LIQUIDATION TRUST AGREEMENT

Exhibit 4.1

 

LIQUIDATION TRUST AGREEMENT

 

Entered into as of December 8, 2004

 

by and among

 

CONSOLIDATED FREIGHTWAYS CORPORATION OF DELAWARE,

 

CONSOLIDATED FREIGHTWAYS CORPORATION,

 

REDWOOD SYSTEMS, INC., LELAND JAMES SERVICE CORPORATION,

 

CF AIRFREIGHT CORPORATION AND CF MOVESU.COM INCORPORATED

 

(COLLECTIVELY, THE “DEBTORS”),

 

THE OFFICIAL COMMITTEE OF CREDITORS HOLDING UNSECURED CLAIMS,

 

IN ITS CAPACITY AS REPRESENTATIVE OF THE HOLDERS OF ALLOWED

 

CLASS 4 CLAIMS AGAINST THE DEBTORS (THE “COMMITTEE”),

 

THE OVERSIGHT COMMITTEE (AS DEFINED HEREIN),

 

K. MORGAN ENTERPRISES, INC. (THE “TRUSTEE”)

 

AND KERRY K. MORGAN

TABLE OF CONTENTS

 

 

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LIQUIDATION TRUST AGREEMENT

 

This Liquidation Trust Agreement (this “Trust Agreement” ) is made and entered into as of December 8, 2004, by and among Consolidated Freightways Corporation of Delaware (“CFCD”), Consolidated Freightways Corporation (“CFC”), Redwood Systems, Inc., Leland James Service Corporation, CF Airfreight Corporation and CF MovesU.com Incorporated (collectively, the “Debtors”), the Official Committee of Creditors Holding Unsecured Claims, in its capacity as representative of the holders of Allowed Class 4 Claims against the Debtors, (the “Committee”), the Oversight Committee (as defined herein), K. Morgan Enterprises, Inc., an Oregon corporation, (the ”Trustee”), and Kerry K. Morgan.

 

I. RECITALS

 

A. Each of the Debtors was one of the debtors in the Cases. On November 22, 2004, the Court entered its Order confirming the Debtors’ Consolidated Plan of Liquidation Dated July 1, 2004 (as Amended) (including, without limitation, the Appendix and all exhibits, supplements, appendices, and schedules thereto, either in its present form or as the same may be altered, amended or modified from time to time in accordance with its terms, the “Plan”) . A copy of this Trust Agreement, in substantially final form, was attached as an exhibit to the Disclosure Statement accompanying the Plan.

 

B. The Plan provides for the creation of the Trust pursuant to the Plan and this Trust Agreement.

 

C. Concurrently with the effectiveness of this Trust Agreement, the Effective Date under the Plan has occurred, the Plan has become effective, and the Debtors have been conclusively deemed to have conveyed the Trust Property to the Trust. The Trustee will cause the Debtors to be dissolved pursuant to Plan section 6.11 ¹ . For all United States federal income tax purposes, the transfer of the Trust Property by the Debtors to the Trust shall be treated by the Debtors, the Trust and the Trust Beneficiaries as a transfer of the Trust Property by the Debtors to the Trust Beneficiaries, followed by a transfer of the Trust Property by such Trust Beneficiaries to the Trust, as provided in Plan section 7.13. The Trust Beneficiaries shall be treated as the grantors and deemed owners of the Trust for United States federal income tax purposes

 

D. Pursuant to the Plan and the Confirmation Order, the Court has approved K. Morgan Enterprises, Inc. to serve as the Trustee of the Trust.

 

E. Also pursuant to the Plan and the Confirmation Order, the Oversight Committee has been designated, and consists of: Central States, Southeast and Southwest Areas Pension Fund; New York State Teamsters Conference Pension and Retirement Fund & New York State Teamsters Council Health & Hospital Fund; Chicago Truck Drivers, Helpers and Warehouse Workers Union (Ind.) Pension Fund; International Brotherhood of Teamsters; and CNA Surety Corporation.

 

F. As set forth in Plan section 1.2.105, Trust Beneficial Interests may not be transferred, sold, assigned, hypothecated or pledged, except that they may be assigned or transferred by will, intestate succession, or operation of law.

 

1	In this Trust Agreement, the term “section” refers to a provision of this Trust Agreement. The term “Plan section” refers to a provision of the Plan.

 

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NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

 

II. AGREEMENT

 

1. DEFINITIONS.

 

a. Terms Defined in the Plan.

