10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28, 2003
or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

Commission File Number 1-7598

VARIAN MEDICAL SYSTEMS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	94-2359345
(State or other jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification Number)
3100 Hansen Way,
Palo Alto, California	94304-1030
(Address of principal executive offices)	(Zip Code)

(650) 493-4000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $1 par value	New York Stock Exchange / Pacific Exchange
Preferred Stock Purchase Rights	New York Stock Exchange / Pacific Exchange

Securities registered pursuant to Section 12(g) of the Act: None

          Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

          Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yeso   No x

          Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 68,274,983 shares of Common Stock, par value $1 per share, outstanding as of May 2, 2003.

www.varian.com
(NYSE: VAR)

TABLE OF CONTENTS

PART I
	Item 1. Condensed Consolidated Financial Statements
		CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION                      AND RESULTS OF OPERATIONS
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
PART II
	Item 1. Legal Proceedings.
	Item 4. Submission of Matters to a Vote of Security Holders.
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
Chief Executive Officer Certification
INDEX TO EXHIBITS
EXHIBIT 3.2
EXHIBIT 15.1
EXHIBIT 99.1
EXHIBIT 99.2

VARIAN MEDICAL SYSTEMS, INC.

FORM 10-Q

TABLE OF CONTENTS

Part I.	Condensed Consolidated Financial Information	5
Item 1.	Financial Statements (unaudited)	5
	Condensed Consolidated Statements of Earnings	5
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to the Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	31
Part II.	Other Information	32
Item 1.	Legal Proceedings	32
Item 4.	Submission of Matters to a Vote of Security Holders	32
Item 6.	Exhibits and Reports on Form 8-K	32
Signatures		33
Certifications		34
Index to Exhibits		36

2

FORWARD-LOOKING STATEMENTS

          In addition to historical information, this quarterly report on Form 10-Q contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 which provides a “safe harbor” for statements about future events, products and future financial performance that are based on the beliefs of, estimates made by and information currently available to the management of Varian Medical Systems, Inc.’s (“VMS,” “we,” “our” or “the Company”). The outcome of the events described in these forward-looking statements is subject to risks and uncertainties. Actual results and the outcome or timing of certain events may differ significantly from those projected in these forward-looking statements due to the factors listed below, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations –– Factors Affecting Our Business” in our Annual Report on Form 10-K for the fiscal year ended September 27, 2002, and from time to time in our other filings with the Securities and Exchange Commission. For this purpose, statements concerning industry or market segment outlook; market acceptance of or transition to new products or technology such as Intensity Modulated Radiation Therapy, or IMRT, brachytherapy, software, treatment techniques, and advanced X-ray products; growth drivers; orders, sales, backlog or earnings growth; future financial results and any statements using the terms “believe,” “expect,” “anticipate,” “can,” “should,” “will,” “hopeful,” “continued,” “could,” “estimating,” “optimistic,” or similar statements are forward-looking statements that involve risks and uncertainties that could cause our actual results and the outcome and timing of certain events to differ materially from those projected or management’s current expectations. Such risks and uncertainties include:

• market acceptance and demand for our products;

• our ability to anticipate and keep pace with changes in the marketplace and technological innovation;

• our ability to successfully develop and commercialize new products and new product enhancements;

• our ability to meet U.S. Food and Drug Administration and other domestic or foreign regulatory requirements or product clearances, which might limit the products we can sell, subject us to fines or other regulatory actions, and/or increase costs;

• the impact of managed care initiatives or other healthcare reforms and/or limitations on third party reimbursements, including resulting pressure on pricing and demand for our products;

• the possibility that material product liability claims could harm our future sales or require us to pay uninsured claims, and the availability and adequacy of our insurance to cover any such liabilities;

• the competitive nature of the markets in which we compete, and the impact of competition on our pricing, sales, margins and market share;

• our ability to maintain or increase operating margins;

• our ability to protect our intellectual property and the competitive position of our products;

• the possibility of intellectual property infringement claims against us;

• our reliance on sole source or a limited number of suppliers for some key components;

• our ability to provide the significant education and training required for the health care market to accept our products;

• the effect of environmental claims and clean-up expenses on our costs;

• the effect on our profit margins of product recycling and related regulatory requirements in European and other countries;

• our ability to attract and retain qualified employees;

3

• economic, political and other risks associated with our significant international operations, including the enforceability of obligations, the extent of taxes and trade restrictions and licensing and other requirements, and protection of intellectual property;

• the effect of currency exchange rates;

• our ability to match manufacturing capacity with demand for our products;

• the impact of changing levels of sales to sole purchasers of certain X-ray tubes products and the potential for continued consolidation in the X-ray tubes market;

• our ability to successfully integrate acquired businesses into our existing operations and to realize anticipated benefits;

• our use of distributors for a portion of our sales, the loss of which could reduce sales;

• our ability to make our products interoperate with one another or compatible with widely used third party products;

• the effect that fluctuations in our operating results, including as a result of changes in accounting principles, may have on the price of our common stock;

• the risk of loss or interruption to our operations or increased costs due to natural disasters, which may not be adequately covered by insurance, the availability and cost of power and energy supplies, strikes and other events beyond our control, including acts of terrorism or war;

• the effect of Severe Acute Respiratory Syndrome (SARS) on travel and on related business operations;

• our potential responsibility for additional tax obligations and other liabilities arising out of the spin-off of segments of our former businesses; and

• the possibility that provisions of our Certificate of Incorporation and stockholder rights plan might discourage a takeover and therefore limit the price of our common stock.

          By making forward-looking statements, we have not assumed any obligation to, and you should not expect us to, update or revise those statements because of new information, future events or otherwise. In addition, our reported results should not be considered indicative of future performance.

4

PART I

FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)

			Three Months Ended						Six Months Ended
			March 28,			March 29,			March 28,			March 29,
(Amounts in thousands, except per share amounts)			2003			2002			2003			2002
Sales:
	Product		$	234,440		$	190,682		$	410,419		$	339,962
	Service contracts and other			31,716			29,841			62,440			55,688
		Total sales		266,156			220,523			472,859			395,650
Cost of sales:
	Product			137,887			115,308			243,435			208,123
	Service contracts and other			22,268			21,178			43,346			39,842
		Total cost of sales		160,155			136,486			286,781			247,965
Gross profit				106,001			84,037			186,078			147,685
Operating expenses:
	Research and development			14,201			12,037			26,572			23,149
	Selling, general and administrative			39,619			34,676			75,309			66,600
	Reorganization expense			—			1			—			3
		Total operating expenses		53,820			46,714			101,881			89,752
Operating earnings				52,181			37,323			84,197			57,933
Interest income				1,792			1,188			3,495			2,430
Interest expense				(1,017	)		(1,080	)		(2,145	)		(2,165	)
Earnings from operations before taxes				52,956			37,431			85,547			58,198
Taxes on earnings				18,800			13,660			30,370			21,240
Net earnings			$	34,156		$	23,771		$	55,177		$	36,958
Net earnings per share:
	Basic		$	0.50		$	0.35		$	0.81		$	0.55
	Diluted		$	0.48		$	0.34		$	0.78		$	0.53
Shares used in the calculation of net earnings per share:
	Weighted average shares outstanding – Basic			68,064			67,433			67,980			67,411
	Weighted average shares outstanding – Diluted			71,069			70,372			70,993			70,134

See accompanying notes to the condensed consolidated financial statements.

5

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

			March 28,			September 27,
(Dollars in thousands, except par values)			2003			2002
Assets
Current assets:
	Cash and cash equivalents		$	178,183		$	160,285
	Short-term marketable securities			64,407			41,035
	Accounts receivable, net			239,469			237,345
	Inventories			126,764			123,815
	Other current assets			91,156			88,879
		Total current assets		699,979			651,359
Property, plant and equipment				231,537			226,324
	Accumulated depreciation and amortization			(151,871	)		(144,184	)
		Net property, plant and equipment		79,666			82,140
Long-term marketable securities				112,634			97,529
Goodwill				59,979			59,996
Other non-current assets				22,843			19,253
		Total assets	$	975,101		$	910,277
Liabilities and Stockholders’ Equity
Current liabilities:
	Notes payable		$	—		$	58
	Accounts payable			44,470			45,776
	Accrued expenses			210,220			199,836
	Product warranty			32,835			30,725
	Advance payments from customers			90,105			81,688
		Total current liabilities		377,630			358,083
Long-term accrued expenses and other				19,704			20,891
Long-term debt				58,500			58,500
		Total liabilities		455,834			437,474
Commitments and contingencies (Note 13)
Stockholders’ equity:
	Preferred stock
		Authorized 1,000,000 shares, par value $1 per share, issued and outstanding none		—			—
	Common stock
		Authorized 99,000,000 shares, par value $1 per share, issued and outstanding 68,177,000 shares at March 28, 2003 and 67,790,000 shares at September 27, 2002		68,177			67,790
	Capital in excess of par value			141,215			118,278
	Deferred stock compensation			(2,806	)		(3,190	)
	Accumulated other comprehensive loss			(2,530	)		(2,530	)
	Retained earnings			315,211			292,455
		Total stockholders’ equity		519,267			472,803
		Total liabilities and stockholders’ equity	$	975,101		$	910,277

See accompanying notes to the condensed consolidated financial statements.

6

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

					Six Months Ended
					March 28,			March 29,
(Dollars in thousands)					2003			2002
Cash flow from operating activities:
	Net earnings				$	55,177		$	36,958
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation				9,594			9,086
		Allowance for doubtful accounts				1,811			397
		Loss from sale of assets				24			102
		Amortization of intangibles				424			347
		Amortization of premiums, net				567			54
		Stock-based compensation				649			537
		Deferred taxes				836			(2,236	)
		Net change in fair value of derivatives and underlying commitments				(3,623	)		3,107
		Other				(79	)		(564	)
		Changes in assets and liabilities:
			Accounts receivable			4,660			3,203
			Inventories			(2,803	)		(10,374	)
			Other current assets			4,523			472
			Accounts payable			(2,366	)		(945	)
			Accrued expenses			3,753			9,247
			Product warranty			1,949			1,511
			Advance payments from customers			7,430			7,967
			Long-term accrued expenses			(1,344	)		(2,256	)
			Tax benefits from employee stock option plans			13,490			5,707
				Net cash provided by operating activities		94,672			62,320
Cash flows from investing activities:
	Purchase of marketable securities					(49,044	)		(57,233	)
	Maturity of marketable securities					10,000			—
	Purchase of property, plant and equipment					(7,323	)		(10,236	)
	Proceeds from sale of property, plant and equipment					33			—
	Purchase of a business, net of cash received					—			(2,851	)
	Increase in cash surrender value of life insurance					(3,988	)		(3,001	)
	Other, net					53			(227	)
				Net cash used in investing activities		(50,269	)		(73,548	)
Cash flows from financing activities:
	Net repayments on short-term obligations					(58	)		(58	)
	Proceeds from common stock issued to employees					19,598			10,588
	Repurchase of common stock					(42,450	)		(20,732	)
				Net cash used in financing activities		(22,910	)		(10,202	)
Effects of exchange rate changes on cash						(3,595	)		3,632
Net increase (decrease) in cash and cash equivalents						17,898			(17,798	)
Cash and cash equivalents at beginning of period						160,285			218,961
Cash and cash equivalents at end of period					$	178,183		$	201,163

See accompanying notes to the condensed consolidated financial statements.

7

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The condensed consolidated financial statements have been prepared by Varian Medical Systems, Inc. pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements and the accompanying notes are unaudited and should be read in conjunction with the financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K. In the opinion of management, the condensed consolidated financial statements herein include adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position as of March 28, 2003 and September 27, 2002, the results of operations for the three and six months ended March 28, 2003 and March 29, 2002 and cash flows for the six months ended March 28, 2003 and March 29, 2002. The results of operations for the three and six months ended March 28, 2003 are not necessarily indicative of the results to be expected for a full year or for any other period.

NOTE 2 — REORGANIZATION

On April 2, 1999, Varian Associates, Inc. reorganized into three separate publicly traded companies by spinning off, through a tax-free distribution, two of its businesses to stockholders (the “Distribution”). The Distribution resulted in the following three companies: 1) the Company (renamed from Varian Associates, Inc. to Varian Medical Systems, Inc. following the Distribution); 2) Varian, Inc. (“VI”); and 3) Varian Semiconductor Equipment Associates, Inc. (“VSEA”). The Distribution resulted in a non-cash dividend to stockholders.

NOTE 3 — MARKETABLE SECURITIES

The carrying amounts of marketable securities are as follows:

	March 28,		September 27,
(Dollars in thousands)	2003		2002
Municipal bonds	$	136,704	$	93,020
Corporate debt securities		40,337		45,544
		177,041		138,564
Less: Short-term marketable securities		64,407		41,035
Long-term marketable securities	$	112,634	$	97,529

At March 28, 2003, scheduled maturities of held-to-maturity investments are as follows:

	March 28,
(Dollars in thousands)	2003
Due within one year	$	64,407
Due after one year through three years		112,634
	$	177,041

8

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

NOTE 4 — INVENTORIES

Inventories are valued at the lower of cost or market (realizable value) using last-in, first-out (“LIFO”) cost for Oncology Systems’ U.S. inventories. All other inventories are valued principally at average cost. If the first-in, first-out (“FIFO”) method had been used for those operations valuing inventories on a LIFO basis, inventories would have been higher than reported by $17.3 million at March 28, 2003 and $16.8 million at September 27, 2002. The components of inventories are as follows:

		March 28,		September 27,
(Dollars in thousands)		2003		2002
Raw materials and parts		$	83,826	$	81,878
Work-in-process			12,595		10,680
Finished goods			30,343		31,257
	Total inventories	$	126,764	$	123,815

NOTE 5 — GOODWILL AND INTANGIBLE ASSETS

The following table reflects the gross carrying amount and accumulated amortization of the Company’s intangible assets included in other non-current assets on the condensed consolidated balance sheets:

			March 28,			September 27,
(Dollars in thousands)			2003			2002
Intangible assets:
	Amortized intangible assets:
		Patents and other intangible assets	$	12,629		$	12,704
		Technology		890			890
		Accumulated amortization		(8,678	)		(8,329	)
Net carrying amount			$	4,841		$	5,265

Amortization expense for those intangible assets still required to be amortized under Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets” was $212,000 and $183,000 for the three months ended March 28, 2003 and March 29, 2002, respectively, and $424,000 and $347,000 for the six months ended March 28, 2003 and March 29, 2002, respectively. The Company estimates amortization expense on a straight-line basis to be $412,000, $660,000, $630,000, $630,000, $593,000 and $1,915,000 for fiscal years 2003 (remaining six months) through 2007 and thereafter, respectively.

The following table reflects goodwill allocated to the Company’s reportable segments:

	March 28,		September 27,
(Dollars in thousands)	2003		2002
Oncology Systems	$	47,288	$	47,288
X-ray Products		477		477
Other		12,214		12,231
Total	$	59,979	$	59,996

NOTE 6 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company has significant international transactions in foreign currencies and addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. The Company enters into foreign currency forward exchange contracts primarily to reduce the effects of fluctuating foreign currency exchange rates. The forward exchange contracts generally range from one to twelve months in original maturity. At March 28, 2003, the Company did not have any forward exchange contract with an original maturity greater than twelve months. The Company does not hold derivative instruments for speculative or trading purposes.

9

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

The Company accounts for its hedges of foreign currency denominated sales orders (firm commitments) as fair value hedges. For the six months ended March 28, 2003, there were no material gains or losses due to hedge ineffectiveness. At March 28, 2003, the Company had foreign exchange forward contracts maturing through the second quarter of fiscal year 2004 to sell and purchase $164.4 million and $3.0 million, respectively, in various foreign currencies. At March 28, 2003, all open forward exchange contracts were deemed highly effective.

The Company also hedges balance sheet exposures from its various foreign subsidiaries and business units. These hedges of foreign-currency-denominated assets and liabilities do not qualify for hedge accounting treatment under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” accordingly, changes in their fair values are recognized in “selling, general and administrative expenses” in the then current period. Changes in the values of these hedging instruments are offset by changes in the values of foreign currency denominated assets and liabilities. At March 28, 2003, the Company had foreign exchange forward contracts maturing in the third quarter of fiscal year 2003 to sell and purchase $57.4 million and $20.3 million, respectively, to hedge the risks associated with foreign currency denominated assets and liabilities.

NOTE 7 — EARNINGS PER SHARE

Basic net earnings per share (“EPS”) is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the sum of the weighted average number of common shares outstanding and dilutive common equivalent shares. Dilutive common equivalent shares consist of stock options, restricted performance shares and restricted common stock. A reconciliation of the numerator and denominator used in the earnings per share calculations is presented as follows (in thousands, except per share amounts):

	Three Months Ended				Six Months Ended
	March 28,		March 29,		March 28,		March 29,
	2003		2002		2003		2002
Numerator – Basic and Diluted:
Net earnings	$	34,156	$	23,771	$	55,177	$	36,958
Denominator – Basic:
Average shares outstanding		68,064		67,433		67,980		67,411
Net earnings per share – Basic	$	0.50	$	0.35	$	0.81	$	0.55
Denominator – Diluted:
Average shares outstanding		68,064		67,433		67,980		67,411
Dilutive common equivalent shares		2,878		2,854		2,891		2,648
Dilutive restricted performance shares and restricted common stock		127		85		122		75
Average shares outstanding		71,069		70,372		70,993		70,134
Net earnings per share – Diluted	$	0.48	$	0.34	$	0.78	$	0.53

Options to purchase 105,395 shares at an average exercise price of $50.06 per share were outstanding during the six months ended March 28, 2003, but were not included in the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the shares during the period.

10

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

Options to purchase 60,000 shares at an average exercise price of $39.79 per share and options to purchase 66,800 shares at an average exercise price of $39.33 per share were outstanding during the three and six months ended March 29, 2002, but were not included in the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the shares during the respective periods.

NOTE 8 — COMPREHENSIVE EARNINGS

Comprehensive earnings for the three and six months ended March 28, 2003 and March 29, 2002 equaled the reported net earnings. Accumulated other comprehensive loss for all periods presented resulted from a minimum pension liability adjustment, net of taxes.

