1.1
Establishment of Plan . Cree, Inc., a North
Carolina corporation (the “Company”), hereby
establishes an incentive compensation plan to be known as the
“Cree, Inc. 2004 Long-Term Incentive Compensation Plan”
(the “Plan”), as set forth in this document.
1.2
Purpose of Plan . The objectives of the Plan
are to (i) attract and retain employees for the Company and its
affiliates and directors of the Company by providing competitive
compensation opportunities; (ii) provide incentives to those
individuals who contribute significantly to the long-term
performance and growth of the Company and its affiliates; and (iii)
align the long-term financial interests of employees and directors
with those of the Company’s shareholders.
1.3
Types of Awards . Awards under the Plan may be
made to Eligible Participants who are employees in the form of (i)
Incentive Stock Options, (ii) Nonqualified Stock Options, (iii)
Stock Appreciation Rights, (iv) Restricted Stock, (v) Stock Units,
(vi) Performance Units, or any combination of these. Awards under
the Plan may be made to Eligible Participants who are Outside
Directors in the form of (i) Nonqualified Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Stock Units, or
any combination of these, subject to and in accordance with Section
4.2 and Article 10.
1.4
Effective Date . The Plan became effective upon
approval of the Plan by the Company’s shareholders on
November 4, 2004, and the date of such approval is referred to
herein as the “Effective Date.”
1.5
Predecessor Plan . Upon approval of the Plan by
the shareholders of the Company, no further grants may be made
under the Cree, Inc. Amended and Restated Equity Compensation Plan
(the “Predecessor Plan”).
ARTICLE
2—DEFINITIONS
Except where
the context otherwise indicates, the following definitions
apply:
2.1
“Award Agreement” means the written
agreement, whether in printed or electronic form, between the
Company and a Participant, evidencing an Award granted to the
Participant under the Plan. The Award Agreement may be in the form
of a master agreement between an Eligible Participant and the
Company with respect to all or any types of Awards supplemented,
with respect to a particular Award, by a notice of award issued by
the Company.
2.2
“Award” means an award granted to a
Participant under the Plan that is an Option, Stock Appreciation
Right, Restricted Stock, Stock Unit, Performance Unit or
combination of these.
2.3
“Board” means the Board of Directors of
the Company.
2.4
“Cause” means, unless provided otherwise
in the Award Agreement or the Plan: (i) “Cause” as
defined in an Individual Agreement to which a Participant is a
party that is then in effect, or (ii) if there is no such
Individual Agreement or if it does not define Cause, termination of
the Participant’s employment by the Company or any other
Employer because of any conduct amounting to fraud, dishonesty,
willful misconduct, negligence, significant activities materially
harmful to the reputation of the Company or an Employer,
insubordination or conviction of a felony or a crime involving
moral turpitude, all as determined by the Committee in good faith,
including but not limited to (as determined by the Committee in
good faith), (A) Participant’s breach of any agreement
between Participant and an Employer, (B) Participant’s
intentional or
negligent
failure to perform a reasonably requested directive or assignment
or to perform his duties to the Employer substantially in
accordance with the Employer’s operating and personnel
policies and procedures generally applicable to all of its
employees, or (C) Participant’s misappropriation or attempted
misappropriation of any of the Employer’s funds or
property.
2.5
“Change in Control” means, unless provided
otherwise in the Award Agreement, “Change in Control”
or “Change of Control”, as applicable, as defined in an
Individual Agreement to which a Participant is a party that is then
in effect. If a Participant does not have an Individual
Agreement, or if it does not define Change in Control, no
Termination of Employment for that Participant shall be considered
to be in connection with a Change in Control.
2.6
“Code” means the Internal Revenue Code of
1986, as now in effect or as hereafter amended. All citations to
sections of the Code are to such sections as they may from time to
time be amended or renumbered.
2.7
“Committee” means a committee appointed by
the Board to administer this Plan (or any specific provisions
hereunder) pursuant to Article 3.
2.8
“Company” means Cree, Inc., a North
Carolina corporation, and its successors and assigns.
2.9
“Disability” means, with respect to any
Incentive Stock Option, disability as determined under Section
22(e)(3) of the Code, and with respect to any other Award, unless
provided otherwise in the Award Agreement, (i) with respect to a
Participant who is eligible to participate in the Employer’s
program of long-term disability insurance, if any, a condition with
respect to which the Participant is entitled to commence benefits
under such program of long-term disability insurance and which
results in Termination of Employment of the Participant, and (ii)
with respect to any Participant (including a Participant who is
eligible to participate in the Employer’s program of
long-term disability insurance, if any), a disability as determined
under procedures established by the Committee or in any
Award.
