exhibit10_6.htm


    
       

      
        

      

      Exhibit
10.6

      
         

        CREE,
INC.

         

        EXECUTIVE
CHANGE 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 

           

           

          
            
              
              

            

            
              - 2
-

              
                

              

            

            
              
              

            

          

           

          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.

          
             

            (b)   Section 409A Payment
Provisions; Possible Payment Delay in Event Executive is a Specified
Employee.  For purposes of Section 409A, each installment
payment of

          

          
             

             

            
              
                
                

              

              
                - 3
-

                
                  

                

              

              
                
                

              

            

             

            severance specified in
Sections 7(c) and 8(a)(i) and (ii) above is a separate payment; all payments
specified in Sections 7(c) and 8(a)(i) and (ii) above made through the date that
is 2-1⁄2 months following the later of the last day of the calendar year
containing the Termination Date and the last day of the Company’s fiscal year
containing the Termination 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”); in the event that Executive is a Specified Employee on the
Termination Date, all such payments made after the Short Term Deferral Deadline,
that exceed the limits of the Severance Pay Exemption, and that would be paid
earlier than the Six-Month Delay Payment 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 Executive a
lump sum consisting of all payments that would have been paid to Executive prior
to the Six-Month Delay Payment Date had Executive 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 Executive not been a Specified Employee and
ending on the Six-Month Delay Payment Date; however, if Executive dies after the
Termination Date but before such lump sum payment is made, it will be paid to
Executive’s estate without regard to any six-month delay that otherwise applies
to Specified Employees. 

              
                 

              

            

            (c)   Voluntary Termination
without Good Reason; Termination for Cause.  If Executive’s
employment with the Company terminates voluntarily by Executive without Good
Reason or is terminated for Cause by the Company, then, except as provided in
Section 7, (i) all further vesting of Executive’s outstanding equity awards
will terminate immediately, and Executive’s outstanding equity awards will
terminate in accordance with the terms and conditions of the applicable award
agreement(s), (ii) all payments of compensation by the Company to Executive
hereunder will terminate immediately, and (iii) Executive will be entitled
to receive benefits, including severance benefits, only in accordance with the
Company’s then established plans, programs, and practices other than this
Agreement.

          

          
             

            (d)   Termination due to Death or
LTD Disability.  If Executive’s employment is terminated by
reason of his death or LTD Disability, then, except as provided in Section 7,
(i) Executive’s outstanding equity awards will vest and terminate in
accordance with the terms and conditions of the applicable award agreement(s);
(ii) all payments of compensation by the Company to Executive hereunder
will terminate immediately, and (iii) Executive will be entitled to receive
benefits, including severance benefits, only in accordance with the Company’s
then established plans, programs, and practices other than this
Agreement.

          

           

          (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.


           

          
            
              
              

            

            
              - 4
-

              
                

              

            

            
              
              

            

          

           

          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

           

           

          
            
              
              

            

            
              - 5
-

              
                

              

            

            
              
              

            

          

           

          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.

           

           

          
            
              
              

            

            
              - 6
-

              
                

              

            

            
              
              

            

          

           

          (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

           

           

          
            
              
              

            

            
              - 7
-

              
                

              

            

            
              
              

            

          

           

          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.

          
             

            (k)   Termination of
Employment.  For purposes of this Agreement, “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.

          

           

          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

           

           

          
            
              
              

            

            
              - 8
-

              
                

              

            

            
              
              

            

          

           

          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


           

           

          
            
              
              

            

            
              - 9
-

              
                

              

            

            
              
              

            

          

           

          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.

           

        

      

      
         

        
          
             


          

          
            - 10
-

            
              

            

          

          
             


          

        

         

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

         

        
          
            	 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	 	 	 
	 	 	 	 


          

          



          
            
              
                 


              

              
                - 11
-

                
                  

                

              

              
                 


              

            

          

           

          EXHIBIT A


          
            GENERAL
RELEASE

            
              RECITALS

            

          

          
             

            This
General Release (this “Release”) is made by and between Stephen D. Kelley
(“Employee”) and Cree, Inc. (the “Company”) (jointly referred to as the
“Parties”):

             