NOTE 9 — INDUSTRY SEGMENTS

The Company’s operations are grouped into two reportable industry segments: Oncology Systems and X-ray Products. These industry segments were determined based on how management views and evaluates the Company’s operations. The Company’s Ginzton Technology Center, or GTC, and brachytherapy operations are reflected in an “other” category. The Company evaluates its financial performance and allocates its resources primarily based on operating earnings.

		Sales				Operating Earnings
		Three Months Ended				Three Months Ended
		March 28,		March 29,		March 28,			March 29,
(Dollars in millions)		2003		2002		2003			2002
Oncology Systems		$	215	$	186	$	50		$	41
X-ray Products			44		28		9			2
Other			7		7		—			—
	Total industry segments		266		221		59			43
Corporate			—		—		(7	)		(6	)
	Total Company	$	266	$	221	$	52		$	37

		Sales				Operating Earnings
		Six Months Ended				Six Months Ended
		March 28,		March 29,		March 28,			March 29,
(Dollars in millions)		2003		2002		2003			2002
Oncology Systems		$	381	$	332	$	83		$	68
X-ray Products			78		52		15			3
Other			14		12		(1	)		(1	)
	Total industry segments		473		396		97			70
Corporate			—		—		(13	)		(12	)
	Total Company	$	473	$	396	$	84		$	58

NOTE 10 — STOCK REPURCHASE PROGRAM

On August 20, 2001, the Company announced that its Board of Directors had authorized the repurchase by the Company of up to one million shares (on a pre-January 15, 2002 stock split basis) of our common stock over the following twelve-month period. The time period for the repurchase was extended by the Board of Directors until February 28, 2003. On February 14, 2003, the Company’s Board of Directors authorized an additional repurchase of up to two million shares of its common stock through the end of February 2004. During the six months ended March 28, 2003, the Company paid $42.4 million to repurchase 863,100 shares of its common stock. All shares that have been repurchased have been retired. As of March 28, 2003, the Company can still purchase up to 1,639,500 shares.

11

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

NOTE 11 — EMPLOYEE STOCK OPTIONS AND STOCK PURCHASE PLANS

Option activity under the Omnibus Stock Plan and the 2000 Stock Option Plan is presented below:

	Options			Weighted Average
	(in thousands)			Exercise Price
Options outstanding at September 29, 2000		9,360		$	10.26
Granted		3,372		$	28.10
Terminated or expired		(100	)	$	10.57
Exercised		(3,778	)	$	10.21
Options outstanding at September 28, 2001		8,854		$	17.07
Granted		1,686		$	35.95
Terminated or expired		(115	)	$	17.52
Exercised		(1,624	)	$	11.71
Options outstanding at September 27, 2002		8,801		$	21.67
Granted		1,529		$	48.80
Terminated or expired		(80	)	$	14.10
Exercised		(1,167	)	$	14.32
Options outstanding at March 28, 2003		9,083		$	27.25

At March 28, 2003 and fiscal year-end 2002 and 2001, options to purchase 6,374,000, 6,241,000 and 4,912,000 shares of common stock were exercisable and 4,389,000, 5,907,000 and 7,740,000 shares were available for future grants under the Omnibus Stock Plan and the 2000 Stock Plan, respectively.

The following tables summarize information concerning options outstanding and exercisable under the Omnibus Stock Plan and the 2000 Stock Option Plan at March 28, 2003:

					Options Outstanding
					Average
					Remaining
					Number Outstanding		Contractual Life		Weighted Average
Range of Exercise Prices					(in thousands)		(in years)		Exercise Price
$	5.63	–	$	9.08		159		5.7	$	8.74
$	9.16					1,984		6.0	$	9.16
$	9.25	–	$	12.70		408		5.0	$	11.09
$	13.32	–	$	27.78		377		5.5	$	16.34
$	27.91					2,895		7.6	$	27.91
$	29.45	–	$	42.53		1,734		8.6	$	35.75
$	42.99	–	$	50.33		1,526		9.6	$	48.82
Total						9,083		7.5	$	27.25

12

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

					Options Exercisable
					Number
					Exercisable		Weighted Average
Range of Exercise Prices					(in thousands)		Exercise Price
$	5.63	–	$	9.08		159	$	8.74
$	9.16					1,984	$	9.16
$	9.25	–	$	12.70		408	$	11.09
$	13.32	–	$	27.78		370	$	16.12
$	27.91					2,537	$	27.91
$	29.45	–	$	42.53		817	$	35.67
$	42.99	–	$	50.33		99	$	49.66
Total						6,374	$	21.16

During the first quarter of fiscal year 2003, the Company adopted Statement of Financial Accounting Standards No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation – Transition and Disclosure – an Amendment of FAS 123.” The Company accounts for stock-based employee compensation using the intrinsic value method under Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees,” and related interpretations and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation.” The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation:

		Three Months Ended						Six Months Ended
		March 28,			March 29,			March 28,			March 29,
(Dollars in thousands, except per share amounts)		2003			2002			2003			2002
Net earnings, as reported		$	34,156		$	23,771		$	55,177		$	36,958
Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects			246			169			419			341
Deduct: Total stock-based employee compensation determined under fair value based method for all awards, net of related tax effects			(6,809	)		(5,460	)		(10,964	)		(9,220	)
Pro forma net earnings		$	27,593		$	18,480		$	44,632		$	28,079
Net earnings per share — Basic:
	As reported	$	0.50		$	0.35		$	0.81		$	0.55
	Pro forma	$	0.41		$	0.27		$	0.66		$	0.42
Net earnings per share — Diluted:
	As reported	$	0.48		$	0.34		$	0.78		$	0.53
	Pro forma	$	0.39		$	0.26		$	0.63		$	0.40

13

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

		Employee Stock Option Plans
		Three Months Ended						Six Months Ended
		March 28,			March 29,			March 28,			March 29,
		2003			2002			2003			2002
Expected dividend yield			—			—			—			—
Risk-free interest rate			3.3	%		4.4	%		3.1	%		4.3	%
Expected volatility			36.1	%		37.6	%		36.9	%		37.6	%
Expected life (in years):
	Employees		4			4			4			4
	Officers		7			7			7			7

		Employee Stock Purchase Plan
		Three Months Ended						Six Months Ended
		March 28,			March 29,			March 28,			March 29,
		2003			2002			2003			2002
Expected dividend yield			—			—			—			—
Risk-free interest rate			1.2	%		2.1	%		1.2	%		2.1	%
Expected volatility			36.1	%		37.6	%		36.1	%		37.6	%
Expected life (in years):
	Employees		.50			.50			.50			.50
	Officers		.50			.50			.50			.50

The weighted average estimated fair values of employee stock options granted during the three months ended March 28, 2003 and March 29, 2002 were $21.48 and $17.26 per share, respectively. The weighted average estimated fair values of employee stock options granted during the six months ended March 28, 2003 and March 29, 2002 were $18.68 and $14.56 per share, respectively. The weighted average estimated fair values of the shares issued from the Employee Stock Purchase Plan during the three and six months ended March 28, 2003 and March 29, 2002 were $13.59 and $10.01, respectively.

14

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

NOTE 12 — PRODUCT WARRANTY

The Company warrants its products for a specific period of time, generally twelve months, against material defects. The Company provides for the estimated future costs of warranty obligations in costs of goods sold when the related revenue is recognized. The accrued warranty costs represents the best estimate at the time of sale of the total costs that the Company expects to incur to repair or replace product parts, which fail while still under warranty. The amount of accrued estimated warranty costs are primarily based on historical experience as to product failures as well as current information on repair costs. On a quarterly basis, the Company reviews the accrued balances and updates the historical warranty cost trends. The following table reflects the change in the Company’s warranty accrual during the six months ended March 28, 2003.

(Dollars in thousands)
Warranty accrual, September 27, 2002	$	30,725
Charged to costs and expenses		15,532
Actual warranty expenditures		(13,422	)
Warranty accrual, March 28, 2003	$	32,835

NOTE 13 — COMMITMENTS AND CONTINGENCIES

The Company has been named by the U.S. Environmental Protection Agency or third parties as a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (“CERCLA”), at nine sites where Varian Associates, Inc. is alleged to have shipped manufacturing waste for recycling or disposal. In addition, the Company is overseeing environmental cleanup projects and as applicable, reimbursing third parties for cleanup activities under the direction of, or in consultation with, federal, state and/or local agencies at certain current VMS or former Varian Associates, Inc. facilities (including facilities disposed of in connection with the Company’s sale of its electron devices business during 1995, and the sale of its thin film systems business during 1997). Under the terms of the agreement governing the Distribution, VI and VSEA are each obligated to indemnify the Company for one-third of these environmental cleanup costs (after adjusting for any insurance proceeds realized or tax benefits recognized by the Company). The Company spent $0.4 million and $0.5 million (net of amounts borne by VI and VSEA) for the three months ended March 28, 2003 and March 29, 2002, respectively, on environmental investigation, cleanup and third party claim costs. The Company spent $1.0 million and $0.9 million (net of amounts borne by VI and VSEA) for the six months ended March 28, 2003 and March 29, 2002, respectively, on environmental investigation, cleanup and third party claim costs.

For a number of these sites and facilities, various uncertainties make it difficult to assess the likelihood and scope of further cleanup activities or to estimate the future costs of such activities (including cleanup costs, reimbursements to third parties, project management costs and legal costs) if undertaken. As of March 28, 2003, the Company nonetheless estimated that the Company’s future exposure (net of VI’s and VSEA’s indemnification obligations) to complete the cleanup projects for these sites ranged in the aggregate from $5.1 million to $13.7 million. The time frame over which the Company expects to complete the cleanup projects varies with each site, ranging up to approximately 30 years as of March 28, 2003. Management believes that no amount in the foregoing range of estimated future costs is more probable of being incurred than any other amount in such range and therefore accrued $5.1 million as of March 28, 2003. The amount accrued has not been discounted to present value.

As to other sites and facilities, the Company has gained sufficient knowledge to be able to better estimate the scope and costs of future cleanup activities. As of March 28, 2003, the Company estimated that the Company’s future exposure (net of VI’s and VSEA’s indemnification obligations) to complete the cleanup projects, including reimbursements to third party’s claims, for these sites and facilities ranged in the aggregate from $17.4 million to $38.2 million. The time frame over which these cleanup projects are expected to be complete varies with each site and facility, ranging up to

15

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

approximately 30 years as of March 28, 2003. As to each of these sites and facilities, management determined that a particular amount within the range of estimated costs was a better estimate of the future environmental liability than any other amount within the range, and that the amount and timing of these future costs were reliably determinable. The best estimate within the range was $21.1 million at March 28, 2003. The Company accordingly accrued $14.0 million, which represents its best estimate of the future costs of $21.1 million discounted at 4%, net of inflation. This accrual is in addition to the $5.1 million described in the preceding paragraph.

The foregoing amounts are only estimates of anticipated future environmental-related costs to cover the known cleanup projects, and the amounts actually spent may be greater or less than such estimates. The aggregate range of cost estimates reflects various uncertainties inherent in many environmental cleanup activities, the large number of sites and facilities involved and the amount of third party claims. The Company believes that most of these cost ranges will narrow as cleanup activities progress. The Company believes that its reserves are adequate, but as the scope of its obligations becomes more clearly defined, these reserves (and the associated indemnification obligations of VI and VSEA) may be modified and related charges/credits against earnings may be made.

Although any ultimate liability arising from environmental-related matters described herein could result in significant expenditures that, if aggregated and assumed to occur within a single fiscal year, would be material to the Company’s financial statements, the likelihood of such occurrence is considered remote. Based on information currently available to management and its best assessment of the ultimate amount and timing of environmental-related events (and assuming VI and VSEA satisfy their indemnification obligations), management believes that the costs of these environmental-related matters are not reasonably likely to have a material adverse effect on the consolidated cash flows of the Company in any single fiscal year.

The Company evaluates its liability for environmental-related investigation and cleanup costs in light of the liability and financial wherewithal of potentially responsible parties and insurance companies with respect to which the Company believes that it has rights to contribution, indemnity and/or reimbursement (in addition to the obligations of VI and VSEA). Claims for recovery of environmental investigation and cleanup costs already incurred, and to be incurred in the future, have been asserted against various insurance companies and other third parties. The Company received certain cash payments in the form of settlements and judgments during fiscal years 1995, 1996, 1997, 1998, 2001 and 2002 from defendants, its insurers and other third parties. The Company has also reached an agreement with another insurance company under which the insurance company has agreed to pay a portion of the Company’s past and future environmental-related expenditures, and the Company therefore has a $3.8 million receivable in other non-current assets at March 28, 2003. The Company believes that this receivable is recoverable because it is based on a binding, written settlement agreement with a solvent and financially viable insurance company.

The Company is a party to three related federal actions involving claims by independent service organizations (“ISOs”) that the Company’s policies and business practices relating to replacement parts violate the antitrust laws. The parties have agreed to consolidate its claims from the Northern District of California to the action in the District Court in Texas.

The Company is also involved in other legal proceedings arising in the ordinary course of its business. While there can be no assurances as to the ultimate outcome of any litigation involving the Company, management does not believe any pending legal proceeding will result in a judgment or settlement that will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

NOTE 14 — RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the Emerging Issues Task Force (“EITF”) issued EITF 00-21, “Revenue Arrangements with Multiple Deliverables”. EITF 00-21 provides guidance on determining whether a revenue arrangement contains multiple deliverable items and if so, requires revenue be allocated

16

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARY COMPANIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)

amongst the different items based on fair value. EITF 00-21 also requires that revenue on any item in a revenue arrangement with multiple deliverables that is not delivered completely must be deferred until delivery of the item is complete. EITF 00-21 is effective for all arrangements entered into in fiscal periods beginning after June 15, 2003. The Company believes that the adoption of this Statement will not have a material impact on the consolidated financial position or results of operations of the Company.

17

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Varian Medical Systems, Inc.:

We have reviewed the accompanying condensed consolidated balance sheets of Varian Medical Systems, Inc. and its subsidiaries as of March 28, 2003 and September 27, 2002, and the related condensed consolidated statements of earnings for each of the three-month and six-months periods ended March 28, 2003 and March 29, 2002 and the condensed consolidated statements of cash flows for the six-month periods ended March 28, 2003 and March 29, 2002. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
April 17, 2003

18

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

          We are a world leader in the design and manufacture of integrated systems of equipment and software for treating cancer with radiation therapy, as well as high-quality, cost-effective X-ray tubes for original equipment manufacturers, replacement X-ray tubes and imaging subsystems. Our Oncology Systems business produces and sells a fully integrated system of products for treating cancer with radiation, including not only linear accelerators and treatment simulation and verification products but also information management and treatment planning software and other sophisticated ancillary products and services. Our linear accelerators and treatment simulation and verification products are sold and in service around the world. Our X-ray Products business manufactures and sells X-ray tubes that cover a range of applications including computed tomography, or CT, scanning, radioscopic/fluoroscopic imaging, special procedures and mammography that are sold to most major diagnostic equipment manufacturers, or OEMs, as well as directly to end-users for replacement purposes. We also manufacture and sell advanced brachytherapy products. Results of our brachytherapy operations are reported in with those of Ginzton Technology Center, or GTC, which conducts internal and contract research.

          This discussion and analysis of financial condition and results of operations is based upon and should be read in conjunction with the condensed consolidated financial statements and the notes included elsewhere in this report, as well as the information contained under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Our Business” and the “Notes to the Consolidated Financial Statements” in our Annual Report on Form 10-K for the fiscal year ended September 27, 2002.

Critical Accounting Policies and Estimates

          This discussion and analysis of financial condition and results of operation is based on our consolidated financial statements, which we prepare in conformity with accounting principles generally accepted in the United States of America. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. These estimates and assumptions are based on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. These estimates and assumptions also require the application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements and related notes. We periodically review our accounting policies and estimates and make adjustments when facts and circumstances dictate.

          Actual results may differ from these estimates under different assumptions or conditions. Any differences may have a material impact on our financial condition and results of operations. For a discussion of how these and other factors may affect our business, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Our Business” in our Annual Report on Form 10-K for the fiscal year ended September 27, 2002.

          In addition to the accounting policies, which are more fully described in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 27, 2002, we have identified the following critical accounting policies used in the preparation of our financial statements:

     Revenue Recognition

          We recognize revenue for product sales in accordance with Staff Accounting Bulletin No. 101, or SAB 101, when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable and collectibility is reasonably assured. In general, for hardware products that include obligations for installation, our policy is to recognize the amount earned upon transfer of risk of loss and defer revenue recognition on the greater of the fair value of the installation services or the amount of payment that is contractually linked to the installation or acceptance clause. For amounts deferred, revenue is recognized upon completion or satisfaction of remaining obligations. Revenue for product sales in the X-ray Products business is recognized when title to the product transfers to the customer because these products do not include any installation obligations. Revenue related to spare part sales in the Oncology Service business is generally recognized when title to the product transfers to the customer. Revenue related to services performed on a time-and-materials basis is

19

recognized when it is earned and billable. Revenue related to service contracts is recognized ratably over the period of the related contract.

          Revenue for software product sales are recognized under the provisions of Statement of Position 97-2, or SOP 97-2, as amended, generally at the time of customer acceptance. Revenue earned on software arrangements involving multiple elements is allocated to each element based on vendor-specific objective evidence, which is based on the average price charged when the same element is sold separately. In instances when evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. Revenue allocated to maintenance and support is recognized ratably over the maintenance term (typically one year).

          Revenue recognition is dependent on the timing of shipment and is subject to customer acceptance and readiness. If shipments are not made on scheduled timelines or the products are not accepted by the customer, our reported revenues may differ materially from expectations.

     Allowance For Doubtful Accounts

          Credit evaluations are undertaken for all major sale transactions before shipment is authorized. Normal payment terms require payment of a small portion of the purchase price upon signing of the purchase order contract, a significant amount upon transfer of risk of loss and the remaining upon completion of the installation. On a quarterly basis, we evaluate aged items in the accounts receivable aging and provide reserves in an amount we deem adequate for doubtful accounts. In addition, customer financial conditions may change and increase the risk of collectibility and may require additional provisions which would negatively impact our operating results. As of March 28, 2003, our provisions for doubtful accounts represented approximately 2% of total accounts receivable.

