SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
Covance Incorporated
(Name of Registrant as Specified In Its Charter)
Covance Incorporated
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0.11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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[Covance Logo]
THE DEVELOPMENT SERVICES COMPANY
1999
Notice of
Annual Meeting &
Proxy Statement
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[Covance Logo]
THE DEVELOPMENT SERVICES COMPANY
March 15, 1999
Dear Shareholder:
I am pleased to invite you to attend the 1999 Annual Meeting of
Shareholders of Covance Inc., to be held at 11:00 a.m., eastern standard time,
on Tuesday, April 27, 1999 at the Princeton Marriott Hotel at Forrestal Village,
201 Village Boulevard in 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,
[Signature of Christopher A. Kuebler]
Christopher A. Kuebler
Chairman, President and
Chief Executive Officer
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COVANCE INC.
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NOTICE OF 1999 ANNUAL MEETING
OF SHAREHOLDERS
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The 1999 Annual Meeting of the Shareholders of Covance Inc. (the "Company")
will be held on Tuesday, April 27, 1999 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 three members to the Company's Class II Board of Directors;
2. To approve the 1998 Non-Employee Directors' Stock Option Plan and the
Deferred Stock Unit Plan for Non-Employee Members of the Board of
Directors;
3. To approve an amendment to the Employee Equity Participation Plan
increasing the number of shares of common stock of the Company issuable
pursuant to the Employee Equity Participation Plan from 6,000,000 to
12,000,000 and increasing the term of the plan by a period of four years;
4. To ratify the appointment of PricewaterhouseCoopers as independent
auditors of the Company for the fiscal year ending December 31, 1999; and
5. 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, 1999 are
entitled to notice of, and to vote at, the Annual Meeting.
[Signature of Jeffrey S. Hurwitz]
Jeffrey S. Hurwitz
Corporate Senior Vice President,
General Counsel and Secretary
March 15, 1999
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COVANCE INC.
210 Carnegie Center
Princeton, New Jersey 08540
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PROXY STATEMENT
--------------------------------
1999 Annual Meeting of Shareholders
April 27, 1999
--------------------------------
General Information
The accompanying proxy is solicited by the Board of Directors of Covance
Inc. ("Company" or "Covance") in connection with the 1999 Annual Meeting of
Shareholders of the Company to be held on Tuesday, April 27, 1999 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 15, 1999.
When you return a proxy card that is properly signed, the shares of the
Com-pany's common stock, par value $.01 per share, ("Common Stock") represented
by the proxy will be voted as you specify on the proxy card. As to the election
of the Class II Directors, by marking the appropriate box you may (a) vote for
all the Class II Director nominees as a group, (b) vote for all of the Class II
Director nominees as a group except those nominees whose names you specify on
the cards, 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. The Board of
Directors currently knows of no other business that will be presented for
consideration at the Annual Meeting.
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
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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 will not vote any shares as to which it has not received
direction from participants in the ESPP or is otherwise not entitled to vote.
Only Shareholders of record on March 2, 1999 ("Record Date") are entitled
to notice of, and to vote at, the Annual Meeting. A majority of the shares of
Common Stock issued and outstanding constitutes a quorum. Abstentions and broker
non-votes are counted as present for purposes of determining a quorum. A broker
non-vote occurs when a nominee holds shares for a beneficial owner but cannot
vote on a proposal because the nominee does not have discretionary power and has
not received instructions from the beneficial owner. As Directors are elected by
a plurality vote, the three nominees receiving the highest vote totals will be
elected and the outcome of the vote for Directors will not be affected by
abstentions or broker non-votes. As the proposal to approve the 1998
Non-Employee Directors' Stock Option Plan and the Deferred Stock Unit Plan for
Non-Employee Members of the Board of Directors, and the proposal to ratify the
appointment of auditors require the affirmative vote of the majority of the
votes cast at the Annual Meeting by shareholders entitled to vote, the outcome
of these proposals will not be affected by abstentions or broker non-votes. As
the proposal to approve the amendment to the Employee Equity Participation Plan
requires the affirmative vote of a majority of the issued and outstanding shares
of Common Stock, abstentions and broker non-votes will have the same effect as
votes against the proposal. As of February 10, 1999, there were 58,520,505
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.
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ITEM 1
Election of Class II Directors
The Board of Directors ("Board") is divided into three classes, with two
classes of three Directors each, and one class of two Directors, whose terms
expire at successive annual meetings. Three Class II Directors will be elected
at the Annual Meeting to serve for a term expiring at the Company's Annual
Meeting in the year 2002. Each of the Directors, except for Messrs. Campbell,
Kuebler and Ughetta and Ms. Murray, was elected in connection with the Company
becoming a separate public company as part of the spin-off from Corning
Incorporated ("Corning") in a tax-free distribution to all Corning shareholders
("Spin-Off"), effective December 31, 1996 (the "Spin-Off Date"). Messrs.
Campbell, Kuebler and Ughetta have served on the Board since May 1995, November
1994 and July 1996, respectively. Ms. Murray was elected to the Board in June
1998. Each nominee elected as a Class II Director will continue in office until
his or her successor has been duly elected and qualified, or until his or her
earlier death, resignation or retirement. The Board has proposed the following
nominees for election as Class II Directors at the Annual Meeting.
Nominees for Class II Directors, with terms expiring at the Annual Meeting
to be held in the year 2002 are:
J. Randall MacDonald
Kathleen G. Murray
William C. Ughetta
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 II 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 the other Directors whose terms of office will
continue after the Annual Meeting.
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CLASS II NOMINEES
FOR TERMS EXPIRING IN 2002
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[Photo of J. Randall Mac Donald]
J. Randall MacDonald, 50, 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 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.
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[Photo of Kathleen G. Murray]
Kathleen G. Murray, 49, is the Executive Vice President and
Chief Operating Officer of Northwestern Memorial Corporation
("Northwestern"), an academic medical center. Ms. Murray
joined Northwestern in 1986 and has been Executive Vice
President and Chief Operating Officer since 1988. Ms. Murray
is also Chair of the Governing Council for Metropolitan
Hospitals of the American Hospital Association and serves on
the boards of the Illinois Hospital and HealthSystems
Association, Dominican University, Girl Scouts of America
and the Economic Club of Chicago.
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[Photo of William C. Ughetta]
William C. Ughetta, 66, is an attorney and former Senior
Vice President and 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 elected Secretary of Corning in
1971, and a Senior Vice President in 1983. He is also a
Director of Global Lift Technologies Inc. (manufacturer of
wire rope), Chemung Canal Trust Company (banking), and
Corning Community College. Mr. Ughetta has been a member of
the Covance Board since July 1996.
