[COVANCE LETTERHEAD]
1998
Notice of First
Annual Meeting &
Proxy Statement
<PAGE>
COVANCE
THE DEVELOPMENT SERVICES COMPANY
March 12, 1998
Dear Shareholder:
I am pleased to invite you to attend the 1998 First Annual Meeting of
Shareholders of Covance Inc., to be held at 11:00 a.m., eastern standard time,
on Tuesday, April 28, 1998 at the Princeton Marriott Hotel at Forrestal Village,
201 Village Boulevard, Princeton, New Jersey. We hope that you will
participate in the Annual Meeting either by attending and voting in person or by
completing and returning the enclosed proxy as promptly as possible. Your vote
is important.
The accompanying Notice of Annual Meeting and Proxy Statement provide
information about the matters to be acted upon by Covance's Shareholders. The
Proxy Statement also contains information about the role and responsibilities of
the Board of Directors and its Committees and provides important information
about each nominee for election as a Director and other matters to be acted on
at the meeting.
Sincerely,
Christopher A. Kuebler
Chairman, President and Chief Executive Officer
<PAGE>
COVANCE INC.
Notice of 1998 Annual Meeting of Shareholders
The First Annual Meeting of the Shareholders of Covance Inc. (the "Company")
will be held on Tuesday, April 28, 1998 at 11:00 a.m., eastern standard time, at
the Princeton Marriott Hotel at Forrestal Village, 201 Village Boulevard,
Princeton, New Jersey 08540 for the following purposes:
1. To elect two members to the Company's Class I Board of Directors;
2. To ratify the Conversion Equity Plan and Employee Equity Participation
Plan pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended;
3. To ratify the appointment of Price Waterhouse as independent auditors of
the Company for the fiscal year ending December 31, 1998; and
4. To act upon such other matters as may properly come before the Annual
Meeting.
Only Shareholders of record at the close of business on March 2, 1998 are
entitled to notice of, and to vote at, the Annual Meeting.
Jeffrey S. Hurwitz
Corporate Senior Vice President,
General Counsel and Secretary
March 12, 1998
<PAGE>
Covance Inc.
210 Carnegie Center
Princeton, New Jersey 08540
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PROXY STATEMENT
First Annual Meeting of Shareholders
April 28, 1998
-------------------------
General Information
The accompanying proxy is solicited by the Board of Directors of Covance
Inc. ("Company" or "Covance") in connection with the First Annual Meeting of
Shareholders of the Company to be held on Tuesday, April 28, 1998 at 11:00 a.m.,
eastern standard time, at the Princeton Marriott Hotel at Forrestal Village, 201
Village Boulevard, Princeton, New Jersey and at any adjournment or postponement
thereof ("Annual Meeting"). This Proxy Statement and the accompanying proxy card
are first being sent to Shareholders on or about March 16, 1998.
This is the first solicitation by the Company of proxies for its Annual
Meeting of Shareholders. On May 13, 1996, the Board of Directors of Corning
Incorporated ("Corning"), the Company's former indirect parent, approved a plan
to distribute ("Distributions") in a tax-free distribution to all Corning
shareholders ("Spin-Off") of record as of 11:59 p.m. on December 31, 1996, all
of the Company's outstanding Common Stock, and that of Quest Diagnostics Inc.
("Quest"). The Distributions were effected as of the close of December 31, 1996
("Spin-Off Date"), and the Company (as well as Quest) became a separately
publicly-held company on such date.
When you return a proxy card that is properly signed, the shares of the
Company's common stock ("Common Stock") represented by the proxy will be voted
as you specify on the proxy card. As to the election of the Class I Directors,
by marking the appropriate box you may (a) vote for all the Class I Director
nominees as a group, (b) vote for all of the Class I Director nominees as a
group except those nominees whose names you specify on the proxy card, or (c)
withhold your vote from all nominees as a group. As to the other items, you may
vote "for" or "against" the item or "abstain" from voting by marking the
appropriate box. If you properly sign and return your proxy card but do not
specify any choices you will thereby confer authority upon the persons named as
proxies to vote your shares in their discretion. The proxy also gives
discretionary authority to these individuals to vote your shares of Common Stock
upon such other matters as may properly come before the Annual Meeting,
including voting on the nomination or election of any person not identified in
this Proxy Statement as a nominee for election as a Director.
Your vote is important and the Board of Directors urges you to exercise your
right to vote. Whether or not you plan to attend the Annual Meeting, you can
assure that your shares are voted by properly completing, signing, dating and
returning the enclosed proxy card. You may revoke your proxy at any time before
it is exercised by giving written notice to the Secretary of the Company, by
submitting a subsequently dated and properly signed proxy, or by attending the
Annual Meeting and revoking the proxy. Your attendance at the Annual Meeting
will not by itself revoke your proxy.
Shares of Common Stock held in the Company's Stock Purchase Savings Plan
("401k Plan"), the Employee Stock Ownership Plan ("ESOP"), and the Restricted
Share Plan ("RSP") are held of record and are voted by the trustees of the 401k
Plan, ESOP and RSP, respectively. Shares of Common Stock held in the Company's
Employee Stock Purchase Plan ("ESPP") are held of record by the ESPP's
administrator, Merrill Lynch Pierce Fenner & Smith Inc. ("Merrill"), and are
voted by Merrill at the direction of ESPP plan participants. Participants in the
401k Plan and ESOP may direct the trustees of their respective plans, and the
participants in ESPP may direct Merrill, as to how to vote shares allocated to
their 401k Plan, ESOP and ESPP accounts, respectively, by properly signing,
completing and returning the enclosed proxy card. The 401k Plan and ESOP
trustees will vote shares as to which they have not received direction in
accordance with the terms of their respective plan documents. The RSP trustee
will vote all shares in the RSP in its absolute discretion. As administrator of
the ESPP, Merrill
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will not vote any shares as to which it has not received direction from
participants in the ESPP, or which it is otherwise not entitled to vote.
Only Shareholders of record on March 2, 1998 ("Record Date") are entitled to
notice of, and to vote at, the Annual Meeting. As of the Record Date, there were
57,703,479 shares of Common Stock issued and outstanding. Each Shareholder is
entitled to one vote for each share of Common Stock registered in that person's
name as of the Record Date.
ITEM 1
Election of Class I Directors
The Board of Directors ("Board") is divided into three classes, with two
classes of two Directors each, and one class of three Directors, whose terms
expire at successive annual meetings. Two Class I Directors will be elected at
the Annual Meeting to serve for a term expiring at the Company's Annual Meeting
in the year 2001. Each of the Directors, except for Messrs. Campbell, Kuebler
and Ughetta, was elected in connection with the Company becoming a separate
public company as part of the Spin-Off from Corning, effective December 31,
1996. Messrs. Campbell, Kuebler and Ughetta have served on the Board since May
1995, November 1994 and July 1996, respectively. Each nominee elected as a Class
I Director will continue in office until his successor has been duly elected and
qualified, or until his earlier death, resignation or retirement. The Board has
proposed the following nominees for election as Class I Directors at the Annual
Meeting.
Nominees for Class I Directors, with terms expiring at the Annual Meeting to
be held in the year 2001 are:
Robert M. Baylis
Irwin Lerner
The Board of Directors recommends that Shareholders vote FOR the election of
the above named nominees for election as Directors.
The nominees for election as Class I Directors are to be elected by a
plurality of the votes cast by Shareholders at the Annual Meeting. Unless there
is a contrary indication, shares of Common Stock represented by valid proxies
will be voted FOR the election of all nominees. The Board has no reason to
believe that any nominee will be unable to serve as a Director. If for any
reason a nominee should become unable to serve, the shares represented by valid
proxies will be voted for the election of such other person as the Board may
recommend, or the Board may reduce the number of Directors to eliminate the
vacancy.
Set forth below is the principal occupation of, and certain information
regarding, such nominees, and for other Directors whose terms of office will
continue after the Annual Meeting.
CLASS I NOMINEES FOR TERMS EXPIRING IN 2001
Robert M. Baylis, 58, was a Vice Chairman of CS First Boston
Corporation ("First Boston"), a financial services company, from
March 1992 to March 1994, and from August 1995 to January 1996.
He was Chairman and Chief Executive Officer of CS First Boston
Photo Pacific Inc./Hong Kong from March 1994 to August 1995. Prior to
March 1992, Mr. Baylis held a variety of positions with First
Boston, including 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 Host Marriott Corporation (hotels),
Gryphon Holdings, Inc. (insurance), Home State Holdings, Inc.
(insurance) and New York Life Insurance Company (insurance). Mr.
Baylis has been a member of the Covance Board since December
1996.
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Irwin Lerner, 67, 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
Photo Chief Executive Officer of Roche. He is also a Director of
Humana, Inc. (health maintenance organization), Medarex, Inc.
(biotechnology), Public Service Enterprise Group Inc. (public
utility) and Axys Pharmaceuticals, Inc. (pharmaceuticals). Mr.
Lerner has been a member of the Covance Board since December
1996.
CLASS II DIRECTORS WHOSE TERMS WILL EXPIRE IN 1999
J. Randall MacDonald, 49, has been the Executive Vice
President-Human Resources and Administration for the GTE
Corporation ("GTE"), a telecommunications company, since June
1997. Prior to June 1997, Mr. MacDonald held various senior
Photo positions with GTE including Senior Vice President-Human
Resources and Administration (from April 1995), 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. Mr. MacDonald has been a member of the
Covance Board since December 1996.
William C. Ughetta, 64, is the Senior Vice President and
former General Counsel of Corning, a former affiliate of the
Company prior to the Spin-Off Date. Mr. Ughetta joined Corning
in 1968 as Assistant Secretary and Assistant Counsel. He was
Photo elected Secretary of Corning in 1971 and Vice President in 1972.
He was elected a Senior Vice President in 1983. He is also a
Director of Siecor Corporation (manufacturer of optic cable) and
Chemung Canal Trust Company (banking). Mr. Ughetta has been a
member of the Covance Board since July 1996.
CLASS III DIRECTORS WHOSE TERMS WILL EXPIRE IN 2000
Van C. Campbell, 59, is the Vice Chairman of Corning, a
former affiliate of the Company prior to the Spin-Off Date,
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, Finance in
Photo 1980. He became General Manager of the Consumer Products
Division in 1981. Mr. Campbell was elected Vice Chairman and a
Director of Corning in 1983. He is also a Director of Armstrong
World Industries, Inc. (flooring and building products), General
Signal Corporation (industrial products) and Quest Diagnostics,
Inc. (clinical testing), an affiliate of the Company prior to
the Spin-Off Date. Mr. Campbell has been a member of the Covance
Board since May 1995.
