Document:

Filed by Bowne Pure Compliance

Exhibit 10.2

EXECUTIVE SEVERANCE POLICY

Application

This Policy applies to the officers of the Company listed on Exhibit B; subject to the provisions
of Section 8, the Chief Executive Officer may change Exhibit B from time to time. Any individual
listed on Exhibit B shall be covered by the Company’s vacation policy for officers.

The Company has entered into management retention agreements with certain of its officers that
become applicable if there is a “Potential Change of Control” or “Change of Control,” as those
terms are defined in those agreements, of the Company. In situations in which those agreements are
applicable, then the individuals covered by those agreements are not covered by this Policy.

This Policy applies if the officer’s employment is terminated by the Company without Cause but not
to terminations for Cause or, except as set forth in Section 3(a), due to death or Disability; this
Policy also applies to a termination of employment by the covered officer for Good Reason but not
to terminations due to voluntary resignation without Good Reason or retirement.

This Policy shall not apply to the extent that any of the officers covered by this Policy have
contractual agreements or are covered by the laws of foreign jurisdictions that provide for
severance arrangements and/or benefits more favorable than those provided by this Policy.

The Company has adopted a severance policy for all employees in connection with
reductions-in-force. This Policy is in lieu of and replaces the reduction-in-force policy for the
officers covered by this Policy.

Illustrative examples of this application of the provisions of this Policy to hypothetical fact
situations are set forth on Exhibit A.

Policy

	1.	 	Definitions. As used in this Policy:

	 	(a)	 	“Applicable Officer Period” means the following periods for the indicated
officers:

Chief Executive Officer — a period of twelve (12) months;

Chief Financial Officer — a period of twelve (12) months;

 

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Senior Vice President — a period of nine (9) months, plus one month for each year of
service as an officer of the Company, up to a maximum period of twelve (12) months; and

Vice President — a period of six (6) months, plus one month for each year of service as
an officer of the Company, up to a maximum period of nine (9) months.

New Officers — the Compensation Committee of the Company’s Board of Directors is
authorized to approve severance compensation based on periods different from those
specified above in connection with the hiring or appointment of new officers and senior
managers, such determinations to be set forth in minutes of the Compensation Committee.

*For purposes of calculating “a year of service” as an officer, an individual shall be
deemed to have completed a “year of service” as an officer for each completed twelve
(12) months of service (whether or not continuous) as an officer, provided that,
if the individual’s Date of Termination is at least ten (10) or more but less than
twelve (12) months after being appointed an officer, the individual shall be credited
for one full year of service. To illustrate, if an individual has at least ten (10) but
less than twenty-four (24) months of service as an officer, the individual is credited
with one year of service; if the individual has twenty-four (24) or more but less than
thirty-six (36) months of service as an officer, the individual is credited with two
years of service; and if the individual has thirty-six (36) or more months of service as
an officer, the individual is credited with three (3) years of service. For this
purpose the period of a month begins on the date an individual is appointed an officer
and ends on the immediately preceding date in the subsequent month — for example, an
individual who is appointed an officer effective May 6 of a year completes one month of
service on the subsequent June 5.

	 	(b)	 	“Cause” means a termination of employment resulting from a good faith
determination by the Company that:

	 	(i)	 	the officer has willfully failed or refused in a material respect to
follow reasonable policies or directives established by the Board of Directors or
the Chief Executive Officer or willfully failed or refused to attend to material
duties or obligations of his or her office (other than any such failure resulting
from the officer’s incapacity due to physical or mental illness), which the officer
has failed to correct within a reasonable period following written notice to such
officer from the Chief Executive Officer or the Chairman of the Board that
specifically identifies the manner in which the officer has not so performed his or
her material duties and obligations; or

 

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	 	(ii)	 	there has been an act by the officer involving wrongful misconduct,
including without limitation a conviction of or the entering into a plea of guilty
or nolo contendere to a felony, which has a demonstrably adverse impact on or has
caused material damage to the Company, or which constitutes a material
misappropriation of the assets of the Company; or
	 
	 	(iii)	 	the officer has engaged in an unauthorized disclosure of confidential
information which has a demonstrably adverse impact on or has caused material
damage to the Company; or
	 
	 	(iv)	 	the officer, while employed by the Company, has performed services for
another company or person which competes with the Company, without the prior
written approval of the Chief Executive Officer of the Company; or
	 
	 	(v)	 	the officer has breached one or more of his or her material obligations
hereunder.

For purposes of this definition, no act, or failure to act, on an officer’s part shall
be considered “willful” unless done, or omitted to be done, by the officer without
reasonable belief that his or her action or omission was in, or not opposed to, the best
interests of the Company. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the advice of counsel
for the Company, shall be conclusively presumed to be done, or omitted to be done, by
the officer in good faith and in the best interests of the Company.

	 	(c)	 	“Change of Control” of the Company means and includes each and all of the
following:

	 	(i)	 	The consummation of a merger, consolidation, share exchange or other
reorganization of the Company with any other entity, other than a merger,
consolidation, share exchange or reorganization which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger, consolidation, share exchange or
reorganization;
	 
	 	(ii)	 	The consummation of a sale, lease, exchange or other disposition (in
one transaction or a series of related transactions) of all, or substantially all,
of the Company’s assets;
	 
	 	(iii)	 	The shareholders of the Company approve a plan of liquidation of the
Company;

 

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	 	(iv)	 	The acquisition by any means by any Person as beneficial owner,
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company’s then outstanding voting
securities except pursuant to a negotiated agreement with the Company pursuant to
which such securities are purchased from the Company; or
	 
	 	(v)	 	At any time during a twenty-four (24) month period individuals who at
the beginning of such period constituted the Board (“Incumbent Directors”) shall
cease for any reason to constitute at least a majority thereof, provided, however,
that the term “Incumbent Director” shall also include each new director elected
during such twenty-four (24) month period whose nomination or election was approved
by two-thirds of the Incumbent Directors then in office.

Any other provisions of this definition notwithstanding, the term “Change of Control”
shall not include, if undertaken at the election of the Company, either a transaction
the sole purpose of which is to change the state of the Company’s incorporation or a
transaction the result of which is to sell all or substantially all of the assets of the
Company to another corporation (the “surviving corporation”), provided that the
surviving corporation is owned directly or indirectly by the shareholders of the Company
immediately following such transaction in substantially the same proportions as their
ownership of the Company’s voting securities immediately preceding such transaction and
the surviving corporation expressly assumes or continues this Policy.

	 	(d)	 	“COBRA” means 29 U.S. Code, Sections 1161 through 1168, as amended.
	 
	 	(e)	 	“Code” means the Internal Revenue Code of 1986, as amended from time to
time.
	 
	 	(f)	 	“Company” means Cray Inc., a Washington corporation, and if the context
reasonably requires, any subsidiary of the Company, and any successor that assumes this
Policy.
	 
	 	(g)	 	“Compensation” means the sum of Base Salary and Incentive Compensation.

	 	(i)	 	The term “Base Salary” means the highest per pay period base
salary rate that the officer was paid by the Company in the twelve (12)-month
period prior to the date of the Notice of Termination.
	 
