<PAGE>
 
                                                                    EXHIBIT 10.3

                             TAX SHARING AGREEMENT

                                     among

                           VARIAN ASSOCIATES, INC.,

                VARIAN SEMICONDUCTOR EQUIPMENT ASSOCIATES, INC.

                                      and

                                 VARIAN, INC.
<PAGE>
 
                               TABLE OF CONTENTS

<TABLE> 
<CAPTION> 
                                                                                                        PAGE
<S>                                                                                                     <C> 
SECTION 1.    Definition of Terms...................................................................     1
                                                                                                                      
SECTION 2.    Allocation of Tax Liabilities.........................................................     7
                                                                                                                      
SECTION 3.    Proration of Taxes for Straddle Periods...............................................    10
                                                                                                                      
SECTION 4.    Tax Contests..........................................................................    10
                                                                                                                      
SECTION 5.    Tax Payments and Intercompany Billings................................................    14
                                                                                                                      
SECTION 6.    Preparation and Filing of Tax Returns.................................................    17
                                                                                                                      
SECTION 7.    Assistance and Cooperation............................................................    18
                                                                                                                      
SECTION 8.    Tax Records...........................................................................    19
                                                                                                                      
SECTION 9.    Effective Date; Termination of Prior Intercompany Tax Allocation Agreements...........    19
                                                                                                                      
SECTION 10.   No Inconsistent Actions...............................................................    19
                                                                                                                      
SECTION 11.   Survival of Obligations...............................................................    20
                                                                                                                      
SECTION 12.   Employee Matters......................................................................    20
                                                                                                                      
SECTION 13.   Treatment of Payments; Tax Gross Up...................................................    20
                                                                                                                      
SECTION 14.   Disagreements.........................................................................    21
                                                                                                                      
SECTION 15.   Late Payments.........................................................................    21
                                                                                                                      
SECTION 16.   Expenses..............................................................................    21
                                                                                                                      
SECTION 17.   Nonqualified Stock Options............................................................    21
                                                                                                                      
SECTION 18.   General Provisions....................................................................    21 
</TABLE> 

                                      -i-
<PAGE>
 
                             TAX SHARING AGREEMENT

          This Agreement is entered into as of April 2, 1999 by and among Varian
Associates, Inc., a Delaware corporation, to be renamed Varian Medical Systems,
Inc. ("Varian" or "HCS"), Varian, Inc., a Delaware corporation ("IB"), and
Varian Semiconductor Equipment Associates, Inc., a Delaware corporation ("SEB").
Capitalized terms used in this Agreement are defined in Section 1 below. Unless
otherwise indicated, all "Section" references in this Agreement are to sections
of this Agreement.

                                   RECITALS

          WHEREAS, as of the opening of business on the date hereof, Varian was
the common parent of an affiliated group of corporations, which has elected to
file consolidated Federal income tax returns; and

          WHEREAS, Varian has been engaged through various divisions in, among
other things, the Health Care Systems Business, the Instruments Business and the
Semiconductor Equipment Business; and

          WHEREAS, the Board of Directors of Varian has determined that the
interests of its businesses would be best served by separating its business into
three separate companies, one consisting of the Health Care Systems Business,
one consisting of the Instruments Business, and one consisting of the
Semiconductor Equipment Business; and

          WHEREAS, as set forth in the Amended and Restated Distribution
Agreement dated as of January 14, 1999, and subject to the terms and conditions
thereof, Varian wishes (a) to transfer and assign to IB substantially all of the
assets of the Instruments Business, in exchange for (i) the assumption by IB of
substantially all the liabilities and obligations relating to the Instruments
Business, and (ii) the issuance to Varian by IB of shares of IB common stock,
and (b) to transfer and assign to SEB substantially all of the assets of the
Semiconductor Equipment Business, in exchange for (i) the assumption by SEB of
substantially all the liabilities and obligations relating to the Semiconductor
Equipment Business, and (ii) the issuance to Varian by SEB of shares of SEB
common stock, in transactions intended to be reorganizations under Section
368(a)(l)(D) of the Code; and

          WHEREAS, pursuant to the Distribution Agreement, Varian will
distribute all of the outstanding shares of common stock of IB and SEB to Varian
stockholders, in transactions intended to qualify as tax-free distributions
under Section 355 of the Code; and

          WHEREAS, as a result of the Distributions, IB and SEB, and their
respective subsidiaries, will cease to be members of the affiliated group of
which Varian is the common parent, effective as of the Distribution Date; and

          WHEREAS, as of the Distribution Date, Varian will be renamed Varian
Medical Systems, Inc.; and

          WHEREAS, the Companies desire to provide for and agree upon the
allocation between and among the parties of liabilities for Taxes arising prior
to, as a result of, and subsequent to the transactions contemplated by the
Distribution Agreement, and to provide for and agree upon other matters relating
to Taxes;

          NOW THEREFORE, in consideration of the mutual agreements contained
herein, the Companies hereby agree as follows:

     SECTION 1. Definition of Terms. For purposes of this Agreement (including
                -------------------
the recitals hereof), the following terms have the following meanings:

          "Accounting Cutoff Date" means, with respect to each of HCS, IB and
SEB, any date as of the end of which there is a closing of the financial
accounting records for such entity.
<PAGE>
 
          "Adjustment" means the deemed increase or decrease in a Tax,
determined on an issue-by-issue or transaction-by-transaction basis, as
appropriate, and using the assumptions set forth in the next sentence, resulting
from an adjustment made or proposed by a Tax Authority with respect to any
amount reflected or required to be reflected on any Tax Return. For purposes of
determining such deemed increase or decrease in a Tax, the following assumptions
will be used: (a) in the case of any Income Tax, the highest marginal Tax rate,
or, in the case of any other Tax, the highest applicable Tax rate, in each case
in effect with respect to that Tax for the Tax Period or any portion of the Tax
Period to which the adjustment relates, shall apply; and (b) such determination
shall be made without regard to whether any actual increase or decrease in such
Tax will in fact be realized with respect to the Tax Return to which such
adjustment relates.

          "Adjustment Request" means any formal or informal claim or request
filed with any Tax Authority, or with any administrative agency or court, for
the adjustment, refund, or credit of Taxes, including (a) any amended Tax return
claiming adjustment to the Taxes as reported on the Tax Return or, if
applicable, as previously adjusted, or (b) any claim for refund or credit of
Taxes previously paid, except for any claim for refund or credit arising from a
carryback of an item from a Post-Distribution Period.

          "Affiliate" means any entity that directly or indirectly is
"controlled" by the person or entity in question.  "Control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether through ownership
of voting securities, by contract or otherwise.  Except as otherwise provided
herein, the term Affiliate shall refer to Affiliates of a person as determined
immediately after the Distributions.

          "Agreement" means this Tax Sharing Agreement.

          "Business"  means any one of the Health Care Systems Business, the
Instruments Business, or the Semiconductor Equipment Business.

          "Carryback" means any net operating loss, net capital loss, excess tax
credit, or other similar Tax item which may or must be carried from one Tax
Period to another Tax Period under the Code or other applicable Tax Law.

          "Closing Balance Sheet" means the HCS Adjusted Closing Balance Sheet,
the IB Adjusted Closing Balance Sheet, or the SEB Adjusted Closing Balance
Sheet, as the case may be.

          "Code" means the United States Internal Revenue Code of 1986, as
amended, or any successor law.

          "Companies" means HCS, IB, and SEB, collectively, and "Company" means
any one of HCS, IB or SEB.

          "Consolidated or Combined Income Tax" means any Income Tax computed by
reference to the assets and activities of members of more than one Group.

          "Consolidated or Combined State Income Tax" means any State Income Tax
computed by reference to the assets and activities of members of more than one
Group.

          "Consolidated Return" means any Tax Return with respect to any
Consolidated or Combined Income Tax.

          "Consolidated Tax Liability" means, with respect to any Varian Federal
Consolidated Return, the "tax liability of the group" as that term is used in
Treasury Regulation Section 1.1552-1(a)(1) (including applicable interest,
additions to the tax, additional amounts, and penalties as provided in the
Code), provided that such tax liability shall be treated as including any
alternative minimum tax liability under Code Section 55.

          "Controlling Party" means HCS or any other member of the Health Care
Systems Group, IB or

                                       2
<PAGE>
 
any other member of the Instruments Group or SEB or any other member of the
Semiconductor Equipment Group, as the case may be, that filed or, if no such Tax
Return has been filed, was required to file, a Tax Return that is the subject of
any Tax Contest, or any successor and/or assign of any of the foregoing;
provided, however, that in the case of any Consolidated Return, the person that
actually filed such Consolidated Return (or any successor and/or assign of such
person) will be the Controlling Party. For purposes of this Agreement, each of
HCS, IB or SEB may act as the Controlling Party with respect to all matters for
which one of their Affiliates is the Controlling Party (e.g., for purposes of
providing notices and receiving payments hereunder).

          "Correlative Adjustment" means, in the case of an Adjustment, the net
present value of any future increases or decreases in a Tax that would be
realized, using the assumptions set forth in the next sentence, by any member of
the Health Care Systems Group, the Instruments Group, or the Semiconductor
Equipment Group, as the case may be, in one or more Tax Periods (or any portion
of a Tax Period) but only if such increases or decreases are a direct result of
such an Adjustment to that Tax. For purposes of determining the net present
value of any such future increases or decreases in a Tax, the following
assumptions will be used: (i) a discount rate equal to the sum of the Prime Rate
as of the date of the recomputation of Tax or the Final Determination relating
to such Adjustment plus 2.0%; (ii) in the case of any Income Tax, the highest
marginal Tax rate, or, in the case of any other Tax, the highest applicable Tax
rate, in each case in effect with respect to that Tax for the Tax Period, or
portion of the Tax Period, in which the Adjustment was made; (iii) the
depreciation, amortization or credit rate or lives, if applicable, in effect for
the Tax Period, or portion of the Tax Period, in which the Adjustment was made;
and (iv) such determination shall be made without regard to whether any actual
increases or decreases in such Tax will in fact be realized with respect to the
future Tax Returns to which such Correlative Adjustment relates.

          "Disputed Adjustment" has the meaning set forth in Section 4.04(b).

          "Distribution Agreement" means the agreement, as amended from time to
time, setting forth the transactions required to effect the transfer of the
Transferred Businesses to IB and SEB and the distribution to the holders of
Varian common shares of all of the common shares of  SEB and IB, and to which a
form of this Tax Sharing Agreement is attached as an exhibit.

