105126

MEMORANDUM

DUTIES OF DIRECTORS OF A BERMUDA EXEMPTED COMPANY

Crawford House | 50 Cedar Avenue | Hamilton HM11 | Bermuda T. +1 441 295 6500 | F. +1 441 295 6566 | E. info@aswlaw.com

INDEX PAGE INTRODUCTION

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1. WHY DOES THE COMPANY NEED DIRECTORS?

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2. LEGAL NATURE OF THE COMPANY AS A MATTER OF BERMUDA LAW 2.1 Appointment of the directors 2.2 Appointment of the officers 2.3 Shareholder Qualifications 2.4 Bermuda residency requirements 2.5 Cessation of appointment 2.6 Chairman 2.7 The registered office 2.8 Correspondence requirements 2.9 Maintenance of registers and other documents 2.10 Register of members 2.11 Register of directors and officers 2.12 Register of debenture-holders 2.13 Annual returns 2.14 Winding-up

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3. THE ROLE OF DIRECTORS IN A BERMUDA COMPANY 3.1 Role of directors 3.2 Legal Responsibilities of Directors: Director's Duties 3.3 Who owes the duties? 3.4 Scope of the director's duties 3.5 Fiduciary Duties of directors 3.6 Duties of Skill and Care 3.7 Delegation of Director's Duties 3.8 Exoneration and Indemnification 3.9 Indemnification provisions 3.10 Other statutory duties of directors 3.11 Day-to-day responsibilities of directors 3.12 Reporting key changes to the Registrar of Companies 3.13 Statutory Liabilities of a director of a Bermuda company 3.14 Civil Liability 3.15 Criminal liability of directors 3.16 Punishment of Directors 3.17 Financial Responsibilities of Directors 3.18 Special duties of Directors as to content of accounts 3.19 Rights of Directors

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4. THE RELATIONSHIP BETWEEN THE DIRECTOR AND THE COMPANY 4.1 A Company's Constitution 4.2 Types of Directors

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4.3 Bye-laws 4.4 Powers and Duties of the Board of Directors 4.5 Proceedings at General Meetings

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INTRODUCTION This memorandum has been prepared as general guidance on Bermuda law for the benefit of the

to ensure that the matters set out herein are correct, this memorandum does not constitute legal advice given to the directors. Further, this memorandum speaks as of its date and is strictly limited to the matters set out herein. This memorandum deals with the responsibilities of directors and officers, as they relate to the Company both under Bermuda statute law and as a matter of common law.

(as amended). 1. WHY DOES THE COMPANY NEED DIRECTORS? The Company is a creature of Bermuda statutory law and can only act through its agents, namely its directors and officers. Bermuda law requires that the Company must appoint and have at all times at least two directors. 2. LEGAL NATURE OF THE COMPANY AS A MATTER OF BERMUDA LAW The Company is a separate legal entity, which is quite distinct from its shareholder members and its directors. As a separate legal person, the Company can amongst other things sue and be sued, enter into contracts and acquire and be acquired. The Company has been established as an exempted company under the Companies Act and as such

60% of the equity of the company be owned by Bermudians. The Company is a limited liability company limited by shares. This means that if the Company is unable to pay its debts and is placed into liquidation, its shareholders will not be required to contribute more than the unpaid amount on the par value of the shares subscribed for by them. Bermuda law does not differentiate between public and private companies. Any Bermuda company may offer to sell its shares to the public provided it prepares a prospectus in accordance with the Companies Act. Where the Company is listed on an overseas stock exchange, if such exchange is, as

be filed with the Registrar of Companies and will be accepted by the Registrar as satisfying the requirements of the Companies Act where an attorney certifies that the appointed stock exchange has received or otherwise accepted the prospectus as a basis for offering shares to the public.

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2.1 Appointment of Directors It will generally be a matter for appoint as a director of the Company an undischarged bankrupt (save with the leave of the Bermuda court) or any person under the age of 16. 2.2 Appointment of the officers It is up to the directors to ensure that a person has appropriate knowledge and experience to act as an officer of the Company. The Company is required to have a secretary who need not be (and usually is not) a director. The Company may also have such other officers, who may or may not be directors, as provided for in

-laws. 2.3 Shareholder Qualifications Directors and other officers generally are not required to own shares in the companies which they manage but Bermuda law permits this. 2.4 Bermuda residency requirements Except for occasional restrictions imposed by the government on the activities of certain foreign nationals, a director or officer can be of any nationality and can live anywhere in the world. However, a Bermuda exempted company must have at least two Bermuda-resident statutory officers, and if there are no Bermuda resident directors then at least the Secretary and an additional

2.5 Cessation of appointment Directors and officers may retire at the end of their appointment, they may resign, be removed or be

remains in office (and unless th -laws otherwise provide), the vacancy can be filled by resolution of the remaining directors. If, however, the vacancy results in an inquorate board, the vacancy must be filled by a resolution passed at a general meeting of shareholders (or by written resolution of the shareholders).

directors and officers.

