NEWSTAR MEDIA INC. COMPENSATION
AND PAYMENT TRUST FOR
CONSULTANTS AND PROFESSIONAL ADVISORS
This Trust Agreement ("Agreement") is made this 30th day of December,
1998, by and between NEWSTAR MEDIA INC., a California corporation (the
"Company") and Xxxxxx Xxxxxx (the "Trustee"), as Trustee, with reference to the
following facts:
A. WHEREAS, the Company has agreed to and adopted a plan and procedure
for providing deferred compensation, on a voluntary basis, to various
consultants and professional advisors of the Company; and
B. WHEREAS, the Company has incurred various liabilities to consultants
and professional advisors of the Company; and
C. WHEREAS, certain of such consultants and professional advisors have
agreed to accept deferred compensation in the manner provided herein; and
D. WHEREAS, the Company wishes to establish a trust (the "Trust") and
to contribute to the Trust shares of the duly authorized and issued common stock
of the Company to be held therein, subject to the claims of the Company's
creditors in the event of the Company's Insolvency, as herein defined, until
paid to the Participants, as herein defined, in such amounts and at such times
as herein provided; and
E. WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in meeting its
liabilities to the consultants and professional advisors of the Company who are
Participants, as hereinafter defined.
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed as follows:
1. ESTABLISHMENT OF TRUST.
1. The Company and the Trustee hereby establish a trust (the
"Trust") for the purposes and subject to the terms and conditions
hereinafter provided. The Company hereby deposits in the Trust a
total of Three Hundred Nine Thousand Five Hundred Eighty-eight
(309,858) shares of the duly authorized, validly issued and fully
paid common stock of the Company, which shall become the
principal of the Trust, to be held, administered and disposed of
by the Trustee as provided herein.
2. The Trust established hereby shall be irrevocable.
3. The Trust is intended to be a grantor trust, of which the Company
is the grantor, within the meaning of subpart E, part I,
subchapter J, chapter 1, subtitle A of the Internal Revenue Code
of 1986, as amended, and shall be construed accordingly.
4. The principal of the Trust, and any earnings thereon, shall be
held separate and apart from other funds and assets of the
Company and shall be used exclusively for the uses and purposes
of the Participants and general creditors as herein set forth.
Participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of
the Trust. Any rights created hereunder shall be mere unsecured
contractual rights of the Participants and their beneficiaries
against the Company. Any assets held by the Trust will be subject
to the claims of the Company's general creditors under federal
and state law in the event of Insolvency, as defined herein.
2. DISTRIBUTIONS TO PARTICIPANTS AND THEIR BENEFICIARIES.
1. The term "Participants," when used in this Trust, shall mean
those persons, who are all consultants or professional advisors
of the Company, listed on EXHIBIT A attached hereto and
incorporated herein by this reference.
2. As promptly as practicable following the date on which a
registration statement of the Company, covering the shares of
common stock which are the principal of this Trust, has been
declared effective by the Securities and Exchange Commission, the
Trustee shall distribute the entire principal of this Trust,
including such shares and any earnings thereon, to the
Participants, in the percentages set forth on EXHIBIT A, at the
addresses listed on EXHIBIT A. All such payments or distributions
shall be made in lump sums; provided, however, that the Trustee
may make provision for the reporting and withholding of any
federal, state or local taxes that may be required to be withheld
with respect to the distribution pursuant to the terms of this
Trust, and shall pay the amounts withheld to the appropriate
taxing authorities or determine that such amounts have been
reported, withheld and paid by the Company.
3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO PARTICIPANTS WHEN THE COMPANY IS
INSOLVENT.
1. The Trustee shall cease payment or distribution of any portion of
the principal hereunder to the Participants and their
beneficiaries if the Company is Insolvent. The Company shall be
considered "Insolvent" for purposes of this Trust Agreement if
(i) the Company is unable to pay its debts as they become due, or
(ii) the Company is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
2. At all times during the continuance of this Trust, the principal
of this Trust, and any income thereon, shall be subject to claims
of the general creditors of the Company under federal and state
law as set forth below.
1. The Board of Directors and the Chief Executive Officer of
the Company shall have the duty to inform the Trustee in
writing of the Company's Insolvency. If a person claiming to
be a creditor of the Company alleges in writing to the
Trustee that the Company has become Insolvent, the Trustee
shall determine whether the Company has become Insolvent
and, pending such determination, the Trustee shall
discontinue payment of benefits to Participants and their
beneficiaries.
2. Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a
person claiming to be a creditor of the Company alleging
that the Company is Insolvent, the Trustee shall have no
duty to inquire whether the Company is Insolvent. The
Trustee may in all events rely on such evidence concerning
the Company's solvency as may be furnished to the Trustee
and that provides the Trustee with a reasonable basis for
making a determination concerning the Company's solvency.
3. If at any time the Trustee has determined that the Company
is Insolvent, the Trustee shall discontinue payments or
distributions to the Participants and their beneficiaries
and shall hold the assets of the Trust for the benefit of
the Company's general creditors. Nothing in this Trust shall
in any way limit or diminish the rights of Participants or
their beneficiaries to pursue their rights as general
creditors of the Company with respect to distributions or
payments due to them under this Trust or otherwise.
4. The Trustee shall resume payments and distributions to the
Participants or their beneficiaries in accordance with
Section 2 of this Trust only after the Trustee has
determined that the Company is no longer Insolvent.
4. INVESTMENT AUTHORITY.
1. In no event may any rights or powers of or associated with the
Trustee hereunder be exercisable by any Participant, and all such
rights and powers shall be exercised solely by the Trustee or
persons designated by the Trustee.
2. The Trustee may invest any amounts of cash which now or hereafter
become a part of the principal of this Trust in securities
(including stock or rights to acquire stock) or obligations
issued by any issuer, including the Company. In investing such
cash portion of the principal, the Trustee shall be held only to
the business judgment standard applicable to officers and
directors of corporations, as established under Section 309 of
the California Corporations Code.
5. DISPOSITION OF INCOME.
1. During the term of this Trust, any and all income received by the
Trust, including but not limited to dividends paid on the shares
of common stock of the Company held by the Trust, net of expenses
and taxes, shall be accumulated and reinvested.
2. All income or earnings of the Trust, including dividends paid in
kind, shall be distributed, at the time of such distributions, in
the manner provided in Section 3.b. hereof.
6. ACCOUNTING BY THE TRUSTEE.
1. The Trustee shall keep accurate and detailed records of all
investments, receipts, distributions and payments by the Trust.
The Trustee shall cause to be prepared and filed by the Trust,
any tax filings, returns or reports required to be filed by the
Trust with any state, federal or local taxing authority, and
shall cause any and all taxes shown thereon to be due to be paid
prior to delinquency, all at the sole cost and expense of the
Company.
2. The Trustee shall provide the Company with the following reports:
1. Within sixty (60) days following the end of each calendar
year commencing with calendar year 1999, a report showing
all transactions of the Trust for the prior year;
2. Concurrently with the filing thereof, copies of any and all
tax filings, returns or reports required to be filed by the
Trust with any state, federal or local taxing authority; and
3. Within sixty (60) days following the distribution of all
remaining assets of the Trust, a report reflecting all
transactions of the Trust from the date of the last annual
report provided to the Company and the date of such final
distribution.
7. RESPONSIBILITY OF THE TRUSTEE.
1. The Trustee shall, in any and all actions hereunder, be held only
to the business judgment standard applicable to officers and
directors of corporations, as established under Section 309 of
the California Corporations Code.
2. If the Trustee undertakes or defends any litigation or
proceeding, including but not limited to any action or proceeding
in respect of the assets of the Trust arising out of any
Insolvency of the Company, the Company agrees to indemnify the
Trustee against all costs, expenses, fees and liabilities
(including, without limitation, attorneys' fees and expenses)
relating thereto and to be primarily liable for such payments. If
the Company does not pay such costs, expenses and liabilities in
a reasonably timely manner, the Trustee may obtain payment from
the Trust; provided, however, that the Trustee shall thereafter
continue to seek reimbursement from the Company of such expenses,
and shall reimburse the Trust to the extent any such amounts are
thereafter received from the Company.
3. The Trustee may consult with legal counsel (who may also be
counsel for the Company) with respect to the Trustee's duties or
obligations hereunder. The Trustee may hire agents, accountants,
actuaries, investment advisors or other professionals to assist
in performing its duties hereunder, all at the sole cost and
expense of the Company, and the Company shall be primarily liable
for the payment of the fees of such persons.
4. The Trustee shall have, without exclusion, all powers conferred
on trustees by applicable law, unless expressly otherwise herein
provided.
5. Notwithstanding any powers granted to the Trustee herein, or
under applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and
hiding the gains therefrom, within the meaning of section
301.7701-2 of the Procedure and Administrative Regulations
promulgated pursuant to the Internal Revenue Code.
