<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 5)
MATTHEWS STUDIO EQUIPMENT GROUP
(Name of Issuer)
Common Stock, no par value per share
(Title of Class of Securities)
577 140 10 6
(CUSIP Number)
Carlos D. De Mattos
Matthews Studio Equipment Group
2405 Empire Avenue
Burbank, California 91504-3399
(818) 843-6715
with a copy to:
Francis W. Costello, Esq.
Whitman Breed Abbott & Morgan
633 West Fifth Street
Los Angeles, California 90071
(213) 896-2400
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
January 10, 1997
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [ ].
Page 1 of 106 Pages
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SCHEDULE 13D
- --------------------- -------------------
CUSIP NO. 577140 10 6 Page 2 of 106 Pages
- --------------------- -------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Carlos D. De Mattos
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
N/A
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
PF; 00
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or 2(e) [ ]
N/A
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
140,667 (1.4%); See Item 5
---------------------------------------------------------------
8 SHARED VOTING POWER
NUMBER OF
SHARES 1,916,450 (18.5%); See Item 5
BENEFICIALLY ---------------------------------------------------------------
OWNED BY 9 SOLE DISPOSITIVE POWER
EACH
REPORTING 140,667 (1.4%); See Item 5
PERSON ---------------------------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
1,916,450 (18.5%); See Item 5
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,057,117; See Item 5
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
N/A
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
19.9%; See Item 5
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
Page 2 of 106 Pages
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SCHEDULE 13D
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CUSIP NO. 577140 10 6 PAGE 3 OF 106 PAGES
- --------------------- -------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
The Carlos and Elena De Mattos Family Trust
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
N/A
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
00
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
N/A
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
1,816,450 (17.5%); See Item 5
---------------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY -0-
OWNED BY ---------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 1,816,450 (17.5%); See Item 5
WITH ---------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
-0-
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,816,450
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
N/A
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
17.5%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
00
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Page 3 of 106 Pages
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SCHEDULE 13D
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CUSIP NO. 1577140 10 6 Page 4 of 106 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
C & E DM, LLC (a Limited Liability Company)
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
N/A
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
00
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
N/A
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Nevada
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
100,000 (1.0%); See Item 5
---------------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY -0-
OWNED BY ---------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 100,000 (1.0%); See Item 5
WITH ---------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
-0-
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
100,000
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
N/A
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
- --------------------------------------------------------------------------------
Page 4 of 106 Pages
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SCHEDULE 13D
INTRODUCTION.
This statement relates to Carlos D. De Mattos ("De Mattos") and each
other person who is the record owner or may be deemed the beneficial owner of
shares of Common Stock (as hereinafter defined) of Matthews Studio Equipment
Group by virtue of their affiliated status or other relationship with De Mattos
(collectively, the "reporting persons").
This statement amends and restates the statement on Schedule 13D and
amendments thereto made with respect to the reporting persons as follows:
1. Statement on Schedule 13D dated September 10, 1993;
2. Amendment No. 1 to Schedule 13D dated March 2, 1992;
3. Amendment No. 2 to Schedule 13d dated October 6, 1992;
4. Amendment No. 3 to Schedule 13D dated December 28, 1993; and
5. Amendment No. 4 to Schedule 13D dated January 29, 1993.
ITEM 1. SECURITY AND ISSUER.
This statement relates to the common stock, no par value per share
(the "Common Stock"), issued by Matthews Studio Equipment Group, a California
corporation (the "Company"). The principal executive offices of the Company are
located at 2405 Empire Avenue, Burbank, California 91504-3399.
ITEM 2. IDENTITY AND BACKGROUND.
(a) The reporting persons are (i) The Carlos and Elena De Mattos
Family Trust, a California trust (the "De Mattos Family Trust"), (ii) C&E DM,
LLC, a Nevada limited liability company (the "De Mattos Family LLC"), and (iii)
De Mattos, a natural person in his individual capacity.
De Mattos and his wife, Elena A. De Mattos, are the only trustees of
the De Mattos Family Trust. De Mattos is the sole manager of the De Mattos
Family LLC.
(b) The principal business address of each of the De Mattos Family
Trust, the De Mattos Family LLC, their respective trustees and manager and De
Mattos is 2405 Empire Avenue, Burbank, California 91504-3399.
(c) The principal business of each of the De Mattos Family Trust and
the De Mattos Family LLC is to hold investments as part of an estate plan for
the De Mattos family. The principal business of De Mattos is serving as
Chairman, President and Chief Executive Officer and a director of the Company.
Page 5 of 106 Pages
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(d) During the last five years, none of the De Mattos Family Trust,
the De Mattos Family LLC or De Mattos or his wife has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors).
(e) During the last five years, none of the De Mattos Family Trust,
the De Mattos Family LLC or De Mattos or his wife has been a party to a civil
proceeding or a judicial or administrative body of a competent jurisdiction and
as a result of such proceeding was or is subject to a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation with
respect to such laws.
(f) The De Mattos Family Trust is a California trust. The De Mattos
Family LLC is a Nevada limited liability company. De Mattos and his wife each is
a citizen of the United States.
ITEM 3. SOURCE AND AMOUNT OF FUNDS.
This statement relates to a total of 2,057,117 shares of Common Stock
which may be deemed to be beneficially owned by De Mattos and owned of record by
the reporting persons as of the date hereof as more specifically described in
Item 5 below.
The number of shares of Common Stock owned of record and beneficially
by the reporting persons as of the date hereof were acquired for cash or in
consideration of the exchange of certain shares of stock as described in this
Item 3 and in Item 5 below.
In the case of each of the purchases of shares by De Mattos upon the
exercise of options, De Mattos obtained the purchase price from his available
personal cash resources. In the case of the acquisition of shares of Common
Stock by De Mattos, other than upon exercise of options, De Mattos paid a
purchase price consisting of shares of common stock of the acquired company. In
the case of shares of Common Stock acquired by the De Mattos Family Trust, the
shares were obtained from De Mattos for no consideration. In the case of the
acquisition of shares of Common Stock by the De Mattos Family LLC, the shares
were obtained from the De Mattos Family Trust and from the C&E DM Limited
Partnership, a California limited partnership having De Mattos as its sole
general partner, in consideration of their respective membership interests.
ITEM 4. PURPOSE OF THE TRANSACTION.
The shares of Common Stock beneficially owned by De Mattos were
acquired and are being held for investment purposes. As a result of the
ownership of the shares and De Mattos positions as Chairman of the Board,
President and Chief Financial Officer and a director of the Company, De Mattos
may be deemed to control the Company. De Mattos and the other reporting persons
may, from time to time, depending on their evaluation of the market for the
Common Stock, other opportunities available to them, their financial
requirements and other possible future developments, decide to increase or
decrease their holdings of the Common Stock of the Company, although they have
no present intention to do so.
Page 6 of 106 Pages
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None of the reporting persons has any current plans or proposals which
relate to or would result in the occurrence of any of the actions or events
specified in clauses (a) through (j) of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) The aggregate number of shares of Common Stock and percentage of
the total outstanding shares represented thereby beneficially owned by (i) De
Mattos is 2,057,117 shares of Common Stock (including 140,667 shares issuable
upon the exercise of currently exercisable options) or 19.9% of the total, (ii)
the De Mattos Family Trust is 1,816,450 shares of Common Stock or 17.5% of the
total and (iii) the De Mattos Family LLC is 100,000 shares of Common Stock or
1.0% of the total, calculated, in each case accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, based on a total of 10,331,591
shares of Common Stock outstanding as reported in the Company's annual report on
Form 10-K for the year ended September 30, 1996.
(b) De Mattos may be deemed to have the sole power to vote and to
dispose of the 140,667 shares issuable upon exercise of the options owned by him
and the 100,000 shares owned by the De Mattos Family LLC of which he is the
sole Manager, totalling 240,667 shares or 2.3%. De Mattos may be deemed to
share the power to vote and to dispose of the 1,816,450 shares or 17.5% owned by
the De Mattos Family Trust with his wife who also serves as a trustee of the De
Mattos Family Trust as described in Item 2 above.
(c) The aggregate 2,057,117 shares of Common Stock owned of record and
beneficially by the reporting persons as of the date hereof were acquired for
cash or in consideration of the exchange of certain shares of stock (or sold for
cash) as follows:
1. in connection with a reverse acquisition of Captech, Inc. by the
Company in February 1989 De Mattos acquired 2,115,000 shares of
Common Stock in exchange for shares of Matthews Studio Equipment,
Inc. ("Matthews Equipment");
2. by the grant of options to De Mattos to purchase 60,000 shares of
Common Stock in February 1989 exercisable at $1.10 per share;
3. in connection with the acquisition of Matthews Studio
Electronics, Inc. ("MSEI") by the Company in July 1989 De Mattos
acquired 150,000 shares of Common Stock in exchange for shares of
MSEI;
4. by the transfer of 2,265,000 shares by De Mattos, as trust
settlor, in February 1991 to the De Mattos Family Trust;
5. by the grant of options to De Mattos to purchase 5,000 shares of
Common Stock in September 1991 exercisable at $1.38 per share;
6. by the exercise of options by De Mattos for the purchase of
41,000 shares in February 1992 at an aggregate exercise price of
$46,500 and the payment of cash therefor, and by the transfer of
these 41,000 shares in
Page 7 of 106 Pages
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February 1992 by De Mattos, as trust settlor, to the De Mattos
Family Trust;
7. by the sale of 25,000 shares of Common Stock by the De Mattos
Family Trust on the open market in October 1992 for aggregate
gross proceeds of $63,906;
8. by the sale of 22,000 shares of Common Stock by the De Mattos
Family Trust on the open market in December 1992 for aggregate
gross proceeds of $56,100;
9. by the sale of 40,000 shares of Common Stock by the De Mattos
Family Trust on the open market in January 1993 for aggregate
gross proceeds of $150,000;
10. by the grant of options to De Mattos to purchase 50,000 shares of
Common Stock in May 1993 exercisable at $3.125 per share;
11. by the transfer of 90,000 shares by the De Mattos Family Trust in
April 1994 to C&E DM Limited Partnership, a limited partnership
whose sole limited partner is the De Mattos Family Trust and
whose sole general partner is De Mattos (the "De Mattos Family
Partnership"), as part of its capital contribution in exchange
for the De Mattos Family Trust's equity interest in the De Mattos
Family Partnership;
12. by the transfer of 90,000 shares by the De Mattos Family
Partnership in April 1994 to the De Mattos Family LLC, as part of
its capital contribution in exchange for the De Mattos Family
Partnership's equity interest in the De Mattos Family LLC;
13. by the transfer of 10,000 shares by the De Mattos Family Trust in
April 1994 to the De Mattos Family LLC, as part of its capital
contribution to the De Mattos Family LLC in exchange for the De
Mattos Family Trust's equity interest in the De Mattos Family
LLC;
14. by the purchase by the De Mattos Family Trust of 97,450 shares of
Common Stock in June 1995 from Edward Phillips III, a director of
the Company and President of Matthews Equipment, a subsidiary of
the Company, as trustee of The Edward and Norma Phillips Trust,
in a private transaction for a purchase price of $1.00 per share
or an aggregate $97,450 in cash;
15. by the sale of 200,000 shares of Common Stock in May 1994 by the
De Mattos Family Trust to Wilgain Nominees, Ltd., a Hong Kong
corporation, in a private transaction for a purchase price of
$1.00 per share or an aggregate of $200,000 in cash;
Page 8 of 106 Pages
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16. by the grant of options to De Mattos to purchase 200,000 shares
of Common Stock (currently exercisable as to 66,667 of such
shares) in July 1995 exercisable at $3.00 per share; and
17. by the sale of 200,000 shares of Common Stock in January 1997 by
the De Mattos Family Trust to ING Equity Partners, L.P. I, an
affiliate of the Company ("ING"), in a private transaction for a
purchase price of $1.80 per share or an aggregate $360,000 in
cash.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Pursuant to a certain Stockholders Agreement dated July 27, 1995, as
amended, De Mattos has agreed to vote or cause to be voted all shares of Common
Stock beneficially owned by him for two representatives of ING to the Board of
Directors of the Company and to set the number of members of the Board of
Directors of the Company at nine. Except as disclosed herein and in the exhibits
hereto, each of which are incorporated herein by reference and made a part
hereof, none of the reporting persons is a party to any contract, arrangement,
understanding or relationship (legal or otherwise) with any person with respect
to any securities of the Company, including, but limited to, transfer or voting
of any of the securities.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
1. Declaration of Trust of the Carlos and Elena De Mattos Family
Trust dated February 12, 1991.
2. Operating Agreement of C&E DM, LLC dated March 1, 1994.
3. First Amendment to Operating Agreement of C&E DM, LLC dated
December 12, 1994.
4. Stockholders Agreement dated July 27, 1995 among the Company,
ING, De Mattos and Edward Phillips III, and their affiliates.
5. Amendment No. 1 to Stockholders Agreement dated April 5, 1996
among the Company, ING, De Mattos and Edward Phillips III, and
their affiliates.
Page 9 of 106 Pages
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SIGNATURE
After reasonable inquiry and to the best knowledge and belief of each
of the undersigned, the undersigned certify that the information set forth in
this Statement is true, complete and correct.
Date: February 13, 1997
/s/ CARLOS D. DE MATTOS
--------------------------------------------
Carlos D. De Mattos, individually
CARLOS AND ELENA DE MATTOS FAMILY TRUST
By: /s/ CARLOS D. DE MATTOS
---------------------------------------
Carlos D. De Mattos, a trustee
C&E DM, LLC
By: /s/ CARLOS D. DE MATTOS
---------------------------------------
Carlos D. De Mattos, Manager
Page 10 of 106 Pages
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<C> <S> <C>
1. Declaration of Trust of the Carlos and Elena De 12
Mattos Family Trust dated February 12, 1991
2. Operating Agreement of C&E DM, LLC dated 52
March 1, 1994
3. First Amendment to Operating Agreement of C&E 75
DM, LLC dated December 12, 1994
4. Stockholders Agreement dated July 27, 1995 79
among the Company, ING, De Mattos and Edward
Phillips III
5. Amendment No. 1 to Stockholders Agreement 103
dated April 5, 1996 among the Company, ING, De
Mattos and Edward Phillips III
</TABLE>
Page 11 of 106 Pages
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EXHIBIT 1
CARLOS AND ELENA DEMATTOS FAMILY TRUST
____________
February 12, 1991
Page 12 of 106 Pages
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TABLE OF CONTENTS
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<TABLE>
<C> <S> <C>
ARTICLE 1
---------
INTRODUCTORY PROVISIONS
-----------------------
1.1 TRUST ESTATE.......................................... 1
1.2 NAMES OF TRUSTS....................................... 1
1.3 TRUSTEE............................................... 1
1.4 TRUSTORS.............................................. 1
1.5 FAMILY DECLARATIONS................................... 2
1.6 CHARACTER OF TRUST PROPERTY........................... 2
1.7 NO CONTRACT FOR TRUST DISPOSITION..................... 2
ARTICLE 2
---------
TRUST DURING TRUSTORS' JOINT LIVES
----------------------------------
2.1 PAYMENTS IN TRUSTEE'S DISCRETION...................... 2
2.2 TRUSTORS' POWER TO DIRECT PAYMENTS.................... 3
2.3 TRUSTORS' USE OF RESIDENCE............................ 3
2.4 LIMITATIONS IF TRUSTOR INCAPACITATED.................. 3
2.5 TRUSTEE'S EXERCISE OF DISCRETION...................... 4
ARTICLE 3
---------
DIVISION ON DEATH OF FIRST SPOUSE
---------------------------------
3.1 DIVISION OF COMMUNITY PROPERTY........................ 5
3.2 DECEASED SPOUSE'S EXPENSES............................ 5
3.3 GENERAL CASH GIFTS.................................... 6
3.4 DIVISION INTO SEPARATE TRUSTS......................... 6
3.5 MARITAL DEDUCTION AMOUNT.............................. 7
3.6 DISCLAIMERS BY SURVIVING SPOUSE....................... 8
ARTICLE 4
---------
TRUSTS DURING SURVIVING SPOUSE'S LIFETIME
-----------------------------------------
4.1 DISCRETIONARY PAYMENTS BY TRUSTEE..................... 9
4.2 SURVIVING SPOUSE'S POWER TO DIRECT PAYMENTS........... 10
4.3 INCAPACITY OF SURVIVING SPOUSE........................ 10
4.4 GENERAL POWER OF APPOINTMENT.......................... 11
4.5 PAYMENTS FROM EXEMPTION TRUST......................... 11
4.6 LIMITED POWER OF APPOINTMENT.......................... 11
4.7 SURVIVING SPOUSE'S RESIDENCE.......................... 12
4.8 EXERCISE OF DISCRETION................................ 12
</TABLE>
Page 13 of 106 Pages
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<TABLE>
<C> <S> <C>
ARTICLE 5
---------
DISTRIBUTION AFTER DEATH OF SURVIVING SPOUSE
--------------------------------------------
5.1 COLLECTION OF TRUST ASSETS........................... 13
5.2 SURVIVING SPOUSE'S EXPENSES.......................... 13
5.3 DISTRIBUTION OF PERSONAL ARTICLES.................... 14
5.4 DIVISION INTO SEPARATE SHARES........................ 14
5.5 TRUSTS FOR TRUSTORS' CHILDREN........................ 14
5.6 TRUSTS FOR TRUSTORS' DESCENDANTS..................... 16
5.7 DISTRIBUTION OF ANY REMAINDER........................ 18
5.8 TERMINATION OF ALL TRUSTS............................ 19
ARTICLE 6
---------
REVOCATION AND AMENDMENT
------------------------
6.1 REVOCATION DURING TRUSTORS' JOINT LIVES.............. 19
6.2 AMENDMENT DURING TRUSTORS' JOINT LIVES............... 19
6.3 REVOCATION AND AMENDMENT BY SURVIVING SPOUSE......... 20
6.4 REVOCATION AND AMENDMENT PERSONAL TO TRUSTORS........ 20
6.5 TRUSTS IRREVOCABLE AFTER FIRST SPOUSE'S DEATH........ 20
ARTICLE 7
---------
TRUSTEE PROVISIONS
------------------
7.1 SUCCESSOR TRUSTEES................................... 20
7.2 DESIGNATION OF SUCCESSORS............................ 21
7.3 RESIGNATION OF TRUSTEE............................... 21
7.4 TRUSTEE'S COMPENSATION............................... 21
7.5 EMPLOYMENT OF AGENTS AND ADVISORS.................... 21
7.6 DISCLAIMER OF ADMINISTRATIVE POWERS.................. 22
7.7 EXERCISE OF POWERS IN FIDUCIARY CAPACITY............. 22
7.8 WAIVER OF BOND....................................... 22
7.9 TRUSTEE'S LIABILITY.................................. 22
7.10 CO-TRUSTEE'S LIABILITY............................... 23
7.11 SUCCESSOR TRUSTEE'S LIABILITY........................ 23
7.12 NOTICE OF EVENTS AFFECTING INTERESTS................. 23
7.13 AUTHORITY OF CO-TRUSTEES............................. 23
ARTICLE 8
---------
ADMINISTRATIVE POWERS OF TRUSTEE
--------------------------------
8.1 GENERAL AUTHORITY OF TRUSTEE......................... 23
8.2 TRUSTEE'S STANDARD OF CARE........................... 24
8.3 TRUSTEE'S INVESTMENT AUTHORITY....................... 24
8.4 AUTHORITY TO RETAIN PROPERTY......................... 24
8.5 MANAGEMENT OF SECURITIES............................. 24
8.6 EXERCISE OF VOTING RIGHTS............................ 25
8.7 NOMINEE HOLDING AUTHORIZED........................... 25
8.8 BORROWING AND ENCUMBERING............................ 25
8.9 INSURING TRUST PROPERTY.............................. 25
8.10 LITIGATION AND COMPROMISE OF CLAIMS.................. 25
8.11 TRUSTEE'S POWERS ON DISTRIBUTION..................... 26
8.12 TRUSTEE'S POWERS SURVIVE TRUST TERMINATION........... 26
ARTICLE 9
---------
ACCOUNTING AND TAX PROVISIONS
-----------------------------
9.1 ACCOUNTING BY TRUSTEE................................ 26
</TABLE>
Page 14 of 106 Pages
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<TABLE>
<C> <S> <C>
9.2 DETERMINATION OF PRINCIPAL AND INCOME............... 27
9.3 ALLOCATION OF INCOME AND EXPENSES................... 27
9.4 ADJUSTMENT FOR TAX CONSEQUENCES..................... 27
9.5 PURCHASE AND REDEMPTION OF FLOWER BONDS............. 28
ARTICLE 10
----------
TRUST ADMINISTRATION PROVISIONS
-------------------------------
10.1 ADDITIONS TO TRUST.................................. 28
10.2 NO PHYSICAL DIVISION REQUIRED....................... 28
10.3 TRANSACTIONS WITH TRUSTOR'S PROBATE ESTATE.......... 29
10.4 RESTRICTION ON ASSIGNMENT........................... 29
10.5 DISCLAIMER BY BENEFICIARIES......................... 29
10.6 PAYMENTS FOR EDUCATION.............................. 29
10.7 LOANS TO BENEFICIARY................................ 29
10.8 BENEFICIARY UNDER LEGAL DISABILITY.................. 30
10.9 DISTRIBUTION TO CUSTODIAN........................... 30
10.10 DEFERRAL OF DIVISION OR DISTRIBUTION................ 30
10.11 WITHHOLDING DISTRIBUTION SUBJECT TO CLAIMS.......... 30
10.12 EXERCISE OF POWERS OF APPOINTMENT................... 31
10.13 NO-CONTEST CLAUSE................................... 31
10.14 CHOICE OF LAW....................................... 32
10.15 CERTIFICATION OF TRUST.............................. 32
ARTICLE 11
----------
DEFINITIONS
-----------
11.1 TRUSTEE............................................. 32
11.2 CURRENT BENEFICIARY................................. 32
11.3 DEATH TAXES......................................... 33
11.4 DECEASED SPOUSE..................................... 33
11.5 DESCENDANTS......................................... 33
11.6 EDUCATION........................................... 33
11.7 INTERNAL REVENUE CODE............................... 33
11.8 BY RIGHT OF REPRESENTATION.......................... 33
11.9 SURVIVING SPOUSE.................................... 33
11.10 SURVIVOR'S TRUST.................................... 33
11.11 EXEMPTION TRUST..................................... 34
</TABLE>
Page 15 of 106 Pages
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<TABLE>
<C> <S> <C>
ARTICLE 12
----------
RULES OF CONSTRUCTION
---------------------
12.1 SHALL AND MAY........................................ 34
12.2 STATUTES, CODES AND REGULATIONS...................... 34
12.3 GENDER AND NUMBER.................................... 34
12.4 SEVERABILITY CLAUSE.................................. 34
12.5 USE OF HEADINGS...................................... 34
12.6 ARTICLE AND PARAGRAPH REFERENCES..................... 34
</TABLE>
Page 16 of 106 Pages
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DECLARATION OF TRUST
CARLOS D. DEMATTOS and ELENA A. DEMATTOS, the trustee, declares that CARLOS
D. DEMATTOS and ELENA A. DEMATTOS, the trustors, hereby create the CARLOS AND
ELENA DEMATTOS FAMILY TRUST. All property subject to this instrument, including
any additional property transferred to the trustee from time to time, shall be
held, administered, and distributed in accordance with the terms of this
instrument.
ARTICLE 1
---------
INTRODUCTORY PROVISIONS
-----------------------
1.1 TRUST ESTATE. All property estate." Additional property acceptable to
the trustee may be added to the trust estate at any time subject to this
instrument by the is referred to as the "trust trustors or by any other person.
1.2 NAMES OF TRUSTS. The the trustors' joint lives is called the "CARLOS
AND ELENA DEMATTOS FAMILY TRUST." Each initial trust created by additional trust
created in this instrument may be referred to by the name given to it in Article
3 this instrument and or by continuing during any other convenient name
designated by the trustee in a written instrument filed with the trust records.
1.3 TRUSTEE. CARLOS D. DEMATTOS and ELENA A. DEMATTOS are collectively
the initial trustee. The successor trustees are named in Article 7 of this
instrument. All references to the trustee in this instrument shall include any
trustee or co-trustees acting under this instrument at any time.