 

Unless otherwise specified herein, all capitalized terms used in this Trust Agreement without definition shall have the meanings assigned to them in the Plan, including, without limitation, the following:

 

Administrative Claim, Allowed, Allowed Class 4 Claims, Appendix, Assumed Executory Contracts, Avoidance Actions, Bankruptcy Code, Bankruptcy Rules, Canada Affiliates, Cases, Cash, Causes of Action, CF Bermuda, Claim, Class, Collateral, Confirmation Order, Consolidated Estate, Convenience Claim, Court, Disallowed, Disbursing Agent, Disclosure Statement, Disputed, Disputed Claim, Disputed Lien, Distribution, Effective Date, Face Amounts, File or Filed, Holder, Lien, Mexico Affiliates, Non-Debtor Affiliates, Order, Other Priority Claims, Person, Petition Date, Plan, Priority Claim, Priority Non-Tax Claim, Priority Tax Claim, Pro Rata, Professional Claim, Reserve for Disputed Claims, Secured Claim, Trust, Trust Beneficial Interests, Trust Beneficiaries, and Trust Property.

 

b. Terms Defined in the Trust Agreement

 

(1) The terms “ CFC ,” “ CFCD ,” the “ Debtors ,” the “ Committee ,” “ Trust Agreement ” and “ Trustee ” the meanings given to such terms in the preamble to this Trust Agreement.

 

(2) The following terms have the meanings set forth below.

 

“ Appraised Value” means the appraised value of the relevant asset as of the Effective Date, as determined by the most recent appraisal of the asset obtained by the Debtors prior to the Effective Date.

 

“ Consolidation Stipulation and Order ” means the “Stipulation to Settle Consolidation Motion and Related Claims” and the Order approving said stipulation which was entered on April 27, 2004.

 

“ Internal Revenue Code ” means the Internal Revenue Code of 1986, as amended, or any corresponding provisions of any succeeding law.

 

“ Order re Trustee Agreement ” means the “Order Authorizing Debtors to Enter into Pre-Confirmation Agreement with Prospective Trustee” as entered by the Court on March 12, 2004.

 

“ Oversight Committee ” means the committee consisting of the members identified in Recital E, or the successors to any such members who may be appointed pursuant to this Trust Agreement, to fulfill the obligations of the Oversight Committee under the Plan and this Trust Agreement.

 

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“ Oversight Committee Member Institution ” means the institution of which any Oversight Committee member is an officer, employee or agent.

 

“ Plan ” shall have the meaning given to such term in Recital A above.

 

“ Prior-Approval Actions ” has the meaning given to such term in section 3.c of this Trust Agreement.

 

“ Quarterly Budget ” shall have the meaning given to such term in section 3.b(4), below.

 

“ Term Sheet for Trustee Services” means the Term Sheet for Trustee Services attached hereto as Exhibit A.

 

“ Treasury Regulations ” means the regulations promulgated under the Internal Revenue Code.

 

“ Trust Expenses ” means all costs, expenses, and obligations incurred in connection with the administration of the Trust or in any manner incidental or related thereto, including, without limitation, those incurred by the Oversight Committee or the Disbursing Agent, if any, in the performance of their duties hereunder, provided such costs, expenses, or obligations are permitted pursuant to the terms hereof. Trust Expenses shall include, without limitation, (i) the costs, expenses and obligations related to the preservation and liquidation of any of the Trust Property, (ii) taxes, fees, levies, assessments, and other governmental charges incurred and payable by the Trustee with respect to the Trust or the Trust Property, (iii) fees, expenses, and other compensation of the Trustee, any Disbursing Agent, and professionals employed by the Trustee or the Oversight Committee pursuant to this Trust Agreement, and (iv) reimbursement of expenses incurred by members of the Oversight Committee, as provided in this Trust Agreement.

 

“ Trust Notice Parties ” means the Trustee, the Oversight Committee, the Office of the United States Trustee, and all Persons who serve requests for special notice on the Trust after the Effective Date.

 

2. CREATION OF THE TRUST.

 

a. Creation of Trust .

 

The Trust is hereby created. The name of the Trust shall be “The Trust for Certain Creditors of Consolidated Freightways Corporation and certain Affiliates,” provided the Trust may be referred to as “The CFC Trust”.

 

b. Purposes of Trust .

 

The purposes of the Trust created hereunder are to (i) liquidate, sell or otherwise dispose of the Trust Property, (ii) cause all proceeds of Trust Property to be deposited into the Trust in accordance with the Plan and this Trust Agreement, (iii) control, defend, prosecute, settle, and/or pursue the resolution or litigation of all claims, rights, Avoidance Actions and other Causes of Action included in the Trust Property, in each such case, in accordance with the Plan and this Trust Agreement, (iv) oversee and, where appropriate, directly initiate actions to resolve any

 

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remaining issues regarding the allowance and payment of Claims, including, as necessary, initiation and/or participation in proceedings before the Court, (v) make Distributions of Trust Property or Cash to Trust Beneficiaries, and (vi) take such actions permitted hereunder that are necessary or useful to maximize the value of the Trust including, without limitation, the borrowing of funds and the retention of employees. The parties to this Trust Agreement hereby agree that the Trust is being established for the sole purpose of liquidating the Trust Property as promptly as reasonably possible in accordance with Treasury Regulation § 301.7701-4(d) with no objective to continue or engage in the conduct of a trade or business. In furtherance of this objective, the Trustee, and any Disbursing Agent, will make timely Distributions and not unnecessarily prolong the term of the Trust, in accordance with the terms and conditions set forth herein.

