<PAGE>
 
                                                                    EXHIBIT 2.1

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                             AMENDED AND RESTATED
                            DISTRIBUTION AGREEMENT
                                     AMONG
                           VARIAN ASSOCIATES, INC.,
                VARIAN SEMICONDUCTOR EQUIPMENT ASSOCIATES, INC.
                                      AND
                                 VARIAN, INC.
                                  Dated as of
                               January 14, 1999


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                               TABLE OF CONTENTS

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ARTICLE I             DEFINITIONS........................................................................       1
                                                                                                                 
         Section 1.01.        General....................................................................       1
                                                                                                                 
         Section 1.02.        References; Interpretation.................................................      17
                                                                                                                 
ARTICLE II            PRE-DISTRIBUTION TRANSACTIONS; CERTAIN COVENANTS...................................      17
                                                                                                                 
         Section 2.01.        Corporate Reorganization Transactions; Dispositions........................      17
                                                                                                                 
         Section 2.02.        Conveyance of Assets.......................................................      18
                                                                                                                 
         Section 2.03.        Transfer and Assignment of Certain Licenses and Permits....................      18
                                                                                                                 
         Section 2.04.        Transfer and Assignment of Certain Agreements..............................      19
                                                                                                                 
         Section 2.05.        Certain Financial and Other Arrangements...................................      19
                                                                                                                 
         Section 2.06.        Assumption and Satisfaction of Liabilities.................................      21
                                                                                                                 
         Section 2.07.        Stock Issuance; Dividends..................................................      21
                                                                                                                 
         Section 2.08.        Charters; By-laws; Rights Plans............................................      22
                                                                                                                 
         Section 2.09.        Directors, Officers and Employees..........................................      22
                                                                                                                 
         Section 2.10.        Other Transactions.........................................................      22
                                                                                                                 
         Section 2.11.        Meeting; Proxy Statement; Other Filings....................................      23
                                                                                                                 
         Section 2.12.        State Securities Laws......................................................      23
                                                                                                                 
         Section 2.13.        Listing Application........................................................      23
                                                                                                                 
         Section 2.14.        Transfers Not Effected Before the Distributions; Transfers Deemed                  
                              Effective as of the Effective Time.........................................      23
                                                                                                                 
         Section 2.15.        Ancillary Agreements.......................................................      23
                                                                                                                 
         Section 2.16.        Operations in Ordinary Course..............................................      24
                                                                                                                 
ARTICLE III           THE DISTRIBUTIONS..................................................................      24
                                                                                                                 
         Section 3.01.        Record Date and Distribution Date..........................................      24
                                                                                                                 
         Section 3.02.        The Distributions..........................................................      24
                                                                                                                 
ARTICLE IV            CONDITIONS TO THE DISTRIBUTIONS....................................................      24
                                                                                                                 
         Section 4.01.        Conditions Precedent to the Distributions..................................      24
                                                                                                                 
         Section 4.02.        Waivers....................................................................      26
                                                                                                                 
ARTICLE V             COVENANTS..........................................................................      26
                                                                                                                 
         Section 5.01.        Further Assurances; Consents...............................................      26
                                                                                                                 
         Section 5.02.        Intellectual Property Matters..............................................      26
                                                                                                                 
         Section 5.03.        Employees; Employee Benefits...............................................      26
                                                                                                                 
         Section 5.04.        Tax Matters................................................................      26
                                                                                                                 
         Section 5.05.        No Representations or Warranties...........................................      27
                                                                                                                 
         Section 5.06.        Removal of Certain Guarantees; Releases from Liabilities...................      27
                                                                                                                 
         Section 5.07.        Intercompany Agreements....................................................      28
                                                                                                                 
         Section 5.08.        Nondisclosure Agreements...................................................      28 
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         Section 5.09.        Receipts after the Distribution Date.........................................    28 
                                                                                                                 
         Section 5.10.        Post-Distribution Audit......................................................    28
                                                                                                                 
ARTICLE VI            ACCESS TO INFORMATION; CONFIDENTIALITY...............................................    29
                                                                                                                 
         Section 6.01.        Provision, Transfer and Delivery of Applicable Corporate Records.............    29
                                                                                                                 
         Section 6.02.        Access to Books and Records..................................................    29
                                                                                                                 
         Section 6.03.        Confidentiality..............................................................    30
                                                                                                                 
         Section 6.04.        Witness Services.............................................................    30
                                                                                                                 
         Section 6.05.        Reimbursement; Other Matters.................................................    30
                                                                                                                 
         Section 6.06.        Retention of Records.........................................................    30
                                                                                                                 
         Section 6.07.        Privileged Matters...........................................................    31
                                                                                                                 
ARTICLE VII           INDEMNIFICATION......................................................................    31
                                                                                                                 
         Section 7.01.        Survival of Agreements.......................................................    31
                                                                                                                 
         Section 7.02.        Taxes........................................................................    32
                                                                                                                 
         Section 7.03.        Indemnification by HCS.......................................................    32
                                                                                                                 
         Section 7.04.        Indemnification by SEB.......................................................    32
                                                                                                                 
         Section 7.05.        Indemnification by IB........................................................    32
                                                                                                                 
         Section 7.06.        Limitations on Indemnification Obligations...................................    32
                                                                                                                 
         Section 7.07.        Procedures for Indemnification...............................................    34
                                                                                                                 
         Section 7.08.        Indemnification Payments.....................................................    36
                                                                                                                 
         Section 7.09.        Certain Legal Proceedings....................................................    36
                                                                                                                 
         Section 7.10.        Survival of Indemnities......................................................    36
                                                                                                                 
         Section 7.11.        Contribution.................................................................    36
                                                                                                                 
         Section 7.12.        Exclusive Mechanism; Waiver of Jury Trial....................................    36
                                                                                                                 
         Section 7.13.        Failure to Satisfy Indemnification Obligation................................    36
                                                                                                                 
         Section 7.14.        Treatment of Shared Assets...................................................    37
                                                                                                                 
ARTICLE VIII          INSURANCE............................................................................    37
                                                                                                                 
         Section 8.01.        Policies and Rights Included within Assets...................................    37
                                                                                                                 
         Section 8.02.        Claims.......................................................................    38
                                                                                                                 
         Section 8.03.        Administration; Other Matters................................................    39
                                                                                                                 
         Section 8.04.        Retrospectively Calculated Insurance Premiums................................    40
                                                                                                                 
         Section 8.05.        Allocation of Insurance Proceeds; Cooperation................................    40
                                                                                                                 
         Section 8.06.        Reimbursement of Expenses....................................................    40
                                                                                                                 
         Section 8.07.        Insurer Insolvency or Coverage Controversy...................................    41
                                                                                                                 
         Section 8.08.        Agreement for Waiver of Conflict and Shared Defense..........................    41
                                                                                                                 
         Section 8.09.        Direct Responsibility for Claims; Additional Insurance; No Modifications.....    41 
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ARTICLE IX            DISPUTE RESOLUTION...................................................................    41
                                                                                                                 
         Section 9.01.        Separation Committee.........................................................    41
                                                                                                                 
         Section 9.02.        Binding Arbitration..........................................................    42
                                                                                                                 
         Section 9.03.        Disputes Regarding Closing Balance Sheets; Payments..........................    43
                                                                                                                 
         Section 9.04.        Post-Distribution Adjustment in Respect of Transaction Expenditures and            
                              Disposition Proceeds.........................................................    44
                                                                                                                 
         Section 9.05.        Discretionary Restructuring Amounts..........................................    45
                                                                                                                 
         Section 9.06.        Specific Performance.........................................................    45
                                                                                                                 
ARTICLE X             MISCELLANEOUS........................................................................    45
                                                                                                                 
         Section 10.01.       Complete Agreement; Construction.............................................    45
                                                                                                                 
         Section 10.02.       Ancillary Agreements.........................................................    45
                                                                                                                 
         Section 10.03.       Counterparts.................................................................    45
                                                                                                                 
         Section 10.04.       Responsibility for Expenses..................................................    45
                                                                                                                 
         Section 10.05.       Notices......................................................................    45
                                                                                                                 
         Section 10.06.       Waivers......................................................................    47
                                                                                                                 
         Section 10.07.       Amendments...................................................................    47
                                                                                                                 
         Section 10.08.       Assignment...................................................................    47
                                                                                                                 
         Section 10.09.       Successors and Assigns.......................................................    47
                                                                                                                 
         Section 10.10.       Termination..................................................................    47
                                                                                                                 
         Section 10.11.       Third Party Beneficiaries....................................................    48
                                                                                                                 
         Section 10.12.       Exhibits and Schedules.......................................................    48
                                                                                                                 
         Section 10.13.       Governing Law................................................................    48
                                                                                                                 
         Section 10.14.       Severability.................................................................    48
                                                                                                                 
         Section 10.15.       Subsidiaries.................................................................    48
                                                                                                                 
         Section 10.16.       Titles and Headings..........................................................    48
                                                                                                                 
         Section 10.17.       Consent to Jurisdiction......................................................    48 


Exhibit A  Corporate Reorganization Transactions...........................................................   A-1 
                                                                                                               
Exhibit B  Employee Benefits Allocation Agreement..........................................................   B-1
                                                                                                               
Exhibit C  Intellectual Property Agreement.................................................................   C-1
                                                                                                               
Exhibit D  Tax Sharing Agreement...........................................................................   D-1
                                                                                                               
Exhibit E  Transition Services Agreement...................................................................   E-1
                                                                                                               
Exhibit F  HCS Pro Forma Balance Sheet.....................................................................   F-1
                                                                                                               
Exhibit G  IB Pro Forma Balance Sheet......................................................................   G-1
                                                                                                               
Exhibit H  SEB Pro Forma Balance Sheet.....................................................................   H-1
                                                                                                               
Exhibit I  HCS Subsidiaries................................................................................   I-1 

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Exhibit J  IB Subsidiaries...............................................................................   J-1
                                                                                                               
Exhibit K  SEB Subsidiaries..............................................................................   K-1
                                                                                                               
Exhibit L  Varian By-Laws................................................................................   L-1 
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                                     -iv-
<PAGE>
 
                  AMENDED AND RESTATED DISTRIBUTION AGREEMENT

     THIS AMENDED and RESTATED DISTRIBUTION AGREEMENT effective as of the 14th
day of January, 1999, among VARIAN ASSOCIATES, INC., a Delaware corporation
("Varian"), VARIAN SEMICONDUCTOR EQUIPMENT ASSOCIATES, INC., a Delaware
corporation ("SEB"), and VARIAN, INC., a Delaware corporation ("IB").

                                R E C I T A L S

     WHEREAS, the Board of Directors of Varian has deemed it appropriate and
desirable to:

     (a) separate and divide the existing businesses of Varian so that (i) the
business of the manufacture, sale and service of ion implanters for
semiconductor equipment fabrication facilities will be owned and conducted
directly or indirectly by SEB, (ii) the business of the manufacture, sale and
service of analytical and research instruments and high vacuum products and
fabrication of circuit boards and electronic subassemblies will be owned and
conducted directly or indirectly by IB, and (iii) the business of the
manufacture, sale and service of integrated cancer-care systems, including
medical linear accelerators and brachytherapy systems for treatment, simulators
for therapy planning and verification, and ancillary equipment, software and
networking systems and related data management, and of x-ray tubes for the
diagnostic imaging industry and imaging subsystems, will be retained and
conducted directly or indirectly by Varian, which will be renamed Varian Medical
Systems, Inc. immediately following the Distributions (as hereinafter defined);
and

     (b) distribute, after such separation and division, as a dividend to the
holders of shares of common stock, par value $1.00 per share, of Varian (the
"VAI Common Stock"), all of the then-outstanding shares of common stock, par
value $.01 per share, of SEB (the "SEB Common Stock"), and all of the then-
outstanding shares of common stock, par value $.01 per share, of IB (the "IB
Common Stock"); and

     WHEREAS, each of Varian, SEB and IB has determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
such separation, division and Distributions and to set forth agreements that
will govern certain other matters before and after the Distributions.

     NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereto agree as follows:

                                   ARTICLE I
                                  DEFINITIONS

     Section 1.01.  General. As used in this Agreement, the following terms have
                    -------   
the following meanings:

     "AAA" has the meaning ascribed to such term in Section 9.02(b).
      ---                                                           

     "AAA Rules" has the meaning ascribed to such term in Section 9.02(c).
      ---------                                                           

     "Action" means any action, suit, arbitration, inquiry, proceeding or
      ------                                                             
investigation by or before any Governmental Authority or any arbitration
tribunal.

     "Affiliate" means, when used with respect to a specified Person, another
      ---------                                                              
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with the Person specified.

     "After-tax Differential" means the positive or negative amount determined
      ----------------------                                                  
by adding the amounts of the Disposition Proceeds received after the Effective
Time and the Tax Benefit and subtracting therefrom the amounts of the
Transaction Expenditures paid after the Effective Time and the Tax Cost.

                                       1
<PAGE>
 
     "Agent" means First Chicago Trust Company of New York, or such other trust
      -----                                                                    
company or bank designated by Varian, who shall act as agent for the holders of
VAI Common Stock in connection with the Distributions.

     "Agreement" means this Distribution Agreement among Varian, SEB and IB,
      ---------                                                             
including all amendments hereto and all Schedules and Exhibits hereto.

     "Agreement Date" means the date set forth in the first paragraph of this
      --------------                                                         
Agreement.

     "Agreement Disputes" has the meaning ascribed to such term in Section
      ------------------                                                  
9.01(a).

     "Aircraft Disposition" has the meaning ascribed to such term in Section
      --------------------                                                  
2.01(b).

     "Ancillary Agreements" means, collectively, the Employee Benefits
      --------------------                                            
Allocation Agreement, the Tax Sharing Agreement, the Transition Services
Agreement and the Intellectual Property Agreement.

     "Arbitration Demand Notice" has the meaning ascribed to such term in
      -------------------------                                          
Section 9.02(b).

     "Assets" means assets, properties and rights (including goodwill), wherever
      ------                                                                    
located (including in the possession of vendors or other third parties or
elsewhere), whether real, personal or mixed, tangible, intangible or contingent,
in each case whether or not recorded or reflected or required to be recorded or
reflected on the books and records or financial statements of any Person,
including:

     (i)    all accounting and other books, records and files whether in paper,
microfilm, microfiche, computer tape or disc, magnetic tape or any other form;

     (ii)   all apparatus, computers and other electronic data processing
equipment, fixtures, machinery, equipment, capital and other spares, furniture,
office equipment, automobiles, trucks, aircraft and other transportation
equipment, special and general tools, test devices, prototypes and models and
other tangible personal property;

     (iii)  all inventories of materials, parts, raw materials, supplies, work-
in-process, consigned goods, finished goods, packaging and all products and
product samples;

     (iv)   all interests in real property of whatever nature, including
easements, leases and licenses, whether as owner, mortgagee or holder of a
Security Interest in real property, lessor, sublessor, lessee, sublessee or
otherwise;

     (v)    all buildings and other improvements to real property;

     (vi)   all interests in any capital stock or other equity interests of any
Subsidiary or any other Person, all bonds, notes, debentures or other securities
issued by any Subsidiary or any other Person, all loans, advances or other
extensions of credit or capital contributions to any Subsidiary or any other
Person and all other investments in securities of any Person;

     (vii)  all license agreements, leases of personal property, open purchase
orders for raw materials, supplies, parts or services, unfilled orders for the
manufacture and sale of products, other sales or purchase agreements,
distributions arrangements, and other contracts, agreements or commitments;

     (viii) all deposits, letters of credit and performance and surety bonds;

     (ix)   all technical information, data, research and development
information, engineering drawings, operating and maintenance manuals, and
materials and analyses prepared by consultants and other third parties;

     (x)    all Intellectual Property;

                                       2
<PAGE>
 
     (xi)    all cost information, sales and pricing data, customer prospect
lists, supplier records, customer and supplier lists, customer and vendor data,
correspondence and lists, product literature, artwork, design, development and
manufacturing files, vendor and customer drawings, formulations and
specifications, quality records and reports and other books, records, studies,
surveys, reports, plans and documents;

     (xii)   all prepaid expenses, trade accounts and other accounts and notes
receivables;

     (xiii)  all rights under contracts, agreements, warranties or guarantees,
all claims or rights or judgments against any Person, all rights in connection
with any bids or offers and all claims, choses in action, rights of recovery and
rights of set-off or similar rights, whether accrued or contingent, and refunds
and deposits;

     (xiv)   all rights under insurance policies and all rights in the nature of
insurance, indemnification or contribution;

     (xv)    all licenses, permits, approvals and authorizations which have been
issued by any Governmental Authority;

     (xvi)   and marketing materials and other printed or written
materials;

     (xvii)  employee contracts, including any rights thereunder to restrict an
employee or former employee from competing in certain respects and personnel and
medical files and records;

     (xviii) all computer programs and other software (in executable or source
code format), including operating software, applications, networks software,
firmware, middleware, design software, design tools, test and diagnostic
software and systems configurations (and all documentation, schematics,
drawings, designs, manuals, reports, records, instructions, studies, surveys,
plans, books or other written materials (whether in hard copy or magnetic form)
relating to or including the foregoing) but excluding product-related computer
programs and other software;

     (xix)   Cash and Cash Equivalents, bank accounts, lock boxes and other
deposit arrangements; and

     (xx)    interest rate, currency, commodity or other swap, collar, cap or
other hedging or similar agreements or arrangements.

     "Assignee" has the meaning ascribed to such term in Section 2.04(b).
      --------                                                           

     "Auditors" has the meaning ascribed to such term in Section 5.10(a).
      --------                                                           

     "Books and Records" means all books, records, manuals, agreements and other
      -----------------                                                         
materials (in any form or medium), including all mortgages, licenses,
indentures, contracts, financial data, customer lists, marketing materials and
studies, advertising materials, price lists, correspondence, distribution lists,
supplier lists, production data, sales and promotional materials and records,
purchasing materials and records, personnel records, manufacturing and quality
control records and procedures, blue prints, research and development files,
records, data and laboratory books, accounts records, sales order files,
litigation files, computer files, microfiche, tape recordings and photographs.

     "Cash and Cash Equivalents" has the meaning ascribed to such term under
      -------------------------                                             
GAAP.

     "Claims Administration" means the processing of claims made under the
      ---------------------                                               
Company Policies, including the reporting of losses, management and defense of
claims (except to the extent settlement authority remains with another party as
contemplated by Section 7.07) and providing for appropriate releases upon
settlement of claims.

     "Code" means the Internal Revenue Code of 1986, as amended.
      ----                                                      

     "Commission" means the Securities and Exchange Commission.
      ----------                                               

                                       3
<PAGE>
 
     "Company Policies" means all Policies, current or past, which are as of the
      ----------------                                                          
Effective Time, or at any time were, maintained by, on behalf of, or for the
benefit or protection of Varian or any of its Subsidiaries or any of its
predecessors which relate to any Shared Liability, the Instruments Business, the
Health Care Systems Business or the Semiconductor Equipment Business, or current
or past directors, officers, employees or agents of any of the foregoing.

     "Consent" means any approval, consent or waiver required to be obtained
      -------                                                               
from any Governmental Authority or other third party for the consummation of a
specified transaction, including any option, right of first refusal or other
similar right of a third party triggered by a specified transaction.

     "Consolidated Debt" means with respect to any Person (without duplication),
      -----------------                                                         
every obligation of such Person and its consolidated Subsidiaries (i) for money
borrowed, (ii) evidenced by bonds, debentures, notes or other similar
instruments, (iii) for reimbursement with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person or its
consolidated Subsidiaries, (iv) for the deferred purchase price of property or
services if, and to the extent that, such obligation would appear as a Liability
upon a balance sheet of such Person or its consolidated Subsidiaries prepared in
accordance with GAAP (but excluding trade accounts payable or accrued
Liabilities arising in the ordinary course of business), excluding capital
leases, and (v) to guarantee or otherwise be liable for, any obligation of the
type referred to in clauses (i) through (iv) of another Person.

     "Conveyancing and Assumption Instruments" means, collectively, the various
      ---------------------------------------                                  
written agreements, instruments and other documents to be entered into to effect
the Corporate Reorganization Transactions or otherwise to effect the transfer of
Assets and the assumption of Liabilities in the manner contemplated by this
Agreement and the Ancillary Agreements.

     "Corporate Reorganization Transactions" means, collectively, each of the
      -------------------------------------                                  
distributions, transfers, conveyances, contributions, assignments and other
transactions described and set forth on Exhibit A, and those described or
contemplated by the Proxy Statement and the private ruling request submissions
made to the Internal Revenue Service in connection therewith, which are intended
to separate and divide the existing businesses of Varian so that, except as
otherwise expressly provided on Exhibit A:

     (i)   the Semiconductor Equipment Assets, Semiconductor Equipment
Liabilities and Semiconductor Equipment Business shall be owned or held,
directly or indirectly, by SEB;

     (ii)  the Instruments Assets,  Instruments Liabilities and Instruments
Business shall be owned or held, directly or indirectly, by IB; and

     (iii) the businesses, Assets and Liabilities of Varian that remain after
the transactions described in clauses (i) and (ii) above, after giving effect to
the Distributions, including the Health Care Systems Assets, Health Care Systems
Liabilities and Health Care Systems Business shall be owned or held, directly or
indirectly, by HCS.

     "Cost" means (i) the salary, fringe benefits and overhead expense of
      ----                                                               
personnel (or an allocable portion thereof) plus (ii) out-of-pocket expenses.

     "DGCL" means the Delaware General Corporation Law, as amended.
      ----                                                         

     "Dispositions" means, collectively, the Palo Alto Property Disposition and
      ------------                                                             
the Aircraft Disposition.

     "Disposition Proceeds" means the proceeds from the Palo Alto Property
      --------------------                                                
Disposition (or any of its component parts) or the Aircraft Disposition, net of
the expenses of such sale or other disposition.

     "Disputing Party" has the meaning ascribed to such term in Section 9.03(a).
      ---------------                                                           

     "Distribution Date" means the date determined by the Board of Directors of
      -----------------                                                        
Varian as of which the Distributions shall be effected.

                                       4
<PAGE>
 
     "Distribution Proposals" means, collectively,  Proposals One through Ten
      ----------------------                                                 
set forth in the Proxy Statement.

     "Distribution Record Date" means the time designated by the Board of
      ------------------------                                           
Directors of Varian for the purpose of determining the holders of record of VAI
Common Stock entitled to receive the Distributions.

     "Distributions" means, collectively, the SEB Distribution and the IB
      -------------                                                      
Distribution.

     "Effective Time" means 11:59 p.m. California time on the Distribution Date.
      --------------                                                            

     "Employee Benefits Allocation Agreement" means the Employee Benefits
      --------------------------------------                             
Allocation Agreement among Varian, SEB and IB (including all exhibits and
schedules thereto) substantially in the form of Exhibit B.

     "Environmental Laws" means any and all federal, state, local and foreign
      ------------------                                                     
statutes, Laws, regulations, ordinances, rules, principles of common law,
judgments, orders, decrees, permits, concessions, grants, franchises, licenses,
agreements or other governmental restrictions (including the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, et
seq.), whether now or hereafter in existence, relating to the environment,
natural resources, human health or safety, endangered or threatened species of
fish, wildlife and plants, or to emissions, discharges or releases of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes into the environment
(including indoor or outdoor air, surface water, groundwater and surface or
subsurface soils), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the investigation,
cleanup or other remediation thereof.

     "Environmental Matters" means all matters relating in any way to (i) soil,
      ---------------------                                                    
air and water and groundwater pollution or contamination, including any on-site
or off-site pollution or contamination, (ii) damages to the natural environment
or natural resources, (iii) Releases or discharges of waste, Hazardous
Materials, or pollutants or contaminants, or (iv) recycling or disposal of
Hazardous Materials or wastes (including garbage, refuse, slag, sludge and other
discarded materials, whether solid, liquid, semisolid or gaseous and whether on-
site or off-site).

