SUMMARY PLAN DESCRIPTION AND PROSPECTUS VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN

Transcription

1 SUMMARY PLAN DESCRIPTION AND PROSPECTUS VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN The date of this Summary Plan Description and Prospectus is April 15, 2013 THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF WEST\

2 TABLE OF CONTENTS Page INTRODUCTION... 1 INVESTMENT OBJECTIVES AND RISK... 7 INVESTMENT FUNDS AVAILABLE... 8 GENERAL RULES... 9 SPECIAL RULES FOR WITHDRAWALS FROM BEFORE-TAX ACCOUNTS HARDSHIP WITHDRAWALS FUNDING OF WITHDRAWALS FUNDING OF LOANS HOW MUCH CAN I BORROW? FEES AND INTEREST REPAYING A LOAN HOW AND WHEN PAYMENTS ARE MADE REQUIRED DISTRIBUTIONS FEDERAL INCOME TAX EFFECTS GENERAL INFORMATION TAXATION OF CASH RECEIVED AT DISTRIBUTION TAXATION OF VARIAN COMMON STOCK AT DISTRIBUTION % PENALTY TAX ACCOUNT ROLLOVERs LUMP SUM DISTRIBUTIONS SPECIAL TEN-YEAR AVERAGING TAXATION OF WITHDRAWALS WITHHOLDING FURTHER ASSISTANCE STATE AND LOCAL TAX EFFECTS ESTATE TAX CONSIDERATIONS DOCUMENTS INCORPORATED BY REFERENCE i

3 INTRODUCTION This Summary Plan Description (SPD) and Prospectus describes the Varian Medical Systems Inc. Retirement Plan (the Plan ). Please read this document carefully as it contains important information regarding the Plan. This information comprises the SPD of the Plan as required by the Employee Retirement Income Security Act (ERISA) of This description does not cover every provision of the Plan. Many complex concepts have been simplified or omitted to present a more understandable description of the Plan. This document does not take the place of either the Plan Document or the Trust Agreement (the legally binding document and agreement between Varian Medical Systems, Inc. and the Plan Trustee). Should a question arise, the Plan and the Trust documents will govern, not this SPD and Prospectus. If you would like to read these Plan documents, please contact the Fidelity 401(k) Center at (800) The adoption and maintenance of the Plan by Varian Medical Systems, Inc. ( Varian ) is not a contract of employment between you and Varian. Nothing contained in the Plan documents, the Trust, or this SPD and Prospectus alters your at-will employment relationship with Varian. 1. What is the Plan? The Plan is a savings and retirement program with attractive tax advantages. Here is how the Plan works: You can contribute from 1% to 25% of your pay annually (subject to Internal Revenue Service limitations). Your contributions are deducted from your pay on a before-tax basis, are not subject to federal income tax, and are also exempt from state or local income taxes in most cases. Because before-tax contributions are not included in your taxable income, the taxes you pay are immediately reduced. In addition, you will not pay any taxes on your contributions (or on their earnings) until you receive a distribution from your account. Once you have satisfied a one-year waiting period, you may make after-tax contributions up to 15% of your pay annually instead of (or in addition to) before-tax contributions. The Plan also provides opportunities to increase the value of your retirement savings. The Plan offers a variety of investment funds; you decide how to invest your contributions among the available options. Once you have met the one-year service requirement, Varian helps you grow your nest egg by contributing $1.00 for every dollar you put into the Plan, up to 6% of your eligible Earnings. In addition, once you have met the one-year service requirement, Varian may also make an annual discretionary retirement contribution to your account. Prior to January 1, 2003, the Plan consisted of two (2) separate qualified plans under Internal Revenue Service Code section 401(a), a Money Purchase Pension Plan ( Old Pension Plan ), and a Profit-Sharing Plan. Effective as of January 1, 2003, the Old Pension Plan portion was merged with and into the Profit-Sharing Plan. All contributions made to the Plan after December 31, 2002 are no longer segregated between pension and profit-sharing portions of the Plan. 1 1

4 2. Can Varian change or terminate the Plan? Varian expects the Plan to be continued indefinitely, but reserves the right to amend, suspend, withdraw or terminate (in whole or in part) the Plan or completely discontinue contributions to the Plan at any time by appropriate Company action. (See Question 4 below, Who administers the Plan? ) No amendment to or termination of the Plan may reduce the value of your accounts (subject to any investment losses that may occur in connection with the termination). The Plan is a program established and maintained by Varian for the exclusive benefit of participants and their beneficiaries. However, neither the Plan nor any other plan of Varian is or creates an employment contract between Varian and any participant, and none of those plans affects the right of Varian to conduct its business affairs, including reductions in force or terminating the employment of any participant. 3. Is the Plan subject to the Employee Retirement Security Act of 1974? The Plan is subject to all of the provisions of Title I of the Employee Retirement Income Security Act of 1974 that apply to defined contribution plans such as the Plan. 4. Who administers the Plan? The Plan is administered by Varian. Varian has discretionary authority to determine eligibility for benefits and to make claims decisions for the Plan. Varian will administer the Plan in a nondiscriminatory manner for the benefit of all Plan participants and their beneficiaries. Any interpretation or determination made pursuant to the discretionary authority of Varian will be final and upheld on judicial review; unless it is shown that the interpretation or determination was arbitrary or capricious. Subject to the terms of the Plan, which requires that the Varian Medical Systems Stock Fund be offered, and those Plan provisions permitting participants to direct the investment of their accounts, Varian has authority to control and manage Plan assets. Varian can select investment managers qualified to perform investment manager services and an insurance company or a trustee to hold the Plan s assets, to select investment options, to set restrictions applicable to any investment fund and to monitor the investment performance of the investment funds. Varian has the authority to impose restrictions on existing funds, terminate or add funds, or establish limited purpose funds with restricted access by participants. From time to time, Varian will advise you of such actions that may affect you. 5. Which companies participate in the Plan? Varian Medical Systems, Inc. and certain designated subsidiaries and affiliates participate in the Plan. 2

