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•	Proposal No. 1—Election of eight directors

•	Proposal No. 2—Approval of an amendment to the 2005 Employee Stock Purchase Plan to increase the number of shares authorized for issuance under the plan by 2,500,000 shares

•	Proposal No. 3—Ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors for the fiscal year ending June 24, 2018

•	Proposal No. 4—Advisory (nonbinding) vote to approve executive compensation

•	Proposal No. 5—Advisory (nonbinding) vote on frequency of future shareholder advisory votes on executive compensation

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•	Voting by Internet. You can vote over the Internet by following the directions on your Notice to access the website address at www.proxyvote.com. The deadline for voting over the Internet is Monday, October 23, 2017 at 11:59 p.m. Eastern time.

•	Voting by Telephone. You can vote by calling the toll-free telephone number at 1-800-690-6903. The deadline for voting by telephone is Monday, October 23, 2017 at 11:59 p.m. Eastern time.

•	Voting by Mail. If you requested printed proxy materials, you can vote by completing and returning your signed proxy card. To vote using your proxy card, please mark, date and sign the card and return it by mail in the accompanying postage-paid envelope. You should mail your signed proxy card sufficiently in advance for it to be received by Monday, October 23, 2017.

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Voting in Person. You can vote in person at the meeting if you are the record owner of the shares to be voted. You can also vote in person at the meeting if you present a properly signed proxy that authorizes you to vote shares on behalf of the record owner. If a broker, bank, custodian or other nominee holds your shares, to vote in person at the meeting you must present a letter or other proxy appointment, signed on behalf of the broker or nominee, granting you authority to vote the shares.

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•	Proposal 1 (Election of Directors). Directors will be elected by a plurality of the votes cast. The nominees who receive the most votes will be elected to fill the available positions. Shareholders do not have the right to vote cumulatively in electing directors. Withholding authority in your proxy to vote for a nominee will result in the nominee receiving fewer votes.

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Proposal 2 (Approval of Amendment to the ESPP) and Proposal 3 (Ratification of Appointment of Auditors). The proposed amendment to the ESPP and ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors for fiscal 2018 will be approved if the votes cast for approval exceed the votes cast against approval. If the ESPP proposal is not approved, the remaining shares available under the ESPP will not be sufficient for our expected needs through the next annual meeting of shareholders. Although shareholder ratification of the appointment is not required by law or the Company’s Bylaws, the Audit Committee has determined that, as a matter of corporate governance, the selection of independent auditors should be submitted to the shareholders for ratification. If the appointment of PricewaterhouseCoopers LLP is not ratified by a majority of the votes cast at the 2017 Annual Meeting, the Audit Committee will consider the appointment of other independent auditors for subsequent fiscal years. Even if the appointment is ratified, the Audit Committee may change the appointment at any time during the year if it determines that the change would be in the Company’s best interest and the best interests of the shareholders.

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Proposal 4 (Advisory (Nonbinding) Vote to Approve Executive Compensation). With respect to the advisory (nonbinding) vote to approve executive compensation, the executive compensation will be approved if the votes cast for approval exceed the votes cast against approval. Because your vote to approve executive compensation is advisory, it will not be binding upon the Board of Directors, it will not overrule any decision by the Board, and it will not create or imply any additional fiduciary duties on the Board or any member of the Board. The Compensation Committee will, however, take into account the outcome of the vote when considering future executive compensation arrangements.

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Proposal 5 (Advisory (Nonbinding) Vote on Frequency of Future Shareholder Advisory Votes on Executive Compensation). The proposed frequency of future advisory votes on executive compensation will be decided by the majority of the votes cast. If none of the frequency options (one, two or three years) receives a majority of the votes cast, we will consider the frequency that receives the highest number of votes by shareholders to be the frequency that has been selected by shareholders. Because your vote is advisory, it will not be binding upon the Board of Directors, it will not overrule any decision by the Board of Directors, and it will not create or imply any additional fiduciary duties on the Board of Directors or any member thereof. However, the Board of Directors

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•	In the absence of the Chairman, the Lead Independent Director serves as acting Chairman presiding over meetings of the Board of Directors and shareholders.

•	The Lead Independent Director convenes and presides over meetings of the independent directors and communicates the results of these sessions where appropriate to the Chairman, other management or the Board.

•	In general, the Lead Independent Director serves as principal liaison between the independent directors and the Chairman and between the independent directors and other management.

•	The Lead Independent Director reviews agendas for Board of Directors meetings in advance with the Chairman.

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•	stock option, restricted stock unit awards and performance stock unit awards under our 2013 Long-Term Incentive Compensation Plan, or the LTIP;

•	performance unit awards payable to our CEO and to our Executive Vice Presidents under the LTIP which provide for cash payments based upon achieving annual corporate financial goals;

•	awards under our Management Incentive Compensation Program, or the MICP, in which most of our senior managers (other than our currently employed named executive officers) participate and may receive payments based upon achieving quarterly or annual corporate financial goals and quarterly individual goals;

•	sales commission incentive programs for our sales personnel; and

•	quarterly profit-sharing plan in which all other regular, full-time employees participate and are eligible to receive cash payments based upon achieving quarterly corporate financial goals.

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13(a)	“Subject to adjustment pursuant to Section 18(a), the maximum number of shares of the Common Stock authorized for issuance under the Plan is seven million (7,000,000) shares. Such shares shall be made available from Common Stock currently authorized but unissued.”

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(1)	Market value of shares on the date of purchase, minus the purchase price under the ESPP.

•	There were options to purchase 9,563,006 shares of our common stock outstanding under all of our equity compensation plans, including legacy plans under which we will make no more grants. The weighted average remaining life of these outstanding options was 3.64 years, and the weighted average exercise price was $36.69.

•	There were 3,560,428 shares subject to outstanding stock awards that remain subject to forfeiture.

•	There were 4,806,948 shares available for future grants under the LTIP, 102,108 shares available for future issuance under the 2005 Employee Stock Purchase Plan, or ESPP, and 62,058 shares available for future issuance under the Non-Employee Director Stock Compensation and Deferral Program, or the Deferral Program.

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(1)	Refers to shares of the Company’s common stock.

(2)	The weighted average exercise price relates solely to outstanding stock option shares because shares subject to restricted stock units have no exercise price.

(3)	Includes shares issuable upon exercise of outstanding options and restricted stock units under the Company’s 2004 Long-Term Incentive Compensation Plan, as amended, or the 2004 LTIP - 5,176,015 shares; and LTIP - 7,829,166 shares.

(4)	Includes shares remaining for future issuance under the following plans in the amounts indicated: LTIP - 5,970,980 shares and ESPP - 102,108 shares.

(5)

Includes shares issuable upon exercise of outstanding options under the LED Lighting Fixtures, Inc. 2006 Stock Plan, or the LLF Plan - 6,080 shares. Also includes shares issuable under the Deferral Program - 34,917 shares. The Company assumed the options outstanding under the LLF Plan, which have a weighted average exercise price of $3.01 per share, in connection with the Company’s acquisition of LED Lighting Fixtures, Inc., or LLF, in February 2008.

(6)	Includes shares remaining for future issuance under the Deferral Program.

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*	Less than 1%.

(1)	Unless otherwise noted, all addresses are in care of the Company at 4600 Silicon Drive, Durham, NC 27703.

(2)	As reported by ClearBridge Investments, LLC in a Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2017, which states that Clearbridge Investments, LLC has sole dispositive power with respect to all of such shares and sole voting power with respect to 12,912,302 shares.

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(3)	As reported by BlackRock, Inc. in a Schedule 13G/A filed with the Securities and Exchange Commission on July 10, 2017, which states that BlackRock, Inc. has sole dispositive power with respect to all of such shares and sole voting power with respect to 10,041,034 shares.

(4)	As reported by PRIMECAP Management Company in a Schedule 13G/A filed with the Securities and Exchange Commission on February 9, 2017, which states that PRIMECAP Management Company has sole dispositive power with respect to all of such shares and sole voting power with respect to 3,953,881 shares.

(5)	As reported by The Vanguard Group in a Schedule 13G/A filed with the Securities and Exchange Commission on February 10, 2017, which states that The Vanguard Group has sole dispositive power with respect to 7,729,927 shares, shared dispositive power with respect to 65,401 shares, sole voting power with respect to 58,452 shares and shared voting power with respect to 12,022 shares.