-laws will normally provide that all directors will retire at each annual general meeting. Those retiring will normally be able to stand for re-election. Alternatively, the bye-laws may provide for a rotating or staggered board of directors, whose constituent members retire at different intervals.

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2.6 Chairman Recent changes to the Companies Act have removed the requirement that the Company must have a president and vice-president or a chairman and a deputy chairman who must also be directors of the Company though if the Company's bye-laws provide for this, the requirement must still be satisfied. In this event, if a chairman is not specifically elected, then the president would ordinarily serve as the chairman of board meetings. Whether the most senior officer of a company is known as the chairman or the president, no specific legal duties, rights or powers attach to the title other than those that the bye-laws would ordinarily provide in relation to the most senior officer chairing board meetings. The chairman or president may also be generally responsible for cha

-laws typically provide that the chairman shall not have a casting vote in the event of a tied vote, and in such event any resolution shall fail. 2.7 The registered office The Company must have a registered office, which is the address to which any formal communication may be sent. The Company may change its registered office at any time but must notify the Registrar of Companies of such change. The registered office must be a physical location not just a post office box as people have the right to visit the office to inspect certain registers and other documents. They should also be able to deliver documents there by hand. Reminders and annual return forms from the Bermuda Registrar of Companies will be sent to the registered office. The registered office can be anywhere in Bermuda. Reminders and annual return forms from the Bermuda Registrar of Companies are sent to the registered office. It is important that these should be monitored since if annual returns or the payment of annual government fees become overdue and subsequent letters from the Registrar are ignored, the Company may be struck off the register and dissolved on the basis that it appears not to be carrying on business or otherwise in operation. If the Company were to be struck off, it would cease to exist and, subject to the rules on bona vacantia, its assets would pass to the Crown. It could only be restored following a court order. After 20 years, a company can no longer be revived. 2.8 Correspondence requirements

its directors. There is also no requirement to show the name of a secretary. However, Bermuda law will require that the full name of the Company, including the word

and other official publications of the Company, and in all bills of exchange, promissory notes, endorsements, cheques and orders for money or goods purporting to be signed by or on behalf of the Company, and in all bills of parcels, invoices, receipts and letters of credit of the Company.

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2.9 Maintenance of registers and other documents The directors and secretary of the Company should ensure that the registers of shareholders, debenture holders (if any) and the directors and officers are kept current. These are discussed separately in the following sections. Minutes must be kept of all meetings of the board and of committees of the board (e.g. any audit committee, executive committee, etc.) as well as of all general meetings of shareholders. Minute books for all general meetings of shareholders should be available for inspection by shareholders free of charge. The Company must also keep books of account and other financial records of the Company at its registered office.

registered office for at a period of at least 6 years from the date when they were first required. 2.10 Register of members The Company must maintain a register of its members (shareholders). The register of members must state the names and addresses of the members, and the number of shares held by each member. If shares are numbered, then the numbers must be recorded, together with the amount paid up on each share. 2.11 Register of directors and officers The Company must maintain at its registered office a register of its directors and officers stating

require that details of other directorships in other companies be disclosed. 2.12 Register of debenture-holders The Company should keep a register of its debenture-holders, so that transfers of debentures may be properly made, and so that notices required by the Companies Act to be given or financial statements required to be supplied may easily be so provided. 2.13 Annual returns The Company must send to the Registrar of Companies an annual return and a statement that it is an exempted company. The first annual return must be made up to a date not more than 12 months after incorporation. Further returns should be at intervals of not more than 12 months. A fee is payable on each occasion.

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2.14 Winding-up

into voluntary liquidation. It would also be possible simply to allow the Company to be struck off the Bermuda Register of Companies. However, this is generally not to be recommended as companies which have been struck off may be re-instated at any time within a period up to 20 years. 3. THE ROLE OF DIRECTORS IN A BERMUDA COMPANY 3.1 Role of Directors Generally, the directors are delegated the duty of managing the affairs of the Company. Bermuda law requires that the Company must be managed by not less than two directors. As the Company has no physical existence, the directors will be the agents through whom the Company will primarily act. As agents, directors incur no personal liability on contracts made by them on behalf of the Company which fall within the scope of their authority. If a director acts in excess of the powers under the memorandum of association or bye-laws he may be personally liable for breach of warranty of authority. Where his actions are only in excess of the powers conferred by the bye-laws, the shareholders in general meeting may ratify his actions. Apart from the specific powers and duties of directors which may be included in the bye-laws of a company, together with the various rules for appointing and removing directors, the general law describes a broad range of responsibilities which define the role which a director plays in relation to his company. The directors are responsible for the management of the Company. While their powers can be

bye-laws they can, in most cases, do anything that the Company can do and must therefore be responsible in the use of their powers. Since the directors can act for the Company, they must ensure that the Company does everything that it is obliged to do by law, and that the decisions they make are in the best interests of the Company. In this context, the interests of the Company are those of the shareholders as a whole. Save to the extent that powers may be delegated to a committee of directors or to a managing or executive director, the directors take collective action as a board. Individual directors do not have the authority to commit the Company unless authorised to do so by the board. There is no single statutory prescription in Bermuda describing all of the duties of directors of Bermuda companies.