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CLASS I DIRECTORS
WHOSE TERMS WILL EXPIRE IN 2001
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[Photo of Robert M. Baylis]
Robert M. Baylis, 60, 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 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) and New York
Life Insurance Company (insurance). Mr. Baylis has been a
member of the Covance Board since December 1996.
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[Photo of Irwin Lerner]
Irwin Lerner, 68, was the Chairman of the Board of
Directors and Executive Committee of Hoffmann-La Roche,
Inc. ("Roche"), a pharmaceutical company, from January to
September 1993. From April 1980 to January 1993, Mr. Lerner
was the President and Chief Executive Officer of Roche. He
is also a Director of Humana, Inc. (managed care
organization), Medarex, Inc. (biotechnology), Public
Service Enterprise Group Inc. (public utility), Axys
Pharmaceuticals, Inc. (pharmaceuticals) and V.I.
Technologies Inc. (blood products). Mr. Lerner has been a
member of the Covance Board since December 1996.
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CLASS III DIRECTORS
WHOSE TERMS WILL EXPIRE IN 2000
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[Photo of Van C. Campbell]
Van C. Campbell, 60, 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 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), and Quest Diagnostics Incorporated
(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.
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[Photo of Christopher A. Kuebler]
Christopher A. Kuebler, 45, 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 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 held various sales and marketing positions for E.R.
Squibb & Sons and ALI from 1976 to 1991. 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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[Photo of Nigel W. Morris]
Nigel W. Morris, 40, 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 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.
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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 1998, the Board held nine meetings. The standing
committees of the Board are the Audit and Finance Committee, the Compensation
and Organization Committee, and the Corporate Governance Committee
(collectively, the "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 and the scope of the
independent and internal audits. 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 1998, the Audit Committee held
five 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
senior executive 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 1998, the
Compensation Committee held four 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, Ughetta and Ms. Murray. During
1998, the Governance Committee held three meetings.
In 1998, each Director attended (in person or by teleconference) at least
75% of all Board meetings and Committee meetings of which he or she was a
member.
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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 1998 consisted of
a retainer fee of $25,000 per annum 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, Directors receive
2,000 restricted shares of Common Stock upon their initial election as a
Director, and, for years prior to fiscal 1998, received 200 restricted shares of
Common Stock per year of service, both pursuant to the Company's Restricted
Stock Plan for Non-Employee Directors ("DRSP"). The DRSP was adopted in December
1996. All grants pursuant to the DRSP 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. Starting in fiscal 1998, Directors also receive
an annual award of 200 hypothetical shares of the Company's Common Stock
pursuant to the Company's Deferred Stock Unit Plan for Non-Employee Members of
the Board of Directors, described below. Also starting in 1998, Directors
receive options to purchase up to 3,000 shares of the Company's Common Stock at
the commencement of each year of service pursuant to the Company's Non-Employee
Directors' Stock Option Plan, 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 the
Director, the receipt of all or a portion of his or her 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.
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 1998.
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ITEM 2
Approval of the 1998 Non-Employee Directors' Stock Option Plan
and Deferred Stock Unit Plan for Non-Employee Members
of the Board of Directors
In January 1998 and March 1998 the Board of Directors of the Company
adopted, subject to shareholder approval at the Annual Meeting, the 1998
Non-Employee Directors' Stock Option Plan ("DSOP") and the Deferred Stock Unit
Plan for Non-Employee Members of the Board of Directors of Covance Inc.
("DSUP"), respectively. As the Board believes that the granting of stock options
and stock units promotes an identity of interest between Directors and
Shareholders, the Board recommends that the Shareholders approve the adoption of
the DSOP and DSUP which will provide for the grant of stock options and stock
units, respectively, to Directors who are not employees of the Company or its
subsidiaries.
Description of the DSOP.
Only members of the Board of Directors who are not employees of the Company
or any of its subsidiaries are eligible to participate in the DSOP. Currently
seven of the eight members of the Board of Directors are eligible to participate
in the DSOP.
Eligibility. No more than 300,000 shares of Common Stock are available for
issuance as options. These 300,000 shares available for grant under the DSOP
represent approximately one-half of one percent of the shares of the Company's
Common Stock outstanding on December 31, 1998. As of February 10, 1999, options
to purchase an aggregate of 42,000 shares of Common Stock under the DSOP were
outstanding. These options are subject to the approval of the DSOP by the
Company's shareholders and no rights shall vest with respect to any options
granted thereunder unless such approval is received. The DSOP provides that
non-employee Directors who were members of the Board on the date of Board
approval of the DSOP shall be granted an option to purchase 3,000 shares of
Common Stock as of such date. Non-employee Directors who are elected or
appointed to the Board after such date shall be granted an option to purchase
3,000 shares of Common Stock as of the date of their election or appointment to
the Board. In addition, each non-employee Director shall receive an annual
option to purchase 3,000 shares of Common Stock on each subsequent calendar
January 2 provided that such non-employee Director remained in continuous
service as a Director of the Company through such date. Each annual option award
shall be automatic and shall not require any action on the part of the Board or
its designees.
Options. The per share exercise price of all options granted pursuant to
the DSOP shall be not less than the fair market value of a share of Common Stock
as of the date of grant of the option. All options issued pursuant to the DSOP
shall vest and become exercisable in equal annual installments on each of the
first through third anniversaries of the date of grant provided that the
non-employee Director has remained in continuous service as a Director of the
Company to each such vesting date. All options issued pursuant to the DSOP shall
expire ten years from the date of grant.
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The DSOP provides that in the event that a non-employee Director is removed
from the Board for cause, all options granted to such Director shall immediately
terminate. If a non-employee Director ceases to be a member of the Board for
reasons other than death, disability, removal from the Board for cause or
retirement or resignation with consent of the Company, the options granted to
such non-employee Director may be exercised to the extent vested within 90 days
of such termination. In the event a non-employee Director retires or resigns
from the Board with the consent of the Company or dies or becomes disabled, the
options granted to such non-employee Director shall become immediately vested
and may be exercised at any time during the life of the option. Under the DSOP,
shares from expired or terminated options will be available again for option
grant. In the event of a change in control of the Company, as defined in the
DSOP, all options outstanding as of the date of the change in control shall
become fully exercisable and vested.
