Exhibit 10.4

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MASTER STOCK OPTION AWARD AGREEMENT

TERMS AND CONDITIONS

(For Grants of Nonqualified Stock Options)

This Master Stock Option Award Agreement (this “Agreement”) is entered into
between you (the “Participant” named below) and Cree, Inc., a corporation formed
under the laws of the State of North Carolina (the “Company”).

This Agreement states the terms and conditions that govern nonqualified stock
options (each an “Option”) the Company may from time to time award granting you
the right to purchase shares (the “Shares”) of the Common Stock of Cree, Inc.
(the “Common Stock”). This Agreement governs only grants of options made under
the Company’s 2004 Long-Term Incentive Compensation Plan (the “Plan”). The
number of Shares, vesting schedule and per share purchase price applicable to
each Option will be stated in a Notice of Grant issued by the Company. A Notice
of Grant, together with the terms and conditions set forth in this Agreement and
the Plan, constitute the entire agreement between you and the Company with
respect to the Option described in the Notice of Grant.

Unless otherwise specified in a Notice of Grant or agreed to in writing by you
and the Company, this Agreement will apply to all Options granted to you under
the Plan on and after the effective date stated below. This Agreement is subject
to and will be construed in accordance with the Plan. Unless otherwise defined
in this Agreement or a Notice of Grant, capitalized terms used in this Agreement
and defined in the Plan will have the same meaning as defined in the Plan.

Please indicate that you have read and agree to the terms and conditions of this
Agreement by signing below and returning the signed copy to the Company at its
principal offices in Durham, North Carolina. By your signature below, you agree
to be bound by the provisions of this Agreement and the Plan and Notices of
Grant applicable to the Options to which this Agreement applies.

Effective Date1:                         

 

CREE, INC.    PARTICIPANT: By:  

 

  

 

[Name]      Signature [Title]2      Print Name:

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1 Grant date of first award subject to Agreement.

2 To be executed by the CEO except that if the CEO is the Participant the
Agreement shall be signed by the Chairman of the Compensation Committee.

 

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Cree, Inc. Master Stock Option Award

Agreement Terms and Conditions

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1. Grants of Options. Subject to the terms and conditions contained in this
Agreement, the Notice of Grant applicable to the Award and the Plan, the Company
may, from time to time in its discretion, grant you Options to purchase shares
of Common Stock.

 

2. Term of Options. Unless sooner terminated in accordance with the Plan or this
Agreement or as otherwise provided in the Notice of Grant, each Option will
expire and cease to be exercisable upon the first to occur of the following:

 

  (a) the expiration of ninety (90) calendar days following your Termination of
Service, except where the termination results from your death or Disability or
where your death occurs following the termination but while the Option is
otherwise still exercisable;

 

  (b) the expiration of one (1) year following your Termination of Service if
the termination results from your death,

 

  (c) the expiration of one (1) year following your Termination of Service if
the termination results from your Disability, except where your death occurs
after the termination but while the Option is otherwise still exercisable;

 

  (d) the expiration of one (1) year following your death if your death occurs
after your Termination of Service but while the Option is otherwise still
exercisable; or

 

  (e) the seventh (7th) anniversary of the Grant Date of the Option, at 11:59
P.M., local time, Durham, North Carolina.

Upon expiration or termination of an Option, the Option will have no further
effect and cannot thereafter be exercised to purchase any Shares.

 

3. Vesting. Each Option will vest and become exercisable in accordance with the
schedule set out on the corresponding Notice of Grant or such other vesting
provisions expressly provided therein. All Options will become fully vested and
exercisable to purchase all Shares subject to the Option, to the extent not
already vested and exercisable, upon your Termination of Service on account of
your death or Disability, unless otherwise provided in the Notice of Grant.

 

4. Forfeiture upon Termination of Service. Except as otherwise provided in this
Agreement or the Plan, upon your Termination of Service you will forfeit the
Option with respect to any Shares as to which the Option has not vested as of
the date of your Termination of Service.