(6)	As reported by Dimensional Fund Advisors LP in a Schedule 13G filed with the Securities and Exchange Commission on February 9, 2017, which states that Dimensional Fund Advisors LP has sole dispositive power with respect to all of such shares and sole voting power with respect to 5,748,870 shares.

(7)	As reported by FMR LLC in a Schedule 13G/A filed with the Securities and Exchange Commission on July 10, 2017, which states that FMR LLC has sole dispositive power with respect to all of such shares and sole voting power with respect to 621,384 shares.

(8)	As reported by Fairpointe Capital LLC in a Schedule 13G/A filed with the Securities and Exchange Commission on February 13, 2017, which states that Fairpointe Capital LLC has sole dispositive power with respect to 5,412,321 shares, shared dispositive power with respect to 94,000 shares and sole voting power with respect to 5,334,651 shares.

(9)	Includes 274,000 shares subject to options exercisable within sixty days of September 5, 2017

(10)	Includes 89,000 shares subject to options exercisable within sixty days of September 5, 2017.

(11)	Includes 12,000 shares subject to options exercisable within sixty days of September 5, 2017.

(12)	Includes 4,000 shares subject to options exercisable within sixty days of September 5, 2017.

(13)	Includes 12,000 shares subject to options exercisable within sixty days of September 5, 2017.

(14)	Includes 12,000 shares subject to options exercisable within sixty days of September 5, 2017.

(15)	Mr. Plastina served as Executive Vice President–Power & RF from June 8, 2015 to February 22, 2017.

(16)	Includes 4,000 shares subject to options exercisable within sixty days of September 5, 2017.

(17)	For all current executive officers and directors as a group, includes a total of 407,000 shares subject to options exercisable within sixty days of September 5, 2017.

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•	be linked closely to Cree’s operational, financial and business performance;

•	align the interests of the executives with those of Cree’s shareholders;

•	provide incentives for achieving Cree’s financial and business goals; and

•	provide individual executive officers with the opportunity to earn compensation at levels that are competitive with executives in comparable jobs within Cree’s peer company group.

•	base salary;

•	performance-based cash incentive compensation, which is paid annually under our long-term incentive compensation plan (or LTIP) for our Chief Executive Officer (or CEO) and our other named executive officers who have been with Cree for the entire fiscal year; and

•	long-term equity incentive compensation, in the form of restricted stock units (RSUs) and performance stock units (PSUs).

•	Charles M. Swoboda, Chief Executive Officer, President and Chairman of the Board;

•	Michael E. McDevitt, Executive Vice President and Chief Financial Officer; and

•	Daniel J. Castillo, Executive Vice President and President–Lighting (Mr. Castillo joined Cree in November 2016 to lead the Company’s Lighting Products business unit).

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Base salaries. Given the Company’s financial performance in fiscal 2016, Mr. Swoboda was not given an annual merit increase in base salary for fiscal 2017. Mr. McDevitt received a 3.4% annual merit increase in base salary for fiscal 2017. Because the agreement to sell the Wolfspeed business to Infineon Technologies AG (Infineon) had already been executed by August 2016 and the Committee expected that Mr. Plastina would not continue serving as a Cree employee following the closing of the sale of Wolfspeed to Infineon (targeted to occur during fiscal 2017), Mr. Plastina’s base salary was held flat for fiscal 2017.

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Aggressive financial targets for performance-based short-term cash incentive compensation. The Committee established challenging annual Cree-wide financial targets for the fiscal 2017 performance-based cash incentive programs that applied to all of Cree’s named executive officers.1 Cree did not reach the threshold target for payout under its annual financial targets in fiscal 2017. Because Mr. Swoboda’s and Mr. McDevitt’s performance based cash incentives were measured solely on achievement of Cree annual financial targets for fiscal 2017, Mr. Swoboda and Mr. McDevitt received no payouts of the annual cash incentive compensation under the LTIP.

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Long-term equity compensation. For fiscal 2017, Cree granted equity awards to the named executive officers in the form of restricted stock united (RSUs) and performance stock units (PSUs) to align the interests of the named executive officers with Cree shareholders and to facilitate named executive officer retention. As will be discussed below, Cree did not reach the performance threshold for vesting of the second performance period tranche of the PSUs granted in September 2015 under the established annual financial targets for fiscal 2017, nor the performance threshold for vesting of the first performance period tranche of the PSUs granted in September 2016 under the established annual financial targets for fiscal 2017 and as a result, neither of these tranches of PSUs vested in September 2017.

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Proportion of performance-based pay. Based on the Committee’s pay for performance philosophy (as further discussed below), as a direct result of the Committee’s compensation decisions, approximately 88% of Mr. Swoboda’s target total direct compensation for fiscal 2017 was comprised of variable performance-based pay in the form of short-term cash incentives and long-term equity awards. Similarly, 80% of Mr. McDevitt’s target total direct compensation for fiscal 2017 was comprised of these components. Mr. Castillo did not join Cree until November 2016, so his compensation for fiscal 2017 and beyond was negotiated at that time as part of his hiring. As a result of such negotiation, 88% of Mr. Castillo’s target total direct compensation for fiscal 2017 was comprised of these components. Finally, because Mr. Plastina’s compensation was to be determined by the terms of his agreements with Cree and the transaction documents with Infineon, and was linked to the performance of the Wolfspeed business only, the Committee did not make separate grants of short-term cash incentives based on Company-wide targets and long-term equity awards to Mr. Plastina for fiscal 2017. As a result, 46% of Mr. Plastina’s target total direct compensation for fiscal 2017 was comprised of these components.

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•	evaluated each element of compensation as compared to executives in similar roles in Cree’s Peer Group (as defined below) and the Radford Global Technology survey;

•	assessed the performance of the named executive officers, and considered the scope of responsibility and strategic impact of their respective roles within Cree;

•	emphasized variable and performance-based compensation to motivate executives to achieve Cree’s business objectives and align pay with performance; and

•	utilized equity compensation to create a culture of ownership and focus on long-term growth to ensure that equity compensation would continue to play a significant role in the total pay mix for the executives, in order to ensure their alignment with shareholder interests.

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•	We regularly speak with long-term shareholders and appreciate the opportunity to gain further insight and understanding into their views, and speak to portfolio managers at almost all of our top 20 shareholders at least annually, which represents approximately 70% or more of our outstanding shares.

•	We held an Analyst and Investor Day in October 2016 after the 2016 Annual Shareholders Meeting at which analysts and portfolio managers were invited to meet with the leadership team of Cree to discuss Cree’s plans for fiscal 2017 and beyond.

•	We communicate with governance and voting personnel at almost all of our top 10 shareholders at least annually, which represents approximately 60% of our outstanding shares, to solicit feedback on our compensation programs and practices.

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•	implementing Cree’s compensation philosophy for the executive officers in keeping with overall objectives,

•	gathering relevant market data to assist the Committee in making compensation decisions for the named executive officers, and

•	reviewing Cree’s severance and change in control arrangements as compared to those of the Peer Group.

•	semiconductor or semiconductor-related business;

•	semiconductor device companies (as opposed to equipment companies);

•	lighting companies;

•	“clean” technology companies (those who offer products and services to reduce the use of natural resources);

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•	comparable revenue, market capitalization, and market capitalization as a multiple of revenue;

•	comparable number of employees;

•	companies against which Cree competes for executive talent;

•	companies that allow for sufficient room to grow without over- or under-extending; and

•	sensitivity to the criteria proxy advisor services (e.g., ISS and Glass Lewis) will apply when determining their “Say on Pay” recommendations.

•	remove three companies due to acquisitions (Altera Corporation (which had been acquired by Intel); Atmel Corporation (which was in the process of being acquired by Microchip Technology Incorporated); and Fairchild Semiconductor International, Inc (which was being acquired by ON Semiconductor));

•	remove three companies which no longer aligned to Cree’s market capitalization (Analog Devices, Inc.; Skyworks Solutions, Inc.; and Xilinx, Inc.); and

•	add six companies aligned more closely with Cree’s revenue and market capitalization (Belden Inc.; Cypress Semiconductor Corporation; Entegris, Inc.; National Instruments Corporation; Teradyne, Inc.; and ViaSat, Inc.).