The option price may be paid for in cash or in shares of Common Stock
valued at fair market value on the date of exercise. In the event the exercise
price is paid with shares of the Company's Common Stock, the non-employee
Director may be entitled to receive new "reload" stock options to purchase
Common Stock at the then current market price for the number of shares
surrendered upon exercise of the original option.
A description of the Federal tax consequences of options issued pursuant to
the DSOP is set forth under the heading Federal Tax Consequences under the
description of the Employee Equity Participation Plan below.
Adjustments. The DSOP provides for appropriate adjustments in the aggregate
number of shares of Common Stock available for grant and the number of shares
covered by each outstanding option, and the price per share thereunder,
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. Further, in the event of a proposed dissolution or
liquidation of the Company, each outstanding option shall vest and become
exercisable on a date prior to the consummation of the proposed action
sufficient to enable the non-employee Director to exercise the options.
Termination and Amendment. The DSOP will terminate on March 16, 2008. The
Board has the power from time to time to terminate, modify, suspend or amend the
Plan in whole or in part provided that no modification shall be effective
without the approval of the shareholders of the Company if such approval is
required to comply with any applicable law or stock exchange rule or if the
amendment increases the maximum number of shares issuable under the DSOP except
for increases pursuant to the adjustment provisions of the Plan.
Description of the DSUP.
The DSUP was adopted by the Board of Directors in January 1998 in
conjunction with an amendment to the DRSP. Prior to 1998, non-employee Directors
were entitled to receive an annual grant of 200 restricted shares of Common
Stock under
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the DRSP. In January 1998, the Board of Directors amended the DRSP to eliminate
this annual grant for fiscal 1998 and thereafter and, in lieu thereof, adopted
the DSUP.
Awards. Pursuant to the DSUP, each member of the Board of Directors who is
not an employee of the Company or any subsidiary or affiliate thereof,
automatically received on January 30, 1998 and January 30, 1999, and shall
automatically receive on January 30 of each calendar year thereafter, an award
of 200 hypothetical shares of Common Stock. In addition, each new non-employee
Director shall receive an award of 200 hypothetical shares after becoming a
Director. Currently, seven of the eight members of the Board are eligible to
participate in the DSUP. Each recipient of an award under the DSUP may, subject
to limitations set forth in the DSUP, specify the time and manner in which the
Director wishes to receive payments with respect to the award. The award may be
made in the form of cash or in shares of Common Stock and may be paid in a lump
sum payment, annual installments or flexible installments. All awards under the
DSUP are treated as if they were invested in shares of Common Stock until such
time as the Director is no longer a Director or officer of the Company (the
"Release Date"). Subsequent to a Director's Release Date, that portion of the
Director's account that he has not elected to receive in shares of Common Stock
shall be treated as a cash account and credited with interest compounded
quarterly at a rate equal to the prime rate or, subject to limitations set forth
in the DSUP, if the Director so elects, such portion of the Director's account
may be treated as if it were in a market value account with a value based on the
market value of the Common Stock.
Payments to a Director with respect to an award shall commence on the date
selected by the Director which date shall be on or after his Release Date. A
Director may select different payment commencement dates with respect to awards
granted on different award dates. A Director may elect to receive payments in a
lump sum payable on the payment commencement date, in annual installments, or in
flexible installments specified by the Director. Payments shall be either in
cash or, if selected by the Director, in shares of Common Stock.
All accounts and investments established under the DSUP are hypothetical in
nature and maintained for bookkeeping purposes only. Neither the DSUP nor the
accounts or investments established thereunder shall hold any actual funds or
assets. The right of any person to receive payments under the DSUP is an
unsecured claim against the general assets of the Company. Any Director who,
without the written consent of the Company, engages in competition with the
Company or any subsidiary thereof shall forfeit all rights to any payments under
the DSUP.
Adjustments. The number of shares of Common Stock in a Director's account
under the DSUP shall be adjusted, as set forth in the DSUP, for dividends,
distributions, recapitilizations, stock splits, reorganizations, mergers,
consolidations, and similar events as appropriate.
Amendment. The Board of Directors may amend, modify, or suspend the DSUP
at any time prior to a change in control, as defined in the DSUP. Subsequent to
a change in control, no amendments of suspension or termination of the DSUP
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shall operate to reduce, eliminate or otherwise adversely affect any Director's
or beneficiaries right to receive payment under the DSUP.
On February 10, 1999, the closing price of the Common Stock on the New York
Stock Exchange was $28.19.
The Board of Directors recommends that the Shareholders vote FOR approval
of the 1998 Non-Employee Directors Stock Option Plan and the Deferred Stock Unit
Plan for Non-Employee Members of the Board of Directors.
Approval of the 1998 Non-Employee Directors Stock Option Plan and the
Deferred Stock Unit Plan for Non-Employee Members of the Board of Directors
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 approval of the 1998 Non-Employee Directors Stock Option Plan and the
Deferred Stock Unit Plan for Non-Employee Members of the Board of Directors.
ITEM 3
Approval of an Amendment to the Employee Equity Participation Plan
to Increase the Number of Shares of Common Stock Issuable
Pursuant to the Plan and to Increase the Term of the Plan
Description of EEPP.
The Employee Equity Participation Plan ("EEPP") consists of two parts:
options granted under a "Stock Option Plan," and incentive stock or incentive
stock rights granted under an "Incentive Stock Plan." Currently 6,000,000 shares
of Common Stock are reserved for issuance under the EEPP. On February 25, 1999,
the Board of Directors approved an increase in the number of shares reserved for
issuance to 12,000,000 shares and an increase in the term of the EEPP from five
to nine years subject to the approval of the Company's stockholders. As of
February 10, 1999, options to purchase 3,042,475 shares of Common Stock under
the Stock Option Plan were issued and outstanding and 240,725 incentive shares
were issued and outstanding.
Committee Administration. The EEPP 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 162(m)
of the Internal Revenue Code of 1986, as amended.
Eligibility. 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 1,200 employees are
considered 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.
12
<PAGE>
Adjustments. The EEPP 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. The EEPP 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 the EEPP 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 the EEPP, 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. 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 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 extent and under what
circumstances any option under the EEPP'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 the employee. 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. 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 the EEPP's Stock Option Plan, the Compensation
Committee may grant "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
13
<PAGE>
Stock, shall become exercisable only twelve months after the date of grant of
the reload option and shall expire on the date of the original option.
Incentive Stock Plan. The EEPP'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 and Termination. The EEPP will expire in March 2002 unless
extended. This proposal will extend the duration of the EEPP by four years to
March 2006. No shares may be optioned or awarded and no rights to receive shares
may be granted after its expiration. Under the EEPP's Stock Option Plan, shares
from expired or terminated options will be available again for option grant.