 

5. Tolling in the Event of Delayed Disability Determinations. If at the time of
your Termination of Service, a determination as to whether the Termination of
Service is on account of your Disability is outstanding, the forfeiture of
Options with respect to Shares which are not then vested will be tolled for the
period beginning on the date of your Termination of Service and ending on the
earlier of the date that it is determined that your Termination of Service is on
account of your Disability or the date of expiration or exhaustion of your right
to appeal a decision that your Termination of Service was not on account of your
Disability. If it is determined that your Termination of Service occurred on
account of your Disability, you will become fully vested in the Options with
respect to such Shares on the date of such determination. If it is determined
that your Termination of Service did not occur on account of your Disability,
then the Options will be forfeited with respect to such unvested Shares on the
date of expiration or exhaustion of your right to appeal such decision.

 

6. Exercise of Option. To exercise an Option, you must complete, execute and
deliver to the Company of a notice of exercise in the form supplied by the
Company and pay to the Company the purchase price for the number of Shares
specified in the notice together with all taxes or other amounts the Company is
required to withhold or collect pursuant to this Agreement. Exercise of the
Option will be effective only when the notice and required payments are actually
received by the Company. If the exercise is facilitated through a
“broker-assisted exercise” or “cashless exercise” transaction by a brokerage
firm you have designated, you agree that the

 

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Cree, Inc. Master Stock Option Award

Agreement Terms and Conditions

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brokerage firm is acting as your agent in the transaction and that the Company
may rely upon notices, instructions and information given by such firm in
connection with the exercise, as if the same were given by you. The Company will
deliver a certificate or certificates for the purchased Shares to you, or to
such other person as you designate in writing, or make the Shares available for
electronic delivery in the U.S. to an account you designate in writing, within
three (3) business days after the Company receives the notice of exercise and
required payments.

 

7. Withholding Taxes. The Company’s obligation to issue Shares upon exercise of
an Option is subject to the condition that you pay to the Company, in addition
to the purchase price of the Shares purchased, all taxes and any other amounts
the Company is required by law or regulation of any governmental authority,
whether federal, state or local, domestic or foreign, to withhold or collect in
connection with the Option exercise, if any.

 

8. Transfer of Option. Neither an Option nor any rights under an Option may be
assigned, pledged as collateral or otherwise transferred, except as permitted by
the Plan, nor may an Option or such rights be subject to attachment, execution
or other judicial process. In the event of any attempt to assign, pledge or
otherwise dispose of an Option or any rights under an Option, except as
permitted by the Plan, or in the event of the levy of any attachment, execution
or similar judicial process upon the rights or interests conferred by an Option,
the Committee may in its discretion terminate the Option upon notice to you.

 

9. Rights Prior to Exercise. You will have no rights as a shareholder with
respect to any Shares until such Shares have been duly issued by the Company or
its transfer agent pursuant to exercise of an Option.

 

10. Termination of Service. Unless otherwise provided in the Notice of Grant,
for purposes of this Agreement “Termination of Service” means the discontinuance
of your relationship with the Company as an employee of the Company or other
Employer under the Plan or as a member of the Board of Directors of Cree, Inc.
Except as determined otherwise by the Committee, you will not be deemed to have
incurred a Termination of Service if the capacity in which you provide services
to the Company changes (for example, you change from being a non-employee
director to being an employee) or if you transfer employment among the various
entities constituting the Employer, so long as there is no interruption in your
provision of services to the Company or other Employer as an employee or as a
non-employee member of the Board of Directors of Cree, Inc. The Committee, in
its discretion, will determine whether you have incurred a Termination of
Service. You will not be deemed to have incurred a Termination of Service during
a period for which you are on military leave, sick leave, or other leave of
absence approved by the Employer.

 

11. Provisions of the Plan. The provisions of the Plan are incorporated by
reference in this Agreement as if set out in full in this Agreement. To the
extent that any conflict may exist between any other provision of this Agreement
and a provision of the Plan, the Plan provision will control. All decisions of
the Committee with respect to the interpretation, construction and application
of the Plan or this Agreement shall be final, conclusive and binding upon you
and the Company.

