Cree, Inc.
CREE INC (Form: DEF 14A, Received: 09/08/2017 16:31:38)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
    
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.
)

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CREE, INC.
(Name of Registrant as Specified In Its Charter)
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CREE_LOGOA09.JPG
_________________________________________________________________

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
_________________________________________________________________

To the Shareholders of Cree, Inc.:

The 2017 Annual Meeting of Shareholders of Cree, Inc. will be held at the offices of the corporation at the Cree Lighting Experience Center, 4408 Silicon Drive, Durham, North Carolina 27703, on Tuesday, October 24, 2017, at 10:00 a.m. local time, to consider and vote upon the following matters and to transact such other business as may be properly brought before the meeting:
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
All shareholders are invited to attend the meeting in person. Only shareholders of record at the close of business on August 29, 2017 are entitled to notice of and to vote at the meeting.
By order of the Board of Directors,

Bradley D. Kohn
Secretary
Durham, North Carolina
September 8, 2017

PLEASE NOTE :

We are primarily providing access to our proxy materials over the Internet pursuant to the Securities and Exchange Commission’s “notice and access” rules. Beginning on or about September 14, 2017, we expect to mail to our shareholders a Notice of Internet Availability of Proxy Materials, which will indicate how to access our 2017 Proxy Statement and 2017 Annual Report on the Internet. The Notice also includes instructions on how you can receive a paper copy of your annual meeting materials, including the notice of annual meeting, proxy statement and proxy card.
Whether or not you plan to attend the meeting in person, please submit voting instructions for your shares promptly using the directions on your Notice or, if you elected to receive printed proxy materials by mail, your proxy card, to vote by one of the following methods: (1) over the Internet, by accessing the website address www.proxyvote.com ; (2) by telephone, by calling the toll-free telephone number 1-800-690-6903; or (3) if you elected to receive printed proxy materials by mail, by marking, dating and signing your proxy card and returning it in the accompanying postage-paid envelope.


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CREE, INC.
____________________
PROXY STATEMENT
____________________

2017 PROXY SUMMARY

This summary highlights information contained in this proxy statement. The summary does not contain all of the information that you should consider; please read the entire proxy statement carefully before voting.
Annual Meeting of Shareholders

Place: Cree, Inc. offices at the Cree Lighting Experience Center, 4408 Silicon Drive, Durham, North Carolina 27703
 
Date and time: Tuesday, October 24, 2017, at 10:00 a.m.
 
Record Date: August 29, 2017
 
Approximate Date of Availability of Proxy Materials : September 14, 2017
 
Voting:  Shareholders as of the record date are entitled to vote. Each share of common stock is entitled to vote for each director nominee and to one vote for each of the other proposals to be voted on.
 
 
 
Voting matters and Board recommendations
Election of eight directors (FOR THE NOMINEES)
 
Approval of amendment to our 2005 Employee Stock Purchase Plan to increase the number of shares authorized for issuance under the plan by 2,500,000 shares (FOR)
 
Ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditors for the fiscal year ending June 24, 2018 (FOR)
 
Advisory (nonbinding) vote to approve executive compensation  (FOR)
 
Advisory (nonbinding) vote on frequency of future shareholder advisory votes on executive compensation  (FOR “one year”)
 
 
 
Board nominees

Charles M. Swoboda. Cree, Inc. Chairman, President and Chief Executive Officer. Cree Director since 1999.
 
Clyde R. Hosein. Executive Vice President and Chief Financial Officer of RingCentral, Inc. Cree Director since 2005.
 
Robert A. Ingram. General Partner in Hatteras Venture Partners. Cree Director since 2008.
 
Darren R. Jackson. Former Board Member and Chief Executive Officer of Advance Auto Parts, Inc. Cree Director since May 2016.
 
C. Howard Nye. Chairman, Chief Executive Officer and President of Martin Marietta Materials, Inc. Cree Director since October 2015.
 
John B. Replogle. Chief Executive Officer and President of Seventh Generation, Inc. Cree Director since 2014.
 
Thomas H. Werner. Chief Executive Officer and Director of SunPower Corporation. Cree Director since 2006.
 
Anne C. Whitaker. Chief Executive Officer and President of Novoclem Therapeutics. Cree Director since 2013.


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Executive officers at end of fiscal year
Charles M. Swoboda , Chairman, President and Chief Executive Officer
 
Michael E. McDevitt , Executive Vice President and Chief Financial Officer
 
Daniel J. Castillo , Executive Vice President and President–Lighting
Approval of amendment to our 2005 Employee Stock Purchase Plan
 
We are seeking shareholder approval of an amendment to our 2005 Employee Stock Purchase Plan to increase the number of shares available for grant by 2,500,000 shares. Our Board of Directors recommends a FOR vote because we believe that the plan helps align the interests of our employees with those of our shareholders and helps us retain and motivate our employees.
 
 
 
Independent auditors
 
Although not required, we ask shareholders to ratify the selection of PricewaterhouseCoopers LLP as our independent auditors for our fiscal year ending June 24, 2018. Our Board of Directors recommends a FOR vote.
 
 
 
Advisory (nonbinding) vote to approve executive compensation
 
Annually, our shareholders consider and vote on the compensation of our named executive officers on an advisory (nonbinding) basis. Our Board of Directors recommends a FOR vote.
 
 
 
Advisory (nonbinding) vote on frequency of future shareholder advisory votes on   executive compensation
 
At least once every six years, our shareholders consider and vote on the frequency of future shareholder votes on compensation of our named executive officers on an advisory (nonbinding) basis. Our Board of Directors recommends a vote FOR “one year”.



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MEETING INFORMATION

The Board of Directors of Cree, Inc. (“Cree” or the “Company”) is asking for your proxy for use at the 2017 Annual Meeting of Shareholders and any adjournments of the meeting. The meeting will be held at our offices at the Cree Lighting Experience Center, 4408 Silicon Drive, Durham, North Carolina 27703, on Tuesday, October 24, 2017, at 10:00 a.m. local time, to conduct the following business and such other business as may be properly brought before the meeting: (1) election of the eight directors listed in this proxy statement; (2) approval of an amendment to the 2005 Employee Stock Purchase Plan, or the ESPP, to increase the number of shares authorized for issuance under the plan by 2,500,000 shares; (3) ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditors for the fiscal year ending June 24, 2018; (4) advisory (nonbinding) vote to approve executive compensation; and (5) advisory (nonbinding) vote on frequency of future shareholder advisory votes on executive compensation.
  
The Board of Directors recommends that you vote FOR the election of the director nominees listed in this proxy statement, FOR approval of the amendment to the ESPP, FOR ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditors for the fiscal year ending June 24, 2018, FOR the advisory (nonbinding) vote to approve executive compensation, and FOR “one year” (as opposed to two or three years) for holding an advisory (nonbinding) vote on frequency of future shareholder advisory votes on executive compensation.
  
Beginning on or about September 14, 2017, proxy materials for the annual meeting, including this proxy statement and our 2017 Annual Report, are being made available to shareholders entitled to vote at the annual meeting. The Annual Report is not part of our proxy soliciting materials.
  
Important Notice Regarding the Availability of Proxy Materials
For the Shareholder Meeting to Be Held on October 24, 2017:

The Annual Report and proxy statement will be available on the Internet at
www.cree.com/annualmeeting.
  
Pursuant to the Securities and Exchange Commission’s “Notice and Access” rules, we are furnishing proxy materials to our shareholders primarily via the Internet. Beginning on or about September 14, 2017, we intend to mail to our shareholders a Notice of Internet Availability of Proxy Materials, or Notice, containing instructions on how to access our proxy materials on the Internet, including our proxy statement and our Annual Report. The Notice also instructs you on how you can vote using the Internet and by telephone. Other shareholders, in accordance with their prior requests, have received e-mail notification of how to access our proxy materials and vote via the Internet or by telephone, or have been mailed paper copies of our proxy materials and a proxy card or voting form.
  
Internet distribution of our proxy materials is designed to expedite receipt by shareholders, lower the cost of the annual meeting, and conserve natural resources. If, however, you would prefer to receive printed proxy materials, please follow the instructions included in the Notice. If you have previously elected to receive our proxy materials electronically, you will continue to receive these materials via e-mail unless you elect otherwise.

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VOTING PROCEDURES
Who Can Vote
Only shareholders of record of the Company at the close of business on August 29, 2017 are entitled to vote at the meeting and any adjournments of the meeting. At that time, there were 97,684,861 shares of the Company’s common stock outstanding, each of which is entitled to one vote on each matter submitted to a vote at the meeting.
How You Can Vote
You may vote shares by proxy or in person using one of the following methods:
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.
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.
How You Can Revoke Your Proxy and Change Your Vote
You can revoke your proxy and change your vote by (1) attending the meeting and voting in person; (2) delivering written notice of revocation of your proxy to the Secretary at any time before voting is closed; (3) timely submitting new voting instructions by telephone or over the Internet as described above; or (4) if you requested printed proxy materials, timely submitting a signed proxy card bearing a later date.
How Your Proxy Will Be Voted
If you timely submit your proxy over the Internet, by telephone, or by proxy card as described above and have not revoked it, your shares will be voted or withheld from voting in accordance with the voting instructions you gave. If you timely submit your proxy as described above without giving voting instructions, your shares will be voted FOR the election of the director nominees listed in this proxy statement, FOR ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors for the fiscal year ending June 24, 2018, FOR approval of the amendment to the ESPP, FOR the advisory (nonbinding) vote to approve executive compensation, and FOR “one year” for the advisory (nonbinding) vote on frequency of future shareholder advisory votes on executive compensation.
How You Can Vote Shares Held by a Broker or Other Nominee
If a broker, bank, custodian or other nominee holds your shares, you may have received a notice or voting instruction form from them. Please follow the directions that your broker, bank, custodian or other nominee provides or contact the firm to determine the voting methods available to you. Brokers are no longer permitted to vote in the election of directors (and many other matters, including Proposals 2, 4 and 5) if the broker has not received instructions from the beneficial owner of shares. It is particularly important, if you are a beneficial owner, that you instruct your broker how you wish to vote your shares because brokers will have discretionary voting authority only with respect to Proposal 3 if you do not instruct your broker how you wish to vote your shares.

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Quorum Required
A quorum must be present at the meeting before business can be conducted. A quorum will be present if a majority of the shares entitled to vote are represented in person or by proxy at the meeting. Shares represented by a proxy with instructions to withhold authority to vote or to abstain from voting on any matter will be considered present for purposes of determining the existence of a quorum. Shares represented by a proxy as to which a broker, bank, custodian or other nominee has indicated that it does not have discretionary authority to vote on certain matters (sometimes referred to as “broker non-votes”) will also be considered present for purposes of determining the existence of a quorum.
Vote Required
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.
As set forth in the Corporate Governance Principles adopted by the Board of Directors, except in cases when there are more nominees than available seats, if a nominee elected to the Board by plurality vote received a number of “withhold” votes that is greater than 50% of all votes cast with respect to that nominee, the nominee shall tender the nominee’s resignation from the Board in writing to the Chairman prior to the first regular meeting of the Board that follows the meeting of shareholders at which the election was held and any meeting of the Board held in connection with it. The resignation will be effective if and when it is accepted by the Board. Promptly after the Board reaches a decision, the Company will publicly disclose the action taken by the Board regarding the director’s tendered resignation.
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.
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.
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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will take into account the outcome of the vote when making future decisions regarding the frequency of future shareholder advisory votes on executive compensation.

Abstentions and broker non-votes will not be counted for purposes of determining whether these proposals have received sufficient votes for approval.
PROPOSAL NO. 1—ELECTION OF DIRECTORS
Nominees for Election as Directors
All eight 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 accompanying proxy may be voted for a substitute nominee, if any, designated by the Board. 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 or her successor has been duly elected and qualified.
The following tables list the nominees for election and information about each nominee. The Governance and Nominations Committee has recommended each nominee to the Board of Directors. Each nominee meets the criteria set forth in the Corporate Governance Principles, including that no Company director shall serve on more than four public company boards of directors, inclusive of service on the Company’s Board. In addition, each nominee meets the minimum share ownership guidelines set forth in the Corporate Governance Principles, under which the Chief Executive Officer is expected to own shares with a value not less than five times his base salary, and each non-employee member of the Board 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, within five years after election or appointment to the Board.
Under the charter of the Governance and Nominations Committee, the Committee is responsible for identifying from a wide field of candidates, including women and minority candidates, and recommending that the Board select qualified candidates for membership on the Board. In identifying candidates, the Committee takes into account such factors as it considers appropriate, which may include (1) ensuring that the Board, as a whole, is diverse as to race, gender, culture, thought and geography, such that the Board reflects a range of viewpoints, backgrounds, skills, experience and expertise, and consists of individuals with various and relevant career experience, relevant technical skills, industry knowledge and experience, financial expertise and local or community ties; (2) minimum individual qualifications, including strength of character, mature judgment, familiarity with the Company’s business and industry, independence of thought and an ability to work collegially; (3) questions of independence, possible conflicts of interest and whether a candidate has special interests or a specific agenda that would impair his or her ability to effectively represent the interests of all shareholders; (4) the extent to which the candidate would fill a present need on the Board; and (5) whether the candidate can make sufficient time available to perform the duties of a director.