5 6. Who is eligible to participate in the Plan? You are eligible to join the Plan if you are considered by Varian to be a full-time or part-time employee of Varian, unless you are: (a) an employee covered by a collective bargaining agreement that does not provide for Plan participation; (b) an employee of a subsidiary or affiliated company that does not participate in the Plan; (c) a nonresident alien who is not receiving earned income from sources within the United States or who is working in the U.S. on a temporary basis; (d) an individual who is a leased employee (an individual who works at Varian because of an agreement between Varian and a leasing company and is working under Varian s primary control for at least one year); (e) an individual in a classification designated as ineligible or subject to an agreement providing that the individual is ineligible to participate in the Plan; or (f) an individual who is treated as an independent contractor even if that individual is later determined to be an employee. 7. When can eligible employees elect to participate in the Plan? Eligible employees may begin participating in the Plan as soon as administratively practicable following the date on which he or she first became an eligible employee. If you separate from employment with Varian you become eligible again to participate on the day you become an eligible employee after re-joining Varian. 8. Do I have to meet any service requirements in order to participate in the Plan? Certain features of the Plan are based on your service with Varian. For example, your ability to make after-tax contributions, receive contributions from Varian, and elect installment payments are dependent on the amount of your service with Varian. Service is generally measured from your date of hire until your date of termination of employment. However, if you return to Varian before twelve (12) months have elapsed, you will be treated as if you never terminated employment for purposes of computing your service. If you return after twelve (12) or more months, your retirement service date will be adjusted. Under the Plan, you will get credit for your prior employment with Varian, but not for your time away. 9. How do you enroll in the Plan and begin making contributions to it? Enrollment in the Plan is voluntary. You may enroll in the Plan by calling the Fidelity 401(k) Center at (800) or through Fidelity s NetBenefits at If you are an eligible employee hired on or after January 1, 2006, you will be automatically enrolled in the Plan, unless you affirmatively elect not to participate in the Plan. Payroll deductions will begin as soon as administratively feasible following your enrollment (this includes, effective April 1, 2012, the 6% automatic payroll deduction for those who do not elect otherwise). If you elect not to participate when you first become eligible, you may enroll at a later date by calling the Fidelity 401(k) Center at (800) or through Fidelity s NetBenefits at 3

6 10. How much can I contribute to the Plan? There are several ways for you to put money into your Varian 401(k) account: Before-tax payroll deductions Your before-tax contributions are deferred from your earnings each pay period, before taxes are taken out. The only taxes you will pay on this amount are Social Security taxes and State Disability Insurance. Federal law sets a maximum that you can contribute to the Plan on a before-tax basis in any Plan year. This limit changes each year based on cost of living adjustments. The maximum before-tax contribution limit is $17,500 for If your before-tax contributions reach this limit before the end of the Plan year, your contributions will automatically cease. If you make no other election, before-tax contributions will resume at the beginning of the next Plan year. If you are age 50 or over at the end of the year, you also are eligible to make additional or catch-up before-tax contributions. The annual limit on these catch-up contributions is also set by federal law. The maximum annual catch-up contribution is $5,500 for After tax-payroll deductions If you satisfy the one-year waiting period to make after-tax contributions, you may choose to contribute on an after-tax basis. After-tax contributions are tracked separately. Upon withdrawal, you are responsible for taxes on the contributions earnings only (not the contributions themselves). Employee Incentive Plan Bonus Contributions You can elect to have all or a portion of your Employee Incentive Plan bonus contributed to the Plan as an Employee Incentive Plan bonus contribution. Subject to some limitations, the amount of the Employee Incentive Plan bonus contribution may be 10% or any multiple of 10% of your Employee Incentive Plan Bonus that you select. Your Employee Incentive Plan bonus contributions are also tracked separately. Rollover from another qualified plan If you have been a participant in a former employer s qualified plan, you may roll over a lump-sum distribution from that plan into this Plan. All rollovers are subject to Varian s approval. Non-direct rollovers, which are made payable to you as opposed to directly to the Plan Trustee, must be made within 60 days of the distribution. Rollover contributions are also tracked separately, and may be withdrawn under certain circumstances. You may contribute from 1% to 25% of your earnings on a before-tax basis. In addition, you may be entitled to contribute 1% to 15% of your earnings on an after-tax basis. Your contributions elections must be in whole percentage increments, and are subject to certain IRS limits. If you were hired on or after January 1, 2006 and were automatically enrolled in the Plan, your before-tax contribution percentage was set at 3% of your earnings until changed by you. If you were hired on or after April 1, 2012 and were automatically enrolled in the Plan, your before-tax contribution percentage was set at 6% of your earnings until changed by you. 11. Will my money be held in an account? If you were participating in the Plan prior to January 1, 2003, your account may consist of subaccounts which will track your before-tax contributions, Employee Incentive Plan bonus 4