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•	Base salary increases, if any, are based on:

-	individual performance, including but not limited to, achievement of financial objectives, strategy development and implementation, and overall leadership capabilities including demonstration of the Cree values;

-	responsibilities for which the executive is accountable; and

-	relative position of the executive’s current salary to the market data for that job.

•	Cash-based performance incentive targets as a percentage of base salary are evaluated and approved based on the:

-	level of impact each of the respective executive officer roles has on financial and strategic results;

-	desired mix of base salary, short-term and long-term incentive compensation; and

-	relative position of the executive’s current cash-based performance incentive targets to the market data and comparable short-term incentive targets as a percent of base salary for that job.

•	Equity guidelines are assessed based on the:

-	level of the executive within the organization and the desire to most closely link jobs with the highest impact on financial results to the returns experienced by Cree’s shareholders;

-	scope of responsibilities for which the executive is accountable; and

-	competitive position of Cree’s target long-term equity incentive compensation as compared to the market data.

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•	Mr. Swoboda’s annual target cash incentive award for fiscal 2017 was set at 140% of his base salary. This put Mr. Swoboda’s target TCC slightly above the 50th percentile of the market data. Mr. Swoboda’s entire cash incentive award for fiscal 2017 is based solely on annual corporate financial goals.

•	Mr. McDevitt had his annual target cash incentive award for fiscal 2017 set at 80% of base salary, which put Mr. McDevitt’s target TCC at approximately the 50th percentile of the market data. Mr. McDevitt’s entire cash incentive award for fiscal 2017 is based solely on annual corporate financial goals.

•	Mr. Castillo’s annual target cash incentive award for fiscal 2017 was set in connection with his initial hiring in November 2016 at 80% of base salary, which put Mr. Castillo’s target TCC at approximately the 75th percentile of the market data. Mr. Castillo’s entire (pro-rated) cash incentive award for fiscal 2017 is based solely on annual corporate financial goals.

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Mr. Plastina’s annual target cash incentive award for fiscal 2017 was set at 85% of base salary, which put his target TCC at approximately the 50th percentile of the market data. Wolfspeed-only annual goals comprised 60% of the target incentive for Mr. Plastina. Quarterly goals comprised the remaining 40% (10% per quarter) of the target incentive for Mr. Plastina, and were based solely on the achievement of the Wolfspeed business unit financial objectives (business unit revenue and business unit non-GAAP operating income).

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•	one-third of the PSUs would vest on September 1, 2017, if the Company achieves fiscal 2017 non-GAAP operating income of at least $79.7 million (i.e., at least a five and one-half percent (5.5%) increase in non-GAAP operating income for fiscal 2017 as compared to actual fiscal 2016 non-GAAP operating income of $75.5 million);

•	one-third of the PSUs would vest on September 1, 2018, if the Company achieves fiscal 2016 non-GAAP operating income of at least $84.0 million (i.e., at least a five and one-half percent (5.5%) increase in non-GAAP operating income for fiscal 2018 as compared to the minimum fiscal 2017 non-GAAP operating income target of $79.6 million); and

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100% of the PSUs, less any PSUs previously vested in September 2017 or September 2018, would vest on September 1, 2019, if the Company achieves fiscal 2019 non-GAAP operating income of at least $88.7 million (i.e., at least a five and one-half percent (5.5%) increase in non-GAAP operating income for fiscal 2019 as compared to the minimum fiscal 2018 non-GAAP operating income target of $84.0 million).

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•	the CEO is expected to own shares with a value not less than five times his base salary;

•	each other executive officer is expected to own shares with a value not less than two times the officer’s base salary; and

•	each non-employee member of the Board of Directors is expected to own shares with a value not less than five times the sum of the director’s retainers for service on the Board and on Board committees.

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(1)

Represents the aggregate grant date fair value of service-based RSUs, PSUs and stock options granted during the fiscal years shown calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation, or ASC Topic 718. The aggregate grant date fair value is the amount we expect to expense in our financial statements over the award’s vesting schedule. See Note 11 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended June 25, 2017 for assumptions used in the calculations. There can be no assurance that the ASC Topic 718 grant date fair value amounts will ever be realized. In fact, for example, because the PSUs did not vest for fiscal 2016 or fiscal 2017, the amount in the Stock Awards column for Messrs. Swoboda and McDevitt for fiscal 2017 reflect $902,600 and $406,170, respectively, that was not received by the executives.

(2)

The amount listed in column (i) for Mr. Swoboda in fiscal 2017 represents (a) matching contributions to the 401(k) retirement plan of $10,349, (b) reimbursement for an executive physical of $2,100, and (c) reimbursement for legal fees of $9,009 in conjunction with his separation agreement. The amount listed in column (i) for Mr. Castillo in fiscal 2017 represents (a) the gross-up amount for one-time payments in conjunction with his appointment as Executive Vice President and President–Lighting of $165,333, and (b) matching contributions to the 401(k) retirement plan of $5,885. No other named executive officer received perquisites and personal benefits valued, in the aggregate, at $10,000 or more in any other fiscal year. Therefore, in accordance with Securities and Exchange Commission disclosure rules, this column does not reflect the value of the perquisites and personal benefits received for fiscal 2015 through 2016.

(3)	Mr. Castillo was appointed as Executive Vice President and President–Lighting on November 7, 2016.

(4)	Mr. Plastina served as Executive Vice President–Power & RF from June 8, 2015 to February 22, 2017. Stock awards include RSUs granted to Mr. Plastina in fiscal 2015 in connection with his service as a non-employee director prior to the time he was appointed an executive officer.

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(1)

Non-equity incentive plan awards represent the threshold, target and maximum amounts of cash incentive compensation payable under the performance units granted under the LTIP, or, in the case of Mr. Plastina, based upon his participation in the Wolfspeed-only MICP.  The actual amounts earned are disclosed in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table.”  Threshold payment amounts under the performance units awarded to Messrs. Swoboda, McDevitt and Castillo are comprised solely of the annual target incentive, assume only the attainment of the minimum annual goals and are paid at 50% of the target incentive.  Target payment amounts are paid at 100% of the target incentive and assume goal attainment of 100% of the target annual goals.  Maximum payment amounts reflect the annual payout cap of 200% of the annual target incentive, which assumes goal attainment of the maximum annual goals.  For additional information regarding the MICP, LTIP and performance units, see “Compensation Discussion and Analysis” above.

(2)	The performance goal for the PSUs was an increase in non-GAAP operating income year-over-year based on fiscal year-end 2016 non-GAAP operating income of $75.5M. The target (and maximum) payout of 100% would be achieved upon an increase of at least 5.5% (year over year) based on fiscal year 2016 non-GAAP operating income of $75.5 million to at least $79.7 million for fiscal year 2017.

(3)

The RSUs granted to Messrs. Swoboda and McDevitt vest in four annual installments commencing on the first anniversary of the date of grant, provided the recipient continues service as an employee, consultant or as a member of the Board of Directors. The RSUs granted to Mr. Castillo vest in four annual installments commencing on the first anniversary of the date of grant as to the grant of 50,490 RSUs and vesting in full on November 7, 2020 as to the grant of 42,075 RSUs, provided in each case that Mr. Castillo continues service as an employee, consultant or as a member of the Board of Directors.

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(1)	The value realized on vesting of these RSUs is based on $24.38 per share (the closing price of our common stock as reported by Nasdaq on September 1, 2016).

(2)	The value realized on vesting of these RSUs is based on $21.25 per share (the closing price of our common stock as reported by Nasdaq on November 2, 2016).

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•	the executive’s willful and continued failure to perform the duties and responsibilities of his position that is not corrected after one written warning detailing the concerns and offering him a reasonable period of time to cure;

•	any material and willful violation of any federal or state law by the executive in connection with his responsibilities as an employee of the Company;

•	any act of personal dishonesty taken by the executive in connection with his responsibilities as an employee of our company with the intention or reasonable expectation that such may result in his personal enrichment;

•	the executive’s conviction of, or plea of nolo contendere to, or grant of prayer of judgment continued with respect to, a felony that the Board of Directors reasonably believes has had or will have a material detrimental effect on our reputation or business; or

•	the executive materially breaching his confidential information agreement, which breach is (if capable of cure) not cured within 30 days after we deliver written notice to him of the breach.

