Document:

exv10w1

 

	 	 	 	 	 

Exhibit 10.1

CREDIT AGREEMENT

     THIS CREDIT AGREEMENT (this “Agreement”) is entered into as of December 29, 2006, by and
between CRAY INC., a Washington (“Borrower”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).

RECITALS

     Borrower has requested that Bank extend or continue credit to Borrower as described below, and
Bank has agreed to provide such credit to Borrower on the terms and conditions contained herein.

     Borrower has agreed and acknowledged that a condition to Bank’s extension of any credit to
Borrower is that all such credit extended by Bank be and hereby is designated “Senior Debt” and
“Designated Senior Debt” under and as defined in that certain Indenture dated as of December 6,
2004, between Borrower, as Issuer and The Bank of New York Trust Company, N.A., as Trustee.

     NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Bank and Borrower hereby agree as follows:

ARTICLE I

CREDIT TERMS

     SECTION 1.1.  LINE OF CREDIT.

     (a)      Line of Credit. Subject to the terms and conditions of this Agreement, Bank
hereby agrees to make advances to Borrower from time to time up to and including December 1, 2008,
not to exceed at any time the aggregate principal amount of Twenty Five Million Dollars
($25,000,000) (“Line of Credit”), the proceeds of which shall be used to finance Borrower’s working
capital requirements. Borrower’s obligation to repay advances under the Line of Credit shall be
evidenced by a promissory note dated as of December 29, 2006 (“Line of Credit Note”), all terms of
which are incorporated herein by this reference.

     (b)      Letter of Credit Subfeature. As a subfeature under the Line of Credit, Bank
agrees from time to time during the term thereof to issue or cause an affiliate to issue standby
letters of credit for the account of Borrower (each, a “Letter of Credit” and collectively,
“Letters of Credit”); provided however, that the aggregate undrawn amount of all outstanding
Letters of Credit shall not at any time exceed Fifteen Million Dollars ($15,000,000). The form and
substance of each Letter of Credit shall be subject to approval by Bank, in its sole discretion.
No Letter of Credit shall have an expiration date subsequent to the maturity date of the Line of
Credit. The undrawn amount of all Letters of Credit shall be reserved under the Line of Credit and
shall not be available for borrowings thereunder. Each Letter of Credit shall be subject to the
additional terms and conditions of the Letter of Credit agreements, applications and any related
documents required by Bank in connection with the issuance thereof. Each drawing paid

 

under a Letter of Credit shall be deemed an advance under the Line of Credit and shall be repaid by
Borrower in accordance with the terms and conditions of this Agreement applicable to such advances;
provided however, that if advances under the Line of Credit are not available, for any reason, at
the time any drawing is paid, then Borrower shall immediately pay to Bank the full amount drawn,
together with interest thereon from the date such drawing is paid to the date such amount is fully
repaid by Borrower, at the rate of interest applicable to advances under the Line of Credit. In
such event Borrower agrees that Bank, in its sole discretion, may debit any account maintained by
Borrower with Bank for the amount of any such drawing.

     (c)      Borrowing and Repayment. Borrower may from time to time during the term of the
Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject
to all of the limitations, terms and conditions contained herein or in the Line of Credit Note;
provided however, that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth above.

     SECTION 1.2.  INTEREST/FEES.

     (a)      Interest. The outstanding principal balance of each credit subject hereto shall
bear interest, and the amount of each drawing paid under the Standby Letter of Credit shall bear
interest from the date such drawing is paid to the date such amount is fully repaid by Borrower, at
the rate of interest set forth in each promissory note or other instrument or document executed in
connection therewith.

     (b)      Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one eighth of
one percent (.125%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the
average daily unused amount of the Line of Credit, which fee shall be calculated on a calendar
quarter basis by Bank and shall be due and payable by Borrower in arrears within ten (10) days
after each billing is sent by Bank.

     (c)      Letter of Credit Fees. Borrower shall pay to Bank (i) fees upon the issuance of
each Letter of Credit equal to forty five hundredths percent (.45%) per annum (computed on the
basis of a 360-day year, actual days elapsed) of the face amount thereof, and (ii) fees upon the
payment or negotiation of each drawing under any Letter of Credit and fees upon the occurrence of
any other activity with respect to any Letter of Credit (including without limitation, the
transfer, amendment or cancellation of any Letter of Credit) determined in accordance with Bank’s
standard fees and charges then in effect for such activity. Fees will be payable quarterly in
arrears for each Letter of Credit issued.

     SECTION 1.3.   COLLECTION OF PAYMENTS.   Borrower authorizes Bank to collect all interest and
fees due under each credit subject hereto by charging Borrower’s deposit account with Bank, account
number listed under the heading Section 1.3 on Schedule A hereto, or any other deposit account
maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds
in any such deposit account to pay all such sums when due, the full amount of such deficiency shall
be immediately due and payable by Borrower.

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     SECTION 1.4.  COLLATERAL.

     As security for all indebtedness and other obligations of Borrower to Bank subject hereto,
Borrower hereby grants to Bank security interests of first priority in all Borrower’s Wells Fargo
Brokerage Services, LLC, account number listed under the heading Section 1.4 on Schedule A hereto.

