SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant | |
Check the appropriate box:
|X| Preliminary Proxy Statement
| | Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
| | Definitive Proxy Statement |_| Definitive Additional Materials
| | Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CREE, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
| | Fee paid previously with preliminary materials.
| | Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
CREE, INC.
4600 Silicon Drive
Durham, North Carolina 27703
(919) 313-5300
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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To the Shareholders of Cree, Inc.:
The Annual Meeting of Shareholders of Cree, Inc. will be held on Tuesday,
October 31, 2000, at 10:00 a.m. local time, at the Company's offices at 4425
Silicon Drive, Durham, North Carolina 27703. The items of business are as
follows:
1. Election of seven directors;
2. Approval of an amendment to the Articles of Incorporation to increase
the number of authorized shares of Common Stock;
3. Approval of an amendment to the Equity Compensation Plan to increase the
number of shares authorized for awards;
4. Ratification of the selection of Ernst & Young LLP as independent
auditors for the current fiscal year; and
5. Such other matters as may properly come before the meeting.
These items are more fully described in the accompanying Proxy Statement,
which is made a part of this Notice. The Board of Directors has fixed September
12, 2000 as the record date for the meeting. Accordingly, only shareholders of
record at the close of business on September 12, 2000 are entitled to notice of
and to vote at the meeting.
It is important that your shares be represented at the meeting so that the
presence of a quorum may be assured. Even if you plan to attend the meeting in
person, please date and sign the enclosed proxy and mail it promptly. A
postage-paid return envelope is enclosed.
By order of the Board of Directors,
Adam H. Broome
Secretary
September __, 2000
<PAGE>
[This page intentionally left blank.]
<PAGE>
CREE, INC.
4600 Silicon Drive
Durham, North Carolina 27703
(919) 313-5300
---------------------
PROXY STATEMENT
---------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited by Cree, Inc., a North Carolina
corporation, for use at the Annual Meeting of Shareholders of the Company on
October 31, 2000, at 10:00 a.m. local time, and any adjournments thereof. The
meeting will be held at offices of the Company located at 4425 Silicon Drive,
Durham, North Carolina, for the purposes set forth in the Notice of Annual
Meeting of Shareholders. The meeting location is across the street from the
Company's principal executive offices, which are located at 4600 Silicon Drive,
Durham, North Carolina. The main telephone number at the Company's principal
executive offices is (919) 313-5300.
This Proxy Statement and the enclosed proxy are being first mailed on or
about September __, 2000 to shareholders entitled to vote at the Annual Meeting.
The Company's Annual Report to Shareholders for the fiscal year ended June 25,
2000, including financial statements, accompanies this Proxy Statement but is
not part of the proxy solicitation materials.
Record Date and Quorum
Shareholders of record at the close of business on September 12, 2000 are
entitled to notice of and to vote at the Annual Meeting. As of the record date,
there were ____________ shares of Common Stock of the Company outstanding. Each
share of Common Stock outstanding on the record date is entitled to one vote on
each matter presented for action at the meeting. Shares of Common Stock were the
only voting securities of the Company outstanding on the record date. A quorum
will be present at the Annual Meeting if a majority of the shares of Common
Stock outstanding on the record date is present at the meeting in person or by
proxy.
Voting of Proxies
The persons acting as proxies pursuant to the enclosed proxy will vote the
shares represented as directed in the signed proxy. Unless otherwise directed in
the proxy, the proxyholders will vote the shares represented by the proxy: (i)
for election of the seven director nominees named in this Proxy Statement; (ii)
for approval of the amendment to the Articles of Incorporation to increase the
number of authorized shares of Common Stock; (iii) for approval of the amendment
to the Company's Equity Compensation Plan to increase the number of shares
authorized for awards under the Plan; (iv) for ratification of the selection of
Ernst & Young LLP as independent auditors to audit the financial statements of
the Company for the fiscal year ending June 24, 2001; and (vi) in the
proxyholders' discretion on such other business as may come before the meeting
and any adjournments of the meeting.
If a shareholder signs and returns the enclosed proxy marked to abstain
from voting or to withhold authority to vote on a given matter, or if a broker
or other nominee returns a proxy indicating a lack of authority to vote on a
given matter, the shares represented by such proxy will be deemed present at the
meeting for purposes of determining a quorum but will not be counted in
calculating the vote on the matter.
<PAGE>
Revocability of Proxy
A shareholder who has signed and returned the enclosed proxy may revoke it
at any time before it is voted by (i) submitting to the Company a properly
executed proxy bearing a later date, (ii) submitting to the Company a written
revocation of the proxy or (iii) voting in person at the Annual Meeting.
Expenses of Solicitation
The Company will bear the entire cost of this proxy solicitation,
including the preparation, printing and mailing of the Proxy Statement, the
proxy and any additional soliciting materials sent by the Company to
shareholders. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for reasonable expenses
incurred by them in forwarding proxy soliciting materials to such beneficial
owners. Proxies may also be solicited by certain of the Company's directors,
officers and employees, without additional compensation, personally or by
telephone.
Shareholder Proposals for 2001 Annual Meeting
Pursuant to the rules of the Securities and Exchange Commission,
shareholder proposals submitted for inclusion in the Company's proxy statement
and form of proxy for the annual meeting to be held in 2001 must be received by
the Company by June 1, 2001, and must comply with the Commission's rules in
other respects.
Other shareholder proposals to be presented at the annual meeting in 2001
including director nominations, must comply with the notice requirements of the
Company's Bylaws and be delivered to the Company not later than September 3,
2001, nor earlier than August 2, 2001. Any such proposals should be sent via
means that afford proof of delivery to the Secretary at the Company's principal
executive offices.
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<PAGE>
PRINCIPAL SHAREHOLDERS AND
SHARE OWNERSHIP BY MANAGEMENT
The following table sets forth information as of August 31, 2000 relating
to the beneficial ownership of the Company's Common Stock by: (i) each person
believed by the Company at that date to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock, (ii) each executive officer named in
the Summary Compensation Table on page 8, (iii) each person serving as a
director or nominated for election as a director of the Company and (iv) all
executive officers and directors of the Company as a group. Unless otherwise
noted, each person named is believed to hold sole voting and investment power
with respect to the shares shown as beneficially owned by such person.
Common Stock Percentage of
Name and Address (1) Beneficially Owned (2) Outstanding Shares (2)
-------------------- ---------------------- ----------------------
Michael W. Haley (3) 790,828 2.2%
John W. Palmour, Ph.D. (4) 566,275 1.6
Dolph W. von Arx (5) 522,000 1.5
F. Neal Hunter (6) 512,452 1.4
Calvin H. Carter, Jr., Ph.D. (7) 502,820 1.4
Walter L. Robb, Ph.D. (8) 211,500 *
Charles M. Swoboda (9) 135,764 *
James E. Dykes (10) 130,000 *
Cynthia B. Merrell (11) 90,865 *
All directors and executive 3,498,983 9.7%
officers as a group (9 persons)
------------------
* Represents less than one percent.
(1) Unless otherwise noted the address is in care of the Company at 4600
Silicon Drive, Durham, North Carolina 27703.
(2) Pursuant to rules of the Commission, shares which a person has the right to
acquire within 60 days are deemed outstanding for purposes of computing
beneficial ownership and the percentage ownership of that person. All
directors and executive officers as a group hold options, exercisable at or
within 60 days after August 31, 2000, to acquire an aggregate of 1,139,600
shares of Common Stock. The percentages shown above are based on the shares
of Common Stock outstanding on August 31, 2000.
(3) Includes options to purchase 9,000 shares of Common Stock. Also includes
47,000 shares held by a charitable foundation of which Mr. Haley is a
director. Mr. Haley holds shared voting and investment power over the
foundation's shares but disclaims beneficial ownership of the shares.
(4) Includes options to purchase 121,000 shares of Common Stock. Also includes
20,000 shares held by Dr. Palmour's spouse but as to which he disclaims
voting and investment power.
(5) Includes options to purchase 179,000 shares of Common Stock.
(6) Includes options to purchase 209,000 shares of Common Stock.
(7) Includes options to purchase 106,000 shares of Common Stock. Also includes
102,815 shares held by members of Dr. Carter's immediate family but as to
which he disclaims voting and investment power.
(8) Includes options to purchase 167,000 shares of Common Stock. Also includes
12,500 shares held by a trust of which Dr. Robb is a trustee. Dr. Robb
holds shared voting and investment power over the shares held in trust but
disclaims beneficial ownership of the shares.
(9) Includes options to purchase 135,000 shares of Common Stock.
(10) Includes options to purchase 123,000 shares of Common Stock.
(11) Includes options to purchase 90,600 shares of Common Stock.
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<PAGE>
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
Nominees for the Board of Directors
The seven persons nominated for election to the Board of Directors at the
Annual Meeting are currently serving as directors of the Company. The Company is
not aware of any nominee who will be unable or will decline to serve as a
director. If a nominee becomes unable or declines to serve, the enclosed proxy
may be voted for a substitute nominee, if any, designated by the present Board
of Directors. The term of office of each person elected as a director will
continue until the later of the next annual meeting of shareholders or until
such time as his successor has been duly elected and qualified. Directors are
elected by a plurality of votes cast. Assuming the presence of a quorum at the
Annual Meeting, abstentions and non-votes, including proxies marked to withhold
authority to vote, will have no effect on the outcome of the election.
The Company's nominees for director are as follows:
Name Age Position with the Company Director Since
---- --- ------------------------- --------------
F. Neal Hunter 38 Director, Chairman and 1987
Chief Executive Officer
Calvin H. Carter, Jr., Ph.D. 45 Director, Executive Vice 1987
President and Director of
Materials Technology
John W. Palmour, Ph.D. 39 Director and Director of 1995
Advanced Devices
Michael W. Haley 62 Director 1989
Dolph W. von Arx 66 Director 1991
James E. Dykes 62 Director 1992
Walter L. Robb, Ph.D. 72 Director 1993
Mr. Hunter, one of the Company's founders, has served as Chairman of the
Company's Board of Directors since 1995, as Chief Executive Officer since 1994
and as a Director since the Company's inception in 1987. Mr. Hunter also served
as President from 1994 until January 1999. Prior to his election as President
and Chief Executive Officer in 1994, Mr. Hunter served as General Manager with
responsibility for the management of the Company's optoelectronic products and
as Secretary and Treasurer. He received his B.S. degree in mechanical
engineering from North Carolina State University.
Dr. Carter, one of the Company's founders, has served as a Director and
Vice President since the Company's inception. He currently holds the positions
of Executive Vice President and Director of Materials Technology. As Director of
Materials Technology, Dr. Carter is responsible for the Company's development of
advanced materials growth technology, including the growth of silicon carbide
material for semiconductor and other applications. He previously served as Vice
President, New Product Development from 1995 to 1997 and as Director of
Technology from 1987 to 1995. Dr. Carter holds B.S., M.S. and Ph.D. degrees in
materials science and engineering from North Carolina State University.
Dr. Palmour, one of the Company's founders, currently serves as Director of
Advanced Devices, a position he had held since 1995, and in that capacity is
responsible for the Company's development of advanced silicon carbide devices
such as microwave transistors and power devices. Dr. Palmour has served as a
Director since October 1995 and previously served on the Board of Directors from
October 1992 to April 1993. Dr. Palmour received his B.S. and Ph.D. degrees from
North Carolina State University in the fields of materials science and
engineering.
Mr. Haley became a Director of the Company in April 1989. He serves as
Chairman and Chief Executive Officer of Triton Management Company based in
Greensboro, North Carolina, which previously owned and operated 60 restaurants
and has been engaged principally in investment and property management since the
sale of the restaurants in 1993 and 1996. Mr. Haley graduated from the
University of North Carolina-Chapel Hill where he received a bachelor's degree
in business administration.
-4-
<PAGE>
Mr. von Arx became a Director of the Company in October 1991. He served as
the Non-Executive Chairman of Morrison Restaurants Inc. from January 1996 to
July 1998 and is the former Chairman, President and Chief Executive Officer of
Planters Lifesavers Company, an affiliate of RJR Nabisco, Inc., where he served
in such capacities for four years prior to his retirement in 1991. Mr. von Arx
is a graduate of Washington University, where he received a bachelor's degree.
He is currently a Director of Ruby Tuesday, Inc., International Multifoods
Corporation, MacKenzie Investment Management, Inc. and BMC Fund, Inc.
Mr. Dykes became a Director of the Company in January 1992. He served as
Executive Vice President of Thomas Group, Inc., a publicly held management
consulting group, from July 1997 through June 1998 and from 1994 to 1997 served
as President and Chief Executive Officer of Intellon Corp., a privately held
start-up company in the home automation industry. From January 1989 until his
retirement in December 1992, Mr. Dykes served as President and Chief Executive
Officer of Signetics Company, a subsidiary of North American Philips
Corporation. Mr. Dykes received a B.S. degree in electrical engineering from the
University of Florida. He is currently a director of EXAR Corporation, Thomas
Group, Inc. and Theseus Logic, Inc.
Dr. Robb became a Director of the Company in April 1993. He is currently
the President of Vantage Management, Inc., a consulting and investment firm in
Schenectady, New York. From 1986 through 1992, Dr. Robb served as a Senior Vice
President for Corporate Research and Development for General Electric Company, a
diversified technology company. From 1951 to 1986, he held various other
positions with General Electric Company. Dr. Robb received a B.S. degree of
Pennsylvania State University, and M.S. and Ph.D. degrees from the University of
Illinois, in the field of chemical engineering. He is currently a Director of
Celgene Corporation, Neopath, Inc. and Mechanical Technology Incorporated.