-laws will delimit and describe the powers and duties of the directors and of the other officers of the Company. These constitutional documents, together with the Companies Act and relevant case-law, collectively describe the scope

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Bermuda law maintains the doctrine that if the directors act outside th

without authority;; and in either case are answerable to the Company itself. The Companies Act contains various provisions relating to the duties of directors and in some instances prescribes penalties for breach of such duties. The Companies Act does not distinguish between executive and non-executive directors: non-executive directors are directors for all purposes of the

Section 97 (1) of the Companies Act imposes the following core duties on directors: (1) Every officer of a company in exercising his powers and discharging his duties

shall

(a) act honestly and in good faith with a view to the best interests of the company;; and

(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in compar

Section 97 (1) (a) of the Companies Act codifies the fiduciary duties owed by directors and section

Bermuda courts may also have regard to English common law case-law when considering cases

are not technically binding on the Bermuda courts. 3.3 Who owes the duties? Every officer of the Company owes the duties set out at section 97 of the Companies Act. The only

are owed primarily to the Registrar of Companies rather than to the Company itself.

the Register of Directors and Officers accordingly. The Company may appoint other officers who need not be directors and who shall be appointed and hold office in accordance with the provisions of its bye-laws. Bermuda law follows the English common law rule that the duties of a director are generally owed to the Company as a whole and not to the individual shareholders. A fiduciary duty will only be owed to shareholders in exceptional circumstances, for example where the directors assume such a

where a company is insolvent, or in danger of becoming insolvent, the directors must increasingly have regard to the in

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It is possible that a director, expressly or by conduct, may constitute himself as an agent for one or more of the shareholders and he may thereby be subject to a duty to the shareholder(s) concerned. For example, this duty may arise in circumstances where the directors advise shareholders on the suitability of a takeover bid. Recent changes to Bermuda law provide that a director may fetter his discretion to exercise certain statutory powers of the Company but otherwise may not agree to exercise his discretion in accordance with the directions of some other person. A director must always act in his judgment in the best interests of the Company. 3.5 Fiduciary Duties of directors Each director of the Company owes fiduciary duties to the Company. He must exercise these in good faith for the benefit of the Company as a whole. In so doing, he must use his powers for purposes for which they are intended, and fulfil the duties of his office honestly. Each director must:

Act in good faith in what the director considers is the best interests of the Company and not for any collateral purpose.

Exercise powers for a proper purpose -

which advances the interests of the Company itself as a separate entity, distinct from its shareholders.

Avoid conflicts of interest with the Company, which is to say that a director should not put

himself in a position in which his duties to the Company and his personal interests may conflict. Unless the conflict is fully disclosed, any contract entered into by the Company and a third party in which a director has an interest may be voidable at the instance of the Company, and any profit made recoverable by the Company.

Not make secret profits unless otherwise provided in the bye-laws, a director may not

make a personal profit from any opportunities arising out of his directorship, even if he is acting honestly and for the good of the Company. Any profit made in such circumstances must be paid to the Company.

skill will be a harm done to the Company itself and in respect of which the Company itself should sue. If the Company were to decide not to proceed to bring an action, then a shareholder may only bring an action on behalf of the Company if he can bring himself within one of the exceptions to

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3.6 Duties of Skill and Care Each director of the Company must exercise his skills with reasonable care. This duty has three components:

Degree of Skill The standard required from the director is that of a person of his particular knowledge and experience.

Attention to the business A director should attend to the affairs of the company diligently.

Unless he is an executive director, he is not expected to devote all of his time and attention to the management of the company, or to be an expert in its field of business, but in performing his duties, he mus

Reliance on others A director is not liable for the acts of co-directors or company officers solely by virtue of being a director. Rather, a director may rely in good faith on executives who have been appointed specifically for the purpose of attending to the detail of management. However, directors cannot absolve themselves entirely of their responsibility by delegation to others.

Directors are, to an extent, entitled to delegate their powers of management to professionals and to their fellow directors. Section 97 (5A) of the Companies Act relieves directors from liability if they rely in good faith upon:

(b) a report of an attorney, accountant, engineer, appraiser or other person whose profession lends

Directors are also entitled to trust fellow directors unless there are grounds for suspicion. The

care could only arise if one director had reason to suspect that his fellow director was acting

3.8 Exoneration and Indemnification Section 98 of the Companies Act provides that a company may exempt and indemnify its directors and officers from liability in the following terms:

subsection (2), a company may in its bye-laws or in any contract or arrangement between the company and any officer, or any person employed by the company as auditor, exempt such officer or person from, or indemnify him in respect of, any loss arising or liability attaching to him by virtue of any rule of law in respect of any negligence, default, breach of any duty or breach of