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. The Board is authorized to terminate or amend the EEPP, 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 the EEPP to the participants
thereunder, or extend the term of the EEPP 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 DSOP, DSUP and/or EEPP
may be obtained by writing to the office of the Secretary, Covance Inc., 210
Carnegie Center, Princeton, New Jersey 08540.
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 the DSOP are
non-qualified options while options granted under the EEPP may be either
non-qualified options or "incentive stock options" qualifying under Section 422
of the Code.
14
<PAGE>
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 ordinary income 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 ordinary 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 the EEPP 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 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 disability or death)
with the Company or a 50% subsidiary, 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
EEPP. 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).
15
<PAGE>
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 proposal
to amend the Employee Equity Participation Plan.
Approval of the proposal to increase the number of shares available for
grant under the EEPP and increase the term of the EEPP requires the affirmative
vote of a majority of the issued and outstanding shares of Common Stock. Unless
there is a contrary indication, shares of Common Stock represented by valid
proxies will be voted FOR the approval of the increase in the number of shares
available for grant under the EEPP and the extension of the term of the EEPP.
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 DSOP, DSUP and EEPP.
16
<PAGE>
New Plan Benefits
Employee Equity Participation Plan
<TABLE>
<CAPTION>
Number of
Dollar Incentive Number of
Name and Value(1) Shares(2) Options
Title ($) (#) (#)
- -------------------------------------- -------------- ----------- ------------
<S> <C> <C> <C>
Christopher A. Kuebler, $ 943,650 32,400
Chairman, President and $ 819,882 97,200
Chief Executive Officer
Richard J. Andrews, $ 233,000 8,000
Corporate Senior Vice President; $ 177,135 21,000
President, Client Relations
Group--Europe
Kim D. Lamon, $ 233,000 8,000
Corporate Senior Vice President; $ 202,440 24,000
President, Covance Clinical
Development Services
James D. Utterback, $ 233,000 8,000
Corporate Senior Vice President; $ 177,135 21,000
President, Client Relations
Group--North America & Asia
Michael G. Wokasch, $ 233,000 8,000
Corporate Senior Vice President; $ 251,363 29,800
President, Early Development Services
All Current Executive Officers $ 2,341,650 80,400
as a Group (8 persons) $ 2,208,283 261,800
All Current Directors who are not -0- -0-
Executive Officers, -0- -0-
as a Group (7 persons)
All Employees, including all current -0- -0-
officers who are not Executive $11,729,363 1,527,100
Officers, as a Group
</TABLE>
- -----------------------
(1) Valuation as of December 31, 1998. Values are calculated for incentive
shares based upon the New York Stock Exchange ("NYSE") consolidated trading
closing price of $29.125 for the Common Stock on December 31, 1998. 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 $29.125 for the Common Stock on December 31, 1998 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 25, 1999, the Compensation Committee certified certain performance
objectives as met. As a result thereof, the incentive share awards were
adjusted as follows: Mr. Kuebler, 957 additional shares, for a total of
33,357 shares valued at $915,233 as of February 25, 1999; for each of
Messrs. Andrews, Utterback and Wokasch and Dr. Lamon, 225 additional shares,
each for a total of 8,225 shares valued at $225,673 as of February 25, 1999;
and All Current Executive Officers as a Group, an aggregate of 2,307
additional shares, for a total of 82,707 shares valued at $2,269,273 as of
February 25, 1999.
17
<PAGE>
New Plan Benefits
1998 Non-Employee Directors Stock Option Plan
<TABLE>
<CAPTION>
Dollar Number
Value (1) of Options
Name ($) (#)
- ----------------------------------------- ----------- -----------
<S> <C> <C>
Christopher A. Kuebler -0- -0-
Richard J. Andrews -0- -0-
Kim D. Lamon -0- -0-
James D. Utterback -0- -0-
Michael G. Wokasch -0- -0-
All Current Executive Officers -0- -0-
as a Group (8 persons)
All Current Directors who are not $128,460 21,000
Executive Officers,
as a Group (7 persons)
All Employees, including all current -0- -0-
officers who are not Executive Officers,
as a Group
</TABLE>
- -----------------------
(1) Valuation as of December 31, 1998. 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 $29.125 for the Common
Stock on December 31, 1998 and multiplying such difference by the number of
options.
New Plan Benefits
Deferred Stock Unit Plan for Non-Employee
Members of the Board of Directors
<TABLE>
<CAPTION>
Dollar Number
Value (1) of Units
Name ($) (#)
- ----------------------------------------- ------------- -----------
<S> <C> <C>
Christopher A. Kuebler -0- -0-
Richard J. Andrews -0- -0-
Kim D. Lamon -0- -0-
James D. Utterback -0- -0-
Michael G. Wokasch -0- -0-
All Current Executive Officers -0- -0-
as a Group (8 persons)
All Current Directors who are not $ 40,783 1,400
Executive Officers,
as a Group (7 persons)
All Employees, including all current -0- -0-
officers who are not Executive Officers,
as a Group
</TABLE>
- -----------------------
(1) Valuation as of December 31, 1998.
18
<PAGE>
ITEM 4
Ratification of the Appointment of Independent Auditors
In accordance with the recommendation of the Audit Committee, the Board has
appointed PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") as independent
auditors of the Company for the fiscal year ending December 31, 1999. 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 PricewaterhouseCoopers, the selection of other independent
auditors will be considered by the Audit Committee and the Board.
PricewaterhouseCoopers has served as independent auditors to the Company
since the Company's inception, and for one of its subsidiaries since 1987.
PricewaterhouseCoopers's long-term knowledge of the Company has enabled
PricewaterhouseCoopers to perform its audits with effectiveness and efficiency.
Representatives of PricewaterhouseCoopers 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.
The Board of Directors recommends that Shareholders vote FOR the
ratification of the appointment of PricewaterhouseCoopers as independent
auditors of the Company.
Ratification of PricewaterhouseCoopers 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 PricewaterhouseCoopers 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, including 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 either
individually or in the aggregate. The Compensation Committee has
19
<PAGE>
reviewed information that was provided by a compensation consulting firm in
making its determinations with respect to compensation of the Company's
executive officers for the 1998 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 1998 and the
Compensation Committee approved merit increases and cost-of-living adjustments
for all members of the Company's executive officers and employees.
Bonuses
Pursuant to the Company's Variable Compensation Plan, 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 earnings per share 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 is assigned a target award, expressed as a percentage of base
salary, that is payable if the applicable performance criteria are met.
