Document:

EX-10.3

Benefit Equalization Plan

December 19, 2014

Policy Information

	 	 	 
	Document Title:

	 	Benefit Equalization Plan
	Content Owner:

	 	Director of Human Resources
	Certification of Compliance Contact:

	 	N/A
	Policy Category:

	 	FHLBank Policy
	FHLBank-Level Approver:

	 	Policy Oversight Group
	Board-Level Approver:

	 	Full Board (Compensation)
	Review Frequency:

	 	As Needed
	Initial Effective Date:

	 	03/23/2006
	Last POG Approval Date:

	 	12/11/2014
	Next Review Date:

	 	As Needed

1

This Plan amends the Bank’s Benefit Equalization Plan, which was previously amended and
restated in its entirety effective March 23, 2006 and again restated effective December 31, 2008.
The Bank’s prior Benefit Equalization Plan was effective January 1, 1987 (“1987 Plan”). Any
employee that was a member of the 1987 Plan and that is or becomes a Member under this Plan shall
not be entitled to receive any benefits under the 1987 Plan, but shall be entitled to receive
benefits solely under this Plan. Any employee that was a member of the 1987 Plan and is not, nor
becomes, a Member of this Plan shall only be entitled to receive benefits under the 1987 Plan and
shall only be entitled to benefits accrued through December 31, 1994 (i.e., based solely on years
of employment and compensation paid prior to December 31, 1994). Except as herein provided, the
1987 Plan was terminated and replaced with this Plan effective March 23, 2006. This is an unfunded
Plan that is primarily intended to provide deferred compensation for a select group of management
or highly compensated employees, and is intended to comply with all applicable law, including IRC
Section 409A.

Article 1. Definitions

When used in the Plan, the following terms shall have the following meanings:

1.01 “Account” means the account established and maintained hereunder to record the
contributions deemed to be made by the Member and the Bank, as described in Section 4.06, as well
as the increase in value attributable to the earnings thereon, all as described hereafter.

1.02 “Actuary” means the independent consulting actuary retained by the Bank to assist the
Committee in its administration of the Plan.

1.03 “Adoption Date” means the date of the adoption of the Plan by the Board of Directors.

1.04 “Bank” means the Federal Home Loan Bank of Topeka.

1.05 “Base Salary” means the annual cash compensation relating to services performed during
any calendar year, excluding distributions from nonqualified deferred compensation plans, bonuses,
commissions, overtime, fringe benefits, relocation expenses, incentive payments, non-monetary
awards, and automobile and other allowances paid to a Member for employment services rendered
(whether or not such allowances are included in the Member’s gross income). Base Salary shall be
calculated before reduction for compensation voluntarily deferred or contributed by the Member
pursuant to all qualified or nonqualified plans of the Bank and shall be calculated to include
amounts not otherwise included in the Member’s gross income under IRC Sections 125, 132, 402(e)(3),
402(h), or 403(b) pursuant to plans or arrangements established by the Bank; provided, however,
that all such amounts will be included in compensation only to the extent that had there been no
such plan, the amount would have been payable in cash to the Member. Notwithstanding anything in
this Plan to the contrary, “Base Salary” shall not include any amount paid pursuant to a disability
plan or pursuant to a disability insurance policy.

1.06 “Beneficiary” means the beneficiary or beneficiaries designated in accordance with
Article 6 of the Plan to receive the benefit, if any, payable upon the death of a Member of the
Plan.

	 	 	 
	1.07

1.08

1.09
	 	“Board of Directors” means the Board of Directors of the Bank.

“Change of Control” has the meaning set forth in IRC Section 409A.

“Committee” means the Compensation Committee of the Board of Directors.

1.10 “Deferral Agreement” means the agreement under which a Member elects to defer
compensation under the Plan in accordance with the provisions of Section 4.04.

1.11 “Disability” or “Disabled” means the Member meets one of the following requirements:

(a) The Member is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to result in death
or can be expected to last for a continuous period of twelve (12) months.

(b) The Member is, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a
continuous period of not less than twelve (12) months, receiving income replacement for a
period of not less than three (3) months under an accident and health plan covering
employees of the Bank.

Member will be deemed Disabled under this Section 1.11 if determined to be disabled by the Social
Security Administration. Furthermore, Member will be deemed Disabled under this Section 1.11 if
determined to be disabled in accordance with a disability insurance program, provided that the
definition under such program complies with Subsection 1.11 (a) or (b), or IRC Section 409A, as
applicable.

1.12 “Distribution Event” means the date the Member retires on or after the Member attains
Retirement Age, the Member’s death, Disability, other termination of employment with the Bank, or
Change of Control of the Bank.

1.13 “Effective Date” means January 1, 1995.

1.14 “Retirement Age” means age 62.

1.15 “Retirement Fund” means the Comprehensive Retirement Program of the Financial
Institutions Retirement Fund, a qualified and tax exempt defined benefit pension plan and trust
under Sections 401(a) and 501(a) of the IRC, as adopted by the Bank.

1.16 “Incentive Compensation” means bonuses and other incentive compensation payments payable
to a Member under any incentive compensation plans adopted by the Bank from time to time.

1.17 “IRC” means the Internal Revenue Code of 1986, and any applicable Treasury Regulations
promulgated thereunder, as amended from time to time, or any successor thereto.

1.18 “IRC Limitations” means the cap on compensation taken into account by a plan under IRC
Section 401(a)(17), the limitations on 401(k) contributions necessary to meet the average deferral
percentage (“ADP”) test under IRC Section 5401(k)(3)(A)(ii), the limitations on employee and
matching contributions necessary to meet the average contribution percentage (“ACP”) test under IRC
Section 401(m), the dollar limitations on elective deferrals under IRC Section 402(g) and the
overall limitations on contributions and benefits imposed on qualified plans by IRC Section 415, as
such provisions may be amended from time to time, and any similar successor provisions of federal
tax law.

1.19 “Member” means any person included in the membership of the Plan as provided in Article
2.

1.20 “Pension Benefit” means the benefits payable to a Member, as set forth in Article 3 of
the Plan.

1.21 “Thrift Benefit” means the benefits payable to a Member, as set forth in Article 4 of the
Plan.

1.22 “Plan” means the Federal Home Loan Bank of Topeka Benefit Equalization Plan, as set forth
herein and amended from time to time.

1.23 “Thrift Plan” means the Financial Institutions Thrift Plan, a qualified and tax exempt
defined contribution plan and trust under Sections 401(a) and 501(a) of the IRC, as adopted by the
Bank.

Article 2. Membership

2.01 Members of the Plan. Each of the following employees of the Bank is hereby made
a member of the Plan: Sonia R. Betsworth, Denise L. Cauthon, Patrick C. Doran, David S. Fisher,
Dan J. Hess, Andrew J. Jetter, Thomas E. Millburn, Wil W. Osborn and Mark E. Yardley.

2.02 Addition or Termination of Members. The Board of Directors may add additional
employees as Members to the Plan and may, subject to Article 8, terminate the participation in the
Plan of any employee.

2.03 Events Upon Which Benefits Payable. A benefit shall be payable under the Plan to
or on account of a Member only upon the occurrence of a Member’s Distribution Event, except as
provided in Section 4.10 or Article 8. If the Bank authorizes a Member to take a paid or an unpaid
leave of absence from employment, and such leave of absence does not constitute a termination of
employment in accordance with this Plan and IRC Section 409A, the Member shall continue to be
considered eligible for the benefits provided in Articles 3 and 4, in accordance with the
provisions of those Articles. In the event that Member’s leave of absence from the Bank
constitutes a termination of employment in accordance with this Plan and IRC Section 409A, the
Member’s Account balance shall be distributed to the Member in accordance with this Plan.

2.04 Top Hat Plan Exemption. This Plan is intended to be a “top hat plan,” with a
primary purpose to provide deferred compensation for a select group of management or highly
compensated employees. No employee may be a Member of the Plan unless the employee is an officer
of the Bank having an annual compensation greater than 50 percent of the amount in effect under IRC
Section 415(b)(1)(A) for any such plan year or is a highly compensated employee as defined in IRC
Section 414(q).