          "Distribution Date" means the Distribution Date, as that term is
defined in the Distribution Agreement.

          "Distributions" means the SEB Distribution and the IB Distribution, as
such terms are defined in the Distribution Agreement.

          "Federal Income Tax" means any Tax imposed by Subtitle A or F of the
Code.

          "Final Determination" means the final resolution of liability for any
Tax for any Tax Period, including any related interest or penalties, by or as a
result of:  (i) a final and unappealable decision, judgment, decree or other
order by any court of competent jurisdiction; (ii) a closing agreement or
accepted offer in compromise under Code Section 7121 or 7122, or comparable
agreement under the laws of other jurisdictions which resolves the entire Tax
liability for any Tax Period; (iii) any allowance of a refund or credit in
respect of an overpayment of Tax, but only after the expiration of all periods
during which such refund may be recovered by the jurisdiction imposing the Tax;
or (iv) any other final disposition, including by reason of the expiration of
the applicable statute of limitations.

          "Foreign Income Tax" means 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, which is an income tax as defined
in Treasury Regulation Section 1.901-2.

          "Group" means the Health Care Systems Group, the Instruments Group,
and the Semiconductor Equipment Group, as the context requires.

          "HCS Adjusted Closing Balance Sheet" means the HCS Adjusted Closing
Balance Sheet as that term is defined in the Distribution Agreement.

                                       3
<PAGE>
 
          "Health Care Systems Business" means the Health Care Systems Business,
as that term is defined in the Distribution Agreement.

          "HCS" means Varian Medical Systems, Inc., a Delaware corporation, and
any successor.

          "Health Care Systems Group" means HCS and its Affiliates, excluding
any entity that is a member of the Semiconductor Equipment Group or the
Instruments Group.

          "IB Adjusted Closing Balance Sheet" means the IB Adjusted Closing
Balance Sheet as that term is defined in the Distribution Agreement.

          "IB Distribution" means the IB Distribution, as that term is defined
in the Distribution Agreement.

          "Income Tax" means any Federal Income Tax, State Income Tax, or
Foreign Income Tax.

          "Indemnified Party" has the meaning set forth in Section 5.06(d).

          "Indemnifying Party" has the meaning set forth in Section 5.06(d).

          "Independent Auditors" means the Independent Auditors as that term is
defined in the Distribution Agreement.

          "Independent Third Party" means a nationally recognized law firm or
any of the following "Big Five" accounting firms or their successors: Arthur
Andersen LLP, Ernst & Young LLP, KPMG Peat Marwick, Deloitte & Touche LLP, and
PricewaterhouseCoopers LLP.

          "Initial Determination" has the meaning set forth in Section
4.05(b)(i).

          "IB" means Varian, Inc., a Delaware corporation, and any successor.

          "Instruments Business" means the Instruments Business, as that term is
defined in the Distribution Agreement.

          "Instruments Group" means IB and its Affiliates as determined
immediately after the Distributions.

          "Interested Party" means HCS or any other member of the Health Care
Systems Group, IB or any other member of the Instruments Group or SEB or any
other member of the Semiconductor Equipment Group (including any successor
and/or assign of any of each of the foregoing), as the case may be, to the
extent (a) such Person is not the Controlling Party with respect to a Tax
Contest; and (b) such Person (i) may be liable for, or required to make, any
indemnity payment, reimbursement or other payment pursuant to the provisions of
this Agreement with respect to such Tax Contest; or (ii) may be entitled to
receive any indemnity payment, reimbursement or other payment pursuant to the
provisions of this Agreement with respect to such Tax Contest; provided,
however, that in no event shall a member of either the Health Care Systems
Group, the Instruments Group or the Semiconductor Equipment Group, as the case
may be, be an Interested Party in a Tax Contest in which another member of its
Group is the Controlling Party with respect to the Tax Contest.

          "Interested Party Notice" has the meaning set forth in Section
4.04(b).

          "IRS" means the United States Internal Revenue Service.

          "Payment Date" means (i) with respect to any Varian Federal
Consolidated Return, the due date for any required installment of estimated
taxes determined under Code Section 6655, the due date (determined without
regard to extensions) for filing the return determined under Code Section 6072,
and the date the return is

                                       4
<PAGE>
 
filed, and (ii) with respect to any Tax Return for any Consolidated or Combined
State Income Tax, the corresponding dates determined under the applicable Tax
Law.

          "Post-Distribution Period" means any Tax Period beginning after the
Distribution Date, and, in the case of any Straddle Period, the portion of such
Straddle Period beginning the day after the Distribution Date.

          "Pre-Distribution Consolidated Tax Liability" means Consolidated Tax
Liability with respect to all Tax Periods ending on or prior to the Distribution
Date and in the case of the Tax Period which includes the Distribution Date, the
Consolidated Tax Liability computed as if the Distribution Date were the last
day of the Tax Period.

          "Pre-Distribution Period" means any Tax Period ending on or before the
Distribution Date, and, in the case of any Straddle Period, the portion of such
Straddle Period ending on the Distribution Date.

          "Prime Rate" means the base rate on corporate loans charged by
Citibank, N.A., New York, New York from time to time, compounded daily on the
basis of a year of 365 or 366 (as applicable) days and actual days elapsed.

          "Prior Intercompany Tax Allocation Agreements" means any written or
oral agreement or any other arrangements relating to allocation of Taxes
existing between or among members of the Health Care Systems Group, the
Instruments Group, and the Semiconductor Equipment Group as of the Distribution
Date (other than this Agreement and other than any such agreement or arrangement
between or among persons who are members of a single Group).

          "Responsible Company" means, with respect to any Tax Return, the
Company having responsibility for preparing and filing such Tax Return under
this Agreement.

          "Restructuring Tax" means the Income Taxes described in Section
2.05(a) (relating to Tax resulting from any income or gain recognized as a
result of the Transactions).

          "Ruling Request" means the letter filed by Varian with the Internal
Revenue Service requesting a ruling from the Internal Revenue Service regarding
certain tax consequences of the Transactions (including all attachments,
exhibits, and other materials submitted with such ruling request letter) and any
amendment or supplement to such ruling request letter.

          "SEB Adjusted Closing Balance Sheet" means the SEB Adjusted Closing
Balance Sheet, as that term is defined in the Distribution Agreement.

          "SEB Distribution" means the SEB Distribution, as that term is defined
in the Distribution Agreement.

          "SEB" means Varian Semiconductor Equipment Associates, Inc., a
Delaware corporation, and any successor.

          "Semiconductor Equipment Business" means the Semiconductor Equipment
Business, as that term is defined in the Distribution Agreement.

          "Semiconductor Equipment Group" means SEB and its Affiliates as
determined immediately after the Distributions.

          "Separate Company Tax" means any Tax computed by reference to the
assets and activities of a member or members of a single Group.

          "Separation Committee" means the Separation Committee, as that term is
defined in the Distribution Agreement.

                                       5
<PAGE>
 
          "Sharing Percentage" shall mean one-third for the Health Care Systems
Group, one-third for the Instruments Group, and one-third for the Semiconductor
Equipment Group.

          "Significant Obligation" means, in the case of an Interested Party,
and with respect to any Tax Detriment, an obligation to make or right to receive
any indemnity payment, reimbursement or other payment with respect to any such
Tax Detriment (including the effect of a Correlative Adjustment relating
thereto) pursuant to the terms of the Agreement that is greater than $1,000,000.

          "State Income Tax" means 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.

          "Straddle Period" means any Tax Period that begins on or before and
ends after the Distribution Date.

          "Subsidiary" shall have the meaning provided in the Distribution
Agreement.

          "Tainting Act" shall have the meaning provided in Section 10.

          "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 entity or political
subdivision thereof, and any interest, penalties, additions to tax, or
additional amounts in respect of the foregoing.

          "Tax Authority" means, with respect to any Tax, the governmental
entity or political subdivision thereof that imposes such Tax, and the agency
(if any) charged with the collection of such Tax for such entity or subdivision.

          "Tax Benefit" means, with respect to any Tax Period or portion of a
Tax Period, and as computed separately with respect to each Tax, the net
decrease in each such Tax equal to the sum of all Adjustments (including the
effect of any Correlative Adjustment relating thereto) with respect to each such
Tax for each such Tax Period or portion of a Tax Period.

          "Tax Contest" means an audit, review, examination, or any other
administrative or judicial proceeding with the purpose or effect of
redetermining Taxes of any of the Companies or their Affiliates (including any
administrative or judicial review of any claim for refund).

          "Tax Detriment" means, with respect to any Tax Period or portion of a
Tax Period, and as computed separately with respect to each Tax, the net
increase in such Tax equal to the sum of all Adjustments (including the effect
of any Correlative Adjustment relating thereto) with respect to each such Tax
for each such Tax Period or portion of a Tax Period.

          "Tax Item" means, with respect to any Income Tax, any item of income,
gain, loss, deduction, and credit.

          "Tax Law" means the law of any governmental entity or political
subdivision thereof relating to any Tax.

          "Tax Period" means, with respect to any Tax, the period for which the
Tax is reported as provided under the Code or other applicable Tax Law.

                                       6
<PAGE>
 
          "Tax Records" means Tax Returns, Tax Return workpapers, documentation
relating to any Tax Contests, and any other books of account or records required
to be maintained under the Code or other applicable Tax Laws or under any record
retention agreement with any Tax Authority.

          "Tax Return" means any report of Taxes due, any claims for refund of
Taxes paid, any information return with respect to Taxes, or any other similar
report, statement, declaration, or document required to be filed under the Code
or other Tax Law, including any attachments, exhibits, or other materials
submitted with any of the foregoing, and including any amendments or supplements
to any of the foregoing.

          "Transaction Tax" means the Taxes described in Sections 2.05(a)
(relating to Tax incurred as a result of the Transactions), including any
Restructuring Tax.

          "Transactions" means the transactions contemplated by the Distribution
Agreement (including the Corporate Restructuring Transactions and Distributions,
as defined in the Distribution Agreement).

          "Transferred Instruments Business" means the Instruments Business
transferred to IB pursuant to the Distribution Agreement.

          "Transferred Semiconductor Equipment Business" means the Semiconductor
Equipment Business transferred to SEB pursuant to the Distribution Agreement.

          "Treasury Regulations" means the regulations promulgated from time to
time under the Code as in effect for the relevant Tax Period.

