Elements of Executive Compensation and Analysis of Fiscal 2018 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
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Compensation Element
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Purpose
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Practice
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Base salary
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To compensate the executive fairly and competitively for the responsibility level of the position.
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Fixed compensation paid throughout the year and reviewed annually by the Committee with consideration to our stated compensation philosophy.
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Performance-based cash incentive compensation
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To motivate and reward organizational achievement of predetermined annual financial goals.
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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. Lowe was eligible for a pro-rated cash incentive payment for fiscal 2018, which was guaranteed (in the Change in Control Agreement) to pay out at least at target. Similarly, Mr. Swoboda was eligible to receive a pro rata bonus for the portion of the fiscal year during which he served as an executive (if earned based on Company performance for fiscal 2018).
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Long-term equity incentive compensation
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To drive executives’ focus on long-term growth and increased shareholder value and to promote retention.
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Time-based RSUs and performance-based PSUs delivered for fiscal 2018 through a mix of 50% RSUs and 50% PSUs (with the PSUs also having a TSR modifier). In addition to a grant of RSUs and PSUs for fiscal 2018, Mr. Lowe was also awarded a sign-on equity grant, divided equally between PSUs and RSUs (in each case with PSUs having a payout determined by TSR relative to a Cree peer group). 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.
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Post-termination and severance benefits
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To provide for certain limited economic security in the event an executive officer is terminated without cause or resigns with good reason.
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Each named executive officer other than the CEO is covered under the SLT Severance Plan, which provides for severance benefits in the event the executive officer is terminated without cause or resigns for good reason. The SLT Severance Plan is described on page 39 below. Mr. Lowe’s post-termination and severance benefits are established under the Change in Control Agreement, which is described on page 38 below.
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Other benefits
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To provide competitive benefits promoting employee health and productivity.
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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 calendar year. In connection with the negotiation of the Change in Control Agreement, Mr. Lowe received reimbursement of his legal fees. Mr. Lowe also received certain other benefits in connection with his relocation to North Carolina.
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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 15
for details regarding the Committee’s annual assessment of the compensation program.
Overall Program Design and Fiscal 2018 Implementation
. For fiscal 2018, in August 2017 the Committee evaluated Cree’s fiscal 2017 performance to determine performance rewards for fiscal 2017 performance and as an initial reference point in setting fiscal 2018 objectives. Although the financial results were lower in fiscal 2017 than fiscal 2016, fiscal 2017 was a year of transition for Cree, with a pending change in Chief Executive Officer and the termination of our executed agreement to sell our Wolfspeed business. Notwithstanding these challenges, in fiscal 2017 our Wolfspeed business had performed well, with growth in all three product lines; the LED Products business made progress in a challenging competitive environment; and the Lighting Products business was showing improvement at the end of the year, as margins improved.
Based on the fiscal 2017 performance and other factors, the Committee determined to set fiscal 2018 target TDC for the named executive officers between the 50
th
and 75
th
percentiles of the market data. The Committee applied a similar rationale in setting Mr. Lowe’s compensation in connection with his hiring in September 2017, with his new-hire compensation package positioned at approximately the 75
th
percentile of the market data. Each compensation element is discussed and analyzed below along with the Committee’s decisions regarding compensation actions for fiscal 2018.
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 2017 and Mr. Swoboda’s announcement to step down from his executive position, Mr. Swoboda was not given an annual merit increase in base salary for fiscal 2018. Messrs. McDevitt and Castillo also did not receive annual merit increases in base salary for fiscal 2018.
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Executive Officer
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Fiscal 2017 Salary
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Fiscal 2018 Salary
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Percentage Increase
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Gregg A. Lowe
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N/A
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$
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825,000
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N/A
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Michael E. McDevitt
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$
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455,000
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$
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455,000
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0%
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David T. Emerson
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N/A
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$
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400,000
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N/A
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Charles M. Swoboda
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$
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785,000
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$
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785,000
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0%
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Daniel J. Castillo
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$
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425,000
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$
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425,000
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0%
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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. 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. The LTIP was designed to qualify for the former exemption from Section 162(m) for performance-based compensation, which exemption was repealed by the Tax Cuts and Jobs Act of 2017 (the “Tax Legislation”), for taxable years beginning after December 31, 2017.
In August 2017, each of Messrs. McDevitt, Castillo and Emerson received performance units under the LTIP for fiscal 2018 with the annual targets discussed below. Mr. Lowe received his performance units under the terms of the Change in
Control Agreement executed when Mr. Lowe joined the Company in September 2017. Mr. Swoboda received his performance units under the terms of the Swoboda Separation Agreement.