•	a material reduction in the executive’s authority, duties or responsibilities;

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a reduction in the executive’s base salary, other than a one-time reduction that also is applied to substantially all of our other executive officers, provided that his reduction is substantially proportionate to the reduction applied to substantially all other executive officers; our requiring the executive to report to anyone other than the CEO, the Board of Directors, or a Committee of the Board of Directors; or

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our requiring the executive to relocate his principal place of business or our relocating our headquarters, in either case to a facility or location outside of a 35-mile radius from his current principal place of employment (or such longer distance that is the minimum permissible distance under the circumstances for purposes of the involuntary separation from service standards under the Treasury Regulations or other guidance under Section 409A of the Code).

•	any person or group of persons becomes the beneficial owner of 50% or more of our outstanding common stock or the combined voting power of our securities entitled to vote generally in the election of directors;

•	a sale or other disposition of all or substantially all of our assets;

•	shareholder approval of a definitive agreement or plan to liquidate our company; or

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a merger or consolidation of our company with and into another entity, unless immediately following such transaction (1) more than 50% of the members of the governing body of the surviving entity were incumbent directors at the time of execution of the initial agreement providing for such transaction; (2) no person or group of persons is the beneficial owner, directly or indirectly, of 50% or more of the equity interests of the surviving entity or the combined voting power of the 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 equity interests of the surviving entity and the combined voting power of the 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

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within the period of time between the commencement of a tender offer or our entry into a written agreement with another party that contemplates a transaction, the consummation of either of which would result in a change in control and the occurrence of either the resulting change in control or the termination or expiration of the tender offer or the written agreement without the occurrence of a change in control; or

•	within 12 months following a change in control.

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•	the executive’s willful and continued failure to perform the duties and responsibilities of his position that is not corrected after one written warning detailing the concerns and offering him a reasonable period of time to cure;

•	any material and willful violation of any federal or state law by the executive in connection with his responsibilities as an employee of the Company;

•	any act of personal dishonesty taken by the executive in connection with his responsibilities as an employee of the Company with the intention or reasonable expectation that such may result in his personal enrichment;

•	the executive’s conviction of, or plea of nolo contendere to, or grant of prayer of judgment continued with respect to, a felony that the Board of Directors reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business; or

•	the executive materially breaching his confidential information agreement, which breach is (if capable of cure) not cured within 30 days after the Company deliver written notice to him of the breach.

•	a material reduction in the executive’s authority, duties or responsibilities;

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•	a material reduction in the executive’s base salary other than a one-time reduction that also is applied to substantially all of the other executive officers, provided that this reduction is substantially proportionate to the reduction applied to substantially all other executive officers;

•	the Company’s requiring the executive to report to anyone other than the CEO, the Board of Directors or a Committee of the Board; or

•	the Company’s requiring the executive to relocate his principal place of business or the Company’s relocating its headquarters, in either case to a facility or location outside of a 35-mile radius from his current principal place of employment.

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(1)	Represents amounts to which Mr. Swoboda is entitled pursuant to the Swoboda Separation Agreement, following the termination of the transition period.

(2)

Based on actual results for performance period using 0% performance measurement prorated to the Trigger Date for the annual incentive portion. Assumes no prior leave of absence in the case of death. In the case of termination due to long-term disability, assuming 180 days prior leave of absence, payment would have been $0 for Mr. McDevitt and $0 for Mr. Castillo. Actual amount will vary based on performance measurement and the duration of any leave of absence prior to death or termination due to long-term disability.

(3)	Vesting is automatically accelerated for nonqualified stock options and restricted stock in the event of death or upon the effective date of the determination of the executive officer’s long-term disability pursuant to the terms of the award agreements under the 2004 LTIP and the LTIP, which terms apply equally to all participants.

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(4)

No accelerated vesting will occur for options and other awards under the LTIP in connection with a change in control not involving termination of employment unless the outstanding awards are not assumed by the successor in connection with a change in control, and the Compensation Committee, in its discretion, accelerates vesting of the outstanding but unvested options and awards. If the options and awards were not assumed by the successor and the Compensation Committee exercised its discretion to the fullest extent possible and determined that 100% of the outstanding awards should be vested, the named executive officers would have received the following additional amounts: Mr. McDevitt, $1,787,733; and Mr. Castillo, $2,346,523.

(5)	The triggering event, along with resulting benefits, is defined in the Severance Plan.

(6)	The amount in the table represents the annual target award for Messrs. McDevitt and Castillo. Under the change in control agreement entered into during fiscal 2018, Messrs. McDevitt and Castillo are entitled to one and a half times target annual incentive award and COBRA premiums for a Termination without cause or resignation for good reason in connection with a change in control.

(7)

The triggering event, along with resulting benefits, is defined in the change in control agreement. If the executive was generally disabled and we terminated his employment without cause in connection with a change in control prior to the date he was determined to have a long-term disability, or if he ceased to be generally disabled before his employment was terminated due to a long-term disability and he resigned for good reason (in connection with a change in control) on account of any event or circumstances that occurred while he was generally disabled (if not cured or consented to by the executive), then pursuant to the change in control agreement the executive would not be entitled to vesting acceleration. The Company entered into a separate change in control agreement with Mr. McDevitt subsequent to the end of the fiscal year (described above). The following table assumes that Mr. McDevitt’s new change in control agreement had been in effect at the end of the fiscal year:

(8)	Amount in table is based on actual results for performance period and is payable in the case of death only. In the case of termination due to long-term disability (assuming at least 91 days prior leave of absence), no payment would be due.

(9)	The triggering event, along with resulting benefits, is defined in the Severance Plan. The Company entered into a separate change in control agreement with Mr. Castillo subsequent to the end of the fiscal year (described above). The following table assumes that Mr. Castillo’s change of control agreement had been in effect at the end of the fiscal year:

(10)	Represents the actual amounts paid to Mr. Plastina under the Severance Plan in connection with his separation from the Company in February 2017.

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(1)

Amounts listed in the Stock Awards and Option Awards columns represent the aggregate grant date fair value of awards granted during fiscal 2017 calculated in accordance with ASC Topic 718. With respect to Messrs. Hosein, Ingram, Jackson, Nye, Replogle and Werner and Ms. Whitaker, these amounts relate to the annual grant of 6,429 RSUs on September 1, 2016. All awards were made under the LTIP. For a discussion of the assumptions used to value these awards, see Note 11 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 25, 2017.

(2)	As of June 25, 2017, Mr. Hosein had 17,000 options outstanding, all of which were exercisable. In addition, Mr. Hosein held 6,429 RSUs that vested on September 1, 2017.

(3)	As of June 25, 2017, Mr. Ingram had 17,000 options outstanding, all of which were exercisable. In addition, Mr. Ingram held 6,429 RSUs that vested on September 1, 2017. Lastly, Mr. Ingram deferred all of the $103,750 of fees earned in fiscal 2017 into the Deferral Program (as described below).

(4)	As of June 25, 2017, Mr. Jackson had no options outstanding; however, Mr. Jackson held 10,965 RSUs of which 6,429 vested on September 1, 2017. Of the remaining RSUs, 2,268 will vest on May 3, 2018 and 2,268 will vest on May 3, 2019.

(5)	As of June 25, 2017, Mr. Nye had no options outstanding; however, Mr. Nye held 10,878 RSUs of which 6,429 vested on September 1, 2017. Of the remaining RSUs, 2,225 will vest on October 27, 2017 and 2,224 will vest on October 27, 2018. Lastly, Mr. Nye deferred a portion of the $80,000 of fees earned in fiscal 2017 into the Deferral Program (as described below).

(6)	As of June 25, 2017, Mr. Replogle had 4,000 options outstanding, all of which were exercisable. In addition, Mr. Replogle held 6,429 RSUs that vested on September 1, 2017. Lastly, Mr. Replogle deferred all of the $80,000 of fees earned in fiscal 2017 into the Deferral Program.

(7)	Mr. Tillman’s term as a director ended October 25, 2016. As of June 25, 2017, Mr. Tillman had no options outstanding.

(8)	As of June 25, 2017, Mr. Werner had 17,000 options outstanding, all of which were exercisable. In addition, Mr. Werner held 6,429 RSUs that vested on September 1, 2017.

(9)	As of June 25, 2017, Ms. Whitaker had 4,000 options outstanding, all of which were exercisable. In addition, Ms. Whitaker held 6,429 RSUs that vested on September 1, 2017.

