"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