SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Varian Medical Systems, Inc.
---------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
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VARIAN MEDICAL SYSTEMS, INC.
[VARIAN MEDICAL SYSTEMS LOGO]
3100 HANSEN WAY
PALO ALTO, CA 94304
December 26, 2001
Dear Stockholder:
You are cordially invited to attend the 2002 Annual Meeting of Stockholders
of Varian Medical Systems, Inc. to be held on Thursday, February 14, 2002 at
1:00 p.m. at the Sheraton Palo Alto, Sequoia/Oak conference room, 625 El Camino
Real, Palo Alto, California.
The Secretary's formal notice of the meeting and the Proxy Statement appear
on the following pages and describe the matters to be acted upon at the annual
meeting. You also will have the opportunity to hear what has happened in our
business in the past year and to ask questions.
We hope that you can join us. However, whether or not you plan to be there,
please sign and return your proxy card in the enclosed envelope as soon as
possible so that your vote will be counted.
Sincerely,
/s/ Richard M. Levy
Richard M. Levy
President and Chief Executive
Officer
VARIAN MEDICAL SYSTEMS, INC.
3100 HANSEN WAY
PALO ALTO, CA 94304
December 26, 2001
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Varian Medical Systems, Inc. will hold its Annual Meeting of Stockholders
at the Sheraton Palo Alto, Sequoia/Oak conference room, 625 El Camino Real, Palo
Alto, California on Thursday, February 14, 2002 at 1:00 p.m.
At this meeting we will ask you:
- to elect two directors; and
- to transact any other business that properly comes before the meeting.
Your Board of Directors has selected December 17, 2001 as the record date
for determining stockholders entitled to vote at the meeting. A list of
stockholders as of that date will be available for inspection during normal
business hours at our offices at 3100 Hansen Way, Palo Alto, California, for ten
days before the meeting.
This Proxy Statement, a proxy card and our 2001 Annual Report are being
distributed on or about December 26, 2001 to those entitled to vote.
By Order of the Board of Directors
/s/ Joseph B. Phair
Joseph B. Phair
Secretary
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION......................................... 1
Nominees for Election for Three-Year Term Ending with
the 2005 Annual Meeting............................... 3
Directors Continuing in Office Until the 2003 Annual
Meeting............................................... 3
Directors Continuing in Office Until the 2004 Annual
Meeting............................................... 4
Committees of the Board of Directors; Meetings......... 4
STOCK OWNERSHIP............................................. 6
Beneficial Ownership of Certain Stockholders, Directors
and Executive Officers................................ 6
COMPENSATION OF DIRECTORS AND THE NAMED EXECUTIVE
OFFICERS.................................................. 7
Compensation of Directors.............................. 7
Compensation of the Named Executive Officers--Summary
Compensation Table.................................... 8
Options/SAR Grants in Last Fiscal Year................. 9
Aggregated Options/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Options/SAR Values................ 9
Deferred Compensation Plan............................. 9
Change in Control Agreements........................... 10
ORGANIZATION AND COMPENSATION COMMITTEE REPORT.............. 10
AUDIT COMMITTEE REPORT...................................... 13
PERFORMANCE GRAPHS.......................................... 14
INDEPENDENCE OF ACCOUNTANTS................................. 16
GENERAL INFORMATION
Q: WHO IS SOLICITING MY PROXY?
A: The Board of Directors--the Board--of Varian Medical Systems--the
Company--is sending you this Proxy Statement in connection with our
solicitation of proxies for use at the 2002 Annual Meeting of
Stockholders--the Annual Meeting. Certain directors, officers and employees
also may solicit proxies on our behalf by mail, phone, fax or in person.
Georgeson Shareholder Communications, Inc., 111 Commerce Road, Carlstadt,
New Jersey, 07072-2586, may be hired to assist in soliciting proxies from
brokers, bank nominees and other stockholders.
Q: WHO IS PAYING FOR THIS SOLICITATION?
A: Varian Medical Systems will pay for the solicitation of proxies. The
Company's directors, officers and employees will not receive extra
remuneration. The Company would pay Georgeson not more than $25,000 plus
reasonable out-of-pocket expenses, and also will reimburse banks, brokers,
custodians, nominees and fiduciaries for their reasonable charges and
expenses to forward our proxy materials to the beneficial owners of our
common stock.
Q: WHAT AM I VOTING ON?
A: The election of Richard M. Levy and Burton Richter to the Board. Dr. Richter
intends to retire following the first year of the term to which he has been
nominated. He has agreed to the Board's request that he stand for election
at this Annual Meeting in order to provide continuity for the Company's
operations for an additional year following the spin-off to our stockholders
in 1999 of our instruments and semiconductor equipment businesses. Upon Dr.
Richter's retirement, the Board will nominate an individual for election by
the stockholders to serve the remaining two years of Dr. Richter's term.
Q: WHO CAN VOTE?
A: Only those people who owned the Company's common stock at the close of
business on December 17, 2001, the record date for the Annual Meeting, may
vote. Each share of common stock outstanding on that date is entitled to one
vote on all matters to come before the meeting, except that cumulative
voting will apply in the election of directors. Under the cumulative voting
method of election, the stockholder computes the number of votes available
to the stockholder by multiplying the number of shares the stockholder owned
on the record date by the number of directors to be elected, and may cast
the votes all for a single nominee or may distribute them in any manner
among the nominees.
Q: HOW DO I VOTE?