 

c. Transfer of Assets to the Trust Free and Clear .

 

The transfer of the Trust Property to the Trust, shall be free and clear of all Liens and Disputed Liens of any kind in favor of any party, except for the Liens, if any, which are expressly preserved by the Plan or the Confirmation Order with respect to the Collateral subject to such Liens.

 

3. APPOINTMENT, DUTIES, AND POWERS OF THE TRUSTEE.

 

a. Appointment; General Powers and Authority of the Trustee .

 

K. Morgan Enterprises, Inc. hereby acknowledges its acceptance of its appointment as the Trustee, to serve pursuant to the terms of the Plan and this Trust Agreement, until such time as it resigns, is removed or discharged, or this Trust Agreement and the Trust terminate as hereinafter set forth. Kerry Morgan shall be personally responsible and legally obligated for the performance of all duties, obligations and responsibilities of K. Morgan Enterprises, Inc. hereunder.

 

The Trustee shall have power and authority to do and perform the following acts on behalf of the Trust, provided that all actions which the Trustee shall take or not take in accordance with his power and authority hereunder shall (i) comply with the terms of the Plan, the Confirmation Order and this Trust Agreement, (ii) be subject to the supervision and advice of the Oversight Committee, and (iii) require approval or disapproval of the Oversight Committee to the extent provided in this Trust Agreement. No action or failure to act by the Trustee shall require approval from the Court, the Oversight Committee or any other Person except as expressly set forth in section 3.c, which requires Oversight Committee approval of the actions defined therein as Prior-Approval Actions, or in other provisions of this Trust Agreement, including, without limitation, provisions pertaining to the Quarterly Budget, the Plan or the Confirmation Order.

 

The Trustee shall have the power and authority to:

 

(1) Use, acquire and dispose of Trust Property, and take any of the actions set forth in this Trust Agreement without the approval of the Court and free of the restrictions of the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules or the prior Orders of the Court, other than restrictions expressly imposed by the Plan, the Confirmation Order or this Trust Agreement.

 

(2) Operate the Trust Property to the extent consistent with the Trust’s purpose which is to be classified for U.S. federal income tax purposes as a “liquidating trust,” with the primary objective of liquidating the Trust Property and distributing the net proceeds thereof; the Trust shall not continue or engage in the conduct of a trade or business inconsistent with Treasury Regulation § 301.7701-4(d).

 

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(3) Perfect and secure the Trust’s right, title and interest to the properties comprising the Trust Property.

 

(4) Reduce the Trust Property to its possession and hold the same.

 

(5) Manage and protect the Trust Property.

 

(6) Conduct the operations of the Trust in accordance with the terms of this Trust Agreement and the Plan in an efficient and effective manner, with the objective of minimizing Trust Expenses and maximizing recoveries for the Trust Beneficiaries.

 

(7) Negotiate, renegotiate, and enter into contracts and execute negotiable and non-negotiable obligations on behalf of the Trust in the ordinary course of the Trust’s financial affairs.

 

(8) (a) Determine when to sell Trust Property and on what terms, and sell or otherwise dispose of the Trust Property and all interests therein, convert such Trust Property and interests to Cash, and distribute the net proceeds in accordance with the Plan and this Trust Agreement, and, in connection with any sale of real estate, execute and deliver, without limitation, asset purchase or sale agreements, escrow instructions, grant deeds or quitclaim deeds, easements or conveyances of other rights or interests, and other documents, agreements or notices, and take all other actions necessary or desirable to consummate the sale, (b) Grant options to purchase all or any portion of the Trust Property, or any interest therein, for such consideration and on such terms as the Trustee deems appropriate, (c) Exchange and re-exchange all or any portion of the Trust Property for other property, and (d) Release, convey or assign any right, title or interest in or about the Trust Property, provided that the Trustee’s powers under this section 3.a.8 are subject to the Oversight’s Committee’s approval to the extent required in section 3.c.5.

 

(9) Establish demand, deposit and other bank or investment accounts in the name of the Trust, and deposit funds of the Trust into one or more of such accounts in the name of the Trust, draw checks on such accounts or otherwise withdraw such funds and disburse such funds to third parties entitled thereto.

 

(10) Pay, contest, compromise and discharge any Trust Expenses, provided , that expenditures by the Trustee are at all times subject to the limitations in the then-applicable Quarterly Budget and to the provisions of this Trust Agreement which supplement the provisions of the Quarterly Budget.

