SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10/A
Amendment No. 3 to Form 10
General Form For Registration of Securities
Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
COVANCE INC.
(formerly known as Corning Pharmaceutical Services Inc.)
(Exact name of registrant as specified in its charter)
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Delaware 22-3265977
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
210 Carnegie Center
Princeton, New Jersey 08540-6233
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(Address of principal executive offices) (Zip Code)
609 452 4440
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(Registrant's telephone number, including area code)
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Securities to be registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which
to be so registered each class is to be registered
Common Stock, with attached Preferred New York Stock Exchange
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Stock Purchase Right
Securities to be registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
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COVANCE INC.
INTRODUCTION
This Registration Statement on Form 10 relates to the registration under the
Securities Exchange Act of 1934, as amended, of the common stock, with attached
Preferred Stock Purchase Right, of the Registrant which is being issued as
described in the Information Statement (the "Information Statement"), dated
November 25, 1996, of Corning Incorporated. Selected pages of the Information
Statement which are related to the Registrant and the securities being
registered hereunder (the "Covance Information") are attached hereto as Exhibit
99.1 and are incorporated herein by reference in answer to the items of this
Registration Statement set forth below.
Item 1. Business
The information required by this item is contained under the sections "Risk
Factors--Risks Relating to Covance," "Business of Covance" and "The
Relationship Among Corning, Quest Diagnostics and Covance After the
Distributions" of the Covance Information and such sections are incorporated
herein by reference.
Item 2. Financial Information
The information required by this item is contained under the sections
"Capitalization of Covance", "Pro Forma Financial Information of Covance,"
"Selected Historical Financial Data of Covance" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Covance" of
the Covance Information and such sections are incorporated herein by
reference.
Item 3. Properties
The information required by this item is contained under the sections
"Business of Covance--Facilities" and "Business of
Covance--Services--Biomanufacturing" of the Covance Information, and such
sections are incorporated herein by reference.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is contained under the section
"Security Ownership of Certain Beneficial Owners and Management of Covance"
of the Covance Information and such section is incorporated herein by
reference.
Item 5. Directors and Executive Officers
The information required by this item is contained under the section
"Management of Covance" of the Covance Information and such section is
incorporated herein by reference.
Item 6. Executive Compensation
The information required by this item is contained under the section
"Management of Covance" of the Covance Information and such section is
incorporated herein by reference.
Item 7. Certain Relationships and Related Transactions
The information required by this item is contained under the section
"Management of Covance" of the Covance Information and such section is
incorporated herein by reference.
Item 8. Legal Proceedings
The information required by this item is contained under the section
"Business of Covance--Legal Proceedings" of the Covance Information and such
section is incorporated herein by reference.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
The information required by this item is contained under the sections "Risk
Factors--Risks Relating to Covance--Absence of Dividends; Restrictions
Imposed on Dividends by the Covance Credit Facility," "Risk Factors--Risks
Relating to Covance--Absence of Prior Public Market," "Risk Factors--Risks
Relating to
2
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Covance--Potential Volatility of Stock Price," "Description of Covance
Capital Stock--Covance Common Stock-- Dividend Policy," "--Covance Common
Stock--Listing and Trading" and "Management of Covance" of the Covance
Information and such sections are incorporated herein by reference.
Item 10. Recent Sales of Unregistered Securities
Not applicable.
Item 11. Description of Registrant's Securities to be Registered
The information required by this item is contained under the sections
"Description of Covance Capital Stock" and "Antitakeover Effects of Certain
Provisions of the Covance Certificate of Incorporation and By-Laws" of the
Covance Information and such sections are incorporated herein by reference.
Item 12. Indemnification of Directors and Officers
The information required by this item is contained under the section
"Liability and Indemnification of Directors and Officers of Covance" of the
Covance Information and such section is incorporated herein by reference.
Item 13. Financial Statements and Supplementary Data
The information required by this item is contained under the sections
"Capitalization of Covance," "Pro Forma Financial Information of Covance,"
"Selected Historical Financial Data of Covance," "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Covance" and
"Financial Statements of Covance Inc." of the Covance Information and such
sections are incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 15. Financial Statements and Exhibits
(a) Financial Statements
The information required by this item is contained under the section
"Financial Statements of Covance Inc." of the Covance Information and such
section is incorporated herein by reference.
(b) Exhibits
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Exhibit
Number Description
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2.1 Form of Transaction Agreement among Corning Incorporated, Corning Life Sciences Inc., Corning
Clinical Laboratories Inc. (Delaware), Covance Inc. and Corning Clinical Laboratories Inc. (Michigan),
dated November 22, 1996
3.1* Certificate of Incorporation of the Registrant
3.2* By-Laws of the Registrant
4.1 Form of Common Stock certificate
4.2* Form of Rights Agreement between Covance Inc. and Harris Trust and Savings Bank, dated December 31,
1996
10.1* Form of Tax Sharing Agreement among Corning Incorporated, Corning Clinical Laboratories Inc. and
Covance Inc., dated [ ], 1996
10.2* Form of Spin-Off Tax Indemnification Agreement between Corning Incorporated and Covance Inc., dated
[ ], 1996
10.3* Form of Spin-Off Tax Indemnification Agreement between Covance Inc. and Corning Clinical Laboratories
Inc., dated [ ], 1996
10.4* Form of Spin-Off Tax Indemnification Agreement between Corning Clinical Laboratories, Inc. and
Covance Inc., dated [ ], 1996
10.5 Form of Credit Agreement among Covance Inc., Nationsbank, N.A., Wachovia Bank of Georgia, N.A. and
the Lenders named therein, dated November 26, 1996
10.6 Form of Covance Inc. Employee Stock Ownership Plan
10.7 Form of Covance Inc. Stock Purchase Savings Plan
10.8* Form of Covance Inc. Employees Stock Purchase Program
10.9 Form of Covance Inc. Employee Equity Participation Program
10.10 Form of Covance Inc. Executive Retirement Supplemental Plan
10.11* Form of Covance Inc. Restricted Share Plan
10.12 Form of Covance Inc. Directors' Restricted Stock Plan
10.13 Form of Covance Inc. Directors' Deferred Compensation Plan
10.14* Form of Employment Agreement between Christopher Kuebler and Covance Inc.
10.15 Form of Executive Employment Letter
21* Subsidiaries of the Registrant
27* Financial Data Schedules
99.1 Selected pages of the Information Statement of Corning Incorporated
dated November 25, 1996 (pages 2; 28-31; 108-168; F-1; F-33-F-48)
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* Previously filed.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
COVANCE INC.
Dated: November 25, 1996 By: /s/ Jeffrey S. Hurwitz
Jeffrey S. Hurwitz, Corporate Senior
Vice President,
General Counsel and Secretary
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S&S DRAFT
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TRANSACTION AGREEMENT
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dated as of November 22, 1996
by and among
CORNING INCORPORATED,
CORNING LIFE SCIENCES INC.,
CORNING CLINICAL LABORATORIES INC. (Delaware),
COVANCE INC.,
and
CORNING CLINICAL LABORATORIES INC. (Michigan)
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TABLE OF CONTENTS
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Page
ARTICLE I
DEFINITIONS
SECTION 1.01. General................................................................................. 2
SECTION 1.02. References; Interpretation.............................................................. 7
ARTICLE II
DISTRIBUTIONS AND OTHER TRANSACTIONS; CERTAIN COVENANTS
SECTION 2.01. Conditions Precedent.................................................................... 7
SECTION 2.02. The Distributions and Other Transactions................................................ 8
SECTION 2.03. Treatment of Fractional Shares.......................................................... 12
SECTION 2.04. Certain Intercompany Financial and Other Arrangements................................... 12
SECTION 2.05. Certain Indebtedness and Capital Structure.............................................. 13
SECTION 2.06. Further Assurances...................................................................... 13
SECTION 2.07. No Representations or Warranties........................................................ 14
SECTION 2.08. Guarantees.............................................................................. 14
SECTION 2.09. Certain Transactions.................................................................... 15
SECTION 2.10. Insurance............................................................................... 15
ARTICLE III
INDEMNIFICATION
SECTION 3.01. Indemnification by Corning.............................................................. 15
SECTION 3.02. Indemnification by CCL.................................................................. 22
SECTION 3.03. Indemnification by Covance.............................................................. 23
SECTION 3.04. Adjustments for Indemnification Obligations............................................. 23
SECTION 3.05. Procedures for Indemnification - Third Party Claims..................................... 23
SECTION 3.06. Survival of Indemnities................................................................. 25
SECTION 3.07. Payments................................................................................ 25
ARTICLE IV
ACCESS TO INFORMATION
SECTION 4.01. Provision of Corporate Records.......................................................... 25
SECTION 4.02. Access to Information................................................................... 25
SECTION 4.03. Reimbursement........................................................................... 26
SECTION 4.04. Confidentiality......................................................................... 26
ARTICLE V
DISPUTE RESOLUTION
SECTION 5.01. Good Faith Negotiations................................................................. 27
SECTION 5.02. Procedure............................................................................... 27
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ii
ARTICLE VI
GENERAL PROVISIONS
SECTION 6.01. Expenses................................................................................ 28
SECTION 6.02. Notices................................................................................. 28
SECTION 6.03. Complete Agreement; Construction........................................................ 29
SECTION 6.04. Ancillary Agreements.................................................................... 29
SECTION 6.05. Counterparts............................................................................ 29
SECTION 6.06. Survival of Agreements.................................................................. 29
SECTION 6.07. Waiver.................................................................................. 29
SECTION 6.08. Amendments.............................................................................. 30
SECTION 6.09. Assignment.............................................................................. 30
SECTION 6.10. Successors and Assigns.................................................................. 30
SECTION 6.11. Termination............................................................................. 30
SECTION 6.12. Subsidiaries............................................................................ 30
SECTION 6.13. Third Party Beneficiaries............................................................... 30
SECTION 6.14. Headings................................................................................ 30
SECTION 6.15. Specific Performance.................................................................... 30
SECTION 6.16. Governing Law........................................................................... 31
SECTION 6.17. Public Announcements.................................................................... 31
SECTION 6.18. Severability............................................................................ 31
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iii
SCHEDULES
Schedule 2.08 Guarantees
EXHIBITS
Exhibit A Forms of Contribution Agreement, Liabilities Undertaking, Bill of Sale
and Assignment and Instrument of Assignment and Assumption
Exhibit B Form of Plan of Liquidation and Dissolution of CLSI
Exhibit C Certificate of Ownership and Merger and Certificate of Merger, with
attached Agreement and Plan of Merger and Complete Liquidation
(Covance CAPS into Covance)
Exhibit D Form of Insurance Agreement
Exhibit E Form of Services Agreement
Exhibit F Form of Spin-off Tax Indemnification Agreements
Exhibit G Form of Tax Sharing Agreement
Exhibit H Forms of Amended Charter and By-Laws of CCL
Exhibit I Forms of Amended Charter and By-Laws of Covance
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TRANSACTION AGREEMENT dated as of November 22, 1996, by and
among CORNING INCORPORATED, a New York corporation ("Corning"), CORNING LIFE
SCIENCES INC., a Delaware corporation ("CLSI"), CORNING CLINICAL LABORATORIES
INC., a Delaware corporation ("CCL"), COVANCE INC., a Delaware corporation
("Covance") and CORNING CLINICAL LABORATORIES INC., a Michigan corporation ("CCL
(MI)").
W I T N E S S E T H:
WHEREAS, Corning is the common parent of a consolidated group
which includes CLSI, CCL, Covance and CCL (MI);
WHEREAS, the Board of Directors of Corning has determined that
it is appropriate and desirable to distribute to the holders of shares of common
stock, par value $0.50 per share, of Corning (the "Corning Common Shares") all
the outstanding shares of common stock of CCL (the "CCL Common Stock") and,
immediately following such distribution, for CCL to distribute to the holders of
CCL Common Stock all the outstanding shares of common stock of Covance (the
"Covance Common Stock");
WHEREAS, each of Corning, CCL and Covance has determined that
it is necessary and desirable to set forth the principal corporate transactions
required to effect such distribution and to set forth other agreements that will
govern certain other matters following the distribution;
WHEREAS, each of Corning, CCL and Covance has determined that
it is necessary and desirable to allocate and assign responsibility for those
liabilities in respect of the activities of the businesses of such entities on
the Distribution Date (as defined herein) and those liabilities in respect of
other businesses and activities of Corning and its former subsidiaries and other
matters;
WHEREAS, Corning currently owns 100% of the stock of CLSI;
WHEREAS, CLSI currently owns 100% of the stock of CCL;
WHEREAS, CCL currently owns 100% of the stock of each
of Covance and CCL (MI);
WHEREAS, Covance currently owns 100% of the stock of
Covance Clinical and Periapproval Services Inc. (formerly
Corning Besselaar, Inc.) ("Covance CAPS"); and
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2
WHEREAS, prior to the Distribution Date, CLSI will contribute
to CCL substantially all of its assets other than the stock of CCL in exchange
for additional shares of CCL Common Stock, shares of voting preferred stock of
CCL and cash and will contribute to CCL (MI) certain of its obligations and
liabilities and Corning will cause CLSI to dissolve and Covance CAPS to be
merged with and into Covance.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. General. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency, body or commission or any arbitration
tribunal.
"Affiliate" shall mean, when used with respect to a specified
person, another person that directly, or indirectly through one or more
intermediaries, will control or will be controlled by or will be under common
control with the person specified immediately following the Effective Time.
"Agent" shall have the meaning as defined in Section 2.02(g).
"Agreement Disputes" shall have the meaning as defined in
Section 5.01.
"Ancillary Agreements" shall mean the Insurance Agreement, the
Intellectual Property Agreement, the Services Agreement, the Spin-off
Tax Indemnification Agreements and the Tax Sharing Agreement.
"Assignee" shall have the meaning as defined in Section
2.02(i)(ii).
"CCL" shall mean Corning Clinical Laboratories Inc., a
Delaware corporation.
"CCL Business" shall mean all businesses and operations
conducted by (i) CLSI, MRL Nucor, Inc. and all current and former
subsidiaries of CLSI (other than Covance Biotechnology Services Inc.
(formerly CORNING Bio Inc.), Covance and its
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3
Subsidiaries, Pharmaceutical Laboratory Services, Inc., Quanterra Incorporated,
California Analytical Laboratory, Chemical Research Laboratories, Inc., Enseco
Incorporated, ERCO, Rocky Mountain Analytical Laboratory and Wadsworth/Alert
Laboratories, Inc.), including without limitation CCL (but excluding in any
event the environmental testing business previously conducted by CCL); and (ii)
any business entities acquired or established by or for CCL or any of its
Subsidiaries after the date of this Agreement.
"CCL Indemnitees" shall mean CCL, each Affiliate of CCL, each
of their respective directors and officers and each of the heirs, executors,
successors and assigns of any of the foregoing.
"CCL Liabilities" shall mean, collectively, (i) all the
Liabilities of CCL and its Subsidiaries under this Agreement and any of the
Ancillary Agreements, and (ii) all the Liabilities of the parties hereto or
their respective Subsidiaries (whenever arising whether prior to, at or
following the Effective Time) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Effective Time of the
CCL Business.
"CCL (MI)" shall mean Corning Clinical Laboratories Inc., a
Michigan corporation.
"CCL Record Holders" shall mean all holders of CCL Common
Stock as of the Distribution Record Date, provided that the CCL Record Holders
shall be deemed to be determined immediately following the distribution of CCL
Common Stock to all Corning Record Holders.
"CLSI" shall mean Corning Life Sciences Inc., a Delaware
corporation.
"CLSI Revolver" shall mean the Revolving Credit Agreement
dated December 1, 1994 between Corning and CLSI.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the Treasury regulations promulgated thereunder, including any
successor legislation.
"Commission" shall mean the Securities and Exchange
Commission.
"Company Policies" shall mean all Policies, current or past,
which are or at any time were maintained by or on behalf of or for the benefit
or protection of Corning or any of its predecessors which relate to the Corning
Business, the CCL Business or the Covance Business, or current or past
directors, officers, employees or agents of any of the foregoing Businesses.
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4
"Corning" shall mean Corning Incorporated, a New York
corporation.
"Corning Business" shall mean (i) all businesses and
operations of Corning and its subsidiaries other than the CCL Business and the
Covance Business and (ii) the environmental testing business previously
conducted by CCL and its Subsidiaries, including California Analytical
Laboratory, Chemical Research Laboratories, Inc., Enseco Incorporated, ERCO,
Quanterra Incorporated, Rocky Mountain Analytical Laboratory and Wadsworth/Alert
Laboratories, Inc.
"Corning Indemnitees" shall mean Corning, each Affiliate of
Corning, each of their respective directors and officers and each of the heirs,
executors, successors and assigns of any of the foregoing.
"Corning Liabilities" shall mean all the Liabilities of
Corning and its Subsidiaries under this Agreement and any of the Ancillary
Agreements, and all the Liabilities of Corning and its subsidiaries that are not
CCL Liabilities or Covance Liabilities including, without limitation, all
Liabilities under any employee benefit plans maintained by Corning and any stock
option employment or consulting agreements to which Corning is a party,
including any such benefit plans or agreements covering or with persons who are
or were employees of CCL or Covance and their respective Subsidiaries.
Notwithstanding the foregoing, the remaining payment obligations under the
Agreement dated June 7, 1995 among Corning, CLSI and Ralph H. Thurman and the
Consulting Agreement dated June 7, 1995 among Corning, CLSI and Ralph H. Thurman
shall be CCL Liabilities and not Corning Liabilities.
"Corning Record Holders" shall mean all holders of record of
Corning Common Shares as of the Distribution Record Date.
"Covance" shall mean Covance Inc., a Delaware corporation (formerly
known as Corning Pharmaceutical Services Inc.).
"Covance Business" shall mean all businesses and operations conducted
by (i) all current and former subsidiaries of Covance and by Covance
Biotechnology Services Inc. and Pharmaceutical Laboratory Services, Inc. prior
to the Effective Time; and (ii) any business entities acquired or established by
or for Covance or any of its Subsidiaries after the date of this Agreement.
"Covance Indemnitees" shall mean Covance, each Affiliate of
Covance, each of their respective directors and officers and each of the heirs,
executors, successors and assigns of any of the foregoing.
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5
"Covance Liabilities" shall mean, collectively, (i) all the
Liabilities of Covance and its Subsidiaries under this Agreement and any of the
Ancillary Agreements, and (ii) all the Liabilities of the parties hereto or
their respective Subsidiaries (whenever arising whether prior to, at or
following the Effective Time) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Effective Time of the
Covance Business.
"Distribution Date" shall mean December 31, 1996 or such later
date as may hereafter be determined by Corning's Board of Directors as the date
as of which the Distributions shall be effected.
"Distribution Record Date" shall mean December 31, 1996 or
such later date as may hereafter be determined by Corning's Board of Directors
as the record date for the Distributions.
"Distributions" shall mean the two consecutive distributions
in the following order on the Distribution Date to (i) all Corning Record
Holders of the CCL Common Stock owned by Corning and (ii) all CCL Record Holders
of the Covance Common Stock owned by CCL.
"Effective Time" shall mean 11:59 p.m., New York time, on the
Distribution Date.
"Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended.
"Indemnifiable Losses" shall mean any and all losses,
liabilities, claims, damages, demands, costs or expenses (including, without
limitation, reasonable attorneys' fees and any and all reasonable and necessary
out-of-pocket expenses) whatsoever, including any and all losses, liabilities,
claims, damages, demands, costs or expenses reasonably incurred in
investigating, preparing for or defending against any Actions or potential
Actions, provided, however, that such Indemnifiable Losses shall not include
Taxes or other amounts indemnified against under the Spin-off Tax
Indemnification Agreements and the Tax Sharing Agreement.
"Indemnifying Party" shall have the meaning as defined in
Section 3.04.
"Indemnitee" shall have the meaning as defined in
Section 3.04.
"Information Statement" shall mean the Information Statement
sent to all the Record Holders in connection with the Distributions, including
any amendment or supplement thereto.
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6
"Insurance Agreement" shall mean the Insurance Agreement among
Corning, CCL and Covance, in substantially the form attached hereto as Exhibit
D.
"Intellectual Property Agreement" shall mean the Intellectual
Property and Licensing Agreement among Corning, CCL and Covance, in a form to be
agreed upon by the parties to this Agreement.
"Liabilities" shall mean any and all debts, liabilities and
obligations, absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including, without limitation, those debts, liabilities and obligations arising
under any law, rule, regulation, Action, threatened Action, order or consent
decree of any court, any governmental or other regulatory or administrative
agency or commission or any award of any arbitration tribunal, and those arising
under any contract, guarantee, commitment or undertaking.
"person" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government, or any
agency or political subdivision thereof.
"Policies" shall mean insurance policies and insurance
contracts of any kind (other than life and benefits policies or contracts),
including, without limitation, primary, excess and umbrella policies,
comprehensive general liability policies, fiduciary liability, automobile,
aircraft, property and casualty, workers' compensation and employee dishonesty
insurance policies, bonds and self-insurance and captive insurance company
arrangements, together with the rights, benefits and privileges thereunder.
"Record Holders" shall mean the CCL Record Holders and the
Corning Record Holders, collectively.
"Records" shall have the meaning as defined in Section 4.01.
"Registration Statements" shall mean the registration
statements on Form 10 in respect of the CCL Common Stock and the Covance Common
Stock required to be filed with the Commission pursuant to Rule 12(b) under the
Exchange Act.
"Rules" shall have the meaning as defined in Section 5.02.
"Services Agreement" shall mean the Services Agreement among
Corning, CCL and Covance, in substantially the form attached hereto as Exhibit
E.
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7
"Spin-off Tax Indemnification Agreement" shall mean each of
the Spin-off Tax Indemnification Agreements between or among two or more of
Corning, CCL and Covance, in substantially the form attached hereto as Exhibit
F.
"Subsidiary" shall mean any corporation, partnership or other
entity of which another entity (i) will own, immediately following the Effective
Time, directly or indirectly, ownership interests sufficient to elect a majority
of the board of directors (or persons performing similar functions)
(irrespective of whether at the time any other class or classes of ownership
interests of such corporation, partnership or other entity shall or might have
such voting power upon the occurrence of any contingency) or (ii) will be,
immediately following the Effective Time, a general partner or an entity
performing similar functions; provided that Bio Imaging Technologies Inc. will
be deemed to be a Subsidiary of Covance and, National Imaging Associates will be
deemed to be a Subsidiary of CCL, in each case, for all purposes of this
Agreement.
"Tax" shall mean all federal, state, local and foreign gross
or net income, gross receipts, withholding, franchise, transfer, estimated or
other tax or similar charges and assessments, including all interest, penalties
and additions imposed with respect to such amounts.
"Tax Sharing Agreement" shall mean the Tax Sharing Agreement
among Corning, CCL and Covance, in substantially the form attached hereto as
Exhibit G.
"Third Party Claim" shall have the meaning as defined in
Section 3.05.
SECTION 1.02. References; Interpretation. References to an
"Exhibit" or to a "Schedule" are, unless otherwise specified, to one of the
Exhibits or Schedules attached to this Agreement, and references to a "Section"
are, unless otherwise specified, to one of the Sections of this Agreement.
ARTICLE II
DISTRIBUTIONS AND OTHER TRANSACTIONS; CERTAIN COVENANTS
SECTION 2.01. Conditions Precedent. Neither the Distributions
nor the related transactions set forth in this Agreement or in the Ancillary
Agreements shall become effective unless the following conditions have been
satisfied or waived by Corning on or before the Effective Time:
(a) The Registration Statements shall have been filed by
CCL and Covance, as applicable, with, and declared
effective by, the Commission and the Information
Statement shall have been mailed in a timely manner
to all holders of Corning Common Shares prior to the
Distribution Date.
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8
(b) Corning shall have received a favorable ruling from
the Internal Revenue Service to the effect that the
Distributions qualify as tax-free distributions under
Section 355 of the Code.
(c) Corning shall have received a favorable response from
the Commission to the "no-action request" letter
describing the Distributions filed by Corning with
the Commission.
(d) The New York Stock Exchange shall have approved the
CCL Common Stock and Covance Common Stock for listing
on its exchange, subject to official notice of
distribution.
(e) The financing arrangements among and between the
parties contemplated in the Information Statement
will have been consummated. CCL and Covance each
shall pay all of the expenses associated with their
respective financings.
SECTION 2.02. The Distributions and Other Transactions. (a)
Certain Transactions. Prior to the Distribution Date:
(i) Covance CAPS shall be merged with and into Covance
pursuant to the Certificate of Ownership and Merger between Covance
CAPS and Covance and the Certificate of Merger between Covance CAPS and
Covance, in substantially the forms attached hereto as Exhibit C, and
in accordance with all applicable filing requirements under the
Delaware General Corporation Law and the New Jersey Business
Corporation Act. As a result of the merger, Covance CAPS will cease to
exist and Covance will acquire the assets of Covance CAPS and assume
(or take the assets of Covance CAPS subject to) the liabilities of
Covance CAPS.
(ii) CLSI will contribute to CCL all of CLSI's assets other
than the stock of CCL and CLSI's rights under certain agreements that
CLSI agrees to transfer pursuant to Section 2.02(i) in exchange for
200,000 additional shares of CCL Common Stock, 1,000 shares of voting
preferred stock of CCL and $250,000 in cash from CCL pursuant to (A)
the Contribution Agreement between CLSI and CCL, (B) the Liabilities
Undertaking between CLSI and CCL (C) the Instrument of Assignment and
Assumption between CLSI and CCL and (D) the Bill of Sale and Assignment
between CLSI and CCL, each in substantially the forms attached hereto
as Exhibit A, and in accordance with all applicable filing requirements
under the Delaware General Corporation Law. As a result of such
transactions, CCL will acquire the assets of CLSI and assume (or take
the assets of CLSI subject to) the liabilities of CLSI other than (A)
such obligations and liabilities for which either Corning or Covance is
responsible under this Agreement or the Ancillary Agreements and (B)
any obligations that CCL(MI) assumes pursuant to
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9
the following sentence. CCL (MI) shall assume (A) the first $2 million
in principal amount of obligations of CLSI owed by CLSI to Corning
under the CLSI Revolver and (B) the first $2 million of CLSI's
obligations under Section 6.06(a) of the Agreement and Plan of Merger
among Corning, Opera Acquisition Corp. and CLSI (then known as Damon
Corporation). Following such contributions and assumptions, CLSI shall
adopt a plan of liquidation and dissolve pursuant to the Plan of
Liquidation and Dissolution of CLSI, substantially in the form attached
hereto as Exhibit B, and in accordance with all applicable filing
requirements under the Delaware General Corporation Law. As a result of
such liquidation and dissolution, CLSI will distribute to Corning its
remaining assets, which will consist largely of the capital stock of
CCL, and CLSI will cease to exist.
(iii) No earlier than one day following the effective date for
the transactions described in Section 2.02(a)(ii), CCL will transfer to
certain of its subsidiaries the following shares of common stock that
CCL will have received from CLSI pursuant to the transactions described
in Section 2.02(a)(ii): (A) the shares of common stock of Corning
Nichols Institute, (B) the shares of common stock of Corning Clinical
Laboratories Inc. (Mass.) and (C) the shares of common stock of Corning
Clinical Laboratories Inc. (MD).
(iv) No earlier than three (3) days following the later of the
effective dates for the transactions described in Sections 2.02(a)(i),
(ii) and (iii), CCL will transfer its Covance Common Stock, its entire
interest in Pharmaceutical Laboratory Services, Inc. and its entire
interest in Covance Biotechnology Services Inc. to Covance by
delivering to Covance stock certificates representing each of CCL's
share interests in such companies, accompanied by stock powers duly
endorsed by CCL and with all required stock transfer tax stamps
affixed. In connection therewith CCL shall deliver to Covance for
cancellation the share certificate currently held by it representing
Covance Common Stock and Covance shall issue to CCL new certificates
representing the total number of newly-issued shares of Covance Common
Stock sufficient in number to allow for an orderly and pro rata
distribution of such Covance Common Stock to the CCL common
shareholders.
(v) No earlier than three (3) days following the later of the
effective dates for the transactions described in Sections 2.02(a)(i),
(ii) and (iii), Corning will transfer its CCL Common Stock and its
entire interest in MRL Nucor, Inc. to CCL by delivering to CCL stock
certificates representing each of Corning's share interests in CCL and
MRL Nucor, Inc., accompanied by stock powers duly endorsed by Corning
and with all required stock transfer tax stamps affixed. In connection
therewith Corning shall deliver to CCL for cancellation the share
certificate then held by it representing CCL Common Stock and shall
receive new certificates representing the total number of newly-issued
shares of CCL Common Stock sufficient in number to
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10
allow for an orderly and pro rata distribution of such CCL Common Stock
to the Corning common shareholders.
(b) Ancillary Agreements. On or prior to the Distribution
Date, each of Corning, CCL and Covance shall have executed and
delivered to each of the others, each of the Ancillary Agreements.
(c) Charters; By-laws. On or prior to the Distribution Date:
(i) All necessary actions shall have been taken to provide for
the amendments of the Articles of Incorporation and By-laws for CCL,
such amendments to be in substantially the forms attached hereto as
Exhibit H.
(ii) All necessary actions shall have been taken to provide
for the amendments of the Articles of Incorporation and By-laws for
Covance, such amendments to be in substantially the forms attached
hereto as Exhibit I.
(d) Benefit Plans. On or prior to the Distribution Date, any
shareholder approvals deemed necessary for employee benefit plans shall
have been obtained.
(e) Directors. On or prior to the Distribution Date, Corning
as the sole shareholder of CCL, and CCL, as the sole shareholder of Covance,
shall have taken all necessary action by written consent on or prior to the
Distribution Date to elect to the Board of Directors of CCL and the Board of
Directors of Covance the individuals identified in the Information Statement as
directors of CCL and Covance, respectively.
(f) Consents. The parties hereto shall use their commercially
reasonable efforts to obtain any required consents to assignment of
agreements hereunder, if applicable.
(g) Delivery of Shares to Agent. Corning shall deliver to
Harris Trust and Savings Bank (the "Agent") the share certificates representing
the CCL Common Stock and CCL shall deliver to the Agent the share certificates
representing the Covance Common Stock and Corning and CCL shall instruct the
Agent to distribute, on or as soon as practicable following the Distribution
Date, such common stock to the Corning Record Holders and the CCL Record
Holders, as the case may be, as further contemplated by the Information
Statement and herein. CCL and Covance shall provide all share certificates that
the Agent shall require in order to effect the Distributions.
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11
(h) Sublease. Corning shall have entered into a sublease
agreement with National Imaging Associates, Inc. with respect to the
first floor of 10 Mountainview Road, Upper Saddle River, New Jersey.
(i) Transfer of Agreements. (i) CLSI hereby agrees that on or
prior to the date on which it is dissolved, subject to the limitations set forth
in this Section 2.02(i), it will assign, transfer and convey to Covance all of
CLSI's rights and obligations under (a) the Capital Contribution Agreement and
Shareholder Agreement dated February 22, 1995 among Corning BioPro Inc., CLSI,
Richard Hawkins, Dr. John Scarlett, Robert F. Amundsen and Dr. Nona Niland, (b)
any and all existing stock option agreements between CLSI, Corning Bio Inc. and
individual employees of Corning Bio Inc., (c) the Registration Agreement dated
as of February 22, 1995 by and between Corning BioPro Inc. and CLSI, (d) the
Joint Escrow Instructions dated February 22, 1995 by and between Corning BioPro
Inc., CLSI, Robert F. Amundsen and the Escrow Agent named therein, and (e) the
Joint Escrow Instructions dated February 22, 1995 by and between Corning BioPro
Inc., CLSI, Dr. John Scarlett and the Escrow Agent named therein. CLSI hereby
further agrees that on or prior to the date on which it is dissolved, subject to
the limitations set forth in this Section 2.02(i), it will assign, transfer and
convey to Corning all of its rights and obligations under the lease agreement
dated October 5, 1995 between 2154 Trading Corporation and CLSI with respect to
10 Mountainview Road, Upper Saddle River, New Jersey and a sublease to National
Imaging Associates with respect to a portion of such premises. CCL hereby agrees
that on or prior to the Distribution Date or as soon as reasonably practicable
thereafter, subject to the limitations set forth in this Section 2.02(i), it
will assign, transfer and convey to Corning all of CCL's rights and obligations
under the Asset Transfer Agreement dated as of May 2, 1994, as amended, among
CCL, International Technology Corporation, IT Corporation and Quanterra
Incorporated and the related closing documents thereunder, including without
limitation the General Instrument of Assignment and Assumption dated June 28,
1994 between CCL and Quanterra Incorporated. Corning hereby agrees that on or
prior to the Distribution Date or as soon as reasonably practicable thereafter,
subject to the limitations set forth in this Section 2.02(i), it will assign,
transfer and convey to Covance all of Corning's rights and obligations under
that certain Registration Agreement dated as of February 22, 1995 by and between
Corning, Dr. Nona Niland, Dr. John Scarlett, Robert F. Amundsen and Richard
Hawkins.
(ii) The assignee of any agreement assigned, in whole or in
part, hereunder (an "Assignee") shall assume and agree to pay, perform, and
fully discharge all obligations of the assignor under such agreement or such
Assignee's related portion of such obligations as determined in accordance with
the terms of the relevant agreement, where determinable on the face thereof, and
otherwise as determined in accordance with the practice of the parties prior to
the Distribution.
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12
(iii) Notwithstanding anything in this Agreement to the
contrary, this Agreement shall not constitute an agreement to assign any
agreement, in whole or in part, or any rights thereunder if the agreement to
assign or attempt to assign, without the consent of a third party, would
constitute a breach thereof or in any way adversely affect the rights of the
Assignee thereof. Until such consent is obtained, or if an attempted assignment
thereof would be ineffective or would adversely affect the rights of any party
hereto so that the Assignee would not, in fact, receive all such rights, the
parties will cooperate with each other in any arrangement designed to provide
for the Assignee the benefits of, and to permit the Assignee to assume
liabilities under, any such agreement.
(iv) Corning understands and agrees that approximately 10,968
Corning Common Shares are held to secure certain claims of CCL under that Escrow
Agreement dated as of October 9, 1994 (the "Escrow Agreement") among Corning,
The First National Bank of Boston and former shareholders of Moran Research
Labs, as amended, and will act at CCL's direction and at CCL's expense with
respect to those shares. The remaining Corning Common Shares held under the
Escrow Agreement are being held for the benefit of Corning.
(j) Other Transactions. On or prior to the Distribution Date,
each of Corning, CCL and Covance shall have consummated those other transactions
in connection with the Distributions that are contemplated by the Information
Statement and the ruling request submission by Corning to the Internal Revenue
Service dated June 17, 1996, as supplemented, and not specifically referred to
in subparagraphs (a)-(i) above.
SECTION 2.03. Treatment of Fractional Shares. As soon as
practicable after the Distribution Date, the Agent shall determine the number of
whole shares and fractional shares of CCL and Covance allocable to each Corning
Record Holder and CCL Record Holder, respectively, as of the Distribution Record
Date, to aggregate all such fractional shares and sell the whole shares obtained
thereby, in open market transactions or otherwise, in each case at then
prevailing trading prices, and to cause to be distributed to each such holder to
which a fractional share shall be allocable such holder's ratable share of the
proceeds of such sale, after making appropriate deductions of the amount
required to be withheld for federal income tax purposes and after deducting an
amount equal to all brokerage charges, commissions and transfer taxes attributed
to such sale. In determining the manner and timing of selling the aggregated
fractional shares, the Agent shall use its independent judgment and shall
neither consult with nor communicate its plans to Corning, CCL or Covance.
SECTION 2.04. Certain Intercompany Financial and Other
Arrangements. (a) Intercompany Accounts. Without limiting the terms of Section
2.05, all intercompany receivables, payables and loans (other than receivables,
payables and loans otherwise specifically provided for in any of the Ancillary
Agreements or hereunder), including, without limitation, in respect of any cash
balances, any cash balances representing deposited checks or drafts for which
only a provisional credit has been allowed or any cash held in any centralized
cash management system, between Corning, CCL, Covance or any of their respective
Subsidiaries, on the one hand, and Corning, CCL, Covance or any of their
respective Subsidiaries, on the other hand, shall, as of the Effective Time, be
settled or contributed to capital, in each case as may be agreed in writing
prior to the Effective Time by duly authorized representatives of Corning, CCL
or Covance, as applicable. Notwithstanding the foregoing, on or after the
Distribution Date, CCL shall make a payment to Corning in an amount equal to
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13
the excess, if any, of (i) the aggregate amount of cash and cash equivalents
held by CCL and its Subsidiaries on the Distribution Date over (ii) the sum of
the aggregate principal amount of Working Capital Loans and Swingline Loans
(each as defined in the credit agreement among CCL and the banks listed therein
to be entered into prior to the Distribution Date) outstanding on the
Distribution Date, plus $40,000,000 plus the net cash proceeds from the sales of
assets identified in the credit agreement received on or prior to the
Distribution Date. If the amount calculated in accordance with clause (ii) of
the preceding sentence, less $10,000,000, is greater than the amount calculated
in accordance with clause (i) then, on or after the Distribution Date, Corning
shall make a payment to CCL in an amount equal to the difference between such
calculations.
(b) Operations in Ordinary Course. Each of CCL and Covance
covenants and agrees that, except as otherwise provided in any Ancillary
Agreement, during the period from the date of this Agreement through the
Distribution Date, it will, and will cause any entity that is a Subsidiary of
such party at any time during such period to, conduct its business in a manner
substantially consistent with current and past operating practices and in the
ordinary course, including, without limitation, with respect to the payment and
administration of accounts payable and the administration of accounts
receivable, the purchase of capital assets and equipment and the management of
inventories.
SECTION 2.05. Certain Indebtedness and Capital Structure.
Corning, CCL and Covance each agree to use their respective commercially
reasonable efforts to achieve both an allocation of consolidated indebtedness of
Corning and a capital structure (including cash position) of each of CCL and
Covance so as to substantially reflect the respective capital structures after
the Distributions of CCL and Covance set forth in the Information Statement
under the headings "Capitalization of CCL" and "Capitalization of Covance".
SECTION 2.06. Further Assurances. In case at any time after
the Effective Time any further action is reasonably necessary or desirable to
carry out the purposes of this Agreement and the Ancillary Agreements, the
proper officers of each party to this Agreement shall take all such necessary
action. Without limiting the foregoing, Corning, CCL and Covance shall use their
commercially reasonable efforts to obtain all consents and approvals, to enter
into all amendatory agreements and to make all filings and applications that may
be required for the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements, including, without limitation, all
applicable governmental and regulatory filings.
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14
SECTION 2.07. No Representations or Warranties. Each of the
parties hereto understands and agrees that, except as otherwise expressly
provided, no party hereto is, in this Agreement, in any Ancillary Agreement or
in any other agreement or document contemplated by this Agreement or otherwise,
making any representation or warranty whatsoever, including, without limitation,
as to title, value or legal sufficiency.
SECTION 2.08. Guarantees. (a) Except as otherwise specified in
any Ancillary Agreement, Corning, CCL and Covance shall use their commercially
reasonable efforts to have, on or prior to the Distribution Date, or as soon as
practicable thereafter, Corning and any of its Subsidiaries removed as guarantor
of or obligor for any CCL Liability or Covance Liability, including, without
limitation, in respect of those guarantees set forth on Schedule 2.08(a), and to
the extent any such guarantee is not removed, CCL or Covance, as the case may
be, will indemnify Corning for all Indemnifiable Losses related to or arising
from such guarantee, in accordance with the procedures set forth in Section 3.05
and will pay Corning a fee reflecting Corning's continuing role as guarantor.
(b) Except as otherwise specified in any Ancillary Agreement,
Corning, CCL and Covance shall use their commercially reasonable efforts to
have, on or prior to the Distribution Date, or as soon as practicable
thereafter, CCL and any of its Subsidiaries removed as guarantor of or obligor
for any Corning Liability or Covance Liability, including, without limitation,
in respect of those guarantees set forth on Schedule 2.08(b), and to the extent
any such guarantee is not removed, Corning or Covance, as the case may be, will
indemnify CCL for all Indemnifiable Losses related to or arising from such
guarantee, in accordance with the procedures set forth in Section 3.05 and will
pay CCL a fee reflecting CCL's continuing role as guarantor.
(c) Except as otherwise specified in any Ancillary Agreement,
Corning, CCL and Covance shall use their commercially reasonable efforts to
have, on or prior to the Distribution Date, or as soon as practicable
thereafter, Covance and any of its Subsidiaries removed as guarantor of or
obligor for any Corning Liability or CCL Liability, including, without
limitation, in respect of those guarantees set forth on Schedule 2.08(c), and to
the extent any such guarantee is not removed, Corning or CCL, as the case may
be, will indemnify Covance for all Indemnifiable Losses related to or arising
from such guarantee, in accordance with the procedures set forth in Section 3.05
and will pay Covance a fee reflecting Covance's continuing role as guarantor.
<PAGE>
15
SECTION 2.09. Certain Transactions. (a) On or prior to the
Distribution Date, and in accordance to Section 2.02(b), Corning, CCL and
Covance shall enter into (i) the Tax Sharing Agreement which shall govern, among
other things, their respective rights and obligations with respect to Taxes of
CCL and Covance and each of their respective Subsidiaries for all periods
through the Distribution Date and certain other tax-related matters; and (ii)
the Spin-off Tax Indemnification Agreements which shall, among other things,
restrict CCL and Covance from engaging in certain activities that might
jeopardize the continuing tax-free treatment of the Distributions.
(b) Following the Distribution Date, Corning, CCL and Covance
shall each comply with and otherwise not take any action inconsistent with each
representation and statement made, or to be made, to the Commission in
connection with the "no-action request" letter describing the Distributions
filed by Corning with the Commission.
SECTION 2.10. Insurance. Except as contemplated by the
Insurance Agreement, any and all coverage of CCL, Covance and their respective
Subsidiaries under Company Policies has terminated or will terminate (and will
not be replaced by Corning) no later than the Effective Time.
ARTICLE III
INDEMNIFICATION
SECTION 3.01. Indemnification by Corning. (a) Except as
otherwise specifically set forth in any provision of this Agreement or of any
Ancillary Agreement, Corning shall indemnify and hold harmless the CCL
Indemnitees and the Covance Indemnitees from and against any and all
Indemnifiable Losses of the CCL Indemnitees and the Covance Indemnitees,
respectively, arising out of, by reason of or otherwise in connection with (i)
the Corning Liabilities or (ii) the breach by Corning of any provision of this
Agreement or any Ancillary Agreement.
(b) Corning shall indemnify and hold harmless CCL and its
Subsidiaries from and against any and all monetary payments by or on behalf of
CCL or any of its Subsidiaries (other than criminal fines or penalties imposed
upon former or current employees of CCL or its subsidiaries) to the United
States government or one of the States of the United States or any of their
respective departments, branches or agencies arising out of any investigation or
claim by or on behalf of the United States government or one of the States of
the United States or any of their respective departments, branches or agencies,
whether criminal, civil or administrative in nature which investigation or claim
has been settled prior to the Distribution Date or is pending as of the
Distribution Date pursuant to service of subpoena or other notice of such
investigation to Corning, CCL or any of its Subsidiaries, as well as any qui tam
proceeding for which a complaint was filed prior to the Distribution Date
whether or not Corning, CCL or any Subsidiary of CCL has been served with such
complaint or otherwise been notified of the pendency of such action, but only to
the extent such investigations or claims arise out of or are related to alleged
violations of (i) the federal civil False Claims Act (31 USC ss. 3729, et seq.)
and its criminal counterpart (18 USC ss. 287), (ii) Medicare and Medicaid fraud
(42 USC ss. 1320a-7(b)(a)(1)), (iii) the Civil Monetary Penalties Law (42 USC
ss.ss. 1320a-7a and 1320a-7(b)(b)), (iv) mail fraud and wire fraud statutes (18
USC ss.ss. 1341 and 1343), (v) false statements (18 USC ss. 1301), (vi)
conspiracy (18 USC ss. 371), (vii) money laundering (18 USC ss. 1956, et seq.),
(viii) RICO (18 USC ss. 1961), (ix) Title II of the Health Insurance Portability
and Accountability Act of 1996, (x) Title XVIII of the Social Security
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16
Act (42 USC ss.ss. 1395-1395ccc) (the Medicare statute), (xi) Title XIX of the
Social Security Act (42 USC ss.ss. 1396, et seq.) (the Medicaid statute), (xii)
the Programs Fraud Civil Remedies Act (31 USC ss.ss. 3801, et seq.); or (xiii)
the federal Anti-Kickback Act (42 USC ss.ss. 52, et seq.) arising out of the
billing or alleged overbilling by CCL or any past or present subsidiary of CLSI
(or any of their predecessors) of any federal program or agency, or any
federally supported state health care program or agency, or any beneficiary of
any of them, for services provided to any such beneficiary thereof by CCL, any
Subsidiary of CCL or any past or present subsidiary of CLSI (or any of their
predecessors).
(c) In the event that CCL or its Subsidiaries make monetary
payments in excess of forty-two million dollars ($42,000,000) within the period
beginning on the Distribution Date and ending five (5) years thereafter in
respect of claims by nongovernmental persons relating to or arising out of the
investigations or claims referred to in Section 3.01(b) and alleging
overbillings of such person or any beneficiary of such person by CCL, its
Subsidiaries or any past or present subsidiary of CLSI (or any of their
predecessors) for services provided prior to the Distribution Date to such
person or beneficiary thereof by CCL, its Subsidiaries or any past or present
subsidiary of CLSI (or any of their predecessors), then Corning shall indemnify
and hold harmless CCL and its Subsidiaries from and against fifty percent (50%)
of up to fifty million dollars ($50,000,000) in the aggregate of such monetary
payments actually paid by CCL or any Subsidiary of CCL in excess of such
forty-two million dollars ($42,000,000) in respect of such alleged overbillings.
(d) (i) Except as otherwise agreed by Corning and CCL or
unless otherwise required by a change in applicable law or regulations, a
contrary judicial decision, adverse determination by a Taxing authority, or a
contrary published ruling (in each case, subsequent to the date hereof), all
payments made by Corning to CCL, or to another party for the benefit of CCL,
pursuant to Section 3.01(b) and Section 3.01(c) shall be treated as nontaxable
capital contributions by Corning to CCL and the parties shall report the
payments consistent with such treatment for Tax purposes
(ii) Each amount indemnified against by Corning pursuant to
Section 3.01(b) and Section 3.01(c) shall be reduced by (1) the product of (x)
the amount of any Tax deduction used to reduce the Tax liability of CCL, any CCL
Subsidiary (CCL and the CCL Subsidiaries shall be referred to in this Section
3.01(d) individually as a "CCL Company" and collectively as the "CCL Companies")
or any combined or consolidated group which has any of the CCL Companies as a
member and which does not have Corning as a member (referred to in this Section
3.01(d) as the "CCL Group") to the extent such Tax deduction is attributable to
the portion of the payment, loss, expense or other item indemnified against by
Corning and (y) the maximum marginal statutory rate (exclusive of any surtax
rate or other marginal rate imposed in lieu of a surtax to eliminate the
benefits of a lower marginal rate) at which the Tax to which such deduction
relates is imposed for the taxable year in which the CCL Company or the CCL
Group uses the Tax deduction to reduce its Tax liability, and (2) the amount of
any other Tax
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17
credit, benefit or other similar item (a "Tax Benefit Item") used to reduce the
Tax liability of any CCL Company or the CCL Group to the extent the Tax Benefit
Item is attributable to the portion of the payment, loss, expense or other item
indemnified against by Corning.
(iii) For purposes of determining whether any Tax deduction or
Tax Benefit Item of any CCL Company attributable to the portion of a payment,
loss, expense or other item indemnified against by Corning (a "Corning
Deduction") is used to reduce the Tax liability of any CCL Company or the CCL
Group, it shall be assumed that all losses and deductions of such CCL Company or
the CCL Group (including carryforwards and carrybacks (unless otherwise excluded
below) of net operating losses or other items) other than Corning Deductions are
applied in reduction of such CCL Company's or the CCL Group's Tax liability
before any Corning Deductions are so applied, except that Tax deductions and Tax
Benefit Items attributable to the following items shall be deemed to be applied
to reduce such CCL Company's or the CCL Group's Tax liability after using (in
determining such Tax liability) all available Corning Deductions: (i) Special
Events (as defined below), (ii) claims against which Corning has partially
indemnified CCL pursuant to Section 3.01(c) (other than payments applied toward
the $42,000,000 threshold specified in Section 3.01(c)) and (iii) carrybacks of
losses or other Tax items from Tax years subsequent to the Tax year in which the
amount indemnified against under Sections 3.01(b) or (3.01(c) is paid by
Corning. Special Event shall mean a material event that is unusual in nature or
occurs infrequently (but not both) and is unrelated to normal operations
(including, without limitation, entering or exiting businesses, sales or other
dispositions, litigation or regulatory settlements, restructuring reserves), but
does not include operating items such as start-up expenses and receivable
reserves. For this purpose, material means an event or series of related events
involving amounts exceeding 5 percent of CCL's pre-tax income (determined on a
consolidated basis).
(iv) Corning shall make estimated payments to CCL, or another
party for the benefit of CCL, pursuant to Section 3.01(b) and Section 3.01(c)
(the "Estimated Payments") which shall be calculated in good faith by CCL and
Corning by taking into account the adjustments required by Section 3.02(d)(ii)
and Section 3.01(d)(iii) to the extent practical (based on information available
to the parties at the time the Estimated Payment is made as to the proper tax
treatment of the item, CCL's projected Tax liability (including for estimated
Tax payments), or losses for the year in which the Estimated Payment is made
(without taking into account the use of Corning Deductions in future years),
prior Tax return positions and other factors the parties deem relevant).
Estimated Payments shall be paid by Corning (1) if paid to a CCL Company, as
directed by CCL, within 15 business days after written notice from CCL to
Corning indicating that the underlying obligation indemnified against by Corning
has been paid by a CCL Company (which notice shall include any documentation
reasonably requested by Corning establishing the amount and Tax treatment of
such payment) or, (2) if paid directly by Corning for the benefit of a CCL
Company, within 15 business days after written notice from CCL that the
obligation has been settled or is otherwise due (which notice shall include to
whom such payment should be made, the amount of the payment, an executed copy of
the
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18
settlement or other agreement and any other documentation reasonably requested
by Corning establishing the amount and Tax treatment of such payment); provided,
however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent Corning shall have been
actually prejudiced as a result of such failure.
(v) Within 60 business days following the close of the Tax
year in which an Estimated Payment is made and each tax year thereafter until
the Corning Deductions (as adjusted under Sections 3.01(d)(ii) and 3.01(d)(iii))
are fully used by the CCL Companies to reduce the Tax liability of the CCL Group
or any CCL Member, CCL shall compute the amount by which any reduction in the
Tax liability of a CCL Company or the CCL Group for such Tax year attributable
to a Corning Deduction decreases the after-Tax indemnity payable by Corning
under Sections 3.02(d)(ii) and (iii). CCL shall submit such computation in
writing to Corning (together with such other documentation as is reasonably
necessary to demonstrate how the reduction was computed) for review and approval
by Corning, which approval shall not be unreasonably withheld, within 20
business days of the receipt by Corning of such computation prepared by CCL. If
Corning does not approve of such computation and the parties cannot otherwise
agree on such computation, then the disagreement shall be resolved under Section
3.01(d)(ix). Promptly following agreement by the parties as to the computation
required under this paragraph, either CCL shall pay to Corning an adjusting
payment if the amount of such after-Tax indemnity payable by Corning under
Sections 3.01(d)(ii) and 3.01(d)(iii) is less than the aggregate amount of
Estimated Payments made to CCL for such Tax year and prior years (net of any
prior adjusting payments) or Corning shall pay to CCL an adjusting payment if
the amount of such after-Tax indemnity payable by Corning under Section
3.02(d)(ii) and (iii) exceeds the aggregate amount of Estimated Payments made to
CCL for such Tax year and prior years (net of any prior adjusting payments).
(vi) CCL shall consult with Corning and CCL and Corning shall
determine the Tax treatment by any CCL Company or the CCL Group of any payment,
loss, expense or other amount indemnified against by Corning under Section
3.01(b) or Section 3.01(c) provided that neither the CCL Group nor any CCL
Company nor Corning shall be required to take a position on any Tax return for
which there is no reasonable basis. If requested by CCL, Corning at its expense
will provide CCL with an opinion of independent tax counsel selected by Corning
(provided such counsel is not reasonably objected to by CCL) to the effect that
there exists a reasonable basis for the treatment proposed by Corning as part of
such determination. The parties shall report the payments consistent with the
treatment as determined by them for Tax purposes.
(vii) If any payments are made by Corning pursuant to Section
3.01(b) or Section 3.01(c), and calculated and paid pursuant to this Section
3.01(d), and the amount of the after-Tax indemnity payable by Corning pursuant
to such sections would have been different if the computation of such
indemnification payment were made at a later time (because of final settlements
or final dispositions of audit adjustments, administrative or judicial
proceedings,
<PAGE>
19
amended returns, utilization or disallowance of Corning Deductions in subsequent
Tax periods or other reasons), then the amount of such indemnification shall be
recomputed by CCL and Corning at such later time by taking into account such
subsequent events and the parties shall make an adjusting payment between each
other as is appropriate because of such recomputation within 15 business days of
their agreement as to the amount of such adjusting payment.
(viii) (A) CCL shall notify Corning promptly (and in any event
within 15 business days) after receipt by any CCL Company of written notice of
any demand or claim by a Taxing authority relating to the Tax treatment of a
payment, loss, expense or other item indemnified against by Corning under
Section 3.01(b) or Section 3.01(c). Such notice shall contain factual
information (to the extent known to any CCL Company) describing the asserted tax
treatment in reasonable detail and shall include copies of any notice or other
document received from any Taxing authority. If the Taxing authority proposes in
writing an adjustment to a Corning Deduction, which adjustment if sustained
would reduce the amount of a Corning Deduction or otherwise increase the amount
indemnified against by Corning, CCL shall notify Corning promptly of such
adjustment and of all action taken or proposed to be taken by the Taxing
authority; provided, however, that failure to give such notification shall not
affect the indemnification provided hereunder except to the extent Corning shall
have been actually prejudiced as a result of such failure.
(B) If Corning requests within 30 days (or sooner if
the nature of the proposed adjustment so requires) after CCL's notice that the
proposed adjustment to a Corning Deduction be contested, CCL shall contest the
proposed adjustment in good faith upon receipt of an opinion of independent tax
counsel selected by Corning (provided such counsel is not reasonably objected to
by CCL) to the effect that there exists a reasonable basis that CCL will prevail
in such contest; provided, that (i) CCL shall be required to contest any
proposed adjustment beyond the level of administrative proceedings only if the j
aggregate amount of the proposed adjustment (exclusive of penalties, interest
and additions to tax) exceeds $250,000, (ii) CCL shall determine the court of
competent jurisdiction in which to contest the proposed adjustment either before
or after payment of the Tax asserted to be payable as a result thereof, (iii)
Corning shall control with counsel selected by Corning (provided such counsel is
not reasonably objected to by CCL) the prosecution of any contested adjustment
or asserted deficiency in respect of a Corning Deduction arising from an amount
indemnified against by Corning under Section 3.01(b), and CCL shall control with
counsel selected by CCL (provided such counsel is not reasonably objected to by
Corning) the prosecution of any contested adjustment or asserted deficiency in
respect of a Corning Deduction arising from an amount indemnified against by
Corning under Section 3.01(c), (iv) the controlling party shall keep the other
party informed as to the progress of any contest or litigation and, if requested
by such other party, shall consult with such other party's tax counsel, and (v)
the controlling party shall not settle, compromise or otherwise concede the
adjustment or deficiency in respect of a Corning Deduction that the controlling
party is contesting without the consent of the other party, which consent shall
not be unreasonably withheld, provided, further, that any adverse
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20
court determination will be required to be appealed only upon receipt of an
additional opinion from independent tax counsel that there exists a reasonable
basis that the appellate court will reverse such adverse determination. CCL
shall not be required to take any action pursuant to this Section 3.01(viii)(B)
in respect of a contesting Corning Deduction relating to an amount indemnified
against by Corning under Section 3.01(b) unless Corning shall have agreed to pay
(with no net after-Tax cost to CCL) all penalties, interest and additions to tax
that CCL may incur in connection with contesting a proposed adjustment to such
Corning Deduction. The controlling party shall pay all out-of-pocket expenses
and other costs relating to a contest of an adjustment to a Corning Deduction
("Expenses"), including but not limited to fees for attorneys, accountants,
expert witnesses or other consultants retained by (or selected or controlled by)
the controlling party incurred at any time during which the controlling party is
controlling and directing the proceeding in respect of which such fees are
incurred; provided, however, that Corning shall pay CCL, in respect of a
proceeding controlled by CCL that relates to or involves a proposed adjustment
or asserted deficiency in respect of a Corning Deduction attributable to an
amount indemnified against by Corning under Section 3.01(c), that proportion of
the Expenses relating to the proceeding and involving such deduction as is equal
to the ratio of (i) the amount of the adjustment or deficiency that relates to
such Corning Deduction at issue in the proceeding and (ii) the total adjustments
at issue in the proceeding that relate to claims by nongovernmental persons
described in Section 3.01(c).
(C) If asserted liabilities unrelated to the
matters contemplated herein become grouped with contests arising hereunder, the
parties shall use their respective best efforts to cause the contest arising
hereunder to be the subject of a separate proceeding. If such severance is not
possible, Corning shall control only the prosecution of any contested adjustment
or asserted deficiency in respect of a Corning Deduction arising from an amount
indemnified against by Corning under Section 3.01(b), and CCL shall have sole
discretion to determine the court of competent jurisdiction in which to contest
the proposed adjustment either before or after payment of the tax asserted to be
payable, provided that CCL shall not settle, compromise or otherwise concede any
such contested adjustment or asserted deficiency without the consent of Corning,
which consent shall not be unreasonably withheld. If CCL pays a disputed amount
of Taxes resulting from a disallowed Corning Deduction arising from an amount
indemnified against by Corning under Section 3.01(b) or Section 3.01(c), and
brings suit for refund, Corning shall advance the disputed amount of Taxes (but
only to the extent of the portion of such disputed Taxes as is attributable to
the disallowance of such Corning Deduction) to CCL within 15 business days of
such payment by CCL. If CCL subsequently receives a refund or credit, of all or
a part of the amount of disputed Taxes advanced by Corning, CCL shall promptly
pay (and in any event within 15 business days) to Corning an amount equal to the
portion of such refund or credit attributable to a Corning Deduction together
with any interest received (including by offset) by CCL from the Taxing
authority with respect to such portion. With respect to matters arising
hereunder controlled by Corning, and where deemed necessary by Corning, CCL
shall itself, and shall compel any
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21
CCL Subsidiary to, authorize by appropriate powers of attorney such persons as
Corning shall designate to represent CCL, or such CCL Subsidiary, with respect
to such matters.
(ix) If Corning and CCL are unable to agree on the proper
calculation or treatment of a payment or other obligation, a Tax deduction or
Tax Benefit Item or any other item described in this Section 3.01(d), then such
disputed item or items shall be resolved by a nationally recognized accounting
or law firm chosen and mutually acceptable to both parties. Such accounting or
law firm shall resolve the dispute within 30 days of having the item or items
referred to it and such resolution shall be binding on the parties. The costs,
fees and expenses of the accounting or law firm shall be borne equally by
Corning and CCL. In the event the parties are not able to agree on an accounting
or law firm, each party shall select its own nationally recognized law firm (and
bear the costs, fees and expenses thereof) and such law firms shall select a
nationally recognized accounting or law firm which accounting or law firm shall
be deemed to be mutually acceptable to both parties for the purpose of applying
this provision. Nothing in this Section 3.01(d) shall require either party to
take any position on a Tax return or for Tax purposes for which there is no
reasonable basis.
(x) All payments under Sections 3.01(b), 3.01(c) and 3.01(d)
shall be made without gross-up for Taxes, except if (A) the Tax liability of
Corning or a consolidated or combined group which has Corning as a member and
which does not have CCL as a member (the "Corning Group") is actually reduced by
a Tax deduction attributable to the payment by Corning of an amount indemnified
against by Corning under Sections 3.01(b) or 3.01(c) in any tax year that ends
after the Distribution Date because such payment is properly treated as an
deduction against ordinary income for Corning or the Corning Group in computing
its Taxable income for such year (a "CCL Payment Deduction") and (B) the Tax
Liability of any CCL Company or the CCL Group for such year is actually
increased by such payment because such payment is properly treated as an item of
ordinary income for any CCL Company or the CCL Group, then Corning shall pay to
CCL an amount equal to the lesser of the amount of such Corning Tax reduction
and the amount of such CCL Tax increase, within 15 business days after the
parties agree on the amount of the Corning Tax reduction and CCL Tax increase,
provided, however, any payment by Corning to CCL shall be net of Taxes imposed
on Corning or the Corning Group in respect of amounts paid by CCL to Corning
under Section 3.01(d). For purposes of computing a Corning Tax increase, it
shall be assumed that all losses and deductions other than the CCL Payment
Deduction are applied to reduce the Tax Liability of Corning or the Corning
Group before the CCL Payment Deduction is so applied.
(e) Notwithstanding anything to the contrary in this
agreement, Corning shall not indemnify, defend or hold harmless CCL or any
Subsidiary of CCL against (x) costs and expenses relating to the investigations
or claims referred to in Sections 3.01(b) and (c) (including, without
limitation, fees and expenses of attorneys, consultants and other agents of CCL
or any Subsidiary of CCL), or (y) losses of revenues or profits that may arise
as a consequence of the claims or investigations referred to in Sections 3.01(b)
or 3.01(c) or the
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22
settlements entered into or judgments rendered as a result thereof or as a
consequence of any exclusion from participation in any federal or state health
care program, or (z) any other consequential or incidental damages that may be
incurred by CCL or any Subsidiary of CCL, in each case which relates to the
billing of any person or any beneficiary of such person by CCL, any Subsidiary
of CCL or any past or present subsidiary of CLSI (or any of their predecessors)
for services provided to any such person or beneficiary thereof by CCL, any
Subsidiary of CCL or any past or present subsidiary of CLSI (or any of their
predecessors).
(f) All indemnification obligations of Corning pursuant to
this Section 3.01 may be made or assumed by an Affiliate of Corning to the
extent deemed necessary or desirable by Corning in its sole discretion;
provided, however, that Corning shall remain liable for such obligations.
SECTION 3.02. Indemnification by CCL. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, CCL shall indemnify and hold harmless the Corning Indemnitees and the
Covance Indemnitees from and against any and all Indemnifiable Losses of the
Corning Indemnitees and the Covance Indemnitees, respectively, arising out of,
by reason of or otherwise in connection with (i) the CCL Liabilities or (ii) the
breach by CCL of any provision of this Agreement or any Ancillary Agreement;
provided, however, that CCL is under no obligation to indemnify or hold harmless
Corning from and against any Indemnifiable Losses arising out of, or by reason
of or otherwise in connection with any and all monetary payments by Corning in
respect of (i) the investigations or claims referred to in Section 3.01(b) or
(ii) claims referred to in Section 3.01(c) as to which no CCL Indemnitee is a
party.
SECTION 3.03. Indemnification by Covance. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, Covance shall indemnify and hold harmless the Corning Indemnitees and
the CCL Indemnitees from and against any and all Indemnifiable Losses of the
Corning Indemnities and the CCL Indemnitees, respectively, arising out of, by
reason of or otherwise in connection with (i) the Covance Liabilities or (ii)
the breach by Covance of any provision of this Agreement or any Ancillary
Agreement.
SECTION 3.04. Adjustments for Indemnification Obligations. If
the amount that any party (an "Indemnifying Party") is or may be required to pay
to any other person (an "Indemnitee") pursuant to Section 3.01, Section 3.02 or
Section 3.03, as applicable, shall, at any time subsequent to the payment
required by this Agreement, be reduced by insurance or other recovery,
settlement or otherwise, the amount of such reduction, less any expenses
incurred in connection therewith, shall promptly be repaid by the Indemnitee to
the Indemnifying Party, up to the aggregate amount of any payments received from
such Indemnifying Party pursuant to this Agreement in respect of such
Indemnifiable Loss.
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23
SECTION 3.05. Procedures for Indemnification - Third Party
Claims. If a claim or demand is made against an Indemnitee by any person who is
not a party to this Agreement (a "Third Party Claim") as to which such
Indemnitee is entitled to indemnification pursuant to this Agreement, such
Indemnitee shall notify the Indemnifying Party in writing, and in reasonable
detail, of the Third Party Claim promptly (and in any event within 15 business
days) after receipt by such Indemnitee of written notice of the Third Party
Claim; provided, however, that failure to give such notification shall not
affect the indemnification provided hereunder except to the extent the
Indemnifying Party shall have been actually prejudiced as a result of such
failure (except that the Indemnifying Party shall not be liable for any expenses
incurred during the period in which the Indemnitee failed to give such notice).
If a Third Party Claim is made against an Indemnitee, the
Indemnifying Party shall be entitled to participate in the defense thereof and,
in the case of an Indemnifying Party's obligation to indemnify the Indemnitee
pursuant to Section 3.01(a), Section 3.01(b), Section 3.02 or Section 3.03, if
the Indemnifying Party so chooses and acknowledges in writing its obligation to
indemnify the Indemnitee therefor, to assume the defense thereof with counsel
selected by the Indemnifying Party; provided, however, that such counsel is not
reasonably objected to by the Indemnitee. Should the Indemnifying Party so elect
to assume the defense of a Third Party Claim, the Indemnifying Party shall not
be liable to the Indemnitee for legal or other expenses subsequently incurred by
the Indemnitee in connection with the defense thereof. If the Indemnifying Party
assumes such defense, the Indemnitee shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Indemnifying Party, it being understood that the
Indemnifying Party shall control such defense. The Indemnifying Party shall be
liable for the fees and expenses of counsel employed by the Indemnitee for any
period during which the Indemnifying Party has failed to assume the defense
thereof. If the Indemnifying Party so elects to assume the defense of any Third
Party Claim, all of the Indemnitees shall cooperate with the Indemnifying Party
in the defense or prosecution thereof.
If the Indemnifying Party acknowledges in writing liability
for a Third Party Claim, then in no event will the Indemnitee admit any
liability with respect to, or settle, compromise or discharge, any Third Party
Claim without the Indemnifying Party's prior written consent, which consent
shall not be unreasonably withheld or delayed; provided, however, that the
Indemnitee shall have the right to settle, compromise or discharge such Third
Party Claim without the consent of the Indemnifying Party if the Indemnitee
releases the Indemnifying Party from its indemnification obligation hereunder
with respect to such Third Party Claim and such settlement, compromise or
discharge would not otherwise adversely affect the Indemnifying Party. If the
Indemnifying Party acknowledges in writing liability for a Third Party Claim,
the Indemnitee will agree to any settlement, compromise or discharge of a Third
Party Claim that the Indemnifying Party may recommend which by its terms (i)
obligates the Indemnifying Party to pay the full amount of its indemnification
obligation in connection with such Third Party Claim and (ii) releases the
Indemnitee completely in
<PAGE>
24
connection with such Third Party Claim and which would not otherwise adversely
affect the Indemnitee; and provided further that the Indemnitee may refuse to
agree to any such proposed settlement, compromise or discharge if the Indemnitee
agrees that the Indemnifying Party's indemnification obligation with respect to
such Third Party Claim shall not exceed the amount that would be required to be
paid by or on behalf of the Indemnifying Party in connection with such proposed
settlement, compromise or discharge.
Notwithstanding the foregoing, the Indemnifying Party shall
not be entitled to assume the defense of any Third Party Claim (and shall be
liable for the fees and expenses of counsel incurred by the Indemnitee in
defending such Third Party Claim) if the Third Party Claim seeks an order,
injunction or other equitable relief or relief for other than money damages
against the Indemnitee which the Indemnitee reasonably determines, after
conferring with its counsel, cannot be separated from any related claim for
money damages. If such equitable relief or other relief portion of the Third
Party Claim can be so separated from that for money damages, the Indemnifying
Party shall be entitled to assume the defense of the portion relating to money
damages.
The provisions contained in Section 3.01(d) shall control in
the situations described particularly in that section.
SECTION 3.06. Survival of Indemnities. The obligations of
Corning, CCL and Covance under this Article III shall survive the sale or other
transfer by any of them of any assets or businesses, with respect to any
Indemnifiable Loss of any Indemnitee related to such assets or businesses.
SECTION 3.07. Payments. All payments under this Agreement
shall be made without gross-up for Taxes except as provided in Section
3.01(d)(x).
ARTICLE IV
ACCESS TO INFORMATION
SECTION 4.01. Provision of Corporate Records. From and after
the Distribution Date, upon the prior written request by Corning, CCL or Covance
for specific and identified agreements, documents, books, records or files
(collectively, "Records") relating to or affecting Corning, CCL or Covance, as
applicable, Corning, CCL or Covance, as the case may be, shall arrange, as soon
as reasonably practicable following the receipt of such request, for the
provision of appropriate copies of such Records (or other originals thereof if
the party making the request has a reasonable need for such originals) then in
the possession of Corning, CCL or Covance, as the case may be, or any of their
Subsidiaries, but only to the extent such items are not already in the
possession of the requesting party; provided, however, that nothing in this
Section 4.01 shall obligate a party to retain any records except to the extent
required by
<PAGE>
25
law or by an Ancillary Agreement or to provide Records if the party reasonably
determines that such provision of Records would prevent it from claiming that
the Records were privileged or otherwise not subject to disclosure in any
Action.
SECTION 4.02. Access to Information. (a) From and after the
Distribution Date, each of Corning, CCL and Covance shall afford to the other
and its authorized accountants, counsel and other designated representatives
reasonable access during normal business hours, subject to appropriate
restrictions for classified, privileged or confidential information, to the
personnel, properties, books and records of such party and its Subsidiaries
insofar as such access is reasonably required by the other party.
(b) For a period of five years following the Distribution
Date, each of Corning, CCL and Covance shall provide to the other, promptly
following such time at which such documents shall be filed with the Commission,
all documents that shall be filed by it and by any of its respective
Subsidiaries with the Commission pursuant to the periodic and interim reporting
requirements of the Exchange Act, and the rules and regulations of the
Commission promulgated thereunder.
SECTION 4.03. Reimbursement. Except to the extent otherwise
contemplated by any Ancillary Agreement, a party providing Records or access to
information to the other party under this Article IV shall be entitled to
receive from the recipient, upon the presentation of invoices therefor, payments
for such amounts, relating to supplies, disbursement and other out-of-pocket
expenses, as may be reasonably incurred in providing such Records or access to
information.
SECTION 4.04. Confidentiality. (a) Each of (i) Corning and its
Subsidiaries, (ii) CCL and its Subsidiaries and (iii) Covance and its
Subsidiaries shall not use or permit the use of (without the prior written
consent of the other) and shall hold, and shall cause its directors, officers,
employees, agents, consultants and advisors to hold, in strict confidence, all
information concerning the other parties in its possession, its custody or under
its control (except to the extent that (x) such information has been in the
public domain through no fault of such party, (y) such information has been
later lawfully acquired from other sources by such party or (z) this Agreement,
any Ancillary Agreement or any other agreement entered into pursuant hereto
permits the use or disclosure of such information) to the extent such
information (i) was obtained prior to or relates to periods prior to the
Effective Time, (ii) relates to any Ancillary Agreement or (iii) is obtained in
the course of performing services for the other party pursuant to any Ancillary
Agreement, and each party shall not (without the prior written consent of the
other) otherwise release or disclose such information to any other person,
except such party's auditors and attorneys, unless compelled to disclose such
information by judicial or administrative process or unless such disclosure is
required by law and such party has used commercially reasonable efforts to
consult with the other affected party or parties prior to such disclosure.
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26
(b) To the extent that a party hereto is compelled by judicial
or administrative process to disclose otherwise confidential information under
circumstances in which any evidentiary privilege would be available, such party
agrees to assert such privilege in good faith prior to making such disclosure.
Each of the parties hereto agrees to consult with each relevant other party in
connection with any such judicial or administrative process, including, without
limitation, in determining whether any privilege is available, and further
agrees to allow each such relevant party and its counsel to participate in any
hearing or other proceeding (including, without limitations, any appeal of an
initial order to disclose) in respect of such disclosure and assertion of
privilege.
ARTICLE V
DISPUTE RESOLUTION
SECTION 5.01. Good Faith Negotiations. In the event of a
controversy, dispute or claim arising out of, in connection with, or in relation
to the interpretation, performance, nonperformance, validity or breach of this
Agreement or otherwise arising out of, or in any way related to this Agreement,
including, without limitation, any claim based on contract, tort or statute
(collectively, "Agreement Disputes"), the general counsels of the relevant
parties shall negotiate in good faith for a reasonable period of time to settle
such Agreement Dispute.
SECTION 5.02. Procedure. If after such reasonable period such
general counsels are unable to settle such Agreement Dispute (and in any event
after 60 days have elapsed from the time the relevant parties began such
negotiations), such Agreement Dispute shall be determined, at the request of any
relevant party, by arbitration conducted in New York City, before and in
accordance with the then-existing Rules for Commercial Arbitration of the
American Arbitration Association (the "Rules"), and any judgment or award
rendered by the arbitrator shall be final, binding and nonappealable (except
upon grounds specified in 9 U.S.C. ss. 10(a) as in effect on the date hereof),
and judgment may be entered by any state or federal court having jurisdiction
thereof in accordance with Section 6.16 hereof. Unless the arbitrator otherwise
determines, the pre-trial discovery of the then-existing Federal Rules of Civil
Procedure and the then-existing Rules 46 and 47 of the Civil Rules for the
United States District Court for the Southern District of New York shall apply
to any arbitration hereunder. Any controversy concerning whether an Agreement
Dispute is an arbitrable Agreement Dispute, whether arbitration has been waived,
whether an assignee of this Agreement is bound to arbitrate, or as to the
interpretation of enforceability of this Article V shall be determined by the
arbitrator. The arbitrator shall be a retired or former judge of any United
States District Court or Court of Appeals or such other qualified person as the
relevant parties may agree to designate, provided, however, such individual has
had substantial professional experience with regard to settling sophisticated
commercial disputes. The parties intend that the provisions to arbitrate set
forth herein be valid, enforceable and irrevocable. The designation of a situs
or a
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27
governing law for this Agreement or the arbitration shall not be deemed an
election to preclude application of the Federal Arbitration Act, if it would be
applicable. In his or her award the arbitrator shall allocate, in his or her
discretion, among the parties to the arbitration all costs of the arbitration,
including, without limitation, the fees and expenses of the arbitrator and
reasonable attorneys' fees, costs and expert witness expenses of the parties.
The undersigned agree to comply with any award made in any such arbitration
proceedings that has become final in accordance with the Rules and agree to the
entry of a judgment in any jurisdiction upon any award rendered in such
proceedings becoming final under the Rules. The arbitrator shall be entitled if
appropriate, to award any remedy in such proceedings, including, without
limitation, monetary damages, specific performance and all other forms of legal
and equitable relief; provided, however, the arbitrator shall not be entitled to
award punitive damages.
ARTICLE VI
GENERAL PROVISIONS
SECTION 6.01. Expenses. Except as otherwise set forth in this
Agreement or any Ancillary Agreement, each of Corning, CCL and Covance shall
bear its own costs and expenses incurred on or prior to the Distribution Date
(whether or not paid on or prior to the Distribution Date) in connection with
the preparation, execution, delivery and implementation of this Agreement and
any Ancillary Agreement, the Information Statement, the Registration Statements
and the Distributions and the consummation of the transactions contemplated
thereby and the parties to this Agreement shall agree on an equitable allocation
of costs and expenses where any item is not clearly allocable to Corning, CCL or
Covance. Except as otherwise set forth in this Agreement or any Ancillary
Agreement, each party shall bear its own costs and expenses incurred after the
Distribution Date.
SECTION 6.02. Notices. All notices, requests, claims,
demands and other communications hereunder shall be in writing and shall be
given or made (and shall be deemed to have been duly given or made upon receipt)
by delivery in person, by courier service, by cable, by telecopy, by telegram,
by telex or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the addresses (or at such other address
for a party as shall be specified in a notice given in accordance with this
Section 6.02) listed below (with copies to Shearman & Sterling at 599 Lexington
Avenue, New York, New York 10022, Attn: Creighton Condon):
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28
(a) To Corning Incorporated:
One Riverfront Plaza
Corning, New York 14831
Telecopy: (607) 974-8656
Attn: General Counsel
(b) To CCL:
One Malcolm Avenue
Teterboro, New Jersey 07608
Telecopy: (201) 462-4795
Attn: General Counsel
(c) To Covance:
210 Carnegie Center
Princeton, New Jersey 08540-6233
Telecopy: (609) 452-9865
Attn: General Counsel
SECTION 6.03. Complete Agreement; Construction. This
Agreement, including the Exhibits and Schedules, and the Ancillary Agreements
shall constitute the entire agreement between the parties hereto with respect to
the subject matter hereof and shall supersede all prior agreements and
undertakings, both written and oral, between the parties with respect to the
subject matter hereof and thereof. In the event of any inconsistency between
this Agreement and any Schedule hereto, the Schedule shall prevail.
Notwithstanding any other provisions in this Agreement to the contrary, in the
event and to the extent that there shall be a conflict between the provisions of
this Agreement and the provisions of any Ancillary Agreement, such Ancillary
Agreement shall control.
SECTION 6.04. Ancillary Agreements. This Agreement is not
intended to address, and should not be interpreted to address, the matters
specifically and expressly covered by the Ancillary Agreements.
SECTION 6.05. Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
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29
SECTION 6.06. Survival of Agreements. Except as otherwise
contemplated by this Agreement, all covenants and agreements of the parties
contained in this Agreement shall survive the Distribution Date.
SECTION 6.07. Waiver. The parties to this Agreement may (a)
extend the time for the performance of any of the obligations or other acts of
the other party or parties, (b) waive any inaccuracies in the representations
and warranties of the other party or parties contained herein or in any document
delivered by the other party or parties pursuant hereto or (c) waive compliance
with any of the agreements or conditions of the other party or parties contained
herein. Any such extension or waiver shall be valid only if set forth in an
instrument in writing signed by the party to be bound thereby. Any waiver of any
term or condition shall not be construed as a waiver of any subsequent breach or
a subsequent waiver of the same term or condition, or a waiver of any other term
or condition, of this Agreement. The failure of any party to assert any of its
rights hereunder shall not constitute a waiver of any such rights.
SECTION 6.08. Amendments. Subject to the terms of Section 6.11
hereof, this Agreement may not be amended or modified except (a) by an
instrument in writing signed by, or on behalf of, the parties or (b) by a waiver
in accordance with Section 6.07.
SECTION 6.09. Assignment. This Agreement may not be assigned
by operation of law or otherwise without the express written consent of the
other parties (which consent may be granted or withheld in the sole discretion
of the parties), and any attempt to assign any rights or obligations arising
under this Agreement without such consent shall be void.
SECTION 6.10. Successors and Assigns. The provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and permitted assigns.
SECTION 6.11. Termination. This Agreement (including, without
limitation, Article III hereof) may be terminated and the Distributions may be
amended, modified or abandoned at any time prior to the Distributions by and in
the sole discretion of Corning without the approval of CCL or Covance or the
shareholders of Corning. In the event of such termination, no party shall have
any liability of any kind to any other party or any other person. After the
Distributions, this Agreement may not be terminated except by an agreement in
writing signed by the parties; provided, however, that Article III shall not be
terminated or amended after the Distributions in respect of the third party
beneficiaries thereto without the consent of such persons.
SECTION 6.12. Subsidiaries. Each of the parties hereto
shall cause to be performed, and hereby guarantees the performance of, all
actions, agreements and obligations
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30
set forth herein to be performed by any Subsidiary of such party or by any
entity that is contemplated to be a Subsidiary of such party on and after the
Distribution Date.
SECTION 6.13. Third Party Beneficiaries. Except as provided in
Article III relating to Indemnitees, this Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and their respective
Subsidiaries, Affiliates and assigns and nothing herein, express or implied, is
intended to or shall confer upon any third parties any legal or equitable right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 6.14. Headings. The descriptive headings contained
in this Agreement are for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 6.15. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or equity.
SECTION 6.16. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York,
applicable to contracts executed in and to be performed entirely within that
state. Without limiting the provisions of Article V, all actions and proceedings
arising out of or relating to this Agreement shall be heard and determined in
any New York state or federal court sitting in the City of New York.
SECTION 6.17. Public Announcements. (a) Prior to the Effective
Time, neither CCL nor Covance shall make, or cause to be made, any press release
or public announcement in respect of this Agreement or the transactions
contemplated hereby or otherwise communicate with any news media without the
prior written consent of Corning.
(b) Following the Effective Time, no party to this Agreement
shall make, or cause to be made, any press release or public announcement in
respect of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media without prior consultation with the other
parties, and the parties shall cooperate as to the timing and contents of any
such press release or public announcement.
SECTION 6.18. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely
<PAGE>
31
as possible in an acceptable manner in order that the transactions contemplated
hereby are consummated as originally contemplated to the greatest extent
possible.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
CORNING INCORPORATED
by________________________________
Name:
Title:
CORNING LIFE SCIENCES INC.
by_________________________________
Name:
Title:
CORNING CLINICAL LABORATORIES INC.
(Delaware)
by__________________________________
Name:
Title:
COVANCE INC.
by__________________________________
Name:
Title:
CORNING CLINICAL LABORATORIES INC.
(Michigan)
by__________________________________
Name:
Title:
<PAGE>
32
This is the text of a common stock certificate as issued by Covance Inc. There
is a patterned background. There is a circular graphic image in the top center
of the page depicting a woman and two men who are holding a scale, a paper and
pen and a ruler??? There is a large globe in the foreground and a limitless
horizon behind the figures. There are patterned borders approximately 1-1/4
inches wide on either side of the page.
COVANCE logo COMMON STOCK
Covance Inc. CUSIP 219480 10 0
A DELAWARE CORPORATION SEE REVERSE FOR CERTAIN DEFINITIONS
NUMBER SHARES
COV
THIS CERTIFICATE IS TRANSFERABLE IN
NEW YORK, N.Y. OR IN CHICAGO, IL.
This Certifies That
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK
of Covance Inc. transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
Restated Certificate of Incorporation of Covance Inc. and to any and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its proper officers.
Dated:
[SEAL]
Countersigned and Registered: of /s/ Christopher A. Kuebler
HARRIS TRUST AND SAVINGS BANK Covance Inc. Chairman of the Board and
Transfer Agent Chief Executive Officer
and Registrar 1993
By Delaware /s/ Jeffrey S. Hurwitz
Senior Vice President,
Authorized Signature General Counsel and Secretary
COLOR COPY BANKNOTE CORPORATION OF AMERICA
<PAGE>
Covance Inc.
COVANCE INC. WILL FURNISH TO EACH STOCKHOLDER UPON REQUEST AND WITHOUT
CHARGE A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS WITH RESPECT TO THE CAPITAL STOCK OF THE CORPORATION AND OF THE
AUTHORITY OF THE BOARD OF DIRECTORS TO DIVIDE THE SHARES INTO CLASSES OR SERIES
AND TO DETERMINE AND CHANGE THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF
ANY CLASS OR SERIES. SUCH REQUEST MAY BE MADE TO THE SECRETARY OF THE
CORPORATION, COVANCE INC., PRINCETON, NEW JERSEY 08540.
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in the Rights Agreement between Covance Inc. and Harris
Trust and Savings Bank, as Rights Agent, dated as of December ___, 1996 (the
"Rights Agreement"), the terms of which are incorporated herein by reference and
a copy of which is on file at the principal executive offices of Covance Inc.
Under certain circumstances, as set forth in the Rights Agreement, such rights
will be evidenced by separate certifcate(s) and will no longer be evidenced by
this certificate. Covance Inc. will mail to the holder of this certificate a
copy of the Rights Agreement without charge after receipt of a written request
therefor. Under certain circumstances, as set forth in the Rights Agreement,
Rights issued to any Person who becomes an Acquiring Person (as defined in the
Rights Agreement) may become null and void.
_____________________________________________
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -______Custodian_______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
Act _________________________
JT TEN - as joint tenants with right (State)
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, _____ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER
OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE.
________________________________________________________________________________
________________________________________________________________________________
______________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,__________
Signature(s) Guaranteed:
_____________________________________
Signature
By _____________________________________
Signature
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION, (BANKS, STOCKHOLDERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
BANKNOTE CORPORATION OF AMERICA Wall St -- 1-610038-942
PROOF #2 - 11/11/96 - Covance
CREDIT AGREEMENT
among
COVANCE INC.
as Borrower,
AND
CERTAIN SUBSIDIARIES OF COVANCE INC.
as Guarantors,
AND
THE LENDERS IDENTIFIED HEREIN,
AND
NATIONSBANK, N.A.,
as Administrative Agent
AND
WACHOVIA BANK OF GEORGIA, N.A.,
as Syndication Agent
DATED AS OF NOVEMBER 26, 1996
1
<PAGE>
TABLE OF CONTENTS
SECTION 1
DEFINITIONS AND ACCOUNTING TERMS
<TABLE>
<S> <C> <C>
1.1 Definitions............................................................ 1
1.2 Computation of Time Periods and Other Definitional Provisions......... 23
1.3 Accounting Terms...................................................... 23
SECTION 2
CREDIT FACILITIES
2.1 Revolving Loans....................................................... 23
2.2 Letter of Credit Subfacility.......................................... 26
2.3 Competitive Bid Loans Subfacility..................................... 31
2.4 Swing Line Loans Subfacility.......................................... 34
2.5 Currency Equivalents.................................................. 36
SECTION 3
GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT
3.1 Interest.............................................................. 36
3.2 Place and Manner of Payments.......................................... 36
3.3 Prepayments........................................................... 37
3.4 Fees.................................................................. 38
3.5 Payment in full at Maturity........................................... 39
3.6 Computations of Interest and Fees..................................... 39
3.7 Pro Rata Treatment.................................................... 40
3.8 Sharing of Payments................................................... 41
3.9 Capital Adequacy...................................................... 41
3.10 Inability To Determine Eurocurrency Rate or Make Loans in Foreign
Currency.............................................................. 42
3.11 Illegality............................................................ 42
3.12 Requirements of Law................................................... 43
3.13 Taxes................................................................. 44
3.14 Compensation.......................................................... 47
SECTION 4
GUARANTY
4.1 Guaranty of Payment................................................... 48
4.2 Obligations Unconditional............................................. 48
4.3 Modifications......................................................... 49
4.4 Waiver of Rights...................................................... 49
i
<PAGE>
4.5 Reinstatement......................................................... 49
4.6 Remedies.............................................................. 50
4.7 Limitation of Guaranty................................................ 50
4.8 Rights of Contribution................................................ 51
SECTION 5
CONDITIONS PRECEDENT
5.1 Closing Conditions.................................................... 52
5.2 Conditions to All Extensions of Credit................................ 55
SECTION 6
REPRESENTATIONS AND WARRANTIES
6.1 Financial Condition................................................... 56
6.2 No Material Change.................................................... 56
6.3 Organization and Good Standing........................................ 56
6.4 Due Authorization..................................................... 56
6.5 No Conflicts.......................................................... 56
6.6 Consents.............................................................. 57
6.7 Enforceable Obligations............................................... 57
6.8 No Default............................................................ 57
6.9 Liens................................................................. 57
6.10 Indebtedness.......................................................... 57
6.11 Litigation............................................................ 57
6.12 Taxes................................................................. 57
6.13 Compliance with Law................................................... 57
6.14 ERISA................................................................. 58
6.15 Subsidiaries.......................................................... 59
6.16 Use of Proceeds....................................................... 59
6.17 Government Regulation................................................. 59
6.18 Environmental Matters................................................. 60
6.19 Intellectual Property................................................. 61
6.20 Investments........................................................... 61
6.21 Disclosure............................................................ 61
SECTION 7
AFFIRMATIVE COVENANTS
7.1 Information Covenants................................................. 60
7.2 Financial Covenants................................................... 63
7.3 Preservation of Existence and Franchises.............................. 64
7.4 Books and Records..................................................... 64
7.5 Compliance with Law................................................... 64
7.6 Payment of Taxes and Other Indebtedness............................... 64
7.7 Insurance............................................................. 64
7.8 Maintenance of Property............................................... 64
7.9 Performance of Obligations............................................ 65
ii
<PAGE>
7.10 Use of Proceeds....................................................... 65
7.11 Audits/Inspections.................................................... 65
7.12 Additional Credit Parties............................................. 65
7.13 Spin-Off.............................................................. 66
7.14 Uncertificated Securities............................................. 66
7.15 Additional Guarantors or Additional Pledges of Stock.
SECTION 8
NEGATIVE COVENANTS
8.1 Indebtedness.......................................................... 67
8.2 Liens................................................................. 68
8.3 Nature of Business.................................................... 68
8.4 Consolidation and Merger.............................................. 68
8.5 Sale or Lease of Assets............................................... 69
8.6 Sale Leasebacks....................................................... 69
8.7 Advances, Investments and Loans....................................... 69
8.8 Restricted Payments................................................... 69
8.9 Fiscal Year; Organizational Documents................................. 70
SECTION 9
EVENTS OF DEFAULT
9.1 Events of Default..................................................... 70
9.2 Acceleration; Remedies................................................ 72
9.3 Allocation of Payments After Event of Default......................... 73
SECTION 10
AGENCY PROVISIONS
10.1 Appointment........................................................... 74
10.2 Delegation of Duties.................................................. 75
10.3 Exculpatory Provisions................................................ 75
10.4 Reliance on Communications............................................ 75
10.5 Notice of Default..................................................... 76
10.6 Non-Reliance on Agents and Other Lenders.............................. 76
10.7 Indemnification....................................................... 77
10.8 Agents in Their Individual Capacity................................... 77
10.9 Successor Agent....................................................... 77
SECTION 11
MISCELLANEOUS
11.1 Notices............................................................... 78
11.2 Right of Set-Off...................................................... 78
11.3 Benefit of Agreement.................................................. 78
11.4 No Waiver; Remedies Cumulative........................................ 81
iii
<PAGE>
11.5 Payment of Expenses; Indemnification.................................. 82
11.6 Amendments, Waivers and Consents...................................... 82
11.7 Counterparts.......................................................... 83
11.8 Headings.............................................................. 83
11.9 Defaulting Lender..................................................... 84
11.10 Survival.............................................................. 84
11.11 Governing Law......................................................... 84
11.12 Waiver of Jury Trial.................................................. 84
11.13 Time.................................................................. 84
11.14 Severability.......................................................... 84
11.15 Entirety.............................................................. 84
11.16 Binding Effect........................................................ 84
11.17 Confidentiality....................................................... 85
</TABLE>
iv
<PAGE>
SCHEDULES
Schedule 1.1(a) Revolving Commitment Percentages
Schedule 6.2 Material Adverse Effect
Schedule 6.10 Indebtedness
Schedule 6.11 Litigation
Schedule 6.14 ERISA
Schedule 6.15 Subsidiaries and Location of Facilities
Schedule 6.18 Environmental
Schedule 6.22 Location of Assets
Schedule 7.7 Insurance
Schedule 8.2 Liens
Schedule 8.7 Investments
Schedule 8.9 Organizational Documents
Schedule 11.1 Notices
EXHIBITS
Exhibit 2.1(b) Form of Notice of Borrowing
Exhibit 2.1(e) Form of Notice of Continuation/Conversion
Exhibit 2.1(g) Form of Revolving Loan Note
Exhibit 2.3(b) Form of Competitive Bid Loan Request
Exhibit 2.3(h) Form of Competitive Bid Loan Note
Exhibit 2.4(b) Form of Swing Line Loan Request
Exhibit 2.4(e) Form of Swing Line Loan Note
Exhibit 7.1(c) Form of Officer's Certificate
Exhibit 7.12 Form of Joinder Agreement
Exhibit 11.3 Form of Assignment Agreement
v
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (as amended, supplemented or otherwise modified
from time to time, this "Credit Agreement"), is entered into as of November 26,
1996 among COVANCE INC., a Delaware corporation ("Borrower"), certain of the
Borrower's Subsidiaries (individually a "Guarantor" and collectively the
"Guarantors"), the Lenders (as defined herein), NATIONSBANK, N.A., as
Administrative Agent for the Lenders and WACHOVIA BANK OF GEORGIA, N.A., as
Syndication Agent for the Lenders.
RECITALS
WHEREAS, Borrower wishes to enter into a $250 million revolving credit
facility; and
WHEREAS, the Lenders party hereto have agreed to make the requested
revolving credit facility available to the Borrower on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Definitions. As used herein, the following terms shall have the
meanings herein specified unless the context otherwise requires. Defined terms
herein shall include in the singular number the plural and in the plural the
singular:
"Additional Credit Party" means, at any time, each Person that
shall have executed a Joinder Agreement after the Closing Date and
shall not have been released from its obligations as a Guarantor, as
provided in Sections 7.12 and 7.15.
"Adjusted Eurocurrency Rate" means the Eurocurrency Rate plus
the Applicable Percentage.
"Adjusted Leverage Ratio" means the ratio of (a) an amount
equal to Funded Debt minus the obligations of Corning Bio, Inc. under
the Corning Bio TROL to (b) EBITDA.
"Administrative Agent" means NationsBank, N.A. (or any
successor thereto) or any successor administrative agent appointed
pursuant to Section 10.9.
"Agents" mean the Administrative Agent and the Syndication
Agent and any successors and assigns in such capacity.
1
<PAGE>
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to
all directors and officers of such Person), controlled by or under
direct or indirect common control with such Person. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power (i) to vote 10% or more of the securities having
ordinary voting power for the election of directors of such corporation
or (ii) to direct or cause direction of the management and policies of
such corporation, whether through the ownership of voting securities,
by contract or otherwise.
"Agency Services Address" means NationsBank, N.A.,
NC1-001-15-04, 101 North Tryon Street, Charlotte, North Carolina 28255,
Attn: Agency Services, or such other address as may be identified by
written notice from the Administrative Agent to the Borrower.
"Applicable Percentage" means, subject to the penultimate
paragraph of this definition, the appropriate applicable percentages
corresponding to the Adjusted Leverage Ratio in effect as of the most
recent Calculation Date as shown below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Long Term Applicable Applicable
Unsecured Percentage for Percentage Applicable
Pricing Adjusted Debt Rating of Eurocurrency for Letter of Percentage for
Level Leverage Ratio Borrower Loans Credit Fee Facility Fees
<S> <C> <C> <C> <C> <C>
I Less than or = A- or better
1.0 to 1.0 from S&P .17% .17% .08%
A3 or better
from Moody's
II Less than or = BBB+ from S&P .20% .20% .10%
1.50 to 1.0 but Baa1 from Moody's
greater than
1.0 to 1.0
III Less than or = BBB from S&P .25% .25% .125%
2.0 to 1.0 Baa2 from Moody's
but greater than
1.50 to 1.0
IV Less than or = BBB- from S&P
2.50 to 1.0 but Baa3 from Moody's .30% .30% .15%
greater than
2.0 to 1.0
V Greater than Lower than BBB-
2.50 to 1.0 from S&P .45% .45% .20%
Lower than Baa3
from Moody's
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Subject to the penultimate paragraph of this definition, the
Applicable Percentage for Eurocurrency Loans, the Letter of Credit Fee
and the Facility Fees shall, in each case, be determined and adjusted
quarterly on the date (each a "Calculation Date") five Business Days
after the date by which the Borrower is required to provide the
officer's certificate in accordance with the provisions of Section
7.1(c); provided that the initial Applicable Percentage for
Eurocurrency Loans, the Letter of Credit Fee and the Facility Fees
shall be based on Pricing Level III (as shown above) and shall remain
at Pricing Level III until the first Calculation Date subsequent to
March 31, 1997 and, thereafter, the Pricing Level shall be determined
by the then current Adjusted Leverage Ratio; and provided further that
if the Borrower fails to provide the officer's certificate required by
Section 7.1(c) on or before any Calculation Date subsequent to March
31, 1997, the Applicable Percentage for Revolving Loans, the Letter of
Credit Fee and the Facility Fees shall be based on Pricing Level V from
2
<PAGE>
such Calculation Date until such time that an appropriate officer's
certificate is provided whereupon the Pricing Level shall be determined
by the then current Adjusted Leverage Ratio. Each determination of the
Applicable Percentage shall be effective from one Calculation Date
until the next Calculation Date. Any adjustment in the Applicable
Percentage shall be applicable to all existing Loans and Letters of
Credit as well as any new Loans made or Letters of Credit issued.
At any time, the Borrower may, by written notice to the
Administrative Agent, tie the definition of Applicable Percentage to
the long term unsecured (non-credit enhanced) debt rating of the
Borrower as determined by S&P and Moody's (if the Borrower has received
a long term unsecured debt rating from both S&P and Moody's and
irrespective of the then Adjusted Leverage Ratio); provided that such
decision by the Borrower shall be permanent and irrevocable.
Thereafter, the Applicable Percentage shall mean, at any time, the
applicable percentage corresponding to the long term unsecured debt
ratings of the Borrower, as shown above, as such ratings may change
from time to time. If at any time the ratings provided by S&P and
Moody's are split between two different pricing levels, the appropriate
pricing level shall be based on the higher of the two ratings (i.e. the
lowest pricing based on the ratings); provided that if the split
between the two ratings is more than one pricing level then the
appropriate pricing level shall be one level above the lowest rating
(i.e. the pricing shall be based on the level that provides one level
cheaper pricing than the highest pricing based on the ratings). If
subsequent to the election by the Borrower to tie its pricing to its
long term unsecured (non-credit enhanced) debt rating, the Borrower's
long term unsecured debt is no longer rated by S&P and Moody's then
Pricing Level V shall apply.
The Borrower shall promptly deliver to the Administrative
Agent, at the address set forth on Schedule 11.1 and at the Agency
Services Address, information regarding any change in its unsecured
(non-credit enhanced) debt rating, as determined by S&P and Moody's
that would change the existing Pricing Level pursuant to the preceding
paragraph.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from
time to time.
"Base Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest whole multiple of 1/100 of 1%)
equal to the greater of (a) the Federal Funds Rate in effect on such
day plus 1/2 of 1% or (b) the Prime Rate in effect on such day. If for
any reason the Administrative Agent shall have determined (which
determination shall be conclusive absent manifest error) that it is
unable after due inquiry to ascertain the Federal Funds Rate for any
reason, including the inability or failure of the Administrative Agent
to obtain sufficient quotations in accordance with the terms hereof,
the Base Rate shall be determined without regard to clause (a) of the
first sentence of this definition until the circumstances giving rise
to such inability no longer exist. Any change in the Base Rate due to a
change in the Prime Rate or the Federal Funds Rate shall be effective
on the effective date of such change in the Prime Rate or the Federal
Funds Rate, respectively.
"Base Rate Loan" means any Loan bearing interest at a rate
determined by reference to the Base Rate.
3
<PAGE>
"Benefits Plan" means each of (a) the Employee Stock Ownership
Plan of the Borrower, (b) the Trust Deed of the Covance Inc. Employee
Share Trust between the trustee and the Borrower, (c) the Stock
Purchase Savings Plan of the Borrower restated as of December 31, 1996,
(d) the Employee Stock Purchase Plan of the Borrower, (e) the Employee
Equity Participation Program of the Borrower and (f) any other "pension
plan" (as defined in Section 3(2) of ERISA) of the Borrower or trust
created thereunder.
"Borrower" means Covance Inc., a Delaware corporation,
together with any successors and permitted assigns.
"Borrower Obligations" means, without duplication, all of the
obligations of the Borrower to the Lenders (including the Issuing
Lender and NationsBank) and the Agents, whether for principal,
interest, fees, LOC Obligations, indemnifications or otherwise whenever
arising, under this Credit Agreement, the Notes, the Collateral
Documents or any of the other Credit Documents to which the Borrower is
a party, including, without limitation, any amounts that would have
accrued but for the automatic stay under the Bankruptcy Code.
"Business Day" means any day other than a Saturday, a Sunday,
a legal holiday or a day on which banking institutions are authorized
or required by law or other governmental action to close in Charlotte,
North Carolina or New York, New York; provided that in the case of
Eurocurrency Loans, such day is also a day on which dealings between
banks are carried on in U.S. dollar deposits in the London interbank
market.
"Calculation Date" has the meaning set forth in the definition
of Applicable Percentage.
"Capital Expenditures" means all expenditures of the Credit
Parties and their Subsidiaries which, in accordance with GAAP, would be
classified as capital expenditures, including, without limitation,
Capital Leases.
"Capital Lease" means, as applied to any Person, any lease of
any property (whether real, personal or mixed) by that Person as lessee
which, in accordance with GAAP, is or should be accounted for as a
capital lease on the balance sheet of that Person.
"Cash Equivalents" means (a) securities issued or directly and
fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and
credit of the United States of America is pledged in support thereof)
having maturities of not more than twelve months from the date of
acquisition, (b) U.S. dollar denominated time and demand deposits and
certificates of deposit of (i) any Lender, (ii) any domestic commercial
bank having capital and surplus in excess of $500,000,000 or (iii) any
bank whose short-term commercial paper rating from S&P is at least A-1
or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank being an "Approved Bank"), in each
case with maturities of not more than 270 days from the date of
acquisition, (c) commercial paper and variable or fixed rate notes
issued by any Approved Bank (or by the parent company thereof) or any
variable rate notes issued by, or
4
<PAGE>
guaranteed by, any domestic corporation rated A-1 (or the equivalent
thereof) or better by S&P or P-1 (or the equivalent thereof) or better
by Moody's and maturing within six months of the date of acquisition,
(d) repurchase agreements with a bank or trust company (including any
of the Lenders) or securities dealer having capital and surplus in
excess of $500,000,000 for direct obligations issued by or fully
guaranteed by the United States of America in which the Borrower shall
have a perfected first priority security interest (subject to no other
Liens) and having, on the date of purchase thereof, a fair market value
of at least 100% of the amount of the repurchase obligations, (e)
marketable direct obligations issued by any state of the United States
of America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, rated A-1 (or the
equivalent thereof) or better from S&P or rated P-1 (or the equivalent
thereof) or better from Moody's, (f) Eurocurrency time deposits having
a maturity of less than one year purchased from any Lender directly
(whether or not such deposit is with such Lender or any other Lender
hereunder) and (g) Investments, classified in accordance with GAAP as
current assets, in money market investment programs registered under
the Investment Company Act of 1940, as amended, which are administered
by financial institutions having capital of at least $500,000,000 and
the portfolios of which are limited to Investments of the character
described in the foregoing subdivisions (a) through (g).
"Change of Control" means, at any time subsequent to the
occurrence of the Spin-Off, the occurrence of the following event: any
"person" or "group" (within the meaning of Section 13(d) or 14(d) of
the Exchange Act) has become, directly or indirectly, the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of
all shares that any such Person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), by
way of merger, consolidation or otherwise, of 30% or more of the voting
power of the Voting Stock of the Borrower on a fully-diluted basis,
after giving effect to the conversion and exercise of all outstanding
warrants, options and other securities of the Borrower (whether or not
such securities are then currently convertible or exercisable);
provided that none of the Benefit Plans shall be deemed to be a
"beneficial owner" under this definition.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986 and the rules
and regulations promulgated thereunder, as amended, modified, succeeded
or replaced from time to time.
"Collateral Assignment of Notes" means those certain
Collateral Assignment of Notes, executed and delivered by the
applicable Credit Parties in favor of the Administrative Agent, for the
benefit of the Lenders, collaterally assigning promissory notes issued
by any Non-Material Domestic Subsidiary to a Credit Party.
"Collateral Documents" means the Pledge Agreements and the
Collateral Assignments of Notes.
5
<PAGE>
"Commitments" means the commitment of each Lender with respect
to the Revolving Committed Amount and the commitment of NationsBank
with respect to the Swing Line Committed Amount.
"Competitive Bid" means an offer by a Lender to make a
Competitive Bid Loan pursuant to the terms of Section 2.3.
"Competitive Bid Loan" means a loan made by a Lender in its
discretion pursuant to the provisions of Section 2.3.
"Competitive Bid Loan Notes" means the promissory notes of the
Borrower in favor of each of the Lenders evidencing the Competitive Bid
Loans provided pursuant to Section 2.3, individually or collectively,
as appropriate, as such promissory notes may be amended, modified,
supplemented, extended, renewed or replaced from time to time and as
evidenced in the form of Exhibit 2.3(h).
"Competitive Bid Loan Request" means a request by the Borrower
for Competitive Bids substantially in the form of Exhibit 2.3(b).
"Competitive Bid Rate" means, as to any Competitive Bid made
by a Lender in accordance with the provisions of Section 2.3, (a) in
the case of a Eurocurrency Competitive Loan, the Eurocurrency Rate and
(b) in the case of a Fixed Rate Competitive Loan the fixed rate of
interest offered by the Lender making the Competitive Bid.
"Corning Bio TROL" means (a) that certain Lease Agreement (Tax
Retention Operating Lease - Personal Property), dated as of June 30,
1995 between NationsBanc Leasing Corporation of North Carolina and
Corning Bio, Inc. (f/k/a Corning Biopro, Inc.), (b) that certain Lease
Agreement (Tax Retention Operating Lease - Real Property) dated as of
June 30, 1995 between NationsBanc Leasing Corporation and Corning Bio,
Inc. (f/k/a Corning Biopro, Inc.) and all Operative Agreements (as
defined in the above agreements) entered into in connection therewith,
as such agreements may be amended, modified or supplemented from time
to time and (c) without duplication, all agreements, instruments and
documents pursuant to which any one or more of the Borrower and its
Subsidiaries guaranty or otherwise support any obligations under any
Corning Bio TROL described in (a) or (b) above.
"Credit Documents" means this Credit Agreement, the Notes, any
Joinder Agreement, the Fee Letter, the Collateral Documents and all
other related agreements and documents issued or delivered hereunder by
(i) a Guarantor to guarantee the Borrower Obligations or to secure such
guarantee or (ii) the Borrower or one of its Subsidiaries (other than a
Guarantor) to secure the Borrower Obligations.
"Credit Parties" means the Borrower and the Guarantors and
"Credit Party" means any one of them.
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"Credit Party Obligations" means, without duplication, all of
the obligations of the Credit Parties to the Lenders (including the
Issuing Lender and NationsBank) and the Agents, whether for principal,
interest, fees, LOC Obligations, indemnifications or otherwise whenever
arising, under this Credit Agreement, the Notes, the Collateral
Documents or any of the other Credit Documents to which the Borrower or
any other Credit Party is a party, including, without limitation, any
amounts that would have accrued but for the automatic stay under the
Bankruptcy Code.
"Default" means any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that: (a)
has failed to make a Loan or purchase a Participation Interest required
pursuant to the terms of this Credit Agreement (but only for so long as
such Loan is not made or such Participation Interest is not purchased),
(b) has failed to pay to the Agents or any Lender an amount owed by
such Lender pursuant to the terms of this Credit Agreement (but only
for so long as such amount has not been repaid) or (c) has been deemed
insolvent or has become subject to a bankruptcy or insolvency
proceeding or to a receiver, trustee or similar official.
"Disclosure Documents" means, collectively, as of any date,
the Information Statement, the Offering Memorandum, the Credit
Documents, the SEC Documents and other certificates or instruments
provided to the Agents and the Lenders in connection with this Credit
Agreement.
"Dollars" and "$" means dollars in lawful currency of the
United States of America.
"Domestic Subsidiary" means each direct and indirect
Subsidiary of the Borrower that (a) is domiciled, incorporated or
organized under the laws of any State of the United States or the
District of Columbia and (b) has at least 20% of its sales, earnings or
assets (determined on a consolidated basis) located or derived from its
operations in the United States of America.
"EBIT" means, for any period, with respect to the Borrower and
its Subsidiaries on a consolidated basis, the sum of (a) Net Income for
such period (excluding the effect of any extraordinary or other
non-recurring gains or losses outside of the ordinary course of
business), provided that for any fiscal quarter ending prior to
December 31, 1997, Net Income shall not include the one time
restructuring charge incurred in connection with the Spin-Off as long
as such restructuring charge does not exceed $75,000,000 plus (b) an
amount which, in the determination of Net Income for such period, has
been deducted for (i) Interest Expense for such period and (ii) total
Federal, state, foreign or other income taxes for such period, all as
determined in accordance with GAAP.
"EBITDA" means, for any period, with respect to the Borrower
and its Subsidiaries on a consolidated basis, an amount equal to (a)
EBIT plus (b) an amount which, in the determination of Net Income for
such period, has been deducted for all depreciation and amortization
for such period, all as determined in accordance with GAAP.
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"Effective Date" means the date, as specified by the
Administrative Agent in writing, on which the conditions set forth in
Section 5.1 shall have been fulfilled (or waived in the sole discretion
of the Lenders).
"Eligible Assignee" means (a) a Lender; (b) an Affiliate or
Subsidiary of a Lender; (c) a commercial bank organized under the laws
of the United States, or any State thereof, and having a combined
capital and surplus of at least $500,000,000; (d) a savings and loan
association or savings bank organized under the laws of the United
States, or any State thereof, and having a combined capital and surplus
of at least $500,000,000; (e) a commercial bank organized under the
laws of any other country that is a member of the OECD or has concluded
special lending arrangements with the International Monetary Fund
associated with its general arrangements to borrow or a political
subdivision of any such country, and having a combined capital and
surplus of at least $500,000,000, so long as such bank is acting
through a branch or agency located in the United States; (f) a finance
company, insurance company or other financial institution or fund
(whether a corporation, partnership, trust or other entity) that is
engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business and having a combined
capital and surplus of at least $250,000,000; and (g) any other Person
approved by the Agents and the Borrower.
"Environmental Claim" means any investigation, written notice,
violation, written demand, written allegation, action, suit,
injunction, judgment, order, consent decree, penalty, fine, lien,
proceeding, or written claim whether administrative, judicial, or
private in nature arising (a) pursuant to, or in connection with, an
actual or alleged violation of, any Environmental Law, (b) in
connection with any Hazardous Material, (c) from any assessment,
abatement, removal, remedial, corrective, or other response action in
connection with an Environmental Law or other order of a Governmental
Authority or (d) from any actual or alleged damage, injury, threat, or
harm to health, safety, natural resources, or the environment.