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trust of which the officer or person may be guilty in relation to the company or any subsidiary thereof. (2) Any provision, whether contained in the bye-laws of a company or in any contract or arrangement between the company and any officer, or any person employed by the company as auditor, exempting such officer or person from, or indemnifying him against any liability which by virtue of any rule of law would otherwise attach to him in respect of any fraud or dishonesty of

was dishonest by ordinary standards of reasonable and honest people and he himself realised that by

3.9 Indemnification provisions Any provision in the bye-laws or any contract or other arrangement of a company purporting to exempt a director or any officer from, or to indemnify him against, liability in respect of any fraud or dishonesty, is void. However it is permissible under the Companies Act to exempt or indemnify officers from liability arising from negligence, default, breach of duty or breach of trust not involving dishonesty or fraud. This exemption will cover all liabilities, loss, damage or expense (including but not limited to liabilities under contract, tort and statute). This indemnification may also cover any liabilities which the officer incurs in defending any proceedings (criminal or civil) where relief is granted to him, where he is acquitted, or where judgment is given in his favour. 3.10 Other statutory duties of directors The additional duties set out in the Companies Act. Some of these duties are imposed not on the directors in their own right, but on the Company. However, since the directors are responsible for the performance of the statutory duties imposed on the Company, it is they who must ensure that the Company does everything that is required of it. Other duties are imposed directly on directors themselves, generally taking the form either of the restriction of a particular activity or a requirement to disclose it, or both. 3.11 Day-to-day responsibilities of directors As more fully described above, day-to-day operational responsibilities of directors include the keeping of minutes of meeting, keeping of books of accounts, making certain information available to certain persons, and such other general duties as set out at Part VI of the Companies Act. Further, there are certain duties to report to the Bermuda Government pursuant to the Companies Act.

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3.12 Reporting key changes to the Registrar of Companies

structure and management and certain other events are notified promptly to the Registrar of Companies. Failure to do so is an offence. These key changes include: of association;; Amalgamations;; Charges over Company property;; Continuations;; Annual returns;; and Changes in officers stipulated by other legislation.

Obligations include:

Recording changes of shareholders, directors, and secretaries as they happen;; Ensuring that action is taken on mail sent to the registered office and that the Registrar is

notified if notifiable information changes;; and Ensuring accounts are prepared.

3.13 Statutory Liabilities of a director of a Bermuda company The Companies Act prescribes certain situations where directors and others may be liable for civil or criminal penalties. 3.14 Civil Liability Untrue statement in a prospectus Where persons who have subscribed for shares in a Bermuda company have suffered loss by reason of untrue statements in the prospectus which preceded the subscription for such shares, then, in certain circumstances, the directors who authorised the issue of the prospectus may be liable for damages. Contravention of share allotment provisions in the Companies Act An allotment of any share capital in the Company to the public for subscription cannot be made unless the minimum subscription contained in the prospectus in accordance with section 28(1)(a) of the Companies Act is raised. Any allotment made by the Company in contravention of this is voidable at the instance of the applicant.

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Receiving Loans The directors are prohibited from receiving loans from the Company unless approved with the consent of shareholders having between them not less than nine-tenths of the voting rights of the issued share capital of the Company. Interest in any material contract or person party to a material contract A director shall be deemed not to be acting honestly and in good faith, in accordance with his statutory duty of good faith and his common law duty to avoid a conflict of interest and not to make a secret profit, if he fails to disclose at the first opportunity his interest in any material contract with the Company (or its subsidiaries) or his material interest in any person which is a party to a material contract with the Company (or its subsidiaries). Defence to liability claims A director will not be liable if he relies in good faith upon financial statements of the Company presented to him by another officer (which includes a director) of the Company or a report of any attorney, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by him. Insurance of officers of a company The Company may itself take out a policy of insurance for the benefit of any director against any

person. Insurance may also be purchased to cover any liability arising from any negligence, default, breach of duty or breach of trust of such director, other than breaches involving fraud or other dishonesty. 3.15 Criminal liability of directors Prosecution of delinquent officers and members of a company If it appears to the court in the course of a winding up by the court that any director or former director or a current shareholder of the Company has been guilty of an offence in relation to the Company for which he is criminally liable, the court may, either on the application of any person interested in the winding up or of its own motion, direct the liquidator to refer the matter to the Attorney-General. Offences by officers of companies in liquidation may create criminal liability In certain circumstances, a director of a company which is in (or subsequently goes into) liquidation may commit offences and on conviction may be liable to imprisonment. There is an extensive list of such offences set out in the Companies Act (at section 243). They are largely concerned with failing to disclose or deliver assets to the liquidator, with falsifying or destroying records (see also below), and with obtaining on credit or disposing of property obtained on credit under false pretences. Defrauding creditors by the falsification of books or records may create criminal liability

