<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)
Edward Phillips III
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 77 Pages
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SCHEDULE 13D
- --------------------- -------------------
CUSIP NO. 577140 10 6 Page 2 of 77 Pages
- --------------------- -------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Edward Phillips III
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 209,667 (2%); See Item 5
OWNED BY ------------------------------------------------------------
EACH
REPORTING 8 SHARED VOTING POWER
PERSON
WITH 1,847,450 (17.9%); See Item 5
------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
209,667 (2%); See Item 5
------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
1,847,450 (17.9%); 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 77 Pages
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SCHEDULE 13D
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CUSIP NO. 577140 10 6 Page 3 of 77 Pages
- --------------------- -------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Edward and Norma Phillips 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
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 1,847,450 (17.9%); See Item 5
OWNED BY ------------------------------------------------------------
EACH
REPORTING 8 SHARED VOTING POWER
PERSON
WITH 0
------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
1,847,450 (17.9%); See Item 5
------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,847,450
- --------------------------------------------------------------------------------
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)
17.9%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
00
- --------------------------------------------------------------------------------
Page 3 of 77 Pages
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SCHEDULE 13D
INTRODUCTION.
This statement relates to Edward Phillips III ("Phillips") 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 Phillips
(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) Edward and Norma Phillips Family
Trust, a California trust (the "Phillips Family Trust"), and (ii) Phillips, a
natural person in his individual capacity.
Phillips and his wife, Norma Phillips, are the only trustees of the
Phillips Family Trust.
(b) The principal business address of each of the Phillips Family
Trust, its trustees and Phillips is 2405 Empire Avenue, Burbank, California
91504-3399.
(c) The principal business of the Phillips Family Trust is to hold
investments as part of an estate plan for the Phillips family. The principal
business of Phillips is serving as President of Matthews Studio Equipment, Inc.,
a subsidiary of the Company ("MSEI"), and a director of the Company.
Page 4 of 77 Pages
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(d) During the last five years, none of the Phillips Family Trust, the
or Phillips 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 Phillips Family Trust, or
Phillips 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 Phillips Family Trust is a California trust. Phillips 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 Phillips 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 Phillips upon the
exercise of options, Phillips obtained the purchase price from his available
personal cash resources. In the case of the acquisition of shares of Common
Stock by Phillips, other than upon exercise of options, Phillips 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 Phillips Family Trust, the shares were
obtained from Phillips for no consideration.
ITEM 4. PURPOSE OF THE TRANSACTION.
The shares of Common Stock beneficially owned by Phillips were
acquired and are being held for investment purposes. As a result of the
ownership of the shares and Phillips positions as President of MSEI and a
director of the Company, Phillips may be deemed to control the Company. Phillips
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.
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.
Page 5 of 77 Pages
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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)
Phillips 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 and
(ii) the Phillips Family Trust is 1,847,450 shares of Common Stock or 17.9% 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) Phillips may be deemed to have the sole power to vote and to
dispose of the 69,000 shares owned by him directly and the 140,667 shares
issuable upon exercise of the options owned by him, or 2%. Phillips may be
deemed to share the power to vote and to dispose of the 1,847,450 shares or
17.9% owned by the Phillips Family Trust with his wife who also serves as a
trustee of the Phillips 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 Phillips acquired 2,115,000 shares of
Common Stock in exchange for shares of MSEI;
2. by the grant of options to Phillips 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. by the Company in July 1989 Phillips acquired
150,000 shares of Common Stock in exchange for shares of such
company;
4. by the transfer of 2,265,000 shares in February 1991 by Phillips,
as trust settlor, to the Phillips Family Trust;
5. by the grant of options to Phillips to purchase 5,000 shares of
Common Stock in September 1991 exercisable at $1.38 per share;
6. by the exercise of options by Phillips 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 by Phillips, as trust settlor, in February 1992, to
the Phillips Family Trust;
7. by the sale of 25,000 shares of Common Stock by the Phillips
Family Trust on the open market in October 1992 for aggregate
gross proceeds of $81,250;
Page 6 of 77 Pages
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8. by the sale of 22,000 shares of Common Stock by the Phillips
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 Phillips
Family Trust on the open market in January 1993 for aggregate
gross proceeds of $150,000;
10. by the grant of options to Phillips to purchase 50,000 shares of
Common Stock in May 1993 exercisable at $3.125 per share;
11. by the sale by the Phillips Family Trust of 2,500 shares of
Common Stock on the open market in September 1994 for aggregate
gross proceeds of $8,100;
12. by the sale by the Phillips Family Trust of 2,500 shares of
Common Stock on the open market in October 1994 for aggregate
gross proceeds of $7,500;
13. by the gift (for no consideration) by the Phillips Family Trust
to a niece of Phillips, of 100 shares of Common Stock in June
1994;
14. by the sale by the Phillips Family Trust of 97,450 shares of
Common Stock in June 1995 to the De Mattos Family Trust, a
trustee of which is Carlos D. De Mattos, Chairman, President and
Chief Executive Officer and a director of the Company, in a
private transaction for a purchase price of $1.00 per share or an
aggregate $97,450 in cash;
15. by the grant of options to Phillips 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;
16. by the transfer by the Phillips Family Trust of 69,000 shares of
Common Stock to Phillips as settlor of this trust, for no
consideration, in April 1996; and
17. by the sale of 200,000 shares of Common Stock in January 1997 by
the Phillips 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, Phillips 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
Page 7 of 77 Pages
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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 Edward and Norma Phillips Family
Trust dated June 5, 1991.
