Exhibit 10.3

 

TAX MATTERS AGREEMENT

 

by and between

 

IRONWOOD PHARMACEUTICALS, INC.

 

and

 

CYCLERION THERAPEUTICS, INC.

 

Dated as of March 30, 2019

 

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TAX MATTERS AGREEMENT

 

TABLE OF CONTENTS

 

 

 

Page

 

 

ARTICLE I DEFINITIONS

2

 

 

Section 1.1.

General

2

 

 

 

ARTICLE II LIABILITY FOR TAXES AND DISTRIBUTION LOSSES

11

 

 

Section 2.1.

General Rule

11

 

 

 

Section 2.2.

Allocation Of Taxes For Pre-Distribution Periods

11

 

 

 

ARTICLE III PREPARATION AND FILING OF TAX RETURNS

12

 

 

Section 3.1.

Ironwood’s Responsibility

12

 

 

 

Section 3.2.

Cyclerion’s Responsibility

12

 

 

 

Section 3.3.

Cooperation

12

 

 

 

Section 3.4.

Tax Reporting Practices

12

 

 

 

Section 3.5.

Certain Elections

13

 

 

 

Section 3.6.

Right to Review Tax Returns

14

 

 

 

Section 3.7.

Adjustment Requests and Cyclerion Carrybacks

14

 

 

 

Section 3.8.

Apportionment Of Tax Attributes

15

 

 

 

Section 3.9.

Ironwood and Cyclerion Income Tax Deductions in Respect of Certain Equity Awards
and Compensation

15

 

 

 

Section 3.10.

Withholding and Reporting

16

 

 

 

ARTICLE IV TAX PAYMENTS

16

 

 

Section 4.1.

Payment of Joint Return and Separate Return Taxes

16

 

 

 

Section 4.2.

Indemnification Payments

16

 

 

 

ARTICLE V TAX BENEFITS

17

 

 

Section 5.1.

Tax Benefits

17

 

 

 

ARTICLE VI TAX-FREE STATUS

18

 

 

Section 6.1.

Restrictions on Cyclerion

18

 

 

 

Section 6.2.

Restrictions on Ironwood

20

 

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Section 6.3.

Rulings

20

 

 

 

Section 6.4.

Liability For Distribution Losses

20

 

 

 

ARTICLE VII ASSISTANCE AND COOPERATION

21

 

 

Section 7.1.

Assistance and Cooperation

21

 

 

 

Section 7.2.

Income Tax Return Information

22

 

 

 

Section 7.3.

Reliance by Ironwood

22

 

 

 

Section 7.4.

Reliance by Cyclerion

23

 

 

 

ARTICLE VIII TAX RECORDS

23

 

 

Section 8.1.

Retention of Tax Records

23

 

 

 

Section 8.2.

Access to Tax Records

23

 

 

 

Section 8.3.

Preservation of Privilege

24

 

 

 

ARTICLE IX TAX CONTESTS

24

 

 

Section 9.1.

Notice

24

 

 

 

Section 9.2.

Control of Tax Contests

24

 

 

 

ARTICLE X EFFECTIVE DATE

26

 

 

ARTICLE XI SURVIVAL OF OBLIGATIONS

26

 

 

ARTICLE XII TAX TREATMENT OF PAYMENTS

26

 

 

Section 12.1.

General Rule

26

 

 

 

Section 12.2.

Gross-Up of Indemnification Payments Made Pursuant to this Agreement

26

 

 

 

Section 12.3.

Interest

27

 

 

 

ARTICLE XIII DISPUTE RESOLUTION

27

 

 

Section 13.1.

Negotiation

27

 

 

 

Section 13.2.

Arbitration

27

 

 

 

Section 13.3.

Referral To Tax Advisor For Computational Or Tax Law Disputes

27

 

 

 

Section 13.4.

Continuity of Service and Performance

28

 

 

 

Section 13.5.

Injunctive or Other Equity Relief

28

 

 

 

ARTICLE XIV GENERAL PROVISIONS

28

 

 

Section 14.1.

Complete Agreement; Construction

28

 

 

 

Section 14.2.

Transaction Agreements

29

 

 

 

Section 14.3.

Counterparts

29

 

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Section 14.4.

Survival Of Agreement

29

 

 

 

Section 14.5.

Expenses

29

 

 

 

Section 14.6.

Notices

29

 

 

 

Section 14.7.

Waivers

30

 

 

 

Section 14.8.

Assignment

30

 

 

 

Section 14.9.

Successors and Assigns

30

 

 

 

Section 14.10.

Termination and Amendment

30

 

 

 

Section 14.11.

Payment Terms

31

 

 

 

Section 14.12.

Subsidiaries

31

 

 

 

Section 14.13.

Third Party Beneficiaries

31

 

 

 

Section 14.14.

Titles And Headings

32

 

 

 

Section 14.15.

Governing Law

32

 

 

 

Section 14.16.

Severability

32

 

 

 

Section 14.17.

Interpretation

32

 

 

 

Section 14.18.

No Duplication; No Double Recovery

32

 

 

 

Section 14.19.

No Waiver

32

 

 

 

Section 14.20.

Further Action

33

 

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TAX MATTERS AGREEMENT

 

This TAX MATTERS AGREEMENT (this “Agreement”) is entered into as of March 30,
2019, by and between Ironwood Pharmaceuticals, Inc. (“Ironwood”), a Delaware
corporation, and Cyclerion Therapeutics, Inc. (“Cyclerion”), a Massachusetts
corporation and wholly owned Subsidiary of Ironwood.  (Ironwood and Cyclerion
are sometimes collectively referred to herein as the “Parties” and, as the
context requires, individually referred to herein as a “Party”).

 

W I T N E S S E T H:

 

WHEREAS, Ironwood is a commercial biotechnology company engaged in the
discovery, development, and commercialization of pharmaceutical drugs to treat
diseases in areas of large unmet need (the “Pharmaceutical Business”).

 

WHEREAS, the Board of Directors of Ironwood (the “Board”) has determined that it
is appropriate, desirable and in the best interests of Ironwood and its
stockholders to separate the Pharmaceutical Business into (a) a business related
to Ironwood’s soluble guanylate cyclase (“sGC”) stimulators (the “Cyclerion
Pharmaceutical Business” as such term is defined in the Separation Agreement)
and (b) a business related to Ironwood’s remaining drug products and programs
(the “New Ironwood Pharmaceutical Business” as such term is defined in the
Separation Agreement).

 

WHEREAS, the Board has determined that it is appropriate, desirable and in the
best interests of Ironwood and its stockholders, to cause all of the issued and
outstanding shares of Cyclerion Common Stock held by Ironwood following the
Separation to be issued pro rata to the holders of Ironwood Common Stock on the
terms and conditions set forth in the Separation Agreement (such issuance, the
“Distribution”) and for each of Ironwood and Cyclerion to be two separate
publicly traded companies;

 

WHEREAS, for U.S. federal Income Tax purposes, it is the intention of the
Parties that the Separation and the Distribution, taken together, will qualify
as a reorganization within the meaning of Section 368(a)(1)(D) of the Code and,
except for cash received in lieu of any fractional shares, the Distribution will
qualify as tax-free under Section 355(a) of the Code to the stockholders of
Ironwood and as tax-free to Ironwood under Section 361(c) of the Code;

 

WHEREAS, as of the date hereof, Ironwood is the common parent of an Affiliated
Group, including Cyclerion, which has elected to file consolidated U.S. federal
Income Tax Returns; and

 

WHEREAS, the Parties desire to provide for and agree upon the allocation between
the Parties of liabilities, and entitlements to refunds thereof, for certain
Taxes arising prior to, at the time of, and subsequent to the Distribution, and
to provide for and agree upon other matters relating to Taxes and to set forth
certain covenants and indemnities relating to the Tax-Free Status of the
Separation and the Distribution;

 

WHEREAS, pursuant to that certain Amended and Restated Common Stock Purchase
Agreement, dated as of February 25, 2019 by and between Cyclerion and the
investors named therein (the “Common Stock

 

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Purchase Agreement”), shares of Cyclerion Common Stock will be purchased by
investors immediately following the consummation of the Distribution (such
purchase, the “Offering”).

 

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

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1.                                 General.  For purposes of this
Agreement (including the recitals hereof), the following terms have the
following meanings, and capitalized terms used but not otherwise defined herein
shall have the meaning ascribed to them in the Separation Agreement:

 

(1)                                 “Action” has the meaning set forth in the
Separation Agreement.

 

(2)                                 “Active Conduct” means “active conduct” as
defined in Section 355(b)(2) of the Code and the Treasury Regulations
thereunder.

 

(3)                                 “Active Trade or Business” has the meaning
set forth on Exhibit A.

 

(4)                                 “Adjustment Request” means any formal or
informal claim or request filed with any Tax Authority, or with any
administrative agency or court, for the adjustment, refund, or credit of Taxes,
including (a) any amended Tax Return claiming adjustment to the Taxes as
reported on the Tax Return or, if applicable, as previously adjusted, (b) any
claim for equitable recoupment or other offset, and (c) any claim for refund or
credit of Taxes previously paid.

 

(5)                                 “Affiliate” means any entity that is
directly or indirectly “controlled” by either the person in question or an
Affiliate of such person.  “Control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a person, whether through ownership of voting securities, by
contract or otherwise.  The term Affiliate shall refer to Affiliates of a person
as determined immediately after the Distribution.

 

(6)                                 “Affiliated Group” means, with respect to a
Party, the affiliated group (as that term is defined in Section 1504(a) of the
Code and the Treasury Regulations thereunder) of which the Party is the common
parent.

 

(7)                                 “Ancillary Agreement” has the meaning set
forth in the Separation Agreement; provided, however, that for purposes of this
Agreement, this Agreement shall not constitute an Ancillary Agreement.

 

(8)                                 “Business Day” has the meaning set forth in
the Separation Agreement.

 

(9)                                 “Code” means the U.S. Internal Revenue Code
of 1986, as amended.

 

(10)                          “Complete Pre-Distribution Period” means any Tax
Period ending on or before the Distribution Date.

 

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(11)                          “Common Stock Purchase Agreement” has the meaning
set forth in the Recitals to this Agreement.

 

(12)                          “Contribution” means the contribution by Ironwood
of the assets constituting the Cyclerion Pharmaceutical Business to Cyclerion
solely in exchange for stock of Cyclerion and the assumption by Cyclerion of any
liabilities related to the Cyclerion Pharmaceutical Business.

 

(13)                          “Controlling Party” has the meaning set forth in
Section 9.2(b) of this Agreement.

 

(14)                          “Cyclerion” has the meaning provided in the first
sentence of this Agreement.

 

(15)                          “Cyclerion Capital Stock” means all classes or
series of capital stock of Cyclerion, including (a) the Cyclerion Common Stock,
(b) all options, warrants and other rights to acquire such capital stock and
(c) all instruments properly treated as stock in Cyclerion for U.S. federal
Income Tax purposes.

 

(16)                          “Cyclerion Carryback” means any net operating
loss, net capital loss, excess tax credit, or other similar Tax item of any
member of the Cyclerion Group which may or must be carried from one Tax Period
to another prior Tax Period under the Code or other applicable Law.

 

(17)                          “Cyclerion Common Stock” has the meaning set forth
in the Separation Agreement.

 

(18)                          “Cyclerion Disqualifying Act” means, following the
Distribution, (a) any act, or failure or omission to act, by any member of the
Cyclerion Group that results in any Party (or any of its Affiliates) being
responsible for Distribution Taxes pursuant to a Final Determination, regardless
of whether such act or failure to act (i) is covered by a Post-Distribution
Ruling or Unqualified Tax Opinion (or is subject to Section 6.1(d)-(e)), or
(ii) occurs during or after the Restricted Period; (b) the direct or indirect
acquisition of all or a portion of the stock of Cyclerion (or any transaction or
series of related transactions that is deemed to be such an acquisition for
purposes of the Code and the Treasury Regulations promulgated thereunder) by any
means whatsoever by any Person, including, for the avoidance of doubt, pursuant
to the Offering or any other issuance of stock by Cyclerion; or (c) any event
(or series of events) involving Cyclerion Capital Stock or any assets of any
member of the Cyclerion Group.