     All of the foregoing shall be evidenced by and subject to the terms of such security
agreements, financing statements, deeds or mortgages, and other documents as Bank shall reasonably
require, all in form and substance satisfactory to Bank. Borrower shall pay to Bank immediately
upon demand the full amount of all charges, costs and expenses (to include fees paid to third
parties and all allocated costs of Bank personnel), expended or incurred by Bank in connection with
any of the foregoing security, including without limitation, filing and recording fees and costs of
appraisals, audits and title insurance.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

     Borrower makes the following representations and warranties to Bank, which representations and
warranties shall survive the execution of this Agreement and shall continue in full force and
effect until the full and final payment, and satisfaction and discharge, of all obligations of
Borrower to Bank subject to this Agreement.

     SECTION 2.1.  LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good
standing under the laws of Washington, and is qualified or licensed to do business (and is in good
standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification
or licensing is required or in which the failure to so qualify or to be so licensed could have a
material adverse effect on Borrower.

     SECTION 2.2.  AUTHORIZATION AND VALIDITY. This Agreement and each promissory note, contract,
instrument and other document required hereby or at any time hereafter delivered to Bank in
connection herewith (collectively, the “Loan Documents”) have been duly authorized, and upon their
execution and delivery in accordance with the provisions hereof will constitute legal, valid and
binding agreements and obligations of Borrower or the party which executes the same, enforceable in
accordance with their respective terms.

     SECTION 2.3.  NO VIOLATION. The execution, delivery and performance by Borrower of each of the
Loan Documents do not violate any provision of any law or regulation, or contravene any provision
of the Articles of Incorporation or By-Laws of Borrower, or result in any breach of or default
under any contract, obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.

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     SECTION 2.4.  LITIGATION. There are no pending, or to the best of Borrower’s knowledge
threatened, actions, claims, investigations, suits or proceedings by or before any
governmental authority, arbitrator, court or administrative agency which could have a material
adverse effect on the financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.

     SECTION 2.5.  CORRECTNESS OF FINANCIAL STATEMENT. The annual financial statement of Borrower
dated December 31, 2005, and all interim financial statements delivered to Bank since said date,
true copies of which have been delivered by Borrower to Bank prior to the date hereof, (a) are
complete and correct and present fairly the financial condition of Borrower, (b) disclose all
liabilities of Borrower that are required to be reflected or reserved against under generally
accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c)
have been prepared in accordance with generally accepted accounting principles consistently
applied. Since the dates of such financial statements there has been no material adverse change in
the financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a security
interest in or otherwise encumbered any of its assets or properties except in favor of Bank or as
otherwise permitted by Bank in writing.

     SECTION 2.6.  INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or
adjustments of its income tax payable with respect to any year.

     SECTION 2.7.  NO SUBORDINATION. There is no agreement, indenture, contract or instrument to
which Borrower is a party or by which Borrower may be bound that requires the subordination in
right of payment of any of Borrower’s obligations subject to this Agreement to any other obligation
of Borrower.

     SECTION 2.8.  PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all
permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade
names, patents, and fictitious names, if any, necessary to enable it to conduct the business in
which it is now engaged in compliance with applicable law.

     SECTION 2.9.  ERISA. Borrower is in compliance in all material respects with all applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from
time to time (“ERISA”); Borrower has not violated any provision of any defined employee pension
benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a “Plan”); no
Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect
to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in
accordance with the Plan documents and under generally accepted accounting principles.

     SECTION 2.10.  OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed
money, any purchase money obligation or any other material lease, commitment, contract, instrument
or obligation.

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     SECTION 2.11.  ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior
to the date hereof, Borrower is in compliance in all material respects with all applicable federal
or state environmental, hazardous waste, health and safety statutes, and any
rules or regulations adopted pursuant thereto, which govern or affect any of Borrower’s operations
and/or properties, including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986,
the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances
Control Act, as any of the same may be amended, modified or supplemented from time to time. None
of the operations of Borrower is the subject of any federal or state investigation evaluating
whether any remedial action involving a material expenditure is needed to respond to a release of
any toxic or hazardous waste or substance into the environment. Borrower has no material
contingent liability in connection with any release of any toxic or hazardous waste or substance
into the environment.

     SECTION 2.12.  SENIOR AND DESIGNATED SENIOR DEBT. Borrower agrees and acknowledges that all
credit extended by Bank to Borrower hereunder is hereby designated “Senior Debt” and “Designated
Senior Debt” under and as defined in that certain Indenture dated as of December 6, 2004, between
Borrower, as Issuer and The Bank of New York Trust Company, N.A., as Trustee.

ARTICLE III

CONDITIONS

     SECTION 3.1.  CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to extend any
credit contemplated by this Agreement is subject to the fulfillment to Bank’s satisfaction of all
of the following conditions:

     (a)      Approval of Bank Counsel. All legal matters incidental to the extension of credit
by Bank shall be satisfactory to Bank’s counsel.

     (b)      Documentation. Bank shall have received, in form and substance satisfactory to
Bank, each of the following, duly executed:

	 	 	 
	 	(i)
	This Agreement and each promissory
note or other instrument or document required hereby.
	 	(ii)
	Corporation Resolution: Borrowing.

	 	(iii)
	Certificate of Incumbency.

	 	(iv)
	Security Agreement Securities Account.

	 	(v)
	Addendum to Security Agreement

	 	(vi)
	Securities Account Control Agreement.

	 	(vii)
	Statement of Purpose

	 	(viii)
	Such other documents as Bank may require under any other Section of this Agreement.

     (c)      Financial Condition. There shall have been no material adverse change, as
determined by Bank, in the financial condition or business of Borrower, nor any material decline,
as determined by Bank, in the market value of any collateral required hereunder or a substantial or
material portion of the assets of Borrower.