1.4 TRUSTORS. The term "trustors" as used in this instrument refers only
to CARLOS D. DEMATTOS and ELENA A. DEMATTOS, the initial trustors of this trust.
The terms "trustor" and "spouse" may refer to either trustor depending on the
context.
Page 17 of 106 Pages
<PAGE>
1.5 FAMILY DECLARATIONS. The trustors have three (3) children living on
the date of this instrument, whose names and dates of birth are:
<TABLE>
<S> <C>
MARCOS M. DEMATTOS SEPTEMBER 20, 1976
MATTHEW M. DEMATTOS MAY 21, 1981
DANIEL M. DEMATTOS APRIL 3, 1988
</TABLE>
Neither trustor has any other children now living or deceased. All references
in this instrument to a "child of the trustors" and any similar terms shall
refer only to the trustors' children named above.
1.6 CHARACTER OF TRUST PROPERTY. Any community property or separate
property transferred to this trust shall remain community property or separate
property, as the case may be. Any community property or separate property
distributed or withdrawn from this trust, including any income or appreciation
of that property, shall remain community property or separate property, as the
case may be, unless there has been a valid transmutation of the property at the
time the distribution or withdrawal is made. Notwithstanding the foregoing, the
trustee shall have full power to convey and otherwise manage and control the
trust property in accordance with the provisions of this instrument without the
joinder or consent of either trustor.
1.7 NO CONTRACT FOR TRUST DISPOSITION. Except for this instrument,
neither trustor has made any agreement controlling the disposition of the trust
property and this instrument shall not be construed as evidence of any such
agreement.
ARTICLE 2
---------
TRUST DURING TRUSTORS' JOINT LIVES
----------------------------------
During the joint lifetimes of the trustors, the trustee shall hold,
administer, and distribute the trust estate for the benefit of the trustors as
provided in this Article 2.
2.1 PAYMENTS IN TRUSTEE'S DISCRETION. In the absence of written
instructions from the trustors, the trustee shall pay to or apply for the
benefit of the trustors as much of the net
Page 18 of 106 Pages
<PAGE>
income and principal of the trust estate as the trustee, in the trustee's
discretion, considers appropriate for the trustors' support, care, comfort, and
general welfare, in accordance with their accustomed manner of living. In making
these payments, the trustee may take into account, to the extent the trustee
considers advisable, the trustors' other income and financial resources outside
this trust. Any net income not distributed shall be accumulated and added to
principal. Consistent with the trustee's fiduciary duties, the trustee may pay
more to or apply more for the benefit of one trustor than the other. The trustee
may make payments to either trustor for the account of the community, provided
that the trustor receiving the payments shall have the same duty to use the
payments for the trustors' benefit as he or she has with respect to any other
community property. The trustee's powers under this paragraph shall be subject
to the limitations of paragraph 2.4.
2.2 TRUSTORS' POWER TO DIRECT PAYMENTS. Subject to the limitations of
paragraph 2.4 below, the trustee shall pay to or apply for the benefit of the
trustors as much of the net income and principal of the trust estate as either
or both trustors may request in writing from time to time. In addition, the
trustors, acting jointly, may at any time direct the trustee in writing to make
single or periodic payments from the trust estate to any other person or
organization. The trustee shall promptly comply with the trustors' written
directions concerning payments and shall have no responsibility to inquire into
or determine the purposes for which the payments are made.
2.3 TRUSTORS' USE OF RESIDENCE. The trustors may continue to occupy,
without the payment of rent, any residential property included in the trust
estate. The trustors, acting jointly, may direct the trustee in writing to sell
any such residence and to purchase, rent, or lease a replacement residence
selected by the trustors. The trustee shall pay from the trust estate any rent
or lease payments, mortgage or trust deed payments, property taxes, assessments,
insurance premiums, maintenance expenses and ordinary repairs on any residential
property included in the trust estate.
2.4 LIMITATIONS IF TRUSTOR INCAPACITATED. If the trustee, in the
trustee's discretion, determines that either trustor has become physically or
mentally incapacitated and unable to
Page 19 of 106 Pages
<PAGE>
manage his or her financial affairs, the trustee's discretion concerning
payments under paragraph 2.1 shall be limited by the provisions of this
paragraph, and the trustors' powers to direct payments under paragraph 2.2 shall
cease to be effective. As long as one trustor is incapacitated, the trustee
shall pay to the other trustor for the account of the community, or shall apply
for the benefit of either or both trustors, as much of the net income and
principal of the trust estate as the trustee, in the trustee's discretion,
considers necessary for the trustors' proper support, health, and maintenance in
accordance with their accustomed manner of living. In deciding on these
payments, the trustee shall take into account the trustors' other income and
financial resources outside this trust, so far as known to the trustee and
reasonably available for the trustors' use. Any net income not distributed
shall be accumulated and added to principal. During the incapacity of one
trustor, the non-incapacitated trustor may withdraw as much of the accumulated
income and principal of the trust estate as he or she may request from the
trustee in writing. Any trust income or principal paid to or withdrawn by the
non-incapacitated trustor shall be held and administered as community property.
This paragraph shall cease to apply if the trustee determines that the
incapacitated trustor has regained the ability to manage his or her financial
affairs. In determining the incapacity of a trustor, the trustee may rely on a
written certificate from two licensed physicians who have examined the trustor.
If the trustee determines that both trustors are incapacitated and unable to
manage their financial affairs, the trustee shall apply all payments from the
trust estate directly for the trustors' benefit.
2.5 TRUSTEE'S EXERCISE OF DISCRETION. The trustee shall exercise the
power to invade principal of the trust estate for the benefit of the trustors in
a liberal manner, and the rights of other beneficiaries in the trust shall be of
secondary importance.
Page 20 of 106 Pages
<PAGE>
ARTICLE 3
---------
DIVISION ON DEATH OF FIRST SPOUSE
---------------------------------
On the death of the first spouse, the trustee shall divide and distribute
the trust estate as provided in this Article 3.
3.1 DIVISION OF COMMUNITY PROPERTY. In this instrument, the first spouse
to die is called the "deceased spouse" and the survivor is called the "surviving
spouse." On the death of the deceased spouse, the trustee shall promptly
collect any property added to the trust estate as a result of the deceased
spouse's death, such as property distributed to the trustee under the deceased
spouse's will and any life insurance or retirement plan benefits payable to the
trustee. The trustee shall then divide the trust estate into two shares, called
the "decedent's share" and the "survivor's share." The decedent's share shall
consist of the deceased spouse's one-half interest in the trustors' community
property, together with any of the deceased spouse's separate property, held or
received by the trustee. The survivor's share shall consist of the remaining
trust assets. In making this division, the trustee may allocate the trustors'
community property in divided or undivided interests, pro rata or non-pro rata,
using reasonable values determined by the trustee as of the date of division.
Subject to any contrary provisions in the deceased spouse's will or in any
beneficiary designations, all property added to the trust estate at the deceased
spouse's death shall be divided and allocated as provided in this Article 3.
3.2 DECEASED SPOUSE'S EXPENSES. After the death of the deceased spouse,
the trustee shall pay the following items from the trust estate: (1) the
deceased spouse's last illness and funeral expenses; (2) the deceased spouse's
debts, to the extent they are valid and enforceable immediately before the
deceased spouse's death; (3) attorney's fees and other expenses incurred in
administering this trust and the deceased spouse's probate estate; and (4) any
death taxes payable by reason of the deceased spouse's death, including any
death taxes attributable to property passing outside the trust estate. The
trustee shall allocate these payments between the decedent's share and the
survivor's
Page 21 of 106 Pages
<PAGE>
share as follows: (1) payments of the deceased spouse's last illness and funeral
expenses shall be charged only against the decedent's share; (2) payments of the
deceased spouse's debts shall be charged proportionately against the decedent's
share and the survivor's share in accordance with California Law in effect at
the death of the deceased spouse; (3) payments of attorney's fees and other
expenses of administration shall be charged against the decedent's share, except
for administration expenses properly attributable to the surviving spouse, which
shall be charged against the survivor's share; and (4) payments of the deceased
spouse's death taxes shall be charged against the decedent's share, without
apportionment or charge against any beneficiary of the trust estate or any
transferee of property passing outside the trust estate, except that any
increase in the deceased spouse's death taxes resulting from disclaimers made by
the surviving spouse shall be charged only against the disclaimed property.
3.3 GENERAL CASH GIFTS. As soon as practicable after the death of the
deceased spouse, but in no event later than one year after that date, the
trustee shall distribute the following general cash gifts from the decedent's
share of the trust estate:
3.3.1 If CARLOS DEMATTOS is the deceased spouse, the trustee shall
distribute the following cash gifts from the decedent's share of the trust
estate:
(a) The sum of Fifty Thousand Dollars ($50,000) shall be
distributed outright to CARLOS' mother, MARIA DEMATTOS.
No interest shall be paid on this gift. If a beneficiary named above does not
survive the deceased spouse for 30 days, then the gift to that deceased
beneficiary shall be distributed, by right of representation, to the descendants
of the deceased beneficiary who survive the deceased spouse for 30 days. The
gifts under this paragraph shall be free of all death taxes.
3.4 DIVISION INTO SEPARATE TRUSTS. After paying or adequately providing
for payment of the deceased spouse's debts and expenses and the general and
charitable gifts directed above,
Page 22 of 106 Pages
<PAGE>
if any, the trustee shall divide the remaining assets of the trust estate into
two separate trusts, called the "Survivor's Trust" and the "Exemption Trust", as
follows:
3.4.1 SURVIVOR'S TRUST. The Survivor's Trust shall consist of the
balance of the survivor's share of the trust estate, consisting of the
balance of the surviving spouse's one-half interest in the trust estate,
plus any of the surviving spouse's separate property included in or added
to the trust estate, together with any accrued or undistributed income of
the assets included in the survivor's share;
3.4.2 SURVIVOR'S TRUST. The Survivor's Trust shall also consist of
the assets included in that portion of the decedent's share of the trust
estate, called the "marital deduction amount" determined according to the
provisions of paragraph 3.5 below; and
3.4.3 EXEMPTION TRUST. The Exemption Trust shall consist of the
remaining assets of the decedent's share of the trust estate.
3.5 MARITAL DEDUCTION AMOUNT. The marital deduction amount to be
allocated to the Survivor's Trust shall consist of the minimum pecuniary amount
necessary as a marital deduction to entirely eliminate (or reduce to the maximum
extent possible) any federal estate tax payable by reason of the death of the
deceased spouse, after taking into account the following:
(1) The net value of all other property included in the deceased spouse's
gross estate that qualifies for the federal estate tax marital
deduction and that passes or has passed to or in trust for the
surviving spouse, whether under this instrument, under the will of the
deceased spouse, by right of survivorship, or otherwise;
(2) All other deductions taken in determining the deceased spouse's
federal estate tax; and
(3) All credits allowed for federal estate tax purposes in the deceased
spouse's estate, other than a credit for death taxes paid in the
estate of a person whose death occurs after the death of the deceased
spouse, or the credit allowed for state death taxes, unless at least
some state death tax would be payable to a state regardless of the
federal credit. No
Page 23 of 106 Pages
<PAGE>
credit shall be taken into account in determining the marital
deduction amount if the credit will result in disallowance of the
estate tax marital deduction.
In determining the marital deduction amount, final federal estate tax values,
computations and elections shall control, except that any disclaimer by the
surviving spouse of assets for which the federal estate tax marital deduction
would otherwise have been allowed shall be disregarded for the purposes of the
computation. The trustee may satisfy the marital deduction amount in cash or in
kind, including undivided interests in kind, or partly in each, but only with
assets included in the deceased spouse's gross estate that qualify for the
federal estate tax marital deduction. Assets allocated in kind shall be valued
at their net fair market values as finally determined for federal estate tax
purposes, but the trustee shall select assets to satisfy the marital deduction
amount so that any appreciation or depreciation in the value of the assets
between the applicable valuation date and the date of allocation is fairly
representative of the depreciation or appreciation in the value of all assets
available for allocation. Assets eligible for a foreign death tax credit in the
deceased spouse's estate shall be used only if all other assets of the deceased
spouse's estate are insufficient to fully fund the marital deduction amount.
The terms "gross estate" and "marital deduction" as used in this instrument
shall have the same meanings as under the estate tax provisions of the Internal
Revenue Code.
3.6 DISCLAIMERS BY SURVIVING SPOUSE. If the surviving spouse effectively
disclaims any interests in the decedent's share of the trust estate, then such
interests shall be administered and distributed as provided below:
3.6.1 If the surviving spouse disclaims an interest in all or any
portion of the Survivor's Trust, then the Survivor's Trust or portion,
as the case may be, shall be administered and distributed as if the
disclaimed interest had been omitted from the original trust terms;
Page 24 of 106 Pages
<PAGE>
3.6.2 If the surviving spouse disclaims all beneficial interests in
the Survivor's Trust, or in any portion of the Survivor's Trust, the
disclaimed assets shall be distributed according to the provisions of
Article 5 of this instrument as if the surviving spouse had died
immediately after the death of the deceased spouse;
3.6.3 If the surviving spouse disclaims an interest in all or any
portion of the Exemption Trust, then the Exemption Trust or portion, as the
case may be, shall be administered and distributed as if the disclaimed
interest had been omitted from the original trust terms; and
3.6.4 If the surviving spouse disclaims all beneficial interests in
the Exemption Trust or in any portion of the Exemption Trust, the
disclaimed assets shall be distributed according to the provisions of
Article 5 of this instrument as if the surviving spouse had died
immediately after the death of the deceased spouse.
ARTICLE 4
---------
TRUSTS DURING SURVIVING SPOUSE'S LIFETIME
-----------------------------------------
During the lifetime of the surviving spouse, the trustee shall hold,
administer, and distribute the trust estate for the benefit of the surviving
spouse as provided in this Article 4.
A. SURVIVOR'S TRUST
----------------
4.1 DISCRETIONARY PAYMENTS BY TRUSTEE. In the absence of written
directions from the surviving spouse, the trustee shall pay to or apply for the
benefit of the surviving spouse as much of the net income and principal of the
Survivor's Trust as the trustee, in the trustee's discretion, considers
appropriate for the surviving spouse's support, care, comfort, and general
welfare, in accordance with the surviving spouse's accustomed manner of living.
Any net income not distributed shall be accumulated and added to principal. The
trustee shall exercise the power to
Page 25 of 106 Pages
<PAGE>
invade principal of the Survivor's Trust for the surviving spouse in a liberal
manner and the rights of other beneficiaries in the trust shall be of secondary
importance.
4.2 SURVIVING SPOUSE'S POWER TO DIRECT PAYMENTS. The trustee shall pay to
or apply for the benefit of the surviving spouse, or to any other person or
organization designated by the surviving spouse, as much of the net income or
principal of the Survivor's Trust as the surviving spouse may direct in writing
from time to time. Subject to the provisions of paragraph 4.3 (dealing with the
surviving spouse's incapacity), the trustee shall promptly comply with the
surviving spouse's written directions and shall have no responsibility to
inquire into or determine the purposes for which the payments are made.
4.3 INCAPACITY OF SURVIVING SPOUSE. If the trustee, in the trustee's
discretion, determines that the surviving spouse has become physically or
mentally incapacitated and unable to manage his or her financial affairs, the
trustee's discretion concerning payments under paragraph 4.1 shall be limited by
the provisions of this paragraph and the surviving spouse's power to direct
payments under paragraph 4.2 shall cease to be effective. During such period of
incapacity, the trustee shall pay to or apply for the benefit of the surviving
spouse as much of the net income and principal of the Survivor's Trust as the
trustee, in the trustee's discretion, considers necessary for the surviving
spouse's proper support, health, and maintenance in accordance with his or her
accustomed manner of living. In deciding on these payments, the trustee shall
take into account, to the extent the trustee considers advisable, all other
income and financial resources of the surviving spouse outside the Survivor's
Trust, known to the trustee and reasonably available for the surviving spouse's
use. In determining the incapacity of the surviving spouse, the trustee may
rely on a written certificate from two licensed physicians who have examined the
surviving spouse. This paragraph shall cease to apply if the trustee determines
that the surviving spouse has regained the ability to manage his or her
financial affairs.
Page 26 of 106 Pages
<PAGE>
4.4 GENERAL POWER OF APPOINTMENT. On the death of the surviving spouse,
the trustee shall distribute all or any part of the assets then remaining in or
added to the Survivor's Trust, including undistributed income, to such one or
more persons and entities, including the surviving spouse's own estate, in such
proportions and on such terms and conditions, either outright or in trust, as
the surviving spouse me appoint in an acknowledged written instrument delivered
to the trustee which specifically refers to and exercises this power of
appointment. Any of the Survivor's Trust not effectively appointed by the
surviving spouse in this manner shall be distributed as provided in Article 5.
B. EXEMPTION TRUST
---------------
4.5 PAYMENTS FROM EXEMPTION TRUST. All net income of the Exemption Trust
shall be accumulated and added to principal. Subject to the limitations stated
below, the trustee shall have the power to pay to or apply for the benefit of
the surviving spouse as much of the accumulated income and principal of the
Exemption Trust as the trustee, in the trustee's discretion, considers necessary
for the surviving spouse's proper support, health, and maintenance, after taking
into account the surviving spouse's other sources of income and financial
resources outside the Exemption Trust. To the extent practicable, the trustee
shall make no payments to the surviving spouse from the Exemption Trust unless
the Survivor's Trust has first been exhausted. Notwithstanding the foregoing,
as long as the surviving spouse is acting as trustee of the Exemption Trust, no
payments shall be made to the surviving spouse from the Exemption Trust, unless
the surviving spouse has irrevocably appointed a co-trustee to act with respect
to the Exemption Trust, in which case the co-trustee may exercise the power to
invade principal of the Exemption Trust as provided in this paragraph.
4.6 LIMITED POWER OF APPOINTMENT. On the death of the surviving spouse,
the trustee shall distribute all or any part of the assets then remaining in or
added to the Exemption Trust, including all accumulated income, to such one or
more of the trustors' descendants or the
Page 27 of 106 Pages
<PAGE>
spouses of such descendants, in such proportions and on such terms and
conditions, either outright or in trust, as the surviving spouse may appoint in
an acknowledged written instrument delivered to the trustee which specifically
refers to and exercises this power of appointment. Any of the Exemption Trust
not effectively appointed by the surviving spouse in this manner shall be
distributed as provided in Article 5.
4.7 SURVIVING SPOUSE'S RESIDENCE. After the death of the deceased spouse,
the surviving spouse shall have the right to continue to occupy, without payment
of rent, all real property in the trust estate that the trustors were using for
residential purposes at the time of the deceased spouse's death, whether on a
full or part time basis. The trustee is expressly authorized to continue to
hold any residential property that the trustee receives or acquires as part of
the trust estate for as long as the surviving spouse continues to occupy it.
The surviving spouse may direct the trustee in writing to sell any such
residential property and to purchase, rent, or lease a replacement residence
selected by the surviving spouse. However, to the extent that an interest in
the residential property is allocated to the Exemption Trust, the value of the
interest in any replacement residence included in that trust shall be of
comparable or lower value. The trustee shall pay out of the income or principal
of each trust to which an interest in the property has been allocated a pro rata
share of the trust deed payments, property taxes, assessments, insurance
premiums, maintenance expenses, and ordinary repairs on the property, or any
rent or lease payments, based on the proportionate interest in the property
included in each trust.
4.8 EXERCISE OF DISCRETION. In exercising the discretion to invade
principal of the trusts created during the surviving spouse's lifetime, the
trustee shall be mindful of the fact that the trustors' primary concern in
establishing these trusts is the welfare of the surviving spouse and that the
rights of other beneficiaries in the trusts shall be of secondary importance.
Page 28 of 106 Pages
<PAGE>
ARTICLE 5
---------
DISTRIBUTION AFTER DEATH OF SURVIVING SPOUSE
--------------------------------------------
After the death of the surviving spouse, any of the trust estate that has
not been effectively disposed of by the surviving spouse's exercise of a power
of appointment shall be held, administered, and distributed as provided in this
Article 5.
5.1 COLLECTION OF TRUST ASSETS. On the death of the surviving spouse, the
trustee shall promptly collect any property added to the trust estate as a
result of the surviving spouse's death, such as property distributed to the
trustee under the surviving spouse's will and any life insurance or retirement
plan benefits payable to the trustee. Subject to any contrary provisions in the
surviving spouse's will or in any beneficiary designations, all assets added to
the trust estate on the death of the surviving spouse shall be allocated to the
Survivor's Trust.
5.2 SURVIVING SPOUSE'S EXPENSES. On the death of the surviving spouse,
the trustee, in the trustee's reasonable discretion, may pay any of the
following out of the trust estate: (1) the surviving spouse's Last illness and
funeral expenses; (2) debts of the surviving spouse, to the extent they are
valid and enforceable immediately before the surviving spouse's death; (3)
attorney's fees and other costs incurred in administering this trust and the
surviving spouse's probate estate; and (4) any death taxes payable by reason of
the surviving spouse's death, including death taxes attributable to property
passing outside the trust estate. Payments of the surviving spouse's debts and
last illness and funeral expenses shall be charged to the Survivor's Trust.
Payments of attorneys' fees and other expenses of administration shall be
charged to the Survivor's Trust, except for expenses properly attributable to
the Exemption Trust, which shall be charged against the property included in
that trust. Unless the surviving spouse provides contrary directions regarding
apportionment of death taxes in his or her will, payments of the surviving
spouse's death taxes shall be charged and recovered by the trustee in accordance
with applicable federal and state tax taws and proration statutes.
Page 29 of 106 Pages
<PAGE>
5.3 DISTRIBUTION OF PERSONAL ARTICLES. As soon as practicable after the
death of the surviving spouse, the trustee shall distribute all tangible
articles of a household or personal nature that have been included in or added
to the trust estate in any manner, such as personal automobiles, household
furniture, furnishings, appliances, books, objects of art, family heirlooms,
photographs, jewelry, clothing and personal effects, together with any insurance
on those assets, to each then living child of the trustors, to be divided
between them in shares of substantially equal net value as they shall agree, or
as the trustee, in the trustee's discretion, shall determine if they are unable
to agree on a division. If no child of the trustors is living at the time for
distribution, the assets described in this paragraph shall be disposed as part
of the remaining trust assets.
5.4 DIVISION INTO SEPARATE SHARES. After paying or adequately providing
for payment of any of the surviving spouse's debts, expenses and death taxes
that the trustee elects to pay and on making the distribution of personal
articles directed above, the trustee shall divide the remaining assets of the
trust estate into as many equal shares as there are children of the trustors
then living and children of the trustors then deceased leaving descendants then
living. The trustee shall allocate one equal share to each living child of the
trustors and one equal share to each group composed of the living descendants of
a deceased child of the trustors. Each such share shall be retained in trust
and administered and distributed as further provided below.
5.5 TRUSTS FOR TRUSTORS' CHILDREN. Each share set aside for a living
child of the trustors shall be divided into a separate trust ("the Child's
Trust") to be held and administered for the benefit of the child during the
child's lifetime, as follows:
5.5.1 As long as the child is under age 21, the trustee shall pay to
or apply for the benefit of the child as much of the net income and
principal of the child's trust as the trustee, in the trustee's discretion,
considers necessary for the child's proper support, health and education.
Any income not distributed shall be accumulated and added to principal.
Page 30 of 106 Pages
<PAGE>
5.5.2 After the child reaches age 21, the trustee shall pay to or
apply for the benefit of the child the entire net income of the child's
trust, in quarter-annual or more frequent installments. If the trustee
considers the income of the child's trust to be insufficient, the trustee
shall also pay to or apply for the benefit of the child as much of the
principal of the child's trust as the trustee, in the trustee's discretion,
considers necessary for the child's proper support, health, and education.
In deciding on these payments, the trustee shall take into consideration,
to the extent the trustee considers advisable, the child's other income,
financial resources and sources of support outside the child's trust, so
far as known to the trustee and reasonably available for the child's use.
5.5.3 At any time after the child reaches age 25, the trustee shall
distribute to the child as much of the trust as the child may request in
any acknowledged written instrument delivered to the trustee, but, in no
event, in excess of one-third (1/3) of the value of the child's trust,
determined as of that date.