Christopher A. Kuebler, 44, has been Covance's President and
Chief Executive Officer since November 1994. From March 1993
through November 1994, he was the Corporate Vice President,
European Operations for Abbott Laboratories Inc. ("ALI"), a
Photo 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, and was elected
Chairman in November 1996. Mr. Kuebler also serves in various
executive officer and director capacities of Covance's
subsidiaries. He is also a member of PNC Bank Corp.'s Advisory
Board.
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Nigel W. Morris, 39, has been the President and Chief
Operating Officer of Capital One Financial Corporation ("Capital
One"), a financial services company, since July 1994. Mr. Morris
was Executive Vice President of Signet Banking Corporation's
("Signet Bank," which has since been acquired by First Union
Photo Corporation) credit card division 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 Bank. He is also a Director of Capital One and a member
of Visa U.S.A. Inc.'s Marketing Committee. Mr. Morris has been a
member of the Covance Board since December 1996.
The Board of Directors and its Committees
While the executives of the Company are responsible for the Company's daily
operations, the Board manages the Company and its corporate resources. The Board
is also responsible for establishing broad corporate policies and for overseeing
the overall performance of the Company and management. The Board reviews
significant developments affecting the Company and acts on matters requiring
Board approval. During 1997, the Board held six meetings. The standing
committees of the Board are the Audit and Finance Committee, the Compensation
and Organization Committee, and the Corporate Governance Committee
(collectively, "Committees"). Mr. Kuebler is the only Director who is an
employee of the Company.
The Audit and Finance Committee ("Audit Committee") examines and considers
matters relating to the financial affairs of Covance, including reviewing
Covance's annual consolidated 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 Audit Committee also oversees the Company's Business Integrity
Program. The members of the Audit Committee are Messrs. Baylis (Chairman),
Campbell and Ughetta. During 1997, the Audit Committee held four meetings.
The Compensation and Organization Committee ("Compensation Committee") makes
recommendations to the Covance Board with respect to programs for human resource
development and management organization and succession, determines certain
senior executive compensation, considers and makes recommendations to the Board
with respect to the Chief Executive Officer's compensation, reviews other
compensation matters and policies and employee benefit and incentive plans,
administers such plans, and administers Covance's stock option and equity based
plans, and grants stock options and other rights under such plans. Messrs.
MacDonald (Chairman), Lerner and Morris are the members of the Compensation
Committee. During 1997, the Compensation Committee held three meetings.
The Corporate Governance Committee ("Governance Committee") examines,
considers and makes recommendations concerning various policies relating to the
management of the Company, including policies concerning the evaluation and
remuneration of Directors, and performance requirements for Directors, and
proposes nominees for election to the Board and its committees. The Governance
Committee will consider nominations of persons for election as Directors that
are submitted by Shareholders in writing in accordance with certain requirements
set forth in the Company's bylaws. The Governance Committee's members are
Messrs. Morris (Chairman), Kuebler, MacDonald and Ughetta. During 1997, the
Governance Committee held one meeting.
In 1997, each Director attended (in person or by teleconference) all Board
meetings, and all of the Committee meetings of which he was a member.
Director's Compensation
Fees. Members of the Board who are employees of the Company or its
subsidiaries are not compensated for service on the Board or any of its
Committees. Compensation for non-employee Directors for fiscal 1997 consisted of
a retainer fee of $15,000 per annum, a $1,000 fee for each Board meeting
attended, and a $500 fee for each Committee meeting attended. A $1,000 fee (in
lieu of the $500 fee) is paid to the Chairman of a Committee for each Committee
meeting attended. In addition,
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Directors receive 2,000 restricted shares of Common Stock upon their initial
election as a Director, and, for years prior to fiscal 1998, 200 restricted
shares of Common Stock per year of service, both pursuant to the Company's
Restricted Stock Plan for Non-Employee Directors ("DRSP"), described below.
Starting in fiscal 1998, Directors will receive an award of 200 hypothetical
shares of the Company's Common Stock per year of service, pursuant to the
Company's Deferred Stock Unit Plan for Non-Employee Directors ("DDSP"),
described below. Directors are also reimbursed for travel and related expenses
incurred on behalf of the Company.
Pursuant to the Directors Deferred Compensation Plan ("DDCP"), adopted
December 1996, each Director may elect to defer until a date specified by him,
the receipt of all or a portion of his cash compensation. The DDCP 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. All non-employee
Directors are eligible to participate in the DDCP.
Restricted Stock Plan. The DRSP was adopted in December 1996. Under the
DRSP, non-employee Directors receive a grant of 2,000 restricted shares of
Common Stock upon their initial election as a Director, and, for years prior to
fiscal 1998, 200 restricted shares of Common Stock per year of service. All
grants are subject to forfeiture and restrictions on transfer, and the initial
2,000 restricted share award is subject to a six-year cliff vesting schedule.
Deferred Stock Plan. The DDSP was adopted as of January 1998. Under such
plan, each non-employee Director receives a yearly award, starting with fiscal
1998, of 200 hypothetical shares of the Company's Common Stock per year of
service. Such awards stay invested in the Company's Common Stock until a
specified release date. At such date, each Director can receive the value of
such award either in cash or in the Company's Common Stock.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended ("1934
Act"), requires that Directors and certain executive officers of the Company
report their ownership of, and transactions in, the Company's Common Stock.
Based solely upon a review of the copies of the forms furnished to the Company,
or written representations from certain reporting persons that no Forms 5 were
required, the Company believes that all filing requirements applicable to its
officers and Directors were complied with during fiscal 1997.
ITEM 2
Ratification of the Company's Conversion Equity Plan and Employee Equity
Participation Plan Pursuant To Section 162(m) of the Internal Revenue Code of
1986, as Amended
Ratification of the Conversion Equity Plan ("CEP") and the Employee Equity
Participation Plan ("EEPP") is being sought from Shareholders to comply with
Section 162(m) ("Section 162m") of the Internal Revenue Code of 1986, as amended
("Code"). In the event that Shareholders do not ratify the CEP and EEPP, the
plans and the grants made thereunder will continue to remain outstanding.
However, the Company may lose certain tax benefits under Section 162m, including
the deductibility of all or a certain portion of the value of awards made
thereunder to certain executive officers.
General. Prior to the Spin-Off, certain Company employees held options and
incentive stock granted by Corning ("Corning Grants"). As a requirement of the
Spin-Off, such Company employees forfeited any unexercised options or unvested
stock at the Spin-Off Date, and the Company was required to issue awards
comparable in value and on substantially the same terms and conditions
("Conversion Awards") under its own plans in replacement of such terminated
awards. In December 1996, the Board approved the CEP and the EEPP. On December
31, 1996, the Company's former sole shareholder, Quest, approved the CEP and the
EEPP. All awards were ratified by the Board on January 31, 1997.
Unless otherwise noted in the discussions below, references to the "Program"
refer to both the CEP and EEPP. Each Program consists of two parts: options
granted under a "Stock Option Plan," and incentive stock or incentive stock
rights granted under an "Incentive Stock Plan."
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Principal Differences. The CEP and EEPP are virtually identical plans except for
one distinction: while grants under the EEPP may be made to any eligible
employee selected by the Company's Compensation Committee during the life of
such plan, grants under the CEP may be made, and were only made, to Company
employees who had held Corning Grants that were terminated at the Spin-Off Date.
Committee Administration. Each Program is administered by the Compensation
Committee, each member of which is a "non-employee director" within the meaning
of Rule 16b-3(b)(3) promulgated under the 1934 Act, and an "outside director"
within the meaning set forth in the regulations promulgated under Section 162m.
Eligibility. With respect to the CEP, only employees of the Company or any
subsidiary who held terminated Corning Grants at the time of the Spin-Off Date
were eligible to participate in the CEP. CEP grants may only be used (i) to
replace grants to Company employees whose Corning Grants terminated at the
Spin-Off or (ii) for "reload" option provisions pursuant to any CEP grant.
Approximately 125 employees were eligible to participate in the CEP. Except for
the reload provisions of any CEP award, no new grants may be made pursuant to
the CEP. With respect to the EEPP, key executive, managerial and technical
employees (including officers and employees who are Directors) of the Company or
any subsidiary are eligible to participate in the EEPP. Approximately 1,000
employees are eligible to participate in the EEPP. The selection of employees
who are eligible to participate in the EEPP is within the discretion of the
Compensation Committee.
Shares Available for Grant. Under the CEP, no more than 1,500,000 shares of the
Company's Common Stock may be optioned or granted to eligible employees. The
1,500,000 shares available for grant under the CEP represent approximately 2.6%
of the shares of the Company's Common Stock outstanding on December 31, 1997. As
of February 10, 1998, 1,046,396 shares subject to option under the CEP were
outstanding. Except to fulfill the reload requirements of any outstanding CEP
option, no further grants are anticipated to be made under the CEP. Under the
EEPP, no more than 6,000,000 shares of the Company's Common Stock may be
optioned or granted to eligible employees. The 6,000,000 shares available for
grant under the EEPP represent approximately 10.4% of the shares of the
Company's Common Stock outstanding on December 31, 1997. As of February 10,
1998, 1,770,202 shares subject to incentive stock restrictions or option under
the EEPP were outstanding. Under either Program's Stock Option Plan, shares from
expired or terminated options will be available again for option grant,
provided, that with respect to the CEP, such shares may only be used to fulfill
the "reload" requirements of any such option. Under the EEPP's Incentive Stock
Plan, shares which are issued but not earned, or which are otherwise forfeited,
will be available again for issuance under the EEPP. No further shares are
available for grant under the CEP's Incentive Stock Plan.
Adjustments. Each Program provides for appropriate adjustments in the aggregate
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, and to any single 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
resulting from changes in the capital stock of the Company because of any
recapitalization, stock or unusual cash dividend, distribution, spin-off, stock
split or any other increase or decrease effected without receipt of
consideration by the Company or in the event of any merger or consolidation
where the Company is the survivor. Each Program also provides certain
protections or benefits to plan participants resulting from a dissolution of the
Company or a merger or consolidation where the Company is not the survivor. Most
agreements issued to award recipients under either Program also provide that, in
the event of a "change in control" (as defined therein), all incentive stock
awards shall immediately vest and all stock option awards shall immediately vest
and become exercisable.
Stock Option Plan. Under each Program, the Compensation Committee may grant to
eligible employees either non-qualified or "incentive stock" options, or both,
to purchase shares of the Company's Common Stock at no less than fair market
value on the date of grant. Except to satisfy the "reload" provisions of any CEP
option grant, no further grants are anticipated to be made pursuant to the CEP.
The Compensation Committee may also provide that options may not be exercised in
whole or in part for any period or periods of time, provided, that no option may
be exercised until the lapse of at least twelve months from the date of grant.
