exhibit10_1.htm


    
       

      
        
          

        

      

      
        
           

          Exhibit
10.1



      

    

    
      


      


      August 6,
2008

      


      


      Mr. Steve
Kelley

      1716
MacGregor Drive

      Plano, TX
 75093 

      


      Dear
Steve: 

       

      
        It is my
pleasure to extend to you an offer of regular, full-time employment with Cree,
Inc. (“Cree” or the “Company”) at our principle offices in Durham,
NC.  With your skills, qualifications and enthusiasm, we are excited
about the prospect of you joining the Cree team and believe that you will make
an excellent addition to the management team. The terms of our offer are as
follows:

        


        TITLE:  You will be
employed by Cree, Inc. as its Chief Operating Officer (COO).  The
Company’s Bylaws require the Board of Directors to approve your appointment as
an Executive Vice President of the Company.  The Board will be asked
to approve your appointment to such position on or before its next regularly
scheduled meeting on August 19, 2008.

        


        SUPERVISION:  You
will be reporting directly to Chuck Swoboda in his role as Chief Executive
Officer (CEO).

        


        COMPENSATION: You will receive
an annual base salary of $350,000 to be paid in accordance with the Company’s
standard payroll practices in effect from time to time.  Our payroll
is currently paid on a bi-weekly basis.  The Compensation Committee of
the Board of Directors will review your total compensation on an annual basis,
beginning September 2009.

        


        SIGN-ON BONUS:  You
will be paid a sign-on bonus of $90,000, grossed-up for income and withholding
taxes (other than Social Security withholding taxes) based on the tax rates
applicable to supplemental wage payments at the time of payment, within sixty
(60) days following your start date. (We will not gross-up such amount for
Social Security withholding because you will be able to obtain a full credit for
any such amount withheld by Cree on your 2008 federal individual income tax
return.)  If you voluntarily resign or your employment is terminated
for cause within twelve (12) months of your start date, you will be obligated to
repay the Company the amount you received on account of the sign-on bonus, less
one-twelfth of such amount for each full month of employment that you have
completed.  The bonus will be considered a salary advance for so long
as you have a repayment obligation with respect to any part of it.  If
repayment is necessary, your total earnings for the year will be adjusted to
reflect the forfeiture of part of or the entire sign-on bonus, as applicable,
after receipt of the amount due.

        


        MANAGEMENT INCENTIVE COMPENSATION
PLAN:  Effective as of your date of hire, you will be eligible
to participate in the Company’s Management Incentive Compensation Program (MICP)
with an annual target award level of 60% of your base salary.  The
actual amount of the MICP incentive payment will be determined based on meeting
objectives tied to quarterly (weighted at 40%) and annual (weighted at 60%)
performance goals set in accordance with the plan document.  Your
performance measurement against the individual component of your quarterly goals
during your first two fiscal quarters of participation (i.e., Q1FY09 and Q2FY09)
will be deemed to be 100%, without regard to actual results.  Your
award amount for such quarters and the remainder of fiscal 2009 will otherwise
be determined in accordance with the

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        terms of
the plan document, except that, provided your date of hire is on or before
August 29, 2008, your awards for your first quarter of participation and the
annual award will not be reduced to reflect that you were employed for less than
the full award period.  The terms and conditions of the MICP and your
participation therein are subject to review and approval of the Compensation
Committee annually.   We expect the Compensation Committee to
approve the MICP for fiscal year 2009 in August 2008.

        


        START DATE:  Your
start date will be no later than August 19, 2008, or such other date as agreed
by you and the CEO.

        


        EQUITY PROGRAM:  You
will be eligible to receive long-term incentive awards from time to time subject
to terms and conditions established by the Compensation Committee, the
underlying long-term incentive plan document, and the Company’s terms and
conditions for the applicable type of award, including vesting criteria such as
continued service or performance objectives.  Initially you will be
granted an option to purchase 80,000 shares of the Company’s common stock at a
purchase price equal to the fair market value on the grant date, determined as
the last sale price reported for the regular trading session on the Nasdaq Stock
Market on the grant date (or, if the grant date is not a trading day, the last
day of regular trading preceding the grant date).  You will also be
granted 20,000 shares of restricted stock.  Both the option grant and
the restricted stock award will be made pursuant to the Company’s 2004 Long-Term
Incentive Compensation Plan (the “Plan”).  The grant date for both
awards will be the first business day of the calendar month following the first
day of your employment.  The option will be a nonqualified stock
option and will vest over a three-year period in equal installments on each
anniversary of the grant date so long as you remain employed with the Company or
a related Employer under the Plan.  The restricted stock award will
vest over a five-year period in equal installments beginning on September 1,
2009 and on each anniversary of such date so long as you remain employed with
the Company or a related Employer under the Plan.  The option will be
subject to the provisions of the Plan and the Cree, Inc. Master Stock Option
Award Agreement to be entered into by you and the Company.  The
restricted stock award will be subject to the provisions of the Plan and the
Cree, Inc. Master Restricted Stock Award Agreement to be entered into by you and
the Company.  Copies of these agreements have been provided to you
under separate cover.