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.
      ------------                                                        

     "GAAP" means United States generally accepted accounting principles and
      ----                                                                  
practices, as in effect on the date of this Agreement, as promulgated by the
Financial Accounting Standards Board and its predecessors.

     "Governmental Authority" means any government or any agency, bureau, board,
      ----------------------                                                    
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state or local,
domestic or foreign.

     "Group" means (i) with respect to HCS, the Health Care Systems Group, (ii)
      -----                                                                    
with respect to SEB, the Semiconductor Equipment Group, and (iii) with respect
to IB, the  Instruments Group.

     "Hazardous Materials" means those elements, compounds and substances
      -------------------                                                
identified in any of the Environmental Laws as "hazardous materials," "hazardous
substances," or "hazardous waste," as well as any other elements, compounds or
substances which are listed or identified as "pollutants," "contaminants,"
"hazardous," "toxic" (or other term of similar meaning) under any Environmental
Law.  The term "Hazardous Materials" expressly includes radioactive materials,
petroleum products and asbestos.

     "HCS" means Varian, after giving effect to the Corporate Reorganization
      ---                                                                   
Transactions and the Distributions or as if the Corporate Reorganization
Transactions and the Distributions had occurred, as the context requires.

     "HCS Adjusted Closing Balance Sheet" has the meaning ascribed to such term
      ----------------------------------                                       
in Section 9.03(b).

     "HCS Closing Balance Sheet" has the meaning ascribed to such term in
      -------------------------                                          
Section 5.10(a).

                                       5
<PAGE>
 
     "HCS Common Stock" means VAI Common Stock after the Distributions.
      ----------------                                                 

     "HCS Discretionary Restructuring Amount" means the total of the out-of-
      --------------------------------------                               
pocket costs of any discretionary restructuring of the Health Care Systems Group
between October 2, 1998 and the Distribution Date, including but not limited to
all amounts paid to employees (other than employees terminated for cause) for
accrued personal paid leave and severance amounts, as well as any amounts paid
in connection with the termination of leases and other contracts in connection
with such discretionary restructuring.

     "HCS Dispute" has the meaning ascribed to such term in Section 9.03(a).
      -----------                                                           

     "HCS Indemnitees" means HCS, the HCS Subsidiaries and each Affiliate
      ---------------                                                    
thereof after giving effect to the Corporate Reorganization Transactions and the
Distributions, and each of the past, present and future directors, officers,
employees and agents of any of the foregoing and each of the heirs, executors,
successors and assigns of such directors, officers, employees and agents.

     "HCS Pro Forma Balance Sheet" means the pro forma balance sheet of HCS at
      ---------------------------                                             
October 2, 1998, attached as Exhibit F and the accounting records supporting
such balance sheet.

     "HCS Records" has the meaning ascribed to such term in Section 6.01(c).
      -----------                                                           

     "HCS Subsidiaries" means the Subsidiaries of Varian listed on Exhibit I and
      ----------------                                                          
all other Subsidiaries of Varian other than IB, SEB, the IB Subsidiaries and the
SEB Subsidiaries.

     "Health Care Systems Assets" means, collectively, all the Assets that are
      --------------------------                                              
owned or held by HCS or any HCS Subsidiary as of the Effective Time (and those
Assets to be transferred to HCS or a HCS Subsidiary at a later time as provided
in Section 2.14), including:

     (i)   the capital stock of, or other ownership interests in, the HCS
Subsidiaries;

     (ii)  all the Assets included on the HCS Pro Forma Balance Sheet that are
owned or held by HCS or any HCS Subsidiary as of the Effective Time;

     (iii) all the Assets acquired by Varian or any of its Subsidiaries after
the date of the HCS Pro Forma Balance Sheet which are owned or held by Varian or
any of its Subsidiaries as of the Effective Time and which are of a nature or
type that would have resulted in such Assets being included as Assets on the HCS
Pro Forma Balance Sheet had they been acquired on or before the date of the HCS
Pro Forma Balance Sheet, determined on a basis consistent with the determination
of the Assets included on the HCS Pro Forma Balance Sheet;

     (iv)  all the Assets expressly allocated to or retained by HCS or any HCS
Subsidiary under this Agreement or any Ancillary Agreement, including the
Corporate Reorganization Transactions;

     (v)   rights to the Company Policies to the extent set forth in Article
VIII; and

     (vi)  the rights of HCS and the HCS Subsidiaries under this Agreement and
the Ancillary Agreements.

           Notwithstanding the foregoing, the Health Care Systems Assets shall
not include any and all Assets that are expressly contemplated by this Agreement
or any Ancillary Agreement as Assets to be allocated to or retained by any
member of the Instruments Group or the Semiconductor Equipment Group.

     "Health Care Systems Business" means the business that, after giving effect
      ----------------------------                                              
to the Corporate Reorganization Transactions and the Distributions, is conducted
by HCS, the HCS Subsidiaries and/or any other member of the Health Care Systems
Group.

     "Health Care Systems Group" means HCS, the HCS Subsidiaries and the Persons
      -------------------------                                                 
that become Subsidiaries of HCS after the consummation of the Corporate
Reorganization Transactions and the Distributions.

                                       6
<PAGE>
 
     "Health Care Systems Liabilities" means, collectively, all the Liabilities
      -------------------------------                                          
of HCS, the HCS Subsidiaries and the other members of the Health Care Systems
Group after giving effect to the Corporate Reorganization Transactions and the
Distributions, including:

     (i)    all the Liabilities included on the HCS Pro Forma Balance Sheet that
remain outstanding as of the Effective Time;

     (ii)   all the Liabilities of Varian arising or assumed after the date of
the HCS Pro Forma Balance Sheet and that remain outstanding as of the Effective
Time, which are of a nature or type that would have resulted in such Liabilities
being included as Liabilities on the HCS Pro Forma Balance Sheet had they arisen
or been assumed on or before the date of the HCS Pro Forma Balance Sheet,
determined on a basis consistent with the determination of the Liabilities of
HCS on the HCS Pro Forma Balance Sheet;

     (iii)  all the Liabilities expressly assumed or retained by HCS, any HCS
Subsidiary and any other member of the Health Care Systems Group under this
Agreement or any Ancillary Agreement, including the Corporate Reorganization
Transactions;

     (iv)   the obligations of HCS, the HCS Subsidiaries and any other member of
the Health Care Systems Group under this Agreement and the Ancillary Agreements;

     (v)   all actual or alleged Liabilities (regardless of whether any claim
with respect to such Liabilities is asserted before, on or after the
Distribution Date) relating to Environmental Matters or arising under any
Environmental Laws (including all claims for death, bodily injury, personal
injury and property damage relating to Environmental Matters or arising under
any Environmental Laws) arising out of, relating to or resulting from (A) the
activities, operations, acts or omissions at, from or with respect to the Health
Care Systems Business or the Health Care Systems Assets before, on or after the
Distribution Date, and (B) Remediation of any Release arising out of, relating
to or resulting from activities, operations, acts or omissions at, from or with
respect to the Health Care Systems Business or the Health Care Systems Assets
before, on or after the Distribution Date wherever such Remediation may be
performed;

     (vi)   all actual or alleged Liabilities of HCS and any other member of the
Health Care Systems Group to third parties (regarding of whether any claim with
respect to such Liabilities is asserted before, on or after the Distribution
Date) arising out of, relating to or resulting from the transportation,
handling, possession, processing, treatment, storage, disposal, manufacture,
further manufacture, use, reuse, sale or resale of any goods manufactured,
processed, sold or distributed at any time on or before the Distribution Date by
the Health Care Systems Business, including all such Liability for personal
injury, bodily injury (including death or aggravation of previously existing
illness, injury disability or condition) or property damage;

     (vii)  all Liabilities to persons employed by Varian or its Subsidiaries on
or before the Effective Time, the services of whom were primarily dedicated to
the Health Care Systems Business, including Liabilities arising out of, relating
to or resulting  from the termination or alleged termination of such person's
employment as a result of the Corporate Reorganization Transactions or the
Distributions and Liabilities arising out of, relating to or resulting from the
assertion by any such person of employment by a member of another Group as a
result of the Corporate Reorganization Transactions; and

     (viii) all the Liabilities of the parties or their respective Subsidiaries
(whether arising before, on or after the Distribution Date) arising out of,
relating to or resulting from the management or conduct before, on or after the
Distribution Date of the Health Care Systems Business or ownership of the Health
Care Systems Assets (including Securities Liabilities to the extent arising out
of, relating to or resulting from information concerning the management,
business or operations of HCS, the HCS Subsidiaries or the other members of the
Health Care Systems Group in the Registration Statements or the Proxy
Statement), except as otherwise expressly provided herein.

            Notwithstanding the foregoing, the Health Care Systems Liabilities
     shall not include:

            (x)  any Liability set forth on Schedule 1.01(a); or

                                       7
<PAGE>
 
          (y)  any and all Liabilities that are expressly contemplated by this
     Agreement or any Ancillary Agreement as Liabilities to be assumed or
     retained by any member of the Instruments Group or the Semiconductor
     Equipment Group.

     "IB" has the meaning ascribed to such term in the first paragraph of this
      --                                                                      
Agreement.

     "IB Adjusted Closing Balance Sheet" has the meaning ascribed to such term
      ---------------------------------                                       
in Section 9.03(b).

     "IB Claim" has the meaning ascribed to such term in Section 8.01(b).
      --------                                                           

     "IB Closing Balance Sheet" has the meaning ascribed to such term in Section
      ------------------------                                                  
5.10(a).

     "IB Common Shares" means the shares of IB Common Stock owned by Varian
      ----------------                                                     
immediately before the Distributions.

     "IB Common Stock" has the meaning ascribed to such term in the recitals to
      ---------------                                                          
this Agreement.

     "IB Discretionary Restructuring Amount" means the total of the out-of-
         ----------------------------------                               
pocket costs of any discretionary restructuring of the Instruments Group between
October 2, 1998 and the Distribution Date, including but not limited to, all
amounts paid to employees (other than employees terminated for cause) for
accrued personal paid leave and severance amounts, as well as any amounts paid
in connection with the termination of leases and other contracts in connection
with such discretionary restructuring.

     "IB Distribution" means the distribution, on the Distribution Date, as a
      ---------------                                                        
dividend by Varian to the Varian Holders of the IB Common Shares on the basis
provided in Section 3.02.

     "IB Dispute" has the meaning ascribed to such term in Section 9.03(a).
      ----------                                                           

     "IB Indemnitees" means IB, the IB Subsidiaries and each Affiliate thereof
      --------------                                                          
after giving effect to the Corporate Reorganization Transactions and the
Distributions, and each of the past, present and future directors, officers,
employees and agents of the foregoing and each of the heirs, executors,
successors and assigns of such directors, officers, employees and agents.

     "IB Pro Forma Balance Sheet" means the pro forma balance sheet of IB at
      --------------------------                                            
October 2, 1998, attached as Exhibit G and the accounting records supporting
such balance sheet.

     "IB Records" has the meaning ascribed to such term in Section 6.01(b).
      ----------                                                           

     "IB Notes Payable" means the Notes Payable assumed by IB pursuant to
      ----------------                                                   
Sections 2.05(c) and (d).

     "IB Subsidiaries" means the Subsidiaries listed on Exhibit J.
      ---------------                                             

     "IB Term Loans" has the meaning ascribed to such term in Section
      -------------                                                  
2.05(c)(i).

     "Income Tax" means (i) any Tax imposed by Subtitle A or F of the Code, (ii)
      ----------                                                                
any Tax imposed by any state of the United States or by any political
subdivision of any such state which is imposed on or measured by net income,
including state and local franchise or similar Taxes measured by net income, and
(iii) any Tax imposed by any foreign country or any possession of the United
States, or by any political subdivision of any foreign country or United States
possession that is an income tax as defined in Treasury Regulation Section
1.901-2.

     "Indemnifiable Losses" means, with respect to any Person, any and all
      --------------------                                                
losses, obligations, claims, damages, deficiencies, penalties, judgments,
settlements, payments, fines, interest, costs and expenses (including reasonable
attorneys', accountants', consultants' or other professionals' fees,
investigation expenses and any and all other out-of-pocket expenses) or other
Liabilities whatsoever that are assessed, imposed, awarded against or incurred
by such Person excluding exemplary, special or punitive damages or lost profits
except to the extent actually paid by an 

                                       8
<PAGE>
 
Indemnitee in respect of a Third Party Claim or Action either (i) in
investigating, preparing for, defending against any Actions, any potential or
threatened Actions or any Third Party Claims or potential or threatened Third
Party Claims or in settling any of the foregoing or in satisfaction of any
judgment, fine or penalty rendered in or resulting from any of the foregoing or
otherwise arising out of, relating to or resulting from any Actions, any
potential or threatened Actions or any Third Party Claims or potential or
threatened Third Party Claims for which such Person would be entitled to
indemnification under Article VII hereof, or (ii) in respect of any other event,
occurrence or matter for which such Person would be entitled to indemnification
under Article VII hereof, in each case whether accrued before, on or after the
date of this Agreement.

     "Indemnifying Party" has the meaning ascribed to such term in Section
      ------------------                                                  
7.06(a).

     "Indemnitee" has the meaning ascribed to such term in Section 7.06(a).
      ----------                                                           

     "Independent Auditors" has the meaning ascribed to such term in Section
      --------------------                                                  
9.03(b).

     "Instruments Assets" means, collectively, all the Assets that are owned or
      ------------------                                                       
held by IB or any IB Subsidiary as of the Effective Time (and those Assets to be
transferred to IB or an IB Subsidiary at a later time as provided in Section
2.14), including:

     (i)   the capital stock of, or other ownership interests in, the IB
Subsidiaries;

     (ii)  all the Assets included on the IB Pro Forma Balance Sheet that are
owned or held by IB or any IB Subsidiary as of the Effective Time;

     (iii) all the Assets acquired by Varian or any of its Subsidiaries after
the date of the IB Pro Forma Balance Sheet which are owned or held by Varian or
any of its Subsidiaries as of the Effective Time and which are of a nature or
type that would have resulted in such Assets being included as Assets on the IB
Pro Forma Balance Sheet had they been acquired on or before the date of the IB
Pro Forma Balance Sheet, determined on a basis consistent with the determination
of the Assets included on the IB Pro Forma Balance Sheet;

     (iv)  all the Assets expressly allocated to or retained by IB or any IB
Subsidiary under this Agreement or any Ancillary Agreement, including the
Corporate Reorganization Transactions;

     (v)   rights to the Company Policies to the extent set forth in Article
VIII; and

     (vi)  the rights of IB and the IB Subsidiaries under this Agreement and the
Ancillary Agreements.

           Notwithstanding the foregoing, the Instruments Assets shall not
include any and all Assets that are expressly contemplated by this Agreement or
any Ancillary Agreement as Assets to be allocated to or retained by any member
of the Semiconductor Equipment Group or the Health Care Systems Group.

     "Instruments Business" means the business that, after giving effect to the
      --------------------                                                     
Corporate Reorganization Transactions and the Distributions, is conducted by IB,
the IB Subsidiaries and/or any other member of the Instruments Group.

     "Instruments Group" means IB, the IB Subsidiaries and the Persons that
      -----------------                                                    
become Subsidiaries of IB after the consummation of the Corporate Reorganization
Transactions and the Distributions.

     "Instruments Liabilities" means, collectively, all the Liabilities of IB,
      -----------------------                                                 
the IB Subsidiaries and the other members of the Instruments Group after giving
effect to the Corporate Reorganization Transactions and the Distributions,
including:

     (i)   all the Liabilities included on the IB Pro Forma Balance Sheet that
remain outstanding as of the Effective Time;

                                       9
<PAGE>
 
     (ii)   all the Liabilities of Varian arising or assumed after the date of
the IB Pro Forma Balance Sheet and that remain outstanding as of the Effective
Time, which are of a nature or type that would have resulted in such Liabilities
being included as Liabilities on the IB Pro Forma Balance Sheet had they arisen
or been assumed on or before the date of the IB Pro Forma Balance Sheet,
determined on a basis consistent with the determination of the Liabilities of IB
on the IB Pro Forma Balance Sheet;

     (iii)  all the Liabilities expressly assumed or retained by IB, any IB
Subsidiary and any other member of the Instruments Group under this Agreement or
any Ancillary Agreement, including the Corporate Reorganization Transactions,
the IB Term Loans and the IB Notes Payable;

     (iv)   the obligations of IB, the IB Subsidiaries and any other member of
the Instruments Group under this Agreement and the Ancillary Agreements;

     (v)    all actual or alleged Liabilities (regardless of whether any claim
with respect to such Liabilities is asserted before, on or after the
Distribution Date) relating to Environmental Matters or arising under any
Environmental Laws (including all claims for death, bodily injury, personal
injury and property damage relating to Environmental Matters or arising under
any Environmental Laws) arising out of, relating to or resulting from (A) the
activities, operations, acts or omissions at, from or with respect to the
Instruments Business or the Instruments Assets before, on or after the
Distribution Date, and (B) Remediation of any Release arising out of, relating
to or resulting from activities, operations, acts or omissions at, from or with
respect to the Instruments Business or the Instruments Assets before, on or
after the Distribution Date wherever such Remediation may be performed;

     (vi)   all actual or alleged Liabilities of IB and any other member of the
Instruments Group to third parties (regarding of whether any claim with respect
to such Liabilities is asserted before, on or after the Distribution Date)
arising out of, relating to or resulting from the transportation, handling,
possession, processing, treatment, storage, disposal, manufacture, further
manufacture, use, reuse, sale or resale of any goods manufactured, processed,
sold or distributed at any time on or before the Distribution Date by the
Instruments Business, including all such Liability for personal injury, bodily
injury (including death or aggravation of previously existing illness, injury
disability or condition) or property damage;

     (vii)  all Liabilities to persons employed by Varian or its Subsidiaries on
or before the Effective Time, the services of whom were primarily dedicated to
the Instruments Business, including Liabilities arising out of, relating to or
resulting from the termination or alleged termination of such person's
employment as a result of the Corporate Reorganization Transactions or the
Distributions and Liabilities arising out of, relating to or resulting from the
assertion by any such person of employment by a member of another Group as a
result of the Corporate Reorganization Transactions; and

     (viii) all the Liabilities of the parties or their respective Subsidiaries
(whether arising before, on or after the Distribution Date) arising out of,
relating to or resulting from the management or conduct before, on or after the
Distribution Date of the Instruments Business or ownership of the Instruments
Assets (including Securities Liabilities to the extent arising out of, relating
to or resulting from information concerning the management, business or
operations of IB, the IB Subsidiaries or the other members of the Instruments
Group in the Registration Statements or the Proxy Statement), except as
otherwise expressly provided herein.

            Notwithstanding the foregoing, the Instruments Liabilities shall not
     include:

            (x)  any Liability set forth on Schedule 1.01(a) or 1.01(c);

            (y)  any and all Liabilities that are expressly contemplated by this
     Agreement or any Ancillary Agreement as Liabilities to be assumed or
     retained by any member of the Semiconductor Equipment Group or the Health
     Care Systems Group.

     "Insurance Administration" means, with respect to each Company Policy, the
      ------------------------                                                 
accounting for premiums, retrospectively calculated additional or return
premiums or assessments, policy dividends or audited exposure, defense costs,
indemnity payments, deductibles and retentions, as appropriate, under the terms
and conditions of 

                                       10
<PAGE>
 
each of the Company Policies; the reporting to excess insurance carriers of any
losses or claims that may cause the per occurrence, per claim or aggregate
limits of any Company Policy to be exceeded and the distribution of Insurance
Proceeds as contemplated by this Agreement.

     "Insurance Proceeds" means, with respect to any insured party, those
      ------------------                                                 
monies, net of any applicable premium adjustment, retrospectively calculated
premium, deductible, retention or cost of reserve paid or held by or for the
benefit of such insured, which are either:

     (i)  received by an insured from an insurer; or

     (ii) paid by an insurer on behalf of an insured.

     "Insured Claims" means those Liabilities that, individually or in the
      --------------                                                      
aggregate, are covered within the terms and conditions of any of the Company
Policies, whether or not subject to deductibles, co-insurance, uncollectability
or retrospectively calculated premium adjustments.

     "Intellectual Property" means the intellectual property rights owned,
      ---------------------                                               
licensed to or otherwise held throughout the world by any person, including,
without limitation, all of the rights, title and interests in the following:

     (i)   all United States and foreign patents, patent applications (including
any continuations, continuation-in-part and divisionals), patent applications
under preparation, invention disclosures and invention disclosures under
preparation;

     (ii)  all United States and foreign registered and unregistered copyrights
and mask works, including applications and applications under preparation
therefor;

     (iii) all United States and foreign registered and unregistered trademarks,
trade names, trade dress, service marks, services names, artwork, logos and
other marks, including applications and applications under preparation therefor;

     (iv)  all trade secrets, know-how, ideas, concepts, discoveries,
improvements, processes, procedures, methods, recipes, formulae, data and
specifications;

     (v)  all product-related computer programs and other software (in
executable or source code format), including operating software, applications,
networks software, firmware, middleware, design software, design tools, test and
diagnostic software and systems configurations; and

     (vi)  all documentation, schematics, drawings, designs, manuals, reports,
records, instructions, studies, surveys, plans, books or other written materials
(whether in hard copy or magnetic form) relating to or including any of the (i)
through (v) above.

     "Intellectual Property Agreement" means the Intellectual Property Agreement
      -------------------------------                                           
among Varian, SEB and IB (including all exhibits and schedules thereto),
substantially in the form of Exhibit C.

     "Law" means all laws, statutes, ordinances, regulations, rules, orders and
      ---                                                                      
regulations of any Governmental Authority.

     "Liabilities" means any and all debts, liabilities, obligations,
      -----------                                                    
responsibilities, charges, claims, actions, injuries, losses, damages (whether
compensatory, punitive or treble), fines, penalties and sanctions, absolute or
contingent, matured or unmatured, liquidated or unliquidated, foreseen or
unforeseen, joint, several or individual, asserted or unasserted, accrued or
unaccrued, known or unknown, whenever arising, including those arising under or
in connection with any Law (including any Environmental Law), Action, threatened
Action, order or consent decree of any Governmental Authority or any award of
any arbitrator, and those arising under any contract, guarantee, commitment or
undertaking, whether sought to be imposed by a Governmental Authority, private
party or party to 

                                       11
<PAGE>
 
this Agreement, whether based in contract, tort, implied or express warranty,
strict liability, criminal or civil statute, or otherwise, and including any
costs, expenses, interest, attorneys' fees, disbursements and expenses of
counsel, experts' and consultants' fees and costs related thereto or to
investigating, preparing for or defending or settling any of the foregoing.

     "Managing Party" has the meaning ascribed to such term in Section 7.07(c).
      --------------                                                           

     "Meeting" means the Combined Annual and Special Meeting of holders of VAI
      -------                                                                 
Common Stock to consider the Distribution Proposals and the other proposals
included by the Board of Directors of Varian in the notice of the Meeting.

     "Meeting Date" means the date determined by the Board of Directors of
      ------------                                                        
Varian for the Meeting.

     "Meeting Record Date" means the time determined by the Board of Directors
      -------------------                                                     
of Varian for the purpose of determining the holders of record of VAI Common
Stock entitled to vote at the Meeting.

     "Nasdaq" means The Nasdaq Stock Market.
      ------                                

     "Net Debt" means the difference between (i) the sum of the Notes Payable
      --------                                                               
and VAI Term Loans assumed or retained  by a party as of the date of
determination and (ii) the amount of Cash and Cash Equivalents of such party as
of the date of determination.

     "Net Worth" has the meaning ascribed to such term under GAAP, as calculated
      ---------                                                                 
in accordance with this Agreement, but without giving effect to any Liabilities
or expenditures related to the discretionary restructuring of a business between
the date hereof and the Effective Time, including reductions in force,
facilities' closures, product line abandonment and revaluing impaired assets.

