Exhibit 10.7
Cree, Inc.
Severance Plan for Section 16
Officers
Plan Document and Summary Plan
Description
Effective August 18, 2008
This Plan
Document and Summary Plan Description (“Summary Plan
Description”) is for all employees of Cree, Inc.
(“Cree” or the “Company”) who are eligible
under the terms of the Cree, Inc. Severance Plan for Section 16
Officers (the “Section 16 Plan”). All rights
to participate in and receive benefits under the Section 16 Plan
are governed solely by the terms and conditions of this Summary
Plan Description.
The Section 16
Plan is effective as of August 18, 2008.
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II.
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ELIGIBILITY TO PARTICIPATE
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Participation
in the Section 16 Plan is restricted to active Cree employees who
have been designated by the Company, at its discretion and
consistent with applicable law, as being subject to the reporting
requirements of Section 16 of the Securities Exchange Act of
1934, as amended (“Officers”).
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III.
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ELIGIBILITY TO RECEIVE
BENEFITS
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An Officer of
the Company is eligible to receive benefits under this Section 16
Plan upon his/her Termination of Employment initiated by the
Company without Cause or initiated by the Officer for Good Reason,
except in the event of termination of his/her employment due to
death or LTD Disability and except as provided in Article VI
below. Termination of employment initiated by the
Officer other than for Good Reason, or termination of employment
due to death or LTD Disability, will not entitle the Officer to any
benefits under this Section 16 Plan. The receipt of
benefits under the Section 16 Plan will be conditioned upon the
Officer’s execution of and compliance with an agreement
substantially in the form attached as Exhibit A , but with
any appropriate modifications, reflecting changes in applicable
law, as are necessary or appropriate to provide the Company with
the protection it would have if the release were executed as of the
effective date specified in Article I (the “Release
Agreement”) that includes, without limitation, (i) a release
of claims against the Company, its affiliates and representatives;
and (ii) a non-disparagement provision. No severance benefits
will paid or provided under the Section 16 Plan unless and until
the Release Agreement is timely executed and returned by the
Officer to the Company, becomes effective and has not been timely
revoked in accordance with the terms hereof. The Company
will complete and provide to the Officer the release of claims in
sufficient time so that if the Officer timely executes
and returns it,
the revocation period will expire before severance payments are
required to commence under Article IV.
The provisions
of this paragraph will control in the event of conflict between
this paragraph and any other language in this Section 16
Plan. If the Officer becomes Generally Disabled, the
Officer will not be entitled to severance pursuant to this Section
16 Plan on account of the Company, in its sole discretion, taking
any action that would otherwise be considered Good Reason hereunder
provided that such action remains in effect only for so long as the
Officer remains Generally Disabled. If the Officer is
Generally Disabled for more than ninety-one (91) days (whether or
not consecutive) in a rolling twelve (12) month period, the Company
will not be in breach of this Agreement and the Officer will not be
entitled to severance on account of the Company permanently taking
any action that would otherwise be considered Good Reason hereunder
so long as the Committee does not terminate the Officer’s
employment prior to the date that the Officer is determined to have
an LTD Disability. If the Officer is Generally Disabled
and the Company terminates his employment without Cause prior to
the date that he is determined to have an LTD Disability, such
termination will be considered a Termination of Employment by the
Company without Cause for purposes of this Section 16
Plan. If the Officer ceases to be Generally Disabled
before his employment is terminated by reason of LTD Disability,
subject to the notice and cure provisions in Article V, paragraph C
of this Section 16 Plan, the Officer will have the right to
terminate his employment for Good Reason on account of any event or
circumstances that occurred while the Officer was Generally
Disabled that would otherwise have constituted Good Reason except
for the provisions of this paragraph and such termination will be
considered Termination of Employment by the Officer for Good Reason
for purposes of this Section 16 Plan, unless such event or
circumstances has already been cured by the Company or consented to
by the Officer.
Officers who
are otherwise eligible to receive benefits under the Section 16
Plan will be entitled to receive the following upon their execution
and non-revocation (if applicable) of the Release
Agreement:
A.