A: You may vote your shares either in person or by proxy. To vote by proxy, you
should mark, date, sign and mail the enclosed proxy card in the prepaid
envelope. Giving a proxy will not affect your right to vote your shares if
you attend the Annual Meeting and want to vote in person--by voting you
automatically revoke your proxy. You also may revoke your proxy at any time
before the voting by giving our Secretary written notice of your revocation
or by submitting a later-dated proxy. If you sign and return your proxy card
in time, the individuals named as proxyholders will vote your shares as you
instruct. If you sign and return your proxy card but do not mark your voting
instructions, the individuals named as proxyholders will vote your shares
FOR the election of the nominees for director.
Q: WHAT CONSTITUTES A QUORUM?
A: On the record date, Varian Medical Systems had 33,637,166 shares of common
stock, $1.00 par value, outstanding. Voting can take place at the Annual
Meeting only if stockholders owning a majority of the issued and outstanding
stock entitled to vote at the meeting are present in person or represented
by proxy. We include the shares of persons who abstain in determining those
present and entitled to vote, but exclude shares held by brokers in "street"
or "nominee" name when the broker
1
indicates that you have not voted and it lacks discretionary authority to
vote your shares on any matter (i.e., "broker non-votes").
Q: WHAT VOTE IS NEEDED?
A: The nominees receiving the most votes are elected as directors. As a result,
if you withhold your authority to vote for any nominee, your vote will not
count for or against the nominee, nor would a broker "non-vote" affect the
outcome of the election.
Q: CAN I VOTE ON OTHER MATTERS?
A: Our by-laws limit the business conducted at any annual meeting to (1)
business in the notice of the meeting, (2) business directed by the Board
and (3) business brought by a stockholder of record entitled to vote at the
meeting so long as the stockholder has notified our Secretary in writing (at
our Palo Alto headquarters) not less than 60 days nor more than 90 days
before the anniversary of the mailing of the proxy statement for the prior
year's annual meeting. The notice must briefly describe the business to be
brought and the reasons; give the name, address and number of shares owned
by the stockholder of record and any beneficial holder for which the
proposal is made; and identify any material interest the stockholder of
record or any beneficial owner has in the business.
We do not expect any matters other than the election of the directors to
come before the Annual Meeting. If any other matter is presented, your
signed proxy card gives the individuals named as proxyholders the authority
to vote your shares to the extent authorized by Rule 14a-4(c) under the
Securities Exchange Act of 1934--the Exchange Act--(which would include
matters that the proxyholders did not know were to be presented at least 60
days before the anniversary of last year's proxy statement).
Q: WHEN ARE STOCKHOLDER PROPOSALS DUE FOR THE 2003 ANNUAL MEETING?
A: To be considered for presentation in the proxy statement for our 2003 Annual
Meeting of Stockholders, a stockholder proposal must be received no later
than August 30, 2002.
Q: HOW DO I NOMINATE SOMEONE TO BE A DIRECTOR?
A: A stockholder may recommend nominees for director by notifying our Secretary
in writing (at our Palo Alto headquarters) not less than 60 days nor more
than 90 days before the anniversary of the mailing of the proxy statement
for the prior year's annual meeting. The notice must include the full name,
age, business and residence addresses, principal occupation or employment of
the nominee, the number of shares of Varian Medical Systems common stock the
nominee beneficially owns, any other information about the nominee that must
be disclosed in proxy solicitations under Rule 14(a) of the Exchange Act and
the nominee's written consent to the nomination and to serve, if elected.
Q: DOES THE RECENTLY ANNOUNCED STOCK DIVIDEND AFFECT THE PROXY STATEMENT OR THE
ANNUAL MEETING?
A: On November 16, 2001, the Board declared a two for one stock split, in the
form of a 100 percent stock dividend, to stockholders of record on December
10, 2001, payable on January 15, 2002. Because the stock dividend will not
be paid until after the record date for the Annual Meeting, this dividend
does not affect the share amounts in this Proxy Statement (all of which
relate to earlier dates and periods) or the voting at the Annual Meeting.
Q: WILL THE AUDITORS BE AT THE MEETING?
A: PricewaterhouseCoopers LLP, our fiscal year 2001 auditors, also will be our
auditors in fiscal year 2002. A PricewaterhouseCoopers LLP representative
will attend the meeting, have the opportunity to make a statement if he or
she desires and will be available to answer appropriate questions.
2
ELECTION OF DIRECTORS
Varian Medical Systems' Board is divided into three classes serving
staggered three-year terms. At the Annual Meeting, you and the other
stockholders will elect two individuals to serve as directors for three-year
terms which expire at the 2005 Annual Meeting. Each of the nominees is now a
member of the Board of Directors.
Dr. Richter intends to retire following the first year of the term to which
he has been nominated. He has agreed to the Board's request that he stand for
election at this Annual Meeting in order to provide continuity for the Company's
operations for an additional year following the spin-off to our stockholders in
1999 of the instruments and semiconductor equipment businesses. Upon Dr.
Richter's retirement, the Board will nominate an individual for election by the
stockholders to serve the remaining two years of Dr. Richter's term.
The individuals named as proxyholders will vote your proxy for the election
of the two nominees unless you direct them to withhold your votes. If any
nominee becomes unable to serve as a director before the meeting (or decides not
to serve), the individuals named as proxyholders may vote for a substitute. We
recommend a vote FOR each nominee.
Below are the names and ages of the Company's directors, the years they
became directors, their principal occupations or employment for at least the
past five years and directorships they hold in other public companies.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM ENDING WITH THE 2005 ANNUAL MEETING
- Richard M. Levy Age 63, a director since 1999. Our President
and Chief Executive Officer since April 2,
1999; our Executive Vice President responsible
for our medical systems business from 1990 to
April 2, 1999. Also a director of
Pharmacyclics, Inc.