     Inventories

          We regularly review inventory quantities on hand and adjust for excess and obsolete inventory based primarily on historical usage rates and our forecast of product demand and production. Actual demand may differ from our estimates, in which case we may have understated or overstated the provision required for obsolete and excess inventory, which would have an impact on our operating results.

     Warranty Obligations

          We warrant our products for a specific period of time, generally twelve months, against material defects. We provide for the estimated future costs of warranty obligations in costs of goods sold when the related revenue is recognized. The accrued warranty costs represent our best estimate at the time of sale of the total costs that we will incur to repair or replace product parts that fail while still under warranty. The amount of accrued estimated warranty costs is primarily based on historical experience as to product failures as well as current information on repair costs. Actual warranty costs could differ from the estimated amounts. On a quarterly basis, we review the accrued balances and update the historical warranty cost trends. If we were required to accrue additional warranty cost in the future, it would negatively affect operating results.

     Impairment of Goodwill

          We adopted Statement of Financial Accounting Standards No. 142, or SFAS 142, “Goodwill and Other Intangible Assets,” during the first quarter of fiscal year 2002. This statement requires us to make an initial assessment within the first six months of adoption and then annual assessments thereafter as to the carrying value of the goodwill. During the first and fourth quarters of fiscal year 2002, we determined that the fair value of the reporting units, which are the industry segments as described in Note 9 “Industry Segments” of the Notes to the condensed consolidated financial statements, exceeded the carrying value and thus we did not need to record an impairment charge. We will continue to make assessments of impairment on an annual basis in the fourth quarter of our fiscal years or more frequently if certain indicators arise. In assessing the value of goodwill, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the reporting units. If these estimates or their related assumptions change in the future, we may be required to record impairment charges that would negatively impact operating results. As of March 28, 2003, the carrying value of goodwill was $60 million.

20

     Environmental Matters

          We are subject to a variety of environmental laws around the world regulating the handling, storage, transport and disposal of hazardous materials that do or may create increased costs for some of our operations. Environmental remediation liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the costs of these assessments or remedial efforts can be reasonably estimated, in accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies”, and the AICPA’s Statement of Position 96-1, “Environmental Remediation Liabilities.” The accrued environmental costs represent our best estimate as to the total costs of remediation and the time period over which these costs will be incurred. On a quarterly basis, we review these accrued balances. If we were required to accrue additional environmental remediation costs in the future, it would negatively impact our operating results.

Results of Operations

     Fiscal Year

          Our fiscal year is the 52- or 53-week period ending on the Friday nearest September 30. Fiscal year 2003 is the 52-week period ending September 26, 2003, and fiscal year 2002 was the 52-week period that ended September 27, 2002. The fiscal quarters ended March 28, 2003 and March 29, 2002 were both 13-week periods. The six-month periods ended March 28, 2003 and March 29, 2002 were both 26 weeks long.

     Second Quarter of Fiscal Year 2003 Compared to Second Quarter of Fiscal Year 2002

Total Sales: Our total sales of $266 million in the second quarter of fiscal year 2003 were 21% higher than our sales of $221 million in the second quarter of fiscal year 2002. The increase in total sales from the year-ago period was primarily due to continued strength in our Oncology Systems business and recovery of our X-ray Products business, particularly our CT scanning tube product lines, from an unusually weak second quarter of fiscal year 2002. International sales (which we consider to be sales outside of North America) were $102 million in the second quarter of fiscal year 2003, compared to $84 million in the second quarter of fiscal year 2002 (representing 39% of total sales in each quarter). Product sales were $234 million (representing 88% of total sales) in the second quarter of fiscal year 2003, compared to $191 million (representing 86% of total sales) in the second quarter of fiscal year 2002. Service and other sales were $32 million (representing 12% of total sales) in the second quarter of fiscal year 2003, compared to $30 million (representing 14% of total sales) in the second quarter of fiscal year 2002.

Sales (by segment and revenue classification)		Three Months Ended
		March 28,		March 29,
(Dollars in millions)		2003		2002
Oncology Systems:
	Product	$	185.0	$	158.9
	Service contracts and other		29.5		26.8
Total Oncology Systems		$	214.5	$	185.7
X-ray Products:
	Product	$	44.2	$	27.8
	Service contracts and other		—		—
Total X-ray Products		$	44.2	$	27.8
Other:
	Product	$	5.3	$	4.0
	Service contracts and other		2.2		3.1
Total Other		$	7.5	$	7.1

21

Sales (by segment and region)		Three Months Ended
		March 28,		March 29,
(Dollars in millions)		2003		2002
Oncology Systems:
	North America	$	144.5	$	120.3
	Europe		45.1		36.5
	Asia		21.2		19.8
	Rest of the world		3.7		9.1
Total Oncology Systems		$	214.5	$	185.7
X-ray Products:
	North America	$	14.2	$	11.0
	Europe		5.8		3.9
	Asia		23.2		11.9
	Rest of the world		1.0		1.0
Total X-ray Products		$	44.2	$	27.8
Other:		$	7.5	$	7.1

Oncology Systems sales: Sales for the Oncology Systems business increased 16% to $215 million (representing 81% of total sales) in the second quarter of fiscal year 2003, compared to $186 million (representing 84% of total sales) for the same period in fiscal year 2002. Product sales increased 16% to $185 million in the second quarter of fiscal year 2003, compared to $159 million for the same period in fiscal year 2002 (representing 86% of Oncology Systems sales in each quarter). Service contracts and other sales increased 10% to $29 million in the second quarter of fiscal year 2003, compared to $27 million for the same period in fiscal year 2002 (representing 14% of Oncology Systems sales in each quarter). Oncology Systems international sales (representing 33% of total Oncology Systems sales), both product and service, for the second quarter of fiscal year 2003 increased by 7% from the same period in fiscal year 2002 due in part to continued strength of foreign currencies against the U.S. dollar. Oncology Systems North American sales (representing 67% of total Oncology Systems sales) for the second quarter of fiscal year 2003 increased by 20% from the same period in fiscal year 2002. Product sales in North America increased due in part to continued demand for new technology, including Intensity Modulated Radiation Therapy, or IMRT, and IMRT-related products.

X-ray Products sales: Sales for the X-ray Products business increased by 59% to $44 million (representing 17% of total sales) in the second quarter of fiscal 2003, compared to $28 million (representing 13% of total sales) for the same period in fiscal year 2002. X-ray Products sales in the second quarter of fiscal year 2002 were unusually weak when compared to our historical second fiscal quarter sales levels due to excess inventory levels at our largest OEM customer as well as a general weakness in the X-ray tube market at that time. As this same customer’s inventory levels improved and it began to restock its inventory positions, our business began to recover in the third quarter of fiscal year 2002 and continued this improvement through the second quarter of fiscal year 2003. We also experienced an increase in the volume of sales of new products introduced over the past twelve months. We do not expect to sustain the growth rates experienced during the past two quarters of fiscal year 2003 and expect sales to increase modestly for the third quarter of fiscal year 2003 compared to the same period in fiscal year 2002.

22

Other sales: Combined sales in our GTC and brachytherapy operations were $8 million for the second quarter of fiscal year 2003, compared to $7 million for the same period in fiscal year 2002, with the increase primarily attributable to the addition of the GammaMed product line for high dosage brachytherapy. The GammaMed product line was acquired in the fourth quarter of fiscal year 2002. Product sales in these two operations were $5 million for the second quarter of fiscal year 2003 compared to $4 million in the same period in fiscal year 2002. Service contracts and other sales were $2 million for the second quarter of fiscal year 2003 compared to $3 million in the same period in fiscal year 2002.

Gross Profit: We recorded gross profit of $106 million in the second quarter of fiscal year 2003 and $84 million in the second quarter of fiscal year 2002, an increase of 26%. As a percentage of total sales, gross profit was 40% in the second quarter of fiscal year 2003, compared to 38% for the same period of fiscal year 2002.

Gross profit as a percentage of Oncology Systems sales remained constant at 40% for both the second quarter of fiscal year 2003 and 2002. Gross profit as a percentage of X-ray Products sales increased to 36% in the second quarter of fiscal year 2003 from 27% in the second quarter of fiscal year 2002, stemming primarily from an increase in sales volume and manufacturing productivity resulting from the quality improvement programs started in fiscal year 2002.

Research and Development: Research and development expenses increased to $14 million in the second quarter of fiscal year 2003 compared to $12 million in the same period of fiscal year 2002. As a percentage of total sales, research and development remained unchanged at 5% in each period. The increase in absolute dollars in research and development expenses in the second quarter of fiscal year 2003 occurred primarily in Oncology Systems.

Selling, General and Administrative: Selling, general and administrative expenses increased to $40 million in the second quarter of fiscal year 2003 compared to $35 million in the same period of fiscal year 2002, representing 15% of total sales for the second quarter of fiscal year 2003 compared to 16% in the same period of fiscal year 2002. The increase in absolute dollars in selling, general and administrative expenses in the second quarter of fiscal year 2003 can be attributed primarily to the increase in business activity and personnel in Oncology Systems.

Interest Income, Net: Net interest income increased to $0.8 million for the second quarter of fiscal year 2003 compared to $0.1 million in the same period of fiscal year 2002. The increase was primarily a result of increased cash and marketable securities levels.

Taxes on Earnings: Our estimated effective tax rate for the second quarter of fiscal year 2003 was 35.5% compared to 36.5% in the second quarter of fiscal year 2002. This decline is primarily due to tax-exempt interest earned on our investments in municipal bonds. In general, our effective income tax rate differs from the statutory rates largely as a function of benefits realized from our extraterritorial income exclusion, tax-exempt interest and foreign taxes. Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax earnings, and the effectiveness of our tax planning strategies.

Earnings Per Diluted Share: Earnings per diluted share was $0.48 for the second quarter of fiscal year 2003, compared to $0.34 for the second quarter of fiscal year 2002, an increase of 41%. The increase can be attributed to the significant increase in total sales, improvement in gross margins and slower growth in selling and general and administrative expenses.

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     First Half of Fiscal Year 2003 Compared First Half of Fiscal Year 2002

Total Sales: Our total sales of $473 million in the first half of fiscal year 2003 were 20% higher than our sales of $396 million in the first half of fiscal year 2002 with all business segments contributing to the increase. International sales (which we consider to be sales outside of North America) were $180 million in the first half of fiscal year 2003, compared to $150 million in the first half of fiscal year 2002 (representing 38% of total sales in both six-month periods). Product sales were $410 million (representing 87% of total sales) in the first half of fiscal year 2003, compared to $340 million (representing 86% of total sales) in the first half of fiscal year 2002. Service and other sales were $62 million (representing 13% of total sales) in the first half of fiscal year 2003, compared to $56 million (representing 14% of total sales) in the first half of fiscal year 2002.

Sales (by segment and revenue classification)		Six Months Ended
		March 28,		March 29,
(Dollars in millions)		2003		2002
Oncology Systems:
	Product	$	322.5	$	281.2
	Service contracts and other		57.9		50.4
Total Oncology Systems		$	380.4	$	331.6
X-ray Products:
	Product	$	78.2	$	52.5
	Service contracts and other		—		—
Total X-ray Products		$	78.2	$	52.5
Other:
	Product	$	9.8	$	6.3
	Service contracts and other		4.5		5.3
Total Other		$	14.3	$	11.6

Sales (by segment and region)		Six Months Ended
		March 28,		March 29,
(Dollars in millions)		2003		2002
Oncology Systems:
	North America	$	253.2	$	216.2
	Europe		82.7		67.9
	Asia		36.5		34.3
	Rest of the world		8.0		13.2
Total Oncology Systems		$	380.4	$	331.6
X-ray Products:
	North America	$	29.5	$	20.8
	Europe		10.1		7.8
	Asia		36.7		21.5
	Rest of the world		1.9		2.4
Total X-ray Products		$	78.2	$	52.5
Other:		$	14.3	$	11.6

Oncology Systems sales: Sales for the Oncology Systems business increased 15% to $380 million (representing 80% of total sales) in the first half of fiscal year 2003, compared to $332 million (representing 84% of total sales) for the same period in fiscal year 2002. Product sales increased 15% to $322 million in the first half of fiscal year 2003, compared to $281 million for the same period in fiscal year 2002

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(representing 85% of Oncology Systems sales for each period). Service contracts and other sales increased 15% to $58 million in the first half of fiscal year 2003, compared to $50 million for the same period in fiscal year 2002 (representing 15% of Oncology Systems sales for each period). Oncology Systems international sales (representing 34% of total Oncology Systems sales), both product and service, for the first half of fiscal year 2003 increased by 10% from the same period in fiscal year 2002 due in part to continued strength of foreign currencies against the U.S. dollar. Oncology Systems North American sales (representing 66% of total Oncology Systems sales) for the first half of fiscal year 2003 increased by 17% from the same period in fiscal year 2002. Product sales in North America increased due in part to continued demand for new technology, including IMRT and IMRT-related products.

X-ray Products sales: Sales for the X-ray Products business increased by 49% to $78 million (representing 17% of total sales) in the first half of fiscal year 2003, compared to $52 million (representing 13% of total sales) for the same period in fiscal year 2002. X-ray Products sales in the first half of fiscal year 2002 were unusually weak compared to historical levels due to excess inventory levels at our largest OEM customer as well as a general weakness in the X-ray tube market. Starting in the second half of fiscal year 2002 and continuing through the first half of fiscal year 2003 this OEM customer replenished its inventory. In our first half of fiscal year 2003, we also experienced an increase in sales volume of new tubes for baggage screening as well as replacement tubes for third party service organizations. We do not expect to sustain the growth rates experienced during first half of fiscal year 2003 and believe that X-ray Products sales for the second half of fiscal year 2003 will increase modestly compared with the year-ago period.

Other sales: Combined sales in our GTC and brachytherapy operations were $14 million for the first half of fiscal year 2003, compared to $12 million for the same period in fiscal year 2002, with the increase primarily attributable to the addition of the GammaMed product line for high dosage brachytherapy. The GammaMed product line was acquired in the fourth quarter of fiscal year 2002. Product sales in these two operations were $10 million for the first half of fiscal year 2003 compared to $6 million in the same period in fiscal year 2002. Service contracts and other sales were $4 million for the first half of fiscal year 2003 compared to $5 million in the same period in fiscal year 2002.

Gross Profit: We recorded gross profit of $186 million in the first half of fiscal year 2003 and $148 million in the first half of fiscal year 2002, an increase of 26%. As a percentage of total sales, gross profit was 39% in the first half of fiscal year 2003, compared to 37% for the same period of fiscal year 2002.

Gross profit as a percentage of Oncology Systems sales increased to 40% in the first half of fiscal year 2003 from 39% for the same period in fiscal 2002 due principally to increased sales of ancillary products (such as treatment planning software, PortalVision units, respiratory gating systems and multi-leaf collimator upgrades), which traditionally have higher margins. In addition, gross profit as a percentage of X-ray Products sales increased to 36% in the first half of fiscal year 2003 from 26% in the first half of fiscal year 2002. The gross profit increase in X-ray Products stemmed primarily from an increase in sales volume and manufacturing productivity resulting from the quality improvement programs implemented in fiscal year 2002.

Research and Development: Research and development expenses increased to $27 million in the first half of fiscal year 2003 compared to $23 million in the same period of fiscal year 2002. As a percentage of total sales, research and development remained unchanged at 6% in each period. The increase in absolute dollars in research and development expenses in the first half of fiscal year 2003 occurred primarily in Oncology Systems.

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Selling, General and Administrative: Selling, general and administrative expenses increased to $75 million in the first half of fiscal year 2003 compared to $67 million in the same period of fiscal year 2002, representing 16% of total sales for the first half of fiscal year 2003 compared to 17% in the same period of fiscal year 2002. The increase in absolute dollars in selling, general and administrative expenses in the first half of fiscal year 2003 can be attributed primarily to the increase in business activity and personnel in Oncology Systems, increased insurance and information technology costs and an increase to our allowance for doubtful accounts.

Interest Income, Net: Net interest income increased to $1.4 million for the first half of fiscal year 2003 compared to $0.3 million in the same period of fiscal year 2002. The increase was primarily a result of increased cash and marketable securities levels.

Taxes on Earnings: Our estimated effective tax rate for the first half of fiscal year 2003 was 35.5% compared to 36.5% in the first half of fiscal year 2002. This decline is primarily due to tax-exempt interest earned on our investments in municipal bonds.

Earnings Per Diluted Share: Earnings per diluted share was $0.78 for the first half of fiscal year 2003, compared to $0.53 for the first half of fiscal year 2002, an increase of 47%. The increase can be attributed to the increase in total sales, improvement in gross margins and slower growth in selling and general and administrative expenses.

Outlook

Total Sales: Due to our sales volume in the first half of fiscal year 2003, particularly in X-ray Products, we believe that sales for the full fiscal year 2003 will increase in the range of 16% to 17% over fiscal year 2002 sales, with total sales for the third quarter of fiscal year 2003 to increase in the range of 15% to 16% of the third quarter of fiscal year 2002.

Oncology Systems Sales: For our Oncology Systems business, we believe that we can sustain long-term growth rates of 10% to 15% due to the increasing number of cancer cases, international markets being under-equipped, the large percentage of our installed base that can be replaced or upgraded, as well as new products that we believe will enhance the effectiveness of radiation therapy.

X-ray Products Sales: For our X-ray Products business, we do not expect to sustain the growth rates experienced during the past two quarters of fiscal year 2003. We expect sales to increase modestly for the third quarter and second half of fiscal year 2003 compared to the same periods in fiscal year 2002, with overall sales for fiscal year 2003 growing approximately 20% over sales in the prior fiscal year due to the strength of the first half of fiscal year 2003.

Gross Profit: Based on the margin improvement in the first half of fiscal year 2003 as well as growth in sales volume overall, we believe that gross margins will improve by about one percentage point to approximately 40% in fiscal year 2003.

Earnings Per Diluted Share: Based upon the strong results in the second quarter and first half of fiscal year 2003 and the stronger than expected recovery in our X-ray Products business, we believe that earnings per diluted share for the third quarter of fiscal year 2003 will increase in the range of 22% over the same period in fiscal year 2002 and earnings per diluted share for fiscal year 2003 will increase by 31% over the amount in fiscal year 2002.

