TAX ALLOCATION AND INDEMNITY AGREEMENT

EXHIBIT 10.12



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TAX ALLOCATION AND INDEMNIFICATION AGREEMENT







Dated as of _________, 1996









DEPUY, INC.





BOEHRINGER MANNHEIM CORPORATION









CORANGE LIMITED







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TAX ALLOCATION AND INDEMNIFICATION AGREEMENT (the "Agreement")

dated as of _________, 1996 among

DEPUY, INC., a Delaware Corporation

(the "Company"),

BOEHRINGER MANNHEIM CORPORATION, an Indiana corporation

("BMC") and CORANGE LIMITED,

a Bermuda corporation ("Corange").





WHEREAS, each of the Company and BMC is an indirect, wholly-owned subsidiary of Corange, which is the ultimate holding company within the Corange Limited group of companies (the "Corange Group"), and each of various subsidiaries in the Corange Group listed in Exhibit A hereto is engaged in the manufacture and/or the distribution of orthopaedic products for the DePuy division of the Corange Group;



WHEREAS, Corange U.S. Holdings Inc., an Indiana corporation ("CUSHI") was the common parent corporation, within the meaning of Section 1502 of the Internal Revenue Code of 1986, as amended (the "Code"), of an affiliated group of corporations (the "Affiliated Group") filing consolidated Federal income tax returns and consolidated, combined or unitary state income tax returns, pursuant to which CUSHI, BMC, and other members of the Affiliated Group have paid taxes on a consolidated, combined or unitary basis;



WHEREAS, in connection with an overall plan of reorganization affecting those corporations within the DePuy division of the Corange Group, which plan was approved by the Board of Directors of Corange in resolutions adopted at a meeting held on July 11, 1996: (i) CUSHI has sold all of the outstanding shares of BMC to Pharminvest S.A., a Luxembourg corporation in the Corange Group (the "BMC Share Sale"), (ii) Corange and certain direct and indirect subsidiaries of Corange have sold or otherwise transferred to CUSHI or to newly-created subsidiaries of CUSHI, their shareholding in certain subsidiaries within the DePuy division of the Corange Group, and certain assets related to the DePuy business previously owned by a foreign distribution subsidiary of Corange affiliated with the Boehringer Mannheim business of the Corange Group, and (iii) CUSHI has merged with and into the Company (the "Merger"), with the Company being the surviving corporation in the Merger (collectively, the "Pre-Offering Reorganization");



WHEREAS, pursuant to the Pre-Offering Reorganization, CUSHI ceased to be the common parent of the Affiliated Group, BMC ceased to be a member of the Affiliated Group, and the Company became the common parent corporation of the Affiliated Group;



WHEREAS, Corange, BMC and the Company desire to allocate the liability for the taxes (including any interest or penalties thereon) of members of the Affiliated Group for any taxable period beginning before the Pre-Offering Reorganization and to provide for certain other tax-related matters;



NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows.

1. Indemnification by Corange and BMC. (a) Corange shall indemnify and hold harmless on an After-Tax Basis (as hereinafter defined) the Company and the DePuy Subsidiaries (as hereinafter defined) against any Corange Tax Liabilities (as hereinafter defined). The term "Corange Tax Liabilities" shall mean any Taxes (as hereinafter defined): (i) imposed (x) with respect to any taxable period that ends prior to the date upon which the Closing of the public offering of the stock of the Company occurs (the "Closing Date") and (y) with respect to a taxable period that begins before and ends after the Closing Date, the portion of such period up to and including the the Closing Date (each period described in clause (x) or clause (y), being hereinafter referred to as a "Pre-Closing Tax Period"), or (ii) imposed as a result of the Pre-Offering Reorganization; provided, however, that the Taxes subject to indemnification as Corange Tax Liabilities under this Section 1(a) shall not include any "BMC Tax Liabilities" (as hereinafter defined) subject to indemnification by BMC under Section 1(b) hereof or any "DePuy Tax Liabilities" (as hereinafter defined) subject to indemnification by the Company and the DePuy Subsidiaries under Section 2 hereof.



(b) BMC shall indemnify and hold harmless on an After-Tax Basis the Company and the DePuy Subsidiaries against any BMC Tax Liabilities. The term "BMC Tax Liabilities" shall mean: (i) the full amount of the Taxes of BMC or a BMC Subsidiary (as hereinafter defined), as the case may be, for any taxable period for which the Tax liability of BMC or a BMC Subsidiary, as applicable, is determined on the basis of a separate Tax return, and (ii) in the case of any taxable period for which the Tax liability of BMC or a BMC Subsidiary, as applicable, is determined on the basis of a Consolidated Return (as hereinafter defined), the portion of the Taxes of the Consolidated Group (as hereinafter defined) attributable to BMC or to a BMC Subsidiary, as determined under Section 6 with respect to consolidated or combined returns, and under Section 7 with respect to unitary returns; provided, however, that the term "BMC Tax Liabilities" shall include no liabilities for Taxes imposed as a result of the Pre-Offering Reorganization.