 

12. Detrimental Activity. The Committee in its sole discretion may cancel,
terminate, suspend or otherwise limit or restrict exercise of the unexercised
portion of an Option if you engage in any “Detrimental Activity” (as defined
below). In addition, if you engage in any Detrimental Activity prior to or
within one (1) year after your Termination of Service, the Committee in its sole
discretion may require you to pay to the Company the amount of all gain you
realized from any exercise of the Option beginning six (6) months prior to your
Termination of Service, provided that the Committee gives you notice of such
requirement within one (1) year after your Termination of Service. In that
event, the Company will be entitled to setoff such amount against any amount the
Company owes to you, in addition to any other rights the Company may have. For
purposes of this section:

 

  (a) “Company” includes Cree, Inc. and all other Employers under the Plan.

 

  (b) “Detrimental Activity” means any of the following conduct, as determined
by the Committee in good faith:

 

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Cree, Inc. Master Stock Option Award

Agreement Terms and Conditions

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  (1) the performance of services for any Competing Business (as defined below),
whether as an employee, officer, director, consultant, agent, contractor or in
any other capacity, except to the extent expressly permitted by any written
agreement between you and the Company;

 

  (2) the unauthorized disclosure or use of any trade secrets or other
confidential information of the Company;

 

  (3) any attempt to induce an employee to leave employment with the Company to
perform services elsewhere, or any attempt to cause a customer or supplier of
the Company to curtail or cancel its business with the Company;

 

  (4) breach of any confidentiality, noncompetition, nonsolicitation or
nondisparagement obligations, or any obligations relating to the disclosure,
assignment or protection of inventions, undertaken by you in any written
agreement between you and the Company; or

 

  (5) any act of fraud, misappropriation, embezzlement, or tortious or criminal
behavior that adversely impacts the Company.

 

  (c) “Competing Business” means any corporation, partnership, university,
government agency or other entity or person (other than the Company) that is
conducting research directed to, developing, manufacturing, marketing,
distributing, or selling any product, service, or technology that is competitive
with any part of the Company’s Business (as defined below). “Company’s Business”
means the development, manufacture, marketing, distribution, or sale of, or the
conduct of research directed to, any product, service, or technology that the
Company is developing, manufacturing, marketing, distributing, selling, or
conducting research directed to, at any time during your employment or other
relationship with the Company, except that following your Termination of Service
the Company’s Business will be determined as of the time of such termination. As
of the effective date of this Agreement, the Company’s Business includes but is
not limited to the conduct of research directed to, development, manufacture,
marketing, distribution, and/or sale of the following products, services, and
technologies: (1) silicon carbide (SiC) materials for electronic applications;
(2) SiC materials for gemstone applications; (3) AIII nitride materials for
electronic applications; (4) light-emitting diode (LED) devices and components;
(5) power semiconductor devices made using SiC and/or AIII nitride materials and
components incorporating such devices; (6) radio frequency (RF) and microwave
devices made using SiC and/or AIII nitride materials and components and modules
incorporating such devices; (7) LED backlights for liquid crystal displays
(LCDs); and (8) other semiconductor devices made using SiC and/or AIII nitride
materials and components incorporating such devices. You acknowledge that during
your employment or other relationship with the Company the Company’s Business
may expand or change and you agree that any such expansions and changes shall
expand or contract the definition of the Company’s Business accordingly.

 

13. Data Privacy. By signing this Agreement, you consent to the collection, use
and transfer, in electronic or other form, of your personal data as described
below by and among, as applicable, your Employer, the Company and its
subsidiaries and affiliates for the exclusive purpose of implementing,
administering and managing your participation in the Plan.