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Name
Age
Principal Occupation and Background
Director
Since
Charles M. Swoboda
50
Mr. Swoboda has served as the Company’s Chief Executive Officer since June 2001, as President since January 1999, as a member of the Board of Directors since October 2000 and as chairman since April 2005. He was Chief Operating Officer of the Company from 1997 to June 2001 and Vice President for Operations from 1997 to 1999. Prior to his appointment as Vice President for Operations, Mr. Swoboda served as Operations Manager from 1996 to 1997, as General Manager of the Company’s former subsidiary, Real Color Displays, Incorporated, from 1994 to 1996 and as LED Product Manager from 1993 to 1994. He was previously employed by Hewlett-Packard Company .   In May 2017, the Company announced that Mr. Swoboda will step down from his executive positions with Cree and as a member of the Board of Directors following the appointment of his successor as President and Chief Executive Officer.
Mr. Swoboda’s employment with the Company for the past 24 years in diverse roles, his leadership as the Company’s Chief Executive Officer for sixteen years and his service on the Board of Directors for seventeen years, including his service as Chairman of the Board for the past twelve years, uniquely qualify him for election to the Board of Directors. He brings to the Board a critical perspective and understanding of the Company’s business strategy, and he is enabled by his experience and position as Chief Executive Officer to provide the Board valuable insight into the management and operations of the Company.
2000

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Name
Age
Principal Occupation and Background
Director
Since
Clyde R. Hosein
58
Mr. Hosein has been a member of the Board of Directors since December 2005. From August 2013 to May 2017, he served as Executive Vice President and Chief Financial Officer of RingCentral, Inc., a publicly traded provider of software-as-a-service cloud-based business communications solutions. Prior to this, Mr. Hosein served from June 2008 to October 2012 as Chief Financial Officer of Marvell Technology Group Ltd., a publicly traded semiconductor provider of high-performance analog, mixed-signal, digital signal processing and embedded microprocessor integrated circuits, and he also served as its Interim Chief Operating Officer and Secretary from October 2008 to March 2010. From 2003 to 2008, he served as Vice President and Chief Financial Officer of Integrated Device Technology, Inc., a provider of mixed-signal semiconductor solutions. From 2001 to 2003, he served as Senior Vice President, Finance and Administration and Chief Financial Officer of Advanced Interconnect Technologies, a semiconductor assembly and test company. He has also held other senior level financial positions, including the role of Chief Financial Officer at Candescent Technologies, a developer of flat panel display technology. Early in his career he spent 14 years in financial and engineering roles at IBM Corporation.
Mr. Hosein’s qualifications to serve as a director include his service on the Company’s Board of Directors and its Audit Committee during the past twelve years, his years of experience as an executive officer in publicly traded companies in the semiconductor industry, including his roles in operational management, his substantial experience as a chief financial officer responsible for the finance and accounting functions of publicly traded companies, his qualifications as an audit committee financial expert, and his technical background and significant experience in technology-based companies generally.
2005

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Name
Age
Principal Occupation and Background
Director
Since
Robert A. Ingram
74
Mr. Ingram joined the Board of Directors in December 2008 and has served as Lead Independent Director since October 2011. Since January 2007, he has been a General Partner in Hatteras Venture Partners, a venture capital firm that invests in early stage life science companies in the southeast United States, and he has also served as strategic advisor to the chief executive officer of GlaxoSmithKline plc, a publicly traded pharmaceutical research and development company. From 2003 through 2009, he served as Vice Chairman Pharmaceuticals, GlaxoSmithKline. He previously served as Chief Operating Officer and President of Pharmaceutical Operations of GlaxoSmithKline following the December 2000 merger of Glaxo Wellcome plc and SmithKline Beecham plc. Prior to the merger he served as Chief Executive Officer of Glaxo Wellcome plc and as Chairman, President and Chief Executive Officer of Glaxo Wellcome Inc. Mr. Ingram also serves as Chairman of the Board of Directors of BioCryst Pharmaceuticals, Inc. and Novan, Inc., and serves on the Board of Directors of Malin Corporation plc. He also served as Chairman of the Board of Directors of OSI Pharmaceuticals, Inc. from January 2003 until its sale in June 2010, served on the Board of Directors of Elan Corporation, plc from December 2010 until its sale in December 2013 and as its Chairman from January 2011 until December 2013, and served on the Board of Directors of Valeant Pharmaceuticals International, Inc. from September 2010 to May 2017 and as its Chairman from December 2010 to March 2011 and from January 2016 to May 2016. He previously served as a director of Misys plc, Nortel Networks Corp., Wachovia Corp., Lowe's Companies, Inc., Pharmaceutical Product Development, Inc., Allergan, Inc., Edwards Lifesciences Corporation and Regeneron Pharmaceuticals, Inc. until 2005, 2006, 2008, May 2011, December 2011, December 2012, July 2015 and November 2015, respectively.
Mr. Ingram brings to the Company’s Board of Directors a wealth of experience as a director who has served in several roles on the boards of major publicly traded companies, including his service as the Company’s Lead Independent Director for the past six years, as Chairman of the Governance and Nominations Committee from October 2011 to June 2015, and as Chairman of the Audit Committee from June 2015 to August 2016. He also provides the perspective of a former chief executive officer with substantial leadership experience in the life sciences sector along with insights on operational and other matters relevant to business generally and the semiconductor business in particular, such as research and development and intellectual property. In addition, Mr. Ingram brings to the Board the views and judgment of a leader who is highly respected both locally and internationally for his business expertise and acumen.
2008

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Name
Age
Principal Occupation and Background
Director
Since
Darren R. Jackson
52
Mr. Jackson joined the Board of Directors in May 2016. From July 2004 to January 2016, he served on the Board of Directors of Advance Auto Parts, Inc., and served as its Chief Executive Officer from January 2008 to January 2016. Mr. Jackson also served as President of Advance Auto Parts from January 2008 to January 2009 and from January 2012 to April 2013. Prior to this, Mr. Jackson served in various executive positions with Best Buy Co., Inc., a specialty retailer of consumer electronics, office products, appliances and software, ultimately serving from July 2007 to December 2007 as Executive Vice President of Customer Operating Groups. Mr. Jackson joined Best Buy in 2000 and was appointed as its Executive Vice President–Finance and Chief Financial Officer in February of 2001. Prior to 2000, he served as Vice President and Chief Financial Officer of Nordstrom, Inc., Full-line Stores, a fashion specialty retailer, and held various senior positions, including Chief Financial Officer of Carson Pirie Scott & Company, a regional department store company. Mr. Jackson has also served as a director of Fastenal Company, which sells industrial and construction supplies, since July 2012.
Mr. Jackson has served as Chairman of the Company’s Audit Committee since August 2016. His qualifications to serve as a director include his years as a Chief Executive Officer, President and Chief Financial Officer of publicly traded companies in the retail and distribution industries, including his operational, logistical and executive management, financial and accounting acumen and experience.
2016
C. Howard Nye
54
Mr. Nye joined the Board of Directors in October 2015. Since May 2014, he has served as the Chairman of the Board of Directors of Martin Marietta Materials, Inc., a leading supplier of aggregates and heavy building materials, and has also served as its Chief Executive Officer since January 2010 and as President since August 2006. Mr. Nye previously served as President and Chief Operating Officer of Martin Marietta Materials from 2006 to 2009. Prior to this, he was employed by London-based Hanson PLC, an international building materials company, for nearly 13 years holding various positions of increasing responsibility, including Executive Vice President in the North American Division.
Mr. Nye has served as Chairman of the Company’s Governance and Nominations Committee since August 2016. He brings to the Board extensive leadership, business, operating, mergers and acquisitions, legal, governance, financial, customer-relations, and safety and environmental experience, including over seven years as Chief Executive Officer.  Mr. Nye understands the competitive nature of business and possesses strong managerial skills and broad executive and oversight experience.
2015

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Name
Age
Principal Occupation and Background
Director
Since
John B. Replogle
51
Mr. Replogle joined the Board of Directors in January 2014.  Since March 2011, he has served as Chief Executive Officer and President of Seventh Generation, Inc., a manufacturer and distributor of sustainable household products. From 2006 to 2011, Mr. Replogle served as President and Chief Executive Officer of Burt’s Bees, Inc., and from 2003 to 2006, he served as General Manager of Unilever’s Skin Care division. Previously, he worked for Diageo, Plc for seven years in a number of different capacities, including as President of Guinness Bass Import Company and Managing Director of Guinness Great Britain. He started his career with the Boston Consulting Group. Mr. Replogle also served as a director of Sealy Corporation, a publicly traded mattress manufacturer, from 2010 to 2013, until its sale to Tempur-Pedic International Inc.
Mr. Replogle’s qualifications to serve as a director include significant senior executive leadership experience, including eleven years of experience as chief executive officer at two companies, as well as deep experience in marketing, branding and distribution of consumer goods. This experience provides him valuable perspective in his role as a director and member of our Audit Committee.
2014
Thomas H. Werner
57
Mr. Werner has been a member of the Board of Directors since March 2006. He has served as Chief Executive Officer for SunPower Corporation, a publicly traded manufacturer of high-efficiency solar cells and solar panels, since June 2003, and is also a member of its Board of Directors. Prior to SunPower, he served as Chief Executive Officer of Silicon Light Machines Corporation, an optical solutions subsidiary of Cypress Semiconductor Corporation, from July 2001 to June 2003. Earlier, Mr. Werner was Vice President and General Manager of the Business Connectivity Group of 3Com Corporation, a network solutions company. He is currently also a director of Silver Spring Networks, Inc., an energy solutions company.
Mr. Werner’s qualifications to serve as a director include his eleven years of service on the Company’s Board of Directors and his ten years serving as Chairman of its Compensation Committee. In addition to his technical expertise, he brings to the Board significant executive leadership and operational management experience gained at businesses in the technology sector, and the semiconductor industry in particular, including his experience as a chief executive officer of a publicly traded “green technology” company for the past fourteen years.
2006

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Name
Age
Principal Occupation and Background
Director
Since
Anne C. Whitaker
50
Ms. Whitaker joined the Board of Directors in December 2013. Since January 2017, she has served as Chief Executive Officer and President of Novoclem Therapeutics, a subsidiary of KNOW Bio, LLC, a private life science company headquartered in Raleigh, North Carolina. She previously served from May 2015 to January 2017 as Executive Vice President and Company Group Chairman of Valeant Pharmaceuticals International, Inc., a publicly traded multinational specialty pharmaceutical company headquartered in Québec, Canada. From September 2014 to April 2015, Ms. Whitaker served as the Chief Executive Officer and President and as a member of the Board of Directors of Synta Pharmaceuticals Corp., a publicly traded biopharmaceutical company. From September 2011 to August 2014, she served as the President of North America Pharmaceuticals for Sanofi S.A., a global integrated healthcare leader focused on patients’ needs. From September 2009 to September 2011, Ms. Whitaker served as Senior Vice President and Business Unit Head, Cardiovascular, Metabolic and Urology (CVMU) at GlaxoSmithKline plc, a publicly traded pharmaceutical research and development company. From October 2008 to August 2009, she served as Senior Vice President of Leadership and Organization Development, and prior to that served in various leadership positions in GlaxoSmithKline’s commercial organization. Ms. Whitaker began her pharmaceutical career in 1991 as a metabolic disease specialist with Upjohn Company before joining GlaxoSmithKline as a sales representative in 1992.
Ms. Whitaker brings to the Board her experience as a senior executive and commercial leader in sales and marketing, as well as human resource experience beneficial to the Company as we seek to grow the Company and expand our leadership capabilities. Ms. Whitaker’s leadership experience in the life sciences industry, along with her insights on operations and business generally, such as research and development and intellectual property creation and protection, provide her with a unique perspective in her role as a director and member of our Compensation Committee and Governance and Nominations Committee.
2013


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Summary of Skills of Nominees
 
Swoboda
Hosein
Ingram
Jackson
Nye
Replogle
Werner
Whitaker
Senior executive experience (CEO/CFO)
×
×
×
×
×
×
×
×
Previous public board experience
×
×
×
×
×
×
×
×
Public technology, lighting products, retail and/or industrial sales channels and distribution or consumer product marketing experience
×
×
×
×
×
×
×
×
Global experience with a public company
×
×
×
×
×
×
×
×
Current in issues related to corporate governance
×
×
×
×
×
×
×
×
Track record of achievements that fueled their company’s growth
×
×
×
×
×
×
×
×

The Board of Directors recommends shareholders
vote FOR election of the nominees named above.




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Executive Officers
Mr. Swoboda serves as both an executive officer of the Company and a member of the Board of Directors. Michael E. McDevitt (age 53) and Daniel J. Castillo (age 48) also serve as executive officers of the Company.
Mr. McDevitt was appointed as Executive Vice President and Chief Financial Officer of the Company effective February 4, 2013. Mr. McDevitt previously served as the Company’s Vice President and Interim Chief Financial Officer from May 2012 to February 2013, as Director–Sales Operations from 2011 to May 2012, as Director–Financial Planning from 2005 to 2011 and as Corporate Controller from 2002 to 2005. Additionally, he served as the Company’s Chief Financial Officer and Treasurer on an interim basis from May 2006 through September 2006. Before joining the Company in 2002, Mr. McDevitt was Chief Financial Officer of American Sanitary Incorporated, a privately owned U.S. distributor of janitorial-sanitary maintenance products, from 1997 to 2002. He served from 1994 to 1997 as Director of Acquisitions for Unisource Worldwide, Inc., a publicly traded North American distributor of printing and imaging papers and supply systems.
Mr. Castillo was appointed as Executive Vice President and President–Lighting of the Company on November 7, 2016. He previously held leadership roles for 16 years at Eaton Corporation, a publicly traded multinational power management company, where he served as Senior Vice President of Oil, Gas and IEC Assemblies from January 2015 to November 2016 and as President of Eaton Corporation’s B-line business from November 2011 to January 2015. Prior to his work at Eaton, Mr. Castillo held leadership roles in lighting and other electrical product areas at both Cooper Industries and General Electric.
Code of Ethics
We have adopted a Code of Ethics applicable to our senior financial officers, including our Chief Executive Officer, or CEO, Chief Financial Officer, or CFO, and Executive Vice Presidents. The full text of our Code of Ethics is published on our website at www.cree.com . Consistent with Item 5.05 of Form 8-K, we intend to disclose future amendments to, or waivers from, the Code of Ethics on our website within four business days following the date of such amendment or waiver. We will also provide a copy of our Code of Ethics to any person, without charge. All such requests should be in writing and sent to the attention of the Corporate Secretary, Cree, Inc., 4600 Silicon Drive, Durham, NC 27703.
Board Composition and Independence of Directors
The size of the Board of Directors was fixed at not less than five nor more than nine members by the Company’s shareholders, with the Board determining the number within that range from time to time. Eight persons have been nominated for election at the annual meeting. The accompanying proxy cannot be voted for more than eight nominees.
A majority of the Board of Directors must be comprised of independent directors for the Company to comply with the listing requirements of The Nasdaq Stock Market LLC, or the Nasdaq Listing Rules. Currently, the Board of Directors is composed of Messrs. Swoboda, Hosein, Ingram, Jackson, Nye, Replogle, and Werner and Ms. Whitaker. The Board of Directors has determined that seven of the present directors—Messrs. Hosein, Ingram, Jackson, Nye, Replogle, and Werner and Ms. Whitaker—are each an “independent director” within the meaning of the applicable Nasdaq Listing Rules. Additionally, the Board of Directors previously determined that Robert L. Tillman, who served on the Board of Directors until his retirement from the Board in October 2016, was also an “independent” director within the meaning of these rules.

