Document:

ex106to10k04637_12312010.htm

Exhibit 10.6

 

 

 

 

 

 

 

FALCONSTOR SOFTWARE, INC.

 

DIRECTOR COMPENSATION DEFERRAL PLAN

 

  

  

  

 

ARTICLE 1

 

INTRODUCTION AND PURPOSE OF PLAN

 

1.1           Establishment of Plan.  FalconStor Software, Inc. (the “Company”) hereby establishes the FalconStor Software, Inc. Director Compensation  Deferral Plan (the “Plan”) effective January 1, 2011.  Notwithstanding any contrary provision of this Plan, under no circumstances shall any provision of this Plan be construed to operate in a manner inconsistent with the provision of Section 409A of the Internal Revenue Code and the Company shall be empowered to take any action it deems necessary or appropriate to override any provision of this Plan to assure that the requirements set forth in Section 409A are met.  The Plan is an unfunded, non-qualified deferred compensation arrangement for a members of the Board of Directors  of the Company pursuant to which benefits hereunder shall be paid by the Company.

 

1.2           Purpose of Plan.  In general, the purpose of this Plan is to enable members of the Board of Directors who are eligible to participate in the Plan to to enter into agreements with the Company to defer a portion of their fees and receive benefits within 60 days of March 31, 2013, or earlier, upon Separation From Service, Disability or death.

 

  

  

  

 

ARTICLE 2

 

DEFINITIONS

 

Whenever used in the Plan, the following terms shall have the meanings as set forth in this Article 2, unless a different meaning is clearly required by the context.

 

2.1           Accumulation Account shall mean the account established for each Participant to which all Elective Deferrals and earnings thereon shall be allocated.

 

2.2           Administrator  means the individual or entity appointed by the Company to administer the Plan. If the Company fails to make such appointment, the Company shall be the Administrator.

 

2.3           Beneficiary means the person or persons entitled to receive benefits, pursuant to Article 7, in the event of the death of such Participant.

 

2.4           Code means the Internal Revenue Code of 1986, as amended, and includes any regulations thereunder.

 

2.5           Director Fees means the base amount of remuneration earned by a Director for personal services rendered to the Company for the period from May 6 of a calendar year through May 5 of the next calendar year, beginning with May 6, 2011.

 

2.6           Company means FalconStor Software, Inc. and any successor entity.

 

2.7           Disability shall have the same meaning as the definition of  "disability" as set forth in the long-term disability plan of the Company. The Compensation Committee shall determine whether a Participant has a disability within the meaning as set forth therein.

 

2.8           Elective Deferral means the amount of Director Fees that a Participant elects to defer pursuant to a properly executed Voluntary Deferral Agreement.

 

  

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2.9           Compensation Committee means the  compensation committee established by the Board of Directors of the Company.

 

2.10           Participant means an Director or former Director who has been enrolled in this Plan and who retains the right to benefits under the Plan.

 

2.11           Plan means The FalconStor Software, Inc. Director Compensation Deferral Plan, as set forth herein and as it may be amended from time to time.

 

2.12           Plan Year means the period from May 6 to the following May 5.

 

2.13           Separation From Service means a Participant’s separation from service of the Company within the meaning of such term under Section 409A of the Code (and any related regulations or other pronouncements thereunder).

 

2.14           Voluntary Deferral Agreement means the written agreement between a Participant and the Company to defer receipt by the Participant of Director Fees not yet earned.  Such agreement shall state the Elective Deferral amount to be withheld from a Participant's pay.

 

ARTICLE 3

 

PARTICIPATION IN THE PLAN

 

3.1           Eligibility.  Each member of the Company’s Board of Directors listed on Exhibit “A”  attached hereto is eligible to participate in the Plan and may become a Participant in this Plan on the first day of enrollment pursuant to Section 3.2.  The Compensation Committee shall meet from time to time to determine whether additional individuals shall be entitled to participate in the Plan.  Exhibit “A” shall be amended from time to time to the extent necessary to reflect additional eligible individuals or removal of prior eligible individuals.