	 	(ii)	 	For officers other than the Chief Executive Officer and the Chief
Financial Officer, the term “Incentive Compensation” means:

	 	(A)	 	The officer’s 100% target incentive award under the
Company’s annual cash incentive plan and any other cash incentive or bonus
awards approved by the Board for the calendar year in which the officer’s
Date of Termination occurs, prorated based on the Applicable Officer Period
(maximum of twelve (12) months) compared to a full twelve (12) month year),
provided, that such incentive and bonus awards shall not include any
retention awards or bonuses which by their terms are based substantially on
continued employment for one or more specific time
periods, with the amount of the Incentive Compensation to be determined as
set forth in subclause (B) below;

 

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	 	(B)	 	The determination of the amount of Incentive Compensation
to be paid to the officer under subclause (A) above, in all cases prorated as
described in subclause (A) above, shall be based on the most significant
Company operating measure(s) used in the Company’s annual cash incentive plan
in determining the Incentive Compensation for the applicable year (such as,
for example, pre-award net operating income, revenue or net income) and shall
exclude all personal and individual objectives and goals, with the amount of
the officer’s Incentive Compensation (not to exceed 100% of target) being
based, if the actual amount of such Company operating measure(s) achieved is
less than that required to pay a 100% target award for the applicable
calendar year, by reference to the partial payment schedule in the applicable
cash incentive plan for varying levels of such realized Company operating
measure(s), provided that if the officers of the Company who were not
terminated received no cash incentive compensation award or bonus for the
applicable year because a condition to the payment of such awards under the
cash incentive plan was not satisfied, then the Incentive Compensation for
such year for the terminated officer shall be zero: and
	 
	 	(C)	 	If the Board has not established the annual cash incentive
plan for the calendar year in which the officer’s Date of Termination occurs
by the date of the applicable Notice of Termination, then for such officer
the Incentive Compensation will be based on the target incentive plan award
in effect for the officer under the cash incentive plan for the immediately
preceding calendar year, with good faith adjustments to the operating
measure(s) to be consistent with the operating measure(s) used in the cash
incentive plan for the year in which the officer’s Date of Termination occurs
for the officers who were not terminated, and otherwise shall be determined
pursuant to subclauses (A) and (B) above.

	 	(iii)	 	For the Chief Executive Officer and the Chief Financial Officer, the
term “Incentive Compensation” means:

	 	(A)	 	Such officer’s 100% target incentive award under the
Company’s annual cash incentive compensation plan and any other cash
incentive or bonus awards established by the Board for the calendar year in
which the officer’s Date of Termination occurs (assuming for this purpose
that all conditions to payment at 100% of target awards and of other awards
and bonuses, if any, have been satisfied), provided, that such
incentive and bonus awards shall not include any retention awards or bonuses
which by their terms are based substantially on continued employment for one
or more specific time periods; and
	 
	 	(B)	 	If the Board has not established the annual cash incentive
plan for the calendar year in which the officer’s Date of Termination occurs
by the
date of such officer’s Notice of Termination, then the term “Incentive
Compensation” means 100% of the target incentive award in effect for such
officer under the cash incentive plan for the immediately preceding calendar
year.

 

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	 	(iv)	 	In situations where the foregoing provisions do not provide a
determination of the amount of Compensation agreed to by the Company and the
officer, the Board in good faith shall determine, consistent with the intent of the
foregoing, the amount of Compensation to be paid, which determination shall be
binding on all parties involved.

	 	(h)	 	“Disability” has the meaning given such term in the Company’s disability
plans as in effect immediately prior to the date of the Notice of Termination.
	 
	 	(i)	 	“Good Reason” means a material negative change in the employment
relationship between the officer and the Company, unless otherwise agreed to by the
officer, including without limitation:

	 	(i)	 	a material reduction in the officer’s base salary, which for purposes
of this Policy means a reduction by more than 5% (whether in one or a series of
reductions) compared to the officer’s base salary immediately prior to such
reduction (other than an across-the-board reduction of not more than 10% applicable
to all of the Company’s senior officers for a period not exceeding six (6)
consecutive months in any three (3)-year period);
	 
	 	(ii)	 	a material reduction in the officer’s annual target award opportunity
under the Company’s annual cash incentive plan (other than an across-the-board
reduction applicable to all of the Company’s senior officers), which shall be
deemed to include reductions that would reduce the officer’s total target
compensation (including base salary but excluding the value of any equity
component) by more than 5% compared to the officer’s total target compensation for
the immediately preceding year (including base salary but excluding the value of
any equity component);
	 
	 	(iii)	 	solely with respect to the Chief Executive Officer, the Chief
Financial Officer and officers who are considered Senior Vice Presidents for
purposes of this Policy, a material diminution of such officer’s status, title,
position(s) or responsibilities (including reporting responsibilities) from the
officer’s status, title, position(s) and responsibilities, or the assignment to the
officer of any substantive duties or responsibilities which are inconsistent with
such status, title, position(s) or responsibilities (in either case other than
isolated, insubstantial or inadvertent actions which are remedied promptly after
notice);
	 
	 	(iv)	 	a request by the Company for the officer to relocate (except for office
relocations that would not increase the officer’s one-way commute by more than 25
miles), or a change of the officer’s customary office location which results in
substantially increased air or other travel compared to such travel during the
twelve (12) month period immediately prior to such request or change (an
increase for a reasonably sustained period of 25% per week and/or 25% of the time
shall be deemed to constitute substantially increased travel, excluding increased
travel for temporary projects or arrangements, and it being understood that in
general officers can be expected to travel at least 25% of the time); or

 

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	 	(v)	 	the discontinuance of, or a reduction in, benefit plans or other
policies of the Company intended to benefit the Company’s employees in which the
officer participated immediately prior to such discontinuance or reduction where
the consequence to the officer is a material overall reduction in benefits, unless
an equitable arrangement (embodied in an ongoing substitute or alternative plan or
plans) has been made with respect to such plans, or the failure by the Company to
continue the officer’s participation therein (or in such substitute or alternative
plans) on a basis not materially less favorable, both in terms of the amounts of
benefits provided and the level of the officer’s participation relative to other
participants, as existed immediately prior to such discontinuance or reduction,
provided however, that this clause (v) shall not apply to a discontinuance or
reduction which is applicable to substantially all of the employees of the Company
(or, if the officer is not located in the United States, substantially all of the
employees of the subsidiary in the country where the officer is located).

An officer’s continued employment shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting Good Reason hereunder.
Notwithstanding the foregoing, a termination by an officer shall not constitute
termination for Good Reason unless the officer shall first have delivered to the
Company, not later than ninety (90) days after the occurrence of the event underlying
the officer’s claim that Good Reason exists, a Notice of Termination. Within twenty (20)
days after such Notice of Termination is received by the Company, the Company will
notify the officer in writing that:

	 	(A)	 	it agrees with the officer’s Notice of Termination, in
which event Good Reason shall be deemed to have occurred, or
	 
	 	(B)	 	it intends to correct fully the circumstances giving rise
to the claim of Good Reason and within thirty (30)-days of receipt of the
Notice of Termination, it corrects, rescinds or otherwise substantially
reverses the circumstances supporting the claim for termination for Good
Reason, in which event “Good Reason” shall be deemed not to have occurred,
or
	 
	 	(C)	 	a dispute exists concerning whether “Good Reason” exists,
and Sections 7 and 10(e) shall apply to such dispute.

	 	(j)	 	“Person” has the meaning given such term in Section 3(a)(9) of the Exchange
Act and as used in Sections 13(d) and 14(d) thereof, including a “group” as defined in
Section 13(d) of the Exchange Act, but excluding the Company and any subsidiaries and any
employee benefit plan sponsored or maintained by the Company and any subsidiaries
(including any trustee of such plan acting as Trustee).