        


        BENEFITS:  You will
be eligible to participate in all benefit plans offered to Company employees
generally, subject to applicable service periods and other terms of the
governing plan documents.  A summary of these benefits has been sent
to you under separate cover.

        


        RELOCATION:  In
connection with your relocation to Durham, Cree will provide you with the
relocation assistance benefits described in this paragraph.  Prior to
receipt of any relocation assistance benefits, you will be required to sign the
New Employee Relocation Agreement (Form HR17/3.01), a copy of which has been
provided to you under separate cover.  The repayment obligations set
forth in the agreement apply to all relocation assistance benefits provided
under this paragraph.  Cree will gross-up relocation expenses that are
taxable to you at the supplemental federal and state income tax rates and the
Medicaid withholding rate applicable to such compensatory
amounts.  (We will not gross-up such amounts for Social Security
withholding because you will be able to obtain a full credit for any such
amounts withheld by Cree on your 2008 federal individual income tax
return.)  In accordance with Cree’s Relocation Policy for New Hires
and Transferees (Policy # 3.80), a copy of which has been provided to you under
separate cover, Cree will pay or reimburse you for the actual and reasonable
costs of: (i) one house-hunting trip for your spouse and children (up to 5
days); (ii) moving you, your family, and household belongings from your current
residence in Plano, Texas, to the Research Triangle Park area, provided such
expenses are incurred within one year from your start date; and (iii) temporary
housing for up to twelve (12) months beginning on or about your start date, in
the vicinity of Research Triangle Park, North Carolina, until you are able to
make permanent housing arrangements.  Upon receipt of appropriate
supporting documentation, the Company also will reimburse you for reasonable and
customary brokerage fees, seller paid closing costs, and/or any loss on sale
(i.e., if the net proceeds from the sale are lower than your cost basis) in
connection with the sale of your primary residence in Plano, Texas and
reasonable and customary closing costs on the purchase of a primary residence in
the vicinity of Research Triangle Park, North Carolina, up to a maximum amount
of $75,000

      

       

      
        
          
          

        

        
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        for these
items (excluding gross-up for taxes).  In addition, until the first
anniversary of your start date or until your family’s residence has been moved
to North Carolina, whichever occurs first, the Company will reimburse you for
the cost of round-trip, coach fare airline tickets for up to one trip to Plano,
Texas every other week.  Reimbursement amounts will be paid promptly
following submission of appropriate documentation evidencing
payment.  Fonville Morisey Realty will assist you with your entire
move and will direct bill the Company for many of the covered
expenses.

        


        PAID TIME OFF
(PTO):  Initially, you will be eligible to accrue paid-time off
(i.e., vacation) at the rate of three (3) weeks annually, and your accrual rate
will increase for each year of employment in accordance with the Company’s Paid
Time Off (PTO) Policy.

        


        CONFIDENTILITY, INTELLECTUAL PROPERTY
AND NON-COMPETITION AGREEMENT: You will be required to sign the Company’s
standard form of Employee Agreement Concerning Confidential Information,
Intellectual Property and Non-Competition (“Employee Agreement”) on or before
your first day of employment.  A copy of this agreement has been
provided to you under separate cover.  This agreement obligates you,
among other things, not to disclose confidential information of the Company
without authorization, to assign to the Company rights in inventions or other
intellectual property developed in the course of your employment, and not to
engage in competition with the Company for a period of one year following any
termination of your employment.  Neither this letter nor the Employee
Agreement, however, constitutes a commitment by the Company to employ you for
any specific term.  Either you or the Company may terminate the
employment relationship at any time, with or without cause or
notice.