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     SECTION 3.2.  CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each
extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank’s
satisfaction of each of the following conditions:

     (a)      Compliance. The representations and warranties contained herein and in each of
the other Loan Documents shall be true on and as of the date of the signing of this Agreement and
on the date of each extension of credit by Bank pursuant hereto, with the same effect as though
such representations and warranties had been made on and as of each such date, and on each such
date, no Event of Default as defined herein, and no condition, event or act which with the giving
of notice or the passage of time or both would constitute such an Event of Default, shall have
occurred and be continuing or shall exist.

     (b)      Documentation. Bank shall have received all additional documents which may be
required in connection with such extension of credit.

     (c)       Additional Letter of Credit Documentation. Prior to the issuance of each Letter
of Credit, Bank shall have received a Letter of Credit Agreement, properly completed and duly
executed by Borrower.

ARTICLE IV

AFFIRMATIVE COVENANTS

     Borrower covenants that so long as Bank remains committed to extend credit to Borrower
pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of
Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of
all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:

     SECTION 4.1.  PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other
liabilities due under any of the Loan Documents at the times and place and in the manner specified
therein, and immediately upon demand by Bank, the amount by which the outstanding principal balance
of any credit subject hereto at any time exceeds any limitation on borrowings applicable thereto.

     SECTION 4.2.  ACCOUNTING RECORDS. Maintain adequate books and records in accordance with
generally accepted accounting principles consistently applied, and permit any representative of
Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies
of the same, and to inspect the properties of Borrower.

     SECTION 4.3.  FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail
satisfactory to Bank:

     (a)      not later than 90 days after and as of the end of each fiscal year, an audited financial
statement of Borrower, prepared by a certified public accountant acceptable to Bank, to include
balance sheet, income statement and statement of cash flow;

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     (b)      not later than 40 days after and as of the end of each fiscal quarter, a financial
statement of Borrower, prepared by Borrower, to include balance sheet, income statement and
statement of cash flow;

     (c)      from time to time such other information as Bank may reasonably request.

     SECTION 4.4. COMPLIANCE.  Preserve and maintain all licenses, permits, governmental approvals,
rights, privileges and franchises necessary for the conduct of its business; and comply with the
provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower’s
continued existence and with the requirements of all laws, rules, regulations and orders of any
governmental authority applicable to Borrower and/or its business.

     SECTION 4.5. INSURANCE.  Maintain and keep in force, for each business in which Borrower is
engaged, insurance of the types and in amounts customarily carried in similar lines of business,
including but not limited to fire, extended coverage, public liability, flood, property damage and
workers’ compensation, with all such insurance carried with companies and in amounts satisfactory
to Bank, and deliver to Bank from time to time at Bank’s request schedules setting forth all
insurance then in effect.

     SECTION 4.6. FACILITIES.  Keep all properties useful or necessary to Borrower’s business in
good repair and condition, and from time to time make necessary repairs, renewals and replacements
thereto so that such properties shall be fully and efficiently preserved and maintained.

     SECTION 4.7. TAXES AND OTHER LIABILITIES.  Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal, including without
limitation federal and state income taxes and state and local property taxes and assessments,
except (a) such as Borrower may in good faith contest or as to which a bona fide dispute may arise,
and (b) for which Borrower has made provision, to Bank’s satisfaction, for eventual payment thereof
in the event Borrower is obligated to make such payment.

     SECTION 4.8. LITIGATION.  Promptly give notice in writing to Bank of any litigation pending or
threatened against Borrower with a claim in excess of $250,000.

     SECTION 4.9. NOTICE TO BANK.  Promptly (but in no event more than five (5) days after the
occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of
notice or the passage of time or both would constitute an Event of Default; (b) any change in the
name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable
Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect
to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower is
required to maintain, or any uninsured or partially uninsured loss through liability or property
damage, or through fire, theft or any other cause affecting Borrower’s property.

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     SECTION 4.10. LIQUIDITY.  In addition to minimum balances in the Collateral account as defined
in the ADDENDUM TO SECURITIES AGREEMENT, Borrower (a) shall maintain liquid assets (defined as
cash, cash equivalents and/or publicly traded/quoted marketable securities acceptable to Bank in
its sole discretion) with an aggregate fair market value not at any time less than Twenty Five
Million Dollars ($25,000,000). Further, not later than 30 days after the end of each quarter
Borrower shall provide to Bank copies of all Borrower’s current account statements for deposit,
brokerage and other accounts, together with such other information as Bank may require to determine
compliance with this covenant.

ARTICLE V

NEGATIVE COVENANTS

     Borrower further covenants that so long as Bank remains committed to extend credit to Borrower
pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of
Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of
all obligations of Borrower subject hereto, Borrower will not without Bank’s prior written consent:

     SECTION 5.1. USE OF FUNDS.  Use any of the proceeds of any credit extended hereunder except
for the purpose stated in Article I hereof.

     SECTION 5.2. OTHER INDEBTEDNESS.  Create, incur, assume or permit to exist any indebtedness or
liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to
Bank (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date
hereof and (c) liabilities not to exceed an aggregate of $5,000,000 at any time outstanding.

     SECTION 5.3. DIVIDENDS, DISTRIBUTIONS.  Declare or pay any dividend or distribution either in
cash, stock or any other property on Borrower’s stock now or hereafter outstanding, nor redeem,
retire, repurchase or otherwise acquire any shares of any class of Borrower’s stock now or
hereafter outstanding, except for payment of applicable taxes in connection with restricted stock
and stock options issued pursuant to the Company’s stock incentive plans approved by the Company’s
shareholders.