"Environmental Laws" means any current or future legal
requirement of any Governmental Authority pertaining to (a) the
protection of health, safety, and the indoor or outdoor environment,
(b) the conservation, management, or use of natural resources and
wildlife, (c) the protection or use of surface water and groundwater or
(d) the management, manufacture, possession, presence, use, generation,
transportation, treatment, storage, disposal, release, threatened
release, abatement, removal, remediation or handling of, or exposure
to, any hazardous or toxic substance or material or (e) pollution
(including any release to land surface water and groundwater) and
includes, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 USC 9601 et seq., Solid
Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 and Hazardous and Solid Waste Amendment of 1984,
42 USC 6901 et seq., Federal Water Pollution Control Act, as amended by
the Clean Water Act of 1977, 33 USC 1251 et seq., Clean Air Act of
1966, as amended, 42 USC 7401 et seq., Toxic Substances Control Act of
1976, 15 USC 2601 et seq., Hazardous Materials Transportation Act, 49
USC App.
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1801 et seq., Occupational Safety and Health Act of 1970, as amended,
29 USC 651 et seq., Oil Pollution Act of 1990, 33 USC 2701 et seq.,
Emergency Planning and Community Right- to-Know Act of 1986, 42 USC
11001 et seq., National Environmental Policy Act of 1969, 42 USC 4321
et seq., Safe Drinking Water Act of 1974, as amended, 42 USC 300(f) et
seq., any analogous implementing or successor law, and any amendment,
rule, regulation, order, or directive issued thereunder.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto, as interpreted by
the rules and regulations thereunder, all as the same may be in effect
from time to time. References to sections of ERISA shall be construed
also to refer to any successor sections.
"ERISA Affiliate" means (except as otherwise set forth herein)
any Credit Party, or any of its Subsidiaries, which, together with any
Credit Party, is treated as a single employer under Sections 414(b),
(c), (m), or (o) of the Code.
"Eurocurrency Competitive Loan" means a Competitive Bid Loan
bearing interest at a rate determined by reference to the Eurocurrency
Rate.
"Eurocurrency Loan" means a Loan, other than a Eurocurrency
Competitive Loan, bearing interest based at a rate determined by
reference to the Eurocurrency Rate.
"Eurocurrency Rate" means, for the Interest Period for each
Eurocurrency Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate
determined pursuant to the following formula:
Eurocurrency Rate = London Interbank Offered Rate
1 - Eurocurrency Reserve Percentage
"Eurocurrency Reserve Percentage" means for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor), as such regulation may be amended
from time to time or any successor regulation, as the maximum reserve
requirement (including, without limitation, any basic, supplemental,
emergency, special, or marginal reserves, if any) applicable with
respect to Eurocurrency liabilities as that term is defined in
Regulation D (or against any other category of liabilities that
includes deposits by reference to which the interest rate of
Eurocurrency Loans is determined), whether or not Lender has any
Eurocurrency liabilities subject to such reserve requirement at that
time. The Eurocurrency Rate shall be adjusted automatically on and as
of the effective date of any change in the Eurocurrency Reserve
Percentage.
"Event of Default" means any of the events or circumstances
described in Section 9.1.
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<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as
amended, modified, succeeded or replaced from time to time.
"Extension of Credit" means, as to any Lender, the making of a
Loan by such Lender (or a participation therein by a Lender) or the
issuance of, or participation in, a Letter of Credit by such Lender.
"Facility Fees" has the meaning set forth in Section 3.4.
"Federal Funds Rate" means for any day the rate per annum
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day; provided
that (a) if such day is not a Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions on the next preceding
Business Day and (b) if no such rate is so published on such next
preceding Business Day, the Federal Funds Rate for such day shall be
the average rate quoted to the Administrative Agent on such day on such
transactions as determined by the Administrative Agent.
"Fee Letter" means that certain letter agreement, dated as of
September 30, 1996, between the Agents and the Borrower, as amended,
modified, supplemented or replaced from time to time.
"First Tier Foreign Subsidiary" means, at any date of
determination, each Foreign Subsidiary in which any one or more of the
Borrower and its Domestic Subsidiaries owns more than 50%, in the
aggregate, of the Voting Stock of such Foreign Subsidiary.
"Fixed Charge Coverage Ratio" means the ratio of (a) an amount
equal to the sum of EBIT plus Rent Expense to (b) an amount equal to
the sum of Interest Expense plus Rent Expense.
"Fixed Rate" has the meaning set forth in Section 2.3(c).
"Fixed Rate Competitive Loan" means a Competitive Bid Loan
designated as a Fixed Rate Competitive Loan in accordance with Section
2.3.
"Foreign Currency" means British Pounds Sterling, Swiss
Francs, German Marks and Japanese Yen or such other currency as agreed
to between the Borrower and all the Lenders. Each Foreign Currency must
be one (a) that is freely transferable and convertible into Dollars and
(b) in which deposits are generally available to the Lenders in the
London interbank market.
"Foreign Subsidiaries" means all Subsidiaries of the Borrower
that are not Domestic Subsidiaries.
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"Funded Debt" means, without duplication, the sum of (a) all
Indebtedness of the Credit Parties and their Subsidiaries for borrowed
money, (b) all purchase money Indebtedness of the Credit Parties and
their Subsidiaries, (c) the principal portion of all obligations of the
Credit Parties and their Subsidiaries under Capital Leases, (d) all
obligations, contingent or otherwise, relative to the face amount of
all letters of credit (other than letters of credit supporting trade
payables in the ordinary course of business), whether or not drawn, and
banker's acceptances issued for the account of such Person (it being
understood that, to the extent an undrawn letter of credit supports
another obligation consisting of Indebtedness, in calculating
aggregated Indebtedness only such other obligation shall be included),
(e) all Guaranty Obligations of the Credit Parties and their
Subsidiaries with respect to Funded Debt of another Person, (f) all
Funded Debt of another entity secured by a Lien on any property of the
Credit Parties and their Subsidiaries whether or not such Funded Debt
has been assumed by a Credit Party or any of its Subsidiaries, (g) all
Funded Debt of any partnership or unincorporated joint venture to the
extent a Credit Party or one of its Subsidiaries is legally obligated,
net of any assets of such partnership or joint venture and (h) the
principal balance outstanding under any synthetic lease, tax retention
operating lease, off-balance sheet loan or similar off-balance sheet
financing product where such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an operating lease
in accordance with GAAP.
"GAAP" means generally accepted accounting principles in the
United States applied on a consistent basis and subject to Section 1.3.
"Governmental Authority" means any Federal, state, local,
provincial or foreign court or governmental agency, authority,
instrumentality or regulatory body.
"Guarantor" means at any time, (a) each of the parties to this
Credit Agreement listed as "Guarantors" on the signature pages hereof
which are the only Material Domestic Subsidiaries as of the Closing
Date and (b) each other Person that is an Additional Credit Party, in
each case, together with their successors and assigns, but excluding
any such Person that shall have been released from its guaranty
obligations pursuant to Section 7.12 or 7.15.
"Guaranty Obligations" means, with respect to any Person,
without duplication, any obligations (other than endorsements in the
ordinary course of business of negotiable instru ments for deposit or
collection) guaranteeing any Indebtedness of any other Person in any
manner, whether direct or indirect, and including without limitation
any obligation, whether or not contingent, (a) to purchase any such
Indebtedness or other obligation or any property constituting security
therefor, (b) to advance or provide funds or other support for the
payment or purchase of such Indebtedness or to maintain working capital
or solvency of such other Person (including, without limitation,
maintenance agreements, comfort letters, take or pay arrangements, put
agreements or similar agreements or arrangements but excluding any
comfort letters, letters of awareness or similar agreements or
arrangements to the extent such Person is not legally obligated
thereunder) for the benefit of the holder of Indebtedness of such other
Person, (c) to lease or purchase property, securities or services
primarily for the purpose of assuring the owner of such Indebtedness or
(d) to otherwise assure or hold harmless the owner of such Indebtedness
or obligation against loss in respect thereof. The
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amount of any Guaranty Obligation hereunder shall (subject to any
limitations set forth therein) be deemed to be an amount equal to the
outstanding principal amount (or maximum principal amount, if larger)
of the Indebtedness in respect of which such Guaranty Obligation is
made.
"Hazardous Materials" means any substance, material or waste
defined or regulated in or under any applicable Environmental Laws.
"Indebtedness" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money, (b) all obligations
of such Person evidenced by bonds, debentures, notes or similar
instruments, or upon which interest payments are customarily made, (c)
all obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person to
the extent of the value of such property (other than customary
reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business), (d) all obligations,
other than intercompany items, of such Person issued or assumed as the
deferred purchase price of property or services purchased by such
Person which would appear as liabilities on a balance sheet of such
Person, (e) all Indebtedness of others secured by any Lien on property
or assets owned by such Person, (f) all Guaranty Obligations of such
Person, (g) the principal portion of all obligations of such Person
under (i) Capital Leases and (ii) any synthetic lease, tax retention
operating lease, off-balance sheet loan or similar off-balance sheet
financing product of such Person where such transaction is considered
borrowed money indebtedness for tax purposes but is classified as an
operating lease in accordance with GAAP, (h) the maximum amount of all
performance and standby letters of credit issued or bankers'
acceptances facilities created for the account of such Person and,
without duplication, all drafts drawn thereunder (to the extent
unreimbursed), (i) the payment obligations required by such Person to
be made, prior to the Revolving Loan Maturity Date, for mandatory
redemption or mandatory sinking fund payments under any preferred stock
issued by such Person and (j) the aggregate amount of uncollected
accounts receivable of such Person subject at such time to a sale of
receivables (or similar transaction) regardless of whether such
transaction is effected without recourse to such Person or in a manner
that would not be reflected on the balance sheet of such Person in
accordance with GAAP. The Indebtedness of any Person shall include the
Indebtedness of any partnership or unincorporated joint venture in
which such Person is legally obligated or has a reasonable expectation
of being liable with respect thereto.
"Information Statement" means the information memorandum dated
September 20, 1996 delivered in connection with the distribution of the
common stock of Corning Clinical Laboratories Inc. and Corning
Pharmaceutical Services Inc., as such memorandum may be amended,
supplemented or otherwise modified from time to time on or before the
Effective Date.
"Interest Expense" means, for any period, with respect to the
Credit Parties and their Subsidiaries on a consolidated basis, all
interest expense (net of interest income), including the interest
component under Capital Leases, as determined in accordance with GAAP.
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<PAGE>
"Interest Payment Date" means (a) as to Base Rate Loans, the
first Business Day of each fiscal quarter of the Borrower, the date on
which a Base Rate Loan is converted to a Eurocurrency Loan and the
Revolving Loan Maturity Date, (b) as to Eurocurrency Loans, the last
day of each applicable Interest Period, the Revolving Loan Maturity
Date and, where the applicable Interest Period for a Eurocurrency Loan
is greater than three months, the date three months from the beginning
of the Interest Period and each three months thereafter and (c) as to
Competitive Bid Loans and Quoted Rate Swing Line Loans, the last day of
the Interest Period applicable to such Loan and the Revolving Loan
Maturity Date; provided that if the Interest Period for a Competitive
Bid Loan or a Quoted Rate Swing Line Loan is greater than 90 days then
also on the first Business Day of each fiscal quarter of the Borrower.
"Interest Period" means, (a) as to Eurocurrency Loans, a
period of one, two, three or six months' duration, as the Borrower may
elect, commencing, in each case, on the date of the borrowing
(including continuations and conversions thereof) and (b) with respect
to Competitive Bid Loans and Quoted Rate Swing Line Loans, a period
beginning on the date of such Loan and ending on the date specified in
the applicable Competitive Bid Loan Request or Swing Line Loan Request;
provided, however, (i) if any Interest Period would end on a day which
is not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day (except, with respect to Eurocurrency
Loans, that where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day),
(ii) no Interest Period shall extend beyond the Revolving Loan Maturity
Date, (ii) with respect to Eurocurrency Loans, where an Interest Period
begins on a day for which there is no numerically corresponding day in
the calendar month in which the Interest Period is to end, such
Interest Period shall end on the last Business Day of such calendar
month and (iv) no Interest Period for a Competitive Bid Loan shall
exceed 180 days.
"Investment" in any Person means (a) the acquisition (whether
for cash, property, services, assumption of Indebtedness, securities or
otherwise) of assets, shares of capital stock, bonds, notes,
debentures, partnership, joint ventures or other ownership interests or
other securities of such other Person or (b) any deposit with, or
advance, loan or other extension of credit to, such Person (other than
deposits made in connection with the purchase of equipment or other
assets in the ordinary course of business) or (c) any other capital
contribution to or investment in such Person, including, without
limitation, any Guaranty Obligation (including any support for a Letter
of Credit issued on behalf of such Person) incurred for the benefit of
such Person.
"Issuing Lender" means NationsBank, N.A. or any successor
thereto.
"Issuing Lender Fees" has the meaning set forth in Section
3.4(b).
"Joinder Agreement" means a Joinder Agreement substantially in
the form of Exhibit 7.12, as such Joinder Agreement may be amended,
modified or supplemented from time to time.
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"Lender" means any of the Persons identified as a "Lender" on
the signature pages hereto, and any Person which may become a Lender by
way of assignment in accordance with the terms hereof, together with
their successors and permitted assigns.
"Letter of Credit" means a Letter of Credit issued for the
account of a Credit Party by the Issuing Lender pursuant to Section
2.2, as such Letter of Credit may be amended, modified, extended,
renewed or replaced.
"Letter of Credit Fee" shall have the meaning assigned to such
term in Section 3.4(b).
"Leverage Ratio" means the ratio of (a) Funded Debt to (b)
EBITDA.
"Lien" means any mortgage, pledge, hypothecation, security
interest, encumbrance or lien (statutory or otherwise) including,
without limitation, the rights of a vendor or lessor under any
conditional sale or title retention agreement or any lease
substantially equivalent thereto.
"Loan" or "Loans" means the Revolving Loans, the Swing Line
Loans and the Competitive Bid Loans, individually or collectively, as
appropriate.
"LOC Committed Amount" means Twenty Five Million Dollars
($25,000,000).
"LOC Documents" means, with respect to any Letter of Credit,
such Letter of Credit, any amendments thereto, any documents delivered
in connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or
providing for (a) the rights and obligations of the parties concerned
or at risk or (b) any collateral security for such obligations.
"LOC Obligations" means, at any time, the sum of (a) the
maximum amount which is, or at any time thereafter may become,
available to be drawn under Letters of Credit then outstanding,
assuming compliance with all requirements for drawings referred to in
such Letters of Credit plus (b) the aggregate amount of all drawings
under Letters of Credit honored by an Issuing Lender but not
theretofore reimbursed.
"LOC Participants" means the Lenders.
"London Interbank Offered Rate" means, with respect to any
Eurocurrency Loan for the Interest Period applicable thereto, the rate
of interest per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in Dollars (or the
applicable Foreign Currency) at approximately 11:00 A.M. (London time)
two Business Days prior to the first day of such Interest Period for a
term comparable to such Interest Period; provided, however, if more
than one rate is specified on Telerate Page 3750, the applicable rate
shall be the arithmetic mean of all such rates. If, for any reason,
such rate is not available, the term "London Interbank Offered Rate"
shall mean, with respect to any Eurocurrency Loan for the
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Interest Period applicable thereto, the rate of interest per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing
on Reuters Screen LIBO Page as the London interbank offered rate for
deposits in Dollars at approximately 11:00 A.M. (London time) two
Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, however, if more than one
rate is specified on Reuters Screen LIBO Page, the applicable rate
shall be the arithmetic mean of all such rates.
"Mandatory Borrowing" has the meaning set forth in Section
2.2(e).
"Material Adverse Effect" means a material adverse effect
(after giving effect to any insurance proceeds or indemnification
payments under existing insurance policies or agreements as long as the
obligor under such policies or agreements is financially solvent and
has acknowledged coverage) on (a) the results of operations or
financial condition of the Borrower and its Subsidiaries taken as a
whole, (b) the ability of a Credit Party to perform its respective
obligations under this Credit Agreement or any of the other Credit
Documents, or (c) the validity or enforceability of this Credit
Agreement, any of the other Credit Documents, or the rights and
remedies of the Lenders hereunder or thereunder taken as a whole;
provided, however, that none of the following shall constitute a
Material Adverse Effect: (i) the execution, delivery and performance of
the Credit Documents, (ii) the Spin- Off and consummation of any one or
more of the contemplated transactions related to the Spin-Off, as
disclosed in the Information Statement, and (iii) the execution and
delivery, in and of themselves, of the Transaction Agreement, the Tax
Indemnity Agreements or the Tax Sharing Agreement.
"Material Domestic Subsidiary" means any Domestic Subsidiary
of the Borrower that is also a Material Subsidiary.
"Material First Tier Foreign Subsidiary" mean a First Tier
Foreign Subsidiary that is also a Material Subsidiary.
"Material Subsidiary" means, as of any date of determination,
any Domestic Subsidiary or any Foreign Subsidiary that, together with
its Subsidiaries on a consolidated basis, owns assets (excluding assets
that pursuant to GAAP principles of consolidation would be eliminated
from the consolidated balance sheet of the Borrower as of such date)
equal to at least five percent (5%) of the total assets of the Borrower
and its Subsidiaries on a consolidated basis; provided that neither
Covance Health Economics Outcome Services Inc. (f/k/a Corning HTA,
Inc.) nor any of its Subsidiaries shall not be deemed to be a Material
Subsidiary.
"Moody's" means Moody's Investors Service, Inc., or any
successor or assignee of the business of such company in the business
of rating securities.
"Multiemployer Plan" means a Plan covered by Title IV of ERISA
which is a multiemployer plan as defined in Section 3(37) or 4001(a)(3)
of ERISA.
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"Multiple Employer Plan" means a Plan covered by Title IV of
ERISA, other than a Multiemployer Plan, which any Credit Party or any
of its Subsidiaries or any ERISA Affiliate and at least one employer
other than a Credit Party or any of its Subsidiaries or any ERISA
Affiliate are contributing sponsors.
"NationsBank" means NationsBank, N.A. (or any successor
thereto).
"Net Income" means, for any period, the net income after taxes
for such period of the Credit Parties and their Subsidiaries on a
consolidated basis, as determined in accordance with GAAP.
"Non-Excluded Taxes" has the meaning set forth in Section
3.13.
"Non-Material Domestic Subsidiaries" means all Domestic
Subsidiaries that are not Material Domestic Subsidiaries.
"Note" or "Notes" means the Revolving Loan Notes, the
Competitive Bid Loan Notes and the Swing Line Loan Notes, individually
or collectively, as appropriate.
"Notice of Borrowing" means a request by the Borrower for a
Revolving Loan, substantially in the form of Exhibit 2.1(b).
"Notice of Continuation/Conversion" means a request by the
Borrower to continue an existing Eurocurrency Loan to a new Interest
Period or to convert a Eurocurrency Loan to a Base Rate Loan or a Base
Rate Loan to a Eurocurrency Loan, substantially in the form of Exhibit
2.1(e).
"Offering Memorandum" means the offering memorandum dated
October, 1996 delivered by the Administrative Agents to the Lenders, as
amended, supplemented or otherwise modified by the Information
Statement, and as it may be further amended, supplemented or otherwise
modified from time to time on or prior to the Effective Date.
"Operating Lease" means, as to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee
which, in accordance with GAAP, is or should be accounted for as an
operating lease.
"Participation Interest" means the Extension of Credit by a
Lender by way of a purchase of a participation in Letters of Credit or
LOC Obligations as provided in Section 2.2 or in any Loans as provided
in Section 3.8.
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any
successor thereto.
"Permitted Acquisition" means the acquisition of (a) all of
the capital stock of another Person or (b) all or substantially all of
the assets of another Person; provided that (i) to the extent any such
acquisition is paid for in cash or through deferred payments or through
the
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assumption of debt, any such acquisition shall not exceed $100,000,000
and (ii) after giving effect to any such acquisition (A) the Credit
Parties and their Subsidiaries are in compliance with all the financial
covenants set forth in Section 7.2 and the use of proceeds covenant in
Section 7.10 and (B) no Default or Event of Default exists and is
continuing.
"Permitted Investments" means Investments which are (a) cash
or Cash Equivalents, (b) accounts receivable created, acquired or made
in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms, (c) inventory, raw materials and
general intangibles (to the extent such general intangible is not a
Capital Expenditure) acquired in the ordinary course of business, (d)
Investments in the Borrower or a Subsidiary of the Borrower, (e) loans
to directors, officers or employees in the ordinary course of business
for reasonable business expenses, not to exceed in the aggregate
$5,000,000 at any one time, (f) the investments existing on the date
hereof, as set forth on Schedule 8.7, (g) Investments in Capital
Expenditures, (h) Investments in Permitted Acquisitions, (i)
Investments in joint ventures (other than joint ventures which are
Subsidiaries of the Borrower), in the aggregate, not to exceed
$10,000,000 at any one time, (j) as long as no Default or Event of
Default exists and is continuing. Investments, if any, pursuant to (A)
the Benefits Plans of the type referred to in subsection (a) and (b) of
the definition of "Benefit Plans", (B) the Benefits Plans of the type
referred to in subsections (c), (d), (e) and (f) of the definition of
"Benefits Plans" in an aggregate amount not to exceed $50,000,000
during the term of this Credit Agreement and (C) the Rights Plan in an
aggregate amount not to exceed $2,000,000, and (k) received as
consideration in connection with an asset sale permitted pursuant to
Section 8.5.
"Permitted Liens" means (a) Liens securing Credit Party
Obligations, if any (b) Liens for taxes not yet due or Liens for taxes
being contested in good faith by appropriate proceedings for which
adequate reserves determined in accordance with GAAP have been
established (and as to which the property subject to any such Lien is
not yet subject to foreclosure, sale or loss on account thereof), (c)
Liens in respect of property imposed by law arising in the ordinary
course of business such as materialmen's, mechanics', warehousemen's,
carrier's, landlords' and other nonconsensual statutory Liens which are
not past due more than 30 days or which are being contested in good
faith by appropriate proceedings for which adequate reserves determined
in accordance with GAAP have been established (and as to which the
property subject to any such Lien is not yet subject to foreclosure,
sale or loss on account thereof), (d) pledges or deposits made in the
ordinary course of business to secure payment of worker's compensation
insurance, unemployment insurance, pensions or social security
programs, (e) Liens arising from good faith deposits in connection with
or to secure performance of tenders, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations incurred in the ordinary course of business (other than
obligations in respect of the payment of borrowed money), (f) Liens
arising from good faith deposits in connection with or to secure
performance of statutory obligations and surety and appeal bonds, (g)
easements, rights-of-way, restrictions (including zoning restrictions),
matters of plat, minor defects or irregularities in title and other
similar charges or encumbrances not, in any material respect, impairing
the use of the encumbered property for its intended purposes, (h)
judgment Liens that would not otherwise constitute an Event of Default
and any other judgment Lien unless
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not discharged within sixty days of entry, pending appeal, or within
sixty days after expiration of stay, (i) Liens in connection with
Indebtedness allowed under Section 8.1(d), (j) Liens arising by virtue
of any statutory or common law provision relating to banker's liens,
rights of setoff or similar rights as to deposit accounts or other
funds maintained with a creditor depository institution, (k) liens on
leased equipment or under conditional sale or other title retention
agreements, (l) leases or subleases granted to others not interfering
in any material respect with the business of the Borrower or any of its
Subsidiaries, (m) liens in favor of customs and revenue authorities as
a matter of law to secure payment of customs duties, (n) liens securing
surety bonds in an aggregate amount not to exceed $5,000,000, (o) liens
securing appeal bonds covering assets less than or equal to
$20,000,000, (p) Liens existing on the date hereof and identified on
Schedule 8.2; provided that no such Lien shall extend to any property
other than the property subject thereto on the Closing Date, (q) Liens
securing any Corning Bio TROL and (r) Liens on the Voting Stock and
other capital stock of any First Tier Foreign Subsidiary to the extent
not pledged to the Administrative Agent pursuant to Section 7.12 and
7.15.
"Person" means any individual, partnership, joint venture,
firm, corporation, limited liability company, association, trust or
other enterprise (whether or not incorporated), or any Governmental
Authority.
"Plan" means any employee benefit plan (as defined in Section
3(3) of ERISA) which is covered by ERISA and with respect to which any
Credit Party or any of its Subsidiaries or any ERISA Affiliate is (or,
if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" within the meaning of Section 3(5)
of ERISA.
"Pledge Agreements" means those certain Pledge Agreements
executed and delivered by the applicable Credit Parties in favor of the
Administrative Agent, for the benefit of the Lenders, pledging 65% of
the capital stock of the Material First Tier Foreign Subsidiaries and
such other First Tier Foreign Subsidiaries as required by Section 7.15,
as they may be amended, modified, extended, renewed or replaced from
time to time.
"Prime Rate" means the per annum rate of interest established
from time to time by the Administrative Agent at its principal office
in Charlotte, North Carolina (or such other principal office of the
Administrative Agent as communicated in writing to the Borrower and the
Lenders) as its Prime Rate. Any change in the interest rate resulting
from a change in the Prime Rate shall become effective as of 12:01 a.m.
of the Business Day on which each change in the Prime Rate is announced
by the Administrative Agent. The Prime Rate is a reference rate used by
the Administrative Agent in determining interest rates on certain loans
and is not intended to be the lowest rate of interest charged on any
extension of credit to any debtor.
"Quoted Rate" has the meaning set forth in Section 2.4.
"Quoted Rate Swing Line Loan" means a Swing Line Loan made
with a Quoted Rate.
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"Real Properties" has the meaning specified in Section 6.18.
"Regulation D, G, U, or X" means Regulation D, G, U or X,
respectively, of the Board of Governors of the Federal Reserve System
as from time to time in effect and any successor to all or a portion
thereof.
"Rent Expense" means, for any period, with respect to the
Credit Parties and their Subsidiaries on a consolidated basis, all rent
payable under Operating Leases, as determined in accordance with GAAP.
"Reportable Event" means a "reportable event" as defined in
Section 4043 of ERISA with respect to which the notice requirements to
the PBGC have not been waived.
"Required Lenders" means Lenders whose aggregate Credit
Exposure (as hereinafter defined) constitutes more than 50% of the
Credit Exposure of all Lenders at such time; provided, however, that if
any Lender shall be a Defaulting Lender at such time then there shall
be excluded from the determination of Required Lenders the aggregate
principal amount of Credit Exposure of such Lender at such time. For
purposes of the preceding sentence, the term "Credit Exposure" as
applied to each Lender shall mean (a) at any time prior to the
termination of the Commitments, the Revolving Loan Commitment
Percentage of such Lender multiplied by the Revolving Committed Amount
and (b) at any time after the termination of the Commitments, the sum
of (i) the principal balance of the outstanding Loans of such Lender
plus (ii) such Lender's Participation Interests in the face amount of
the outstanding Letters of Credit.
"Requirement of Law" means, as to any Person (who is not a
Lender), the articles or certificate of incorporation and by-laws or
other organizational or governing documents of such Person and as to
any Person, any law, treaty, rule or regulation or final,
non-appealable determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such
Person or to which any of its material property is subject.
"Revolving Loan Commitment Percentage" means, for each Lender,
the percentage identified as its Revolving Commitment Percentage on
Schedule 1.1(a), as such percentage may be modified in connection with
any assignment made in accordance with the provisions of Section 11.3.
"Revolving Committed Amount" means TWO HUNDRED FIFTY MILLION
DOLLARS ($250,000,000) or such lesser amount as the Revolving Committed
Amount may be reduced pursuant to Section 2.1(d).
"Revolving Loan Maturity Date" means November 25, 2001 or such
earlier date if accelerated in accordance with Section 9.2.
"Revolving Loans" means the Revolving Loans made to the
Borrower pursuant to Section 2.1.
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"Revolving Note" or "Revolving Notes" means the promissory
notes of the Borrower in favor of each of the Lenders evidencing the
Revolving Loans provided pursuant to Section 2.1, individually or
collectively, as appropriate, as such promissory notes may be amended,
modified, supplemented, extended, renewed or replaced from time to time
and as evidenced in the form of Exhibit 2.1(g).
"Rights Plan" means that certain Rights Agreement to be
entered into between the Borrower and Harris Trust and Savings Bank.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc., or any successor or assignee of the business of such
division in the business of rating securities.
"SEC Documents" means the Borrower's Registration Statement on
Form 10, File No. 1-12213, filed with the Securities and Exchange
Commission on September 23, 1996, as further amended by Amendment No.
1, filed November 5, 1996, and Amendment No. 2, filed November 19, 1996
and as it may be further amended and supplemented on or before the
Effective Date.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Single Employer Plan" means any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan.
"Solvent" means, with respect to any Credit Party as of a
particular date, that on such date (a) such Credit Party is able to pay
its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (b) such
Credit Party does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Credit Party's ability to pay as
such debts and liabilities mature in their ordinary course, (c) such
Credit Party is not engaged in a business or a transaction, and is not
about to engage in a business or a transaction, for which such Credit
Party's assets would constitute unreasonably small capital after giving
due consideration to the prevailing practice in the industry in which
such Credit Party is engaged or is to engage, (d) the fair value of the
assets of such Credit Party is greater than the total amount of
liabilities, including, without limitation, contingent liabilities, of
such Credit Party and (e) the present fair saleable value of the assets
of such Credit Party is not less than the amount that will be required
to pay the probable liability of such Credit Party on its debts as they
become absolute and matured. The Calculation of Solvent for each Credit
Party shall be made for such Credit Party and its Subsidiaries on a
consolidated basis. Furthermore, (i) the assets of each Credit Party
shall include, without limitation, goodwill and the rights and
properties of such Credit Party pursuant to Section 4.8, to the extent
of their fair value or fair saleable value, as applicable; and (ii)
contingent liabilities, at any time, will be equal to the amount which,
in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an
actual or matured liability; it being understood that the contingent
liabilities under the Tax Indemnification Agreements and the
Transaction Agreement shall be assumed to be zero for the purpose of
calculating whether any Credit Party is Solvent
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because, as of the Closing Date, each Credit Party believes that there
is no reasonable expectation of any actual liability.
"Spin-Off" has the meaning set forth in Section 5.1(e).
"Subsidiary" means, as to any Person, (a) any corporation more
than 50% of whose stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of
such corporation (irrespective of whether or not at the time, any class
or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time owned by
such Person directly or indirectly through Subsidiaries, and (b) any
partnership, association, joint venture, limited liability company or
other entity in which such person directly or indirectly through
Subsidiaries has more than a 50% equity interest at any time.
"Swing Line Loans" means the loans made by NationsBank
pursuant to Section 2.4.
"Swing Line Committed Amount" means Ten Million Dollars
($10,000,000).
"Swing Line Loan Request" means a request by the Borrower for
a Swing Line Loan in substantially the form of Exhibit 2.4(b).
"Swing Line Loan Note" means the promissory note of the
Borrower in favor of NationsBank evidencing the Swing Line Loans
provided pursuant to Section 2.4, as such promissory note may be
amended, modified, supplemented, extended, renewed or replaced from
time to time in and as evidenced by the form of Exhibit 2.4(e).
"Syndication Agent" means Wachovia Bank of Georgia, N.A.
"Tax Indemnification Agreements" means the Corning/CPS
Spin-Off Tax Indemnification Agreement to be entered into between
Corning Incorporated and the Borrower, the CPS/CCL Spin-Off Tax
Indemnification Agreement to be entered into between the Borrower and
Corning Clinical Laboratories Inc. and the CCL/CPS Spin-Off Tax
Indemnification Agreement to be entered into between Corning Clinical
Laboratories Inc. and the Borrower, each as it may be amended,
supplemented or otherwise modified from time to time in accordance with
its terms.
"Tax Sharing Agreement" means that certain Tax Sharing
Agreement to be entered into by and among Corning Incorporated, Corning
Clinical Laboratories Inc. and the Borrower, each as it may be amended,
modified, supplemented or otherwise modified from time to time in
accordance with its terms.
"Termination Event" means (a) with respect to any Single
Employer Plan, the occurrence of a Reportable Event or the substantial
cessation of operations (within the meaning of Section 4062(e) of
ERISA); (b) the withdrawal of any Credit Party or any of its
Subsidiaries or any ERISA Affiliate from a Multiple Employer Plan
during a plan year in which it was a substantial employer (as such term
is defined in Section 4001(a)(2) of
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ERISA), or the termination of a Multiple Employer Plan; (c) the
distribution of a notice of intent to terminate or the actual
termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA;
(d) the institution of proceedings to terminate or the actual
termination of a Plan by the PBGC under Section 4042 of ERISA; (e) any
event or condition which might reasonably constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan; or (f) the complete or partial
withdrawal of any Credit Party or any of its Subsidiaries or any ERISA
Affiliate from a Multiemployer Plan. For the purposes of subsections
(d) and (e) of this definition, "ERISA Affiliate" means an entity,
whether or not incorporated, which is under common control with any
Credit Party or any of its Subsidiaries within the meaning of Section
4001(a)(14) of ERISA, or is a member of a group which includes any
Credit Party or any of its Subsidiaries and which is treated as a
single employer under Section 414(b), (c), (m), or (o) of the Code;
provided, however, that such definition shall apply only if such
Termination Event could reasonably be expected to have a Material
Adverse Effect. Otherwise, the definition of "ERISA Affiliate"
generally applicable under this Credit Agreement shall apply.
"Transaction Agreement" means the Transaction Agreement to be
entered into among Corning Incorporated, Corning Life Sciences Inc.,
Corning Clinical Laboratories Inc. and the Borrower, as may be amended,
supplemented or modified from time to time in accordance with its
terms.
"U.S. Dollar Equivalent" means the amount of Dollars that
would be realized by converting a Foreign Currency into Dollars using
the arithmetic average of the spot buying rates for such Foreign
Currency in Dollars as quoted to the Administrative Agent by three
foreign exchange dealers of recognized standing in the United States
selected by the Administrative Agent at approximately 10:00 a.m. on any
day on which a computation thereof is required to be made hereunder.
"Voting Stock" of a corporation means, at any time, all
classes of the capital stock of such corporation then outstanding and
ordinarily entitled to vote in the election of directors.
1.2 Computation of Time Periods and Other Definitional Provisions. For
purposes of computation of periods of time hereunder, the word "from" means
"from and including" and the words "to" and "until" each mean "to but
excluding." References in this Agreement to "Articles", "Sections", "Schedules"
or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to
this Agreement unless otherwise specifically provided.
1.3 Accounting Terms. Except as otherwise expressly provided herein,
all accounting terms used herein shall be interpreted, and all financial
statements and certificates and reports as to financial matters required to be
delivered to the Lenders hereunder shall be prepared, in accordance with GAAP
applied on a consistent basis. All calculations made for the purposes of
determining compliance with this Credit Agreement shall (except as otherwise
expressly provided herein) be made by application of GAAP applied on a basis
consistent with the most recent annual or quarterly financial statements
delivered pursuant to Section 7.1 (or, prior to the delivery of the first
financial statements pursuant to Section 7.1, consistent with the financial
statements described in Section
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5.1(c)); provided, however, if (a) the Borrower shall object to determining such
compliance on such basis at the time of delivery of such financial statements
due to any change in GAAP or the rules promulgated with respect thereto or (b)
either Agent or the Required Lenders shall so object in writing within 60 days
after delivery of such financial statements (or after the Lenders have been
informed of the change in GAAP affecting such financial statements, if later),
then for the period following such objection, unless otherwise agreed by the
Borrower and the Required Lenders, such calculations shall be made on a basis
consistent with the most recent financial statements delivered by the Borrower
to the Lenders as to which no such objection shall have been made.
SECTION 2
CREDIT FACILITIES
2.1 Revolving Loans.
(a) Revolving Loan Commitment. Subject to the terms and
conditions set forth herein, each Lender severally agrees to make
revolving loans (each a "Revolving Loan" and collectively the
"Revolving Loans") to the Borrower, in Dollars or in Foreign Currency,
at any time and from time to time, during the period from and including
the Effective Date to but not including the Revolving Loan Maturity
Date (or such earlier date if the Revolving Committed Amount has been
terminated as provided herein); provided, however, that (i) the sum of
the aggregate amount of Revolving Loans outstanding plus the aggregate
amount of LOC Obligations outstanding plus the aggregate amount of
Swing Line Loans outstanding plus the aggregate amount of Competitive
Bid Loans outstanding shall not exceed the Revolving Committed Amount,
(ii) with respect to each individual Lender, the Lender's pro rata
share of outstanding Revolving Loans plus such Lender's pro rata share
of outstanding LOC Obligations shall not exceed such Lender's Revolving
Loan Commitment Percentage of the Revolving Committed Amount and (iii)
the amount of Revolving Loans outstanding in Foreign Currency plus
Competitive Bid Loans outstanding in Foreign Currency shall not exceed
the U.S. Dollar Equivalent of Fifty Million Dollars ($50,000,000).
Subject to the terms of this Credit Agreement (including Section 3.3),
the Borrower may borrow, repay and reborrow Revolving Loans.
(b) Method of Borrowing for Revolving Loans. By no later than
11:00 a.m. (i) one Business Day prior to the date of the requested
borrowing of Revolving Loans that will be Base Rate Loans or (ii) three
Business Days prior to the date of the requested borrowing of Revolving
Loans that will be Eurocurrency Loans, the Borrower shall submit a
written Notice of Borrowing in substantially the form of Exhibit 2.1(b)
to the Administrative Agent setting forth (A) the amount requested, (B)
whether such Revolving Loans shall accrue interest at the Base Rate or
the Adjusted Eurocurrency Rate, (C) with respect to Revolving Loans
that will be Eurocurrency Loans, the Interest Period applicable
thereto, (D) whether the Revolving Loan is requested in Dollars or in a
Foreign Currency and (E) certification that the Borrower has complied
in all respects with Section 5.2. Notwithstanding the above, the
Borrower may not request Revolving Loans made in a Foreign Currency to
accrue interest at the Base Rate unless the Adjusted Eurocurrency Rate
is not available.
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(c) Funding of Revolving Loans. Upon receipt of a Notice of
Borrowing, the Administrative Agent shall promptly inform the Lenders
as to the terms thereof. Each Lender shall make its Revolving Loan
Commitment Percentage of the requested Revolving Loans available to the
Administrative Agent by 1:00 p.m. on the date specified in the Notice
of Borrowing by deposit, in Dollars or the applicable Foreign Currency,
of immediately available funds at the principal office of the
Administrative Agent in Charlotte, North Carolina or at such other
address as the Administrative Agent may designate in writing. The
amount of the requested Revolving Loans will then be made available to
the Borrower by the Administrative Agent by crediting the account of
the Borrower on the books of such office of the Administrative Agent,
to the extent the amount of such Revolving Loans are made available to
the Administrative Agent.
No Lender shall be responsible for the failure or delay by any
other Lender in its obligation to make Revolving Loans hereunder;
provided, however, that the failure of any Lender to fulfill its
obligations hereunder shall not relieve any other Lender of its
obligations hereunder. Unless the Administrative Agent shall have been
notified by any Lender prior to the time of any such Revolving Loan
that such Lender does not intend to make available to the
Administrative Agent its portion of the Revolving Loans to be made on
such date, the Administrative Agent may assume that such Lender has
made such amount available to the Administrative Agent on the date of
such Revolving Loans, and the Administrative Agent in reliance upon
such assumption, may (in its sole discretion but without any obligation
to do so) make available to the Borrower a corresponding amount. If
such corresponding amount is not in fact made available to the
Administrative Agent, the Administrative Agent shall be able to recover
such corresponding amount from such Lender. If such Lender does not pay
such corresponding amount forthwith upon the Administrative Agent's
demand therefor, the Administrative Agent will promptly notify the
Borrower, and the Borrower shall immediately pay such corresponding
amount to the Administrative Agent. The Administrative Agent shall also
be entitled to recover from the Lender or the Borrower, as the case may
be, interest on such corresponding amount in respect of each day from
the date such corresponding amount was made available by the
Administrative Agent to the Borrower to the date such corresponding
amount is recovered by the Administrative Agent at a per annum rate
equal to (i) from the Borrower at the applicable rate for such
Revolving Loan pursuant to the Notice of Borrowing and (ii) from a
Lender at the Federal Funds Rate.
(d) Reductions of Revolving Committed Amount. Upon at least
three Business Days' notice, the Borrower shall have the right to
permanently terminate or reduce the aggregate unused amount of the
Revolving Committed Amount at any time or from time to time; provided
that (i) each partial reduction shall be in an aggregate amount at
least equal to $5,000,000 and in integral multiples of $1,000,000 above
such amount and (ii) no reduction shall be made which would reduce the
Revolving Committed Amount to an amount less than the aggregate amount
of outstanding Revolving Loans plus the aggregate amount of outstanding
LOC Obligations plus the aggregate amount of Swing Line Loans
outstanding plus the aggregate amount of Competitive Bid Loans
outstanding. Any reduction in (or termination of) the Revolving
Committed Amount shall be permanent and may not be reinstated. The
Administrative Agent shall immediately notify the Lenders of any
reduction in the Revolving Committed Amount.
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(e) Continuations and Conversions. Subject to the terms of
Section 5.2 (other than Section 5.2(b)), the Borrower shall have the
option, on any Business Day, to continue existing Eurocurrency Loans
for a subsequent Interest Period, to convert Base Rate Loans into
Eurocurrency Loans or to convert Eurocurrency Loans into Base Rate
Loans; provided, however, that (i) each such continuation or conversion
must be requested by the Borrower pursuant to a written Notice of
Continuation/Conversion, in substantially the form of Exhibit 2.1(e),
in compliance with the terms set forth below, (ii) except as provided
in Section 3.11, Eurocurrency Loans may only be continued or converted
into Base Rate Loans on the last day of the Interest Period applicable
thereto, (iii) Eurocurrency Loans may not be continued nor may Base
Rate Loans be converted into Eurocurrency Loans during the existence
and continuation of a Default or Event of Default and (iv) any request
to continue a Eurocurrency Loan that fails to comply with the terms
hereof or any failure to request a continuation of a Eurocurrency Loan
at the end of an Interest Period shall constitute a conversion to a
Base Rate Loan on the last day of the applicable Interest Period. Each
continuation or conversion must be requested by the Borrower no later
than 11:00 a.m. (A) one Business Day prior to the date for a requested
conversion of a Eurocurrency Loan to a Base Rate Loan or (B) three
Business Days prior to the date for a requested continuation of a
Eurocurrency Loan or conversion of a Base Rate Loan to a Eurocurrency
Loan, in each case pursuant to a written Notice of
Continuation/Conversion submitted to the Administrative Agent which
shall set forth (x) whether the Borrower wishes to continue or convert
such Loans and (y) if the request is to continue a Eurocurrency Loan or
convert a Base Rate Loan to a Eurocurrency Loan, the Interest Period
applicable thereto. Notwithstanding the foregoing, Loans made in
Foreign Currency may not be continued or converted pursuant to this
Section 2.1(e) but instead must be repaid at the end of the applicable
Interest Period in the Foreign Currency in which such Loan was made.
(f) Minimum Amounts. Each request for a borrowing, conversion
or continuation shall be subject to the requirements that (i) each
Eurocurrency Loan shall be in a minimum amount of $5,000,000 and in
integral multiples of $1,000,000 in excess thereof, or in the case of a
Foreign Currency, the U.S. Dollar Equivalents of such amounts, (ii)
each Base Rate Loan shall be in a minimum amount of the lesser of
$1,000,000 (and integral multiples of $100,000 in excess thereof) or
the remaining amount available under the Revolving Committed Amount, or
in the case of a Foreign Currency, the U.S. Dollar Equivalents of such
amounts and (iii) no more than eight Eurocurrency Loans shall be
outstanding hereunder at any one time. For the purposes of this
Section, all Eurocurrency Loans with the same Interest Periods shall be
considered as one Eurocurrency Loan, but Eurocurrency Loans with
different Interest Periods, even if they begin on the same date, shall
be considered as separate Eurocurrency Loans.
(g) Notes. The Revolving Loans made by each Lender shall be
evidenced by a duly executed promissory note of the Borrower to each
applicable Lender in the face amount of its Revolving Loan Commitment
Percentage of the Revolving Committed Amount in substantially the form
of Exhibit 2.1(g).
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2.2 Letter of Credit Subfacility.
(a) Issuance. Subject to the terms and conditions hereof and
of the LOC Documents, if any, and any other terms and conditions which
the Issuing Lender may reasonably require (so long as such terms and
conditions do not impose any financial obligation on or require any
Lien (not otherwise contemplated by this Agreement) to be given by any
Credit Party or conflict with any obligation of, or detract from any
action which may be taken by, any Credit Party or their Subsidiaries
under this Agreement), the Issuing Lender shall from time to time upon
request issue (from the Effective Date to the Revolving Loan Maturity
Date and in a form reasonably acceptable to the Issuing Lender), in
Dollars, and the LOC Participants shall participate in, letters of
credit (the "Letters of Credit") for the account of the Borrower or any
of its Subsidiaries; provided, however, that (i) the aggregate amount
of LOC Obligations shall not at any time exceed the LOC Committed
Amount, (ii) the sum of the aggregate amount of LOC Obligations
outstanding plus Revolving Loans outstanding plus Swing Line Loans
outstanding plus Competitive Bid Loans outstanding shall not exceed the
Revolving Committed Amount and (iii) with respect to each individual
LOC Participant, the LOC Participant's pro rata share of outstanding
Revolving Loans plus its pro rata share of outstanding LOC Obligations
shall not exceed such LOC Participant's Revolving Loan Commitment
Percentage of the Revolving Committed Amount. The issuance and expiry
date of each Letter of Credit shall be a Business Day. Except as
otherwise expressly agreed upon by all the LOC Participants, each
Letter of Credit shall have an original expiry date not more than one
year from the date of issuance; provided that, at the option of the
Borrower, Letters of Credit may be subject to automatic renewal for
periods not in excess of one year subject to the conditions that (x)
the Issuing Lender may give notice to the Borrower not less than 60
days prior to the effective date of such extension that it will not
extend such Letter of Credit (and, during the existence and
continuation of an Event of Default, the Issuing Lender agrees to give
such notice if instructed by the Required Lenders to do so) and (y) no
Letter of Credit (or renewal thereof), shall have an expiry date
extending beyond the Revolving Loan Maturity Date. Each Letter of
Credit shall be either (x) a standby letter of credit issued to support
the obligations (including pension or insurance obligations),
contingent or otherwise, of the Borrower or any of its Subsidiaries, or
(y) a commercial letter of credit in respect of the purchase of goods
or services by the Borrower or any of its Subsidiaries in the ordinary
course of business. Each Letter of Credit shall comply with the related
LOC Documents.
(b) Notice and Reports. The request for the issuance or
renewal of a Letter of Credit shall be submitted to the Issuing Lender
at least three Business Days prior to the requested date of issuance or
renewal. The Issuing Lender will, at least quarterly and more
frequently upon request, provide to the Administrative Agent for
dissemination to the Lenders a detailed report specifying the Letters
of Credit which are then issued and outstanding and any activity with
respect thereto which may have occurred since the date of the prior
report, and including therein, among other things, the account party,
the beneficiary, the face amount, and the expiry date as well as any
payments or expirations which may have occurred. The Issuing Lender
will further provide to the Administrative Agent, promptly upon
request, copies of the Letters of Credit and the other LOC Documents.
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(c) Participations. Each LOC Participant, upon issuance of a
Letter of Credit, shall be deemed to have purchased without recourse a
risk participation from the Issuing Lender in such Letter of Credit and
each LOC Document related thereto and the rights and obligations
arising thereunder and any collateral relating thereto, in each case in
an amount equal to its Revolving Loan Commitment Percentage of the
obligations under such Letter of Credit, and shall absolutely,
unconditionally and irrevocably assume, as primary obligor and not as
surety, and be obligated to pay to the Issuing Lender therefor and
discharge when due, its Revolving Loan Commitment Percentage of the
obligations arising under such Letter of Credit. Without limiting the
scope and nature of each LOC Participant's participation in any Letter
of Credit, to the extent that the Issuing Lender has not been
reimbursed as required hereunder or under any such Letter of Credit,
each such LOC Participant shall pay to the Issuing Lender its Revolving
Loan Commitment Percentage of such unreimbursed drawing in same day
funds on the day of notification by the Issuing Lender of an
unreimbursed drawing pursuant to the provisions of subsection (d)
hereof. The obligation of each LOC Participant to so reimburse the
Issuing Lender shall be absolute and unconditional and shall not be
affected by the occurrence of a Default, an Event of Default or any
other occurrence or event. Any such reimbursement shall not relieve or
otherwise impair the obligation of the Borrower or any other Credit
Party to reimburse the Issuing Lender under any Letter of Credit,
together with interest as hereinafter provided.
(d) Reimbursement. In the event of any drawing under any
Letter of Credit, the Issuing Lender will promptly notify the Borrower.
Unless the Borrower shall immediately notify the Issuing Lender of its
intent to otherwise reimburse the Issuing Lender, the Borrower shall be
deemed to have requested a Revolving Loan in Dollars at the Base Rate
in the amount of the drawing as provided in subsection (e) hereof, the
proceeds of which will be used to satisfy the reimbursement
obligations. The Borrower shall reimburse the Issuing Lender on the day
of drawing (unless such notice is received after 1:00 p.m. on such day
and then on the next succeeding Business Day with the outstanding
amount accruing interest at the Base Rate until reimbursed) under any
Letter of Credit either with the proceeds of a Revolving Loan obtained
hereunder or otherwise in same day funds as provided herein or in the
LOC Documents. If the Borrower shall fail to reimburse the Issuing
Lender as provided hereinabove, the unreimbursed amount of such drawing
shall bear interest at a per annum rate equal to the Base Rate plus two
percent (2%). The Borrower's reimbursement obligations hereunder shall
be absolute and unconditional under all circumstances irrespective of
(but without waiver of) any rights of set-off, counterclaim or defense
to payment that the applicable account party or the Borrower may claim
or have against the Issuing Lender, the Agents, the Lenders, the
beneficiary of the Letter of Credit drawn upon or any other Person,
including without limitation, any defense based on any failure of the
applicable account party, the Borrower or any other Credit Party to
receive consideration or the legality, validity, regularity or
unenforceability of the Letter of Credit. The Issuing Lender will
promptly notify the LOC Participants of the amount of any unreimbursed
drawing and each LOC Participant shall promptly pay to the
Administrative Agent for the account of the Issuing Lender, in Dollars
and in immediately available funds, the amount of such LOC
Participant's Revolving Loan Commitment Percentage of such unreimbursed
drawing. Such payment shall be made on the day such notice is received
by such Lender from the Issuing Lender if such notice is received at or
before 2:00 p.m., otherwise such
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payment shall be made at or before 12:00 Noon on the Business Day next
succeeding the day such notice is received. If such LOC Participant
does not pay such amount to the Issuing Lender in full upon such
request, such LOC Participant shall, on demand, pay to the
Administrative Agent for the account of the Issuing Lender interest on
the unpaid amount during the period from the date the LOC Participant
received the notice regarding the unreimbursed drawing until such LOC
Participant pays such amount to the Issuing Lender in full at a rate
per annum equal to, if paid within two Business Days of the date of
drawing, the Federal Funds Rate and thereafter at a rate equal to the
Base Rate. Each LOC Participant's obligation to make such payment to
the Issuing Lender, and the right of the Issuing Lender to receive the
same, shall be absolute and unconditional, shall not be affected by any
circumstance whatsoever and without regard to the termination of this
Credit Agreement or the Commitments hereunder, the existence of a
Default or Event of Default or the acceleration of the obligations
hereunder and shall be made without any offset, abatement, withholding
or reduction whatsoever. Simultaneously with the making of each such
payment by a LOC Participant to the Issuing Lender, such LOC
Participant shall, automatically and without any further action on the
part of the Issuing Lender or such LOC Participant, acquire a
participation in an amount equal to such payment (excluding the portion
of such payment constituting interest owing to the Issuing Lender) in
the related unreimbursed drawn portion of the LOC Obligation and in the
interest thereon and in the related LOC Documents, and shall have a
claim against the Borrower and the other Credit Parties with respect
thereto (including the reimbursement obligation).
(e) Repayment with Revolving Loans. On any day on which the
Borrower shall have requested, or been deemed to have requested, a
Revolving Loan borrowing to reimburse a drawing under a Letter of
Credit, the Administrative Agent shall give notice to the applicable
Lenders that a Revolving Loan has been requested or deemed requested in
connection with a drawing under a Letter of Credit, in which case a
Revolving Loan borrowing comprised solely of Base Rate Loans in Dollars
(each such borrowing, a "Mandatory Borrowing") shall be immediately
made from all applicable Lenders (without giving effect to any
termination of the Commitments pursuant to Section 9.2) pro rata based
on each Lender's respective Revolving Loan Commitment Percentage and
the proceeds thereof shall be paid directly to the Issuing Lender for
application to the respective LOC Obligations. Each such Lender hereby
irrevocably agrees to make such Revolving Loans immediately upon any
such request or deemed request on account of each such Mandatory
Borrowing in the amount and in the manner specified in the preceding
sentence and on the same such date notwithstanding (i) the amount of
Mandatory Borrowing may not comply with the minimum amount for
borrowings of Revolving Loans otherwise required hereunder, (ii)
whether any conditions specified in Section 5 are then satisfied, (iii)
whether a Default or Event of Default then exists, (iv) failure of any
such request or deemed request for Revolving Loans to be made by the
time otherwise required hereunder, (v) the date of such Mandatory
Borrowing, or (vi) any reduction in the Revolving Committed Amount or
any termination of the Commitments. In the event that any Mandatory
Borrowing cannot for any reason be made on the date otherwise required
above (including, without limitation, as a result of the commencement
of a proceeding under the Bankruptcy Code with respect to the Borrower
or any other Credit Party), then each such Lender hereby agrees that it
shall forthwith fund (as of the date the Mandatory Borrowing would
otherwise have occurred, but
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adjusted for any payments received from the Borrower on or after such
date and prior to such purchase) its Participation Interest in the
outstanding LOC Obligations; provided that in the event any Lender
shall fail to fund its Participation Interest on the day the Mandatory
Borrowing would otherwise have occurred, then the amount of such
Lender's unfunded Participation Interest therein shall bear interest
payable to the Issuing Lender upon demand, at the rate equal to, if
paid within two Business Days of such date, the Federal Funds Rate, and
thereafter at a rate equal to the Base Rate.
(f) Modification and Extension. The issuance of any
supplement, modification or amendment, renewal, or extensions
(excluding extensions on an "evergreen" basis pursuant to Section
2.2(a)) to any Letter of Credit shall, for purposes hereof, be treated
in all respects the same as the issuance of a new Letter of Credit
hereunder.
(g) Uniform Customs and Practices. The Issuing Lender may have
the Letters of Credit be subject to The Uniform Customs and Practice
for Documentary Credits, as published as of the date of issue by the
International Chamber of Commerce (Publication No. 500 or the most
recent publication, the "UCP"), in which case the UCP may be
incorporated therein and deemed in all respects to be a part thereof.
(h) Responsibility of Issuing Lender. It is expressly
understood and agreed as between the Lenders that the obligations of
the Issuing Lender hereunder to the LOC Participants are only those
expressly set forth in this Credit Agreement and that the Issuing
Lender shall be entitled to assume that the conditions precedent set
forth in Section 5 have been satisfied unless it shall have acquired
actual knowledge that any such condition precedent has not been
satisfied; provided, however, that nothing set forth in this Section
2.2 shall be deemed to prejudice the right of any LOC Participant to
recover from the Issuing Lender any amounts made available by such LOC
Participant to the Issuing Lender pursuant to this Section 2.2 in the
event that it is determined by a court of competent jurisdiction that
the payment with respect to a Letter of Credit constituted gross
negligence or willful misconduct on the part of the Issuing Lender.
(i) Conflict with LOC Documents. In the event of any conflict
between this Credit Agreement and any LOC Document, this Credit
Agreement shall govern.
(j) Indemnification of Issuing Lender.
(i) In addition to its other obligations under
this Credit Agreement, the Borrower hereby agrees to protect,
indemnify, pay and save the Issuing Lender harmless from and
against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable
attorneys' fees) that the Issuing Lender may incur or be
subject to as a consequence, direct or indirect, of (A) the
issuance of any Letter of Credit or (B) the failure of the
Issuing Lender to honor a drawing under a Letter of Credit as
a result of any act or omission, whether rightful or wrongful,
of any present or future de jure or de facto government or
governmental authority (all such acts or omissions, herein
called "Government Acts").
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(ii) As between the Borrower and the Issuing
Lender, the Borrower shall assume all risks of the acts,
omissions or misuse of any Letter of Credit by the beneficiary
thereof. The Issuing Lender shall not be responsible for
(except in the case of (A), (B) and (C) below if the Issuing
Lender has actual knowledge to the contrary): (A) the form,
validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any party in connection with the
application for and issuance of any Letter of Credit, even if
it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (B) the
validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, that may prove to be invalid or
ineffective for any reason; (C) failure of the beneficiary of
a Letter of Credit to comply fully with conditions required in
order to draw upon a Letter of Credit; (D) errors, omissions,
interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher; (E) errors in interpretation
of technical terms; (F) any loss or delay in the transmission
or otherwise of any document required in order to make a
drawing under a Letter of Credit or of the proceeds thereof;
and (G) any consequences arising from causes beyond the
control of the Issuing Lender, including, without limitation,
any Government Acts. None of the above shall affect, impair,
or prevent the vesting of the Issuing Lender's rights or
powers hereunder.
(iii) In furtherance and extension and not in
limitation of the specific provisions hereinabove set forth,
any action taken or omitted by the Issuing Lender, under or in
connection with any Letter of Credit or the related
certificates, if taken or omitted in good faith, shall not put
the Issuing Lender under any resulting liability to the
Borrower or any other Credit Party. It is the intention of the
parties that this Credit Agreement shall be construed and
applied to protect and indemnify the Issuing Lender against
any and all risks involved in the issuance of the Letters of
Credit, all of which risks are hereby assumed by the Borrower,
including, without limitation, any and all risks of the acts
or omissions, whether rightful or wrongful, of any present or
future Government Acts. The Issuing Lender shall not, in any
way, be liable for any failure by the Issuing Lender or anyone
else to pay any drawing under any Letter of Credit as a result
of any Government Acts or any other cause beyond the control
of the Issuing Lender.
(iv) Nothing in this subsection (j) is intended
to limit the reimbursement obligation of the Borrower
contained in this Section 2.2. The obligations of the Borrower
under this subsection (j) shall survive the termination of
this Credit Agreement. No act or omission of any current or
prior beneficiary of a Letter of Credit shall in any way
affect or impair the rights of the Issuing Lender to enforce
any right, power or benefit under this Credit Agreement.
(v) Notwithstanding anything to the contrary
contained in this subsection (j), the Borrower shall have no
obligation to indemnify the Issuing Lender in respect of any
liability incurred by the Issuing Lender arising solely out of
the
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gross negligence or willful misconduct of the Issuing Lender,
as determined by a court of competent jurisdiction. Nothing in
this Agreement shall relieve the Issuing Lender of any
liability to the Borrower in respect of any action taken by
the Issuing Lender which action constitutes gross negligence
or willful misconduct of the Issuing Lender or a violation of
the UCP or Uniform Commercial Code (as applicable), as
determined by a court of competent jurisdiction. The Borrower
shall have a claim against the Issuing Lender, and the Issuing
Lender shall be liable to the Borrower, to the extent of any
direct, but not consequential, damages suffered by the
Borrower that the Borrower proves were caused by (i) the
Issuing Lender's willful misconduct or gross negligence in
determining whether documents presented under any Letter of
Credit comply with the terms of the Letter of Credit or (ii)
the Issuing Lender's willful failure to make lawful payment
under a Letter of Credit after the presentation to it of a
draft and certificates strictly complying with the terms and
conditions of the Letter of Credit.
2.3 Competitive Bid Loans Subfacility.
(a) Competitive Bid Loans. Subject to the terms and conditions
set forth herein, the Borrower may, from time to time, during the
period from and including the Effective Date to but not including the
Revolving Loan Maturity Date, request and each Lender may, in its sole
discretion, agree to make Competitive Bid Loans, in Dollars or in
Foreign Currency, to the Borrower; provided, however, that (i) the sum
of the Revolving Loans outstanding plus Competitive Bid Loans
outstanding plus Swing Line Loans outstanding plus the aggregate amount
of LOC Obligations outstanding, shall not exceed the Revolving
Committed Amount, (ii) if a Lender does make a Competitive Bid Loan it
shall not reduce such Lender's obligation to make its pro rata share of
any Revolving Loan, and (iii) the amount of Revolving Loans outstanding
in Foreign Currency plus Competitive Bid Loans outstanding in Foreign
Currency shall not exceed the U.S. Dollar Equivalent of Fifty Million
Dollars ($50,000,000).
(b) Competitive Bid Requests. The Borrower may solicit
Competitive Bids by delivery of a Competitive Bid Loan Request to the
Administrative Agent by 10:00 a.m. on a Business Day not less than (x)
in the case of Fixed Rate Competitive Loans not made in a Foreign
Currency, three Business Days and (y) in the case of Eurocurrency
Competitive Loans and Fixed Rate Competitive Loans made in a Foreign
Currency, five Business Days prior to the date of a requested
Competitive Bid Loan. A Competitive Bid Loan Request must be
substantially in the form of Exhibit 2.3(b) and shall specify (i) the
date of the requested Competitive Bid Loan (which shall be a Business
Day), (ii) the amount of the requested Competitive Bid Loan, (iii) the
applicable Interest Periods requested (iv) whether such Competitive Bid
Loan will be a Eurocurrency Competitive Loan or a Fixed Rate
Competitive Loan, and (v) whether such Competitive Bid Loan is to be
made in Dollars or in Foreign Currency and shall be accompanied by the
Competitive Bid Request Fee set forth in the Fee Letter and shall
comply in all respects with Section 5.2. The Administrative Agent shall
notify the Lenders of its receipt of a Competitive Bid Request and the
contents thereof and invite the Lenders to submit Competitive Bids in
response thereto. The Borrower may not request a Competitive Bid for
more than three different Interest Periods
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per Competitive Bid Request and Competitive Bid Requests may be made no
more frequently than once every five Business Days.
(c) Competitive Bid Procedure. Each Lender may, in its sole
discretion, make one or more Competitive Bids to the Borrower in
response to a Competitive Bid Request. Each Competitive Bid must be
received by the Administrative Agent not later than 10:00 a.m. (x) in
the case of Fixed Rate Competitive Loans not made in a Foreign Currency
on the proposed date of a Competitive Bid Loan advance and (y) in the
case of Eurocurrency Competitive Loans and Fixed Rate Competitive Loans
made in a Foreign Currency, three Business Days prior to the proposed
dated of a Competitive Bid Loan advance; provided, however, that should
the Administrative Agent, in its capacity as a Lender, desire to submit
a Competitive Bid it shall notify the Borrower of its Competitive Bid
and the terms thereof not later than 9:30 a.m. on such date. A Lender
may offer to make all or part of the requested Competitive Bid Loan and
may submit multiple Competitive Bids in response to a Competitive Bid
Request. The Competitive Bid must specify (i) the particular
Competitive Bid Request as to which the Competitive Bid is submitted,
(ii) the minimum (which shall be not less than $1,000,000 and integral
multiples of $500,000 in excess thereof, or in the case of a Foreign
Currency, the U.S. Dollar Equivalent), and maximum principal amounts of
the requested Competitive Bid Loan or Loans as to which the Lender is
willing to make, (iii) the applicable interest rate or rates (which (A)
in the case of a Eurocurrency Competitive Loan, shall be the
Eurocurrency Rate for the Interest Period in effect for such Loan plus
the margin offered by such Lender and accepted by the Borrower and (B)
in the case of a Fixed Rate Competitive Loan, shall be a fixed rate per
annum (computed on the basis of a 360-day year or the actual number of
days elapsed) offered by such Lender and accepted by the Borrower) (the
"Fixed Rate") and Interest Period or Interest Periods therefor, (iv)
whether such Competitive Bid Loan will be a Eurocurrency Competitive
Loan or a Fixed Rate Competitive Loan and (v) the currency in which the
Competitive Bid is made. A Competitive Bid submitted by a Lender in
accordance with the provisions hereof shall be irrevocable. The
Administrative Agent shall promptly notify the Borrower of all
Competitive Bids made and the terms thereof and shall send a copy of
each of the Competitive Bids to the Borrower for its records as soon as
practicable.
(d) Acceptance of Competitive Bids. The Borrower may, in its
sole discretion, subject only to the provisions of this subsection (d),
accept or refuse any Competitive Bid offered to it. To accept a
Competitive Bid, the Borrower shall give telephonic notification of its
acceptance of any or all such Competitive Bids to the Administrative
Agent by 11:00 a.m. on the proposed date of a Competitive Bid Loan
which shall be promptly confirmed in writing; provided, however, (i)
the failure by the Borrower to give timely notice of its acceptance of
a Competitive Bid shall be deemed to be a refusal thereof, (ii) to the
extent Competitive Bids are for comparable Interest Periods, the
Borrower may accept Competitive Bids only in ascending order of rates,
(iii) the aggregate amount of Competitive Bids accepted by the Borrower
shall not exceed the principal amount specified in the Competitive Bid
Request, (iv) if the Borrower shall accept a bid or bids made at a
particular Competitive Bid Rate, but the amount of such bid or bids
shall cause the total amount of bids to be accepted by the Borrower to
be in excess of the amount specified in the Competitive Bid Request,
then the Borrower shall accept a portion of such bid or bids in an
amount equal to
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the amount specified in the Competitive Bid Request less the amount of
all other Competitive Bids accepted with respect to such Competitive
Bid Request, which acceptance shall be made pro rata in accordance with
the amount of each such bid at such Competitive Bid Rate and (v) no bid
shall be accepted for a Competitive Bid Loan unless such Competitive
Bid Loan is in a minimum principal amount of $1,000,000 and integral
multiples of $500,000 in excess thereof or in the case of a Foreign
Currency, the U.S. Dollar equivalent, except that where a portion of a
Competitive Bid is accepted in accordance with the provisions of
subsection (iv) hereof, then in a minimum principal amount of $100,000
and integral multiples of $100,000 (but not in any event less than the
minimum amount specified in the Competitive Bid), and in calculating
the pro rata allocation of acceptances of portions of multiple bids at
a particular Competitive Bid Rate pursuant to subsection (iv) hereof,
the amounts shall be rounded to integral multiples of $100,000, or in
the case of a Foreign Currency, the U.S. Dollar equivalent, in a manner
which shall be in the discretion of the Borrower. A notice of
acceptance of a Competitive Bid given by the Borrower in accordance
with the provisions hereof shall be irrevocable. The Administrative
Agent shall, not later than 1:00 p.m. on the date of receipt from the
Borrower of its acceptance or rejection of Competitive Bid, notify each
bidding Lender whether or not its Competitive Bid has been accepted
(and if so, in what amount and at what Competitive Bid Rate), and each
successful bidder will thereupon become bound, subject to the other
applicable conditions hereof, to make the Competitive Bid Loan in
respect of which its bid has been accepted.
(e) Funding of Competitive Bid Loans. Each Lender that is to
make a Competitive Bid Loan shall make its Competitive Bid Loan
available to the Administrative Agent by 2:00 P.M. on the date
specified in the Competitive Bid Request by deposit in Dollars or the
applicable Foreign Currency of immediately available funds at the
office of the Administrative Agent in Charlotte, North Carolina, or at
such other address as the Administrative Agent may designate in
writing. The Administrative Agent will, upon receipt, make the proceeds
of such Competitive Bid Loans available to the Borrower.
(f) Maturity of Competitive Bid Loans. Each Competitive Bid
Loan shall mature and be due and payable in full, in the currency in
which made, on the last day of the Interest Period applicable thereto.
Unless the Borrower shall give notice to the Administrative Agent
otherwise, or a Default or Event of Default exists and is continuing,
on the Business Day prior to the last day of the applicable Interest
Period of a maturing Competitive Bid Loan, the Borrower shall be deemed
to have requested from all of the Lenders Revolving Loans in Dollars in
the amount of such maturing Competitive Bid Loan, accruing interest at
the Base Rate, the proceeds of which will be used to repay such
Competitive Bid Loan.
(g) Minimum Amounts. Each Competitive Bid Loan shall be in an
amount not less than $1,000,000 and in integral multiples of $100,000
thereof.
(h) Competitive Bid Loan Notes. The Competitive Bid Loans made
by each Lender shall be evidenced by a duly executed promissory note of
the Borrower to such Lender in the original principal amount of the
Revolving Committed Amount and in substantially the form of Exhibit
2.3(h).
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2.4 Swing Line Loans Subfacility.
(a) Swing Line Loans. NationsBank hereby agrees, on the terms
and subject to the conditions set forth herein and in the other Credit
Documents, to make loans to the Borrower in Dollars at any time and
from time to time during the period from and including the Effective
Date to but not including the Revolving Loan Maturity Date (each such
loan, a "Swing Line Loan" and collectively, the "Swing Line Loans");
provided that (i) the aggregate principal amount of the Swing Line
Loans outstanding at any one time shall not exceed the Swing Line
Committed Amount and (ii) the sum of Swing Line Loans outstanding plus
Revolving Loans outstanding plus Competitive Bid Loans outstanding plus
the aggregate amount of LOC Obligations outstanding shall not exceed
the Revolving Committed Amount. Prior to the Revolving Loan Maturity
Date, Swing Line Loans may be repaid and reborrowed by the Borrower in
accordance with the provisions hereof. Upon the request of any Lender,
NationsBank shall provide such Lender a schedule of Swing Line Loans
then outstanding.
(b) Method of Borrowing and Funding Swing Line Loans. By no
later than 10:00 a.m., on the date of the requested borrowing of Swing
Line Loans, the Borrower shall submit a Swing Line Loan Request to
NationsBank in the form of Exhibit 2.4(b) setting forth (i) the amount
of the requested Swing Line Loan, (ii) the date of the requested Swing
Line Loan and (iii) whether such Swing Line Loan is to be a Base Rate
Loan or a Quoted Rate Swing Line Loan and if it is a Quoted Rate Swing
Line Loan, the applicable Interest Period and complying in all respects
with Section 5.2. If the Borrower has requested a Quoted Rate Swing
Line Loan, NationsBank shall provide to the Borrower, no later than
1:00 p.m. on the date of the request, the rate at which NationsBank
would be willing to provide such Swing Line Loan (the "Quoted Rate").
The Borrower shall notify NationsBank by 2:00 p.m. on such date whether
it wishes to accept the Quoted Rate. Failure of the Borrower to timely
accept the Quoted Rate shall make the Quoted Rate and the corresponding
Swing Line Loan Request void.
(c) Repayment and Participations of Swing Line Loans. The
Borrower agrees to repay all Swing Line Loans that are Base Rate Loans
within one Business Day of demand therefor by NationsBank and all Swing
Line Loans that are Quoted Rate Swing Line Loans at the end of the
applicable Interest Period. Each repayment of a Swing Line Loan may be
accomplished by requesting Revolving Loans which request is not subject
to the conditions set forth in Section 5.2(b). In the event that the
Borrower shall fail to timely repay any Swing Line Loan, and in any
event upon (i) a request by NationsBank, (ii) the occurrence of an
Event of Default described in Section 9.1(f) or (iii) the acceleration
of any Loan or termination of any Commitment pursuant to Section 9.2,
each other Lender shall irrevocably and unconditionally purchase from
NationsBank, without recourse or warranty, an undivided interest and
participation in such Swing Line Loan in an amount equal to such other
Lender's Revolving Loan Commitment Percentage thereof, by directly
purchasing a participation in such Swing Line Loan in such amount
(regardless of whether the conditions precedent thereto set forth in
Section 5.2 hereof are then satisfied, whether or not the Borrower has
submitted a Notice of Borrowing and whether or not the Commitments are
then in effect, any Event of Default exists or all the Loans have been
accelerated) and paying the proceeds
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thereof to NationsBank at the address provided in Section 11.1, or at
such other address as NationsBank may designate, in Dollars and in
immediately available funds. If such amount is not in fact made
available to NationsBank by any Lender, NationsBank shall be entitled
to recover such amount on demand from such Lender, together with
accrued interest thereon for each day from the date of demand thereof,
at the Federal Funds Rate. If such Lender does not pay such amount
forthwith upon NationsBank's demand therefor, and until such time as
such Lender makes the required payment, NationsBank shall be deemed to
continue to have outstanding Swing Line Loans in the amount of such
unpaid participation obligation for all purposes of the Credit
Documents other than those provisions requiring the other Lenders to
purchase a participation therein. Further, such Lender shall be deemed
to have assigned any and all payments made of principal and interest on
its Loans, and any other amounts due to it hereunder to NationsBank to
fund Swing Line Loans in the amount of the participation in Swing Line
Loans that such Lender failed to purchase pursuant to this Section
2.4(c) until such amount has been purchased (as a result of such
assignment or otherwise).
(d) Minimum Amounts. Each Swing Line Loan shall be in the
minimum amount of $100,000 and in integral multiples of $50,000 in
excess thereof.
(e) Swing Line Note. The Swing Line Loans made by NationsBank
shall be evidenced by a duly executed promissory note of the Borrower
to NationsBank in the face amount of the Swing Line Committed Amount
and in substantially the form of Exhibit 2.4(e).
2.5 Currency Equivalents. For purposes of determining compliance with
Section 2.1 and Section 3.3(b), the amount of each Loan outstanding in a Foreign
Currency: (a) shall be converted to its U.S. Dollar Equivalent on the date of
the initial Notice of Borrowing or Competitive Bid Loan Request with respect
thereto and on the date of each Notice of Continuation/Conversion or Competitive
Bid Loan Request requesting a new Interest Period therefor and (b) from and
after any such date, shall be deemed to remain equivalent to the U.S. Dollar
Equivalent determined in accordance with clause (a) notwithstanding any
fluctuation in exchange rates occurring thereafter.
SECTION 3
GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT
3.1 Interest.
(a) Interest Rate. All Revolving Loans that are Base Rate
Loans shall accrue interest at the Base Rate. All Swing Line Loans
shall accrue interest at the Base Rate unless such Swing Line Loan is a
Quoted Rate Swing Line Loan then at the Quoted Rate applicable thereto.
All Competitive Bid Loans shall accrue interest at the Competitive Bid
Rate applicable thereto. All Revolving Loans that are Eurocurrency
Loans shall accrue interest at the Adjusted Eurocurrency Rate.
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(b) Default Rate of Interest. Upon the occurrence, and during
the continuance, of an Event of Default, the principal of and, to the
extent permitted by law, interest on the Loans and any other amounts
owing hereunder or under the other Credit Documents (including without
limitation fees and expenses) shall bear interest, payable on demand,
at a per annum rate equal to (i) two percent (2%) plus the rate which
would otherwise be applicable or (ii) if no rate is applicable, the
Base Rate plus two percent (2%).
(c) Interest Payments. Interest on Loans shall be due and
payable in arrears on each Interest Payment Date. If an Interest
Payment Date falls on a date which is not a Business Day, such Interest
Payment Date shall be deemed to be the next succeeding Business Day,
except that in the case of Eurocurrency Loans where the next succeeding
Business Day falls in the next succeeding calendar month, then on the
next preceding Business Day.
3.2 Place and Manner of Payments. All payments of principal, interest,
fees, expenses and other amounts to be made by a Credit Party under this
Agreement shall be received not later than 2:00 p.m. on the date when due, in
Dollars or the applicable Foreign Currency and in same day funds, by the
Administrative Agent at its offices in Charlotte, North Carolina. Payments
received after such time shall be deemed to have been received on the next
Business Day. The Borrower shall, at the time it makes any payment under this
Agreement, specify to the Administrative Agent, the Loans, Letters of Credit,
fees or other amounts payable by the Borrower hereunder to which such payment is
to be applied (and in the event that it fails to specify, or if such application
would be inconsistent with the terms hereof, the Administrative Agent shall,
subject to Section 3.7, distribute such payment to the Lenders in such manner as
the Administrative Agent may deem appropriate). The Administrative Agent will
distribute such payments to the applicable Lenders if any such payment is
received prior to 2:00 p.m.; otherwise the Administrative Agent will distribute
such payment to the applicable Lenders on the next succeeding Business Day.
Whenever any payment hereunder shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day (subject to accrual of interest and fees for the period of such
extension), except that in the case of Eurocurrency Loans, if the extension
would cause the payment to be made in the next following calendar month, then
such payment shall instead be made on the next preceding Business Day.
3.3 Prepayments.
(a) Voluntary Prepayments. The Borrower shall have the right
to prepay Loans in whole or in part from time to time without premium
or penalty; provided, however, that (i) Eurocurrency Loans may only be
prepaid on three Business Days' prior written notice to the
Administrative Agent and any prepayment of Eurocurrency Loans will be
subject to Section 3.14; (ii) each such partial prepayment of Loans
shall be in the minimum principal amount of (A) $5,000,000 for
Revolving Loans, (B) $1,000,000 for Competitive Bid Loans and (C)
$100,000 for Swing Line Loans, or in the case of Foreign Currency the
U.S. Dollar Equivalent; and (iii) Competitive Bid Loans and Quoted Rate
Swing Line Loans may not be prepaid unless a breakage fee equal to the
amount of actual damages suffered by the Lender whose Competitive Bid
Loan or Quoted Rate Swing Line Loan is prepaid is paid to such Lender;
provided that such Lender shall provide the Borrower with the
calculation of such
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damages. Amounts prepaid hereunder shall be applied as the Borrower may
elect; provided, that if the Borrower fails to specify a voluntary
prepayment then such prepayment shall be applied first to Revolving
Loans that are Base Rate Loans, then to Eurocurrency Loans in direct
order of Interest Period maturities, then to Swing Line Loans (first to
those accruing interest at the Base Rate and then at the Quoted Rate)
and then to Competitive Bid Loans pro rata among all Lenders holding
same.
(b) Mandatory Prepayments. If at any time (i) the sum of
Revolving Loans outstanding plus Swing Line Loans outstanding plus
Competitive Bid Loans outstanding plus the aggregate amount of LOC
Obligations outstanding exceeds the Revolving Committed Amount, (ii)
the amount of Swing Line Loans outstanding exceeds the Swing Line
Committed Amount, (iii) the amount of LOC Obligations outstanding
exceeds the LOC Committed Amount, or (iv) the amount of Revolving Loans
outstanding in Foreign Currency plus Competitive Bid Loans outstanding
in Foreign Currency exceeds the U.S. Dollar Equivalent of Fifty Million
Dollars ($50,000,000), the Borrower shall immediately make a principal
payment to the Administrative Agent in the manner and in an amount
necessary to be in compliance with Section 2.1, 2.2, 2.3 or 2.4, as
applicable.
(c) Application of Prepayments. All amounts required to be
paid pursuant to Section 3.3(b) (i) shall be applied first to Revolving
Loans (first to Base Rate Loans and then to Eurocurrency Loans in
direct order of Interest Period maturities), second to Swing Line Loans
(first to Base Rate Loans and then to Quoted Rate Swing Line Loans),
third to a cash collateral account in respect of LOC Obligations and
fourth to Competitive Bid Loans pro rata among the Lenders holding
same. All prepayments hereunder shall be subject to Section 3.14 as
well as any breakage fees in connection with a prepayment of a
Competitive Bid Loan or a Quoted Rate Swing Line Loan.
3.4 Fees.
(a) Facility Fees. In consideration of the Revolving Committed
Amount being made available by the Lenders hereunder, the Borrower
agrees to pay to the Administrative Agent, for the pro rata benefit of
each applicable Lender (based on each Lender's Revolving Loan
Commitment Percentage of the Revolving Committed Amount), a fee equal
to the Applicable Percentage for Facility Fees on the Revolving
Committed Amount (the "Facility Fees"). The accrued Facility Fees shall
commence to accrue on the Effective Date and shall be due and payable
in arrears on the first Business Day of each fiscal quarter of the
Borrower (as well as on the Revolving Loan Maturity Date and on any
date that the Revolving Committed Amount is reduced) for the
immediately preceding fiscal quarter (or portion thereof), beginning
with the first of such dates to occur after the Closing Date.
(b) Letter of Credit Fees.
(i) Letter of Credit Fee. In consideration of the issuance of
Letters of Credit hereunder, the Borrower agrees to pay to the Issuing
Lender, for the pro rata benefit of the applicable Lenders (based on
each Lender's Revolving Loan Commitment Percentage of the Revolving
Committed Amount), a fee (the "Letter of
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Credit Fee") equal to the Applicable Percentage for the Letter
of Credit Fee on the average daily maximum amount available to
be drawn under each such Letter of Credit from the date of
issuance to the date of expiration. The Letter of Credit Fee
will be payable in arrears on the first Business Day of each
fiscal quarter of the Borrower (as well as on the Revolving
Loan Maturity Date) for the immediately preceding fiscal
quarter (or portion thereof), beginning with the first of such
dates to occur after the Closing Date.
(ii) Issuing Lender Fees. In addition to the
Letter of Credit Fees payable pursuant to subsection (i)
above, the Borrower shall pay to the Issuing Lender for its
own account, without sharing by the other Lenders, (A) a fee
equal to one-eighth of one percent (1/8%) per annum on the
total sum of all Letters of Credit issued by the Issuing
Lender, such fee to be paid quarterly in arrears 15 days after
the end of each fiscal quarter of the Borrower (as well as on
the Revolving Loan Maturity Date) and (B) the customary
charges from time to time to the Issuing Lender for its
services in connection with the issuance, amendment, payment,
transfer, administration, cancellation and conversion of, and
drawings under, such Letters of Credit (collectively, the
"Issuing Lender Fees").
(c) Administrative Fees. The Borrower agrees to pay to the
Administrative Agent, for its own account, an annual fee as agreed to
between the Borrower and the Administrative Agent in the Fee Letter.
(d) Competitive Bid Request Fees. The Borrower agrees to pay
to the Administrative Agent a Competitive Bid Request Fee as agreed to
between the Borrower and the Administrative Agent as set forth in the
Fee Letter.
3.5 Payment in full at Maturity. On the Revolving Loan Maturity Date,
the entire outstanding principal balance of all Revolving Loans, all Swing Line
Loans, all Competitive Bid Loans and all LOC Obligations then outstanding,
together with accrued but unpaid interest and all other sums owing with respect
thereto, shall be due and payable in full, unless accelerated sooner pursuant to
Section 9.
3.6 Computations of Interest and Fees.
(a) Except for Base Rate Loans, in which case interest shall
be computed on the basis of a 365 or 366 day year, as applicable, all
computations of interest and fees hereunder shall be made on the basis
of the actual number of days elapsed over a year of 360 days. Interest
shall accrue from and include the date of borrowing (or continuation or
conversion) but exclude the date of payment.
(b) It is the intent of the Lenders and the Credit Parties to
conform to and contract in strict compliance with applicable usury law
from time to time in effect. All agreements between the Lenders and the
Borrower are hereby limited by the provisions of this paragraph which
shall override and control all such agreements, whether now existing or
hereafter arising and whether written or oral. In no way, nor in any
event or contingency (including
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but not limited to prepayment or acceleration of the maturity of any
obligation), shall the interest taken, reserved, contracted for,
charged, or received under this Credit Agreement, under the Notes or
otherwise, exceed the maximum nonusurious amount permissible under
applicable law. If, from any possible construction of any of the Credit
Documents or any other document, interest would otherwise be payable in
excess of the maximum nonusurious amount, any such construction shall
be subject to the provisions of this paragraph and such documents shall
be automatically reduced to the maximum nonusurious amount permitted
under applicable law, without the necessity of execution of any
amendment or new document. If any Lender shall ever receive anything of
value which is characterized as interest on the Loans under applicable
law and which would, apart from this provision, be in excess of the
maximum lawful amount, an amount equal to the amount which would have
been excessive interest shall, without penalty, be applied to the
reduction of the principal amount owing on the Loans and not to the
payment of interest, or refunded to the Borrower or the other payor
thereof if and to the extent such amount which would have been
excessive exceeds such unpaid principal amount of the Loans. The right
to demand payment of the Loans or any other indebtedness evidenced by
any of the Credit Documents does not include the right to receive any
interest which has not otherwise accrued on the date of such demand,
and the Lenders do not intend to charge or receive any unearned
interest in the event of such demand. All interest paid or agreed to be
paid to the Lenders with respect to the Loans shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full stated term (including any renewal or
extension) of the Loans so that the amount of interest on account of
such indebtedness does not exceed the maximum nonusurious amount
permitted by applicable law.
3.7 Pro Rata Treatment. Except to the extent otherwise
provided herein:
(a) Loans. Each Revolving Loan borrowing (including, without
limitation, each Mandatory Borrowing), each payment or prepayment of
principal of any Revolving Loan, each payment of fees (other than the
Issuing Lender Fees retained by the Issuing Lender for its own account
and the Administrative Fees and Competitive Bid Request Fees retained
by the Administrative Agent for its own account), each reduction of the
Revolving Committed Amount, and each conversion or continuation of any
Revolving Loan, shall (except as otherwise provided in Section 3.11) be
allocated pro rata among the relevant Lenders in accordance with the
respective Revolving Loan Commitment Percentages of such Lenders (or,
if the Commitments of such Lenders have expired or been terminated, in
accordance with the respective principal amounts of the outstanding
Revolving Loans and Participation Interests of such Lenders); provided
that, if any Lender shall have failed to pay its applicable pro rata
share of any Revolving Loan, then any amount to which such Lender would
otherwise be entitled pursuant to this subsection (a) shall instead be
payable to the Administrative Agent until the share of such Revolving
Loan not funded by such Lender has been repaid; provided further, that
in the event any amount paid to any Lender pursuant to this subsection
(a) is rescinded or must otherwise be returned by the Administrative
Agent, each Lender shall, upon the request of the Administrative Agent,
repay to the Administrative Agent the amount so paid to such Lender,
with interest for the period commencing on the date such payment is
returned by the Administrative Agent until the date the Administrative
Agent receives such repayment at a rate per annum equal to, during the
period to but
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excluding the date two Business Days after such request, the Federal
Funds Rate, and thereafter, the Base Rate plus two percent (2%) per
annum; and
(b) Letters of Credit. Each payment of unreimbursed drawings
in respect of LOC Obligations shall be allocated to each LOC
Participant pro rata in accordance with its Revolving Loan Commitment
Percentage; provided that, if any LOC Participant shall have failed to
pay its applicable pro rata share of any drawing under any Letter of
Credit, then any amount to which such LOC Participant would otherwise
be entitled pursuant to this subsection (b) shall instead be payable to
the Issuing Lender until the share of such unreimbursed drawing not
funded by such Lender has been repaid; provided further, that in the
event any amount paid to any LOC Participant pursuant to this
subsection (b) is rescinded or must otherwise be returned by the
Issuing Lender, each LOC Participant shall, upon the request of the
Issuing Lender, repay to the Administrative Agent for the account of
the Issuing Lender the amount so paid to such LOC Participant, with
interest for the period commencing on the date such payment is returned
by the Issuing Lender until the date the Issuing Lender receives such
repayment at a rate per annum equal to, during the period to but
excluding the date two Business Days after such request, the Federal
Funds Rate, and thereafter, the Base Rate plus two percent (2%) per
annum.
3.8 Sharing of Payments. The Lenders agree among themselves that,
except to the extent otherwise provided herein, in the event that any Lender
shall obtain payment in respect of any Loan, unreimbursed drawing with respect
to any LOC Obligations or any other obligation owing to such Lender under this
Credit Agreement through the exercise of a right of setoff, banker's lien or
counterclaim, or pursuant to a secured claim under Section 506 of the Bankruptcy
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means, in excess of its pro rata
share of such payment as provided for in this Credit Agreement, such Lender
shall promptly pay in cash or purchase from the other Lenders a participation in
such Loans, LOC Obligations, and other obligations in such amounts, and make
such other adjustments from time to time, as shall be equitable to the end that
all Lenders share such payment in accordance with their respective ratable
shares as provided for in this Credit Agreement. The Lenders further agree among
themselves that if payment to a Lender obtained by such Lender through the
exercise of a right of setoff, banker's lien, counterclaim or other event as
aforesaid shall be rescinded or must otherwise be restored, each Lender which
shall have shared the benefit of such payment shall, by payment in cash or a
repurchase of a participation theretofore sold, return its share of that benefit
(together with its share of any accrued interest payable with respect thereto)
to each Lender whose payment shall have been rescinded or otherwise restored.
The Borrower agrees that any Lender so purchasing such a participation may, to
the fullest extent permitted by law, exercise all rights of payment, including
setoff, banker's lien or counterclaim, with respect to such participation as
fully as if such Lender were a holder of such Loan, LOC Obligation or other
obligation in the amount of such participation. Except as otherwise expressly
provided in this Credit Agreement, if any Lender or an Agent shall fail to remit
to an Agent or any other Lender an amount payable by such Lender or such Agent
to such Agent or such other Lender pursuant to this Credit Agreement on the date
when such amount is due, such payments shall be made together with interest
thereon for each date from the date such amount is due until the date such
amount is paid to such Agent or such other Lender at a rate per annum equal to
the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other
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similar law, any Lender receives a secured claim in lieu of a setoff to which
this Section 3.8 applies, such Lender shall, to the extent practicable, exercise
its rights in respect of such secured claim in a manner consistent with the
rights of the Lenders under this Section 3.8 to share in the benefits of any
recovery on such secured claim.
3.9 Capital Adequacy. If, after the date hereof, any Lender has
determined that the adoption or the becoming effective of, or any change in, or
any change by any Governmental Authority, central bank or comparable agency
charged with the interpretation or administration thereof in the interpretation
or administration of, any applicable law, rule or regulation regarding capital
adequacy, or compliance by such Lender, or its parent corporation, with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on such Lender's (or parent
corporation's) capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which such Lender, or its parent
corporation, could have achieved but for such adoption, effectiveness, change or
compliance (taking into consideration such Lender's (or parent corporation's)
policies with respect to capital adequacy), then, within 30 days following
written notice from such Lender to the Borrower (such notice setting forth the
amount necessary to compensate such Lender and identifying in reasonable detail
the basis for the calculation of such amount and taking into account applicable
deductions and credits in respect of the amount indemnified), the Borrower shall
be obligated to pay to such Lender such additional amount or amounts as will
compensate such Lender on an after-tax basis (after taking into account
applicable deductions and credits in respect of the amount indemnified) for such
reduction. Each determination by any such Lender of amounts owing under this
Section shall, absent manifest error, be conclusive and binding on the parties
hereto. This covenant shall survive the termination of this Credit Agreement and
the payment of the Loans and all other amounts payable hereunder. Each Lender
agrees not to give any such notice or demand any such payment with respect to
any such determinations at a time more than six months after the period as to
which the Lender has made such determinations. The Borrower shall not be
obligated to compensate any Lender for any such reductions if the Borrower shall
have received such demand from such Lender later than the time provided in the
preceding sentence. Each Lender agrees to make all reasonable efforts to avoid
or minimize the amount of any demand for payment under this Section 3.9,
including exercising all reasonable efforts to change its lending office or to
transfer its affected Loans to an Affiliate; provided, however, that no Lender
shall be required by this sentence to effect any change or transfer which would
have a materially adverse effect on such Lender's results of operations or
financial condition. Notwithstanding the foregoing, no Lender shall be entitled
to request compensation under this Section 3.9 with respect to any Eurocurrency
Competitive Loan if said Lender shall have been aware of the charge giving rise
to such request at the time of submission of the related Eurocurrency
Competitive Loan.
3.10 Inability To Determine Eurocurrency Rate or Make Loans in Foreign
Currency. If the Administrative Agent shall have determined in good faith (which
determination shall be conclusive and binding upon the Borrower) that, (a) by
reason of circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the Eurocurrency Rate or (b) Loans cannot be
made in a Foreign Currency, the Administrative Agent shall give telecopy or
telephonic notice thereof to the Borrower and the Lenders as soon as practicable
thereafter, and
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will also give prompt written notice to the Borrower when such conditions no
longer exist. If such notice is given in connection with (a) above (i) any
Eurocurrency Loans requested to be made on the first day of such Interest Period
shall be made as Base Rate Loans, (ii) any Loans that were to have been
converted on the first day of such Interest Period to or continued as
Eurocurrency Loans shall be converted to or continued as Base Rate Loans and
(iii) any outstanding Eurocurrency Loans shall be converted, on the first day of
such Interest Period, to Base Rate Loans. Until such notice has been withdrawn
by the Administrative Agent, no further Eurocurrency Loans shall be made or
continued as such, nor shall the Borrower have the right to convert Base Rate
Loans to Eurocurrency Loans. If such notice is given in connection with (b)
above, any request for a Loan in such Foreign Currency shall be a request for
such loan to be made in Dollars.
3.11 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof occurring after the Closing Date shall make it unlawful for
any Lender to make or maintain Eurocurrency Loans as contemplated by this Credit
Agreement, (a) such Lender shall promptly give written notice of such
circumstances to the Borrower and the Administrative Agent (which notice shall
be withdrawn whenever such circumstances no longer exist), (b) the commitment of
such Lender hereunder to make Eurocurrency Loans, continue Eurocurrency Loans as
such and convert a Base Rate Loan to Eurocurrency Loans shall forthwith be
canceled and, until such time as it shall no longer be unlawful for such Lender
to make or maintain Eurocurrency Loans, such Lender shall then have a commitment
only to make a Base Rate Loan when a Eurocurrency Loan is requested and (c) such
Lender's Loans then outstanding as Eurocurrency Loans, if any, shall be
converted automatically to Base Rate Loans on the respective last days or the
then current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurocurrency Loan occurs
on a day which is not the last day of the then current Interest Period with
respect thereto, the Borrower shall pay to such Lender such amounts, if any, as
may be required pursuant to Section 3.14.
3.12 Requirements of Law. If, after the Closing Date, the adoption of
or any change in any Requirement of Law or in the interpretation or application
thereof applicable to any Lender, or compliance by any Lender with any request
or directive (whether or not having the force of law) from any central bank or
other Governmental Authority, in each case made subsequent to the Closing Date
(or, if later, the date on which such Lender becomes a Lender):
(a) shall change the basis of taxation of payments to such
Lender of the principal of or interest on any Loan made by such Lender
or any fees or other amounts payable to such Lender hereunder (except
for Non-Excluded Taxes covered by Section 3.13 (including Non- Excluded
Taxes imposed solely by reason of any failure of such Lender to comply
with its obligations under Section 3.13(b)) and changes in taxes
measured by or imposed upon the overall net income, or franchise tax,
gross receipt taxes, branch taxes, taxes on doing business or taxes on
the overall net worth of such Lender or its applicable lending office,
branch, or any affiliate thereof);
(b) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
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acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the Eurocurrency Rate
hereunder; or
(c) shall impose on such Lender any other condition (excluding
any tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender reasonably deems to be material, of making,
converting into, continuing or maintaining Eurocurrency Loans or issuing or
participating in Letters of Credit or making Loans in a Foreign Currency or to
reduce any amount receivable hereunder in respect thereof, then, in any such
case, upon notice to the Borrower from such Lender, through the Administrative
Agent, in accordance herewith, the Borrower shall be obligated to promptly pay
such Lender, upon its demand, any additional amounts necessary to compensate
such Lender on an after-tax basis (after taking into account applicable
deductions and credits in respect of the amount indemnified) for such increased
cost or reduced amount receivable, provided that, in any such case, the Borrower
may elect to convert the Eurocurrency Loans made by such Lender hereunder to
Base Rate Loans by giving the Administrative Agent at least one Business Day's
notice of such election, in which case the Borrower shall promptly pay to such
Lender, upon demand, without duplication, such amounts, if any, as may be
required pursuant to Section 3.14. If any Lender becomes entitled to claim any
additional amounts pursuant to this Section 3.12, it shall provide prompt notice
thereof to the Borrower, through the Administrative Agent, certifying (x) that
one of the events described in this Section 3.12 has occurred and describing in
reasonable detail the nature of such event, (y) as to the increased cost or
reduced amount resulting from such event and (z) as to the additional amount
demanded by such Lender and a reasonably detailed explanation of the calculation
thereof. Such a certificate as to any additional amounts payable pursuant to
this Section 3.12 submitted by such Lender, through the Administrative Agent, to
the Borrower shall be conclusive and binding on the parties hereto in the
absence of manifest error. This covenant shall survive the termination of this
Credit Agreement and the payment of the Loans and all other amounts payable
hereunder. Notwithstanding the foregoing, no Lender shall be entitled to request
compensation under this Section 3.12 with respect to any Eurocurrency
Competitive Loan if said Lender shall have been aware of the charge giving rise
to such request at the time of submission of the related Eurocurrency
Competitive Loan.
3.13 Taxes.
(a) Except as provided below in this Section 3.13, all
payments made by the Borrower under this Credit Agreement and any Notes
shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any court, or governmental body, agency or other official,
excluding taxes measured by or imposed upon the overall net income of
any Lender or its applicable lending office, or any branch or affiliate
thereof, and all franchise taxes, gross receipts, branch taxes, taxes
on doing business or taxes on the overall capital or net worth of any
Lender or its applicable lending office, or any branch or affiliate
thereof, in each case imposed: (i) by the jurisdiction under the laws
of which such Lender, applicable lending office, branch or affiliate is
organized or is located, or in which its principal executive or
business office is located, or any nation within which such
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jurisdiction is located or any political subdivision thereof; or (ii)
by reason of any connection between the jurisdiction imposing such tax
and such Lender, applicable lending office, principal executive or
business office branch or affiliate other than a connection arising
solely from such Lender having executed, delivered or performed its
obligations, or received payment under or enforced, this Credit
Agreement or any Notes. If any such non-excluded taxes, levies,
imposts, duties, charges, fees, deductions or withholdings
("Non-Excluded Taxes") are required to be withheld from any amounts
payable to an Agent or any Lender hereunder or under any Notes, (A) the
amounts so payable to an Agent or such Lender shall be increased to the
extent necessary to yield to an Agent or such Lender (after payment of
all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Credit
Agreement and any Notes, provided, however, that the Borrower shall be
entitled to deduct and withhold any Non-Excluded Taxes (and other
applicable taxes) and shall not be required to increase any such
amounts payable to any Lender that is not organized under the laws of
the United States of America or a state thereof if such Lender fails to
comply with the requirements of paragraph (b) (or (h)) of this Section
3.13 whenever any Non-Excluded Taxes (or other applicable taxes) are
payable by or otherwise imposed on or collected from the Borrower, and
(B) as promptly as possible after requested the Borrower shall send to
such Agent for its own account or for the account of such Lender, as
the case may be, a certified copy of an original official receipt
received by the Borrower or, if none is available, other written
evidence showing payment thereof. If the Borrower fails to pay any
Non-Excluded Taxes when due to the appropriate taxing authority or
fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Agents and any Lender for any incremental taxes, interest or penalties
that may become payable by an Agent or any Lender as a result of any
such failure. The agreements in this subsection shall survive the
termination of this Credit Agreement and the payment of the Loans and
all other amounts payable hereunder.
(b) Each Person which is a Lender that is not incorporated
under the laws of the United States of America or any state or
jurisdiction thereof shall:
(i) (A) on or before the date on which such Person
becomes a Lender hereunder, deliver to the Borrower and the
Administrative Agent (x) two duly completed copies of United
States Internal Revenue Service Form 1001 or 4224, or
successor applicable form, as the case may be, certifying that
it is entitled to receive payments under this Credit Agreement
and any Notes without deduction or withholding of any United
States federal income taxes and (y) an Internal Revenue
Service Form W-8 or W-9, or successor applicable form, as the
case may be, certifying that it is entitled to an exemption
from United States backup withholding tax;
(B) deliver to the Borrower and the
Administrative Agent two further copies of any such form or
certification on or before the date that any such form or
certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent
form previously delivered by it to the Borrower; and
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(C) obtain such extensions of time for
filing and complete such forms or certifications as may
reasonably be requested by the Borrower or the Administrative
Agent; or
(ii) in the case of any such Person that is not
a "bank" within the meaning of Section 881(c)(3)(A) of the
Internal Revenue Code, on or before the date such Person
becomes a Lender hereunder, (A) represent in writing to the
Borrower (for the benefit of the Borrower and the Agents) that
it is not a bank within the meaning of Section 881(c)(3)(A) of
the Internal Revenue Code, (B) deliver to the Borrower, with a
copy to the Administrative Agent, two accurate and complete
original signed copies of Internal Revenue Service Form W-8,
or successor applicable form certifying to such Lender's legal
entitlement at the date of such certificate to an exemption
from U.S. withholding tax under the provisions of Section
881(c) of the Internal Revenue Code with respect to payments
to be made under this Credit Agreement and any Notes (and to
deliver to the Borrower and the Administrative Agent two
further copies of such form on or before the date it expires
or becomes obsolete and after the occurrence of any event
requiring a change in the most recently provided form and, if
necessary, obtain any extensions of time reasonably requested
by the Borrower or the Administrative Agent for filing and
completing such forms), and (C) agree, to the extent legally
entitled to do so, upon reasonable request by the Borrower, to
provide to the Borrower (for the benefit of the Borrower and
the Agents) such other forms as may be reasonably required in
order to establish the legal entitlement of such Lender to an
exemption from withholding with respect to payments under this
Credit Agreement and any Notes.
Notwithstanding the above, if any change in treaty, law or regulation
has occurred after the date such Person becomes a Lender hereunder
which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form or reasonable
substitution therefor with respect to it and such Lender so advises the
Borrower and the Administrative Agent then such Lender shall be exempt
from such requirements. Each Person that shall become a Lender or a
participant of a Lender pursuant to Section 11.3 shall, upon the
effectiveness of the related transfer, be required to provide all of
the forms, certifications and statements required pursuant to this
subsection (b); provided that in the case of a participant of a Lender,
the obligations of such participant of a Lender pursuant to this
subsection (b) shall be determined as if the participant of a Lender
were a Lender except that such participant of a Lender shall furnish
all such required forms, certifications and statements to the Lender
from which the related participation shall have been purchased and such
Lender shall provide copies to the Administrative Agent and the
Borrower.
(c) Notwithstanding anything to the contrary in this Credit
Agreement, the Borrower shall not be required to pay any current or
future stamp, intangible or documentary taxes or any other excise or
property taxes, charges or similar levies (including without
limitation, mortgage recording taxes and similar fees) that arise as a
result of sales, assignments or other transfers of rights hereunder by
any Lender.
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(d) If requested by a Borrower, and at the Borrower's expense,
any Lender and the Administrative Agent shall take such steps as may be
appropriate to seek a refund of any Non-Excluded Taxes paid by it and
shall permit the Borrower to participate in the preparation of any such
refund claim. If any Lender or the Administrative Agent receives a
refund in respect of any Non-Excluded Taxes for which the Lender has
received payment from the Borrower hereunder, any Lender and the
Administrative Agent, within 15 days of such receipt, shall deliver to
the Borrower the amount of such refund. In addition, within 15 days of
a written request of a Borrower, any Lender and the Administrative
Agent shall execute and deliver to the Borrower such certificates,
forms or other documents which can be reasonably furnished consistent
with the facts and which are reasonably necessary to assist the
Borrower in applying for refunds of Non-Excluded Taxes remitted
hereunder.
(e) If a Borrower is required to pay any amounts pursuant to
the provisions of this Section 3.13, and if thereafter any Lender or
the Administrative Agent shall receive or be granted a credit against
or remission or other relief for any Non-Excluded Taxes payable by the
Borrower solely in respect of the amounts so paid by the Borrower, such
Lender shall to the extent that it can do so without prejudice to the
retention of the amount of such credit, remission or other relief, pay
to the Borrower promptly after the date on which any Lender or the
Administrative Agent effectively obtains the benefit of such credit,
remission or other relief an amount which such Lender reasonably
determines to be equal to such credit, remission or other relief less
any sum which the Lender is required by law to deduct therefrom. The
Lender may, in its reasonable discretion, determine the order of
utilization of all charges, deductions, credits and expenses.
(f) In the event any Lender or the Administrative Agent
receives written communication from any tax authority with respect to
an assessment or proposed assessment of any Non-Excluded Taxes, such
Lender or the Administrative Agent shall promptly notify the Borrower
in writing and provide a copy of such communication to the Borrower.
(g) Each Lender shall use reasonable efforts to avoid or
minimize any amounts which might otherwise be payable pursuant to this
Section 3.13, including, upon request of a Borrower, the change of its
lending office; provided, however, that such efforts shall not include
the taking of any actions by the Lender that would result in any tax,
costs or other expense to the Lender (other than a tax, cost or expense
for which the Lender shall have been reimbursed or indemnified by the
Borrower pursuant to this Credit Agreement or otherwise) or any action
which would have a materially adverse effect on such Lenders results of
operations or financial condition.
(h) Each Person which is a Lender that is incorporated under
the laws of the United States of America or a state thereof shall, on
or before the date such Person becomes a Lender hereunder, deliver to
the Borrower and the Administrative Agent an Internal Revenue Service
Form W-9, or successor applicable form, certifying that it is entitled
to an exemption from United States backup withholding tax.
3.14 Compensation. The Borrower promises to indemnify each
Lender and to hold each Lender harmless from any loss or expense which
such Lender may sustain or incur as a consequence
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of (a) default by the Borrower in making a borrowing of, conversion into or
continuation of Eurocurrency Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Credit Agreement,
(b) default by the Borrower in making any prepayment of a Eurocurrency Loan
after the Borrower has given a notice thereof in accordance with the provisions
of this Credit Agreement and (c) the making of a prepayment of Eurocurrency
Loans on a day which is not the last day of an Interest Period with respect
thereto. Such indemnification may include an amount equal to (i) the amount of
interest which would have accrued on the amount so prepaid, or not so borrowed,
converted or continued, for the period from the date of such prepayment or of
such failure to borrow, convert or continue to the last day of the applicable
Interest Period (or, in the case of a failure to borrow, convert or continue,
the Interest Period that would have commenced on the date of such failure) in
each case at the applicable rate of interest for such Eurocurrency Loans
provided for herein (excluding, however, the Applicable Percentage included
therein, if any) minus (ii) the amount of interest (as reasonably determined by
such Lender) which would have accrued to such Lender on such amount by placing
such amount on deposit for a comparable period with leading banks in the
interbank Eurocurrency market. The agreements in this Section shall survive the
termination of this Credit Agreement and the payment of the Loans and all other
amounts payable hereunder.
SECTION 4
GUARANTY
4.1 Guaranty of Payment. Subject to Section 4.7 below, each of the
Guarantors hereby, jointly and severally, unconditionally guarantees to each
Lender and the Agents the prompt payment of the Borrower Obligations in full
when due (whether at stated maturity, as a mandatory prepayment, by acceleration
or otherwise). This Guaranty is a guaranty of payment and not of collection and
is a continuing guaranty and shall apply to all Borrower Obligations whenever
arising.
4.2 Obligations Unconditional. The obligations of the Guarantors
hereunder are absolute and unconditional, irrespective of the value,
genuineness, validity, regularity or enforceability of any of the Credit
Documents or any other agreement or instrument referred to therein, to the
fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever which might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor. Each Guarantor agrees that this
Guaranty may be enforced by the Lenders without the necessity at any time of
resorting to or exhausting any other security or collateral and without the
necessity at any time of having recourse to the Notes or any other of the Credit
Documents or any collateral, if any, hereafter securing the Borrower Obligations
or otherwise and each Guarantor hereby waives the right to require the Lenders
to proceed against the Borrower or any other Person (including a co-guarantor)
or to require the Lenders to pursue any other remedy or enforce any other right.
Each Guarantor further agrees that any right of subrogation, indemnity,
reimbursement or contribution it may have against the Borrower or any other
Guarantor of the Borrower Obligations for amounts paid under this Guaranty shall
be subordinated to (and no Guarantor shall assert same unless and until) the
repayment in full of all Loans, all reimbursement obligations under Letters of
Credit, all interest thereon, and all fees until 100 days after the date on
which all Commitments and Letters of Credit have been terminated and all Loans,
LOC Obligations, interest, and fees have been paid in full. Each
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Guarantor further agrees that nothing contained herein shall prevent the Lenders
from suing on the Notes or any of the other Credit Documents or foreclosing its
security interest in or Lien on any collateral, if any, securing the Borrower
Obligations or from exercising any other rights available to it under this
Credit Agreement, the Notes, any other of the Credit Documents, or any other
instrument of security, if any, and the exercise of any of the aforesaid rights
and the completion of any foreclosure proceedings shall not constitute a
discharge of any Guarantor's obligations hereunder; it being the purpose and
intent of each Guarantor that its obligations hereunder shall be absolute,
independent and unconditional under any and all circumstances. Neither any
Guarantor's obligations under this Guaranty nor any remedy for the enforcement
thereof shall be impaired, modified, changed or released in any manner
whatsoever by an impairment, modification, change, release or limitation of the
liability of the Borrower or by reason of the bankruptcy or insolvency of the
Borrower. Each Guarantor waives any and all notice of the creation, renewal,
extension or accrual of any of the Borrower Obligations and notice of or proof
of reliance of by any Agent or any Lender upon this Guarantee or acceptance of
this Guarantee. The Borrower Obligations, and any of them, shall conclusively be
deemed to have been created, contracted or incurred, or renewed, extended,
amended or waived, in reliance upon this Guarantee. All dealings between the
Borrower and any of the Guarantors, on the one hand, and the Agents and the
Lenders, on the other hand, likewise shall be conclusively presumed to have been
had or consummated in reliance upon this Guarantee.
4.3 Modifications. Each Guarantor agrees that (a) all or any part of
the security now or hereafter held for the Borrower Obligations, if any, may be
exchanged, compromised or surrendered from time to time; (b) the Lenders shall
not have any obligation to protect, perfect, secure or insure any such security
interests, liens or encumbrances now or hereafter held, if any, for the Borrower
Obligations or the properties subject thereto; (c) the time or place of payment
of the Borrower Obligations may be changed or extended, in whole or in part, to
a time certain or otherwise, and may be renewed or accelerated, in whole or in
part; (d) the Borrower and any other party liable for payment under the Credit
Documents may be granted indulgences generally or be released; (e) any of the
provisions of the Notes or any of the other Credit Documents may be modified,
amended or waived in accordance with Section 11.6; and (f) any deposit balance
for the credit of the Borrower or any other party liable for the payment of the
Borrower Obligations or liable upon any security therefor may be released, in
whole or in part, at, before or after the stated, extended or accelerated
maturity of the Borrower Obligations, all without notice to or further assent by
such Guarantor, which shall remain bound thereon, notwithstanding any such
exchange, compromise, surrender, extension, renewal, acceleration, modification,
indulgence or release.