2.10
“Effective Date” shall have the meaning ascribed
to such term in Section 1.4 hereof.
2.11
“Eligible Participant” means any employee of the
Employer and any Outside Director, subject to such limitations as
may be provided by the Code, the Exchange Act or the Committee, as
shall be determined by the Committee.
2.12
“Employer” means the Company and any corporation
or entity in which the Company owns or controls, directly or
indirectly, fifty percent (50%) or more of the voting power or
economic interests of such corporation or entity.
2.13
“Exchange Act” means the Securities Exchange Act
of 1934, as now in effect or as hereafter amended. All citations to
sections of the Exchange Act or rules thereunder are to such
sections or rules as they may from time to time be amended or
renumbered.
2.14
“Fair Market Value” means the fair market value
of a Share, as determined in good faith by the Committee; provided,
however, that unless otherwise directed by the
Committee:
(a) if
the Shares are listed for trading on a national securities
exchange, Fair Market Value on any date shall be the last sale
price reported for the Shares on such exchange on such date or, if
no sale was reported on such date, on the last date preceding such
date on which a sale was reported;
(b) if
the Shares are listed for trading on The Nasdaq Stock Market and
have been designated as a “Nasdaq Global Market”
security (or such other name as The Nasdaq Stock Market may
hereafter adopt for such segment), Fair Market Value on any date
shall be the last sale price reported for the Shares on such system
during the regular trading session on such date or on the last day
preceding such date on which a sale was reported during the regular
trading session;
(c) if
the Shares are listed for trading on The Nasdaq Stock Market and
have not been designated under subsection (b) above, Fair Market
Value on any date shall be the average of the highest bid and
lowest asked prices of the Shares on such system during the regular
trading session on such date or on the last day preceding such date
on which a sale was reported during the regular trading session;
or
(d) if
(a), (b) and (c) do not apply, on the basis of the good faith
determination of the Committee.
For purposes of
subsection (a) above, if the Shares are traded on more than one
national securities exchange, then the following exchange shall be
referenced to determine Fair Market Value: (i) the New York Stock
Exchange if the Shares are then traded on such exchange and (ii)
otherwise such other exchange on which Shares are traded as may be
designated by the Committee.
2.15
“Good Reason” means a Termination of Employment
for “Good Reason” as defined in an Individual Agreement
to which the Participant is a party that is then in
effect. If a Participant does not have an Individual
Agreement, or if it does not define Good Reason, no Termination of
Employment for that Participant shall be considered to be for
“Good Reason.”
2.16
“Incentive Stock Option” or “ISO”
means an Option granted to an Eligible Participant under Article 5
of the Plan which meets the requirements of Section 422 of the
Code.
2.17
“Individual Agreement” means a written agreement
between a Participant and the Company or any other Employer
relating to employment by the Company or other Employer or to
service as an Outside Director of the Company (other than an Award
Agreement).
2.18
“Insider” shall mean an individual who is, on the
relevant date, subject to the reporting requirements of Section
16(a) of the Exchange Act.
2.19
“Nonqualified Stock Option” or “NQSO”
means an Option granted to an Eligible Participant under Article 5
of the Plan that does not meet the requirements of Section 422 of
the Code.
2.20
“Option” means an Incentive Stock Option or a
Nonqualified Stock Option. An Option shall be designated in the
applicable Award Agreement as either an Incentive Stock Option or a
Nonqualified Stock Option, and in the absence of such designation,
shall be treated as a Nonqualified Stock Option.
2.21
“Option Price” means the price at which a
Participant may purchase a Share pursuant to an Option.
2.22
“Outside Director” means a member of the Board
who is not an employee of the Company or any other
Employer.
2.23
“Participant” means an Eligible Participant to
whom an Award has been granted.
2.24
“Payment Date” shall have the meaning set forth
in Section 5.6 of the Plan.
2.25
“Performance Unit” means an Award under Article 8
of the Plan that has a value set by the Committee (or that is
determined by reference to a valuation formula specified by the
Committee), which value may be paid to the Participant by delivery
of such property as the Committee shall determine, including
without limitation, cash or Shares, or any combination thereof,
upon achievement of such performance objectives during the relevant
performance period as the Committee shall establish at the time of
such Award or thereafter, but not later than the time permitted by
Section 162(m) of the Code in the case of Awards intended to comply
with Section 162(m) of the Code.