Article 3. Amount and Payment of Pension Benefits

3.01 Annual Pension Benefit Payable. For Plan years prior to 2009, the amount, if
any, of the annual pension benefit payable to or on account of a Member pursuant to the Plan shall
equal the excess of (a) over (b), as determined by the Committee, where:

(a) is the annual pension benefit (as calculated by the Retirement Fund on the basis of
the form of payment elected by the Member) that would otherwise be payable to or on account
of the Member by the Retirement Fund if its provisions were administered

(i) without regard to the IRC Limitations,

(ii) with the inclusion in the definition of “Salary” for the year deferred of
any amount deferred by a Member under Section 4.01 and 4.02 of this Plan, and

(b) is the annual pension benefit (as calculated by the Retirement Fund on the basis of
the form of payment elected by the Member) that is payable to or on account of the Member by
the Retirement Fund.

For purposes of this Section 3.01 “annual pension benefit” includes any “Active Service Death
Benefit,” “Retirement Adjustment Payment,” “Annual Increment” and “Single Purchase Fixed Percentage
Adjustment” which the Bank elected to provide its employees under the Retirement Fund.

For Plan years on or after January 1, 2009, the amount, if any, of the annual pension benefit
payable to or on account of a Member pursuant to the Plan shall equal:

(a) the annual pension benefit (as calculated by the Retirement Fund on the basis of
the form of payment elected by the Member) that would otherwise be payable to or on account
of the Member by the Retirement Fund if its provisions were administered:

(i) without regard to the IRC Limitations; and

(ii) with the inclusion in the definition of Base Salary for the year deferred
of any amount deferred by a Member under Section 4.01 and 4.02 of this Plan, and

(b) offset by the annual pension benefit (as calculated by the Retirement Fund on the
basis of the form of payment elected by the Member) that is payable to or on account of the
Member by the Retirement Fund, up to the applicable limitation of IRC Section 402(g).

3.02 Regular Form of Payment. Unless the Member elects an optional form of payment
under the Plan pursuant to Section 3.03 below, the annual pension benefit, if any, payable to or on
account of a Member under Section 3.01 above, shall be converted by the actuary and shall be
payable to or on account of the Member in the “Regular Form” of payment, utilizing for that purpose
the same actuarial factors and assumptions then used by the Retirement Fund to determine actuarial
equivalence. For purposes of the Plan, the “Regular Form” of payment means a lump sum paid 90 days
after the Member’s Distribution Event.

3.03 Optional Form of Payment.

(a) A Member may elect in writing to have the Regular Form of benefit, if any, payable
to or on account of a Member under Section 3.02 above, converted by the actuary to any
optional form of payment permitted under the Retirement Fund. The actuary shall utilize for
the purpose of that conversion the same actuarial factors and assumptions then used by the
Retirement Fund to determine actuarial equivalence. For purposes of this optional form of
payment, the Member may elect an optional form of payment that is different for his or her
Pension Benefit that applied to any prior Pension Benefit, and which may be different from
any optional form of payment elections made by the Member for any Thrift Benefit amounts as
determined under Section 4.08. The election of an optional form of payment shall be
exercised through the execution of a Distribution Election Form and such election shall be
applicable only to the Pension Benefits earned in the calendar year to which the
Distribution Election Form applies.

(b) If a Member who had elected an optional form of payment under this Section 3.03
dies after the date the Member’s benefit payments under the Plan have commenced, the only
death benefit, if any, payable under the Plan in respect of said Member shall be the amount,
if any, payable under the optional form of payment which the Member had elected under the
Plan. If a Member who had elected an optional form of payment under this Section 3.03 dies
before the date the Member’s benefit payments under the Plan commence, the Member’s election
of an optional form of benefit shall be inoperative.

(c) An election to change a previously made election under Sections 3.02 or 3.03 may be
made only on the form prescribed by the Committee and filed by the Member with the Committee
at least twelve (12) months before the originally scheduled Distribution Event, and shall
not commence sooner than a date that is at least five (5) years after the originally
scheduled Distribution Event.

3.04 Death Benefit. Upon the death of a Member who had not elected an optional form
of payment under Section 3.03 above, a death benefit shall be paid to the Beneficiary in a lump sum
equal to the excess, if any, of (a) over (b), where:

(a) is the sum of the benefit payments that would otherwise be payable to or on account
of the Member under this Plan; and

(b) is the sum of the benefit payments, if any, which the Member had received under the
Plan.

3.05 Death Prior to Commencement of Payments. If a Member to whom an annual pension
benefit is payable under the Plan dies before commencement of the payment of the Member’s benefit,
the death benefit payable under Section 3.04 shall be payable to the Beneficiary as if the payment
of the Member’s benefit had commenced on the first day of the month in which the Member’s death
occurred.

3.06 Automatic Distribution of Account Balances Less Than IRC Section 402(g)
Limitation. Notwithstanding any other provision of this Plan, in the event that a Member has
experienced a Distribution Event described in Section 2.03 and has not directed otherwise as part
of a prior election, and if the Member’s Account balance is less than the allowable limit under IRC
Section 402(g) for that year, the Member’s entire benefit shall automatically be paid in the form
of a lump sum payment, which shall commence 90 days after the Distribution Event. Notwithstanding
the preceding sentence, if it is administratively impracticable to make the payment by the required
payment date, and such impracticability is unforeseeable, then such payment shall be made as soon
as administratively practicable. The amount of the lump sum payment shall be the equivalent
actuarial value of the benefit otherwise due the Member using the same actuarial factors and
assumptions then used by the Retirement Fund to determine actuarial equivalence.

3.07 Payment of Benefits. All benefits under the Plan shall commence 90 days after
the Member’s Distribution Event. Notwithstanding the preceding sentence, if it is administratively
impracticable to make the payment by the required payment date, and such impracticability is
unforeseeable, then such payment shall be made as soon as administratively practicable.

Article 4. Amount and Payment of Thrift Benefits

4.01 Thrift Contributions. During each calendar year after 1994 and before January 1,
2009, if the Member’s 401(k) account contributions under the Thrift Plan for such year have reached
the maximum permitted by the IRC Limitations as determined by the Committee, and if the Member has
elected to reduce the Member’s compensation for such calendar year in accordance with the
provisions of Section 4.04, then such Member shall be credited with an elective contribution
addition under this Plan equal to the reduction in the Member’s compensation made in accordance
with such election; provided, however, that the sum of all such elective contribution additions for
a Member with respect to any single calendar year shall not be greater than the excess of (a) over
(b), where

(a) is an amount equal to the maximum 401(k) account contribution permitted under the
Thrift Plan for the calendar year as determined under the Thrift Plan if its provisions were
administered without regard to the IRC Limitations and if compensation as defined in the
Thrift Plan included any deferrals made under this Section 4.01 or Section 4.02; and

(b) is an amount equal to his/her regular account and 401(k) account contributions,
including contributions made from Incentive Compensation otherwise payable during such year,
actually made under the Thrift Plan for the calendar year.

If the reduction in a Member’s compensation under such election is determined to exceed the maximum
allowable elective contribution additions for such year, the excess and any related earnings
credited under Section 4.06 shall be paid to such Member within the first two and one half months
of the succeeding calendar year.

For each calendar year on or after January 1, 2009, each Member may make Deferral Elections to
defer a percentage of the Member’s annual Base Salary and annual Incentive Contributions,
regardless of IRC Limitations, in accordance with Sections 4.04 and 4.05 below and subject to any
maximum annual limit of deferral that may be determined by the Board prior to the Members’ deferral
election period. Each annual Base Salary deferral shall be offset by the Member’s actual deferrals
to the Thrift Plan for that calendar year, up to the dollar limitation of IRC Section 402(g),
including any applicable “catch-up contributions”. Matching contributions may be made in
accordance with Section 4.05 below.

4.02 Thrift Make Up Contributions. During each calendar year after 1994 and before
2009, if a portion of a Member’s regular account contribution or 401(k) account contribution to the
Thrift Plan for the preceding year is returned to a Member after the end of such preceding year on
account of the IRC Limitations, and if the Member has elected in accordance with the provisions of
Section 4.04 to reduce the Member’s compensation for the current year by an amount up to the sum of
such Thrift Plan contributions and related earnings returned to the Member’s for the preceding
year, then such Member shall be credited with a make up contribution addition under this Plan equal
to the reduction in the Member’s compensation made in accordance with such election.

