ARTICLE
1—GENERAL PROVISIONS
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) 11,200,000 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 Options and th