 

(19)                          “Cyclerion Entity” means an entity which is a
member of the Cyclerion Group.

 

(20)                          “Cyclerion Group” means Cyclerion and its
Affiliates, as determined after the Distribution.

 

(21)                          “Cyclerion Pharmaceutical Business” has the
meaning set forth in the recitals to this Agreement.

 

(22)                          “Cyclerion Separate Return” means (a) any Tax
Return of or including any member of the Cyclerion Group (including any
consolidated, combined or unitary return) that does not include any member of
the Ironwood Group and (b) any Tax Return relating to Transfer Taxes that
Cyclerion is obligated to file under applicable Law.

 

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(23)                          “DGCL” means the Delaware General Corporation Law.

 

(24)                          “Dispute Notice” has the meaning set forth in
Section 13.1.

 

(25)                          “Disputed Tax Matter” has the meaning set forth in
Section 13.3.

 

(26)                          “Disputes” has the meaning set forth in
Section 13.1.

 

(27)                          “Distribution” has the meaning set forth in the
recitals to this Agreement.

 

(28)                          “Distribution Date” has the meaning set forth in
the Separation Agreement.

 

(29)                          “Distribution Effective Time” has the meaning set
forth in the Separation Agreement.

 

(30)                          “Distribution Losses” shall mean (a) all
Distribution Taxes (including interest and penalties thereon) imposed (or, in
the case of Ironwood Attribute Losses, that would have been imposed if Ironwood
were a Full Taxpayer) pursuant to any settlement, Final Determination, judgment
or otherwise; (b) all accounting, legal and other professional fees and court
costs incurred in connection with such Distribution Taxes, as well as any other
out-of-pocket costs incurred in connection with such Taxes; and (c) all
reasonable costs and expenses and all damages associated with shareholder
litigation or controversies and any amount paid by any member of the Ironwood
Group or member of the Cyclerion Group in respect of the liability of
shareholders, whether paid to any shareholder or to the IRS or any other Tax
Authority, in each case, resulting from the failure of any Separation
Transaction to have Tax-Free Status.

 

(31)                          “Distribution Taxes” means (i) any and all Taxes
required to be paid by or imposed on a Party or any of its Affiliates, plus
(ii) without duplication, the hypothetical Taxes that would have been described
in clause (i) if Ironwood were a Full Taxpayer (“Ironwood Attribute Losses”), in
each case, resulting from, attributable to, or arising in connection with the
failure of (a) the Contribution and Distribution, taken together, to qualify as
a reorganization described in Sections 355(a) and 368(a)(1)(D) of the Code or
(b) the stock distributed in the Distribution to constitute “qualified property”
for purposes of Sections 355(d), 355(e) and Section 361(c) of the Code (or any
corresponding provision of the Laws of other jurisdictions).

 

(32)                          “Employee Matters Agreement” means the Employee
Matters Agreement, as amended from time to time, by and between Ironwood and
Cyclerion.

 

(33)                          “Fifty-Percent or Greater Interest” has the
meaning ascribed to such term for purposes of Section 355(e) of the Code.

 

(34)                          “Final Determination” means the final resolution
of liability for any Tax, which resolution may be for a specific issue or
adjustment or for a taxable period, (a) by IRS Form 870 or 870-AD (or any
successor forms thereto), on the date of acceptance by or on behalf of the
taxpayer, or by a comparable form under the Laws of a state, local, or foreign
taxing jurisdiction, except that a Form 870 or 870-AD or comparable form shall
not constitute a Final Determination to the extent that it reserves (whether by
its terms or by operation of Law) the right of the taxpayer to file a claim for
refund or the right of the Tax Authority to assert a further deficiency

 

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in respect of such issue or adjustment or for such taxable period (as the case
may be); (b) by a decision, judgment, decree, or other order by a court of
competent jurisdiction, which has become final and unappealable; (c) by a
closing agreement or accepted offer in compromise under Sections 7121 or 7122 of
the Code, or a comparable agreement under the Laws of a state, local, or foreign
taxing jurisdiction; (d) by any allowance of a refund or credit in respect of an
overpayment of a Tax, but only after the expiration of all periods during which
such refund may be recovered (including by way of offset) by the jurisdiction
imposing such Tax; (e) by a final settlement resulting from a treaty-based
competent authority determination; or (f) by any other final disposition,
including by reason of the expiration of the applicable statute of limitations,
the execution of a pre-filing agreement with the IRS or other Tax Authority, or
by mutual agreement of the Parties.

 

(35)                          “Full Taxpayer” means the assumption that each
relevant member of the Ironwood Group (a) is subject to the highest marginal
regular statutory income Tax rate, and (b) will not utilize any Tax Attribute
other than a Tax Attribute arising from the adjustment at issue.

 

(36)                          “Governmental Entity” has the meaning set forth in
the Separation Agreement.

 

(37)                          “Group” means the Ironwood Group or the Cyclerion
Group, or both, as the context requires.

 

(38)                          “Income Tax” means all U.S. federal, state, and
local and foreign income, franchise or similar Taxes imposed on (or measured by)
net income or net profits, and any interest, penalties, additions to tax or
additional amounts in respect of the foregoing.

 

(39)                          “Internal Restructuring” has the meaning set forth
in Section 6.1(e) of this Agreement.

 

(40)                          “Ironwood Attribute Losses” has the meaning set
forth in the definition of Distribution Taxes.

 

(41)                          “Ironwood Capital Stock” means all classes or
series of capital stock of Ironwood, including (a) the Ironwood Common Stock,
(b) all options, warrants and other rights to acquire such capital stock and
(c) all instruments properly treated as stock of Ironwood for U.S. federal
Income Tax purposes.

 

(42)                          “Ironwood Common Stock” has the meaning set forth
in the Separation Agreement.

 

(43)                          “Ironwood Disqualifying Act” means (a) any act, or
failure or omission to act, by any member of the Ironwood Group following the
Distribution that results in any Party (or any of its Affiliates) being
responsible for such Distribution Taxes pursuant to a Final Determination;
(b) the direct or indirect acquisition of all or a portion of the stock of
Ironwood (or any transaction or series of related transactions that is deemed to
be such an acquisition for purposes of the Code and the Treasury Regulations
promulgated thereunder) by any means whatsoever by any Person, including
pursuant to an issuance of stock by Ironwood; (c) any event (or series of
events) involving Ironwood Capital Stock or any assets of any member of the
Ironwood Group; or (d) any failure to be true, inaccuracy in, or breach of any
of Ironwood’s representations or

 

5

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statements contained in the Representation Letters to the extent relating to
acts, omissions, events, conditions, facts or circumstances existing on or
before the Distribution Effective Time.

 

(44)                          “Ironwood Equity Awards” means options, stock
appreciation rights, restricted stock, stock units or other compensatory rights
with respect to Ironwood Common Stock that are granted by Ironwood on or before
the Distribution Date in connection with employee, independent contractor or
director compensation or other employee benefits; provided, however, that
options, stock appreciation rights, restricted stock, stock units or other
rights with respect to Cyclerion Common Stock issued in respect of any of the
foregoing by reason of the Distribution or any subsequent transaction shall not
be treated as Ironwood Equity Awards.

 

(45)                          “Ironwood Group” means Ironwood and its
Affiliates, excluding any entity that is a member of the Cyclerion Group.

 

(46)                          “Ironwood Separate Return” means (a) any Tax
Return of or including any member of the Ironwood Group (including any
consolidated, combined or unitary return) that does not include any member of
the Cyclerion Group and (b) any Tax Return relating to Transfer Taxes that
Ironwood is obligated to file under applicable Law.

 

(47)                          “IRS” means the U.S. Internal Revenue Service.

 

(48)                          “Joint Return” means any Tax Return (including any
consolidated, combined or unitary Tax Return) that relates to at least one asset
or activity that is part of the New Ironwood Pharmaceutical Business, on the one
hand, and at least one asset or activity that is part of the Cyclerion
Pharmaceutical Business, on the other hand.

 

(49)                          “Law” means the law of any Governmental Entity or
political subdivision thereof, including statutes, regulations promulgated
thereunder, and administrative and judicial interpretations thereof.

 

(50)                          “New Ironwood Pharmaceutical Business” has the
meaning set forth in the recitals to this Agreement.

 

(51)                          “Non-Controlling Party” has the meaning set forth
in Section 9.2(b) of this Agreement.

 

(52)                          “Non-Responsible Party” means the Party that is
not the Responsible Party.

 

(53)                          “Offering” has the meaning set forth in the
Recitals to this Agreement.

 

(54)                          “Parties” and “Party” have the meaning set forth
in the first sentence of this Agreement.

 

(55)                          “Past Practices” has the meaning set forth in
Section 3.4(a) of this Agreement.

 

(56)                          “Payment Date” means (a) with respect to any
consolidated U.S. federal Income Tax Return for the Affiliated Group of which
Ironwood is the common parent, (i) the due date for any required installment of
estimated taxes determined under Section 6655 of the Code, (ii)

 

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the due date (determined without regard to extensions) for filing the return
determined under Section 6072 of the Code, or (iii) the date the return is
filed, as the case may be, and (b) with respect to any other Tax Return, the
corresponding dates determined under the applicable Law.

 

(57)                          “Payor” has the meaning set forth in
Section 4.2(a) of this Agreement.

 

(58)                          “Person” means an individual, a partnership, a
corporation, a limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization or a Governmental
Entity or any department, agency or political subdivision thereof, without
regard to whether any entity is treated as disregarded for U.S. federal Income
Tax purposes.

 

(59)                          “Post-Distribution Period” means any Tax Period
beginning after the Distribution Date and, in the case of any Straddle Period,
the portion of such Tax Period beginning on the day after the Distribution Date.

 

(60)                          “Pre-Distribution Period” means any Tax Period
ending on or before the Distribution Date and, in the case of any Straddle
Period, the portion of such Straddle Period ending on the Distribution Date.

 

(61)                          “Post-Distribution Ruling” has the meaning set
forth in Section 6.1 of this Agreement.

 

(62)                          “Preliminary Tax Advisor” has the meaning set
forth in Section 13.3 of this Agreement.

 

(63)                          “Prime Rate” has the meaning set forth in the
Separation Agreement.

 

(64)                          “Privilege” means any privilege that may be
asserted under applicable Law, including, any privilege arising under or
relating to the attorney-client relationship (including the attorney-client and
work product privileges), the accountant-client privilege and any privilege
relating to internal evaluation processes.

 

(65)                          “Proposed Acquisition Transaction” means a
transaction or series of transactions (or any agreement, understanding or
arrangement, within the meaning of Section 355(e) of the Code and Treasury
Regulation Section 1.355-7, or any other regulations promulgated thereunder, to
enter into a transaction or series of transactions), whether such transaction is
supported by Cyclerion management or shareholders, is a hostile acquisition,
merger, consolidation or otherwise, as a result of which any Person or any group
of related Persons would (directly or indirectly) acquire, or have the right to
acquire, from Cyclerion and/or one or more direct or indirect holders of
outstanding shares of Cyclerion Capital Stock, a number of shares of Cyclerion
Capital Stock that would, when combined with any other changes in ownership of
Cyclerion Capital Stock pertinent for purposes of Section 355(e) of the Code
(other than the Offering), comprise three percent (3%), or more of (a) the value
of all outstanding shares of stock of Cyclerion as of the date of such
transaction, or in the case of a series of transactions, the date of the last
transaction of such series, or (b) the total combined voting power of all
outstanding shares of voting stock of Cyclerion as of the date of such
transaction, or in the case of a series of transactions, the date of the last
transaction of such series.  Notwithstanding the

 

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foregoing, a Proposed Acquisition Transaction shall not include (i) the adoption
by Cyclerion of a shareholder rights plan and (ii) issuances by Cyclerion that
satisfy Safe Harbor VIII (relating to acquisitions in connection with a Person’s
performance of services).  For purposes of determining whether a transaction
constitutes an indirect acquisition, any recapitalization resulting in a shift
of voting power or any redemption of shares of stock shall be treated as an
indirect acquisition of shares of stock by the non- exchanging shareholders. 
This definition and the application thereof is intended to monitor compliance
with Section 355(e) of the Code and shall be interpreted accordingly.  Any
clarification of, or change in, the statute or regulations promulgated under
Section 355(e) of the Code shall be incorporated in this definition and its
interpretation. For the avoidance of doubt, the Offering shall not constitute a
Proposed Acquisition Transaction.