 

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	 	(k)	 	“Potential Change of Control” of the Company means the occurrence of any of
the following:

	 	(i)	 	the Company enters into an agreement, the consummation of which would
result in the occurrence of a Change of Control of the Company;
	 
	 	(ii)	 	any Person or the Company publicly announces an intention to take or to
consider taking actions which if consummated would constitute a Change of Control
of the Company; or
	 
	 	(iii)	 	the Board adopts a resolution to the effect that, for purposes of this
Policy, a Potential Change of Control of the Company has occurred.

	 	(l)	 	“Retirement” means an officer’s voluntary termination of employment on or
after his or her 65th birthday, or at an earlier age pursuant to a written agreement
between the officer and the Company with respect to retirement.
	 
	 	(m)	 	“Specified Employee” has the meaning given such term in Section 409A of the
Code and the final regulations thereunder, as in effect from time to time (“Final 409A
Regulations”), provided, however, that, as permitted in the Final 409A Regulations, the
Company’s Specified Employees and the application of the six (6)-month delay rule of
Section 409A(a)(2)(B)(i) of the Code shall be determined in accordance with rules adopted
by the Board, which shall be applied consistently, with respect to all nonqualified
deferred compensation arrangements of the Company, including this Policy.

	2.	 	Notice of Termination; Effective Date of Termination.

	 	(a)	 	Any purported termination of employment by the Company or by an officer covered by
this Policy shall be communicated by written Notice of Termination to the other party.
	 
	 	(b)	 	For purposes of this Policy, a “Notice of Termination” shall mean a notice
in writing which indicates the specific termination provision(s) in this Policy relied
upon, sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the officer’s employment under the provision(s) so indicated and
sets forth the applicable Date of Termination.
	 
	 	(c)	 	For purposes of this Policy, the “Date of Termination” means, unless the
Company and the officer agree to a different Date of Termination:

	 	(i)	 	if the officer’s employment is terminated by reason of death, the date
of death,
	 
	 	(ii)	 	if the officer’s employment is terminated by the Company for Cause, the
date on which a Notice of Termination is given unless a subsequent Date of
Termination is specified in such Notice,

 

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	 	(iii)	 	if the officer’s employment is terminated by the Company other than
for Cause, or if the officer’s employment is terminated by the officer without a
claim of Good Reason, the date specified in the Notice of Termination, or
	 
	 	(iv)	 	if an officer states that he or she is terminating his or her
employment for Good Reason, the date thirty (30) days after the date on which the
Notice of Termination is given, unless an earlier Date of Termination has been
specified or designated by the Company either in advance of, or after, receiving
such Notice of Termination pursuant to clauses (c)(ii) or (c)(iii) above.

If there is a dispute about whether Cause or Good Reason exists that is not resolved by
the parties, then that issue, and any resultant payments and other compensation due
under this Policy or otherwise but not whether the officer is employed by the Company or
any subsidiary after the Date of Termination, shall be determined in proceedings
described in Sections 7 and 10(e), and the Company may withhold payments due under this
Policy based on the reason for the termination until there is a final determination
whether Cause or Good Reason existed. Following the delivery of the Notice of
Termination and until the Date of Termination, the officer shall continue to provide in
good faith all of his or her customary services to the Company, unless the Company
elects to place the officer on paid leave.

	 	(d)	 	Notwithstanding anything to the contrary in this Policy, (i) if at any time before
the Date of Termination determined pursuant to this Policy with respect to any purported
termination by the officer of his or her employment with the Company, there exists a good
faith basis for the Company to terminate the officer’s employment for Cause, then the
Company may, regardless of whether or not the officer has given a Notice of Termination
for Good Reason and regardless of whether or not Good Reason exists, terminate the
officer’s employment for Cause, in which event the officer shall not be entitled to the
compensation and benefits provided in this Policy, and (ii) if the officer dies or the
officer’s employment is terminated based on Disability after the officer has given Notice
of Termination for Good Reason and before the Date of Termination and if it is
subsequently finally determined that Good Reason existed as claimed by such officer,
then, nevertheless, termination of the officer’s employment shall be deemed to have been
due to death or Disability (and not due to Good Reason), and the officer shall not be
entitled to the compensation and benefits provided in this Policy other than those
expressly set forth below or required by applicable law or other policies, programs and
plans of the Company.

	3.	 	Termination and Resulting Compensation and Benefits.

	 	(a)	 	If the employment of an officer covered hereby terminates due to termination of an
officer’s employment by the Company without Cause or by an officer for Good Reason, or
due to Disability or death, then such officer or the officer’s estate shall be entitled
to receive the following through the Date of Termination:

	 	(i)	 	The officer’s Base Salary through the Date of Termination to be paid
pursuant to the Company’s standard payroll procedures;

 

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	 	(ii)	 	The officer’s accrued vacation pay, if any, which shall be paid in
accordance with the Company’s practice for paying accrued vacation to terminating
employees; and
	 
	 	(iii)	 	All amounts payable under the Company’s annual cash incentive plan for
the calendar year immediately prior to the year in which the Date of Termination
occurs that have not been paid to the officer on or before the Date of Termination;
provided, that if the Board has not approved the payment of any such amount for the
immediately prior calendar year by the date of the applicable Notice of
Termination, the Company will determine the amounts payable to the officer under
the annual cash incentive plan for that prior year in good faith and with no
exercise of negative discretion except as is consistent with the exercise of such
negative discretion for other similarly situated officers of the Company whose
employment has not been terminated (taking into account prior practice in
determining such amounts), including without limitation any adjustments based on
performance of defined operating measures in he applicable cash incentive plan, to
be paid when the non-terminated officers receive their respective payments under
such cash incentive plans, provided, further, that notwithstanding
the foregoing, if the officers of the Company who were not terminated receive no
incentive compensation award for the immediately preceding year because a condition
to the payment of such awards under the cash incentive plan was not satisfied, then
the Incentive Compensation for such year for the terminated officer shall be zero;
and
	 
	 	(iv)	 	All other compensation and benefits earned but not yet paid at the Date
of Termination and all benefits as may be provided under the Company’s insurance
and other benefit plans, programs and arrangements as in effect on the date of the
Notice of Termination, such compensation and benefits to be paid or provided in the
normal course pursuant to such plans, programs and arrangements.

	 	(b)	 	If the employment of an officer covered hereby terminates due to termination of an
officer’s employment by the Company without Cause or by an officer for Good Reason, then
such officer or the officer’s estate shall be entitled to receive, in addition to the
payments specified in Section 3(a), as severance pay and in lieu of any further salary,
severance and benefits for periods subsequent to the Date of Termination, an amount equal
to his or her Base Salary multiplied by the Applicable Officer Period and the officer’s
Incentive Compensation, each to be paid as set forth below, and the benefits provided
below:

	 	(i)	(A)	 	The Base Salary component of Compensation will be divided and paid
in substantially equal amounts in accordance with the Company’s standard payroll
procedures then in effect, but not less often than monthly, provided,
however, that the amount of Base Salary in any payment shall be reduced by the
amount of accrued vacation pay, if any, that accompanies such payment (which
reduction shall so reduce the aggregate amount of Base Salary to be paid to such
officer). These payments will be made over the Applicable Officer Period unless,
with respect to payment
amounts that are exempt from Section 409A of the Code, the Board approves
and the officer agrees to a longer period, not to exceed twenty-four (24)
months after the officer’s Date of Termination, provided that any
such extension only extends the duration of the payment of the Base Salary,
with a consequent pro rata reduction in the amount of each payment of Base
Salary with no increase in the aggregate amount of Base Salary to be paid.