     "Nondisclosure Agreements" means all of the nondisclosure or
      ------------------------                                   
confidentiality agreements entered into by Varian and its Subsidiaries from time
to time before the Distribution Date.

     "Notes Payable" has the meaning ascribed to such term in Varian's audited
      -------------                                                           
consolidated financial statements for the fiscal year ended October 2, 1998.

     "Notice" has the meaning ascribed to such term in Section 10.05.
      ------                                                         

     "NYSE" means the New York Stock Exchange, Inc.
      ----                                         

     "Palo Alto Property Disposition" has the meaning ascribed to such term in
      ------------------------------                                          
Section 2.01(b).

     "Panel" has the meaning ascribed to such term in Section 9.02(c).
      -----                                                           

     "Person" means any natural person, corporation, business trust, joint
      ------                                                              
venture, association, company, partnership, limited liability company or other
entity or any Governmental Authority.

     "Policies" means insurance policies and insurance contracts of any kind
      --------                                                              
(other than life and benefits policies or contracts), including primary, excess
and umbrella policies, commercial general liability policies, officers'
liability, fiduciary liability, automobile, aircraft, property and casualty,
workers' compensation and employee dishonesty insurance policies, bonds and
self-insurance and captive insurance arrangements, together with the rights,
benefits and privileges thereunder.

     "Privilege" has the meaning ascribed to such term in Section 6.07(a).
      ---------                                                           

     "Privileged Information" has the meaning ascribed to such term in Section
      ----------------------                                                  
6.07(b).

                                       12
<PAGE>
 
     "Proxy Statement" means the Proxy Statement sent to the holders of VAI
      ---------------                                                      
Common Stock in connection with the Meeting, including any amendments or
supplements thereto.

     "Registration Statements" means the Registration Statements on Form 10 to
      -----------------------                                                 
be filed by SEB and IB with the Commission pursuant to the requirements of the
Exchange Act and the rules and regulations thereunder in order to register the
SEB Common Stock and the IB Common Stock, respectively, under the Exchange Act,
including any amendments thereto.

     "Release" means any spilling, leaking, pumping, pouring, emitting,
      -------                                                          
discharging, injecting, escaping, leaching, dumping or disposing into the
environment of any Hazardous Material, including the abandonment or discarding
of containers and other receptacles containing any Hazardous Materials and any
passive migration of any Hazardous Material.

     "Remediation" means any investigation, remediation, prevention, containment
      -----------                                                               
or abatement of releases or threatened releases of materials into the workplace
or the environment and the assessment and mitigation of risks and/or restoration
of any harm arising therefrom and any related actions.

     "Representative" means, with respect to any Person, any of such Person's
      --------------                                                         
directors, officers, employees, agents, consultants, advisors, accountants,
attorneys and representatives.

     "SEB" has the meaning ascribed to such term in the first paragraph of this
      ---                                                                      
Agreement.

     "SEB Adjusted Closing Balance Sheet" has the meaning ascribed to such term
      ----------------------------------                                       
in Section 9.03(b).

     "SEB Claim" has the meaning ascribed to such term in Section 8.01(c).
      ---------                                                           

     "SEB Closing Balance Sheet" has the meaning ascribed to such term in
      -------------------------                                          
Section 5.10(a).

     "SEB Common Shares" means the shares of SEB Common Stock owned by Varian
      -----------------                                                      
immediately before the Distributions.

     "SEB Common Stock" has the meaning ascribed to such term in the recitals to
      ----------------                                                          
this Agreement.

     "SEB Dispute" has the meaning ascribed to such term in Section 9.03(a).
      -----------                                                           

     "SEB Distribution" means the distribution, on the Distribution Date, as a
      ----------------                                                        
dividend by Varian to the Varian Holders of the SEB Common Shares on the basis
provided in Section 3.02.

     "SEB Indemnitees" means SEB, the SEB Subsidiaries and each Affiliate
      ---------------                                                    
thereof after giving effect to the Corporate Reorganization Transactions and the
Distributions, and each of the past, present and future directors, officers,
employees and agents of the foregoing and each of the heirs, executors,
successors and assigns of such directors, officers, employees and agents.

     "SEB Pro Forma Balance Sheet" means the pro forma balance sheet of SEB at
      ---------------------------                                             
October 2, 1998, attached as Exhibit H and the accounting records supporting
such balance sheet.

     "SEB Records" has the meaning ascribed to such term in Section 6.01(a).
      -----------                                                           

     "SEB Subsidiaries" means the Subsidiaries listed on Exhibit K.
      ----------------                                             

     "Securities Act" means the Securities Act of 1933, as amended.
      --------------                                               

     "Securities Liabilities" means any Liabilities whatsoever that are
      ----------------------                                           
assessed, imposed, awarded against, incurred or accrued by a Person arising out
of, relating to or resulting from, in whole or in part, any Action, any
potential or threatened Action or any Third Party Claim (or any potential or
threatened Third Party Claim) by any 

                                       13
<PAGE>
 
Governmental Authority or any other Person that is based on any violations or
alleged violations of the Securities Act, Exchange Act, any of the rules or
regulations of the Commission promulgated under the Securities Act or Exchange
Act, or any other securities or other similar Law, or on any alleged breach of
duty by a Person in causing, permitting or failing to prevent any such violation
or alleged violation.

     "Security Interest" means any mortgage, security interest, pledge, lien,
      -----------------                                                      
charge, claim, option, right to acquire, voting or other restriction, right-of-
way, covenant, condition, easement, encroachment, restriction on transfer, or
other encumbrance of any nature whatsoever.

     "Semiconductor Equipment Assets" means, collectively, all the Assets that
      ------------------------------                                          
are owned or held by SEB or any SEB Subsidiary as of the Effective Time (and
those Assets to be transferred to SEB or a SEB Subsidiary at a later time as
provided in Section 2.14), including:

     (i)   the capital stock of, or other ownership interests in, the SEB
Subsidiaries;

     (ii)  all the Assets included on the SEB Pro Forma Balance Sheet that are
owned or held by SEB or any SEB Subsidiary as of the Effective Time;

     (iii) all the Assets acquired by Varian or any of its Subsidiaries after
the date of the SEB Pro Forma Balance Sheet which are owned or held by Varian or
any of its Subsidiaries as of the Effective Time and which are of a nature or
type that would have resulted in such Assets being included as Assets on the SEB
Pro Forma Balance Sheet had they been acquired on or before the date of the SEB
Pro Forma Balance Sheet, determined on a basis consistent with the determination
of the Assets included on the SEB Pro Forma Balance Sheet;

     (iv)  all the Assets expressly allocated to or retained by SEB or any SEB
Subsidiary under this Agreement or any Ancillary Agreement, including the
Corporate Reorganization Transactions;

     (v)   rights to the Company Policies to the extent set forth in Article
VIII; and

     (vi)  the rights of SEB and the SEB Subsidiaries under this Agreement and
the Ancillary Agreements.

           Notwithstanding the foregoing, the Semiconductor Equipment Assets
shall not include any and all Assets that are expressly contemplated by this
Agreement or any Ancillary Agreement as Assets to be allocated to or retained by
any member of the Instruments Group or the Health Care Systems Group.

     "Semiconductor Equipment Business" means the business that, after giving
      --------------------------------                                       
effect to the Corporate Reorganization Transactions and the Distributions, is
conducted by SEB, the SEB Subsidiaries and/or any other member of the
Semiconductor Equipment Group.

     "Semiconductor Equipment Group" means SEB, the SEB Subsidiaries and the
      -----------------------------                                         
Persons that become Subsidiaries of SEB after the consummation of the Corporate
Reorganization Transactions and the Distributions.

     "Semiconductor Equipment Liabilities" means, collectively, all of the
      -----------------------------------                                 
Liabilities of SEB, the SEB Subsidiaries and the other members of the
Semiconductor Equipment Group after giving effect to the Corporate
Reorganization Transactions and the Distributions, including:

     (i)   all the Liabilities included on the SEB Pro Forma Balance Sheet that
remain outstanding as of the Effective Time;

     (ii)  all the Liabilities of Varian arising or assumed after the date of
the SEB Pro Forma Balance Sheet that remain outstanding as of the Effective
Time, which are of a nature or type that would have resulted in such Liabilities
being included as Liabilities on the SEB Pro Forma Balance Sheet had they arisen
or been assumed on or before the date of the SEB Pro Forma Balance Sheet,
determined on a basis consistent with the determination of the Liabilities of
SEB on the SEB Pro Forma Balance Sheet;

                                       14
<PAGE>
 
     (iii)  all the Liabilities expressly assumed or retained by SEB, any SEB
Subsidiary and any other member of the Semiconductor Equipment Group under this
Agreement or any Ancillary Agreement, including the Corporate Reorganization
Transactions;

     (iv)   the obligations of SEB, the SEB Subsidiaries and any other member of
the Semiconductor Equipment Group under this Agreement and the Ancillary
Agreements;

     (v)    all actual or alleged Liabilities (regardless of whether any claim
with respect to such Liabilities is asserted before, on or after the
Distribution Date) relating to Environmental Matters or arising under any
Environmental Laws (including all claims for death, bodily injury, personal
injury and property damage relating to Environmental Matters or arising under
any Environmental Laws) arising out of, relating to or resulting from (A) the
activities, operations, acts or omissions at, from or with respect to the
Semiconductor Equipment Business or the Semiconductor Equipment Assets before,
on or after the Distribution Date and (B) Remediation of any Release arising out
of, relating to or resulting from activities, operations, acts or omissions at,
from or with respect to the Semiconductor Equipment Business or the
Semiconductor Equipment Assets before, on or after the Distribution Date
wherever such Remediation may be performed;

     (vi)   all actual or alleged Liabilities of SEB and any other member of the
Semiconductor Equipment Group to third parties (regardless of whether any claim
with respect to such Liabilities is asserted before, on or after the
Distribution Date) arising out of, relating to or resulting from the
transportation, handling, possession, processing, treatment, storage, disposal,
manufacture, further manufacture, use, reuse, sale or resale of any goods
manufactured, processed, sold or distributed at any time on or before the
Distribution Date by the Semiconductor Equipment Business, including all such
Liability for personal injury, bodily injury (including death or aggravation of
previously existing illness, injury disability or condition) or property damage;

     (vii)  all the Liabilities of the parties or their respective Subsidiaries,
(whether arising before, on or after the Distribution Date) arising out of,
relating to or resulting from the management or conduct before, on or after the
Distribution Date of the Semiconductor Equipment Business or ownership of the
Semiconductor Equipment Assets (including Securities Liabilities to the extent
arising out of, relating to or resulting from information concerning the
management, business or operations of SEB, the SEB Subsidiaries or the other
members of the Semiconductor Equipment Group in the Registration Statements and
Proxy Statement), except as otherwise expressly provided herein;

     (viii) all Liabilities to persons employed by Varian or its Subsidiaries
on or before the Effective Time, the services of whom were primarily dedicated
to the Semiconductor Equipment Business, including Liabilities arising out of,
relating to or resulting from the termination or alleged termination of such
person's employment as a result of the Corporate Reorganization Transactions or
the Distributions and Liabilities arising out of, relating to or resulting from
the assertion by any such person of employment by a member of another Group as a
result of the Corporate Reorganization Transactions; and

     (ix)   all Liabilities, including those expressly enumerated in clauses (i)
through (viii), arising out of, related to, or resulting from the Thin Film
Systems Business and the acquisition, ownership, use and disposition of the
Assets related thereto.

            Notwithstanding the foregoing, the Semiconductor Equipment
     Liabilities shall not include:

            (x) any Liability set forth on Schedule 1.01(a) or 1.01(c); or

            (y) any and all Liabilities that are expressly contemplated by this
     Agreement or any Ancillary Agreement as Liabilities to be assumed or
     retained by any member of the Instruments Group or the Health Care Systems
     Group.

     "Separation Committee" has the meaning ascribed to such term in Section
      --------------------                                                  
9.01(a).

                                       15
<PAGE>
 
     "Shared Assets" means (i) the Assets listed on Schedule 1.02, (ii) any
      -------------                                                        
claim or right of Varian or its Subsidiaries (before giving effect to the
Corporate Reorganization Transactions and the Distributions) arising out of,
relating to or resulting from, the management or conduct before the
Distributions of the business of Varian or its Subsidiaries (before giving
effect to the Corporate Reorganization Transactions and the Distributions),
which Asset is not expressly included in the definitions of "Health Care Systems
Assets," "Instruments Assets" or "Semiconductor Equipment Assets" and which
claim or right, whenever arising, has accrued before the Distribution Date and
(iii) any Asset received in respect of a Shared Liability, the amount of which
exceeds the amount of the Shared Liability then due and owing.

     "Shared Liabilities" means (i) the Liabilities listed on Schedule 1.01(a),
      ------------------                                                       
(ii) any Liability (whether arising before, on or after the Distributions) of
Varian or its Subsidiaries (before giving effect to the Corporate Reorganization
Transactions and the Distributions) arising out of, relating to or resulting
from, the management or conduct before the Distributions of the businesses of
Varian or its Subsidiaries (before giving effect to the Corporate Reorganization
Transactions and the Distributions) or their respective Assets, which Liability
is not expressly included in the definitions of "Health Care Systems
Liabilities," "Instruments Liabilities" or "Semiconductor Equipment
Liabilities," including those Liabilities listed on Schedule 1.01(b), Securities
Liabilities of Varian and its Subsidiaries (before giving effect to the
Corporate Reorganization Transactions and Distributions) and/or any of its and
their respective directors, officers, employees, agents or representative at or
before the Distributions (other than Securities Liabilities specifically assumed
by HCS, SEB and IB in this Agreement) and Liabilities arising out of, relating
to or resulting from any alleged breach of fiduciary duty by the Board of
Directors of Varian or any member thereof at or before the Distributions, (iii)
the Costs of personnel and third party service providers involved in Insurance
Administration with respect to the Company Policies, and (iv) the cost of any
Policies, letters of credit or surety bonds insuring against or otherwise
covering the Liabilities included in clauses (i) and (ii) and the Costs of
personnel and third party service providers involved in Insurance Administration
or Claims Administration with respect to such Policies.

     "Subsidiary" means, with respect to any Person:
      ----------                                    

     (i)  any corporation of which at least a majority in interest of the
outstanding voting stock (having by the terms thereof voting power under
ordinary circumstances to elect a majority of the directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of a contingency) is at the time, directly or indirectly, owned or
controlled by such Person or by such Person and one or more of its Subsidiaries;
or

     (ii) any non-corporate entity in which such Person or such Person and one
or more Subsidiaries of such Person either (A) directly or indirectly, at the
date of determination thereof, has at least majority ownership interest, or (B)
at the date of determination is a general partner or an entity performing
similar functions (e.g., manager of a limited liability company or a trustee of
a trust).

     "Tax" or "Taxes" means any income, gross income, gross receipts, profits,
      ---      -----                                                          
capital stock, franchise, withholding, payroll, social security, workers'
compensation, unemployment, registration, disability, property, ad valorem,
stamp, excise, severance, occupation, service, sales, use, license, lease,
transfer, import, export, value added, alternative minimum, estimated, or other
similar tax (including any fee, assessment or other charge in the nature of or
in lieu of any tax) imposed by any Governmental Authority, and any interest,
penalties, additions to tax, or additional amounts in respect of the foregoing.

     "Tax Benefit" means the product determined by multiplying the sum of all
      -----------                                                            
Transaction Expenditures (whether paid before, on or after the Effective Time)
that are deductible for U.S. federal income tax purposes by 38%.

     "Tax Cost" means the sum of the products determined by multiplying the
      --------                                                             
gains on the Dispositions (whether recognized before, on or after the Effective
Time) for U.S. federal income tax purposes by 38%.

     "Tax Sharing Agreement" means the Tax Sharing Agreement among Varian, IB
      ---------------------                                                  
and SEB (including all exhibits or schedules thereto) substantially in the form
of Exhibit D.

                                       16
<PAGE>
 
     "Thin Film Systems Business" means the business of the development,
      --------------------------                                        
manufacture, sale and service of products for physical vapor disposition and
chemical vapor disposition of thin films sold to Novellus Systems, Inc.
effective June 13, 1997.

     "Third Party Claim" has the meaning ascribed to such term in Section
      -----------------                                                  
7.07(a).

     "Transaction Expenditures" means all cash costs, expenses or other
      ------------------------                                         
expenditures incurred before or after the date hereof in connection with the
preparation, execution and delivery of this Agreement and the Ancillary
Agreements and the effectuation of the Corporate Reorganization Transactions and
the Distributions, including the items listed on Schedule 1.03, but excluding
(i) taxes, (ii) the costs associated with the termination of personnel employed
other than in the United States, (iii) Liabilities and expenditures related to
the discretionary restructuring of a business, and (iv) Shared Liabilities.

     "Transition Services Agreement" means the Transition Services Agreement
      -----------------------------                                         
among SEB, IB and Varian (including all exhibits or schedules thereto),
substantially in the form of Exhibit E.

     "VAI Common Stock" has the meaning ascribed to such term in the recitals to
      ----------------                                                          
this Agreement.

     "VAI Term Loans" means the indebtedness outstanding under the Senior Notes
      --------------                                                           
of Varian issued and outstanding under the Master Shelf Agreement dated as of
May 11, 1992 and the Note Purchase and Private Master Shelf Agreement dated as
of October 18, 1996.

     "Varian" has the meaning ascribed to such term in the first paragraph of
      ------                                                                 
this Agreement.

     "Varian Holders" means the holders of record of VAI Common Stock as of the
      --------------                                                           
Distribution Record Date.

     Section 1.02.  References; Interpretation. References in this Agreement to
                    --------------------------    
any gender include references to all genders, and references to the singular
include references to the plural and vice versa. The words "include," "includes"
and "including" when used in this Agreement shall be deemed to be followed by
the phrase "without limitation." Unless the context otherwise requires,
references in this Agreement to Articles, Sections, Exhibits and Schedules shall
be deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement. Unless the context otherwise requires, the words "hereof,"
"hereby" and "herein" and words of similar meaning when used in this Agreement
refer to this Agreement in its entirety and not to any particular Article,
Section or provision of this Agreement.

                                  ARTICLE II
                        PRE-DISTRIBUTION TRANSACTIONS;
                               CERTAIN COVENANTS

     Section 2.01.  Corporate Reorganization Transactions; Dispositions.
                    --------------------------------------------------- 
     (a)  Corporate Reorganization. On or before the Distribution Date (but in
          ------------------------   
all events before the Distributions), each of Varian, IB and SEB shall, and
shall cause each of their respective Subsidiaries to, as applicable, take such
action or actions as is necessary or appropriate to cause, effect and consummate
the Corporate Reorganization Transactions in accordance with the terms and
provisions set forth in Exhibit A. Notwithstanding the foregoing, each of
Varian, IB and SEB agrees that before the Distributions, one or more of the
Corporate Reorganization Transactions may be amended, modified, supplemented or
eliminated by Varian in any manner determined by Varian in its sole discretion
to be necessary or appropriate, including to qualify any of such transactions
for tax-free treatment under the Code; provided, however, that no Corporate
                                       --------  -------   
Reorganization Transaction may be amended, modified, supplemented or eliminated
after the Varian stockholders approve the Distributions, unless it would not be
materially adverse to the Varian stockholders.

                                       17
<PAGE>
 
     (b)  Dispositions.
          ------------ 
          (i)  Varian shall use commercially reasonable efforts to sell Varian's
     leasehold interest in and buildings and fixtures for four of its buildings
     in the Stanford Research Park (the Ginzton Research Center at 3075 Hansen
     Way and the three buildings at 3030-3050 Hansen Way, Palo Alto) before the
     Distribution Date (the "Palo Alto Property Disposition").

          (ii) Varian shall use commercially reasonable efforts to sell its Gulf
     Stream III aircraft, model year 1980 before the Distribution Date (the
     "Aircraft Disposition").

     Section 2.02.  Conveyance of Assets. Except as otherwise expressly provided
                    -------------------- 
in this Agreement or the Ancillary Agreements, on or before the Distribution
Date,

     (a)  Health Care Systems Transfers. Varian shall, on behalf of itself and
          -----------------------------    
the HCS Subsidiaries, transfer or cause to be transferred to IB or an IB
Subsidiary all of Varian's and the HCS Subsidiaries' right, title and interest
in the Instruments Assets. Varian shall, on behalf of itself and the HCS
Subsidiaries, transfer or cause to be transferred to SEB or a SEB Subsidiary all
of Varian's and the HCS Subsidiaries' right, title and interest in the
Semiconductor Equipment Assets.

     (b)  Instruments Transfers. IB shall, on behalf of itself and the IB
          ---------------------                                           
Subsidiaries, transfer or cause to be transferred to Varian or a HCS Subsidiary
all of IB's and the IB Subsidiaries' right, title and interest in the Health
Care Systems Assets. IB shall, on behalf of itself and the IB Subsidiaries,
transfer or cause to be transferred to SEB or a SEB Subsidiary, all of IB's and
the IB Subsidiaries' right, title and interest in the Semiconductor Equipment
Assets.

     (c)  Semiconductor Equipment Transfers. SEB shall, on behalf of itself and
          ---------------------------------  
the SEB Subsidiaries, transfer or cause to be transferred to Varian or a HCS
Subsidiary all of SEB's and the SEB Subsidiaries' right, title and interest in
the Health Care Systems Assets. SEB shall, on behalf of itself and the SEB
Subsidiaries, transfer or cause to be transferred to IB or an IB Subsidiary all
of SEB's and the SEB Subsidiaries' right, title and interest in the Instruments
Assets.

     (d)  IT Capital Equipment. Notwithstanding the foregoing, each of Varian,
          --------------------    
IB and SEB shall transfer or cause to be transferred to HCS, IB and SEB as
tenants in common each of its and its respective Subsidiaries' right, title and
interest in the Assets identified in the schedules to the Transition Services
Agreement as the "IT Capital Equipment" subject to all Liabilities associated
therewith.

     (e)  Designation of Owner. Each of Varian, IB and SEB may designate the
          --------------------         
member of its Group to which each Asset is to be transferred.

     Section 2.03.  Transfer and Assignment of Certain Licenses and Permits.
                    ------------------------------------------------------- 
Without limiting the generality of Section 2.02 and except as otherwise
expressly provided in this Agreement or the Ancillary Agreements, on or before
the Distribution Date:

     (a)  Semiconductor Equipment Licenses. Each of Varian and IB shall (and, if
          -------------------------------- 
applicable, shall cause any other Person over which it has direct or indirect
control to), duly and validly transfer or cause to be duly and validly
transferred to the appropriate member of the Semiconductor Equipment Group all
transferable licenses, permits and authorizations issued by any Governmental
Authority which are held in the name of any member of the Health Care Systems
Group or the Instruments Group, or any of their respective employees, officers,
directors, stockholders or agents that relate to the Semiconductor Equipment
Business and are not otherwise required by the Health Care Systems Business or
the Instruments Business, respectively.

     (b)  Instruments Licenses. Each of Varian and SEB shall (and, if
          --------------------     
applicable, shall cause any other Person over which it has direct or indirect
control to), duly and validly transfer or cause to be duly and validly
transferred to the appropriate member of the Instruments Group all transferable
licenses, permits and authorizations issued by any Governmental Authority which
are held in the name of any member of the Health Care Systems 

                                       18
<PAGE>
 
Group or the Semiconductor Equipment Group, or any of their respective
employees, officers, directors, stockholders or agents that relate to the
Instruments Business and are not otherwise required by the Health Care Systems
Business or the Semiconductor Equipment Business, respectively.