 

(11) Borrow, repay and reborrow funds, and grant any security interest, lien or encumbrance to secure the payment of any Trust Expenses or other obligation of the Trust provided that the Trustee’s powers under this section 3.a.11 are subject to the Oversight’s Committee’s approval under section 3.c.12.

 

(12) Purchase insurance to protect the Trust Property against such risks and in such amounts as the Trustee determines to be appropriate, and to protect the Trustee, the Oversight Committee and its members, from personal liability for any actions taken in the course of its and their activities on behalf of, or in connection with the administration of, the Trust and the Oversight Committee; provided however, that if the Trustee and the Oversight Committee disagree on the acquisition of insurance coverage for the protection of the Oversight Committee and its members, the Trustee shall purchase such insurance as is requested by the Oversight Committee and maintain such insurance in force pending resolution of such dispute.

 

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(13) Appoint, remove, replace and act through agents, managers, and employees and confer upon them such power and authority, subject to all limitations and restrictions contained in this Trust Agreement, as the Trustee deems necessary or advisable; provided, however, K. Morgan Enterprises, Inc. and Kerry Morgan shall remain responsible for all duties and obligations of the Trustee hereunder.

 

(14) Employ and have such professionals, including, without limitation, attorneys and accountants, and such other agents, consultants and employees on behalf of the Trust as the Trustee shall deem necessary, provided, that the Trustee shall not incur professional fees in excess of the amount provided for in the Quarterly Budget, including permitted overruns, without the approval of the Oversight Committee.

 

(15) Except as expressly required by the Plan or the Confirmation Order, determine when Distributions should be made to the Trust Beneficiaries.

 

(16) Exercise any and all powers granted to the Trustee by any agreements or by common law or any statute which serves to increase the extent of the powers granted to the Trustee hereunder, subject, in each case, to approval of the Oversight Committee, to the extent required by this Trust Agreement.

 

(17) Take any action required or permitted to be taken by the Plan, the Confirmation Order or this Trust Agreement.

 

(18) Sue on behalf of the Trust and be sued in its capacity as Trustee, provided that all parties dealing with the Trust or the Trustee shall be conclusively deemed by this Trust Agreement to agree that the Court shall have the exclusive jurisdiction to hear any suit commenced after the Effective Date against the Trust, or against the Trustee acting in its capacity as trustee of the Trust, and such parties may only commence any such suit in the Court, provided, however, that the Court may abstain from hearing any such suit.

 

(19) Manage all litigation instituted by or against the Trust or the Trustee, and administer the Trust Expenses related thereto.

 

(20) Pursue claims and Causes of Action assigned to the Trust or the control of which is assumed by the Trust pursuant to the Plan, as the designated representative of the Consolidated Estate within the meaning of section 1123(b)(3)(B) of the Bankruptcy Code.

 

(21) Institute on behalf of the Trust all claims and Causes of Actions which could be brought by a trustee or debtor-in-possession under the Bankruptcy Code, and prosecute or defend all appeals on behalf of any of the Debtors, as representative of the Consolidated Estate.

 

(22) Make and File objections to any Claims or Administrative Claims Filed or asserted in the Cases.

 

(23) Except as expressly provided to the contrary in the Plan, the Disclosure Statement, or the Confirmation Order, contest the validity or enforceability of any Disputed Lien purporting to encumber any of the Trust Property.

 

(24) Settle, compromise or adjust, by arbitration or otherwise, any Claims or any disputes or controversies in favor of or against the Trust.

 

(25) Waive or release rights of any kind on behalf of the Trust, subject, in each case, to the approval of the Oversight Committee.

 

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(26) Cause the Debtors, CF Bermuda and the Non-Debtor Affiliates to be dissolved for all purposes under applicable non-bankruptcy law, and, in connection therewith, take any necessary or appropriate actions on behalf of any of the Debtors, CF Bermuda, or any of the Non-Debtor Affiliates, including the filing or recording of any documents, the making of any applicable tax filings, the execution and filing or recording of such a certificate of dissolution for the dissolution of any of such entities, the payment of any fees, charges or other amounts necessary or appropriate, in the reasonable opinion of the Trustee, to dissolve all of the Debtors, CF Bermuda and the Non-Debtor Affiliates, provided, however, that each of the Debtors, CF Bermuda and the Non-Debtor Affiliates shall file, or the Trustee may file on behalf of such entities, with the official public office for keeping corporate records in its state, district or place of organization, a certificate of dissolution or equivalent document.

 

(27) Prepare Quarterly Budgets and provide other financial information to the Oversight Committee, as required by this Trust Agreement.