For each calendar year on or after January 1, 2009, deferrals in excess of the IRC Section 402(g)
compensation limitation shall not be offset under this Plan, and shall remain credited as deferrals
under this Plan, up to the maximum annual Base Salary and Incentive Compensation limitation
established by the Board. Any amounts credited in excess of the maximum annual Base Salary and
Incentive Compensation limitation shall be paid to the Member within 2 1/2 months after the later of:
the tax year in which the compensation was earned, or the Bank’s fiscal year. Such excess amounts
shall not be credited as a deferral under this Plan.

4.03 Incentive Compensation. For Plan years prior to January 1, 2008, no Member may
defer any Incentive Compensation under the Plan. Notwithstanding this prohibition, Incentive
Compensation paid or payable during a calendar year, and contributions made to the Thrift Plan
therefrom, will be included in the calculations made under Section 4.01 for purposes of determining
the maximum percentage of income which can be deferred and for purposes of determining actual
contributions to a Member’s regular and 401(k) account.

For Plan years beginning on or after January 1, 2009, a Member may defer a portion of the Member’s
Incentive Compensation, up to a maximum amount set by the Board, to the Plan; provided; the Member
must make a deferral election before December 31 of the calendar year preceding the calendar year
in which the Incentive Compensation is earned. The Member shall elect the amount to be deferred,
which may be expressed as a dollar amount or as a percentage of the Member’s total Incentive
Compensation, as well as the time and form of payment of the deferred amount.

4.04 Deferral Election. A Member’s elections under Sections 4.01 and 4.02 shall be
made in accordance with the following provisions:

(a) The Committee shall provide each Member with a Deferral Agreement at least 30 days
prior to the commencement of the calendar year in which compensation is to be earned and
paid. Each Member shall execute and deliver the Deferral Agreement to the Committee no
later than the last business day preceding the calendar year in which compensation is to be
earned and paid.

Notwithstanding the above, a Member who becomes eligible to participate during the calendar
year may execute a Deferral Agreement with respect to the Member’s elections under Section 4.01 and
4.02 within 30 days of the date the Member becomes eligible to participate. An individual who is a
Member on the Adoption Date may file a Deferral Agreement with the Committee within 30 days of the
Adoption Date and in such manner as the Committee may prescribe. With respect to Sections 4.01 and
4.02, the Deferral Agreement shall only apply to compensation earned by the Member in the payroll
periods beginning on or after the later of the date such Agreement is submitted to the Committee or
the Adoption Date.

(b) A Member’s elections on the Member’s Deferral Agreement of the rates which
authorizes deferrals under Sections 4.01 and 4.02 shall be irrevocable for the calendar year
for which the deferral is elected. Notwithstanding the foregoing, a Member may, in the
event of an unforeseeable emergency which results in severe financial hardship as defined by
IRC Section 409A, request a suspension of the Member’s salary deferrals under the Plan. The
request shall be made in a time and manner determined by the Committee. The suspension
shall be effective with respect to the portion of the calendar year remaining after the
Committee’s determination that the Member has incurred a severe financial hardship. The
Committee shall apply standards, to the extent applicable, identical to those described in
Section 4.09 in making its determination.

4.05 Matching Contributions. Effective May 1, 2004, matching contributions may be
made to the Plan in accordance with the following provisions:

(a) Except as provided in Section 4.05(b),(c), and (d) below, for each elective
contribution addition credited to a Member under Section 4.01, such Member shall also be
credited with a matching contribution addition under this Plan equal to the matching
contribution, if any, that would be credited under the Thrift Plan with respect to such
amount if contributed to the Thrift Plan, determined as if the provisions of the Thrift Plan
were administered without regard to the IRC Limitations and determined after taking into
account the Member’s actual contributions to and actual matching contributions under the
Thrift Plan. For Plan Years before January 1, 2009, each make-up contribution addition
credited to the Member under Section 4.02, such Member shall also be credited with a
matching contribution addition under this Plan equal to the matching contribution, if any,
that was lost under the Thrift Plan with respect to the contributions returned for the
preceding calendar year. For Plan years on or after 2009, matching contributions for
make-up contribution addition credits do not apply unless otherwise set forth by the Board;
matching contributions will apply to all amounts not offset in accordance with the terms of
this Plan.

(b) Each calendar year, Patrick C. Doran’s Account under the Plan shall be credited
with a matching contribution addition under this Plan equal to (i) minus (ii) but not below
zero,

(i) is a matching contribution amount equal to 100% of Patrick C. Doran’s
contributions to the Thrift Plan up to 5% of his Salary as defined under the Thrift
Plan; and

(ii) is the amount of matching contributions actually made to Patrick C.
Doran’s Thrift Plan account for such calendar year.

Further, Patrick C. Doran shall be entitled to receive matching contributions in accordance
with Section 4.05(a) of the Plan, except that the matching contribution addition under the Plan
shall be based upon a matching formula equal to 100% of his contributions up to 5% of his
compensation, unless Patrick C. Doran is entitled to receive a greater matching contribution under
the Thrift Plan. In such event, the matching contribution addition, if any, shall be credited to
Patrick C. Doran’s Plan Account based upon the Thrift Plan matching formula.

(c) Each calendar year, David S. Fisher’s Account under the Plan shall be credited with
a matching contribution addition under this Plan equal to (i) minus (ii) but not below zero,

(i) is a matching contribution amount equal to 100% of David S. Fisher’s
contributions to the Thrift Plan up to 6% of his Salary as defined under the Thrift
Plan; and

(ii) is the amount of matching contributions actually made to David S. Fisher’s
Thrift Plan account for such calendar year.

Further, David S. Fisher shall be entitled to receive matching contributions in accordance
with Section 4.05(a) of the Plan, except that the matching contribution addition under the Plan
shall be based upon a matching formula equal to 100% of his contributions up to 6% of his
compensation, unless David S. Fisher is entitled to receive a greater matching contribution under
the Thrift Plan. In such event, the matching contribution addition, if any, shall be credited to
David S. Fisher’s Plan Account based upon the Thrift Plan matching formula.

(d) No matching contribution will be paid on deferrals of Incentive Compensation unless
otherwise set forth and agreed to by the Board, or as otherwise allowable under this Plan.

4.06 Maintenance of Accounts. In addition to maintaining an accounting of all Pension
Benefit amounts that a Member shall otherwise be entitled to under Section 3.01 above, the
Committee shall maintain an Account on the books and records of the Bank for each Member who is a
Member by reason of amounts credited under Section 4.01, 4.02 and 4.05. The elective contribution
additions, make-up contribution additions and matching contribution additions of a Member under
Sections 4.01, 4.02 and 4.05 shall be credited to the Member’s Account as soon as practical after
the date that the compensation reduced under Section 4.01 and/or 4.02 would otherwise have been
paid to such Member.

A Member shall at all times be 100% vested in his/her Account. In addition, the Account of a
Member shall be credited (or debited), from time to time as designated by the Committee, with
earnings (or losses) based upon the investment in the investment vehicle(s) selected by the
Committee. For purposes of a Member’s Thrift contributions under Sections 4.01 and 4.02 of the
Plan, the Committee has designated the measure of investment performance under this Section to be
the greater of the Bank’s internal return on equity rate or the Federal Funds Rate existing on the
date of valuation.

4.07 Payment of Account. The balance credited to all portions of a Member’s Account
shall generally be paid in a lump sum, which shall commence 90 days after the Member’s Distribution
Event. Notwithstanding the preceding sentence, if it is administratively impracticable to make the
payment by the required payment date, and such impracticability is unforeseeable, then such payment
shall be made as soon as administratively practicable.