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The Leadership Structure of the Board of Directors
The leadership of the Board of Directors includes the Chairman of the Board, the Lead Independent Director, and the Chairman of each of the Audit Committee, the Compensation Committee and the Governance and Nominations Committee.
The responsibilities of the Chairman of the Board under our Bylaws are to preside at meetings of the Board of Directors and shareholders and to perform such other duties as may be directed by the Board from time to time. The Chairman also has the power to call meetings of the Board of Directors and of the shareholders. Mr. Swoboda, our CEO since 2001, has served as Chairman of the Board since 2005.
The Board has adopted Corporate Governance Principles that call for the Board to designate a Lead Independent Director any time that the Chairman of the Board is not an independent director. Our Lead Independent Director, Mr. Ingram, has served in that capacity since 2011. The independent directors meet at regularly scheduled sessions immediately following each regularly scheduled Board of Directors meeting without other directors or members of management present. As specified in the Corporate Governance Principles, the responsibilities of the Lead Independent Director include the following:
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.
The day-to-day work of the Board of Directors is conducted through its three principal standing committees—Audit, Compensation and Governance and Nominations—to which the Board has delegated authority and responsibilities in accordance with the committees’ respective charters. The Chairmen of each of these committees are independent directors appointed by the Board upon the recommendation of the Governance and Nominations Committee. Under our Corporate Governance Principles, the Chairman of each committee is responsible for development of the agenda for committee meetings, and each committee must regularly report to the Board of Directors on the discussions and actions of the committee.
The Board of Directors has determined that this leadership structure is appropriate for the Company and best serves the interests of the shareholders under the present circumstances. In particular, the Board has determined that the Company is best served by having Mr. Swoboda hold the position of Chairman of the Board in addition to his role as CEO, with Mr. Ingram serving as Lead Independent Director. This determination is based in part upon the experience, leadership qualities and skills that Mr. Swoboda and Mr. Ingram each bring to the Board, as detailed in the section captioned “Nominees for Election as Directors” on page 6. In addition, Mr. Swoboda is the director in the best position to establish the agendas for meetings of the Board and to lead the discussions of the Board regarding strategy, operations and management, because he is responsible for the formulation and day-to-day execution of the strategy and business plans reviewed with the Board. Although the Board believes this structure is appropriate under the present circumstances, the Board has also affirmatively determined not to adopt a policy on whether the roles of Chairman and CEO should be separated or combined because the Board believes that there is no single best blueprint for structuring board leadership and that, as circumstances change, the optimal leadership structure may change.
Board’s Role in Risk Oversight
The Board, acting through itself or one or more of its committees, has general oversight responsibility for corporate risk management, including oversight of management’s implementation of risk management practices. While the Board is responsible for risk oversight, management is ultimately responsible for assessing and managing

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our risk exposures. The Board directly oversees management’s assessment, mitigation efforts and monitoring of strategic and operational risks, such as those relating to competitive dynamics, market trends and developments in the Company’s industry and changes in economic conditions. Senior management regularly updates business plans for each of the Company’s product lines, including an assessment of strategic and operational risks and responses to identified risks, and members of the Board and senior management meet annually to review these plans. In addition, senior management reports to the Board at each quarterly Board meeting on progress made against these strategic plans, including an update on changes in risk exposure and management’s responses to the changes.
The Board also fulfills its risk oversight role through its committees. Specifically, the Audit Committee charter assigns it the responsibility to review periodically with management, the internal auditors, and the independent auditors the Company’s significant financial risk exposures, including the Company’s policies with respect to risk assessment and Company-wide risk management, and to assess the steps management has taken to monitor and control such exposures. The Audit Committee regularly discusses material risks and exposures with our independent registered public accounting firm and receives reports from our accounting and internal audit management personnel regarding such risks and exposures and how management has attempted to minimize the exposures. The Audit Committee’s primary focus is financial risk, including our internal control over financial reporting. Particular areas of focus of the Audit Committee include risks associated with taxes, liquidity, investments, information technology security, material litigation, and compliance.
Similarly, the Compensation Committee charter assigns it the responsibility to review periodically with management the Company’s compensation programs as they relate to risk management practices and risk-taking incentives, including an assessment of whether the Company’s compensation policies and practices encourage excessive or inappropriate risk-taking. The Committee also considers risk management as it develops and approves incentive and other compensation programs for our executive officers, and it performs risk oversight in the area of management succession.
Each of these committees reports to the Board of Directors with respect to the risk categories it oversees. These ongoing discussions enable the Board to monitor our risk exposure and evaluate our risk mitigation efforts.
Compensation Program Risk Assessment
We have assessed our compensation programs and have concluded that risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on us. The risk assessment process included a review by management and by Radford, an Aon Hewitt Company, independent consultants to the Compensation Committee, of compensation policies and practices, focusing on programs with variable compensation, specifically:
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.
Based upon this review, we concluded that our compensation policies and practices do not encourage excessive or inappropriate risk-taking.  We believe our programs are appropriately designed to encourage our employees to make decisions that should result in positive short-term and long-term results for our business and our shareholders.  Management and Radford reviewed the results of this review with the Compensation Committee at a meeting in August 2017, and the Committee concurred with management’s assessment at that time.

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Attendance at Meetings
The Board of Directors held eleven meetings during fiscal 2017. Each incumbent director attended or participated in 75% or more of the aggregate number of meetings of the Board of Directors held during the period in which he or she was a director and the number of meetings of committees on which he or she served that were held during the period of his or her service.
The Company expects all directors to attend each annual meeting of shareholders absent good reason. Seven of the eight directors serving at that time attended the 2016 Annual Meeting of Shareholders.
Standing Committees
The standing committees of the Board of Directors include the Audit Committee, the Governance and Nominations Committee and the Compensation Committee. Each of these committees operates under a written charter adopted by the Board of Directors, copies of which are available on the Company’s website at www.cree.com . Each committee is composed solely of independent directors. The following is a brief description of the responsibilities of each of the existing standing committees and their composition.
Audit Committee
The Audit Committee is appointed by the Board of Directors to oversee the accounting and financial reporting processes of the Company and audits of the Company’s financial statements. The responsibilities of the Audit Committee include acting on the Board of Directors’ behalf in providing oversight with respect to (1) the quality and integrity of the Company’s financial statements and internal accounting and financial controls; (2) all audit, review and attest services relating to the Company’s financial statements and internal controls, including the appointment, compensation, retention and oversight of the work of the independent auditors engaged to provide audit services to the Company; and (3) the Company’s compliance with legal and regulatory requirements. In addition, the Audit Committee is charged with conducting appropriate review and oversight of any related person transactions, other than related person transactions for which the Board of Directors has delegated review to another independent body of the Board of Directors.
The members of the Audit Committee during fiscal 2017 were Messrs. Ingram, Hosein, Jackson, Nye and Replogle. On August 24, 2016, Mr. Nye stepped down from the Audit Committee in connection with his appointment to the Compensation Committee. The Board of Directors has determined that all members of the Committee are “independent directors” within the meaning of the applicable Nasdaq Listing Rules, including the special independence requirements applicable to Audit Committee members. Mr. Ingram served as Chairman of the Audit Committee from June 2015 through the August 23, 2016 meeting of the Committee. Mr. Jackson became the Chairman of the Audit Committee on August 24, 2016. The Board of Directors has determined that each of Messrs. Ingram, Hosein, Jackson, Nye and Replogle is an “audit committee financial expert” as defined in Item 407 of Regulation S-K of the Securities and Exchange Commission. The Audit Committee held eight meetings during fiscal 2017. The Audit Committee from time to time also takes action by unanimous written consent in lieu of holding a meeting.
Governance and Nominations Committee
The Governance and Nominations Committee is appointed by the Board of Directors to assist the Board of Directors in fulfilling its responsibilities to shareholders by (1) identifying individuals qualified to become directors and recommending that the Board of Directors select the candidates for all directorships to be filled by the Board of Directors or by the shareholders; (2) upon the recommendation of the Compensation Committee, determining compensation arrangements for non-employee directors; (3) developing and recommending to the Board of Directors corporate governance principles for the Company; and (4) otherwise taking a leadership role in shaping the corporate governance of the Company.
The members of the Governance and Nominations Committee during fiscal 2017 were Messrs. Tillman, Hosein, Ingram, Jackson, Nye, Replogle, and Werner and Ms. Whitaker. The Board of Directors has determined that all members of the Committee are “independent directors” within the meaning of the applicable Nasdaq Listing Rules.

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Mr. Tillman served as Chairman of the Governance and Nominations Committee from June 2015 through the August 23, 2016 meeting of the Committee. Mr. Nye became the Chairman of the Governance and Nominations Committee on August 24, 2016. The Governance and Nominations Committee charter establishes a policy with regard to the consideration of director candidates, including those candidates recommended by shareholders. The Committee will consider written nominations properly submitted by shareholders according to procedures set forth in the Company’s Bylaws. For a description of these procedures and policies regarding nominations see “Procedures for Director Nominations” and “2018 Annual Meeting of Shareholders” on page 64 below. The Governance and Nominations Committee held four meetings during fiscal 2017. The Governance and Nominations Committee from time to time also takes action by unanimous written consent in lieu of holding a meeting.
Compensation Committee
The Compensation Committee is appointed by the Board of Directors to assist the Board of Directors in discharging its overall responsibility relating to executive officer and director compensation and to oversee and report to the Board of Directors as appropriate on the Company’s compensation and benefit policies, programs and plans, including its stock-based compensation programs and employee stock purchase plan. The Compensation Committee approves the compensation of all executive officers, administers the Company’s stock-based compensation programs and recommends compensation for non-employee directors to the Governance and Nominations Committee for approval. In addition, the Compensation Committee is charged with conducting appropriate review and oversight of any related person transactions involving compensation for directors or executive officers or their immediate family members and engaging and evaluating the Company’s compensation advisors, including evaluation of the advisors’ independence in advance of engagement.
The Compensation Committee may delegate its authority to adopt, amend, administer and/or terminate any benefit plan other than retirement plans or stock-based compensation plans or non-stock-based compensation plans in which directors or executive officers are eligible to participate to the Company’s CEO, any other officer of the Company, or to a committee the membership of which consists of at least one Company officer. To the extent not inconsistent with governing requirements, the Committee may also delegate its authority to grant equity awards other than awards to directors and executive officers to a committee comprised solely of executive officers or to one or more executive officers and may delegate its authority for day-to-day administration of the Company’s stock-based plans to any officer or employee of the Company.
The Compensation Committee generally makes decisions and recommendations regarding annual compensation at its August meeting each year. The Committee solicits the recommendations of the Company’s CEO with respect to the compensation of the Company’s executive officers other than himself and factors these recommendations into the determination of compensation, as described in “Compensation Discussion and Analysis.” In addition, the Compensation Committee engaged Radford to conduct an annual review of the Company’s compensation program for its executive officers and directors, including a review for fiscal 2017. Radford provided the Committee with relevant market data and recommendations to consider when making compensation decisions with respect to the executive officers and in making recommendations to the Governance and Nominations Committee with respect to the compensation of non-employee directors. The Company also engaged Radford for additional services as further discussed in the section entitled “Role of Compensation Consultant” on page 34 below.
The members of the Compensation Committee during fiscal 2017 through August 23, 2016 were Messrs. Werner and Tillman and Ms. Whitaker. On August 24, 2016, Mr. Nye was appointed to the Compensation Committee, and also stepped down from the Audit Committee on that date. The Board of Directors has determined that all members of the Committee are “independent directors” within the meaning of the applicable Nasdaq Listing Rules. Mr. Werner is Chairman of the Compensation Committee and has served in that capacity since 2007. The Compensation Committee held five meetings during fiscal 2017. The Compensation Committee from time to time also takes action by unanimous written consent in lieu of holding a meeting.


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Certain Transactions and Legal Proceedings
Transactions with Intematix Corporation
In July 2010, Mark Swoboda was appointed Chief Executive Officer of Intematix Corporation, or Intematix. Prior to his appointment as Chief Executive Officer, Mr. Swoboda was unaffiliated with Intematix. Mark Swoboda is the brother of the Company’s Chairman, CEO and President, Charles M. Swoboda. For many years, beginning before Mark Swoboda became affiliated with Intematix, the Company has purchased raw materials from Intematix pursuant to standard purchase orders in the ordinary course of business. During fiscal 2017, the Company purchased $2.3 million of raw materials from Intematix pursuant to standard purchase orders. The Company anticipates that it will continue to purchase raw materials from Intematix in the future pursuant to standard purchase orders.
Review and Approval of Related Person Transactions
The Audit Committee must approve any related person transaction, other than any related person transaction for which the Board of Directors has delegated review to another independent body of the Board of Directors. The Board of Directors has delegated review of any related person transaction involving compensation for directors or executive officers or their immediate family members to the Compensation Committee. “Related person transaction” is defined in the Audit Committee and Compensation Committee charters as any transaction required to be disclosed pursuant to Securities and Exchange Commission Regulation S-K, Item 404, and any other transactions for which approval by an independent body of the Board of Directors is required pursuant to applicable law or listing standards applicable to the Company. In determining whether to approve such transactions, the members of the Audit Committee, the Compensation Committee, or another independent body of the Board of Directors delegated by the Board of Directors, may exercise their discretion in performance of their duties as directors.  These duties include the obligation of a director under North Carolina law to “discharge his duties as a director, including his duties as a member of a committee:  (1) in good faith; (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (3) in a manner he reasonably believes to be in the best interests of the corporation.” North Carolina General Statutes Section 55-8-30(a). The Audit Committee generally approves related person transactions and approved the related person transactions described above under “Certain Transactions and Legal Proceedings.”
Section 16(a) Beneficial Ownership Reporting Compliance    
Section 16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, requires that the Company’s directors and executive officers, and persons who own more than ten percent 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. Directors, officers and greater-than-ten-percent beneficial owners are required by Securities and Exchange 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 our directors, officers and ten percent beneficial owners were complied with on a timely basis during fiscal 2017.