     (c)  Health Care Systems Licenses.  Each of SEB and IB shall (and, if
          ----------------------------                                    
applicable, shall cause any other Person over which it has direct or indirect
control to), duly and validly transfer or cause to be duly and validly
transferred to the appropriate member of the Health Care Systems Group all
transferable licenses, permits and authorizations issued by any Governmental
Authority which are held in the name of any member of the Semiconductor
Equipment Group or the Instruments Group, or any of their respective employees,
officers, directors, stockholders or agents that relate to the Health Care
Systems Business and are not otherwise required by the Semiconductor Equipment
Group or the Instruments Group, respectively.

     Section 2.04.  Transfer and Assignment of Certain Agreements.
                    --------------------------------------------- 

     (a)  Transfers. Without limiting the generality of Section 2.02 and except
          ---------   
as otherwise expressly provided in this Agreement or the Ancillary Agreements,
on or before the Distribution Date, and subject to the limitations set forth in
this Section 2.04:

          (i)   Each of SEB and IB shall (and, if applicable, shall cause any
     other Person over which it has direct or indirect control to), assign,
     transfer and convey to the appropriate member of the Health Care Systems
     Group all its (or such other Person's) right, title and interest in and to
     any and all agreements that relate exclusively to the Health Care Systems
     Business or any member of the Health Care Systems Group.

          (ii)  Each of Varian and IB shall (and, if applicable, shall cause any
     other Person over which it has direct or indirect control to) assign,
     transfer and convey to the appropriate member of the Semiconductor
     Equipment Group all its (or such other Person's) right, title and interest
     in and to any and all agreements that relate exclusively to the
     Semiconductor Equipment Business or any member of the Semiconductor
     Equipment Group.

          (iii) Each of Varian and SEB shall (and, if applicable, shall cause
     any other Person over which it has direct or indirect control to) assign,
     transfer and convey to the appropriate member of the Instruments Group all
     its (or such other Person's) right, title and interest in and to any and
     all agreements that relate exclusively to the Instruments Business or any
     member of the Instruments Group.

     (b)  Obligations of Assignees. The assignee of any agreement assigned, in
          ------------------------ 
whole or in part, under this Agreement (an "Assignee") shall assume and agree to
pay, perform and fully discharge all obligations of the assignor under such
agreement (whether such obligations arose or were incurred before, on or after
the Distribution Date and irrespective of whether such obligations have been
asserted as of the Distribution Date) or, in the case of a partial assignment,
such Assignee's portion of such obligations.

     (c)  No Assignment of Certain Agreements.  Notwithstanding anything in this
          -----------------------------------                                   
Agreement to the contrary, this Agreement shall not constitute an agreement to
assign any agreement, in whole or in part, or any rights thereunder if the
agreement to assign or attempt to assign, without the consent of a third party,
would constitute a breach thereof or in any way adversely affect the rights of
the Assignee thereof. Until such consent is obtained or if an attempted
assignment thereof would be ineffective or would adversely affect the rights of
any party so that the Assignee would not, in fact, receive all such rights, the
provisions of Section 2.14 shall apply to such agreement.

     Section 2.05.  Certain Financial and Other Arrangements.
                    ---------------------------------------- 

     (a)  Settlement of Intercompany Accounts.  All intercompany receivables,
          -----------------------------------                                
payables and loans (other than receivables, payables and loans otherwise
expressly provided for in this Agreement or an Ancillary Agreement), including
in respect of any cash balances, any cash balances representing deposited checks
or drafts for which only a provisional credit has been allowed or any cash held
in any centralized cash management system, (i) between any member of the
Semiconductor Equipment Group, on the one hand, and any member of the Health
Care Systems Group, on the other hand, (ii) between any member of the Health
Care Systems Group, on the one

                                       19
<PAGE>
 
hand, and any member of the Instruments Group, on the other hand, and (iii)
between any member of the Instruments Group, on the one hand, and any member of
the Semiconductor Equipment Group, on the other hand, shall, as of the Effective
Time, be settled, capitalized or converted into ordinary trade accounts in
accordance with the Corporate Reorganization Transactions and, if applicable,
shall be paid or settled in the ordinary course of business in a manner
consistent with payment or settlement of similar accounts arising from
transactions with third parties.

     (b)  SEB Capital Contribution; Consolidated Debt.
          ------------------------------------------- 

          (i)  Capital Contributions. In addition to any other obligations under
               --------------------- 
     this Agreement, on or before the Distribution Date, Varian shall contribute
     to SEB an amount of Cash and Cash Equivalents such that after giving effect
     to the Corporate Reorganization Transactions (A) the aggregate Cash and
     Cash Equivalents of the members of the Semiconductor Equipment Group as of
     the Effective Time would equal at least $100,000,000 and (B) SEB would have
     a consolidated Net Worth as of the Effective Time of at least $150,000,000.
     Such contribution shall be based on Varian's good faith estimate of the
     Cash and Cash Equivalents of the Semiconductor Equipment Group and the
     consolidated Net Worth of SEB as of the Effective Time and shall be subject
     to adjustment as provided in Section 9.03(c)(i).

          (ii) Consolidated Debt. Varian shall not cause or permit the transfer
               -----------------                                               
     to or retention by any member of the Semiconductor Equipment Group of Notes
     Payable or other Consolidated Debt if, as a result thereof, the
     Consolidated Debt of SEB as of the Effective Time would exceed $5,000,000.
     If after giving effect to the Corporate Reorganization Transactions, the
     Consolidated Debt of SEB would exceed such amount, Varian shall take such
     actions as shall be necessary, which may include but shall not be limited
     to, payment, partial payment or provision for payment in the form of the
     contribution of additional Cash and Cash Equivalents of one or more
     Liabilities comprising such Consolidated Debt to reduce the amount thereof
     to no more than $5,000,000.  The Consolidated Debt caused or permitted to
     be transferred or retained shall be based on Varian's good faith estimate
     of the Notes Payable and other Consolidated Debt of the Semiconductor
     Equipment Group as of the Effective Time and shall be subject to adjustment
     as provided in Section 9.03(c)(i).

     (c)  IB Capital Contribution; Term Loans; Notes Payable.
          -------------------------------------------------- 

          (i)  Term Loans. As of the Effective Time, IB shall assume as an
               ----------         
     Instruments Liability 50% of the VAI Term Loans outstanding as of the
     Effective Time (the "IB Term Loans").

          (ii) Notes Payable; IB Capital Contribution. As of the Effective Time,
               --------------------------------------
     the Instruments Group shall assume or retain as an Instruments Liability an
     amount of the Notes Payable and shall retain or have contributed to it as
     of the Effective Time an aggregate amount of Cash and Cash Equivalents such
     that the Net Debt of IB as of the Effective Time would be equal to 50% of
     the combined Net Debt of HCS and IB as of the Effective Time, after giving
     effect to the Corporate Reorganization Transactions and the provisions of
     Section 2.05(b) but before giving effect to the provisions of Section
     2.05(d). Notwithstanding the foregoing, if the assumptions, contributions
     and retentions contemplated by the immediately preceding sentence (after
     giving effect to the Corporate Reorganization Transactions and the
     provisions of Section 2.05(b) but before giving effect to the provisions of
     Section 2.05(d)) would cause the consolidated Net Worth of HCS as of the
     Effective Time (A) to exceed 50% of the combined consolidated Net Worths of
     HCS and IB as of the Effective Time or (B) to be less than 40% of the
     combined consolidated Net Worths of HCS and IB as of the Effective Time,
     then, in the case of (A) the amount of Notes Payable to be assumed or
     retained by the Instruments Group shall be decreased (and/or the Cash and
     Cash Equivalents contributed to IB by Varian increased) such that the
     consolidated Net Worth of HCS as of the Effective Time would equal 50% of
     the combined consolidated Net Worths of HCS and IB as of the Effective Time
     and, in the case of (B) the amount of Notes Payable to be assumed or
     retained by the Instrument Group shall be increased (and/or the Cash and
     Cash Equivalents contributed to IB by Varian decreased) such that the
     consolidated Net Worth of HCS as of the Effective Time would equal 40% of
     the combined consolidated Net Worths of HCS and IB as of the Effective
     Time. For purposes of this Section 2.05(c)(ii), the consolidated Net Worth
     of HCS shall be determined without giving effect to any Transaction
     Expenditures or Dispositions (including associated tax benefit and tax
     cost) that have been accrued, paid or

                                       20
<PAGE>
 
     received by HCS as of the Effective Time. The amounts of Notes Payable,
     Cash and Cash Equivalents and Net Worth used to determine the assumptions,
     contributions and retentions provided in this Section 2.05(c)(ii) shall be
     based on Varian's good faith estimates and shall be subject to adjustment
     as provided in Section 9.03(c)(ii).

     (d)  Additional Allocations. In addition to the Notes Payable to be assumed
          ----------------------     
or retained by the Instruments Group and/or the capital contributions to be made
to IB by Varian contemplated by paragraph (c) above, if the After-tax
Differential is a positive number, then the amount of Notes Payable to be
assumed or retained by the Instruments Group shall be decreased (and/or the Cash
and Cash Equivalents contributed to IB by Varian increased) by an amount equal
to 50% of the After-tax Differential. If, instead, the After-tax Differential is
a negative number, then the amount of Notes Payable to be assumed or retained by
the Instruments Group shall be increased (and/or the Cash and Cash Equivalents
contributed to IB by Varian decreased) by an amount equal to 50% of the absolute
After-tax Differential (i.e., irrespective of its negative sign). The components
of the After-tax Differential which are not determined as of the Effective Time
shall be based on Varian's good faith estimates immediately before the Effective
Time and shall be subject to adjustment as provided in Section 9.04.

     (e)  Discretionary Restructuring Amounts. In addition to the transfers and
          ----------------------------------- 
retentions of Cash and Cash Equivalents and Debt contemplated by Sections
2.05(c) and (d), if the estimated HCS Discretionary Restructuring Amount exceeds
the estimated IB Discretionary Restructuring Amount as of the Effective Time,
the amounts of Notes Payable to be assumed or retained by the Instruments Group
shall be decreased (and/or the Cash and Cash Equivalents contributed to IB by
Varian increased) by an amount equal to 50% of such excess (after giving effect
to any tax benefits) and if the estimated IB Discretionary Restructuring Amount
exceeds the estimated HCS Discretionary Restructuring Amount as of the Effective
Time, the amounts of Notes Payable to be assumed or retained by the Instruments
Group shall be increased (and/or the Cash and Cash Equivalents contributed to IB
by Varian decreased) by an amount equal to 50% of such excess (after giving
effect to any tax benefits). Any such tax benefit shall be determined using a
federal income tax rate of 38%.

     (f)  Renegotiation and Allocation. Varian shall use its reasonable efforts
          ----------------------------
to obtain, before the Distribution Date, all required consents, waivers or
amendments or other actions by the lenders under the VAI Term Loans and the
Notes Payable to permit the transfers, assumptions and retentions contemplated
by Sections 2.05(b), (c) and (d). Notwithstanding the foregoing, Notes Payable
shall first be transferred to or retained by the member of the Group to which
any related Asset is transferred, or by which any related Asset is retained, and
shall only be allocated to another Group to the extent otherwise required by
this Section 2.05.

     Section 2.06.  Assumption and Satisfaction of Liabilities. Except as
                    ------------------------------------------ 
otherwise expressly provided in this Agreement or any Ancillary Agreement, from
and after the Effective Time,

     (a)  Health Care Systems Liabilities.  HCS shall, and shall cause the other
          -------------------------------                                       
members of the Health Care Systems Group to, assume, pay, perform and discharge
all Health Care Systems Liabilities in accordance with their terms, when
determinable, and otherwise in accordance with the practice of the parties
before the Distributions;

     (b)  Semiconductor Equipment Liabilities. SEB shall, and shall cause the
          ----------------------------------- 
other members of the Semiconductor Equipment Group to, assume, pay, perform and
discharge all Semiconductor Equipment Liabilities in accordance with their
terms, when determinable, and otherwise in accordance with the practice of the
parties before the Distributions; and

     (c)  Instruments Liabilities. IB shall, and shall cause the other members
          -----------------------    
of the Instruments Group to, assume, pay, perform and discharge all Instruments
Liabilities in accordance with their terms, when determinable, and otherwise in
accordance with the practice of the parties before the Distributions.

     Section 2.07.  Stock Issuance; Dividends. On or before the Distribution
                    -------------------------   
Date (but in all events before the Distributions),

                                       21
<PAGE>
 
     (a)  IB Common Stock.  IB shall take all necessary actions so that on the
          ---------------                                                     
Distribution Date, the number of shares of IB Common Stock outstanding and held
by Varian is equal to the number of shares of VAI Common Stock outstanding on
the Distribution Record Date.

     (b)  SEB Common Stock.  SEB shall take all necessary actions so that on the
          ----------------                                                      
Distribution Date, the number of shares of SEB Common Stock outstanding and held
by Varian is equal to the number of shares of VAI Common Stock outstanding on
the Distribution Record Date.

     Section 2.08. Charters; By-laws; Rights Plans. On or before the
                   -------------------------------
Distribution Date (but in all events before the Distributions):

     (a)  SEB Governance Matters. Each of Varian and SEB shall take all
          ----------------------  
necessary actions so that as of the Effective Time the Certificate of
Incorporation and By-laws of SEB will be substantially in the forms filed as
exhibits to SEB's Registration Statement at the time it becomes effective and a
Rights Agreement in substantially the form filed as an exhibit to SEB's
Registration Statement at the time it becomes effective shall have been executed
and delivered.

     (b)  IB Governance Matters.  Each of Varian and IB shall take all necessary
          ---------------------
actions so that as of the Effective Time the Certificate of Incorporation and
By-laws of IB will be substantially in the forms filed as exhibits to IB's
Registration Statement at the time it becomes effective and a Rights Agreement
in substantially the form filed as an exhibit to IB's Registration Statement at
the time it becomes effective shall have been executed and delivered.

     (c)  HCS Governance Matters. Varian shall take all necessary actions so
          ----------------------
that immediately after the Effective Time the Amended and Restated Certificate
of Incorporation of Varian will include the amendments approved at the Meeting
by the holders of VAI Common Stock and the By-laws of Varian will be in
substantially the form of Exhibit L.

     Section 2.09.  Directors, Officers and Employees.
                    --------------------------------- 

     (a) Election of Directors of IB and SEB. On or before the Distribution
         -----------------------------------
Date:

         (i)  Each of Varian and SEB shall take all necessary actions so that as
     of the Effective Time the directors of SEB will be as set forth in the
     Proxy Statement.

         (ii) Each of Varian and IB shall take all necessary actions so that as
     of the Effective Time the directors of IB will be as set forth in the Proxy
     Statement.

     (b)  Election of Officers. On or before the Distribution Date, each of
          -------------------- 
Varian, SEB and IB, as applicable, shall take all necessary actions so that as
of the Effective Time the officers of Varian, SEB and IB, respectively, will be
as set forth in the Proxy Statement.

     (c)  Resignations. Subject to the provisions of Sections 2.09(a) and
          ------------
2.09(b), each of Varian, SEB and IB, shall take all necessary action to cause
their respective directors and employees, and those of the members of their
respective Groups, to resign, as of the Effective Time, from all boards of
directors or similar governing bodies of each member of the other Groups on
which they serve, and from all positions as officers or employees of any member
of such other Groups, except as otherwise set forth in the Proxy Statement or
mutually agreed to in writing on or before the Distribution Date by Varian, on
the one hand, and, as applicable, SEB and/or IB, on the other hand.

     Section 2.10.  Other Transactions.  On or before the Distributions, each of
                    ------------------                                          
Varian, IB and SEB shall have consummated those other transactions in connection
with the Corporate Reorganization Transactions and the Distributions that are
contemplated by the Proxy Statement and the ruling request submission by Varian
to the Internal Revenue Service and not specifically referred to in Sections
2.01 through 2.09, subject, however, to the limitation set forth in Section
2.01.

                                       22
<PAGE>
 
     Section 2.11.  Meeting; Proxy Statement; Other Filings.
                    --------------------------------------- 
     (a)  Meeting.  The Board of Directors of Varian shall establish the Meeting
          -------                                                               
Record Date and the Meeting Date and shall take all necessary or appropriate
actions with respect to the Meeting. At the Meeting there shall be submitted to
the Varian stockholders for their vote the Distribution Proposals and such other
proposals as are included in the notice of the Meeting.

     (b)  Proxy Statement; Registration Statements; NYSE Notice. Varian, SEB and
          -----------------------------------------------------
IB shall prepare the Proxy Statement and the Registration Statements. Varian
shall file the Proxy Statement with the Commission and shall mail the Proxy
Statement to the holders of VAI Common Stock as of the Meeting Record Date. Each
of SEB and IB shall file their respective Registration Statements with the
Commission. Varian shall, to the extent possible, give the NYSE not less than
ten days advance notice of the Distribution Record Date in compliance with Rule
10b-17 under the Exchange Act. Each of Varian, SEB and IB shall use reasonable
commercial efforts to cause the Registration Statements to become effective
under the Exchange Act on or before the Distribution Date.

     (c)  Other Filings. Varian, SEB and IB shall cooperate in preparing, filing
          -------------  
with the Commission under the Securities Act and causing to become effective any
registration statements or amendments thereto that are appropriate to reflect
the establishment of or amendments to any employee benefit plan contemplated by
the Employee Benefits Allocation Agreement, the Proxy Statement or otherwise as
necessary to reflect the transactions contemplated by this Agreement.

     Section 2.12. State Securities Laws. Before the Distribution Date, each of
                   --------------------- 
Varian, SEB and IB shall take all necessary or appropriate actions under the
securities or blue sky Laws of states or other political subdivisions of the
United States in order to effect the Distributions.

     Section 2.13. Listing Application. Before the Distribution Date, IB and SEB
                   -------------------  
shall prepare and file with a national securities exchange or Nasdaq listing
applications and related documents and shall take all other necessary or
appropriate actions in order to cause a national securities exchange to list, or
Nasdaq to approve for quotation on its National Market, on or before the
Distribution Date the SEB Common Shares and the IB Common Shares.

     Section 2.14. Transfers Not Effected Before the Distributions; Transfers
                   ----------------------------------------------------------
Deemed Effective as of the Effective Time. If any transfers contemplated by this
-----------------------------------------
Article II are not consummated at or before the Effective Time, the parties
shall (and shall cause their respective Affiliates and members of their
respective Groups to) cooperate to effect such transfers as promptly as
practicable after the Effective Time.  Nothing herein shall be deemed to require
the transfer of any Assets or the assumption of any Liabilities which by their
terms or operation of Law cannot be transferred or assumed; provided, however,
                                                            --------  ------- 
that the parties shall (and shall cause their respective Affiliates and members
of their respective Groups to) cooperate to seek to obtain any necessary
Consents for the transfer of all Assets and Liabilities contemplated to be
transferred pursuant to this Article II.  Where any transfer of Assets or
Liabilities has not been consummated at or before the Effective Time, from and
after the Effective Time the party retaining such Asset or Liability (or, as
applicable, such other member or members of such party's Group) shall hold such
Asset in trust for the use and benefit of the party entitled thereto (at the
expense of the party entitled thereto) or retain such Liability for the account
of the party by whom such Liability is to be assumed, as the case may be, and
take such other action as may be reasonably requested by the party to whom such
Asset is to be transferred, or by whom such Liability is to be assumed, as the
case may be, in order to place such party, to the extent reasonably possible, in
the same position as it would have been had such Asset or Liability been
transferred or assumed as contemplated by this Agreement.  As, when and if any
such Asset or Liability becomes transferable or assumable, such transfer or
assumption shall be effected as promptly as practicable.  As of the Effective
Time, each party (or, if applicable, such other member or members of such
party's Group) shall be deemed to have acquired (or, as applicable, retained)
complete and sole beneficial ownership over all Assets, together with all
rights, powers and privileges incident thereto, and shall be deemed to have
assumed in accordance with the terms of this Agreement all the Liabilities, and
all duties, obligations and responsibilities incident thereto, which such party
(or any member of such party's Group) is entitled to acquire or required to
assume under this Agreement.

     Section 2.15. Ancillary Agreements. On or before the Distribution Date,
                   --------------------   
each of Varian, SEB and IB shall enter into, and/or where applicable shall cause
such other members of their respective Groups to enter into, (a)

                                       23
<PAGE>
 
the Ancillary Agreements, (b) the Conveyancing and Assumption Instruments, and
(c) any other agreements in respect of the Distributions as are reasonably
necessary or appropriate in connection with the transactions contemplated by
this Agreement and the Ancillary Agreements.

     Section 2.16. Operations in Ordinary Course. Except as otherwise expressly
                   -----------------------------
provided in this Agreement, between the Agreement Date and the Effective Time,
each of Varian, SEB and IB shall, and shall cause its Subsidiaries to, conduct
its business in a manner substantially consistent with current and past
operating practices and in the ordinary course, including with respect to the
payment and administration of accounts payable and the collection and
administration of accounts receivable, the purchase of capital assets and
equipment and the management of inventories.

                                  ARTICLE III
                               THE DISTRIBUTIONS

     Section 3.01. Record Date and Distribution Date. Subject to the
                   --------------------------------- 
satisfaction or, if applicable, waiver of the conditions set forth in Section
4.01, the Board of Directors of Varian shall establish the Distribution Record
Date and the Distribution Date and any appropriate procedures in connection with
the Distributions.

     Section 3.02.  The Distributions.
                    ----------------- 
     (a)  On or before the Distribution Date, Varian shall:

          (i)   deliver to the Agent the certificates representing the IB Common
     Shares and the SEB Common Shares, in each case, endorsed by Varian in
     blank, for the benefit of the Varian Holders; and

          (ii)  instruct the Agent to distribute, on or as soon as practicable
     after the Distribution Date, to the Varian Holders,

                (A) one share of IB Common Stock for each share of VAI Common
          Stock; and

                (B) one share of SEB Common Stock for each share of VAI Common
          Stock.

     (b)  Duties and Responsibilities of SEB and IB. All shares of SEB Common
          -----------------------------------------   
Stock issued in the SEB Distribution shall be duly authorized, validly issued,
fully paid and nonassessable and free of any preemptive (or similar) rights. All
shares of IB Common Stock issued in the IB Distribution shall be duly
authorized, validly issued, fully paid and nonassessable and free of any
preemptive (or similar) rights. As soon as practicable after the Distribution
Date, certificates for shares of IB Common Stock and SEB Common Stock shall be
mailed by the Agent to the Varian Holders, unless the Agent uses a book entry
system of stock record keeping, in which event no certificates for shares of IB
Common Stock or SEB Common Stock will be used unless a stockholder so requests.
If certificates are used, each of SEB and IB shall provide, or cause to be
provided, to the Agent sufficient certificates representing SEB Common Stock and
IB Common Stock, respectively, in such denominations as the Agent may request in
order to effect the Distributions.

     (c)  Unclaimed Stock or Cash.  Any shares of SEB Common Stock, shares of IB
          -----------------------
Common Stock or any dividends or distributions, if any, with respect to SEB
Common Stock or IB Common Stock that remain unclaimed 180 days after the
Distribution Date shall be returned to HCS and the Persons entitled thereto
shall look only to HCS for such shares of SEB Common Stock, shares of IB Common
Stock, and any dividends or distributions, subject in each case to applicable
escheat or other abandoned property Laws.

                                  ARTICLE IV
                        CONDITIONS TO THE DISTRIBUTIONS

     Section 4.01. Conditions Precedent to the Distributions. The obligations of
                   -----------------------------------------  
the parties to consummate the Distributions are subject to the satisfaction or
waiver as determined by Varian in its sole discretion (except as provided in
Section 4.02 below), of each of the following conditions:

                                       24
<PAGE>
 
     (a)  Declaration of Distributions and Establishment of Distribution Date.
          -------------------------------------------------------------------
The Board of Directors of Varian shall have, in its sole discretion and subject
to and in accordance with the applicable rules of the NYSE and provisions of the
DGCL, declared the Distributions and established the Distribution Record Date,
the Distribution Date, the date on which shares of SEB Common Stock and IB
Common Stock, and any cash in lieu of fractional shares shall be mailed to the
Varian Holders and all appropriate procedures in connection with the
Distributions to the extent not provided in this Agreement.