7 contributions, rollover contributions, old required before-tax contributions, old voluntary beforetax contributions, old cash profit-sharing contributions and your share of retirement profitsharing contributions, after-tax contributions, old required after-tax contributions, old voluntary after-tax contributions, old required contributions and your share of company matching contributions and old company basic contributions. The account will be adjusted to reflect transfers and withdrawals from your account and earnings, gains, expenses and losses attributable to the funds in which your contributions are invested. If you began participating in the Plan after December 31, 2002, your account may consist of sub-accounts that will track your before-tax contributions, Employee Incentive Plan bonus contributions, rollover contributions, your share of retirement profit-sharing and/or company matching contributions, and after-tax contributions. The account will be adjusted to reflect transfers and withdrawals from your account and earnings, gains, expenses and losses attributable to the funds in which your contributions are invested. Should you borrow money from your account under the Plan, your account will also include a sub-account to track your loan balance. 12. What is the meaning of Earnings under the Plan? Earnings means your regular straight-time base wages or salary, the straight-time portion of compensation paid for overtime hours, sales and service incentive pay identified as eligible for benefit program participation in a sales or service incentive pay plan, management incentive program bonus, Varian performance incentive plan bonus, personal paid leave pay (other than personal paid leave paid in a lump-sum full or partial cashout before or with 2½ months of termination of employment), sick leave bank pay, holiday pay, and amounts paid in excess of 2½ months after termination of employment to the extent that the amount would have been earnings before termination. Earnings do not include contributions made by Varian to the Plan or any other employee benefits plan on your behalf (except as otherwise provided above), special or premium payments, such as overtime or shift differential; compensation for hours worked in excess of 80 hours in a two-week pay period for an employee classified by Varian as a full-time employee; compensation for hours worked in excess of 58 hours in a two-week pay period for an employee classified by Varian as other than a full-time employee; workers compensation or disability payments; relocation allowances; any other special payment or bonus (provided, however, that lump-sum payments made in lieu of merit increases shall be included in Earnings); Earnings for periods of employment prior to becoming a participant in the Plan, payments characterized by Varian as salary continuation payments, or compensation in excess of the plan year limit provided under section 401(a)(17) of the Internal Revenue Code. 13. How can I change the amount I contribute or suspend contributions? You are in control of how much you contribute. Your payroll contributions will continue at the same level until you change your contribution rate. Your options for changing your contribution rate include increasing or decreasing your contribution percentage, or suspending your contributions. To change your contribution amount, call the Fidelity 401(k) Center at (800) or log on to Fidelity s NetBenefits at There is no limit on the frequency for making these changes. 5

8 14. How much does Varian contribute to my account? Your contributions, up to 6% of your eligible Earnings, are matched by Varian at a level of $1.00 for each dollar you contribute if you have completed at least one year of service. This means that whether you contribute through before-tax salary deferrals and after-tax salary deferrals, you will be eligible to receive a Varian match on the first 6% of the combined contributions, except, that any age 50+ catch-up contributions you make to your account will not be considered in calculating the Varian match. Annual retirement profit-sharing contributions to your account may be made after the end of each year. The amount contributed will be based on a ratio of your eligible Earnings compared to that of all employees earned after you have become eligible to receive retirement profit-sharing contributions. The amount, if any, will be determined each year by Varian at its discretion. All eligible employees employed with Varian at the end of the year (with certain exceptions) will be eligible to receive a retirement profit-sharing contribution, if any, after the completion of one year of service. To receive the retirement profit-sharing contribution requires no contribution on your part. Your retirement profit-sharing contributions will be tracked in a separate sub-account in your account within the Plan. 15. When do my contributions become non-forfeitable ( vested )? All contributions made to the Plan are immediately 100% vested, meaning 100% of contributions made through before-tax, after-tax, Employee Incentive Plan bonuses, rollover, company matching and retirement profit-sharing contributions are non-forfeitable. 16. Will my benefits under the Plan ever be reduced? As indicated in Question 15 of this SPD and Prospectus ( When do my contributions become non-forfeitable ( vested )? ), you are always 100% vested with respect to any contributions you make or which Varian makes to the Plan. Certain circumstances, however, might affect the benefits you could receive from the Plan. For example: If the investment funds produce losses (instead of gains). If you choose not to enroll in and do not make contributions to the Plan. (In this case, you will not be eligible for matching contributions, either). If you leave Varian before you are eligible for company contributions. If the Plan is amended or terminated. (In this case, you will not be able to make future contributions to the Plan or receive allocations of company contributions). If contributions to the Plan exceed certain limitations imposed on qualified retirement plans by the Internal Revenue Code. 6

