EXHIBIT 10.1
August 10, 2005
Ms. Cynthia B. Merrell
c/o Cree, Inc.
4600 Silicon Drive
Durham, NC 27703
Dear Cindy:
This letter is intended to confirm our recent discussions, and the
agreement we have reached today, regarding your decision to resign as Chief
Financial Officer (CFO) and Treasurer of Cree, Inc. (the "Company") and its
subsidiaries. We appreciate the loyalty and dedication you have shown the
Company over the past eight years and your willingness to assist us during the
transition process. To implement the transition, you and the Company have agreed
as follows:
1. Your resignation as an officer of the Company and its subsidiaries will
be effective on the date (the "Resignation Effective Date") that is the earlier
of: (a) the date a successor CFO, including any acting or interim CFO, becomes
CFO by appointment of the Company's Board of Directors; or (b) February 10,
2006. Prior to the Resignation Effective Date, you will continue to serve in the
office of CFO and Treasurer at the pleasure of the Board of Directors.
2. Subject to the provisions of this letter agreement (the "Letter
Agreement"), from the date of this letter you will continue as an employee of
the Company for a period of twelve (12) months (the "Transition Period"). Prior
to the Resignation Effective Date, you will remain employed in your current
position. On and after the Resignation Effective Date, you will be employed in
the position of Senior Financial Advisor reporting to the Chief Executive
Officer (CEO) to assist with such matters as he may request from time to time on
which you worked or with which you had familiarity due to your employment prior
to the Resignation Effective Date and which relate to the business, operations
or financial condition of the Company or to its financial or accounting matters,
including its filings with the U.S. Securities and Exchange Commission.
3. Before the Resignation Effective Date, you will be classified as an
exempt, regular, full-time employee regularly scheduled to work forty (40) hours
per week. On and after the Resignation Effective Date, you will be a part-time
employee of the Company expected to perform up to eighty (80) hours of services
for the Company each month. It is anticipated that, after your Resignation
Effective Date, the Company will be able to honor your request to work from your
home or other off-site locations, but the Company reserves the right to require
you to work in its offices in Durham, North Carolina and/or to travel on Company
business as business needs may require from time to time. Any business expenses
you incur after the Resignation Effective Date will remain reimbursable in
accordance with the Company's business expense reimbursement policy. After the
Resignation Effective Date, if you move to a primary residence that is more than
fifty (50) miles from your residence on the Resignation Effective Date, the
Company will reimburse you for reasonable travel expenses if you are required to
report to the Company's offices in Durham, North Carolina.
4. Nothing in this Letter Agreement constitutes a commitment by the Company
to employ you for any specific term. Your employment is at-will, and either you
or the Company may terminate your employment at any time. For purposes of this
Letter Agreement, your final day of employment shall be referred to as your
"Termination Date."
5. During the Transition Period, you will be compensated as follows:
(a) You will continue to be compensated at your current base rate of pay
(in effect as of August 10, 2005), less all applicable payroll taxes and
authorized withholdings, payable on the usual Company payroll dates in
accordance with Company policies and procedures, subject to adjustment as
provided in subparagraph 5(b) below.
(b) Prior to the Resignation Effective Date, you will also remain eligible
to participate in all Company employee benefit plans, policies, and arrangements
that are applicable to regular, full-time employees of the Company in accordance
with the terms of such plans, policies, and arrangements as they may exist from
time to time, except that you acknowledge that you will not receive any
additional stock option grants or other equity awards. Beginning on the
Resignation Effective Date, you will only be eligible to participate in Company
employee benefit plans, policies, and arrangements that are applicable to
part-time employees, except that you agree to waive your right to participate in
the quarterly Employee Incentive Compensation Plan after the Resignation
Effective Date. Your accrued and unused paid-time off accumulated as of the
Resignation Effective Date will carry forward in your part-time status. You
acknowledge that, beginning on the Resignation Effective Date, you and your
dependents will no longer be eligible for coverage under the Company's medical,
vision and dental plans (as presently in effect) except for a limited period of
time at your expense if you make a timely coverage election pursuant to COBRA.