 

  

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3.2           Enrollment. Eligible Directors may enroll in the Plan by executing a Voluntary Deferral Agreement and submitting it to the Administrator. The Elective Deferral as set forth in the Voluntary  Deferral Agreement must be made by December 31 of the calendar year prior to the beginning of the Plan Year to which the Elective Deferral relates; provided, that in the first Plan Year in which a Director becomes eligible to participate in the Plan, such Director may make such election within thirty (30) days after such Director becomes eligible.

 

ARTICLE 4

 

DEFERRAL OF DIRECTOR FEES

 

4.1           Maximum Elective Deferral. Up to 100% of Director Fees may be deferred by any Participant in any taxable year.

 

4.2           Deferral Period. Participants may make an Elective Deferral election for each Plan Year that the Plan is in operation.

 

4.3           Modifications to Amount Deferred. A Participant may change his or her Elective Deferral with respect to Director Fees not yet earned by submitting a new properly executed Voluntary Deferral Agreement to the Administrator no later than  December 31 of the calendar year prior to the start of each new Plan Year  Once a calendar year commences which contains the beginning of the Plan Year, no further modifications to the deferral amount shall be permitted.

 

4.4           Revocation of Elective Deferral. Any Participant may revoke his or her election to have Director Fees deferred by so notifying the Administrator in writing prior to the start of the calendar year in which the Plan Year commences. Elective Deferrals become irrevocable after such time. The Participant's full Director Fees on a nondeferred basis will be restored as soon as administratively practicable following receipt by the Administrator of written notice of such revocation.

 

  

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ARTICLE 5

 

VESTING

 

Full Vesting for Elective Deferrals. Each Participant's Accumulation Account, to which Elective Deferrals and earnings thereon are credited, shall always be 100% vested and nonforfeitable.

 

ARTICLE 6

 

DISTRIBUTION OF BENEFITS

 

6.1           Eligibility for Payment. Distribution of benefits from the Plan shall be made in a single lump sum within 60 days of May 31, 2013, or if earlier, within 60 days of the Separation From Service, Disability or death of the Participant.

 

6.2           Earnings on Distribution Amounts.  Notwithstanding any provision of this Plan to the contrary, earnings will accrue on amounts deferred, for each Plan Year, at a rate tied to the rate payable on the 10-year US Treasury Note on May 6 for such Plan Year.

 

6.3           Delay in Payment For Specified Employees.  Notwithstanding anything herein to the contrary, (i) if at the time of  a Separation From Service, a Participant is a “specified employee” as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such Separation From Service is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Participant) until the date that is six months following such Separation From Service with the Company (or the earliest date as is permitted under Section 409A of the Code) and (ii) if any other payments of money or other benefits due to the Participant hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Company, that does not cause such an accelerated or additional tax.

 

  

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ARTICLE 7

 

BENEFICIARY INFORMATION

 

7.1           Designation. A Participant shall have the right to designate a Beneficiary, and amend or revoke such designation at any time, in writing. Such designation, amendment or revocation shall be effective upon receipt by the Administrator.

 

7.2           Failure to Designate a Beneficiary. If no designated Beneficiary survives the Participant and benefits are payable following the Participant's death, the Administrator shall direct that payment of benefits be made to the person or persons in the first of the following classes of successive preference Beneficiaries.

 

The Participant's:

 

(a)        spouse,

(b)        children, per stirpes,

(c)        parents,

 

  

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(d)        brothers and sisters,

(e)        estate.