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PROPOSAL NO. 2—APPROVAL OF AMENDMENT TO
2005 EMPLOYEE STOCK PURCHASE PLAN

General
We are requesting that shareholders approve a proposed amendment to the 2005 Employee Stock Purchase Plan, or ESPP. The amendment was approved at a meeting of the Board of Directors on August 28, 2017 and will become effective only upon shareholder approval. If approved by the shareholders, the proposed amendment will increase the number of shares that may be issued under the ESPP by 2,500,000 shares. The ESPP provides employees of the Company and certain of its subsidiary corporations with an incentive and opportunity to purchase common stock of the Company through payroll deductions at a purchase price equal to 85% of the fair market value of the common stock on the purchase date, plus taxes, if any, imposed on the transaction.
If approved, the amendments would revise Section 13(a) of the ESPP to read as follows:
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.”
The ESPP is filed as Appendix C to the Company’s definitive proxy statement (File No. 000-21154) filed with the Securities and Exchange Commission on September 8, 2017, which is available online through the Securities and Exchange Commission’s EDGAR System and through the “Investor Relations” section of the Company’s website at investor.cree.com/sec.cfm . You may also request a copy of the ESPP, as currently in effect, by sending a written request to: Director, Investor Relations, Cree, Inc., 4600 Silicon Drive, Durham, North Carolina 27703. 
On November 3, 2005, the Company’s shareholders approved the ESPP to succeed the Company’s 1999 Employee Stock Purchase Plan, which terminated on October 31, 2005. Upon its adoption in 2005, the ESPP authorized up to 600,000 shares of the Company’s common stock for issuance under the plan. On October 30, 2008, the Company’s shareholders approved an amendment to the ESPP increasing the number of shares that may be issued under the plan by 900,000 shares; on October 25, 2011, the Company’s shareholders approved an amendment to the ESPP increasing the number of shares that may be issued under the plan by 1,000,000 shares; and on October 29, 2013, the Company’s shareholders approved an amendment to the ESPP increasing the number of shares that may be issued under the plan by 2,000,000 shares and extending the plan term for five years to November 3, 2020. As of September 5, 2017, a total of 4,397,892 shares have been purchased pursuant to the ESPP, leaving 102,108 shares remaining for future issuance. If the amendment is approved, the number of shares authorized for issuance under the ESPP would increase by 2,500,000 shares.
We believe the ESPP is essential to the Company’s future success and encourage shareholders to vote in favor of the amendment.
The Board of Directors recommends
shareholders vote FOR Proposal No. 2.
Description of ESPP
The following is a description of the ESPP as proposed to be amended. This description is merely a summary of material provisions of the plan and is qualified by the full text of the amended plan as filed as Appendix C to the Company’s definitive proxy statement filed with the Securities and Exchange Commission on September 8, 2017.
Purpose . The purpose of the ESPP is to provide employees (including officers) of the Company and certain of its subsidiary corporations with an opportunity to purchase common stock through payroll deductions.
Administration . The ESPP is currently administered by the Compensation Committee of the Board of Directors. All questions of interpretation or application of the ESPP will be determined by the Committee, whose decisions will be final, conclusive and binding upon all parties.
Eligibility and Participation . Any individual who is treated as an active employee in the records of the Company or certain of its subsidiary corporations, as designated from time to time by the Committee (other than employees subject to the laws of certain countries that would prohibit participation in the ESPP) and who has been employed for at least 30 continuous days prior to the date of his or her participation is eligible to participate in the ESPP, subject to additional limitations imposed by Section 423(b) of the Internal Revenue Code of 1986, as amended, or the Code, and limitations on stock ownership described in the ESPP. As of September 5, 2017, there were approximately 3,490 employees eligible to participate in the ESPP.

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Eligible employees become participants in the ESPP by delivering to the Company’s stock plan administrator, prior to the commencement of the applicable participation period, a subscription agreement authorizing payroll deductions or by such telephone or other electronic arrangements as the Committee may prescribe.
Participation Periods . The ESPP is implemented by participation periods of twelve months’ duration, with new participation periods beginning on May 1 and November 1 of each year. Each participation period has two six-month purchase periods concluding with a purchase every October 31 and April 30. The ESPP also provides for special interim participation periods to enable employees of subsidiaries that become designated subsidiaries under the plan after the beginning of a participation period, but at least three months prior to the beginning of the next participation period, to participate in the ESPP. The Committee has the power to alter the duration of the participation periods and purchase dates without shareholder approval.
Securities to be Sold . The Company is authorized to issue shares of the Company’s common stock, par value $0.00125 per share, pursuant to options granted under the ESPP. Shares subject to options under the plan will be made available from the authorized and unissued shares of the Company’s common stock. If the amendment is approved by shareholders, the aggregate number of shares that may be issued under the ESPP will be 7,000,000 of which 4,397,892 shares have previously been issued. The last sale price of the Company’s common stock on September 5, 2017 was $24.59 per share, as reported by Nasdaq.
Purchase Price . The purchase price at which shares are sold on a purchase date under the ESPP is the sum of (1) 85% of the fair market value of common stock on the first day of the twelve-month participation period or the purchase date, whichever is lower; and (2) any transfer, excise or similar tax imposed on the transaction. The fair market value of common stock on a given date is the closing sale price on Nasdaq for that date, unless it is not open for trading on that date, in which case the fair market value will be the closing sale price reported by Nasdaq on the last trading day immediately preceding the given date.
Payroll Deductions . The purchase price of the shares to be acquired under the ESPP is accumulated by payroll deductions over each purchase period. The rate of deductions may not exceed 15% of a participant’s compensation. A participant may decrease the rate of payroll deductions by filing with the Company a new authorization for payroll deductions and may only increase the rate of payroll deductions at the beginning of each purchase period. All payroll deductions made for a participant are credited to the participant’s account under the ESPP and deposited with the general funds of the Company to be used for any corporate purpose.
Grant and Exercise of Option . At the beginning of a participation period, each participant is granted an option to purchase on each purchase date during that participation period up to the number of shares of the Company’s common stock determined by dividing the sum of the participant’s accumulated payroll deductions for the participation period by the applicable purchase price; provided that the number of shares subject to an option shall not exceed 2,000 shares of the Company’s common stock on any purchase date. On each purchase date prior to a participant’s withdrawal from the ESPP, the maximum number of full shares subject to an option that are purchasable with the accumulated payroll deductions in the participant’s account will be purchased for the participant at the applicable purchase price. If, on any purchase date, the number of shares with respect to which options are to be exercised exceeds the number of shares remaining available for issuance under the ESPP, the Committee may make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as practicable. With respect to any payroll deductions that are not used to purchase common stock due to such pro rata allocation, the Committee will direct the refund of the unused payroll deductions to the participant. If the Committee determines that it will not seek authorization from shareholders for additional shares for issuance under the ESPP for subsequent participation periods, the ESPP will automatically terminate.
No employee may participate in the ESPP if, immediately after the grant of an option, the employee would own 5% or more of the total combined voting power or value of all classes of stock of the Company or of its majority-owned subsidiaries (including stock that may be purchased under the ESPP or pursuant to any outstanding options), and no employee will be granted an option under the ESPP to the extent that the employee’s rights to buy stock under all employee stock purchase plans of the Company or any subsidiary accrues at a rate that exceeds $25,000 worth of stock (determined based on the fair market value of the shares at the time the option is granted) for each calendar year in which any such option is outstanding at any time.
Withdrawal . An employee may terminate his or her participation in a given participation period by giving written notice to the Company of his or her election to withdraw at any time prior to a purchase date during such participation period. All payroll deductions taken during the participation period that have not been used to purchase shares will be returned to the participant upon receipt of the withdrawal notice. Such withdrawal will automatically terminate the participant’s interest in that participation period; the participant will not be automatically enrolled in a subsequent participation period but may choose to enroll in a subsequent participation period by timely delivering to the Company a new subscription agreement.
Under an automatic reset feature, if the fair market value of a share of the Company’s common stock on the trading day immediately before the first day of a participation period is less than the fair market value of a share on the first day of the immediately preceding participation period, all participants will be automatically withdrawn from the immediately preceding

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participation period following the purchase of shares on the first purchase date of that participation period and re-enrolled in the next succeeding participation period.
Termination of Employment . If a participant’s employment terminates for any reason, including retirement or death, the participant will be deemed to have withdrawn from the ESPP on the date of employment termination.
Adjustments for Changes in Capitalization . In the event any change is made in the Company’s capitalization during a participation period, such as a stock split or stock dividend on common stock, which results in an increase or decrease in the number of shares of common stock outstanding without receipt of consideration by the Company, appropriate adjustments will be made in the purchase price and in the number of shares subject to purchase under the ESPP, as well as in the number of shares reserved for issuance under the ESPP.
In the event of the proposed dissolution or liquidation of the Company, the participation periods then in progress will be shortened. A new purchase date prior to the date of the proposed dissolution or liquidation will be set, and the ESPP will terminate thereafter. In the event of a merger or sale of substantially all of the assets of the Company, outstanding options under the ESPP will be assumed by the successor corporation or equivalent options will be substituted, or the participation periods then in effect will be shortened and a new purchase date will be set prior to the date of the proposed sale or merger.
Nonassignability . No rights or accumulated payroll deductions of an employee under the ESPP may be pledged, assigned, transferred or otherwise disposed of in any way for any reason other than death. Any attempt to do so may be treated by the Committee as an election to withdraw from the ESPP.
Amendment and Termination of ESPP . The Committee may at any time amend the ESPP without the consent of shareholders or participants, except that any such action will be subject to the approval of the Board of Directors and the Company’s shareholders at or before the next annual meeting of shareholders after such Board action if such approval is required by any laws, rules or regulations, and the Committee may, at its discretion, determine to submit other changes to the ESPP to the Board and shareholders for approval. In no case may any amendment materially impair the rights of a participant with respect to any shares of common stock previously purchased for the participant under the ESPP without the participant’s consent or disqualify the ESPP under Section 423 of the Code. The ESPP will terminate on November 3, 2020, unless sooner terminated.
Foreign Jurisdictions . The Committee may, in its sole discretion, amend or vary the terms of the ESPP 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 order to meet the goals and objective of the plan. The Committee may also establish one or more sub-plans for these purposes and/or establish administrative rules and procedures to facilitate the operation of the ESPP in such jurisdictions.
Certain Federal Income Tax Consequences for Participants Subject to U.S. Tax Law
The ESPP is intended to qualify as an “employee stock purchase plan” under the provisions of Sections 421 and 423 of the Code. Under these provisions, participants will not recognize income for federal income tax purposes either upon enrollment in the ESPP or upon any purchase of stock thereunder. All tax consequences are deferred until a participant sells the stock acquired under the ESPP, disposes of such stock by gift or dies.
Upon disposition of the shares, a participant will be subject to tax, and the amount of the tax will depend upon the holding period for the shares. If the shares have been held by the participant for more than two years after the date of the option grant and more than one year after exercise of the option, the participant will recognize ordinary income equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price; or (2) 15% of the fair market value of the shares at the time the option was granted. The ordinary income recognized by the participant will be added to the participant’s basis in the shares, and any additional gain or loss realized by the participant upon disposition of the shares will be taxed as long-term capital gain or loss. If the participant disposes of the shares before the expiration of these holding periods, the participant will generally recognize ordinary income for federal income tax purposes equal to the excess of the fair market value of the shares on the purchase date over the purchase price. The ordinary income recognized by the participant will be added to the participant’s basis in the shares, and any additional gain or loss will be taxed as long-term or short-term capital gain or loss, depending on the holding period.
The Company will be entitled to a deduction for amounts taxed as ordinary income to a participant only to the extent that ordinary income must be reported upon disposition of shares by the participant before the expiration of the holding periods described above.
The foregoing does not purport to be a complete summary of the effect of federal income taxation of ESPP transactions upon participants and the Company. It also does not address 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.

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Plan Awards
Participation in the ESPP is voluntary and dependent on each eligible employee’s election to participate and his or her determination as to the level of payroll deductions. Accordingly, future purchases under the ESPP are not determinable. Non-employee directors are not eligible to participate in the ESPP. The following table sets forth with respect to each individual and group listed below (1) the aggregate number of shares of the Company’s common stock purchased under the ESPP since its inception through the most recent purchase date, April 30, 2017; and (2) the dollar value of the benefit received with respect to such purchases.
Cumulative Grants Since
Plan Inception in 2005

 
 


No. of Shares
 
Dollar Value of Benefit (1)
Charles M. Swoboda
Chairman, Chief Executive Officer and President
 
10,496

 
$
72,494

Michael E. McDevitt
Executive Vice President and Chief Financial Officer
 
10,302

 
$
69,642

Daniel J. Castillo
Executive Vice President and President–Lighting
 

 

Franco Plastina
Former Executive Vice President–Power & RF
 
2,050

 
$
7,449

Clyde R. Hosein
 

 

Robert A. Ingram
 

 

Darren R. Jackson
 

 

C. Howard Nye
 

 

John B. Replogle
 

 

Thomas H. Werner
 

 

Anne C. Whitaker
 

 

All current executive officers as a group
 
22,848

 
$
149,585

All current directors who are not executive officers as a group
 

 

All associates of directors, executive officers or nominees
 

 

All other persons who received or are to receive 5% of plan awards
 

 

All employees, including all current officers who are not executive officers, as a group
 
4,375,044

 
$
33,598,937

________________
(1)
Market value of shares on the date of purchase, minus the purchase price under the ESPP.
Registration with the Securities and Exchange Commission
We intend to file a Registration Statement on Form S-8 relating to the issuance of the additional shares of common stock under the ESPP with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, as soon as practicable after approval of the amendment to the ESPP by our shareholders.
Equity Compensation Plans
As of September 5, 2017:
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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The following table provides information, as of June 25, 2017, for all of the Company’s compensation plans (including individual compensation arrangements) under which it is authorized to issue equity securities.
Equity Compensation Plan Information
Plan Category
 
(a)
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights (1)
 

(b)
Weighted average
exercise price of
outstanding options,
warrants and rights (2)


(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) (1)
Equity compensation plans approved by security holders
 
13,005,181

(3)
 
$
38.29

 
6,073,088

(4)
Equity compensation plans not approved by security holders
 
40,997

(5)
 
$
3.01

 
65,083

(6)

Total
 
13,046,178

 
 
$
38.27

 
6,138,171

 
________________
(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.
As of June 25, 2017, the only compensation plans or arrangements under which the Company is authorized to issue equity securities and which have not been previously approved by the shareholders are the Deferral Program and the options assumed under the LLF Plan. The LLF Plan has been terminated as to future grants. The following is a brief description of the material features of these plans; this description is not intended to be a complete description of the plans and is qualified in its entirety by reference to the full text of the applicable plan:
LLF Plan. In connection with the acquisition of LLF in February 2008, pursuant to which LLF became the Company’s wholly owned subsidiary, the Company assumed certain outstanding stock options granted under the LLF Plan. Since the closing of the acquisition, no additional stock options have been awarded, nor are any authorized to be awarded, under the LLF Plan. As of June 25, 2017, there were 6,080 nonqualified stock options outstanding under the LLF Plan.
Deferral Program . The Company offers its non-employee directors the opportunity to receive all or a portion of their cash compensation in shares of the Company’s common stock and to defer the time of receipt of such shares. A non-employee director may elect to receive a lump sum payment or annual installment payments of the shares following such director’s separation from service with the Company. Non-employee directors must make their deferral elections by December 31 of the prior year. The Board of Directors adopted the plan in August 2009, and it became effective on January 1, 2010. As of June 25, 2017, there were 100,000 shares reserved for issuance under the Deferral Program, of which 34,917 shares have been credited to directors’ accounts.