The Board of Directors recommends shareholders
vote FOR election of the nominees named above.
Other Executive Officers
Other executive officers of the Company not serving as directors include
the following:
Charles M. Swoboda (age 33) has served as President of the Company since
January 1999 and as the Company's Chief Operating Officer since June 1997. Mr.
Swoboda joined the Company in 1993 and served as Vice President from June 1997
until January 1999, as Operations Manager from July 1996 to June 1997, as Wafer
Fab Manager from April 1996 to July 1996, as General Manager of the Company's
subsidiary, Real Color Displays, Incorporated, from August 1994 to April 1996
and as LED Product Manager from July 1993 to August 1994. Prior to 1993, he was
employed by Hewlett-Packard Company, an electronics company. Mr. Swoboda
received a B.S. degree in electrical engineering from Marquette University.
Cynthia B. Merrell (age 39) has served as Chief Financial Officer and
Treasurer of the Company since July 1998. Ms. Merrell joined the Company in 1996
and served as Interim Chief Financial Officer and Assistant Treasurer from
January 1998 until July 1998 and as Controller from November 1996 until January
1998. From January 1992 to November 1996, she was employed as the controller of
Kaset International, a subsidiary of The Times Mirror Company engaged in
providing training, consulting and project management services in the field of
customer relations. Ms. Merrell's prior financial experience includes service in
various capacities with Tropicana Products, Inc. and the accounting firm of
Arthur Andersen & Co. She received a B.S. degree in accounting from the
University of Florida and is licensed as a certified public accountant in the
state of Florida.
Compensation of Directors
The Company does not pay cash compensation for service on the Board of
Directors. Directors not employed by the Company are awarded stock options as
compensation for such service. The current non-employee directors were each
granted, on July 3, 2000, options to purchase 12,000 shares of Common Stock at a
price equal to the closing market price of the stock on the grant date; these
options vest in equal quarterly increments over a one-year period ending June
30, 2001, subject to continued service as a director. Directors who are also
employees of the Company are not separately compensated for service on the
Board. The Company reimburses directors for expenses incurred in serving as a
director.
-5-
<PAGE>
Board Meetings and Committees
The Board of Directors of the Company held nine meetings during the fiscal
year ended June 25, 2000. The Board has a standing Audit Committee, Compensation
Committee and Executive Committee. It does not have a standing nominating
committee or committee performing similar functions. During the 2000 fiscal
year, each director attended or participated in 75% or more of all meetings of
the Board of Directors held during the period for which he served as a director,
and each director attended or participated in 75% or more of all meetings of
Board committees on which he served that were held during the period he served
on the committee.
The members of the Audit Committee during the 2000 fiscal year were
Michael W. Haley, James E. Dykes and Dolph W. von Arx. Mr. Haley served as
Chairman of the Audit Committee throughout the fiscal year. The Audit Committee
is authorized by the Board of Directors to review with the Company's independent
auditors the annual financial statements of the Company prior to publication, to
review the work of and approve non-audit services performed by such independent
auditors, and to make annual recommendations to the Board of Directors for the
appointment of independent auditors for the ensuing year. The Committee also
reviews the effectiveness of the financial and accounting functions,
organization, operations and management of the Company. The Audit Committee held
five meetings during the 2000 fiscal year.
The members of the Compensation Committee during the 2000 fiscal year were
James E. Dykes, Michael W. Haley, Walter L. Robb and Dolph W. von Arx. Mr. Dykes
served as Chairman of the Compensation Committee throughout the fiscal year. The
Compensation Committee fixes the compensation of the Company's chief executive
officer and reviews and approves the compensation of all other executive
officers. In addition, the Committee is responsible for administration of the
Company's Equity Compensation Plan and, in that capacity, reviewed and approved
proposed grants of stock options during the year. The Committee generally
approves option grants by written consent in lieu of a meeting. The Compensation
Committee held four meetings during the 2000 fiscal year.
The members of the Executive Committee during the 2000 fiscal year were F.
Neal Hunter, Dolph W. von Arx and James E. Dykes. The Executive Committee was
established to render advice and recommendations to the Board of Directors with
regard to policies of the Company and the conduct of its affairs; to consider
matters submitted to the Committee during intervals between meetings of the
Board of Directors; and, subject to ratification by the full Board, to approve
contracts, agreements and other material corporate matters. The Executive
Committee held no meetings during the 2000 fiscal year.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's directors and executive officers,
and persons who own more than ten percent (10%) of a registered class of the
Company's equity securities, file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and
greater-than-ten-percent (10%) beneficial owners are required by Commission
rules to furnish the Company with copies of all reports they file under Section
16(a).
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and beneficial owners were complied with on a timely basis
during the fiscal year ended June 25, 2000, except that Dr. Carter reported a
gift of 2,000 shares made during fiscal year 1999 approximately six weeks late
and reported an exercise of options to purchase 20,000 shares and the
same-day-sale of the shares filed approximately three weeks late.
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<PAGE>
COMPARATIVE PERFORMANCE GRAPH
The graph below compares, for the five-year period ended June 25, 2000, the
cumulative total return on the Common Stock of the Company at each fiscal year
end with returns on two indices -- a market index based on The Nasdaq Stock
Market and an industry index based on Nasdaq-traded stocks of electronic
components businesses. The indices were prepared by the Center for Research in
Security Prices ("CRSP") of The University of Chicago. The market index is the
CRSP Total Returns Index for The Nasdaq Stock Market--U.S. Companies, and the
industry index is the CRSP Total Returns Index for Nasdaq Electronic Components
Stocks--U.S. and Foreign. The graph assumes an investment of $100 on June 30,
1995 in the Company's Common Stock, and in each index, and also assumes the
reinvestment of all dividends during the period shown.
Comparison of Five-Year Cumulative Total Return for
Cree, Inc. Common Stock, Nasdaq Market Index and
Nasdaq Electronic Components Index
[PERFORMANCE GRAPH APPEARS HERE]
Performance Graph Data 6-30-95 6-30-96 6-30-97 6-28-98 6-27-99 6-25-00
------- ------- ------- ------- ------- -------
Cree, Inc. Common Stock 100 104.5 85.3 108.8 464.9 2221.5
Nasdaq Market Index 100 128.4 156.1 202.7 280.6 422.9
Nasdaq Electronic 100 105.7 173.7 175.3 283.5 768.0
Components Index
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<PAGE>
EXECUTIVE COMPENSATION
Overview
The following table summarizes the compensation, for the fiscal years
indicated, of the Company's chief executive officer and all other individuals
serving as executive officers of the Company at June 25, 2000.
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
-------------------------- ------------
Securities All Other
Year Underlying Compensation
Name and Principal Position Ended Salary ($) Bonus ($)(1) Options (#) ($)(3)
--------------------------- ----- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
F. Neal Hunter 2000 $230,000 $138,000 120,000 $216
Chairman of the Board and 1999 180,000 12,952 134,000 409
Chief Executive Officer 1998 150,000 7,053 180,000 690
Charles M. Swoboda 2000 210,000 100,800 120,000 192
President and Chief Operating 1999 160,000 46,513 90,000 292
Officer 1998 130,000 6,282 120,000 662
Calvin H. Carter, Jr., Ph.D. 2000 140,000 42,000 50,000 360
Executive Vice President, 1999 125,000 14,354 66,000 428
Director of Materials 1998 122,000 5,700 90,000 673
Technology and Director
Cynthia B. Merrell 2000 135,000 48,600 46,400 240
Chief Financial Officer and 1999 110,000 27,915 90,000 224
Treasurer (2) 1998 87,865 3,143 28,000 485
</TABLE>
-----------------
(1) Includes bonuses earned during the fiscal year but paid after the end of
the year.
(2) Ms. Merrell was appointed Chief Financial Officer and Treasurer in July
1998 and served as Interim Chief Financial Officer and Assistant Treasurer
from January 1998 until July 1998.
(3) Represents group term life insurance premiums paid by the Company.
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<PAGE>
Stock Option Awards
The following table provides additional information about stock options
granted to the named executive officers during the fiscal year ended June 25,
2000.
<TABLE>
Option Grants in Last Fiscal Year
<CAPTION>
Individual Grants
------------------------------------------------------- Potential Realizable Value
No. of % Total Options at Assumed Annual Rates of
Securities Granted to Exercise Expira- Stock Price Appreciation
Underlying Employees in Price tion for Option Term (3)
Name Options Granted Fiscal Year (1) ($/sh) Date (2) 5% 10%
---- --------------- --------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
F. Neal Hunter (4) 120,000 8.3% $83.9375 1/3/10 $ 6,334,541 $16,052,971
Charles M. Swoboda (5) 40,000 2.8 37.7500 7/1/09 949,631 2,406,551
Charles M. Swoboda (6) 80,000 5.5 83.9375 1/3/10 4,223,027 10,701,981
Calvin H. Carter, Jr. (7) 50,000 3.5 83.9375 1/3/10 2,639,392 6,688,738
Cynthia B. Merrell (8) 46,400 3.2 83.9375 1/3/10 2,449,356 6,207,149
</TABLE>
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(1) Options to acquire an aggregate of 1,441,400 shares of Common Stock were
granted to all employees of the Company during the fiscal year ended June
25, 2000.
(2) With certain exceptions in cases of death or disability, the options expire
upon the earlier of 90 days after termination of the recipient's employment
or ten years from the grant date.
(3) The potential realizable value was calculated by assuming 5% and 10% annual
rates of appreciation of the underlying Common Stock from the date of grant
until expiration of the maximum ten-year option term. These assumed
appreciation rates and valuation methodology are prescribed by Commission
rules and are not intended to forecast future appreciation of the Common
Stock. The actual value, if any, realized from the options could be higher
or lower than the values reported above.
(4) Of the options listed 30,000 vested on July 1, 2000. The remainder will
vest as to 30,000 shares on July 1, 2001 and as to 60,000 shares on July 1,
2002, provided Mr. Hunter is employed by the Company at the vesting date.
(5) Of the options listed 20,000 vested on July 1, 2000. The remaining 20,000
options will vest on July 1, 2001, provided Mr. Swoboda is employed by the
Company at the vesting date.
(6) Of the options listed 15,000 vested on July 1, 2000. The remainder will
vest as to 15,000 shares on July 1, 2001 and as to 50,000 shares on July 1,
2002, provided Mr. Swoboda is employed by the Company at the vesting date.
(7) Of the options listed 10,000 vested on July 1, 2000. The remainder will
vest as to 10,000 shares on July 1, 2001 and as to 30,000 shares on July 1,
2002, provided Dr. Carter is employed by the Company at the vesting date.
(8) Of the options listed 8,800 vested on July 1, 2000. The remainder will vest
as to 8,800 shares on July 1, 2001 and as to 28,800 shares on July 1, 2002,
provided Ms. Merrell is employed by the Company at the vesting date.
Stock Option Exercises
The following table provides information about stock options exercised by
the named executive officers during the fiscal year ended June 25, 2000.
-9-
<PAGE>
<TABLE>
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Options at FY-End (#) FY-End ($)
Name Exercise Realized (1) Exercisable/Unexercisable Exercisable/Unexercisable (2)
---- ----------- ------------ ------------------------- -----------------------------
<S> <C> <C> <C> <C>
F. Neal Hunter 115,000 $ 7,453,673 119,000 / 240,000 $18,192,069 /$27,292,500
Charles M. Swoboda 50,000 3,070,715 100,000 / 200,000 15,289,452 / 23,065,000
Calvin H. Carter, Jr. 50,000 5,254,967 66,000 / 110,000 10,091,718 / 12,890,625
Cynthia B. Merrell 4,800 577,500 53,200 / 114,400 8,032,900 / 13,834,600
</TABLE>
-------------------
(1) Represents the market value of shares acquired at the date of exercise
less the exercise price paid to the Company, without adjustment for income
or other taxes payable upon exercise. All of the options exercised were
non-qualified options and the value realized upon exercise taxable as
ordinary income.
(2) The value of the Common Stock at fiscal year end on June 25, 2000 was
$159.50 per share based on the last sale price on June 23, 2000 as
reported by The Nasdaq Stock Market. The option values were determined by
subtracting the aggregate exercise price of the options from the value of
the Common Stock issuable upon exercise.
Report of the Compensation Committee on Executive Compensation
The Compensation Committee reviews and establishes the compensation of the
Company's chief executive officer. It also reviews and approves compensation
recommendations submitted by the chief executive officer for all other executive
officers. In addition, the Committee administers the Equity Compensation Plan
and, in that capacity, is responsible for reviewing and approving stock options
awarded under the plan. In the case of option grants to directors and executive
officers, the Committee may recommend such grants for approval with the full
Board serving as the committee for purposes of the plan. The policies followed
by the Committee with respect to compensation of executive officers during the
2000 fiscal year, and the bases for Mr. Hunter's fiscal 2000 compensation, are
discussed below.
Compensation Philosophies
The Compensation Committee seeks to adhere to practices that will enable
the Company to attract and retain qualified executives, align the interests of
executives with the long-term interests of the Company's shareholders and
motivate executives to achieve targeted objectives. In furtherance of these
goals, base salaries are generally set annually at levels which take into
account both competitive and performance factors. The Company also relies to a
substantial degree on stock options to attract and motivate its executives.
