 46.1% ==== ==== ====
F-15 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Notes to Combined Financial Statements--(Continued) Note 9. Lease Commitments At fiscal year-end 1998, the Company was committed to minimum rentals under non-cancellable operating leases for fiscal years 1999 through 2003 and thereafter, as follows, in millions: $4.7, $3.7, $2.6, $2.1, $1.6, and $10.1, respectively. Rental expense for fiscal years 1998, 1997, and 1996, in millions, was $7.6, $8.6, and $8.4, respectively. Prior to the Distribution, the Company will enter into certain lease or sublease agreements with VAI, an affiliate, or third parties for certain lease facilities and other equipment, which agreements principally are a continuation of existing lease commitments at market rates. These commitments are included in the amounts above. Note 10. Contingencies Environmental Remediation VAI has been named by the U.S. Environmental Protection Agency or third parties as a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, at eight sites where the Company is alleged to have shipped manufacturing waste for recycling or disposal. VAI is also involved in various stages of environmental investigation and/or remediation under the direction of, or in consultation with, federal, state, and/or local agencies at certain current or former VAI facilities (including facilities disposed of in connection with VAI's sale of its Electron Devices Business during fiscal 1995, and the sale of the Thin Film Systems business of VSEA during fiscal 1997). VAI's expenditures for environmental investigation and remediation amounted to $4.9 million in fiscal 1998, compared with $2.3 million in fiscal 1997 and with $5.2 million in fiscal 1996. For certain of these sites and facilities, various uncertainties make it difficult to assess the likelihood and scope of further investigation or remediation activities or to estimate the future costs of such activities if undertaken. As of October 2, 1998, VAI nonetheless estimated that the future exposure for environmental related investigation and remediation costs for these sites ranged in the aggregate from $21.6 million to $48.9 million. The time frame over which these costs are expected to be incurred varies with each site and facility, ranging up to approximately 30 years as of October 2, 1998. VAI 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, VAI has accrued $21.6 million in estimated environmental costs as of October 2, 1998. This amount accrued by VAI has not been discounted to present value. As to other sites and facilities, VAI has gained sufficient knowledge to be able to better estimate the scope and costs of future environmental activities. As of October 2, 1998, VAI estimated that the future exposure for environmental related investigation and remediation costs for these sites ranged in the aggregate from $39.7 million to $73.7 million. The time frame over which these costs are expected to be incurred varies with each site, ranging up to approximately 30 years as of October 2, 1998. As to each of these sites and facilities, VAI management has 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 $51.1 million at October 2, 1998. VAI accordingly has accrued $22.3 million, which represents this best estimate of the future costs discounted at 4%, net of inflation. This VAI reserve is in addition to the $21.6 million described above. Under the Distribution Related Agreements, the Company has agreed to indemnify VAI and VSEA for one-third of these environmental investigation and remediation costs, as adjusted for insurance proceeds in respect of these environmental costs and for the tax benefits expected to be realized by VAI upon the payment of the Company's portion of these environmental costs (Note 11). As of October 2, 1998, the Company's reserve for F-16 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Notes to Combined Financial Statements--(Continued) its portion of environmental liabilities, based upon future environmental related costs estimated by VAI as of that date and included in long-term and current accrued expenses, is calculated as follows:
Total Recurring Non-recurring Anticipated Year Costs Costs Future Costs - ---- --------- ------------- ------------ (Dollars in millions) 1999..................................... $ 0.4 $0.7 $ 1.1 2000..................................... 0.5 0.2 0.7 2001..................................... 0.5 0.1 0.6 2002..................................... 0.5 0.0 0.5 2003..................................... 0.5 0.0 0.5 Thereafter............................... 9.6 0.8 10.4 ----- ---- ----- Total costs............................ $12.0 $1.8 13.8 ===== ==== ----- Imputed interest......................... (6.0) ----- Total reserve.......................... $ 7.8 =====
The amounts set forth in the foregoing table are only estimates of anticipated future environmental related costs, and the amounts actually spent in the years indicated may be greater or less than such estimates. The aggregate range of cost estimates reflects various uncertainties inherent in many environmental investigation and remediation activities and the large number of sites where VAI is undertaking such investigation and remediation activities. VAI believes that most of these cost ranges will narrow as investigation and remediation activities progress. The Company believes that its reserves are adequate, but as the scope of the obligations becomes more clearly defined, these reserves may be modified and related charges against earnings may be made. Although any ultimate liability arising from environmental related matters described herein could result in significant expenditures that, if aggregated and assumed to occur within a single fiscal year, would be material to the Company's financial statements, the likelihood of such occurrence is considered remote. Based on information currently available to management and its best assessment of the ultimate amount and timing of environmental related events, the Company's management believes that the costs of these environmental related matters are not reasonably likely to have a material adverse effect on the combined financial statements of the Company. Legal Proceedings Under the Distribution Related Agreements, the Company has agreed to reimburse VAI for one-third of the costs and expenses, adjusted for any tax benefits recognized or realized by VAI from the incurrence or payment of these amounts, with respect to certain legal proceedings relating to discontinued operations of VAI (Note 11). Also, from time to time, the Company is involved in a number of legal actions and could incur an uninsured liability in one or more of them. While the ultimate outcome of all of the above legal matters is not determinable, management believes the resolution of these matters will not have a material adverse effect on the financial condition, results of operations, or cash flows of the Company. Note 11. Other Transactions with Affiliates Sales to VAI and VSEA for fiscal years 1998, 1997, and 1996 totaled $14.6 million, $14.8 million, and $23.3 million, respectively. F-17 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Notes to Combined Financial Statements--(Continued) VAI uses a centralized cash management system to finance its operations. Cash deposits from most of the Company's businesses are transferred to VAI on a daily basis, and VAI funds the Company's required disbursements. No interest has been charged or credited to the Company for these transactions. VAI provided certain centralized services (see Note 1 to the combined financial statements) to the Company. Cost allocations relating to these centralized services were $26.5 million, $27.1 million, and $25.9 million in fiscal years 1998, 1997, and 1996, respectively, and are included in operating costs in the combined statements of earnings. Amounts due to VAI for these expenses are included in Divisional Equity. Net transfers to or from VAI, included in Divisional Equity, include advances and loans from affiliates, net cash transfers to or from VAI, third party liabilities paid on behalf of the Company by VAI, amounts due from affiliates related to sales, amounts due to or from VAI for services and other charges, and income taxes paid on behalf of the Company by VAI. The weighted average balance due to VAI was $213 million, $200 million, and $140 million for fiscal years 1998, 1997 and 1996, respectively. The activity in net transfers (to) from VAI for fiscal years 1998, 1997, and 1996 included in divisional equity in the combined statements of divisional equity is summarized as follows:
1998 1997 1996 ----- ----- ------ (Dollars in millions) VAI services and other charges............................ $26.5 $27.1 $ 25.9 Cash transfers, net....................................... (9.8) 7.1 (28.0) ----- ----- ------ Net transfers (to) from VAI............................. $16.7 $34.2 $ (2.1) ===== ===== ======
The Distribution Related Agreements provide that, from, and after the Distribution, VAI, VSEA, and the Company will indemnify each and their respective subsidiaries, directors, officers, employees and agents against all losses arising in connection with shared liabilities (including certain environmental and legal liabilities). All shared liabilities will be managed and administered by VAI and expenses and losses, net of proceeds and other receivables, will be borne one-third each by VAI, VSEA, and the Company; the Distribution Related Agreements also provide that the Company shall assume all Company liabilities, other than shared liabilities (including accounts payable, accrued payroll, and pension liabilities) in accordance with their terms. Note 12. Industry and Geographic Segments The Company operates in one industry segment: instrumentation, equipment and accessories for analytical, research, industrial, and scientific applications. Company products are used in biological and biochemical research; in independent test labs; in quality control and research in industries such as pharmaceuticals, foods, metals, chemicals, and petroleum; for environmental monitoring and analysis; in semiconductor and automotive manufacturing; in high-energy physics; in surface analysis, space research and petrochemical refining. The Company operates various manufacturing and marketing operations outside the United States. Inter-business sales between geographic areas are accounted for at cost plus prevailing markups arrived at through negotiations between otherwise independent profit centers (Note 1). No customer accounted for more than 10% of total sales in fiscal years 1998, 1997, and 1996. F-18 INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. Notes to Combined Financial Statements--(Continued) Included in the total of United States sales are export sales of $30 million in fiscal 1998, $36 million in fiscal 1997, and $32 million in fiscal 1996. Sales under prime contracts from the U.S. Government were approximately $7 million in fiscal 1998, $9 million in fiscal 1997, and $8 million in fiscal 1996.
Sales to Intergeographic Unaffiliated Sales to Pre-tax Identifiable Customers(/1/) Affiliates Total Sales Earnings Assets -------------- ------------------- ------------------- ---------------- -------------- 1998 1997 1996 1998 1997 1996 1998 1997 1996 1998 1997 1996 1998 1997 1996 ---- ---- ---- ----- ----- ----- ----- ----- ----- ---- ---- ---- ---- ---- ---- (Dollars in millions) United States.......... $327 $325 $284 $ 116 $ 114 $ 109 $ 443 $ 439 $ 393 $ 39 $ 43 $ 32 $214 $193 $140 International.......... 223 216 219 112 97 98 335 313 317 34 23 25 159 130 144 ---- ---- ---- ----- ----- ----- ----- ----- ----- ---- ---- ---- ---- ---- ---- Total geographic segments............. 550 541 503 228 211 207 778 752 710 73 66 57 373 323 284 Eliminations, corporate & other............... 8 1 1 (228) (211) (207) (220) (210) (206) (34) (39) (46) 31 35 17 ---- ---- ---- ----- ----- ----- ----- ----- ----- ---- ---- ---- ---- ---- ---- Total Company......... $558 $542 $504 $ - $ - $ - $ 558 $ 542 $ 504 $ 39 $ 27 $ 11 $404 $358 $301 ==== ==== ==== ===== ===== ===== ===== ===== ===== ==== ==== ==== ==== ==== ====
- ------- (1) Includes sales to VAI and VSEA (Note 11). Total sales is based on the location of the operation furnishing goods and services. International sales based on final destination of products sold are $261 million in fiscal 1998, $253 million in fiscal 1997, and $250 million in fiscal 1996. Note 13. Quarterly Financial Data (Unaudited)
1998 1997 ------------------------------- ------------------------------- First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- ------- ------- ------- ------- (Dollars in millions, except per share amounts) Sales................... $141.0 $141.0 $129.9 $145.9 $124.9 $134.9 $137.5 $144.6 ------ ------ ------ ------ ------ ------ ------ ------ Gross profit............ 54.5 55.8 53.9 57.2 49.8 52.0 53.7 55.6 ------ ------ ------ ------ ------ ------ ------ ------ Net Earnings............ 5.8 6.4 5.2 6.0 3.5 3.5 3.7 3.5 ====== ====== ====== ====== ====== ====== ====== ====== Pro forma net earnings per share.............. $ 0.19 $ 0.22 $ 0.17 $ 0.20 $ 0.12 $ 0.11 $ 0.13 $ 0.11 ====== ====== ====== ====== ====== ====== ====== ======
F-19 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of Varian Associates, Inc.: Our report on the combined financial statements of the Instruments Business of Varian Associates, Inc. is included on page F-2 of this Form 10. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page F-1 of this Form 10. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic combined financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ PricewaterhouseCoopers LLP --------------------------------------- PricewaterhouseCoopers LLP San Jose, California October 31, 1998 S-I SCHEDULE II INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. VALUATION AND QUALIFYING ACCOUNTS for the fiscal years 1998, 1997, and 1996 (Dollars in Thousands)
Balance at Charged to Deductions Balance at Beginning Costs and ------------------------------------- End of Description of Period Expenses Description Amount Period - ----------- ---------- ---------- ----------- ------ ---------- ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE: Fiscal Year Ended 1998.. $ 321 $ 295 Write-offs & Adjustments...... $ (97) $ 713 ====== ====== ====== ====== Fiscal Year Ended 1997.. $ 642 $ 151 Write-offs & Adjustments...... $ 472 $ 321 ====== ====== ====== ====== Fiscal Year Ended 1996.. $ 652 $ 601 Write-offs & Adjustments...... $ 611 $ 642 ====== ====== ====== ====== ESTIMATED LIABILITY FOR PRODUCT WARRANTY: Fiscal Year Ended 1998.. $7,173 $9,641 Actual Warranty Expenditures.. $9,206 $7,608 ====== ====== ====== ====== Fiscal Year Ended 1997.. $5,688 $9,764 Actual Warranty Expenditures.. $8,279 $7,173 ====== ====== ====== ====== Fiscal Year Ended 1996.. $4,919 $9,077 Actual Warranty Expenditures.. $8,308 $5,688 ====== ====== ====== ======
S-II SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized. Varian, Inc. /s/ Arthur W. Homan By______________________________________ Name: Arthur W. Homan Title: Secretary Date: March 8, 1999 EXHIBIT INDEX
Exhibit No. Description ------------------ 2.1 Distribution Agreement among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc. dated as of January 14, 1999.+ 3.1 Form of Restated Certificate of Incorporation of Varian, Inc. to be in effect upon the effectiveness of the Distribution.+ 3.2 Form of By-Laws of Varian, Inc. to be in effect upon the effectiveness of the Distribution.* 4.1 Specimen Common Stock Certificate.* 4.2 Rights Agreement dated February 18, 1999.* 10.1 Form of Employee Benefits Allocation Agreement among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc.+ 10.2 Form of Intellectual Property Agreement among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc.+ 10.3 Form of Tax Sharing Agreement among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc.+ 10.4 Form of Transition Services Agreement among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc.+ 10.5 Form of Change in Control Agreement for CEO.* 10.6 Form of Change in Control Agreement for General Counsel.* 10.7 Form of Change in Control Agreement for Senior Executives.* 10.8 Form of Indemnity Agreement with Directors and Officers.* 10.9 Varian, Inc. Omnibus Stock Plan.+ 10.10 Varian, Inc. Management Incentive Plan.+ 21 Subsidiaries of the Registrant.* 27 Financial Data Schedule.*
- ------- +Filed by Registrant with its Form 10 Registration Statement filed on February 12, 1999. *Filed herewith. EX-3.2 2 FORM OF BY-LAWS EXHIBIT 3.2 BY-LAWS OF VARIAN, INC. A Delaware Corporation As adopted on February 19, 1999, to be effective on April __, 1999 TABLE OF CONTENTS
PAGE ARTICLE I OFFICES........................................ 1 Section 1. Registered Office........................... 1 Section 2. General Office and Other Offices............ 1 ARTICLE II STOCKHOLDERS' MEETINGS......................... 1 Section 3. Annual Meeting.............................. 1 Section 4. Business to be Conducted at Annual Meeting.. 1 Section 5. Special Meetings............................ 2 Section 6. Place of Meetings........................... 2 Section 7. Notice of Meetings.......................... 3 Section 8. Nominations of Directors.................... 3 Section 9. List of Stockholders........................ 4 Section 10. Quorum...................................... 4 Section 11. Voting and Required Vote.................... 5 Section 12. Proxies..................................... 5 Section 13. Inspectors of Election; Polls............... 5 Section 14. Organization................................ 5 Section 15. No Stockholder Action by Written Consent.... 5 ARTICLE III BOARD OF DIRECTORS............................. 6 Section 16. General Powers, Number, Term of Office...... 6 Section 17. Vacancies................................... 6 Section 18. Chairman of the Board....................... 6 Section 19. Regular Meetings............................ 7 Section 20. Special Meetings............................ 7 Section 21. Notices..................................... 7 Section 22. Conference Telephone Meetings............... 7 Section 23. Quorum...................................... 7 Section 24. Organization................................ 8 Section 25. Resignations................................ 8 Section 26. Removal..................................... 8 Section 27. Action Without a Meeting.................... 8 Section 28. Location of Books........................... 8
-i- TABLE OF CONTENTS (CONTINUED)
PAGE Section 29. Dividends...................................... 8 Section 30. Compensation of Directors...................... 8 Section 31. Additional Powers.............................. 9 ARTICLE IV COMMITTEES OF DIRECTORS.......................... 9 Section 32. Designation, Power, Alternate Members.......... 9 Section 33. Quorum, Manner of Acting....................... 9 Section 34. Minutes........................................ 9 ARTICLE V ADVISORY DIRECTORS............................... 10 Section 35. Advisory Directors............................. 10 ARTICLE VI OFFICERS......................................... 10 Section 36. Designation.................................... 10 Section 37. Election and Term.............................. 10 Section 38. Removal........................................ 10 Section 39. Resignations................................... 10 Section 40. Vacancies...................................... 10 Section 41. Chief Executive Officer........................ 10 Section 42. President...................................... 11 Section 43. Vice Presidents................................ 11 Section 44. Secretary...................................... 11 Section 45. Assistant Secretaries.......................... 11 Section 46. Chief Financial Officer........................ 11 Section 47. Treasurer...................................... 11 Section 48. Assistant Treasurers........................... 12 Section 49. Controller..................................... 12 Section 50. Assistant Controllers.......................... 12 ARTICLE VII CONTRACTS, INSTRUMENTS AND PROXIES............... 12 Section 51. Contracts and Other Instruments................ 12 Section 52. Proxies........................................ 12 ARTICLE VIII CAPITAL STOCK.................................... 13 Section 53. Stock Certificates; Book-Entry Accounts........ 13 Section 54. Record Ownership............................... 13
TABLE OF CONTENTS (CONTINUED)
PAGE Section 55. Record Dates.................................... 13 Section 56. Transfer of Stock............................... 13 Section 57. Lost, Stolen or Destroyed Certificates.......... 13 Section 58. Terms of Preferred Stock........................ 14 ARTICLE IX INDEMNIFICATION................................... 14 Section 59. Right of Indemnification Generally.............. 14 Section 60. Written Request; Determination of Entitlement... 15 Section 61. Recovery of Unpaid Claim........................ 15 Section 62. Exclusivity; Subsequent Modification............ 15 Section 63. Insurance....................................... 15 Section 64. Other Indemnification Rights.................... 16 Section 65. Illegality; Unenforceability.................... 16 Section 66. Form and Delivery of Communications............. 16 ARTICLE X MISCELLANEOUS..................................... 16 Section 67. Corporate Seal.................................. 16 Section 68. Fiscal Year..................................... 16 Section 69. Auditors........................................ 16 Section 70. Waiver of Notice................................ 17 ARTICLE XI AMENDMENT TO BY-LAWS.............................. 17 Section 71. Amendments...................................... 17
BY-LAWS OF VARIAN, INC. A Delaware Corporation As adopted on February 19, 1999, to be effective on April __, 1999 ARTICLE I OFFICES Section 1. Registered Office. The name of the registered agent of Varian, Inc. ----------------- (the "Corporation") is The Corporation Trust Company and the registered office of the Corporation shall be located in the City of Wilmington, County of New Castle, State of Delaware. Section 2. General Office and Other Offices. The Corporation shall have its -------------------------------- General Offices in the City of Palo Alto, State of California (the "General Offices"), and may also have offices at such other places in or outside the State of Delaware as the Board of Directors of the Corporation (the "Board of Directors") may from time to time designate or the business of the Corporation may require. ARTICLE II STOCKHOLDERS' MEETINGS Section 3. Annual Meeting. An annual meeting of stockholders shall be held on -------------- such day and at such time as may be designated by the Board of Directors for the purpose of electing directors and for the transaction of such other business as properly may come before such meeting. Any previously scheduled annual meeting of the stockholders may be postponed by resolution of the Board of Directors upon public notice given on or prior to the date previously scheduled for such annual meeting of stockholders. Section 4. Business to be Conducted at Annual Meeting. ------------------------------------------ (a) At an annual meeting of stockholders, only such business shall be conducted as shall have been brought before the meeting (i) pursuant to the Corporation's notice of the meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this By-Law, who shall be entitled to vote at such meeting and who shall have complied with the notice procedures set forth in this By-Law. (b) For business to be properly brought before an annual meeting by a stockholder pursuant to clause (a)(iii) of this By-Law, notice in writing must be delivered or mailed to the Secretary and received at the General Offices, not less than 60 days nor more than 90 days prior to the first anniversary of the date on which the Corporation first mailed its proxy materials for the preceding year's annual meeting of stockholders; provided, however, that in the event that the date of the meeting is advanced by more than 30 days or delayed by more than 60 days from such meeting's anniversary date, notice by the stockholder must be received not earlier than the 90/th/ day prior to such date of mailing of proxy materials and not later than the close of business on the later of the 60/th/ day prior to such date of mailing of proxy materials or the 10/th/ day following the day on which public announcement of the date of the annual meeting is first made. Such stockholder's notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business to be brought before the annual meeting and the reasons for conducting such business at such meeting; (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, and the name and address of the beneficial owner, if any, on whose behalf the proposal is made; (iii) the class and number of shares of the Corporation's stock which are beneficially owned by the stockholder, and by the beneficial owner, if any, on whose behalf the proposal is made; and (iv) any material interest of the stockholder, and of the beneficial owner, if any, on whose behalf the proposal is made, in such business. For purposes of these By-Laws, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (c) Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this By-Law. The chairman of the meeting may, if the facts warrant, determine that the business was not properly brought before the meeting in accordance with the provisions of this By-Law; and if the chairman should so determine, the chairman shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Nothing in this By-Law shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act, and any such proposal so included shall be deemed timely given for purposes of this By-Law. Section 5. Special Meetings. Special meetings of stockholders for any proper ---------------- purpose or purposes, unless otherwise provided by the General Corporation Law of the State of Delaware or in any Certificate of Designation designating any series of Preferred Stock pursuant to Article IV of the Restated Certificate of Incorporation of the Corporation (the "Certificate of Incorporation") that shall be in effect under the General Corporation Law of the State of Delaware (a "Preferred Stock Designation"), may be called by the Chairman of the Board, the Chief Executive Officer or the President, or in the absence of each of them, by the Secretary at the written request of a majority of the directors. Business transacted at a special meeting of stockholders shall be confined to the purpose or purposes of the meeting as stated in the notice of the meeting. Any previously scheduled special meeting of the stockholders may be postponed by resolution of the Board of Directors upon notice by public announcement given on or prior to the date previously scheduled for such special meeting of stockholders. Section 6. Place of Meetings. All meetings of stockholders shall be held at ----------------- such place as may be determined by resolution of the Board of Directors. Section 7. Notice of Meetings. Except as otherwise required by applicable law, ------------------ notice of each meeting of the stockholders, whether annual or special, shall, at least 10 days but not more than 60 days before the date of the meeting, be given to each stockholder of record entitled to vote at the meeting by mailing such notice in the U.S. mail, postage prepaid, addressed to such stockholder at such stockholder's address as the same appears on the records of the Corporation. Such notice shall state the place, date and hour of the meeting, and in the case of a special meeting, shall also state the purpose or purposes thereof. Section 8. Nominations of Directors. ------------------------ (a) Only persons who are nominated in accordance with the procedures set forth in these By-Laws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors may be made at a meeting of stockholders (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this By-Law, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this By-Law. (b) Nominations by stockholders shall be made pursuant to notice in writing, delivered or mailed to the Secretary and received at the General Offices (i) in the case of an annual meeting, not less than 60 days nor more than 90 days prior to the first anniversary of the date on which the Corporation first mailed its proxy materials for the preceding year's annual meeting of stockholders, provided, however, that in the event that the date of the meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder must be received not earlier than the 90/th/ day prior to such date of mailing of proxy materials and not later than the close of business on the later of the 60/th/ day prior to such date of mailing of proxy materials or the 10/th/ day following the day on which public announcement of the date of the meeting is first made; or (ii) in the case of a special meeting at which directors are to be elected, not earlier than the 90/th/ day prior to such special meeting and not later than the close of business on the later of the 60/th/ day prior to such special meeting or the 10/th/ day following the day on which public announcement of the date of the meeting and of the nominees proposed by the Board of Directors to be elected at such meeting is first made. In the case of a special meeting of stockholders at which directors are to be elected, stockholders may nominate a person or persons (as the case may be) for election only to such position(s) as are specified in the Corporation's notice of meeting as being up for election at such meeting. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that would be required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person's written consent to being named as a nominee and to serving as a Director if elected); (ii) as to the stockholder giving the notice, the name and address, as they appear on the Corporation's books, of such stockholder and the class and number of shares of the Corporation's stock which are beneficially owned by such stockholder; and (iii) as to any beneficial owner on whose behalf the nomination is made, the name and address of such person and the class and number of shares of the Corporation's stock which are beneficially owned by such person. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary that information required to be set forth in a stockholder's notice of nomination that pertains to the nominee. Notwithstanding anything in this By-Law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public statement naming all the nominees for Director or specifying the size of the increased Board of Directors made by the Corporation at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the General Offices not later than the close of business on the 10/th/ day following the day on which such public announcement is first made by the Corporation. (c) No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in these By-Laws. The chairman of the meeting may, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed in this By-Law; and if the chairman should so determine, the chairman shall so declare to the meeting, and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act, and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Section 9. List of Stockholders. -------------------- (a) The Secretary of the Corporation shall prepare, at least 10 days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. (b) The stock ledger of the Corporation shall be the only evidence as to the identity of the stockholders entitled (i) to vote in person or by proxy at any meeting of stockholders, or (ii) to exercise the rights in accordance with applicable law to examine the stock ledger, the list required by this By- Law or the books and records of the Corporation. Section 10. Quorum. The holders of a majority of the stock issued and ------ outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of any business at all meetings of the stockholders, except as otherwise provided by applicable law, by the Certificate of Incorporation or by these By-Laws. The stockholders present at any duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of sufficient stockholders to render the remaining stockholders less than a quorum. Whether or not a quorum is present, either the Chairman of the meeting or a majority of the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which the requisite amount of voting stock shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. Section 11. Voting and Required Vote. Subject to the provisions of the ------------------------ Certificate of Incorporation, each stockholder shall, at every meeting of stockholders, be entitled to one vote for each share of capital stock held by such stockholder. Subject to the provisions of the Certificate of Incorporation and applicable law, directors shall be chosen by the vote of a plurality of the shares present in person or represented by proxy at the meeting; and all other questions shall be determined by the affirmative vote of the majority of shares present in person or represented by proxy at the meeting. Elections of directors shall be by written ballot. Section 12. Proxies. Each stockholder entitled to vote at a meeting of ------- stockholders may authorize another person or persons to act for such stockholder by proxy, provided the instrument authorizing such proxy to act shall have been executed in writing in the manner prescribed by applicable law. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 13. Inspectors of Election; Polls. Before each meeting of ----------------------------- stockholders, the Chairman of the Board or another officer of the Corporation designated by resolution of the Board of Directors shall appoint one or more inspectors of election for the meeting and may appoint one or more inspectors to replace any inspector unable to act. If any of the inspectors appointed shall fail to attend, or refuse or be unable to serve, substitutes shall be appointed by the chairman of the meeting. Each inspector shall have such duties as are provided by applicable law, and shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such person's ability. The chairman of the meeting shall fix and announce at the meeting the date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting. Section 14. Organization. The Chairman of the Board of Directors, or in the ------------ Chairman's absence, (i) the Chief Executive Officer, (ii) the Vice Chairman of the Board of Directors, (iii) the President, or (iv) in the absence of each of them, a chairman chosen by a majority of the directors present, shall act as chairman of the meetings of the stockholders, and the Secretary or, in the Secretary's absence, an Assistant Secretary or any employee of the Corporation appointed by the chairman of the meeting, shall act as secretary of the meeting. The order of business and the procedure at any meeting of stockholders shall be determined by the chairman of the meeting. Section 15. No Stockholder Action by Written Consent. Any action required or ---------------------------------------- permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing in lieu of a meeting of such stockholders. ARTICLE III BOARD OF DIRECTORS Section 16. General Powers, Number, Term of Office. The business of the -------------------------------------- Corporation shall be managed under the direction of its Board of Directors. Subject to the rights of the holders of any series of preferred stock, $0.01 par value per share, of the Corporation ("Preferred Stock") to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed from time to time exclusively by resolution of a majority of the then authorized number of directors of the Corporation (the number of then authorized directors of the Corporation is referred to herein as the "Whole Board"), but in no event shall the number of directors be fewer than three. The directors, other than those who may be elected solely by the holders of any series of Preferred Stock (unless the relevant Preferred Stock 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, except that the term of office of the initial Class I director shall expire on the date of the annual meeting in 2000, the term of office of the initial Class II directors shall expire on the date of the annual meeting in 2001 and the term of office of the initial Class III directors shall expire on the date of the annual meeting in 2002. 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 all elections of directors, the directors chosen to succeed those directors whose terms then expire shall be identified as being of the same class as the directors they succeed. If for any reason the number of directors in the various classes shall not be as nearly equal as possible, the Board of Directors may redesignate any director into a different class in order that the balance of directors in such classes shall be as nearly equal as possible. Section 17. Vacancies. Subject to the rights of the holders of any series of --------- Preferred Stock to elect additional directors under specified circumstances, and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, or by a sole remaining director, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 18. Chairman of the Board. The Chairman of the Board of Directors --------------------- shall be chosen from among the directors. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors, except as may be otherwise required under applicable law. The Chairman shall act in an advisory capacity with respect to matters of policy and other matters of importance pertaining to the affairs of the Corporation. The Chairman, alone or with the Chief Executive Officer, the President, and/or the Secretary shall sign and send out reports and other messages which are to be sent to stockholders from time to time. The Chairman shall also perform such other duties as may be assigned to the Chairman by these By-Laws or the Board of Directors. The Board of Directors may also choose a Vice Chairman of the Board of Directors from among the directors, which Vice Chairman if chosen shall perform such duties as may be assigned by these By-Laws, the Board of Directors or the Chairman of the Board. Section 19. Regular Meetings. Following the annual meeting of stockholders, ---------------- the first meeting of each newly elected Board of Directors may be held, without notice, on the same day and at the same place as such stockholders' meeting. The Board of Directors by resolution may provide for the holding of regular meetings and may fix the times and places at which such meetings shall be held. Notice of regular meetings shall not be required provided that whenever the time or place of regular meetings shall be fixed or changed, notice of such action shall be given promptly to each director, as provided in Section 21 below, who was not present at the meeting at which such action was taken. Section 20. Special Meetings. Special meetings of the Board of Directors ---------------- shall be held whenever called by the Chairman of the Board of Directors, the Vice Chairman of the Board, the Chief Executive Officer or the President, or in the absence of each of them, by the Secretary at the written request of a majority of the directors. Section 21. Notices. Notice of any special meeting of the Board of Directors ------- shall be addressed to each director at such director's residence or business address and shall be sent to such director by mail, electronic mail, telecopier, telegram or telex or telephoned or delivered to such director personally. If such notice is sent by mail, it shall be sent not later than three days before the day on which the meeting is to be held. If such notice is sent by electronic mail, telecopier, telegram or telex, it shall be sent not later than 24 hours before the time at which the meeting is to be held. If such notice is delivered personally, it shall be received not later than 24 hours before the time at which the meeting is to be held. If such notice is telephoned, it shall be to such telephone number or numbers of which the director from time to time shall advise the Secretary for receiving such notice. If given by telephone call, notice shall be deemed given to a director when a message stating the time, place and purpose of the meeting is left with a person answering the telephone at any such number with a request that the director be so informed, or if no such telephone number is answered, then when at least two attempts have been made to reach each telephone number designated by the director for receiving telephonic notice, with an interval of not less than one hour. A certification shall be prepared and filed with the minutes stating the date, time and results of telephonic notice given to any director not present at a meeting with respect to which his waiver of notice of meeting is not filed with the minutes. In all cases, such notice shall state the time, place and purpose or purposes of the meeting. Section 22. Conference Telephone Meetings. Members of the Board of Directors ----------------------------- or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. Section 23. Quorum. One-half of the total number of directors constituting ------ the Whole Board, but not less than two, shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such required number of directors for a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. Except as otherwise specifically provided by applicable law, the Certificate of Incorporation or these By-Laws, the act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 24. Organization. At each meeting of the Board of Directors, the ------------ Chairman of the Board or, in the Chairman's absence, (i) the Chief Executive Officer, if a member of the Board of Directors, (ii) the Vice Chairman of the Board, (iii) the President, if a member of the Board of Directors, or (iv) in the absence of each of them, a chairman chosen by a majority of the directors present, shall act as chairman of the meeting, and the Secretary or, in the Secretary's absence, an Assistant Secretary or any employee of the Corporation appointed by the chairman of the meeting, shall act as secretary of the meeting. Section 25. Resignations. Any Director may resign at any time by giving ------------ written notice to the Chairman of the Board, the Chief Executive Officer, the President or the Secretary of the Corporation. Such resignation shall take effect upon receipt thereof or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 26. Removal. Subject to the rights of the holders of any series of ------- Preferred Stock to elect additional directors under specified circumstances, any director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least a majority of the voting power of the then outstanding Voting Stock, voting together as a single class. For purposes of these By-Laws, "Voting Stock" shall mean the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors. Section 27. Action Without a Meeting. Unless otherwise restricted by the ------------------------ Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 28. Location of Books. Except as otherwise provided by resolution of ----------------- the Board of Directors and subject to applicable law, the books of the Corporation may be kept at the General Offices and at such other places as may be necessary or convenient for the business of the Corporation. Section 29. Dividends. Subject to the provisions of the Certificate of --------- Incorporation and applicable law, dividends upon the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock. Section 30. Compensation of Directors. Directors shall receive such ------------------------- compensation and benefits as may be determined by resolution of the Board of Directors for their services as members of the Board of Directors and committees. Directors shall also be reimbursed for their expenses of attending Board of Directors and committee meetings. Nothing contained herein shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Section 31. Additional Powers. In addition to the powers and authorities by ----------------- these By-Laws expressly conferred upon it, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. ARTICLE IV COMMITTEES OF DIRECTORS Section 32. Designation, Power, Alternate Members. The Board of Directors ------------------------------------- may, by resolution or resolutions passed by a majority of the Whole Board, designate an Executive Committee and one or more additional committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in said resolution or resolutions and subject to any limitations provided by applicable law, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. If at a meeting of any committee one or more of the members thereof is absent or disqualified, and if either the Board of Directors has not so designated any alternate member or members, or the number of absent or disqualified members exceeds the number of alternate members who are present at such meeting, then the member or members of such committee (including alternates) present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another Director to act at the meeting in the place of such absent or disqualified member. The term of office of the members of each committee shall be as fixed from time to time by the Board of Directors; provided, however, that any committee member who ceases to be a member of the Board of Directors shall automatically cease to be a committee member. Section 33. Quorum, Manner of Acting. At any meeting of a committee, the ------------------------ presence of one-half of its members then in office shall constitute a quorum for the transaction of business; and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of the committee. Each committee may provide for the holding of regular meetings, make provision for the calling of special meetings and, except as otherwise provided in these By- Laws or by resolution of the Board of Directors, make rules for the conduct of its business. Section 34. Minutes. The committees shall keep minutes of their proceedings ------- and report the same to the Board of Directors when required; but failure to keep such minutes shall not affect the validity of any acts of the committee or committees. ARTICLE V ADVISORY DIRECTORS Section 35. Advisory Directors. The Board of Directors may, by resolution ------------------ adopted by a majority of the Whole Board, appoint such Advisory Directors as the Board of Directors may from time to time determine. The Advisory Directors shall have such advisory responsibilities as the Chairman of the Board may designate and the term of office of such Advisory Directors shall be as fixed by the Board of Directors. ARTICLE VI OFFICERS Section 36. Designation. The officers of the Corporation shall be the Chief ----------- Executive Officer, a President, a Secretary, a Chief Financial Officer, a Treasurer and a Controller. The Board of Directors may also elect one or more Executive Vice Presidents, Senior Vice Presidents, Group Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers as it shall deem necessary. Any number of offices may be held by the same person. Section 37. Election and Term. At its first meeting after each annual ----------------- meeting of stockholders, the Board of Directors shall elect the officers of the Corporation and at any time thereafter the Board of Directors may elect additional officers of the Corporation, and each such officer shall hold office until the officer's successor is elected and qualified or until the officer's earlier death, resignation or removal. Alternatively, at the last regular meeting of the Board of Directors prior to an annual meeting of stockholders, the Board of Directors may elect the officers of the Corporation, contingent upon the election of the persons nominated to be directors by the Board of Directors; and each such officer so elected shall hold office until the officer's successor is elected and qualified or until the officer's earlier death, resignation or removal. Section 38. Removal. Any officer shall be subject to removal or suspension ------- at any time, for or without cause, by the affirmative vote of a majority of the Whole Board. Section 39. Resignations. Any officer may resign at any time by giving ------------ written notice to the Chairman of the Board, the President or to the Secretary. Such resignation shall take effect upon receipt thereof or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 40. Vacancies. A vacancy in any office because of death, --------- resignation, removal or any other cause may be filled for the unexpired portion of the term by the Board of Directors. Section 41. Chief Executive Officer. The Chief Executive Officer shall have ----------------------- the general and active management and supervision of the business of the Corporation. The Chief Executive Officer, if a member of the Board of Directors, shall, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and of the Board of Directors. The Chief Executive Officer shall see that all orders and resolutions of the Board of Directors are 10 carried into effect. The Chief Executive Officer shall also perform such other duties as may be assigned to the Chief Executive Officer by these By-Laws or the Board of Directors. The Chief Executive Officer shall designate who shall perform the duties of the Chief Executive Officer in the Chief Executive Officer's absence. Section 42. President. The President shall perform such duties as may be --------- assigned to the President by these By-Laws, the Board of Directors or, if applicable, the Chief Executive Officer. Section 43. Vice Presidents. Each Executive Vice President, Senior Vice --------------- President, Group Vice President and each other Vice President shall perform the duties and functions and exercise the powers assigned to such officer by these By-Laws, the Board of Directors, the Chief Executive Officer or the President. Section 44. Secretary. The Secretary shall attend all meetings of the Board --------- of Directors and of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors and, when appropriate, shall cause the corporate seal to be affixed to any instruments executed on behalf of the Corporation. The Secretary shall also perform all duties incident to the office of Secretary and such other duties as may be assigned to the Secretary by these By-Laws, the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. Section 45. Assistant Secretaries. The Assistant Secretaries shall, during --------------------- the absence of the Secretary, perform the duties and functions and exercise the powers of the Secretary. Each Assistant Secretary shall perform such other duties as may be assigned to such Assistant Secretary by these By-Laws, the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or the Secretary. Section 46. Chief Financial Officer. The Chief Financial Officer shall have ----------------------- overall responsibility for causing (1) the funds and securities of the Corporation to be deposited in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors or by any officer or officers authorized by the Board of Directors to designate such depositories; (2) the disbursement of funds of the Corporation when properly authorized by vouchers prepared and approved by the Controller; (3) the investment of funds of the Corporation when authorized by the Board of Directors or a committee thereof; and (4) to be kept full and accurate account of receipts and disbursements in books of the Corporation. The Chief Financial Officer shall render to the Board of Directors, the Chief Executive Officer, or the President, whenever requested, an account of all transactions as Chief Financial Officer and shall also perform all duties incident to the office of Chief Financial Officer and such other duties as may be assigned to the Chief Financial Officer by these By-Laws, the Board of Directors, the Chief Executive Officer, or the President. Section 47. Treasurer. The Treasurer shall have the custody of the funds and --------- securities of the Corporation and shall deposit them in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors or by any officer or officers authorized by the Board of Directors to designate such depositories; disburse 11 funds of the Corporation when properly authorized by vouchers prepared and approved by the Controller; and invest funds of the Corporation when authorized by the Board of Directors or a committee thereof. The Treasurer shall render to the Board of Directors, the Chief Executive Officer, the President or the Chief Financial Officer, whenever requested, an account of all transactions as Treasurer and shall also perform all duties incident to the office of Treasurer and such other duties as may be assigned to the Treasurer by these By-Laws, the Board of Directors, the Chief Executive Officer, the President or the Chief Financial Officer. Section 48. Assistant Treasurers. The Assistant Treasurers shall, during the -------------------- absence of the Treasurer, perform the duties and functions and exercise the powers of the Treasurer. Each Assistant Treasurer shall perform such other duties as may be assigned to the Assistant Treasurer by these By-Laws, the Board of Directors, the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer. Section 49. Controller. The Controller shall serve as the principal ---------- accounting officer of the Corporation and shall keep full and accurate account of receipts and disbursements in books of the Corporation and render to the Board of Directors, the Chief Executive Officer, the President or the Chief Financial Officer, whenever requested, an account of all transactions as Controller and of the financial condition of the Corporation. The Controller shall also perform all duties incident to the office of Controller and such other duties as may be assigned to the Controller by these By-Laws, the Board of Directors, the Chief Executive Officer or the President. Section 50. Assistant Controllers. The Assistant Controllers shall, during --------------------- the absence of the Controller, perform the duties and functions and exercise the powers of the Controller. Each Assistant Controller shall perform such other duties as may be assigned to such officer by these By-Laws, the Board of Directors, the Chief Executive Officer, the President or the Controller. ARTICLE VII CONTRACTS, INSTRUMENTS AND PROXIES Section 51. Contracts and Other Instruments. Except as otherwise required by ------------------------------- applicable law, the Certificate of Incorporation or these By-Laws, any contracts or other instruments may be signed by such person or persons as from time to time may be designated by the Board of Directors or by any officer or officers authorized by the Board of Directors to designate such signers; and the Board of Directors or such officer or officers may determine that the signature of any such authorized signer may be facsimile. Such authority may be general or confined to specific instances as the Board of Directors or such officer or officers may determine. Section 52. Proxies. Except as otherwise provided by resolution of the Board ------- of Directors, any officer of the Corporation shall each have full power and authority, in behalf of the Corporation, to exercise any and all rights of the Corporation with respect to any meeting of stockholders of any corporation in which the Corporation holds stock, including the execution 12 and delivery of proxies therefor, and to consent in writing to action by such corporation without a meeting. ARTICLE VIII CAPITAL STOCK Section 53. Stock Certificates; Book-Entry Accounts. The interest of each --------------------------------------- stockholder of the Corporation shall be evidenced by (a) certificates signed by, or in the name of the Corporation by, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer or the Treasurer, and by the Secretary or any Assistant Secretary of the Corporation, certifying the number of shares owned by such holder in the Corporation, or (b) registration in book-entry accounts without certificates for shares of stock in such form as the appropriate officers of the Corporation may from time to time prescribe. Any of or all the signatures on a stock certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Section 54. Record Ownership. The Corporation shall be entitled to treat the ---------------- person in whose name any share, right or option is registered as the owner thereof, for all purposes, and shall not be bound to recognize any equitable or other claim to or interest in such share, right or option on the part of any other person, whether or not the Corporation shall have notice thereof, except as otherwise provided by applicable law. Section 55. Record Dates. In order that the Corporation may determine the ------------ stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. Section 56. Transfer of Stock. Transfers of shares of stock of the ----------------- Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by the registered holder's attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or a transfer agent of the Corporation, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon, or by appropriate book-entry procedures. Section 57. Lost, Stolen or Destroyed Certificates. The Board of Directors -------------------------------------- may authorize a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of the fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of 13 Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or the owner's legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate. Section 58. Terms of Preferred Stock. The provisions of these By-Laws, ------------------------ including those pertaining to voting rights, election of directors and calling of special meetings of stockholders, are subject to the terms, preferences, rights and privileges of any then outstanding class or series of Preferred Stock as set forth in the Certificate of Incorporation, any Preferred Stock Designation and in any resolutions of the Board of Directors providing for the issuance of such class or series of Preferred Stock; provided, however, that the provisions of any such Preferred Stock shall not affect or limit the authority of the Board of Directors to fix, from time to time, the number of directors which shall constitute the Whole Board as provided in Section 16 above, subject to the right of the holders of any class or series of Preferred Stock to elect additional directors as and to the extent specifically provided by the provisions of such Preferred Stock. ARTICLE IX INDEMNIFICATION Section 59. Right of Indemnification Generally. ---------------------------------- (a) Directors, Officers, Employees and Agents. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, if permitted by applicable law, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), and any other applicable laws as presently or hereafter in effect, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that except as provided in Section 60 below, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors. (b) Contract Right. The right to indemnification conferred in this Article IX shall be a contract right. 14 Section 60. Written Request; Determination of Entitlement. To obtain --------------------------------------------- indemnification under this Article IX, a claimant shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Any determination regarding whether indemnification of any person is proper in the circumstances because such person has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware shall be made, at the option of the person seeking indemnification, by the directors as set forth in the General Corporation Law of the State of Delaware or by independent legal counsel selected by such person with the consent of the Corporation (which consent shall not unreasonably be withheld). Section 61. Recovery of Unpaid Claim. If a claim under Section 59 above is ------------------------ not paid in full by the Corporation within 60 days after a written claim pursuant to Section 60 above has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than actions brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standard of conduct which makes it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its directors, independent legal counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 62. Exclusivity; Subsequent Modification. The right to ------------------------------------ indemnification conferred in this Article IX shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Laws, agreement, vote of stockholders or directors or otherwise. No repeal or modification of this Article IX shall in any way diminish or adversely affect the rights hereunder of any director, officer, employee or agent in respect of any occurrence or matter arising prior to any such repeal or modification. Section 63. Insurance. The Corporation may maintain insurance, at its --------- expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, limited liability company, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware or otherwise. To the extent that the Corporation maintains any policy or policies providing such insurance, each such director, officer, employee or agent shall be covered 15 by such policy or policies in accordance with its or their terms to the maximum extent of the coverage thereunder for any such director, officer, employee or agent. Section 64. Other Indemnification Rights. The Corporation may, to the extent ---------------------------- authorized from time to time by the Board of Directors, grant additional rights to indemnification, including rights to be paid by the Corporation the expenses incurred in defending any proceeding in advance of its final disposition, to any agent of the Corporation to the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, if permitted by applicable law, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment). Section 65. Illegality; Unenforceability. If any provision or provisions of ---------------------------- this Article IX shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this Article IX (including, without limitation, each portion of any Section or subsection of this Article IX containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this Article IX (including, without limitation, each such portion of any Section or subsection of this Article IX containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall be construed so as give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 66. Form and Delivery of Communications. Any notice, request or ----------------------------------- other communication required or permitted to be given to the Corporation under this Article IX shall be in writing and either delivered in person or sent by telecopy, telex, telegram, overnight mail or courier service, or certified or registered mail, postage prepaid, return receipt requested, to the Secretary of the Corporation. ARTICLE X MISCELLANEOUS Section 67. Corporate Seal. The seal of the Corporation shall be circular in -------------- form, containing the words "Varian, Inc." and the word "Delaware" on the circumference surrounding the word "Seal." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Section 68. Fiscal Year. The fiscal year of the Corporation is the 51- to ----------- 53-week period that ends on the Friday nearest September 30. Section 69. Auditors. The Board of Directors shall select certified public -------- accountants to audit the books of account and other appropriate corporate records of the Corporation annually and at such other times as the Board of Directors shall determine by resolution. 16 Section 70. Waiver of Notice. Whenever notice is required to be given ---------------- pursuant to applicable law, the Certificate of Incorporation or these By-Laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting of stockholders or the Board of Directors or a committee thereof shall constitute a waiver of notice of such meeting, except when the stockholder or Director attends such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders or the Board of Directors or committee thereof need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or by these By-Laws. ARTICLE XI AMENDMENT TO BY-LAWS Section 71. Amendments. These By-Laws may be amended or repealed, or new By- ---------- Laws may be adopted, at any meeting of the Board of Directors or of the stockholders, provided notice of the proposed change was given in the notice of the meeting and, in the case of a meeting of the Board of Directors, in a notice given not less than 24 hours prior to the meeting; provided, however, that in the case of amendment, repeal or adoption by stockholders, notwithstanding any other provisions of these By-Laws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any series of Preferred Stock required by applicable law, the Certificate of Incorporation or any Preferred Stock Designation, the affirmative vote of the holders of at least 66?% of the voting power of the then outstanding shares of the Voting Stock, voting together as a single class, shall be required for the stockholders to adopt, amend or repeal any provision of these By-Laws. 17 EX-4.1 3 SPECIMEN STOCK CERTIFICATE [CERTIFICATE OF VARIAN, INC. COMMON STOCK APPEARS HERE] A statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights as established, from time to time, by the Restated Certificate of Incorporation of the Corporation and by any certificate of determination, the number of shares constituting each class and series, and the designations thereof may be obtained by the holder hereof upon request and without charge from the Secretary of the Corporation at the principal office of the Corporation. Until the Separation Time (as defined in a Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement, dated as of February 18, 1999 (as such may be amended from time to time, the "Rights Agreement"), between Varian, Inc. (the "Company") and First Chicago Trust Company of New York, as Rights Agent, the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may be exchanged for shares of Common Stock or other securities or assets of the Company or a Subsidiary of the Company, may expire, may become void (if they are "Beneficially Owned" by an "Acquiring Person" or an Affiliate or Associate thereof, as such terms are defined in the Rights Agreement, or by any transferee of any of the foregoing) or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Company will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge within five days after the receipt of a written request therefor. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations; TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ..................... Custodian ..................... TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right of under Uniform Gifts to Minors supervisorship and not as tenants Act ................................................. in common (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, _______________________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ________________________________________ ________________________________________ ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ _________________________________________________________________________ shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ______________________________________________________________________ Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ____________________________ _____________________________________ THE SIGNATURE TO THIS ASSIGNMENT MUST NOTICE: CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE Signature(s) Guaranteed WHATEVER. By ________________________________________________________ THE SIGNATURE MUST BE GUARANTEED BY A BROKERAGE FIRM OR A FINANCIAL INSTITUTION THAT IS A MEMBER OF A SECURITIES APPROVED MEDALLION PROGRAM, SUCH AS SECURITIES TRANSFER AGENTS MEDALLION PROGRAM (STAMP), STOCK EXCHANGES MEDALLION PROGRAM (SEMP) OR NEW YORK STOCK EXCHANGE, INC. MEDALLION SIGNATURE PROGRAM (MSP). EX-4.2 4 RIGHTS AGREEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT 4.2 RIGHTS AGREEMENT dated as of February 18, 1999 between VARIAN, INC. and FIRST CHICAGO TRUST COMPANY OF NEW YORK as Rights Agent - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- ARTICLE I CERTAIN DEFINITIONS................................................................................ 2 1.1 Certain Definitions.................................................................................. 2 ARTICLE II THE RIGHTS......................................................................................... 10 2.1 Summary of Rights.................................................................................... 10 2.2 Legend on Common Stock Certificates.................................................................. 10 2.3 Exercise of Rights; Separation of Rights............................................................. 11 2.4 Adjustments to Exercise Price; Number of Rights...................................................... 14 2.5 Date on Which Exercise is Effective.................................................................. 16 2.6 Execution, Authentication, Delivery and Dating of Rights Certificates................................ 17 2.7 Registration, Registration of Transfer and Exchange.................................................. 17 2.8 Mutilated, Destroyed, Lost and Stolen Rights Certificates............................................ 19 2.9 Persons Deemed Owners................................................................................ 20 2.10 Delivery and Cancellation of Certificates............................................................ 20 2.11 Agreement of Rights Holders.......................................................................... 21 ARTICLE III ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS..................................... 22 3.1 Flip-in.............................................................................................. 22 3.2 Flip-over............................................................................................ 25 ARTICLE IV THE RIGHTS AGENT................................................................................... 27 4.1 General.............................................................................................. 27 4.2 Merger or Consolidation or Change of Name of Rights Agent............................................ 28 4.3 Duties of Rights Agent............................................................................... 29 4.4 Change of Rights Agent............................................................................... 32 ARTICLE V MISCELLANEOUS...................................................................................... 33 5.1 Redemption........................................................................................... 33 5.2 Expiration........................................................................................... 34 5.3 Issuance of New Rights Certificates.................................................................. 34 5.4 Supplements and Amendments........................................................................... 35 5.5 Fractional Rights and Fractional Shares.............................................................. 36 5.6 Rights of Action..................................................................................... 37 5.7 Holder of Rights Not Deemed a Stockholder............................................................ 38 5.8 Notice of Proposed Actions........................................................................... 38 5.9 Notices.............................................................................................. 39 5.10 Suspension of Exercisability......................................................................... 40 5.11 Costs of Enforcement................................................................................. 40 5.12 Successors........................................................................................... 41 5.13 Benefits of this Agreement........................................................................... 41 5.14 Determination and Actions by the Board of Directors, Etc............................................. 41 5.15 Descriptive Headings................................................................................. 42 5.16 Governing Law........................................................................................ 42 5.17 Counterparts......................................................................................... 42