5.5.4 At any time after the child reaches age 30, the trustee shall
distribute to the child as much of the child's trust as the child may
request in any acknowledged written instrument delivered to the trustee,
but, in no event, in excess of one-half (1/2) of the value of the child's
trust, determined as of that date.
5.5.5 When the child reaches age 35, the trustee shall terminate the
child's trust and distribute the remaining assets of the child's trust,
including any accrued or undistributed income of that trust, outright to
the child, free of trust.
5.5.6 If the child dies before receiving full distribution of the
child's trust share, the trustee shall then distribute the remaining
balance of the child's share to such one or more persons and entities,
including the child's own estate, on such terms and conditions, either
outright or in trust, as the child may appoint in a will or codicil which
specifically refers to and exercises this general testamentary power of
appointment.
Page 31 of 106 Pages
<PAGE>
5.5.7 Any assets of the deceased child's trust that are not
effectively appointed by the child in the manner provided above shall be
distributed as follows:
(a) If the deceased child leaves descendants who are then living,
the unappointed balance of the child's trust shall be divided into
separate shares and administered and distributed for the benefit of
the descendants of the deceased child according to the provisions of
paragraph 5.6 below, provided that the trust for each descendant shall
terminate no later than the time provided by paragraph ? below.
(b) If the deceased child leaves no living descendants, the
balance of the child's trust shall be distributed to the trustors'
then-living descendants, by right of representation. However, if any
part of that balance would otherwise be distributed to a person for
whose benefit a trust is then being administered under this
instrument, then that portion shall not be distributed outright but
shall instead be added to that trust and administered according to its
term.
5.6 TRUSTS FOR TRUSTORS' DESCENDANTS. Each share of descendants of a
deceased child of the trustors shall be further divided into separate shares for
those descendants, by right of representation. Each share set aside for a
descendant who is then age 35 or older shall be distributed outright to that
descendant, free of trust. Each share set aside for a descendant who has not
then reached age 35 shall be held, administered and distributed in a separate
trust for the benefit of that descendant as follows:
5.6.1 As long as the descendant is under age 21, the trustee shall
pay to or apply for the benefit of the descendant as much of the net income
and principal of the descendant's trust as the trustee, in the trustee's
discretion, considers necessary for the descendant's proper support, health
and education. Any income not distributed shall be accumulated and added
to principal.
Page 32 of 106 Pages
<PAGE>
5.6.2 After the descendant reaches age 21, the trustee shall pay to
or apply for the benefit of the descendant the entire net income of the
descendant's trust, in quarter-annual or more frequent installments. If
the trustee considers the net income of the descendant's trust to be
insufficient, the trustee shall also pay to or apply for the benefit of the
descendant as much of the principal of the descendant's trust as the
trustee, in the trustee's discretion, considers necessary for the
descendant's proper support, health and education. When deciding on
payments to be made from the descendant's trust, the trustee may take into
account, to the extent the trustee considers advisable, any of the
descendant's other income, financial resources, and sources of support
outside the descendant's trust, so far as known to the trustee and
reasonably available for the descendant's use, including the descendant's
capacity for gainful employment after completion of his or her education.
5.6.3 At any time after the descendant reaches age 25, the trustee
shall distribute to the descendant as much or all of the descendant's trust
as the descendant may request in any acknowledged written instrument
delivered to the trustee but, in no event, in excess of one-half (1/2) of
the value of the descendant's trust, determined as of that date.
5.6.4 When the descendant reaches age 35, the trustee shall terminate
the descendant's trust and distribute the remaining balance of the trust to
the descendant.
5.6.5 If the descendant dies before receiving full distribution of
his or her trust share, the trustee shall then distribute the remaining
balance of the descendant's share to such one or more persons and entities,
including the descendant's own estate, on such terms and conditions, either
outright or in trust, as the descendant may appoint in a will or codicil
which specifically refers to and exercises this general testamentary power
of appointment.
5.6.6 Any assets of the deceased descendant's trust that are not
effectively appointed by the descendant in the manner provided above shall
be distributed as follows:
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<PAGE>
(a) If the deceased descendant leaves descendants then living,
the balance the descendant's trust shall be distributed to his or her
then living descendants, by right of representation. However, if a
person entitled to receive distribution is then under 25, the trustee
shall not distribute that person's share outright, but shall instead
distribute the share to a custodian serving on behalf of the
beneficiary until age 25 under the California Uniform Transfers to
Minors Act. If no such custodian is then acting, the trustee shall
name a custodian from among those persons qualified to serve, which
may include the trustee. The trustee shall be free of liability and
discharged from any further accountability for distributions made in
accordance with the provisions of this paragraph.
(b) If the deceased descendant leaves no descendants then-living,
the balance of the descendant's trust shall be distributed to the
trustors' then-living descendants, by right of representation.
However, if any part of that trust balance would otherwise be
distributed to a person for whose benefit a trust is then being
administered under this instrument, that portion shall not be
distributed outright but shall instead be added to that trust and
administered according to its terms.
5.7 DISTRIBUTION OF ANY REMAINDER. If at any time before full
distribution of the trust estate the trustors and all of the trustors'
descendants are deceased and no other disposition of the trust property is
directed by this instrument, the remaining trust assets shall then be divided
and distributed one-half to the heirs of CARLOS D. DEMATTOS and one-half to the
heirs of ELENA A. DEMATTOS. The identities and respective shares of those heirs
shall be determined in all respects as though the death of each trustor had
occurred immediately after the event requiring distribution under this paragraph
and according to the laws of the State of California then in effect relating to
intestate succession.
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<PAGE>
5.8 TERMINATION OF ALL TRUSTS. Unless terminated earlier in accordance
with other provisions of this instrument, all trusts created under this
instrument, or by the exercise of any power of appointment granted by this
instrument, shall terminate twenty-one (21) years after the death of the last
survivor of trustors and the trustors' descendants who are living at the death
of the deceased spouse. The trustee shall distribute the principal and
undistributed income of each trust so terminated to the income beneficiary of
that trust. If at the time of termination the right to income is not fixed by
the term of the trust, distribution shall be made to the person who is then
entitled or authorized, in the trustee's discretion, to receive trust income.
ARTICLE 6
---------
REVOCATION AND AMENDMENT
------------------------
6.1 REVOCATION DURING TRUSTORS' JOINT LIVES. As long as both trustors are
living, either trustor acting alone, or both trustors acting together, may
revoke this trust or withdraw all or any portion of the trust assets by signing
and delivering written instructions to the trustee designating the assets to be
revoked. On receipt of such instructions, the trustee shall promptly deliver
the designated trust assets to the trustors. Any community property revoked or
withdrawn from this trust shall remain the trustors' community property. If
this trust is revoked with respect to all or a major portion of the assets
subject to it, the trustee shall be entitled to retain sufficient assets
reasonably necessary to secure payment of liabilities lawfully incurred in
administering the trust, unless the trustors agree to indemnify the trustee
against any loss or expense.
6.2 AMENDMENT DURING TRUSTORS' JOINT LIVES. The trustors may amend the
terms of this instrument at any time during their joint lifetimes by a written
instrument signed and acknowledged by both trustors and delivered to the
trustee. No amendment shall substantially increase the duties or liabilities of
the trustee or change the trustee's compensation without the trustee's consent,
and the trustee shall have no obligation to act under an amendment unless the
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<PAGE>
trustee accepts it. If a trustee is removed because of a refusal to accept an
amendment, the trustors shall pay any amounts due to the trustee and shall
indemnify the trustee against any liability lawfully incurred in administering
the trust.
6.3 REVOCATION AND AMENDMENT BY SURVIVING SPOUSE. The surviving spouse
may revoke the Survivor's Trust in whole or in part by signing and delivering
written instructions to the trustee designating the assets to be revoked. On
revocation, the trustee shall promptly comply with the surviving spouse's
instructions. In addition, the surviving spouse may amend the terms of the
Survivor's Trust by a signed and acknowledged written instrument delivered to
the trustee. The surviving spouse's powers of revocation and amendment shall be
subject to the qualifications applicable to the trustors in paragraphs 6.1 and
6.2 above.
6.4 REVOCATION AND AMENDMENT PERSONAL TO TRUSTORS. The trustors' powers
to revoke and amend this trust are personal to them and may not be exercised on
their behalf by any other person, except that if a conservator has been
appointed for either trustor, such conservator may exercise a trustor's powers
after obtaining approval from the court that appointed the conservator.
6.5 TRUSTS IRREVOCABLE AFTER FIRST SPOUSE'S DEATH. Except for the
Survivor's Trust, all trusts created in this instrument after the death of the
deceased spouse shall be irrevocable and unamendable and no person, including
the surviving spouse, shall have any power to revoke, amend, or terminate those
trusts.
ARTICLE 7
---------
TRUSTEE PROVISIONS
------------------
7.1 SUCCESSOR TRUSTEES. CARLOS D. DEMATTOS and ELENA A. DEMATTOS shall
serve as the initial trustee of all trusts created under this instrument as long
as they are collectively able and willing to act. On the death of either
initial trustee, or on his or her
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<PAGE>
resignation or inability to serve for any reason, the other initial trustee
shall serve as sole initial trustee. On the death of the sole initial trustee,
or on his or her resignation or inability to serve for any reason, then the
following named individuals shall serve as successor trustees hereunder, in the
order named:
First Successor Appointees: MARIO DE MATTEO, CARL NORDQUIST and JACK
BREHM
Second Successor Appointee: ANTHONY DE MATTEO
The First Successor Appointees named above shall serve jointly, and in the event
any one of the above-named First Successor Appointees is unable, unwilling, or
ceases to act as trustee hereunder, then the remaining two shall act as co-
trustees. In the event that only one of the First Successor Appointees named
above is able to serve, then that person shall serve jointly with the Second
Successor Appointee.
7.2 DESIGNATION OF SUCCESSORS. If at any time there is no trustee able or
willing to act under this instrument, any person interested in the trust may
petition the appropriate court for appointment of a successor.
7.3 RESIGNATION OF TRUSTEE. Any trustee acting under this instrument may
resign as trustee at any time by giving written notice of resignation to the
current beneficiary of each affected trust, to the acting co-trustee of that
trust, if any, and to the designated successor trustee of that trust.
Resignation shall be effective on acceptance of office by the successor trustee.
7.4 TRUSTEE'S COMPENSATION. Each individual trustee acting under this
instrument shall be entitled to reasonable compensation from the trust estate
for services rendered as trustee; and each trustee shall be entitled to
repayment out of the trust estate for expenses property incurred in the
administration of the trust.
7.5 EMPLOYMENT OF AGENTS AND ADVISORS. The trustee may employ
accountants, attorneys, corporate fiduciaries, custodians, investment or tax
advisors, and any other
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<PAGE>
agents or advisors, even if they are associated or affiliated with the trustee,
to advise and assist the trustee in the administration of the trust and in the
management of any trust assets, and the trustee may rely on the advice given by
these agents. The trustee may pay reasonable compensation from the trust estate
for all services performed by these agents, and such payments shall not decrease
the compensation to which an individual trustee would otherwise be entitled.
7.6 DISCLAIMER OF ADMINISTRATIVE POWERS. Any trustee acting under this
instrument may disclaim, release or restrict the scope of any power held in
connection with any trust, including any administrative power, whether that
power is expressly granted in this instrument or implied by law, by a written
instrument specifying the power to be disclaimed, released or restricted and the
nature of any such restriction. Any disclaimed or released power may be
exercised by the then acting co-trustee.
7.7 EXERCISE OF POWERS IN FIDUCIARY CAPACITY. Each trustee acting under
this instrument shall exercise the powers vested in the trustee in good faith
and in accordance with the trustee's fiduciary duties. No trustee shall have
the power by reason of any administrative powers granted in this instrument to
enlarge or shift the beneficial interests of a trust except as an incidental
consequence of the discharge of the trustee's fiduciary duties.
7.8 WAIVER OF BOND. No bond shall be required of any person named as
trustee in this instrument or of any person designated as trustee in the manner
specified in this instrument.
7.9 TRUSTEE'S LIABILITY. No individual trustee acting under this
instrument shall be liable to any person interested in the trust estate for any
act or failure to act, except for the trustee's own willful misconduct, bad
faith, or gross negligence. No trustee shall be liable or responsible for any
act, omission or default of any other trustee, unless the trustee has knowledge
of facts that might reasonably be expected to put the trustee on notice.
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<PAGE>
7.10 CO-TRUSTEE'S LIABILITY. No trustee shall be liable or responsible for
any act, omission or default of any other trustee, unless such trustee has
knowledge of facts that might reasonably be expected to put the trustee on
notice.
7.11 SUCCESSOR TRUSTEE'S LIABILITY. No successor trustee acting under this
instrument shall be liable for any act, omission or default of a predecessor
trustee. Unless requested in writing within 60 days of appointment by a current
beneficiary of the trust, a successor trustee shall have no duty to investigate
or review any action of a predecessor trustee. A successor trustee may accept
as correct the accounting records of the predecessor trustee without further
investigation and without liability to any person claiming or having an interest
in the trust.
7.12 NOTICE OF EVENTS AFFECTING INTERESTS. Unless the trustee receives
notice of the occurrence of an event affecting the beneficial interests of a
trust, the trustee shall not be liable to any beneficiary for distributions made
or other actions taken in good faith as though the event had not occurred. The
trustee shall not be liable to any creditor for making distributions authorized
by this instrument unless the trustee has received actual written notice of the
creditor's claim.
7.13 AUTHORITY OF CO-TRUSTEES. As long as CARLOS D. DEMATTOS and ELENA A.
DEMATTOS are acting as co-trustees under this instrument, the signature of, or
any action taken by, either CARLOS D. DEMATTOS or ELENA A. DEMATTOS, acting
alone, shall be binding upon the trust and may be relied on by third parties
dealing with the trustees.
ARTICLE 8
---------
ADMINISTRATIVE POWERS OF TRUSTEE
--------------------------------
8.1 GENERAL AUTHORITY OF TRUSTEE. To carry out the purposes of each trust
held under this instrument and subject to any additions or limitations stated
elsewhere herein, the trustee shall have all powers now or hereafter conferred
on trustees by law, including all powers
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<PAGE>
granted by the California Trust Law. The powers confirmed by this paragraph
shall be in addition to all powers expressly conferred on the trustee in this
instrument.
8.2 TRUSTEE'S STANDARD OF CARE. In administering the trust held under
this instrument, the trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing, including but not limited to
the general economic conditions at the time and the anticipated needs of the
trust and its beneficiaries, that a prudent person acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of like
character and with like aims to accomplish the purposes of the trust as
determined from this instrument.
8.3 TRUSTEE'S INVESTMENT AUTHORITY. Within the limitations of the
foregoing standard of care, the trustee is authorized to invest and reinvest
trust funds in any kind of real or personal property and in any kind of
investment. The trustee shall have full authority to invest and reinvest trust
funds without being restricted as to the form of investments that the trustee
may otherwise be permitted to make by law and the trustee may consider
individual investments as part of an overall investment strategy.
8.4 AUTHORITY TO RETAIN PROPERTY. The trustee may continue to hold in the
form in which received any securities or other property received as part of this
trust, including unproductive or underproductive property, as long as the
trustee deems advisable.
8.5 MANAGEMENT OF SECURITIES. The trustee is authorized to buy, sell, and
trade in stocks, bonds, and securities of every nature, including short sales,
and for such purposes the trustee may establish and maintain margin accounts
with securities dealers or brokers and may pledge any securities held or
purchased by the trustee with such dealers and brokers as security for loans and
advances made to the trustee. The trustee shall have all the rights, powers,
and privileges of an owner of the securities held in this trust, including, but
not limited to, the power to vote and give proxies; to enter into shareholders'
agreements; to pay calls, assessments, and other sums chargeable or accruing
against or on account of such securities; to sell or exercise stock subscription
Page 40 of 106 Pages
<PAGE>
of conversion rights; to consent, directly or through a committee or other
agent, to the reorganization, consolidation, merger, liquidation, sale, or
dissolution of a corporation or other business enterprise; and to participate in
voting trusts and pooling arrangements (whether or not extending beyond the term
of the trust), and incident thereto, to deposit securities with and transfer
title and delegate discretion to any protective or other committee as the
trustee deems advisable.
8.6 EXERCISE OF VOTING RIGHTS. The trustee may exercise voting rights
with respect to any shares of stock of a domestic or foreign corporation, any
membership in a nonprofit corporation, or any other trust property, either in
person or by proxy, and the trustee may waive notice of a meeting or consent to
the holding of a meeting and authorize, ratify, approve, or confirm any action
that may be taken by shareholders, members, or property owners.
8.7 NOMINEE HOLDING AUTHORIZED. The trustee is expressly authorized to
hold securities or any other trust property registered or recorded in the
trustee's name as trustee under this instrument, or in the trustee's individual
name, as nominee, without disclosing this trust, or in the individual name of
any other person, firm, or corporation, including any bank, trust company, or
securities brokerage house, as nominee, without disclosing this trust, or the
trustee may hold securities unregistered in such condition that title will pass
by delivery.
8.8 BORROWING AND ENCUMBERING. The trustee shall have the power to borrow
money for any trust purpose and to encumber trust property to secure the
indebtedness of the trust or the joint indebtedness of the trust and a co-owner
of trust property.
8.9 INSURING TRUST PROPERTY. The trustee shall have the power to carry,
at the expense of the trust, insurance of such kinds and in such amounts as the
trustee considers advisable to protect the trust property against damage or loss
and to protect the trustee against liability with respect to third parties.
8.10 LITIGATION AND COMPROMISE OF CLAIMS. The trustee shall have the power
to commence or defend, at the expense of the trust, any actions, claims, or
proceedings for
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<PAGE>
the protection of the trust property or for the protection of the trustee in the
performance of the trustee's duties. The trustee may pay or contest any claim
by or against the trust, adjust or settle any claim or litigation by compromise,
arbitration, or otherwise, and release, in whole or in part, any claim belonging
to the trust. The trustee's powers under this paragraph shall apply during the
term of the trust and after distribution of trust assets. However, the trustee
shall have no obligations or duties with respect to any claims or litigation
occurring after distribution of trust property unless the trustee is adequately
indemnified by the distributees for any loss in connection with such matters.
8.11 TRUSTEE'S POWERS ON DISTRIBUTION. In any case in which the trustee is
required to divide trust property into parts or shares for the purpose of
distribution or otherwise, the trustee shall have the discretion to make the
division or distribution in undivided interests or in kind, or partly in cash
and partly in kind, using reasonable values determined by the trustee. For this
purpose, the trustee may make such sales of the trust property as the trustee
deems necessary on such terms and conditions as the trustee considers advisable.
The trustee shall have no obligation to make a pro rata division or distribution
among beneficiaries similarly situated; and the trustee may make a non-pro rata
division between shares and non-pro rata distributions to beneficiaries, as long
as the assets allocated to the separate shares or distributed to the
beneficiaries have equivalent or proportionate fair market values.
8.12 TRUSTEE'S POWERS SURVIVE TRUST TERMINATION. All of the trustee's
powers, duties, and immunities shall continue after the time for termination of
each trust and until the trustee has made final distribution of the trust
property.
ARTICLE 9
---------
ACCOUNTING AND TAX PROVISIONS
-----------------------------
9.1 ACCOUNTING BY TRUSTEE. While both trustors are living, the trustee
shall not be required to account to the trustors, unless an accounting is
requested in writing by either trustor.
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<PAGE>
After the death of one spouse, the trustee shall not be required to account to
the surviving spouse, unless an accounting is requested in writing by the
surviving spouse. Written approval of the trustee's account by the trustors, or
by the surviving spouse, as the case may be, shall be final and conclusive with
respect to all transactions disclosed in it as to all trust beneficiaries.
After the death of the surviving spouse, the trustee shall account in the manner
provided by the California Trust Law.
9.2 DETERMINATION OF PRINCIPAL AND INCOME. The trustee shall determine
all matters with respect to what is principal and income of the trust estate and
the apportionment and allocation of receipts and expenses between those accounts
in accordance with the California Revised Uniform Principal and Income Act. Any
such matters not provided for either in this instrument or in the California
Revised Uniform Principal and Income Act shall be determined by the trustee, in
the trustee's reasonable discretion.
9.3 ALLOCATION OF INCOME AND EXPENSES. Income accrued or unpaid on trust
property when received into the trust shall be treated as any other income.
Except as otherwise expressly provided in this instrument, income accrued or
held undistributed by the trustee at the termination of a trust shall be
distributed to the next succeeding beneficiaries of the trust in proportion to
their interest in that income. Among successive beneficiaries of a trust, all
taxes and current expenses shall be prorated on a daily basis and charged to the
period to which they relate.
9.4 ADJUSTMENT FOR TAX CONSEQUENCES. The trustee is authorized, in the
trustee's reasonable discretion, to take any action and to make any election to
minimize the tax liabilities of each trust and its beneficiaries, to allocate
the benefits among the various beneficiaries, and to make adjustments in the
rights of any beneficiaries, or between the income and principal accounts, to
compensate for the consequences of any tax election or any investment or other
administrative decision that the trustee believes has had the effect of directly
or indirectly preferring one beneficiary or group of beneficiaries over others.
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<PAGE>
9.5 PURCHASE AND REDEMPTION OF FLOWER BONDS. The trustee is authorized to
purchase, at less than par, United States government bonds that are redeemable
at par in payment of federal estate taxes ("flower bonds"). The trustee may
purchase these bonds in such amounts as the trustee, in the trustee's
discretion, considers advisable, if the trustee believes that either trustor is
in substantial danger of death. For this purpose, the trustee may partition a
part of the trustors' community property and make the purchase from either or
both portions. The trustee may purchase the bonds on margin and may borrow
funds and give security for that purpose. The trustee shall resolve any doubt
concerning the desirability of making the purchase and its amount in favor of
making the purchase and in purchasing a larger, even if somewhat excessive,
amount. The trustee shall not be liable to either trustor, to any heir of
either trustor, or to any beneficiary of this trust for losses resulting from
purchases made in good faith. Notwithstanding anything to the contrary in this
instrument, the trustee shall redeem all such flower bonds to the fullest extent
possible in payment of a deceased trustor's federal estate tax liability,
without apportionment or charge against any beneficiary of the trust estate or
any transferee of property passing outside the trust estate. The executor or
administrator of the deceased trustor's estate, or if none is appointed, the
trustee acting under this instrument, shall select the redemption date of the
bonds.
ARTICLE 10
----------
TRUST ADMINISTRATION PROVISIONS
-------------------------------
10.1 ADDITIONS TO TRUST. With the consent of the trustee, additional
property from any source may be added to the trust estate at any time. The
trustee is expressly authorized to accept property transferred to this trust by
the will of either trustor, by either trustor's conservator, or by an agent
acting on behalf of either trustor under a durable power of attorney.
10.2 NO PHYSICAL DIVISION REQUIRED. There need be no physical segregation
or division of the various trusts created in this instrument except as
segregation or division may be
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<PAGE>
required by termination of any of the trusts, but the trustee shall keep
separate accounts for the different undivided interests.
10.3 TRANSACTIONS WITH TRUSTOR'S PROBATE ESTATE. The trustee is expressly
authorized to lend money to the probate estate of either trustor, or to any
trust created by either trustor, and to purchase property from the probate
estate of either trustor, or from any trust created by either trustor, on such
terms and conditions as the trustee considers advisable.
10.4 RESTRICTION ON ASSIGNMENT. The interest of a beneficiary in the
principal or interest of this trust shall be free from the claims of creditors
and from attachment, execution, bankruptcy, or other legal process to the
fullest extent of the law, and the interest of a beneficiary shall not be
transferable by voluntary or involuntary assignment or by operation of law,
except that a beneficiary may assign all or any part of his or her interest in a
trust to any one or more of his or her descendants.
10.5 DISCLAIMER BY BENEFICIARIES. Any beneficiary of this trust may
disclaim all or any part of any interest in property to which the beneficiary is
entitled under this instrument. Except as otherwise provided herein, any
disclaimed interest shall be distributed as if the beneficiary had predeceased
both trustors. No other interest of the beneficiary shall be affected by the
disclaimer unless that interest has also been disclaimed.