 

(28) Receive from the Trust compensation and reimbursement of all reasonable expenses incurred by the Trustee in discharging its duties hereunder, as set forth in this Trust Agreement and the Order re Trustee Agreement, provided that, (a) for the initial Trustee, to the extent such compensation is not authorized by the Order re Trustee Agreement, and (b) for any subsequent Trustee, the compensation, reimbursement of expenses and payment of other amounts to the Trustee shall be in such amounts as are agreed to between the Trustee and the Oversight Committee in connection with the approval of the applicable Quarterly Budget or otherwise. Compensation and reimbursement of reasonable expenses incurred by the Trustee as approved by the Order re Trustee Agreement shall be payable without further approval by the Oversight Committee.

 

(29) File all income, withholding and informational tax returns and forms for the Trust and for the Reserve for Disputed Claims as required by law, and pay all taxes required to be paid by the Trust or the Reserve for Disputed Claims.

 

(30) Serve as an officer and/or director of any of the Non-Debtor Affiliates and/or LLC Entities and cause such entities to undertake any actions necessary or desirable to further the objectives of this Agreement or the Plan, including, without limitation, realizing value for the Trust.

 

(31) In general, without in any manner limiting any of the foregoing, deal with the Trust Property, and all or any portion thereof, and the affairs of the Trust, in all ways as would be lawful for any person owning the same to deal therewith, whether similar to or different from the ways above specified, at any time or times hereafter, subject, in each case, to all restrictions and limitations contained in this Trust Agreement, including the approval of the Oversight Committee, to the extent required by section 3.c.

 

b. Duties of the Trustee .

 

Subject to the section 3.c, which requires Oversight Committee approval of any of the following actions which constitute Prior-Approval Actions, and the other provisions of this Trust Agreement and the Plan, the Trustee shall have the duty to perform the following acts on behalf of the Trust:

 

(1) Liquidation of Trust Property.

 

The Trustee shall sell or dispose of, and convert to Cash, the Trust Property, and distribute, or cause the Disbursing Agent, if any, to distribute, the Trust Beneficial Interests to the Trust Beneficiaries and to distribute all funds realized by the Trust strictly in accordance with the terms of the Plan, the Confirmation Order, and this Trust Agreement.

 

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(2) Protection of Trust Property.

 

The Trustee shall manage and protect the Trust Property.

 

(3) Receipt and Distributions of Cash.

 

Cash received by the Trust shall be held in the Trust, or distributed to the Disbursing Agent, if any, by the Trustee strictly in compliance with the terms of the Plan, the Confirmation Order, and this Trust Agreement. After the satisfaction of, or creation of reserves reasonably determined by the Trustee to be adequate for, Secured Claims, Administrative Claims, Professional Claims, Priority Claims and Trust Expenses, as required by Plan section 9.2, the Trustee shall be obligated to make (a) a Distribution to the holders of Trust Beneficial Interests, as required by Plan sections 9.5, 9.6, 9.7 and 9.16, of all Cash held by the Trust in excess of amounts paid to or reserved for such Claim Holders and expenses, provided that the amount of Cash held by the Trust at any time and available for such Distribution is equal to one million dollars ($1,000,000) or more, and (b) an annual Distribution at any time required by Plan section 9.5.

 

(4) Approval of Quarterly Budgets.

 

(a) The Trustee shall present to the Oversight Committee a proposed quarterly budget at least thirty (30) days in advance of the beginning of each calendar quarter during the term of the Trust (each, a “Quarterly Budget”); provided, however, the initial Quarterly Budget shall cover the period from the Effective Date through and including March 31, 2005. Each Quarterly Budget shall estimate income and inflows to the Trust and Trust Expenses to be incurred for the succeeding calendar quarter and allocate such estimated Trust Expenses to categories which the Trustee shall reasonably create, including without limitation (i) Operating Expenses (including salaries, expenses, other overhead for employees and consultants employed by the Trust, rent, supplies, utilities, security and insurance), (ii) Trust Professional Expenses (legal and other professional fees and expenses to be incurred by the Trust), (iii) Oversight Committee Expenses (including legal and other professional fees and expenses to be incurred by the Oversight Committee and reimbursement of Oversight Committee member expenses), (iv) Taxes (taxes owed or to be owed by the Trust with respect to the activities of the Trust, including taxes on income), and (v) Other ; and the total of all budgeted Trust Expenses for such calendar quarter.

 

(b) The Oversight Committee, within ten (10) business days of receipt of a proposed Quarterly Budget, may approve the proposed Quarterly Budget, or, in writing, object to, or request additional information with respect to, any individual categories of expenses set forth in such budget. If the Oversight Committee requests additional information or objects to any categories in the Quarterly Budget, the Trustee shall provide supplementary information to the Oversight Committee in support of the objected categories within ten (10) business days of the receipt of such request or objections. The Oversight Committee shall have ten (10) business days to respond to such additional information, by approving the Quarterly Budget as so supplemented, or to object further to the proposed budget. The Oversight Committee shall not unreasonably or arbitrarily withhold approval of any Quarterly Budget or any category of expenses set forth therein. The Quarterly Budget shall be deemed approved by the Oversight Committee if the Oversight Committee does not disapprove or deliver questions with respect to the budget during the ten-day period therefor as required in this section.