(c) Corange hereby guarantees BMC's obligation to indemnify and hold harmless on an After-Tax Basis the Company and the DePuy Subsidiaries against the BMC Tax Liabilities. In the event that BMC defaults on its obligations to make indemnification payments with respect to any BMC Tax Liabilities in accordance with this Agreement, the Company and the DePuy Subsidiaries shall be entitled to collect such indemnification payments from Corange; provided, however, that the Company and the DePuy Subsidiaries shall in no event be entitled to receive more than the full amount of one indemnification payment with respect to any single claim for Taxes under this Agreement.



2. Indemnification by the Company. The Company and each DePuy Subsidiary shall indemnify and hold harmless on an After-Tax Basis Corange, BMC, the Corange Subsidiaries (as hereinafter defined) and the BMC Subsidiaries against any and all DePuy Tax Liabilities. The term "DePuy Tax Liabilities" shall mean: (i) the full



amount of the Taxes of the Company or a DePuy Subsidiary, as the case may be, for any taxable period for which the Tax liability of the Company or a DePuy Subsidiary, as applicable, is determined on the basis of a separate Tax return, (ii) in the case of any taxable period for which the Tax liability of the Company or a DePuy Subsidiary, as applicable, is determined on the basis of a Consolidated Return, that portion of the Taxes of the Consolidated Group attributable to the Company or to a DePuy Subsidiary, as determined under Section 6 with respect to consolidated or combined returns, and as determined under Section 7 with respect to unitary returns, and (iii) Taxes imposed as a result of the Pre-Offering Reorganization solely by reason of one or more actions taken by the Company or any DePuy Subsidiary in violation of any of its obligations under the agreements entered into with respect to the Pre-Offering Reorganization; provided, however, that the term "DePuy Tax Liabilities" shall include (x) no liabilities for Taxes imposed as a result of the Pre-Offering Reorganization except for liabilities for Taxes described in clause (iii) hereof, and (y) no liabilities for any interest or any penalties relating to any taxes, tariffs or governmental charges, in the case of liabilities for Taxes described in clauses (i) and (ii) hereof, and all such liabilities for interest and penalties shall be deemed to be Corange Tax Liabilities subject to indemnification by Corange under Section 1(a) hereof.



3. Definitions. (a) The term "Tax" or "Taxes" means Federal, state, local and foreign income, franchise, property, sales, excise, transfer, withholding (with respect to amounts paid or received), employment or other taxes, tariffs or governmental charges (and all interest and penalties relating thereto) imposed by a governmental authority pursuant to the exercise of its power to tax.



(b) The term "After-Tax Basis" means, with respect to any payment, an amount calculated by taking into account the Tax consequences of the receipt of such payment, as well as any Tax benefit associated with the liability giving rise to the payment. In the case of any item which gives rise to a deduction, the Tax benefit of such deduction shall be determined at the maximum statutory tax rate in effect during the relevant taxable period, whether or not the taxpayer actually realizes currently such Tax benefit. For this purpose, all indemnification payments made by Corange under this Agreement shall be deemed to be capital contributions to the Company.



(c) The term "DePuy Subsidiary" shall mean each entity listed in Exhibit A hereto and shall be deemed to include any predecessor or transferee of (or successor or transferor to) the Company or any entity listed in Exhibit A, but shall not include CUSHI for any period prior to the Merger or any subsidiary in the Corange Group affiliated with the Boehringer Mannheim business of the Corange Group; provided, however, that the DePuy division of BMC, which was a predecessor of DePuy, Inc. (incorporated on January 1, 1992) shall be deemed to be a DePuy Subsidiary. The term "BMC Subsidiary" shall mean any subsidiary of BMC, and shall be deemed to include any predecessor or transferee of (or successor or transferor to) BMC or any subsidiary of BMC, but shall not include CUSHI (or any predecessor thereof or transferor thereto),



the Company or any DePuy Subsidiary. The term "Corange Subsidiary" shall mean any subsidiary in the Corange Group, including CUSHI, and shall be deemed to include any predecessor or transferee of (or successor or transferor to) Corange or any subsidiary of Corange, but shall not include the Company, any DePuy Subsidiary, BMC or any BMC Subsidiary.



(d) The term "Tax Asset" shall mean any net operating loss, net capital loss, investment tax credit, foreign tax credit, target jobs tax credit, low income housing credit, research and experimentation credit, charitable deduction or any other credit or tax attribute, including additions to basis of property, which could reduce any tax, including, without limitation, deductions, credits, or alternative minimum net operating loss carryforwards related to alternative minimum taxes.



(e) The term "BMC Sale Date" shall mean the date upon which the BMC Share Sale occurs, and the term "Pre-BMC Sale Tax Period" shall mean (i) any taxable period that ends prior to the BMC Sale Date and (ii) with respect to a taxable period that begins before and ends after the BMC Sale Date, the portion of such period up to and including the BMC Sale Date.