All options will expire not more than ten years from the date of grant. The
number of shares covered by incentive stock options which may be first exercised
by an individual in any year cannot have an aggregate fair market value in
excess of $100,000, measured at the date of grant. If an optionee's employment
with the Company terminates, such employee's option terminates, unless otherwise
determined by the Compensation Committee or as may be set forth in the
employee's option agreement. The Compensation Committee has full power and
authority to determine whether, to what
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extent and under what circumstances any option under either Program's Stock
Option Plan shall be exercisable, suspended or canceled in the event of an
employee's termination of employment. Options are not assignable or transferable
except for limited circumstances on death or disability. During the lifetime of
the employee an option may be exercised only by him. Under either Program, the
option price must be paid to the Company by the optionee in full prior to
delivery of the Common Stock. The optionee may pay the option price in cash or
with shares of the Company's Common Stock owned by him. The optionee has no
rights as a stockholder with respect to the shares subject to option until such
shares are issued upon exercise of the option. Under either Program's Stock
Option Plan, the Compensation Committee may grant so-called "reload" options
pursuant to which an optionee who uses shares of the Company's Common Stock to
pay the purchase price of an option shall receive automatically on the date of
exercise an additional option to purchase shares of the Company's Common Stock.
Such additional option shall cover the number of shares tendered in payment of
the option price, shall be at the then fair market value of the Company's Common
Stock, shall become exercisable only after the lapse of twelve months and shall
expire on the date of the original option.
Incentive Stock Plan. Each Program's Incentive Stock Plan authorizes the
Compensation Committee to award to eligible employees incentive shares, or
incentive stock rights (which are the right to receive shares of the Company's
Common Stock), cash, or any combination of cash and stock, in the Compensation
Committee's discretion. The 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 at the end of 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
circumstances. The restrictions on transfer and the possibility of forfeiture
may be waived, with the approval of the Compensation Committee, if an employee's
employment relationship is terminated by reason of death, disability or
retirement with the Company's consent or by reason of a subsidiary ceasing to be
a subsidiary. Unless otherwise determined by the Compensation Committee, or as
may be set forth in such employee's agreement under the Incentive Stock Plan,
upon an employee's termination of employment, with respect to (i) incentive
stock, such stock is forfeitable to the Company, and (ii) incentive stock
rights, such stock rights shall terminate immediately. Shares may be issued to
recognize past performance either generally or upon attainment of specific
objectives. Upon issuance, such shares may (but need not) be made subject to
certain restrictions prohibiting disposition or to the possibility of
forfeiture.
Amendment, Administration and Termination. The EEPP will expire in March 2002,
and the CEP will expire in March 2007. No shares may be optioned or awarded and
no rights to receive shares may be granted after the expiration of either
Program. The Board is authorized to terminate or amend the Programs, 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, materially increase the benefits of either Program to the
participants thereunder, or extend the term of the Programs or options granted
thereunder without the approval of the holders of a majority of the outstanding
shares of Common Stock of the Company.
Plan Documents. A copy of the complete text of the CEP and/or EEPP may be
obtained by writing to the office of the Secretary, Covance Inc., 210 Carnegie
Center, Princeton, New Jersey 08540.
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New Benefit Plan Tables. The following tables reflect the dollar value and
number of options or incentive shares awarded to the individuals and groups
listed below pursuant to the EEPP and CEP.
New Plan Benefits
Employee Equity Participation Plan
<TABLE>
<CAPTION>
Name and Dollar Incentive Number of
Title Value (1) Shares (2) Options
($) (#) (#)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Christopher A. Kuebler, $824,813 41,500
Chairman, President and $29,258 124,500
Chief Executive Officer
- -------------------------------------------------------------------------------------
Richard J. Andrews, $228,563 11,500
Corporate Senior Vice President, $10,458 44,500
Group President, Central
Laboratory Services
- -------------------------------------------------------------------------------------
Kim D. Lamon, $228,563 11,500
Corporate Senior Vice President, $8,108 34,500
Group President, Clinical and
Periapproval Services
- -------------------------------------------------------------------------------------
James D. Utterback, $228,563 11,500
Corporate Senior Vice President, $8,108 34,500
Group President, Global Ventures
- -------------------------------------------------------------------------------------
Michael G. Wokasch, $228,563 11,500
Corporate Senior Vice President, $8,108 34,500
Group President, Laboratory Services
- -------------------------------------------------------------------------------------
All Current Executive Officers $2,335,313 117,500
as a Group (9 persons) $191,598 389,500
- -------------------------------------------------------------------------------------
All Current Directors who are not -0- -0-
Executive Officers, -0- -0-
as a Group (6 persons)
- -------------------------------------------------------------------------------------
All Employees, including all current -0- -0-
officers who are not Executive $455,976 1,286,202
Officers, as a Group
- -------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) Valuation as of December 31, 1997. Values are calculated for incentive
shares based upon the New York Stock Exchange ("NYSE") consolidated trading
closing price of $19.875 for the Common Stock on December 31, 1997. Values
are calculated for "in-the-money" options by subtracting the exercise price
per share of the options from the per share NYSE consolidated trading
closing price of $19.875 for the Common Stock on December 31, 1997 and
multiplying such difference by the number of options.
(2) All EEPP incentive shares were subject to performance requirements and,
pursuant to the terms of the plan, were subject to further adjustment. As of
February 18, 1998, the Compensation Committee certified certain performance
objectives as met. As a result thereof, the incentive share awards were
adjusted as follows: Mr. Kuebler, 18,675 additional shares, for a total of
60,175 shares valued at $1,244,870 as of February 18, 1998; for each of
Messrs. Andrews, Utterback and Wokasch and Dr. Lamon, 5,175 additional
shares, each for a total of 16,675 shares valued at $344,964 as of February
18, 1998; and All Current Executive Officers as a Group, an aggregate of
53,475 additional shares, for a total of 170,975 shares valued at $3,537,045
as of February 18, 1998.
8
<PAGE>
New Plan Benefits
Conversion Equity Plan
<TABLE>
<CAPTION>
Name and Dollar Incentive Number
Title Value (1) Shares (2) of Options
($) (#) (#)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Christopher A. Kuebler, $1,243,758 62,579
Chairman, President and $133,183 39,345
Chief Executive Officer $424,533 106,266
- ---------------------------------------------------------------------------------------
Richard J. Andrews, -0- -0-
Corporate Senior Vice President, $86,785 23,615
Group President, Central $18,696 7,872
Laboratory Services
- ---------------------------------------------------------------------------------------
Kim D. Lamon, $580,370 29,201
Corporate Senior Vice President, $78,614 19,678
Group President, Clinical and $118,280 25,574
Periapproval Services $314,466 78,715
- ---------------------------------------------------------------------------------------
James D. Utterback, $276,720 13,923
Corporate Senior Vice President, $78,614 19,678
Group President, Global Ventures $72,788 15,738
$125,787 31,486
- ---------------------------------------------------------------------------------------
Michael G. Wokasch, $232,677 11,707
Corporate Senior Vice President, $92,770 15,737
Group President, Laboratory Services $157,235 39,358
- ---------------------------------------------------------------------------------------
All Current Executive Officers $2,333,525 117,410
as a Group (9 persons) $1,701,751 465,371
- ---------------------------------------------------------------------------------------
All Current Directors who are not -0- -0-
Executive Officers, -0- -0-
as a Group (6 persons)
- ---------------------------------------------------------------------------------------
All Employees, including all current -0- -0-
officers who are not Executive $2,795,609 606,140
Officers, as a Group
- ---------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) Valuation as of December 31, 1997. Values are calculated for incentive
shares based upon the NYSE consolidated trading closing price of $19.875 for
the Common Stock on December 31, 1997. Values are calculated for
"in-the-money" options by subtracting the exercise price per share of the
options from the per share NYSE consolidated trading closing price of
$19.875 for the Common Stock on December 31, 1997 and multiplying such
difference by the number of options.
(2) All CEP shares vested on July 1, 1997. See Footnotes to "Summary
Compensation Table."
Federal Tax Treatment. The following is a brief summary of the current Federal
income tax rules generally applicable to options, incentive stock and incentive
stock rights ("ISRs"). Options granted under either Program may be either
non-qualified options or "incentive stock options" qualifying under Section 422
of the Code.
Non-Qualified Options. An optionee is not subject to Federal income tax upon
grant of a non-qualified option. At the time of exercise, the optionee will
realize compensation income (subject to withholding) to the extent that the then
fair market value of the Common Stock exceeds the option price. The amount of
such income will constitute an addition to the optionee's tax basis in the
optioned stock. The Company is entitled to a Federal tax deduction at the same
time and to the same extent that the optionee realizes compensation income. Sale
of the underlying shares of Common Stock will result in capital gain or loss
(long-term or short-term depending on the optionee's holding period).
Incentive Stock Options. Options under either Program denominated as Incentive
Stock Options ("ISOs") are intended to constitute incentive stock options under
Section 422 of the Code. An optionee is not subject to Federal income tax upon
either the grant or exercise of an ISO. If the optionee holds the shares of
Common Stock acquired upon exercise for at least one year after issuance of the
optioned shares and until at least two years after grant of the option, then the
difference between the
9
<PAGE>
amount realized on a subsequent sale or other taxable disposition of the shares
and the option price will constitute long-term capital gain or loss. To obtain
favorable tax treatment, an ISO must be exercised within three months after
termination of employment (other than by retirement, disability, or death) with
the Company or a 50% subsidiary, within three months of retirement or within one
year of cessation of employment for disability (with no limitation in the case
of death), notwithstanding any longer exercise period permitted under the terms
of the Programs. The Company will not be entitled to a Federal tax deduction
with respect to the grant or exercise of the ISO. If the optionee sells the
shares acquired under an ISO before the expiration of the requisite holding
period, he or she will be deemed to have made a "disqualifying disposition" of
the shares and will realize compensation income in the year of disposition equal
to the lesser of the fair market value of the shares at exercise or the amount
realized on their disposition over the option price of the shares. However, if
the disposition is by gift or by sale to a related party, the compensation
income must be measured by the value of the shares at exercise over the option
price. Any gain recognized upon a disqualifying disposition in excess of the
ordinary income portion will constitute either short-term or long-term capital
gain. In the event of a disqualifying disposition, the Company will be entitled
to a Federal tax deduction in the amount of the compensation income realized by
the optionee. The option spread on the exercise of an ISO is an adjustment in
computing alternative minimum taxable income. No adjustment is required,
however, if the optionee made a qualifying disposition of the shares in the same
year as he or she is taxed on the exercise.
Incentive Stock. A grantee is not subject to Federal income tax upon the grant
of incentive stock. At the time of vesting, the grantee will realize
compensation income (subject to withholding) based on the fair market value of
the Common Stock on the vesting date. The amount of such income will constitute
the grantee's tax basis in the incentive stock. The Company is entitled to a
Federal tax deduction at the same time and to the same extent that the grantee
realizes compensation income. Sale of the shares will result in capital gain or
loss (long-term or short-term depending on the grantee's holding period).