2. Stockholders Agreement dated July 27, 1995 among the Company,
ING, Phillips and Carlos D. De Mattos, and their affiliates.
3. Amendment No. 1 to Stockholders Agreement dated April 5, 1996
among the Company, ING, Phillips, Carlos D. De Mattos, and their
affiliates.
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/ EDWARD PHILLIPS III
--------------------------------------------
Edward Phillips III, individually
EDWARD AND NORMA PHILLIPS FAMILY TRUST
By: /s/ EDWARD PHILLIPS III
---------------------------------------
Edward Phillips III, a trustee
Page 8 of 77 Pages
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<C> <S> <C>
1. Declaration of Trust of the Edward and Norma 10
Phillips Family Trust dated June 5, 1991
2. Stockholders Agreement dated July 27, 1995 50
among the Company, ING, Phillips and Carlos D.
De Mattos, and their affiliates
3. Amendment No. 1 to Stockholders Agreement 74
dated April 5, 1996 among the Company, ING,
Phillips and Carlos D. De Mattos
</TABLE>
Page 9 of 77 Pages
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EXHIBIT 1
EDWARD AND NORMA PHILLIPS FAMILY TRUST
-----------
June 5, 1991
Page 10 of 77
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TABLE OF CONTENTS
<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 1
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 4
3.2 DECEASED SPOUSE'S EXPENSES 5
3.3 DIVISION INTO SEPARATE TRUSTS-IF NORMA IS THE
SURVIVING SPOUSE 5
3.4 DIVISION INTO SEPARATE TRUSTS-IF ED IS THE
SURVIVING SPOUSE 6
3.5 MARITAL DEDUCTION AMOUNT 6
3.6 DISCLAIMERS BY SURVIVING SPOUSE 7
ARTICLE 4
---------
TRUSTS DURING SURVIVING SPOUSE'S LIFETIME
-----------------------------------------
A. SURVIVOR'S TRUST
----------------
4.1 DISCRETIONARY PAYMENTS BY TRUSTEE 8
4.2 SURVIVING SPOUSE'S POWER TO DIRECT PAYMENTS 8
4.3 INCAPACITY OF SURVIVING SPOUSE 8
4.4 GENERAL POWER OF APPOINTMENT 9
B. MARITAL TRUST
-------------
4.5 QTIP ELECTION 9
4.6 QUALIFIED AND NONQUALIFIED MARITAL TRUST 10
4.7 EXEMPT AND NONEXEMPT MARITAL TRUST 10
4.8 ADMINISTRATION OF MARITAL TRUSTS 10
</TABLE>
Page 11 of 77
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<TABLE>
<C> <S> <C>
4.9 INCOME PAYMENTS FROM MARITAL TRUSTS 10
4.10 PRINCIPAL PAYMENTS FROM MARITAL TRUSTS 10
4.11 LIMITED POWER OF WITHDRAWAL 11
4.12 LIMITED POWER OF APPOINTMENT 11
4.13 MARITAL DEDUCTION LIMITATIONS 11
C. EXEMPTION TRUST
---------------
4.14 PAYMENTS FROM EXEMPTION TRUST 12
4.15 LIMITED POWER OF APPOINTMENT 12
4.16 SURVIVING SPOUSE'S RESIDENCE 13
4.17 EXERCISE OF DISCRETION 13
ARTICLE 5
---------
DISTRIBUTION AFTER DEATH OF SURVIVING SPOUSE
--------------------------------------------
5.1 COLLECTION OF TRUST ASSETS 13
5.2 SURVIVING SPOUSE'S EXPENSES 14
5.3 DISTRIBUTION OF PERSONAL ARTICLES 14
5.4 DIVISION INTO SEPARATE SHARES 14
5.5 TRUSTS FOR TRUSTORS' CHILDREN 15
5.6 JAMIE AND JULIE'S TRUST 16
5.7 TRUSTS FOR TRUSTORS' DESCENDANTS 18
