CREE,INC. EXECUTIVECHANGE IN CONTROL AGREEMENT

 

This Executive Change in Control Agreement (the “Agreement”) is entered into as of August 19, 2008 (the “Effective Date”) by and between Cree, Inc. (the “Company”) and Stephen D. Kelley (“Executive”).

 

1.    Duties and Scope of Employment.

 

(a)   Positions and Duties.  Executive will serve as Executive Vice President and Chief Operating Officer, reporting to the Company’s Chief Executive Officer and President (“CEO”).  Executive will render such business and professional services in the performance of his duties, consistent with Executive’s positions within the Company, as will reasonably be assigned to him by the CEO.  The period Executive is employed by the Company under this Agreement is referred to herein as the “Employment Term”.

 

(b)   Obligations.  During the Employment Term, Executive will devote Executive’s full business efforts and time to the Company.  For the duration of the Employment Term, Executive agrees not to actively engage in any other employment, occupation, or consulting activity for any direct or indirect remuneration without the prior approval of the CEO (which approval will not be unreasonably withheld); provided, however, that Executive may, without the approval of the CEO, serve in any capacity with any civic, educational, or charitable organization, provided such services do not interfere with Executive’s obligations to Company.

 

2.    At-Will Employment.  Executive and the Company agree that Executive’s employment with the Company constitutes “at-will” employment.  Executive and the Company acknowledge that this employment relationship may be terminated at any time, upon written notice to the other party, with or without good cause or for any or no cause, at the option either of the Company or Executive.  However, as described in this Agreement, Executive may be entitled to severance benefits depending upon the circumstances of termination of his employment.  Executive agrees to resign from all positions held with the Company and its affiliates immediately following the termination of his employment if the Company's Board of Directors (the "Board") or the CEO so requests.

 

3.    Term of Agreement.  This Agreement will have an initial term of one year commencing on the Effective Date.  On each anniversary of the Effective Date thereafter, this Agreement will automatically renew for an additional one-year term unless either party provides the other party with written notice of non-renewal at least 120 days prior to the date of automatic renewal.  Notwithstanding any contrary provision in this Section 3, (i) in the event the Company and another party enter into a written agreement that contemplates a transaction the consummation of which would result in a Change in Control as defined in Subsection (a), (b), or (d) of such definition, this Agreement will continue until the occurrence of either the resulting Change in Control or the termination or expiration of the written agreement without the occurrence of a Change in Control, whichever comes first, and (ii) in the event a Change in Control (including without limitation a resulting Change in Control as described in the preceding clause (i)) occurs

 

 

 

during the Employment Term, this Agreement will continue for not less than twelve (12) months after the date of the Change in Control.

 

4.    Compensation.

 

(a)   Base Salary.  As of the Effective Date, the Company will pay Executive an annual salary of $ 350,000.00 as compensation for his services (such annual salary, as is then effective, to be referred to herein as “Base Salary”).  The Base Salary will be paid periodically in accordance with the Company’s normal payroll schedule and practices and be subject to the usual, required withholdings.  Executive’s salary will be subject to review by the Compensation Committee of the Board (the “Committee”) not less than annually, and adjustments will be made in the discretion of the Compensation Committee.

 

(b)   Incentive Compensation.  Executive will be eligible to receive incentive compensation payable for the achievement of individual performance goals established by the CEO and corporate performance goals established by the Committee.  The Committee will determine executive’s annual target incentive award level.  The actual earned incentive, if any, payable to Executive for any fiscal period of the Company will depend upon the extent to which the performance goal(s) specified by the CEO or Committee, as applicable, are achieved.  For each fiscal quarter of the Company, the CEO will endeavor to establish the applicable individual performance goal(s) no later than the 30th day of the fiscal quarter to which the goals relate.  For each fiscal year of the Company, the Committee will endeavor to establish the applicable corporate performance goal(s) no later than the 90th day of the fiscal year to which the goals relate.  Executive’s incentive compensation will be subject to the terms and conditions of the Company’s incentive plan or arrangement designated by the Committee for this purpose, including but not limited to continued employment requirements and payment date terms that are designed to cause the incentive compensation to be exempt from or in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the guidance thereunder (collectively “Section 409A”).