10.6 PAYMENTS FOR EDUCATION. Whenever provision is made in this instrument
to pay for the education of a beneficiary, the term "education" shall include
college, graduate, postgraduate, professional, and vocational studies as long as
such studies are pursued to advantage by the beneficiary at an institution of
the beneficiary's choice. In determining payments to be made to a beneficiary
for education, the trustee shall take into account the beneficiary's reasonably
related living and traveling expenses.
10.7 LOANS TO BENEFICIARY. The trustee is authorized to make loans out of
the trust estate to any beneficiary of the trust estate on such terms and
conditions as the trustee
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<PAGE>
determines to be fair and reasonable under the circumstances and to guarantee
loans to a beneficiary by encumbrances on trust property.
10.8 BENEFICIARY UNDER LEGAL DISABILITY. The trustee may pay any amount
distributable to a beneficiary, without regard to whether the beneficiary is
under a legal disability, by paying the amount directly to the beneficiary or by
paying the sum to another person for the use or benefit of the beneficiary.
10.9 DISTRIBUTION TO CUSTODIAN. If a beneficiary otherwise entitled to
receive distribution from the trust estate is under age 25 at the time for
distribution, the trustee shall not distribute that beneficiary's share
outright, but shall instead distribute that share to a custodian serving on
behalf of the beneficiary until age 25 under the California Uniform Transfers to
Minors Act. If no such custodian is then acting, the trustee may name a
custodian from among those persons qualified to serve, which may include the
trustee. The trustee shall be free of liability and shall be discharged from
any further accountability for distributions made in accordance with this
paragraph.
10.10 DEFERRAL OF DIVISION OR DISTRIBUTION. Whenever the trustee is
directed by the provisions of this instrument to make a division or distribution
of trust assets on the death of either trustor, the trustee may, in the
trustee's discretion, defer that division or distribution until the deceased
trustor's federal estate tax has been finally determined. If the trustee defers
the distribution or division of trust assets, the deferred division or
distribution shall be made as if it had taken place at the time prescribed in
this instrument in the absence of this paragraph, and the rights of the
beneficiaries of those assets under other provisions of this instrument shall be
deemed to have accrued and vested as of that prescribed time.
10.11 WITHHOLDING DISTRIBUTION SUBJECT TO CLAIMS. At the time for
distribution of any property held in this trust, the trustee shall have the
authority to withhold from distribution, without payment of interest, all or any
part of the trust property, as long as the trustee, in the trustee's discretion,
determines that the property may be subject to conflicting claims, to tax
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<PAGE>
deficiencies, or to liabilities, contingent or otherwise, properly incurred in
the administration of the trust, provided, however, that the foregoing shall not
affect the vesting of any interest in any trust created under this instrument or
the accrual and payment of trust income to any beneficiary.
10.12 EXERCISE OF POWERS OF APPOINTMENT. Except as otherwise specifically
provided in this instrument, the provisions regarding distribution of each trust
shall be subject to the exercise of any power of appointment over that trust
conferred in this instrument. Any property subject to a power of appointment
conferred in this instrument shall be deemed not to have been effectively
appointed by the holder of the power if the holder has failed to exercise the
power, has effectively revoked an exercise of the power, has irrevocably
released, disclaimed or renounced the power, or if the holder's attempted
exercise of the power is invalid or ineffective for any reason. If no document
purporting to exercise the power of appointment has been brought to the
attention of the trustee within six months after the death of the holder, the
trustee may distribute the trust property subject to the power in accordance
with the terms of this instrument as if the power had not been exercised. If a
document purporting to exercise the power is subsequently located, the trustee
shall not be liable to the appointees under that exercise and the rights of the
appointees and the persons receiving property from the trustee shall be governed
by applicable law.
10.13 NO-CONTEST CLAUSE. If a beneficiary under this instrument, alone or
in conjunction with any other person or persons, contests or attacks the
validity of this instrument in any court or seeks to obtain an adjudication in
any proceeding in any court that this trust or any of its provisions are void,
or otherwise seeks to void, nullify, or set aside this trust or any of its
provisions, or if a beneficiary contests or attacks either trustor's last will
or any provisions of those wills in any proceeding designed to thwart their
wishes as expressed in those wills, then that beneficiary's right to take any
interest given to that beneficiary in this instrument shall be determined as it
would have been determined had the beneficiary predeceased the execution of this
trust
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<PAGE>
instrument without surviving descendants. The trustee is authorized to defend,
at the expense of the trust, any contest or attack on this trust or any of its
provisions.
10.14 CHOICE OF LAW. All questions concerning the validity, construction,
interpretation and administration of the trusts created in this instrument shall
be governed by the laws of the State of California in force from time to time,
regardless of whether the place of administration is changed to another state.
10.15 CERTIFICATION OF TRUST. Any bank, stock broker, transfer agent, or
other third party dealing with the trustee may rely on a written certificate of
the trustee or the trustee's attorney as to the existence of this trust and the
trustee's authority under this instrument. The trustee may omit the dispositive
provisions of this instrument in any copy submitted to a third party and no
third party shall have any duty to inquire into or be concerned with the
dispositive provisions of the trust.
ARTICLE 11
----------
DEFINITIONS
-----------
Except as otherwise provided in this instrument, the following definitions
shall apply in interpreting this instrument, unless the context clearly requires
otherwise.
11.1 TRUSTEE. All references to "the trustee" shall include any trustee or
co-trustees under this instrument at any time, except that a reference to the
trustee of a particular trust shall include only the acting trustee of that
trust. All references to the trustee in the singular shall include all acting
co-trustees.
11.2 CURRENT BENEFICIARY. The "current beneficiary" of a trust means the
beneficiary or group of beneficiaries who are then entitled or authorized in the
trustee's discretion to receive current distributions out of income or principal
of the trust.
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<PAGE>
11.3 DEATH TAXES. As used in this instrument, the term "death taxes" means
all estate, inheritance, and other death taxes, including interest and
penalties, except for special use valuation recapture taxes and any federal or
state tax imposed on a generation-skipping transfer other than a "direct skip"
as that term is defined in the federal tax taws.
11.4 DECEASED SPOUSE. The term "deceased spouse" as used in this
instrument shall have the meaning set forth in paragraph 3.1 above.
11.5 DESCENDANTS. The term "descendants" means children, grandchildren,
and their lineal descendants of all generations. A class designation of
descendants, children or grandchildren includes persons legally adopted into the
class during minority and persons naturally born into the class in or out of
wedlock. A reference to "descendants" in the plural includes a single
descendant whenever the context so requires.
11.6 EDUCATION. The term "education" as used in this instrument shall have
the meaning set forth in paragraph 10.6 above.
11.7 INTERNAL REVENUE CODE. The term "Internal Revenue Code" as used in
this instrument shall mean the Internal Revenue Code of 1986, as amended from
time to time.
11.8 BY RIGHT OF REPRESENTATION. Whenever distribution under this
instrument is to be made "by right of representation," the property to be
distributed shall be divided into as many equal shares as there are living
children of the designated ancestor, if any, and deceased children who leave
descendants then living. Each living child of the designated ancestor shall
receive one share and the share of each deceased child who leaves descendants
then living shall be divided in the same manner.
11.9 SURVIVING SPOUSE. The term "surviving spouse" as used in this
instrument shall have the meaning set forth in paragraph 3.1 above.
11.10 SURVIVOR'S TRUST. The term "Survivor's Trust" as used in this
instrument shall have the meaning set forth in paragraph 3.4.1 above.
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<PAGE>
11.11 EXEMPTION TRUST. The term "Exemption Trust" as used in this
instrument shall have the meaning set forth in paragraph 3.4.3 above.
ARTICLE 12
----------
RULES OF CONSTRUCTION
---------------------
Except as otherwise provided in this instrument, the following rules of
construction shall apply in interpreting this instrument, unless the context
clearly requires otherwise.
12.1 SHALL AND MAY. When this instrument states that the trustee shall
perform an act, the trustee is required to perform the act. When this
instrument states that the trustee may do an act, the trustee's decision to do
or not do the act shall be made in the exercise of the trustee's fiduciary
discretion.
12.2 STATUTES, CODES AND REGULATIONS. All references to specific acts,
statutes and codes shall include any amended or successor laws.
12.3 GENDER AND NUMBER. Masculine, feminine and neuter pronouns, and
singular and plural words, each include the others wherever the context so
indicates.
12.4 SEVERABILITY CLAUSE. If any provision of this instrument is
unenforceable, the remaining provisions shall nevertheless remain in effect.
12.5 USE OF HEADINGS. The Article and paragraph headings in this
instrument are for convenient reference only and are not intended to be fully
descriptive of the contents. In no event shall the headings be relied upon in
interpreting this instrument.
12.6 ARTICLE AND PARAGRAPH REFERENCES. Whenever reference is made in this
instrument to a specific Article or paragraph, the reference is to the Article
or paragraph of this instrument.
Page 50 of 106 Pages
<PAGE>
CERTIFICATION BY TRUSTORS
We, the undersigned trustors, certify that we have read this Declaration of
Trust and that it correctly states the terms under which the trust property is
to be held, administered, and distributed by the trustee. We hereby approve the
Declaration of Trust in all respects and request that the trustee execute it.
Executed on February 12, 1991, at Los Angeles, California.
TRUSTORS:
/s/ Carlos D. DeMattos
----------------------
CARLOS D. DEMATTOS
/s/ Elena A. DeMattos
---------------------
ELENA A. DEMATTOS
ACCEPTANCE BY TRUSTEE
Accepted on February 12, 1991 at Los Angeles, California.
TRUSTEES:
/s/ Carlos D. DeMattos
----------------------
CARLOS D. DEMATTOS
/s/ Elena A. DeMattos
---------------------
ELENA A. DEMATTOS
Page 51 of 106 Pages
<PAGE>
Exhibit 2
================================================================================
OPERATING AGREEMENT
OF
C&E DM, LLC
A NEVADA LIMITED LIABILITY COMPANY
Dated as of March 1, 1994
================================================================================
Page 52 of 106 Pages
<PAGE>
C&E DM, LLC
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT (the "Agreement") is made
and entered into and effective as of March 1, 1994, by and between The Carlos
and Elena De Mattos Family Trust dated February 12, 1991 (the "Trust") and C&E
DM Limited Partnership, a California limited partnership ("C&E"), with reference
to the recitals set forth below.
R E C I T A L S
A. The Trust and C&E have formed a limited liability company (hereinafter
called the "LLC") pursuant to the provisions of Chapter 86 of the Nevada Revised
Statutes.
B. In consideration of the covenants and the promises made herein, the
parties hereto hereby agree as follows.
ARTICLE 1 - DEFINITIONS
1.1 Adjusted Capital Account Deficit - "Adjusted Capital Account
--------------------------------
Deficit" means, with respect to any Member, the deficit balance, if any, in such
Member's Capital Account as of the end of the relevant Fiscal Year, after giving
effect to the following adjustments:
1.1.1 increase such Capital Account by any amounts which such
Member is obligated to contribute to the LLC (pursuant to the terms of this
Agreement or otherwise) or is deemed to be obligated to contribute to the
LLC pursuant to Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
1.1.2 reduce such Capital Account by the amount of the items
described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
1.2 Affiliate - "Affiliate" means, when used with reference to a
---------
specified Person, (i) the Principal of the Person, (ii) any Person directly or
indirectly controlling, controlled by or under common control with such Person,
(iii) any Person owning or controlling 10% or more of the outstanding voting
interests of such Person, and (iv) any relative or spouse of such Person.
1.3 Agreement - "Agreement" means this Limited Liability Company
---------
Operating Agreement, as originally executed and as amended from time to time, as
the context requires. Words such as "herein", "hereinafter", "hereto", "hereby"
and "hereunder", when used with reference to this Agreement, refer to this
Agreement as a whole, unless the context otherwise requires.
1.4 Articles of Organization - "Articles of Organization" means the
------------------------
articles of organization filed with the Nevada Secretary of State for the
purpose of forming the LLC.
Page 53 of 106 Pages
<PAGE>
1.5 Available Cash Flow - "Available Cash Flow" means, with respect to
-------------------
any Fiscal Year or other period, the sum of all cash receipts of the LLC from
any and all sources, less all cash disbursements (including loan repayments,
capital improvements and replacements) and a reasonable allowance for Reserves,
contingencies and anticipated obligations as determined by the Manager.
1.6 Business of the LLC - "Business of the LLC" shall have the meaning
-------------------
set forth in Section 2.7 hereof.
1.7 Capital Account - "Capital Account" of a Member shall have the
---------------
meaning set forth in Section ? hereof.
1.8 Capital Contribution - "Capital Contribution" shall have the meaning
--------------------
set forth in Article 3 hereof.
1.9 Code - "Code" means the Internal Revenue Code of 1986, as amended
----
(or any corresponding provision or provisions of any succeeding law).
1.10 Depreciation - "Depreciation" means, for each Fiscal Year or other
------------
period, an amount equal to the depreciation, amortization or other cost recovery
reduction allowable with respect to an asset for such Fiscal Year or other
period.
1.11 Dissolution - "Dissolution" means (i) when used with reference to
-----------
the LLC, the earlier of (a) the date upon which the LLC is terminated under the
Statute, or any similar provision enacted in lieu thereof, or (b) the date upon
which the LLC ceases to be a going concern, and (ii) when used with reference to
any Member, the earlier of (a) the date upon which there is a Dissolution of the
LLC or (b) the date upon which such Member's entire interest in the LLC is
terminated by means of a distribution or series of distributions by the LLC to
such Member.
1.12 Fiscal Year - "Fiscal Year" means the period of January 1 to and
-----------
including December 31.
1.13 Initial Members - "Initial Members" means the Trust and C&E.
---------------
1.14 LLC - "LLC" means C&E DM, LLC.
---
1.15 LLC Interest - "LLC Interest" or "Interest" means an ownership
------------
interest in the LLC.
1.16 LLC Loans - "LLC Loans" shall refer to any loans or advances made by
---------
any Member to the LLC at the Member's option, without obligation to so do, to
the extent the LLC does not have sufficient resources (assets, borrowings or
otherwise) to meet its LLC obligations. Such LLC Loans shall bear interest at
the rate agreed to between the Member and the Manager.
1.17 LLC Minimum Gain - "LLC Minimum Gain" means the amount determined by
----------------
computing with respect to each nonrecourse liability of the LLC, the amount of
gain (of whatever character), if any, that would be realized by the LLC if it
disposed (in a taxable transaction) of the Property subject to such liability in
full satisfaction thereof, and by then aggregating the amounts so computed as
set forth in Regulations Section 1.704-2(d).
Page 54 of 106 Pages
<PAGE>
1.18 Manager - "Manager" means the Person elected to manage the LLC
-------
pursuant to Section ? of this Agreement. At any time that the Members shall
have elected to have more than one Manager, all such Persons so elected shall be
referred to as the "Managers."
1.19 Member Nonrecourse Debt - "Member Nonrecourse Debt" has the meaning
-----------------------
set forth in Regulations Section 1.704-2(b)(4).
1.20 Member Nonrecourse Debt Minimum Gain - "Member Nonrecourse Debt
------------------------------------
Minimum Gain" means an amount, with respect to each Member Nonrecourse Debt,
equal to the LLC Minimum Gain that would result if such Member Nonrecourse Debt
were treated as a nonrecourse liability of the LLC, determined in accordance
with Regulations Sections 1.704-2(i)(2) and (3).
1.21 Member Nonrecourse Deductions - "Member Nonrecourse Deductions" has
-----------------------------
the meaning set forth in Regulations Section 1.704-2(i)(2). The amount of
Member Nonrecourse Deductions with respect to a Member Nonrecourse Debt for a
Fiscal Year of the LLC equals the excess (if any) of the net increase (if any)
in the amount of Member Nonrecourse Debt Minimum Gain attributable to such
Member Nonrecourse Debt during that Fiscal Year over the aggregate amount of any
distributions during that Fiscal Year to the Member that bears (or is deemed to
bear) the economic loss for such Member Nonrecourse Debt to the extent such
distributions are from the proceeds of such Member Nonrecourse Debt and are
allocable to an increase in Member Nonrecourse Debt Minimum Gain attributable to
such Member Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(2).
1.22 Members - "Members" means collectively all Persons who hold
-------
Interests in the LLC. Reference to a "Member" shall be to any one of the
Members.
1.23 Net Capital Contributions - "Net Capital Contributions" means the
-------------------------
aggregate of a Member's Capital Contributions over the aggregate distributions
theretofore made to such Member pursuant to Section 5.1.
1.24 Net Profits and Net Loss. "Net Profits" and "Net Loss" mean, for
------------------------
each Fiscal Year or other period, an amount equal to the LLC's taxable income or
loss for such year or period, determined in accordance with Code Section 703(a)
(for this purpose, all items of income, gain, loss or deduction required to be
stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments:
1.24.1 Any income of the LLC that is exempt from Federal income tax
and not otherwise taken into account in computing Net Profits or Net Loss shall
be added to such taxable income or loss;
1.24.2 Any expenditures of the LLC described in Code Section
705(b)(2)(B) or treated as Code Section 705(b)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into account in
computing Net Profits or Net Loss shall be subtracted from such taxable income
or loss;
1.24.3 Gain or loss resulting from any disposition of Property with
respect to which gain or loss is recognized for Federal income tax purposes
shall be computed by reference to
Page 55 of 106 Pages
<PAGE>
the fair market value of the Property disposed of, notwithstanding that the
adjusted tax basis of such Property differs from its fair market value;
1.24.4 In lieu of depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year or other
period, computed in accordance with the subsection hereof entitled
"Depreciation"; and
1.24.5 Notwithstanding any other provision of this subsection, any
items of income, gain, loss or deduction which are specifically allocated shall
not be taken into account in computing Net Profits or Net Loss.
1.25 Percentage Interest. "Percentage Interest" of a Member means the
-------------------
proportion which a Member's Capital Account bears to the aggregate of all
Members' Capital Accounts. The Initial Members' Percentage Interests shall be
in the following percentages:
Trust - 10%
C&E - 90%
1.26 Period of Duration. "Period of Duration" shall have the meaning set
------------------
forth in Section 2.6 hereof.
1.27 Person. "Person" means any individual, partnership, corporation,
------
trust, limited liability company, or other entity.
1.28 Principal. "Principal" means the natural Person which is in
---------
ultimate control of a Member.
1.29 Property. "Property" means all assets of the LLC, both tangible and
--------
intangible, or any portion thereof.
1.30 Regulations. "Regulations" means the federal income tax regulations
-----------
promulgated by the Treasury Department under the Code, as such regulations may
be amended from time to time. All references herein to a specific section of
the Regulations shall be deemed also to refer to any corresponding provisions of
succeeding Regulations.
1.31 Reserves. "Reserves" means funds set aside from Capital
--------
Contributions or gross cash revenues as reserves. Such Reserves shall be
maintained in amounts reasonably deemed sufficient by the Manager for working
capital and the payment of taxes, insurance, debt service, repairs, replacements
renewals, or other costs or expenses incident to the Business of the LLC, or in
the alternative, the Dissolution of the LLC.
1.32 Secretary of State. shall mean the Secretary of State of the State
------------------
of Nevada.
1.33 Statute. "Statute" shall mean Chapter 86 of the Nevada Revised
-------
Statutes (or any corresponding provision or provisions of any succeeding law).
1.34 Vote. Except where superseded by another Section of this Agreement,
----
or required by the terms of the Statute, Code or applicable Regulations
thereunder, all decisions made by this LLC shall be approved by fifty-one
percent (51%) of the votes ("Vote") of the Members, wherein each Member casts a
number of votes equal to its Percentage Interest in the LLC.
Page 56 of 106 Pages
<PAGE>
ARTICLE 2 - INTRODUCTORY MATTERS
2.1 Formation of LLC. On February 16, 1994, the parties formed the LLC
----------------
pursuant to the provisions of the Statute by filing the Articles of Organization
with the Secretary of State.
2.2 Name. The name of the LLC is "C&E DM, LLC." The Members shall
----
operate the Business of the LLC under such name or use such other or additional
names as the Members may deem necessary or desirable provided that: (i) no such
name shall contain the individual name of any Principal of any Member, or any
similar name or variation thereof; (ii) the Members shall have reasonably
determined, before use of any such name, that the LLC is entitled to use such
name and will not by reason of such use infringe upon any rights of any other
Person, or violate any applicable laws or governmental regulations; and (iii)
the Members shall register such name under assumed or fictitious name statutes
or similar laws of the states in which the LLC operates.
2.3 Principal Office. The LLC shall maintain its principal place of
----------------
business at 5336 Longshadow Court, Westlake Village, California 91362, or such
other place in California as the Manager shall from time to time designate.
This location shall be referred to from time to time as the "principal office"
of the LLC.
2.4 Office of Record. The address of the office in Nevada where the
----------------
records of this LLC shall be maintained is: 165 West Liberty Street, Suite 210,
Reno, Nevada, 89501, or such other place as the Manager may determine.
2.5 Agent for Service of Process. The name and address of the LLC's
----------------------------
agent for service of process is Mark W. Knobel, 165 West Liberty Street, Suite
210, Reno, Nevada, 89501.
2.6 Period of Duration. The period of duration of the LLC ("Period of
------------------
Duration") shall be thirty (30) years, commencing on the date of the filing of
the Articles of Organization with the Nevada Secretary of State, unless the LLC
is terminated or dissolved sooner, in accordance with the provisions of this
Agreement.
2.7 Business and Purpose of the LLC. The purpose of the LLC is to
-------------------------------
engage in any lawful activities for which a LLC may be organized under the
Statute, including, but not limited, to the ownership and development of real
estate projects.
ARTICLE 3 - MEMBERS & CAPITAL CONTRIBUTIONS
3.1 Names and Addresses of Initial Members. The names and addresses of
--------------------------------------
the Initial Members are as follows:
3.1.1 The Carlos and Elena De Mattos Family Trust dated February
12, 1991, 5336 Longshadow Court, Westlake Village, California 91362.
3.1.2 C&E DM Limited Partnership, 5336 Longshadow Court, Westlake
Village, California 91362.
3.2 Contributions. The Initial Members shall contribute the following
-------------
to the LLC:
Page 57 of 106 Pages
<PAGE>
3.2.1 The Trust shall contribute Forty Thousand Dollars ($40,000)
in cash and Ten Thousand shares of the common stock of Matthews Studio Equipment
Group, a California corporation ("Matthews").
3.2.2 C&E shall contribute Three Hundred Sixty Thousand Dollars
($360,000) in cash and Ninety Thousand shares of the common stock of Matthews.
3.3 Additional Contributions. Except as shall be expressly set forth
------------------------
herein, no Member shall be required to (a) make any additional Capital
Contributions, (b) make any loan, or (c) cause to be loaned any money or other
assets to the LLC.
3.4 Rights with Respect to Capital.
------------------------------
3.4.1 LLC Capital. No Member shall have the right to withdraw,
-----------
or receive any return of, its Capital Contribution, and no Capital Contribution
may be returned in the form of property other than cash except as specifically
provided herein.
3.4.2 No Interest on Capital Contributions. Except as expressly
------------------------------------
provided in this Agreement, no Capital Contribution of any Member shall bear any
interest or otherwise entitle the contributing Member to any compensation for
use of the contributed capital.
3.5 Establishment of Capital Accounts. A separate capital account
---------------------------------
("Capital Account") shall be maintained for each Member. For book purposes,
each Member's Capital Account will be separated into a contribution account and
an income (loss) account and will be maintained according to generally accepted
accounting principles. Sections 3.6 and 3.7 below describe the appropriate
accounting treatment for tax purposes of the Capital Accounts.
3.6 General Rules for Adjustment of Capital Accounts. The Capital
------------------------------------------------
Account of each Member shall be:
3.6.1 Increases. Increased by:
---------
3.6.1.1 Such Member's cash contributions;
3.6.1.2 The agreed fair market value of property
contributed by such Member (net of liabilities secured by such contributed
property that the LLC is considered to assume or take subject to under Code
Section 752);
3.6.1.3 All items of LLC income and gain (including income
and gain exempt from tax) allocated to such Member pursuant to Article 4, 4 or
other provisions of this Agreement; and
3.6.2 Decreases. Decreased by:
---------
3.6.2.1 The amount of cash distributed to such Member;
3.6.2.2 The agreed fair market value of all actual and
deemed distributions of property made to such Member pursuant to this Agreement
(net of liabilities secured by such distributed property that the Member is
considered to assume or take subject to under Code Section 752);
Page 58 of 106 Pages
<PAGE>
3.6.2.3 All items of LLC deduction and loss allocated to
such Member pursuant to Article 4 or other provisions of this Agreement.