          "Ultimate Determination" has the meaning set forth in Section
4.05(b)(iii).

          "Varian Federal Consolidated Return" means any United States federal
Tax Return for the affiliated group (as that term is defined in Code Section
1504) that includes Varian  as the common parent and includes any member of the
Instruments Group or the Semiconductor Equipment Group.

     SECTION 2. Allocation of Tax Liabilities. The provisions of this Section 2
                -----------------------------  
are intended to determine each Company's liability for Taxes with respect to
Pre-Distribution Periods and Post-Distribution Periods. Once the liability has
been determined under this Section 2, Section 5 determines the time when payment
of the liability is to be made, and whether the payment is to be made to the Tax
Authority directly or to another Company.

     2.01.  General Rule.
            ------------ 

            (a)  HCS Liability. Health Care Systems shall be liable for, and
                 ------------- 
shall indemnify and hold harmless the Semiconductor Equipment Group and the
Instruments Group from and against any liability for Taxes, which are HCS's
responsibility or which are allocated to HCS under this Section 2.

            (b)  IB Liability. IB shall be liable for, and shall indemnify and
                 ------------
hold harmless the Semiconductor Equipment Group and the Health Care Systems
Group from and against any liability for Taxes, which are Instrument's
responsibility or are allocated to IB under this Section 2.

            (c)  SEB Liability. SEB shall be liable for, and shall indemnify and
                 ------------- 
hold harmless the Health Care Systems Group and the Instruments Group from and
against any liability for Taxes, which are SEB's responsibility or are allocated
to SEB under this Section 2.

     2.02.  Responsibilities for United States Federal Income Tax.  Except as
            -----------------------------------------------------            
otherwise provided in this Agreement:

            (a)  HCS. HCS (i) shall be responsible for all Pre-Distribution
                 ---
Consolidated Tax Liability, and (ii) shall be entitled to all refunds with
respect thereto; provided, that HCS shall be responsible for or shall be

                                       7
<PAGE>
 
entitled to HCS's Sharing Percentage with respect to any Tax Benefit or Tax
Detriment resulting from any Adjustment with respect thereto.

           (b)   IB. IB shall be responsible for or shall be entitled to
                 --         
Instrument's Sharing Percentage of any Tax Benefit or Tax Detriment resulting
from any Adjustment with respect to any Pre-Distribution Consolidated Tax
Liability.

           (c)   SEB. SEB shall be responsible for or shall be entitled to SEB's
                 ---
Sharing Percentage of any Tax Benefit or Tax Detriment resulting from any
Adjustment with respect to any Pre-Distribution Consolidated Tax Liability.

     2.03. Allocation of State Income Taxes. Except as otherwise provided in
           --------------------------------
this Agreement, State Income Taxes shall be allocated as follows:

           (a)   Separate Company Taxes. In the case of any State Income Tax
                 ----------------------
which is a Separate Company Tax that is apportioned under this Agreement to a
Pre-Distribution Period, except as otherwise provided in this Agreement, HCS (i)
shall be liable (A) to IB for such Tax imposed on any member of the Instruments
Group, and (B) to SEB for such Tax imposed on any member of the Semiconductor
Equipment Group, and (ii) shall be entitled to all refunds with respect thereto;
provided, that HCS shall be responsible for or shall be entitled to HCS's
Sharing Percentage with respect to any Tax Benefit or Tax Detriment resulting
from any Adjustment with respect thereto. IB shall be responsible for or shall
be entitled to Instrument's Sharing Percentage of any Tax Benefit or Tax
Detriment resulting from any Adjustment with respect to any Separate Company Tax
that is apportioned under this Agreement to a Pre-Distribution Period. SEB shall
be responsible for or shall be entitled to SEB's Sharing Percentage of any Tax
Benefit or Tax Detriment resulting from any Adjustment with respect to any
Separate Company Tax that is apportioned under this Agreement to a Pre-
Distribution Period and shall be entitled to SEB's Sharing Percentage of any Tax
Benefit with respect thereto.

           (b)   Consolidated or Combined State Income Taxes.
                 ------------------------------------------- 

                 (i)   Allocation of Tax Reported on Tax Returns Filed After the
                       ---------------------------------------------------------
           Distribution Date. Except as otherwise provided in this Agreement,
           -----------------
           any Consolidated or Combined State Income Tax that is apportioned
           under this Agreement to a Pre-Distribution Period shall be allocated
           to the Health Care Systems Group.

                 (ii)  Allocation of Combined or Consolidated State Income Tax 
                       -------------------------------------------------------
           Adjustments. HCS, IB and SEB shall each be responsible for or shall
           -----------   
           be entitled to their respective Sharing Percentages of any Tax
           Benefit or Tax Detriment resulting from any Adjustment relating to
           Consolidated or Combined State Income Tax reported on any Tax Return
           (or as previously adjusted) that is apportioned under this Agreement
           to a Pre-Distribution Period.

     2.04. Allocation of Foreign Income Taxes and Other Taxes. Except as
           --------------------------------------------------
provided in Sections 2.05 and 2.07, all Taxes (including without limitation any
Foreign Income Taxes and any Taxes with respect to Post-Distribution Periods)
other than those specifically allocated pursuant to Sections 2.02 through 2.04
shall be allocated based on the legal entity on which the legal incidence of the
Tax is imposed; provided, however, that (x) the amounts of any such Taxes (other
than Income Taxes) specifically related to the business and assets transferred
by Varian to SEB in the Transactions (the "Transferred Semiconductor Equipment
Businesses") and which are accrued on the SEB Adjusted Closing Balance Sheet
shall be allocated to SEB and the amounts of any such Taxes specifically related
to the business and assets transferred by Varian to IB in the Transactions (the
"Transferred Instruments Business") and which are accrued on the IB Adjusted
Closing Balance Sheet shall be allocated to IB, and (y) each of the Companies
shall be entitled to or shall be responsible for its respective Sharing
Percentage with respect to any Tax Benefit or Tax Detriment resulting from any
Adjustment with respect to any such Taxes (other than customs duties described
in the immediately succeeding clause (z)), and (z) any underpayments,
Adjustments, overpayments, refunds or drawbacks of customs duties shall be
allocated to the Company whose Business bore such duties, in accordance with
Varian's historical practices for allocating duties and duty drawbacks among the
Businesses. Subject to the proviso in the preceding sentence, as between the
parties to this Agreement, HCS shall be liable for all Taxes imposed on any
member of the Health Care Systems Group, SEB shall be liable for all Taxes

                                       8
<PAGE>
 
imposed on any member of the Semiconductor Equipment Group and IB shall be
liable for all Taxes imposed on any member of the Instruments Group. The
Companies believe that there is no Tax not specifically allocated pursuant to
Sections 2.02 through 2.04 relating to Pre-Distribution Periods which is legally
imposed on more than one legal entity or is not solely allocable to the
Transferred Semiconductor Equipment Businesses or the Transferred Instruments
Business (e.g., joint and several liability); however, if there is any such Tax,
it shall be allocated in accordance with past practices as reasonably determined
by the affected Companies, or in the absence of such practices, in accordance
with any allocation method agreed upon by the affected Companies.

     2.05.  Transaction Taxes.
            -----------------
 
            (a)  HCS Liability. Except as otherwise provided in this Section
                 -------------
2.05 or Section 2.07, all Taxes resulting from the Transactions ("Transaction
Tax"), including:

                 (i)    any sales and use, gross receipts, or other transfer
            Taxes, or any Foreign Income Taxes, imposed on the transfers
            occurring pursuant to the Transactions;

                 (ii)   any Tax resulting from any income or gain recognized
            under Treasury Regulation Sections 1.1502-13 or 1.1502-19 (or any
            corresponding provisions of other applicable Tax Laws of the United
            States or any political subdivision thereof) as a result of the
            Transactions; and

                 (iii)  any Tax resulting from any income or gain recognized as
            a result of any of the Transactions contemplated by the Distribution
            Agreement failing to qualify for tax-free treatment under Code
            Sections 332, 351, 355, 361, or other provisions of the Code (as
            contemplated in the Ruling Request) or other applicable Tax Laws of
            the United States or any political subdivision thereof;

shall be allocated based on the legal entity on which the legal incidence of the
Tax is imposed; provided, however, that except as otherwise provided in this
Agreement each of the Companies shall be entitled to or shall be responsible for
its respective Sharing Percentage  with respect to any Tax Benefit or Tax
Detriment resulting from any Adjustment with respect thereto.  For purposes of
this Section 2.05(a), the legal incidence of any Income Tax shall be determined
without regard for Treasury Regulation Section 1.1502-6 or corresponding
provisions of other Tax Laws.

            (b)  Indemnity for Inconsistent Acts. IB shall be liable for, and
                 -------------------------------
shall indemnify and hold harmless the Health Care Systems Group and the
Semiconductor Equipment Group from and against any liability for, any
Restructuring Tax to the extent arising from any breach of Instrument's
representations or covenants under Section 10 or any Tainting Act by IB or its
Affiliates. SEB shall be liable for, and shall indemnify and hold harmless the
Health Care Systems Group and the Instruments Group from and against any
liability for, any Restructuring Tax to the extent arising from any breach of
SEB's representations or covenants under Section 10 or any Tainting Act by SEB
or its Affiliates. HCS shall be liable for and shall indemnify and hold harmless
the Semiconductor Equipment Group and the Instruments Group from and against any
liability for, any Restructuring Tax to the extent arising from any breach of
HCS's representations or covenants under Section 10 or any Tainting Act by HCS
or its Affiliates.

