Exhibit 2.3
LIQUIDATING TRUST AGREEMENT
AMONG
HIGHLANDS INSURANCE GROUP, INC.
HIGHLANDS HOLDING COMPANY, INC.
HIGHLANDS CLAIMS AND SAFETY SERVICES, INC.
HIGHLANDS SERVICES CORPORATION
AMERICAN RELIANCE, INC. AND
NORTHWESTERN NATIONAL HOLDING COMPANY, INC.,
AS DEBTORS,
AND
XXXXXXX X. XXXXXXXXXXX,
AS LIQUIDATING TRUSTEE
DATED AS OF , 2002
TABLE OF CONTENTS
PAGE
Article 1 ESTABLISHMENT OF THE LIQUIDATING TRUST.............................2
1.1 Transfer of Property to Liquidating Trustee......................2
1.2 Title to Trust Assets............................................2
1.3 Assignment and Assumption of Claims..............................2
1.4 Appointment of the Liquidating Trustee...........................3
1.5 Appointment, Composition and Authority of Trust Advisory Board...3
1.6 Valuation of Trust Assets........................................3
1.7 Surviving Debtor Entities and Insurance Company Subsidiaries.....4
Article 2 LIQUIDATING TRUST UNITS............................................4
2.1 Identification of Holders of Liquidating Trust Units.............4
2.2 Classes of Liquidating Trust Units...............................4
2.3 Issuance and Transfer by Book Entry..............................5
Article 3 PURPOSE, AUTHORITY, LIMITATIONS....................................6
3.1 Purpose of the Liquidating Trust.................................6
3.2 General Authority of Liquidating Trustee.........................6
3.3 Powers Subject to Trust Advisory Board Authorization.............8
3.4 General Power and Authority Over Trust Assets....................9
3.5 Limitation of Liquidating Trustee's Authority Over Trust Assets..9
Article 4 DISTRIBUTIONS TO TRUST HOLDERS....................................10
4.1 Annual Distributions from the Liquidating Trust.................10
4.2 Quarterly Distributions from the Liquidating Trust..............11
4.3 Distributions from HIGI and the HIGI Subsidiaries...............11
4.4 Priority of Payment of Distributions............................11
4.5 Manner of Payment of Distributions..............................12
4.6 Distributions on Business Days..................................12
4.7 Reserve for Disputed Claims and Interests.......................12
4.8 No Distribution in Excess of Allowed Amounts....................12
4.9 De Minimis Distributions........................................13
4.10 Setoffs.........................................................13
4.11 Disputed Payments...............................................13
4.12 Unclaimed Distributions.........................................13
4.13 Allocation of Tax Items.........................................14
Article 5 DUTIES OF THE LIQUIDATING TRUSTEE AND TRUST ADVISORY BOARD.......14
5.1 Fiduciary Obligations...........................................14
5.2 Duties In General...............................................14
5.3 Personal Liability..............................................15
5.4 Reliance on Certificates and Professionals......................15
5.5 Investment and Safekeeping of Trust Assets......................15
i
5.6 No Bond.........................................................16
5.7 Tax, Financial and Other Required Reporting.....................16
5.8 Compliance with Laws............................................18
5.9 Books and Records...............................................18
5.10 Confidentiality.................................................18
Article 6 SUCCESSOR LIQUIDATING TRUSTEE.....................................18
6.1 Removal.........................................................18
6.2 Resignation.....................................................18
6.3 Appointment of Successor upon Removal, Resignation, or Death....19
6.4 Acceptance of Appointment by Successor Liquidating Trustee......19
Article 7 EXPENSE REIMBURSEMENT, INDEMNITY AND COMPENSATION.................19
7.1 Expense Reimbursement...........................................19
7.2 Indemnity.......................................................19
7.3 Success Fees....................................................22
7.4 No Other Compensation...........................................22
Article 8 REPORTS TO HOLDERS OF UNITS OF BENEFICIAL INTERESTS...............22
8.1 Reporting of Certain Events.....................................22
8.2 Final Report and Accounting.....................................22
8.3 Other Reporting.................................................22
Article 9 TERMINATION AND FINAL DISTRIBUTION................................23
9.1 Termination of Liquidating Trust................................23
9.2 Final Distribution..............................................23
Article 10 AMENDMENT AND WAIVER.............................................23
10.1 Amendment And Waiver............................................23
Article 11 MISCELLANEOUS PROVISIONS.........................................24
11.1 Intention of Parties to Establish Liquidating Trust.............24
11.2 Preservation of Privilege and Defenses..........................24
11.3 Cooperation.....................................................24
11.4 Laws as to Construction.........................................24
11.5 Severability....................................................24
11.6 Notices.........................................................24
11.7 Headings........................................................25
11.8 Integration.....................................................26
11.9 Relationship to the Plan........................................26
ii
LIQUIDATING TRUST AGREEMENT
This Liquidating Trust Agreement (this "Trust Agreement"), dated as of
__________, 2002, is made by and among HIGHLANDS INSURANCE GROUP, INC. ("HIGI"),
HIGHLANDS HOLDING COMPANY, INC., HIGHLANDS CLAIMS AND SAFETY SERVICES, INC.,
HIGHLANDS SERVICES CORPORATION, AMERICAN RELIANCE, INC., and NORTHWESTERN
NATIONAL HOLDING COMPANY, INC. (collectively, the "Debtors") and XXXXXXX X.
XXXXXXXXXXX as Liquidating Trustee, and is executed in connection with the
Debtors' Joint Plan of Reorganization Under Chapter 11 of the United States
Bankruptcy Code, as may be amended (the "Plan"), filed by the Debtors in the
United States Bankruptcy Court for the District of Delaware (the "Court") on
_________, 2002. Except with respect to the terms defined herein, all
capitalized terms contained herein shall have the meanings ascribed to them in
the Plan.
W I T N E S S E T H
WHEREAS, the Plan provides for the establishment of the liquidating trust
evidenced hereby (the "Liquidating Trust") to resolve, liquidate and realize
upon the assets, Causes of Action and such other claims and property of the
Debtors, as successor to and representative of the Estates of the Debtors;
WHEREAS, the Plan provides for, among other things, the distribution of
all of the beneficial interests of the trust created hereby to the holders of
(i) Bank Group Claims, (ii) Allowed General Unsecured Claims, and (iii) the LMI
Interest (the holders of all such Allowed Claims and Interests referred to
hereinafter collectively as the "Trust Holders");
WHEREAS, the Liquidating Trust is created pursuant to, and to effectuate,
the Plan;
WHEREAS, the Liquidating Trust is created on behalf of, and for the sole
benefit of, the Trust Holders (including holders of Disputed Claims that become
Allowed Claims);
WHEREAS, the Liquidating Trust is established for the sole purpose of
liquidating its assets for the benefit of the Trust Holders in accordance with
Treasury Regulation Section 301.770l-4(d), with no objective or authority to
continue or engage in the conduct of a trade or business except to the extent
reasonably necessary to, and consistent with, the liquidating purpose of the
Liquidating Trust;
WHEREAS, the Liquidating Trust is intended to qualify as a liquidating
trust within the meaning of Treasury Regulation Section 301.7701-4(d) for United
States federal income tax purposes; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Plan, the Debtors and the Liquidating
Trustee agree as follows:
ARTICLE 1
ESTABLISHMENT OF THE LIQUIDATING TRUST
1.1 Transfer of Property to Liquidating Trustee. Pursuant to the Plan, the
Debtors and the Liquidating Trustee hereby establish the Liquidating Trust on
behalf of all Trust Holders (whether the Claims of Trust Holders are Allowed on
or after the Effective Date of the Plan), and the Debtors hereby issue,
transfer, assign, and deliver to the Liquidating Trustee all of their right,
title, and interest in the Trust Assets free and clear of any Lien, Claim or
Interest in such Property of any other Person or entity except as provided in
the Plan and as described in Section 1.3 below. The Liquidating Trustee agrees
to accept and hold the Trust Assets in trust for the Trust Holders, subject to
the terms of this Trust Agreement.
1.2 Title to Trust Assets.
(a) The transfer of the Trust Assets to the Liquidating Trust shall
be made for the benefit of the Trust Holders, whether the Claims of Trust
Holders are Allowed on or after the Effective Date of the Plan. In this regard,
the Trust Assets will be transferred to the Trust Holders to be held by the
Debtors on their behalf. Immediately thereafter, on behalf of the Trust Holders,
the Debtors shall transfer the Trust Assets to the Liquidating Trust in exchange
for identifiable beneficiary interests in or units of the Liquidating Trust (the
"Liquidating Trust Units"), which units shall be distributed by the Liquidating
Trustee to the Trust Holders in exchange for their Allowed Claims or Interests
in accordance with the Plan and as set forth in Article 2 below. Upon the
transfer of the Trust Assets, the Liquidating Trustee shall succeed to all of
the Debtors' right, title and interest in the Trust Assets and the Debtors will
have no further interest in or with respect to the Trust Assets or this
Liquidating Trust.
(b) For all United States federal income tax purposes, all parties
(including, without limitation, the Debtors, the Liquidating Trustee, and the
Trust Holders) shall treat the transfer of Trust Assets to the Liquidating Trust
described in this Section 1.2 and in the Plan (and any subsequent transfers of
Assets) as a transfer to the Trust Holders followed by a transfer by such Trust
Holders to the Liquidating Trust, and the beneficiaries of this Liquidating
Trust shall be treated as the grantors and owners hereof.