9 If the Plan is required to pay benefits to your spouse, former spouse, or a dependent under the terms of certain court orders. This payment will be allowed as soon as the court order is determined to be qualified. 17. When will I receive a statement of my Plan account? You may review a statement of your Plan account on-line anytime by logging onto Fidelity s NetBenefits at Your on-line Plan account statement is updated on a daily basis reflecting investment results and account activity for the previous business day. In addition, you will also receive an annual Plan account statement by mail. If you do not access your Plan account on-line via Fidelity s NetBenefits site, you will receive your Plan account statement by mail. Such statements are currently provided quarterly. 18. Into what funds may I invest my contributions and Varian s contributions? When you enroll in the Plan (see Question 9, How do you enroll in the Plan and begin making contributions to it? ), you must designate how your contributions are to be invested. You make one election for both your employee contribution and company contribution accounts. The investment funds you choose will apply to your contributions and Varian contributions. Contributions may be invested in one or more of the investment funds available. If you elect to invest in more than one fund, your fund selection must be made in increments of whole percentages. The total selection must equal 100%. Please note, however, that you may not invest more than 25% of your current contributions, or 25% of your total account balance, in the Varian Medical Systems Stock Fund. If you do not designate which fund or funds in which your contributions are to be invested, 100% of your contributions and Varian contributions will be invested in one of the Vanguard Target Retirement Funds depending on your age and expected retirement date as noted below. Additionally, if you were hired on or after January 1, 2006 and were automatically enrolled in the Plan, 100% of your contributions and Varian contributions will be invested in one of the applicable Vanguard Target Retirement Funds below until changed by you. Vanguard Target Retirement 2050 Fund Vanguard Target Retirement 2040 Fund Vanguard Target Retirement 2030 Fund Vanguard Target Retirement 2020 Fund Vanguard Target Retirement 2010 Fund Vanguard Target Retirement Income Fund Date of birth: 1981 present Date of birth: Date of birth Date of birth: Date of birth: Date of birth: up to and including 1940 INVESTMENT OBJECTIVES AND RISK Each investment fund available under the Plan has a specific investment objective. Each objective offers the potential for different risks and returns. The three main categories of investment objectives available through the Plan are: 7

10 Capital Preservation Investment options with this objective provide current income with an emphasis on liquidity and preservation of capital. Growth and Income Investment options with this objective seek a combination of growth and current income. Growth Investment options with this objective offer the potential for long-term growth by investing in securities whose prices are expected to increase over time. Such investments generally involve a higher degree of principal risk. It is important to realize that although two funds may have the same investment objective, they are not the same. They may use different strategies to achieve their objective and, as a result, may involve different degrees of risk. They may own different securities in different amounts. Before you invest in any fund, be sure you evaluate it thoroughly by reading any available prospectus and related materials carefully. INVESTMENT FUNDS AVAILABLE The fund descriptions found in Appendix A can help you to compare the Plan s investment choices. In addition, the total return of each fund for the last three fiscal years is listed in Appendix C to this SPD and Prospectus. You decide which investment mix helps you reach your investment goals. Varian may change or modify the investment choices from time to time. You have a choice of investing your contributions and Varian s contributions in one or more of the funds described in Appendix A. A comparison of the potential risks and returns among the Plan funds is found at Appendix B to this SPD and Prospectus. 19. How can I get more information about the available funds? Fund prospectuses and annual reports may be obtained through a representative through the Fidelity 401(k) Center at (800) or log on to Fidelity s NetBenefits at How often are the funds valued? The investment funds are valued each day. Your accounts in these funds are updated nightly to reflect the investment performance for the preceding business day (in general, for this purpose a business day means any day in which the New York Stock Exchange is open for business). 21. When and how can I change where my future contributions are invested? You have the opportunity to change the investment allocation of future contributions among the funds each business day. The ability to make allocation changes is one of the features available when you call the Fidelity 401(k) Center at (800) or log on to Fidelity s NetBenefits at 8

11 22. When and how can I change which funds my existing balances are invested in? Generally, you may transfer all or any portion of your existing fund balances to any other fund or funds each business day. The ability to make fund balance transfers is one of the features available when you call the Fidelity 401(k) Center at (800) or log on to Fidelity s NetBenefits at Your change will normally take effect the next business day if your change is confirmed before the close of the New York Stock Exchange. Certain restrictions may apply to your ability to transfer between your existing fund balances and other funds. For example, if you direct an exchange purchase into a fund, followed by another exchange sale out of that fund within 30 days, you may be subject to restrictions on your ability to trade going forward because you have triggered a round trip transaction. For further details on this and other restrictions, please see the prospectus of the applicable fund. 23. What is the total amount of securities that will be offered under this Plan? One million (1,000,000) shares of Varian common stock, taking into account the January 2002 and August 2004 two-for-one stock splits, will be offered under the Plan. 24. How do I withdraw money from my account? Unlike a loan, a withdrawal is a permanent reduction of your retirement account balance in the Plan. You may request a withdrawal from your account by calling the Fidelity 401(k) Center at (800) or log on to Fidelity s NetBenefits at Withdrawals are based on your eligible account values generally as of the Valuation Date or the Valuation Date next following the day your request is processed. Valuation Dates generally are each day the Plan Trustee operates, and is open to the public for its business. Your account is not credited with any investment income on the amount withdrawn after your Valuation Date. Payment of withdrawal amounts will be made by check as soon as possible, generally within three weeks after your request is processed. GENERAL RULES The rules for in-service withdrawals are complex and not all of your account in the Plan may be eligible for such a distribution. The general rules are outlined below. If you have any questions or need additional information, please call the Fidelity 401(k) Center at (800) With respect to amounts eligible for an in-service distribution: No more than one withdrawal may be made each month. You may not withdraw less than $500 unless the amount represents the total amount available for withdrawal from your accounts. You may not take an in-service withdrawal from your before-tax account unless you are age 59½, totally disabled or you qualify for a hardship withdrawal. 9