2.26
“Plan” means the Cree, Inc. 2004 Long-Term
Incentive Compensation Plan, as amended from time to
time.
2.27
“Restricted Stock” means an Award of Shares under
Article 7 of the Plan, which Shares are issued with such
restriction(s) as the Committee, in its sole discretion, may
impose, including without limitation, any restriction on the right
to retain such Shares, to sell, transfer, pledge or assign such
Shares, to vote such Shares, and/or to receive any cash dividends
with respect to such Shares, which restrictions may lapse
separately or in combination at such time or times, in installments
or otherwise, as the Committee may deem appropriate.
2.28
“Restriction Period” means the period of any
restriction applicable to an Award of Restricted Stock or Stock
Units, which period shall commence on the date an Award of
Restricted Stock or Stock Units is granted and end on such date as
the Committee shall determine (subject to Sections 7.2(b) and
Section 14.2).
2.29
“Retirement” means, unless provided otherwise in
the Award Agreement, Termination of Employment other than for Cause
after a Participant has reached the age of 55 years and has
completed at least five years of service (full-time or full-time
equivalent).
2.30
“Share” means one share of common stock, par
value $0.00125 per share, of the Company, as such Share may be
adjusted pursuant to the provisions of Section 4.3 of the
Plan.
2.31
“Stock Appreciation Right” or “SAR”
means an Award granted under Article 6 which provides for an amount
payable in Shares and/or cash, as determined by the Committee,
equal to the excess of the Fair Market Value of a Share on the day
the Stock Appreciation Right is exercised over the specified
purchase price.
2.32
“Stock Unit” means an Award under Article 7 of
the Plan that is valued by reference to a Share, which value may be
paid to the Participant by delivery of such property as the
Committee shall determine, including without limitation, cash or
Shares, or any combination thereof, and that has such
restriction(s) as the Committee, in its sole discretion, may
impose, including without limitation, any restriction on the right
to retain such Awards, to sell, transfer, pledge or assign such
Awards, and/or to receive any cash dividend equivalents with
respect to such Awards, which restrictions may lapse separately or
in combination at such time or times, in installments or otherwise,
as the Committee may deem appropriate.
2.33
“Termination of Employment” means, unless
provided otherwise in the Award Agreement, the discontinuance of
employment of a Participant with the Employer for any reason,
whether voluntary or involuntary, or in the case of an Outside
Director, the discontinuance of services to the Company by an
Outside Director, for any reason, whether voluntary or
involuntary. If an Outside Director becomes an employee
of the Company or any other Employer before or upon terminating
service as an Outside Director, such employment will constitute a
continuation of service with respect to Awards granted to the
Participant while he or she served as a member of the
Board. The determination of whether a Participant has
discontinued employment or service shall be made by the Committee
in its sole discretion. “Termination of
Service” as used in an Award Agreement shall mean Termination
of Employment.
ARTICLE
3—ADMINISTRATION
3.1
Composition of Committee. This Plan shall be
administered by the Committee. The Committee shall consist of two
or more Outside Directors who shall be appointed by the Board. The
Board shall fill vacancies on the Committee and may from time to
time remove or add members of the Committee. The Board, in its sole
discretion, may exercise any authority of the Committee under this
Plan in lieu of the Committee’s exercise thereof and in such
instances references herein to the Committee shall refer to the
Board of Directors. Unless the Board directs otherwise, the
Compensation Committee of the Board shall serve as the
Committee.
3.2
Authority of the Committee.
(a) The
Committee shall have the exclusive right to interpret, construe and
administer the Plan, to select the persons who are eligible to
receive an Award, and to act in all matters pertaining to the
granting of an Award and the contents of the Award Agreement
evidencing the Award, including without limitation, the
determination
of the number of Options, Stock Appreciation Rights, Restricted
Stock, Stock Units or Performance Units subject to an Award and the
form, terms, conditions and duration of each Award, and any
amendment thereof consistent with the provisions of the Plan. The
Committee may adopt such rules, regulations and procedures of
general application for the administration of this Plan as it deems
appropriate. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award
Agreement in the manner and to the extent it shall deem desirable
to carry it into effect.