- Burton Richter Age 70, a director since 1990. Paul Pigott
Professor in Physical Sciences at Stanford
University since 1980. Director of the Stanford
Linear Accelerator Center from 1984 to 1999.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2003 ANNUAL MEETING
- David W. Martin, Jr. Age 61, a director since 1994. President and
Chief Executive Officer of Eos Biotechnology,
Inc. (a biotechnology company) since 1997; from
1995 to 1996, Chief Executive Officer and a
director of LYNX Therapeutics, Inc. (a
biotechnology company); from 1994 to 1995,
Senior Vice President of Chiron Corporation and
President of Chiron Therapeutics (a
biotechnology company); and from 1990 through
1993, Executive Vice President for Research and
Development at The Du Pont Merck Pharmaceutical
Company. Also a director of Cubist
Pharmaceuticals, Inc. and Telik, Inc.
- Richard W. Vieser Age 74, a director since 1991. Retired;
Chairman of our Board of Directors since April
2, 1999; Chairman of the Board, Chief Executive
Officer and President of Lear Siegler, Inc. (a
diversified manufacturing company) from 1987 to
1989. Also a director of Harvard Industries,
Inc., International Wire Group, Inc., Apogent
Technologies Inc. and Viasystems Group, Inc.
3
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2004 ANNUAL MEETING
- John Seely Brown Age 61, a director since 1998. Vice President
of Xerox Corporation since 1986 and Chief
Scientist since 1992. Director of the Xerox
Palo Alto Research Center from 1990-2000. Chief
Innovation Officer of 12 Entrepreneuring since
June 2000. Also a director of Corning
Incorporated and Polycom.
- Samuel Hellman Age 67, a director since 1992. A. N. Pritzker
Distinguished Service Professor in the
Department of Radiation and Cellular Oncology
at the University of Chicago since 1993. From
1988 to 1993, Dean of the University's Division
of Biological Sciences and its Pritzker School
of Medicine, Vice President of the University's
Medical Center and the A. N. Pritzker Professor
in the Department of Radiation and Cellular
Oncology.
- Terry R. Lautenbach Age 63, a director since 1993. Retired; Senior
Vice President of International Business
Machines Corporation from 1988 to 1992;
responsible for IBM's worldwide manufacturing
and development, and North American marketing
and services from 1990 to 1992; served on IBM's
Management Committee in 1991 and 1992. Also a
director of Air Products and Chemicals, Inc.,
CVS Corporation, and Footstar, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS; MEETINGS
We have five standing committees:
Executive Committee
- Acts on matters when a meeting of the full Board is impracticable.
- Has all the powers of the Board except those powers reserved by law to
the full Board.
The current members are John Seely Brown, Richard M. Levy and Richard W.
Vieser (Chairman). The Executive Committee did not meet in fiscal year 2001, but
conducted all of its business by unanimous written consent.
Nominating and Corporate Governance Committee
- Identifies and recommends to the Board, potential nominees to the Board,
including stockholder suggestions, and recommends Board committee
assignments.
- Sets performance goals for the Board and assesses Board performance.
- Reviews policies affecting directors, including external developments in
corporate governance.
The current members are John Seely Brown, Samuel Hellman, Burton Richter
and Richard W. Vieser (Chairman). The Nominating and Corporate Governance
Committee met twice in fiscal year 2001.
Stock Grant Committee
- Grants and administers stock options, restricted stock and other awards,
subject to certain limitations, to non-officers of the Company.
The current members are Richard M. Levy (Chairman) and Burton Richter. The
Stock Grant Committee did not meet in fiscal year 2001, but conducted all of its
business by unanimous written consent.
4
Audit Committee
- Evaluates the independence and performance of the independent auditors
and recommends their selection and replacement.
- Reviews the Company's quarterly and annual financial statements with
management and the independent auditors.
- Considers significant financial reporting issues and major changes to
accounting principles.
The current members are Terry R. Lautenbach (Chairman), David W. Martin,
Jr. and Richard W. Vieser. The Audit Committee met four times in fiscal year
2001.
Organization and Compensation Committee
- Administers the Company's stock and cash incentive plans.
- Determines the compensation of the President and Chief Executive Officer
and the other senior executives.
- Recommends the establishment of policies dealing with various
compensation and employee benefit plans.
The current members are John Seely Brown, Samuel Hellman, Terry R.
Lautenbach, David W. Martin, Jr., Burton Richter and Richard W. Vieser
(Chairman). The Organization and Compensation Committee met four times in fiscal
year 2001.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the Company's executive officers currently serves, or in the past
has served, as a member of the board of directors or compensation committee of
any entity that has one or more executive offers serving on the Company's Board
or Compensation Committee.
5
STOCK OWNERSHIP
BENEFICIAL OWNERSHIP OF CERTAIN STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS
This table shows as of December 3, 2001: (1) the beneficial owners of more
than 5% of the common stock and the number of shares they beneficially owned;
and (2) the number of shares each director, each executive officer named in the
Summary Compensation Table on page 8 and all directors and executive officers as
a group beneficially owned, as reported by each person. Except as noted, each
person has sole voting and investment power over the shares shown in this table.
AMOUNT AND NATURE OF
COMMON STOCK
BENEFICIALLY OWNED
-----------------------------------
NUMBER OF SHARES PERCENT OF
BENEFICIALLY OWNED(1) CLASS
--------------------- ----------
STOCKHOLDERS
IG Investment Management Ltd.; Investors Group Trust Co.