12 SPECIAL RULES FOR WITHDRAWALS FROM BEFORE-TAX ACCOUNTS Before-tax accounts in the Plan are governed by federal income tax laws which are designed to encourage long-term savings for retirement. Unless you are 59½ or totally disabled, these tax laws restrict you from withdrawing amounts from your before-tax account unless you can prove an immediate and heavy financial hardship which cannot reasonably be satisfied from other resources. HARDSHIP WITHDRAWALS If you have an immediate and heavy financial need, a hardship withdrawal allows you to withdraw money from your after-tax account, rollover account, and before-tax account (excluding earnings on contributions made after 1988). You may elect to withdraw all of part of your before-tax contributions, Employee Incentive Plan bonus contributions, old required before-tax contributions, old voluntary before-tax contributions, old cash profit-sharing contributions and amounts attributable to your rollover contributions to satisfy a financial hardship subject to some limitations. The minimum amount that may be withdrawn is $500 or, if less, the amount available for withdrawal. In order to qualify as a hardship withdrawal, the withdrawal must be made on account of an immediate and heavy financial need as determined by Varian. A withdrawal will be deemed necessary to satisfy an immediate and heavy financial need if you represent that the amount of the withdrawal is not more than the amount of your immediate and heavy financial need including amounts necessary to pay any federal, state or local income taxes or penalties. You also have to show that the immediate and heavy financial need cannot be relieved through reimbursement or compensation by insurance or otherwise; by reasonable liquidation of lowering contributions to the Plan by withdrawals, distributions or nontaxable (at the time of the loan) loans from the Plan or any other plan maintained by Varian; or by borrowing from commercial sources on reasonable commercial terms. Income and penalty taxes may apply to the amount you withdraw. You can request a hardship withdrawal to pay: Certain medical expenses for yourself, your spouse or dependents; Costs related directly to the purchase (excluding mortgage payments) of your principal residence; College tuition for up to the next 12 months for yourself, your spouse, or your dependents; Costs to prevent eviction from or foreclosure on your principal residence; Funeral expenses for a spouse or dependents; Unreimbursed property and casualty losses due to accidental fire, flood, earthquake, tornado or natural disaster for yourself, spouse or dependents; or 10

13 Any other expense or indebtedness that has been identified as a deemed immediate and heavy financial need in a ruling, notice, or other document of general applicability issued by the Commissioner of Internal Revenue. FUNDING OF WITHDRAWALS Your withdrawal will be funded solely from the assets of your account and will be based on the account values as of the Valuation Date the withdrawal is processed. If more than one subaccount under your account is available or needed to fund the withdrawal and/or if more than one Investment Fund is available or needed to be liquidated, the order of funding by sub-account and liquidation by Investment Fund shall be made in accordance with the ordering rules prescribed by Varian. 25. How do I borrow money from my account? While you are working at Varian, the Plan allows you to borrow from your contribution accounts. You must repay the loan with interest through after-tax payroll deductions. You can have one loan outstanding at any time. Loans are available to all Plan participants who are employees of Varian. To request a loan, call the Fidelity 401(k) Center at (800) or log on to Fidelity s NetBenefits at You may be required to provide additional information. FUNDING OF LOANS Your loan will be funded by the assets in your account. HOW MUCH CAN I BORROW? Your loan amount must be at least $1,000 and generally may not exceed 50% of the combined value of your account. However, if you had an outstanding loan from your account during the past 12 months, you may not borrow more than $50,000 minus the highest outstanding loan balance you had during these past 12 months (even if repaid by the time you request the loan). FEES AND INTEREST The following fees and interest apply to each loan: A one-time loan set-up fee of $35.00 An annual maintenance fee of $15.00 Interest equal to the prime interest rate on the date the loan is requested plus 1%. This rate applies for the full term of the loan. 11