     (b)  Tax Sharing Agreement.  Varian, SEB and IB shall have executed and
          ---------------------                                             
delivered the Tax Sharing Agreement and such agreement shall be in full force
and effect.

     (c)  Employee Benefits Allocation Agreement.  Varian, SEB and IB shall have
          --------------------------------------                                
executed and delivered the Employee Benefits Allocation Agreement and such
agreement shall be in full force and effect.

     (d)  Transition Services Agreement. Varian, SEB and IB shall have executed
          ----------------------------- 
and delivered the Transition Services Agreement and such agreement shall be in
full force and effect.

     (e)  Intellectual Property Agreement. Varian, SEB and IB shall have
          -------------------------------
executed and delivered the Intellectual Property Agreement and such agreement
shall be in full force and effect.

     (f)  Effective Date of Registration Statements. The Registration Statements
          -----------------------------------------
shall have been declared effective by order of the Commission and no stop order
shall have been entered, and no proceeding for that purpose shall have been
initiated or threatened by the Commission with respect thereto.

     (g)  Listing.  The SEB Common Stock and the IB Common Stock shall have been
          -------                                                               
approved for listing on a national securities exchange or quotation on the
Nasdaq National Market, on or before consummation of the Distributions.

     (h)  Tax Ruling. Varian shall have received rulings from the Internal
          ----------
Revenue Service in form and substance satisfactory to the Board of Directors of
Varian, which rulings shall be in full force and effect as of the Distribution
Date.

     (i)  Pre-Distribution Transactions. Each of the transactions and other
          -----------------------------
matters contemplated by Article II (including each of the distributions,
transfers, conveyances, contributions, assignments or other transactions
included in, or otherwise necessary to consummate, the Corporate Reorganization
Transactions) shall have been consummated in all material respects.

     (j)  Covenants. The covenants contained in Article V of this Agreement that
          ---------
are required to be performed on or before the Distribution Date shall have been
fully performed.

     (k)  No Prohibitions. No temporary, preliminary or permanent injunction or
          ---------------
other order, decree or ruling issued by a Governmental Authority and no statute,
rule, regulation or executive order promulgated or enacted by any Governmental
Authority shall be in effect materially restricting, preventing or prohibiting
the consummation of the Distributions.

     (l)  Consents.  Each of Varian, SEB and IB and the other members of their
          --------                                                            
respective Groups shall have obtained all Consents the failure of which to
obtain would, in the determination of the Board of Directors of Varian, have a
material adverse effect on HCS, SEB or IB.

     (m)  Stockholder Approval.  The Distribution Proposals (other than Proposal
          --------------------                                                  
Four) shall have been approved by the requisite vote of the holders of VAI
Common Stock in accordance with the DGCL and the provisions of Varian's Restated
Certificate of Incorporation.

     (n)  Fairness Opinion. Warburg Dillon Read LLC shall have delivered its
          ----------------  
written opinion to the Board of Directors of Varian dated as of the date the
Distributions are declared confirming that the Distributions are fair, from a
financial point of view, to the Varian Holders, and such opinion shall not have
been withdrawn or rescinded.

                                       25
<PAGE>
 
     Section 4.02. Waivers. After the Varian stockholders approve the
                   -------
Distribution Proposals, the conditions set forth in Section 4.01 may only be
waived if the Board of Directors of Varian determines such waiver would not be
materially adverse to the Varian stockholders. Further, the Board of Directors
may only waive the condition set forth in Section 4.01(h) with respect to
receipt of Internal Revenue Service tax rulings if it has received an opinion of
counsel substantially to the effect that, for federal income tax purposes, no
gain or loss will be recognized by any holder of VAI Common Stock as a result of
the Distributions and no gain or loss will be recognized by the Company upon the
Distributions, which opinion shall not have been withdrawn or rescinded as of
the Effective Time.

                                   ARTICLE V
                                   COVENANTS

     Section 5.01.  Further Assurances; Consents.  In addition to the actions
                    ----------------------------                             
otherwise expressly provided in this Agreement, each party shall use its
commercially reasonable efforts to (a) execute and deliver, or cause to be
executed and delivered, such instruments and documents and take, or cause to be
taken, such further or other actions as any other party may reasonably request
to effectuate the purposes of this Agreement and carry out the terms hereof, and
(b) take or cause to be taken all actions, and to do, or cause to be done, all
things reasonably necessary or appropriate under applicable Laws, agreements or
otherwise to consummate and make effective the transactions contemplated by this
Agreement, including (notwithstanding Section 5.05(c)) using its commercially
reasonable efforts to obtain any Consents, to enter into amendatory agreements
and to make any filings and applications necessary or appropriate in order to
consummate the transactions contemplated by this Agreement; provided, however,
                                                            --------  ------- 
that no party shall be obligated to pay any consideration therefor (except for
filing fees and other similar charges) to any third party from whom such
Consents or amendments are requested or to take any action or omit to take any
action if the taking or omission would be unreasonable burdensome to the party
or its Group or the Group's business.

     Section 5.02.  Intellectual Property Matters.
                    ----------------------------- 

     (a)  Intellectual Property Agreement Controls. Each party acknowledges
          ----------------------------------------        
that, after the Distribution Date, it shall have no interest in nor any right to
use or display the name or any Intellectual Property of another party in any
way, except to the extent expressly provided in this Agreement or in any
Ancillary Agreement and except for any use which is otherwise permissible as
"fair use" under applicable Law. Each party further understands and agrees that
the rights, obligations and responsibilities of the parties with respect to the
Intellectual Property that is subject to the Intellectual Property Agreement
shall be governed by the Intellectual Property Agreement to the extent therein
provided.

     (b)  No Representation of Affiliation. After the Distribution Date, no
          --------------------------------        
party shall represent or permit to be represented to any third party that it or
any member of its Group has a business affiliation with any other party or any
member of such other party's Group, except as expressly permitted by an
Ancillary Agreement.

     Section 5.03.  Employees; Employee Benefits.
                    ----------------------------
 
     (a)  Treatment of Employees.  As of the Effective Time, except as expressly
          ----------------------                                                
provided in the Employee Benefits Allocation Agreement, (i) those Persons
employed in the Health Care Systems Business shall remain or become employees of
the applicable member of the Health Care Systems Group, (ii) those Persons
employed in the Instruments Business shall become employees of the applicable
member of the Instruments Group, and (iii) those Persons employed in the
Semiconductor Equipment Business shall become employees of the applicable member
of the Semiconductor Equipment Group.

     (b)  Employee Benefits Allocation Agreement Controls.  Each party further
          -----------------------------------------------                     
understands and agrees that the rights, obligations and responsibilities of the
parties with respect to employees and employee benefit matters shall be governed
by the Employee Benefits Allocation Agreement to the extent therein provided.

     Section 5.04. Tax Matters. Each party intends that (a) the contributions of
                   -----------  
Assets to IB and SEB each be treated as a reorganization within the meaning of
section 368(a)(1)(D) of the Code with respect to which no gain

                                       26
<PAGE>
 
or loss is recognized by any of the parties, and (b) the Distributions be
treated as tax-free distributions under section 355 of the Code and each such
party shall use its best efforts to cause the Distributions to so qualify. Each
party further understands and agrees that the rights, obligations and
responsibilities of the parties with respect to Tax matters will be governed by
the Tax Sharing Agreement to the extent therein provided.

     Section 5.05.  No Representations or Warranties.
                    -------------------------------- 

     (a)  General.  Each party understands and agrees that, except as otherwise
          -------                                                              
expressly provided in any Ancillary Agreement or paragraph (c) below, no party
is, in this Agreement or in any other agreement or document contemplated by this
Agreement (including the Conveyancing and Assumption Instruments) or otherwise,
making any representation or warranty whatsoever, including representing or
warranting in any way as to the Assets, businesses or Liabilities retained,
transferred or assumed as contemplated by this Agreement, as to the value or
freedom from Security Interests, or any other matter concerning any Assets or
Liabilities of such party, or as to the absence of any defenses or right of set-
off or freedom from counterclaim with respect to any claim or other Asset,
including any account receivable or any Liability of any party, or as to the
legal sufficiency of any assignment, document or instrument delivered under this
Agreement to convey title to any Asset or any other thing of value upon the
execution, delivery and filing thereof.

     (b) Disclaimer of Merchantability or Fitness of Assets. Each party further
         --------------------------------------------------                     
understands and agrees that there are no warranties, express or implied, as to
the merchantability or fitness of any of the Assets either transferred to or
retained by the parties, and that, notwithstanding anything to the contrary
expressly provided in the applicable Conveyancing and Assumption Instrument, all
Assets either transferred or retained by the parties shall be "as is, where is"
and that, subject to Section 5.01, the party to which any such Assets are
transferred, or which retains any such Assets, shall bear the economic and legal
risks that any conveyances of such Assets shall prove to be insufficient to vest
in the transferee good and marketable title, free and clear of any Security
Interest.

     (c)  No Representations or Warranties Regarding Consents.  Each party
          ---------------------------------------------------             
understands and agrees that, except as otherwise expressly provided in the
applicable Conveyancing and Assumption Instruments, no party is representing or
warranting in any way that the obtaining of any Consents, the execution and
delivery of any amendatory agreements and the making of any filings or
applications contemplated by this Agreement will satisfy the provisions of any
or all applicable agreements or the requirements of any or all applicable Laws.
Each party further understands and agrees that the party to which any Assets are
transferred pursuant to this Agreement shall bear the economic and legal risk
that any necessary Consents are not obtained, that any necessary amendatory
agreements are not executed and delivered or that the provisions of any
applicable agreements or requirements of applicable Laws are not satisfied.

     Section 5.06.  Removal of Certain Guarantees; Releases from Liabilities.
                    -------------------------------------------------------- 

     (a) Removal of Varian as Guarantor of Semiconductor Equipment Liabilities
         ---------------------------------------------------------------------
and Instruments Liabilities. Except as otherwise expressly provided in an
--------------------------- 
Ancillary Agreement, each party shall use its commercially reasonable efforts to
have, on or before the Distribution Date, or as soon as practicable thereafter,
(i) Varian and any other member of the Health Care Systems Group removed as a
guarantor of, or obligor under or for, any Semiconductor Equipment Liability or
Instruments Liability, (ii) SEB and any other member of the Semiconductor
Equipment Group removed as a guarantor of, or obligor under or for, any Health
Care Systems Liability or Instruments Liability, and (iii) IB and any other
member of the Instruments Group removed as a guarantor of, or obligor under or
for, any Health Care Systems Liability or Semiconductor Equipment Liability.

     (b) Indemnification for Guaranties. If (i) a party is unable to obtain, or
         ------------------------------
to cause to be obtained, any removal described in paragraph (a) above, or (ii)
Liabilities arise from and after the Effective Time but before a guarantor or
obligor with reference to any such Liability is removed pursuant to Section
5.06(a), then such guarantor or obligor shall be indemnified for all Liabilities
incurred by it in its capacity as guarantor or obligor by (A) HCS with respect
to any Health Care Systems Liabilities, (B) SEB with respect to any
Semiconductor Equipment Liabilities, and (C) IB with respect to any Instruments
Liabilities. Without limiting the foregoing, each party shall, or shall cause a
member of its Group to, reimburse any such guarantor or obligor as soon as
practicable (but in no event later than 30 days) following receipt of notice of
a payment made pursuant to this Section 5.06(b) in respect of the party's
Liabilities.

                                       27
<PAGE>
 
     (c) Additional Obligations. In the event that at any time before or after
         ----------------------
the Distribution Date, a party identifies any letters of credit, interest rate
or foreign exchange contracts or other contracts (excluding guarantees) that
relate primarily to one business but for which a member of another Group has
contingent, secondary, joint, several or other Liability of any nature
whatsoever, the party the business of which is primarily liable shall, at its
expense, take such actions and enter into such agreements and arrangements as
the other party may reasonably request to effect such party's (or the member of
each party's Group) release or substitution.

     (d) Other Releases. Each party shall use commercially reasonable efforts to
         --------------
obtain, or cause to be obtained, any Consent, substitution or amendment required
to novate or assign all obligations under agreements, leases, licenses and other
obligation or Liabilities of any nature whatsoever transferred under this
Agreement, or to obtain in writing the unconditional release of the assignor so
that in each such case, IB shall be solely responsible for the Instruments
Liabilities, HCS shall be solely responsible for the Health Care Systems
Liabilities and SEB shall be solely responsible for the Semiconductor Equipment
Liabilities; provided, however, that no party shall be obligated to pay any
             --------  -------
consideration therefor (except for filing fees or other similar charges) to any
third party from whom such Consents, substitutions, amendments or releases are
requested. Whether or not any such Consent, substitution, amendment or release
is obtained, nothing in this Section 5.06(d) shall in any way limit the
obligations of the parties under Article VII.

     Section 5.07. Intercompany Agreements. As of the Effective Time, each party
                   -----------------------
shall (and shall cause each other member of its Group to) terminate each
agreement between it and any member of any other Groups (other than this
Agreement, the Ancillary Agreements, the Conveyancing and Assumption Instruments
and any agreements that do not take effect until the Effective Time); provided,
                                                                      -------- 
however, that such termination shall not affect any of the rights and/or
-------                                                                 
obligations of the parties to such agreements that accrued or were incurred
before the Effective Time (subject to the terms of Section 2.05(a)).

     Section 5.08. Nondisclosure Agreements. Each of SEB and IB agrees to be
                   ------------------------
bound by and subject to the terms and provisions of each of the Nondisclosure
Agreements for the same period of time and to the same extent as Varian (or the
applicable Subsidiary of Varian that is a party to such Nondisclosure
Agreement). Varian shall not, amend, supplement, terminate or waive any
provisions of the Nondisclosure Agreements (a) that relate to the Instruments
Business without the prior written consent of IB, or (b) that relate to the
Semiconductor Equipment Business without the prior written consent of SEB.

     Section 5.09.  Receipts after the Distribution Date.  From and after the
                    ------------------------------------                     
Distribution Date each party shall (or shall cause the applicable member of its
Group to) promptly transfer to the appropriate other party, or the appropriate
member of such other party's Group, any property it receives that is an Asset of
such other party or a member of the other party's  Group.  Without limiting the
foregoing, funds received by a member of one Group upon payment of accounts
receivable that belong to a member of another Group shall be transferred to the
other Group as soon as practicable (but in no event later than 30 business days)
after receipt of such funds.

     Section 5.10.  Post-Distribution Audit.
                    ----------------------- 

     (a) Preparation of Closing Balance Sheets. As soon as practicable after the
         -------------------------------------
Effective Time, Varian shall cause PricewaterhouseCoopers LLP (or another
comparable independent accounting firm selected by Varian (the "Auditors")) to:

         (i)  conduct an audit of IB and the IB Subsidiaries in order to prepare
     and deliver to each of HCS, IB and SEB a consolidated balance sheet for IB
     and the IB Subsidiaries as of the Effective Time (the "IB Closing Balance
     Sheet");

         (ii) conduct an audit of HCS and the HCS Subsidiaries in order to
     prepare and deliver to each of HCS, IB and SEB a consolidated balance sheet
     for HCS and the HCS Subsidiaries as of the Effective Time (the "HCS Closing
     Balance Sheet");

                                       28
<PAGE>
 
          (iii)  conduct an audit of SEB and the SEB Subsidiaries in order to
     prepare and deliver to each of HCS, IB and SEB a consolidated balance sheet
     for SEB and the SEB Subsidiaries, as of the Effective Time (the "SEB
     Closing Balance Sheet");

and to deliver such Closing Balance Sheets within 90 days after the Distribution
Date.

     (b) Audit Requirements. Each of the IB Closing Balance Sheet, the HCS
         ------------------
Closing Balance Sheet and the SEB Closing Balance Sheet shall be prepared on the
basis of an audit conducted by the Auditors in accordance with GAAP consistently
applied and without giving effect to any change in accounting principles
required on account of the consummation of the Distributions, except that, to
the extent that any definition contained herein contemplates inclusion or
exclusion of an item that would not be included or excluded under GAAP, the
Auditors shall compute such item in accordance with such definition. During the
course of the preparation of the IB Closing Balance Sheet, the HCS Closing
Balance Sheet and the SEB Closing Balance Sheet by the Auditors, and during any
period in which there is a dispute regarding either the IB Closing Balance
Sheet, the HCS Closing Balance Sheet and the SEB Closing Balance Sheet, each of
HCS, IB and SEB, as the case may be, shall cooperate with the Auditors and the
other parties and shall have access to all pertinent accounting and each other's
records. Each party also shall use its reasonable efforts to cause the work
papers of the Auditors in respect of its business to be made available to each
of the other parties.

                                  ARTICLE VI
                    ACCESS TO INFORMATION; CONFIDENTIALITY

     Section 6.01. Provision, Transfer and Delivery of Applicable Corporate
                   --------------------------------------------------------
Records. Except as expressly provided in any Ancillary Agreement,
-------

     (a) Provision, Transfer and Delivery of SEB Records. Each of HCS and IB
         -----------------------------------------------
shall (and shall cause each other member of its Group to) as soon as practicable
after the Distribution Date transport (at SEB's expense) to SEB the Books and
Records in its possession that relate primarily to the Semiconductor Equipment
Assets, the Semiconductor Equipment Liabilities or the Semiconductor Equipment
Business or are necessary to operate the Semiconductor Equipment Business
(collectively, the "SEB Records"), except to the extent such items are already
in the possession of any member of the Semiconductor Equipment Group.

     (b) Provision, Transfer and Delivery of IB Records. Each of HCS and SEB
         ----------------------------------------------
shall (and shall cause each other member of its Group to) as soon as practicable
after the Distribution Date transport (at IB's expense) to IB the Books and
Records in its possession that relate primarily to the Instruments Assets, the
Instruments Liabilities or the Instruments Business or are necessary to operate
the Instruments Business (collectively, the "IB Records"), except to the extent
such items are already in the possession of any member of the Instruments Group.

     (c) Provision, Transfer and Delivery of HCS Records. Each of SEB and IB
         -----------------------------------------------
shall (and shall cause each other member of its Group to) as soon as practicable
after the Distribution Date transport (at HCS's expense) to HCS the Books and
Records in its possession that relate primarily to the Health Care Systems
Assets, the Health Care Systems Liabilities or the Health Care Systems Business
or are necessary to operate the Health Care Systems Business (collectively, the
"HCS Records"), except to the extent such items are already in the possession of
any member of the Health Care Systems Group.

     Section 6.02. Access to Books and Records. Unless otherwise contemplated by
                   --------------------------- 
Section 6.06, from and after the Distribution Date, each of HCS, SEB and IB
shall (and shall cause each other member of its Group to) afford to each other
party and its authorized Representatives reasonable access and duplicating
rights during normal business hours, subject to appropriate restrictions for
classified, privileged or confidential information, to the personnel,
properties, Books and Records and other data and information of such party and
each other member of such party's Group created before the Distributions insofar
as such access is reasonably required by the requesting party for the conduct of
the requesting party's business (but not for competitive purposes).

                                       29
<PAGE>
 
     Section 6.03.  Confidentiality.
                    --------------- 

     (a)   General Restriction on Disclosure. From and after the Distribution
           --------------------------------- 
Date, none of HCS, SEB and IB shall (or permit any other member of its Group to)
use without the prior written consent of the applicable party and shall (and
shall cause each other member of its Group to) hold, and shall cause its
Representatives to (and those of any other member of its Group to) hold, in
strict confidence, all information concerning each other party and the other
members of each other party's Group in its possession, custody or control to the
extent such information either:

           (i)   relates to the period up to the Distribution Date;

           (ii)  relates to any Ancillary Agreement; or

           (iii) is obtained in the course of performing services for the other
     party pursuant to any Ancillary Agreement,

and shall not (and shall cause each other member of its Group not to) otherwise
release or disclose such information to any other Person, except its
Representatives (who shall be bound by this Section 6.03), without the prior
written consent of the applicable party or parties, unless compelled by judicial
or administrative process or, in the opinion of such party's counsel, required
by Law and such party has used commercially reasonable efforts to consult with
the applicable party or parties before such disclosure.

     (b) Exceptions to Confidential Treatment. Notwithstanding paragraph (a), no
         ------------------------------------ 
party shall be prohibited from using or permitting the use of, or required to
hold in confidence and not release or disclose, any information to the extent
that (i) such information has been or is in the public domain through no fault
of such party, (ii) such information was used or held for use in such party's
business before the Distribution Date, (iii) such information is, after the
Distribution Date, lawfully acquired from other sources by such party, (iv) this
Agreement, any Ancillary Agreement or any other agreement entered into pursuant
to this Agreement permits the use or disclosure of such information by such
party, or (v) such information is necessary for such party to investigate,
evaluate, defend or prosecute any claim or Action involving any other party to
this Agreement.

     Section 6.04. Witness Services. From and after the Distribution Date, each
                   ----------------
of HCS, SEB and IB shall use its commercially reasonable efforts to make
available to each other party, upon reasonable written request, the officers,
directors, employees and agents of each member of its Group for consultation
and/or as witnesses to the extent that (a) such Persons may reasonably be useful
or required in connection with the prosecution or defense of any Action or the
investigation of any claim which involves the interests of the requesting party
or any member of its Group; and (b) there is no conflict in the Action or claim
between the requesting party or any member of its respective Group and the party
to which a request is made pursuant to this Section or any member of such
party's Group. The employing party agrees that such consultant or witness shall
be made available to the requesting party to the same extent that the employing
party would have made such consultant or witness available if the Distributions
had not occurred.

     Section 6.05. Reimbursement; Other Matters. Except as otherwise
                   -----------------------------
contemplated by this Agreement (including circumstances in which indemnification
is sought pursuant to Article VII) or by any Ancillary Agreement, a party
providing Books and Records or access to information or consulting or witness
services to any other party (or such party's Representatives) under this Article
VI shall be entitled to receive from such other party, upon the presentation of
invoices therefor reimbursement for all Costs (including the Costs of employees
providing consulting and witness services in connection with litigation and
Costs of employees providing information), as may be reasonably incurred in
providing such Books and Records or access to information, consulting or witness
services.

     Section 6.06. Retention of Records. Except when a longer period is required
                   -------------------- 
by Law or is expressly provided for in this Agreement, any Ancillary Agreement
or the retention policy of Varian as of the date of this Agreement, each party
shall (and shall cause the members of its Group to) retain, for a period of at
least seven years after the Distribution Date, all material information
(including all material Books and Records) relating to such

                                       30
<PAGE>
 
Group and its operations before the Distribution Date. Notwithstanding the
foregoing, when retention of information is no longer required by Law or
expressly provided for in another Section of this Agreement or any Ancillary
Agreement, any party may offer in writing to deliver to the other parties all or
a portion of such information that relates to members of the offering party's
Group and, if such offer is accepted in writing within 90 days after receipt
thereof, the offering party shall promptly deliver such information (or copies
thereof) to each accepting party (at the expense of the accepting party). If
such offer is not so accepted, the offered information may be destroyed or
otherwise disposed of by the offering party at any time after expiration of such
90-day period.

     Section 6.07.  Privileged Matters.
                    ------------------ 

     (a)  Privileged Information. Each party shall (and shall cause the members
          ----------------------  
of its Group to) use its reasonable efforts to maintain, preserve, protect and
assert all privileges against disclosure (including the attorney-client
privilege, the attorney work product privilege and the self-evaluation
privilege) that apply to any Books and Records or other information of any
member of any other Group relating to any period before the Distribution Date
("Privilege" or "Privileges"). Each party shall use its reasonable efforts not
to waive (or permit any member of its Group to waive) any such Privilege that
could be asserted under applicable Law without the prior written consent of the
other party or parties having the right to assert or waive such Privilege
pursuant to this Section. HCS shall be entitled in perpetuity to require the
assertion, or to decide whether to consent to the waiver, of any and all
Privileges which relate primarily to the Health Care Systems Business or to
Health Care Systems Liabilities; SEB shall be entitled in perpetuity to require
the assertion, or to decide whether to consent to the waiver, of all Privileges
which relate primarily to the Semiconductor Equipment Business or to
Semiconductor Equipment Liabilities; and IB shall be entitled in perpetuity to
require the assertion, or to decide whether to consent to the waiver, of all
Privileges which relate primarily to the Instruments Business or to Instruments
Liabilities.