During the 2000 fiscal year, compensation arrangements for executive officers
consisted of base salary, incentive cash compensation, stock option grants and
other benefits available to Company employees generally.
Cash-Based Compensation
The Committee determines the base salary of the chief executive officer
and reviews and approves base salaries for the Company's other executive
officers annually. In adjusting salaries, the Committee examines both
qualitative and quantitative factors relating to corporate and individual
performance. The qualitative factors in many instances necessarily involve a
subjective assessment by the Committee. The Committee does not base its
considerations on any single performance factor nor does it specifically assign
relative weights to factors. It instead considers a variety of factors and
evaluates individual performance against those factors both in absolute terms
and in relation to the executive's peers at similar companies. The Committee
also relies on the evaluations and recommendations of Mr. Hunter, who has served
as Chief Executive Officer since 1994, in approving salary adjustments for other
executive officers.
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As part of its review of fiscal 2000 salaries, the Committee considered an
independent survey of executive officer compensation at a broad group of
companies in the electrical and electronics industries. The positions surveyed
included positions comparable to those of the Company's chief executive officer,
chief operating officer and chief financial officer. The fiscal 2000 salary
approved for Mr. Hunter was in the third quartile of the salaries reported in
the survey for comparable chief executive officer positions in firms with $60 to
$100 million in annual revenues.
The Company's executive officers, including the chief executive officer,
also participated in a management incentive compensation program approved by the
Committee for the 2000 fiscal year. Under the program each participant was
assigned a target award for the fiscal year, expressed as a percentage of base
salary, to be paid if the Company achieved a certain pre-established earnings
per share goal for the year (net of amounts paid pursuant to the plan). No
awards were to be paid if actual earnings per share were less than 93% of the
pre-established goal, and awards were to be decreased 20% if actual earnings per
share were between 93% and 100% of the goal and increased 20% if actual earnings
per share were 110% or more of the goal. The Company's reported earnings per
share for the 2000 fiscal year exceeded 110% of the year's goal, and the awards
were increased accordingly under the plan terms. Participation in the management
incentive compensation program was in lieu of participation in the Company's
incentive compensation program for other employees, in which the Company paid
quarterly bonuses based on pre-tax operating profits achieved in the quarter
subject to meeting quarterly earnings per share goals.
Equity Incentives
The Company utilizes stock options granted under the Company's Equity
Compensation Plan, which is administered by the Compensation Committee, to align
shareholder and management interests by giving executive officers a substantial
economic stake in long-term appreciation of the Company's stock. Since the
Company's initial public offering in 1993, all options granted under the plan
have been awarded with exercise prices set not less than the market value of the
underlying stock on the grant date. Generally, option grants are awarded with a
ten-year term and are subject to vesting over three to five years.
The Compensation Committee takes into account all factors it deems
appropriate in reviewing proposed option grants to executive officers, including
the officer's position and level of responsibility, the officer's existing
unvested option holdings, the potential reward to the officer if the stock price
appreciates and the competitiveness of the officer's overall compensation
arrangements, including stock options. Outstanding performance by an individual
may also be taken into consideration. Option grants are often made to new
executives upon commencement of employment and, on occasion, to executives in
connection with a significant change in job responsibility. The Compensation
Committee relies on Mr. Hunter's evaluations and recommendations in approving
option grants to other executive officers. Based on the factors described above,
during fiscal 2000 the Committee recommended, and the Board of Directors
approved, grants to executive officers of options to purchase an aggregate of
336,400 shares of Common Stock.
Chief Executive Officer Compensation
The Compensation Committee followed the policies described above in
approving Mr. Hunter's cash compensation for fiscal 2000 and the stock options
awarded him during the year, taking into consideration a number of factors
relating to corporate and individual performance. Of chief importance were the
success of the Company, under Mr. Hunter's direction, in achieving increased
profitability and earnings per share in recent years. Based on these factors the
Committee approved an increase in Mr. Hunter's fiscal 2000 salary to $230,000
from his prior year's salary of $180,000. In addition, Mr. Hunter earned
$138,000 in incentive compensation during the 2000 fiscal year under the
management incentive compensation program described above.
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Mr. Hunter also received an option to purchase 120,000 shares of Common
Stock at $83.9375 per share, which was the closing market price on the date the
option was granted. The option vested as to 30,000 shares in July 2000, and the
remainder vests over the next two years in annual increments of 30,000 and
60,000 shares, respectively, subject to continued employment at the applicable
vesting date.
THE COMPENSATION COMMITTEE
James E. Dykes, Chairman
Michael W. Haley
Walter L. Robb, Ph.D.
Dolph W. von Arx
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee during the 2000 fiscal
year has ever served as an officer or employee of the Company. No interlocking
relationships exist between the Company's Board of Directors or Compensation
Committee and the board of directors or compensation committee of any other
company. Certain members of the Compensation Committee own shares of common
stock of Charles & Colvard, Ltd., a customer of the Company. See "Certain
Transactions" below.
CERTAIN TRANSACTIONS
Supply and Related Agreements with Charles & Colvard, Ltd.
The Company is a party to certain agreements with Charles & Colvard, Ltd.
(formerly C3, Inc.) ("Charles & Colvard"), a customer of the Company engaged in
the fabrication and sale of gemstones made from silicon carbide. F. Neal Hunter,
the Company's Chairman and Chief Executive Officer, is a brother of Jeff N.
Hunter, who served as Chairman of the Board and Chief Executive Officer of
Charles & Colvard until May 2000, and of C. Eric Hunter, formerly a substantial
shareholder of Charles & Colvard. According to Schedule 13G reports filed with
the Commission, Jeff N. Hunter in August 2000 beneficially owned 4.8% and C.
Eric Hunter in January 2000 beneficially owned 0% (74 shares) of the outstanding
shares of Charles & Colvard. During its most recent fiscal year, five of the
Company's directors (Messrs. Carter, Dykes, Palmour, Robb and von Arx) also held
Charles & Colvard shares, representing in the aggregate approximately 1.5% of
the shares outstanding.
The Company supplies silicon carbide to Charles & Colvard pursuant to a
supply agreement originally entered into in 1995 and subsequently amended and
restated. The agreement provides that the Company will supply silicon carbide to
Charles & Colvard on an exclusive basis for use in the fabrication of gemstones
and that Charles & Colvard will purchase certain of its requirements for such
material from the Company. In related development agreements executed in 1997
and 1998, and subsequently amended and restated, the Company has undertaken to
develop improved processes for manufacturing large volume, colorless silicon
carbide material for sale to Charles & Colvard. In addition, the Company and
Charles & Colvard are parties to an agreement executed in 1996 under which the
Company has supplied certain electronic devices to Charles & Colvard for use in
gemstone testing equipment. Charles & Colvard purchased approximately $16.2
million in products and services from the Company under these agreements during
the Company's fiscal year that ended June 25, 2000.
The Company and Charles & Colvard also executed agreements in 1998 and
1999 under which Charles & Colvard agreed to purchase equipment to be
constructed by the Company and retained by the Company for use in manufacturing
silicon carbide for sale to Charles & Colvard. Construction under these
agreements was begun during fiscal 1998 and completed in fiscal 2000, at a total
purchase price to Charles & Colvard of approximately $6.1 million, of which
approximately $1.4 million was charged in fiscal 2000. In May 2000, the Company
and Charles & Colvard executed an agreement under which the Company repurchased
all of this equipment for a purchase price of $5.0 million, payable as a credit
to be taken by Charles & Colvard against subsequent purchases of silicon carbide
from the Company, with any unapplied balance due June 30, 2001.
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Employment Agreement with C. Eric Hunter
C. Eric Hunter, who is a brother of the Company's current Chairman and
Chief Executive Officer, is employed by the Company on a part-time basis
pursuant to an employment agreement entered into in May 1999. Mr. Hunter
previously served as President and Chief Executive Officer of the Company from
1987 until 1994 and as Chairman of the Company's Board of Directors from 1987
until 1995. He was also engaged as a consultant to the Company from 1995 until
1998. Pursuant to the May 1999 employment agreement, the Company employs Mr.
Hunter at an annual salary of $15,000 per year as a Senior Technology Advisor.
Mr. Hunter also assigned to the Company, in the employment agreement, rights to
certain patent applications and patents on inventions relating to wide bandgap
materials, subject to previously granted license rights. In consideration of the
assignment and other benefits under the agreement, the Company granted Mr.
Hunter in May 1999 an option to purchase 134,400 shares of Common Stock at an
exercise price equal to the closing market price on the grant date (adjusted for
stock splits). The option vests over seven years in equal annual increments,
subject to continued employment at the applicable vesting date. During the
Company's most recent fiscal year, Mr. Hunter exercised the option to purchase
19,200 shares of Common Stock from the Company, realizing pre-tax income of
approximately $1.8 million as a result of the exercise. The employment agreement
obligates Mr. Hunter not to engage in certain competitive activities during the
ten-year term of the agreement and for three years thereafter. Neither party may
terminate the agreement except for cause (as defined in the agreement) and
except that Mr. Hunter may resign after seven years.
World Theatre, Inc. Investment
In April 2000, the Company purchased shares of common stock of World
Theatre, Inc., a North Carolina corporation ("World Theatre"), for a purchase
price of $5 million. The shares represent less than 10% of World Theatre's
outstanding shares and were purchased in a private placement transaction in
which World Theatre raised approximately $19 million. The price paid by the
Company was the same as that offered to other investors in the private
placement. C. Eric Hunter, a brother of the Company's Chairman and Chief
Executive Officer, is a substantial shareholder of World Theatre, which is a
development stage company engaged in developing businesses based on the concept
of providing "on-demand" access for the purchase of products and services.
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PROPOSAL NO. 2 -- APPROVAL OF
AMENDMENT TO ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED SHARES
Proposed Amendment
The Board of Directors on July 31, 2000 adopted resolutions approving
an amendment of the Company's Articles of Incorporation to increase the
authorized shares of Common Stock from 60,000,000 shares to 100,000,000 shares
and directing that the proposed amendment be submitted to a vote of the
shareholders at the Annual Meeting. The Board of Directors determined that the
amendment is in the best interests of the Company and unanimously recommends
approval by the shareholders. If the amendment is approved by the shareholders,
the Company will file Articles of Amendment with the North Carolina Secretary of
State reflecting the amendment, which will become effective on the date the
Articles of Amendment are accepted for filing by the Secretary of State.
Assuming the presence of a quorum, approval of the amendment to the
Company's Articles of Incorporation requires that the votes cast in favor of the
amendment exceed the votes cast opposing the proposal. Under North Carolina
corporate law, abstentions are treated as non-votes in determining whether
shareholders have approved a proposal. Abstentions and non-votes will have no
effect on the vote to approve this proposal.
The Board of Directors recommends
shareholders vote FOR Proposal No. 2.
Background and Reasons for the Proposal
The Articles of Incorporation presently authorize the issuance of up to
60,000,000 shares of Common Stock and 3,000,000 shares of Preferred Stock. No
shares of Preferred Stock are issued and outstanding. Of the 60,000,000 shares
of Common Stock authorized, as of the close of business on August 31, 2000 there
were 35,443,306 shares issued and outstanding and 5,420,005 shares reserved for
future issuance. Of the shares then reserved for future issuance, (i) 216,840
shares were reserved for issuance pursuant to outstanding warrants, including
warrants assumed by the Company in its acquisition of Nitres, Inc. (now known as
Cree Lighting Company) in May 2000; (ii) 144,000 shares were reserved for
issuance pursuant to outstanding options granted under the Company's Stock
Option Plan for Non-Employee Directors (which was terminated as to future grants
in 1997); (iii) 277,361 shares were reserved for issuance under the Company's
1999 Employee Stock Purchase Plan; (iv) 132,543 shares were reserved for
issuance pursuant to options assumed by the Company in its acquisition of
Nitres, Inc. in May 2000; (v) 4,498,357 shares were reserved for issuance
pursuant to outstanding options granted under the Company's Equity Compensation
Plan; and (vi) 150,904 shares were reserved for future awards under the Equity
Compensation Plan.
After deducting outstanding and reserved shares, of the 60,000,000 shares
of Common Stock presently authorized there are 19,136,689 authorized shares that
have not been issued and are not reserved for a specific purpose. The Board of
Directors believes that it is in the Company's best interests to increase the
number of authorized shares of Common Stock to make additional shares available
for issuance to meet the Company's future business needs. The increase in shares
not reserved for any specific purpose would give the Company flexibility to meet
business needs as they arise in the future.
The Company's management has no present arrangements, agreements,
understandings or plans for the issuance or use of the additional shares of
Common Stock proposed to be authorized by the amendment. The Board of Directors
believes the availability of such shares will benefit the Company by providing
flexibility to issue stock for a variety of other proper corporate purposes as
the Board of Directors may deem advisable without further action by the
Company's shareholders, except as may be required by law, regulation or stock
exchange rule. These purposes could include, among other things, the sale of
stock to obtain additional capital funds, the purchase of property, the
acquisition or merger into the Company of other companies, the use of additional
shares for various equity compensation and other employee benefit plans, the
declaration of stock dividends or distributions and other bona fide corporate
purposes. Were any of these situations to arise, the issuance of additional
shares of stock could have a dilutive effect on earnings per share, and, for a
person who does not purchase additional shares to maintain
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his or her pro rata interest, on a shareholder's percentage voting power in the
Company. Holders of the Common Stock do not have preemptive rights to subscribe
to additional securities that may be issued by the Company, which means that
current shareholders do not have a prior right to purchase any new issue of
stock of the Company in order to maintain their proportionate ownership
interest.