TABLE OF CONTENTS (CONTINUED)
PAGE ---- 5.18 Severability........................................................................................ 42 5.19 Book-Entry Account Statements....................................................................... 42 EXHIBIT A Form of Rights Certificate (Together with Form of Election to Exercise)................................................... A-1 EXHIBIT B Form of Certificate of Designation and Terms of Participating Preferred Stock of Varian, Inc.......................................... B-1
RIGHTS AGREEMENT RIGHTS AGREEMENT (as amended from time to time, this "Agreement"), dated as of February 18, 1999, between Varian, Inc., a Delaware corporation (the "Company"), and First Chicago Trust Company of New York, as Rights Agent (the "Rights Agent," which term shall include any successor Rights Agent hereunder). WITNESSETH: WHEREAS, the Board of Directors of the Company has (a) authorized and declared a dividend of one right ("Right") in respect of each outstanding share of Common Stock (as hereinafter defined) held of record as of 5:00 p.m., California time, on April 2, 1999 (the "Record Time") and (b) authorized the issuance of one Right in respect of each share of Common Stock issued after the Record Time and prior to the Separation Time (as hereinafter defined) and, to the extent provided in Section 5.3, each share of Common Stock issued after the Separation Time; WHEREAS, subject to the terms hereof, each Right entitles the holder thereof, after the Separation Time, to purchase securities of the Company (or, in certain cases, of certain other entities) pursuant to the terms and subject to the conditions set forth herein; and WHEREAS, the Company desires to appoint the Rights Agent to act on behalf of the Company, and the Rights Agent is willing so to act, in connection with the issuance, transfer, exchange and replacement of Rights Certificates (as hereinafter defined), the exercise of Rights and other matters referred to herein; NOW THEREFORE, in consideration of the premises and the respective agreements set forth herein, the parties hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS 1.1 Certain Definitions. For purposes of this Agreement, the following ------------------- terms have the meanings indicated: "Acquiring Person" shall mean any Person who is Beneficial Owner (as hereinafter defined) of 15% or more of the outstanding shares of Voting Stock (as hereinafter defined); provided, however, that the term "Acquiring Person" shall not include (i) any Person who is the Beneficial Owner of 15% or more of the outstanding shares of Common Stock on the date of this Agreement or who shall become the Beneficial Owner of 15% or more of the outstanding shares of Voting Stock solely as a result of an acquisition by the Company of shares of Voting Stock, until such time hereafter or thereafter as any of such Persons shall become the Beneficial Owner (other than by means of a stock dividend or stock split) of any additional shares of Voting Stock, (ii) any Person who Beneficially Owns shares of Voting Stock consisting solely of one or more of (A) shares of Voting Stock Beneficially Owned pursuant to the grant or exercise of an option granted to such Person by the Company in connection with an agreement to merge with, or acquire, the Company at a time at which there is no Acquiring Person, (B) shares of Voting Stock (or securities convertible into, exchangeable into or exercisable for Voting Stock), Beneficially Owned by such Person or its Affiliates (as hereinafter defined) or Associates (as hereinafter defined) at the time of grant of such option or (C) shares of Voting Stock (or securities convertible into, exchangeable into or exercisable for Voting Stock) acquired by Affiliates or Associates 2 of such Person after the time of such grant, which, in the aggregate, amount to less than 1% of the outstanding shares of Voting Stock, (iii) the Company, any wholly owned Subsidiary (as hereinafter defined) of the Company, and any employee stock ownership or other employee benefit plan of the Company or a wholly owned Subsidiary of the Company or (iv) before the distribution of the Company's outstanding stock to the stockholders of Varian Associates, Inc., Varian Associates, Inc. Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person," as defined pursuant to the foregoing provisions of this definition of "Acquiring Person," has become such inadvertently, and such Person divests as promptly as practicable a sufficient number of shares of Common Stock so that such Person would no longer be an "Acquiring Person," as defined pursuant to such foregoing provisions of this definition of "Acquiring Person," then such Person shall not be deemed to be an "Acquiring Person" for any purposes of this Agreement. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as such Rule is in effect on the date of this Agreement. A Person shall be deemed the "Beneficial Owner," and to have "Beneficial Ownership" of, and to "Beneficially Own," any securities as to which such Person or any of such Person's Affiliates or Associates is or may be deemed to be the beneficial owner pursuant to Rule 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as such Rules are in effect on the date of this Agreement, as well as any securities as to which such Person or any of such Person's Affiliates or Associates has the right to become the 3 Beneficial Owner (whether such right is exercisable immediately or only after the passage of time or the occurrence of conditions) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the "Beneficial Owner," or to have "Beneficial Ownership" of, or to "Beneficially Own," any security (i) solely because such security has been tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered security is accepted for payment or exchange or (ii) solely because such Person or any of such Person's Affiliates or Associates has or shares the power to vote or direct the voting of such security pursuant to a revocable proxy given in response to a public proxy or consent solicitation made to holders of shares of a class of stock of the Company registered under Section 12 of the Securities Exchange Act of 1934, and pursuant to, and in accordance with, the applicable rules and regulations under the Securities Exchange Act of 1934, except if such power, (or the arrangements relating thereto) is then reportable under Item 6 of Schedule 13D under the Securities Exchange Act of 1934 (or any similar provision of a comparable or successor report). For purposes of the Agreement, in determining the percentage of the outstanding shares of Voting Stock with respect to which a Person is the Beneficial Owner, all shares as to which such Person is deemed the Beneficial Owner shall be deemed outstanding. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the City of New York are generally authorized or obligated by law or executive order to close. 4 "Close of Business" on any given date shall mean 5:00 P.M., California time, on such date or, if such date is not a Business Day, 5:00 P.M., California time, on the next succeeding Business Day. "Common Stock" shall mean the shares of Common Stock, par value $0.01 per share, of the Company. "Control" or "control" shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Exchange Time" shall mean the time at which the right to exercise the Rights shall terminate pursuant to Section 3.1(c) hereof. "Exercise Price" shall mean, as of any date, the price at which a holder may purchase the securities issuable upon exercise of one whole Right. Until adjustment thereof in accordance with the terms hereof, the Exercise Price shall equal $75.00. "Expiration Time" shall mean the earliest of (i) the Exchange Time, (ii) the Redemption Time (as hereinafter defined), (iii) the Close of Business on the tenth-year anniversary of the Record Time and (iv) upon the merger of the Company into another corporation pursuant to an agreement entered into when there is no Acquiring Person. "Flip-in Date" shall mean any Stock Acquisition Date (as hereinafter defined) or such earlier or later date as the Board of Directors of the Company may from time to time fix by resolution adopted prior to the Flip-in Date that would otherwise have occurred. 5 "Flip-over Entity" shall mean (i) in the case of Flip-over Transaction or Event (as hereinafter defined) described in clause (i) of the definition thereof, the Person issuing any securities into which shares of Common Stock are being converted or exchanged and, if no such securities are being issued, the other party to such Flip-over Transaction or Event and (ii) in the case of Flip- over Transaction or Event referred to in clause (ii) of the definition thereof, the Person receiving the greatest portion of the assets or earning power being transferred in such Flip-over Transaction or Event, provided in all cases if such Person is a Subsidiary of a corporation, the parent corporation shall be the Flip-over Entity. "Flip-over Stock" shall mean the class of capital stock (or similar equity interest) with the greatest voting power in respect of the election of directors (or other persons similarly responsible for direction of the business and affairs) of the Flip-over Entity. "Flip-over Transaction or Event" shall mean a transaction or series of transactions after the time when an Acquiring Person has become such in which, directly or indirectly, (i) the Company shall consolidate or merge or participate in a share exchange with any other Person if, at the time of the consolidation, merger or share exchange or at the time the Company enters into any agreement with respect to any such consolidation, merger or share exchange, the Acquiring Person controls the Board of Directors of the Company, or (ii) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer) directly or by sale of stock, assets or control of assets (A) aggregating more than 50% of the assets (measured by either book value or fair market value) as of the end of the more recently completed fiscal year 6 or (B) generating more than 50% of the operating income or cash flow during the more recently completed fiscal year, of the Company and its Subsidiaries (taken as a whole) to any Person (other than the Company or one or more of its wholly owned Subsidiaries) or to two or more such Persons which are Affiliates or Associates or otherwise acting in concert, if, at the time of the entry by the Company (or any such Subsidiary) into an agreement with respect to such sale or transfer of assets, the Acquiring Person controls the Board of Directors of the Company. For purposes of the foregoing description, the term "Acquiring Person" shall include any Acquiring Person and its Affiliates and Associates and others acting directly or indirectly on behalf of or in concert with any such Acquiring Person, Affiliate or Associate, counted together as a single Person. "Market Price" per share of any securities on any date shall mean the average of the daily closing prices per share of such securities (determined as described below) on each of the 20 consecutive Trading Days (as hereinafter defined) through and including the Trading Day immediately preceding such date; provided, however, that if a type of event analogous to any of the events described in Section 2.4 hereof shall have caused the closing prices used to determine the Market Price on any Trading Days during such period of 20 Trading Days not to be fully comparable with the closing price on such date because of stock exchange or other trading adjustments, each such closing price so used shall be appropriately adjusted in order to make it fully comparable with the closing price on such date. The closing price per share of any securities on any date shall be the last reported sale price, regular way, or, in case no such sale takes place or is quoted on such date, the average of the closing bid and asked prices, regular way, for each share of such securities, in either case as reported in the principal consolidated transaction 7 reporting system with respect to securities listed on the principal national securities exchange on which the securities are listed or admitted to trading or, if the securities are not listed or admitted to trading on any national securities exchange, as reported by the Nasdaq Stock Market or any similar quotation system, or, if on any such date the securities are not listed or admitted to trading on any national securities exchange or quoted by any such organization or system, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the securities selected by the Board of Directors of the Company; provided, however, that if on any such date the securities are not listed or admitted to trading on a national securities exchange or quoted in the over-the-counter market, the closing price per share of such securities on such date as determined in good faith by the Board of Directors of the Company, after consultation with a nationally recognized investment banking firm, and set forth in a certificate delivered to the Rights Agent. "Person" shall mean any individual, firm, partnership, limited liability company, association, group (as such term is used in Rule 13d-5 under the Securities Exchange Act of 1934, as such Rule is in effect on the date of the Agreement), corporation or other entity. "Preferred Stock" shall mean the series of Participating Preferred Stock, par value $0.01 per share, of the Company created by a Certificate of Designation and Terms in substantially the form set forth in Exhibit B hereto appropriately completed. "Redemption Price" shall mean an amount equal to $0.001 per Right, as such amount may be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof. 8 "Redemption Time" shall mean the time at which the right to exercise the Rights shall terminate pursuant to Section 5.1 hereof. "Separation Time" shall mean the Close of Business on the earlier of (i) the tenth Business Day (or such later date as the Board of Directors of the Company may from time to time fix by resolution adopted prior to the Separation Time that would otherwise have occurred) after the date on which any Person commences a tender or exchange offer which, if consummated, would result in such Person's becoming an Acquiring Person and (ii) the Flip-in Date; provided, that if the foregoing results in the Separation Time being prior to the Record Time, the Separation Time shall be the Record Time and provided further, that if any tender or exchange offer referred to in clause (i) of this paragraph is cancelled, terminated or otherwise withdrawn prior to the Separation Time without the purchase of any shares of Voting Stock pursuant thereto, such offer shall be deemed, for purposes of this paragraph, never to have been made. "Stock Acquisition Date" shall mean the first date of public announcement by the Company or an Acquiring Person (by any means) that an Acquiring Person has become such, provided such Person otherwise comes within the definition of an "Acquiring Person" hereinabove set forth. "Stockholder" shall mean a holder of capital stock of the Company. "Subsidiary" of any specified Person shall mean any corporation or other entity of which a majority of the voting power of the equity securities or a majority of the equity interest is Beneficially Owned, directly or indirectly, by such Person. "Trading Day," when used with respect to any securities, shall mean a day on which the principal national securities exchange or quotation system on which such 9 securities are listed or traded is open for the transaction of business or, if such securities are not listed or traded on any national securities exchange or quotation system, a Business Day. "Voting Stock" means shares of capital stock of the Company entitled to vote generally in the election of directors. ARTICLE II THE RIGHTS 2.1 Summary of Rights. As soon as practicable after the Record Time, the ----------------- Company will mail a letter summarizing the terms of the Rights to each holder of record of Common Stock as of the Record Time, at such holder's address as shown by the records of the Company. 2.2 Legend on Common Stock Certificates. Certificates for the Common Stock ----------------------------------- issued after the Record Time but prior to the Separation Time shall evidence one Right for each share of Common Stock represented thereby and shall have impressed on, printed on, written on or otherwise affixed to them the following legend: "Until the Separation Time (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement, dated as of February 18, 1999 (as such may be amended from time to time, the "Rights Agreement"), between Varian, Inc. (the "Company") and First Chicago Trust Company of New York, as Rights Agent, the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may be exchanged for shares of Common Stock or other securities or assets of the Company or a Subsidiary of the Company, may expire, may become void (if they are "Beneficially Owned" by an "Acquiring Person" or an Affiliate or Associate thereof, as such terms are defined in the Rights Agreement, or by any transferee of any of the foregoing) or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Company will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate 10 without charge within five days after the receipt of a written request therefor." Certificates representing shares of Common Stock that are issued and outstanding at the Record Time shall evidence one Right for each share of Common Stock evidenced thereby notwithstanding the absence of the foregoing legend. 2.3 Exercise of Rights; Separation of Rights. ---------------------------------------- (a) Subject to Sections 3.1, 5.1 and 5.10 and subject to adjustment as herein set forth, each Right will entitle the holder thereof, after the Separation Time and prior to the Expiration Time, to purchase, for the Exercise Price, one one-thousandth of a share of Preferred Stock. (b) Until the Separation Time, (i) no Right may be exercised and (ii) each Right will be evidenced by the certificate for the associated share of Common Stock (together, in the case of certificates issued prior to the Record Time, with the letter mailed to the record holder thereof pursuant to Section 2.1) and will be transferable only together with, and will be transferred by a transfer (whether with or without such letter) of, such associated share. (c) Subject to the terms hereof, after the Separation Time and prior to the Expiration Time, the Rights (i) may be exercised and (ii) may be transferred independent of shares of Common Stock. Promptly following the Separation Time, the Rights Agent will mail to each holder of record of Common Stock as of the Separation Time (other than any Person whose Rights have become void pursuant to Section 3.1(b)), at such holder's address as shown by the records of the Company (the Company hereby agreeing to furnish copies of such records to the Rights Agent for this purpose), (x) a certificate (a "Rights Certificate") in substantially the form of Exhibit A hereto 11 appropriately completed, representing the number of Rights held by such holder at the Separation Time and having such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any national securities exchange or quotation system on which the Rights may from time to time be listed or traded, or to conform to usage, and (y) a disclosure statement describing the Rights. The Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 5.5 hereof) so that Rights Certificates evidencing only whole numbers of Rights are distributed and cash is paid in lieu of fractional Rights. (d) Subject to the terms hereof, Rights may be exercised on any Business Day after the Separation Time and prior to the Expiration Time by submitting to the Rights Agent the Rights Certificate evidencing such Rights with an Election to Exercise (an "Election to Exercise") substantially in the form attached to the Rights Certificate duly completed, accompanied by payment in cash, or by certified or official bank check or money order payable to the order of the Company, of a sum equal to the Exercise Price multiplied by the number of Rights being exercised and a sum sufficient to cover any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for shares or depositary receipts (or both) in a name other than that of the holder of the Rights being exercised. 12 (e) Upon receipt of a Rights Certificate, with an Election to Exercise accompanied by payment as set forth in Section 2.3(d), and subject to the terms hereof, the Rights Agent will thereupon promptly (i)(A) requisition from a transfer agent stock certificates evidencing such number of shares or other securities to be purchased (the Company hereby irrevocably authorizing its transfer agents to comply with all such requisitions) and (B) if the Company elects pursuant to Section 5.5 not to issue certificates representing fractional shares, requisition from the depositary selected by the Company depositary receipts representing the fractional share to be purchased or requisition from the Company the amount of cash to be paid in lieu of fractional shares in accordance with Section 5.5 and (ii) after receipt of such certificates, depositary receipts and/or cash, deliver the same to or upon the order of the registered holder of such Rights Certificate, registered (in the case of certificates or depositary receipts) in such name or names as may be designated by such holder. (f) In case the holder of any Rights shall exercise less than all the Rights evidenced by such holder's Rights Certificate, a new Rights Certificate evidencing the Rights remaining unexercised will be issued by the Rights Agent to such holder or to such holder's duly authorized assigns. (g) The Company covenants and agrees that it will (i) take all such action as may be necessary to ensure that all shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Exercise Prices), be duly and validly authorized, executed, issued and delivered and fully paid and nonassessable; (ii) take all such action as may be necessary to comply with any applicable requirements of the Securities Act of 1933 or the Securities Exchange Act of 13 1934, and the rules and regulations thereunder, and any other applicable law, rule or regulation, in connection with the issuance of any shares upon exercise of Rights; and (iii) pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the original issuance or delivery of the Rights Certificates or of any shares issued upon the exercise of Rights, provided that the Company shall not be required to pay any transfer tax or charge which may be payable in respect of any transfer involved in the transfer of delivery of Rights Certificates or the issuance or delivery of certificates for shares in a name other than that of the holder of the Rights being transferred or exercised. 2.4 Adjustments to Exercise Price; Number of Rights. ----------------------------------------------- (a) In the event the Company shall at any time after the Record Time and prior to the Separation Time (i) declare or pay a dividend on Common Stock payable in Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares of Common Stock, (x) the Exercise Price in effect after such adjustment will be equal to the Exercise Price in effect immediately prior to such adjustment divided by the number of shares of Common Stock (the "Expansion Factor") that a holder of one share of Common Stock immediately prior to such dividend, subdivision or combination would hold thereafter as a result thereof and (y) each Right held prior to such adjustment will become that number of Rights equal to the Expansion Factor, and the adjusted number of Rights will be deemed to be distributed among the shares of Common Stock with respect to which the original Rights were associated (if they remain outstanding) and the shares issued in respect of such dividend, subdivision or combination, so that each such share of Common Stock will have exactly 14 one Right associated with it. Each adjustment made pursuant to this paragraph shall be made as of the payment or effective date for the applicable dividend, subdivision or combination. In the event the Company shall at any time after the Record Time and prior to the Separation Time issue any shares of Common Stock otherwise than in a transaction referred to in the preceding paragraph, each such share of Common Stock so issued shall automatically have one new Right associated with it, which Right shall be evidenced by the certificate representing such share. To the extent provided in Section 5.3, Rights shall be issued by the Company in respect of shares of Common Stock that are issued or sold by the Company after the Separation Time. (b) In the event the Company shall at any time after the Record Time and prior to the Separation Time issue or distribute any securities or assets in respect of, in lieu of or in exchange for Common Stock (other than pursuant to a regular periodic cash dividend or a dividend paid solely in Common Stock) whether by dividend, in a reclassification or recapitalization (including any such transaction involving a merger, consolidation or share exchange), or otherwise, the Company shall make such adjustments, if any, in the Exercise Price, number of Rights and/or securities or other property purchasable upon exercise of Rights as the Board of Directors of the Company, in its sole discretion, may deem to be appropriate under the circumstances in order adequately to protect the interests of holders of Rights generally, and the Company and the Rights Agent shall amend this Agreement as necessary to provide for such adjustments. 15 (c) Each adjustment to the Exercise Price made pursuant to this Section 2.4 shall be calculated to the nearest cent. Whenever an adjustment to the Exercise Price is made pursuant to this Section 2.4, the Company shall (i) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (ii) promptly file with the Rights Agent and with each transfer agent for the Common Stock a copy of such certificate and (iii) mail a brief summary thereof to each holder of Rights. (d) Irrespective of any adjustment or change in the securities purchase upon exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the securities so purchasable which were expressed in the initial Rights Certificates issued hereunder. 2.5 Date on Which Exercise is Effective. Each Person in whose name any ----------------------------------- certificate for shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Exercise Price for such Rights (and any applicable taxes and other governmental charges payable by the exercising holder hereunder) was made; provided, however, that if the date of such surrender and payment is a date upon which the stock transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificates shall be dated, the next succeeding Business Day on which the stock transfer books of the Company are open. 16 2.6 Execution, Authentication, Delivery and Dating of Rights Certificates. --------------------------------------------------------------------- (a) The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President, any of its Vice Presidents, its Chief Financial Officer or its Treasurer under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Rights Certificates may be manual or facsimile. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such officer prior to the countersignature and delivery of such Rights Certificates. Promptly after the Company learns of the Separation Time, the Company will notify the Rights Agent of such Separation Time and will deliver Rights Certificates executed by the Company to the Rights Agent for countersignature, and, subject to Section 3.1(b), the Rights Agent shall manually countersign and deliver such Rights Certificates to the holders of the Rights pursuant to Section 2.3(c) hereof. No Rights Certificate shall be valid for any purpose unless manually countersigned by the Rights Agent. (b) Each Rights Certificate shall be dated the date of countersignature thereof. 2.7 Registration, Registration of Transfer and Exchange. --------------------------------------------------- (a) After the Separation Time, the Company will cause to be kept a register (the "Rights Register") in which, subject to such reasonable regulations as it may prescribe, the Company will provide for the registration and transfer of Rights. The 17 Rights Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the Rights Register for the Company and registering Rights and transfers of Rights after the Separation Time as herein provided. In the event that the Rights Agent will have the right to examine the Rights Register at all reasonable times after the Separation Time. After the Separation Time and prior to the Expiration Time, upon surrender for registration of transfer or exchange of any Rights Certificate, and subject to the provisions of Section 2.7(c) and (d), the Company will execute, and the Rights Agent will countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder's instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as did the Rights Certificate so surrendered. (b) Except as otherwise provided in Section 3.1(b), all Rights issued upon any registration of transfer or exchange of Rights Certificates shall be the valid obligations of the Company, and such Rights shall be entitled to the same benefits under this Agreement as the Rights surrendered upon such registration of transfer or exchange. (c) Every Rights Certificate surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company or the Rights Agent, as the case may be, duly executed by the holder thereof or such holder's attorney duly authorized in writing. As a condition to the issuance of any new Rights Certificate under this Section 2.7, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. 