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OWNERSHIP OF SECURITIES
Principal Shareholders and Share Ownership by Management
The following table sets forth information regarding the beneficial ownership of the Company’s common stock as of September 5, 2017 by (1) each person known to the Company to be the beneficial owner of more than 5% of the outstanding common stock; (2) each person named in the Summary Compensation Table on page 46; (3) each person serving as a director or nominated for election as a director; and (4) all current executive officers and directors as a group as of August 23, 2017. Except as otherwise indicated by footnote or to the extent shared by spouses under applicable law, to the Company’s knowledge, the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

Name and Address (1)
Common Stock
Beneficially Owned
Percentage of
Outstanding Shares
ClearBridge Investments, LLC (2)
620 8 th  Avenue
New York, NY 10018
13,441,452

13.7%
BlackRock, Inc. (3)
55 East 52 nd  Street
New York, NY 10055
10,245,032

10.5%
PRIMECAP Management Company (4)
177 E. Colorado Blvd., 11 th  Floor
Pasadena, CA 91105
8,853,241

9.0%
The Vanguard Group (5)
100 Vanguard Blvd.
Malvern, PA 19355
7,795,328

8.0%
Dimensional Fund Advisors LP (6)
Building One, 6300 Bee Cave Road
Austin, TX 78746
5,843,130

6.0%
FMR LLC (7)
245 Summer Street
Boston, MA 02210
5,518,321

5.6%
Fairpointe Capital LLC (8)
One North Franklin Street, Ste 3300
Chicago, IL 60606
5,506,321

5.6%
Charles M. Swoboda (9)
631,290

*
Michael E. McDevitt (10)
177,324

*
Robert A. Ingram (11)
74,941

*
John B. Replogle (12)
68,993

*
Clyde R. Hosein (13)
59,097

*
Thomas H. Werner (14)
54,847

*
Franco Plastina (15)
42,439

*
Anne C. Whitaker (16)
24,054

*
Darren R. Jackson
18,698

*
C. Howard Nye
13,719

*
Daniel J. Castillo

*
All current directors and executive officers as
a group (10 persons) (17)
1,122,963

1.1%
________________
*
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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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The following discussion and analysis describes the compensation of Cree’s named executive officers for fiscal 2017. The discussion explains the decisions that were made in determining the fiscal 2017 compensation for each named executive officer:
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Executive Summary
How our Compensation Program Works . The Compensation Committee of the Board of Directors has overall responsibility for executive officer compensation, including defining the compensation philosophy, setting the elements of compensation and approving individual compensation decisions. The Committee is also responsible for overseeing administration of compensation and benefit programs and plans in which the executive officers are eligible to participate.
Consistent with the Committee’s philosophy in prior fiscal years, the Committee believes that Cree’s executive officer compensation should:
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.
The primary elements of Cree’s executive compensation program are:
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).
The cash incentive and equity incentive elements are linked directly to Cree’s corporate performance and shareholder return, and these elements account for the majority of the target total direct compensation (as defined below) of each executive officer. While these incentive elements provide an opportunity for the executive officer to receive considerable value in terms of compensation, total direct compensation actually realized by the executive officer can vary substantially from the target total direct compensation depending on the degree to which Cree’s financial and business objectives are achieved for the relevant fiscal year and shareholder value is increased. We discuss the difference between targeted total direct compensation and realized total direct compensation below.
Named Executive Officers at Fiscal Year End . The named executive officers who were serving as executive officers of Cree at the end of fiscal 2017 were:
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).
In addition, Franco Plastina, former Executive Vice President–Power & RF (and former Chief Executive Officer of Cree’s Wolfspeed business unit), a named executive officer of the Company for fiscal 2017 under applicable Securities and Exchange

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Commission rules, served as an executive officer of Cree until his departure in March 2017, but Mr. Plastina was not serving as an executive officer at the end of fiscal 2017. Except as otherwise specifically indicated below, where the discussion below refers to “named executive officers,” it refers to the two named executive officers who served Cree as executive officers throughout all of fiscal 2017 (Messrs. Swoboda and McDevitt), and not to Messrs. Castillo and Plastina.
Chief Executive Officer Transition . As previously announced in May 2017, Mr. Swoboda will step down from his executive positions and as a member of the Board of Directors following a transition period. Mr. Swoboda intends to stay on until a successor is appointed, and thereafter will remain available as a consultant to the Company to ensure a seamless transition of leadership responsibilities to our new CEO.
Key Compensation Decisions Made in August 2016 for Fiscal 2017 . Key actions the Committee took in August 2016 with respect to the named executive officers serving at such time are summarized below. These actions are discussed in depth below under “—Elements of Executive Compensation and Analysis of Fiscal 2017 Compensation Decisions—Overall Program Design and Fiscal 2017 Implementation.”
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.
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.
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.
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.
________________
1
Because the Committee expected that Mr. Plastina would not continue serving as a Cree employee following the closing of the sale of Wolfspeed to Infineon, Mr. Plastina similarly did not participate in the Cree-wide performance-based cash incentive program. Rather, Mr. Plastina was on a Wolfspeed-only bonus plan, along with other senior Wolfspeed employees.

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Fiscal 2017 Cree Financial Performance . Fiscal 2017 was a year of progress for Cree, even as we faced several challenges that affected our financial results. While our 2017 financial results were lower than 2016, the financial results do not necessarily reflect the progress we made this past year. Fiscal 2017 revenue was $1.5 billion with a GAAP loss of $1.00 per share and Non-GAAP earnings of $0.50 per share. Wolfspeed revenue grew 25% year over year due to strong growth in Power, RF and Materials. LED Products revenue was similar to fiscal 2016 at $550 million as higher product sales offset lower license revenue. Lighting Products revenue declined to $702 million due to lower sales caused primarily by disruptions related to Q2 commercial product holds and lower consumer bulb sales. Our Wolfspeed business continues to perform very well with growth in all three product lines – Power, RF and Materials, with the growth being driven by new design wins related to electric vehicle systems, battery storage and other industrial applications that are bringing SiC power into the mainstream. The LED Products business made progress in 2017 despite a challenging competitive environment as we continued to innovate to differentiate our products in the market. The Lighting Products business also showed improvement at the end of the year, as margins improved and we continued to make progress improving service levels and rebuilding customer momentum with our channel partners. Cree’s non-GAAP results exclude stock-based compensation expense; amortization or impairment of acquisition-related intangibles; asset retirement charges; charges associated with the LED business restructuring commenced in June 2015; net transaction costs and termination fees related to the terminated sale of the Wolfspeed business; and the net income tax effect associated with the foregoing. Please see Cree’s earnings release for the fourth quarter and fiscal year ended June 25, 2017 included as Exhibit 99.1 to the Form 8-K furnished with the Securities and Exchange Commission on August 22, 2017, for a full reconciliation of our GAAP to non-GAAP numbers, and management’s reasons for utilizing non-GAAP numbers.
Cree’s fiscal 2017 overall financial results did not meet the level targeted for fiscal 2017. As described below, however, Cree’s executive compensation program worked as intended for fiscal 2017, given that the average actual total direct compensation ultimately received by the named executive officers for fiscal 2017 was far below the target total direct compensation for fiscal 2017. The Committee remains committed to reinforcing Cree’s pay-for-performance philosophy in fiscal 2018 and beyond, and has similarly designed the fiscal 2018 compensation packages for continuing named executive officers accordingly.
Fiscal 2017 CEO Realized Pay and Cree’s Fiscal 2017 Performance . The table below illustrates the relationship between Mr. Swoboda’s target pay for fiscal 2017, including for this purpose only additional amounts Mr. Swoboda could potentially earn in fiscal 2017 as a result of prior year equity awards intended to vest in fiscal 2017, and the amounts actually realized based on our fiscal 2017 performance against the metrics established for our short and long term incentive programs for fiscal 2017 (and prior fiscal years, as applicable). This table supplements the information contained in the Summary Compensation Table on page 46, and should be read in conjunction with the Summary Compensation Table. Additionally, the individual compensation elements are discussed in more detail in the discussion that follows in “—Elements of Executive Compensation and Analysis of Fiscal 2017 Compensation Decisions.” As can be seen below, Mr. Swoboda’s realized pay was only 41% of his targeted pay for fiscal 2017, which the Committee believes reflects that its pay for performance compensation structure worked as intended.

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Compensation Realized by Our CEO for Fiscal 2017
(Mr. Swoboda)
Compensation Element
 
Performance Period
 
Description
 
Fiscal 2017 Target Value (by element)
 
Amount Realized for Fiscal 2017
 
% of Target
Realized
Annual Compensation
Annual Cash Compensation
Base Salary
 
Fiscal 2017
 
No increase to base salary was given during fiscal 2017.
 
$
785,000

 
$
785,000

 
100%
Short-Term Incentive
 
 
 
Mr. Swoboda’s annual cash based incentive target is 140% of salary. Based on the financial and performance targets set and subsequent fiscal 2017 results, no award was achieved.
 
$
1,099,000

 

 
Total Annual Cash Compensation
 
$
1,884,000

 
$
785,000

 
41.7%
Fiscal 2017 Long-Term Incentive Compensation
Performance Stock Units
 
PSUs granted in prior years for fiscal 2017 performance (grants for fiscal 2016 and fiscal 2017)
 
In fiscal 2016 and 2017, PSUs comprised 40% of our executives targeted annual equity award. These awards vest equally over three years based on achievement of forward looking financial goals set by the Committee for the three fiscal years following the grant. During fiscal 2017, two separate tranches of these awards were targeted to have vested (one tranche from fiscal 2016 grant and one tranche from fiscal 2017 grant). The performance criteria established was not met for either year, therefore no awards vested, and no value was realized.
 
$
667,105

 

 
Restricted Stock Units
 
RSUs granted in prior years scheduled to vest for fiscal 2017 service (grants for fiscal 2014, 2015, 2016 and 2017)
 
In prior years, RSUs comprised 60% of our executives targeted annual equity award. These time-based awards vest equally over four years. The targeted value represents the value of each tranche of the award that was scheduled to vest for fiscal 2017 based on the value at the time of each grant in August 2013, 2014, 2015, and 2016. The amount earned represents the value of the awards that vested for fiscal 2017 service based on the closing price on June 25, 2017 (last day of fiscal 2017).
 
$
2,470,739

 
$
1,677,027

 
67.9%
Stock Options
 
Options granted in prior years scheduled to vest for fiscal 2017 service (grant for fiscal 2015)
 
In prior years (fiscal 2015), stock options comprised a portion of our executives targeted annual equity award. These time-based awards vest equally over three years. The targeted value represents the value of each tranche of the award that was scheduled to vest in fiscal 2017 based on the value at the time of such grant in August 2014 (for fiscal 2015, 2016 and 2017). The amount earned represents the value of the options that vested in fiscal 2017 based on the closing price on June 25, 2017 (last day of fiscal 2017).
 
$
962,758

 

 
Total Long-Term Incentive Compensation
 
$
4,100,602

 
$
1,677,027

 
40.9%
Total Realized Compensation for Fiscal 2017
 
$
5,984,602

 
$
2,462,027

 
41.1%
The “Amount Realized” column above differs from the Summary Compensation Table “Total” column. In addition to pay actually received for fiscal 2017 performance, the Summary Compensation Table includes the accounting value of equity granted for fiscal 2017, which may or may not ever be earned. In contrast, this compensation realized table reports only the elements of compensation actually received and/or realized by Mr. Swoboda for fiscal 2017 performance. Specifically, the values for equity awards in the compensation realized table above show the gross compensation (before applicable taxes) that Mr. Swoboda was targeted to receive for fiscal 2017 performance upon the vesting and theoretical exercise of stock options,

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and the vesting of RSUs and PSUs, regardless of the fiscal year when these options or awards were granted, as compared to the value he actually received upon such exercise or vesting, if any.
Compensation Philosophy and Objectives
The Committee believes that the compensation packages provided to the named executive officers should include both cash and stock-based compensation and should utilize performance-based compensation to reward performance as measured against established business goals, which results in increased compensation to the named executive officers if Cree meets or exceeds these goals. For fiscal 2017, the Committee endeavored to create compensation packages for the named executive officers with the general goal that approximately 80% (or more) of such individuals’ total direct compensation would be at risk, and would generally only be earned by the executives based on increasing Cree’s operating profits, which historically have been highly correlated with an increase in Cree shareholder value.
For fiscal 2017, the Committee generally targeted total target cash compensation (consisting of base salary and targeted short-term cash incentives), and total target total direct compensation (consisting of total target cash compensation plus total target long-term equity compensation) for the 2017 fiscal year only, to be between the 50 th and the 75 th percentiles of the market data, with an equity-heavy focus, with such equity to be delivered for fiscal 2017 through a mix of 60% RSUs and 40% PSUs. Actual total cash compensation, or TCC, and actual total direct compensation, or TDC, for fiscal 2017 would then vary with the performance-based elements of TCC or TDC based on corporate and individual performance for fiscal 2017. The Committee does not consider long-term equity compensation granted in prior years that have multi-year vesting and/or performance schedules in determining target total direct compensation to avoid “double counting” of compensation.
In setting fiscal 2017 compensation for the named executive officers, the Committee:
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.
Set forth below is graphic representation of the fiscal 2017 total pay mix for both our CEO, Mr. Swoboda, as well as the only other named executive officer serving for the full fiscal year, our CFO, Mr. McDevitt.
FY17CEOPAYMIX.JPG
 
FY17CFOPAYMIX.JPG
Compensation Process
Compensation Calendar . Our Compensation Committee employs a fairly typical and well defined process and annual calendar in connection with making its annual compensation decisions. The Committee holds four regularly scheduled meetings each fiscal year (with such meetings always one quarter in arrears): the first Committee meeting of the fiscal year is in October (typically a day before our Annual Shareholder Meeting); the second Committee meeting is in January; the third

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Committee meeting is in late April or early May; and the last Committee meeting of a fiscal year cycle is in August (even though it is already almost two months into the subsequent fiscal year). The first two Committee meetings of a fiscal year cycle (October and January) focus mainly on organizational talent reviews and succession planning. At the May meeting, the Committee’s compensation consultants from Radford present the Committee with an overview of regulatory trends and developments in executive compensation. At the May meeting, Radford and the Committee also review Cree’s Peer Group, and make any necessary or advisable changes to the Peer Group. At the August meeting, Radford presents a comprehensive analysis of Cree’s executive compensation as compared to market data and Peer Group data, and in light of these trends and developments, presents analyses and recommendations for each element of compensation for each named executive officer. The August meeting is the meeting where the Committee makes compensation decisions for the just-commenced fiscal year, as well as finalizing the prior fiscal year’s performance based compensation (i.e., determining if performance thresholds have been met).
Role of Advisory (Non-binding) Shareholder Vote to Approve Executive Compensation and Shareholder Outreach . Cree provides its shareholders with the opportunity to cast an annual advisory (non-binding) vote to approve executive compensation, or the “Say-on-Pay” proposal. At our October 2016 Annual Shareholder Meeting, after negative “Say-on-Pay” vote recommendations by both ISS and Glass Lewis in early October 2016 (and over a month after fiscal 2017 compensation decisions had been made and compensation programs for fiscal 2017 for the named executive officers had been put in place), a slim majority of our shareholders expressed their support of our executive compensation programs by approving our non-binding advisory vote on executive compensation at our 2016 Annual Meeting of Shareholders, with 50.6% of the votes cast supporting our executive compensation policies and practices.
In light of the proxy advisory services’ negative vote recommendations and the Say-on-Pay vote outcome, the Company and the Committee spent considerable time throughout fiscal 2017 speaking with significant shareholders, as well as reviewing and adjusting our compensation programs and pay structure to ensure that our pay structure aligns our compensation programs with the interests of our shareholders. The Committee feels strongly that our executive compensation programs should evolve and be adjusted over time to support the achievement of our business goals, to reflect our challenges, and to promote both the near- and long-term profitable growth of Cree. As in past years and for fiscal 2017, the Committee reviewed and evaluated market trends and best practices in designing and implementing elements to our compensation program, consistent with the compensation philosophy discussed above.