 

(66)                          “Representation Letters” means the statements of
facts and representations, officer’s certificates, representation letters and
any other materials delivered or deliverable by Ironwood, its Affiliates
(including Cyclerion) or representatives thereof in connection with any Ruling
Request or the rendering by Tax Advisor of the Tax Opinion.

 

(67)                          “Required Party” has the meaning set forth in
Section 4.2 of this Agreement.

 

(68)                          “Responsible Party” means, with respect to any Tax
Return, the Party having responsibility for preparing and filing such Tax Return
under this Agreement.

 

(69)                          “Restricted Period” means the period beginning at
the Distribution Effective Time and ending on the two-year anniversary of the
day after the Distribution Date.

 

(70)                          “Retention Date” has the meaning set forth in
Section 8.1 of this Agreement.

 

(71)                          “Ruling” means a private letter ruling issued by
the IRS to Ironwood in connection with the Separation Transactions.

 

(72)                          “Ruling Request” means any letter or memorandum
filed by Ironwood with the IRS requesting a ruling regarding certain Tax
consequences of the Separation Transactions (including all attachments,
exhibits, and other materials submitted with such ruling request letter) and any
amendment or supplement to such ruling request letter.

 

(73)                          “Section 336(e) Allocation Statement” has the
meaning set forth in Section 3.5(b)(ii) of this Agreement.

 

(74)                          “Section 336(e) Election” has the meaning set
forth in Section 3.5(b).

 

(75)                          “Separate Return” means an Ironwood Separate
Return or a Cyclerion Separate Return, as the case may be.

 

(76)                          “Separation” has the meaning set forth in the
Separation Agreement.

 

(77)                          “Separation Agreement” means the Separation
Agreement, as amended from time to time, by and between Ironwood and Cyclerion.

 

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(78)                          “Separation Taxes” means any and all Taxes (other
than Distribution Taxes) required to be paid by or imposed on a Party or any of
its Affiliates resulting from, attributable to, or arising in connection with
the Distribution or any other Separation Transaction including Transfer Taxes.

 

(79)                          “Separation Transactions” means the contribution
to, and distribution of, Cyclerion pursuant to the Separation, as described in
Exhibit A.

 

(80)                          “Straddle Period” means any Tax Period that begins
on or before and ends after the Distribution Date.

 

(81)                          “Subsidiary” has the meaning set forth in the
Separation Agreement.

 

(82)                          “Substantial Authority” has the meaning set forth
in Section 3.4(c) of this Agreement.

 

(83)                          “Tax” or “Taxes” means any income, gross income,
gross receipts, profits, capital stock, franchise, withholding, payroll, social
security, workers compensation, unemployment, disability, property, ad valorem,
value added, stamp, excise, severance, occupation, service, sales, use, license,
lease, transfer, import, export, escheat, alternative minimum, estimated or
other tax (including any fee, assessment, or other charge in the nature of or in
lieu of any tax), imposed by any Governmental Entity or political subdivision
thereof, and any interest, penalty, additions to tax or additional amounts in
respect of the foregoing.

 

(84)                          “Tax Advisor” means a tax counsel or tax
accountant of recognized national standing.

 

(85)                          “Tax Attribute” means a net operating loss,
carryforward under Section 163(j) of the Code, net capital loss, unused
investment credit, unused foreign Tax credit, excess charitable contribution,
general business credit, research and development credit, orphan drug credit,
earnings and profits, basis, or any other Tax Item that could reduce a Tax or
create a Tax Benefit.

 

(86)                          “Tax Benefit” means any Tax Refund, credit or
other reduction in Tax payments (determined on a “with and without” basis).

 

(87)                          “Tax Contest” means an audit, review, examination,
or any other administrative or judicial proceeding with the purpose or effect of
redetermining Taxes (including any administrative or judicial review of any
claim for refund).

 

(88)                          “Tax-Free Status” means the qualification of the
Contribution and the Distribution, taken together, (a) as a reorganization
described in Sections 355(a) and 368(a)(1)(D) of the Code; (b) as a transaction
in which the stock distributed thereby is “qualified property” for purposes of
Sections 355(d), 355(e) and 361(c) of the Code; and (c) as a transaction in
which Ironwood, Cyclerion and the shareholders of Ironwood recognize no income
or gain for U.S. federal Income Tax purposes pursuant to Sections 355, 361 and
1032 of the Code, other than, in the case of Ironwood and Cyclerion,
intercompany items or excess loss accounts taken into account pursuant to the
Treasury Regulations promulgated pursuant to Section 1502 of the Code.

 

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(89)                          “Tax Authority” means, with respect to any Tax,
the Governmental Entity or political subdivision thereof that imposes such Tax,
and the agency (if any) charged with the assessment, administration, collection,
enforcement, determination or imposition of such Tax for such entity or
subdivision.

 

(90)                          “Tax Item” means, with respect to any Income Tax,
any item of income, gain, loss, deduction, or credit.

 

(91)                          “Tax Period” means, with respect to any Tax, the
period for which the Tax is reported as provided under the Code or other
applicable Law.

 

(92)                          “Tax Records” means any (a) Tax Returns, (b) Tax
Return work papers, (c) documentation relating to any Tax Contests, and (d) any
other books of account or records (whether or not in written, electronic or
other tangible or intangible forms and whether or not stored on electronic or
any other medium) required to be maintained under the Code or other applicable
Laws or under any record retention agreement with any Tax Authority, in each
case filed with respect to or otherwise relating to Taxes.

 

(93)                          “Tax Refund” means any refund of Taxes (including
any overpayment of Taxes that can be refunded or, alternatively, credited or
applied to future Taxes payable), including any interest paid on or with respect
to such refund of Taxes.

 

(94)                          “Tax Return” or “Return” means any report of Taxes
due, any claim for refund of Taxes paid, any information return with respect to
Taxes, or any other similar report, statement, declaration, or document required
to be filed under the Code or other Law with respect to Taxes, including any
attachments, exhibits, or other materials submitted with any of the foregoing,
and including any amendments or supplements to any of the foregoing.

 

(95)                          “Third Party” means any Person other than the
Parties or any of their respective Subsidiaries.

 

(96)                          “Transaction Agreement” has the meaning set forth
in the Separation Agreement.

 

(97)                          “Transfer Taxes” means all sales, use, transfer,
real property transfer, intangible, recordation, registration, documentary,
stamp or similar Taxes imposed on the Distribution or any of the other
Separation Transactions (excluding, for the avoidance of doubt, any Income
Taxes).

 

(98)                          “Treasury Regulations” means the regulations
promulgated from time to time under the Code as in effect for the relevant Tax
Period.

 

(99)                          “Unqualified Tax Opinion” means an unqualified
“will” opinion of a Tax Advisor, which Tax Advisor is reasonably acceptable to
Ironwood, on which Ironwood may rely to the effect that a transaction will not
affect the Tax-Free Status.  Any such opinion must assume that the Contribution
and the Distribution would have qualified for Tax-Free Status if the transaction
in question did not occur.

 

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ARTICLE II

 

LIABILITY FOR TAXES AND DISTRIBUTION LOSSES

 

Section 2.1.                                 General Rule.

 

(a)                                 Ironwood Liability.  Ironwood shall be
liable for, and shall indemnify and hold harmless the Cyclerion Group from and
against any liability for:

 

(i)                                     Taxes that are allocated to Ironwood
under this Article II;

 

(ii)                                  Separation Taxes;

 

(iii)                               any Taxes resulting from a breach of any of
Ironwood’s covenants in this Agreement, the Separation Agreement or any
Ancillary Agreement; and

 

(iv)                              any Distribution Losses that are the
responsibility of Ironwood under Section 6.4.

 

(b)                                 Cyclerion Liability.  Cyclerion shall be
liable for, and shall indemnify and hold harmless the Ironwood Group, in each
case assuming the relevant member of the Ironwood Group is a Full Taxpayer, from
and against any liability for:

 

(i)                                     Taxes that are allocated to Cyclerion
under this Article II;

 

(ii)                                  any Taxes resulting from a breach of any
of Cyclerion’s covenants in this Agreement, the Separation Agreement or any
Ancillary Agreement; and

 

(iii)                               any Distribution Losses that are the
responsibility of Cyclerion under Section 6.4.

 

Section 2.2.                                 Allocation Of Taxes For
Pre-Distribution Periods.  Except with respect to Taxes described in
Section 2.1(a)(ii), Section 2.1(a)(iii), Section 2.1(a)(iv),
Section 2.1(b)(ii) and Section 2.1(b)(iii), Taxes shall be allocated as follows:

 

(a)                                 Allocation of Taxes Relating to Joint
Returns.  With respect to any Joint Return, Ironwood shall be responsible for
any and all Taxes for Pre-Distribution Periods due with respect to or required
to be reported on any such Tax Return (including any increase in such Tax as a
result of a Final Determination) which Taxes are attributable to the New
Ironwood Pharmaceutical Business or the Cyclerion Pharmaceutical Business.

 

(b)                                 Allocation of Tax Relating to Separate
Returns.

 

(i)                                     Ironwood shall be responsible for any
and all Taxes for (A) Complete Pre-Distribution Periods due with respect to or
required to be reported on any Cyclerion Separate Return and (B) all Tax Periods
due with respect to or required to be reported on any Ironwood Separate Return
(including, in each case, any increase in such Tax as a result of a Final
Determination).

 

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(ii)                                  Cyclerion shall be responsible for any and
all Taxes due with respect to or required to be reported on any Cyclerion
Separate Return for (A) Pre-Distribution Periods (other than Complete
Pre-Distribution Periods) and (B) Post-Distribution Periods (including, in each
case, any increase in such Tax as a result of a Final Determination).

 

ARTICLE III

 

PREPARATION AND FILING OF TAX RETURNS

 

Section 3.1.                                 Ironwood’s Responsibility. 
Ironwood shall prepare and file, or cause to be prepared and filed:

 

(a)                                 All Joint Returns that Ironwood or any of
its Affiliates is legally responsible for preparing or filing under applicable
Law; and

 

(b)                                 Ironwood Separate Returns.

 

Section 3.2.                                 Cyclerion’s Responsibility. 
Cyclerion shall prepare and file, or cause to be prepared and filed, all Tax
Returns required to be filed by or with respect to members of the Cyclerion
Group other than those Tax Returns which Ironwood is required to prepare and
file under Section 3.1.  The Tax Returns required to be prepared and filed by
Cyclerion under this Section 3.2 shall include any Cyclerion Separate Returns.

 

Section 3.3.                                 Cooperation.  The Parties shall
provide, and shall cause their Affiliates to provide, assistance and cooperation
to one another in accordance with Article VII with respect to the preparation
and filing of Tax Returns, including providing information required to be
provided in Article VII.

 

Section 3.4.                                 Tax Reporting Practices.

 

(a)                                 Ironwood General Rule.  Except as provided
in Section 3.4(c), Ironwood shall prepare any Tax Return which it has the
obligation and right to prepare and file, or cause to be prepared and filed,
under Section 3.1, in accordance with the past practices, accounting methods,
elections or conventions of Ironwood (“Past Practices”) used with respect to the
items reflected on such Tax Return (unless there is no reasonable basis for the
use of such Past Practices), and to the extent any items are not covered by Past
Practices (or in the event that there is no reasonable basis for the use of such
Past Practices), in accordance with reasonable Tax accounting practices selected
by Ironwood.

