Document:

Exhibit 4.20

THE COMPANIES LAW (2011 REVISION)

OF THE CAYMAN ISLANDS

Company Limited by Shares

AMENDED AND RESTATED

ARTICLES OF ASSOCIATION

OF

XLIT LTD.

(Adopted by Special Resolution dated 8 November
2011)

	
  

 	
  

 	
  

 
	
 1.

 	
 In these Articles, Table A in the Schedule to the Statute does not
 apply and, unless there be something in the subject or context inconsistent
 therewith, 

 
	
  

 	
  

 	
  

 
	
  

 	
 “Articles” means these Articles as originally framed or as from time
 to time altered by Special Resolution. 

 
	
  

 	
  

 	
  

 
	
  

 	
 “The Auditors” means the persons for the time being performing the
 duties of auditors of the Company. 

 
	
  

 	
  

 	
  

 
	
  

 	
 “The Company” means the above-named Company. 

 
	
  

 	
  

 	
  

 
	
  

 	
 “Debenture” means debenture stock, mortgages, bonds and any other such
 securities of the Company, whether constituting a charge on the assets of the
 Company or not. 

 
	
  

 	
  

 	
  

 
	
  

 	
 “The Directors” means the directors for the time being of the Company.
 

 
	
  

 	
  

 	
  

 
	
  

 	
 “Dividend” includes bonus. 

 
	
  

 	
  

 	
  

 
	
  

 	
 “Electronic Record” has the same meaning as in the Electronic
 Transactions Law.

 
	
  

 	
  

 	
  

 
	
  

 	
 “Electronic Transactions Law” means the Electronic Transactions Law
 (2003 Revision) of the Cayman Islands.

 
	
  

 	
  

 	
  

 
	
  

 	
 “Exchange Act” means the Securities Exchange Act of 1934, as amended,
 of the United States of America.

 
	
  

 	
  

 	
  

 
	
  

 	
 “Member” shall bear the meaning ascribed to it in Section 35 of the
 Statute. 

 
	
  

 	
  

 	
  

 
	
  

 	
 “Month” means calendar month. 

 

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 “Paid-up” means paid-up and/or credited as paid-up. 

 
	
  

 	
  

 	
  

 
	
  

 	
 “The Registered Office” means the registered office for the time being
 of the Company. 

 
	
  

 	
  

 	
  

 
	
  

 	
 “Seal” means the common seal of the Company and includes every
 official seal. 

 
	
  

 	
  

 	
  

 
	
  

 	
 “Secretary” includes an Assistant Secretary and any person appointed
 to perform the duties of Secretary of the Company. 

 
	
  

 	
  

 	
  

 
	
  

 	
 “Special Resolution” has the same meaning as in the Statute. 

 
	
  

 	
  

 	
  

 
	
  

 	
 “Statute” means the Companies Law of the Cayman Islands, as amended,
 and every statutory modification or re-enactment thereof for the time being
 in force. 

 
	
  

 	
  

 	
  

 
	
  

 	
 “Written” and “In Writing” include all modes of representing or
 reproducing words in visible form, including in the form of an Electronic
 Record. 

 
	
  

 	
  

 	
  

 
	
  

 	
 Words importing the singular number only include the plural number and
 vice-versa. 

 
	
  

 	
  

 	
  

 
	
  

 	
 Words importing the masculine gender only include the feminine gender.
 

 
	
  

 	
  

 	
  

 
	
  

 	
 Words importing persons only include corporations.

 
	
  

 	
  

 	
  

 
	
  

 	
 Sections 8 and 19(3) of the Electronic Transactions Law shall not apply. 

 
	
  

 	
  

 	
  

 
	
 CERTIFICATES FOR SHARES

 
	
  

 	
  

 	
  

 
	
 2.

 	
 Certificates representing shares of the Company shall be in such form
 and may bear such legends (reflecting the terms of issue of the shares
 thereby represented, or any of these Articles or other relevant matters), as
 shall be determined by the Directors. Such certificates shall be under seal
 signed by a Director and countersigned by the Secretary or another Director
 or other authorised person. All certificates for shares shall be
 consecutively numbered or otherwise identified and shall specify the shares
 to which they relate. 

 
	
  

 	
  

 	
  

 
	
 3.

 	
 [Not used]. 

 
	
  

 	
  

 	
  

 
	
 4.

 	
 The Directors may authorise certificates to be issued with the seal
 and authorised signatures affixed by some method or system of electronic
 process. 

 
	
  

 	
  

 	
  

 
	
 5.

 	
 Notwithstanding Article 3 of these Articles, if a share
 certificate be defaced, lost or destroyed, it may be renewed on such terms
 (if any) as to evidence and indemnity and the payment of the expenses
 incurred by the Company in investigating evidence, as the Directors may
 prescribe. 

 
	
  

 	
  

 	
  

 
	
 SHARE CAPITAL; ISSUE OF SHARES

 
	
  

 	
  

 	
  

 
	
 6.

 	
 (a)

 	
 [Not used].

 

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 (b)

 	
 The Directors may allot, issue or grant shares, options, warrants or
 other convertible or exchangeable securities over or with respect to, or
 otherwise dispose of, shares of the Company at such times and on such terms
 as they think proper. Without prejudice to any special rights previously
 conferred on the holders of existing shares, any share may be issued with
 such preferred, deferred or other special rights, terms or conditions, or
 such restrictions, whether in regard to dividends, voting, return of share
 capital, exchange for other classes of shares, exchangeability for other
 securities or otherwise, as the Directors may from time to time determine. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 All shares shall be non-assessable and no Member shall be liable to
 make any additional payment to the Company in respect thereof beyond the
 initial consideration agreed and paid to the Company at or before the time of
 issue. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 Subject to the provisions of the Statute, any issued and outstanding
 shares may be purchased or redeemed by the Company out of profits or from the
 proceeds of a fresh issue of shares or out of capital or the share premium
 account, in such circumstances and on such terms as shall be agreed by the
 Directors and the holder thereof.

 
	
  

 	
  

 	
  

 
	
 7.

 	
 The Company shall maintain a register of its Members in which the name
 and address of the person to whom the shares represented thereby are issued,
 with the number of shares and date of issue, shall be entered. Every person
 whose name is entered as a Member in the register of Members shall be
 entitled with payment to receive within two months after allotment or
 lodgement of transfer (or within such other period as the conditions of issue
 shall provide) one certificate for all his shares or several certificates
 each for one or more of his shares upon payment of US$0.50 or such lesser sum
 for every certificate after the first as the Directors shall from time to
 time determine provided that in respect of a share or shares held jointly by
 several persons the Company shall not be bound to issue more than one
 certificate and delivery of a certificate for a share to one of the several
 joint holders shall be sufficient delivery to all such holders. All
 certificates surrendered to the Company for transfer shall be cancelled and
 no new certificate shall be issued until the former certificate for a like
 number of shares shall have been surrendered and cancelled

 
	
  

 	
  

 	
  

 
	
 TRANSFER OF SHARES

 
	
  

 	
  

 	
  

 
	
 8.

 	
 The instrument of transfer of any share shall be in writing and shall
 be executed by or on behalf of the transferor; and the transferor shall be
 deemed to remain the holder of a share until the name of the transferee is
 entered in the register in respect thereof. 

 
	
  

 	
  

 	
  

 
	
 9.

 	
 [Not used].

 
	
  

 	
  

 	
  

 
	
 10.

 	
 The Directors shall have an absolute discretion to decline to register
 any transfer of shares without assigning any reason therefor. 

 
	
  

 	
  

 	
  

 
	
 11.

 	
 The registration of transfers may be suspended at such time and for
 such periods as the Directors may from time to time determine, provided
 always that such registration shall not 

 

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 be suspended for more than 45
 days in any year except as may be required by applicable law.

 
	
  

 	
  

 
	
 12.

 	
 [Not used].

 
	
  

 	
  

 	
  

 
	
 VARIATION OF RIGHTS OF SHARES

 
	
  

 	
  

 	
  

 
	
 13.

 	
 (a)

 	
 If at any time the share capital is divided into different classes or
 series of shares, the rights attached to any class or series (unless
 otherwise provided by the terms of issue of the shares of that class or
 series) may be varied by the holder(s) of issued shares of that class or
 series by Special Resolution at a separate meeting of the holders of shares
 of such class or series. The provisions of these Articles relating to general
 meetings and the provisions of Article 41 shall apply, mutatis mutandis, to every
 such separate general meeting, except that the necessary quorum shall be any
 one or more persons present in person or by proxy holding not less than fifty
 percent (50%) of the issued shares of the class. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 The rights conferred upon the holders of the shares of any class
 issued with preferred or other rights shall not, unless otherwise expressly
 provided by the terms of issue of the shares of that class, be deemed to be
 varied by the creation or issue of further shares ranking pari passu
 therewith. 

 
	
  

 	
  

 	
  

 
	
 14.

 	
 [Not used]. 

 
	
  

 	
  

 	
  

 
	
 NON-RECOGNITION OF TRUSTS

 
	
  

 	
  

 	
  

 
	
 15.

 	
 No person shall be recognised by the Company as holding any share upon
 any trust and the Company shall not be bound by or be compelled in any way to
 recognise (even when having notice thereof) any equitable, contingent,
 future, or partial interest in any share, or any interest in any fractional
 part of a share, or (except only as is otherwise provided by these Articles
 or the Statute) any other rights in respect of any share except an absolute
 right to the entirety thereof in the registered holder, but the Company may,
 in accordance with the Statute, issue fractions of shares. 