Beginning on the Resignation Effective Date, the Company will increase your
monthly compensation by an amount equal to the applicable COBRA premium to
continue coverage under the Company's medical, vision and dental plans for you
and your dependents who are enrolled on the Resignation Effective Date for so
long as you remain an employee of the Company. While you remain an employee of
the Company you will have the option of having your COBRA premiums deducted
monthly on a pre-tax basis from your paycheck pursuant to the Company's Pre-Tax
Premium Plan. By signing below you hereby authorize the Company to withhold the
applicable COBRA premium from your paychecks on a pre-tax basis for so long as
you elect COBRA and remain employed by the Company. The Company will be
responsible for remitting any COBRA payments withheld through payroll.
(c) Your existing stock options will continue to vest through your
Termination Date in accordance with and subject to provisions of the Company's
Equity Compensation Plan and the applicable agreements between you and the
Company (collectively, the "Stock Agreements"). The Company agrees that its
October 1, 2004 grant of a non-qualified option for you to purchase up to 30,000
shares of the Company's common stock at an exercise price of $31.24 per share
(option # 00011759), which option became fully vested and exercisable as of
April 15, 2005 subject to certain contractual restrictions on the sale or other
transfer of purchased shares, may be exercised (including by cashless exercise)
after the date of this Letter Agreement free of such contractual restrictions,
subject to the expiration provisions set forth in the applicable Stock Agreement
and to the Company's trading window policy.
(d) Before your Resignation Effective Date, you also will be eligible to
participate in the Management Incentive Plan provided that your incentive
payment target each plan measurement period will be pro-rated to reflect the
number of days in such period that you hold your current position (e.g., if your
Resignation Effective Date is November 15, 2005, you will be eligible for up to
55% (50 days divided by 91 days) of the individual component for the second
fiscal quarter of 2006 and up to 39% (141 days divided by 364 days) of the
annual component for the 2006 fiscal year). In addition, the Company agrees to
continue reimbursing you (consistent with past practices) for the reasonable
expenses of any continuing professional education ("CPE") programs you attend
through June 30, 2006 to satisfy the annual CPE requirements applicable to your
license as a certified public accountant in the State of Florida.
6. In consideration of your commitment to assist us during the Transition
Period, the Company agrees to pay you a severance payment under certain limited
circumstances. First, if the Company terminates your employment without Cause
(as defined below) prior to the end of the Transition Period, the Company will
pay you an amount defined below as "Severance Payment A." Alternatively, if you
should remain employed with the Company through the end of the Transition
Period, the Company will pay you an amount defined below as "Severance Payment
B." If you terminate your employment prior to the end of the Transition Period
for any reason, or if the Company terminates your employment prior to the end of
Transition Period for Cause, the Company shall have no obligation to pay you any
severance payment. Any severance payment will be paid pursuant to and in
accordance with the Company's Severance Program. Payment of any severance
payment is conditioned upon your execution and return (and non-revocation) of
the Release of Claims Agreement attached as Exhibit A to this letter (the
"Release") (with such modifications as may be necessary or desirable to comply
with any new or amended laws which may become applicable in the interim and to
complete all information left blank) as soon as provided in the Release after
your Termination Date. You may choose not to execute and return the Release or
to revoke the Release within the times provided in the Release. If you do not
execute and return the Release or if you revoke the Release within the times
provided in the Release, the Company shall have no obligation to pay you any
severance payment.