 

(b)                                 Cyclerion General Rule.  Except as provided
in Section 3.4(c), with respect to any Tax Return that Cyclerion has the
obligation and right to prepare and file, or cause to be prepared and filed,
under Section 3.2, such Tax Return shall be prepared in accordance with Past
Practices used with respect to the items reflected on such Tax Returns (unless
there is no reasonable basis for the use of such Past Practices), and to the
extent any items are not covered by Past Practices (or in the event that there
is no reasonable basis for the use of such Past Practices), in accordance with
reasonable Tax accounting practices selected by Cyclerion.

 

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(c)                                  Reporting of Separation Transactions and
Other Transactions.  The Tax treatment of the Separation Transactions reported
on any Tax Return shall be consistent with the treatment thereof in the Ruling
Request, Rulings, Representation Letters and Unqualified Tax Opinion, and the
Tax treatment of the transactions contemplated by the Transition Services
Agreement reported on any Tax Return shall be consistent with the treatment
determined by Ironwood in its sole discretion, in each case taking into account
the jurisdiction in which such Tax Returns are filed, unless the Parties jointly
determine that there is not at least “substantial authority,” within the meaning
of Section 6662(d)(2)(B)(i) of the Code (or any corresponding or similar
provision of state, local or foreign Law) (“Substantial Authority”) for such Tax
treatment.  Such treatment reported on any Tax Return for which Cyclerion is the
Responsible Party shall be consistent with that on any Tax Return filed or to be
filed by Ironwood or any member of the Ironwood Group or caused or to be caused
to be filed by Ironwood, unless the Parties jointly determine that there is not
Substantial Authority for such Tax treatment.  Notwithstanding the
foregoing, Ironwood shall have the right to make a “protective”
Section 336(e) Election in accordance with Section 3.5(b).

 

Section 3.5.                                 Certain Elections.

 

(a)                                 Consolidated or Combined Tax Returns. 
Cyclerion will elect and join, and will cause its respective Affiliates to elect
and join, in filing any Joint Returns that Ironwood determines are required to
be filed or that Ironwood elects to file pursuant to Section 3.1(a).

 

(b)                                 Protective Section 336(e) Election.

 

(i)                                     The Parties agree that Ironwood in its
sole discretion may make, and Cyclerion will join in filing, timely protective
elections under Section 336(e) of the Code and the Treasury Regulations issued
thereunder, including under Treasury Regulation Sections 1.336-2(h)(1)(i) and
1.336-2(j), for each member of the Cyclerion Group that is a domestic
corporation for U.S. federal Tax purposes with respect to the Distribution (a
“Section 336(e) Election”).  It is intended that a Section 336(e) Election will
have no effect unless the Distribution is a “qualified stock disposition,” as
defined in Treasury Regulation Section 1.336-1(b)(6), by reason of the
application of Treasury Regulation Section 1.336-1(b)(5)(i)(B) or Treasury
Regulation Section 1.336-1(b)(5)(ii).

 

(ii)                                  If Ironwood determines to make a
Section 336(e) Election pursuant to Section 3.5(b)(i), Ironwood and Cyclerion
shall cooperate in the preparation, completion and filing of the
Section 336(e) Election, including filing any statements, amending any Tax
Returns or undertaking such other actions reasonably necessary to carry out the
Section 336(e) Election.  Ironwood shall reasonably determine the “Aggregate
Deemed Asset Disposition Price” and the “Adjusted Grossed-Up Basis” (each as
defined under applicable Treasury Regulations) and the allocation of such
Aggregate Deemed Asset Disposition Price and Adjusted Grossed-Up Basis among the
disposition date assets of Cyclerion and its Subsidiaries, each in accordance
with Section 336(e) of the Code and the applicable Treasury Regulations (the
“Section 336(e) Allocation Statement”), and shall provide Cyclerion (A) a draft
of such statement for its review and comment fifteen (15) Business Days prior to
the due date for filing such statement and (B) a copy of such statement as
filed.  To the extent the Section 336(e)

 

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Election becomes effective, each Party agrees not to take any position (and to
cause each of its Affiliates not to take any position) that is inconsistent with
the Section 336(e) Election, including the Section 336(e) Allocation Statement,
on any Tax Return, in connection with any Tax Contest or for any other Tax
purposes (in each case, excluding any position taken for financial accounting
purposes), except as may be required by a Final Determination.

 

Section 3.6.                                 Right to Review Tax Returns.  The
Responsible Party with respect to any Tax Return shall make the portion of a
draft of such Tax Return which is relevant to the determination of the other
Party’s rights or obligations under this Agreement available for review by the
other Party, if requested, to the extent (a) such Tax Return relates to Taxes
that could reasonably be expected to be equal to or in excess of $100,000 and
that are the subject of a Tax Contest and for which the requesting Party would
reasonably be expected to be liable, (b) such Tax Return relates to a Tax
Benefit that could reasonably be expected to be equal to or in excess of
$100,000 and for which the requesting Party would reasonably be expected to have
a claim under this Agreement, or (c) the requesting Party reasonably determines
that it must inspect such Tax Return to confirm compliance with the terms of
this Agreement.  The Responsible Party shall (x) use its reasonable best efforts
to make such portion of such Tax Return available for review as required under
this paragraph sufficiently in advance of the due date for filing of such Tax
Return to provide the requesting Party with a meaningful opportunity to analyze
and comment on such Tax Return and (y) use reasonable efforts to have such Tax
Return modified before filing in accordance with any reasonable comments of the
requesting Party.  The Parties shall attempt in good faith to resolve any issues
arising out of the review of such Tax Return.

 

Section 3.7.                                 Adjustment Requests and Cyclerion
Carrybacks.

 

(a)                                 Cyclerion hereby agrees that, unless
Ironwood consents in writing (which consent may not be unreasonably withheld,
conditioned or delayed) or as required by Law, (i) no Cyclerion Entity shall
file an Adjustment Request with respect to any Tax Return for a Pre-Distribution
Period or Straddle Period, and (ii) any available elections to waive the right
to claim in any Pre-Distribution Period with respect to any Tax Return any
Cyclerion Carryback arising in a Post-Distribution Period shall be made, and no
affirmative election shall be made to claim any such Cyclerion Carryback.  In
the event that Cyclerion (or the appropriate member of the Cyclerion Group) is
prohibited by applicable Law from waiving or otherwise forgoing a Cyclerion
Carryback or Ironwood consents to a Cyclerion Carryback, Ironwood shall
cooperate with Cyclerion, at Cyclerion’s expense, in seeking from the
appropriate Tax Authority such Tax Benefit as reasonably would result from such
Cyclerion Carryback, to the extent that such Tax Benefit is directly
attributable to such Cyclerion Carryback, and shall pay over to Cyclerion the
amount of such Tax Benefit within thirty (30) days after such Tax Benefit is
realized (as determined on a “with and without” basis); provided, however, that
Cyclerion shall indemnify and hold the members of the Ironwood Group harmless
from and against any and all collateral Tax consequences resulting from or
caused by any such Cyclerion Carryback, including, without limitation, the loss
or postponement of any benefit from the use of Tax Attributes generated by a
member of the Ironwood Group if (i) such Tax Attributes expire unused, but would
have been utilized but for such Cyclerion Carryback, or (ii) the use of such Tax
Attributes is postponed to a later Tax Period than the Tax Period in which such
Tax Attributes would have been used but for such Cyclerion Carryback.

 

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(b)                                 Ironwood hereby agrees that, unless
Cyclerion consents in writing (which consent may not be unreasonably withheld,
conditioned, or delayed) or as required by Law, no member of the Ironwood Group
shall file any Adjustment Request with respect to any Tax Return if the result
could reasonably be expected to change the Tax liability for which any member of
the Cyclerion Group is liable under Section 2.1(b) for any Tax Period in an
amount equal to or in excess of $50,000.

 

Section 3.8.                                 Apportionment Of Tax Attributes. 
Ironwood shall advise Cyclerion in writing of a reasonable allocation of any Tax
Attributes, which Ironwood shall determine in accordance with a reasonable
interpretation of the Code, Treasury Regulations, and any other applicable Law,
and Ironwood shall consider in good faith any reasonable comments provided by
Cyclerion regarding such allocation.  The Parties and all members of their
respective Groups shall prepare all Tax Returns in accordance with such
allocation.  Notwithstanding anything to the contrary contained herein, for the
avoidance of doubt, the Parties agree that Ironwood is not warranting or
guaranteeing the amount of any such Tax Attributes.

 

Section 3.9.                                 Ironwood and Cyclerion Income Tax
Deductions in Respect of Certain Equity Awards and Compensation.  Unless
otherwise required by a change in applicable Law following the date of this
Agreement or by a Final Determination, (a) Ironwood shall be the sole person
entitled to claim any Income Tax deduction in respect of any (i) compensatory
options on Ironwood stock that are vested as of the Distribution Date,
(ii) compensatory options on Ironwood stock or on Cyclerion stock issued in
respect of options described in clause (a)(i) in connection with the
Distribution, (iii) compensatory options on Ironwood stock that are unvested as
of the Distribution Date, (iv) any compensatory options on Ironwood stock issued
in respect of compensatory options described in clause (a)(iii) in connection
with the Distribution,  (v) restricted stock units of Ironwood that are unvested
as of the Distribution Date, and (vi) any restricted stock units of Ironwood
issued in respect of restricted stock units described in clause (a)(v) in
connection with the Distribution, (b) Cyclerion shall be the sole person
entitled to claim any Income Tax deduction in respect of any (i) compensatory
options on Cyclerion stock issued in respect of compensatory options described
in clause (a)(iii) in connection with the Distribution, and (ii) restricted
stock units of Cyclerion issued in respect of restricted stock units described
in clause (a)(v) in connection with the Distribution, and (c) in the case of any
equity awards or other compensation not governed by subsection (a) or subsection
(b) above, the member of the Group (or the person acting as the agent for such
member under Treasury Regulation Section 1.1502-76 or any similar provision
under U.S. state or local or foreign Law) for which the relevant individual is
currently employed or, if such individual is not currently employed by a member
of the Group, was most recently employed at the time of the vesting, exercise,
disqualifying disposition, payment or other relevant taxable event, as
appropriate, in respect of equity awards and other compensation, shall be the
sole person entitled to claim any Income Tax deduction in respect of such equity
awards and other compensation on its respective Tax Return associated with such
event; provided, however, that Ironwood may, in its sole and absolute
discretion, claim a prorated Income Tax deduction (determined by multiplying the
amount of any Income Tax deduction by a fraction, the numerator of which is the
number of days in the service period while employed by Ironwood and the
denominator of which is the applicable vesting period for the compensatory
options or restricted stock units) in the case of any compensatory options on
Cyclerion Stock or restricted stock units of Cyclerion that would otherwise be
described in clause (b), to the extent such compensatory options or restricted
stock

 

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units partially vested as of the Distribution Date, in which case each of
Ironwood and Cyclerion shall be the sole person entitled to claim any Income Tax
deduction in respect of its respective prorated share thereof.

 

Section 3.10.                          Withholding and Reporting. The person or
persons that claim a deduction in accordance with Section 3.9 shall be
responsible for all applicable Taxes (including payroll, employment and excise
taxes, but excluding withholding taxes which shall be governed by
Section 5.2(d) of the Employee Matters Agreement) in respect of the compensation
that gives rise to such deduction, in the same proportions as such persons share
such deduction under Section 3.9.  Except as expressly set forth in the Employee
Matters Agreement or any Ancillary Agreement, all matters relating to the
employer tax withholding and reporting obligations of the Parties and their
respective Subsidiaries shall be governed exclusively by Section 5.2(d) of the
Employee Matters Agreement.

 

ARTICLE IV

 

TAX PAYMENTS

 

Section 4.1.                                 Payment of Joint Return and
Separate Return Taxes.  Each Party shall pay, or shall cause to be paid, to the
applicable Tax Authority when due all Taxes owed by such Party or a member of
such Party’s Group with respect to a Joint Return or Separate Return.

 

Section 4.2.                                 Indemnification Payments.