 
	
  

 	
  

 	
  

 
	
 LIEN ON SHARES

 
	
  

 	
  

 	
  

 
	
 16.

 	
 The Company shall have a first and paramount lien and charge on all
 shares registered in the name of a Member (whether solely or jointly with
 others) for all debts, liabilities or engagements to or with the Company
 (whether presently payable or not) by such Member or his estate, either
 (alone or jointly with any other person, whether a Member or not, but the
 Directors may at any time declare any share to be wholly or in part exempt
 from the provisions of this Article. The registration of a transfer of any
 such share shall operate as a waiver of the Company’s lien (if any) thereon.
 The Company’s lien (if any) on a share shall extend to all dividends or other
 monies payable in respect thereof. 

 
	
  

 	
  

 	
  

 
	
 17.

 	
 The Company may sell, in such manner as the Directors think fit, any
 shares on which the Company has a lien, but no sale shall be made unless a
 sum in respect of which the lien 

 

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 exists is presently payable, nor until the expiration of fourteen days
 after a notice in writing stating and demanding payment of such part of the
 amount in respect of which the lien exists as is presently payable, has been
 given to the registered holder or holders for the time being of the share, or
 the person, of which the Company has notice, entitled thereto by reason of
 his death or bankruptcy.

 
	
  

 	
  

 
	
 18.

 	
 To give effect to any such sale, the Directors may authorise some
 person to transfer the shares sold to the purchaser thereof. The purchaser
 shall be registered as the holder of the shares comprised in any such
 transfer, and he shall not be bound to see to the application of the purchase
 money, nor shall his title to the shares be affected by any irregularity or
 invalidity in the proceedings in reference to the sale. 

 
	
  

 	
  

 	
  

 
	
 19.

 	
 The proceeds of such sale shall be received by the Company and applied
 in payment of such part of the amount in respect of which the lien exists as
 is presently payable and the residue, if any, shall (subject to a like lien
 for sums not presently payable as existed upon the shares before the sale) be
 paid to the person entitled to the shares at the date of the sale. 

 
	
  

 	
  

 	
  

 
	
 20.

 	
 [Not used]. 

 
	
  

 	
  

 	
  

 
	
 TRANSMISSION OF SHARES

 
	
  

 	
  

 	
  

 
	
 21.

 	
 [Not used]. 

 
	
  

 	
  

 	
  

 
	
 22.

 	
 (a)

 	
 Any person becoming entitled to a share in consequence of the
 bankruptcy of a Member (or in any other way than by transfer) may, upon such
 evidence being produced as may from time to time be required by the Directors
 and subject as hereinafter provided, elect either to be registered himself as
 holder of the share or to make such transfer of the share to such other
 person nominated by him as the bankrupt person could have made and to have
 such person registered as the transferee thereof, but the Directors shall, in
 either case, have the same right to decline or suspend registration as they
 would have had in the case of a transfer of the share by that Member before
 its bankruptcy. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 If the person so becoming entitled shall elect to be registered
 himself as holder, he shall deliver or send to the Company a notice in
 writing signed by him stating that he so elects. 

 
	
  

 	
  

 	
  

 
	
 23.

 	
 A person becoming entitled to a share by reason of the bankruptcy of
 the holder (or in any case other than by transfer) shall be entitled to the
 same dividends and other advantages to which he would be entitled if he were
 the registered holder of the share, except that he shall not, before being
 registered as a Member in respect of the share, be entitled in respect of it
 to exercise any right conferred by Membership in relation to meetings of the
 Company, PROVIDED HOWEVER that the Directors may at any time give notice
 requiring any such person to elect either to be registered himself or to
 transfer the share and if the notice is not complied with within ninety days,
 the Directors may thereafter withhold payment of all dividends, bonuses or
 other monies payable in respect of the shares until the requirements of the
 notice have been complied with. 

 

– 6 –

AMENDMENT OF MEMORANDUM OF ASSOCIATION, CHANGE OF

LOCATION OF REGISTERED OFFICE & ALTERATION OF CAPITAL

	
  

 	
  

 	
  

 	
  

 
	
 24.

 	
 (a)

 	
 Subject to and in so far as permitted by the provisions of the
 Statute, the Company may from time to time by Special Resolution alter or
 amend its Memorandum of Association and may, without restricting the
 generality of the foregoing: 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (i)

 	
 increase the share capital by such sum to be divided into shares of
 such amount or without nominal or par value as the resolution shall prescribe
 and with such rights, priorities and privileges annexed thereto, as the
 Company in general meeting may determine. 

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (ii)

 	
 consolidate and divide all or any of its share capital into shares of
 larger amount than its existing shares;

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (iii)

 	
 by subdivision of its existing shares or any of them divide the whole
 or any part of its share capital into shares of smaller amount than is fixed
 by the Memorandum of Association or into shares without nominal or par value.
 

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (iv)

 	
 cancel any shares which at the date of the passing of the resolution
 have not been taken or agreed to be taken by any person. 

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 All new shares created hereunder shall be subject to the same
 provisions with reference to liens, transfer, transmission and otherwise as
 the shares in the original share capital.

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 Subject to the provisions of the Statute the Company may by Special
 Resolution reduce its share capital, any capital redemption reserve fund, or
 any share premium account. 

 
	
  

 	
  

 	
  

 
	
 25.

 	
 Subject to the provisions of
 the Statute the Company may by Special Resolution change its name or alter
 its objects.

 
	
  

 	
  

 
	
 26.

 	
 Subject to the provisions of
 the Statute the Company may by resolution of the Directors change the
 location of its registered office. 

 
	
  

 	
  

 
	
 CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE

 
	
  

 
	
 27.

 	
 For the purpose of determining Members entitled to notice of or to
 vote at any meeting of Members or any adjournment thereof, or Members
 entitled to receive payment of any dividend, or in order to make a
 determination of Members for any other proper purpose, the Directors of the
 Company may provide that the register of Members shall be closed for
 transfers for a stated period but not to exceed in any case 40 days. If the
 register of Members shall be so closed for the purpose of determining Members
 entitled to notice of or to vote at a meeting of Members such register shall
 be so closed for at least ten days immediately preceding such meeting and the
 record date for such determination shall be the date of the closure of the
 register of Members. 

 

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 28.

 	
 In lieu of or apart from closing the register of Members, the
 Directors may fix in advance a date as the record date for any such
 determination of Members entitled to notice of or to vote at a meeting of the
 Members and for the purpose of determining the Members entitled to receive
 payment of any dividend. For the purpose of determining the Members entitled
 to receive payment of any dividend, the Directors may, at or within 90 days
 prior to the date of declaration of such dividend fix a subsequent date no
 later than the date of declaration as the record date for such determination.
 

 
	
  

 	
  

 
	
 29.

 	
 If the register of Members is not so closed and no record date is
 fixed for the determination of Members entitled to notice of or to vote at a
 meeting of Members or Members entitled to receive payment of a dividend, the
 date on which notice of the meeting is mailed or the date on which the
 resolution of the Directors declaring such dividend is adopted, as the case
 may be, shall be the record date for such determination of Members. When a
 determination of Members entitled to vote at any meeting of Members has been
 made as provided in this section, such determination shall apply to any
 adjournment thereof. 

 
	
  

 	
  

 
	
 GENERAL MEETING

 
	
  

 
	
 30.

 	
 (a)

 	
 The Company shall in each year of its existence hold a general meeting
 as its Annual General Meeting and shall specify the meeting as such in the
 notices calling it. The Annual General Meeting shall be held at such time and
 place as the Directors shall appoint. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 At these meetings the financial statements of the Company and the reports
 of the Directors and Auditors shall be presented and the Directors and
 Auditors for the ensuing year shall be elected. 

 
	
  

 	
  

 	
  

 
	
 31.

 	
 (a)

 	
 The Directors may whenever they think fit, and they shall on the
 requisition of Members of the Company holding at the date of the deposit of
 the requisition not less than fifteen percent (15%) of the voting power of
 the issued shares of the Company which at the date of the deposit carry the
 right of voting at general meetings of the Company, proceed to convene a
 general meeting of the Company. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 The requisition must state the objects of the meeting and must be
 signed by the requisitionists and deposited at the Registered Office of the
 Company and may consist of several documents in like form each signed by one
 or more requisitionists.

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 If the Directors do not within 21 days from the date of the deposit of
 the requisition duly proceed to convene a general meeting, the
 requisitionists, or any of them representing more than one-half of the total
 voting rights of all of them, may themselves convene a general meeting, but
 any meeting so convened shall not be held after the expiration of three
 months after the expiration of the said 21 days. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 A general meeting convened as aforesaid by requisitionists shall be
 convened in the same manner as nearly as possible as that in which general
 meetings are to be convened by Directors. 

 

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 (e)

 	
 If at any such general meeting a resolution requiring confirmation at
 another meeting is passed, the Directors shall forthwith convene a further
 general meeting to be held not less than ten days nor later than one month
 after the passing of the first resolution for the purpose of considering the
 resolution and if the Directors do not give notice of so convening such further
 general meeting prior to the date of the passing of the first resolution the
 requisitionists or any of them representing more than one-half of the total
 voting rights of all the requisitionists may themselves give notice and
 convene the general meeting. 

 
	
  

 	
  

 	
  

 
	
 NOTICE OF GENERAL MEETING

 
	
  

 
	
 32.