4.4 Waiver of Rights. Each Guarantor expressly waives to the fullest
extent permitted by applicable law: (a) notice of acceptance of this Guaranty by
the Lenders and of all extensions of credit to the Borrower by the Lenders; (b)
presentment and demand for payment or performance of any of the Borrower
Obligations; (c) protest and notice of dishonor or of default (except as
specifically required in the Credit Agreement) with respect to the Borrower
Obligations or with respect to any security therefor; (d) notice of the Lenders
obtaining, amending, substituting for, releasing, waiving or modifying any
security interest, lien or encumbrance, if any, hereafter securing the Borrower
Obligations, or the Lenders' subordinating, compromising, discharging or
releasing such security interests, liens or encumbrances, if any; (e) all other
notices to which such Guarantor might otherwise be entitled; and (f) demand for
payment under this Guaranty.
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4.5 Reinstatement. The obligations of the Guarantors under this Section
4 shall be automatically reinstated if and to the extent that, on or before 100
days following the date on which all Commitments and Letters of Credit have been
terminated, and all Loans, LOC Obligations, interest and fees have been paid,
for any reason any payment by or on behalf of any Person in respect of the
Credit Party Obligations is rescinded or must be otherwise restored by any
holder of any of the Credit Party Obligations, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise, and each Guarantor
agrees that it will indemnify the Agents and each Lender on demand for all
reasonable costs and expenses (including, without limitation, reasonable fees of
counsel) incurred by an Agent or such Lender in connection with such rescission
or restoration, including any such costs and expenses incurred in defending
against any claim alleging that such payment constituted a preference,
fraudulent transfer or similar payment under any bankruptcy, insolvency or
similar law.
4.6 Remedies. The Guarantors agree that, as between the Guarantors, on
the one hand, and the Agents and the Lenders, on the other hand, the Credit
Party Obligations may be declared to be forthwith due and payable as provided in
Section 9 (and shall be deemed to have become automatically due and payable in
the circumstances provided in Section 9) notwithstanding any stay, injunction or
other prohibition preventing such declaration (or preventing such Credit Party
Obligations from becoming automatically due and payable) as against any other
Person (including any other Guarantor) and that, in the event of such
declaration (or such Credit Party Obligations being deemed to have become
automatically due and payable), such Credit Party Obligations (whether or not
due and payable by any other Person) shall forthwith become due and payable by
the Guarantors.
4.7 Limitation of Guaranty.
(a) Each Guarantor and by its acceptance of hereof, the Agents
and each other Lender, hereby confirms that it is the intention of all
such parties that this Section 4 not constitute a fraudulent transfer
or conveyance for purposes of the Bankruptcy Code, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law to the extent applicable to this Section
4. To effectuate the foregoing intention, the Agents, the other Lenders
and the Guarantors hereby irrevocably agree that the obligations of
each Guarantor and such Guarantor's Subsidiaries under this Section 4
and, without duplication, under any Collateral Document and any other
Credit Document to which such Guarantor is a party, shall not, in the
aggregate, exceed the greater of (i) the net benefit realized by such
Guarantor or any such Subsidiary from the proceeds of the Loans made
from time to time by the Borrower to the Guarantor or any Subsidiary of
the Guarantor and (ii) 95% of the Adjusted Net Assets of such Guarantor
from time to time following the Closing Date (or, if such Guarantor has
executed and delivered a Joinder Agreement, the date of execution of
such Joinder Agreement). "Adjusted Net Assets" of any Guarantor with
respect to any payment by such Guarantor at any date means the lesser
of (x) the amount by which the fair value of the property of the
Guarantor at such date (including, without limitation, goodwill and the
rights and property of such Guarantor incurred pursuant to Section 4.8
in conjunction with prior payments under this Section 4) exceeds the
total amount of liabilities (including, without limitation, contingent
liabilities and, in conjunction with prior payments made under this
Section 4, liabilities incurred by such Guarantor
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pursuant to Section 4.8, but excluding all other liabilities under this
Section 4) of the Guarantor at such date and (y) the amount by which
the present fair salable value of the assets of the Guarantor at such
date (including, without limitation, goodwill and the rights and
property of such Guarantor incurred pursuant to Section 4.8 in
conjunction with prior payments under this Section 4) exceeds the
amount that will be required to pay the probable liability of the
Guarantor on its debts (including liabilities incurred by such
Guarantor pursuant to Section 4.8 in conjunction with prior payments
under this Section 4 but excluding all other debt in respect of this
Section 4), as they become absolute and matured.
(b) Notwithstanding any provision to the contrary contained
herein or in any of the other Credit Documents, to the extent the
obligations of any Guarantor shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of
any applicable state or federal law relating to fraudulent conveyances
or transfers) then the obligations of such Guarantor hereunder shall be
limited to the maximum amount that is permissible under applicable law
(whether federal or state and including, without limitation, the
Bankruptcy Code).
4.8 Rights of Contribution. The Guarantors hereby agree, as among
themselves, that if any Guarantor shall become an Excess Funding Guarantor (as
defined below), each other Guarantor shall, on demand of such Excess Funding
Guarantor (but subject to the next sentence hereof), pay to such Excess Funding
Guarantor an amount equal to such Guarantor's Pro Rata Share (as defined below
and determined, for this purpose, without reference to the properties, assets,
liabilities and debts of such Excess Funding Guarantor) of such Excess Payment
(as defined below). The payment obligation of any Guarantor to any Excess
Funding Guarantor under this Section 4.8 shall be subordinate and subject in
right of payment to the prior payment in full of the obligations of such
Guarantor to the extent and until such time as set forth in the third sentence
of Section 4.2, and until such time such Excess Funding Guarantor shall not
exercise any right or remedy with respect to such excess. For purposes hereof,
(i) "Excess Funding Guarantor" shall mean, in respect of any obligations arising
under the other provisions of this Section 4 (hereafter, the "Guaranteed
Obligations"), a Guarantor that has made an Excess Payment; (ii) "Excess
Payment" shall mean, in respect of any Guaranteed Obligations, the amount paid
by a Guarantor in excess of the sum of (A) the lesser of its Pro Rata Share of
such Guaranteed Obligations and the maximum amount that such Guarantor is
required to pay in respect of such obligations pursuant to Section 4.7; and (B)
the aggregate amount of payments made by Borrower to such Guarantor in respect
of such Guaranteed Obligations in accordance with the third sentence of Section
4.2 and (iii) "Pro Rata Share", in respect of any determination for the purposes
of this Section 4.8, shall mean, for any Guarantor, the ratio (expressed as a
percentage) of (a) the amount by which the aggregate present fair saleable value
of all of its assets and properties exceeds the amount of all debts and
liabilities of such Guarantor (including contingent, subordinated, unmatured,
and unliquidated liabilities, but excluding the obligations of such Guarantor
hereunder) to (b) the amount by which the aggregate present fair saleable value
of all assets and other properties of the Borrower and all of the Guarantors
exceeds the amount of all of the debts and liabilities (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of the Borrower and the Guarantors hereunder) of the Borrower and
all of the Guarantors, all as of the time of such determination.
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SECTION 5
CONDITIONS PRECEDENT
5.1 Closing Conditions. The obligation of the Lenders to enter into
this Credit Agreement and make the initial Extension of Credit is subject to
satisfaction of the following conditions:
(a) Executed Credit Documents. Receipt by the Agents of duly
executed copies of each of the following required to be effective on
the Effective Date: (i) this Credit Agreement; (ii) the Notes, (iii)
the Collateral Documents and (iv) all other Credit Documents, each in
form and substance reasonably acceptable to the Agents in their sole
discretion.
(b) Corporate and Partnership Documents. Receipt by the Agents
of the following:
(i) Charter Documents. Either (A) copies of
the articles or certificates of incorporation or other charter
documents of each Credit Party that is a corporation certified
to be true and complete as of a recent date by the appropriate
Governmental Authority of the state or other jurisdiction of
its incorporation and certified by a secretary or assistant
secretary of such Credit Party to be true and correct as of
the Effective Date or (B) a copy of the partnership agreement
of each Credit Party that is a partnership certified by its
general partner to be true and correct.
(ii) Bylaws. A copy of the bylaws of each
Credit Party that is a corporation certified by a secretary or
assistant secretary of such Credit Party to be true and
correct as of the Effective Date.
(iii) Resolutions. Copies of resolutions of the
Board of Directors of each Credit Party (or its general
partner, as applicable) approving and adopting such Credit
Documents to which it is a party, the transactions
contemplated therein and authorizing execution and delivery
thereof, certified by a secretary or assistant secretary of
such Credit Party (or its general partner, as applicable) to
be true and correct and in force and effect as of the
Effective Date.
(iv) Good Standing. Copies of (A) certificates
of good standing, existence or its equivalent, as applicable,
with respect to each Credit Party (and its general partner, as
applicable) certified as of a recent date by the appropriate
Governmental Authorities of the state or other jurisdiction of
incorporation and each other jurisdiction in which the failure
to so qualify and be in good standing would have a Material
Adverse Effect on the business or operations of a Credit Party
in such jurisdiction and (B) to the extent available, a
certificate indicating payment of all corporate franchise
taxes certified as of a recent date by the appropriate
governmental taxing authorities.
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(v) Incumbency. An incumbency certificate of
each Credit Party (or its general partner, as applicable)
certified by a secretary or assistant secretary to be true and
correct as of the Effective Date.
(c) Financial Statements. Receipt by the Agents of (i) the
consolidated financial statements of the Credit Parties for fiscal
years 1994 and 1995, including balance sheets and income and cash flow
statements audited by an independent public accounting firm acceptable
to the Agents and containing an unqualified opinion of such firm that
such statements present fairly, in all material respects, the
consolidated financial condition and results of operations of the
Credit Parties, and are prepared in conformity with GAAP, and (ii) pro
forma financial statements for the immediate succeeding five fiscal
years.
(d) Opinion of Counsel. Receipt by the Agents of an opinion,
or opinions (which shall cover, among other things, authority,
legality, validity, binding effect and enforceability), reasonably
satisfactory to the Agents, addressed to the Agents on behalf of the
Lenders and dated as of the Effective Date, from legal counsel to the
Credit Parties.
(e) Spin-Off. The Agents shall have received in connection
with the spin-off of the Borrower from Corning Clinical Laboratories
Inc., a Delaware corporation (the "Spin- Off") a copy of the IRS
Private Letter Ruling issued to Corning Incorporated addressing the tax
treatment of the Spin-Off.
(f) Consents and Approvals. The Borrower shall receive all
governmental, shareholder and third party consents and approvals
necessary in connection with the Spin- Off.
(g) Expiration of Waiting Periods. The Borrower and its
Subsidiaries shall confirm the expiration of all applicable waiting
periods, without any action being taken by any authority (i) in
connection with the Spin-Off, and (ii) to the extent it would restrain,
prevent or impose any material adverse conditions on the Borrower or
any of its Subsidiaries.
(h) Due Diligence. The completion of all due diligence with
respect to the Credit Parties and their Subsidiaries in scope and
determination satisfactory to the Agents in their reasonable
discretion, including, without limitation, historical financial
information, litigation, tax, accounting, labor, insurance, pension
liabilities (actual or contingent) real estate leases, material
contracts, debt agreements, property ownership and contingent
liabilities.
(i) Liens. The Agents shall have received evidence
satisfactory to the Agents that no Liens are in effect except for
Permitted Liens.
(j) Evidence of Insurance. Receipt by the Agents of copies of
insurance policies or certificates of insurance of the Credit Parties
evidencing liability and casualty insurance meeting the requirements
set forth in the Credit Documents.
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(k) Material Adverse Effect. There shall not have occurred a
change since December 31, 1995 that has had or could reasonably be
expected to have a Material Adverse Effect.
(l) Litigation. Except as disclosed on Schedule 6.11, there
shall not exist any pending or threatened action, suit, investigation
or proceeding pending or threatened in any court or before any
arbitrator or governmental authority against a Credit Party or any of
their Subsidiaries that would have or would reasonably be expected to
have a Material Adverse Effect.
(m) Officer's Certificates. The Agents shall have received a
certificate or certificates executed by the chief financial officer of
the Borrower on behalf of the Borrower as of the Effective Date stating
that (i) the Borrower and each of the Borrower's Subsidiaries are in
compliance with all existing material financial obligations, (ii) no
action, suit, investigation or proceeding is pending or threatened in
any court or before any arbitrator or governmental instrumentality that
purports to effect the Borrower, any of the Borrower's Subsidiaries or
any transaction contemplated by the Credit Documents, if such action,
suit, investigation or proceeding would have or would be reasonably
expected to have a Material Adverse Effect, (iii) the financial
statements and information delivered pursuant to Section 5.1(c) were
prepared in good faith and using reasonable assumptions and (iv)
immediately after giving effect to this Credit Agreement, the other
Credit Documents and all the transactions contemplated therein to occur
on such date, (A) each Credit Party is Solvent, (B) no Default or Event
of Default has occurred and is continuing, (C) all representations and
warranties contained herein and in the other Credit Documents are true
and correct in all material respects, and (D) the Borrower is in
compliance with each of the financial covenants set forth in Section
7.2.
(n) Existing Financial Obligations. The Borrower and its
Subsidiaries shall be in compliance with all existing financial
obligations in all material respects.
(o) Disruption of Financial Markets. The absence of any
disruption or adverse change in the financial or capital markets
generally which the Agents, in their sole discretion, deem material in
connection with the syndication of the credit facility evidenced by
this Credit Agreement.
(p) Fees and Expenses. Payment by the Credit Parties of all
fees and expenses owed by them to the Lenders and the Agents,
including, without limitation, payment to the Agents of the fees set
forth in the Fee Letter.
(q) Collateral. Receipt by the Administrative Agent of (i) all
stock certificates or other instruments evidencing the Voting Stock
pledged pursuant to a Pledge Agreement, together with duly executed in
blank stock powers attached thereto and (ii) all promissory notes
evidencing loans from Credit Parties to Non-Material Domestic
Subsidiaries together with duly executed endorsements attached thereto.
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(r) Other. Receipt by the Agents of such other documents,
instruments, agreements or information as reasonably and timely
requested by an Agent.
5.2 Conditions to All Extensions of Credit. In addition to the
conditions precedent stated elsewhere herein, the Lenders shall not be obligated
to make, continue or convert Loans nor shall the Issuing Lender be required to
issue or extend a Letter of Credit unless:
(a) Notice. The Borrower shall have delivered (i) in the case
of any new Revolving Loan, a Notice of Borrowing, duly executed and
completed, by the time specified in Section 2.1, (ii) in the case of
any Letter of Credit, the Issuing Lender shall have received an
appropriate request for issuance in accordance with the provisions of
Section 2.2, (iii) in the case of any Swing Line Loan, a Swing Line
Loan Request, duly executed and completed, by the time specified in
Section 2.4, (iv) in the case of any Competitive Bid Loans, a
Competitive Bid Loan Request, duly executed and completed, by the time
specified in Section 2.3 and (v) in the case of any continuation or
conversion of an existing Loan, a Notice of Continuation/Conversion by
the time specified in Section 2.1(e);
(b) Representations and Warranties. If the Borrower is
requesting (i) a new Loan (as opposed to a continuation or conversion
of an existing Loan) or (ii) the issuance of a Letter of Credit, the
representations and warranties made in the Credit Documents are true
and correct in all material respects at and as if made as of such date
except to the extent they expressly relate to an earlier date;
(c) No Default. No Default or Event of Default shall exist or
be continuing either prior to or after giving effect thereto;
(d) Availability. Immediately after giving effect to the
making of a Revolving Loan (and the application of the proceeds
thereof) or to the issuance of a Letter of Credit, as the case may be,
the sum of the Revolving Loans outstanding plus LOC Obligations
outstanding plus Swing Line Loans outstanding plus Competitive Bid
Loans outstanding shall not exceed the Revolving Committed Amount.
The delivery of each Notice of Borrowing and each request for a Letter of Credit
shall constitute a representation and warranty by the Borrower of the
correctness of the matters specified in subsections (b), (c) and (d) above and
the delivery of each Notice of Continuation/Conversion shall constitute a
representation and warranty by the Borrower of the correctness of the matters
specified in subsections (c) and (d) above.
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SECTION 6
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Agents and each Lender that:
6.1 Financial Condition. The financial statements delivered to the
Lenders pursuant to Section 5.1(c)(i) and Section 7.1(a) and (b): (a) have been
prepared in accordance with GAAP and (b) present fairly the consolidated
financial condition, results of operations and cash flows of the Credit Parties
and their Subsidiaries as of such date and for such periods.
6.2 No Material Change. Except as set forth on Schedule 6.2, since
December 31, 1995, there has been no development or event relating to or
affecting a Credit Party or any of their Subsidiaries which has had or would be
reasonably expected to have a Material Adverse Effect.
6.3 Organization and Good Standing. Each Credit Party and each of its
Material Subsidiaries (a) is either a corporation duly incorporated or a
partnership duly formed, validly existing and in good standing under the laws of
the State (or other jurisdiction) of its incorporation or formation, as the case
may be, (b) is duly qualified and in good standing as a foreign corporation or
foreign partnership and is authorized to do business in every jurisdiction where
it does business unless the failure to be so qualified, in good standing or
authorized would not have or would not be reasonably expected to have a Material
Adverse Effect and (c) has the requisite corporate or partnership power and
authority to own its properties and to carry on its business as now conducted
and as proposed to be conducted.
6.4 Due Authorization. Each Credit Party (a) has the requisite
corporate or partnership power and authority to execute, deliver and perform
this Credit Agreement and the other Credit Documents to which it is a party and
to incur the obligations herein and therein provided for and (b) is duly
authorized to, and has been authorized by all necessary corporate or partnership
action, to execute, deliver and perform this Credit Agreement and the other
Credit Documents to which it is a party.
6.5 No Conflicts. Neither the execution and delivery of the Credit
Documents, nor the consummation of the transactions contemplated therein, nor
performance of and compliance with the terms and provisions thereof by such
Credit Party will (a) violate or conflict with any provision of its articles or
certificate of incorporation or bylaws, (b) violate, contravene or materially
conflict with any Requirement of Law or any other law, regulation (including,
without limitation, Regulation U or Regulation X), order, writ, judgment,
injunction, decree or permit applicable to it, if the result thereof could cause
or be reasonably expected to cause a Material Adverse Effect, (c) violate,
contravene or conflict with contractual provisions of, or cause an event of
default under, any indenture, loan agreement, mortgage, deed of trust, contract
or other agreement or instrument to which it is a party or by which it may be
bound, if the result thereof could cause or be reasonably expected to cause a
Material Adverse Effect, or (d) result in or require the creation of any Lien
upon or with respect to its properties.
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6.6 Consents. Except for consents, approvals and authorizations which
have been obtained, no consent, approval, authorization or order of, or filing,
registration or qualification with, any court or Governmental Authority or third
party in respect of any Credit Party is required in connection with the
execution, delivery or performance of this Credit Agreement or any of the other
Credit Documents by such Credit Party.
6.7 Enforceable Obligations. This Credit Agreement and the other Credit
Documents have been duly executed and delivered and constitute legal, valid and
binding obligations of each Credit Party thereto enforceable against such Credit
Party in accordance with their respective terms, except as may be limited by
bankruptcy or insolvency laws or similar laws affecting creditors' rights
generally or by general equitable principles.
6.8 No Default. No Credit Party, nor any of its Subsidiaries, is in
default under any contract, lease, loan agreement, indenture, mortgage, security
agreement or other agreement or obligation to which it is a party or by which
any of its properties is bound which default would have or would be reasonably
expected to have a Material Adverse Effect.
6.9 Liens. None of the assets of the Credit Parties, nor any of their
Subsidiaries, is subject to any Lien other than Permitted Liens.
6.10 Indebtedness. As of the Closing Date, the Credit Parties have no
Indebtedness except (a) as disclosed in the financial statements referenced in
Section 6.1, (b) as set forth on Schedule 6.10 and (c) as otherwise permitted by
this Credit Agreement.
6.11 Litigation. Except as set forth on Schedule 6.11, there are no
actions, suits or legal, equitable, arbitration or administrative proceedings,
pending or, to the knowledge of any Credit Party, threatened against, the
Borrower or any of its Subsidiaries which could have or might be reasonably
expected to have a Material Adverse Effect.
6.12 Taxes. Except as set forth on Schedule 6.12, each Credit Party,
and each of its Subsidiaries, has filed, or caused to be filed, all tax returns
(federal, state, local and foreign) required to be filed and paid (a) all
amounts of taxes shown thereon to be due (including interest and penalties) and
(b) all other taxes, fees, assessments and other governmental charges (including
mortgage recording taxes, documentary stamp taxes and intangibles taxes) owing
by it, except for such taxes (i) which are not yet delinquent or (ii) that are
being contested in good faith and by proper proceedings, and against which
adequate reserves are being maintained in accordance with GAAP. No Credit Party
is aware of any proposed tax assessments issued by a taxing authority to and
against such Credit Party, except as would not have or be reasonably expected to
have a Material Adverse Effect.
6.13 Compliance with Law. Each Credit Party, and each of its
Subsidiaries, is in compliance with all Requirements of Law and all other laws,
rules, regulations, orders and decrees (including without limitation
Environmental Laws) applicable to it, or to its properties, unless such failure
to comply would not have or would not be reasonably expected to have a Material
Adverse Effect.
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6.14 ERISA. Except as set forth on Schedule 6.14 or except as would not
result or be reasonably expected to result in a Material Adverse Effect:
(a) During the five-year period prior to the date on which
this representation is made or deemed made: (i) no Termination Event
has occurred, and, to the best knowledge of the Credit Parties, no
event or condition has occurred or exists as a result of which any
Termination Event could reasonably be expected to occur, with respect
to any Plan; (ii) no "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA and Section 412 of the Code, whether or
not waived, has occurred with respect to any Plan; (iii) each Plan has
been maintained, operated, and funded in compliance with its own terms
and in material compliance with the provisions of ERISA, the Code, and
any other applicable federal or state laws; and (iv) no lien in favor
or the PBGC or a Plan has arisen or is reasonably likely to arise on
account of any Plan.
(b) The actuarial present value of all "benefit liabilities"
under each Single Employer Plan (determined within the meaning of
Section 401(a)(2) of the Code, utilizing the actuarial assumptions used
to fund such Plans), whether or not vested, did not, as of the last
annual valuation date prior to the date on which this representation is
made or deemed made, exceed the current value of the assets of such
Plan allocable to such accrued liabilities.
(c) Neither the Borrower, nor any of its Subsidiaries nor any
ERISA Affiliate has incurred, or, to the best knowledge of the Credit
Parties, are reasonably expected to incur, any withdrawal liability
under ERISA to any Multiemployer Plan or Multiple Employer Plan that
could have or be reasonably expected to have a Material Adverse Effect.
Neither the Borrower, any of its Subsidiaries nor any ERISA Affiliate
has received any notification that any Multiemployer Plan is in
reorganization (within the meaning of Section 4241 of ERISA), is
insolvent (within the meaning of Section 4245 of ERISA), or has been
terminated (within the meaning of Title IV of ERISA), and no
Multiemployer Plan is, to the best knowledge of the Credit Parties,
reasonably expected to be in reorganization, insolvent, or terminated.
For the purposes of this subsection (c), "ERISA Affiliate" means an
entity, whether or not incorporated, which is under common control with
any Credit Party or any of its Subsidiaries within the meaning of
Section 4001(a)(14) of ERISA, or is a member of a group which includes
any Credit Party or any of its Subsidiaries and which is treated as a
single employer under Section 414(b), (c), (m), or (o) of the Code.
(d) No prohibited transaction (within the meaning of Section
406 of ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility has occurred with respect to a Plan which has subjected
or to the best knowledge of the Borrower is reasonably likely to
subject the Borrower or any of its Subsidiaries or any ERISA Affiliate
to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or
Section 4975 of the Code, or under any agreement or other instrument
pursuant to which the Borrower or any of its Subsidiaries or any ERISA
Affiliate has agreed or is required to indemnify any person against any
such liability.
(e) The present value (determined using actuarial and other
assumptions which are reasonable with respect to the benefits provided
and the employees participating) of the
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liability of the Borrower and its Subsidiaries and each ERISA Affiliate
for post-retirement welfare benefits to be provided to their current
and former employees under Plans which are welfare benefit plans (as
defined in Section 3(1) of ERISA), net of all assets under all such
Plans allocable to such benefits, are reflected on the Financial
Statements in accordance with FASB 106.
(f) Each Plan which is a welfare plan (as defined in Section
3(1) of ERISA) to which Sections 601-609 of ERISA and Section 4980B of
the Code apply has been administered in compliance in all material
respects with such sections.
6.15 Subsidiaries. As of the Closing Date, set forth on Schedule 6.15
is a complete and accurate list of all Subsidiaries of each Credit Party,
including the jurisdiction of incorporation or organization for each such
Subsidiary and the location of its facilities and whether such Subsidiary is a
Domestic Subsidiary, a Foreign Subsidiary, a First Tier Foreign Subsidiary or a
Material Subsidiary.
6.16 Use of Proceeds. The proceeds of the Loans hereunder will be used
solely for the purposes specified in Section 7.10. None of the proceeds of the
Loans or other Extensions of Credit will be used in such a manner as to cause a
violation of Regulation U or X or to make an Investment other than a Permitted
Investment. Following application of the proceeds of each Loan and after giving
effect to any Permitted Acquisition, not more than 25 percent of the value of
the assets either (a) of the Borrower only or (b) of the Borrower and its
Subsidiaries on a consolidated basis (to the extent that such assets are subject
to any restriction contained in any agreement or instrument between the Borrower
and any Lender or any Affiliate of any Lender relating to Indebtedness) will be
Margin Stock (as defined in Regulation U).
6.17 Government Regulation. No Credit Party, nor any of its
Subsidiaries, is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Investment Company Act of 1940 or the
Interstate Commerce Act, each as amended. In addition, no Credit Party, nor any
of its Subsidiaries, is (a) an "investment company" registered or required to be
registered under the Investment Company Act of 1940, as amended, or controlled
by such a company, or (b) a "holding company," or a "Subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "Subsidiary"
of a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended. No director or executive officer of the Borrower or any
of its Subsidiaries is a director, executive officer or principal shareholder of
any Lender. For the purposes hereof the terms "director", "executive officer"
and "principal shareholder" (when used with reference to any Lender) have the
respective meanings assigned thereto in Regulation O issued by the Board of
Governors of the Federal Reserve System.
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6.18 Environmental Matters.
Except as disclosed on Schedule 6.18 or except as would not
have or be reasonably expected to have a Material Adverse Effect:
(i) Each of the real properties owned or
leased by the Credit Parties or any of their Subsidiaries (the
"Real Properties") and all operations at the Real Properties
are in compliance with all applicable Environmental Laws, and
there is no violation of any Environmental Law with respect to
the Real Properties or the businesses operated by the Borrower
or any of their Subsidiaries (the "Businesses"), and there are
no conditions relating to the Businesses or Real Properties
that would be reasonably expected to give rise to liability
under any applicable Environmental Laws.
(ii) No Credit Party has received any written
notice of, or written inquiry from any Governmental Authority
regarding, any violation, alleged violation, non-compliance,
liability or potential liability regarding Hazardous Materials
or compliance with Environmental Laws with regard to any of
the Real Properties or the Businesses, nor does the Borrower
or any of its Subsidiaries have knowledge that any such notice
is being threatened.
(iii) Hazardous Materials have not been
transported or disposed of from the Real Properties, or
generated, treated, stored or disposed of at, on or under any
of the Real Properties, in each case by, or on behalf or with
the permission of, the Borrower or any of its Subsidiaries in
a manner that would reasonably be expected to give rise to
liability under any applicable Environmental Law.
(iv) No judicial proceeding or governmental or
administrative action is pending or, to the knowledge of the
Borrower or any of its Subsidiaries, threatened, under any
Environmental Law to which the Borrower or any of its
Subsidiaries is or will be named as a party, nor are there any
consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental
Law with respect to the Borrower or any of its Subsidiaries,
the Real Properties or the Businesses, in any amount
reportable under the federal Comprehensive Environmental
Response, Compensation and Liability Act or any analogous
state law, except releases in compliance with any
Environmental Laws.
(v) There has been no release of Hazardous
Materials at or from the Real Properties, or arising from or
related to the operations (including, without limitation,
disposal) of the Borrower or any of its Subsidiaries in
connection with the Real Properties or otherwise in connection
with the Businesses.
(vi) None of the Real Properties contains, or
has previously contained, any Hazardous Materials at, on or
under the Real Properties in amounts
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or concentrations that, if released, constitute or constituted
a violation of, or could give rise to liability under,
Environmental Laws.
(vii) No Credit Party, nor any of its
Subsidiaries, has assumed any liability of any Person (other
than another Credit Party) under any Environmental Law.
6.19 Intellectual Property. Each Credit Party, and each of its
Subsidiaries, owns, or has the legal right to use, all trademarks, tradenames,
patents, copyrights, technology, know-how and processes (the "Intellectual
Property") necessary for each of them to conduct its business as currently
conducted except for those the failure to own or have such legal right to use
would not have or be reasonably expected to have a Material Adverse Effect.
6.20 Investments. All Investments of each Credit Party and each of its
Material Subsidiaries are either Permitted Investments or otherwise permitted by
the terms of this Credit Agreement.
6.21 Disclosure. To the best of the Borrower's knowledge, when taken
together with all information disclosed or reflected in the Disclosure
Documents, in each case, as amended, modified or supplemented from time to time
prior to the time this representation is made or deemed made by the Borrower, no
written or formally presented information and data concerning the Borrower and
its Subsidiaries (except for financial statements, projections, annual business
plans and budgets and except for information and data published by Persons other
than (a) the Borrower or its Subsidiaries and (b) before the Spin-Off, Corning
Incorporated or its Subsidiaries) which are made available to any Lender in
connection with this Credit Agreement or any other Credit Document contain any
untrue statement of material fact or omit to state a material fact necessary in
order to make the statement therein not materially misleading in light of the
circumstances under which such statements are made.
SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that until all
Commitments and Letters of Credit have been terminated and the Loans and LOC
Obligations, together with interest and fees hereunder, have been paid in full:
7.1 Information Covenants. The Borrower will furnish, or cause to be
furnished, to the Administrative Agent and each of the Lenders:
(a) Annual Financial Statements. As soon as available, and in
any event within 90 days after the close of each fiscal year of the
Borrower, a consolidated balance sheet and income statement of the
Borrower and its Subsidiaries, as of the end of such fiscal year,
together with related consolidated statements of stockholder's equity
and of cash flows for such fiscal year, setting forth in comparative
form consolidated figures for the preceding
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fiscal year, all such financial information described above to be in
reasonable form and detail and audited by independent certified public
accountants of recognized national standing reasonably acceptable to
the Agents and whose opinion shall be to the effect that such financial
statements have been prepared in accordance with GAAP (except for
changes with which such accountants concur) and shall not be limited as
to the scope of the audit or qualified in any manner.
(b) Quarterly Financial Statements. As soon as available, and
in any event within 60 days after the close of the first three quarters
of each fiscal year of the Borrower, (i) a consolidated balance sheet
and income statement of the Borrower and its Subsidiaries, as of the
end of such fiscal quarter, together with related consolidated
statements of cash flows for such fiscal quarter in each case setting
forth in comparative form consolidated figures for the corresponding
period of the preceding fiscal year, all such financial information
described above to be in reasonable form and detail and reasonably
acceptable to the Agents, and accompanied by a certificate of the chief
financial officer of the Borrower to the effect that such quarterly
financial statements fairly present in all material respects the
financial condition of the Borrower and its Subsidiaries and have been
prepared in accordance with GAAP, subject to changes resulting from
audit and normal year-end audit adjustments and (ii) a management
discussion and analysis of operating results for such fiscal quarter.
(c) Officer's Certificate. At the time of delivery of the
financial statements provided for in Sections 7.1(a) and 7.1(b) above,
a certificate of the chief financial officer of the Borrower
substantially in the form of Exhibit 7.1(c), (i) demonstrating
compliance with the financial covenants contained in Section 7.2 by
calculation thereof as of the end of each such fiscal period, and
showing the calculation of the Adjusted Leverage Ratio for purposes of
determining Applicable Percentage, (ii) certifying as to which
Subsidiaries are Material Subsidiaries and calculating the percentage
of total assets of the Borrower and its Subsidiaries, on a consolidated
basis, owned by (x) the Credit Parties and (y) First Tier Foreign
Subsidiaries in which the Lenders have received a pledge of 65% of
their Voting Stock, and (iii) stating that no Default or Event of
Default has occurred and is continuing, or if any Default or Event of
Default has occurred and is continuing, specifying the nature and
extent thereof and what action the Borrower proposes to take with
respect thereto.
(d) Auditor's Reports. Promptly upon receipt thereof, a copy
of any "management letter" submitted by independent accountants to the
Borrower or any of its Subsidiaries in connection with any annual audit
of the books of the Borrower or any of its Subsidiaries.
(e) Reports. (i) Promptly upon transmission or receipt
thereof, copies of any filings and registrations with, and reports to
or from, the Securities and Exchange Commission, or any successor
agency, and copies of all financial statements, proxy statements,
notices and reports as the Borrower or any of its Subsidiaries shall
send to its shareholders generally and (ii) upon the reasonable written
request of an Agent, all reports and written information to and from
the United States Environmental Protection Agency, or any state or
local agency responsible for environmental matters, the United States
Occupational Health and Safety Administration, or any state or local
agency responsible for
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health and safety matters, or any successor agencies or authorities
concerning environmental, health or safety matters.
(f) Notices. Upon the Borrower obtaining knowledge thereof,
the Borrower will give written notice to the Administrative Agent
promptly of (i) the occurrence of an event or condition consisting of a
Default or Event of Default, specifying the nature and existence
thereof and what action the Borrower proposes to take with respect
thereto, and (ii) the occurrence of any of the following with respect
to the Borrower or any of its Subsidiaries (x) the pendency or
commencement of any litigation, arbitral or governmental proceeding
against the Borrower or any of its Subsidiaries which if adversely
determined would have or would be reasonably expected to have a
Material Adverse Effect, or (y) the institution of any proceedings
against the Borrower or any of its Subsidiaries with respect to, or the
receipt of notice by such Person of potential liability or
responsibility for violation, or alleged violation of any federal,
state or local law, rule or regulation, including but not limited to,
Environmental Laws, the liability for the violation of which would have
or would be reasonably expected to have a Material Adverse Effect.
(g) ERISA. Upon any of the Credit Parties or any ERISA
Affiliate obtaining knowledge thereof, Borrower will give written
notice to the Administrative Agent and each of the Lenders promptly
(and in any event within five Business Days) of: (i) any event or
condition, including, but not limited to, any Reportable Event, that
constitutes, or might reasonably lead to, a Termination Event; (ii)
with respect to any Multiemployer Plan, the receipt of notice as
prescribed in ERISA or otherwise of any withdrawal liability assessed
against the Borrowers or any of their ERISA Affiliates, or of a
determination that any Multiemployer Plan is in reorganization or
insolvent (both within the meaning of Title IV of ERISA); (iii) the
failure to make full payment on or before the due date (including
extensions) thereof of all amounts which the Borrower or any of its
Subsidiaries or ERISA Affiliates is required to contribute to each Plan
pursuant to its terms and as required to meet the minimum funding
standard set forth in ERISA and the Code with respect thereto; or (iv)
any change in the funding status of any Plan that could or could be
reasonably expected to have a Material Adverse Effect; together, with a
description of any such event or condition or a copy of any such notice
and a statement by the principal financial officer of the Borrower
briefly setting forth the details regarding such event, condition, or
notice, and the action, if any, which has been or is being taken or is
proposed to be taken by the Credit Parties with respect thereto.
Promptly upon request, the Borrower shall furnish the Administrative
Agent and each of the Lenders with such additional information
concerning any Plan as may be reasonably requested, including, but not
limited to, copies of each annual report/return (Form 5500 series), as
well as all schedules and attachments thereto required to be filed with
the Department of Labor and/or the Internal Revenue Service pursuant to
ERISA and the Code, respectively, for each "plan year" (within the
meaning of Section 3(39) of ERISA).
(h) Environmental.
(i) Subsequent to a notice from the Borrower pursuant to
Section 7.1(f)(ii)(y) or during the existence of an Event of Default,
and upon the written
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request of an Agent, the Borrower will furnish or cause to be
furnished to the Administrative Agent, at the Borrower's
expense, a report of an environmental assessment of reasonable
scope, form and depth, including, where appropriate, invasive
soil or groundwater sampling, by a consultant reasonably
acceptable to the Agents as to the nature and extent of the
presence of any Hazardous Materials on any property owned,
leased or operated by a Credit Party and as to the compliance
by the Credit Parties with Environmental Laws. If the Borrower
fails to deliver such an environmental report within
seventy-five (75) days after receipt of such written request
then the Agents may arrange for same, and the Borrower hereby
grants to the Agents and their representatives access to the
Real Properties and a license of a scope reasonably necessary
to undertake such an assessment (including, where appropriate,
invasive soil or groundwater sampling). The reasonable cost of
any assessment arranged for by the Agents pursuant to this
provision will be payable by the Borrower on demand and added
to the Credit Party Obligations.
(ii) Each Credit Party will conduct and
complete all investigations, studies, sampling, and testing
and all remedial, removal, and other actions necessary to
address all Hazardous Materials on, from, or affecting any
Real Property to the extent necessary to be in compliance with
all Environmental Laws and all other applicable federal,
state, and local laws, regulations and rules and with the
orders and directives of all Governmental Authorities
exercising jurisdiction over such Real Property to the extent
any failure would have or be reasonably expected to have a
Material Adverse Effect.
(i) Other Information. With reasonable promptness upon any
such request, such other information regarding the business, properties
or financial condition of the Credit Parties as an Agent may reasonably
request, including, without limitation, appraisals on personal
property.
7.2 Financial Covenants.
(a) Leverage Ratio. The Leverage Ratio, as of the end of each
fiscal quarter of the Borrower for the twelve month period ending on
such date, shall be less than or equal to:
(i) On December 31, 1996 and March 31, 1997, 3.30 to
1.0;
(ii) On June 30, 1997 and September 30, 1997, 3.25 to
1.0;
(iii) On December 31, 1997 and March 31, 1998, 3.00
to 1.0; and (iv) On June 30, 1998 and on the
last day of each fiscal quarter of the Borrower
thereafter, 2.75 to 1.0.
(b) Fixed Charge Coverage Ratio. The Fixed Charge Coverage
Ratio, as of the end of each fiscal quarter of the Borrower for the
twelve month period ending on such date, shall be greater than or equal
to:
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(i) On the last day of each fiscal quarter of the
Borrower from the Closing Date to and including
September 30, 1997, 2.0 to 1.0; and
(ii) On December 31, 1997 and on the last day of
each fiscal quarter of the Borrower thereafter,
2.25 to 1.0.
7.3 Preservation of Existence and Franchises. Each of the Credit
Parties will, and will cause all of their Subsidiaries to, do all things
necessary to preserve and keep in full force and effect its existence, rights,
franchises and authority except (a) as permitted by Section 8.4 or (b) as would
not have or be reasonably expected to have a Material Adverse Effect.
7.4 Books and Records. Each of the Credit Parties will, and will cause
all of their Material Subsidiaries to, keep complete and accurate books and
records of its transactions in accordance with good accounting practices on the
basis of GAAP (including the establishment and maintenance of appropriate
reserves).
7.5 Compliance with Law. Each of the Credit Parties will comply, and
will cause all of their Subsidiaries to comply, with all laws, rules,
regulations and orders, and all applicable restrictions imposed by all
Governmental Authorities, applicable to it and its property (including, without
limitation, Environmental Laws) unless such non-compliance would not have or
would not be reasonably expected to have a Material Adverse Effect.
7.6 Payment of Taxes and Other Indebtedness. Each of the Credit Parties
will, and will cause all of their Subsidiaries to, pay, settle or discharge (a)
all taxes, assessments and governmental charges or levies imposed upon it, or
upon its income or profits, or upon any of its properties, before they shall
become delinquent, (b) all lawful claims (including claims for labor, materials
and supplies) which, if unpaid, might give rise to a Lien upon any of its
properties, and (c) except as prohibited hereunder, all of its other
Indebtedness as it shall become due; provided, however, that a Credit Party
shall not be required to pay any such tax, assessment, charge, levy, claim or
Indebtedness which is being contested in good faith by appropriate proceedings
and as to which adequate reserves therefor have been established in accordance
with GAAP, unless the failure to make any such payment would have a Material
Adverse Effect.
7.7 Insurance. The Borrower will, for itself and on behalf of each of
its Subsidiaries, at all times maintain in full force and effect insurance
(including worker's compensation insurance, liability insurance, casualty
insurance and business interruption insurance) in such amounts, covering such
risks and liabilities and with such deductibles or self-insurance retentions as
are in accordance with normal industry practice. The insurance coverage of the
Borrower and its Subsidiaries, as of the Closing Date, is outlined as to
carrier, policy number, expiration date, type and amount on Schedule 7.7.
7.8 Maintenance of Property. Except as permitted by Section 7.3, each
of the Credit Parties will, and will cause their Subsidiaries to, maintain and
preserve its properties and equipment in good repair, working order and
condition, normal wear and tear excepted (subject to damage by casualties), and
will make, or cause to be made, in such properties and equipment from time to
time
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all repairs, renewals, replacements, extensions, additions, betterments and
improvements thereto as may be needed or proper, to the extent and in the manner
customary for companies in similar businesses unless the failure to do so would
not have or would not be reasonably expected to have a Material Adverse Effect.
7.9 Performance of Obligations. Each of the Credit Parties will, and
will cause their Subsidiaries to, perform in all respects all of its obligations
under the terms of all agreements, indentures, mortgages, security agreements or
other debt instruments to which it is a party or by which it is bound unless the
failure to do so would not have or be reasonably expected to have a Material
Adverse Effect.
7.10 Use of Proceeds. The Borrower will use the proceeds of the Loans
solely (a) to effect the Spin-Off including refinancing the current existing
intercompany debt of the Borrower and its Subsidiaries and the payment of any
federal consolidated tax liabilities of the Borrower and its Subsidiaries and
(b) to provide for working capital, capital expenditures, acquisitions and other
lawful corporate purposes of the Borrower and its Subsidiaries.
7.11 Audits/Inspections. Upon reasonable notice and during normal
business hours and in a manner that will not unreasonably interfere with its
business operations, each Credit Party will, and will cause their Subsidiaries
to, permit representatives appointed by an Agent (and upon the request of the
Required Lenders, an Agent shall make such appointment), including, without
limitation, independent accountants, agents, attorneys and appraisers to visit
and inspect such Credit Party's or Subsidiaries' property, including its books
and records, its accounts receivable and inventory, its facilities and its other
business assets, and to make photocopies or photographs thereof and to write
down and record any information such representative obtains and shall permit an
Agent or its representatives to investigate and verify the accuracy of
information provided to the Lenders, and to discuss all such matters with the
officers, employees and representatives of the Credit Parties and their
Subsidiaries.
7.12 Additional Credit Parties. Within 30 days after the date the
officer's certificate is due pursuant to Section 7.1(c), the Borrower shall
cause (a) each Person who is a Material Domestic Subsidiary who is not already a
Guarantor to execute a Joinder Agreement in substantially the form of Exhibit
7.12, (b) itself and each Domestic Subsidiary that directly owns a Material
First Tier Foreign Subsidiary to pledge 65% of the Voting Stock of such Material
First Tier Foreign Subsidiary pursuant to a Pledge Agreement (to the extent 65%
of the Voting Stock of such Material First Tier Foreign Subsidiary was not
previously pledged), (c) itself and each Material Domestic Subsidiary that has
loaned money to a Non-Material Domestic Subsidiary to evidence such loan by an
enforceable promissory note and to deliver such promissory note, together with a
Collateral Assignment of Note and endorsement thereto (to the extent not
previously delivered), (d) such other Persons to execute Joinder Agreements or
pledge Voting Stock as required by Section 7.15, and (e) deliver such other
documentation as the Administrative Agent may reasonably request in connection
with the foregoing, including, without limitation, (i) appropriate certified
resolutions and other organizational and authorizing documents of such Person,
(ii) favorable opinions of counsel to such Person (which shall cover, among
other things, the legality, validity, binding effect and enforceability of the
documentation referred to above), all in form, content and scope reasonably
satisfactory to the Administrative Agent, and (iii) stock certificates with
stock powers executed in
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blank or evidence of perfection (which may include opinions) regarding
uncertificated securities and/or original promissory notes with executed
endorsements attached thereto. The Lenders agree that within 30 days after
receipt of reasonably sufficient evidence that (x) a Domestic Subsidiary ceases
to be a Material Domestic Subsidiary or (y) a Material First Tier Foreign
Subsidiary ceases to be a First Tier Foreign Subsidiary or ceases to be a
Material Foreign Subsidiary, then either such Domestic Subsidiary shall be
released from its obligations as a Guarantor or the stock of such Foreign
Subsidiary shall be returned to the Domestic Subsidiary pledging such stock. The
Lenders further agree that within 30 days after notice from the Borrower that
any loan or series of loans referred to in clause (c) above has been repaid in
full, then the pledge of the promissory note evidencing such loan shall be
terminated and the Administrative Agent shall release and return such promissory
note, together with the related Collateral Assignment of Note, to the Borrower
or such Material Domestic Subsidiary, as the case may be. The Agent is hereby
authorized in connection with the events described in the prior two sentences,
at the expense of the Borrower, to execute such documentation as appropriate to
evidence such release or return unless, in the circumstances described in (x)
and (y) above, such release or return would cause a violation of Section 7.15.
7.13 Spin-Off. On or before March 31, 1997, the Agents shall have
received (a) evidence reasonably sufficient to them that (i) the Spin-Off has
occurred in accordance with applicable law and the terms and conditions of the
IRS Letter Ruling issued in connection therewith and (ii) the intercompany debt
has been repaid in connection with the Spin-Off, (b) copies of the Tax
Indemnification Agreements, the Tax Sharing Agreement and the Transaction
Agreement (which shall be in substantially the form delivered to the Lenders on
or before the Effective Date) and, if requested by a Lender, copies of all other
documents executed and delivered in connection with the Spin-Off, and (c) the
registration statement filed by the Borrower and declared effective by the
Securities and Exchange Commission.
7.14 Uncertificated Securities. On or before March 31, 1997, the
Administrative Agent shall have received evidence satisfactory to it that the
Lenders have a first priority perfected security interest in the uncertificated
securities pledged on the Closing Date pursuant to the Pledge Agreements,
including, without limitation, opinions from foreign counsel.
7.15 Additional Guarantors or Additional Pledges of Stock. (a) The
Borrower shall take all necessary action, at the times specified by the second
and third sentences of this Section 7.15(a), in respect of each fiscal quarter,
to ensure that, as of the last day of such fiscal quarter (after giving effect
to any Joinder Agrement and/or Pledge Agreement executed in respect of such
fiscal quarter pursuant to Section 7.12), the combined sum of the total assets
(excluding assets that pursuant to GAAP principles of consolidation would be
eliminated from the consolidated balance sheet of the Borrower as of such date)
owned by (a) the Credit Parties (together with their Subsidiaries on a
consolidated basis) and (b) the First Tier Foreign Subsidiaries in which the
Lenders have received a pledge of at least 65% of their Voting Stock (together
with their Subsidiaries on a consolidated basis) is greater than or equal to 80%
of the total assets owned by the Borrower and its Subsidiaries on a consolidated
basis. If on the date the officer's certificate is required to be delivered by
Section 7.1(c), the Borrower is not in compliance with the first sentence of
this Section 7.15(a), then, within 30 days after the due date of such
certificate, the Borrower shall do either or both of the following (as the
Borrower shall choose in its discretion): (a) cause additional Domestic
Subsidiaries to execute and deliver Joinder Agreements or (b) pledge or cause
one or more of its Domestic
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Subsidiaries to pledge (pursuant to a Pledge Agreement) 65% of the Voting Stock
of one or more additional First Tier Foreign Subsidiaries to the extent
necessary to be in compliance with the first sentence of this Section 7.15(a)
and to deliver such other documents, instruments, certificates or opinions in
connection therewith as required in connection with the execution of Joinder
Agreements or the pledge of Voting Stock as set forth in Section 7.12(e).
(b) If, as of the last day of any fiscal quarter of the Borrower, the
percentage of total assets determined pursuant to the first sentence of Section
7.15(a) is greater than 80%, then, within 30 days of notice thereof by the
Borrower, the Lenders shall, as directed by the Borrower in its discretion, (i)
release any Domestic Subsidiary (other than a Material Domestic Subsidiary) from
its obligation as Guarantor and (ii) such pledged Voting Stock of any First Tier
Foreign Subsidiary (other than a Material First Tier Foreign Subsidiary),
together with any such other documents, instruments or certificates which were
delivered in connection with the execution of any Joinder Agreement executed by
such Domestic Subsidiary or pledge of Voting Stock by such Foreign Subsidiary;
provided however, that after giving effect to such release or return, the
Borrower and its Subsidiaries shall be in compliance with Section 7.15(a).
SECTION 8
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that until all
Commitments and Letters of Credit have been terminated and the Loans and LOC
Obligations, together with interest and fees hereunder, have been paid in full:
8.1 Indebtedness. No Credit Party will, nor will it permit any of its
Subsidiaries to, contract, create, incur, assume or permit to exist any
Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement and the
other Credit Documents;
(b) Indebtedness existing as of the Closing Date as referenced
in Section 6.10 (and renewals, refinancings or extensions thereof on
terms and conditions substantially the same as such existing
Indebtedness and in a principal amount not in excess of that
outstanding as of the date of such renewal, refinancing or extension);
(c) Indebtedness in respect of current accounts payable and
accrued expenses incurred in the ordinary course of business including,
to the extent not current, accounts payable and accrued expenses that
are subject to bona fide dispute;
(d) purchase money Indebtedness (including Capital Leases)
incurred by the Borrower or any of its Subsidiaries to finance the
purchase of fixed assets; provided that (i) the total of all such
Indebtedness for all such Persons taken together shall not exceed an
aggregate principal amount of $10,000,000 at any one time outstanding
(including any such Indebtedness referred to in subsection (b) above);
(ii) such Indebtedness when incurred shall not exceed the purchase
price of the asset(s) financed; and (iii) no such Indebtedness shall
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be refinanced for a principal amount in excess of the principal balance
outstanding thereon at the time of such refinancing;
(e) other unsecured Indebtedness owing by Domestic
Subsidiaries not to exceed, in the aggregate, at any one time,
$10,000,000; and
(f) other unsecured Indebtedness owing by Foreign Subsidiaries
not to exceed, in the aggregate, at any one time, $10,000,000.
8.2 Liens. No Credit Party will, nor will it permit its Subsidiaries
to, contract, create, incur, assume or permit to exist any Lien with respect to
any of its property or assets of any kind (whether real or personal, tangible or
intangible), whether now owned or after acquired, except for Permitted Liens.
8.3 Nature of Business. The Borrower will not, and will not permit its
Material Subsidiaries to, engage in any business other than (a) businesses in
which the Borrower (whether directly or through one or more of its Subsidiaries)
engages on the Closing Date or are contemplated by the Information Statement,
(b) similar or related businesses (including, without limitation, similar or
related businesses that serve the industries which purchase or use goods
manufactured or processed or services rendered by, any business in which the
Borrower is then permitted to engage (whether directly or through one or more of
its Subsidiaries), pursuant to this Section 8.3, and (c) businesses incidental
to the foregoing.
8.4 Consolidation and Merger. No Credit Party will nor will it permit
any Subsidiary to, enter into any transaction of merger or consolidation or
liquidate, wind up or dissolve itself; provided that a Credit Party or a
Subsidiary of a Credit Party may merge or consolidate with or into another
Person if the following conditions are satisfied:
(a) the Administrative Agent is given prior written notice of
such action;
(b) if the merger or consolidation involves a Credit Party,
the Person formed by such consolidation or into which a Credit Party is
merged shall either (i) be such Credit Party or (ii) be a Domestic
Subsidiary and shall expressly assume in writing all of the obligations
of such Credit Party under the Credit Documents; provided that if the
transaction is between the Borrower and another Person, the Borrower
must be the surviving entity;
(c) if the merger or consolidation involves a Material First
Tier Foreign Subsidiary, the Lenders receive 65% of the Voting Stock of
the surviving Material First Tier Foreign Subsidiary, if any;
(d) to the extent otherwise required by Section 7.12 or 7.15,
the Credit Parties execute and deliver such documents, instruments and
certificates as the Administrative Agent may request (including, if
necessary, to maintain its perfection and priority in the collateral
pledged pursuant to the Collateral Documents;
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(e) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; and
(f) the Borrower delivers to the Agents an officer's
certificate demonstrating compliance with clause (b) or (c) above, as
applicable, and an opinion of counsel (who may, at the option of the
Borrower, be the Borrower's in-house counsel) stating that such
consolidation or merger and any written agreement entered into in
connection therewith, comply with this Section 8.4.
8.5 Sale or Lease of Assets. No Credit Party will, nor will it permit
any of its Subsidiaries to, convey, sell, lease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or any part of its
business or assets whether now owned or hereafter acquired, including, without
limitation, inventory, receivables, equipment, real property interests (whether
owned or leasehold), and securities, other than (a) any inventory sold or
otherwise disposed of in the ordinary course of business; (b) the sale, lease,
transfer or other disposal by a Credit Party (other than the Borrower) of any or
all of its assets to the Borrower or to another Credit Party; (c) obsolete,
slow-moving, idle or worn-out assets (including inventory) no longer used or
useful in its business; (d) the transfer of assets which constitute a Permitted
Investment or (e) such other transfer of assets if (i) such transfer is for fair
market value, (ii) at the time of such transfer no Default or Event of Default
exists and is continuing, (iii) as a result of such transfer no Material Adverse
Effect would occur or be reasonably likely to occur, (iv) the proceeds from such
transfer are not used to pay dividends and (v) the proceeds from such transfer
are, within six months from the date of such transfer, reinvested in a business
of a type similar to that which the Credit Parties and their Subsidiaries are
already engaged or were engaged at the time of such sale.
8.6 Sale Leasebacks. No Credit Party will directly or indirectly, nor
will it permit its Subsidiaries to, become or remain liable as lessee or as
guarantor or other surety with respect to any lease of any property (whether
real or personal or mixed), whether now owned or hereafter acquired, (a) which
such Credit Party has sold or transferred or is to sell or transfer to any other
Person other than a Credit Party or (b) which such Credit Party intends to use
for substantially the same purpose as any other property which has been sold or
is to be sold or transferred by such Credit Party to any Person in connection
with such lease.
8.7 Advances, Investments and Loans. No Credit Party will, nor will it
permit its Subsidiaries to, make any Investments except for Permitted
Investments.
8.8 Restricted Payments. No Credit Party will, directly or indirectly,
nor will it permit its Subsidiaries to, (a) declare or pay any dividends or make
any other distribution upon any shares of its capital stock of any class or (b)
purchase, redeem or otherwise acquire or retire or make any provisions for
redemption, acquisition or retirement of any shares of its capital stock of any
class or any warrants or options to purchase any such shares (any such dividend,
repurchase, redemption, acquisition or retirement being a "Restricted Payment");
provided that (i) any Subsidiary of the Borrower may make Restricted Payments to
the Borrower, (ii) stock dividends may be paid pursuant to the Rights Plan and
the Benefits Plans, (iii) as long as no Default or Event of Default exists and
is continuing, Restricted Payments may be made with respect to (A) the Benefits
Plans of the type referred to in subsection (a) and (b) of the definition of
"Benefits Plans", (B) the Benefits Plans of
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the type referred to in subsection (c), (d), (e) and (f) of the definition of
"Benefits Plans" in an aggregate amount not to exceed $50,000,000, during the
term of this Credit Agreement and (C) the Rights Plans in an aggregate amount
not to exceed $2,000,000 during the term of this Credit Agreement, (iv) other
than with proceeds from a sale as set forth in Section 8.5, Restricted Payments
may be made if (A) no Default or Event of Default exists and is continuing and
(B) after giving effect thereto, the Credit Parties and their Subsidiaries are
in compliance with Section 7.2 and (v) the Borrower and any of its Subsidiaries
may repurchase stock of Covance Bio Technology Services Inc. in accordance with
that certain Capital Contribution and Shareholder's Agreement dated as of
February 22, 1995.
8.9 Fiscal Year; Organizational Documents. Except as set forth on
Schedule 8.9, no Credit Party will, nor will it permit its Subsidiaries to, (a)
change its fiscal year or (b) change its articles or certificate of
incorporation or its bylaws if such change would have or be reasonably expected
to have a Material Adverse Effect.
SECTION 9
EVENTS OF DEFAULT
9.1 Events of Default. An Event of Default shall exist upon the
occurrence of any of the following specified events (each an "Event of
Default"):
(a) Payment. Any Credit Party shall default in the payment (i)
when due of any principal of any of the Loans or any reimbursement
obligation arising from drawings under Letters of Credit or (ii) within
three days of when due of any interest on the Loans or any fees or
other amounts owing hereunder, under any of the other Credit Documents
or in connection herewith.
(b) Representations. Any representation, warranty or statement
made or deemed to be made by any Credit Party herein, in any of the
other Credit Documents, or in any state ment or certificate delivered
or required to be delivered pursuant hereto or thereto shall prove
untrue in any material respect on the date as of which it was made or
deemed to have been made.
(c) Covenants. Any Credit Party shall:
(i) default in the due performance or
observance of any term, covenant or agreement
contained in Sections 7.2 or 8.1 through 8.9
inclusive; or
(ii) default in the due performance or
observance by it of any term, covenant or agreement
contained in Section 7.1 and such default shall
continue unremedied for a period of five Business
Days after the earlier of an officer of the Borrower
becoming aware of such default or notice thereof
given by an Agent; or
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(iii) default in the due performance or
observance by it of any term, covenant or agreement (other
than those referred to in subsections (a), (b) or (c)(i) or
(ii) of this Section 9.1) contained in this Credit Agreement
and such default shall continue unremedied for a period of at
least 20 Business Days after notice thereof given by an Agent.
(d) Other Credit Documents. (i) Any Credit Party shall default
in the due performance or observance of any term, covenant or agreement
in any of the other Credit Documents and such default shall continue
unremedied for a period of at least 20 Business Days after notice
thereof given by an Agent, or (ii) any Credit Document shall fail to be
in full force and effect or the Borrower shall so assert or any Credit
Document shall fail to give the Agents and/or the Lenders the security
interests, liens, rights, powers and privileges purported to be created
thereby.
(e) Guaranties. The guaranty given by the Credit Parties
hereunder or by any Additional Credit Party hereafter or any provision
thereof shall cease to be in full force and effect, or any guarantor
thereunder or any Person acting by or on behalf of such guarantor shall
deny or disaffirm such Guarantor's obligations under such guaranty.
(f) Bankruptcy, etc. The occurrence of any of the following
with respect to the Borrower or any of its Material Subsidiaries (i) a
court or governmental agency having juris diction in the premises shall
enter a decree or order for relief in respect of the Borrower or any of
its Material Subsidiaries in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect,
or appoint a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Borrower or any of its Material
Subsidiaries or for any substantial part of its property or ordering
the winding up or liquidation of its affairs; or (ii) an involuntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect is commenced against the Borrower or any of
its Material Subsidiaries and such petition remains unstayed and in
effect for a period of 60 consecutive days; or (iii) the Borrower or
any of its Material Subsidiaries shall commence a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in
an involuntary case under any such law, or consent to the appointment
or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of such Person or any
substantial part of its property or make any general assignment for the
benefit of creditors; or (iv) the Borrower or any of its Material
Subsidiaries shall admit in writing its inability to pay its debts
generally as they become due or any action shall be taken by such
Person in furtherance of any of the aforesaid purposes.
(g) Defaults under Other Agreements. With respect to any
Indebtedness (other than Indebtedness outstanding under this Credit
Agreement) of the Borrower or any of its Subsidiaries in an aggregate
principal amount in excess of $10,000,000, (i) a Credit Party shall (A)
default in any payment (beyond the applicable grace period with respect
thereto, if any) with respect to any such Indebtedness, or (B) default
(after giving effect to any applicable grace period) in the observance
or performance relating to such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or
any
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other event or condition shall occur or condition exist, the effect of
which default or other event or condition is to cause, or permit, the
holder or holders of such Indebtedness (or trustee or agent on behalf
of such holders) to cause (determined without regard to whether any
notice or lapse of time is required) any such Indebtedness to become
due prior to its stated maturity; or (ii) any such Indebtedness shall
be declared due and payable, or required to be prepaid other than by a
regularly scheduled required prepayment prior to the stated maturity
thereof and such Indebtedness remains unpaid; or (iii) any such
Indebtedness shall mature and remain unpaid.
(h) Judgments. One or more judgments, orders, or decrees shall
be entered against any one or more of the Credit Parties involving a
liability of $10,000,000 or more, in the aggregate, (to the extent not
paid or covered by insurance provided by a financially solvent carrier
who has acknowledged coverage) and such judgments, orders or decrees
(i) are the subject of any enforcement proceeding commenced by any
creditor or (ii) shall continue unsatisfied, undischarged and unstayed
for a period ending on the last day on which such judgment, order or
decree becomes final and unappealable.
(i) ERISA. The occurrence of any of the following events or
conditions: (A) any "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA and Section 412 of the Code, whether or
not waived, shall exist with respect to any Plan, or any lien shall
arise on the assets of the Borrower or any of its Subsidiaries or any
ERISA Affiliate in favor of the PBGC or a Plan; (B) a Termination Event
shall occur with respect to a Single Employer Plan, which is, in the
reasonable opinion of the Administrative Agent, likely to result in the
termination of such Plan for purposes of Title IV of ERISA; (C) a
Termination Event shall occur with respect to a Multiemployer Plan or
Multiple Employer Plan, which is, in the reasonable opinion of the
Administrative Agent, likely to result in (i) the termination of such
Plan for purposes of Title IV of ERISA, or (ii) the Borrower or any of
its Subsidiaries or any ERISA Affiliate incurring any liability in
connection with a withdrawal from, reorganization of (within the
meaning of Section 4241 of ERISA), or insolvency (within the meaning of
Section 4245 of ERISA) of such Plan; or (D) any prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the
Code) or breach of fiduciary responsibility shall occur which may
subject the Borrower or any of its Subsidiaries or any ERISA Affiliate
to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or
Section 4975 of the Code, or under any agreement or other instrument
pursuant to which the Borrower or any of its Subsidiaries or any ERISA
Affiliate has agreed or is required to indemnify any person against any
such liability.
(j) Ownership. There shall occur a Change of Control.
9.2 Acceleration; Remedies. Following the occurrence and during the
continuance of an Event of Default, the Administrative Agent shall, upon the
request and direction of the Required Lenders, by written notice to the
Borrower, take any of the following actions without prejudice to the rights of
the Agents or any Lender to enforce its claims against the Credit Parties,
except as otherwise specifically provided for herein:
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(a) Termination of Commitments. Declare the Commitments
terminated whereupon the Commitments shall be immediately terminated.
(b) Acceleration of Loans. Declare the unpaid principal of and
any accrued interest in respect of all Loans, any reimbursement
obligations arising from drawings under Letters of Credit and, without
duplication, any and all other indebtedness or obligations of any and
every kind then owing by a Credit Party to any of the Lenders hereunder
to be due whereupon the same shall be immediately due and payable
without presentment, demand, protest or other notice of any kind, all
of which are hereby waived by the Credit Parties.
(c) Cash Collateral. Direct the Borrower to pay (and the
Borrower agrees that upon receipt of such notice, or upon the
occurrence of an Event of Default under Section 9.1(f), it will
immediately pay) to the Administrative Agent additional cash, to be
held by the Administrative Agent, for the benefit of the Lenders, in a
cash collateral account as security for the LOC Obligations in respect
of subsequent drawings under all then outstanding Letters of Credit in
an amount equal to the maximum aggregate amount which may be drawn
under all Letters of Credits then outstanding.
(d) Enforcement of Rights. Enforce any and all rights and
interests created and existing under the Credit Documents, including,
without limitation, all rights and remedies against a Guarantor, all
rights under the Collateral Documents and all rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
9.1(f) shall occur, then the Commitments shall automatically terminate and all
Loans, all reimbursement obligations under Letters of Credit, all accrued and
unpaid interest in respect thereof, all accrued and unpaid fees and other
indebtedness or obligations owing to the Lenders hereunder shall immediately
become due and payable without the giving of any notice or other action by the
Agents or the Lenders, which notice or other action is expressly waived by the
Credit Parties.
Notwithstanding the fact that enforcement powers reside primarily with the
Administrative Agent, each Lender has, to the extent permitted by law, a
separate right of payment and shall be considered a separate "creditor" holding
a separate "claim" within the meaning of Section 101(5) of the Bankruptcy Code
or any other insolvency statute.
9.3 Allocation of Payments After Event of Default. Notwithstanding any
other provisions of this Credit Agreement, after the occurrence and during the
continuance of an Event of Default, all amounts collected or received by an
Agent or any Lender on account of amounts outstanding under any of the Credit
Documents or collateral under the Pledge Agreement shall be paid over or
delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs
and expenses (including without limitation reasonable attorneys' fees)
of the Agents in connection with enforcing the rights of the Lenders
under the Credit Documents and any protective advances made by the
Administrative Agent under or pursuant to the terms of the Pledge
Agreement;
SECOND, to payment of any fees owed to an Agent or the Issuing
Lender;
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THIRD, to the payment of all reasonable out-of-pocket costs
and expenses, (including, without limitation, reasonable attorneys'
fees) of each of the Lenders in connection with enforcing its rights
under the Credit Documents;
FOURTH, to the payment of all accrued fees and interest
payable to the Lenders hereunder;
FIFTH, to the payment of the outstanding principal amount of
the Loans and unreimbursed drawings under Letters of Credit and to the
payment or cash collateralization of the outstanding LOC Obligations,
pro rata, as set forth below;
SIXTH, to all other obligations of the Credit Parties which
shall have become due and payable under the Credit Documents and the
LOC Documents and not repaid pursuant to clauses "FIRST" through
"FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may
be lawfully entitled to receive such surplus.
In carrying out the foregoing, (a) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (b) each of the Lenders shall receive an amount equal to
its pro rata share (based on the proportion that the then outstanding Loans and
LOC Obligations held by such Lender bears to the aggregate then outstanding
Loans and LOC Obligations of amounts available to be applied pursuant to clauses
"THIRD", "FOURTH," "FIFTH," and "SIXTH" above; and (c) to the extent that any
amounts available for distribution pursuant to clause "FIFTH" above are
attributable to the issued but undrawn amount of outstanding Letters of Credit,
such amounts shall be held by the Administrative Agent in a cash collateral
account and applied (x) first, to reimburse the Issuing Lender from time to time
for any drawings under such Letters of Credit and (y) then, following the
expiration of all Letters of Credit, to all other obligations of the types
described in clauses "FIFTH" and "SIXTH" above in the manner provided in this
Section 9.3.
SECTION 10
AGENCY PROVISIONS
10.1 Appointment. Each Lender hereby designates and appoints
NationsBank, N.A. as Administrative Agent and Wachovia Bank of Georgia, N.A. as
Syndication Agent of such Lender to act as specified herein and the other Credit
Documents and the LOC Documents (including with respect to NationsBank, N.A. the
right to act as the collateral agent under the Collateral Documents), and each
such Lender hereby authorizes the Agents, as the agents for such Lender, to take
such action on its behalf under the provisions of this Credit Agreement and the
other Credit Documents and the LOC Documents and to exercise such powers and
perform such duties as are expressly delegated by the terms hereof and of the
other Credit Documents and of the LOC Documents, together with such other powers
as are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere herein and in the other Credit Documents, the Agents shall
not have any
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duties or responsibilities, except those expressly set forth herein and therein,
or any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Credit Agreement or any of the other Credit Documents or any of the
LOC Documents, or shall otherwise exist against the Agents. The provisions of
this Section are solely for the benefit of the Agents and the Lenders and none
of the Credit Parties shall have any rights as a third party beneficiary of the
provisions hereof. In performing its functions and duties under this Credit
Agreement and the other Credit Documents and the LOC Documents, each Agent shall
act solely as an agent of the Lenders and does not assume and shall not be
deemed to have assumed any obligation or relationship of agency or trust with or
for any Credit Party.
10.2 Delegation of Duties. An Agent may execute any of its duties
hereunder or under the other Credit Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. An Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
10.3 Exculpatory Provisions. Neither the Agents nor any of their
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(a) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection herewith or in connection with any of the other
Credit Documents or the LOC Documents (except for its or such Person's own gross
negligence or willful misconduct) or (b) responsible in any manner to any of the
Lenders for any recitals, statements, representations or warranties made by any
of the Credit Parties contained herein or in any of the other Credit Documents
or the LOC Documents or in any certificate, report, document, financial
statement or other written or oral statement referred to or provided for in, or
received by an Agent under or in connection herewith or in connection with the
other Credit Documents or the LOC Documents, or enforceability or sufficiency
therefor of any of the other Credit Documents or the LOC Documents, or for any
failure of the Borrower to perform its obligations hereunder or thereunder. The
Agents shall not be responsible to any Lender for the effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of this
Credit Agreement, or any of the other Credit Documents or the LOC Documents or
for any representations, warranties, recitals or statements made herein or
therein or made by the Borrower or any Credit Party in any written or oral
statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by an Agent to the Lenders or by or on behalf of the Credit
Parties to the Agents or any Lender or be required to ascertain or inquire as to
the performance or observance of any of the terms, conditions, provisions,
covenants or agreements contained herein or therein or as to the use of the
proceeds of the Loans or the use of the Letters of Credit or of the existence or
possible existence of any Default or Event of Default or to inspect the
properties, books or records of the Credit Parties. The Agents are not trustees
for the Lenders and owe no fiduciary duty to the Lenders.
10.4 Reliance on Communications. The Agents shall be entitled to rely,
and shall be fully protected in relying, upon any note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to any of the Credit Parties,
independent accountants and other experts selected
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by the Agents with reasonable care). The Agents may deem and treat the Lenders
as the owner of its interests hereunder for all purposes unless a written notice
of assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent in accordance with Section 11.3(b). The Agents shall be
fully justified in failing or refusing to take any action under this Credit
Agreement or under any of the other Credit Documents or the LOC Documents unless
it shall first receive such advice or concurrence of the Required Lenders as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agents shall in all
cases be fully protected in acting, or in refraining from acting, hereunder or
under any of the other Credit Documents or the LOC Documents in accordance with
a request of the Required Lenders (or to the extent specifically provided in
Section 11.6, all the Lenders) and such request and any action taken or failure
to act pursuant thereto shall be binding upon all the Lenders (including their
successors and assigns).
10.5 Notice of Default. An Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default hereunder unless
such Agent has actual knowledge of such Default or Event of Default or has
received notice from a Lender or a Credit Party referring to the Credit
Document, describing such Default or Event of Default and stating that such
notice is a "notice of default." In the event that the Administrative Agent
receives such a notice or has such actual knowledge, the Administrative Agent
shall give prompt notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders.
10.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
acknowledges that neither the Agents, NationsBanc Capital Markets, Inc. ("NCMI")
nor any of their officers, directors, employees, agents, attorneys-in-fact or
affiliates has made any representations or warranties to it and that no act by
the Agents, NCMI or any affiliate thereof hereinafter taken, including any
review of the affairs of any Credit Party, shall be deemed to constitute any
representation or warranty by the Agents or NCMI to any Lender. Each Lender
represents to the Agents and NCMI that it has, independently and without
reliance upon the Agents or NCMI or any other Lender, and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, assets, operations, property, financial
and other conditions, prospects and creditworthiness of the Credit Parties and
made its own decision to make its Loans hereunder and enter into this Credit
Agreement. Each Lender also represents that it will, independently and without
reliance upon the Agents, NCMI or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Credit Agreement, and to make such investigation as it deems
necessary to inform itself as to the business, assets, operations, property,
financial and other conditions, prospects and creditworthiness of the Credit
Parties. Except for notices, reports and other documents expressly required to
be furnished to the Lenders by the Administrative Agent hereunder, the Agents
and NCMI shall not have any duty or responsibility to provide any Lender with
any credit or other information concerning the business, operations, assets,
property, financial or other conditions, prospects or creditworthiness of the
Credit Parties which may come into the possession of the Agents, NCMI or any of
their officers, directors, employees, agents, attorneys-in-fact or affiliates.
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10.7 Indemnification. The Lenders agree to indemnify each Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective Commitments (or if the Commitments have expired or been terminated,
in accordance with the respective principal amounts of outstanding Loans and
Participation Interest of the Lenders), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following payment in full of the
Credit Party Obligations) be imposed on, incurred by or asserted against an
Agent in its capacity as such in any way relating to or arising out of this
Credit Agreement or the other Credit Documents or the LOC Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by an Agent under
or in connection with any of the foregoing; provided that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or willful misconduct of an Agent. If any
indemnity furnished to an Agent for any purpose shall, in the opinion of such
Agent, be insufficient or become impaired, such Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished. The agreements in this Section shall
survive the payment of the Credit Party Obligations and all other amounts
payable hereunder and under the other Credit Documents.
10.8 Agents in Their Individual Capacity. Each Agent and its affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with the Borrower or any other Credit Party as though such Agent were
not an Agent hereunder. With respect to the Loans made and Letters of Credit
issued and all obligations owing to it, an Agent shall have the same rights and
powers under this Credit Agreement as any Lender and may exercise the same as
though they were not an Agent, and the terms "Lender" and "Lenders" shall
include each Agent in its individual capacity.
10.9 Successor Agent. Any Agent may, at any time, resign upon 20 days
written notice to the Lenders. Upon any such resignation, the Required Lenders
shall, subject to the consent of the Borrower in its sole discretion, have the
right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within 45 days after the notice of resignation, then the retiring Agent shall
select a successor Agent provided such successor is a Lender hereunder or
qualifies as an Eligible Assignee. Upon the acceptance of any appointment as an
Agent hereunder by a successor, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations as an Agent, as appropriate, under this Credit Agreement and the
other Credit Documents and the provisions of this Section 10.9 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was an
Agent under this Credit Agreement.
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SECTION 11
MISCELLANEOUS
11.1 Notices. Except as otherwise expressly provided herein, all
notices and other communications shall have been duly given and shall be
effective (a) when delivered, (b) when transmitted via telecopy (or other
facsimile device) to the number set out below, (c) the Business Day following
the day on which the same has been delivered prepaid to a reputable national
overnight air courier service, or (d) the third Business Day following the day
on which the same is sent by certified or registered mail, postage prepaid, in
each case to the respective parties at the address or telecopy numbers set forth
on Schedule 11.1, or at such other address as such party may specify by written
notice to the other parties hereto.
11.2 Right of Set-Off. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default and the commencement of remedies described in Section 9.2, then, to the
extent permitted by applicable law, each Lender is authorized at any time and
from time to time, without presentment, demand, protest or other notice of any
kind (all of which rights being hereby expressly waived), to set-off and to
appropriate and apply any and all deposits (general or special) and any other
indebtedness at any time held or owing by such Lender (including, without
limitation, branches, agencies or Affiliates of such Lender wherever located) to
or for the credit or the account of any Credit Party against obligations and
liabilities of such Credit Party to the Lenders hereunder, under the Notes, or
the other Credit Documents, irrespective of whether the Administrative Agent or
the Lenders shall have made any demand hereunder and although such obligations,
liabilities or claims, or any of them, may be contingent or unmatured, and any
such set-off shall be deemed to have been made immediately upon the occurrence
of an Event of Default even though such charge is made or entered on the books
of such Lender subsequent thereto; provided that promptly following any such
set-off, such Lender will provide written notice thereof to the Borrower.
11.3 Benefit of Agreement.
(a) Generally. This Credit Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; provided that none of the Credit
Parties may assign and transfer any of its interests (except as
permitted by Section 8.4 or 8.5) without the prior written consent of
the Lenders; and provided further that the rights of each Lender to
transfer, assign or grant participations in its rights and/or
obligations hereunder shall be limited as set forth below in
subsections (b) and (c) of this Section 11.3. Notwithstanding the above
(including anything set forth in subsections (b) and (c) of this
Section 11.3), nothing herein shall restrict, prevent or prohibit any
Lender from (A) pledging its Loans hereunder to a Federal Reserve Bank
in support of borrowings made by such Lender from such Federal Reserve
Bank, or (B) granting assignments or participations in such Lender's
Loans and/or Commitments hereunder to its parent company and/or to any
Affiliate of such Lender (provided that such parent company or
Affiliate qualifies as an Eligible Assignee) or to any existing Lender;
provided that, as of the date of such assignment or participation, such
assignee or participant shall not be entitled
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to receive a greater payment under Section 3.13 than the assigning or
participating Lender would be entitled to receive.
(b) Assignments. In addition to the assignments permitted by
Section 11.3(a), each Lender may, with the prior written consent of the
Borrower and the Administrative Agent (provided that no consent of the
Borrower shall be required during the existence and continuation of an
Event of Default), which consent shall not be unreasonably withheld or
delayed, assign all or a portion of its rights and obligations
hereunder pursuant to an assignment agreement substantially in the form
of Exhibit 11.3 to one or more Eligible Assignees; provided that (i)
any such assignment shall be in a minimum aggregate amount of
$10,000,000 of the Commitments and in integral multiples of $1,000,000
above such amount (or the remaining amount of Commitments held by such
Lender), (ii) each such assignment shall be of a constant, not varying,
percentage of all of the assigning Lender's rights and obligations
under the Commitment being assigned. Any assignment hereunder
(including, but not limited to, any assignment by a Lender to another
Lender) shall be effective upon satisfaction of the conditions set
forth above and delivery to the Administrative Agent of a duly executed
assignment agreement, in substantially the form of Exhibit 11.3,
together with a transfer fee of $3,500 payable to the Administrative
Agent for its own account, (iii) each such assignment made as a result
of a demand by the Borrower pursuant to Section 11.3(d) shall be
arranged by the Borrower after consultation with the Agents and shall
be either an assignment of all of the rights and obligations of the
assigning Lender under this Credit Agreement or an assignment of a
portion of such rights and obligations made concurrently with another
such assignment or other such assignments that together cover all of
the rights and obligations of the assigning Lender under this Credit
Agreement or an assignment of a portion of such rights and obligations
made concurrently with another such assignment or other such
assignments that together cover all of the rights and obligations of
the assigning Lender under this Credit Agreement, (iv) no Lender shall
be obligated to make any such assignment as a result of a demand by the
Borrower pursuant to Section 11.3(d) unless and until such Lender shall
have received one or more payments from either the Borrower or one or
more Eligible Assignees in an aggregate amount at least equal to the
aggregate outstanding principal amount of the Revolving Loans owing to
such Lender, together with accrued interest thereon, to the date of
payment of such principal amount and all other amounts payable to such
lender under this Credit Agreement and (v) the Borrower shall be
entitled to withhold its consent if an assignment would result in
greater payments under Sections 3.9, 3.11, or 3.13. Upon the
effectiveness of any such assignment, the assignee shall become a
"Lender" for all purposes of this Credit Agreement and the other Credit
Documents and, to the extent of such assignment, the assigning Lender
shall be relieved of its obligations hereunder to the extent of the
Loans and Commitment components being assigned. Along such lines the
Borrower agrees that upon notice of any such assignment and surrender
of the appropriate Note or Notes, it will promptly provide to the
assigning Lender and to the assignee separate promissory notes in the
amount of their respective interests substantially in the form of the
original Note or Notes (but with notation thereon that it is given in
substitution for and replacement of the original Note or Notes or any
replacement notes thereof).
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By executing and delivering an assignment agreement in accordance with
this Section 11.3(b), the assigning Lender thereunder and the assignee
thereunder shall be deemed to confirm to and agree with each other and
the other parties hereto as follows: (i) such assigning Lender warrants
that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim and the assignee
warrants that it is an Eligible Assignee; (ii) except as set forth in
clause (i) above, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Credit
Agreement, any of the other Credit Documents or any other instrument or
document furnished pursuant hereto or thereto, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value
of this Credit Agreement, any of the other Credit Documents or any
other instrument or document furnished pursuant hereto or thereto or
the financial condition of any Credit Party or the performance or
observance by any Credit Party of any of its obligations under this
Credit Agreement, any of the other Credit Documents or any other
instrument or document furnished pursuant hereto or thereto; (iii) such
assignee represents and warrants that it is legally authorized to enter
into such assignment agreement; (iv) such assignee confirms that it has
received a copy of this Credit Agreement, the other Credit Documents
and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into such
assignment agreement; (v) such assignee will independently and without
reliance upon the Agents, such assigning Lender or any other Lender,
and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Credit Agreement and the other
Credit Documents; (vi) such assignee appoints and authorizes the Agents
to take such action on its behalf and to exercise such powers under
this Credit Agreement or any other Credit Document as are delegated to
the Agents by the terms hereof or thereof, together with such powers as
are reasonably incidental thereto; and (vii) such assignee agrees that
it will perform in accordance with their terms all the obligations
which by the terms of this Credit Agreement and the other Credit
Documents are required to be performed by it as a Lender.
(c) Participations. Each Lender may sell, transfer, grant or
assign participations in all or any part of such Lender's interests and
obligations hereunder; provided that (i) such selling Lender shall
remain a "Lender" for all purposes under this Credit Agreement (such
selling Lender's obligations under the Credit Documents remaining
unchanged) and the participant shall not constitute a Lender hereunder,
(ii) no such participant shall have, or be granted, rights to approve
any amendment or waiver relating to this Credit Agreement or the other
Credit Documents except to the extent any such amendment or waiver
would (A) reduce the principal of or rate of interest on or fees in
respect of any Loans in which the participant is participating or
increase any Commitments with respect thereto, (B) postpone the date
fixed for any payment of principal (including the extension of the
final maturity of any Loan or the date of any mandatory prepayment),
interest or fees in which the participant is participating, or (C)
release all or substantially all of the collateral or guaranties
(except as expressly provided in the Credit Documents) supporting any
of the Loans or Commitments in which the participant is participating,
(iii) sub-participations by the participant (except to an Affiliate,
parent company or Affiliate of a parent company of the participant)
shall be prohibited and (iv) any such participations shall be in a
minimum
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aggregate amount of $10,000,000 of the Commitments and in integral
multiples of $1,000,000 in excess thereof. In the case of any such
participation, the participant shall not have any rights under this
Credit Agreement or the other Credit Documents (the participant's
rights against the selling Lender in respect of such participation to
be those set forth in the participation agreement with such Lender
creating such participation) and all amounts payable by the Borrower
hereunder shall be determined as if such Lender had not sold such
participation; provided, however, that such participant shall be
entitled to receive additional amounts under Sections 3.9, 3.12, 3.13
and 3.14 to the same extent that the Lender from which such participant
acquired its participation would be entitled to the benefit of such
cost protection provisions.
(d) Each Lender grants (i) to the Agents the right to purchase
all (but not less than all) of such Lender's Commitments and Revolving
Loans owning to it and the Notes held by it and all of its rights and
obligations hereunder and under the other Credit Documents at a price
equal to the aggregate amount of outstanding Revolving Loans owed to
such Lender (together with all accrued and unpaid interest and fees and
other amounts owing to such Lender), and (ii) to the Borrower the right
to cause an assignment of all (but not less than all) of such Lender's
Commitment and Revolving Loans owing to it and the Notes held by it and
all of its rights and obligations hereunder and under the other Credit
Documents, which right may be exercised by the Agents or the Borrower,
as the case may be, if (A) such Lender refuses to execute any
amendment, waiver or consent which requires the written consent of all
of the Lenders and to which the Required Lenders, the Agents and the
Borrower have agreed, (B) such Lender has delivered a notice or
certificate pursuant to Section 3.9 or 3.11 or if the Borrower in
connection therewith or for any other reason is required to deduct or
withhold any tax, levy, impost, charge, assessment or similar item from
any amount payable to or for such Lender hereunder, (C) the Borrower
has knowledge or facts, events or circumstances which are reasonably
likely to entitle such Lender to deliver a certificate pursuant to
Section 3.9 or 3.11 and such Lender is unwilling or unable to take
action to eliminate or avoid its delivery of such a certificate, (D)
any Non-Excluded Taxes have been or are reasonably likely to be imposed
on such Lender, (E) such Lender is unable or unwilling to complete or
deliver any form required to be delivered by it pursuant to Section
3.13, (F) such Lender has received or is reasonably likely to receive a
notice or written communication as described in Section 3.13(f), (G)
such Lender shall have become subject to any receivership,
conservatorship or other insolvency proceeding, (H) the Eurocurrency
Reserve Percentage with respect to such Lender's Eurocurrency Loans is,
or would be reasonably likely to become with any incurrence of
Eurocurrency Loans, greater than zero, or (I) such Lender shall be a
Defaulting Lender. Each Lender agrees that if the Agents or the
Borrower, as the case may be, exercises its option hereunder, it shall
promptly execute and deliver all agreements and documentation necessary
to effectuate such assignment as set forth in Section 11.3(b).
11.4 No Waiver; Remedies Cumulative. No failure or delay on the part of
an Agent or any Lender in exercising any right, power or privilege hereunder or
under any other Credit Document and no course of dealing between the Borrower or
any Credit Party and the Agents or any Lender shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power or privilege
hereunder or under any other Credit Document preclude any other or further
exercise
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thereof or the exercise of any other right, power or privilege hereunder or
thereunder. The rights and remedies provided herein are cumulative and not
exclusive of any rights or remedies which the Agents or any Lender would
otherwise have. No notice to or demand on any Credit Party in any case shall
entitle any Credit Party to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Agents or the
Lenders to any other or further action in any circumstances without notice or
demand.
11.5 Payment of Expenses; Indemnification. The Credit Parties agree to:
(a) pay all reasonable out-of-pocket costs and expenses of (i) the Agents and
NationsBanc Capital Markets, Inc. ("NCMI") in connection with (A) the
negotiation, preparation, execution and delivery and administration of this
Credit Agreement and the other Credit Documents and the LOC Documents and the
documents and instruments referred to therein (including, without limitation,
the reasonable fees and expenses of Moore & Van Allen, special counsel to the
Agents and the fees and expenses of counsel for the Agents in connection with
collateral issues), and (B) any amendment, waiver or consent relating hereto and
thereto including, but not limited to, any such amendments, waivers or consents
resulting from or related to any work-out, renegotiation or restructure relating
to the performance by the Credit Parties under this Credit Agreement and (ii)
the Agents and the Lenders in connection with (A) enforcement of the Credit
Documents and the documents and instruments referred to therein, including,
without limitation, in connection with any such enforcement, the reasonable fees
and disbursements of counsel for the Agents and each of the Lenders, and (B) any
bankruptcy or insolvency proceeding of the Borrower or a Material Subsidiary and
(b) indemnify each Agent, NCMI and each Lender, its officers, directors,
employees, representatives and agents from and hold each of them harmless
against any and all losses, liabilities, claims, damages or expenses incurred by
any of them as a result of, or arising out of, or in any way related to, or by
reason of, any investigation, litigation or other proceeding (whether or not any
Agent, NCMI or Lender is a party thereto) related to (i) the entering into
and/or performance of any Credit Document or any LOC Document or the use of
proceeds of any Loans (including other extensions of credit) hereunder or the
consummation of any other transactions contemplated in any Credit Document or
any LOC Document, including, without limitation, the reasonable fees and
disbursements of counsel and settlement costs incurred in connection with any
such investigation, litigation or other proceeding (but excluding any such
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of gross negligence or willful misconduct on the part of the Person to be
indemnified), (ii) any Environmental Claim and (iii) any claims for Non-Excluded
Taxes.
11.6 Amendments, Waivers and Consents. In order for any amendment,
change, waiver, discharge or termination of this Credit Agreement or any of the
other Credit Documents to be binding on the Lenders and the Credit Parties, such
amendment, change, waiver, discharge or termination must be in writing and
signed by the Required Lenders and the then Credit Parties; provided that to be
binding no such amendment, change, waiver, discharge or termination shall:
(a) extend the Revolving Loan Maturity Date without the
consent of all the Lenders, or postpone or extend the time for any
payment or prepayment of principal to any Lender without the consent of
such Lender;
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(b) reduce the rate (other than as a result of waiving the
applicability of any post- default increase in interest rates) or
extend the time of payment of interest on any Loan made by or any fees
hereunder for the account of any Lender without the consent of such
Lender;
(c) reduce or waive the principal amount of any Loan made by
any Lender without the consent of such Lender;
(d) increase or extend the Commitment of a Lender over the
amount thereof in effect without the consent of such Lender (it being
understood and agreed that a waiver of any Default or Event of Default
or a waiver of any mandatory reduction in the Commitments shall not
constitute an increase in the Commitment of any Lender);
(e) except as otherwise permitted in this Credit Agreement or
the Collateral Documents, release the Borrower or substantially all of
the other Credit Parties from their respective obligations under the
Credit Documents or release all or substantially all of the collateral
pledged under the Collateral Documents without the consent of all the
Lenders;
(f) amend, modify or waive any provision of this Section or
Section 3.4(a), 3.4(b)(i), 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14,
9.1(a), 11.2, 11.3 or 11.5 without the consent of all the Lenders;
(g) reduce any percentage specified in, or otherwise modify,
the definition of Required Lenders without the consent of all the
Lenders; or
(h) consent to the assignment or transfer by the Borrower or
of any of its rights and obligations under (or in respect of) the
Credit Documents except as permitted under Section 8.4 without the
consent of all the Lenders.
Notwithstanding the fact that the consent of all the Lenders is required in
certain circumstances as set forth above, (x) each Lender is entitled to vote as
such Lender sees fit on any reorganization plan that affects the Loans or the
Letters of Credit, and each Lender acknowledges that the provisions of Section
1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set
forth herein and (y) the Required Lenders may consent to allow a Credit Party to
use cash collateral in the context of a bankruptcy or insolvency proceeding.
11.7 Counterparts. This Credit Agreement may be executed in any number
of counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument.
Delivery of an executed counterpart by telecopy shall be as effective as
delivery of a manually executed counterpart hereto and shall constitute a
representation that an original executed counterpart will be provided. It shall
not be necessary in making proof of this Credit Agreement to produce or account
for more than one such counterpart.
11.8 Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Credit Agreement.
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11.9 Defaulting Lender. Each Lender understands and agrees that if such
Lender is a Defaulting Lender then notwithstanding the provisions of Section
11.6 it shall not be entitled to vote on any matter requiring the consent of the
Required Lenders or to object to any matter requiring the consent of all the
Lenders; provided, however, that all other benefits and obligations under the
Credit Documents shall apply to such Defaulting Lender.
11.10 Survival of Indemnification and Representations and Warranties.
All indemnities set forth herein and all representations and warranties made
herein shall survive the execution and delivery of this Credit Agreement, the
making of the Loans, the issuance of the Letters of Credit and the repayment of
the Loans, LOC Obligations and other obligations and the termination of the
Commitments hereunder. No representation or warranty made or deemed made as of
any date pursuant to any Section or subsection of this Credit Agreement or any
other Credit Document, or any other document, certificate or statement delivered
in connection therewith, shall be deemed by reason of this Section 11.10 to have
been made or deemed made as of any other date.
11.11 Governing Law. THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND
THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
11.12 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE
OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.13 Time. All references to time herein shall be references to
Eastern Standard Time or Eastern Daylight time, as the case may be, unless
specified otherwise.
11.14 Severability. If any provision of any of the Credit Documents is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
11.15 Entirety. This Credit Agreement together with the other Credit
Documents represent the entire agreement of the parties hereto and thereto, and
supersede all prior agreements and understandings, oral or written, if any,
including any commitment letters or correspondence relating to the Credit
Documents or the transactions contemplated herein and therein.
11.16 Binding Effect. This Credit Agreement shall become effective at
such time when all of the conditions set forth in Section 5.1 have been
satisfied or waived by the Lenders and it shall have been executed by the
Borrower, the Guarantors and the Agents, and the Agents shall have received
copies hereof (telefaxed or otherwise) which, when taken together, bear the
signatures of each Lender, and thereafter this Credit Agreement shall be binding
upon and inure to the benefit of the Borrower, the Guarantors, the Agents and
each Lender and their respective successors and assigns.
84
<PAGE>
11.17 Confidentiality. Each Lender agrees that it will use its
reasonable best efforts to keep confidential and to cause any representative
designated under Section 7.11 to keep confidential any non-public information
from time to time supplied to it under any Credit Document; provided, however,
that nothing herein shall prevent the disclosure of any such information to (a)
the extent a Lender in good faith believes such disclosure is required by
Requirement of Law, (b) counsel for a Lender or to its accountants, (c) bank
examiners or auditors or comparable Persons, (d) any affiliate of a Lender, (e)
any other Lender, or any assignee, transferee or participant, or any potential
assignee, transferee or participant, of all or any portion of any Lender's
rights under this Agreement who is notified of the confidential nature of the
information or (f) any other Person in connection with any litigation to which
any one or more of the Lenders is a party; and provided further that no Lender
shall have any obligation under this Section 11.17 to the extent any such
information becomes available on a non-confidential basis from a source other
than a Credit Party or that any information becomes publicly available other
than by a breach of this Section 11.17.
85
<PAGE>
Each of the parties hereto has caused a counterpart of this Credit
Agreement to be duly executed and delivered as of the date first above written.
BORROWER:
COVANCE INC.,
a Delaware corporation
By:_______________________________
Name:_____________________________
Title:____________________________
GUARANTORS: COVANCE CLINICAL AND PERIAPPROVAL
SERVICES, INC.
a corporation
By:_______________________________
Name:_____________________________
Title:____________________________
COVANCE PHARMACEUTICAL PACKAGING
SERVICES, INC.
a corporation
By:_______________________________
Name:_____________________________
Title:____________________________
COVANCE LABORATORIES INC.
a corporation
By:_______________________________
Name:_____________________________
Title:____________________________
COVANCE RESEARCH PRODUCTS INC.
a corporation
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
COVANCE CENTRAL LABORATORY SERVICES
LIMITED PARTNERSHIP
By CORNING SCICOR, INC., a corporation, its
General Partner
By:_______________________________
Name:_____________________________
Title:____________________________
COVANCE PRECLINICAL CORPORATION
a corporation
By:_______________________________
Name:_____________________________
Title:____________________________
COVANCE CENTRAL LABORATORY SERVICES,INC.
a corporation
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
LENDERS:
NATIONSBANK, N.A.,
individually in its capacity as a
Lender and in its capacity as Administrative Agent
By:________________________________
Name:______________________________
Title:_____________________________
WACHOVIA BANK OF GEORGIA, N.A.,
individually in its capacity as a Lender and in
its capacity as Syndication Agent
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
BANK OF MONTREAL
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
FUJI BANK LTD.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
THE BANK OF NOVA SCOTIA
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
BANQUE PARIBAS
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
BARCLAYS BANK PLC
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
THE CHASE MANHATTAN BANK
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
CREDIT SUISSE
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
THE DAI-ICHI KANGYO BANK, LTD.
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
FLEET NATIONAL BANK
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
MELLON BANK, N.A.
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
PNC BANK, NATIONAL ASSOCIATION
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
Signature page to Credit Agreement, dated as of November 26, 1996, among Covance
Inc. as Borrower, certain Subsidiaries of Covance Inc. as Guarantors, the
lenders party thereto, NationsBank, N.A., as Administrative Agent and Wachovia
Bank of Georgia, N.A., as Syndication Agent.
THE SANWA BANK LTD
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
Exhibit 2.1(g)
to
Credit Agreement
FORM OF REVOLVING LOAN NOTE
, 199
FOR VALUE RECEIVED, COVANCE INC., a Delaware corporation (the "Borrower"),
hereby promises to pay to the order of (the "Lender"), at the office of
NationsBank, N.A. (the "Administrative Agent") as set forth in that certain
Credit Agreement dated as of , 1996 among the Borrower, certain of the
Subsidiaries of the Borrower, the Lenders named therein (including the Lender),
NationsBank, N.A., as Administrative Agent, and Wachovia Bank of Georgia, N.A.,
as Syndication Agent (as the same may be amended, modified, extended or restated
from time to time, the "Credit Agreement") or at such other place or places as
the holder of this Revolving Loan Note may designate), the aggregate principal
amount of all advances made by the Lender (in the respective currencies made) as
Revolving Loans (and not otherwise repaid), in lawful money (in the currency in
which the Revolving Loan was provided) and in immediately available funds, on
the dates and in the principal amounts provided in the Credit Agreement, and to
pay interest on the unpaid principal amount of each Revolving Loan made by the
Lender, at such office, in like money and funds, for the period commencing on
the date of each Revolving Loan until each Revolving Loan shall be paid in full,
at the rates per annum and on the dates provided in the Credit Agreement.
This Note is one of the Revolving Loan Notes referred to in the Credit
Agreement and evidences Revolving Loans made by the Lender thereunder. The
Lender shall be entitled to the benefits of the Credit Agreement. Capitalized
terms used in this Revolving Loan Note have the respective meanings assigned to
them in the Credit Agreement and the terms and conditions of the Credit
Agreement are expressly incorporated herein and made a part hereof.
The Credit Agreement provides for the acceleration of the maturity of
the Revolving Loans evidenced by this Revolving Loan Note upon the occurrence of
certain events (and for payment of collection costs in connection therewith) and
for prepayments of Revolving Loans upon the terms and conditions specified
therein. In the event this Revolving Loan Note is not paid when due at any
stated or accelerated maturity, the Borrower agrees to pay, in addition to the
principal and interest, all costs of collection, including reasonable attorney
fees.
Except as permitted by Section 11.3(b) of the Credit Agreement, this
Revolving Loan Note may not be assigned by the Lender to any other Person.
The date, amount, type, currency, interest rate and duration of
Interest Period (if applicable) of each Revolving Loan made by the Lender to the
Borrower, and each payment made on account of the principal thereof, shall be
recorded by the Administrative Agent on its books; provided that the failure of
the Administrative Agent to make any such recordation shall not affect the
obligations of the Borrower to make a payment when due of any amount owing
hereunder or under this Revolving Loan Note in respect of the Revolving Loans to
be evidenced
<PAGE>
by this Revolving Loan Note, and each such recordation shall be prima facie
evidence of the obligations owing under this Revolving Loan Note absent manifest
error.
THIS REVOLVING LOAN NOTE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date first above written.
COVANCE INC.
By:_______________________________
Name:_____________________________
Title:____________________________
FINAL DRAFT NOVEMBER 15, 1996
THE COVANCE INC.
EMPLOYEE STOCK OWNERSHIP PLAN
(EFFECTIVE AS OF ______________________)
<PAGE>
TABLE OF CONTENTS
INTRODUCTION..................................................................1
ARTICLE I DEFINITIONS...............................................2
ARTICLE II ELIGIBILITY AND PARTICIPATION.............................8
2.1 Eligibility...............................................8
2.2 Participation.............................................8
2.3 Beneficiary Designation...................................8
2.4 Notification of Individual Account Balance................9
2.5 Diversification of Investments or Distribution for
Certain Participants......................................9
ARTICLE III CONTRIBUTIONS............................................11
3.1 Discretionary Contributions..............................11
3.2 Maximum Deductible Contribution..........................11
3.3 Payment of Contributions to Trustee......................11
ARTICLE IV ALLOCATIONS TO INDIVIDUAL ACCOUNTS.......................12
4.1 Individual Accounts......................................12
4.2 Allocation of Discretionary Contributions................12
4.3 Allocation of Forfeitures................................12
4.4 Maximum Additions........................................13
4.5 Multiple Plan Participation..............................14
ARTICLE V DISTRIBUTIONS............................................16
5.1 Normal Retirement........................................16
5.2 Disability Retirement....................................16
5.3 Death Before Retirement or Termination of Employment.....16
5.4 Death After Retirement or Termination of Employment......17
5.5 Termination of Employment................................17
5.6 Method of Payment........................................19
5.7 Benefits to Minors and Incompetents......................19
5.8 Payment of Benefits......................................20
5.9 Valuation of Accounts....................................21
5.10 Direct Rollovers.........................................26
5.11 Payment to Alternate Payee Under QDRO....................23
i
<PAGE>
ARTICLE VI TRUST FUND/ESOP..........................................24
6.1 Contributions............................................24
6.2 Trustee..................................................24
6.3 Employer Stock Fund......................................24
6.4 Dividends on ESOP Stock Attributable to Exempt Loan......24
6.5 Voting and Tender Offer Rights on Employer Stock.........25
ARTICLE VII FIDUCIARIES..............................................26
7.1 General..................................................26
7.2 Corporation..............................................26
7.3 Employer.................................................27
7.4 Trustee..................................................27
7.5 Committee................................................27
7.6 Claims for Benefits......................................29
7.7 Denial of Benefits - Review Procedure....................30
7.8 Records..................................................30
7.9 Missing Persons..........................................31
ARTICLE VIII AMENDMENT AND TERMINATION OF THE PLAN ...................32
8.1 Amendment of the Plan....................................32
8.2 Termination of the Plan..................................32
ARTICLE IX PROVISIONS RELATIVE TO EMPLOYERS INCLUDED IN PLAN........33
9.1 Method of Participation..................................33
9.2 Withdrawal...............................................33
9.3 Adoption of ESOP by Participating Employer...............34
ARTICLE X TOP-HEAVY PROVISIONS.....................................35
10.1 Determination of Top-Heavy...............................35
10.2 Top-Heavy Definitions....................................37
ARTICLE XI MISCELLANEOUS............................................39
11.1 Governing Law............................................39
11.2 Construction.............................................39
11.3 Administration Expenses..................................39
11.4 Participant's Rights; Acquittance........................39
11.5 Spendthrift Clause.......................................39
11.6 Merger, Consolidation or Transfer........................39
11.7 Mistake of Fact..........................................40
ii
<PAGE>
11.8 Counterparts.............................................40
ARTICLE XII ADOPTION OF THE PLAN.....................................41
SUPPLEMENT A - to The Covance Inc. Employee Stock Ownership Plan -
Employee Stock Ownership Plan (ESOP).........................................
SUPPLEMENT B - Supplemental List of Participating Employers
SUPPLEMENT C - 1996 Domestic and International Allocation Formula
iii
<PAGE>
INTRODUCTION
This Plan establishes the Plan which shall be generally effective as of
the Distribution Date except as specifically noted otherwise.
This plan document is intended to be a retirement plan qualified under
Code Section 401(a) and the separately adopted Trust Agreement is intended to
establish the Trust Fund as tax-exempt under Code Section 501(a) as part of the
Plan. This Plan is intended to operate as an "employee stock ownership plan" as
defined in Code Section 4975(e)(7) and related regulations.
Except as otherwise noted in this Plan document, this Plan shall apply
only to Employees who work for, or continue to work for, the Employer on or
after the Distribution Date.
As an employee stock ownership plan, the Plan is intended to provide
Employees who qualify as Participants with retirement income by investment of
Plan assets primarily in Employer securities. Plan benefits are related to the
value of Company Stock, other Employer stock, and other assets in which the Plan
is invested. Such benefits and potential stock ownership will encourage
Employees to enhance their total available retirement capital by promoting the
growth of the Employer and the appreciation of its stock value.
The Employer intends this Plan to meet all of the applicable
requirements of ERISA and the Code, and this Plan shall be interpreted to comply
with ERISA, the Code and all final regulations and formal rulings thereunder.
The assets of the employee stock ownership plan shall be invested
primarily in common shares of the Employer ("Employer Stock") which qualify as
"employer securities" within the meaning of section 409(1) of the Internal
Revenue Code.
1
<PAGE>
ARTICLE I
DEFINITIONS
1.1 As used herein, unless otherwise required by the context, the following
words and phrases shall have the meanings indicated:
Active Participant - A Participant shall be deemed an Active
Participant with respect to a Fiscal Quarter if he is employed on the last day
of such Fiscal Quarter.
Affiliate - An organization which is not an Employer, but which must be
considered together with an Employer under Code Sections 414(b), (c), (m) or
(o).
Base Compensation - An Employee's annualized salary for the Plan Year;
except that if the Employee is a part-time employee Base Compensation shall be
earnings reported on Form W-2, but excluding amounts for overtime, bonus or
other special compensation.
Beneficiary - Any person designated by a Participant under Section 2.3
to receive such benefits as may become payable hereunder after the death of such
Participant.
Board - The Board of Directors of the Corporation.
Calendar Quarter - January 1 - March 3; April 2 - June 30; July 1 -
September 30; October 1 - December 31.
Code - The Internal Revenue Code of 1986, as amended.
Committee - The Benefits Administration Committee, as provided for in
Section 8.5.
Contributions - Payments as provided herein by the Employer to the
Trustee for the purpose of providing the benefits under this Plan.
Corning - Corning Incorporated, a New York corporation.
Corporation - Covance Inc. a Delaware corporation, or any successor
thereto. The Corporation is the sponsor, named Fiduciary, and plan administrator
of the Plan for purposes of ERISA as it relates to the employees of each
Employer.
Discretionary Contributions - Contributions made by an Employer under
Section 3.3.
Distribution Date - [ ], the effective date of the spinoff of the
Employer from Corning through the distribution of stock dividends in shares of
Corning, CCL and the Employer.
2
<PAGE>
Effective Date - Except as specified otherwise, the Plan is effective
as of the Distribution Date.
Eligible Employee - An Employee eligible for participation under
Section 2.1.
Employee - Any person employed by an Employer. Notwithstanding the
preceding sentence, Employee shall not include (1) independent contractors, (2)
any person who is covered by a collective bargaining agreement where such
agreement provides for a different retirement plan, or where no provision is
made for any retirement plan after good faith bargaining between the Employer
and employee representatives and (3) any person who is excluded from
participation hereunder by the terms of his Employer's adoption of this Plan. No
person who is a leased employee of an Employer within the meaning of Code
Section 414(n), or who receives compensation solely for service as a member of
the Board, shall be eligible to participate in this Plan.
Employer - Collectively or individually as the context may indicate,
Covance Inc. (formerly Corning Pharmaceutical Services Inc.); and any other
entity listed in Supplement B which (1) must be considered together with the
Corporation under Code Section 414(b), (c) or (m), (2) has been authorized by
the Board to adopt the Plan and (3) by action of its own board of directors
shall have adopted the Plan, or any successor to one or more of such entities.
Employer Stock - Any class of the Employer's common stock or the
Employer's preferred stock that is convertible into common stock. Employer Stock
includes ESOP Stock.
Employment Commencement Date - The date on which an Employee first
performs an hour of service for an Employer (even if such date is before the
Effective Date with respect to such Employer).
ERISA - The Employee Retirement Income Security Act of 1974, as
amended.
ESOP Stock - Employer securities within the meaning of Code section
409(1) that have been acquired with the proceeds of an Exempt Loan. Unallocated
ESOP Stock shall remain in a suspense account described in Section A-5 until
allocated to Participants' ESOP Accounts pursuant to Section A-9.
Fiduciary - The Corporation, the Employer, the Trustee, the Committee
and any individual, corporation, firm or other entity which assumes, in
accordance with Article
3
<PAGE>
VIII, responsibilities of the Corporation, the Employer, the Trustee or the
Committee respecting management of the Plan or the disposition of its assets.
Fund - The Trust Fund.
Highly Compensated Employee - (a) For any Plan Year, any employee
described in subsection (b) or (c).
(b) Any employee who during the immediately preceding Plan Year:
(1) was at any time a 5-percent owner (as defined in Code Section
416(i)(l));
(2) received compensation (as defined in Code Section 414(q)(7))
from an Employer or an Affiliate in excess of $50,000 (as adjusted under Code
Section 414(q)(1)); or
(3) was at any time an officer and received compensation (as
defined in Code Section 414(q)(7)) from an Employer or an Affiliate greater than
50 percent of the amount in effect under Code Section 415(b)(1)(A) for such
year.
(c) Any employee who during the current Plan Year:
(1) was at any time a 5-percent owner (as defined in Code Section
416(i)(l));
(2) received compensation (as defined in Code Section 414(q)(7))
from an Employer or an Affiliate in excess of $50,000 (as adjusted under Code
Section 414(q)(1)) and was one of the 100 employees receiving the most
compensation (as defined in Code Section 414(q)(7)); or
(3) was at any time an officer who received compensation (as
defined in Code Section 414(q)(7)) from an Employer or an Affiliate greater than
50 percent of the amount in effect under Code Section 415(b)(1)(A) for such year
and was one of the 100 employees receiving the most compensation (as defined in
Code Section 414(q)(7).
This definition shall be applied in accordance with Code Section 414(q)
and the regulations issued thereunder.
(d) For purposes of applying the HC Family Member aggregation rules
under this Plan, Highly Compensated Employee shall also include former employees
who separated prior to the Plan Year being tested and who met the definition of
Highly
4
<PAGE>
Compensated Employee in either (1) the Plan Year in which they separated or (2)
any Plan Year ending on or after their 55th birthday.
HC Family Member - With respect to a Highly Compensated Employee who is
either a 5% owner or one of the ten most highly compensated Employees, the
spouse and the lineal ascendants and descendants (and spouses of such ascendants
and descendants) of any such Highly Compensated Employee.
Individual Account - That portion of Participant's Discretionary
Contributions allocated to such Participant under Section 4.4 and any earnings
or losses on such contribution.
Limitation Year - The Limitation Year is January 1 - December 31.
Normal Retirement Age - Age 65.
Participant - Any Employee or former Employee who has an Individual
Account balance and any Employee who has met the eligibility requirements of
Section 2.1. Participation ends in accordance with Section 2.2.
Period of Severance - The period of time commencing on an Employee's
Severance from Service Date and ending on his Reemployment Commencement Date.
Plan - The Covance Inc. Employee Stock Ownership Plan as contained
herein or as duly amended
Plan Year -The Plan Year is January 1 - December 31.
Reemployment Commencement Date - The first date on which an Employee
again performs an hour of service following a Period of Severance.
Section 415 Compensation - An Employee's wages as defined in Code
Section 3401(a) and all other payments of compensation to an Employee by an
Employer (in the course of the Employer's trade or business) for which the
Employer is required to furnish the Employee a written statement under Code
Sections 6041(d) and 6051(a)(3). Section 415 Compensation shall be determined
without regard to any rules that limit the remuneration included in wages based
on the nature or location of the employment or the services performed (such as
the exception for agricultural labor in Code Section 3401(a)(2)). Section 415
Compensation does not include employee pre-tax contributions to a qualified Plan
and salary reduction contributions to a Code Section 125 cafeteria plan.
5
<PAGE>
Severance from Service Date - The date on which an Employee quits,
retires, is discharged or dies, provided he does not earn an hour of service for
an Employer within 12 months after such date.