Even before the October 2016 Annual Shareholder Meeting, Cree has viewed a continuing, constructive dialogue with our long-term shareholders as critically important to ensuring that we remain aligned with their interests. With that in mind:
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.
The Committee believes the fact that a majority of the votes cast at the 2016 Annual Meeting of Shareholders were voted in favor of the Say-on-Pay proposal, notwithstanding the proxy advisory services’ negative vote recommendations, affirms shareholders’ support of Cree’s executive compensation program. Nonetheless, in light of the close “Say-on-Pay” vote and the proxy advisory services’ negative vote recommendations, the Committee considered the result of the 2016 “Say-on-Pay” vote, and following such consideration, made some changes to Cree’s executive compensation decisions or policies to address some of the specific concerns expressed by shareholders. For example, set forth below are four areas identified by shareholders in conversations within the past few years where the Committee has revised our compensation programs on a go forward basis.

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Area
Shareholder Feedback
Action Taken by Committee
Long-Term Incentive Mix (RSUs and PSUs)
At least 50% of the overall equity award should be PSUs (performance based)
Increased allocation of PSUs from 40% to 50% effective for fiscal 2018 equity awards.
Long-Term Incentive Metrics
Desire to have a market based external metric aligned with shareholder return
Effective for fiscal 2018 equity awards, a Total Shareholder Return (TSR) metric will be added as a modifier (+/- 25%) to PSU awards. Initial Vesting (or not) of PSUs will be based on achievement of targeted non-GAAP Operating Income. Award will be adjusted by +/- 25% based on comparison of TSR to an industry based peer group.
PSU Vesting
Desire to have awards tied to one performance period, with no “make up” rights for unearned prior fiscal year PSUs in subsequent fiscal years
Effective for fiscal 2018 equity awards, each year’s PSU may be earned (or not earned) solely based on performance for the one performance period being measured; no “make-up” rights will be included.
Short-Term Incentive Metrics under LTIP
Short-term incentive metrics should not be based on individual NEO goals; rather, enterprise-wide metrics only should be used. In addition, no quarterly payouts for NEOs
Effective for fiscal 2017, all of the named executive officers who served for the full fiscal year will be measured annually on corporate financial targets (no individual performance metrics and no quarterly metrics for such named executive officers).

The Committee will continue to consider the outcome of Say-on-Pay votes and direct shareholder communications when making future compensation decisions for the named executive officers.
Role of Compensation Consultant . The Committee has engaged Radford, an Aon Hewitt Company, to act as the Committee’s independent compensation consultant. The Committee has assessed Radford’s independence and determined that Radford had no conflicts of interest in connection with its provision of services to the Committee. Radford reports directly to the Committee and works with management only at the Committee’s direction. For fiscal 2017, Radford was given the overall directive to assist the Committee with the following:
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.
Cree also purchases published compensation and benefits surveys from Radford, and on occasion, engages Radford to provide consulting services for non-executive compensation matters. The fees paid to Radford for these additional services did not exceed $120,000 in fiscal 2017.
Role of Benchmarking and Comparative Analysis (Market Data) . The Committee uses market analyses provided by Radford as a reference point to evaluate the competitiveness of Cree’s compensation packages for the executive officers. Radford develops a market composite (referred to herein as “market data”) using equally weighted data from two sources: (1) public company filings from a select peer group (the “Peer Group”); and (2) the Radford Global Technology survey (composed of other technology companies of comparable size to Cree). Data from the survey is aggregated and individual company information is not determinable. Jobs of similar scope and responsibility as those at the Peer Group companies and companies included in the Radford survey are identified and a market composite is created for each of the executive officer roles. The Committee uses this market data to analyze base salary, short-term cash incentive compensation, TCC, equity compensation, and TDC.
Peer Group
The Committee, assisted by Radford, selects Cree’s peer group based on the following criteria:
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.
The Committee reviews the Peer Group each year in May to determine if companies should be added or removed from the Peer Group list. Based on the factors listed above, Radford recommended that for Cree’s fiscal 2017 Peer Group, the Committee should consider retaining many of the same companies as were in Cree’s fiscal 2016 Peer Group. Radford also recommended that for Cree’s fiscal 2017 peer group, the Committee should consider the following:
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.).
The Committee agreed with this recommendation. Accordingly, the Peer Group companies for Cree for fiscal 2017 were:
Acuity Brands, Inc.
Littelfuse, Inc.
AVX Corporation
Maxim Integrated Products, Inc.
Belden, Inc.
Microchip Technology Incorporated
Cypress Semiconductor Corporation
Microsemi Corporation
Entegris, Inc.
National Instruments Corporation
First Solar, Inc.
Qorvo, Inc.
Hexcel Corporation
SunEdison, Inc.
Hubbell Incorporated
Teradyne, Inc.
Linear Technology Corporation
ViaSat, Inc.
Radford Global Technology Survey
The Committee also considered the Radford Global Technology survey as another source of competitive data to ascertain compensation levels in the broader competitive market. For benchmarking purposes for fiscal 2017, the Committee selected data from the surveys for public high-technology companies with annual revenue levels between $1 billion and $3 billion for Messrs. Swoboda and McDevitt. A list of these companies can be found in Appendix A. In connection with his initial hiring in November 2016, Mr. Castillo was benchmarked against divisions of public high technology companies with revenues of $500 million to $1.5 billion. In connection with his initial hiring as the future Chief Executive Officer of Wolfspeed in June 2015, Mr. Plastina had been benchmarked against public high technology companies with a hardware focus with revenue levels between $50 million and $300 million. These Radford analyses included comparisons to the 25 th , 50 th , and 75 th percentiles on base salary, short-term cash incentive compensation, TCC, equity compensation, and TDC.
Determination of Target Total Direct Compensation (TDC) . In May 2016, as part of the Committee’s regular compensation process to determine proposed fiscal 2017 compensation, Radford presented the Committee an overview of regulatory trends and developments in executive compensation. In August 2016, again as part of the Committee’s regular compensation process to determine proposed fiscal 2017 compensation, Radford presented a comprehensive analysis of Cree’s executive compensation as compared to market data and in light of these trends and developments. Radford presented analyses of base salary, performance-based cash incentives, and equity award levels for each then serving executive officer and made recommendations to the Committee using criteria that align with Cree’s compensation philosophy. In addition, the CEO made recommendations with respect to base salary adjustments for executive officers other than himself. The Committee then assessed each compensation component as described below:


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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.
After a comprehensive review of these elements, the Committee developed target TCC and target TDC for each of the named executive officers.
Determination of Financial Objectives . Each August, the Committee approves one or more annual financial targets that align with Cree’s strategic and financial goals for the coming fiscal year. The annual financial targets approved by the Committee for fiscal 2017 were stated in terms of revenue and non-GAAP operating income. Cree’s non-GAAP results exclude stock-based compensation expense; amortization or impairment of acquisition-related intangibles; asset retirement charges; charges associated with the LED business restructuring commenced in June 2015; net transaction costs and termination fees related to the terminated sale of the Wolfspeed business; and the net income tax effect associated with the foregoing. Each named executive officer’s performance was assessed against these objectives on a Company-wide basis for Messrs. Swoboda, McDevitt and Mr. Castillo (although Mr. Castillo did not join Cree until November 2016), and on a Wolfspeed-only basis for Mr. Plastina (Mr. Plastina’s Wolfspeed only goals were 60% annual goals and 40% quarterly goals). Achievement of these pre-determined financial objectives determines the eventual performance incentive payouts as defined by the program guidelines.
Performance Assessment and Approval of Performance-based Cash Incentives . At the close of each fiscal year, the CEO reviews the performance of each named executive officer (other than himself) and develops a performance summary and recommendations for base salary increases. The CEO also recommends any annual payout for the performance units for the named executive officers under the LTIP, which is based on the pre-approved financial targets at prescribed payout levels as discussed above, all as previously approved by the Committee at its August meeting (at the beginning of the fiscal year). These recommendations are presented to the Committee and are one factor the Committee considers in making final compensation decisions for the recently completed fiscal year and the upcoming fiscal year.
Each August, the independent members of the Board of Directors evaluate the CEO’s performance for the just ended fiscal year. His performance is assessed based on financial results, overall leadership, and achievement of strategic objectives for that completed fiscal year. A summary of this evaluation is presented to the Committee along with the short-term incentive payout recommendation for the previous fiscal year, which is based solely on Cree’s financial performance during that previous fiscal year. The Committee then also determines the pay actions, if any, that will be taken for the CEO for the upcoming fiscal year, including target TCC and target TDC.
Role of Tally Sheets . In making compensation decisions for the CEO for each fiscal year, the Committee members review a three-year tally sheet. The tally sheet lists the individual elements of compensation for the past three fiscal years and provides an arithmetic value and summary of the individual elements. This summary provides the Committee with the value of the CEO’s compensation package and assists the Committee in determining appropriate changes for the upcoming fiscal year. Consideration of these factors is necessarily subjective in nature and actual pay decisions involve the subjective discretion of the Committee.
Role of Executive Officers . No executive officer, including the CEO, provides input to the Committee into setting his or her own compensation, but the CEO is provided the opportunity to make recommendations regarding the annual corporate targets and the business unit targets. The CEO is responsible for annually evaluating the performance of all of the named executive officers (except himself), developing performance summaries and making recommendations to the Committee based on those reviews for the compensation of those executives, which reviews are one factor the Committee considers in making final compensation decisions.

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Elements of Executive Compensation and Analysis of Fiscal 2017 Compensation Decisions
The primary elements of Cree’s executive compensation program are described below. The term “market data” is described under “Role of Benchmarking and Comparative Analysis” above.
Compensation Elements
Compensation Element
Purpose
Practice
Base salary
To compensate the executive fairly and competitively for the responsibility level of the position.
Fixed compensation paid throughout the year and reviewed annually by the Committee with consideration to our stated compensation philosophy.
Performance-based cash incentive compensation
To motivate and reward organizational achievement of predetermined annual financial goals.
Variable cash based compensation linked directly to the achievement of specified corporate financial goals. The CEO and other named executive officers serving for the full fiscal year are eligible for annual payouts for performance units granted under the LTIP. Mr. Castillo was eligible for a pro-rated annual payout.
Long-term equity incentive compensation
To drive executives’ focus on long-term growth and increased shareholder value and to promote retention.
Time-based RSUs and performance-based PSUs delivered for fiscal 2017 through a mix of 60% RSUs and 40% PSUs. Grants based on an evaluation of market data, corporate financial performance and potential retention risks. Equity levels vary among participants based on position and individual performance. Equity comprises a larger portion of the total direct compensation than the other pay elements.
Post-termination and severance benefits
To provide for certain limited economic security in the event an executive officer is terminated without cause or resigns with good reason.
Except as noted below, each named executive officer is covered under Cree’s Section 16 Officer Severance Plan which provides for severance benefits in the event the executive officer is terminated without cause or resigns for good reason (provided that he is not entitled to severance under the severance plan if he is entitled to severance under a change in control agreement with Cree). Cree has also entered into a change in control agreement with each named executive officer, which agreements feature a “double trigger,” described in “Change in Control Agreements” on page 50 below. Following the execution of the Swoboda Separation Agreement (as defined below), Mr. Swoboda is no longer covered by the Section 16 Officer Severance Plan or a separate change in control agreement.
Other benefits
To provide competitive benefits promoting employee health and productivity.
Other benefits are generally those available to all employees. The only perquisite generally offered to named executive officers is the availability of a voluntary comprehensive physical examination once every two calendar years until age 50 and once per calendar year over age 50. In connection with the negotiation of the Swoboda Separation Agreement, Mr. Swoboda received reimbursement of his legal fees.

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The Committee demonstrates its commitment to paying executive officers based on performance through the design of Cree’s compensation programs and the setting of stretch goals that support Cree’s growth strategy and commitment to increasing shareholder value. The Committee is also committed to maintaining a compensation program that creates appropriate incentives and does not create risks that are reasonably likely to have a material adverse effect on Cree. See “Compensation Program Risk Assessment” on page 16 for details regarding the Committee’s annual assessment of the compensation program.
Overall Program Design and Fiscal 2017 Implementation . For fiscal 2017, in August 2016 the Committee evaluated Cree’s fiscal 2016 performance to determine performance rewards for fiscal 2016 performance and as an initial reference point in setting fiscal 2017 objectives. Fiscal 2016 was a year of progress towards our goal to build a more focused and valuable LED lighting technology company. We successfully restructured the LED business, improved commercial lighting fundamentals, refocused our consumer business on premium LED bulbs, and believed we had reached a significant agreement to unlock shareholder value with our executed agreement to sell our Wolfspeed business unit to Infineon. Cree’s fiscal 2016 revenue was similar to fiscal 2015 at $1.62 billion as the combination of growth in commercial lighting and stable LED revenue was offset by lower consumer lighting sales and a slowdown in our Wolfspeed business. Despite some challenges in fiscal 2016, we made good progress growing Company profits as non-GAAP operating income increased 55%, non-GAAP net income increased 23% and non-GAAP earnings per share increased 37%.
Based on the fiscal 2016 performance and other factors, the Committee determined to set fiscal 2017 target TDC for the named executive officers between the 50 th and 75 th percentiles of the market data. Each compensation element is discussed and analyzed below along with the Committee’s decisions regarding compensation actions for fiscal 2017.
Base Salary
Base salary ranges are established for each executive officer based on job responsibilities along with the competitive range derived from market data. The Committee considers several factors when determining whether and where to set actual base salaries within the competitive range and whether to increase the base salaries. It assesses the executive’s performance against corporate and individual goals, experience, qualifications and scope of responsibilities. The Committee also assesses competitive salary practices by Peer Group companies and as reported in the Radford Global Technology survey. Further, the Committee considers the portion of each named executive officer’s TDC that is comprised of fixed compensation (base salary) and the portion that is comprised of at-risk compensation (performance based incentives). The Committee is committed to reinforcing pay-for-performance, which it does by ensuring that fixed pay is a relatively small proportion of TDC, while remaining within the market competitive range.
Given the Company’s financial performance in fiscal 2016, Mr. Swoboda was not given an annual merit increase in base salary for fiscal 2017. After not being given a salary increase for fiscal 2016, Mr. McDevitt received an annual merit increase in base salary for fiscal 2017. Because the agreement to sell the Wolfspeed business to Infineon had already been executed by August 2016, Mr. Plastina’s base salary was held flat for fiscal 2017.
Executive Officer
 
Fiscal 2016 Salary
 
Fiscal 2017 Salary
 
Percentage Increase
Charles M. Swoboda
 
$
785,000

 
 
$
785,000

 
0%
Michael E. McDevitt
 
$
440,000

 
 
$
455,000

 
3.4%
Franco Plastina
 
$
450,000

 
 
$
450,000

 
0%
Daniel J. Castillo
 
N/A

 
 
$
425,000

 
N/A
Performance-Based Cash Incentive Compensation (LTIP)
Cree pays annual performance-based cash incentive compensation to the CEO and the other named executive officers for achievement of annual financial objectives under the Long-Term Incentive Compensation Plan (LTIP). The Committee measures the performance of Cree against annual financial objectives established at the beginning of the fiscal year.
As discussed above, the CEO and the other named executive officers are eligible to receive annual performance-based cash incentive compensation under the LTIP (referred to as performance units or performance unit awards). None of the named executive officers serving for the full fiscal year participate in any other cash-based performance incentive plan. The LTIP is designed to comply with Section 162(m) in that performance unit awards are contingent upon achievement of pre-determined corporate objectives. Awards are paid based on achievement of these performance goals established under the LTIP and are calculated using a pre-defined formula based on the level of Cree’s financial performance, and the target awards are expressed as a percentage of the named executive officer’s base salary. Any payments under these performance units are paid only in cash.