5.8 DISTRIBUTION OF ANY REMAINDER 19
5.9 TERMINATION OF ALL TRUSTS 20
ARTICLE 6
---------
REVOCATION AND AMENDMENT
------------------------
6.1 REVOCATION DURING TRUSTORS' JOINT LIVES 20
6.2 AMENDMENT DURING TRUSTORS' JOINT LIVES 20
6.3 REVOCATION AND AMENDMENT BY SURVIVING SPOUSE 21
6.4 REVOCATION AND AMENDMENT PERSONAL TO TRUSTORS 21
6.5 TRUSTS IRREVOCABLE AFTER FIRST SPOUSE'S DEATH 21
ARTICLE 7
---------
TRUSTEE PROVISIONS
------------------
7.1 SUCCESSOR TRUSTEES 21
7.2 DESIGNATION OF SUCCESSORS 22
7.3 RESIGNATION OF TRUSTEE 22
7.4 TRUSTEE'S COMPENSATION 22
7.5 EMPLOYMENT OF AGENTS AND ADVISORS 22
7.6 DISCLAIMER OF ADMINISTRATIVE POWERS 23
7.7 EXERCISE OF POWERS IN FIDUCIARY CAPACITY 23
7.8 WAIVER OF BOND 23
7.9 TRUSTEE'S LIABILITY 23
7.10 CO-TRUSTEE'S LIABILITY 23
7.11 SUCCESSOR TRUSTEE'S LIABILITY 23
7.12 NOTICE OF EVENTS AFFECTING INTERESTS 24
7.13 AUTHORITY OF COTRUSTEES 24
</TABLE>
Page 12 of 77
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<TABLE>
<S> <C>
ARTICLE 8
---------
ADMINISTRATIVE POWERS OF TRUSTEE
--------------------------------
8.1 GENERAL AUTHORITY OF TRUSTEE 24
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 25
8.6 EXERCISE OF VOTING RIGHTS 25
8.7 NOMINEE HOLDING AUTHORIZED 25
8.8 BORROWING AND ENCUMBERING 26
8.9 INSURING TRUST PROPERTY 26
8.10 LITIGATION AND COMPROMISE OF CLAIMS 26
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 27
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 27
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 28
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 29
10.9 DISTRIBUTION TO CUSTODIAN 29
1O.10 DEFERRAL OF DIVISION OR DISTRIBUTION 30
10.11 WITHHOLDING DISTRIBUTION SUBJECT TO CLAIMS 30
10.12 EXERCISE OF POWERS OF APPOINTMENT 30
10.13 NO-CONTEST CLAUSE 31
10.14 CHOICE OF LAW 31
10.15 CERTIFICATION OF TRUST 31
10.16 OCCUPANCY OF RESIDENCE BY CHILDREN AND GUARDIANS 31
ARTICLE 11
----------
DEFINITIONS
-----------
11.1 TRUSTEE 32
11.2 CURRENT BENEFICIARY 32
11.3 DEATH TAXES 32
</TABLE>
Page 13 of 77
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<TABLE>
<C> <S> <C>
11.4 DECEASED SPOUSE 32
11.5 DESCENDANTS 32
11.6 EDUCATION 32
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 MARITAL TRUST 33
11.12 MARITAL TRUSTS 33
11.13 QTIP ELECTION 33
11.14 EXEMPTION TRUST 33
11.15 JAMIE AND JULIE'S TRUST 33
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>
CERTIFICATION BY TRUSTORS
ACCEPTANCE BY TRUSTEE
Page 14 of 77
<PAGE>
DECLARATION OF TRUST
EDWARD PHILLIPS III and NORMA J. PHILLIPS, the trustee, declare that EDWARD
PHILLIPS III and NORMA J. PHILLIPS, the trustors, hereby create the EDWARD AND
NORMA PHILLIPS 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 subject to this instrument is referred to
as the "trust estate." Additional property acceptable to the trustee may be
added to the trust estate at any time by the trustors or by any other person.