Performance criteria may relate to the Company's financial performance, the
business unit's financial performance and/or individual goals and objectives, if
applicable. Participant's awards are determined on the basis of the Company's
financial performance, the participant's business unit's financial performance
(as applicable) and an assessment of the participant's performance generally,
including against the participant's stated objectives. 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.
The amounts payable under the Variable Compensation Plan to the Company's
Chief Executive Officer and Corporate Senior Vice Presidents, including the
Named Executives, are determined on the basis of the individual's satisfaction
of specified individual objectives and on the satisfaction of specified Company
financial performance criteria, such as pre-bonus operating margin, and
pre-bonus and pre-tax income, revenue or earnings per share. In the case of the
Chief Executive Officer and Corporate Senior Vice Presidents who are not Group
Presidents of an
20
<PAGE>
operating unit, objectives must include the achievement of a specified earnings
per share target by the Company. The actual bonuses earned under the Variable
Compensation Plan in respect of fiscal 1998 by the Named Executives are
disclosed in the Summary Compensation Table.
Equity-Based Compensation
In fiscal year 1998, 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 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.
The EEPP grants were approved by the Compensation Committee, which consists
of "outside directors" within the definition of Section 162(m) of the Internal
Revenue Code -- Messrs. Morris, MacDonald and Lerner. 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 1998 Table.
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.
Compensation of the Chief Executive Officer
Under the Variable Compensation Plan, Mr. Kuebler's bonus was determined on
the basis of the assessment of the Compensation Committee of Mr. Kuebler's
satisfaction of specified objectives including achievement of an earnings per
share target by the Company, the Company's achievement of a pre-tax and
pre-bonus income target as well as the achievement of quantitative and
qualitative objectives agreed upon by the Compensation Committee and Mr. Kuebler
prior to the fiscal year. On the basis of these factors, Mr. Kuebler was awarded
a bonus in the amount set forth in the Summary Compensation Table.
21
<PAGE>
In determining Mr. Kuebler's total compensation, the Compensation Committee
considers the performance of the Company as discussed in connection with the
Variable Compensation Plan. In fiscal year 1998, Mr. Kuebler received a grant of
non-qualified options to purchase 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 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 1998. As a result of exceeding the
specific net profit after taxes target in 1998, Mr. Kuebler was awarded
additional incentive shares pursuant to the Restricted Stock Agreement relating
to incentive shares awarded to Mr. Kuebler in 1998. Information regarding the
number of stock options and incentive shares granted to Mr. Kuebler is disclosed
in the Summary Compensation Table and the Option Grants in Fiscal Year 1998
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 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 comprised 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 were ratified by
the Corporation's stockholders at the 1998 Annual Meeting of Stockholders.
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
22
<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"):
Summary Compensation Table
<TABLE>
<CAPTION>
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. 1998 $ 468,000 $ 280,906 $ 38,260(11) $ 1,056,742(13) 97,200 $105,531
Kuebler, 1997 $ 450,000 $ 234,000 $ 40,619 $ 2,021,554(14) 270,111(27) $ 86,540
Chairman, President 1996 $ 345,833 $ 231,000 $ 72,447 (15) -0- $ 72,043
and Chief Executive
Officer
Richard J. Andrews, 1998 $ 253,000 $ 110,973 -0- $ 272,591(16) 21,000 $ 66,999
Corporate Senior 1997 $ 245,000 $ 107,800 $ 3,244 $ 232,875(17) 75,987(27) $ 94,878
Vice President; 1996 $ 231,444 $ 106,696 -0- -0- (28) $ 58,788
President, Client
Relations Group -
Europe
Kim D. Lamon (7), 1998 $ 351,000 $ 135,000 $ 28,124(11) $ 272,591(18) 24,000 $ 74,775
Corporate Senior 1997 $ 340,000 $ 149,600 $ 26,544 $ 784,044(19) 158,467(27) $ 64,604
Vice President; 1996 $ 206,111(8) $ 156,957(10) $ 40,745 (20) -0- $ 55,786
President, Covance
Clinical Development
Services
James D. Utterback, 1998 $ 266,000 $ 128,956 $ 21,662(11) $ 272,591(21) 21,000 $ 56,743
Corporate Senior 1997 $ 258,000 $ 113,520 $ 21,352 $ 495,672(22) 101,402(27) $ 48,097
Vice President; 1996 $ 244,565 $ 162,200 $ 34,254 (23) -0- $ 45,376
President, Client
Relations Group -
North America and Asia
Michael G. Wokasch, 1998 $ 252,013 $ 139,629 $ 2,700(11) $ 272,591(24) 29,800 $ 31,354
Corporate Senior 1997 $ 255,000(9) $ 106,480 -0- (12) $ 453,845(25) 89,595(27) $ 24,847
Vice President, 1996 $ 202,614 $ 103,334 -0- (26) -0- $ 17,730
Early Development
Services
</TABLE>
23
<PAGE>
- -----------------------
(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 Diagnostics Incorporated 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 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 Company's Conversion
Equity Plan (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. The CEP was adopted by the Company in
December 1996. 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. Except for the reload
provisions of any CEP award, no new grants may be made pursuant to the CEP.
(3) The bonus amounts stated for fiscal 1998 represent performance-based, as
adjusted, annual cash compensation awards earned pursuant to the Company's
1998 Variable Compensation Plan.
(4) No Covance incentive stock awards were granted in 1996. All stock awards
granted in 1996 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. As of December 31, 1998, Messrs. Kuebler, Andrews,
Lamon, Utterback and Wokasch held an aggregate of 155,154, 24,675, 53,876,
38,598, and 36,382 shares of restricted stock, respectively, having an
aggregate value on December 31, 1998 of $4,518,860, $718,659, $1,569,139,
$1,124,167, and $1,059,626, respectively. As of December 31, 1998, an
aggregate of 308,685 restricted shares had been awarded to the Named
Executives, and the aggregate value of such shares was $8,990,451.
(5) No Covance options were granted in 1996. All options granted in 1996 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
24
<PAGE>
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 20, 1997. The
options set forth in this column for fiscal 1997 represent CEP and EEPP
option grant awards.
(6) Includes the following amounts contributed by Covance as matching
contributions to such individuals' 401k Plan accounts for 1998: $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 1998 Company contribution of
$41,067 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 $25,932 received by Mr. Andrews in 1998. 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: $6,336 for Mr.
Kuebler, $3,074 for Dr. Lamon and $1,714 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 in 1998 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"): $30,792 for Mr.