The foregoing are forward-looking statements and projections that are subject to the factors, risks and uncertainties set forth or referred to under the “Forward-Looking Statements” section above and actual results and the outcome or timing of certain events may differ significantly.

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Liquidity and Capital Resources

          Liquidity is the measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, purchases of business assets and funding of continuing operations. Our sources of cash include earnings, net interest income and borrowings under short-term notes payable and long-term loans. Our liquidity is actively managed on a daily basis to ensure the maintenance of sufficient funds to meet our needs.

          At March 28, 2003, we had $58.5 million of long-term loans. Interest rates on the outstanding long-term loans on this date ranged from 6.70% to 7.15% with a weighted average interest rate of 6.82%. The long-term loans currently contain covenants that limit future borrowings and cash dividend payments. The covenants also require us to maintain specified levels of working capital and operating results. At March 28, 2003, we were in compliance with all such loan covenants.

          At March 28, 2003, we had $355 million in cash, cash equivalents and marketable securities (approximately 13% of which was held abroad and could be subject to additional taxation if it was repatriated to the U.S.) compared to $299 million at September 27, 2002.

          Our primary cash inflows and outflows for the first half of fiscal year 2003 and 2002 were as follows:

• We generated net cash from operating activities of $95 million during the first half of fiscal year 2003, compared to $62 million in the same period of fiscal year 2002. Increases in net earnings of $18 million, tax benefit from employee stock options of $8 million and reduction in working capital of $7 million contributed to the increase in the first half of fiscal year 2003.

• Investing activities used $50 million of net cash in the first half of fiscal year 2003 compared to $74 million in the first half of fiscal year 2002. Our net purchases of marketable securities during the first half of fiscal year 2003 were $18 million less compared to the same period of fiscal year 2002.

• Financing activities used net cash of $23 million in the first half of fiscal year 2003 compared to net cash used of $10 million in the same period of fiscal year 2002. During the first half of fiscal year 2003, we received $20 million in proceeds from employee stock option exercises and used $42 million for the purchase of common stock compared to receiving $11 million in proceeds from employee stock option exercises and using $21 million for the purchase of common stock during the first half of fiscal year 2002.

          Total debt as a percentage of total capital was 10% and at March 28, 2003 compared to 11% at September 27, 2002. The ratio of current assets to current liabilities increased to 1.85 to 1 as of March 28, 2003 as compared to 1.82 to 1 as of September 27, 2002. At March 28, 2003, we had $26.9 million available in unused uncommitted lines of credit.

          The following summarizes certain of our contractual obligations as of March 28, 2003 and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in millions):

		2003		2004		2005		2006		2007		Thereafter
Operating leases		$	4.7	$	8.6	$	7.1	$	4.8	$	1.8	$	3.5
Long-term debt			—		—		5.3		2.5		7.8		42.9
	Total	$	4.7	$	8.6	$	12.4	$	7.3	$	9.6	$	46.4

          Our liquidity is affected by many factors, some of which are based on the normal ongoing operations of our business and some of which arise from uncertainties and conditions in the U.S. and global economies. Although our cash requirements will fluctuate (positively and negatively) as a result of the shifting influences of these factors, we believe that existing cash and cash equivalents, cash to be generated from operations and our borrowing capability will be sufficient to satisfy anticipated commitments for capital expenditures and other cash requirements through the next twelve months.

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Stock Repurchase Program

          On August 20, 2001, we announced that our Board of Directors had authorized the repurchase of up to one million shares (on a pre-January 15, 2002 stock split basis) of our common stock over the following twelve-month period. The time period for the repurchase was extended by the Board of Directors until February 28, 2003. On February 14, 2003, our Board of Directors authorized an additional repurchase of up to two million shares of our common stock through the end of February 2004. During the six months ended March 28, 2003, we paid $42.4 million to repurchase 863,100 shares of common stock. All shares that have been repurchased have been retired. As of March 28, 2003, we could still purchase up to 1,639,500 shares.

Environmental Matters

          We are subject to a variety of environmental laws around the world regulating the handling, storage, transport and disposal of hazardous materials that do or may create increased costs for some of our operations. Although we follow procedures that we consider appropriate under existing regulations, these procedures can be costly and we cannot completely eliminate the risk of contamination or injury from these materials, and, in the event of such an incident, we could be held liable for any damages that result. In addition, we could be assessed fines or penalties for failure to comply with environmental laws and regulations. These costs, and any future violations or liability under environmental laws or regulations, could have a material adverse effect on our business.

          In addition, we may incur significant costs to comply with future changes in existing environmental laws and regulations or new laws and regulations. For example, several countries are proposing to require manufacturers to take back, recycle and dispose of products at the end of the equipment’s useful life. The European Union, or EU, has adopted a directive that when implemented by member states will require medical equipment manufacturers to bear some or all of the cost of product disposal at the end of the electrical products’ useful life, thus creating increased costs for our operations. The EU has also adopted a directive that may require the adoption of restrictions on the use of some hazardous substances in certain of our products sold in the EU. This directive could create increased costs for our operations.

          From the time we began operating, we handled and disposed of hazardous materials and wastes following procedures that were considered appropriate under regulations, if any, existing at the time. We also hired companies to dispose of wastes generated by our operations. Under various laws (such as the federal “Superfund” law) and under our obligations concerning operations before the spin-offs, we are overseeing environmental cleanup projects from our pre-spun-off operations and as applicable reimbursing third parties (such as the U.S. Environmental Protection Agency or other responsible parties) for cleanup activities. Under the terms of the agreement governing the distribution, Varian, Inc. (“VI”) and Varian Semiconductor Equipment Associates, Inc. (“VSEA”) are each obligated to indemnify us for one-third of these environmental cleanup costs (after adjusting for any insurance proceeds realized or tax benefits recognized by us). The cleanup projects we are overseeing are being conducted under the direction of or in consultation with relevant regulatory agencies. We estimate these cleanup projects will take up to 30 years to complete. As described below, we have accrued a total of $19.1 million as of March 28, 2003 to cover our liabilities for these cleanup projects:

• Our estimate of future costs for certain cleanup activities ranges from $5.1 million to $13.7 million. For these estimates, we have not discounted the costs to present dollars because of the uncertainties that make it difficult to develop a best estimate and have accrued $5.1 million, which is the amount at the low end of the range.

• For eight cleanup projects, we have sufficient knowledge to develop better estimates of our future costs. While our estimate of future costs to complete these cleanup projects, including third party claims, ranges from $17.4 million to $38.2 million, our best estimate within that range is $21.1 million. For these projects, we have accrued $14.0 million, which is our best estimate of the $21.1 million discounted to present dollars at 4%, net of inflation.

          When we developed the estimates above, we considered the financial strength of other potentially responsible parties. These amounts are, however, only estimates and may be revised in the future as we get more information on these projects. We may also spend more or less than these estimates. Based on current information, we believe that our reserves are adequate. At this time, management believes that it is remote that any single environmental event would have a materially adverse impact on our financial statements in any single fiscal year. We spent $0.4 million

28

and $0.5 million (net of amounts borne by VI and VSEA) during the second quarter of fiscal years 2003 and 2002, respectively. We spent $1.0 million and $0.9 million during the first half of fiscal years 2003 and 2002.

          We have received cash payments in the form of settlements and judgments from various insurance companies and other third parties from time to time. In addition, we have an agreement with an insurance company to pay a portion of our past and future expenditures. As a result of this agreement, we have a $3.8 million receivable included in “other non-current assets” as of March 28, 2003. We believe that this receivable is collectible because it is based on a binding, written settlement agreement with a financially viable insurance company.

          Our present and past facilities have been in operation for many years, and over that time in the course of those operations, these facilities have used substances, that are or might be considered hazardous, and we have generated and disposed of wastes that are or might be considered hazardous. Therefore, it is possible that additional environmental issues may arise in the future that we cannot now predict.

Recent Accounting Pronouncements

          In November 2002, the Emerging Issues Task Force, or EITF, issued EITF 00-21, “Revenue Arrangements with Multiple Deliverables”. EITF 00-21 provides guidance on determining whether a revenue arrangement contains multiple deliverable items and if so, requires revenue be allocated amongst the different items based on fair value. EITF 00-21 also requires that revenue on any item in a revenue arrangement with multiple deliverables that is not delivered completely must be deferred until delivery of the item is complete. EITF 00-21 is effective for all arrangements entered into in fiscal periods beginning after June 15, 2003. We believe that the adoption of this Statement will not have a material impact on our consolidated financial position or results of the operations.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

          We are exposed to two primary types of market risks: currency exchange rate risk and interest rate risk.

Currency Exchange Rate Risk

          As a global concern, we are exposed to movements in currency exchange rates. These exposures may change over time as business practices evolve and adverse movements could have a material adverse impact on our financial results. Historically, our primary exposures related to non-U.S. dollar denominated sales and purchases throughout Europe, Asia and Australia.

          We have significant international transactions in foreign currencies and address related financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. We sell products throughout the world, often in the currency of the customer’s country, and adhere to a policy of hedging firmly committed sales orders. These firmly committed foreign currency sales orders are hedged with forward exchange contracts. We primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating currency exchange rates. We do not enter into forward exchange contracts for trading purposes. The forward exchange contracts generally range from one to twelve months in original maturity. As of March 28, 2003, we do not have any forward exchange contract with an original maturity greater than one year. We also hedge the balance sheet exposures from our various foreign subsidiaries and business units having U.S. dollar functional currencies. We enter into these monthly foreign exchange forward contracts to minimize the short-term impact of currency fluctuations on assets and liabilities denominated in currencies other than the U.S. dollar functional currency.

          The notional value of sold forward exchange contracts outstanding as of March 28, 2003 totaled $221.8 million. The notional value of purchased forward exchange contracts outstanding as of March 28, 2003 totaled $23.3 million. The notional amounts of forward exchange contracts are not a measure of our exposure. An adverse move in currency exchange rates would decrease the fair value of the contracts. However, if this occurred, the fair value of the underlying exposures hedged by the contracts would increase in a similar manner. Accordingly, we believe that our hedging strategy should yield no material net impact to our results of operations or cash flows.

Interest Rate Risk

          Our market risk exposure to changes in interest rates is dependent primarily on the investments in our investment portfolio. Currently, our investment portfolio consists of highly liquid instruments in short-term investments, as well as a portion in long-term investments. As a result, if interest rates were to decrease substantially, we might be required to reinvest a substantial portion of our investment portfolio at lower interest rates. To date, we have not used derivative financial instruments to hedge the interest rate in our investment portfolio or long-term debt, but may consider the use of derivative instruments in the future.

          The principal amount of cash, cash equivalents and marketable securities at March 28, 2003 totaled $355 million with a related weighted average interest rate of 1.77%. The majority of our investments are in tax advantaged government bonds with an estimated average tax equivalent yield of 2.34%. Our investment portfolio of municipal bonds and corporate debt securities is classified as held-to-maturity, and any gains or losses relating to changes in interest rates would occur in the unlikely event of liquidation of all or part of the investment portfolio. Our long-term debt of $58.5 million at March 28, 2003 carries a weighted average fixed interest rate of 6.82% with principal payments due in various installments over a ten-year period, beginning in 2005.

          The estimated fair value of our cash and cash equivalents (a portion of which was held abroad at March 28, 2003 and could be subject to additional taxation if it were repatriated in the U.S.) and marketable securities approximates the principal amounts of these financial instruments.

          Although payments under some of our operating leases for our facilities are tied to market indices, we are not exposed to material interest rate risk associated with our operating leases.

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Item 4. Controls and Procedures

(a)

Evaluation of disclosure controls and procedures. Based on their evaluation of the Company’s disclosure controls (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b)

Changes in internal controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

31

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

          We are subject to various legal proceedings and claims that are discussed in the Note 13 to the Condensed Consolidated Financial Statements. We are also subject to certain other legal proceedings and claims that have arisen in the ordinary course of business. While we can provide no assurances as to the ultimate outcome of any litigation, management does not believe any pending legal proceeding will result in a judgment or settlement that would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders.

At the Company’s Annual Meeting of Stockholders held on February 13, 2003 (the “Stockholder Meeting”), the stockholders of Varian Medical Systems, Inc. voted on the election of two directors (David W. Martin, Jr. and Ruediger Naumann-Etienne) to the Company’s Board of Directors for three-year terms ending at the 2006 annual meeting and the election of one director (Allen S. Lichter) to the Company’s Board of Directors for a two-year term ending at the 2005 annual meeting. The voting on each such nominee for director as follows:

					Broker
Director	Votes For		Withheld		Non-votes (1)
David W. Martin, Jr.		54,023,561		1,685,716		N/A
Ruediger Naumann-Etienne		55,324,266		385,011		N/A
Allen S. Lichter		55,436,708		272,569		N/A

(1) Pursuant to the rules of the New York Stock Exchange, this election of directors constituted a routine matter. Therefore, brokers were permitted to vote without receipt of instructions from beneficial owners.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits required to be filed by Item 601 of Regulation S-K:

Exhibit
No.		Description
	3.2	Registrant’s By-Laws, as amended
	15.1	Letter Regarding Unaudited Interim Financial Information.
	99.1	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99.2	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) The Company filed Current Report on Form 8-K on February 14, 2003 under Item 5. “Other Events” to announce (i) the election of Allen S. Lichter, M.D. and Ruediger Naumann-Etienne, Ph.D. to its Board of Directors and (ii) the authorization by its Board of Directors of the repurchase by the Company of up to two million shares of its stock through the end of February 2004.

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SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Varian Medical Systems, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	VARIAN MEDICAL SYSTEMS, INC.                         (Registrant)
Dated May 5, 2003	By:	/s/ Elisha W. Finney
		Elisha W. Finney
		Vice President, Finance and
		Chief Financial Officer
		(Duly Authorized Officer and
		Principal Financial Officer)

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Chief Executive Officer Certification

I, Richard M. Levy, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Varian Medical Systems, Inc. (the “Registrant”);
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: May 5, 2003	/s/	Richard M. Levy
		Richard M. Levy
		President and Chief
		Executive Officer

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Chief Financial Officer Certification

I, Elisha W. Finney, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Varian Medical Systems, Inc. (the “Registrant”);
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: May 5, 2003	/s/	Elisha W. Finney
		Elisha W. Finney
		Vice President, Finance, and
		Chief Financial Officer

35

INDEX TO EXHIBITS

Exhibit
No.		Description
	3.2	Registrant’s By-Laws, as amended
	15.1	Letter Regarding Unaudited Interim Financial Information.
	99.1	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99.2	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

36 EX-3.2 3 f89827exv3w2.txt EXHIBIT 3.2 EXHIBIT 3.2 BY-LAWS OF VARIAN MEDICAL SYSTEMS, INC. A Delaware Corporation As adopted on February 19, 1999, to be effective on April 3, 1999 TABLE OF CONTENTS

PAGE ARTICLE I OFFICES............................................................................. 1 Section 1. Registered Office................................................................ 1 Section 2. General Office and Other Offices................................................. 1 ARTICLE II STOCKHOLDERS' MEETINGS.............................................................. 1 Section 3. Annual Meeting................................................................... 1 Section 4. Business to be Conducted at Annual Meeting....................................... 1 Section 5. Special Meetings................................................................. 2 Section 6. Place of Meetings................................................................ 2 Section 7. Notice of Meetings............................................................... 2 Section 8. Nominations of Directors......................................................... 3 Section 9. List of Stockholders............................................................. 4 Section 10. Quorum........................................................................... 4 Section 11. Voting and Required Vote......................................................... 5 Section 12. Proxies.......................................................................... 5 Section 13. Inspectors of Election; Polls.................................................... 5 Section 14. Organization..................................................................... 5 ARTICLE III BOARD OF DIRECTORS.................................................................. 6 Section 15. General Powers, Number, Term of Office........................................... 6 Section 16. Vacancies........................................................................ 6 Section 17. Chairman of the Board............................................................ 6 Section 18. Regular Meetings................................................................. 7 Section 19. Special Meetings................................................................. 7 Section 20. Notices.......................................................................... 7 Section 21. Conference Telephone Meetings.................................................... 7 Section 22. Quorum........................................................................... 7 Section 23. Organization..................................................................... 8 Section 24. Resignations..................................................................... 8 Section 25. Removal.......................................................................... 8 Section 26. Action Without a Meeting......................................................... 8 Section 27. Location of Books................................................................ 8 Section 28. Dividends........................................................................ 8

i TABLE OF CONTENTS (CONTINUED)

PAGE Section 29. Compensation of Directors........................................................ 8 Section 30. Additional Powers................................................................ 9 ARTICLE IV COMMITTEES OF DIRECTORS............................................................. 9 Section 31. Designation, Power, Alternate Members............................................ 9 Section 32. Quorum, Manner of Acting......................................................... 9 Section 33. Minutes.......................................................................... 9 ARTICLE V ADVISORY DIRECTORS.................................................................. 9 Section 34. Advisory Directors............................................................... 9 ARTICLE VI OFFICERS............................................................................ 10 Section 35. Designation...................................................................... 10 Section 36. Election and Term................................................................ 10 Section 37. Removal.......................................................................... 10 Section 38. Resignations..................................................................... 10 Section 39. Vacancies........................................................................ 10 Section 40. Chief Executive Officer.......................................................... 10 Section 41. President........................................................................ 11 Section 42. Vice Presidents.................................................................. 11 Section 43. Secretary........................................................................ 11 Section 44. Assistant Secretaries............................................................ 11 Section 45. Chief Financial Officer.......................................................... 11 Section 46. Treasurer........................................................................ 11 Section 47. Assistant Treasurers............................................................. 12 Section 48. Controller....................................................................... 12 Section 49. Assistant Controllers............................................................ 12 ARTICLE VII CONTRACTS, INSTRUMENTS AND PROXIES.................................................. 12 Section 50. Contracts and Other Instruments.................................................. 12 Section 51. Proxies.......................................................................... 12 ARTICLE VIII CAPITAL STOCK....................................................................... 13 Section 52. Stock Certificates; Book-Entry Accounts.......................................... 13 Section 53. Record Ownership................................................................. 13 Section 54. Record Dates..................................................................... 13 Section 55. Transfer of Stock................................................................ 13

ii TABLE OF CONTENTS (CONTINUED)