     2.06.  Tax Detriments and Benefits. In the case of any Adjustment for any
            ---------------------------   
Pre-Period or with respect to any Transaction Tax, each Group's liability for,
and/or right to receive, the amount of any resulting Tax Detriment or Tax
Benefit, as the case may be, shall be determined on a jurisdiction-by-
jurisdiction basis such that each Group bears its respective Sharing Percentage
of such Tax Detriment or Tax Benefit; provided, however, that in the event that
there is any Correlative Adjustment with respect to any such Tax Detriment or
Tax Benefit, then the Health Care Systems Group, the Instruments Group, and the
Semiconductor Equipment Group shall share such Tax Detriment or Tax Benefit in
the following manner in order to ensure that the party or parties that will bear
the burden or receive the benefit of the Correlative Adjustment in the future
will share the Tax Detriment or Tax Benefit in proportion to each of their
respective Sharing Percentages after giving effect to such Correlative
Adjustment:

                                       9
<PAGE>
 
                  (i)    first, the amount of any such Tax Detriment or Tax
            Benefit shall be increased or decreased, as appropriate, by the
            amount of the Correlative Adjustment, the net amount resulting from
            such increase or decrease being hereinafter referred to as the "Net
            Adjustment" for purposes of this Section 2.06;

                  (ii)   second, the Net Adjustment shall be allocated among the
            Health Care Systems Group, the Instruments Group, and the
            Semiconductor Equipment Group in proportion to their respective
            Sharing Percentages, taking into account the extent each party is
            liable for and/or has an obligation to make, or has the right to
            receive, as the case may be, any payment to any Tax Authority or any
            indemnity payment, reimbursement, or other payment with respect to
            such Tax Detriment or Tax Benefit under this Agreement; and

                  (iii)  finally, with respect to a party to which a Correlative
            Adjustment is attributable, that party's share of the Net Adjustment
            as allocated pursuant to paragraph (ii) of this Section 2.06 will be
            increased or decreased, as appropriate, by the amount, if any, of
            the Correlative Adjustment that is attributable to such party in
            order to determine the amount of such party's share of the Tax
            Detriment or Tax Benefit.

     2.07.  Unanticipated Tax Amounts. In the event that for any Group, (a)
            -------------------------
Taxes shown as due on the initial Tax Returns filed with respect to any Taxes
(or, in the case of Taxes that do not require the filing of a Tax Return, the
amounts paid with respect to such Tax), in each case relating to Tax Periods or
portions of Tax Periods ending on or before the Distribution Date, exceed (b)
the aggregate amounts accrued with respect thereto on the Closing Balance Sheet
for that Group (such excess an "Unanticipated Tax Amount"), by more than
$1,000,000, the Company heading such Group may propose a sharing of the
Unanticipated Tax Amount among the three Companies. If the affected Companies do
not agree on a resolution, such proposal shall be referred to the Separation
Committee under the procedures set forth in Section 9.01 of the Distribution
Agreement. If the Separation Committee is not able to resolve the dispute within
30 days, the matter shall be treated as a balance sheet dispute and submitted to
the Independent Auditors under the provisions of Section 9.03(b) of the
Distribution Agreement.

     SECTION 3.  Proration of Taxes for Straddle Periods.
                 --------------------------------------- 

     3.01.  General Method of Proration. In the case of any Straddle Period, Tax
            ---------------------------   
Items shall be apportioned between Pre-Distribution Periods and Post-
Distribution Periods in accordance with the principles of Treasury Regulation
Section 1.1502-76(b) as reasonably interpreted and applied by the Companies. No
election shall be made under Treasury Regulation Section 1.1502-76(b)(2)(ii)
(relating to ratable allocation of a year's items). If the Distribution Date is
not an Accounting Cutoff Date, the provisions of Treasury Regulation Section
1.1502-76(b)(2)(iii) will be applied to ratably allocate the items (other than
extraordinary items) for the month which includes the Distribution Date.

     3.02.  Transaction Treated as Extraordinary Item.  In determining the
            -----------------------------------------                     
apportionment of Tax Items between Pre-Distribution Periods and Post-
Distribution Periods, any Tax Item relating to the Transactions shall be treated
as an extraordinary item described in Treasury Regulation Section 1.1502-
76(b)(2)(ii)(C) and shall be allocated to Pre-Distribution Periods, and any
Taxes related to such items shall be treated under Treasury Regulation Section
1.1502-76(b)(2)(iv) as relating to such extraordinary item and shall be
allocated to Pre-Distribution Periods.

     SECTION 4.  Tax Contests.
                 ------------ 

     4.01.  Notification Of Tax Contests.  The Controlling Party shall promptly
            ----------------------------                                       
notify all Interested Parties of (a) the commencement of any Tax Contest
pursuant to which such Interested Parties may be required to make or entitled to
receive an indemnity payment, reimbursement or other payment under this
Agreement; and (b) as required and specified in Section 4.04 hereof, any Final
Determination made with respect to any Tax Contest pursuant to which such
Interested Parties may be required to make or entitled to receive any indemnity
payment, reimbursement or other payment under this Agreement.  The failure of a
Controlling Party to promptly notify any Interested Party as specified in the
preceding sentence shall not relieve any such Interested Party of any liability
and/or obligation which it may have to the Controlling Party under this
Agreement except to the extent that the

                                       10
<PAGE>
 
Interested Party was materially prejudiced by such failure, and in no event
shall such failure relieve the Interested Party from any other liability or
obligation which it may have to such Controlling Party.

     4.02.  Tax Contest Settlement Rights. The Controlling Party shall have the
            -----------------------------
sole right to contest, litigate, compromise and settle any Adjustment that is
made or proposed in a Tax Contest without obtaining the prior consent of any
Interested Party; provided, however, that, unless waived by the parties in
writing, the Controlling Party shall, in connection with any proposed or
assessed Adjustment in a Tax Contest for which an Interested Party may be
required to make or entitled to receive an indemnity payment, reimbursement or
other payment under this Agreement (a) keep all such Interested Parties informed
in a timely manner of all actions taken or proposed to be taken by the
Controlling Party; and (b) provide all such Interested Parties with copies of
any correspondence or filings submitted to any Tax Authority or judicial
authority, in each case in connection with any contest, litigation, compromise
or settlement relating to any such Adjustment in a Tax Contest. The failure of a
Controlling Party to take any action as specified in the preceding sentence with
respect to an Interested Party shall not relieve any such Interested Party of
any liability and/or obligation which it may have to the Controlling Party under
this Agreement except to the extent that the Interested Party was materially
prejudiced by such failure, and in no event shall such failure relieve the
Interested Party from any other liability or obligation which it may have to
such Controlling Party. The Controlling Party may, in its sole discretion, take
into account any suggestions made by an Interested Party with respect to any
such contest, litigation, compromise or settlement of any Adjustment in a Tax
Contest. All costs of any Tax Contest are to be borne by the Controlling Party;
provided, however, that (x) all reasonable external costs incurred by the
Controlling Party in connection with any Tax Contest with respect to a Pre-
Distribution Period or with respect to any Restructuring Tax are to be shared
equally by HCS, SEB, and IB on an after-tax basis in the same manner as Tax
Detriments are shared under this Agreement, (y) any costs related to an
Interested Party's attendance at any meeting with a Tax Authority or hearing or
proceeding before any judicial authority pursuant to Section 4.03 hereof shall
be borne by such Interested Party, and (z) the costs of any legal or other
representatives retained by an Interested Party in connection with any Tax
Contest that is subject to the provisions of this Agreement shall be borne by
such Interested Party.

     4.03.  Tax Contest Participation. Unless waived by the parties in writing,
            -------------------------
the Controlling Party shall provide an Interested Party with written notice
reasonably in advance of, and such Interested Party shall have the right to
attend, any formally scheduled meetings with Tax Authorities or hearings or
proceedings before any judicial authorities in connection with any contest,
litigation, compromise or settlement of any proposed or assessed Adjustment that
is the subject of any Tax Contest pursuant to which such Interested Party may be
required to make or entitled to receive an indemnity payment, reimbursement or
other payment under this Agreement.  In addition, unless waived by the parties
in writing, the Controlling Party shall provide each such Interested Party with
draft copies of any correspondence or filings to be submitted to any Tax
Authority or judicial authority with respect to such Adjustments for such
Interested Party's review and comment.  The Controlling Party shall provide such
draft copies reasonably in advance of the date that they are to be submitted to
the Tax Authority or judicial authority and the Interested Party shall provide
its comments, if any, with respect thereto within in a reasonable time before
such submission.  The failure of a Controlling Party to provide any notice,
correspondence or filing as specified in this Section 4.03 to an Interested
Party shall not relieve any such Interested Party of any liability and/or
obligation which it may have to the Controlling Party under this Agreement
except to the extent that the Interested Party was materially prejudiced by such
failure, and in no event shall such failure relieve the Interested Party from
any other liability or obligation which it may have to such Controlling Party.

     4.04.  Tax Contest Waiver.
            ------------------
 
            (a)  The Controlling Party shall promptly provide written notice,
sent postage prepaid by United States mail, certified mail, return receipt
requested, to all Interested Parties in a Tax Contest (i) that a Final
Determination has been made with respect to such Tax Contest; and (ii)
enumerating the amount of the Interested Party's share of each Tax Benefit or
Tax Detriment reflected in such Final Determination of the Tax Contest for which
such Interested Party may be required to make or entitled to receive or has made
or been entitled to receive an indemnity payment, reimbursement or other payment
under this Agreement.

            (b)  Within ninety (90) days after an Interested Party receives the
notice described in Section 4.04(a) hereof from the Controlling Party, such
Interested Party shall execute a written statement giving notice to the
Controlling Party (i) that the Interested Party agrees with each Tax Benefit or
Tax Detriment (and its share thereof)

                                       11
<PAGE>
 
enumerated in the notice described in Section 4.04(a) hereof except with respect
to those Tax Benefits or Tax Detriments (and/or its shares thereof) that, in the
good faith judgment of the Interested Party, it disagrees with and has
specifically enumerated its disagreement with, including the amount of such
disagreement, in the statement (each such disagreed Tax Benefit or Tax Detriment
(and/or share thereof) hereinafter referred to as a "Disputed Adjustment"); and
(ii) that the Interested Party thereby waives it right to a determination by an
Independent Third Party pursuant to the provisions of Section 4.05 hereof with
respect to all Tax Benefits or Tax Detriments to which it agrees with its share
(this statement hereinafter referred to as the "Interested Party Notice"). The
failure of an Interested Party to provide the Interested Party Notice to the
Controlling Party within the ninety (90) day period specified in the preceding
sentence shall be deemed to indicate that such Interested Party agrees with its
share of all Tax Benefits or Tax Detriments enumerated in the notice described
in Section 4.04(a) hereof and that such Interested Party waives it right to a
determination by an Independent Third Party with respect to all such Tax
Benefits or Tax Detriments (and its shares thereof) pursuant to Section 4.05
hereof.