 	
 At least 30 days’ notice shall be given of an Annual General Meeting
 or any other general meeting. Every notice shall be exclusive of the day on
 which it is given or deemed to be given and of the day for which it is given
 and shall specify the place, the day and the hour of the meeting and the
 general nature of the business and shall be given in the manner hereinafter
 mentioned or in such other manner if any as may be prescribed by the Company
 provided that a general meeting of the Company shall, whether or not the
 notice specified in this regulation has been given, be deemed to have been
 duly called if it is so agreed by all the Members entitled to attend and vote
 thereat or their proxies. 

 
	
  

 	
  

 
	
 33.

 	
 The accidental omission to give notice of a general meeting to, or the
 non-receipt of notice of a meeting by any person entitled to receive notice
 shall not invalidate the proceedings of that meeting. 

 
	
  

 	
  

 
	
 PROCEEDINGS AT GENERAL MEETINGS

 
	
  

 
	
 34.

 	
 No business shall be transacted at any general meeting unless a quorum
 of Members is present at the time when the meeting proceeds to business. One
 or more Members present in person or by proxy holding at least fifty percent
 (50%) of the voting power of the issued shares of the Company for the time
 being shall be a quorum provided however that no quorum shall exist for the
 purpose of considering or passing any Special Resolution unless the Member or
 Members present in person or by proxy shall hold at least sixty-six and
 two-thirds percent (66- 2/3%) of the voting power of the issued shares for
 the time being. 

 
	
  

 	
  

 
	
 35.

 	
 Subject and without prejudice to any provisions of the Statute, a
 resolution in writing (in one or more counterparts) signed by all Members for
 the time being entitled to receive notice of and to attend and vote at
 general meetings (or being corporations by their duly authorised
 representatives) shall be as valid and effective as if the same had been
 passed at a general meeting of the Company duly convened and held. 

 
	
  

 	
  

 
	
 36.

 	
 If within one hour after the time appointed for the meeting a quorum
 is not present, the meeting shall be dissolved. 

 
	
  

 	
  

 
	
 37.

 	
 The Chairman, if any, of the Board of Directors shall preside as
 Chairman at every general meeting of the Company, or if there is no such
 Chairman, or if he shall not be present within thirty minutes after the time
 appointed for the holding of the meeting, or is unwilling to act, the
 Directors present shall elect one of their number to be Chairman of the
 meeting. 

 

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 38.

 	
 If at any general meeting no Director is willing to act as Chairman or
 if no Director is present within thirty minutes after the time appointed for
 holding the meeting, the Members present shall choose one of their number to
 be Chairman of the meeting. 

 
	
  

 	
  

 
	
 39.

 	
 The Chairman may, with the consent of any general meeting duly
 constituted hereunder, and shall if so directed by the meeting, adjourn the
 meeting from time to time and from place to place, but no business shall be
 transacted at any adjourned meeting other than the business left unfinished
 at the meeting from which the adjournment took place. When a general meeting
 is adjourned for thirty days or more, notice of the adjourned meeting shall
 be given as in the case of an original meeting; save as aforesaid it shall
 not be necessary to give any notice of an adjournment or of the business to
 be transacted at an adjourned general meeting. 

 
	
  

 	
  

 
	
 40.

 	
 At any General Meeting a resolution put to the vote at the meeting
 shall be decided on a poll taken in such manner as the Chairman directs. 

 
	
  

 	
  

 
	
 VOTES OF MEMBERS

 
	
  

 
	
 41.

 	
 (a)

 	
 Every Member of record owning shares conferring the right to vote
 present in person or by proxy shall have one vote, or such other number of
 votes as may be specified in the terms of the issue and rights and privileges
 attaching to such shares or in these Articles, for each such share registered
 in such Member’s name in the register, provided that if and so long as the
 votes conferred by the Controlled Shares of any person constitute ten percent
 (10%) or more of the votes conferred by the issued shares of the Company,
 each issued share comprised in such Controlled Shares shall confer only a
 fraction of a vote that would otherwise be applicable according to the
 following formula: 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 [(T divided by 10) - 1] divided
 by C. 

 
	
  

 	
  

 
	
  

 	
  

 	
 Where: “T” is the aggregate number of votes conferred by all the
 issued shares of the Company; and “C” is the number of votes conferred by the
 Controlled Shares of such person.

 
	
  

 	
  

 
	
  

 	
  

 	
 “Controlled Shares” in
 reference to any person means: 

 
	
  

 	
  

 
	
  

 	
  

 	
 (i)

 	
 all shares of the Company directly, indirectly or constructively owned
 by such person within the meaning of Section 958 of the Internal Revenue Code
 of 1986, as amended, of the United States of America; and 

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (ii)

 	
 all shares of the Company directly, indirectly or constructively owned
 by any person or “group” of persons within the meaning of Section
 13(d)(3) of the Exchange Act and the rules and regulations promulgated
 thereunder. 

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 For the purposes of this Article, “person” shall mean any individual,
 firm, partnership, corporation, association, or other entity, or any “group”
 of persons 

 

– 10 –

	
  

 	
  

 	
  

 
	
  

 	
  

 	
 within the meaning of Section
 13(d)(3) of the Exchange Act and the rules and regulations
 thereunder.

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 Any public shares acquired by J.P. Morgan Securities Inc. in the
 course of its maintaining a market in the public shares shall have no voting
 rights for so long as J.P. Morgan Securities Inc. or any of its affiliates
 beneficially owns such shares within the meaning of Section 13(d) of the
 Exchange Act; provided that upon any disposition thereof to any other person
 such shares shall be entitled to the voting rights otherwise provided by the
 Statute and these Articles. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 If, as a result of giving effect to the foregoing provisions of
 Article 41 or otherwise, the votes conferred by the Controlled Shares of
 any person would otherwise represent more than 10% of the votes conferred by
 all the issued shares of the Company, the votes conferred by the Controlled Shares
 of such person shall be reduced in accordance with the foregoing provisions
 of Article 41. Such process shall be repeated until the votes conferred by
 the Controlled Shares of each person represent no more than 10% of the votes
 conferred by all the issued shares of the Company. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 Notwithstanding the foregoing Article 41, after having applied
 the provisions thereof as best as they consider reasonably practicable, the
 Directors may make such final adjustments to the aggregate number of votes conferred
 by the Controlled Shares of any person that they consider fair and reasonable
 in all the circumstances to ensure that such votes represent less than 10% of
 the aggregate voting power of the votes conferred by all the issued shares of
 the Company. 

 
	
  

 	
  

 	
  

 
	
 42.

 	
 [Not used].

 
	
  

 	
  

 
	
 43.

 	
 A Member of unsound mind, or in respect of whom an order has been made
 by any court, having jurisdiction in lunacy, may vote, whether on a show of
 hands or on a poll, by his committee, receiver, curator bonis, or other
 person in the nature of a committee, receiver or curator bonis appointed by
 that court, and any such committee, receiver, curator bonis or other persons
 may vote by proxy. 

 
	
  

 	
  

 
	
 44.

 	
 No Member shall be entitled to vote at any general meeting unless he
 is registered as a shareholder of the Company on the record date for such
 meeting. 

 
	
  

 	
  

 
	
 45.

 	
 No objection shall be raised to the qualification of any voter except
 at the general meeting or adjourned general meeting at which the vote
 objected to is given or tendered and every vote not disallowed at such
 general meeting shall be valid for all purposes. Any such objection made in
 due time shall be referred to the Chairman of the general meeting whose
 decision shall be final and conclusive. Notwithstanding the foregoing, however,
 the Chairman of the general meeting may, in his discretion, whether or not an
 objection has been raised, and if the Chairman considers that such action is
 necessary to determine accurately the vote count, defer until after the
 conclusion of the general meeting a decision as to the proper application of
 Article 41 to any vote at such meeting. If the decision has been so
 deferred, then the Chairman of the general meeting or, failing such decision
 within 

 

– 11 –

	
  

 	
  

 
	
  

 	
 ninety (90) days of the general meeting, the Board of Directors, shall
 make such decision and such decision shall be final and conclusive.

 
	
  

 	
  

 
	
 46.

 	
 Votes may be given either
 personally or by proxy. 

 
	
  

 	
  

 
	
 47.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 48.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 49.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 50.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 51.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 DIRECTORS

 
	
  

 
	
 52.

 	
 There shall be a Board of Directors consisting of not less than three
 or more than 24 persons, subject to the power of the Company by ordinary
 resolution to increase or reduce the limits in the number of Directors. 

 
	
  

 	
  

 
	
 53.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 54.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 55.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 56.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 57.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 58.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 59.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 60.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 61.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 POWERS AND DUTIES OF DIRECTORS

 
	
  

 
	
 62.

 	
 The business of the Company shall be managed by the Directors, who may
 pay all expenses incurred in promoting, registering and setting up the
 Company, and may exercise all such powers of the Company as are not, from
 time to time by the Statute, or by these Articles, or such regulations, being
 not inconsistent with the aforesaid, as may be prescribed by the Company in
 general meeting, required to be exercised by the Company in general meeting.
 No regulations made by the Company in general meeting shall invalidate any
 prior act of the Directors which would have been valid if that regulation had
 not been made. 

 

– 12 –

	
  

 	
  

 	
  

 
	
 63.

 	
 The Directors may from time to time and at any time by power of
 attorney or otherwise appoint any company, firm, person or body of persons,
 whether nominated directly or indirectly by the Directors, to be the attorney
 or authorised signatory of the Company for such purpose and with such powers,
 authorities and discretions (not exceeding those vested in or exercisable by
 the Directors under these Articles) and for such period and subject to such
 conditions as they may think fit, and any such powers of attorney or other
 appointment may contain such provisions for the protection and convenience of
 persons dealing with any such attorneys or authorised signatories as the Directors
 may think fit and may also authorise any such attorney or authorised signatory to
 delegate all or any of the powers, authorities and discretions vested in him.
 