 

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	 	(B)	 	For all officers other than the Chief Executive Officer and
the Chief Financial Officer, the Incentive Compensation component of
Compensation shall be paid in a lump sum at the same time that incentive
compensation for the applicable year is paid to the officers of the Company
whose employment with the Company continues, provided that in any
event such payment will occur on or before March 15 of the year immediately
following the year for which such Incentive Compensation was earned (unless
there is a dispute regarding the reason for termination is not resolved by
such March 15, in which event the payment will occur reasonably promptly
after the final resolution of such dispute, subject to the requirements of
Section 9).
	 
	 	(C)	 	For the Chief Executive Officer and the Chief Financial
Officer, the Incentive Compensation component will be paid on a pro-rata
basis along with the payments of Base Salary.
	 
	 	(D)	 	All payments of Compensation will cease if, while receiving
these Compensation payments, the officer becomes re-employed by the Company
or any of its subsidiaries but such payments will continue if the officer is
employed by an unaffiliated employer.
	 
	 	(E)	 	Amounts that exceed two times the lesser of (i) the
officer’s annualized compensation for the calendar year prior to the year in
which the officer’s Date of Termination occurs or (ii) the limit on
compensation under Section 401(a)(17) of the Code that applies to the year in
which the officer’s Date of Termination occurs shall be subject to the
restrictions on payment set forth in Section 9.

	 	(ii)	 	Benefits. The Company will continue to provide the following
benefits in accordance with the Company’s policies and benefits generally
applicable to U.S. employees:

	 	(A)	 	For a period of up to eighteen (18) months from the Date of
Termination, if the officer elects to continue coverage under COBRA for
medical, dental, vision and orthodontia benefits that the officer and any
dependents were receiving immediately prior to the Date of Termination, or
any lesser level of benefits that the officer elects, and if the officer
continues to pay the same dollar amount the officer was paying for premiums
for such benefits immediately prior to the Termination Date, or what would
have been the payment for such lesser level of benefits (such payments to be
deducted or withheld from the severance payments under Section 3(b)(i)(A)),
the Company will pay the balance of such premiums, the 2% COBRA surcharge
and all other related fees and charges, including any subsequent increases
in the total premiums for such benefits; and

 

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	 	(B)	 	The Company will reimburse the officer for the cost of an
individual term life insurance policy on the officer for the period from the
Date of Termination up to the expiration of the Base Salary payments under
Section 3(b)(i)(A) with coverage up to the coverage amount provided by the
Company to the officer immediately prior to the Notice of Termination
(currently a maximum of $500,000); if the officer cannot reasonably obtain
such a life insurance policy for reasons of insurability, then, pursuant and
subject to the limitations of the Company’s group insurance plan then in
effect, which may include a lower level of insurance coverage and a shorter
term, the officer may elect to convert his or her group coverage to
individual coverage and the Company will pay the cost thereof, such
conversion being effectuated no later than the time limits then applicable
under the Company’s group insurance plan (currently thirty-one (31) days
following the Date of Termination); provided that the officer must
submit appropriate evidence of such insurance and the premiums the officer
paid within three (3) months of obtaining such insurance, such reimbursement
to be made in the Company’s normal course for reimbursement of expenses and
in any event within 3 (three) months of receipt of the appropriate
documentation and information;

provided, however, to the extent the Company adjusts or changes
any or all of the medical, vision, orthodontia and life insurance benefits
generally for employees in the United States, then the Company shall make a
comparable adjustment in the benefits provided to the officer; and provided
further that if the payment or reimbursement of the cost of the term life policy
exceeds the limit on elective deferrals under Section 402(g) of the Code for the
year in which the Date of Termination occurred, the then excess amount shall be
paid or reimbursed pursuant to Section 9 to the extent Section 9 applies to such
payment or reimbursement.

	 	(C)	 	Each of the benefits identified in this Section 3(b)(ii)
will be provided for a period ending on the earlier of (I) when the officer
no longer receives continued Base Salary payments under Section 3(b)(i)(A)
(if the Base Salary payments are paid over an extended period, then any
payment or reimbursement of COBRA premiums for medical, dental, vision and
orthodontia benefits shall be paid only for the lesser of such extended
period or the eighteen (18)-month COBRA period), or (II) when the officer is
employed by an employer (including the Company) that provides medical,
dental, vision, orthodontia and/or life insurance benefits, as the case may
be, and the officer is eligible to receive any such benefits. As part of the
officer’s termination, the officer must agree to notify the Company promptly
if he or she accepts employment with another
employer and provide all relevant information regarding the benefits
provided by such employer.

 

12

 

	 	(iii)	 	Stock Options. All of the officer’s outstanding stock options
shall cease to vest upon the Date of Termination and all of the officer’s
outstanding stock options that are exercisable on the Date of Termination may be
exercised any time before the earliest of (A) the respective expiration dates of
the options, assuming that the officer’s employment had not terminated, (B) the
tenth anniversary of the original dates of grant of such options, or (C), if
permitted under the applicable stock option agreements, the expiration of Base
Salary payments under Section 3(b)(i)(A) and, if not so permitted, then pursuant to
the provisions of the applicable stock option agreements.
	 
	 	(iv)	 	Restricted Stock. If the officer holds any restricted shares of
the Company’s common stock (including any restricted shares issued in substitution
or assumption of such shares as a result of a Change of Control), then the vesting
of such shares shall be accelerated to the extent, if at all, provided by the terms
of the agreement governing such restricted shares.
	 
	 	(v)	 	Outplacement. The Company will pay for outplacement services
(Lee Hecht Harrison Executive Transition Services, or equivalent), with the Senior
Executive Service program for the Chief Executive Officer, the Chief Financial
Officer and Senior Vice Presidents, the ProSearch 6 program for a Vice President
and the ProSearch 3 program for any other employees covered hereby, for a period
ending the earliest of (A) when the officer completes the outplacement services
program, (B) when the officer accepts employment with another employer, provided
that the officer commences such outplacement services within six (6) months
following his or her Date of Termination. If the Company reimburses the officer for
such services, the officer shall submit the expense to the Company within three (3)
months of receipt of the statement for such services and the Company shall
reimburse the officer in its normal course for reimbursement of expenses and in any
event within three (3) months of receipt of the statement and all other appropriate
documentation and information.

	4.	 	Conditions to Payments. Before making any payments and providing any benefits
specified in Section 3(b), the Company has the right to require the officer to execute and
return to the Company, no later than the March 1 of the year following the year in which the
officer’s Date of Terminations occurs, the Company’s standard termination agreement and
general release and the expiration of any required revocation or waiting periods. The Company
shall deliver in good faith its standard agreement and general release as soon as is
reasonably practicable but no later than ten (10) business days following delivery of the
Notice of Termination (unless mutually extended by the officer and the Company).
	 
	 	 	It is a condition to the Company’s obligation to continue paying Compensation and providing
benefits under this Policy that the officer, following termination of employment, comply with
the terms of the officer’s Employee Confidentiality Agreement and all other
agreements executed during the officer’s employment or in connection with the officer’s
termination of employment.