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•

Aggressive financial targets for performance-based short-term cash incentive compensation. The Committee established challenging annual Cree-wide financial targets for the fiscal 2017 performance-based cash incentive programs that applied to all of Cree’s named executive officers serving at the end of the fiscal year. Cree did not reach the threshold target for payout under its annual financial targets in fiscal 2017. Because Mr. Swoboda’s and Mr. McDevitt’s performance based cash incentives were measured solely on achievement of Cree annual financial targets for fiscal 2017, Mr. Swoboda and Mr. McDevitt received no payouts of the annual cash incentive compensation under the LTIP.

•

Proportion of performance-based pay. Based on the Committee’s pay for performance philosophy, as a direct result of the Committee’s compensation decisions, approximately 88% of Mr. Swoboda’s target total direct compensation for fiscal 2017 was comprised of variable performance-based pay in the form of short-term cash incentives and long-term equity awards. See the “Compensation Realized by our CEO for Fiscal 2017” table on page 31. Similarly, 80% of Mr. McDevitt’s target total direct compensation for fiscal 2017 was comprised of these components.

•

Long-term equity compensation. For fiscal 2017, Cree granted equity awards to the named executive officers who served for the full fiscal year in the form of restricted stock united (RSUs) and performance stock units (PSUs) to align the interests of the named executive officers with Cree shareholders and to facilitate named executive officer retention. As discussed above, Cree did not reach the performance threshold for vesting of the second performance period tranche of the PSUs granted in September 2015 under the established annual financial targets for fiscal 2017, nor the performance threshold for vesting of the first performance period tranche of the PSUs granted in September 2016 under the established annual financial targets for fiscal 2017 and as a result, neither of these tranches of PSUs vested in September 2017.

•

Solicitation of shareholder feedback and revisions to compensation programs. As made clear in the table on page 34, the Company actively engaged in dialogue with shareholders, and has made corresponding changes to its compensation programs, including changes in the long-term incentive mix; changes in long-term incentive metrics; removal of certain PSU vesting provisions; and elimination of quarterly incentive metrics for short-term incentives.

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1.

Purpose. The purpose of the Plan is to provide eligible employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions or contributions (where permitted). It is the intention of the Company to have the Plan qualify as an “employee stock purchase plan” under Section 423 of the Code. Accordingly, the provisions of the Plan shall be administered, interpreted, and construed so as to extend and limit participation in a manner consistent with the requirements of Section 423 of the Code. However, the Company makes no undertaking or representation to maintain such qualification. In addition, the Plan authorizes the purchase of Common Stock under a Non-Section 423(b) Component that does not qualify as an “employee stock purchase plan” under Section 423 of the Code, pursuant to rules, procedures or sub-plans adopted by the Board and designed to achieve tax, securities law or other objectives. Except as otherwise provided herein, the Non-Section 423(b) Component will operate and be administered in the same manner as the Section 423(b) Component.

2.	Definitions.

(a)	“Board” shall mean the Board of Directors of the Company or, as applicable, one or more individuals or a committee to which the Board has delegated authority or responsibility hereunder pursuant to Section 14(b).

(b)	“Code” shall mean the United States Internal Revenue Code of 1986, as amended.

(c)	“Common Stock” shall mean the common stock of the Company.

(d)	“Company” shall mean Cree, Inc., a North Carolina corporation.

(e)

“Compensation” shall mean the total cash remuneration paid, during the period of reference, to an Employee by the Employer, including but not limited to salary, wages, overtime, performance bonuses, commissions, incentive compensation, and salary continuation payments that are made pursuant to a payroll practice (e.g., vacation, holiday, sick and short-term disability pay paid to the Employee through an Employer’s payroll system), prior to deduction of any amounts the Employee elects to defer or exclude from income under a deferred compensation plan or an employee benefit plan of an Employer, such as the Company’s section 401(k) plan and section 125 cafeteria plans ("employee elective deferrals"). Notwithstanding the foregoing, “Compensation” shall not include: relocation, equalization (including goods and services allowances), sign-on and make-up bonuses; expense reimbursements of all types; payments in lieu of expenses; meal allowances; commuting or automobile allowances; any payments (such as guaranteed bonuses in certain foreign jurisdictions) with respect to which salary reductions are not permitted by the laws of the applicable jurisdiction; income realized as a result of participation in any stock plan, including without limitation any stock option, stock award, stock purchase or similar plan of an Employer; Employer contributions to and benefits from (except employee elective deferrals as provided above) any qualified retirement plan, other program of deferred compensation, welfare benefit plan or fringe benefit plan; any Employer contributions to U.S. Social Security and/or a public pension program established in an applicable foreign jurisdiction; any Employer contributions to unemployment taxes or workers’ compensation; costs paid by an Employer in connection with relocation, including gross-ups; any amounts accrued for the benefit of the Employee, but not paid, during the period of reference; and other items of remuneration that that the Stock Plan Manager determines, in his/her discretion and in a uniform and nondiscriminatory manner, are not part of

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(f)	“Designated Subsidiary” shall mean any Subsidiary that has been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan either as a Section 423(b) Employer or Non-Section 423(b) Employer.

(g)	“Employee” shall mean any individual who is treated as an active employee in the records of the Employer, other than such an individual who is subject to the laws of a country that would prohibit the Employee’s participation in the Plan.

(h)	“Employer” shall mean the Company or any Designated Subsidiary.

(i)	“Enrollment Date” shall mean the first day of a Participation Period.

(j)	“Fair Market Value” shall mean, as of any date, the value of the Common Stock determined as follows:

(i)

If the Common Stock is listed on any established stock exchange or national market system, including without limitation the NASDAQ Global Select Market, its Fair Market Value shall be the closing price for such stock quoted on such exchange on the date of determination, as reported by the Nasdaq-Amex Reporting Service or such other source as the Board deems reliable, unless such date is not a Trading Day, in which case it shall be the closing price quoted on such exchange on the last Trading Day immediately preceding the date of determination, and

(ii)

If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the closing price for such stock on the date of determination, as quoted by such source as the Board deems reliable, unless such date is not a Trading Day, in which case it shall be the closing price quoted on the last Trading Day immediately preceding the date of determination, and

(iii)	In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Board.

(k)	“Non-Section 423(b) Component” shall mean the provisions of the Plan that allow for the grant of an option under the Plan to an Employee of a Non-Section 423(b) Employer outside the scope of and not in compliance with the requirements set forth in Section 423(b) of the Code.

(l)	“Non-Section 423(b) Employer” shall mean any Subsidiary that has been designated by the Board as eligible to participate in the Non-Section 423(b) Component of the Plan.

(m)	“Participant” shall mean an eligible Employee who has enrolled in the Plan.

(n)

“Participation Period” shall mean a 12-month period established under this Plan during which an option granted pursuant to the Plan may be exercised unless earlier terminated as provided herein. Effective with the Participation Period beginning November 1, 2011, each Participation Period will be 12 months in duration and shall begin at 12:01 a.m. on November 1 or May 1 of each year, as applicable to the Participant, and end at 11:59 p.m. on October 31 or April 30, respectively. The Board may change the duration and timing of Participation Periods pursuant to Sections 4, 18(b), 18(c), 19(b) or 19(c) hereof. As used herein, “Participation Period” shall also mean “Special Participation Period,” where applicable.

(o)	“Plan” shall mean this 2005 Employee Stock Purchase Plan, including both the Section 423(b) Component and the Non-Section 423(b) Component, as it may be amended from time to time.

(p)	“Purchase Date” shall mean each April 30 and October 31 during a Participation Period (in the order in which these dates appear during the Participation Period). The Board may change the Purchase Date pursuant to Sections 4, 18(b), 18(c), 19(b) or 19(c) hereof. As used herein, “Purchase Date” shall also mean “New Purchase Date,” where applicable.

(q)	“Purchase Price” shall mean, effective with the Participation Period beginning November 1, 2011, an amount equal to 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or 85% of the Fair Market Value of a share of Common Stock on the applicable Purchase Date, whichever is lower. The Purchase Price may be adjusted by the Board pursuant to Sections 18(a) or 19(c) hereof.

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(r)	“Reserves” shall mean the number of shares of Common Stock covered by options under the Plan that have not been exercised and the number of shares of Common Stock that have been authorized for issuance under the Plan but not placed under option.