Testing Compensation - For each Participant, the Section 415
Compensation paid to an Employee by the Employer for his services, excluding
reimbursements or other expense allowances, cash and non-cash fringe benefits
(e.g., employee discounts), moving expenses, deferred compensation and welfare
benefits, plus any employee pre-tax contributions to a qualified defined
contribution plan and salary reduction contributions to a Code Section 125
cafeteria plan. Testing Compensation in excess of $160,000 (or such different
amount as may be applicable under Code Section 401(a)(17)(B)) shall not be taken
into account.
Total and Permanent Disability - A Participant shall be considered
totally and permanently disabled once the Committee, in its sole discretion,
determines that he has incurred a disability which renders him totally and
permanently unable to satisfactorily perform his usual duties for his Employer
or the duties of such other position which the Employer makes available to him
and for which he is qualified by reason of his training, education or
experience. Such determination shall be made by the Committee based on medical
reports and such other evidence which the Committee determines to be
satisfactory; provided, however, that conclusive evidence that the Participant
is eligible for and is receiving disability benefits under the provisions of the
Federal Social Security Act shall be sufficient to deem the Participant totally
and permanently disabled.
Trust Agreement - The agreement entered into between the Employer and
the Trustee under Article VII.
Trust Fund - All funds received by the Trustee together with all
income, profits and increments thereon, and less any expenses or payments made
out of the Trust Fund.
Trustee - Such individual, individuals, financial institution, or a
combination of them as shall be designated in the Trust Agreement to hold in
trust any assets of the Plan for the purpose of providing benefits under the
Plan, and shall include any successor trustee to the Trustee initially
designated thereunder.
Valuation Date - The date on which a Participant's Individual Account
is valued pursuant to Section 5.9. Subject to Section 5.9(b), the Valuation Date
shall be a date that
6
<PAGE>
falls as soon as administratively feasible after a properly-completed written
request for a distribution is received by an authorized representative of the
Committee.
Year of Vesting Service - (a) As of any date, the aggregate of an
Employee's periods of vesting service, including any vesting service credited
under subsection (b) and excluding any vesting service disregarded under
subsection (c). For purposes of this subsection (a), a period of
vesting service is each period of time required to be recognized under this Plan
commencing on the later of the Effective Date of this Plan, the Employee's
Employment Commencement Date, or any subsequent Reemployment Commencement Date,
and ending on a Severance from Service Date.
(b) Vesting service shall also include the following:
(1) Periods of employment with an Affiliate (while such
organization is an Affiliate) which would have constituted vesting service had
the Participant been employed by an Employer shall be included as if such
periods had been performed for an Employer; and
(2) Periods of employment with an Employer other than as
an Employee, including employment as a leased employee within the meaning of
Code Section 414(n), which would have constituted vesting service had the
Participant been employed as an Employee shall be included as if such periods
had been performed as an Employee.
(c) Years of Vesting Service on or after the Effective Date
recognized under the preceding subsections shall not include any vesting service
earned prior to a five-year Period of Severance if, when the Period of Severance
commenced, the Employee Individual Account under Sections 5.5 or 10.1.
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ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 Eligibility
An Employee who has completed an hour of service on the Effective Date
shall be a Participant. Each other Employee shall become a Participant on the
date following the Effective Date on which he completes an hour of service with
an Employer.
2.2 Participation
Each person who becomes a Participant shall remain a Participant so
long as he remains an Employee or maintains an Individual Account balance. If a
Participant terminates employment with no balance in his Individual Account, he
shall cease being a Participant upon his termination of employment. In the event
an Employee ceases to be a Participant and is later reemployed as an Employee,
he shall once again become a Participant upon his reemployment date.
2.3 Beneficiary Designation
(a) Upon commencing participation, each Participant shall designate a
Beneficiary by filing a properly-completed form with an authorized
representative of the Committee. In the absence of any valid designation of
Beneficiary, the Participant shall be deemed to have designated his spouse as
his Beneficiary, and if the Participant is unmarried upon his death, he shall be
deemed to have designated his estate as his Beneficiary.
(b) The Beneficiary of a married Participant shall be his spouse unless
the Participant designates someone other than his spouse as his Beneficiary, and
the Participant files with an authorized representative of the Committee his
spouse's written consent to such designation. Such spousal consent shall be on a
form approved by the Committee, shall be irrevocable by the spouse, shall
acknowledge the effect of such designation and shall be witnessed by a Committee
member (or an authorized representative) or a notary public. The spouse may
alternatively execute an irrevocable general consent that does not identify the
designated Beneficiary and which allows the Participant to make future changes
in the Beneficiary designation without spousal consent. Any such general consent
shall satisfy the requirements of Treasury Regulation ss.1.401(a)-20 Q&A-31(c).
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(c) If an unmarried Participant later marries, or if a married
Participant later remarries, any prior designation by such Participant of a
Beneficiary other than the spouse to whom he is married on his date of death
shall be null and void unless consented to by such spouse in the manner provided
in subsection (b).
(d) The interpretation of the Committee with respect to any Beneficiary
designation, subject to applicable law, shall be binding and conclusive upon all
parties, and no person who claims to be a Beneficiary, or any other person,
shall have the right to question any action of the Committee.
(e) The rights of any spouse or Beneficiary hereunder shall be subject
to the provisions of any qualified domestic relations order within the meaning
of ERISA Section 206(d)(3).
2.4 Notification of Individual Account Balance
As of the last day of each Plan Year (or such other earlier period
during the year), the Committee shall notify each Participant of the amount of
his share in the Contributions for the period just completed and the balance of
his Individual Account, including distributions, if any, since the effective
date of the last statement. Such notification shall be provided within a
reasonable period of time following the end of the Plan Year.
2.5 Diversification of Investments or Distribution for Certain Participants
For purposes of this Section 2.5, "Qualified Participant" shall mean a
Participant who has completed at least five years of participation in the Plan.
"Qualified Election Period" shall mean the period of six Plan Years
beginning with the later of (i) the Plan Year in which the Participant first
becomes a Qualified Participant, or (ii) the Plan Year which includes the tenth
anniversary of the Distribution Date; provided that the Qualified Election
Period shall not begin unless and until the fair market value of Employer Stock
allocated to the Participant's ESOP Account is at least $500 as of any Valuation
Date.
No later than 90 days after the last day of each Plan Year during his
Qualified Election Period, each Qualified Participant shall be permitted to
direct the Plan as to the investment of 100 percent (100%) of an amount equal to
the value of his Individual Account attributable to Employer Stock. The
Participant's direction shall be provided to
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the Committee in writing and shall be effective no later than 180 days after the
close of the Plan Year to which the direction applies.
The Plan shall satisfy the Participant's direction by transferring the
portion of his Account that is covered by the election to another qualified plan
(including the portion of this Plan that does not constitute an ESOP) of the
Employer that accepts the transfer and permits employee-directed investments
and offers the Participant at least three investment options (not inconsistent
with regulations prescribed by the Secretary of the Treasury) other than
Employer Stock. The transfer shall be made, and the amount transferred shall be
invested in accordance with the Participant's election, no later than 90 days
after the last day of the period during which the election can be made. If at
the time of an election no Employer then maintains a qualified plan that is
eligible to receive the portion of the Participant's Account that is covered by
the election, the Plan shall distribute that portion to the Qualified
Participant within 90 days after the last day of the period during which the
election can be made, subject to the requirements of Section A-11 concerning put
options. This Section shall apply notwithstanding any other provision of the
Plan, other than such provisions as require the consent of the Participant to a
distribution with a present value in excess of $3,500. If the Participant does
not consent to such a distribution, the amount as to which the election is made
shall be retained in the Plan and the diversification requirement of this
Section shall be deemed to have been satisfied.
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ARTICLE III
CONTRIBUTIONS
3.1 Discretionary Contributions
To the extent permitted under the terms of the Plan, the Code and
ERISA, the Corporation shall make a Discretionary Contribution as of the last
day of the first Plan Year for each Participant who was an active Participant
during the Plan Year, which amount shall be allocated in accordance with Section
4.2 As of the last day of each Plan Year thereafter, the Corporation, at the
discretion of the Board, may make a Discretionary Contribution. Such
Discretionary Contribution, if made, shall be expressed as a percentage of Base
Compensation and shall be allocated in accordance with Section 4.2. No
Discretionary Contribution shall be made with respect to any Participant who is
not an Active Participant for the applicable Plan Year. The Employer shall also
contribute sufficient Discretionary Contributions as may be required by Section
10.1(b). Notwithstanding the foregoing, no contribution shall be made and
allocated under Section 4.2 to the extent it would cause the Participant to
exceed the maximum additions under Section 4.4 for the Plan Year.
3.2 Maximum Deductible Contribution
In no event shall the Employer be obligated to make a Contribution for
a Plan Year in excess of the maximum amount deductible by it under Code Section
404(a)(3).
3.3 Payment of Contributions to Trustee
Unless an earlier time for contribution is specified elsewhere in this
Plan, in all events the Employer shall pay to the Trustee its Contributions for
each Plan Year within the time prescribed by law, including extensions of time
for the filing of its federal income tax return for the Employer's taxable year
during which such Plan Year ended.
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ARTICLE IV
ALLOCATIONS TO INDIVIDUAL ACCOUNTS
4.1 Individual Accounts
(a) The Committee shall establish and maintain an Individual Account in
the name of each Participant, compromised of Discretionary Contributions and
investment earnings thereon, to which the Committee shall credit all amounts
allocated to each such Participant under this Article IV.
(b) Separate accounts shall be maintained for all former Employee
Participants who have an interest in the Plan.
(c) The maintenance of separate accounts shall not require a
segregation of the Trust assets and no Participant shall acquire any right to or
interest in any specific asset of the Trust as a result of the allocations
provided for in the Plan.
4.2 Allocation of Discretionary Contributions
(a) A Participant's allocable share as determined under subsection (b)
of the Discretionary Contribution shall be credited to the Participant's
Individual Account as of the last day of each Plan Year for which the
Corporation shall make a Discretionary Contribution under Section 3.1 and shall
be invested in Employer Stock.
(b) Each Participant who is an Active Participant for the Plan Year
with respect to which the Corporation makes a Discretionary Contribution shall
receive an allocation of the Discretionary Contribution. No other Participant
shall receive an allocation. Each Active Participant shall receive an amount
equal to the Discretionary Contribution, multiplied by a fraction where the
numeration is the Participant's Base Compensation and the denominator is the sum
of the Base Compensation of all Active Participants. Notwithstanding the
foregoing, the Corporation may designate that all or any portion of a
Discretionary Contribution shall be allocated only to new Participants during
the Plan Year based on Base Compensation and in accordance with the above
allocation formula.
4.3 Allocation of Forfeitures
As of the last day of each Plan Year, any forfeitures arising under
Section 5.5(c) shall be used to the extent necessary to restore a Participant's
Individual Account as provided in Section 5.5(c)(1), and/or shall be allocated
to new Participants during the Plan Year ending December 31, 1997 and December
31, 1998 based on the ratio of the
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new Participant's Base Compensation to the Base Compensation of all such new
Participants for the Plan Year. Notwithstanding the foregoing, for Plan Years
ending December 31, 1999 and 2000, any forfeitures shall be allocated to all
Active Participants in accordance with Section 4.2 (b).
4.4 Maximum Additions
(a) Notwithstanding anything herein to the contrary but subject to
subsection (b), the sum of the Discretionary Contributions allocated to a
Participant's Individual Account for any Limitation Year (the "Annual
Additions"), when combined with any annual additions credited to the Participant
for the same period under another qualified defined contribution plan maintained
by the Employer or an Affiliate, shall not exceed the lesser of the following:
(1) $30,000 or such larger amount as may be determined under Code
Section 415(c)(1)(A); or
(2) 25% of the Participant's total Section 415 Compensation
received from the Employer for such Limitation Year.
(b) In the event a Participant is covered by more than one defined
contribution plan maintained by the Employer (or an Affiliate), the maximum
Annual Additions to this Plan shall be decreased as determined necessary by the
Employer to insure that the limitations of Code Section 415(c) are not exceeded.
In the event that corrective adjustments in the Annual Additions to any
Individual Accounts are required due to a reasonable error in estimating a
Participant's compensation that may be made with respect to any Participant
under the annual additions limit of Sections 4.4(a) and (b), the adjustment
shall first be made by reducing the Discretionary Contributions provided under
this Plan, employer contribution under any qualified defined contribution plan
maintained by the Employer, and next any employee pre-tax contributions.
Any amounts withheld or taken from a Participant's Individual
Account pursuant to the above shall be segregated in the Trust Fund in a
separate account and applied toward the Contribution of the Employer for the
next Limitation Year for the affected Participant, including a special
Discretionary Contribution under section 4.2(b) earmarked exclusively for that
Participant, subject to satisfying any restriction under section 401(a)(y) of
the code with regard to all such special contributions.
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(c) A Participant's annual additions with respect to Employer Stock
allocable to an Exempt Loan shall be determined on the basis of the lesser of
contributions thereto or the value of Employer Stock released from the Suspense
Account and, if no more than one third of any employer matching contributions
which are deductible under Section 404(a)(9) of the Code by reason of their
application to make payments on an Exempt Loan are allocated to Highly
Compensated Employees, a Participant's annual additions shall not include
employer contributions which are deductible under Section 404(a)(9)(B) of the
Code by reason of their applications to the payment of interest on an Exempt
Loan or forfeitures of Employer Stock attributable to an Exempt Loan.
4.5 Multiple Plan Participation
(a) If a Participant is a participant in a defined benefit plan
maintained by the Employer, the sum of his defined benefit plan fraction
(determined in subsection (c)) and his defined contribution plan fraction
(determined in subsection (b)) for any Limitation Year may not exceed 1.0.
(b) The term "defined contribution plan fraction" shall mean a
fraction, the numerator of which is the sum of all of the Annual Additions to
the Participant's Individual Account under this Plan as of the close of the
Limitation Year and the denominator of which is the sum of the lesser of the
following amounts determined for such Limitation Year and for each prior
Limitation Year of employment with the Employer:
(1) the product of 1.25 multiplied by the dollar limitation in
effect under Section 4.6(a)(1) for such Year; or
(2) the product of 1.4 multiplied by an amount determined under
Section 4.6(a)(2) for such Year.
(c) The term "defined benefit plan fraction" shall mean a fraction the
numerator of which is the Participant's projected annual benefit determined as
of the close of the Limitation Year and the denominator of which is the lesser
of:
(1) the product of 1.25 multiplied by the dollar limitation in
effect under Code Section 415(b)(1)(A) for such Limitation Year; or
(2) the product of 1.4 multiplied by the amount which may be taken
into account under Code Section 415(b)(1)(B) with respect to each individual
under the Plan for such Limitation Year.
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For purposes of this limitation, all defined benefit plans maintained
by an Employer (or any Affiliates), whether or not terminated, are to be treated
as one defined benefit plan and all defined contribution plans maintained by an
Employer (or any Affiliates), whether or not terminated, are to be treated as
one defined contribution plan. The extent to which the annual benefit under any
defined benefit plans shall be reduced in order to achieve compliance with the
limitations of Code Section 415 shall be determined in such a manner so as to
maximize the aggregate benefits payable to such Participant. If such reduction
is under this Plan, the Committee shall advise affected Participants of any
additional limitation on their annual benefits required by this Section.
(d) The above limitations in Section 4.4 and this Section 4.5 are
intended to comply with the provisions of Code Section 415 so that the maximum
benefits able to be provided by plans of the Employer shall be exactly equal to
the maximum amounts allowed under Code Section 415. If there is any discrepancy
between the provisions of Section 4.4 or this Section 4.5 and the provisions of
Code Section 415, such discrepancy shall be resolved in such a way as to give
full effect to the provisions of Code Section 415, which provisions are hereby
incorporated by reference.
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ARTICLE V
DISTRIBUTIONS
5.1 Normal Retirement
Upon the retirement of a Participant on or after attaining his Normal
Retirement Age, the value of his Individual Account (as determined under Section
5.9) shall become 100% vested and shall become payable as soon as
administratively feasible following his retirement. The Committee shall
thereupon direct the Trustee to distribute to the retiring Participant such
amount in accordance with Section 5.6.
5.2 Disability Retirement
(a) A Participant may retire from the employment of the Employer on the
first day of any month coincident with or next following a determination by the
Committee that the Participant has incurred a Total and Permanent Disability.
Upon the retirement of a Participant under this Section 5.2, the value of his
Individual Account (as determined under Section 5.9) shall become 100% vested
and shall become payable as soon as administratively feasible following his
retirement. The Committee shall thereupon direct the Trustee to distribute to
the retiring Participant such amount in accordance with Section 5.6.
(b) Notwithstanding anything herein to the contrary, a Participant who
retires in accordance with this Section 5.2 shall (1) have the right to delay
receipt of his disability retirement benefit until the time required by Section
5.8(b), and (2) if deferred benefit commencement is elected, have the right at
any time subsequent to his disability retirement date but prior to the time
required by Section 5.8(b) to request benefit commencement at some earlier date.
5.3 Death Before Retirement or Termination of Employment
Upon the death of a Participant before retirement or termination of
employment, the value of such Participant's Individual Account (as determined
under Section 5.9) shall become 100% vested and shall become payable as soon as
administratively feasible following his death. Subject to subsection (b), the
Committee shall direct the Trustee to distribute to the deceased Participant's
Beneficiary such amount in accordance with Section 5.6.
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5.4 Death After Retirement or Termination of Employment
Upon the death of a Participant who has terminated employment and who
is not receiving benefit payments in accordance with a form of distribution
under Section 5.6, the value of the vested portion of such Participant's
Individual Account (as determined under Section 5.9) shall become payable as
soon as administratively feasible following his death. (For any Participant who
is receiving benefit payments in accordance with a form of distribution under
Section 5.6, the provisions of such form of distribution shall control any
payments upon the death of such Participant.) The Committee shall direct the
Trustee to distribute to the deceased Participant's Beneficiary such amount in
accordance with Section 5.6.
5.5 Termination of Employment
(a) Upon termination of employment for any reason other than retirement
under Section 5.1 or 5.2, or death, a Participant shall be entitled to the value
of the vested portion of his Individual Account (as determined under Section
5.9) and payable at the time set forth in subsection (b). A Participant's
Individual Account shall vest on the earlier of two years and one day from the
date of the initial allocation to the Participant or after earning five Years of
Vesting Service, provided that all amounts shall become fully vested as of
December 31, 2000.
(b) (1) As soon as administratively feasible following a Participant's
termination of employment, the Committee shall direct the Trustee to distribute
to such Participant the value of the vested portion of his Individual Account
(as determined under Section 5.9). Notwithstanding the preceding sentence, if
the amount to be distributed under this subsection (b) exceeds (or at the time
of any prior distribution exceeded) $3,500, then no distribution shall be made
prior to the Participant attaining his Normal Retirement Age unless he consents
in writing to the making of such distribution. The consent of the Participant
shall be obtained in writing within the 90-day period ending on the date
distribution commences. The Participant shall be given a written notice of the
right to defer any distribution until the Participant's Individual Account
balance is no longer immediately distributable. Such notification shall be
provided no less than seven days and no more than 90 days prior to the date
distribution commences and shall inform
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the Participant that he has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to elect a
distribution.
(2) As soon as administratively feasible following the attainment
of Normal Retirement Age on the part of a Participant who has previously
terminated his employment but the distribution of whose benefit has not
commenced, the Committee shall direct the Trustee to distribute to such
Participant the value of his Individual Account (as determined under Section
5.9) in a lump sum payment.
(c) If a Participant's employment terminates for any reason other than
retirement or death at a time when he is not fully vested in his Individual
Account, then the Committee shall follow the procedure set forth in paragraph
(1) or that set forth in paragraph (2) below, as appropriate:
(1) If the vested portion of the Individual Account is distributed
to him at any time before the end of the second Plan Year following the Plan
Year in which his employment terminated, the remaining portion of such Accounts
shall be forfeited as of the date of such termination of employment. However, if
the Participant had no vested interest in his Individual Account at the time of
his termination of employment, the Committee nonetheless shall treat the
Participant as if he had received a distribution on the date his employment
terminated and shall forfeit the Participant's Individual Account on the date
his employment terminated. If the former Participant returns as an Employee
prior to incurring a one-year Period of Severance beginning immediately after
the date of his distribution (or on the date his employment terminated in the
case of a former Participant who had no vested interest in Individual Account on
the date his employment terminated), then his Account, determined as of the date
of the distribution of his vested interest, shall be fully restored to him as of
the end of the Plan Year in which such repayment occurred. In such case, the
Participant's Individual Account shall be restored first out of forfeitures for
such Plan Year and, if such forfeitures are insufficient to restore such
Account, the Employer shall make a special contribution to the extent necessary
so that the Participant's Account is fully restored.
(2) If a Participant's vested interest in his Individual Account
is distributed to him under section 5.6 (or is deemed to be distributed to the
Participant), any portion of such Accounts which is not vested shall be
forfeited immediately.
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(d) In the event a Participant who terminated his employment with an
Employer is reemployed as an Employee prior to receiving a distribution of his
Individual Account, he shall not be entitled to a distribution as provided in
this Section 5.5 due to such termination, but shall be entitled to a
distribution as determined herein upon any subsequent termination of employment
for any reason.
5.6 Method of Payment
Benefit payments hereunder shall be made in a lump sum. Furthermore,
distributions to a Participant (or to his Beneficiary if the Participant dies
before distribution of his benefit has commenced), the value of the vested
portion of whose Individual Account does not exceed (or at the time of any prior
distribution did not exceed) $3,500, automatically shall be made in a lump sum.
A Participant who is not vested in any portion of his Individual Account shall
be deemed to distributed to the Participant. Payment from investments held in
Employer Stock may be distributed in cash or in stock, at the direction of the
Participant. Payments from other investment accounts shall be made only in cash.
5.7 Benefits to Minors and Incompetents
(a) In case any person entitled to receive payment under the Plan shall
be a minor, the Committee, in its discretion, may distribute such payment in any
one or more of the following ways:
(1) By payment thereof directly to such minor;
(2) By application thereof for the benefit of such minor;
(3) By payment thereof to either parent of such minor or to any
person who shall be legally qualified and shall be acting as guardian of the
person or the property of such minor, provided the parent or adult person to
whom any amount shall be paid shall have advised the Committee in writing that
he will hold or use such amount for the benefit of such minor.
(b) In the event a person entitled to receive payment under the Plan is
physically or mentally incapable of personally receiving and giving a valid
receipt for any payment due (unless prior claim therefor shall have been made by
a duly qualified legal representative of such person), such payment in the
discretion of the Committee may be
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made to the spouse, son, daughter, parent, brother or sister of the recipient or
to any other person who is responsible for the welfare of such recipient.
(c) Any payments made under subsections (a) or (b) shall, to the extent
of the payments, fully discharge the obligations of the Committee and the Plan
to any other person making a claim hereunder with respect to such payments.
5.8 Payment of Benefits
(a) Except as provided in subsection (b), in the event a Participant's
Individual Account shall be due and payable under this Article V and the
Participant has not elected otherwise in accordance with the Plan, any payment
of benefits to the Participant shall begin not later than 60 days after the
close of the Plan Year in which occurs the latest of:
(1) the date on which the Participant attains age 65;
(2) the 10th anniversary of the date in which the Participant
commenced participation in the Plan; and
(3) termination of employment of the Participant with the
Employer.
(b) Notwithstanding subsection (a) above, distribution of a
Participant's benefit shall be made no later than April 1 of the calendar year
following the calendar year during which such Participant attains age 70 1/2,
regardless of whether or not he has terminated employment with the Employer.
Such distribution shall be made over a period not extending beyond the life or
life expectancy of the Participant or the joint lives or life expectancies of
the Participant and a designated Beneficiary. Life expectancies shall be
determined at the time payments commence and shall not thereafter be
recalculated.
(c) If a Participant dies before distribution of his benefit has
commenced, the Participant's entire benefit shall be distributed within five
years after his death. The preceding sentence shall not apply to any portion of
the Participant's benefit if the following requirements in paragraphs (1) and,
if applicable, (2) are met with respect to such portion:
(1) (A) if the portion of the Participant's benefit is payable to
or for the benefit of a designated Beneficiary;
(B) such portion will be distributed over a period not
extending beyond the life expectancy of such Beneficiary at the time payments
commence; and
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(C) such distributions begin not later than December 31 of the
calendar year following the calendar year of the Participant's death.
(2) If the designated Beneficiary referred to in paragraph (1)(A)
above is the surviving spouse of the Participant, then the date on which the
distributions are required to begin under paragraph (1)(C) shall not be earlier
than December 31 of the calendar year in which the Participant would have
attained age 70 1/2.
If the surviving spouse dies before the distributions to such
spouse begin, this Section 5.8(c) (with the exception of paragraph (2)) shall be
applied as if the surviving spouse were the Participant.
This Section 5.8(c) shall not apply if the distribution of the
Participant's benefit has commenced prior to his death and the remaining portion
of the Participant's benefit will be distributed at least as rapidly as under
the method of distribution being used at the date of the Participant's death.
For purposes of this Section 5.8(c), under regulations to be
prescribed by the Secretary of the Treasury, any amount paid to a child shall be
treated as if it had been paid to the surviving spouse upon such child reaching
the age of majority (or other designated event prescribed under such
regulations).
(d) Distributions under this Article V shall be made in accordance with
regulations issued by the Secretary of the Treasury under Code Section
401(a)(9), including Treasury Regulation ss.1.401(a)(9)-2, which regulations
shall override any distribution options in this Plan inconsistent with Section
401(a)(9).
5.9 Valuation of Accounts
All distributions hereunder shall be based upon the value of the
Participant's Individual Account as determined under this Section 5.9.
(a) The value of a Participant's Individual Account upon a distribution
hereunder is the product of (A) the per unit value of the Employer Stock Fund
and (B) the number of units of such fund allocated to the Participant's
Individual Account as of such Valuation Date.
(b) If a Discretionary Contribution is made on behalf of a Participant
after the date on which his Individual Account is valued under subsection (a),
the Participant shall receive an additional distribution equal to the amount of
the Discretionary Contribution and any earnings or losses thereon. Such
additional distribution shall be valued in the
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same manner as the Participant's Individual Account was valued under subsection
(a), except that the Valuation Date shall be a date that falls as soon as
administratively feasible after the Discretionary Contribution is made.
5.10 Direct Rollovers
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Section, a distributee
may elect, at the time and in the manner prescribed by the Committee, to have
any portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
(b) (1) An "eligible rollover distribution" is any distribution of all
or any portion of the balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any distribution that is one of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Section 401(a)(9)
of the Code; and the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(2) An "eligible retirement plan" is an individual retirement
account described in section 408(a) of the Code, an individual retirement
annuity described in section 408(b) of the Code, an annuity plan described in
section 403(a) of the Code, or a qualified defined contribution plan described
in section 401(a) of the Code, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(3) A "distributee" includes an employee or former employee. In
addition, the employee's or former employee's surviving spouse and the
employee's or former employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
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(4) A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
5.11 Payment to Alternate Payee Under QDRO
Notwithstanding any other provision of this Plan, once the Committee
determines that a domestic relations order is a qualified domestic relations
order ("QDRO") within the meaning of Section 206(d)(3) of ERISA, unless the QDRO
specifically provides otherwise, the Committee shall direct the Trustee to
distribute, as soon as administratively feasible following the date on which the
Committee determines that the domestic relations order is a QDRO, to the
alternate payee named in the QDRO the benefit provided therein in a lump sum.
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ARTICLE VI
TRUST FUND
6.1 Contributions
Contributions by the Employer as provided for in Article III shall be
paid over to the Trustee. All Contributions by the Employer shall be
irrevocable, except as otherwise provided in this Plan and may be used only for
the exclusive benefit of the Participants and their Beneficiaries. The
Employer's Contribution will be made either in cash or in Employer Stock, or
partially in each.
6.2 Trustee
The Corporation will maintain an agreement with the Trustee whereunder
the Trustee will receive, invest and administer as a trust fund Contributions
made under this Plan in accordance with the Trust Agreement.
Such Trust Agreement is incorporated by reference as a part of the
Plan, and the rights of all persons entitled to benefits hereunder are subject
to the terms of the Trust Agreement. The Trust Agreement specifically provides,
among other things, for the investment and reinvestment of the Fund and the
income thereof, the management of the Fund, the responsibilities and obligations
of the Trustee, removal of the Trustee and appointment of a successor,
accounting by the Trustee and the disbursement of the Fund.
The Trustee shall, in accordance with the terms of such Trust
Agreement, accept and receive all sums of money paid to it from time to time by
the Employer, and shall hold, invest, reinvest, manage and administer such
moneys and the increment, increase, earnings and income thereof as a trust fund
for the exclusive benefit of the Participants and their Beneficiaries and for
the payment of reasonable expenses of administering the Plan.
6.3 Employer Stock Fund
The Employer Stock Fund shall be invested in the common stock of the
Employer, provided such stock qualifies as qualifying employer securities within
the meaning of ERISA Section 407(d)(5). The level of Plan assets invested in
such fund may consist of up to 100% of all Plan assets.
6.4 Dividends on ESOP Stock Attributable to Exempt Loan
It is anticipated that all dividends payable with respect to shares of
ESOP Stock held in the Suspense Account shall be used for the purpose of
repaying one or more
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Exempt Loans and will not be allocated to Participants' Individual Accounts
invested in Employer Stock and that all dividends payable with respect to all
other Employer Stock held in the Trust Fund shall be added to the Participants'
Employer Stock Fund, subject to Section A-6. Nevertheless, the Committee may, in
its sole discretion, determine for any Plan Year that dividends payable with
respect to shares of ESOP Stock shall, if payable in cash (i) paid currently to
Participants or (ii) used for the purpose of repaying one or more Exempt Loans
if such use of said dividends so applied meets the requirements of Code Section
404(k). Such discretion herein granted may be exercised by the Committee
independently, and in whole or in part, with respect to the stock held from time
to time in one or more of Employer Stock Funds established under the Trust.
Discretion so exercised for any Plan Year, or for any portion thereof, may be
changed by the Committee at any subsequent time. Cash dividends which are to be
paid to the Participants may be paid directly by the Company or may be paid by
the Trustee within ninety (90) days after the end of the Plan year or receipt by
the Trustee.
6.5 Voting and Tender Offer Rights n Employer Stock
Each Participant shall have the right to vote all shares of Employer
Stock held in the Participant's accounts. Each Participant shall also have the
right to direct the Trustee whether to tender such shares of Stock in the event
an offer is made by any person other than the Employer to purchase such shares.
The Committee shall make any such arrangements with the Trustee as may be
appropriate to pass such voting or tender offer rights through to a Participant.
In the event a Participant fails to vote his shares or fails to indicate his
preference with respect to a tender offer, the Trustee shall vote the
Participant's shares or tender his shares in the same proportions as those Plan
Participants who did respond cast their votes or tendered their shares. The
Trustee shall also vote and exercise any tender offer rights with respect to
unallocated ESOP Stock held in a suspense account in the same proportions as
those Plan Participants who responded cast their votes or tendered their shares.
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ARTICLE VII
FIDUCIARIES
7.1 General
Each Fiduciary who is allocated specific duties or responsibilities
under the Plan or any Fiduciary who assumes such a position with the Plan shall
discharge his duties solely in the interest of the Participants and
Beneficiaries and for the exclusive purpose of providing such benefits as
stipulated herein to such Participants and Beneficiaries, or of defraying
reasonable expenses of administering the Plan. Each Fiduciary in carrying out
such duties and responsibilities shall act with the care, skill, prudence, and
diligence under the circumstances then prevailing that a prudent person acting
in a like capacity and familiar with such matters would use in exercising such
authority or duties.
A Fiduciary may serve in more than one Fiduciary capacity and may
employ one or more persons to render advice with regard to his Fiduciary
responsibilities. If the Fiduciary is serving as such without compensation, all
expenses reasonably incurred by such Fiduciary shall be reimbursed by the
Employer or, at the Corporation's direction, from the assets of the Trust.
A Fiduciary may allocate any of his responsibilities for the operation
and administration of the Plan. In limitation of this right, a Fiduciary may not
allocate any responsibilities as contained herein relating to the management or
control of the Fund except (1) through the employment of an investment manager
as provided in Section 8.3 and in the Trust Agreement relating to the Fund, or
(2) to the extent Participants specify their own Investment Options.
7.2 Corporation
The Corporation established and maintains the Plan for the benefit of
its Employees and those of participating Employers and of necessity retains
control of the operation and administration of the Plan. The Corporation is the
Plan administrator within the meaning of ERISA Section 3(16)(A). The Corporation
in accordance with specific provisions of the Plan has, as herein indicated,
delegated certain of these rights and obligations to the Employer, the Trustee
and the Committee and these parties shall be solely responsible for these, and
only these, delegated rights and obligations.
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7.3 Employer
The Employer shall indemnify each member of the Board of Directors, the
Committee, and any of its employees to whom any fiduciary responsibility with
respect to the Plan is allocated or delegated, from and against any and all
liabilities, costs and expenses incurred by such persons as a result of any act
or omission to act in connection with the performance of their fiduciary duties,
responsibilities and obligations under the Plan and under ERISA, except for
liabilities and claims arising from such fiduciary's willful misconduct or gross
negligence. For such purpose, the Employer may obtain, pay for and keep current
a policy or policies of insurance. Where such policy or policies of insurance
are purchased, there shall be no right to indemnification under this Section
8.3, except to the extent of any deductible amount under the policy or policies
or with regard to covered claims in excess of the insured amount. No Plan assets
may be used for any indemnification.
The Employer shall supply such full and timely information for all
matters relating to the Plan as (a) the Committee, (b) the Trustee, and (c) the
accountant engaged on behalf of the Plan by the Corporation may require for the
effective discharge of their respective duties.
7.4 Trustee
The Trustee, in accordance with the Trust Agreement, shall have
authority to manage the Fund, except that (1) the Committee may in its
discretion employ at any time and from time to time an investment manager (as
defined in section 3(38) of ERISA) to direct the Trustee with respect to all or
a designated portion of the assets comprising the Fund, and (2) Participants may
specify their own Investment Options.
Each Participant in the Plan shall be a "named fiduciary" within the
meaning of section 402 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), to the extent that Employer Stock or shares of Corning or
CCL, whether or not allocated to his accounts, are voted or tendered according
to the Participant's directions.
7.5 Committee
The Board shall appoint a Benefits Administration Committee of not less
than three persons to hold office during the pleasure of the Corporation. No
compensation shall be paid members of the Committee from the Fund for service on
such Committee.
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The Committee shall choose from among its members a chairman and a
secretary. Any action of the Committee shall be determined by the vote of a
majority of its members. Either the chairman or the secretary may execute any
certificate or other written direction on behalf of the Committee.
The Committee shall hold meetings upon such notice, at such place or
places and at such time or times as the Committee may from time to time
determine. Meetings may be called by the chairman or any two members. A majority
of the members of the Committee at the time in office shall constitute a quorum
for the transaction of business. The Committee may also act by written consent
in lieu of a meeting.
A Committee member may resign at any time by giving written notice of
his resignation to the Corporation at least thirty days in advance, unless the
Corporation shall accept shorter notice. The Corporation shall appoint
replacement Committee members. Any Committee member who was employed by the
Employer when appointed to the Committee shall automatically be deemed to have
resigned from the Committee effective as of the date he ceases to be employed by
the Employer, unless the Corporation shall affirmatively act to keep said member
on the Committee.
Nothing herein shall prevent a Committee member from being a
Participant, or from acting on Plan matters which affect himself by virtue of
affecting all Participants generally. However, a Committee member shall not act
on any matter which affects himself specially. If application of the preceding
sentence results in there not being a quorum to act on any matter, the
Corporation shall appoint the necessary number of temporary Committee members to
take the action.
In accordance with the provisions hereof, the Committee has been
delegated certain administrative functions relating to the Plan with all powers
necessary to enable it properly to carry out such duties.
The Committee shall have discretionary authority to construe the Plan,
and to determine, consistent with the terms of the Plan, all questions that may
arise thereunder relating to (a) the eligibility of individuals to participate
in the Plan, (b) the amount of benefits to which any Participant or Beneficiary
may become entitled hereunder, and (c) any situation not specifically covered by
the provisions of the Plan. The determination of the Committee shall be final
and binding on all interested parties. All disbursements by the Trustee, except
for the ordinary expenses of administration of the Fund or the
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reimbursement of reasonable expenses at the direction of the Corporation as
provided herein, shall be made upon, and in accordance with, the written
directions of the Committee. When the Committee is required in the performance
of its duties hereunder to administer or construe, or to reach a determination
under any of the provisions of the Plan, it shall do so on a uniform, equitable
and nondiscriminatory basis.
7.6 Claims for Benefits
All claims for benefits under the Plan shall be submitted to the
Committee which shall have the responsibility for determining the eligibility of
any Participant or Beneficiary for benefits. All claims for benefits shall be
made in writing and shall set forth the facts which such Participant or
Beneficiary believes to be sufficient to entitle him to the benefit claimed. The
Committee may adopt forms for the submission of claims for benefits in which
case all claims for benefits shall be filed on such forms. The Committee shall
provide Participants and Beneficiaries with all such forms.
Upon receipt by the Committee of a claim for benefits, it shall
determine all facts which are necessary to establish the right of an applicant
to benefits under the provisions of the Plan and the amount thereof as herein
provided. The applicant shall be notified in writing by the Committee of its
decision with respect to such applicant's claim within 90 days after the receipt
of written request for benefits.
If any claim for benefits is denied, the notice shall be written in a
manner calculated to be understood by the applicant and shall include:
(a) The specific reason or reasons for the denial;
(b) Specific references to the pertinent Plan provisions on which the
denial is based;
(c) A description of any additional material or information necessary
for the applicant to perfect the claim and an explanation why such material or
information is necessary; and
(d) An explanation of the Plan's claim review procedures. If special
circumstances require an extension of time for processing the initial claim, a
written notice of the extension and the reason therefor shall be furnished to
the claimant by the Committee before the end of the initial 90-day period. In no
event shall such extension exceed 180 days after the receipt of the initial
claim for benefits.
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7.7 Denial of Benefits - Review Procedure
In the event a claim for benefits is denied or if the applicant has had
no response to such claim within 90 days of its submission (in which case the
claim for benefits shall be deemed to have been denied), the applicant or his
duly authorized representative, at the applicant's sole expense, may appeal the
denial by filing a written request for review with the Committee within 60 days
of the receipt of written notice of denial or 60 days from the date such claim
is deemed to be denied. In pursuing such appeal the applicant or his duly
authorized representative may review pertinent Plan documents, and may submit
issues and comments in writing.
The decision on review shall be made by the Committee within 60 days of
receipt of the request for review, unless special circumstances require an
extension of time for processing, in which case a decision shall be rendered as
soon as possible, but not later than 120 days after receipt of a request for
review. If such an extension of time is required, written notice of the
extension shall be furnished to the claimant before the end of the original 60
day period. The decision on review shall be in writing, shall be written in a
manner calculated to be understood by the claimant, and shall include specific
references to the provisions of the Plan on which such denial is based. If the
decision on review is not furnished within the time specified above, the claim
shall be deemed denied on review. The decision of the Committee upon review will
be final and binding on all parties.
7.8 Records
All acts and determinations of the Committee shall be duly recorded by
the secretary thereof and all such records, together with such other documents
as may be necessary in exercising its duties under the Plan shall be preserved
in the custody of such secretary. Such records and documents shall at all times
be open for inspection and for the purpose of making copies by any person
designated by the Corporation. The Committee shall provide such timely
information, resulting from the application of its responsibilities under the
Plan, as needed by the Trustee and the accountant engaged on behalf of the Plan
by the Corporation, for the effective discharge of their respective duties.
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7.9 Missing Persons
The Committee shall make a reasonable effort to locate all persons
entitled to benefits under the Plan. If such a person cannot be located, the
amount to which such a person otherwise would be entitled shall be retained by
the Trustee and treated in all respects as assets of the Trust, pending
disposition of such amount in accordance with regulations promulgated by the
Secretary of Labor or the Secretary of the Treasury. The Trustee may deposit any
such amounts into an "escheat fund" maintained by such Trustee but not within
the Trust.
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ARTICLE VIII
AMENDMENT AND TERMINATION OF THE PLAN
8.1 Amendment of the Plan
The Corporation shall have the right at any time by action of the Board
to amend the Plan in whole or in part, including retroactively to the extent
necessary. The duties, powers and liability of the Trustee hereunder shall not
be increased without its written consent. The amount of benefits which at the
later of the adoption or effective date of such amendment shall have accrued for
any Participant or Beneficiary hereunder shall not be adversely affected
thereby. No such amendment shall have the effect of revesting in the Employer
any part of the principal or income of the Fund. No amendment may eliminate or
reduce any early retirement benefit or subsidy that continues after retirement
or optional form of benefit. Unless expressly provided for in an amendment, it
shall not affect the rights and obligations of any Participant who terminated
employment prior to the effective date of the amendment.
8.2 Termination of the Plan
The Corporation expects to continue the Plan indefinitely, but
continuance is not assumed as a contractual obligation and each Employer
reserves the right at any time by action of its board of directors to terminate
the Plan as applicable to itself. If an Employer terminates or partially
terminates the Plan or permanently discontinues its Contributions at any time,
each Participant affected thereby shall be then fully vested in his Individual
Account.
In the event of termination of the Plan by an Employer, the Committee
shall value the Fund as of the date of termination. That portion of the Fund
applicable to any Employer for which the Plan has not been terminated shall be
unaffected. The Individual Accounts of the Participants and Beneficiaries
affected by the termination, as determined by the Committee, shall continue to
be administered as a part of the Fund or distributed to such Participants or
Beneficiaries pursuant to Section 5.6 as the Committee, in its sole discretion,
shall determine. Any distributions upon plan termination of amounts attributable
to Employee Pre-Tax Contributions shall only be made to the extent permissible
by Code Section 401(k)(10).
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ARTICLE IX
PROVISIONS RELATIVE TO EMPLOYERS INCLUDED IN PLAN
9.1 Method of Participation
Any organization which is affiliated with the Corporation may with the
consent of the Board adopt the Plan. In order to adopt the Plan, appropriate
action is required by the board of directors (or other governing body) of the
adopting organization and by the Board. Any organization which becomes a party
to the Plan shall thereafter promptly deliver to the Trustee provided for in
Article VII hereof a certified copy of the resolutions or other documents
evidencing its adoption of the Plan or a similar plan and also a written
instrument showing the Board's approval of such organization's becoming a party
to the Plan.
9.2 Withdrawal
Any one or more of the Employers included in the Plan may withdraw from
the Plan at any time by giving six months advance notice in writing to the Board
and the Committee (unless a shorter notice shall be agreed to by the Board) of
its or their intention to withdraw. Upon receipt of notice of any such
withdrawal, the Committee shall certify to the Trustee the equitable share of
such withdrawing Employer in the Fund (to be determined by the Committee).
The Trustee shall thereupon set aside from the Fund then held by it
such securities and other property as it shall, in its sole discretion, deem to
be equal in value to such equitable share. If the Plan is to be terminated with
respect to such Employer, the amount set aside shall be dealt with in accordance
with the provisions of Section 9.2. If the Plan is not to be terminated with
respect to such Employer, the Trustee shall pay such amount to such trustee as
may be designated by such withdrawing Employer, and such securities and other
property shall thereafter be held and invested as a separate trust of the
Employer which has so withdrawn, and shall be used and applied according to the
terms of a new agreement and declaration of trust between the Employer so
withdrawing and the trustee so designated.
Neither the segregation of the Fund assets upon the withdrawal of an
Employer, nor the execution of any new agreement and declaration of trust
pursuant to any of the provisions of this Section 9.2, shall operate to permit
any part of the corpus or income of the Fund to be used for or diverted to
purposes other than for the exclusive benefit of
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Participants and Beneficiaries or to defray reasonable costs of administering
the Plan and Trust.
9.3 Adoption of ESOP by Participating Employer
Any Employer joining the Plan which is not 100 percent owned by the
Employer must expressly provide in said joiner agreement whether the leveraging
provisions of the ESOP are being adopted by such participating Employer. If the
leveraged ESOP is not so adopted, said participating Employer shall participate
in the ESOP provisions of this Plan as may be modified in said joiner agreement,
but all specific provisions applicable to Exempt Loans and the suspense account
established pursuant to the loan shall not apply. If the ESOP provisions of the
Plan are adopted by such a non-100 percent owned participating Employer, any
Exempt Loan applicable to said participating Employer and its Participants shall
be solely the obligation of said participating Employer, and not the Employer or
any other participating Employer under the Plan, and separate accounting shall
be maintained on behalf of said participating Employer and its Participants with
only Participants employed by said participating Employer entitled to
allocations from the fund maintained for said participating Employer's Exempt
Loan. The foregoing provisions governing separate Exempt Loans and separate
groups of Employees of non-100 percent owned participating Employers shall
similarly apply to an Exempt Loan of the Employer and its 100 percent owned
Participating Employers which join the Plan, and their respective Participants,
but for this purpose a 100 percent owned participating employer may, if so
provided in its joinder agreement, join in the Employer's Exempt Loan and in
such case all participating Employer contributions by the Employer and said
Participating Employers and all accounting for shares released from the suspense
account shall be combined for Participants employed by the Employer and each
such participating Employer.
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ARTICLE X
TOP-HEAVY PROVISIONS
10.1 Determination of Top-Heavy
(a) (1) The Plan will be considered a Top-Heavy Plan for any Plan Year
if as of the Determination Date (A) the value of the Individual Accounts of
Participants who are Key Employees as of such Determination Date exceeds 60% of
the value of the Individual Accounts of all Participants determined as of such
Determination Date, excluding former Key Employees (the "60% Test") or (B) the
Plan is part of a Required Aggregation Group which is Top-Heavy. Notwithstanding
the results of the 60% Test, the Plan shall not be considered a Top-Heavy Plan
for any Plan Year in which the Plan is a part of a Required or Permissive
Aggregation Group which is not Top-Heavy.
(2) For purposes of the 60% Test,
(A) all distributions made from Individual Accounts within the
five- year period ending on the Determination Date shall be taken into account;
(B) if any Participant is a non-Key Employee with respect to
the Plan for any Plan Year, but such Participant was a Key Employee with respect
to the Plan for any prior Plan Year, the Individual Account of such Participant
shall not be considered; and
(C) If a Participant has not performed any service for the
Employer or any Affiliate which maintains the Plan at any time during the
five-year period ending on the Determination Date, the Individual Account of
such Participant shall not be considered.
(b) Minimum Allocations: Notwithstanding Sections 4.3 and 4.4, for any
Plan Year during which the Plan is a Top-Heavy Plan, the rate of Employer
Matching Contributions and Discretionary Contributions for such Plan Year
allocated to the Individual Accounts of Participants who are non-Key Employees
and who remain employed by the Employer (or any Affiliate) at the end of the
Plan Year (regardless of any such Participant's hours of service or level of
compensation during the Plan Year) shall be not less than the lesser of:
(1) three percent (3%) of such non-Key Employee Participant's
Section 415 Compensation; or
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(2) the highest aggregate percentage of Section 415
Compensation at which Employer Matching Contributions, Discretionary
Contributions, and Employee Pre-Tax Contributions are made (or required to be
made) and allocated under Article IV for any Key Employee for the Plan Year.
If a Participant is covered by more than one defined contribution plan
on account of his employment with the Employer and/or any Affiliate, the minimum
allocation required by this Section shall be determined by aggregating the
allocations under all such plans.
(c) (1) Notwithstanding Section 5.5, for any Plan Year in which the
Plan is a Top- Heavy Plan, a Participant who has earned at least one hour of
service during such Plan Year shall have a vested interest in those portions of
his Individual Account which are not automatically one hundred percent (100%)
vested, including allocations made to those portions of the Account in Plan
Years prior to the Plan becoming Top-Heavy, determined as follows:
Years of Vesting Service Vested Interest
------------------------ ---------------
less than 2 0%
2 or more 100%
(2) If the Plan ceases to be a Top-Heavy Plan, the vesting rules
set forth in Section 5.5 shall again apply except that:
(A) any portion of a Participant's Individual Account that was
vested before the Plan ceased to be a Top-Heavy Plan shall remain vested, and
(B) any Participant with three or more years of service shall
have the option to continue to have his vested interest in those portions of his
Individual Account which are not automatically one hundred percent (100%) vested
determined under this Section 10.1(c).
(d) Impact on Minimum and Maximum Benefits where Employer Maintains
Both Defined Benefit and Defined Contributions Plans
(1) Impact on Minimum. If the Employer (or any Affiliate)
maintains a defined benefit plan in addition to this defined contribution plan,
both of which are Top-Heavy, then:
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(A) in the case of non-Key Employee participants covered only
by the defined benefit plan, the minimum benefit under the defined benefit plan
shall be provided; and
(B) in the case of non-Key Employee Participants not covered
by the defined benefit plan or covered by both plans, a minimum allocation of
five percent (5%) of such non-Key Employee Participant's Section 415
Compensation shall be provided. If a Participant is covered by more than one
defined contribution plan on account of his employment with the Employer and/or
any Affiliate, the minimum allocation required by this Section shall be
determined by aggregating the allocations under all such defined contributions
plans.
(2) Impact on Maximum. If the Employer (or any Affiliate)
maintains a defined benefit plan in addition to this defined contribution plan,
both of which are Top-Heavy, Section 4.7 shall be read by substituting the
number "1.00" for the number "1.25" wherever it appears therein, unless (A) the
total aggregate accrued benefits under both such plans for Key Employees does
not exceed 90% of the total aggregate accrued benefits under both such plans for
all Employees (computed in the same manner as the determination in subsection
(a)), and (B)(i) paragraph (1) is read by substituting "seven and one-half
percent (7 1/2%)" for "five percent (5%)," and (ii) in the case of non-Key
Employee participants covered only by the defined benefit plan, a minimum
benefit of three percent (3%) for each year of service (not to exceed 10) shall
be provided.
10.2 Top-Heavy Definitions
Determination Date - With respect to any Plan Year, the last day of
the preceding Plan Year.
Key Employee - Any Employee or former Employee who at any time during
the Plan Year containing the Determination Date, or the four preceding Plan
Years, is or was (1) an officer of the Employer having annual Section 415
Compensation for such Plan Year which is in excess of 50 percent of the dollar
limit in effect under Code Section 415(b)(1)(A) for the calendar year in which
such Plan Year ends (but in no event shall the number of officers taken into
account as Key Employees exceed the lesser of (i) 50 or (ii) the greater of 3 or
10% of all employees); (2) an owner of (or considered as owning within the
meaning of Code Section 318) both more than a 1/2 percent interest as well as
one of the ten largest interests in the Employer and having annual Section 415
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Compensation greater than the dollar limit in effect under Code Section
415(c)(1)(A) for such Plan Year; (3) a five percent owner of the Employer; or
(4) a one percent owner of the Employer who has annual Section 415 Compensation
of more than $150,000. For purposes of determining five percent and one percent
owners, neither the aggregation rules nor the rules of subsections (b), (c) and
(m) of Code Section 414 apply. Beneficiaries of an Employee acquire the
character of the Employee who performed services for the Employer. Also,
inherited benefits will retain the character of the benefits of the Employee who
performed services for the Employer. A non-Key Employee is any Employee who is
not a Key Employee, or who is a former Key Employee.
Permissive Aggregation Group - Each employee pension benefit plan
maintained by the Employer (or any Affiliate) which is considered part of the
Required Aggregation Group, plus one or more other employee pension benefit
plans maintained by the Employer (or any Affiliate) that are not part of the
Required Aggregation Group but that satisfy the requirements of Section
401(a)(4) and Section 410 of the Code when considered together with the Required
Aggregation Group.
Required Aggregation Group - Each employee pension benefit plan
maintained by the Employer (or any Affiliate), whether or not terminated, in
which a Key Employee participates in the Plan Year containing the Determination
Date or any of the four preceding Plan Years, and each other employee pension
benefit plan maintained by the Employer (or any Affiliate), whether or not
terminated, in which no Key Employee participates but which during the same
period enables any employee pension benefit plan in which a Key Employee
participates to meet the requirements of Section 401(a)(4) or Section 410 of the
Code.
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ARTICLE XI
MISCELLANEOUS
11.1 Governing Law
The Plan shall be construed, regulated and administered according to
the laws of Massachusetts except in those areas preempted by the laws of the
United States of America.
11.2 Construction
The headings and subheadings in the Plan have been inserted for
convenience of reference only and shall not affect the construction of the
provisions hereof. In any necessary construction the masculine shall include the
feminine and the singular the plural, and vice versa.
11.3 Administration Expenses
The expenses of administering the Fund and the Plan may be paid either
by the Employer or from the Fund, as directed by the Corporation.
11.4 Participant's Rights; Acquittance
No Participant in the Plan shall acquire any right to be retained in
the Employer's employ by virtue of the Plan, nor, upon his dismissal, or upon
his voluntary termination of employment, shall he have any right or interest in
and to the Fund other than as specifically provided herein. The Employer shall
not be liable for the payment of any benefit provided for herein. All benefits
hereunder shall be payable only from the Fund.
11.5 Spendthrift Clause
Except as provided by a qualified domestic relations order within the
meaning of ERISA Section 206(d)(3), none of the benefits, payments, proceeds, or
distributions under this Plan shall be subject to the claim of any creditor of a
Participant or a Beneficiary hereunder or to any legal process by any creditor
of a Participant or Beneficiary. Neither a Participant or Beneficiary shall have
any right to alienate, commute, anticipate, or assign any of the benefits,
payments, proceeds or distributions under this Plan.
11.6 Merger, Consolidation or Transfer
In the event of the merger or consolidation of the Plan with another
plan or transfer of assets or liabilities from the Plan to another plan, each
then Participant or Beneficiary shall not, as a result of such event, be
entitled on the day following such
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merger, consolidation or transfer under the termination of the Plan provisions
to a lesser benefit than the benefit he was entitled to on the day prior to the
merger, consolidation or transfer if the Plan had then terminated.
11.7 Mistake of Fact
Notwithstanding anything herein to the contrary, upon the Employer's
request, a Contribution which was made by a mistake of fact, or conditioned upon
initial qualification of the Plan or upon the deductibility of the Contribution
under Code Section 404, may be returned to the Employer by the Trustee within
one (1) year after the payment of the Contribution, the denial of the
qualification or the disallowance of the deduction (to the extent disallowed),
whichever is later. For purposes of the preceding sentence, all contributions to
the Plan made before receipt of a favorable determination letter on
qualification from the Internal Revenue Service shall be conditioned on the
Plan's initial qualification, and all contributions, whenever made, shall be
conditioned on their deductibility under Code Section 404.
11.8 Counterparts
The Plan and the Trust Agreement may be executed in any number of
counterparts, each of which shall constitute but one and the same instrument and
may be sufficiently evidenced by any one counterpart.
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ARTICLE XII
ADOPTION OF THE PLAN
Anything herein to the contrary notwithstanding, this Plan is adopted
and maintained under the condition that it is qualified by the Internal Revenue
Service under Code Section 401(a) and that the Trust hereunder is exempt under
Code Section 501(a).
As evidence of its adoption of the Plan, Covance Inc. has caused this
instrument to be signed by its authorized officer this ___ day of __________,
199__, effective as the _______ day of _____________, 199____.except as
otherwise provided herein.
Covance Inc. hereby signifies its adoption of this Plan.
ATTEST: COVANCE INC. (f/k/a Corning Pharmaceutical
Services Inc.
____________________________ By:___________________________________(SEAL)
(Title)
Date:__________________________________
Covance Preclinical Corporation Inc. hereby signifies its adoption of this Plan.
ATTEST: COVANCE PRECLINICAL CORPORATION
(f/k/a Hazleton Corporation)
___________________________ By:__________________________________(SEAL)
(Title)
41
<PAGE>
Covance Clinical and Periapproval Services Inc. hereby signifies its
adoption of this Plan.
ATTEST: COVANCE CLINICAL AND PERIAPPROVAL SERVICES INC.
(f/k/a Corning Besselaar, Inc.)
____________________________ By:___________________________________(SEAL)
(Title)
____________________________________________
(Date)
Covance Clinical Research Unit Inc., a wholly-owned subsidiary of
Covance Clinical and Periapproval Services Inc., hereby signifies its adoption
of this Plan.
ATTEST: COVANCE CLINICAL RESEARCH UNIT INC.
(f/k/a Corning Besselaar Clinical Research Unit, Inc.)
_________________________ By:___________________________________(SEAL)
Secretary (Title)
____________________________________________
(Date)
Covance Periapproval Services Inc., a wholly-owned subsidiary of
Covance Clinical and Periapproval Services Inc., hereby signifies its adoption
of this Plan.
ATTEST: COVANCE PERIAPPROVAL SERVICES INC.
(f/k/a Corning Pact, Inc.)
____________________________ By:___________________________________(SEAL)
(Title)
____________________________________________
(Date)
Covance Laboratories Inc., a wholly-owned subsidiary of Covance
Preclinical Corporation, hereby signifies its adoption of this Plan.
42
<PAGE>
ATTEST: COVANCE LABORATORIES INC.
(f/k/a Corning Hazleton Inc.)
____________________________ By:___________________________________(SEAL)
(Title)
____________________________________________
(Date)
Covance Research Products Inc., a wholly-owned subsidiary of Covance
Preclinical Corporation, hereby signifies its adoption of this Plan.
ATTEST: COVANCE RESEARCH PRODUCTS INC.
(f/k/a HRP, Inc.)
____________________________ By:___________________________________(SEAL)
(Title)
____________________________________________
(Date)
Covance Pharmaceutical Packaging Services Inc. hereby signifies its
adoption of this Plan.
ATTEST: COVANCE PHARMACEUTICAL PACKAGING SERVICES INC.
(f/k/a Corning National Packaging, Inc.)
____________________________ By:___________________________________(SEAL)
(Title)
____________________________________________
(Date)
Covance Central Laboratory Services Inc. hereby signifies its
adoption of this Plan.
ATTEST: COVANCE CENTRAL LABORATORY SERVICES INC.
(f/k/a Corning Scicor, Inc.)
43
<PAGE>
____________________________ By:___________________________________(SEAL)
(Title)
____________________________________________
(Date)
Covance Health Economics and Outcome Services Inc. hereby signifies its
adoption of this Plan.
ATTEST: COVANCE HEALTH ECONOMICS AND OUTCOME SERVICES INC.
(f/k/a Corning HTA Inc.)
____________________________ By:___________________________________(SEAL)
(Title)
____________________________________________
(Date)
Covance Biotechnology Services Inc., hereby signifies its adoption of
this Plan.
ATTEST: COVANCE BIOTECHNOLOGY SERVICES INC.
____________________________ By:___________________________________(SEAL)
(Title)
____________________________________________
(Date)
Covance Central Laboratory Limited Partnership (d/b/a Covance Central
Laboratory Services Inc. f/k/a Corning SciCor Limited Partnership), hereby
signifies its adoption of this Plan.
ATTEST: COVANCE CENTRAL LABORATORY LIMITED PARTNERSHIP
(d/b/a Covance Central Laboratory Services Inc.
f/k/a Corning SciCor Limited Partnership)
44
<PAGE>
____________________________ By:___________________________________(SEAL)
Secretary (Title)
____________________________________________
(Date)
45
<PAGE>
Supplement A
TO
COVANCE INC. INC.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
A-1 Purpose. The purpose of this Supplement A to the Plan is to set forth the
terms of the Plan as applied to the portion of the ESOP attributable to Exempt
Loans as described in subsection A-4.
A-2 Effective Date. The effective date of this Supplement A is the Effective
Date.].
A-3 Participation. Each Participant in the Plan on the Effective Date of this
Supplement A shall immediately become a Participant in this Supplement A. Every
other person who thereafter becomes a Participant in the Plan shall at the same
time become a Participant in this Supplement A.
A-4 Exempt Loan. Any loan to the Plan or Trust not prohibited by section 4975(c)
of the Code, including a loan which meets the requirements set forth in section
4975(d)(3) of the Code and the regulations promulgated thereunder, the proceeds
of which are used to finance the acquisition of ESOP Stock or to refinance such
a loan. An Exempt Loan shall be for a specific term, shall bear a reasonable
rate of interest and shall not be payable on demand except in the event of
default. An Exempt Loan may be secured by a pledge of the financed shares so
acquired (or acquired with the proceeds of a prior Exempt Loan which is being
refinanced). No other Trust Fund assets may be pledged as collateral for an
Exempt Loan, and no lender shall have recourse against Trust Fund assets other
than any financed shares remaining subject to pledge. If the lender is a party
in interest (under ERISA), the Exempt Loan must provide for a transfer of Trust
Fund assets on default only upon and to the extent of the failure of the Trust
to meet the payment schedule of the Exempt Loan. Any pledge of financed shares
must provide for the release of the shares so pledged as payments on the Exempt
Loan are made by the Trustee and such financed shares are allocated to
Participants' accounts. Payments of
A1
<PAGE>
principal on any Exempt Loan shall be made by the Trustee (as directed by the
Committee) only from Employer contributions paid in cash under the Plan to
enable the Trust to repay such Exempt Loan, from earnings attributable to such
Employer contributions and from any cash dividends received by the Trust on such
financed shares or dividends on such other shares of Employer Stock as is
permitted under Code section 404(k).
A-5 Investment of Exempt Loan Proceeds. The Employer may direct the Trustee to
enter into one or more Exempt Loans to finance the acquisition of ESOP Stock.
Proceeds from an Exempt Loan may be used to acquire ESOP Stock from the
Employer's shareholders or directly from the Employer. If such shares are
purchased from the Employer, no commission may be charged with respect thereto
and the sale price shall not be more than the fair market value thereof, defined
for this purpose with respect to the Employer's common stock to be said common
stock's New York Stock Exchange closing price on the first business day
immediately preceding the date of sale. There shall be no limit on the amount of
stock of the Employer which may be held at any one time by the Trustee in the
Trust Fund regardless of the percentage which such stock so held bears to the
assets of the Trust Fund or to the outstanding shares of stock of the Employer
or for any other reason.
Notwithstanding any other provision of the Plan, all proceeds of an Exempt Loan
shall be used, within a reasonable time after receipt by the Trust Fund, for the
following purposes:
(a) To acquire ESOP Stock;
(b) To repay the same Exempt Loan; or
(c) To repay any previous Exempt Loan.
ESOP Stock acquired by the Trust Fund through an Exempt Loan shall be initially
maintained in a Suspense Account and shall thereafter be released from suspense
and allocated to Participants' ESOP Accounts as hereinafter provided.
A2
<PAGE>
A-6 Supplement A Cash Equivalents Fund. All cash dividends on Employer Stock
held in a Suspense Account which are not allocated to Participants' accounts or,
in the case of allocated shares, which the Employer directs are to be used to
make payments on Exempt Loans shall be credited to the Supplement A Cash
Equivalents Fund pending their application to Exempt Loan payments. Except as
provided under Section 7.5, all such dividends and all earnings of the
Supplement A Cash Equivalents Fund shall be used to make principal payments on
outstanding Exempt Loans to the extent then due. In the event that the amount of
such dividends and earnings exceeds the amount of principal payable on that
date, the excess shall be applied until exhausted to interest payable on that
date, and principal and interest payments due thereafter. Notwithstanding the
preceding sentences of Section A-6, in lieu of making payments on outstanding
Exempt Loans, the Committee may direct that all or any amount of cash dividends
received with respect to Employer Stock allocated to participants' accounts
shall be credited proportionately to such Participants' Accounts pending
investment in the Employer Stock Fund. Any amount that is applied to make a
payment on an outstanding Exempt Loan after the last day of a plan year (the
"prior plan year"), but on or before the due date (including extensions thereof)
for the filing of the federal income tax return of the Employer for the tax year
in which the last day of such prior plan year occurs, may be designated by the
employers as a payment with respect to such prior plan year.
A-7 Coordination with Employer Contributions. For each Plan Year the Employer
shall make contributions under this Section A-7 which, after taking into account
the use of dividends and earnings in accordance with Section A-6, are sufficient
to meet all scheduled payments of principal and interest on outstanding Exempt
Loans. Employer contributions under Section 3.3 (discretionary) shall be applied
against payments on any Exempt Loan to the extent the Committee in its sole
discretion shall determine and ESOP Stock shall then be released. An Employer's
obligations to contribute under Section 3.3 shall be reduced for such month by
the fair market value as of the date of release of the ESOP Stock so released or
otherwise allocated as below provided. To the extent said fair market value is
less than said Employer's obligations under Section 3.3 for any such
A3
<PAGE>
month, the Employer shall make further contributions to the Trust Fund to
fully meet said obligations. For each Plan Year, if for a calendar month the
fair market value as of the date of release of the shares so released is in
excess of the Employer's obligations to contribute under Section 3.3 for such
month, the shares released for said month representing the excess ("excess
shares") shall continue to be held by the Trustee and shall thereafter be
allocated to the Participants' Individual Accounts in the following manner:
first, if in a succeeding calendar month within said Plan Year, the fair market
value of the shares so released for said month are less than the Employer's
obligations to contribute under Section 3.3 for said month, then "excess shares"
remaining unallocated for any prior calendar month in said Plan Year shall be
allocated to the Participants' Individual Accounts to the extent that said
Employer obligations exceed the value of the released shares, and for this
purpose said "excess shares" to be so allocated shall be valued at the same
value as the value of the shares released for said month; and second, if as of
the last day of the Plan Year there remain "excess shares" which have not been
allocated to Participants' Individual Accounts as aforesaid, said "excess
shares" shall be allocated as of the last day of the Plan Year to the
Participants' Individual Accounts, as the Committee may determine in its sole
discretion on a year-to-year basis, in direct proportion to the value
(determined as of the date allocated to the Participants' Individual Accounts)
of those shares released and allocated to the Fund so determined by the
Committee, together with all other Employer contributions to Participants'
Individual Accounts for said Plan Year. In addition to the foregoing
contributions, in any Plan Year, the Employers may make supplemental
contributions to be used by the Trustee to prepay any Exempt loan, to pay
expenses of the Plan and any related trust and to satisfy the dividend
requirements for that year with respect to Employer Stock allocated to
Participants' Individual Accounts. All Employer Discretionary Contributions
shall be used to make payments on Exempt Loans to the extent required to meet
any scheduled payments of principal and interest after taking into account the
use of dividends and earnings in accordance with Section A-6.
A-8 Release of Employer Stock From Suspense Account. As of the last day of each
Plan Year, of each calendar quarter in the case of the Employer Stock allocable
for the year as dividend replacements under paragraph A-9(a), or of such other
period provided
A4
<PAGE>
under the terms of an Exempt Loan, throughout the duration of an Exempt Loan, a
portion of the Employer Stock acquired with the proceeds of such Exempt Loan
shall be withdrawn from the Suspense Account and allocated to eligible
Participants' Individual Accounts in accordance with the provisions of Section
A-9.
(a) Subject to the provisions of paragraph (b) below, the number
of shares of Employer Stock which shall be released from the
Suspense Account for any plan year (calculated separately with
respect to each Exempt Loan) shall be equal to the product of:
(i) the number of shares of Employer Stock acquired with
the proceeds of the Exempt Loan
Multiplied by
(ii) a fraction, the numerator of which is the amount of
principal and interest paid on that loan for that
Plan Year and the denominator of which is the amount
of principal and interest paid or payable on that
loan for that Plan Year and for all future years.
For purposes of determining the fraction in (ii), if the
interest rate under the Exempt Loan is variable, the interest
rate to be paid in future months shall be assumed to be equal
to the interest rate applicable as of the applicable month.
(b) Notwithstanding the provisions of paragraph (a) above, if
provided by the terms of an Exempt Loan or directed by the
Committee prior to the first payment of interest on any Exempt
Loan, the number of shares of Employer Stock attributable to
such Exempt Loan which are withdrawn from the Suspense Account
for any Plan Year shall be proportionate to principal payments
only, provided that:
A5
<PAGE>
(i) such withdrawal is consistent with the provisions of
the Exempt Loan with respect to the release of
Employer Stock as collateral, if any, for such loan;
(ii) the Exempt Loan provides for annual payments of
principal and interest at a cumulative rate that is
not less rapid at any time than level annual payments
of such amounts for ten years;
(iii) interest is disregarded for purposes of determining
such release only to the extent that it would be
determined to be interest under standard loan
amortization tables; and
(iv) the term of the ESOP Loan, together with any renewal,
extension or refinancing thereof, does not exceed ten
years.
(c) Notwithstanding the foregoing, in the event such Exempt Loan
shall be repaid with the proceeds of a subsequent Exempt Loan
(the "Substitute Loan"), such repayment shall not operate to
release all such ESOP Stock in the suspense account, but,
rather, such release shall be effected pursuant to the
foregoing provisions of this Section on the basis of payments
of principal and interest on such Substitute Loan.
(d) If at any time there is more than one Exempt Loan outstanding,
then separate Suspense Accounts may be established for each
such Loan. Each Exempt Loan for which a separate Suspense
Account is maintained may be treated separately for purposes
of the provisions governing the release of ESOP Stock from
suspense under this Section and for purposes o the provisions
governing the application of Employer contributions to repay
an Exempt Loan.
A6
<PAGE>
A-9 Allocation and Crediting of Employer Stock to Individual Accounts and
Application to Plan Limitations. Employer Stock released from the Suspense
Account during any Plan Year shall be allocated and credited as follows:
(a) To the extent that dividends on Employer Stock previously
allocated to the Individual Account of a Participant have been
used to make payments on an Exempt Loan, such account shall be
credited with Employer Stock with a fair market value
determined as of the last day of the month preceding the month
of the dividend payment date equal to the amount of such
dividend.
(b) As of each calendar month, any Employer Stock released from
the Suspense Account during the Plan Year ending on that date
and not credited in accordance with paragraph (a) shall be
credited to the Individual Accounts of eligible Participants
pursuant to Section 4.23, in order to satisfy the obligation
under Section 3.13.
(ce) It is intended that the provisions of this Supplement A shall
be applied and construed in a manner consistent with the
requirements and provisions of Treasury Regulations
ss.54.4975-7(b)(8), and any successor regulation thereto. The
number of shares allocable to a Participant's Individual
Account shall be the number of shares which bears the same
ratio to the total shares released for such month and
allocable to the contribution made by or on behalf of such
Participant by his participating Employer under Section 3.1
for such month bears to the total Employer contributions under
Section 3.1 made on behalf of all such Participants for such
month, provided, however, that the fair market value of the
shares so allocated as of the date of such allocation shall
not exceed the Employer's obligation to contribute under such
Section on behalf of such Participant for such month, and any
shares in excess of said participating Employer obligations
("excess shares") for all Participants are to be then
allocated as described above in Section A-7.
A7
<PAGE>
(d) Notwithstanding the foregoing provisions of this Section, if
more than one-third of the total allocations to Participants'
accounts with respect to a Plan Year would be allocated in the
aggregate to the accounts of Highly Compensated Employees and
attributable to the Employer Matching Contribution allocated
to Employer Stock, then the allocations to the accounts of
Highly Compensated Employees shall be reduced, pro rata, in an
amount sufficient to reduced the amounts allocated to the
accounts of such Participants to an amount not in excess of
one- third of the total allocations to Participants' accounts
with respect to such Plan Year and any shares of Employer
Stock which are prevented from being allocated due to said
restriction shall be allocated as though Highly Compensated
Employees did not participate in the Plan.
A-10 Diversification Election By Participants. A Qualified Participant is
eligible to elect a diversification of Employer Stock under the conditions
specified in Section 2.6.
A-11 Put Option. Employer Stock acquired with the proceeds of an Exempt Loan
must be subject to a put option, if at the time of its distribution it is either
subject to a trading limitation, or is not publicly traded. For purposes of this
paragraph (b), a "trading limitation" on a security is a restriction under any
Federal or state securities law, any regulation thereunder, or an agreement, not
prohibited by Treasury regulations Section 54.4975-7(b) affecting the security
so as to make the security not as freely tradable as one not subject to such a
restriction. The put option must be exercisable only by a Participant, a
Beneficiary or by any donee of the Participant or by a person to whom the
security passes by reason of a Participant's death. The put option must permit a
Participant to put the security to the Corporation, and it may grant the trust
an option to assume the rights and obligations of the Corporation at the time
that the put option is exercised, but under no circumstances may the put option
bind the Trust. If it is known at the time an Exempt Loan is made that Federal
or state law will be violated by the Corporation's honoring such a put option,
the put option must permit the security to be
A8
<PAGE>
put, in a manner consistent with such law, to a third party (for example but
without limitation, to an Affiliate or a shareholder other than the Trust) that
has substantial net worth at the time the Exempt Loan is made and whose net
worth is reasonably expected to remain substantial. A put option must be
exercisable at any time during a period or periods which include at least (A)
sixty (60) days beginning on the date the security subject to the put option is
distributed by the Trustee and (B) sixty (60) days in the next following Plan
Year, in accordance with regulations issued pursuant to Section 409 of the Code.
In the case of a security that is publicly traded without restriction when
distributed, but ceases to be so traded within the put option period(s) set
forth above, the Corporation must notify each security holder in writing on or
before the tenth (10th) day after the date the security ceases to be so traded
that during the remainder of such period(s) the security is subject to put
option. The number of days between such tenth (10th) day and the date on which
notice is actually given, if later than the tenth (10th) days, must be added to
the duration of the put option. The notice must inform distributees of the terms
of the put options that they are to hold. The price at which a put option must
be exercisable is the value of the security, as determined under Treasury
Regulations Section 54.4975-11(d)(5). The provisions for payment under a put
option must provide that the Corporation, or the Trust, if the Plan so elects,
shall repurchase the Employer Securities as follows:
(A) If the distribution constitutes a total distribution within the
meaning of Section 409(h)(5) of the Code, payment of the fair
market value of the repurchased Employer Securities shall be
made in five (5) substantially equal annual payments, of which
the first shall be paid not later than thirty (30) days after
the Participant exercises the put option. The purchaser will pay
a reasonable rate of interest and provide adequate security on
amounts not paid after thirty (30) days;
(B) If the distribution does not constitute a total distribution,
the purchaser shall pay the Participant an amount equal to the
fair market value of the Employer
A9
<PAGE>
Stock repurchased no later than thirty (30) days after the
Participant exercises the put option.
A10
<PAGE>
SUPPLEMENT B
TO
THE COVANCE INC. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
SUPPLEMENTAL LIST OF PARTICIPATING EMPLOYEES
<TABLE>
<S> <C>
Participating Employer Formerly Known As
Covance Inc. (Parent) Corning Pharmaceutical Services Inc.
Covance Clinical and Periapproval Services Inc. Corning Besselaar Inc.
Covance Clinical Research Unit Inc. Corning Besselaar Clinical Research Unit
Inc.
Covance Periapproval Services Inc. Corning Pact Inc.
Covance Preclinical Corporation Hazleton Corporation
Covance Laboratories Inc. Corning Hazleton Inc.
Covance Research Products Inc. HRP Inc.
Covance Central Laboratory Services Inc. Corning SciCor Inc.
Covance Central Laboratory Limited Corning SciCor Limited Partnership
Partnership (dba Covance Central Laboratory
Services Inc.)
Covance Pharmaceutical Packaging Services Inc. Corning National Packaging Inc.
Covance Health Economics and Outcome Services Corning HTA Inc.
Inc.
Covance Biotechnology Services Inc. Corning Bio Inc.
</TABLE>
B1
<PAGE>
SUPPLEMENT C
TO
THE COVANCE INC. EMPLOYEE STOCK OWNERSHIP PLAN
1996 DOMESTIC AND INTERNATIONAL ALLOCATION FORMULA
This document describes the allocation of certain share of common stock
("Shares") of Covance Inc. ("CPS") between the various employee stock ownership
programs being implemented as a result of the spin-off of CPS from Corning Life
Sciences Inc. (renamed as Corning Clinical Laboratories Inc. ). The 1996 Total
Allocation shall be determined and allocated as follows:
1. The 1996 Total Allocation: The 1996 total allocation shall be determined as
follows: The total allocation of shares to the Covance Inc. Employee Stock
Ownership Plan ("ESOP") and the International Stock Ownership Plan shall
equal 1.5% of the Shares outstanding on 31 December 1996, with the
allocation between the two plans being made as follows.
2. Aggregate International Base Compensation and Aggregate US Base
Compensation. Aggregate International Base Compensation shall equal the sum
of the Annualized Base Compensation (converted to US dollars) for each
individual who is an International Eligible Employee on December 31, 1996.
The Aggregate US Base Compensation shall equal the sum of the Annualized
Base Compensation for each individual who is a US Eligible Employee on
December 31, 1996. Total Aggregate Base Compensation shall be the sum of
the Aggregate International Base Compensation and the Aggregate US Base
Compensation.
3. Allocation Between Plans. The portion of the 1996 Total Allocation shall be
divided into the International Portion and the US Portion as follows: (I)
first, shares having a value equal to 1% of Aggregate International
Compensation shall be allocated to the International Portion and, (II)
next, the remainder of the 1996 Total Allocation shall be allocated to the
International Portion and the US Portion in the proportions represented by
Aggregate International Compensation and Aggregate US Compensation
respectively.
4. Award to International Eligible Employees Under the International Stock
Ownership Plan. The International Portion shall be allocated to
International Eligible Employees under that Plan in accordance with Rule
2.2 (a) thereof.
5. Award US Eligible Employees. The Awards to US Employees shall be determined
as follows:
(a) For each US Eligible Employee, determine the amount of Award, based
on the US Portion (as determined above) that would be provided under
the ESOP without regard to the limitations imposed by Sections 415 and
401(a)(17) of the Code.
C1
<PAGE>
(b) For each US Eligible Employees, determine the amount of award,
based on the US Portion (as determined above) that would be provided
under the ESOP, after application of the limitations imposed by Section
415 and 401(a)(17) of the Code. This amount shall be awarded under the
ESOP to such individuals.
(c) The differences, if any, between (a) and (b) above shall be awarded
to each US Eligible Employee under the International Stock Ownership
Plan.
C2
FINAL DRAFT - NOVEMBER 15, 1996
THE STOCK PURCHASE SAVINGS PLAN OF COVANCE INC.
(RESTATED AS OF DECEMBER 31, 1996)
<PAGE>
TABLE OF CONTENTS
INTRODUCTION..................................................................1
ARTICLE I DEFINITIONS...............................................4
ARTICLE II ELIGIBILITY AND PARTICIPATION............................16
2.1 Eligibility..............................................16
2.2 Participation............................................16
2.3 Beneficiary Designation..................................17
2.4 Investment Option Specification..........................18
2.5 Notification of Individual Account Balance...............18
2.6 Diversification of Investments or Distribution for
Certain Participants.....................................19
ARTICLE III CONTRIBUTIONS............................................21
3.1 Employee Pre-Tax Contributions...........................21
3.2 Employer Matching Contributions..........................23
3.3 Discretionary Contributions..............................24
3.4 Rollover Contributions...................................24
3.5 Maximum Deductible Contribution..........................24
3.6 Actual Deferral Percentage Test..........................24
3.7 Payment of Contributions to Trustee......................26
3.8 Actual Contribution Percentage Test......................26
3.9 Multiple Use Restrictions................................27
ARTICLE IV ALLOCATIONS TO INDIVIDUAL ACCOUNTS.......................28
4.1 Individual Accounts......................................28
4.2 Allocation of Employee Pre-Tax Contributions.............28
4.3 Allocation of Employer Matching Contributions............28
4.4 Allocation of Discretionary Contributions................28
4.5 Allocation of Forfeitures................................29
4.6 Maximum Additions........................................29
4.7 Multiple Plan Participation..............................30
-i-
<PAGE>
ARTICLE V DISTRIBUTIONS............................................32
5.1 Normal Retirement........................................32
5.2 Disability Retirement....................................32
5.3 Death Before Retirement or Termination of Employment.....32
5.4 Death After Retirement or Termination of Employment......33
5.5 Termination of Employment................................34
5.6 Method of Payment........................................36
5.7 Benefits to Minors and Incompetents......................39
5.8 Payment of Benefits......................................40
5.9 Valuation of Accounts....................................41
5.10 Direct Rollovers.........................................43
5.11 Payment to Alternate Payee Under QDRO....................44
ARTICLE VI LOANS AND WITHDRAWALS....................................45
6.1 Loans to Participants....................................45
6.2 Hardship Withdrawals.....................................48
6.3 Other Withdrawals........................................50
ARTICLE VII TRUST FUND/ESOP..........................................51
7.1 Contributions............................................51
7.2 Trustee..................................................51
7.3 Employer Stock Fund......................................51
7.4 Corning Stock Fund and CCL Stock Fund....................53
7.5 Dividends on ESOP Stock Attributable to Exempt Loan......53
7.6 Voting and Tender Offer Rights on Employer Stock.........54
ARTICLE VIII FIDUCIARIES..............................................55
8.1 General..................................................55
8.2 Corporation..............................................55
8.3 Employer.................................................56
8.4 Trustee..................................................56
8.5 Committee................................................56
8.6 Claims for Benefits......................................58
8.7 Denial of Benefits - Review Procedure....................59
-ii
<PAGE>
8.8 Records..................................................59
8.9 Missing Persons..........................................60
ARTICLE IX AMENDMENT AND TERMINATION OF THE PLAN....................61
9.1 Amendment of the Plan....................................61
9.2 Termination of the Plan..................................61
ARTICLE X PROVISIONS RELATIVE TO EMPLOYERS INCLUDED IN PLAN........62
10.1 Method of Participation..................................62
10.2 Withdrawal...............................................62
10.3 Adoption of ESOP by Participating Employer...............63
ARTICLE XI TOP-HEAVY PROVISIONS.....................................64
11.1 Determination of Top-Heavy...............................64
11.2 Top-Heavy Definitions....................................66
ARTICLE XII MISCELLANEOUS............................................68
12.1 Governing Law............................................68
12.2 Construction.............................................68
12.3 Administration Expenses..................................68
12.4 Participant's Rights; Acquittance........................68
12.5 Spendthrift Clause.......................................68
12.6 Merger, Consolidation or Transfer........................68
12.7 Mistake of Fact..........................................69
12.8 Counterparts.............................................69
12.9 Transitional Rule........................................69
ARTICLE XIII ADOPTION OF THE PLAN.....................................70
SUPPLEMENT A - to The Stock Purchase Savings Plan Of Covance Inc. -
Employee Stock Ownership Plan (ESOP)
SUPPLEMENT B - Supplemental List of Participating Employers
-iii-
<PAGE>
INTRODUCTION
Effective July 1, 1972, Hazleton Laboratories Corporation adopted the
Hazleton Laboratories Corporation Profit Sharing Plan, a profit sharing plan.
Effective January 1, 1986, Hazleton Laboratories Corporation amended
the Hazleton Laboratories Corporation Profit Sharing Plan in order to add a
qualified cash or deferred arrangement. At the same time, the name of the plan
was changed to the Hazleton Pre-Tax Savings Plan.
Effective July 1, 1989, Hazleton Corporation (the "Corporation"),
formerly Hazleton Laboratories Corporation, amended and restated the Hazleton
Pre-Tax Savings Plan in its entirety to comply with the Tax Reform Act of 1986
and subsequent legislation.
Effective July 1, 1995, the Hazleton Pre-Tax Savings Plan was again
amended and restated in its entirety to reflect certain substantive changes and
renamed the Covance Inc. Retirement Savings Plan.
Effective as of December 31, 1996, the plan is again amended and
restated in its entirety to reflect the adoption of an employee stock ownership
plan and is hereby renamed the Stock Purchase Savings Plan of Covance Inc.
Except as expressly provided herein, the Plan provisions as in effect
immediately prior to this amendment and restatement shall remain in effect for
those participants who do not complete an hour of service at any time after
December 31, 1996.
No provision of this amended and restated Plan shall be constructed to
eliminate or reduce any early retirement benefit or subsidy that continues after
retirement, or optional form of benefit which existed under the Plan prior to
this amendment and restatement, except to the extent permitted under Treasury
Regulations ss.1.401(a)-4 and ss.1.411(d)-4.
This Plan consists of a profit sharing and stock bonus plan which is
intended to qualify under sections 401(a) and 401(k) of the Internal Revenue
Code, and an employee stock ownership plan which is intended to qualify as a
stock bonus plan under Section 401(a) of the Internal Revenue Code and as an
employee stock ownership plan under Section 4975(e)(7) of the Internal Revenue
Code. The assets of the employee stock ownership plan shall consist of the
amounts attributable to Employer Matching Contributions and Discretionary
Contributions on or after the Distribution Date. The assets of the employee
stock ownership plan shall be invested primarily in common
-1-
<PAGE>
shares of the Employer ("Employer Stock") which qualify as "employer securities"
within the meaning of section 409(l) of the Internal Revenue Code.
(a) Spinoff of the Employer. As of the day prior to the
Distribution Date, the Employer and its subsidiaries were
members of the controlled group of corporations (within the
meaning of section 414(b) of the Internal Revenue Code) that
includes Corning. It is contemplated that as of a certain date
(the "Distribution Date") on or before December 31, 1996, all
of the shares of the Employer ("Employer Stock") held by
Corning will be distributed to the shareholders of Corning as
a spinoff dividend and the Employer will thereby cease to be a
member of the controlled group of corporations that includes
Corning. As a result of the spinoff of the Employer from
Corning on the Distribution Date, Corning Stock held in
Participants' accounts under the Plan will be converted into
Corning Stock, CCL Stock and Employer Stock that will be
received as dividends with respect to such Corning Stock. The
Corning Stock, the dividend CCL Stock and the dividend
Employer Stock will each represent a portion of the value of
pre- spinoff investments of Participants' accounts in Corning
Stock. As provided in Section 7.4, and subject to the
provisions thereof, following the Distribution Date,
participants may elect to continue holding Corning Stock or
CCL Stock in their accounts under the Plan or may elect to
sell such shares and reinvest the proceeds in Employer Stock
or any other Investment Option subject to the decision by the
Employer to direct the liquidation of such amounts. The
Corning Stock Fund and the CCL Stock Fund are provided solely
to permit the continued holding of Corning and CCL Shares
allocated to Participants' accounts following the spinoff of
the Employer. Accordingly, following the Distribution Date no
future contributions or investment transfers may be made to
the Corning Stock Fund or the CCL Stock Fund.
(b) Spinoff of Corning Life Sciences, Inc. As the day prior to the
Distribution Date, Corning Life Sciences, Inc. ("CCL") and its
affiliates were members of the controlled group of
corporations (within the meaning of section 414(b)
-2-
<PAGE>
of the Internal Revenue Code) that includes Corning. On the
Distribution Date, all of the shares of CCL held by Corning
were distributed to the shareholders of Corning as a spinoff
dividend and CCL thereby ceased to be a member of the
controlled group of corporations that includes Corning. As a
result of the spinoff of CCL from Corning the shares of
Corning which had been held in Participants' Individual
Accounts under the Plan ("Corning Shares") were converted into
Corning Stock and shares of CCL and shares of the Employer
that were received as dividends with respect to such Corning
Shares. The Corning Stock and the dividend CCL and Employer
shares each represent the pre-spinoff investments of
Participants' Individual Accounts in Corning Stock. As a
result of a corporate restructuring, effective as of the
Distribution Date Corning Life Sciences, Inc. was renamed
Quest Diagnostic Incorporated.
-3-
<PAGE>
ARTICLE I
DEFINITIONS
1.1 As used herein, unless otherwise required by the context, the following
words and phrases shall have the meanings indicated:
Active Participant - A Participant shall be deemed an Active
Participant with respect to a Fiscal Quarter if he is employed on the last day
of such Fiscal Quarter.
Actual Contribution Percentage - (a) (1) For each Plan Year, the
average of the ratios, calculated separately for each Eligible Employee in a
specified group, of (A) the amount of Employer Matching Contributions under
Section 3.2 which are allocated to the Individual Account of an Eligible
Employee as of a date within such Plan Year to (B) the Testing Compensation of
such Eligible Employee while an Eligible Employee for such Plan Year.
(2) When calculating the Actual Contribution Percentage for a
Highly Compensated Employee, all arrangements subject to Code Section 401(m)
maintained by the Employer or an Affiliate in which such Employee participates
(other than those that may not be permissively aggregated) shall be treated as
one arrangement. All matching contributions that are made under two or more
plans that are aggregated for purposes of Code Section 410(b)(other than Code
Section 410(b)(2)(A)(ii)) are to be treated as made under a single plan.
(b) (1) In the case of a Highly Compensated Employee who is either a 5%
owner or one of the ten most highly compensated Employees and is thereby subject
to the family aggregation rules of Code Section 414(q)(6), the Actual
Contribution Percentage for the family group (which consists of a Highly
Compensated Employee described in this sentence and his HC Family Members and is
treated as one Highly Compensated Employee) is determined by combining the
Employer Matching Contributions and Testing Compensation of all eligible HC
Family Members with those of the Highly Compensated Employee. Except to the
extent taken into account in the preceding sentence, the Employer Matching
Contributions and Testing Compensation of all HC Family Members are disregarded
in determining the Actual Contribution
-4-
<PAGE>
Percentages for the groups of Highly Compensated Employees and non-highly
compensated employees.
(2) For purposes of applying the dollar limit on Testing
Compensation, the family group described in paragraph (1) will be treated as a
single Highly Compensated Employee with a single Testing Compensation, and the
dollar limit will be allocated among the members of the family group in
proportion to each member's individual Testing Compensation. Solely for purposes
of the Testing Compensation rule in this paragraph (2), the term "HC Family
Member" shall include only the spouse of the employee and any lineal descendants
of the employee who have not attained age 19 before the close of the Plan Year
in question.
Actual Deferral Percentage - (a) (1) For each Plan Year, the average of
the ratios, calculated separately for each Eligible Employee in a specified
group, of (A) the amount of Employee Pre-Tax Contributions under Section 3.1
(which are attributable to Deferral Compensation that would have been received
by the Employee during such Plan Year but for his salary reduction agreement)
which are allocated to the Individual Account of an Eligible Employee as of a
date within such Plan Year to (B) the Testing Compensation of such Eligible
Employee while an Eligible Employee for such Plan Year.
(2) Except as provided in regulations issued by the Secretary of
the Treasury, Actual Deferral Percentage shall be determined without regard to
whether any Employee Pre-Tax Contributions are distributed under Section
3.1(c)(2)(A). When calculating the Actual Deferral Percentage for a Highly
Compensated Employee, all cash or deferred arrangements maintained by the
Employer or an Affiliate in which such Employee participates (other than those
that may not be permissively aggregated) shall be treated as one arrangement.
All elective contributions that are made under two or more plans that are
aggregated for purposes of Code Section 410(b)(other than Code Section
410(b)(2)(A)(ii)) are to be treated as made under a single plan.
(b) The special HC Family Member rules set forth in subsection (b) of
the definition of Actual Contribution Percentage shall also apply in determining
the Actual Deferral Percentage.
Affiliate - An organization which is not an Employer, but which must be
considered together with an Employer under Code Sections 414(b), (c), (m) or
(o).
-5-
<PAGE>
Beneficiary - Any person designated by a Participant under Section 2.3
to receive such benefits as may become payable hereunder after the death of such
Participant.
Besselaar 401(k) Plan - The G.H. Besselaar Associates Profit Sharing
401(k) Plan, the assets and liabilities of which have been transferred to this
Plan.
Board - The Board of Directors of the Corporation.
Calendar Quarter - January 1 - March 31; April 17 - June 30; July 1 -
September 30; October 1 - December 31.
Code - The Internal Revenue Code of 1986, as amended.
Committee - The Benefits Administration Committee, as provided for in
Section 8.5.
Contributions - Payments as provided herein by the Employer to the
Trustee for the purpose of providing the benefits under this Plan.
Corning - Corning Incorporated, a New York corporation.
Corning Life Sciences Plan - The Profit Sharing Plan of Corning Life
Sciences Inc. The assets and liabilities of the Corning Life Sciences Plan
representing the account balances of Corning SciCor, Inc. employees have been
transferred to this Plan.
Corporation - Covance Inc., a Delaware corporation, or any successor
thereto. The Corporation is the sponsor, named Fiduciary, and plan administrator
of the Plan for purposes of ERISA as it relates to the employees of each
Employer.
Deferral Compensation - The Section 415 Compensation paid to an
Employee by the Employer for his services, excluding reimbursements or other
expense allowances, cash and non-cash fringe benefits (e.g., employee
discounts), moving expenses, deferred compensation and welfare benefits, plus
Employee Pre-Tax Contributions and salary reduction contributions to a Code
Section 125 cafeteria plan. For the Plan Year commencing July 1, 1995 and ending
December 31, 1995, Deferral Compensation in excess of $75,000 shall not be taken
into account. For Plan Years commencing after December 31, 1995, Deferral
Compensation in excess of $150,000 (or such different amount as may be
applicable under Code Section 401(a)(17)(B)) shall not be taken into account.
Discretionary Contributions - Contributions made by an Employer under
Section 3.3.
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<PAGE>
Distribution Date - [ ], the effective date of the spinoff of the
Employer from Corning through the distribution of stock dividends in shares of
Corning, CCL and the Employer.
Effective Date - July 1, 1972, except as set forth below. This
amendment and restatement is generally effective December 31, 1996 . The
Effective Date for the following Employers is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Employer Effective Date
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Covance Inc. (Corning Pharmaceutical Services, Inc.) January 1, 1997
Covance Clinical and Periapproval Services Inc. (Corning Besselaar, January 1, 1996
Inc.)
Covance Clinical Research Unit Inc. (Corning Besselaar Clinical January 1, 1996
Research Unit, Inc.)
Covance Periapproval Services Inc. (Corning PACT, Inc.) January 1, 1996
- -----------------------------------------------------------------------------------------------------------------------
Covance Pharmaceutical Packaging Services Inc. (Corning National January 1, 1996
Packaging, Inc.)
- -----------------------------------------------------------------------------------------------------------------------
Covance Central Laboratory Services Inc. (Corning SciCor, Inc.) January 1, 1996
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Eligible Employee - An Employee eligible for participation under
Section 2.1.
Employee - Any person employed by an Employer. Notwithstanding the
preceding sentence, Employee shall not include (1) independent contractors, (2)
any person who is covered by a collective bargaining agreement where such
agreement provides for a different retirement plan, or where no provision is
made for any retirement plan after good faith bargaining between the Employer
and employee representatives and (3) any person who is excluded from
participation hereunder by the terms of his Employer's adoption of this Plan. No
person who is a leased employee of an Employer within the meaning of Code
Section 414(n), or who receives compensation solely for service as a member of
the Board, shall be eligible to participate in this Plan.
Employee Pre-Tax Account - That portion of a Participant's Individual
Account attributable to the Employee Pre-Tax Contributions allocated to such
Participant under Section 4.2 and any earnings or losses on such contributions.
The Employee Pre-Tax Account of a Participant who was a participant in a Merged
Plan that contained a qualified cash or deferred arrangement shall also hold any
amount transferred to this Plan
-7-
<PAGE>
from such Merged Plan representing the balance of such Participant's pre-tax
account under such Merged Plan and any earnings and losses thereon.
Employee Pre-Tax Contributions - Contributions made to the Plan by the
Employer under Section 3.1(a) pursuant to a salary reduction agreement entered
into between the Employer and the Participant.
Employer - Collectively or individually as the context may indicate,
Covance Inc. (formerly Corning Pharmaceutical Services Inc. and any
participating employer listed in Supplemental B ; and any other entity which (1)
must be considered together with the Corporation under Code Section 414(b), (c)
or (m), (2) has been authorized by the Board to adopt the Plan and (3) by action
of its own board of directors shall have adopted the Plan and, or any successor
to one or more of such entities.
Employer New Matching Account - That portion of a Participant's
Individual Account attributable to the Employer Matching Contributions allocated
to such Participant under Section 4.3 as of a date after June 30, 1995, and any
earnings and losses on such contributions. The Employer New Matching Account of
a Participant who was formerly a participant in the Corning Life Sciences Plan
also shall hold any amount transferred to this Plan from the Corning Life
Sciences Plan representing employer matching contributions held under the
Corning Life Sciences Plan and any earnings and losses thereon.
Employer Matching Contributions - Contributions made to the Plan by the
Employer under Section 3.2.
Employer Old Matching Account - That portion of a Participant's
Individual Account attributable to the Employer Matching Contributions allocated
to such Participant under this Plan as of a date before July 1, 1995, and any
earnings and losses on such contributions. The Employer Old Matching Account of
a Participant who was formerly a participant in the Besselaar 401(k) Plan also
shall hold any amount transferred to this Plan from the Besselaar 401(k) Plan
representing matching contributions made to the Besselaar 401(k) Plan and
earnings and losses thereon.
Employer Stock - Any class of the Employer's common stock or the
Employer's preferred stock that is convertible into common stock. Employer Stock
includes ESOP Stock.
Employment Commencement Date - The date on which an Employee first
performs an hour of service for an Employer (even if such date is before the
Effective
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<PAGE>
Date with respect to such Employer) or, if the sponsor of a Merged Plan is not
an Employer, for the sponsor of a Merged Plan (even if such date is before the
Merger Date).
ERISA - The Employee Retirement Income Security Act of 1974, as
amended.
ESOP Stock - Employer securities within the meaning of Code section
409(1) that have been acquired with the proceeds of an Exempt Loan. Unallocated
ESOP Stock shall remain in a suspense account described in Section A-5 until
allocated to Participants' ESOP Accounts pursuant to Section A-9.
Fiduciary - The Corporation, the Employer, the Trustee, the Committee
and any individual, corporation, firm or other entity which assumes, in
accordance with Article VIII, responsibilities of the Corporation, the Employer,
the Trustee or the Committee respecting management of the Plan or the
disposition of its assets.
Fund - The Trust Fund.
Highly Compensated Employee - (a) For any Plan Year, any employee
described in subsection (b) or (c).
(b) Any employee who during the immediately preceding Plan Year:
(1) was at any time a 5-percent owner (as defined in Code
Section 416(i)(l));
(2) received compensation (as defined in Code Section
414(q)(7)) from an Employer or an Affiliate in excess of $50,000 (as adjusted
under Code Section 414(q)(1)); or
(3) was at any time an officer and received compensation (as
defined in Code Section 414(q)(7)) from an Employer or an Affiliate greater than
50 percent of the amount in effect under Code Section 415(b)(1)(A) for such
year.
(c) Any employee who during the current Plan Year:
(1) was at any time a 5-percent owner (as defined in Code
Section 416(i)(l));
(2) received compensation (as defined in Code Section
414(q)(7)) from an Employer or an Affiliate in excess of $50,000 (as adjusted
under Code Section 414(q)(1)) and was one of the 100 employees receiving the
most compensation (as defined in Code Section 414 (q)(7)); or
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<PAGE>
(3) was at any time an officer who received compensation (as
defined in Code Section 414(q)(7)) from an Employer or an Affiliate greater than
50 percent of the amount in effect under Code Section 415(b)(1)(A) for such year
and was one of the 100 employees receiving the most compensation (as defined in
Code Section 414(q)(7).
This definition shall be applied in accordance with Code Section 414(q)
and the regulations issued thereunder.
(d) For purposes of applying the HC Family Member aggregation rules
under this Plan, Highly Compensated Employee shall also include former employees
who separated prior to the Plan Year being tested and who met the definition of
Highly Compensated Employee in either (1) the Plan Year in which they separated
or (2) any Plan Year ending on or after their 55th birthday.
HC Family Member - With respect to a Highly Compensated Employee who is
either a 5% owner or one of the ten most highly compensated Employees, the
spouse and the lineal ascendants and descendants (and spouses of such ascendants
and descendants) of any such Highly Compensated Employee.
Individual Account - The aggregate of a Participant's Employee Pre-Tax
Account, Employer New Matching Account, Employer Old Matching Account, New
Discretionary Account, Old Discretionary Account and Rollover Account.
Investment Option - The investment vehicle elected by the Participant
in accordance with Section 2.4(a) for investment of his Individual Account. The
Investment Options are the Fidelity Asset Manager Fund, Fidelity Balanced Fund,
Fidelity Contrafund, Fidelity Equity-Income Fund, Fidelity International Growth
& Income Fund, Fidelity Magellan Fund, Fidelity Managed Income Portfolio, and a
stock fund investing primarily in the common stock of the employer as defined in
Section 409(l) of the Code. In addition, effective as of the Distribution Date,
there shall be one or more funds investing primarily in the common stock of the
Employer ("the Employer Stock Funds"). As a result of the spinoff of the
Employer, there are also funds investing entirely in the common stock of Corning
and CCL, which shall not be available to receive new contributions effective as
of the Distribution Date. Effective January 1, 1996, the Fidelity Asset Manager
Fund: Growth and the Fidelity Asset Manager Fund: shall be available as
Investment Options. The Committee may add, change or delete the available
Investment Options at any time.
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<PAGE>
Limitation Year - There is a short "limitation period" commencing July
1, 1995 and ending December 31, 1995. Effective January 1, 1996, the Limitation
Year is January 1 - December 31.
Merged Plan - The Besselaar 401(k) Plan, the Corning Life Sciences Plan
and the National Packaging Plan, either individually or collectively as the case
may be.
Merger Date - The Merger Date, with respect to the following plans, the
assets and liabilities of which have been transferred to this Plan, is as
follows:
<TABLE>
<CAPTION>
==============================================================================================================
Name Merger Date
- --------------------------------------------------------------------------------------------------------------
<S> <C>
G. H. Besselaar Associates Profit Sharing 401(k) Plan January 1, 1996
- --------------------------------------------------------------------------------------------------------------
National Packaging Systems, Inc. 401(k) Plan January 1, 1996
- --------------------------------------------------------------------------------------------------------------
Profit Sharing Plan of Corning Life Sciences Inc. (assets and
liabilities representing account balances of Corning SciCor, Inc. January 1, 1996
employees)
==============================================================================================================
</TABLE>
National Packaging Plan - The National Packaging Systems, Inc. 401(k)
Plan, the assets and liabilities of which have been transferred to this Plan.
Net Asset Value - With respect to any mutual fund that the Committee
may designate as an available Investment Option, the total net assets of the
respective fund divided by the number of outstanding shares of the respective
fund.
New Discretionary Account - That portion of a Participant's Individual
Account attributable to the Discretionary Contributions allocated to such
Participant under Section 4.4 as of a date after June 30, 1995, and any earnings
and losses on such contributions. The New Discretionary Account of a Participant
who was formerly a participant in the Corning Life Sciences Plan also shall hold
any amount transferred to this Plan from the Corning Life Sciences Plan
representing discretionary contributions held under the Corning Life Sciences
Plan and any earnings and losses thereon.
Normal Retirement Age - Age 65.
Old Discretionary Account - That portion of a Participant's Individual
Account attributable to profit sharing contributions made by the Employer on
behalf of Plan Participants for periods prior to January 1, 1986 and
Discretionary Contributions allocated to such Participant under this Plan as of
a date before July 1, 1995, and any earnings and losses on such contributions.
-11-
<PAGE>
Participant - Any Employee or former Employee who has an Individual
Account balance and any Employee who has met the eligibility requirements of
Section 2.1. Participation ends in accordance with Section 2.2.
Period of Severance - The period of time commencing on an Employee's
Severance from Service Date and ending on his Reemployment Commencement Date.
Plan - The Stock Purchase Savings Plan of Covance Inc. formerly known
as The Corning Pharmaceutical Services Inc. Retirement Savings Plan (July 1,
1995 Restatement), as renamed herein the Stock Purchase Savings Plan of Covance
Inc., as duly amended. Prior to July 1, 1995, the Plan was known as the Hazleton
Pre-Tax Savings Plan.
Plan Year - There is a short Plan Year commencing July 1, 1995 and
ending December 31, 1995. Effective January 1, 1996, the Plan Year is January 1
- - December 31.
Prime Rate - The "prime rate," as published in The Wall Street Journal.
Reemployment Commencement Date - The first date on which an Employee
again performs an hour of service following a Period of Severance.
Rollover Account - That portion of a Participant's Individual Account
attributable to his rollover contributions under Section 3.4 and any earnings or
losses on such contributions. The Rollover Account of a Participant who was
formerly a participant in the Besselaar 401(k) Plan also shall hold any amount
transferred to this Plan from the Besselaar 401(k) Plan representing rollover
contributions made to the Besselaar 401(k) Plan and any earnings and losses
thereon. The Rollover Account of a Participant who was formerly a participant in
the Corning Life Sciences Plan also shall hold any amount transferred to this
Plan from the Corning Life Sciences Plan representing rollover contributions
held under the Corning Life Sciences Plan and any earnings and losses thereon.
Section 415 Compensation - An Employee's wages as defined in Code
Section 3401(a) and all other payments of compensation to an Employee by an
Employer (in the course of the Employer's trade or business) for which the
Employer is required to furnish the Employee a written statement under Code
Sections 6041(d) and 6051(a)(3). Section 415 Compensation shall be determined
without regard to any rules that limit the remuneration included in wages based
on the nature or location of the employment or the services performed (such as
the exception for agricultural labor in Code Section
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<PAGE>
3401(a)(2)). Section 415 Compensation does not include Employee Pre-Tax
Contributions to this Plan and salary reduction contributions to a Code Section
125 cafeteria plan.
Severance from Service Date - The date on which an Employee quits,
retires, is discharged or dies, provided he does not earn an hour of service for
an Employer within 12 months after such date.
Target Rate - The rate at which Employee Pre-Tax Contributions may be
made by each eligible Highly Compensated Employee for the balance of the Plan
Year so that one of the two qualifying tests under Section 3.6(a) will be
satisfied for such Plan Year.
Testing Compensation - For each Participant, his Deferral Compensation.
For the Plan Year commencing July 1, 1995 and ending December 31, 1995, Testing
Compensation shall not be taken into account. For Plan Years commencing after
December 31, 1995, Testing Compensation in excess of $150,000 (or such different
amount as may be applicable under Code Section 401(a)(17)(B)) shall not be taken
into account.
Total and Permanent Disability - A Participant shall be considered
totally and permanently disabled once the Committee, in its sole discretion,
determines that he has incurred a disability which renders him totally and
permanently unable to satisfactorily perform his usual duties for his Employer
or the duties of such other position which the Employer makes available to him
and for which he is qualified by reason of his training, education or
experience. Such determination shall be made by the Committee based on medical
reports and such other evidence which the Committee determines to be
satisfactory; provided, however, that conclusive evidence that the Participant
is eligible for and is receiving disability benefits under the provisions of the
Federal Social Security Act shall be sufficient to deem the Participant totally
and permanently disabled.
Trust Agreement - The agreement entered into between the Employer and
the Trustee under Article VII.
Trust Fund - All funds received by the Trustee together with all
income, profits and increments thereon, and less any expenses or payments made
out of the Trust Fund.
Trustee - Such individual, individuals, financial institution, or a
combination of them as shall be designated in the Trust Agreement to hold in
trust any assets of the Plan for the purpose of providing benefits under the
Plan, and shall include any successor trustee to the Trustee initially
designated thereunder.
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<PAGE>
Valuation Date - The date on which a Participant's Individual Account
is valued pursuant to Section 5.9. Subject to Section 5.9(b), the Valuation Date
shall be a date that falls as soon as administratively feasible after a
properly-completed written request for a distribution is received by an
authorized representative of the Committee.
Year of Vesting Service - (a) As of any date, the aggregate of an
Employee's periods of vesting service, including any vesting service credited
under subsection (b) and excluding any vesting service disregarded under
subsection (c). For purposes of this subsection (a), a period of vesting service
is each period of time required to be recognized under this Plan commencing on
the Employee's Employment Commencement Date, or any subsequent Reemployment
Commencement Date, and ending on a Severance from Service Date.
(b) Vesting service shall also include the following:
(1) Periods of employment with an Affiliate (while such
organization is an Affiliate) which would have constituted vesting service had
the Participant been employed by an Employer shall be included as if such
periods had been performed for an Employer; and
(2) Periods of employment with an Employer other than as
an Employee, including employment as a leased employee within the meaning of
Code Section 414(n), which would have constituted vesting service had the
Participant been employed as an Employee shall be included as if such periods
had been performed as an Employee.
(3) With respect to any person employed by the Employer
on or before December 31, 1998, periods of employment with Corning or Corning
Clinical Laboratories, Inc. (formerly Corning Life Sciences, Inc.) that would
have been counted as vesting service under the terms of the plan if such service
was rendered to the Employer as an Employee.
(c) Years of Vesting Service recognized under the preceding
subsections shall not include any vesting service earned prior to a five-year
Period of Severance if, when the Period of Severance commenced, the Employee had
not yet earned any vested interest in his Employer New Matching Account or his
New Discretionary Account under Sections 5.5 or 11.1.
-14-
<PAGE>
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 Eligibility
Any Employee who was a Participant in this Plan on December 30, 1996
shall remain a Participant on December 31, 1996, as long as he remains an
Employee on such date. Any Employee who was not a Participant in this Plan on
December 31, 1996 shall become a Participant on the date on which he completes
an hour of service with an Employer. Notwithstanding the preceding sentence, (a)
any Employee who was a participant in a Merged Plan immediately before the
Merger Date with respect to such Merged Plan shall become a Participant in this
Plan on such Merger Date; and (b) any Employee who was employed by an employer
which sponsored a Merged Plan immediately before the applicable Merger Date, but
was not a participant in such Merged Plan, shall be credited with service with
the sponsor prior to the Merger Date for purposes of determining when he shall
become eligible to participate in this Plan. Notwithstanding the foregoing, an
Employee shall become a Participant for purposes of receiving Employer Matching
Contributions under Section 3.2 on the date 6 months after he completes one hour
of service with an Employer.
2.2 Participation
(a) Each Employee who is a Participant may, by filing a
properly-completed agreement with an authorized representative of the Committee,
enter into a salary reduction agreement in accordance with Section 3.1(a). Such
agreement shall be effective as of the first payroll period coincident with or
next following the later of (1) the date the Employee becomes a Participant, or
(2) the date on which the agreement is processed. If an Employee elects not to
enter into a salary reduction agreement on the date he is first eligible, he
may, by filing a properly-completed agreement with an authorized representative
of the Committee, enter into such an agreement effective as of the first payroll
period coincident with or next following the date on which the agreement is
processed.
(b) Each person who becomes a Participant shall remain a Participant so
long as he remains an Employee or maintains an Individual Account balance. If a
Participant
-15-
<PAGE>
terminates employment with no balance in his Individual Account, he shall cease
being a Participant upon his termination of employment. In the event an Employee
ceases to be a Participant and is later reemployed as an Employee, he shall once
again become a Participant upon his reemployment date.
2.3 Beneficiary Designation
(a) Upon commencing participation, each Participant shall designate a
Beneficiary by filing a properly-completed form with an authorized
representative of the Committee. In the absence of any valid designation of
Beneficiary, the Participant shall be deemed to have designated his spouse as
his Beneficiary, and if the Participant is unmarried upon his death, he shall be
deemed to have designated his estate as his Beneficiary.