Severance Amounts
1. In the case
of the Chief Executive Officer of the Company, eighteen (18) months
of the Officer’s annualized base salary as of the Termination
Date, subject to all applicable taxes and
withholdings. In the case of all other Officers who are
eligible under this Section 16 Plan, twelve (12) months of the
Officer’s annualized base salary as of the Termination Date,
subject to all applicable taxes and withholdings. Except
as provided in Article VII below, the base salary provided above
shall be paid in accordance with the Company’s regular
payroll schedule and practices for base salary, but commencing
within thirty (30) days following the Officer’s Termination
of Employment with payments retroactive to that date, and shall
continue for the Salary Continuation Period provided that
the
Officer
continues to comply with all terms and conditions of the Release
Agreement during such period.
2. As to the
Chief Executive Officer, all incentive compensation amounts under
the performance units as to which the Chief Executive Officer was
employed through the end of the last day of the relevant
performance period but that are not yet paid as of the Termination
Date, subject to all applicable taxes and
withholdings. In the case of all other Officers who are
eligible under this Section 16 Plan, all incentive compensation
amounts under the Cree, Inc. Management Incentive Compensation Plan
(“MICP”) as to which the Officer was employed through
the end of the last day of the relevant performance period but that
are not yet paid as of the Termination Date, subject to all
applicable taxes and withholdings. The sole purpose of
this Article IV, paragraph A.2. is to negate the requirements under
the MICP and performance units that an Officer be employed on the
date of payment in order to be eligible for such
payment. Only amounts to which the Officer is entitled
on account of satisfaction of the relevant performance measures for
the relevant performance period, determined in accordance with the
terms of the MICP or Notice of Grant of Performance Units, as
applicable, will be paid hereunder. Any incentive compensation
amounts will be paid in accordance with the schedule set forth in
the MICP or Notice of Grant of Performance Units, as
applicable.
B.
Medical, Dental & Vision Benefits . In the
case of the Chief Executive Officer of the Company, a lump sum
payment equal to eighteen (18) multiplied by the COBRA premium
applicable to the type of medical, dental and vision coverage in
effect for the Officer (e.g., family coverage vs. employee-only
coverage) as of the Termination Date, subject to all applicable
taxes and withholdings. In the case of all other
Officers who are eligible under this Section 16 Plan, a lump sum
payment equal to twelve (12) multiplied by the COBRA premium
applicable to the type of medical, dental and vision coverage in
effect for the Officer (e.g., family coverage vs. employee-only
coverage) as of the Termination Date, subject to all applicable
taxes and withholdings. Such lump sum amounts will be
paid within ninety (90) days following the Severance Start Date,
except as provided in Article VII below. Receipt of this
payment does not result in continuation of coverage under the
Company’s medical, dental, and vision plans (collectively
“Health Care Plans”) pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, and the
regulations thereunder (collectively
“COBRA”). The Officer must timely and
properly elect to continue coverage under the Health Care Plans in
accordance with COBRA and timely remit the required premiums to the
Company or its designee whether or not the payment provided for in
this paragraph has been received. COBRA and the terms
and conditions of the applicable Health Care Plan documents shall
govern any continuation of coverage.
All other
compensation (including, without limitation, bonuses and
commissions) and employee benefits (including, without limitation,
short-term and long-term disability insurance, Paid Time Off
accrual, and vesting of equity compensation) will cease on the
Officer’s Termination Date unless provided otherwise by the
Company in writing. All
equity
compensation grants are subject to the terms and conditions of the
applicable plan document(s). Payments under the Section
16 Plan will not be subject to 401(k) Plan or Employee Stock
Purchase Plan deductions.
Although an
Officer will not be eligible for severance benefits hereunder in
the event of his/her Termination of Employment due to death or
Disability, if an Officer is otherwise eligible for benefits
hereunder, such benefits will not cease if the Officer dies or
becomes disabled after a Termination of Employment initiated by
Cree without Cause or initiated by the Officer for Good
Reason.
A. “
Cause ” shall mean (i) the Officer’s
willful and continued failure to perform the duties and
responsibilities of his position that is not corrected after one
written warning detailing the concerns and offering the Officer a
reasonable period of time to cure; (ii) any material and
willful violation of any federal or state law by the Officer in
connection with his responsibilities as an employee of the Company;
(iii) any act of personal dishonesty taken by the Officer in
connection with his responsibilities as an employee of the Company
with the intention or reasonable expectation that such may result
in personal enrichment of the Officer; (iv) the
Officer’s conviction of, or plea of nolo contendere
to, or grant of prayer of judgment continued with respect to, a
felony that the Board reasonably believes has had or will have a
material detrimental effect on the Company’s reputation or
business; or (v) the Officer materially breaching his/her
Employee Agreement Regarding Confidential Information, Intellectual
Property and Noncompetition with the Company, which breach is (if
capable of cure) not cured within thirty (30) days after the
Company delivers written notice to the Officer of the
breach.