 

(c)   Long-Term Incentive.  Executive will be eligible to receive long-term incentives subject to terms and conditions established by the Committee, the underlying Cree, Inc. 2004 Long-Term Incentive Compensation Plan or any successor plan thereto, and the Committee’s terms and conditions for the applicable type of award, including vesting criteria such as continued service or performance objectives.

 

5.    Employee Benefits.  Executive will be eligible to participate in all Company employee benefit plans, policies, and arrangements that are applicable to other executive officers of the Company in accordance with the terms of such plans, policies, and arrangements as may exist from time to time.

 

6.    Expenses.  The Company will reimburse Executive for reasonable travel, entertainment, and other expenses incurred by Executive in the furtherance of the performance of Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time.  To the extent that any such reimbursement does not qualify for

 

 

 

exclusion from Federal income taxation, the Company will make the reimbursement only if the corresponding expense is incurred during the term of this Agreement and the reimbursement is made on or before the last day of the calendar year following the calendar year in which the expense is incurred, the amount of expenses eligible for such reimbursement during a calendar year will not affect the amount of expenses eligible for such reimbursement in another calendar year, and the right to such reimbursement is not subject to liquidation or exchange for another benefit from the Company.

 

7.    Termination of Employment.  In the event of Executive’s Termination of Employment with the Company, Executive will be entitled to any (a) unpaid Base Salary accrued up to the date of such Termination of Employment (the “Termination Date”) paid in accordance with the schedule specified in Section 4(a) above, (b) any incentive compensation that is earned as of Executive’s Termination Date in accordance with the terms and conditions of the applicable incentive plan or arrangement but has not yet been paid, which amount, if any, will be paid in accordance with the terms and conditions of the applicable incentive arrangement, (c) pay for accrued but unused vacation that the Company is legally obligated to pay Executive, which amount will be paid in the first regular payroll cycle occurring after the Termination Date, except as provided in Section 8(b) below, (d) benefits or compensation as provided under the terms of any employee benefit and compensation agreements or plans applicable to Executive, (e) unreimbursed business expenses required to be reimbursed to Executive, which amount, if any, will be paid in accordance with Section 6 above, and (f) rights to indemnification Executive may have under the Company’s Articles of Incorporation, Bylaws, this Agreement, or a separate indemnification agreement, as applicable.  In addition, if the Termination of Employment is initiated by the Company without Cause or by Executive for Good Reason, and the Termination of Employment is In Connection with a Change in Control, Executive will be entitled to the amounts and benefits specified in Section 8(a) below.

 

8.    Severance.

 

(a)   Change in Control Benefits.  If Executive’s Termination of Employment is initiated by the Company without Cause or by Executive for Good Reason, and the Termination of Employment is In Connection with a Change in Control (but not by the Company in connection with the death or LTD Disability of Executive), then, subject to Section 9, Executive will receive: (i) continued payment of Base Salary for twelve (12) months, paid in accordance with the schedule specified in Section 4(a) above, but commencing within thirty (30) days following Termination of Employment with payments retroactive to that date, except as provided in Section 8(b) below, (ii)  a lump sum payment equal to twelve (12) multiplied by the COBRA premium in effect for the type of medical, dental and vision coverage in effect for Executive (e.g., family coverage vs. employee-only coverage) at the time of his Termination of Employment, paid within ninety (90) days following the Termination Date, except as provided in Section 8(b) below, and (iii) full accelerated vesting with respect to Executive’s then outstanding, unvested stock options, time-vested restricted stock awards and other equity awards that vest solely based on the passage of time.

 

(e)   Sole Right to Severance.  This Agreement is intended to represent Executive’s sole entitlement to severance payments and benefits in connection with a termination of his employment In Connection with a Change in Control, except for such payments and benefits to which Executive would be entitled as an employee of the Company in the absence of this Agreement.

 

 

9.    Conditions to Receipt of Severance; No Duty to Mitigate.

 

(a)   Separation Agreement and Release of Claims.  The receipt of any severance pursuant to Section 8 will be subject to Executive signing and not revoking a release of claims in substantially 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.  No severance will be paid or provided unless and until the release of claims is timely executed and returned by Executive to the Company, becomes effective and has not been timely revoked in accordance with the terms thereof.  The Company will complete and provide to Executive the release of claims in sufficient time so that if Executive timely executes and returns it, the revocation period will expire before severance payments are required to commence under Section 8.