Although an increase in the authorized shares of Common Stock could,
under certain circumstances, have an anti-takeover effect (for example, by
diluting the stock ownership of a person seeking to effect a change in the
composition of the Board of Directors or contemplating a tender offer or other
transaction directed to the combination of the Company with another company),
the current proposal to amend the Articles of Incorporation is not in response
to any effort to accumulate the Company's stock or to obtain control of the
Company by means of a merger, tender offer, solicitation in opposition to
management or otherwise. As of the date of this Proxy Statement, management is
not aware of any actions taken by any person or group to obtain control of the
Company. In addition, the proposal is not part of any plan by management to
recommend a series of similar amendments to the Board of Directors and the
shareholders.
Although the purpose of seeking an increase in the number of authorized
shares of Common Stock is not intended for anti-takeover purposes, the rules of
the Securities and Exchange Commission require disclosure of the provisions of
the Articles of Incorporation and the Company's Bylaws that could have an
anti-takeover effect. The Equity Compensation Plan and the laws of the State of
North Carolina contain additional provisions that also may have the effect of
delaying, deterring or preventing a change in control of the Company. These
provisions are described below.
Articles and Bylaws. The Articles of Incorporation and Bylaws contain
provisions that may have the effect of delaying, deterring or preventing a
change in control of the Company, including: (i) the ability of the Board of
Directors under the Articles of Incorporation to authorize the issuance of up to
3,000,000 shares of Preferred Stock, in one or more series, having such
preferences, limitations and relative rights as are determined by the Board of
Directors; and (ii) under the Bylaws, a shareholder who wishes to nominate
directors at an annual or special meeting or submit a proposal for consideration
at an annual meeting must provide notice to the Company during a certain period
before the meeting.
Equity Compensation Plan. The Equity Compensation Plan provides that,
in the event of a change in control of the Company, options granted prior to
January 31, 1999, and options granted thereafter which so provide by their
terms, to the extent not previously vested and exercisable, shall be deemed
fully vested and exercisable effective immediately. Substantially all of the
options granted under the Equity Compensation Plan provide for such accelerated
vesting upon a change in control of the Company.
Shareholder Protection Act. The North Carolina Business Corporation Act
(the "NCBCA") includes provisions that may have the effect of delaying,
deterring or preventing a change in control of the Company. Article 9 of the
NCBCA sets forth the North Carolina Shareholder Protection Act (the "Shareholder
Protection Act"). The Shareholder Protection Act requires the affirmative vote
of the holders of 95% of the voting shares of a corporation, voting as one
class, for the adoption or authorization of a business combination (i) with any
other entity if, as of the record date for the determination of shareholders
entitled to vote on such business combination, the other entity is the
beneficial owner, directly or indirectly, of more than 20% of the voting shares
of the corporation and (ii) with any affiliate of the corporation which at any
time has been a 20% holder of such voting shares. A "business combination" is
defined to include any merger or consolidation of a corporation with or into any
other corporation, or the sale or lease of all or any substantial part of the
corporation's assets to, or any payment, sale or lease to the corporation or any
subsidiary thereof, in exchange for securities of the corporation of any assets
(except assets having an aggregate fair market value of less than $5,000,000) of
any other entity. The 95% voting requirement is not applicable if certain fair
price and procedural requirements are satisfied. The Shareholder Protection Act
applies to the Company since the Company did not, within 90 days of becoming a
public corporation, adopt a bylaw stating that the provisions of the Shareholder
Protection Act do not apply to the Company.
Control Share Acquisition Act. Article 9A of the NCBCA Act sets forth
the North Carolina Control Share Acquisition Act (the "Control Share Acquisition
Act"). The Control Share Acquisition Act generally provides that any person who
acquires beneficial ownership of the shares of a corporation which, when added
to all other shares of the corporation beneficially owned by the person, would
increase that person's voting power in the election of
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directors to an amount equal to or greater than one-fifth, one-third or a
majority of all voting power, is not entitled to vote the shares acquired unless
the right to vote such shares is approved by a majority of all the outstanding
shares of the corporation entitled to vote for the election of directors,
excluding interested shares. Interested shares include any shares owned by any
person who has acquired or proposes to acquire a controlling interest, any
officer of the corporation and any employee of the corporation who is also a
director. The decision to grant voting rights to the control shareholder must be
voted upon at the next special or annual shareholders meeting. Unless otherwise
provided in the corporation's articles of incorporation or bylaws, if voting
rights are granted to the control shares and the holders of the control shares
have a majority of voting power for the election of directors, other
shareholders may have their shares redeemed by the corporation at their fair
value calculated as of the day prior to the date the vote was taken to accord
the control shares such voting rights, as long as certain procedural
requirements are satisfied. The Control Share Acquisition Act does not apply to
acquisitions of stock pursuant to a merger or share exchange if effected
pursuant to a written agreement to which the corporation is a party. The Act
applies only to certain covered corporations that are public corporations
incorporated in and with substantial ties to the State of North Carolina and
that have not opted out of the provisions of the Control Share Acquisition Act.
The Company has not opted out of the provisions of the Control Share Acquisition
Act.
PROPOSAL NO. 3 -- APPROVAL OF
AMENDMENT TO EQUITY COMPENSATION PLAN
General
The Board of Directors on July 31, 2000 adopted an amendment to the Equity
Compensation Plan, subject to approval of the shareholders, to increase the
number of shares of Common Stock that may be issued under the plan. The proposed
amendment would increase the number of shares that may be issued under the plan
by 4,000,000 shares. At August 31, 2000, there were options to purchase
4,498,357 shares outstanding under the Equity Compensation Plan and 150,904
shares authorized for future awards, for a total of 4,649,261 shares reserved
for issuance pursuant to the plan. Since the adoption of the plan in 1989, there
have been a total of 6,909,900 shares authorized for issuance under the plan, of
which 2,260,639 shares have been issued as of August 31, 2000 pursuant to
exercises of previously granted options. The Equity Compensation Plan provides
that the exercise price of options awarded under the plan cannot be less than
the market value of the Common Stock on the grant date.
The ability to offer stock through options has been and will continue to
be a necessary and beneficial method by which the Company can retain the
services of employees and attract competent personnel. The Board of Directors
believes that the Equity Compensation Plan will continue to promote the growth
and prosperity of the Company by providing employees and others with an
additional incentive to contribute their best efforts to the Company. The Board
of Directors believes that options create this incentive by providing the
recipient an opportunity to acquire a proprietary interest in the Company and
thereby providing a means to participate in the future growth of the Company.
Assuming the presence of a quorum, approval of the amendment to the Equity
Compensation Plan requires that the votes cast in favor of the amendment exceed
the votes cast opposing the proposal.. Under North Carolina corporate law,
abstentions are treated as non-votes in determining whether shareholders have
approved a proposal. Abstentions and non-votes will have no effect on the vote
to approve this proposal.
The Board of Directors recommends
shareholders vote FOR Proposal No. 3.
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Description of Equity Compensation Plan
The following description of the Equity Compensation Plan is merely a
summary of some of its terms and provisions, is not intended to be a complete
description of the Equity Compensation Plan and is qualified in its entirety by
reference to the full text of the Equity Compensation Plan.
The Equity Compensation Plan is not generally subject to the provisions of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The
Equity Compensation Plan is not a qualified plan under Section 401 of the Code.
Nature and Purpose
The Equity Compensation Plan provides for grants to participants in the
form of incentive stock options and nonqualified stock options. All awards made
under the Equity Compensation Plan prior to the date of this Proxy Statement
have been nonqualified stock options.
The Equity Compensation Plan is designed, for the benefit of the Company,
to attract and retain personnel of exceptional ability; to motivate such
personnel through added incentives to make a maximum contribution to greater
profitability; to develop and maintain a highly competent management team; and
to be competitive with other similar companies with respect to executive and
non-executive compensation.
Administration
The Equity Compensation Plan is administered by the Compensation Committee
of the Board of Directors (the "Committee"). Members of the Committee are
appointed by the Board of Directors from among its members to serve at the
pleasure of the Board of Directors and may be removed by the Board of Directors
in its discretion. The Committee has the exclusive right to interpret, construe
and administer the Equity Compensation Plan and to select the persons eligible
to receive awards. The Committee determines the number of shares subject to an
award and the form, terms, conditions and duration of each award. The
Committee's decisions are conclusive, final and binding upon all parties.
The Committee has broad discretion to adopt rules, regulations and
procedures of general application for the administration of the Equity
Compensation Plan. In addition, the Committee has full power and authority to
determine whether, to what extent and under what circumstances any award under
the Equity Compensation Plan may be canceled or suspended if a participant,
without the Committee's consent, while employed by the Company or after
termination, becomes associated with, employed by, renders services to or owns
any interest, other than any insubstantial interest, in any business that is in
competition with the Company, as determined by the Committee in its discretion,
or is terminated for cause, as determined by the Committee in its discretion.
Securities To Be Offered
The Company has been authorized to issue an aggregate of 6,909,900 shares
of Common Stock under the Equity Compensation Plan since the inception of the
plan in 1989. Of that amount, as of August 31, 2000 there have been 2,260,639
shares issued pursuant to exercises of previously granted options, 4,498,356
shares are reserved for issuance pursuant to outstanding options and 150,904
shares are available for future awards. The proposed amendment to the Equity
Compensation Plan will increase the number of authorized shares issuable under
the Equity Compensation Plan by 4,000,000 shares. Common Stock subject to awards
under the Equity Compensation Plan will be made available from the authorized
and unissued shares of Common Stock. The last sale price of the Common Stock on
August 31, 2000 on the Nasdaq Stock Market was $137.75 per share.
To the extent any shares of Common Stock awarded or subject to purchase
under the Equity Compensation Plan are not delivered or purchased, or are
reacquired by the Company, such shares are not charged against the aggregate
number of shares available for awards under the Equity Compensation Plan and may
again be awarded under the Equity Compensation Plan. This would occur, for
example, upon a termination, expiration or cancellation of a stock option under
the Equity Compensation Plan.
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The Committee will make equitable adjustments upon the occurrence of
certain events that result in changes in the outstanding shares of Common Stock
or that result in exchanges of shares of Common Stock for a different number or
class of Common Stock or other securities of the Company or another corporation.
These events include, without limitation, (i) a reorganization or
recapitalization of the Company or reclassification of its shares, (ii) a stock
split-up, stock dividend or consolidation of shares of Common Stock, (iii) a
merger, consolidation or sale of assets of the Company, or (iv) any distribution
to shareholders other than a cash dividend. Under such circumstances,
adjustments may be made by the Committee in the limitation on the aggregate
number of shares of Common Stock that may be awarded under the Equity
Compensation Plan, the number and class of shares that may be subject to an
award, the terms, conditions or restrictions applicable to outstanding stock
options, including the purchase price for shares of Common Stock and the
limitation on annual grants to an individual participant of a grant of options
to purchase in excess of 200,000 shares of Common Stock described under
"Incidents of Stock Options" below.
The Committee is also authorized to make adjustments in performance-based
criteria or in the terms and conditions of other awards under the Equity
Compensation Plan in recognition of unusual or nonrecurring events affecting the
Company or its financial statements or changes in applicable laws, regulations
or accounting principles. The Committee may also correct any defects or
omissions or reconcile any inconsistencies in the Equity Compensation Plan or
any agreements evidencing awards under the Equity Compensation Plan in the
manner and to the extent it shall deem desirable. Moreover, the Committee may,
in its discretion, make such adjustments in the terms of awards under the Equity
Compensation Plan as it deems appropriate if the Company assumes any outstanding
employee benefit awards or the right or obligation to make future awards in
connection with the acquisition of any other entity.
Eligible Participants
The Committee has the exclusive right to determine those persons eligible
to participate in the Equity Compensation Plan and will select the persons
eligible to receive awards. Subject to the foregoing, any employee of the
Company, as well as any other person, including directors, may participate in
the Equity Compensation Plan if the Committee determines such participation is
in the best interest of the Company, subject to any limitations as may be
provided by applicable law or the Committee. As of August 31, 2000 the Company
had approximately 746 employees (including part-time employees) and seven
directors, four of whom were not employees of the Company.
Types of Awards
The Committee has broad discretion to determine the terms and conditions
of incentive stock options and nonqualified stock options granted under the
Equity Compensation Plan. Each option granted will be evidenced by a written
agreement setting forth the terms and conditions of the option. Each such
agreement will also be subject to and incorporate the applicable terms and
conditions of the Equity Compensation Plan and any other terms and conditions,
not inconsistent with the Equity Compensation Plan, required by the Committee.
Incentive Stock Options
The Company is authorized to grant incentive stock options ("ISOs") that
may be entitled to favorable tax treatment under Section 422 of the Code. See
"Tax Effects of Equity Compensation Plan" below. ISOs may be granted to eligible
participants under the Equity Compensation Plan at such time or times as
determined by the Committee until July 1, 2005, subject to certain conditions
described below.