 

ARTICLE 8

 

PLAN ADMINISTRATION; OWNERSHIP OF ASSETS

 

8.1           Plan Administration. The Company shall be responsible for appointing an Administrator to administer the Plan. Such Administrator may be an individual or a committee authorized to act collectively on behalf of the Plan. The Administrator shall have discretionary responsibility for the operation, interpretation, and administration of the Plan and for determining eligibility for Plan benefits. Any action taken on any matter within the discretion of the Administrator shall be final, conclusive, and binding on all parties. In order to discharge its duties' hereunder, the Administrator shall have the power and authority to adopt, interpret, alter, amend or revoke rules and regulations necessary to administer the Plan, to delegate ministerial duties and to employ such outside professionals as may be required for the prudent administration of the Plan. The Administrator shall also have authority to enter into agreements on behalf of the Company necessary to implement this Plan. Any Administrator who is an individual otherwise eligible for the Plan may participate in the Plan, but shall not be entitled to make decisions solely with respect to his or her own participation and benefits under the Plan.

 

8.2           Ownership of Assets. All amounts of compensation deferred under the Plan and all property and rights purchased with such amounts shall be considered general assets of the Company subject to the claims of the Company's general creditors. Participants shall have the status of general unsecured creditors of the Company.

 

  

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ARTICLE 9

 

ESTABLISHMENT OF ACCOUNTS

 

9.1           Establishment of Accounts. A separate Accumulation Account shall be established and maintained for each Participant to which will be credited such Participant's Elective Deferrals and earnings thereon.

 

ARTICLE 10

 

AMENDMENT OR TERMINATION OF PLAN

 

10.1           Amendment of Plan.  The Company shall have the right to amend the Plan, at any time and from time to time, in whole or in part. The Company shall notify each Participant in writing of any Plan amendment.

 

10.2           Termination. Although the Company has established this Plan with the intention and expectation to maintain the Plan indefinitely, the Company may terminate or discontinue the Plan in whole or in part at any time without any liability for such termination or discontinuance. Upon Plan termination, all Elective Deferrals shall cease. The Company shall retain each Participant's Elective Deferrals (and earnings thereon) until distribution of benefits commences under Section 6.2.  Any termination shall follow the rules established for terminations of deferred compensation arrangements set forth in Section 409A of the Code (and any related regulations or other pronouncements thereunder).

 

ARTICLE 11

 

MISCELLANEOUS

 

11.1           Limitation of Rights: Employment Relationship. Neither the establishment of this Plan nor any modification thereof, nor the creation of any fund or account, nor the payment of any benefits, shall be construed as giving a Participant or other person any legal or equitable right against the Company except as provided in the Plan. In no event shall the terms of employment of any employee be modified or in any way be affected by the Plan.

 

  

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11.2           Limitation on Assignment. Benefits under this Plan may not be assigned, sold, transferred, or encumbered, and any attempt to do so shall be void. A Participant's or Beneficiary's interest in benefits under the Plan shall not be subject to debts or liabilities of any kind and shall not be subject to attachment, garnishment or other legal process.

 

11.3           Pronouns. Whenever used in this Agreement, the masculine pronoun is to be deemed to include the feminine. The singular form, whenever used herein, shall mean or include the plural form where applicable, and vice versa.

 

11.4           Representations. The Company does not represent or guarantee that any particular federal or state income, payroll, personal property or other tax consequence will result from participation in this Plan. A Participant should consult with professional tax advisors to determine the tax consequences of his or her participation. Furthermore, the Company does not represent or guarantee successful investment of Elective Deferrals and shall not be required to restore any loss which may result form such investment or lack of investment. This Plan is an unfunded plan for tax purposes and for purposes of Title 1 of the Employee Retirement Income Security Act of 1974.

 

11.5           Severability. If a court of competent jurisdiction holds any provision of this Plan to be invalid or unenforceable, the remaining provisions of the Plan shall continue to be fully effective.

 

11.6           Applicable Law. This Plan shall be construed in accordance with applicable federal law and, to the extent otherwise applicable, the laws of the State of New York.