 

(b)   Nondisparagement.  As a condition to receipt of severance, during the Employment Term and for twelve (12) months thereafter, Executive will not knowingly disparage, criticize, or otherwise make any derogatory statements regarding the Company, its directors, or its officers.  The foregoing restrictions will not apply to any statements that are made truthfully in response to a subpoena or other compulsory legal process.

 

(c)   Other Requirements.  Executive’s receipt of continued severance payments will be subject to Executive continuing to comply with the terms of the Confidential Information Agreement.

 

(d)   No Duty to Mitigate.  Executive will not be required to mitigate the amount of any payment contemplated by this Agreement, nor will any earnings that Executive may receive from any other source reduce any such payment.

 

(e)   Generally Disabled; LTD Disability. The provisions of this Section 9(e) will control in the event of conflict between this Section 9(e) and any other language in this Agreement. If Executive becomes Generally Disabled, the Company will not be in breach of this Agreement and Executive will not be entitled to severance pursuant to Section 8(a) on account of the Company, in its sole discretion, taking any action that would otherwise be considered Good Reason under Section 10(f) below provided that such action remains in effect only for so long as Executive remains Generally Disabled.  If Executive 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 Executive will not be entitled to severance per Section 8(a) on account of the Company permanently taking any action that would otherwise be considered Good Reason under Section 10(f) below so long as the Company does not terminate Executive’s employment prior to the date that Executive is determined to have an LTD Disability.  If Executive is Generally Disabled and the Company terminates his employment without Cause In Connection with a Change in Control prior to the date that he is determined to have an LTD Disability, such termination will be considered Termination of Employment by the Company without Cause for purposes of Section 8(a) of this Agreement; provided that, in such circumstances, Executive will only be eligible for the severance benefits set forth in items (i) and (ii) of Section 8(a) of this

 

 

 

Agreement.  If Executive ceases to be Generally Disabled before his employment is terminated by reason of LTD Disability, subject to the notice and cure provisions in Section 10(f), for purposes of Section 8(a) of this Agreement Executive will have the right to terminate his employment for Good Reason (if the Termination of Employment is In Connection with a Change in Control) on account of any event or circumstances that occurred while Executive was Generally Disabled that would otherwise have constituted Good Reason except for the provisions of this Section 9(e) unless such event or circumstances has already been cured by the Company or consented to by Executive; provided that, in such circumstances, Executive will only be eligible for the severance benefits set forth in items (i) and (ii) of Section 8(a) of this Agreement.  Notwithstanding any language herein to the contrary, nothing in this paragraph creates a right to severance benefits other than if Executive’s Termination of Employment is In Connection with a Change in Control.

 

10.   Definitions.

 

(a)   Benefit Plans.  For purposes of this Agreement, “Benefit Plans” means plans, policies, or arrangements that the Company sponsors (or participates in) and that immediately prior to the Termination Date provide Executive, Executive’s spouse, and/or Executive’s eligible dependents with medical, dental, or vision benefits.  The term “Benefit Plans” does not include plans, policies, or arrangements providing for any other type of benefit (including, but not by way of limitation, financial counseling, disability, life insurance, or retirement benefits).

 

(b)   Cause.  For purposes of this Agreement, “Cause” means (i) Executive’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 Executive a reasonable period of time to cure; (ii) any material and willful violation of any federal or state law by Executive in connection with his responsibilities as an employee of the Company; (iii) any act of personal dishonesty taken by Executive 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 Executive; (iv) Executive’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) Executive materially breaching Executive’s Confidential Information Agreement, which breach is (if capable of cure) not cured within thirty (30) days after the Company delivers written notice to Executive of the breach.

 

(c)   Change in Control.  For purposes of this Agreement, “Change in Control” will have the same meaning as 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).