B. “
Disability ” means that the Officer is generally
disabled for more than ninety-one (91) days (whether or not
consecutive) in a rolling twelve (12) month period. As
used in this paragraph, “generally disabled” means that
the Officer is unable, with reasonable accommodation, to perform
the material and substantial duties of his position due to illness
or injury or physical or mental incapacity as determined by the
Committee consistent with its obligations to the Company’s
shareholders.
C. “
Good Reason ” means a Termination of Employment
initiated by the Officer within the time periods set forth below
following the initial existence of one or more of the following
conditions arising without consent of the Officer:
(i)
a material reduction of the Officer's authority, duties or
responsibilities;
(ii)
a
material reduction in the Officer's base salary other than a
one-time reduction that also is applied to substantially all other
Officers of the Company, provided that the Officer's reduction is
substantially proportionate to the reduction applied to
substantially all other Officers;
(iii)
the
Company requiring an Officer (other than the Chief Executive
Officer) to report to anyone other than the Chief Executive Officer
(or an acting Chief Executive Officer in the event of the Chief
Executive Officer's absence), the Company's Board of Directors, or
a Committee of the Board, or, in the case of the Chief Executive
Officer, the Company requiring the Chief Executive Officer to
report to anyone other than the Company's Board of Directors;
or
(iv)
the
Company requiring the Officer to relocate his principal place of
business or the Company relocating its headquarters, in either case
to a facility or location outside of a thirty-five (35) mile radius
from the Officer’s current principal place of
employment;
provided,
however, that the Officer will only have Good Reason if he provides
notice to the Chief Executive Officer (in the case of any Officer
other than the Chief Executive Officer) or the Board (in the case
of the Chief Executive Officer) of the existence of the event or
circumstances constituting Good Reason specified in any of the
preceding clauses within ninety (90) days of the initial occurrence
of such event or circumstances and if such event or circumstances
is not cured within thirty (30) days after Executive gives such
written notice. If the Officer initiates Termination of
Employment for Good Reason, the actual Termination of Employment
must occur within thirty (30) days after expiration of the cure
period. The Officer’s failure to timely give
notice of the occurrence of a specific event that would otherwise
constitute Good Reason will not constitute a waiver of the
Executive’s right to give notice of any new subsequent event
that would constitute Good Reason that occurs after such prior
event (regardless of whether the new subsequent event is of the
same or different nature as the preceding event). The
Officer’s actions in writing (or by such other means as is
reliable and verifiable) approving any change, reduction,
requirement or occurrence (that otherwise may be considered Good
Reason) in his role as an Officer will be considered consent for
the purposes of this Good Reason definition.
D. “
LTD Disability ” means that the Officer is
“Partially Disabled” or “Total Disabled”
within the meaning of the Company’s current long-term
disability plan (or such similar term or terms in any long-term
disability plan of the Company that replaces its current long-term
disability plan) and has satisfied the elimination period for
benefits eligibility under such plan.
E. “
Salary Continuation Period ” means the period of time
beginning on the date following the Officer’s Severance Start
Date and continuing for the number of months specified in Article
IV, paragraph A (1) of this Section 16 Plan.
F. “
Section 16 Plan Administrator ” means the Compensation
Committee of the Cree Board of Directors (“Compensation
Committee”).
G. “
Severance Start Date ” means the date on which the
relevant Officer incurs a “separation from service”
under Section 409A(a)(2)(A)(i) of the Code.
H. “
Six-Month Delay Payment Date” means the payment date
associated with the first regular payroll cycle after passage of
six months following the Severance Start Date.
I. “
Specified Employee” will have the meaning prescribed
by Subsection 409A(a)(2)(B)(i) of the Internal Revenue Code, as
amended, as such meaning may be amended from time to
time.
J. “
Specified Employee Identification Date ” will have the
meaning prescribed by Treasury Regulation
§1.409A-1(i).