     SECTION 5.4. PLEDGE OF ASSETS.  Mortgage, pledge, grant or permit to exist a security interest
in, or lien upon, all or any portion of Borrower’s assets now owned or hereafter acquired, except
any of the foregoing in favor of Bank or which is existing as of, and disclosed to Bank in writing
prior to the date hereof and in amounts not to exceed an aggregate of $5,000,000 at any time.

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ARTICLE VI

EVENTS OF DEFAULT

     SECTION 6.1.  The occurrence of any of the following shall constitute an “Event of Default”
under this Agreement:

     (a)      Borrower shall fail to pay when due any principal, interest, fees or other amounts payable
under any of the Loan Documents.

     (b)      Any financial statement or certificate furnished to Bank in connection with, or any
representation or warranty made by Borrower or any other party under this Agreement or any other
Loan Document shall prove to be incorrect, false or misleading in any material respect when
furnished or made.

     (c)      Any default in the performance of or compliance with any obligation, agreement or other
provision contained herein or in any other Loan Document (other than those referred to in
subsections (a) and (b) above), and with respect to any such default which by its nature can be
cured, such default shall continue for a period of twenty (20) days from its occurrence.

     (d)      Any default in the payment or performance of any obligation, or any defined event of
default, under the terms of any contract or instrument (other than any of the Loan Documents)
pursuant to which Borrower, any guarantor hereunder or any general partner or joint venturer in
Borrower if a partnership or joint venture (with each such guarantor, general partner and/or joint
venturer referred to herein as a “Third Party Obligor”) has incurred any debt or other liability to
any person or entity, including Bank.

     (e)      The filing of a notice of judgment lien against Borrower or any Third Party Obligor; or
the recording of any abstract of judgment against Borrower or any Third Party Obligor in any county
in which Borrower or such Third Party Obligor has an interest in real property; or the service of a
notice of levy and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower or any Third Party Obligor; or the entry of a judgment against Borrower or any
Third Party Obligor.

     (f)      Borrower or any Third Party Obligor shall become insolvent, or shall suffer or consent to
or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of
its property, or shall generally fail to pay its debts as they become due, or shall make a general
assignment for the benefit of creditors; Borrower or any Third Party Obligor shall file a voluntary
petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement
with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time (“Bankruptcy Code”), or under any state or federal
law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or
proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower or
any Third Party Obligor, or Borrower or any Third Party Obligor shall file an answer admitting the
jurisdiction of the court and the material allegations of any involuntary petition; or Borrower or
any Third Party Obligor shall be adjudicated a bankrupt, or an order for relief shall be entered
against Borrower or any Third Party Obligor by any court
of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law
relating to bankruptcy, reorganization or other relief for debtors.

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     (g)      There shall exist or occur any event or condition which Bank in good faith believes
impairs, or is substantially likely to impair, the prospect of payment or performance by Borrower
of its obligations under any of the Loan Documents.

     (h)      The death or incapacity of Borrower or any Third Party Obligor if an individual. The
dissolution or liquidation of Borrower or any Third Party Obligor if a corporation, partnership,
joint venture or other type of entity; or Borrower or any such Third Party Obligor, or any of its
directors, stockholders or members, shall take action seeking to effect the dissolution or
liquidation of Borrower or such Third Party Obligor.

     SECTION 6.2. REMEDIES.  Upon the occurrence of any Event of Default: (a) all indebtedness of
Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall
at Bank’s option and without notice become immediately due and payable without presentment, demand,
protest or notice of dishonor, all of which are hereby expressly waived by Borrower; (b) the
obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall
immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available
under each of the Loan Documents, or accorded by law, including without limitation the right to
resort to any or all security for any credit subject hereto and to exercise any or all of the
rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and
remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of
an Event of Default, are cumulative and not exclusive, and shall be in addition to any other
rights, powers or remedies provided by law or equity.

ARTICLE VII

MISCELLANEOUS

     SECTION 7.1. NO
WAIVER.  No delay, failure or discontinuance of Bank in exercising any right,
power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right,
power or remedy; nor shall any single or partial exercise of any such right, power or remedy
preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any
breach of or default under any of the Loan Documents must be in writing and shall be effective only
to the extent set forth in such writing.

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     SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may
desire to give to any other party under any provision of this Agreement must be in writing
delivered to each party at the following address:

	 	 	 
	
	BORROWER:	CRAY INC.

411 First Ave. So., Suite 600

Seattle, WA 98104

Attn: Brian C. Henry, Executive V.P. and C.F.O. and

Kenneth W. Johnson, Senior V.P., Gen. Counsel and Corp. Secretary
	 	BANK:
	WELLS FARGO BANK, NATIONAL ASSOCIATION

999 Third Avenue

Seattle, WA 98104

or to such other address as any party may designate by written notice to all other parties. Each
such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand
delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3)
days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.

     SECTION 7.3.
COSTS, EXPENSES AND ATTORNEYS’ FEES.  Borrower shall pay to Bank immediately upon
demand the full amount of all payments, advances, charges, costs and expenses, including reasonable
attorneys’ fees (to include outside counsel fees and all allocated costs of Bank’s in-house
counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of
this Agreement and the other Loan Documents, Bank’s continued administration hereof and thereof,
and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank’s
rights and/or the collection of any amounts which become due to Bank under any of the Loan
Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief, whether incurred at the
trial or appellate level, in an arbitration proceeding or otherwise, and including any of the
foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other person) relating to
Borrower or any other person or entity.