PAGE Section 56. Lost, Stolen or Destroyed Certificates........................................... 13 Section 57. Terms of Preferred Stock......................................................... 14 ARTICLE IX INDEMNIFICATION..................................................................... 14 Section 58. Right of Indemnification Generally............................................... 14 Section 59. Written Request; Determination of Entitlement.................................... 14 Section 60. Recovery of Unpaid Claim......................................................... 15 Section 61. Exclusivity; Subsequent Modification............................................. 15 Section 62. Insurance........................................................................ 15 Section 63. Other Indemnification Rights..................................................... 15 Section 64. Illegality; Unenforceability..................................................... 16 Section 65. Form and Delivery of Communications.............................................. 16 ARTICLE X MISCELLANEOUS....................................................................... 16 Section 66. Corporate Seal................................................................... 16 Section 67. Fiscal Year...................................................................... 16 Section 68. Auditors......................................................................... 16 Section 69. Waiver of Notice................................................................. 16 ARTICLE XI AMENDMENT TO BY-LAWS................................................................ 17 Section 70. Amendments....................................................................... 17

iii BY-LAWS OF VARIAN MEDICAL SYSTEMS, INC. A Delaware Corporation (effective February 14, 2003) ARTICLE I OFFICES Section 1. Registered Office. The name of the registered agent of Varian Medical Systems, Inc. (the "Corporation") is The Corporation Trust Company and the registered office of the Corporation shall be located in the City of Wilmington, County of New Castle, State of Delaware. Section 2. General Office and Other Offices. The Corporation shall have its General Offices in the City of Palo Alto, State of California (the "General Offices"), and may also have offices at such other places in or outside the State of Delaware as the Board of Directors of the Corporation (the "Board of Directors") may from time to time designate or the business of the Corporation may require. ARTICLE II STOCKHOLDERS' MEETINGS Section 3. Annual Meeting. An annual meeting of stockholders shall be held on such day and at such time as may be designated by the Board of Directors for the purpose of electing directors and for the transaction of such other business as properly may come before such meeting. Any previously scheduled annual meeting of the stockholders may be postponed by resolution of the Board of Directors upon public notice given on or prior to the date previously scheduled for such annual meeting of stockholders. Section 4. Business to be Conducted at Annual Meeting. (a) At an annual meeting of stockholders, only such business shall be conducted as shall have been brought before the meeting (i) pursuant to the Corporation's notice of the meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this By-Law, who shall be entitled to vote at such meeting and who shall have complied with the notice procedures set forth in this By-Law. (b) For business to be properly brought before an annual meeting by a stockholder pursuant to Section 4(a)(iii) of this By-Law, notice in writing must be delivered or mailed to the Secretary and received at the General Offices, not less than 60 days nor more than 90 days prior to the first anniversary of the date on which the Corporation first mailed its proxy materials for the preceding year's annual meeting of stockholders; provided, however, that in the event that the date of the meeting is advanced by more than 30 days or delayed by more than 60 days from such meeting's anniversary date, notice by the stockholder must be received not earlier than the 90th day prior to such date of mailing of proxy materials and not later than the close of business on the later of the 60th day prior to such date of mailing of proxy materials or the 10th day following the day on which public announcement of the date of the annual meeting is first made. Such stockholder's notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business to be brought before the annual meeting and the reasons for conducting such business at such meeting; (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, and the name and address of the beneficial owner, if any, on whose behalf the proposal is made; (iii) the class and number of shares of the Corporation's stock which are beneficially owned by the stockholder, and by the beneficial owner, if any, on whose behalf the proposal is made; and (iv) any material interest of the stockholder, and of the beneficial owner, if any, on whose behalf the proposal is made, in such business. For purposes of these By-Laws, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (c) Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this By-Law. The chairman of the meeting may, if the facts warrant, determine that the business was not properly brought before the meeting in accordance with the provisions of this By-Law; and if the chairman should so determine, the chairman shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Nothing in this By-Law shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act, and any such proposal so included shall be deemed timely given for purposes of this By-Law. Section 5. Special Meetings. Special meetings of stockholders for any proper purpose or purposes, unless otherwise provided by the General Corporation Law of the State of Delaware, may be called by the Chairman of the Board or the Chief Executive Officer, or in the absence of each of them, by the Vice Chairman of the Board, or by the Secretary at the written request of a majority of the directors. Business transacted at a special meeting of stockholders shall be confined to the purpose or purposes of the meeting as stated in the notice of the meeting. Any previously scheduled special meeting of the stockholders may be postponed by resolution of the Board of Directors upon notice by public announcement given on or prior to the date previously scheduled for such special meeting of stockholders. Section 6. Place of Meetings. All meetings of stockholders shall be held at such place as may be determined by resolution of the Board of Directors. Section 7. Notice of Meetings. Except as otherwise required by applicable law, notice of each meeting of the stockholders, whether annual or special, shall, at least 10 days but not more than 60 days before the date of the meeting, be given to each stockholder of record entitled to vote at the meeting by mailing such notice in the U.S. mail, postage prepaid, addressed to such stockholder at such stockholder's address as the same appears on the records 2 of the Corporation. Such notice shall state the place, date and hour of the meeting, and in the case of a special meeting, shall also state the purpose or purposes thereof. Section 8. Nominations of Directors. (a) Only persons who are nominated in accordance with the procedures set forth in these By-Laws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors may be made at a meeting of stockholders (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this By-Law, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this By-Law. (b) Nominations by stockholders shall be made pursuant to notice in writing, delivered or mailed to the Secretary and received at the General Offices (i) in the case of an annual meeting, not less than 60 days nor more than 90 days prior to the first anniversary of the date on which the Corporation first mailed its proxy materials for the preceding year's annual meeting of stockholders, provided, however, that in the event that the date of the meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder must be received not earlier than the 90th day prior to such date of mailing of proxy materials and not later than the close of business on the later of the 60th day prior to such date of mailing of proxy materials or the 10th day following the day on which public announcement of the date of the meeting is first made; or (ii) in the case of a special meeting at which directors are to be elected, not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement of the date of the meeting and of the nominees proposed by the Board of Directors to be elected at such meeting is first made. In the case of a special meeting of stockholders at which directors are to be elected, stockholders may nominate a person or persons (as the case may be) for election only to such position(s) as are specified in the Corporation's notice of meeting as being up for election at such meeting. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that would be required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person's written consent to being named as a nominee and to serving as a Director if elected); (ii) as to the stockholder giving the notice, the name and address, as they appear on the Corporation's books, of such stockholder and the class and number of shares of the Corporation's stock which are beneficially owned by such stockholder; and (iii) as to any beneficial owner on whose behalf the nomination is made, the name and address of such person and the class and number of shares of the Corporation's stock which are beneficially owned by such person. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary that information required to be set forth in a stockholder's notice of nomination that pertains to the nominee. Notwithstanding anything in this By-Law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public statement naming all the nominees for Director or specifying the size of the increased Board of Directors made by the Corporation at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this By-Law shall also be considered timely, but only with 3 respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the General Offices not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (c) No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in these By-Laws. The chairman of the meeting may, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed in this By-Law; and if the chairman should so determine, the chairman shall so declare to the meeting, and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act, and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Section 9. List of Stockholders. (a) The Secretary of the Corporation shall prepare, at least 10 days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. (b) The stock ledger of the Corporation shall be the only evidence as to the identity of the stockholders entitled (i) to vote in person or by proxy at any meeting of stockholders, or (ii) to exercise the rights in accordance with applicable law to examine the stock ledger, the list required by this By-Law or the books and records of the Corporation. Section 10. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of any business at all meetings of the stockholders, except as otherwise provided by applicable law, by the Certificate of Incorporation or by these By-Laws. The stockholders present at any duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of sufficient stockholders to render the remaining stockholders less than a quorum. Whether or not a quorum is present, either the Chairman of the meeting or a majority of the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which the requisite amount of voting stock shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. 4 Section 11. Voting and Required Vote. Subject to the provisions of the Certificate of Incorporation, each stockholder shall, at every meeting of stockholders, be entitled to one vote for each share of capital stock held by such stockholder. Subject to the provisions of the Certificate of Incorporation and applicable law, directors shall be chosen by the vote of a plurality of the shares present in person or represented by proxy at the meeting; and all other questions shall be determined by the affirmative vote of the majority of shares present in person or represented by proxy at the meeting. Elections of directors shall be by written ballot. Section 12. Proxies. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy, provided the instrument authorizing such proxy to act shall have been executed in writing in the manner prescribed by applicable law. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 13. Inspectors of Election; Polls. Before each meeting of stockholders, the Chairman of the Board or another officer of the Corporation designated by resolution of the Board of Directors shall appoint one or more inspectors of election for the meeting and may appoint one or more inspectors to replace any inspector unable to act. If any of the inspectors appointed shall fail to attend, or refuse or be unable to serve, substitutes shall be appointed by the chairman of the meeting. Each inspector shall have such duties as are provided by applicable law, and shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such person's ability. The chairman of the meeting shall fix and announce at the meeting the date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting. Section 14. Organization. The Chairman of the Board of Directors, or in the Chairman's absence, (i) the Chief Executive Officer, (ii) the Vice Chairman of the Board of Directors, (iii) the President, or (iv) in the absence of each of them, a chairman chosen by a majority of the directors present, shall act as chairman of the meetings of the stockholders, and the Secretary or, in the Secretary's absence, an Assistant Secretary or any employee of the Corporation appointed by the chairman of the meeting, shall act as secretary of the meeting. The order of business and the procedure at any meeting of stockholders shall be determined by the chairman of the meeting. 5 ARTICLE III BOARD OF DIRECTORS Section 15. General Powers, Number, Term of Office. The business of the Corporation shall be managed under the direction of its Board of Directors. Subject to the rights of the holders of any series of preferred stock, $0.01 par value per share, of the Corporation ("Preferred Stock") to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed from time to time exclusively by resolution of a majority of the then authorized number of directors of the Corporation (the number of then authorized directors of the Corporation is referred to herein as the "Whole Board"), but in no event shall the number of directors be fewer than three. The directors, other than those who may be elected solely by the holders of any series of Preferred Stock (unless the relevant Certificate of Designation for such Preferred Stock so provides), shall be divided into three classes, as nearly equal in number as possible, designated "Class I," "Class II" and "Class III." Directors of each class shall serve for a term ending on the third annual meeting of stockholders following the annual meeting at which such class was elected. The foregoing notwithstanding, each director shall serve until his or her successor shall have been duly elected and qualified, unless such director shall die, resign, retire or be disqualified or removed. At each annual election, the directors chosen to succeed those directors whose terms then expire shall be identified as being of the same class as the directors they succeed. If for any reason the number of directors in the various classes shall not be as nearly equal as possible, the Board of Directors may redesignate any director into a different class in order that the balance of directors in such classes shall be as nearly equal as possible. Section 16. Vacancies. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, vacancies resulting from one or more directors' death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, or by a sole remaining director, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 17. Chairman, Vice Chairman and Lead Director of the Board. The Chairman of the Board of Directors shall be chosen from among the directors. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors, except as may be otherwise required under applicable law. The Chairman shall act in an advisory capacity with respect to matters of policy and other matters of importance pertaining to the affairs of the Corporation. The Chairman, alone or with the Chief Executive Officer, the President, and/or the Secretary shall sign and send out reports and other messages which are to be sent to stockholders from time to time. The Chairman shall also perform such other duties as may be assigned to the Chairman by these By-Laws or the Board of Directors. The Board of Directors may also choose a Vice Chairman of the Board of Directors from among the directors. The Vice Chairman if chosen shall perform such duties as may be assigned by these By-Laws, the Board of Directors 6 or the Chairman of the Board. When the Chairman of the Board and the Chief Executive Officer (CEO) are the same person, the Board of Directors shall select a Lead Director. The Lead Director shall perform such duties as may be assigned by the Board of Directors or these By-Laws Section 18. Regular Meetings. Following the annual meeting of stockholders, the first meeting of each newly elected Board of Directors may be held, without notice, on the same day and at the same place as such stockholders' meeting. The Board of Directors by resolution may provide for the holding of regular meetings and may fix the times and places at which such meetings shall be held. Notice of regular meetings shall not be required, provided that whenever the time or place of regular meetings shall be fixed or changed, notice of such action shall be given promptly to each director, as provided in Section 21 below, who was not present at the meeting at which such action was taken. Section 19. Special Meetings. Special Meetings of the Board of Directors shall be held whenever called by the Chairman of the Board of Directors, the Vice Chairman of the Board, the Lead Director, the Chief Executive Officer, the president, or in the absence of each of them, by the Secretary at the written request of a majority of the directors. Section 20. Meetings of Independent Directors. The independent directors of the Corporation shall meet at least annually without representatives of the Corporation's management present to discuss significant corporate governance matters, executive review, management succession and other items. Section 21. Conference Telephone Meetings. Members of the Board of Directors or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. Section 22. Quorum. One-half of the total number of directors constituting the Whole Board, but not less than two, shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such required number of directors for a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. Except as otherwise specifically provided by applicable law, the Certificate of Incorporation or these By-Laws, the act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 23. Organization. At each meeting of the Board of Directors, the Chairman of the Board or, in the Chairman's absence, (i) the Chief Executive Officer, if a member of the Board of Directors, (ii) the Vice Chairman of the Board, (iii) the President, if a member of the Board of Directors, or (iv) in the absence of each of them, a chairman chosen by a majority of the directors present, shall act as chairman of the meeting, and the Secretary or, in the Secretary's absence, an Assistant Secretary or any employee of the Corporation appointed by the chairman of the meeting, shall act as secretary of the meeting. 7 Section 24. Organization. The Lead Director, when chosen as provided in Section 17 above, shall chair each meeting of the independent directors or provided in Section 20. At all other meetings of the Board of Directors, the Chairman of the Board or, in the Chairman's absence (i) the Chief Executive Officer, if a member of the Board of Directors, (ii) the Vice Chairman of the Board, (iii) the Lead Director, IV the President, if a member of the Board of Directors, or (v) in the absence of each of them, a chairman chosen by a majority of the directors present, shall act as chairman of the meeting, and the Secretary or, in the Secretary's absence, an Assistant Secretary or any employee of the Corporation appointed by the chairman of the meeting, shall act as secretary of the meeting. Section 25. Removal. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, any director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least a majority of the voting power of the then outstanding Voting Stock, voting together as a single class. For purposes of these By-Laws, "Voting Stock" shall mean the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors. Section 26. Action Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 27. Location of Books. Except as otherwise provided by resolution of the Board of Directors and subject to applicable law, the books of the Corporation may be kept at the General Offices and at such other places as may be necessary or convenient for the business of the Corporation. Section 28. Dividends. Subject to the provisions of the Certificate of Incorporation and applicable law, dividends upon the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock. Section 29. Compensation of Directors. Directors shall receive such compensation and benefits as may be determined by resolution of the Board of Directors for their services as members of the Board of Directors and committees. Directors shall also be reimbursed for their expenses of attending Board of Directors and committee meetings. Nothing contained herein shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 30. Additional Powers. In addition to the powers and authorities by these By-Laws expressly conferred upon it, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. 8 ARTICLE IV COMMITTEES OF DIRECTORS Section 31. Designation, Power, Alternate Members. The Board of Directors may, by resolution or resolutions passed by a majority of the Whole Board, designate an Executive Committee and one or more additional committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in said resolution or resolutions and subject to any limitations provided by applicable law, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. If at a meeting of any committee one or more of the members thereof is absent or disqualified, and if either the Board of Directors has not so designated any alternate member or members, or the number of absent or disqualified members exceeds the number of alternate members who are present at such meeting, then the member or members of such committee (including alternates) present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of such absent or disqualified member. The term of office of the members of each committee shall be as fixed from time to time by the Board of Directors; provided, however, that any committee member who ceases to be a member of the Board of Directors shall automatically cease to be a committee member. Section 32. Quorum, Manner of Acting. At any meeting of a committee, the presence of one-half of its members then in office shall constitute a quorum for the transaction of business; and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of the committee. Each committee may provide for the holding of regular meetings, make provision for the calling of special meetings and, except as otherwise provided in these By-Laws or by resolution of the Board of Directors, make rules for the conduct of its business. Section 33. Minutes. The committees shall keep minutes of their proceedings and report the same to the Board of Directors when required; but failure to keep such minutes shall not affect the validity of any acts of the committee or committees. ARTICLE V ADVISORY DIRECTORS Section 34. Advisory Directors. The Board of Directors may, by resolution adopted by a majority of the Whole Board, appoint such Advisory Directors as the Board of Directors may from time to time determine. The Advisory Directors shall have such advisory responsibilities as the Chairman of the Board may designate and the term of office of such Advisory Directors shall be as fixed by the Board of Directors. ARTICLE VI OFFICERS 9 Section 35. Designation. The officers of the Corporation shall be the Chief Executive Officer, a President, a Secretary, a Chief Financial Officer, a Treasurer and a Controller. The Board of Directors may also elect one or more Executive Vice Presidents, Senior Vice Presidents, Group Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers as it shall deem necessary. Any number of offices may be held by the same person. Section 36. Election and Term. At its first meeting after each annual meeting of stockholders, the Board of Directors shall elect the officers of the Corporation and at any time thereafter the Board of Directors may elect additional officers of the Corporation, and each such officer shall hold office until the officer's successor is elected and qualified or until the officer's earlier death, resignation or removal. Alternatively, at the last regular meeting of the Board of Directors prior to an annual meeting of stockholders, the Board of Directors may elect the officers of the Corporation, contingent upon the election of the persons nominated to be directors by the Board of Directors; and each such officer so elected shall hold office until the officer's successor is elected and qualified or until the officer's earlier death, resignation or removal. Section 37. Removal. Any officer shall be subject to removal or suspension at any time, for or without cause, by the affirmative vote of a majority of the Whole Board. Section 38. Resignations. Any officer may resign at any time by giving written notice to the Chairman of the Board, the President or to the Secretary. Such resignation shall take effect upon receipt thereof or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 39. Vacancies. A vacancy in any office because of death, resignation, removal or any other cause may be filled for the unexpired portion of the term by the Board of Directors. Section 40. Chief Executive Officer. The Chief Executive Officer shall have the general and active management and supervision of the business of the Corporation. The Chief Executive Officer, if a member of the Board of Directors, shall, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and of the Board of Directors. The Chief Executive Officer shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer shall also perform such other duties as may be assigned to the Chief Executive Officer by these By-Laws or the Board of Directors. The Chief Executive Officer shall designate who shall perform the duties of the Chief Executive Officer in the Chief Executive Officer's absence. Section 41. President. The President shall perform such duties as may be assigned to the President by these By-Laws, the Board of Directors or, if applicable, the Chief Executive Officer. Section 42. Vice Presidents. Each Executive Vice President, Senior Vice President, Group Vice President and each other Vice President shall perform the duties and functions and exercise the powers assigned to such officer by these By-Laws, the Board of Directors, the Chief Executive Officer or the President. 10 Section 43. Secretary. The Secretary shall attend all meetings of the Board of Directors and of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors and, when appropriate, shall cause the corporate seal to be affixed to any instruments executed on behalf of the Corporation. The Secretary shall also perform all duties incident to the office of Secretary and such other duties as may be assigned to the Secretary by these By-Laws, the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. Section 44. Assistant Secretaries. The Assistant Secretaries shall, during the absence of the Secretary, perform the duties and functions and exercise the powers of the Secretary. Each Assistant Secretary shall perform such other duties as may be assigned to such Assistant Secretary by these By-Laws, the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or the Secretary. Section 45. Chief Financial Officer. The Chief Financial Officer shall have overall responsibility for causing (1) the funds and securities of the Corporation to be deposited in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors or by any officer or officers authorized by the Board of Directors to designate such depositories; (2) the disbursement of funds of the Corporation when properly authorized by vouchers prepared and approved by the Controller; (3) the investment of funds of the Corporation when authorized by the Board of Directors or a committee thereof; and (4) to be kept full and accurate account of receipts and disbursements in books of the Corporation. The Chief Financial Officer shall render to the Board of Directors, the Chief Executive Officer, or the President, whenever requested, an account of all transactions as Chief Financial Officer and shall also perform all duties incident to the office of Chief Financial Officer and such other duties as may be assigned to the Chief Financial Officer by these By-Laws, the Board of Directors, the Chief Executive Officer, or the President. Section 46. Treasurer. The Treasurer shall have the custody of the funds and securities of the Corporation and shall deposit them in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors or by any officer or officers authorized by the Board of Directors to designate such depositories; disburse funds of the Corporation when properly authorized by vouchers prepared and approved by the Controller; and invest funds of the Corporation when authorized by the Board of Directors or a committee thereof. The Treasurer shall render to the Board of Directors, the Chief Executive Officer, the President or the Chief Financial Officer, whenever requested, an account of all transactions as Treasurer and shall also perform all duties incident to the office of Treasurer and such other duties as may be assigned to the Treasurer by these By-Laws, the Board of Directors, the Chief Executive Officer, the President or the Chief Financial Officer. Section 47. Assistant Treasurers. The Assistant Treasurers shall, during the absence of the Treasurer, perform the duties and functions and exercise the powers of the Treasurer. Each Assistant Treasurer shall perform such other duties as may be assigned to the Assistant Treasurer by these By-Laws, the Board of Directors, the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer. 11 Section 48. Controller. The Controller shall serve as the principal accounting officer of the Corporation and shall keep full and accurate account of receipts and disbursements in books of the Corporation and render to the Board of Directors, the Chief Executive Officer, the President, the Chief Financial Officer, whenever requested, an account of all transactions as Controller and of the financial condition of the Corporation. The Controller shall also perform all duties incident to the office of Controller and such other duties as may be assigned to the Controller by these By-Laws, the Board of Directors, the Chief Executive Officer, or the President. Section 49. Assistant Controllers. The Assistant Controllers shall, during the absence of the Controller, perform the duties and functions and exercise the powers of the Controller. Each Assistant Controller shall perform such other duties as may be assigned to such officer by these By-Laws, the Board of Directors, the Chief Executive Officer, the President or the Controller. ARTICLE VII CONTRACTS, INSTRUMENTS AND PROXIES Section 50. Contracts and Other Instruments. Except as otherwise required by applicable law, the Certificate of Incorporation or these By-Laws, any contracts or other instruments may be signed by such person or persons as from time to time may be designated by the Board of Directors or by any officer or officers authorized by the Board of Directors to designate such signers; and the Board of Directors or such officer or officers may determine that the signature of any such authorized signer may be facsimile. Such authority may be general or confined to specific instances as the Board of Directors or such officer or officers may determine. Section 51. Proxies. Except as otherwise provided by resolution of the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, the Vice Chairman of the Board, any Vice President, the Treasurer and any Assistant Treasurer, the Controller and any Assistant Controller, the Secretary and any Assistant Secretary of the Corporation, shall each have full power and authority, in behalf of the Corporation, to exercise any and all rights of the Corporation with respect to any meeting of stockholders of any corporation in which the Corporation holds stock, including the execution and delivery of proxies therefor, and to consent in writing to action by such corporation without a meeting. ARTICLE VIII CAPITAL STOCK Section 52. Stock Certificates; Book-Entry Accounts. The interest of each stockholder of the Corporation shall be evidenced by (a) certificates signed by, or in the name of the Corporation by, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer or the Treasurer, and by the Secretary or any Assistant Secretary of the Corporation, certifying the number of shares owned by such holder in the 12 Corporation, or (b) registration in book-entry accounts without certificates for shares of stock in such form as the appropriate officers of the Corporation may from time to time prescribe. Any of or all the signatures on a stock certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Section 53. Record Ownership. The Corporation shall be entitled to treat the person in whose name any share, right or option is registered as the owner thereof, for all purposes, and shall not be bound to recognize any equitable or other claim to or interest in such share, right or option on the part of any other person, whether or not the Corporation shall have notice thereof, except as otherwise provided by applicable law. Section 54. Record Dates. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. Section 55. Transfer of Stock. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by the registered holder's attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or a transfer agent of the Corporation, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon, or by appropriate book-entry procedures. Section 56. Lost, Stolen or Destroyed Certificates. The Board of Directors may authorize a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of the fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or the owner's legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate. Section 57. Terms of Preferred Stock. The provisions of these By-Laws, including those pertaining to voting rights, election of directors and calling of special meetings of stockholders, are subject to the terms, preferences, rights and privileges of any then outstanding class or series of Preferred Stock as set forth in the Certificate of Incorporation and in any resolutions of the Board of Directors providing for the issuance of such class or series of Preferred Stock; provided, however, that the provisions of any such Preferred Stock shall not affect or limit the authority of the Board of Directors to fix, from time to time, the number of 13 directors which shall constitute the Whole Board as provided in Section 16 above, subject to the right of the holders of any class or series of Preferred Stock to elect additional directors as and to the extent specifically provided by the provisions of such Preferred Stock. ARTICLE IX INDEMNIFICATION Section 58. Right of Indemnification Generally. (a) Directors, Officers, Employees and Agents. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit, or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, if permitted by applicable law, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), and any other applicable laws as presently or hereafter in effect, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that except as provided in Section 60 below, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors. (b) Contract Right. The right to indemnification conferred in this Article IX shall be a contract right. Section 59. Written Request; Determination of Entitlement. To obtain indemnification under this Article IX, a claimant shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Any determination regarding whether indemnification of any person is proper in the circumstances because such person has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware shall be made at the option of the person seeking indemnification, by the directors as set forth in the General Corporation Law of the State of Delaware or by independent legal counsel selected by such person with the consent of the Corporation (which consent shall not unreasonably be withheld). Section 60. Recovery of Unpaid Claim. If a claim under Section 59 above is not paid in full by the Corporation within 60 days after a written claim pursuant to Section 60 above has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the 14 claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than actions brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standard of conduct which makes it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its directors, independent legal counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 61. Exclusivity; Subsequent Modification. The right to indemnification conferred in this Article IX shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Laws, agreement, vote of stockholders or directors or otherwise. No repeal or modification of this Article IX shall in any way diminish or adversely affect the rights hereunder of any director, officer, employee or agent in respect of any occurrence or matter arising prior to any such repeal or modification. Section 62. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, limited liability company, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware or otherwise. To the extent that the Corporation maintains any policy or policies providing such insurance, each such director, officer, employee and agent shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage thereunder for any such director, officer, employee or agent. Section 63. Other Indemnification Rights. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant additional rights to indemnification, including rights to be paid by the Corporation the expenses incurred in defending any proceeding in advance of its final disposition, to any agent of the Corporation to the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, if permitted by applicable law, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment). Section 64. Illegality; Unenforceability. If any provision or provisions of this Article IX shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this Article IX (including, without limitation, each portion of any Section or subsection of this Article IX containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, 15 illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this Article IX (including, without limitation, each such portion of any Section or subsection of this Article IX containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall be construed so as give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 65. Form and Delivery of Communications. Any notice, request or other communication required or permitted to be given to the Corporation under this Article IX shall be in writing and either delivered in person or sent by telecopy, telex, telegram, overnight mail or courier service, or certified or registered mail, postage prepaid, return receipt requested, to the Secretary of the Corporation. ARTICLE X MISCELLANEOUS Section 66. Corporate Seal. The seal of the Corporation shall be circular in form, containing the words "Varian Medical Systems, Inc." and the word "Delaware" on the circumference surrounding the word "Seal." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Section 67. Fiscal Year. The fiscal year of the Corporation is the 51- to 53-week period that ends on the Friday nearest September 30. Section 68. Auditors. The Board of Directors shall select certified public accountants to audit the books of account and other appropriate corporate records of the Corporation annually and at such other times as the Board of Directors shall determine by resolution. Section 69. Waiver of Notice. Whenever notice is required to be given pursuant to applicable law, the Certificate of Incorporation or these By-Laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting of stockholders or the Board of Directors or a committee thereof shall constitute a waiver of notice of such meeting, except when the stockholder or Director attends such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders or the Board of Directors or committee thereof need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or by these By-Laws. ARTICLE XI AMENDMENT TO BY-LAWS Section 70. Amendments. These By-Laws may be amended or repealed, or new By-Laws may be adopted, at any meeting of the Board of Directors or of the stockholders, provided notice of the proposed change was given in the notice of the meeting and, in the case of a meeting of the Board of Directors, in a notice given not less than 24 hours prior to the meeting. 16 EX-15.1 4 f89827exv15w1.txt EXHIBIT 15.1 EXHIBIT 15.1 May 5, 2003 Securities and Exchange Commission 450 Fifth Street N.W. Washington, D.C. 20549 Commissioners: We are aware that our report dated April 17, 2003 on our review of interim financial information of Varian Medical Systems, Inc. as of March 28, 2003 and for the three-month and six-month periods ended March 28, 2003 and March 29, 2002 and included in the Company's quarterly report on Form 10-Q for the quarter then ended is incorporated by reference in its Registration Statement on Form S-8 (No. 333-75531) dated April 1, 1999, its Registration Statement on Form S-8 (No. 333-57006) dated March 14, 2001, its Registration Statement on Form S-8 (No. 333-57008) dated March 14, 2001, its Registration Statement on Form S-8 (No. 333-57010) dated March 14, 2001, and its Registration Statement on Form S-8 (No. 333-57012) as amended on June 20, 2001. Yours very truly, /S/ PRICEWATERHOUSECOOPERS LLP EX-99.1 5 f89827exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Quarterly Report of Varian Medical Systems, Inc. (the "Company"), on Form 10-Q for the quarter ended March 28, 2003 (the "Report"), I, Richard M. Levy, President and Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of the written statement required by Section 906 has been provided to Varian Medical Systems, Inc. and will be retained by Varian Medical Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Dated: May 5, 2003 /s/ RICHARD M. LEVY --------------------------------- Richard M. Levy President and Chief Executive Officer EX-99.2 6 f89827exv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Quarterly Report of Varian Medical Systems, Inc. (the "Company"), on Form 10-Q for the quarter ended March 28, 2003 (the "Report"), I, Elisha W. Finney, Vice President, Finance and Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of the written statement required by Section 906 has been provided to Varian Medical Systems, Inc. and will be retained by Varian Medical Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Dated: May 5, 2003 /s/ ELISHA W. FINNEY --------------------------------- Elisha W. Finney Vice President, Finance, and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----