Ltd.;
Investors Group, Inc.; Investors Group Trustco Inc........ 2,999,750(2) 8.90
One Canada Centre
447 Portage Avenue
Winnipeg, Manitoba R3C 3B6
DIRECTORS AND OTHER NAMED EXECUTIVE OFFICERS
John Seely Brown............................................ 35,048(3) *
Samuel Hellman.............................................. 28,161(4) *
Terry R. Lautenbach......................................... 47,398(5) *
David W. Martin, Jr......................................... 41,676(6) *
Burton Richter.............................................. 28,690(7) *
Richard W. Vieser........................................... 158,499(8) *
Richard M. Levy............................................. 818,122(9) 2.37
Elisha W. Finney............................................ 81,183(10) *
John C. Ford................................................ 146,501(11) *
Timothy E. Guertin.......................................... 205,974(12) *
Joseph B. Phair............................................. 158,605(13) *
All directors and executive officers as a group (13
persons).................................................. 1,838,305(14) 5.19
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* The percentage of shares of common stock beneficially owned does not exceed
one percent of the shares of common stock outstanding at December 3, 2001.
(1) Includes shares the officers and directors could acquire under exercisable
stock options within 60 days of December 3, 2001. Based on 33,721,956
shares outstanding on December 3, 2001.
(2) Based on a Schedule 13G/A dated as of December 31, 2000, each of these
entities has shared voting and disposition power over all of these shares.
According to the Schedule 13G/A, Power Financial Corporation owns 67.8% of
the common stock of the Investors Group, Inc. Power Corporation of Canada,
of which Paul Desmaris controls 67.7% of the voting power, owns 67.5% of
the common stock of Power Financial Corporation. Any of Mr. Desmaris or
these entities may therefore be deemed to beneficially own the shares
referenced.
(3) Includes 34,848 shares which may be acquired under exercisable stock
options.
(4) Includes 22,390 shares which may be acquired under exercisable stock
options.
(5) Includes 42,133 shares which may be acquired under exercisable stock
options.
(6) Includes 40,676 shares which may be acquired under exercisable stock
options.
(7) Includes (a) 24,090 shares which may be acquired under exercisable stock
options and (b) 3,800 shares held in a trust of which Dr. Richter is
co-trustee with his wife, as to which voting and investment powers are
shared with Dr. Richter's wife.
6
(8) Includes 149,985 shares which may be acquired under exercisable stock
options.
(9) Includes (a) 734,599 shares which may be acquired under exercisable stock
options and (b) 83,523 shares held in a trust of which Dr. Levy is
co-trustee with his wife, as to which voting and investment powers are
shared with Dr. Levy's wife.
(10) Includes 76,298 shares which may be acquired under exercisable stock
options.
(11) Includes 140,151 shares which may be acquired under exercisable stock
options.
(12) Includes 196,970 shares which may be acquired under exercisable stock
options.
(13) Includes (a) 133,595 shares which may be acquired under exercisable stock
options, (b) 915 shares held by Mr. Phair's first son and (c) 1,910 shares
held by Mr. Phair's second son. Mr. Phair shares voting and investment
powers over the 915 shares held by his first son and the 1,910 shares held
by his second son.
(14) Includes (a) 1,673,333 shares which may be acquired under exercisable stock
options and (b) 90,822 shares as to which voting and/or investment power is
shared (see footnotes).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under U.S. securities laws, directors, certain executive officers and
persons holding more than 10% of Varian Medical Systems common stock must report
their initial ownership of the common stock and any changes in that ownership to
the Securities and Exchange Commission--SEC. The SEC has designated specific due
dates for these reports and the Company must identify in this Proxy Statement
those persons who did not file these reports when due. Based solely on its
review of copies of the reports filed with the SEC and written representations
of its directors and executive officers, the Company believes all persons
subject to reporting filed the required reports on time in fiscal year 2001.
COMPENSATION OF DIRECTORS AND THE NAMED EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
Annual Compensation. Our non-employee Chairman of the Board receives an
annual retainer of $70,000. Each other director who is not a Varian Medical
Systems employee--an "outside director"--currently receives an annual retainer
of $30,000, plus $1,000 for each Board and committee meeting the director
attends. Directors who are employees receive no compensation for their services
as directors.
Directors may convert their annual retainer to options to purchase the
Company's common stock at the rate of $1 cash to $4 of stock options, at a price
equal to the fair market value of the common stock on the grant date. These
options are immediately exercisable and expire ten years after the grant date
unless terminated earlier. Beginning September 30, 2000 directors could
alternatively elect to defer their retainer and/or meeting fees under our
Deferred Compensation Plan. See "Deferred Compensation Plan" below.
During fiscal year 2001, we paid to directors (or deferred on their behalf)
a total of $283,000 in fees. We also reimbursed the directors for their
out-of-pocket expenses in attending Board and committee meetings. The Board met
four times in fiscal year 2001. Each director attended at least 75% of the total
Board and applicable committee meetings.
Stock Options. A non-employee Chairman of the Board receives an initial
non-qualified stock option to acquire 100,000 shares of the Company's common
stock when first appointed or elected to the Board. Each outside director
receives an initial non-qualified stock option to acquire 10,000 shares of the
Company's common stock when first appointed or elected to the Board. All outside
directors receive annually thereafter a non-qualified stock option to acquire
5,000 shares of the common stock. (These numbers of shares will be adjusted
after the stock dividend to reflect its effect.)