            WHEREAS,
the Company and Employee entered into an Executive Change in Control Agreement
dated August 19, 2008 (the “Change in Control Agreement”)

             

            WHEREAS,
the Company and Employee entered into an Employee Agreement Regarding
Confidential Information, Intellectual Property, and Noncompetition (as amended
by the Change in Control Agreement, the “Confidentiality
Agreement”);

             

            WHEREAS,
the Company and Employee entered into [DESCRIBE EQUITY AWARD AGREEMENTS: a Stock
Option Agreement dated [____] granting Employee the option to purchase shares of
the Company’s common stock subject to the terms and conditions of the Company’s
[Stock Option Plan] and the Stock Option Agreement (collectively, the “Stock
Agreements”)];

             

            WHEREAS,
Employee’s employment with the Company terminated on [DATE] (the “Termination
Date”);

             

            WHEREAS,
the Parties wish to resolve any and all disputes, claims, complaints,
grievances, charges, actions, petitions and demands that the Employee may have
against the Company as defined herein, including, but not limited to, any and
all claims arising out of, or related to, Employee’s employment with, or
separation from, the Company;

             

            NOW
THEREFORE, in consideration of the promises made herein, the Parties hereby
agree as follows:

             

            COVENANTS

             

            1.     Consideration.

             

            (a)    Pursuant
to the Section 9(a) of the Change in Control Agreement, Employee’s receipt of
severance pursuant to Section 8(a) of the Change in Control Agreement is subject
to Employee executing and not revoking this Release.  In consideration
of Employee executing and not revoking this Release, and subject to Section 9 of
the Change in Control Agreement, the Company agrees to pay (or provide, as
applicable) Employee the amounts and benefits specified in Section 8(a) of the
Change in Control Agreement.  Such severance benefits will be paid or
provided at the times and in the manner set forth in the Change in Control
Agreement.  Employee acknowledges that he will not be entitled to any
other compensation or benefits, except as provided in Section 7 of the Change in
Control Agreement.

             

            (b)    Stock.  Employee
acknowledges that as of the Termination Date, he will have vested in [______]
options and no more.  The exercise of any stock options shall continue
to be

             

             

            
              
                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

             

            subject to the terms and
conditions of the Stock Agreements and Sections 8 of the Change in Control
Agreement.

             

            (c)    Benefits.  Employee’s group
health benefits will cease on [DATE], subject to Employee’s
right to continue his group health benefits under COBRA.  Employee’s
participation in all other benefits and incidents of employment (including, but
not limited to, the accrual of vacation and paid time off, and the vesting of
stock options) ceased on the Termination Date.

             

            2.     Payment of
Salary.  Subject to Section 7 of the Change in Control
Agreement and Section 1 above, Employee acknowledges and represents that
Employee is not entitled to any additional salary, wages, bonuses, accrued
vacation, housing allowances, relocation costs, interest, severance, stock,
stock options, outplacement costs, fees, commissions or any other benefits and
compensation.

             

            3.     Confidential
Information.  Employee shall continue to comply with the terms
and conditions of the Confidentiality Agreement, as such agreement may be
amended by the Change in Control Agreement, and maintain the confidentiality of
all of the Company’s confidential and proprietary
information.  Employee also shall return to the Company all of the
Company’s property, including all confidential and proprietary information, and
all documents and information that Employee obtained in connection with his
employment with the Company, on or before the Effective Date of this
Release.

             

            4.     Release of
Claims.  Employee agrees that the foregoing consideration
represents settlement in full of all outstanding obligations owed to Employee by
the Company.  To the fullest extent permitted by applicable law,
Employee, on his own behalf and on behalf of his respective heirs, family
members, executors, agents, and assigns, hereby fully and forever releases the
Company and its current and former: officers, directors, employees, agents,
investors, attorneys, shareholders, administrators, affiliates, divisions,
subsidiaries, predecessor and successor corpora­tions and assigns (the
“Releasees”) from, and agrees not to sue concerning, any claim, duty, obligation
or cause of action relating to any matters of any kind arising out of or
relating to his employment by the Company (except as provided in Section 7 of
the Change in Control Agreement), or his service as an officer of the Company
and/or a director of the Company, whether presently known or unknown, suspected
or unsuspected, that Employee may possess arising from any omissions, acts or
facts that have occurred up until and including the Effective Date of this
Release including, without limitation:

             

            (a)    any and
all claims relating to or arising from Employee’s employment with the Company,
or the termination of that employment;

             

            (b)    any and
all claims relating to, or arising from, Employee’s right to purchase, or actual
purchase of, shares of Company stock, including, but not limited to, any claims
for fraud, misrepresentation, breach of fiduciary duty, breach of duty under
applicable state corporate law, and securities fraud under any state or federal
law;

             

            (c)    any and
all claims under the law of any jurisdiction, including, but not limited to,
wrongful discharge of employment; constructive discharge from employment;
termination in violation of public policy; discrimination; breach of contract,
both express and implied; breach of a 

             

             

            
              
                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

             

            covenant of good faith and
fair dealing, both express and implied; promissory estoppel; negligent or
intentional infliction of emotional distress; negligent or intentional
misrepresentation; negligent or intentional interference with contract or
prospective economic advantage; unfair business practices; defamation; libel;
slander; negligence; personal injury; assault; battery; invasion of privacy;
false imprisonment; and conversion;

             

            (d)    any and
all claims for violation of any federal, state or municipal statute, including,
but not limited to, Title VII of the Civil Rights Act of 1964; the Civil Rights
Act of 1991; the Age Discrimination in Employment Act of 1967; the Americans
with Disabilities Act of 1990; the Fair Labor Standards Act; the Employee
Retirement Income Security Act of 1974; the Worker Adjustment and Retraining
Notification Act; the Older Workers Benefit Protection Act; the Family and
Medical Leave Act; the Fair Credit Reporting Act; the North Carolina Equal
Employment Practices Act; and North Carolina law;

             

            (e)    any and
all claims for violation of the federal, or any state,
constitution;

             

            (f)    any and
all claims arising out of any other laws and regulations relating to employment
or employment discrimination;

             

            (g)    any claim
for any loss, cost, damage, or expense arising out of any dispute over the
non-withholding or other tax treatment of any of the proceeds received by
Employee as a result of this Release; and

             

            (h)    any and
all claims for attorney fees and costs.

             

            5.     Acknowledgement of Waiver of
Claims Under ADEA.  Employee acknowledges that he is waiving
and releasing any rights he may have under the Age Discrimination in Employment
Act of 1967 (“ADEA”) and that this waiver and release is knowing and
voluntary.  Employee and the Company agree that this waiver and
release does not apply to any rights or claims that may arise under the ADEA
after the Effective Date of this Release.  Employee acknowledges that
the consideration given for this waiver and release is in addition to anything
of value to which Employee was already entitled.  Employee further
acknowledges that he has been advised by this writing that:

             

            (a)    he should
consult with an attorney prior to executing this Release;

             

            (b)    he has up
to twenty-one (21) days within which to consider this Release;

             

            (c)    he has
seven (7) days following his execution of this Release to revoke this
Release;

             

            (d)    this ADEA
waiver shall not be effective until the revocation period has expired;
and,

             

            (e)    nothing
in this Release prevents or precludes Employee from challenging or seeking a
determination in good faith of the validity of this waiver under the ADEA, nor
does it impose any condition precedent, penalties or costs for doing so, unless
specifically authorized by federal law.

             

             

            
              
                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

             

            6.     Unknown
Claims.  The Parties represent that they are not aware of any
claim by either of them other than the claims that are released by this
Release.  Employee acknowledges that he has been advised by legal
counsel and is familiar with the principle that a general release does not
extend to claims which the releasor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him would have
materially affected his settlement with the releasee.  Employee, being
aware of said principle, agrees to expressly waive any rights Employee may have
to that effect, as well as under any other statute or common law principles of
similar effect, to the fullest extent permitted by applicable law.

             

            7.     Application for
Employment.  Employee understands and agrees that, as a
condition of this Release, he shall not be entitled to any employment with the
Company, its subsidiaries, or any successor, and he hereby waives any alleged
right of employment or re-employment with the Company, its subsidiaries or
related companies, or any successor.