1.3 Assignment and Assumption of Claims. The Debtors hereby transfer and
assign the Trust Assets to the Liquidating Trust, and the Liquidating Trustee on
behalf of the Liquidating Trust hereby assumes and agrees that all such Trust
Assets will be transferred to the Liquidating Trust, subject to the following
liabilities, if any, which arise out of or relate to any known or unknown Claims
or Causes of Action against the Debtors or their respective Estates: (a) the
Bank Group Liens, (b) Administrative Claims that have not been Allowed as of the
Effective Date but which are subsequently Allowed; (c) Priority Claims and
Priority Tax Claims that have not been Allowed as of the Effective Date but
which are subsequently Allowed; (d) all U.S. Trustee Fees until such time as the
Court enters a final decree closing each Debtor's Chapter 11 Case; (e) the post
Effective Date claims, if any, of the State Departments of Insurance; (f) any
unpaid expenses incurred or to be incurred by the Liquidating Trustee in the
performance of his duties under this Trust Agreement and in respect of the
winding up of the Debtors' Estates (including, the filing of final tax returns
and the payment of any taxes shown thereon); and (g) any unpaid obligations
owing pursuant to the Plan (including, without limitation, obligations incurred
after the
2
Confirmation Date and the fees and expenses of Professionals under Section
11.1(b) of the Plan); but specifically excluding any Claim or Cause of Action
not provided for in the Plan or which has been barred or discharged pursuant to
the Plan.
1.4 Appointment of the Liquidating Trustee. Xxxxxxx X. Xxxxxxxxxxx is
hereby appointed as the Liquidating Trustee and he shall hold such position
until his removal, resignation or death.
1.5 Appointment, Composition and Authority of Trust Advisory Board.
(a) There shall also be appointed a Trust Advisory Board composed of
the Liquidating Trustee and a maximum of four (4) other individual persons who
are designees of the Trust Holders as set forth in subsection (b) below. The
Trust Advisory Board will direct the actions of Liquidating Trustee in the
exercise of the authority granted to the Liquidating Trustee hereunder and in
the Plan. Unless otherwise specified herein, any action taken or direction given
by the Trust Advisory Board shall be taken or given by a majority of the members
of the Trust Advisory Board. The Trust Advisory Board shall be authorized to
adopt by-laws consistent with this Trust Agreement to govern its activities.
(b) Until such time as the holders of the Bank Group Claims are paid
in full in accordance with the Plan, the holders of the Bank Group Claims shall
be entitled to designate three members of the Trust Advisory Board, and holders
of the majority of the Debenture Claims shall be entitled to designate one
member of the Trust Advisory Board. After the Bank Group Claims are paid in full
in accordance with the Plan, but prior to the time holders of Allowed General
Unsecured Claims are paid in full in accordance with the Plan, the holders of
Bank Group Claims will no longer be entitled to designate any members of the
Trust Advisory Board and all such Bank Group designees shall automatically be
removed therefrom. At such time, the holders of the majority of the Debenture
Claims shall be entitled to designate three members of the Trust Advisory Board,
and the holder of the LMI Interest shall be entitled to designate one member of
the Trust Advisory Board. After the Allowed General Unsecured Claims are paid in
full, but prior to the time the LMI Interest is paid in full in accordance with
the Plan, the holders of the Debenture Claims will no longer be entitled to
designate any members of the Trust Advisory Board and all such Debenture holder
designees shall automatically be removed therefrom. Thereafter, the Trust
Advisory Board shall be composed of the Liquidating Trustee and the holder of
the LMI Interest.
(c) In the event that the Trust Advisory Board is not formed or
ceases to exist for any reason, all references herein to required approval or
other action of such Trust Advisory Board shall be of no force or effect or
shall be deemed to be references to the Liquidating Trustee, as appropriate. The
failure of either the Bank Group or the holders of the Debentures to designate
members of the Trust Advisory Board in accordance with subsection (b) above,
however, shall not constitute a failure to form the Trust Advisory Board as long
as at least one member other than the Liquidating Trustee is so designated. In
performance of their duties hereunder, members of the Trust Advisory Board shall
be entitled to receive reimbursement of reasonable expenses and indemnification
as set forth in Article 7 hereof.
1.6 Valuation of Trust Assets. From time to time as necessary, the
Liquidating Trustee shall in good faith determine the fair market value of the
Trust Assets and any other Assets transferred to the Liquidating Trust and
thereafter apprise the Trust Advisory Board and the Trust
3
Holders of Record in writing regarding such valuation. Any such valuation shall
be used consistently by all parties (including, without limitation, the Debtors,
the Liquidating Trustee and the Trust Holders) for all purposes, including
United States federal income tax purposes.
1.7 Surviving Debtor Entities and Insurance Company Subsidiaries.
(a) Through the Liquidating Trust's position as direct or indirect
equity owner of each of the Surviving Debtor Entities, the Liquidating Trustee
shall cause the Surviving Debtor Entities to act consistently with the purposes
and provisions of the Liquidating Trust and this Trust Agreement. The
Liquidating Trustee may authorize and direct the merger, consolidation,
dissolution of or other restructuring transaction with respect to any of the
Surviving Debtor Entities to the extent deemed necessary and appropriate by the
Liquidating Trustee and Trust Advisory Board.
(b) Through the Liquidating Trust's position as direct or indirect
equity owner of each of the Insurance Company Subsidiaries, the Liquidating
Trustee shall cause the Insurance Company Subsidiaries to act consistently with
the purposes and provisions of the Liquidating Trust and this Trust Agreement
and, in addition, any and all supervisory orders, protective orders or other
requirements of the State Departments of Insurance. Subject to any and all
consents, conditions, or requirements of the State Departments of Insurance, the
Liquidating Trustee and Trust Advisory Board may authorize and direct the
merger, consolidation, dissolution of or other restructuring transaction with
respect to any of the Insurance Company Subsidiaries to the extent deemed
necessary and appropriate by the Liquidating Trustee and Trust Advisory Board.
(c) Subject to the provisions of this Section 1.7, the requirements
of other applicable law or the State Departments of Insurance, the Liquidating
Trustee may serve or continue to serve as a member of the board of directors of
any Surviving Debtor Entity or Insurance Company Subsidiary.
ARTICLE 2
LIQUIDATING TRUST UNITS
2.1 Identification of Holders of Liquidating Trust Units. The holders of
Liquidating Trust Units shall be recorded and set forth in a register maintained
by the Liquidating Trustee expressly for such purpose. All references in this
Trust Agreement to Trust Holders "of Record" shall be read to mean holders of
record as set forth in the register maintained by the Liquidating Trustee and
shall not mean any beneficial owner not recorded on such official registry.
Unless expressly provided herein, the Liquidating Trustee may establish a record
date which it deems practicable for determining the Trust Holders for a
particular purpose.
2.2 Classes of Liquidating Trust Units. The issuance of Liquidating Trust
Units to Trust Holders shall be made in classes in accordance with the Classes
of all Allowed Claims set forth in the Plan as follows:
Class A Trust Units. The holders of Bank Group Claims shall each be
issued Class A Trust Units in an amount which shall at all times equal the
dollar figure of such holder's Ratable Share of the Bank Group Claims.
4
Class B Trust Units. The holders of Allowed General Unsecured Claims
shall each be issued Class B Trust Units in an amount which shall at all
times equal the dollar figure of such holder's Claim.
Class C Trust Units. The holder of the LMI Interest shall be issued
Class C Trust Units in an amount equal to the liquidation preference
attributable to the shares of preferred stock of HIGI owned by such holder
as of the Effective Date.
The stated value of each Liquidating Trust Unit shall be one dollar. To
the extent that the Plan provides for interest to accrue on or with respect to a
Claim or Class of Claims, the holders of such Claims and the corresponding
Liquidating Trust Units shall accrue and, from time to time, shall be issued
additional Liquidating Trust Units on the basis of one Liquidating Trust Unit
for every dollar of interest accrued. Notwithstanding any other provisions of
this Trust Agreement or the Plan, only whole numbers of Liquidating Trust Units
shall be issued and all Claims, and any interest accruing on Claim, shall be
rounded to the nearest dollar.
2.3 Issuance and Transfer by Book Entry.
(a) All Liquidating Trust Units shall be uncertificated and issued
to Trust Holders by book entry only in the register maintained by the
Liquidating Trustee. The Liquidating Trustee shall not be required to send any
notice to Trust Holders upon the issuance of the Liquidating Trust Units or the
updating of any book entries on account of accrued interest on Claims or
otherwise. Notwithstanding the foregoing, upon request made to the Liquidating
Trustee in writing by a Trust Holder, the Liquidating Trustee shall confirm the
amount and class of Liquidating Trust Units then issued in the name of such
Trust Holder.
(b) Subject to the provisions of Section 2.3(c) below, the
Liquidating Trust Units shall be transferable by the Trust Holders upon and
after issuance, however, neither the Liquidating Trustee nor the Trust Advisory
Board will at any time seek to have the Liquidating Trust Units listed on any
exchange or on the over-the-counter market after the Effective Date. The
Liquidating Trustee, with the advice and consent of the Trust Advisory Board,
may at any time establish procedures governing the transfer of Liquidating Trust
Units, including, without limitation, the imposition of fees in such amounts as
may be deemed necessary or appropriate in relation to the costs of maintaining
the register of Trust Holders.
(c) Notwithstanding the foregoing, no assignment, pledge, mortgage,
sale, transfer or other disposition ("Transfer") of any Liquidating Trust Units
shall be permitted until the proposed transferor has delivered to the
Liquidating Trustee at the proposed transferor's sole expense a written opinion
satisfactory to the Liquidating Trustee from legal counsel satisfactory to the
Liquidating Trustee providing, and the Liquidating Trustee has concluded, that
such Transfer would not (i) result in a violation of, or require registration of
the Liquidating Trust Units under, the Securities Act of 1933, as amended, or
any state securities laws; (ii) result in a violation of, or require the
Liquidating Trust to register as an investment company under, the Investment
Company Act of 1940, as amended; (iii) result in a violation of, or require the
Liquidating Trust to make any filings or obtain approvals or qualifications
under, the Trust Indenture Act of 1939, as amended; (iv) result in a violation
of any other law, rule or regulation by the Liquidating Trust or any Trust
Holder; (v) result in the Liquidating Trust being subjected to any additional
regulatory
5
requirements or restrictions; (vi) cause an "ownership change" within the
meaning of section 382 of the IRC within two years following the Effective Date;
(vii) if the Liquidating Trust is deemed to be a partnership for United States
federal income tax purposes, result in the treatment of the Liquidating Trust as
a "publicly traded partnership" within the meaning of section 7704 of the IRC
and the Treasury Regulations promulgated thereunder; or (viii) result or
potentially result in any adverse tax or other consequences to the Liquidating
Trust, the assets held by it, or the Debtors. Any purported Transfer in
violation of the foregoing will not be registered on the register maintained by
the Liquidating Trustee. The Liquidating Trustee shall provide the proposed
transferor with any and all information necessary to enable such proposed
transferor to provide the opinion required by this Section 2.3(c).