     (b)  Compelled Disclosure. To the extent that a party is compelled by
          --------------------
judicial or administrative process to disclose any information under
circumstances in which any Privilege would be available ("Privileged
Information"), such party agrees to assert such Privilege in good faith before
making such disclosure. Each party shall consult with each applicable party upon
receipt by a party or any member of its Group of any subpoena, discovery or
other request that calls for production or disclosure of Privileged Information,
or if a party or any member of its Group obtains knowledge that any current or
former employee of such party or any member of its Group has received any
subpoena, discovery or other request which calls for the production or
disclosure of Privileged Information, including regarding whether any Privilege
is available. Each party shall cooperate with each applicable party and its
counsel participating in any hearing or other proceeding in respect of such
disclosure and assertion of Privilege. Nothing in this Section requires any
party to subject itself to sanctions in connection with any compelled
disclosure. Notwithstanding the foregoing, each party shall be permitted to
disclose Privileged Information in any proceeding in which such party is in an
adversarial position to any other party to this Agreement.

     (c)  No Waiver. The parties understand and agree that the transfer of any
          ---------
Books and Records or other information between any members of the Health Care
Systems Group, the Semiconductor Equipment Group or the Instruments Group shall
be made in reliance on the agreements of Varian, SEB and IB, as set forth in
Section 6.03 and this Section, to maintain the confidentiality of Privileged
Information and to assert and maintain all applicable Privileges. The Books and
Records being transferred pursuant to Section 6.01, the access to information
being granted pursuant to Section 6.02, the agreement to provide witnesses and
individuals pursuant to Section 6.04 and the transfer of Privileged Information
to any party pursuant to this Agreement shall not be deemed a waiver of any
Privilege that has been or may be asserted under this Section or otherwise.
Nothing in this Agreement shall operate to reduce, minimize or condition the
rights granted to each party in, or the obligations imposed upon each party by,
this Section.

                                  ARTICLE VII
                                INDEMNIFICATION

     Section 7.01.  Survival of Agreements.  All covenants and agreements of the
                    ----------------------                                      
parties contained in this Agreement and all covenants and agreements of the
parties contained in the Ancillary Agreements shall survive the Distribution
Date except as expressly provided herein and therein, and shall not be merged
into any deeds or other transfer or closing instruments or documents, including
the Conveyancing and Assumption Instruments.

                                       31
<PAGE>
 
     Section 7.02.  Taxes.  This Article VII shall not be applicable to any
                    -----                                                  
Indemnifiable Losses related to (a) Taxes, which shall be governed by the Tax
Sharing Agreement, or (b) which are otherwise expressly provided for in the
Ancillary Agreements.

     Section 7.03.  Indemnification by HCS. Except as expressly provided in this
                    ----------------------
Agreement or any Ancillary Agreement, and subject to Sections 7.02 and 7.06, (a)
HCS shall, to the fullest extent permitted by Law, indemnify, defend and hold
harmless the SEB Indemnitees and the IB Indemnitees from and against any and all
Indemnifiable Losses of the SEB Indemnitees and the IB Indemnitees,
respectively, arising out of, relating to or resulting from either (i) the
Health Care Systems Liabilities or (ii) the breach by HCS or Varian of any
provision of this Agreement, or any Ancillary Agreement and (b) HCS shall bear
the cost of and indemnify, defend and hold harmless the SEB Indemnitees and the
IB Indemnitees from one-third of the Indemnifiable Losses, as incurred, arising
out of, relating to or resulting from the Shared Liabilities; provided, however,
                                                              ------------------
that, except as otherwise provided in this Agreement or any Ancillary Agreement,
in the case of an Indemnifiable Loss in respect of a Shared Liability arising
out of, relating to or resulting from the management or conduct of the Health
Care Systems Business and the Instruments Business or the Health Care Systems
Business and the Semiconductor Equipment Business, HCS shall bear the cost of
and indemnify, defend and hold harmless IB and SEB, respectively, from one-half
of the Indemnifiable Losses, as incurred.

     Section 7.04.  Indemnification by SEB. Except as expressly provided in this
                    ----------------------
Agreement or any Ancillary Agreement, and subject to Sections 7.02 and 7.06, (a)
SEB shall, to the fullest extent permitted by Law, indemnify, defend and hold
harmless the HCS Indemnitees and the IB Indemnitees from and against any and all
Indemnifiable Losses of the HCS Indemnitees and the IB Indemnitees,
respectively, arising out of, relating to or resulting from either (i) the
Semiconductor Equipment Liabilities, or (ii) the breach by SEB of any provision
of this Agreement or any Ancillary Agreement, and (b) SEB shall bear the cost of
and indemnify, defend and hold harmless the HCS Indemnitees and the IB
Indemnitees from one-third of the Indemnifiable Losses, as incurred, arising out
of, relating to or resulting from the Shared Liabilities; provided, however,
                                                          ------------------
that, except as otherwise provided in this Agreement or any Ancillary Agreement,
in the case of an Indemnifiable Loss in respect of a Shared Liability arising
out of, relating to or resulting from the management or conduct of the
Semiconductor Equipment Business and the Instruments Business or the
Semiconductor Equipment Business and the Health Care Systems Business, SEB shall
bear the cost of and indemnify, defend and hold harmless IB and HCS,
respectively, from one-half of the Indemnifiable Losses as incurred.

     Section 7.05.  Indemnification by IB.  Except as expressly provided in this
                    ---------------------                                       
Agreement or any Ancillary Agreement, and subject to Sections 7.02 and 7.06, (a)
IB shall, to the fullest extent permitted by Law, indemnify, defend and hold
harmless the HCS Indemnitees and the SEB Indemnitees from and against any and
all Indemnifiable Losses of the HCS Indemnitees and the SEB Indemnitees,
respectively, arising out of, relating to or resulting from either (i) the
Instruments Liabilities or (ii) the breach by IB of any provision of this
Agreement or any Ancillary Agreement, and (b) IB shall bear the cost of and
indemnify, defend and hold harmless the HCS Indemnitees and the SEB Indemnitees
from one-third of the Indemnifiable Losses as incurred, arising out of, relating
to or resulting from the Shared Liabilities; provided, however, that, except as
                                             ------------------                
otherwise provided in this Agreement or any Ancillary Agreement, in the case of
an Indemnifiable Loss in respect of a Shared Liability arising out of, relating
to or resulting from the management or conduct of the Instruments Business and
the Health Care Systems Business or the Instruments Business and the
Semiconductor Equipment Business, IB shall bear the cost of and indemnify,
defend and hold harmless HCS and SEB, respectively, from one-half of the
Indemnifiable Losses, as incurred.

     Section 7.06.  Limitations on Indemnification Obligations.
                    ------------------------------------------ 

     (a) Reductions for Insurance Proceeds and Other Recoveries. The amount that
         ------------------------------------------------------
any party (an "Indemnifying Party") is or may be required to pay to any other
Person (an "Indemnitee") pursuant to Section 7.03, 7.04 or 7.05, as applicable,
shall be reduced (retroactively or prospectively) by any Insurance Proceeds or
other amounts actually recovered from third parties by or on behalf of such
Indemnitee in respect of the related Indemnifiable Loss. The existence of a
claim by an Indemnitee for monies from an insurer or against a third party in
respect of any Indemnifiable Loss shall not, however, delay any payment pursuant
to the indemnification provisions contained herein and otherwise determined to
be due and owing by an Indemnifying Party. Rather the Indemnifying Party shall
make payment in full of the amount determined to be due and owing by it against
an assignment by the
     

                                       32
<PAGE>
 
Indemnitee to the Indemnifying Party of the entire claim of the Indemnitee for
Insurance Proceeds or against such third party. Notwithstanding any other
provisions of this Agreement, it is the intention of the parties that no insurer
or any other third party shall be (i) entitled to a benefit it would not be
entitled to receive in the absence of the foregoing indemnification provisions,
or (ii) relieved of the responsibility to pay any claims for which it is
obligated. If an Indemnitee has received the payment required by this Agreement
from an Indemnifying Party in respect of any Indemnifiable Loss and later
receives Insurance Proceeds or other amounts in respect of such Indemnifiable
Loss, then such Indemnitee shall hold such Insurance Proceeds or other amounts
in trust for the benefit of the Indemnifying Party (or Indemnifying Parties) and
shall pay to the Indemnifying Party, as promptly as practicable after receipt, a
sum equal to the amount of such Insurance Proceeds or other amounts received, up
to the aggregate amount of any payments received from the Indemnifying Party
pursuant to this Agreement in respect of such Indemnifiable Loss (or, if there
is more than one Indemnifying Party, the Indemnitee shall pay each Indemnifying
Party, its proportionate share (based on payments received from the Indemnifying
Parties) of such Insurance Proceeds).

     (b)  Adjustments for Taxes.  The amount of any Indemnifiable Loss shall be
          ---------------------                                                
appropriately adjusted so that the amount of such Indemnifiable Loss is (i)
increased by the amount of all Income Taxes payable with respect to any payments
received from the Indemnifying Party or Indemnifying Parties, and (ii) reduced
by the amount of all Income Tax benefits from the incurrence or payment of any
such Indemnifiable Loss by the Indemnitee, as determined pursuant to the next
paragraph.

     In computing the amount of Income Taxes payable or Income Tax benefit, (i)
in the absence of any change in treatment under the Code or applicable Tax Law,
payments with respect to contingent Liabilities attributable to periods before
the Distribution Date shall be treated for income tax purposes by the Indemnitee
and the Indemnifying Parties (and if Varian is neither the Indemnitee nor the
Indemnifying Party, by Varian) as distributions or capital contributions, as
appropriate, occurring immediately before the Distributions on the Distribution
Date, (ii) it shall be assumed that the highest marginal Tax rates in effect are
applicable to the Indemnitee, and (iii) such determination shall be made without
regard to whether any actual increase or decrease in Tax is realized by the
Indemnitee.

     If, notwithstanding the manner in which indemnity payments are reported,
there is an adjustment to the Tax Liability of a party as a result of its
receipt of an indemnity payment pursuant to this Agreement, such payment shall
be appropriately adjusted so that the amount of such payment, reduced by the
amount of all Income Taxes payable with respect to the receipt thereof, shall
equal the amount of the payment which the Indemnitee would otherwise be entitled
to receive pursuant to this Agreement.

     (c)  Foreign Currency Adjustments.  In the event that any indemnification
          ----------------------------                                        
payment required to be made hereunder shall be denominated in a currency other
than U.S. Dollars, the amount of such payment shall be translated into U.S.
Dollars using the foreign exchange rate for such currency determined as follows:

          (i)     with respect to any Indemnifiable Loss arising from the
     payment by a financial institution under a guarantee, comfort letter,
     letter of credit, foreign exchange contract or similar instrument, the
     foreign exchange rate for such currency shall be determined as of the date
     on which such financial institution shall have been reimbursed;

          (ii)    with respect to any Indemnifiable Loss covered by insurance,
     the foreign exchange rate for such currency shall be the foreign exchange
     rate employed by the insurer in settling such Indemnifiable Losses with the
     Indemnifying Party; and

          (iii)   with respect to any Indemnifiable Loss not covered by either
clause (i) or (ii) above, the foreign exchange rate for such currency shall be
determined as of the date that notice of the claim with respect to such
Indemnifiable Loss is given to the Indemnitee.

                                       33
<PAGE>
 
     Section 7.07. Procedures for Indemnification. Except as expressly provided
                   ------------------------------
in any Ancillary Agreement:

     (a) Notice of Third Party Claims (Other than Shared Liabilities). If a
         -----------------------------------------------------------
claim or demand is made against an Indemnitee by any Person who is not a party
to this Agreement or a Subsidiary thereof (a "Third Party Claim") for which an
Indemnifying Party may be liable under this Agreement other than with respect to
a Shared Liability, such Indemnitee shall notify the Indemnifying Party in
writing, and in reasonable detail, of the Third Party Claim promptly (and in any
event within 30 business days) after receipt by such Indemnitee of written
notice of the Third Party Claim; provided, however, that no delay by the
                                 --------  -------
Indemnitee in giving such notice shall affect the Indemnitee's right to
indemnification hereunder except to the extent the Indemnifying Party is
actually prejudiced by such delay (except that the Indemnifying Party shall not
be liable for any expenses incurred during the period in which the Indemnitee
failed to give such notice). Thereafter, the Indemnitee shall deliver to the
Indemnifying Party, promptly (and in any event within ten business days) after
the Indemnitee's receipt thereof, copies of all notices and documents (including
court papers) received by the Indemnitee relating to the Third Party Claim.

     (b)  Legal Defense of Third Party Claims.  If a Third Party Claim is made
          -----------------------------------                                 
against an Indemnitee, the Indemnifying Party shall be entitled to participate
in the defense thereof and, if it so chooses and acknowledges in writing its
obligation to indemnify the Indemnitee for the Third Party Claim, to assume the
defense thereof with counsel selected by the Indemnifying Party. Should the
Indemnifying Party assume the defense of a Third Party Claim, the Indemnifying
Party shall not be liable to the Indemnitee for legal or other expenses
subsequently incurred by the Indemnitee in connection with the defense of such
Third Party Claim. The Indemnifying Party shall be liable for the reasonable
fees and expenses of counsel employed by the Indemnitee for any period during
which the Indemnifying Party has failed to assume the defense of the Third Party
Claim (other than the period during which the Indemnitee failed to give notice
of the Third Party Claim). If the Indemnifying Party elects to assume the
defense of any Third Party Claim, all of the Indemnitees shall cooperate with
the Indemnifying Party in the defense or prosecution thereof.

     (c) Third Party Claims (Shared Liabilities). If a Third Party Claim in
         --------------------------------------
respect of a Shared Liability is made against an Indemnitee, such Indemnitee
shall notify the Indemnifying Parties in writing, and in reasonable detail, of
the Third Party Claim promptly (and in any event within 30 business days) after
receipt by such Indemnitee of written notice of the Third Party Claim; provided,
however, that no delay by the Indemnitee in giving such notice shall affect the
Indemnitee's right to indemnification hereunder except to the extent an
Indemnifying Party is actually prejudiced by such delay (except that the
Indemnifying Party or Parties shall not be liable for any expenses incurred
during the period in which the Indemnitee failed to give such notice).
Thereafter, the Indemnitee shall deliver to the Indemnifying Party or Parties,
promptly (and in any event within ten business days) after the Indemnitee's
receipt thereof, copies of all notices and documents (including court papers)
received by the Indemnitee relating to the Third Party Claim.

     The party designated on Schedule 1.01(a) or (b) to have management
responsibility for the related Shared Liability (the "Managing Party") shall
have management and administrative responsibility for the Third Party Claim
(unless no party is so designated, in which case the Managing Party shall be as
agreed among the affected parties). Such management and administrative
responsibility shall entail the defense of such Third Party Claim, negotiation
with claimants and potential claimants (subject to the limitations in the
following paragraph) and other reasonably related activities. Unless the
Managing Party is an Indemnifying Party that does not acknowledge in writing its
obligations to indemnify the Indemnitee for the Third Party Claim to the extent
contemplated by this Agreement, the Managing Party may assume the defense
thereof with counsel selected by such Managing Party. If the Managing Party
assumes the defense of the Third Party Claim, the legal or other expenses in
respect of such Third Party Claim incurred by or on behalf of any Person other
than such Managing Party shall not be Indemnifiable Losses for purposes of this
Agreement, except for the reasonable fees and expenses of counsel employed by
the Indemnitee for any period during which the Managing Party has failed to
assume the defense of the Third Party Claim (other than the period during which
the Indemnitee failed to give notice of the Third Party Claim). Each Indemnitee
and each Indemnifying Party shall cooperate with any Managing Party and each
other in the defense or prosecution of such Third Party Claim. All costs and
expenses (including attorneys' fees and all out-of-pocket expenses, together
with the Costs of the Managing Party (if the Managing Party assumes the defense
of the Third Party Claim)) incurred in connection with a Third Party Claim in
respect of a Shared Liability shall be included as a part of the Indemnifiable
Losses.

                                       34
<PAGE>
 
     (d)  Notwithstanding Sections 7.07(b) and 7.07(c):

          (i) an Indemnifying Party (or the Managing Party, as applicable) shall
     not be entitled to assume the defense of any Third Party Claim (and shall
     be liable to the Indemnitee for the reasonable fees and expenses of counsel
     incurred by the Indemnitee in defending such Third Party Claim to the
     extent contemplated by this Agreement) if the Third Party Claim seeks an
     order, injunction or other equitable relief or relief for other than money
     damages against the Indemnitee which the Indemnitee reasonably determines,
     after conferring with its counsel, cannot be separated from any related
     claim for money damages and is materially prejudicial to the Indemnitee's
     business; provided, however, that if such equitable relief or other relief
               --------  -------                                               
     portion of the Third Party Claim can be so separated from that for money
     damages, the Indemnifying Party (or the Managing Party, as applicable)
     shall be entitled, but not required, to assume the defense of the portion
     relating to money damages;

          (ii)   an Indemnifying Party (or the Managing Party, as applicable)
     shall not be entitled to assume the defense of any Third Party Claim (and
     shall be liable to the Indemnitee for the reasonable fees and expenses of
     counsel incurred by the Indemnitee in defending such Third Party Claim to
     the extent contemplated by this Agreement) if, in the Indemnitee's
     reasonable judgment, a conflict of interest between such Indemnitee and any
     Indemnifying Party exists, in respect of such Third Party Claim; and

          (iii) if at any time after assuming the defense of a Third Party Claim
     an Indemnifying Party (or the Managing Party, as applicable) shall fail to
     assume or withdraws from the defense of such Third Party Claim, the
     Indemnitee may resume the defense thereof and the Indemnifying Party (or
     Indemnifying Parties as applicable) shall be liable for the reasonable fees
     and expenses of counsel incurred by the Indemnitee in such defense.

     (e)  Settlement of Third Party Claims.
          --------------------------------
 
          (i)  No Indemnitee (or the Managing Party, as applicable) shall admit
     any liability with respect to, or settle, compromise or discharge, any
     Third Party Claim or consent to the entry of any judgment without each
     Indemnifying Party's prior written consent; provided, however, that the
                                                 --------  -------          
     Indemnitee shall have the right to settle, compromise or discharge such
     Third Party Claim or consent to the entry of any judgment without the prior
     written consent of the Indemnifying Party or Indemnifying Parties if (A)
     the Indemnitee releases each Indemnifying Party from its indemnification
     obligation hereunder with respect to such Third Party Claim and such
     settlement, compromise or discharge would not otherwise materially
     adversely affect the Indemnifying Party or Indemnifying Parties, or (B) the
     Indemnifying Party (or the Managing Party, as applicable) has failed to
     assume the defense of the Third Party Claim within 90 days after the
     receipt of notice thereof.

          (ii) No Indemnifying Party (or Managing Party, as applicable) shall
     settle, compromise or discharge any Third Party Claim or consent to any
     judgment without each Indemnitee's prior written consent unless (A) an
     unconditional term of such settlement, compromise or discharge thereof is
     delivery by the claimant or the plaintiff to the Indemnitee of a written
     release of all Liability in respect of such Third Party Claims, (B) the
     Indemnifying Party pays the full amount of the Liability in connection with
     such Third Party Claim, and (C) such settlement, compromise or discharge
     would not otherwise materially adversely affect the Indemnitee.

     (f)  Other Claims. Any claim for an Indemnifiable Loss which does not
          ------------ 
result from a Third Party Claim shall be asserted by the Indemnitee by written
notice and in reasonable detail to the applicable Indemnifying Party. The
Indemnifying Party shall have 90 days from the date that it receives written
notice during which to notify the Indemnitee in writing of its good faith
objections, if any, to the Indemnitee's notice of claims for indemnification
describing in reasonable detail each of the Indemnifying Party's objections
thereto. If the Indemnifying Party does not deliver a written notice of
objection within such 90-day period, the Indemnifying Party shall be deemed not
have any objections to such notice or such claim. If the Indemnifying Party does
deliver such written notice of objection within such 90-day period, the
Indemnifying Party and the Indemnitee shall attempt in good faith to resolve any
such dispute within 90 days of receipt by the Indemnitee of such written notice
of objection. If the Indemnifying

                                       35
<PAGE>
 
Party and the Indemnitee are unable to resolve any such dispute within such 90-
day period, such dispute shall be submitted to the Separation Committee in
accordance with the procedures set forth in Article IX.

     Section 7.08.  Indemnification Payments.  Indemnification required by this
                    ------------------------                                   
Article VII shall be made by quarterly payments of the amount thereof (other
than individual amounts of $100,000 or more, which shall be paid within ten
business days) during the course of the investigation or defense; provided,
                                                                  -------- 
however, that if the applicable Indemnitee is a Subsidiary of a party that is
-------                                                                      
organized under a jurisdiction not in the United States, the payments shall, in
lieu thereof, be made to HCS, IB or SEB, as applicable.

     Section 7.09.  Certain Legal Proceedings.
                    ------------------------- 

     (a)  IB Third Party Claims. On the Distribution Date, IB shall assume (or
          ---------------------
shall cause one of its Subsidiaries to assume) (i) the prosecution of all claims
which are Instruments Assets and are pending on the Distribution Date, and (ii)
control of the defense against all Third Party Claims which are Instruments
Liabilities and are pending on the Distribution Date, including, in each case,
those set forth on Schedule 7.09(a).

     (b)  SEB Third Party Claims. On the Distribution Date, SEB shall assume (or
          ----------------------
shall cause one of its Subsidiaries to assume) (i) the prosecution of all claims
which are Semiconductor Equipment Assets and are pending on the Distribution
Date and (ii) control of the defense against all Third Party Claims which are
Semiconductor Equipment Liabilities and are pending on the Distribution Date,
including, in each case, those set forth on Schedule 7.09(b).

     (c)  HCS Third Party Claims. HCS (or its Subsidiaries) shall retain (i) the
          ----------------------
prosecution of all claims which are Health Care Systems Assets and are pending
on the Distribution Date, and (ii) control of the defense against all Third
Party Claims which are Health Care Systems Liabilities and are pending on the
Distribution Date, including, in each case, those set forth on Schedule 7.09(c).

     (d)  Shared Assets/Shared Liabilities.  The Managing Party shall assume or
          --------------------------------                                     
retain the (i) prosecution of all claims that are Shared Assets and are pending
on the Distribution Date and (ii) control of the defense against all Third Party
Claims which are Shared Liabilities and are pending on the Distribution Date,
including, in each case, those set forth on Schedule 7.09(d).

     Section 7.10. Survival of Indemnities.  The obligations of HCS, SEB and IB
                   -----------------------                                     
under this Article VII shall survive the sale or other transfer by any of them
of any Assets or businesses or the assignment by any of them of any Liabilities
with respect to any Indemnifiable Loss of any Indemnitee related to such Assets,
businesses or Liabilities.

     Section 7.11. Contribution. To the extent that indemnification provided for
                   ------------      
under Section 7.03, 7.04 or 7.05 is unavailable to hold harmless an Indemnitee
in respect of any Indemnifiable Loss, then the Indemnifying Party under such
Section, in lieu of indemnifying such Indemnitee, shall contribute to the amount
paid or payable by such Indemnitee as a result of such Indemnifiable Loss in
such proportion as is appropriate to reflect the relative fault (to be
determined through the procedures provided for in Article IX) of the
Indemnifying Party on the one hand and of the Indemnitee on the other hand in
connection with the action, inaction, statements or omissions that resulted in
such Indemnifiable Loss as well as any other relevant equitable considerations.