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The falsification of books or records with intent to defraud creditors of a Company or other persons is made a criminal offence, and a director in contravention may be liable, on conviction, to imprisonment. Fraudulent Trading If, in the course of a winding up of a company, it appears that any business of a company has been carried on with the intent to defraud creditors, the court (on application of the liquidator, the Official Receiver or any creditor of a company) may declare, that any persons who were knowingly parties to the fraudulent trading are personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company. 3.16 Punishment of Directors The court has the power to assess damages against delinquent officers The liquidator or any creditor of a company being wound up may apply to the court for orders against past and present directors and officers, and other persons involved with the formation or promotion of the company who are found to have wrongly applied the assets of such company. Such orders may compel the relevant person to repay or restore money or property with interest at such rate as the court may order, or to contribute such sum to the assets of a company by way of compensation in respect of any misapplication of funds, or other misfeasances or breaches of trust, as the court thinks just. The court has the power to grant relief if the liable officer acted honestly or reasonably In any proceedings for negligence, default, breach of duty or breach of trust against any director, if it appears to the court that such director is or may be liable in respect of such negligence, default, breach of duty or breach of trust, but that he has acted honestly and reasonably, and that, having regard to all the circumstances of the case, including those connected with his appointment, he ought fairly to be excused for the negligence, default, breach of duty or breach of trust, the court may relieve him, either wholly or partly, from his liability, on such terms as the court may think fit. This provision has been interpreted to apply only to actions brought by or on behalf of a company against such director. Disqualification of Directors Bermuda does not have an equivalent to the English Company Directors Disqualification Act 1996. However, where a Bermuda court convicts any person of an offence relating to the affairs of a company, which, in the opinion of the court, involves dishonesty, it may order that such persons shall not, directly or indirectly, take part in or be concerned in the management of any company without leave of the Bermuda Supreme Court. In addition, undischarged bankrupts may not be involved in the management of companies. 3.17 Financial Responsibilities of Directors

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Duty to Maintain Accounts The Companies Act imposes a fine on every officer of the Company which fails to keep proper records and books of account. Accordingly, it is the personal responsibility of each director to ensure that accounts are prepared, made available for inspection by the other directors, circulated to

Where financial records are kept outside Bermuda, cin Bermuda not less frequently than every six months in the case of companies listed on an appointed stock exchange (such as the New York Stock Exchange). The Financial Year This is the period covered by the accounts. For a new company, it starts on the date of incorporation, regardless of when the company actually starts doing business. For a company which has previously prepared accounts, it starts from the day after the period covered by the earlier accounts. The financial year ends on the day the board of directors determine during the organisation of a newly formed company. A particular financial year can be less or more than 12 months, but it cannot be more than 18 months. The first accounting year for a company may be 15 months. Contents of the Accounts The accounts and reports prepared for the members of the Company must include:

a statement of results of operation for the relevant period;; a statement of retained earnings or deficit;; a statement of changes in financial position or cash flows for the period;; a balance sheet;; and notes to the financial statements.

Groups Where the Company is part of a group, there is no legal requirement to consolidate its accounts with other group members, but the generally accepted accounting principles (GAAP) adopted by the Company may require the parent company to provide consolidated accounts for the group as well as individual accounts for the Company. Audit

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Unless the members of the Company waive it in

members. The directors may appoint the first auditors to hold the office until the first general meeting. After this, the auditors are appointed by the members at the annual general meeting. The auditor must be a member of a recognised supervisory body and eligible under the rules of that body to act as a company auditor. Auditors may not serve in any other office of the Company. Subject to their annual appointment (which, as noted above, may be waived by unanimous resolution in respect of any particular year), auditors remain in office until they resign, retire or are removed. Approval of accounts and Pre The accounts must be approved by the board of directors, two of whom must sign the balance sheet. It is conventional practice for a Bermuda company to provide at each annual general meeting a

results of operations of the company. This report may be written or delivered orally at the general meeting, or the requirement may be waived. Circulation of accounts and reports The accounts must normally be considered by a general meeting of the Company, usually the annual

anyone else entitled to attend the AGM. It is the duty of the directors to call the meeting at the appropriate time. A general meeting must be held annually. The Company may pass a resolution to dispense with the laying before a general meeting of accounts and reports, but this requires unanimity of all directors and shareholders. 3.18 Special Duties of Directors as to content of accounts It is the duty of each director:

-laws may justify the delegation of that duty to others;;

uthority of the

Company acting by its board of directors;;

in relation to the presentation of the annual report and balance sheet, to obtain and/or

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value of the assets merely by the assurances of the chairman or the expression of belief by the auditor;; and

- in practice, the

directors will look to the Company's Investment Manager to report to the board on such investments.