(b) The Beneficiary of a married Participant shall be his spouse unless
the Participant designates someone other than his spouse as his Beneficiary, and
the Participant files with an authorized representative of the Committee his
spouse's written consent to such designation. Such spousal consent shall be on a
form approved by the Committee, shall be irrevocable by the spouse, shall
acknowledge the effect of such designation and shall be witnessed by a Committee
member (or an authorized representative) or a notary public. The spouse may
alternatively execute an irrevocable general consent that does not identify the
designated Beneficiary and which allows the Participant to make future changes
in the Beneficiary designation without spousal consent. Any such general consent
shall satisfy the requirements of Treasury Regulation ss.1.401(a)-20 Q&A-31(c).
(c) If an unmarried Participant later marries, or if a married
Participant later remarries, any prior designation by such Participant of a
Beneficiary other than the spouse to whom he is married on his date of death
shall be null and void unless consented to by such spouse in the manner provided
in subsection (b).
(d) The interpretation of the Committee with respect to any Beneficiary
designation, subject to applicable law, shall be binding and conclusive upon all
parties, and no person who claims to be a Beneficiary, or any other person,
shall have the right to question any action of the Committee.
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(e) The rights of any spouse or Beneficiary hereunder shall be subject
to the provisions of any qualified domestic relations order within the meaning
of ERISA Section 206(d)(3).
2.4 Investment Option Specification
(a) This subsection (a) shall apply only to a Participant who became a
Participant on or after January 1, 1996. That portion of such a Participant's
Individual Account which represents Contributions made on his behalf with
respect to his first calendar month of participation automatically shall be
invested in the Fidelity Asset Manager Fund, unless the Committee specifies a
different Investment Option for this purpose. On or about the 15th day of the
next calendar month, the Participant may change his Investment Option
specification in accordance with subsection (b). Initial Investment Option
specifications shall be in increments of 5%. In the absence of any valid
Investment Option specification, a Participant's Individual Account shall
continue to be invested in the Fidelity Asset Manager Fund, unless the Committee
specifies a different Investment Option for this purpose.
(b) A Participant may change his Investment Option specification with
respect to Contributions to be made in the future and with respect to amounts
already in his Individual Account by calling Fidelity Investments. Telephone
exchanges between Investment Options shall be subject to such administrative
procedures as have been instituted by Fidelity Investments and adopted by the
Committee. The Committee, in its sole discretion, may modify such procedures
after providing reasonable notification to Participants.
(c) On or after the Distribution Date, each such election in effect
under the Plan to invest in the Employer Stock Fund shall be deemed an election
under the Plan to invest in the Corning Stock Fund, the CCL Stock Fund and the
Employer Stock Fund proportionately to the dividend received from Corning as of
such date.
2.5 Notification of Individual Account Balance
As of the last day of each calendar quarter, the Committee shall notify
each Participant of the amount of his share in the Contributions for the period
just completed and the balance of his Individual Account, including
distributions, loans and withdrawals, if any, since the effective date of the
last statement.
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2.6 Diversification of Investments or Distribution for Certain Participants
For purposes of this Section 2.6, "Qualified Participant" shall mean a
Participant who has completed at least five years of participation in the ESOP
portion of the Plan: excluding any participation prior to December 31, 1996.
"Qualified Election Period" shall mean the period of six Plan Years
beginning with the later of (i) the Plan Year in which the Participant first
becomes a Qualified Participant, or (ii) the Plan Year which includes the tenth
anniversary of the Distribution Date; provided that the Qualified Election
Period shall not begin unless and until the fair market value of Employer Stock
allocated to the Participant's ESOP Account is at least $500 as of any Valuation
Date.
No later than 90 days after the last day of each Plan Year during his
Qualified Election Period, each Qualified Participant shall be permitted to
direct the Plan as to the investment of 100 percent (100%) of an amount equal to
the value of his Employer Match Account attributable to Employer Stock, plus
amounts previously transferred or distributed pursuant to an election under this
Section, to the extent such percentage exceeds the amounts transferred or
distributed pursuant to a prior election. No later than 90 days after the close
the last Plan Year in the Participant's Qualified Election Period, a Qualified
Participant may direct the Plan to the investment 100 percent (100%) of an
amount equal to the value of his Account balance attributable to Employer Stock,
plus amounts previously transferred or distributed pursuant to an election under
this Section, to the extent such a percentage exceeds the amounts transferred or
distributed pursuant to a prior election under this Section. The Participant's
direction shall be provided to the Committee in writing and shall be effective
no later than 180 days after the close of the Plan Year to which the direction
applies.
The Plan shall satisfy the Participant's direction by transferring the
portion of his Account that is covered by the election to another qualified plan
(including the portion of this Plan that does not constitute an ESOP) of the
Employer that accepts the transfer and permits employee-directed investments
and offers the Participant at least three investment options (not inconsistent
with regulations prescribed by the Secretary of the Treasury) other than
Employer Stock. The transfer shall be made, and the amount transferred shall be
invested in accordance with the Participant's election, no later than 90 days
after the last day of the period during which the election can be made. If at
the time of an election
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no Employer then maintains a qualified plan that is eligible to receive the
portion of the Participant's Account that is covered by the election, the Plan
shall distribute that portion to the Qualified Participant within 90 days after
the last day of the period during which the election can be made. This Section
shall apply notwithstanding any other provision of the Plan, other than such
provisions as require the consent of the Participant to a distribution with a
present value in excess of $3,500. If the Participant does not consent to such a
distribution, the amount as to which the election is made shall be retained in
the Plan and the diversification requirement of this Section shall be deemed to
have been satisfied. Notwithstanding the foregoing, the Participant's
diversification election under the section shall not be effective unless
consented thereto by the Participant's spouse in accordance with the
requirements under section 5.6(d).
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ARTICLE III
CONTRIBUTIONS
3.1 Employee Pre-Tax Contributions
A Participant may have Employee Pre-Tax Contributions made to the Plan
on his behalf as follows:
(a) (1) A Participant may enter into a salary reduction agreement with
his Employer in which it is agreed that the Employer will reduce the
Participant's Deferral Compensation during each pay period by a designated
percentage and contribute that amount so determined to the Plan on behalf of the
Participant. The Employer may disregard or modify a Participant's salary
reduction agreement (including a salary reduction agreement subject to the
special limit set forth in the last sentence of this paragraph) to the extent
necessary to insure that (1) the Actual Deferral Percentage test of Code Section
401(k) as set forth in Section 3.6 is met, (2) the excess deferral rules of
subsection (c) are met, or (3) the limitations set forth in Sections 3.5 or 4.6
are not exceeded. Employee Pre-Tax Contributions may be any whole percentage
between 1% and 15% of the Deferral Compensation otherwise payable to the
Participant during the applicable payroll period. Notwithstanding the preceding
sentence, with respect to a Participant who is a Highly Compensated Employee as
defined in Section 414(q) of the Code, the Employee Pre-Tax Contributions of
such a Participant may not exceed the maximum deferral percentage set from time
to time by the Committee in order for the Plan to satisfy the Actual Deferral
Percentage Test under Section 3.6 for the Plan Year.
The salary reduction agreement of an Employee who becomes eligible
to participate in the Plan shall be effective under the rules set forth in
Section 2.2.
(2) Employee Pre-Tax Contributions shall be invested among the
various Investment Options in accordance with the Employee's outstanding
Investment Option election as in effect under Section 2.4.
(b) (1) A Participant who has in effect a salary reduction agreement
may elect to change such agreement, including prospectively suspending such
agreement, by filing a properly-completed written notice with an authorized
representative of the
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Committee. Such election shall become effective as of the first payroll period
coincident with or next following the date on which it is processed.
(2) Amounts contributed by salary reduction shall be remitted to
the Trustee in accordance with Department of Labor Regulations at 29 C.F.R.
ss.2510.3-102. Contributions once elected to be deferred by a Participant shall
be credited to his Employee Pre-Tax Account under Section 4.2(a).
(c) Excess deferrals
(1) No Participant may have Employee Pre-Tax Contributions made on
his behalf under this Plan in any calendar year which in the aggregate exceed
$7,000 or such greater amount as may be specified by the Secretary of the
Treasury for purposes of Code Section 402(g)(1). For purposes of the preceding
sentence, Employee Pre-Tax Contributions are deemed made as of the pay date for
which the salary is deferred, regardless of when the contributions are actually
made to the Trust Fund.
(2) (A) If in any calendar year the aggregate of a Participant's
Employee Pre-Tax Contributions made on his behalf under this Plan, plus his
other elective deferrals under any other qualified cash or deferred arrangement
(as defined in Code Section 401(k)) maintained by any sponsor, under any
simplified employee pension (as defined in Code Section 408(k)), or used to have
an annuity contract purchased on his behalf under Code Section 403(b), exceed
the limitations of paragraph (1), then no later than the March 1 following such
calendar year the Participant may notify the Committee (i) that he has exceeded
the limitation and (ii) of the amount of his Employee Pre-Tax Contributions
under this Plan which he wants distributed to him (and earnings thereon)
notwithstanding his salary reduction agreement so that he will not exceed the
limitation. The Committee may require the Participant to provide reasonable
proof that he has exceeded the limitation of paragraph (1).
If in any calendar year the aggregate of a Participant's Employee
Pre-Tax Contributions made on his behalf under the Plan, plus his other elective
deferrals under any other qualified cash or deferred arrangement (as defined in
Code Section 401(k)) maintained by the Employer, under a simplified employee
pension (as defined in Code Section 408(k)) sponsored by the Employer, or used
to have the Employer purchase an annuity contract on his behalf under Code
Section 403(b), exceed the limitations of paragraph (1), then the Participant
shall be deemed to have notified the Committee that
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(i) he has exceeded the limitation and (ii) he wants distributed to him the
amount of such excess deferrals (and income thereon) notwithstanding the salary
reduction agreement so that he will not exceed the limitation. No later than the
next April 15, the Committee may (but shall not be obligated to) make the
distribution requested, or deemed to have been requested, by the Participant
under this subparagraph. Such distribution may be made notwithstanding any other
provision of law or this Plan. Except as otherwise provided by regulations
issued by the Secretary of the Treasury, such distribution shall not reduce the
amount of Employee Pre-Tax Contributions used in computing Actual Deferral
Percentage, or the amount of Employee Pre-Tax Contributions considered as Annual
Additions under Section 4.6. Any amounts not distributed under this subparagraph
shall continue to be held in accordance with the terms of this Plan.
(B) After a distribution of excess Employee Pre-Tax Contributions
(if any) under subparagraph (A), Employer Matching Contributions made with
respect to such distributed Employee Pre-Tax Contributions (if any) shall be
withdrawn (with earnings thereon) from such Participant's Employer New Matching
Account and applied to reduce future Employer Matching Contributions under
Section 3.2.
3.2 Employer Matching Contributions
Subject to Sections 3.5, 3.8 and 3.9, as of each calendar month, the
Employer shall make Employer Matching Contributions to the Trust Fund equal to
300% of the Employee Pre-Tax Contributions made by each eligible Participant
with respect to such calendar month (taking into account only those Employee
Pre-Tax Contributions made by the Participant with respect to such month which
are made at a rate that does not exceed 1% of the Participant's Deferral
Compensation) and 50% of the Employee Pre-Tax Contributions made by each
Participant with respect to such calendar month (taking into account additional
Employee Pre-Tax Contributions made by the Participant with respect to such
calendar month which are made at a rate that does not exceed 5% of the
Participant's Deferral Compensation).
The Employer Matching Contributions shall be invested in Employer
Stock.
The Employer Matching Contribution otherwise required under this
Section 3.2 for any Plan Year shall be reduced by the fair market value
(determined as of December 31 of that plan year) of the Employer Stock
attributable to an Exempt Loan and allocated to the accounts of Participants, as
provided in Supplement A.
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3.3 Discretionary Contributions
As of the last day of each Fiscal Quarter, the Corporation, at the
discretion of the Board, may make a Discretionary Contribution. Such
Discretionary Contribution, if made, shall be expressed as a percentage of
Deferral Compensation and shall be allocated in accordance with Section 4.4. No
Discretionary Contribution shall be made with respect to any Participant who is
not an Active Participant for the applicable Fiscal Quarter. The Employer shall
also contribute sufficient Discretionary Contributions as may be required by
Section 11.1(b).
3.4 Rollover Contributions
Subject to the approval of the Committee, an Employee (regardless of
whether he has satisfied the initial eligibility requirements of Section 2.1)
may make a rollover contribution to the Plan, provided it qualifies for tax free
rollover treatment under Code Sections 402(c) or 408(d). Rollover contributions
must be in cash; contributions in-kind shall not be permitted. Such a
contribution shall be held in the Employee's Rollover Account and shall be 100%
vested at all times. The rollover contribution of an Employee who has not
satisfied the initial eligibility requirements of Section 2.1 shall be invested
in the Fidelity Asset Manager Fund, unless and until he makes a different
Investment Option specification pursuant to Section 2.4. The rollover
contribution of an Employee who has already satisfied the initial eligibility
requirements of Section 2.1 shall be invested in accordance with the Employee's
outstanding Investment Option specification.
3.5 Maximum Deductible Contribution
In no event shall the Employer be obligated to make a Contribution for
a Plan Year in excess of the maximum amount deductible by it under Code Section
404(a)(3).
3.6 Actual Deferral Percentage Test
(a) During each Plan Year, the Committee periodically shall monitor
Plan participation to determine whether the rate of Employee Pre-Tax
Contributions made pursuant to Section 3.1(a) for such Plan Year meets either of
the following qualifying tests (applied subject to Section 3.9):
(1) The Actual Deferral Percentage for the group of eligible Highly
Compensated Employees will not exceed 125% of the Actual Deferral Percentage for
the group of all other Eligible Employees, or
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(2) The Actual Deferral Percentage for the group of eligible Highly
Compensated Employees will not exceed the Actual Deferral Percentage for the
group of all other Eligible Employees by more than two percentage points and by
more than 200%.
(b) If the Committee determines during a Plan Year that neither of the
qualifying tests under subsection (a) shall be met in that Plan Year, then the
Committee, in its sole discretion, may require each Participant who is a Highly
Compensated Employee and whose rate of Employee Pre-Tax Contributions exceeds
the Target Rate to reduce his rate of Employee Pre-Tax Contributions for the
balance of such Plan Year to the extent necessary to ensure that his Employee
Pre-Tax Contributions will not exceed the Target Rate.
(c) If, after the end of a Plan Year, the Committee determines that
neither of the qualifying tests under subsection (a) above shall be met for such
Plan Year, the Committee shall determine whether to follow the procedure set
forth in paragraph (1) or the procedure set forth in paragraph (2), as follows:
(1) The Committee shall direct the Trustee to distribute,
preferably within 2 1/2 months after the last day of such Plan Year, but in any
event no later than the last day of the Plan Year immediately following such
Plan Year, to Highly Compensated Employees that portion of the Employee Pre-Tax
Contributions made on their behalf for such Plan Year (adjusted for income
allocable to such portion) necessary to ensure that one of the two qualifying
tests under subsection (a) shall be satisfied for such Plan Year. Contributions
made on behalf of Highly Compensated Employees shall be distributed under the
rules prescribed in Treasury Regulation ss.1.401(k)-1(f)(3). The amount of any
Employee Pre-Tax Contributions to be distributed under this paragraph (1) shall
be reduced by any excess deferrals previously distributed under Section
3.1(c)(2) for the calendar year ending in the same Plan Year. Similarly, any
excess deferrals to be distributed under Section 3.1(c)(2) shall be reduced by
any excess Employee Pre-Tax Contributions previously distributed under this
paragraph (1) for the Plan Year beginning in such calendar year. In connection
with a distribution of excess Employee Pre-Tax Contributions under this
paragraph (1), Employer Matching Contributions made with respect to distributed
Employee Pre-Tax Contributions (if any) shall be withdrawn (with earnings
thereon) from the Participant's Employer New Matching Account and applied to
reduce future Employer Matching Contributions under Section 3.2.
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(2) As of the last day of such Plan Year, the Employer shall
contribute to the Employee Pre-Tax Account of each Participant who is not a
Highly Compensated Employee and who has elected under Section 3.1(a) to have
Employee Pre-Tax Contributions made on his behalf during such Plan Year that
amount, expressed as a uniform percentage of the Deferral Compensation of each
such Participant for such Plan Year, necessary to ensure that one of the two
qualifying tests under subsection (a) shall be satisfied for such Plan Year. All
contributions made by the Employer under this paragraph (2) shall be paid to the
Trustee no later than the last day of the Plan Year immediately following such
Plan Year and credited to the affected Participants' Employee Pre-Tax Accounts
as of the last day of the Plan Year immediately preceding the Plan Year in which
such contribution was made and shall be immediately 100% vested. Notwithstanding
the foregoing, for purposes of determining the amount of a Participant's
Employer Matching Contribution under Section 3.2, such contributions made by the
Employer under this paragraph (2) shall not be treated as Employee Pre-Tax
Contributions.
3.7 Payment of Contributions to Trustee
Unless an earlier time for contribution is specified elsewhere in this
Plan, in all events the Employer shall pay to the Trustee its Contributions for
each Plan Year within the time prescribed by law, including extensions of time
for the filing of its federal income tax return for the Employer's taxable year
during which such Plan Year ended.
3.8 Actual Contribution Percentage Test
(a) As of the last day of each Plan Year, the Committee shall determine
whether the rate of Employer Matching Contributions made under Section 3.2 for
such Plan Year meets either of the following qualifying tests (applied subject
to Section 3.9):
(1) The Actual Contribution Percentage for the group of
eligible Highly Compensated Employees does not exceed 125% of the Actual
Contribution Percentage for the group of all other Eligible Employees, or
(2) The Actual Contribution Percentage for the group of
eligible Highly Compensated Employees does not exceed the Actual Contribution
Percentage for the group of all other Eligible Employees by more than two
percentage points and by more than 200%.
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(b) If the Committee determines that neither of the qualifying tests
under subsection (a) shall be met in that Plan Year, then the Committee shall
direct the Trustee to distribute, preferably within 2 1/2 months after the last
day of such Plan Year, but in any event no later than the last day of the Plan
Year immediately following such Plan Year, to Highly Compensated Employees that
portion of the Employer Matching Contributions made on their behalf for such
Plan Year (adjusted for income allocable to such portion) necessary to ensure
that one of the two qualifying tests under subsection (a) shall be satisfied for
such Plan Year. (Employer Matching Contributions which are not 100% vested shall
be forfeited and allocated under Section 4.5 in lieu of being distributed.)
Employer Matching Contributions made on behalf of Highly Compensated Employees
shall be distributed (or forfeited, if applicable) under the rules prescribed in
Treasury Regulation ss.1.401(m)-1(e)(2).
3.9 Multiple Use Restrictions
The application of the Actual Deferral Percentage test in Section 3.6
and the Actual Contribution Percentage test in Section 3.8 shall be coordinated
in accordance with regulations issued by the Secretary of the Treasury under
Code Section 401(m)(9), so as to prohibit the multiple use of the alternative
limitations set forth in Sections 3.6(a)(2) and 3.8(a)(2). Corrections required
by the multiple use restriction shall be effected by a reduction for any Highly
Compensated Employee participating in this Plan of the otherwise permissible
Employee Pre-Tax Contributions under Section 3.1 or Employer Matching
Contributions under Section 3.2 as shall be designated by the Employer.
Notwithstanding the foregoing, this limitation shall be applied after
satisfying the mandatory disaggregation rules applicable to the portion of a
plan that constitutes an ESOP and the portion that does not constitute an ESOP.
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ARTICLE IV
ALLOCATIONS TO INDIVIDUAL ACCOUNTS
4.1 Individual Accounts
(a) The Committee shall establish and maintain an Individual Account in
the name of each Participant, comprised of an Employee Pre-Tax Account, an
Employer New Matching Account, an Employer Old Matching Account, a New
Discretionary Account, an Old Discretionary Account and a Rollover Account to
which the Committee shall credit all amounts allocated to each such Participant
under this Article IV.
(b) Separate accounts shall be maintained for all former Employee
Participants who have an interest in the Plan.
(c) The maintenance of separate accounts shall not require a
segregation of the Trust assets and no Participant shall acquire any right to or
interest in any specific asset of the Trust as a result of the allocations
provided for in the Plan.
4.2 Allocation of Employee Pre-Tax Contributions
A Participant's Employee Pre-Tax Contributions under Section 3.1 shall
be allocated to the Participant's Employee Pre-Tax Account, and shall be
invested in accordance with the Participant's outstanding Investment Option
specification. Allocations for Highly Compensated Employees shall be subject to
Sections 3.6 and 3.9.
4.3 Allocation of Employer Matching Contributions
As of each calendar month, a Participant's allocable share of the
Employer Matching Contributions made on his behalf under Section 3.2 shall be
allocated to his Employer New Matching Account and shall be invested in
accordance with that Section , provided, however, that after the Distribution
Date, the Employer Matching Contribution will be invested 100% in Employer
Stock. Allocations for Highly Compensated Employees shall be subject to Sections
3.1(c)(2)(B), 3.6(c)(1), 3.8 and 3.9.
4.4 Allocation of Discretionary Contributions
(a) A Participant's allocable share as determined under subsection (b)
of the Discretionary Contribution shall be credited to the Participant's New
Discretionary Account as of the last day of the Fiscal Quarter for which the
Corporation shall make a Discretionary Contribution under Section 3.3 and shall
be invested in accordance with the
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Participant's outstanding Investment Option specification, provided, however,
that the Employer may direct that all or any portion of such contribution shall
be invested in Employer Stock.
(b) Each Participant who is an Active Participant for the Fiscal
Quarter with respect to which the Corporation shall make a Discretionary
Contribution shall receive an allocation of the Discretionary Contribution. No
other Participant shall receive an allocation. Each Active Participant shall
receive an amount equal to the Discretionary Contribution, expressed as a
percentage of Deferral Compensation, multiplied by the Active Participant's
Deferral Compensation during the Fiscal Quarter.
4.5 Allocation of Forfeitures
As of the last day of each Fiscal Quarter, any forfeitures arising
under Sections 3.8(b) or 5.5(c) shall be used to the extent necessary to restore
a Participant's Employer New Matching Account and New Discretionary Account as
provided in Section 5.5(c)(1), and/or shall be applied to reduce Discretionary
Contributions under Section 3.3 and Employer Matching Contributions under
Section 3.2.
4.6 Maximum Additions
(a) Notwithstanding anything herein to the contrary but subject to
subsection (b), the sum of the Employee Pre-Tax Contributions, Employer Matching
Contributions and Discretionary Contributions allocated to a Participant's
Individual Account for any Limitation Year (the "Annual Additions"), when
combined with any annual additions credited to the Participant for the same
period under another qualified defined contribution plan maintained by the
Employer or an Affiliate, shall not exceed the lesser of the following:
(1) $30,000 or such larger amount as may be determined under Code
Section 415(c)(1)(A); or
(2) 25% of the Participant's total Section 415 Compensation
received from the Employer for such Limitation Year.
(b) In the event a Participant is covered by more than one defined
contribution plan maintained by the Employer (or an Affiliate), the maximum
Annual Additions to this Plan shall be decreased as determined necessary by the
Employer to insure that the limitations of Code Section 415(c) are not exceeded.
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In the event that corrective adjustments in the Annual Additions to any
Individual Accounts are required due to a reasonable error in estimating a
Participant's compensation or in determining the amount of Employee Pre-Tax
Contributions that may be made with respect to any Participant under the annual
additions limit of Sections 4.6(a) and (b), the adjustment shall first be made
by reducing the Employee Pre-Tax Contributions, next the Discretionary
Contributions, and finally the Employer Matching Contributions.
Any amounts withheld or taken from a Participant's Individual Account
pursuant to the above shall be segregated in the Trust Fund in a separate
account and applied toward the Contribution of the Employer for the next
Limitation Year, except that Employee Pre-Tax Contributions shall be distributed
to the Participant who made them.
(c) A Participant's annual additions with respect to Employer Stock
allocable to the Participant's Employer Matching Contribution Account and
attributable to an Exempt Loan shall be determined on the basis of the lesser of
contributions thereto or the value of Employer Stock released from the Suspense
Account and, if no more than one third of the Employer Matching Contributions
which are deductible under Section 404(a)(9) of the Code by reason of their
application to make payments on an Exempt Loan are allocated to Highly
Compensated Employees, a Participant's annual additions shall not include
employer contributions which are deductible under Section 404(a)(9)(B) of the
Code by reason of their applications to the payment of interest on an Exempt
Loan or forfeitures of Employer Stock attributable to an Exempt Loan.
4.7 Multiple Plan Participation
(a) If a Participant is a participant in a defined benefit plan
maintained by the Employer, the sum of his defined benefit plan fraction
(determined in subsection (c)) and his defined contribution plan fraction
(determined in subsection (b)) for any Limitation Year may not exceed 1.0.
(b) The term "defined contribution plan fraction" shall mean a
fraction, the numerator of which is the sum of all of the Annual Additions to
the Participant's Individual Account under this Plan as of the close of the
Limitation Year and the denominator of which is the sum of the lesser of the
following amounts determined for such Limitation Year and for each prior
Limitation Year of employment with the Employer:
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(1) the product of 1.25 multiplied by the dollar limitation in
effect under Section 4.6(a)(1) for such Year; or
(2) the product of 1.4 multiplied by an amount determined under
Section 4.6(a)(2) for such Year.
(c) The term "defined benefit plan fraction" shall mean a fraction the
numerator of which is the Participant's projected annual benefit determined as
of the close of the Limitation Year and the denominator of which is the lesser
of:
(1) the product of 1.25 multiplied by the dollar limitation in
effect under Code Section 415(b)(1)(A) for such Limitation Year; or
(2) the product of 1.4 multiplied by the amount which may be taken
into account under Code Section 415(b)(1)(B) with respect to each individual
under the Plan for such Limitation Year.
For purposes of this limitation, all defined benefit plans maintained
by an Employer (or any Affiliates), whether or not terminated, are to be treated
as one defined benefit plan and all defined contribution plans maintained by an
Employer (or any Affiliates), whether or not terminated, are to be treated as
one defined contribution plan. The extent to which the annual benefit under any
defined benefit plans shall be reduced in order to achieve compliance with the
limitations of Code Section 415 shall be determined in such a manner so as to
maximize the aggregate benefits payable to such Participant. If such reduction
is under this Plan, the Committee shall advise affected Participants of any
additional limitation on their annual benefits required by this Section.
(d) The above limitations in Section 4.6 and this Section 4.7 are
intended to comply with the provisions of Code Section 415 so that the maximum
benefits able to be provided by plans of the Employer shall be exactly equal to
the maximum amounts allowed under Code Section 415. If there is any discrepancy
between the provisions of Section 4.6 or this Section 4.7 and the provisions of
Code Section 415, such discrepancy shall be resolved in such a way as to
give full effect to the provisions of Code Section 415, which provisions are
hereby incorporated by reference.
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ARTICLE V
DISTRIBUTIONS
5.1 Normal Retirement
Upon the retirement of a Participant on or after attaining his Normal
Retirement Age, the value of his Individual Account (as determined under Section
5.9) shall become 100% vested and shall become payable as soon as
administratively feasible following his retirement. The Committee shall
thereupon direct the Trustee to distribute to the retiring Participant such
amount in accordance with Section 5.6.
5.2 Disability Retirement
(a) A Participant may retire from the employment of the Employer on the
first day of any month coincident with or next following a determination by the
Committee that the Participant has incurred a Total and Permanent Disability.
Upon the retirement of a Participant under this Section 5.2, the value of his
Individual Account (as determined under Section 5.9) shall become 100% vested
and shall become payable as soon as administratively feasible following his
retirement. The Committee shall thereupon direct the Trustee to distribute to
the retiring Participant such amount in accordance with Section 5.6.
(b) Notwithstanding anything herein to the contrary, a Participant who
retires in accordance with this Section 5.2 shall (1) have the right to delay
receipt of his disability retirement benefit until the time required by Section
5.8(b), and (2) if deferred benefit commencement is elected, have the right at
any time subsequent to his disability retirement date but prior to the time
required by Section 5.8(b) to request benefit commencement at some earlier date.
5.3 Death Before Retirement or Termination of Employment
(a) Upon the death of a Participant before retirement or termination of
employment, the value of such Participant's Individual Account (as determined
under Section 5.9) shall become 100% vested and shall become payable as soon as
administratively feasible following his death. Subject to subsection (b), the
Committee shall direct the Trustee to distribute to the deceased Participant's
Beneficiary such amount in accordance with Section 5.6. After the death
of the Participant, the Participant's
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Beneficiary shall be entitled to select the Investment Options in which the
Individual Account will be invested in accordance with the same rules then
applicable to Participant selection of Investment Options.
(b) If the Beneficiary is the Participant's surviving spouse and the
value of the Participant's Individual Account exceeds $3,500, then the
Individual Account shall be paid by purchase of an annuity contract providing
for annuity payments for the spouse's lifetime, unless the spouse shall elect in
writing to receive the Individual Account in a lump sum or installments under
Section 5.6(c). Subject to Section 5.8(c), payments under an annuity contract
shall commence at a time designated by the spouse, but in no event earlier than
a date that falls as soon as administratively feasible following the
Participant's date of death.
5.4 Death After Retirement or Termination of Employment
(a) Upon the death of a Participant who has terminated employment and
who is not receiving benefit payments in accordance with a form of distribution
under Section 5.6, the value of the vested portion of such Participant's
Individual Account (as determined under Section 5.9) shall become payable as
soon as administratively feasible following his death. (For any Participant who
is receiving benefit payments in accordance with a form of distribution under
Section 5.6, the provisions of such form of distribution shall control any
payments upon the death of such Participant.) Subject to subsection (b), the
Committee shall direct the Trustee to distribute to the deceased Participant's
Beneficiary such amount in accordance with Section 5.6. After the death of the
Participant, the Participant's Beneficiary shall be entitled to select the
Investment Options in which the Individual Account will be invested in
accordance with the same rules then applicable to Participant selection of
Investment Options.
(b) If the Beneficiary is the Participant's surviving spouse and the
value of the vested portion of the Participant's Individual Account exceeds
$3,500, then the Individual Account shall be paid by purchase of an annuity
contract providing for annuity payments for the spouse's lifetime, unless the
spouse shall elect in writing to receive the Individual Account in a lump sum or
installments under Section 5.6(c). Subject to Section 5.8(c), payments under an
annuity contract shall commence at a time designated by the spouse, but in no
event earlier than a date that falls as soon as administratively feasible
following the Participant's date of death.
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5.5 Termination of Employment
(a) Upon termination of employment for any reason other than retirement
under Section 5.1 or 5.2, or death, a Participant shall be entitled to the value
of the vested portion of his Individual Account (as determined under Section
5.9) and payable at the time set forth in subsection (b). A Participant shall at
all times be one hundred percent (100%) vested in his Employee Pre-Tax Account,
his Employer Old Matching Account, his Old Discretionary Account and his
Rollover Account. Subject to the next sentence, a Participant shall have a
vested interest in the following percentage of his Employer New Matching Account
and his New Discretionary Account, based upon his Years of Vesting Service:
================================================================================
Years of Vesting Service Vested Interest
- --------------------------------------------------------------------------------
less than 2 0%
- --------------------------------------------------------------------------------
2 25%
- --------------------------------------------------------------------------------
3 50%
- --------------------------------------------------------------------------------
4 or more 100%
================================================================================
Notwithstanding the preceding sentence, (1) a Participant who had three or more
years of service under this Plan as of June 30, 1995 shall at all times be one
hundred percent (100%) vested in his Employer New Matching Account and his New
Discretionary Account; and (2) a Participant who was formerly a participant in
the Besselaar 401(k) Plan and who had three or more years of service under the
Besselaar 401(k) Plan as of December 31, 1995 shall at all times be one hundred
percent (100%) vested in his Employer New Matching Account.
(b) (1) As soon as administratively feasible following a Participant's
termination of employment, the Committee shall direct the Trustee to distribute
to such Participant the value of the vested portion of his Individual Account
(as determined under Section 5.9). Notwithstanding the preceding sentence, if
the amount to be distributed under this subsection (b) exceeds (or at the time
of any prior distribution exceeded) $3,500, then no distribution shall be made
prior to the Participant attaining his Normal Retirement Age unless he consents
in writing to the making of such distribution. The
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consent of the Participant shall be obtained in writing within the 90-day period
ending on the date distribution commences. The Participant shall be given a
written notice of the right to defer any distribution until the Participant's
Individual Account balance is no longer immediately distributable. Such
notification shall be provided no less than seven days and no more than 90 days
prior to the date distribution commences and shall inform the Participant that
he has a right to a period of at least 30 days after receiving the notice to
consider the decision of whether or not to elect a distribution.
(2) As soon as administratively feasible following the attainment
of Normal Retirement Age on the part of a Participant who has previously
terminated his employment but the distribution of whose benefit has not
commenced, the Committee shall direct the Trustee to distribute to such
Participant the value of his Individual Account (as determined under Section
5.9) in a lump sum payment.
(c) If a Participant's employment terminates for any reason other than
retirement or death at a time when he is not fully vested in his Employer New
Matching Account and New Discretionary Account, then the Committee shall follow
the procedure set forth in paragraph (1) or that set forth in paragraph (2)
below, as appropriate:
(1) If the vested portion of the Participant's Employer New
Matching Account and New Discretionary Account is distributed to him at any time
before the end of the second Plan Year following the Plan Year in which his
employment terminated, the remaining portion of such Accounts shall be forfeited
as of the date of such termination of employment. However, if the Participant
had no vested interest in his Employer New Matching Account and New
Discretionary Account at the time of his termination of employment, the
Committee nonetheless shall treat the Participant as if he had received a
distribution on the date his employment terminated and shall forfeit the
Participant's entire Employer New Matching Account and New Discretionary Account
on the date his employment terminated. If the former Participant returns as an
Employee prior to incurring a five-year Period of Severance beginning
immediately after the date of his distribution (or on the date his employment
terminated in the case of a former Participant who had no vested interest in his
Employer New Matching Account and New Discretionary Account on the date his
employment terminated), and if he repays the full amount of the distribution (if
any) paid to him by reason of his termination of employment no later than
the fifth anniversary of the date of his reemployment, then his
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Employer New Matching Account and New Discretionary Account, determined as of
the date of the distribution of his vested interest, shall be fully restored to
him as of the end of the Plan Year in which such repayment occurred. In such
case, the Participant's Employer New Matching Account and New Discretionary
Account shall be restored first out of forfeitures for such Plan Year and, if
such forfeitures are insufficient to restore such Accounts, the Employer shall
make a special contribution to the extent necessary so that the Participant's
Accounts are fully restored.
(2) If a Participant's vested interest in his Employer New Matching
Account and New Discretionary Account is not distributed to him before the end
of the second Plan Year in which his employment terminated, any portion of such
Accounts which is not vested shall be forfeited after he incurs a five-year
Period of Severance. If a Participant receives a distribution of his Individual
Account before a forfeiture is permitted and at a time when he is not fully
vested in his Employer New Matching Account and New Discretionary Account and is
reemployed as an Employee before incurring a five-year Period of Severance, his
vested interest in each such Account upon his subsequent reemployment shall be
determined by: (A) multiplying the applicable percentage from Section 5.5(a)
hereof by the sum of the value of the Participant's Account and the amount of
the distribution from such Account, and (B) subtracting the amount of the
distribution from the amount determined under (A).
(d) In the event a Participant who terminated his employment with an
Employer is reemployed as an Employee prior to receiving a distribution of his
Individual Account, he shall not be entitled to a distribution as provided in
this Section 5.5 due to such termination, but shall be entitled to a
distribution as determined herein upon any subsequent termination of employment
for any reason.
5.6 Method of Payment
(a) Normal Form
In the absence of the election of an optional method of payment as
provided in subsection (c), benefit payments hereunder shall be made in a lump
sum. Furthermore, distributions to a Participant (or to his Beneficiary if the
Participant dies before distribution of his benefit has commenced), the value of
the vested portion of whose Individual Account does not exceed (or at the time
of any prior distribution did not exceed) $3,500, automatically shall be made in
a lump sum. Payment from
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investments held in Employer Stock may be distributed in cash or in stock, at
the direction of the Participant. Payments from other investment accounts shall
be made only in cash.
(b) Election Procedures
(1) No less than seven and no more than 90 days before distribution
of a Participant's benefit commences, each Participant and his spouse (if any)
shall be given a written notice to the effect that if the Participant is married
on the date of commencement of payments and has elected an annuity under
subsection (c)(2), (c)(3) or (c)(4), benefits will be payable in the form of a
"qualified joint and survivor annuity" under subsection (d) unless the
Participant, with the consent of his spouse, elects to the contrary prior to the
commencement of payments. The notice shall describe, in a manner intended to be
understood by the Participant and his spouse, the terms and conditions of the
qualified joint and survivor annuity, the financial effect of the election of an
optional form or absence of election, the rights of the Participant to elect an
optional form or to revoke such an election, and the rights of the Participant's
spouse to consent to an election of an optional form. In addition, the notice
shall inform the Participant that he has 30 days to elect whether to have
benefits paid in an optional form.
(2) During the 90-day period ending on the day his distribution
commences, each Participant whose Individual Account balance exceeds (or at the
time of any prior distribution exceeded) $3,500 may elect to have his benefit
hereunder paid under any one of the options set forth in subsection (c) in lieu
of the normal form provided for in subsection (a).
(3) A Participant or Beneficiary who desires to have his benefit
hereunder paid under one of the optional methods provided in subsection (c)
shall make such an election by written request to an authorized representative
of the Committee on forms provided by the Committee. An election by a
Participant to receive his retirement benefit under any of the optional methods
of payment as provided in subsection (c) may be revoked by such Participant in
writing to an authorized representative of the Committee at any time and any
number of times during the 90-day period ending on the day his benefit payments
commence. After retirement benefit payments have commenced, no elections or
revocations of an optional method will be permitted under any circumstances.
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(c) Available Options
(1) Monthly, quarterly or annual installments from the Trust Fund
over a period not to exceed the lesser of (A) 10 years, or (B) the life
expectancy of the Participant or the joint life expectancies of the Participant
and his Beneficiary, in either case determined at the time payments commence.
Life expectancies shall be determined when payments commence and shall not
thereafter be recalculated. If a Participant or Beneficiary elects installment
payments, his Individual Account shall be fully invested in the Fidelity Asset
Manager Fund (unless it is already so invested) as soon as practicable following
the election of installment payments, and shall remain fully invested in such
Fund throughout the payment period.
(2) Subject to subsection (d), an annuity contract, purchased from
an insurance company (or similar source) by the Committee utilizing the value of
the vested portion of the Participant's Individual Account, which provides for
equal monthly payments over the Participant's (or Beneficiary's) lifetime and
which contains such other terms and provisions as may be approved in writing by
such Participant or Beneficiary.
(3) Subject to subsection (d), an annuity contract, purchased from
an insurance company (or similar source) by the Committee utilizing the value of
the vested portion of the Participant's Individual Account, which provides for
equal monthly payments over the Participant's lifetime and for such monthly
payments (or one-half thereof) to be continued after his death to the
Participant's designated Beneficiary over the lifetime of the Beneficiary. If
the designated Beneficiary is not living at the death of the Participant, no
additional benefit shall be payable hereunder. Such annuity contract shall
contain such other terms and promises as may be approved in writing by the
electing Participant. (This optional method shall not be available to a
Beneficiary.)
(4) Subject to subsection (d), an annuity contract, purchased from
an insurance company (or similar source) by the Committee utilizing the value of
the vested portion of the Participant's Individual Account, which provides for
equal monthly payments over the Participant's lifetime and in the event of his
death before 120 monthly payments have fallen due, such payments shall be
continued to the Participant's designated Beneficiary until the remainder of the
120 monthly payments have been paid. Such annuity contract shall contain such
other terms and provisions as may be approved
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in writing by the electing Participant. (This optional method shall not be
available to a Beneficiary.)
(d) Qualified Joint and Survivor Annuity
If a Participant is married on the date distribution of his Individual
Account commences, no form of payment described in subsection (c)(2), (c)(3) or
(c)(4) may be elected unless (a) it is the joint and survivor annuity of
subsection (c)(3) with one-half of the Participant's lifetime amount payable
after his death to his surviving spouse (to whom he was married on the date
payments to the Participant first commenced) as his Beneficiary, or (2) the
Participant's spouse consents in writing to the form elected. Such consent shall
acknowledge its effect and be witnessed by a Committee member (or an authorized
representative) or a notary public. Spousal consent is not required if there is
no spouse, the spouse cannot be located or under such other circumstances as may
be prescribed by regulations. Any spousal consent shall only be applicable to
the spouse granting such consent.
5.7 Benefits to Minors and Incompetents
(a) In case any person entitled to receive payment under the Plan shall
be a minor, the Committee, in its discretion, may distribute such payment in any
one or more of the following ways:
(1) By payment thereof directly to such minor;
(2) By application thereof for the benefit of such minor;
(3) By payment thereof to either parent of such minor or to any
person who shall be legally qualified and shall be acting as guardian of the
person or the property of such minor, provided the parent or adult person to
whom any amount shall be paid shall have advised the Committee in writing that
he will hold or use such amount for the benefit of such minor.
(b) In the event a person entitled to receive payment under the Plan is
physically or mentally incapable of personally receiving and giving a valid
receipt for any payment due (unless prior claim therefor shall have been made by
a duly qualified legal representative of such person), such payment in the
discretion of the Committee may be made to the spouse, son, daughter, parent,
brother or sister of the recipient or to any other person who is responsible for
the welfare of such recipient.
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(c) Any payments made under subsections (a) or (b) shall, to the extent
of the payments, fully discharge the obligations of the Committee and the Plan
to any other person making a claim hereunder with respect to such payments.
5.8 Payment of Benefits
(a) Except as provided in subsection (b), in the event a Participant's
Individual Account shall be due and payable under this Article V and the
Participant has not elected otherwise in accordance with the Plan, any payment
of benefits to the Participant shall begin not later than 60 days after the
close of the Plan Year in which occurs the latest of:
(1) the date on which the Participant attains age 65;
(2) the 10th anniversary of the date in which the Participant
commenced participation in the Plan; and
(3) termination of employment of the Participant with the Employer.
(b) Notwithstanding subsection (a) above, distribution of a
Participant's benefit shall be made no later than April 1 of the calendar year
following the calendar year during which such Participant attains age 70 1/2,
regardless of whether or not he has terminated employment with the Employer.
Such distribution shall be made over a period not extending beyond the life or
life expectancy of the Participant or the joint lives or life expectancies of
the Participant and a designated Beneficiary. Life expectancies shall be
determined at the time payments commence and shall not thereafter be
recalculated.
(c) If a Participant dies before distribution of his benefit has
commenced, the Participant's entire benefit shall be distributed within five
years after his death. The preceding sentence shall not apply to any portion of
the Participant's benefit if the following requirements in paragraphs (1) and,
if applicable, (2) are met with respect to such portion:
(1) (A) if the portion of the Participant's benefit is payable to
or for the benefit of a designated Beneficiary;
(B) such portion will be distributed over a period not
extending beyond the life expectancy of such Beneficiary at the time payments
commence; and
(C) such distributions begin not later than December 31 of the
calendar year following the calendar year of the Participant's death.
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(2) If the designated Beneficiary referred to in paragraph (1)(A)
above is the surviving spouse of the Participant, then the date on which the
distributions are required to begin under paragraph (1)(C) shall not be earlier
than December 31 of the calendar year in which the Participant would have
attained age 70 1/2.
If the surviving spouse dies before the distributions to such
spouse begin, this Section 5.8(c) (with the exception of paragraph (2)) shall be
applied as if the surviving spouse were the Participant.
This Section 5.8(c) shall not apply if the distribution of the
Participant's benefit has commenced prior to his death and the remaining portion
of the Participant's benefit will be distributed at least as rapidly as under
the method of distribution being used at the date of the Participant's death.
For purposes of this Section 5.8(c), under regulations to be
prescribed by the Secretary of the Treasury, any amount paid to a child shall be
treated as if it had been paid to the surviving spouse upon such child reaching
the age of majority (or other designated event prescribed under such
regulations).
(d) Distributions under this Article V shall be made in accordance with
regulations issued by the Secretary of the Treasury under Code Section
401(a)(9), including Treasury Regulation ss.1.401(a)(9)-2, which regulations
shall override any distribution options in this Plan inconsistent with Section
401(a)(9).
5.9 Valuation of Accounts
All distributions hereunder shall be based upon the value of the
Participant's Individual Account as determined under this Section 5.9.
(a) The value of a Participant's Individual Account upon a distribution
hereunder shall be the sum of paragraphs (1)-(10) below, where:
(1) is the product of (A) the closing Net Asset Value of the
Fidelity Asset Manager Fund: Income on the Valuation Date, and (B) the number of
shares of such fund allocated to the Participant's Individual Account as of such
Valuation Date;
(2) is the product of (A) the closing Net Asset Value of the
Fidelity Asset Manager Fund on the Valuation Date, and (B) the number of shares
of such fund allocated to the Participant's Individual Account as of such
Valuation Date;
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(3) is the product of (A) the closing Net Asset Value of the
Fidelity Asset Manager Fund: Growth on the Valuation Date, and (B) the number of
shares of such fund allocated to the Participant's Individual Account as of such
Valuation Date;
(4) is the product of (A) the closing Net Asset Value of the
Fidelity Balanced Fund on the Valuation Date, and (B) the number of shares of
such fund allocated to the Participant's Individual Account as of such Valuation
Date;
(5) is the product of (A) the closing Net Asset Value of the
Fidelity Contrafund on the Valuation Date, and (B) the number of shares of such
fund allocated to the Participant's Individual Account as of such Valuation
Date;
(6) is the product of (A) the closing Net Asset Value of the
Fidelity Equity-Income Fund on the Valuation Date, and (B) the number of shares
of such fund allocated to the Participant's Individual Account as of such
Valuation Date;
(7) is the product of (A) the closing Net Asset Value of the
Fidelity International Growth & Income Fund on the Valuation Date, and (B) the
number of shares of such fund allocated to the Participant's Individual Account
as of such Valuation Date;
(8) is the product of (A) the closing Net Asset Value of the
Fidelity Magellan Fund on the Valuation Date, and (B) the number of shares of
such fund allocated to the Participant's Individual Account as of such Valuation
Date; and
(9) is the sum of (A) the number of shares of the Fidelity MG42
Managed Income Portfolio allocated to the Participant's Individual Account as of
the last day of the calendar month coincident with or next preceding the
Valuation Date, and (B) interest, if any, credited from the first day of the
calendar month in which falls the Valuation Date to the Valuation Date;
(10) is the product of (A) the per unit value of the Employer Stock
Fund, the Corning Stock Fund and the CCL Stock Fund on the Valuation Date, and
(B) the number of Unit of such fund allocated to the Participant's Individual
Account as of such Valuation Date.
(b) If a Discretionary Contribution is made on behalf of a Participant
after the date on which his Individual Account is valued under subsection (a),
the Participant shall receive an additional distribution equal to the amount of
the Discretionary Contribution and any earnings or losses thereon. Such
additional distribution shall be valued in the
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same manner as the Participant's Individual Account was valued under subsection
(a), except that the Valuation Date shall be a date that falls as soon as
administratively feasible after the Discretionary Contribution is made.
5.10 Direct Rollovers
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Section, a distributee
may elect, at the time and in the manner prescribed by the Committee, to have
any portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
(b) (1) An "eligible rollover distribution" is any distribution of all
or any portion of the balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any distribution that is one of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Section 401(a)(9)
of the Code; and the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(2) An "eligible retirement plan" is an individual retirement
account described in section 408(a) of the Code, an individual retirement
annuity described in section 408(b) of the Code, an annuity plan described in
section 403(a) of the Code, or a qualified defined contribution plan described
in section 401(a) of the Code, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(3) A "distributee" includes an employee or former employee. In
addition, the employee's or former employee's surviving spouse and the
employee's or former employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
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(4) A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
5.11 Payment to Alternate Payee Under QDRO
Notwithstanding any other provision of this Plan, once the Committee
determines that a domestic relations order is a qualified domestic relations
order ("QDRO") within the meaning of Section 206(d)(3) of ERISA, unless the QDRO
specifically provides otherwise, the Committee shall direct the Trustee to
distribute, as soon as administratively feasible following the date on which the
Committee determines that the domestic relations order is a QDRO, to the
alternate payee named in the QDRO the benefit provided therein in a lump sum.
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ARTICLE VI
LOANS AND WITHDRAWALS
6.1 Loans to Participants
The Committee, upon the request of a Participant, may at its discretion
make loans from the Trust Fund to Participants who are "parties in interest" as
defined in ERISA Section 3(14). The following additional rules shall apply:
(a) Prior to January 1, 1996, a Participant may only make a loan under
this Section 6.1 if the loan is made on account of an immediate and heavy
financial need of the Participant, as determined under subsection (b), and is
necessary to satisfy the financial need. The determination of the existence of
financial hardship and the amount necessary to be loaned to satisfy the
immediate financial need created by the hardship shall be made by the Committee
in a uniform and nondiscriminatory manner. A Participant requesting a loan
hereunder may be required to submit whatever documentation the Committee, in its
sole discretion, deems necessary to establish the existence of financial
hardship and the amount necessary to be loaned to satisfy the financial need
created by the hardship.
(b) A loan will be considered to be made on account of an immediate and
heavy financial need of the Participant for purposes of subsection (a) only if
it is on account of:
(1) Expenses for medical care described in Code Section 213(d)
previously incurred by the Participant, the Participant's spouse, or any
dependents of the Participant (as defined in Code Section 152), or necessary for
such persons to obtain medical care described in Code Section 213(d);
(2) Purchase (excluding mortgage payments) of a principal residence
for the Participant;
(3) Payment of tuition and other related expenses, including room
and board, billed directly by the institution for post-secondary education for
the Participant, his spouse, children, or dependents;
(4) The need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the Participant's
principal residence;
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(5) Expenses incurred in refinancing a principal residence of the
Participant; or
(6) Capital renovations of the Participant's principal residence
performed under contract by a third party.
(c) A Participant may only have one loan outstanding at any time. The
minimum new loan amount shall be $1,000. If a Participant's Individual Account
balance is insufficient to support the minimum loan amount loan because of the
maximum loan restrictions set forth below, no loan shall be made. The maximum
amount of any loan, when added to the outstanding balance of any existing loan
from this Plan, shall be the lesser of (1) and (2):
(1) $50,000 reduced by the excess of the highest outstanding
balance of loans from the Plan during the one-year period ending on the day
before the date the loan is made over the outstanding balance of loans from the
Plan on the date the loan is made.
(2) One-half of the value of the vested portion of the
Participant's Individual Account on the date the loan is made.
(d) All loans shall be repayable over a period of not more than five
years, except that a loan used by the Participant to acquire any dwelling unit
which within a reasonable time is to be used (determined at the time the loan is
made) as a principal residence of the Participant shall be repayable over a
period of not more than 10 years.
(e) Each loan shall be secured by one-half of the value of the vested
portion of the Participant's Individual Account balance; shall bear interest at
a rate of one percent (1%) above the Prime Rate in effect on the last day of the
calendar quarter coincident with or next preceding the calendar quarter in which
the loan is applied for; shall be repaid by payroll deduction each pay period in
accordance with a reasonable repayment schedule requiring substantially level
payments of principal and interest; and shall be evidenced by a written
promissory note setting forth the terms of the loan. A Participant may prepay
the entire outstanding loan balance without penalty. To the extent a
Participant's pay from the Employer is insufficient to make the payments due
under a loan, but such Participant is not covered by the provisions of
subsection (f), such Participant shall make his loan payments out of his own
personal funds.
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(f) In the event of the death or termination of employment of a
Participant, the unpaid balance of any outstanding loan to such Participant,
together with accrued interest, shall be deducted from the amount otherwise due
him or his Beneficiary, notwithstanding the provisions of Section 12.5.
(g) The Committee shall apply the provisions of this Section in a
uniform and nondiscriminatory manner which is not inconsistent with Department
of Labor regulations at 29 C.F.R. ss.2550.408b-1.
(h) Each loan shall be considered a separate investment option of the
Individual Account of the Participant. Notwithstanding Section 4.1(c), when a
loan is made, the amount of the loan shall be withdrawn from sub-accounts within
the Participant Individual Account among the separate Investment Options in
which each sub-account is invested and transferred to a segregated loan account
maintained in his name. The loan amount shall be withdrawn from the sub-accounts
within the Individual Account in the following order: (1) Old Discretionary
Account; (2) the vested portion of the New Discretionary Account; (3) Employer
Old Matching Account; (4) the vested portion of the Employer New Matching
Account; (5) Rollover Account; and (6) Employee Pre-Tax Account. Within each
sub-account, the loan amount shall be withdrawn from the separate Investment
Options in the following order: (1) Fidelity Managed Income Portfolio; (2)
Fidelity Balanced Fund; (3) Fidelity Equity-Income Fund; (4) Fidelity Asset
Manager Fund: Income; (5) Fidelity Asset Manager Fund; (6) Fidelity Asset
Manager Fund: Growth; (7) Fidelity Contrafund; (8) Fidelity Magellan Fund; (9)
Fidelity International Growth & Income Fund; (10) CCL Stock Fund; (11) Corning
Stock Fund; and (12) Employer Stock Fund. Payments of principal and interest
against a loan shall thereafter be allocated ratably among the sub-accounts from
which the loan was withdrawn and invested in accordance with a Participant's
outstanding Investment Option specification, except with regard to the Employer
Matching Account allocable to Employer Stock under Section 3.2.
(i) There may be an administrative charge imposed on each new loan in
an amount determined by the Committee.
(j) In the event a Participant defaults on a loan from this Plan, the
Plan shall foreclose on so much of the Participant's Individual Account as is
given as collateral for
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the loan when such amounts are otherwise available for distribution under the
terms of the Plan.
6.2 Hardship Withdrawals
(a) Upon request of the Participant, and with the approval of the
Committee, a Participant shall be allowed to withdraw all or part of the value
of his Individual Account which is available under subsection (e) while still
employed by the Employer. Withdrawn amounts may not be repaid to the Trust Fund.
Withdrawals shall be charged first against the Participant's Rollover Account,
then against his Employee Pre-Tax Account, then against his Employer Old
Matching Account, then against the vested portion of his Employer New Matching
Account, then against his Old Discretionary Account, and finally against the
vested portion of his New Discretionary Account. Within such Accounts,
withdrawals shall be charged against the separate Investment Options in the
following order: (1) Fidelity Managed Income Portfolio; (2) Fidelity Balanced
Fund; (3) Fidelity Equity-Income Fund; (4) Fidelity Asset Manager Fund: Income;
(5) Fidelity Asset Manager Fund; (6) Fidelity Asset Manager Fund: Growth; (7)
Fidelity Contrafund; (8) Fidelity Magellan Fund; (9) Fidelity International
Growth & Income Fund; (10) CCL Stock Fund; (11) the Corning Stock Fund; and (12)
Employer Stock Fund.
(b) A Participant may only make a withdrawal under this Section 6.2 if
the withdrawal is made on account of an immediate and heavy financial need of
the Participant, as determined under subsection (c)(1), and is necessary to
satisfy the financial need, as determined under subsection (c)(2). The
determination of the existence of financial hardship and the amount necessary to
be withdrawn to satisfy the immediate financial need created by the hardship
shall be made by the Committee in a uniform and nondiscriminatory manner, in
accordance with the standards and restrictions set forth in subsection (c)
below. A Participant requesting a withdrawal hereunder may be required to submit
whatever documentation the Committee, in its sole discretion, deems necessary to
establish the existence of financial hardship and the amount necessary to be
withdrawn to satisfy the financial need created by the hardship.
(c) (1) Immediate and heavy financial need. A withdrawal will be
considered to be made on account of an immediate and heavy financial need of the
Participant for purposes of subsection (b) only if it is on account of:
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(A) Expenses for medical care described in Code Section 213(d)
previously incurred by the Participant, the Participant's spouse, or any
dependents of the Participant (as defined in Code Section 152) or necessary for
such persons to obtain medical care described in Code Section 213(d);
(B) Purchase (excluding mortgage payments) of a principal
residence for the Participant;
(C) Payment of tuition for the next 12 months of post-secondary
education for the Participant, his spouse, children, or dependents;
(D) The need to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage of the Participant's
principal residence; or
(E) For any other reason which the Commissioner of Internal
Revenue deems to constitute such an immediate and heavy financial need in
accordance with Treasury Regulation ss.1.401(k)-1(d)(2)(iv)(C).
(2) Amount necessary to satisfy the need. A withdrawal will be
considered to be in an amount necessary to satisfy a Participant's need under
paragraph (1) for purposes of subsection (b) only if:
(A) It does not exceed the amount of the need under paragraph
(1);
(B) If the Participant's withdrawal is charged against any
portion of his Employee Pre-Tax Account, the Participant has obtained all
non-hardship distributions and non-taxable loans he is eligible for and is able
to provide collateral for under any plan the Employer may sponsor (including
this Plan);
(C) If the Participant's withdrawal is charged against any
portion of his Employee Pre-Tax Account, the Participant may not make any
Employee Pre-Tax Contributions under Section 3.1 for a period of 12 months after
his withdrawal, nor may he make any other elective contributions to any Employer
plan as described in Treasury Regulation ss.1.401(k)-1(d)(2)(iv)(B)(4) (but
shall still be otherwise considered an Eligible Employee during such
suspension); and
(D) If the Participant's withdrawal is charged against any
portion of his Employee Pre-Tax Account, the Participant's maximum annual
Employee Pre-Tax Contributions under Section 3.1(c) for the calendar year
following the calendar year in
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which he receives his withdrawal are reduced by the amount of Employee
Pre-Tax Contributions he made in the calendar year in which he receives his
withdrawal.
Notwithstanding subparagraphs (A) through (D), a Participant's
withdrawal may be considered to be in an amount necessary to satisfy a need
under paragraph (1) if it satisfies a method prescribed by the Commissioner of
Internal Revenue under Treasury Regulation ss.1.401(k)-1(d)(2)(iv)(C).
(d) In addition to the amount necessary to meet the immediate financial
need created by the hardship, the Participant may, at his election, also
withdraw any amount necessary to cover withholding for federal income tax
purposes.
(e) A Participant's hardship withdrawal under this Section 6.2 shall be
limited to the aggregate of all his Employee Pre-Tax Contributions made prior to
the withdrawal (excluding earnings thereon allocated to his Employee Pre-Tax
Account as of a date after December 31, 1988), reduced by the amount of any
prior withdrawal of such Contributions, plus the value of his Rollover Account,
the value of his Employer Old Matching Account, the value of the vested portion
of his Employer New Matching Account, the value of his Old Discretionary
Account, and finally the value of the vested portion of his New Discretionary
Account.
6.3 Other Withdrawals
In addition to the withdrawals available under Section 6.2, a
Participant who was formerly a participant in the Besselaar 401(k) Plan shall be
allowed to withdraw all or part of the value of his Individual Account (pursuant
to the hierarchy set forth in Section 6.2(a)) upon the attainment of age 59 1/2.
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ARTICLE VII
TRUST FUND/ESOP
7.1 Contributions
Contributions by the Employer and Participants as provided for in
Article III shall be paid over to the Trustee. All Contributions by the Employer
shall be irrevocable, except as otherwise provided in this Plan and may be used
only for the exclusive benefit of the Participants and their Beneficiaries. The
Employer's Contribution will be made either in cash or in Employee Stock, or
partially in each. Any Employer Stock comprising a portion of the Employer
Matching Contribution shall be valued at the fair-market value thereof at the
date or dates on which any contribution in that form is made
7.2 Trustee
The Corporation will maintain an agreement with the Trustee whereunder
the Trustee will receive, invest and administer as a trust fund Contributions
made under this Plan in accordance with the Trust Agreement.
Such Trust Agreement is incorporated by reference as a part of the
Plan, and the rights of all persons entitled to benefits hereunder are subject
to the terms of the Trust Agreement. The Trust Agreement specifically provides,
among other things, for the investment and reinvestment of the Fund and the
income thereof, the management of the Fund, the responsibilities and obligations
of the Trustee, removal of the Trustee and appointment of a successor,
accounting by the Trustee and the disbursement of the Fund.
Subject to a Participant's Investment Option specification, the Trustee
shall, in accordance with the terms of such Trust Agreement, accept and receive
all sums of money paid to it from time to time by the Employer, and shall hold,
invest, reinvest, manage and administer such moneys and the increment, increase,
earnings and income thereof as a trust fund for the exclusive benefit of the
Participants and their Beneficiaries and for the payment of reasonable expenses
of administering the Plan.
7.3 Employer Stock Fund
The Employer Stock Fund shall be invested in the common stock of the
Employer, provided such stock qualifies as qualifying employer securities within
the meaning of ERISA Section 407(d)(5). The level of Plan assets invested in
such fund shall be
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determined by Participant Investment Option specifications, and may consist of
up to 100% of all Plan assets.
(a) Employer Stock Fund. Employer Stock received by the Plan as a
dividend with respect to Corning Stock in connection with the spinoff of the
Employer shall remain invested as Employer Stock. Following the Distribution
Date, consistent with the stated purposes of the Plan, and subject to the
provisions of Section 7.4, the Trustee shall invest that portion of the assets
of the Plan consisting of the Employer Matching Contribution in Employer Stock
to the end that, in the largest measure possible, Participants may share in the
earnings of the Employer and acquire a proprietary interest in the Employer;
provided, however that all Employer Matching Contributions shall be used to make
payments on Exempt Loans to the extent provided in Section A-7. The Trustee will
also invest any other assets attributable to Participants' Individual Accounts
in Employer Stock in accordance with Participants' elections under subsection
2.4 and will invest amounts invested in Corning Stock and CCL Stock in Employer
Stock in accordance with Section 7.4. Any Employer Stock acquired and held in
accordance with this Section will be known and referred to as the "Employer
Stock Fund".
(b) ESOP Stock. The portion of the Employer Matching Account (including
amounts attributable to ESOP Loans) invested in Employer Stock shall be held and
invested in the "ESOP Stock Fund," which may be a subaccount of the Employer
Stock Fund.
(c) ESOP Stock Transfers by Participants. Except for transfers from a
Participant's investments in Corning Stock or CCL Stock (for conversion of
Corning Stock to Employer Stock within a Participant's Individual Account)
pursuant to Section 7.4) transfers may not be made to or from a Participant's
Matching Contribution Account invested in the Employer Stock Fund.
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7.4 Corning Stock Fund and CCL Stock Fund
Corning Stock and CCL Stock received by the Plan as a result of the
spinoff of the Company shall be invested in the "Corning Stock Fund" and the
"CCL Stock Fund", respectively. Subject to the following proviso, Corning Stock
held in the Corning Stock Fund and CCL Stock held in the CCL Stock Fund and
allocated to a Participant's Individual Account shall be invested in Investment
Options as directed by the Participant in accordance with Section 2.4
Notwithstanding the foregoing, on December 31, 1997 or one year from the
Distribution Date, if later, any Corning Stock and CCL Stock remaining in the
Corning Stock Fund or CCL Stock Fund shall be applied to the purchase of
Employer Stock which shall be held in the Employer Stock Fund and allocated to
Participants' respective accounts.
7.5 Dividends on ESOP Stock Attributable to Exempt Loan
It is anticipated that all dividends payable with respect to shares of
ESOP Stock held in the Suspense Account shall be used for the purpose of
repaying one or more Exempt Loans and will not be allocated to Participants'
Employer Matching Accounts invested in Employer Stock and that all dividends
payable with respect to all other Employer Stock held in the Trust Fund shall be
added to the Participants' Employer Stock Fund, subject to Section A-6.
Nevertheless, the Committee may, in its sole discretion, determine for any Plan
Year that dividends payable with respect to shares of ESOP Stock shall, if
payable in cash (I) paid currently to Participants or (ii) used for the purpose
of repaying one or more Exempt Loans if such use of said dividends so applied
meets the requirements of Code Section 404(k). Such discretion herein granted
may be exercised by the Committee independently, and in whole or in part, with
respect to the stock held from time to time in one or more of Employer Stock
Funds established under the Trust. Discretion so exercised for any Plan Year, or
for any portion thereof, may be changed by the Committee at any subsequent time.
Cash dividends which are to be paid to the Participants may be paid directly by
the Company or may be paid by the Trustee within ninety (90) days after the end
of the Plan year or receipt by the Trustee.
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7.6 Voting and Tender Offer Rights on Employer Stock
Each Participant shall have the right to vote all shares of Employer
Stock held in the Participant's accounts. Each Participant shall also have the
right to direct the Trustee whether to tender such shares of Stock in the event
an offer is made by any person other than the Employer to purchase such shares.
The Committee shall make any such arrangements with the Trustee as may be
appropriate to pass such voting or tender offer rights through to a Participant.
In the event a Participant fails to vote his shares or fails to indicate his
preference with respect to a tender offer, the Trustee shall vote the
Participant's shares or tender his shares in the same proportions as those Plan
Participants who did respond cast their votes or tendered their shares. The
Trustee shall also vote and exercise any tender offer rights with respect to
unallocated ESOP Stock held in a suspense account in the same proportions as
those Plan Participants who responded cast their votes or tendered their shares.
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ARTICLE VIII
FIDUCIARIES
8.1 General
Each Fiduciary who is allocated specific duties or responsibilities
under the Plan or any Fiduciary who assumes such a position with the Plan shall
discharge his duties solely in the interest of the Participants and
Beneficiaries and for the exclusive purpose of providing such benefits as
stipulated herein to such Participants and Beneficiaries, or of defraying
reasonable expenses of administering the Plan. Each Fiduciary in carrying out
such duties and responsibilities shall act with the care, skill, prudence, and
diligence under the circumstances then prevailing that a prudent person acting
in a like capacity and familiar with such matters would use in exercising such
authority or duties.
A Fiduciary may serve in more than one Fiduciary capacity and may
employ one or more persons to render advice with regard to his Fiduciary
responsibilities. If the Fiduciary is serving as such without compensation, all
expenses reasonably incurred by such Fiduciary shall be reimbursed by the
Employer or, at the Corporation's direction, from the assets of the Trust.
A Fiduciary may allocate any of his responsibilities for the operation
and administration of the Plan. In limitation of this right, a Fiduciary may not
allocate any responsibilities as contained herein relating to the management or
control of the Fund except (1) through the employment of an investment manager
as provided in Section 8.3 and in the Trust Agreement relating to the Fund, or
(2) to the extent Participants specify their own Investment Options.
8.2 Corporation
The Corporation established and maintains the Plan for the benefit of
its Employees and those of participating Employers and of necessity retains
control of the operation and administration of the Plan. The Corporation is the
Plan administrator within the meaning of ERAS Section 3(16)(A). The Corporation
in accordance with specific provisions of the Plan has, as herein indicated,
delegated certain of these rights and obligations to the Employer, the Trustee
and the Committee and these parties shall be solely responsible for these, and
only these, delegated rights and obligations.
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8.3 Employer
The Employer shall indemnify each member of the Board of Directors, the
Committee, and any of its employees to whom any fiduciary responsibility with
respect to the Plan is allocated or delegated, from and against any and all
liabilities, costs and expenses incurred by such persons as a result of any act
or omission to act in connection with the performance of their fiduciary duties,
responsibilities and obligations under the Plan and under ERAS, except for
liabilities and claims arising from such fiduciary's willful misconduct or gross
negligence. For such purpose, the Employer may obtain, pay for and keep current
a policy or policies of insurance. Where such policy or policies of insurance
are purchased, there shall be no right to indemnification under this Section
8.3, except to the extent of any deductible amount under the policy or policies
or with regard to covered claims in excess of the insured amount. No Plan assets
may be used for any indemnification.
The Employer shall supply such full and timely information for all
matters relating to the Plan as (a) the Committee, (b) the Trustee, and (c) the
accountant engaged on behalf of the Plan by the Corporation may require for the
effective discharge of their respective duties.
8.4 Trustee
The Trustee, in accordance with the Trust Agreement, shall have
authority to manage the Fund, except that (1) the Committee may in its
discretion employ at any time and from time to time an investment manager (as
defined in section 3(38) of ERAS) to direct the Trustee with respect to all or a
designated portion of the assets comprising the Fund, and (2) Participants may
specify their own Investment Options.
Each Participant in the Plan shall be a "named fiduciary" within the
meaning of section 402 of the Employee Retirement Income Security Act of 1974,
as amended ("ERAS"), to the extent that Employer Stock or shares of Corning or
JCL, whether or not allocated to his accounts, are voted or tendered according
to the Participant's directions
8.5 Committee
The Board shall appoint a Benefits Administration Committee of not less
than three persons to hold office during the pleasure of the Corporation. No
compensation shall be paid members of the Committee from the Fund for service on
such Committee.
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The Committee shall choose from among its members a chairman and a
secretary. Any action of the Committee shall be determined by the vote of a
majority of its members. Either the chairman or the secretary may execute any
certificate or other written direction on behalf of the Committee.
The Committee shall hold meetings upon such notice, at such place or
places and at such time or times as the Committee may from time to time
determine. Meetings may be called by the chairman or any two members. A majority
of the members of the Committee at the time in office shall constitute a quorum
for the transaction of business. The Committee may also act by written consent
in lieu of a meeting.
A Committee member may resign at any time by giving written notice of
his resignation to the Corporation at least thirty days in advance, unless the
Corporation shall accept shorter notice. The Corporation shall appoint
replacement Committee members. Any Committee member who was employed by the
Employer when appointed to the Committee shall automatically be deemed to have
resigned from the Committee effective as of the date he ceases to be employed by
the Employer, unless the Corporation shall affirmatively act to keep said member
on the Committee.
Nothing herein shall prevent a Committee member from being a
Participant, or from acting on Plan matters which affect himself by virtue of
affecting all Participants generally. However, a Committee member shall not act
on any matter which affects himself specially. If application of the preceding
sentence results in there not being a quorum to act on any matter, the
Corporation shall appoint the necessary number of temporary Committee members to
take the action.
In accordance with the provisions hereof, the Committee has been
delegated certain administrative functions relating to the Plan with all powers
necessary to enable it properly to carry out such duties.
The Committee shall have discretionary authority to construe the Plan,
and to determine, consistent with the terms of the Plan, all questions that may
arise thereunder relating to (a) the eligibility of individuals to participate
in the Plan, (b) the amount of benefits to which any Participant or Beneficiary
may become entitled thereunder, and (c) any situation not specifically
covered by the provisions of the Plan. The determination of the Committee shall
be final and binding on all interested parties. All disbursements by the
Trustee, except for the ordinary expenses of administration of the Fund or the
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reimbursement of reasonable expenses at the direction of the Corporation as
provided herein, shall be made upon, and in accordance with, the written
directions of the Committee. When the Committee is required in the performance
of its duties hereunder to administer or construe, or to reach a determination
under any of the provisions of the Plan, it shall do so on a uniform, equitable
and nondiscriminatory basis.
8.6 Claims for Benefits
All claims for benefits under the Plan shall be submitted to the
Committee which shall have the responsibility for determining the eligibility of
any Participant or Beneficiary for benefits. All claims for benefits shall be
made in writing and shall set forth the facts which such Participant or
Beneficiary believes to be sufficient to entitle him to the benefit claimed. The
Committee may adopt forms for the submission of claims for benefits in which
case all claims for benefits shall be filed on such forms. The Committee shall
provide Participants and Beneficiaries with all such forms.
Upon receipt by the Committee of a claim for benefits, it shall
determine all facts which are necessary to establish the right of an applicant
to benefits under the provisions of the Plan and the amount thereof as herein
provided. The applicant shall be notified in writing by the Committee of its
decision with respect to such applicant's claim within 90 days after the receipt
of written request for benefits.
If any claim for benefits is denied, the notice shall be written in a
manner calculated to be understood by the applicant and shall include:
(a) The specific reason or reasons for the denial;
(b) Specific references to the pertinent Plan provisions on which the
denial is based;
(c) A description of any additional material or information necessary
for the applicant to perfect the claim and an explanation why such material or
information is necessary; and
(d) An explanation of the Plan's claim review procedures. If special
circumstances require an extension of time for processing the initial claim, a
written notice of the extension and the reason therefor shall be furnished to
the claimant by the Committee before the end of the initial 90-day period. In no
event shall such extension exceed 180 days after the receipt of the initial
claim for benefits.
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8.7 Denial of Benefits - Review Procedure
In the event a claim for benefits is denied or if the applicant has had
no response to such claim within 90 days of its submission (in which case the
claim for benefits shall be deemed to have been denied), the applicant or his
duly authorized representative, at the applicant's sole expense, may appeal the
denial by filing a written request for review with the Committee within 60 days
of the receipt of written notice of denial or 60 days from the date such claim
is deemed to be denied. In pursuing such appeal the applicant or his duly
authorized representative may review pertinent Plan documents, and may submit
issues and comments in writing.
The decision on review shall be made by the Committee within 60 days of
receipt of the request for review, unless special circumstances require an
extension of time for processing, in which case a decision shall be rendered as
soon as possible, but not later than 120 days after receipt of a request for
review. If such an extension of time is required, written notice of the
extension shall be furnished to the claimant before the end of the original 60
day period. The decision on review shall be in writing, shall be written in a
manner calculated to be understood by the claimant, and shall include specific
references to the provisions of the Plan on which such denial is based. If the
decision on review is not furnished within the time specified above, the claim
shall be deemed denied on review. The decision of the Committee upon review will
be final and binding on all parties.
8.8 Records
All acts and determinations of the Committee shall be duly recorded by
the secretary thereof and all such records, together with such other documents
as may be necessary in exercising its duties under the Plan shall be preserved
in the custody of such secretary. Such records and documents shall at all times
be open for inspection and for the purpose of making copies by any person
designated by the Corporation. The Committee shall provide such timely
information, resulting from the application of its responsibilities under the
Plan, as needed by the Trustee and the accountant engaged on behalf of the Plan
by the Corporation, for the effective discharge of their respective duties.
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8.9 Missing Persons
The Committee shall make a reasonable effort to locate all persons
entitled to benefits under the Plan. If such a person cannot be located, the
amount to which such a person otherwise would be entitled shall be retained by
the Trustee and treated in all respects as assets of the Trust, pending
disposition of such amount in accordance with regulations promulgated by the
Secretary of Labor or the Secretary of the Treasury. The Trustee may deposit any
such amounts into an "escheat fund" maintained by such Trustee but not within
the Trust.
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ARTICLE IX
AMENDMENT AND TERMINATION OF THE PLAN
9.1 Amendment of the Plan
The Corporation shall have the right at any time by action of the Board
to amend the Plan in whole or in part, including retroactively to the extent
necessary. The duties, powers and liability of the Trustee hereunder shall not
be increased without its written consent. The amount of benefits which at the
later of the adoption or effective date of such amendment shall have accrued for
any Participant or Beneficiary hereunder shall not be adversely affected
thereby. No such amendment shall have the effect of revesting in the Employer
any part of the principal or income of the Fund. No amendment may eliminate or
reduce any early retirement benefit or subsidy that continues after retirement
or optional form of benefit. Unless expressly provided for in an amendment, it
shall not affect the rights and obligations of any Participant who terminated
employment prior to the effective date of the amendment.
9.2 Termination of the Plan
The Corporation expects to continue the Plan indefinitely, but
continuance is not assumed as a contractual obligation and each Employer
reserves the right at any time by action of its board of directors to terminate
the Plan as applicable to itself. If an Employer terminates or partially
terminates the Plan or permanently discontinues its Contributions at any time,
each Participant affected thereby shall be then fully vested in his Individual
Account.
In the event of termination of the Plan by an Employer, the Committee
shall value the Fund as of the date of termination. That portion of the Fund
applicable to any Employer for which the Plan has not been terminated shall be
unaffected. The Individual Accounts of the Participants and Beneficiaries
affected by the termination, as determined by the Committee, shall continue to
be administered as a part of the Fund or distributed to such Participants or
Beneficiaries pursuant to Section 5.6 as the Committee, in its sole discretion,
shall determine. Any distributions upon plan termination of amounts attributable
to Employee Pre-Tax Contributions shall only be made to the extent permissible
by Code Section 401(k)(10).
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ARTICLE X
PROVISIONS RELATIVE TO EMPLOYERS INCLUDED IN PLAN
10.1 Method of Participation
Any organization which is affiliated with the Corporation may with the
consent of the Board adopt the Plan. In order to adopt the Plan, appropriate
action is required by the board of directors (or other governing body) of the
adopting organization and by the Board. Any organization which becomes a party
to the Plan shall thereafter promptly deliver to the Trustee provided for in
Article VII hereof a certified copy of the resolutions or other documents
evidencing its adoption of the Plan or a similar plan and also a written
instrument showing the Board's approval of such organization's becoming a party
to the Plan.
10.2 Withdrawal
Any one or more of the Employers included in the Plan may withdraw from
the Plan at any time by giving six months advance notice in writing to the Board
and the Committee (unless a shorter notice shall be agreed to by the Board) of
its or their intention to withdraw. Upon receipt of notice of any such
withdrawal, the Committee shall certify to the Trustee the equitable share of
such withdrawing Employer in the Fund (to be determined by the Committee).
The Trustee shall thereupon set aside from the Fund then held by it
such securities and other property as it shall, in its sole discretion, deem to
be equal in value to such equitable share. If the Plan is to be terminated with
respect to such Employer, the amount set aside shall be dealt with in accordance
with the provisions of Section 9.2. If the Plan is not to be terminated with
respect to such Employer, the Trustee shall pay such amount to such trustee as
may be designated by such withdrawing Employer, and such securities and other
property shall thereafter be held and invested as a separate trust of the
Employer which has so withdrawn, and shall be used and applied according to the
terms of a new agreement and declaration of trust between the Employer so
withdrawing and the trustee so designated.
Neither the segregation of the Fund assets upon the withdrawal of an
Employer, nor the execution of any new agreement and declaration of trust
pursuant to any of the
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provisions of this Section 10.2, shall operate to permit any part of the corpus
or income of the Fund to be used for or diverted to purposes other than for the
exclusive benefit of Participants and Beneficiaries or to defray reasonable
costs of administering the Plan and Trust.
10.3 Adoption of ESOP by Participating Employer
Any Employer joining the Plan which is not 100 percent owned by the
Employer must expressly provide in said joiner agreement whether the leveraging
provisions of the ESOP are being adopted by such participating Employer. If the
leveraged ESOP is not so adopted, said participating Employer shall participate
in the ESOP provisions of this Plan as may be modified in said joiner agreement,
but all specific provisions applicable to Exempt Loans and the suspense account
established pursuant to the loan shall not apply. If the ESOP provisions of the
Plan are adopted by such a non-100 percent owned participating Employer, any
Exempt Loan applicable to said participating Employer and its Participants shall
be solely the obligation of said participating Employer, and not the Employer or
any other participating Employer under the Plan, and separate accounting shall
be maintained on behalf of said participating Employer and its Participants with
only Participants employed by said participating Employer entitled to
allocations from the fund maintained for said participating Employer's Exempt
Loan. The foregoing provisions governing separate Exempt Loans and separate
groups of Employees of non-100 percent owned participating Employers shall
similarly apply to an Exempt Loan of the Employer and its 100 percent owned
Participating Employers which join the Plan, and their respective Participants,
but for this purpose a 100 percent owned participating employer may, if so
provided in its joinder agreement, join in the Employer's Exempt Loan and in
such case all participating Employer contributions by the Employer and said
Participating Employers and all accounting for shares released from the suspense
account shall be combined for Participants employed by the Employer and each
such participating Employer.
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ARTICLE XI
TOP-HEAVY PROVISIONS
11.1 Determination of Top-Heavy
(a) (1) The Plan will be considered a Top-Heavy Plan for any Plan Year
if as of the Determination Date (A) the value of the Individual Accounts of
Participants who are Key Employees as of such Determination Date exceeds 60% of
the value of the Individual Accounts of all Participants determined as of such
Determination Date, excluding former Key Employees (the "60% Test") or (B) the
Plan is part of a Required Aggregation Group which is Top-Heavy. Notwithstanding
the results of the 60% Test, the Plan shall not be considered a Top-Heavy Plan
for any Plan Year in which the Plan is a part of a Required or Permissive
Aggregation Group which is not Top-Heavy.
(2) For purposes of the 60% Test,
(A) all distributions made from Individual Accounts within the
five-year period ending on the Determination Date shall be taken into account;
(B) if any Participant is a non-Key Employee with respect to
the Plan for any Plan Year, but such Participant was a Key Employee with respect
to the Plan for any prior Plan Year, the Individual Account of such Participant
shall not be considered; and
(C) If a Participant has not performed any service for the
Employer or any Affiliate which maintains the Plan at any time during the
five-year period ending on the Determination Date, the Individual Account of
such Participant shall not be considered.
(b) Minimum Allocations: Notwithstanding Sections 4.3 and 4.4, for any
Plan Year during which the Plan is a Top-Heavy Plan, the rate of Employer
Matching Contributions and Discretionary Contributions for such Plan Year
allocated to the Individual Accounts of Participants who are non-Key Employees
and who remain employed by the Employer (or any Affiliate) at the end of the
Plan Year (regardless of any such Participant's hours of service or level of
compensation during the Plan Year) shall be not less than the lesser of:
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(1) three percent (3%) of such non-Key Employee Participant's
Section 415 Compensation; or
(2) the highest aggregate percentage of Section 415 Compensation at
which Employer Matching Contributions, Discretionary Contributions, and Employee
Pre-Tax Contributions are made (or required to be made) and allocated under
Article IV for any Key Employee for the Plan Year.
If a Participant is covered by more than one defined contribution plan
on account of his employment with the Employer and/or any Affiliate, the minimum
allocation required by this Section shall be determined by aggregating the
allocations under all such plans.
(c) (1) Notwithstanding Section 5.5, for any Plan Year in which the
Plan is a Top-Heavy Plan, a Participant who has earned at least one hour of
service during such Plan Year shall have a vested interest in those portions of
his Individual Account which are not automatically one hundred percent (100%)
vested, including allocations made to those portions of the Account in Plan
Years prior to the Plan becoming Top-Heavy, determined as follows:
================================================================================
Years of Vesting Service Vested Interest
- --------------------------------------------------------------------------------
0 0%
- --------------------------------------------------------------------------------
1 20%
- --------------------------------------------------------------------------------
2 40%
- --------------------------------------------------------------------------------
3 60%
- --------------------------------------------------------------------------------
4 or more 100%
================================================================================
(2) If the Plan ceases to be a Top-Heavy Plan, the vesting rules
set forth in Section 5.5 shall again apply except that:
(A) any portion of a Participant's Individual Account that was
vested before the Plan ceased to be a Top-Heavy Plan shall remain vested, and
(B) any Participant with three or more years of service shall
have the option to continue to have his vested interest in those portions of his
Individual Account which are not automatically one hundred percent (100%) vested
determined under this Section 11.1(c).
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(d) Impact on Minimum and Maximum Benefits where Employer Maintains
Both Defined Benefit and Defined Contributions Plans
(1) Impact on Minimum. If the Employer (or any Affiliate) maintains
a defined benefit plan in addition to this defined contribution plan, both of
which are Top-Heavy, then:
(A) in the case of non-Key Employee participants covered only
by the defined benefit plan, the minimum benefit under the defined benefit plan
shall be provided; and
(B) in the case of non-Key Employee Participants not covered by
the defined benefit plan or covered by both plans, a minimum allocation of five
percent (5%) of such non-Key Employee Participant's Section 415 Compensation
shall be provided. If a Participant is covered by more than one defined
contribution plan on account of his employment with the Employer and/or any
Affiliate, the minimum allocation required by this Section shall be determined
by aggregating the allocations under all such defined contributions plans.
(2) Impact on Maximum. If the Employer (or any Affiliate) maintains
a defined benefit plan in addition to this defined contribution plan, both of
which are Top-Heavy, Section 4.7 shall be read by substituting the number "1.00"
for the number "1.25" wherever it appears therein, unless (A) the total
aggregate accrued benefits under both such plans for Key Employees does not
exceed 90% of the total aggregate accrued benefits under both such plans for all
Employees (computed in the same manner as the determination in subsection (a)),
and (B)(i) paragraph (1) is read by substituting "seven and one-half percent (7
1/2%)" for "five percent (5%)," and (ii) in the case of non-Key Employee
participants covered only by the defined benefit plan, a minimum benefit of
three percent (3%) for each year of service (not to exceed 10) shall be
provided.
11.2 Top-Heavy Definitions
Determination Date - With respect to any Plan Year, the last day of the
preceding Plan Year.
Key Employee - Any Employee or former Employee who at any time during
the Plan Year containing the Determination Date, or the four preceding Plan
Years, is or was (1) an officer of the Employer having annual Section 415
Compensation for such Plan Year which is in excess of 50 percent of the dollar
limit in effect under Code Section
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415(b)(1)(A) for the calendar year in which such Plan Year ends (but in no event
shall the number of officers taken into account as Key Employees exceed the
lesser of (i) 50 or (ii) the greater of 3 or 10% of all employees); (2) an owner
of (or considered as owning within the meaning of Code Section 318) both more
than a 1/2 percent interest as well as one of the ten largest interests in the
Employer and having annual Section 415 Compensation greater than the dollar
limit in effect under Code Section 415(c)(1)(A) for such Plan Year; (3) a five
percent owner of the Employer; or (4) a one percent owner of the Employer who
has annual Section 415 Compensation of more than $150,000. For purposes of
determining five percent and one percent owners, neither the aggregation rules
nor the rules of subsections (b), (c) and (m) of Code Section 414 apply.
Beneficiaries of an Employee acquire the character of the Employee who performed
services for the Employer. Also, inherited benefits will retain the character of
the benefits of the Employee who performed services for the Employer. A non-Key
Employee is any Employee who is not a Key Employee, or who is a former Key
Employee.
Permissive Aggregation Group - Each employee pension benefit plan
maintained by the Employer (or any Affiliate) which is considered part of the
Required Aggregation Group, plus one or more other employee pension benefit
plans maintained by the Employer (or any Affiliate) that are not part of the
Required Aggregation Group but that satisfy the requirements of Section
401(a)(4) and Section 410 of the Code when considered together with the Required
Aggregation Group.
Required Aggregation Group - Each employee pension benefit plan
maintained by the Employer (or any Affiliate), whether or not terminated, in
which a Key Employee participates in the Plan Year containing the Determination
Date or any of the four preceding Plan Years, and each other employee pension
benefit plan maintained by the Employer (or any Affiliate), whether or not
terminated, in which no Key Employee participates but which during the same
period enables any employee pension benefit plan in which a Key Employee
participates to meet the requirements of Section 401(a)(4) or Section 410 of the
Code.
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ARTICLE XII
MISCELLANEOUS
12.1 Governing Law
The Plan shall be construed, regulated and administered according to
the laws of Massachusetts except in those areas preempted by the laws of the
United States of America.
12.2 Construction
The headings and subheadings in the Plan have been inserted for
convenience of reference only and shall not affect the construction of the
provisions hereof. In any necessary construction the masculine shall include the
feminine and the singular the plural, and vice versa.
12.3 Administration Expenses
The expenses of administering the Fund and the Plan may be paid either
by the Employer or from the Fund, as directed by the Corporation.
12.4 Participant's Rights; Acquittance
No Participant in the Plan shall acquire any right to be retained in
the Employer's employ by virtue of the Plan, nor, upon his dismissal, or upon
his voluntary termination of employment, shall he have any right or interest in
and to the Fund other than as specifically provided herein. The Employer shall
not be liable for the payment of any benefit provided for herein. All benefits
hereunder shall be payable only from the Fund.
12.5 Spendthrift Clause
Except as provided by a qualified domestic relations order within the
meaning of ERISA Section 206(d)(3), none of the benefits, payments, proceeds, or
distributions under this Plan shall be subject to the claim of any creditor of a
Participant or a Beneficiary hereunder or to any legal process by any creditor
of a Participant or Beneficiary. Neither a Participant or Beneficiary shall have
any right to alienate, commute, anticipate, or assign any of the benefits,
payments, proceeds or distributions under this Plan.
12.6 Merger, Consolidation or Transfer
In the event of the merger or consolidation of the Plan with another
plan or transfer of assets or liabilities from the Plan to another plan, each
then Participant or
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Beneficiary shall not, as a result of such event, be entitled on the day
following such merger, consolidation or transfer under the termination of the
Plan provisions to a lesser benefit than the benefit he was entitled to on the
day prior to the merger, consolidation or transfer if the Plan had then
terminated.
12.7 Mistake of Fact
Notwithstanding anything herein to the contrary, upon the Employer's
request, a Contribution which was made by a mistake of fact, or conditioned upon
initial qualification of the Plan or upon the deductibility of the Contribution
under Code Section 404, may be returned to the Employer by the Trustee within
one (1) year after the payment of the Contribution, the denial of the
qualification or the disallowance of the deduction (to the extent disallowed),
whichever is later. For purposes of the preceding sentence, all contributions to
the Plan made before receipt of a favorable determination letter on
qualification from the Internal Revenue Service shall be conditioned on the
Plan's initial qualification, and all contributions, whenever made, shall be
conditioned on their deductibility under Code Section 404.
12.8 Counterparts
The Plan and the Trust Agreement may be executed in any number of
counterparts, each of which shall constitute but one and the same instrument and
may be sufficiently evidenced by any one counterpart.
12.9 Transitional Rule
Notwithstanding any provision in this Plan to the contrary, no
contribution by or on behalf of any Participant shall be made under this Plan
for any period during which any contribution by or on behalf of such Participant
is made while such Participant is a participant in a Merged Plan.
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ARTICLE XIII
ADOPTION OF THE PLAN
Anything herein to the contrary notwithstanding, this amended and
restated Plan is adopted and maintained under the condition that it is qualified
by the Internal Revenue Service under Code Section 401(a) and that the Trust
hereunder is exempt under Code Section 501(a).
As evidence of its adoption of the restated Plan, Covance Inc. and the
participating employers have caused this instrument to be signed by its
authorized officer this ___ day of __________, 199__, effective as of
________________, except as otherwise provided herein.
Covance Inc. hereby signifies its adoption of this Plan.
ATTEST: COVANCE INC. (f/k/a Corning Pharmaceutical
Services Inc.
____________________________ By:___________________________________(SEAL)
(Title)
Date:__________________________________
Covance Preclinical Corporation Inc. hereby signifies its adoption of this Plan.
ATTEST: COVANCE PRECLINICAL CORPORATION
(f/k/a HazletonCorporation)
___________________________ By:__________________________________(SEAL)
(Title)
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Covance Clinical and Periapproval Services Inc. hereby signifies its
adoption of this Plan.
ATTEST: COVANCE CLINICAL AND PERIAPPROVAL SERVICES INC.
(f/k/a Corning Besselaar, Inc.)
____________________________ By:___________________________________(SEAL)
(Title)
Date:__________________________________
Covance Clinical Research Unit Inc., a wholly-owned subsidiary of
Covance Clinical and Periapproval Services Inc., hereby signifies its adoption
of this Plan.
ATTEST: COVANCE CLINICAL RESEARCH UNIT INC.
(f/k/a Corning Besselaar Clinical Research
Unit, Inc.)
____________________________ By:___________________________________(SEAL)
Secretary (Title)
Date:__________________________________
Covance Periapproval Services Inc., a wholly-owned subsidiary of
Covance Clinical and Periapproval Services Inc., hereby signifies its adoption
of this Plan.
ATTEST: COVANCE PERIAPPROVAL SERVICES INC.
(f/k/a Corning Pact, Inc.)
____________________________ By:___________________________________(SEAL)
(Title)
Date:__________________________________
Covance Laboratories Inc., a wholly-owned subsidiary of Covance
Preclinical Corporation, hereby signifies its adoption of this Plan.
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<PAGE>
ATTEST: COVANCE LABORATORIES INC.
(f/k/a Corning Hazleton Inc.)
____________________________ By:___________________________________(SEAL)
(Title)
Date:__________________________________
Covance Research Products Inc., a wholly-owned subsidiary of Covance
Preclinical Corporation, hereby signifies its adoption of this Plan.
ATTEST: COVANCE RESEARCH PRODUCTS INC.
(f/k/a HRP, Inc.)
____________________________ By:___________________________________(SEAL)
(Title)
Date:__________________________________
Covance Pharmaceutical Packaging Services Inc. hereby signifies its
adoption of this Plan.
ATTEST: COVANCE PHARMACEUTICAL PACKAGING SERVICES INC.
(f/k/a Corning National Packaging, Inc.)
____________________________ By:___________________________________(SEAL)
(Title)
Date:__________________________________
Covance Central Laboratory Services Inc. hereby signifies its adoption
of this Plan.
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<PAGE>
ATTEST: COVANCE CENTRAL LABORATORY SERVICES INC.
(f/k/a Corning Scicor, Inc.)
____________________________ By:___________________________________(SEAL)
(Title)
Date:__________________________________
Covance Health Economics and Outcome Services Inc. hereby signifies its
adoption of this Plan.
ATTEST: COVANCE HEALTH ECONOMICS AND OUTCOME SERVICES INC.
(f/k/a Corning HTA Inc.)
____________________________ By:___________________________________(SEAL)
(Title)
Date:__________________________________
Covance Biotechnology Services Inc., hereby signifies its adoption of
this Plan.
ATTEST: COVANCE BIOTECHNOLOGY SERVICES INC.
____________________________ By:___________________________________(SEAL)
(Title)
Date:__________________________________
Covance Central Laboratory Limited Partnership (d/b/a Covance Central
Laboratory Services Inc. f/k/a Corning SciCor Limited Partnership), hereby
signifies its adoption of this Plan.
ATTEST: COVANCE CENTRAL LABORATORY LIMITED PARTNERSHIP
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<PAGE>
(d/b/a Covance Central Laboratory Services Inc.
f/k/a Corning SciCor Limited Partnership)
____________________________ By:___________________________________(SEAL)
Secretary (Title)
Date:__________________________________
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Supplement A
TO
THE STOCK PURCHASE SAVINGS PLAN
OF
COVANCE INC.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
A-1 Purpose. The purpose of this Supplement A to the Plan is to set forth the
terms of the Plan as applied to the portion of the ESOP attributable to Exempt
Loans as described in subsection A-4.
A-2 Effective Date. The effective date of this Supplement A is December 31,
1996.
A-3 Participation. Each Participant in the Plan on the Effective Date of this
Supplement A shall immediately become a Participant in this Supplement A. Every
other person who thereafter becomes a Participant in the Plan shall at the same
time become a Participant in this Supplement A.
A-4 Exempt Loan. Any loan to the Plan or Trust not prohibited by section 4975(c)
of the Code, including a loan which meets the requirements set forth in section
4975(d)(3) of the Code and the regulations promulgated thereunder, the proceeds
of which are used to finance the acquisition of ESOP Stock or to refinance such
a loan. An Exempt Loan shall be for a specific term, shall bear a reasonable
rate of interest and shall not be payable on demand except in the event of
default. An Exempt Loan may be secured by a pledge of the financed shares so
acquired (or acquired with the proceeds of a prior Exempt Loan which is being
refinanced). No other Trust Fund assets may be pledged as collateral for an
Exempt Loan, and no lender shall have recourse against Trust Fund assets other
than any financed shares remaining subject to pledge. If the lender is a party
in interest (under ERISA), the Exempt Loan must provide for a transfer of Trust
Fund assets on default only upon and to the extent of the failure of the Trust
to meet the payment schedule of the Exempt Loan. Any pledge of financed shares
must provide for the release of the shares so pledged as payments on the Exempt
Loan are made by the Trustee and such financed shares are allocated to
Participants' accounts. Payments of
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<PAGE>
principal on any Exempt Loan shall be made by the Trustee (as directed by the
Committee) only from Employer contributions paid in cash under the Plan to
enable the Trust to repay such Exempt Loan, from earnings attributable to such
Employer contributions and from any cash dividends received by the Trust on such
financed shares or dividends on such other shares of Employer Stock as is
permitted under Code section 404(k).
A-5 Investment of Exempt Loan Proceeds. The Employer may direct the Trustee to
enter into one or more Exempt Loans to finance the acquisition of ESOP Stock.
Proceeds from an Exempt Loan may be used to acquire ESOP Stock from the
Employer's shareholders or directly from the Employer. If such shares are
purchased from the Employer, no commission may be charged with respect thereto
and the sale price shall not be more than the fair market value thereof, defined
for this purpose with respect to the Employer's common stock to be said common
stock's New York Stock Exchange (or other national stock exchange) closing price
on the first business day immediately preceding the date of sale. There shall be
no limit on the amount of stock of the Employer which may be held at any one
time by the Trustee in the Trust Fund regardless of the percentage which such
stock so held bears to the assets of the Trust Fund or to the outstanding shares
of stock of the Employer or for any other reason.
Notwithstanding any other provision of the Plan, all proceeds of an Exempt Loan
shall be used, within a reasonable time after receipt by the Trust Fund, for the
following purposes:
(a) To acquire ESOP Stock;
(b) To repay the same Exempt Loan; or
(c) To repay any previous Exempt Loan.
ESOP Stock acquired by the Trust Fund through an Exempt Loan shall be initially
maintained in a Suspense Account and shall thereafter be released from suspense
and allocated to Participants' ESOP Accounts as hereinafter provided.
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<PAGE>
A-6 Supplement A Cash Equivalents Fund. All cash dividends on Employer Stock
held in a Suspense Account which are not allocated to Participants' accounts or,
in the case of allocated shares, which the Employer directs are to be used to
make payments on Exempt Loans and all Employer Matching Contributions required
under Section A-7 shall be credited to the Supplement A Cash Equivalents Fund
pending their application to Exempt Loan payments. Except as provided under
Section 7.5, all such dividends and all earnings of the Supplement A Cash
Equivalents Fund shall be used to make principal payments on outstanding Exempt
Loans to the extent then due. In the event that the amount of such dividends and
earnings exceeds the amount of principal payable on that date, the excess shall
be applied until exhausted to interest payable on that date, and principal and
interest payments due thereafter. Notwithstanding the preceding sentences of
Section A-6, in lieu of making payments on outstanding Exempt Loans, the
Committee may direct that all or any amount of cash dividends received with
respect to Employer Stock allocated to participants' accounts shall be credited
proportionately to such Participants' Accounts pending investment in the
Employer Stock Fund. Any amount that is applied to make a payment on an
outstanding Exempt Loan after the last day of a plan year (the "prior plan
year"), but on or before the due date (including extensions thereof) for the
filing of the federal income tax return of the Employer for the tax year in
which the last day of such prior plan year occurs, may be designated by the
employers as a payment with respect to such prior plan year.
A-7 Coordination with Employer Contributions. For each Plan Year the Employer
shall make contributions under this Section A-7 which, after taking into account
the use of dividends and earnings in accordance with Section A-6, are sufficient
to meet all scheduled payments of principal and interest on outstanding Exempt
Loans. Employer contributions under Sections 3.2 (matching) and 3.3
(discretionary) shall be applied against payments on any Exempt Loan to the
extent the Committee in its sole discretion shall determine and ESOP Stock shall
then be released. An Employer's obligations to contribute under Sections 3.2 and
3.3 shall be reduced for such month by the fair market value as of the date of
release of the ESOP Stock so released or otherwise allocated as below provided.
To the extent said fair market value is less than said Employer's obligations
under Sections 3.2 and 3.3 for any such month, the Employer shall make further
contributions to the Trust Fund to fully meet said obligations. For each Plan
Year,
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<PAGE>
if for a calendar month the fair market value as of the date of release of the
shares so released is in excess of the Employer's obligations to contribute
under Sections 3.2 and 3.3 for such month, the shares released for said month
representing the excess ("excess shares") shall continue to be held by the
Trustee and shall thereafter be allocated to the Participants' Employer Matching
Accounts in the following manner: first, if in a succeeding calendar month
within said Plan Year, the fair market value of the shares so released for said
month are less than the Employer's obligations to contribute under Sections 3.2
and 3.3 for said month, then "excess shares" remaining unallocated for any prior
calendar month in said Plan Year shall be allocated to the Participants'
Matching Contribution Accounts to the extent that said Employer obligations
exceed the value of the released shares, and for this purpose said "excess
shares" to be so allocated shall be valued at the same value as the value of the
shares released for said month; and second, if as of the last day of the Plan
Year there remain "excess shares" which have not been allocated to Participants'
Matching Contribution Accounts as aforesaid, said "excess shares" shall be
allocated as of the last day of the Plan Year to the Participants' Matching
Contribution Accounts, as the Committee may determine in its sole discretion on
a year-to-year basis, in direct proportion to the value (determined as of the
date allocated to the Participants' Matching Contribution Accounts) of those
shares released and allocated to the Fund so determined by the Committee,
together with all other Employer contributions to Participants' Matching
Contribution Accounts for said Plan Year. In addition to the foregoing
contributions, in any Plan Year, the Employers may make supplemental
contributions to be used by the Trustee to prepay any Exempt loan, to pay
expenses of the Plan and any related trust and to satisfy the dividend
requirements for that year with respect to Employer Stock allocated to
Participants' Employer Matching Accounts. All Employer Matching Contributions
shall be used to make payments on Exempt Loans to the extent required to meet
any scheduled payments of principal and interest after taking into account the
use of dividends and earnings in accordance with Section A-6.
A-8 Release of Employer Stock From Suspense Account. As of the last day of each
Plan Year, of each calendar quarter in the case of the Employer Stock allocable
for the year as dividend replacements under paragraph A-9(a), or of such other
period provided under the terms of an Exempt Loan, throughout the duration of an
Exempt Loan, a portion of the Employer Stock acquired with the proceeds of such
Exempt Loan shall be
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<PAGE>
withdrawn from the Suspense Account and allocated to eligible Participants'
Matching Contribution Accounts in accordance with the provisions of Section A-9.
(a) Subject to the provisions of paragraph (b) below, the number
of shares of Employer Stock which shall be released from the
Suspense Account for any plan year (calculated separately with
respect to each Exempt Loan) shall be equal to the product of:
(i) the number of shares of Employer Stock acquired with
the proceeds of the Exempt Loan
Multiplied by
(ii) a fraction, the numerator of which is the amount of
principal and interest paid on that loan for that
Plan Year and the denominator of which is the amount
of principal and interest paid or payable on that
loan for that Plan Year and for all future years.
For purposes of determining the fraction in (ii), if the
interest rate under the Exempt Loan is variable, the interest
rate to be paid in future months shall be assumed to be equal
to the interest rate applicable as of the applicable month.
(b) Notwithstanding the provisions of paragraph (a) above, if
provided by the terms of an Exempt Loan or directed by the
Committee prior to the first payment of interest on any Exempt
Loan, the number of shares of Employer Stock attributable to
such Exempt Loan which are withdrawn from the Suspense Account
for any Plan Year shall be proportionate to principal payments
only, provided that:
(i) such withdrawal is consistent with the provisions of
the Exempt Loan with respect to the release of
Employer Stock as collateral, if any, for such loan;
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<PAGE>
(ii) the Exempt Loan provides for annual payments of
principal and interest at a cumulative rate that is
not less rapid at any time than level annual payments
of such amounts for ten years;
(iii) interest is disregarded for purposes of determining
such release only to the extent that it would be
determined to be interest under standard loan
amortization tables; and
(iv) the term of the ESOP Loan, together with any renewal,
extension or refinancing thereof, does not exceed ten
years.
(c) Notwithstanding the foregoing, in the event such Exempt Loan
shall be repaid with the proceeds of a subsequent Exempt Loan
(the "Substitute Loan"), such repayment shall not operate to
release all such ESOP Stock in the suspense account, but,
rather, such release shall be effected pursuant to the
foregoing provisions of this Section on the basis of payments
of principal and interest on such Substitute Loan.
(d) If at any time there is more than one Exempt Loan outstanding,
then separate Suspense Accounts may be established for each
such Loan. Each Exempt Loan for which a separate Suspense
Account is maintained may be treated separately for purposes
of the provisions governing the release of ESOP Stock from
suspense under this Section and for purposes o the provisions
governing the application of Employer contributions to repay
an Exempt Loan.
A-9 Allocation and Crediting of Employer Stock to Employer Match Accounts and
Application to Plan Limitations. Employer Stock released from the Suspense
Account during any Plan Year shall be allocated and credited as follows:
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<PAGE>
(a) To the extent that dividends on Employer Stock previously
allocated to the Individual Account of a Participant have been
used to make payments on an Exempt Loan, such account shall be
credited with Employer Stock with a fair market value
determined as of the last day of the month preceding the month
of the dividend payment date equal to the amount of such
dividend.
(b) As of each calendar month, any Employer Stock released from
the Suspense Account during the Plan Year ending on that date
and not credited in accordance with paragraph (a) shall be
credited to the Employer Matching Accounts of eligible
Participants pursuant to Section 4.3, in order to satisfy the
obligation under Section 3.2.
(c) For purposes of Section 4.6 of the Plan, Employer Matching
Contributions for any Plan Year which are utilized to make any
payment of principal or interest on an Exempt Loan shall be
deemed to have been allocated among Participants in the same
ratios as the number of shares of Employer Stock released from
the Suspense Account as credited in accordance with paragraph
(b) above, without regard to the value of the Employer Stock
released from the Suspense Account.
(d) All Employer Stock allocated to Participants in accordance
with paragraph (b) above shall be treated as Employer Matching
Contributions for purposes of Section 3.2 and as "Matching
Contributions" for purposes of section 401(m) of the Internal
Revenue Code.
(e) It is intended that the provisions of this Supplement A shall
be applied and construed in a manner consistent with the
requirements and provisions of Treasury Regulations ss.
54.4975-7(b) (8), and any successor regulation thereto. The
number of shares allocable to a Participant's Matching
Contribution Account shall be the number of shares which bears
the same ratio to the total shares released for such month and
allocable to the contribution made by or on behalf of such
Participant by his participating Employer under Sections 3.2
and 3.3 for such month bears to the total
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<PAGE>
Employer contributions under Sections 3.2 and 3.3 made on
behalf of all such Participants for such month, provided,
however, that the fair market value of the shares so allocated
as of the date of such allocation shall not exceed the
Employer's obligation to contribute under such Sections on
behalf of such Participant for such month, and any shares in
excess of said participating Employer obligations ("excess
shares") for all Participants are to be then allocated as
described above in Section A-7.
(f) Notwithstanding the foregoing provisions of this Section, if
more than one-third of the total allocations to Participants'
accounts with respect to a Plan Year would be allocated in the
aggregate to the accounts of Highly Compensated Employees and
attributable to the Employer Matching Contribution allocated
to Employer Stock, then the allocations to the accounts of
Highly Compensated Employees shall be reduced, pro rata, in an
amount sufficient to reduced the amounts allocated to the
accounts of such Participants to an amount not in excess of
one- third of the total allocations to Participants' accounts
with respect to such Plan Year and any shares of Employer
Stock which are prevented from being allocated due to said
restriction shall be allocated as though Highly Compensated
Employees did not participate in the Plan.
A-10 Diversification Election By Participants. A Qualified Participant is
eligible to elect a diversification of Employer Stock under the conditions
specified in Section 2.6.
A-11 Put Option. Employer Stock acquired with the proceeds of an Exempt Loan
must be subject to a put option, if at the time of its distribution it is either
subject to a trading limitation, or is not publicly traded. For purposes of this
paragraph (b), a "trading limitation" on a security is a restriction under any
Federal or state securities law, any regulation thereunder, or an agreement, not
prohibited by Treasury regulations Section 54.4975-7(b) affecting the security
so as to make the security not as freely tradable as one not subject to such a
restriction. The put option must be exercisable only by a Participant, a
Beneficiary or by any donee of the Participant or by a person to whom the
security passes by reason of a Participant's death. The put option must permit a
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Participant to put the security to the Corporation, and it may grant the trust
an option to assume the rights and obligations of the Corporation at the time
that the put option is exercised, but under no circumstances may the put option
bind the Trust. If it is known at the time an Exempt Loan is made that Federal
or state law will be violated by the Corporation's honoring such a put option,
the put option must permit the security to be put, in a manner consistent with
such law, to a third party (for example but without limitation, to an Affiliate
or a shareholder other than the Trust) that has substantial net worth at the
time the Exempt Loan is made and whose net worth is reasonably expected to
remain substantial. A put option must be exercisable at any time during a period
or periods which include at least (A) sixty (60) days beginning on the date the
security subject to the put option is distributed by the Trustee and (B) sixty
(60) days in the next following Plan Year, in accordance with regulations issued
pursuant to Section 409 of the Code. In the case of a security that is publicly
traded without restriction when distributed, but ceases to be so traded within
the put option period(s) set forth above, the Corporation must notify each
security holder in writing on or before the tenth (10th) day after the date the
security ceases to be so traded that during the remainder of such period(s) the
security is subject to put option. The number of days between such tenth (10th)
day and the date on which notice is actually given, if later than the tenth
(10th) days, must be added to the duration of the put option. The notice must
inform distributees of the terms of the put options that they are to hold. The
price at which a put option must be exercisable is the value of the security, as
determined under Treasury Regulations Section 54.4975-11(d)(5). The provisions
for payment under a put option must provide that the Corporation or the Trust if
the Plan so elects, shall repurchase the Employer Securities as follows:
(A) If the distribution constitutes a total distribution within
the meaning of Section 409(h)(5) of the Code, payment of the
fair market value of the repurchased Employer Securities shall
be made in five (5) substantially equal annual payments, of
which the first shall be paid not later than thirty (30) days
after the Participant exercises the put option. The purchaser
will pay a reasonable rate of interest and provide adequate
security on amounts not paid after thirty (30) days;
A9
<PAGE>
(B) If the distribution does not constitute a total distribution,
the purchaser shall pay the Participant an amount equal to the
fair market value of the Employer Stock repurchased no later
than thirty (30) days after the Participant exercises the put
option.
A10
<PAGE>
SUPPLEMENT B
TO
THE STOCK PURCHASE SAVINGS PLAN OF COVANCE INC.
SUPPLEMENTAL LIST OF PARTICIPATING EMPLOYERS
<TABLE>
<S> <C>
Participating Employer Formerly Known As
Covance Inc. (Parent) Corning Pharmaceutical Services Inc.
Covance Clinical and Periapproval Services Inc. Corning Besselaar Inc.
Covance Clinical Research Unit Inc. Corning Besselaar Clinical Research Unit
Inc.
Covance Periapproval Services Inc. Corning Pact Inc.
Covance Preclinical Corporation Hazleton Corporation
Covance Laboratories Inc. Corning Hazleton Inc.
Covance Research Products Inc. HRP Inc.
Covance Central Laboratory Services Inc. Corning SciCor Inc.
Covance Central Laboratory Limited Corning SciCor Limited Partnership
Partnership (dba Covance Central Laboratory
Services Inc.)