4.08 Optional Form of Payment.

(a) Notwithstanding Section 4.07 above, a Member may elect in writing to have the
Member’s Account paid under any optional form of payment as set forth below. For these
purposes, the Member may elect an optional form of payment that is different for his or her
Thrift Benefit distribution election that applied to any prior Thrift contribution elections
made based on any other Deferral Agreement amounts, and which may be different from any
optional form of payment elections made by the Member for any Pension Benefit amounts as
determined under Section 3.03 above. Any such optional form of payment elections shall only
apply to the underlying Deferral Agreement executed for that period of election, as
applicable. Members may choose from the following optional forms of payment:

(i) Equal payments over a number of years chosen by the
Member, not to exceed seven years; or

(ii) Any optional form of payment permitted under the
Retirement Fund.

(b) If a Member who had elected an optional form of payment under this Section 4.08
dies after the date the Member’s benefit payments under the Plan have commenced, the only
death benefit, if any, payable under the Plan in respect of said Member shall be the amount,
if any, payable under the optional form of payment which the Member had elected under the
Plan. If a Member who had elected an optional form of payment under this Section 4.08 dies
before the date the Member’s benefit payments under the Plan commence, the Member’s election
of an optional form of benefit shall be inoperative.

(c) An election to change a previously made election under Sections 4.07 or 4.08 may be
made only on the form prescribed by the Committee and filed by the Member with the Committee
at least twelve (12) months before the originally scheduled Distribution Event, and shall
not commence sooner than a date that is at least five (5) years after the originally
scheduled Distribution Event.

4.09 Automatic Distribution of Account Balances Less Than IRC Section 402(g) Limitation.
Notwithstanding any other provision of this Plan, in the event that a Member has experienced a
Distribution Event described in Section 2.03 and has not directed otherwise as part of a prior
election, if the Member’s Account balance is less than the allowable limit under IRC Section 402(g)
for that year, the Member’s entire benefit shall automatically be paid in the form of a lump sum
payment, which shall commence 90 days after the Distribution Event. Notwithstanding the preceding
sentence, if it is administratively impracticable to make the payment by the required payment date,
and such impracticability is unforeseeable, then such payment shall be made as soon as
administratively practicable.

4.10 Death of Member. If a Member dies prior to receiving the balance credited to the
Member’s Account under Section 4.07 or 4.08 above, the balance in the Member’s Account shall be
paid to the Member’s Beneficiary in a lump sum payment which shall commence 90 days after the
Member’s death. Notwithstanding the preceding sentence, if it is administratively impracticable to
make the payment by the required payment date, and such impracticability is unforeseeable, then
such payment shall be made as soon as administratively practicable.

4.11 Unforeseeable Emergency. While employed by the Bank, a Member may, in the event
of an unforeseeable emergency, request a withdrawal from the Member’s Account. The request shall
be made in a time and manner determined by the Committee, shall be for an amount not greater than
the lesser of (i) the amount required to meet the financial hardship, or (ii) the amount of the
Member’s Account, and shall be subject to approval by the Committee. For purposes of this Section
4.11, an unforeseeable emergency means a severe financial hardship resulting from a sudden or
unexpected illness or accident of the Member or one of the Member’s dependents, loss of property
due to casualty or other similar extraordinary and unforeseen circumstances arising as a result of
events beyond the Member’s control and which hardship the Member is unable to satisfy with funds
reasonably available from other sources. The circumstances that will constitute an unforeseeable
emergency will depend upon the facts of each case as determined by the Committee. Notwithstanding
the foregoing, a Member may not receive a payout from the Plan to the extent that the unforeseeable
emergency would be inconsistent with IRC Section 409A. If the Committee approves the Member’s
petition for payout because of an unforeseeable emergency, the Member’s benefit distribution shall
occur within thirty (30) days after the beginning of the calendar quarter following the date of
such approval (or at such later time permitted under IRC Section 409A).

Article 5. Source and Method of Payments

5.01 Obligations are Unsecured General Claims. All payments of benefits under the
Plan shall be paid from, and shall only be a general claim upon, the general assets of the Bank,
notwithstanding that the Bank, in its discretion, may establish a bookkeeping reserve or a grantor
trust (as such term is used in Sections 671 through 677 of the IRC) to reflect or to aid it in
meeting its obligations under the Plan with respect to any Member or prospective Member or
Beneficiary. No benefit whatever provided by the Plan shall be payable from the assets of the
Retirement Fund or the Thrift Plan.

5.02 Member has no Right to Specific Assets. No Member shall have any right, title or
interest whatever in or to any investments which the Bank may make or any specific assets which the
Bank may reserve to aid it in meeting its obligations under the Plan. To the extent that any
person acquires a right to receive payments from the Bank under the Plan, such right shall be no
greater than the right of an unsecured general creditor of the Bank.

Article 6. Designation of Beneficiaries

6.01 Beneficiary Designation. Each Member of the Plan may file with the Committee a
written designation of one or more persons as the Beneficiary who shall be entitled to receive the
amount of all benefits, including Pension Benefits and Thrift Benefits, if any, payable under the
Plan upon the Member’s death. A Member may, from time to time, revoke or change the Member’s
beneficiary designation without the consent of any prior beneficiary by filing a new designation
with the Committee. The last such designation received by the Committee shall be controlling;
provided, however, that no designation, or change or revocation thereof, shall be effective unless
received by the Committee prior to the Member’s death, and in no event shall it be effective as of
a date prior to such receipt.

6.02 No Designated Beneficiary. If no such beneficiary designation is in effect at
the time of a Member’s death, or if no designated beneficiary survives the Member, or if, in the
opinion of the Committee, such designation conflicts with applicable law, the Member’s estate shall
be deemed to have been designated the Member’s beneficiary and shall be paid the amount, if any,
payable under the Plan upon the Member’s death. If the Committee is in doubt as to the right of
any person to receive such amount, the Committee may retain such amount, without liability for any
interest thereon, until the rights thereto are determined, or the Committee may pay such amount
into any court of appropriate jurisdiction and such payment shall be a complete discharge of the
liability of the Plan and the Bank therefore.

Article 7. Administration of the Plan

7.01 Compensation Committee. The Board of Directors has delegated to the Committee,
subject to those powers which the Board of Directors has reserved as described in Article 8 below,
general authority over and responsibility for the administration and interpretation of the Plan.
The Committee shall have full power and authority to interpret and construe the Plan, to make all
determinations considered necessary or advisable for the administration of the Plan and any trust
referred to in Article 5 above, and the calculation of the amount of benefits payable thereunder,
and to review claims for benefits under the Plan. The Committee’s interpretations and
constructions of the Plan and its decisions or actions thereunder shall be binding and conclusive
on all persons for all purposes. The Committee may delegate to any agent or to any sub-committee or
Committee member its authority to perform any act hereunder, including without limitation those
matters involving the exercise of discretion; provided, however, that such delegation shall be
subject to revocation at any time at the discretion of the Committee.

7.02 Engagement of Consultants. If the Committee deems it advisable, it shall arrange
for the engagement of the actuary, and legal counsel and certified public accountants (who may be
counsel or accountants for the Bank), and other consultants, and make use of agents and clerical or
other personnel, for purposes of the Plan. The Committee may rely upon the written opinions of
such actuary, counsel, accountants and consultants, and upon any information supplied by the
Retirement Fund or Thrift Plan for purposes of Section 3.01 of the Plan. The Committee shall
report to the Board of Directors at such intervals as shall be specified by the Board with regard
to the matters for which it is responsible under the Plan.

7.03 Claims for Benefits. All claims for benefits under the Plan shall be submitted
in writing to the Chairman of the Committee. Written notice of the decision on each such claim
shall be furnished with reasonable promptness to the Member or the Member’s Beneficiary (the
“claimant”). The claimant may request a review by the Committee of any decision denying the claim
in whole or in part. Such request shall be made in writing and filed with the Committee within 30
days of such denial, a request for review shall contain all additional information which the
claimant wishes the Committee to consider. The Committee may hold any hearing or conduct any
independent investigation which it deems desirable to render its decision, and the decision on
review shall be made as soon as feasible after the Committee’s receipt of the request for review.
Written notice of the decision on review shall be furnished to the claimant. Any decisions on
claims (where no review is requested) and decisions on review (where review is requested) shall be
subject to review by any court of competent jurisdiction. A claimant who successfully seeks
judicial reversal or modification of a Committee decision shall be reimbursed by the Bank for that
Claimant’s attorneys’ fees.