3.19 Rights of Directors A director has many statutory and common law duties and responsibilities. To facilitate the

director is given certain rights and powers. Financial information The Companies Act requires the directors to lay before the members certain financial statements of the Company not less than annually (unless waived). The directors have the right on demand to inspect the books of account maintained by management pursuant to the Companies Act. In particular, they have the right to be supplied with the financial statements not less frequently than every 6 months where the Company is listed on an appointed stock exchange. Inspection of records Although the Company may impose reasonable restrictions, the minutes of general meetings of the Company may be inspected by any shareholder or director of the Company without charge for not less than two hours during business hours each day. If a director makes a request to the Company and pays a reasonable charge he is entitled to be provided with a copy of any such minutes within seven days after he has made a request. If any inspection is refused or if any copy required is not sent within the proper time, the Company and every officer of the Company who is in default will liable for a fine of ten dollars and ten dollars each day that there is a default. In the case of any such refusal or default, the court may by order compel an immediate inspection of the minutes or direct that the copies required shall be sent to the persons who required them. Attending Meetings The directors of the Company are entitled (upon lodging a written request) to receive notice of, and to attend and be heard at, any and all general meetings of shareholders. 4. THE RELATIONSHIP BETWEEN THE DIRECTOR AND THE COMPANY

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The Company has a memorandum of association, which determines its name, its business objects, and share capital. The memorandum of association is signed by the initial subscribers.

-laws. The

4.2 Types of Directors These are discussed below but the Companies Act makes no legal distinction between the types of directors discussed below. Managing or executive directors While decisions about the management of a Company are a matter for the board as a whole, subject

-laws, the board may appoint one or more managing executives or directors with authority to commit the Company without reference to the board. De facto Directors

director and who claims to be a director when he has not been appointed as such. Bermuda does espect of claims under

the directors of a company have befound in the English Companies Act 1985 (at section 741(2)). Alternate Directors

for a full director. An alternate director is a person appointed by either a full director himself, or by the shareholders, in respect of a particular director, to stand in for the full director in his absence. An alternate director has all the rights and powers of the director to whom he is alternate, but is not entitled to attend and vote at any meeting of the directors otherwise than in the absence of such director. A director may appoint and remove his own alternate director. Any appointment or removal of an alternate director by a director is effected by depositing a notice of appointment or removal with the secretary at the registered office, signed by that director, and the director may be removed by resolution of the board. Subject to that, the office of alternate director continues until the next annual election of directors or, if earlier, the date on which the relevant director ceases to be a director. An alternate director may act as alternate to more than one director. Every person acting as an alternate director is (except as regards powers to appoint an alternate and remuneration) subject in all respects to the provisions of the bye-laws relating to the directors. The alternate director is solely responsible to the Company for his acts and defaults and is not deemed to

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be the agent of or for any director for whom he is alternate. An alternate director may be paid expenses and is entitled to be indemnified by the Company to the same extent as if he were a director. Every person acting as an alternate director has one vote for each director for whom he acts as alternate. The signature of an alternate director to any resolution in writing of the board or a committee of the board is, unless the terms of his appointment provides to the contrary, as effective as the signature of the director or directors to whom he is alternate. Representation of a director by another director A similar but distinct provision exists at section 91A of the Companies Act, whereby (in the absence of contrary provisions in the bye-laws) a director may, in his own absence, be represented by another director whom he has appointed to represent him. Such representation extends to voting on behalf of the appointing director. The appointment must be in writing, and be lodged with the secretary. Such an appointment can be either in respect of a particular meeting or meetings, or can be more general in nature, and in any event may be revoked in writing at any time by notice to the secretary. A director so appointed to represent another director can do so only in the absence of the appointing director, but the director so appointed may, in such circumstances, vote on his own behalf as well as on behalf of the appointing director. 4.3 Bye-laws It is important to also look at t -laws and any shareholder agreements in conjunction with the Companies Act to determine the full scope of what a director must know about his role and also of the particular company of which he is a director. Typically, the bye-laws will provide explicit detail on a variety of important matters, such as the following: Appointment and Removal of Directors The number of directors may not be less than two although the Company may, by a resolution from time to time, determine a higher minimum and maximum number. Subject to the Companies Act and any special provisions in the bye-laws, the directors serve until the termination of the next

(except upon re-election at an AGM), must provide written acceptance of their appointment, in such form as the board thinks fit, by notice in writing to the registered office within thirty days of their appointment. The Company must set a minimum and maximum number of directors, either at the AGM or by unanimous written resolution of the shareholders. The Company may also determine that one or more vacancies on the board are deemed casual vacancies for the purposes of the bye-laws. Without prejudice to the power of the Company by resolution in pursuance of any of the provisions of the bye-laws to appoint any person to be a director, the board, so long as a quorum of directors remains in office, will have the power under the bye-laws of the Company to appoint any individual to be a director so as to fill a casual vacancy. The Company may remove a director by specifically convening a special general meeting of the shareholders. The notice of any such meeting must be served on the director concerned no less than 14 days before the meeting. The affected director is entitled to be heard at that meeting. Any vacancy created by the removal of a director at a special general meeting may be filled at the meeting

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by the election of another director in his place or, in the absence of any such election, by the board at a subsequent board meeting. Resignation and Disqualification of Directors The office of a director is usually vacated upon the happening of any of the following events:

If he resigns his office by notice in writing delivered to the registered office or tendered at a meeting of the board;;

If he becomes of unsound mind or a patient for any purpose of any statute or applicable law relating to mental health and the board resolves that his office is vacated;;

If he becomes bankrupt under the laws of any country or compounds with his creditors;; If he is prohibited by law from being a director;; or If he ceases to be a director by virtue of the Companies Act or is removed from office

pursuant to the bye-laws. Direct

and in the absence of a determination to the contrary such fees are deemed to accrue from day to day. Each director may be repaid for his reasonable travel, hotel and incidental expenses in attending and returning from meetings of the board or committees constituted pursuant to any bye-law or general meetings that may have relevance. Also, he may be paid all expenses properly and

duties as a director. Executive directors can, of course, be paid a salary.