 

(a)                                 If any Party (the “Payor”) is required under
applicable Law to pay to a Tax Authority a Tax that another Party (the “Required
Party”) is liable for under this Agreement, the Payor shall provide notice to
the Required Party for the amount due, accompanied by evidence of payment and a
statement detailing the Taxes paid and describing in reasonable detail the
particulars relating thereto.  Such Required Party shall have a period of thirty
(30) days after the receipt of notice to respond thereto.  Unless the Required
Party disputes the amount it is liable for under this Agreement, the Required
Party shall reimburse the Payor within forty-five (45) Business Days of delivery
by the Payor of the notice described above.  To the extent the Required Party
does not agree with the amount the Payor claims the Required Party is liable for
under this Agreement, the dispute shall be resolved in accordance with
Article XIII.  Any reimbursement shall include interest on the Tax payment
computed at the Prime Rate based on the number of days from the date of the
payment to the Tax Authority to the date of reimbursement under this
Section 4.2.

 

(b)                                 Any Tax indemnity payment required to be
made by the Required Party pursuant to this Section 4.2 shall be reduced by any
corresponding Tax Benefit payment required to be made to the Required Party by
the other Party pursuant to Article V. For the avoidance of doubt, a Tax Benefit
payment is treated as corresponding to a Tax indemnity payment to the extent the
Tax Benefit realized is directly attributable to the same Tax Item (or
adjustment of such Tax Item pursuant to a Final Determination) that gave rise to
the Tax indemnity payment.

 

(c)                                  All indemnification payments under this
Agreement shall be made by Ironwood directly to Cyclerion and by Cyclerion
directly to Ironwood; provided, however, that if

 

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the Parties mutually agree with respect to any such indemnification payment, any
member of the Ironwood Group, on the one hand, may make such indemnification
payment to any member of the Cyclerion Group, on the other hand, and vice versa.
All indemnification payments shall be treated in the manner described in
Article XII.

 

ARTICLE V

 

TAX BENEFITS

 

Section 5.1.                                 Tax Benefits.

 

(a)                                 If a member of the Cyclerion Group realizes
any Tax Benefit resulting from, attributable to or arising in connection with a
Section 336(e) Election, and such Tax Benefit would not have arisen but for such
election (determined on a “with and without” basis), Cyclerion shall make a
payment to Ironwood within thirty (30) Business Days following each such
realization of a Tax Benefit, in an amount equal to (A) the product of (x) such
Tax Benefit, times (y) the percentage of the total related Distribution Losses
represented by the portion of such total Distribution Losses for which the
Ironwood Group is responsible pursuant to Section 6.4, plus (B) interest on such
amount computed at the Prime Rate based on the number of days from the date of
such actual realization of the Tax Benefit to the date of payment of such amount
under this Section 5.1; provided, however, that (i) such payments shall be
reduced by all reasonable costs incurred by the Cyclerion Group to amend any Tax
Returns or other governmental filings, and (ii) if a Tax Benefit is realized
(determined on a “with and without” basis) as a result of an audit adjustment by
a tax authority for a tax period that has already been completed as of the time
of such adjustment, then, solely for purposes of determining (x) the date on
which Cyclerion must make a payment to Ironwood in respect of such Tax Benefit,
(y) the date on which Cyclerion must provide the notice described in
Section 5.1(b) , and (z) the date from which interest computed at the Prime Rate
accrues on such amount, such Tax Benefit shall be treated as having been
realized as of the date on which the applicable tax authority issued such
adjustment.

 

(b)                                 No later than thirty (30) Business Days
after a Tax Benefit described in Section 5.1 is realized by a member of the
Cyclerion Group, Cyclerion shall provide Ironwood with notice of the amount
payable to Ironwood by Cyclerion pursuant to this Article V.  In the event that
Ironwood disagrees with any such calculation described in this
Section 5.1(b), Ironwood shall so notify Cyclerion in writing within thirty (30)
Business Days of receiving the written calculation set forth above in this
Section 5.1(b).  Ironwood and Cyclerion shall endeavor in good faith to resolve
such disagreement, and, failing that, the amount payable under this Article V
shall be determined in accordance with the disagreement resolution provisions of
Article XIII as promptly as practicable.

 

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ARTICLE VI

 

TAX-FREE STATUS

 

Section 6.1.                                 Restrictions on Cyclerion.

 

(a)                                 Cyclerion will not take or fail to take, or
permit any Cyclerion Affiliate, as the case may be, to take or fail to take, any
action (i) where such action or failure to act would be inconsistent with or
cause to be untrue any statement, information, covenant or representation from
Cyclerion in any Representation Letters, Unqualified Tax Opinion, Ruling Request
or Ruling, or (ii) which adversely affects or could reasonably be expected to
adversely affect the Tax-Free Status of the Separation, the Distribution, or any
other Separation Transaction.

 

(b)                                 During the Restricted Period, Cyclerion
shall continue and cause to be continued the Active Conduct of the Cyclerion
Pharmaceutical Business.

 

(c)                                  During the Restricted Period, Cyclerion
shall not:

 

(i)                                     enter into any Proposed Acquisition
Transaction, approve any Proposed Acquisition Transaction for any purpose, or to
the extent Cyclerion or any other member of the Cyclerion Group has the right to
prohibit any Proposed Acquisition Transaction, allow any Proposed Acquisition
Transaction to occur (including, but not limited to, by (A) redeeming rights
under a shareholder rights plan, (B) finding a tender offer to be a “permitted
offer” under any such plan or otherwise causing any such plan to be inapplicable
or neutralized with respect to any Proposed Acquisition Transaction,
(C) approving any Proposed Acquisition Transaction, whether for purposes of
Section 203 of the DGCL or any similar corporate statute, any “fair price” or
other provision of Cyclerion’s charter or bylaws, (D) amending its certificate
of incorporation to declassify its Board of Directors or approving any such
amendment, or otherwise) with respect to Cyclerion;

 

(ii)                                  merge or consolidate with any other
Person, unless Cyclerion is the survivor of such merger or consolidation,
liquidate or partially liquidate;

 

(iii)                               engage (or permit a Cyclerion Affiliate to
engage) in any transaction that would result in Cyclerion ceasing to be a
company engaged in the Active Conduct of any Active Trade or Business;

 

(iv)                              make or revoke any election under Treasury
Regulation Section 301.7701-3;

 

(v)                                 in one or more transactions, sell, transfer
or dispose of, or enter into any other transaction(s) treated for U.S. federal
Income Tax purposes as a sale or exchange of (or approve or allow the sale,
transfer or other disposition of, or other transaction(s) treated for U.S.
federal Income Tax purposes as a sale or exchange of) 25% or more of the net or
gross assets of any Active Trade or Business (such percentage to be measured
based on fair market value as of the Distribution Date), in each case other than
(A) sales or transfers of assets in the ordinary course of business, (B) any
cash paid to acquire assets from an unrelated Person in an arm’s-length
transaction, (C) any assets transferred to a Person that is disregarded as an
entity separate from the transferor for U.S. federal Income Tax purposes or
(D) any mandatory or optional repayment (or pre-payment) of any indebtedness of
Cyclerion or any member of the Cyclerion Group;

 

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(vi)                              amend its certificate of incorporation (or
other organizational documents), or take any other action, whether through a
stockholder vote or otherwise, affecting the voting rights of Cyclerion Capital
Stock (including, without limitation, through the conversion of one class of
Cyclerion Capital Stock into another class of Cyclerion Capital Stock); or

 

(vii)                           redeem or otherwise repurchase, directly or
through any Affiliate, any of its outstanding stock, or rights to acquire stock,
after the Distribution, other than through purchases meeting the requirements of
Section 4.05(1)(b) of Revenue Procedure 96-30 (without regard to the effect of
Revenue Procedure 2003-48 on Revenue Procedure 96-30);

 

provided, however, that Cyclerion shall be permitted to take such action or one
or more actions set forth in the foregoing clauses (i) through (vii) if, prior
to taking any such actions, (1) Cyclerion shall have received a favorable
private letter ruling from the IRS, that confirms that such action or actions
will not result in Distribution Taxes, taking into account such actions and any
other relevant transactions in the aggregate (a “Post-Distribution Ruling”), in
form and substance satisfactory to Ironwood, acting reasonably and in good faith
solely to prevent the imposition on Ironwood, or responsibility for payment by
Ironwood, of Distribution Taxes (and/or to avoid or delay Ironwood Attribute
Losses) (including consideration of the reasonableness of any representations
made in connection with such Post-Distribution Ruling); (2) Cyclerion shall have
received an Unqualified Tax Opinion that confirms that such action or actions
will not result in Distribution Taxes, taking into account such actions and any
other relevant transactions in the aggregate, in form and substance satisfactory
to Ironwood (including any representations or assumptions that may be included
in such Unqualified Tax Opinion), acting reasonably and in good faith solely to
prevent the imposition on Ironwood, or responsibility for payment by Ironwood,
of Distribution Taxes (and/or to avoid or delay Ironwood Attribute Losses); or
(3) Ironwood shall have waived the requirement to obtain such Post-Distribution
Ruling or Unqualified Tax Opinion.  Unless Ironwood shall have waived the
requirement to obtain the Post-Distribution Ruling or Unqualified Tax Opinion
described in this paragraph, Cyclerion shall provide a copy of the
Post-Distribution Ruling or the Unqualified Tax Opinion described in this
paragraph to Ironwood as soon as practicable prior to taking or failing to take
any action set forth in the foregoing clause (i) through (vii).  Ironwood’s
evaluation of a Post-Distribution Ruling or Unqualified Tax Opinion may
consider, among other factors, the appropriateness of any underlying
assumptions, representations, and covenants made in connection with such
Post-Distribution Ruling or Unqualified Tax Opinion.  Cyclerion shall bear all
costs and expenses of securing any such Post- Distribution Ruling or Unqualified
Tax Opinion and shall reimburse Ironwood for all reasonable out-of-pocket costs
and expenses that Ironwood may incur in good faith in seeking to obtain or
evaluate any such Post-Distribution Ruling or Unqualified Tax Opinion.

 

(d)                                 Cyclerion shall not take or fail to take any
action (including any Internal Restructuring described in Section 6.1(e)), in
the Restricted Period, that would reasonably be expected to increase the Tax
liability of the Ironwood Group in connection with the Separation Transactions.

 

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(e)                                  Cyclerion shall not engage in, cause or
permit any contribution, sale, exchange, disposition or other transfer of any of
the material assets directly or indirectly contributed to Cyclerion or any of
its Affiliates as described in the Separation Agreement, to Cyclerion or any of
its Affiliates, apart from sales in the ordinary course of business (any such
action, an “Internal Restructuring”) during or with respect to any Tax Period
(or portion thereof) ending on or prior to the end of the Restricted Period if
Cyclerion, after consultation with a Tax Advisor, believes there is a
substantial possibility that the Internal Restructuring could adversely affect
the Tax-Free Status, unless Cyclerion shall first consult with Ironwood
regarding any such proposed actions reasonably in advance of taking any such
proposed actions and consider in good faith any comments from Ironwood relating
thereto.

 

Section 6.2.                                 Restrictions on Ironwood.  Ironwood
agrees that it will not take or fail to take, or permit any Ironwood Affiliate,
as the case may be, to take or fail to take, any action where such action or
failure to act would be inconsistent with or cause to be untrue any statement,
information, covenant or representation in any Ruling Request, Representation
Letter or Unqualified Tax Opinion.  Ironwood agrees that it will not take or
fail to take, or permit any Ironwood Affiliate, as the case may be, to take or
fail to take, any action which adversely affects or could reasonably be expected
to adversely affect the Tax-Free Status of the Separation, the Distribution, or
any other Separation Transaction; provided, however, that this Section 6.2 shall
not be construed as obligating Ironwood to consummate the Separation or the
Distribution, nor shall it be construed as preventing Ironwood from terminating
the Separation Agreement pursuant to Section 10.10 thereof.  For the avoidance
of doubt, Cyclerion’s sole recourse for violations of this Section 6.2 shall be
as set forth in Section 6.4.