1.2 NAMES OF TRUSTS. The initial trust created by this instrument and
continuing during the trustors' joint lives is called the "EDWARD AND NORMA
PHILLIPS FAMILY TRUST." Each additional trust created in this instrument may be
referred to by the name given to it in Article 3 or by any other convenient
name designated by the trustee in a written instrument filed with the trust
records.
1.3 TRUSTEE. EDWARD PHILLIPS III and NORMA J. PHILLIPS 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 EDWARD PHILLIPS III and NORMA J. PHILLIPS, the initial trustors of this
trust. The terms "trustor" and "spouse" may refer to either trustor depending
on the context.
1.5 FAMILY DECLARATIONS. The trustors have two (2) children living on
the date of this instrument, whose names and dates of birth are:
EMILY SUZANNE PHILLIPS APRIL 5, 1978
EDWARD TYLER PHILLIPS IV JULY 1, 1985
Page 15 of 77
<PAGE>
All references in this instrument to a "child of the trustors" and any similar
terms shall refer only to the trustors' children named above.
EDWARD PHILLIPS III ("Ed") has two (2) children from a prior marriage living on
the date of this instrument, whose names and dates of birth are:
JULIE DANIELLE PHILLIPS MARCH 24, 1965
JAIME DENISE PHILLIPS FEBRUARY 27, 1968
All references in this instrument to a "Ed's child" and any similar terms shall
refer only to Ed's 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 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
Page 16 of 77
<PAGE>
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 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
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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.
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
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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 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 DIVISION INTO SEPARATE TRUSTS-IF NORMA IS THE SURVIVING SPOUSE.
After paying or adequately providing for payment of the deceased spouse's debts
and expenses, the trustee shall divide the remaining balance of the trust estate
into three separate trusts, called the "Survivor's Trust," the "Marital Trust"
and "Jamie and Julie's Trust," as follows:
3.3.1 SURVIVOR'S TRUST. The Survivor's Trust shall consist of the
remaining assets of the survivor's share of the trust estate, consisting of
the balance of the surviving spouse's interest in the trustors' community
property (and any of the surviving spouse's separate property) included in
or added to the trust estate, together with any undistributed income of the
assets included in the survivor's share.
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3.3.2 MARITAL TRUST. The Marital Trust shall consist of that
portion of the decedent's share, called the "marital deduction amount,"
determined in accordance with the provisions of paragraph 3.5 below.
3.3.3 JAMIE AND JULIE'S TRUST. Jamie and Julie's Trust shall
consist of the remaining balance of the decedent's share.
3.4 DIVISION INTO SEPARATE TRUSTS-IF ED IS THE SURVIVING SPOUSE. If ED
is the surviving spouse, than after paying or adequately providing for payment
of the deceased spouse's debts and expenses, the trustee shall divide the
remaining balance of the trust estate into three separate trusts, called the
"Survivor's Trust," the "Marital Trust" and the "Exemption Trust," as follows:
3.4.1 SURVIVOR'S TRUST. The Survivor's Trust shall consist of the
remaining assets of the survivor's share of the trust estate, consisting of
the balance of the surviving spouse's interest in the trustors' community
property (and any of the surviving spouse's separate property) included in
or added to the trust estate, together with any undistributed income of the
assets included in the survivor's share.
3.4.2 MARITAL TRUST. The Marital Trust shall consist of that
portion of the decedent's share, called the "marital deduction amount,"
determined in accordance with the provisions of paragraph 3.5 below.
3.4.3 EXEMPTION TRUST. The Exemption Trust shall consist of the
remaining balance of the decedent's share.