ARTICLE 3
PURPOSE, AUTHORITY, LIMITATIONS
3.1 Purpose of the Liquidating Trust. The Liquidating Trust shall be
established for the sole purpose of liquidating the Trust Assets, in accordance
with Treasury Regulation Section 301.7701-4(d), with no objective to continue or
engage in the conduct of a trade or business except to the extent reasonably
necessary to, and consistent with, the liquidating purpose of the Liquidating
Trust. Accordingly, the Liquidating Trustee shall, in an as expeditious and
orderly manner as possible, liquidate and convert to Cash the Trust Assets of
the Liquidating Trust, make timely distributions and not unduly prolong the
duration of the Liquidating Trust. Subject to the limitations set forth in
Section 3.5 below, the liquidation of the Trust Assets may be accomplished
through the sale of Trust Assets (in whole or in combinations), including,
without limitation, the sale of any stock or assets of any Surviving Debtor
Entity or Insurance Company Subsidiary.
3.2 General Authority of Liquidating Trustee. Subject to the provisions of
this Trust Agreement that require the consent, authorization or approval of the
Trust Advisory Board, and the other provisions of this Trust Agreement
(including, without limitation, Section 3.5 hereof) and the Plan, and subject in
all cases to the advice of the Trust Advisory Board, the Liquidating Trustee
shall have the power and authority to do and perform the following:
(a) hold legal title to any and all rights of the Trust Holders of
the Liquidating Trust Units in or arising from the Trust Assets, including but
not limited to, collecting, receiving any and all money and other property
belonging to the Liquidating Trust and the right to vote any claim or interest
in a case under the Bankruptcy Code and receive any distribution therein;
(b) perform the duties, exercise the powers, and assert the rights
of a trustee under Sections 704 and 1106 of the Bankruptcy Code, including,
without limitation, commencing, prosecuting or settling Causes of Action,
enforcing contracts, and asserting claims, defenses, offsets and privileges;
(c) other than the bringing of or becoming involved in any
litigation or judicial proceedings, and subject to Section 3.3(a), generally
protect and enforce the rights to the Trust Assets by any method deemed
appropriate;
(d) avoid and recover any transfers of the Debtors' property as may
be permitted by the Bankruptcy Code or applicable state law, including, without
limitation, those based upon
6
Sections 544, 547, 548, 549, 550 or 553(b) of the Bankruptcy Code and any
transfers identified in the Disclosure Statement;
(e) file, and cause the Debtors' affiliated tax group to file, any
and all tax returns;
(f) file, if necessary, any and all tax and information returns with
respect to the Liquidating Trust as a grantor trust pursuant to Treasury
Regulation Section 1.671-4(a), and pay taxes properly payable by the Liquidating
Trust, if any;
(g) exercise any and all rights afforded a debtor under Section 505
of the Bankruptcy Code to request a prompt determination of the state and
federal tax liabilities of the Debtors, whether such liabilities were incurred
prior to the Petition Date or during the pendency of the Chapter 11 Cases;
(h) subject to the provisions of Sections 3.3(b) and 3.3(h) and
Section 5.7(d), pay all reasonable Trust Expenses and make all other payments
relating to the Trust Assets and expend the Trust Assets as reasonably necessary
to meet contingent liabilities and to maintain the value of the Trust Assets
during liquidation;
(i) obtain insurance coverage with respect to the liabilities and
obligations of the Liquidating Trustee and the members of the Trust Advisory
Board under this Trust Agreement (in the form of an errors and omissions policy,
directors and officers policy, or otherwise);
(j) obtain insurance coverage with respect to real and personal
property which may become Trust Assets, if any;
(k) employ such Persons or direct the employment or continued
employment by the Surviving Debtor Entities and the Insurance Company
Subsidiaries of such employees as the Liquidating Trustee, consistent with the
purposes of the Liquidating Trust, may deem necessary or appropriate to assist
the Liquidating Trustee in carrying out its powers and duties under this Trust
Agreement. Subject to Section 3.3(g), the Liquidating Trustee may commit or
direct the Surviving Debtor Entities and the Insurance Company Subsidiaries to
commit to and pay all such employees reasonable salary and incentive bonuses in
amounts he shall determine to be appropriate and any employee benefits he may
establish pursuant to Section 3.2(l) below;
(l) establish, maintain or cease to provide such employee benefits
(including, without limitation, group health plans) on behalf of the Surviving
Debtor Entities and the Insurance Company Subsidiaries for the benefit of
employees described in Section 3.2(k) above as the Liquidating Trustee,
consistent with the purposes of the Liquidating Trust, may deem necessary or
appropriate;
(m) take any action deemed appropriate, under applicable state law
or the Plan, as the direct or indirect equity owner of the Surviving Debtor
Entities, consistent with the purposes of the Liquidating Trust Agreement;
(n) take any action deemed appropriate, under applicable state law
or the Plan, as the direct or indirect equity owner of the Insurance Company
Subsidiaries, consistent with the
7
purposes of the Liquidating Trust Agreement and any requirements, consents or
approvals, supervisory orders, protective orders or other orders of any State
Department of Insurance;
(o) invest any moneys held as part of the Liquidating Trust in
accordance with the terms of Section 5.5 hereof, limited, however, to such
investments that are consistent with the Liquidating Trust's status as a
liquidating trust within the meaning of Treasury Regulation Section
301.7701-4(d) and any related administrative pronouncements or guidelines; and
(p) seek the examination of any entity under the provisions of
Bankruptcy Rule 2004.
3.3 Powers Subject to Trust Advisory Board Authorization. The Liquidating
Trustee shall have the power and authority to do and perform the following only
with the authorization and approval of the Trust Advisory Board:
(a) compromise, adjust, arbitrate, xxx on or defend, pursue,
prosecute, abandon, or otherwise deal with and settle claims and Causes of
Action in favor of or against the Liquidating Trust as the Liquidating Trustee
shall deem advisable;
(b) determine and satisfy any and all liabilities created, incurred
or assumed by the Liquidating Trust;
(c) assert or waive any privilege or defense on behalf of the
Liquidating Trust or the Debtors;
(d) retain and pay reasonable compensation to such independent law
firms as counsel to the Liquidating Trust, the Surviving Debtor Entities, or the
Insurance Company Subsidiaries as the Liquidating Trustee may select to aid in
the prosecution of any claim or Cause of Action that constitutes or may have an
impact on the Trust Assets, except that nothing contained in this Trust
Agreement shall be construed to require Trust Advisory Board approval of
decisions to retain independent law firms to perform services for any Surviving
Debtor Entity or Insurance Company Subsidiary on matters which (i) arise in the
ordinary course of business of any Surviving Debtor Entity or Insurance Company
Subsidiary and (ii) do not have a material impact on the Trust Assets. A law
firm shall not be disqualified from serving as independent counsel to the
Liquidating Trust solely because of its prior retention by the Debtors;
(e) retain and pay reasonable compensation to independent public
accounting, audit and actuarial firms to perform such reviews and/or audits of
the financial books and records of the Liquidating Trust, the Surviving Debtor
Entities, or the Insurance Company Subsidiaries as may be appropriate, and
prepare and file any tax returns, informational returns, financial statements or
other papers for the Liquidating Trust as may be required, except that nothing
contained in this Trust Agreement shall be construed to require Trust Advisory
Board approval of decisions to retain independent accounting, audit and
actuarial firms to perform services for any Surviving Debtor Entity or Insurance
Company Subsidiary on matters which (i) arise in the ordinary course of business
of any Surviving Debtor Entity or Insurance Company Subsidiary and (ii) do not
have a material impact on the Trust Assets;
8
(f) enter into contracts with, retain and/or secure the services of
such third parties, including, without limitation, HIGI and the HIGI
Subsidiaries and such other professionals as the Liquidating Trustee may deem
necessary or appropriate to assist the Liquidating Trustee in carrying out its
powers and duties under the provisions of and consistent with the purposes of
this Trust Agreement. Upon authorization and approval of the Trust Advisory
Board, the Liquidating Trustee may commit the Liquidating Trust to and, subject
to Section 5.7(d), pay all such Persons or entities reasonable compensation for
services rendered and expenses incurred, as well as commit the Liquidating Trust
to indemnify any such parties in connection with the performance of services;
(g) except as may otherwise be provided for in that certain
Employment Agreement between Highlands Insurance Company and Xxxxxxx X.
Xxxxxxxxxxx dated April 1, 2002 and in the Success Fee Agreement, commit or
direct any Surviving Debtor Entity or Insurance Company Subsidiary to commit to
or pay salary or incentive bonuses to the Liquidating Trustee in any capacity;
(h) pay Trust Expenses during any calendar quarter which are
materially in excess of the aggregate amount of expenses set forth in the
quarterly budget provided to the Trust Advisory Board for such quarter pursuant
to Section 5.7(d), it being understood that payments of amounts which aggregate
in excess of $10,000 over the aggregate budgeted amount of such expenses for any
period shall be considered material for purposes of this Section 3.3(h); and
(i) take or refrain from taking any and all such other actions the
Liquidating Trustee reasonably deems necessary for the continuation, protection
and maximization of the Trust Assets or to carry out the purposes hereof.