(b) The
Committee shall have the discretion to determine the effect upon an
Award and upon an individual’s status as an employee or
Outside Director under the Plan (including whether a Participant
shall be deemed to have experienced a Termination of Employment, or
other change in status) and upon the vesting, expiration or
forfeiture of an Award in the case of (i) any individual who is
employed by an entity that ceases to qualify as an Employer, (ii)
any leave of absence, (iii) any transfer between locations of
employment with the Employer or between Employers, (iv) any change
in the Participant’s status from an employee to a consultant
or member of the Board of Directors, or vice versa, and (v) any
employee who, at the request of the Employer or the Company,
becomes employed by any partnership, joint venture, corporation or
other entity not meeting the requirements of an
Employer.
(c) All
actions, determinations and decisions of the Committee made or
taken pursuant to grants of authority under the Plan or with
respect to any questions arising in connection with the
administration and interpretation of the Plan, including the
severability of any and all of the provisions thereof, shall be
conclusive, final and binding upon all parties, including the
Company, its shareholders, Participants, Eligible Participants and
their estates, beneficiaries and successors. The Committee shall
consider such factors as it deems relevant to making or taking such
actions, determinations and decisions including, without
limitation, the recommendations or advice of any director, officer
or employee of the Company and such attorneys, consultants and
accountants as it may select. A Participant or other holder of an
Award may contest an action, determination or decision by the
Committee with respect to such person or Award only on the grounds
that such action, determination or decision was arbitrary or
capricious or was unlawful, and any review of such action,
determination or decision shall be limited to determining whether
the Committee’s decision or action was arbitrary or
capricious or was unlawful.
3.3
Rules for Foreign Jurisdictions .
Notwithstanding anything in the Plan to the contrary, the Committee
may, in its sole discretion, amend or vary the terms of the Plan in
order to conform such terms with the requirements of each non-U.S.
jurisdiction where an Eligible Participant is located or to meet
the goals and objectives of the Plan; establish one or more
sub-plans for these purposes; and establish administrative rules
and procedures to facilitate the operation of the Plan in such
non-U.S. jurisdictions. For purposes of clarity, the terms and
conditions contained herein which are subject to variation in a
non-U.S. jurisdiction shall be reflected in a written addendum to
the Plan for each Employer of a Participant located in such
non-U.S. jurisdiction.
3.4
Delegation of Authority . The Committee may, at
any time and from time to time, to the extent permitted by law and
the Company’s Bylaws and subject to the applicable rules of
any securities exchange or quotation or trading system on which
Shares are traded, delegate to one or more members of the Committee
or executive officers of the Company any or all of its authority
under Section 3.2 and 3.3, except that the Committee may not
delegate such authority with respect to Awards to members of the
Board or to executive officers of the Company. The Committee may
delegate the administration of the Plan to an officer or employee
of the Company, and such administrator(s) may have the authority to
prepare, execute and distribute Award Agreements or other documents
relating to Awards granted by the Committee under the Plan, to
maintain records relating to the grant, vesting, exercise,
forfeiture or expiration of Awards, to process or oversee the
issuance of Shares upon the exercise, vesting and/or settlement of
an Award, to interpret the terms of Awards and to take such other
actions as the Committee may specify, provided that the actions and
interpretations of any such administrator shall be subject to
review and approval, disapproval or modification by the
Committee.
3.5
Award Agreements . Each Award granted under the
Plan shall be evidenced by an Award Agreement. Each Award Agreement
shall be subject to and incorporate, by reference or otherwise, the
applicable terms and
conditions of
the Plan, and any other terms and conditions, not inconsistent with
the Plan, as may be directed by the Committee, including without
limitation, provisions related to the consequences of Termination
of Employment. A copy of such document shall be provided to the
Participant, and the Committee may, but need not, require that the
Participant sign a copy of the Award Agreement or otherwise confirm
the Participant’s acceptance of the provisions of the Award
Agreement. The Participant shall in any event be deemed to have
accepted the provisions of an Award Agreement delivered to the
Participant with respect to an Award by exercising the Award or
receiving any benefits thereunder.