7.04 Expenses. All expenses incurred by the Committee in its administration of the
Plan shall be paid by the Bank.

Article 8. Amendment and Termination

Although the Bank anticipates that it will continue the Plan for an indefinite period of time,
there is no guarantee that the Bank will not terminate the Plan. Accordingly, the Board of
Directors reserves the right in its sole and absolute discretion to amend, suspend or terminate,
in whole or in part, the Plan, including but not limited to the termination of any Member’s
participation in the Plan, without the consent of the Committee, any Member, Beneficiary or other
person, except that no amendment, suspension or termination shall retroactively impair or otherwise
adversely affect the rights of any Member, Beneficiary or other person to benefits under the Plan
which have accrued prior to the date of such action, as determined by the Committee in its sole
discretion. The Committee may adopt any amendment or take any other action which may be necessary
or appropriate to facilitate the administration, management and interpretation of the Plan or to
conform the Plan thereto, provided any such amendment or action does not have a material effect on
the then currently estimated cost to the Bank of maintaining the Plan.

In the event the Plan is terminated, the termination shall occur in a manner consistent with
the requirements of IRC Section 409A, including but not limited to allowing the Bank to terminate
and liquidate the Plan: (1) when the Bank has declared bankruptcy, (2) when the Bank has
participated in certain Change of Control events, or (3) at the Bank’s discretion, subject to
certain restrictions and limitations described in IRC Section 409A and the regulations promulgated
thereunder.

Article 9. General Provisions

9.01 Successors and Assigns. The Plan shall be binding upon and inure to the benefit
of the Bank and its successors and assigns and the Members, and the successors, assigns, designees
and estates of the Members. The Plan shall also be binding upon and inure to the benefit of any
successor bank or organization succeeding to substantially all of the assets and business of the
Bank, but nothing in the Plan shall preclude the Bank from merging or consolidating into or with,
or transferring all or substantially all of its assets to, another bank which assumes the Plan and
all obligations of the Bank hereunder. The Bank agrees that it will make appropriate provision for
the preservation of Members’ rights under the Plan in any agreement or plan which it may enter into
to effect any merger, consolidation, reorganization, or transfer of assets and assumption of Plan
obligations of the Bank, the term “Bank” shall refer to such other bank and the Plan shall continue
in full force and effect.

9.02 No Continued Right to Employment. Neither the Plan nor any action taken
thereunder shall be construed as giving to a Member the right to be retained in the employ of the
Bank or as affecting the right of the Bank to dismiss any Member from its employ.

9.03 Taxes.

(a) For each Plan Year in which an annual contribution amount credited to a Member’s
Account Balance becomes vested, to the extent applicable and/or required under applicable
law, the Bank shall withhold from that portion of the Member’s Base Salary, bonus and/or
commissions, in a manner determined by the Bank, the Member’s share of FICA and other
employment taxes on the applicable annual contribution amounts. The Bank may, in its sole
discretion, make or change any administrative elections necessary to maximize the tax
benefit available to the Bank or the Member.

(b) Distributions. The Bank may withhold from any payments made to a Member under this
Plan all federal, state and local income, employment and other taxes required to be withheld
by the Bank in connection with such payments, in amounts and in a manner to be determined in
the sole and absolute discretion of the Bank.

(c) Income Inclusion Pursuant to IRC Section 409A. In the event that any portion of a
Member’s Account balance is required to be included in income by the Member prior to receipt
of any distribution under this Plan because of a violation of the requirements of IRC
Section 409A, the Bank may withhold from the Member all federal, state and local income,
employment and other taxes required to be withheld by the Bank in connection with such
income inclusion, in amounts and in a manner determined in the sole and absolute discretion
of the Bank. If necessary, the Member’s annual contribution amount may be reduced to pay
any taxes and to pay income tax withholdings associated with IRC Section 409A.

(d) No Liability. Neither the Bank nor the Committee is responsible for any
consequence, including but not limited to any tax, penalty, or income inclusion, resulting
from a violation of IRC Section 409A or any Treasury Regulations promulgated thereunder with
respect to any election made by any Member under this Plan.

9.04 No Disposition of Member’s Rights. No right or interest of a Member under the
Plan may be assigned, sold, encumbered, transferred or otherwise disposed of any attempted
disposition of such right or interest shall be null and void.

9.05 Incompetency of Member or Beneficiary. If the Committee shall find that any
person to whom any amount is or was payable under the Plan is unable to care for that Member’s
affairs because of illness or accident, or is a minor, or has died, then any payment, or any part
thereof, due to such person or that person’s estate (unless a prior claim therefore has been made
by a duly appointed legal representative), may, if the Committee is so inclined, be paid to such
person’s spouse, child or other relative, an institution maintaining or having custody of such
person, or any other person deemed by the Committee to be a proper recipient on behalf of such
person otherwise entitled to payment. Any such payment shall be in complete discharge of the
liability of the Plan and the Bank therefore.

9.06 Communications to Committee. All elections, designations, requests, notices,
instructions, and other communications from a Member, beneficiary or other person to the Committee
required or permitted under the Plan shall be in such form as is prescribed from time to time by
the Committee and shall be mailed by first-class mail or delivered to such location as shall be
specified by the Committee and shall be deemed to have been given and delivered only upon actual
receipt thereof at such location.

9.07 Benefits Independent. The benefits payable under the Plan shall be in addition
to all other benefits provided for employees of the Bank and shall not be deemed salary or other
compensation by the Bank for the purpose of computing benefits to which s/he may be entitled under
any other plan or arrangement of the Bank.

9.08 No Personal Liability; Indemnification. No Committee member shall be personally
liable by reason of any instrument executed by the Committee member or on behalf of that Committee
member, or action taken by the Committee member in capacity as a Committee member, nor for any
mistake of judgment made in good faith. The Bank shall indemnify and hold harmless each Committee
member and each employee, officer or director of the Bank, to whom any duty, power, function or
action in respect of the Plan may be delegated or assigned, or from whom any information is
requested for Plan purposes, against any cost or expense (including fees of legal counsel) and
liability (including any sum paid in settlement of a claim or legal action with the approval of the
Bank) arising out of anything done or omitted to be done in connection with the Plan, unless
arising out of such person’s fraud or bad faith.

9.09 Terminology. As used in the Plan, the masculine gender shall be deemed to refer
to the feminine, and the singular person shall be deemed to refer to the plural, wherever
appropriate.

9.10 Captions. The captions preceding the Sections of the Plan have been inserted
solely as a matter of convenience and shall not be any manner defined by or limit the scope or
intent of any provisions of the Plan.

9.11 Governing Law. The Plan shall be construed according to the laws of the State of
Kansas in effect from time to time.

2EXHIBIT 10.1

 Exhibit 10.1
 EMPLOYMENT AGREEMENT
 

 THIS EMPLOYMENT AGREEMENT (“Agreement”) is made as of December 22, 2014 (the “Effective Date”) by and between Clean Diesel Technologies, Inc., a Delaware corporation (“CDTI” or the “Company”), and David E. Shea (“Executive”).  
 WHEREAS, CDTI and Executive desire to enter into an agreement setting forth the terms and conditions of Executive’s employment with CDTI;
 NOW THEREFORE, in consideration of the mutual promises of the parties and the mutual benefits they will gain by the performance thereof, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties do hereby agree as follows:
 1.         Employment.
 CDTI employs Executive, and Executive hereby accepts employment with CDTI, upon the terms and conditions set forth in this Agreement for the period beginning on the Effective Date and ending on July 31, 2017. This Agreement supersedes and replaces any other employment or consulting agreement between Executive and CDTI.  
 2.         Position and Duties.
 (a) Executive shall serve as Chief Financial Officer of CDTI and shall have the normal duties, responsibilities and authority of such position, subject to the power of the Board of Directors of CDTI (“Board”) to expand or limit such duties, responsibilities and authority.    
 (b) Executive shall report to the Chief Executive Officer of the Company or Board, in the absence of the Chief Executive Officer.  Executive shall devote Executive’s best efforts and all of Executive’s business time and attention (except for permitted vacation periods, reasonable periods of illness or other incapacity) to the business and affairs of CDTI.  Executive shall perform Executive’s duties and responsibilities hereunder to the best of Executive’s abilities in a diligent, trustworthy, businesslike and efficient manner.  
 (c) Executive will be subject to, and will comply with, the policies, standards and procedures generally applicable to senior management employees of CDTI from time to time.
 3.         Compensation and Benefits.
 (a) Base Salary.  Executive will receive an annual base salary of $225,000 per year, effective as of December 1, 2014, less applicable payroll withholdings and payable in accordance with CDTI’s normal payroll practices.  This salary shall be subject to annual review by CDTI in accordance with its general policies as in effect from time to time.  
 (b) Annual Bonus.  Executive shall be eligible to receive an annual bonus based on CDTI’s achievement of financial objectives established by the Board and the Executive’s achievement of agreed-to personal business objectives.  The amount of any Annual Bonus will 
 1
 