 

13

 

	 	 	If a payment under this Policy is deferred, such as, for example, pending a general release
becoming effective under the first paragraph of this Section 4 or pending a final decision
whether Cause or Good Reason existed with respect to a termination under Section 2(c), last
paragraph, and if it subsequently finally determined that a payment is due, then the Company
shall pay the deferred amount in a lump sum as soon as is reasonably practicable after the
general release is effective or the final decision is rendered, with interest on the deferred
amount at the rate set out in the last paragraph of Section 9, and the Company shall pay the
remaining balance in appropriate periodic payments on a schedule as if such severance payments
had began from the Date of Termination without such deferral.
	 
	5.	 	Administration. This Policy shall be administered by the Chief Executive Officer of
the Company, or such other person or persons as the Chief Executive Officer may appoint (such
person or persons are referred to as the “Administrator”), provided that the Board of
Directors may appoint another person as Administrator. The responsibilities of the Board of
Directors may be fulfilled by the Compensation Committee or the Corporate Governance Committee
of the Board.
	 
	6.	 	ERISA Plan. This Policy is intended to be and shall be administered and maintained as
a welfare benefit plan under Section 3(1) of the Employee Retirement Income Security Act of
1974 (“ERISA”), providing certain benefits to participants on certain severances from
employment. This Policy is not intended to be a pension plan under Section 3(2)(A) of ERISA
and shall be maintained and administered so as not to be such a plan.
	 
	7.	 	Claims.

	 	(a)	 	Claims for benefits under this Policy shall be governed by these procedures. The
Administrator shall establish administrative processes and safeguards to ensure and
verify that claims decisions are made in accordance with the plan and that, where
appropriate, plan provisions have been applied consistently with respect to similarly
situated claimants. Any person claiming a benefit, or requesting an interpretation,
ruling or information, shall present the request in writing to the Administrator, who
will decide the claim.
	 
	 	(b)	 	If the claim is wholly or partially denied, the Administrator will notify the
claimant of the adverse determination within a reasonable time not longer than sixty (60)
days after the Administrator received the claim unless special circumstances require an
extension of time. The Administrator will notify a claimant in writing of the need for
any extension before the end of the initial sixty (60) days. Any notice of extension
will indicate the special circumstances requiring the extension and the date by which a
decision is expected. Any extension will be no longer than another sixty (60) days after
the initial period.
	 
	 	(c)	 	The Administrator will provide the claimant with written or electronic notification
of any adverse determination on a claim, including the specific reason or reasons for the
determination; reference to the specific plan provisions on which the determination is
based; a description of any additional material or information necessary for the
claimant to perfect the claim and an explanation of why it is necessary; a description
of the review procedures under Sections 7(d) and 7(e) and the applicable time limits;
and a statement of the claimant’s right to commence an arbitration proceeding pursuant
to Section 10(e) below following any adverse determination on review.

 

14

 

	 	(d)	 	A claimant may request review within thirty (30) days after receiving a
notification of an adverse determination on a claim and may submit written comments,
documents, records and other information relating to the claim.

	 	(i)	 	Upon request and at no charge, the claimant may have copies of any
document, record or other information that: was relied on in making the
determination; was submitted, considered or generated in the course of making the
determination, whether or not relied on; or demonstrates compliance with the
processes and safeguards under this Section 7; and
	 
	 	(ii)	 	The Administrator’s review shall take into account all comments,
documents, records and other information submitted by the claimant relating to the
claim, whether or not considered in the initial determination.

	 	(e)	 	The Administrator will respond to an appeal by notifying the claimant of its
determination on review within a reasonable time not longer than sixty (60) days after
the Administrator received the request for review unless an extension of time is required
for a hearing or other special circumstances. The Administrator will also notify a
claimant in writing of the need for any extension before the end of the initial sixty
(60) days. Any notice of extension will indicate the special circumstances requiring the
extension and the date by which a decision is expected. No extension will be longer than
another sixty (60) days after the initial period.
	 
	 	(f)	 	The Administrator will provide the claimant with written or electronic notification
of its determination on appeal. If the determination is adverse, the notice will include
the specific reason or reasons for the determination; reference to the specific plan
provisions on which the determination is based; a statement that, upon request and at no
charge, the claimant may have copies of any document, record or other information under
Section 7(d) and a summary of the claimant’s right to commence an arbitration proceeding
pursuant to Section 10(e).

	8.	 	Status as Policy; Vesting. The Company may modify and/or terminate this Policy in
whole or in part and/or add or delete individuals covered by this Policy at any time and,
prior to delivery of a Notice of Termination of his or her employment, no officer has any
vested rights under this Policy, provided, however, that this Policy vests and
cannot be amended or terminated with respect to an officer then covered hereby upon the
occurrence of the earliest of the delivery of a Notice of Termination with respect to such
officer or a Potential Change of Control, if applicable, or a Change of Control, and the
applicable salary, annual cash incentive plan and benefits described in this Policy shall be
the higher of (i) the level of base salary, annual cash incentive plan targets and benefits at
the time of the earlier of the delivery of the Notice of Termination or Potential Change of
Control, if applicable, or Change of Control, and (ii) the level of base salary, cash
incentive plan targets and benefits immediately prior to a termination of employment, and
provided, further, that, except with
respect to the vesting upon delivery of Notice of Termination with respect to an officer, the
protection offered by this Section 8 shall terminate upon the earlier of (a) the action
contemplated by the Potential Change of Control is abandoned and not consummated or (b)
twenty-four (24) months have elapsed following the consummation of a Change of Control, if
applicable.

 

15

 

	9.	 	Section 409A. Notwithstanding anything in this Policy the contrary, if any amount
or benefit that would constitute non-exempt “deferred compensation” for purposes of Section
409A of the Code would otherwise be payable or distributable under this Policy by reason of an
officer’s separation from service while a Specified Employee, then, subject to any permissible
acceleration of payment by the Company under Treas. Reg. Section 1.409A-3(j)(4)(ii) (domestic
relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(iv) (payment of employment
taxes), the following shall apply:

	 	(a)	 	If the payment or distribution is payable in a lump sum, the officer’s right to
receive payment or distribution of such non-exempt deferred compensation will be delayed
until the earlier of the officer’s death or the first (1st) day of the
seventh (7th) month following the officer’s separation from service.
	 
	 	(b)	 	If the payment or distribution is payable over time, the amount of such non-exempt
deferred compensation that would otherwise be payable during the six (6)-month period
immediately following the officer’s separation from service will be accumulated and the
officer’s right to receive payment or distribution of such accumulated amount will be
delayed until the earlier of the officer’s death or the first (1st) day of the
seventh (7th) month following the officer’s separation from service,
whereupon the accumulated amount will be paid or distributed to the officer, or to the
officer’s estate, and the normal payment or distribution schedule for any remaining
payments or distributions will resume.

In case of any such delayed payment, the Company shall pay interest, compounded
quarterly, on the deferred amount at 100% of the short-term applicable federal rate as in
effect for the month in which the Date of Termination occurred.

 

16

 

	10.	 	Miscellaneous.

	 	(a)	 	Notices. Notices and all other communications provided for in this Policy
shall be in writing and shall be deemed to have been duly given when personally delivered
or five (5) business days after deposit with postal authorities transmitted by United
States registered or certified mail, return receipt requested, postage prepaid, addressed
to the Company at its corporate headquarters, attention of the General Counsel and to an
officer at the officer’s last home address provided to the Company, except that notices
of change of address shall be effective only upon receipt.

	 	(b)	 	Employee’s Successors. This Policy shall inure to the benefit of and be
enforceable by the officer’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If an officer
should die while any amounts are still payable to such officer hereunder, all such
amounts, unless otherwise
provided herein, shall be paid to the officer’s devisee, legatee or other designee or,
if there be no such designees, to the officer’s estate.
	 