 
	
  

 	
  

 
	
 64.

 	
 All cheques, promissory notes, drafts, bills of exchange and other
 negotiable instruments and all receipts for monies paid to the Company shall
 be signed, drawn, accepted endorsed or otherwise executed as the case may be
 in such manner as the Directors shall from time to time by resolution
 determine. 

 
	
  

 	
  

 
	
 65.

 	
 The directors shall cause Minutes to be made in books, such books to
 be maintained in Ireland, provided for the purpose:

 
	
  

 	
  

 
	
  

 	
 a)

 	
 of all appointments of officers made by the Directors;

 
	
  

 	
  

 	
  

 
	
  

 	
 b)

 	
 of the names of the Directors (including those represented thereat by
 proxy) present at each meeting of the Directors and of any committee of the
 Directors;

 
	
  

 	
  

 	
  

 
	
  

 	
 c)

 	
 of all resolutions and proceedings at all meetings of the Company and
 of the Directors and of Committees of Directors. 

 
	
  

 	
  

 	
  

 
	
 66.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 BORROWING POWERS

 
	
  

 
	
 67.

 	
 (a)

 	
 The Directors may exercise all the powers of the Company to borrow
 money and to mortgage or charge its undertaking, property and uncalled
 capital or any part thereof and to issue debentures, debenture stock and
 other securities whether outright or as security for any debt, liability or
 obligation of the Company or of any third party. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 The Directors may raise or secure the payment or repayment of such sum
 or sums in such manner and upon such terms and conditions in all respects as
 they think fit and, in particular, by the issue of debentures, debenture
 stock, bonds or other securities of the Company, whether outright or as
 collateral security for any debts, liability or obligations of the Company or
 of any third party. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 Debentures, debenture stock, bonds and other securities may be made
 assignable free from any equities between the Company and the person to whom
 the same may be issued. 

 

– 13 –

	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 Any debentures, debenture stock, bonds or other securities may be
 issued at a discount, premium or otherwise and with any special privileges as
 to redemption, surrender, drawings, convertibility into shares of the
 Company, allotment of shares, attending and voting at general meetings of the
 Company, appointment of Directors and otherwise. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (e)

 	
 The Directors shall cause a proper register to be kept, in accordance
 with the provisions of the Statute, of all mortgages and charges specifically
 affecting the property of the Company and shall duly comply with the
 requirements of the Statute in regard to the registration of mortgages and
 charges therein specified and otherwise. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (f)

 	
 If the Company issues a series of debentures or debenture stock or
 similar securities, whether or not transferable by delivery, the Directors
 shall cause a proper register to be kept of the holders of such debentures or
 securities. 

 
	
  

 	
  

 	
  

 
	
 MANAGEMENT

 
	
  

 
	
 68.

 	
 The Directors may from time to time provide for the management of the
 affairs of the Company in such manner as they shall think fit and the
 provisions contained in the next following Article shall be without
 prejudice to the general powers conferred by this Article. 

 
	
  

 	
  

 
	
 69.

 	
 The Directors from time to time and at any time may establish any
 committees, local boards or agencies for managing any of the affairs of the Company
 and may appoint any persons to be members of such committees or local boards
 or any managers or agents. 

 
	
  

 	
  

 
	
 PROCEEDINGS OF DIRECTORS

 
	
  

 
	
 70.

 	
 Except as
 otherwise provided by these Articles, the Directors shall meet together
 (either within or without the Cayman Islands) for the despatch of business,
 convening, adjourning and otherwise regulating their business as they think
 fit. A majority of the meetings of the Directors each year shall be held in
 Ireland. Questions arising at any meeting shall be decided by a majority of
 votes of the Directors present at a meeting at which there is a quorum. In
 the case of an equality of votes, the Chairman shall not have a casting vote.

 
	
  

 	
  

 
	
 71.

 	
 A Director may, and the Secretary on the requisition of a Director
 shall, at any time summon a meeting of the Directors by at least five days’
 notice in writing to every Director which notice shall set forth the general
 nature of the business to be considered unless notice is waived by all the
 Directors either at, before or after the meeting is held and if notice is
 given in person, by e-mail or other electronic means the same shall be deemed
 to have been given on the day it is delivered to the Directors or
 transmitting organisation as the case may be. The provisions of Article 33
 shall apply mutatis mutandis with respect to notices of meetings of
 Directors. 

 

– 14 –

	
  

 	
  

 	
  

 
	
 72.

 	
 The quorum necessary for the transaction of the business of the
 Directors may be fixed by the Directors and unless so fixed shall be two if
 there are two or more Directors, and shall be one if there is only one
 Director. 

 
	
  

 	
  

 
	
 73.

 	
 The continuing Directors may act notwithstanding any vacancy in their
 body, but if and so long as their number is reduced below the number fixed by
 or pursuant to these Articles as the necessary quorum of Directors the
 continuing Directors or Director may act for the purpose of increasing the
 number of Directors to that number, or of summoning a general meeting of the
 Company, but for no other purpose. 

 
	
  

 	
  

 
	
 74.

 	
 The Directors may elect a Chairman of their Board and determine the
 period for which he is to hold office; but if no such Chairman is elected, or
 if at any meeting the Chairman is not present within thirty minutes after the
 time appointed for holding the same, the Directors present may choose one of
 their number to be Chairman of the meeting. 

 
	
  

 	
  

 
	
 75.

 	
 The Directors may delegate any of their powers to committees
 consisting of such member or members of the Board of Directors as they think
 fit; any committee so formed shall in the exercise of the powers so delegated
 conform to any regulations that may be imposed on it by the Directors. 

 
	
  

 	
  

 
	
 76.

 	
 A committee may meet and adjourn as it thinks proper. Questions
 arising at any meeting shall be determined by a majority of votes of the members
 present. 

 
	
  

 	
  

 
	
 77.

 	
 All acts done by any meeting of the Directors or of a committee of
 Directors shall, notwithstanding that it be afterwards discovered that there
 was some defect in the appointment of any Director, or that they or any of
 them were disqualified, be as valid as if every such person had been duly
 appointed and qualified to be a Director. 

 
	
  

 	
  

 
	
 78.

 	
 Members of the Board of Directors or of any committee thereof may
 participate in a meeting of the Board or of such committee by means of
 conference telephone or other electronic means by means of which all persons
 participating in the meeting can hear each other and participation in a
 meeting pursuant to this provision shall constitute presence in person at
 such meeting. A resolution in writing (in one or more counterparts), signed
 by all the Directors for the time being or all the members of a committee of
 Directors shall be as valid and effectual as if it had been passed at a
 meeting of the Directors or committee as the case may be duly convened and
 held. 

 
	
  

 	
  

 
	
 79.

 	
 (a)

 	
 A Director may be represented at any meetings of the Board of
 Directors by a proxy appointed by him and approved by the Board in which
 event the presence or vote of the proxy shall for all purposes be deemed to
 be that of the Director.

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 The provisions of Articles 47-50 shall mutatis mutandis apply to
 the appointment of proxies by Directors. 

 
	
  

 	
  

 	
  

 
	
 VACATION OF OFFICE OF DIRECTOR

 
	
  

 
	
 80.

 	
 The office of a Director shall
 be vacated: 

 

– 15 –

	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (a)

 	
 if he gives notice in writing
 to the Company that he resigns the office of Director; 

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 if he dies, becomes bankrupt or
 makes any arrangement or composition with his creditors generally; 

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 if he is found a lunatic or
 becomes of unsound mind; 

 
	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 in the circumstances described
 in the next following Article; or 

 
	
  

 	
  

 	
  

 
	
  

 	
 (e)

 	
 if he ceases to be a Director
 by virtue of, or becomes prohibited from being a Director by reason of, an
 order made under any provisions of any law or enactment. 

 
	
  

 	
  

 	
  

 
	
 APPOINTMENT AND REMOVAL OF DIRECTORS

 
	
  

 
	
 81.

 	
 (a)

 	
 The
 Directors shall be divided into three classes designated Class I, Class II
 and Class III. Each class shall consist as nearly as possible of one-third of
 the total number of Directors constituting the entire Board of Directors. The
 initial term of office for each Director in Class I shall expire at the
 Annual General Meeting of the Company in 1999; the initial term of office for
 each Director in Class II shall expire at the Annual General Meeting in 2000;
 and the initial term of office for each Director in Class III shall expire at
 the Annual General Meeting in 2001. At each Annual General Meeting,
 commencing with the Annual General Meeting to be held in 1999, the successors
 of the class of Directors whose term expires at that meeting shall be elected
 to hold office for a term expiring at the Annual General Meeting to be held
 in the third year of their election, so that the term of one class of
 Directors shall expire in each year. Each Director shall hold office for the
 term for which he or she is elected or appointed and until his or her
 successor shall be elected or appointed and qualify or until he or she shall
 vacate office in accordance with Article 80. If the number of Directors is
 changed, an increase or decrease shall be apportioned among the classes so as
 to maintain the number of Directors in each class as nearly equal as
 possible, but in no case shall a decrease in the number of Directors shorten
 the term of an incumbent Director. The term of a Director appointed to fill a
 newly created directorship, or other vacancy, shall expire at the same time
 as the term of the other Directors of the class for which the new
 directorship is created or in which the vacancy occurred.