 

Section 6.3.                                 Rulings.  Cyclerion hereby agrees
that Ironwood shall have sole and exclusive control over the process of
obtaining any Ruling, and that only Ironwood shall apply for a Ruling.  Neither
Cyclerion nor any Cyclerion Affiliate directly or indirectly controlled by
Cyclerion shall seek any guidance from the IRS or any other Tax Authority
(whether written, verbal or otherwise) at any time concerning the Separation or
the Distribution (including the impact of any transaction on the Tax-Free Status
of the Separation or the Distribution or the intended Tax treatment of any other
Separation Transaction) without the prior written consent of Ironwood, such
consent not to be unreasonably withheld.

 

Section 6.4.                                 Liability For Distribution Losses. 
In the event that, pursuant to a Final Determination, Distribution Taxes become
due and payable to a Tax Authority or an Ironwood Attribute Loss occurs, then,
notwithstanding anything to the contrary in this Agreement:

 

(a)                                 if and to the extent such Distribution Taxes
and/or Ironwood Attribute Losses result from Section 355(e) of the Code:

 

(i)                                     as a result of an acquisition of a
Fifty-Percent or Greater Interest in Ironwood, then Ironwood shall be
responsible for any Distribution Losses.

 

(ii)                                  as a result of an acquisition of a
Fifty-Percent or Greater Interest in Cyclerion, then Cyclerion shall be
responsible for any Distribution Losses.

 

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(b)                                 if and to the extent such Distribution Taxes
and/or Ironwood Attribute Losses do not result from Section 355(e) of the Code:

 

(i)                                     if such Distribution Taxes and/or
Ironwood Attribute Losses are attributable to a Cyclerion Disqualifying Act and
are not also attributable to an Ironwood Disqualifying Act, then Cyclerion shall
be responsible for any Distribution Losses;

 

(ii)                                  if such Distribution Taxes and/or Ironwood
Attribute Losses are attributable to an Ironwood Disqualifying Act and are not
also attributable to a Cyclerion Disqualifying Act, then Ironwood shall be
responsible for any Distribution Losses;

 

(iii)                               if such Distribution Taxes and/or Ironwood
Attribute Losses are attributable to both a Cyclerion Disqualifying Act and an
Ironwood Disqualifying Act, then responsibility for any Distribution Losses
shall be shared by Ironwood and Cyclerion according to relative fault; and

 

(iv)                              if such Distribution Taxes and/or Ironwood
Attribute Losses are not attributable to an Ironwood Disqualifying Act or a
Cyclerion Disqualifying Act, then Ironwood shall be responsible for any
Distribution Losses.

 

For the avoidance of doubt, and notwithstanding anything to the contrary in this
Agreement, under no circumstances shall Ironwood be liable to Cyclerion in
respect of any Ironwood Attribute Losses.

 

ARTICLE VII

 

ASSISTANCE AND COOPERATION

 

Section 7.1.                                 Assistance and Cooperation.

 

(a)                                 The Parties shall cooperate (and cause their
respective Affiliates to cooperate) with each other and with each other’s
agents, including accounting firms and legal counsel, in connection with Tax
matters relating to the Parties and their Affiliates including (i) preparation
and filing of Tax Returns, (ii) determining the liability for and amount of any
Taxes due (including estimated Taxes) or the right to and amount of any refund
of Taxes, (iii) examinations of Tax Returns, and (iv) any administrative or
judicial proceeding in respect of Taxes assessed or proposed to be assessed. 
Such cooperation shall include making all information and documents in their
possession relating to the other Party and its Affiliates reasonably available
to such other Party as provided in Article VIII of this Agreement.  Each of the
Parties shall also make available to the other, as reasonably requested and
available, personnel (including officers, directors, employees and agents of the
Parties or their respective Affiliates) responsible for preparing, maintaining,
and interpreting information and documents relevant to Taxes, and personnel
reasonably required as witnesses or for purposes of providing information or
documents in connection with any administrative or judicial proceedings relating
to Taxes.  The Cyclerion Group shall cooperate with Ironwood and take any and
all actions reasonably requested by Ironwood in connection with obtaining the
Unqualified Tax Opinion or Post-Distribution Ruling (including, without
limitation, by making any new representation or covenant, confirming any
previously made representation or covenant or providing any materials

 

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or information requested by any Tax Advisor; provided that Cyclerion shall not
be required to make or confirm any representation or covenant that is
inconsistent with historical facts or as to future matters or events over which
it has no control).

 

(b)                                 Any information or documents provided under
this Article VII shall be kept confidential by the Party receiving the
information or documents, except as may otherwise be necessary in connection
with the filing of Tax Returns or in connection with any administrative or
judicial proceedings relating to Taxes.  Notwithstanding any other provision of
this Agreement, the Separation Agreement or any Ancillary Agreement, (i) neither
Ironwood nor any Ironwood Affiliate shall be required to provide Cyclerion or
any Cyclerion Affiliate or any other Person access to or copies of any
information, documents or procedures (including the proceedings of any Tax
Contest) other than information, documents or procedures that relate solely to
Cyclerion, the business or assets of Cyclerion or any Cyclerion Affiliate,
(ii) in no event shall Ironwood or any Ironwood Affiliate be required to provide
Cyclerion, any Cyclerion Affiliate or any other Person access to or copies of
any information or documents if such action could reasonably be expected to
result in the waiver of any Privilege, and (iii) in no event shall Cyclerion or
any Cyclerion Affiliate be required to provide Ironwood, any Ironwood Affiliate
or any other Person access to or copies of any information or documents if such
action could reasonably be expected to result in the waiver of any Privilege. 
In addition, in the event that Ironwood determines that the provision of any
information or documents to Cyclerion or any Cyclerion Affiliate, or Cyclerion
determines that the provision of any information or documents to Ironwood or any
Ironwood Affiliate, could be commercially detrimental, violate any Law or
agreement or waive any Privilege, the Parties shall use reasonable best efforts
to permit compliance with its obligations under this Article VII in a manner
that avoids any such harm or consequence.

 

Section 7.2.                                 Income Tax Return Information. 
Each Party shall provide to the other Party information and documents relating
to its Group reasonably required by the other Party to prepare Tax Returns,
including any pro forma returns required by the Responsible Party for purposes
of preparing such Tax Returns.  Any information or documents the Responsible
Party requires to prepare such Tax Returns shall be provided in such form as the
Responsible Party reasonably requests and at or prior to the time reasonably
specified by the Responsible Party so as to enable the Responsible Party to file
such Tax Returns on a timely basis.  Cyclerion and Ironwood acknowledge that
time is of the essence in relation to any request for information, assistance or
cooperation made by Ironwood or Cyclerion pursuant to Section 7.1 or this
Section 7.2.  Cyclerion and Ironwood acknowledge that failure to conform to the
reasonable deadlines set by Ironwood or Cyclerion could cause irreparable harm.

 

Section 7.3.                                 Reliance by Ironwood.  If any
member of the Cyclerion Group supplies information to a member of the Ironwood
Group in connection with any Tax position and an officer of a member of the
Ironwood Group signs a statement or other document under penalties of perjury in
reliance upon the accuracy of such information, then upon the written request of
such member of the Ironwood Group identifying the information being so relied
upon, the chief financial officer of Cyclerion (or any officer of Cyclerion as
designated by the chief financial officer of Cyclerion) shall certify in writing
that to his or her knowledge (based upon consultation with appropriate
employees) the information so supplied is accurate and complete.

 

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Section 7.4.                                 Reliance by Cyclerion.  If any
member of the Ironwood Group supplies information to a member of the Cyclerion
Group in connection with any Tax position and an officer of a member of the
Cyclerion Group signs a statement or other document under penalties of perjury
in reliance upon the accuracy of such information, then upon the written request
of such member of the Cyclerion Group identifying the information being so
relied upon, the chief financial officer of Ironwood (or any officer of Ironwood
as designated by the chief financial officer of Ironwood) shall certify in
writing that to his or her knowledge (based upon consultation with appropriate
employees) the information so supplied is accurate and complete.

 

ARTICLE VIII

 

TAX RECORDS

 

Section 8.1.                                 Retention of Tax Records.  Each
Party shall preserve and keep all Tax Records exclusively relating to the assets
and activities of its Group for Pre-Distribution Periods, and Ironwood shall
preserve and keep all other Tax Records relating to Taxes of the Groups for
Pre-Distribution Periods, for so long as the contents thereof may be material in
the administration of any matter under the Code or other applicable Law, but in
any event until the later of (i) the expiration of any applicable statutes of
limitations, or (ii) seven (7) years after the Distribution Date (such later
date, the “Retention Date”).  After the Retention Date, each Party may dispose
of such Tax Records upon sixty (60) Business Days’ prior written notice to the
other Party.  If, prior to the Retention Date, a Party reasonably determines
that any Tax Records which it would otherwise be required to preserve and keep
under this Article VIII are no longer material in the administration of any
matter under the Code or other applicable Law and the other Party agrees, then
such first Party may dispose of such Tax Records upon sixty (60) Business Days’
prior notice to the other Party.  Any notice of an intent to dispose given
pursuant to this Section 8.1 shall include a list of the Tax Records to be
disposed of describing in reasonable detail each file, book, or other record
accumulation being disposed.  The notified Party shall have the opportunity, at
its cost and expense, to copy or remove, within such sixty (60) Business Day
period, all or any part of such Tax Records.  If, at any time prior to the
Retention Date, a Party determines to decommission or otherwise discontinue any
computer program or information technology system used to access or store any
Tax Records, then such Party may decommission or discontinue such program or
system upon ninety (90) Business Days’ prior notice to the other Party and the
other Party shall have the opportunity, at its cost and expense, to copy, within
such ninety (90) Business Day period, all or any part of the underlying data
relating to the Tax Records accessed by or stored on such program or system.

 

Section 8.2.                                 Access to Tax Records.  The Parties
and their respective Affiliates shall make available to each other for
inspection and copying during normal business hours upon reasonable notice all
Tax Records (and, for the avoidance of doubt, any pertinent underlying data
accessed or stored on any computer program or information technology system) in
their possession and shall permit the other Party and its Affiliates, authorized
agents and representatives and any representative of a Tax Authority or other
Tax auditor direct access, at the cost and expense of such other Party, during
normal business hours upon reasonable notice to any computer program or
information technology system used to access or store any Tax Records, in each
case to the extent reasonably required by the other Party in connection with the

 

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preparation of Tax Returns or financial accounting statements, audits,
litigation, or the resolution of items under this Agreement.

 

Section 8.3.                                 Preservation of Privilege.  No
Party or any of its Affiliates shall provide access to, copies of, or otherwise
disclose to any Person any documentation relating to Taxes existing prior to the
Distribution Date to which Privilege may reasonably be asserted without the
prior written consent of the other Party, such consent not to be unreasonably
withheld.

 

ARTICLE IX

 

TAX CONTESTS

 

Section 9.1.                                 Notice.  Each of the Parties shall
provide prompt notice to the other Party of any written communication from a Tax
Authority regarding any pending Tax audit, assessment or proceeding or other Tax
Contest of which it becomes aware related to Taxes for Tax Periods (i) for which
it may be indemnified by the other Party hereunder or (ii) for which it may be
required to indemnify the other Party hereunder (excluding, in the case of
clause (ii), any Taxes attributable to any Post-Distribution Period), or
otherwise relating to the Tax-Free Status or the Separation Transactions
(including the resolution of any Tax Contest relating thereto).  Such notice
shall attach copies of the pertinent portion of any written communication from a
Tax Authority and contain factual information (to the extent known) describing
any asserted Tax liability in reasonable detail and shall be accompanied by
copies of any notice and other documents received from any Tax Authority in
respect of any such matters.  If an indemnified Party has knowledge of an
asserted Tax liability with respect to a matter for which it is to be
indemnified hereunder and such Party fails to give the indemnifying Party prompt
notice of such asserted Tax liability and the indemnifying Party is entitled
under this Agreement to contest the asserted Tax liability, then (a) if the
indemnifying Party is precluded from contesting the asserted Tax liability in
any forum as a result of the failure to give prompt notice, the indemnifying
Party shall have no obligation to indemnify the indemnified Party for any Taxes
arising out of such asserted Tax liability, and (b) if the indemnifying Party is
not precluded from contesting the asserted Tax liability in any forum, but such
failure to give prompt notice results in a material monetary detriment to the
indemnifying Party, then any amount which the indemnifying Party is otherwise
required to pay the indemnified Party pursuant to this Agreement shall be
reduced by the amount of such detriment.