	 	(c)	 	Applicable Law. This Policy shall be interpreted and enforced in
accordance with the internal laws of the State of Washington without reference to its
conflicts of laws provisions.
	 
	 	(d)	 	Unfunded Obligations. The obligations of the Company under this Policy are
funded from the Company’s general assets.
	 
	 	(e)	 	Arbitration. Any dispute or controversy arising under or in connection with
this Policy (after following the procedures set forth in Section 7, if applicable) shall
be settled exclusively by arbitration in Seattle, Washington by three arbitrators in
accordance with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrators’ award in any court having jurisdiction. The
Company and the officer shall share equally all costs and expenses arising in connection
with any arbitration proceeding pursuant to this Section 10(e).

 

17

 

EXHIBIT A

The purpose of this Exhibit is, by use of examples, to illustrate the working of this Policy
and reduce the possibility of inconsistent interpretations of this Policy.

General: As a general statement, when a covered officer is eligible to receive
payments under this Policy, the officer receives (a) the officer’s base salary for the “applicable
officer period” (ranging from 6 to 12 months), (b) incentive compensation based on the officer’s
100% target award, prorated for the “applicable officer period” (again ranging from 6 to 12 months)
and, except for the Chief Executive Officer and Chief Financial Officer, adjusted for the Company’s
performance under operating measures as defined in the applicable cash incentive plan, and (c)
certain specified benefits, with medical, dental, vision, life insurance and outplacement services
generally provided for the shorter of the “applicable officer period” or until the officer accepts
employment with another employer. There are special provisions for the current Chief Executive
Officer and Chief Financial Officer because of contractual commitments with those officers.

There are special rules to determine the amount of incentive compensation that is payable if
an officer’s employment is terminated early in a year before (a) the amount of incentive
compensation for the prior calendar year has been determined (Section 3(a)(iii)), and/or
(b) the incentive compensation plan for the current year has been established (Sections
1(g)(ii)(B) and (C)).

This Policy applies only to terminations without Cause or for Good Reason or, to a limited
extent in the event of to a termination due to Disability or death before the prior’s year’s
incentive compensation has been paid. Payments due officers in other circumstances are determined
as provided by law and/or other plans, programs and policies of the Company.

Illustrative Examples

Hypothetical: Vice President X makes a salary of $210,000 and has, under the annual
cash incentive plan, a 40% target ($84,000) if Cray makes $30 million of adjusted pre-award
operating income (for 50% of his total award) and X meets five defined individual goals (10% each
or 50% together of his total award). (X’s target award for the prior year was 35%, or $73,500, with
the prior year’s plan structured similarly to the current year’s plan.) If Cray’s adjusted
pre-award operating income is $20 million, the plan award is 50% of target; if it is $26 million,
the plan award is 75% of target; and if it is $34 million, it is 125% of target. Cray must be
profitable for any payment to be made under the cash incentive plan, and a condition to payment is
that the officer must be an employee on the date of payment. X has been a Vice President for 30
months and does not accrue any vacation. X has 16,000 options for Cray common stock, of which 4,000
options are vested, and 5,000 shares of restricted stock, of which 2,500 shares are vested.

 

18

 

Example 1. After discussions with the CEO, the Vice President X receives a notice of
termination stating that his employment is terminated effective the last day of May; the
termination is without “Cause,” as defined, but due to generally unsatisfactory leadership.
Cray is on-target to make $30 million of adjusted pre-award operating income for the year,
although that will not be known for certain until after year-end. X received a 90% cash incentive
plan award, or $66,150 ($73,500 x 90%), for the previous year in late February. After year-end, the
Company has $34 million in adjusted pre-award operating income.

	 	A.	 	What compensation and benefits does X receive?
	 
	 	B.	 	What changes if Cray’s adjusted pre-award operating income is $24 million?
	 
	 	C.	 	What changes if the fourth quarter is very bad as a big delivery was not
accepted, as had been planned, until the following January, and Cray is not profitable
for the year.

Responses:

A. As a Vice President for 30 months, X’s “Applicable Officer Period” is 8 months (6 months
base plus 2 months for service as a Vice President) — Section 1(a).

The “Date of Termination” is May 31, as the termination is without Cause and that is the date
specified in the Notice of Termination — Section 2(c)(iii).

X’s “Base Salary” is $17,500 per month or $8,976.93 per pay period ($210,000/12 and
$210,000/26, respectively) — Section 1(g)(i).

Through May 31, X receives his Base Salary of $8,976.93 per pay period and regular benefits —
see Section 3(a). X has no accrued vacation pay and has already received his incentive
compensation for the prior year.

Following May 31, X will receive, as a severance benefit:

Base Salary for 8 months — total of $140,000 (through January 31 of the next year),
payable each two weeks (normal payroll schedule) in the amount of $8,976.93 — Section
3(b)(i)(A).

As X does not have any accrued vacation, there is no adjustment for accrued vacation. If X
had had, for example $3,000 of accrued vacation, he would have received that amount in the normal
time for payment of accrued vacation and his first payment of his Base Salary would have been
reduced by $3,000. Section 3(b)(i)(A).

Incentive Compensation of $56,000 (X’s target award of $84,000 multiplied by his
“Applicable Officer Period” of 8 months divided by 12 months)  — Section 1(g)(ii)(A). X
does not receive an award greater than 100% of target, even though non-terminated officers would be
eligible to receive 125% of their Incentive Compensation awards — Sections 1(g)(ii)(A) and
(B).

The Incentive Compensation amount is paid in a lump sum in the following year at the same time
the non-terminated officer’s receive their respective cash incentive plan payments or by March 15,
whichever is earlier — Section 3(b)(i)(B).

 

19

 

Benefits:

Assuming X has elected to continue coverage under COBRA, the medical, dental, vision and
orthodontia benefits that X and his dependents were receiving immediately before May 31 with X
paying the same dollar amount for such benefits at that time, with all increases, included any
increased premiums for such coverage in the next year being absorbed by Cray — Section
3(b)(ii)(A).

Term life insurance in the amount of up to $500,000 if X obtains such a policy, or if X cannot
obtain such a policy for reasons of insurability, X may be able to convert the group coverage into
individual coverage — Section 3(b)(ii)(B).

The COBRA coverage and life insurance coverage are paid through the following January 31,
unless X begins to work with another employer that offers such benefits — Section
3(b)(ii)(C).

Stock Options cease vesting on May 31, with unvested options expiring, but X’s period
in which to exercise those vested options likely is extended to the following January 31 —
Section 3(b)(iii).

Restricted Stock is governed by X’s restricted stock agreement, which generally
provide that X, when terminated without Cause, receives a pro rata amount of his restricted shares
determined by comparing the number of months since the grant date compared to 48 months —
Section 3(b)(iv).

Outplacement Services (the ProSearch 6 program under the Lee Hecht Harrison Executive
Transition Services, or equivalent) for a period until the program has been completed or X accepts
employment with another employer — Section 3(b)(v).

All the payments described above assume X has signed a standard release and complies with the
terms of his Employee Confidentiality Agreement and all other agreements regarding his employment
and termination (which generally include a non-disparagement clause) — Section 4.