18 (d) The Company shall not be required to register the transfer or exchange of any Rights after such Rights have become void under Section 3.1(b), been exchanged under Section 3.1(c) or been redeemed or terminated under Section 5.1. 2.8 Mutilated, Destroyed, Lost and Stolen Rights Certificates. --------------------------------------------------------- (a) If any mutilated Rights Certificate is surrendered to the Rights Agent prior to the Expiration Time, then, subject to Section 3.1(b) and 5.1, the Company shall execute and the Rights Agent shall countersign and deliver in exchange therefor a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so surrendered. (b) If there shall be delivered to the Company and the Rights Agent prior to the Expiration Time (i) evidence to their satisfaction of the destruction, loss or theft of any Rights Certificate and (ii) such security or indemnity as may be required by them to save each of them and any of their agents harmless, then, subject to Section 3.1(b) and 5.1 and in the absence of notice to the Company or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate so destroyed, lost or stolen. (c) As a condition to the issuance of any new Rights Certificate under this Section 2.8, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) connected therewith. 19 (d) Every new Rights Certificate issued pursuant to this Section 2.8 in lieu of any destroyed, lost or stolen Rights Certificate shall evidence an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Rights duly issued hereunder. 2.9 Persons Deemed Owners. Prior to due presentment of a Rights --------------------- Certificate (or, prior to the Separation Time, the associated Common Stock certificate) for registration of transfer, the Company, the Rights Agent and any agent of the Company or the Rights Agent may deem and treat the Person in whose name such Rights Certificate (or, prior to the Separation Time, such Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever, including the payment of the Redemption Price, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. As used in the Agreement, unless the context otherwise requires, the term "holder" of any Rights shall mean the registered holder of such Rights (or, prior to the Separation Time, the associated shares of Common Stock). 2.10 Delivery and Cancellation of Certificates. All Rights Certificates ----------------------------------------- surrendered upon exercise or for registration of transfer or exchange shall, if surrendered to any Person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Company may at any time deliver to the Rights Agent for cancellation any Rights Certificate previously countersigned and delivered hereunder which the Company may have acquired in any 20 manner whatsoever, and all Rights Certificate so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificate shall be countersigned in lieu of or in exchange for any Rights Certificate cancelled as provided in this Section 2.10, except as expressly permitted by this Agreement. The Rights Agent shall destroy all cancelled Rights Certificates and deliver a certificate of destruction to the Company. 2.11 Agreement of Rights Holders. Every holder of Rights by accepting the --------------------------- same consents and agrees with the Company and the Rights Agent and with every other holder of Rights that: (a) Prior to the Separation Time, each Right will be transferable only together with, and will be transferred by a transfer of, the associated share of Common Stock; (b) After the Separation Time, the Rights Certificate will be transferable only on the Rights Register as provided herein; (c) Prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Common Stock certificate) for registration of transfer, the Company, the Rights Agent and any agent of the Company or the Rights Agent may deem and treat the Person in whose name the Rights Certificate (or, prior to the Separation Time, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary; (d) Rights Beneficially Owned by certain Persons will, under the circumstances set forth in Section 3.1(b), become void; and 21 (e) This Agreement may be supplemented or amended from time to time pursuant to Section 2.4(b) or 5.4 hereof. ARTICLE III ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS 3.1 Flip-in. ------- (a) In the event that prior to the Expiration Time a Flip-in Date shall occur, the Company shall take such action as shall be necessary to ensure and provide that, except as provided in this Section 3.1, each Right shall constitute the right to purchase from the Company, upon exercise thereof in accordance with the terms hereof (but subject to Section 5.10), that number of shares of Common Stock having an aggregate Market Price on the Stock Acquisition Date equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such right to be appropriately adjusted in order to protect the interests of the holders of Rights generally in the event that on or after such Stock Acquisition Date an event of a type analogous to any of the events described in Section 2.4(a) or (b) shall have occurred with respect to the Common Stock). (b) Notwithstanding the foregoing, any Rights that are or were Beneficially Owned on or after the Stock Acquisition Date by an Acquiring Person or an Affiliate or Associate thereof or by any transferee, direct or indirect, of any of the foregoing shall become void and any holder of such Rights (including transferees) shall thereafter have no right to exercise or transfer such Rights under any provision of this Agreement. If any Rights Certificate is presented for assignment or exercise and the Person presenting the same will not complete the certification set forth at the end of the form or assignment or notice of election to exercise and provide such additional evidence 22 of the identity of the Beneficial Owner and its Affiliates and Associates (or former Beneficial Owners and their Affiliates and Associates) as the Company shall reasonably request, then the Company shall be entitled conclusively to deem the Beneficial Owner thereof to be an Acquiring Person or an Affiliate or Associate thereof or a transferee of any of the foregoing and accordingly will deem the Rights evidenced thereby to be void and not transferable or exercisable. (c) The Board of Directors of the Company may, at its option, at any time after a Flip-in Date and prior to the time that an Acquiring Person becomes the Beneficial Owner of more than 50% of the outstanding shares of Voting Stock elect to exchange all or part of the then outstanding Rights (which shall not include Rights that have become void pursuant to the provisions of Section 3.1(b)) for shares of Common Stock at an exchange ratio of one share of Common Stock per Right, appropriately adjusted in order to protect the interests of holders of Rights generally in the event that after the Separation Time an event of a type analogous to any of the events described in Section 2.4(a) or (b) shall have occurred with respect to the Common Stock (such exchange ratio, as adjusted from time to time, being hereinafter referred to as the "Exchange Ratio"). Immediately upon the action of the Board of Directors of the Company electing to exchange the Rights, without any further action and without any notice, the right to exercise the Rights will terminate and each Right (other than Rights that have become void pursuant to Section 3.1(b)) will thereafter represent only the right to receive a number of shares of Common Stock equal to the Exchange Ratio. Promptly after the action of the Board of Directors electing to exchange the Rights, the Company shall give 23 notice thereof (specifying the steps to be taken to receive shares of Common Stock in exchange for Rights) to the Rights Agent and the holders of the Rights (other than Rights that have become void pursuant to Section 3.1(b)) outstanding immediately prior thereto by mailing such notice in accordance with Section 5.9. Each Person in whose name any certificate for shares is issued upon the exchange of Rights pursuant to the Section 3.1(c) or Section 3.1(d) shall for all purposes be deemed to have become the holder of record of the shares represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of any applicable taxes and other governmental charges by the holder was made; provided, however, that if the date of such surrender and payment is a date upon which the stock transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the stock transfer books of the Company are open. (d) Whenever the Company shall become obligated under Section 3.1(a) or (c) to issue shares of Common Stock upon exercise of or in exchange for Rights, the Company, at its option, may substitute therefor shares of Preferred Stock, at a ratio of one-thousandth of a share of Preferred Stock for each share of Common Stock so issuable, appropriately adjusted to protect interests of the holders of the Rights generally to reflect any event of this type analogous to any of the events described in Section 2.4 (a) or (b) which may have occurred with respect to the Common Stock. (e) In the event that there shall not be sufficient treasury shares or authorized but unissued shares of Common Stock or Preferred Stock of the Company to 24 permit the exercise or exchange in full of the Rights in accordance with Section 3.1(a) or (c), the Company shall either (i) call a meeting of Stockholders seeking approval to cause sufficient additional shares to be authorized (provided that if such approval is not obtained the Company will take the action specified in clause (ii) of this sentence) or (ii) take such action as shall be necessary to ensure and provide, to the extent permitted by applicable law and any agreements or instruments in effect on the Stock Acquisition Date to which it is a party, that each Right shall thereafter constitute the right to receive, (x) at the Company's option, either (A) in return for the Exercise Price, debt or equity securities or other assets (or a combination thereof) having a fair value equal to twice the Exercise Price, or (B) without payment of consideration (except as otherwise required by applicable law), debt or equity securities or other assets (or a combination thereof) having a fair value equal to the Exercise Price, or (y) if the Board of Directors of the Company elects to exchange the Rights in accordance with Section 3.1(c), debt or equity securities or other assets (or a combination thereof) having a fair value equal to the product of the Market Price of a share of Common Stock on the Flip-in Date times the Exchange Ratio in effect on the Flip-in Date, where in any case set forth in (x) or (y) above the fair value of such debt or equity securities or other assets shall be as determined in good faith by the Board of Directors of the Company, after consultation with a nationally recognized investment banking firm. 3.2 Flip-over. --------- (a) Prior to the Expiration Time, the Company shall not enter into any agreement with respect to, or consummate or permit to occur, any Flip-over Transaction or Event unless and until it shall have duly entered into a binding and enforceable 25 supplemental agreement with the Flip-over Entity, for the benefit of the holders of the Rights, providing that, upon consummation or occurrence or the Flip-over Transaction or Event (i) each Right shall thereafter constitute the right to purchase from the Flip-over Entity, upon exercise thereof in accordance with the terms hereof, that number of shares of Flip-over Stock of the Flip-over Entity having an aggregate Market Price on the date of consummation or occurrence of such Flip-over Transaction or Event Equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such right to be appropriately adjusted in order to protect the interests of the holders of Rights generally in the event that after such date of consummation or occurrence an event of a type analogous to any of the events described in Section 2.4(a) or (b) shall have occurred with respect to the Flip-over Stock) and (ii) the Flip-over Entity shall thereafter be liable for, and shall assume, by virtue of such Flip-over Transaction or Event and such supplemental agreement, all the obligations and duties of the Company pursuant to this Agreement, but the Company's obligations under this Agreement shall not be discharged and shall continue in full. The provisions of this Section 3.2 shall apply to successive Flip-over Transactions or Events. (b) Prior to the Expiration Time, the Company shall not enter into any agreement with respect to, or consummate or permit to occur, any Flip-over Transaction or Event if at the time thereof there are any rights, warrants or securities outstanding or any other arrangements, agreements or instruments that would eliminate or otherwise diminish in any material respect the benefits intended to be afforded by this Rights Agreement to the holders of Rights upon consummation of such transaction. 26 ARTICLE IV THE RIGHTS AGENT 4.1 General. ------- (a) The Company hereby appoints the Rights Agent to act as agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted to be done by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any certificate for securities purchasable upon exercise of Rights, Rights Certificate, certificate for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. 27 4.2 Merger or Consolidation or Change of Name of Rights Agent. --------------------------------------------------------- (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any corporation succeeding to the stockholder services business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 4.4 hereof. In case, at the time such successor Rights Agent succeeds to the agency created by this Agreement, any of the Rights Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates have not be countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates will have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent is changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates 28 either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. 4.3 Duties of Rights Agent. ---------------------- The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel will be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent deems it necessary or desirable that any fact or matter be provided or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively provided and established by a certificate signed by a person believed by the Rights Agent to be the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer or the Treasurer, and by the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate will be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. 29 (c) The Rights Agent will be liable hereunder only for its own negligence, bad faith or willful misconduct. Anything to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, indirect, consequential or incidental loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Rights Agent has been advised of the likelihood of such damages. (d) The Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the certificates for securities purchasable upon exercise of Rights or the Rights Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and will be deemed to have been made by the Company only. (e) The Rights Agent will not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any certificate for securities purchasable upon exercise of Rights or Rights Certificate (except its countersignature thereof); nor will it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor will it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 3.1(b) hereof) or any adjustment required under the provisions of Section 2.4, 3.1 or 3.2 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights after receipt of the certificate contemplated by Section 2.4 describing any such adjustment); nor will it by any act hereunder be deemed to make any 30 representation or warranty as to the authorization or reservation of any securities purchasable upon exercise of Rights or any Rights or as to whether any securities purchasable upon exercise of Rights will, when issued, be duly and validly authorized, executed, issued and delivered and fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any person believed by the Rights Agent to be the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer or the Secretary or any Assistant Secretary of the Company, and to apply to such persons for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such person. (h) The Rights Agent and any Stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in Common Stock, Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. 31 (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. 4.4 Change of Rights Agent. The Rights Agent may resign and be discharged ---------------------- from its duties under this Agreement upon 90 days' notice (or such lesser notice as is acceptable to the Company) in writing mailed to the Company and to each transfer agent of Common Stock by registered or certified mail, and to the holders of the Rights in accordance with Section 5.9. The Company may remove the Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent and to each transfer agent of the Common Stock by registered or certified mail, and to the holders of the Rights in accordance with Section 5.9. If the Rights Agent should resign or be removed or otherwise become incapable of acting, the Company will appoint a successor to the Rights Agent. If the Company fails to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of any Rights (which holder shall, with such notice, submit such holder's Rights Certificate for inspection by the Company), then the holder of any Rights may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (A) a corporation organized and doing business under the laws of the United States or of the State of New York or California, or of any 32 other state of the United States so long as such corporation is authorized to do business as a banking institution in the State of New York or California, which is authorized under such laws to exercise the powers of the Rights Agent contemplated by this Agreement and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $15,000,000 or (B) an Affiliate of a corporation described in clause (A) of this sentence. After appointment, the successor Rights Agent will be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company will file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock, and mail a notice thereof in writing to the holders of the Rights. Failure to give any notice provided for in this Section 4.4, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. ARTICLE V MISCELLANEOUS 5.1 Redemption ---------- (a) The Board of Directors of the Company may, at its option, at any time prior to the Close of Business on the Flip-in Date, elect to redeem all (but not less than all) the then outstanding Rights at the Redemption Price and the Company, at its option, may pay the Redemption Price either in cash or shares of Common Stock or other 33 securities of the Company deemed by the Board of Directors, in the exercise of its sole discretion, to be at least equivalent in value to the Redemption Price. (b) Immediately upon the action of the Board of Directors of the Company electing to redeem the Rights (or, if the resolution of the Board of Directors electing to redeem the Rights states that the redemption will not be effective until the occurrence of a specified future time or event, upon the occurrence of such future time or event), without any further action and without any notice, the right to exercise the Rights will terminate and each Right will thereafter represent only the right to receive the Redemption Price in cash or securities, as determined by the Board of Directors. Promptly after the Rights are redeemed, the Company shall give notice of such redemption to the Rights Agent and the holders of the then-outstanding Rights by mailing such notice in accordance with Section 5.9. 5.2 Expiration. The Rights and this Agreement shall expire at the ---------- Expiration Time and no Person shall have any rights pursuant to this Agreement or any Right after the Expiration Time, except as provided in Sections 3.1 and 5.1 hereof, with respect to Rights which the Board of Directors of the Company have elected to exchange or redeem, and except with respect to any Rights for which an Election to Exercise has been duly filed with the Rights Agents prior to the Expiration Time. 5.3 Issuance of New Rights Certificates. Notwithstanding any of the ----------------------------------- provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the number or kind or class of shares of stock purchasable upon exercise of Rights made in accordance with the 34 provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock by the Company following the Separation Time and prior to the Redemption Time or Expiration Time pursuant to the terms of securities exercisable, convertible or exchangeable into shares of Common Stock or pursuant to options exercisable for Common Stock or in connection with the vesting or payment of securities awarded by the Corporation under any plan or arrangement, in each case issued, granted or awarded prior to, and outstanding at, the Separation Time, the Company shall issue to the holders of such shares of Common Stock, Rights Certificates representing the appropriate number of Rights in connection with the issuance or sale of such shares of Common Stock; provided, however, in each case, (i) no such Rights Certificate shall be issued, if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or to the Person to whom such Rights Certificates would be issued, (ii) no such Rights Certificates shall be issued if, and to the extent that, appropriate adjustment shall have otherwise been made in lieu of the issuance thereof, and (iii) the Company shall have no obligation to distribute Rights Certificates to any Acquiring Person or Affiliate or Associate of an Acquiring Person or any transferee of any of the foregoing. 5.4 Supplements and Amendments. The Company and the Rights Agent may from -------------------------- time to time supplement or amend this Agreement without the approval of any holders of Rights (i) prior to the Close of Business on the Flip-in Date, in any respect and (ii) after the Close of Business on the Flip-in Date, to make any changes that the Company may deem necessary or desirable and which shall not materially adversely affect the interests of the holders of Rights generally (other than an Acquiring Person or 35 an Affiliate or Associate of an Acquiring Person). The Rights Agent will duly execute and deliver any supplement or amendment hereto requested by the Company which satisfies the terms of the preceding sentence. 5.5 Fractional Rights and Fractional Shares. --------------------------------------- (a) The Company shall not be required to issue fractions of Rights or to distribute Rights Certificates that evidence fractional Rights. In lieu of such fractional Rights, as soon as practicable following the Separation Time there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 5.5, the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last reported sale price, regular way, or, in case no such sale takes place or is quoted on such date, the average of the closing bid and asked prices, regular way, for each share of such securities, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the securities are listed or admitted to trading or, if the securities are not listed or admitted to trading on any national securities exchange, as reported by the Nasdaq Stock Market or any similar quotation system, or, if on any such date the securities are not listed or admitted to trading on any national securities exchange or quoted by any such organization or system, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the securities selected by the Board of Directors of the 36 Company; provided, however, that if on any such date the securities are not listed or admitted to trading on a national securities exchange or quoted in the over-the-counter market, the closing price per share of such securities on such date as determined in good faith by the Board of Directors of the Company, after consultation with a nationally recognized investment banking firm, and set forth in a certificate delivered to the Rights Agent. (b) If the Company elects not to issue certificates representing fractional shares upon exercise or redemption of Rights, the Company shall, in lieu thereof, in the sole discretion of the Board of Directors, either (a) evidence such fractional shares by depositary receipts issued pursuant to an appropriate agreement between the Company and a depositary selected by it, providing that each holder of a depositary receipt shall have all of the rights, privileges and preferences to which such holder would be entitled as a Beneficial Owner of such fractional share, or (b) sell such shares on behalf of the holders of Rights and pay to the registered holder of such Rights the appropriate fraction of price per share received upon such sale. (c) The holder of a Right by the acceptance of the Right expressly waives his/her right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as provided in Section 5.5 hereof). 5.6 Rights of Action. Subject to the terms of this Agreement (including ---------------- Section 3.1(b)), rights of action in respect of this Agreement, other than rights of action vested solely in the Rights Agent, are vested in the respective holders of the Rights; and any holder of any Rights, without the consent of the Rights Agent or of the holder of any other Rights, may, on such holder's own behalf and for such holder's own benefit and the 37 benefit of other holders of Rights, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holder's right to exercise such holder's Rights in the manner provided in such holder's Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. 5.7 Holder of Rights Not Deemed a Stockholder. No holder, as such, of any ----------------------------------------- Rights shall be entitled to vote, receive dividends or be deemed for any purpose the holder of shares or any other securities which may at any time be issuable on the exercise of such Rights, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights, as such, any of the rights of a Stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to Stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting Stockholders (except as provided in Section 5.8 hereof), or to receive dividends or subscription rights, or otherwise, until such Rights shall have been exercised or exchanged in accordance with the provisions hereof. 5.8 Notice of Proposed Actions. In case the Company shall propose after -------------------------- the Separation Time and prior to the Expiration Time (i) to effect or permit (in cases where the Company's permission is required) the occurrence of any Flip-in Date or Flip-over 38 Transaction or Event or (ii) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Right, in accordance with Section 5.9 hereof, notice of such proposed action, which shall specify the Flip-in Date or the date on which such Flip-over Transaction or Event, liquidation, dissolution, or winding up is to take place, and such notice shall be as given at least 20 Business Days prior to the date of the taking of such proposed action. 5.9 Notices. Notices or demands authorized or required by this Agreement ------- to be given or made by the Rights Agent or by the holder of any Rights to or on the Company shall be sufficiently given or made if delivered or sent by first- class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Varian, Inc. 3120 Hansen Way Palo Alto, California 94304-1000 Attention: Corporate Secretary Any notice or demand authorized or required by this Agreement to be given or made by the Company or by the holder of any Rights to or on the Rights Agent shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: First Chicago Trust Company of New York 525 Washington Boulevard, Suite 4660 Jersey City, New Jersey 07310 Attention: Corporate Actions, Administration Notices or demands authorized or required by this Agreement to be given or made by the Company or the Rights Agent to or on the holder of any Rights shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, 39 addressed to such holder at the address of such holder as it appears upon the registry books of the Rights Agent or, prior to the Separation Time, on the registry books of the transfer agent for the Common Stock. All such notices and demands shall be deemed to have been given on the date of delivery thereof, if delivered by hand, and on the third day after the mailing thereof, if mailed. Any notice that is mailed in the manner herein provided, shall be deemed given, whether or not the holder receives the notice. 5.10 Suspension of Exercisability. To the extent that the Company ---------------------------- determines in good faith that some action will or need be taken pursuant to Section 3.1(a), (b), (d) or (e) or to comply with federal or state securities laws, the Company may suspend the exercisability of the Rights for a period of up to ninety (90) days following the date of the occurrence of the Separation Time or the Flip-in Date in order to take such action or comply with such laws. In the event of any such suspension, the Company shall issue as promptly as practicable a public announcement stating that the exercisability or exchangeability of the Rights has been temporarily suspended. Notice thereof pursuant to Section 5.9 shall not be required. Failure to give a notice pursuant to the provisions of this Agreement shall not affect the validity of any action taken hereunder. 5.11 Costs of Enforcement. The Company agrees that if the Company or any -------------------- other Person the securities of which are purchasable upon exercise of Rights fails to fulfill any of its obligations pursuant to this Agreement, then the Company or such Person will reimburse the holder of any Rights for the costs and expenses (including legal 40 fees) incurred by such holder in actions to enforce such holder's rights pursuant to any Rights or this Agreement. 5.12 Successors. All the covenants and provisions of this Agreement by or ---------- for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. 5.13 Benefits of this Agreement. Nothing in this Agreement shall be -------------------------- construed to give to any Person other than the Company, the Rights Agent and the holders of the Rights any legal or equitable right, remedy or claim under this Agreement; this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the holders of the Rights. 5.14 Determination and Actions by the Board of Directors, Etc. The Board -------------------------------------------------------- of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement. All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board of Directors of the Company to any liability to the holders of the Rights. 41 5.15 Descriptive Headings. Descriptive headings appear herein for -------------------- convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 5.16 Governing Law. This Agreement and each Right issued hereunder shall ------------- be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts to be made and performed entirely within such state. 5.17 Counterparts. This Agreement may be executed in any number of ------------ counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 5.18 Severability. If any term or provision hereof or the application ------------ thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidation or rendering unenforceable the remaining terms and provisions hereof or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable. 5.19 Book-Entry Account Statements. Except where the context otherwise ------------------------------ indicates, (a) if at any time or from time to time the Company determines that shares of Common Stock shall be evidenced by book-entry account statements or similar instruments or documents ("Book-Entry Account Statements"), then all references in this Agreement to Common Stock certificate(s), certificates for the Common Stock, certificates representing shares of Common Stock or certificate for the associated share of 42 Common Stock shall be deemed to include such Book-Entry Account Statements which evidence such shares of Common Stock, (b) if at any time or from time to time the Company determines that after the Separation Time the Rights shall be evidenced by Book-Entry Account Statements, then all references in this Agreement to Rights Certificates shall be deemed to include such Book-Entry Account Statements which evidence such Rights and (c) if at any time or from time to time the Company determines that shares of Preferred Stock issued upon the exercise of Rights shall be evidenced by Book-Entry Account Statements, then all references in this Agreement to certificates for such shares of Preferred Stock shall be deemed to include such Book-Entry Account Statements which evidence such shares of Preferred Stock. 