A director may hold any other office or place of profit with the Company (except that of auditor) in conjunction with his office of director for any period and upon whatever terms the board may determine. Also, he may be paid extra remuneration for the additional office (whether by way of salary, commission, participation in profits or otherwise). This extra remuneration, again, is normally in addition to any remuneration provided for serving as a director. A director may act by himself or through his firm in a professional capacity for the Company (otherwise than as auditor) and he or his firm is entitled to remuneration for professional services as if he were not a director. Subject to the provisions of the Companies Act, a director may, notwithstanding his office, be a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is otherwise interested. He may also be a director or other officer of, or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate promoted by the Company or in which the Company is interested. In appropriate circumstances, the board may also be able to appoint its directors or other trusted persons to the position of director or officer in any other company in which the company has shares.

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If the bye-laws allow a director to hold an office or employment, the director is not, by reason only of his being a director, accountable to the Company for any benefit derived from holding that office or employment, provided he declares the nature of his interest at the first opportunity (either at a meeting of the board or by writing to the directors), as required by the Companies Act. This is also true for any transaction or arrangement which the bye-laws allow him to be interested in. No such transaction or arrangement is liable to be avoided on the ground of any disclosed interest or benefit. A general notice to the directors by a director or officer declaring that he is a director or officer of, or has an interest in, a person and is to be regarded as interested in any transaction or arrangement made with that person, is a sufficient declaration of interest in relation to any such transaction or arrangement. This is subject to the Companies Act and any further disclosure required by the Companies Act. 4.4 Powers and Duties of the Board of Directors General Management of the Company The board is generally empowered to manage the business of the Company and pay all expenses incurred in promoting and incorporating the Company. The board exercises all the powers of the Company. The shareholders have no direct powers of management, but have a residual right to dismiss the board and appoint new directors, or, in the absence of any directors, govern by resolutions instructing the remaining officers of the Company. This is subject to the provisions of the Companies Act and the bye-laws of the Company. Validity of Actions No alteration of the bye-laws and no subsequent directions from shareholders can invalidate any prior act of the board which would have been valid if that alteration had not been made or that direction had not been given. The powers given by the bye-laws are not generally limited by any further special powers given to the board by the bye-laws. If a quorum is met, then a meeting of the board is deemed to be competent to exercise all the powers, authorities and discretions for the time being vested in or exercisable by the board. The power to borrow Among the powers of the Company which the board may exercise, the board is allowed to borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company. The board may also issue debentures and other securities. The board generally has the power to issue shares in the company without the approval of the shareholders, but this is subject to any pre-emption rights, which may be contained in the bye-laws. Cheques & Other Financial Instruments The board determines the format and manner of issue of all cheques, promissory notes, drafts, bills of exchange and other instruments, whether negotiable or transferable or not. In the same way, the

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board determines how all receipts for money paid to the Company are signed, drawn, accepted, endorsed or otherwise executed. Pensions The board on behalf of the Company may provide benefits, whether by the payment of gratuities, pensions or otherwise, for any person including any director or former director who has held any executive offtaken to include employment with any body corporate which is or has been a subsidiary or affiliate of the Company, or with a predecessor in the business of the Company or of any such subsidiary or

is or was dependent on him, and the Company may contribute to any fund and pay premiums for the purchase or provision of any such gratuity, pension or other benefit, or for the insurance of any such person. Managing Director The board may appoint one or more of its members to be a managing director, joint managing director or an assistant managing director or to hold any other employment or executive office with the Company. The board will determine the terms (including the period) of, and may also revoke or terminate, any such appointments. Generally, if a managing director has his appointment as director revoked or terminated, it will not adversely affect any claims for damages that he may have against the Company under his contract of employment. Likewise, neither the termination nor the revocation will affect any claims the Company may have against the managing director, even if those claims are involved in the revocation or termination. Any person who is appointed as managing director is entitled to receive such remuneration (if any, and whether by way of salary, commission, participation in profits or otherwise) as the board may determine. This remuneration may be in addition to or in lieu of, his remuneration as a director.