7. For purposes of this Letter Agreement, "Cause" shall mean: (i) your
death; (ii) your physical or mental disability or incapacity to satisfactorily
perform the essential functions of your position for a period of six months as
determined under the Company's program of long-term disability; (iii) any act or
omission by you constituting gross negligence or willful misconduct, including,
but not limited to: (a) willful, material violation of the Company's policies or
the reasonable and lawful orders of its Board of Directors and/or Chief
Executive Officer; (b) fraud; (c) misappropriation of Company property or
proprietary information; (d) embezzlement; or (e) your conviction of, or plea of
nolo contendere to, a crime that the Company reasonably believes has had or will
have a material detrimental effect on the Company's reputation or business; (iv)
your willful and continued failure to perform the duties and responsibilities of
your position that is not corrected within a thirty (30) day correction period
that begins upon delivery to you of a written demand for performance from the
Company that describes the basis for the Company's belief that you have not
substantially performed your duties; (v) your material breach of your Employee
Agreement Regarding Confidential Information, Intellectual Property and
Non-Competition (the "Confidentiality Agreement"), which breach is (if capable
of cure) not cured within thirty (30) days after the Company delivers written
notice to you of the breach; or (vi) prior to the Resignation Effective Date,
your employment by another entity (whether or not as an employee or a
contractor, in a full-time or part-time capacity, or in violation of the
Confidentiality Agreement).
8. "Severance Payment A" shall be equal to the sum of: (i) a lump sum
amount equal to the base salary you would have earned if you had remained
employed from the Termination Date through the end of the Transition Period (up
to a maximum of twelve (12) months of base salary), excluding any increase
pursuant to subparagraph 5(b); (ii) a lump sum amount equal to any accrued and
unused vacation and holiday hours as of the Termination Date multiplied by your
effective hourly rate of pay (based on 80 hours per pay period); and (iii) a
lump sum amount equal to the cost (grossed up for taxes at the supplemental pay
tax rates) for you to continue medical, vision and dental coverage until the
first anniversary of your Resignation Effective Date under the Company's group
health plan for you and your dependents who are enrolled on the Termination Date
(up to a maximum of twelve (12) months of continuation coverage). "Severance
Payment B" shall be equal to the sum of the amounts described in (ii) and (iii)
above only. Any severance payment will be made on the Company's first regular
payroll date after all terms and conditions of this Letter Agreement and the
Release have been satisfied. Any severance payment will be subject to all
applicable payroll taxes and authorized withholdings. After the Termination
Date, you will be solely responsible for remitting COBRA premiums when they
become due.
9. This Letter Agreement, together with the Confidentiality Agreement, the
Release, and the Stock Agreements constitute the entire understanding and
agreement between you and the Company with respect to the subject matter of each
such respective agreement. The terms of this Letter Agreement supersede any
prior negotiations, agreements and understandings, whether written or oral, with
respect to the subject matter hereof. If any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable, or
void, this Letter Agreement will continue in full force and effect without said
provision. Any waiver, modification or amendment of any provision of the
Agreement shall be effective only if in writing and signed by you and an
authorized representative of the Company.
10. This Letter Agreement will be governed by and construed according to
the laws of the State of North Carolina (but without regard to its conflict of
laws provisions). You and the Company agree that any and all disputes arising
out of the terms of the Letter Agreement or the attached Release, your
employment by the Company, your service as an officer of the Company or any of
its subsidiaries, or your compensation and benefits, their interpretation, and
any of the matters 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. Provided, however, that you and the Company
agree to select an arbitrator who is a retired judge, or, if required to select
a panel of three arbitrators, you and the Company will select at least two
retired judges to serve on the panel. 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. Unless otherwise
specified herein, 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 your obligations under the
Letter Agreement.
If the provisions of this letter accurately set forth our understanding,
please acknowledge your agreement by signing the enclosed copy of this letter
and returning it to me.
Sincerely,
CREE, INC.
By: /s/ Charles M. Swoboda
-----------------------------------
Charles M. Swoboda
Chairman and Chief Executive Officer
Accepted and agreed to:
/s/ Cynthia B. Merrell 8/10/05
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Cynthia B. Merrell Date
EXHIBIT A
RELEASE OF CLAIMS AGREEMENT
This Release of Claims Agreement (the "Release") is entered into between
Cree, Inc., a North Carolina corporation with its principal place of business in
Durham County, North Carolina (the "Company"), and Cynthia B. Merrell (referred
to herein as "I" or "me").