(s)	“Section 423(b) Component” shall mean the provisions of the Plan that are designed to meet the requirements for an employee stock purchase plan as set forth in Section 423(b) of the Code, as amended. The provisions of the Section 423(b) Component shall be construed, administered and enforced in accordance with Section 423(b) of the Code.

(t)

“Section 423(b) Employer” shall mean the Company and any Subsidiary, domestic or foreign, that has been designated by the Board as eligible to participate in the Section 423(b) Component of the Plan. Any Subsidiary that has been designated as eligible to participate in the Plan prior to December 31, 2009 shall be considered to be a Section 423(b) Employer without the requirement for further designation by the Board; provided, that any new Board designation of such entity as a Non-Section 423(b) Employer shall supersede any prior designation or deemed designation.

(u)

“Special Participation Periods” shall mean interim Participation Periods created at the discretion of the Board enabling Employees of Subsidiaries that become Designated Subsidiaries of the Company after an Enrollment Date but more than three (3) months prior to the next succeeding Enrollment Date to participate in the Section 423(b) Component or Non-Section 423(b) Component of the Plan, as applicable. The Enrollment Date of a Special Participation Period shall be a date specified by the Board, and the last day of a Special Participation Period shall be the second succeeding Purchase Date under the Plan.

(v)

“Subsidiary” shall mean a corporation, domestic or foreign, other than the Company, in an unbroken chain of corporations beginning with the Company, if, at the time of grant of an option under the Plan, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

(w)	“Trading Day” shall mean a day on which U.S. stock exchanges and the NASDAQ System are open for trading.

3.	Eligibility.

(a)

Any Employee employed by an Employer for 30 continuous days prior to a given Enrollment Date shall be eligible to participate in the Plan; provided, however, that, (i) for Employees participating in the Non-Section 423(b) Component, to the extent required by the laws of the applicable jurisdiction, an Employee may be eligible to participate in the Plan, notwithstanding that he or she has not been employed by an Employer for 30 continuous days prior to a given Enrollment Date, and (ii) as provided more fully in Section 21 below, the Board may adopt administrative rules, procedures and/or sub-plans limiting the eligibility of or participation by any Employee of a Non-Section 423(b) Employer. The foregoing notwithstanding, only employees of the applicable Designated Subsidiary shall be eligible to participate in a Special Participation Period.

(b)

Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan to the extent that (i) immediately after such grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock (and/or hold outstanding options to purchase capital stock) representing 5% or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) the Employee’s rights to purchase stock under all employee stock purchase plans (as defined in Section 423 of the Code) of the Company and its Subsidiaries accrues at a rate that exceeds $25,000 of stock (determined at the Fair Market Value of the shares on the date of grant) for each calendar year in which such option is outstanding at any time (or such lower limitations that may be imposed with respect to eligible Employees who are subject to laws of a foreign jurisdiction where lower limitations are required).

(c)	Any provisions of the Plan to the contrary notwithstanding, an Employee who has received a hardship withdrawal from the Company’s 401(k) plan, or the 401(k) plan of any Designated Subsidiary, shall be

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4.

Participation Periods. The Plan shall be implemented with overlapping Participation Periods of 12 months’ duration, with new Participation Periods beginning November 1 and May 1 each year. Each Participant shall only be enrolled in one Participation Period at any given time. Plan Participants enrolled in the Plan as of October 31, 2011 will automatically be enrolled in the Participation Period beginning November 1, 2011. Thereafter, each new Participant will initially be enrolled in the first Participation Period that commences after the date the Company’s stock plan administrator receives the Participant’s subscription agreement in accordance with Section 5(a) below. Provided the Participant’s participation in the Plan is not terminated (other than as provided in Section 7(b) hereof), and the Plan is not otherwise terminated, as provided in the Plan prior to the Enrollment Date for the next consecutive Participation Period commencing on the same day of the year, such Participant will remain continuously enrolled in the Participation Periods that commence on that day each year. Except as otherwise provided in the Plan, each Participation Period shall have two Purchase Dates, April 30 and October 31 (in the order in which these dates appear during the Participation Period). The Board may change the duration and timing of Participation Periods and Purchase Dates, provided that any such change that is determined by the Board to adversely affect Participants is announced at least 10 days prior to the scheduled beginning of the first Participation Period to be affected thereafter

5.	Participation

(a)

An eligible Employee may become a Participant in the Plan by completing a subscription agreement in a form provided by the Board authorizing payroll deductions or contributions, where permitted, and filing it manually, or in the manner prescribed by the Board, with the Company’s stock plan administrator by such time as prescribed by the Board, or through such other telephone or electronic arrangements as the Company’s stock plan administrator may prescribe. Contributions other than payroll deductions shall be permitted only to correct errors in the administration of a valid payroll deduction authorization or for an Employee of a Non-Section 423(b) Employer participating in the Non-Section 423(b) Component if the rules of a foreign country prohibit the Non-Section 423(b) Employer from making payroll deductions with respect to such eligible Employee’s Plan participation.

(b)

Payroll deductions/contributions for a new Participant shall begin as soon as administratively possible following the Enrollment Date of the Participant’s initial Participation Period, which in any event shall not be later than the first full payroll period that begins on or after such Enrollment Date, and shall continue unless and until the Participant’s participation in the Plan is terminated, or the Plan is otherwise terminated, as provided in the Plan.

6.	Payroll Deductions.

(a)

At the time a Participant files a subscription agreement, the Participant shall elect to have payroll deductions made on each pay day during the applicable Participation Periods (subject to Section 5(b)) or, where applicable, contributions made in accordance with the established contribution schedule, in whole percentages only not exceeding 15% of the Compensation that the Participant receives on each pay day during the Participation Periods.

(b)	All payroll deductions made for or contributions made by a Participant shall be credited to the Participant’s account under the Plan.

(c)

A Participant may discontinue his or her participation in the Plan as provided in Section 10 hereof or may increase to as high as 15% or decrease to as low as 0% the rate of his or her payroll deductions/contributions by completing and filing with the Company a new subscription agreement authorizing a change in payroll deduction/contribution rate. A decrease in rate shall be effective with the first full payroll period that begins after the Company’s stock plan administrator receives the new subscription agreement. An increase in rate shall be effective as soon as administratively possible following the next succeeding Enrollment Date under the Plan (i.e., November 1 or May 1), without regard to whether such Enrollment Date is the first day of a Participation Period for the Participant, which in any event shall not be later than the first full payroll period that begins on or after such Enrollment Date.

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(d)

A Participant’s subscription agreement shall remain in effect for successive Participation Periods unless changed by the Participant as provided in Section 6(c) above (in which case the modified subscription agreement shall remain in effect for successive Participation Periods as provided herein) or unless the Participant’s participation in the Plan is terminated, or the Plan is otherwise terminated, as provided in the Plan.

(e)

Notwithstanding the foregoing, to the extent necessary to comply with the $25,000 calendar-year accrual and the 5% ownership limitations set forth in Section 3(b), a Participant’s payroll deductions/ contributions may be decreased to 0% at any time prior to a Purchase Date. Payroll deductions/ contributions at the rate provided in such Participant’s then-current subscription agreement shall resume immediately following such Purchase Date, unless the Participant’s participation in the Plan is sooner terminated, or the Plan is otherwise terminated, as provided in the Plan.

7.	Grant of Option.

(a)

On the Enrollment Date of each Participation Period applicable to a Participant, the Participant shall be granted an option to purchase on each Purchase Date of such Participation Period at the applicable Purchase Price up to the number of shares of Common Stock determined by dividing the sum of the Participant’s payroll deductions/contributions accumulated on or prior to such Purchase Date and retained in the Participant’s account, by the applicable Purchase Price; provided, however, that in no event shall a Participant be permitted to purchase on any Purchase Date more than 2,000 shares of Common Stock (subject to adjustment pursuant to Section 18(a)), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 8(b) hereof. The Board may, in its absolute discretion, for future Participation Periods increase or decrease the maximum number of shares of Common Stock a Participant may purchase on a Purchase Date. Exercise of an option shall occur as provided in Section 8, unless the Participant is automatically withdrawn and reenrolled as provided in Section 7(b) hereof, the Participant’s participation in the Plan is terminated, or the Plan is otherwise terminated, as provided in the Plan, or the option is otherwise sooner terminated as provided in the Plan.

