GULF INSURANCE COMPANY
TAX OPINION INSURANCE POLICY
THIS TAX OPINION INSURANCE POLICY dated ______, 2001, (the "POLICY") is
for the benefit of the INSURED and the Additional Insured as provided herein and
is issued by the INSURER.
WHEREAS, Insured anticipates entering into the Transaction; and
WHEREAS, in connection with the Transaction, Insured intends to fulfill
its obligations under the Merger Agreement, a copy of which is attached as
Exhibit I to this Policy; and
WHEREAS, Insured anticipates receiving Insured Tax Benefits in
conjunction with the Transaction and the Insured and Plum Creek have obtained
the Opinions of McDermott, Will & Emery and Skadden, Arps, Slate, Meagher & Flom
LLP, respectively, copies of which are attached as Exhibit II to this Policy;
and
WHEREAS, Insurer has consulted with its own legal and tax advisors and
has been afforded the opportunity to undertake its own independent
investigation; and
WHEREAS, Insured will claim the Insured Tax Benefits for United States
Federal income tax purposes as described in the Opinions; and
WHEREAS, Insured desires, and Insurer has agreed to provide, a policy
of Tax Opinion Insurance in favor of Insured and Additional Insured in respect
of an Insured Tax Loss; and
WHEREAS, Plum Creek may become an Additional Insured under this Policy
upon the occurrence of an Additional Insured Event, and
WHEREAS, the premium for this Policy has been paid to the Insurer in
accordance with the provisions below.
NOW, THEREFORE, subject to the terms, conditions, exclusions, Contest
Expenses Retention, and Limit of Liability herein set forth, Insurer, Insured,
and Plum Creek (potentially an Additional Insured) agree as follows:
SECTION 1. INSURING CLAUSE. The Insurer shall indemnify Insured (but
not its shareholders) for any Insured Tax Loss sustained directly by Insured,
provided the Insured gives notice to Insurer of a Claim for such indemnification
as provided in Section 4 below. In the event of an Additional Insured Event, as
set forth in Section 5(a) below, the Insurer shall indemnify Additional Insured
(but not its stockholders) for any Insured Tax Loss only as provided herein.
SECTION 2. AMOUNT OF PAYMENT.
(a) LIMIT OF LIABILITY. The Insurer's maximum aggregate liability under
this Policy for all Insured Tax Loss, including Contest Expenses, Gross Ups,
Penalties, and Interest owed by one or both the Insured and Additional Insured
to the IRS or applicable state or local taxing authority, is $50,000,000.
(b) CONTEST EXPENSES RETENTION. Either or both the Insured and
Additional Insured shall be responsible for the first $500,000 of Contest
Expenses.
(c) CO-INSURANCE. Excess of the Contest Expense Retention, the Insurer
shall pay eighty five percent (85%) of Insured Tax Loss up to $30,000,000. The
Insurer shall pay one hundred percent (100%) of Insured Tax Loss in excess of
$30,000,000, excess of the Contest Expense Retention.
THE CONTEST EXPENSES RETENTION AND CO-INSURANCE SPECIFIED IN THIS
SECTION 2(B)AND (C) FURTHER LIMITS AND DOES NOT INCREASE THE INSURER'S LIABILITY
UNDER THIS POLICY, AND SHALL NOT LIMIT INSURED'S OR ADDITIONAL INSURED'S
OBLIGATION TO CONTEST AN INSURED TAX LOSS.
(d) LIMIT OF LIABILITY REDUCTIONS. The Limit of Liability under this
Policy shall be reduced by the amount of Insured Tax Loss which is paid by
Insurer and which is subject to such Limit of Liability. If Insurer pays the
full amount of its then remaining Limit of Liability, all further liabilities
and obligations of Insurer under this Policy with respect to Insured Tax Loss or
Contest Expenses, respectively, shall cease.
(e) LOSS COMPUTATION. For purposes of this Policy, the Insured Tax Loss
shall be 37% of all Insured Tax Benefits not legally available to the Insured or
Additional Insured, plus Contest Expenses, Gross Ups, Penalties, and Interest,
less any Offsetting Benefit. In the event that the Insured Tax Loss is owed by
the Insured or Additional Insured only to any applicable state or local taxing
authority, the Insured Tax Loss will be the actual lost Insured Tax Benefit
(which will be based upon any applicable state/local tax rates) and which will
be computed at the time of the Insured Tax Loss, less any Offsetting Benefit.
SECTION 3. PROCEDURE FOR & TIME OF PAYMENT
1
(a) IN GENERAL. Payment of Claims shall be made to Insured or
Additional Insured, at the addresses set forth in Section 9 below, on the later
of (1) thirty (30) Business Days after the Receipt by Insurer of a sworn Proof
of Loss from Insured or Additional Insured in the form attached hereto as
Schedule A, or (2) if Insured or Additional Insured has commenced a Contest of
an Insured Tax Loss, fifteen (15) Business Days after notice to Insurer of the
end of the Contest, unless there has been an earlier payment of such contested
Insured Tax Loss, with Insurer's consent. The filing of an Interim Proof of
Loss, as provided in Section 4(b) of this Policy, does not require Insurer to
pay under this Policy.
(b) INTEREST. If Insurer fails to pay to Insured or Additional Insured
a Claim within the time period set forth in Section 3(a) above, the amount of
such Claim shall be paid to Insured or Additional Insured by Insurer with
interest thereon, accruing from the date such amount was due and payable, at the
prime rate announced by Citibank, N.A. in New York, New York, as in effect from
time to time.
(c) ALLOCATION AND PAYMENT OF CONTEST EXPENSES. If the Insured or
Additional Insured is involved in a Contest simultaneously with a contest of any
matter pertaining to any actual or alleged tax liability of the Insured or
Additional Insured that does not involve an Insured Tax Benefit, the Insured or
Additional Insured and the Insurer shall fairly and reasonably allocate the
contest costs, subject to Section 2(b) above, between matters related to an
Insured Tax Benefit and matters that are not related to an Insured Tax Benefit
If there is an agreement on an allocation of contest costs, or if the
Contest involves only an Insured Tax Benefit, the Insurer shall pay those costs
allocated to covered Contest Expenses, subject to Section 2(b) above, every
ninety (90) days, commencing ninety days after the Contest has commenced.
If there is no agreement on an allocation of contest costs, the Insurer
shall pay, every ninety (90) days commencing ninety (90) days after the Contest
has commenced, those Contest Expenses, subject to Section 2(b) above, that the
Insurer, in its reasonable discretion, believes to be covered Contest Expenses
under this Policy until a different allocation is negotiated, arbitrated or
judicially determined.
Any negotiated, arbitrated or judicially determined allocation of
contest costs on account of an Insured Tax Loss shall be applied retroactively
to all contest costs on account of the Insured Tax Loss, notwithstanding any
prior payment to the contrary. Any allocation or payment of Contest Expenses
shall not apply to or create any presumption with respect to the allocation of
contest costs associated with any other Insured Tax Benefit.
Any payment of Contest Expenses under this Policy shall be subject to
the Insurer's receipt of a written undertaking by the Insured or Additional
Insured to repay the Insurer, to the extent legally permitted, any advanced
Contest Expenses that are ultimately established not to be covered Contest
Expenses, as defined herein.
NOTWITHSTANDING THE CONTEST EXPENSES RETENTION AND CO-INSURANCE
SPECIFIED IN SECTION 2(b) AND 2(c) ABOVE, IT IS A CONDITION PRECEDENT TO PAYMENT