7
COMPENSATION OF THE NAMED EXECUTIVE OFFICERS--SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
--------------------------- ---- ------- --------- ------------ ---------- ---------- ------- ------------
Richard M. Levy............ 2001 627,656 1,059,066 122,981 1,038,503 425,000 0 74,129
President and Chief 2000 562,430 828,704 32,630 0 0 0 50,192
Executive Officer 1999 450,451 535,436 43,101 79,800 400,000 503,535 80,139
Elisha W. Finney........... 2001 245,586 253,881 35,104 519,391 90,000 0 23,990
Chief Financial 2000 217,324 296,995 9,806 0 0 0 17,421
Officer 1999 159,044 108,937 5,874 31,703 43,000 58,500 13,335
John C. Ford............... 2001 260,860 249,796 5,912 519,391 90,000 0 28,961
Corporate Vice 2000 252,320 257,176 6,831 0 0 0 20,983
President 1999 228,306 171,027 0 0 52,000 0 40,560
Timothy E. Guertin......... 2001 292,228 352,827 15,297 559,353 100,000 0 33,425
Corporate Vice 2000 268,056 338,533 35,010 0 0 0 24,795
President 1999 245,192 218,274 9,554 45,600 88,000 254,970 46,141
Joseph B. Phair............ 2001 257,312 258,851 2,434 519,391 90,000 0 27,180
Corporate Vice 2000 247,328 223,860 5,472 0 0 0 16,042
President, 1999 134,590 111,973 149,843 45,600 70,000 339,668 1,667,436
Administration, Secretary
and General Counsel
------------------
(1) Consist of Management Incentive Plan and Employee Incentive Plan awards in
2001 and 2000, and Management Incentive Plan and Cash Profit-Sharing Plan
payments in 1999, and (in some cases) special cash bonuses. Amounts for 2001
include amounts deferred under the Deferred Compensation Plan. See "Deferred
Compensation Plan" below.
(2) Consists of amounts reimbursed for the payment of taxes on certain
perquisites and personal benefits and (in some cases) cash payments for
unused accrued vacation time. The amounts for Dr. Levy also include
aggregate incremental costs for perquisites and personal benefits (including
$30,794 for tax and financial planning in 2001). The amounts for Mr. Phair
also include aggregate incremental costs for perquisites and personal
benefits (including $52,671 for the purchase of his company-leased vehicle
in 1999).
(3) Amounts for 1999 consist of restricted shares of common stock (valued at the
closing market price on the date of grant) all of which vested in full on
April 2, 1999. Amounts for 2001 consist of restricted performance shares
(valued at the closing market price on the date of grant) which vest in full
and are converted into unrestricted common stock on the date that is five
years after the grant date.
(4) Consists of shares of common stock subject to stock options granted pursuant
to the Omnibus Stock Plan. (No stock appreciation rights have been granted.)
(5) Consists of cash payouts in fiscal year 1999 under the long-term incentive
feature of the Omnibus Stock Plan for three-year cycles ended with fiscal
year 1998 and payouts made in fiscal year 1999 in connection with the
spin-off of the instruments and semiconductor equipment businesses.
(6) Consists of (a) company contributions (including interest) to Retirement
Program and Supplemental Retirement Plan accounts for fiscal years 2001,
2000 and 1999, respectively (Dr. Levy, $71,411, $47,082 and $76,365; Ms.
Finney, $22,218, $16,141 and $11,989; Dr. Ford, $26,298, $17,938 and
$38,557; Mr. Guertin, $31,393, $21,969 and $43,818; and Mr. Phair, $25,488,
$13,562 and $30,182); (b) company-paid premiums for group term life
insurance in fiscal years 2001, 2000 and 1999, respectively (Dr. Levy,
$1,960, $2,352 and $2,987; Ms. Finney, $886, $754 and $964; Dr. Ford,
$2,288, $2,681 and $1,646; Mr. Guertin, $1,376, $2,218 and $1,765; and Mr.
Phair, $1,115, $1,757
8
and $1,542); (c) cash severance payments to Mr. Phair in fiscal year 1999
($1,306,418); (d) company-paid premiums for disability insurance in fiscal
years 2001, 2000 and 1999, respectively (Dr. Levy, $758, $758 and $787; Ms.
Finney, $886, $526 and $382; Dr. Ford, $375, $364 and $357; Mr. Guertin,
$656, $608 and $558; and Mr. Phair, $577, $723 and $249; and (e) consulting
payments to Mr. Phair in fiscal year 1999 ($329,045).
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1)
--------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL RATE OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS/ EMPLOYEES IN PRICE PER EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
---- ---------- ------------ --------- ---------- ------------- -------------
Richard M. Levy............ 425,000 25.49% $55.8125 11-17-10 $14,917,577 $37,804,069
Elisha W. Finney........... 90,000 5.40% $55.8125 11-17-10 $ 3,159,016 $ 8,005,568
John C. Ford............... 90,000 5.40% $55.8125 11-17-10 $ 3,159,016 $ 8,005,568
Timothy E. Guertin......... 100,000 6.00% $55.8125 11-17-10 $ 3,510,018 $ 8,895,075
Joseph B. Phair............ 90,000 5.40% $55.8125 11-17-10 $ 3,159,016 $ 8,005,568
---------------
(1) Consists of two stock option grants, which were granted at an exercise price
of 100% of the fair market value of the underlying shares on the grant date
and expire ten years from the grant date. The first grant vests one-third of
the shares five months after the grant and one thirty-sixth of the shares
vests monthly from the sixth through twenty-ninth months after grant (Dr.
Levy 350,000; Ms. Finney 65,000; Dr. Ford 65,000; Mr. Guertin 70,000 and Mr.
Phair 65,000). The second grant vests one-third twelve months after the
grant and one thirty-sixth of the shares vests monthly from the thirteenth
through the thirty-sixth month after grant (Dr. Levy 75,000; Ms. Finney
25,000; Dr. Ford 25,000; Mr. Guertin 30,000 and Mr. Phair 25,000). The
option holder may pay the exercise price in cash, promissory note or by
delivery of already-owned shares. If a "change of control" of the Company
occurs, the options become exercisable in full. What constitutes a "change
in control" for this purpose is described below.