You understand that the Employer holds or may hold certain personal information
about you, including, but not limited to, your name, home address and telephone
number, date of birth, social insurance number or other identification number,
salary, nationality, position title, any shares of stock or directorships held
in the Company, details of all options or any other entitlement to Shares of
stock awarded, canceled, exercised, vested, unvested or outstanding in your
favor, for the purpose of implementing, administering and managing the Plan
(“Data”). You understand that Data may be transferred to any third parties
assisting in the implementation, administration and management of the Plan, that
these recipients may be located in your country or elsewhere, and that the
recipient’s country may have different data privacy laws and protections than
your country. You understand that you may request a list with the names and
addresses of any potential recipients of the Data by contacting the Company’s
Stock Plan Administrator. You authorize the recipients to receive, possess, use,
retain and transfer the Data, in electronic or other form, for the purposes of
implementing, administering and

 

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Cree, Inc. Master Stock Option Award

Agreement Terms and Conditions

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managing your participation in the Plan, including any requisite transfer of
such Data as may be required to a broker or other third party with whom you may
elect to deposit any Shares of stock acquired pursuant to this Agreement. You
understand that Data will be held pursuant to this Agreement only as long as is
necessary to implement, administer and manage your participation in the Plan.
You understand that you may, at any time, view Data, request additional
information about the storage and processing of Data, require any necessary
amendments to Data or refuse or withdraw the consents above, in any case without
cost, by contacting in writing the Company’s Stock Plan Administrator. You
acknowledge, however, that refusing or withdrawing your consent may affect your
ability to participate in the Plan.

 

14. Language. If you have received this Agreement or any other document related
to the Plan translated into a language other than English and the translated
version is different than the English version, the English version will control.

 

15. Electronic Delivery. The Company may, in its sole discretion, deliver any
documents related to Options granted under this Agreement by electronic means or
request your consent to participate in the Plan by electronic means. By signing
this Agreement, you consent to receive such documents by electronic delivery
and, if requested, to agree to participate in the Plan through an on-line or
electronic system established and maintained by the Company or another third
party designated by Company.

 

16. General.

 

  (a) Nothing in this Agreement will be construed as constituting a commitment,
agreement or understanding of any kind that the Company or any other Employer
will continue your employment or other relationship with the Company nor to
limit or restrict either party’s right to terminate the relationship.

 

  (b) This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns. You may not
assign any rights under this Agreement without the written consent of the
Company, which it may withhold in its sole discretion; any such attempted
assignment without the Company’s written consent shall be void. The Company may
assign its rights under this Agreement at any time upon notice to you.

 

  (c) Notices under this Agreement must be in writing and delivered either by
hand or by certified mail (return receipt requested and first-class postage
prepaid), in the case of the Company, addressed to its principal executive
offices to the attention of the Stock Plan Administrator, and, in your case, to
your address as shown on the Employer’s records.

 

  (d) This Agreement shall be governed by and construed in accordance with the
laws of the State of North Carolina as if made and to be performed wholly within
such State.

 

  (e) No amendment or modification of this Agreement shall be valid unless the
same is in writing and signed by you and by an authorized representative of the
Company. If any provision of this Agreement is held to be invalid or
unenforceable, such determination shall not affect the other provisions of the
Agreement and the Agreement shall be construed as if the invalid or
unenforceable provision were omitted and a valid and enforceable provision, as
nearly comparable as possible, substituted in its place.

 

  (f) This Agreement, together with the corresponding Notice(s) of Grant and the
Plan, set forth all of the promises, agreements and understandings between you
and Company relating to each Option evidenced by this Agreement. This Agreement,
together with the corresponding Notice(s) of Grant and the Plan, supersede any
and all prior agreements or understandings, whether oral or written, with
respect to each Option evidenced by this Agreement and such Notice, unless
otherwise specified in the corresponding Notice of Grant.

 

  (g) Shares issued upon exercise of an Option may be subject to such stop
transfer orders and other restrictions as the Committee may deem advisable under
applicable law or the rules and regulations of the U.S. Securities and Exchange
Commission or any stock exchange or trading system upon which the common

 

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Cree, Inc. Master Stock Option Award

Agreement Terms and Conditions

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stock of the Company is listed, and the Committee may cause a legend or legends
to be placed on any such certificates or the stock records of the Company to
make appropriate reference to such restrictions.

 

  (h) You agree that each Option evidenced by this Agreement serves as
additional, valuable consideration for your obligations, if any, undertaken in
any existing agreement between you and the Company and/or other Employer
regarding confidential information, noncompetition, nonsolicitation or similar
covenants.