 

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(c) In the event the Oversight Committee has not approved (or been deemed to approve) a Quarterly Budget in its entirety by the commencement of the calendar quarter to which the budget pertains, all categories of Trust Expense in the proposed budget which the Oversight Committee has not objected to or disapproved, shall become the approved Quarterly Budget for such items for the term of the budget, and the Trustee and Oversight Committee shall negotiate in good faith to resolve all remaining questions and objections, subject to the rights of the parties to seek Court review, pursuant to section 9.a hereof, for the non-approved categories of Trust Expense for which agreement has not been reached. In the event of a dispute with respect to any categories in the Quarterly Budget proposed for the period commencing on the Effective Date, the Trustee shall be authorized to expend funds in the ordinary course of the Trust’s affairs (i) in accordance with the proposed budget for the term of the budget for any categories which the Oversight Committee has approved or been deemed to approve, or (ii) which are essential to avoid damage to or destruction of trust property, or (iii) do not exceed 50% of the amount in the proposed Quarterly Budget for any non-approved category of expense pending resolution of the dispute with respect to such disputed categories by negotiation among the parties or by the Court. In the event of a dispute with respect to any proposed Quarterly Budget after the initial Quarterly Budget, the Trustee shall be authorized to expend funds in the ordinary course of the Trust’s affairs (iv) in accordance with the proposed budget for the term of the budget for any categories which the Oversight Committee has approved or been deemed to approve, or (v) which are essential to avoid damage to or destruction of trust property, or (vi) do not exceed 50% of the amount in the proposed Quarterly Budget for any non-approved category of expense pending resolution of the dispute with respect to such disputed categories by negotiation among the parties or by the Court. While a dispute is pending with respect to any categories of expenditures, the Trustee may carry over to subsequent calendar quarters any amounts of permitted expenditures in the applicable budget for a prior calendar quarter which are not expended in such prior quarter.

 

(5) Compliance with Quarterly Budgets.

 

The Trustee may not spend funds of the Trust nor incur debts or Trust Expenses for more than one hundred ten percent (110%) of the aggregate amount of Trust Expenses contained in such budget for any calendar quarter, without obtaining the prior written consent of the Oversight Committee to an amended Quarterly Budget for such period, except as otherwise provided in this section and section 3.b.(4), provided that the expenditure limitations in this section shall not apply to the Trust Expenses included in clause (iii) of section 3.b(4)(a) ( Oversight Committee Expenses ) to the extent such expenses exceed the amount budgeted for that category. The statement of income and inflows in any Quarterly Budget shall be the Trustee’s reasonable estimate and it shall not be a default under this Trust Agreement or otherwise constitute a breach by the Trustee if such estimate is not achieved during the period of the Quarterly Budget. Promptly after the Trustee determines in good faith that expenditures may exceed the amounts permitted under this Trust Agreement for any quarter, the Trustee shall notify the Oversight Committee and shall promptly deliver to the Oversight Committee a proposed amendment to the then applicable Quarterly Budget. Following receipt of such proposed amendment, the provisions of section 3.b(4)(b) and (c) shall apply with respect to such proposed amended Quarterly Budget, except that, the phrase “the commencement of the initial calendar quarter to which the budget pertains” shall mean “the date as of which the expenditures for such calendar quarter exceed the maximum amount of expenditures permitted for such quarter based upon the then-approved Quarterly Budget.”

 

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(6) Trust Expenses.

 

The Trustee shall pay, in the ordinary course of the Trust’s affairs pursuant to the Quarterly Budget (plus permitted overruns), any Trust Expenses incurred in the ordinary course of the Trust’s affairs, including, without limitation, the reasonable fees and expenses of professional persons incurred by the Trust or the Oversight Committee, and any fees and expenses incurred in connection with the implementation of the Plan, subject to the limitations on expenditures contained in the Quarterly Budget and this Trust Agreement.

 

(7) Reserves.

 

(a) The Trustee shall create on the books of the Trust (or cause the Disbursing Agent, if any, to create) adequate reserves for the payment of Trust Expenses prior to making, or causing the Disbursing Agent to make any Distribution to the Trust Beneficiaries subject to the approval of the Oversight Committee pursuant to section 3.c.6. Subject to the provisions of the Plan and the Confirmation Order, the Trust shall pay Allowed Administrative Claims and Allowed Priority Claims in full in Cash as soon as practicable after the Effective Date, unless the party entitled to such payment agrees or shall have agreed to a different treatment of its Claims, provided that payment of an Allowed Administrative Claim or Allowed Priority Claim shall not be required to be made until such payment would have become due in the ordinary course of the Debtors’ businesses or under the terms governing such Claim in the absence of the Cases.