3.5 MARITAL DEDUCTION AMOUNT. The marital deduction amount to be
allocated to the Marital 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 deceased
spouse's will, by right of survivorship, or otherwise;
(2) All other deductions taken in determining the deceased spouse's
federal estate tax; and
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(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 such state death tax would be payable to a state regardless of
the federal credit. No 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
shall control, except that any disclaimer by the surviving spouse of assets
otherwise qualifying for the federal estate tax marital deduction in the
deceased spouse's estate shall be disregarded for the purposes of this
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, provided that the trustee shall select the assets used to satisfy the
marital deduction amount so that any appreciation or depreciation in values
occurring between the applicable valuation date and the date of allocation is
fairly representative of the appreciation or depreciation 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 an interest in all or any part of the property allocated to the
Marital Trust, then the Marital Trust or portion, as the case may be, shall be
administered and distributed as if the disclaimed interest had been omitted from
the terms of the Marital Trust; but if the surviving spouse disclaims all
beneficial interests in property allocated to the Marital Trust, then the
disclaimed property shall be added to and become part of the Exemption Trust.
If the surviving spouse effectively disclaims an interest in all or any part of
the property allocated to 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 terms of the Exemption Trust; but
if the surviving spouse disclaims all beneficial interests in property allocated
to the Exemption Trust, then the disclaimed property shall be distributed
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as provided in Article 5 of this instrument as if the surviving spouse had died
immediately after 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 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
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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.
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 may 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. MARITAL TRUST
-------------
4.5 QTIP ELECTION. The trustee is authorized, in the trustee's sole
discretion, to make or not make a "QTIP election" (as defined in Section 1.1.1.3
below) to treat all or any portion of the Marital Trust as qualified terminable
interest property for the purpose of qualifying the trust, or a specific portion
of it, for the federal estate tax marital deduction in the deceased spouse's
estate. In deciding on the election, the trustee shall consider all relevant
factors, including, but not limited to: (1) the potential benefits and
detriments of reducing the estate tax on the deceased spouse's estate and
increasing the tax on the surviving spouse's estate; and (2) the potential
benefits of eliminating from the surviving spouse's estate any appreciation in
the value of the Marital Trust assets that may occur between the death of the
deceased spouse and the death of the surviving spouse. The discretion of the
trustee with regard to this election shall be absolute, notwithstanding any
beneficial or adverse effect that making or not making the election may have on
the deceased spouse's estate, on the surviving spouse's estate, or on the
beneficiaries or their respective estates. The trustee shall not be liable to
any beneficiary of the trust estate for decisions made in good faith with regard
to making or not making this election.
4.6 QUALIFIED AND NONQUALIFIED MARITAL TRUST. If the trustee does not
make a QTIP election with respect to all of the assets allocated to the Marital
Trust, then the trustee shall divide the
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Marital Trust into separate trusts to reflect this partial election according to
the values of assets allocated to each trust at the time the division is made.
The trust with respect to which the QTIP election is made is referred to as the
"Qualified Marital Trust" and the trust with respect to which the QTIP election
is not made is referred to as the "Nonqualified Marital Trust."
4.7 EXEMPT AND NONEXEMPT MARITAL TRUST. If the trustee makes a QTIP
election with respect to the entire Marital Trust, then the trustee shall divide
the Marital Trust into two additional trusts, called the "Exempt Marital Trust"
and the "Nonexempt Marital Trust." The Exempt Marital Trust shall consist of an
amount equal to the deceased spouse's generation-skipping transfer tax ("GST")
exemption, reduced by the aggregate amount of the deceased spouse's GST
exemption that has been allocated by the trustee or the executor of the deceased
spouse's will to other transfers of property by the deceased spouse during his
or her lifetime or as a result of the deceased spouse's death. The Nonexempt
Marital Trust shall consist of any remaining assets of the Marital Trust. If
the trustee makes a QTIP election with respect to only a portion of the Marital
Trust, then the trustee shall divide only the Qualified Marital Trust into
Exempt and Nonexempt trusts in the manner provided in this paragraph.
4.8 ADMINISTRATION OF MARITAL TRUSTS. Each additional trust into which
the Marital Trust is divided in accordance with the foregoing provisions shall
be held and administered by the trustee as a separate trust, but each trust
shall be distributed according to the same terms, except as otherwise provided
below. Such trusts are collectively referred to herein as the "Marital Trusts."
4.9 INCOME PAYMENTS FROM MARITAL TRUSTS. During the surviving spouse's
lifetime, the trustee shall pay to or apply for the benefit of the surviving
spouse the entire net income of the Marital Trusts, in quarter-annual or more
frequent installments. On the death of the surviving spouse, the trustee shall
distribute any accrued or undistributed income of the Marital Trusts to the
personal representative of the surviving spouse's estate.
