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Corning/covance Spin-off Agreement

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CORNING/COVANCE 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 CORNING INCORPORATED, a New York corporation ("Corning") and COVANCE INC., a Delaware corporation ("Covance").


WITNESSETH


WHEREAS, Corning is the common parent of an affiliated group of corporations within the meaning of Code1 Section 1504 which includes Covance;


WHEREAS, Corning has determined to effect the Distributions pursuant to a Transaction Agreement and Plan of Reorganization (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 Corning as hereinafter provided in the event the Distributions or the Other Transactions fail to qualify for the tax treatment stated in the IRS Ruling due to actions by Covance.


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) Covance has reviewed the materials submitted to the IRS in connection with the IRS Ruling and, to the best of Covance's knowledge, these materials, including, without limitation, any statements and representations concerning Covance, its business, operations capital structure and/or organization, are complete and accurate in all material respects. Covance shall, and shall cause each member of the Covance Group, to comply with each such representation and statement concerning Covance and the Covance 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 compensation


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


plans by Covance. With respect to any representation or statement made by or on behalf of Covance 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 Covance nor any member of the Covance Group will take any action during the Restricted Period that would have caused such representation or statement to be untrue if Covance had planned or intended to take such action at the time such representation or statement was made by or on behalf of Covance.


(b) Covance hereby represents and warrants to Corning that Covance 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 pharmaceutical services.


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


(i) Covance will continue to engage in the pharmaceutical services 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 Covance 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 Covance continues to engage in such pharmaceutical services business in the U.S. and continues to so maintain such substantial portion in the U.S.;


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


(iii) except as provided in Section 1.02(c), neither Covance, 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 Covance Common Stock (including options, warrants, rights or securities exercisable for, or convertible into, Covance 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 Covance Common Stock immediately following the Distributions; (B) the issuance of any class or series of capital stock or any other instrument (other than Covance Common Stock and options, warrants, rights or securities exercisable for, or convertible into, Covance 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 Covance Stock"); (C) the issuance of any options, rights, warrants, securities or similar arrangements exercisable for, or convertible into, Disqualified Covance Stock; (D) any redemptions, repurchases or other acquisitions of capital stock or other equity interests in Covance 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 Covance immediately following the Distributions; or (2) are made in connection with employee equity compensation plans of Covance 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 Covance immediately following the Distributions, (E) the dissolution, merger , or complete or partial liquidation of Covance or any announcement of such action; or (F) the waiver, amendment, termination or modification of any provision of the Covance Rights Plan 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 Covance.


(b) In addition to the other representations, warranties, covenants and agreements set forth in this Agreement, Covance and the Covance Group will take, or refrain from taking, as the case may be, such actions as Corning may reasonably request during the Ruling Period as necessary to insure that the Distributions and the Other Transactions qualify for the tax treatment stated in the IRS Ruling, including, without limitation, such actions as Corning determines may be necessary to obtain and preserve the IRS Ruling or any subsequent IRS ruling on which the parties can rely. Without limiting the generality of the foregoing, Covance and the Covance Group shall cooperate with Corning if Corning determines to obtain additional IRS rulings pertaining to whether any actual or proposed change in facts and circumstances affects the tax status of the Distributions or the Other Transactions.


(c) Following the six-month anniversary of the Distribution Date, Covance 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 Covance receives (A) a ruling from the IRS in form and substance reasonably satisfactory to Corning and upon which Corning can rely to the effect that the proposed action or conduct, as the case may be, will not cause the Distributions 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 and upon which Corning can rely to the effect that the proposed action or conduct, as the case may be, will not cause the Distributions 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.


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ARTICLE 2: Covance Indemnity Obligations


SECTION 2.01. Tax Indemnities. (a) If Covance, or another member of the Covance 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 either of the Distributions 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 Corning and each member of the Corning 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 Indemnified Party arising from Taxes imposed on shareholders of Corning to the extent any shareholder or shareholders of Corning 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 Covance Common Stock (or any other class of outstanding Covance stock) or commences a tender or other purchase offer for the capital stock of Covance 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 Covance Common Stock (or any other class of outstanding Covance stock) and either of the Distributions or any of the Other Transactions shall fail to qualify for the tax treatment s
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