     SECTION
7.4. SUCCESSORS, ASSIGNMENT.  This Agreement shall be binding upon and inure to the
benefit of the heirs, executors, administrators, legal representatives, successors and assigns of
the parties; provided however, that Borrower may not assign or transfer its interests or rights
hereunder without Bank’s prior written consent. Bank reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in, Bank’s rights and
benefits under each of the Loan Documents. In connection therewith, Bank may disclose all
documents and information which Bank now has or may hereafter acquire relating to any credit
subject hereto, Borrower or its business, or any collateral required hereunder.

     SECTION 7.5.
ENTIRE AGREEMENT; AMENDMENT.  This Agreement and the other Loan Documents
constitute the entire agreement between Borrower and Bank with respect to each credit subject
hereto and supersede all prior negotiations, communications, discussions and correspondence
concerning the subject matter hereof. This Agreement may be amended or modified only in writing
signed by each party hereto.

     SECTION 7.6. NO
THIRD PARTY BENEFICIARIES.  This Agreement is made and entered into for the
sole protection and benefit of the parties hereto and their respective permitted successors and
assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or
indirect cause of action or claim in connection with, this Agreement or any other of the Loan
Documents to which it is not a party.

     SECTION 7.7. TIME.  Time is of the essence of each and every provision of this Agreement and
each other of the Loan Documents.

-11-

 

     SECTION 7.8.
SEVERABILITY OF PROVISIONS.  If any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity without invalidating the remainder of such provision or
any remaining provisions of this Agreement.

     SECTION 7.9.
COUNTERPARTS.  This Agreement may be executed in any number of counterparts, each
of which when executed and delivered shall be deemed to be an original, and all of which when taken
together shall constitute one and the same Agreement.

     SECTION 7.10.
GOVERNING LAW.  This Agreement shall be governed by and construed in accordance
with the laws of the State of Washington.

     SECTION 7.11. ARBITRATION.

     (a)    Arbitration. The parties hereto agree, upon demand by any party, to submit to
binding arbitration all claims, disputes and controversies between or among them (and their
respective employees, officers, directors, attorneys, and other agents), whether in tort, contract
or otherwise in any way arising out of or relating to (i) any credit subject hereto, or any of the
Loan Documents, and their negotiation, execution, collateralization, administration, repayment,
modification, extension, substitution, formation, inducement, enforcement, default or termination;
or (ii) requests for additional credit.

     (b)    Governing Rules. Any arbitration proceeding will (i) proceed in a location in
Washington selected by the American Arbitration Association (“AAA”); (ii) be governed by the
Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice
of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or
such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s
commercial dispute resolution procedures, unless the claim or counterclaim is at least
$1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the
arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex
commercial disputes (the commercial dispute resolution procedures or the optional procedures for
large, complex commercial disputes to be referred to herein as applicable, as the “Rules”). If
there is any inconsistency between the terms hereof and the Rules, the terms and procedures set
forth herein shall control. Any party who fails or refuses to submit to arbitration following a
demand by any other party shall bear all costs and expenses incurred by such other party in
compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by
any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar
applicable state law.

     (c)    No Waiver of Provisional Remedies, Self-Help and Foreclosure. The
arbitration requirement does not limit the right of any party to (i) foreclose against real or
personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds
of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies
such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or
after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of
the right or obligation of any party to submit
any dispute to arbitration or reference hereunder, including those arising from the exercise of the
actions detailed in sections (i), (ii) and (iii) of this paragraph.

-12-

 

     (d)    Arbitrator Qualifications and Powers. Any arbitration proceeding in which
the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected
according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any
dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote
of a panel of three arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed
in the State of Washington or a neutral retired judge of the state or federal judiciary of
Washington, in either case with a minimum of ten years experience in the substantive law applicable
to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or
not an issue is arbitratable and will give effect to the statutes of limitation in determining any
claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a
hearing at the arbitrator’s discretion) any pre-hearing motions which are similar to motions to
dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall
resolve all disputes in accordance with the substantive law of Washington and may grant any remedy
or relief that a court of such state could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any award. The arbitrator shall also have the
power to award recovery of all costs and fees, to impose sanctions and to take such other action as
the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the Washington Rules of Civil Procedure or other applicable law. Judgment upon
the award rendered by the arbitrator may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff,
to submit the controversy or claim to arbitration if any other party contests such action for
judicial relief.

     (e)    Discovery. In any arbitration proceeding, discovery will be permitted in
accordance with the Rules. All discovery shall be expressly limited to matters directly relevant
to the dispute being arbitrated and must be completed no later than 20 days before the hearing
date. Any requests for an extension of the discovery periods, or any discovery disputes, will be
subject to final determination by the arbitrator upon a showing that the request for discovery is
essential for the party’s presentation and that no alternative means for obtaining information is
available.

     (f)    Class Proceedings and Consolidations. No party hereto shall be entitled to join
or consolidate disputes by or against others in any arbitration, except parties who have executed
any Loan Document, or to include in any arbitration any dispute as a representative or member of a
class, or to act in any arbitration in the interest of the general public or in a private attorney
general capacity.

     (g)    Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and
expenses of the arbitration proceeding.

-13-

 

     (h) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and
the parties shall take all action required to conclude any arbitration proceeding within 180 days
of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business or by applicable law or
regulation. If more than one agreement for arbitration by or between the parties potentially
applies to a dispute, the arbitration provision most directly related to the Loan Documents or the
subject matter of the dispute shall control. This arbitration provision shall survive termination,
amendment or expiration of any of the Loan Documents or any relationship between the parties.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day
and year first written above.