(b)

To the extent permitted by any applicable laws, regulations, or stock exchange rules, if the Fair Market Value of the Common Stock on the Trading Day immediately preceding the Enrollment Date for a Participation Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date for the immediately preceding Participation Period, then all Participants in the immediately preceding Participation Period shall automatically be withdrawn from the immediately preceding Participation Period at 11:59 p.m. on the first Purchase Date of such Participation Period (after the exercise of their options on such date) and re-enrolled in the next succeeding Participation Period effective as of 12:01 a.m. on the Enrollment Date of the next succeeding Participation Period.

8.	Exercise of Option.

(a)

Unless a Participant’s participation in the Plan is sooner terminated (including as provided in Section 7(b)), or the Plan is sooner terminated, or the option is otherwise sooner terminated, all as provided in the Plan, the Participant’s option shall be exercised automatically on each Purchase Date for the Participation Period applicable to the Participant, and the maximum number of full shares subject to the option (as limited by Section 3(b), 7(a) and/or 8(b)) shall be purchased for the Participant at the applicable Purchase Price with the accumulated payroll deductions/ contributions. No fractional shares shall be purchased. If the balance in a Participant’s account after the purchase is made is not sufficient to purchase a full share at the applicable Purchase Price, the balance shall be retained in the Participant’s account until the next Purchase Date, subject to earlier termination of the Participant’s participation in the Plan, or earlier termination of the option or Plan, as provided in the Plan. If the maximum number of full shares that the Participant is eligible to purchase is limited by Section 3(b), 7(a) or 8(b) such that a balance greater than the amount needed to purchase a full share at the applicable Purchase Price remains in the Participant’s account after the purchase is made on the second Purchase Date of a Participation Period, the entire balance will be refunded to the Participant. If a Participant is automatically withdrawn and reenrolled pursuant to Section 8(b) and at that time a balance greater than the amount needed to purchase a full share at the applicable Purchase Price remains in the Participant’s account, the entire balance will be refunded to the Participant.

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(b)

If the Board determines that on a given Purchase Date the number of shares with respect to which options are to be exercised exceeds the number of shares of Common Stock available for sale under the Plan as of such Purchase Date, the Board may, in its sole discretion, provide that the Company shall make a pro rata allocation of the shares of Common Stock available for purchase on such Purchase Date in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all Participants. With respect to any payroll deductions/contributions accumulated in a Participant’s account that are not used to purchase shares of Common Stock in a Participation Period pursuant to the preceding sentence, the Board shall direct the refund of such payroll deductions/ contributions to the Participant. In the event the Board, in its sole discretion, determines that it shall not seek authorization from the Company’s stockholders for additional shares for issuance under the Plan with respect to a subsequent Participation Period, the Plan shall automatically terminate.

(c)	All rights to purchase Common Stock offered on a Purchase Date must be exercised within five (5) years of such Purchase Date.

9.	Delivery.

(a)	As promptly as practicable after each Purchase Date, the Company shall arrange the delivery, electronically or otherwise, to accounts in the Participants’ names at a brokerage company selected by the Company of the shares purchased upon exercise of options.

(b)

A Participant may withdraw his or her shares of Common Stock credited to his or her brokerage account at any time (subject to reasonable costs, which are the responsibility of the Participant). For Participants in the Section 423(b) Component, any stock certificate distributed to a Participant may contain a legend requiring notification to the Company of any transfer or sale of the shares of Common Stock prior to the date two years after the beginning date of a Participation Period pursuant to which the shares were purchased.

10.	Withdrawal.

(a)

A Participant may withdraw all, but not less than all, of the payroll deductions/contributions at any time prior to the Purchase Date for a Participation Period by giving written notice to the Company in a form provided by the Company. Such payroll deductions/contributions shall be paid to the Participant promptly after receipt of the Participant’s notice of withdrawal. The Participant’s option for such Participation Period shall automatically terminate, and no further payroll deductions/contributions for the purchase of shares by such Participant shall be made during such Participation Period. If a Participant withdraws from a Participation Period, other than as provided in Section 7(b) hereof, payroll deductions/contributions for the Participant’s account shall not resume at the beginning of the next succeeding Participation Period unless the Participant timely delivers to the Company a new subscription agreement.

(b)	A Participant’s withdrawal from a Participation Period shall not have any effect upon the Participant’s eligibility to participate in any similar plan that may thereafter be adopted by an Employer or in any succeeding Participation Period that begins after the Participation Period from which the Participant withdraws.

11.

Termination of Employment. Upon a Participant’s ceasing to be an Employee for any reason during a Participation Period, the Participant shall be deemed to have withdrawn from the Plan as of the effective date of his or her termination of employment, his or her option(s) shall be terminated automatically, and the payroll deductions/contributions credited to the Participant’s account under the Plan during the Participation Period but not yet used to exercise the Participant’s option(s) shall be refunded to the Participant.

12.	Interest. Interest shall not accrue on the payroll deductions/contributions of a Participant in the Plan.

13.	Stock.

(a)	Subject to adjustment pursuant to Section 18(a), the maximum number of shares of the Common Stock authorized for issuance under the Plan is seven million (7,000,000) shares. Such shares shall be made available from Common Stock currently authorized but unissued.

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(b)	Participants shall have no interest or voting rights in shares covered by options until such options have been exercised.

14.	Administration.

(a)

The Plan shall be administered by the Board. The Board shall have the authority and power to administer the Plan and to make, adopt, construe and enforce rules and regulations not inconsistent with the provisions of the Plan. The Board shall adopt and prescribe the contents of all forms required in connection with the administration of the Plan, including, but not limited to, the subscription agreement, payroll withholding authorizations, withdrawal documents and all other notices required hereunder. The Board shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility, including which entities shall be Designated Subsidiaries, Section 423(b) Employers or Non-Section 423(b) Employers, and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board shall, to the full extent permitted by law, be final and binding upon all parties.

(b)

Notwithstanding the foregoing, the Board may delegate, by resolutions adopted prior to or after the effective date of the Plan, any or all of its authority and responsibilities hereunder to such individual(s) or committee (which may be comprised of Employees, members of the Board, or a combination thereof) as the Board shall designate, to the extent such delegation is permitted by applicable law, the articles and bylaws of the Company and the applicable stock exchange or national market system rules. In the event of such delegation, all references herein to the Board shall, to the extent applicable, be deemed to refer to and include such individual(s) or committee.

15.

Transferability. No payroll deductions/contributions credited to a Participant’s account under the Plan and no rights with regard to the exercise of an option under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way by the Participant (other than by will or the laws of descent and distribution). Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw from the Plan in accordance with Section 10 hereof.

16.	Use of Funds. Payroll deductions/contributions received or held by an Employer under the Plan may be used by such Employer for any corporate purpose. The Employer shall not be obligated to segregate such payroll deductions/contributions, except to the extent such segregation is required by the laws of a jurisdiction applicable to the Employer.

17.

Reports. Individual accounts shall be maintained for each Participant in the Plan. Statements of account will be made available to Participants following each Purchase Date, which statements shall set forth the total amount used from the Participant’s account to purchase Common Stock, the Purchase Price, the number of shares purchased, and the remaining cash balance, if any, in the Participant’s account.

18.	Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, Merger or Asset Sale.

(a)

Subject to any required action by the stockholders of the Company, the Reserves, the maximum number of shares each Participant may purchase on a Purchase Date, and the price per share and the number of shares of Common Stock covered by each outstanding option shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company. The conversion of convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustments shall be made by the Board, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option.

(b)	In the event of the proposed dissolution or liquidation of the Company, the Participation Periods then in progress shall be shortened by setting one new Purchase Date for both Participation Periods (the “New Purchase Date”), which shall be prior to the Date of the Company’s proposed dissolution or liquidation

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(c)

In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, outstanding options shall be assumed or equivalent options substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the options, the Participation Periods then in progress shall be shortened by setting one New Purchase Date. The New Purchase Date shall be prior to the date of the Company’s proposed sale or merger. The Plan shall terminate immediately after the New Purchase Date and prior to the consummation of such proposed sale or merger, unless provided otherwise by the Board. The Board shall notify each Participant in writing at least 10 business days prior to the New Purchase Date that the Purchase Date(s) for the Participant’s option has/have been changed to the New Purchase Date and that the Participant’s option shall be exercised automatically on the New Purchase Date, unless prior to such date the Participant’s participation in the Plan is terminated as provided in the Plan.