The exercise price of an ISO under the Equity Compensation Plan may not be
less than 100% of the fair market value of the Common Stock at the date of grant
(110% for 10% owners of the Company). The fair market value of the Common Stock
for any day in question will be determined for purposes of the Equity
Compensation Plan based upon the closing price of the Common Stock as reported
on the exchange on which the Common Stock is traded, if the Common Stock is
traded on an exchange, or the last sale price of the Common Stock on The Nasdaq
Stock Market if the Common Stock is traded on The Nasdaq Stock Market. The
Committee is also authorized to establish an alternate method of determining
fair market value of the Common Stock.
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An ISO granted under the Equity Compensation Plan must be exercised in
whole or in part from time to time within 10 years from the date of grant (5
years for 10% owners of the Company), or such shorter period as specified by the
Committee in the corresponding award agreement. Upon a termination of employment
of the optionee with the Company, as determined by the Committee in its
discretion, the ISO will lapse and cease to be exercisable upon, or within such
period following, the termination of employment, as determined by the Committee
and provided in the award agreement. In no event, however, can the period of
time during which an ISO remains exercisable following a termination of
employment exceed three months, unless employment is terminated because of death
or disability of the optionee, or death occurs following termination of
employment and while an ISO was still exercisable. In either case, the period of
time during which an ISO right may be exercised cannot exceed one year after the
date of death or, if termination arose as a result of a disability, one year
from the date of disability. In no event can the period of time following a
termination of employment during which an ISO may be exercised extend beyond the
original exercise period of the ISO.
The amount of ISOs first exercisable by any one participant in any
calendar year that may receive favorable tax treatment as ISOs may not exceed
$100,000. To the extent the aggregate fair market value of the shares of Common
Stock with respect to which ISOs are first exercisable in a calendar year by an
eligible participant exceeds $100,000, such options will be treated as
nonqualified stock options. The aggregate fair market value of the Common Stock
for these purposes is determined as of the date the ISO is granted.
An ISO granted under the Equity Compensation Plan also will be subject to
such other terms and conditions as the Committee deems necessary to impose in
order to qualify the ISO under Section 422 of the Code, as well as any other
terms and conditions not inconsistent with the ISO provisions of the Equity
Compensation Plan as determined by the Committee.
At any time, the Committee may offer to buy out any ISO previously
granted, based on such terms as are communicated to the participant at the time
of the offer. Payment may be made in cash or Common Stock.
Nonqualified Stock Options
The Company may also grant nonqualified stock options ("NQSOs") to
eligible participants to purchase shares of Common Stock at such time or times
as determined by the Committee. These stock options will not be eligible for the
favorable tax treatment available to ISOs under Section 422 of the Code. The
exercise price of an NQSO under the Equity Compensation Plan will be established
by the Committee in the agreement evidencing the award but may not be less than
100% of the fair market value of the Common Stock on the date of grant.
An NQSO under the Equity Compensation Plan will be exercisable in full or
in part from time to time as specified by the Committee or in the corresponding
award agreement. Upon termination of employment of the optionee, the NQSO will
lapse and cease to be exercisable upon, or within such period following, the
termination of employment as determined by the Committee and specified in the
award agreement. The period of time during which the NQSO may be exercisable
following termination of employment cannot exceed three months except in certain
circumstances. If the termination of employment is as a result of death or
disability, such period may not exceed one year after the date of death or
disability. If death occurs following termination of employment while the NQSO
remains exercisable, such period may not exceed one year after the date of
death. In no event will such period extend the original exercise period of the
NQSO. An NQSO also may be subject to such other terms and conditions, not
inconsistent with the Equity Compensation Plan, as determined by the Committee.
Incidents of Stock Options
Each stock option granted under the Equity Compensation Plan will be
subject to such terms and conditions, not inconsistent with the Equity
Compensation Plan, as may be determined by the Committee.
Except as provided otherwise by the Committee, a stock option granted
under the Equity Compensation Plan will not be transferable by the participant
other than by will or the laws of descent and distribution, or, to the extent
otherwise allowed by applicable law, pursuant to a qualified domestic relations
order, as defined by the Code and ERISA, or the rules thereunder, and will be
exercisable during the lifetime of the participant only by the participant or
his or her guardian or legal representative. The Committee may permit the
transfer of an NQSO by gift conditioned upon and subject to compliance with
applicable laws.
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The purchase price for shares of Common Stock upon exercise of a stock
option under the Equity Compensation Plan will be payable in such amounts, at
such times, and upon such terms as will be determined by the Committee. The
Committee may establish payment terms for the exercise of stock options that
permit the participant to deliver shares of Common Stock with a fair market
value equal to the stock option exercise price as payment upon exercise of a
stock option.
No cash dividends will be paid on shares of Common Stock subject to
unexercised stock options under the Equity Compensation Plan. The Committee may,
in its discretion, provide for the payment of "dividend equivalents" on shares
of Common Stock subject to an exercisable stock option under the Equity
Compensation Plan. The Committee may also, in its discretion, authorize payment
of "interest equivalents" on dividend equivalents under the Equity Compensation
Plan.
To the extent a participant may be required to pay the Company amounts
with respect to income and employment tax withholding in connection with the
exercise of NQSOs and/or with respect to certain dispositions of Common Stock
acquired upon exercise of ISOs, the Committee, in its sole discretion, may
permit the participant to satisfy the obligation by making an irrevocable
election that a portion of the total fair market value of the applicable shares
of Common Stock be applied to the satisfaction of the withholding obligations.
No participant may be granted, in any fiscal year of the Company, options
to purchase more than 200,000 shares of Common Stock, except that, in connection
with a participant's initial employment with the Company, the participant may be
granted an additional 200,000 shares.
Effects of Change in Control
In the event of a change of control, any or all of the then-outstanding
options granted on or before January 31, 1999 shall automatically become fully
vested and, except as cashed out (as described below), exercisable effective
immediately prior to the change in control. Outstanding stock options granted
after January 31, 1999 shall vest and become exercisable only as provided in the
applicable stock option agreement. The Committee in its discretion may direct
that the value of all outstanding stock options, in each case to the extent
vested, be cashed out on the basis of the change in control price as of the date
such change in control is determined to have occurred or such other date as the
Committee may determine prior to the change in control. For these purposes,
"change in control price" means the highest price per share of Common Stock paid
in any transaction reported on The Nasdaq Stock Market or any exchange on which
the Common Stock is traded, or paid or offered in any bona fide transaction
related to a change in control of the Company, at any time during the 120-day
period immediately preceding the occurrence of the change in control, as
determined by the Committee. The Committee has discretion to take such actions
that are not inconsistent with these terms as the Committee deems necessary or
advisable in the event of a change in control.
A "change in control" will be deemed to have occurred if (a) any person,
including a group, but not the Company or any subsidiary or employee benefit
plan thereof, who together with its affiliates and associates becomes the
beneficial owner of at least 20% of the then-outstanding Common Stock or voting
power of the then-outstanding securities of the Company entitled to vote in the
election of directors; (b) a sale or disposition of all or substantially all of
the Company's assets is consummated, other than a sale or disposition that would
not have constituted a change in control if it had been structured as a merger
or consolidation; (c) the Company's shareholders approve a definitive agreement
or plan to liquidate the Company; (d) the Company is merged with or consolidated
into another entity unless, immediately following such transaction, (i)
incumbent directors (described below) represent more than 50% of the governing
body of the surviving entity at the time the initial agreement for the
transaction is signed, (ii) no person, together with its affiliates and
associates, is the beneficial owner, directly or indirectly, of 20% or more of
the then-outstanding equity interests of the surviving entity entitled to vote
generally in the election of members of its governing body and (iii) more than
50% of the then-outstanding equity interests of the surviving entity and the
combined voting power of the then-outstanding equity interests of the surviving
entity entitled to vote generally in the election of members of its governing
body is beneficially owned, directly or indirectly, by all or substantially all
of the individuals and entities who were the beneficial owners of the shares of
Common Stock immediately prior to such transaction in substantially the same
proportions as their ownership immediately prior to such transaction; or (e)
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during any period of 24 consecutive months, the incumbent directors at the
beginning of such period cease for any reason other than death to constitute at
least a majority of the Board of Directors, provided that a director will be
deemed to be an incumbent director if such director, although not a director at
the beginning of such 24-month period, was elected by, or on the recommendation
of or with the approval of, at least two-thirds of the directors then qualified
as incumbent directors.
Amendment and Termination
The Equity Compensation Plan will continue in effect until terminated by
the Company. Notwithstanding the perpetual nature of the Equity Compensation
Plan, ISOs may only be granted under the Equity Compensation Plan until July 1,
2005.
Upon the recommendation of the Committee or otherwise, the Board of
Directors may amend the Equity Compensation Plan. To the extent required by Code
Section 422, no amendment to the Equity Compensation Plan may be made without
approval by the Company's shareholders that would make certain changes,
including (i) altering the group of persons eligible to participate in the
Equity Compensation Plan, (ii) increasing the maximum number of shares of Common
Stock or stock options available for awards under the Equity Compensation Plan
(except as otherwise provided in the Equity Compensation Plan), (iii) extending
the period during which ISOs may be granted under the Equity Compensation Plan
beyond July 1, 2005, (iv) limiting or restricting the powers of the Committee in
administering the Equity Compensation Plan, (v) changing the definition of
participants eligible for ISOs or increasing the limit or value of shares of
Common Stock for which eligible participants may be granted ISOs under the
Equity Compensation Plan, (vi) materially increasing the benefits accruing to
participants under the Equity Compensation Plan, (vii) materially modifying the
requirements of eligibility for participation in the Equity Compensation Plan or
(viii) changing the amendment provisions of the Equity Compensation Plan.
Notwithstanding the foregoing, no amendment to or discontinuation of the
Equity Compensation Plan or any provision thereof may adversely affect any award
previously granted to a participant under the Equity Compensation Plan without
the written consent of such participant. The Committee is empowered to determine
whether an amendment or discontinuation adversely affects any existing award.
The Committee retains the power to (i) annul any award if the participant is
terminated for cause as determined by the Committee, (ii) provide for the
forfeiture of shares of Common Stock or other gain under an award as determined
by the Committee for competing against the Company and (iii) convert any
outstanding ISO to an NQSO. If a change in control has occurred, no amendment or
termination will impair the rights of any person with respect to an outstanding
award as discussed under "Effects of Change in Control" above.
Resale Restrictions
Participants under the Equity Compensation Plan may be restricted under
certain circumstances in their ability to resell shares of Common Stock
purchased or awarded under the Equity Compensation Plan. Resale restrictions
maybe imposed by virtue of the provisions of the Equity Compensation Plan and
the applicable award agreement and/or by application of the federal and state
securities laws.
Tax Effects of Equity Compensation Plan
The following discussion of the federal income tax consequences of awards
granted under the Equity Compensation Plan is intended only as a summary of the
present federal income tax treatment of stock options under the Equity
Compensation Plan. The federal income tax laws pertaining to Equity Compensation
Plan are highly technical, and such laws are subject to change at any time. This
summary does not discuss the tax consequences of a participant's death or the
provisions of the income tax laws of any municipality, state or foreign country
in which a participant may reside. Some variations on the federal income tax
effects of Equity Compensation Plan participation described below may occur with
respect to participation by persons subject to Section 16(b) of the Exchange
Act.
Incentive Stock Options
Although the Company has obtained neither a letter ruling from the IRS nor
an opinion of counsel stating that the ISO provisions of the Equity Compensation
Plan constitute an incentive stock option plan under the Code, it is expected
that the options granted under the ISO provisions of the Equity Compensation
Plan will qualify as ISOs for federal income tax purposes.
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In general, no taxable income will be realized by an optionee, and no
federal income tax deduction will be allowed to the Company, upon the grant or
exercise of an ISO. The federal income tax consequences of a disposition of
Common Stock received pursuant to the exercise of an ISO will depend upon
whether the optionee has held the shares for the requisite holding period. If
the optionee disposes of such shares after the later to occur of (a) two years
from the date of the grant of the ISO or (b) one year after the date of the
transfer of the shares to him (the "Holding Period"), then any gain or loss to
the optionee will be taxed as a capital gain or loss according to the rules of
sales and exchanges generally. The amount subject to tax will be the difference
between the amount realized and the optionee's cost basis in the shares of
Common Stock, which difference will be a capital gain or loss if the shares are
held as a capital asset. In such event, the Company will not be entitled to a
tax deduction by reason of the disposition. For purposes of this discussion,
"disposition" means a lifetime transfer of legal title, such as by sale,
exchange, or gift, but does not include a transfer that is triggered by death,
such as one by bequest or inheritance or one made by a decedent to his estate.
A "disqualifying disposition" takes place if the optionee makes a
disposition of the shares of Common Stock acquired through the exercise of an
ISO before satisfying the Holding Period. If a "disqualifying disposition"
occurs, the optionee must include as ordinary income the gain realized on that
disposition to the extent of the lesser of (a) the fair market value of the
Common Stock on the date of exercise of the ISO minus the option price or (b)
the amount realized on the disposition minus the option price. The excess, if
any, of the realized gain over the ordinary income component will be taxable as
capital gain. Upon the occurrence of a "disqualifying disposition," the Company
will be entitled to deduct, as compensation paid, the amount so included as
ordinary income by the optionee.
The federal alternative minimum tax consequences of the exercise of an ISO
under the Equity Compensation Plan may differ from the general federal income
tax consequences of such exercise. The difference between the option price and
the fair market value of the shares upon exercise will be a preference item
subject to the federal alternative minimum tax.