 be based upon the degree to which such objectives are met, and will vary from 0% of Base Salary to a maximum of 68% of Base Salary with a target of 40% of Base Salary and with payout at the discretion of the Board.  The annual bonus will be prorated based on the number of days Executive is employed during a calendar year.  The bonus with respect to any calendar year shall be payable in the following calendar year no later than 45 days from the date on which audited financial statements covering such calendar year are filed on Form 10-K.
 (c) Equity and Cash Incentive.  Executive shall be eligible to receive long term incentive awards correlated to Executive’s salary and calculated using a multiplier determined by the Board. Awards may be comprised of stock options, restricted share units and/or cash compensation. All equity awards shall be issued under and governed by the terms of CDTI’s Incentive Plan and shall be issued at 100% of fair market value on the date of grant. Stock options will be valued using the Company’s customary accounting methodology. All of Executive’s unvested stock options and restricted stock will vest immediately upon Executive’s Termination Without Cause or Resignation for Good Reason concurrent with or subsequent to a Change in Control. “Change in Control” means a change in ownership or control of CDTI effected through any of the following transactions: 
 (i) A merger, consolidation or other reorganization, unless securities representing more than fifty-one percent (51%) of the total combined voting power of the voting securities of the successor company are immediately thereafter beneficially owned, directly or indirectly, by the persons who beneficially owned CDTI’s outstanding voting securities immediately prior to such transaction; or 
 (ii) A sale, transfer or other disposition of all or substantially all of CDTI’s assets in liquidation or dissolution of CDTI; or 
 (iii) The acquisition, directly or indirectly by any person or related group of persons (other than CDTI or a person that directly or indirectly controls, is controlled by, or is under common control with, CDTI), of beneficial ownership of securities possessing more than fifty-one percent (51%) of the total combined voting power of CDTI’s outstanding securities pursuant to a transfer of the then issued and outstanding voting securities of CDTI by one or more of CDTI’s shareholders; or
 (iv) During any period of two (2) consecutive years, individuals who, at the beginning of such period, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director of the Board subsequent to the date of adoption of this Plan whose election, or a nomination for election by CDTI’s shareholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of any individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Board, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934.
 Notwithstanding the foregoing, a transaction shall not constitute a Change in Control if its sole purpose is to change the legal jurisdiction of the Corporation’s incorporation or to create a 

 2
 
 holding company that will be owned in substantially the same proportions by the persons who held the Corporation’s securities immediately before such transaction.  
 (d) Fringe Benefits.  Executive shall be entitled to participate in all of CDTI’s employee benefit programs for which CDTI employees are generally eligible, subject to the terms and conditions of such programs.  Those programs currently include group medical, dental and vision insurance; 401(k) plan; life insurance; short-term and long-term disability insurance; and paid vacation and sick leave.  All benefits are subject to change at the sole discretion of the Board and/or CDTI.
 (i) Executive shall be entitled to four (4) weeks of vacation per year, with a maximum accrual of eight (8) weeks.  Such vacation time shall accrue and will be paid out upon Termination subject to customary payroll withholding in accordance with CDTI’s general practices.  
 (e) Reimbursement of Business Expenses.  CDTI shall reimburse Executive for all reasonable expenses incurred by Executive in the course of performing Executive’s duties under this Agreement which are consistent with CDTI’s policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to CDTI’s requirements with respect to reporting and documentation of such expenses.  Such reimbursements shall be payable in accordance with CDTI’s general reimbursement practices.
 4.         Termination.
 (a) Employment At-Will and Termination.  Executive’s employment with CDTI will be “at will” (i.e., either Executive or CDTI may terminate Executive’s employment at any time for any reason, with or without Cause).  Executive’s employment and this Agreement may be terminated as follows:
 (i) Either party may terminate this Agreement and Executive’s employment for any reason upon thirty (30) days’ written notice to the other party that this Agreement is being terminated;
 (ii) The parties may terminate this Agreement and Executive’s employment for any reason without notice upon mutual written agreement of the parties;
 (iii) CDTI may terminate Executive’s employment and this Agreement upon written notice to Executive at any time that the Board has determined that there is Cause for such termination.  For purposes of this Agreement, “Cause” shall mean Executive’s (A) gross negligence or severe or continued misconduct in the performance of Executive’s material duties; (B) commission of or pleas of “guilty” or “no contest” to a felony offense or commission of any unlawful or criminal act which would be detrimental to the reputation or character of CDTI; (C) participation in fraud or an act of dishonesty against CDTI; (D) intentional material damage to or misappropriation of CDTI property; material breach of company policies or regulations, or (E) material breach of this Agreement that is not cured to CDTI’s reasonable satisfaction within five (5) days after written notice thereof to Executive (provided that any such breach which is not capable of cure, shall immediately constitute “Cause”); 
 3
 
 (iv) This Agreement shall terminate immediately upon Executive’s death or Disability.  “Disability” means Executive’s physical or mental incapacity to perform a substantial portion of his duties and responsibilities for any period or periods which, in the aggregate, total 90 or more calendar days within any 12-month period; or  
 (v) Executive may resign for Good Reason.  For purposes of this Agreement, Executive will have Good Reason to terminate Executive’s employment with CDTI upon the occurrence of any of the following:  (A) a material diminution in the nature or scope of Executive’s responsibilities, duties or authority; (B) CDTI’s requirement that Executive be based at any location more than 50 miles from Executive’s current CDTI office location in Oxnard, California; (C) any other action or inaction that constitutes a material breach by CDTI of this Agreement; or (D) a material diminution in Executive’s Base Salary unless such reduction is part of an across-the-board reduction for the Chief Executive Officer and his/her direct reports (except that an across-the-board reduction resulting in the diminution in Executive’s Base Salary due to or within six (6) months of a Change in Control is excluded and still constitutes Good Reason). Executive may not resign for Good Reason unless (A) Executive provides written notice of Executive’s intent to resign to the Board and of the occurrence of Good Reason for resignation under this paragraph within ninety (90) days of the initial existence of such reason and (B) CDTI has not remedied the alleged violation(s) within thirty (30) days of receipt of such written notice.  For purposes of this paragraph written notice must include a detailed description of the facts and circumstances of the violation allegedly constituting Good Reason and such notice must be given in accordance with applicable CDTI policy, or in the absence of such policy, to the Chair of the Board or the General Counsel of CDTI.  
 (b) Payments Upon Termination.  Upon termination of Executive’s employment for any reason, Executive shall be entitled to receive any salary and benefits that are accrued and unpaid as of the date of termination.  
 (i) Termination for Cause or Resignation.  If Executive resigns Executive’s employment for any reason other than for Good Reason pursuant to Paragraph 4(a)(v) above, is terminated by CDTI or the Board for Cause pursuant to Paragraph 4(a)(iii), or is terminated by mutual agreement of the parties pursuant to Paragraph 4(a)(ii) above, all compensation and benefits will cease immediately and Executive will receive none of the Severance Benefits (as defined below) or any other severance pay.  
 (ii) Termination Without Cause or Executive’s Resignation for Good Reason.  If Executive resigns for Good Reason under Paragraph 4(a)(v) above or Executive’s employment with CDTI is terminated by CDTI for any reason other for Cause or mutual agreement of the parties pursuant to Paragraph 4(a)(ii) above, subject to Paragraph 4(c) below, Executive will receive the following compensation (“Severance Benefits”): 
 (A)
 an amount equal to twelve (12) months of Executive’s current base salary at the time of termination (less required withholdings) payable pursuant to the Company’s regular payroll practices commencing on the later of the day after the expiration of the revocation period of the 
 4
 