14 REPAYING A LOAN The loan must be repaid, with interest, within the period of time specified in your repayment agreement. You will be required to repay the loan through regular payroll deduction if you are an employee in active pay status. If you are an employee in non-pay status (such as on a leave of absence), you must make biweekly repayment by check or money order using a coupon book. If you are a former employee, you may arrange to repay the loan through automatic, periodic payments from your bank account or by using a coupon book for remitting payments. If you fail to make loan payments when they are due, you will be considered in default on the loan. All reasonable actions to collect the balance of the loan would then be authorized. In certain circumstances, a loan that is in default may be considered a distribution and may result in taxable income to you. In any event, the failure to repay a loan will reduce the benefit you would otherwise be entitled to from this Plan. 26. How are my accounts distributed when my employment terminates or I retire? If your employment with Varian terminates for any reason, or if you become disabled, you will be entitled to receive a distribution from your vested accounts. To request a distribution, you must call the Fidelity 401(k) Center at (800) or log on to Fidelity s NetBenefits at If you leave Varian before retirement, you may request that your account be paid to you in one lump sum. If you prefer, you may request that the Old Pension Plan portion of your account be paid to you as a Qualified Joint and Survivor Annuity, with the remaining portion of your account paid in a lump sum. (See the HOW AND WHEN PAYMENTS ARE MADE portion of this Question 26 for a description of the Qualified Joint and Survivor Annuity payment method.) To request a payout, simply call the Fidelity 401(k) Center at (800) A representative will prepare the payment request and send it to your home. You must sign the request and, if you are married, you generally must have your spouse sign the request. Return the payment request form to: Fidelity 401(k) Center Attn: Varian Medical Systems, Inc. Retirement Plan P.O. Box Cincinnati, OH If you commenced participation in the Plan after December 31, 2002, you are not eligible for the Qualified Joint and Survivor Annuity option discussed previously. If your account balance is $1,000 or less, your account will be distributed to you without your consent, although a rollover option will be made available. Otherwise, your account will remain intact and continue to be adjusted for investment gains (or losses). As long as you have a balance in your account, you can continue to change your investment choices, just as before you left. You can also request the payment of your account balance-with your spouse s consent, if 12

15 needed-at any future time. If you leave Varian and then are rehired within 30 days after you terminate, your request to have your account paid to you will not be approved. Instead, you will be automatically reinstated in the Plan (unless you are not eligible), and your account deposits will resume on the same basis as before you left. Under the Plan, retirement is any of the following dates that you actually stop working for Varian: Early retirement when you reach age 55 while employed by Varian and have been in service (as defined in the Plan) for at least ten (10) full years. Deferred retirement past the date on which you satisfied the early retirement rules. Disability retirement when you have terminated your employment with Varian due to your total disability determined under the terms of Varian s long-term disability plan. To request a payout, simply call the Fidelity 401(k) Center at (800) or log on to Fidelity s NetBenefits at A payment request form will then be sent to your home. You must sign the request form and, if you are married, your spouse generally must also sign the request. Return the payment request form to: Fidelity 401(k) Center Attn: Varian Medical Systems, Inc. Retirement Plan P.O. Box Cincinnati, OH HOW AND WHEN PAYMENTS ARE MADE When your account benefits are paid to you at retirement, you choose how you wish to receive these benefits from among the available payment forms. Payment methods for your Old Pension Plan portion may be different from the remaining portion of your account. These are the payment methods that are generally available: Qualified Annuity usually the automatic form of payment for the Old Pension Plan portion of your account consisting of after-tax and matching contributions made to your account prior to January 1, 2003, and company basic contributions made to your account prior to October 2, Under this payment method, benefits from the Old Pension Plan portion of your account are distributed to you in the form of a lifetime annuity (monthly payments for the rest of your life). If you are married, this method of payment also provides your surviving spouse (to whom you were married when the annuity began), upon your death, with a monthly lifetime annuity equal to half of yours. Effective January 2008, you may also elect to receive an annuity payment that provides your surviving spouse (to whom you were married when the annuity began), upon your death, with a monthly lifetime annuity equal to three-quarters of yours. However, with your spouse s written and notarized consent, you can elect to waive the Qualified Annuity payment method and have this portion of your account paid out in a lump sum or in installment payments instead. This payment method is not available for any remaining portion of your account, nor is it available for the Old 13

