Spin-off Tax Indemnification Agreement

Covance/CCL SPIN-OFF TAX INDEMNIFICATION AGREEMENT


This SPIN-OFF TAX INDEMNIFICATION AGREEMENT ("Agreement") is made and entered into this 16th day of December, 1996, by and among COVANCE INC., a Delaware corporation ("Covance") and CORNING CLINICAL LABORATORIES INC., a Delaware corporation ("CCL").


WITNESSETH


WHEREAS, Corning Incorporated, a New York corporation ("Corning"), is the common parent of an affiliated group of corporations within the meaning of Code1 Section 1504 which includes Covance and CCL;


WHEREAS, Corning has determined to effect the Distributions pursuant to a Transaction Agreement (the "Transaction Agreement") dated of even date herewith;


WHEREAS, the IRS has issued the IRS Ruling which states the tax treatment of the Distributions and the Other Transactions; and


WHEREAS, the parties hereto are entering into this Agreement to indemnify Covance as hereinafter provided in the event the Covance Distribution or the Other Transactions fail to qualify for the tax treatment stated in the IRS Ruling due to actions by CCL.


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


ARTICLE 1: Representations and Covenants


SECTION 1.01. Representations. (a) CCL has reviewed the materials submitted to the IRS in connection with the IRS Ruling and, to the best of CCL's knowledge, these materials, including, without limitation, any statements and representations concerning CCL, its business, operations capital structure and/or organization, are complete and accurate in all material respects. CCL shall, and shall cause each member of the CCL Group, to comply with each such representation and statement concerning CCL and the CCL Group made in the materials so submitted, the IRS Ruling and any subsequent IRS ruling, including without limitation, statements as to the creation, funding and operation of employee


- -------- 1 Capitalized terms not defined herein have the meaning given to them in Annex A.


compensation plans by CCL. With respect to any representation or statement made by or on behalf of CCL in connection with the IRS Ruling and any subsequent IRS ruling and to the extent such representation or statement relates to future actions or events under their control, neither CCL nor any member of the CCL Group will take any action during the Restricted Period that would have caused such representation or statement to be untrue if CCL had planned or intended to take such action at the time such representation or statement was made by or on behalf of CCL.


(b) CCL hereby represents and warrants to Covance that CCL has no present intention to undertake any of the transactions set forth in Section 1.02 (a) (iii) or to cease to engage in the active conduct of the trade or business (within the meaning of Section 355(b)(2) of the Code) of providing clinical laboratory testing services.


SECTION 1.02. Covenants. (a) CCL covenants and agrees with Covance that during the Restricted Period:


(i) CCL will continue to engage in the clinical laboratory testing business in the U.S. and will continue to maintain in the U.S. a substantial portion of its assets and business operations as they existed prior to the Distributions, provided that the foregoing shall not be deemed to prohibit CCL from entering into or acquiring other businesses or operations which may or may not be consistent with its business and operations as they existed prior to the Distributions so long as CCL continues to engage in such clinical business in the U.S. and continues to so maintain such substantial portion in the U.S.;


(ii) CCL will continue to manage and to own (A) directly assets which represent at least fifty percent (50%) of the Gross Assets which CCL managed and owned directly immediately after the Distributions, and (B) directly or indirectly through one or more entities, assets which represent at least 50% of the Gross Assets which CCL owned indirectly through one or more entities immediately after the Distributions;


(iii) except as provided in Section 1.02(c), neither CCL, nor any of its Affiliates nor any of their respective, directors, officers or other representatives will undertake, authorize, approve, recommend, permit, facilitate, or enter into any contract, or consummate any transaction with respect to: (A) the issuance of CCL Common Stock (including options, warrants, rights or securities exercisable for, or convertible into, CCL Common Stock) in a single transaction or in a series of related or unrelated transactions or otherwise or in the aggregate which would exceed (or could exceed if any such options, warrants or rights were exercised or such securities were converted) fifty percent (50%) when expressed as a percentage of the outstanding shares of CCL Common Stock immediately following the Distributions; (B) the issuance of any class or series of capital stock or any other instrument (other than CCL Common Stock and options, warrants, rights or securities exercisable for, or convertible into, CCL Common Stock) that would constitute equity for federal tax purposes (such classes or series of capital stock and other instruments being referred to herein as