 

  (i) You acknowledge, represent and warrant to the Company, and agree with the
Company, that (i) except for information provided in the Company’s filings with
the U.S. Securities and Exchange Commission and in the Company’s current
prospectus relating to the Plan, you have not relied and will not rely upon the
Committee, the Company, an Employer or any employee or agent of the Company or
an Employer in determining whether to accept or exercise an Option, or in
connection with any disposition of Shares purchased upon exercise of an Option,
or with respect to any tax consequences related to the grant or exercise of an
Option or the disposition of Shares purchased pursuant to exercise of an Option;
and (ii) you will seek from your own professional advisors such investment, tax
and other advice as you believe necessary.

 

  (j) You acknowledge that you may incur a substantial tax liability as a result
of exercise of an Option. You assume full responsibility for all such
consequences and the filing of all tax returns and related elections you may be
required or find desirable to file. If you are required to make any valuation of
an Option or Shares purchased pursuant to exercise of the Option under any
federal, state or other applicable tax law, and if the valuation affects any tax
return or election of the Company or the Employer or affects the Company’s
financial statement reporting, you agree that the Company may determine the
value and that you will observe any determination so made by the Company in all
tax returns and elections filed by you.

 

  (k) You acknowledge that copies of the Plan and Plan prospectus are available
upon written or telephonic request to the Company’s Stock Plan Administrator.

 

17. Severability. The provisions of this Agreement are severable and if any one
or more provisions is determined to be illegal or otherwise unenforceable, in
whole or in part, the remaining provisions shall nevertheless be binding and
enforceable.

 

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NOTICE OF GRANT

(Stock Option Award)

 

Company:    Participant:    _____________________________________ Cree, Inc.   
Award Number:    ___________________________ 4600 Silicon Drive    Plan:    2004
Long-Term Incentive Compensation Plan Durham, NC 27703    Award Type:   
Nonqualified Stock Option Tax I.D. 56-1572719    Grant Date:   
_________________________    Number Shares:    _________________________   
Exercise Price:    _________________________    Vesting Schedule:   
             installment(s) beginning                         Expiration Date:
   11:59 p.m. local time in Durham, NC on the 7th Anniversary of the Grant Date

Dear Participant:

This Notice of Grant confirms that Cree, Inc. (the “Company”) has awarded you an
option to purchase              shares (the “Shares”) of the common stock of the
Company at a purchase price of $             per share, effective              ,
the Grant Date of the award. The option is subject to and governed by the Cree,
Inc. 2004 Long-Term Incentive Compensation Plan (the “Plan”), the terms of the
applicable Master Stock Option Award Agreement between you and the Company (the
“Master Agreement”), and this Notice of Grant.

You may exercise the option to purchase up to the number of Shares for which it
has vested unless and until the option expires or is earlier terminated. In
accordance with the Master Agreement and the Plan, upon any Termination of
Service (as defined in the Master Agreement), the option will be forfeited as to
all Shares not then vested and will terminate thereafter as to vested Shares. If
not previously terminated or expired, the option will vest in installments as
follows, provided that on the indicated vesting date you are an employee of the
Company or another Employer under the Plan [or are serving as a member of the
Board of Directors of Cree, Inc.]1:

                     Shares on                  2;

                     additional Shares on                      ; and

                     additional Shares on                     .

This award and any other award(s) granted under the Plan on the Grant Date are
intended to fulfill any and all agreements, obligations or promises, whether
legally binding or not, previously made by the Company or another Employer under
the Plan to grant you options or other rights to common stock of the Company. By
signing below, you accept such awards, along with all prior awards received by
you, in full satisfaction of any such agreement, obligation or promise.

 

FOR CREE, INC.    ACCEPTED AND AGREED TO:

 

[Name]

  

 

[Participant’s Name]

[Title]3   

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1 Bracketed language to be included only in grants to members of the Board of
Directors of Cree, Inc.

2 Insert additional lines and terms as required for vesting schedule.

3 To be executed by the CEO except that if the CEO is the Participant the Notice
of Grant shall be signed by the Chairman of the Compensation Committee.

 

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