Incentive Stock Rights. A grantee is not subject to Federal income tax upon the
grant of an ISR. A grantee receiving cash for the ISR will realize compensation
income (subject to withholding) in the amount of cash received. A grantee
receiving shares of Common Stock for the ISR will realize compensation income
(subject to withholding) based on the fair market value of the Common Stock when
any restrictions lapse. The amount of such income will constitute the grantee's
tax basis in the shares of Common Stock received from the ISR. The Company is
entitled to a Federal tax deduction at the same time and to the same extent that
the grantee realizes compensation income. Sale of the shares will result in
capital gain or loss (long-term or short-term depending on the grantee's holding
period).
The Board of Directors recommends that Shareholders vote FOR the
ratification of the Company's Conversion Equity Plan and Employee Equity
Participation Plan.
Ratification of the CEP and EEPP to provide Section 162m approval of the
Programs requires the affirmative vote of a majority of the votes cast at the
meeting by the Shareholders entitled to vote thereon. Unless there is a contrary
indication, shares of Common Stock represented by valid proxies will be voted
FOR the ratification of the CEP and EEPP.
ITEM 3
Ratification of the Appointment of Independent Auditors
In accordance with the recommendation of the Audit Committee, the Board has
appointed Price Waterhouse LLP ("Price Waterhouse") as independent auditors of
the Company for the fiscal year ending December 31, 1998. Although Shareholder
ratification of the appointment is not required, the Board requests ratification
by the Shareholders. If the Shareholders do not ratify the appointment of Price
Waterhouse, the selection of other independent auditors will be considered by
the Audit Committee and the Board.
Price Waterhouse has served as independent auditors to the Company since the
Company's inception, and for one of its subsidiaries since 1987. Price
Waterhouse's long-term knowledge of the Company has enabled Price Waterhouse to
perform its audits with effectiveness and efficiency. Representatives of Price
Waterhouse will attend the Annual Meeting, will have the opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions.
10
<PAGE>
The Board of Directors recommends that Shareholders vote FOR the
ratification of the appointment of Price Waterhouse as independent auditors of
the Company.
Ratification of Price Waterhouse as the Company's independent auditors
requires the affirmative vote of a majority of the votes cast at the meeting by
the Shareholders entitled to vote thereon. Unless there is a contrary
indication, shares of Common Stock represented by valid proxies will be voted
FOR the ratification of Price Waterhouse as the Company's independent auditors.
Report of the Compensation and Organization
Committee on Executive Compensation
The following report of the Compensation Committee on Executive Compensation
and related disclosure, including the Performance Graph, shall not be deemed
incorporated by reference by any general statement incorporating this Proxy
Statement into any filing under the Securities Act of 1933, as amended or under
the 1934 Act (collectively, the "Acts") except to the extent the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
The Company's executive compensation program is administered by the
Compensation Committee. The role of the Compensation Committee, which is
currently comprised of three outside non-employee directors, is to consider and
approve management's recommendations regarding the compensation of executive
officers and employees of the Company, to make recommendations to the Board
regarding the compensation of the Chief Executive Officer, to administer the
Company's executive compensation plans and to review and approve the base
salaries, bonuses, equity incentive awards and other compensation of the
executive officers and senior management employees of the Company. The
Compensation Committee has reviewed information that was provided by several
compensation consulting firms in making its determinations with respect to
compensation of the Company's executive officers for the 1997 fiscal year.
The Company's executive compensation program utilizes Company performance
and individual performance as determinants of executive pay levels. These
principles are intended to motivate executive officers to improve the financial
position of the Company, to hold executives accountable for the performance of
the organization for which they are responsible, to attract key executives into
the service of the Company and to create value for the Company's shareholders.
In essence, executive compensation consists of four components: base salary,
annual incentive bonus, long-term incentives and benefits, including retirement
programs and perquisites.
Base Compensation
The Company's general policy is to target base cash compensation at
approximately the 50th percentile of its peer group. Executive officer base
salaries were reviewed by the Compensation Committee in fiscal 1997 and the
Compensation Committee approved merit increases and cost-of-living adjustments
for all members of the Company's executive officers and employees.
Bonuses
In fiscal year 1997, the Compensation Committee approved the Variable
Compensation Plan, pursuant to which performance-based annual incentive awards
are paid to supervisory, management and executive officers on the basis of the
achievement of specified individual and corporate financial performance targets,
such as operating income on both a consolidated and business unit basis and net
profit after tax on a consolidated basis. Awards under the Variable Compensation
Plan may be paid in cash, with stock options issued under the EEPP, or both.
Each participant in the Variable Compensation Plan was assigned a target award,
expressed as a percentage of base salary, that is payable if the applicable
performance targets are met. Actual results are compared to the scale of
targets, with each gradation of desired results corresponding to a percentage
that then is multiplied by the participating employees' assigned target award.
In order to incentivize management to achieve financial performance in excess of
budgeted levels, the Variable Compensation Plan is designed to allow management
to earn annual bonuses in excess of target amounts, up to a stated maximum
award. No bonuses will be paid
11
<PAGE>
under the Variable Compensation Plan if the Company's net profit after taxes or
operating income is 90% or less than the specified targets.
The amounts payable under the Variable Compensation Plan to the Company's
Chief Executive Officer and Corporate Senior Vice Presidents are determined
solely on the basis of the achievement of specified net profit after taxes
performance targets by the Company; the amounts payable to other members of
management who work for the Company's corporate group are determined on the
basis of operating income of the Company and individual performance and for the
other members of management who work in the business units are determined on the
basis of operating income for such business unit, the Company and individual
performance. The actual bonuses earned under the Variable Compensation Plan in
respect of fiscal 1997 by the Named Executives are disclosed in the Summary
Compensation Table.
Equity-Based Compensation
In fiscal year 1997, the Board approved the grant of non-qualified stock
options and incentive shares to the Company's Chief Executive Officer and
Corporate Senior Vice Presidents, as well as grants of non-qualified stock
options to the Company's Corporate Vice Presidents and other employees, under
the EEPP. The number of options granted to each individual was determined based
on an aggregate dollar value to be awarded to each individual at an adjusted
share price based on the actual weighted average trading price of the Company's
common stock during the first five "regular way" trading days, which was $19.64
per share. The non-qualified stock options that were granted to the Named
Executives and the Corporate Senior Vice Presidents under the EEPP will vest in
equal increments over a three-year period following their grant; the options
granted to the Corporate Vice Presidents and other management thereunder will
vest in equal installments over a two-year period. The incentive shares granted
to the Chief Executive Officer and Corporate Senior Vice Presidents under the
EEPP are subject to performance requirements. Actual performance which is either
higher or lower than targeted performance results in either an increase or
decrease in the number of shares earned, provided that the maximum number of
shares earned cannot exceed 150% of the target award. The incentive shares will
become 100% vested three years after they are granted, if they are earned.
In addition, in January 1997, the Board implemented stock option and
incentive share grants under the CEP in substitution for awards with respect to
shares of Corning common stock that were terminated pursuant to the terms of the
Spin-Off. Corning established the appropriate conversion formulas and the
necessary adjustments to determine (i) the number and exercise price for the
stock options to be issued under the CEP in replacement of the stock options
previously granted under the Corning plans, and (ii) the number of incentive
shares to be issued under the CEP in replacement of the incentive shares
previously issued under the Corning plans. All such replacement awards had been
previously approved by Corning prior to the consummation of the Spin-Off. The
incentive shares issued under the CEP became vested in July 1997.
Both the EEPP and the CEP, and the above-described grants made thereunder,
were approved by the five members of the Board who are "outside directors"
within the definition of Section 162(m) of the Internal Revenue Code -- Messrs.
Morris, Ughetta, MacDonald, Lerner and Baylis -- and were ratified by the entire
Board. Information regarding the number of stock options and shares of incentive
stock granted to each of the Named Executives is disclosed in the Summary
Compensation Table and the Option Grants in Fiscal Year 1997 Table.
During the fiscal year, the Compensation Committee made additional grants of
non-qualified stock options to newly hired employees and to certain other
non-executive employees of the Company, which grants will vest in equal
installments over a two-year period. The Compensation Committee also made a
grant of non-qualified stock options and incentive shares to a newly hired
Corporate Senior Vice President, vesting in accordance with the terms described
above with respect to awards made to such senior executives.
Total Compensation
The Company's general policy is to target total compensation (base, bonus
and equity grants) at approximately the 75th percentile of its peer group,
assuming the achievement of all performance targets. With respect to total cash
compensation (base and bonus), the Company seeks to ensure that it remains at a
competitive level for its executive and senior management to enable the Company
to attract and retain skilled management personnel.
12
<PAGE>
In addition, the executive officers were eligible to participate in the
Company's Employee Stock Purchase Plan during the 1997 fiscal year.
Compensation of the Chief Executive Officer
Mr. Kuebler received a base salary for fiscal year 1997 of $450,000 and a
cash bonus payable after the end of fiscal year 1997 pursuant to the terms of
the Variable Compensation Plan, as detailed below.
Under the Variable Compensation Plan, Mr. Kuebler's bonus (as well as those
paid to the other Named Executives) was based solely on the achievement of
specified net profit after taxes performance targets of the Company. Mr.
Kuebler's bonus target was 65% of his base salary; the maximum award to be made
to Mr. Kuebler under the Variable Compensation Plan cannot exceed 200% of his
target bonus amount (or 130% of base salary) and the maximum bonus would only be
paid in the event that the Company achieved 113% of target (rather than the 110%
threshold of 1996). The Compensation Committee has reviewed the applicable
performance goals and targets for the 1997 fiscal year and has determined that
Mr. Kuebler's bonus award under the Variable Compensation Award with respect to
the 1997 fiscal year is $234,000.
In fiscal year 1997, Mr. Kuebler received a grant of non-qualified options
to purchase 124,500 shares of the Company's Common Stock under the EEPP, at an
exercise price equal to the fair market value of the Company's Common Stock and
vesting in equal increments over a three-year period following the date of
grant, subject to Mr. Kuebler's continued employment with the Company. In
addition, Mr. Kuebler was awarded 41,500 incentive shares of Company Common
Stock, which award could be increased or decreased based on the Company's actual
net profit after taxes for fiscal year 1997. As a result of exceeding the
specific net profit after taxes targets Mr. Kuebler was awarded an additional
18,675 incentive shares, for a total of 60,175 incentive shares. These incentive
shares will become 100% vested in December 1999. As stated previously, these
grants of non-qualified stock options and incentive shares were previously
approved by the Board pursuant to the EEPP and are in addition to the stock
option and incentive share grants that were made under the CEP in substitution
for Mr. Kuebler's equity compensation awards with respect to Corning common
stock, which awards were terminated pursuant to the terms of the Spin-Off.