(2) These assumed rates are not intended to represent a forecast of possible
future appreciation of the common stock or total stockholder return.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTIONS/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
SHARES YEAR-END(#) YEAR-END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Richard M. Levy............ 175,000 8,135,736 558,211 393,058 18,545,883 8,277,146
Elisha W. Finney........... 35,150 1,534,526 59,357 73,643 1,569,864 1,151,524
John C. Ford............... 17,465 725,798 138,492 76,643 4,918,020 1,289,036
Timothy E. Guertin......... 98,004 3,817,472 100,689 96,281 3,105,473 1,902,768
Joseph B. Phair............ 23,286 1,026,867 116,654 82,643 3,810,253 1,476,559
DEFERRED COMPENSATION PLAN
Effective September 30, 2000, we adopted a voluntary deferred compensation
plan which allows directors, executive officers and certain other management and
highly compensated employees to forgo current compensation (up to 75% of base
salary, up to 100% of incentive plan payments, stock option gains
9
and, in the case of director participants, directors' fees) and invest it in
various mutual funds or on a phantom basis in our common stock. As required,
amounts deferred for fiscal year 2001 are included in the compensation of
directors and the appropriate columns of the summary compensation table.
CHANGE IN CONTROL AGREEMENTS
Under change of control agreements with senior executives, including the
Chief Executive Officer and Chief Financial Officer, the Company will pay any of
these executives who are terminated other than for "cause" or who resign for
"good reason" within 18 months after a change in control a lump sum severance
amount equal to 3.0 (in the case of the CEO) or 2.50 (in the case of the other
senior executives) times the sum of the executive's annual base salary, plus the
highest annual and multi-year bonuses paid to the individual in any of the three
years ending before the termination date. "Good reason" includes generally a
change in duties, a reduction in compensation, a material change in employee
benefits, relocation and certain breaches of the agreement by the Company.
Under each agreement, unvested stock options will become immediately
exercisable and restrictions on restricted stock will be released as of the
executive's termination date. In addition, we will continue the insurance and
other benefits of the executive under the then-existing terms for up to 24
months (or, if earlier, the start of full time employment). If any of the
payments are subject to excise tax under the excess parachute provisions of the
Internal Revenue Code, we will increase the payments so that the person is in
the same after-tax economic position.
In general, a "change in control" occurs when (a) a person becomes the
beneficial owner of 30% or more of Varian Medical Systems' voting power, (b)
"continuing directors"--generally those already on the Board or nominated by
those on the Board--are no longer a majority of the Company's directors, (c) the
Company engages in a merger or similar transaction after which our stockholders
do not hold more than 50% of the resulting company or (d) Varian Medical Systems
dissolves, liquidates or sells all or substantially all of its assets. The
officers agree not to voluntarily leave the Company when the Company is faced
with a transaction that might result in a change in control.
ORGANIZATION AND COMPENSATION COMMITTEE REPORT
The Organization and Compensation Committee of the Board--the
Committee--determines the compensation of executive officers. It has provided
you with this report to help you to understand the goals, policies and
procedures it follows in making its determinations.
The Committee's executive compensation philosophy is that compensation
programs should:
- be closely aligned with the interest of the stockholders;
- be linked with business goals and strategies;
- be competitive within our industry and community so that we can attract
and retain high quality executives;
- base a substantial portion of executive officers compensation on our
financial performance measured against pre-determined objectives; and
- reward executive officers for good performance.
Compensation of executive officers, including the Chief Executive Officer,
is comprised of four elements--base salary, annual bonuses, stock ownership and
other compensation.
BASE SALARIES
Base salaries are designed primarily to provide compensation at competitive
levels that enable the Company to attract and retain executives. They are
intended to contribute less to total compensation than incentive-based
compensation.
10
In determining fiscal year 2001 salaries, the Committee considered each
executive officer's fiscal year 2000 compensation, each executive officer's
potential incentive compensation in fiscal year 2001, each executive officer's
position and responsibilities, published market data on other companies'
anticipated salary increases for 2001 and the Company's financial performance in
fiscal year 2000. The Committee also reviewed executive compensation surveys on
salaries paid to executive officers of electrical/electronic businesses and
medical companies with comparable sales volume and peer group proxy surveys in
year 2000. The Committee fixed salaries that placed each officer at
approximately the 75th percentile of the survey data.
ANNUAL INCENTIVE AWARDS
We also have created annual incentives for executive officers through
potential cash awards under a Management Incentive Plan intended to link
compensation directly to improved financial performance.
The Committee based executive officers awards for fiscal year 2001 on
return on sales ("ROS") and cash flow ("CF") achieved by the executive's
business unit and the Company as a whole. For Mr. Guertin and Mr. Ford, the
Committee based 40% of their awards on Company ROS and CF and 60% on their
respective business unit ROS and CF. The Committee based 100% of Dr. Levy's, Mr.
Phair's and Ms. Finney's awards on Company ROS and CF. Awards for the Company's
executive officers listed in the Summary Compensation Table could have ranged
from zero to 200% of the executive officer's base salary for fiscal year 2001
depending on the ROS and CF targets achieved and the predetermined participation
levels for that executive. The Committee determined each executive officer's
participation level based on the amounts fixed for comparably situated officers
for fiscal year 2001.
STOCK OPTIONS
We believe that executive officers and other employees who are in a
position to make a substantial contribution to our long-term success and to
build stockholder value should have a significant stake in our on-going success.