 

Section 9.2.                                 Control of Tax Contests.

 

(a)                                 Joint Return.  In the case of any Tax
Contest with respect to any Joint Return, Ironwood shall have exclusive control
over the Tax Contest, including exclusive authority with respect to any
settlement of such Tax liability; provided, however, that in the case of any Tax
Contest with respect to any Joint Return regarding Distribution Taxes for which
Cyclerion may reasonably be expected to become liable to make any
indemnification payment to Ironwood under this Agreement, Cyclerion shall have
the right to participate in such Tax Contest, and Ironwood shall not settle such
Tax Contest without the consent of Cyclerion, which consent Cyclerion shall not
unreasonably withhold, condition or delay, taking into account the likelihood of
success of such Tax Contest on its merits.

 

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(b)                                 Separate Returns.  In the case of any Tax
Contest with respect to any Separate Return, the Party having liability for the
Tax pursuant to Article II hereof shall have exclusive control over the Tax
Contest, including exclusive authority with respect to any settlement of such
Tax liability, subject to Section 9.2(b)(i) and ((ii)) below.

 

(i)                                     Settlement Rights.  The Controlling
Party shall have the sole right to contest, litigate, compromise and settle any
Tax Contest without obtaining the prior consent of the Non-Controlling Party,
provided, however, that the Controlling Party shall not settle any Tax Contest
with respect to which the Non-Controlling Party may reasonably be expected to
become liable to make any indemnification payment to the Controlling Party under
this Agreement without the Non-Controlling Party’s prior written consent (which
consent may not be unreasonably withheld, conditioned, or delayed).  Unless
waived by the Parties in writing, in connection with any potential adjustment in
a Tax Contest as a result of which adjustment the Non-Controlling Party may
reasonably be expected to become liable to make any indemnification payment to
the Controlling Party under this Agreement: (A) the Controlling Party shall keep
the Non-Controlling Party informed in a timely manner of all actions taken or
proposed to be taken by the Controlling Party with respect to such potential
adjustment in such Tax Contest; (B) the Controlling Party shall timely provide
the Non-Controlling Party copies of any written materials relating to such
potential adjustment in such Tax Contest received from any Tax Authority;
(C) the Controlling Party shall timely provide the Non-Controlling Party with
copies of any correspondence or filings submitted to any Tax Authority or
judicial authority in connection with such potential adjustment in such Tax
Contest; (D) the Controlling Party shall consult with the Non-Controlling Party
and offer the Non-Controlling Party a reasonable opportunity to comment before
submitting any written materials prepared or furnished in connection with such
potential adjustment in such Tax Contest; and (E) the Controlling Party shall
defend such Tax Contest diligently and in good faith.  The failure of the
Controlling Party to take any action specified in the preceding sentence with
respect to the Non-Controlling Party shall not relieve the Non-Controlling Party
of any liability and/or obligation which it may have to the Controlling Party
under this Agreement except to the extent that the Non-Controlling Party was
actually harmed by such failure, and in no event shall such failure relieve the
Non-Controlling Party from any other liability or obligation which it may have
to the Controlling Party.  In the case of any Tax Contest described in this
Section 9.2(b), “Controlling Party” means the Party entitled to control the Tax
Contest under such section and “Non-Controlling Party” means the other Party.

 

(ii)                                  Tax Contest Participation.  Unless waived
by the Parties in writing, the Controlling Party shall provide the
Non-Controlling Party with written notice reasonably in advance of, and the
Non-Controlling Party shall have the right to attend, any formally scheduled
meetings with Tax Authorities or hearings or proceedings before any judicial
authorities in connection with any potential adjustment in a Tax Contest
pursuant to which the Non-Controlling Party may reasonably be expected to become
liable to make any indemnification payment to the Controlling Party under this
Agreement.  The failure of the Controlling Party to provide any notice specified
in this Section 9.2(b)(ii) to the Non-Controlling Party shall not relieve the
Non-Controlling Party of any liability or obligation which it may have to the
Controlling Party under this

 

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Agreement except to the extent that the Non- Controlling Party was actually
harmed by such failure, and in no event shall such failure relieve the
Non-Controlling Party from any other liability or obligation which it may have
to the Controlling Party.

 

ARTICLE X

 

EFFECTIVE DATE

 

This Agreement shall be effective as of the date hereof.

 

ARTICLE XI

 

SURVIVAL OF OBLIGATIONS

 

The representations, warranties, covenants and agreements set forth in this
Agreement shall be unconditional and absolute and shall remain in effect without
limitation as to time.

 

ARTICLE XII

 

TAX TREATMENT OF PAYMENTS

 

Section 12.1.                          General Rule.  Except as otherwise
required by a change in applicable Law or as otherwise agreed to among the
Parties, any payment made pursuant to this Agreement, the Separation Agreement
or any Ancillary Agreement by: (a) Cyclerion to Ironwood shall be treated for
all Tax purposes as (i) an adjustment to any cash contributed by Ironwood to
Cyclerion in the Contribution, to the extent of such cash contribution, and
thereafter (ii) a distribution by Cyclerion to Ironwood with respect to stock of
Cyclerion held by Ironwood occurring immediately before the Distribution; or
(b) Ironwood to Cyclerion shall be treated for all Tax purposes as a tax-free
contribution by Ironwood to Cyclerion with respect to stock of Cyclerion held by
Ironwood occurring immediately before the Distribution; provided, however, that
the foregoing treatment shall apply in each case only to the extent the payment
does not relate to a Tax allocated to the payor in accordance with Section 1552
of the Code or the Treasury Regulations thereunder or Treasury Regulation
Section 1.1502-33(d) (or under corresponding principles of other applicable
Laws); provided, further, that any payments made by Cyclerion to Ironwood
pursuant to Section 5.1 shall be treated as an adjustment to the amount deemed
contributed to Cyclerion by Ironwood in respect of the corresponding indemnity
payment pursuant to Section 4.2.  Neither Party shall take any position
inconsistent with the treatment described in the preceding sentence, and in the
event that a Tax Authority asserts that a Party’s treatment of a payment
pursuant to this Agreement should be other than as set forth in the preceding
sentence, such Party shall use its commercially reasonable efforts to contest
such challenge.

 

Section 12.2.                          Gross-Up of Indemnification Payments Made
Pursuant to this Agreement.  Except to the extent provided in Section 12.3, any
Tax indemnity payment made by a Party under this Agreement shall be increased as
necessary so that after making all payments in respect to Taxes imposed on or
attributable to such indemnity payment, the recipient Party receives an amount
equal to the sum it would have received had no such Taxes been imposed. For the

 

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avoidance of doubt, all payments required to be made by Cyclerion to Ironwood
pursuant to this Section 12.2 shall be calculated assuming all members of the
Ironwood Group are Full Taxpayers.

 

Section 12.3.                          Interest.  Anything herein to the
contrary notwithstanding, to the extent one Party makes a payment of interest to
another Party under this Agreement with respect to the period from the date that
the Party receiving the interest payment made a payment of Tax to a Tax
Authority to the date that the Party making the interest payment reimbursed the
Party receiving the interest payment for such Tax payment, the interest payment
shall be treated as interest expense to the Party making such payment
(deductible to the extent provided by Law) and as interest income by the Party
receiving such payment (includible in income to the extent provided by Law). 
The amount of the payment shall not be adjusted to take into account any
reduction in Tax to the Party making such payment or increase in Tax to the
Party receiving such payment.

 

ARTICLE XIII

 

DISPUTE RESOLUTION

 

Section 13.1.                          Negotiation.  A Party seeking resolution
of (i) a controversy, dispute or Action arising out of, in connection with, or
in relation to the interpretation, performance, nonperformance, validity or
breach of this Agreement or otherwise arising out of, or in any way related to,
this Agreement or the transactions contemplated hereby, including any Action
based on contract, tort, statute or constitution, (collectively, “Disputes”)
shall provide written notice of such Dispute to the other Party, specifying the
terms of such Dispute in reasonable detail (“Dispute Notice”).  The appropriate
executives of the Parties who have authority to settle the Dispute (or such
other individuals designated by the respective executives) shall attempt to
resolve the Dispute through good faith negotiation for a reasonable period of
time; provided, that such reasonable period shall not, unless otherwise agreed
by the Parties in writing, exceed fifteen (15) days from the time of receipt by
a Party of the Dispute Notice.  If the Dispute has not been resolved within
fifteen (15) days after receipt of the Dispute Notice, the respective Chief
Executive Officers or their respective designees (with full settlement
authority) of Ironwood and Cyclerion shall meet in person (or where necessary,
by phone) at a mutually acceptable time and, if applicable, place, and
thereafter as often as they reasonably deem necessary, to attempt in good faith
to resolve the Dispute.  Any contractual time period or deadline under this
Agreement to which such Dispute relates occurring after the Dispute Notice is
received shall not be deemed to have passed until such Dispute has been resolved
pursuant to this Article XIII.

 

Section 13.2.                          Arbitration.  Any Dispute that is not
resolved pursuant to Section 14.1 within thirty (30) days after receipt of a
Dispute Notice shall be resolved by final and binding arbitration pursuant to
the procedures set forth in Section 8.2 of the Separation Agreement.

 

Section 13.3.                          Referral To Tax Advisor For Computational
Or Tax Law Disputes.  Notwithstanding anything to the contrary in Article XIII,
with respect to any Dispute involving one or more computational matters or pure
questions of Tax Law, if the Parties are not able to resolve the Dispute through
the negotiation process set forth in Section 13.1, then such computational
matters or pure questions of Tax Law (each, a “Disputed Tax Matter”) will be

 

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referred to a Tax Advisor acceptable to each of the Parties to act as an
arbitrator solely in order to resolve the Disputed Tax Matters.  In the event
that the Parties are unable to agree upon a Tax Advisor within forty-five (45)
days of receipt of a Dispute Notice, the Parties shall each separately retain an
independent, nationally recognized Law or accounting firm (each, a “Preliminary
Tax Advisor”), which Preliminary Tax Advisors shall jointly select a Tax Advisor
on behalf of the Parties to act as an arbitrator in order to resolve the
Disputed Tax Matters.  The Tax Advisor may, in its discretion, obtain the
services of any third-party appraiser, accounting firm or consultant that the
Tax Advisor deems necessary to assist it in resolving such disagreement.  The
Tax Advisor shall furnish written notice to the Parties of its resolution of any
such Dispute Tax Matters as soon as practical, but in any event no later than
thirty (30) Business Days after its acceptance of the matter for resolution. 
Any such resolution by the Tax Advisor will be conclusive and binding on the
Parties, and shall not be reviewable by the arbitrator of the underlying Dispute
under Section 13.2.  Following receipt of the Tax Advisor’s written notice to
the Parties of its resolution of the Dispute Tax Matters, the Parties shall each
take or cause to be taken any action necessary to implement such resolution of
the Tax Advisor.  Each Party shall pay its own fees and expenses (including the
fees and expenses of its representatives) incurred in connection with the
referral of the Disputed Tax Matters to the Tax Advisor (and the Preliminary Tax
Advisors, if any).  All fees and expenses of the Tax Advisor (and the
Preliminary Tax Advisors, if any) in connection with such referral shall be
shared equally by the Parties.  For the avoidance of doubt, the arbitrator of
the underlying Dispute under Section 13.2 shall resolve all portions of any
Dispute that are not Disputed Tax Matters, and shall resolve any question as to
whether any portion of a Dispute is a Disputed Tax Matter.

 

Section 13.4.                          Continuity of Service and Performance. 
Unless otherwise agreed in writing, the Parties shall continue to provide
service and honor all other commitments under this Agreement during the course
of a Dispute with respect to all matters not subject to such Dispute.