16 Pension Plan portion of your account if this portion totals $1,000 or less, or if your Varian service ended before August 23, Single Lump Sum Payment You may receive your entire account balance in a single lump sum payment. If you choose this payment form (whether your account is paid out at retirement or termination), you can roll over the money into an Individual Retirement Account or another employer s qualified plan to delay paying taxes. For all single lump sum payments, you will have 20% of your payment withheld for federal income taxes unless you elect in writing to have your payment directly transferred to an Individual Retirement Account or another employer s qualified plan. Only money that hasn t been taxed previously can be rolled over. However, once you put money into an Individual Retirement Account, you generally can t withdraw it without penalty until age 59½. You must begin withdrawing from your Individual Retirement Account by April 1 of the year following the year in which you reach age 70½. Money withdrawn from an Individual Retirement Account is subject to ordinary income taxes. Installment Payments If your employment ends after you have satisfied the Plan s definition of retirement (see previous page), you may elect to receive your entire account balance in monthly installment payments for a number of years (for example, 10 years), subject to certain Internal Revenue Service rules about minimum payment amounts. During the payout period, any earnings or losses will be credited to your account. Payments will continue until your entire account balance has been paid to you (or your beneficiary). You will continue to receive a quarterly account statement showing any investment gains or losses and payments made to you during the quarter. If you elect to receive installments over fewer than 10 years, you are eligible to roll over these payments to an Individual Retirement Account or to another qualified retirement plan. For those receiving installment payments, the Plan s Trustee offers electronic funds transfer service. Electronic fund transfer provides a convenient means of having these payments electronically deposited to a bank, savings and loan, or credit union checking or savings account. It is similar to the method used by social security to issue monthly benefits and ensures the prompt and safe arrival of these monthly amounts. To sign up for electronic fund transfer, call the Fidelity 401(k) Center at (800) or log on to Fidelity s NetBenefits at Before you select any method of payment, it is important for you to consider: the balance you will have in your account; your tax situation; your other sources of income at retirement; the earnings available if you leave your money in the program, versus earnings available elsewhere. You may request a withdrawal from your account by calling the Fidelity 401(k) Center at (800) or log on to Fidelity s NetBenefits at Distribution is based on your vested account values generally as of the end of the Valuation Date next following the date on which your request is processed. Valuation Dates are generally each day the Plan Trustee operates, and is open to the public for, its business. Your accounts will not be credited with any investment earnings on the amount distributed after your Valuation Date. Distribution will be made by check as soon as practicable, generally within three weeks of the date your request is processed. 14

17 REQUIRED DISTRIBUTIONS You are required to receive minimum distributions beginning the April 1 of the calendar year following the year in which occurs the later of your attainment of age 70½ or your termination of employment with Varian. If you continue to work, you may be eligible to delay commencement of required distributions until April 1 of the calendar year following the calendar year of your retirement. 27. What are the tax effects of the Plan? FEDERAL INCOME TAX EFFECTS The federal income tax effects of your participation in the Plan are summarized below. The actual federal, state and local income tax consequences will depend upon your individual circumstances. In addition, future changes in federal and state income tax laws and judicial and administrative interpretations may change the rules described below. This summary is not intended to replace the advice of a qualified tax adviser. GENERAL INFORMATION The Plan is intended to qualify for the favorable tax treatment granted to qualified plans. A qualified plan is one that satisfies the requirements of Section 401(a) of the Internal Revenue Code. Because the Plan is a qualified plan, your before-tax contributions, your company matching contributions and any net earnings and gains on investments of the Plan which are credited to any of your accounts are exempt from taxation until such amounts are withdrawn or distributed from your accounts in accordance with the provisions of the Plan. In addition, Varian is entitled to a tax deduction for such contributions in the taxable year for which these contributions are made. Your after-tax contributions (if any) were subject to tax at the time that these contributions were deducted from your paycheck. You will not be taxed again on these contributions when they are distributed to you. However, net earnings or reinvested gains from these accounts, and all amounts distributed from your before-tax contribution accounts and your company contribution account, are fully taxable as ordinary income in the year distributed (unless you roll over these amounts to an Individual Retirement Account or other qualified plan, or the special rules for lump sum distributions apply). The taxable portion of any distribution prior to age 59½ is also subject to a 10% penalty tax unless certain limited exceptions are applicable. TAXATION OF CASH RECEIVED AT DISTRIBUTION Cash received by you at distribution generally is taxable as ordinary income in the year received, except that distribution to you of any after-tax contributions you previously made is not taxable. (Earnings on after-tax contributions are taxable.) You may be able to avoid ordinary income treatment for your distribution if the lump sum distribution rules described below apply to your 15

18 distribution, or if you roll over these amounts to an Individual Retirement Account or other qualified plan. Cash distributed to you is subject to 20% federal withholding for income taxes. TAXATION OF VARIAN COMMON STOCK AT DISTRIBUTION If you receive a distribution from the Plan which qualifies as a lump sum distribution (see definition below), and the distribution includes shares of Varian common stock, the cost of the shares which were purchased with your before-tax contributions or your company matching contributions, reinvested dividends or interest credited from short-term interest-bearing balances is fully taxable as ordinary income in the year of receipt (unless you roll over these amounts to an Individual Retirement Account or other qualified plan, or the special rules for lump sum distributions apply). However, any net unrealized appreciation in the value of the shares is eligible for special tax treatment. Net unrealized appreciation is the excess of the value of the shares at the time of distribution over the cost to the Plan of the shares distributed. Any net unrealized appreciation in the value of the shares of Varian common stock you receive is not taxable until the shares are sold, and then is entitled to tax treatment at long-term capital gains rates. Any gain that accrues after you receive the shares from the Plan is subject to tax at short-term or long-term capital gains rates, depending on how long you hold the shares after the Plan distributes them to you. Also, if you wish, you may (to the extent permitted by the Internal Revenue Service) make a special income tax election not to have these special rules apply to the net unrealized appreciation in your distribution even if you receive shares. Such an election must be made on the tax return on which the distribution is required to be reported. For tax purposes, you are treated as having received shares at the time the transfer agent is instructed by the Plan to issue the shares in your name. If shares are distributed from your after-tax contribution accounts, the cost of the shares acquired with these contributions is not taxable to you, since you already have paid the taxes on these contributions. If the price of Varian common stock has declined significantly since your shares were purchased, your distribution may be worth less than the value of your original contributions plus any earnings on those contributions. In this case, you may be able to report a loss for tax purposes. However, you may not claim a deduction for the loss until you sell the shares. If you receive cash from the Plan instead of the shares credited to your accounts, the rules regarding net unrealized appreciation do not apply. Instead, the cash you receive will be taxed as ordinary income in the year distributed (unless you roll over these amounts to an Individual Retirement Account or other qualified plan, or the other special rules for lump sum distributions apply). 10% PENALTY TAX The taxable portion of your distribution will be subject to a 10% penalty tax unless one or more of the following circumstances applies to your distribution: 16