4.10 PRINCIPAL PAYMENTS FROM MARITAL TRUSTS. If the trustee considers the
net income of the Marital Trusts to be insufficient, the trustee shall also pay
to or apply for the benefit of the surviving spouse as much of the principal of
the Marital Trusts as the trustee, in the trustee's discretion, considers
reasonably necessary for the surviving spouse's proper support, health and
maintenance, in accordance with the surviving spouse's accustomed manner of
living. In deciding on these payments, the trustee shall take into
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<PAGE>
consideration, to the extent the trustee considers advisable, all other income
and financial resources of the surviving spouse outside the Marital Trusts. To
the extent practicable, the trustee shall make all such discretionary invasions
of principal from the Nonexempt Marital Trust.
4.11 LIMITED POWER OF WITHDRAWAL. In addition to any other payments that
the surviving spouse is entitled to receive from the Marital Trusts, the trustee
shall also pay to the surviving spouse from the principal of the Nonexempt
Marital Trust such amounts as the surviving spouse may request in writing from
time to time, provided that such payments shall not exceed in the aggregate the
greater of the following amounts in any calendar year: (1) five thousand
dollars ($5,000.00) or (2) five percent (5%) of the value of the principal of
the Nonexempt Marital Trust determined at the end of the calendar year. This
right of withdrawal shall be noncumulative, so that if during a calendar year
the surviving spouse does not withdraw the full amount to which he or she is
entitled under this paragraph, the right to withdraw any amount no so withdrawn
shall lapse at the end of that calendar year.
4.12 LIMITED POWER OF APPOINTMENT. The surviving spouse shall have a
limited power of appointment over the principal of the Marital Trusts remaining
undistributed at his or her death. On the death of the surviving spouse, the
trustee shall distribute all or any part of the remaining principal of the
Marital Trusts to such one or more of the group composed of the trustors'
descendants and the 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 principal
of the Marital Trusts not effectively appointed by the surviving spouse in this
manner shall be held, administered and distributed as provided in Article 5 of
this instrument.
4.13 MARITAL DEDUCTION LIMITATIONS. The trustors intend that the Marital
Trust qualify for the marital deduction allowed under the estate tax provisions
of the Internal Revenue Code. If and to the extent that the trustee elects to
qualify the Marital Trust or any portion of the trust for the federal estate tax
marital deduction, the trustee shall not take any action or have any powers that
will impair the marital deduction and all provisions of this instrument shall be
interpreted to conform to this objective. If any provision cannot be so
construed it shall be deemed void. Notwithstanding any contrary provisions in
this instrument, the following provisions and limitations shall apply to the
Marital Trusts: (1) During the surviving spouse's lifetime, the surviving
spouse shall have the power to direct the trustee in writing to make all or any
part of the principal of
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the Marital Trusts productive or to convert promptly any unproductive part into
productive property; (2) The trustee shall invest and reinvest the assets of the
Marital Trusts so that the aggregate return on all investments of the Marital
Trusts are reasonable in light of then existing circumstances; (3) The trustee
shall establish reasonable reserves for depreciation and depletion; (4) For
bonds purchased at a discount, the trustee shall, at least annually, accumulate
and pay the discount as interest from trust principal or from the proceeds on
the sale or redemption of the bonds; and (5) If the trustee redeems treasury
bonds at par in payment of the deceased spouse's federal estate taxes, the
trustee shall consider any accrued interest on such bonds in calculating the
income payable to the surviving spouse from the Marital Trusts.
C. EXEMPTION TRUST
---------------
4.14 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
both the Survivor's Trust and the Marital Trust have 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.
4.15 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 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.
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<PAGE>
4.16 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.
4.17 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.
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.
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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 first to the Survivor's
Trust, to the extent it is sufficient, and then to the Marital Trust. Payments
of attorney's fees and other expenses of administration shall be charged to the
Survivor's Trust, except for expenses properly attributable to the Marital Trust
or to the Exemption Trust, which shall be charged against the property included
in those trusts. 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 laws and proration statutes.
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.
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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 30, 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.
5.5.2 After the child reaches age 30, 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 30, 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 35, 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 40, 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,
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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.