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 No person
 shall be appointed a Director, unless nominated in accordance with the
 provisions of this Article 81. Nominations of persons for appointment as
 Directors may be made:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (i)

 	
 by the Directors;

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (ii)

 	
 with respect
 to election at an annual general meeting, by any Member of the Company owning
 Class A shares or other shares carrying the general right to vote at general
 meetings of the Company, who is a Member at the time of the relevant annual
 general meeting, and who timely complies with the notice procedures set forth
 in this Article 81;

 

– 16 –

	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (iii)

 	
 with respect
 to election at an extraordinary general meeting requisitioned in accordance
 with Article 31(b), by a Member or Members owning Class A shares or other
 shares carrying the general right to vote at general meetings of the Company
 and who make such nomination in the written requisition of the extraordinary
 general meeting in accordance with Article 31(b) and in compliance with the
 other provisions of these Articles and the Statute relating to nominations of
 directors and the proper bringing of special business before an extraordinary
 general meeting; and

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (iv)

 	
 by holders
 of any class or series of shares in the Company then in issue having special
 rights to nominate or appoint Directors in accordance with the terms of issue
 of such class or series, but only to the extent provided in such terms of
 issue

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (clauses
 (ii), (iii) and (iv) being the exclusive means for a Member to make
 nominations of persons for election to the Board of Directors).

 
	
  

 	
  

 
	
  

 	
 (c)

 	
 [Not used].

 
	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 [Not used]. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (e)

 	
 No person
 shall be eligible for election as a Director of the Company unless nominated
 in accordance with the procedures set forth in these Articles. Except as
 otherwise provided by law, the Board or the chairman of any meeting of
 Members to elect Directors may determine in good faith that a nomination was
 not made in compliance with the procedures set forth in the foregoing
 provisions of this Article 81; and if the Board or the chairman of the
 meeting should so determine, it shall be so declared to the meeting, and the
 defective nomination shall be disregarded. Notwithstanding anything in these
 Articles to the contrary, unless otherwise required by law, if a Member
 intending to make a nomination at a meeting of Members in accordance with
 this Article 81 does not timely appear in person or by proxy at the meeting
 to present the nomination, such nomination shall be disregarded,
 notwithstanding that appointments of proxy in respect of such nomination may
 have been received by the Company or any other person.

 
	
  

 	
  

 	
  

 
	
  

 	
 (f)

 	
 Notwithstanding
 the foregoing provisions of this Article 81, any Member or Members intending
 to make a nomination at a meeting of Members in accordance with this Article
 81, and each related beneficial owner, if any, shall also comply with all
 applicable requirements of the Exchange Act with respect to the matters set
 forth in these Articles; provided, however, that any references in these
 Articles to the Exchange Act are not intended to and shall not limit the
 requirements applicable to nominations made or intended to be made in
 accordance with clause (ii) or clause (iii) of Article 81(b).

 
	
  

 	
  

 	
  

 
	
  

 	
 (g)

 	
 Nothing in
 this Article 81 shall be deemed to affect any rights of the holders of any
 class or series of shares to elect or appoint Directors pursuant to any
 applicable terms of issue of any such shares.

 

– 17 –

	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (h)

 	
 For purposes of this Article 81,

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (i)

 	
 an “Affiliate”
 of any person means any other person that directly or indirectly controls, is
 controlled by, or is under common control with, such person;

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (ii)

 	
 a “Covered
 Arrangement” means, with respect to any person and as of any date, any
 agreement, arrangement or understanding (including any swaps or other
 derivative or short positions, profit interests, options, hedging
 transactions, and securities lending or borrowing arrangement) to which such
 person or its Affiliates is, directly or indirectly, a party as of such date
 (A) with respect to shares of the Company or (B) the effect or intent of
 which is to mitigate loss to, manage the potential risk or benefit of share
 price changes (increases or decreases) for, or increase or decrease the
 voting power of such person or any of its Affiliates with respect to
 securities of the Company or which may have payments based in whole or in
 part, directly or indirectly, on the value (or change in value) of any
 securities of the Company (other than, in each such case, interests in
 investment companies registered under the U.S. Investment Company Act of
 1940, as amended);

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 (i)

 	
 At any time
 the Company may by Special Resolution of the total voting power of the issued
 shares of the Company determined in accordance with these Articles, including
 Article 41, remove any Director and may in like manner appoint another person
 in his stead (provided that nominations of such persons be made in compliance
 with the provisions of this Article 81).

 
	
  

 	
  

 	
  

 
	
 82.

 	
 The Directors shall have power at any time and from time to time to
 appoint any person to be a Director to fill any vacancy on the Board of
 Directors created pursuant to the provisions of Articles 52 or 80. 

 
	
  

 	
  

 
	
 PRESUMPTION OF ASSENT

 
	
  

 
	
 83.

 	
 A Director of the Company who is present at a meeting of the Board of
 Directors at which action on any Company matter is taken shall be presumed to
 have assented to the action taken unless his dissent shall be entered in the
 Minutes of the meeting or unless he shall file his written dissent from such
 action with the person acting as the Secretary of the meeting before the
 adjournment thereof or shall forward such dissent by registered mail to the
 Secretary of the Company immediately after the adjournment of the meeting.
 Such right to dissent shall not apply to a Director who voted in favour of
 such action. 

 
	
  

 	
  

 
	
 SEAL

 
	
  

 
	
 84.

 	
 (a)

 	
 Subject to the provisions of Article 4 hereof, the Seal shall
 only be used by the authority of the Directors or of a committee of the
 Directors authorised by the

 

– 18 –

	
  

 	
  

 	
  

 
	
  

 	
  

 	
 Directors in that behalf and every instrument to which the Seal
 has been affixed shall be signed by one person who shall be either a Director
 or the Secretary or Secretary-Treasurer or some person appointed by the
 Directors for the purpose.

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 The Company may have for use in any territory, district or place not
 situate in the Cayman Islands, and shall have for use in Ireland, an official
 seal which shall be a facsimile of the Common Seal of the Company with or
 without the addition on its face of the name of every territory district or
 place where it is to be used.

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 A Director or Secretary may without further authority of the Directors
 affix the Seal of the Company over his signature alone to any document of the
 Company required to be authenticated by him under Seal or to be filed with
 the Registrar of Companies in the Cayman Islands or elsewhere wheresoever. 

 
	
  

 	
  

 	
  

 
	
 OFFICERS

 
	
  

 
	
 85.

 	
 The Company
 may have a President and an Assistant Secretary (or Presidents and Assistant
 Secretaries) and shall have a Secretary or Secretary-Treasurer (or
 Secretaries or Secretary-Treasurers) appointed by the Directors who may also
 from time to time appoint such other Officers as they consider necessary, all
 for such terms, at such remuneration and to perform such duties, and subject
 to such provisions as to disqualification and removal the Directors from time
 to time may prescribe. Where the Directors appoint more than one Secretary
 (or appoint a Secretary or Secretaries together with an Assistant Secretary
 or Assistant Secretaries) at least one of such Officers shall be a resident
 of Ireland.

 
	
  

 	
  

 
	
 86.

 	
 A provision of the Statute or these Articles requiring or authorising
 a thing to be done by a Director and an Officer shall not be satisfied by its
 being done by the one person acting in the dual capacity of Director and
 Officer. 

 
	
  

 	
  

 
	
 DIVIDENDS AND RESERVE

 
	
  

 
	
 87.

 	
 Subject to the Statute, the Directors may from time to time declare
 dividends on shares of the Company outstanding and authorise payment of the
 same out of the funds of the Company and may from time to time pay to the
 Members such interim dividends as appear to the Directors to be justified by
 the profits and financial condition of the Company. 

 
	
  

 	
  

 
	
 88.

 	
 The Directors may, before declaring any dividends, set aside such sums
 as they think proper as a reserve or reserves which shall, at the discretion
 of the Directors, be applicable for any purpose of the Company and pending
 such application may, at the like discretion, be employed in the business of
 the Company. 

 
	
  

 	
  

 
	
 89.

 	
 No dividend shall be payable except out of the profits of the Company,
 realized or unrealised or out of monies otherwise available for dividends in
 accordance with the Statute. 

 

– 19 –

	
  

 	
  

 
	
 90.

 	
 Subject to the rights of persons, if any, entitled to shares with
 special rights as to dividends, all shares outstanding on the record date for
 a dividend shall rank equally for such dividend regardless of their date of
 issue and regardless of the amount paid up thereon. 

 
	
  

 	
  

 
	
 91.

 	
 The Directors may deduct from any dividend payable to any Member all
 sums of money (if any) presently payable by him to the Company on any
 account. 

 
	
  

 	
  

 
	
 92.

 	
 The Directors may declare that any dividend be paid wholly or partly
 by the distribution of specific assets and in particular of paid up shares,
 debentures, or debenture stock of any other company or in any one or more of
 such ways and where any difficulty arises in regard to such distribution, the
 Directors may settle the same as they think expedient and in particular may
 issue fractional certificates and fix the value for distribution of such
 specific assets or any part thereof and may determine that cash payments
 shall be made to any Members upon the footing of the value so fixed in order
 to adjust the rights of all Members and may vest any such specific assets in
 trustees as may seem expedient to the Directors. 

 
	
  

 	
  

 
	
 93.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 94.

 	
 No dividend shall bear interest against the Company. Subject to the
 Statute, if determined by the Directors, any dividend unclaimed for a period
 of six years from the date of declaration of such dividend shall be forfeited
 and shall revert to the Company and the payment by the Directors of any
 unclaimed dividend, interest or other sum payable on or in respect of the
 share into a separate account shall not constitute the Company a trustee in
 respect thereof. 