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In August 2016, each of Messrs. Swoboda and McDevitt received performance units under the LTIP for fiscal 2017 with the annual targets discussed below. Because Mr. Castillo did not join Cree until November 2016, his compensation for fiscal 2017, including any cash-based performance incentives, was negotiated at that time as part of his hiring, and he did not receive any performance units under the LTIP. Similarly, because Mr. Plastina’s compensation was to be determined by the terms of his agreements with Cree (including his participation in Cree’s Management Incentive Compensation Plan (MICP) based only on Wolfspeed performance, and not on Cree company-wide results) and the transaction documents with Infineon, Mr. Plastina did not receive any performance units under the LTIP for fiscal 2017.
Except as provided in the Section 16 Officer Severance Plan discussed below, or with respect to death or long-term disability or a change in control, (1) a named executive officer must have been continuously employed as an executive officer through the last day of the performance period; (2) the performance units would not be considered earned until the last day of the performance period; and (3) if the named executive officer terminated his employment prior to the last day of the performance period, with or without cause, he would have forfeited his performance units. Please see “-Additional Information-Post-Termination Arrangements-Separation, General Release and Consulting Agreement with Mr. Swoboda” for a discussion of how Mr. Swoboda’s grants for fiscal 2017 will be treated following the transition period discussed above.
Cash Incentive Targets and Components under the LTIP
Consistent with Radford’s analysis of Cree’s executive compensation as compared to the market data, in August 2016, the Committee left the annual target cash incentive awards for fiscal 2017 for each of the named executive officers unchanged.
The target cash incentive awards for the named executive officers are summarized as follows:
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 50 th 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 50 th 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 75 th 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.
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 50 th 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).
A schematic of the plan design for Messrs. Swoboda, McDevitt and Castillo is shown below:

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MICPSCHEMATIC2017A01.JPG
When determining the level of annual cash-based awards payable under the LTIP, performance against each financial measure is weighted equally in determining the amount of any annual award payout, and the annual award payout percentage is the average is based on the percentage of achievement of each measure, rounded to the nearest whole percentage. For fiscal 2017, in August 2016 the Committee determined that no payout would be made for the annual corporate financial goals unless the minimum non-GAAP operating income threshold was achieved. Provided that the minimum non-GAAP operating income goal was achieved, if attainment of a goal met or exceeded the minimum performance level but fell below the target, a payment would be earned of at least 50% but less than 100% of the target award opportunity for such annual corporate goal, and if attainment of a goal met or exceeded the target performance level but fell below the maximum, a payment would be earned of at least 100% but less than 200% of the target award opportunity for such corporate goal. The maximum payment for any annual award payout would be 200% of the target annual award opportunity.
Performance Goals for Fiscal 2017
For fiscal 2017, the annual financial targets approved by the Committee were stated in terms of revenue and non-GAAP operating income. In addition, before any annual payouts could be made under the LTIP for fiscal 2017 performance, the Committee determined that a minimum non-GAAP operating income threshold for fiscal 2017 must be met first in order for any annual award to be paid (even if the revenue target was otherwise met). Each of the minimum, target, and maximum annual goals for fiscal 2017 for each performance measure were pre-set and approved by the Committee in August 2016 based upon a comparison to the Company revenue and non-GAAP operating income actually achieved in fiscal 2016, but adjusted by the Committee based on certain items not expected to recur in fiscal 2017 or based on the fourth fiscal quarter “exit run rate” basis.
As a result, in August 2016 the Committee established the following performance goals for fiscal 2017:
Performance Goal
 
Minimum
 
Target
 
Maximum
Revenue
 
$1.51B
 
$1.59B
 
$1.85B
Non-GAAP operating income
 
$75.5M
 
$100.0M
 
$168.0M

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Results and Actual Payouts for Fiscal 2017
Cree did not reach the $75.5 million minimum level of non-GAAP operating income required for the LTIP annual payments, achieving non-GAAP operating income of $56 million. Revenue was $1.47 billion, below the minimum of $1.51 billion. Consequently, no annual payouts were made to the CEO and the other named executive officers under the LTIP. Accordingly, the named executive officers earned the following performance-based incentive cash awards for fiscal 2017:
Executive Officer
 
Target Award
 
Actual Award Earned
 
Actual Award as a Percent of Target
 
Actual Award as a Percent of Salary
Charles M. Swoboda
 
$
1,099,000

 
0

 
0
%
 
0%
Michael E. McDevitt
 
$
352,000

 
0

 
0
%
 
0%
Franco Plastina 1
 
$
382,500

 
$
95,625

 
30
%
 
21%
Daniel J. Castillo 2
 
$
215,764

 
0

 
0
%
 
0%
LTIP Equity Awards
Equity awards are granted to the named executive officers under the shareholder-approved LTIP to align their performance with shareholder interests, provide an opportunity for these officers to increase their ownership stake in Cree, and also provide for executive officer retention. The Committee emphasizes the importance of company and shareholder value growth by endeavoring to create compensation packages for the named executive officers with the general goal that approximately 80% or more of such individuals’ TDC would be at risk, and would generally only be earned by the executives based on increasing Cree’s operating profits, which historically have been highly correlated with an increase in Cree shareholder value. As a result, for fiscal 2017, the Committee approved grants of RSUs and PSUs as long-term equity compensation (except with respect to Mr. Plastina, as described below).
The Committee generally approves annual equity grants under the LTIP to be made on the first business day of September. The Committee awards equity grants without regard to any scheduled or anticipated release of material information, and does not accelerate or delay equity grants in response to material information or delay the disclosure of information due to plans to make equity grants.
Fiscal 2017 Equity Awards
The Committee approved the following equity grants to the named executive officers below at its regularly scheduled August 2016 meeting. Except as noted below, the awards were granted on September 1, 2016:
Executive Officer
 
RSUs
 
PSUs
Charles M. Swoboda
 
110,920

 
73,946

Michael E. McDevitt
 
32,904

 
21,936

Daniel J. Castillo 3
 
92,565

 
33,660

Franco Plastina 4
 
0

 
0

________________
1
Mr. Plastina’s amount paid is based upon his participation in the MICP with Wolfspeed-only targets and in part on the severance he received under Cree’s Section 16 Officer Severance Plan. Although Mr. Plastina was a named executive officer at the beginning of fiscal 2017, because the agreement to sell Cree’s Wolfspeed business to Infineon had already been executed when the fiscal 2017 compensation decisions were made by the Committee in August 2017, and the Committee did not expect Mr. Plastina to continue serving as a Cree employee following the closing of the transaction, the Committee did not grant Mr. Plastina any performance unit awards under the LTIP at that time, but rather allowed Mr. Plastina to participate in the MICP with other Wolfspeed employees.
2
Mr. Castillo’s Target Award amount is pro-rated based on his hire date of November 7, 2016.
3
Mr. Castillo did not receive his equity grants in September 2016, but rather when he was hired in November 2016. The details of Mr. Castillo’s sign-on equity grants are set forth below in the “Grants of Equity and Non-Equity Incentive Awards” Table on page 47 and in the “Outstanding Equity Awards” Table on page 48. The size and types of grants were benchmarked against and based on the relevant market data and the negotiation of Mr. Castillo’s total sign-on compensation package.
4
Mr. Plastina did not receive any annual equity grants from Cree for fiscal 2017 in September 2016 in light of the executed agreement to sell the Wolfspeed business, because his Change in Control Agreement with Cree addressed his compensation upon consummation of the sale of Wolfspeed to Infineon.

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In granting equity awards, the Committee considered Cree’s current and historical financial performance, along with each named executive officer’s demonstrated ability to sustain performance over time. The Committee also reviewed annual equity usage and assessed Cree’s historical use of shares, as compared to the peer companies. Specifically, the Committee determined that Cree’s annual burn rate, net of forfeitures, as of the end of fiscal 2016 had averaged approximately 3.0% of average weighted shares outstanding for fiscal 2016, and approximately 3.1% for the three-fiscal year period, which the Committee has been advised by Radford is near the median rate among peer companies in the semiconductor industry.
Based on these considerations and the TDC analysis prepared by Radford, the Committee determined that the September 1, 2016 equity grant amounts above were appropriate, because these equity grants awarded to the named executive officers, including the PSUs, reflected a target TDC between the 50 th and 75 th percentiles of the market data (based on the value of such equity at the time of grant). The Committee believes that the grant sizes at this level reinforce the focus on enhancing shareholder value and position the target TDC within the desired range, while also meeting the goal of having approximately 75% of the named executive officers’ TDC at risk.
Equity awards are reflected as compensation for fiscal 2017 in accordance with applicable reporting requirements in the Summary Compensation Table on page 46 under the “Stock Awards” and “Option Awards” columns and in the Grants of Plan-Based Awards table on page 47.
Restricted Stock Units (RSUs)
Restricted stock units (RSUs), which are subject to time-based vesting, align the interests of the named executive officers with the interests of Cree’s shareholders because the value of RSUs fluctuates with Cree’s stock price. The primary value of RSUs, however, is that they create a strong incentive for retention, as RSUs have full value to the named executive officers upon vesting.
RSUs granted in September 2016 to Messrs. Swoboda and McDevitt in fiscal 2017 vest ratably in equal annual increments over four years from the grant date. The RSUs granted to Mr. Castillo in November 2016 in connection with his initial hiring by Cree vest ratably in equal annual increments over four years from the grant date. A second sign-on RSU retention grant to Mr. Castillo vests in its entirety in November 2020. Vesting ends upon termination of employment, and all unvested RSUs are forfeited; however, vesting accelerates upon death or termination of employment due to disability. Under the terms of the named executive officers’ change in control agreements, however, vesting of RSUs may also be accelerated in certain circumstances as discussed below. Mr. Swoboda’s outstanding RSUs will continue to vest during the transition and consulting periods described in the Swoboda Separation Agreement in accordance with their terms.
Performance Stock Units (PSUs)
Performance stock units (PSUs) even further align the interests of the named executive officers with the interests of Cree’s shareholders because not only does the value of PSUs fluctuate with Cree’s stock price, but the performance criteria must first be met for the PSUs to vest. PSUs have retention incentives similar to RSUs, because PSUs will have full value to the named executive officers if the PSUs vest.
For fiscal 2017, in August 2016 the Committee approved the grant of PSUs to the named executive officers (other than Mr. Plastina and Mr. Castillo) that would vest, if at all, in three equal tranches based on the terms and conditions set forth below tied to Cree’s non-GAAP operating income as determined by the Committee as specified below for the Company’s 2017, 2018 and 2019 fiscal years, assuming the named executive officer had not terminated his service to Cree, as follows:
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
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).
Any portion of a PSU that is deemed unearned at the end of the 2017 fiscal year performance period and/or the 2018 fiscal year performance period will carry forward and may be earned together with the fiscal 2019 portion of the award if the
Committee determines that the non-GAAP operating income performance objective for fiscal 2019 has been achieved. Vesting of these PSUs granted in August 2016 ends upon termination of employment, and all unvested PSUs are forfeited. Unlike for RSUs, vesting of PSUs does not accelerate for the named executive officers upon death or termination of employment due to disability. Under the terms of the named executive officers’ change in control agreements, however, vesting of options and RSUs may also be accelerated in certain circumstances as discussed below, but performance based awards like the PSUs granted in August 2016 are excluded from such acceleration. Mr. Swoboda’s outstanding PSUs will continue to vest during the transition and consulting periods set forth in the Swoboda Separation Agreement in accordance with their terms.
Cree’s non-GAAP operating income for fiscal 2017 was $56 million, and as a result, the first tranche of the PSUs granted in August 2016 for fiscal 2017 financial performance was not earned or vested in September 2017, and further the second tranche of the PSUs granted in August 2015 for fiscal 2017 financial performance was not earned or vested as of such date.
Additional Information
Other Benefits and Perquisites . Consistent with Cree’s compensation philosophy, the Committee seeks to limit the perquisites provided to the named executive officers. Generally, the named executive officers are eligible to participate in only those benefit and retirement programs available to other employees, including Cree’s 401(k) plan, health and welfare plans, group term life insurance plan and Cree’s employee stock purchase program. The named executive officers receive matching contributions under the 401(k) plan consistent with other participating employees. Such matching contributions for named executive officers for fiscal 2017 are included in the Summary Compensation Table on page 46 under the “All Other Compensation” column.
The current named executive officers are eligible to participate in a voluntary executive physical program. This benefit is intended to encourage named executive officers to receive regular comprehensive physical examinations, as their future health and well being are important to Cree’s success. Each participant is encouraged to voluntarily elect a comprehensive physical examination once every two calendar years until age 50 and once per calendar year thereafter at a facility designated by Cree.
Post-Termination Arrangements . Cree has entered into a change in control agreement with each named executive officer that remains in effect so long as the executive is a Section 16 Officer (as defined below). This agreement provides for certain payments to the named executive officer in the event his employment is terminated without cause or he resigns for good reason in connection with a change in control of Cree or, in certain cases, a business unit of Cree. Additionally, the Committee has adopted the Severance Plan for Section 16 Officers, or the Severance Plan, which provides for severance benefits in the event an executive officer is terminated without cause or resigns for good reason and is not entitled to compensation under a change in control agreement. Mr. Swoboda’s post-termination arrangements are set forth in the Swoboda Separation Agreement, which superseded any other severance benefits for which Mr. Swoboda was previously entitled under the Severance Plan or his separate change in control agreement. As a result, the only named executive officers eligible to participate in the Severance Plan as of the end of the fiscal year were Messrs. McDevitt and Castillo (Mr. Plastina was no longer employed at the end of the fiscal year). Similarly, on the last date of the fiscal year, only Mr. McDevitt’s change in control agreement was in effect (Mr. Castillo’s change in control agreement was not actually effective until September 1, 2017). The Committee has approved these severance benefits following termination, both in the context of a change in control and in other circumstances, to encourage executive officers to act in Cree’s best interests without regard to potential concerns for loss of income in the event of a disagreement with management or the Board of Directors that leads to termination of employment.
Change in Control Agreements
Cree enters into a Change in Control Agreement with each named executive officer to promote the stability and continuity of senior management as well as to ensure that the executive remains focused on Cree’s shareholders’ interests, rather than his own, in the context of a change in control transaction. Further, the change in control agreement features a double trigger, which means that payments are not triggered on a change in control unless, in connection with the change in control, the executive either (1) is terminated without cause; or (2) terminates his employment for good reason. Termination is considered to be in connection with a change in control if it occurs within 12 months following a change in control. See “Potential Payments upon Termination or Change in Control” on page 50 below.
In determining the various circumstances that trigger payment or provision of severance benefits to the named executive officers and the payment and benefit levels associated with each circumstance (other than such payments and benefits that are generally available to all employees), the Compensation Committee reviewed severance benefits data derived from proxy materials filed by our Peer Group. The Compensation Committee utilized this competitive severance benefits data as a check to determine whether each of the proposed severance payments and benefits for the named executive officers was set at an appropriate level for the circumstance that triggers payment or provision of benefits in light of market conditions. The Compensation Committee generally seeks to confirm annually that the level of each severance payment or benefit for the named executive officers is at or slightly above the median level of comparable payments and benefits offered to similarly