As a result, we have granted non-qualified stock options to the Chief Executive
Officer and other executive officers under our Omnibus Stock Plan in order to
retain talented personnel and to align their compensation with stockholder
value. Because the stock options have an exercise price equal to the market
price of our stock on the grant date and vest over three years, stock options
compensate executive officers only if the stock price increases after the grant
date and the executive officer remains employed for the periods required for the
stock option to become exercisable.
RESTRICTED STOCK (PERFORMANCE SHARES)
To compensate the Company's Chief Executive Officer and executive officers
for their special contributions to the Company's continued business growth and
their individual efforts in pursuit of an attempted acquisition in the 2001
fiscal year, on advice of the Company's compensation consultant, we granted
unfunded restricted performance shares to these individuals under our Omnibus
Stock Plan. Performance shares are not granted annually, and are principally
used in exceptional circumstances to reward executives for their individual
performance.
OTHER COMPENSATION
To attract and retain talented executive officers, the Committee also has
approved arrangements giving executive officers certain perquisites, such as use
and purchase of an automobile under our executive car program, reimbursement for
tax planning and return preparation and financial counseling services,
reimbursement for any taxes paid on certain perquisites and reimbursement for
annual medical examinations. In order to make retirement contributions which
could not be contributed to executive officers' qualified retirement accounts
due to Internal Revenue Code limitations, we also maintain a Supplemental
Retirement Plan--the SRP--under which we make supplemental retirement
contributions. In fiscal year 2001, Varian Medical Systems adopted a Deferred
Compensation Plan--the DCP--under which eligible employees may defer a portion
of their cash compensation into this plan. The SRP is now
11
included in the DCP. We also permit executive officers to participate in
compensation and benefit programs generally available to other employees, such
as the Employee Incentive Plan, 401(k) Retirement Program and supplemental life
and disability insurance program.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
U.S. tax law does not let us deduct from the Company's federal taxable
income certain compensation paid to the chief executive officer and the next
four most highly compensated executive officers that is not variable or at risk
and which exceeds $1,000,000. Stockholders approved the Management Incentive
Plan under which fiscal year 2001 awards were made and the Omnibus Stock Plan
under which stock options and performance shares were granted so that awards
under those plans would be eligible for continued tax deductibility. However,
the Committee considers one of its primary responsibilities to be structuring a
compensation program that will attract, retain and reward executive talent
necessary to maximize stockholder return. Accordingly, the Committee believes
that the Company's interests are best served in some circumstances by providing
compensation (such as salary, perquisites and special cash bonuses) which might
be subject to the U.S. tax law deductibility limitation.
BASES FOR CEO COMPENSATION
The Committee followed generally the same policies and programs described
above for compensation of executive officers in determining fiscal year 2001
compensation for Dr. Levy as President and Chief Executive Officer.
DR. LEVY
The Committee set Dr. Levy's annual base salary for fiscal year 2001 in
accordance with the policies and considerations used to determine the fiscal
year 2001 salaries of the other executive officers. In line with other Company
executive officers, this salary placed him slightly below the 75th percentile of
chief executive officers based on the survey data that the Committee considered.
We also paid Dr. Levy an incentive award for fiscal year 2001 (in
accordance with the Management Incentive Plan described above) equal to 158.44%
of his base salary during fiscal year 2001.
John Seely Brown David W. Martin
Samuel Hellman Burton Richter
Terry R. Lautenbach Richard W. Vieser (Chairman)
12
AUDIT COMMITTEE REPORT
The Audit Committee of the Board--the Audit Committee--consists of three
directors whose signatures appear below. Each member of the Audit Committee is
"independent", as defined in the New York Stock Exchange Rules.
The Audit Committee's general role is to assist the Board in monitoring the
Company's financial reporting process and related matters. Its specific
responsibilities are set forth in its charter. The Audit Committee reviews its
charter annually, and did so in the corporation's 2001 fiscal year.
As required by the charter, the Audit Committee reviewed the Company's
financial statements for fiscal year 2001 and met with management, as well as
with representatives of PricewaterhouseCoopers LLP, our independent public
accountants, to discuss the financial statements. The Audit Committee also
discussed with representatives of PricewaterhouseCoopers LLP the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees.
In addition, the Audit Committee discussed with representatives of
PricewaterhouseCoopers LLP their independence from management and Varian Medical
Systems, including the matters in the written disclosures required by
Independence Standards Board Standard No. 1, Independence Discussions with Audit
Committees.
Based on these discussions, the financial statements review and other
matters it deemed relevant, the Audit Committee recommended to the Board of
Directors (and the Board approved) that audited financial statements be included
in the Annual Report on Form 10-K for the year ended September 28, 2001.
Furthermore, in connection with the new standards for independence of
auditors promulgated by the Securities and Exchange Commission, the Audit
Committee reviewed the services provided by our independent public accountants,
PricewaterhouseCoopers LLP, and the fees the Company paid for these services,
and also reviewed whether the provision of the services is compatible with
maintaining the accountant's independence. The Audit Committee determined that
the provision of the services is compatible with maintaining that independence.
Terry R. Lautenbach (Chairman)
David W. Martin, Jr.
Richard W. Vieser
13
PERFORMANCE GRAPHS
VARIAN ASSOCIATES, INC.
This graph shows the total return on Varian Associates, Inc. common stock
and certain indices from September 27, 1996 until April 1, 1999--immediately
before Varian Associates, Inc. spun off to its stockholders its instruments and
semiconductor equipment businesses.