3.4 General Power and Authority Over Trust Assets. Except as otherwise set
forth in this Trust Agreement or in the Plan, and subject to the Treasury
Regulations governing liquidating trusts and the retained jurisdiction of the
Court as provided for in the Plan, but without prior or further authorization,
the Liquidating Trustee may control and exercise authority over the Trust Assets
and over the protection, conservation and disposition thereof. No Person dealing
with the Liquidating Trust shall be obligated to inquire into the authority of
the Liquidating Trustee in connection with the protection, conservation or
disposition of the Trust Assets.
3.5 Limitation of Liquidating Trustee's Authority Over Trust Assets.
(a) Notwithstanding anything to the contrary contained in this Trust
Agreement, the Liquidating Trustee shall not and shall not be authorized to
enter into any agreement or consummate any transaction involving the sale of the
stock, assets, operations or business of any Surviving Debtor Entity or
Insurance Company Subsidiary unless he shall first have obtained the affirmative
vote in favor of any such sale of at least eighty percent (80%) of the members
then comprising the Trust Advisory Board.
(b) Notwithstanding anything to the contrary contained in this Trust
Agreement, the Liquidating Trustee shall not and shall not be authorized to
engage in any trade or business, or vary any investment with respect to the
Trust Assets or any proceeds therefrom (other than as provided in Section 5.5,
below). Notwithstanding any other authority granted by Section 3.2, the
Liquidating Trustee is not authorized to engage in any investments or activities
inconsistent with
9
the treatment of the Liquidating Trust as a liquidating trust within the meaning
of Treasury Regulation Section 301.7701-4(d) and any related administrative
pronouncements or guidelines.
(c) Notwithstanding anything to the contrary contained in this Trust
Agreement, the Liquidating Trust shall not, and the Liquidating Trustee shall
not cause the Liquidating Trust to, hold or receive (i) 50% or more of the stock
(in either vote or value) of any entity that is treated as a corporation for
United States federal income tax purposes, other than the Surviving Debtor
Entities and Insurance Company Subsidiaries, (ii) any interest in an entity that
is treated as a partnership for United States federal income tax purposes, (iii)
any stock or securities listed on an exchange or the over-the-counter market or
any other readily marketable asset, or (iv) any operating asset of a going
business, unless such stock, partnership interest, or other asset was obtained
involuntarily or as a matter of practical economic necessity in order to
preserve the value of the Trust Assets. In the latter event, with respect to the
holding or receipt of stock or a partnership interest, the Liquidating Trustee
shall cause such corporation or partnership (and any direct and indirect
subsidiary of such entity) to act consistently with the purposes and provisions
of the Liquidating Trust and this Trust Agreement as if such entity (and any
subsidiary) was a Surviving Debtor Entity, and such entity shall thereafter be
treated as a Surviving Debtor Entity subject to the provisions of Section 1.7
above and for all other purposes of this Trust Agreement.
(d) Notwithstanding anything to the contrary contained in this Trust
Agreement, the Plan or the Confirmation Order, the Liquidating Trustee shall not
and shall not be authorized to take any action that, under the terms of this
Trust Agreement, requires the authorization or approval of the Trust Advisory
Board without such authorization or approval, nor shall the Liquidating Trustee
take any action that, under the terms of this Trust Agreement, requires the
approval of the Bankruptcy Court without obtaining such approval (which
Bankruptcy Court approval shall not supersede the requirement of Trust Advisory
Board authorization or approval). All powers of the Liquidating Trustee shall be
exercised by the Liquidating Trustee in accordance with the provisions and
purposes of this Trust Agreement, the Plan and the Confirmation Order, and the
exercise of such powers shall be subject to the authorization and approval of
the Trust Advisory Board to the extent provided in this Trust Agreement, the
Plan and the Confirmation Order and shall be limited to the extent necessary to
fulfill the purpose of the Liquidating Trust set forth in this Trust Agreement,
the Plan and the Confirmation Order.
ARTICLE 4
DISTRIBUTIONS TO TRUST HOLDERS
4.1 Annual Distributions from the Liquidating Trust. Subject to the Plan,
on each Annual Distribution Date, the Liquidating Trust shall distribute all
Available Cash (including all net Cash income plus all net Cash proceeds from
the liquidation of Trust Assets, including as Cash for this purpose, all
permissible investments described in Section 5.5, below) from the Liquidating
Trust to the Trust Holders (or the relevant Paying Agent, as the case may be),
after making reserve for Disputed Claims as provided in Section 4.7 below,
provided, however, that the Liquidating Trustee shall not be required to
distribute Available Cash on each Annual Distribution Date if the aggregate
Distribution on such date would not exceed $10,000 in value. All Distributions
shall made according to the priorities and in the manner set forth in Sections
4.4 and 4.5.
10
4.2 Quarterly Distributions from the Liquidating Trust. Subject to the
Plan, on each Quarterly Distribution Date, the Liquidating Trust shall
distribute all Available Cash (including all net Cash income plus all net Cash
proceeds from the liquidation of Trust Assets, including as Cash for this
purpose, all permissible investments described in Section 5.5, below) from the
Liquidating Trust to the Trust Holders (or the relevant Paying Agent, as the
case may be), after making reserve for Disputed Claims as provided in Section
4.7 below, provided, however, that the Liquidating Trustee shall not be required
to distribute Available Cash on each Quarterly Distribution Date if the
aggregate Distribution on such date would not exceed $300,000 in value. All
Distributions shall be made according to the priorities and in the manner set
forth in Sections 4.4 and 4.5.
4.3 Distributions from HIGI and the HIGI Subsidiaries. In furtherance of
the foregoing, the Liquidating Trustee shall cause HIGI and HIGI shall cause
each other Surviving Debtor Entity and, to the extent permitted by the
applicable State Departments of Insurance, the Liquidating Trustee and each
Surviving Debtor Entity shall cause each Insurance Company Subsidiary to
distribute to the Liquidating Trust on or before each Distribution Date (or such
earlier time as required to be included in the Distribution by the Liquidating
Trust on such Distribution Date) all of the Cash of HIGI and each such HIGI
Subsidiary, less (i) any amounts required or which may be required for the
payment of taxes, (ii) subject to Trust Advisory Board approval, any other
reasonable and necessary expenses of HIGI and each such HIGI Subsidiary, and
(iii) such other amounts as are determined necessary by the Trust Advisory Board
to cover anticipated future expenses of the Liquidating Trust. Notwithstanding
the foregoing, HIGI and the HIGI Subsidiaries need not, and the Liquidating
Trustee shall not direct HIGI or the HIGI Subsidiaries to, distribute Cash in
amounts which fall below certain minimum thresholds established by the Trust
Advisory Board and the Liquidating Trustee from time to time.
4.4 Priority of Payment of Distributions. The Liquidating Trustee shall
apply all Distributions from the Liquidating Trust in the order and reflecting
the priorities set forth below:
FIRST, to Trust Holders holding Class A Trust Units in respect of
the Bank Group Claims until the Bank Group Claims are paid in full in
accordance with this Trust Agreement and the Plan;
SECOND, to Trust Holders holding Class B Trust Units in respect of
Allowed General Unsecured Claims until all Allowed General Unsecured
Claims are paid in full in full in accordance with this Trust Agreement
and the Plan; and
THIRD, to the Trust Holder holding Class C Trust Units in respect of
the LMI Interest until the Allowed amount of the LMI Interest is paid in
full in full in accordance with this Trust Agreement and the Plan.
Notwithstanding anything to the contrary contained in this Article 4
or the Plan, prior to making any Distribution to Trust Holders, the Liquidating
Trustee may retain such amounts as he may deem reasonably necessary to (i) meet
contingent liabilities and to maintain the value of the Trust Assets of the
Liquidating Trust during liquidation, and (ii) to pay reasonable estimated
administrative expenses.
11
4.5 Manner of Payment of Distributions. All Distributions to Trust Holders
from the Liquidating Trust shall be payable only to Trust Holders of Record and,
as to each such Trust Holder within a Class then entitled to payment, in amounts
equal to such Trust Holders' Ratable Share of the Distribution. All
Distributions to Trust Holders from the Liquidating Trust shall be payable in
Cash by wire transfer, check or such other method as the Liquidating Trustee
deems appropriate under the circumstances. The Liquidating Trustee shall
withhold from the Distribution of any Trust Holder any amount which the
Liquidating Trustee determines to be required by any federal, state, local or
foreign taxing authority or by any other law, regulation, rule, ruling,
directive or other governmental requirement.
4.6 Distributions on Business Days. Any payment or Distribution due on a
day other than a Business Day shall be made, without interest, on the next
Business Day.
4.7 Reserve for Disputed Claims and Interests.
(a) No Cash or other property shall be distributed and no
Liquidating Trust Units shall be issued on account of any Disputed Claim or
Interest, unless and until such Claim or Interest becomes an Allowed Claim or
Interest. On each Distribution Date, the Liquidating Trustee shall reserve and
segregate Cash sufficient to pay holders of Disputed Claims and Interests their
Ratable Share, if any, of the Available Cash distributed to Trust Holders on
such Distribution Date. Any such Cash reserved shall be held and segregated in
sub-accounts of the Liquidating Trust for the benefit of holders of Disputed
Claims and Interests. In the event a Disputed Claim or Interest is ultimately
Allowed, the holder of such previously Disputed Claim or Interest shall be
issued Liquidating Trust Units in accordance with the treatment of Classes of
Claims or Interests set forth herein and in the Plan, and on the next succeeding
Distribution Date, shall also be entitled to such holder's Ratable Share of any
Distributions previously made and held in sub-accounts on account of the Class
of Liquidating Trust Units issued to such holder. Any Cash reserved and held in
sub-accounts for the benefit of a holder of a Disputed Claim or Interest which
is subsequently Disallowed, in whole or in part, shall be distributed as
Available Cash on the next succeeding Distribution Date in accordance with the
provisions of this Liquidating Trust Agreement.