3.7 Special Rules With Respect to Capital Accounts.
----------------------------------------------
3.7.1 Time of Adjustment for Capital Contributions. For purposes
--------------------------------------------
of computing the balance in a Member's Capital Account, no credit shall be given
for any Capital Contribution which such Member is to make until such
contribution is actually made. "Capital Contribution" refers to the total amount
of cash and the agreed fair market value (net of liabilities) contributed to the
LLC by that Member and any subsequent contributions of cash and the agreed fair
market value (net of liabilities) of any other property subsequently contributed
to the LLC by that Member.
3.7.2 Intent to Comply with Treasury Regulations. The foregoing
------------------------------------------
provisions of Sections 3.6 and 3.7 and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations Section. To the extent such provisions are
inconsistent with such Regulations Section or are incomplete with respect
thereto, Capital Accounts shall be maintained in accordance with such
Regulations Section.
3.8 Transferee's Capital Account. In the event any Member transfers any
----------------------------
Interest in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred Interest.
ARTICLE 4 - ALLOCATION OF PROFITS AND LOSSES
4.1 Allocation of Net Profits and Losses. Except as otherwise provided
------------------------------------
in this Article 4, 4, Net Profits and Net Loss of the LLC in each Fiscal Year
shall be allocated among the Members as follows:
4.1.1 Net Profits. Net Profits shall be allocated among the
-----------
Members as follows:
4.1.1.1 first, to each of the Members until the cumulative
Net Profits allocated to such Member pursuant to this Section 4.1.1 is equal to
the cumulative Net Loss allocated to the Member pursuant to Section 4.1.2 for
any prior period; and
4.1.1.2 thereafter, to the Members in accordance with their
Percentage Interests.
4.1.2 Allocation of Net Loss. Except as otherwise provided in this
----------------------
Article 4, Net Loss shall be allocated among the Members as follows:
4.1.2.1 first, to offset any Net Profits allocated pursuant
to Section ? hereof, and then to offset any Net Profits allocated pursuant to
Section ? hereof (in each case pro rata in proportion to their shares of Net
Profits being offset);
4.1.2.2 second, in proportion to the positive balances, if
any, in the Members' respective Capital Accounts, until such balances are
reduced to zero; and
Page 59 of 106 Pages
<PAGE>
4.1.2.3 third, to the Members, pro rata, in accordance with
their Percentage Interests; provided, however, that if, and to the extent that
the allocation of Net Loss in this manner would cause a Member to have an
Adjusted Capital Account Deficit at the end of the Fiscal Year, then such Net
Loss shall instead be allocated to the Member who has the largest Percentage
Interest.
4.2 Residual Allocations.. Except as otherwise provided in this
--------------------
Agreement, all items of LLC income, gain, loss, deduction, and any other
allocations not otherwise provided for shall be divided among the Members in the
same proportions as they share Net Profits or Net Losses, as the case may be,
for the Fiscal Year.
4.3 Qualified Income Offset.. If any Member unexpectedly receives any
-----------------------
adjustments, allocation or distributions described in clauses (4), (5) or (6) of
Regulations Section 1.704-1(b)(2)(ii)(d), items of LLC income shall be specially
allocated to such Member in an amount and manner sufficient to eliminate the
Adjusted Capital Account Deficit created by such adjustments, allocations or
distributions as quickly as possible. This Section 4.3 is intended to
constitute a "qualified income offset" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(d)(3).
4.4 Minimum Gain Chargeback.. If there is a net decrease in LLC Minimum
-----------------------
Gain during a Fiscal Year, each Member will be allocated, before any other
allocation under this Article 4, items of income and gain for such Fiscal Year
(and if necessary, subsequent years) in proportion to and to the extent of an
amount equal to such Member's share of the net decrease in LLC Minimum Gain
determined in accordance with Regulations Section 1.704-2(g)(2). This Section
4.4 is intended to comply with, and shall be interpreted consistently with, the
"minimum gain chargeback" provisions of Regulations Section 1.704-2(f).
4.5 Member Nonrecourse Debt Minimum Gain Chargeback.. Notwithstanding
-----------------------------------------------
any other provision of this Article 4, but except Section 4.4, if there is a net
decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member
Nonrecourse Debt during any Fiscal Year of the LLC, each Member who has a share
of the Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treasury Regulations Section
1.704-2(i)(5), shall be specially allocated items of LLC income and gain for
such year (and, if necessary, subsequent years) in an amount equal such Member's
share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt, determined in accordance with Regulations
Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be
made in proportion to the respective amounts required to be allocated to each
Member pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulations Section 1.704-2(i)(4). This Section 4.5 is intended
to comply with a minimum gain chargeback requirement of that Section of the
Regulations and shall be interpreted consistently therewith.
4.6 Member Nonrecourse Deductions.. Any Member Nonrecourse Deductions
-----------------------------
for any Fiscal Year or other period shall be specially allocated to the Member
who bears (or is deemed to bear) the economic risk of loss with respect to the
Member Nonrecourse Debt to which such Member Nonrecourse Deductions are
attributable in accordance with Regulations Section 1.704-2(i)(2).
4.7 Special Allocations.. Any special allocations of items of Net
-------------------
Profits pursuant to Sections 4.4, 4.5 and 4.6 shall be taken into account in
computing subsequent allocations of Net Profits pursuant to Section 4.1, so that
the net amount of any items so allocated and the gain, loss and any other item
allocated to each Member pursuant to Section 4.l shall, to the extent possible,
be equal to the net amount that would have been allocated to each such Member
pursuant to the provisions of this Article if such special allocations had not
occurred.
Page 60 of 106 Pages
<PAGE>
4.8 Fees to Members or Affiliates.. Notwithstanding the provisions of
-----------------------------
Section 4.1, in the event that any fees, interest, or other amounts paid to any
Member or any Affiliate thereof pursuant to this Agreement or any other
agreement between the LLC and any Member or Affiliate thereof providing for the
payment of such amount, and deducted by the LLC in reliance on Section 707(a)
and/or 707(c) of the Code, are disallowed as deductions to the LLC on its
federal income tax return and are treated as LLC distributions, then
4.8.1 the Net Profits or Net Loss, as the case may be, for the
Fiscal Year in which such fees, interest, or other amounts were paid shall
be increased or decreased, as the case may be, by the amount of such fees,
interest, or other amounts that are treated as LLC distributions; and
4.8.2 there shall be allocated to the Member to which (or to whose
Affiliate) such fees, interest, or other amounts were paid, prior to the
allocations pursuant to Section 4.1, an amount of gross income for the
Fiscal Year equal to the amount of such fees, interest, or other amounts
that are treated as LLC distributions.
4.9 Section 704(c) Allocation.. Any item of income, gain, loss, and
-------------------------
deduction with respect to any property (other than cash) that has been
contributed by a Member to the capital of the LLC and which is required or
permitted to be allocated to such Member for income tax purposes under Section
704(c) of the Code so as to take into account the variation between the tax
basis of such property and its fair market value at the time of its contribution
shall be allocated to such Member solely for income tax purposes in the manner
so required or permitted.
ARTICLE 5 - DISTRIBUTIONS
5.1 Available Cash Flow. Available Cash Flow of the LLC shall be
-------------------
distributed to the Members in accordance with the following priority and
agreements:
5.1.1 First. Pro rata among the Members, in the ratio of the
-----
principal balances outstanding, until all of the accrued but unpaid interest on
all LLC Loans, if any, has been paid, and then the principal amounts thereof.
5.1.2 Second. To the Members, pari passu, on a pro rata basis,
------ ---- -----
until each Member has received a ten percent (10%) interest (simple) on their
Net Capital Contribution from time to time outstanding.
5.1.3 Third. To the Members, pari passu, on a pro rata basis,
----- ---- -----
until all Net Capital Contributions are reduced to zero.
5.1.4 Fourth. To the Members in accordance with the applicable
------
Percentage Interests as of the time of such distribution.
5.2 Liquidating Distributions. Subject to the provisions of Section
-------------------------
11.4, Available Cash Flow in liquidation of the LLC shall be distributed first
in accordance with Section 4.1.1 and then to the Members, pro rata in accordance
with each Member's positive Capital Account balance, to the extent thereof,
after allocation of Net Profits and Net Loss and all other appropriate Capital
Account adjustments and then in accordance with the applicable Percentage
Interests of the Members.
Page 61 of 106 Pages
<PAGE>
ARTICLE 6 - RIGHTS, DUTIES, OBLIGATIONS,
AND COMPENSATION OF MANAGERS AND OFFICERS
6.1 Manager. The LLC shall be managed by Carlos De Mattos (the
-------
"Manager"). The Manager shall have such rights, duties and powers as are
specified in this Agreement, or conferred upon the Manager by Vote of the
Members.
6.1.1 Duties of the Manager. The Manager is the general manager
---------------------
and chief executive officer of the LLC and has, subject to the control of the
Members, general supervision, direction, and control of the business of the LLC.
The Manager shall preside at all meetings of the Members. The Manager shall
have the general powers and duties of management typically vested in the office
of president and general manager of a corporation, and such other powers and
duties as may be prescribed by the Members. Until the Members shall have
elected more than one Manager for the LLC, the term "Manager" as used in this
Agreement, but other than Section 6.2, shall mean the Person who alone has the
powers and duties specified in this Section 6.1.1.
6.1.2 Election. Each Manager of the LLC shall be chosen
--------
annually by the Vote of the Members. In voting for Managers, each Member shall
have a number of votes equal to its Percentage Interest in the LLC. The
candidate for each Manager position who obtains the majority of Member votes
cast shall succeed to that Manager position. Each Manager shall hold his office
until he or she shall resign or shall be removed or otherwise disqualified to
serve, or his or her successor shall be elected and qualified.
6.1.3 Subordinate Officers. The Members may appoint such other
--------------------
officers of the LLC as the Business of the LLC may require, each of whom shall
hold office for such period, have such authority and perform such duties as are
provided in this Agreement, or as the Members determine.
6.1.4 Removal and Resignation. Any Manager or other officer of
-----------------------
the LLC may be removed, with or without cause, by the Vote of the Members. Any
Manager or other officer of the LLC may resign at any time without prejudice to
any rights of the LLC under any contract to which the Manager or other officer
of the LLC is a party, by giving written notice to the Members, or to the
Manager, as applicable. Any such resignation shall take effect at the date of
the receipt of such notice or at any later time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
6.1.5 Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled by a
Vote of the Members, through the appointment of a successor officer who shall
hold the office for the unexpired term.
6.2 Co-Managers. If at any time during the Period of Duration, the
-----------
Members by Vote shall determine to have more than one Manager, the Managers
shall be elected pursuant to the provisions of Section ? and shall be subject to
removal pursuant to the provisions of Section ?. Each Manager shall also have
the right to resign provided in Section ?, and any vacancy in a Manager position
shall be filled pursuant to the provisions of Section ?. The following
provisions of this Section 6.2 shall govern the manner in which the Managers
shall manage the Business of the LLC if the Members have elected more than one
Manager.
6.2.1 The Managers shall share in the duties described in Section
?.
Page 62 of 106 Pages
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6.2.2 Meetings of the Managers shall be held at the principal
office of the LLC, unless some other place is designated in the notice of
the meeting. Any Manager may participate in a meeting through use of a
conference telephone or similar communication equipment so long as all
Managers participating in such a meeting can hear one another. Accurate
minutes of any meeting of the Managers shall be maintained by the officer
designated by the Managers for that purpose.
6.2.3 Regular meetings of the Managers shall be held immediately
following the adjournment of the annual meeting of the Members at which the
Managers are elected. No notice need be given of such regular meetings.
6.2.4 Special meetings of the Managers for any purpose may be
called at any time by any Manager. At least forty-eight (48) hours notice of the
time and place of a special meeting of the Managers shall be delivered
personally to the Managers or personally communicated to them by an officer of
the LLC by telephone, telegraph or facsimile. If the notice is sent to a Manager
by letter, it shall be addressed to him at his last known business address as it
is shown on the records of the LLC. In case such notice is mailed, it shall be
deposited in the United States mail, first-class postage, prepaid, in the place
in which the principal office of the LLC is located at least four (4) days prior
to the time of the holding of the meeting. Such mailing, telegraphing,
telephoning or delivery as above provided shall be considered due, legal and
personal notice to such Manager.
6.2.5 With respect to a special meeting which has not been duly
called or noticed pursuant to the provisions of Section 6.2.4, all transactions
carried out at the meeting are as valid as if had at a meeting regularly called
and noticed if: (i) all Managers are present at the meeting, and sign a written
consent to the holding of such meeting, or (ii) if a majority of the Managers
are present and if those not present sign a waiver of notice of such meeting or
a consent to holding the meeting or an approval of the minutes thereof, whether
prior to or after the holding of such meeting, which waiver, consent or approval
shall be filed with the other records of the LLC, or (iii) if a Manager attends
a meeting without notice and does not protest prior to the meeting or at its
commencement that notice was not given to him or her.
6.2.6 Any action required or permitted to be taken by the Managers
may be taken without a meeting and will have the same force and effect as if
taken by a vote of Managers at a meeting properly called and noticed, if
authorized by a writing signed individually or collectively by all, but not less
than all, the Managers. Such consent shall be filed with the records of the LLC.
6.2.7 A majority of the total number of incumbent Managers shall be
necessary to constitute a quorum for the transaction of business at any meeting
of the Managers, and except as otherwise provided in this Agreement or by the
Statute, the action of a majority of the Managers present at any meeting at
which there is a quorum, when duly assembled, is valid. A meeting at which a
quorum is initially present may continue to transact business, notwithstanding
the withdrawal of Managers, if any action taken is approved by a majority of the
required quorum for such meeting.
6.3 Limitations on Rights and Powers. Except by the unanimous agreement
--------------------------------
of the Members which is evidenced in a writing, neither the Manager nor any
other officer of the LLC shall have authority to:
6.3.1 Enter into or commit to any agreement, contract, commitment
or obligation on behalf of the LLC obligating any Member or Principal to find
additional capital, to make or guarantee a loan or to increase its personal
liability either to the LLC or to third parties;
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6.3.2 Receive or permit any Member or Principal to receive any fee
or rebate, or to participate in any reciprocal business arrangements that would
have the effect of circumventing any of the provisions hereof;
6.3.3 Materially alter the Business of the LLC or deviate from any
approved business plan of the LLC as set forth in this Agreement;
6.3.4 Permit or cause the LLC to place title to any Property in
the name of a nominee;
6.3.5 Permit the LLC's funds to be commingled with the funds of
any other Person;
6.3.6 Do any act in contravention of this Agreement;
6.3.7 Do any act which would make it impossible to carry on the
Business of the LLC;
6.3.8 Confess a judgment against the LLC;
6.3.9 Possess Property, or assign rights in specific Property, for
other than a LLC purpose;
6.3.10 Admit any person as a Member, except as otherwise provided
in this Agreement;
6.3.11 Sell, lease, pledge, hypothecate, or grant a security
interest in any Property, except in the ordinary course of business;
6.3.12 Attempt to dissolve or withdraw from the LLC; and
6.3.13 Invest or reinvest any proceeds from the operation of the
LLC, or the sale, refinancing or other disposition of any Property.
6.4 Compensation of Manager. The LLC shall pay to the Manager such
-----------------------
salary and other benefits as shall be approved from time to time by Vote of the
Members. The LLC shall reimburse the Manager for any expense paid by the
Manager that properly is to be borne by the LLC.
6.5 Compensation of Members. Except as expressly permitted by this
-----------------------
Agreement or any other written agreement, the LLC shall pay no compensation to
any Member or any Principal of any Member for their services to the LLC.
6.6 Expense Reimbursement. The LLC shall reimburse the Members for any
---------------------
expense paid by them that properly is to be borne by the LLC, as approved from
time to time by the Manager.
Page 64 of 106 Pages
<PAGE>
ARTICLE 7 - MEMBERS' MEETING
7.1 Place of Meetings. Meetings of the Members shall be held at the
-----------------
principal office of the LLC, unless some other appropriate and convenient
location shall be designated for that purpose from time to time by the Manager.
7.2 Annual Meetings of Members. The annual meeting of the Members shall
--------------------------
be held, each year, on the anniversary of the date of this Agreement, at 10:00
a.m. If this day shall be a legal holiday, then the meeting shall be held on
the next succeeding business day, at the same time. At the annual meeting, the
Members shall elect the Manager (or Managers) and transact such other business
as may be properly brought before the meeting.
7.3 Special Meetings. Special meetings of the Members may be called at
----------------
any time by the Manager or by one or more Members holding in the aggregate no
less than ten percent (10%) of the Percentage Interests. Upon receipt of a
written request, which request may be mailed or delivered personally to the
Manager, by any Person entitled to call a special meeting of Members, the
Manager shall cause notice to be given to the Members that a meeting will be
held at a time requested by the Person or Persons calling the meeting, not less
than thirty-five (35) nor more than sixty (60) days after the receipt of such
request. If such notice is not given within twenty (20) days after receipt of
such request, the Persons calling the meeting may give notice thereof in the
manner provided by this Agreement.
7.4 Notice of Meetings. Except as provided for in Section ? for special
------------------
meetings, notice of meetings shall be given to the Members in writing not less
than ten (10) nor more than sixty (60) days before the date of the meeting by
the Manager. Such notices shall be given personally, by mail, or by facsimile,
and shall be sent to each Member's last known business address appearing on the
books of the LLC. Such notice shall be deemed given at the time it is delivered
personally, or deposited in the mail, or sent by facsimile. Notice of any
meeting of Members shall specify the place, the day and the hour of the meeting,
and (i) in case of a special meeting, the general nature of the business to be
transacted, or (ii) in the case of an annual meeting, those matters which the
Manager, at the date of mailing, intends to present for action by the Members.
7.5 Validation of Members' Meetings. The transactions of a meeting of
-------------------------------
Members which was not called or noticed pursuant to the provisions of Section
7.3 or 7.4 shall be valid as though transacted at a meeting duly held after
regular call and notice, if Members holding in the aggregate fifty-one percent
(51%) or more of the Percentage Interests are present, and if, either before or
after the meeting, each of the Members entitled to vote but not present at the
meeting signs a written waiver of notice, or a consent to the holding of such
meeting, or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the records of the LLC. Attendance shall
constitute a waiver of notice, unless objection shall be made.
7.6 Actions Without a Meeting.
-------------------------
7.6.1 Any action which may be taken at any annual or special
meeting of Members may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action so taken, shall be signed by
Members holding in the aggregate fifty-one percent (51%) or more of the
Percentage Interests; provided, however, that the Manager may not be elected by
written consent except by the unanimous written consent of all Members, and that
any action which by the terms of this Agreement or by the Statute is required to
be taken pursuant to a greater vote of the Members may only be taken by a
written consent which has been signed by Members holding the requisite number of
votes.
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7.6.2 Unless the consents of all Members have been given in
writing, notice of any approval made by the Members without a meeting by less
than unanimous written consent shall be given at least ten (10) days before the
consummation of the action authorized by such approval. Any Member giving a
written consent may revoke the consent by a writing received by the LLC prior to
the time that written consents of Members required to authorize the proposed
action have been filed with the LLC. Such revocation is effective upon its
receipt by the LLC.
7.7 Quorum and Effect of Vote. Each Member shall have a number of votes
-------------------------
equal to the Percentage Interest held by such Member, provided that if, pursuant
to the Statute or the terms of this Agreement, a Member is not entitled to vote
on a specific matter, then such Member's number of votes and Percentage Interest
shall not be considered for purposes of determining whether a quorum is present,
or whether approval by Members holding fifty-one percent (51%) or more of the
Percentage Interests has been obtained, in respect of such specific matter.
Members holding an aggregate of fifty-one percent (51%) or more of the
Percentage Interests shall constitute a quorum at all meetings of the Members
for the transaction of business, and the Vote of Members shall be required to
approve any action, unless a greater vote is required by this Agreement or by
the Statute.
ARTICLE 8 - RESTRICTIONS ON TRANSFER OR CONVERSION
OF LLC INTERESTS
8.1 Transfer or Assignment of Member's Interest. The Interest of each
-------------------------------------------
Member is personal property, and may be transferred or assigned only as provided
in this Agreement. No transfer, hypothecation, encumbrance or assignment
("Transfer") of a Member's Interest, or any part thereof, in the LLC will be
valid without the unanimous written consent of all of the Members, other than
the Member proposing to dispose of its Interest. Any transferee who has
obtained an Interest without the unanimous written consent of all Members shall
have no right to participate in the management of the business and affairs of
the LLC or to become a Member thereof.
8.2 Void Transfers. Any Transfer made in violation of this Article 8
--------------
shall be of no force or effect, and the transferring Member shall continue to be
obligated under each and every provision of this Agreement.
ARTICLE 9 - ADDITIONAL CAPITAL CONTRIBUTIONS;
ADMISSION OF NEW MEMBERS
9.1 Additional Capital. During the Period of Duration, each of the
------------------
Members shall be required to make additional Capital Contributions to the LLC if
such additional Capital Contributions are approved by Members holding, in the
aggregate, seventy-five percent (75%) or more of the Percentage Interests. Each
Member shall be obligated to contribute an amount of additional capital equal to
such Member's Percentage Interest times the total Capital Contribution amount
required of all Members. The Members' Percentage Interests shall be adjusted to
recognize any Member's failure to make the required additional Capital
Contribution. Any Member who fails to contribute some or all of the required
additional capital shall be in default of this Agreement and shall have no right
to participate in the management of the business and affairs of the LLC, but
such Member shall not forfeit its rights to distributions and Net Profits and
Losses allocations.
Page 66 of 106 Pages
<PAGE>
9.2 Admission of New Members. The consent of all Members set forth in a
------------------------
writing shall be required for a Person to be admitted into the LLC as a new
Member. The amount of Capital Contribution which must be made by the new Member
shall also be determined by the consent of all Members and the new Member shall
not be deemed admitted into the LLC until the Capital Contribution required of
such Person shall have been made.
ARTICLE 10 - BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
10.1 Maintenance of Books and Records. The LLC shall cause books and
--------------------------------
records of the LLC to be maintained in accordance with generally accepted
accounting principles, and shall give reports to the Members in accordance with
prudent business practices and the Statute. There shall be kept at the
principal office of the LLC, as well as at the office of record of the LLC
specified in Section 2.4, if different, the following LLC documents:
10.1.1 A current list of the full name and last known business
address of each Member, set forth in alphabetical order, together with the
Capital Contributions and share in Net Profits and Losses of each Member;
10.1.2 A current list of the full name and last known business
address of each Manager, set forth in alphabetical order;
10.1.3 Copies of the Articles of Organization of the LLC and any
amendments thereto, together with copies of any executed powers of attorney
pursuant to which any document of or relating to the LLC has been executed;
10.1.4 Copies of the LLC's federal, state and local income tax or
information returns and reports, if any, for the three most recent Fiscal Years;
10.1.5 This Agreement;
10.1.6 Financial statements of the LLC for the three most recent
Fiscal Years;
10.1.7 The LLC's books and records for at least the current and
past three Fiscal Years;
10.1.8 Originals or copies of all minutes, actions by written
consent, consents to action and waivers of notice to Members and Member Votes,
actions and consents; and
10.1.9 The information required to be maintained by the LLC
pursuant to Section 86.241(e) of the Statute, which information shall at all
times be reflected in and incorporated into this Agreement.
10.2 Annual Accounting. Within 90 days after the close of each Fiscal
-----------------
Year of the LLC, the LLC shall (i) cause to be prepared and submitted to each
Member a balance sheet and income statement for the preceding Fiscal Year of the
LLC (or portion thereof) in conformity with generally accepted accounting
principles and (ii) provide to the Members all information necessary for them to
complete federal and state tax returns.
Page 67 of 106 Pages
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10.3 Inspection and Audit Rights. Each Member, at its own expense, has
---------------------------
the right to inspect and copy during normal business hours any of the LLC books
and records required to be maintained in accordance with this Agreement. Such
right may be exercised through any agent, representative or employee of the
Member. Any Member may require a review and/or audit of the books, records and
reports of the LLC. The determination of the Manager as to adjustments to the
financial reports, books, records and returns of the LLC, in the absence of
fraud or gross negligence, shall be final and binding upon the LLC and all of
the Members.