(f) The term "Consolidated Group" shall mean (i) the Affiliated Group and (ii) any group filing consolidated, combined or unitary tax returns for state tax purposes for any taxable period beginning before the BMC Sale Date which, for such taxable period, is comprised of at least one corporation which is a BMC Subsidiary and at least one corporation which is a DePuy Subsidiary. The term "Consolidated Return" shall mean any Federal income tax return or any state tax return filed by the Consolidated Group on a consolidated, combined or unitary basis.



4. Tax Return Filing and Related Matters. (a) The Company shall prepare all Consolidated Returns of the Consolidated Group for taxable periods beginning on or after January 1, 1996 and ending on or before December 31, 1996, and all separate Tax returns of the Company and the DePuy Subsidiaries. With respect to any Consolidated Returns referred to in the first sentence of this Section 4(a), BMC shall provide pro forma tax returns and other relevant data to the Company at least forty-five (45) days prior to the due date of such Tax returns (taking into account any applicable extensions). The Company shall provide BMC with preliminary draft copies of such Tax returns at least thirty (30) days prior to the due date for filing (taking into account any applicable extensions) for review and approval by BMC with respect to BMC Tax Liabilities. If BMC objects to any matter reflected in such draft Tax returns with respect to BMC Tax Liabilities, BMC shall inform the Company within ten (10) days of receipt of the draft Tax returns, and the Company shall revise such Tax returns as so directed by BMC, and shall sign and timely file such Tax returns with the appropriate taxing authorities.



(b) BMC shall prepare all Consolidated Returns of the Consolidated Group for taxable priods ending on or before December 31, 1995, all separate Tax returns of



CUSHI for taxable periods ending on or before the Merger, and all separate Tax returns of BMC and the BMC Subsidiaries. The provisions of this Section 4 shall apply with respect to any action or inaction after the date of this Agreement in connection with the preparation and filing of any such Tax returns. With respect to any Consolidated Returns referred to in the first sentence of this Section 4(b), the Company shall provide pro forma tax returns and other relevant data to BMC at least forty-five (45) days prior to the due date of such Tax returns (taking into account any applicable extensions). BMC shall provide the Company with preliminary draft copies of such Tax returns at least thirty (30) days prior to the due date for filing (taking into account any applicable extensions) for review and approval by the Company with respect to DePuy Tax Liabilities. If the Company objects to any matter reflected in such draft Tax returns with respect to DePuy Tax Liabilities, the Company shall inform BMC within ten (10) days of receipt of the draft Tax returns and BMC shall revise such Tax returns as so directed by the Company, and shall sign and timely file such Tax returns with the appropriate taxing authorities.



(c) With respect to Consolidated Returns of the Consolidated Group for taxable periods beginning on or after January 1, 1996 and ending on or before December 31, 1996, BMC shall pay, or cause to be paid, to the Company an amount equal to (1) BMC's share of the Consolidated Group's consolidated Federal Tax liability and consolidated state Tax liability, determined in accordance with Section 6, and (2) BMC's share of the Consolidated Group's unitary state Tax liability, determined in accordance with Section 7, as provided below.



(i) Promptly after the Company makes an estimated Tax payment with

respect to any such Consolidated Return, the Company shall in good faith

determine the amount of BMC's share of such estimated Tax payment in

accordance with Section 6, in the case of any consolidated Federal Tax

liability or any consolidated state Tax liability of the Consolidated

Group, and in accordance with Section 7 using 1995 apportionment factors,

adjusted for significant dispositions or transfers of assets, in the case

of any unitary state Tax liability of the Consolidated Group. The Company

shall deliver a written statement to BMC reflecting the determination

described above. Within ten (10) business days after delivery of such

written statement, BMC shall notify the Company whether BMC agrees with

such determination. BMC shall pay to the Company or the Company shall pay

to BMC, as appropriate, the amount determined to be payable hereunder (x)

within ten (10) business days thereafter, if BMC agrees with such

determination, or (y) if the Company and BMC cannot agree on the

determination, within ten (10) business days after the date of the

determination of the amount payable pursuant to Section 11 hereof.



(ii) Promptly after the Company files an application to extend the

due date of any such Consolidated Return, the Company shall in good faith

determine the estimated amount of BMC's share of the Consolidated Group's

consolidated Federal Tax liability or consolidated state Tax liability for

such Consolidated





Return in accordance with Section 6 or, in the case of a unitary state Tax

return, in accordance with Section 7 using 1995 apportionment factors,

adjusted for significant dispositions or transfers of assets. The amount

payable hereunder shall equal the difference, if any, between (x) the

amounts so determined and (y) the aggregate amount of estimated

installments paid with respect to BMC's share of such Tax liability for

such Consolidated Return, adjusted to take into account amounts previously ...