EX-3.2

                                                                     EXHIBIT 3.2

                                     BY-LAWS
                                       OF
                          VARIAN MEDICAL SYSTEMS, INC.
                             A Delaware Corporation

        As adopted on February 19, 1999, to be effective on April 3, 1999



                                TABLE OF CONTENTS



                                                                                                       PAGE
                                                                                                    
ARTICLE I       OFFICES.............................................................................     1

     Section 1.    Registered Office................................................................     1

     Section 2.    General Office and Other Offices.................................................     1

ARTICLE II      STOCKHOLDERS' MEETINGS..............................................................     1

     Section 3.    Annual Meeting...................................................................     1

     Section 4.    Business to be Conducted at Annual Meeting.......................................     1

     Section 5.    Special Meetings.................................................................     2

     Section 6.    Place of Meetings................................................................     2

     Section 7.    Notice of Meetings...............................................................     2

     Section 8.    Nominations of Directors.........................................................     3

     Section 9.    List of Stockholders.............................................................     4

     Section 10.   Quorum...........................................................................     4

     Section 11.   Voting and Required Vote.........................................................     5

     Section 12.   Proxies..........................................................................     5

     Section 13.   Inspectors of Election; Polls....................................................     5

     Section 14.   Organization.....................................................................     5

ARTICLE III     BOARD OF DIRECTORS..................................................................     6

     Section 15.   General Powers, Number, Term of Office...........................................     6

     Section 16.   Vacancies........................................................................     6

     Section 17.   Chairman of the Board............................................................     6

     Section 18.   Regular Meetings.................................................................     7

     Section 19.   Special Meetings.................................................................     7

     Section 20.   Notices..........................................................................     7

     Section 21.   Conference Telephone Meetings....................................................     7

     Section 22.   Quorum...........................................................................     7

     Section 23.   Organization.....................................................................     8

     Section 24.   Resignations.....................................................................     8

     Section 25.   Removal..........................................................................     8

     Section 26.   Action Without a Meeting.........................................................     8

     Section 27.   Location of Books................................................................     8

     Section 28.   Dividends........................................................................     8


                                        i



                                TABLE OF CONTENTS
                                  (CONTINUED)



                                                                                                       PAGE
                                                                                                    
     Section 29.   Compensation of Directors........................................................     8

     Section 30.   Additional Powers................................................................     9

ARTICLE IV      COMMITTEES OF DIRECTORS.............................................................     9

     Section 31.   Designation, Power, Alternate Members............................................     9

     Section 32.   Quorum, Manner of Acting.........................................................     9

     Section 33.   Minutes..........................................................................     9

ARTICLE V       ADVISORY DIRECTORS..................................................................     9

     Section 34.   Advisory Directors...............................................................     9

ARTICLE VI      OFFICERS............................................................................    10

     Section 35.   Designation......................................................................    10

     Section 36.   Election and Term................................................................    10

     Section 37.   Removal..........................................................................    10

     Section 38.   Resignations.....................................................................    10

     Section 39.   Vacancies........................................................................    10

     Section 40.   Chief Executive Officer..........................................................    10

     Section 41.   President........................................................................    11

     Section 42.   Vice Presidents..................................................................    11

     Section 43.   Secretary........................................................................    11

     Section 44.   Assistant Secretaries............................................................    11

     Section 45.   Chief Financial Officer..........................................................    11

     Section 46.   Treasurer........................................................................    11

     Section 47.   Assistant Treasurers.............................................................    12

     Section 48.   Controller.......................................................................    12

     Section 49.   Assistant Controllers............................................................    12

ARTICLE VII     CONTRACTS, INSTRUMENTS AND PROXIES..................................................    12

     Section 50.   Contracts and Other Instruments..................................................    12

     Section 51.   Proxies..........................................................................    12

ARTICLE VIII    CAPITAL STOCK.......................................................................    13

     Section 52.   Stock Certificates; Book-Entry Accounts..........................................    13

     Section 53.   Record Ownership.................................................................    13

     Section 54.   Record Dates.....................................................................    13

     Section 55.   Transfer of Stock................................................................    13


                                       ii



                                TABLE OF CONTENTS
                                  (CONTINUED)



                                                                                                       PAGE
                                                                                                    
     Section 56.   Lost, Stolen or Destroyed Certificates...........................................    13

     Section 57.   Terms of Preferred Stock.........................................................    14

ARTICLE IX      INDEMNIFICATION.....................................................................    14

     Section 58.   Right of Indemnification Generally...............................................    14

     Section 59.   Written Request; Determination of Entitlement....................................    14

     Section 60.   Recovery of Unpaid Claim.........................................................    15

     Section 61.   Exclusivity; Subsequent Modification.............................................    15

     Section 62.   Insurance........................................................................    15

     Section 63.   Other Indemnification Rights.....................................................    15

     Section 64.   Illegality; Unenforceability.....................................................    16

     Section 65.   Form and Delivery of Communications..............................................    16

ARTICLE X       MISCELLANEOUS.......................................................................    16

     Section 66.   Corporate Seal...................................................................    16

     Section 67.   Fiscal Year......................................................................    16

     Section 68.   Auditors.........................................................................    16

     Section 69.   Waiver of Notice.................................................................    16

ARTICLE XI      AMENDMENT TO BY-LAWS................................................................    17

     Section 70.   Amendments.......................................................................    17


                                       iii



                                     BY-LAWS
                                       OF
                          VARIAN MEDICAL SYSTEMS, INC.
                             A Delaware Corporation

                          (effective February 14, 2003)

                                   ARTICLE I

                                    OFFICES

         Section 1.        Registered Office. The name of the registered agent
of Varian Medical Systems, Inc. (the "Corporation") is The Corporation Trust
Company and the registered office of the Corporation shall be located in the
City of Wilmington, County of New Castle, State of Delaware.

         Section 2.        General Office and Other Offices. The Corporation
shall have its General Offices in the City of Palo Alto, State of California
(the "General Offices"), and may also have offices at such other places in or
outside the State of Delaware as the Board of Directors of the Corporation (the
"Board of Directors") may from time to time designate or the business of the
Corporation may require.