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situated executives in our Peer Group. In approving the provision of severance benefits to the named executive officers and the payment and benefit levels associated with each circumstance, the Compensation Committee was briefed by Radford on the overall competitiveness of the proposed severance payment and benefit levels for the named executive officers in a broader cross-section of the total market.
At the Committee’s August 2017 meeting, it approved a new form of Change in Control Agreement to enter into with Mr. Castillo as well as to replace Mr. McDevitt’s current agreement. The changes approved by the Committee are described in more detail under “Potential Payments upon Termination or Change in Control-Subsequent Events” below. In addition to certain definitional change described below clarifying the events triggering payment under the agreement, the new Change in Control Agreement will entitle Mr. McDevitt to a lump sum payment equal to 150% of his total target annual incentive award for the fiscal year in which the termination occurs, as compared to, under the old Change in Control Agreement, 100% plus a pro-rata amount between 0-100% depending on the number of days remaining in the fiscal year when termination occurs.
Severance Plan
The Severance Plan provides severance benefits in the event of termination of employment without cause or resignation for good reason to Cree’s officers who are subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934, as amended, or Section 16 Officers.  All of the current named executive officers are therefore eligible to participate in the Severance Plan, with the exception of Mr. Swoboda, as described below. The Severance Plan will not apply to a Section 16 Officer, however, if he becomes entitled to the payment of severance benefits upon termination of employment in connection with a change in control pursuant to a separate agreement with Cree, such as the Change in Control Agreements described above.
In the event of termination of the CEO’s employment without cause or his resignation for good reason, he is entitled to 24 months’ continuation of base salary and a lump sum payment equal to 24 months of COBRA premiums under the Severance Plan. Messrs. McDevitt and Castillo are entitled to 18 months’ continuation of base salary and a lump sum payment equal to 18 months of COBRA premiums under the Severance Plan. As amended in October 2013, the Severance Plan also provides that an eligible Section 16 Officer will be entitled to receive an amount equal to the total payout at target for one year under any performance unit grant in effect as of his termination date (or in the case of the CEO, an amount equal to 2 times the annual payout at target under any performance unit in effect as of his termination date), even though he is no longer employed on the date of payment.
The Severance Plan also provides that if the Section 16 Officer becomes generally disabled and his employment is terminated before he becomes eligible for benefits under Cree’s long-term disability program or if he elects to resign for good reason because Cree does not restore him to his prior position and level of authority after he returns from long-term disability leave, then he will be entitled to severance benefits under the Severance Plan. Severance benefits under the Severance Plan are subject to applicable tax withholdings and statutorily imposed payment terms and require the Section 16 Officer to sign a release of claims. The Severance Plan includes slightly different terms that would be applicable to the CEO, except that Mr. Swoboda has entered into the Swoboda Separation Agreement described below, which supersedes his participation in the Severance Plan.
Separation, General Release and Consulting Agreement with Mr. Swoboda
On May 18, 2017, Mr. Swoboda and the Company executed a Separation, General Release and Consulting Agreement (the “Swoboda Separation Agreement”). Pursuant to the Swoboda Separation Agreement, Mr. Swoboda will remain in his executive positions and as Chairman of the Board for a transition period until the earlier of (i) such time as the Company determines his services are no longer needed and gives him 10 days’ notice thereof or (ii) if a new CEO has not been appointed by January 2, 2018, such time as Mr. Swoboda terminates the transition period upon 30 days’ notice. Upon termination of the transition period, Mr. Swoboda will receive separation benefits equal to (i) eighteen (18) months’ pay, based on his current annual salary of $785,000 per year, or a total of $1,177,500, which amount shall be payable in equal monthly installments over the 18 months following such termination; (ii) $1,648,500, which amount is equal to 1.5 times Mr. Swoboda’s annual bonus amount at target, payable following such termination; and (iii) a lump sum payment of 18 times the COBRA premium applicable to the type of medical, dental and vision coverage in effect for Mr. Swoboda at the end of the transition period. The separation benefits provided under the Swoboda Separation Agreement replace any separation benefits Mr. Swoboda might have been entitled to receive now or in the future under the Severance Plan, the LTIP, or his Change in Control Agreement. For the first 18 months of the consulting term, the separation benefits described above will be compensation for his consulting services. During the remaining period of the consulting term, Mr. Swoboda will receive a $5,000 monthly consulting fee.

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Section 162(m) Treatment Regarding Performance-Based Equity Awards . The Committee reviews and considers the deductibility of executive compensation under Section 162(m), which provides that Cree may not be able to deduct compensation of more than $1,000,000 that is paid to certain executive officers. Performance-based compensation within the meaning of Section 162(m), including stock and cash incentive compensation under the LTIP, is excluded from this limitation. Cree seeks to structure the performance-based portion of the compensation of the executive officers in a manner that complies with Section 162(m) when Cree considers it to be in Cree’s best interests, taking into account all relevant factors. The deductibility of compensation payable to the executive officers, however, is only one among a variety of factors that the Committee may consider in determining appropriate levels or forms of compensation.
Share Ownership Guidelines . The Board of Directors has adopted Corporate Governance Principles for Cree that include share ownership guidelines for members of the Board of Directors and executive officers. Under these guidelines, within five years after election or appointment:
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.
Presently all directors and executive officers meet these minimum ownership guidelines.
Anti-Pledging and Hedging Policies . Cree has adopted a Securities Trading Policy that prevents our named executive officers or directors from entering into any pledging or margin account transactions in Cree stock. In addition, although hedging transactions in Cree stock are not completely prohibited for our named executive officers or directors, any employee or director that wishes to enter into a hedging transaction with Cree stock, such transaction must be pre-cleared in advance with Cree’s General Counsel. No such hedging transactions have been requested or approved.
Compensation Committee Report
The Compensation Committee met on August 28, 2017 and reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
THE COMPENSATION COMMITTEE

Thomas H. Werner, Chairman
C. Howard Nye
Anne C. Whitaker

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Summary of Cash and Certain Other Compensation
The following table summarizes the compensation of the Company’s chief executive officer and all other persons who served as named executive officers during fiscal 2017.
Summary Compensation Table
Name and Principal Position
 
Year
 
Salary
($)
 
Stock
Awards
($) (1)
 
Option
Awards
($) (1)
 
Non-Equity Incentive Plan
Compensation
($)
 
All Other Compensation
($) (2)
 
Total
($)
(a)
 
(b)
 
(c)
 
(e)
 
(f)
 
(g)
 
(i)
 
(j)
Charles M. Swoboda
 
2017
 
$
785,000

 
$
4,507,033

 

 

 
$
21,458

 
$
5,313,491

Chairman, CEO and President
 
2016
 
$
785,000

 
$
5,003,146

 

 
$
252,770

 
$
7,984

 
$
6,048,900

 
 
2015
 
$
779,615

 
$
3,610,400

 
$
1,016,909

 

 
$
9,453

 
$
5,416,377

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Michael E. McDevitt
 
2017
 
$
455,004

 
$
1,336,999

 

 

 
$
8,901

 
$
1,800,904

Executive Vice President and CFO
 
2016
 
$
440,000

 
$
1,484,165

 

 
$
129,536

 
$
8,559

 
$
2,062,260

 
 
2015
 
$
433,077

 
$
1,128,250

 
$
254,227

 
$
21,120

 
$
9,634

 
$
1,846,308

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Daniel J. Castillo
 
2017
 
$
425,000

 
$
2,739,083

 

 

 
$
171,218

 
$
3,335,301

Executive Vice President and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
President–Lighting (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Franco Plastina
 
2017
 
$
450,000

 

 

 
$
95,625

 
$
10,903

 
$
518,278

Former Executive Vice President–
 
2016
 
$
450,000

 
$
172,957

 

 
$
113,985

 
$
9,502

 
$
746,444

Power & RF (4)
 
2015
 
$
252,965

 
$
191,532

 

 

 

 
$
444,497

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________
(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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Grants of Equity and Non-Equity Incentive Awards
The following table provides information about RSUs, PSUs and non-equity incentive plan awards granted to the named executive officers during fiscal 2017. All RSUs and PSUs were granted under the LTIP. No stock options were granted to the named executive officers in fiscal 2017.
Grants of Plan-Based Awards in Fiscal 2017
 
 
Grant Date
 
Approval Date
 
Estimated
Possible Payouts
Under Non-Equity
Incentive Plan
Awards (1)
 
Estimated
Possible Payouts
Under Equity
Incentive Plan
Awards (2)
 
All
Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#) (3)
 
All Other Option
Awards:
Number of Securities Underlying Options
(#)
 
Exercise
or Base
Price of Option Awards
($/Sh)
 
Grant
Date Fair
Value of
Stock and Option
Awards
($)
Name
 
 
Threshold ($)
 
Target
($)
 
Maximum ($)
 
Threshold (#)
 
Target
(#)
 
Maximum (#)
 
Charles M.
 
 
 
 
 
$
549,500

 
$
1,099,000

 
$
2,198,000

 
 
 
 
 
 
 

 

 

 

Swoboda
 
9/1/2016
 
8/23/2016
 

 

 

 

 
73,946

 
73,946

 

 

 

 
$
1,802,803

 
 
9/1/2016
 
8/23/2016
 

 

 

 

 

 

 
110,920

 

 

 
$
2,704,230

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Michael E.
 
 
 
 
 
$
182,002

 
$
364,003

 
$
728,007

 
 
 
 
 
 
 

 

 

 

McDevitt
 
9/1/2016
 
8/23/2016
 

 

 

 

 
21,936

 
21,936

 

 

 

 
$
534,800

 
 
9/1/2016
 
8/23/2016
 

 

 

 

 

 

 
32,904

 

 

 
$
802,200

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Daniel J.
 
 
 
 
 
$
107,882

 
$
215,764

 
$
431,528

 
 
 
 
 
 
 

 

 

 

Castillo
 
11/7/2016
 
10/25/2016
 

 

 

 

 
33,660

 
33,660

 

 

 

 
$
730,422

 
 
11/7/2016
 
10/25/2016
 

 

 

 

 

 

 
50,490

 

 

 
$
1,095,633

 
 
11/7/2016
 
10/25/2016
 
 
 
 
 
 
 
 
 
 
 
 
 
42,075

 

 

 
$
913,028

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Franco
 
 
 
 
 
$
191,250

 
$
382,500

 
$
612,000

 
 
 
 
 
 
 

 

 

 

Plastina
 
 
 

 

 

 

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________
(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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Outstanding Equity Awards
The following table provides information about outstanding equity awards held by the named executive officers as of June 25, 2017.
Outstanding Equity Awards at 2017 Fiscal Year-End
 
 
Option Awards (1)
 
Stock Awards (1)
Name
 
Number of Securities Underlying Unexercised Options (#)
Exercisable
 
Number of Securities Underlying Unexercised Options (#)
Unexercisable
 
Option
Exercise
Price
($/Sh)
 
Option Expiration
Date (2)
 
Number of
Shares or
Units of Stock
That Have
Not
Vested (#)
 
Market Value of
Shares or Units
of Stock That
Have Not
Vested
($) (3)
 
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested (#)
 
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested ($)
Charles M.
 
120,000

 
 
 
 
$
55.30

 
9/1/2017
 
239,780

(6)
 
$
6,078,423

 
 
 
 
 
Swoboda
 
40,000

 
 
 
 
$
30.92

 
9/1/2018
 
 
 
 
 
 
 
 
 
 
 
 
120,000

 
 
 
 
$
27.77

 
9/4/2019
 
 
 
 
 
 
 
 
 
 
 
 
50,000

 
 
 
 
$
54.60

 
9/3/2020
 
 
 
 
 
 
 
 
 
 
 
 
42,667

 
21,333

(4)
 
$
45.13

 
9/2/2021
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
125,122

(7)
 
$
3,171,843

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Michael E.
 
6,000

 
 
 
 
$
55.30

 
9/1/2017
 
70,522

(8)
 
$
1,787,733

 
 
 
 
 
McDevitt
 
7,000

 
 
 
 
$
30.92

 
9/1/2018
 
 
 
 
 
 
 
 
 
 
 
 
30,000

 
 
 
 
$
23.62

 
6/1/2019
 
 
 
 
 
 
 
 
 
 
 
 
20,000

 
 
 
 
$
27.77

 
9/4/2019
 
 
 
 
 
 
 
 
 
 
 
 
16,000

 
 
 
 
$
54.60

 
9/3/2020
 
 
 
 
 
 
 
 
 
 
 
 
10,667

 
5,333

(5)
 
$
45.13

 
9/2/2021
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37,117

(9)
 
$
940,916

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Daniel J.
 

 
 
 
 
 
 
 
 
92,565

(10)
 
$
2,346,523

 
 
 
 
 
Castillo
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33,660

(11)
 
$
853,281

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Franco