8. COMPENSATION AND EXPENSES OF THE TRUSTEE.
1. The initial Trustee shall serve without compensation or fees. In
the event the Company is required, pursuant to this Trust, to
retain a replacement Trustee which is a trust company or the
trust department of a bank, the Company shall pay all fees
payable to such replacement Trustee in accordance with the
schedule of fees normally used by such trust company or bank
trust department.
2. The Company shall be responsible for, and shall promptly pay in
full, all administrative fees and expenses incurred by the
Trustee.
9. RESIGNATION AND REPLACEMENT OF THE TRUSTEE.
1. The Trustee may resign at any time by written notice to the
Company, which shall be effective not fewer than ninety (90) days
following the date of such notice.
2. Upon the resignation, death or incapacity of the initial Trustee,
or any successor Trustee, the Company shall appoint as a
successor any trust company, or the trust department of any bank,
qualified to do business in the State of California, which
appointment shall become effective on or before the effective
date of the resignation of such Trustee, or as promptly as
possible following the death or incapacity of such Trustee.
3. Upon the resignation, death or incapacity of the initial Trustee,
or any successor Trustee, all assets of the Trust shall
subsequently be transferred to the successor Trustee appointed as
provided in Section 9.b. hereof.
4. A successor Trustee need not examine the records and acts of the
prior Trustee(s) and may retain or dispose of existing Trust
assets, subject to Sections 4, 5, 6 and 7 hereof. The successor
Trustee shall not be responsible for and the Company shall defend
and indemnify the successor Trustee against any claim or
liability resulting from any action or inaction of the prior
Trustee or from any other past event, or any condition existing
at the time it becomes the successor Trustee.
10. AMENDMENT OR TERMINATION.
1. This Trust may be amended by a written instrument executed by the
Trustee and the Company. Notwithstanding the foregoing, no such
amendment shall conflict with the stated purpose of this Trust,
or make this Trust revocable.
2. The Trust shall not terminate until the date on which all assets
of the Trust have been paid out or distributed in accordance with
Section 3.b. hereof. Upon the payment or distribution to the
Participants of all of the assets of the Trust, this Trust shall
automatically terminate.
11. MISCELLANEOUS.
1. Any provision of this Trust prohibited by law shall be
ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
2. Benefits or payments payable or distributable to Participants or
their beneficiaries may not be anticipated, assigned (either at
law or in equity), alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution, or other legal or
equitable process.
3. This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, this Trust Agreement has been executed, and the
Trust established, as of the date first written above.
TRUSTEE:
/s/ XXXXXX XXXXXX
----------------------------
NEWSTAR MEDIA INC.
By: /s/ XXXX XXXXXX
-------------------------
Its: Vice President and
Chief Financial Officer
-------------------------
EXHIBIT A
---------
List of Participants
Name and Address Percentage of Benefits
---------------- ----------------------
Xxxxxxx X. Xxxxx 33 1/3%
c/o Alschuler, Grossman, Xxxxx & Kahan
0000 Xxxxxxx Xxxx Xxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Xxxxxx X. Xxxxx 16 2/3%
c/o Alschuler, Grossman, Xxxxx & Kahan
0000 Xxxxxxx Xxxx Xxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Xxxxxx X. Xxxxxx 5 5/9%
c/o Alschuler, Grossman, Xxxxx & Kahan
0000 Xxxxxxx Xxxx Xxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Xxxxxx X. Xxxxx 5 5/9%
c/o Alschuler, Grossman, Xxxxx & Kahan
0000 Xxxxxxx Xxxx Xxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Xxxxxx X. Xxxxx 5 5/9%
c/o Alschuler, Grossman, Xxxxx & Kahan
0000 Xxxxxxx Xxxx Xxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Xxxxx X. Xxxxxxxxxx 5 5/9%
c/o Alschuler, Grossman, Xxxxx & Kahan
0000 Xxxxxxx Xxxx Xxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Xxxxxxx X. Xxxxxx 5 5/9%
c/o Alschuler, Grossman, Xxxxx & Kahan
0000 Xxxxxxx Xxxx Xxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Xxxxx X. Xxxxx 5 5/9%
c/o Alschuler, Grossman, Xxxxx & Kahan
0000 Xxxxxxx Xxxx Xxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Xxxxxx X. Xxxxxx 5 5/9%
c/o Liner, Yankelevitz, Sunshine, Xxxxxxxx & Regenstreif LLP
0000 Xxxxxxxx Xxxxxxxxx
0xx Xxxxx
Xxxxx Xxxxxx, XX 00000
Xxxxxx X. Xxxxxxxxxxx 5 5/9%
c/o NewStar Media Inc.
0000 Xxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, XX 00000
Xxxxx X. Xxxxxx 5 5/9%
0000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