10.4 Bank Accounts. The bank accounts of the LLC shall be maintained in
-------------
such banking institutions as the Manager shall determine, provided such
institutions have a net worth in excess of One Hundred Million Dollars
($100,000,000).
ARTICLE 11 - TERMINATION AND DISSOLUTION
OF LLC
11.1 Dissolution. The LLC shall be dissolved upon the occurrence of any
-----------
of the following events:
11.1.1 When the Period of Duration of the LLC expires;
11.1.2 The unanimous written agreement of all Members to dissolve
the LLC;
11.1.3 The death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member or the occurrence of any other event which terminates
the Member's continued membership in the LLC, unless the business of the LLC is
continued by the unanimous written consent of all the remaining Members within
ninety (90) days after the occurrence of such event.
11.2 Statement of Intent to Dissolve. As soon as possible after the
-------------------------------
occurrence of any of the events specified in Section 11.1 above, the LLC shall
execute a Statement of Intent to Dissolve in such form as prescribed by the
Secretary of State.
11.3 Conduct of Business. Upon the filing of the Statement of Intent to
-------------------
Dissolve with the Secretary of State, the LLC shall cease to carry on its
business, except insofar as may be necessary for the winding up of its business,
but the LLC's separate existence shall continue until the Articles of
Dissolution have been filed with the Secretary of State or until a decree
dissolving the LLC has been entered by a court of competent jurisdiction.
11.4 Distribution of Net Proceeds. The Members shall continue to divide
----------------------------
Net Profits and Losses and Available Cash Flow during the winding-up period in
the same manner and the same priorities as provided for in Articles 4 and 5
hereof. The proceeds from the liquidation of Property shall be applied in the
following order:
11.4.1 To the payment of creditors, in the order of priority as
provided by law, except to Members on account of their contributions;
11.4.2 To the payment of loans or advances that may have been made
by any of the Members or their Principals for working capital or other
requirements of the LLC;
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<PAGE>
11.4.3 To the Members in accordance with Section 4.1 hereof; and
11.4.4 To the Members in accordance with the positive balances in
their Capital Accounts after adjustments for all allocations of Net Profits and
Losses.
Where the distribution pursuant to this Section ? consists both of cash (or
cash equivalents) and non-cash assets, the cash (or cash equivalents) shall
first be distributed, in a descending order, to fully satisfy each category
starting with the most preferred category above. In the case of noncash assets,
the distribution values are to be based on the fair market value thereof as
determined in good faith by the liquidator, and the shortest maturity portion of
such non-cash assets (e.g., notes or other indebtedness) shall, to the extent
such non-cash assets are readily divisible, be distributed, in a descending
order, to fully satisfy each category above, starting with the most preferred
category.
11.5 Deficit Make-Up. In the event the LLC is "liquidated" within the
---------------
meaning of Regulations Section 1.704-1(b)(2)(ii)(g) and after giving effect to
all contributions, distributions and allocations for all taxable years,
including the year during which such liquidation occurs, a Member has a deficit
balance in his Capital Account, such Member shall contribute to the capital of
the LLC an amount equal to such deficit.
ARTICLE 12 - INDEMNIFICATION OF THE MEMBERS, MANAGERS AND
THEIR AFFILIATES
12.1 Indemnification of the Members and their Principals. The LLC shall
---------------------------------------------------
indemnify and hold harmless the Members, the Managers, their Affiliates and
their respective officers, directors, employees, agents and Principals
(individually, an "Indemnitee") from and against any and all losses, claims,
demands, costs, damages, liabilities, joint and several, expenses of any nature
(including reasonable attorneys' fees and disbursements), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, whether civil, criminal, administrative or investigative,
in which the Indemnitee was involved or may be involved, or threatened to be
involved, as a party or otherwise, arising out of or incidental to the Business
of the LLC, excluding liabilities to any Member, regardless of whether the
Indemnitee continues to be a Member, an Affiliate, or an officer, director,
employee, agent or Principal of the Member at the time any such liability or
expense is paid or incurred, to the fullest extent permitted by the Statute and
all other applicable laws.
12.2 Expenses. Expenses incurred by an Indemnitee in defending any
--------
claim, demand, action, suit or proceeding subject to Section 10.1 shall, from
time to time, be advanced by the LLC prior to the final disposition of such
claim, demand, action, suit or proceeding upon receipt by the LLC of an
undertaking by or on behalf of the Indemnitee to repay such amount if it shall
be determined that such Person is not entitled to be indemnified as authorized
in Section 12.1.
12.3 Indemnification Rights Non-Exclusive. The indemnification provided
------------------------------------
by Section 12.1 shall be in addition to any other rights to which those
indemnified may be entitled under any agreement, vote of the Members, as a
matter of law or equity or otherwise, both as to action in the Indemnitee's
capacity as a Member, as an Affiliate or as an officer, director, employee,
agent or Principal of a Member and as to any action in another capacity, and
shall continue as to an Indemnitee who has ceased to serve in such capacity and
shall inure to the benefit of the heirs, successors, assigns and administrators
of the Indemnitee.
Page 69 of 106 Pages
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12.4 Errors and Omissions Insurance. The LLC may purchase and maintain
------------------------------
insurance, at the LLC's expense, on behalf of the Members and such other Persons
as the Members shall determine, against any liability that may be asserted
against, or any expense that may be incurred by, such Person in connection with
the activities of the LLC and/or the Members' acts or omissions as the Members
of the LLC regardless of whether the LLC would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
12.5 Assets of the LLC. Any indemnification under Section 12.1 shall be
-----------------
satisfied solely out of the assets of the LLC. No Member shall be subject to
personal liability or required to fund or to cause to be funded any obligation
by reason of these indemnification provisions.
ARTICLE 13 - MISCELLANEOUS PROVISIONS
13.1 Counterparts. This Agreement may be executed in several
------------
counterparts, and all counterparts so executed shall constitute one Agreement,
binding on all of the parties hereto, notwithstanding that all of the parties
are not signatory to the original or the same counterpart.
13.2 Survival of Rights. This Agreement shall be binding upon, and, as
------------------
to permitted or accepted successors, transferees and assigns, inure to the
benefit of the Members and the LLC and their respective heirs, legatees, legal
representatives, successors, transferees and assigns, in all cases whether by
the laws of descent and distribution, merger, reverse merger, consolidation,
sale of assets, other sale, operation of law or otherwise.
13.3 Severability. In the event any Section, or any sentence within any
------------
Section, is declared by a court of competent jurisdiction to be void or
unenforceable, such sentence or Section shall be deemed severed from the
remainder of this Agreement and the balance of this Agreement shall remain in
full force and effect.
13.4 Notification of Notices. Except for notices to be given under
-----------------------
Articles 6 and 7 for purposes of meetings of Managers and meetings of Members,
any notice or other communication required or permitted hereunder shall be in
writing and shall be deemed to have been given if personally delivered,
transmitted by facsimile (with mechanical confirmation of transmission), or
deposited in the United States mail, registered or certified, postage prepaid,
addressed to the parties' addresses set forth below. Notices given in the
manner provided for in this Section 13.4 shall be deemed effective on the third
day following deposit in the mail or on the day of transmission or delivery if
given by facsimile or by hand. Notices must be addressed to the parties hereto
at the following addresses, unless the same shall have been changed by notice in
accordance herewith:
To the Trust: 5336 Longshadow Court
Westlake Village, California 91362
To C&E: 5336 Longshadow Court
Westlake Village, California 91362
13.5 Construction. The language in all parts of this Agreement shall be
------------
in all cases construed simply according to its fair meaning and not strictly for
or against any of the Members.
13.6 Section Headings. The captions of the Articles or Sections in this
----------------
Agreement are for convenience only and in no way define, limit, extend or
describe the scope or intent of any of the provisions hereof, shall not be
deemed part of this Agreement and shall not be used in construing or
interpreting this Agreement.
Page 70 of 106 Pages
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13.7 Governing Law. This Agreement shall be construed according to the
-------------
internal laws, and not the laws pertaining to choice or conflict of laws, of the
State of Nevada.
13.8 Additional Documents. Each Member, upon the request of another
--------------------
Member, agrees to perform all further acts and execute, acknowledge and deliver
all documents which may be reasonably necessary, appropriate or desirable to
carry out the provisions of this Agreement, including but not limited to
acknowledging before a notary public any signature heretofore or hereafter made
by a Member.
13.9 Pronouns and Plurals. Whenever the context may require, any pronoun
--------------------
used in this Agreement shall include the corresponding masculine, feminine and
neuter forms, and the singular form of nouns, pronouns and verbs shall include
the plural and vice versa.
13.10 Time of the Essence. Except as otherwise provided herein, time is
-------------------
of the essence in connection with each and every provision of this Agreement.
13.11 Further Actions. Each of the Members agrees to execute, acknowledge
---------------
and deliver such additional documents, and take such further actions, as may
reasonably be required from time to time to carry out each of the provisions,
and the intent, of this Agreement, and every agreement or document relating
hereto, or entered into in connection herewith.
13.12 ARBITRATION OF DISPUTES. ANY PARTY HERETO MAY REQUIRE THE
-----------------------
ARBITRATION OF ANY DISPUTE ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR
ANY RELATED AGREEMENT. SUCH PARTY MAY INITIATE AND REQUIRE ARBITRATION BY GIVING
NOTICE TO THE OTHER PARTIES SPECIFYING THE MATTER TO BE ARBITRATED. IF LEGAL
ACTION IS ALREADY PENDING ON ANY MATTER CONCERNING WHICH THE NOTICE IS GIVEN,
THE NOTICE SHALL NOT BE EFFECTIVE UNLESS GIVEN BY THE DEFENDANT THEREIN AND
GIVEN BEFORE THE EXPIRATION OF TWENTY (20) DAYS AFTER SERVICE OF PROCESS ON THE
PERSON GIVING THE NOTICE. EXCEPT AS PROVIDED TO THE CONTRARY IN THESE PROVISIONS
ON ARBITRATION, THE ARBITRATION SHALL BE IN CONFORMITY WITH AND SUBJECT TO
APPLICABLE RULES AND PROCEDURES OF THE AMERICAN ARBITRATION ASSOCIATION (OR ANY
SUCCESSOR THERETO). IF THE AMERICAN ARBITRATION ASSOCIATION IS NOT THEN IN
EXISTENCE AND THERE IS NO SUCCESSOR, OR IF FOR ANY REASON THE AMERICAN
ARBITRATION ASSOCIATION FAILS OR REFUSES TO ACT, THE ARBITRATION SHALL BE IN
CONFORMITY WITH AND SUBJECT TO THE PROVISIONS OF APPLICABLE NEVADA STATUTES (IF
ANY) RELATING TO ARBITRATION AT THE TIME OF THE NOTICE. THE ARBITRATORS SHALL BE
BOUND BY THIS AGREEMENT AND ALL RELATED AGREEMENTS. PLEADINGS IN ANY ACTION
PENDING ON THE SAME MATTER SHALL, IF ARBITRATION IS REQUIRED AS AFORESAID, BE
DEEMED AMENDED TO LIMIT THE ISSUES TO THOSE CONTEMPLATED BY THE RULES PRESCRIBED
ABOVE. EACH PARTY SHALL PAY THE COSTS OF ARBITRATION, INCLUDING ARBITRATOR'S
FEES, AS AWARDED BY THE ARBITRATOR(S). THE NUMBER AND SELECTION OF ARBITRATOR(S)
SHALL BE IN ACCORDANCE WITH THE RULES PRESCRIBED ABOVE, EXCEPT THAT (I) EACH
ARBITRATOR SELECTED SHALL BE NEUTRAL AND FAMILIAR WITH THE PRINCIPAL SUBJECT
MATTER OF THE ISSUES TO BE ARBITRATED, SUCH AS, BY WAY OF EXAMPLE, REAL ESTATE
DEVELOPMENT, OR REAL ESTATE MANAGEMENT, OR SUCH OTHER SUBJECT MATTER AS MAY BE
AT ISSUE, (II) THE TESTIMONY OF WITNESSES SHALL BE GIVEN UNDER OATH, AND (III)
DEPOSITIONS AND OTHER DISCOVERY MAY BE ORDERED BY THE ARBITRATOR(S).
Page 71 of 106 Pages
<PAGE>
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE `ARBITRATION OF DISPUTES'
PROVISION DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP ANY RIGHTS YOU
MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY
INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO
DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE
ARBITRATION OF DISPUTES' PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER
AGREEING TO THIS PROVISION YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY
OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION
PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION.
The Carlos and Elena De Mattos
Family Trust dated February 12, 1991
By:/s/ Carlos De Mattos
-------------------------
Carlos De Mattos, Trustee
By:/s/ Elena De Mattos
------------------------
Elena De Mattos, Trustee
C&E DM Limited Partnership
By:/s/ Carlos De Mattos
---------------------------------
Carlos De Mattos, General Partner
13.13 WAIVER OF JURY. WITH RESPECT TO ANY DISPUTE ARISING UNDER OR IN
--------------
CONNECTION WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, AS TO WHICH NO PARTY
INVOKES THE RIGHT TO ARBITRATION HEREINABOVE PROVIDED, OR AS TO WHICH LEGAL
ACTION NEVERTHELESS OCCURS, EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHTS IT
MAY HAVE TO DEMAND A JURY TRIAL. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND
VOLUNTARILY MADE BY THE MEMBERS AND EACH PARTY ACKNOWLEDGES THAT NONE OF THE
OTHER MEMBERS NOR ANY PERSON ACTING ON BEHALF OF THE OTHER PARTIES HAS MADE ANY
REPRESENTATION OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO
MODIFY OR NULLIFY ITS EFFECT. THE MEMBERS EACH FURTHER ACKNOWLEDGE THAT IT HAS
BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING
OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL,
SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS
THIS WAIVER WITH COUNSEL. THE MEMBERS EACH FURTHER ACKNOWLEDGES THAT IT HAS READ
AND UNDERSTAND THE MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION.
Page 72 of 106 Pages
<PAGE>
13.14 Third Party Beneficiaries. There are no third party beneficiaries
-------------------------
of this Agreement except (i) Affiliates and Principals of the Members and (ii)
any other Persons as may be entitled to the benefits of Article 12 hereof.
13.15 Tax Elections. The Manager, in his sole discretion, shall cause the
-------------
LLC to make or not make all elections required or permitted to be made for
income tax purposes.
13.16 Partition. The Members agree that the Property that the LLC may own
---------
or have an interest in is not suitable for partition. Each of the Members hereby
irrevocably waives any and all rights that it may have to maintain any action
for partition of any Property the LLC may at any time have an interest in.
13.17 Entire Agreement. This Agreement and the Articles of Organization
----------------
constitute the entire agreement of the Members with respect to, and supersedes
all prior written and oral agreements, understandings and negotiations with
respect to, the subject matter hereof.
13.18 Waiver. No failure by any party to insist upon the strict
------
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or any other covenant, duty, agreement or
condition.
13.19 Attorneys' Fees. In the event of any litigation, arbitration or
---------------
other dispute arising as a result of or by reason of this Agreement, the
prevailing party in any such litigation, arbitration or other dispute shall be
entitled to, in addition to any other damages assessed, its reasonable
attorneys' fees, and all other costs and expenses incurred in connection with
settling or resolving such dispute. The attorneys' fees which the prevailing
party is entitled to recover shall include fees for prosecuting or defending any
appeal and shall be awarded for any supplemental proceedings until the final
judgment is satisfied in full. In addition to the foregoing award of attorneys'
fees to the prevailing party, the prevailing party in any lawsuit or arbitration
procedure on this Agreement shall be entitled to its reasonable attorneys' fees
incurred in any post judgment proceedings to collect or enforce the judgment.
This attorneys' fees provision is separate and several and shall survive the
merger of this Agreement into any judgment.
13.20 Confidentiality and Press Releases. The Members and their
----------------------------------
respective Affiliates and Principals hereby agree that it is in all of their
best interests to keep this Agreement and the Business of the LLC and all
information concerning such business confidential. Such parties each agree that
they will not take any action nor conduct themselves in any fashion, including
giving press releases or granting interviews, that would disclose to third
parties unrelated to the LLC or the Business of the LLC any aspect of the LLC or
the Business of the LLC without the unanimous prior written approval of all
Members. To the extent such prior approval is given, it may be conditioned upon
approval of the text of any press release or the scope of any intended
interview.
Page 73 of 106 Pages
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Agreement as of the date first written above.
The Carlos and Elena De Mattos
Family Trust, dated February 12, 1991
By: /s/ Carlos De Mattos
-------------------------
Carlos De Mattos, Trustee
By: /s/ Elena De Mattos
------------------------
Elena De Mattos, Trustee
C&E DM Limited Partnership, a
California limited partnership
By: /s/ Carlos De Mattos
---------------------------------
Carlos De Mattos, General Partner
Page 74 of 106 Pages
<PAGE>
EXHIBIT 3
FIRST AMENDMENT OF
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
OF
C&E DM, LLC
This First Amendment of Limited Liability Company Operating Agreement
(the "Amendment"), dated as of December 12, 1994, is made by (i) The Carlos and
Elena De Mattos Family Trust dated February 12, 1991 ("Trust"), and (ii) C&E DM
Limited Partnership, a California limited partnership ("Partnership") to amend
the Limited Liability Company Operating Agreement dated as of March 1, 1994 made
by the Trust and the Partnership (the "Agreement"). Capitalized terms used in
this Amendment and not defined herein shall have the meaning given to them in
the Agreement.
RECITALS
A. The Trust and the Partnership are all of the present Members
of C&E DM, LLC, a Nevada limited liability company (the "LLC"). All of the
Members currently reside or maintain their principal place of business in the
State of California, and pursuant to the recent enactment of the (California)
Beverly-Killea Limited Liability Company Act, which is set forth at Title 2.5 of
the California Corporations Code (the "California Statute"), the Members wish to
amend the Agreement to recognize the applicability of certain provisions of the
California Statute to the LLC, as follows:
1. Right to Information. Section 10.1 of the Agreement is
--------------------
hereby amended and restated in full as follows, and the following new Section
13.12 is hereby added to the Agreement:
"10.1 MAINTENANCE OF BOOKS AND RECORDS. The LLC shall cause books
and records of the LLC to be maintained in accordance with generally accepted
accounting principles, and shall give reports to the Members in accordance with
prudent business practices and the Statute. There shall be kept at the
principal office of the LLC, as well as at the office of record of the LLC
specified in Section 2.4, if different, the following LLC documents:
10.1.1 A current list of the full name and last known business or
residence address of each Member and, to the extent known, each assignee of
such Member's rights to distributions, Net Profits and/or Net Loss (whether
such assignment was consented to by the Members) (the "Holder of an
Economic Interest"), set forth in alphabetical order, together with the
Capital Contributions and share in Net Profits and Losses of each Member
and, to the extent known, of each Holder of an Economic Interest;
10.1.2 A current list of the full name and last known business or
residence address of each Manager, set forth in alphabetical order;
10.1.3 Copies of the Articles of Organization of the LLC and any
amendments thereto, together with copies of any executed powers of attorney
pursuant to which any document of or relating to the LLC has been executed;
Page 75 of 106 Pages
<PAGE>
10.1.4 Copies of the LLC's federal, state and local income tax or
information returns and reports, if any, for the six most recent Fiscal
Years;
10.1.5 This Agreement;
10.1.6 Financial statements of the LLC for the six most recent
Fiscal Years;
10.1.7 The LLC's books and records for at least the current and
past three Fiscal Years;
10.1.8 Originals or copies of all minutes, actions by written
consent, consents to action and waivers of notice to Members and Member
Votes, actions and consents; and
10.1.9 The information required to be maintained by the LLC
pursuant to Section 86.241(1)(e) of the Statute, which information shall at
all times be reflected in and incorporated into this Agreement."
"13.22. MEMBERS' RIGHTS UNDER CALIFORNIA LAW. If at any time the Members
of this LLC who reside in the State of California shall hold twenty-five percent
(25%) or more of the Percentage Interests, Section 17453 of the California
Corporations Code provides that in such event, those Members are accorded
certain information and inspection rights as provided in Section 17106 of the
California Corporations Code. Accordingly, those Members shall have the
following rights:
13.22.1 Upon the request of a Member, for purposes reasonably
related to the interest of that Person as a Member, the Manager shall
promptly deliver to the Member, at the expense of the LLC, a copy of the
information required to be maintained by Sections 10.1.1, 10.1.2 and 10.1.4
hereof, and this Agreement.
13.22.2 Each Member has the right upon reasonable request, for
purposes reasonably related to the interest of that Person as a Member to
each of the following:
(i) To inspect and copy during normal business hours any of
the records required to be maintained by Section 10.1
hereof.
(ii) To obtain from the Manager promptly after becoming
available, a copy of the LLC's federal, state, and
local income tax or information returns for each year.
13.22.3 At any time that the LLC shall have more than thirty-five
(35) Members:
(i) The Manager shall cause an annual report to be sent to
each of the Members not later than one hundred twenty
(120) days after the close of the Fiscal Year. That
report shall contain a balance sheet as of the end of
the Fiscal Year and an income statement and statement
of changes in financial position for the Fiscal Year.
(ii) Members representing at least five percent (5%) of the
Percentage Interests of the Members, or three or more
Members, may make a written request to the Manager for
an income statement of the LLC for the initial three-
month, six-
Page 76 of 106 Pages
<PAGE>
month, or nine-month period of the current Fiscal Year
ending more than thirty (30) days prior to the date of
the request, and a balance sheet of the LLC as of the
end of that period. The statement shall be delivered
or mailed to the Members within thirty (30) days
thereafter.
(iii) The financial statements referred to in this Section
13.22.3 shall be accompanied by the report thereon, if
any, of the independent accountants engaged by the LLC
or, if there is no report, the certificate of the
Manager of the LLC that the financial statements were
prepared without audit from the books and records of
the LLC.
13.22.4 The Manager shall promptly furnish to a Member a copy of
any amendment to the Articles of Organization or this Agreement executed by
the Manager pursuant to a power of attorney from the Member.
13.22.5 The LLC shall send or cause to be sent to each Member with
ninety (90) days after the end of taxable year such information as is
necessary to complete federal and state income tax information returns,
and, in the event the LLC shall have thirty-five (35) or fewer Members, a
copy of the LLC's federal, state, and local income tax or information
returns for the year.
13.22.6 Any request, inspection, or copying by a Member may be made
by that Person or by that Person's agent or attorney."
2. Registration with California Secretary of State. The
-----------------------------------------------
following new Section 13.23 is hereby added to the Agreement:
"13.23. REGISTRATION IN CALIFORNIA. The Manager shall take such
action and execute and file such documents as may be appropriate to register the
LLC as a foreign limited liability company with the California Secretary of
State, in accordance with the provisions of the California Statute."
3. EFFECT OF AMENDMENT. Except as amended by the express terms
of this Amendment, all terms and provisions of the Agreement shall remain in
full force and effect, and when executed, this Amendment shall become a part of
the Agreement. This Amendment may be executed in counterparts, all of which
together shall be deemed one original.
Page 77 of 106 Pages
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date set forth above.
The Carlos and Elena De Mattos Family Trust,
dated February 12, 1991
By: /s/ Carlos De Mattos
------------------------------------
Carlos De Mattos, Trustee
By: /s/ Elena De Mattos
------------------------------------
Elena De Mattos, Trustee
C&E DM Limited Partnership,
a California limited partnership
By: /s/ Carlos De Mattos
------------------------------------
Carlos De Mattos, General Partner
Page 78 of 106 Pages
<PAGE>
EXHIBIT 4
-------------------------------------
MATTHEWS STUDIO EQUIPMENT GROUP
-------------------------------
STOCKHOLDERS AGREEMENT
------------------------------
Dated as of July 27, 1995
-------------------------------------
Page 79 of 106 Pages
<PAGE>
STOCKHOLDERS AGREEMENT
----------------------
STOCKHOLDERS AGREEMENT, dated as of July 27, 1995, among MATTHEWS STUDIO
EQUIPMENT GROUP, a California corporation (the "Company"), ING Equity Partners,
L.P. I, a Delaware limited partnership ("ING") and the Management Stockholders.