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"Disqualified CCL Stock"); (C) the issuance of any options, rights, warrants, securities or similar arrangements exercisable for, or convertible into, Disqualified CCL Stock; (D) any redemptions, repurchases or other acquisitions of capital stock or other equity interests in CCL in a single transaction or a series of related or unrelated transactions, unless such redemptions, repurchases or other acquisitions (1) satisfy the following requirements: (a) there is a "sufficient business purpose" (within the meaning of Section 4.05(1)(b) of Revenue Procedure 96-30) for the transaction, (b) the stock to be purchased, redeemed or otherwise acquired is widely held, (c) the stock purchases or other acquisitions will be made on the open market, and (d) the amount of stock purchases, redemption, or other acquisitions in a single transaction or in a series of related or unrelated transactions will not exceed an amount of stock representing twenty percent (20%) of the outstanding stock of CCL immediately following the Distributions; or (2) are made in connection with employee equity compensation plans of CCL and do not result, individually or in the aggregate, in the acquisition of more than ten percent (10%) of the voting power in respect of the outstanding stock of CCL immediately following the Distributions, (E) the dissolution, merger , or complete or partial liquidation of CCL or any announcement of such action; or (F) the waiver, amendment, termination or modification of any provision of the CCL Rights Plan in connection with, or in order to permit or facilitate, any acquisition or proposed acquisition of Beneficial Ownership of capital stock or other equity interest in CCL.


(b) Following the six-month anniversary of the Distribution Date, CCL and its Affiliates may take any action or engage in conduct otherwise prohibited by Section 1.02 so long as prior to such action or conduct, as the case may be, Corning or CCL receives (A) a ruling from the IRS in form and substance reasonably satisfactory to Corning to the effect that the proposed action or conduct, as the case may be, will not cause the Covance Distribution or the Other Transactions to fail to qualify for the tax treatment stated in the IRS Ruling or otherwise to be taxable for federal income tax purposes, or (B) an Opinion of Counsel in form and substance reasonably satisfactory to Corning to the effect that the proposed action or conduct, as the case may be, will not cause the Covance Distribution or the Other Transactions to fail to qualify for the tax treatment stated in the IRS Ruling or otherwise to be taxable for federal income tax purposes.


ARTICLE 2: CCL Indemnity Obligations


SECTION 2.01. Tax Indemnities. (a) If CCL, or another member of the CCL Group (collectively the "Indemnifying Party") shall take any action prohibited by Article 1 or shall violate a representation or covenant contained in Article 1, and the Covance Distribution or any of the Other Transactions shall fail to qualify for the tax treatment stated in the IRS Ruling primarily as a result of such action or violation, then the Indemnifying Party shall (jointly or severally) indemnify and hold harmless Covance and each member of the Covance Group (collectively the "Indemnified Party") against any and all Taxes imposed upon or incurred by the Indemnified Party as a result of the failure, including, without limitation, any liability of the


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Indemnified Party arising from Taxes imposed on shareholders of Covance to the extent any shareholder or shareholders of Covance successfully seek recourse against the Indemnified Party on account of any such failure, or any liability for such Taxes which the Indemnified Party may assume or otherwise provide for.


(b) Notwithstanding anything to the contrary set forth in this Agreement, if, during the Restricted Period, any Person or Group of Affiliated Persons or Associated Persons acquires Beneficial Ownership of twenty percent (20%) or more of CCL Common Stock (or any other class of outstanding CCL stock) or commences a tender or other purchase offer for the capital stock of CCL upon consummation of which such Person or Group of Affiliated Persons or Associated Persons would acquire Beneficial Ownership of twenty percent (20%) or more of the CCL Common Stock (or any other class of outstanding CCL stock) and the Covance Distribution or any of the Other Transactions shall fail to qualify for the tax treatment stated in the IRS Ruling primarily as a result of such acquisition or tender or other purchase offer; then the Indemnifying Party shall indemnify and hold harmless the Indemnified Party against any and all Taxes imposed upon or incurred by the Indemnified Party and/or its shareholders as a result of the failure of either Distribution or the Other Transactions to so qualify.


(c) The Indemnified Party shall be indemnified and held harmless under Section 2.01(a) without regard to the fact that the Indemnified Party may have received a supplemental ruling from the IRS or an Opinion of Counsel as contemplated by Section 1.02(c). The Indemnified Party shall be indemnified and held harmless under Section 2.0 ...