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 5.7 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 JAMIE AND JULIE'S TRUST. Each share set aside for Ed's daughters
JAMIE and JULIE (the "daughters" or "daughter") shall be divided into a separate
trust ("the daughter's Trust") to be held and administered for the benefit of
the daughter during the daughter's lifetime, as follows:
5.6.1 The trustee shall pay to or apply for the benefit of the
daughter the entire net income of the daughter's trust, in quarter-annual
or more frequent installments. If the trustee considers the income of the
daughter's trust to be insufficient, the trustee shall also pay to or apply
for the benefit of the daughter as much of the principal of the daughter's
trust as the trustee, in the trustee's discretion, considers necessary for
the daughter'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 daughter's other income, financial
resources and sources of support outside the daughter's trust, so far as
known to the trustee and reasonably available for the daughter's use.
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<PAGE>
5.6.2 At any time after the expiration of five (5) years after Ed's
death, the trustee shall distribute to the daughter as much of the trust as
the daughter 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 daughter's trust, determined as of that date.
5.6.3 At any time after the expiration of ten (10) years after Ed's
death, the trustee shall distribute to the daughter as much of the
daughter's trust as the daughter 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 daughter's trust, determined as of that
date.
5.6.4 After the expiration of fifteen (15) years after Ed's death,
the trustee shall terminate the daughter's trust and distribute the
remaining assets of the daughter's trust, including any accrued or
undistributed income of that trust, outright to the daughter, free of
trust.
5.6.5 If the daughter dies before receiving full distribution of the
daughter's trust share, the trustee shall then distribute the remaining
balance of the daughter's share to such one or more persons and entities,
including the daughter's own estate, on such terms and conditions, either
outright or in trust, as the daughter 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 daughter's trust that are not
effectively appointed by the daughter in the manner provided above shall be
distributed as follows:
(a) If the deceased daughter leaves descendants who are then
living, the unappointed balance of the daughter's trust shall be
divided into separate shares and administered and distributed for the
benefit of the descendants of the deceased daughter according to the
provisions of paragraph 5.7 below, provided that the trust for each
descendant shall terminate no later than the time provided by
paragraph ? below.
(b) If the deceased daughter leaves no living descendants, the
balance of the daughter'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
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<PAGE>
portion shall not be distributed outright but shall instead be added
to that trust and administered according to its term.
5.7 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:
5.7.1 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.
5.7.2 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.
5.7.3 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.
5.7.4 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.
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<PAGE>
5.7.5 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.
5.7.6 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:
(a) If the deceased descendant leaves descendants then living,
the balance of 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 age 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.
5.8 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 EDWARD PHILLIPS III and one-half to the
heirs of NORMA J. PHILLIPS. The identities and respective shares of those heirs
shall be determined in all respects as though the death of each trustor had
occurred
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<PAGE>
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.
5.9 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 the 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
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.
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<PAGE>
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. EDWARD PHILLIPS III and NORMA J. PHILLIPS 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 EDWARD
PHILLIPS III, or on his resignation or inability to serve for any reason, then
the successor trustee named in paragraph 7.1.1 below shall serve as trustee of
JAMIE and JULIE'S TRUST and NORMA J. PHILLIPS shall serve as sole trustee of all
other trusts created under this instrument. On the death of NORMA J. PHILLIPS,
or on her resignation or inability to serve for any reason, EDWARD PHILLIPS III
shall serve as sole trustee of all trusts created under this instrument.
7.1.1 If EDWARD PHILLIPS III is the surviving trustee, then upon his
death, resignation or inability to serve for any reason, the following
named individuals shall serve as successor trustees hereunder, in the order
named:
First Successor Appointee: CARLOS DE MATTOS
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<PAGE>
Second Successor Appointee: GREG MOISEEF
Third Successor Appointee: GERALD STONE
7.1.2 If NORMA J. PHILLIPS is the surviving trustee, then upon her
death, resignation or inability to serve for any reason, the following
named individuals shall serve as successor trustees hereunder, in the order
named:
First Successor Appointee: CYNTHIA PERRY
Second Successor Appointee: CHRISTOPHER SKINNER
Third Successor Appointee: NORMAN SKINNER
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 properly 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 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
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<PAGE>
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.
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.
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<PAGE>
7.13 AUTHORITY OF COTRUSTEES. As long as EDWARD PHILLIPS III and NORMA
J. PHILLIPS are acting as cotrustees under this instrument, the signature of, or
any action taken by, either EDWARD PHILLIPS III or NORMA J. PHILLIPS, 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 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
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<PAGE>
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 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.
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<PAGE>
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 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 distributee 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. 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
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<PAGE>
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.