COMPARISON OF 30 MONTH CUMULATIVE TOTAL RETURN*
AMONG VARIAN ASSOCIATES, THE S & P 500 INDEX
AND THE S & P TECHNOLOGY SECTOR INDEX
[PERFORMANCE GRAPH]
*$100 INVESTED ON 9/27/96 IN STOCK OR ON 9/30/96
IN THE S & P 500 INDEX AND THE S & P TECHNOLOGY SECTOR INDEX -- INCLUDING
REINVESTMENT OF DIVIDENDS.
CUMULATIVE TOTAL RETURN
--------------------------------------------
9/27/1996 9/26/1997 10/2/1998 4/1/1999
--------- --------- --------- --------
VARIAN ASSOCIATES 100.00 126.79 72.88 82.36
S & P 500 100.00 140.45 153.15 195.02
S & P TECHNOLOGY SECTOR 100.00 162.40 183.87 276.02
14
VARIAN MEDICAL SYSTEMS, INC.
This graph shows the total return on Varian Medical Systems' common stock
and certain indices from April 5, 1999--the first trading day after Varian
Associates, Inc. spun off to its stockholders its instruments and semiconductor
equipment businesses--(except as indicated) and the last day of fiscal year
2001.
COMPARISON OF 30 MONTH CUMULATIVE TOTAL RETURN*
AMONG VARIAN MEDICAL SYSTEMS, INC., THE S & P SMALL CAP 600 INDEX
AND THE JP MORGAN H & Q MEDICAL PRODUCTS INDEX
[PERFORMANCE GRAPH]
*$100 INVESTED ON 4/5/99 IN STOCK AND JP MORGAN H & Q MEDICAL PRODUCTS INDEX, OR
ON 3/31/99 IN S & P SMALLCAP 600 INDEX -- INCLUDING REINVESTMENT OF DIVIDENDS.
CUMULATIVE TOTAL RETURN
--------------------------------------------
4/5/1999 10/1/1999 9/29/2000 9/28/2001
-------- --------- --------- ---------
VARIAN MEDICAL SYSTEMS, INC 100.00 119.45 246.76 350.31
S & P SMALLCAP 600 100.00 109.83 136.38 137.74
JP MORGAN H & Q MEDICAL PRODUCTS 100.00 87.44 102.84 105.60
15
INDEPENDENCE OF ACCOUNTANTS
Audit Fees: The aggregate fees billed or to be billed by
PricewaterhouseCoopers LLP for professional services rendered for (i) the audit
of the Company's annual financial statements set forth in the Company's Annual
Report on Form 10-K for the fiscal year ended September 28, 2001, and (ii) the
review of the Company's quarterly financial statements set forth in the
Company's Quarterly Reports on Form 10-Q were $391,018.
Financial Information System Design Implementation Fees: For the fiscal
year that ended September 28, 2001, the Company paid PricewaterhouseCoopers LLP
no fees for financial information system design implementation services.
All Other Fees: The aggregate fees billed or to be billed by
PricewaterhouseCoopers LLP for services other than those described above for the
fiscal year that ended September 28, 2001 were $638,940. These fees primarily
related to (i) statutory audits of foreign subsidiaries, (ii) consultations on
effects of various accounting issues and changes in professional standards and
(iii) income and other tax-related services.
The Company's Audit Committee reviewed the services provided by
PricewaterhouseCoopers LLP, and the fees the Company paid for these services,
and reviewed whether the provision of the services is compatible with
maintaining the accountant's independence. The Audit Committee determined that
the provision of the services is compatible with maintaining that independence.
16
P
R
O
X
Y
VARIAN MEDICAL SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS--FEBRUARY 14, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Varian Medical Systems, Inc. hereby
constitutes and appoints RICHARD M. LEVY and JOSEPH B. PHAIR, and each of them,
proxies and attorneys-in-fact of the undersigned, with full power of
substitution, to vote all the shares of Common Stock of Varian Medical Systems,
Inc. standing in the name of the undersigned, at the Annual Meeting of
Stockholders of Varian Medical Systems, Inc. to be held at the Sheraton Palo
Alto, Sequoia/Oak Conference Room, 625 El Camino Real, Palo Alto, CA 94301, on
February 14, 2002, at 1:00 p.m., and at any adjournment(s) or postponement(s)
thereof.
Unless a contrary direction is indicated, this Proxy will be voted FOR all
nominees, and in accordance with the judgment of the proxies as to the best
interests of Varian Medical Systems upon such other business as may properly
come before the meeting or any adjournment or postponement thereof. If specific
instructions are indicated, this Proxy will be voted in accordance therewith.
With respect to the election of directors, the proxies shall have full
discretion and authority to vote cumulatively and to allocate votes among any
or all of the nominees of the Board of Directors in such order as they may
determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(If you have written in the above space, please mark the
corresponding box on the reverse side of this card)
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY IN THE
ENCLOSED POSTAGE-PAID RETURN ENVELOPE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
-----------
SEE REVERSE
SIDE
-----------
-- FOLD AND DETACH HERE --
[GRAPHIC OF MAP]
625 EL CAMINO REAL - PALO ALTO, CA 94301
PHONE: (650) 328-2800 - FAX: (650) 327-7362
[SHERATON LOGO]
SHERATON PALO ALTO
HOTEL
LOCATER MAP
The Sheraton Palo Alto Hotel is easily accessible from Highway 101 and from
Interstate 280.
- From Highway 101 in either direction, exit Embarcadero Rd. WEST to El
Camino Real. Turn right on El Camino Real. The hotel is located 3 blocks
down on the right.
- From Interstate 280 in either direction, exit Page Mill Rd. EAST to El
Camino Real. Turn left on El Camino Real. Travel approximately 2 miles
on El Camino Real. The hotel is located on the right.