WHEREAS, the Company and I are parties to the Employee Agreement Regarding
Confidential Information, Intellectual Property and Non-Competition (the
"Confidentiality Agreement"), the Company's Equity Compensation Plan and related
stock option agreements (collectively, the "Stock Agreements"), and the August
10, 2005 letter agreement (the "Letter Agreement"); and
WHEREAS, capitalized terms used in this Release without definition shall
have the meanings assigned in the Letter Agreement;
WHEREAS, the Letter Agreement provides for certain severance benefits in
exchange for my release of the Company;
WHEREAS, I understand that my termination is effective as of
[ ](the "Termination Date"), regardless of whether or not I
sign this Release.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby expressly acknowledged by all parties, the
parties hereby agree as follows:
In consideration of the Company's agreement to pay me severance benefits
pursuant to the Letter Agreement (subject to the terms and conditions of the
Company's Severance Program), and as described in paragraph 1 below, in
connection with my termination of my employment, I, Cynthia Merrell, on behalf
of myself and all of my heirs, executors, administrators and assigns, hereby
fully and forever release and discharge the Company, its affiliated
corporations, and their respective past or present shareholders, partners,
directors, officers, employees, agents, representatives, successors and assigns
(together called the "Company Parties"), from any and all claims, lawsuits,
liabilities, demands, actions or causes of action of any kind or character
whatsoever, known or unknown, whether at law or equity, which I now have, may
have in the future or may ever have had in the past, against the Company
Parties, arising out of, on account of, or in any way relating to my employment
with the Company. Provided, however, that nothing in this Release will be deemed
to release a claim for violation of the Letter Agreement occurring after my
execution of this Release and, provided further, that nothing in this Release
will be deemed to release any claims I may have for indemnification as an
officer, employee or agent of the Company or its subsidiaries, whether arising
under corporate bylaws or otherwise, or any claims I may have under any
insurance policies providing coverage for acts or omissions as an officer,
employee or agent of the Company or its subsidiaries.
1. I understand that, if I sign this Release and satisfy all other terms
and conditions of this Release and the Letter Agreement, the Company will
provide me with either Severance Payment A or Severance Payment B (the
"Severance Payment"), as such terms are defined in and in accordance with the
provisions of Paragraph 6 of the Letter Agreement, as applicable, based on the
circumstances of my employment termination. This Severance Payment is subject to
all applicable withholdings as required or authorized by state or federal law.
This Severance Payment will be made on the Company's first regular payroll date
after all terms and conditions of this Release and the Letter Agreement have
been satisfied.
2. I understand and agree that this Release is a full and complete waiver
of all claims, known or unknown, that I have, may have in the future or may ever
have had in the past, against the Company Parties arising out of, on account of,
or in any way relating to my employment with the Company to the extent such
claims can be waived under applicable laws, including but not limited to, claims
of employment discrimination or harassment, termination of employment,
constructive discharge, breach of contract, breach of the covenant of good faith
and fair dealing, violation of public policy, fraud, defamation, invasion of
privacy, personal injury or emotional distress and claims under Title VII of the
Civil Rights Act of 1964, the Equal Pay Act of 1963, the Americans With
Disabilities Act, the Civil Rights Act of 1866, the Age Discrimination in
Employment Act of 1967 (ADEA), the Older Workers Benefit Protection Act, Worker
Adjustment and Retraining Notification Act (WARN), or violation of any other
federal, state or local law or regulation, as well as claims under the Employee
Retirement Income Security Act of 1974.
3. To the extent permitted by applicable law, I hereby expressly waive any
and all claims that are not known by me or suspected by me to exist in my favor
at the time of executing this Release, even if such claims would have had a
material effect on my decision to execute this Release if they had been known or
suspected by me, and regardless of whether my lack of knowledge is the result of
ignorance, oversight, error, negligence or any other cause. I understand and
acknowledge that the significance and consequence of this waiver is that I will
not be able to make any claims for additional damages arising out of the matters
released by this Release, even if I should eventually suffer those damages.