Nonqualified Stock Options
Holders of NQSOs will not be entitled to the special tax treatment
afforded by Sections 421 and 422 of the Code in connection with ISOs. Under the
Code, an optionee granted an NQSO will realize no taxable income upon grant of
the NQSO but will be deemed to have realized ordinary taxable income equal to
the excess of the fair market value of the stock acquired at the time of the
exercise of the NQSO over the option price paid. If the optionee is an employee,
the Company will be required for federal income tax purposes to withhold tax on
the amount of income realized by the optionee in the transaction. The Company
will be entitled to a deduction for federal income tax purposes in the year the
optionee must report the income in an amount equal to the ordinary income
realized by the optionee as a result of exercise of his NQSO.
An optionee's tax basis in shares acquired upon the exercise of an NQSO
will be the fair market value of such shares used to determine the amount of
ordinary taxable income reported by the optionee with respect to the exercise of
the NQSO. Upon any sale of such shares of Common Stock, the optionee's gain or
loss will therefore equal the difference between the sale price and such tax
basis. Any such gain or loss will be short or long-term capital gain or loss,
depending on whether the shares have been held for at least 12 months.
PROPOSAL NO. 4 -- RATIFICATION OF
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the independent
auditors of the Company for the current fiscal year. The selection is being
submitted to the shareholders for ratification at the Annual Meeting; if the
shareholders do not vote for ratification, the Board will reconsider such
selection. Representatives of Ernst & Young LLP are expected to be present at
the Annual Meeting, will have the opportunity to make a statement if they so
desire and are expected to be available to respond to appropriate questions.
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<PAGE>
The Company engaged Ernst & Young LLP as its new principal independent
auditors on September 21, 1998. PricewaterhouseCoopers LLP, the Company's former
principal independent accountants, reported on the Company's financial
statements for the fiscal year ended June 28, 1998. The Audit Committee of the
Board of Directors recommended the change of accountants to the Board, and the
Board approved the recommendation. Representatives of PricewaterhouseCoopers LLP
are not expected to be present at the Annual Meeting.
The report of PricewaterhouseCoopers LLP on the Company's financial
statements for the fiscal year ended June 28, 1998 contained no adverse opinion
or disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles. In connection with its audit for the
fiscal year ended June 28, 1998 and through September 21, 1998, there were no
disagreements with PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which disagreements, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused it to make reference to the
subject matter of the disagreement in its report on the financial statements for
such years. During the fiscal year ended June 28, 1998 and through September 21,
1998, there were no "reportable events" as that term is defined in Item
304(a)(1)(v) of Regulation S-K of the Securities and Exchange Commission. At the
Company's request, PricewaterhouseCoopers LLP furnished the Company with a
letter addressed to the Commission, dated September 23, 1998, a copy of which
was filed as an exhibit to the Company's Form 8-K dated September 25, 1998,
pursuant to which PricewaterhouseCoopers LLP agreed with the above statements.
During the fiscal year ended June 28, 1998 and through September 21,
1998, the Company did not consult with Ernst & Young LLP on matters (i)
regarding the application of accounting principles to a specified transaction or
the type of audit opinion that might be rendered on the Company's financial
statements, or (ii) which concerned the subject matter of a disagreement or
reportable event with the former auditor (as described in Regulation S-K, Item
304).
Ratification of the selection of Ernst & Young LLP requires that the votes
cast in favor of ratification exceed the votes cast opposing the proposal. Under
North Carolina corporate law, abstentions are treated as non-votes in
determining whether shareholders have approved a proposal. Abstentions and
non-votes will have no effect on the vote to approve this proposal.
The Board of Directors recommends
shareholders vote FOR Proposal No. 4.
OTHER BUSINESS
The Company currently knows of no other matter to be submitted at the
Annual Meeting. Under the Company's Bylaws, any shareholder desiring to present
a proposal for consideration at the meeting, including any director nomination,
was required to give the Company written notice of the proposal by a certain
date. No timely proposals have been received. Should any other business properly
come before the meeting, it is the intention of the persons named in the
enclosed form of proxy to vote the shares they represent as the Board of
Directors may recommend except as noted below. Pursuant to the Company's Bylaws,
the size of the Board of Directors was fixed at nine members in 1988 but since
then no more than seven persons have served on the Board at any one time.
Consistent with prior practice only seven persons have been nominated for
election at the Annual Meeting, and under the rules of the Securities and
Exchange Commission the enclosed proxy cannot be voted for more than seven
nominees.
AVAILABILITY OF REPORT ON FORM 10-K
A copy of the Company's report on Form 10-K for the fiscal year ended June
25, 2000 will be furnished without charge to any person solicited hereby upon
written request directed to: Investor Relations Manager, Cree, Inc., 4600
Silicon Drive, Durham, North Carolina 27703.
Dated: September __, 2000
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<PAGE>
CREE, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE 2000 ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints F. Neal Hunter and Calvin H. Carter, Jr., and
each of them individually, as proxies and attorneys-in-fact of the undersigned,
with full power of substitution, to represent the undersigned and to vote, in
accordance with the directions in this proxy, all of the shares of stock of
Cree, Inc. which the undersigned is entitled to vote at the Annual Meeting of
Shareholders of Cree, Inc. to be held at the offices of the corporation at 4525
Silicon Drive, Durham, North Carolina, on Tuesday, October 31, 2000, at 10:00
a.m. local time, and at any and all adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED ON THE REVERSE. UNLESS A CONTRARY DIRECTION
IS MARKED, THE PROXYHOLDERS WILL VOTE FOR ELECTION OF THE DIRECTOR NOMINEES AND
APPROVAL OF THE OTHER MATTERS LISTED ON THE REVERSE, AND IN THE PROXYHOLDERS'
DISCRETION WITH RESPECT TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE
MEETING, ALL AS MORE SPECIFICALLY SET FORTH IN THE NOTICE OF ANNUAL MEETING AND
PROXY STATEMENT DATED SEPTEMBER 30, 1999, RECEIPT OF WHICH IS HEREBY
ACKNOWLEDGED.
(Please sign and date on the reverse side and promptly return in the enclosed
envelope.)
<PAGE>
[X] Please mark your votes as in this example.
PLEASE RETURN THIS PROXY IN THE ENCLOSED ENVELOPE. If you receive more than one
proxy, please date and sign each one and return all proxies in the same
envelope.
FOR WITHHOLD
all AUTHORITY
nominees to vote
listed at for all
right (except nominees
as marked listed at
below) right
1. Election of Directors [ ] [ ] Nominees:
F. Neal Hunter
Calvin H. Carter, Jr., Ph.D.
John W. Palmour, Ph.D.
Walter L. Robb, Ph.D.
Michael W. Haley
Dolph W. von Arx
James E. Dykes
To withhold authority to vote for fewer than all nominees, write the name(s)
here:
--------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of proposed amendment of the [ ] [ ] [ ]
Articles of Incorporation to increase
authorized shares of Common Stock
3. Approval of proposed amendment to the Equity [ ] [ ] [ ]
Compensation Plan to increase shares
authorized for issuance under the Plan
4. Ratification of the selection of Ernst & [ ] [ ] [ ]
Young LLP as auditors for the fiscal year
ending June 24, 2001
Any proxy heretofore given by the undersigned is hereby revoked.
Please check box if you intend to attend the Annual Meeting in person. Please
complete, sign and return this proxy whether or not you intend to attend the
meeting. [ ]
Signature: Date
--------------------------------------------- -------------------
IMPORTANT: Please sign exactly as printed name appears above.
Executors, administrators, trustees and other fiduciaries
should give full titles when signing. If shares are
registered in two or more names, each person should sign.
If the shareholder is a corporation, please have an
authorized officer sign, stating title. If a partnership,
please have signed in the partnership name by an authorized
representative, stating title.
<PAGE>
APPENDIX A
CREE, INC.
EQUITY COMPENSATION PLAN
(As amended and restated July 31, 2000 subject to shareholder approval)
ARTICLE I - GENERAL PROVISIONS
1.1 The Plan is designed, for the benefit of the Company, to attract and
retain for the Company personnel of exceptional ability; to motivate such
personnel through added incentives to make a maximum contribution to the
Company; to develop and maintain a highly competent management team; and
to be competitive with other companies with respect to executive
compensation.
1.2 Awards under the Plan may be made to Participants in the form of Incentive
Stock Options and Nonqualified Stock Options.
1.3 The Cree, Inc. Equity Compensation Plan was initially adopted effective
August 2, 1989, was amended and restated in the form of the Plan effective
as of July 1, 1995 (the "Effective Date").
ARTICLE II - DEFINITIONS
Except where the context otherwise indicates, the following definitions
apply:
2.1 "Act" means the Securities Exchange Act of 1934, as now in effect or as
hereafter amended. All citations to sections of the Act or rules
thereunder are to such sections or rules as they may from time to time be
amended or renumbered.
2.2 "Agreement" means the written agreement evidencing each Award granted to a
Participant under the Plan.
2.3 "Award" means an award granted to a Participant in accordance with the
provisions of the Plan, including an Incentive Stock Option or a
Nonqualified Stock Option.
2.4 "Board" means the Board of Directors of Cree, Inc.
2.5 "Change in Control" means the occurrence of an event defined in Section
7.1 of the Plan.
<PAGE>
2.6 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended.
2.7 "Committee" means the Compensation Committee of the Board or such other
committee consisting of two or more members of the Board as may be
appointed by the Board to administer this Plan pursuant to Article III.
Committee members may also be appointed for such limited purposes as may
be provided by the Board.
2.8 "Company" means Cree, Inc., a North Carolina corporation, and its
successors and assigns. The term "Company" shall include any corporation
which is a member of a controlled group of corporations (as defined in
Section 414(b) of the Code, as modified by Section 415(h) of the Code)
which includes the Company; any trade or business (whether or not
incorporated) which is under common control (as defined in Section 414(c)
of the Code, as modified by Section 415(h) of the Code) with the Company;
any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Section 414(m) of the Code) which
includes the Company; and any other entity required to be aggregated with
the Company pursuant to regulations under Section 414(o) of the Code. With
respect to all purposes of the Plan, including, but not limited to, the
establishment, amendment, termination, operation and administration of the
Plan, Cree, Inc. shall be authorized to act on behalf of all other
entities included within the definition of "Company."
2.9 "Disability" means (i) with respect to a Participant who is eligible to
participate in the Company's program of long-term disability insurance, a
condition with respect to which the Participant is entitled to commence
benefits under such program of long-term disability insurance, and (ii)
with respect to any Participant (including a Participant who is eligible
to participate in the Company's program of long-term disability
insurance), a disability as determined under procedures established by the
Committee or in any Award.
2.10 "Early Retirement" shall mean retirement from active employment with the
Company, with the express consent of the Committee, pursuant to early
retirement provisions established by the Committee or in any Award.
2.11 "Eligible Participant" means any employee of the Company, as shall be
determined by the Committee, as well as any other person, including
directors, whose participation the Committee determines is in the best
interest of the Company, subject to limitations as may be provided by the
Code, the Act or the Committee.
2.12 "Fair Market Value" means, with respect to any given day, the following:
(a) If the Stock is not listed for trading on a national securities
exchange but is listed on the Nasdaq National Market or The Nasdaq
Small-Cap Market of The Nasdaq Stock Market, then the Fair Market
Value shall be the last sale price of the Stock on the date of
reference, as reported by the Nasdaq-Amex Reporting Service, or such
other source as the Board deems reliable.
<PAGE>
(b) If the Stock is listed for trading on any national securities
exchange, then the Fair Market Value shall be the closing price of
the Stock on such exchange on the date of reference.
The Committee may establish an alternative method of determining Fair
Market Value.
2.13 "Incentive Stock Option" means a Stock Option granted under Article IV of
the Plan, and as defined in Section 422 of the Code.
2.14 "Nonqualified Stock Option" means a Stock Option granted under Article V
of the Plan.
2.15 "Normal Retirement" shall mean retirement from active employment with the
Company on or after age 65, or pursuant to such other requirements as may
be established by the Committee or in any Award.
2.16 "Option Grant Date" means, as to any Stock Option, the latest of:
(a) the date on which the Committee takes action to grant the Stock
Option to the Participant;
(b) the date the Participant receiving the Stock Option becomes an
employee of the Company, to the extent employment status is a
condition of the grant or a requirement of the Code or the Act; or
(c) such other date (later than the dates described in (a) and (b)
above) as the Committee may designate.
2.17 "Participant" means an Eligible Participant to whom an Award has been
granted and who has entered into an Agreement evidencing the Award.
2.18 "Plan" means the Cree, Inc. Equity Compensation Plan as set forth herein
and as further amended or amended and restated from time to time.
2.19 "Retirement" shall mean Early Retirement or Normal Retirement.
2.20 "Stock" means shares of the Common Stock of Cree, Inc., par value $0.025
per share, as may be adjusted pursuant to the provisions of Section 3.10.
2.21 "Stock Option" means an Award under Article IV or V of the Plan of an
option to purchase Stock. A Stock Option may be either an Incentive Stock
Option or a Nonqualified Stock Option.