43 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. VARIAN, INC. By: \s\ Arthur W. Homan -------------------- Name: Arthur W. Homan Title: Secretary FIRST CHICAGO TRUST COMPANY OF NEW YORK By: \s\ Joanne Gorostiola ----------------------- Name: Joanne Gorostiola Title: Assistant Vice President 44 EXHIBIT A --------- [Form of Rights Certificate] Certificate No. ______Rights THE RIGHTS ARE SUBJECT TO REDEMPTION OR MANDATORY EXCHANGE, AT THE OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS OR AFFILIATES OR ASSOCIATES THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR TRANSFEREES OF ANY OF THE FOREGOING WILL BE VOID. Rights Certificate Varian, Inc. This certifies that _______________, or registered assigns, is the registered holder of the number of Rights set forth above, each of which entitles the registered holder thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of February 18, 1999 (as amended from time to time, the "Rights Agreement"), between Varian, Inc., a Delaware corporation (the "Company"), and First Chicago Trust Company of New York, as Rights Agent (the "Rights Agent," which term shall include any successor Rights Agent under the Rights Agreement), to purchase from the Company at any time after the Separation Time (as such term is defined in the Rights Agreement) and prior to the close of business on April 2, 2009 (California time) one one- thousandth of a fully paid share of Participating Preferred Stock, par value $0.01 per share (the "Preferred Stock"), of the Company (subject to adjustment as provided in the Rights Agreement) at the Exercise Price referred to below, upon presentation and surrender of this Rights Certificate with the Form of Election to Exercise duly executed at the principal office of the Rights Agent in The City of New York. The Exercise Price shall initially be $75.00 per Right and shall be subject to adjustment in certain events as provided in the Rights Agreement. In certain circumstances described in the Rights Agreement, the Rights evidenced hereby may entitle the registered holder thereof to purchase securities of an entity other than the Company or securities or assets of the Company other than Preferred Stock, all as provided in the Rights Agreement. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates. Copies of the Rights Agreement are on file at the principal office of the Company and are available without cost upon written request. This Rights Certificate, with or without other Rights Certificates, upon surrender at the office of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor evidencing an aggregate number of Rights equal to the aggregate number of Rights evidenced by the Rights Certificate or Rights Certificates surrendered. If this Rights Certificate shall be exercised in part, the registered holder shall be entitled to receive, upon surrender hereof, another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, each Right evidenced by this Certificate may be (a) redeemed by the Company under certain circumstances, at its option, at a redemption price of $0.001 per Right, or (b) exchanged by the Company under certain circumstances, at its option, for one share of Common Stock or one-thousandth of a share of Preferred Stock per Right (or, in certain cases, other securities or assets of the Company), subject in each case to adjustment in certain events as provided in the Rights Agreement. No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of any securities which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a Stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to Stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting the Stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by this Rights Certificate shall have been exercised or exchanged as provided in the Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Date: ______________, _______ ATTEST: VARIAN, INC. ____________________________________ By:______________________________ Secretary Title: Countersigned: FIRST CHICAGO TRUST COMPANY OF NEW YORK By: ______________________________ Authorized Signature [Form of Reverse Side of Rights Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer this Rights Certificate.) FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers unto __________________________________________________________ (Please print name and address of transferee) this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ___________________ Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution. Dated: ________________, _______ Signature Guaranteed: __________________________________________________ Signature (Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever) Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. - -------------------------------------------------------------------------------- (To be completed if true) The undersigned hereby represents, for the benefit of all holders of Rights and shares of Common Stock, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). _________________________________________ Signature ------------------------------------------------------------------------------- NOTICE ------ In the event the certification set forth above is not completed in connection with a purported assignment, the Company will deem the Beneficial Owner of the Rights evidenced by the enclosed Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) or a transferee of any of the foregoing and accordingly will deem the Rights evidenced by such Rights Certificate to be void and not transferable or exercisable. (To be attached to each Rights Certificate) FORM OF ELECTION TO EXERCISE ---------------------------- (To be executed if holder desires to exercise the Rights Certificate.) TO: [ ] The undersigned hereby irrevocably elects to exercise ____________________ whole Rights represented by the attached Rights Certificate to purchase the shares of Common or Participating Preferred Stock issuable upon the exercise of such Rights and requests that certificates for such shares be issued in the name of: __________________________________________________________ Address: __________________________________________________________ __________________________________________________________ Social Security or Other Taxpayer Identification Number: ___________________________________ If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: __________________________________________________________ Address: __________________________________________________________ __________________________________________________________ Social Security or Other Taxpayer Identification Number: ___________________________________ Dated: ________________, _______ Signature Guaranteed: __________________________________________________ Signature (Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever) Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank of trust company having an office or correspondent in the United States. - -------------------------------------------------------------------------------- (To be completed if true) The undersigned hereby represents, for the benefit of all holders of Rights and shares of Common Stock, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). _________________________________________________ Signature - -------------------------------------------------------------------------------- NOTICE ------ In the event the certification set forth above is not completed in connection with a purported exercise, the Company will deem the Beneficial Owner of the Rights evidenced by the attached Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) or a transferee of any of the foregoing and accordingly will deem the Rights evidenced by such Rights Certificate to be void and not transferable or exercisable. EXHIBIT B --------- FORM OF CERTIFICATE OF DESIGNATION AND TERMS OF PARTICIPATING PREFERRED STOCK OF VARIAN, INC. ------------------------------------------------ Pursuant to Section 151 of the General Corporation Law of the State of Delaware ---------------------------------------- We, the undersigned, Allen J. Lauer and Arthur W. Homan, the President and Chief Executive Officer, and the Secretary, respectively, of Varian, Inc., a Delaware corporation (the "Corporation"), do hereby certify as follows: Pursuant to authority granted by Article IV of the Restated Certificate of Incorporation 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 $0.01 per share, and certain qualifications, limitations and restrictions thereon: RESOLVED, that there is hereby established a series of Preferred Stock, par value $0.01 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. (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, $0.01 par value per share ("Common Stock"), of the Corporation. In the event the Corporation shall at any time after 5:00 p.m., California time, on April 2, 1999 (A) declare or 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 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. 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 ___ day of March, 1999. __________________________________ Allen J. Lauer President and Chief Executive Officer Attest: ______________________________ Arthur W. Homan Secretary EX-10.5 5 FORM OF CHANGE IN CONTROL AGREEMENT FOR CEO EXHIBIT 10.5 FORM OF CHANGE IN CONTROL AGREEMENT FOR CHIEF EXECUTIVE OFFICER AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT ------------------------------------------------ THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT ("Agreement") is entered into effective as of April 2, 1999, by and between VARIAN, INC., a Delaware corporation (the "Company")/1/, and _______________, an employee of the Company ("Employee"). The Company's Board of Directors (the "Board") has determined that it is in the best interest of the Company and its stockholders for the Company to agree to pay Employee termination compensation in the event Employee should leave the employ of the Company under the circumstances described below. The Board recognizes that the possibility of a proposal from a third person, whether or not solicited by the Company, concerning a possible "Change in Control" of the Company (as such language is defined in Section 3(d)) will be unsettling to Employee. Therefore, the arrangements set forth in this Agreement are being made to help assure a continuing dedication by Employee to Employee's duties to the Company notwithstanding the proposal or occurrence of a Change in Control. The Board believes it imperative, should the Company receive any proposal from a third party, that Employee, without being influenced by the uncertainties of Employee's own situation, be able to assess and advise the Board whether such proposals are in the best interest of the Company and its stockholders, and to enable Employee to take action regarding such proposals as the Board might determine to be appropriate. The Board also wishes to demonstrate to key personnel that the Company desires to enhance management relations and its ability to retain and, if needed, to attract new management, and intends to ensure that loyal and dedicated management personnel are treated fairly. In view of the foregoing, the Company and Employee agree as follows: 1. EFFECTIVE DATE AND TERM OF AGREEMENT. ------------------------------------ This Agreement is effective and binding on the Company and Employee as of the date hereof; provided, however, that, subject to Section 2(d), the provisions of Sections 3 and 4 shall become operative only upon the Change in Control Date. 2. EMPLOYMENT OF EMPLOYEE. ---------------------- _______________________________ /1/ "Company" shall include the Company, any successor to the Company's business and/or assets, and any party which executes and delivers the agreement required by Section 6(e) or which otherwise becomes bound by the terms and conditions of this Agreement by operation of law or otherwise. (a) Except as provided in Sections 2(b), 2(c) and 2(d), nothing in this Agreement shall affect any right which Employee may otherwise have to terminate Employee's employment, nor shall anything in this Agreement affect any right which the Company may have to terminate Employee's employment at any time in any lawful manner. (b) In the event of a Potential Change in Control, to be entitled to receive the benefits provided by this Agreement, Employee will not voluntarily leave the employ of the Company, and will continue to perform Employee's regular duties and the services specified in the recitals of this Agreement until the Change in Control Date. Should Employee voluntarily terminate employment prior to the Change in Control Date, this Agreement shall lapse upon such termination and be of no further force or effect. (c) If Employee's employment terminates on or after the Change in Control Date, the Company will provide to Employee the payments and benefits as provided in Sections 3 and 4. (d) If Employee's employment is terminated by the Company prior to the Change in Control Date but on or after a Potential Change in Control Date, then the Company will provide to Employee the payments and benefits as provided in Sections 3 and 4 unless the Company reasonably demonstrates that Employee's termination of employment neither (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control nor (ii) arose in connection with or in anticipation of a Change in Control. Solely for purposes of determining the timing of payments and the provision of benefits in Sections 3 and 4 under the circumstances described in this Section 2(d), Employee's date of termination shall be deemed to be the Change in Control Date. 3. TERMINATION FOLLOWING CHANGE IN CONTROL. --------------------------------------- (a) If a Change in Control shall have occurred, Employee shall be entitled to the benefits provided in Section 4 upon the subsequent termination of Employee's employment within the applicable period set forth in Section 4 unless such termination is due to Employee's death, Retirement or Disability or is for Cause or is effected by Employee other than for Good Reason (as such terms are defined in Section 3(d)). (b) If following a Change in Control, Employee's employment is terminated by reason of Employee's death or Disability, Employee shall be entitled to death or long-term disability benefits from the Company no less favorable than the most favorable benefits to which Employee would have been entitled had the death or Disability occurred at any time during the period commencing one (1) year prior to the Change in Control. (c) If Employee's employment shall be terminated by the Company for Cause or by Employee other than for Good Reason during the term of this Agreement, the Company shall pay Employee's Base Salary through the date of termination at the rate in effect at the time notice of termination is given, and the Company shall have no further obligations to Employee under this Agreement. (d) For purposes of this Agreement: "Base Salary" shall mean the annual base salary paid to Employee immediately prior to a Change in Control, provided that such amount shall in no event be less than the annual base salary paid to Employee during the one (1) year period immediately prior to the Change in Control. A "Change in Control" shall be deemed to have occurred if: (i) Any individual or group constituting a "person", as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act (other than (A) the Company or any of its subsidiaries or (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of any of its subsidiaries), is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's outstanding securities then entitled ordinarily (and apart from rights accruing under special circumstances) to vote for the election of directors; or (ii) Continuing Directors cease to constitute at least a majority of the Board; or (iii) there occurs a reorganization, merger, consolidation or other corporate transaction involving the Company (a "Transaction"), in each case with respect to which the stockholders of the Company immediately prior to such Transaction do not, immediately after the Transaction, own more than 50% of the combined voting power of the Company or other corporation resulting from such Transaction; or (iv) all or substantially all of the assets of the Company are sold, liquidated or distributed; provided, however, that a "Change in Control" shall not be deemed to have occurred under this Agreement if, prior to the occurrence of a specified event that would otherwise constitute a Change in Control hereunder, the disinterested Continuing Directors then in office, by a majority vote thereof, determine that the occurrence of such specified event shall not be deemed to be a Change in Control with respect to Employee hereunder if the Change in Control results from actions or events in which Employee is a participant in a capacity other than solely as an officer, employee or director of the Company. "Change in Control Date" shall mean the date on which a Change in Control occurs. "Cause" shall mean: (i) The continued willful failure of Employee to perform Employee's duties to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board or a committee thereof; or (ii) The willful commission by Employee of a wrongful act that caused or was reasonably likely to cause substantial damage to the Company, or an act of fraud in the performance of Employee's duties on behalf of the Company; or (iii) The conviction of Employee for commission of a felony in connection with the performance of Employee's duties on behalf of the Company; or (iv) The order of a federal or state regulatory authority having jurisdiction over the Company or its operations or by a court of competent jurisdiction requiring the termination of Employee's employment by the Company. "Continuing Directors" shall mean the directors of the Company in office on the date hereof and any successor to any such director who was nominated or selected by a majority of the Continuing Directors in office at the time of the director's nomination or selection and who is not an "affiliate" or "associate" (as defined in Regulation 12B under the Exchange Act) of any person who is the beneficial owner, directly or indirectly, of securities representing ten percent (10%) or more of the combined voting power of the Company's outstanding securities then entitled ordinarily to vote for the election of directors. "Disability" shall mean Employee's incapacity due to physical or mental illness such that Employee shall have become qualified to receive benefits under the Company's long-term disability plan as in effect on the date of the Change in Control. "Dispute" shall mean, in the case of termination of Employee's employment for Disability or Cause, that Employee challenges the existence of Disability or Cause, and in the case of termination of Employee's employment for Good Reason, that the Company challenges the existence of Good Reason for termination of Employee's employment. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Good Reason" shall mean: (i) The failure to appoint Employee as Chief Executive Officer of the combined or acquiring entity, reporting to its Board of Directors; or (ii) A reduction of Employee's total compensation as the same may have been increased from time to time after the Change in Control Date other than (A) a reduction implemented with the consent of Employee or (B) a reduction that is generally comparable (proportionately) to compensation reductions imposed on senior executives of the Company generally; or (iii) The failure to provide to Employee the benefits and perquisites, including participation on a comparable basis in the Company's stock option, incentive, and other similar plans in which employees of the Company of comparable title and salary grade participate, as were provided to Employee immediately prior to a Change in Control, or with a package of benefits and perquisites that are substantially comparable in all material respects to such benefits and perquisites provided prior to the Change in Control; or (iv) The relocation of the office of the Company where Employee is employed immediately prior to the Change in Control Date (the "CIC Location") to a location which is more than 50 miles away from the CIC Location or the Company's requiring Employee to be based more than 50 miles away from the CIC Location (except for required travel on the Company's business to an extent substantially consistent with Employee's customary business travel obligations in the ordinary course of business prior to the Change in Control Date); (v) The failure of the Company to obtain promptly upon any Change in Control the express written assumption of an agreement to perform this Agreement by any successor as contemplated in Section 6(e); or (vi) The attempted termination of Employee's employment for Cause on grounds insufficient to constitute a basis of termination for Cause under this Agreement; or (vii) The failure of the Company to promptly make any payment into escrow when so required by Section 3(f). "Potential Change in Control" shall mean the earliest to occur of (a) the execution of an agreement or letter of intent, the consummation of the transactions described in which would result in a Change in Control, (b) the approval by the Board of a transaction or series of transactions, the consummation of which would result in a Change in Control, or (c) the public announcement of a tender offer for the Company's voting stock, the completion of which would result in a Change in Control; provided, that no such event shall be a "Potential Change in Control" unless (i) in the case of any agreement or letter of intent described in clause (a), the transaction described therein is subsequently consummated by the Company and the other party or parties to such agreement or letter of intent and thereupon constitutes a "Change in Control", (ii) in the case of any Board-approved transaction described in clause (b), the transaction so approved is subsequently consummated and thereupon constitutes a "Change in Control" or (iii) in the case of any tender offer described in clause (c), such tender offer is subsequently completed and such completion thereupon constitutes a "Change in Control". "Potential Change in Control Date" shall mean the date on which a Potential Change in Control occurs. "Retirement" shall mean Employee's actual retirement after reaching the normal or early retirement date provided for in the Company's Retirement and Profit-Sharing Program as in effect on the date of Employee's termination of employment. (e) Any termination of employment by the Company or by Employee shall be communicated by written notice, specify the date of termination, state the specific basis for termination and set forth in reasonable detail the facts and circumstances of the termination in order to provide a basis for determining the entitlement to any payments under this Agreement. (f) If within thirty (30) days after notice of termination is given, the party to whom the notice was given notifies the other party that a Dispute exists, the parties will promptly pursue resolution of such Dispute with reasonable diligence; provided, however, that pending resolution of any such Dispute, the Company shall pay 75% of any amounts which would otherwise be due Employee pursuant to Section 4 if such Dispute did not exist into escrow pending resolution of such Dispute and pay 25% of such amounts to Employee. Employee agrees to return to the Company any such amounts to which it is ultimately determined that he is not entitled. 4. PAYMENTS AND BENEFITS UPON TERMINATION. -------------------------------------- (a) If within eighteen (18) months after a Change in Control, the Company terminates Employee's employment other than by reason of Employee's death, Disability, Retirement or for Cause, or if Employee terminates Employee's employment for Good Reason, then the Employee shall be entitled to the following payments and benefits: (i) The Company shall pay to Employee as compensation for services rendered, no later than five (5) business days following the date of termination, a lump sum severance payment equal to 2.99 multiplied by the sum of (A) Employee's Base Salary, (B) the highest annual bonus that was paid to Employee in any of the three fiscal years ending prior to the date of termination under the Company's Management Incentive Plan (the "MIP") or Varian Associates, Inc.'s Management Incentive Plan, and (C) the highest cash bonus for a performance period of more than one fiscal year that was paid to Employee in any of the three fiscal years ending prior to the date of termination under the MIP. (ii) The Company shall pay to Employee as compensation for services rendered, no later than five (5) business days following the date of termination, a lump sum payment equal to a pro rata portion (based on the number of days elapsed during the fiscal year and/or other bonus performance period in which the termination occurs) of Employee's target bonus under the MIP for the fiscal year and for any other partially completed bonus performance period in which the termination occurs. (iii) All waiting periods for the exercise of any stock options granted to Employee and all conditions or restrictions of any restricted stock granted to Employee shall terminate, and all such options shall be exercisable in full according to their terms, and the restricted stock shall be transferred to Employee as soon as reasonably practicable thereafter. (iv) Employee's participation as of the date of termination in the life, medical/dental/vision and disability insurance plans and financial/tax counseling plan of the Company shall be continued on the same terms (including any cost sharing) as if Employee were an employee of the Company (or equivalent benefits provided) until the earlier of Employee's commencement of substantially equivalent full-time employment with a new employer or twenty-four (24) months after the date of termination; provided, however, that after the date of termination, Employee shall no longer be entitled to receive Company-paid executive physicals or, upon expiration of the applicable memberships, Company- paid airline memberships. In the event Employee shall die before the expiration of the period during which the Company is required to continue Employee's participation in such insurance plans, the participation of Employee's surviving spouse and family in the Company's insurance plans shall continue throughout such period. (v) Employee may elect upon termination to purchase any automobile then in the possession of Employee and subject to a lease of which the Company is the lessor by payment to the Company of the residual value set forth in the lease, without any increase for remaining lease payments during the term or other lease breakage costs. Employee may elect to have any such payment deducted from any payments due the Employee hereunder. (vi) All payments and benefits provided under this Agreement shall be subject to applicable tax withholding. (b) Following Employee's termination of employment for any reason, the Company shall have the unconditional right to reduce any payments owed to Employee hereunder by the amount of any due and unpaid principal and interest on any loans by the Company to Employee and Employee hereby agrees and consents to such right on the part of the Company. 5. GROSS-UP PAYMENT. ----------------- (a) Notwithstanding anything herein to the contrary, if it is determined that any Payment would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties with respect to such excise tax (such excise tax, together with any interest or penalties thereon, is herein referred to as an "Excise Tax"), then Employee shall be entitled to an additional payment (a "Gross-Up Payment") in an amount that will place Employee in the same after-tax economic position that Employee would have enjoyed if the Excise Tax had not applied to the Payment. The amount of the Gross-Up Payment shall be determined by a nationally- recognized independent public accounting firm designated by agreement between Employee and the Company (the "Accounting Firm"). No Gross-Up Payments shall be payable hereunder if the Accounting Firm determines that the Payments are not subject to an Excise Tax. "Payment" means (i) any amount due or paid to Employee under this Agreement, (ii) any amount that is due or paid to Employee under any plan, program or arrangement of the Company and its subsidiaries and (iii) any amount or benefit that is due or payable to Employee under this Agreement or under any plan, program or arrangement of the Company and its subsidiaries not otherwise covered under clause (i) or (ii) hereof which must reasonably be taken into account under Section 280G of the Code in determining the amount the "parachute payments" received by Employee, including, without limitation, any amounts which must be taken into account under Section 280G of the Code as a result of (A) the acceleration of the vesting of any option, restricted stock or other equity award, (B) the acceleration of the time at which any payment or benefit is receivable by Employee or (C) any contingent severance or other amounts that are payable to Employee. (b) Subject to the provisions of Section 5(c), all determinations required under this Section 5, including whether a Gross-Up Payment is required, the amount of the Payments constituting excess parachute payments, and the amount of the Gross-Up Payment, shall be made by the Accounting Firm, which shall provide detailed supporting calculations both to Employee and the Company within fifteen days of the date reasonably requested by Employee or the Company on which a determination under this Section 5 is necessary or advisable. The Company shall pay to Employee the initial Gross-Up Payment within 5 days of the receipt by Employee and the Company of the determination of the Accounting Firm. If the Accounting Firm determines that no Excise Tax is payable by Employee, the Company shall cause its accountants to provide Employee with an opinion that the Accounting Firm has substantial authority under the Code not to report an Excise Tax on Employee's federal income tax return. Any determination by the Accounting Firm shall be binding upon Employee and the Company. If the initial Gross-Up Payment is insufficient to cover the amount of the Excise Tax that is ultimately determined to be owing by Employee with respect to any Payment (hereinafter an "Underpayment"), the Company, after exhausting its remedies under Section 5(c) below, shall promptly pay to Employee an additional Gross-Up Payment in respect of the Underpayment. (c) Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notice shall be given as soon as practicable after Employee knows of such claim and shall apprise the Company of the nature of the claim and the date on which the claim is requested to be paid. Employee agrees not to pay the claim until the expiration of the thirty (30) day period following the date on which Employee notifies the Company, or such shorter period ending on the date the Taxes with respect to such claim are due (the "Notice Period"). If the Company notifies Employee in writing prior to the expiration of the Notice Period that it desires to contest the claim, Employee shall: (i) give the Company any information reasonably requested by the Company relating to the claim; (ii) take such action in connection with the claim as the Company may reasonably request, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and reasonably acceptable to Employee; (iii) cooperate with the Company in good faith in contesting the claim; and (iv) permit the Company to participate in any proceedings relating to the claim. Employee shall permit the Company to control all proceedings related to the claim and, at its option, permit the Company to pursue or forgo any and all administrative appeals, proceedings, hearings, and conferences with the taxing authority in respect of such claim. If requested by the Company, Employee agrees either to pay the tax claimed and sue for a refund or contest the claim in any permissible manner and to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts as the Company shall determine; provided, however, that, if the Company directs Employee to pay such claim and pursue a refund, the Company shall advance the amount of such payment to Employee on an after-tax and interest-free basis (an "Advance"). The Company's control of the contest related to the claim shall be limited to the issues related to the Gross-Up Payment and Employee shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or other taxing authority. If the Company does not notify Employee in writing prior to the end of the Notice Period of its desire to contest the claim, the Company shall pay to Employee an additional Gross-Up Payment in respect of the excess parachute payments that are the subject of the claim, and Employee agrees to pay the amount of the Excise Tax that is the subject of the claim to the applicable taxing authority in accordance with applicable law. (d) If, after receipt by Employee of an Advance, Employee becomes entitled to a refund with respect to the claim to which such Advance relates, Employee shall pay the Company the amount of the refund (together with any interest paid or credited thereon after Taxes applicable thereto). If, after receipt by Employee of an Advance, a determination is made that Employee shall not be entitled to any refund with respect to the claim and the Company does not promptly notify Employee of its intent to contest the denial of refund, then the amount of the Advance shall not be required to be repaid by Employee and the amount thereof shall offset the amount of the additional Gross-Up Payment then owing to Employee. (e) The Company shall indemnify Employee and hold Employee harmless, on an after-tax basis, from any costs, expenses, penalties, fines, interest or other liabilities ("Losses") incurred by Employee with respect to the exercise by the Company of any of its rights under this Section 5, including, without limitation, any Losses related to the Company's decision to contest a claim or any imputed income to Employee resulting from any Advance or action taken on Employee's behalf by the Company hereunder. The Company shall pay all legal fees and expenses incurred under this Section 5, and shall promptly reimburse Employee for the reasonable expenses incurred by Employee in connection with any actions taken by the Company or required to be taken by Employee hereunder. The Company shall also pay all of the fees and expenses of the Accounting Firm, including, without limitation, the fees and expenses related to the opinion referred to in Section 5(b). 