19.	Amendment or Termination.

(a)

The Board may at any time and for any reason amend the Plan without the consent of stockholders or Participants, except that any such action shall be subject to the approval of the Company’s stockholders at or before the next annual meeting of stockholders for which the record date is set after such Board action if such stockholder approval is required by any federal, national or state law or regulation of the United States or applicable foreign jurisdiction or the rules of any stock exchange or automated quotation system on which the Common Stock may then be listed or quoted, and the Board may otherwise in its discretion determine to submit other such changes to the Plan to stockholders for approval; provided, however, that no such action may, without the consent of an affected Participant, materially impair the rights of such Participant with respect to any shares of Common Stock theretofore purchased by him or her under the Plan.

(b)

Without stockholder consent and without regard to whether any Participant rights may be considered to have been adversely affected, the Board shall be entitled to designate or un-designate entities as Designated Subsidiaries, Section 423(b) Employers or Non-Section 423(b) Employers, change the Participation Periods, limit the frequency and/or number of changes permitted in the amount withheld or contributed during a Participation Period, establish the exchange ratio applicable to amounts withheld or contributed in a currency other than U. S. Dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Employer’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond to amounts withheld from the Participant’s Compensation, and establish such other limitations and procedures that the Board determines in its sole discretion advisable and that are consistent with the Plan and the Code.

(c)	If the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequences, including, but not limited to:

(i)	Increasing the Purchase Price for any Participation Period, including a Participation Period underway at the time of the change in Purchase Price;

(ii)	Shortening any Participation Period so that the Participation Period ends on a new Purchase Date, including a Participation Period underway at the time of the Board action; and/or

(iii)	Allocating shares.

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(d)

The Plan shall continue in effect unless terminated pursuant to action by the Board, which shall have the right to terminate the Plan at any time without prior notice to any Participant and without liability to any Participant. Upon the termination of the Plan, the balance, if any, then standing to the credit of each Participant in his or her Plan account shall be paid to the Participant and shares of Common Stock theretofore purchased for the Participant under the Plan shall continue to be handled in the manner provided in Section 9.

20.

Section 423(b) Component. Notwithstanding anything in the Plan to the contrary, for purposes of the Section 423(b) Component, the Board, in its sole discretion, may vary the terms and conditions of separate offerings within the Section 423(b) Component by adopting administrative rules and procedures applicable to such Section 423(b) offering, regarding, without limitation, eligibility of an Employee or group of Employees to participate, the definition of Compensation, handling of payroll deductions, making of contributions to the Plan (including, without limitation, in forms other than payroll deductions), the exchange ratio applicable to amounts withheld or contributed in a currency other than U.S. Dollars, obligations to pay payroll and/or applicable withholding taxes, withholding procedures, and procedures for share issuances, in order to conform such terms to the requirements of a jurisdiction outside of the United States in which an eligible Employee is located, in accordance with the goals and objectives of the Plan, and in order to facilitate the operation of the Plan in such jurisdictions. In this regard, unless the Board otherwise determines, the Employees of each Section 423(b) Employer shall be deemed to participate in a separate offering from the Company; the terms of participation within any such offering to the Employees of a Section 423(b) Employer shall be the same for all Employees in such offering, as determined in accordance with Section 423(b) of the Code.

21.

Non-Section 423(b) Component. Notwithstanding anything in the Plan to the contrary, for purposes of the Non-Section 423(b) Component, the Board may, in its sole discretion, adopt administrative rules, procedures and sub-plans applicable to Non-Section 423(b) Employers which are outside the scope of Section 423 of the Code, regarding, without limitation, eligibility of an Employee or group of Employees to participate, the definition of Compensation, handling of payroll deductions, making of contributions to the Plan (including, without limitation, in forms other than payroll deductions), the exchange ratio applicable to amounts withheld or contributed in a currency other than U.S. Dollars, obligations to pay payroll and/or other applicable withholding taxes, withholding procedures, and procedures for share issuances, in order to conform such terms to the requirements of a jurisdiction outside of the United States in which an eligible Employee is located, in accordance with the goals and objective of the Plan, in order to facilitate the operation of the Plan in such jurisdictions and/or in order to exclude Employees who are located in a specific jurisdiction as may be determined advisable by the Board. For purposes of clarity, the terms and conditions contained herein that are subject to variation for each Non-Section 423(b) Employer shall be documented in writing and approved by the Board.

22.

Administrative Costs. The Company will pay the expenses incurred in the administration of the Plan other than any fees or transfer, excise or similar taxes imposed on the transaction pursuant to which any shares of Common Stock are purchased. The Participant will pay any transaction fees or commissions on any sale of the shares of Common Stock and may also be charged the reasonable costs associated with issuing a stock certificate if one is requested by the Participant.

23.

Tax Obligations. To the extent any (i) grant of an option to purchase Common Stock hereunder, (ii) purchase of Common Stock hereunder, or (iii) disposition of Common Stock purchased hereunder gives rise to any tax withholding obligation (including, without limitation, income tax, social insurance, payroll tax, payment on account or other withholding taxes imposed by any jurisdiction), the Board may implement appropriate procedures to ensure that such tax withholding obligations are met. Such procedures may include, without limitation, increased withholding from an Employee’s current compensation, cash payments to an Employer by an Employee, or a sale of a portion of the Common Stock purchased under the Plan, which sale may be required and initiated by the Company. Any such procedure, including offering choices among procedures, will be applied consistently with respect to all similarly situated Employees participating in the Plan (or in an offering under the Plan), except to the extent any procedure may not be permitted under the laws of the

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24.	Notices. All notices or other communications by a Participant to the Company in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

25.

Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the delivery of such shares complies with all applicable provisions of law, domestic or foreign, including, without limitation, the Code, the United States Securities Act of 1933, as amended, the United States Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

26.	Term of Plan. The Plan shall become effective on November 3, 2005, subject to and conditioned upon the stockholders of the Company approving the Plan at their annual meeting on such date. It shall continue in effect for a term of 15 years unless sooner terminated in accordance with its terms.

27.

Severability of Provisions; Prevailing Law. The provisions of the Plan shall be deemed severable. If any such provision is determined to be unlawful or unenforceable by a court of competent jurisdiction or by reason of a change in an applicable statute, the Plan shall continue to exist as though such provision had never been included therein (or, in the case of a change in an applicable statute, had been deleted as of the date of such change). The Plan shall be governed by the laws of the State of North Carolina, to the extent such laws are not in conflict with, or superseded by, United States federal law. All times stated in the Plan shall refer to the time in Durham, North Carolina, USA.

28.	Authorization to Release Necessary Personal Information.

(a)

As a condition of participating in the Plan, each Employee hereby authorizes and directs Employee’s employer to collect, use and transfer in electronic or other form, any personal information (the “Data”) regarding Employee’s employment, the nature and amount of Employee’s compensation and the fact and conditions of Employee’s participation in the Plan (including, but not limited to, Employee’s name, home address, telephone number, date of birth, social security number (or any other social or national identification number), salary, nationality, job title, number of shares of Common Stock held and the details of all options or any other entitlement to shares of Common Stock awarded, cancelled, exercised or outstanding) for the purpose of implementing, administering and managing Employee’s participation in the Plan. Employee understands that the Data may be transferred to the Company or any of its Subsidiaries, or to any third parties assisting in the implementation, administration and management of the Plan, including any requisite transfer to a broker or other third party assisting with the exercise of options under the Plan or with whom shares of Common Stock acquired upon exercise of this option or cash from the sale of such shares may be deposited. Employee acknowledges that recipients of the Data may be located in different countries, and those countries may have data privacy laws and protections different from those in the country of Employee’s residence. Furthermore, Employee acknowledges and understands that the transfer of the Data to the Company or any of its Subsidiaries, or to any third parties is necessary for Employee’s participation in the Plan.

(b)	Employee may at any time withdraw the consents herein, by contacting Employee’s local human resources representative in writing. Employee further acknowledges that withdrawal of consent may affect Employee’s ability to exercise or realize benefits from the option and Employee’s ability to participate in the Plan.

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