W I T N E S S E T H:
-------------------
WHEREAS, ING pursuant to a Purchase Agreement (the "Purchase Agreement")
dated July 27, 1995, between the Company and ING is purchasing from the Company
(i) $5,000,000 in principal amount of the Company's senior subordinated notes
(the "Notes"), (ii) warrants (the "Warrants") to purchase seventeen percent
(17%) of the outstanding common stock, no par value (the "Common Stock"), of the
Company on a fully diluted basis, and (iii) one million shares of special voting
preferred stock, no par value (the "Special Voting Preferred Stock"), of the
Company; and
WHEREAS, ING pursuant to an Option Agreement, dated June 5, 1995, between
ING and Edward Carlin, is purchasing 1,400,000 shares of Common Stock (the
"Option Shares"); and
WHEREAS, the Management Stockholders are the beneficial owners of
approximately forty-two percent (42%) of the Common Stock; and
WHEREAS, the Company, ING and the Management Stockholders desire to enter
into this Agreement for the purposes, among others, of (i) establishing the
composition of the Company's Board of Directors, (ii) assuring continuity in the
management of the Company and (iii) limiting the manner and terms by which the
Stockholder Shares may be transferred.
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
Affiliate shall mean with respect to any Person, (a) any Person which
---------
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common
Page 80 of 106 Pages
<PAGE>
control with, such Person, or (b) any Person who is a director or executive
officer (i) of such Person, (ii) of any Subsidiary of such Person, or (iii) of
any Person described in clause (a) above, or with respect to any Stockholder,
the Company; provided, that any Affiliate of a corporation shall be deemed an
Affiliate of such corporation's stockholders. For purposes of this definition,
"control" of a Person shall mean the power, direct or indirect, (i) to vote or
direct the voting of more than 5% of the outstanding shares of Voting Stock of
such Person, or (ii) to direct or cause the direction of the management and
policies of such Person, whether by contract or otherwise.
Agreement shall mean this Agreement as in effect on the date hereof and as
---------
hereafter from time to time amended, modified or supplemented in accordance with
the terms hereof.
Board of Directors shall mean the Board of Directors of the Company, as
------------------
duly constituted in accordance with this Agreement, or any committee thereof
duly constituted in accordance with this Agreement, the By-laws and applicable
law and duly authorized to make the relevant determination or take the relevant
action. To the extent that the Board of Directors is required under this
Agreement to authorize or approve, or make a determination in respect of a
transaction between the Company, on the one hand, and a Stockholder, and/or a
Stockholder's Affiliates, on the other hand, the Board of Directors shall be
deemed to exclude such Stockholder, any of its Affiliates, and any of the
directors, officers, employees, agents or representatives of such Stockholder
and/or its Affiliates, who are members of the Board of Directors.
By-Laws shall mean the By-Laws of the Company as amended and in effect on
-------
the date hereof, and as hereafter further amended or restated in accordance with
the terms hereof and pursuant to applicable law.
Charter shall mean the Articles of Incorporation of the Company as in
-------
effect on the date hereof, including all certificates of determination of the
Company, and as hereafter from time to time amended, restated, modified or
supplemented in accordance with the terms hereof and pursuant to applicable law.
Closing Date shall mean the date on which the transactions contemplated by
------------
the Purchase Agreement shall be consummated.
Commission shall mean the Securities and Exchange Commission and any
----------
successor commission or agency having similar powers.
Common Stock shall mean the Common Stock, no par value per share, of the
------------
Company.
Page 81 of 106 Pages
<PAGE>
Eligible Offering shall mean an offer by the Company to sell to investors
-----------------
(including any Stockholder) for cash shares of Common Stock, or any security
convertible into or exchangeable for, or carrying rights or options to purchase,
shares of Common Stock, as the case may be, other than an offering of securities
by the Company:
(i) in connection with any merger of, or acquisition by, the
Company; or
(ii) registered under the Securities Act; or
(iii) in connection with the exercise of the Warrants or other
warrants or options outstanding on the date hereof; or
(iv) pursuant to (A) the Company's Amended and Restated 1989 Stock
Option Plan; (B) the Company's 1994 Stock Option Plan; (C) the Company's
1994 Stock Option Plan for Directors; (D) any other employee benefit plan
and (E) options granted pursuant to the Employment Agreements dated July 1,
1995, between the Company and each of Carlos D. De Mattos, Edward Phillips
and John Murray pursuant to any acquisition permitted under the Purchase
Agreement and the Credit Agreement of even date herewith by and among the
Company, certain of the Company's Subsidiaries and Chemical Bank.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended, or
------------
any similar Federal statute then in effect, and a reference to a particular
section thereof shall include a reference to the comparable section, if any, of
such similar Federal statute.
Financial Investor shall mean a purchaser of any Securities that is a (i)
------------------
bank, an investment bank, an investment partnership or investment company or
other Person whose primary business is the financial services or investment
business or (ii) an Affiliate of such a Person identified in clause (i).
First Offer Price and Terms shall have the meaning specified in Section
---------------------------
5.1(a).
GAAP shall mean the generally accepted accounting principles in the United
----
States of America in effect from time to time, applied on a consistent basis
both as to classification of items and amounts.
ING shall mean ING Equity Partners, L.P. I.
---
Page 82 of 106 Pages
<PAGE>
ING Transferee shall mean any Person to whom ING has transferred Stock
--------------
other than in a transaction described in Section 4.2(b) or Section 4.2(c)
-------------- --------------
Management Stockholders shall mean Carlos D. De Mattos and Edward Phillips.
-----------------------
NASDAQ shall mean the NASDAQ National Market or the NASDAQ Small Cap
------
Market.
Notice of Exercise shall have the meaning specified in Section 5.1(b).
------------------
Notice of Intention shall have the meaning specified in Section 5.1(a).
-------------------
Offered Shares shall have the meaning specified in Section 5.1.
--------------
Offerees shall have the meaning specified in Section 5.6(b)
--------
Option Shares is defined in the Second Recital.
-------------
Permitted Transferees shall mean, those Persons to whom transfers of Common
---------------------
Stock and Preferred Stock are permitted to be made pursuant to Section 4.2 and
Article V hereof.
Person shall mean an individual or a corporation, association, partnership,
------
joint venture, organization, business, trust, or any other entity or
organization, including a government or any subdivision or agency thereof.
Preferred Stock shall mean the Special Voting Preferred Stock of the
---------------
Company.
Public Offering shall mean a public offering and sale of equity securities
---------------
of the Company pursuant to an effective registration statement under the
Securities Act.
Purchase Agreement shall mean the Purchase Agreement, dated July 27, 1995,
------------------
between the Company and ING.
Qualifying Offering shall mean an underwritten initial public offering of
-------------------
the Common Stock registered under the Securities Act, which offering results in
net proceeds to the Company of at least $10,000,000 and a price per share of
Common Stock of not less than $2.50 per share (appropriately adjusted to reflect
all recapitalization events).
Registration Rights Agreement shall have the meaning specified in Section
-----------------------------
5.1(a).
Page 83 of 106 Pages
<PAGE>
Securities shall mean any Common Stock, Preferred Stock or other capital
----------
stock of the Company.
Securities Act shall mean, as of any date, the Securities Act of 1933, as
--------------
amended, or any similar federal statute then in effect, and in reference to a
particular section thereof shall include a reference to the comparable section,
if any, of any such similar federal statute and the rules and regulations
thereunder.
Selling Stockholders shall have the meaning specified in Section 5.7.
--------------------
Stock shall mean the Common Stock and the Preferred Stock.
-----
Stockholders shall mean ING and the Management Stockholders, and any
------------
Permitted Transferee of any such Person who becomes a party to or bound by the
provisions of this Agreement in accordance with the terms hereof.
Subsidiary shall mean as to any Person a corporation of which outstanding
----------
shares of stock having ordinary voting power (other than stock having such power
only by reason of the happening of a contingency) to elect a majority of the
Board of Directors of such corporation are at the time owned, directly or
indirectly through one or more intermediaries, or both, by such Person.
Transaction Documents shall mean this Agreement, the Purchase Agreement,
---------------------
the Registration Rights Agreement, each of the agreements that are exhibits
hereto and thereto, and all agreements, instruments and documents contemplated
thereby.
Voting Stock shall mean capital stock of the Company of any class or
------------
classes, the holders of which are ordinarily, in the absence of contingencies,
entitled to vote for the election of corporate directors (or Persons performing
similar functions), including without limitation, the Common Stock and the
Preferred Stock.
Voting Stockholder shall mean a Stockholder who holds Voting Stock or
------------------
retains, by proxy or otherwise, the power to vote Voting Stock.
Warrants shall mean the Warrants issued by the Company to ING pursuant to
--------
the Purchase Agreement.
Page 84 of 106 Pages
<PAGE>
ARTICLE II
BOARD OF DIRECTORS MANAGEMENT
Section 2.1. Board of Directors. (a) From and after the Closing (as
------------------
defined in the Purchase Agreement) and until the provisions of this Section 2.1
cease to be effective, each Stockholder shall vote all of such Stockholder's
Voting Stock and shall take all other necessary or desirable actions within the
Stockholder's control (whether in his capacity as a stockholder, director,
member of a committee of the Board of Directors or officer of the Company or
otherwise, and including, without limitation, attendance at meetings in person
or by proxy for purposes of obtaining a quorum and execution of written consents
in lieu of meetings), and the Company shall take all necessary and desirable
actions within its control (including, without limitation, calling special board
and stockholder meetings), so that:
(i) the number of directors on the Board of Directors shall be
nine; and
(ii) two representatives designated by ING (the "ING Directors")
or, if ING and its Affiliates cease to be Stockholders, designated by ING
Transferees holding a majority of the Stock (other than Preferred Stock)
held by such ING Transferees (with Warrants counted on an as if exercised
basis), shall be elected to the Board of Directors; and
(iii) the removal from the Board of Directors (with or without
cause) of any representative designated by ING or the ING Transferees shall
be only at the written request of ING or the ING Transferees (if ING and
its Affiliates are no longer Stockholders), and under no other
circumstances; and
(iv) in the event that any representative designated hereunder by
ING or the ING Transferees (if ING and its Affiliates are no longer
Stockholders) for any reason ceases to serve as a member of the Board of
Directors during his term of office, the resulting vacancy on the Board of
Directors shall be filled by a representative designated by ING or the ING
Transferees as provided hereunder; and
(v) ING or the ING Transferees (if ING and its Affiliates are no
longer Stockholders) shall use all reasonable efforts to insure that none
of the designees is engaged as an officer, director or control person of a
company or other business enterprise that is in competition with the
Company and that none of the designees possesses a pecuniary or similar
interest in any of the Company's
Page 85 of 106 Pages
<PAGE>
business or assets (other than ownership of Common Stock) of such a
pervasive nature as to hamper materially such designee's ability to
impartially take part in the general deliberations of the Board of
Directors concerning the Company's business and prospects;
provided, however, that if ING and Affiliates of ING or, if ING and its
- -------- -------
Affiliates cease to be Stockholders, ING Transferees cease to hold Warrants to
purchase at least eight and five-tenths percent (8.5%) of the outstanding Common
Stock on a fully diluted basis, the number of ING Directors required by clause
(a)(ii) shall be automatically reduced to one.
(b) The Stockholders shall take all necessary and appropriate actions to
provide that the ING Directors are members of any and all committees of the
Board; provided, that, nothing in this Section 2.1(b) shall imply that the ING
--------
Directors shall constitute a majority of such committees.
(c) The Company shall pay the reasonable out-of-pocket expenses incurred
by each director in connection with attending the meetings of the Board and any
committee thereof. So long as any ING Director serves on the Board and for three
years thereafter, the Company shall maintain directors indemnity insurance
coverage reasonably satisfactory to the ING Directors. The ING Directors shall
be provided the same compensation, stock incentive and reimbursement benefits as
other independent directors of the Company.
(d) The Company and the Stockholders shall use their best efforts to
provide, as soon as practicable, in the Company's Charter and Bylaws for
indemnification and reimbursement of directors and officers to the fullest
extent permitted by the General Corporation Law of California.
(e) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this paragraph 1, the election of a Person
to such directorship shall be accomplished in accordance with the Company's
bylaws and applicable law.
Section 2.2. Conflicting Agreements. Each Stockholder represents that
----------------------
such Stockholder has not granted and is not a party to any proxy, voting trust
or other agreement which is inconsistent with or conflicts with the provisions
of this Agreement, and no holder of Stock shall grant any proxy or become party
to any voting trust or other agreement which is inconsistent with or conflicts
with the provisions of this Agreement. No Stockholder shall act, for any reason,
as a member of a group or in concert or enter into any agreement or arrangement
with any other Person in connection with the
Page 86 of 106 Pages
<PAGE>
acquisition, disposition or voting of Stock in any manner which is inconsistent
with the provisions of this Agreement.
Section 2.3. Actions Consistent with Agreement. The Company shall not
---------------------------------
circumvent this Agreement by taking any action through a Subsidiary or Affiliate
that would be prohibited under this Agreement.
ARTICLE III
PURCHASES OF COMMON STOCK
Section 3.1. ING Purchases. Until three years from the date hereof, ING
-------------
agrees to refrain from acquiring either directly or indirectly through its
Affiliates greater than 50% of the Common Stock then outstanding; provided, that
--------
nothing in this Section 3.1 shall prevent or restrict acquisition of Common
Stock by ING as long as any event of default under any debt financing
arrangement or agreement between the Company and ING exists or is continuing and
entitles ING to acceleration of payments of interest, penalties or principal
owed to ING under such debt financing arrangement or agreement; provided,
--------
further, that nothing in this Section 3.1 shall prevent or restrict ING from
- -------
exercising in part or full any and all rights, including but not limited to
preemptive rights, rights of first offer and anti-dilution adjustment rights, of
ING under the Transaction Documents.
ARTICLE IV
TRANSFERS OF STOCK
Section 4.1. Restrictions on Transfer. Each Stockholder agrees that such
------------------------
Stockholder will not, directly or indirectly, offer, sell, transfer, assign or
otherwise dispose of (or make any exchange, gift, assignment or pledge of)
(collectively, for purposes of Articles IV and V hereof only, a "transfer") any
Stock or Warrants except (a) as provided in Section 4.2; (b) in accordance with
Article V; or (c) an exercise of Warrants into Common Stock pursuant to the
terms of the Warrants and the Purchase Agreement. In addition to the other
restrictions noted in this Article IV, each Stockholder agrees that it will not,
directly or indirectly, transfer any of its Stock except as permitted under the
Securities Act and other applicable securities laws.
Section 4.2. Exceptions to Restrictions. The provisions of Section 4.1
--------------------------
and Article V shall not apply to any of the following transfers:
Page 87 of 106 Pages
<PAGE>
(a) From any Stockholder that is a natural person to (i) such
Stockholder's spouse or children or (ii) to any trust solely for such
Stockholder's benefit or the benefit of such Stockholder's spouse or
children; provided, that, in each case referred to above, such Stockholder
--------
acts as trustee and retains the sole power to direct the voting and
disposition of such Securities; and provided, further that each such Person
-------- -------
including any such trust (each a "Permitted Transferee") shall execute a
counterpart of and become a party to this Agreement and shall agree in a
writing in form and substance satisfactory to the Company to be bound and
becomes bound by the terms of this Agreement as a Stockholder.
(b) From any Stockholder to any Affiliate of the Company, or
pursuant to a merger or consolidation involving the Company or a sale of
all or substantially all of the outstanding shares of Common Stock.
(c) Pursuant to a Public Offering occurring after the date hereof
or an open market sale following a Public Offering after the date hereof in
accordance with Rule 144 of the Commission.
(d) From any Stockholder to an Affiliate of such Stockholder.
(e) From any Stockholder to another Stockholder.
(f) From ING or ING's Affiliates pursuant to Section 5.6.
(g) The transfer of Option Shares.
Section 4.3. Endorsement of Certificates. (a) Upon the execution of this
---------------------------
Agreement, in addition to any other legend which the Company may deem advisable
under the Securities Act and certain state securities laws, all certificates
representing shares of issued and outstanding Common Stock and Preferred Stock
shall be endorsed at all times prior to a Qualifying Offering as follows:
THIS CERTIFICATE IS SUBJECT TO, AND IS TRANSFERABLE ONLY UPON
COMPLIANCE WITH, THE PROVISIONS OF A STOCKHOLDERS AGREEMENT, DATED JULY 27,
1995, AMONG THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS. A COPY OF THE
ABOVE REFERENCED AGREEMENTS ARE ON FILE AT THE OFFICE OF THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE
Page 88 of 106 Pages
<PAGE>
REGISTRATION STATEMENT, OR AN EXEMPTION FROM REGISTRATION, UNDER SAID ACT.
(b) Except as otherwise expressly provided in this Agreement, all
certificates representing shares of Stock hereafter issued to or acquired by any
of the Stockholders or their successors hereto (including, without limitation,
all certificates representing shares of Common Stock hereafter issued upon the
exercise of Warrants) shall bear the legends set forth above, and the shares of
Stock represented by such certificates shall be subject to the applicable
provisions of this Agreement. The obligations of each party hereto shall be
binding upon each transferee to whom Stock is transferred by any party hereto,
whether or not such transfer is permitted under the terms of this Agreement,
except for transfers described in Section 4.2(c). Prior to consummation of any
transfer, except for transfers described in Section 4.2(c) or Section 4.4, such
party shall cause the transferee to execute an agreement in form and substance
reasonably satisfactory to the other parties hereto, providing that such
transferee shall fully comply with the terms of this Agreement. Prompt notice
shall be given to the Company and each Stockholder by the transferor of any
transfer (whether or not to a Permitted Transferee) of any Stock.
Section 4.4. Sale of Common Stock by the Management Stockholders. (a)
---------------------------------------------------
Prior to the first anniversary of the date of the consummation of a Qualifying
Offering subsequent to the date hereof, each Management Stockholder (including
its Affiliates), individually, in any twelve-month period shall not sell,
transfer, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to the sale,
transfer, pledge, encumbrance, assignment or other disposition of any shares of
Common Stock held by such Management Stockholder and its Affiliates except as
follows:
(i) Each Management Stockholder, during any twelve-month period
prior to the first anniversary of the date of the consummation of a
Qualifying Offering subsequent to the date hereof, may sell, transfer or
assign the number of shares of Common Stock equal to or less than the
number of shares of Common Stock equal to or less than 10% of the holdings
of such Management Stockholder as of the date hereof, less fifty percent
(50%) that number of shares pledged or encumbered pursuant to clause (ii).
-----------
(ii) Each Management Stockholder, during any twelve-month period
prior to the first anniversary of the date of the consummation of a
Qualifying Offering subsequent to the date hereof, may pledge or encumber
the number of shares of Common Stock equal to or less than the number of
shares of
Page 89 of 106 Pages
<PAGE>
Common Stock equal to or less than 20% of the holdings of such Management
Investor as of the date hereof, less that number of shares sold,
transferred or assigned pursuant to clause (i).
----------
(b) After the first anniversary of the date of the consummation of a
Qualifying Offering, each Management Stockholder and its Affiliates,
individually, in any twelve month period shall not sell, transfer, pledge,
encumber, assign or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to the sale, transfer, pledge,
encumbrance, assignment or other disposition of any shares of Common Stock held
by such Management Stockholder and its Affiliates except as follows:
(i) Each Management Stockholder, during any twelve-month period
prior to the first anniversary of the date of the consummation of a
Qualifying Offering subsequent to the date hereof, may sell, transfer or
assign the number of shares of Common Stock equal to or less than the
number of shares of Common Stock equal to or less than 20% of the holdings
of such Management Stockholder as of the date hereof, less fifty percent
(50%) that number of shares pledged or encumbered pursuant to clause (ii).
-----------
(ii) Each Management Stockholder, during any twelve-month period
prior to the first anniversary of the date of the consummation of a
Qualifying Offering subsequent to the date hereof, may pledge or encumber
the number of shares of Common Stock equal to or less than the number of
shares of Common Stock equal to or less than 40% of the holdings of such
Management Investor as of the date hereof, less that number of shares sold,
transferred or assigned pursuant to clause (i).
----------
Section 4.5. Improper Transfer. Any attempt to transfer or encumber any
-----------------
shares of Stock not in accordance with this Agreement shall be null and void and
neither the Company nor any transfer agent of such securities shall give any
effect to such attempted transfer or encumbrance in its stock records.
ARTICLE V
RIGHTS OF FIRST OFFER; TAG ALONG SALES
Section 5.1. Transfers by a Stockholder. (a) Except for sales of
--------------------------
securities contemplated by the Registration Rights Agreement, dated the date
hereof, among the Company and the parties named therein (the "Registration
Rights Agreement") and transfers permitted by Sections 4.1 and 4.2, if at any
time any
Page 90 of 106 Pages
<PAGE>
Stockholder shall desire to sell any Stock or Warrants owned by him or it (such
Stockholder desiring to sell shares of such Stock being referred to herein as a
"Selling Stockholder"), then such Selling Stockholder shall deliver at least 5
days prior to consummating such transaction written notice of its desire to sell
such Stock (a "Notice of Intention"), accompanied by a copy of a proposal
relating to such sale (the "Sale Proposal"), to each of the other Stockholders
and to the Company, setting forth such Selling Stockholder's desire to make such
sale, the number and class of shares of Stock or Warrants proposed to be
transferred (the "Offered Securities") and the price at which and terms on which
such Selling Stockholder proposes to sell the Offered Securities (the "First
Offer Price and Terms") and other terms applicable thereto.
(b) Upon receipt of the Notice of Intention, the Company and the other
Stockholders shall then have the right (other than with respect to sales,
pledges or encumbrances of Common Stock, pursuant to Section 4.4) to purchase at
the First Offer Price and Terms and on the other terms specified in the Sale
Proposal all or, subject to Section 5.1(d), any portion of the Offered
Securities in the following order of priority: if the Selling Stockholder is a
Management Stockholder, the other Management Stockholders shall have the first
right to purchase the Offered Securities pro rata among those Management
Stockholders so electing on the basis of the respective number of shares of
Common Stock owned or held whether as trustee or through other Permitted
Transferees by such Management Stockholders (or in such other proportions as
such Management Stockholders may agree), and thereafter,the remaining
Stockholders shall have the right to purchase the Offered Securities pro rata
among such Stockholders so electing to purchase on the basis of the respective
numbers of shares of Common Stock (with Warrants considered on an as if
converted basis) owned by such Stockholders (or in such other proportion as they
may agree), and thereafter, the Company shall have the right to purchase the
Offered Securities. The rights of the Stockholders and the Company pursuant to
this Section 5.1(b) shall be exercisable by the delivery of notice to the
Selling Stockholder (the "Notice of Exercise"), within 4 business days from the
date of delivery of the Notice of Intention. The Notice of Exercise shall state
the total number of shares of the Offered Securities such Stockholder (or the
Company) is willing to purchase without regard to whether or not other
Stockholders purchase any shares of the Offered Securities. A copy of such
Notice of Exercise shall also be delivered by each Stockholder to the Company
and each other Stockholder. The rights of the Stockholders and the Company
pursuant to this Section 5.1(b) shall terminate if unexercised 5 business days
after the date of delivery of the Notice of Intention.
Page 91 of 106 Pages
<PAGE>
(c) In the event that the Stockholders or the Company exercise their
rights to purchase any or all of the Offered Securities in accordance with
Section 5.1(b), then the Selling Stockholder must sell the Offered Securities to
such Stockholders (or, as the case may be, the Company) within 30 calendar days
from the date of delivery of the Notice of Exercise received by the Selling
Stockholder.
(d) Notwithstanding the foregoing provisions of this Section 5.1, unless
the Selling Stockholder shall have consented to the purchase of less than all of
the Offered Securities, no Stockholder or Stockholders nor the Company may
purchase any Offered Securities hereunder unless all of the Offered Securities
are to be so purchased.
(e) For purposes of this Article V, any Person who has failed to give
notice of the election of an option hereunder within the specified time period
will be deemed to have waived its rights on the day after the last day of such
period.
(f) Each Stockholder in its capacity only as a stockholder agrees and
acknowledges that the Company may purchase or acquire Common Stock pursuant to
Section 5.1(b) hereof, and approves such purchases and acquisitions, and waives
any objection or claim relating thereto, whether against the Company, the Board
of Directors or otherwise.