Covance Pharmaceutical Packaging Services Inc. Corning National Packaging Inc.
Covance Health Economics and Outcome Services Corning HTA Inc.
Inc.
Covance Biotechnology Services Inc. Corning Bio Inc.
</TABLE>
B1
COVANCE INC.
EMPLOYEE EQUITY PARTICIPATION PROGRAM
<PAGE>
-
COVANCE INC.
EMPLOYEE EQUITY PARTICIPATION PROGRAM
1.Purpose
The Employee Equity Participation Program (the "Program") is intended to
encourage executive, managerial, technical and other employees of (i) Covance
Inc. (the "Corporation"), (ii) any "subsidiary corporation" of the Corporation
within the meaning of Section 424 of the Internal Revenue Code of 1986, as
amended (the "Code") or of any successor section, or (iii) any other entity in
which the Corporation holds beneficially at least one-half of the ownership
interest (such entity or "subsidiary corporation" being referred to herein as a
"Subsidiary") to become owners of stock of the Corporation in order to increase
their proprietary interest in the Corporation's success; to stimulate the
efforts of certain key executive, managerial, technical and other employees by
giving suitable recognition to services which contribute materially to the
Corporation's success; and to provide such employees with additional incentive
and reward opportunity based, in part, upon the attainment of predetermined
goals over specified periods. The Program shall consist of two plans: (a) the
Stock Option Plan and (b) the Incentive Stock Plan.
2.Administration
The Program shall be administered by a committee of disinterested persons
appointed by the Board of Directors of the Corporation, to be known as the
"Compensation Committee" (the "Committee"), consisting of not less than three
members of the Corporation's Board of Directors and each member of which shall
be a "non-employee director" within the meaning of Rule 16b-3(d)(1) promulgated
under the Securities Exchange Act of 1934 (the "1934 Act") or any successor
thereto and an "outside director" within the meaning set forth in regulations
promulgated under Section 162(m) of the Code. In addition, no member of the
Committee shall be an officer or employee of the Corporation or a subsidiary
thereof, a former officer of the Corporation, a former employee of the
Corporation who receives compensation for prior services (other than benefits
under a tax-qualified retirement plan) during the taxable year or any other
person who receives directly or indirectly in any capacity (other than as a
director) remuneration in excess of the lesser of $60,000 or 5 percent of the
gross income realized by the entity employing such member during such entity's
taxable year ending with or within the Corporation's taxable year or any person
who is a member of a law firm retained by, or a partner or executive officer of
an investment banking firm that performs services for, the Corporation. No
member of the Committee shall have been eligible to participate in the Program
in the preceding year nor be eligible to participate in the Program while
serving on the Committee. The Committee shall select periodically the executive,
managerial, technical and other employees who shall participate in the Program
and the extent of their participation in any particular Plan under the Program
and shall report such selections and levels of participation to the Board of
Directors.
<PAGE>
The Committee's interpretation and construction of any provisions of this
Program or any Plan or any right, option or award granted or contract executed
under it shall be final unless otherwise determined by the Board of Directors,
which determination shall be final. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith.
3.Eligibility
The Committee shall from time to time select the executive, managerial,
technical and other employees (including officers and employees who are
directors) of the Corporation and of any Subsidiary who shall be eligible to
participate in any Plan under the Program.
4.Stock
The shares subject to options, grants or incentive stock rights under the
Program shall be shares of the Corporation's Common Stock par value $.01 per
share, either authorized but unissued or issued and held in treasury or such
other securities as may be issued by the Corporation in substitution therefor.
The total amount of the Common Stock of the Corporation which may be (i) sold
pursuant to options granted under the Stock Option Plan and (ii) granted, or
issued pursuant to incentive stock rights awarded, under the Incentive Stock
Plan shall not exceed 6,000,000 shares. There may be awarded under the Incentive
Stock Plan in lieu of shares the cash equivalent thereof valued at the date that
the Committee determines whether, or to what extent, performance objectives have
been met. In each case, the number of shares shall be subject to adjustment in
accordance with the provisions of Section 5.
Shares from the unexercised portion of the options which expire or of the
options which are terminated during the period when options may be granted and
shares forfeited or not earned under the Incentive Stock Plan may again either
(i) be the subject of an option under the Stock Option Plan or (ii) be awarded
or be the subject of rights granted under the Incentive Stock Plan. Shares of
the Common Stock of the Corporation used by an optionee as full or partial
payment to the Corporation for the purchase price of shares subject to an option
agreement, the terms of which explicitly provide for the grant of an additional
option as contemplated by Section 6(a)(i) hereof, shall again be made available
for use under the Program. Shares otherwise surrendered upon the exercise of
stock options may not again be the subject of options or awards granted under
the Program. Shares surrendered under the Program in payment of taxes due upon
the exercise of stock options or upon the recognition of income for shares
issued under the Incentive Stock Plan may not again be issued under the Program.
No single eligible employee under the Stock Option Plan may receive grants of
stock options covering in excess of 600,000, or 10% of the total, shares
authorized under the Program.
5.Recapitalization
The number of shares of Common Stock which may be granted, awarded or
earned under the Incentive Stock Plan or made subject to options granted under
the Stock Option Plan in the aggregate and to any single eligible employee, the
number of shares covered by each outstanding option, and the price per share
thereunder, and the number of shares granted or subject to incentive stock
rights under the Incentive Stock Plan shall all be proportionally adjusted for
any increase or decrease in the number of issued shares of Common Stock of the
Corporation resulting from a subdivision or consolidation of shares or other
capital adjustment, the distribution of shares of capital stock to stockholders
of the Corporation, the payment of a stock dividend or other increase or
decrease in such shares effected without receipt of consideration by the
Corporation, or any distribution or spin-off of assets (other than a normal cash
dividend) to the stockholders of the Corporation.
Subject to any required action by the stockholders, if the Corporation
shall be the surviving corporation in any merger or consolidation, any option
granted under the Stock Option Plan and any incentive stock right granted under
the Incentive Stock Plan shall apply to the securities to which a holder of the
number of shares of Common Stock subject to the option or such right, as the
case may be, would have been entitled before the occurrence of such event. A
dissolution or liquidation of the Corporation, or a merger or consolidation in
which the Corporation is not the surviving corporation, shall cause every option
outstanding under the Stock Option Plan to terminate, except that the surviving
corporation may, in its absolute and uncontrolled discretion, tender an option
or options to purchase its shares on terms and conditions, both as to number of
shares and otherwise, which will substantially preserve the rights and benefits
of any option then outstanding under the Stock Option Plan. Upon the dissolution
or liquidation of the Corporation, or upon the effective date of any merger or
consolidation in which the Corporation is not the survivor and in which the
survivor has not tendered options as provided in the preceding sentence, the
Corporation shall deliver to each optionee whose incentive stock options are
being terminated an amount in cash equal to the difference between the option
price and the fair market value of a share of the Corporation's Common Stock
determined in good faith by the Committee. In the case of such a merger or
consolidation in which the Corporation is not the survivor, the Corporation
shall also deliver to each person whose incentive stock options are being
terminated and to each person who had exercised an incentive stock option and
who was holding the shares so purchased for long-term capital gains treatment an
amount equal to the difference between the federal income tax which the person
would be required to pay as a result of being unable to hold such shares for
long-term capital gains purposes (assuming a sale price equal to the fair market
value as provided above) and the tax such person is required to pay as a result
of having to dispose of shares on account of such merger or consolidation.
In the event of a change in the Corporation's presently authorized Common
Stock which is limited to a change of authorized shares with par value into the
same number of shares with a different par value or into the same number of
shares without par value, the shares resulting from any such change shall be
deemed to be Common Stock within the meaning of the Program.
6.Stock Option Plan
(a) The Committee may from time to time grant options, including but not
limited to performance-based stock options and incentive stock options
permitted by Section 422 of the Code, to purchase shares of Common
Stock, evidenced by agreements in such form as the Committee may, from
time to time, approve, containing in substance the following terms and
conditions:
(i) The option price shall be payable in full upon the exercise
of the option and may be paid either in United States dollars,
or under rules established and maintained from time to time by
the Committee, in shares of the Common Stock of the Corporation
owned by the optionee, or a combination of cash and shares.
Under such rules, an optionee paying the purchase price of an
option in already-owned, freely transferable, unencumbered
shares of Common Stock of the Corporation may receive new
options to purchase shares of Common Stock of the Corporation at
the then current market price (being the mean between the high
and low selling prices of the Corporation's Common Stock on the
New York Stock Exchange on the date of exercise) for the same
number of shares surrendered upon exercise of the original
option. In no circumstance will the total number of shares
subject to the new option granted exceed the number of shares
surrendered upon exercise of the original option, will the new
option be exercisable within twelve months of the date of
exercise or will the new option have a life beyond that of the
original option.
Shares of the Corporation's Common Stock shall be valued at the
mean between the high and low selling prices of the
Corporation's Common Stock on the New York Stock Exchange on the
date of exercise.
(ii) The option shall state the total number of shares to which it
pertains.
(iii) The option price shall be not less than 100% of the fair
market value of the shares on the date of the granting of the
option.
(iv) Each option granted under the Stock Option Plan shall
expire on the date designated by the Committee but in no event
more than ten years from the date the option is granted.
(v) The Committee may in its discretion provide that an option
may not be exercised in whole or in part for any period or
periods of time specified by the Committee. Except as may be so
provided by the Committee and except as otherwise provided
herein, any option may be exercised in whole at any time or in
part from time to time after the option has vested in accordance
with the terms of the applicable agreement and during its term;
provided, however, that in no circumstance will an option under
the Stock Option Plan become exercisable in less than twelve
months from the date of grant.
(vi) The aggregate fair market value (determined as of the time
the option is granted) of the stock for which any employee may
be granted incentive stock options under this Plan or any other
plans of the Corporation or any subsidiary of the Corporation
shall not exceed $100,000 (or such other limit as may be in
effect from time to time under Section 422 of the Code or any
statutory successor thereto) in any calendar year in which such
option or any portion thereof first becomes exercisable pursuant
to the terms of the agreement between such employee and the
Corporation.
(vii) If, in the opinion of counsel for the Corporation, the
listing, registration or qualification of the shares subject to
option under any securities exchange or under any state or
Federal law, or the consent or approval of any governmental
regulatory body, or an exemption from registration, is necessary
or desirable, each option shall be subject to the requirement
that such option may not be exercised in whole or in part unless
such listing, registration, qualification, consent, approval or
exemption shall have been effected or obtained free of any
conditions not acceptable to the Committee.
(viii) An optionee shall have no rights as a stockholder with
respect to shares covered by his option to purchase until the
date of the issuance or transfer of the shares to him and only
after such shares are fully paid. No adjustment will be made for
dividends or other rights for which the record date is prior to
the date of such issuance or transfer, except as provided in
Section 5.
(ix) The option agreements authorized under the Stock Option
Plan shall contain such other provisions not inconsistent with
this Program as the Committee may deem advisable.
(b) Options may be granted under the Stock Option Plan from time to time
in substitution for stock options held by consultants to or directors or
employees of other corporations who are about to become and who do
concurrently with the grant of such options become consultants to or
directors or employees of the Corporation or a Subsidiary as the result
of a merger or consolidation of the employing corporation with the
Corporation or a Subsidiary, or the acquisition by the Corporation or a
Subsidiary of the assets of the employing corporation, or the
acquisition by the Corporation or a Subsidiary of stock of the employing
corporation as the result of which it becomes a Subsidiary. The terms
and conditions of the substitute options so granted may vary from the
terms and conditions set forth in Section 6 of this Program to such
extent as the Committee at the time of grant may deem appropriate to
conform, in whole or in part, to the provisions of the stock options in
substitution for which they are granted. Options granted under this
paragraph (b) or pursuant to the terms of the agreements contemplated by
Section 6(a)(i) hereof shall not reduce the shares available for
options, grants or incentive stock rights under the Program as set forth
in Section 4 hereof.
(c) If the optionee's employment by the Corporation or a Subsidiary
shall terminate, his option shall terminate unless otherwise determined
by the Committee, or specific provision has been otherwise made as
evidenced by the terms of the option agreement approved by the
Committee. The Committee shall have full power and authority to
determine whether, to what extent and under what circumstances any
option shall be exercisable, suspended or canceled in the event of an
optionee's termination of employment.
If an optionee dies while in the employ of the Corporation or a
Subsidiary, or within three months after termination of employment with
options exercisable pursuant to action taken by the Committee or
otherwise in accordance with the preceding sentences, the optionee's
estate, personal representative or beneficiary shall have the right to
exercise such option in accordance with the terms of the option
agreement with respect to all shares subject to option on the date of
death.
If an optionee shall be transferred from the Corporation to a
Subsidiary or from a Subsidiary to the Corporation or from a Subsidiary
to another Subsidiary, his employment shall not be deemed to have
terminated. If an optionee shall be employed by a corporation or an
entity which ceases to be a Subsidiary, the Committee may, subject to
the provisions of clauses (iv) and (v) of Paragraph (a) of this Section
6, permit the participant to exercise options held for such period of
time as it determines with respect to all shares which were available
for purchase by the optionee on the date the corporation or entity
ceased to be a Subsidiary.
7.Incentive Stock Plan
The Committee may from time to time award shares of Incentive Stock and grant
incentive stock rights, or either, to eligible employees on the terms set forth
herein.
(a) "Incentive Stock" shall be shares of the Corporation's Common Stock
awarded pursuant to the terms of the Incentive Stock Plan.
(b) An "incentive stock right" shall, subject to the terms, conditions and
limitations of this Section 7, give the holder thereof the right to
receive in consideration of services performed for, but without payment
of cash to, the Corporation such shares of Common Stock, cash or a
combination of the two as the Committee may determine.
(c) Subject to the limitations of Section 4, the Committee shall from time to
time select, and report to the Board of Directors, (i) the individual
employees who are to receive shares of Incentive Stock or incentive stock
rights, or a combination thereof, (ii) the number of shares of Incentive
Stock a designated employee is to receive, either directly or upon
maturation of an incentive stock right, (iii) whether ownership of, or
any portion of, such shares of Incentive Stock is to be vested in the
designated employee without the possibility of forfeiture or other
restrictions at the time of the Committee's action or at one or more
specified dates in the future, (iv) whether ownership of such, or any
portion of such, shares of Incentive Stock is to be vested in the
designated employee at the time of the Committee's action, but subject to
the possibility of forfeiture or other restrictions, and (v) the specific
dates from the date of the Committee's award over which the possibility
of forfeiture or other restrictions are to lapse.
Shares of Incentive Stock shall be issued in the name of, and distributed
to, those employees from time to time designated by the Board as
recipients of Incentive Stock as follows:
(1) Each employee designated as a recipient of shares of Incentive
Stock shall receive, promptly after the date or dates the
Committee determines the number of such shares which such employee
is to receive not subject to the possibility of forfeiture and
other restrictions, one or more stock certificates registered in
the name of the designated employee for such number of shares, the
ownership of which is vested non-forfeitably and without
restriction in such employee; and
(2) Certificates covering shares of Incentive Stock subject to the
possibility of forfeiture and other restrictions shall be issued
promptly after the date or dates the Committee determines the
number of such shares to be issued in the name of the designated
employee but held by the Corporation as provided in clause (e)
below.
(d) The shares which are granted subject to restrictions and the possibility
of forfeiture (and all shares issued or distributed by means of
dividends, splits, combinations, reclassifications, or other capital
changes thereon) (i) may not be sold, assigned, transferred, pledged or
otherwise encumbered, except (a) for gifts to a spouse, ancestors, or
descendants, or to trusts for their benefit and (b) pursuant to the
qualified domestic relations orders referred to in Section 9 hereof,
subject, however, in each such case to the restrictions and possibility
of forfeiture applicable to such shares and (ii) except as otherwise
provided in an agreement approved by the Committee are to be forfeitable
to the Corporation upon termination of employment for any reason other
than death, disability approved by the Corporation or retirement with the
consent of the Corporation. The restrictions and possibility of
forfeiture imposed by this clause (d) shall lapse at such time and in
such proportions as the Committee shall, subject to limitations of clause
(c) above, determine.
(e) Each certificate issued in respect of shares granted under the Incentive
Stock Plan subject to restrictions on transfer and the possibility of
forfeiture shall be registered in the name of the employee but shall be
held by the Corporation in safekeeping for the employee and until such
restrictions and the possibility of forfeiture shall lapse. Such
certificates shall bear a legend substantially as follows:
"The transferability of this certificate and the shares of stock
represented hereby are restricted and the shares are subject to the
further terms and conditions (including forfeiture) contained in the
Incentive Stock Plan of Covance Inc. and an agreement executed pursuant
thereto. A copy of such Plan and such agreement are on file in the office
of the Secretary of Covance Inc., Princeton, New Jersey."
(f) An employee who is to receive shares of Incentive Stock only upon the
expiration of certain specified periods or who is the holder of an
incentive stock right shall have no rights as a stockholder with respect
to any shares which may become vested in, or be awarded to, him, as the
case may be, until such shares have been actually issued.
(g) The value of shares of the Incentive Stock or the value of the shares of
Common Stock granted by the Corporation to the holder of an incentive
stock right shall be the mean between the high and low selling prices of
the Corporation's Common Stock on the New York Stock Exchange on the date
the Committee determines that the applicable performance objectives were
met or the date the possibility of forfeiture shall terminate, as the
case may be.
(h) At the time an incentive stock right is granted, the Committee shall
establish with respect to each holder one or more performance periods and
performance objectives. If the objectives have been met and are being
maintained at the end of the applicable performance period to the
satisfaction of the Committee, the holder of the incentive stock right
shall receive promptly the shares and/or cash which are subject to the
agreement referred to below.
(i) Any provisions hereof the contrary notwithstanding, the Committee shall
have the authority and the power to adjust performance periods,
performance objectives and the number of shares which may be awarded
pursuant to an incentive stock right if it determines that conditions so
warrant. Such conditions may include, but need not be limited to, changes
in functional responsibilities of a holder of an incentive stock right,
changes in laws or government regulations, changes in accounting
treatment or in generally accepted accounting principles, acquisitions,
dispositions or distributions deemed to be material, or extraordinary
events which significantly impact consolidated financial performance.
(j) Incentive stock rights shall be evidenced by agreements in such form and
not inconsistent with the Incentive Stock Plan as the Committee shall
approve from time to time, which agreements shall, among other things,
contain in substance the following terms, conditions and provisions:
(i) The number of shares to which the incentive stock right relates
and whether such rights are to be paid in shares, in cash or in
a combination or the two;
(ii) The length of the performance period or periods;
(iii) The performance objectives applicable to an individual granted
an incentive stock right, which objectives may relate, but shall
not be limited, to overall corporate performance measures, such
as earnings per share, return on stockholders' equity and return
on capital, or to divisional, subsidiary or other business unit
performance measures, or to a combination of each; and
(iv) Such other rules, as determined by the Committee, governing the
continuation of an incentive stock right after the holder
terminates, either voluntarily or involuntarily, his employment
with the Corporation.
(k) Unless otherwise determined by the Committee or set forth in the
agreement contemplated by subsection (j) above, if the holder of an
incentive stock right shall cease to be employed by the Corporation or a
Subsidiary, his incentive stock right shall terminate immediately.
However, if employment is terminated on account of death, retirement or
termination of employment with the consent of the Corporation (including
termination by reason of retirement, disability or a Subsidiary ceasing
to be such), the Committee may award to such employee such shares or cash
at such time and under such conditions as it shall in its sole discretion
determine.
8. Amendment and Administration of the Program
The Board of Directors may, upon the recommendation of the Committee, from time
to time alter, amend, suspend, or discontinue the Program or either Plan
thereunder, except that no alteration or amendment shall, without the approval
of the holders of a majority of the outstanding shares entitled to vote thereon,
increase the total number of shares which may be sold or awarded under the
Program, decrease the price at which options may be granted, change the
standards of eligibility of employees eligible to participate, materially
increase the benefits of the Program or either Plan thereunder to participants,
or extend the term of the Program or of options granted thereunder. Adjustments
in the total number of shares purchasable or awardable under the Program or
optioned to any individual and adjustments of the option price may be made,
however, without stockholder approval pursuant to the adjustment provisions
described under the provisions of Section 5 hereof. No amendment or modification
shall apply to affect adversely any employee with respect to incentive stock or
incentive stock rights already awarded to him or an option already granted.
Anything to the contrary in this Section 8 notwithstanding, should the
provisions of Rule 16b-3, or any successor rule, under the 1934 Act be amended,
the Board may amend the Program in accordance with any modifications to such
Rule.
With respect to persons subject to Section 16 of the 1934 Act, transactions
under the Program are intended to comply with all applicable conditions of Rule
16b-3, or any successor rule, under the 1934 Act. To the extent any provision of
the Program or action by the Committee, the Board of Directors or any
administrator fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee or the Board of
Directors.
9. Assignability
No option or right granted under the Program shall be assignable or transferable
except by Will, by the laws of descent and distribution, or pursuant to
qualified domestic relations orders as defined in or meeting the requirements of
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended. During the lifetime of an optionee, an option shall be exercisable only
by him and any shares purchased upon the exercise of an option shall be issued
in the name of the optionee alone.
10. Effective Date and Term of Program.
The Program shall become effective when approved by a majority of the votes cast
at a meeting of the Corporation's stockholders by stockholders entitled to vote
thereon. No shares may be optioned or awarded (except upon the attainment of
performance goals contemplated by Section 7(h) hereof) and no incentive stock
rights may be granted under the Program after the fifth anniversary, plus 60
calendar days, of the Program's effective date.
11. Use of Proceeds
Proceeds from the sale of stock under the Program shall constitute general funds
of the Corporation.
12. Withholding
Whenever under the Program shares are to be issued in satisfaction of options,
awards or rights granted thereunder, the Corporation shall have the right to
require the employee to remit to it an amount in cash, in shares of the
Corporation's Common Stock, or though the reduction of options, awards or rights
to be issued thereof, necessary to satisfy federal, state and local withholding
tax requirements prior to the delivery of any certificate or certificates for
shares. Whenever under the Program payments are to be made in cash, such payment
shall be net of an amount necessary to satisfy federal, state and local
withholding tax requirements.
Covance Inc.
Supplemental Executive Retirement Plan
Effective January 1, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I INTRODUCTION..................................................1
ARTICLE II DEFINITIONS...................................................1
2.1 Accrued Benefit...............................................1
2.2 Actuarial Equivalent..........................................1
2.3 Board.........................................................2
2.4 Change In Control.............................................2
2.5 Code..........................................................2
2.6 Committee.....................................................2
2.7 Covance Inc. .................................................2
2.8 Disability....................................................2
2.9 Final Average Earnings........................................2
2.10 Participant...................................................3
2.11 Plan..........................................................3
2.12 Plan Compensation.............................................3
2.13 Plan Year.....................................................3
2.14 Year of Service...............................................3
ARTICLE III PARTICIPATION.................................................3
3.1 Eligibility to Participate....................................3
3.2 Commencement of Participation.................................4
ARTICLE IV AMOUNT OF PENSION BENEFITS....................................4
4.1 Normal Retirement Benefits....................................4
4.2 Early Retirement..............................................4
4.3 Late Retirement...............................................5
4.4 Service Crediting.............................................5
ARTICLE V VESTING.......................................................5
5.1 Vesting of Benefits...........................................5
ARTICLE VI DEATH PRIOR TO RETIREMENT.....................................6
6.1 Pre-Retirement Death Benefits for Married Participants........6
6.2 Death Benefits for Unmarried Participants.....................6
<PAGE>
ARTICLE VII PAYMENT OF BENEFITS...........................................6
7.1 Retirement....................................................6
7.2 Termination of Employment.....................................6
7.3 Forfeiture of Benefits........................................7
7.4 Facility of Payment...........................................7
7.5 Change In Control.............................................7
ARTICLE VIII AMENDMENTS AND TERMINATION....................................8
8.1 Amendments Generally..........................................8
8.2 Right to Terminate............................................8
8.3 No Funding Obligation.........................................9
ARTICLE IX ADMINISTRATION AND INTERPRETATION.............................9
9.1 Interpretation................................................9
9.2 Payment of Expenses..........................................10
9.3 Indemnification for Liability................................10
9.4 Claims Procedure.............................................11
9.5 Review Procedure.............................................11
ARTICLE X MISCELLANEOUS PROVISIONS.....................................11
10.1 Right of Covance Inc. . to Take Employment Actions...........11
10.2 Alienation or Assignment of Benefits.........................12
10.3 Applicable Law...............................................12
10.4 Number and Gender............................................12
10.5 Accelerated Distributions....................................12
<PAGE>
Covance Inc.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I
INTRODUCTION
In recognition of the services provided to Covance Inc. by certain of its key
executives, the Board of Directors of Covance Inc. establishes this Supplemental
Executive Retirement Plan for the purpose of providing supplemental retirement
income for each selected individual. It is to be maintained and operated
according to the terms of this document. The Compensation Committee of the Board
of Directors of Covance Inc. shall have the sole authority to manage and
administer this Plan.
ARTICLE II
DEFINITIONS
As used herein, the following words and phrases shall have the meanings
described below:
2.1 Accrued Benefit shall mean the amount of pension benefit payable as
a single life annuity as shall be considered earned at any time for a
Participant in accordance with the provisions of Article IV. Such pension
benefit shall be payable in the form chosen by the Participant pursuant to
Article VII.
2.2 Actuarial Equivalent shall mean a lump sum benefit of equivalent
value based on the applicable mortality rates, set back one year, and 120% of
the applicable interest rate, both as published by the Pension Benefit Guaranty
Corporation for purposes of determining the present value of a lump sum
distribution on plan termination. Such lump sum benefit shall be determined as
of
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the first day of the year prior to the Participant's date of retirement or other
termination of employment occurs. Application of such assumptions to the
computation of benefits payable under the Plan shall be made uniformly and
consistently with all respect to the Plan.
2.3 Board shall mean the Board of Directors of Covance Inc.
2.4 Change In Control shall mean a change in the control of Covance
Inc. that shall be deemed to have occurred upon the earliest to occur of the
following: (i) the date Covance Inc. becomes a party to a merger, consolidation,
or sale of substantially all of its assets or any other corporate reorganization
in which Covance Inc. will not be the surviving corporation, or in which the
holders of Covance Inc. stock will receive securities of another corporation
(ii) the purchase by an individual, or group of individuals acting in concert,
of at least thirty percent of the voting securities of Covance Inc. or (iii)
during any twenty-four month period, individuals who at the beginning of such
period constituted the Board cease for any reason to constitute a majority
thereof.
2.5 Code shall mean the Internal Revenue Code of 1986, as amended from
time to time.
2.6 Committee shall mean the Compensation Committee of the Board of
Directors.
2.7 Covance Inc. shall mean Covance Inc., a Delaware Corporation and
any successor thereto.
2.8 Disability shall mean a disability qualifying for benefits payable
under the Covance Inc. long-term disability plan under which the Participant is
covered.
2.9 Final Average Earnings shall mean the average of the sum of the
Participant's monthly Plan Compensation during the sixty (60) consecutive
calendar months (or the total number of months if less than sixty) within the
one hundred twenty (120) months (or the total number of months if less than 120)
immediately preceding the Participant's termination of employment with Covance
Inc., in which his Plan Compensation was the highest. In the case of a disabled
Participant, who is
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receiving disability benefits under any long term disability insurance provided
by Covance Inc., his Final Average Earnings shall be computed based on his Plan
Compensation immediately prior to becoming disabled.
2.10 Participant shall mean an individual who has been designated as a
Participant in this Plan under Section 3.1. In the event of the death or
incompetency of a Participant, the term shall mean his personal representative
or guardian.
2.11 Plan shall mean the Covance Inc. Supplemental Executive Retirement
Plan set forth in this document and as amended by Covance Inc. from time to
time.
2.12 Plan Compensation shall mean the base salary paid to a Participant
by Covance Inc. (including salary reductions which are deferred under Section
401(k) or 125 of the Code), plus annual bonuses.
2.13 Plan Year shall mean the calendar year.
2.14 Year of Service shall mean a Participant's total Years of Service
as an employee of Covance Inc., including service completed with Corning and any
affiliated employer of Covance Inc. or Corning.
ARTICLE III
PARTICIPATION
3.1 Eligibility to Participate. Any individual designated by the
Compensation Committee of the Board shall be eligible to participate in this
Plan. The Compensation Committee of the Board may delegate the authority to
designate eligible employees to the Chief Executive Officer. Plan Participants
shall be limited to a select group of management and highly compensated
employees of Covance Inc.
3.2 Commencement of Participation. Each individual who has satisfied
the requirements of Section 3.1 shall commence participation in the plan upon
designation by the Compensation Committee of the Board as a Participant in the
plan.
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ARTICLE IV
AMOUNT OF PENSION BENEFITS
4.1 Normal Retirement Benefits. A Participant who retires on or after
the completion of 20 Years of Service shall have an Accrued Benefit equal to 40%
of his Final Average Earnings payable on the attainment of age 60.
Notwithstanding the foregoing, a Participant employed with Covance Inc. on
January 1, 1997 who completes 15 Years of Service shall have an Accrued Benefit
equal to 40% of his Final Average Earnings.
A Participant who retires or terminates employment prior to the
completion of 20 Years of Service shall have his Accrued Benefit reduced
proratably by dividing the number of completed Years of Service by 20; provided,
however, in the case of such a Participant employed by Covance Inc. on January
1, 1997, the divisor shall be 15.
A Participant who becomes Disabled will continue to accrue Years of
Service until the earlier of age 60 or distribution commencement. A
Participant's benefits determined under this Section shall be adjusted in
accordance with Section 4.2 or Section 4.3 if his Accrued Benefit becomes
payable at other than his attainment of age 60.
4.2 Early Retirement. A Participant who has been credited with five
Years of Service and has attained age 55 may, with Committee approval, elect to
retire before becoming eligible for normal retirement benefits. A Participant
who elects to
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retire and commence benefit payments prior to the attainment of age 60, shall be
subject to a reduction in his Accrued Benefit of 5% of the amount of Accrued
Benefit for each year payment of benefits occurs prior to the Participant's
attainment of age 60.
4.3 Late Retirement. A Participant who elects to retire and commence
benefit payments after age 60 will be entitled to an increase in his Accrued
Benefit of 5% of the amount of Accrued Benefit for each year benefit payments
are delayed beyond age 60. A Participant's Accrued Benefit will not be increased
for benefit payments that commence after age 65.
4.4 Service Crediting. Service for purposes of determining the amount
of Accrued Benefit and vesting shall be credited under this Plan for all service
completed with Covance Inc., Corning and any affiliated employer of Covance Inc.
or Corning. In addition, a Participant may be granted, at the discretion of the
Committee, prior service credit for Years of Service with a previous employer
for the purposes of determining his Accrued Benefit and vesting. The Committee
shall credit such service in writing at the time of the Participant's
commencement of participation in this Plan and shall have the authority to
require a reduction or offset of the Participant's Accrued Benefit under this
Plan by the amount of any retirement benefit provided to the Participant under
the plan or plans of the previous employer for which prior service credit is
given.
ARTICLE V
VESTING
5.1 Vesting of Benefits. A Participant shall become 100% vested in his
Accrued Benefit as of the earlier of Disability, or the crediting of five Years
of Service.
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ARTICLE VI
DEATH PRIOR TO RETIREMENT
6.1 Pre-Retirement Death Benefits for Married Participants. In the
event of the death of a married Participant whose death occurs while still in
the employ of Covance Inc. and after the completion of five Years of Service,
his surviving spouse shall be entitled to receive an amount in the form of a
lump sum payment which shall be fifty percent (50%) of the Actuarial Equivalent
of the Accrued Benefit the Participant would have been eligible to receive under
Section 4.1 adjusted in accordance with Sections 4.2 or 4.3, if applicable, had
he retired on the day before his death. Such payment will commence as of the
date the Participant would have attained age 55, or if later, as soon as
administratively feasible after the Participant's death.
6.2 Death Benefits for Unmarried Participants. No death benefits shall
be payable under this Plan in the event of the death of an unmarried
Participant.
ARTICLE VII
PAYMENT OF BENEFITS
7.1 Retirement. A Participant shall, upon his retirement, in accordance
with Article IV, be entitled to receive his Accrued Benefit in the form of one
of the following: a single life annuity payable monthly, quarterly or on an
annual basis; a lump sum equal to the Actuarial Equivalent of the Accrued
Benefit, calculated in accordance with Section 2.2; or a joint and 50% or 100%
survivor annuity actuarially reduced to reflect the joint life expectancies of
the Participant and his spouse.
7.2 Termination of Employment. A Participant who chooses to voluntarily
terminate his employment with Covance Inc. prior to the completion of 5 Years of
Service shall forfeit any Accrued Benefit.
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7.3 Forfeiture of Benefits. Notwithstanding anything herein contained
to the contrary, no payment of any retirement benefits hereunder shall be made
and all rights under this Plan shall be forfeited if the Compensation Committee
of the Board unanimously determines that any of the following events occur:
(a) The Participant is convicted of a felony or misdemeanor if
such misdemeanor involves moral turpitude;
(b) The Participant has committed any act of gross negligence or
intentional misconduct in the performance or non-performance of his duties as an
employee of the Company, including any such actions which constitute sexual
harassment under applicable laws, rules or regulations;
(c) The Participant is not disabled (as defined below), but
refuses or fails to perform the duties and services specified herein for a
period of not less than thirty (30) days;
(d) The Participant has committed or participated in the
misappropriation of Company assets or personal dishonesty which causes financial
or reputational harm with respect to the Company.
7.4 Facility of Payment. Whenever, in the Committee's opinion, an
individual entitled to receive any payment of a benefit hereunder is under a
legal disability or is incapacitated in any way so as to be unable to manage his
financial affairs, Covance Inc. may make payments to the legal representative of
such person or to a relative or friend of such individual for his benefit or
apply the payment for the benefit of such individual as the Committee deems
advisable.
7.5 Change In Control. In the event of a Change in Control of Covance
Inc., each Participant in this Plan as of the date of the Change in Control who
is involuntarily or constructively terminated during the three-year
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period following the Change in Control shall be credited with three additional
Years of Service and three additional years of age for Accrued Benefit and
vesting determination purposes; provided, however, that such additional credit
for these Participants shall be reduced by the period of service and increase in
age the Participant has completed and experienced between the Change in Control
and actual termination of employment.
ARTICLE VIII
AMENDMENTS AND TERMINATION
8.1 Amendments Generally. The Committee reserves the right to make any
amendment or amendments to this Plan from time to time which do not cause any
reduction in a Participant's Accrued Benefit at the time the amendment is
adopted or the effective date of the amendment, whichever is earlier. Any
amendment shall be made pursuant to a duly adopted resolution of the
Compensation Committee of the Board.
8.2 Right to Terminate. The Compensation Committee of the Board may
terminate the Plan at any time in whole or in part. Termination of the Plan
shall be made pursuant to a duly adopted resolution of the Compensation
Committee of the Board. In the event of termination, the Compensation Committee
of the Board may, at its option, pay each Participant the present value of his
Accrued Benefit at the time of termination of the Plan and make such payments in
an actuarially equivalent lump sum. In addition, the Compensation Committee of
the Board may, at its option, refrain from making payments to any Participant
until such time and in such manner as he would have been entitled to receive his
Accrued Benefit under the terms of the Plan as in effect on the date of
termination. Notwithstanding the foregoing, if the Plan terminates within three
years of a Change in Control, each Participant will be paid the present value of
his Accrued Benefit immediately. No termination of the Plan shall reduce a
Participant's Accrued Benefit as of the date of termination.
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8.3 No Funding Obligation. The obligation of Covance Inc.to pay any
benefits under this Plan shall be unfunded and unsecured; any payments under
this Plan shall be made from the general assets of Covance Inc. However, the
Board, in its discretion, may authorize the establishment of a rabbi trust or
any other funding vehicle it deems appropriate in order to set aside assets to
discharge its obligations under this Plan.
ARTICLE IX
ADMINISTRATION AND INTERPRETATION
9.1 Interpretation. The Committee may take any action, correct any
defect, supply any omission or reconcile any inconsistency in the Supplemental
Executive Retirement Plan, or in any election hereunder, in the manner and to
the extent it shall deem necessary to carry the Supplemental Executive
Retirement Plan into effect or to carry out the Board's purposes in adopting the
Plan. Any decision, interpretation or other action made or taken in good faith
by or at the direction of Covance Inc., the Board, or the Committee, arising out
of or in connection with the Supplemental Executive Retirement Plan, shall be
within the absolute discretion of all and each of them, as the case may be, and
shall be final, binding and conclusive on Covance Inc., and all Participants and
their respective heirs, executors, administrators, successors and assigns. The
Committee's determinations hereunder need not be uniform, and may be made
selectively among Participants, whether or not they are similarly situated. Any
actions to be taken by the Committee will require the consent of a majority of
the Committee members. If a member of the Committee is a Participant in this
Supplemental Executive Retirement Plan, such member may not decide or determine
any matter or question concerning his benefits under this Supplemental Executive
Retirement Plan that such member would not have the right to decide or determine
if he were not a member.
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9.2 Payment of Expenses. Covance Inc., in such proportions as the
Committee determines, shall bear all expenses incurred by them and by the
Committee in administering this Plan. If a claim or dispute arises concerning
the rights of a Participant or Beneficiary to amounts deferred under this Plan,
regardless of the party by whom such claim or dispute is initiated, Covance Inc.
shall (in such proportions as between Covance Inc. as the Committee determines),
and upon presentation of appropriate vouchers, pay all legal expenses, including
reasonable attorneys' fees, court costs, and ordinary and necessary
out-of-pocket costs of attorneys, billed to and payable by the Participant or by
anyone claiming under or through the Participant (such person being hereinafter
referred to as the "Participant's Claimant"), in connection with the bringing,
prosecuting, defending, litigating, negotiating, or settling of such claim or
dispute; provided, that:
(a) The Participant or the Participant's Claimant shall repay to
Covance Inc. any such expenses theretofore paid or advanced by Covance Inc. if
and to the extent that the party disputing the Participant's rights obtains a
judgment in its favor from a court of competent jurisdiction from which no
appeal may be taken, whether because the time to do so has expired or otherwise,
and it is determined by the court that such expenses were not incurred by the
Participant or the Participant's Claimant while acting in good faith; provided
further, that
(b) In the case of any claim or dispute initiated by a
Participant or the Participant's Claimant, such claim shall be made, or notice
of such dispute given, with specific reference to the provisions of this Plan,
to the Committee within two years (three years, in the event of a Change in
Control) after the occurrence of the event giving rise to such claim or dispute.
9.3 Indemnification for Liability. Covance Inc.shall indemnify the
members of the Committee, against any and all claims, losses, damages, expenses
and liabilities arising from their responsibilities in connection with this
Plan, unless the same is determined to be due to gross negligence or willful
misconduct.
9.4 Claims Procedure. If a claim for benefits or for participation
under this Plan is denied in whole or in part, a Participant will receive
written notification. The notification will include specific reasons for the
denial, specific reference to pertinent
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provisions of this Plan, a description of any additional material or information
necessary to process the claim and why such material or information is
necessary, and an explanation of the claims review procedure. If the Committee
fails to respond within 90 days, the claim is treated as denied.
9.5 Review Procedure. Within 60 days after the claim is denied or, if
the claim is deemed denied, within 150 days after the claim is filed, a
Participant (or his duly authorized representative) may file a written request
with the Committee for a review of his denied claim. The Participant may review
pertinent documents that were used in processing his claim, submit pertinent
documents, and address issues and comments in writing to the Committee. The
Committee will notify the Participant of its final decision in writing. In its
response, the Committee will explain the reason for the decision, with specific
references to pertinent Plan provisions on which the decision was based. If the
Committee fails to respond to the request for review within 60 days, the review
is treated as denied.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Right of Covance Inc. to Take Employment Actions. The adoption and
maintenance of this Supplemental Executive Retirement Plan shall not be deemed
to constitute a contract between Covance Inc. and any eligible Participant, nor
to be a consideration for, nor an inducement or condition of, the employment of
any person. Nothing herein contained, or any action taken hereunder, shall be
deemed to give any eligible Participant the right to be retained in the employ
of Covance Inc. or to interfere with the right of Covance Inc. to discharge any
eligible Participant at any time, nor shall it be deemed to give to an Employer
the right to require the eligible Participant to remain in its employ, nor shall
it interfere with the eligible Participant's right to terminate his or her
employment at any time. Nothing in this Plan shall prevent Covance Inc. from
amending, modifying, or terminating any other Covance Inc. benefit plan.
10.2 Alienation or Assignment of Benefits. A Participant's rights and
interest
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under the Supplemental Executive Retirement Plan shall not be assigned or
transferred except as otherwise provided herein, and the Participant's rights to
benefit payments under the Supplemental Executive Retirement Plan shall not be
subject to alienation, pledge or garnishment by or on behalf of creditors
(including heirs, beneficiaries, or dependents) of the Participant or of a
Beneficiary. Notwithstanding the preceding, the Committee may direct
distributions to an alternate payee pursuant to a Qualified Domestic Relations
Order (QDRO), as defined in Section 414(p) of the Code prior to any distribution
date described in Article IV.
10.3 Applicable Law. This Plan shall be construed and enforced in
accordance with the laws of Delaware except to the extent superseded by the
Employee Retirement Income Security Act of 1974, as amended.
10.4 Number and Gender. Whenever any words used herein are in the
singular form, they shall be construed as though they were also used in the
plural form in all cases where they would so apply, and references to the male
gender shall be construed as applicable to the female gender where applicable,
and vice versa.
10.5 Accelerated Distributions. In the event Federal income is
accelerated on the value of future prospective benefits due to a determination
by the Internal Revenue Service, the Participant may at his election receive an
immediate distribution of the amount necessary to pay the tax obligation due
currently. The Participant's Accrued Benefit under the Plan will be reduced to
reflect the accelerated distribution.
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COVANCE INC.
RESTRICTED STOCK PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Purpose
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The Restricted Stock Plan for Non-Employee Directors (the "Plan") is to be a
part of the compensation paid by Covance Inc. (the "Corporation") for service
as a director to individuals who are not employees of (i) the Corporation,
(ii) any subsidiary corporation of the Corporation within the meaning of
Section 425 (f) of the Internal Revenue Code of 1986, as amended (the "Code")
or of any successor section (a "Subsidiary") or (iii) any other entity in
which he Corporation has at least one half of the ownership interest (such
persons being referred to herein as "Non-Employee Directors". The Plan is
intended to increase the proprietary interest of the Non-Employee Directors,
as owners of additional shares of the common stock of the Corporation, in the
Corporation's success and progress.
2. Administration
--------------
The Plan shall be administered by the Committee of the Board of Directors of
the Corporation, which shall consist of at least three directors who together
shall have the authority to adopt rules and regulations for carrying out the
Plan and to interpret, construe and implement the provisions of the Plan. The
Committee may obtain such advice or assistance as it deems appropriate from
persons not serving on the committee.
3. Eligibility
-----------
Any Director of Covance Inc. (the "Company") who is not an officer or
employee of the Company or a subsidiary thereof is eligible to participate in
the Plan.
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4. Restricted Stock
----------------
The stock subject to grant under the Plan shall be limited to shares of the
Corporation's Common Stock, from the authorized and unissued Covance Board
approved pool of 105,000 of Covance Inc. Common Stock.
5. Recapitalization
----------------
The number of units in the participant's market value account shall be
proportionally adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a subdivision or
consolidation of shares or other capital adjustment, or the payment of a
stock dividend or other increase or decrease in such shares effected without
receipt of consideration by the Company, or any distribution or spin-off of
assets (other than cash) to the stockholders of the Company.
6. Terms of Grant
--------------
a) Issuance - Each individual upon becoming a Non-Employee Director, and
eligible to participate in the Plan pursuant to Section 3 hereof, shall be
issued by the Corporation one or more certificates representing in the
aggregate Two Thousand (2,000) shares of the Common Stock of the
Corporation, which shares shall be issued and subject to the provisions of
the Plan. Each individual shall be issued by the Corporation one or more
certificates representing in aggregate two hundred (200) shares of the
Common Stock of the Corporation per year of service.
b) Restrictions on Transfer - All shares granted to a Participant shall be
subject to restriction on transfer so long as the Participant remains a
Non-Employee Director and may not be sold, assigned, transferred, pledged
or otherwise encumbered while the Participant is a Non-Employee Director.
c) Forfeitability - Except as set forth in the next paragraph, in the event
the Participant ceases to be a Non-Employee Director of the Corporation
all shares of Common Stock granted to him under the Plan shall be
forfeited and all rights of the Participant to such shares shall terminate
without further obligation on the part of the Corporation; provided
however, if such cessation is on account of death or medical or health
reasons which render
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the Participant unable to perform the duties and responsibilities owed to
the Corporation in his capacity as a director, the possibility of
forfeiture shall lapse in its entirety and all such shares shall be vested
in him.
d) Vesting - Shares granted as the initial award of 2,000 Covance common
shares shall be subject to the possibility of forfeiture until the date on
which the Participant terminates service as a Non-Employee Director with
the affirmative consent of a majority of the members of the Board of
Directors, which consent (i) shall be given upon such termination of
service following the Participant's having reached age 72 and (ii) may be
given following the Participant's having completed six years (cliff
vesting) of service as a Non-Employee Director (including service as such
prior to the date of initial grant) and having terminated service for
reasons or under circumstances approved by a majority of the Compensation
Committee. If a Participant terminates service as a Non-Employee Director
prior to meeting the requirements set forth in the preceding sentence, the
Board of Directors may, in its sole discretion, remove the restrictions on
transfer and the possibility of forfeiture from such number of shares held
by the Participant under the Plan as it determines is equitable; provided,
however, such number shall not exceed an amount based upon the ratio that
the number of years of service as a Non-Employee Director at the time of
termination (including service prior to the date of initial grant) bears
to six years (cliff vesting) service as a director.
e) Certificates - Each certificate representing the shares of Common Stock
awarded hereunder may be stamped or otherwise imprinted on the face
thereof with a legend in substantially the following form: "The shares
represented by this certificate have not been registered under the
Securities Act of 1933. This certificate and the shares represented hereby
are subject to the possibility of forfeiture under, and may be sold,
transferred, or otherwise disposed of only in accordance with, the terms
of the Restricted Stock Plan for Non-Employee Directors of Covance Inc., a
copy of which Plan is on file in the office of the Secretary of Covance,
Princeton, New Jersey.
f) Possession - Each certificate issued with respect to the shares of Common
Stock granted pursuant to the Plan shall be registered in the name of the
Participant but shall be held by the Corporation for safekeeping until
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possibility of forfeiture and the restriction on transfer of the shares
lapse pursuant to the terms of the Plan. After the possibility of
forfeiture and the transfer restrictions applicable to shares registered
in the name of a Participant shall have lapsed, the Corporation shall
deliver to the Participant or to the Participant's beneficiary or estate
one or more certificates representing the number of shares then vested in
the Participant and free of restrictions.
7. Amendment of the Plan
---------------------
The Board of Directors may from time to time alter, amend, suspend, or
discontinue the Plan, except that no alteration or amendment (i) to the
provisions of Section 6 hereof shall be made more often than once in any
six-month period and (ii) shall, without the approval of the holders of a
majority of the outstanding shares of Common Stock of the Corporation
entitled to vote thereon, provide for the grant of Common Stock from shares
authorized and unissued.
8. Miscellaneous
-------------
a) Nothing in the Plan shall be deemed to create any obligation on the
part of the Board of Directors to nominate any director for re-election by
the Corporation's stockholders.
b) The Corporation shall have the right to require, prior to delivery of
any shares granted hereunder, payment by the Participant of cash or shares
of Common Stock of the Corporation to cover such taxes as are required by
law with respect to the issuance or delivery of such shares.
9. Effective Date and Term of Plan
-------------------------------
The Plan shall become effective on 3 December 1996 when approved by the vote
of the Board of Directors of the Corporation and shall continue until
terminated by such Board.
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COVANCE INC.
DEFERRED COMPENSATION PLAN
FOR DIRECTORS
Effective December 3, 1996
-----------------------------------------------
Section 1. Effective Date
- -------------------------
The effective date of the Plan is December 3, 1996.
Section 2. Eligibility
- ----------------------
Any Director of Covance Inc. (the "Company") who is not an officer or employee
of the Company or a subsidiary thereof is eligible to participate in the Plan.
Section 3. Deferred Compensation Accounts
- -----------------------------------------
There shall be established for each participant a deferred compensation account
or accounts in the participant's name.
Section 4. Amount of Deferral
- -----------------------------
A participant may elect to defer receipt for any year of either (a) all of the
compensation payable to the participant for serving on the Board of Directors of
the Company and Committees of the Board of Directors or (b) only the retainer
(basic annual fee) payable to the participant for membership on such Board.
Section 5. Investment of Deferred Amounts
- -----------------------------------------
(a) General. A participant may designate, in increments of 10%, the
compensation to be deferred or compensation already deferred to be
allocated to a cash account and a market value account or any combination
of such accounts. Any change in such designation may be made no later than
the 15th day of each March, June, September and December during the
deferral period to be effective on the date next following such
notification that compensation would have been paid in accordance with the
Company's normal practice but for the election to defer.
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(b) Cash Account. The amount, if any, in the participant's deferred
compensation cash account shall be credited with interest, to be compounded
quarterly, calculated prospectively at a rate equal to the prime rate in
effect on the date compensation would have been paid in accordance with
such practice on the first day of each January, April, July and October
during the deferral period.
(c) Market Value Account. The amount, if any, in or allocated to the
participant's deferred compensation market value account on each date
compensation would have been paid in accordance with the Company's normal
practice but for the election to defer shall be expressed in units, the
number of which shall be equal to such amount divided by the closing price
of shares of the Company's Common Stock on the New York Stock Exchange
(hereinafter referred to as "Market Value") on such date or on the trading
day next preceding such date if such date is not a trading day. On each
date that the Company pays a regular cash dividend on shares of its Common
Stock outstanding, the participant's account shall be credited with a
number of units equal to the amount of such dividend per share multiplied
by the number of units in the participant's account on such date divided
by the Market Value on such dividend date or on the trading day next
preceding such date if the dividend payment date is not a trading day. The
value of the units in the participant's market value account on any given
date shall be determined by reference to the Market Value on such date.
(d) Recapitalization. The number of units in the participant's market value
account shall be proportionally adjusted for any increase or decrease in
the number of issued shares of Common Stock of the Company resulting from
a subdivision or consolidation of shares or other capital adjustment, or
the payment of a stock dividend or other increase or decrease in such
shares effected without receipt of consideration by the Company, or any
distribution or spin-off of assets (other than cash) to the stockholders
of the Company.
Section 6. Period of Deferral
- -----------------------------
A participant may elect to defer receipt of compensation either (a) until a
specified year in the future or (b) until the participant's termination of
service as a Director of the Company. If alternative (a) is elected, actual
payment will be made or will commence within sixty days after the beginning of
the year specified. If alternative (b) is elected, payment will be made or will
commence within sixty days after termination of services as a Director of the
Company.
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Section 7. Form of Payment
- --------------------------
A participant may elect to receive the compensation deferred under the Plan in
either (a) a lump sum or (b) a number of annual installments as specified by the
participants. All amounts in the participant's cash and market value accounts
shall be paid in cash.
Section 8. Death or Disability Prior to Receipt
- -----------------------------------------------
In the event that a participant dies or becomes totally and permanently disabled
prior to receipt of any or all of the amounts payable to the participant
pursuant to the Plan, any amounts remaining in the participant's deferred
compensation account may be paid to his estate or personal representative in a
lump sum within sixty (60) days following the Company's notification of the
participant's death or disability.
Section 9. Time of Election of Deferral
- ---------------------------------------
Effective January 1, 1997 the period commencing January 1 and ending December 31
of each year shall be the Plan Year.
An election to defer compensation may be made by a nominee for election as a
Director prior to, or concurrently with the nominee's election for, the term for
which the nominee is being elected, and may be made by a person then currently
serving as a Director for the next succeeding Plan Year no later than the
preceding December 31st.
Section 10. Manner of Electing Deferral
- ---------------------------------------
A participant may elect to defer compensation by giving written notice to the
Secretary of the Company on a form provided by the Company, which notice shall
include the amount to be deferred, the accounts to which such amounts are to be
allocated and the percentage (in increments of 10%) of such amounts to be
allocated to each account, the period of deferral, and the form of payment,
including the number of installments.
Section 11. Effect of Election
- ------------------------------
An election to defer compensation shall be irrevocable once the Plan Year to
which it applies has commenced, and may be revoked or modified only upon
demonstration of substantial and prolonged hardship and with the concurrence of
the Compensation Committee of the Board of the Company. An election covering
more than one Plan Year may be revoked or modified with respect to Plan Years
not yet begun by notifying the Secretary of the Company in writing at least
fifteen (15) days prior to the commencement of such Plan Year.
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-4-
Section 12. Participant's Rights Unsecured
- ------------------------------------------
The right of any participant to receive future payments under the provisions of
the Plan shall be an unsecured claim against the general assets of the Company.
Section 13. Statement of Accounts
- ---------------------------------
Statements will be sent to each participant each year as to the value of the
participant's deferred compensation accounts as of the end of the preceding
December.
Section 14. Assignability
- ------------------------
No right to receive payments hereunder shall be transferable or assignable by a
participant, except by will or by the laws of descent and distribution. The
participant may not sell, assign, transfer, pledge or otherwise encumber any
interest in the participant's deferred compensation account and any attempt to
do so shall be void against, and shall not be recognized by, the Company.
Section 15. Administration
- --------------------------
The Compensation Committee of the Board will determine the plan administrator,
who together shall have the authority to adopt rules and regulations for
carrying out the Plan and interpret, construe and implement the provisions of
the Plan.
Section 16. Amendment
- ---------------------
The Plan may at any time or from time to time be amended, modified or terminated
by the Company. No amendment, modification or termination shall, without the
consent of the participant, adversely affect accruals in such participant's
deferred compensation account.
FORM OF
EXECUTIVE EMPLOYMENT LETTER
[Date]
[Name]
[Address]
[Address]
[Address]
Re: Employment Letter Agreement (the "Agreement")
Dear __________:
As we move toward establishing Covance Inc. (formerly Corning Pharmaceutical
Services Inc.) ("Covance") as an independent publicly owned company, it is my
pleasure to formally confirm that you are an important member of my management
team, and, as such, I would like to communicate to you certain compensation
matters which will be part of the executive policies which govern Covance once
the impending spin-off from Corning Incorporated ("Corning") and Corning
Clinical Laboratories ("CCL") is completed. The terms and conditions of this
letter supersede and replace any and all previous offer letters, employment
agreements or oral representations regarding employment made to you (other than
any confidentiality or non-competition agreements you have signed, which shall
continue in full force and effect and in addition to any of the provisions
contained in this Agreement).
Position
As a Corporate Senior Vice President of Covance and Group President of Covance's
__________________________________, your duties include managing the ___________
___________________________________________________________________________, and
such other duties as may be incidental to the foregoing or as the Chief
Executive Officer of Covance (the "CEO") or his designee may assign to you. You
will report to the CEO or his designee.
Salary and Bonus
Your 1997 salary will be $___________ per year effective at the time of the
completion of the spin-off of Covance from Corning and CCL described in
Covance's Form 10 dated September 20, 1996 and filed with the Securities and
Exchange Commission (the "Spin-Off"). Your next scheduled merit increase will
occur on January 1, 1998.
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You will participate in the Covance 1997 Compensation Plan (the "Bonus Plan").
The Bonus Plan provides that upon satisfaction of certain financial goals for
both Covance and your business unit established by the Covance Board of
Directors, you shall receive an annual incentive equal to 55% of your annual
base salary at the time the goals are set for such year; provided, however, that
your payout, if any, under the Bonus Plan for 1997 shall be computed using your
salary specified above. The Bonus Plan also provides that you may earn up to
110% of your then current annual base salary for such year if Covance and your
business unit have outstanding results, again as determined by the Covance Board
of Directors. Any annual incentive compensation in excess of 55% of your annual
base salary may be paid to you in stock options as determined by the Covance
Board of Directors, the details of which would be specified in a Stock Option
Agreement to be entered into pursuant to Covance's Employee Equity Participation
Program. Actual awards will be determined by the Covance Board of Directors
after the end of the applicable performance year and shall be paid to you
shortly thereafter. The annual incentive targets may be increased, but not
decreased, while you are employed by Covance.
Pension Plan
[You are not vested in any pension benefit under Corning's pension.] In its
place, a supplemental executive retirement plan ("SERP") is being developed for
the senior executives of Covance in which you will participate. The SERP will be
a non-qualified, unfunded retirement plan designed to provide retirement
benefits to you starting at age 60 with provisions enabling you to begin
receiving reduced benefits it you retire at age 55. A copy of the plan will be
sent you as soon as it is approved and available.
Investment and Benefit Plans
All of your current Covance employee benefit plans (other than those plans
offering Corning equities, such as the Employee Stock Purchase Plan) will
continue in effect after the Spin-Off with such modifications as Covance deems
necessary or advisable. You will continue to be eligible to participate in these
Covance plans (e.g., medical, dental, disability, life insurance, 401(k) savings
plan, ESOP, employee stock purchase plan) in accordance with the terms and
conditions of those plans.
Auto and Financial Counseling Allowance
You will continue to receive a gross monthly auto allowance of $1,070 per month.
In addition, you will also be eligible to participate in other perquisites
and/or benefits programs as are offered to all other senior executives of
Covance as a class. These include a tax/financial counseling allowance of $6,000
per year under the terms of the Covance plan. Any expenses actually incurred
under this plan will be grossed up for tax purposes at an incremental income tax
rate of 45%.
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Existing Options and Other Long Term Incentives
At the time of the Spin-Off, your existing Corning long-term incentives (stock
options and restricted stock) will be treated in accordance with the terms
outlined below:
[1. All Corning stock options (other than CPP-6 stock options) will
be converted into Covance stock options. The conversion will
take place in such a way to preserve the inherent gain you have
in the Corning stock options at the time of the Spin-Off. In
addition, all other option terms (e.g. term of option, vesting
dates, ISO status, forfeiture provisions, etc.) will be
preserved. Specific details regarding the conversion of your
stock options will be provided to you at a later date.
2. Two-thirds of the Corning CPP-6 stock options will be converted
into Covance stock options (under conditions similar to those
noted above). The remaining one-third of your Corning CPP-6
stock options will be forfeited and canceled.
3. Specific details regarding the treatment of all of your
outstanding Corning restricted shares will be provided to you
at a later date.] [Revise as appropriate]
Future Equity Awards
You may be awarded from time to time additional compensation (such as stock
options or restricted stock) pursuant to Covance's Employee Equity Participation
Program or any additional or replacement incentive compensation or long-term
compensation program established by Covance for its senior officers. Any awards
under such programs, except as provided below, shall be at such levels or in
such amounts as Covance's Board of Directors deems, in its sole discretion,
appropriate for your position and the performance of your duties.
In conjunction with your first year participation in Covance's Employee Equity
Participation Program, Covance shall grant to you, on the terms set forth below,
that number of shares of Covance's common stock, subject to certain restrictions
(the "Restricted Stock"), and options to purchase Covance's common stock (the
"Stock Options"), that have in the aggregate a present value equal to not less
than $_________ (the "First Grant Value"). The First Grant Value shall consist
of Stock Options and Restricted Stock in the ratio of three Stock Options for
every share of Restricted Stock. Each Stock Option shall be worth a present
value amount equal to the product of (i) the fair market value of Covance's
common stock and (ii) .33. The fair market value of Covance's common stock shall
be determined based on the weighted average per share price of each trade of
Covance's common stock occurring during normal trading hours of the first five
days of "regular way" trading after completion of the Spin-Off. The rights,
obligations and other conditions of the Restricted Stock and the Stock Options
shall be as specified in that certain Incentive Stock Agreement and Stock Option
Agreement, in each case between you and Covance.
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<PAGE>
Severance
Except as specified below under the paragraph headed "Change of Control",
Covance guarantees that should you be involuntarily terminated for reasons other
than for Cause, you will receive an amount equal to the sum of (a) two years
base salary (payable on the normal payroll cycle) determined at the time of
termination, and (b) two years of the annual incentive bonus (payable on the
normal bonus cycles) in an amount equal for each such year to the product of
your base salary in effect at termination and 55% (the sum of (a) and (b) being,
collectively, the "Termination Payments").
"Cause" shall mean (i) your convictions of a felony or a misdemeanor if such
misdemeanor involves moral turpitude; (ii) your committing any act of gross
negligence or intentional misconduct in the performance or non-performance of
your duties as an employee of Covance or its affiliates, including, any actions
which constitute sexual harassment under applicable laws, rules or regulations;
(iii) your failure to perform your duties assigned for a period of thirty (30)
or more days unless such failure is caused by an Extended Disability; or (iv)
misappropriation of assets, personal dishonesty or intentional misrepresentation
of facts which may cause Covance or its affiliates financial or reputational
harm.
Should such involuntary termination occur because of an Extended Disability, and
not for any other reason that constitutes Cause, for 120 consecutive days where
you have not returned to your duties on a full-time basis after the expiration
of such 120 day period within 30 days after written notice of termination is
given to you, Covance shall pay to you the Termination Payments at the times
specified above.
Extended Disability shall (i) mean you are unable, as a result of a medically
determinable physical or mental impairment, to perform the duties and services
of your position, or (ii) have the meaning specified in any disability insurance
policy maintained by Covance, whichever is more favorable to you.
Except as may be otherwise provided in applicable Covance compensation and
benefit plans, Covance shall not be liable for any salary or benefit payments to
you beyond the date of your voluntary termination of employment with Covance. In
the event of a termination of employment for Cause or Extended Disability, you
shall not be entitled to any compensation or other benefits not already earned
and owing to you on account of your services on the date of such termination of
employment except as provided above with respect to a termination for Extended
Disability.
Medical, dental, disability and life insurance will be continued, to the extent
they are not otherwise prohibited under the respective plans, while you are
receiving the Termination Payments.
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<PAGE>
Change of Control
Should your employment be terminated by Covance (for reasons other than Cause),
or should your duties as Corporate Senior Vice President be diminished in any
respect (a "Constructive Termination") (either event being referred to herein as
an "Event of Termination"), in each case within 12 months following a
Change-of-Control (as defined below), you will be entitled to a lump sum payment
equal to the sum of (1) the product of (a) 3 and (b) your base annual salary in
effect at the time of your involuntary or Constructive Termination and (2) the
product of (a) 3 and (b) number that is 55% of your base annual salary in effect
at the time of your involuntary or Constructive Termination. Such payment will
be made within 60 days of your involuntary or Constructive Termination. In
addition to, and as a result of, the foregoing (i) all of your stock options
(including the Stock Options), restricted stock (including the Restricted
Stock), deferred compensation and similar benefits which have not become vested
on the date of an Event of Termination shall become vested upon such Event and
(ii) you shall be entitled to receive any payments calculated pursuant to the
paragraph headed "Certain Additional Payments by Covance".
For purposes of this Agreement, a Change-of-Control is defined to be:
(i) any person (including as such term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) becomes the beneficial owner,
directly or indirectly, of Covance's securities representing 20% or more of the
combined voting power of Covance's then outstanding securities; or
(ii) as a result of a proxy contest or contests or other forms of
contested shareholder votes (in each case either individually or in the
aggregate), a majority of the individuals elected to serve on Covance's Board of
Directors are different then the individuals who served on Covance's Board of
Directors at any time within the two years prior to such proxy contest or
contests or other forms of contested shareholder votes (in each case either
individually or in the aggregate); or
(iii) Covance shareholders approve a merger, or consolidation (where in
each case Covance is not the survivor thereof), or sale or disposition of all or
substantially all of Covance's assets or a plan or partial or complete
liquidation; or
(iv) an offerer (other than Covance) purchases shares of the Company's
common stock pursuant to a tender or exchange offer for such shares.
Medical, dental, disability and life insurance will be continued, to the extent
they are not otherwise prohibited under the respective plans, until you find
other employment but not longer than three years from the date of your
involuntary or Constructive Termination following a Change-of-Control.
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<PAGE>
Certain Additional Payments by Covance
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by, to or for the
benefit of you, whether made under this Agreement or otherwise (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Excise Tax"), then you shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by you of all taxes (including any Excise Tax) imposed upon the
Gross-Up Payment, you retain an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.
(b) All determinations required to be made under these provisions,
including whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment, shall be made by the accounting firm utilized by Covance for the
preparation of its annual external financial statements (the "Accounting Firm")
which shall provide detailed supporting calculations both to Covance and you
within 30 days of the Event of Termination, if applicable, or such earlier time
as is requested by Covance. The Gross-Up Payment, if any, as determined pursuant
to this Paragraph (b), shall be paid to you within 10 days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon Covance and you. If subsequent final determinations of the
Excise Tax made by the Internal Revenue Service give rise to additional Excise
Tax, then additional Gross-Up Payments shall be made by Covance to you within 10
days after the notice is received by Covance of such final determination.
(c) You shall notify Covance in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by Covance of a
Gross-Up Payment. Such notification shall be given as soon as practicable but no
later than 10 business days after you know of such claim. You shall not pay such
claim prior to the expiration of the thirty-day period following the date on
which you give such notice to Covance (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If Covance
notifies you in writing prior to the expiration of such period that it desires
to contest such claim, you shall:
(i) give Covance any information reasonably requested by
Covance relating too such claim,
(ii) take such action in connection with contesting such
claims as Covance shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by Covance,
(iii) cooperate with Covance in good faith in order
effectively to contest such claim, and
(iv) permit Covance to participate in any proceedings relating
to such claim;
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<PAGE>
provided, however, that Covance shall bear all costs and expenses incurred in
connection with such contest and shall indemnify and hold you harmless, on an
after-tax basis, for any Excise Tax or income tax imposed as a result of such
contest or representation and payment of costs and expenses. Covance shall
control all proceedings taken in connection with such contest. Covance may, at
its sole option, either direct you to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and you agree to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as Covance shall
determine; provided, however, that if Covance directs you to pay such claim and
sue for a refund, Covance shall advance the amount of such payment to you on an
interest-free basis and shall indemnify and hold you harmless, on an after-tax
basis, from any Excise Tax or income tax imposed with respect to such advance.
(d) If , after the receipt by you of an amount advanced by Covance
pursuant to Paragraph (c), you become entitled to receive any refund with
respect to such claim, you shall promptly pay to Covance the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by you of an amount advanced by
Covance pursuant to Paragraph (c), a final determination is made that you shall
not be entitled to any refund with respect to such claim, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset the amount of Gross-Up Payment required to be paid.
Confidentiality
Covance possesses and will continue to possess trade secrets or other
information which has been created, discovered, developed by or otherwise become
known to Covance, or in which property rights have been assigned or otherwise
conveyed to Covance, which information has commercial value with respect to the
business and operations of Covance or the business and operations of its
subsidiaries or its affiliates, including, but not limited to, information
regarding sales, costs, customers, employees, products, services, apparatus,
equipment, processes, formulae, marketing, or the organization, business or
finances of Covance or its subsidiaries or its affiliates, or any information
you have reason to know Covance would like to treat as confidential for any
purpose, such as maintaining a competitive advantage or avoiding undesirable
publicity, whether or not developed by you ("Confidential Information"). Unless
previously authorized in writing or instructed in writing by Covance, you will
not, from and after the date of employment with Covance, directly or indirectly,
use for your own benefit or purposes, or disclose to, or use for the benefit or
purposes of, anyone other than Covance or its subsidiaries or affiliates, any
Confidential Information, unless and until, and then only to the extent that,
such Confidential Information has (a) been or becomes published, or is or
becomes generally known in the trade through no fault of you, or (b) such
information is made known and available to you by a third party, who, by such
disclosure to you does not breach any duty or obligation to Covance or its
subsidiaries or affiliates.
In the event you become legally compelled to disclose any of the Confidential
Information, you will provide Covance with prompt notice so that Covance may
seek a protective order or other
7
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appropriate remedy and/or waive compliance with the provisions of this
Agreement. If, in the absence of a protective order or the receipt of a waiver
hereunder, you are nonetheless legally required to disclose Confidential
Information to any tribunal or else stand liable for contempt or suffer other
censure or penalty, you may disclose such Confidential Information to such
tribunal without liability hereunder.
Upon termination of your employment with Covance, you will deliver to Covance
all written embodiments of the Confidential Information, including all notes,
drawings, records, reports, pertaining to work done by you during your
employment with Covance and all other matters of secret or confidential nature
relating to Covance's business.
Non-Competition
You acknowledge that the services to be rendered by you to Covance are of a
special and unusual character, with a unique value to Covance, the loss of which
cannot adequately be compensated by damages or an action at law. In view of the
unique value to Covance of such services for which you are employed at Covance,
because of the Confidential Information obtained by, or disclosed to you, and as
a material inducement to Covance to compensate you as well as provide you with
additional benefits and other good and valuable consideration, you covenant and
agree that:
(a) Unless authorized by Covance's Board of Directors in writing, you
shall not, during your employment with Covance and for one year after the
expiration of your employment with Covance (the "Post Employment Term", your
employment with Covance and the Post Employment Term, being, collectively, the
"Period"), become employed by, become a director, officer, shareholder or
partner of, or to otherwise enter into, conduct, or advise any business, whether
directly or indirectly, which offers services or products in the United States
and any other geographical regions where Covance, or its subsidiaries or its
affiliates, is then offering its services or products in competition with
services or products sold by Covance, or its subsidiaries or its affiliates at
any time during the Period in the United States or such region, including,
without limitation, the conduct of contract pre-clinical toxicology laboratory
services, contract biopharmaceutical clinical laboratory services, contract
bioprocessing or manufacturing services, contract drug packaging services, Phase
I, II, III or IV clinical studies or outcomes or disease management studies
(collectively, the "Covance Services"); provided that you shall not be bound by
the restrictions contained in this provision (a) unless Covance has made all
payments to you which are due and owing to you under this Agreement or any plan
or bonus or incentive plan of Covance, including any equity incentive or bonus
incentive plan of Covance, or otherwise; provided, further, that if you have
been dismissed by Covance for Cause or you have voluntarily terminated your
employment with Covance for any reason or no reason, you shall not be bound by
the foregoing provisions of this paragraph (a) during the Post Employment Term
unless Covance has made to you the payments specified above under "Severance".
Nothing herein shall restrict you in your employment in any capacity by a
corporation or entity engaged substantially in the manufacture or sale of
pharmaceuticals, or any other business which does not offer Covance Services.
Ownership of not more than 1% of the issued and outstanding shares of any
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class of securities of a corporation, the securities of which are traded on a
national securities exchange or in the over-the-counter market, shall not cause
you to be deemed a shareholder under this provision.
(b) During the Period, you shall not, directly or indirectly, solicit,
divert or accept any business from any customer of Covance, its subsidiaries or
affiliates to the detriment of any of the foregoing or seek to cause any such
customers to refrain from doing business with or patronizing Covance, its
subsidiaries or its affiliates.
(c) During the Period, you shall not, directly or indirectly, solicit
or induce for employment any employee of Covance or any of its subsidiaries or
affiliates or otherwise encourage any employee of Covance or any of its
subsidiaries or affiliates to leave Covance, or any of its subsidiaries or
affiliates. For purposes of this Agreement, advertisements in trade magazines,
use of executive search firms and other conventional means of obtaining
employees shall not be construed as solicitation, inducements or encouragement
unless the party utilizing such conventional means specifically directs the
efforts at employee(s) with whom the party may not have contact pursuant to the
terms of this Agreement.
(d) For purposes of this Agreement, the term "directly or indirectly"
shall be construed in its broadest sense and shall include the activities of the
members of your immediate family or any partnership, or as otherwise specified
above, and the term "customer" shall mean any person or entity to which Covance
has sold services during the one-year period prior to the date you ceased
employment with Covance or any persons or entities targeted by Covance or
contacted for the purpose of selling such services during such one-year period
which you knew about or reasonably should have known about.
Ownership of Know-How, Inventions and Other Intellectual Property
All the know-how, innovations, inventions, discoveries, improvements,
procedures, programs, formulae and specifications which have been or may be
either, directly or indirectly, developed, conceived or made by you in
connection with your employment with Covance, whether or not in concert with
other employees or shown or delivered to Covance or any of its subsidiaries or
its affiliates, and whether or not they are eligible for patent, copyright,
trademark, trade secret or other legal protection, shall be the exclusive
property of Covance and you shall, at Covance's request and expense, promptly
execute any and all documents or instruments which may be necessary to evidence
such ownership.
Obligations of this Agreement cover any and all inventions, discoveries or
improvements, directly or indirectly, conceived or made by you in connection
with your employment with Covance prior to the date of this Agreement.
You will communicate to Covance promptly and fully all improvements and
inventions you make or conceive (either solely or jointly with others) during
the period of your employment
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with Covance and conceived by you during the Post Employment Term if based on or
related to your employment at Covance.
Patents
You will, during and after the Period, at Covance's request and expense but
without additional compensation, assist Covance and its nominees in every proper
way to obtain and to vest in Covance or its nominees, title to patents on such
improvements and inventions in all countries, by executing all necessary or
desirable documents, including applications for patents and assignments thereof.
Records and Documents
Except in the performance of your duties as an employee of Covance, you will not
at any time or in any manner make or cause to be made any copies, pictures,
duplicates, facsimiles, or other reproductions, recordings, abstracts, or
summaries of any reports, studies, memoranda, correspondence, manuals, customer
lists, software, records, formulae, plans, or other written, printed, or
otherwise recorded material of any kind whatever belonging to or in the
possession of Covance or its subsidiaries or affiliates, which may be produced
or created by you or others, or which may come into your possession in the
course of your employment, or which relate in any manner to the then current or
prospective business of Covance, its subsidiaries or its affiliates. You shall
have no right, title or interest in any such materials, and you agree that you
have not removed and will not remove such materials without the prior written
consent of Covance or its subsidiaries or affiliates, as applicable, and that
you will surrender all such material to Covance immediately upon your
termination or departure from Covance, or at any time prior thereto upon the
request of Covance.
Injunctive Relief
You agree that the remedies available to Covance at law for any breach of any of
your obligations under this Agreement may be inadequate, and you accordingly
agree and consent that temporary or permanent injunctive relief, and/or an order
of specific performance, may be granted in any proceeding which may be brought
to enforce any provision hereof, without the necessity of proof of actual
damage, in addition to any other remedies available to Covance at law.
Outplacement
In the event you are involuntarily or Constructively Terminated as a result of a
Change-of-Control or for other reasons that do not constitute Cause, Covance
shall provide for you, at Covance's cost, executive outplacement support for
one-year following such termination.
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Condition Subsequent
This Agreement shall be null and void and of no force or effect if the Spin-Off
is not consummated.
Release
In the event you are terminated or Constructively Terminated without Cause, the
obligation of Covance to make to you any or all of the payments specified under
this Agreement (including, without limitation, the Termination Payments or the
payments specified under the paragraph headed "Change of Control") shall be
subject to your execution and delivery to Covance of a release in form and
substance reasonably satisfactory to Covance of all claims, demands, suits or
actions, whether in law or at equity, you have or may have relating to or giving
rise from such termination or Constructive Termination.
General
The terms of your outstanding housing loan with Covance remain unchanged. In
addition, provisions of employment relating to health benefits, vacation and
reimbursement for business expenses, professional dues, etc. remain unchanged
and will be administered in accordance with company policies, as they may be
amended, modified or supplemented from time to time. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
Jersey.
The failure of either party at any time to require performance by the other
party of any provision hereof shall not affect in any way the full right to
require such performance at any time thereafter, nor shall a waiver by either
party of a breach of any provision hereof be taken or held to be a waiver of
future performance under the provision itself.
You hereby expressly agree that all of the covenants in this Agreement are
reasonable and necessary in order to protect Covance and its business. If any
provision or any part of any provision of this Agreement shall be invalid or
unenforceable under applicable law, such part shall be ineffective only to the
extent of such invalidity or unenforceability and shall not affect in any way
the validity or enforceability of the remaining provisions of this Agreement, or
the remaining parts of such provision.
This Agreement shall be binding on and inure to the benefit of the parties
hereto and their heirs, executors, legal representatives, successors and
assigns. Except in the event of a transfer to a successor corporation or other
entity or affiliate of Covance, neither party shall have the right to assign its
rights or delegate its obligations, or all or any portion of its rights or
interests under this Agreement without the prior written consent of the other
party hereto.
Any notice, request, demand, or other communication required or permitted by
this Agreement shall be deemed to be properly given if delivered by hand or when
mailed certified, registered or
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first class mail or overnight courier with postage or shipping charge prepaid,
addressed to Covance at 210 Carnegie Center, Princeton, New Jersey 08540,
Attention: CEO and to you at your address specified above, and all such notices
shall be deemed effective at the time of delivery or at the time delivery is
refused by the addressee upon participation. The addresses for the purpose of
this Paragraph may be changed only by giving written notice of such change in
the manner provided herein for giving notices.
The captions of the Paragraphs herein are inserted as a matter of convenience
only and in no way define, limit or describe the scope of this Agreement or any
provisions hereof.
This Agreement sets forth the entire agreement and understanding between the
parties hereto as to the subject matter hereof, and as such supersedes in its
entirety any existing agreement, whether oral or written, between you and
Covance, except as expressly otherwise provided to the contrary under this
Agreement.
This Agreement may be amended only by a written instrument signed by both
parties hereto making specific reference to this Agreement and expressing the
plan or intention to modify it.
Please indicate your agreement with the terms and conditions of this Agreement
by signing one copy of this Agreement and returning it to my attention.
Very truly yours,
Christopher A. Kuebler
President and CEO
CAK\JSH\rh
Accepted as of the date first above specified:
By: ___________________________
[Name]
12
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
THE RELATIONSHIP AMONG CORNING, QUEST DIAGNOSTICS AND COVANCE AFTER THE
DISTRIBUTIONS 28
COVANCE INC.
RISK FACTORS 108
CAPITALIZATION OF COVANCE 114
SELECTED HISTORICAL FINANCIAL DATA OF COVANCE 115
PRO FORMA FINANCIAL INFORMATION OF COVANCE 117
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF COVANCE 122
BUSINESS OF COVANCE 129
MANAGEMENT OF COVANCE 147
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF COVANCE 158
DESCRIPTION OF COVANCE CAPITAL STOCK 159
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COVANCE CERTIFICATE OF
INCORPORATION AND BY-LAWS 162
DESCRIPTION OF CERTAIN INDEBTEDNESS OF COVANCE 166
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS OF COVANCE 168
INDEX TO FINANCIAL STATEMENTS F-1
</TABLE>
2
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THE RELATIONSHIP AMONG CORNING, QUEST DIAGNOSTICS AND COVANCE
AFTER THE DISTRIBUTIONS
After the Distributions, Quest Diagnostics Incorporated ("Quest
Diagnostics") and Covance Inc. ("Covance") will be independent public
companies and Corning Incorporated ("Corning") will not have any ownership
interest in either Quest Diagnostics or Covance other than shares of Quest
Diagnostics' voting cumulative preferred stock. Corning, Quest Diagnostics
and Covance will enter into certain agreements, summarized below, to provide
for an orderly transition to the status of three separate independent
companies, to govern their relationship subsequent to the Distributions and
to provide for the allocation of tax and certain other liabilities and
obligations arising from periods prior to the Distributions. Copies of the
forms of such agreements have been filed as exhibits to the Registration
Statements of which this Information Statement is a part. The following
description summarizes the material terms of such agreements, but is
qualified by reference to the texts of such agreements as filed.
Transaction Agreement
Corning, Quest Diagnostics and Covance will enter into the Transaction
Agreement (the "Transaction Agreement") providing for, among other things,
certain conditions precedent to the Distributions, certain corporate
transactions required to effect the Distributions and other arrangements
between Corning, Quest Diagnostics and Covance subsequent to the
Distributions. See "The Distributions--Conditions; Termination."
The Transaction Agreement will provide for, among other things,
assumptions of liabilities and cross- indemnities designed to allocate
generally, effective as of the Distribution Date, financial responsibility
for the liabilities arising out of or in connection with (i) the clinical
laboratory business to Quest Diagnostics and its subsidiaries, (ii) the
contract research business to Covance and its subsidiaries and (iii) all
other business conducted by Corning prior to the Distribution Date to Corning
and its subsidiaries other than Quest Diagnostics and Covance.
The Transaction Agreement will provide that Corning, Quest Diagnostics and
Covance will use their respective commercially reasonable efforts to achieve
an allocation of consolidated indebtedness of Corning and a capital structure
that reflects the capital structure after the Distributions of Corning, Quest
Diagnostics and Covance as contemplated in the discussion under
"Capitalization of Quest Diagnostics" and "Capitalization of Covance." In
addition to the specific indemnity described below, Corning, Quest
Diagnostics and Covance are obligated under the Transaction Agreement to
indemnify and hold harmless each other in respect of Indemnifiable Losses (as
defined therein) arising out of or otherwise relating to the management or
conduct of their respective businesses or the breach of any provision of the
Transaction Agreement; provided, however, that Quest Diagnostics will have no
obligation to indemnify or hold harmless Corning in respect of Indemnifiable
Losses arising out of any governmental claims or investigations described in
the next paragraph.
As discussed under "Business of Quest Diagnostics--Government
Investigations and Related Claims," Quest Diagnostics is subject to several
governmental investigations. Any amounts paid by Quest Diagnostics to settle
these investigations, or as a result of a judgment relating to these
investigations, will be indemnified by Corning under the Transaction
Agreement. Under the Transaction Agreement Corning will agree to indemnify
Quest Diagnostics against all monetary penalties, fines or settlements
arising out of any governmental criminal, civil or administrative
investigations or claims that have been settled prior to or are pending as of
the Distribution Date, pursuant to service of subpoena or other notice of
such investigation to Quest Diagnostics, as well as any qui tam proceeding
for which a complaint was filed prior to the Distribution Date whether or not
Quest Diagnostics has been served with such complaint or otherwise been
notified of the pendency of such action, to the extent that such
investigations or claims arise out of or are related to alleged violations of
federal fraud and health care statutes identified in the Transaction
Agreement by reason of Quest Diagnostics or any company acquired by Quest
Diagnostics billing any federal program or agency for services rendered to
beneficiaries of such program or agency. Corning will also indemnify Quest
Diagnostics for 50% of the aggregate of all judgment or settlement payments
made by Quest Diagnostics that are in excess of $42.0 million in respect of
claims by private parties (i.e., nongovernmental parties such as private
insurers) that relate to indemnified or previously settled governmental
claims and that allege overbillings by Quest Diagnostics or any existing
subsidiaries of Quest Diagnostics for services provided prior to the
Distribution Date; provided, however, such indemnification for private claims
will terminate five years after the Distribution Date (whether or not
settled) and will not exceed $25.0 million in the aggregate (reduced by
certain tax benefits as described below). Quest Diagnostics' aggregate
reserve with respect to all governmental and private claims, including
litigation costs, was $215 million at September 30, 1996 and is estimated to
be reduced to $85 million at the Distribution Date as a result of the payment
of settled claims, primarily the Damon settlement of $119 million.
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Corning will not indemnify Quest Diagnostics against any governmental
claims that arise after the Distribution Date, even though relating to events
prior to the Distribution Date, or to any private claims that do not relate
to the indemnified or previously settled governmental claims or
investigations or investigations that relate to post- Distribution Date
billings. Corning will not indemnify Quest Diagnostics against consequential
or incidental damages relating to the billing claims, including losses of
revenues and profits as a consequence of any exclusion from participation in
federal or state health care programs or the fees and expenses of the
litigation, including attorneys' fees and expenses. All amounts indemnified
against by Corning for the benefit of Quest Diagnostics will be calculated on
a net after-tax basis by taking into account any deductions and other tax
benefits realized by Quest Diagnostics (or a consolidated group of which
Quest Diagnostics is a member after the Distributions (the "Quest Diagnostics
Group")) in respect of the underlying settlement, judgment payment, or other
loss (or portion thereof) indemnified against by Corning generally at the
time and to the extent such deductions or tax benefits are deemed to reduce
the tax liability of Quest Diagnostics or the Quest Diagnostics Group under
the Transaction Agreement.
The Transaction Agreement provides that, in the case of any claims for
which Corning, Quest Diagnostics or Covance are entitled to indemnification,
the indemnified party will control the defense of any claim unless the
indemnifying party elects to assume such defense. However, in the case of all
private claims related to indemnified governmental claims related to alleged
overbillings, Quest Diagnostics will control the defense. Disputes under the
Transaction Agreement are subject to binding arbitration. The Transaction
Agreement will also provide that, except as otherwise set forth therein or in
any other agreement, all costs or expenses incurred on or prior to the
Distribution Date in connection with the Distributions will be allocated
among the parties. Except as set forth in the Transaction Agreement or any
related agreement, each party shall bear its own costs and expenses incurred
after the Distribution Date.
Spin-Off Tax Indemnification Agreements
Corning and Quest Diagnostics will enter into a tax indemnification
agreement (the "Corning/Quest Diagnostics Spin-Off Tax Indemnification
Agreement") pursuant to which (1) Quest Diagnostics will represent to Corning
that, to the best of its knowledge, the materials relating to Quest
Diagnostics submitted to the Internal Revenue Service ("IRS") in connection
with the request for ruling submitted to the IRS are complete and accurate in
all material respects, (2) Quest Diagnostics will represent that it has no
present intention to undertake the transactions described in part (3)(iii)
hereafter or cease to engage in the active conduct of providing clinical
laboratory testing services, (3) Quest Diagnostics will covenant and agree
that for a period of two years following the Distribution Date (the
"Restricted Period"), (i) Quest Diagnostics will continue to engage in the
clinical laboratory testing business, (ii) Quest Diagnostics will continue to
manage and own at least 50% of the assets which it owns directly and
indirectly immediately after the Distribution Date and (iii) neither Quest
Diagnostics, nor any related corporation nor any of their respective
directors, officers or other representatives will undertake, authorize,
approve, recommend, permit, facilitate, or enter into any contract, or
consummate any transaction with respect to: (A) the issuance of Quest
Diagnostics Common Stock (including options and other instruments convertible
into Quest Diagnostics Common Stock) which would exceed fifty percent (50%)
of the outstanding shares of Quest Diagnostics Common Stock immediately after
the Distribution Date; (B) the issuance of any other instrument that would
constitute equity for federal tax purposes ("Disqualified Quest Diagnostics
Stock"); (C) the issuance of options and other instruments convertible into
Disqualified Quest Diagnostics Stock; (D) any repurchases of Quest
Diagnostics Common Stock, unless such repurchases satisfy certain
requirements; (E) the dissolution, merger, or complete or partial liquidation
of Quest Diagnostics or any announcement of such action; or (F) the waiver,
amendment, termination or modification of any provision of the Quest
Diagnostics Rights Plan (as defined therein) in connection with, or in order
to permit or facilitate, any acquisition of Quest Diagnostics Common Stock or
other equity interest in Quest Diagnostics, and (4) Quest Diagnostics will
agree to indemnify Corning for Taxes (as defined below) arising from
violations of (1), (2) or (3) above and for Taxes arising as a result of (A)
an acquisition of 20% or more of the stock of Quest Diagnostics by a person
or related persons during the Restricted Period or (B) the commencement of a
tender or purchase offer by a third party for 20% or more of Quest
Diagnostics stock. If obligations of Quest Diagnostics under this agreement
were breached and as a result thereof one or both of the Distributions do not
qualify for the treatment stated in the ruling Corning requested from the IRS
(the "IRS Ruling"), Quest Diagnostics would be required to indemnify Corning
for Taxes imposed and such indemnification obligations could exceed the net
asset value of Quest Diagnostics at such time.
Corning and Covance will enter into a tax indemnification agreement (the
"Corning/Covance Spin-Off Tax Indemnification Agreement") pursuant to which
(1) Covance will represent to Corning that to the best of its knowledge,
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the materials relating to Covance submitted to the IRS in connection with the
request for ruling submitted to the IRS are complete and accurate in all
material respects, (2) Covance will represent that it has no present
intention to undertake the transactions described in part (3)(iii) hereafter
or to cease to engage in the active conduct of providing contract research
services, (3) Covance will covenant and agree that during the Restricted
Period, (i) Covance will continue to engage in the contract research
business, (ii) Covance will continue to manage and own at least 50% of the
assets which it owns directly and indirectly immediately after the
Distribution Date and (iii) neither Covance, nor any related corporations nor
any of their respective directors, officers or other representatives will
undertake, authorize, approve, recommend, permit, facilitate, or enter into
any contract, or consummate any transaction with respect to: (A) the issuance
of Covance Common Stock (including options and other instruments convertible
into Covance Common Stock) which would exceed fifty percent (50%) of the
outstanding shares of Covance Common Stock immediately after the Distribution
Date; (B) the issuance of any other instrument that would constitute equity
for federal tax purposes ("Disqualified Covance Stock"); (C) the issuance of
options and other instruments convertible into Disqualified Covance Stock;
(D) any repurchases of Covance Common Stock, unless such repurchases satisfy
certain requirements; (E) the dissolution, merger, or complete or partial
liquidation of Covance or any announcement of such action; or (F) the waiver,
amendment, termination or modification of any provision of the Covance Rights
Plan (as defined therein) in connection with, or in order to permit or
facilitate, any acquisition of Covance Common Stock or other equity interest
in Covance and (4) Covance will agree to indemnify Corning for Taxes arising
from violations of (1), (2) or (3) above and for Taxes arising as a result of
(A) an acquisition of 20% or more of the stock of Covance by a person or
related persons during the Restricted Period or (B) the commencement of a
tender or purchase offer by a third party for 20% or more of Covance stock.
If obligations of Covance under this agreement were breached and as a result
thereof one or both of the Distributions do not qualify for the treatment
stated in the IRS Ruling, Covance would be required to indemnify Corning for
Taxes imposed and such indemnification obligations could exceed the net asset
value of Covance at such time.
Quest Diagnostics and Covance will enter into a tax indemnification
agreement (the "Quest Diagnostics/ Covance Spin-Off Tax Indemnification
Agreement") which will be essentially the same as the Corning/Covance
Spin-Off Tax Indemnification Agreement except that Covance will make
representations to and indemnify Quest Diagnostics as opposed to Corning. If
obligations of Covance under this agreement were breached and as a result
thereof one or both of the Distributions do not qualify for the treatment
stated in the IRS Ruling, Covance would be required to indemnify Quest
Diagnostics for Taxes imposed and such indemnification obligations could
exceed the net asset value of Covance at such time. Quest Diagnostics and
Covance will enter into a second tax indemnification agreement (the
"Covance/Quest Diagnostics Spin-Off Tax Indemnification Agreement") which
will be essentially the same as the Corning/Quest Diagnostics Spin-Off Tax
Indemnification Agreement except that Quest Diagnostics will make
representations to and indemnify Covance as opposed to Corning. If
obligations of Quest Diagnostics under this agreement were breached and as a
result thereof one or both of the Distributions do not qualify for the
treatment stated in the IRS Ruling, Quest Diagnostics would be required to
indemnify Covance for Taxes imposed and such indemnification obligations
could exceed the net asset value of Quest Diagnostics at such time.
The Spin-Off Tax Indemnification Agreements will also require (i) Quest
Diagnostics to take such actions as Corning may reasonably request and (ii)
Covance to take such actions as Corning and Quest Diagnostics may reasonably
request to preserve the favorable tax treatment provided for in any rulings
obtained from the IRS in respect of the Distributions.
Tax Sharing Agreement
Corning, Quest Diagnostics and Covance will enter into a tax sharing
agreement (the "Tax Sharing Agreement") which will allocate responsibility
for federal income and various other taxes ("Taxes") among the three
companies. The Tax Sharing Agreement provides that, except for Taxes arising
as a result of the failure of either or both of the Distributions to qualify
for the treatment stated in the IRS Ruling (which Taxes are allocated either
pursuant to the Spin-Off Tax Indemnification Agreements or as described
below), Corning is liable for and will pay the federal income taxes of the
consolidated group that includes Quest Diagnostics and Covance and their
subsidiaries, provided, however, that Quest Diagnostics and Covance are
required to reimburse Corning for taxes for periods beginning after December
31, 1995 in which they are members of the Corning consolidated group and for
which tax returns have not been filed as of the Distribution Date. This
reimbursement obligation is based on the hypothetical separate federal tax
liability of Quest Diagnostics and Covance, including their respective
subsidiaries, calculated on a separate consolidated basis, subject to certain
adjustments. Under the Tax Sharing Agreement, in the case of adjustments by a
taxing authority of a
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consolidated federal income tax or certain other tax returns prepared by
Corning which includes Quest Diagnostics or Covance, then, subject to certain
exceptions, Corning is liable for and will pay any tax assessments, and is
entitled to any tax refunds, resulting from such audit.
The Tax Sharing Agreement further provides that, if either of the
Distributions fails to qualify for the tax treatment stated in the IRS Ruling
(for reasons other than those indemnified against under one or more of the
Spin-Off Tax Indemnification Agreements), Taxes imposed upon or incurred by
Corning, Quest Diagnostics or Covance as a result of such failure are to be
allocated among Corning, Quest Diagnostics and Covance in such a manner as
will take into account the extent to which the actions or inactions of each
may have contributed to such failure, and Corning, Quest Diagnostics and
Covance each will indemnify and hold harmless the other from and against the
taxes so allocated. If it is determined that none of the companies
contributed to the failure of such distribution to qualify for the tax
treatment stated in the IRS Ruling, the liability for taxes will be borne by
each in proportion to its relative average market capitalization as
determined by the average closing price for the common stock of each during
the 20 trading-day period immediately following the Distribution Date. In the
event that either of the Distributions fails to qualify for the tax treatment
stated in the IRS Ruling and the liability for taxes as a result of such
failure is allocated among Corning, Quest Diagnostics and Covance, the
liability so allocated to Quest Diagnostics or Covance could exceed the net
asset value of Quest Diagnostics or Covance, respectively.
Voting Cumulative Preferred Stock of Quest Diagnostics
After the Distributions, Corning will retain 1,000 shares of Quest
Diagnostics' voting cumulative preferred stock, with an aggregate liquidation
preference of $1.0 million. Corning is the sole holder of such shares. For a
description of the terms of the Quest Diagnostics voting cumulative preferred
stock, see "Description of Quest Diagnostics Capital Stock--Voting Cumulative
Preferred Stock."
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COVANCE INC.
RISK FACTORS
Corning shareholders should be aware that the Distributions and ownership
of the Covance Common Stock involve certain risks, including those described
below, which could adversely affect the value of their holdings. Neither
Corning nor Covance makes, nor is any other person authorized to make, any
representations as to the future market value of Covance Common Stock.
Risks Relating to the Distributions
Effects on Corning Stock. Following the Distributions, Corning Common
Stock will continue to be listed and traded on the NYSE and certain other
stock exchanges. As a result of the Distributions, the trading price of
Corning Common Stock is expected to be correspondingly lower than the trading
price of Corning Common Stock immediately prior to the Distributions. There
can be no assurance that the combined trading prices of Corning Common Stock,
Quest Diagnostics Common Stock and Covance Common Stock after the
Distributions will be equal to or greater than the trading price of Corning
Common Stock prior to the Distributions.
Risks Relating to Covance
Financial Impact of the Distributions on Covance. While Covance has a
substantial operating history, it has not operated as a separate independent
company. As a Corning subsidiary, Covance has had access to the cash flow
generated by Corning and to Corning's credit, which is based on the combined
assets of Corning, which included Quest Diagnostics and Covance. Subsequent
to the Distributions, Covance will not have the benefit of Corning's cash
flow or assets. This may impact, among other things, Covance's ability to
expand, through acquisitions or otherwise, and could thereby have an adverse
effect on Covance's operating earnings and cash flow.
Dependence on and Effect of Government Regulation. Covance's business
depends on the continued strict government regulation of the drug development
process, especially in the United States and Europe. Changes in regulation,
including a relaxation in regulatory requirements or the introduction of
simplified drug approval procedures, could have a material adverse effect on
the demand for the services offered by Covance.
The failure on the part of Covance to comply with applicable regulations
could result in the termination of ongoing research or the disqualification
of data for submission to regulatory authorities. Furthermore, the issuance
of a notice of finding by the Food and Drug Administration (the "FDA") to
either Covance or its clients based upon a material violation by Covance of
Good Clinical Practices ("GCP"), Good Laboratory Practices ("GLP") or Current
Good Manufacturing Practices ("GMP") requirements could have a material
adverse effect on Covance. See "Business of Covance--CRO Industry Overview"
and "Business of Covance--Government Regulation."
Fixed Price Nature of Contracts; Loss or Delay of Large Contracts. Most of
Covance's contracts for the provision of its services are fixed price or
fee-for-service with a cap. Approximately 75% of Covance's net revenues are
earned under contracts which generally range in duration from a few months to
two years. For the fiscal year ended 1995, fixed price and fee-for-service
contracts with a cap accounted for 65% of contract generated net revenues,
with fixed price accounting for 40% and fee-for-service with a cap accounting
for 25% of contract generated net revenues. The balance of the net revenues
generated under contracts in 1995 were pursuant to fee- for-service contracts
without a cap. Since Covance's contracts are predominantly structured as
fixed price or fee- for-service with a cap, Covance bears the risks of cost
overruns. Underpricing of such contracts or significant cost overruns could
have a material adverse effect on Covance.
Most of Covance's contracts for the provision of its services, including
contracts with governmental agencies, are terminable by the client
immediately or upon notice. Contracts may be terminated for a variety of
reasons, including the failure of products to satisfy safety requirements,
unexpected or undesired results of the product, the client's decision to
terminate the development of the product or to forego or end a particular
study, insufficient patient enrollment or investigator recruitment or
Covance's failure to properly discharge its obligations thereunder. Although
the contracts often require payment to Covance of expenses to wind down the
study and fees earned to date and, in some cases, a termination fee or a
payment of a portion of the fees or profits that would have been earned under
the contract if the contract had not been terminated early, the loss of a
large contract or the loss of
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multiple contracts could have a material adverse effect on Covance. See
"Business of Covance--Contractual Arrangements."
Biomanufacturing--New Business Venture. Covance holds a majority interest
in Covance Biotechnology Services Inc. ("Covance Biotechnology," formerly
known as Corning Bio Inc.), a majority owned company formed in 1995 to
manufacture peptides and recombinant proteins for biotechnology and
pharmaceutical clients in accordance with GMP for preclinical and clinical
trials as well as for commercial sales and to provide process development
services. See "Business of Covance--Services--Biomanufacturing." Outsourced
biomanufacturing is a relatively new industry and as such companies in this
industry are subject to all of the risks inherent in a new or emerging
industry, including changes in the regulatory regime, an absence of an
established earnings history, the availability of adequately trained
management and employees, and the potential for significant client
concentration. As a start-up venture, Covance Biotechnology is subject to the
risks inherent in the establishment of a new business enterprise, including,
among others, unanticipated construction delays, operational and
manufacturing problems, additional and unforeseen costs and expenses and
inability to attract and retain clients. There can be no assurance that, even
after the expenditure of substantial funds and efforts, Covance Biotechnology
will be able to market successfully its biomanufacturing services. Covance
Biotechnology's biomanufacturing facility is still under construction and is
expected to be "mechanically" completed during the fourth quarter of 1996.
Mechanical completion occurs when all structural aspects of the facility are
complete, all mechanical equipment and systems are installed and a
certificate of occupancy has been issued by an applicable governmental
authority. After mechanical completion, the facility must be "validated,"
which means that the various equipment, systems and procedures that are
required to manufacture a biologic must be thoroughly tested and reviewed.
Although Covance Biotechnology has submitted proposals to a number of
prospective biopharmaceutical clients, it has been awarded only one contract,
but has signed a number of letters of intent for the provision of services.
For the period ended December 31, 1995, Covance Biotechnology reported a net
loss of approximately $1.9 million, and for the nine months ended September
30, 1996, Covance Biotechnology reported a net loss of approximately $2.3
million.
The biomanufacturing facility is being financed through several tax
retention operating leases provided by a commercial lending institution (the
"Bank") and, during the construction phase, is being leased by a general
contractor (the "General Contractor"). The leases expire 10 years from the
date of mechanical completion of the facility. The annual minimum lease
payments are currently estimated at $5.5 million. At the expiration of the
lease term, Covance Biotechnology is liable for the unamortized balance of
the cost of the facility, currently estimated to be $37 million. Covance
Biotechnology may also choose to purchase the facility at specific dates over
the 10 year period. Using current estimates, the purchase price would be
approximately $54 million at the end of the first year, decreasing on an
amortizing basis to approximately $37 million at the end of the tenth year.
Volatility of Quarterly Operating Results. Covance's quarterly operating
results are subject to volatility due to such factors as the commencement,
completion or cancellation of large contracts, progress of ongoing contracts,
acquisitions, the timing of start-up expenses for new offices and changes in
the mix of services. Since a large percentage of Covance's operating costs
are relatively fixed, variations in the timing and progress of large
contracts can materially affect quarterly results. Because a significant
portion of Covance's revenues are generated by its international operations,
exchange rate fluctuations may also influence these results. Covance believes
that comparisons of its quarterly financial results are not necessarily
meaningful and should not be relied upon as an indication of future
performance. However, fluctuations in quarterly results could affect the
market price of the Covance Common Stock in a manner unrelated to the longer
term operating performance of Covance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of
Covance--Quarterly Results."
Dependence on Certain Industries and Clients. Revenues of Covance are
highly dependent on research and development expenditures by the
pharmaceutical and biotechnology industries. Accordingly, Covance's
operations could be materially and adversely affected by general economic
downturns in these industries, the impact of the current trend toward
consolidation in these industries or other factors resulting in a decrease in
research and development expenditures. Furthermore, Covance has benefitted to
date from the increasing tendency of pharmaceutical and biotechnology
companies to outsource both small and large clinical research projects. A
reversal of this trend could have a material adverse effect on the revenues
of Covance.
Covance believes that concentrations of business in the contract research
organization ("CRO") industry are not uncommon. Covance has experienced such
concentration in the past and may experience such concentration in fiscal
1997 and in future years. No client accounted for 10% or more of Covance's
net revenues in 1993, 1994 or 1995. None
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of Covance's clients accounted for greater than 5% of Covance's net revenues
in the year ended December 31, 1993. In the years ended December 31, 1994 and
1995, one client accounted for greater than 5% of Covance's net revenue. In
fiscal 1993, 1994 and 1995 and the nine months ended September 30, 1996,
Covance's top five clients accounted for approximately 17%, 20%, 21% and 21%,
respectively, of Covance's net revenue. The loss of business from a
significant client or group of clients could have a material adverse effect
on Covance. See "Business of Covance--Trends Affecting the CRO Industry" and
"Business of Covance--Clients and Marketing."
Competition; CRO Industry Consolidation; Few Barriers to Entry. The CRO
industry is highly fragmented, with participants ranging from hundreds of
small, limited-service providers to a few full service CROs with global
operations. Covance primarily competes against in-house departments of
pharmaceutical companies, full-service CROs and, to a lesser extent,
universities and teaching hospitals. CROs compete on the basis of several
factors, including reputation for on-time quality performance, expertise and
experience in specific therapeutic areas, scope of service offerings, how
well such services are integrated, strengths in various geographic markets,
price, technological expertise and efficient drug development processes, the
ability to acquire, process, analyze and report data in a time- saving
accurate manner, the ability to manage large-scale clinical trials both
domestically and internationally, expertise and experience in health
economics and size. While Covance has competed effectively in these areas,
there can be no assurance that Covance will be able to continue to do so. As
a result of competitive pressures, the CRO industry is consolidating. This
trend is likely to produce competition among the larger CROs for both clients
and acquisition candidates and companies may choose to limit the CROs they
are willing to work with. In addition, there are few barriers to entry for
small, limited-service entities considering entering the CRO industry. These
entities may compete against larger CROs for clients. Furthermore, the CRO
industry has attracted the attention of the investment community, which could
lead to increased competition by increasing the availability of financial
resources for CROs. Increased competition may lead to price and other forms
of competition that could have a material adverse effect on the results of
operations of Covance. See "Business of Covance--Competition."
Potential Liability. In connection with many clinical trials, Covance
contracts with physicians, also referred to as investigators, to conduct the
clinical trials to test new drugs on human volunteers. Such testing creates
risk of liability for personal injury or death to volunteers, particularly to
volunteers with life-threatening illnesses, resulting from adverse reactions
to the drugs administered. Although Covance does not believe it is legally
accountable for the medical care rendered by third-party investigators, it is
possible that Covance could be held liable for the claims and expenses
arising from any professional malpractice of the investigators with which it
contracts or in the event of personal injury or death of persons
participating in clinical trials. Covance also could be held liable for
errors or omissions in connection with the services it performs that result
in harm that arises either during or after a trial to study volunteers or
consumers of the drug in the general marketplace subsequent to regulatory
approval of the drug. For instance, improper storage, packaging or
manufacturing of a compound could lead to its adulteration. In addition,
Covance could be liable for the general risks associated with its Phase I
facility including, but not limited to, adverse events resulting from the
administration of drugs to clinical trial participants or the professional
malpractice of Phase I medical care providers. Further, Covance could be held
liable for harm to study volunteers or consumers of an approved drug for
testing errors or omissions by either its preclinical or central
laboratories. Moreover, because Covance's preclinical laboratories also
conduct tests for the agrochemical and food industries, Covance could be held
liable for errors or omissions that result in unsafe products entering the
marketplace. Finally, although Covance's animal breeding facilities maintain
procedures in accordance with applicable government regulations and the
preventive measures contained in its company policies for the quarantine and
handling of imported animals, including primates, there is a risk that these
animals may be infected with diseases that may be harmful and even lethal to
themselves and humans. Covance believes that as a result of its extensive
preventive procedures and compliance with the quarantine procedures of the
Center for Disease Control, there are no material risks of widespread harm to
humans through exposure to such diseases. However, if any humans should
become infected, Covance may be subject to claims by employees, or persons
who come in contact with employees, who were exposed to such infectious
diseases. In 1996 Covance, with the approval of the Texas Department of
Health and the Centers for Disease Control, destroyed a shipment of monkeys
from the Philippines because some had been infected with a substrain of the
Ebola-Reston virus, which is lethal to monkeys. Covance does not believe that
it will have any liability resulting from such incident because all of
Covance's employees who may have had any exposure to the monkeys who may have
been infected by the virus were carefully monitored and have shown no sign of
unexplained illness.
Covance believes that its risks are generally reduced by contractual
indemnification provisions with clients and, where applicable, investigators
(the scope of which varies from client to client and the performance of which
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<PAGE>
are not secured); insurance maintained by clients and, where applicable,
investigators and by Covance; and various regulatory requirements, including
the use of institutional review boards in the clinical area and the
procurement of each volunteer's informed consent to participate in the
clinical study. The contractual indemnifications generally do not protect
Covance against liability arising from certain of its own actions such as
negligence. Covance could be materially and adversely affected if it were
required to pay damages or bear the costs of defending any claim outside the
scope of or in excess of a contractual indemnification provision or beyond
the level of insurance coverage or in the event that an indemnifying party
does not fulfill its indemnification obligations. There can be no assurance
that Covance will be able to maintain such insurance coverage on terms
acceptable to Covance.
Risks Associated with Acquisitions; Integration of Acquired
Operations. During the last three fiscal years Covance completed three
acquisitions. Covance reviews many acquisition candidates in the ordinary
course of business and, in addition to acquisitions already made, Covance is
continually evaluating new acquisition opportunities. Acquisitions involve
numerous risks, including, among other things, difficulties and expenses
incurred in connection with the acquisitions and the subsequent assimilation
of the operations and services or products of the acquired companies, the
diversion of management's attention from other business concerns and the
potential loss of key employees of the acquired company. Acquisitions of
foreign companies also may involve the additional risks of assimilating
differences in foreign business practices and overcoming language and other
cultural barriers. In the event that the operations of an acquired business
do not perform as expected, Covance may be required to restructure the
acquired business or write off the value of some or all of the assets of the
acquired business. Further, to the extent that any future acquisitions are
effected through the issuance of stock to the shareholders of the acquired
company, the interest of shareholders holding shares of Covance prior to the
acquisition could be diluted. There can be no assurance that acquisition
candidates will be available on terms and conditions acceptable to Covance
or, despite Covance's success with prior acquisitions, that any past or
future acquisition will be successfully integrated into Covance's operations,
or that they will contribute favorably to Covance's results of operations or
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Covance."
Potential Adverse Impact of Health Care Reform. The health care industry
is subject to changing political, economic and regulatory influences that may
affect the pharmaceutical and biotechnology industries. During 1994, several
comprehensive health care reform proposals were introduced in Congress. The
intent of the proposals was, generally, to expand health care coverage for
the uninsured and reduce the growth of total health care expenditures. While
none of the proposals was adopted, health care reform may again be addressed
by Congress, and there have been efforts recently to enact less comprehensive
reform bills. Similar reform movements have occurred in Europe and Asia.
Implementation of government health care reform may adversely affect research
and development expenditures by pharmaceutical and biotechnology companies
which could decrease the business opportunities available to Covance in the
United States and abroad. Covance is unable to predict the likelihood of such
or similar legislation being enacted into law or the effects such legislation
would have on Covance.
Loss of Brand Names. In connection with the Covance Spin-Off Distribution,
Covance will change the trade names under which it conducts its business.
Covance believes that its business has benefitted from the use of the
"Corning," "Besselaar," "SciCor," "Hazleton," "PACT," "HTA," "National
Packaging," "CRS Pacamed" and "HRP" brand names. The impact of the change in
trade names on Covance's business and operations cannot be fully predicted.
Absence of Dividends; Restrictions on Dividends Imposed by the Covance
Credit Facility. It is currently contemplated that, following the
Distributions, Covance will not pay cash dividends in the foreseeable future,
but will retain earnings to provide funds for the operation and expansion of
its business. In addition, the Covance Credit Facility prohibits Covance from
paying cash dividends on the Covance Common Stock during a Default or an
Event of Default, or if after giving effect to the payment of such dividends
Covance would not be in compliance with the financial covenants contained
therein. See "Description of Covance Capital Stock--Covance Common Stock--
Dividend Policy," "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Covance--Liquidity and Capital
Resources" and "Description of Certain Indebtedness of Covance."