                                   ARTICLE II

                             STOCKHOLDERS' MEETINGS

         Section 3.        Annual Meeting. An annual meeting of stockholders
shall be held on such day and at such time as may be designated by the Board of
Directors for the purpose of electing directors and for the transaction of such
other business as properly may come before such meeting. Any previously
scheduled annual meeting of the stockholders may be postponed by resolution of
the Board of Directors upon public notice given on or prior to the date
previously scheduled for such annual meeting of stockholders.

         Section 4.        Business to be Conducted at Annual Meeting.

                  (a)      At an annual meeting of stockholders, only such
business shall be conducted as shall have been brought before the meeting (i)
pursuant to the Corporation's notice of the meeting, (ii) by or at the direction
of the Board of Directors or (iii) by any stockholder of the Corporation who is
a stockholder of record at the time of giving of the notice provided for in this
By-Law, who shall be entitled to vote at such meeting and who shall have
complied with the notice procedures set forth in this By-Law.

                  (b)      For business to be properly brought before an annual
meeting by a stockholder pursuant to Section 4(a)(iii) of this By-Law, notice in
writing must be delivered or mailed to the Secretary and received at the General
Offices, not less than 60 days nor more than 90 days prior to the first
anniversary of the date on which the Corporation first mailed its proxy
materials for the preceding year's annual meeting of stockholders; provided,
however, that in the event that the date of the meeting is advanced by more than
30 days or delayed by more than 60 days from such meeting's anniversary date,
notice by the stockholder must be received not earlier than the 90th day prior
to such date of mailing of proxy materials and not later than the



close of business on the later of the 60th day prior to such date of mailing of
proxy materials or the 10th day following the day on which public announcement
of the date of the annual meeting is first made. Such stockholder's notice shall
set forth as to each matter the stockholder proposes to bring before the annual
meeting (i) a brief description of the business to be brought before the annual
meeting and the reasons for conducting such business at such meeting; (ii) the
name and address, as they appear on the Corporation's books, of the stockholder
proposing such business, and the name and address of the beneficial owner, if
any, on whose behalf the proposal is made; (iii) the class and number of shares
of the Corporation's stock which are beneficially owned by the stockholder, and
by the beneficial owner, if any, on whose behalf the proposal is made; and (iv)
any material interest of the stockholder, and of the beneficial owner, if any,
on whose behalf the proposal is made, in such business. For purposes of these
By-Laws, "public announcement" shall mean disclosure in a press release reported
by the Dow Jones News Service, Associated Press or comparable news service or in
a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").

                  (c)      Notwithstanding anything in these By-Laws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this By-Law. The chairman of the
meeting may, if the facts warrant, determine that the business was not properly
brought before the meeting in accordance with the provisions of this By-Law; and
if the chairman should so determine, the chairman shall so declare to the
meeting, and any such business not properly brought before the meeting shall not
be transacted. Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act, and any such
proposal so included shall be deemed timely given for purposes of this By-Law.

         Section 5.        Special Meetings. Special meetings of stockholders
for any proper purpose or purposes, unless otherwise provided by the General
Corporation Law of the State of Delaware, may be called by the Chairman of the
Board or the Chief Executive Officer, or in the absence of each of them, by the
Vice Chairman of the Board, or by the Secretary at the written request of a
majority of the directors. Business transacted at a special meeting of
stockholders shall be confined to the purpose or purposes of the meeting as
stated in the notice of the meeting. Any previously scheduled special meeting of
the stockholders may be postponed by resolution of the Board of Directors upon
notice by public announcement given on or prior to the date previously scheduled
for such special meeting of stockholders.

         Section 6.        Place of Meetings. All meetings of stockholders shall
be held at such place as may be determined by resolution of the Board of
Directors.

         Section 7.        Notice of Meetings. Except as otherwise required by
applicable law, notice of each meeting of the stockholders, whether annual or
special, shall, at least 10 days but not more than 60 days before the date of
the meeting, be given to each stockholder of record entitled to vote at the
meeting by mailing such notice in the U.S. mail, postage prepaid, addressed to
such stockholder at such stockholder's address as the same appears on the
records

                                       2



of the Corporation. Such notice shall state the place, date and hour of the
meeting, and in the case of a special meeting, shall also state the purpose or
purposes thereof.

         Section 8.        Nominations of Directors.

                  (a)      Only persons who are nominated in accordance with the
procedures set forth in these By-Laws shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors may be
made at a meeting of stockholders (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of the Corporation who is a stockholder of
record at the time of giving of the notice provided for in this By-Law, who
shall be entitled to vote for the election of directors at the meeting and who
complies with the notice procedures set forth in this By-Law.

                  (b)      Nominations by stockholders shall be made pursuant to
notice in writing, delivered or mailed to the Secretary and received at the
General Offices (i) in the case of an annual meeting, not less than 60 days nor
more than 90 days prior to the first anniversary of the date on which the
Corporation first mailed its proxy materials for the preceding year's annual
meeting of stockholders, provided, however, that in the event that the date of
the meeting is advanced by more than 30 days or delayed by more than 60 days
from such anniversary date, notice by the stockholder must be received not
earlier than the 90th day prior to such date of mailing of proxy materials and
not later than the close of business on the later of the 60th day prior to such
date of mailing of proxy materials or the 10th day following the day on which
public announcement of the date of the meeting is first made; or (ii) in the
case of a special meeting at which directors are to be elected, not earlier than
the 90th day prior to such special meeting and not later than the close of
business on the later of the 60th day prior to such special meeting or the 10th
day following the day on which public announcement of the date of the meeting
and of the nominees proposed by the Board of Directors to be elected at such
meeting is first made. In the case of a special meeting of stockholders at which
directors are to be elected, stockholders may nominate a person or persons (as
the case may be) for election only to such position(s) as are specified in the
Corporation's notice of meeting as being up for election at such meeting. Such
stockholder's notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, all information
relating to such person that would be required to be disclosed in solicitations
of proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act (including such person's
written consent to being named as a nominee and to serving as a Director if
elected); (ii) as to the stockholder giving the notice, the name and address, as
they appear on the Corporation's books, of such stockholder and the class and
number of shares of the Corporation's stock which are beneficially owned by such
stockholder; and (iii) as to any beneficial owner on whose behalf the nomination
is made, the name and address of such person and the class and number of shares
of the Corporation's stock which are beneficially owned by such person. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary that
information required to be set forth in a stockholder's notice of nomination
that pertains to the nominee. Notwithstanding anything in this By-Law to the
contrary, in the event that the number of directors to be elected to the Board
of Directors of the Corporation is increased and there is no public statement
naming all the nominees for Director or specifying the size of the increased
Board of Directors made by the Corporation at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this By-Law shall also be considered timely, but only with

                                       3



respect to nominees for any new positions created by such increase, if it shall
be delivered to the Secretary at the General Offices not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.

                  (c)      No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the procedures
set forth in these By-Laws. The chairman of the meeting may, if the facts
warrant, determine that a nomination was not made in accordance with the
procedures prescribed in this By-Law; and if the chairman should so determine,
the chairman shall so declare to the meeting, and the defective nomination shall
be disregarded. Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act, and the rules and regulations thereunder with respect to the matters set
forth in this By-Law.

         Section 9.        List of Stockholders.

                  (a)      The Secretary of the Corporation shall prepare, at
least 10 days before each meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting, either at
a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.

                  (b)      The stock ledger of the Corporation shall be the only
evidence as to the identity of the stockholders entitled (i) to vote in person
or by proxy at any meeting of stockholders, or (ii) to exercise the rights in
accordance with applicable law to examine the stock ledger, the list required by
this By-Law or the books and records of the Corporation.

         Section 10.       Quorum. The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum for the transaction of any business at all
meetings of the stockholders, except as otherwise provided by applicable law, by
the Certificate of Incorporation or by these By-Laws. The stockholders present
at any duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of sufficient stockholders to render
the remaining stockholders less than a quorum. Whether or not a quorum is
present, either the Chairman of the meeting or a majority of the stockholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting. At such adjourned meeting at which the requisite amount of
voting stock shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally noticed.

                                       4



         Section 11.       Voting and Required Vote. Subject to the provisions
of the Certificate of Incorporation, each stockholder shall, at every meeting of
stockholders, be entitled to one vote for each share of capital stock held by
such stockholder. Subject to the provisions of the Certificate of Incorporation
and applicable law, directors shall be chosen by the vote of a plurality of the
shares present in person or represented by proxy at the meeting; and all other
questions shall be determined by the affirmative vote of the majority of shares
present in person or represented by proxy at the meeting. Elections of directors
shall be by written ballot.

         Section 12.       Proxies. Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to act for such
stockholder by proxy, provided the instrument authorizing such proxy to act
shall have been executed in writing in the manner prescribed by applicable law.
No proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period.

         Section 13.       Inspectors of Election; Polls. Before each meeting of
stockholders, the Chairman of the Board or another officer of the Corporation
designated by resolution of the Board of Directors shall appoint one or more
inspectors of election for the meeting and may appoint one or more inspectors to
replace any inspector unable to act. If any of the inspectors appointed shall
fail to attend, or refuse or be unable to serve, substitutes shall be appointed
by the chairman of the meeting. Each inspector shall have such duties as are
provided by applicable law, and shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of such person's ability. The chairman of the meeting shall fix and
announce at the meeting the date and time of the opening and closing of the
polls for each matter upon which the stockholders will vote at the meeting.

         Section 14.       Organization. The Chairman of the Board of Directors,
or in the Chairman's absence, (i) the Chief Executive Officer, (ii) the Vice
Chairman of the Board of Directors, (iii) the President, or (iv) in the absence
of each of them, a chairman chosen by a majority of the directors present, shall
act as chairman of the meetings of the stockholders, and the Secretary or, in
the Secretary's absence, an Assistant Secretary or any employee of the
Corporation appointed by the chairman of the meeting, shall act as secretary of
the meeting. The order of business and the procedure at any meeting of
stockholders shall be determined by the chairman of the meeting.

                                       5



                                  ARTICLE III

                               BOARD OF DIRECTORS

         Section 15.       General Powers, Number, Term of Office. The business
of the Corporation shall be managed under the direction of its Board of
Directors. Subject to the rights of the holders of any series of preferred
stock, $0.01 par value per share, of the Corporation ("Preferred Stock") to
elect additional directors under specified circumstances, the number of
directors of the Corporation shall be fixed from time to time exclusively by
resolution of a majority of the then authorized number of directors of the
Corporation (the number of then authorized directors of the Corporation is
referred to herein as the "Whole Board"), but in no event shall the number of
directors be fewer than three. The directors, other than those who may be
elected solely by the holders of any series of Preferred Stock (unless the
relevant Certificate of Designation for such Preferred Stock so provides), shall
be divided into three classes, as nearly equal in number as possible, designated
"Class I," "Class II" and "Class III." Directors of each class shall serve for a
term ending on the third annual meeting of stockholders following the annual
meeting at which such class was elected. The foregoing notwithstanding, each
director shall serve until his or her successor shall have been duly elected and
qualified, unless such director shall die, resign, retire or be disqualified or
removed. At each annual election, the directors chosen to succeed those
directors whose terms then expire shall be identified as being of the same class
as the directors they succeed. If for any reason the number of directors in the
various classes shall not be as nearly equal as possible, the Board of Directors
may redesignate any director into a different class in order that the balance of
directors in such classes shall be as nearly equal as possible.

         Section 16.       Vacancies. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, vacancies resulting from one or more directors' death,
resignation, retirement, disqualification, removal from office or other cause,
and newly created directorships resulting from any increase in the authorized
number of directors, may be filled only by the affirmative vote of a majority of
the remaining directors, though less than a quorum of the Board of Directors, or
by a sole remaining director, and directors so chosen shall hold office for a
term expiring at the annual meeting of stockholders at which the term of office
of the class to which they have been elected expires and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the Board of Directors shall shorten the
term of any incumbent director.

         Section 17.       Chairman, Vice Chairman and Lead Director of the
Board. The Chairman of the Board of Directors shall be chosen from among the
directors. The Chairman of the Board shall preside at all meetings of the
stockholders and of the Board of Directors, except as may be otherwise required
under applicable law. The Chairman shall act in an advisory capacity with
respect to matters of policy and other matters of importance pertaining to the
affairs of the Corporation. The Chairman, alone or with the Chief Executive
Officer, the President, and/or the Secretary shall sign and send out reports and
other messages which are to be sent to stockholders from time to time. The
Chairman shall also perform such other duties as may be assigned to the Chairman
by these By-Laws or the Board of Directors. The Board of Directors may also
choose a Vice Chairman of the Board of Directors from among the directors. The
Vice Chairman if chosen shall perform such duties as may be assigned by these
By-Laws, the Board of Directors

                                       6



or the Chairman of the Board. When the Chairman of the Board and the Chief
Executive Officer (CEO) are the same person, the Board of Directors shall select
a Lead Director. The Lead Director shall perform such duties as may be assigned
by the Board of Directors or these By-Laws

         Section 18.       Regular Meetings. Following the annual meeting of
stockholders, the first meeting of each newly elected Board of Directors may be
held, without notice, on the same day and at the same place as such
stockholders' meeting. The Board of Directors by resolution may provide for the
holding of regular meetings and may fix the times and places at which such
meetings shall be held. Notice of regular meetings shall not be required,
provided that whenever the time or place of regular meetings shall be fixed or
changed, notice of such action shall be given promptly to each director, as
provided in Section 21 below, who was not present at the meeting at which such
action was taken.

         Section 19.       Special Meetings. Special Meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board of
Directors, the Vice Chairman of the Board, the Lead Director, the Chief
Executive Officer, the president, or in the absence of each of them, by the
Secretary at the written request of a majority of the directors.

         Section 20.       Meetings of Independent Directors. The independent
directors of the Corporation shall meet at least annually without
representatives of the Corporation's management present to discuss significant
corporate governance matters, executive review, management succession and other
items.

         Section 21.       Conference Telephone Meetings. Members of the Board
of Directors or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.

         Section 22.       Quorum. One-half of the total number of directors
constituting the Whole Board, but not less than two, shall constitute a quorum
for the transaction of business at any meeting of the Board of Directors, but if
less than such required number of directors for a quorum is present at a
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice. Except as otherwise specifically provided by
applicable law, the Certificate of Incorporation or these By-Laws, the act of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.

         Section 23.       Organization. At each meeting of the Board of
Directors, the Chairman of the Board or, in the Chairman's absence, (i) the
Chief Executive Officer, if a member of the Board of Directors, (ii) the Vice
Chairman of the Board, (iii) the President, if a member of the Board of
Directors, or (iv) in the absence of each of them, a chairman chosen by a
majority of the directors present, shall act as chairman of the meeting, and the
Secretary or, in the Secretary's absence, an Assistant Secretary or any employee
of the Corporation appointed by the chairman of the meeting, shall act as
secretary of the meeting.

                                       7



         Section 24.       Organization. The Lead Director, when chosen as
provided in Section 17 above, shall chair each meeting of the independent
directors or provided in Section 20. At all other meetings of the Board of
Directors, the Chairman of the Board or, in the Chairman's absence (i) the Chief
Executive Officer, if a member of the Board of Directors, (ii) the Vice Chairman
of the Board, (iii) the Lead Director, IV the President, if a member of the
Board of Directors, or (v) in the absence of each of them, a chairman chosen by
a majority of the directors present, shall act as chairman of the meeting, and
the Secretary or, in the Secretary's absence, an Assistant Secretary or any
employee of the Corporation appointed by the chairman of the meeting, shall act
as secretary of the meeting.

         Section 25.       Removal. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specified
circumstances, any director may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of at least a majority of
the voting power of the then outstanding Voting Stock, voting together as a
single class. For purposes of these By-Laws, "Voting Stock" shall mean the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors.

         Section 26.       Action Without a Meeting. Unless otherwise restricted
by the Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.

         Section 27.       Location of Books. Except as otherwise provided by
resolution of the Board of Directors and subject to applicable law, the books of
the Corporation may be kept at the General Offices and at such other places as
may be necessary or convenient for the business of the Corporation.

         Section 28.       Dividends. Subject to the provisions of the
Certificate of Incorporation and applicable law, dividends upon the capital
stock of the Corporation may be declared by the Board of Directors at any
regular or special meeting. Dividends may be paid in cash, in property, or in
shares of the Corporation's capital stock.

         Section 29.       Compensation of Directors. Directors shall receive
such compensation and benefits as may be determined by resolution of the Board
of Directors for their services as members of the Board of Directors and
committees. Directors shall also be reimbursed for their expenses of attending
Board of Directors and committee meetings. Nothing contained herein shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.

         Section 30.       Additional Powers. In addition to the powers and
authorities by these By-Laws expressly conferred upon it, the Board of Directors
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.

                                       8



                                   ARTICLE IV

                             COMMITTEES OF DIRECTORS

         Section 31.       Designation, Power, Alternate Members. The Board of
Directors may, by resolution or resolutions passed by a majority of the Whole
Board, designate an Executive Committee and one or more additional committees,
each committee to consist of one or more of the directors of the Corporation.
Any such committee, to the extent provided in said resolution or resolutions and
subject to any limitations provided by applicable law, shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. If at a meeting of any
committee one or more of the members thereof is absent or disqualified, and if
either the Board of Directors has not so designated any alternate member or
members, or the number of absent or disqualified members exceeds the number of
alternate members who are present at such meeting, then the member or members of
such committee (including alternates) present at any meeting and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another director to act at the meeting in the place of such
absent or disqualified member. The term of office of the members of each
committee shall be as fixed from time to time by the Board of Directors;
provided, however, that any committee member who ceases to be a member of the
Board of Directors shall automatically cease to be a committee member.

         Section 32.       Quorum, Manner of Acting. At any meeting of a
committee, the presence of one-half of its members then in office shall
constitute a quorum for the transaction of business; and the act of a majority
of the members present at a meeting at which a quorum is present shall be the
act of the committee. Each committee may provide for the holding of regular
meetings, make provision for the calling of special meetings and, except as
otherwise provided in these By-Laws or by resolution of the Board of Directors,
make rules for the conduct of its business.