Powers of Attorney and Board Committees The board may appoint under a power of attorney any company, firm or person or any fluctuating body of persons, to be the attorney(s) (for legal purposes) of the Company. The board will determine the powers, authority and duration of the appointment. However the power of attorney may not attempt to confer powers exceeding those vested in or exercisable by the board itself under the bye-laws. Any power of attorney may contain provisions for the protection and convenience of persons dealing with the appointed attorney or the attorney himself. Where appropriate, a power of attorney may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him. The board has the ability to give to any director or officer any of its powers with any restrictions or conditions that it may deem necessary. This conferred power may be to the exclusion of the power held by the board, or may be held collaterally with it. The board may of course revoke or vary such powers as it sees fit. However, there must be notice given of such revocation or variation, as, without such notice, no person dealing in good faith will be affected by it. The board may also delegate any of its powers, authorities and discretions to committees of the board. Any committee of the board will have to abide by any regulations which the board imposes,

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and if there are no regulations specifically for the committee, the bye-laws of the Company will regulate the committee as far as it is practicable. General Meetings and Written Resolutions The Companies Act requires the board to convene, and the Company to hold, an annual general meeting each year. Additional shareholder meetings, known as special general meetings, are held when the Companies Act so requires or when the board thinks fit. Except in the case of the removal of auditors or directors, anything which may be done by resolution in general meeting may, without a meeting and without any previous notice being required, be done by resolution in writing. This resolution may be executed by a majority of the shareholders (or any class of shareholders) unless the bye-laws impose a higher requirement (it used to be the case that written resolutions had to be passed unanimously). Such a resolution in writing may be signed in as many counterparts as may be necessary. The date of the resolution in writing is the date when the resolution is signed by, or on behalf of, the last shareholder to sign the resolution. Any reference in any enactment to the date of passing of a resolution is, in relation to a resolution in writing made in accordance with this section, a reference to such date. A resolution in writing is as valid as if it had been passed by the Company in general meeting or, if applicable, by a meeting of the relevant class of shareholders of the Company, as the case may be. A resolution in writing made in accordance with the rules above would constitute minutes for the purposes of the Companies Act. Notice of General Meetings

-laws, but subject to any special consent to short notice, annual

must be called by not less than 10 days notice in writing. The notice is exclusive of the day on which it is served and of the day for which it is given. The notice must specify the place, day and time of the meeting, and, in the case of special general meetings, the nature of the business to be considered. Notice should also be given to each director or resident representative who has delivered a written notice to the registered office requesting that such a notice is to be sent to him. A meeting of the Company may be called by shorter notice than required by the bye-laws, if it is so agreed:-

(1) in the case of a meeting called as an annual general meeting, by all the shareholders entitled to attend and vote thereat;; and

(2) in the case of any other meeting, by a majority in number of the shareholders having the right to attend and vote at the meeting, providing that that majority also represents not less than 95% in nominal value of the shares giving that right.

Proceedings at a meeting will not be invalidated by any of the following:

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accidental omission to give notice of the meeting;; accidental omission to send out instruments of proxy;; non-receipt of a notice of the meeting (by anyone entitled);; or non-receipt of any instruments of proxy (by anyone entitled).

4.5 Proceedings at General Meetings Quorum and Adjournment A quorum must be present before any business is transacted at any general meeting, although the lack of a quorum does not prevent the appointment, choice or election of a chairman. The bye-laws may provide that only a single individual may constitute a quorum but otherwise two shareholders (present in person or by proxy) will form a quorum (unless a greater number is stipulated in the bye-laws). If the Company or a class of shareholders has only one shareholder then that one shareholder will in any event satisfy quorum requirements (whether present in person or by proxy). A meeting will usually be dissolved if a quorum is not present within five minutes of the appointed time of the meeting, if the meeting was called on the request of the shareholders. In any other case, the meeting will be adjourned to a day, time and place as the chairman of the meeting may determine. The bye-laws will generally provide that the Company must give a minimum notice of any meeting adjourned through want of a quorum. Telephonic Meetings A meeting of the shareholders may be held through any form of communication such as telephone conference calling which permits all the people participating in the meeting to communicate with each other simultaneously and instantaneously. This form of communication in a meeting will constitute presence in person at such meeting. Chairing the Meeting The chairman (if any) of the board or, in his absence, the president will generally preside as chairman at every general meeting. If there is no chairman or president, or if at any meeting neither the chairman nor the president is present within five minutes after the time appointed for holding the meeting, or if neither of them is willing to act as chairman, the directors present will choose one of their number to act. If only one director is present he should preside as chairman if willing to act. If no director is present, or if each of the directors present declines to take the chair, the persons present and entitled to vote on a poll should elect one of themselves to be chairman and preside over the meeting. The chairman of the meeting has the ability to adjourn the meeting to another time or location providing he has the consent of any meeting at which a quorum is present. He has an obligation to adjourn the meeting if the meeting so decides. Any business that would have been allowed to be transacted at the original meeting will be allowed to be transacted at the adjourned meeting. Other than that, business is not to be transacted at any adjourned meeting. If a meeting is adjourned for three months or more a notice of the adjourned meeting is given as in the case of an original

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meeting. Unless there is an express provision in the bye-laws to do so, it is not necessary to give any notice of an adjournment of the business to be transacted at an adjourned meeting. Attride-Stirling & Woloniecki April 2010