6. GENERAL. -------- (a) Employee shall retain in confidence under the conditions of the Company's confidentiality agreement with Employee any proprietary or other confidential information known to Employee concerning the Company and its business so long as such information is not publicly disclosed and disclosure is not required by an order of any governmental body or court. If required, Employee shall return to the Company any memoranda, documents or other materials proprietary to the Company. (b) While employed by the Company and following the termination of such employment (other than a termination of employment by Employee for Good Reason or by the Company other than for Cause) for a period of two (2) years, Employee shall not: (i) whether for Employee's own account or for the account of any other individual, partnership, firm, corporation or other business organization, intentionally solicit, endeavor to entice away from the Company or a subsidiary of the Company (each, a "Protected Party"), or otherwise interfere with the relationship of a Protected Party with, any person who is employed by a Protected Party or any person or entity who is, or was within the then most recent twelve (12) month period, a customer or client of a Protected Party; or (ii) without the prior written consent of the Protected Party, in any geographic area in which the Protected Party is then conducting business, directly or indirectly own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, partner, stockholder, consultant or otherwise, any individual, partnership, firm, corporation or other business organization or entity that is engaged in any business in which the Protected Party is actively engaged at the time; provided, however, that the restrictions in this Section 6(b)(ii) shall not apply to (A) any non-employee directorships held by Employee as of the date hereof or (B) ownership by Employee for personal investment purposes only of not in excess of 1% of the voting stock of any publicly held corporation. Employee acknowledges that a breach of any of the covenants contained in this Section 6(b) may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it may not be possible to measure damages for such injuries precisely and that, in the event of such a breach, any payments remaining under the terms of this Agreement shall cease and the Company may be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining Employee from engaging in activities prohibited by this Section 6(b) or such other relief as may be required to specifically enforce any of the covenants in this Section 6(b). Employee agrees to and hereby does submit to in personam jurisdiction before each and every such court in the State of California, County of Santa Clara, for that purpose. This Section 6(b) shall survive any termination of this Agreement. (c) If litigation is brought by Employee to enforce or interpret any provision contained in this Agreement, the Company shall indemnify Employee for Employee's reasonable attorney's fees and disbursements incurred in such litigation and pay prejudgment interest on any money judgment obtained by Employee calculated at the prime rate of interest in effect from time to time at the Bank of America, San Francisco, from the date that payment should have been made under the Agreement, provided that Employee shall not have been found by the court in which such litigation is pending to have had no cause in bringing the action, or to have acted in bad faith, which finding must be final with the time to appeal therefrom having expired and no appeal having been taken. (d) Except as provided in Section 4, the Company's obligation to pay to Employee the compensation and to make the arrangements provided in this Agreement shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment. (e) The Company shall require any successor, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all of the business and/or assets of the Company, by written agreement to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. (f) This Agreement shall inure to the benefit of and be enforceable by Employee's heirs, successors and assigns. If Employee should die while any amounts would still be payable to Employee hereunder if Employee had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Employee's heirs, successors and assigns. (g) For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: If to Employee: If to the Company: Varian, Inc. 3120 Hansen Way Palo Alto, CA 94304-1030 Attn: Vice President, Human Resources or to such other address as either party furnishes to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (h) This Agreement shall constitute the entire agreement between Employee and the Company concerning the subject matter of this Agreement. (i) The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without giving effect to the provisions, principles or policies thereof relating to choice or conflict of laws. The invalidity or unenforceability of any provision of this Agreement in any circumstance shall not affect the validity or enforceability of such provision in any other circumstance or the validity or enforceability of any other provision of this Agreement, and, except to the extent such provision is invalid or unenforceable, this Agreement shall remain in full force and effect. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof in such jurisdiction, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. This Section 6(i) shall survive any termination of this Agreement. (j) This Agreement may be terminated by the Company pursuant to a resolution adopted by the Board at any time prior to a Potential Change in Control Date. After a Change in Control Date or a Potential Change in Control Date, this Agreement may only be terminated with the consent of Employee. (k) No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement and this Agreement shall supersede all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, with respect to the subject matter hereof including, without limitation, the Amended and Restated Change in Control Agreement between Employee and Varian Associates, Inc. (l) In the event that the Company becomes party to a transaction that is intended to qualify for "pooling of interests" accounting treatment and, but for one or more of the provisions of this Agreement would so qualify, then this Agreement shall be interpreted so as to preserve such accounting treatment, and to the extent that any provision of this Agreement would disqualify the transaction from pooling of interests accounting treatment, then such provision shall be null and void. All determinations to be made in connection with the preceding sentence shall be made by the independent accounting firm whose opinion with respect to "pooling of interests" treatment is required as a condition to the Company's consummation of such transaction. IN WITNESS WHEREOF, the parties acknowledge that they have read and understand the terms of this Agreement and have executed this Agreement to be effective as of April 2, 1999. VARIAN, INC. EMPLOYEE __________________________ ______________________________ By: Title: EX-10.6 6 FORM OF CHANGE IN CONTROL AGMT GEN COUNSEL EXHIBIT 10.6 FORM OF CHANGE IN CONTROL AGREEMENT FOR GENERAL COUNSEL AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT ------------------------------------------------ THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT ("Agreement") is entered into effective as of April 2, 1999, by and between VARIAN, INC., a Delaware corporation (the "Company")/1/, and _______________, an employee of the Company ("Employee"). The Company's Board of Directors (the "Board") has determined that it is in the best interest of the Company and its stockholders for the Company to agree to pay Employee termination compensation in the event Employee should leave the employ of the Company under the circumstances described below. The Board recognizes that the possibility of a proposal from a third person, whether or not solicited by the Company, concerning a possible "Change in Control" of the Company (as such language is defined in Section 3(d)) will be unsettling to Employee. Therefore, the arrangements set forth in this Agreement are being made to help assure a continuing dedication by Employee to Employee's duties to the Company notwithstanding the proposal or occurrence of a Change in Control. The Board believes it imperative, should the Company receive any proposal from a third party, that Employee, without being influenced by the uncertainties of Employee's own situation, be able to assess and advise the Board whether such proposals are in the best interest of the Company and its stockholders, and to enable Employee to take action regarding such proposals as the Board might determine to be appropriate. The Board also wishes to demonstrate to key personnel that the Company desires to enhance management relations and its ability to retain and, if needed, to attract new management, and intends to ensure that loyal and dedicated management personnel are treated fairly. In view of the foregoing, the Company and Employee agree as follows: 1. EFFECTIVE DATE AND TERM OF AGREEMENT. ------------------------------------ This Agreement is effective and binding on the Company and Employee as of the date hereof; provided, however, that, subject to Section 2(d), the provisions of Sections 3 and 4 shall become operative only upon the Change in Control Date. 2. EMPLOYMENT OF EMPLOYEE. ---------------------- _______________________________ /1/ "Company" shall include the Company, any successor to the Company's business and/or assets, and any party which executes and delivers the agreement required by section 6(e) or which otherwise becomes bound by the terms and conditions of this Agreement by operation of law or otherwise. (a) Except as otherwise provided in Sections 2(b), 2(c) and 2(d), nothing in this Agreement shall affect any right which Employee may otherwise have to terminate Employee's employment, nor shall anything in this Agreement affect any right which the Company may have to terminate Employee's employment at any time in any lawful manner. (b) In the event of a Potential Change in Control, to be entitled to receive the benefits provided by this Agreement, Employee will not voluntarily leave the employ of the Company, and will continue to perform Employee's regular duties and the services specified in the recitals of this Agreement until the Change in Control Date. Should Employee voluntarily terminate employment prior to the Change in Control Date, this Agreement shall lapse upon such termination and be of no further force or effect. (c) If Employee's employment terminates on or after the Change in Control Date, the Company will provide to Employee the payments and benefits as provided in Sections 3 and 4. (d) If Employee's employment is terminated by the Company prior to the Change in Control Date but on or after a Potential Change in Control Date, then the Company will provide to Employee the payments and benefits as provided in Sections 3 and 4 unless the Company reasonably demonstrates that Employee's termination of employment neither (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control nor (ii) arose in connection with or in anticipation of a Change in Control. Solely for purposes of determining the timing of payments and the provision of benefits in Sections 3 and 4 under the circumstances described in this Section 2(d), Employee's date of termination shall be deemed to be the Change in Control Date. 3. TERMINATION FOLLOWING CHANGE IN CONTROL. --------------------------------------- (a) If a Change in Control shall have occurred, Employee shall be entitled to the benefits provided in Section 4 upon the subsequent termination of Employee's employment within the applicable period set forth in Section 4 unless such termination is due to Employee's death, Retirement or Disability or is for Cause or is effected by Employee other than for Good Reason (as such terms are defined in Section 3(d)). (b) If following a Change in Control, Employee's employment is terminated by reason of Employee's death or Disability, Employee shall be entitled to death or long-term disability benefits from the Company no less favorable than the most favorable benefits to which Employee would have been entitled had the death or Disability occurred at any time during the period commencing one (1) year prior to the Change in Control. (c) If Employee's employment shall be terminated by the Company for Cause or by Employee other than for Good Reason during the term of this Agreement, the Company shall pay Employee's Base Salary through the date of termination at the rate in effect at the time notice of termination is given, and the Company shall have no further obligations to Employee under this Agreement. (d) For purposes of this Agreement: "Base Salary" shall mean the annual base salary paid to Employee immediately prior to a Change in Control, provided that such amount shall in no event be less than the annual base salary paid to Employee during the one (1) year period immediately prior to the Change in Control. A "Change in Control" shall be deemed to have occurred if: (i) Any individual or group constituting a "person", as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act (other than (A) the Company or any of its subsidiaries or (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of any of its subsidiaries), is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's outstanding securities then entitled ordinarily (and apart from rights accruing under special circumstances) to vote for the election of directors; or (ii) Continuing Directors cease to constitute at least a majority of the Board; or (iii) There occurs a reorganization, merger, consolidation or other corporate transaction involving the Company (a "Transaction"), in each case with respect to which the stockholders of the Company immediately prior to such Transaction do not, immediately after the Transaction, own more than 50% of the combined voting power of the Company or other corporation resulting from such Transaction; or (iv) All or substantially all of the assets of the Company are sold, liquidated or distributed; provided, however, that a "Change in Control" shall not be deemed to have occurred under this Agreement if, prior to the occurrence of a specified event that would otherwise constitute a Change in Control hereunder, the disinterested Continuing Directors then in office, by a majority vote thereof, determine that the occurrence of such specified event shall not be deemed to be a Change in Control with respect to Employee hereunder if the Change in Control results from actions or events in which Employee is a participant in a capacity other than solely as an officer, employee or director of the Company. "Change in Control Date" shall mean the date on which a Change in Control occurs. "Cause" shall mean: (i) The continued willful failure of Employee to perform Employee's duties to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board or a committee thereof; or (ii) The willful commission by Employee of a wrongful act that caused or was reasonably likely to cause substantial damage to the Company, or an act of fraud in the performance of Employee's duties on behalf of the Company; or (iii) The conviction of Employee for commission of a felony in connection with the performance of Employee's duties on behalf of the Company; or (iv) The order of a federal or state regulatory authority having jurisdiction over the Company or its operations or by a court of competent jurisdiction requiring the termination of Employee's employment by the Company. "Continuing Directors" shall mean the directors of the Company in office on the date hereof and any successor to any such director who was nominated or selected by a majority of the Continuing Directors in office at the time of the director's nomination or selection and who is not an "affiliate" or "associate" (as defined in Regulation 12B under the Exchange Act) of any person who is the beneficial owner, directly or indirectly, of securities representing ten percent (10%) or more of the combined voting power of the Company's outstanding securities then entitled ordinarily to vote for the election of directors. "Disability" shall mean Employee's incapacity due to physical or mental illness such that Employee shall have become qualified to receive benefits under the Company's long-term disability plan as in effect on the date of the Change in Control. "Dispute" shall mean, in the case of termination of Employee's employment for Disability or Cause, that Employee challenges the existence of Disability or Cause, and in the case of termination of Employee's employment for Good Reason, that the Company challenges the existence of Good Reason for termination of Employee's employment. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Equivalent Position" shall mean an employment position that: (i) is in a substantive area of competence (e.g., finance, accounting, legal, operations management or human resources) that is consistent with Employee's experience and not materially different from the substantive area of competence of Employee's position with the Company prior to the Change in Control; (ii) requires that Employee serve in a role and perform duties that are functionally equivalent to the role and duties performed by Employee for the Company prior to the Change in Control; (iii) carries a title that does not connote a lesser rank or corporate role than is connoted by Employee's title with the Company prior to the Change in Control; (iv) does not constitute a material, adverse change in Employee's responsibilities or duties, when compare to Employee's responsibilities or duties with the Company prior to the Change in Control; (v) requires that Employee be deemed an executive officer (for purposes of the rules promulgated under Section 16 of the Securities Exchange Act of 1934) of a publicly-traded successor entity having net assets or annual revenues that are no less than those of the Company prior to the Change in Control; and (vi) has Employee reporting directly to the Chief Executive Officer of the combined or acquiring company. "Good Reason" shall mean: (i) The assignment to Employee of a position, title, responsibilities or duties such that he no longer holds an Equivalent Position; or (ii) A reduction of Employee's total compensation as the same may have been increased from time to time after the Change in Control Date other than (A) a reduction implemented with the consent of Employee or (B) a reduction that is generally comparable (proportionately) to compensation reductions imposed on senior executives of the Company generally; or (iii) The failure to provide to Employee the benefits and perquisites, including participation on a comparable basis in the Company's stock option, incentive, and other similar plans in which employees of the Company of comparable title and salary grade participate, as were provided to Employee immediately prior to a Change in Control, or with a package of benefits and perquisites that are substantially comparable in all material respects to such benefits and perquisites provided prior to the Change in Control; or (iv) The relocation of the office of the Company where Employee is employed immediately prior to the Change in Control Date (the "CIC Location") to a location which is more than 50 miles away from the CIC Location or the Company's requiring Employee to be based more than 50 miles away from the CIC Location (except for required travel on the Company's business to an extent substantially consistent with Employee's customary business travel obligations in the ordinary course of business prior to the Change in Control Date); (v) The failure of the Company to obtain promptly upon any Change in Control the express written assumption of an agreement to perform this Agreement by any successor as contemplated in Section 6(e); or (vi) The attempted termination of Employee's employment for Cause on grounds insufficient to constitute a basis of termination for Cause under this Agreement; or (vii) The failure of the Company to promptly make any payment into escrow when so required by Section 3(f). "Potential Change in Control" shall mean the earliest to occur of (a) the execution of an agreement or letter of intent, the consummation of the transactions described in which would result in a Change in Control, (b) the approval by the Board of a transaction or series of transactions, the consummation of which would result in a Change in Control, or (c) the public announcement of a tender offer for the Company's voting stock, the completion of which would result in a Change in Control; provided, that no such event shall be a "Potential Change in Control" unless (i) in the case of any agreement or letter of intent described in clause (a), the transaction described therein is subsequently consummated by the Company and the other party or parties to such agreement or letter of intent and thereupon constitutes a "Change in Control", (ii) in the case of any Board-approved transaction described in clause (b), the transaction so approved is subsequently consummated and thereupon constitutes a "Change in Control" or (iii) in the case of any tender offer described in clause (c), such tender offer is subsequently completed and such completion thereupon constitutes a "Change in Control". "Potential Change in Control Date" shall mean the date on which a Potential Change in Control occurs. "Retirement" shall mean Employee's actual retirement after reaching the normal or early retirement date provided for in the Company's Retirement and Profit-Sharing Program as in effect on the date of Employee's termination of employment. (e) Any termination of employment by the Company or by Employee shall be communicated by written notice, specify the date of termination, state the specific basis for termination and set forth in reasonable detail the facts and circumstances of the termination in order to provide a basis for determining the entitlement to any payments under this Agreement. (f) If within thirty (30) days after notice of termination is given, the party to whom the notice was given notifies the other party that a Dispute exists, the parties will promptly pursue resolution of such Dispute with reasonable diligence; provided, however, that pending resolution of any such Dispute, the Company shall pay 75% of any amounts which would otherwise be due Employee pursuant to Section 4 if such Dispute did not exist into escrow pending resolution of such Dispute and pay 25% of such amounts to Employee. Employee agrees to return to the Company any such amounts to which it is ultimately determined that he is not entitled. 4. PAYMENTS AND BENEFITS UPON TERMINATION. -------------------------------------- (a) If within eighteen (18) months after a Change in Control, the Company terminates Employee's employment other than by reason of Employee's death, Disability, Retirement or for Cause, or if Employee terminates Employee's employment for Good Reason, then the Employee shall be entitled to the following payments and benefits: (i) The Company shall pay to Employee as compensation for services rendered, no later than five (5) business days following the date of termination, a lump sum severance payment equal to 2.50 multiplied by the sum of (A) Employee's Base Salary, (B) the highest annual bonus that was paid to Employee in any of the three fiscal years ending prior to the date of termination under the Company's Management Incentive Plan (the "MIP") or Varian Associates, Inc.'s Management Incentive Plan, and (C) the highest cash bonus for a performance period of more than one fiscal year that was paid to Employee in any of the three fiscal years ending prior to the date of termination under the MIP. (ii) The Company shall pay to Employee as compensation for services rendered, no later than five (5) business days following the date of termination, a lump sum payment equal to a pro rata portion (based on the number of days elapsed during the fiscal year and/or other bonus performance period in which the termination occurs) of Employee's target bonus under the MIP for the fiscal year and for any other partially completed bonus performance period in which the termination occurs. (iii) All waiting periods for the exercise of any stock options granted to Employee and all conditions or restrictions of any restricted stock granted to Employee shall terminate, and all such options shall be exercisable in full according to their terms, and the restricted stock shall be transferred to Employee as soon as reasonably practicable thereafter. (iv) Employee's participation as of the date of termination in the life, medical/dental/vision and disability insurance plans and financial/tax counseling plan of the Company shall be continued on the same terms (including any cost sharing) as if Employee were an employee of the Company (or equivalent benefits provided) until the earlier of Employee's commencement of substantially equivalent full-time employment with a new employer or twenty-four (24) months after the date of termination; provided, however, that after the date of termination, Employee shall no longer be entitled to receive Company-paid executive physicals or, upon expiration of the applicable memberships, Company- paid airline memberships. In the event Employee shall die before the expiration of the period during which the Company is required to continue Employee's participation in such insurance plans, the participation of Employee's surviving spouse and family in the Company's insurance plans shall continue throughout such period. (v) Employee may elect upon termination to purchase any automobile then in the possession of Employee and subject to a lease of which the Company is the lessor by payment to the Company of the residual value set forth in the lease, without any increase for remaining lease payments during the term or other lease breakage costs. Employee may elect to have any such payment deducted from any payments due the Employee hereunder. (vi) All payments and benefits provided under this Agreement shall be subject to applicable tax withholding. (b) Following Employee's termination of employment for any reason, the Company shall have the unconditional right to reduce any payments owed to Employee hereunder by the amount of any due and unpaid principal and interest on any loans by the Company to Employee and Employee hereby agrees and consents to such right on the part of the Company. 5. GROSS-UP PAYMENT. ----------------- (a) Notwithstanding anything herein to the contrary, if it is determined that any Payment would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties with respect to such excise tax (such excise tax, together with any interest or penalties thereon, is herein referred to as an "Excise Tax"), then Employee shall be entitled to an additional payment (a "Gross-Up Payment") in an amount that will place Employee in the same after-tax economic position that Employee would have enjoyed if the Excise Tax had not applied to the Payment. The amount of the Gross-Up Payment shall be determined by a nationally- recognized independent public accounting firm designated by agreement between Employee and the Company (the "Accounting Firm"). No Gross-Up Payments shall be payable hereunder if the Accounting Firm determines that the Payments are not subject to an Excise Tax. "Payment" means (i) any amount due or paid to Employee under this Agreement, (ii) any amount that is due or paid to Employee under any plan, program or arrangement of the Company and its subsidiaries and (iii) any amount or benefit that is due or payable to Employee under this Agreement or under any plan, program or arrangement of the Company and its subsidiaries not otherwise covered under clause (i) or (ii) hereof which must reasonably be taken into account under Section 280G of the Code in determining the amount the "parachute payments" received by Employee, including, without limitation, any amounts which must be taken into account under Section 280G of the Code as a result of (A) the acceleration of the vesting of any option, restricted stock or other equity award, (B) the acceleration of the time at which any payment or benefit is receivable by Employee or (C) any contingent severance or other amounts that are payable to Employee. (b) Subject to the provisions of Section 5(c), all determinations required under this Section 5, including whether a Gross-Up Payment is required, the amount of the Payments constituting excess parachute payments, and the amount of the Gross-Up Payment, shall be made by the Accounting Firm, which shall provide detailed supporting calculations both to Employee and the Company within fifteen days of the date reasonably requested by Employee or the Company on which a determination under this Section 5 is necessary or advisable. The Company shall pay to Employee the initial Gross-Up Payment within 5 days of the receipt by Employee and the Company of the determination of the Accounting Firm. If the Accounting Firm determines that no Excise Tax is payable by Employee, the Company shall cause its accountants to provide Employee with an opinion that the Accounting Firm has substantial authority under the Code not to report an Excise Tax on Employee's federal income tax return. Any determination by the Accounting Firm shall be binding upon Employee and the Company. If the initial Gross-Up Payment is insufficient to cover the amount of the Excise Tax that is ultimately determined to be owing by Employee with respect to any Payment (hereinafter an "Underpayment"), the Company, after exhausting its remedies under Section 5(c) below, shall promptly pay to Employee an additional Gross-Up Payment in respect of the Underpayment. (c) Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notice shall be given as soon as practicable after Employee knows of such claim and shall apprise the Company of the nature of the claim and the date on which the claim is requested to be paid. Employee agrees not to pay the claim until the expiration of the thirty (30) day period following the date on which Employee notifies the Company, or such shorter period ending on the date the Taxes with respect to such claim are due (the "Notice Period"). If the Company notifies Employee in writing prior to the expiration of the Notice Period that it desires to contest the claim, Employee shall: (i) give the Company any information reasonably requested by the Company relating to the claim; (ii) take such action in connection with the claim as the Company may reasonably request, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and reasonably acceptable to Employee; (iii) cooperate with the Company in good faith in contesting the claim; and (iv) permit the Company to participate in any proceedings relating to the claim. Employee shall permit the Company to control all proceedings related to the claim and, at its option, permit the Company to pursue or forgo any and all administrative appeals, proceedings, hearings, and conferences with the taxing authority in respect of such claim. If requested by the Company, Employee agrees either to pay the tax claimed and sue for a refund or contest the claim in any permissible manner and to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts as the Company shall determine; provided, however, that, if the Company directs Employee to pay such claim and pursue a refund, the Company shall advance the amount of such payment to Employee on an after-tax and interest-free basis (an "Advance"). The Company's control of the contest related to the claim shall be limited to the issues related to the Gross-Up Payment and Employee shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or other taxing authority. If the Company does not notify Employee in writing prior to the end of the Notice Period of its desire to contest the claim, the Company shall pay to Employee an additional Gross-Up Payment in respect of the excess parachute payments that are the subject of the claim, and Employee agrees to pay the amount of the Excise Tax that is the subject of the claim to the applicable taxing authority in accordance with applicable law. (d) If, after receipt by Employee of an Advance, Employee becomes entitled to a refund with respect to the claim to which such Advance relates, Employee shall pay the Company the amount of the refund (together with any interest paid or credited thereon after Taxes applicable thereto). If, after receipt by Employee of an Advance, a determination is made that Employee shall not be entitled to any refund with respect to the claim and the Company does not promptly notify Employee of its intent to contest the denial of refund, then the amount of the Advance shall not be required to be repaid by Employee and the amount thereof shall offset the amount of the additional Gross-Up Payment then owing to Employee. (e) The Company shall indemnify Employee and hold Employee harmless, on an after-tax basis, from any costs, expenses, penalties, fines, interest or other liabilities ("Losses") incurred by Employee with respect to the exercise by the Company of any of its rights under this Section 5, including, without limitation, any Losses related to the Company's decision to contest a claim or any imputed income to Employee resulting from any Advance or action taken on Employee's behalf by the Company hereunder. The Company shall pay all legal fees and expenses incurred under this Section 5, and shall promptly reimburse Employee for the reasonable expenses incurred by Employee in connection with any actions taken by the Company or required to be taken by Employee hereunder. The Company shall also pay all of the fees and expenses of the Accounting Firm, including, without limitation, the fees and expenses related to the opinion referred to in Section 5(b). 