(b) The Liquidating Trustee shall pay, or cause to be paid, out of
the funds held in any sub-account, all taxes imposed by any federal, state and
local taxing authorities, and any foreign taxing authorities, on the income
generated by the funds held in such sub-account. The Liquidating Trustee shall
also file, or cause to be filed any tax or information return related to any
sub-account. All Cash held in such sub-accounts shall be invested in accordance
with Section 5.5 hereof and section 345 of the Bankruptcy Code, as modified by
the relevant Orders of the Court for investments made by the Debtors during the
Chapter 11 Cases. The earnings on such investments shall be held in trust as an
addition to the balance of the sub-accounts for the benefit of the Trust Holders
entitled to such Distributions, and shall not constitute property of the
Liquidating Trust.
4.8 No Distribution in Excess of Allowed Amounts. Notwithstanding anything
to the contrary contained in the Plan or this Trust Agreement, no Trust Holder
shall receive Distributions of a value which exceed the Allowed amount of such
Trust Holder's Claim or Interest as of the Petition Date, plus any accrued
interest provided for in the Plan. The foregoing shall not limit holders of
Disputed Claims from receiving Distributions on account of accrued interest as
provided herein and in the Plan, if such holders' Disputed Claims become
Allowed. In the event that the
12
Allowed Claims and Interests of all Trust Holders shall have been paid in full
in accordance with this Trust Agreement and the Plan, all excess or subsequent
Distributions, and any Unclaimed Distributions which become excess
Distributions, shall be made to the Clerk of the Bankruptcy Court for
distribution to creditors who shall make their claims upon the Clerk in
accordance with Bankruptcy Rule 3011 and section 347(a) of the Bankruptcy Code
(notwithstanding the usual inapplicability of such provisions in Chapter 11
bankruptcy cases). Upon full and final tender of such Distributions to the Clerk
of the Bankruptcy Court, the Liquidating Trustee, the Trust Advisory Board and
each of their respective employees, representatives and agents shall be fully
discharged and released from any claims of any Person to such Distributions.
4.9 De Minimis Distributions. Notwithstanding anything to the contrary
contained in the Plan or this Trust Agreement, the Liquidating Trustee shall not
be required to distribute Cash to the holder of an Allowed Claim or Interest if
the amount of cash to be distributed on account of such Claim is less than $25.
Any holder of an Allowed Claim on account of which the amount of Cash to be
distributed is less than $25 shall have such Claim discharged and shall be
forever barred from asserting any such Claim against the Debtors, the
Liquidating Trust, or their respective property. Any Cash not distributed
pursuant to this provision shall be the property of the Liquidating Trust, free
of any restrictions thereon.
4.10 Setoffs. The Liquidating Trustee may set off against any
Distributions to be made to a Trust Holder hereunder, claims, rights and Causes
of Action of any nature that the Liquidating Trustee may at any time hold
against such Trust Holder; provided, however, that neither the failure to effect
such a setoff nor the allowance of any Claim under or in accordance with the
Plan shall constitute a waiver or release by the Liquidating Trustee of any such
claim, right and Causes of Action that the Liquidating Trustee may at any time
possess against such Trust Holder.
4.11 Disputed Payments. If any dispute arises as to the identity of a
holder of an Allowed Claim who is to receive any Distribution, the Liquidating
Trustee may, in lieu of making such Distribution to such Person, make such
Distribution into an escrow account to be held in trust for the benefit of such
holder and such escrow shall not constitute property of the Liquidating Trust.
Such Distribution shall be held in escrow until the disposition thereof shall be
determined by order of the Bankruptcy Court or other court of competent
jurisdiction or by written agreement among the interested parties to such
dispute.
4.12 Unclaimed Distributions.
(a) Any Unclaimed Distributions, and all interest, dividends, and
other earnings thereon, shall be held and segregated in sub-accounts of the
Liquidating Trust for the benefit of the Trust Holders entitled thereto under
the terms of this Trust Agreement and the Plan. All such Unclaimed Distributions
shall be held for a period of one year following the applicable Distribution
Date and during such period shall be released from the Liquidating Trust and
delivered to Trust Holders entitled thereto only upon presentation of proper
proof by such Trust Holders of such entitlement. At the end of one year
following the relevant Distribution Date of any Unclaimed Distributions, the
Trust Holders theretofore entitled to such Unclaimed Distributions shall cease
to be entitled thereto and the Unclaimed Distributions for each such Trust
Holder shall then be distributed on a Ratable basis to the Trust Holders who
have received and have claimed Distributions and who are otherwise entitled to
further Distributions under Section 4.4, and if no
13
such Trust Holders then exist, such Unclaimed Distributions shall be distributed
as set forth in Section 4.8.
(b) The Liquidating Trustee shall pay, or cause to be paid, out of
the funds held in any sub-account, all taxes imposed by any federal, state and
local taxing authorities, and any foreign taxing authorities, on the income
generated by the funds held in such sub-account. The Liquidating Trustee shall
also file, or cause to be filed any tax or information return related to any
sub-account. All Cash held in such sub-accounts shall be invested in accordance
with Section 5.5 hereof and section 345 of the Bankruptcy Code, as modified by
the relevant Orders of the Court for investments made by the Debtors during the
Chapter 11 Cases. The earnings on such investments shall be held in trust as an
addition to the balance of the sub-accounts for the benefit of the Trust Holders
entitled to such Unclaimed Distributions, and shall not constitute property of
the Liquidating Trust.
4.13 Allocation of Tax Items. Unless otherwise required by applicable tax
law, items of income, gain, loss and deduction recognized or incurred by the
Liquidating Trust and the amount of distributions received by the Liquidating
Trust shall be allocated ratably among the Trust Holders who are entitled to
receive Distributions in the tax year in accordance with the priorities set
forth in Section 4.4 hereof, provided that where more than one Class of Trust
Holders actually receives a Distribution in a tax year, such items of income,
gain, loss and deduction, and such distributions received by the Liquidating
Trust, shall be allocated ratably based upon the amount of each Distribution
made to such Classes of Trust Holders.
ARTICLE 5
DUTIES OF THE LIQUIDATING TRUSTEE
AND TRUST ADVISORY BOARD
5.1 Fiduciary Obligations. The powers of the Liquidating Trustee, each
member of the Trust Advisory Board individually, and of the Trust Advisory Board
as a whole, are exercisable solely in a fiduciary capacity consistent with, and
in furtherance of, the purposes of this Liquidating Trust and not otherwise. The
fiduciary obligations of the Liquidating Trustee and each member of the Trust
Advisory Board shall be to the Trust Holders taken as a whole, and not any one
Class of Trust Holders.
5.2 Duties In General. The Liquidating Trustee and the Trust Advisory
Board shall take such actions consistent with the orderly liquidation of the
Trust Assets as are required by applicable law, including such actions permitted
under Sections 3.2, 3.3, 3.4 and 5.5 hereof and shall, in an as expeditious and
orderly manner as possible, liquidate and convert to Cash the Trust Assets, make
timely Distributions, and not unduly prolong the duration of the Liquidating
Trust. In taking any action required or permitted under this Trust Agreement,
the Liquidating Trustee and the Trust Advisory Board shall exercise their
reasonable business judgment. Subject to the foregoing duties, the Liquidating
Trustee and the Trust Advisory Board shall have the absolute discretion, except
as otherwise expressly set forth herein, to pursue or not to pursue any
transaction, course of conduct, course of dealing, and any and all claims,
rights or Causes of Action, as they determine are in the best interests of the
Trust Holders and consistent with the purposes of the Liquidating Trust and, in
the exercise of such discretion and reasonable business judgment, shall have no
liability for the ultimate outcome of any decision.
14
5.3 Personal Liability. In no event shall the Liquidating Trustee, any
member of the Trust Advisory Board, any holder of a Claim against or Interest in
the Debtors that has designated a member of the Trust Advisory Board, or any of
their respective current or former officers, directors, subsidiaries,
affiliates, members, managers, shareholders, partners, representatives,
employees, attorneys, advisors or agents, or any of their respective successors
or assigns be personally liable for any claim asserted against the Liquidating
Trust, or for any claim asserted against the Liquidating Trustee or such member
or Person on account of such Person's position with respect to the Liquidating
Trust, for any action taken or not taken on behalf of the Liquidating Trust in
good faith, or for any error of judgment made in good faith. Persons dealing
with the Liquidating Trustee shall look only to the Trust Assets to satisfy any
liability incurred on behalf of the Liquidating Trust pursuant to this Trust
Agreement. Notwithstanding the foregoing and the indemnity provided for under
Section 7.2, no provision of this Trust Agreement, however, shall be construed
to relieve the Liquidating Trustee or any member of the Trust Advisory Board
from liability for his own grossly negligent actions, his own grossly negligent
failure to act, or his own fraud or willful misconduct, except that the
Liquidating Trustee and the members of the Trust Advisory Board shall be liable
only for the performance of such duties and obligations as are specifically set
forth in this Trust Agreement.
5.4 Reliance on Certificates and Professionals. Except as otherwise
provided in Section 5.3 above, the Liquidating Trustee and each member of the
Trust Advisory Board may rely, and shall be protected in relying and acting
upon, any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, or other paper or document believed by him to
be genuine and to have been signed or presented by the proper party or parties.
The Liquidating Trustee, each member of the Trust Advisory Board individually,
and of the Trust Advisory Board as a whole may consult with any and all
professionals to be selected by him or it and shall not be liable for any action
taken or omitted to be taken in accordance with the advice of such
professionals.