 
	
  

 	
  

 
	
 CAPITALIZATION

 
	
  

 
	
 95.

 	
 The Company may, upon the recommendation of the Directors by ordinary
 resolution, authorise the Directors to capitalise any sum standing to the
 credit of any of the Company’s reserve accounts (including share premium
 account and capital redemption reserve fund) or any sum standing to the
 credit of profit and loss account or otherwise available for distribution and
 to appropriate such sum to Members in the proportions in which such sum would
 have been divisible amongst them had the same been a distribution of profits
 by way of dividend and to apply such sum on their behalf in paying up in full
 unissued shares (not being redeemable shares) for allotment and distribution
 credited as fully paid up to and amongst them in the proportion aforesaid. In
 such event the Directors shall do all acts and things required to give effect
 to such capitalisation, with full power to the Directors to make such
 provisions as they think fit for the case of shares becoming distributable in
 fractions (including provisions whereby the benefit of fractional
 entitlements accrue to the Company rather than to the Members concerned). The
 Directors may authorise any person to enter on behalf of all of the Members
 interested into an agreement with the Company providing for such
 capitalisation and matters incidental thereto and any agreement made under
 such authority shall be effective and binding on all concerned. 

 
	
  

 	
  

 
	
 BOOKS OF ACCOUNT

 
	
  

 
	
 96.

 	
 The Directors shall cause
 proper books of account to be kept with respect to: 

 

– 20 –

	
  

 	
  

 	
  

 
	
  

 	
 (a)

 	
 all sums of money received and expended by the Company and the matters
 in respect of which the receipt or expenditure takes place;

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 all sales and purchases of goods by the Company; and 

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 the assets and liabilities of the Company. 

 
	
  

 	
  

 	
  

 
	
  

 	
 Proper books shall not be deemed to be kept if there are not kept such
 books of account as are necessary to give a true and fair view of the state
 of the Company’s affairs and to explain its transactions. 

 
	
  

 	
  

 
	
 97.

 	
 The Directors shall from time to time determine whether and to what
 extent and at what times and places and under what conditions or regulations
 the accounts and books of the Company or any of them shall be open to the
 inspection of Members not being Directors and no Member (not being a
 Director) shall have any right of inspecting any account or book or document
 of the Company except as conferred by Statute or authorised by the Directors
 or by the Company in general meeting. 

 
	
  

 	
  

 
	
 98.

 	
 The Directors shall from time to time cause to be prepared and to be
 laid before the Company in general meeting profit and loss accounts, balance
 sheets, group accounts (if any) and such other reports and accounts as may be
 required by law. 

 
	
  

 	
  

 
	
 AUDIT

 
	
  

 
	
 99.

 	
 The Directors may appoint an
 Auditor of the Company who shall hold office on such terms as the Directors
 determine. 

 
	
  

 	
  

 
	
 100.

 	
 [Not used]. 

 
	
  

 	
  

 
	
 101.

 	
 Every Auditor of the Company shall have a right of access at all times
 to the books and accounts and vouchers of the Company and shall be entitled
 to require from the Directors and Officers of the Company such information
 and explanation as may be necessary for the performance of the duties of the
 auditors. 

 
	
  

 	
  

 
	
 102.

 	
 Auditors shall at the next Annual General Meeting following their
 appointment and at any other time during their term of office, upon request
 of the Directors or any general meeting of the Members, make a report on the
 accounts of the Company in general meeting during their tenure of office. 

 
	
  

 	
  

 
	
 NOTICES

 
	
  

 
	
 103.

 	
 Notices shall be in writing and
 may be given by the Company to any Member either personally or by sending it
 by post, fax, courier or e-mail to him or to his address as shown in the
 register of Members, such notice, if mailed, to be forwarded airmail if the
 address be outside the Cayman Islands, or where the notice is given by e-mail
 by sending it to the e-mail address provided by such Member.

 

– 21 –

	
  

 	
  

 	
  

 
	
 104.

 	
 (a)

 	
 Where a notice is sent by post, service of the notice shall be deemed
 to be effected by properly addressing, pre-paying and posting a letter
 containing the notice, and to have been effected at the expiration of 60
 hours after the letter containing the same is posted as aforesaid. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 Where a notice is sent by fax or courier, service of the notice shall
 be deemed to be effected by properly addressing, pre-paying and sending
 through a transmitting organisation the notice, and to have been effected at
 the expiration of forty-eight hours after the same is sent as aforesaid.

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 Where a notice is given by e-mail service shall be deemed to be effected
 by transmitting the e-mail to the e-mail address provided by the intended
 recipient and shall be deemed to have been received on the same day that it
 was sent, and it shall not be necessary for the receipt of the e-mail to be
 acknowledged by the recipient. 

 
	
  

 	
  

 	
  

 
	
 105.

 	
 A notice may be given by the Company to the joint holders of record of
 a share by giving the notice to the joint holder first named on the register
 of Members in respect of the share. 

 
	
  

 	
  

 
	
 106.

 	
 A notice may be given by the Company to the person or persons which
 the Company has been advised are entitled to a share or shares in consequence
 of the death or bankruptcy of a Member by sending it through the post as
 aforesaid in a pre-paid letter addressed to them by name, or by the title of
 representatives of the deceased, or trustee of the bankruptcy, or by any like
 description at the address supplied for that purpose by the persons claiming
 to be so entitled, or at the option of the Company by giving the notice in
 any manner in which the same might have been given if the death or bankruptcy
 had not occurred. 

 
	
  

 	
  

 
	
 107.

 	
 Notice of every general meeting shall be given in any manner
 hereinbefore authorised to: 

 
	
  

 	
  

 
	
  

 	
 (a)

 	
 every person shown as a Member in the register of Members as of the
 record date for such meeting except that in the case of joint holders the
 notice shall be sufficient if given to the joint holder first named in the
 register of Members; and 

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 every person upon whom the ownership of a share devolves by reason of
 his being a legal personal representative or a trustee in bankruptcy of a
 Member of record, where the Member of record, but for his death or
 bankruptcy, would be entitled to receive notice of the meeting. 

 
	
  

 	
  

 	
  

 
	
  

 	
 No other person shall be
 entitled to receive notices of general meetings. 

 
	
  

 	
  

 
	
 WINDING UP

 
	
  

 
	
 108.

 	
 If the Company shall be wound up, the Liquidator may, with the
 sanction of a Special Resolution of the Company and any other sanction
 required by the Statute, divide amongst the Members in specie or kind, the
 whole or any part of the assets of the Company (whether they shall consist of
 property of the same kind or not) and may for such purpose set such value as
 he deems fair upon any property to be divided as aforesaid and may determine
 how such division shall be carried out as between the Members or different

 

– 22 –

	
  

 	
  

 	
  

 
	
  

 	
 classes of Members. The Liquidator may with the like
 sanction, vest the whole or any part of such assets in trustees upon such
 trusts for the benefit of the contributories as the Liquidator, with the like
 sanction, shall think fit, but so that no Member shall be compelled to accept
 any shares or other securities whereon there is any liability.

 
	
 INDEMNITY

 
	
  

 
	
 109.

 	
 (a)

 	
 The Company 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 Company) by reason of the
 fact that he is or was a director, officer, employee or agent of the Company,
 or is or was serving at the request of the Company as a director, officer,
 employee or agent of another company, partnership, joint venture, trust or
 other enterprise, or in a fiduciary or other capacity with respect to any
 employee benefit plan maintained by the Company, against 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 Company, or reasonably
 believed to be in or not opposed to the best interests of such employee
 benefit plan, 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
 manner which he reasonably believed to be in or not opposed to the best
 interests of the Company, or reasonably believed to be in or not opposed to
 the best interests of such employee benefit plan, and, with respect to any
 criminal action or proceeding, had reasonable cause to believe that his
 conduct was unlawful. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)

 	
 The Company shall indemnify any person who was or is a party or is
 threatened to be made a party of any threatened, pending or completed action
 or suit by or in the right of the Company to procure a judgment in its favour
 by reason of the fact that he is or was a director, officer, employee or
 agent of the Company, or is or was serving at the request of the Company as a
 director, officer, employee or agent of another company, partnership, joint
 venture, trust or other enterprise, or in a fiduciary or other capacity with
 respect to any employee benefit plan maintained by the Company, against
 expenses (including attorneys’ fees) actually and reasonably incurred by him
 in connection with the defence 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 Company, or reasonably believed to be in
 or not opposed to the best interests of such employee benefit plan, and
 except that no such indemnification shall be made in respect of any claim,
 issue or matter as to which such person shall have been adjudged to be liable
 for wilful neglect or default in the performance of his duty to the Company
 or to such employee benefit plan unless and only to the extent that the Grand
 Court of the Cayman Islands or the court in which such action or suit was
 brought shall determine upon application that, despite 

 

– 23 –

	
  

 	
  

 	
  

 
	
  

 	
  

 	
 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 the Grand Court or such other court shall deem proper.