Potential Liability under the Spin-Off Tax Indemnification
Agreements. Covance will enter into the Corning/ Covance Spin-Off Tax
Indemnification Agreement that will prohibit Covance for a period of two
years after the Distribution Date from taking certain actions, including a
sale of 50% or more of the assets of Covance or engaging in certain equity or
financing transactions, that might jeopardize the favorable tax treatment of
the Distributions under Code section 355 and will provide Corning with
certain rights of indemnification against Covance. Covance
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<PAGE>
may also have indemnification obligations under the Spin-Off Tax
Indemnification Agreements in the case of the acquisition of, or tender or
purchase offer by another person for, 20% or more of the outstanding Covance
Common Stock. The Corning/Covance Spin-Off Tax Indemnification Agreement will
also require Covance to take such actions as Corning may reasonably request
to preserve the favorable tax treatment provided for in any rulings obtained
from the IRS in respect of the Distributions. Covance will also enter into
the Quest Diagnostics/Covance Spin-Off Tax Indemnification Agreement that
will prohibit Covance for a period of two years after the Distribution Date
from taking certain actions, including a sale of 50% or more of the assets of
Covance or engaging in certain equity or financing transactions, that might
jeopardize the favorable tax treatment of the Covance Spin-Off Distribution
under Code section 355 and will provide Quest Diagnostics with certain rights
of indemnification against Covance. The Quest Diagnostics/Covance Spin-Off
Tax Indemnification Agreement will also require Covance to take such actions
as Quest Diagnostics may reasonably request to preserve the favorable tax
treatment provided for in any rulings obtained from the IRS in respect of the
Distributions. If obligations of Covance under either the Corning/Covance
Spin-Off Tax Indemnification Agreement or the Quest Diagnostics/Covance
Spin-Off Tax Indemnification Agreement were breached and primarily as a
result thereof either of the Distributions do not receive favorable tax
treatment under Code section 355, Covance would be required to indemnify
Corning and Quest Diagnostics for Taxes imposed and such indemnification
obligations could exceed the net asset value of Covance at such time. See
"The Relationship Among Corning, Quest Diagnostics and Covance After the
Distributions-- Spin-Off Tax Indemnification Agreements."
Potential Adverse Effect of Exchange Rate Fluctuations on
Results. Approximately 22%, 24% and 30% of Covance's net revenues for the
years ended December 31, 1993, 1994, and 1995, respectively, were derived
from Covance's operations outside of the United States. Contracts between
Covance's foreign subsidiaries and its clients are frequently denominated in
currencies other than the applicable subsidiary's local currency.
Accordingly, payments received for services rendered under such contracts are
denominated in a currency different than the currency used for the payment of
the subsidiary's expenses. Therefore, the subsidiary's net revenues, expenses
and earnings are affected by fluctuations in exchange rates. To the extent
Covance is unable to shift to its clients the effects of currency
fluctuations, these fluctuations could have a material adverse effect on
Covance's results of operations. Covance does not currently hedge against the
risk of exchange rate fluctuations. In addition, Covance's combined financial
statements are denominated in U.S. dollars, and, accordingly, changes in
exchange rates between the applicable foreign currency and the U.S. dollar
will affect the translation of such subsidiary's financial results into U.S.
dollars for purposes of reporting Covance's combined financial results.
Absence of a Prior Public Market. Prior to the Distributions, there has
been no public market for the Covance Common Stock. Although it is expected
that the Covance Common Stock will be approved for listing on the NYSE, there
is no existing market for the Covance Common Stock and there can be no
assurance as to the liquidity of any markets that may develop, the ability of
Covance stockholders to sell their shares of Covance Common Stock or at what
price Covance stockholders will be able to sell their shares of Covance
Common Stock. Future trading prices will depend on many factors including,
among other things, prevailing interest rates, Covance's operating results
and the market for similar securities.
Potential Volatility of Stock Price. The market price of Covance Common
Stock could be subject to wide fluctuations in response to quarter-to-quarter
variations in operating results, changes in earnings estimates by analysts,
market conditions in the contract research industry, prospects for health
care reform, changes in government regulation and general economic
conditions. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have been unrelated to the
operating performance of particular companies. Moreover, Covance Common Stock
could be subject to wide fluctuations for some time after the Distributions
as a result of heavy trading volume stemming from sales by shareholders of
Corning Common Stock who decide not to continue owning Covance Common Stock.
Certain of such sales may include those to be made on behalf of investment
plans maintained for the benefit of Corning employees. These plans currently
hold slightly less than 5% of the outstanding Corning Common Stock and, as a
result of the Distributions, are expected to hold a similar percentage of the
Covance Common Stock. From time to time as market conditions warrant, and as
the administrator of the plans believes to be in the best interests of the
employee beneficiaries, the administrator will sell all of the Covance Common
Stock held by the plans. Such sales are expected to occur within a period of
three years after the Distribution Date. See "Security Ownership by Certain
Beneficial Owners and Management of Covance." These market fluctuations could
have an adverse effect on the market price of Covance Common Stock. Covance
stockholders should be aware, and must be willing to bear the risk, of such
fluctuations in earnings and stock price.
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<PAGE>
Dependence on Key Employees. Covance's affairs are managed by a small
number of key management personnel, the loss of any of whom could have an
adverse impact on Covance. Covance has separation agreements with such
persons. There can be no assurance that Covance can retain its key managerial
and technical employees or that it can attract, assimilate or retain other
skilled technical personnel in the future. See "Management of Covance."
Certain Antitakeover Effects. Covance's amended and restated certificate
of incorporation (the "Covance Certificate") and by-laws (the "Covance
By-Laws"), and the Delaware General Corporation Law ("DGCL"), contain several
provisions that could have the effect of delaying, deferring or preventing a
change in control of Covance in a transaction not approved by the board of
directors of Covance (the "Covance Board"), or, in certain circumstances, by
the disinterested members of the Covance Board. In addition, an acquisition
of certain securities or assets of Covance within two years after the
Distribution Date might jeopardize the tax treatment of the Distributions and
could result in Covance being required to indemnify Corning and Quest
Diagnostics. See "-- Potential Liability under the Spin-Off Tax
Indemnification Agreements" and "Antitakeover Effects of Certain Provisions
of the Covance Certificate of Incorporation and the Covance By-Laws."
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<PAGE>
CAPITALIZATION OF COVANCE
The following table sets forth Covance's capitalization as of September
30, 1996 giving effect to the estimated initial borrowing under the Covance
Credit Facility and the Covance Spin-Off Distribution as if such transactions
occurred on such date. This table should be read in conjunction with the
Covance Financial Statements (as defined below) and notes thereto, and the
Covance Pro Forma Financial Information (as defined below) and notes thereto
included elsewhere herein. Historical and pro forma capitalization may not be
indicative of Covance's future capitalization as an independent company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Covance" and "Business of Covance."
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ------------ -----------
(in thousands)
<S> <C> <C> <C>
Long-Term Debt:
Due to banks $ $ 128,165 (a) $128,165
Due to Corning and affiliates 118,165 (118,165)(a)
-------- ----------- ---------
Total Long-Term Debt 118,165 10,000 128,165
-------- ----------- ---------
Stockholder's Equity:
Contributed capital 32,368 22,500 (b) 54,868
Retained earnings 70,505 (17,822)(b) 52,683
Cumulative translation adjustment 2,999 2,999
-------- ----------- ---------
Total Stockholder's Equity 105,872 4,678 110,550
-------- ----------- ---------
Total Capitalization $224,037 $ 14,678 $238,715
======== =========== =========
</TABLE>
- -------------
(a) The pro forma adjustment to long-term debt due to banks and due to
Corning and affiliates reflect the borrowings to be incurred in
connection with the Covance Spin-Off Distribution. Immediately prior to
the Covance Spin-Off Distribution, Covance will incur long-term bank
borrowings to repay Corning and affiliates for all intercompany
borrowings and income tax liabilities. Assuming the Covance Spin-Off
Distribution occurred on September 30, 1996, such borrowings would
aggregate approximately $128.2 million. The assumed interest rate on
these borrowings is 6.0%.
(b) The pro forma adjustments to contributed capital and retained earnings
represent costs directly related to the Covance Spin-Off Distribution
expected to be incurred during the fourth quarter of 1996. Such costs
consist of direct costs of the Covance Spin-Off Distribution and one-time
charges associated with shares allocated to the employee stock ownership
and other employee benefit plans.
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<PAGE>
SELECTED HISTORICAL FINANCIAL
DATA OF COVANCE
The following table presents selected historical financial data of Covance
at the dates and for each of the periods indicated. The selected financial
data as of and for each of the years ended December 31, 1995, 1994 and 1993
have been derived from the audited combined financial statements of Covance
(the "Audited Covance Financial Statements") and the notes thereto included
elsewhere herein. The selected financial data as of and for the nine months
ended September 30, 1996 and 1995 and the years ended December 31, 1992 and
1991 have been derived from the unaudited combined financial statements of
Covance (the "Covance Interim Financial Statements" and, together with the
Audited Covance Financial Statements, the "Covance Financial Statements"). In
the opinion of management, the unaudited combined financial statements
include all adjustments, consisting of normal recurring accruals, that are
necessary for a fair presentation of the financial position and results of
operations for these periods. The unaudited interim results of operations for
the nine months ended September 30, 1996 are not necessarily indicative of
the results for the entire year ending December 31, 1996.
The selected financial data should be read in conjunction with the Covance
Financial Statements and notes thereto, and the Covance Pro Forma Financial
Information included elsewhere herein. Historical combined financial data may
not be indicative of Covance's future performance as an independent company.
See the Covance Financial Statements and notes thereto and Covance Pro Forma
Financial Information and notes thereto. See also "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Covance" and
"Business of Covance."
115
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
---------------------- -----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- ---------- ---------- -------- -------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenues $357,406 $302,886 $409,174 $319,501 $289,697 $270,871 $246,949
Costs and expenses:
Cost of revenue 232,828 198,820 270,726 213,490 192,783 192,375 176,860
Selling, general and
administrative 57,573 46,965 64,201 48,892 42,949 41,230 37,106
Restructuring charge 4,616 4,616 3,373
Depreciation and
amortization 18,130 16,166 22,070 18,520 16,984 15,212 14,621
------ -------- -------- ------ ------ ------ --------
Total 308,531 266,567 361,613 280,902 252,716 252,190 228,587
------ -------- -------- ------ ------ ------ --------
Income from operations 48,875 36,319(a) 47,561(a) 38,599 36,981 18,681 18,362
------ -------- -------- ------ ------ ------ --------
Other expense (income)
Interest expense, net 4,536 3,918 5,269 4,307 4,421 5,686 4,388
Foreign exchange (gain)
loss (212) (609) (784) (712) 852 1,258
------ -------- -------- ------ ------ ------ --------
4,324 3,309 4,485 3,595 5,273 6,944 4,388
------ -------- -------- ------ ------ ------ --------
Income before taxes and
equity investee loss
(gain) 44,551 33,010(a) 43,076(a) 35,004 31,708 11,737 13,974
Taxes on income 19,411 14,147 18,445 14,924 13,506 6,834 6,835
Equity investee loss (gain) (68) 351 405 435 1,391 303 394
------ -------- -------- ------ ------ ------ --------
Net income before cumulative
effect of change in
accounting method 25,208 18,512 24,226 19,645 16,811 4,600 6,745
Cumulative effect of change
in method of accounting
for postretirement
benefits other than
pensions 4,334
------ -------- -------- ------ ------ ------ --------
Net income $ 25,208 $ 18,512(a) $ 24,226(a) $ 19,645 $ 16,811 $ 266 $ 6,745
====== ======== ======== ====== ====== ====== ========
Balance Sheet Data
(at end of period):
Working capital $ 47,453 $ 27,362 $ 18,472 $ 12,961 $ 12,076 $ 15,451 $ 12,817
Total assets 402,592 332,257 322,510 271,992 229,693 225,337 183,174
Long-term debt 118,165 97,711 89,836 75,178 69,239 77,916 88,801
Stockholder's equity 105,872 78,361 82,517 63,908 49,388 37,197 37,206
</TABLE>
- -------------
(a) Excluding the impact of the second quarter 1995 restructuring charge
totalling $4,616 ($2,770 net of tax), income from operations, income
before taxes and equity investee loss and net income for the nine months
ended September 30, 1995 was $40,935, $37,626 and $21,282, respectively,
and for the year ended December 31, 1995 was $52,177, $47,692 and
$26,996, respectively.
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<PAGE>
PRO FORMA FINANCIAL INFORMATION OF COVANCE
The unaudited pro forma combined statements of income for the nine months
ended September 30, 1996 and the year ended December 31, 1995 present the
results of operations of Covance assuming that the Covance Spin-Off
Distribution had been completed as of January 1, 1995. The unaudited pro
forma combined balance sheet as of September 30, 1996 presents the combined
financial position of Covance assuming that the Covance Spin-Off Distribution
had been completed on that date. In the opinion of Covance management, the
unaudited pro forma combined financial information of Covance ("Covance Pro
Forma Financial Information") includes all material adjustments necessary to
restate Covance's historical results. The adjustments required to reflect
such assumptions are described in the Notes to the Covance Pro Forma
Financial Information and are set forth in the "Pro Forma Adjustments"
column.
The Covance Pro Forma Financial Information should be read in conjunction
with the Covance Financial Statements and notes thereto included elsewhere
herein. The Covance Pro Forma Financial Information presented is for
informational purposes only and may not necessarily reflect the future
results of operations or financial position or what the results of operations
or financial position would have been had the Covance Spin-Off Distribution
occurred as assumed herein, or had Covance been operated as an independent
company during the periods shown.
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<PAGE>
COVANCE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments As Adjusted
---------- ----------- ---------------
(in thousands, except share and per share
data)
<S> <C> <C> <C>
Net revenues $357,406 $ $ 357,406
Cost and expenses
Cost of revenue 232,828 232,828
Selling, general and administrative expenses 57,573 1,500 (a) 59,073
Depreciation and amortization 18,130 18,130
-------- ---------- -------------
Total 308,531 1,500 310,031
-------- ---------- -------------
Income from operations 48,875 (1,500) 47,375
-------- ---------- -------------
Other expense
Interest expense, net 4,536 (b) 4,536
Foreign exchange loss (212) (212)
-------- ---------- -------------
4,324 4,324
-------- ---------- -------------
Income before taxes and equity investee loss 44,551 (1,500) 43,051
Taxes on income 19,411 (593)(c) 18,818
Equity investee (gain) (68) (68)
-------- ---------- -------------
Net income $ 25,208 $ (907) $ 24,301
======== ========== =============
Pro forma shares outstanding 56,903,469(d)
Net income per share $ 0.43(e)
</TABLE>
The accompanying notes to unaudited pro forma combined financial information
are an integral part hereof.
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<PAGE>
COVANCE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments As Adjusted
---------- ----------- ---------------
(in thousands, except share and per share
data)
<S> <C> <C> <C>
Net revenues $409,174 $ $ 409,174
Cost and expenses
Cost of revenue 270,726 270,726
Selling, general and administrative expenses 64,201 2,000 (a) 66,201
Restructuring charge 4,616 4,616
Depreciation and amortization 22,070 22,070
-------- ---------- -------------
Total 361,613 2,000 363,613
-------- ---------- -------------
Income from operations 47,561 (2,000) 45,561
-------- ---------- -------------
Other expense (income)
Interest expense, net 5,269 (b) 5,269
Foreign exchange (gain) (784) (784)
-------- ---------- -------------
4,485 4,485
-------- ---------- -------------
Income before taxes and equity investee loss 43,076 (2,000) 41,076
Taxes on income 18,445 (790)(c) 17,655
Equity investee loss 405 405
-------- ---------- -------------
Net income $ 24,226 $(1,210) $ 23,016
======== ========== =============
Pro forma shares outstanding 56,903,469(d)
Net income per share $ 0.40(e)
</TABLE>
The accompanying notes to unaudited pro forma combined financial information
are an integral part hereof.
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<PAGE>
COVANCE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 1996
<TABLE>
<CAPTION>
Pro Forma As
Historical Adjustments Adjusted
---------- ------------ ----------
(in thousands)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 13,551 $ $ 13,551
Accounts receivable, net 95,690 95,690
Unbilled services 43,110 43,110
Inventory 14,718 14,718
Deferred income taxes 14,273 14,273
Prepaid expenses and other assets 20,639 20,639
-------- ----------- --------
Total Current Assets 201,981 201,981
Property and equipment, net 143,956 143,956
Goodwill, net 43,443 43,443
Other assets 13,212 13,212
-------- ----------- --------
Total Assets $402,592 $ $402,592
======== =========== ========
Liabilities and Stockholder's Equity
Current Liabilities:
Trade accounts payable $ 23,627 $ 23,627
Accrued payroll and benefits 30,058 30,058
Accrued expenses and other liabilities 36,410 $ 5,000 (f) 41,410
Unearned revenue 46,025 46,025
Income taxes payable 18,408 (10,000)(g) 8,408
-------- ----------- --------
Total Current Liabilities 154,528 (5,000) 149,528
-------- ----------- --------
Long-term debt 128,165 (g) 128,165
Due to Corning Incorporated and affiliates 118,165 (118,165)(g)
Deferred income taxes 9,583 (9,678)(f) (95)
Other liabilities 14,444 14,444
-------- ----------- --------
Total Liabilities 296,720 (4,678) 292,042
-------- ----------- --------
Commitments and Contingent Liabilities
Stockholder's Equity:
Contributed capital 32,368 22,500 (f) 54,868
Retained earnings 70,505 (17,822)(f) 52,683
Cumulative translation adjustment 2,999 2,999
-------- ----------- --------
Total Stockholder's Equity 105,872 4,678 110,550
-------- ----------- --------
Total Liabilities and
Stockholder's Equity $402,592 $ $402,592
======== =========== ========
</TABLE>
The accompanying notes to unaudited pro forma combined financial information
are an integral part hereof.
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<PAGE>
COVANCE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Note 1--Pro Forma Adjustments:
Statements of Income
(a) The pro forma adjustment to selling, general and administrative expenses
represents estimated incremental administrative overhead costs associated
with being a public company.
(b) Immediately prior to the Covance Spin-Off Distribution, Covance will
incur long-term bank borrowings to repay Corning and affiliates for all
intercompany borrowings and income tax liabilities due at the date of the
Covance Spin-Off Distribution. Assuming the Covance Spin-Off Distribution
occurred on September 30, 1996, such borrowings would aggregate
approximately $128.2 million. Since the assumed interest rate on these
borrowings of 6.0% approximates the blended rate on Covance's historical
borrowings from Corning, no pro forma adjustment to interest expense is
necessary. If the interest rate on the bank borrowings fluctuates by
1/8%, interest expense fluctuates by approximately $160,000 annually.
(c) The pro forma adjustment to taxes on income represents the estimated
income tax benefit of pro forma adjustment (a) above at an effective tax
rate of 39.5%.
(d) The pro forma common shares outstanding represents Covance management's
current estimate of the number of shares to be outstanding after the
Covance Spin-Off Distribution. Management's estimate includes (a) the
issuance of approximately 56.0 million shares of Covance Common Stock at
an exchange ratio of one share of Covance Common Stock issued for every
four shares of Corning Common Stock outstanding and (b) the issuance of
an estimated 900,000 shares into the employee stock ownership and other
benefit plans. Covance management's estimate of shares outstanding is
subject to change as the result of normal issuances and repurchases of
Corning Common Stock prior to the date of the Covance Spin-Off
Distribution and finalization of the proposed structure of the employee
stock ownership plan.
Net Income Per Share
(e) Net income per share is computed by dividing net income by the pro forma
number of shares of common stock outstanding. Common stock equivalents
are not included in the net income per share computation because they do
not result in material dilution. Historical net income per share is not
presented as Covance's historical capital structure is not comparable to
periods subsequent to the Covance Spin-Off Distribution.
Balance Sheet
(f) The pro forma adjustments to accrued expenses and other liabilities,
contributed capital, deferred income taxes and retained earnings
represent costs directly related to the Covance Spin-Off Distribution
expected to be incurred during the fourth quarter of 1996. Such amounts,
which consist of direct costs of the Covance Spin-Off Distribution
(estimated at $5.0 million) and one-time charges associated with the
issuance of shares into the employee stock ownership (estimated at $21.0
million) and other benefit plans (estimated at $1.5 million), which
amounts represent the estimated fair market value of such shares at the
expected date of issuance, have not been reflected in the Unaudited Pro
Forma Combined Statements of Income because they are non-recurring. The
amount of the charges associated with the issuance of shares into the
employee stock ownership and other benefit plans is subject to change
based on the market price of the Covance Common Stock on the Distribution
Date.
(g) The pro forma adjustments to long-term debt, due to Corning and
affiliates and income taxes payable reflect the borrowings to be incurred
in connection with the Covance Spin-Off Distribution. Immediately prior
to the Covance Spin-Off Distribution, Covance will incur long-term bank
borrowings to repay Corning and affiliates for all intercompany
borrowings and income tax liabilities. Assuming the Covance Spin-Off
Distribution occurred on September 30, 1996 such borrowings would
aggregate approximately $128.2 million.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF COVANCE
Overview
Covance is a leading CRO providing a wide range of integrated product
development services on a worldwide basis to the biotechnology,
pharmaceutical and medical device industries. In addition, and to a lesser
extent, Covance provides services such as health economics for managed care
organizations, hospitals and health care provider networks, and early
development and laboratory testing services to the chemical, agrochemical and
food industries. The foregoing services can be broadly classified into six
lines of business: preclinical, biomanufacturing, clinical and periapproval,
central laboratory, clinical packaging, and health economics. These six lines
of business can be further categorized as non-clinical (preclinical and
biomanufacturing) and clinical (clinical and periapproval, central
laboratory, clinical packaging and health economics). Covance believes it is
one of the largest biopharmaceutical CROs, based on estimated 1995 annual net
revenue, and one of only a few that are capable of providing comprehensive
global product development services. Covance offers its clients high quality
services designed to reduce product development time, allowing them to
introduce their products into the marketplace faster and, thus, maximize the
period of marketing exclusivity and monetary return on their investments.
Additionally, Covance's comprehensive services and broad experience provide
clients with a variable cost alternative to fixed cost internal development
capabilities.
The businesses that today constitute Covance were acquired by Corning,
starting in 1987, as part of a strategy to create a global, integrated and
full service product development company. In keeping with this strategy,
during the period 1994 through the present, Covance has purchased the
remaining interest in a jointly owned company, acquired a significant
minority interest in a complementary service business, acquired two new
businesses and formed a major new business venture. Specifically, in April
1994, Covance acquired the remaining interest in SciCor S.A., a provider of
central laboratory testing services based in Switzerland. The transaction was
accounted for as a purchase business combination. In October 1994, Covance
acquired a significant minority equity position in Bio- Imaging Technologies,
Inc. ("Bio-Imaging"), which uses proprietary imaging technology to quantify
the diagnostic and therapeutic effectiveness of experimental drugs and
devices. Covance expanded its offering of value added product development
services in January 1995 with the acquisition of National Packaging Systems,
Inc., a leading clinical packaging company. The transaction was accounted for
as a purchase business combination. In February 1995, Covance formed Covance
Biotechnology, a majority-owned company which will enable Covance to engage
in biomanufacturing. In recognition of the rapid changes in the
biopharmaceutical industry's marketplace, particularly the need for the
industry to further demonstrate the benefits and cost effectiveness of their
products to payors, Covance purchased in March 1996 all the assets and
substantially all of the liabilities of Health Technology Associates, Inc.
("HTA"), a leading health economics company, in a transaction accounted for
as a purchase business combination. In October 1996, Covance expanded its
clinical packaging capabilities to Europe with the purchase of Swiss based
CRS Pacamed AG (now known as Covance Pharmaceutical Packaging Services AG).
In addition, Covance acquired an 81,000 square foot facility in Horsham,
England, which will be used, among other things, to provide clinical
packaging services in Europe.
During the fiscal year ended December 31, 1995, approximately
three-quarters of Covance's net revenues were earned under contracts, which
generally range in duration from a few months to two years. Revenue from
these contracts is recognized as costs are incurred on the basis of the
relationship between costs incurred and estimated total costs. Typically,
Covance's contracts in the preclinical, central laboratory, clinical
packaging and health economics areas are fixed price or fee-for-service and
in the clinical and periapproval areas are fee-for-service with a cap. To a
lesser extent, some of the contracts in the clinical and periapproval areas
are fixed price or fee-for-service without a cap. The contracts may contain
provisions for renegotiation for cost overruns arising from changes in the
level of work scope. Renegotiated amounts are included in net revenues when
earned and realization is assured. In some cases, for multi-year contracts
involving preclinical and clinical and periapproval trials, a portion of the
contract fee is paid at the time the trial is initiated, with
performance-based installments payable over the contract duration, in some
cases on a milestone achievement basis. Covance routinely subcontracts with
independent physician investigators in connection with multi-site clinical
trials. Investigator fees are not reflected in net revenues or expenses since
such fees are granted by customers on a "pass-thru basis" without risk or
reward to Covance. While most contracts are terminable either immediately or
upon notice by the client, they typically require payment
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of expenses to wind down a study and fees earned to date, and, in some cases,
a termination fee or a payment of some portion of the fees or profit that
could have been earned under the contract if it had not been terminated
early.
Covance's cost of revenue includes appropriate amounts necessary to
complete the net revenues and earnings process and includes direct labor and
related benefit charges, other direct costs and allocable expenses (including
indirect labor, facility charges and information technology costs). These
costs, as a percentage of net revenues, tend to fluctuate from one period to
another (generally within a range of up to 2% in either direction)
principally as a result of changes in labor utilization and the mix of
service offerings involving hundreds of studies conducted during any period
of time. Accordingly, changes in cost of revenue as a percentage of net
revenues plus or minus 2% are expected from one period to another.
Results of Operations
Three Months Ended September 30, 1996 Compared with Three Months Ended
September 30, 1995. Net revenues increased 19.9% to $127.2 million for the
three months ended September 30, 1996 from $106.1 million for the
corresponding 1995 period. Excluding the impact of the 1996 acquisition of
HTA, growth in net revenues was 14.3%. Net revenues from Covance's combined
clinical lines of business, excluding the recently acquired health economics
business, grew in excess of 15% benefitting from the continuing trend in
outsourcing of clinical development activities, while net revenues from
Covance's preclinical business grew in excess of 10%.
Cost of revenue increased 18.8% to $83.2 million for the three months
ended September 30, 1996 from $70.1 million for the corresponding 1995 period
as a result of the increase in net revenues. Cost of revenue, as a percentage
of net revenues, decreased to 65.4% for the three months ended September 30,
1996 from 66.0% for the corresponding 1995 period.
Overall, selling, general and administrative expense, which consists
primarily of administrative payroll and related benefit charges, advertising
and promotional expenses, administrative travel and allocable expenses
(facility charges and information technology costs), increased 22.2% to $20.6
million for the three months ended September 30, 1996 from $16.9 million for
the corresponding 1995 period. As a percentage of net revenues, selling,
general and administrative expense increased to 16.2% for the quarter ended
September 30, 1996 from 15.9% for the corresponding 1995 period. Contributing
to the increase in selling, general and administrative expense were a
continuing increase in Covance's corporate center function, administrative
costs associated with the establishment of Covance's new Singapore operation
and the evaluation of further geographic expansion opportunities, partially
offset by a reduction in certain administrative costs allocated by Corning
and affiliates.
Depreciation and amortization increased 6.5% to $5.8 million or 4.6% of
net revenues for the three months ended September 30, 1996 from $5.5 million
or 5.2% of net revenues for the corresponding 1995 period as the growth in
net revenues outpaced the increase in these non-cash charges.
Income from operations increased 28.0% to $17.5 million or 13.8% of net
revenues for the quarter ended September 30, 1996 from $13.7 million or 12.9%
of net revenues for the corresponding 1995 period.
Other expense increased $1.3 million for the three months ended September
30, 1996 to $1.6 million from $0.2 million for the corresponding 1995 period,
due to an increase in interest expense, net of $0.7 million and to larger
foreign exchange gains recognized during the 1995 three-month period.
Covance's effective tax rate for the three months ended September 30, 1996
increased to 43.4% from 42.9% for the comparable period in 1995. Since
Covance operates on a global basis, its effective tax rate is subject to
variation from year to year as the geographic dispersion of its pre-tax
earnings changes.
Net income increased $1.6 million to $9.1 million for the quarter ended
September 30, 1996 from $7.5 million for the corresponding 1995 period.
Nine Months Ended September 30, 1996 Compared with Nine Months Ended
September 30, 1995. Net revenues increased 18.0% to $357.4 million for the
nine months ended September 30, 1996 from $302.9 million for the
corresponding 1995 period. Excluding the impact of the 1996 acquisition of
HTA, growth in net revenues was 14.4%. Net revenues from Covance's combined
clinical lines of business, excluding the newly acquired health economics
business, grew nearly 20%, benefitting from the continuing trend in
outsourcing of clinical development activities, while net revenues from its
more mature preclinical line of business grew approximately 8.0%.
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Cost of revenue increased 17.1% to $232.8 million for the nine months
ended September 30, 1996 from $198.8 million for the corresponding 1995
period as a result of the increase in net revenues. Cost of revenue, as a
percentage of net revenues, decreased slightly to 65.1% for the nine months
ended September 30, 1996 from 65.6% for the corresponding 1995 period.
Overall, selling, general and administrative expense increased 22.6% to
$57.6 million for the nine months ended September 30, 1996 from $47.0 million
for the corresponding 1995 period. As a percentage of net revenues, selling,
general and administrative expense increased to 16.1% for the nine months
ended September 30, 1996 from 15.5% for the corresponding 1995 period.
Contributing to the increase in selling, general and administrative expenses
were increasing pre-operating costs relative to Covance's biomanufacturing
business, an increase in Covance's corporate center function, administrative
costs associated with the establishment of Covance's new Singapore operation
and the evaluation of further geographic expansion opportunities, partially
offset by a reduction in certain administrative costs allocated by Corning
and affiliates.
Depreciation and amortization increased 12.1% to $18.1 million or 5.1% of
net revenues for the nine months ended September 30, 1996 from $16.2 million
or 5.3% of net revenues for the corresponding 1995 period as the growth in
net revenues outpaced the increase in these non-cash charges.
Income from operations increased 34.6% to $48.9 million for the nine
months ended September 30, 1996 from $36.3 million for the corresponding 1995
period. During the second quarter of 1995, Covance recorded a restructuring
provision totalling $4.6 million ($2.8 million after tax) as a result of
management's decision to discontinue certain nonstrategic operations.
Excluding the impact of the 1995 restructuring provision, income from
operations increased 19.4% to 13.7% of net revenues for the nine months ended
September 30, 1996 from 13.5% of net revenues for the corresponding 1995
period.
Other expense increased $1.0 million for the nine months ended September
30, 1996 to $4.3 million from $3.3 million for the corresponding 1995 period,
due to an increase in interest expense, net of $0.6 million and to larger
foreign exchange gains recognized during the first nine months of 1995.
Covance's effective tax rate for the nine months ended September 30, 1996
increased to 43.6% from 42.9% for the comparable period in 1995. Since
Covance operates on a global basis, its effective tax rate is subject to
variation from year to year as the geographic dispersion of its pre-tax
earnings changes.
Net income increased $6.7 million to $25.2 million for the nine months
ended September 30, 1996 from $18.5 million for the corresponding 1995
period. Excluding the impact of the 1995 restructuring provision, net income
increased $3.9 million or 18.4% for the nine months ended September 30, 1996
compared to the corresponding 1995 period.
Year Ended December 31, 1995 Compared with Year Ended December 31,
1994. Net revenues increased 28.1% to $409.2 million for 1995 from $319.5
million for 1994. Excluding the impact of the 1995 acquisition of National
Packaging Systems, Inc., growth in net revenues was 23.8%. Net revenues from
Covance's combined clinical lines of business, excluding the newly acquired
clinical packaging business, grew in excess of 35%, generally as a result of
the growth in outsourcing of clinical development activities in 1995 as
compared to 1994 and more specifically because of Covance's central
laboratory's effort to complete development work on several large protease
inhibitor studies by the end of 1995. Net revenues from Covance's preclinical
business grew nearly 10%, largely as a result of particularly strong growth
in Europe, fueled by new service offerings, overall volume increases and
favorable foreign exchange rates in 1995 compared to 1994.
Cost of revenue increased 26.8% to $270.7 million or 66.2% of net revenues
for 1995 from $213.5 million or 66.8% of net revenues for 1994, as a result
of the increase in net revenues.
Overall, selling, general and administrative expense increased 31.3% to
$64.2 million for 1995 from $48.9 million for 1994. As a percentage of net
revenues these costs increased to 15.7% for 1995 from 15.3% for 1994. Largely
contributing to the increase in selling, general and administrative expenses
were administrative costs associated with the establishment of Covance's new
biomanufacturing business, an increase in Covance's corporate center
function, strategic consulting expenses incurred to reorganize a large
portion of Covance's clinical operations into customer teams to better manage
large scale clinical trials and increased marketing initiatives such as the
establishment of a Lotus Notes(R) based centralized client contact database
for use by Covance's sales force, partially
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offset by a non-recurring charge incurred in 1994 in connection with a
separation payment made to Covance's then chief executive officer upon his
resignation.
During 1995, Covance recorded a restructuring provision totalling $4.6
million ($2.8 million after tax) as a result of management's decision to
discontinue certain nonstrategic operations. The restructuring charge
included severance costs relating to approximately 90 employees of which
approximately 50 had been terminated as of December 31, 1995. The remaining
employees were terminated and all other substantive activities to complete
the restructuring plan were completed by April 30, 1996. Severance benefits
are being paid in the form of salary continuation. The restructuring
activities have occurred substantially in accordance with the restructuring
plan.
Depreciation and amortization increased 19.2% to $22.1 million or 5.4% of
net revenues for 1995 from $18.5 million or 5.8% of net revenues for 1994 as
the growth in net revenues outpaced the increase in these non- cash charges.
Income from operations increased $9.0 million or 23.2% to $47.6 million
for 1995 from $38.6 million for 1994. Excluding the impact of the 1995
restructuring provision, the increase in income from operations was $13.6
million or 35.2% to 12.8% of net revenues for 1995 from 12.1% of net revenues
for 1994.
Other expense increased $0.9 million for 1995 to $4.5 million from $3.6
million for 1994. This increase is entirely a result of an increase in
interest expense relating principally to 1995 acquisition activity.
Substantially all borrowings to date have been from Corning.
Covance's effective tax rate for 1995 increased slightly to 42.8% from
42.6% for 1994.
Net income increased 23.3% to $24.2 million for 1995 from $19.6 million
for 1994. Excluding the impact of the 1995 restructuring provision, the
increase in net income was $7.4 million or 37.4% for 1995.
Year Ended December 31, 1994 Compared with Year Ended December 31,
1993. Net revenues increased 10.3% to $319.5 million for 1994 from $289.7
million for 1993. Excluding the impact of 1994 acquisitions, net revenues
growth was 7.9%. Net revenues from Covance's combined clinical lines of
business grew nearly 20%, largely due to growth in the European clinical and
periapproval and central laboratory operations. Net revenues from Covance's
preclinical operations was relatively unchanged compared to 1993 due to low
volume together with pricing pressures in various product line offerings.
Cost of revenue increased 10.7% to $213.5 million or 66.8% of net revenues
for 1994 from $192.8 million or 66.5% of net revenues for 1993.
Overall, selling, general and administrative expense increased 13.8% to
$48.9 million or 15.3% of net revenues for 1994 from $42.9 million or 14.8%
of net revenues for 1993. Largely contributing to the increase in selling,
general and administrative expenses was a separation payment made to
Covance's then chief executive officer upon his resignation. Exclusive of
this non-recurring charge, selling, general and administrative expenses were
relatively unchanged from 1993.
Depreciation and amortization increased 9.0% to $18.5 million or 5.8% of
net revenues for 1994 from $17.0 million or 5.9% of net revenues for 1993 as
the growth in net revenues outpaced the increase in these non-cash charges.
Income from operations increased 4.4% to $38.6 million or 12.1% of net
revenues for 1994 from $37.0 million or 12.8% of net revenues for 1993.
Other expense decreased $1.7 million for 1994 to $3.6 million versus $5.3
million for 1993. This reduction is a result of a net foreign currency
transaction gain of $0.7 million reported for 1994 versus a net foreign
currency transaction loss of $0.9 million reported for 1993.
Covance's effective tax rate for 1994 remained unchanged from 1993 at
42.6%.
Net income increased 16.9% or $2.8 million to $19.6 million for 1994 from
$16.8 million for 1993.
Quarterly Results
Covance's quarterly operating results are subject to variation, and are
expected to continue to be subject to variation, as a result of factors such
as delays in initiating or completing significant preclinical and clinical
and
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periapproval trials, termination of preclinical and clinical and periapproval
trials, acquisitions and exchange rate fluctuations. Delays and terminations
of studies or trials are often the result of actions taken by clients or
regulatory authorities and are not typically controllable by Covance. Since a
large amount of Covance's operating costs are relatively fixed while revenue
is subject to fluctuation, minor variations in the commencement, progress or
completion of preclinical and clinical and periapproval trials may cause
significant variations in quarterly operating results.
The following table presents unaudited quarterly operating results of
Covance for each of the ten most recent fiscal quarters in the period ended
September 30, 1996. In the opinion of Covance, this information has been
prepared on the same basis as the Audited Covance Financial Statements and
reflects all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of results of operations for those periods.
This quarterly financial data should be read in conjunction with the Audited
Covance Financial Statements and notes thereto included elsewhere herein. The
operating results for any quarter are not necessarily indicative of the
results to be expected in any future period. See "Risk Factors--Risks
Relating to Covance--Volatility of Quarterly Operating Results."
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------------------------------
June Sept. Dec. Mar. Sept. Dec.
30, 30, 31, 31, June 30, 30, 31, Mar. 31, June 30, Sept. 30,
1994 1994 1994 1995 1995 1995 1995 1996 1996 1996
------ ------ ------ ------ -------- ------- ------- -------- -------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues ... $77,762 $82,904 $84,612 $91,974 $104,813 $106,099 $106,288 $108,697 $121,530 $127,179
Operating
expenses ...... 66,685 73,214 74,967 78,991 95,148 92,428 95,046 94,659 104,195 109,677
---- ---- ---- ---- ------ ----- ----- ------ ------ ---------
Income from
operations ... 11,077 9,690 9,645 12,983 9,665(a) 13,671 11,242 14,038 17,335 17,502
Other expense,
net .......... 876 1,030 897 1,434 1,644 231 1,176 1,159 1,615 1,550
---- ---- ---- ---- ------ ----- ----- ------ ------ ---------
Pre-tax income
............... 10,201 8,660 8,748 11,549 8,021(a) 13,440 10,066 12,879 15,720 15,952
Income taxes .... 4,335 3,693 3,732 4,953 3,423 5,771 4,298 5,619 6,861 6,931
Equity investee
loss (gain) ... 140 -- 87 49 149 153 54 (44) 29 (53)
---- ---- ---- ---- ------ ----- ----- ------ ------ ---------
Net income ..... $ 5,726 $ 4,967 $ 4,929 $ 6,547 $ 4,449(a) $ 7,516 $ 5,714 $ 7,304 $ 8,830 $ 9,074
==== ==== ==== ==== ====== ===== ===== ====== ====== =========
</TABLE>
- -------------
(a) Excluding the impact of the second quarter 1995 restructuring provision
totalling $4,616 ($2,770 net of tax), income from operations, pre-tax
income and net income were $14,281, $12,637 and $7,219 respectively.
Liquidity and Capital Resources
Historically, Covance has participated in the centralized treasury and
cash management processes of Corning. For domestic operations, cash received
from operations was generally transferred to Corning on a daily basis. For
international operations, excess cash was transferred to Corning
periodically. Cash disbursements for operations were funded as needed from
Corning. From time to time excess cash balances were maintained at Covance,
generally for specific cash requirements.
Covance is currently negotiating with several banks concerning the
establishment of the Covance Credit Facility. Covance expects that the
Covance Credit Facility will provide for borrowings of up to $250 million,
carry interest at LIBOR plus approximately 37.5 basis points and mature in
five years. Covance intends to borrow under the Covance Credit Facility
before the Covance Spin-Off Distribution to repay Corning and affiliates for
all of its intercompany borrowings and income tax liabilities. Assuming the
borrowing and Covance Spin-Off Distribution both occurred on September 30,
1996, Covance would borrow approximately $128.2 million for such purpose.
This would result in Covance's debt to equity and debt to capital ratios
being 1.16:1 and 0.54:1, respectively. In addition, the Covance Credit
Facility prohibits Covance from paying cash dividends on the Covance Common
Stock during a Default or an Event of Default, if after giving effect
thereto, Covance would not be in compliance with the financial covenants
contained therein. See "Risk Factors--Risks Relating to Covance--Absence of
Dividends; Restrictions on Dividends Imposed by the Covance Credit Facility"
and "Description of Certain Indebtedness of Covance."
Covance's primary cash needs on both a short and long-term basis are for
capital expenditures, expansion of services, possible future acquisitions,
geographic expansion, working capital and other general corporate purposes.
In
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October 1996, Covance acquired CRS Pacamed AG, a Swiss entity providing
clinical packaging services for a cash payment of $14.4 million. Also in
October 1996, Covance acquired a new facility to house its clinical
packaging, clinical and periapproval services and health economics operations
in Europe for a cash payment of approximately $9.0 million. Furthermore,
Covance expects to spend approximately $9.0 million on capital expenditures
between October 1 and December 31, 1996 for maintenance and upgrade of
existing equipment, outfitting of new facilities and computer equipment and
software for newly hired employees and to fund an additional payment of
approximately $6.6 million relating to a 1995 acquisition. Assuming these
expenditures occur prior to the Covance Spin-Off Distribution, Covance
estimates that its debt at the Distribution Date will be approximately $135
million to $145 million.
Covance's management believes that the Covance Credit Facility will
provide it with sufficient financial flexibility and ready access to cash on
both a short-term and a long-term basis to fund, as required, capital
expenditures, potential future acquisitions and other longer-term growth
opportunities.
During the nine months ended September 30, 1996, Covance's operations
provided net cash of $14.9 million, a decrease of $17.5 million from the
corresponding 1995 amount. This reduction is attributable to a larger
increase in working capital during the first nine months of 1996 as compared
to the first nine months of 1995. During the year ended December 31, 1995,
Covance's operations provided net cash of $45.1 million, an increase of $2.2
million from 1994's level.
Investing activities for the nine months ended September 30, 1996 and the
years ended December 31, 1995 and 1994 included acquisitions and capital
spending to expand existing operations and purchase equipment to enhance
scientific technology capabilities. Funding for new business acquisitions was
provided through borrowings from Corning. Annually, cash provided by
operations has historically been sufficient to fund capital expenditures.
Working capital was $47.5 million at September 30, 1996, an increase of
$29.0 million from the December 31, 1995 level of $18.5 million. This
increase was attributable to an increase in aggregate accounts receivable and
unbilled services of $41.6 million or 42.8% to $138.8 million at September
30, 1996 from $97.2 million at December 31, 1995. Covance has initiated
collection and contract management efforts to reduce the percentage increase
in aggregate accounts receivable and unbilled services to a level consistent
with the increase in net revenues. Covance's ratio of current assets to
current liabilities was 1.31 at September 30, 1996 and 1.15 at December 31,
1995.
As described in Note 8 to the Audited Covance Financial Statements, a
Covance subsidiary, Covance Biotechnology, entered into an operating lease
arrangement in June 1995 whereby a custom-designed, fully equipped facility
would be constructed. The lease will commence on the date of completion of
construction of the facility, which is currently anticipated during the
fourth quarter of 1996 and requires minimum annual lease payments of
approximately $5.5 million. See "Risk Factors--Risks Relating to
Covance--Biomanufacturing-- New Business Venture" and "Business of
Covance--Services--Biomanufacturing."
In the fourth quarter of 1996, Covance plans to record a one-time charge
of approximately $27.5 million associated with the Covance Spin-Off
Distribution. The largest component of the charge will be the cost of
establishing an employee stock ownership plan. The remainder of the charge is
expected to consist of the direct costs of the Covance Spin-Off Distribution
as well as the value of restricted stock awards expected to be granted.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock- Based Compensation" ("SFAS 123"). This
statement defines a fair value-based method of accounting for employee stock
options and similar equity investments and encourages adoption of that method
of accounting for employee stock compensation plans. However, it also allows
entities to continue to measure compensation cost for employee stock
compensation plans using the intrinsic value-based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Entities which elect to continue accounting for stock
compensation plans utilizing APB 25 are required to disclose pro forma net
income and earnings per share, as if the fair value-based method of
accounting under SFAS 123 had been applied. Covance intends to account for
the stock compensation plans pursuant to APB 25 and, as such, will include
the pro forma disclosures required by SFAS 123 in its financial statements
beginning in 1996.
Foreign Currency
Contracts between Covance's foreign subsidiaries and its clients are
frequently denominated in currencies other than the applicable subsidiary's
local currency. Accordingly, payments received for services rendered under
such
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contracts are denominated in a currency different than the currency used for
the payment of the subsidiary's expenses. Therefore, the subsidiary's net
revenues, expenses and earnings are affected by fluctuations in exchange
rates. In addition, Covance's combined financial statements are denominated
in U.S. dollars and, accordingly, changes in exchange rates between the
applicable foreign currency and the U.S. dollar will affect the translation
of such subsidiary's financial results into U.S. dollars for purposes of
reporting Covance's combined financial results. Translation adjustments are
reported as a separate section of stockholder's equity. To date, such
adjustments have not been material to Covance's financial statements.
Taxes
Since Covance conducts operations on a global basis, Covance's effective
tax rate has and will continue to depend upon the geographic distribution of
its pretax earnings among locations with varying tax rates. Covance's profits
are further impacted by changes in the tax rates of the various
jurisdictions. In particular, as the geographic mix of Covance's pre-tax
earnings among various tax jurisdictions changes, Covance's effective tax
rate may vary from period to period. See Note 5 to the Audited Covance
Financial Statements.
Inflation
While most of Covance's net revenues are earned under contracts, the
long-term contracts (those in excess of one year) generally include an
inflation or cost of living adjustment for the portion of the services to be
performed beyond one year from the contract date. As a result Covance
believes that the effects of inflation generally do not have a material
adverse effect on its operations or financial condition.
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BUSINESS OF COVANCE
General
Covance is a leading CRO providing a wide range of integrated product
development services on a worldwide basis to the biotechnology,
pharmaceutical and medical device industries. In addition, and to a lesser
extent, Covance provides services such as health economics for managed care
organizations, hospitals and health care provider networks and early
development and laboratory testing services to the chemical, agrochemical and
food industries. The foregoing services can be broadly classified into six
lines of business: preclinical, biomanufacturing, clinical and periapproval,
central laboratory, clinical packaging and health economics. These six lines
of business can be further categorized as non-clinical (preclinical and
biomanufacturing) and clinical (clinical and periapproval, central
laboratory, clinical packaging and health economics). Covance believes it is
one of the largest biopharmaceutical CROs, based on estimated 1995 annual net
revenue, and one of a few that are capable of providing comprehensive global
product development services. Covance offers its clients high quality
services designed to reduce product development time, allowing them to
introduce their products into the marketplace faster and, thus, maximize the
period of marketing exclusivity and monetary return on their investments.
Additionally, Covance's comprehensive services and broad experience provide
clients with a variable cost alternative to fixed cost internal development
capabilities.
History
The businesses that today constitute Covance were acquired by Corning as
part of a strategy to create a global, integrated and full service product
development company. In 1987 Corning acquired Hazleton Corporation (recently
known as Corning Hazleton and now known as Covance Laboratories), owner of
leading preclinical drug safety assessment laboratories and Phase I clinical
research units. In 1989 Corning added Phase II and Phase III clinical trials
expertise with the acquisition of a leading, global clinical CRO, G.H.
Besselaar Associates (recently known as Corning Besselaar and now known as
Covance Clinical and Periapproval Services), and expanded its clinical trials
expertise in 1990 with the purchase of PACT Inc. (recently known as Corning
PACT and now known as Covance Clinical and Periapproval Services), a leading
periapproval studies company. In 1991 Corning purchased SciCor Inc. (recently
known as Corning SciCor and now known as Covance Central Laboratories), a
clinical laboratory dedicated to the drug development process. Corning
expanded its pharmaceutical laboratory capabilities in 1992 with the creation
in Switzerland of a jointly owned company, SciCor S.A., and, through Covance,
acquired 100% of this company in 1994. Focusing on innovative ways to
accelerate the drug development cycle, Covance acquired in late 1994 a
significant minority equity position in Bio-Imaging, which uses proprietary
imaging technology to quantify the diagnostic and therapeutic effectiveness
of experimental drugs and devices. Covance expanded its offering of
value-added development services in 1995 with the acquisition of National
Packaging Systems, Inc. (recently known as Corning National Packaging, Inc.
and now known as Covance Pharmaceutical Packaging Services), a leading
clinical packaging company. In 1995 Covance also formed Covance
Biotechnology, a majority-owned company which will enable Covance to engage
in biomanufacturing. In recognition of the rapid changes in the
biopharmaceutical industry's marketplace, particularly the need for the
industry to further demonstrate the benefits and cost effectiveness of their
products to payors, Covance purchased in early 1996 HTA (now known as Covance
Health Economics and Outcomes Services), a leading health economics company
serving at the date of acquisition over 100 clients. In October 1996, Covance
expanded its clinical packaging capabilities to Europe with the purchase of
Swiss based CRS Pacamed AG (now known as Covance Pharmaceutical Packaging
Services). In addition, Covance acquired an 81,000 square foot facility in
Horsham, England, which will be used, among other things, to provide clinical
packaging services in Europe.
The New Drug Development Process--Overview
Before a new drug may be marketed to the public, it must undergo extensive
testing and regulatory review to determine that the drug is both safe and
effective for its intended purpose. The developmental process and typical
corresponding time periods are as follows:
Preclinical Research (6 months to 3 years). In vitro ("test tube") and in
vivo ("animal") studies are conducted to establish the basic pharmacokinetic
effect and safety of a drug including the toxicity of the drug over a wide
range of doses. Initially, acute toxicology studies are conducted. In the
United States, if results warrant continuing development of the drug, the
manufacturer (also known as the "sponsor") will file an Investigational New
Drug
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Application ("IND"), whereupon the FDA may grant permission to begin human
trials (also known as "clinical trials").
Preclinical studies may continue after the start of clinical trials to
determine the longer term effects of a product. For instance, a preclinical
study might focus on the possible side effects, metabolism and/or
pharmacokinetic disposition of a drug.
Clinical Trials (3.5 to 6 years).
(bullet) Phase I (6 months to 1 year). This phase involves the initial
basic safety and pharmacology testing in approximately 20 to 100
human subjects, usually healthy volunteers in a closely monitored
setting, including studies to determine the side effect profile
of the drug, how the drug works, how it is affected by other
drugs, where it goes in the body, how long it remains active, and
how it is broken down and eliminated from the body.
(bullet) Phase II (1 to 2 years). This phase involves basic efficacy
(effectiveness) and dose-range testing in approximately 100 to
400 carefully selected patients suffering from the disease or
condition under study to help determine the best effective dose,
confirm that the drug works as expected, and provide additional
safety data. The trials are typically well controlled and usually
involve a placebo, also known as a "sugar pill." A placebo is an
identical tablet or solution which lacks the active substance
under investigation.
(bullet) Phase III (2 to 3 years). This phase involves efficacy and safety
studies in broader populations of hundreds or thousands of
patients at many investigational sites (hospitals and clinics)
and may involve placebo- controlled trials, in which the new drug
is compared with a placebo; studies comparing the new drug with
one or more drugs with established safety and efficacy profiles
in the same therapeutic category; or studies where there is no
comparison to a placebo or another drug ("uncontrolled" trials).
Generally, Phase III studies are intended to provide additional
information on drug safety and efficacy, an evaluation of the
risk-benefit relationship for the drug, and information for the
adequate labeling of the product.
NDA Preparation and Submission. Upon completion of Phase III trials, the
sponsor or CRO assembles the tabulated and statistically analyzed data from
all phases of development into a single large document, the New Drug
Application ("NDA"), which comprises, on average, approximately 100,000
pages.
FDA Review and Approval (1 to 2 years). At this stage, the FDA will
scrutinize data from all phases of development to confirm that the sponsor
has complied with regulations and that the drug is safe and effective for the
specific use (or "indication") under study. Product labeling is also approved
at this stage, which serves as a guideline to the sponsor about how its
product can be promoted in the marketplace.
Treatment Investigational New Drug (May span late Phase II, Phase III, and
FDA review). When results from Phase II or Phase III show special promise in
the treatment of a serious condition for which existing therapeutic options
are limited or of minimal value, the FDA may allow the manufacturer to make
the new drug available to a larger number of patients through the regulated
mechanism of a treatment investigational new drug ("TIND") application.
Although less scientifically rigorous than a controlled clinical trial, a
TIND may enroll and collect primarily safety data from thousands of patients.
See "--Services--Clinical and Periapproval Services--Treatment
Investigational New Drug Applications."
Post-Marketing Surveillance and Phase IV Studies (Periapproval). Federal
regulation requires the sponsor to collect and periodically report to the FDA
additional safety and efficacy data on the drug for as long as the sponsor
markets the drug (post-marketing surveillance). If the drug is marketed
outside the United States, these reports must include data from all countries
in which the drug is sold. Additional studies (Phase IV) may be undertaken
after initial approval to find new uses for the drug or to test new dosage
formulations. All of these studies are types of "periapproval" studies. See
"--Services--Clinical and Periapproval Services--Other Periapproval Studies."
Similar extensive testing and regulatory reviews are required in Europe
and some Asian countries to determine that a new drug is safe and effective
for its intended purpose before it can be marketed to the public.
CRO Industry Overview
The CRO industry provides independent product development services to the
pharmaceutical, biotechnology and medical device industries, and, in general,
CROs derive substantially all of their revenue from the research
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and development expenditures of these industries. Today, there are a few
full-service companies. Full-service CROs design and manage preclinical and
clinical and periapproval studies and trials, provide health economic
services, and provide packaging and central laboratory services and other
services required to develop and market new products in accordance with
applicable government regulations in the jurisdictions where the services are
provided, including the regulations of the FDA in the United States.
The CRO industry is highly fragmented, with hundreds of small,
limited-service providers, several medium- sized CROs and a few full service
CROs with global operations. Covance believes there are currently only
approximately 20 CROs with revenues in excess of $30 million and only four
with revenues in excess of $100 million. As a general matter, the clinical
CRO industry is not capital intensive and the financial costs of entry into
the industry are relatively low. Although there are few barriers to entry for
small, limited-service providers, Covance believes that there are significant
barriers to becoming a full service CRO with global operations. These
barriers include the cost, infrastructure and experience necessary to own and
manage multiple international offices to serve the global demands of clients;
develop sophisticated drug development processes; develop broad therapeutic
expertise; conduct trials that accelerate the transition from preclinical to
clinical trials; manage complex clinical trials involving large patient
populations in numerous countries simultaneously; provide health economic
services; and prepare multinational regulatory submissions. Capital
requirements, however, are relatively high for CROs that provide
sophisticated preclinical and central laboratory and data management services
and biomanufacturing services.
Trends Affecting the CRO Industry
In 1994 worldwide expenditures on research and development by
pharmaceutical and biotechnology companies are estimated to have been $30
billion, of which Covance estimates $20 billion was spent on drug development
activities of the type offered by the CRO industry. Covance believes that
approximately $3 billion of such spending was outsourced to CROs primarily
for preclinical testing and clinical development.
Covance believes that the outsourcing of drug development activities by
pharmaceutical and biotechnology companies has been increasing and will
continue to increase for the following reasons:
Cost Containment Pressures. Market forces and governmental initiatives
have placed significant downward pressure on pharmaceutical and biotechnology
companies' drug prices. Pressures on profit margins have arisen from
increased competition as a result of patent expiration, market acceptance of
generic drugs, the need for truly innovative rather than "me too" drugs and
governmental and private efforts to reduce health care costs, especially in
the United States. In addition, private managed care organizations are
beginning to limit the selection of drugs that affiliated physicians may
prescribe, thereby further increasing competition among pharmaceutical and
biotechnology companies. Covance believes that the pharmaceutical industry is
responding to these pressures by downsizing its research and development
infrastructure and converting the fixed costs of maintaining such
infrastructure to variable costs by outsourcing drug development activities
to CROs. The downsizing of development capabilities also creates demand for
CROs as biopharmaceutical companies experience internal development resource
shortages when a large number of compounds emerge from the research process
and need to undergo development. Moreover, many of these companies are
attempting to decrease the new drug development cycle by using CROs, which
may have greater expertise in a therapeutic area, while offering greater
efficiency at a lower cost. Some large pharmaceutical and biotechnology
companies now contract with large full service CROs under a single multi-year
master agreement which allows the company to select the CRO for a broader
array of drug development services instead of separately contracting
individual studies or specific phases to several different CROs. The
establishment of a master agreement itself can expedite the development
process by avoiding the delay inherent in negotiating and reviewing separate
agreements for each new study. Accordingly, once selected by a pharmaceutical
company, the CRO can commence work promptly. Covance has executed a number of
master agreements with large pharmaceutical companies and believes that it is
in an advantageous position to enter into such agreements with additional
pharmaceutical companies.
Marketplace Globalization. Pharmaceutical and biotechnology companies are
increasingly attempting to expand the market for new drugs by pursuing
regulatory approvals in multiple countries simultaneously rather than
sequentially as they have in the past. Expanding the market for a drug is
particularly important to the industry because of limited patent lives and
the high development costs of new drugs. To gain access to the global
marketplace, pharmaceutical and biotechnology companies are increasingly
outsourcing development work to
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CROs that are deployed in key geographical markets worldwide and that are
capable of coordinating concurrent regulatory approvals. In addition, these
companies are increasingly using CROs that have the systems in place to
compile and analyze large volumes of complex data from multinational clinical
trials and prepare regulatory submissions simultaneously on a multinational
basis. Pharmaceutical companies also are outsourcing an increasing number of
large scale Phase III-IV studies involving thousands of patients which are
often simultaneously conducted in multiple jurisdictions including Europe,
North and South America, Australia and Asia. Covance believes that CROs with
a global presence will continue to benefit from these trends.
Revenue Enhancement Through Faster Drug Development. Pharmaceutical and
biotechnology companies are increasingly attempting to reduce the time
required to bring new drugs to market. Reducing the time it takes to market a
new drug can reduce costs and accelerate revenue realization. Currently,
successfully developing a new drug takes approximately 8 to 12 years, which
generally represents a significant portion of the drug's 15 to 20 year period
of protection under most patent laws internationally (17 years in the United
States). Industry data suggest that it generally costs between $291 million
and $597 million to discover and develop a drug in the United States.
Accordingly, pharmaceutical and biotechnology companies are increasingly
examining the drug development process itself to determine ways to reduce the
time required to bring a new drug to market. As part of this evaluation, some
companies are establishing time goals for how long the process should take.
Covance believes that CROs, by providing specialized development services,
are often able to perform the needed services with a higher level of
expertise or specialization, and more quickly, than a pharmaceutical or
biotechnology company could perform such services internally. In addition,
Covance believes that CROs with advanced global drug development processes
will be more attractive to pharmaceutical and biotechnology companies.
Consolidation in the Pharmaceutical Industry. The pharmaceutical industry
is consolidating as pharmaceutical companies seek to obtain cost reduction
synergies through business combinations. Recent consolidations include some
of the largest multinational pharmaceutical companies in the world, such as
American Home Products-American Cyanamid Company, Glaxo-Wellcome,
Roche-Syntex, and Pharmacia and Upjohn. Ciba-Geigy and Sandoz have also
announced their intention to merge and form a new company, Novartis. Once
consolidated, many pharmaceutical companies aggressively manage costs by
reducing jobs, decentralizing the research and development process, and
outsourcing to CROs in an effort to reduce the fixed costs associated with
internal drug development. Covance believes that full service global CROs
will benefit from this trend.
Increasingly Stringent Regulation; Need for Capabilities. Increasingly
stringent regulatory requirements throughout the world and their
standardization have increased the need for broader, global regulatory
expertise. As regulatory requirements become more stringent and the need for
sophisticated capabilities becomes more important, including regulatory
services and advice and global drug development processes, the pharmaceutical
and biotechnology industries are outsourcing to global CROs to take advantage
of their capabilities and geographic presence.
In addition to increasingly stringent regulatory requirements, Covance
believes that recent efforts to develop global harmonized regulatory
standards will increase the importance of advanced global drug development
processes among CROs. In recent years, the FDA and the corresponding
regulatory agencies of Canada, Japan and Europe have had substantive
discussions for the purpose of developing harmonized standards for both the
conduct of preclinical and clinical studies and the format and content of
applications for new drug approval. Further, the FDA encourages the use of
computer assisted filings in an effort to expedite the approval process.
Covance believes that CROs which stay abreast of the changing regulatory
requirements in multiple international jurisdictions and which are able to
rapidly improve their drug development processes will have a competitive
advantage.
Therapeutic Focus. Covance believes that the economics of the marketplace
require research and development expenditures as biopharmaceutical companies
become focused on innovative new products, including drugs for an aging
population and drugs for the treatment of chronic disorders and
life-threatening conditions such as cancer, heart disease and infectious
diseases, including AIDS. The development of therapies for chronic disorders,
such as Alzheimer's disease or arthritis, requires complex clinical trials to
demonstrate the therapy's effectiveness and to determine whether the drug
causes any long-term side effects. Covance believes that CROs with the
requisite therapeutic experience and the ability to manage complex trials
will present an attractive development alternative for biopharmaceutical
companies.
Biotechnology Industry Growth. The U.S. biotechnology industry has grown
rapidly over the last 10 years and is introducing new therapies which require
regulatory approval. Many biotechnology companies do not have
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the necessary internal resources and experience (capital, equipment or
people) to conduct preclinical studies and clinical trials. Accordingly, many
biotechnology companies have chosen to outsource to CROs rather than expend
significant time and resources to develop an internal preclinical or clinical
development or biomanufacturing capability. In addition, Covance believes
that many biotechnology companies are turning to certain CROs for
sophisticated regulatory expertise and will also outsource manufacturing of
their experimental compounds during the preclinical and clinical stages.
Moreover, the biotechnology industry is rapidly expanding into Europe, and
Covance believes that significant growth opportunities exist for CROs with an
international presence. Further, Covance believes that the biotechnology
companies will enter into single multi-year master agreements with CROs, as
pharmaceutical companies have done. Covance has been serving one of the
largest biotechnology companies for over a year pursuant to such an agreement
and believes that it is in an advantageous position to enter into additional
master agreements with other biotechnology companies.
Consolidation in the CRO Industry. As a result of competitive pressures
and the trend towards larger and more global studies, the CRO industry is
consolidating. For instance, two of the largest CROs, Applied Bioscience
International Inc. ("APBI") and Pharmaceutical Product Development Inc.
("PPD"), recently completed their merger. Such mergers and acquisitions have
resulted in the emergence of a few large, full service CROs that have the
capital, technical, financial and human resources to conduct all phases of
preclinical and clinical trials on behalf of pharmaceutical and biotechnology
companies. As pharmaceutical and biotechnology companies increasingly
outsource development, they may turn to large CROs that provide a broad range
of preclinical and clinical services, while at the same time they may also
limit the number of CROs they choose to provide such services. Covance
believes that this trend will further concentrate market share among large
CROs with a reputation for quality, efficiency, flexibility, responsiveness
and overall development experience and expertise and that Covance will
benefit from this trend.
Business Strategy
Covance believes it is one of the largest CROs serving the biotechnology
and pharmaceutical industries, based on estimated 1995 net revenues, and has
a focused strategy to provide high quality, cost effective, integrated,
comprehensive and innovative services to assist its pharmaceutical and
biotechnology clients develop, produce, obtain approval for and enhance the
commercial success of their new therapeutic products worldwide. Covance has
and will continue to execute this strategy by: hiring and retaining the best
people available in terms of knowledge, ability and customer-focused
attitude; continually improving its existing services and creating new
services that respond to the demands of the biotechnology and pharmaceutical
industries; continually improving its drug development processes; and
selectively expanding into new locations. Covance expects that these
improvements or additions will occur as the result of internal expansion and
development activity, through continued linking of Covance's various services
and through strategic acquisitions.
Personnel. Covance is guided by a senior management team of experts in
drug development who in many cases have had previous careers in the relevant
industries served by Covance, providing them insight into what Covance's
clients need and expect from a full service CRO. Moreover, Covance has a
performance management system that involves an interactive annual objective
process, career development plan and annual review process designed to focus
on both individual strengths and opportunities for growth. In general,
Covance seeks to retain and hire the best-qualified individuals for all
aspects of its operations, emphasizing the need for experience and a customer
focus. Covance provides its employees with the necessary resources for
achieving these goals, including information technology and internal and
external training programs to enable them to more effectively perform their
jobs.
Services. Covance is a full service CRO that provides a broad array of
product development services to the biotechnology, pharmaceutical and medical
device industries. In addition, and to a lesser extent, Covance provides
services such as health economics for managed care organizations, hospitals
and health care provider networks and early development and laboratory
testing services to the chemical, agrochemical and food industries. Covance
believes that CROs capable of offering a full range of drug development and
manufacturing services are better able to compete for three reasons: (1) a
full range of services provides a client with the choice of using just one
provider to secure all of the client's development needs; (2) an integrated
provider of these services can provide economies of scale and accelerate the
development of the client's product through more comprehensive planning of
the development process; and (3) early stage development provides the CRO
with access to the client sooner in the development cycle and may promote the
client's use of later stage development services.
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As part of its strategy, Covance both continually improves its existing
services and endeavors to create new ones. Covance has implemented a total
quality management system throughout its operations which assists the company
in its goal of producing error-free services on time and within the client's
budget. This management system is overseen by a quality team comprised of
Covance's most senior executives, including its chief executive officer. This
team meets regularly to set quality goals, to determine whether such goals
are being met and to discuss initiatives that should be implemented to
improve the quality of its services. As an important supplement to Covance's
quality management system, certain of Covance's U.S. and European
subsidiaries have received ISO 9000 and 9001 certifications based on quality
standards established by the International Organization for Standardization.
The ISO 9000 standards define the international requirements for creating a
quality assurance system that will result in providing consistent service.
An example of Covance's efforts to continuously improve its existing
services is the Expanded Access Program ("EAP"), one of Covance's
periapproval offerings. EAP is a mechanism that allows innovative new
therapies for life threatening diseases to be given to expanded populations
prior to FDA approval pursuant to a TIND. See "-- Services--Clinical and
Periapproval Services--Treatment Investigational New Drug Applications." In
addition to improving its existing services, Covance also focuses on
providing its clients new market oriented, value-added services. Some of
these involve integrated services that rely on multidisciplinary teams drawn
from various Covance operating units or divisions. For instance, Covance is
duplicating in the United States a Strategic Product Development ("SPD")
program developed in Europe that has successfully reduced the estimated time
from preclinical testing to the first human studies. See
"--Services--Preclinical Services."
Covance's new service offerings arise as a result of both "home-grown"
activities and through strategic acquisitions. With respect to the former, in
addition to SPD, Covance has invested in the creation of a multi-use
biomanufacturing facility, Covance Biotechnology. See
"--Services--Biomanufacturing." With respect to the latter, Covance added
domestic clinical packaging capabilities through the acquisition of National
Packaging Systems, Inc. in January 1995, European clinical packaging
capabilities through the acquisition of CRS Pacamed in October 1996 and
enhanced its health economics services by acquiring HTA in March 1996.
Covance expects to continue developing services internally and making
strategic acquisitions that are complementary to its existing services and
that will expand its ability to serve its clients.
Streamlining the Drug Development Process. Covance believes that when
selecting CROs to conduct trials the biopharmaceutical industry will become
more demanding with respect to factors such as containing costs, reducing
testing time frames and being able to conduct trials on a global basis. For
CROs to become more efficient, with the resultant savings in time for
clients, the drug development process itself will undergo continuous change.
In recognition of this, Covance has created a dedicated team focused
exclusively on redesigning the drug development process with the objective of
reducing the time required to develop a new compound. The mandate of this
team is to examine every significant process, system and information
technology used in product development with the objective of applying the
considerable experience and technical resources available throughout Covance.
Currently, Covance has over 300 information systems professionals working in
12 regional information system centers (nine in the United States and three
in Europe) and nine satellite centers (five in the United States and four in
Europe). All of Covance's employees at its 33 locations (both domestic and
international) and miniframe computers and thousands of desktop computers are
connected by a wide area network that provides global access to the expertise
and technologies resident in the regional information system centers. These
systems also support Covance's ability to provide integrated services and
connect Covance to its clients. For instance, Covance's Information Access
System permits clients to obtain real time access to their study data, and
its drug management system based on Integrated Voice Response technology
allows clients to more efficiently manage the distribution of their
experimental compounds to investigational sites. See "--Services--Clinical
and Periapproval Services-- Clinical Development Technologies."
In examining ways to improve the drug developmental process, Covance's
information technology strategy is to capitalize on its existing
heterogeneous, flexible and proprietary computer systems, which are
time-proven through thousands of trials, and to both customize them where
appropriate for particular client needs and incorporate new systems and
technologies to meet changing demands in a timely and cost effective manner.
Geographic Expansion. Covance believes that it will become increasingly
important to provide its full range of drug research and development services
in all major and developing biotechnology and pharmaceutical markets,
especially given industry trends to conduct research on new drugs outside the
United States first and to conduct
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clinical trials in multiple countries simultaneously. Covance has a tradition
of serving its clients throughout the world. Through its offices, regional
monitoring sites, laboratories and manufacturing sites in over 33 locations
in 15 different countries and field work in 11 other countries, Covance
believes it is a leader among CROs in its ability to deliver services
globally. Currently, approximately 30% of Covance's 5,000 - person work force
is based outside of the United States.
Covance will continue its strategy of establishing new or enhancing
existing operations in significant biotechnology and pharmaceutical markets.
Covance expects this will occur as the result of internal growth and through
strategic acquisitions. For instance, Covance opened its Singapore office in
April 1996. Singapore will serve as Covance's center for conducting clinical
trials in Asia, a region that Covance believes will be increasingly important
for the research, development and therapeutic use of drugs. Given the need in
Asia to set processes and standards for conduct of clinical trials that meet
international standards, and the Singapore government's desire to be the
Asian center for human drug development and research, Covance is
collaborating with the Singapore National Science and Technology Board
concerning the Singapore government's initiative to form the Asia Pacific
Economic Cooperation coordinating center for Good Clinical Practice. Covance
is also discussing with its clients opening new offices in Latin America and
Canada to serve their growing need to conduct drug development studies in
these areas.
Services
Covance is a leading CRO providing a wide range of integrated product
development services on a worldwide basis to the biotechnology,
pharmaceutical and medical device industries. In addition, and to a lesser
extent, Covance provides services such as health economics for managed care
organizations, hospitals and health care provider networks and early
development and laboratory testing services to the chemical, agrochemical and
food industries. The foregoing services constitute six lines of business:
preclinical, biomanufacturing, clinical and periapproval, central laboratory,
clinical packaging and health economics.
Preclinical Services
Covance believes that it is one of the largest independent providers of
preclinical drug safety assessment and analytical chemistry services. With
four major laboratories, employing over 1,900 people, located in Madison,
Wisconsin, Vienna, Virginia, Harrogate, England, and Munster, Germany and
with an administrative office in Tokyo, Japan, Covance conducted
approximately 1,000 toxicology studies in 1995. The preclinical services
offered are wide-ranging, including in vivo toxicology studies (such as
acute, subchronic and carcinogenicity studies), genetic toxicology studies
(such as in vitro cytotoxicity, cytogenetics and gene mutation studies and
transgenic mouse models) and chemistry services (such as in vitro metabolism,
pharmacokinetics and bioequivalence studies).
The preclinical area has also been a source of innovation by introducing
new technologies for client access to data, electronic animal identification,
multimedia study reports and data tables and in vivo and in vitro measures of
induced cell proliferation. Covance's preclinical group also works closely
with its Phase I and II groups to minimize product development time and to
provide clients with early data on the safety and efficacy of new molecules.
This data allows clients to make a decision about whether to continue, cease
or modify their development program. See "--Business Strategy--Services."
As part of its preclinical services, Covance is duplicating in the United
States an SPD program developed in Europe that has successfully reduced the
time from preclinical testing to the first human studies. SPD involves an
integrated process and team drawn from Covance's preclinical and Phase I and
II areas. In an SPD program, the compound is researched from initial
preclinical evaluation through its first dosing in humans, including the
filing and attainment of the IND. Specific elements of the process include
formulation and dose delivery testing, product metabolism, chemistry,
pharmacology, toxicology and safety testing. Through clearly defined
objectives, plans, timetables, and coordination with clients, Covance has
used SPD in the United Kingdom (where INDs are not required to commence Phase
I clinical trials) on over 10 compounds and has averaged just six months to
nine months from the start of preclinical testing to the start of a Phase I
clinical trial. In one example, the entire preclinical testing phase was
completed in 4-1/2 months with the Phase I clinical trial concluding just
five months thereafter. The preclinical testing phase in the United States
typically takes six months to three years and Phase I studies typically take
six months to one year. Because INDs are required in the United States to be
filed before human clinical trials start, it is uncertain whether SPD trial
completion speeds in the United States will be as swift as in the United
Kingdom, but Covance believes that an SPD program will reduce the drug
development time in the United States.
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Covance also provides animals, including purpose-bred animals, for
biomedical research. These animals are used by biopharmaceutical companies,
university research centers and CROs, like Covance, as part of their
preclinical in vivo safety and efficacy testing. Often, these preclinical
studies require animals which are free of genetic anomalies to assure that
results from the testing are accurate. In addition, animals will often need
to be free of all pathogens, again, to ensure the integrity of the testing
results. Through a variety of processes, technology and specifically
constructed facilities, Covance is able to provide both purpose-bred and
specific pathogen free animals that will meet the clients' rigorous control
requirements. Covance is also a provider of custom polyclonal and monoclonal
antibody services and recently opened an 18,000-square-foot state-of-the-art
antisera production facility that complies with both GMP and GLP. Finally,
although Covance's animal breeding facilities maintain procedures in
accordance with applicable government regulations and company policies for
the quarantine and handling of imported animals, including primates, there is
a risk that these animals may be infected with diseases that may be harmful
and even lethal to themselves and humans. In 1996 Covance, with the approval
of the Texas Department of Health and the Centers for Disease Control,
destroyed a shipment of monkeys from the Philippines because some had been
infected with a sub-strain of the Ebola-Reston virus, which is lethal to
monkeys.
Outside the area of biopharmaceutical development, Covance also provides
early development and laboratory testing services to the chemical,
agrochemical and food industries. For instance, Covance offers a complete
range of services to agrochemical manufacturers to determine the potential
risk to humans, animals and the environment from plant protection products.
Further, Covance offers a broad range of services to the food industries
including nutritional analysis and nutritional content fact labels.
Biomanufacturing
Covance holds a majority interest in Covance Biotechnology, a company
formed in 1995 to manufacture peptides and recombinant proteins for
biotechnology and pharmaceutical clients in accordance with GMP for
preclinical and clinical trials as well as for commercial sales. Covance
Biotechnology's services will include process development services, GMP
manufacturing by microbial and mammalian cell expression, laboratory testing,
quality assurance and quality control and regulatory affairs assistance.
Covance Biotechnology expects to lease and commence operations by the end of
1996 in a biomanufacturing facility located in Research Triangle Park, North
Carolina. Covance Biotechnology will be able to process multiple compounds
for multiple clients simultaneously and on a scale, Covance believes, greater
than any other contract bioprocessor. Covance Biotechnology provides an
alternative for clients who might otherwise need to design, finance and
construct their own facility to manufacture a compound for preclinical or
clinical trials or commercial sale. By hiring Covance Biotechnology, a client
can avoid the expense, time delay and risk of making additional investments
for a compound whose safety, efficacy and commercial opportunities are
uncertain. This allows clients to preserve their capital and lower their
risks. See "Risk Factors--Risk Factors Relating to
Covance--Biomanufacturing--New Business Venture."
Outsourced biomanufacturing is a relatively new industry and as such
companies in this industry are subject to all of the risks inherent in a new
or emerging industry, including changes in the regulatory regime, an absence
of an established earnings history, the availability of adequately trained
management and employees, and the potential for significant client
concentration. In an attempt to enter this industry at an early stage of its
development, Covance Biotechnology has hired personnel from the
biopharmaceutical industry experienced in biomanufacturing.
As a start-up venture, Covance Biotechnology is subject to the risks
inherent in the establishment of a new business enterprise, including, among
others, unanticipated construction delays, operational and manufacturing
problems, additional and unforeseen costs and expenses and an inability to
attract and retain clients. There can be no assurance that, even after the
expenditure of substantial funds and efforts, Covance Biotechnology will be
able to market successfully its biomanufacturing services. Covance
Biotechnology's biomanufacturing facility is still under construction and is
expected to be "mechanically" completed during the fourth quarter of 1996.
Mechanical completion occurs when all structural aspects of the facility are
complete, all mechanical equipment and systems are installed and a
certificate of occupancy has been issued by an applicable governmental
authority. After mechanical completion, the facility must be "validated,"
which means that the various equipment, systems and procedures that are
required to manufacture a biologic must be thoroughly tested and reviewed.
Although Covance Biotechnology has submitted proposals to a number of
prospective biopharmaceutical clients, it has been awarded only one contract,
but has signed a number of letters of intent for the provision of services.
For the period ended December 31, 1995, Covance Biotechnology reported a net
loss of approximately $1.9 million, and for the nine months ended September
30, 1996, Covance Biotechnology reported a net loss of approximately $2.3
million.
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The biomanufacturing facility is being financed through several tax
retention operating leases provided by the Bank and, during the construction
phase, is being leased by the General Contractor. The leases expire 10 years
from the date of mechanical completion of the facility. The annual minimum
lease payments are currently estimated at $5.5 million. At the expiration of
the lease term Covance Biotechnology is liable for the unamortized balance of
the cost of the facility, currently estimated to be approximately $37
million. Covance Biotechnology may also choose to purchase the facility at
specific dates over the 10 year period. Using current estimates, the purchase
price would be approximately $54 million at the end of the first year,
decreasing on an amortizing basis to approximately $37 million at the end of
the tenth year.
Covance owns 76% of the voting capital stock of Covance Biotechnology in
the form of convertible preferred stock (the "Covance Biotechnology Preferred
Stock"). The remaining 24% of Covance Biotechnology's capital stock is owned
by certain minority stockholders (the "Minority Stockholders") in the form of
common stock. Covance's ownership in Covance Biotechnology could be reduced
to as much as 68% of the voting capital stock if certain options granted to
key Covance Biotechnology executives to acquire Covance Biotechnology common
stock owned by Covance are exercised in full. The Covance Biotechnology
Preferred Stock held by Covance entitles Covance to a 12% annual cumulative
dividend. No dividend has been paid on the Covance Biotechnology Preferred
Stock. Dividends on the Covance Biotechnology Preferred Stock become payable
only if Covance Biotechnology has profits and to the extent that the Covance
Biotechnology board of directors declares the payment of dividends. Covance
currently does not anticipate the receipt of any such dividend until and
unless Covance Biotechnology becomes profitable.
Covance Biotechnology, Covance and the Minority Stockholders entered into
a capital contribution and shareholder agreement (the "Agreement"), which,
among other things, limits the persons to whom the Minority Stockholders may
transfer their Covance Biotechnology common stock, grants Covance a right of
first refusal with respect to the transfer of Covance Biotechnology common
stock held by the Minority Stockholders, grants Covance the right to purchase
up to one third of the Covance Biotechnology common stock held by the
Minority Stockholders on each of the second, third and fourth anniversary of
the completion of the construction of the facility or, if Covance chooses not
to exercise this right, obligates Covance Biotechnology to use its best
efforts to arrange for the sale of such shares on certain specified terms,
and provides for the Minority Stockholders the right to nominate up to two
directors of Covance Biotechnology to the extent that the Minority
Stockholders own, in the aggregate, greater than 50% of their initial equity
position in Covance Biotechnology. The Agreement also contains certain
provisions which restrict the circumstances and set forth the terms and
conditions upon which Covance may provide additional capital or funds to
Covance Biotechnology. Covance has no affirmative obligation to provide
further funds or financial assistance of any kind to Covance Biotechnology.
Clinical and Periapproval Services
Covance offers a comprehensive range of clinical trial services, including
Phase I through III clinical studies and periapproval studies including Phase
IIIb and Phase IV clinical studies, TINDs, post-marketing surveillance
studies and prescription to over-the-counter switch studies ("Rx to O-T-C
Switch"). Covance also has extensive experience in a number of therapeutic
areas, including diseases of the cardiovascular and central nervous systems,
endocrinology and respiratory systems, infectious diseases (including AIDS),
and significant experience in other areas including oncology, bone metabolism
immunology, gastroenterology, urology, dermatology and hematology. Covance
has extensive experience in managing both small, medium and large trials in
the United States and in many parts of the world, including Australia,
Canada, Western, Central and Eastern Europe, Israel, Mexico and Russia. These
trials may be conducted separately or simultaneously as part of a
multinational development plan. In 1995 Covance completed 135 Phase I studies
involving over 2,900 study patients through two clinical research facilities,
a 60-bed facility in Madison, Wisconsin and a 60-bed facility in Leeds,
England; 113 Phase II and III studies involving over 26,900 study volunteers
and 2,100 investigational sites; and 42 Phase IIIb - IV clinical and other
periapproval studies involving approximately 8,400 study sites and
approximately 53,000 study patients. Through 1995, Covance has cumulatively
been involved in 14 TINDs involving over 2,600 investigational sites and over
25,000 patients. In addition, Covance has cumulatively conducted over 625
Phase IIIb - Phase IV studies through 1995 involving approximately 20,000
investigational sites and over 215,000 patients; over 34 post-marketing
studies through 1995 involving over 74,000 investigational sites and over
480,000 patients; and three Rx to O-T-C Switch studies through 1995 involving
over 3,000 investigational sites and over 10,000 patients.
Covance can manage every aspect of the foregoing types of trials by
providing its clients the following services: clinical development plans and
protocol design, consulting services (clinical and data management,
regulatory
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advice, information systems and drug development strategy), site,
investigator and patient enrollment, preparation and submission of TINDs,
INDs, European study permissions, NDAs, computer assisted NDAs ("CANDAs"),
product license applications ("PLAs"), computer assisted PLAs ("CAPLAs") and
European submission dossiers, computerized patient randomization and dose
assignment and tracking, Phase I - Phase IV study design and implementation,
monitoring and safety evaluation management and reporting, data processing
and management, statistical analyses and report writing, medical writing, GCP
and GMP audits and, through its relationship with Bio- Imaging, medical image
digitization and processing. Clinical trials are managed by a dedicated
project team, which, in each case, is led by a project director who
supervises all aspects of the clinical trial.
The following is a description of the core services Covance provides,
either on an individual or integrated basis depending on client needs, as
part of conducting clinical trials:
Study Design. Covance serves its clients in the critical area of study
design by applying its wide development experience in the preparation of
study protocols and case report forms ("CRFs"). The study protocol defines
the medical issues to be examined in evaluating the safety and efficacy of
the drug under study, the number of patients required to produce
statistically valid results, the clinical tests to be performed in the
study, the time period over which the study will be conducted, the
frequency and dosage of drug administration and the exact inclusion and
exclusion criteria to be met for the patients enrolled in the study. The
success of the study depends not only on the ability of the protocol to
accurately reflect requirements of regulatory authorities, but also on the
ability of the protocol to fit coherently with the other aspects of the
development process and the ultimate marketing strategy for the drug. This
includes outcomes and pharmacoeconomic concerns and reimbursement
planning. See "--Health Economics."
Once the study protocol has been finalized, CRFs must be developed to
record the desired information to be obtained from the clinical studies.
The various other disciplines involved in the drug development process,
including data management, statistics and regulatory affairs, must work
closely with the clinical trial management project team to assure that the
right data are acquired in a form which is most efficient for subsequent
data entry, management analyses and reporting. Proper CRF design is
critical to allowing investigators and field monitors to conduct their
respective jobs quickly, accurately and effectively.
Investigator Recruitment. During the clinical trials, administration of
the drug to patients is supervised by physicians, also referred to as
investigators, at hospitals, clinics or other locations, also referred to
as investigational sites. Covance solicits the participation in the study
of investigators who contract directly with either Covance or its client.
The successful rapid identification and recruitment of investigators who
have the appropriate expertise and an adequate base of patients who
satisfy the requirements of the study protocol are critical to the timely
completion of the trial. Covance maintains and continually expands and
refines its computerized database of approximately 30,000 investigators.
Information regarding Covance's experience with these investigators,
including factors relevant to rapid study initiation, are contained in the
database. This information allows project managers to choose the
appropriate investigators for a particular study in an efficient manner.
In addition, Covance has worked with approximately 25,000 general
practitioners in connection with the conduct of Phase III and IV studies.
Study Monitoring. Covance provides study monitoring services which
include investigational site initiation, patient enrollment assistance and
data collection through subsequent site visits. These visits also serve to
assure that data are gathered according to GCP, the requirements of the
client, as specified in the study protocol or otherwise, and applicable
regulations. Project management and monitoring services are the
operational center of all clinical studies. In most instances a project
will meet, exceed or fail to meet expected timeliness for completion based
on meeting deadlines during the first few months of study initiation.
Therefore, Covance focuses at an early stage on identifying and quickly
completing the critical rate-limiting steps of screening and selecting
investigators, processing pre-study regulatory paperwork, obtaining
institutional review board approvals and scheduling investigational site
initiation visits. Drugs under study cannot be released to the
investigational sites, and, thus, the study cannot begin until these
activities have been completed.
Clinical Data Management and Biostatistical Analysis. Covance's data
management and biostatistical analysis operations are managed by
professionals with extensive pharmaceutical and biotechnology industry
experience in the design and construction of local and multinational
clinical trial databases. Data management and biostatistical analysis
services are offered as discrete products and as part of an integrated
drug
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development program. During the design of development plans and protocols,
Covance offers consulting services relating to, and the determination of,
sample size parameters for patient enrollment, development of data
analysis plans and randomization schemes. During the conduct of clinical
trials, Covance assists in the rapid acquisition of clean and accurate
data. Following completion of the clinical trials, Covance assists in
report preparation and regulatory submissions. Covance's biostatisticians
may participate with clients in meetings with the FDA to present and
discuss biostatistical analyses prepared by Covance. Covance has expertise
in electronically capturing and integrating geographically diverse data.
Covance employs a variety of software, which may be specified by clients
or combined with customized programs developed by Covance.
Drug development time is reduced by performing data management and
biostatistical analysis activities in parallel with other drug development
activities where possible. For example, data management personnel work as
part of an integrated team with clinical program managers and field
monitors to continuously enter data, program output tables and listings
and validate the database so that there is a rapid progression from "data
lock," to "database freeze," to final tables and listings preparation and
to biostatistical analyses. Similarly, there is a close working
relationship with medical writing and regulatory services personnel.
Clinical Development Technologies. To expedite the drug development
process and to help reduce costs, Covance has created a proprietary drug
management system based on an Interactive Voice Response System ("IVRS")
and an Information Access System ("IAS"), which are interactive
information technologies. IVRS uses touch-tone telephone technology to
assist biopharmaceutical clients in managing the "just-in-time" delivery
of clinical drug supplies and patient randomization. IVRS is available in
multiple languages using toll free numbers and has, in some cases,
demonstrated up to 30% reduction in study drug waste. IAS, based on Lotus
Notes shareware, provides clients with 24-hour access to study data, such
as study patient enrollment progress, patient visit information, CRF
status and serious adverse event experience. In another example, by
incorporating new optical scanning technology and redesigning the
development process for a 40,000-patient Phase IV clinical trial involving
900 investigators, Covance was able to decrease the per patient study cost
by approximately 60%.
Medical Writing and Regulatory Services. Covance provides medical report
writing and regulatory services to its clients in a manner designed to
complement parallel development processes to reduce overall development
time. Strategic plan and protocol design services provided at the
beginning of a project, combined with clear, concise data presentation,
analysis and discussion at the completion of the project assist the client
in obtaining regulatory approvals. These services are fully integrated
with Covance's other services to assure maximum speed consistent with good
service and regulatory compliance. Services in this area include
integrated clinical/statistical reports, manuscripts, risk/benefit
assessment reports, package inserts, quality assurance and environmental
risk assessments. Through 1995, Covance has prepared a total of 79 INDs or
their equivalent. In addition, through 1995, Covance has cumulatively
prepared 66 NDAs, or their equivalents, in the United States or abroad, of
which 47 NDAs, or their equivalents, in the United States or abroad are
pending and 19 NDAs, or their equivalents, have been approved in the
United States and abroad. Further, Covance believes it was one of the
first CROs to develop CANDAs and CAPLAs, and Covance worked on two such
applications in 1995 and has completed nine such applications since their
inception in 1987.
Although Covance's clinical regulatory affairs group typically conducts
GCP and GMP audits as part of its overall involvement in a clinical trial,
because of the experience and reputation of this group, it is common for
the group to be hired independently by a sponsor to conduct such audits.
Governmental agencies have also recognized the ability of Covance's
regulatory affairs group. Hired by an intermediary, Covance worked in 1992
with the European Commission (Directorate General III) on a study
concerning the establishment and operations of the then proposed European
Medicines Evaluation Agency ("EMEA"), Europe's rough analogy to the FDA.
The EMEA became operational on January 1, 1995, and Covance's head of
European clinical regulatory affairs was listed as a co-author of the
report. In another example, Covance was hired in 1995 by an intermediary
to advise the National Drugs Advisory Board in Ireland concerning the
recommended structure, systems and procedures for the then proposed
creation of the Irish Medicines Board, which was ultimately established in
January 1996.
Treatment Investigational New Drug Applications. The TIND is an
application by a pharmaceutical or biotechnology sponsor and the
associated procedure to allow broader populations of patients to receive
treatment with an investigational new drug for a serious or immediate
life-threatening disease, such as AIDS
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or cancer, for which no comparable or satisfactory therapy is available.
This treatment is provided during the clinical trial phase of development
but does not typically use controlled clinical trials. Covance has had
substantial experience with TINDs and has developed specialized systems
for prompt initiation and effective operation of TIND programs, such as
computerized patient screening, optical scanning of CRFs and drug
management systems. Other special TIND programs or systems involve
providing project specific information to physicians, patients and patient
advocacy groups, and data processing, management, analyses and reporting
systems.
Covance's EAP, which is conducted pursuant to a TIND, is a mechanism
that allows innovative new therapies for life-threatening diseases to be
given to expanded populations prior to FDA approval. In one recent
situation, a pharmaceutical company contacted Covance to conduct an EAP
for a promising new treatment for AIDS. The sponsor, who had little
experience with EAPs and had limited supply of the new drug, required that
the study be conducted on a global scale (21 countries simultaneously),
that enrollment of patients start rapidly (within 90 days of Covance's
selection as the CRO) and that all components of the study, including
project management, data management, regulatory support and drug supply
management, be integrated seamlessly worldwide. To accomplish the
sponsor's aggressive goals, Covance formed a multidisciplinary team drawn
from six different locations in the United States and Europe involving the
clinical and periapproval and the clinical packaging operations. After
redesigning the EAP processes, customizing existing technology and
employing new systems, Covance has been able to meet or exceed the
client's requirements without jeopardizing quality or increasing costs.
Other Periapproval Studies. Besides TINDs, Phase IIIb studies (involving
studies conducted after NDA submission but before regulatory approval is
issued) and Phase IV studies, Covance performs other types of periapproval
studies such as post-marketing surveillance studies and Rx to O-T-C Switch
studies. Post- marketing surveillance studies are epidemiologically based
evaluations of the use of products in actual medical practice using a
broad range of patients. Accordingly, these studies use practicing
physicians to evaluate primarily the safety profile of the product under
actual medical practice conditions. Post-marketing surveillance studies
are large, typically involving over 1,000 physicians and thousands of
patients, and usually focus on evaluating just a limited number of key
clinical outcomes, such as a particular side effect. In Rx to O-T-C Switch
studies, Covance gathers, on behalf of a sponsor, the necessary safety
data to obtain regulatory permission for the sale of its drug without the
need of a prescription. These studies are also large, well- controlled
programs.
Central Laboratory Services
Covance believes that the ability to conduct high quality and
sophisticated central laboratory services is an integral aspect of what
constitutes a full service CRO. Covance's two facilities (one located in
the United States and the other in Switzerland) provide central laboratory
services dedicated exclusively to biopharmaceutical studies. These
facilities, which have conducted over 60 million assays from the
specifications of more than 3,000 protocols and have collected data from
over 16,500 investigational sites, provide clients with combinable data in
studies that can be conducted separately or multinationally and
simultaneously. Providing combinable data eliminates the need for
statistical correlation among different laboratories by using consistent
laboratory methods, the use of same reagent manufacturers, and the use of
identical clinical trial reference ranges and equipment calibration.
Covance also employs a proprietary clinical trials management system,
which Covance believes is unique, that enables it to enter a sponsor's
protocol requirements directly into its own database. This system, based
on protocol requirements, constructs the drug kits that will go to the
investigational sites and the requisition forms therefor, allows for
proper laboratory specimen collection from the investigational site,
sequencing of study participants visits and investigator test ordering of
additional tests and ensures that all demographic data is complete and
accurate and will produce for the client reports that are customized to
their specifications.
The laboratories provide a comprehensive audit trail by ensuring that all
laboratory data are traceable to source documents, are capable of
delivering customized data electronically within 24 hours and provide
safety test results within 48 hours from most locations. As the need for
central laboratory services expands geographically, Covance has expanded
the reach of its central laboratories business through a contractual
arrangement with a leading South African laboratory that allows Covance to
combine the testing capability of this laboratory with its own proprietary
systems. Covance expects to continue to investigate other opportunities
for geographical expansion of its central laboratory service offerings.
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Clinical Packaging
Covance offers full service contract packaging for the pharmaceutical
industry in the United States and Europe including package development and
design, coldformed and thermoformed blister units, blister packaging,
multi-dose bottle filling, clinical labeling, storage and site
distribution of clinical supplies and return services for unused supplies.
With the addition of Covance Pharmaceutical Packaging Services AG, Covance
packaging services and products have been expanded to include software
inventory and validation controls and processes and the manufacturing of
robotic packaging machines. Covance believes that by integrating packaging
services with its other clinical and periapproval services it can
accelerate the drug development process through operational efficiencies
that arise from coordinating at the outset the design of a clinical trial.
Health Economics
Covance offers a wide range of health economic services for managed care
organizations, hospitals, health care provider networks and pharmaceutical
and device manufacturers. These services include outcomes and
pharmacoeconomic studies, reimbursement planning services and disease
management services.
Outcomes and Pharmacoeconomic Studies. In this area, Covance offers its
clients a full range of strategic and analytic services, including
strategic planning, quality-of-life assessment, and economic studies,
including feasibility studies, protocol and instrument design and data
analysis. Outcomes studies may be prospective, often conducted in
conjunction with clinical trials, or retrospective. Many
cost-effectiveness studies employ economic modeling techniques to evaluate
the full financial impact of new medical technologies. For example, among
the studies undertaken by Covance in 1995, Covance completed a cost-
effectiveness study for a medical device manufacturer to determine the
device's clinical effectiveness in treating brain metastases and to
compare the cost of such treatment with other therapies. Covance also
completed in 1995 several quality-of-life studies that determined various
products' impacts on patients' lives. For example, in a study on the
effects of a new treatment for amyotrophic lateral sclerosis (Lou Gehrig's
disease), Covance designed the measures for evaluating how treatment
affected a patient's ability to function on a daily basis. Through 1995,
Covance has designed over 100 outcomes and pharmacoeconomic studies.
When planning studies, Covance examines the audience for the study's
findings to determine which of the client's concerns (e.g., regulatory
approval, clinical acceptance, insurer coverage or insurer payment) might
be more fully informed by the availability of outcomes data, and then
determines how such data can be efficiently collected and communicated.
Covance typically involves academic and clinical experts to ensure that
appropriate techniques are used and to enhance study credibility and
acceptance. Covance designs most studies with a goal of publishing its
findings in respected, peer-reviewed journals.
Covance believes that given the changing competitive pressures affecting
the pharmaceutical industry and the rising need to more rigorously
demonstrate the value of particular drugs, both in their own right and
compared to other drugs and treatment regimes, the ability to perform
outcomes and pharmacoeconomic studies will become increasingly important.
Reimbursement Planning. Covance offers its customers strategic
reimbursement and market planning services. These services enable clients to
enhance the commercial success of their medical products. Covance analyzes,
on behalf of the customer, who will pay for a medical product (e.g.,
third-party payors such as private insurance companies or federal programs
like Medicare) and what economic barriers or opportunities exist for the
product (e.g., claims coding, coverage policy, or payment amounts). This work
typically involves evaluating government policies and, sometimes, leads to
changes in those policies. In addition, Covance often offers its
reimbursement planning activities in conjunction with its other services that
evaluate existing and potential market size, pricing, distribution, and
economic impact.
Through its Medical Technology Hotlines(R) division, Covance also provides
full service reimbursement case management, including: (1) contacting
insurers to investigate specific coverage and benefit matters, resolving
denied claims and educating insurers; (2) assisting manufacturers in
designing and effectively running their indigent patient programs, pursuant
to which costly new products are made available to patients who cannot afford
them because of inadequate insurance coverage or other cost reasons; (3)
designing and administering transition programs for manufacturers, which
includes obtaining third-party payment for a product for patients who had
previously received it free as part of a clinical trial; and (4) conducting
reimbursement training seminars for clients and their customers.
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All of these services are supported by a dedicated information services
group that provides a range of data products, services and information
systems, including customized hospital cost reports, patient average lengths
of stay or mortality rates at the federal, state, local or individual
hospital level. The extensive economic and epidemiologic databases Covance
maintains are used to perform market research, determine the economics of a
disease or inform government authorities about the need for potential policy
changes.
Disease Management Services. Working for a variety of customers, including
pharmaceutical and device manufacturers, managed care organizations,
hospitals, provider networks and computerized medical record companies,
Covance designs and implements systems that track patterns of care, patient
outcomes, and costs, and develops programs and tools designed to improve
quality and decrease costs of care. Such programs and tools include medical
practice guidelines and computerized decision support tools. For example,
Covance is developing nationwide standards for the optimal treatment of
dialysis patients. This work is being performed in conjunction with a major
national professional society and is being funded by a manufacturer. In
another initiative, Covance has started a national database to track practice
patterns and outcomes concerning eye care provided by ophthalmologists.
Covance is analyzing the national data and providing reports to individual
ophthalmologists regarding their performance.
Clients and Marketing
Covance provides its product development services on a global basis to,
among others, the pharmaceutical and biotechnology industries. Specifically,
Covance serves over 270 biopharmaceutical companies, including all 50 of the
world's largest pharmaceutical companies and 17 of the world's 25 largest
biotechnology companies. Of the 270 biopharmaceutical companies Covance
serves, 45 are Japanese. The Japanese biopharmaceutical companies are served
by Covance's U. S. and European operations. For the years ended December 31,
1995, 1994 and 1993, approximately 70%, 76% and 78%, respectively, of
Covance's net revenues were attributed principally to U.S. operations, while
approximately 30%, 24% and 22%, respectively, was attributed to European
operations. Approximately 59%, 52% and 48% of Covance's net revenue during
1995, 1994 and 1993, respectively, was attributed to Covance's clinical lines
of business. Approximately 41%, 48% and 52% of Covance's net revenues during
1995, 1994 and 1993, respectively, were attributed to Covance's nonclinical
lines of business. No client accounted for 10% or more of Covance's net
revenues in 1995, 1994, or 1993. None of Covance's clients accounted for
greater than 5% of Covance's net revenue in the year ended December 31, 1993.
In the years ended December 31, 1994 and 1995, one client accounted for
greater than 5% of Covance's net revenues. In fiscal 1993, 1994 and 1995 and
the nine months ended September 30, 1996, Covance's top five clients
accounted for approximately 17%, 20%, 21% and 21%, respectively, of Covance's
net revenues. See "Risk Factors--Risks Relating to Covance-- Dependence on
Certain Industries and Clients."
Covance's sales activities are conducted by more than 90 business
development people based in Covance's operations in the United States,
Europe, Australia, Japan and Singapore. Most of Covance business development
personnel have technical or scientific backgrounds.
To strengthen its sales and marketing activities, Covance introduced in
1995 a Lotus Notes based large account management process ("LAMP") that
allows Covance business development personnel in all locations to promptly
ascertain the status of any new client activity with any Covance operation
and is an important tool in managing Covance's key account program. Through
LAMP, the key account program and dedicated resources, Covance believes it
can better coordinate and unite the efforts of its sales and marketing
personnel and strengthen relationships with pivotal biopharmaceutical
clients. Covance believes that this will allow it to improve its
understanding of its clients' organizational structure, management practices
and product pipeline, and, thus, better serve its clients' needs. Conversely,
LAMP also enables clients, across different business functions, to better
understand the full range of Covance's services.
Contractual Arrangements
Most of Covance's contracts in the preclinical, central laboratory,
clinical packaging and health economics areas are fixed price or
fee-for-service and in the clinical and periapproval areas are
fee-for-service with a cap. To a lesser extent, some of the contracts in the
clinical and periapproval areas are fixed price or fee-for-service without a
cap. In cases where the contracts are fixed price, Covance bears the cost of
overruns, with certain exceptions, but benefits if the costs are lower than
anticipated. In cases where the contracts are fee-for-service with a cap, the
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contracts contain an overall budget for the trial based on time and cost
estimates. If costs are lower than anticipated, the client keeps the savings,
but if costs are higher than estimated, then Covance is responsible for the
overrun unless the increased cost is a result of a change requested by the
client, such as an increase in the number of patients to be enrolled or the
type or amount of data to be collected. Contracts may range from a few months
to several years depending on the nature of the work performed. In some
cases, for multiyear contracts involving either preclinical or clinical and
periapproval trials, a portion of the contract fee is paid at the time the
study or trial is started with the balance of the contract fee payable in
installments over the study or trial duration and may be performance based.
For instance, in clinical and periapproval trials, installment payments may
be related to investigator recruitment, patient enrollment or delivery of the
database.
Most of Covance's contracts for the provision of its services are
terminable by the client either immediately or upon notice. Contracts may be
terminated for a variety of reasons, including the failure of a product to
satisfy safety requirements, unexpected or undesired results of the product,
the client's decision to forego or terminate a particular study, insufficient
enrollment or investigator recruitment, or Covance's failure to properly
discharge its obligations thereunder. Although the contracts often require
payment of expenses to wind down the study and fees earned to date, and in
some cases, a termination fee or a payment of a portion of the fees or
profits that would have been earned under the contract if the contract had
not been terminated early, the loss of a large contract or the loss of
multiple contracts could materially and adversely affect Covance. See "Risk
Factors--Risks Relating to Covance--Fixed Price Nature of Contracts; Loss or
Delay of Large Contracts."
Backlog
Certain of Covance's studies and projects are performed over an extended
period of time which may be as long as several years. With respect to such
studies or projects, Covance maintains an order backlog to track anticipated
net revenues for such work that has yet to be earned. Covance does not
maintain an order backlog for all the services it provides because such
services are performed within a short period of time or for other reasons
where it is not practical or feasible to maintain an order backlog.
Additionally, services appropriate for backlog measurement do not correspond
exactly with any particular line of business.
Backlog is principally calculated with respect to work to be performed
pursuant to letters of intent and contracts. Once work under a letter of
intent or contract commences, net revenue is recognized over the life of the
contract. In certain cases, however, Covance will work on a project prior to
executing a letter of intent and the backlog may include the net revenue
expected from such project.
No assurance can be given that Covance will be able to realize all or any
net revenue included in backlog. Although backlog can be meaningful to
management with respect to a particular study where study-specific
information is known (e.g., study duration, performance clauses and other
study-specific contract terms), Covance believes that its aggregate backlog
as of any date is not necessarily a meaningful indicator of future results
for a variety of reasons, including the following: First, studies vary in
duration. For instance, some studies that are included in 1995 backlog may be
completed in 1996, while others may be completed in later years. Second, the
scope of studies may change, which may either increase or decrease their
value. Third, studies included in backlog may be subject to bonus or penalty
payments. Fourth, trials under letters of intent or contracts included in
backlog are subject to termination or delay at any time by the client or
regulatory authorities. Termination or delays can result from a number of
reasons. See "--Contractual Arrangements." Delayed contracts remain in
Covance's backlog pending determination of whether to continue, modify or
cancel the study.
Using this method of measuring backlog, at December 31, 1995, 1994 and
1993, Covance's aggregate backlog was approximately $392 million, $344
million and $294 million, respectively.
Competition
The CRO industry is highly fragmented, with participants ranging from
hundreds of small, limited-service providers to a few full service CROs with
global capabilities. Covance primarily competes against in-house departments
of pharmaceutical companies, full-service CROs and, to a lesser extent,
universities and teaching hospitals. Covance believes, based on 1995
revenues, that the five largest CROs after itself include PPD (after its
merger with APBI), Quintiles Transnational Corporation, Huntington
International Holdings PLC, Parexel International Corporation and ClinTrials
Inc. CROs compete on the basis of several factors, including reputation
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<PAGE>
for on-time quality performance, expertise and experience in specific
therapeutic areas, scope of service offerings, how well such services are
integrated, strengths in various geographic markets, price, technological
expertise and efficient drug development processes, the ability to acquire,
process, analyze and report data in a time-saving and accurate manner, the
ability to manage large-scale clinical trials both domestically and
internationally, expertise and experience in health economics and size. While
Covance has competed effectively in these areas, there can be no assurance
that Covance will be able to continue to do so. As a result of competitive
pressures, the CRO industry is consolidating. This trend is likely to produce
competition among the larger CROs for both clients and acquisition candidates
and companies may choose to limit the CROs they are willing to work with. In
addition, there are few barriers to entry for small, limited-service entities
considering entering the CRO industry. These entities may compete against
larger CROs for clients. Furthermore, the CRO industry has attracted the
attention of the investment community, which could lead to increased
competition by increasing the availability of financial resources for CROs.
Increased competition may lead to price and other forms of competition that
could have a material adverse effect on the results of operations of Covance.
See "--CRO Industry Overview."
Government Regulation
The laboratory and manufacturing services performed by Covance are subject
to various regulatory requirements designed to ensure the quality and
integrity of the testing and manufacturing processes. See "--The Drug
Development Process--Overview." The industry standards for conducting
preclinical laboratory testing are embodied in the GLP and GMP regulations
and for central laboratory operations in Clinical Laboratory Improvement
Amendments of 1988 ("CLIA"). Covance's central laboratories also, in limited
circumstances and when required by a client, follow GLP. Covance's central
laboratory in Geneva has also been certified by CAP. GMP sets forth the
requirements for manufacturing facilities. GLP and GMP have been adopted by
the FDA, by the Department of Health in the United Kingdom and by similar
regulatory authorities in other parts of the world. GLP and GMP stipulate
requirements for facilities, equipment and professional staff. The
regulations require standardized procedures for studies, for recording and
reporting data and for retaining appropriate records. To help ensure
compliance, Covance has established quality assurance controls at its
laboratory and manufacturing facilities which monitor ongoing compliance with
GLP, GMP and CLIA regulations, as applicable, by auditing test data and
conducting regular inspections of testing and manufacturing procedures.
The industry standard for the conduct of clinical research and development
studies is embodied in the regulations for GCP. Although GCP has not been
formally adopted by the FDA nor, with certain exceptions, by similar
regulatory authorities in other countries, certain provisions of GCP have
been included in FDA regulations. As a matter of practice, the FDA and many
other regulatory authorities require that test results submitted to such
authorities be based on studies conducted in accordance with GCP. These
regulations require (1) complying with specific requirements governing the
selection of qualified investigators; (2) obtaining specific written
commitments from the investigators; (3) verifying that patient informed
consent is obtained; (4) monitoring the validity and accuracy of data; (5)
verifying drug or device accountability; (6) instructing investigators to
maintain records and reports; and (7) permitting appropriate governmental
authorities access to data for their review. Covance must also maintain
reports for each study for specified periods for inspection by the study
sponsor and the FDA during audits. As with GLP and GMP, noncompliance with
GCP can result in the disqualification of data collection during the clinical
trial.
Covance's standard operating procedures are written in accordance with
regulations and guidelines appropriate to the region and the nation where
they will be used. Within Europe, all work is carried out in accordance with
the European Community Note for Guidance "Good Clinical Practice for Trials
on Medicinal Products in the European Community" and the requirements of the
applicable country. In addition, FDA regulations and guidelines serve as a
basis for Covance's North American and Asian/Pacific standard operating
procedures. From an international perspective, when applicable, Covance has
implemented common standard operating procedures across regions to assure
consistency whenever it is feasible and appropriate to do so.
Covance's animal import and breeding facilities are also subject to a
variety of federal and state laws and regulations, including The Animal
Welfare Act and the rules and regulations promulgated thereunder by the
United States Department of Agriculture ("USDA"). These regulations establish
the standards for the humane treatment, care and handling of animals by
dealers and research facilities. Covance's breeding and import animal
facilities maintain detailed standard operating procedures and the
documentation necessary to assure compliance with
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<PAGE>
applicable regulations for the humane treatment of the animals in its
custody. Besides being licensed by the USDA as both a dealer and research
facility, this business is also accredited by the American Association for
the Accreditation of Laboratory Animal Care and has registered assurance with
the U.S. National Institutes of Health Office of Protection for Research
Risks.
The use of controlled substances in testing for drugs of abuse is
regulated by the Drug Enforcement Administration (the "DEA"). All Covance
laboratories using controlled substances for testing purposes are licensed by
the DEA.
Covance's U.S. laboratories are subject to licensing and regulation under
federal, state and local laws relating to hazard communication and employee
right-to-know regulations, the handling and disposal of medical specimens and
hazardous waste and radioactive materials, as well as to the safety and
health of laboratory employees. All Covance laboratories are operated in
material compliance with applicable federal and state laws and regulations
relating to the storage and disposal of all laboratory specimens including
the regulations of the Environmental Protection Agency, the Nuclear
Regulatory Commission, the Department of Transportation, the National Fire
Protection Agency and the Resource Conservation and Recovery Act. Although
Covance believes that it is currently in compliance in all material respects
with such federal, state and local laws, failure to comply could subject
Covance to denial of the right to conduct business, fines, criminal penalties
and other enforcement actions.
In addition to its comprehensive regulation of safety in the workplace,
the Occupational Safety and Health Administration has established extensive
requirements relating to workplace safety for health care employers, whose
workers may be exposed to blood-borne pathogens such as HIV and the hepatitis
B virus. These regulations, among other things, require work practice
controls, protective clothing and equipment, training, medical follow-up,
vaccinations and other measures designed to minimize exposure to chemicals,
and transmission of blood-borne and airborne pathogens. Furthermore, relevant
Covance employees receive initial and periodic training to ensure compliance
with applicable hazardous materials regulations and health and safety
guidelines.