6. GENERAL. -------- (a) Employee shall retain in confidence under the conditions of the Company's confidentiality agreement with Employee any proprietary or other confidential information known to Employee concerning the Company and its business so long as such information is not publicly disclosed and disclosure is not required by an order of any governmental body or court. If required, Employee shall return to the Company any memoranda, documents or other materials proprietary to the Company. (b) While employed by the Company and following the termination of such employment (other than a termination of employment by Employee for Good Reason or by the Company other than for Cause) for a period of two (2) years, Employee shall not, whether for Employee's own account or for the account of any other individual, partnership, firm, corporation or other business organization, intentionally solicit, endeavor to entice away from the Company or a subsidiary of the Company (each, a "Protected Party"), or otherwise interfere with the relationship of a Protected Party with, any person who is employed by a Protected Party or any person or entity who is, or was within the then most recent twelve (12) month period, a customer or client of a Protected Party. Employee acknowledges that a breach of any of the covenants contained in this Section 6(b) may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it may not be possible to measure damages for such injuries precisely and that, in the event of such a breach, any payments remaining under the terms of this Agreement shall cease and the Company may be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining Employee from engaging in activities prohibited by this Section 6(b) or such other relief as may be required to specifically enforce any of the covenants in this Section 6(b). Employee agrees to and hereby does submit to in personam jurisdiction before each and every such court in the State of California, County of Santa Clara, for that purpose. This Section 6(b) shall survive any termination of this Agreement. (c) If litigation is brought by Employee to enforce or interpret any provision contained in this Agreement, the Company shall indemnify Employee for Employee's reasonable attorney's fees and disbursements incurred in such litigation and pay prejudgment interest on any money judgment obtained by Employee calculated at the prime rate of interest in effect from time to time at the Bank of America, San Francisco, from the date that payment should have been made under the Agreement, provided that Employee shall not have been found by the court in which such litigation is pending to have had no cause in bringing the action, or to have acted in bad faith, which finding must be final with the time to appeal therefrom having expired and no appeal having been taken. (d) Except as provided in Section 4, the Company's obligation to pay to Employee the compensation and to make the arrangements provided in this Agreement shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment. (e) The Company shall require any successor, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all of the business and/or assets of the Company, by written agreement to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. (f) This Agreement shall inure to the benefit of and be enforceable by Employee's heirs, successors and assigns. If Employee should die while any amounts would still be payable to Employee hereunder if Employee had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Employee's heirs, successors and assigns. (g) For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: If to Employee: If to the Company: Varian, Inc. 3120 Hansen Way Palo Alto, CA 94304-1030 Attn: Vice President, Human Resources or to such other address as either party furnishes to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (h) This Agreement shall constitute the entire agreement between Employee and the Company concerning the subject matter of this Agreement. (i) The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without giving effect to the provisions, principles or policies thereof relating to choice or conflict of laws. The invalidity or unenforceability of any provision of this Agreement in any circumstance shall not affect the validity or enforceability of such provision in any other circumstance or the validity or enforceability of any other provision of this Agreement, and, except to the extent such provision is invalid or unenforceable, this Agreement shall remain in full force and effect. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof in such jurisdiction, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. This Section 6(i) shall survive any termination of this Agreement. (j) This Agreement may be terminated by the Company pursuant to a resolution adopted by the Board at any time prior to a Potential Change in Control Date. After a Change in Control Date or a Potential Change in Control Date, this Agreement may only be terminated with the consent of Employee. (k) No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement and this Agreement shall supersede all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, with respect to the subject matter hereof including, without limitation, the Amended and Restated Change in Control Agreement between Employee and Varian Associates, Inc. (l) In the event that the Company becomes party to a transaction that is intended to qualify for "pooling of interests" accounting treatment and, but for one or more of the provisions of this Agreement would so qualify, then this Agreement shall be interpreted so as to preserve such accounting treatment, and to the extent that any provision of this Agreement would disqualify the transaction from pooling of interests accounting treatment, then such provision shall be null and void. All determinations to be made in connection with the preceding sentence shall be made by the independent accounting firm whose opinion with respect to "pooling of interests" treatment is required as a condition to the Company's consummation of such transaction. IN WITNESS WHEREOF, the parties acknowledge that they have read and understand the terms of this Agreement and have executed this Agreement to be effective as of April 2, 1999. VARIAN, INC. EMPLOYEE _________________________________ _________________________________ By: Title: EX-10.7 7 FORM OF CHANGE IN CONTROL AGMT FOR SENIOR EXECUTIVES EXHIBIT 10.7 FORM OF CHANGE IN CONTROL AGREEMENT FOR SENIOR EXECUTIVES AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT ------------------------------------------------ THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT ("Agreement") is entered into effective as of April 2, 1999, by and between VARIAN, INC., a Delaware corporation (the "Company")/1/, and _______________, an employee of the Company ("Employee"). The Company's Board of Directors (the "Board") has determined that it is in the best interest of the Company and its stockholders for the Company to agree to pay Employee termination compensation in the event Employee should leave the employ of the Company under the circumstances described below. The Board recognizes that the possibility of a proposal from a third person, whether or not solicited by the Company, concerning a possible "Change in Control" of the Company (as such language is defined in Section 3(d)) will be unsettling to Employee. Therefore, the arrangements set forth in this Agreement are being made to help assure a continuing dedication by Employee to Employee's duties to the Company notwithstanding the proposal or occurrence of a Change in Control. The Board believes it imperative, should the Company receive any proposal from a third party, that Employee, without being influenced by the uncertainties of Employee's own situation, be able to assess and advise the Board whether such proposals are in the best interest of the Company and its stockholders, and to enable Employee to take action regarding such proposals as the Board might determine to be appropriate. The Board also wishes to demonstrate to key personnel that the Company desires to enhance management relations and its ability to retain and, if needed, to attract new management, and intends to ensure that loyal and dedicated management personnel are treated fairly. In view of the foregoing, the Company and Employee agree as follows: 1. EFFECTIVE DATE AND TERM OF AGREEMENT. ------------------------------------ This Agreement is effective and binding on the Company and Employee as of the date hereof; provided, however, that, subject to Section 2(d), the provisions of Sections 3 and 4 shall become operative only upon the Change in Control Date. 2. EMPLOYMENT OF EMPLOYEE. ---------------------- ____________________ /1/ "Company" shall include the Company, any successor to the Company's business and/or assets, and any party which executes and delivers the agreement required by Section 6(e) or which otherwise becomes bound by the terms and conditions of this Agreement by operation of law or otherwise. (a) Except as provided in Sections 2(b), 2(c) and 2(d), nothing in this Agreement shall affect any right which Employee may otherwise have to terminate Employee's employment, nor shall anything in this Agreement affect any right which the Company may have to terminate Employee's employment at any time in any lawful manner. (b) In the event of a Potential Change in Control, to be entitled to receive the benefits provided by this Agreement, Employee will not voluntarily leave the employ of the Company, and will continue to perform Employee's regular duties and the services specified in the recitals of this Agreement until the Change in Control Date. Should Employee voluntarily terminate employment prior to the Change in Control Date, this Agreement shall lapse upon such termination and be of no further force or effect. (c) If Employee's employment terminates on or after the Change in Control Date, the Company will provide to Employee the payments and benefits as provided in Sections 3 and 4. (d) If Employee's employment is terminated by the Company prior to the Change in Control Date but on or after a Potential Change in Control Date, then the Company will provide to Employee the payments and benefits as provided in Sections 3 and 4 unless the Company reasonably demonstrates that Employee's termination of employment neither (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control nor (ii) arose in connection with or in anticipation of a Change in Control. Solely for purposes of determining the timing of payments and the provision of benefits in Sections 3 and 4 under the circumstances described in this Section 2(d), Employee's date of termination shall be deemed to be the Change in Control Date. 3. TERMINATION FOLLOWING CHANGE IN CONTROL. --------------------------------------- (a) If a Change in Control shall have occurred, Employee shall be entitled to the benefits provided in Section 4 upon the subsequent termination of Employee's employment within the applicable period set forth in Section 4 unless such termination is due to Employee's death, Retirement or Disability or is for Cause or is effected by Employee other than for Good Reason (as such terms are defined in Section 3(d)). (b) If following a Change in Control, Employee's employment is terminated by reason of Employee's death or Disability, Employee shall be entitled to death or long-term disability benefits from the Company no less favorable than the most favorable benefits to which Employee would have been entitled had the death or Disability occurred at any time during the period commencing one (1) year prior to the Change in Control. (c) If Employee's employment shall be terminated by the Company for Cause or by Employee other than for Good Reason during the term of this Agreement, the Company shall pay Employee's Base Salary through the date of termination at the rate in effect at the time notice of termination is given, and the Company shall have no further obligations to Employee under this Agreement. (d) For purposes of this Agreement: "Base Salary" shall mean the annual base salary paid to Employee immediately prior to a Change in Control, provided that such amount shall in no event be less than the annual base salary paid to Employee during the one (1) year period immediately prior to the Change in Control. A "Change in Control" shall be deemed to have occurred if: (i) Any individual or group constituting a "person", as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act (other than (A) the Company or any of its subsidiaries or (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of any of its subsidiaries), is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's outstanding securities then entitled ordinarily (and apart from rights accruing under special circumstances) to vote for the election of directors; or (ii) Continuing Directors cease to constitute at least a majority of the Board; or (iii) There occurs a reorganization, merger, consolidation or other corporate transaction involving the Company (a "Transaction"), in each case with respect to which the stockholders of the Company immediately prior to such Transaction do not, immediately after the Transaction, own more than 50% of the combined voting power of the Company or other corporation resulting from such Transaction; or (iv) All or substantially all of the assets of the Company are sold, liquidated or distributed; provided, however, that a "Change in Control" shall not be deemed to have occurred under this Agreement if, prior to the occurrence of a specified event that would otherwise constitute a Change in Control hereunder, the disinterested Continuing Directors then in office, by a majority vote thereof, determine that the occurrence of such specified event shall not be deemed to be a Change in Control with respect to Employee hereunder if the Change in Control results from actions or events in which Employee is a participant in a capacity other than solely as an officer, employee or director of the Company. "Change in Control Date" shall mean the date on which a Change in Control occurs. "Cause" shall mean: (i) The continued willful failure of Employee to perform Employee's duties to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board or a committee thereof; or (ii) The willful commission by Employee of a wrongful act that caused or was reasonably likely to cause substantial damage to the Company, or an act of fraud in the performance of Employee's duties on behalf of the Company; or (iii) The conviction of Employee for commission of a felony in connection with the performance of Employee's duties on behalf of the Company; or (iv) The order of a federal or state regulatory authority having jurisdiction over the Company or its operations or by a court of competent jurisdiction requiring the termination of Employee's employment by the Company. "Continuing Directors" shall mean the directors of the Company in office on the date hereof and any successor to any such director who was nominated or selected by a majority of the Continuing Directors in office at the time of the director's nomination or selection and who is not an "affiliate" or "associate" (as defined in Regulation 12B under the Exchange Act) of any person who is the beneficial owner, directly or indirectly, of securities representing ten percent (10%) or more of the combined voting power of the Company's outstanding securities then entitled ordinarily to vote for the election of directors. "Disability" shall mean Employee's incapacity due to physical or mental illness such that Employee shall have become qualified to receive benefits under the Company's long-term disability plan as in effect on the date of the Change in Control. "Dispute" shall mean, in the case of termination of Employee's employment for Disability or Cause, that Employee challenges the existence of Disability or Cause, and in the case of termination of Employee's employment for Good Reason, that the Company challenges the existence of Good Reason for termination of Employee's employment. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Good Reason" shall mean: (i) The assignment of Employee to duties which are materially different from Employee's duties immediately prior to the Change in Control and which result in a material reduction in Employee's authority and responsibility when compared to the highest level of authority and responsibility assigned to Employee at any time during the six (6) month period prior to the Change in Control Date; or (ii) A reduction of Employee's total compensation as the same may have been increased from time to time after the Change in Control Date other than (A) a reduction implemented with the consent of Employee or (B) a reduction that is generally comparable (proportionately) to compensation reductions imposed on senior executives of the Company generally; or (iii) The failure to provide to Employee the benefits and perquisites, including participation on a comparable basis in the Company's stock option, incentive, and other similar plans in which employees of the Company of comparable title and salary grade participate, as were provided to Employee immediately prior to a Change in Control, or with a package of benefits and perquisites that are substantially comparable in all material respects to such benefits and perquisites provided prior to the Change in Control; or (iv) The relocation of the office of the Company where Employee is employed immediately prior to the Change in Control Date (the "CIC Location") to a location which is more than 50 miles away from the CIC Location or the Company's requiring Employee to be based more than 50 miles away from the CIC Location (except for required travel on the Company's business to an extent substantially consistent with Employee's customary business travel obligations in the ordinary course of business prior to the Change in Control Date); (v) The failure of the Company to obtain promptly upon any Change in Control the express written assumption of an agreement to perform this Agreement by any successor as contemplated in Section 6(e); or (vi) The attempted termination of Employee's employment for Cause on grounds insufficient to constitute a basis of termination for Cause under this Agreement; or (vii) The failure of the Company to promptly make any payment into escrow when so required by Section 3(f). "Potential Change in Control" shall mean the earliest to occur of (a) the execution of an agreement or letter of intent, the consummation of the transactions described in which would result in a Change in Control, (b) the approval by the Board of a transaction or series of transactions, the consummation of which would result in a Change in Control, or (c) the public announcement of a tender offer for the Company's voting stock, the completion of which would result in a Change in Control; provided, that no such event shall be a "Potential Change in Control" unless (i) in the case of any agreement or letter of intent described in clause (a), the transaction described therein is subsequently consummated by the Company and the other party or parties to such agreement or letter of intent and thereupon constitutes a "Change in Control", (ii) in the case of any Board-approved transaction described in clause (b), the transaction so approved is subsequently consummated and thereupon constitutes a "Change in Control" or (iii) in the case of any tender offer described in clause (c), such tender offer is subsequently completed and such completion thereupon constitutes a "Change in Control". "Potential Change in Control Date" shall mean the date on which a Potential Change in Control occurs. "Retirement" shall mean Employee's actual retirement after reaching the normal or early retirement date provided for in the Company's Retirement and Profit-Sharing Program as in effect on the date of Employee's termination of employment. (e) Any termination of employment by the Company or by Employee shall be communicated by written notice, specify the date of termination, state the specific basis for termination and set forth in reasonable detail the facts and circumstances of the termination in order to provide a basis for determining the entitlement to any payments under this Agreement. (f) If within thirty (30) days after notice of termination is given, the party to whom the notice was given notifies the other party that a Dispute exists, the parties will promptly pursue resolution of such Dispute with reasonable diligence; provided, however, that pending resolution of any such Dispute, the Company shall pay 75% of any amounts which would otherwise be due Employee pursuant to Section 4 if such Dispute did not exist into escrow pending resolution of such Dispute and pay 25% of such amounts to Employee. Employee agrees to return to the Company any such amounts to which it is ultimately determined that he is not entitled. 4. PAYMENTS AND BENEFITS UPON TERMINATION. -------------------------------------- (a) If within eighteen (18) months after a Change in Control, the Company terminates Employee's employment other than by reason of Employee's death, Disability, Retirement or for Cause, or if Employee terminates Employee's employment for Good Reason, then the Employee shall be entitled to the following payments and benefits: (i) The Company shall pay to Employee as compensation for services rendered, no later than five (5) business days following the date of termination, a lump sum severance payment equal to 2.50 multiplied by the sum of (A) Employee's Base Salary, (B) the highest annual bonus that was paid to Employee in any of the three fiscal years ending prior to the date of termination under the Company's Management Incentive Plan (the "MIP") or Varian Associates, Inc.'s Management Incentive Plan, and (C) the highest cash bonus for a performance period of more than one fiscal year that was paid to Employee in any of the three fiscal years ending prior to the date of termination under the MIP. (ii) The Company shall pay to Employee as compensation for services rendered, no later than five (5) business days following the date of termination, a lump sum payment equal to a pro rata portion (based on the number of days elapsed during the fiscal year and/or other bonus performance period in which the termination occurs) of Employee's target bonus under the MIP for the fiscal year and for any other partially completed bonus performance period in which the termination occurs. (iii) All waiting periods for the exercise of any stock options granted to Employee and all conditions or restrictions of any restricted stock granted to Employee shall terminate, and all such options shall be exercisable in full according to their terms, and the restricted stock shall be transferred to Employee as soon as reasonably practicable thereafter. (iv) Employee's participation as of the date of termination in the life, medical/dental/vision and disability insurance plans and financial/tax counseling plan of the Company shall be continued on the same terms (including any cost sharing) as if Employee were an employee of the Company (or equivalent benefits provided) until the earlier of Employee's commencement of substantially equivalent full-time employment with a new employer or twenty-four (24) months after the date of termination; provided, however, that after the date of termination, Employee shall no longer be entitled to receive Company-paid executive physicals or, upon expiration of the applicable memberships, Company-paid airline memberships. In the event Employee shall die before the expiration of the period during which the Company is required to continue Employee's participation in such insurance plans, the participation of Employee's surviving spouse and family in the Company's insurance plans shall continue throughout such period. (v) Employee may elect upon termination to purchase any automobile then in the possession of Employee and subject to a lease of which the Company is the lessor by payment to the Company of the residual value set forth in the lease, without any increase for remaining lease payments during the term or other lease breakage costs. Employee may elect to have any such payment deducted from any payments due the Employee hereunder. (vi) All payments and benefits provided under this Agreement shall be subject to applicable tax withholding. (b) Following Employee's termination of employment for any reason, the Company shall have the unconditional right to reduce any payments owed to Employee hereunder by the amount of any due and unpaid principal and interest on any loans by the Company to Employee and Employee hereby agrees and consents to such right on the part of the Company. 5. GROSS-UP PAYMENT. ----------------- (a) Notwithstanding anything herein to the contrary, if it is determined that any Payment would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties with respect to such excise tax (such excise tax, together with any interest or penalties thereon, is herein referred to as an "Excise Tax"), then Employee shall be entitled to an additional payment (a "Gross-Up Payment") in an amount that will place Employee in the same after-tax economic position that Employee would have enjoyed if the Excise Tax had not applied to the Payment. The amount of the Gross-Up Payment shall be determined by a nationally- recognized independent public accounting firm designated by agreement between Employee and the Company (the "Accounting Firm"). No Gross-Up Payments shall be payable hereunder if the Accounting Firm determines that the Payments are not subject to an Excise Tax. "Payment" means (i) any amount due or paid to Employee under this Agreement, (ii) any amount that is due or paid to Employee under any plan, program or arrangement of the Company and its subsidiaries and (iii) any amount or benefit that is due or payable to Employee under this Agreement or under any plan, program or arrangement of the Company and its subsidiaries not otherwise covered under clause (i) or (ii) hereof which must reasonably be taken into account under Section 280G of the Code in determining the amount the "parachute payments" received by Employee, including, without limitation, any amounts which must be taken into account under Section 280G of the Code as a result of (A) the acceleration of the vesting of any option, restricted stock or other equity award, (B) the acceleration of the time at which any payment or benefit is receivable by Employee or (C) any contingent severance or other amounts that are payable to Employee. (b) Subject to the provisions of Section 5(c), all determinations required under this Section 5, including whether a Gross-Up Payment is required, the amount of the Payments constituting excess parachute payments, and the amount of the Gross-Up Payment, shall be made by the Accounting Firm, which shall provide detailed supporting calculations both to Employee and the Company within fifteen days of the date reasonably requested by Employee or the Company on which a determination under this Section 5 is necessary or advisable. The Company shall pay to Employee the initial Gross-Up Payment within 5 days of the receipt by Employee and the Company of the determination of the Accounting Firm. If the Accounting Firm determines that no Excise Tax is payable by Employee, the Company shall cause its accountants to provide Employee with an opinion that the Accounting Firm has substantial authority under the Code not to report an Excise Tax on Employee's federal income tax return. Any determination by the Accounting Firm shall be binding upon Employee and the Company. If the initial Gross-Up Payment is insufficient to cover the amount of the Excise Tax that is ultimately determined to be owing by Employee with respect to any Payment (hereinafter an "Underpayment"), the Company, after exhausting its remedies under Section 5(c) below, shall promptly pay to Employee an additional Gross-Up Payment in respect of the Underpayment. (c) Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notice shall be given as soon as practicable after Employee knows of such claim and shall apprise the Company of the nature of the claim and the date on which the claim is requested to be paid. Employee agrees not to pay the claim until the expiration of the thirty (30) day period following the date on which Employee notifies the Company, or such shorter period ending on the date the Taxes with respect to such claim are due (the "Notice Period"). If the Company notifies Employee in writing prior to the expiration of the Notice Period that it desires to contest the claim, Employee shall: (i) give the Company any information reasonably requested by the Company relating to the claim; (ii) take such action in connection with the claim as the Company may reasonably request, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and reasonably acceptable to Employee; (iii) cooperate with the Company in good faith in contesting the claim; and (iv) permit the Company to participate in any proceedings relating to the claim. Employee shall permit the Company to control all proceedings related to the claim and, at its option, permit the Company to pursue or forgo any and all administrative appeals, proceedings, hearings, and conferences with the taxing authority in respect of such claim. If requested by the Company, Employee agrees either to pay the tax claimed and sue for a refund or contest the claim in any permissible manner and to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts as the Company shall determine; provided, however, that, if the Company directs Employee to pay such claim and pursue a refund, the Company shall advance the amount of such payment to Employee on an after-tax and interest-free basis (an "Advance"). The Company's control of the contest related to the claim shall be limited to the issues related to the Gross-Up Payment and Employee shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or other taxing authority. If the Company does not notify Employee in writing prior to the end of the Notice Period of its desire to contest the claim, the Company shall pay to Employee an additional Gross-Up Payment in respect of the excess parachute payments that are the subject of the claim, and Employee agrees to pay the amount of the Excise Tax that is the subject of the claim to the applicable taxing authority in accordance with applicable law. (d) If, after receipt by Employee of an Advance, Employee becomes entitled to a refund with respect to the claim to which such Advance relates, Employee shall pay the Company the amount of the refund (together with any interest paid or credited thereon after Taxes applicable thereto). If, after receipt by Employee of an Advance, a determination is made that Employee shall not be entitled to any refund with respect to the claim and the Company does not promptly notify Employee of its intent to contest the denial of refund, then the amount of the Advance shall not be required to be repaid by Employee and the amount thereof shall offset the amount of the additional Gross-Up Payment then owing to Employee. (e) The Company shall indemnify Employee and hold Employee harmless, on an after-tax basis, from any costs, expenses, penalties, fines, interest or other liabilities ("Losses") incurred by Employee with respect to the exercise by the Company of any of its rights under this Section 5, including, without limitation, any Losses related to the Company's decision to contest a claim or any imputed income to Employee resulting from any Advance or action taken on Employee's behalf by the Company hereunder. The Company shall pay all legal fees and expenses incurred under this Section 5, and shall promptly reimburse Employee for the reasonable expenses incurred by Employee in connection with any actions taken by the Company or required to be taken by Employee hereunder. The Company shall also pay all of the fees and expenses of the Accounting Firm, including, without limitation, the fees and expenses related to the opinion referred to in Section 5(b). 6. GENERAL. -------- (a) Employee shall retain in confidence under the conditions of the Company's confidentiality agreement with Employee any proprietary or other confidential information known to Employee concerning the Company and its business so long as such information is not publicly disclosed and disclosure is not required by an order of any governmental body or court. If required, Employee shall return to the Company any memoranda, documents or other materials proprietary to the Company. (b) While employed by the Company and following the termination of such employment (other than a termination of employment by Employee for Good Reason or by the Company other than for Cause) for a period of two (2) years, Employee shall not, whether for Employee's own account or for the account of any other individual, partnership, firm, corporation or other business organization, intentionally solicit, endeavor to entice away from the Company or a subsidiary of the Company (each, a "Protected Party"), or otherwise interfere with the relationship of a Protected Party with, any person who is employed by a Protected Party or any person or entity who is, or was within the then most recent twelve (12) month period, a customer or client of a Protected Party. Employee acknowledges that a breach of any of the covenants contained in this Section 6(b) may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it may not be possible to measure damages for such injuries precisely and that, in the event of such a breach, any payments remaining under the terms of this Agreement shall cease and the Company may be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining Employee from engaging in activities prohibited by this Section 6(b) or such other relief as may be required to specifically enforce any of the covenants in this Section 6(b). Employee agrees to and hereby does submit to in personam jurisdiction before each and every such court in the State of California, County of Santa Clara, for that purpose. This Section 6(b) shall survive any termination of this Agreement. (c) If litigation is brought by Employee to enforce or interpret any provision contained in this Agreement, the Company shall indemnify Employee for Employee's reasonable attorney's fees and disbursements incurred in such litigation and pay prejudgment interest on any money judgment obtained by Employee calculated at the prime rate of interest in effect from time to time at the Bank of America, San Francisco, from the date that payment should have been made under the Agreement, provided that Employee shall not have been found by the court in which such litigation is pending to have had no cause in bringing the action, or to have acted in bad faith, which finding must be final with the time to appeal therefrom having expired and no appeal having been taken. (d) Except as provided in Section 4, the Company's obligation to pay to Employee the compensation and to make the arrangements provided in this Agreement shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment. (e) The Company shall require any successor, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all of the business and/or assets of the Company, by written agreement to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. (f) This Agreement shall inure to the benefit of and be enforceable by Employee's heirs, successors and assigns. If Employee should die while any amounts would still be payable to Employee hereunder if Employee had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Employee's heirs, successors and assigns. (g) For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: If to Employee: If to the Company: Varian, Inc. 3120 Hansen Way Palo Alto, CA 94304-1030 Attn: Vice President, Human Resources or to such other address as either party furnishes to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (h) This Agreement shall constitute the entire agreement between Employee and the Company concerning the subject matter of this Agreement. (i) The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without giving effect to the provisions, principles or policies thereof relating to choice or conflict of laws. The invalidity or unenforceability of any provision of this Agreement in any circumstance shall not affect the validity or enforceability of such provision in any other circumstance or the validity or enforceability of any other provision of this Agreement, and, except to the extent such provision is invalid or unenforceable, this Agreement shall remain in full force and effect. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof in such jurisdiction, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. This Section 6(i) shall survive any termination of this Agreement. (j) This Agreement may be terminated by the Company pursuant to a resolution adopted by the Board at any time prior to a Potential Change in Control Date. After a Change in Control Date or a Potential Change in Control Date, this Agreement may only be terminated with the consent of Employee. (k) No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement and this Agreement shall supersede all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, with respect to the subject matter hereof including, without limitation, the Amended and Restated Change in Control Agreement between Employee and Varian Associates, Inc. (l) In the event that the Company becomes party to a transaction that is intended to qualify for "pooling of interests" accounting treatment and, but for one or more of the provisions of this Agreement would so qualify, then this Agreement shall be interpreted so as to preserve such accounting treatment, and to the extent that any provision of this Agreement would disqualify the transaction from pooling of interests accounting treatment, then such provision shall be null and void. All determinations to be made in connection with the preceding sentence shall be made by the independent accounting firm whose opinion with respect to "pooling of interests" treatment is required as a condition to the Company's consummation of such transaction. IN WITNESS WHEREOF, the parties acknowledge that they have read and understand the terms of this Agreement and have executed this Agreement to be effective as of April 2, 1999. VARIAN, INC. EMPLOYEE __________________________ ___________________________ By: Title: EX-10.8 8 FORM OF INDEMNITY AGREEMENT FOR DIRECTORS AND OFFICERS EXHIBIT 10.8 FORM OF INDEMNITY AGREEMENT FOR DIRECTORS AND OFFICERS INDEMNITY AGREEMENT ------------------- This Agreement made and entered into this ___ day of _______, 1999, by and between Varian, Inc., a Delaware corporation (the "Company"), and ______________ ("Indemnitee"): WHEREAS, there is a general awareness that competent and experienced persons are becoming more reluctant to serve as directors or officers of a publicly-held corporation unless they are provided with adequate protection against claims and actions against them for their activities on behalf of the corporation, generally through insurance and indemnification; and WHEREAS, the uncertainties in the interpretations of the statutes and regulations, laws and public policies, relating to indemnification of corporate directors and officers are such as to make adequate, reliable assessment of the risks to which directors and officers of publicly-held corporations may be exposed difficult, particularly in light of the proliferation of lawsuits against directors and officers; and WHEREAS, the Board of Directors of the Company, based upon its business experience, has concluded that the continuation of present trends in litigation against corporate directors and officers will inevitably make it more difficult for the Company to retain directors and officers of the highest competence committed to the active and effective direction and supervision of the business and affairs of the Company and its subsidiaries and affiliates and the operation of their facilities, and the Board deems such consequences to be so detrimental to the best interests of the Company's stockholders that it has concluded that the Company should act to assure its directors and officers of maximum protection against inordinate risks attendant on their positions in order to ensure that the most capable persons otherwise available will be attracted to such positions and, therefore, said directors have further concluded that it is not only reasonable and prudent but necessary for the Company to contractually obligate itself to indemnify to the fullest extent permitted by applicable law its directors and officers and the directors and officers of its affiliates and to assume to the maximum extent permitted by law liability for expenses and liabilities which might be incurred by its directors and officers in connection with claims lodged against them for their decisions and actions as directors or officers; and WHEREAS, Section 145 of the General Corporation Law of the State of Delaware, under which law the Company is organized, empowers corporations to indemnify persons serving as a director, officer, employee or agent of the corporation or a person who serves at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise, and further specifies that the indemnification provided by said section "shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise", and further empowers a corporation to "purchase and maintain insurance" (on behalf of such persons) "against any liability asserted against him or incurred by him in any such capacity, or arising out of Indemnitee's status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of" (said laws); and WHEREAS, the Company has investigated the type of insurance available, to insure the directors and officers of the Company and of its affiliates against expenses (including attorneys' fees), costs, judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with any action, suit or proceeding to which they are or are threatened to be made a party by reason of their status and/or decisions or actions in such positions, has studied the nature and extent of the coverage provided by such insurance and the cost thereof to the Company, and has purchased such insurance to the extent reasonably available; however, upon receiving such information, and notwithstanding the purchase of such insurance when reasonably available, which insurance is subject to certain significant exclusions and may cease to be available (even with such exclusions), the directors of the Company have concluded that it would be in the best interests of the stockholders for the Company to contract to indemnify such persons as hereinafter provided; and WHEREAS, the Company desires to have Indemnitee serve or continue to serve as a director or officer of the Company and/or a director, officer, partner, trustee, agent or fiduciary of such other corporations, partnerships, joint ventures, employee benefit plans, trusts or other enterprises (herein collectively called "Affiliate of the Company") of which Indemnitee has been or is serving, or will serve at the request of or for the convenience of or to represent the interests of the Company, free from undue concern for unpredictable, inappropriate or unreasonable claims for damages by reason of Indemnitee's being a director or officer of the Company or a director, officer, employee, trustee, partner, agent or fiduciary of an Affiliate of the Company, or by reason of Indemnitee's decisions or actions on their behalf; and WHEREAS, Indemnitee is willing to serve, or to continue to serve, or to take on additional service for, the Company and/or the Affiliates in such aforesaid capacities on the condition that Indemnitee be indemnified as provided for herein; NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows: 1. SERVICES TO THE COMPANY. Indemnitee will serve and/or continue to ----------------------- serve, at the will of the Company or under separate contract, if any such contract exists, as a director and/or officer of the Company and/or as a director, officer, employee, trustee, partner, agent or fiduciary of an Affiliate of the Company faithfully and to the best of Indemnitee's ability so long as Indemnitee is duly elected and qualified in accordance with the provisions of the Bylaws or other applicable constitutive documents thereof; provided that Indemnitee may at any time and for any reason resign from such position (subject to any contractual obligation which Indemnitee shall have assumed apart from this Agreement) and further provided that neither the Company nor any Affiliate shall have any obligation under this Agreement to continue the Indemnitee in any such position. 2. INDEMNIFICATION. The Company shall indemnify Indemnitee to the fullest --------------- extent permitted, and in the manner required, by applicable law as in effect as of the date hereof or as such laws may from time to time, be amended: (a) If Indemnitee is a person who was or is made a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative in nature, other than an action by or in the right of the Company, by reason of the fact that Indemnitee is or was a director, officer, employee, trustee, partner, agent, or fiduciary of the Company or is or was serving at the request of the Company as a director, officer, employee, trustee, partner, agent or fiduciary of an Affiliate of the Company, or by reason of anything done or not done by Indemnitee in any such capacity, against expenses (including attorneys' fees), costs, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding (including, but not limited to, the investigation, defense or appeal thereof) if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful, or (b) If Indemnitee is a person who was or is made a party or is threatened to be made a party to any threatened, pending or completed action or suit brought in the right of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee, trustee, partner, agent or fiduciary of the Company or an Affiliate of the Company or by reason of anything done or not done by Indemnitee in any such capacity, against expenses (including attorneys' fees) and costs actually and reasonably incurred by Indemnitee in connection with such action or suit (including, but not limited to, the investigation, defense, settlement or appeal thereof) if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, except that no such indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for gross negligence or misconduct in the performance of Indemnitee's duty to the Company unless, and only to the extent that, the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses and costs as such court shall deem proper. (c) Notwithstanding any other provisions of this Agreement, to the extent Indemnitee (i) has prepared to serve or has served as a witness or (ii) has been successful on the merits or otherwise in defense of any action, suit, investigation or proceeding referred to in subsections (a) or (b) of this section, or in the defense of any claim, issue or matter described therein, the Company shall indemnify Indemnitee against expenses (including attorneys' fees) and costs actually and reasonably incurred by Indemnitee in connection therewith (including, but not limited to, the preparation, service, investigation, defense or appeal of such action, suit, investigation or proceeding). (d) Notwithstanding anything to the contrary in the foregoing provisions of this Section 2, Indemnitee shall not be entitled, as a matter of right, to indemnification pursuant to this Section 2 (i) against costs and expenses incurred in connection with any action, suit or proceeding commenced by Indemnitee against the Company or any person who is or was a director or officer of the Company or any of its affiliates, as defined in Rule 405 under the Securities Act of 1933 ("Securities Act Affiliate") or any Affiliate of the Company, but such indemnification may be provided by the Company in a specific case as contemplated by Section 6 hereof; or (ii) in the event that Indemnitee has served as a witness in cooperation with any party or entity which has threatened or brought any action, suit or proceeding, whether civil, criminal, administrative, or investigative, against the Company, any Securities Act Affiliate, any Affiliate of the Company, or any director, officer, employee, trustee, partner, agent or fiduciary of any thereof, but such indemnification may be provided by the Company in a specific case as contemplated by Section 6 hereof. 3. PARTIAL INDEMNIFICATION. If Indemnitee is only partially successful in ----------------------- the defense, investigation, settlement or appeal of any action, suit, investigation or proceeding described in Section 2 hereof and therefore not entitled hereunder to indemnification by the Company for the total amount of the expenses (including attorneys' fees), costs, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee, the Company shall nevertheless indemnify Indemnitee to the extent Indemnitee has been partially successful. 4. DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION. ----------------------------------------------- (a) Upon written request by Indemnitee for indemnification pursuant to Section 2 hereof, the determination as to whether or not Indemnitee shall be entitled to indemnification by reason of satisfying the applicable standard of conduct as set forth in Section 2 shall be made (i) by the Board of Directors of the Company by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined) or, (ii) if such a quorum is not obtainable or, even if obtainable, if the Board of Directors by the majority vote of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee, or (iii) by the stockholders. A determination as to the entitlement of Indemnitee to indemnification pursuant to Section 2 hereof shall be made as aforesaid not later than 60 days after the Company shall have received a written request for indemnification. Indemnitee shall cooperate with the Company in making its determination as aforesaid of Indemnitee's entitlement to indemnification, including providing to the Company upon reasonable advance request any documentation or information reasonably available to Indemnitee and material to such determination. Any costs (including attorneys' fees) or expenses incurred by Indemnitee in so cooperating with the Company shall be borne by the Company and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom irrespective of the outcome of the determination as to Indemnitee's satisfaction of the applicable standard of conduct set forth in Section 2. (b) The termination of any action, suit, investigation or proceeding described in Section 2 hereof by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption for the purposes of this Agreement that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. (c) In making a determination pursuant to Section 4(a) hereof as to whether or not Indemnitee satisfied the applicable standard of conduct set forth in Section 2 hereof, the person or persons making such determination shall presume that Indemnitee met the applicable standard of conduct set forth in Section 2(a), 2(b), or 2(c), as the case may be, absent evidence to the contrary and the absence or unavailability of evidence on the matter to be decided Indemnitee shall be entitled to the benefit of such presumption. The Company shall have the burden of proof in the making of any determination contrary to such presumption. (d) For purposes of this Agreement: (i) "Disinterested Director" with respect to any request by Indemnitee for indemnification hereunder shall mean a director of the Company who is or was not a party to or a subject of the action, suit, investigation or proceeding in respect of which indemnification is being sought by Indemnitee. (ii) "Independent Counsel" shall mean a law firm or a member of a law firm that neither is nor in the past five years has been retained to represent in any material matter the Company or any Securities Act Affiliate or Indemnitee or any other party to the action, suit, investigation or proceeding giving rise to a claim for indemnification hereunder and which, under applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's right to indemnification under this Agreement and that is reasonably acceptable to the Company and Indemnitee. For purposes hereof, counsel shall not be deemed to regularly represent any government or governmental entity which may have commenced any action, suit, investigation or proceeding or be asserting any claim against Indemnitee solely by reason of having regularly represented any department, commission, authority, subdivision or public benefit corporation of or created by such government or governmental entity which is a party to such action, suit, investigation or proceeding or before which it is being prosecuted or which is making any such claim. In the event that the parties are unable to agree on the selection of Independent Counsel, such counsel shall be selected by lot from among the Wilmington, Delaware law firms having more than ten attorneys and having a rating of "av" or better in the then current Martindale-Hubbell Law directory. Such selection shall be made in the presence of Indemnitee (or Indemnitee's representative), and the parties shall contact, in the order of their selection by lot, such law firms, requesting each such firm to accept engagement to make the determination required hereunder until one of such firms accepts such engagement. The fees and expenses of counsel in connection with making any determination contemplated hereunder shall be paid by the Company and, if requested by such counsel, the Company shall give such counsel an appropriate written agreement with respect to the payment of their fees and expenses and such other matters as may be reasonably requested by counsel. (e) In the event that a determination shall be made pursuant to (i) Section 4(a) hereof that Indemnitee shall not be entitled to indemnification hereunder in respect of any claim made by Indemnitee therefor by reason of Indemnitee's failing to satisfy the applicable standard set forth in Section 2 hereof, or (ii) Section 5 hereof not to pay Indemnitee's expenses and costs, or in the event such determination is not made, Indemnitee shall be entitled, at Indemnitee's option, to a final judicial determination or determination in arbitration of Indemnitee's entitlement to indemnification hereunder in respect of such claim (including application of the standards set forth in Section 4(b) and (c) hereof to the making of such determination) or Indemnitee's entitlement to such an advancement of expenses and costs pursuant to Section 5 hereof. In the event Indemnitee seeks a judicial determination, Indemnitee may initially seek such determination by commencing an appropriate action in an appropriate court of the State of Delaware or any other court of competent jurisdiction. In the event Indemnitee seeks a determination in arbitration, such arbitration shall be conducted pursuant to the rules of the American Arbitration Association and any such determination shall be made within 60 days of following the filing of the demand for arbitration. The Company shall not raise as a defense in any such judicial determination or determination in arbitration of the entitlement of Indemnitee to indemnification hereunder any prior determination made pursuant to this Agreement of Indemnitee's right to indemnification under this Agreement or advancement of expenses and costs on such claim or any other claim, and for all purposes of this Agreement any such judicial determination or determination in arbitration shall be made de novo and without prejudice by reason of any such prior determination. The Company further agrees to stipulate to any court or arbitrator in which such action or arbitration shall have been commenced or appealed that the Company agrees to be bound, for the purposes of such judicial determination or determination in arbitration, by the presumption and burden of proof provisions set forth in Section 4(c) hereof. If the court or arbitrator shall determine that Indemnitee is entitled to indemnification or advancements hereunder as to any expenses (including attorneys' fees) costs, judgments, penalties, fines and amounts paid in settlement in respect of any claim, issue or matter involved in the action, suit, investigation or proceeding in respect of which indemnification is sought hereunder, the Company shall pay all expenses (including attorneys' fees) and costs actually incurred by Indemnitee in connection with such judicial determination or determination in arbitration (including, but not limited to, any appellate proceedings). (f) If, and to the extent it is finally determined hereunder that Indemnitee is not entitled to indemnification, or is entitled only to partial indemnification, Indemnitee agrees to reimburse the Company for all expenses and costs advanced or prepaid hereunder, or the proper proportion thereof, as the case may be, within 180 days after receipt of an itemized written statement therefor from the Company, other than the expenses of (i) obtaining the judicial determination referred to in Sections 4(e) and 5 hereof, (ii) cooperating with the Company in making its determination, as set forth in Section 4(a) hereof, or (iii) obtaining the opinion of Independent Counsel pursuant to Section 4(a) hereof. 5. ADVANCEMENT OF EXPENSES AND COSTS. All reasonable expenses (including --------------------------------- attorneys' fees) and costs incurred by Indemnitee in preparing to serve or serving as a witness or in investigating, defending, or appealing any threatened, pending or completed civil or criminal action, suit or proceeding, administrative or investigative, described in Section 2 hereof and not excluded by clauses (i) or (ii) of Section 2(d), or in connection with a judicial determination or determination in arbitration pursuant to Section 4(e) or 5 hereof, shall be paid by the Company (in advance of the final disposition of such action, suit or proceeding) at the request of Indemnitee within 20 days after the receipt by the Company from the Indemnitee of a statement reasonably evidencing the expenses and costs incurred by Indemnitee in connection therewith, and averring that they do not relate to matters described in the aforesaid clauses (i) or (ii) of Section 2(d), together with a written undertaking by or on behalf of Indemnitee to repay such amount if it is ultimately determined that Indemnitee is not entitled to be indemnified against such expenses and costs by the Company as provided by this Agreement, the Company's Certificate of Incorporation or By-Laws, applicable law or otherwise. Except when such advances relate to service as a witness only, the Board of Directors shall make a determination in the specific case regarding Indemnitee's entitlement to such advancements of expenses and costs within 14 days after receipt of the aforesaid statement and undertaking. In the event the Board of Directors determines not to so pay Indemnitee's expenses and costs, Indemnitee shall be entitled, at Indemnitee's option, to a judicial determination or determination in arbitration Indemnitee's right to such advancement of expenses and costs as set forth in Section 4(e) hereof. 6. OTHER RIGHTS TO INDEMNIFICATION. The indemnification and advancement ------------------------------- of expenses (including attorneys' fees) and costs provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may now or in the future be entitled under any provision of law, the Certificate of Incorporation or any Bylaw of the Company or any other agreement or any vote of stockholders or directors or otherwise, whether as to action in Indemnitee's official capacity or in another capacity while occupying any of the positions or having any of the relationships referred to in Section 2 of this Agreement; provided, however, that Indemnitee hereby acknowledges and agrees that the reorganization transactions and the distribution of shares of the Company's common stock to the stockholders of Varian Associates, Inc. ("Varian") pursuant to the Distribution Agreement by and among the Company, Varian and Varian Semiconductor Equipment Associates, Inc. dated January 14, 1999 (the "Distribution") does not constitute a transaction contemplated by Section 7(b) of the Indemnity Agreement by and between Indemnitee and Varian dated ______________, 19__ and that such Section 7(b) does not apply to the Distribution. 7. MERGER OR CONSOLIDATION OF THE COMPANY. -------------------------------------- (a) In the event that the Company or a Securities Act Affiliate of the Company shall be a constituent corporation in a consolidation or a merger, whether or not the Company or such Securities Act Affiliate of the Company, as the case may be, is the resulting or surviving corporation, Indemnitee shall stand in the same position under this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to the Company if its separate existence had continued or with respect to the Securities Act Affiliate of the Company if such affiliation had continued. (b) In addition to any other provision of this Agreement, the Company hereby covenants and agrees that it will not consummate any consolidation, merger or other business combination nor will it transfer 50% or more of its assets (in one or a series of related transactions) unless the ultimate parent of the other party to such transaction, whether or not in the event of a business combination the Company is the surviving entity, shall have executed an agreement stating that such party (i) shall use its best efforts to maintain any director and officer insurance policy in an amount and with coverage no less favorable than that which exists as of the date hereof, or the closest practicable equivalent thereto, (ii) shall indemnify Indemnitee, except in the circumstances set forth in Section 2(d)(i) and (ii) of this Agreement against any expenses (including attorneys' fees), costs, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with any suit or proceeding, whether civil, criminal, administrative or investigative in nature, to which Indemnitee was or is made a party or witness or is threatened to be made a party or witness, by reason of the fact that Indemnitee is or was a director, officer, employee, trustee, partner, agent or fiduciary of the Company or is or was serving at the request of the Company as a director, officer, employee, trustee, partner, agent or fiduciary of an Affiliate of the Company, or by reason of anything done or not done by Indemnitee in such capacity, and (iii) shall pay, except in the circumstances set forth in Section 2(d)(i) and (ii) (in advance of the final disposition of the action, suit or proceeding) all reasonable expenses (including attorneys' fees) and costs incurred by Indemnitee in preparing to serve or serving as a witness or in investigating, defending or appealing any threatened, pending or completed civil or criminal action, suit or proceeding, administrative or investigative, in each case within 20 days of the submission by Indemnitee of a statement requesting the payment of such expenses and costs and reasonably evidencing the expenses and costs incurred by Indemnitee in connection therewith, and (iv) shall maintain irrevocable standby letters of credit in the aggregate amount of $5 million for all directors and officers. 8. ATTORNEYS' FEES. In the event that Indemnitee is subject to or --------------- intervenes in any legal action in which the validity or enforceability of this Agreement is at issue or institutes any legal action to enforce Indemnitee's rights under, or to recover damages for breach of, this Agreement (other than an action referred to in Section 4(e) hereof), Indemnitee, if Indemnitee prevails in whole or in part in such action, shall be entitled to recover from the Company and shall be indemnified by the Company against, any actual expenses for attorneys' fees and disbursements reasonably incurred by Indemnitee. 9. DURATION OF AGREEMENT; SUCCESSORS AND ASSIGNS. --------------------------------------------- (a) This Agreement shall continue until and terminate upon the later of: (i) ten years after Indemnitee has ceased to occupy any of the positions or have any of the relationships referred to in Section 2 of this Agreement or (ii) the termination of all pending or threatened actions, suits, proceedings or investigations. (b) This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and Indemnitee's spouse, heirs, devisees, executors and administrators. 10. SEVERABILITY. If any provision or provisions of this Agreement shall ------------ be held to be invalid, illegal or unenforceable for any reason whatsoever (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 11. IDENTICAL COUNTERPARTS. This Agreement may be executed ln one or more ---------------------- counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. 12. HEADINGS. The headings of the paragraphs of this Agreement are -------- inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 13. USE OF CERTAIN TERMS. As used in this Agreement, the words "herein," -------------------- "hereof," and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section, paragraph, subparagraph or other subdivision. For purposes of this Agreement, references to "fines" shall include any excise taxes assessed on Indemnitee with respect to any employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, trustee, partner, agent or fiduciary of the Company which imposes duties on, or involves services by, Indemnitee with respect to any employee benefit plan, its participants or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 14. MODIFICATION AND WAIVER. No supplement, modification or amendment of ----------------------- this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 15. NOTICE BY INDEMNITEE. Indemnitee agrees to promptly notify the Company -------------------- in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter which maybe subject to indemnification covered hereunder, either civil, criminal or investigative. 16. NOTICES. All notices, requests, demand and other communications ------- hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or if (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (a) If to Indemnitee, at the address indicated on the signature page hereof. (b) If to the Company to: Varian, Inc. 3120 Hansen Way Palo Alto, CA 94304-1030 Attn: Vice President and General Counsel or to such other address as either may subsequently furnish to the other in writing. 17. GOVERNING LAW. The parties hereto agree that this Agreement shall be ------------- governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to the conflicts of law principles thereof. 18. SUBROGATION. In the event of any payment under this Agreement, the ----------- Company shall be subrogated to the extent of such payment to all the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. VARIAN, INC. INDEMNITEE _________________________________ _________________________________ [Name] [Name] [Title] [Address] ATTEST: _________________________________ [Name] [Title] EX-21 9 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 Subsidiaries of Varian, Inc. Country of Subsidiaries Incorporation - ------------ ------------- Varian Australia L.L.C. USA, DE L.L.C. Varian Argentina, Ltd. USA, DE Varian [Technologies] China, Ltd. USA, DE Varian India Pvt. Ltd. USA, DE Varian Technologies Japan, Ltd. USA, DE Varian Instruments of Puerto Rico, Inc. USA, DE Varian Technologies Asia, Ltd. USA, DE Varian Inter-American Corp.* USA, CA Chrompack, Inc.* USA, New Jersey Varian Australia Pty. Limited Australia Varian Holdings (Australia) Pty. Limited Australia Varian Gesellschaft m.b.H. Austria Varian Chrompack Belgium N.V.* Belgium Varian Belgium N.V. Belgium Intralab Instrumentacao Analytica Ltda Brazil Varian Industria e Comercio Limitada Brazil Varian Canada Inc. Canada Varian Chrompack France S.a.r.l.* France Varian S.A. France Varian Chrompack Germany GmbH Germany Varian Deutschland G.m.b.H. (new entity) Germany Varian Chrompack Italia S.r.l.* Italy Varian S.p.A. Italy Varian Technologies Korea, Ltd. Korea Varian S.A. Mexico Caribbean Charter Company* Netherlands Chrompack B.V.* Netherlands Chrompack Holding B.V.* Netherlands Varian Chrompack International B.V. Netherlands Chrompack Lease B.V.* Netherlands Varian Chrompack Nederland B.V.* Netherlands Europe Chemical Services Beheer B.V.* Netherlands Chrompack Onroerend Goed B.V. Netherlands Varian B.V. Netherlands Chrompack Norge AS* Norway Varian Iberica S.L. Spain Chrompack Sverige AB* Sweden Varian AB Sweden Varian A.G. (new entity) Switzerland Varian [Technologies] UK Ltd. United Kingdom Varian Technologies, C.A. Venezuela _______________ * To be merged or dissolved EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED STATEMENT OF EARNINGS AND COMBINED BALANCE SHEET FOR THE INSTRUMENTS BUSINESS OF VARIAN ASSOCIATES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS OCT-01-1999 OCT-03-1998 JAN-01-1999 0 0 140,096 0 75,822 243,281 208,789 121,030 395,624 138,848 0 0 0 0 245,756 395,624 133,296 133,296 80,666 125,627 0 0 0 7,669 3,413 4,256 0 0 0 4,256 0.14 0.14
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