 
	
  

 	
  

 	
  

 
	
  

 	
 (c)

 	
 To the extent that a director, officer, employee or agent of the
 Company shall be successful on the merits or otherwise in defence, of any
 action, suit or proceeding referred to in paragraphs (a) and (b), or in
 defence 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. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (d)

 	
 Any indemnification under paragraphs (a) and (b) (unless ordered
 by a court) shall be made by the Company only as authorised in the specific
 case upon a determination that indemnification of the director, officer,
 employee or agent is proper in the circumstances because he has met the
 applicable standard of conduct set forth in paragraphs (a) and (b). Such
 determination shall be made (1) by the Board of Directors by a majority
 vote of a quorum consisting of directors who were not parties to such action,
 suit or proceeding, or (2) if such a quorum is not obtainable, or, even
 if obtainable a quorum of disinterested directors so directs, by independent
 legal counsel in a written opinion, or (3) by the shareholders entitled
 to vote. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (e)

 	
 Expenses incurred in defending a civil or criminal action, suit or
 proceeding may be paid by the Company in advance of the final disposition of
 such action, suit or proceeding as authorised by the Board of Directors in
 the manner provided in paragraph (d) upon receipt of an undertaking by
 or on behalf of the director, officer, employee or agent to repay such amount
 unless it shall ultimately be determined that he is entitled to be
 indemnified by the Company as authorised in this Article 109. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (f)

 	
 The indemnification provided by this Article 109 shall not be
 deemed exclusive of any other rights to which those indemnified may be
 entitled under any by-law, agreement, vote of shareholders or disinterested
 directors or otherwise, both as to action in his official capacity and as to
 action in another capacity while holding such office, and shall continue as
 to a person who has ceased to be a Director, officer, employee or agent and
 shall inure to the benefit of the heirs, executors and administrators of such
 a person. 

 
	
  

 	
  

 	
  

 
	
  

 	
 (g)

 	
 The Board of Directors may authorise the Company to purchase and
 maintain insurance on behalf of any person who is or was a director, officer,
 employee or agent of the Company, or is or was serving at the request of the
 Company as a director, officer, employee or agent of another company,
 partnership, joint venture, trust or other enterprise, or in a fiduciary or
 other capacity with respect to any employee benefit plan maintained by the
 Company, against any liability asserted against him and incurred by him in
 any such capacity, or arising out of his status as such, whether or not the
 Company would have the power to indemnify him against such liability under
 the provisions of this Article 109. 

 

– 24 –

	
  

 	
  

 
	
 NO LIABILITY

 
	
  

 
	
 110.

 	
 No director or officer of the Company shall be liable or answerable
 for the acts, receipts, neglects, or defaults of any other Director or other
 officer of the Company or for joining in any receipt or other act for
 conformity or for any loss or expense happening to the Company through the
 insufficiency or deficiency of any security in or upon which any of the
 monies of the Company shall be invested or for any loss or damage arising
 from the bankruptcy, insolvency or tortious act of any person with whom any
 monies, securities or effects shall be deposited, or for any loss occasioned
 by any error of judgment or oversight on his part, or for any other loss,
 damage, or misfortune whatever which shall happen in or about the execution
 of the duties of his office or in relation thereto, unless the same happen
 through his own wilful neglect or default. 

 
	
  

 	
  

 
	
 FISCAL YEAR

 
	
  

 
	
 111.

 	
 At any time or times the
 Directors may prescribe the period for any Fiscal Year. 

 
	
  

 	
  

 
	
 AMENDMENTS OF ARTICLES

 
	
  

 
	
 112.

 	
 Subject to
 the Statute, the Company may at any time and from time to time by Special
 Resolution alter or amend these Articles in whole or in part.exh10-1employment_agreement.htm

Exhibit 10.1

EMPLOYMENT AGREEMENT

AGREEMENT, dated as of October 12, 2011, between GSE Systems, Inc. a Delaware Corporation with principal executive offices at 1332 Londontown Blvd., Sykesville, MD 21784 (the "Company"), and Phillip Mark Polefrone, residing at 2810 Quail Creek Court, Ellicott City, MD 21042 ("Employee").

WITNESSETH

 

WHEREAS, the Employee currently serves as Senior Vice President in charge of Workforce Solutions of the Company.

 

WHEREAS, the Company desires to employ Employee upon the terms and subject to the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the premises, the mutual promises, covenants, and conditions herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto intending to be legally bound hereby agree as follows:

Section 1.                                           Employment.

The Company hereby agrees to continue to employ Employee, and Employee hereby agrees to continue to serve the Company, all upon the terms and subject to the conditions set forth in this Agreement. '

 

Section 2.                                           Capacity and Duties.

 

Employee shall be employed in the capacity of Senior Vice President in charge of Workforce Solutions of the Company and shall have the duties, responsibilities, and authorities normally performed by the Senior Vice President in charge of Workforce Solutions of a company and such other duties, responsibilities, and authorities as are assigned to him by the Chief Executive Officer (the "CEO") or the Board of Directors of the Company (the "Board") so long as such additional duties, responsibilities, and authorities are consistent with Employee's position and level of authority as Senior Vice President in charge of Workforce Solutions of the Company. Employee shall devote substantially all of his business time and attention to promote and advance the business of the Company.

 

Section 3.                                           Term of Employment.

 

Unless sooner terminated in accordance with the provisions of this Agreement, the term of employment of Employee by the Company pursuant to this Agreement shall be for the period (the "Employment Period") commencing on October 17,2011 and ending on October 16, 2013 (the "Scheduled Termination Date").

  

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Section 4.                                           Compensation.

During the Employment Period, subject to all the terms and conditions of this Agreement and as compensation for all services to be rendered by Employee under this Agreement, the Company shall pay to or provide Employee with the following:

(a) Base Salary. Commencing October 17, 2011, the Company shall pay to Employee a base annual salary at the rate of One Hundred Eighty Five Thousand Dollars ($185,000.00). On October 17,2012, the base annual salary shall be increased, as determined by the Board of Directors of the Company by a minimum of the greater of (i) 3% or (ii) the percentage increase in the Consumer Price Index (as hereinafter defined) over the preceding twelve months. The "Consumer Price Index" shall mean the Consumer Price Index for all Urban Consumers published by the Bureau of Labor Statistics, United States Department of Labor, or the supplement or successor thereto if publication of such index should be discontinued. The base salary will be payable at such intervals as salaries are paid generally to other executive officers of the Company.

(b) Bonus. Once the Company's year end financial information is available the Chief Executive Officer and the Board of Directors of the Company shall determine Employee's bonus (the "Bonus") for the year then ending based upon (i) meeting the goals set by Employee and accepted by the Chief Executive Officer and the Board of Directors and (ii) overall Company performance. The Employee's target bonus is Fifty Thousand Dollars ($50,000.00) for 2012, and Employee's target bonus shall increase each succeeding year by the greater of (i) 3% or (ii) the percentage increase in the Consumer Price Index over the preceding twelve months. As soon as reasonably practicable, Employee's goals for 2012 will be prepared and mutually agreed upon. Any bonus to be paid to Employee for any year of this Agreement shall be paid on or prior to March 15 of the following year.

(c) Vacation. Employee shall be entitled to vacation in accordance with the Company's policy for its senior executives.

(d) Automobile. The Company shall provide Employee with an automobile allowance of Seven Thousand Two Hundred Dollars ($7,200.00) per year, and shall pay the maintenance, gas, and insurance expenses in connection with such automobile.

(e) Club Membership. The Company shall provide Employee an allowance for club membership of Four Thousand Dollars ($4,000.00) per year.

(f) Medical and Dental Insurance. The Company shall pay Employee's monthly Medical and Dental Insurance premiums in association with Company provided health insurance plans.

(g) Benefit Plans. Employee shall be entitled to participate in all employee benefit plans maintained by the Company for its senior executives or employees, including without limitation the Company's medical and 401(k) plans.

  

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Section 5.                                           Expenses.

 

The Company shall reimburse Employee for all reasonable expenses (including, but not limited to, continuing education, business travel, and customer entertainment expenses) incurred by him in connection with his employment hereunder in accordance with the written policy and guidelines established by the Company for executive officers.

 

Section 6.                                           Non-Competition, Non-Solicitation.

Employee agrees that during the period he is employed by the Company under this Agreement and for a period of one (1) year after the termination of his employment he will not directly or indirectly, (a) solicit or offer employment to any person who was employed by the Company or any of its subsidiaries while Employee was employed by the Company (b) solicit, offer or induce in competition with the Company, any person, entity or governmental authority that was under contract with the Company or with whom the Company or any of its subsidiaries was actively soliciting business from while Employee was employed by the Company, or (c) become engaged in a business that is directly competitive with the business of the Company or any of its subsidiaries.

 

Section 7.                                           Patents.

 

Any interest in patents, patent applications, inventions, copyrights, developments, and processes ("Such Inventions") which Employee now or hereafter during the period he is employed by the Company under this Agreement or otherwise may own or develop relating to the fields in which the Company or any of its subsidiaries may then be engaged shall belong to the Company; and forthwith upon request of the Company, Employee shall execute all such assignments and other documents and take all such other action as the Company may reasonably request in order to vest in the Company all his right, title, and interest in and to Such Inventions free and clear of all liens, charges, and encumbrances.

 

Section 8.                                           Confidential Information.

 

All confidential information which Employee may now possess, may obtain during the Employment Period, or may create prior to the end of the period he is employed by the Company under this Agreement or otherwise relating to the business of the Company or of any of its customers or suppliers shall not be published, disclosed, or made accessible by him to any other person, firm, or corporation either during or after the termination of his employment or used by him except during the Employment Period in the business and for the benefit of the Company, in each case without prior written permission of the Company. Employee shall return all tangible evidence of such confidential information to the Company prior to or at the termination of his employment.  For purposes of this Agreement, "confidential information" means any and all information related to the Company or any of its subsidiaries that is not generally known by others with whom they compete or do business.

  

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Section 9.                                           Termination.

 

Except as provided in Section 13, Employee's employment hereunder may be terminated without any breach of this Agreement only under the following circumstances:

(a) Death. Employee's employment hereunder shall terminate upon his death.