19 You are at least age 59½ at the time of the payout. You separate from service with Varian or a participating company during or after the calendar year in which you reach age 55, and you receive your distribution any time after your separation. You roll over the taxable portion of your account balance into a special rollover Individual Retirement Account within 60 days of receiving the money or shares. You may also direct the Plan Trustee to effect a direct rollover of the taxable portion by transferring this amount directly to an Individual Retirement Account or another employer s plan that permits rollovers. Your Plan balance is paid to you (or your beneficiary) because are unable to work on account of total disability (which is defined for this purpose as you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to continue for your life and that has actually continued for at least six (6) months) or your death. The distribution is made to an alternate payee under a Qualified Domestic Relations Order (QDRO) related to a divorce settlement. You have medical expenses that are deductible on your federal income tax return for the year you receive your payout. The 10% penalty tax is not applied to the amount of your payout which is equal to the amount of your deductible medical expenses. (Medical expenses must be quite large to be deductible.) ACCOUNT ROLLOVERS You may defer all or any portion of the tax due by rolling over all or any portion of the taxable part of your distribution to an Individual Retirement Account or another employer s tax-qualified plan. If you receive a distribution, you must roll it over within 60 days after receiving your distribution in order to receive this tax benefit. Alternatively, you may direct the Plan Trustee to effect a direct rollover of your distribution to an Individual Retirement Account or to another employer s tax-qualified plan that accepts rollovers. To have your distribution directly rolled over in this way, advance arrangements must be made with the Fidelity 401(k) Center and with the plan trustee of the Individual Retirement Account or other tax-qualified plan. Having your distribution directly rolled over has the advantage of avoiding the 20% required income tax withholding described below under Withholding. If you roll over part of your distribution to an Individual Retirement Account, you will not be able to take advantage of the special five or ten-year averaging discussed below. Any withdrawals you later make from your Individual Retirement Account are fully taxable as ordinary income, unless the withdrawal is rolled over to another Individual Retirement Account or to another employer s plan (rollovers to another employer s plan are subject to special 17

20 limitations). Withdrawals from your Individual Retirement Account must begin no later than April 1 of the year following the year in which you become age 70½. Withdrawals from an Individual Retirement Account prior to age 59½ that are not rolled over to another Individual Retirement Account or another employer s plan are subject to a 10% penalty tax in addition to the ordinary tax incurred. However, the 10% penalty tax does not apply to withdrawals made on account of your death or disability, as defined above, or withdrawals which are part of a series of substantially equal periodic payments over your life (or life expectancy) or the joint lives (or life expectancies) of you and your Individual Retirement Account beneficiary. LUMP SUM DISTRIBUTIONS A lump sum distribution is generally defined in the Internal Revenue Code as the payment within one calendar year of all vested balances credited to your accounts under the Plan if the payment is made as a result of your separation from service for any reason. If your Plan distribution qualifies as a lump sum distribution, and meets certain other requirements, you may be eligible for the special tax benefits described below. SPECIAL TEN-YEAR AVERAGING If you reached age 50 before 1986 and your distribution qualifies as a lump sum distribution, you may be eligible to make a once-in-a-lifetime election to use special ten-year averaging when you receive a lump sum distribution. If you elect special ten-year averaging, the tax is determined as though you received the taxable money over ten years under 1986 rates and had no other income, yet you pay the entire tax in one year. To be eligible to make this special election, you must have participated in the Plan for five or more years prior to the year in which the distribution is made. To take advantage of the special ten-year averaging, you must file Internal Revenue Service Form 4972 with your federal income tax return for the year in which you receive the lump sum distribution. You may not however, roll over part of your distribution to an Individual Retirement Account and still take advantage of the special ten-year averaging. Also, when you receive shares of Varian common stock, the net unrealized appreciation in the value of those shares is not eligible for special ten-year averaging, unless you make a special election to forego the special tax treatment otherwise available on net unrealized appreciation. TAXATION OF WITHDRAWALS Any withdrawal you make from your before-tax contribution account is fully taxable as ordinary income in the year paid out. Also, a withdrawal before age 59½ may be subject to a 10% penalty tax. Your after-tax contributions were subject to tax at the time that these contributions were deducted from your paycheck. You will not be taxed again on these contributions when you withdraw them. However, net earnings or reinvested gains from these accounts are fully taxable as ordinary income in the year paid out (unless the special rules for lump sum distributions apply; see below for more information). Special rules apply to determine what portion of any withdrawal you receive from 18