5.5 Investment and Safekeeping of Trust Assets. Any moneys held at any
time by the Liquidating Trust shall be held by the Liquidating Trust in trust
for the benefit of the Trust Holders until distributed or paid over as herein
provided, but need not be segregated from other Trust Assets, except to the
extent otherwise required herein or by applicable law. The Liquidating Trustee
shall have no liability to Trust Holders for interest earned on or income
produced from Trust Assets or moneys received by him hereunder and held for
distribution or payment to the Trust Holders, except for such interest or income
actually received by the Liquidating Trustee. Investments of any moneys held by
the Liquidating Trustee shall be administered in view of the manner in which
individuals of ordinary prudence, discretion and judgment would act in the
management of their own affairs, provided, however, that the right and power of
the Liquidating Trustee to invest the Trust Assets, the proceeds thereof, or any
income earned by the Liquidating Trust, shall be limited to the right and power
to invest such Trust Assets (pending Distributions in accordance with Article 4)
in demand and time deposits, such as short-term certificates of deposit, in
banks or other savings institutions, or other temporary liquid investments, such
as Treasury bills, and provided further, that the scope of any such permissible
investments shall be limited to include only those investments, or shall be
expanded to include any additional investments, as the case may be, that a
liquidating trust within the meaning of Treasury Regulation Section 301.7701-4
may be permitted to invest in, pursuant to the Treasury Regulations, or any
modification in the IRS guidelines, whether set forth in IRS rulings, other IRS
pronouncements or otherwise. Any
15
investment made as provided for herein must mature prior to the date of the next
scheduled Distribution, but in no event shall such investment have a maturity
date in excess of twelve (12) months from the date of the acquisition of such
investment.
5.6 No Bond. The Liquidating Trustee and the members of the Trust Advisory
Board shall serve without bond. To the extent funds are available, however, the
Liquidating Trustee shall obtain insurance coverage (in the form of an errors
and omissions policy, directors and officers policy, or otherwise) with respect
to the liabilities and obligations of the Liquidating Trustee and the members of
the Trust Advisory Board under this Trust Agreement, it being understood that
such insurance coverage shall constitute a Trust Expense of the highest and
first priority.
5.7 Tax, Financial and Other Required Reporting.
(a) The Liquidating Trustee shall file returns for the Liquidating
Trust as a grantor trust pursuant to Treasury Regulation Section 1.671-4(a) and
comply with all withholding and reporting requirements imposed by any federal,
state, local or foreign taxing authority, including, without limitation, any
requirements imposed with respect to Distributions hereunder and under the Plan.
The Liquidating Trustee shall also file (or cause to be filed) any other
statements, returns, reports or disclosures relating to the Liquidating Trust
that are required by any governmental authority, and all such statements,
returns, reports or disclosures shall be prepared in reasonable detail in
accordance with all applicable laws and, to the extent applicable, in accordance
with generally accepted accounting principles applied consistently throughout
the periods reflected therein and with prior periods except as otherwise
disclosed therein.
(b) The Liquidating Trustee shall provide the Trust Advisory Board
with copies of all quarterly and annual statutory financial statements prepared
by or on behalf of each Insurance Company Subsidiary and filed with the
appropriate State Department of Insurance at or near such times as such
statements are delivered to the Departments, as well as unaudited combined
annual statutory statements for all Insurance Company Subsidiaries. The annual
statutory statements shall be audited by such company's regular independent
accountants to the extent such audit is required by the appropriate State
Departments of Insurance. All statutory statements filed by the Insurance
Company Subsidiaries shall be prepared in accordance with statutory accounting
principles, consistently applied throughout the periods reflected therein and
with prior periods except as otherwise disclosed therein, as the same may be
modified or amended by applicable law, and any and all other requirements of the
State Departments of Insurance.
(c) The Liquidating Trustee shall provide the Trust Advisory Board
with financial statements for each Surviving Debtor Entity on both a quarterly
and annual basis, or at such other intervals as the Trust Advisory Board
determines is necessary and appropriate from time to time. All such financial
statements shall be prepared in reasonable detail and in accordance with
generally accepted accounting principles applied consistently throughout the
periods reflected therein and with prior periods except as otherwise disclosed
therein.
(d) The Liquidating Trustee shall provide to the Trust Advisory
Board, for its approval, budgets and reports of anticipated expenses of the
Liquidating Trust on both a quarterly and annual basis, or at such other
intervals as the Trust Advisory Board determines is necessary and appropriate
from time to time. Quarterly budgets shall be submitted to the Trust Advisory
16
Board at least thirty (30) days prior to the beginning of each calendar quarter
that the Liquidating Trust shall be in existence, or at or before such other
times as the Trust Advisory Board shall, from time to time, determine are
reasonable and appropriate under the circumstances. Each quarterly budget shall
contain, in such detail as required by the Trust Advisory Board, an allocation
of anticipated expenses for the quarter to categories which the Liquidating
Trustee shall reasonably create, including, without limitation, salaries,
expenses and other overhead related to the Liquidating Trust, estimated legal
and other professional fees, estimated income and other taxes owed by the
Liquidating Trust, and the total of all such budgeted expenses. If a member of
the Trust Advisory Board requests clarification or states an objection to a
quarterly budget, the Liquidating Trustee shall provide such supplementary
information as requested or required by an objection to the Trust Advisory Board
in support of the quarterly budget. A quarterly budget shall be deemed approved
by the Trust Advisory Board if a majority of the Trust Advisory Board has
approved the budget by the commencement of the calendar quarter to which it
pertains, provided that the Trust Advisory Board may approve a budget in whole
or in part, or amend or modify a budget, by majority vote of the Trust Advisory
Board prior to commencement of a quarter, in which event the budget as so
modified shall become the budget for the quarter to which such budget pertains.
Within thirty (30) days following the end of each calendar quarter (or within
such other times as the Trust Advisory Board shall, from time to time, determine
are reasonable and appropriate under the circumstances), the Liquidating Trustee
shall provide the Trust Advisory Board with a reconciliation of the actual Trust
Expenses paid or incurred, and the estimated expenses set forth in the quarterly
budget for such quarter.
(e) As used in this Trust Agreement, the term "Trust Expenses" shall
mean all costs, expenses, and obligations incurred on behalf of the Liquidating
Trust or in any manner incidental or related thereto, including those incurred
by the Trust Advisory Board or the Liquidating Trustee in the performance of
their duties hereunder. Trust Expenses shall include, without limitation, (i)
taxes, fees, levies, assessments and other governmental charges imposed on the
Liquidating Trust or in respect of the Trust Assets, (ii) fees, expenses and
other compensation of the Liquidating Trustee, the professionals employed by the
Liquidating Trustee or the Trust Advisory Board pursuant to this Agreement;
(iii) other liabilities assumed by the Liquidating Trust in accordance with
Section 1.3 hereof; and (iv) the cost of any and all services provided to the
Liquidating Trust by the Insurance Company Subsidiaries with the authorization
and approval of the Trust Advisory Board.
(f) The Liquidating Trustee shall provide the Trust Advisory Board
with such other information and reports as the Trust Advisory Board may
reasonably request from time to time, and shall make himself available from time
to time on reasonable notice to report to the Trust Advisory Board regarding the
status of the administration of the Liquidating Trust and the collection,
liquidation and distribution of Trust Assets. Upon reasonable request by the
Trust Advisory Board, the Liquidating Trustee shall promptly prepare, or cause
to be prepared, such statistical data and written and oral reports as are
reasonably necessary to keep the Trust Advisory Board fully apprised of the
condition and status of Trust Assets and any other activities of the Liquidating
Trust hereunder. The Liquidating Trustee shall use reasonable efforts to obtain
such information and records from the Surviving Debtor Entities and Insurance
Company Subsidiaries as the Trust Advisory Board reasonably believes necessary
or desirable to permit the Trust Advisory Board to discharge its duties
hereunder, and shall provide to the Trust Advisory Board and the Trust Holders
such other information and reports as are required by law.
17
5.8 Compliance with Laws. Any and all Distributions of Trust Assets shall
be in compliance with applicable state and federal laws, including, but not
limited to, applicable state and federal securities laws and any state laws
regulating insurance companies and insurance holding companies.
5.9 Books and Records. The Liquidating Trustee shall maintain books and
records relating to the Trust Assets, the income of the Liquidating Trust, all
Distributions, the payment of Trust Expenses, and any liabilities of, or Claims
against or assumed by, the Liquidating Trust in such detail and for such period
of time as may be necessary to make full and proper accounting in respect
thereof from time to time to the Trust Advisory Board and to comply with
applicable provisions of all laws. Such books and records shall be maintained on
a modified cash or other comprehensive basis of accounting necessary to
facilitate compliance with the tax reporting requirements of the Liquidating
Trust. The Trust Advisory Board shall be permitted access and to copy such books
and records upon reasonable request. Trust Holders shall have the right upon
thirty (30) days' prior written notice delivered to the Liquidating Trustee to
inspect such books and records (including financial statements), provided that,
if so requested, such holder shall have entered into a confidentiality agreement
satisfactory in form and substance to the Liquidating Trustee prior to
inspecting such books and records. In addition to the foregoing, the Liquidating
Trustee shall maintain all original documents concerning the Trust Assets,
including all documents received from the Debtors for use by the Liquidating
Trustee and the Trust Advisory Board
5.10 Confidentiality. The Liquidating Trustee and each member of the Trust
Advisory Board shall forever hold in strict confidence and not use for personal
gain any material, non-public information of or pertaining to the Trust Assets,
or the operation of the Liquidating Trust, the Surviving Debtor Entities, the
Insurance Company Subsidiaries, and any other entity to which any of the Trust
Assets may at any time relate. The Liquidating Trustee may require that any
Person at any time serving as a member of the Trust Advisory Board execute and
deliver a confidentiality agreement satisfactory in form and substance to the
Liquidating Trustee.
ARTICLE 6
SUCCESSOR LIQUIDATING TRUSTEE
6.1 Removal. The Liquidating Trustee may be removed only for cause
relating to the breach of his fiduciary obligations under this Trust Agreement
and then only upon the unanimous vote of the remaining members of the Trust
Advisory Board. Any such removal shall become effective on the later to occur of
(i) the date action is taken by the Trust Advisory Board pursuant to this
Section 6.1, or (ii) the appointment of a successor by the Trust Advisory Board
and the acceptance by such successor of such appointment.