<PAGE>
2.22 "Termination of Employment" means the discontinuance of employment of a
Participant with the Company for any reason. The determination of whether
a Participant has discontinued employment shall be made by the Committee
in its discretion. In determining whether a Termination of Employment has
occurred, the Committee may provide that service as a consultant or
service with a business enterprise in which the Company has a significant
ownership interest shall be treated as employment with the Company. The
Committee shall have the discretion, exercisable either at the time the
Award is granted or at the time the Participant terminates employment, to
establish as a provision applicable to the exercise of one or more Awards
that during the limited period of exercisability following Termination of
Employment, the Award may be exercised not only with respect to the number
of shares of Stock for which it is exercisable at the time of the
Termination of Employment but also with respect to one or more subsequent
installments for which the Award would have become exercisable had the
Termination of Employment not occurred.
ARTICLE III - ADMINISTRATION
3.1 This Plan shall be administered by the Committee. The Committee, in its
discretion, may delegate to one or more of its members such of its powers
as it deems appropriate. The Committee also may limit the power of any
member to the extent necessary to comply with any law. Members of the
Committee shall be appointed originally, and as vacancies occur, by the
Board, to serve at the pleasure of the Board. The Board may serve as the
Committee, if by the terms of the Plan all Board members are otherwise
eligible to serve on the Committee.
3.2 The Committee shall meet at such times and places as it determines. A
majority of its members shall constitute a quorum, and the decision of a
majority of those present at any meeting at which a quorum is present
shall constitute the decision of the Committee. A memorandum signed by all
of its members shall constitute the decision of the Committee without
necessity, in such event, for holding an actual meeting.
3.3 The Committee shall have the exclusive right to interpret, construe and
administer the Plan, to select the persons who are eligible to receive an
Award, and to act in all matters pertaining to the granting of an Award
and the contents of the Agreement evidencing the Award, including without
limitation, the determination of the number of Stock Options, shares of
Stock subject to an Award, and the form, terms, conditions and duration of
each Award, and any amendment thereof consistent with the provisions of
the Plan. All acts, determinations and decisions of the Committee made or
taken pursuant to grants of authority under the Plan or with respect to
any questions arising in connection with the administration and
interpretation of the Plan, including the severability of any and all of
the provisions thereof, shall be conclusive, final and binding upon all
Participants, Eligible Participants and their beneficiaries.
3.4 The Committee may adopt such rules, regulations and procedures of general
application for the administration of this Plan, as it deems appropriate.
<PAGE>
3.5 The number of shares of Stock which are available for Award under the Plan
shall be Ten Million Nine Hundred Nine Thousand Nine Hundred (10,909,900).
Such shares of Stock shall be made available from authorized and unissued
shares. If, for any reason, any shares of Stock awarded or subject to
purchase under the Plan are not delivered or purchased, or are reacquired
by the Company, for reasons including, but not limited to, a termination,
expiration or cancellation of a Stock Option, such shares of Stock shall
not be charged against the aggregate number of shares of Stock available
for Awards under the Plan, and may again be available for Award under the
Plan.
3.6 Each Award granted under the Plan shall be evidenced by a written
Agreement. Each Agreement shall be subject to and incorporate, by
reference or otherwise, the applicable terms and conditions of the Plan,
and any other terms and conditions, not inconsistent with the Plan, as may
be imposed by the Committee.
3.7 The Company shall not be required to issue or deliver any certificates for
shares of Stock prior to:
(a) the listing of such shares on any stock exchange on which the
Stock may then be listed; and
(b) the completion of any registration or qualification of such shares
of Stock under any federal or state law, or any ruling or regulation
of any government body which the Company shall, in its discretion,
determine to be necessary or advisable.
3.8 All certificates for shares of Stock delivered under the Plan shall also
be subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Stock is then listed and any applicable federal or state
laws, and the Committee may cause a legend or legends to be placed on any
such certificates to make appropriate reference to such restrictions. In
making such determination, the Committee may rely upon an opinion of
counsel for the Company.
3.9 Except as provided otherwise in the Plan or in an Agreement, no
Participant awarded a Stock Option shall have any right as a shareholder
with respect to any shares of Stock covered by his or her Stock Option
prior to the date of issuance to him or her of a certificate or
certificates for such shares of Stock.
3.10 If any reorganization, recapitalization, reclassification, stock split-up,
stock dividend, or consolidation of shares of Stock, merger or
consolidation of the Company or sale or other disposition by the Company
of all or a portion of its assets, any other change in the Company's
corporate structure, or any distribution to shareholders other than a cash
dividend results in the outstanding shares of Stock, or any securities
exchanged therefor or received in their place, being exchanged for a
different number or class of shares of Stock or other securities of the
Company, or for shares of Stock or other securities of any other
corporation; or new, different or additional shares or other securities of
the Company or of any other corporation being received by the holders of
outstanding shares of Stock, then equitable adjustments shall be made by
the Committee in:
<PAGE>
(a) the limitation on the aggregate number of shares of Stock that may
be awarded as set forth in Section 3.5 of the Plan;
(b) the number and class of Stock that may be subject to an Award, and
which have not been issued or transferred under an outstanding
Award;
(c) the terms, conditions or restrictions of any Award and Agreement,
including the price payable for the acquisition of Stock; provided,
however, that all adjustments made as the result of the foregoing in
respect of each Incentive Stock Option shall be made so that such
Stock Option shall continue to be an Incentive Stock Option, as
defined in Section 422 of the Code; and
(d) the limitations on grants of Stock Options set forth in Section 6.9
of the Plan.
3.11 In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee
shall be indemnified by the Company against reasonable expenses, including
attorney's fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any
appeal therein, to which they or any of them may be a party by reason of
any action taken or failure to act under or in connection with the Plan or
any Award granted thereunder, and against all amounts paid by them in
settlement thereof, provided such settlement is approved by independent
legal counsel selected by the Company, or paid by them in satisfaction of
a judgment or settlement in any such action, suit or proceeding, except as
to matters as to which the Committee member has been negligent or engaged
in misconduct in the performance of his duties; provided, that within 60
days after institution of any such action, suit or proceeding, a Committee
member shall in writing offer the Company the opportunity, at its own
expense, to handle and defend the same.
3.12 The Committee may require each person purchasing shares of Stock pursuant
to an Award under the Plan to represent to and agree with the Company in
writing that he is acquiring the shares of Stock without a view to
distribution thereof and/or that he has met such other requirements as the
Committee determines may be applicable to such purchase. The certificates
for such shares of Stock may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.
3.13 The Committee shall be authorized to make adjustments in performance-based
criteria or in the terms and conditions of other Awards in recognition of
unusual or nonrecurring events affecting the Company or its financial
statements or changes in applicable laws, regulations or accounting
principles. The Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Agreement in the manner and
to the extent it shall deem desirable to carry it into effect. In the
event the Company shall assume outstanding employee benefit awards or the
right or obligation to make future such awards in connection with the
acquisition of another corporation or business entity, the Committee may,
in its discretion, make such adjustments in the terms of Awards under the
Plan as it shall deem appropriate.
<PAGE>
3.14 The Committee shall have full power and authority to determine whether, to
what extent and under what circumstances, any Award shall be canceled or
suspended if the Participant (a) without the consent of the Committee,
while employed by the Company or after termination of such employment,
becomes associated with, employed by, renders services to, or owns any
interest in, other than any insubstantial interest, as determined by the
Committee, any business that is in competition with the Company as
determined by the Committee in its discretion; or (b) is terminated for
cause as determined by the Committee in its discretion.
ARTICLE IV - INCENTIVE STOCK OPTIONS
4.1 Each provision of this Article IV and of each Incentive Stock Option
granted hereunder shall be construed in accordance with the provisions of
Section 422 of the Code, and any provision hereof that cannot be so
construed shall be disregarded.
4.2 Incentive Stock Options shall be granted only to Eligible Participants who
are in the active employment of the Company, each of whom may be granted
one or more such Incentive Stock Options for a reason related to his or
her employment at such time or times determined by the Committee following
the Effective Date through the date which is ten (10) years following the
Effective Date, subject to the following conditions:
(a) The Incentive Stock Option price per share of Stock shall be set in
the Agreement, but shall not be less than 100% of the Fair Market
Value of the Stock on the Option Grant Date. If the Eligible
Participant owns more than 10% of the outstanding Stock (as determined
pursuant to Section 424(d) of the Code) on the Option Grant Date, the
Incentive Stock Option price per share shall not be less than 110% of
the Fair Market Value of the Stock on the Option Grant Date.
(b) Subject to any conditions on exercise set forth in the corresponding
Agreement, the Incentive Stock Option may be exercised in whole or in
part from time to time within ten (10) years from the Option Grant
Date (five (5) years if the Eligible Participant owns more than 10% of
the Stock on the Option Grant Date), or such shorter period as may be
specified by the Committee in the Award; provided, that in any event,
the Incentive Stock Option shall lapse and cease to be exercisable
upon a Termination of Employment or within such period following a
Termination of Employment as shall have been specified in the
Incentive Stock Option Agreement, which period shall not exceed three
months unless:
<PAGE>
(i) employment shall have terminated as a result of death or
Disability, in which event such period shall not exceed one
year after the date of death or Disability; or
(ii) death shall have occurred following a Termination of
Employment and while the Incentive Stock Option was still
exercisable, in which event such period shall not exceed one
year after the date of death;
provided, further, that such period following a Termination of
Employment shall in no event extend the original exercise period of
the Incentive Stock Option.
(c) To the extent the aggregate Fair Market Value, determined as of the
Option Grant Date, of the shares of Stock with respect to which
Incentive Stock Options (determined without regard to this subsection)
are first exercisable during any calendar year by any Eligible
Participant exceeds $100,000, such options shall be treated as
Nonqualified Stock Options granted under Article V.
(d) The Committee may adopt any other terms and conditions which it
determines should be imposed for the Incentive Stock Option to qualify
under Section 422 of the Code, as well as any other terms and
conditions not inconsistent with this Article IV as determined by the
Committee. If, for any reason, an Incentive Stock Option fails to meet
the requirements of Section 422 of the Code, the Option shall
automatically be deemed a Nonqualified Stock Option granted under
Article V herein.
4.3 The Committee may at any time offer to buy out for a payment in cash, or
Stock an Incentive Stock Option previously granted, based on such terms
and conditions as the Committee shall establish and communicate to the
Participant at the time that such offer is made.
4.4 If the Incentive Stock Option Agreement so provides, the Committee may
require that all or part of the shares of Stock to be issued upon the
exercise of an Incentive Stock Option shall take the form of restricted
stock, which shall be valued on the date of exercise, as determined by the
Committee, on the basis of the Fair Market Value of such restricted stock
without regard to the limitations on transfer and forfeiture restrictions
involved.
ARTICLE V - NONQUALIFIED STOCK OPTIONS
5.1 One or more Stock Options may be granted as Nonqualified Stock Options to
Eligible Participants to purchase shares of Stock at such time or times
determined by the Committee, following the Effective Date, subject to the
terms and conditions set forth in this Article V.
<PAGE>
5.2 The Nonqualified Stock Option price per share of Stock shall be
established in the Agreement and shall not be less than 100% of the Fair
Market Value at the time of the grant.
5.3 The Nonqualified Stock Option may be exercised in full or in part from
time to time within such period as may be specified by the Committee or in
the Agreement; provided, that, in any event, the Nonqualified Stock Option
shall lapse and cease to be exercisable upon a Termination of Employment
or within such period following a Termination of Employment as shall have
been specified in the Nonqualified Stock Option Agreement, which period
shall not exceed three months unless:
(i) employment shall have terminated as a result of death or Disability,
in which event such period shall not exceed one year after the date
of death or Disability; or
(ii) death shall have occurred following a Termination of Employment and
while the Nonqualified Stock Option was still exercisable, in which
event such period shall not exceed one year after the date of death;
provided, further, that such period following a Termination of Employment
shall in no event extend the original exercise period of the Nonqualified
Stock Option.
5.4 The Nonqualified Stock Option Agreement may include any other terms and
conditions not inconsistent with this Article V or in Article VI, as
determined by the Committee.
ARTICLE VI - INCIDENTS OF STOCK OPTIONS
6.1 Each Stock Option shall be granted subject to such terms and conditions,
if any, not inconsistent with this Plan, as shall be determined by the
Committee, including any provisions as to continued employment as
consideration for the grant or exercise of such Stock Option and any
provisions which may be advisable to comply with applicable laws,
regulations or rulings of any governmental authority.
6.2 Except as provided below, a Stock Option shall be exercisable during the
lifetime of the Participant only by him or his guardian or legal
representative and shall not be transferable by the Participant other than
(i) by will or by the laws of descent and distribution, or (ii) to the
extent otherwise allowed by applicable law, pursuant to a qualified
domestic relations order as defined by the Code and the Employee
Retirement Income Security Act of 1974, as amended, or the rules
thereunder. However, the Committee may, in its sole discretion, either
pursuant to an Agreement or otherwise, permit a Participant to transfer a
Nonqualified Stock Option by gift or other donative transfer without
payment of consideration, conditioned upon and subject to compliance with
all applicable law (including, but not limited to, securities law).
<PAGE>
6.3 Shares of Stock purchased upon exercise of a Stock Option shall be paid
for in such amounts, at such times and upon such terms as shall be
determined by the Committee, subject to limitations set forth in the Stock
Option Agreement. Without limiting the foregoing, the Committee may
establish payment terms for the exercise of Stock Options which permit the
Participant to deliver shares of Stock, or other evidence of ownership of
Stock satisfactory to the Company, with a Fair Market Value equal to the
Stock Option price as payment.