Kuebler, $15,681 for Dr. Lamon, $6,914 for Mr. Utterback and $6,414 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.
(7) Dr. Lamon joined the Company in May 1996. All compensation and benefits
reflected in this table for January through May 1996, reflect compensation
received from CLSI or Quest 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) For the period January through April 1996, Dr. Lamon also received salary
from CLSI for work performed for CLSI or Quest, in the amount of $115,813.
(9) Includes the value of unused accrued 1997 vacation for which Mr. Wokasch
was compensated.
(10) For the period January through April 1996, Dr. Lamon received a bonus from
CLSI for work performed for CLSI or Quest, in the amount of $37,102.
(11) 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.
(12) 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.
(13) Pursuant to the EEPP, Mr. Kuebler was granted 32,400 incentive shares of
Common Stock as of February 18, 1998, valued at $670,356 on such date. Such
shares were subject to performance requirements, and pursuant to the plan,
were subject to further adjustment. As of February 25, 1999, the Company's
Compensation Committee certified certain performance objectives as met. As
a result thereof, the 1998 EEPP incentive share award was adjusted to award
Mr. Kuebler an additional 957 shares, for a total of 33,357 incentive
shares, valued at $915,233 as of February 25, 1999. Such EEPP incentive
shares will vest on December 31, 2000. In addition, as a result of meeting
certain performance objectives with respect to incentive shares issued on
January 31, 1997 and certified by the Company's Compensation Committee as
met on February 18, 1998, the 1997 EEPP incentive award was adjusted to
award Mr. Kuebler an additional 18,675 shares valued at $386,386 as of
February 18, 1998. Such additional EEPP incentive shares will vest on
December 31, 1999.
25
<PAGE>
(14) Pursuant to the CEP, Mr. Kuebler was granted 62,579 shares of 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. Pursuant to the
EEPP, Mr. Kuebler was granted 41,500 incentive shares of the Common Stock
as of January 20, 1997, valued at $840,375 on such date.
(15) 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.
(16) Pursuant to the EEPP, Mr. Andrews was granted 8,000 incentive shares of
Common Stock as of February 18, 1998, valued at $165,520 on such date. Such
shares were subject to performance requirements, and pursuant to the plan,
were subject to further adjustment. As of February 25, 1999, the Company's
Compensation Committee certified certain performance objectives as met. As
a result thereof, the 1998 EEPP incentive share award was adjusted to award
Mr. Andrews an additional 225 shares, for a total of 8,225 incentive
shares, valued at $225,673 as of February 25, 1999. Such EEPP incentive
shares will vest on December 31, 2000. In addition, as a result of meeting
certain performance objectives with respect to incentive shares issued on
January 31, 1997 and certified by the Company's Compensation Committee as
met on February 18, 1998, the 1997 EEPP incentive award was adjusted to
award Mr. Andrews an additional 5,175 shares valued at $107,071 as of
February 18, 1998. Such additional EEPP incentive shares will vest on
December 31, 1999.
(17) Pursuant to the EEPP, Mr. Andrews was granted 11,500 incentive shares of
Common Stock as of January 20, 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 1997 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. Such EEPP incentive
shares will vest on December 31, 1999.
(18) Pursuant to the EEPP, Dr. Lamon was granted 8,000 incentive shares of
Common Stock as of February 18, 1998, valued at $165,520 on such date. Such
shares were subject to performance requirements, and pursuant to the plan,
were subject to further adjustment. As of February 25, 1999, the Company's
Compensation Committee certified certain performance objectives as met. As
a result thereof, the 1998 EEPP incentive share award was adjusted to award
Dr. Lamon an additional 225 shares, for a total of 8,225 incentive shares,
valued at $225,673 as of February 25, 1999. Such EEPP incentive shares will
vest on December 31, 2000. In addition, as a result of meeting certain
performance objectives with respect to incentive shares issued on January
31, 1997 and certified by the Company's Compensation Committee as met on
February 18, 1998, the 1997 EEPP incentive award was adjusted to award Dr.
Lamon an additional 5,175 shares valued at $107,071 as of February 18,
1998. Such additional EEPP incentive shares will vest on December 31, 1999.
(19) Pursuant to the CEP, Dr. Lamon was granted 29,201 shares of 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.
Pursuant to the EEPP, Dr. Lamon was granted 11,500 incentive shares of the
Common Stock as of January 20, 1997, valued at $232,875 on such date.
(20) 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.
26
<PAGE>
(21) Pursuant to the EEPP, Mr. Utterback was granted 8,000 incentive shares of
the Common Stock as of February 18, 1998, valued at $165,520 on such date.
Such shares were subject to performance requirements, and pursuant to the
plan, were subject to further adjustment. As of February 25, 1999, the
Company's Compensation Committee certified certain performance objectives
as met. As a result thereof, the 1998 EEPP incentive share award was
adjusted to award Mr. Utterback an additional 225 shares, for a total of
8,225 incentive shares, valued at $225,673 as of February 25, 1999. Such
EEPP incentive shares will vest on December 31, 2000. In addition, as a
result of meeting certain performance objectives with respect to incentive
shares issued on January 31, 1997 and certified by the Company's
Compensation Committee as met on February 18, 1998, the 1997 EEPP incentive
award was adjusted to award Mr. Utterback an additional 5,175 shares valued
at $107,071 as of February 18, 1998. Such additional EEPP incentive shares
will vest on December 31, 1999.
(22) Pursuant to the CEP, Mr. Utterback was granted 13,923 shares of 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. Pursuant to
the EEPP, Mr. Utterback was granted 11,500 incentive shares of the Common
Stock as of January 20, 1997, valued at $232,875 on such date.
(23) 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.
(24) Pursuant to the EEPP, Mr. Wokasch was granted 8,000 incentive shares of
Common Stock as of February 18, 1998, valued at $165,520 on such date. Such
shares were subject to performance requirements, and pursuant to the plan,
were subject to further adjustment. As of February 25, 1999, the Company's
Compensation Committee certified certain performance objectives as met. As
a result thereof, the 1998 EEPP incentive share award was adjusted to award
Mr. Wokasch an additional 225 shares, for a total of 8,225 incentive
shares, valued at $225,673 as of February 25, 1999. Such EEPP incentive
shares will vest on December 31, 2000. In addition, as a result of meeting
certain performance objectives with respect to incentive shares issued on
January 31, 1997 and certified by the Company's Compensation Committee as
met on February 18, 1998, the 1997 EEPP incentive award was adjusted to
award Mr. Wokasch an additional 5,175 shares valued at $107,071 as of
February 18, 1998. Such additional EEPP incentive shares will vest on
December 31, 1999.