 

(d)   Confidential Information Agreement.  For purposes of this Agreement, “Confidential Information Agreement” shall refer to the version of Employee Agreement Regarding Confidential Information, Intellectual Property, and Noncompetition in effect for Executive as of the relevant date; provided that, with respect to Executive’s post-termination obligations, it shall refer to the version of such agreement in effect as of Executive’s Termination Date.

 

 

 

(e)   Generally Disabled.  For purposes of this Agreement, “Generally Disabled” means that Executive 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.

 

(f)    Good Reason.  For purposes of this Agreement, except as provided in Section 9(e) above, “Good Reason” means the occurrence of any of the following, without Executive’s consent and not due to Cause, within the timeframes specified in the definition of “In Connection with a Change in Control”: (i) a material reduction of Executive's authority, duties or responsibilities;  (ii) a material reduction in Executive's base salary other than a one-time reduction that also is applied to substantially all other executive officers of the Company, provided that Executive's reduction is substantially proportionate to the reduction applied to substantially all other executive officers; (iii) the Company requiring Executive to report to anyone other than the CEO, the Board, or a Committee of the Board; or  (iv)  the Company requiring Executive 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 Executive’s current principal place of employment; provided, however, that Executive will only have Good Reason if he provides notice to the Company 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 Executive initiates Termination of Employment for Good Reason, the actual Termination of Employment must occur within thirty (30) days after expiration of the cure period.  Executive’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 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).  Executive’s actions approving in writing (or by such other means as is reliable and verifiable) any change, reduction, requirement or occurrence (that otherwise may be considered Good Reason) in his role as an officer of the Company will be considered consent for the purposes of this Good Reason definition.

 

(g)   In Connection with a Change in Control.  For purposes of this Agreement, a Termination of Employment with the Company is “In Connection with a Change in Control” if Executive incurs a Termination of Employment either within (i) the period of time between the Company and another party entering into a written agreement that contemplates a transaction the consummation of which would result in a Change in Control as defined in Subsection (a), (b), or (d) of such definition and the occurrence of either the resulting Change in Control or the termination or expiration of the written agreement without the occurrence of a Change in Control, or (ii) twelve (12) months following a Change in Control (including without limitation a resulting Change in Control as described in the preceding clause (i)).

 

(h)   LTD Disability.  For purposes of this Agreement, “LTD Disability” will mean that Executive 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.

 

(i)    Six-Month Delay Payment Date.  The payment date associated with the first regular payroll cycle after passage of six months following the Termination Date.

 

(j)    Specified Employee.  For purposes of this Agreement, “Specified Employee” will have the meaning prescribed by Subsection 409A(a)(2)(B)(i) of the Code, as such meaning may be amended from time to time.

 

11.   Tax Treatment; Section 409A Compliance.  Executive acknowledges and agrees that the Company has made no representations as to the tax treatment of the compensation and benefits provided pursuant to this Agreement. This Agreement is intended to comply with the requirements of Section 409A.  Nothing in this Agreement shall require payment in 2008 of any payment that was required to be paid after 2008 under this Agreement; 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 Agreement shall postpone beyond 2008 any payment that was required to be paid in 2008 pursuant to this Agreement.  The parties agree to work together to effectuate the intent of this provision, including but not limited to revising the timing and/or form of any payment hereunder as may be permitted by and necessary to ensure the terms and conditions applicable to such payments comply with Section 409A.

 

12.   Indemnification.  Subject to applicable law, Executive will be provided indemnification to the maximum extent permitted by the Company’s bylaws and Articles of Incorporation, with such indemnification to be on terms determined by the Board or any of its committees, but on terms no less favorable than provided to any other Company executive officer or director and subject to the terms of any separate written indemnification agreement.

 

13.   Assignment.  This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors, and legal representatives of Executive upon Executive’s death, and (b) any Successor of the Company.  Any such Successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes.  For this purpose, “Successor” means any person, firm, corporation, or other business entity which at any time, whether by purchase, merger, or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.  None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution.  Any other attempted assignment, transfer, conveyance, or other disposition of Executive’s right to compensation or other benefits will be null and void.

 

14.   Notices.  All notices, requests, demands, and other communications called for hereunder will be in writing and will be deemed given (a) on the date of delivery if delivered

 

 

 

personally, (b) one business day after being sent overnight by a well-established commercial overnight service, or (c) four days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing:

 

If to the Company:

 

Attn: Vice President, Administration

Cree, Inc.