        


        CHANGE OF CONTROL
AGREEMENT:  As soon as possible after your start date, the
Company will enter into a Change of Control Agreement with
you,  subject to prior approval of the terms and conditions of such
agreement by the Compensation Committee.  Such agreement will provide
that, in the event that the Company terminates your employment without “Cause”
or you resign for “Good Reason” within twelve (12) months after a “Change in
Control” (as such terms are defined in the Change of Control Agreement), you
will receive (i) continued payment of your base salary for twelve (12) months
following your termination, (ii) accelerated vesting of all unvested stock
options and time-vested restricted stock awards, and (iii) a lump sum payment
equal to twelve (12) multiplied by the COBRA premium in effect at the time of
your termination for the type of medical, dental and vision coverage you have
elected for you and your dependents under the Company’s group health
plan.  These payments, continued benefits, and accelerated vesting
will be subject to applicable tax withholding, statutorily imposed payment
terms, and to (i) your signing and not revoking a separation agreement and
release of claims in a mutually agreed form, and (ii) your signing and
continuing to comply with non-compete, non-solicitation, and non-disparagement
obligations during the twelve (12) months following termination of your
employment.

        


        SEVERANCE:  The
Company’s management has recommended, and the Compensation Committee is expected
to approve in August 2008, the adoption of a Severance Plan for officers of the
Company who are subject to the reporting requirements of Section 16 of the
Securities Exchange Act of 1934, as amended (a “Section 16
Officer”).   As currently recommended, the Severance Plan
provides that in the event that the Company terminates the employment of a
Section 16 Officer without “Cause” (other than in connection with a Change of
Control), the Section 16 Officer will receive (i) continued payment of his/her
base salary for twelve (12) months following such termination, and (ii)
reimbursement of COBRA premiums paid or payable by the individual to continue
coverage under the Company’s medical plans for the individual and his/her
eligible dependents for up to twelve (12) months following such termination,
provided he/she elects to continue medical coverage in accordance with
applicable law.  As the Company’s Chief Operating Officer, you will be
considered to be a Section 16 Officer under this plan when it is approved by the
Compensation Committee.  Payments and continued benefits under the
Severance Plan will be subject to applicable tax withholding, statutorily
imposed payment terms, and to (i) your signing and not revoking a separation
agreement and release of claims in a mutually agreed form, and (ii) your signing
and continuing to comply with non-compete, non-solicitation, and
non-disparagement obligations during the twelve (12) months following
termination of your employment.   The Compensation Committee must
approve the

         

      

      
        
          
          

        

        
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        Severance
Plan described in this paragraph, and the Committee may modify or amend such
plan at anytime in the Committee’s discretion.

        


        CODES OF CONDUCT AND
ETHICS:  At all times, you will be expected to observe the
highest standards of ethical, personal, and professional conduct and to comply
with the Company’s Code of Conduct and the Code of Ethics for Senior Financial
Officers, copies of which have been provided to you.   You will
be required to sign a Certificate of Acknowledgment annually regarding the Code
of Conduct and the Code of Ethics for Senior Financial Officers.

        


        ABSENCE OF CONFLICTING
OBLIGATIONS:  By accepting this offer, you are representing and
promising to the Company that your employment with the Company will not breach
any obligation you have to any prior employee or to another third party, whether
pursuant to a non-competition or other agreement or applicable law.

        


        CONDITIONS
PRECEDENT:  As a condition of employment, you must also
successfully complete a pre-employment drug screen in accordance with the
Company’s policy.  In addition, on your first day of employment you
will also be required to produce two forms of identification; one establishing
your identity and one establishing your employment eligibility, as listed by the
U.S. Department of Justice on its Employee Eligibility Verification
Form.

        


        If these
employment terms are satisfactory to you, please indicate your acceptance by
signing below and returning one copy of the signed offer letter to
me.  This offer will expire unless accepted in writing on or before
August 8, 2008.

         

      

      Steve, we
are looking forward to working with you and are confident that your skills and
experience will make a significant contribution to Cree’s growth.

      


      Sincerely,

      


      /s/
Brenda F. Castonguay

      


      Brenda F.
Castonguay

      VP -
Administration

       

      
Enc.

       

      


      Agreed to
by:   
/s/ Steve
Kelley             
8/8/08    

                  
Steve Kelley                Date

       

       


      
        
          
            


          

          
          

        

        
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