Pursuant to the CEP, in fiscal 1997, Mr. Kuebler received a grant of
non-qualified stock options with respect to 145,611 shares of the Company's
Common Stock and was awarded 62,579 incentive shares, which shares became vested
in July 1997. Information regarding the number of stock options, incentive stock
granted to Mr. Kuebler is disclosed in the Summary Compensation Table and the
Option Grants in Fiscal Year 1997 Table.
Policy on Section 162(m)
Under Section 162(m) of the Internal Revenue Code, the Company is generally
precluded from deducting compensation in excess of $1 million paid in any fiscal
year to any of its Chief Executive Officer and its four most highly compensated
executive officers. An exception to this general rule exists for payments that
are made pursuant to the attainment of one or more performance goals. The
performance goals must meet certain criteria, including determination by a
compensation committee comprised solely of two or more outside directors,
shareholder disclosure and approval, and compensation committee certification.
As stated previously, the Compensation Committee is composed entirely of
"outside directors" as defined for purposes of Section 162(m). In addition, in
order to comply with Section 162(m), both the EEPP and the CEP are being
submitted for stockholder ratification at this Annual Meeting. In the event that
the Shareholders do not ratify these plans, however, the plans and the grants
previously made thereunder will continue to remain effective.
While it is the Compensation Committee's intention to maximize the
deductibility of compensation payable to the Company's executive officers,
deductibility will be only one among a number of factors used by the
Compensation Committee in ascertaining appropriate levels or modes of
compensation. The Company intends to maintain the flexibility to compensate
executive officers based upon an overall determination of what it believes to be
in the best interests of the Company and its stockholders.
Members of the Compensation Committee
J. Randall MacDonald, Chairman
Irwin Lerner
Nigel W. Morris
13
<PAGE>
Summary Compensation Table
The following table provides information regarding the cash and other
compensation of those persons who, during the past year, (i) served as the
Company's Chief Executive Officer and (ii) were the four other most highly
compensated executive officers of the Company (collectively, the "Named
Executives"):
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Annual Compensation (1) Awards (1) (2)
-------------------------------------------- --------------------------------
Restricted Securities All Other
Name and Other Annual Stock Underlying Compensation
Principal Position Year Salary Bonus (3) Compensation Awards (4) Options (5) (1) (6)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Christopher A. 1997 $450,000 $234,000 $40,619 (15) $2,021,554(17) 270,111 $86,540
Kuebler, 1996 $345,833 $231,000 $72,447 (18) -0- $72,043
Chairman, President 1995 $322,567 $303,958 $50,427 (19) (30) $68,680
and Chief Executive
Officer
- --------------------------------------------------------------------------------------------------------------------------------
Richard J. Andrews, 1997 $245,000 $107,800 $3,244 (15) $232,875(20) 75,987 $94,878
Corporate Senior 1996 $231,444 $106,696 -0- -0- (31) $58,788
Vice President, 1995 $222,833 $176,512 -0- -0- -0- $57,478
Group President,
Central
Laboratory Services
- --------------------------------------------------------------------------------------------------------------------------------
Kim D. Lamon (7), 1997 $340,000 $149,600 $26,544 (15) $784,044(21) 158,467 $64,604
Corporate Senior 1996 $206,111 (9) $156,957 (13) $40,745 (22) -0- $55,786
Vice President, 1995 (9) (13) $34,097 (23) (32) $58,060
Group President,
Clinical and
Periapproval
Services
- --------------------------------------------------------------------------------------------------------------------------------
James D. Utterback 1997 $258,000 $113,520 $21,352 (15) $495,672(24) 101,402 $48,097
(8), 1996 $244,565 $162,200 $34,254 (25) -0- $45,376
Corporate Senior 1995 $98,820 (10) $78,738 (14) $26,831 (26) (33) $41,595
Vice President,
Group President,
Global Ventures
- --------------------------------------------------------------------------------------------------------------------------------
Michael G. Wokasch, 1997 $255,000 (11) $106,480 -0- (16) $453,845(27) 89,595 $24,847
Corporate Senior 1996 $202,614 $103,334 -0- (28) -0- $17,730
Vice President, 1995 $100,000 (12) $76,500 -0- (29) (34) $4,740
Group President,
Laboratory Services
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
----------
(1) As noted in the footnotes set forth below, compensation disclosed in
this table, including the footnotes thereto, may reflect
compensation paid by the Company, Corning, Quest or Corning Life
Sciences Inc. ("CLSI"), a former affiliate of the Company prior to
the Spin-Off, for services rendered by the Named Executives to
entities other than the Company.
(2) Awards for 1996 and 1995 reflected in these columns, including the
footnotes thereto, reflect awards to the Named Executives by Corning
for Corning securities which were converted, to the extent described
below, into securities of the Company. All such awards were
terminated, forfeited or released at the Spin-Off Date. For the
purpose of the discussion set forth in the footnotes below, (i) a
"terminated" Corning stock or option award refers to Corning awards
which ended as at the Spin-Off Date but were eligible for regrant by
the Company pursuant the CEP, (ii) a "forfeited" Corning stock or
option award refers to Corning awards which ended as at the Spin-Off
Date and were not eligible for regrant under any Company plan, and
(iii) a released Corning stock award refers to Corning incentive
stock ("Career Shares") that were released as of the Spin-Off Date,
except in the case of Mr. Kuebler as described below, free and clear
of all restrictions and were not eligible for regrant under any
Company plan.
(3) The bonus amounts stated for fiscal 1997 represent
performance-based, as adjusted, annual cash compensation awards
earned pursuant to the Company's 1997 Variable Compensation Plan.
14
<PAGE>
(4) No Covance incentive stock awards were granted in 1996 or 1995. All
stock awards granted in 1996 and 1995 were for shares of Corning
common stock and were granted pursuant to Corning benefit plans.
Except as noted below, all such Corning stock awards were
terminated, forfeited or released (except in the case of Mr.
Kuebler) as at the Spin-Off Date and, in the case of terminated
stock awards were replaced by Company stock awards pursuant to the
CEP as follows: (i) for Mr. Kuebler, an aggregate of 31,805 Corning
shares were terminated and 15,000 shares were forfeited, all at the
Spin-Off Date, and an aggregate of 62,579 Covance shares were
granted in January 1997 pursuant to the CEP; (ii) for Dr. Lamon, an
aggregate of 14,841 Corning shares were terminated, 11,250 shares
were forfeited and 3,750 shares were released from restriction, all
at the Spin-Off Date, and an aggregate of 29,201 Covance shares were
granted in January 1997 pursuant to the CEP; (iii) for Mr.
Utterback, an aggregate of 7,076 Corning shares were terminated,
7,500 shares were forfeited and 2,500 shares were released from
restriction, all at the Spin-Off Date, and an aggregate of 13,923
Covance shares were granted in January 1997 pursuant to the CEP; and
(iv) for Mr. Wokasch, an aggregate of 5,950 Corning shares were
terminated, 2,250 shares were forfeited and 750 shares were released
from restriction, all at the Spin-Off Date, and an aggregate of
11,707 Covance shares were granted in January 1997 pursuant to the
CEP. CEP incentive shares, in substitution of all terminated Corning
incentive shares, were granted to the Named Executives on January
31, 1997, which shares were subject to forfeiture conditions and
restrictions on transfer until July 1, 1997. The number of shares
set forth in this column for fiscal 1997 represent CEP and/or EEPP
incentive share awards.
(5) No Covance options were granted in 1996 or 1995. All options granted
in 1996 and 1995 were options for shares of Corning common stock and
were granted pursuant to Corning benefit plans. All such Corning
options terminated as at the Spin-Off Date and were replaced by
Company options pursuant to the CEP, as noted below. CEP options, in
substitution for the Corning options, were granted to the Named
Executives on January 31, 1997. EEPP options were granted to the
Named Executives as of January 21, 1997. The options set forth in
this column for fiscal 1997 represent CEP and EEPP option grant
awards. See Table "Options/SAR Grants in Fiscal 1997."
(6) Includes the following amounts contributed by Covance as matching
contributions to such individuals' 401k Plan account for 1997:
$8,800 for each of Messrs. Kuebler, Andrews, Utterback and Wokasch
and Dr. Lamon. In addition, pursuant to a non-qualified benefit plan
of which Mr. Andrews is the sole beneficiary, Mr. Andrews received a
1997 Company contribution of $35,214 to his account in such plan.
Also includes a $12,840 automobile allowance received by each of
Messrs. Kuebler, Utterback, Wokasch and Dr. Lamon, and $14,184
received by Mr. Andrews. Also includes (i) the forgiveness of 20% of
principal on interest-free loans made by Corning and assumed by
Covance post Spin-Off to the following individuals, for the
following amounts forgiven: $40,000 for Mr. Kuebler, $30,000 for Dr.
Lamon, and $20,000 for Mr. Utterback, and (ii) imputed interest on
such loans to the following individuals for the following amounts:
$9,504 for Mr. Kuebler, $5,123 for Dr. Lamon and $3,000 for Mr.
Utterback. The original principal amount of such loans were $200,000
for Mr. Kuebler, $150,000 for Dr. Lamon and $100,000 for Mr.
Utterback, which loans are to be forgiven over a five-year period,
provided such individuals continue to be employed by Covance. Such
loans were made to assist these individuals in relocating to the New
Jersey area. Also includes imputed interest on loans to the
following individuals for amounts loaned by the Company to such
individuals to pay income taxes accruing as a result of the vesting
of their respective CEP incentive shares ("CEP Loans"): $15,396 for
Mr. Kuebler, $7,841 for Dr. Lamon, $3,457 for Mr. Utterback and
$3,207 for Mr. Wokasch. The principal amount of the CEP Loans for
the following individuals are as follows: $508,116 for Mr. Kuebler,
$258,768 for Dr. Lamon, $114,092 for Mr. Utterback and $105,843 for
Mr. Wokasch. Also includes for Mr. Andrews: $33,910 in relocation
assistance in connecting with his move from Indianapolis to Geneva,
and $5,470 in housing reimbursements.
(7) Dr. Lamon joined the Company in May 1996. All compensation and
benefits reflected in this table for fiscal 1995, and January
through May 1996, reflect compensation received from CLSI or Quest,
affiliates of the Company prior to the Spin-Off Date, for services
performed for such companies. All stock and option awards during
such dates were issued by Corning for CLSI or Quest performance by
Dr. Lamon.
(8) Mr. Utterback joined the Company in August 1995. All compensation
and benefits reflected in this table for January through August
1995, reflect compensation received from CLSI or Quest, affiliates
of the Company prior to the Spin-Off Date, for services performed
for such companies. All stock and option awards during such dates
were issued by Corning for CLSI or Quest performance by Mr.