Furthermore, I acknowledge that I consciously intend these consequences.
4. I also hereby agree that nothing contained in this Release shall
constitute or be treated as an admission of liability or wrongdoing by either
party.
5. 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.
6. The Confidentiality Agreement, the Letter Agreement, the Stock
Agreements and this Release each constitute the entire agreement between the
Company Parties and me with regard to the respective subject matters of each
such agreement. The Release supersedes any other agreements, representations or
understandings, whether oral or written and whether express or implied, which
relate to the subject matter of this Release. In signing this Release, no party
has relied upon any representation or promise except those expressly set forth
herein or in the Letter Agreement. I understand that this Release may be
modified only in a written document signed by the Chief Executive Officer of the
Company and by me.
7. I agree that at all times in the future I shall not make any
disparaging, derogatory and/or negative statements to any third party regarding
the Company Parties.
8. I understand that if I materially breach any of the provisions of this
Release, the Company in its sole discretion immediately may cease making any
severance payments to me, and I shall have no further rights to any such
payments or other benefits under the Letter Agreement.
9. I hereby acknowledge that I have read and understand this Release and
that I sign it voluntarily and without coercion. I further acknowledge that I
was given an opportunity to consider and review this Release and to consult with
an attorney of my own choosing at my own expense concerning the waivers
contained in this Release and that the waivers are knowing, conscious and with
full appreciation that at no time in the future may I pursue any of the rights
that I have waived in this Release.
10. I acknowledge that I have been advised and encouraged to consult with
an attorney before signing this Release. I also understand that, as provided
under the Older Workers Benefit Protection Act of 1990, I have a minimum of
twenty-one (21) days after receipt of this Release to review and consider this
Release, discuss it with an attorney of my own choosing, and to decide whether
or not to sign it. I also understand that I may revoke this Release during a
period of seven (7) days after I sign it (the "Revocation Period") and that this
Release will not become effective until the eighth (8th) day after I sign it
(and then only if I did not revoke it). In order to revoke this Release, within
seven (7) days after I sign this Release I must deliver a letter expressly
stating that I am revoking this Release to Brenda F. Castonguay, Vice President,
Human Resources, 4600 Silicon Drive, Durham, North Carolina 27703. I understand
that if I choose to revoke this Release during the Revocation Period pursuant to
this paragraph, I will not receive any severance benefits, and the Release will
have no effect.
11. I understand and agree that I must consider and review this Release for
a minimum of seven (7) days after my Termination Date prior to executing it and
that the Company will not accept an executed Release prior to the expiration of
this 7-day period or a Release executed prior to my Termination Date. I
expressly acknowledge that I have had the opportunity of a full twenty-one (21)
days to consider this Release before signing it, and that if I have not taken
that full time period, that I expressly waive this time period and will not
assert the invalidity of this Release or any portion thereof on this basis. In
any event, I understand and agree that, in order to receive the severance
benefits offered herein, the executed Release must be delivered or mailed to
Brenda Castonguay at the address provided above by no later than 5:00 p.m. on
eighth (8th) day after my Termination Date (as evidenced by the postmark or
other proof of mailing).
12. Before signing my name to this Release, I state that:
o I have read it;
o I understand it;
o I know that I am giving up important rights;
o I understand that rights or claims under the Age Discrimination in
Employment Act of 1967 (29 U.S.C. ss. 621, et seq.) that may arise
after the date this Release is signed are not waived;
o I am aware of my right to consult an attorney before signing it; and
o I have signed it knowingly and voluntarily.
13. This Release shall be governed and construed by the laws of the state
of North Carolina without regard to its principles of conflicts of law, and any
disputes regarding this Release are subject to arbitration as further detailed
in the Letter Agreement.
Acknowledged and Agreed:
CREE, INC.
Signature: By:
----------------------------- ---------------------------------
Cynthia B. Merrell Name:
Title:
Date: Date:
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