CREE, INC.

 

 

Exhibit 10.7

FISCAL 2004

MANAGEMENT INCENTIVE COMPENSATION PLAN

 

The following Management Incentive Compensation Plan (the “Plan”) is adopted by
Cree, Inc. and its consolidated subsidiaries (collectively, the “Company”) for
its fiscal year ending June 27, 2004:

 

1.    Purpose:    The purpose of the Plan is to motivate and reward excellent
performance, to attract and retain outstanding senior management personnel, to
create a strong link between strategic and corporate operating plans and
individual performance, to achieve greater corporate performance by focusing on
results, not activities, and to encourage teamwork at the highest level within
the organization. The Plan rewards participants with a cash bonus payment based
on their contribution towards the attainment of corporate and individual
performance goals. The bonus payment is calculated as a percentage of base
salary and the target award percentage varies according the position level.

 

2.    Eligibility:    Eligible participants include the Chairman, the Chief
Executive Officer and senior level managers of the Company who report directly
to the Company’s Chief Executive Officer. Participation shall be determined
solely by the Chief Executive Officer.

 

3.    Plan Awards:

 

        3.1    Target Award Levels:    The target award level represents the
award for 100% achievement of objectives. The target awards are expressed as a
percentage of salary and vary based on the position of the participant. The
actual target award amount is determined by multiplying the participant’s base
salary by the target award percentage. The target award is calculated on the
base annual salary as of the payout date. Based on actual performance, a
participant can earn between 0% to 100% of their target award.

 

        3.2    Determination of Awards:    For the positions of Chairman and
Chief Executive Officer, awards are based 100% on achieving predetermined
corporate goals. Awards for all other eligible positions are determined based on
performance against measures in two categories: Corporate and Individual. Unless
otherwise approved by the Compensation Committee, corporate goals are weighted
at 60% of the individuals’ total award payout and individual goals are weighted
at 40% of the individual’s total award payout.

 

        3.3    Corporate Measures:    The Corporate performance measures and
corresponding goals are based on meeting or exceeding revenue targets for the
current fiscal year and meeting or exceeding net income targets for the current
fiscal year. This is measured and paid annually to coincide with the fiscal year
end.

 

        3.4    Individual Measures:    Individual performance measures are
established at the beginning of each fiscal quarter. For each performance
measure a performance goal (as a percentage) is determined. Performance goals
are standards for evaluating success associated with a specific performance
measure and are expressed as either Minimum or Target goals. Minimum performance
goals are the lowest level of competent performance that is eligible for the
award. Performance at the minimum performance level will yield an award which is
25% of the target award. Target performance goals are the expected level of
performance. Performance at the target performance level will yield an award
which is equal to the target award. Performance below the minimum performance
level will not be eligible for an award. Each participant, in conjunction with
the Chief Executive Officer, will develop a minimum of three (3) performance
measures specific to their unit’s performance.

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4.    Other Provisions:

 

        4.1    Performance Threshold:    In order to be eligible for an award
performance thresholds as determined by the Chief Executive Officer must be met.
Without limiting the foregoing, the corporate-level incentive component will not
be paid if revenue and net profit targets for the fiscal year are not met.

 

        4.2    Termination of Employment:    If a participant’s employment
terminates prior to the end of an award period on account of death, disability
under the Company’s long-term disability plan, or retirement, the award will be
calculated on a pro rata basis based on the number of months employed during the
period. If a participant terminates during the award period for other reasons
that those stated above, no award will be made. Any participant whose employment
is terminated for cause after the end of the award period but prior to the
payment of an award will forfeit any unpaid award.

 

        4.3    New Hires:    Participants who participate for part of the award
period will receive a pro rata portion of the award based on the number of
months of employment with the Company.

 

        4.4    Exceptions:    In order to ensure that the Company’s best
interests are met, the amount of a payment on an award otherwise calculated in
accordance with this Plan can be increased, decreased or eliminated, at any time
prior to payment, in the sole discretion of the Chief Executive Officer, except
than no change with respect to any award to the Chairman, the Chief Executive
Officer or any officer of the Company shall be made without Compensation
Committee approval.

 

        4.5    Amendment; Termination:    The Plan can be amended, modified or
terminated at any time by the Company without prior notice to participants.

 

        4.6    Earned Upon Payment:    No amounts shall be considered earned by
any participant under the Plan until it is received by the participant from the
Company.

 

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