             (c)   During the ninety (90) day period immediately following the
Controlling Party's receipt of the Interested Party Notice described in Section
4.04(b) above, the Controlling Party and the Interested Party shall in good
faith confer with each other to resolve any disagreement over each Disputed
Adjustment that was specifically enumerated in such Interested Party Notice. At
the end of the ninety (90) day period specified in the preceding sentence,
unless otherwise extended in writing by the mutual consent of the parties, the
Interested Party shall be deemed to agree with all Disputed Adjustments that
were specifically enumerated in the Interested Party Notice and waive its right
to a determination by an Independent Third Party pursuant to Section 4.05 hereof
with respect to all such Disputed Adjustments unless, and to the extent, that at
any time during such ninety (90) day (or extended) period, either the
Controlling Party or the Interested Party has given the other party written
notice that it is seeking a determination by an Independent Third Party pursuant
to Section 4.05 hereof regarding the propriety of any such Disputed Adjustment.

             (d)   Notwithstanding anything in this Agreement to the contrary,
an Interested Party that does not have a Significant Obligation with respect to
a Tax Detriment relating to a Final Determination has no right to a
determination by an Independent Third Party under Section 4.05 hereof with
respect to any Disputed Adjustment relating to such Final Determination, and any
such Disputed Adjustment shall not be subject to the provisions of Section 14.

     4.05.   Tax Contest Dispute Resolution.
             ------------------------------ 

             (a)   In the event that either a Controlling Party or an Interested
Party has given the other party written notice as required in Section 4.04(c)
hereof that it is seeking a determination by an Independent Third Party pursuant
to this Section 4.05 with respect to any Disputed Adjustment that was enumerated
in an Interested Party Notice, then the parties shall, within thirty (30) days
after a party has received such notice, jointly select an Independent Third
Party to make such determination. In the event that the parties cannot jointly
agree on an Independent Third Party to make such determination within such
thirty (30) day period, then the Controlling Party and the Interested Party
shall each immediately select an Independent Third Party and the Independent
Third Parties so selected by the parties shall jointly select, within twenty
(20) days of their selection, another Independent Third Party to make such
determination.

             (b)   In making its determination as to the propriety of any
Disputed Adjustment, the Independent Third Party selected pursuant to Section
4.05(a) above shall assume that the Interested Party is not required or entitled
under applicable law to be a member of any Consolidated Return. In addition, the
Independent Third Party shall make its determination according to the following
procedure:

                   (i)    The Independent Third Party shall first analyze each
             Disputed Adjustment for which a determination is sought pursuant to
             this Section 4.05 on a stand-alone basis to determine whether the
             actual outcome reached with respect to such Disputed Adjustment as
             reflected in the Final Determination of the Tax Contest was fair
             and appropriate taking into account the following exclusive
             criteria: (A) the facts relating to such Adjustment; (B) the
             applicable law, if any, with respect to such Adjustment; (C) the
             position of the applicable Tax Authority with respect to
             compromise, settlement or litigation of such Adjustment; (D) the
             strength of the factual and legal arguments made by the Controlling
             Party in reaching the outcome with respect to such Adjustment

                                       12
<PAGE>
 
             as reflected in the Final Determination of the Tax Contest; and (E)
             the strength of the factual and legal arguments being made by the
             Interested Party for the alternative outcome being asserted by such
             Interested Party (including the availability of facts, information
             and documentation to support such alternative outcome). Based on
             this analysis, the Independent Third Party shall determine what is
             the fair and appropriate outcome (hereinafter referred to as the
             "Initial Determination") with respect to each such Disputed
             Adjustment.

                   (ii)   The Interested Party shall not be entitled to
             modification of its share of a Disputed Adjustment under this
             Section 4.05 if, as the case may be, either (A) the amount that
             would be paid by the Interested Party under the Initial
             Determination with respect to such Disputed Adjustment is 80% or
             more than the amount that would be paid by the Interested Party
             with respect to such Disputed Adjustment under the actual outcome
             reached with respect to such Disputed Adjustment; or (B) the amount
             that would be received by the Interested Party under the Initial
             Determination with respect to such Disputed Adjustment is 120% or
             less than the amount that the Interested Party would receive with
             respect to such Disputed Adjustment under the actual outcome
             reached with respected to such Disputed Adjustment. The Independent
             Third Party will provide notice to the Controlling Party and the
             Interested Party in the event the Interested Party is not entitled
             to modification of its share of the Disputed Adjustment pursuant to
             this paragraph (ii).

                   (iii)  If the modification of an Interested Party's share of
             a Disputed Adjustment under this Section 4.05 is not prohibited
             pursuant to paragraph (ii) above, then the Independent Third Party
             shall determine what is the fair and appropriate outcome
             (hereinafter referred to as the "Ultimate Determination") to the
             Interested Party with respect to such Disputed Adjustment in the
             context of the entire Tax Contest as it relates to the Interested
             Party. In making this determination, the Independent Third Party
             shall consider the Disputed Adjustment as if it were raised in an
             independent audit of the Interested Party by the appropriate Tax
             Authority and the Independent Third Party shall take into account
             and give appropriate weight in its sole discretion to the following
             exclusive criteria: (A) the strength of the legal and factual
             support for other potential, non-frivolous Adjustments with respect
             to matters that were actually raised and contested by the
             applicable Tax Authority in the Tax Contest for which the
             Interested Party could have been liable under this Agreement but
             which were eliminated or reduced as a result of the Controlling
             Party agreeing to the Disputed Adjustment as reflected in the Final
             Determination of the Tax Contest; (B) the effect of the actual
             outcome reached with respect to the Disputed Adjustment on other
             Tax Periods and on other positions taken or proposed to be taken in
             Returns filed or proposed to be filed by the Interested Party; (C)
             the realistic possibility of avoiding examination of potential, 
             non-frivolous issues for which the Interested Party could be liable
             under this Agreement and that were contemporaneously identified in
             writings by the party or parties during the course of the Tax
             Contest but which had not been raised and contested by the
             applicable Tax Authority in the Tax Contest; and (D) the benefits
             to the Interested Party in reaching a Final Determination, and the
             strategy and rationale with respect to the Interested Party's
             Disputed Adjustment that the Controlling Party had for agreeing to
             such Disputed Adjustment in reaching the Final Determination, in
             each case that were contemporaneously identified in writings by the
             party or parties during the course of the Tax Contest.

                   (iv)   The Interested Party shall only be entitled to
             modification of its share of a Disputed Adjustment under this
             Section 4.05 if, as the case may be, either (A) the amount that
             would be paid by the Interested Party under the Ultimate
             Determination with respect to such Disputed Adjustment is less than
             80% of the amount that would be paid by the Interested Party with
             respect to such Disputed Adjustment under the actual outcome
             reached with respect to such Disputed Adjustment; or (B) the amount
             that would be received by the Interested Party under the Ultimate
             Determination with respect to such Disputed Adjustment is more than
             120% of the amount that the Interested Party would receive with
             respect to such Disputed Adjustment under the actual outcome
             reached with respected to such Disputed Adjustment. If an
             Interested Party is entitled to modification of its share of any
             Disputed Adjustment under the preceding sentence, the amount the
             Interested Party is entitled to receive, or is required to pay, as
             the case may be, with respect to such Disputed Adjustment shall be
             equal to the amount of the Ultimate Determination

                                       13
<PAGE>
 
             of such Disputed Adjustment. The Independent Third Party will
             provide notice to the Controlling Party and the Interested Party
             stating whether the Interested Party is entitled to modification of
             its share of the Disputed Adjustment pursuant to this paragraph
             (iv) and, if the Interested Party is entitled to such modification,
             the amount as determined in the preceding sentence that the
             Interested Party is entitled to receive from, or required to pay
             to, the Controlling Party with respect to such Disputed Adjustment.

             (c)   Any determination made or notice given by an Independent
Third Party pursuant to this Section 4.05 shall be (i) in writing; (ii) made
within ninety (90) days following the selection of the Independent Third Party
as set forth in Section 4.05(a) of this Agreement unless such period is
otherwise extended by the mutual consent of the parties; and (iii) final and
binding upon the parties. The costs of any Independent Third Party retained
pursuant to this Section 4.05 shall be shared equally by the parties. The
Controlling Party and the Interested Party shall provide the Independent Third
Party jointly selected pursuant to Section 4.05(a) hereof with such information
or documentation as may be appropriate or necessary in order for such
Independent Third Party to make the determination requested of it. Upon issuance
of an Independent Third Party's notice under Section 4.05(b)(ii) or Section
4.05(b)(iv) hereof, the Controlling Party or the Interested Party, as the case
may be, shall pay as specified in Section 5 of this Agreement, the amount, if
any, of the Disputed Adjustment to the appropriate party.

     SECTION 5.    Tax Payments and Intercompany Billings.
                   -------------------------------------- 

     5.01.   Payment of Taxes With Respect to Varian Federal Consolidated
             ------------------------------------------------------------
Returns Filed After the Distribution Date. In the case of any Varian Federal
-----------------------------------------
Consolidated Return the due date for which (including extensions) is after the
Distribution Date, HCS shall compute and pay the Tax required to be paid to the
IRS (taking into account the requirements of Section 6.03, relating to
consistent accounting practices) with respect to such Tax Return.

     5.02.   Payment of State Income Tax Relating to Pre-Distribution Periods
             ----------------------------------------------------------------
With Respect to Returns Filed After the Distribution Date.
--------------------------------------------------------- 

             (a)   Computation and Payment of Tax Due. At least ten business
                   ----------------------------------
days prior to any Payment Date for any Tax Return with respect to any State
Income Tax relating to a Pre-Distribution Period, the Responsible Company shall
compute the amount of Tax required to be paid to the applicable Tax Authority
(taking into account the requirements of Section 6.03, relating to consistent
accounting practices) with respect to such Tax Return on such Payment Date and

                   (i)   If such Tax Return is with respect to a Consolidated or
             Combined State Income Tax, HCS will pay such amount to such Tax
             Authority on or before such Payment Date.

                   (ii)  If such Tax Return is with respect to a Separate
             Company Tax, the Responsible Company shall, if it is not the
             Company liable for the Tax reported on such Tax Return, notify the
             Company liable for such Tax in writing of the amount of Tax
             required to be paid on such Payment Date. The Company liable for
             such Tax will pay such amount to such Tax Authority on or before
             such Payment Date.

     5.03.   Payment of Other Taxes.  Each Company shall pay, or shall cause to
             ---------------------
be paid, to the applicable Tax Authority when due all Separate Company Taxes,
Foreign Income Taxes, and Other Taxes owed by such Company or a member of such
Company's Group.

