"TAX LIABILITY" MEANS THE NET AMOUNT OF TAXES DUE
AND PAID OR PAYABLE FOR ANY TAXABLE PERIOD, DETERMINED AFTER APPLYING ALL TAX
CREDITS AND ALL APPLICABLE CARRYBACKS OR CARRYOVERS FOR NET OPERATING LOSSES,
NET CAPITAL LOSSES, UNUSED GENERAL BUSINESS TAX CREDITS, OR ANY OTHER TAX ITEMS
ARISING FROM A PRIOR OR SUBSEQUENT TAXABLE PERIOD, AND ALL OTHER RELEVANT
ADJUSTMENTS.
1.40.
"TAX RETURNS" MEANS ALL REPORTS, ESTIMATES,
DECLARATIONS OF ESTIMATED TAX, INFORMATION STATEMENTS AND RETURNS RELATING TO,
OR REQUIRED TO BE FILED IN CONNECTION WITH ANY TAXES, INCLUDING INFORMATION
RETURNS OR REPORTS WITH RESPECT TO BACKUP WITHHOLDING AND OTHER PAYMENTS TO
THIRD PARTIES.
1.41.
"UNQUALIFIED TAX OPINION" MEANS AN UNQUALIFIED
"WILL" OPINION OF TAX COUNSEL TO THE EFFECT THAT A TRANSACTION DOES NOT
DISQUALIFY THE DISTRIBUTION FROM QUALIFYING FOR TAX-FREE TREATMENT FOR
PHARMACOPEIA OR ITS SHAREHOLDERS UNDER CODE SECTION 355 (INCLUDING CODE
SECTION 355(E))AND ANY OTHER APPLICABLE SECTIONS OF THE CODE, ASSUMING THAT THE
DISTRIBUTION WOULD HAVE QUALIFIED FOR TAX TREATMENT IF SUCH TRANSACTION DID NOT
OCCUR, WHICH OPINION IS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
PHARMACOPEIA.
AN UNQUALIFIED TAX OPINION MAY RELY UPON, AND MAY ASSUME THE
ACCURACY OF, ANY REPRESENTATIONS GIVEN IN ANY OPINION DOCUMENT, AND ANY
CUSTOMARY REPRESENTATIONS CONTAINED IN AN OFFICER'S CERTIFICATE DELIVERED BY AN
OFFICER OF PHARMACOPEIA OR PDD TO SUCH COUNSEL.
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS.
2.1.
DESIGNATION OF AGENT.
WITH REGARD TO EACH
PHARMACOPEIA CONSOLIDATED RETURN, EACH PDD AFFILIATE HEREBY IRREVOCABLY
AUTHORIZES AND DESIGNATES PHARMACOPEIA AS ITS AGENT, COORDINATOR, AND
ADMINISTRATOR, FOR THE PURPOSE OF TAKING ANY AND ALL ACTIONS (INCLUDING THE
EXECUTION OF WAIVERS OF APPLICABLE STATUTES OF LIMITATION) NECESSARY OR
INCIDENTAL TO THE FILING OF ANY SUCH TAX RETURN OR OTHER TAX PROCEEDINGS, AND
FOR THE PURPOSE OF MAKING PAYMENTS TO, OR COLLECTING REFUNDS FROM, ANY TAXING
AUTHORITY, PROVIDED THAT PDD MAY CONTINUE TO PARTICIPATE IN ANY SUCH TAX
PROCEEDINGS AS PROVIDED HEREIN.
2.2.
PHARMACOPEIA CONSOLIDATED RETURNS.
PHARMACOPEIA WILL PREPARE ALL PHARMACOPEIA CONSOLIDATED RETURNS.
PHARMACOPEIA
SHALL HAVE THE EXCLUSIVE RIGHT TO (A) FILE, PROSECUTE, COMPROMISE, OR SETTLE ANY
CLAIM FOR REFUND, AND (B) DETERMINE WHETHER ANY REFUNDS TO WHICH THE
PHARMACOPEIA CONSOLIDATED GROUP MAY BE ENTITLED SHALL BE RECEIVED BY WAY OF
REFUND OR CREDIT AGAINST THE TAX LIABILITY OF THE PHARMACOPEIA CONSOLIDATED
GROUP.
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2.3.
TAXABLE PERIOD ENDS ON DISTRIBUTION DATE.
UNLESS PROHIBITED BY APPLICABLE LAW, ANY TAXABLE PERIOD OF PDD THAT IS INCLUDED
IN A PHARMACOPEIA CONSOLIDATED RETURN THAT INCLUDES THE DISTRIBUTION DATE SHALL
END ON THE DISTRIBUTION DATE.
2.4.
ALLOCATION.
UNLESS PHARMACOPEIA AND PDD AGREE
OTHERWISE, THE TAXABLE YEAR OF PDD SHALL BE TREATED FOR ALL TAX PURPOSES AS
ENDING ON THE DISTRIBUTION DATE, AND NO ALTERNATIVE METHOD OF ALLOCATING TAX
ITEMS OF PDD TO THE PERIOD INCLUDING THE DISTRIBUTION SHALL BE USED.
2.5.
PDD SEPARATE RETURNS.
PDD SHALL BE SOLELY
RESPONSIBLE FOR THE PREPARATION AND FILING OF ALL PDD SEPARATE RETURNS.
PDD
SHALL BE RESPONSIBLE FOR PAYING TO THE APPLICABLE TAX AUTHORITIES ALL TAXES
SHOWN AS DUE FROM ANY PDD AFFILIATE ON THE