 

(b) The Trustee shall create or cause the Disbursing Agent, if any, to create, the Reserve for Disputed Claims in accordance with Plan section 9.8. The applicable Quarterly Budget shall include the establishment of the Reserve for Disputed Claims as required by Plan section 9.8 in connection with any proposed Distribution by the Trust for the benefit of the Trust Beneficiaries. The Trustee shall establish the Reserve for Disputed Claims and other reserves, as required by Plan section 9.2. Amounts necessary to satisfy the amount of any Distribution with respect to all Disputed Class 4 Claims shall be allocated by the Trustee (or the Disbursing Agent, if one is appointed) to the Reserve for Disputed Claims for the benefit of the Holders of such Disputed Claims, provided that the Trustee (and the Disbursing Agent) shall not be required to place Cash into a separate account or otherwise segregate funds from the assets of the Trust.

 

(8) Reports to Oversight Committee.

 

(a) Within thirty (30) days following the end of each calendar quarter, the Trustee shall provide each member of the Oversight Committee with a reconciliation of actual Trust Expenses paid or incurred during the preceding calendar quarter to the estimated Trust Expenses set forth in the Quarterly Budget for the previous quarter and, from time to time, such other financial information the Oversight Committee may reasonably request.

 

(b) The Trustee shall be available from time to time on reasonable notice to report to the Oversight Committee regarding the status of (i) the administration of this Trust, (ii) the collection and Distribution of the Trust Property, and (iii) the status of all Litigation. Upon reasonable request by the Oversight Committee, the Trustee shall promptly prepare, or cause to be prepared, such statistical data and written and oral reports as are reasonably necessary to keep the Oversight Committee or the Trust Beneficiaries, as the case may be, fully apprised of the condition and status of the Trust Property and any other activities of the Trust hereunder.

 

(9) Annual Reports to Trust Beneficiaries.

 

The Trustee shall provide to the Trust Beneficiaries, with a copy to the Oversight Committee, (a) within ninety (90) days of the end of each calendar year, an annual report containing (i) reasonable information regarding material transactions taken by the Trust and the

 

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results of the activities of the Trust for such calendar year, (ii) a statement of receipts and disbursements of the Trust during the year, (iii) unaudited financial statements for the Trust, (iv) the status of adjudication of objections to Claims, (v) a description of pending, settled and resolved litigation matters, and (vi) a description of the Distributions to Trust Beneficiaries, and (b) as and when due, such other information and reports as are required by law.

 

(10) Reports to Court.

 

The Trustee, on behalf of the Trust, shall File with the Court and serve on the Trust Notice Parties such reports as are required by the Plan, the Confirmation Order, or the Guidelines of the Office of the United States Trustee for the Central District of California to the extent such Guidelines are applicable to the Trust.

 

(11) Transfers of Trust Beneficial Interests.

 

The Trustee shall record transfers of Trust Beneficial Interests in the records of the Trust, provided that each such transfer shall be in strict compliance with the restrictions on transfer of Trust Beneficial Interests set forth in the definition of that term in Plan section 1.2.96, and the assignee of such Trust Beneficial Interest shall certify in writing the compliance with such restrictions on transfer to the Trustee’s satisfaction, in its sole discretion. The Trustee shall notify any holder of such a Trust Beneficial Interest if the Trustee determines that any requested transfer does not comply with the Trust Beneficial Interest Transfer Restrictions and such requested transfer may be rejected by the Trustee. In the case of a rejected transfer, the registered holder of the Trust Beneficial Interest shall remain the Holder of such interest for all purposes of the Trust, and the Trust and the Trustee shall have no duty to the purported transferee of such interest. The Court shall have the exclusive jurisdiction to review any decision of the Trustee with respect to the transfer of any Trust Beneficial Interest, unless the Court abstains from hearing any such dispute.

 

(12) Supervision of Disbursing Agent.

 

If a Disbursing Agent is employed on behalf of the Trust, the Trustee shall direct and supervise all activities of the Disbursing Agent with respect to the Plan and the Trust Property, and shall cause the Disbursing Agent to make the Distributions to the Trust Beneficiaries entitled thereto as and when the Plan requires. In the event that the Disbursing Agent resigns, is unable to continue to serve, or is removed, the Trustee shall appoint a successor Disbursing Agent with the consent of the Oversight Committee. The Trustee may change the terms of the employment of the Disbursing Agent, including compensation, with the consent of the Oversight Committee.

 

(13) Performance Under Assumed Executory Contracts.