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
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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. In determining the income payable to the surviving spouse from the
Marital Trust, the trustee shall take into account all accrued interest on bonds
redeemed in payment of a deceased trustor's federal estate tax.
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 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
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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 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
Page 43 of 77
<PAGE>
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
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
Page 44 of 77
<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.
10.16 OCCUPANCY OF RESIDENCE BY CHILDREN AND GUARDIANS. After the death of
the surviving spouse, trustors' minor children, the guardian of trustors' minor
children, and the children of any such guardian, 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
surviving 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
trustors' minor children continue to occupy it. The trustee is authorized, in
the trustee's discretion to sell any such residential property and to purchase,
rent, or lease a replacement residence selected by trustee after consultation
with the trustors' minor children and the guardian of trustors' minor children.
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.
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.
Page 45 of 77
<PAGE>
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.
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 laws.
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 ? 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.
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<PAGE>
11.10 SURVIVOR'S TRUST. The term "Survivor's Trust" as used in this
instrument shall have the meaning set forth in paragraph 3.3.1,3.4.1 above.
11.11 MARITAL TRUST. The term "Marital Trust" as used in this instrument
shall have the meaning set forth in paragraph 3.3.2,3.4.2 above.
11.12 MARITAL TRUSTS. The term "Marital Trusts" as used in this instrument
shall have the meaning set forth in paragraph 4.8 above.
11.13 QTIP ELECTION. The term "QTIP election" as used in this instrument
shall mean the election under Section 2056(b)(7) of the Internal Revenue Code.
11.14 EXEMPTION TRUST. The term "Exemption Trust" as used in this
instrument shall have the meaning set forth in paragraph 3.4.3 above.
11.15 JAMIE AND JULIE'S TRUST. The term "Jamie and Julie's Trust" as used
in this instrument shall have the meaning set forth in paragraph 3.3.3 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 whenever the context so
indicates.
12.4 SEVERABILITY CLAUSE. If any provision of this instrument is
unenforceable, the remaining provisions shall nevertheless remain in effect.
Page 47 of 77
<PAGE>
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.
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<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 June 5, 1991, at Los Angeles, California.
TRUSTORS
/s/ Edward Phillips III
-----------------------------
EDWARD PHILLIPS III
/s/ Norma J. Phillips
-----------------------------
NORMA J. PHILLIPS
ACCEPTANCE BY TRUSTEE
Accepted on June 5, 1991, at Los Angeles, California.
TRUSTEES
/s/ Edward Phillips III
------------------------------
EDWARD PHILLIPS III
/s/ Norma J. Phillips
------------------------------
NORMA J. PHILLIPS
Page 49 of 77
<PAGE>
Exhibit 2
- --------------------------------------------------------------------------------
MATTHEWS STUDIO EQUIPMENT GROUP
-------------------------------
STOCKHOLDERS AGREEMENT
------------------------------
Dated as of July 27, 1995
- --------------------------------------------------------------------------------
Page 50 of 77
<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
Page 51 of 77
<PAGE>
intermediaries, controls, or is controlled by, or is under common 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.
Page 52 of 77
<PAGE>
Common Stock shall mean the Common Stock, no par value per share, of the
------------
Company.
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.
Page 53 of 77
<PAGE>
ING shall mean ING Equity Partners, L.P. I.
---
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).
Page 54 of 77
<PAGE>
Registration Rights Agreement shall have the meaning specified in Section
-----------------------------
5.1(a).
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 55 of 77
<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
Page 56 of 77
<PAGE>
pecuniary or similar interest in any of the Company's 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
Page 57 of 77
<PAGE>
of a group or in concert or enter into any agreement or arrangement with any
other Person in connection with the 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.
Page 58 of 77
<PAGE>
Section 4.2. Exceptions to Restrictions. The provisions of Section 4.1
--------------------------
and Article V shall not apply to any of the following transfers:
(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
Page 59 of 77
<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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 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
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<PAGE>
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.
(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
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<PAGE>
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.
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.
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<PAGE>
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.
(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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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
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
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<PAGE>
(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 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
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<PAGE>
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 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
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<PAGE>
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.
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.
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<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
Page 72 of 77
<PAGE>
C&E DM Limited Partnership
By: /s/ Carlos D. De Mattos
-----------------------------
its general partner
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 73 of 77
<PAGE>
EXHIBIT 3
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
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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 into another
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<PAGE>
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.
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<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
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Edward Phillips
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<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 77 of 77