     Section 7.12. Exclusive Mechanism; Waiver of Jury Trial. Each of IB, SEB
                   -----------------------------------------
and HCS, on behalf of itself and each member of its Group, agrees that the
procedures set forth in this Article VII, together with Article IX, shall be the
sole and exclusive mechanism for the resolution of any dispute, controversy or
claim relating to any of the matters set forth in Sections 7.03, 7.04 and 7.05.
Each of IB, SEB and HCS, on behalf of itself and each member of its Group,
irrevocably waives any right to any trial by jury with respect to any dispute,
controversy or claim arising out of, relating to or resulting from this
Agreement or any Ancillary Agreement.

     Section 7.13. Failure to Satisfy Indemnification Obligation. In the event
                   ---------------------------------------------
that (a) it is finally determined that an Indemnifying Party is liable to an
Indemnitee hereunder in respect of an Indemnifiable Loss, and (b) a court of
competent jurisdiction prohibits such Indemnifying Party from satisfying all or
a part of its obligations to the

                                       36
<PAGE>
 
Indemnitee hereunder (for indemnification or contribution) in respect of such
Indemnifiable Loss, then the amount of the Indemnifiable Loss that is not
satisfied shall be treated as a Shared Liability of the parties to this
Agreement other than the Indemnifying Party, with each such other party bearing
one-half of such amount.

     Section 7.14.  Treatment of Shared Assets.
                    -------------------------- 

     (a)  Prosecution of Claims. The Managing Party in respect of a Shared
          ---------------------  
Asset, or such other party as the parties hereto shall agree (or, if they cannot
agree, HCS) shall have sole and exclusive authority to commence, prosecute,
settle, manage, control, conduct, waive, forego, release, discharge, forgive and
otherwise determine all matters whatsoever with respect to any Shared Asset.

     (b)  Disposition of Benefit. Any benefit that may be received from a Shared
          ---------------------- 
Asset shall be shared, one-third each, among HCS, IB and SEB, except to the
extent that the benefit relates to a Shared Asset received in respect of a
Shared Liability, the indemnification obligations for which are borne by only
two of the parties pursuant to Sections 7.03, 7.04 or 7.05, in which event such
benefit shall be shared, one-half each, by the parties bearing the
indemnification obligation.

     (c)  Shared Asset Payments. The amount of any benefit from a Shared Asset
          ---------------------
shall be payable by the party receiving the benefit (net of the Costs incurred
in collecting such benefit, if the party is not otherwise indemnified with
respect to such Costs under other provisions of this Article VII) to the other
parties quarterly (other than individual amounts of $100,000 or more, which
shall be paid within ten business days) as such benefits are received.

     (d)  Adjustment for Taxes. The amount of benefits determined pursuant to
          --------------------
this Section 7.14 shall be appropriately adjusted to take into account Income
Taxes in a manner consistent with Section 7.06(b).

                                 ARTICLE VIII
                                   INSURANCE

     Section 8.01.  Policies and Rights Included within Assets.
                    ------------------------------------------ 

     (a)  New and Existing Insurance. As of the Effective Time, each of the
          --------------------------
Groups shall be responsible for arranging separate Policies with respect to
Actions and Liabilities arising after the Effective Time with respect to such
Group and its business. As of the Effective Time, all prepaid and unused
premiums, and all refunds received thereafter with respect to each Company
Policy that inured to the benefit of more than one Group before the Effective
Time, except as provided in Section 8.04, shall be distributed or retained one-
third each to HCS, IB and SEB (or one-half each to the affected parties if only
two parties were insured under the applicable Company Policy). To the extent any
party receives any such refund, the party receiving the refund shall promptly
transfer to the other parties the portion of such refund to which each such
other party is entitled.

     (b)  IB's Insurance. Without limiting the generality of the definition of
          --------------  
the Instruments Assets set forth in Section 1.01 or the effect of Section 2.02,
the Instruments Assets shall include any and all rights of an insured party or
an additional named insured party under the Company Policies and all predecessor
Policies thereto for Actions or Liabilities arising before the Effective Time,
including rights of indemnity and the right to be defended by or at the expense
of the insurer, with respect to all Actions or Liabilities incurred or claimed
to have been incurred before the Distribution Date by any party in connection
with the Instruments Assets or the conduct of the Instruments Business or, to
the extent any claim is made against IB or any IB Subsidiary, the conduct of the
Health Care Systems Business or the Semiconductor Equipment Business (a "IB
Claim"); provided, however, that nothing in this paragraph (b) shall be deemed
         --------  -------
to constitute (or to reflect) an assignment of such Company Policies, or any of
them, to IB. Except for Insurance Proceeds paid to or on behalf of any member of
the Health Care Systems Group or the Semiconductor Equipment Group at the
direction of IB in satisfaction of a claim that would otherwise be subject to
indemnification by IB under Article VII, IB shall be entitled to receive from
Varian any Insurance Proceeds with respect to any IB Claims under the Company
Policies, including reimbursement for Instruments Liabilities.

                                       37
<PAGE>
 
     (c)  SEB's Insurance. Without limiting the generality of the definition of
          ---------------
the Semiconductor Equipment Assets set forth in Section 1.01 or the effect of
Section 2.02, the Semiconductor Equipment Assets shall include any and all
rights of an insured party or an additional named insured party under the
Company Policies and all predecessor Policies thereto for Actions or Liabilities
arising before the Effective Time, including rights of indemnity and the right
to be defended by or at the expense of the insurer, with respect to all Actions
or Liabilities incurred or claimed to have been incurred before the Distribution
Date by any party in connection with the Semiconductor Equipment Assets or the
conduct of the Semiconductor Equipment Business or, to the extent any claim is
made against SEB or any SEB Subsidiary, the conduct of the Instruments Business
or the Health Care Systems Business, (an "SEB Claim"); provided, however, that
nothing in this paragraph (c) shall be deemed to constitute (or to reflect) an
assignment of such Company Policies, or any of them, to SEB. Except for
Insurance Proceeds paid to or on behalf of any member of the Instruments Group
or the Health Care Systems Group at the direction of SEB in satisfaction of a
claim that would otherwise be subject to indemnification by SEB under Article
VII, SEB shall be entitled to receive from Varian any Insurance Proceeds with
respect to any SEB Claims under the Company Policies, including reimbursement
for Semiconductor Equipment Liabilities.

     (d)  HCS's Insurance. Without limiting the generality of the definition of
          ---------------
the Health Care Systems Assets set forth in Section 1.01, the Health Care
Systems Assets shall include any and all rights of an insured party or an
additional named insured party under the Company Policies and all predecessor
Policies thereto including rights of indemnity and the right to be defended by
or at the expense of the insurer, other than the rights that are included in the
Instruments Assets or the Semiconductor Equipment Assets.

     Section 8.02.  Claims.
                    ------ 
 
     (a)  Assignment of Rights to the Instruments Group.
          ---------------------------------------------
 
          (i)  The parties agree that as of the Effective Time, Varian shall be
     deemed (A) to have assigned to the Instruments Group, all the other Groups'
     rights, if any, as an insured party or an additional named insured party
     including rights of indemnity and the right to be defended by or at the
     expense of the insurer, under all of the Company Policies with respect to
     such IB Claims as are pending on the Distribution Date, and (B) to the
     extent necessary to provide the Instruments Group all the benefit of such
     insurance with respect to IB Claims, to designate IB, without need of
     further documentation, as the agent and attorney-in-fact to assert and to
     collect any Insurance Proceeds under such Company Policies; provided,
                                                                 -------- 
     however, that nothing in this Section 8.02(a) shall be deemed to constitute
     -------
     or reflect the assignment of any of the Company Policies to the Instruments
     Group. If, after the Distribution Date, the Instruments Group shall be
     entitled to payment or reimbursement with respect to an IB Claim or any
     Person shall assert an IB Claim, then HCS shall at the time such IB Claim
     arises or is asserted be deemed (A) to assign, without need of further
     documentation, to the Instruments Group all of the Health Care Systems
     Group's rights, if any, as an insured party or an additional named insured
     party, including right of indemnity and the right to be defended by or at
     the expense of the insurer, under the applicable Company Policy with
     respect to such IB Claim and (B) to the extent necessary to provide the
     Instruments Group with the benefit of such insurance with respect to IB
     Claims, to designate IB, without need of further documentation, as the
     agent and attorney-in-fact to assert and to collect any Insurance Proceeds
     under such Company Policies; provided, however, that nothing in this
                                  --------  -------      
     Section 8.02(a) shall be deemed to constitute or reflect the assignment of
     any of the Company Policies to the Instruments Group. In the event an
     insurer refuses to honor such agency or to pay such Insurance Proceeds to
     the Instruments Group, HCS shall use all reasonable efforts to collect such
     Insurance Proceeds and forward them to IB.

          (ii) In the event of payment of an IB Claim by the Instruments Group
     after the Distribution Date, IB, or the applicable member of the
     Instruments Group shall be subrogated to and stand in the place of HCS or
     the applicable member of any other Group as to any rights, events or
     circumstances in respect of which IB or the applicable member of the
     Instruments Group may have any right or claim under this Agreement or
     otherwise against any such insurer relating to such IB Claim. The parties
     shall cooperate with the Instruments Group in a reasonable manner in
     prosecuting any subrogated right or claim.

                                       38
<PAGE>
 
     (b)  Assignment of Rights to the Semiconductor Equipment Group.
          ---------------------------------------------------------
 
          (i)  The parties agree that as of the Effective Time, Varian shall be
     deemed (A) to have assigned to the Semiconductor Equipment Group, all the
     other Groups' rights, if any, as an insured party or an additional named
     insured party including rights of indemnity and the right to be defended by
     or at the expense of the insurer, under all of the Company Policies with
     respect to such SEB Claims as are pending on the Distribution Date, and (B)
     to the extent necessary to provide the Semiconductor Equipment Group all
     the benefit of such insurance with respect to SEB Claims, to designate SEB,
     without need of further documentation, as the agent and attorney-in-fact to
     assert and to collect any Insurance Proceeds under such Company Policies;
     provided, however, that nothing in this Section 8.02(b) shall be deemed to
     --------  -------                                                         
     constitute or reflect the assignment of any of the Company Policies to the
     Semiconductor Equipment Group.  If, after the Distribution Date, the
     Semiconductor Equipment Group shall be entitled to payment or reimbursement
     with respect to a SEB Claim or any Person shall assert a SEB Claim, then
     HCS shall at the time such SEB Claim arises or is asserted be deemed (A) to
     assign, without need of further documentation, to the Semiconductor
     Equipment Group all of the Health Care Systems Group's rights, if any, as
     an insured party or an additional named insured party, including right of
     indemnity and the right to be defended by or at the expense of the insurer,
     under the applicable Company Policy with respect to such SEB Claim and (B)
     to the extent necessary to provide the Semiconductor Equipment Group with
     the benefit of such insurance with respect to SEB Claims, to designate SEB,
     without need of further documentation, as the agent and attorney-in-fact to
     assert and to collect any Insurance Proceeds under such Company Policies;
     provided, however, that nothing in this Section 8.02(b) shall be deemed to
     --------  -------                                                         
     constitute or reflect the assignment of any of the Company Policies to the
     Semiconductor Equipment Group.  In the event an insurer refuses to honor
     such agency or to pay such Insurance Proceeds to the Semiconductor
     Equipment Group, HCS shall use all reasonable efforts to collect such
     Insurance Proceeds and forward them to SEB.

          (ii) In the event of payment of a SEB Claim by the Semiconductor
     Equipment Group after the Distribution Date, SEB, or the applicable member
     of the Semiconductor Equipment Group shall be subrogated to and stand in
     the place of HCS or the applicable member of any other Group as to any
     rights, events or circumstances in respect of which SEB or the applicable
     member of the Semiconductor Equipment Group may have any right or claim
     under this Agreement or otherwise against any such insurer relating to such
     SEB Claim. The parties shall cooperate with the Semiconductor Equipment
     Group in a reasonable manner in prosecuting any subrogated right or claim.

     Section 8.03. Administration; Other Matters. Consistent with the provisions
                   ------------------------------    
of Article VII, after the Distribution Date,

     (a)  HCS's Responsibilities.  HCS shall be responsible for (i) Insurance
          ----------------------                                             
Administration of the Company Policies, and (ii) Claims Administration with
respect to any Health Care Systems Liabilities, any Health Care Systems Assets
or any claims as to which the Health Care Systems Group has retained rights of
reimbursement or subrogation under this Agreement or any Ancillary Agreement. It
is understood that the retention of the Company Policies by HCS is in no way
intended to limit, inhibit or preclude any right to insurance coverage for any
Insured Claim or any other rights under the Company Policies.

     (b)  IB's Responsibilities. IB shall be responsible for Claims
          ---------------------     
Administration with respect to any Instruments Liabilities, Instruments Assets
or any claims as to which the Instruments Group has rights of reimbursement or
subrogation under this Agreement or any Ancillary Agreement.

     (c)  SEB's Responsibilities. SEB shall be responsible for Claims
          ----------------------  
Administration with respect to any Semiconductor Equipment Liabilities,
Semiconductor Equipment Assets or any claims as to which the Semiconductor
Equipment Group has rights of reimbursement or subrogation under this Agreement
or any Ancillary Agreement.

     (d)  The Managing Party's Responsibilities.  The Managing Party shall be
          -------------------------------------                              
responsible for Claims Administration with respect to Insured Claims for
Shared Liabilities.

                                       39
<PAGE>
 
     (e)  Notice. In the event that HCS, SEB or IB makes an Insured Claim under
          ------
a Company Policy, such party shall deliver notice to the other parties of such
Insured Claim and shall keep the other parties periodically updated as to the
status of such Insured Claim.

     Section 8.04.  Retrospectively Calculated Insurance Premiums. Each party
                    ---------------------------------------------
shall pay or receive its share of retrospectively calculated additional or
return premiums or assessments, policy dividends or audited exposures after the
Distribution Date for coverage under the Company Policies with respect to their
respective Liabilities which are Insured Claims under the Company Policies. Such
shares shall be determined consistent with losses incurred or audited exposure
with respect to the Assets or businesses of the parties for that specific line
of insurance coverage, as determined in an independent underwriting analysis.
Each party shall have the right, but not the obligation, to pay any additional
premiums under the Company Policies with respect to the other parties'
Liabilities which are Insured Claims under the Company Policies to the extent
that one or more other parties does not pay such premium, in which event the
non-paying party or parties shall promptly reimburse the payor for any premiums
paid by the payor with respect to such non-paying party's Liabilities.

     Section 8.05.  Allocation of Insurance Proceeds; Cooperation.
                    --------------------------------------------- 

     (a)  Allocation of Insurance Proceeds. Except as otherwise provided in
          --------------------------------     
Section 8.01, Insurance Proceeds received with respect to claims, costs and
expenses under the Company Policies shall be paid to HCS with respect to Health
Care Systems Liabilities that are Insured Claims, to IB with respect to
Instruments Liabilities that are Insured Claims and to SEB with respect to
Semiconductor Equipment Liabilities that are Insured Claims. Payment of the
allocable portions of indemnity costs of Insurance Proceeds resulting from the
Company Policies shall be made to the appropriate party upon receipt from the
insurer. Insurance Proceeds received with respect to Shared Liabilities shall be
paid to the party or other Person bearing the Liability that represents the
Insured Claim.

     (b)  Maximization of Coverage. Each party agrees to use commercially
          ------------------------
reasonable efforts to maximize available coverage under the Company Policies for
all Insured Claims whether or not such party is the expected beneficiary of
Insurance Proceeds under such Company Policies in respect of such Insured
Claims. As part of such efforts to maximize insurance coverage, each party
agrees to take all commercially reasonable actions to recover such amounts as
are or might be due from all other responsible parties in respect of an Insured
Claim, including Insured Claims as to which coverage limits under the Company
Policies would be or would have been exceeded as a result of such Insured Claim
and whether or not such party is expected to benefit directly from such effort
and to engage in reasonable settlement negotiations and consider reasonable
offers of settlement or compromise with respect to any Liabilities that
represent Insured Claims. Each party further agrees to name each other party to
this Agreement as an additional insured (up to a maximum of $10,000,000) under
each liability Policy maintained by such Party during the three-year period
commencing on the Distribution Date for claims under Article VII of this
Agreement.

     (c)  Multiple Claims. Where Health Care Systems Liabilities and/or
          ---------------
Instruments Liabilities and/or Semiconductor Equipment Liabilities, as
applicable, are covered under the same Company Policies for periods before the
Distribution Date, or covering claims made after the Distribution Date with
respect to an event or an occurrence before the Distribution Date, then the
Health Care Systems Group, the Instruments Group and the Semiconductor Equipment
Group, as applicable, may claim coverage for Insured Claims under such Company
Policies to the extent of liability or other coverage of such Company Policies.
Each party may receive Insurance Proceeds in respect of its Insured Claims as
and when payable under the terms of the applicable Company Policies without
regard to whether the Insured Claim covers Health Care Systems Liabilities,
Instruments Liabilities or Semiconductor Equipment Liabilities; provided,
                                                                --------
however, that before receiving payment under a Company Policy, the party making
-------
the claim shall be required to have retained a portion of the Liability
underlying such Insured Claim equal to the amount of the self insurance
retention or deductible. In the event that the aggregate limits on any Company
Policy is exceeded by the aggregate of paid Insured Claims, no Group shall be
entitled to reimbursement from another Group.

     Section 8.06.  Reimbursement of Expenses. Each of IB or SEB shall reimburse
                    -------------------------
the applicable insurer (or any applicable third-party administrator) to the
extent required under any Company Policy (or service agreement) for any services
performed after the Distribution Date with respect to any and all IB Claims or
SEB Claims, respectively, which are paid, settled, adjusted, defended and/or
otherwise handled by such insurer or third-

                                       40
<PAGE>
 
party administrator under the terms and conditions of such Company Policy (or
any service agreement with any such third-party administrator).

     Section 8.07. Insurer Insolvency or Coverage Controversy. None of IB, HCS
                   ------------------------------------------ 
and SEB shall be liable to one another for claims not reimbursed by insurers for
any reason, including co-insurance provisions, deductibles, adequacy of limits,
self-insurance retentions, bankruptcy or insolvency of any insurer, any coverage
disputes, any failure to timely claim or any defect in such claim or its
processing or exhaustion of Company Policy aggregates.

     Section 8.08. Agreement for Waiver of Conflict and Shared Defense.  In the
                   ---------------------------------------------------         
event that Insured Claims of more than one of the parties exist relating to the
same occurrence, the applicable parties shall jointly defend and waive any
conflict of interest necessary to the conduct of the joint defense.  Nothing in
this Section 8.08 shall be construed to limit or otherwise alter in any way the
obligations of the parties to this Agreement, including those created by this
Agreement, by operation of Law or otherwise.

     Section 8.09. Direct Responsibility for Claims; Additional Insurance; No
                   ----------------------------------------------------------
Modifications.
-------------
 
     (a)  Notification to Insurers. Varian agrees to use commercially reasonable
          ------------------------
efforts to notify all known liability insurers under the Company Policies of the
Distributions and to seek an endorsement by such insurers that the coverage
provided by such Company Policies will apply to the Health Care Systems Group,
the Instruments Group and the Semiconductor Equipment Group, as organized and
existing on the Distribution Date, with the same force and effect and subject to
the same terms, conditions and exclusions as if the separation of Varian and the
Distributions had not occurred (it being understood that Varian shall be under
no obligation to pay any amounts or otherwise incur any Liabilities in
connection therewith). In the event such endorsement is refused, Varian agrees
to use commercially reasonable efforts to place the Instruments Group and the
Semiconductor Equipment Group in the same position as each would have been had
such endorsement been agreed upon by such insurers (it being understood that
Varian shall be under no obligation to pay any amounts or otherwise incur any
Liabilities in connection therewith). Each of HCS, IB and SEB shall have the
right to use commercially reasonable efforts to negotiate agreements with any
and all insurers or third party administrators for the assumption of direct
responsibility for any and all Liabilities related to it under any Company
Policies, and Varian shall provide commercially reasonable assistance in this
effort.

     (b)  Post-Distribution Date Actions. After the Distribution Date, none of
          ------------------------------
HCS, IB or SEB or any member of their respective Groups shall, without the prior
written consent of the other parties, provide any insurer with a release, or
amend, modify or waive any rights under any Policy or agreement, if such
release, amendment, modification or waiver would adversely affect any rights or
potential rights to coverage of any member of the other Groups thereunder;
provided, however, that, except as expressly provided in this Agreement, the
--------  -------
foregoing shall not (i) preclude any member of any Group from presenting any
claim or, subject to Section 8.05, from exhausting any Policy limit, (ii)
require any member of any Group to pay any premium or other amount or to incur
any Liability, or (iii) require any member of any Group to renew, extend or
continue any Policy in force. Each of HCS, IB and SEB shall share such
information as is reasonably necessary in order to permit the others to manage
and conduct its insurance matters in an orderly fashion.

     (c)  Additional Insurance.  Nothing in this Agreement shall be deemed to
          --------------------                                               
restrict any member of the Instruments Group or the Semiconductor Equipment
Group from acquiring, at its own expense, any other insurance policy in respect
of any Liabilities or covering any period to the extent such insurance policy
does not contravene or abrogate any rights of any member of the other Groups
under any of the Company Policies or increase (or potentially increase) premiums
thereunder, whether prospectively or retroactively.

                                  ARTICLE IX
                              DISPUTE RESOLUTION

     Section 9.01.  Separation Committee.
                    -------------------- 

     (a)  Composition and Responsibility of Committee. As of the Effective Time,
          -------------------------------------------   
HCS, IB and SEB shall form a committee (the "Separation Committee") comprised of
one representative designated from time-to-time by

                                       41
<PAGE>
 
the chief executive officer of each of the parties. Except as otherwise
expressly provided in this Agreement, until the tenth anniversary of the
Effective Time, the Separation Committee shall be responsible for resolving any
and all controversies, disputes or claims arising out of, relating to, in
connection with or resulting from this Agreement or any Ancillary Agreement (or
any amendment hereto or thereto or any transaction contemplated hereby or
thereby), including as to its existence, interpretation, performance, non-
performance, validity, breach or termination, including any claim based on
contract, tort, statute or constitution and any claim raising questions of law,
whether arising before or after termination of this Agreement or any of the
Ancillary Agreements, including any dispute as to (i) whether any Action or
other Liability is an Instruments Liability, a Health Care Systems Liability, a
Semiconductor Equipment Liability or a Shared Liability, (ii) whether any Asset
is a Instruments Asset, a Health Care Systems Asset, a Semiconductor Equipment
Asset or a Shared Asset, (iii) the interpretation of any provision of this
Agreement or any Ancillary Agreement, and (iv) such other matters as are
contemplated by this Agreement or any Ancillary Agreement to be resolved by the
Separation Committee (collectively, "Agreement Disputes").

     (b)  Resolution Procedures. In the event of an Agreement Dispute, each of
          ---------------------
the parties shall have the right to refer such Agreement Dispute in writing to
the Separation Committee (or, if the Agreement Dispute involves only two of the
parties, to the representatives of the affected parties that are members
thereof) for resolution. The Separation Committee (or such members) shall seek
to render a unanimous written decision with respect to any Agreement Dispute
within 60 days after receipt of the referral. The decision of the Separation
Committee (or such members) with respect to any Agreement Dispute shall be
binding on the affected parties, the members of their respective Groups and
their respective successors and assigns. In the event that the Separation
Committee (or such members) is unable to reach a unanimous written decision as
to any Agreement Dispute within 60 days after receipt of the referral, any of
the affected parties shall have the right to submit such Agreement Dispute to
arbitration in accordance with the procedures described in Section 9.02. The
parties shall each bear their own expenses and costs in connection with the
procedures described in this Section 9.01.