         Section 33.       Minutes. The committees shall keep minutes of their
proceedings and report the same to the Board of Directors when required; but
failure to keep such minutes shall not affect the validity of any acts of the
committee or committees.

                                   ARTICLE V

                               ADVISORY DIRECTORS

         Section 34.       Advisory Directors. The Board of Directors may, by
resolution adopted by a majority of the Whole Board, appoint such Advisory
Directors as the Board of Directors may from time to time determine. The
Advisory Directors shall have such advisory responsibilities as the Chairman of
the Board may designate and the term of office of such Advisory Directors shall
be as fixed by the Board of Directors.

                                   ARTICLE VI

                                    OFFICERS

                                       9



         Section 35.       Designation. The officers of the Corporation shall be
the Chief Executive Officer, a President, a Secretary, a Chief Financial
Officer, a Treasurer and a Controller. The Board of Directors may also elect one
or more Executive Vice Presidents, Senior Vice Presidents, Group Vice
Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers,
Assistant Controllers and such other officers as it shall deem necessary. Any
number of offices may be held by the same person.

         Section 36.       Election and Term. At its first meeting after each
annual meeting of stockholders, the Board of Directors shall elect the officers
of the Corporation and at any time thereafter the Board of Directors may elect
additional officers of the Corporation, and each such officer shall hold office
until the officer's successor is elected and qualified or until the officer's
earlier death, resignation or removal. Alternatively, at the last regular
meeting of the Board of Directors prior to an annual meeting of stockholders,
the Board of Directors may elect the officers of the Corporation, contingent
upon the election of the persons nominated to be directors by the Board of
Directors; and each such officer so elected shall hold office until the
officer's successor is elected and qualified or until the officer's earlier
death, resignation or removal.

         Section 37.       Removal. Any officer shall be subject to removal or
suspension at any time, for or without cause, by the affirmative vote of a
majority of the Whole Board.

         Section 38.       Resignations. Any officer may resign at any time by
giving written notice to the Chairman of the Board, the President or to the
Secretary. Such resignation shall take effect upon receipt thereof or at any
later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.

         Section 39.       Vacancies. A vacancy in any office because of death,
resignation, removal or any other cause may be filled for the unexpired portion
of the term by the Board of Directors.

         Section 40.       Chief Executive Officer. The Chief Executive Officer
shall have the general and active management and supervision of the business of
the Corporation. The Chief Executive Officer, if a member of the Board of
Directors, shall, in the absence of the Chairman of the Board, preside at all
meetings of the stockholders and of the Board of Directors. The Chief Executive
Officer shall see that all orders and resolutions of the Board of Directors are
carried into effect. The Chief Executive Officer shall also perform such other
duties as may be assigned to the Chief Executive Officer by these By-Laws or the
Board of Directors. The Chief Executive Officer shall designate who shall
perform the duties of the Chief Executive Officer in the Chief Executive
Officer's absence.

         Section 41.       President. The President shall perform such duties as
may be assigned to the President by these By-Laws, the Board of Directors or, if
applicable, the Chief Executive Officer.

         Section 42.       Vice Presidents. Each Executive Vice President,
Senior Vice President, Group Vice President and each other Vice President shall
perform the duties and functions and exercise the powers assigned to such
officer by these By-Laws, the Board of Directors, the Chief Executive Officer or
the President.

                                       10



         Section 43.       Secretary. The Secretary shall attend all meetings of
the Board of Directors and of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors and, when appropriate, shall cause
the corporate seal to be affixed to any instruments executed on behalf of the
Corporation. The Secretary shall also perform all duties incident to the office
of Secretary and such other duties as may be assigned to the Secretary by these
By-Laws, the Board of Directors, the Chairman of the Board, the Chief Executive
Officer or the President.

         Section 44.       Assistant Secretaries. The Assistant Secretaries
shall, during the absence of the Secretary, perform the duties and functions and
exercise the powers of the Secretary. Each Assistant Secretary shall perform
such other duties as may be assigned to such Assistant Secretary by these
By-Laws, the Board of Directors, the Chairman of the Board, the Chief Executive
Officer, the President or the Secretary.

         Section 45.       Chief Financial Officer. The Chief Financial Officer
shall have overall responsibility for causing (1) the funds and securities of
the Corporation to be deposited in the name and to the credit of the Corporation
in such depositories as may be designated by the Board of Directors or by any
officer or officers authorized by the Board of Directors to designate such
depositories; (2) the disbursement of funds of the Corporation when properly
authorized by vouchers prepared and approved by the Controller; (3) the
investment of funds of the Corporation when authorized by the Board of Directors
or a committee thereof; and (4) to be kept full and accurate account of receipts
and disbursements in books of the Corporation. The Chief Financial Officer shall
render to the Board of Directors, the Chief Executive Officer, or the President,
whenever requested, an account of all transactions as Chief Financial Officer
and shall also perform all duties incident to the office of Chief Financial
Officer and such other duties as may be assigned to the Chief Financial Officer
by these By-Laws, the Board of Directors, the Chief Executive Officer, or the
President.

         Section 46.       Treasurer. The Treasurer shall have the custody of
the funds and securities of the Corporation and shall deposit them in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors or by any officer or officers authorized by the Board
of Directors to designate such depositories; disburse funds of the Corporation
when properly authorized by vouchers prepared and approved by the Controller;
and invest funds of the Corporation when authorized by the Board of Directors or
a committee thereof. The Treasurer shall render to the Board of Directors, the
Chief Executive Officer, the President or the Chief Financial Officer, whenever
requested, an account of all transactions as Treasurer and shall also perform
all duties incident to the office of Treasurer and such other duties as may be
assigned to the Treasurer by these By-Laws, the Board of Directors, the Chief
Executive Officer, the President or the Chief Financial Officer.

         Section 47.       Assistant Treasurers. The Assistant Treasurers shall,
during the absence of the Treasurer, perform the duties and functions and
exercise the powers of the Treasurer. Each Assistant Treasurer shall perform
such other duties as may be assigned to the Assistant Treasurer by these
By-Laws, the Board of Directors, the Chief Executive Officer, the President, the
Chief Financial Officer or the Treasurer.

                                       11



         Section 48.       Controller. The Controller shall serve as the
principal accounting officer of the Corporation and shall keep full and accurate
account of receipts and disbursements in books of the Corporation and render to
the Board of Directors, the Chief Executive Officer, the President, the Chief
Financial Officer, whenever requested, an account of all transactions as
Controller and of the financial condition of the Corporation. The Controller
shall also perform all duties incident to the office of Controller and such
other duties as may be assigned to the Controller by these By-Laws, the Board of
Directors, the Chief Executive Officer, or the President.

         Section 49.       Assistant Controllers. The Assistant Controllers
shall, during the absence of the Controller, perform the duties and functions
and exercise the powers of the Controller. Each Assistant Controller shall
perform such other duties as may be assigned to such officer by these By-Laws,
the Board of Directors, the Chief Executive Officer, the President or the
Controller.

                                   ARTICLE VII

                       CONTRACTS, INSTRUMENTS AND PROXIES

         Section 50.       Contracts and Other Instruments. Except as otherwise
required by applicable law, the Certificate of Incorporation or these By-Laws,
any contracts or other instruments may be signed by such person or persons as
from time to time may be designated by the Board of Directors or by any officer
or officers authorized by the Board of Directors to designate such signers; and
the Board of Directors or such officer or officers may determine that the
signature of any such authorized signer may be facsimile. Such authority may be
general or confined to specific instances as the Board of Directors or such
officer or officers may determine.

         Section 51.       Proxies. Except as otherwise provided by resolution
of the Board of Directors, the Chairman of the Board, the Chief Executive
Officer, the President, the Vice Chairman of the Board, any Vice President, the
Treasurer and any Assistant Treasurer, the Controller and any Assistant
Controller, the Secretary and any Assistant Secretary of the Corporation, shall
each have full power and authority, in behalf of the Corporation, to exercise
any and all rights of the Corporation with respect to any meeting of
stockholders of any corporation in which the Corporation holds stock, including
the execution and delivery of proxies therefor, and to consent in writing to
action by such corporation without a meeting.

                                  ARTICLE VIII

                                  CAPITAL STOCK

         Section 52.       Stock Certificates; Book-Entry Accounts. The interest
of each stockholder of the Corporation shall be evidenced by (a) certificates
signed by, or in the name of the Corporation by, the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Chief Financial
Officer or the Treasurer, and by the Secretary or any Assistant Secretary of the
Corporation, certifying the number of shares owned by such holder in the

                                       12



Corporation, or (b) registration in book-entry accounts without certificates for
shares of stock in such form as the appropriate officers of the Corporation may
from time to time prescribe. Any of or all the signatures on a stock certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.

         Section 53.       Record Ownership. The Corporation shall be entitled
to treat the person in whose name any share, right or option is registered as
the owner thereof, for all purposes, and shall not be bound to recognize any
equitable or other claim to or interest in such share, right or option on the
part of any other person, whether or not the Corporation shall have notice
thereof, except as otherwise provided by applicable law.

         Section 54.       Record Dates. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors and which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action.

         Section 55.       Transfer of Stock. Transfers of shares of stock of
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by the registered holder's attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary or a
transfer agent of the Corporation, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of all taxes
thereon, or by appropriate book-entry procedures.

         Section 56.       Lost, Stolen or Destroyed Certificates. The Board of
Directors may authorize a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Corporation alleged
to have been lost, stolen or destroyed, upon the making of an affidavit of the
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or the owner's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against the Corporation on account of the alleged loss, theft or destruction of
such certificate or the issuance of such new certificate.

         Section 57.       Terms of Preferred Stock. The provisions of these
By-Laws, including those pertaining to voting rights, election of directors and
calling of special meetings of stockholders, are subject to the terms,
preferences, rights and privileges of any then outstanding class or series of
Preferred Stock as set forth in the Certificate of Incorporation and in any
resolutions of the Board of Directors providing for the issuance of such class
or series of Preferred Stock; provided, however, that the provisions of any such
Preferred Stock shall not affect or limit the authority of the Board of
Directors to fix, from time to time, the number of

                                       13



directors which shall constitute the Whole Board as provided in Section 16
above, subject to the right of the holders of any class or series of Preferred
Stock to elect additional directors as and to the extent specifically provided
by the provisions of such Preferred Stock.

                                   ARTICLE IX

                                 INDEMNIFICATION

         Section 58.       Right of Indemnification Generally.

                (a)        Directors, Officers, Employees and Agents. Each
person who was or is made a party or is threatened to be made a party to or is
involved in any action, suit, or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she or a person of whom he or she is the legal representative is
or was a director, officer, employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, limited liability company, partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by the General Corporation Law of the State of Delaware
as the same exists or may hereafter be amended (but, if permitted by applicable
law, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), and any other
applicable laws as presently or hereafter in effect, against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith; provided, however,
that except as provided in Section 60 below, the Corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors.

                (b)        Contract Right. The right to indemnification
conferred in this Article IX shall be a contract right.

         Section 59.       Written Request; Determination of Entitlement. To
obtain indemnification under this Article IX, a claimant shall submit to the
Corporation a written request, including therein or therewith such documentation
and information as is reasonably available to the claimant and is reasonably
necessary to determine whether and to what extent the claimant is entitled to
indemnification. Any determination regarding whether indemnification of any
person is proper in the circumstances because such person has met the applicable
standard of conduct set forth in the General Corporation Law of the State of
Delaware shall be made at the option of the person seeking indemnification, by
the directors as set forth in the General Corporation Law of the State of
Delaware or by independent legal counsel selected by such person with the
consent of the Corporation (which consent shall not unreasonably be withheld).

         Section 60.       Recovery of Unpaid Claim. If a claim under Section 59
above is not paid in full by the Corporation within 60 days after a written
claim pursuant to Section 60 above has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the

                                       14



claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than actions brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its directors, independent
legal counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its directors, independent legal
counsel or stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.

         Section 61.       Exclusivity; Subsequent Modification. The right to
indemnification conferred in this Article IX shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, By-Laws, agreement, vote of
stockholders or directors or otherwise. No repeal or modification of this
Article IX shall in any way diminish or adversely affect the rights hereunder of
any director, officer, employee or agent in respect of any occurrence or matter
arising prior to any such repeal or modification.

         Section 62.       Insurance. The Corporation may maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, limited liability company, partnership,
joint venture, trust or other enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the General Corporation Law of the
State of Delaware or otherwise. To the extent that the Corporation maintains any
policy or policies providing such insurance, each such director, officer,
employee and agent shall be covered by such policy or policies in accordance
with its or their terms to the maximum extent of the coverage thereunder for any
such director, officer, employee or agent.

         Section 63.       Other Indemnification Rights. The Corporation may, to
the extent authorized from time to time by the Board of Directors, grant
additional rights to indemnification, including rights to be paid by the
Corporation the expenses incurred in defending any proceeding in advance of its
final disposition, to any agent of the Corporation to the fullest extent
permitted by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended (but, if permitted by applicable law, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment).

         Section 64.       Illegality; Unenforceability. If any provision or
provisions of this Article IX shall be held to be invalid, illegal or
unenforceable for any reason whatsoever: (1) the validity, legality and
enforceability of the remaining provisions of this Article IX (including,
without limitation, each portion of any Section or subsection of this Article IX
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid,

                                       15



illegal or unenforceable) shall not in any way be affected or impaired thereby;
and (2) to the fullest extent possible, the provisions of this Article IX
(including, without limitation, each such portion of any Section or subsection
of this Article IX containing any such provision held to be invalid, illegal or
unenforceable that is not itself held to be invalid, illegal or unenforceable)
shall be construed so as give effect to the intent manifested by the provision
held invalid, illegal or unenforceable.

         Section 65.       Form and Delivery of Communications. Any notice,
request or other communication required or permitted to be given to the
Corporation under this Article IX shall be in writing and either delivered in
person or sent by telecopy, telex, telegram, overnight mail or courier service,
or certified or registered mail, postage prepaid, return receipt requested, to
the Secretary of the Corporation.

                                    ARTICLE X

                                  MISCELLANEOUS

         Section 66.       Corporate Seal. The seal of the Corporation shall be
circular in form, containing the words "Varian Medical Systems, Inc." and the
word "Delaware" on the circumference surrounding the word "Seal." Said seal may
be used by causing it or a facsimile thereof to be impressed or affixed or in
any other manner reproduced.

         Section 67.       Fiscal Year. The fiscal year of the Corporation is
the 51- to 53-week period that ends on the Friday nearest September 30.

         Section 68.       Auditors. The Board of Directors shall select
certified public accountants to audit the books of account and other appropriate
corporate records of the Corporation annually and at such other times as the
Board of Directors shall determine by resolution.

         Section 69.       Waiver of Notice. Whenever notice is required to be
given pursuant to applicable law, the Certificate of Incorporation or these
By-Laws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting of stockholders or the Board of
Directors or a committee thereof shall constitute a waiver of notice of such
meeting, except when the stockholder or Director attends such meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders or the Board of Directors or
committee thereof need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or by these By-Laws.

                                   ARTICLE XI

                              AMENDMENT TO BY-LAWS

         Section 70.       Amendments. These By-Laws may be amended or repealed,
or new By-Laws may be adopted, at any meeting of the Board of Directors or of
the stockholders, provided notice of the proposed change was given in the notice
of the meeting and, in the case of a meeting of the Board of Directors, in a
notice given not less than 24 hours prior to the meeting.

                                       16

EX-15.1

                                                                    EXHIBIT 15.1

May 5, 2003

Securities and Exchange Commission
450 Fifth Street
N.W. Washington, D.C. 20549

Commissioners:

We are aware that our report dated April 17, 2003 on our review of interim
financial information of Varian Medical Systems, Inc. as of March 28, 2003 and
for the three-month and six-month periods ended March 28, 2003 and March 29,
2002 and included in the Company's quarterly report on Form 10-Q for the quarter
then ended is incorporated by reference in its Registration Statement on Form
S-8 (No. 333-75531) dated April 1, 1999, its Registration Statement on Form S-8
(No. 333-57006) dated March 14, 2001, its Registration Statement on Form S-8
(No. 333-57008) dated March 14, 2001, its Registration Statement on Form S-8
(No. 333-57010) dated March 14, 2001, and its Registration Statement on Form S-8
(No. 333-57012) as amended on June 20, 2001.

Yours very truly,

/S/ PRICEWATERHOUSECOOPERS LLP

EX-99.1

                                                                    EXHIBIT 99.1

                                  CERTIFICATION
                       PURSUANT TO 18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the accompanying Quarterly Report of Varian Medical
Systems, Inc. (the "Company"), on Form 10-Q for the quarter ended March 28, 2003
(the "Report"), I, Richard M. Levy, President and Chief Executive Officer of the
Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:

         (1)      the Report fully complies with the requirements of section
                  13(a) or 15(d) of the Securities Exchange Act of 1934; and

         (2)      the information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company.

A signed original of the written statement required by Section 906 has been
provided to Varian Medical Systems, Inc. and will be retained by Varian Medical
Systems, Inc. and furnished to the Securities and Exchange Commission or its
staff upon request.

Dated: May 5, 2003                             /s/      RICHARD M. LEVY
                                               ---------------------------------
                                                         Richard M. Levy
                                                        President and Chief
                                                         Executive Officer

EX-99.2

                                                                    EXHIBIT 99.2

                                  CERTIFICATION
                       PURSUANT TO 18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the accompanying Quarterly Report of Varian Medical
Systems, Inc. (the "Company"), on Form 10-Q for the quarter ended March 28, 2003
(the "Report"), I, Elisha W. Finney, Vice President, Finance and Chief Financial
Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

         (1)      the Report fully complies with the requirements of section
                  13(a) or 15(d) of the Securities Exchange Act of 1934; and

         (2)      the information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company.

A signed original of the written statement required by Section 906 has been
provided to Varian Medical Systems, Inc. and will be retained by Varian Medical
Systems, Inc. and furnished to the Securities and Exchange Commission or its
staff upon request.

Dated: May 5, 2003                             /s/      ELISHA W. FINNEY
                                               ---------------------------------
                                                         Elisha W. Finney
                                                    Vice President, Finance, and
                                                       Chief Financial Officer