     5.04.   Tax Payments for Account of Other Party.
             --------------------------------------- 

             (a)   If any Company (the "payor") is required to pay to a Tax
Authority a Tax that another Company (the "identified party") is required to pay
to such Tax Authority under this Agreement, the identified party shall reimburse
the payor within 30 days of delivery by the payor to the identified party of an
invoice for the amount due, accompanied by evidence of payment and a statement
detailing the Taxes paid and describing in reasonable detail the particulars
relating thereto. The reimbursement shall include interest on the Tax payment
computed at the

                                       14
<PAGE>
 
Prime Rate based on the number of days from the date of the payment to the Tax
Authority to the date of reimbursement under this Section 5.04.

             (b)   In the event that (x) it is finally determined that any
Company (the "Responsible Party") is liable to another Company (the "Protected
Party") hereunder in respect of any payment obligation under this Agreement (a
"Protected Loss") and (y) a court of competent jurisdiction prohibits such
Responsible Party from satisfying all or a part of its obligations to the
Protected Party hereunder in respect of such Protected Loss, then the amount of
the Protected Loss that is not satisfied shall be treated as a liability of the
parties to this Agreement other than the Responsible Party, with the Sharing
Percentage of the Group of which each such other party is a member equal to 50%.

     5.05.   Tax Refunds for Account of Other Party.  If a member of one Group
             --------------------------------------                           
receives any Tax refund or credit against a Tax liability with respect to any
Taxes for which a member of another Group is liable hereunder, the Company
receiving such Tax refund or credit shall make a payment to the Company that is
liable for such Taxes hereunder within 30 days following receipt of the Tax
refund in an amount equal to the Tax refund, plus interest on such amount
computed at the Prime Rate based on the number of days from the date that is
five (5) days after the date of receipt of the Tax refund to the date of payment
of such amount under this Section 5.05.

     5.06.   Payment of Taxes Related to Adjustments.
             --------------------------------------- 

             (a)   Adjustments Resulting in Underpayments.  The Controlling
                   --------------------------------------
Party shall pay to the appropriate Tax Authority when due any additional Tax
required to be paid as a result of any Adjustment with respect to any Pre-
Distribution Period. Each other Company shall pay to whichever of HCS, IB or SEB
is or controls the Controlling Party its share of any Tax Detriment resulting
from such Adjustment (that has not yet been paid pursuant to the terms of this
Agreement) determined in accordance with Section 2.06 within 90 days from the
later of (i) the date the amount of the Adjustment was paid or (ii) the date of
receipt by the indemnifying party of a written notice and demand from the
Controlling Party (or whichever of HCS, IB and SEB the Controlling Party is an
Affiliate) for payment of the amount due, accompanied by evidence of payment and
a statement detailing the Tax Detriment and describing in reasonable detail the
particulars relating thereto. Each indemnifying party shall also pay to
whichever of HCS, IB or SEB controls the Controlling Party interest on their
respective shares of such Tax Detriment computed at the Prime Rate plus 2.0%,
per annum, based on the number of days from the date interest ceased to run with
respect to the relevant recomputation of Tax to the date of their respective
payments under this Section 5.06(a); provided, however, that in no event shall
more than 180 days interest accrue between the date interest ceases to run with
respect to the relevant recomputation of tax and the date of receipt of the
written notice and demand referred to in clause (ii) of the immediately
preceding sentence.

             (b)   Adjustments Resulting in Overpayments.  Within 30 days of
                   -------------------------------------
receipt of any Tax refund or adjustment to Tax liability resulting from any
Adjustment relating to a Pre-Distribution Period, whichever of HCS, IB or SEB is
or controls the person that received the related Tax Benefit shall pay to any
party entitled to a share such Tax Benefit (that has not yet been paid pursuant
to the terms of this Agreement) their respective shares thereof determined in
accordance with Section 2.06. Any payments required under this Section 5.06(b)
shall include interest computed at the Prime Rate plus 2.0%, per annum, based on
the number of days from the date of the recomputation of Tax to the date of
payment under this Section 5.06(b).

             (c)   Recomputations of Tax.  For purposes of this Agreement, an
                   ---------------------
Adjustment occurs, and the respective liabilities of the parties shall be
recomputed: (i) in each instance when payments are to be made to, or refunds
received from, the relevant Tax Authority, (ii) when no payment is to be made or
refund is to be received due to offsetting adjustments, upon filing of an
amended return, completion of an IRS audit and completion of an IRS appellate
review or the equivalent steps with respect to State Income Taxes or Foreign
Income Taxes; and (iii) to reflect the results of any Final Determination.

             (d)   Procedures After Final Determination.  If an Interested Party
                   ------------------------------------
has any liability and/or obligation to make or has previously made, or the right
to receive or has previously received, any indemnity payment, reimbursement or
other payment with respect to a Tax Benefit or Tax Detriment under this
Agreement for which it does not have a right to a determination by an
Independent Third Party under Section 4.05 hereof, then the amount of any such
Tax Benefit or Tax Detriment not previously paid shall be immediately due and
payable upon 

                                       15
<PAGE>
 
receipt by the Interested Party of a notice of Final Determination of a Tax
Contest as required and specified in Section 4.04(a) hereof.

             If after (i) notice of a Final Determination of a Tax Contest as
required and specified in Section 4.04(a) hereof has been given by a Controlling
Party to an Interested Party; and (ii) the Interested Party receiving such
notice has either:

                    (A)  failed to provide the Interested Party Notice specified
               in Section 4.04(b) hereof within the ninety (90) day period set
               forth in Section 4.04(b);

                    (B)  provided the Interested Party Notice specified in
               Section 4.04(b) hereof within the ninety (90) day period
               specified in Section 4.04(b) agreeing to all Tax Benefits or Tax
               Detriments (and the Interested Party's share of all such amounts)
               and waiving the right to an Independent Third Party determination
               pursuant to Section 4.05 hereof with respect to all such Tax
               Benefits or Tax Detriments (and the Interested Party's share of
               such amounts);

                    (C)  provided the Interested Party Notice specified in
               Section 4.04(b) hereof within the ninety (90) day period
               specified in Section 4.04(b) agreeing with some, but not all, Tax
               Benefits or Tax Detriments (and the Interested Party's share of
               such agreed amounts) and waiving the right to an Independent
               Third Party Determination pursuant to Section 4.05 hereof with
               respect to all such agreed Tax Benefits or Tax Detriments (and
               the Interested Party's share of such amounts); or

                    (D)  provided the Interested Party Notice specified in
               Section 4.04(b) hereof within the ninety (90) day period
               specified in Section 4.04(b) specifically enumerating the
               Disputed Adjustments to which it does not agree and for which the
               notice specified in either Section 4.05(b)(ii) or Section
               4.05(b)(iv) hereof relating to any such Disputed Adjustment has
               been given by an Independent Third Party,

then the amount of any Tax Detriment or Tax Benefit agreed to or deemed to be
agreed to by the Interested Party, or for which an Independent Third Party
notice has been given pursuant to either Section 4.05(b)(ii) or Section
4.05(b)(iv) hereof, as set forth in each of clauses (A), (B), (C) or (D) above,
shall be immediately due and payable.

             Any Person entitled to any indemnification, reimbursement or other
payment under this Agreement with respect to the amount of any Tax Detriment or
Tax Benefit that has become immediately due and payable under this Section
5.06(d) (the "Indemnified Party") shall notify in writing the Person against
whom such indemnification, reimbursement or other payment is sought (the
"Indemnifying Party") of its right to and the amount of such indemnification,
reimbursement or other payment; provided, however, that the failure to notify
the Indemnifying Party shall not relieve the Indemnifying Party from any
liability and/or obligation which it may have to an Indemnified Party on account
of the provisions contained in this Agreement except to the extent that the
Indemnifying Party was prejudiced by such failure, and in no event shall such
failure relieve the Indemnifying Party from any other liability or obligation
which it may have to such Indemnified Party.  The Indemnifying Party shall make
such indemnity payment, reimbursement or other payment to the Indemnified Party
within thirty (30) days of the receipt of the written notice specified in the
preceding sentence; provided, however, that, in the case of any Final
Determination of a Tax Contest involving a state, local or municipal Tax in
which the Indemnifying Party is also the Controlling Party with respect to such
Tax Contest and, as Controlling Party, is entitled to receive an overall net
refund from the applicable state, local or municipal Tax Authority with respect
to such state, local or municipal Tax, then the Indemnifying Party shall be
required to make such indemnity payment, reimbursement or other payment to the
Indemnified Party within thirty (30) days from the date the Indemnifying Party
actually receives payment of or obtains the benefit of the net refund due from
the applicable state, local or municipal Tax Authority.

     5.07.   Recoveries.  Any amounts recovered from third parties (e.g., a tax
             ----------                                                        
advisor to one of the Companies or any Affiliate) with respect to any Tax
Detriment shall be shared among the Companies in a manner consistent with the
principles of this Agreement.  For example, if some or all of an amount paid
with respect to an Adjustment that is shared by the Companies in accordance with
their Sharing Percentages is reimbursed by a tax 

                                       16
<PAGE>
 
advisor, the Company that receives (or whose Affiliate receives) such
reimbursement will make such payments to the other Companies as are necessary to
cause the net after-tax cost of the Adjustment net of such reimbursement to be
shared by the Companies in accordance with their Sharing Percentages (taking
into account any Correlative Adjustment and the assumptions set forth in the
definition of Adjustment).

     SECTION 6.    Preparation and Filing of Tax Returns.
                   ------------------------------------- 

     6.01.   General.  Except as otherwise provided in this Section 6, Tax
             -------
Returns shall be prepared and filed when due (including extensions) by the
person obligated to file such Tax Returns under the Code or applicable Tax Law.
The Companies shall provide, and shall cause their Affiliates to provide,
assistance and cooperate with one another in accordance with Section 7 with
respect to the preparation and filing of Tax Returns, including providing
information required to be provided in Section 7.

     6.02.   Post-Distribution Period Tax Returns.  Except as otherwise provided
             ------------------------------------
in this Section 6:

     (1)     All Tax Returns related to the Health Care Systems Group for Post-
Distribution Periods shall be prepared and filed (or caused to be prepared and
filed) by HCS;
     (2)     All Tax Returns related to the Semiconductor Equipment Group for
Post-Distribution Periods shall be prepared and filed (or caused to be prepared
and filed) by SEB; and
     (3)     All Tax Returns related to the Instruments Group for Post-
Distribution Periods shall be prepared and filed (or caused to be prepared and
filed) by IB.