 

  

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ARTICLE 12

 

ADMINISTRATION AND BENEFITS CLAIMS PROCEDURE

 

12.1           Administration  The Plan shall be administered, interpreted and construed by the Administrator which shall have the sole and absolute discretion to determine any questions of fact and law arising under the Plan, including the right of any individual to benefit hereunder and the amount of such benefit, and take all actions and make all decisions necessary or proper to carry out the purposes of the Plan.

 

12.2           Claim for Benefits. Any claim for benefits under this Plan shall be made in writing to the Administrator. If a claim for benefits is wholly or partially denied, the Administrator shall so notify the Participant or Beneficiary within 90 days after receipt of the claim (unless the Participant is given written notification within the initial 90 days that an extension of not more than 90 days is needed). The notice of denial shall be written in a manner calculated to be understood by the Participant or Beneficiary and shall contain (a) the specific reason or reasons for denial of the claim, (b) a specific reference to the pertinent Plan provisions upon which the denial is based, (c) a description of any additional material or information necessary to perfect the claim together with an explanation of why such material or information is necessary and (d) an explanation of the claims review procedure.

 

12.3           Review of Claim. Within 60 days after the receipt by the Participant or Beneficiary of notice of denial of a claim (or at such later time as may be reasonable in view of the nature of the benefit subject to such claim and other circumstances), the Participant or Beneficiary may (a) file a request with the Administrator that it conduct a full and fair review of the denial of the claim, (b) review pertinent documents and (c) submit questions and comments to the Administrator in writing.

 

  

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12.4           Decision After Review. Within 60 days after the receipt of a request for review the Administrator shall deliver to the Participant or Beneficiary a written decision with respect to the claim, except that if there are special circumstances (such as the need to hold a hearing) which require more time for processing, the 60-day period shall be extended to 120 days upon notice to the Participant or Beneficiary to that effect. The decision shall be written in a manner calculated to be understood by the Participant or Beneficiary and shall (a) include the specific reason or reasons for the decision and (b) contain a specific reference to the pertinent Plan provisions upon which the decision is based.

 

12.5           Modification of Procedures. The foregoing procedures may be modified from time to time to such extent, if any, as may be required to comply with Department of Labor Regulations.

 

 

IN WITNESS WHEREOF, the undersigned has set his hand and seal as of the effective date written above.

 

	
  

	
By:  /s/ Eli Oxenhorn

 

  

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Exhibit A

 

 

Eligible Plan Participants

 

	
Steven Fischer

 

	
Alan Kaufman

 

	
Irwin Lieber

 

	
Eli Oxenhorn

 

	
Barry Rubenstein

 

  

12exh10_27feldman.htm

Exhibit 10.27

 

EMPLOYMENT AGREEMENT

AGREEMENT, dated as of  January 1, 2011, between GSE Systems, Inc. a Delaware corporation with principal executive offices at 1332 Londontown Blvd., Sykesville, MD  21784 (the "Company"), and Michael Feldman, residing at 145 West Patent Road, Bedford Hills, NY  10507 ("Employee").

WITNESSETH

WHEREAS, the Employee currently serves as Executive Vice President in charge of International Business Development 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 Executive Vice President in charge of International Business Development of the Company and shall have the duties, responsibilities, and authorities normally performed by the Executive Vice President in charge of International Business Development 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 Executive Vice President in charge of International Business Development 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  January 1, 2011 and ending on December 31, 2012 (the “Scheduled Termination Date”).

  

  

  

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 January 1, 2011, the Company shall pay to Employee a base annual salary at the rate of One Hundred Eighty One Thousand Dollars ($181,000.00).  On January 1, 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 Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) 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 Twenty Five Thousand Dollars ($25,000.00) for 2011, 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 2011 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.

  

  

  

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.

  

  

  

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.

  

  

  

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 equal to the greater of (i) the number of months then remaining on the term of this Agreement and (ii) 12 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 one year 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

  

  

  

(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.

  

  

  

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.

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:  _________________________________                                                                          ______________________________

Date

_________________________________                                                                           ______________________________

Date

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