B. In this situation, non-terminated officers could receive 66.67% of their Incentive
Compensation (the $24 million achieved adjusted net operating profit is two-thirds between the
target for a 50% award and a 75% award). Under Sections 1(g)(ii)(A) and (B), X’s target
Incentive Compensation is similarly adjusted (from $84,000 to $56,000) and then pro-rated for his
“Applicable Officer Period, resulting in a final payment of $37,333.33, to be paid in the year
after the termination occurs — see Section 3(b)(i)(B).

C. In this situation, X would receive no Incentive Compensation but all other payments
described in Response A above. Section 1(g)(ii)(B), proviso.

Note that if X were the Chief Executive Officer or Chief Financial Officer, and for this
purpose assuming the same salary and bonus amounts in this Example 1, the payments described in A
above would be generally the same except that:

Base Salary — for 12 months, not 8 months — Section 1(a).

Incentive Compensation — these officers would receive the full target amount of
$84,000, which does not change and is not dependent upon future results — see Section
1(g)(iii)(A) — and which would be payable on a prorated basis along with the payments of Base
Salary — Section 3(b)(i)(C).

Outplacement Services — Senior Executive Service — Section 3(b)(v).

 

20

 

Example 2. Vice President X, who works in the Mendota Heights, Minneapolis, office, is
told on January 15 that he must relocate to Austin, Texas, for good business reasons. On January
20, he submits a Notice of Termination, stating that he does not want to move and forcing him to
move would constitute “Good Reason” and specifies February 19 as his Date of Termination. The
Company does not agree, citing the good business reasons and does not rectify the situation, and
the matter is referred to arbitration under Section 10(e) for a decision. X terminates on February
19.

On
February 15, the audit of the Company’s financial statements is completed and the Company
meets $30 million adjusted pre-award operating income target. Vice President X met 4 of the 5
personal goals for the prior year’s cash incentive plan.

At its meeting held in the first week of February, the Board approved a cash incentive plan
for the current year substantially similar to the previous year’s plan, but Vice President X is
included only if he accepts the Austin position.

	 	A.	 	In May the arbitrator decides that X had Good Reason. What compensation and benefits does X
receive?
	 
	 	B.	 	What changes if, in May, the arbitrator decides that X did not have Good Reason?

Responses:

If the termination of X is covered by the Policy, then, except as discussed below, X receives
the same payments and benefits as described above in Example 1, Response A, with 8 months being X’s
“Applicable Officer Period.” The key issue is whether the termination of X is covered by the
Policy  —  has X terminated for “Good Reason” as defined in Section 1(i)(iv)? If so, then
X is covered by the Policy; if not, then X has resigned without Good Reason, and receives
no severance benefits under the Policy (see the third paragraph under “Application” on
the first page of the Policy). While the arbitrator can decide whether “Good Reason” existed,
either way X is terminated as an employee, effective February 19, which is the Date of Termination
under Section 2(c)(iv), and the arbitrator under the Policy does not have the authority to
restore X to employment — see last paragraph in Section 2(c). From the date of the Notice
of Termination, January 20, until the Date of Termination, X remains an employee and receives all
salary and other benefits, with Cray having the election to have X continue to provide services or
to be put on paid leave — see last paragraph in Section 2(c).

The Company does not have to provide any payments of severance or benefits until the
arbitrator decides if the termination is covered by the Policy or the parties settle the matter,
and in either event until a general release is delivered. Section 2(c), last paragraph, and
Section 4. If there is a delay in payments due to the dispute and/or delivery of the release,
then, assuming that X is entitled to severance benefits under the Policy, the amounts deferred
should be paid in a
lump sum as soon as is reasonable practicable and the remaining payments to X are placed on a
schedule as if the severance payments began with the Date of Termination — see Section 4.
In that event, the payments would continue until October 19 (eight months from the February 19 Date
of Termination).

 

21

 

There are issues regarding the amount of Incentive Compensation for the immediately prior year
and for the current year, in which the Date of Termination occurs, assuming that X has terminated
for Good Reason and the termination is covered by the Policy.

The amount of Incentive Compensation for the immediately prior year is determined under
Section 3(a)(iii), as the amount of payments for the prior year were not determined by the
date of the Notice of Termination (January 20). In these circumstances, the Incentive Compensation
for X is to be determined in good faith, and if Cray can support that X would be entitled to an 90%
award, or $66,150 ($73,500 x 90%). X receives this award, however, only if Good Reason were
determined to exist — see Section 2(c), last paragraph and the third paragraph under
“Application” on the first page of the Policy. Note that the timing when the arbitrator’s final
decision whether “Good Reason” occurred would affect when the actual payment of Incentive
Compensation is paid — see Sections 3(b)(i)(B) and 4. Under Code Section 409A, it is
possible that a payment would have to be delayed — see Section 9.

The amount of Incentive Compensation for the current year is determined under Sections
1(g)(ii)(B) and (C), although that would not be paid until the following year. In this
circumstance, the cash incentive plan for X would be the same as the prior year’s plan as, by the
date of the Notice of Termination (January 20), the current year’s plan had not been established.
The award would be based solely on one or more operating measures, adjusted in good faith to
parallel the current year’s incentive plan for non-terminated officers — Section
1(g)(ii)(C). X would receive two-third’s (for the 8 month “Applicable Officer Period) of a
100% award, which would be adjusted for actual operating performance against the target plan,
perhaps to zero if non-terminated officers did not receive any cash incentive plan payment for the
current year — see Section 1(g)(ii)(B).

 

22

 

EXHIBIT B

The following officers are covered by the Executive Severance Policy:

Officers Elected by the Board of Directors:

	 	 	 
	Peter J. Ungaro

	 	Chief Executive Officer and President
	Brian C. Henry

	 	Executive Vice President and Chief Financial Officer
	Kenneth W. Johnson*

	 	Senior Vice President, General Counsel and
Corporate Secretary
	Wayne J. Kugel

	 	Vice President
	Ian W. Miller*

	 	Senior Vice President
	Charles A. Morreale

	 	Vice President
	Steven L. Scott*

	 	Senior Vice President and Chief Technology Officer
	Margaret A. Williams*

	 	Senior Vice President

Other Officers: (subject to appointment by the Chief Executive Officer)

[To Be Naned]

The individuals whose names are marked with an asterisk (*) shall be considered as a Senior Vice
President for purposes of this Policy.

 

23Filed by Bowne Pure Compliance

Exhibit 10.1

FIRST AMENDMENT TO AMENDED AND RESTATED MASTER LOAN AGREEMENT 

THIS FIRST AMENDMENT TO AMENDED AND RESTATED MASTER LOAN AGREEMENT (the “First Amendment”), is
entered into as of October 14, 2008, by and between CENTRAL IOWA ENERGY, LLC, an Iowa limited
liability company (the “Borrower”), and F & M BANK — IOWA, a bank chartered under the laws of the
State of Iowa (the “Lender”). In consideration of the premises herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:

RECITALS

A. On or about September 26, 2006, Borrower and Lender entered into that certain Master Loan
Agreement that provided for various credit facilities for the purposes of acquiring, constructing,
equipping and furnishing of a biodiesel production facility to be located near the city of Newton,
Jasper County, Iowa.

B. On or about October 17, 2007, Borrower and Lender entered into that certain Amended and
Restated Master Loan Agreement (the “Loan Agreement”).

C. The Borrower and Lender have agreed to make certain amendments to the Loan Agreement
pursuant to the provisions of this First Amendment.

D. The parties desire to set forth their agreement with respect to such amendments to the Loan
Agreement in accordance with the terms and conditions of this First Amendment and the Loan
Agreement.