     6.03.   Manner of Filing.  All Tax Returns filed or caused to be filed by
             ----------------
HCS, IB or SEB and the Affiliates of each of them after the Distribution Date
shall be prepared on a basis that is consistent with any IRS or other Tax ruling
obtained by Varian in connection with the restructuring of Varian contemplated
by the Distribution Agreement (in the absence of a controlling change in law or
circumstances), and shall be filed on a timely basis by the party responsible
for such filing under this Agreement.

     6.04.   Right to Review Tax Returns.
             --------------------------- 

             (a)   General.  The Responsible Company with respect to any Tax
                   -------
 Return shall make such Tax Return and related workpapers available for review
 by the other Companies, if requested, to the extent (i) such Tax Return relates
 to Taxes for which the requesting party may be liable, (ii) such Tax Return
 relates to Taxes for which the requesting party may be liable in whole or in
 part for any additional Taxes owing as a result of adjustments to the amount of
 Taxes reported on such Tax Return, (iii) such Tax Return relates to Taxes for
 which the requesting party may have a claim for Tax Benefits under this
 Agreement, or (iv) the requesting party reasonably determines that it must
 inspect such Tax Return to confirm compliance with the terms of this Agreement.
 The Responsible Company shall use its reasonable best efforts to make such Tax
 Return available for review as required under this paragraph sufficiently in
 advance of the due date for filing such Tax Returns to provide the requesting
 party with a meaningful opportunity to analyze and comment on such Tax Returns
 and have such Tax Returns modified before filing, taking into account the
 person responsible for payment of the tax (if any) reported on such Tax Return
 and the materiality of the amount of Tax liability with respect to such Tax
 Return. The Companies shall attempt in good faith to resolve any issues arising
 out of the review of such Tax Returns.

             (b)   Execution of Returns Prepared by Other Party.  In the case of
                   --------------------------------------------
any Tax Return which is required to be prepared and filed by one Company under
this Agreement and which is required by law to be signed by another Company (or
by its authorized representative), the Company which is legally required to sign
such Tax Return shall not be required to sign such Tax Return under this
Agreement if there is no reasonable basis for the tax treatment of any material
items reported on the Tax Return. Any such Tax Return shall be supplied by the
Company responsible for its preparation and filing to the Company responsible
for its signing at least five days prior to the due date of such Tax Return
(including applicable extensions) and such signing Company shall deliver an
executed copy of such Tax Return to the filing Company at least two days prior
to the due date of such Tax Return (including applicable extensions).

                                       17
<PAGE>
 
     6.05.   Claims for Refund, Carrybacks, and Self-Audit Adjustments.
             --------------------------------------------------------- 

             (a)   Carrybacks.  Each of the Companies shall be permitted,
                   ----------
without the consent of any other Company, to file claims for refund or credit or
amended returns with respect to Tax Returns for which it is the Responsible
Company to carry back Tax items from Post-Distribution Periods.

             (b)   Consent Required for Adjustment Requests Related to
                   ---------------------------------------------------
Consolidated or Combined Income Taxes. Except as provided in paragraph (c)
-------------------------------------
below, each of the Companies hereby agrees that, unless each of the other
Companies consents in writing, which consent shall not be unreasonably withheld,
no Adjustment Request with respect to any Consolidated or Combined Income Tax
for a Pre-Distribution Period shall be filed. Any Adjustment Request which the
Companies consent to make under this Section 6.05 shall be prepared and filed by
the Responsible Company under Sections 6.01 and 6.02 for the Tax Return to be
adjusted. The Company requesting the Adjustment Request shall provide to the
Responsible Company all information required for the preparation and filing of
such Adjustment Request in such form and detail as reasonably requested by the
Responsible Company, and shall bear all external costs incurred in connection
with the preparation and filing of such Adjustment Request.

             (c)   Exception for Adjustment Requests Related to Audit
                   --------------------------------------------------
Adjustments. Each of the Companies shall be entitled, without the consent of any
-----------
other Company, to require HCS to file an Adjustment Request to take into account
any net operating loss, net capital loss, deduction, credit, or other adjustment
attributable to such Company or any member of its Group corresponding to any
adjustment resulting from any audit by the IRS or other Tax Authority with
respect to Consolidated or Combined Income Taxes for any Pre-Distribution
Period. For example, if the Internal Revenue Service requires a Company to
capitalize an item deducted for the taxable year 1996, such Company shall be
entitled, without the consent of any other Company, to require HCS to file an
Adjustment Request for the taxable year 1997 (and later years) to take into
account any depreciation or amortization deductions in such years directly
related to the item capitalized in 1996. In addition, each of the Companies
shall be entitled to require any other Company, as appropriate, to file an
Adjustment Request of the same sort with respect to Separate Company Taxes or
Foreign Income Taxes for any Pre-Distribution Periods. The Company that requires
another Company to file an Adjustment Request shall bear all external costs in
connection with the preparation and filing of the Adjustment Request.

             (d)   Other Adjustment Requests Permitted. Nothing in this Section
                   -----------------------------------
6.06 shall prevent any Company or its Affiliates from filing any Adjustment
Request with respect to Income Taxes which are not Consolidated or Combined
Income Taxes or with respect to any Taxes other than Income Taxes; provided,
however, that without the written consent of the Company responsible for the
relevant Tax (which consent shall not be unreasonably withheld) no Company shall
file an amended Tax Return with respect to Taxes for which another Company is
liable under this Agreement. Any refund or credit obtained as a result of any
such Adjustment Request (or otherwise) shall be for the account of the person
liable for the Tax under this Agreement.

             (e)   Payment of Refunds.  Any refunds or other Tax Benefits
                   ------------------
received by any Company (or any of its Affiliates) as a result of any Adjustment
Request which are for the account of another Company (or member of such other
Company's Group) shall be paid by the Company receiving (or whose Affiliate
received) such refund or Tax Benefit to such other Company in accordance with
Section 5.

     SECTION 7.    Assistance and Cooperation.
                   -------------------------- 

     7.01.   General.  After the Distribution Date, each of the Companies shall
             -------                                                           
cooperate (and cause their respective Affiliates to cooperate) with each other
and with each other's agents, including accounting firms and legal counsel, in
connection with Tax matters relating to the Companies and their Affiliates
including (i) preparation and filing of Tax Returns, (ii) determining the
liability for and amount of any Taxes due (including estimated Taxes) or the
right to and amount of any refund of Taxes, (iii) examinations of Tax Returns,
and (iv) any administrative or judicial proceeding in respect of Taxes assessed
or proposed to be assessed. Such cooperation shall include making all
information and documents in their possession relating to the other Companies
and their Affiliates available to such other Companies as provided in Section 8.
Each of the Companies shall also make available to each other, as reasonably
requested and available, personnel (including officers, directors, employees and
agents of the Companies or their respective Affiliates) responsible for
preparing, maintaining, and interpreting information and documents relevant to
Taxes, and personnel reasonably required as witnesses or for purposes of
providing information or 

                                       18
<PAGE>
 
documents in connection with any administrative or judicial proceedings relating
to Taxes. The Company requesting assistance shall reimburse the Company
providing assistance for the reasonable costs thereof, including personnel
costs. Any information or documents provided under this Section 7 shall be kept
confidential by the Company receiving the information or documents, except as
may otherwise be necessary in connection with the filing of Tax Returns or in
connection with any administrative or judicial proceedings relating to Taxes.

     7.02.   Income Tax Return Information.  Each Company will provide to each
             -----------------------------
other Company information and documents relating to their respective Groups
required by the other Companies to prepare Tax Returns. The Responsible Company
shall determine a reasonable compliance schedule for such purpose in accordance
with VA's past practices. Any additional information or documents the
Responsible Company requires to prepare such Tax Returns will be provided in
accordance with past practices, if any, or as the Responsible Company reasonably
requests and in sufficient time for the Responsible Company to file such Tax
Returns timely.

     SECTION 8.    Tax Records.
                   ----------- 

     8.01.   Retention of Tax Records.  Except as provided in Section 8.02, each
             ------------------------                                           
Company shall preserve and keep all of its Tax Records for Pre-Distribution Tax
Periods until the later of (i) seven years after the Distribution Date or (ii) a
Final Determination with respect to any Tax Contest for which such Tax Records
may be relevant.  Before disposing of any such Tax Records, a Company shall
provide 90 days prior notice to each other Company.  Such notice shall include a
list of the records to be disposed of describing in reasonable detail each file,
book, or other record accumulation being disposed.  The notified Companies shall
have the opportunity, at their cost and expense, to copy or remove, within such
90-day period, all or any part of such Tax Records.  If, prior to the end of
such seven-year period, a Company reasonably determines that any Tax Records
which it is required to preserve and keep under this Section 8 are no longer
material in the administration of any matter under the Code or other applicable
Tax Law, such Company may dispose of such records upon 90 days prior notice to
each other Company.  Such notice shall include a list of the records to be
disposed of describing in reasonable detail each file, book, or other record
accumulation being disposed.  The notified Companies shall have the opportunity,
at their cost and expense, to copy or remove, within such 90-day period, all or
any part of such Tax Records.

     8.02.   State Income Tax Returns.  Tax Returns with respect to State Income
             ------------------------
Taxes and workpapers prepared in connection with preparing such Tax Returns
shall be preserved and kept, in accordance with the guidelines of Section 8.01,
by the Company responsible for preparing and filing the applicable Tax Return.

     8.03.   Access to Tax Records.  The Companies and their respective
             ---------------------
Affiliates shall make available to each other for inspection and copying during
normal business hours upon reasonable notice all Tax Records in their possession
to the extent reasonably required by the other Company in connection with the
preparation of Tax Returns, audits, litigation, or the resolution of items under
this Agreement.

     SECTION 9.    Effective Date; Termination of Prior Intercompany Tax
                   -----------------------------------------------------
Allocation Agreements. This Agreement shall be effective on the Distribution
---------------------
Date. Each of the Companies represents and warrants that there are no Prior
Intercompany Tax Allocation Agreements in effect as of the Distribution Date.