(25) Pursuant to the CEP, Mr. Wokasch was granted 11,707 shares of 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. Pursuant to the
EEPP, Mr. Wokasch was granted 11,500 incentive shares of the Common Stock
as of January 20, 1997, valued at $232,875 on such date.
(26) 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
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.
(27) Includes options to purchase Covance Stock pursuant to the CEP to replace
terminated Corning Stock options.
(28) 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.
27
<PAGE>
Stock Options
In December 1996, Covance adopted the EEPP. Under the EEPP, the
Compensation Committee selects key employees to receive various awards,
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 1998.
Option Grants In Fiscal Year 1998 (1)
<TABLE>
<CAPTION>
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 97,200 5.43% 20.69 2/17/2008 $1,264,750 $3,205,124
Richard J. Andrews 21,000 1.17% 20.69 2/17/2008 $ 273,248 $ 692,465
Kim D. Lamon 24,000 1.34% 20.69 2/17/2008 $ 312,284 $ 791,389
James D. Utterback 21,000 1.17% 20.69 2/17/2008 $ 273,248 $ 692,465
Michael G. Wokasch 29,800 1.67% 20.69 2/17/2008 $ 387,753 $ 982,641
</TABLE>
- --------------
(1) No SARs were granted to any of the Named Executives in fiscal 1998.
(2) Calculated based on total respective EEPP options granted.
(3) Options were granted at exercise prices that were 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.
28
<PAGE>
1998 Option Exercises and 1998 Year-End Option Values
The following table provides information on the value of unexercised stock
options held at December 31, 1998 by the Named Executives. No options were
exercised in fiscal 1998 by any Named Executive.
<TABLE>
<CAPTION>
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
----------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year-End (#) (1) Held at Fiscal Year-End ($) (2)
------------------------------- -------------------------------
Exercisable Unexercisable Exercisable Unexercisable
Name (#) (#) ($) ($)
- ------------------------ ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Christopher A. Kuebler 80,430 286,881 $886,815 $3,018,566
Richard J. Andrews 46,172 50,815 $536,023 $ 459,930
Kim D. Lamon 56,637 125,830 $723,461 $1,464,266
James D. Utterback 46,801 75,601 $586,987 $ 813,413
Michael G. Wokasch 27,122 92,273 $346,324 $ 991,905
</TABLE>
- -----------------------
(1) Includes 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.
(2) 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 $29.125 of the Common Stock on December 31, 1998.
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 non-qualified 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. Currently 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
29
<PAGE>
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, 1998, each of
the Named Executives had the following years of service credited pursuant to the
SERP: Christopher A. Kuebler, four years; Richard J. Andrews, five years; Kim D.
Lamon, four years; James D. Utterback, four years; and Michael G. Wokasch, three
years.
In the event of a change of control of the Company, as defined in the SERP,
each participant shall be credited with three additional years of service and
age for purposes of the SERP, and the Company is obligated to purchase an
annuity for the benefit of the SERP to fund its obligations under the SERP.
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.
Benefits Table
<TABLE>
<CAPTION>
Age (with at Least 20 Years of Service)
Final ---------------------------------------------------------------------------
Average
Pay 55 56 57 58 59 60
- ------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 30,000 $ 32,000 $ 34,000 $ 36,000 $ 38,000 $ 40,000
$ 200,000 $ 60,000 $ 64,000 $ 68,000 $ 72,000 $ 76,000 $ 80,000
$ 300,000 $ 90,000 $ 96,000 $102,000 $108,000 $114,000 $120,000
$ 400,000 $120,000 $128,000 $136,000 $144,000 $152,000 $160,000
$ 500,000 $150,000 $160,000 $170,000 $180,000 $190,000 $200,000
$ 600,000 $180,000 $192,000 $204,000 $216,000 $228,000 $240,000
$ 700,000 $210,000 $224,000 $238,000 $252,000 $266,000 $280,000
$ 800,000 $240,000 $256,000 $272,000 $288,000 $304,000 $320,000
$ 900,000 $270,000 $288,000 $306,000 $324,000 $342,000 $360,000
$1,000,000 $300,000 $320,000 $340,000 $360,000 $380,000 $400,000
$1,100,000 $330,000 $352,000 $374,000 $396,000 $418,000 $440,000
$1,200,000 $360,000 $384,000 $408,000 $432,000 $456,000 $480,000
</TABLE>
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
30
<PAGE>
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 applicable to executive officers
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 entered into employment and severance agreements
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 officers 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 agreements, as amended
in November, 1998, Covance will also provide to most executive officers
including the Named Executives upon the termination of employment by Covance
other than for cause, or the constructive termination, as defined in the
agreement, of such executive, during the twenty-four 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. In
addition, such executive officers shall also be entitled to the benefits
described above in the event the officer voluntarily terminates his employment
with Covance for any reason between the twelfth and thirteenth months of a
change in control. A "change in control" is defined in the agreements 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
31
<PAGE>
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 CEP incentive shares, the Company loaned
to Messrs. Kuebler, Lamon, Utterback and Wokash the funds required to pay the
income taxes resulting from the release of restrictions on such shares (the
"CEP Loans"). 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 of
each of such loans was: $508,116 for Mr. Kuebler, $258,768 for Dr. Lamon,
$114,092 for Mr. Utterback and $105,843 for Mr. Wokasch. Each of Mr. Kuebler,
Dr. Lamon and Mr. Utterback paid their respective loans in full in February
1999.
32
<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[RegTM] ("S&P 500[RegTM]") and the Standard & Poor's HealthCare
Index[RegTM]. The graph covers the period of time from January 14, 1997 (the
start of "regular-way" trading) through December 31, 1998 and assumes that $100
was invested on January 14, 1997 in the Common Stock and each index.
