Tax Indemnification Agreement

TAX INDEMNIFICATION AGREEMENT


This TAX INDEMNIFICATION AGREEMENT dated as of May 7, 1997 between Genzyme Development Partners, L.P. (the "Partnership") and Genzyme Corporation, a Massachusetts corporation ("Genzyme").


WITNESSETH:


WHEREAS, the parties hereto intend to set forth their agreement with respect to the circumtances under which Genzyme shall be required to indemnify the Investors (as hereinafter defined) for the loss of certain income tax benefits referred to below,


NOW, THEREFORE, in consideration of the premises and the mutual convenants herein contained, the parties hereby agree as follows:

ARTICLE 1.
DEFINITIONS


1.01 For all purposes of this Agreement, the capitalized terms not defined herein shall have the respective meaning given to them under the Amended and Restated Joint Venture Agreement dated as of the date hereof by and between the parties hereto (the "Joint Venture Agreement").


ARTICLE 2.
THIRD PARTY BENEFICIARIES


2.01 This Agreement is being entered into contemporaneously with the Joint Venture Agreement and the Marketing and Distribution Agreement dated as of the date hereof and between Genzyme and Genzyme Ventures II (together with the Joint Venture Agreement, the "Agreements"). It is the intention of the parties hereto that Genzyme's obligations to make the payments hereunder will constitute additional consideration for the contemporaneous execution by the Partnership of such Agreements. Genzyme specifically agrees that those current limited partners of the Partnership and those referred to in the last sentence of this subsection (the "Investors") (i) to whom were allocated pursuant to the Agreement of Limited Partnership dated as of September 13, 1989, research and development deductions during any of the taxable years of the Partnership during the period beginning January 1, 1989 and ending December 31, 1994 (the "Relevant Years") or (ii) who received interests in the Partnership by gift or devise from a former limited partner to whom such deductions were allocated, are third party beneficiaries of this Agreement entitled to the benefits hereof as if they had been original parties hereto. Genzyme represents and warrants (i) that pages from the Schedules K attached hereto and reflecting approximately $28,400,000 in such research and development deductions are accurate copies of the pages from the schedules filed with the Internal Revenue Service and (ii) that no comparable research and development deductions were allocated to limited partners of the Partnership during 1995 or 1996. This Agreement shall not inure to the benefit of any former limited partner of the Partnership other than one who gifted or devised interests to an Investor.


ARTICLE 3.
TAX ASSUMPTIONS


3.01 Genzyme acknowledges that the Partnership has entered into the Agreements based in part upon the following assumptions (the "Tax Assumptions"), it being understood and agreed that Genzyme has not made any representations or warranties with respect to any of the Tax Assumptions (other than those made on November 3, 1989 in a letter from Genzyme Corporation and Genzyme Development Corporation II to Davis Polk & Wardwell, a copy of which is attached hereto), that:


(a) the Partnership was entitled to deduct under Section 174 of the Internal Revenue Code of 1986 (the "Code") in each of the Relevant Years all the payments it made to Genzyme pursuant to the Development Agreement between Genzyme and the Partnership dated September 13, 1989 (the "Development Agreement"); and


(b) each Investor was entitled to take a current deduction with respect to his distributive share as reported to him by the Partnership of the payments described in Section 3.01(a) for each of the Relevant Years in which such item was deducted by the Partnership ("Relevant R&D Deductions").


3.02 The Partnership represents, warrants and covenants that it shall not at any time during the term of the Partnership, without the written consent of Genzyme, take any action, directly or indirectly, with respect to any of its income tax returns or reports (including Schedule K-1 information returns to Investors) filed with the United States or a state which is inconsistent with the Tax Assumptions.


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ARTICLE 4.
LOSS DEFINITIONS


4.01 Loss. The term "Loss" shall mean a Final Determination (as defined below) that, for federal income tax purposes, any Investor has suffered a deferral or disallowance of any or all of the Relevant R&D Deductions. Notwithstanding the foregoing, however, the term "Loss" does not include any Loss to the extent that it results solely from one or more of the following:


(a) the failure of the Investor to have claimed the Relevant R&D Deductions in a timely and proper manner or the taking of any other tax return po ...