4600 Silicon Drive

Durham, NC 27703

 

If to Executive:

 

at the last residential address known by the Company.

 

15.   Severability.  If any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable, or void, this Agreement will continue in full force and effect without said provision.

 

16.   Arbitration.  The Parties agree that any and all disputes arising out of the terms of this Agreement, Executive’s employment by the Company, Executive’s service as an officer or director of the Company, or Executive’s compensation and benefits, their interpretation, and any of the matters herein released, will be subject to binding arbitration in Durham, North Carolina before the American Arbitration Association under its National Rules for the Resolution of Employment Disputes, supplemented by the North Carolina Rules of Civil Procedure.  The Parties agree that the prevailing party in any arbitration will be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award.  The Parties hereby agree to waive their right to have any dispute between them resolved in a court of law by a judge or jury.  This paragraph will not prevent either party from seeking injunctive relief (or any other provisional remedy) from any court having jurisdiction over the Parties and the subject matter of their dispute relating to Executive’s obligations under this Agreement and the Confidential Information Agreement.

 

17.   Expenses of Enforcement.  In the event of a dispute relating to this Agreement arising during the term of Executive’s employment with the Company or within three (3) years following the termination of this Agreement, the Company will reimburse Executive’s fees and expenses as incurred quarterly, including reasonable attorneys’ fees, in connection with such dispute, provided that (i) Executive provides the Company with written documentation substantiating the amount of such fees and expenses, and (ii) Executive prevails on at least one material issue in such dispute or an arbitrator does not determine that Executive’s legal positions were frivolous or without legal foundation.  The Company will make such reimbursement payments quarterly based on the written substantiation documentation submitted by Executive to the Company during the prior quarter; in no event will any reimbursement be made later than the end of the calendar year next following the calendar year in which the expense was incurred by Executive; Executive must provide such written substantiation in time for the Company to make

 

 

 

such reimbursement by such deadline.  In the event Executive does not so prevail or in the event of a determination by the arbitrator that his legal positions were frivolous or without legal foundation (in either case, a “Resolution”), Executive will repay to the Company any amounts previously reimbursed by it and Executive will reimburse the Company for its fees and expenses, including reasonable attorneys’ fees, incurred in connection with the dispute, both within a reasonable period of time not to exceed sixty (60) days following the date of the Resolution.  The amount of expenses eligible for reimbursement under this Section 17 during a calendar year will not affect the amount of expenses eligible for reimbursement under this Section 17 in another calendar year, and the right to such reimbursement is not subject to liquidation or exchange for another benefit from the Company.

 

18.   Integration.  This Agreement, together with the Confidential Information Agreement and the standard forms of equity award agreements and grant notices that describe Executive’s outstanding equity awards, represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral.  No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in a writing that is signed by duly authorized representatives of the parties hereto.

 

19.   Waiver of Breach.  The waiver of a breach of any term or provision of this Agreement, which must be in writing, will not operate as or be construed to be a waiver of any other previous or subsequent breach of this Agreement.

 

20.   Survival.  The Confidential Information Agreement, the Company’s and Executive’s responsibilities under Sections 7, 8 and 9, and Sections 12, 16, and 17 will survive the termination of this Agreement.

 

21.   Headings.  All captions and Section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.

 

22.   Tax Withholding.  All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.

 

23.   Governing Law.  This Agreement will be governed by the laws of the State of North Carolina (with the exception of its conflict of laws provisions).

 

24.   Acknowledgment.  Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.

 

25.   Counterparts.  This Agreement may be executed in counterparts, and each counterpart will have the same force and effect as an original and will constitute an effective, binding agreement on the part of each of the undersigned.

 

COMPANY:
CREE, INC.
/s/ Charles M. Swoboda			Date: August 20, 2008
Charles M. Swoboda
Chief Executive Officer and President

 

EXECUTIVE:
/s/ Stephen D. Kelley			Date: August 20, 2008
Stephen D. Kelley

 

IN WITNESS WHEREOF, each of the parties has executed this Release, in the case of the Company by a duly authorized officer, as of the day and year written below.