	 	 	 	 	 	 	 	 	 
	CRAY INC.
 	 	WELLS FARGO BANK,
    NATIONAL ASSOCIATION
	 

	By:  	/s/
Brian C. Henry
	 	 	By:  	/s/
Russell C. Carson

	  	
Brian C. Henry, Executive Vice President

and Chief Financial Officer 	  	 	
Russell C. Carson, Vice President 

	 	 	 	 	 
	 	 	 
	By:  	/s/ Kenneth W. Johnson
 	 	 
	 	Kenneth W. Johnson, Senior Vice President, 	 	 
	 	General Counsel and Corporate Secretary 	 	 
	 

-14-<PAGE>

                                                                    Exhibit 10.1

                                                        EFFECTIVE DATE: 12/21/06

                              AMENDED AND RESTATED
                              EMPLOYMENT AGREEMENT
                                (KELLY W. GEORGE)

     This Agreement, dated as of the 21st day of December 2006 (the "Effective
Date") by and between MACKINAC FINANCIAL CORPORATION, a Michigan corporation
(the "Company"), and KELLY W. GEORGE ("Employee").

                                   WITNESSETH:

     WHEREAS, the Company currently employs Employee pursuant to an Employment
Agreement dated December 14, 2004, as amended by First Amendment to Employment
Agreement dated January 12, 2005 (the "First Agreement"); and

     WHEREAS, Employee and Company have agreed to extend Employee's employment
by Company on the terms and conditions set forth herein.

     NOW, THEREFORE, in consideration of the premises and the mutual
undertakings set forth herein the parties hereto agree as follows:

     1. Employment and Duties. As President and Chief Executive Officer of the
Company's wholly-owned subsidiary, mBank (the "Bank"), Employee shall have the
duties and responsibilities commensurate with such titles and offices,
including, without limitation, all such duties and responsibilities as now are
or hereafter may be set forth with respect to such offices in the bylaws of the
Bank or in the directives of the Board of Directors of the Company (the "Company
Board") or Board of Directors of the Bank. Employee shall also serve as a
President of the Company and shall have the duties and responsibilities
commensurate with such title and offices. As of the Effective Date, this
Agreement shall amend, supersede and replace in its entirety any other written
or oral Employment Agreements between Company and Employee, including,

<PAGE>

without limitation, that certain agreement dated December 14, 2004, as amended,
and all such agreements shall be of no further force and effect. During the
Employment Period (as hereinafter defined), Employee also shall serve as an
officer of such other affiliates of the Bank or the Company and in such other
capacities as he may be requested by the Company Board and shall assume such
duties and responsibilities as from time to time may be assigned to him by the
Company Board, all without additional compensation therefore. Throughout the
Employment Period, Employee shall devote his business time, attention, and
energy on a full-time basis exclusively to the affairs of the Bank and the
Company and its affiliates.

     2. Term of Employment. The employment of Employee hereunder shall commence
on the Effective Date and shall continue, unless earlier terminated as provided
in this Agreement, through January 31, 2010 (the "Employment Period").

     3. Cash Compensation. As full cash compensation for all services to be
performed by Employee hereunder, the Company shall pay to Employee the
following:

          (a) salary of not less than $209,000.00 per year (to be reviewed
     annually by the Company Board), payable at the intervals at which other
     executive officers of the Company and Bank are paid;

          (b) an additional incentive bonus (if earned) payable during the
     Employment Period prior to fiscal year-end in accordance with the Company's
     or Bank's policy or plan.

     4. Relocation Benefits. If Employee is directed by Bank to relocate his
principal office location by fifty (50) miles or more from Manistique, Michigan
during the Employment Period, the Company shall pay or reimburse Employee's
reasonable relocation expenses as determined and approved by the Chairman of the
Company, and if requested by Employee, within sixty (60) days of the Company's
direction to relocate his principal office, the Company shall

<PAGE>

purchase Employee's principal residence for its appraised fair market value,
which appraisal shall be paid for by Company. The Company shall be responsible
for all costs associated with such purchase.

     5. Employee Benefits; Disability Insurance.

     (a) During the Employment Period, Employee shall be entitled to participate
in such Company employee benefit plans as from time to time are maintained,
sponsored, or made available to the executive employees of the Company and the
Bank generally, in each case on the same terms and subject to the same
conditions and limitations generally applicable to other executive officers with
respect to participation therein. Employee shall be entitled to no less than
five (5) weeks of paid vacation per calendar year during the Employment Period.
Vacation time not taken shall not be accumulated and carried forward to a
subsequent calendar year.

     (b) To provide for Employee in the event of Employee's disability, Employer
will purchase, to the extent available, a supplemental disability insurance
policy for the benefit of the Employee that will provide Employee with the
difference between 80% of Employee's then current base salary and the amount
available under the Company's long term disability policy until the earlier of
Employee's (i) death and (ii) attainment of age 65.

     6. Certain Expenses. With the approval of the Chairman of the Company, and
in accordance with the Company's practices and policies as then effect during
the Employment Period as same are applied to executive officers, the Company
shall pay or reimburse Employee for reasonable travel, entertainment, and other
incidental expenses (including, the cost of business publications and
professional associations), incurred on or in furtherance of the business of the
Company or the Bank.