Utterback.
(9) For the period January through April 1996, Dr. Lamon also received
salary from CLSI (an affiliate of the Company prior to the Spin-Off
Date), for work performed for CLSI or Quest, in the amount of
$115,813. In fiscal 1995, Dr. Lamon received salary from CLSI, for
work performed for CLSI or Quest, in the amount of $309,417.
(10) For the period January through July 1995, Mr. Utterback also
received salary from CLSI (an affiliate of the Company prior to the
Spin-Off Date), for work performed for CLSI or Quest, in the amount
of $138,347.
15
<PAGE>
(11) Includes the value of unused accrued 1997 vacation for which Mr.
Wokasch was compensated.
(12) Mr. Wokasch joined the Company in July 1995.
(13) For the period January through April 1996, Dr. Lamon received a
bonus from CLSI (an affiliate of the Company prior to the Spin-Off
Date), for work performed for CLSI or Quest, in the amount of
$37,102. In fiscal 1995, Dr. Lamon received a bonus from CLSI, for
work performed for CLSI or Quest, in the amount of $160,265.
(14) For the period January through July 1995, Mr. Utterback also
received a bonus from CLSI (an affiliate of the Company prior to the
Spin-Off Date), for work performed for CLSI or Quest, in the amount
of $26,088.
(15) The amounts shown for the Named Executives reflect tax reimbursement
allowances which are intended to offset the inclusion in taxable
income of the value of certain benefits.
(16) The value of benefits received by Mr. Wokasch did not exceed the
lesser of either $50,000 or 10% of the total annual salary and bonus
reported.
(17) Pursuant to the CEP, Mr. Kuebler was granted 62,579 shares of the
Company's Common Stock, subject to restriction, on January 31, 1997,
valued at $1,181,179 on such date. The shares vested on July 1,
1997. See Footnote 4 to the "Summary Compensation Table." Pursuant
to the EEPP, Mr. Kuebler was granted 41,500 incentive shares of the
Common Stock as of January 21, 1997, valued at $840,375 on such
date. Such shares were subject to performance requirements, and
pursuant to the plan, were subject to further adjustment. As of
February 18, 1998, the Company's Compensation Committee certified
certain performance objectives as met. As a result thereof, the EEPP
incentive share award was adjusted to award Mr. Kuebler an
additional 18,675 shares, for a total of 60,175 incentive shares,
valued at $1,244,870 as of February 18, 1998. As of December 31,
1997, such EEPP shares, had all such shares been awarded, would have
been $1,195,978. Such EEPP incentive shares will vest on December
31, 1999.
(18) Pursuant to Corning's Corporate Performance Plan/CPP-6, Mr. Kuebler
was granted 13,500 Corning incentive shares in December 1995. Mr.
Kuebler, pursuant to the terms of such plan, earned an aggregate of
16,065 Corning incentive shares in fiscal 1996, valued at $743,006
as of December 31, 1996. As a result of the Spin-Off, Mr. Kuebler's
rights to such CPP-6 shares were terminated. See Footnote 4 with
respect to shares granted to Mr. Kuebler pursuant to the CEP in
January 1997 as a replacement for all terminated Corning shares.
Forfeited shares were not replaced.
(19) Pursuant to Corning's Corporate Performance Plan/CPP-5, Mr. Kuebler
was granted 10,000 Corning incentive shares in December 1994. Mr.
Kuebler, pursuant to the terms of such plan, earned an aggregate of
10,740 Corning incentive shares in fiscal 1995, valued at $326,926
as of December 31, 1995. As a result of the Spin-Off, Mr. Kuebler's
rights to such CPP-5 shares were terminated. Furthermore, pursuant
to a Corning benefit plan, Mr. Kuebler was also granted 20,000
Career Shares valued at $608,800 as of December 31, 1995. Such
Career Shares were subject to certain restrictions on transfer until
retirement, and certain forfeiture provisions. With respect to such
Career Shares, 5,000 shares were terminated and 15,000 shares were
forfeited as at the Spin-Off Date. See Footnote 4 with respect to
shares granted to Mr. Kuebler pursuant to the CEP in January 1997 as
a replacement for all terminated Corning shares. Forfeited shares
were not replaced.
(20) Pursuant to the EEPP, Mr. Andrews was granted 11,500 incentive
shares of the Common Stock as of January 21, 1997, valued at
$232,875 on such date. Such shares were subject to performance
requirements, and pursuant to the plan, were subject to further
adjustment. As of February 18, 1998, the Company's Compensation
Committee certified certain performance objectives as met. As a
result thereof, the EEPP incentive share award was adjusted to award
Mr. Andrews an additional 5,175 shares, for a total of 16,675
incentive shares, valued at $344,964 as of February 18, 1998. As of
December 31, 1997, such EEPP shares, had all such shares been
awarded, would have been $331,416. Such EEPP incentive shares will
vest on December 31, 1999.
(21) Pursuant to the CEP, Dr. Lamon was granted 29,201 shares of the
Company's Common Stock, subject to restriction, on January 31, 1997,
valued at $551,169 on such date. The shares vested on July 1, 1997.
See Footnote 4 to the "Summary Compensation Table." Pursuant to the
EEPP, Dr. Lamon was granted 11,500 incentive shares of the Common
Stock as of January 21, 1997, valued at $232,875 on such date. Such
shares were subject to performance requirements, and pursuant to the
plan, were subject to further adjustment. As of February 18, 1998,
the Company's Compensation Committee certified certain performance
objectives as met. As a result thereof, the EEPP incentive share
award was adjusted to award Dr. Lamon an additional 5,175 shares,
for a total of 16,675 incentive shares, valued at $344,964 as of
February 18, 1998. As of December 31, 1997, such EEPP
16
<PAGE>
shares, had all such shares been awarded, would have been $331,416.
Such EEPP incentive shares will vest on December 31, 1999.
(22) Pursuant to Corning's Corporate Performance Plan/CPP-6, Dr. Lamon
was granted 10,000 Corning incentive shares in December 1995. Dr.
Lamon, pursuant to the terms of such plan, earned an aggregate of
11,900 Corning incentive shares in fiscal 1996, valued at $550,375
as of December 31, 1996. As a result of the Spin-Off, Dr. Lamon's
rights to such CPP-6 shares were terminated. See Footnote 4 with
respect to shares granted to Dr. Lamon pursuant to the CEP in
January 1997 as a replacement for all terminated Corning shares.
Forfeited shares were not replaced.
(23) Pursuant to Corning's Corporate Performance Plan/CPP-5, Dr. Lamon
was granted 6,500 Corning incentive shares in December 1994. Dr.
Lamon, pursuant to the terms of such plan, earned an aggregate of
2,941 Corning incentive shares in fiscal 1995, valued at $89,524 as
of December 31, 1995. As a result of the Spin-Off, Dr. Lamon's
rights to such CPP-5 shares were terminated. Furthermore, pursuant
to a Corning benefit plan, Dr. Lamon was also granted 15,000 Career
Shares, valued at $456,600 as of December 31, 1995. Such Career
Shares were subject to certain restrictions on transfer until
retirement, and certain forfeiture provisions. With respect to such
Career Shares, 11,250 shares were forfeited and 3,750 shares were
released from all restriction and delivered to Dr. Lamon prior to
the Spin-Off Date. See Footnote 4 with respect to shares granted to
Dr. Lamon pursuant to the CEP in January 1997 as a replacement for
all terminated Corning shares. Forfeited shares were not replaced.
(24) Pursuant to the CEP, Mr. Utterback was granted 13,923 shares of the
Company's Common Stock, subject to restriction, on January 31, 1997,
valued at $262,797 on such date. The shares vested on July 1, 1997.
See Footnote 4 to the "Summary Compensation Table." Pursuant to the
EEPP, Mr. Utterback was granted 11,500 incentive shares of the
Common Stock as of January 21, 1997, valued at $232,875 on such
date. Such shares were subject to performance requirements, and
pursuant to the plan, were subject to further adjustment. As of
February 18, 1998, the Company's Compensation Committee certified
certain performance objectives as met. As a result thereof, the EEPP
incentive share award was adjusted to award Mr. Utterback an
additional 5,175 shares, for a total of 16,675 incentive shares,
valued at $344,964 as of February 18, 1998. As of December 31, 1997,
such EEPP shares, had all such shares been awarded, would have been
$331,416. Such EEPP incentive shares will vest on December 31, 1999.
(25) Pursuant to Corning's Corporate Performance Plan/CPP-6, Mr.
Utterback was granted 4,000 Corning incentive shares in December
1995. Mr. Utterback, pursuant to the terms of such plan, earned an
aggregate of 4,760 Corning incentive shares in fiscal 1996, valued
at $220,150 as of December 31, 1996. As a result of the Spin-Off,
Mr. Utterback's rights to such CPP-6 shares were terminated. See
Footnote 4 with respect to shares granted to Mr. Utterback pursuant
to the CEP in January 1997 as a replacement for all terminated
Corning shares. Forfeited shares were not replaced.
(26) Pursuant to Corning's Corporate Performance Plan/CPP-5, Mr.
Utterback was granted 4,000 Corning incentive shares in December
1994. Mr. Utterback, pursuant to the terms of such plan, earned an
aggregate of 2,316 Corning incentive shares in fiscal 1995, valued
at $70,499 as of December 31, 1995. As a result of the Spin-Off, Mr.
Utterback's rights to such CPP-5 shares were terminated.
Furthermore, pursuant to a Corning benefit plan, Mr. Utterback was
also granted 10,000 Career Shares, valued at $304,400 as of December
31, 1995. Such Career Shares were subject to certain restrictions on
transfer until retirement, and certain forfeiture provisions. With
respect to such Career Shares, 7,500 shares were forfeited and 2,500
shares were released from all restriction and delivered to Mr.
Utterback prior to the Spin-Off Date. See Footnote 4 with respect to
shares granted to Mr. Utterback pursuant to the CEP in January 1997
as a replacement for all terminated Corning shares. Forfeited shares
were not replaced.
(27) Pursuant to the CEP, Mr. Wokasch was granted 11,707 shares of the
Company's Common Stock, subject to restriction, on January 31, 1997,
valued at $220,970 on such date. The shares vested on July 1, 1997.
See Footnote 4 to the "Summary Compensation Table." Pursuant to the
EEPP, Mr. Wokasch was granted 11,500 incentive shares of the Common
Stock as of January 21, 1997, valued at $232,875 on such date. Such
shares were subject to performance requirements, and pursuant to the
plan, were subject to further adjustment. As of February 18, 1998,
the Company's Compensation Committee certified certain performance
objectives as met. As a result thereof, the EEPP incentive share
award was adjusted to award Mr. Wokasch an additional 5,175 shares,
for a total of 16,675 incentive shares, valued at $344,964 as of
February 18, 1998. As of December 31, 1997, such EEPP shares, had
all such shares been awarded, would have been $331,416. Such EEPP
incentive shares will vest on December 31, 1999.