3.6
Indemnification . In addition to such other
rights of indemnification as they may have as directors or as
members of the Committee, the members of the Committee and any
persons acting on its behalf pursuant to authority delegated by the
Committee shall be indemnified by the Company against reasonable
expenses, including attorneys’ fees, actually and necessarily
incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they
or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Award
granted thereunder, and against all amounts paid by them in
settlement thereof, provided such settlement is approved by
independent legal counsel selected by the Company, or paid by them
in satisfaction of a judgment in any such action, suit or
proceeding, except as to matters as to which the person seeking
indemnification has been negligent or engaged in misconduct in the
performance of his or her duties; provided, that within sixty (60)
days after institution of any such action, suit or proceeding, the
person seeking indemnification shall in writing offer the Company
the opportunity, at its own expense, to handle and defend the
same.
ARTICLE
4—SHARES SUBJECT TO THE PLAN
4.1
Aggregate Limits.
(a)
Subject to adjustment as provided in Section 4.3, the aggregate
number of Shares which may be issued pursuant to Awards under this
Plan is (i) 8,200,000 plus (ii) the number of Shares which,
immediately prior to the Effective Date, were authorized for
issuance under the Predecessor Plan and are not thereafter used for
awards under the Predecessor Plan. Shares described in clause (ii)
above include Shares which, immediately prior to the Effective
Date, were authorized for issuance under the Predecessor Plan and
either (x) were not subject to then outstanding awards or (y) were
subject to then outstanding awards that subsequently expire, are
canceled or otherwise terminate unexercised for any
reason.
(b)
Subject to adjustment as provided in Section 4.3, no more than an
aggregate of 1,400,000 Shares authorized by subsection (a) may be
issued pursuant to Awards of Restricted Stock, Stock Units or
Performance Units.
(c) If
for any reason any Shares awarded or subject to purchase under this
Plan are not delivered or purchased, or are reacquired by the
Company, for reasons including, but not limited to, a forfeiture of
Restricted Stock or a Stock Unit or the termination, expiration or
cancellation of an Option, Stock Appreciation Right or Performance
Unit, such Shares shall again be available for issuance pursuant to
an Award under the Plan, except that Shares with respect to which a
Stock Appreciation Right is exercised, and Shares withheld for
payment of taxes pursuant to Section 13.2, shall not thereafter be
available for issuance under the Plan. The determination
of the number of issued Shares that again become available for
issuance with respect to grants of Incentive Stock Options pursuant
to this Section 4.1 shall be made in accordance with the
requirements of Treas. Reg. section 1.422-2(b)(3).
4.2
Individual Limits.
(a)
Tax Code Limits. Except to the extent the Committee
determines that an Award shall not comply with the
performance-based compensation provisions of Section 162(m) of the
Code: (i) the aggregate number of Shares subject to Options or
Stock Appreciation Rights granted under this Plan in any one fiscal
year to any one Participant shall not exceed 300,000; (ii) the
aggregate number of Shares subject to Restricted Stock or Stock
Unit Awards granted under this Plan in any one fiscal year to any
one Participant
shall not
exceed 100,000; and (iii) the aggregate value of Performance Unit
Awards (valued as of the grant date) that may be granted in any one
fiscal year to any one Participant shall not exceed the Fair Market
Value of 100,000 Shares.
(b)
Awards to Outside Directors. Awards to Outside Directors may
be in the form of Nonqualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Stock Units or a combination thereof. The
aggregate number of Shares subject to Restricted Stock or Stock
Units granted under this Plan in any one fiscal year to any Outside
Director shall not exceed 10,000. The aggregate number
of Shares subject to Awards of any type granted under this Plan in
any one fiscal year to any Outside Director shall not exceed
20,000.
4.3
Adjustment of Shares. If any change in
corporate capitalization, such as a stock split, reverse stock
split, or stock dividend; or any corporate transaction such as a
reorganization, reclassification, merger or consolidation or
separation, including a spin-off, of the Company or sale or other
disposition by the Company of all or a portion of its assets, any
other change in the Company’s corporate structure, or any
distribution to shareholders (other than a cash dividend) results
in the outstanding Shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or
class of shares or other securities of the Company, or for shares
of stock or other securities of any other corporation (including
unpaired shares replacing paired Shares); or new, different or
additional shares or other securities of the Company or of any
other corporation being received by the holders of outstanding
Shares; then equitable adjustments shall be made by the Committee,
as it determines are necessary and appropriate, in:
(a) the
number of Shares that may be awarded as set forth in Section
4.1;
(b) the
limitations on the aggregate number of Shares that may be awarded
to any one single Participant as set forth in Section
4.2;
(c) the
number and class of Shares that may be subject to an Award, and
which have not been issued or transferred under an outstanding
Award;
(d) the
Option Price under outstanding O