<PAGE>

     7. Certain Continuing Obligations of Employee. Throughout the Employment
Period and thereafter, Employee agrees to keep confidential all trade secrets,
customer lists, business strategies, financial and marketing information, and
other data concerning the private affairs of the Company and the Bank or any of
their affiliates, made known to or developed by Employee during the course of
his employment hereunder ("Confidential Information"), not to use any
Confidential Information or supply Confidential Information to others other than
in furtherance of the Company's or Bank's business, and to return to the Company
upon termination of his employment all copies, in whatever form, of all
Confidential Information and all other documents relating to the business of the
Company or any of its affiliates, including, without limitation, the Bank, which
may then be in the possession or under the control of Employee.

     At the request of the Company Board, whether or not made during the
Employment Period, Employee agrees to execute such confidentiality agreements,
assignments of intellectual property rights, and other documents as hereafter
may be reasonably determined by the Company Board to be appropriate to carry out
the purposes of this Section.

     8. Termination of Employment: Effect.

          (a) Employee's employment hereunder will be terminated in any of the
     following ways:

               (i) Immediately upon the death of the Employee;

               (ii) Upon the Employee becoming disabled due to his physical or
          mental condition to regularly and satisfactorily perform his duties
          hereunder (as determined by the Company Board) for a period of one (1)
          year;

<PAGE>

               (iii) By either the Employee or the Company, without or with
          Cause (as hereinafter defined), by thirty (30) days' prior written
          notice to the other, effective as of the date specified in such
          notice; or

               (iv) In the event of a Change in Control (as hereinafter defined)
          unless prior to the effectiveness of the Change in Control, Employee
          enters into a new employment agreement or other arrangement acceptable
          to Employee which terminate this Agreement and Employee's right to the
          compensation and benefits described in Section 9(d) of this Agreement.
          Employee covenants and agrees to negotiate a new employment agreement
          in good faith.

          (b) Upon the termination of Employee's employment in any of the ways
     provided in subsection (a), then this Agreement and all rights and
     obligations of Employee and the Company hereunder (as opposed to rights and
     obligations under any Company employee benefit plan in which Employee
     participated) shall terminate and cease immediately, except for (i)
     Employee's rights to the payments provided in Section 9 below; and (ii) the
     rights and obligations set forth in Section 7 above and Sections 11, 12 and
     13 below.

     9. Payments on Termination. Employee shall be entitled to the following
payments and benefits upon termination of his employment:

          (a) If Employee's employment is terminated under Section 8(a)(i) above
     (by reason of death), or if Employee's employment is terminated (either
     voluntarily by Employee or for Cause by the Company) under Section
     8(a)(iii) above, then Employee shall be entitled to the cash compensation
     under Section 3(a) above, and the benefits and

<PAGE>

     reimbursements to which Employee is entitled under Sections 5(a) and 6
     above, through the date of termination of employment.

          (b) If Employee's employment is terminated, or by the Company without
     Cause under Section 8(a)(iii) above, Employee shall be entitled to a lump
     sum cash compensation equal to his then compensation under Section 3(a)
     above, plus the greater of (i) the highest incentive bonus received by
     Employee under Section 3(b) above, and (ii) the highest incentive bonus
     received by Employee from the period January 1, 2005 through the Effective
     Date; together with the benefits and reimbursements under Sections 5(a) and
     6 above, for a period of one year following the effective date of such
     termination of employment. Unless otherwise prohibited or restricted by
     statute, regulation, or regulatory agency overseeing banks or bank holding
     companies, the lump sum compensation due Employee under this Section 9(b)
     shall be paid to Employee within fifteen (15) days of the event giving rise
     to the required payment.

          (c) If Employee's employment is terminated due to Employee's
     disability under Section 8(a)(ii) above, Employee shall be entitled to
     receive the insurance benefits described in Section 5(b)(ii) above.

          (d) If Employee's employment is terminated upon a Change of Control
     under Section 8(a)(iv) above (by Employee or by the Company other than for
     Cause), Employee shall be entitled to (a) a cash payment equal to 299% of
     Employee's then current base salary under Section 3(a) above immediately,
     and (b) the benefits and reimbursements under Sections 5(a) and 6 above for
     a period of one (1) year following a Change in Control.

          (e) In the event the payments required under this Agreement, when
     added together with any other amounts required to be included by Employee
     under the provisions

<PAGE>

     of the Internal Revenue Code of 1986, as amended, result in an "Excess
     Parachute Payment," as that term is defined in Section 280G of the Code,
     then the amount of the payments provided for in this Agreement shall be
     reduced in an amount which eliminates any and all excise tax to be imposed
     under Section 4999 (or any successor thereto) of the Code.

     10. Definitions. For purposes of this Agreement:

          (a) "Cause" means any of the following:

               (i) Material breach of any of the terms of this Agreement or of
          the Company's or Bank's policies and procedures applicable to
          employees and/or directors;

               (ii) Conviction of or plea of guilty or nolo contendere to a
          crime involving moral turpitude or involving any violation of
          securities or banking law or regulation, or the issuance of any court
          or administrative order enjoining or prohibiting Employee from
          violating any such law or regulation;

               (iii) Repeated or habitual intoxication with alcohol or drugs
          while on the premises of the Company or the Bank or any of their
          affiliates, or during the performance by Employee of any of his duties
          hereunder;

               (iv) Embezzlement of any property belonging or entrusted to the
          Company or the Bank, or any of their affiliates;

               (v) Willful misconduct or gross neglect of duties, or failure to
          act with respect to duties or actions previously communicated to
          Employee in writing by the Company Board; or

<PAGE>

               (vi) Any act or omission of kind or nature determined in good
          faith by the Company Board to be of significant seriousness, which in
          the good faith judgment of the Company Board may have adversely
          affected or may in the future adversely affect the Company, the Bank,
          or any of their affiliates, or has irreparably damaged Employee's
          continued ability to function effectively in any of the capacities
          contemplated by this Agreement.