6.4 No cash dividends shall be paid on shares of Stock subject to unexercised
Stock Options. The Committee may provide, however, that a Participant to
whom a Stock Option has been granted which is exercisable in whole or in
part at a future time for shares of Stock shall be entitled to receive an
amount per share equal in value to the cash dividends, if any, paid per
share on issued and outstanding Stock, as of the dividend record dates
occurring during the period between the date of the grant and the time
each such share of Stock is delivered pursuant to exercise of such Stock
Option. Such amounts (herein called "dividend equivalents") may, in the
discretion of the Committee, be:
(a) paid in cash or Stock either from time to time prior to, or at the
time of the delivery of, such Stock, or upon expiration of the Stock
Option if it shall not have been fully exercised; or
(b) converted into contingently credited shares of Stock, with respect
to which dividend equivalents may accrue, in such manner, at such
value, and deliverable at such time or times, as may be determined
by the Committee.
Such Stock, whether delivered or contingently credited, shall be charged
against the limitations set forth in Sections 3.5 and 6.9 hereof.
6.5 The Committee, in its sole discretion, may authorize payment of interest
equivalents on dividend equivalents which are payable in cash at a future
time.
6.6 In the event of Disability or death, the Committee, with the consent of
the Participant or his legal representative, may authorize payment, in
cash or in Stock, or partly in cash and partly in Stock, as the Committee
may direct, of an amount equal to the difference at the time between the
Fair Market Value of the Stock subject to a Stock Option and the option
price in consideration of the surrender of the Stock Option.
6.7 If a Participant is required to pay to the Company an amount with respect
to income and employment tax withholding obligations in connection with
exercise of a Nonqualified Stock Option, and/or with respect to certain
dispositions of Stock acquired upon the exercise of an Incentive Stock
Option, the Committee, in its discretion and subject to such rules as it
may adopt, may permit the Participant to satisfy the obligation, in whole
or in part, by making an irrevocable election that a portion of the total
Fair Market Value of the shares of Stock subject to the Nonqualified Stock
Option and/or with respect to certain dispositions of Stock acquired upon
the exercise of an Incentive Stock Option, be paid in the form of cash in
lieu of the issuance of Stock and that such cash payment be applied to the
satisfaction of the withholding obligations. The amount to be withheld
shall not exceed the statutory minimum federal and state income and
employment tax liability arising from the Stock Option exercise
transaction.
<PAGE>
6.8 The Committee may permit the voluntary surrender of all or a portion of
any Stock Option granted under the Plan to be conditioned upon the
granting to the Participant of a new Stock Option for the same or a
different number of shares of Stock as the Stock Option surrendered, or
may require such surrender as a condition precedent to a grant of a new
Stock Option to such Participant. Subject to the provisions of the Plan,
such new Stock Option shall be exercisable at such price, during such
period and on such other terms and conditions as are specified by the
Committee at the time the new Stock Option is granted. Upon surrender, the
Stock Options surrendered shall be canceled and the shares of Stock
previously subject to them shall be available for the grant of other Stock
Options.
6.9 The following limitations shall apply to grants of Stock Options:
(a) No Participant shall be granted, in any fiscal year of the Company,
Options to purchase more than 200,000 Shares.
(b) In connection with his or her initial service, a Participant may be
granted Stock Options to purchase up to an additional 200,000 Shares
that shall not count against the limit set forth in Section 6.9(a)
above.
ARTICLE VII - CHANGE IN CONTROL
7.1 A "Change in Control" shall be deemed to have occurred upon the happening
of any of the following events:
(a) Any "Person" as defined in Section 3(a)(9) of the Act, including a
"group" (as that term is used in Sections 13(d)(3) and 14(d)(2) of the
Act), but excluding the Company (as defined in Section 2.8 of this
Plan) and any employee benefit plan sponsored or maintained by the
Company (including any trustee of such plan acting as trustee), who
together with its "affiliates" and "associates" (as those terms are
defined in Rule 12b-2 under the Act) becomes the "Beneficial Owner"
(within the meaning of Rule 13d-3 under the Act) of 20% or more of the
then-outstanding shares of Stock or the combined voting power of the
then-outstanding securities of the Company entitled to vote generally
in the election of its directors. For purposes of calculating the
number of shares or voting power held by such Person and its
affiliates and associates under this Section 7.1(a), there shall be
excluded any securities acquired by such Person or its affiliates or
associates directly from the Company.
<PAGE>
(b) A sale or other disposition of all or substantially all of the
Company's assets is consummated, other than such a sale or disposition
that would not have constituted a Change of Control under subsection
(d) below had it been structured as a merger or consolidation.
(c) The shareholders of the Company approve a definitive agreement or plan
to liquidate the Company.
(d) A merger or consolidation of the Company with and into another entity
is consummated, unless immediately following such transaction (1) more
than 50% of the members of the governing body of the surviving entity
were Incumbent Directors (as defined in subsection (e) below) at the
time of execution of the initial agreement providing for such
transaction, (2) no "Person" (as defined in Section 7.1(a) above),
together with its "affiliates" and "associates" (as defined in Section
7.1(a) above), is the "Beneficial Owner" (as defined in Section 7.1
(a) above), directly or indirectly, of 20% or more of the
then-outstanding equity interests of the surviving entity or the
combined voting power of the then-outstanding equity interests of the
surviving entity entitled to vote generally in the election of members
of its governing body, and (3) more than 50% of the then-outstanding
equity interests of the surviving entity and the combined voting power
of the then-outstanding equity interests of the surviving entity
entitled to vote generally in the election of members of its governing
body is "Beneficially Owned", directly or indirectly, by all or
substantially all of the individuals and entities who were the
"Beneficial Owners" of the shares of Stock immediately prior to such
transaction in substantially the same proportions as their ownership
immediately prior to such transaction.
(e) During any period of 24 consecutive months during the existence of the
Plan, the individuals who, at the beginning of such period, constitute
the Board (the "Incumbent Directors") cease for any reason other than
death to constitute at least a majority thereof; provided, however,
that a director who was not a director at the beginning of such 24
month period shall be deemed to have satisfied such 24 month
requirement, and be an Incumbent Director, if such director was
elected by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent
Directors either actually, because they were directors at the
beginning of such 24 month period, or by prior operation of this
Section 7.1 (e), but excluding for this purpose any such individual
whose initial assumption of office is in connection with an actual or
threatened election context subject to Rule 14a-11 of Regulation 14A
promulgated under the Act or other actual or threatened solicitation
of proxies or consents by or on behalf of a "Person" (as defined in
Section 7.1(a) above) other than the Board.
<PAGE>
7.2 In the event of a Change in Control: (a) any or all then outstanding Stock
Options having an Option Grant Date on or before January 31, 1999, to the
extent not previously fully vested and exercisable, shall automatically
become fully vested and, except to the extent such Options are cashed out
pursuant to Section 7.3 below, exercisable effective immediately prior to
the Change in Control; and (b) outstanding Stock Options having an Option
Grant Date after January 31, 1999 shall vest and become exercisable only
to the extent and in such manner as is provided in the applicable
Agreement evidencing the Stock Option.
7.3 Upon the occurrence of a Change in Control, the Committee may in its sole
discretion and consistent with the requirements of applicable law decide
to cash-out the value of all outstanding Stock Options, in each case to
the extent vested pursuant to Sections 7.2 above or otherwise, on the
basis of the "Change in Control Price" (as defined in Section 7.4) less
the exercise price under such Award (if any) as of the date such Change in
Control is determined to have occurred or such other date prior to the
Change in Control as the Committee may determine.
7.4 For purposes of Section 7.3, "Change in Control Price" means the highest
price per share of Stock paid in any transaction reported on the exchange
on which the Stock is then traded or on the Nasdaq Stock Market, as the
case may be, or paid or offered in any bona fide transaction related to a
Change in Control, at any time during the 120 day period immediately
preceding the occurrence of the Change in Control, as determined by the
Committee.
7.5 The Committee is authorized to take such actions that are not inconsistent
with Sections 7.2, 7.3 and 7.4 above as the Committee determines to be
necessary or advisable, and fair and equitable to Participants, with
respect to an Award in the event of a Change in Control. Such action may
include, but shall not be limited to, establishing, amending or waiving
the forms, terms, conditions and duration of an Award and the Agreement,
so as to provide for earlier, later, extended or additional times for
exercise or payment, differing methods for calculating payments and
alternate forms and amounts of payment. The Committee may take such
actions pursuant to this Section 7.5 by adopting rules and regulations of
general applicability to all Participants or to certain categories of
Participants, by including, amending or waiving terms and conditions in an
Award and the Agreement, or by taking action with respect to individual
Participants.
ARTICLE VIII - AMENDMENT AND TERMINATION
8.1 The Board, upon recommendation of the Committee, or otherwise, at any time
and from time to time, may amend or terminate the Plan. To the extent
required by Code Section 422, no amendment, without approval by the
Company's shareholders, shall:
(a) alter the group of persons eligible to participate in the Plan;
(b) except as provided in Section 3.5, increase the maximum number of
shares of Stock or Stock Options which are available for Awards
under the Plan;
<PAGE>
(c) extend the period during which Incentive Stock Option Awards may be
granted beyond the date which is ten (10) years following the
Effective Date.
(d) limit or restrict the powers of the Committee with respect to the
administration of this Plan;
(e) change the definition of an Eligible Participant for the purpose of
an Incentive Stock Option or increase the limit or the value of
shares of Stock for which an Eligible Participant may be granted an
Incentive Stock Option;
(f) materially increase the benefits accruing to Participants under this
Plan;
(g) materially modify the requirements as to eligibility for
participation in this Plan; or
(h) change any of the provisions of this Article VIII.
8.2 No amendment to or discontinuance of this Plan or any provision thereof by
the Board or the shareholders of the Company shall, without the written
consent of the Participant, adversely affect, as shall be determined by
the Committee, any Award previously granted to such Participant under this
Plan; provided, however, the Committee retains the right and power to:
(a) annul any Award if the Participant is terminated for cause as
determined by the Committee;
(b) provide for the forfeiture of shares of Stock or other gain under an
Award as determined by the Committee for competing against the
Company; and
(c) convert any outstanding Incentive Stock Option to a Nonqualified Stock
Option.
8.3 If a Change in Control has occurred, no amendment or termination shall
impair the rights of any person with respect to an outstanding Award as
provided in Article VII.
ARTICLE IX - MISCELLANEOUS PROVISIONS
9.1 Nothing in the Plan or any Award granted hereunder shall confer upon any
Participant any right to continue in the employ of the Company, or to
serve as a director thereof, or interfere in any way with the right of the
Company to terminate his or her employment at any time. Unless
specifically provided otherwise, no Award granted under the Plan shall be
deemed salary or compensation for the purpose of computing benefits under
any employee benefit plan or other arrangement of the Company for the
<PAGE>
benefit of its employees unless the Company shall determine otherwise. No
Participant shall have any claim to an Award until it is actually granted
under the Plan. To the extent that any person acquires a right to receive
payments from the Company under the Plan, such right shall, except as
otherwise provided by the Committee, be no greater than the right of an
unsecured general creditor of the Company. All payments to be made
hereunder shall be paid from the general funds of the company, and no
special or separate fund shall be established and no segregation of assets
shall be made to assure payment of such amounts, except as otherwise
provided by the Committee.
9.2 The Company may make such provisions and take such steps as it may deem
necessary or appropriate for the withholding of any taxes which the
Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to
withhold in connection with any Stock Option or the exercise thereof,
including, but not limited to, the withholding of payment of all or any
portion of such Award or another Award under this Plan until the
Participant reimburses the Company for the amount the Company is required
to withhold with respect to such taxes, or canceling any portion of such
Award or another Award under this Plan in an amount sufficient to
reimburse itself for the amount it is required to so withhold, or selling
any property contingently credited by the Company for the purpose of
paying such Award or another Award under this Plan, in order to withhold
or reimburse itself for the amount it is required to so withhold.
9.3 The Plan and the grant of Awards shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by
any United States government or regulatory agency as may be required.
9.4 The terms of the Plan shall be binding upon the Company, and its
successors and assigns.
9.5 No award shall be transferable except as provided for herein. Unless
otherwise provided by the Committee or in an Agreement, transfer
restrictions shall only apply to Incentive Stock Options as required in
Article IV and to the extent otherwise required by federal or state
securities laws. If any Participant makes such a transfer in violation
hereof, any obligation of the Company shall forthwith terminate.
9.6 This Plan and all actions taken hereunder shall be governed by the laws of
the State of North Carolina.
9.7 The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor
of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created
under the Plan to deliver shares of Stock or payments in lieu of or with
respect to Awards hereunder; provided, however, that, unless the Committee
otherwise determines with the consent of the affected Participant, the
existence of such trusts or other arrangements is consistent with the
"unfunded" status of the Plan.
<PAGE>
9.8 Each Participant exercising an Award hereunder agrees to give the
Committee prompt written notice of any election made by such Participant
under Section 83(b) of the Code, or any similar provision thereof.
9.9 If any provision of this Plan or an Agreement is or becomes or is deemed
invalid, illegal or unenforceable in any jurisdiction, or would disqualify
the Plan or any Agreement under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform
to applicable laws or if it cannot be construed or deemed amended without,
in the determination of the Committee, materially altering the intent of
the Plan or the Agreement, it shall be stricken and the remainder of the
Plan or the Agreement shall remain in full force and effect.