             

            8.     No
Cooperation.

             

            (a)    Employee
agrees that he will not knowingly counsel or assist any attorneys or their
clients in the presentation or prosecution of any disputes, differences,
grievances, claims, charges, or complaints by any third party against any of the
Releasees that relate to any of the matters for which he has provided a release
hereunder, unless under a subpoena or other court order to do
so.  Employee agrees both to immediately notify the Company upon
receipt of any such subpoena or court order, and to furnish, within three (3)
business days of its receipt, a copy of such subpoena or court order to the
Company.  If approached by anyone for counsel or assistance in the
presentation or prosecution of any such disputes, differences, grievances,
claims, charges, or complaints against any of the Releasees, Employee shall
state no more than that he cannot provide counsel or assistance.

             

            (b)    Notwithstanding any
language herein to the contrary, Employee understand that nothing in this
Release prohibits him from filing or pursuing a charge of discrimination with
the Equal Employment Opportunity Commission (EEOC) or a claim with the National
Labor Relations Board (NLRB); provided that, by signing this Release Employee
agree to waive and relinquish any personal monetary gain that otherwise would
result from such EEOC or NLRB Claim.

             

            9.     Costs.  The
Parties shall each bear their own costs, expert fees, attorney fees and other
fees incurred in connection with the preparation of this Release.

             

            10.   Arbitration.  The
Parties agree that any and all disputes arising out of, or relating to, the
terms of this Release, their interpretation, and any of the matters herein
released, shall be subject to binding arbitration as described in Section 16 of
the Change in Control Agreement (but as adjusted to cover disputes under this
Release).

             

            11.   No
Representations.  Each Party represents that it has had the
opportunity to consult with an attorney, and has carefully read and understands
the scope and effect of the provisions of this Release.  Neither Party
has relied upon any representations or statements made by the other Party hereto
which are not specifically set forth in this Release.

             

             

            
              
                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

             

            12.   No Oral
Modification.  Any modification or amendment of this Release,
or additional obligation assumed by either Party in connection with this
Release, shall be effective only if placed in writing and signed by both Parties
or their authorized representatives.

             

            13.   Entire
Agreement.  This Release, the Change in Control Agreement, the
Confidentiality Agreement and the Stock Agreements represent the entire
agreement and understanding between the Company and Employee concerning the
subject matter of this Release and Employee’s relationship with the Company, and
supersede and replace any and all prior agreements and understandings between
the Parties concerning the subject matter of this Release and Employee’s
relationship with the Company.

             

            14.   Governing
Law.  This Release shall be governed by the laws of the State
of North Carolina, without regard for choice of law provisions.

             

            15.   Severability.  If
any provision of this Release is found to be unenforceable, it shall not affect
the enforceability of the remaining provisions, and the court shall enforce all
remaining provisions to the fullest extent permitted by law.

             

            16.   Effective
Date.  This Release will not become effective until the eighth
(8th) day after it has been signed by both Parties and then only if Executive
does not revoke it as permitted in Section 5(c) above (the “Effective
Date”).  In order to revoke this Release, the Executive must deliver a
letter expressly stating that he is revoking this Release to the Company’s Vice
President, Administration, at 4600 Silicon Drive, Durham, North Carolina 27703
within seven (7) days after he signs this Release.

             

            17.   Voluntary Execution of
Release.  This Release is executed voluntarily and with the
full intent of releasing all claims, and without any duress or undue influence
by any of the Parties.  The Parties acknowledge that:

             

            (a)    They have
read this Release;

             

            (b)    They have
been represented in the preparation, negotiation, and execution of this Release
by legal counsel of their own choice or that they have voluntarily declined to
seek such counsel;

             

            (c)    They
understand the terms and consequences of this Release and of the releases it
contains; and

                

            (d)    They are
fully aware of the legal and binding effect of this Release.

            
 

            
              
                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

          

           

        

        
          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.

           

          
            
              	 COMPANY:	
                       

                    	 
	 	 	 	 	 	 
	 CREE,
      INC.	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 By:	 	 	 	
                       Date:
    

                    	 
	 Title:	 	 	 	 	 
	 	 	 	 	 	 


            

             

            
            

            
              	 EXECUTIVE:	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	
                       Date:
    

                    	 
	 STEPHEN D.
      KELLEY