[Line Chart]
TOTAL SHAREHOLDER RETURN
COVANCE, INC. S&P 500 INDEX S&P HEALTH CARE INDEX
------------- ------------- ---------------------
14 Jan 97 100.00 100.00 100.00
31 Mar 97 81.65 98.82 100.15
30 Jun 97 97.79 116.07 126.01
30 Sep 97 109.50 124.77 124.89
31 Dec 97 100.64 128.35 137.31
31 Mar 98 124.37 146.25 160.54
30 Jun 98 113.93 151.08 172.95
30 Sep 98 131.34 136.05 172.67
31 Dec 98 147.48 165.03 198.03
[End Line Chart]
<TABLE>
<CAPTION>
Base Period
Company/Index 14 Jan 97 31 Dec 97 31 Dec 98
- ----------------------------- ------------ ----------- ----------
<S> <C> <C> <C>
Covance Inc. 100.00 100.64 147.48
S&P 500[RegTM] 100.00 128.35 165.03
S&P HealthCare Index[RegTM] 100.00 137.31 198.03
</TABLE>
33
<PAGE>
Stock Ownership of Directors,
Executive Officers and Certain Shareholders
Directors and Executive Officers
The following table shows, as of February 10, 1999, 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:
<TABLE>
<CAPTION>
Common Stock (1)
-----------------------------
Name of Beneficial Owner Shares Owned Options (2)
- -------------------------------- -------------- ------------
<S> <C> <C>
Richard J. Andrews ............. 4,351 68,302
Robert M. Baylis ............... 6,200 1,000
Van C. Campbell ................ 24,787 1,000
Christopher A. Kuebler ......... 65,250 208,293
Kim D. Lamon ................... 32,686 115,724
Irwin Lerner ................... 3,200 1,000
J. Randall MacDonald ........... 3,100 1,000
Nigel W. Morris ................ 2,200 1,000
Kathleen G. Murray ............. 2,000 -0-
William C. Ughetta ............. 33,598 1,000
James D. Utterback ............. 16,493 81,273
Michael G. Wokasch ............. 14,537 68,464
All Directors and
executive officers as
a Group (15 persons) ........... 216,419 681,929
</TABLE>
- -----------------------
(1) The shares of Common Stock beneficially owned by each person named above do
not exceed one percent of the issued and outstanding shares of Common Stock.
The shares of Common Stock beneficially owned by all Directors and Officers
as a group constitutes 1.5 percent of the issued and outstanding shares. The
holdings reported above do not include (a) phantom stock shares issued
pursuant to the DDCP for each of the following Directors: 1,913 shares for
Mr. Baylis, 2,451 shares for Mr. Campbell, 2,617 shares for Mr. MacDonald,
281 shares for Ms. Murray, and 2,539 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 in the case of
the restricted shares awarded in 1997 and December 31, 2000 in the case of
the restricted shares awarded in 1998, (c) 400 hypothetical shares issued to
each non-employee Director pursuant to the DSUP, and (d) deminimis shares
owned by certain family members of Directors or Named Executives, of which
shares such Directors or Named Executives disclaim beneficial ownership. The
holdings reported above include 2,000 shares held by each non-employee
Director issued pursuant to the DRSP, which shares will not vest until such
Director has achieved six years of service (as defined in the plan) as a
Director.
(2) Represents option rights to acquire shares of the Company's Common Stock,
exercisable within 60 days of February 10, 1999.
34
<PAGE>
Certain Shareholders
The following table shows those persons known to the Company as of February
10, 1999 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 Percent of
of Beneficial Owner Beneficially Owned Class
- ----------------------------------------------- -------------------- -----------
<S> <C> <C>
Wellington Management Company LLP(1) .......... 7,422,991 12.71%
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) ..................... 3,060,046 5.23%
209 South LaSalle
Chicago, Illinois 60604
</TABLE>
- -----------------------
(1) Wellington Management Company LLP filed an Amendment No. 2 on Schedule 13G
with the SEC as of February 10, 1999, to report that they were the
beneficial owners of 7,422,991 shares of the Company's Common Stock, and had
shared voting power with respect to 2,921,330 shares and shared dispositive
power with respect to 7,422,991 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. and UBS AG, filed a Schedule 13G with the SEC as of
February 11, 1999, to report that they were the beneficial owners of
3,060,046 shares of the Company's Common Stock and had shared voting power
and shared dispositive power with respect to such 3,060,046 shares.
PROPOSALS OF SHAREHOLDERS
Proposals submitted by Shareholders for inclusion in the Proxy Statement
for the 2000 Annual Meeting of Shareholders must be received by the Company no
later than the close of business November 15, 1999. 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 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.
35
<PAGE>
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 1998 is being
sent with this Proxy Statement. If, upon receiving the Proxy Statement, you have
not received the Annual Report to 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, 1998, 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
[Signature of Jeffrey S. Hurwitz]
Jeffrey S. Hurwitz
Corporate Senior Vice President,
General Counsel and Secretary
Dated: March 15, 1999
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 MEETING. A SHAREHOLDER MAY NEVERTHELESS VOTE IN PERSON IF HE OR SHE
DOES ATTEND THE ANNUAL MEETING.
36
<PAGE>
COVANCE INC.
This Proxy is solicited on behalf of the Board of Directors
for the Annual Meeting of Shareholders to be held on April 27, 1999
The undersigned appoints Christopher A. Kuebler and Jeffrey S. Hurwitz
proxies for the undersigned, each with full power of substitution, to attend the
Annual Meeting of Shareholders of Covance Inc. to be held on Tuesday, April 27,
1999 at 11:00 a.m., Eastern Standard Time, and at any adjournments or
postponements of the Annual Meeting, and to vote as specified in this Proxy all
of the shares of Common Stock of the Company which the undersigned would be
entitled to vote if personally present. This Proxy when properly executed will
be voted in accordance with your indicated directions. If no direction is made,
this Proxy will be voted FOR the election of Directors and FOR proposals 2, 3
and 4.
The Board of Directors recommends a vote FOR the election of Directors and
FOR proposals 2, 3 and 4.
YOUR VOTE IS IMPORTANT! PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE
SIDE AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
COVANCE INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<S> <C>
For Withheld For All Except
All All (Except nominee(s)
written below)
1. Election of Directors
Nominees: J. Randall MacDonald,
Kathleen G. Murray and William C. Ughetta
--------------------------------
For Against Abstain
2. Approval of 1998 Non-Employee Directors'
Stock Option Plan and Deferred Stock Unit Plan
for Non-Employee Members of the Board of
Directors.
3. Approval of Amendment to Employee
Equity Participation Plan.
4. Ratification of Auditors for fiscal year 1999.
5. To act upon such other matters as may properly
come before the Annual Meeting.
The undersigned acknowledges receipt of the
For Information Only: Notice of Annual Meeting of Shareholders and
Check here if you plan to attend of the Proxy Statement.
the meeting.
Dated: _______________, 1999
If your shares are held with a broker
or other third party, proof of stock Signature(s) ______________________________
ownership will be required to attend
the Annual Meeting. ___________________________________________
Please sign exactly as your name appears. Joint
owners should each sign personally. Where
applicable, indicate your official position or
representation capacity.
</TABLE>