The regulations of the Department of Transportation, the Public Heath
Service and the Postal Service apply to the surface and air transportation of
laboratory specimens. Covance's laboratories also comply with the
International Air Transport Association regulations, which govern
international shipments of laboratory specimens. Furthermore, when the
materials are sent to a foreign country, the transportation of such materials
becomes subject to the laws, rules and regulations of such foreign country.
Intellectual Property
Covance has developed certain computer software and technically derived
procedures that provide separate services and are intended to maximize the
quality and effectiveness of its services. Although Covance's intellectual
property rights are important to its results of operations, Covance believes
that such factors as the technical expertise, knowledge, ability and
experience of Covance's professionals are more important, and that, overall,
these technological capabilities provide significant benefits to its clients.
Employees
At September 1996 Covance had approximately 5,000 employees, approximately
30% of whom are employed outside of the United States. Approximately 32 of
Covance's employees hold M.D. degrees, 134 hold Ph.D. degrees, 8 hold
Pharm.D. degrees, 25 hold DVM degrees and approximately 128 hold masters or
other postgraduate degrees. Covance believes that its relations with its
employees are good.
Covance's performance depends on its ability to attract and retain
qualified professional, scientific and technical staff. The level of
competition among employers for such skilled personnel is high. Covance
believes that its employee compensation and benefit plans, including its
recently adopted employee stock ownership plan, enhance employee morale,
professional commitment and work productivity and provide an incentive for
employees to remain with Covance. While Covance has not experienced any
significant problems in attracting or retaining qualified staff, there can be
no assurance that Covance will be able to avoid such problems in the future.
Facilities
Covance both owns and leases its facilities. Covance's principal executive
offices are located in Princeton, New Jersey where it leases approximately
157,000 square feet of space. The lease expires in 2004. Because its
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<PAGE>
existing space is approximately 95% occupied and to accommodate its growth,
Covance is currently in discussions with the landlord of this facility to
either lease or purchase additional space in Princeton, New Jersey. No
assurance can be provided that these discussions will be satisfactorily
resolved. Covance owns its 397,000 square-foot preclinical laboratory located
in Madison, Wisconsin and its 205,000 square-foot preclinical laboratory in
Harrogate, England. Covance leases most of its 201,000 square-foot
preclinical laboratory in Vienna, Virginia. It also owns several of the
buildings. The leases expire in 1999 and have a 10-year renewal option.
Covance also leases its 152,000 square-foot pharmaceutical laboratory in
Indianapolis, Indiana, which expires in 2000. Covance is investigating
extensions of both leases and other options with respect to such facilities.
Covance leases its 51,000 square-foot pharmaceutical laboratory in Geneva,
Switzerland, which lease expires in 2000. Covance's domestic packaging
operations are conducted from several leased facilities. The principal
packaging facility is in Allentown, Pennsylvania. The leases are for
approximately 100,000 square feet of space and they all expire in 1999.
Covance is currently reviewing facility needs for its domestic packaging
operations. Covance's Swiss based packaging operation currently conducts
business in a 20,000 sq. ft. leased facility, but has plans to construct a
new, purpose designed 37,000 sq. ft. facility. The new facility is expected
to be completed in early 1998. In addition, in October 1996, Covance
purchased an 81,000 sq. ft. former pharmaceutical manufacturing facility in
Horsham, England. After its renovation is completed by mid-1997, this
facility will be used to provide clinical packaging, clinical and
periapproval services and health economics services and also serve as
Covance's European headquarters. Covance Biotechnology's facility in North
Carolina is leased. See "Risk Factors--Risks Relating to Covance--
Biomanufacturing--New Business Venture." Covance also owns or leases other
facilities in the United States, England, Ireland, Belgium, France, Germany,
Switzerland, Sweden, Australia, Singapore and Japan.
Legal Proceedings
Covance is party to lawsuits and administrative proceedings incidental to
the normal course of its business. Covance does not believe that any
liabilities related to such lawsuits or proceedings will have a material
effect on its financial condition or results of operations.
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<PAGE>
MANAGEMENT OF COVANCE
Management
Directors. Certain information with respect to the persons who will serve
as directors of Covance following the Distributions is set forth below. Prior
to the closing of the Covance Spin-Off Distribution, certain current
directors will resign and the prospective directors listed below will be
elected. As provided in the Covance Certificate, the Covance Board will be
divided into three classes effective upon the Distributions and one class of
the Covance Board will be elected for a three-year term at each annual
meeting of stockholders. Included in the information set forth below are the
names of the directors of each class. The term for which each director will
initially be elected has not yet been determined. The Covance Board will be
comprised of seven directors, one of whom will be an officer of Covance and
two of whom will be officers of Corning. Covance does not intend to hold an
annual meeting of stockholders until the Spring of 1998.
<TABLE>
<CAPTION>
Name Age
- ----------------------- ---
<S> <C>
Christopher A. Kuebler 43
Van C. Campbell 58
William C. Ughetta 63
J. Randall MacDonald 48
Nigel Morris 37
Robert M. Baylis 58
Irwin Lerner 66
</TABLE>
Christopher A. Kuebler has been Covance's President and Chief Executive
Officer, and an Executive Vice President of CLSI, an affiliate of Covance,
since November 1994. From March 1993 through November 1994, he was the
Corporate Vice President, European Operations for Abbott Laboratories Inc.
("ALI"), a diversified health care company. From January 1991 until March
1993, Mr. Kuebler was the Vice President, Sales and Marketing for ALI's
Pharmaceutical Division. Mr. Kuebler has been a member of the Covance Board
since November 1994. Mr. Kuebler also serves in various executive officer and
director capacities of Covance's subsidiaries.
Van C. Campbell is the Vice Chairman of Corning, which he joined in 1964.
He was elected assistant treasurer in 1971, treasurer in 1972, a vice
president in 1973, financial vice president in 1975 and senior vice president
for finance in 1980. He became general manager of the Consumer Products
Division in 1981. Mr. Campbell was elected vice chairman and a director in
1983 and during 1995 was appointed to the additional position of chairman of
Corning Life Sciences, Inc. Mr. Campbell has been a member of the Covance
Board since May 1995. He is a director of Armstrong World Industries, Inc.
and General Signal Corporation.
William C. Ughetta is the Senior Vice President and General Counsel of
Corning. Mr. Ughetta joined Corning in 1968 as assistant secretary and
assistant counsel. He was elected secretary of the corporation in 1971 and
vice president in 1972. He was elected a senior vice president in 1983. Mr.
Ughetta has been a member of the Covance Board since July 1996. He is a
director of Siecor Corporation and Chemung Canal Trust Company.
J. Randall MacDonald has been the Senior Vice President-Human Resources
and Administration for the GTE Corporation, a telecommunications company,
since April 1995. Prior to April 1995, Mr. MacDonald held various senior
positions with GTE, including Vice President-Employee Relations and
Organizational Development (from 1988) and Vice President of Organizational
Development (from 1986). Mr. MacDonald joined GTE in 1983 as a Director of
Employee Relations.
Nigel W. Morris has been the President and Chief Operating Officer of
Capital One Financial Corporation ("Capital One"), a financial services
company, from July 1994 to the present. Mr. Morris was the Executive Vice
President, Credit Card Division, of the Signet Banking Corporation
("Signet"), from May 1993 to November 1994. From October 1988 until April
1993, Mr. Morris was the Senior Vice President-Policy/Strategy-Credit Card
Business for Signet. He is also a director of Capital One.
Robert M. Baylis was the Vice Chairman of CS First Boston Corporation
("First Boston"), a financial services company, from March 1992 to March
1996. Prior to March 1992, Mr. Baylis held a variety of positions with First
Boston, including Chairman and Chief Executive Officer of CS First Boston
Pacific, Inc./Hong Kong, Managing Director-Investment Banking Group and
Managing Director-Equity Security Department. Prior to his retirement, Mr.
Baylis was with First Boston for over 33 years. He is also a director of the
following corporations: Host Marriott Corporation, Gryphon Holdings, Inc.,
Home State Holdings, Inc. and New York Life Insurance Company.
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<PAGE>
Irwin Lerner was the Chairman of the Board of Directors and Executive
Committee of Hoffmann-La Roche, Inc. ("Roche"), a pharmaceutical company,
from January to September 1993. From April 1980 to January 1993, Mr. Lerner
was the President and Chief Executive Officer of Roche. He is also a director
of the following corporations: Humana, Inc., Medarex, Inc., Public Service
Enterprise Group Incorporated and Sequence Therapeutics, Inc.
Directors' Compensation. Each director of Covance, other than a director
who is an employee of Covance, will receive $15,000 annually for service as a
director and will also be paid $1,000 for each meeting of the Covance Board
and $500 for each meeting of any committee thereof which he attends.
Covance has adopted, effective the Distribution Date, a deferred
compensation plan for directors pursuant to which each director may elect to
defer until a date specified by him receipt of all or a portion of his
compensation. Such plan provides that amounts deferred may be allocated to
(i) a cash account upon which amounts deferred may earn interest, compounded
quarterly, at the base rate of Citibank, N.A. in effect on certain specified
dates, (ii) a market value account, the value of which will be based upon the
market value of Covance Common Stock from time to time, or (iii) a
combination of such accounts. As of the Distribution Date, it is anticipated
that there will be seven non-employee directors eligible to participate in
the deferred compensation plan.
Covance has adopted, effective the Distribution Date, a restricted stock
plan for non-employee directors, pursuant to which Covance will issue to each
non-employee director elected 200 shares of Covance Common Stock for each
year specified in the term of service for which such director was elected,
subject to forfeiture and restrictions on transfer, and 2,000 shares upon
such director's election, subject to forfeiture and restrictions on transfer.
Committees of the Board of Directors. Prior to the Distributions, the
Covance Board is expected to establish and designate specific functions and
areas of oversight to an Audit Committee and a Compensation Committee (the
"Covance Compensation Committee"). The Audit Committee will examine and
consider matters relating to the financial affairs of Covance, including
reviewing Covance's annual financial statements, the scope of the independent
and internal audits and the independent auditor's letter to management
concerning the effectiveness of Covance's internal financial and accounting
controls. The Covance Compensation Committee will make recommendations to the
Covance Board with respect to programs for human resource development and
management organization and succession, determine senior executive
compensation, consider and make recommendations to the Covance Board with
respect to compensation matters and policies and employee benefit and
incentive plans, administer such plans, and administer Covance's stock option
and equity based plans and grant stock options and other rights under such
plans.
Executive Officers of Covance. In addition to Mr. Kuebler, the following
persons will serve as executive officers of Covance after the Distributions:
Richard J. Andrews (49) has been a Corporate Senior Vice President of
Covance since July of 1996. In addition, Mr. Andrews has served as the
President of Covance Central Laboratory Services Inc., a wholly owned
subsidiary of Covance, since June 1994. From January 1993, Mr. Andrews has
served as the President of Covance Central Laboratory Services S.A., a wholly
owned subsidiary of Covance Central Laboratory Services Inc. since April
1994. Covance Central Laboratory Services Inc. and Covance Central Laboratory
Services S.A. provide Covance's central laboratory services. Prior to January
1993. Mr. Andrews served in various executive capacities in Europe, including
Worldwide Business Director, for Dupont International S.A., a multinational
chemical and pharmaceutical company. Mr. Andrews serves as a director of
several of Covance's subsidiaries.
Michael Giannetto (34) has been Covance's Controller since July 1996 and a
Vice President since November 1996. From December 1992 to March 1995, Mr.
Giannetto was the Manager of Financial Reporting and Technical Accounting for
CLSI, an affiliate of Covance. From March 1995 to July 1996, Mr. Giannetto
was the Business Controller for Covance. Prior to December 1992, Mr.
Giannetto was a Senior Audit Manager for Deloitte & Touche.
Charles C. Harwood, Jr. (43) has been Covance's Corporate Senior Vice
President and Chief Financial Officer since July 1996. From November 1994 to
July 1996, Mr. Harwood was the Vice President and Chief Financial Officer.
From May 1993 to November 1994, Mr. Harwood was Executive Director, Finance
of Covance. From January 1993 to May 1993, Mr. Harwood was Chief Financial
Officer and Vice President of Finance with Integrated Telecom Technologies,
Inc. Prior to that position, he was the President of Pembroke Development
Co., Inc., a commercial real estate development company. Mr. Harwood also
serves as a director of Bio-Imaging, Covance Biotechnology and several of
Covance's other subsidiaries.
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<PAGE>
Jeffrey S. Hurwitz (36) has been Covance's Corporate Senior Vice
President, General Counsel and Secretary since July 1996. From November 1994
to July 1996, Mr. Hurwitz was Covance's Vice President, General Counsel and
Secretary. From October 1993 to November 1994, Mr. Hurwitz was Covance's
General Counsel and Secretary. From May 1992 to October 1993, Mr. Hurwitz was
an Assistant Counsel and Assistant Secretary for CLSI, an affiliate of
Covance. From August 1991 to May 1992, Mr. Hurwitz was an Assistant Counsel
for Corning. From February 1991 to June 1991, Mr. Hurwitz was an Associate
with the law firm of Luskin & Stern. Prior to February 1991, Mr. Hurwitz was
an Associate with the law firm of Shearman & Sterling. Mr. Hurwitz also
serves as a director of Bio-Imaging, Covance Biotechnology and several of
Covance's other subsidiaries.
Kim D. Lamon, M.D., Ph.D. (44) has been a Corporate Senior Vice President
of Covance since July of 1996. In addition, Dr. Lamon has been the President
of Covance Clinical and Periapproval Services Inc. and Covance Periapproval
Services Inc. since May 1996. Covance Clinical and Periapproval Services
Inc., Covance Periapproval Services Inc. and their European affiliates
provide Covance's clinical and periapproval services. From April 1994 until
May 1996, he was the Executive Vice President, Chief Medical Officer for
Quest Diagnostics and Senior Vice President, Science and Technology for CLSI,
affiliates of Covance. From July 1992 until April 1994, Dr. Lamon was Senior
Vice President, Clinical Research and Development and Executive Medical
Director for Rhone-Poulenc Rorer ("RPR"), a pharmaceutical company. Prior to
July 1992, Dr. Lamon was Senior Vice President, Clinical Research and
Regulatory Affairs at RPR. Dr. Lamon received his M.D. and Ph.D. in
Pharmacology from Thomas Jefferson University. Since 1989, Dr. Lamon has been
an Adjunct Assistant Professor of Pharmacology at Thomas Jefferson
University. Dr. Lamon serves as a director of several of Covance's
subsidiaries.
James D. Utterback (41) has been Covance's Corporate Senior Vice
President, International New Business Ventures and is also responsible for
Covance's clinical packaging operations since August 1995. From May 1994
until August 1995, Mr. Utterback was the Senior Vice President, Human
Resources and Quality for CLSI. Prior to May 1994, Mr. Utterback served in
various executive capacities, including Chief Executive Officer in South
Africa, for RPR, a pharmaceutical company. Mr. Utterback has worked in the
pharmaceutical industry since 1985, living in Europe, Africa and the United
States. Mr. Utterback serves as a director of several of Covance's
subsidiaries.
Michael G. Wokasch (45) has been a Corporate Senior Vice President of
Covance since July of 1996. In addition, Mr. Wokasch has been the President
of Covance Laboratories Inc., a wholly owned subsidiary of Covance, since
July 1995. Covance Laboratories Inc. and its affiliates provide Covance's
preclinical services. From January 1992 until July 1995, Mr. Wokasch served
as Divisional Vice President of Sales of ALI. From October 1991 to January
1992, Mr. Wokasch served as Director for New Product/Marketing/Development &
Scientific Relations at ALI. Prior to October 1991, Mr. Wokasch was a
Director, New Product Development at ALI. Mr. Wokasch serves as a director of
several of Covance's subsidiaries.
Executive Compensation
Historical Compensation. The following table sets forth information with
respect to annual and long-term compensation at rates expected to be paid by
Covance and its subsidiaries to each of the chief executive officer and the
four other most highly compensated executive officers (the "named executive
officers") of Covance for services to be rendered in all capacities in fiscal
year 1996 and such compensation paid or accrued during the years ended
December 31, 1995 and December 31, 1994 for services rendered by each of the
named executive officers. All references in the following tables to stock and
stock options relate to awards of, and options to purchase, Corning Common
Stock.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards
----------------------------------- ----------------------
Restricted
Other Annual Stock Securities All Other
Name and Salary Bonus Compensation Awards Underlying Compensation
Principal Position Year (1) (2) (3) (4) Options (5)
- -------------------------------------- ---- ------- ------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Christopher A. Kuebler, 1996 350,000 192,500 42,447 -- -- 72,043
Chairman, President and 1995 322,567 303,958 39,927 326,926 81,000 68,680
Chief Executive Officer 1994 51,667 101,679 -- -- 20,000 2,140
Richard J. Andrews, Corporate Senior 1996 232,960 93,184 -- -- 4,000 15,997
Vice President; President, 1995 222,833 176,512 -- -- -- 17,445
Covance Central
Laboratory Services Inc. 1994 197,635 41,000 -- -- 12,000 10,466
Kim D. Lamon, Corporate Senior 1996 323,800 178,090 31,745 -- -- 56,012
Vice President; President, 1995 309,417 160,265 29,225 89,524 60,000 58,060
Covance Clinical and 1994 200,000 175,625 -- -- 23.000 18,534
Periapproval Services Inc.
and Covance Periapproval
Services Inc.
James D. Utterback, 1996 245,758 135,167 19,244 -- -- 43,876
Corporate Senior Vice President, 1995 237,167 104,826 19,244 70,499 24,000 41,595
International New Business Ventures 1994 153,333 134,646 -- -- 18,000 17,509
Michael Wokasch, 1996 208,000 93,600 3,600 -- -- 17,730
Corporate Senior Vice President; 1995 100,000 76,500 -- -- 38,000 4,740
President, Covance
Laboratories, Inc.
</TABLE>
- -------------
(1) Reflects for 1996 current salaries on an annualized basis.
(2) Reflects for 1996 projected performance-based annual cash compensation
awards at target levels.
(3) Includes dividends on shares of restricted stock granted but not earned
within one year from date of grant and tax gross-up payments.
(4) Messrs. Kuebler, Utterback, Wokasch and Dr. Lamon held an aggregate of
44,240, 16,316, 8,000 and 27,941 shares of restricted stock,
respectively, having an aggregate value on September 30, 1996 of
$1,725,360, $636,324, $312,000 and $1,089,699, respectively. Certain of
such shares, net of forfeitures, were subject to performance-based
conditions on vesting and are subject to forfeiture upon termination and
restrictions on transfer prior to stated dates. Certain other shares
("Career Shares") are subject to restrictions on transfer until the
executive officer retires at or after age 60 and are subject to
forfeiture prior to age 60 in whole if such officer voluntarily
terminates employment with Covance and in part if such officer's
employment is terminated by Covance. On or prior to the Distribution Date
(a) all restrictions on transfer will be removed from Career Shares which
are no longer subject to forfeiture, except such shares held by Mr.
Kuebler, and all Career Shares which are subject to forfeiture conditions
and transfer restrictions will be forfeited; and (b) performance-based
shares which remain subject to forfeiture conditions and transfer
restrictions and Career Shares which are no longer subject to forfeiture
held by Mr. Kuebler will be forfeited, and in lieu thereof restricted
shares of Covance Common Stock will thereafter be granted pursuant to the
terms of the Covance Incentive Stock Plan (as defined below), which
shares will be subject to forfeiture conditions and transfer restrictions
until July 1, 1997. Dividends are paid to such individuals on all shares
of restricted Corning Common Stock held by them.
(5) Includes the following amounts to be contributed by Covance to the
Covance Retirement Savings Plan (as defined below) for 1996: $6,531 for
Mr. Kuebler, $6,517 for Mr. Andrews, $6,000 for Dr. Lamon, $6,750 for Mr.
Utterback and $8,250 for Mr. Wokasch. Also includes a $12,840 automobile
allowance to be received by each of Messrs. Kuebler, Utterback and Dr.
Lamon and $9,480 to be received by each of Messrs. Andrews and Wokasch.
Also includes 20% of interest-free loans made by Covance to the following
individuals in the following amounts, together with imputed interest
thereon: $200,000 for Mr. Kuebler, $150,000 for Dr. Lamon
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<PAGE>
and $100,000 for Mr. Utterback, which loans are to be forgiven over a
five-year period provided they continue to be employed by Covance and
were made to assist such individuals in relocating to the New Jersey
area.
Option Grants. The following table sets forth certain information
regarding options granted in 1995 (except for Mr. Andrews whose options were
granted on April 25, 1996) to the named executive officers pursuant to
Corning stock option plans. No other options were granted to the named
executive officers in 1996. Employees of Covance who hold at the Distribution
Date Corning stock options, including a portion of those granted on December
6, 1995, will receive new options of Covance ("New Options") under the
Covance Stock Option Plan (as defined below) in exchange for the surrender of
such Corning options. The remainder of the options granted on December 6,
1995 will be cancelled. It is anticipated that such cancelled options will be
replaced by New Options to be granted under the Covance Stock Option Plan.
The exercise prices and the number of shares of Covance Common Stock
subject to New Options will be determined as of the time of the Distributions
so as to preserve the investment basis and intrinsic gain associated with the
Corning options surrendered as of the date of the Covance Spin-Off
Distribution. Generally, the expiration dates and the dates on which New
Options are exercisable will be identical to those under the corresponding
Corning options at the time of the Distributions. Certain New Options will
provide that upon exercise of such option through the surrender of previously
owned shares of Covance Common Stock, the participant will be entitled to
receive options covering the same number of shares so surrendered, with an
exercise price equal to the fair market value of the shares at the time of
the exercise of the New Option.
OPTION/SAR GRANTS IN FISCAL YEAR 1995 (1)
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (3)
------------------------------------ -----------------------------------
Number of % of Total
Securities Options
Underlying Granted
Options to Employees Gain
Granted in Fiscal Exercise Expiration at Gain at Gain at
Name (2) Year Price Date 0% (4) 5% 10%
- ----------------------- --------- ------------ ------- --------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Christopher A. Kuebler 81,000 2.4% 31.25 12/5/2005 0 1,591,890 4,034,161
Richard J. Andrews 4,000 0.1% 34.44 4/24/2006 0 86,637 219,554
Kim D. Lamon 60,000 1.8% 31.25 12/5/2005 0 1,179,177 2,988,267
James D. Utterback 24,000 0.7% 31.25 12/5/2005 0 471,671 1,195,307
Michael Wokasch 30,000 0.9% 31.25 12/5/2005 0 589,589 1,494,134
8,000 0.2% 27.50 10/3/2005 0 138,357 350,623
All Optionees as a
Group (4) 3,389,100 100.0% 31.34 2005 0 66,797,662 169,278,390
</TABLE>
- -------------
(1) No SARs were granted.
(2) The stock option agreements with Messrs. Kuebler, Utterback and Wokasch
(with respect to the 30,000 share grant) and Dr. Lamon provide that
one-half of the options will become exercisable on February 1, 1999 and
all options will become exercisable on February 1, 2000. The stock option
agreement with Mr. Andrews provides that one-half of the options become
exercisable on April 24, 1997 and all of the options will become
exercisable on April 24, 1998. The stock option agreement with Mr.
Wokasch (with respect to the 8,000 share grant) provides that one-half of
the options become exercisable on October 4, 1996 and all of the options
will become exercisable on October 4, 1997. All such agreements also
provide that an additional option may be granted when the optionee uses
shares of Corning Common Stock to pay the purchase price of an option.
The additional option will be exercisable for the number of shares
tendered in payment of the option price, will be exercisable at the then
fair market value of the Corning Common Stock, will become exercisable
only after the lapse of twelve months and will expire on the expiration
date of the original option.
(3) The dollar amounts set forth under these columns are the result of
calculations at 0% and at the 5% and 10% rates established by the
Commission and therefore are not intended to forecast future appreciation
of Corning's stock price.
(4) No gain to the optionees is possible without an appreciation in stock
price, an event which will also benefit all stockholders. If the stock
price does not appreciate, the optionees will realize no benefit.
151
<PAGE>
Option Exercises and Fiscal Year-End Values. The following table sets
forth the number of shares of Corning Common Stock covered by both
exercisable and unexercisable stock options as of December 31, 1995, for the
named executive officers. The named executive officers exercised no options
in 1996.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL
YEAR 1995 AND 1995 FISCAL YEAR-END OPTION/SAR VALUES (1)
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Fiscal Year End At Fiscal Year End
---------------------------- ------------------------------
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ------------ -------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Christopher A. Kuebler 0 0 10,000 91,000 0 0
Richard J. Andrews 0 0 2,000 14,000 0 0
Kim D. Lamon 0 0 10,000 73,000 0 13,812
James D. Utterback 0 0 10,000 32,000 0 8,500
Michael Wokasch 0 0 0 38,000 0 28,501
</TABLE>
- -------------
(1) There are no SARs outstanding.
Corporate Performance Plan Activity. Awards of performance-based shares of
Corning Common Stock have been granted to Covance's executive officers
pursuant to a series of performance-based plans (the "Corporate Performance
Plan"). The Corporate Performance Plan provides the mechanisms to reward
improvement in corporate performance as measured by net income, earnings per
share and/or return on equity. Each year minimum, target and maximum goals
are set and shares awarded (at target levels) which are subject to forfeiture
in whole or in part if performance goals are not met. The percentage of
awards that may be earned ranges from 0% to 150% of target. Shares earned
remain subject to forfeiture and restrictions on transfer for two years
following the end of the performance period.
The following table sets forth the number of performance-based shares
awarded under the Corporate Performance Plan. The dollar value of shares
earned for 1995 is reflected in the "Restricted Stock Awards" column of the
Summary Compensation Table appearing on page 137.
In late 1996, the Compensation Committee of the board of directors of
Corning (the "Corning Board") will assess performance against goals,
determine the number of shares earned of those granted in December 1995 and
remove all possibility of forfeiture and restrictions on transfer from such
shares.
CORPORATE PERFORMANCE PLAN ACTIVITY TABLE
<TABLE>
<CAPTION>
Number Number
of Number of Vesting
Grant Shares Performance of Shares Shares Date of
Number Year Date Granted Period Forfeited Earned Earned Shares
- ------------------------ ---- ----- -------- ---------- --------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Christopher A. Kuebler 1996 12/95 13,500 1996 2/99
1995 12/94 10,000 1995 10,740 2/98
1994 0
Richard J. Andrews 1996 0
1995 0
1994 0
Kim D. Lamon 1996 12/95 10,000 1996 2/99
1995 12/94 6,500 1995 3,559 2,941 2/98
1994 0
James D. Utterback 1996 12/95 4,000 1996 2/99
1995 12/94 4,000 1995 1,684 2,316 2/98
1994 0
Michael Wokasch 1996 12/95 5,000 1996 2/99
1995 0
</TABLE>
152
<PAGE>
Variable Compensation. Covance has adopted, effective upon the
Distributions, a variable compensation plan (the "Plan"), an annual incentive
cash compensation plan for approximately 400 supervisory, management and
executive employees similar to an annual performance plan currently
maintained by Covance. The terms of the Plan are as follows.
The performance-based annual cash incentive awards payable under the Plan
will be grounded in financial goals such as net income, operating margin,
return on equity, or earnings per share, or a combination thereof, and
quantifiable non-financial goals. Each participant will be assigned a target
award, as a percentage of base salary in effect at the end of the performance
year for which the target is set, payable if the target is achieved. Actual
results will be compared to the scale of targets with each gradation of
desired result corresponding to a percentage which will be multiplied by the
employee's assigned target award. If the actual result is below target,
awards will be less than target, down to a point below which no awards are
earned. If the desired result is above target, awards will be greater than
target, up to a stated maximum award. The maximum award assigned to the chief
executive officer may not exceed 200% of base salary in effect on the date
the Covance Compensation Committee sets the target for the performance year.
The Covance Compensation Committee retains the right to reduce any award if
it believes individual performance does not warrant the award calculated by
reference to the result.
Employee Equity Participation Program. Covance has adopted, effective upon
the Distributions, the Employee Equity Participation Program (the "Program")
consisting of two plans: (a) a stock option plan (the "Covance Stock Option
Plan") and (b) an incentive stock plan (the "Covance Incentive Stock Plan").
The Program is designed to provide a flexible mechanism to permit key
employees of Covance and of any subsidiary to obtain significant equity
ownership in Covance, thereby increasing their proprietary interest in the
growth and success of Covance.
The Program, which will be administered by the Covance Compensation
Committee, provides for the grant to eligible employees of either
non-qualified or "incentive stock" options, or both, to purchase shares of
Covance Common Stock at no less than fair market value on the date of grant.
The Covance Compensation Committee may also provide that options may not be
exercised in whole or in part for any period or periods of time; provided,
however, that no option will be exercisable until at least twelve months from
the date of grant. All options shall expire not more than ten years from the
date of grant. Options will not be assignable or transferable except for
limited circumstances on death. During the lifetime of the employee an option
may be exercised only by him. The option price is payable upon exercise. The
optionee may pay the option price in cash or with shares of Covance Common
Stock owned by him. The optionee will have no rights as a stockholder with
respect to the shares subject to option until shares are issued upon exercise
of the option. The Covance Compensation Committee may grant options pursuant
to which an optionee who uses shares of Covance Common Stock to pay the
purchase price of an option will receive automatically on the date of
exercise an additional option to purchase shares of Covance Common Stock.
Such additional option will cover the number of shares tendered in payment of
the option price, will be exercisable at the then fair market value of
Covance Common Stock, will become exercisable only after the lapse of twelve
months and will expire no later than the expiration date of the original
option.
The Program also authorizes the Covance Compensation Committee to award to
eligible employees shares, or the right to receive shares, of Covance Common
Stock, the equivalent value in cash or a combination thereof (as determined
by the Covance Compensation Committee). The Covance Compensation Committee
shall determine the number of shares which are to be awarded to individual
employees and the number of rights covering shares to be issued upon
attainment of predetermined performance objectives for specified periods. The
shares awarded directly to individual employees may be made subject to
certain restrictions prohibiting sale or other disposition and may be made
subject to forfeiture in certain events. Shares may be issued to recognize
past performance either generally or upon attainment of specific objectives.
Shares issuable for performance (based upon specific predetermined
objectives) will be payable only to the extent that the Covance Compensation
Committee determines that an eligible employee has met such objectives and
will be valued as of the date of such determination. Upon issuance, such
shares may (but need not) be made subject to the possibility of forfeiture or
certain restrictions on transfer.
Key executive, managerial and technical employees (including officers and
employees who are directors) of Covance and of any subsidiary will be
eligible to participate in the Program and the plans thereunder. The
selection of employees eligible to participate in any plan under the Program
is within the discretion of the Covance
153
<PAGE>
Compensation Committee. Approximately 400 employees would have been eligible
to participate in the plans under the Program had the Program been in effect
in 1996.
Under the Program, the maximum number of shares of Covance Common Stock
which may be optioned or granted to eligible employees will be 6,000,000.
Shares from expired or terminated options under the Covance Stock Option Plan
will be available again for option grant under the Program. Shares which are
issued but not earned, or which are forfeited under the Covance Incentive
Stock Plan, will be available again for issuance under the Program. The
Program provides for appropriate adjustments in the aggregate number of
shares subject to the Program and in the number of shares and the price per
share, or either, of outstanding options in the case of changes in the
capital stock of Covance resulting from any recapitalization, stock or
unusual cash dividend, stock distribution, stock split or any other increase
or decrease effected without receipt of consideration by Covance, or a merger
or consolidation in which Covance is the surviving corporation.
The Program has a term of five years and no shares may be optioned or
awarded and no rights to receive shares may be granted after the expiration
of the Program. The Covance Board is authorized to terminate or amend the
Program, except that it may not increase the number of shares available
thereunder, decrease the price at which options may be granted, change the
class of employees eligible to participate, or extend the term of the Program
or options granted thereunder without the approval of the holders of a
majority of the outstanding shares of Covance Common Stock.
Covance believes that the U.S. federal income tax consequences of the
Program are as follows. An optionee who exercises a non-qualified option
granted under the Covance Stock Option Plan will recognize compensation
taxable as ordinary income (subject to withholding) in an amount equal to the
difference between the option price and the fair market value of the shares
on the date of exercise and Covance or the subsidiary employing the optionee
will be entitled to a deduction from income in the same amount. The
optionee's basis in such shares will be increased by the amount taxable as
compensation, and his capital gain or loss when he disposes of the shares
will be calculated using such increased basis.
If all applicable requirements of the Code with respect to incentive stock
options are met, no income to the optionee will be recognized and no
deduction will be allowable to Covance at the time of the grant or exercise
of an incentive stock option. The excess of the fair market value of the
shares at the time of exercise of an incentive stock option over the amount
paid is an item of tax preference which may be subject to the alternative
minimum tax. In general, if an incentive stock option is exercised three
months after termination of employment, the optionee will recognize ordinary
income in an amount equal to the difference between the option price and the
fair market value of the shares on the date of exercise and Covance or the
subsidiary employing the optionee will be entitled to a deduction in the same
amount. If the shares acquired subject to the option are sold within one year
of the date of exercise or two years from the date of grant, the optionee
will recognize ordinary income in an amount equal to the difference between
the option price and the lesser of the fair market value of the shares on the
date of exercise or the sale price and Covance or the employing subsidiary
will be entitled to a deduction from income in the same amount. Any excess of
the sale price over the fair market value on the date of exercise will be
taxed as a capital gain.
Shares of Covance Common Stock which are not subject to restrictions and
possibility of forfeiture and which are awarded to an employee under the
Covance Incentive Stock Plan will be treated as ordinary income, subject to
withholding, to an employee at the time of the transfer of the shares to him
and the value of such awards will be deductible by Covance or by the
subsidiary employing the employee at the same time in the same amount. Shares
granted subject to restrictions and possibility of forfeiture will not be
subject to tax nor will such grant result in a tax deduction for Covance at
the time of award. However, when such shares become free of restrictions and
possibility of forfeiture, the fair market value of such shares at that time
(i) will be treated as ordinary income to the employee and (ii) will be
deductible by Covance or by the subsidiary employing the employee.
The tax treatment upon disposition of shares acquired under the Program
will depend upon how long the shares have been held and on whether or not the
shares were acquired by exercising an incentive stock option. There are no
tax consequences to Covance upon a participant's disposition of shares
acquired under the Program, except that Covance may take a deduction equal to
the amount the participant must recognize as ordinary income in the case of
the disposition of shares acquired under incentive stock options before the
applicable holding period has been satisfied.
154
<PAGE>
Pension Plans. None of the executive officers of Covance is currently an
active participant in a qualified defined benefit plan of Covance.
It is anticipated that, prior to the Distribution Date, the Compensation
Committee of the Corning Board will approve, and Covance will adopt, a
nonqualified Covance Supplemental Executive Retirement Plan for the benefit
of certain executive officers of Covance, including the named executive
officers, after the Distribution Date. Once adopted, it is anticipated that
such plan will be, in whole or in part, an unfunded, unsecured obligation of
Covance and administered by the Covance Compensation Committee.
Eligible executives may commence receiving full benefits under the plan
upon attaining age 60, so long as they have completed at least twenty years
of service with Corning or any subsidiary thereof. Retirement benefits to be
provided under the plan will be based on 40% of an executive's "Final Average
Pay," defined to mean the average of an executive's base salary plus bonus,
taking into account the highest five consecutive years of the executive's
last ten years of employment with Corning or any subsidiary thereof. Under
the terms of the plan, executives may, with the approval of the Covance
Compensation Committee, elect to commence receiving reduced benefits prior to
age 60, provided that they have completed at least five years of service with
Corning or any subsidiary thereof and have attained age 55. Benefits
commencing prior to age 60 will be reduced by 5% of the amount of benefits
earned for each year prior to age 60. For example, at age 55, an executive
with at least twenty years of service may be eligible to receive 30% of Final
Average Pay so long as the executive receives approval from the Covance
Compensation Committee.
At retirement, the normal form of payment under the plan will be monthly
payments over the lifetime of the executive (or actuarially reduced joint and
survivor benefits over the joint lives of the executive and a named
beneficiary). Alternatively, the executive may elect under the plan, subject
to the approval of the Covance Compensation Committee, the right to receive
an actuarially determined lump-sum distribution from the plan.
Maximum annual benefits, based on at least twenty years of service and the
Final Average Pay calculated under the straight life annuity option form of
pension, payable to participants at ages 55 to 60 are illustrated in the
table set forth below. The table below does not reflect any limitations on
benefits imposed by ERISA.
<TABLE>
<CAPTION>
Age (With at least 20 Years of Service)
--------------------------------------------------------------
Final Average
Pay 55 56 57 58 59 60
---------------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 30,000 32,000 34,000 36,000 38,000 40,000
200,000 60,000 64,000 68,000 72,000 76,000 80,000
300,000 90,000 96,000 102,000 108,000 114,000 120,000
400,000 120,000 128,000 136,000 144,000 152,000 160,000
500,000 150,000 160,000 170,000 180,000 190,000 200,000
600,000 180,000 192,000 204,000 216,000 228,000 240,000
700,000 210,000 224,000 238,000 252,000 266,000 280,000
800,000 240,000 256,000 272,000 288,000 304,000 320,000
900,000 270,000 288,000 306,000 324,000 342,000 360,000
1,000,000 300,000 320,000 340,000 360,000 380,000 400,000
1,100,000 330,000 352,000 374,000 396,000 418,000 440,000
1,200,000 360,000 384,000 408,000 432,000 456,000 480,000
</TABLE>
Covance Retirement Savings Plan. Most of the employees of Covance and its
subsidiaries have been eligible to participate in a tax-qualified, defined
contribution plan known as the Covance Retirement Savings Plan (the "Covance
Retirement Savings Plan" to be renamed the "Covance Stock Purchase Savings
Plan" prior to the Distribution Date), which provides for investment of
employee contributions, including tax-deferred contributions under Section
401(k) of the Code, and matching contributions made by their employers, in
several investment funds, including Corning Common Stock, at the employees'
discretion. Effective as of the Distribution Date, Covance Common Stock will
be added as an investment fund and all or a portion of the employer matching
contributions will automatically be invested in Covance Common Stock. Corning
Common Stock will no longer be available as an investment fund except with
respect to amounts already so invested under the Covance Retirement Savings
Plan.
Effective as of the Distribution Date, the Covance Retirement Savings Plan
will be amended to permit participating employees' employers to make
discretionary contributions, other than matching contributions, to the
Covance Retirement Savings Plan for the benefit of such employees, which
contributions may be invested in Covance Common Stock.
155
<PAGE>
Covance Employee Stock Ownership Plan. Covance has adopted, effective upon
the Distributions, an employee stock ownership plan, as defined in Section
4975(e)(7) of the Code and related regulations and intended to qualify as a
retirement plan under Section 401(a) of the Code, to be known as the Covance
Employee Stock Ownership Plan (the "Covance ESOP").
Individuals who are active employees of Covance and its U.S. subsidiaries
as of the Distribution Date will become participants in the Covance ESOP. To
the extent permitted under the Covance ESOP, Covance will contribute as of
the Distribution Date an amount equal to a portion of each participating
employee's annual compensation. Covance may in its discretion from time to
time make additional contributions to the Covance ESOP for the benefit of
participating employees. The assets of the Covance ESOP will be invested
primarily in shares of Covance Common Stock.
Amounts contributed to the Covance ESOP for the benefit of participating
employees will be 100% vested on the earlier of death, disability or the
second anniversary of the effective date of the grant. Contributions to the
Covance ESOP will not currently be taxable income to the participating
employees and will not generally be available to them until termination of
employment.
Covance Restricted Share Plan. Covance has adopted, effective upon the
Distributions, the Covance Restricted Share Plan, intended to provide to
Covance's foreign national employees in its non-U.S. locations who otherwise
are ineligible to participate in the Covance ESOP and to domestic employees
whose participation therein is subject to limitations imposed by ERISA
benefits similar to the Covance ESOP. To the extent permitted under the plan,
Covance will award to participating employees shares of Covance Common Stock
as of the Distribution Date, the market value of which shall equal a portion
of such employee's annual compensation. Covance may in its discretion from
time to time make additional awards to participating employees. Shares of
Covance Common Stock awarded to participating employees will be 100% vested
on the earlier of death, disability or the second anniversary of the date of
each grant.
Covance Stock Purchase Plan. Covance has adopted, effective upon the
Distributions, the Covance Stock Purchase Plan (the "Covance Stock Purchase
Plan") pursuant to which Covance may make available for sale to employees
shares of its Common Stock at a price equal to 85% of the market value on the
first or last day of each calendar quarter, whichever is lower.
The Covance Stock Purchase Plan, which will be administered by the Covance
Compensation Committee, is designed to give eligible employees (generally,
employees of Covance and its U.S. subsidiaries) the opportunity to purchase
shares of Covance Common Stock through payroll deductions up to 10% of
compensation in a series of quarterly offerings commencing January 1, 1997,
and ending no later than December 31, 2006.
Any eligible employee may elect to participate in the Covance Stock
Purchase Plan on a quarterly basis and may terminate his payroll deduction at
any time or increase or reduce prospectively the amount of his deduction at
the beginning of any calendar quarter. At the end of each calendar quarter, a
participating employee will purchase shares of Covance Common Stock with the
funds deducted. The number of shares purchased will be a number determined by
dividing the amount withheld by the lower of 85% of the closing price of a
share of Covance Common Stock as reported in The Wall Street Journal on the
first or last business day of the particular calendar quarter. An employee
will have no interest in any shares of Covance Common Stock until such shares
are actually purchased by him.
Under the Covance Stock Purchase Plan, the maximum number of shares of
Covance Common Stock which may be purchased by eligible employees will be
1,000,000, subject to adjustment in the case of changes in the capital stock
of Covance resulting from any recapitalization, stock dividend, stock split
or any other increase or decrease effected without receipt of consideration
by Covance.
The Covance Stock Purchase Plan has a term of ten years and no shares of
Covance Common Stock may be offered for sale or sold under the Covance Stock
Purchase Plan after the tenth anniversary of the effective date. The Covance
Board is authorized to terminate or amend the Covance Stock Purchase Plan,
except that it may not increase the number of shares of Covance Common Stock
available thereunder, decrease the price at which such shares may be offered
for sale or change the designation of subsidiaries eligible to participate in
the plan without the approval of the holders of a majority of the shares of
the capital stock of Covance cast at a meeting at which such matter is
considered.
156
<PAGE>
Employment Agreements; Severance and Change in Control Arrangements. It is
anticipated that Mr. Kuebler will enter into an employment agreement with
Covance. The agreement will expire on or before the third anniversary of the
Distribution Date. The agreement will include provisions for an annual salary
of no less than $450,000, with increases subject to the discretion of the
Covance Board; annual target participation in the Variable Compensation Plan
of Covance in amounts no less than 65% of annual salary in effect at the time
performance goals are established; and severance payments following a
termination or a change in control in accordance with the severance policy
described below, except that Mr. Kuebler will receive three times his base
annual salary and three times his annual award of variable compensation in
the event of termination for reasons other than cause.
On or before the Distribution Date, Covance will adopt a severance policy
pursuant to which it will provide to each executive officer, including the
named executive officers, compensation equal to two times the executive
officer's base annual salary at the annual rate in effect on the date of
termination and two times the annual award of variable compensation at the
most recent target level in the event that such executive officer has been
terminated for reasons other than cause. Such executive officer will also be
entitled to participate in Covance's health and benefits plans (to the extent
permitted by the administrative provisions of such plans and applicable
federal and state law) for a period of up to two years or until such officer
is covered by a successor employer's benefit plans, whichever first occurs.
Pursuant to such policy, Covance will also provide to each executive officer
upon the termination of employment by Covance other than for cause during the
twelve months following a change in control of Covance compensation equal to
three times base annual salary in effect on the termination date and three
times the annual variable compensation at the most recent target level and
such officer will be entitled to participate in Covance's health and benefits
plans for a period of up to three years. A "change in control" is defined in
the policy to include the following: the acquisition by a person of 20% or
more of the voting stock of Covance; as a result of a contested election a
majority of the Covance Board members are different than the individuals who
served on Covance's Board in the two years prior to such contested election;
or approval by Covance's shareholders of a merger or consolidation in which
Covance is not the survivor thereof, or a sale or disposition of all or
substantially all of Covance's assets or a plan of partial or complete
liquidation.
157
<PAGE>
SECURITY OWNERSHIP BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF COVANCE
All of the outstanding shares of Covance Common Stock are currently held
by Quest Diagnostics. The following table sets forth the number of shares of
Covance Common Stock that are projected to be beneficially owned after the
Covance Spin-Off Distribution by the directors, by the named executive
officers and by all directors and executive officers of Covance as a group.
The projections are based on the number of shares of Corning Common Stock
held by such persons and such group as of September 30, 1996 (excluding
Career Shares that will be forfeited prior to the Distribution Date, Career
Shares that will not receive the Distributions and Corning Common Stock held
in the Covance Retirement Savings Plan and the Corning Investment Plans) and
on the number of options to acquire Corning Common Stock held as of such date
and exercisable within 60 days thereof. With respect to the shares of Covance
Common Stock, the number reflects the distribution ratio of one share of
Covance Common Stock for every four shares of Corning Common Stock and with
respect to options the number reflects the actual number of shares of Corning
Common Stock subject to options. The stock options held by the directors and
executive officers of Covance will not affect the security ownership of
Covance unless (i) such options are exercised prior to the Record Date and
the underlying shares of Corning Common Stock are held on the Record Date or
(ii) such options are converted into options to purchase shares of Covance
Common Stock.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Owned Number of
Name (1) Exercisable Options
- --------------------------- ------------------- -------------------
<S> <C> <C>
Richard J. Andrews 474 4,000
Robert M. Baylis 2,000 (2) 0
Van C. Campbell 27,700 (2) 127,457
Christopher A. Kuebler 11,398 20,000
Kim D. Lamon 7,406 10,000
Irwin Lerner 2,000 (2) 0
J. Randall MacDonald 2,000 (2) 0
Nigel Morris 2,000 (2) 0
William C. Ughetta 24,065 (2) 42,000
James D. Utterback 4,226 10,000
Michael Wokasch 2,087 4,000
All Directors and Executive
Officers as a Group 85,981 220,957
</TABLE>
- -------------
(1) Does not include 53 shares owned by the spouses and minor children of
certain executive officers and directors as to which such officers and
directors disclaim beneficial ownership.
(2) Includes 2,000 shares of Covance Common Stock which each non-employee
director will receive in connection with their election but does not
include 200 shares of Covance Common Stock for each year specified in the
term of service as a director. See "Management of
Covance--Management--Directors' Compensation."
158
<PAGE>
DESCRIPTION OF COVANCE CAPITAL STOCK
General
The following is a brief summary of certain provisions of the Covance
Certificate, as the restated certificate of incorporation will be amended
immediately prior to the Covance Spin-Off Distribution, and does not relate
to or give effect to provisions of statutory or other law except as
specifically stated. The Covance Certificate authorizes the issuance of
140,000,000 shares of Covance Common Stock. Approximately 56,903,469 shares
of Covance Common Stock are expected to be outstanding immediately following
the Covance Spin-Off Distribution. The rights of holders of shares of Covance
Common Stock are governed by the Covance Certificate, the Covance By-Laws and
by the DGCL.
Voting Rights
Subject to the voting of any shares of Covance Series Preferred Stock (as
defined below) that may be outstanding, voting power is vested in the Covance
Common Stock, each share having one vote.
Preemptive Rights
The Covance Certificate provides that no holder of shares of Covance
Common Stock or Covance Series Preferred Stock shall have any preemptive
rights except as the Covance Board may determine from time to time. No such
rights have been granted by the Covance Board.
Covance Common Stock
Liquidation Rights. Subject to the preferential rights of any outstanding
Covance Series Preferred Stock, in the event of any liquidation of Covance,
holders of shares of Covance Common Stock then outstanding are entitled to
share ratably in the assets of Covance available for distribution to such
holders.
Dividend Policy. Subject to any preferential rights of any outstanding
preferred securities of Covance, such dividends as may be determined by the
Covance Board may be declared and paid on the shares of Covance Common Stock
from time to time out of any funds legally available therefor. Covance has no
present intention to declare dividends for the foreseeable future. It is
currently contemplated that, following the Distributions, Covance will not
pay cash dividends in the foreseeable future, but will retain earnings to
provide funds for the operation and expansion of its business. Dividend
decisions will be based upon a number of factors, including the operating
results and financial requirements of Covance and such other considerations
as the Covance Board deems relevant. In addition, the Covance Credit Facility
prohibits Covance from paying cash dividends on the Covance Common Stock
during a Default or an Event of Default or if after giving effect to the
payment of such dividends Covance would not be in compliance with the
financial covenants contained therein. See "Risk Factors--Risks Relating to
Covance--Absence of Dividends" and "Description of Certain Indebtedness of
Covance."
Other Provisions. The shares of Covance Common Stock have no redemption,
sinking fund or conversion privileges applicable thereto and holders of
shares of Covance Common Stock are not liable to assessments or to further
call.
Listing and Trading. Prior to the Distributions, there has been no public
trading market for the Covance Common Stock although a "when issued" market
is expected to develop prior to the Distribution Date. Application will be
made to list the Covance Common Stock on the NYSE, subject to official notice
of the Distributions, under the trading symbol "CVD". Prices at which Covance
Common Stock may trade prior to the Distributions on a "when-issued" basis or
after the Distributions cannot be predicted. Until shares of the Covance
Common Stock are fully distributed and an orderly market develops, the prices
at which trading in such stock occurs may fluctuate significantly. The prices
at which Covance Common Stock will trade will be determined by the
marketplace and may be influenced by many factors, including, among others,
the depth and liquidity of the market for Covance Common Stock, investor
perceptions of Covance, the contract research business, and general economic
and market conditions. Covance initially will have approximately 18,000
stockholders of record, based on the expected number of holders of Quest
Diagnostics Common Stock immediately following the Quest Diagnostics Spin-Off
Distribution. The Transfer Agent and Registrar for the Covance Common Stock
will be Harris Trust and Savings
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Bank. For certain information regarding options to purchase Covance Common
Stock that may become outstanding after the Distributions, see "Management of
Covance."
Covance Series Preferred Stock
The Covance Certificate authorizes the issuance of up to 10,000,000 shares
of Covance Series Preferred Stock, par value $1.00 per share (the "Covance
Series Preferred Stock"). The Covance Board has the authority to issue such
shares from time to time, without stockholder approval, and to determine the
designations, preferences, rights, including voting rights, and restrictions
of such shares, subject to the DGCL. Pursuant to this authority, the Covance
Board has designated 1,000,000 shares of Covance Series Preferred Stock as
Covance Series A Preferred Stock. No other class of Covance Series Preferred
Stock has been designated by the Covance Board.
Preferred Share Purchase Rights
Attached to each share of Covance Common Stock is one right ("Covance
Right"), which entitles the registered holder to purchase from Covance one
one-hundredth of a share of Covance Series A Preferred Stock at a price of
$100 per one-hundredth of a share of Covance Series A Preferred Stock (the
"Exercise Price"), subject to adjustment. The Covance Rights expire on
December 31, 2006 (the "Final Expiration Date"), unless the Final Expiration
Date is extended or unless the Covance Rights are earlier exercised.
The Covance Rights represented by the certificates for shares of Covance
Common Stock are not exercisable, and are not transferable apart from the
shares of Covance Common Stock, until the earlier of (1) ten days following
the public announcement by Covance or an Acquiring Person (as defined below)
that a person or group has acquired beneficial ownership of 20% or more of
the shares of Covance Common Stock (an "Acquiring Person") or (2) ten
business days (or such later date as the Covance Board may determine prior to
such time as any person or group of affiliated persons becomes an Acquiring
Person) after the commencement or first public announcement of an intention
to make a tender or exchange offer that would result in a person or group
beneficially owning 20% or more of the shares of Covance Common Stock (the
earlier of such dates being called the "Rights Distribution Date"). The
Covance Board has the authority to determine that a person that has
inadvertently acquired beneficial ownership of 20% of the shares of Covance
Common Stock is not an Acquiring Person if such person promptly reduces its
ownership interest to below 20%. Separate certificates for the Covance Rights
will be mailed to holders of record of the shares of Covance Common Stock as
of such date. The Covance Rights could then begin trading separately from the
shares of Covance Common Stock.
Generally, in the event that a person or group becomes an Acquiring
Person, each Covance Right (other than the Covance Rights owned by the
Acquiring Person and certain affiliated persons) will thereafter entitle the
holder to receive, upon exercise of the Covance Right, shares of Covance
Common Stock having a value equal to two times the Exercise Price of the
Covance Right. In the event that a person or group becomes an Acquiring
Person (but prior to such time as such person or group beneficially owns 50%
or more of the outstanding shares of Covance Common Stock), the Covance Board
may exchange each Covance Right and each one one-hundredth of a share of
Covance Series A Preferred Stock (other than Covance Rights and Covance
Series A Preferred Stock owned by the Acquiring Person and certain affiliated
persons) for one share of Covance Common Stock. In the event that Covance is
acquired in a merger, consolidation, or other business combination
transaction or more than 50% of Covance's assets, cash flow or earning power
is sold or transferred, each Covance Right (other than the Covance Rights
owned by an Acquiring Person and certain affiliated persons) will thereafter
entitle the holder thereof to receive, upon the exercise of the Covance
Right, common stock of the acquiring corporation having a value equal to two
times the Exercise Price of the Covance Right.
The Covance Rights are redeemable in whole, but not in part, at $.01 per
Covance Right at any time prior to any person or group becoming an Acquiring
Person. The right to exercise the Covance Rights terminates at the time that
the Covance Board elects to redeem the Covance Rights. Notice of redemption
shall be given by mailing such notice to the registered holders of the
Covance Rights. At no time will the Covance Rights have any voting rights.
The Covance Rights Agent is Harris Trust and Savings Bank (the "Covance
Rights Agent").
The exercise price payable, and the number of shares of Covance Series A
Preferred Stock or other securities or property issuable, upon exercise of
the Covance Rights are subject to adjustment from time to time to prevent
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dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the shares of Covance Series A Preferred
Stock, (ii) upon the grant to holders of the shares of Covance Series A
Preferred Stock of certain rights or warrants to subscribe for or purchase
shares of Covance Series A Preferred Stock at a price, or securities
convertible into shares of Covance Series A Preferred Stock with a conversion
price, less than the then current market price of the shares of Covance
Series A Preferred Stock or (iii) upon the distribution to holders of the
shares of Covance Series A Preferred Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in shares of Covance Series A
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).
The number of outstanding Covance Rights and the number of one
one-hundredths of a share of Covance Series A Preferred Stock issuable upon
exercise of each Covance Right are also subject to adjustment in the event of
a stock split of, or stock dividend on, or subdivision, consolidation or
combination of, the shares of Covance Common Stock prior to the Covance
Rights Distribution Date. With certain exceptions, no adjustment in the
exercise price will be required until cumulative adjustments require an
adjustment of at least 1% in such exercise price.
Upon exercise of the Covance Rights, no fractional shares of Covance
Series A Preferred Stock will be issued (other than fractions which are
integral multiples of one one-hundredth of a share, which may, at the
election of Covance, be evidenced by depository receipts) and in lieu thereof
an adjustment in cash will be made.
The Covance Rights have certain antitakeover effects. The Covance Rights
may cause substantial dilution for a person or group that attempts to acquire
Covance on terms not approved by the Covance Board, except pursuant to an
offer conditioned on a substantial number of Covance Rights being acquired.
The Covance Rights should not interfere with any merger or other business
combination approved by the Covance Board since the Covance Rights may be
redeemed by Covance at $.01 per Covance Right prior to the acquisition by a
person or group of beneficial ownership of 20% or more of the shares of
Covance Common Stock.
The shares of Covance Series A Preferred Stock purchasable upon exercise
of the Covance Rights will rank junior to all other series of Covance's
preferred stock or any similar stock that specifically provides that they
shall rank prior to the shares of Covance Series A Preferred Stock. The
shares of Covance Series A Preferred Stock will be nonredeemable. Each share
of Covance Series A Preferred Stock will be entitled to a minimum
preferential quarterly dividend of $1 per share, but will be entitled to an
aggregate dividend of 100 times the dividend declared per share of Covance
Common Stock. In the event of liquidation, the holders of the shares of
Covance Series A Preferred Stock will be entitled to a minimum preferential
liquidation payment of $1 per share, but will be entitled to an aggregate
payment of 100 times the payment made per share on shares of Covance Common
Stock. Each share of Covance Series A Preferred Stock will have 100 votes,
voting together with the shares of Covance Common Stock. In the event of any
merger, consolidation or other transaction in which shares of Covance Common
Stock are exchanged, each share of Covance Series A Preferred Stock will be
entitled to receive 100 times the amount and type of consideration received
per share of Covance Common Stock. These rights are protected by customary
antidilution provisions. Because of the nature of the Covance Series A
Preferred Stock's dividend, liquidation and voting rights, the value of the
interest in a share of Covance Series A Preferred Stock purchasable upon the
exercise of each Covance Right approximates the value of one share of Covance
Common Stock.
The foregoing description of the Covance Rights does not purport to be
complete and is qualified in its entirety by reference to the description of
the Covance Rights contained in the Covance Rights Agreement, dated as of
December 31, 1996 between Covance and the Covance Rights Agent, which
agreement has been filed as an exhibit to Covance's registration statement on
Form 10 (the "Covance Form 10") that Covance has filed with the Commission.
Prior to the Covance Rights Distribution Date, the Covance Rights Agreement
may be amended in any respect. After the Covance Rights Distribution Date,
the Covance Rights Agreement may be amended in any respect that does not
adversely affect the Covance Rights holders.
Restrictions on Transfer
Shares of the Covance Common Stock distributed to Quest Diagnostics
stockholders will be freely transferable, except for shares received by any
persons who may be deemed to be "affiliates" of Covance as that term is
defined in Rule 144 promulgated under the Securities Act, which shares will
remain subject to the resale limitations of Rule 144. Persons who may be
deemed to be affiliates of Covance after the Covance Spin-off Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with Covance and may include certain officers and
directors of Covance as well as principal stockholders of Covance. Persons
who are affiliates of Covance
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will be permitted to sell their shares of Covance only pursuant to an
effective registration statement under the Securities Act or an exemption
from the registration requirements of the Securities Act, such as the
exemption provided by Section 4(1) of the Securities Act or Rule 144
thereunder. The Section 4(1) exemption allows the sale of unregistered shares
by a person who is not an issuer, an underwriter or a dealer. Rule 144
provides persons who are not issuers with objective standards for selling
restricted securities and securities held by affiliates without registration.
The rule requires (1) current public information be available concerning the
issuer; (2) volume limitations be placed on sales during any three-month
period; and (3) compliance with certain manner of sale restrictions. The
amount of Covance Common Stock which could be sold under Rule 144 during a
three-month period cannot exceed the greater of (1) 1% of the outstanding
shares of Covance Common Stock, or (2) the average weekly trading volume for
the shares for a four-week period prior to the date that notice of the sale
is filed with the Commission.
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COVANCE
CERTIFICATE OF INCORPORATION AND BY-LAWS
General
In addition to the Covance Rights, the Covance Certificate and the Covance
By-Laws contain other provisions that may discourage a third-party from
seeking to acquire Covance, or to commence a proxy contest or other
takeover-related action. These provisions, which are in all material respects
identical to the provisions contained in the certificate of incorporation and
By-Laws of Corning, are intended to enhance the likelihood of continuity and
stability in the composition of the Covance Board and in the policies
formulated by the Covance Board and to discourage certain types of
transactions that may involve an actual or threatened change of control of
Covance. These provisions are designed to reduce the vulnerability of Covance
to an unsolicited acquisition proposal and also to discourage certain tactics
that may be used in proxy fights. Because such provisions could have the
effect of discouraging potential acquisition proposals, they may consequently
inhibit fluctuations in the market price of Covance Common Stock which could
result from actual or rumored takeover attempts. Such provisions also may
have the effect of preventing changes in the management of Covance. See "Risk
Factors--Risks Relating to Covance--Certain Antitakeover Effects."
Board of Directors
The Covance Certificate provides that, effective as of the Covance
Spin-Off Distribution, the Covance Board is divided into three classes, with
the classes to be nearly as equal as possible. One class has a term expiring
at the 1998 annual meeting of stockholders of Covance; the second class has a
term expiring at the 1999 annual meeting of stockholders of Covance; and the
third class has a term expiring at the 2000 annual meeting of stockholders of
Covance. At each annual meeting of stockholders, one class of the Covance
Board will be elected for a three-year term. The classification of directors
has the effect of making it more difficult to change the composition of the
Covance Board. At least two annual meetings of stockholders, instead of one,
generally will be required to effect a change in the majority of the Covance
Board. The Covance Board believes that the longer time required to elect a
majority of a classified board will help ensure the continuity and stability
of Covance's management and policies, because in most cases a majority of the
directors at any given time will have had prior experience as directors of
Covance.
Under the DGCL, unless the certificate of incorporation otherwise
provides, a director on a classified board may only be removed by the
stockholders for cause. The Covance Certificate provides that a director of
Covance is only removable by the stockholders for cause. The Covance
Certificate limits the number of directors to twelve and requires that any
vacancies on the Covance Board be filled only by a majority of the entire
Covance Board. The provisions of the DGCL and the Covance Certificate
relating to the removal of directors and the filling of vacancies on the
Covance Board preclude a third-party from removing incumbent directors
without cause and simultaneously gaining control of the Covance Board by
filling, with its own nominees, the vacancies created by removal. These
provisions also reduce the power of stockholders generally, even those with a
majority voting power in Covance, to remove incumbent directors and to fill
vacancies on the Covance Board without the support of the incumbent
directors.
Stockholder Action and Special Meetings
The Covance Certificate provides that all stockholder actions to be
effected by written consent and not a duly called meeting must be effected by
the unanimous written consent of all stockholders entitled to consent
thereto.
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This provision reduces the power of the Covance stockholders and precludes a
stockholder of Covance from conducting any form of consent solicitation. The
Covance Certificate also does not permit stockholders of Covance to call
special meetings of stockholders.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations
The Covance By-Laws contain an advance notice procedure with respect to
the nomination, other than by or at the direction of the Covance Board or a
committee thereof, of candidates for election as directors as well as for
other stockholder proposals to be considered at annual meetings of
stockholders. Delivery of a notice with the required information must be
delivered to the Secretary of Covance not later than 60 days nor more than 90
days prior to the date of the stockholders' meeting at which the nomination
or other proposal is to be considered. No matters can be considered at
special meetings of the stockholders other than such matters as are set forth
in the notice of meeting. Although the notice provisions do not give the
Covance Board any power to approve or disapprove stockholder nominations or
proposals for action by Covance, they may have the effect of (i) precluding a
contest for the election of directors or the consideration of stockholder
proposals if the procedures established by the Covance By-Laws are not
followed and (ii) discouraging or deterring any third-party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
proposals, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to Covance and its stockholders. The
purpose of requiring advance notice is to afford the Covance Board an
opportunity to consider the qualifications of the proposed nominees or the
merits of other stockholder proposals and, to the extent deemed necessary or
desirable by the Covance Board, to inform stockholders about those matters.
Business Combinations with Interested Stockholders
Paragraph 6 of the Covance Certificate (the "Fair Price Amendment")
requires the approval by the holders of at least 80% of the voting power of
the outstanding capital stock of Covance entitled to vote generally in the
election of directors (the "Covance Voting Stock") as a condition for mergers
and certain other Business Combinations (as defined below) with any
beneficial owner of more than 10% of such voting power (an "Interested
Stockholder") unless (i) the transaction is approved by at least a majority
of the Continuing Directors (as defined below) or (ii) certain minimum price,
form of consideration and procedural requirements are met.
An Interested Stockholder, in general, is defined as any person or group
who is, or was at any time within the two-year period immediately prior to
the date in question, the beneficial owner of more than 10% of the voting
power of the Covance Voting Stock. The term "beneficial owner" includes
persons directly or indirectly owning or having the right to acquire or vote
the shares. In certain circumstances, an Interested Stockholder could include
persons or entities affiliated or associated with the Interested Stockholder.
A Business Combination generally includes the following transactions: (i)
a merger or consolidation of Covance or any subsidiary with an Interested
Stockholder; (ii) the sale or other disposition by Covance or a subsidiary of
assets having an aggregate fair market value of $20,000,000 or more if an
Interested Stockholder is a party to the transaction; (iii) the issuance or
transfer of stock or other securities of Covance or of a subsidiary to an
Interested Stockholder in exchange for cash or property (including stock or
other securities) having an aggregate fair market value of $20,000,000 or
more; (iv) the adoption of any plan or proposal for the liquidation or
dissolution of Covance proposed by or on behalf of an Interested Stockholder;
(v) any reclassification of securities, recapitalization, merger or
consolidation with a subsidiary or other transaction which has the effect,
directly or indirectly, of increasing the percentage of the outstanding stock
of any class of Covance or a subsidiary owned by an Interested Stockholder;
or (vi) any agreement, contract or other arrangement providing for any one or
more of the foregoing actions.
A Continuing Director is in general (i) any member of the Covance Board
who is not an Interested Stockholder or affiliated or associated with an
Interested Stockholder and was a director of Covance prior to the time the
Interested Stockholder became an Interested Stockholder and any successor to
such a Continuing Director who is not affiliated or associated with an
Interested Stockholder and was recommended or elected by a majority of the
Continuing Directors then on the Covance Board, or (ii) any person who was a
director of Covance as of the Distribution Date and any successor thereto who
was recommended or elected by a majority of the Continuing Directors then on
the Covance Board. It is possible that the approval of a majority of the
Continuing Directors could be obtained in circumstances where the Continuing
Directors constitute less than a quorum of the entire Covance Board.
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The 80% affirmative stockholder vote would not be required if the Business
Combination in question had been approved by a majority of the Continuing
Directors or if all the minimum price, form of consideration and procedural
requirements described below are satisfied.
Minimum Price and Form of Consideration Requirements. In a Business
Combination involving cash or other consideration being paid to Covance's
stockholders, the consideration required, in the case of each class of
Covance Voting Stock, would be either cash or the same type of consideration
used by the Interested Stockholder in acquiring the largest portion of its
shares of that class of Covance Voting Stock prior to the first public
announcement of the proposed Business Combination. In addition, such
consideration would be required to meet the minimum price requirements
described below.
In the case of payments to holders of Covance Common Stock, the fair
market value per share of such payments would be at least equal in value to
the higher of (i) the highest per share price paid by the Interested
Stockholder in acquiring any shares of Covance Common Stock during the two
years prior to the first public announcement of the proposed Business
Combination (the "Announcement Date") or in the transaction in which it
became an Interested Stockholder, whichever is higher, and (ii) the fair
market value per share of Covance Common Stock on the Announcement Date or on
the date on which the Interested Stockholder became an Interested
Stockholder, whichever is higher.
In the case of payments to holders of any series of voting Covance Series
Preferred Stock, if any, the fair market value per share of such payments
would have to be at least equal to the higher of (i) the price per share
determined with respect to shares of such series in the same manner as
described in the preceding paragraph with respect to shares of Covance Common
Stock and (ii) the highest preferential amount per share to which the holders
of such series of Covance Series Preferred Stock are entitled in the event of
a voluntary or involuntary liquidation of Covance.
If the transaction does not involve any cash or other property being
received by any of the other stockholders, such as a sale of assets or an
issuance of Covance's securities to an Interested Stockholder, then the
minimum price, form of consideration and procedural requirements would not
apply, but an 80% vote of stockholders would still be required unless the
transaction was approved by a majority of the Continuing Directors.
Procedural Requirements. An 80% stockholder vote would be required to
authorize a Business Combination with an Interested Stockholder if Covance,
after the Interested Stockholder became an Interested Stockholder, had failed
to pay full quarterly dividends on its Preferred Stock, if any, or reduced
the rate of dividends paid on its Common Stock, unless such failure or
reduction was approved by a majority of the Continuing Directors.
An 80% stockholder vote to authorize a Business Combination with an
Interested Stockholder would also be required if the Interested Stockholder
had acquired any additional shares of the Covance Voting Stock, directly from
Covance or otherwise, in any transaction subsequent to the transaction
pursuant to which it became an Interested Stockholder.
The receipt by the Interested Stockholder at any time after it became an
Interested Stockholder, whether in connection with the proposed Business
Combination or otherwise, of the benefit of any loans or other financial
assistance or tax advantages provided by Covance (other than proportionately
as a stockholder) would also trigger the 80% stockholder vote requirement to
authorize a Business Combination with an Interested Stockholder (unless the
Business Combination was approved by a majority of the Continuing Directors).
In summary, none of the minimum price, form of consideration or procedural
requirements described above would apply in the case of a Business
Combination approved by a majority of the Continuing Directors. In the
absence of such approval, all of such requirements would have to be satisfied
to avoid the 80% stockholder vote requirements.
Amendment of the Covance Certificate
Amendment or repeal of the provisions of the Covance Certificate described
above or the adoption of any provision inconsistent therewith would require
the affirmative vote of at least 80% of the Covance Voting Stock unless the
proposed amendment or repeal or the adoption of the inconsistent provisions
are approved by two-thirds of the entire Covance Board and a majority of the
Continuing Directors.
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Antitakeover Statutes
Section 203 of the DGCL prohibits transactions between a Delaware
corporation and an "interested stockholder," which is defined therein as a
person who, together with any affiliates and/or associates of such person,
beneficially owns, directly or indirectly, 15% or more of the outstanding
voting shares of a Delaware corporation. This provision prohibits certain
business combinations (defined broadly to include mergers, consolidations,
sales or other dispositions of assets having an aggregate value in excess of
10% of the consolidated assets of the corporation, and certain transactions
that would increase the interested stockholder's proportionate share
ownership in the corporation) between an interested stockholder and a
corporation for a period of three years after the date the interested
stockholder acquired its stock unless (i) the business combination is
approved by the corporation's board of directors prior to the date the
interested stockholder acquired shares, (ii) the interested stockholder
acquired at least 85% of the voting stock of the corporation in the
transaction in which it becomes an interested stockholder, or (iii) the
business combination is approved by a majority of the board of directors and
by the affirmative vote of 662/3% of the votes entitled to be cast by
disinterested stockholders at an annual or special meeting. The Covance
Certificate and the Covance By-Laws do not exclude Covance from the
restrictions imposed under Section 203 of the DGCL.
Tax Sharing and Indemnification Agreements
The corporate tax liability which potentially could arise from an
acquisition of shares of Covance capital stock or assets of Covance for a
period of time following the Covance Spin-Off Distribution, together with the
related indemnification arrangements contained in the Tax Sharing and
Spin-Off Tax Indemnification Agreements, could have an antitakeover effect on
the acquisition of control of Covance. See "The Relationship Among Corning,
Quest Diagnostics and Covance After the Distributions--Tax Sharing Agreement"
and "The Relationship Among Corning, Quest Diagnostics and Covance After the
Distributions--Spin-Off Tax Indemnification Agreements."
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DESCRIPTION OF CERTAIN INDEBTEDNESS OF COVANCE
Covance is currently negotiating with several banks and financial
institutions (the "Covance Lenders") for a five year $250,000,000 Senior
Revolving Credit Facility (the "Covance Credit Facility") to be entered into
prior to the Covance Spin-Off Distribution, with the Covance Lenders,
NationsBank N.A. ("NationsBank"), as administrative agent, and Wachovia Bank
of Georgia, N.A., as syndication agent (collectively, the "Agents"). A copy
of the proposed form of the Covance Credit Facility will be filed as an
exhibit to the Covance Form 10. This summary of the terms and conditions of
the Covance Credit Facility does not purport to be complete and is qualified
in its entirety by reference to such proposed form, including the definitions
contained therein.
The Covance Credit Facility will be guaranteed by certain material U.S.
subsidiaries (i.e., U.S. subsidiaries whose assets represent individually at
least 5% of the total assets of Covance and its subsidiaries) and, in certain
circumstances, other subsidiaries. Additionally, the Covance Credit Facility
will be secured by 65% of the voting stock of each of the material (and, in
certain circumstances, other) first-tier foreign subsidiaries, and by
intercompany notes evidencing loans made by U.S. material subsidiaries to
U.S. non-material subsidiaries of Covance. The proceeds of the Covance Credit
Facility will be used to effect the Covance Spin-Off Distribution (including
(i) the refinancing of certain intercompany indebtedness and taxes owed to
Corning of approximately $150 million to $160 million and (ii) the payment of
approximately $5.0 million in transaction costs), and to provide financing
for Covance's and its subsidiaries' working capital needs (including the
issuance by NationsBank letters of credit not to exceed $25 million), capital
expenditures, acquisitions and other lawful corporate purposes.
Covance may borrow U.S. Dollars, British Pounds Sterling, German
Deutschmarks, Swiss Francs or Japanese Yen under the Covance Credit Facility
until the fifth anniversary thereof, at which time all outstanding loans and
other amounts must be paid in full. Covance may prepay the loans under the
Covance Credit Facility in whole or in part (subject to reimbursement of
breakage costs associated with loans based on the Eurocurrency Rate, as
defined below) and may permanently reduce or terminate the Covance Lenders'
commitments.
Interest
Under the Covance Credit Facility, Covance may choose to obtain "Revolving
Loans," "Competitive Bid Loans" or "Swing Line Loans." A Revolving Loan bears
interest, at Covance's option, at either (i) the "Base Rate" (defined as the
higher of (a) the NationsBank prime rate and (b) the federal funds rate plus
.50%), payable quarterly, or (ii) the "Eurocurrency Rate" plus the
"Applicable Percentage", payable at the end of each one, two, three or six
month interest period selected by Covance (and also quarterly, in the case of
a six month interest period). The Eurocurrency Rate is the average rate per
annum appearing on Telerate Page 3750 (or any successor page, or if not
published on Telerate Page 3750 then the rate or the arithmetic mean of any
rates per annum specified on Reuters Screen LIBO page) for deposits in U.S.
Dollars or any other applicable currency two business days prior to the first
day of any applicable interest period for a term comparable to such interest
period, as adjusted for reserve requirements. The Applicable Percentage is a
percentage per annum, which will be .25% until the fifth business day
following March 31, 1997 and thereafter will be determined quarterly (and
depending on such determination, may vary between .17% and .45%) based, at
Covance's option, upon either (i) the lowest debt rating as of each quarterly
calculation date announced by Standard & Poor's Ratings Group or Moody's
Investors Service, Inc., as the case may be, for any class of long-term
senior unsecured debt issued by the Covance or (ii) Covance's Leverage Ratio
as defined below (as adjusted). A Competitive Bid Loan bears interest, at
Covance's option, at either (i) a fixed rate offered by a Covance Lender and
accepted by Covance, payable at the end of the interest period selected by
Covance, which interest period may not exceed 180 days (and also quarterly,
in the case of a period longer than three months), or (ii) the Eurocurrency
Rate plus the margin offered by such Covance Lender and accepted by Covance,
payable at the end of each one, two, three or six month interest period
selected by Covance (and also, quarterly in the case of a six month interest
period). Swing Line Loans (made by NationsBank and limited to $10,000,000)
may at Covance's option, bear interest at either (i) the Base Rate, payable
quarterly or (ii) a rate quoted by NationsBank as the "Quoted Rate", payable
at the end of the interest period selected by Covance (and also quarterly, in
the case of an interest period greater than three months).
Fees
Covance will pay quarterly as a percentage of the aggregate amount of
letters of credit issued and outstanding (a) an issuing lender fee of 1/8%
and (b) a letter of credit fee of .25% until the fifth business day following
March
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31, 1997 and thereafter at a rate equal to the Applicable Percentage, ranging
between .17% and .45%. Covance will also pay quarterly, based on the
aggregate amount of commitments under the Covance Credit Facility, a facility
fee of .125% until the fifth business day following March 31, 1997 and
thereafter at a rate equal to the Applicable Percentage, ranging between .08%
and .20%.
Covenants
The Covance Credit Facility will contain covenants which place
restrictions on Covance and/or the guarantors (subject to certain
exceptions), including with respect to (i) the incurrence of additional
indebtedness, (ii) the incurrence of additional liens, (iii) material changes
in the nature of the business of Covance or the guarantors, (iv) mergers and
consolidations, (v) entry into certain sale/leaseback transactions, (vi)
investments and (vii) the payment of dividends.
Covance will be required to maintain, for each fiscal quarter, (i) a
minimum ratio for the 12 month period ending with such fiscal quarter (the
"Fixed Charge Coverage Ratio") of (A) EBIT plus all rent expense payable
under operating leases to (B) Interest Expense plus such rent expense, of 2.0
to 1.0 until December 31, 1997, and 2.25 to 1.0 thereafter and (ii) a maximum
ratio (the "Leverage Ratio") of Funded Debt, as of the end of such fiscal
quarter, to EBITDA for the 12 month period ending with such fiscal quarter,
of 3.30 to 1.0 until March 31, 1997, 3.25 to 1.0 until September 30, 1997,
3.0 to 1.0 until March 31, 1998 and 2.75 to 1.0 thereafter. EBIT is the sum
of consolidated net income (net of extraordinary gains and losses, including
the one-time restructuring charge associated with the Covance Spin-Off
Distribution), and income tax expense and interest expense. Funded Debt means
(i) indebtedness with respect to borrowed money, (ii) purchase money
indebtedness, (iii) capital lease obligations, (iv) letter of credit
obligations and (v) guarantees. EBITDA is EBIT plus depreciation and
amortization expense.
167
<PAGE>
LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS OF COVANCE
Limitation on Liability of Directors
Pursuant to authority conferred by Section 102 of the DGCL, Paragraph 11
of the Covance Certificate ("Paragraph 11") eliminates the personal liability
of Covance's directors to Covance or its stockholders for monetary damages
for breach of fiduciary duty, including without limitation, directors serving
on committees of the Covance Board. Directors remain liable for (1) any
breach of the duty of loyalty to Covance or its stockholders, (2) any act or
omission not in good faith or which involves intentional misconduct or a
knowing violation of law, (3) any violation of Section 174 of the DGCL, which
proscribes the payment of dividends and stock purchases or redemptions under
certain circumstances, and (4) any transaction from which directors derive an
improper personal benefit.
Indemnification and Insurance
In accordance with Section 145 of the DGCL, which provides for the
indemnification of directors, officers and employees under certain
circumstances, Paragraph 11 grants Covance's directors and officers a right
to indemnification for all expenses, liabilities and losses relating to
civil, criminal, administrative or investigative proceedings to which they
are a party (1) by reason of the fact that they are or were directors and
officers of Covance or (2) by reason of the fact that, while they are or were
directors or officers of Covance, they are or were serving at the request of
Covance as directors or officers of another corporation, partnership, joint
venture, trust or enterprise. Paragraph 11 further provides for the mandatory
advancement of expenses incurred by officers and directors in defending such
proceedings in advance of their final disposition upon delivery to Covance by
the indemnitee of an undertaking to repay all amounts so advanced if it is
ultimately determined that such indemnitee is not entitled to be indemnified
under Paragraph 11. Covance may not indemnify or make advance payments to any
person in connection with proceedings initiated against Covance by such
person without the authorization of the Covance Board.
In addition, Paragraph 11 provides that directors and officers therein
described shall be indemnified to the fullest extent permitted by Section 145
of DGCL, or any successor provisions or amendments thereunder. In the event
that any such successor provisions or amendments provide indemnification
rights broader than permitted prior thereto, Paragraph 11 allows such broader
indemnification rights to apply retroactively with respect to any predating
alleged action or inaction and also allows the indemnification to continue
after an indemnitee has ceased to be a director or officer of Covance and to
inure to the benefit of the indemnitee's heirs, executors and administrators.
Paragraph 11 further provides that the right to indemnification is not
exclusive of any other right which any indemnitee may have or thereafter
acquire under any statute, the Covance By-Laws, any agreement or vote of
stockholders or disinterested directors or otherwise, and allows Covance to
indemnify and advance expenses to any person whom the corporation has the
power to indemnify under the DGCL or otherwise.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for directors and officers and controlling persons
pursuant to the foregoing provisions, Covance has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
The Covance Certificate authorizes Covance to purchase insurance for
directors, officer, employees and agents of Covance and persons who serve at
the request of Covance as directors, officers, employees or agents of another
corporation against any expense, liability or loss incurred in such capacity,
whether or not Covance would have the power to indemnify such persons against
such expense or liability under the DGCL. Covance intends to maintain
insurance coverage of its officers and directors as well as insurance
coverage to reimburse Covance for potential costs of its corporate
indemnification of directors and officers.
168
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
FINANCIAL STATEMENTS OF COVANCE INC.
Report of Price Waterhouse LLP--Independent Accountants F-33
Combined Financial Statements:
Combined Balance Sheets--December 31, 1995 and 1994 F-34
Combined Statements of Income--Years ended December 31, 1995, 1994 and 1993 F-35
Combined Statements of Cash Flows--Years ended December 31, 1995, 1994 and 1993 F-36
Combined Statements of Stockholder's Equity--Years ended December 31, 1995, 1994 and 1993 F-37
Notes to Combined Financial Statements F-38
Interim Combined Financial Statements (unaudited):
Combined Balance Sheets--September 30, 1996 and December 31, 1995 F-45
Combined Statements of Income--Three and Nine Months ended September 30, 1996 and 1995 F-46
Combined Statements of Cash Flows--Nine Months ended September 30, 1996 and 1995 F-47
Notes to Combined Interim Financial Statements F-48
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors and Stockholders of Corning Incorporated and
Covance Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, of cash flows and of stockholder's equity
appearing on pages F-34 through F-44 present fairly, in all material
respects, the financial position of Covance Inc. and its subsidiaries (an
indirect wholly-owned business of Corning Incorporated) at December 31, 1995
and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, NY
July 29, 1996
The accompanying notes are an integral part of these statements.
F-33
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
(Amounts in thousands) 1995 1994
--------- ----------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 8,068 $ 6,176
Accounts receivable, net 78,968 66,781
Unbilled services 18,217 13,194
Inventory 14,004 10,729
Deferred income taxes 11,337 10,033
Prepaid expenses and other assets 15,189 11,849
------- --------
Total Current Assets 145,783 118,762
Property and equipment, net 140,708 126,483
Goodwill, net 24,028 15,880
Other assets 11,991 10,867
------- --------
Total Assets $322,510 $271,992
======= ========
Liabilities and Stockholder's Equity
Current Liabilities:
Trade accounts payable $ 23,761 $ 16,690
Accrued payroll and benefits 20,339 15,775
Accrued expenses and other liabilities 24,701 16,243
Unearned revenue 41,879 49,135
Income taxes payable 16,631 7,958
------- --------
Total Current Liabilities 127,311 105,801
Due to Corning Incorporated and affiliates 89,836 75,178
Deferred income taxes 6,406 9,605
Other liabilities 16,440 17,500
------- --------
Total Liabilities 239,993 208,084
------- --------
Commitments and Contingent Liabilities
Stockholder's Equity:
Contributed capital 30,816 26,528
Retained earnings 48,653 34,656
Cumulative translation adjustment 3,048 2,724
------- --------
Total Stockholder's Equity 82,517 63,908
------- --------
Total Liabilities and Stockholder's Equity $322,510 $271,992
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
(Amounts in thousands) 1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
Net revenues $409,174 $319,501 $289,697
Cost and expenses
Cost of revenue 270,726 213,490 192,783
Selling, general and administrative expenses 64,201 48,892 42,949
Restructuring charge 4,616 -- --
Depreciation and amortization 22,070 18,520 16,984
------- ------- ---------
Total 361,613 280,902 252,716
------- ------- ---------
Income from operations 47,561 38,599 36,981
------- ------- ---------
Other expense (income)
Interest expense, net 5,269 4,307 4,421
Foreign exchange (gain) loss (784) (712) 852
------- ------- ---------
4,485 3,595 5,273
------- ------- ---------
Income before taxes and equity investee loss 43,076 35,004 31,708
Taxes on income 18,445 14,924 13,506
Equity investee loss 405 435 1,391
------- ------- ---------
Net income $ 24,226 $ 19,645 $ 16,811
======= ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
(Amounts in thousands) 1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 24,226 $ 19,645 $ 16,811
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,070 18,520 16,984
Restructuring reserve, net of cash paid 2,965 -- --
Deferred income tax provision (4,503) (1,502) (2,879)
Related party charges 3,288 3,504 4,443
Other 1,266 1,375 2,276
Changes in operating assets and liabilities
Accounts receivable (10,082) (11,706) (8,814)
Unbilled services (5,023) 2,058 (1,973)
Inventory (2,576) (603) 378
Accounts payable 6,783 4,372 (898)
Accrued liabilities 11,669 7,550 3,058
Unearned revenue (7,556) 2,894 1,607
Income taxes payable 8,673 194 4,351
Other assets and liabilities, net (6,094) (3,369) 5,156
------- ------- --------
Net cash provided by operating activities 45,106 42,932 40,500
--------- --------- ----------
Cash flows from investing activities
Capital expenditures (34,792) (25,242) (24,893)
Acquisition of businesses (14,000) (10,789) --
Other, net 571 (2,432) 351
------- ------- --------
Net cash used in investing activities (48,221) (38,463) (24,542)
--------- --------- ----------
Cash flows from financing activities
Due to Corning Incorporated and affiliates 236 (4,710) (8,677)
Acquisition loan from Corning Incorporated 14,000 10,789 --
Capital contributions 1,000 -- --
Dividends paid (10,229) (9,465) (8,681)
------- ------- --------
Net cash provided by (used in) financing
activities 5,007 (3,386) (17,358)
--------- --------- ----------
Net change in cash and cash equivalents 1,892 1,083 (1,400)
Cash and cash equivalents, beginning of year 6,176 5,093 6,493
--------- --------- ----------
Cash and cash equivalents, end of year $ 8,068 $ 6,176 $ 5,093
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Cumulative Total
Contributed Retained Translation Stockholder's
(Amounts in thousands) Capital Earnings Adjustment Equity
------------ --------- ------------ ----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 $18,581 $ 16,346 $2,270 $ 37,197
Net income -- 16,811 -- 16,811
Dividends paid -- (8,681) -- (8,681)
Capital contribution 4,443 -- -- 4,443
Currency translation adjustment -- -- (382) (382)
----------- ------- ----------- --------------
Balance, December 31, 1993 23,024 24,476 1,888 49,388
Net income -- 19,645 -- 19,645
Dividends paid -- (9,465) -- (9,465)
Capital contribution 3,504 -- -- 3,504
Currency translation adjustment -- -- 836 836
----------- ------- ----------- --------------
Balance, December 31, 1994 26,528 34,656 2,724 63,908
Net income -- 24,226 -- 24,226
Dividends paid -- (10,229) -- (10,229)
Capital contribution 4,288 -- -- 4,288
Currency translation adjustment -- -- 324 324
----------- ------- ----------- --------------
Balance, December 31, 1995 $30,816 $ 48,653 $3,048 $ 82,517
=========== ======= =========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise indicated)
1. Organization
Covance Inc. (formerly Corning Pharmaceutical Services Inc.) and its
subsidiaries ("Covance") is a leading contract research organization
providing a wide range of integrated product development services on a
worldwide basis to the biotechnology, pharmaceutical and medical device
industries. In addition, and to a lesser extent, Covance provides services
such as health economics for managed care organizations, hospitals and health
care provider networks, and early development and laboratory testing services
to the chemical, agrochemical and food industries. Covance's operations
involve a single industry segment for financial reporting purposes. At the
present time, operations are principally focused in the United States and
Europe.
Covance is an indirect wholly-owned business of Corning Incorporated
("Corning"). In May 1996, Corning's Board of Directors approved a plan to
distribute to its stockholders on a pro rata basis all of the shares of
Covance (the "Covance Spin-Off Distribution"). The result of the plan will be
the creation of an independent, publicly-owned (but as yet unnamed) company.
Corning has submitted to the Internal Revenue Service a request for a ruling
that the Covance Spin-Off Distribution will qualify as a tax free
distribution under the Internal Revenue Code of 1986, as amended. The final
terms of the Covance Spin-Off Distribution, which are subject to approval by
Corning's Board of Directors, will be set forth in a registration statement
to be filed with the Securities and Exchange Commission and in an Information
Statement to be distributed to Corning's stockholders. The Covance Spin-Off
Distribution is expected to occur by the end of 1996.
2. Summary of Significant Accounting Policies
Basis of Presentation
The operations of Covance Biotechnology Services Inc. (formerly Corning
Bio Inc.), a majority-owned business of Corning which Corning intends to
contribute to Covance prior to the Covance Spin-Off Distribution, are
included in the accompanying financial statements. Accordingly, the
accompanying financial statements present the results of Covance and Covance
Biotechnology on a combined basis.
Principles of Consolidation
The combined financial statements include the accounts of all entities
controlled by Covance, including Covance Biotechnology. All significant
intercompany accounts and transactions are eliminated. The equity method of
accounting is used for investments in affiliates in which Covance owns
between 20 and 50 percent.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Foreign Currencies
For subsidiaries outside of the United States that operate in a local
currency environment, assets and liabilities are translated to United States
dollars at year-end exchange rates. Income and expense items are translated
at average rates of exchange prevailing during the year. Translation
adjustments are accumulated in a separate component of stockholder's equity.
Transaction gains and losses are included in the determination of income.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less at date of purchase and consist
principally of amounts temporarily invested in money market funds.
Financial Instruments
The fair value of cash, accounts receivable, trade accounts payable and
accrued expenses are not materially different than their carrying amounts as
reported at December 31, 1995 and 1994.
F-38
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise indicated)
Accounts receivable and unbilled services from Covance customers are
concentrated primarily in the pharmaceutical and biotechnology industries.
Covance monitors the creditworthiness of its customers to which it grants
credit terms in the ordinary course of business. Although Covance customers
are concentrated primarily within these two industries, management considers
the likelihood of material credit risk exposure as remote. Covance in some
cases requires advance payment for a portion of the contract price from its
customers upon the signing of a contract for services. Historically, bad
debts have been minimal.
Inventory
Inventories, which consist principally of supplies, are valued at the
lower of cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided on the straight line method at rates adequate to allocate the
cost of the applicable assets over their estimated useful lives, which range
in term from three to thirty years.
Goodwill
Goodwill (investment costs in excess of the fair value of net tangible
assets acquired) is capitalized and amortized over the period expected to be
benefited, generally forty years.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS No. 121"), was adopted in 1995. Assessments of the recoverability of
long-lived assets are conducted when events or changes in circumstances occur
that indicate that the carrying value of the asset may not be recoverable.
The assessment of possible impairment is based upon the ability to recover
the asset from the expected future undiscounted cash flows of related
operations. The policy on impairment prior to the adoption of SFAS No. 121
was not materially different.
Revenue Recognition
Revenue is recognized using the cost-to-cost type of
percentage-of-completion method of accounting for services rendered in
connection with contractual arrangements, which generally range from a few
months to two years. Revenue is recognized as costs are incurred on the basis
of the relationship between costs incurred and total estimated costs. Most
service contracts may be terminated for a variety of reasons by Covance's
customers either immediately or upon notice. The contracts often require
payments to Covance to recover costs incurred, including costs to wind down
the study and fees earned to date, and in some cases to provide Covance with
a portion of the fees or profits that would have been earned under the
contract had the contract not been terminated early. Contracts may contain
provisions for renegotiation in the event of cost overruns due to changes in
the level of work scope. Renegotiated amounts are included in revenue when
earned and realization is assured. Provisions for losses to be incurred on
contracts are recognized in full in the period in which it is determined that
a loss will result from performance of the contractual arrangement.
Revenue from performing clinical laboratory testing services is recognized
as tests are completed. Revenue from other activities is recognized as
services are performed or products are shipped.
Unbilled receivables are recorded for revenue recognized to date that is
currently unbillable to the customer pursuant to contractual terms. In
general, amounts become billable upon the achievement of milestones or in
accordance with predetermined payment schedules. Unbilled receivables are
billable to customers within one year from the respective balance sheet date.
Unearned revenue is recorded for advance billings to customers for which
revenue has not been recognized at a given date.
Covance routinely subcontracts with independent physician investigators in
connection with multi-site clinical trials. Investigator fees are not
reflected in revenue or expense since such fees are granted by customers on a
"pass-thru basis" without risk or reward to Covance.
F-39
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise indicated)
Costs and Expenses
Cost of revenue generally includes appropriate amounts necessary to
complete the revenue earning process which encompass direct labor and related
benefit charges, other direct costs and allocable expenses (including
facility charges, indirect labor and information technology costs). Selling,
general and administrative expenses primarily consist of administrative
payroll and related benefit charges, advertising and promotional expenses,
administrative travel and allocable expenses (facility charges and
information technology costs). Advertising expense is recognized as incurred.
Taxes on Income
Covance uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized
for the expected future tax consequences of differences between the carrying
amounts of assets and liabilities and their respective tax bases using
enacted tax rates in effect for the year in which the temporary differences
are expected to reverse. The effect on deferred taxes of a change in enacted
tax rates is recognized in income in the period when the change is effective.
3. Property and Equipment
Property and equipment at December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
--------- -----------
<S> <C> <C>
Property and equipment at cost:
Land $ 2,996 $ 2,746
Buildings and improvements 105,291 94,549
Equipment 101,686 90,117
Furniture, fixtures & leasehold improvements 39,622 36,393
Construction-in-progress 5,861 6,486
------- ---------
255,456 230,291
Less: Accumulated depreciation and amortization (114,748) (103,808)
------- ---------
Property and equipment $ 140,708 $ 126,483
======= =========
</TABLE>
Depreciation and amortization expense aggregated $20.8 million, $17.8
million and $16.5 million for 1995, 1994 and 1993, respectively.
4. Acquisitions and Goodwill
In April 1994, Covance acquired SciCor S.A., a provider of laboratory
testing services domiciled in Switzerland, for total consideration of
approximately $10.8 million in a transaction accounted for as a purchase
business combination. The goodwill resulting from this transaction aggregated
$9.5 million.
In January 1995, Covance acquired National Packaging Systems, Inc. ("NPS",
now known as Covance Pharmaceutical Packaging Services Inc.) for an initial
cash payment of $14.0 million in a transaction accounted for as a purchase
business combination. The goodwill resulting from this transaction aggregated
$9.1 million. In accordance with the terms of the acquisition agreement,
Covance is contingently obligated to pay up to an additional $7.0 million in
contingent purchase price to former NPS shareholders if NPS achieves certain
established earnings targets for the period January 1995 through September
1996.
Results of operations for these entities have been included in the
accompanying financial statements beginning on the respective dates of
acquisition. Pro forma information for these entities has not been presented,
due to their insignificance to Covance taken as a whole.
Goodwill associated with these and prior acquisitions aggregated $24.0
million and $15.9 million, net of accumulated amortization of $3.5 million
and $2.6 million at December 31, 1995 and 1994, respectively. Amortization
expense aggregated $0.9 million, $0.5 million and $0.3 million for 1995, 1994
and 1993, respectively.
F-40
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise indicated)
5. Taxes on Income
Covance has been included in the Federal income tax return filed by
Corning. Covance and its subsidiaries have a tax sharing agreement with
Corning, pursuant to which they are required to compute their provision for
income taxes on a separate return basis and pay to Corning the separate
Federal income tax return liability so computed.
The components of income before taxes and the related provision (benefit)
for taxes on income were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
Income before taxes and equity
investee losses:
Domestic $32,771 $30,928 $29,455
International 10,305 4,076 2,253
------ ------ -------
Total $43,076 $35,004 $31,708
====== ====== =======
Federal income taxes:
Current provision $19,118 $12,167 $10,932
Deferred benefit (6,760) (1,742) (1,439)
International income taxes:
Current (benefit) provision (933) 602 (573)
Deferred provision 3,434 1,440 1,612
State and other income taxes:
Current provision 3,959 2,868 3,143
Deferred benefit (373) (411) (169)
------ ------ -------
Total $18,445 $14,924 $13,506
====== ====== =======
</TABLE>
The differences between the provision for income taxes and income taxes
computed using the Federal income tax rate were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Taxes at statutory rate 35.0% 35.0% 35.0%
State and local taxes, net of
Federal benefit 5.5 4.6 6.1
Impact of international operations (0.3) 1.7 0.8
Goodwill amortization 1.1 0.5 0.4
Other, net 1.5 0.8 0.3
----- ----- ------
Total 42.8% 42.6% 42.6%
===== ===== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
Current deferred taxes:
Liabilities not currently deductible $ 10,356 $ 9,823
Net operating losses 888 --
Other 538 210
-------- ----------
11,782 10,033
Less: valuation allowance (445) --
-------- ----------
Net $ 11,337 $ 10,033
======== ==========
Noncurrent deferred taxes:
Property and equipment $(12,263) $(11,894)
Liabilities not currently deductible 5,857 2,289
-------- ----------
Total $ (6,406) $ (9,605)
======== ==========
</TABLE>
F-41
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise indicated)
Income taxes payable at December 31, 1995 and 1994 consists of Federal
income taxes payable to Corning of $17.0 million and $8.7 million,
respectively, state and other income taxes payable (receivable) of $1.6
million and $(0.4) million, respectively, and international income taxes
receivable of $2.0 million and $0.4 million, respectively. Covance paid
income taxes of $16.7 million, $17.0 million and $18.3 million for the years
1995, 1994 and 1993, respectively.
6. Employee Benefit Plans
Covance has several defined contribution plans covering substantially all
of its full-time employees. Contributions to these plans aggregated $4.9
million, $4.2 million and $3.7 million for 1995, 1994 and 1993, respectively.
7. Restructuring Charge
In 1995, Covance recorded a provision for restructuring charges totaling
$4.6 million as a result of management's decision to discontinue certain
nonstrategic operations. The restructuring charge included severance costs
related to approximately 90 employees, of which approximately 50 had been
terminated as of December 31, 1995. The remaining employees were terminated
and all other substantive activities to complete the restructuring plan were
completed by April 30, 1996. A summary of the restructuring charge is as
follows:
<TABLE>
<CAPTION>
Charges Reserve
through balance at
Original December December
Reserve 31, 1995 31, 1995
---------- ---------- -------------
<S> <C> <C> <C>
Employee termination costs $1,480 $ 539 $ 941
Write-off of fixed assets 1,737 994 743
Costs of exiting leased facilities 1,399 118 1,281
-------- -------- -----------
Total $4,616 $1,651 $2,965
======== ======== ===========
</TABLE>
8. Commitments and Contingent Liabilities
Minimum rental commitments under noncancellable operating leases,
primarily real estate and office facilities, in effect at December 31, 1995
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended December 31,
1996 $15,332
1997 $18,841
1998 $16,578
1999 $15,493
2000 $14,394
2001 and beyond $31,253
</TABLE>
Operating lease rental expense aggregated $14.1 million, $11.0 million and
$9.1 million for 1995, 1994 and 1993, respectively.
In June 1995, Covance Biotechnology ("lessee") entered into a lease
arrangement whereby a custom-designed, fully equipped facility would be
constructed for the lessee at a cost of approximately $55 million to perform
specialized research and manufacturing activities for biotechnology and
pharmaceutical companies. The lessor in this arrangement is a subsidiary of
one of the largest banks in the United States. The lease arrangement contains
purchase and cancellation options for the lessee at any time during the ten
year period covered by the lease arrangement. Although the lease arrangement
is cancelable by the lessee at any time throughout the ten year period, an
initial lease term of five years, representing management's estimate at the
lease inception date of the period in
F-42
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise indicated)
which occupancy of the facility is reasonably assured, has been selected for
financial reporting purposes. The initial term of the lease will commence on
the date of completion of construction of the facility which is currently
anticipated by the end of 1996. The annual minimum lease payments are
currently estimated at $5.5 million. The lease arrangement will be classified
as an operating lease.
A purchase price option has been established at specific dates over the
ten year period covered by the lease arrangement. Using current estimates,
the purchase price would approximate $54 million at the end of the first year
and decreases on an amortizing basis to approximately $37 million at the end
of the tenth year.
The cancellation option provisions of the lease arrangement stipulate a
residual value guarantee by Covance at specific dates over the ten year
period. Sale of the facility is stipulated in the lease arrangement at such
time that the lessee exercises the cancellation option provisions. The
lessee's residual value guarantee ("Deficiency Payment") is unconditionally
payable to the lessor in the event that the lessee terminates the lease
arrangement and the sale of the facility results in receipt of sales proceeds
by the lessor in an amount less than the lessor's unamortized investment in
the lease arrangement. The lessee's maximum Deficiency Payment would
approximate $35 million at the end of the first year and decreases to
approximately $25 million at the end of the tenth year, assuming that the
sales proceeds received by the lessor were zero.
9. Geographic Information
<TABLE>
<CAPTION>
United
States Europe
------------- ----------
<S> <C> <C>
Net revenue:
1995 $286,474 $122,700
1994 $242,131 $ 77,370
1993 $227,110 $ 62,587
Income from operations:
1995 $ 34,799 (1) $ 12,762
1994 $ 32,710 $ 5,889
1993 $ 32,673 $ 4,308
Identifiable assets:
1995 $229,720 $ 92,790
1994 $202,986 $ 69,006
1993 $183,652 $ 46,041
</TABLE>
(1) Excluding the impact of the 1995 restructuring provision totaling
$4,616, United States income from operations was $39,415.
10. Related Party Transactions
Covance participates in Corning's centralized treasury and cash management
processes. For domestic operations, cash received from operations is
generally transferred to Corning on a daily basis. For international
operations, excess cash is periodically transferred to Corning. Cash
disbursements for operations, acquisitions and other investments are funded
as needed from Corning. Substantially all of Covance's borrowings to date
have been with Corning. The blended rate on those borrowings for 1995, 1994
and 1993 was approximately 6.0%.
Certain members of Covance management participate in various stock
compensation programs sponsored by Corning. The expenses associated with
these programs have been reflected in the accompanying financial statements.
Corning and affiliates provide a number of administrative functions to
Covance which resulted in charges of $5.3 million, $5.7 million and $5.3
million being recorded in the Covance results of operations for 1995, 1994
and 1993, respectively. Management believes the method used to allocate such
costs is reasonable under the circumstances. The charges for these functions
are included primarily in selling, general and administrative expenses
F-43
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise indicated)
and do not necessarily reflect the amount of expenses that would have been
incurred by Covance on a stand-alone basis. Covance management believes that
these costs would have been approximately $2.0 million higher on an annual
basis had Covance operated as a stand alone company during this period. In
certain cases, related party expenses allocated to Covance have not required
reimbursement in cash and, accordingly, have been treated as a capital
contribution.
11. Subsequent Event
In March 1996, Covance acquired all of the assets and substantially all of
the liabilities of Health Technology Associates, Inc. ("HTA", now known as
Covance Health Economics and Outcomes Services Inc.) for an initial cash
payment of approximately $15.0 million in a transaction accounted for as a
purchase business combination. In accordance with the terms of the asset
purchase agreement, Covance is contingently obligated to pay up to an
additional $17.0 million in contingent purchase price if HTA achieves certain
established earnings targets for the three year period ending March 1999.
In conjunction with the Covance Spin-Off Distribution, Covance plans to
record a material nonrecurring charge at the distribution date related to
establishing and funding an employee stock ownership plan, other employee
benefit plan arrangements and costs for advisors and other fees associated
with being established as a separate publicly traded entity. In addition,
Covance plans to incur significant long term bank borrowings to repay Corning
for all intercompany borrowings and income tax liabilities at the
distribution date. The credit facility governing such borrowings prohibits
Covance from paying cash dividends on the Covance stock.
Corning, Corning Clinical Laboratories Inc. ("CCL") and Covance will enter
into tax indemnification agreements that will prohibit CCL and Covance for a
period of two years after the Distributions from taking certain actions that
might jeopardize the favorable tax treatment of the Distributions under
Section 355 of the Internal Revenue Code of 1986, as amended and will provide
Corning and CCL with certain rights of indemnification against CCL and
Covance. The tax indemnification agreements will also require CCL and Covance
to take such actions as Corning may request to preserve the favorable tax
treatment provided for in any rulings obtained from the Internal Revenue
Service in respect of the Distributions.
Corning, CCL and Covance will also enter into a tax sharing agreement
which will allocate among Corning, CCL and Covance responsibility for
federal, state and local taxes relating to taxable periods before and after
the Spin-Off Distributions and provide for computing and apportioning tax
liabilities and tax benefits for such periods among the parties.
12. Quarterly Financial Information (Unaudited)
The following is a summary of unaudited quarterly financial information
for 1995 and 1994:
<TABLE>
<CAPTION>
First Second Third Fourth
Year Ended December 31, 1995 Quarter Quarter Quarter Quarter
- ------------------------------ -------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Net revenues $91,974 $104,813 $106,099 $106,288
Income from operations 12,983 9,665(1) 13,671 11,242
Net income 6,547 4,449(1) 7,516 5,714
Year Ended December 31, 1994
- ------------------------------
Net revenues $74,223 $ 77,762 $ 82,904 $ 84,612
Income from operations 8,187 11,077 9,690 9,645
Net income 4,023 5,726 4,967 4,929
</TABLE>
(1) Excluding the impact of the 1995 restructuring provision totaling
$4,616 ($2,770 net of tax), income from operations and net income in
the second quarter of 1995 were $14,281 and $7,219, respectively.
F-44
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
INTERIM COMBINED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995
--------- ----------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 13,551 $ 8,068
Accounts receivable, net 95,690 78,968
Unbilled services 43,110 18,217
Inventory 14,718 14,004
Deferred income taxes 14,273 11,337
Prepaid expenses and other assets 20,639 15,189
------- ---------
Total Current Assets 201,981 145,783
Property and Equipment, net 143,956 140,708
Goodwill, net 43,443 24,028
Other Assets 13,212 11,991
------- ---------
Total Assets $402,592 $322,510
======= =========
Liabilities and Stockholder's Equity
Current Liabilities:
Trade accounts payable $ 23,627 $ 23,761
Accrued payroll and benefits 30,058 20,339
Accrued expenses and other liabilities 36,410 24,701
Unearned revenue 46,025 41,879
Income taxes payable 18,408 16,631
------- ---------
Total Current Liabilities 154,528 127,311
Due to Corning Incorporated and affiliates 118,165 89,836
Deferred income taxes 9,583 6,406
Other liabilities 14,444 16,440
------- ---------
Total Liabilities 296,720 239,993
------- ---------
Commitments and Contingent Liabilities
Stockholder's Equity:
Contributed capital 32,368 30,816
Retained earnings 70,505 48,653
Cumulative translation adjustment 2,999 3,048
------- ---------
Total Stockholder's Equity 105,872 82,517
------- ---------
Total Liabilities and Stockholder's Equity $402,592 $322,510
======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
INTERIM COMBINED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ----------------------
(Amounts in thousands) 1996 1995 1996 1995
---------------------------------------- ------------ --------- --------- ----------
<S> <C> <C> <C> <C>
Net revenues $ 127,179 $106,099 $357,406 $302,886
Cost and expenses
Cost of revenue 83,204 70,057 232,828 198,820
Selling, general and administrative
expenses 20,627 16,882 57,573 46,965
Restructuring charge -- -- -- 4,616
Depreciation and amortization 5,846 5,489 18,130 16,166
---------- ------- ------- --------
Total 109,677 92,428 308,531 266,567
---------- ------- ------- --------
Income from operations 17,502 13,671 48,875 36,319
---------- ------- ------- --------
Other expense
Interest expense, net 1,871 1,167 4,536 3,918
Foreign exchange loss (321) (936) (212) (609)
---------- ------- ------- --------
1,550 231 4,324 3,309
---------- ------- ------- --------
Income before taxes and equity investee
losses 15,952 13,440 44,551 33,010
Taxes on income 6,931 5,771 19,411 14,147
Equity investee loss (gain) (53) 153 (68) 351
------------ --------- --------- ----------
Net income $ 9,074 $ 7,516 $ 25,208 $ 18,512
============ ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
INTERIM COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995
--------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 25,208 $ 18,512
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 18,130 16,166
Restructuring reserve, net of cash paid -- 3,749
Deferred income tax provision 241 (3,867)
Related party charges 1,552 2,406
Other 162 901
Changes in operating assets and liabilities:
Accounts receivable (14,987) (8,741)
Unbilled services (22,365) (10,738)
Inventory (714) (2,069)
Accounts payable (177) (4,208)
Accrued liabilities 12,084 15,923
Unearned revenue 2,932 2,419
Income taxes payable 1,777 5,948
Other assets and liabilities, net (8,922) (3,987)
------- --------
Net cash provided by operating activities 14,921 32,414
------- --------
Cash flows from investing activities
Capital expenditures (19,977) (25,209)
Acquisition of businesses (14,890) (14,000)
Other, net 458 398
------- --------
Net cash used in investing activities (34,409) (38,811)
------- --------
Cash flows from financing activities
Due to Corning Incorporated and affiliates 13,439 8,111
Acquisition loan from Corning Incorporated 14,890 14,000
Capital contributions -- 1,000
Dividends paid (3,358) (10,257)
------- --------
Net cash provided by financing activities 24,971 12,854
--------- ----------
Net change in cash and cash equivalents 5,483 6,457
Cash and cash equivalents, beginning of period 8,068 6,176
--------- ----------
Cash and cash equivalents, end of period $ 13,551 $ 12,633
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
COVANCE INC. AND SUBSIDIARIES
(an indirect wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited combined financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
statement of the results of operations for the interim periods presented. All
such adjustments are of a normal recurring nature. The combined financial
statements have been compiled without audit and are subject to such year-end
adjustments as may be considered appropriate and should be read in
conjunction with the historical combined financial statements of Covance for
the years ended December 31, 1995, 1994 and 1993 included elsewhere herein.
2. Use of Estimates
The preparation of these unaudited combined financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
3. Taxes on Income
Taxes on income reflect the estimated annual effective tax rates.
4. Acquisitions
In March 1996, Covance acquired all of the assets and substantially all of
the liabilities of Health Technology Associates, Inc. ("HTA", now known as
Covance Health Economics and Outcomes Services Inc.) for an initial cash
payment of approximately $15.0 million in a transaction accounted for as a
purchase business combination. In accordance with the terms of the asset
purchase agreement, Covance is contingently obligated to pay up to an
additional $17.0 million in contingent purchase price if HTA achieves certain
established earnings targets during the three year period ending March 1999.
5. Subsequent Event
In October 1996, Covance acquired the stock of CRS Pacamed AG (now known
as Covance Pharmaceutical Packaging Services Inc.) for a cash payment of
approximately $14.4 million in a transaction to be accounted for as a
purchase business combination.
F-48