6.2 Resignation. The Liquidating Trustee may resign by giving not less
than ninety (90) days prior written notice thereof to the Trust Advisory Board.
Such resignation shall become effective on the later to occur of (i) the day
specified in such notice, or (ii) the appointment of a successor by the Trust
Advisory Board and the acceptance by such successor of such appointment. If a
successor Liquidating Trustee is not appointed or does not accept its
appointment within ninety (90) days following delivery of notice of resignation,
the Liquidating Trustee may petition any court of competent jurisdiction for the
appointment of a successor Liquidating Trustee.
18
6.3 Appointment of Successor upon Removal, Resignation, or Death. If the
Liquidating Trustee is removed pursuant to Section 6.1, resigns pursuant to
Section 6.2, or dies, the Trust Advisory Board shall appoint a successor
Liquidating Trustee. If a successor Liquidating Trustee is not appointed or does
not accept its appointment within ninety (90) days following such action for
removal, or delivery of notice of the resignation or death of the predecessor
Liquidating Trustee, as the case may be, the Trust Advisory Board shall petition
any court of competent jurisdiction for the appointment of a successor
Liquidating Trustee.
6.4 Acceptance of Appointment by Successor Liquidating Trustee. Any
successor Liquidating Trustee appointed pursuant to this Article 6 shall execute
an instrument accepting such appointment as the Liquidating Trustee under this
Trust Agreement and shall file and maintain such acceptance with the books and
records of the Liquidating Trust. Upon acceptance of such appointment as
aforesaid, such successor Liquidating Trustee shall, without any further act,
become vested with all the estates, properties, rights, powers, trusts and
duties of its predecessor in the Liquidating Trust with like effect as if
originally named herein; provided, however, that a removed or resigning
Liquidating Trustee shall, nevertheless, when requested in writing by the
successor Liquidating Trustee, execute and deliver an instrument or instruments
conveying and transferring to such successor Liquidating Trustee under the
Liquidating Trust all the estates, properties, rights, powers, and trusts of
such predecessor Liquidating Trustee.
ARTICLE 7
EXPENSE REIMBURSEMENT, INDEMNITY AND COMPENSATION
7.1 Expense Reimbursement. The Trust Assets shall be subject to the claims
of the Liquidating Trustee and the members of the Trust Advisory Board, and the
Liquidating Trustee shall be entitled to reimburse himself and the members of
the Trust Advisory Board out of any Available Cash in the Liquidating Trust, for
actual out-of-pocket expenses reasonably incurred by such Persons in the
performance of their duties hereunder and which are not otherwise reimbursed or
reimbursable to such Persons from another source.
7.2 Indemnity.
(a) Subject to subsection 7.2(c) below, the Liquidating Trust shall
indemnify any Person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Liquidating Trust), by reason of the fact that such Person, or
a Person of whom he or it is or was the legal representative, is or was at any
time appointed as the Liquidating Trustee or a member of the Trust Advisory
Board, or is or was an officer, director, subsidiary, affiliate, member,
manager, shareholder, partner, representative, employee, attorney, advisor or
agent of the Liquidating Trustee or a member of the Trust Advisory Board,
against any and all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Liquidating Trust, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the Person did not act in good faith and in a
19
manner that he reasonably believed to be in, or not opposed to, the best
interests of the Liquidating Trust, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) Subject to subsection 7.2(c) below, the Liquidating Trust shall
indemnify any Person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by or in the right of the
Liquidating Trust to procure a judgment in its favor, by reason of the fact that
such Person, or a Person of whom he or it is or was the legal representative, is
or was at any time appointed as the Liquidating Trustee or a member of the Trust
Advisory Board, or is or was an officer, director, subsidiary, affiliate,
member, manager, shareholder, partner, representative, employee, attorney,
advisor or agent of the Liquidating Trustee or a member of the Trust Advisory
Board, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Liquidating Trust; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such Person shall have been adjudged to be liable to the Liquidating Trust
unless and only to the extent that a court of competent jurisdiction or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such Person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
(c) Except as ordered by a court, any indemnification under this
Section 7.2 shall be made by the Liquidating Trust only as authorized in the
specific case upon a determination that indemnification of the Person is proper
under the circumstances because such Person has met the applicable standard of
conduct set forth in subsection 7.2(a) or Section 7.2(b), as the case may be
(such Person shall hereinafter be referred to as an "Indemnified Person"). Such
determination shall be made (i) by a majority vote of the members of the Trust
Advisory Board who are not parties to such action, suit or proceeding, or (ii)
if a majority vote of disinterested members of the Trust Advisory Board so
directs, by independent legal counsel in a written opinion. To the extent,
however, that an Indemnified Person has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
(d) For purposes of any determination under subsection 7.2(c) above,
a Person shall be deemed to have acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Liquidating Trust, or, with respect to any criminal action or proceeding, to
have had no reasonable cause to believe his conduct was unlawful, if his action
is based on the records or books of account of the Liquidating Trust or another
enterprise (provided that such records or books of account have in each case
been prepared by Persons whom the Person relying thereon reasonably believes to
be professionally or expertly competent to prepare such records or books of
account), or on information supplied to him by the officers of the Liquidating
Trust or another enterprise in the course of their duties, or on the advice of
legal counsel for the Liquidating Trust or another enterprise, or on information
or records given or reports made to the Liquidating Trust or another enterprise
by an independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Liquidating Trust or another
20
enterprise. The term "another enterprise" as used in this subsection shall mean
HIGI and the HIGI Subsidiaries. The provisions of this subsection 7.2(d) shall
not be deemed to be exclusive or to limit in any way the circumstances in which
an Indemnified Person may be deemed to have met the applicable standard of
conduct set forth in subsection 7.2(a) or 7.2(b), as the case may be.
(e) Notwithstanding any contrary determination in the specific case
under subsection 7.2(c) above, and notwithstanding the absence of any
determination thereunder, any Person identified in this Section 7.2 as a Person
who may be entitled to indemnity may apply to any court of competent
jurisdiction for indemnification to the extent otherwise permissible under
subsections 7.2(a) and 7.2(b). The basis of such indemnification by a court
shall be a determination by such court that indemnification of such Person is
proper under the circumstances because he has met the applicable standards of
conduct set forth in subsections 7.2(a) or 7.2(b), as the case may be. Notice of
any application for indemnification pursuant to this subsection 7.2(e) shall be
given to the Liquidating Trust promptly upon the filing of such application.
(f) The right to indemnification conferred in this Section 7.2 shall
include the right to be paid or reimbursed by the Liquidating Trust for the
reasonable expenses incurred by an Indemnified Person in advance of the final
disposition of any threatened or pending action, suit or proceeding; provided,
however, that the payment of such expenses incurred by any such Person in
advance of the final disposition of a threatened or pending action, suit or
proceeding shall first (i) satisfy the requirements for indemnification under
Section 7.2(c) including, without limitation, that indemnification of the Person
is proper under the circumstances because such Person has met the applicable
standard of conduct set forth in this Section 7.2, and (ii) be authorized in the
manner set forth in Section 7.2(c) and, thereafter, be made only upon delivery
to the Liquidating Trust of (x) a written affirmation by such Person of his good
faith belief that he has met the standard of conduct necessary for
indemnification as an Indemnified Person set forth in this Section 7.2 and (y) a
written undertaking, by or on behalf of such Person, to repay all amounts so
advanced if it shall ultimately be determined that such Person is not entitled
to be indemnified as an Indemnified Person under this Section 7.2 or otherwise.
(g) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Section 7.2 shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, or contract
or pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction as to action in an official capacity, it being understood that
indemnification of, and advancement of expenses to, the Indemnified Persons
shall be made to the fullest extent permitted by law, provided, however, to the
extent Indemnified Persons can be indemnified by virtue of any by-law,
agreement, or contract maintained by any Surviving Debtor Entity, Insurance
Company Subsidiary or other entity, such Indemnified Persons shall first seek
indemnification to the fullest extent possible from such other entity or
entities, as the case may be. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 7.2 shall, unless otherwise
provided when authorized or ratified, continue as to a Person who has ceased to
act in an official capacity giving rise to right of indemnification and shall
inure to the benefit of the heirs, executors and administrators of such Person.
(h) The Liquidating Trust may purchase and maintain insurance on
behalf of any Person who is or was at any time appointed as the Liquidating
Trustee or a member of the Trust
21
Advisory Board, or is or was an officer, director, affiliate, member, manager,
shareholder, partner, representative, employee, attorney, advisor or agent of
the Liquidating Trustee or a member of the Trust Advisory Board, against any
liability asserted against him or it and incurred by him or it in any such
capacity, or arising out of his status as such, whether or not the Liquidating
Trust would have the power or the obligation to indemnify him or it against such
liability under the provisions of this Section 7.2.
7.3 Success Fees. On or after the Effective Date, the Liquidating Trust
shall enter into the Success Fee Agreement with a limited liability company
formed or to be formed by the Liquidating Trustee.
7.4 No Other Compensation. Other than as expressly set forth or described
in this Article 7, the Liquidating Trustee and the Trust Advisory Board shall
serve without compensation
ARTICLE 8
REPORTS TO HOLDERS OF UNITS OF BENEFICIAL INTERESTS
8.1 Reporting of Certain Events. Upon the occurrence of any event which,
in the judgment of the Trust Advisory Board, would have a material adverse
effect upon the Liquidating Trust or the legal rights of the Trust Holders under
this Trust Agreement or the Plan, including, without limitation, a material
adverse impact upon the tax treatment of the Liquidating Trust or the
Liquidating Trust Units, the Liquidating Trustee shall, within a reasonable time
after the later to occur of (i) the occurrence of the event or (ii) the
Liquidating Trustee having obtained an opinion of counsel and/or such other
professionals as necessary to properly and accurately assess the impact of such
event, prepare and distribute a notice regarding the event to all such Trust
Holders negatively affected thereby in such detail as the Liquidating Trustee
shall deem reasonable and appropriate under the circumstances; provided,
however, that, notwithstanding the foregoing, in no event shall it take longer
than sixty (60) days after the occurrence of an event subject to this Section
8.1 to prepare and distribute a notice of such event in accordance with this
Section 8.1.