(28) Pursuant to Corning's Corporate Performance Plan/CPP-6, Mr. Wokasch
was granted 5,000 Corning incentive shares in December 1995. Mr.
Wokasch, pursuant to the terms of such plan, earned an aggregate of
5,950 Corning incentive shares in fiscal 1996, valued at $275,188 as
of December 31, 1996. As a result of the Spin-Off, Mr. Wokasch's
rights to such CPP-6
17
<PAGE>
shares were terminated. See Footnote 4 with respect to shares
granted to Mr. Wokasch pursuant to the CEP in January 1997 as a
replacement for all terminated Corning shares. Forfeited shares were
not replaced.
(29) Pursuant to a Corning benefit plan, Mr. Wokasch was granted 3,000
Career Shares, valued at $91,320 as of December 31, 1995. Such
Career Shares were subject to certain restrictions on transfer until
retirement, and certain forfeiture provisions. With respect to such
Career Shares, 2,250 shares were forfeited and 750 shares were
released from all restriction and delivered to Mr. Wokasch prior to
the Spin-Off Date. See Footnote 4 with respect to shares granted to
Mr. Wokasch pursuant to the CEP in January 1997 as a replacement for
all terminated Corning shares. Forfeited shares were not replaced.
(30) Pursuant to various Corning stock option plans, Mr. Kuebler was
granted in 1995, an option to purchase 81,000 shares of Corning
common stock. Mr. Kuebler had also received in 1994, an option to
purchase 20,000 shares of Corning common stock. As at the Spin-Off
Date, all such options terminated and were replaced in January 1997
with options to purchase an aggregate of 145,611 Covance shares
pursuant to the CEP.
(31) Pursuant to various Corning stock option plans, Mr. Andrews was
granted in 1996, an option to purchase 4,000 shares of Corning
common stock. Mr. Andrews had also received in 1994, an option to
purchase 12,000 shares of Corning common stock. As at the Spin-Off
Date, all such options terminated and were replaced in January 1997
with options to purchase an aggregate of 31,487 Covance shares
pursuant to the CEP.
(32) Pursuant to various Corning stock option plans, Dr. Lamon was
granted in 1995, an option to purchase 60,000 shares of Corning
common stock. Dr. Lamon had also received in 1994, an option to
purchase 23,000 shares of Corning common stock. As at the Spin-Off
Date, all such options terminated and were replaced in January 1997
with options to purchase an aggregate of 123,967 Covance shares
pursuant to the CEP.
(33) Pursuant to various Corning stock option plans, Mr. Utterback was
granted in 1995, an option to purchase 24,000 shares of Corning
common stock. Mr. Utterback had also received in 1994, an option to
purchase 18,000 shares of Corning common stock. As at the Spin-Off
Date, all such options terminated and were replaced in January 1997
with options to purchase an aggregate of 66,902 Covance shares
pursuant to the CEP.
(34) Pursuant to various Corning stock option plans, Mr. Wokasch was
granted in 1995 an option to purchase 38,000 shares of Corning
common stock. As at the Spin-Off Date, all such options terminated
and were replaced in January 1997 with options to purchase an
aggregate of 55,095 Covance shares pursuant to the CEP.
Stock Options
In December 1996, Covance adopted the EEPP. Under the EEPP, the Compensation
Committee selects key employees to receive various award, including stock
options, incentive stock awards, and incentive stock rights. The EEPP consists
of two plans: (a) a stock option plan from which the Company may grant incentive
or non-statutory stock options, and (b) an incentive stock plan from which the
Company may grant incentive stock awards and incentive stock rights. The table
below provides information regarding grants of EEPP options to the Named
Executives during 1997.
Also in December 1996, the Company adopted the CEP. Employees of Covance,
including the Named Executives, who held Corning stock options or incentive
shares at the Spin-Off Date, received new Covance options or incentive shares
under the CEP in exchange for the surrender of all such eligible Corning options
or incentive shares. The CEP has essentially the same characteristics as the
EEPP, but any grants made pursuant to the CEP are to replace all eligible
Corning options and incentive shares held by Company employees at the Spin-Off
Date, which were terminated or forfeited at the Spin-Off Date. The table below
provides information regarding grants of CEP options to the Named Executives
during 1997.
18
<PAGE>
<TABLE>
<CAPTION>
Option Grants In Fiscal Year 1997 (1)
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term (4)
-------------------------------------------- --------------------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees in Exercise
Options Fiscal Year Price Expiration Gain at Gain at
Name Granted (2) (3) Date 5% 10%
- ----------------------------- --------------- ---------------- ------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Christopher A. Kuebler 124,500 (5) 7.2% $19.64 1/20/2007 $1,537,761 $3,896,987
39,345 (6) 3.6% $16.49 11/6/2004 $264,126 $615,527
106,266 (6) 9.7% $15.88 12/5/2005 $805,708 $1,929,811
- ----------------------------- --------------- ---------------- ------------- ------------------- ---------------- ----------------
Richard J. Andrews 44,500 (5) 2.6% $19.64 1/20/2007 $549,641 $1,392,899
23,615 (6) 2.2% $16.20 10/4/2004 $210,918 $519,501
7,872 (6) 0.7% $17.50 4/24/2006 $561,904 $1,309,476
- ----------------------------- --------------- ---------------- ------------- ------------------- ---------------- ----------------
Kim D. Lamon 34,500 (5) 2.0% $19.64 1/20/2007 $426,126 $1,079,888
19,678 (6) 1.8% $15.88 4/27/2004 $127,213 $296,461
25,574 (6) 2.3% $15.25 12/6/2004 $158,771 $370,006
78,715 (6) 7.2% $15.88 12/5/2005 $596,817 $1,429,479
- ----------------------------- --------------- ---------------- ------------- ------------------- ---------------- ----------------
James D. Utterback 34,500 (5) 2.0% $19.64 1/20/2007 $426,126 $1,079,888
19,678 (6) 1.8% $15.88 4/27/2004 $127,213 $296,461
15,738 (6) 1.4% $15.25 12/6/2004 $97,706 $227,696
31,486 (6) 2.9% $15.88 12/5/2005 $238,727 $571,792
- ----------------------------- --------------- ---------------- ------------- ------------------- ---------------- ----------------
Michael G. Wokasch 34,500 (5) 2.0% $19.64 1/20/2007 $426,126 $1,079,888
15,737 (6) 1.4% $13.98 10/3/2005 $105,042 $251,593
39,358 (6) 3.6% $15.88 12/5/2005 $298,412 $714,749
- ----------------------------- --------------- ---------------- ------------- ------------------- ---------------- ----------------
</TABLE>
----------
(1) No SARs were granted to any of the Named Executives in fiscal 1997.
(2) Calculated based on either total respective EEPP options granted or
total respective CEP options granted.
(3) Options were granted at exercise prices that were, with respect (i) to
the CEP, calculated to preserve the inherent gain of the Corning options
terminated pursuant to the Spin-Off and (ii) to the EEPP, at the fair
market value of the Company's Common Stock on the date of grant.
(4) The dollar amounts set forth under these columns are the result of
calculations at the 5% and 10% rates established by the SEC, and
therefore are not intended to forecast future appreciation of the
Company's stock price.
(5) EEPP options.
(6) CEP options. The Company, pursuant to the terms of the Spin-Off, was
obligated to replace all terminated Corning options with Company options
of an equivalent value for all eligible Company employees, including the
Named Executives.
19
<PAGE>
1997 Option Exercises and 1997 Year-End Option Values
The following table provides information on the value of unexercised stock
options held at December 31, 1997 by the Named Executives. No options were
exercised in fiscal 1997 by any Named Executive.
<TABLE>
<CAPTION>
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
--------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Held at Fiscal
Year-End (#) Year-End ($) (1)
---------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
Name (#) (#) ($) ($)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Christopher A. Kuebler 124,500(2) $ 29,258
39,345(3) $133,183
106,266(3) $424,533
- -----------------------------------------------------------------------------------------
Richard J. Andrews 44,500(2) $ 10,458
15,743(3) 7,872(3) $ 57,856 $ 28,930
3,936(3) 3,936(3) $ 9,348 $ 9,348
- -----------------------------------------------------------------------------------------
Kim D. Lamon 34,500(2) $ 8,108
19,678(3) $ 78,614
25,574(3) 118,280
78,715(3) 314,466
- -----------------------------------------------------------------------------------------
James D. Utterback 34,500(2) $ 8,108
19,678(3) $ 78,614
15,738(3) $ 72,788
31,486(3) $125,787
- -----------------------------------------------------------------------------------------
Michael G. Wokasch 34,500(2) $ 8,108
15,737(3) $ 92,770
39,358(3) $157,235
- -----------------------------------------------------------------------------------------
</TABLE>
----------
(1) Values are calculated for options "in-the-money" by subtracting the
exercise price per share of the options from the per share NYSE
consolidated trading closing price of $19.875 of the Common Stock on
December 31, 1997.
(2) EEPP options.
(3) CEP options. The Company, pursuant to the terms of the Spin-Off, was
obligated to replace all terminated Corning options with Company options
of an equivalent value for all eligible Company employees, including the
Named Executives.
20
<PAGE>
Supplemental Executive Retirement Program
Covance does not currently sponsor any qualified defined pension benefit
plans for the benefit of its United States employees. In December 1996, Covance
adopted a nonqualified Supplemental Executive Retirement Plan ("SERP") for the
benefit of certain executive officers of Covance, including the Named
Executives. Such plan is, in whole or in part, an unfunded, unsecured obligation
of Covance and is administered by the Compensation Committee. Approximately
eight executives are eligible to participate in the SERP.
Eligible executives may commence receiving full benefits under the SERP upon
attaining age 60, so long as they have completed at least twenty years of
service (fifteen years for certain Company executives, including the Named
Executives) with Covance (including service with Corning) or any subsidiary
thereof. Retirement benefits to be provided under the SERP will be based on 40%
of an executive's "Final Average Pay," defined as 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 Covance or any subsidiary
thereof. Under the terms of the SERP, executives may, with the approval of the
Compensation Committee, elect to commence receiving reduced benefits prior to
age 60, provided that they have completed at least five years of service with
Covance 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 (or fifteen years, if applicable) of service may be eligible to receive
30% of Final Average Pay so long as the executive receives approval from the
Compensation Committee.
At retirement, the normal form of payment under the SERP 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 SERP, subject to
the approval of the Compensation Committee, the right to receive an actuarially
determined lump-sum distribution from the SERP. As of December 31, 1997, each of
the Named Executives had the following years of service credited pursuant to the
SERP: Christopher A. Kuebler, three years; Richard J. Andrews, four years; Kim
D. Lamon, three years; James D. Utterback, three years; and Michael G. Wokasch,
two years.