K. “
Termination Date ” shall mean the Officer’s last
date of employment with Cree, Inc. or one of its
affiliates. As used in this paragraph,
“affiliate” means an entity which controls, is
controlled by, or is under common control with Cree, where
“control” means ownership of a majority of the
outstanding capital stock or other voting equity interests of the
controlled entity.
L.
“Termination of Employment” will have the
meaning as prescribed by Treasury Regulation §
1.409A-1(h)(1)(ii), as such meaning may be amended from time to
time.
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VI.
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IMPACT OF
SEPARATE CHANGE IN CONTROL AGREEMENT
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This Section 16
Plan shall not apply to an Officer if he or she becomes entitled to
the payment of severance benefits upon his or her employment
termination in connection with a change in control of the Company
pursuant to a separate agreement with the Company. In
other words, the Company will pay severance benefits to an Officer
only once: either under this Section 16 Plan or, if
applicable, under a separate agreement with the Company providing
for severance benefits in a change in control context.
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VII.
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INTERNAL
REVENUE CODE SECTION 409A
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For purposes of
Section 409A with respect to all Officers other than the Chief
Executive Officer, each installment payment of severance specified
in Article IV, paragraphs A.1. and B. above is a separate payment;
all payments specified in Article IV, paragraphs A.1. and B. above
made through the date that is 2-½ months following the later
of the last day of the calendar year containing the Severance Start
Date and the last day of the Company’s fiscal year containing
the Severance Start Date (the “Short-Term Deferral
Deadline”) are intended to be exempt from Section 409A under
the short-term deferral rule; all such payments made
after the Short Term Deferral Deadline are intended to be exempt
from Section 409A under the severance pay exemption specified in
Treasury Regulation §1.409A- 1(b)(9)(iii) (the
“Severance Pay Exemption”); all payments made after the
Short Term Deferral Deadline, that exceed the limits of the
Severance Pay Exemption, that would be paid earlier than the
Six-Month Delay Payment Date and that are paid to an Officer who is
a Specified Employee on his or her Severance Start Date will be
delayed until the Six-Month Delay Payment Date to the extent
required to satisfy Subsection 409A(a)(2)(B)(i) of the Code; on
that date, the Company will pay the Officer
a lump sum
consisting of all payments that would have been paid to the Officer
prior to the Six-Month Delay Payment Date had the Officer not been
a Specified Employee, increased for interest at the short-term
Federal rate in effect on the Termination Date for the period
beginning on the date each component of such lump sum would have
been paid had the Officer not been a Specified Employee and ending
on the Six-Month Delay Payment Date; however, if the Officer dies
after his or her Severance Start Date but before such lump sum
payment is made, it will be paid to the Officer’s estate
without regard to any six-month delay that otherwise applies to
Specified Employees.
For purposes of
Section 409A with respect to the Chief Executive Officer, if the
Chief Executive Office is a Specified Employee on his Severance
Start Date, the payments specified in Article IV, paragraphs A.1.
and B. above will be delayed until the Six-Month Delay Payment Date
to the extent required to satisfy Subsection 409A(a)(2)(B)(i) of
the Code; on that date, the Company will pay the Chief Executive
Officer a lump sum consisting of all payments that would have been
paid to him prior to the Six-Month Delay Payment Date had he not
been a Specified Employee, increased for interest at the short-term
Federal rate in effect on the Termination Date for the period
beginning on the date each component of such lump sum would have
been paid had he not been a Specified Employee and ending on the
Six-Month Delay Payment Date; however, if the Chief Executive
Officer dies after his Severance Start Date but before such lump
sum payment is made, it will be paid to the Chief Executive
Officer’s estate without regard to any six-month delay that
otherwise applies to Specified Employees.
Each
Officer acknowledges and agrees that the Company has made no
representations as to the tax treatment of the compensation and
benefits that may be received by such Officer pursuant to this
Section 16 Plan. This Section 16 Plan is designed
with the intent that all payments hereunder shall either be exempt
from or in compliance with Section 409A. Nothing in this
Section 16 Plan shall require payment in 2008 of any payment that
was required to be paid after 2008 under the any agreement or
arrangement with an Officer that is deemed to be amended by this
Section 16 Plan; in addition, except as may be required to observe
the six-month delay applicable to Specified Employees under
Subsection 409A(a)(2)(B)(i), nothing in this Section 16 Plan shall
postpone beyond 20