          (b) "Change in Control" shall occur if at any time:

               (a) Any person or group (as such terms are used in connection
               with Section 13(d) and 14(d) of the Exchange Act) becomes the
               "beneficial owner" (as defined in Rule 13(d)(3) and 13(d)(5)
               under the Exchange Act), directly or indirectly, of securities of
               the Company or Bank representing twenty-five percent (25%) or
               more of the combined voting power of the Company's or Bank's then
               outstanding securities;

               (b) A merger, consolidation, sale of assets, reorganization, or
               proxy contest is consummated and, as a consequence of which,
               members of the Company Board in office immediately prior to such
               transaction or event constitute less than a majority of the Board
               thereafter; or

               (c) A merger, consolidation, or reorganization is consummated
               with any other corporation pursuant to which the shareholders of
               the Company or the Bank immediately prior to the merger,
               consolidation, or reorganization do not immediately thereafter
               directly or indirectly own more than fifty percent (50%) of the
               combined voting power of the voting securities entitled to vote
               in the election of directors of the merged, consolidated, or
               reorganized entity.

     Notwithstanding the foregoing, no trust department or designated fiduciary
     or other trustee of such trust department of the Company or a subsidiary of
     the Company, or other similar fiduciary capacity of the Company with direct
     voting control of the stock shall be treated as a person or group within
     the meaning of subsection (i)(a) hereof. Further, no profit-sharing,
     employee stock ownership, employee stock purchase and savings, employee
     pension, or other employee benefit plan of the Company or any of its
     subsidiaries, and no trustee of any such plan in its capacity as such
     trustee, shall be treated as a person or group within the meaning of
     subsection (i)(a) hereof.

     11. Integration; Amendment. This Agreement contains the entire agreement of
the parties relating to the subject matter hereof and thereof, and supersedes
and replaces in their

<PAGE>

entirety any prior agreements or understandings concerning such subject matter,
including without limitation the First Agreement. This Agreement may not be
waived, changed, modified, extended, or discharged orally, but only by agreement
in writing signed in the case of the Company by the Chairman or Vice Chairman of
the Company Board.

     12. Arbitration. Any controversy, dispute, or claim arising out of or
relating to employee's employment or to this Agreement or breach thereof shall
be settled by arbitration in accordance with the commercial rules of the
American Arbitration Association at its Southfield, Michigan offices. Judgment
upon any award may be entered in any circuit court or other court having
jurisdiction thereof, without notice to the opposite party or parties. Anything
contained herein to the contrary notwithstanding, this agreement to arbitrate
shall not be deemed to be a waiver of the Company's right to secure equitable
relief including injunction (whether as part of or separate from the arbitration
proceeding) if and when otherwise appropriate.

     13. Noncompetition and Nonsolicitation. Notwithstanding anything to the
contrary contained elsewhere in this Agreement:

          (a) In view of Employee's importance to the success of the Company and
     the Bank, Employee and the Company agree that the Company and the Bank
     would likely suffer significant harm from Employee's competing with the
     Company or the Bank during Employee's term of employment and for some
     period of time thereafter. Accordingly, Employee agrees that Employee shall
     not engage in competitive activities while employed by the Company or the
     Bank and, in the event Employee's employment is terminated voluntarily by
     Employee or without cause by the Company pursuant to Section 8(a)(iii)
     above, during the Restricted Period. Employee shall be deemed to engage in
     competitive activities if he shall, without the prior written consent of
     the Company, (i) within a fifty

<PAGE>

     (50) mile radius of the main office or any branch office of the Bank,
     render services directly or indirectly, as an employee, officer, director,
     consultant, advisor, partner, or otherwise, for any organization or
     enterprise which competes directly or indirectly with the business of
     Company or any of its affiliates in providing financial products or
     services (including, without limitation, banking, insurance, or securities
     products or services) to consumers and businesses, or (ii) directly or
     indirectly acquires any financial or beneficial interest in (except as
     provided in the next sentence) any organization which conducts or is
     otherwise engaged in a business or enterprise within a fifty (50) mile
     radius of the main office or any branch office of the Bank, which competes
     directly or indirectly with the business of the Company or the Bank or any
     of their affiliates in providing financial products or services (including,
     without limitation, banking, insurance or securities products or services)
     to consumers and businesses. Notwithstanding the preceding sentence,
     Employee shall not be prohibited from owning less than five (5%) percent of
     any publicly traded corporation whether or not such corporation is in
     competition with the Company. For purposes hereof, the term "Restricted
     Period" shall equal the longer of (y) twelve (12) months, or (z) the period
     during which Employee receives salary and benefits under Section 8(a)(iii)
     above (as provided in Section 9(b)), in each case commencing as of the date
     of Employee's termination of employment.

     14. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan applicable to contracts made
and to be performed within such State.

<PAGE>

     15. Regulatory Approval. The Company and Employee agree to use their
respective best efforts to obtain such approval of bank regulatory authorities
if required for this Agreement and the payment of any termination payments.

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

                                        MACKINAC FINANCIAL CORPORATION

                                        /S/ Paul D. Tobias
                                        ----------------------------------------
                                        By: Paul D. Tobias
                                        Its: Chairman and Chief
                                             Executive Officer

                                        /S/ Kelly W. George
                                        ----------------------------------------
                                        Kelly W. George

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