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 same benefits would apply for those participants eligible
for full benefits with 15 years of service. The table below does not reflect any
limitations on benefits imposed by the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
Benefits Table
Age (with at Least 20 Years of Service)
--------------------------------------------------------------
Final
Average 55 56 57 58 59 60
Pay
----------- --------- --------- --------- -------- ------- ----------
$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
---------------------------------------------------------------------------
21
<PAGE>
Employment Agreements
In November 1996, Mr. Kuebler entered into an employment agreement with
Covance. The agreement expires on or before December 31, 1999. The agreement
includes 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 annual base salary and three times his
annual target award of variable compensation in the event of termination for
reasons other than cause.
In November 1996, Covance adopted an employment and severance policy pursuant
to which it provided to most executive officers, including the Named Executives,
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 most
executive officers 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 annual base 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 benefit 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 stockholders 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.
Transactions With Management
Prior to the Spin-Off, Corning loaned certain Named Executives funds to
assist with their relocation to the New Jersey area ("Relocation Loans"). The
Relocation Loans are to be forgiven over a five-year period, provided such Named
Executives continue to be employed by the Company. The Company reimburses each
Named Executive in proportion to his respective tax obligations for such loan
forgiveness. The Company assumed such Relocation Loans in connection with the
Spin-Off. The Relocation Loans are also interest free. The original amount of
such loans were: $200,000 for Mr. Kuebler, $150,000 for Dr. Lamon and $100,000
for Mr. Utterback.
In connection with the vesting of the CEP shares, the Company loaned to such
individuals the funds required to pay the income taxes resulting from the
release of restrictions on such shares. The CEP Loans are due on the earlier of
June 30, 1999 or thirty days after such individuals' termination of employment
with the Company. The CEP Loans are interest free and secured by the shares. The
principal amount outstanding for each of such loans are: $508,116 for Mr.
Kuebler, $258,768 for Dr. Lamon, $114,092 for Mr. Utterback and $105,843 for Mr.
Wokasch.
22
<PAGE>
Performance of the Company's Common Stock
The graph below provides an indicator of cumulative total Shareholder
returns for the Company as compared with the Standard & Poor's 500 Stock
Index(R) ("S&P 500(R)") and the Standard & Poor's HealthCare Index(R) ("S&P
HCI(R)"). The graph covers the period of time from January 14, 1997 (the start
of "regular-way" trading) through December 31, 1997 and assumes that $100 was
invested on January 14, 1997 in the Company's Common Stock and each index, and
the reinvestment of all dividends.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COVANCE INC S&P 500 COMP-LTD S&P HEALTH CARE INDEX
DATE PRICES DIVIDENDS PRICES DIVIDENDS PRICES DIVIDENDS
============= ========================== ============================== =========================
<S> <C> <C> <C> <C> <C> <C>
14Jan97 19.750 0.000 768.860 0.830 398.990 0.240
31Mar97 16.125 0.000 757.120 1.270 398.460 0.410
30Jun97 19.312 0.000 885.140 1.120 499.460 0.400
30Sep97 21.625 0.000 947.280 1.420 493.310 0.420
31Dec97 19.875 0.000 970.430 1.370 540.280 0.680
</TABLE>
- --------------------------------------------------------------------------------
Company / Index 14Jan97 31Mar97 30Jun97 30Sep97 31Dec97
- --------------------------------------------------------------------------------
COVANCE INC $100 $ 81.65 $ 97.78 $109.49 $100.63
S&P 500 INDEX $100 $ 98.82 $116.07 $124.77 $128.35
S&P HEALTH CARE INDEX $100 $100.15 $126.01 $124.89 $137.31
Stock Ownership of Directors, Executive Officers and Certain Shareholders
Directors and Executive Officers
The following table shows, as of February 10, 1998, the number of shares of
Common Stock beneficially owned by each Director and nominee for election as
Director, for each of the Named Executives, and by the Directors and executive
officers as a group, and currently excercisable options held by any of them:
Common Stock (1)
--------------------------
Name of Beneficial Owner Shares Owned Options (2)
- ---------------------------- ------------ -----------
Richard J. Andrews ..................... 1,052 42,236
Robert M. Baylis ..................... 4,200 -0-
Van C. Campbell ..................... 22,787 -0-
Christopher A. Kuebler ..................... 63,462 80,430
Kim D. Lamon ..................... 31,006 56,637
Irwin Lerner ..................... 1,200 -0-
J. Randall MacDonald ..................... 1,100 -0-
Nigel W. Morris ..................... 200 -0-
William C. Ughetta ..................... 31,598 -0-
James D. Utterback ..................... 15,083 46,801
Michael G. Wokasch ..................... 12,471 27,122
All Directors and
executive officers, as
a group (15 persons) ..................... 187,868 321,025
23
<PAGE>
- -------------
(1) The shares of Common Stock beneficially owned by each person named above,
and by all Directors and executive officers as a group (15 persons), do
not exceed one (1%) percent of the issued and outstanding shares of Common
Stock. Does not include (a) phantom stock shares issued pursuant to the
DDCP for each of the following Directors: 896 shares for Mr. Baylis, 1,334
shares for Mr. Campbell, 1,401 shares for Mr. MacDonald and 1,364 shares
for Mr. Ughetta, (b) incentive stock issued to the Named Executives and
certain other executive officers, which incentive stock will not vest
until December 31, 1999, (c) 2000 restricted shares held by each
non-employee Director, issued pursuant to the DRSP, which restricted
shares will not vest until such Director has acheived six years of service
(as defined in the plan) as a Director, (d) 200 hypothetical shares held
by each non-employee Director, issued pursuant to the DDSP, which
hypothetical shares will not be delivered until a specified release date
in the future, and (e) deminimus shares owned by certain family members of
Directors or Named Executives, which shares such Directors or Named
Executives disclaim beneficial ownership.
(2) Represents option rights to acquire shares of the Company's Common Stock,
exercisable within 60 days of February 10, 1998.
Certain Shareholders
The following table shows those persons known to the Company as of February
10, 1998 to be the beneficial owners of more than five (5%) percent of the
Company's Common Stock. In furnishing the information below, the Company has
relied on information filed by the beneficial owners with the SEC, and in some
cases, information provided by such owners.
<TABLE>
<CAPTION>
Name and Address Shares
of Beneficial Owner Beneficially Owned Percent of Class
------------------- ------------------ ----------------
<S> <C> <C>
Wellington Management Company LLP(1) ................ 6,403,650 11.10%
75 State Street
Boston, Massachusetts 02109
William Blair & Company LLC(2) ................ 3,479,230 6.03%
222 W. Adams Street
Chicago, Illinois 60606
Brinson Partners, Inc. (3) ................ 2,981,254 5.17%
209 South LaSalle
Chicago, Illinois 60604
</TABLE>
- ----------
(1) Wellington Management Company LLP filed an Amendment No. 1 on Schedule 13G
with the SEC as of January 24, 1998, to report that they were the beneficial
owners of 6,403,650 shares of the Company's Common Stock, and had shared
voting power with respect to 2,712,300 shares and shared dispositive power
with respect to 6,403,650 shares.
(2) William Blair & Company LLC filed a Schedule 13G with the SEC as of February
14, 1998, to report that they were the beneficial owners of 3,479,230 shares
of the Company's Common Stock, and had sole voting power with respect to
1,678,450 shares and sole dispositive power with respect to 3,479,230
shares.
(3) Brinson Partners, Inc., on behalf of itself and Brinson Holdings, Inc., SBC
Holding (USA), Inc. and Swiss Bank Corporation, filed a Schedule 13G with
the SEC as of February 11, 1998, to report that they were the beneficial
owners of an aggregate of 2,981,254 shares of the Company's Common Stock and
had shared voting power and shared dispositive power with respect to such
2,981,254 shares.
PROPOSALS OF SHAREHOLDERS
Proposals submitted by Shareholders for inclusion in the 1999 Proxy
Statement must be received by the Company no later than the close of business
November 30, 1998. Please address your proposals to Jeffrey S. Hurwitz,
Corporate Senior Vice President, General Counsel and Secretary, Covance Inc.,
210 Carnegie Center, Princeton, New Jersey, 08540-6233. Proposals must comply
with all of the requirements of SEC Rule 14a-8 under the 1934 Act, as amended
and certain
24
<PAGE>
requirements set forth in the Company's Restated Certificate of
Incorporation and bylaws. A copy of the Restated Certificate of Incorporation
and bylaws may be obtained from the Secretary of the Company at the address
noted above.
OTHER INFORMATION
The presence in person or by proxy of Shareholders entitled to cast a
majority of shares of Common Stock will constitute a quorum for the transaction
of business at the Annual Meeting. One or more persons will be appointed to act
as the inspector of election at the Annual Meeting. As of the date of this Proxy
Statement, the Board of Directors has no knowledge of any business that will be
presented for consideration at the Annual Meeting other than that described
above. As to any other business, if any, that may properly come before the
Annual Meeting, the proxies will vote in accordance with their judgment.
Present and former officers, Directors and other employees of the Company
may solicit proxies by telephone, telegram or mail, or by meetings with
Shareholders or their representatives. The Company will reimburse brokers, banks
or other custodians, nominees and fiduciaries for their charges and expenses in
forwarding proxy material to beneficial owners. The Company has engaged Morrow &
Company to solicit proxies for the Annual Meeting for a fee of $7,000, plus the
payment of its out-of-pocket expenses. All expenses of solicitation of proxies
will be borne by the Company.
A copy of the Company's Annual Report to Shareholders for 1997 is being sent
with this Proxy Statement. If, upon receiving the Proxy Statement, you have not
received the Annual Report to the Shareholders, please write to the Corporate
Secretary at the address below to request a copy. In addition, a copy of the
Company's Annual Report on Form 10-K (without exhibits) for the fiscal year
ended December 31, 1997, as filed with the SEC, is available without charge upon
written request to Jeffrey S. Hurwitz, Corporate Senior Vice President, General
Counsel and Secretary at Covance Inc., 210 Carnegie Center, Princeton, New
Jersey, 08540-6233.
By Order of the Board of Directors
Jeffrey S. Hurwitz
Corporate Senior Vice President,
General Counsel and Secretary
Dated: March 12, 1998
SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED
PROXY PROMPTLY IN THE SELF-ADDRESSED ENVELOPE WHETHER OR NOT THEY EXPECT TO
ATTEND THE ANNUAL MEETING. A SHAREHOLDER MAY NEVERTHELESS VOTE IN PERSON IF HE
OR SHE DOES ATTEND THE ANNUAL MEETING.