 Release (as defined below) or 35 days after Executive’s termination date; 
  (B) 
 for a period of twelve (12) months following Executive’s termination date, continue Executive’s medical, dental and vision coverage under the Company’s group health plan as in effect immediately before Executive’s termination, after which Executive may elect continuation coverage at his own expense under COBRA (section 4980 of the Internal Revenue Code of 1986 [the “Code”] and the California Continuation Benefits Replacement Act (“Cal-COBRA”); provided, however, that such extended coverage will only be provided to the extent that it is not discriminatory under section 105(h) of the Code or under any other section of the Code or other applicable law.  If the extension of such coverage would be discriminatory under section 105(h) of the Code or other applicable law, CDTI shall in lieu of extending coverage under its group health plan reimburse Executive for the cost of  individual (providing care for Executive and his family) medical, dental and vision coverage for a period of twelve (12) months after he exhausts available COBRA and Cal-COBRA; provided, however, that if such payment is discriminatory under applicable law, CDTI may in its sole discretion increase the payment in part (a) above (including applicable gross-up); and 
 (C) 
 an amount equal to a prorated portion (based on the number of full months of service) of Executive’s Annual Bonus for the year in which the termination occurs calculated and payable pursuant to the terms of the applicable bonus program in effect as determined by the Board; provided, however, that such payment shall be made to the Executive within 45 days of the 10-K as above.  
 (iii)  Disability.  If Executive’s employment is terminated due to Disability, subject to Paragraph 4(c) below, Executive will receive the following compensation (“Severance Benefits”):  
 (A) 
 an amount equal to six (6) months of Executive’s current base salary at the time of termination (less required withholdings) payable pursuant to the Company’s regular payroll practices commencing on the later of the day after the expiration of the revocation period of the Release (as defined below) or 35 days after Executive’s termination date; 
 (B)
 for the period of six (6) months following Executive’s termination date, continue medical, dental and vision coverage under the Company’s group health plan in effect immediately before Executive’s termination, after which Executive may elect continuation coverage at his own expense under COBRA (section 
 5
 
 4980 of the Internal Revenue Code of 1986 [the “Code”] and the California Continuation Benefits Replacement Act (“Cal-COBRA”); provided, however, that such extended coverage will only be provided to the extent that it is not discriminatory under section 105(h) of the Code or under any other section of the Code or other applicable law.  If the extension of such coverage would be discriminatory under section 105(h) of the Code or other applicable law, CDTI shall in lieu of extending coverage under its group health plan reimburse Executive for the cost of  individual (providing care for Executive and his family)  medical, dental and vision coverage for a period of six (6) months after he exhausts available COBRA and Cal-COBRA; provided, however, that if such payment is discriminatory under applicable law, CDTI may in its sole discretion increase the payment in part (a) above (including applicable gross-up); and 
 (C) 
 an amount equal to a prorated portion (based on the number of full months of service) of Executive’s Annual Bonus for the year in which the termination occurs calculated and payable pursuant to the terms of the applicable bonus program in effect as determined by the Board; provided, however, that such payment shall be made to the Executive within 45 days of 10-K as above.
  (D)
 Notwithstanding the foregoing, any benefits that Executive shall become entitled to receive under CDTI’s long-term disability insurance program as it may from time to time be in effect shall reduce the Severance Benefits payable under this Paragraph 4(b)(ii). 
 (c) Release and Commencement of Severance Benefits.  As a condition of receiving any Severance Benefits under this Paragraph 4, Executive is required to sign (and not revoke) a Severance Agreement and Release of All Claims (“Release”) against CDTI and related entities and individuals, in a form to be provided by CDTI, within 45 days after his termination date.  Payment of Severance Benefits shall not commence until after the time for revocation of the Release has expired (if the period for signing and not revoking the Release begins in one taxable year for the Executive and ends in the subsequent taxable year, the payment of any Severance Benefits will begin in the second taxable year).
 (d) 409A.  The parties intend that the Severance Benefits provided under this Agreement will be deemed not to be deferred compensation subject to section 409A of the Code (“section 409A”) to the maximum extent provided in the exceptions provided in the Treasury Regulations for short term deferrals (section 1.409A-1(b)(4)) and separation pay plans (section 1.409A-1(b)(9)).  All Severance Benefits shall be paid within the period ending no later than the last day of the second taxable year of the Executive following the taxable year in which the Executive’s separation from service occurs, in conformance with section 1.409A-1(b)(9) of the Treasury Regulations.  To the extent that the payment of any amount under this Paragraph 4 constitutes deferred compensation, any payment or benefit due upon Executive’s termination of employment will only be paid or provided to Executive once Executive’s termination qualifies as 
 6
 
 a “separation from service” under section 409A.  If Executive is a “specified employee” within the meaning of section 409A, any such payment scheduled to occur during the first six (6) months following Executive’s separation from service shall not be paid until the first regularly scheduled pay period following the six (6) month anniversary date of such separation from service and shall include payment of any amount that was otherwise scheduled to be paid prior thereto.  
 (e) Return of Property.  Upon termination of Executive’s employment or whenever requested by CDTI, Executive will immediately return all CDTI property, tangible or (where returnable) intangible, in Executive’s possession.
 (f) Upon termination of Executive’s employment with CDTI for any reason, Executive shall promptly resign from any position as an officer, director or fiduciary of CDTI.  
 5.         Protection of Confidential Information.
 (a) Executive acknowledges entry into a Non-Disclosure of Confidential Information Agreement on October 3, 2005 and agrees that in connection with his employment with CDTI, he will be given access to or will obtain Confidential Information (as defined below) with respect to CDTI’s business and employees.  Executive will use the Confidential Information only to carry out Executive’s job duties under this Agreement.  Executive will hold this information strictly confidential and will not use or disclose it, except in performance of Executive’s obligations to CDTI, without CDTI’s express written consent.  Executive’s obligation to maintain the confidentiality of the Confidential Information of CDTI and to refrain from using such information for any improper purpose will continue during Executive’s employment with CDTI and at all times thereafter, unless and to the extent that such Confidential Information (i) was otherwise available to Executive from a source other than CDTI, (ii) becomes generally known to, and available for use by, the public other than as a result of the acts or omissions of the Executive in contravention of this Paragraph 5, or (iii) is required to be disclosed by applicable law, court order or other legal process.  
 (b) Executive shall deliver to CDTI at the termination of his employment, or at any other time CDTI may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) or the business of CDTI which Executive may then possess or have under Executive’s control.  
 (c) “Confidential Information” includes but is not limited to the following:  (i) trade secrets, ideas, processes, formulas, data, programs, other works of authorship, knowhow, improvements, discoveries, developments, designs and techniques; (ii) information regarding plans for research, development, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices, costs, supplies, customers and information regarding the skills and compensation of other employees, directors or consultants of CDTI or any Affiliate; (iii) confidential marketing information (including without limitation marketing strategies, customer or client names and requirements for product and services, prices, margins and costs); and (iv) other confidential business information of CDTI or any Affiliate.  For purposes of this Agreement, “Affiliate” means any trade or business under common control with CDTI, as that term is defined in sections 414(b) and 414(c) of the Code.
 7
 