     SECTION 10.   No Inconsistent Actions.
                   ----------------------- 

             (a)   Each of the Companies covenants and agrees that it will use
its best efforts to cause the Distributions to qualify under Section 355 of the
Code. Each of the Companies covenants and agrees that it will not take or permit
any action, and it will cause its Affiliates to refrain from taking or
permitting any action, which may be inconsistent with the Tax treatment of the
Transactions as contemplated in the Ruling Request or any Tax ruling received
with respect to Tax consequences related to the Transaction in a foreign
jurisdiction (any such action is referred to in this Section 10 as a "Tainting
Act"), unless (i) the Company or Affiliate thereof proposing such Tainting Act
(the "Requesting Party") either (A) obtains a ruling with respect to the
Tainting Act from the IRS or other applicable Tax Authority that is reasonably
satisfactory to each other Company (the "Requested Parties") (except that the
Requesting Party shall not submit any such ruling request if a Requested Party
determines in good faith that filing such request might have a materially
adverse effect upon such Requested Party), or (B) obtains an unqualified opinion
of independent nationally recognized tax counsel acceptable to each Requested
Party, on a basis of assumed facts and representations consistent with the facts
at the time of such action, that such Tainting Act will

                                       19
<PAGE>
 
not affect the Tax treatment of the Transactions as contemplated in the Ruling
Request, or (ii) each Requested Party consents in writing to such Tainting Act,
which consent shall be granted or withheld in the sole and absolute discretion
of each such Requested Party. A Tainting Act of a Company shall include a
transaction involving that Company to which Section 355(e) of the Code is
applicable, regardless of whether the Company could have prevented such
transaction. Without limiting the foregoing:

                   (i)   No Inconsistent Plan or Intent.  Each of the Companies
                         ------------------------------
             represents and warrants that neither it nor any of its Affiliates
             has any plan or intent to take any action which is inconsistent
             with any factual statements or representations in the Ruling
             Request. Regardless of any change in circumstances, each of the
             Companies covenants and agrees that it will not take or permit, and
             it will cause its Affiliates to refrain from taking or permitting,
             any such inconsistent action on or before the second anniversary of
             the Distribution Date other than as permitted in this Section 10.

                   (ii)  Amended or Supplemental Rulings. Each of the Companies
                         -------------------------------
             covenants and agrees that it will not file, and it will cause its
             Affiliates to refrain from filing, any amendment or supplement to
             the Ruling Request subsequent to the Distribution Date without the
             consent of the other Companies, which consent shall not be
             unreasonably withheld.

             (b)   Notwithstanding anything to the contrary in this Agreement,
each Company shall be solely liable for, and shall indemnify and hold harmless
each other Company from any Restructuring Tax resulting from a Tainting Act by
such first Company or its Affiliates, regardless of whether clause (i) or (ii)
of Section 10(a) was satisfied with respect to such Tainting Act.

     SECTION 11.   Survival of Obligations.  The representations, warranties,
                   -----------------------                                   
covenants and agreements set forth in this Agreement shall be unconditional and
absolute and shall remain in effect without limitation as to time.

     SECTION 12.   Employee Matters.  Each of the Companies shall utilize, or
                   ----------------
cause its Affiliates to utilize, the standard procedure set forth in Revenue
Procedure 84-77, 1984-2 C.B. 753, with respect to wage reporting.

     SECTION 13.   Treatment of Payments; Tax Gross Up.
                   ----------------------------------- 

     13.01.  Tax Treatment of Payments.  In the absence of any change in tax
             -------------------------                                      
treatment under the Code or other applicable Tax Law, any Tax indemnity, Tax
Detriment, Tax Benefit or other payments made by a Company hereunder shall be
reported for Tax purposes by the payor and the recipient (and, if HCS is neither
the payor nor the recipient, by HCS) as distributions or capital contributions,
as appropriate, occurring immediately before the Distributions on the
Distribution Date, except to the extent the payment relates to a Tax allocated
to the payor in accordance with Treasury Regulation Section 1.1502-33(d) (or
under corresponding principles of other applicable Tax Laws).

     13.02.  Tax Gross Up.  If notwithstanding the manner in which Tax
             ------------
indemnity, Tax Detriment or Tax Benefit payments were reported, there is an
adjustment to the Tax liability of a Company as a result of its receipt of a
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 (but taking into account all
correlative Tax benefits resulting from the payment of such Income Taxes), shall
equal the amount of the payment which the Company receiving such payment would
otherwise be entitled to receive pursuant to this Agreement. For purposes of
determining such Income Taxes, it shall be assumed that the highest marginal Tax
rates in effect are applicable.

     13.03.  Interest Under This Agreement.  Anything herein to the contrary
             -----------------------------                                  
notwithstanding, to the extent one Company ("indemnitor") makes a payment of
interest to another Company ("indemnitee") under this Agreement with respect to
the period from the date that the indemnitee made a payment of Tax to a Tax
Authority to the date that the indemnitor reimbursed the indemnitee for such Tax
payment, or with respect to the period from the date that the indemnitor
received a Tax Benefit to the date indemnitor paid the Tax Benefit to the
indemnitee, the interest payment shall be treated as interest expense to the
indemnitor (deductible to the extent provided by law) and 

                                       20
<PAGE>
 
as interest income by the indemnitee (includible in income to the extent
provided by law). The amount of the payment shall not be adjusted under Section
13.02 to take into account any associated Tax benefit to the indemnitor or
increase in Tax to the indemnitee.

     SECTION 14.   Disagreements.  Except to the extent of the specific dispute
                   -------------                                               
resolutions set forth in Sections 4.04 and 4.05 of this Agreement, any and all
controversies, disputes or claims arising out of, relating to, in connection
with or resulting from this Agreement (or any amendment thereto or any
transaction contemplated hereby or thereby), including as to its existence,
interpretation, performance, nonperformance, 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, shall be deemed an Agreement Dispute as defined in Section 9.01
of the Distribution Agreement and shall be resolved exclusively by, in
accordance with, and subject to the limitations set forth in, Article IX of the
Distribution Agreement.

     SECTION 15.   Late Payments.  Any amount owed by one party to another party
                   -------------
under this Agreement which is not paid when due shall bear interest at the Prime
Rate plus two percent, compounded semiannually, from the due date of the payment
to the date paid. To the extent interest required to be paid under this Section
15 duplicates interest required to be paid under any other provision of this
Agreement, interest shall be computed at the higher of the interest rate
provided under this Section 15 or the interest rate provided under such other
provision.

     SECTION 16.   Expenses.  Except as provided in Sections 4.02, 6.05, 7.01 or
                   --------
14, each party and its Affiliates shall bear their own expenses incurred in
connection with preparation of Tax Returns, Tax Contests, and other matters
related to Taxes under the provisions of this Agreement.

     SECTION 17.   Nonqualified Stock Options.  Each of the Companies shall
                   --------------------------
report exercises of nonqualified stock options in a manner consistent with any
ruling letter issued by the IRS with respect to the Distributions. The Companies
shall cooperate fully (including development of any reasonably necessary
procedures) to satisfy applicable reporting and withholding requirements and
obtain allowable Tax deductions upon the exercise of such options.

     SECTION 18.   General Provisions
                   ------------------

     18.01.  Complete Agreement; Construction.  This Agreement, the Distribution
             --------------------------------                                   
Agreement and the other 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.  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 the
Distribution Agreement or any other Ancillary Agreement, this Agreement shall
prevail.

     18.02.  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.

     18.03.  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:

     If to HCS, at:
     Varian Medical Systems, Inc.
     3100 Hansen Way
     Palo Alto, California  94304
     Attn:  Chief Financial Officer

                                       21
<PAGE>
 
     With a copy to:
     Varian Medical Systems, Inc.
     3100 Hansen Way
     Palo Alto, California 94304
     Attn: General Counsel

     If to SEB, at:
     Varian Semiconductor Equipment Associates, Inc.
     35 Dory Road
     Gloucester, Massachusetts 01930
     Attn: Chief Financial Officer
     Telecopy: (978) 281-3152

     With a copy to:
     Varian Semiconductor Equipment Associates, Inc.
     35 Dory Road
     Gloucester, Massachusetts 01930
     Attn: General Counsel
     Telecopy: (978) 281-3152

     If to IB, at:
     Varian, Inc.
     3120 Hansen Way
     Palo Alto, California 94304
     Attn: Chief Financial Officer

     With a copy to:
     Varian, Inc.
     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.

     18.04.  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.

     18.05.  Amendments.  This Agreement may be amended or supplemented, or its
             ----------                                                        
provisions waived only by an agreement in writing signed by each of the parties.

     18.06.  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, 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.

                                       22
<PAGE>
 
     18.07.  Successors and Assigns.  Subject to Section 18.06, this Agreement
             ----------------------
shall be binding upon, inure to the benefit of and be enforceable by the
successors and permitted assigns of the parties.

     18.08.  Third Party Beneficiaries.  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.

     18.09.  Governing Law.  This Agreement, the other Ancillary Agreements and
             -------------
any other agreements entered into in connection with the transactions
contemplated hereby 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
disputes governed by the Distribution Agreement.

     18.10.  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.

     18.11.  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.

     18.12.  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.

     18.13.  Further Action.  The parties shall execute and deliver all
             --------------
documents, provide all information, and take or refrain from taking action as
may be necessary or appropriate to achieve the purposes of this Agreement,
including the execution and delivery to the other parties and their Affiliates
and representatives of such powers of attorney or other authorizing
documentation as is reasonably necessary or appropriate in connection with Tax
Contests (or portions thereof) under the control of such other parties in
accordance with Section 4.

     18.14.  No Double Recovery; Subrogation.  No provision of this Agreement
             -------------------------------
shall be construed to provide an indemnity or other recovery for any costs,
damages, or other amounts for which the damaged party has been fully compensated
under any other provision of this Agreement or under any other agreement or
action at law or equity. Unless expressly required in this Agreement, a party
shall not be required to exhaust all remedies available under other agreements
or at law or equity before recovering under the remedies provided in this
Agreement. Subject to any limitations provided in this Agreement (for example,
the limitation on filing claims for refund in Section 6.05), the indemnifying
party shall be subrogated to all rights of the indemnified party for recovery
from any third party.

             IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by the respective officers as of the date set forth above.

                              VARIAN ASSOCIATES, INC.


                              By:    /s/ Robert A. Lemos
                                     ----------------------------------------
                              Name:  Robert A. Lemos
                              Title: Vice President Finance and Chief
                                     Financial Officer
 
                                       23
<PAGE>
 
                              VARIAN SEMICONDUCTOR EQUIPMENT ASSOCIATES, INC.


                              By:    /s/ Joseph B. Phair
                                     ----------------------------------------
                              Name:  Joseph B. Phair
                              Title: Secretary


                              VARIAN, INC.


                              By:    /s/ Arthur W. Homan
                                     ----------------------------------------
                              Name:  Arthur W. Homan
                              Title: Secretary

                                       24