Section 5.2. Transfer of Offered Shares to Third Parties. If all notices
-------------------------------------------
required to be given pursuant to Section 5.1 have been duly given and the
Stockholders and the Company do not exercise their respective options to
purchase all of the Offered Securities at the First Offer Price and Terms and
the Selling Stockholder does not desire to sell less than all the Offered
Securities or if with the consent of the Selling Stockholder, the other
Stockholders and the Company purchase less than all of the Offered Securities
pursuant to the provisions hereof, then in either such event the Selling
Stockholder shall have the right, subject to compliance by the Selling
Stockholder (if such Selling Shareholder is ING) with the provisions of Section
4.3(b) hereof, for a period of 120 calendar days from the earlier of (i) the
expiration of the option period pursuant to Section 5.1 with respect to such
Sale Proposal or (ii) the date on which such Selling Stockholder receives notice
from the other Stockholders and the Company that they will not exercise in whole
or in part the options granted pursuant to Section 5.1, to enter into an
agreement to sell, or to sell, to any third party which is not an Affiliate of,
or related to, the Selling Stockholder the Offered Securities remaining unsold
at a price of not less than 90% of the First Offer Price and Terms, and on the
other terms no less favorable (taken as a whole) to the purchaser than those
specified in the Sale Proposal.
Page 92 of 106 Pages
<PAGE>
Section 5.3. Purchase of Offered Shares. The consummation of any purchase
--------------------------
and sale pursuant to Section 5.1 shall take place on such date, not later than
30 calendar days after the expiration of the option period pursuant to Section
5.1 with respect to such option, as the Selling Stockholder shall select. Prior
to the consummation of any sale pursuant to Section 5.1, the Selling Stockholder
(if such Selling Stockholder is ING or an ING Affiliate or an ING Transferee)
shall comply with Section 4.3(b) hereof. Upon the consummation of any such
purchase and sale, the Selling Stockholder shall deliver certificates evidencing
the Offered Securities sold duly endorsed, or accompanied by written instruments
of transfer in form satisfactory to the purchaser duly executed by the Selling
Stockholder free and clear of any liens, against delivery of the First Offer
Price and Terms, payable in the manner specified in Section 5.1(a).
Section 5.4. Waiting Period with Respect to Subsequent Transfers. In the
---------------------------------------------------
event that the Stockholders and the Company do not exercise their options to
purchase all of the Offered Securities, and the Selling Stockholder shall not
have sold the remaining Offered Securities to a third party for any reason
before the expiration, as applicable, of the 120-day period described in Section
5.2, then such Selling Stockholder shall not give another Notice of Intention
pursuant to Section 5.1 for a period of 90 calendar days after the last day of
such 120-day period.
Section 5.5. Legally Binding Obligation. Subject to Section 5.1(a),
--------------------------
making a written offer, giving or failing to give written notice within the
stated period, accepting an offer or making a decision or election, in each case
as provided in Section 5.1 or 5.2, shall create a legally binding obligation to
buy or sell, or a legally binding obligation to refrain from buying or selling,
or a legally binding waiver of the right to buy or sell, as the case may be, the
subject Stock as provided in such Section 5.1 or 5.2.
Section 5.6. Right to Join in Sale. (a) Anything in this Agreement to
---------------------
the contrary notwithstanding, if any Stockholder or group of Stockholders
proposes, other than (i) transfers to a Permitted Transferee pursuant to Section
4.2 and (ii) transactions by ING or ING's Affiliates or Permitted Transferees to
a Financial Investor, to sell, dispose of or otherwise transfer any Stock or
Warrants (each a "Disposing Stockholder"), such person or group shall refrain
from effecting such transaction unless, prior to the consummation thereof, each
other Stockholder shall have been afforded the opportunity to join in such sale
of Common Stock on a pro rata basis, as hereinafter provided.
Page 93 of 106 Pages
<PAGE>
(b) Prior to consummation of any proposed sale, disposition or transfer of
shares of Stock described in Section 5.6(a), the Disposing Stockholder shall
cause the person or group that proposes to acquire such shares (the "Proposed
Purchaser") to offer (the "Purchase Offer") in writing to each other Stockholder
(collectively, the "Offerees") to purchase shares of Stock owned by such
Stockholder (regardless of whether the shares of Stock proposed to be sold by
the Disposing Stockholders are the same class as the shares of Stock owned by
such Stockholders), such that the number of shares of such Stock so offered to
be purchased from such Stockholder shall be equal to the product obtained by
multiplying the total number of shares of such Stock then owned by such
Stockholder by a fraction, the numerator of which is the aggregate number of
shares of Stock proposed to be purchased by the Proposed Purchaser from all
Stockholders (including the Disposing Stockholder or Stockholders) and the
denominator of which is the aggregate number of shares of Stock then owned by
all of the Offerees and the Disposing Stockholder, in all cases considering
Warrants (but not Preferred Stock) on an as if converted basis. Such purchase
shall be made at the highest price per share and on such other terms and
conditions as the Proposed Purchaser has offered to purchase shares of Stock to
be sold by the Disposing Stockholder or Stockholders, in all cases considering
Warrants (but not Preferred Stock) on an as if converted basis. Each Stockholder
shall have 20 calendar days from the date of receipt of the Purchase Offer in
which to accept such Purchase Offer, and the closing of such purchase shall
occur within 30 calendar days after such acceptance or at such other time as
such Stockholder and the Proposed Purchaser may agree. The number of shares of
Stock to be sold to the Proposed Purchaser by the Disposing Stockholder or
Stockholders shall be reduced by the aggregate number of shares of Stock
purchased by the Proposed Purchaser from the other Stockholders pursuant to the
acceptance by them of Purchase Offers in accordance with the provisions of this
Section 5.6(b), considering Warrants (but not Preferred Stock) on an as if
converted basis. In the event that a sale or other transfer subject to this
Section 5.6 is to be made to a Proposed Purchaser who is not a Stockholder, the
Disposing Stockholder shall notify the Proposed Purchaser that the sale or other
transfer is subject to this Section 5.6 and shall ensure that no sale or other
transfer is consummated without the Proposed Purchaser first complying with this
Section 5.6. It shall be the responsibility of each Disposing Stockholder to
determine whether any transaction to which it is a party is subject to this
Section 5.6.
Section 5.7. Participation Rights. (a) The Company hereby grants to ING
--------------------
the right to purchase ING's proportionate percentage of any future Eligible
Offering. The Company shall, before issuing any securities pursuant to an
Eligible Offering, give written notice thereof to ING. Such notice shall specify
Page 94 of 106 Pages
<PAGE>
the security or securities the Company proposes to issue and the consideration
that the Company intends to receive therefor. For a period of thirty (30) days
following the date of such notice, ING shall be entitled, by written notice to
the Company, to elect to purchase all or any part of such proportionate
percentage of ING of the securities being sold in the Eligible Offering;
provided, however, that if two or more securities shall be proposed to be sold
- -------- -------
as a "unit" in an Eligible Offering, any such election must relate to such unit
of securities. If elections pursuant to this Section 5.7 shall not be made with
respect to any securities included in an Eligible Offering within such thirty
(30) day period, then the Company may issue such securities to investors, but
only for a consideration payable in cash not less than, and otherwise on terms
no more favorable to the investors than, that set forth in the Company's notice
and only within ninety (90) days after the end of such thirty (30) day period.
In the event that any such offer is accepted by ING, the Company shall sell to
ING, and ING shall purchase from the Company, for the consideration and on the
terms set forth in the notice as aforesaid, the securities that ING shall have
elected to purchase. For the purposes of this Section 5.7, "proportionate
percentage" shall mean with respect to ING as of any date, the result (expressed
as a percentage) obtained by dividing (i) the number of shares of Common Stock
(considering warrants on an as if converted basis) held by ING and its Permitted
Transferees, by (ii) the number of shares of Common Stock then outstanding.
ARTICLE VI
TERMINATION
Section 6.1. Certain Terminations. (a) The provisions of Articles II,
--------------------
III, IV (other than in Section 4.4) and V shall terminate on the date on which
any of the following events first occurs: (i) a Qualifying Offering, (ii) a
merger or consolidation of the Company with or into another Person that is not
an Affiliate of the Company, as a result of which the Stockholders own less than
51% of the outstanding shares of Voting Stock of the surviving or resulting
corporation, or (iii) ten years from the date of this Agreement.
(b) Notwithstanding the foregoing, this Agreement shall in any event
terminate with respect to ING, Affiliates of ING or ING Transferee when (i) such
Person and its Affiliates (other than the Company) cease to be Affiliates of the
Company and (ii) such Person and its Affiliates (other than the Company) cease
to hold Common Stock (including shares to be received upon the exercise of the
Warrants) representing three percent (3%) of the outstanding Common Stock on a
fully diluted basis and cease to
Page 95 of 106 Pages
<PAGE>
hold any Notes, and with respect to any other Stockholder when such Stockholder
no longer owns any Stock or warrants or options to acquire Stock and no longer
is due dividends with respect to Preferred Stock. In addition, this Agreement
shall terminate with respect to all Stockholders upon the written consent of
ING.
ARTICLE VII
MISCELLANEOUS
Section 7.1. Successors and Assigns. Except as otherwise provided herein,
----------------------
all of the terms and provisions of this Agreement shall be binding upon, shall
inure to the benefit of and shall be enforceable by the respective successors
and assigns of the parties hereto. No Stockholder may assign any of its rights
hereunder to any Person other than a transferee that has complied with the
requirements of Sections 4.2 and 5.3 (if applicable) as provided therein in all
respects. The Company may not assign any of its rights hereunder to any Person
other than an Affiliate of the Company. If any transferee of any Stockholder
(other than a Management Stockholder) shall acquire any Stock, in any manner,
whether by operation of law or otherwise, such shares shall be held subject to
all of the terms of this Agreement, and by taking and holding such shares such
Person shall be entitled to receive the benefits of and be conclusively deemed
to have agreed to be bound by and to comply with all of the terms and provisions
of this Agreement.
Section 7.2. Amendment and Modification; Waiver of Compliance; Conflicts.
-----------------------------------------------------------
(a) This Agreement may be amended only by a written instrument duly executed by
ING, or if ING and its Affiliates cease to be Stockholders, a representative
designated by the ING Transferees holding a majority of the Stock (other than
Preferred Stock) held by the ING Transferees (with Warrants converted on an as
if exercised basis) and the Management Stockholders. In the event of the
amendment or modification of this Agreement in accordance with its terms, the
Stockholders shall cause the Board of Directors of the Company to meet within 30
calendar days following such amendment or modification or as soon thereafter as
is practicable for the purpose of adopting any amendment to the Charter and By-
Laws of the Company that may be required as a result of such amendment or
modification to this Agreement, and, if required, proposing such amendments to
the Stockholders entitled to vote thereon, and the Stockholders agree to vote in
favor of such amendments.
(b) Except as otherwise provided in this Agreement, any failure of any of
the parties to comply with any obligation, covenant, agreement or condition
herein may be waived by the party entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but such
Page 96 of 106 Pages
<PAGE>
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
(c) In addition to the provisions of Section 7.2(b), any failure of the
Company to comply with any obligation, covenant, agreement or condition herein
may be waived by a written instrument duly executed by ING, or if ING and its
Affiliates cease to be Stockholders, a representative designated by the ING
Transferees holding a majority of the Stock (other than Preferred Stock) held by
the ING Transferees (with Warrants counted on an as if exercised basis) and the
Management Stockholders, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
Section 7.3. Notices. Any notice, request, claim, demand, document and
-------
other communication hereunder to any party shall be effective upon receipt (or
refusal of receipt) and shall be in writing and delivered personally or sent by
telex or telecopy (with such telex or telecopy confirmed promptly in writing
sent by first class mail), or first class mail, or other similar means of
communication, as follows:
(i) If to ING, addressed to ING Equity Partners, L.P., 135 East
57th Street, 9th Floor, New York, New York 10022, Attention: Benjamin P.
Giess;
(ii) If to the Company, addressed to Matthews Studio Equipment
Group, 2405 Empire Avenue, Burbank, California 91504, Attention: Carlos D.
De Mattos; or
(iii) If to a Stockholder other than ING, to the address of such
Stockholder set forth in the stock records of the Company;
or, in each case, to such other address or telex or telecopy number as such
party may designate in writing to each Stockholder and the Company by written
notice given in the manner specified herein.
All such communications shall be deemed to have been given, delivered or
made when so delivered by hand or sent by telex (answer back received) or
telecopy, or five business days after being so mailed.
Section 7.4. Entire Agreement. This Agreement contains the entire
----------------
agreement among the parties hereto with respect to its subject matter and
supersedes all prior oral and written
Page 97 of 106 Pages
<PAGE>
agreements and memoranda and undertakings among the parties hereto with regard
to such subject matter. The Company represents to the Stockholders that the
rights granted to the holders hereunder do not in any way conflict with and are
not inconsistent with the rights granted or obligations accepted under any other
agreement (including the Charter) to which the Company is a party.
Section 7.5. Injunctive Relief. The Stockholders acknowledge and agree
-----------------
that a violation of any of the terms of this Agreement will cause the
Stockholders irreparable injury for which an adequate remedy at law is not
available. Therefore, the Stockholders agree that each Stockholder shall be
entitled to an injunction, restraining order or other equitable relief from any
court of competent jurisdiction, restraining any Stockholder from committing any
violations of the provisions of this Agreement.
Section 7.6. Inspection. For so long as this Agreement shall be in
----------
effect, this Agreement shall be made available for inspection by any Stockholder
at the principal executive offices of the Company.
Section 7.7. Headings. The section and paragraph headings contained in
--------
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 7.8. Recapitalizations, Exchanges, Etc., Affecting the Common
--------------------------------------------------------
Stock; New Issuances. The provisions of this Agreement shall apply, to the full
- --------------------
extent set forth herein with respect to the Common Stock and the Preferred Stock
and to any and all equity or debt securities of the Company or any successor or
assign of the Company (whether by merger, consolidation, sale of assets, or
otherwise) which may be issued in respect of, in exchange for, or in
substitution of, such equity or debt securities and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
reclassifications, recapitalizations, reorganizations and the like occurring
after the date hereof.
Section 7.9. Purchase Agreement Covenants. The Company covenants that
----------------------------
until ING or its Affiliates no longer hold any Notes, Warrants or Special Voting
Preferred Stock, the Company will perform the covenants contained in Sections
6.1.1, 6.1.5, 6.1.7, 6.1.8, 6.1.9, 6.1.11, 6.1.13 (subject to the provisions of
Section 2.1(a) hereof), 6.1.14, 6.1.15, 6.2.4, 6.2.6, 6.2.8 and 6.2.19 of the
Purchase Agreement.
Section 7.10. Cancellation of Employment Agreements and Consulting
----------------------------------------------------
Arrangements. The Company and the Management Stockholders represent and warrant
- ------------
that all Employment Agreements
Page 98 of 106 Pages
<PAGE>
between the Management Stockholders and the Company, including the Employment
Agreements dated December 29, 1988 (but, excluding those dated July 1, 1995),
including the provisions therein regarding consulting services and payments for
such services have been cancelled and are of no further force and effect.
Section 7.11. Ratification of Prior Acts of Board of Directors of Company;
------------------------------------------------------------
Right to Negotiate. Each of the Stockholders hereby adopts, ratifies and
- ------------------
confirms all of the actions heretofore taken by the Board of Directors in all
respects, including, without limitation, in respect of the Purchase Agreement
and the transactions contemplated thereby. Nothing in this Agreement (apart from
Article V hereof) shall be deemed to restrict or prohibit the Company from
purchasing Stock from any Stockholder at any time upon such terms and conditions
and at such price as may be mutually agreed upon between the Company and such
Stockholder, whether or not at the time of such purchase, circumstances exist
which specifically grant the Company the right to purchase, or such Stockholder
the right to sell, Stock pursuant to the terms of this Agreement.
Section 7.12. Litigation. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED,
----------
APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH
OF THE PARTIES HERETO ACKNOWLEDGES AND AGREES THAT IN THE EVENT OF ANY BREACH OF
THIS AGREEMENT, THE NON-BREACHING PARTY WOULD BE IRREPARABLY HARMED AND COULD
NOT BE MADE WHOLE BY MONETARY DAMAGES, AND THAT, IN ADDITION TO ANY OTHER REMEDY
TO WHICH THEY MAY BE ENTITLED AT LAW OR IN EQUITY, THE PARTIES SHALL BE ENTITLED
TO SUCH EQUITABLE OR INJUNCTIVE RELIEF AS MAY BE APPROPRIATE. EACH PARTY AGREES
THAT JURISDICTION AND VENUE WILL BE PROPER IN THE SOUTHERN DISTRICT OF NEW YORK
AND WAIVES ANY OBJECTIONS BASED UPON FORUM NON CONVENIENS. EACH PARTY WAIVES
PERSONAL SERVICE OF PROCESS AND AGREES THAT A SUMMONS AND COMPLAINT COMMENCING
AN ACTION OR PROCEEDING SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL
JURISDICTION IF SERVED BY REGISTERED OR CERTIFIED MAIL TO THE PARTY AT THE
ADDRESS SET FORTH IN THIS AGREEMENT, OR AS OTHERWISE PROVIDED BY THE LAWS OF THE
STATE OF NEW YORK OR THE UNITED STATES. THE CHOICE OF FORUM SET FORTH IN THIS
SECTION 7.11 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT
OBTAINED IN ANY OTHER FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE SAME IN ANY OTHER APPROPRIATE JURISDICTION. EACH OF THE PARTIES HERETO,
OTHER THAN ING, HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY
RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON
OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND INVOLVING
ACTIONS OR CLAIMS AGAINST ING. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
PARTIES HERETO ENTERING INTO THIS AGREEMENT.
Page 99 of 106 Pages
<PAGE>
Section 7.13. No Strict Construction. The language used in this Agreement
----------------------
will be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person.
Section 7.14. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7.15. Termination of Previous Stockholder Agreement. Each of the
---------------------------------------------
Management Stockholders and the Company represents, acknowledges and accepts
that this Agreement supersedes and replaces and renders null and void any
previous stockholders agreement executed by such parties which may conflict with
this Agreement.
Section 7.16. Acknowledgements. EACH PARTY HERETO ACKNOWLEDGES THAT IT
----------------
HAS HAD THE ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS AGREEMENT,
INCLUDING THE LAST TWO SENTENCES OF SECTION 7.11 HEREOF, AND FURTHER
ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL
HAVE BEEN FULLY EXPLAINED TO PARTY BY SUCH COUNSEL.
Page 100 of 106 Pages
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date first above written.
MATTHEWS STUDIO EQUIPMENT GROUP
By: /s/ Carlos D. De Mattos
---------------------------------
Carlos D. De Mattos Chairman & Chief
Executive Officer
STOCKHOLDERS:
ING EQUITY PARTNERS, L.P. I
By: LEXINGTON PARTNERS, L.P.
its general partner
By: LEXINGTON PARTNERS, INC.
its general partner
By: /s/ Benjamin P. Giess
--------------------------
Name: Benjamin P. Giess
------------------------
Title: Vice President
-----------------------
/s/ Carlos D. De Mattos
----------------------------------
Carlos D. De Mattos
/s/ Edward Phillips
----------------------------------
Edward Phillips
C&E DM Limited Partnership
By: /s/ Carlos D. De Mattos
------------------------------
its general partner
Page 101 of 106 Pages
<PAGE>
C&E DM, LLC
By: /s/ Carlos D. De Mattos
-----------------------------
Name: Carlos D. De Mattos
---------------------------
Title: Manager
--------------------------
The Carlos and Elena De Mattos Family
Trust dated February 12, 1991
/s/ Carlos D. De Mattos
-------------------------------
Carlos D. De Mattos, as trustee
The Edward and Norma Phillips
Family Trust dated June 5, 1991
/s/ Edward Phillips
-------------------------------
Edward Phillips, as trustee
Page 102 of 106 Pages
<PAGE>
EXHIBIT 5
AMENDMENT NO. 1 TO
STOCKHOLDERS AGREEMENT
AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT, dated as of April 5, 1996 (this
"Amendment") to that certain Stockholders Agreement dated as of July 27, 1995
---------
(the "Stockholders Agreement"), among MATTHEWS STUDIO EQUIPMENT GROUP (the
----------------------
"Company"), ING EQUITY PARTNERS, L.P.I ("ING"), and the Management Stockholders
------- ---
is made by and among the Company, ING and the Management Stockholders.
Capitalized terms used herein, except as otherwise defined herein, shall have
the meanings given to such terms in the Stockholders Agreement.
WHEREAS, the Common Stock of the Company is listed on the National
Association of Securities Dealer, Inc. ("NASD") inter-dealer quotation system
and is designated as a National Market System security; and
WHEREAS, the NASD has required that the Company amend the terms of the
Warrant to modify the anti-dilution rights of the holders of the Warrant and
amend the terms of the Preferred Stock, to modify the powers, rights, privileges
and preferences of the Preferred Stock; and
WHEREAS, the Company, the Management Stockholders and ING mutually desire
to maintain the listing of the Company's Common Stock with the NASD and the
designation of the same as a National Market System security and in connection
with the amendment of the Warrant, the terms of the Preferred Stock and related
documents in order for the Company to accommodate the actions required by the
NASD, and ING wishes to amend the Stockholders Agreement and the Company and the
Management Stockholders are willing to enter into this Amendment to provide such
accommodation;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereinafter set forth, and other good and valuable consideration, the
value and sufficiency of which is hereby acknowledged the parties hereto agree
as follows:
1. Amendments to Stockholders Agreement. The Stockholders Agreement is
------------------------------------
hereby amended as of date hereof to amend and revise Section 6.1(a) to read in
its entirety as follows:
Section 6.1. Certain Terminations. (a) The provisions of Articles
--------------------
III, IV (other than in Section 4.4) and V shall terminate on the date
on which any of the following events first occurs: (i) a Qualifying
Offering, (ii) a merger or consolidation of the Company with or
Page 103 of 106 Pages
<PAGE>
into another Person that is not an Affiliate of the Company, as a
result of which the Stockholders own less than 51% of the outstanding
shares of Voting Stock of the surviving or resulting corporation, or
(iii) ten years from the date of this Agreement.
2. No Implied Amendments. Except as herein amended, the Stockholders
---------------------
Agreement shall remain in full force and effect and is ratified in all respects.
On and after the effectiveness of this Amendment, each reference in the
Stockholders Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import, and each reference to the Stockholders Agreement in any
other agreements, documents or instruments executed and delivered in connection
with the Stockholders Agreement, shall mean and be a reference to the
Stockholders Agreement, as amended by this Amendment.
3. Effective Time. This Amendment shall become effective upon compliance
--------------
with each of the conditions set forth in Section 4 of Amendment No.1 to Purchase
Agreement of even date herewith between the Company and ING.
4. Counterparts. This Amendment may be executed by the parties hereto in
------------
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement.
Page 104 of 106 Pages
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
MATTHEWS STUDIO EQUIPMENT GROUP
By: /s/ Carlos D. De Mattos
--------------------------------
Carlos D. De Mattos Chairman & Chief
Executive Officer
STOCKHOLDERS:
ING EQUITY PARTNERS, L.P. I
By: LEXINGTON PARTNERS, L.P.
its general partner
By: LEXINGTON PARTNERS, INC.
its general partner
By:/s/ Benjamin P. Giess
---------------------------------
Benjamin P. Giess
Vice President
/s/ Carlos D. De Mattos
-----------------------------------------
Carlos D. De Mattos
/s/ Edward Phillips
-----------------------------------------
Edward Phillips
Page 105 of 106 Pages
<PAGE>
C&E DM Limited Partnership
By: /s/ Carlos De Mattos
-------------------------------------
Carlos De Mattos,
Its General Partner
C&E DM, LLC
By: /s/ Carlos De Mattos
-------------------------------------
Carlos De Mattos,
Its Manager
The Carlos and Elena De Mattos Family
Trust dated February 12, 1991
/s/ Carlos De Mattos
-----------------------------------------
Carlos De Mattos, Trustee
The Edward and Norma Phillips
Family Trust dated June 5, 1991
/s/ Edward Phillips
-----------------------------------------
Edward Phillips, as trustee
Page 106 of 106 Pages