 

Section 13.5.                          Injunctive or Other Equity Relief. 
Nothing contained in this Agreement shall deny any Party the right to seek
injunctive or other equitable relief in the context of a bona fide emergency or
prospective irreparable harm, and such an action may be filed and maintained
notwithstanding any ongoing arbitration proceeding; provided, however, that any
other relief not expressly permitted under this Section 13.5 must be pursued in
accordance with Section 13.2, with all remedies being cumulative to the extent
allowed by applicable Law.  The Parties further agree that irreparable harm
would occur, and thus need not be established, in an action to enforce the
covenants set forth in Section 6.1, and that such action may be brought pursuant
to this Section 13.5.  The Parties further agree that any action brought under
this Section 13.5 shall be brought exclusively in the state or federal courts
within the Commonwealth of Massachusetts and that such courts shall have
personal jurisdiction over the Parties in such action.

 

ARTICLE XIV

 

GENERAL PROVISIONS

 

Section 14.1.                          Complete Agreement; Construction.  This
Agreement, together with the Separation Agreement and the Ancillary Agreements,
shall constitute the entire agreement between the Parties with respect to the
subject matter hereof and shall supersede all previous negotiations,
commitments, course of dealings and writings with respect to such subject
matter;

 

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for the avoidance of doubt, the preceding clause shall apply to all other
agreements, whether or not written, in respect of any Tax between or among any
member or members of the Ironwood Group, on the one hand, and any member or
members of the Cyclerion Group, on the other hand, which agreements shall be of
no further effect between the Parties and any rights or obligations existing
thereunder shall be fully and finally settled, calculated as of the date
hereof.  In the event and to the extent that there shall be a conflict between
the provisions of the Separation Agreement and the provisions of this Agreement,
this Agreement shall control.  Except as expressly set forth in the Separation
Agreement or any Ancillary Agreement: (a) all matters to the extent relating to
Taxes and Tax Returns of the Parties and their respective Subsidiaries shall be
governed exclusively by this Agreement; and (b) for the avoidance of doubt, in
the event of any conflict between the Separation Agreement or any Ancillary
Agreement, on the one hand, and this Agreement, on the other hand, with respect
to such matters, the terms and conditions of this Agreement shall govern.

 

Section 14.2.                          Transaction Agreements.  Except as
expressly set forth herein, this Agreement is not intended to address, and
should not be interpreted to address, the matters specifically and expressly
covered by the other Transaction Agreements.

 

Section 14.3.                          Counterparts.  This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement, and shall become effective when one or more such
counterparts have been signed by each of the Parties and delivered to each of
the Parties.

 

Section 14.4.                          Survival Of Agreement.  Except as
otherwise contemplated by this Agreement, all covenants and agreements of the
Parties contained in this Agreement shall survive the Distribution Effective
Time and remain in full force and effect in accordance with their applicable
terms.

 

Section 14.5.                          Expenses.  Except as otherwise provided
in this Agreement, each party and its Affiliates shall bear their own expenses
incurred in connection with preparation of Tax Returns, Tax Contests, and other
matters related to Taxes under the provisions of this Agreement.

 

Section 14.6.                          Notices.  All notices, requests, claims,
demands and other communications under this Agreement shall be in English, shall
be in writing and shall be given or made (and shall be deemed to have been duly
given or made upon receipt) by delivery in person, by overnight courier service,
by facsimile with receipt confirmed (followed by delivery of an original via
overnight courier service) or by registered or certified mail (postage prepaid,
return receipt requested) to the respective Parties at the following addresses
(or at such other address for a Party as shall be specified in a notice given in
accordance with this Section 14.6):

 

To Ironwood:

 

Ironwood Pharmaceuticals, Inc.
301 Binney Street
Cambridge, MA 02142

 

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United States
Attn: General Counsel

Phone: 617-621-7722

Fax:  617-588-0623

 

To Cyclerion:

 

Cyclerion Therapeutics, Inc.
301 Binney Street

Cambridge, MA 02142

United States

Attn:  Chief Financial Officer

Phone:

Fax:

 

Section 14.7.                          Waivers.  The delay or failure of either
Party to exercise or enforce any of its rights under this Agreement will not
constitute, or be deemed to be, a waiver of those rights, nor will any single or
partial exercise of any such rights preclude any other or further exercise
thereof or the exercise of any other right.  No waiver of any provision of this
Agreement will be effective unless it is in writing and signed by the Party
against which it is being enforced.

 

Section 14.8.                          Assignment.  No Party may assign any
rights or delegate any obligations arising under this Agreement, in whole or in
part, directly or indirectly, without the prior written consent of the other
Party (such consent not to be unreasonably withheld, conditioned or delayed),
and any attempt to so assign any rights or delegate any obligations arising
under this Agreement without such consent shall be void.  Notwithstanding the
foregoing, no such consent shall be required for any such assignment or
delegation (a) with respect to Ironwood, to a Subsidiary of Ironwood (so long as
such Subsidiary remains a Subsidiary of Ironwood), (b) with respect to
Cyclerion, to a Subsidiary of Cyclerion (so long as such Subsidiary remains a
Subsidiary of Cyclerion) or (c) to a bona fide Third Party in connection with a
merger, reorganization, consolidation or the sale of all or substantially all
the assets of a Party so long as the resulting, surviving or transferee entity
assumes all the obligations of the assigning Party by operation of Law or
pursuant to an agreement in form and substance reasonably satisfactory to the
non-assigning Party; provided, however, that in the case of each of the
preceding clauses (a) and (b), no assignment permitted by this Section 14.8
shall release the assigning Party from liability for the full performance of its
obligations under this Agreement.

 

Section 14.9.                          Successors and Assigns.  The provisions
of this Agreement and the obligations and rights hereunder shall be binding
upon, inure to the benefit of and be enforceable by (and against) the Parties
and their respective successors (whether by merger, acquisition of assets, or
otherwise, and including any successor of Ironwood or Cyclerion succeeding to
the Tax attributes of either under Section 381 of the Code) and permitted
assigns.

 

Section 14.10.                   Termination and Amendment.  This Agreement may
be terminated, modified or amended at any time prior to the Distribution
Effective Time by and in the sole and absolute discretion of Ironwood without
the approval of Cyclerion or the stockholders of Ironwood.  In the event of such
termination, no Party shall have any liability of any kind to the

 

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other Party or any other Person by reason of such termination.  After the
Distribution Effective Time, this Agreement may not be terminated, modified or
amended except by an agreement in writing signed by Ironwood and Cyclerion.

 

Section 14.11.                   Payment Terms.

 

(a)                                 Except as expressly provided to the contrary
in this Agreement, any amount to be paid or reimbursed by a Party (and/or a
member of such Party’s Group) to the other Party (and/or a member of such other
Party’s Group) under this Agreement shall be paid or reimbursed hereunder within
sixty (60) days after presentation of an invoice or a written demand therefor,
in either case setting forth, or accompanied by, reasonable documentation or
other reasonable explanation supporting such amount.

 

(b)                                 Except as expressly provided to the contrary
in this Agreement, any amount not paid when due pursuant to this Agreement (and
any amount billed or otherwise invoiced or demanded and properly payable that is
not paid within sixty (60) days of such bill, invoice or other demand) shall
bear interest at a rate per annum equal to the Prime Rate, from time to time in
effect, plus two percent (2%), calculated for the actual number of days elapsed,
accrued from the date on which such payment was due up to the date of the actual
receipt of payment.

 

(c)                                  Without the consent of the party receiving
any payment under this Agreement specifying otherwise, all payments to be made
by either Ironwood or Cyclerion under this Agreement shall be made in U.S.
dollars.  Except as expressly provided herein, any amount which is not expressed
in U.S. dollars shall be converted into U.S. dollars by using the exchange rate
published on Bloomberg at 5:00 p.m., Eastern time, on the day before the
relevant date, or in The Wall Street Journal, Eastern Edition, on such date if
not so published on Bloomberg.  Except as expressly provided herein, in the
event that any indemnification payment required to be made hereunder may be
denominated in a currency other than U.S. dollars, the amount of such payment
shall be converted into U.S. dollars on the date notice of the claim is given to
the indemnifying Party.

 

Section 14.12.                   Subsidiaries.  Each of the Parties shall cause
to be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Subsidiary of
such Party or by any entity that becomes a Subsidiary of such Party at or after
the Distribution Effective Time, in each case to the extent such Subsidiary
remains a Subsidiary of the applicable Party. If, at any time, Cyclerion
acquires or creates one or more Subsidiaries that are includable in the
Cyclerion Group, all references to the Cyclerion Group herein shall thereafter
include a reference to such Subsidiaries.

 

Section 14.13.                   Third Party Beneficiaries.  Except as
specifically provided herein, this Agreement is solely for the benefit of the
Parties and shall not be deemed to confer upon any Person other than the Parties
any remedy, claim, liability, reimbursement, cause of action or other right
beyond any that exist without reference to this Agreement.

 

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Section 14.14.                   Titles And Headings.  Titles and headings to
sections herein are inserted for the convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.

 

Section 14.15.                   Governing Law.  This Agreement will be governed
by, construed and interpreted in accordance with the Laws of the State of
Delaware, without giving effect to the conflicts of Laws principles thereof that
might lead to the application of Laws other than the Laws of the State of
Delaware.

 

Section 14.16.                   Severability.  In the event any one or more of
the provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby.  The Parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.

 

Section 14.17.                   Interpretation.  Interpretation of this
Agreement shall be governed by the following rules of construction: (a) words in
the singular shall be held to include the plural and vice versa, and words of
one gender shall be held to include the other gender as the context requires;
(b) references to the terms “Section,” “paragraph,” “clause,” “Exhibit” and
“Schedule” are references to the Sections, paragraphs, clauses, Exhibits and
Schedules of this Agreement unless otherwise specified; (c) the terms “hereof,”
“herein,” “hereby,” “hereto,” and derivative or similar words refer to this
entire Agreement, including the Schedules and Exhibits hereto; (d) references to
“$” shall mean U.S. dollars; (e) the word “including” and words of similar
import when used in this Agreement shall mean “including without limitation,”
unless otherwise specified; (f) the word “or” shall not be exclusive;
(g) references to “written” or “in writing” include in electronic form;
(h) unless the context requires otherwise, references to “party” shall mean
Ironwood or Cyclerion, as appropriate, and references to “parties” shall mean
Ironwood and Cyclerion; (i) provisions shall apply, when appropriate, to
successive events and transactions; (j) the table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement; (k) Ironwood and
Cyclerion have each participated in the negotiation and drafting of this
Agreement and if an ambiguity or question of interpretation should arise, this
Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or burdening either party by
virtue of the authorship of any of the provisions in this Agreement or any
interim drafts of this Agreement; and (l) a reference to any Person includes
such Person’s successors and permitted assigns.

 

Section 14.18.                   No Duplication; No Double Recovery.  Nothing in
this Agreement, the Separation Agreement or any Ancillary Agreement is intended
to confer to or impose upon any Party a duplicative right, entitlement,
obligation or recovery with respect to any matter arising out of the same facts
and circumstances.

 

Section 14.19.                   No Waiver.  No failure to exercise and no delay
in exercising, on the part of any Party, any right, remedy, power or privilege
hereunder shall operate as a waiver hereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder

 

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preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.

 

Section 14.20.                   Further Action.  The Parties shall execute and
deliver all documents, provide all information, and take or refrain from taking
action as may be necessary or appropriate to achieve the purposes of this
Agreement, including the execution and delivery to the other parties and their
Affiliates and representatives of such powers of attorney or other authorizing
documentation as is reasonably necessary or appropriate in connection with Tax
Contests (or portions thereof) under the control of such other parties in
accordance with Article IX.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, each Party has caused this Agreement to be executed on its
behalf by a duly authorized officer on the date first set forth above.

 

 

IRONWOOD PHARMACEUTICALS, INC.

 

 

 

 

 

By:

/s/ Halley Gilbert

 

 

Name:Halley Gilbert

 

 

Title:Senior Vice President

 

 

 

 

 

CYCLERION THERAPEUTICS, INC.

 

 

 

 

 

By:

/s/ William Huyett

 

 

Name: William Huyett

 

 

Title:President

 

[Signature Page to Tax Matters Agreement]

 

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