8.2 Final Report and Accounting. Within six (6) months of making the final
Distribution to Trust Holders under this Trust Agreement, the Liquidating
Trustee shall prepare and distribute notice of such Distribution to all Persons
who are then Trust Holders along with a complete and final accounting of the
liquidation of the Trust Assets setting forth in reasonable detail all
Distributions to and from the Liquidating Trust and any and all Trust Expenses
paid from the Liquidating Trust, including without limitation, any amounts paid
pursuant to Article 7 of this Trust Agreement.
8.3 Other Reporting. From time to time, the Liquidating Trustee may, but
shall not be obligated to, prepare and distribute such reports or notices to
Trust Holders describing the progress of converting Trust Assets to Cash and
making Distributions to Trust Holders or any other material information relating
to the Trust Assets and the administration of the Liquidating Trust that the
Liquidating Trustee deems advisable to report. The Liquidating Trustee may, but
shall not be obligated to, post periodic reports on any web site maintained by
the Liquidating Trustee in lieu of actual notice to Trust Holders hereunder.
Except as provided in Sections 8.1 and 8.2 above or in Section 9.1 below, or as
otherwise required by any State Department of Insurance, nothing in this Trust
Agreement shall require the Liquidating Trustee to file any accounting with or
seek the
22
approval of any Person, administrative agency or court with respect to the
administration of the Liquidating Trust, or as a condition for managing any
payment or Distribution out of the Trust Assets.
ARTICLE 9
TERMINATION AND FINAL DISTRIBUTION
9.1 Termination of Liquidating Trust. The Liquidating Trust will terminate
on the earlier of (a) thirty (30) days after the full and final Distribution of
the Trust Assets or proceeds thereof in accordance with the terms of this Trust
Agreement and the Plan, and (b) the fifth (5th) anniversary of the Effective
Date; provided, however, that within six months of the fifth (5th) anniversary
of the Effective Date, the Court, upon a motion by the Liquidating Trustee or
any party in interest, may extend the term of the Liquidating Trust for an
additional term of not more than five (5) years if it is necessary for the
liquidation of the Trust Assets. Multiple extensions may be obtained so long as
Court approval is obtained within six months of the beginning of each such
extended term. Notwithstanding the foregoing, the Liquidating Trustee shall not
unduly prolong the duration of the Liquidating Trust and shall at all times
endeavor to resolve, settle or otherwise dispose of all property and Claims that
constitute Trust Assets and to effect the full and final Distribution of the
Trust Assets to the Trust Holders in accordance with the terms hereof and the
Plan and, thereafter, terminate the Liquidating Trust as soon as practicable.
9.2 Final Distribution. Prior to and upon termination of the Liquidating
Trust, the Trust Assets will be finally distributed to the holders of
Liquidating Trust Units pursuant to the provisions set forth in Article 4. If
final Distributions are not duly claimed, a Ratable Share of all such Unclaimed
Distributions will be distributed to Trust Holders who have received and have
claimed Distributions and who are otherwise entitled to further Distributions
under Section 4.4. Thereafter, any further Unclaimed Distributions shall be
disposed of in accordance with applicable law.
ARTICLE 10
AMENDMENT AND WAIVER
10.1 Amendment And Waiver. The substantive provisions of this Trust
Agreement may not be amended or waived except upon the consent and approval of
the Trust Advisory Board and pursuant to a Final Order of the Court. Any motion
seeking an amendment to or waiver of any substantive provision of this Trust
Agreement which is filed by the Liquidating Trustee shall be served upon the
Trust Advisory Board and all Trust Holders of Record. Technical amendments to
this Trust Agreement necessary to clarify or to effectuate the terms hereof may
be made by the Liquidating Trustee upon the consent and approval of the Trust
Advisory Board and without the need for Court approval. Notwithstanding anything
contained in this Section 10.1, any amendment or waiver of any provision of this
Trust Agreement, or consent with respect to this Trust Agreement, will require
the consent and approval of the Trust Advisory Board and shall be consistent
with the purpose and intent of the Liquidating Trust to liquidate in an
expeditious but orderly manner the Trust Assets in accordance with Treasury
Regulation 301.7701-4(d) and Section 3.1 hereof.
23
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Intention of Parties to Establish Liquidating Trust. This Trust
Agreement is intended to create a liquidating trust for United States federal
income tax purposes and, to the extent provided by law, shall be governed and
construed in all respects as such a trust and any ambiguity herein shall be
construed consistent with such intent and purpose and, if necessary, this Trust
Agreement may be amended to comply with such federal income tax laws, which
amendments may be made to apply retroactively.
11.2 Preservation of Privilege and Defenses. In connection with the
rights, claims, and Causes of Action that constitute the Trust Assets, any
attorney-client privilege, work-product privilege, or other privilege or
immunity attaching to any documents or communications (whether written or oral)
transferred to the Liquidating Trust shall vest in the Liquidating Trustee and
its representatives, and the Debtors and the Liquidating Trustee are authorized
to take all necessary actions to effectuate the transfer of such privileges and
available defenses.
11.3 Cooperation. The Debtors shall provide, and the Debtors shall cause
the Surviving Debtor Entities and Insurance Company Subsidiaries to provide, the
Liquidating Trustee with copies of such of their books and records as the
Liquidating Trustee shall reasonably require for the purpose of performing its
duties and exercising its powers hereunder. The officers and directors of the
Surviving Debtor Entities and Insurance Company Subsidiaries shall cooperate
with the Liquidating Trustee and shall provide information reasonably requested
by the Liquidating Trustee.
11.4 Laws as to Construction. This Trust Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without giving
effect to rules governing the conflict of laws.
11.5 Severability. If any provision of this Trust Agreement or the
application thereof to any Person or circumstance shall be finally determined by
a court of competent jurisdiction to be invalid or unenforceable to any extent,
the remainder of this Trust Agreement, or the application of such provision to
Persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and such provision of this Trust
Agreement shall be valid and enforced to the fullest extent permitted by law.
11.6 Notices. Any notice or other communication under this Trust Agreement
shall be in writing and shall be given by either (i) hand-delivery, (ii) first
class mail (postage prepaid), (iii) reliable overnight commercial courier
(charges prepaid), or (iv) telecopy or other means of electronic transmission,
if confirmed promptly by any of the methods specified in clauses (i), (ii) and
(iii) of this sentence, to the following addresses::
If to the Debtors:
c/o Highlands Insurance Group, Inc.
0000 Xxxxx Xxxxx
Xxxxxxxxxxxxx, XX 00000-0000
(000) 000-0000
24
Attn: Xxxxxxx X. Xxxxxxxxxxx
with copies to:
Xxxxx Xxxxxx LLP
0000 Xxx Xxxxxxx Xxxxx
Xxxxxxxxxxxx, XX 00000-0000
(000) 000-0000
Attn: Xxxxxxxxxxx X. Xxxx, Esq.
Attorneys for the Debtors
If to the Liquidating Trustee:
c/o Highlands Insurance Group, Inc.
0000 Xxxxx Xxxxx
Xxxxxxxxxxxxx, XX 00000-0000
(000) 000-0000
Attn: Xxxxxxx X. Xxxxxxxxxxx
with a copy to:
Xxxxx Xxxxxx LLP
0000 Xxx Xxxxxxx Xxxxx
Xxxxxxxxxxxx, XX 00000-0000
(000) 000-0000
Attn: Xxxxxxx X. Xxxxxxxxx, Esq.
If to a Trust Holder:
To the name and address set forth on
the registry maintained by the
Liquidating Trustee
Notice given by telecopy or other means of electronic transmission
shall be deemed to have been given and received when sent. Notice by overnight
courier shall be deemed to have been given and received on the date scheduled
for delivery. Notice by mail shall be deemed to have been given and received
three (3) calendar days after the date first deposited in the United States
Mail. Notice by hand delivery shall be deemed to have been given and received
upon delivery. A party may change its address by giving written notice to the
other party as specified herein.
11.7 Headings. The section headings contained in this Trust Agreement are
solely for convenience of reference and shall not affect the meaning or
interpretation of this Trust Agreement or of any term or provision hereof.
25
11.8 Integration. This Trust Agreement, the Plan and the Success Fee
Agreement (as each may be amended or modified by the Confirmation Order)
constitute the entire agreement of the parties with respect to the subject
matter hereof and thereof and supersede all oral negotiations and prior writings
with respect to the subject matter hereof and thereof.
11.9 Relationship to the Plan. The principal purpose of this Trust
Agreement is to aid in the implementation of the Plan and therefore this Trust
Agreement incorporates the provisions of the Plan. To that end, the Liquidating
Trustee shall have full power and authority to take any action consistent with
the purpose and provisions of the Plan, and to seek any orders from the
Bankruptcy Court in furtherance of implementation of the Plan and this Trust
Agreement. If any provisions of this Trust Agreement are found to be
inconsistent with the provisions of the Plan, the provisions of this Trust
Agreement shall control.
[SIGNATURES ON NEXT PAGE]
26
IN WITNESS WHEREOF, the parties hereto have either executed and
acknowledged this Trust Agreement, or caused it to be executed and acknowledged
on their behalf by their duly authorized officers all as of the date first above
written.
HIGHLANDS INSURANCE GROUP, INC.,
Debtor
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
HIGHLANDS HOLDING COMPANY, INC.,
Debtor
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
HIGHLANDS CLAIMS AND SAFETY SERVICES, INC.,
Debtor
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
HIGHLANDS SERVICES CORPORATION,
Debtor
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
27
AMERICAN RELIANCE, INC., Debtor
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
NORTHWESTERN NATIONAL HOLDING
COMPANY, INC., Debtor
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
XXXXXXX X. XXXXXXXXXXX, Liquidating
Trustee
--------------------------------
28