(b) Disability. If, as a result of Employee's incapacity due to physical or mental illness, Employee shall have been absent from his duties hereunder on a full-time basis for the entire period of three (3) consecutive months, and within 30 days after a Notice of Termination (as defined in Section 9(d)) is given shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate Employee's employment hereunder.

(c) Cause. The Company may terminate Employee's employment hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate Employee's employment hereunder upon the occurrence of any of the following (i) the willful and continued failure by Employee to substantially perform his duties or obligations hereunder (other than any such failure resulting from Employee's incapacity due to physical or mental illness), after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes Employee has not substantially performed his duties or obligations, (ii) the willful engaging by Employee in misconduct which, in the reasonable opinion of the Board of the Company, will have a material adverse effect on the reputation, operations, prospects or business relations of the Company, (iii) the conviction of Employee of any felony or the entry by Employee of any plea of nolo contendere in response to an indictment for a crime involving moral turpitude, or (iv) the breach by Employee of a term or condition of this Agreement. For purposes of this paragraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated for Cause without the following (i) reasonable notice to Employee setting forth the reasons for the Company's intention to terminate for Cause, (ii) an opportunity for Employee, together with his counsel, to be heard before the Board, and (iii) delivery to Employee of a Notice of Termination in accordance with Section 9(d).

(d) Notice of Termination. Any termination of Employee's employment by the Company (other than termination pursuant to Section 9(a)) shall be communicated by a Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under the provision so indicated.

(e) Date of Termination. "Date of Termination" shall mean (i) if Employee's employment is terminated by his death, the date of his death, (ii) if Employee's employment is terminated pursuant to Section 9(b), 30 days after Notice of Termination is given (provided that Employee shall not have returned to the performance of his duties on a full-time basis during such 30 day period), and (iii) if Employee's employment is terminated for any other reason, the date specified in the Notice of Termination, which shall not be earlier than the date on which the Notice of Termination is given.

  

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Section 10.                                           Compensation upon Termination or During Disability.

(a) During any period that Employee fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("disability period"), Employee shall continue to receive his full salary at the rate then in effect for such period until his employment is terminated pursuant to Section 9(b), provided that payments so made to Employee during the disability period shall be reduced by the sum of the amounts, if any, payable to Employee at or prior to the time of any such payment under disability benefit plans of the Company and which were not previously applied to reduce any such payment.

(b) If Employee's employment shall be terminated for Cause, the Company shall pay Employee his full salary through the Date of Termination at the rate in effect at the time Notice of Termination is given.

(c) If the Company shall terminate Employee's employment in breach of the terms of this Agreement, then the Company shall pay Employee his full salary and provide Employee his benefits for a period of six months. All options to purchase the Company's common stock granted to Employee under the Company's option plan or otherwise shall immediately become fully vested and shall terminate on such date as they would have terminated if Employee's employment by the Company had not been terminated.

(d) If Employee's employment is terminated at the Scheduled Termination Date of this Agreement or if Employee continues as an employee after the Scheduled Termination Date and Employee's employment is subsequently terminated by the Company for a reason other than (i) the death or disability of the Employee or (ii) cause, Employee shall be entitled to receive his full salary and benefits for a period of six months from the date of termination.

Section 11.                                           Accelerated Vesting of Options Upon Change of Control.

After the date of this Agreement, in the event of a Change of Control (as defined below) of the Company, the options granted to Employee under the Company's option plan or otherwise shall become fully vested immediately prior to the date such Change of Control shall be deemed to have occurred and any conditions to the Employee's entitlement to such options under the Company's option plan or otherwise shall be deemed to have satisfied.

For purposes of this Agreement, a "Change in Control" of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied:

(a) Any person (other than a person in control of the Company as of the date of this Agreement, or other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a company owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of voting securities of the Company) becomes the beneficial owner, directly or indirectly, of securities of the Company representing a majority of the combined voting power of the Company's then outstanding securities; or

  

5

  

(b) The stockholders of the Company approve: (x) a plan of complete liquidation of the Company (which includes a termination and liquidation of all Employee's rights under any arrangement governed by Section 409A of the Internal Revenue Code of 1986, as amended ("Code"); or (y) an agreement for the sale or disposition of all or substantially all the Company's assets; or (z) a merger, consolidation, or-reorganization of the Company with or involving any other corporation, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least a majority of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization.

For purposes of this definition of Change in Control, "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Securities Act of 1934, as amended (the "1934 Act"), and used in Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) thereof, and "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and regulations under the 1934 Act.

 

Section 12.                                           Successors; Binding Agreement.

 

The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.

 

Section 13.                                           Severance upon Change of Control.

 

In the event of a Change of Control, Employee may terminate this Agreement for Good Reason (as defined herein). Upon termination for Good Reason, Employee shall, for a period of 12 months from the date of his termination, continue to receive salary and all benefits (including medical, dental and life insurance coverage and any other Company-provided benefits, including car and club allowances) that Employee is receiving as of the date (the "Effective Date") the Change of Control occurs (collectively, "Severance Benefits"). In addition, the Employee shall also be entitled to receive on the date of termination an amount equal to the average of the Bonus amounts paid to Employee for the two years prior to the year in which the Change of Control takes place.

 

"Good Reason" shall mean Employee's good faith determination that any of the following occurs: (a) without Employee prior written consent Employee's duties, responsibilities or authority become materially inconsistent with those of Employee's current position; (b) Employee's annual base salary (as the same may be increased at any time hereafter) and bonus programs are materially reduced; (c) Employee's benefits (including medical, dental and life insurance coverage and any other Company-provided benefits, including car or club allowances to which Employee is entitled as of the Effective Date) are either discontinued or materially reduced; (d) Employee's primary office or location is moved more than fifty (50) miles from Employee's current office or location; or (e) either the Company or any successor company fails to honor all the material terms and provisions of this Agreement. In the event of Employee's decision to terminate employment for Good Reason, Employee must give notice to Company of the existence of the conditions giving rising to the termination for Good Reason within ninety (90) days of the initial existence of the conditions. Upon such notice, Company shall have a period of thirty (30) days during which it may remedy the conditions ("Cure Period"). If the Company fails the cure the conditions constituting the Good Reason during the Cure Period, Employee's termination of employment must occur within a period of ninety (90) days following the expiration of the Cure Period in order for the termination to constitute a termination pursuant to Good Reason for purposes of this Agreement.

  

6

  

Section 14.                                           No Third Party Beneficiaries.

 

This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement (except as provided in Section 12).

 

Section 15.                                           Fees and Expenses.

 

The Company shall pay all reasonable legal fees and related expenses (including the costs of experts, evidence, and counsel) incurred by Employee as a result of a contest or dispute over Employee's termination of employment if such contest or dispute is settled or adjudicated on terms that are substantially in favor of Employee. In addition, the Company shall pay Employee interest, at the prevailing prime rate, on any amounts payable to Employee hereunder that are not paid when due.

 

Section 16.                                           Representations and Warranties of Employee.

 

Employee represents and warrants to the Company that (a) Employee is under no contractual or other restriction or obligation which is inconsistent with the execution of this Agreement, the performance of his duties hereunder, or the other rights of the Company hereunder and (b) Employee is under no physical or mental disability that would hinder his performance of duties under this Agreement.

 

Section 17.                                           Life Insurance.

 

If requested by the Company, Employee shall submit to such physical examinations and otherwise take such actions and execute and deliver such documents as may be reasonably necessary to enable the Company, at its expense and for its own benefit, to obtain life insurance on the life of Employee. Employee has no reason to believe that his life is not insurable with a reputable insurance company at rates now prevailing in the City of Baltimore for healthy men of his age.

 

Section 18.                                           Modification.

 

This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersede all existing agreements between them concerning such subject matter, and may be modified only by a written instrument duly executed by each party.

 

Section 19.                                           Notices.

  

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Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or delivered against receipt to the party to whom it is to be given at the address of such party set forth in the preamble to this Agreement (or to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 19).

 

Section 20.                                           Governing Law.

 

This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland, without giving effect to conflict of laws.

 

Section 21.                                           409A of the Code

 

This Agreement is intended to comply with the requirements of Section 409A of the Code or any exemption from Section 409A of the Code, and shall in all respects be administered in accordance with and interpreted to ensure compliance with Section 409A of the Code. Employee's termination of employment under this Agreement shall be interpreted in a manner consistent with the separation from service rules under Section 409A of the Code. For purposes of Section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment and the right to a series of payments under this Agreement shall be treat as a right to a series of separate payments. In no event shall Employee, directly or indirectly, designate the calendar year of the payment. Furthermore, if, at the time of termination of employment with the Company, Company has stock which is publicly traded on an established securities market and Employee is a "specified employee" (as defined in Section 409A of the Code) and it is necessary to postpone the commencement of any payments or benefits otherwise payable pursuant to this Agreement as a result of such termination of employment to prevent any accelerated or additional tax under Section 409A of the Code, then Company shall postpone the commencement of the payment of such payment or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to Employee) that are not otherwise paid within the short-deferral exception under Section 409A of the Code and are in excess of the lessor of two (2) times (i) Employee's then annual compensation or (ii) the limit on compensation then set forth in Section 401(a)(17) of the Code, until the first payroll date that occurs after the date that is six months following Employee's separation from service with the Company (within the meaning of Section 409A of the Code). The accumulated postponed amount shall be paid in a lump sum payment within ten days after the end of the six month period.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

GSE SYSTEMS, INC.                                                          By:  ___________________________

___________________________

Phillip Mark Polefrone

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