NOTICE OF GRANT

For purposes of the foregoing, except as expressly provided otherwise in this Notice of Grant, “Base Salary” shall refer to your annual base salary in effect on the last day of the first fiscal quarter of fiscal year 2011 (“FY11”), as provided in the Company’s human resources management system, unless your annual base salary changes after the first fiscal quarter.  If your annual base salary changes after the first fiscal quarter, “Base Salary” will mean the weighted average annual base salary for the Performance Period determined by multiplying each annual base salary in effect during the Performance Period by a fraction, the numerator of which is the number of calendar days in the Performance Period on whic h such annual base salary was in effect and the denominator of which is the number of calendar days in the Performance Period.  However, if you are on a leave of absence (other than a leave of absence where you continue to be paid your full base salary through the Company’s payroll system, except payments received under the Company’s short-term disability income protection plan), for all or part of the Performance Period, your Base Salary will be reduced proportionately to equate to the base salary applicable to the number of calendar days you were not on a leave of absence during the Performance Period.

 

For purposes of the foregoing, your “Target Award Level” is one hundred percent (100%) of your Base Salary.

 

For purposes of the foregoing, the “Performance Measurement” is a percentage between 0% and 150% determined by the Compensation Committee of the Company’s Board of Directors (the “Committee”) after assessing the Company’s performance against FY11 revenue and non-GAAP earnings per share (“EPS”) targets.

 

Except as provided in the Company's Severance Plan for Section 16 Officers, if such plan is then in effect, and except as provided below with respect to your death or LTD Disability (as defined in the Executive Change in Control Agreement between you and the Company effective August 18, 2008 (the "Change in Control Agreement")) or a Change in Control (as defined in Section 7.1 of the Cree, Inc. Equity Compensation Plan (as amended and restated August 5, 2002 and without regard to any subsequent amendments)), (i) you must be continuously employed by the Company as the Company's Chief Executive Officer and President through the last day of the Performance Period to have a right to payment of your Performance Units, (ii) your Performance Units will not be conside red earned until last day of the Performance Period, and (iii) if you terminate employment with the Company prior to the last day of the Performance Period, with or without cause, you will forfeit your Performance Units.

 

After the end of the Performance Period, your actual Performance Measurement will be determined as follows:

 

Notwithstanding the foregoing, in order to ensure that the Company’s best interests are met, except as specifically provided in the Change in Control Agreement, the Committee in its discretion may decrease or eliminate the amount payable pursuant to your Performance Units at any time prior to payment if it determines in good faith that payment of the full amount otherwise payable pursuant to the Performance Units is not warranted or appropriate; provided, however, so long as you are not in breach of your Confidential Information Agreement (as defined in the Change in Control Agreement), following (i) the commencement of a tender offer or the Company and another party entering into a written agreement that contemplates a transaction, the consummation of e ither of which would result in a Change in Control as defined in Subsection (a), (b), or (d) of such definition, or (ii) a Change in Control (including without limitation a resulting Change in Control described in clause (i)),  the Committee may not decrease or eliminate the amount payable as otherwise determined in accordance with this Notice of Grant without your prior written consent, except that, this restriction shall cease to apply if the tender offer or the written agreement is terminated or expires without the occurrence of a Change in Control.

 

In connection with the Committee’s determination of the annual revenue and non-GAAP EPS results for the Performance Period, the Committee shall (without limiting its authority to apply negative discretion as provided above) make adjustments that eliminate the effect of any changes or events (each a “Change”) that occur during such Performance Period and that were not fully anticipated and/or accurately incorporated into the financial calculations when the performance targets were determined, where (a) making the adjustment will improve performance results, and (b) the Change has a material effect on results under a performance target (determined consistently with past practice), and (c) the Change comes within one or more of the following cat egories (determined consistently with past practice, to the extent applicable):  (1) changes in corporate or capital structure, including but not limited to debt or equity offerings, mergers, acquisitions or divestitures; or (2) other unusual or nonrecurring events.

 

If there is a Change in Control and you remain continuously employed by the Company through the end of the Performance Period, but your employment terminates In Connection with a Change in Control upon or after the end of the Performance Period but prior to the payment date under your Performance Units, you will be entitled to payment under your Performance Units as otherwise determined in accordance with this Notice of Grant.  However, if there is a Change in Control and your employment terminates prior to the end of the Performance Period, you will not be entitled hereunder to a payment under your Performance Units.  “In Connection with a Change of Control” will have the same meaning as in Section 10(h) of the Change in C ontrol Agreement.

 

In general, payment under your Performance Units will be made as soon as practicable after the end of the Performance Period and, in any event, will be made no later than (i) the end of the second fiscal quarter following the end of the Performance Period or, if earlier, (ii) the 15th day of the third month after the later of the end of the Company's tax year in which the Performance Period ends or the end of your tax year in which the Performance Period ends.  However, if payment becomes due under your Performance Units on account of your death or LTD Disability, payment will be made no later than the 15th day of the third month after the later of the end of the Company’s tax year in which your death or LTD Disability, as applicable, occurs or the end of your tax year in which your death or termination of your employment on account of LTD Disability, as applicable, occurs.  Alternatively, in the event a Change in Control occurs prior to the payment date of your Performance Units, any payment that becomes due under your Performance Units will be made no later than the 15th day of the third month after the later of the end of the Company’s tax year in which the Change of Control occurs or the end of your tax year in which the Change of Control occurs.

 

This award is intended to fulfill any and all agreements, obligations or promises, whether legally binding or not, previously made by the Company or any Employer under the Plan to grant you Performance Units or to provide you annual incentive compensation for the Performance period.  By signing below, you accept such award, along with all prior awards received by you, in full satisfaction of any such agreement, obligation or promise.  By signing below, you expressly acknowledge that you are not a participant in or entitled to a payment under the Management Incentive Compensation Plan.