 

The Trustee shall perform, or cause the Trust to perform, the Debtors’ obligations under Assumed Executory Contracts which have been assigned to the Trust.

 

(14) Investment of Cash.

 

The Trustee shall invest all Cash held by the Trust in demand, time deposit and depositary accounts (including certificates of deposit) held by banks, other savings institutions or securities institutions, and other liquid investments such as United States Treasury instruments.

 

(15) Register of Disputed Claims.

 

(16) The Trustee shall create and maintain a register of Disputed Claims. Such register shall include the Face Amounts for such Disputed Claims upon which to calculate the funds of the Trust to be allocated to the Reserve for Disputed Claims, and a record of all Distributions which have been withheld from the Holders of such Disputed Claims.

 

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(17) No Duty to Provide Information re Reorganized Debtors.

 

The Trust and the Trustee shall have no duty or responsibility, either initially or on a continuing basis, to provide any Person with any credit or other information with respect to the Debtors other than to the Oversight Committee.

 

(18) Payment of U.S. Trustee Quarterly Fee.

 

The Trustee shall cause to be paid any and all fees due and payable pursuant to section 1930 of title 28 of the United States Code, including, without limitation, any U.S. Trustee quarterly fees incurred pursuant to section 1930(a)(6) of title 28 of the United States Code. As provided in Plan section 7.9, the Trust shall not be required to pay any fees to the United States Trustee based on any transfers of assets to or from the Trust.

 

(19) Records.

 

The Trustee shall maintain appropriate books and records of the activities and operations of the Trust, including records of receipts and Distributions from the Trust and to the Disbursing Agent and Trust Beneficiaries. The Oversight Committee shall be permitted access to and to copy such books and records upon reasonable request. In addition, the Trustee shall maintain all original documents concerning the Trust Property, including all documents received from the Debtors for use by the Trustee and the Oversight Committee.

 

(20) Compliance with Tax Laws.

 

The Trust shall comply with all withholding and reporting requirements imposed by any federal, state, local, or foreign taxing authority and shall comply with all such requirements to the extent any Distributions under the Plan are subject to any such withholding and reporting requirements. The Trustee shall be responsible for filing all of the tax returns and other tax filings, as may be required by applicable law, for the Trust.

 

(21) Compliance with the Consolidation Stipulation and Order.

 

The Trustee shall comply with the Consolidation Stipulation and Order.

 

(22) Trust Beneficial Interests.

 

The Trustee shall, on an annual basis, certify to the Oversight Committee that the Trustee will not take any action to encourage any trading in the Trust Beneficial Interests or in any instruments tied to the value of the Trust Beneficial Interests.

 

c. Approval of Oversight Committee for Prior-Approval Actions .

 

The Trustee shall manage the Trust and the Trust Property in the Trustee’s reasonable business judgment, except as otherwise provided in the Plan, the Confirmation Order or this Trust Agreement, provided , the Trustee shall consult with the Oversight Committee in the ordinary course of the administration of the Trust regarding all actions which the Trustee or the Oversight Committee believes are material to the Trust and which the Trustee intends to take and not to take.

 

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The Trustee is not authorized to take any of the following actions ( “Prior-Approval Actions” ) without the approval of the Oversight Committee:

 

(1) Appoint a Disbursing Agent, or appoint any successor Disbursing Agent following the death, disability or termination of a previously-appointed Disbursing Agent, provided it shall not be a Prior-Approval Action for the Trustee to terminate any Disbursing Agent if the Trustee certifies to the Oversight Committee that the Trustee is not satisfied, in the Trustee’s sole discretion, with the performance by the Disbursing Agent of its duties under this Trust Agreement.

 

(2) Adopt or amend a Quarterly Budget.

 

(3) Employ any professional, obtain particular services from any such professional or pay compensation or expense reimbursement to such professionals, to the extent the Oversight Committee has the right to object to such matters in section 3.a.14.

 

(4) Pay Trustee Expenses, including, without limitation, compensation or fees for professionals employed by the Trust, other than Trust Expenses which have been authorized pursuant to a Quarterly Budget under section 3.b(4) or are authorized pursuant to this Trust Agreement, including, without limitation, section 3.b(5) and this section 3.c(4); provided , however, it shall not be a Prior-Approval Action for the Trustee to incur or pay Trust Expenses in any calendar month in an amount not in excess of $10,000, whether or not they are included in an approved Quarterly Budget, or are in excess of the amounts otherwise approved pursuant to this Trust Agreement.

 

(5) Sell any Trust Property consisting of a parcel of real property for an aggregate sale price of less than eighty percent (80%) of its Appraised Value for parcels with an Appraised Value of $1,000,000 or less, and ninety percent (90%) of its Appraised Value for parcels with an Appraised Value in excess of $1,000,000, provided , that the Trustee may enter into a contract to sell any such T