     Section 9.02.  Binding Arbitration.
                    ------------------- 

     (a)  Submission of Agreement Disputes.  Until 60 days after the tenth
          --------------------------------                                
anniversary of the Effective Time, the resolution of any and all such Agreement
Disputes not resolved in accordance with Section 9.01 shall be exclusively
governed, settled and resolved in accordance with the mandatory binding
arbitration provided for in this Section 9.02.

     (b)  Commencement of Arbitration. Any affected party may commence
          ---------------------------   
arbitration proceedings by delivering a written notice to the other party or
parties, describing in reasonable detail the Agreement Dispute to the other(s),
and expressly requesting arbitration (an "Arbitration Demand Notice") and by
filing with the American Arbitration Association ("AAA") a claim. Any such
arbitration shall be final, conclusive and binding on the parties, the members
of their respective Groups and their respective successors and assigns.

     (c)  Selection of Panel.  The arbitration shall be conducted in Palo Alto,
          ------------------                                                   
California by three arbitrators acting by majority vote (the "Panel"). The
parties involved in the arbitration shall jointly select the three arbitrators
from a list provided by AAA. If the parties are unable to agree as to the Panel
within 30 days after delivery of the Arbitration Demand Notice, the arbitrators
shall be appointed by the AAA pursuant to the commercial arbitration rules of
the American Arbitration Association, as amended from time to time (the "AAA
Rules"). If an arbitrator so selected or appointed becomes unable to serve, his
or her successor shall be similarly selected or appointed. Notwithstanding the
foregoing, if the affected parties agree, the Panel may consist of one
arbitrator jointly selected by the affected parties. The Panel shall be the sole
judge of the existence and extent of its jurisdiction.

     (d)  Arbitration Procedures. The arbitration shall be conducted under the
          ---------------------- 
AAA Rules.

     (e)  Conduct of Hearing.  All hearings shall be conducted on an expedited
          ------------------                                                  
schedule and all proceedings shall be confidential. Any affected party may at
its expense make a stenographic record thereof, which shall then be shared with
the other affected parties which so request a copy (which parties shall then
share equally in the expense) and which shall be given to the Panel as the
official record of the proceedings. Hearings with respect to an Agreement
Dispute shall begin not later than 120 days after selection or appointment of
the Panel and shall not be more than 30 days in length. The Panel shall be
required to issue a final award within 30 days of the conclusion of the
hearings. The award shall be in writing and shall specify the factual and legal
basis for the award. The Panel

                                       42
<PAGE>
 
shall apportion all costs and expenses of arbitration, including the Panel's
fees and expenses, fees and expenses of experts and reasonable attorneys' fees,
among the affected parties as the Panel deems fair and reasonable. The parties
agree that money damages may be inadequate and that any party shall be entitled
to seek, and that the Panel shall be empowered to enter, equitable and
injunctive relief, including preliminary and temporary injunctive relief, in
addition to any other appropriate relief or remedy. The parties consent to the
jurisdiction of the Panel to award such relief and to the binding nature of any
such relief award by the Panel. Any arbitration award shall be binding and
enforceable against the affected parties and each member of their respective
Groups and judgment may be entered thereon in any court of competent
jurisdiction.

     (f)  Limitation on Damages. In no event may the Panel award exemplary,
          ---------------------
special or punitive damages or lost profits, except to the extent that
exemplary, special or punitive damages or lost profits are actually paid by a
party or a member of a party's Group to a third party.

     Section 9.03.  Disputes Regarding Closing Balance Sheets; Payments.
                    ---------------------------------------------------  
Notwithstanding Sections 9.01 and 9.02, the following shall govern disputes with
respect to the IB Closing Balance Sheet, the HCS Closing Balance Sheet and SEB
Closing Balance Sheet.

     (a)  Disputes Regarding Closing Balance Sheets. Unless (i) in the case of
          -----------------------------------------  
the IB Closing Balance Sheet, IB delivers written notice to HCS and SEB on or
before the 60th day after its receipt of the IB Closing Balance Sheet that it
disputes the value of any item set forth on the IB Closing Balance Sheet (a "IB
Dispute"), or (ii) in the case of the SEB Closing Balance Sheet, SEB delivers
written notice to HCS and IB on or before the 60th day after its receipt of the
SEB Closing Balance Sheet that it disputes the value of any item set forth on
the SEB Closing Balance Sheet (a "SEB Dispute"), or (iii) in the case of the HCS
Closing Balance Sheet, HCS delivers a written notice to IB and SEB on or before
the 60th day after its receipt of the HCS Balance Sheet that it disputes the
value of any item set forth on the HCS Closing Balance Sheet (a "HCS Dispute"),
then the parties shall be deemed to have accepted and agreed to the IB Closing
Balance Sheet, the HCS Closing Balance Sheet or the SEB Closing Balance Sheet,
as applicable, in the form in which it was delivered to it by the Auditors. If
such a notice of a dispute is given by a party (the "Disputing Party") within
such 60-day period, then the parties shall, within 30 days after the giving of
any such notice, attempt to resolve the IB Dispute, HCS Dispute or SEB Dispute,
as the case may be, and agree in writing upon the final content of the affected
Closing Balance Sheet. Notwithstanding the foregoing, the values assigned to
each Asset and Liability on the IB Closing Balance Sheet, the HCS Closing
Balance Sheet and the SEB Closing Balance Sheet will be conclusively presumed to
be correct, and no party shall have the right to dispute the value of any item
if the values assigned to such Assets and Liabilities are the same as the values
recorded on Varian's balance sheet immediately prior to the Effective Time.

     (b)  If the parties are unable to resolve any IB Dispute, HCS Dispute or
SEB Dispute, as the case may be, within such 30-day period, then a mutually
acceptable independent accounting firm (the "Independent Auditors") shall be
employed as arbitrator hereunder to settle such IB Dispute, HCS Dispute and/or
SEB Dispute, as the case may be, as soon as practicable. In resolving such IB
Dispute, HCS Dispute or SEB Dispute, the Independent Auditors shall (i) be
granted access to all documents and facilities necessary to perform its function
as arbitrator; (ii) permit each party and its representatives to make written
and oral presentations to the Independent Auditors; (iii) resolve such IB
Dispute, HCS Dispute and/or SEB Dispute by following relevant internal
accounting methods and policies consistently applied, to the extent such methods
and policies are not inconsistent with GAAP or any term of this Agreement; (iv)
make a final decision regarding such IB Dispute, HCS Dispute and/or SEB Dispute
within such period of time mutually agreed upon by the relevant parties and
specified at the time of appointment of the Independent Auditors; and (v) issue
a written statement explaining the basis for its final decision. The
determination of the Independent Auditors with respect to any IB Dispute, HCS
Dispute and/or SEB Dispute, as the case may be, shall be final and binding on
the applicable parties. Each affected party shall pay its proportionate share of
the fees and expenses of the Independent Auditors for such services. HCS and the
Disputing Party (or Disputing Parties) each agree to execute, if requested by
the Independent Auditors, a reasonable engagement letter. The term "IB Adjusted
Closing Balance Sheet" as used herein shall mean the definitive IB Closing
Balance Sheet agreed to by the parties or, as the case may be, the definitive IB
Closing Balance Sheet resulting from the determinations made by the Independent
Auditors in accordance with this Section 9.03 (in addition to the matters
theretofore agreed to by IB and HCS). The term "HCS Adjusted Closing Balance
Sheet" as used herein shall mean the definitive HCS Balance Sheet agreed to by
the parties or, as the case may be, the definitive HCS Closing Balance Sheet
resulting from the determinations made by the Independent Auditors in accordance
with this

                                       43
<PAGE>
 
Section 9.03 (in addition to the matters theretofore agreed to by HCS and the
Disputing Party or Disputing Parties). The term "SEB Adjusted Closing Balance
Sheet" as used herein shall mean the definitive SEB Closing Balance Sheet agreed
to by the parties or, as the case may be, the definitive SEB Balance Sheet
resulting from the determinations made by the Independent Auditors in accordance
with this Section 9.03 (in addition to the matters theretofore agreed to by SEB
and HCS).

     (c)  Post-Distribution Adjustments, Cash Payments and Other Actions.
          -------------------------------------------------------------- 

          (i)  If the SEB Adjusted Closing Balance Sheet indicates that the
     targets for the minimum Cash and Cash Equivalents provided in Section
     2.05(b)(i)(A) or minimum consolidated Net Worth provided in Section
     2.05(b)(i)(B) or the maximum Consolidated Debt of SEB provided in Section
     2.05(b)(ii) were not met as of the Effective Time, then each of HCS and IB
     shall pay to SEB, in cash, an amount equal to 50% of the amount that would
     have been sufficient to cause SEB to meet such targets, or to reimburse SEB
     for any Consolidated Debt in excess of $5,000,000, as of the Effective
     Time, within ten days after the date the SEB Adjusted Closing Balance Sheet
     is determined and provided to the parties. If the SEB Adjusted Closing
     Balance Sheet indicates that the target for the minimum Cash and Cash
     Equivalents provided in Section 2.05(b)(i)(A) has been exceeded but the
     target for minimum consolidated Net Worth provided in Section 2.05(b)(i)(B)
     has been satisfied, then SEB shall pay to each of HCS and IB, in cash, an
     amount equal to 50% of the amount by which (A) the Cash and Cash
     Equivalents of SEB set forth on the SEB Adjusted Closing Balance Sheet
     exceed (B) the sum of (y) $100,000,000 and (z) the amount, if any, that
     would be required to reimburse SEB for any Consolidated Debt in excess of
     $5,000,000, within ten days after the date the SEB Adjusted Closing Balance
     Sheet is determined and provided to the parties. If the consolidated Net
     Worth set forth on the SEB Adjusting Closing Balance Sheet exceeds
     $225,000,000, then SEB shall pay to each of HCS and IB, in cash, an amount
     equal to 50% of the amount by which the such consolidated Net Worth exceeds
     $225,000,000, within ten days after the date the SEB Adjusted Closing
     Balance Sheet is determined and provided to the parties.

          (ii) If the HCS Adjusted Closing Balance Sheet indicates that the
     consolidated Net Worth of HCS set forth on the HCS Adjusted Closing Balance
     Sheet is less than 40% of the combined consolidated Net Worths of HCS and
     IB set forth on the HCS Adjusted Closing Balance Sheet and the IB Adjusted
     Closing Balance Sheet, then IB shall pay to HCS an amount in cash that
     would have been sufficient to cause the consolidated Net Worth of HCS to
     have equaled 40% of the combined consolidated Net Worths of HCS and IB set
     forth on the HCS Adjusted Closing Balance Sheet and the IB Adjusted Closing
     Balance Sheet as of the Effective Time, within ten days after the later of
     the date the HCS Adjusted Closing Balance Sheet and the IB Adjusted Closing
     Balance Sheet is determined and provided to the parties. If the HCS
     Adjusted Closing Balance Sheet indicates that the consolidated Net Worth of
     HCS set forth on the HCS Adjusted Closing Balance Sheet is more than 50% of
     the combined consolidated Net Worths of HCS and IB set forth on the HCS
     Adjusted Closing Balance Sheet and the IB Adjusted Closing Balance Sheet,
     then HCS shall pay to IB an amount in cash that would have been sufficient
     to cause the consolidated Net Worth of HCS to have equaled 50% of the
     combined consolidated Net Worths of HCS and IB set forth on the HCS
     Adjusted Closing Balance Sheet and the IB Adjusted Closing Balance Sheet as
     of the Effective Time, within ten days after the later of the date the HCS
     Adjusted Closing Balance Sheet and the IB Adjusted Closing Balance Sheet is
     determined and provided to the parties. For purposes of this Section
     9.03(c)(ii), the consolidated Net Worth of HCS shall be determined without
     giving effect to any Transaction Expenditures or Dispositions (including
     associated tax benefit and tax cost) that have been accrued, paid or
     received by HCS as of the Effective Time or any of the transactions
     effected pursuant to Section 2.05(d), but shall include any adjustments
     required by Section 9.03(c)(i).

     Section 9.04.  Post-Distribution Adjustment in Respect of Transaction
                    ------------------------------------------------------
Expenditures and Disposition Proceeds.  On the date that is 180 days after the
-------------------------------------                                         
Distribution Date (or, if such date is not a business day, the immediately
following business day), HCS and IB shall recompute the After-tax Differential
(including HCS's and IB's good faith estimates of the components thereof that
are not yet determinable as of such 180th day). If the positive or negative
difference between the After-tax Differential determined as of such date and the
After-tax Differential determined pursuant to the provisions of Section 2.05(d)
is more than $1,000,000, then IB shall pay HCS, or HCS shall pay IB (as
applicable to put the parties in the positions they would have been if the
After-tax

                                       44
<PAGE>
 
Differential computed pursuant to the provisions of Section 2.05(d) was equal to
the recomputed After-tax Differential) 50% of the amount of such difference.

     Section 9.05.   Discretionary Restructuring Amounts. On the date that is 90
                     -----------------------------------
days after the Distribution Date (or, if such date is not a business day, the
immediately following business day) HCS and IB shall recompute the HCS
Discretionary Restructuring Amount and the IB Discretionary Restructuring Amount
and IB shall pay HCS or HCS shall pay IB (as applicable) such amounts as shall
be necessary to put such entities in the positions they would have been if the
HCS Discretionary Restructuring Amount and the IB Discretionary Restructuring
Amount computed pursuant to the provisions of Section 2.05(c) were equal to the
recomputed amounts.

     Section 9.06.   Specific Performance. Each party acknowledges that there is
                     -------------------- 
no adequate remedy at Law for the failure by such parties to comply with the
provisions of this Agreement and that such failure would cause immediate harm
that would not be adequately compensable in damages. Accordingly, each party
agrees that the agreement contained in Section 9.02 with respect to arbitration
of Agreement Disputes and in Section 9.03 with respect to resolution of Disputes
by the Independent Auditors may be specifically enforced without the requirement
of posting a bond or other security.

                                   ARTICLE X
                                 MISCELLANEOUS

     Section 10.01.  Complete Agreement; Construction.  This Agreement and the
                     --------------------------------                         
Ancillary Agreements shall constitute the entire agreement among the parties
with respect to the subject matter hereof and shall supersede all prior
agreements, negotiations, commitments and writings with respect to such subject
matter.  In the event of any inconsistency between this Agreement and any
Schedule or Exhibit, the Schedule or Exhibit, as the case may be, shall prevail.
Notwithstanding any other provisions in this Agreement to the contrary, in the
event and to the extent that there is a conflict between the provisions of this
Agreement and the provisions of any Ancillary Agreement, the Ancillary Agreement
shall prevail, except for inconsistencies with respect to Sections 5.05 and 6.07
and Article IX, which shall prevail over any inconsistent provisions of any
Ancillary Agreement other than the Tax Sharing Agreement.

     Section 10.02.  Ancillary Agreements.  This Agreement is not intended to
                     --------------------                                    
address, and should not be interpreted to address, the matters expressly covered
by the Ancillary Agreements.

     Section 10.03.  Counterparts. This Agreement may be executed in two or more
                     ------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one and the same Agreement.

     Section 10.04.  Responsibility for Expenses.
                     ---------------------------
 
     (a)  Transaction Expenditures. Except as otherwise expressly provided in
          ------------------------ 
this Agreement, any Ancillary Agreement or any instrument or agreement
contemplated thereby, and subject to the provisions of this Agreement with
respect to the After-tax Differential, all Transaction Expenditures shall be
charged to and paid by Varian.

     (b)  Expenses Incurred or Accrued after the Distribution Date.  Except as
          --------------------------------------------------------            
otherwise set forth in this Agreement or any Ancillary Agreement, each party
shall bear its own costs and expenses incurred in connection with the
transactions contemplated by this Agreement.

     Section 10.05.  Notices. All notices, consents, requests, waivers, claims
                     -------
or other communications (each a "Notice") required or permitted under this
Agreement shall be in writing and shall be sufficiently given or made (a) if
hand delivered or sent by telecopy (with delivery confirmed by voice or
otherwise), (b) if sent by nationally recognized overnight courier, or (c) if
sent by registered or certified mail, postage prepaid, return receipt requested,
and in each case addressed as follows:

                                       45
<PAGE>
 
     If to Varian before the Distributions, at:
     3050 Hansen Way
     Palo Alto, California  94304
     Attn:  Chief Financial Officer
     Telecopy:  (650) 424-5754

     with a copy to:

     3050 Hansen Way
     Palo Alto, California  94304
     Attn:  General Counsel
     Telecopy:  (650) 858-2018

     If to HCS before the Distributions, at:
     3100 Hansen Way
     Palo Alto, California  94304
     Attn:  Elisha W. Finney
     Telecopy:  (650) 424-5358

     with a copy to:

     3050 Hansen Way
     Palo Alto, California  94304
     Attn:  Joseph B. Phair
     Telecopy:  (650) 858-2018

     If to SEB before the Distributions, at:
     35 Dory Road
     Gloucester, Massachusetts  01930
     Attn:  Ernest L. Godshalk III
     Telecopy:  (978) 281-3152

     If to IB before the Distributions, at:
     3050 Hansen Way
     Palo Alto, California  94304
     Attn:  Wayne P. Somrak
     Telecopy:  (650) 424-5754

     with a copy to:

     3100 Hansen Way
     Palo Alto, California  94304
     Attn:  A.W. Homan
     Telecopy:  (650) 424-5998

     If to HCS after the Distributions, at:
     3100 Hansen Way
     Palo Alto, California 94304
     Attn:  Chief Financial Officer

     With a copy to:

     3100 Hansen Way
     Palo Alto, California 94304
     Attn:  General Counsel

                                       46
<PAGE>
 
     If to SEB after the Distributions, at:
     35 Dory Road
     Gloucester, Massachusetts  01930
     Attention:  Chief Financial Officer
     Telecopy:  (978) 281-3152

     With a copy to:
     35 Dory Road
     Gloucester, Massachusetts 01930
     Attn:  General Counsel
     Telecopy:  (978) 281-3152

     If to IB after the Distributions, at:
     3120 Hansen Way
     Palo Alto, California  94304
     Attn:  Chief Financial Officer

     with a copy to:

     3120 Hansen Way
     Palo Alto, California  94304
     Attn:  General Counsel

or such other address as shall be furnished by any of the parties in a Notice.
Any Notice shall be deemed to have been duly given or made when the Notice is
received.

     Section 10.06.  Waivers. The failure of any party to require strict
                     ------- 
performance by any other party of any provision in or rights or remedies with
respect to this Agreement shall not waive or diminish that party's right to
demand strict performance thereafter of that or any other provision hereof or
right or remedy.

     Section 10.07.  Amendments. This Agreement may be amended or supplemented,
                     ----------
or its provisions waived only by an agreement in writing signed by each of the
parties; provided, however, that (i) after the Varian stockholders approve the
         -------- -------
Distributions no such amendment, supplement or waiver may be effected unless it
would not be materially adverse to the Varian stockholders, and (ii) Article VII
may not be amended after the Distributions in respect of third party
beneficiaries thereof without the consent of such Persons.

     Section 10.08.  Assignment.
                     ----------
 
     (a)  No party to this Agreement shall (i) consolidate with or merge into
any Person or permit any Person to consolidate with or merge into such party
(other than a merger or consolidation in which the party is the surviving or
continuing corporation), or (ii) sell, assign, transfer, lease or otherwise
dispose of, in one transaction or a series of related transactions, all or
substantially all of its Assets, unless the resulting, surviving or transferee
Person expressly assumes, by instrument in form and substance reasonably
satisfactory to the other parties, all of the obligations of the party under
this Agreement.

     (b)  Except as expressly provided in paragraph (a) above or Section 7.10,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assignable, directly or indirectly, by any party without the prior
written consent of the other parties, and any attempt to so assign without such
consent shall be void.

     Section 10.09.  Successors and Assigns. Subject to Section 10.08, this
                     ----------------------
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the successors and permitted assigns of the parties.

     Section 10.10.  Termination.  This Agreement may be terminated and the
                     -----------                                           
Distributions may be abandoned at any time before the Distributions by Varian in
its sole discretion without the approval of SEB or IB or

                                       47
<PAGE>
 
the Varian stockholders. In the event of such termination, no party shall have
any Liability of any kind to any other party. After the Distributions, this
Agreement may not be terminated except by an agreement in writing signed by each
of the parties; provided, however, that Article VII may not be terminated after
                --------  -------                                              
the Distributions in respect of the third party beneficiaries thereof without
the consent of such Persons.

     Section 10.11.  Third Party Beneficiaries. Except as expressly contemplated
                     -------------------------
by Article VII (relating to Indemnitees), this Agreement is solely for the
benefit of the parties and the members of their respective Groups and Affiliates
and their respective successors and permitted assigns, and should not be deemed
to confer upon third parties any remedy, claim, liability, right of
reimbursement, cause of action or other right in excess of those existing
without reference to this Agreement.

     Section 10.12.  Exhibits and Schedules. The Exhibits and Schedules attached
                     ----------------------
to this Agreement shall be construed with and as an integral part of this
Agreement to the same extent as if the same had been set forth verbatim herein.

     Section 10.13.  Governing Law. This Agreement, the Ancillary Agreements and
                     -------------
any other agreements entered into in connection with the transactions
contemplated hereby (except for the Conveyancing and Assumption Instruments,
which shall be governed by local Law) shall be governed by, and construed and
enforced in accordance with, the Laws of the State of Delaware without regard to
the principles of conflicts of Laws thereunder. Notwithstanding the foregoing,
the Federal Arbitration Act, 9 U.S.C. (S)(S)1-15, shall govern the arbitrability
of Agreement Disputes.

     Section 10.14.  Severability.  If any provision of this Agreement or the
                     ------------                                            
application thereof to any Person or circumstance is determined to be invalid,
void or unenforceable in any respect, the remaining provisions hereof, or the
application of such provision to Persons or circumstances other than those as to
which it has been held invalid, void or unenforceable, shall remain in full
force and effect and in no way be affected, impaired or invalidated thereby, so
long as the economic or legal substance of the transactions contemplated hereby
is not affected in any manner adverse to any party.

     Section 10.15.  Subsidiaries.  Each party shall cause to be performed, and
                     ------------                                              
hereby guarantee the performance of, all actions, agreements and obligations set
forth herein to be performed by any Subsidiary of such party which is
contemplated to be a Subsidiary of such party on and after the Distribution
Date.

     Section 10.16.  Titles and Headings. Titles and headings to sections herein
                     -------------------
are inserted for the convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement or of any
Ancillary Agreement.

     Section 10.17.  Consent to Jurisdiction. Without limiting any of the
                     -----------------------
provisions of Article IX, each party hereby submits to the exclusive
jurisdiction of the Chancery Court of the State of Delaware and the Federal
courts of the United States of America located in Delaware in respect of the
transactions contemplated by this Agreement, and hereby waives, and agrees not
to assert, as a defense in any action, suit or proceeding for the transactions
contemplated by this Agreement, that it is not subject thereto or that such
action, suit or proceeding may not be brought or is not maintainable in such
courts or that the Agreement may not be enforced in or by such courts or that
its property is exempt or immune from execution, that the suit, action or
proceeding is brought in an inconvenient forum, or that the venue of the suit,
action or proceeding is improper.

                                       48
<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

                                 VARIAN ASSOCIATES, INC.



                                 By   /s/ Richard M. Levy
                                      ------------------------------------------
                                 Name:    Richard M. Levy
                                 Title:   Executive Vice President

                                 VARIAN SEMICONDUCTOR EQUIPMENT
                                 ASSOCIATES, INC.



                                 By   /s/ Richard A. Aurelio
                                      ------------------------------------------
                                 Name:    Richard A. Aurelio
                                 Title:   President and Chief Executive Officer

                                 VARIAN, INC.



                                 By   /s/ Allen J. Lauer
                                      ------------------------------------------
                                 Name:    Allen J. Lauer
                                 Title:   President and Chief Executive Officer

                                       49