 6.         Protection of Intellectual Property.  
 Executive agrees that all inventions, innovations, improvements, developments, methods, techniques, processes, algorithms, data, databases, designs, analyses, drawings, reports, and all similar or related information, all software, copyrights, and other works of authorship, all other intellectual property or proprietary rights (including any patents, registrations or similar rights that may issue from the foregoing), and all tangible embodiments of any of the foregoing (in any form or medium, whether now known or hereafter existing), which relate to CDTI’s or any Affiliate’s actual or anticipated business, research and development or existing or future products or services and which are conceived, developed, contributed to, or made by Executive while employed by CDTI or any Affiliate thereof (collectively, “Work Product”), belong to and are the property of CDTI or such Affiliate, as applicable, and Executive hereby assigns to CDTI or such Affiliate, as applicable, any right, title and interest Executive may have in and to the Work Product, free and clear of any claims for compensation or restrictions on the use or ownership thereof.  Executive will promptly disclose such Work Product to CDTI and perform all actions reasonably requested by CDTI (whether during or after his employment) to establish, record, perfect and otherwise confirm such ownership, and protect, maintain and enforce CDTI’s and the Affiliate’s rights, as applicable, in such Work Product (including, without limitation, by executing assignments, consents, powers of attorney, and other instruments and providing affidavits and testifying in any proceeding).  
 7.         Post-Employment Covenants.
 (a) Non-Solicitation of Employees.  For a period of two (2) years following termination of Executive’s employment with CDTI, Executive shall not knowingly solicit or encourage, directly or indirectly, in person or through others, any employee of the Company whom Executive worked with at the Company or any Affiliate to terminate his or her relationship with the Company or its Affiliate or to alter his or her relationship with the Company to the Company’s detriment; provided, however, that generalized advertisement of employment opportunities including in trade or industry publications (not focused specifically on or directed in any way at the employees or an employee of CDTI) shall not be deemed to cause a breach of this Paragraph 7(a).  
 (b) Non-Solicitation of Customers. For a period of two (2) years following termination of Executive’s employment with CDTI, Executive shall not knowingly solicit, divert or take away, or attempt to solicit, divert or take away, any person, firm or company that was, at any time during the period of twelve (12) months preceding the termination of Executive’s employment, a client of CDTI and with whom during that twelve (12) month period Executive had business dealings on behalf of CDTI or any Affiliate, for the purpose of selling or providing a product or service that competes with or displaces a product or service of CDTI that Executive had some material involvement in or received Confidential Information about while employed by CDTI. 
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 (c) If, at the time of enforcement of this Paragraph 7, a court of competent jurisdiction holds that the restrictions stated herein are unreasonable under circumstances then existing with respect to (i) any part of the time period covered by these covenants, (ii) any activity covered by these covenants, or (iii) any other aspect of these covenants, any adverse determination will be implemented as narrowly as possible and will not affect these covenants with respect to any other time period, activity or other aspect covered by these covenants.  
 (d) Enforcement.  Each of the parties acknowledges that (i) the covenants and restrictions contained in this Paragraph 7, and the protections for Confidential Information and Work Product under Paragraphs 5 and 6, are necessary, fundamental and required for the protection and continued conduct of CDTI’s business, (ii) such covenants and restrictions relate to matters which are of a special, unique and extraordinary character and which give these covenants a special, unique value and (iii) breach of these covenants may cause CDTI or its Affiliates irreparable harm which cannot be adequately compensated by monetary damages, and therefore in the event of a breach or threatened breach of this Agreement, CDTI or its Affiliates or their applicable successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or immediate injunctive or other relief in order to enforce, or prevent any breaches of, the provisions of this Agreement.  Executive agrees that the restrictions contained in Paragraphs 5, 6 and 7 are reasonable. 
 8.         General Provisions.
 (a) Arbitration.  Except for claims for injunctive relief brought pursuant to Paragraph 7, any dispute or controversy arising out of or relating to this Agreement, or the employment relationship created by this Agreement, including the termination of that relationship and any allegations of unfair or discriminatory treatment arising under state or federal law or otherwise, will be resolved exclusively by final and binding arbitration, except where the law specifically forbids the use of arbitration as a final and binding remedy.  The arbitration shall be administered by the Judicial Arbitration and Mediation Service (“JAMS”) (www.jamsadr.com) and shall be conducted exclusively under the then-current Employment Arbitration Rules & Procedures and JAMS Policy on Employment Arbitration Minimum Standards of Procedural Fairness, and the California Code of Civil Procedure (available at www.jamsadr.com).  The arbitration will take place before a single neutral arbitrator in Ventura, California.  CDTI shall be responsible for the fees and expenses of the arbitrator in connection with the Arbitration.  Executive shall be responsible for his attorney fees and any costs required by JAMS necessary to commence the arbitration, if so commenced at Executive’s request, but in no event shall Executive be responsible for any costs beyond those which he would be required to incur if he filed a civil action in court concerning the dispute or controversy.  The parties shall have all the rights, remedies and defenses available in a civil action for the dispute or controversy.  The arbitrator shall issue a written award that includes the arbitrator’s essential findings and conclusions, and shall have the authority to assess attorneys’ fees and costs of the prevailing party to the losing party.  The arbitrator will not have the authority to amend, modify, supplement or change the terms and conditions of employment as set forth in this Agreement.  This arbitration provision will not prohibit either party from seeking injunctive relief pending the outcome of the arbitration or an order confirming or vacating the award in a court of competent jurisdiction.  
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 (b) Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
 (c) Complete Agreement.  This Agreement embodies the complete agreement and understanding of the parties with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or between the parties, written or oral, which may have related to the subject matter hereof.  There are no other agreements or understandings, written or oral, in effect between the parties relating to the subject matter of this Agreement, unless expressly referenced in this Agreement. 
 (d) Counterparts.  This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.  Facsimile or scanned and emailed counterpart signatures to this Agreement shall be acceptable and binding on the parties hereto.
 (e) Successors and Assigns.  Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, CDTI and their respective successors and assigns; provided that the rights and obligations of Executive under this Agreement shall not be assignable.
 (f) Governing Law and Jurisdiction.  All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits hereto shall be governed by, and construed in accordance with, the laws of the State of California.  Except as provided in Paragraph 8(a), each of the parties hereto submits to the exclusive jurisdiction and venue of any state or federal court sitting in the County of Ventura, California.  
 (g) Waiver of Jury Trial.  AS A SPECIFICALLY BARGAINED FOR INDUCEMENT FOR EACH OF THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT (AFTER HAVING THE OPPORTUNITY TO CONSULT WITH COUNSEL), EACH PARTY HERETO EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO OR ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS CONTEMPLATED HEREBY.
 (h) Amendment and Waiver.  The provisions of this Agreement may be amended or waived only with the prior written consent of CDTI (as approved by the Board) and Executive.
 (i) Representations and Warranties of Executive.  Executive hereby represents and warrants that Executive’s employment with CDTI on the terms and conditions set forth herein and Executive’s execution and performance of this Agreement do not constitute a breach or violation of any other agreement, obligation or understanding with any third party.  Executive represents that Executive is not bound by any agreement or any other existing or previous  
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 business relationship which conflicts with, or may conflict with, the performance of Executive’s obligations hereunder or prevent the full performance of Executive’s duties and obligations hereunder.
 (j) No Strict Construction.  The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party.
 (k) No Third Party Beneficiaries.  Nothing in this Agreement, express or implied, is intended or shall be construed to give any Person other than the parties to this Agreement and their respective heirs, executors, administrators, successors or permitted assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.
 (l) Notices.  All notices, requests and other communications under this Agreement must be in writing and shall be deemed to have been duly given only if delivered by email or facsimile transmission, personal delivery with written receipt, or mail delivery by overnight courier prepaid, using the following contact information:
 If to Executive:
 David E. Shea
 [                            ]
 [                            ]
 email: 
 If to CDTI:
 Clean Diesel Technologies, Inc.
1621 Fiske Place
 Oxnard, CA 93033
 Attention:  General Counsel 
Fax:  805-639-9466
email: pedro@cdti.com
 (m)  Survival.  The covenants contained in Paragraphs 4(b), 5, 6 and 7 will survive any termination or expiration of this Agreement. 
 (n)  Review and Enforceability of Agreement.  Executive represents and warrants that prior to executing this Agreement, Executive reviewed each and every provision of this Agreement and understands same, and that Executive had a full opportunity to have this Agreement review by legal counsel of Executive’s own choosing.  
 

 

 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above.
 

 

 
 
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	 DAVID E. SHEA, Executive:
	       	 CLEAN DIESEL TECHNOLOGIES, INC., 

	 	    	 	
	 	 	By: 	 /s/ Christopher J. Harris
	 	 	 	 
	/s/ David E. Shea                          	 	Title:	 Chief Executive Officer
	[Signature]	 	 	

  
  
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