NOW THEREFORE, in consideration of the facts set forth in these Recitals which the parties
agree are true and correct, and in consideration for entering into this First Amendment and the
related documents to be executed concurrently with or pursuant hereto, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows:

AMENDMENT

1. Defined Terms. Except as amended by this First Amendment, all terms used and not
otherwise defined herein shall have the meanings assigned to them in the Loan Agreement. The
following terms shall be amended and restated to read as follows:

	 	a.	 	“LIBOR Rate” is hereby amended and restated to read as follows:

“LIBOR Rate” (London Interbank Offered Rate) means the One Month London Interbank
Offered Rate (“One Month LIBOR”), rounded upward to the nearest ten thousandth of one
percent, reported on the tenth day of the month preceding each Interest Period by the Wall
Street Journal in its daily listing of money rates, defined therein as the average of
interbank offered rates for dollar deposits in the London market. If a One Month LIBOR rate
is not reported on the tenth day of a month, the One Month LIBOR rate reported on the first
business day preceding the tenth day of the month will be used. If this index is no longer
available, Lender will select a new index which is based upon comparable information.

 

 

 

	 	b.	 	“Revolving Line of Credit Loan” is hereby amended and restated to read as
follows:

“Revolving Line of Credit Loan” means that line of credit from the Lender to the
Borrower in the amount of $2,000,000.00 and pursuant to the terms and conditions provided
for in this Agreement and the Third Supplement to the Agreement.

	 	c.	 	“Amended and Restated Revolving Line of Credit Note” is hereby amended and
restated to read as follows:

“Amended and Restated Revolving Line of Credit Note” means that certain Second
Amended and Restated Revolving Line of Credit Note to be executed and delivered to the
Lender by the Borrower dated October 14, 2008 pursuant to the terms and conditions provided
for in this Agreement and the Third Supplement to this Agreement.

	 	d.	 	“Subordinated Debt” is hereby amended and restated to read as follows:

“Subordinated Debt” means Debt held by Iowa Department of Economic Development and
subordinated Debt held by Borrower’s vendors.

2. Amendments to the Loan Agreement:

	 	a.	 	Section 2.04. Section 2.04 is hereby amended and restated to read as follows:

Section 2.04 Revolving Line of Credit. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties set forth in this
Agreement, the Lender has agreed to lend to Borrower and Borrower has agreed to borrow from
Lender, as of October 14, 2008 and from time to time thereafter, on a revolving basis an
amount not to exceed $2,000,000.00. Such amount shall be loaned by Lender pursuant to the
terms and conditions set forth in this Agreement and the Third Supplement to this Agreement.
Pursuant to the terms and conditions in this Agreement, the Lender may extend additional
Revolving Loans to the Borrower. Any such future Revolving Loans shall be provided by
Lender pursuant to the terms and conditions of a future term Revolving Loan Supplement.

	 	b.	 	Section 2.12. Section 2.12(e) is hereby amended and restated to read as follows:

Section 2.12 (e) Computations. Except as expressly provided otherwise herein, all
computations of interest and fees shall be made on the basis of actual number of days lapsed
over a year of 365 days. Interest shall accrue from and include the date of borrowing, but
exclude the date of payment.

	 	c.	 	Section 5.01. Section 5.01(e) is hereby amended and restated to read as follows:

Section 5.01(e) Tangible Net Worth. On October 14, 2008, the Borrower’s Tangible
Net Worth shall be not less than $19,473,807.00. After October 14, 2008, the Borrower shall
maintain Tangible Net Worth, measured at the end of each fiscal year, in an amount equal to
the lesser of: (i) the Borrower’s Tangible Net Worth at the end of the immediately
preceding fiscal year plus $500,000.00; or (ii) the Borrower’s Tangible Net Worth at the end
of the
immediately preceding fiscal year plus the Borrower’s retained earnings at the end of the
current fiscal year;

 

 

 

3. Conditions to Effectiveness of this Amendment. Except as otherwise expressly
stated in this Amendment, this Amendment shall become effective as of the date hereof upon the
satisfaction of the conditions precedent that Lender shall have received, on or before the date
hereof, the following documents, reports and related matters, duly executed (as applicable) by the
Borrower and Guarantor, as applicable, and in a form acceptable to the Lender:

	 	a.	 	The First Amendment;

	 
	 	b.	 	Allonge #2 to Construction and Term Note;

	 
	 	c.	 	Allonge to Term Revolving Note;

	 
	 	d.	 	The Second Amended and Restated Third Supplement;

	 
	 	e.	 	The Amended and Restated Revolving Line of Credit Note;

	 
	 	f.	 	A deposit account control agreement in favor of the Lender on such deposit
accounts of the Borrower as required by Lender, and in form and substance acceptable to
the Lender; and

	 
	 	g.	 	The fee letter and payment of those fees as stated therein.

4. Warranties of Borrower. Borrower hereby represents and warrants as follows:

	 	a.	 	Borrower hereby affirms as of the date hereof each and every representation and
warranty contained in the Loan Agreement, the promissory notes, the mortgage and all
other documents delivered by Borrower to Lender in connection therewith are true in all
material respects.

	 
	 	b.	 	The execution, delivery and performance by Borrower of this First Amendment has
been duly authorized by the Borrower.

	 
	 	c.	 	Borrower is not in default under the Loan Agreement, and no condition exists
which, with the giving of notice or lapse of time, or both, would constitute a default
by the Borrower thereunder, except as disclosed on Exhibit A hereto.

5. Amendment to Control. In the event of any conflict between this First Amendment
and the Loan Agreement, the provisions of this Amendment shall control.

6. Ratification of Loan Agreement. As amended hereby, the Loan Agreement remains in
full force and effect and is hereby ratified and affirmed.

 

 

 

7. Severability. Any provision contained in this First Amendment which is held to be
inoperative, unenforceable or invalid in any jurisdiction shall, as to that jurisdiction, be
inoperative, unenforceable or invalid without affecting the remaining provisions of this First
Amendment in that jurisdiction or the operation, enforceability or validity of such provision in
any other jurisdiction.

8. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF IOWA.

9. Counterparts. This First Amendment may be executed in any number of counterparts,
each of which, when so executed and delivered, shall be considered an original and all of which
counterparts, taken together, shall constitute but one and the same instrument, even though all of
the parties hereto may not have executed the same counterpart of this First Amendment.

{SIGNATURE PAGE TO FOLLOW THIS PAGE}

 

 

 

SIGNATURE PAGE TO

FIRST AMENDMENT TO AMENDED AND RESTATED MASTER LOAN AGREEMENT

BY AND BETWEEN

CENTRAL IOWA ENERGY, LLC

AND

F & M BANK — IOWA

DATED: October 14, 2008

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed by
their respective officers and duly authorized, as of the date first above written.

BORROWER:

CENTRAL IOWA ENERGY, LLC, an

Iowa limited liability company

	 	 	 	 	 
	By:

	 	/s/ James Johnston
 

James Johnston
	 	 
	 

	 	Its: Chairman	 	 

LENDER:

F & M BANK — IOWA, a bank

chartered under the laws of the State of Iowa

	 	 	 	 	 
	By:

	 	/s/ Daniel J. Hassman
 

Daniel J. Hassman
	 	 
	 

	 	Its: President	 	 

 

 

 

EXHIBIT A

 

 

 

Borrower has failed to maintain the fixed Charge Coverage Ratio required by Section 5.01(g) of the
Amended and Restated Master Loan Agreement.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00151-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00151-of-00352.parquet"}]]