Except as provided in the Change in Control Agreement with respect to Mr. Lowe and the SLT Severance Plan with respect to the other named executive officers, in each case as discussed below, or with respect to death or long-term disability, (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 2018 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 2017, the Committee left the annual target cash incentive awards for fiscal 2018 unchanged for each of the then serving named executive officers and set Mr. Lowe’s target cash incentive award in a similar fashion in connection with his hiring in September 2017.
The target cash incentive awards for the named executive officers are summarized as follows:
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•
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Mr. Lowe’s annual target cash incentive award for fiscal 2018 was set in the Change in Control Agreement in September 2017 at 140% of base salary, which put Mr. Lowe’s target TCC at approximately the 75
th
percentile of the market data. Recognizing the process of transitioning a new CEO in the middle of a fiscal year and in order to support a competitive compensation package to attract a highly-qualified candidate such as Mr. Lowe, Mr. Lowe’s cash incentive award for fiscal 2018 was guaranteed at no less than target level based on the number of days employed during the fiscal year. Mr. Lowe’s entire cash incentive award for fiscal 2018, although pro-rated and guaranteed at no less than target level, was based solely on annual Cree-wide financial goals.
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•
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Mr. McDevitt’s annual target cash incentive award for fiscal 2018 remained 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 target cash incentive award for fiscal 2018 was based solely on annual Cree-wide financial goals.
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•
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Mr. Emerson’s annual target cash incentive award for fiscal 2018 was set at 80% of base salary, which put his target TCC between the 50
th
and the 75
th
percentile of the market data. Mr. Emerson’s target cash incentive award for fiscal 2018 was based equally on annual Cree-wide financial goals and annual LED Products business unit financial goals.
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•
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Per the Swoboda Separation Agreement, Mr. Swoboda’s annual target cash incentive award for fiscal 2018 remained at 140% of his base salary, to be prorated by the portion of the year for which he served as our CEO
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•
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Mr. Castillo’s annual target cash incentive award for fiscal 2018 was set at 80% of base salary, which put Mr. Castillo’s target TCC between the 50
th
and the 75
th
percentile of the market data. Mr. Castillo’s cash incentive award for fiscal 2018 was based equally on annual Cree-wide financial goals and annual Lighting Products business unit financial goals.
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A schematic of the plan design for Messrs. Lowe, Swoboda and McDevitt is shown below:
A schematic of the plan design for Messrs. Castillo and Emerson is shown below:
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 of the percentage of achievement of each measure, rounded to the nearest whole percentage. For fiscal 2018, in August 2017 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 Cree-wide 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 2018
For fiscal 2018, 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 2018 performance, the Committee determined that a minimum non-GAAP operating income threshold for fiscal 2018 must be met first in order for any corporate-based annual award to be paid (even if the revenue target was otherwise met). Each of the minimum, target, and maximum annual goals for fiscal 2018 for each performance measure were pre-set and approved by the Committee in August 2017 based upon a comparison to the Company revenue and non-GAAP operating income actually achieved in fiscal 2017, as adjusted by the Committee based on certain items not expected to recur in fiscal 2018 or based on the 2017 fourth fiscal quarter “exit run rate” basis.
As a result, in August 2017 the Committee established the following performance goals for fiscal 2018:
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Performance Goal
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Minimum
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Target
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Maximum
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Corporate Revenue
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$1.39B
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$1.47B
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$1.64B
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Corporate Non-GAAP operating income
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$20M
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$40M
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$88M
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Lighting Products Revenue
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$0.62B
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$0.66B
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$0.74B
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Lighting Products Non-GAAP operating contribution
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$20M
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$55M
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$85M
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LED Products Revenue
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$0.55B
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$0.57B
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$0.63B
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LED Products Non-GAAP operating contribution
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$64M
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$69M
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$79M
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Results and Actual Payouts for Fiscal 2018
Cree did not reach the $20 million minimum level of non-GAAP operating income required for the Corporate LTIP annual payments, achieving non-GAAP operating income of $17 million. Revenue was $1.49 billion, above the minimum of $1.39 billion. The LED Products business unit did reach the $64 million minimum level of non-GAAP operating income required for the LED Products business unit only LTIP annual payments, achieving non-GAAP operating contribution of $76.1 million. LED Products revenue was $0.60 billion, also above the minimum of $0.55 billion. Accordingly, the named executive officers earned the following performance-based incentive cash awards for fiscal 2018:
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Executive Officer
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Target Award
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Actual Award Earned
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Actual Award as a Percent of Target
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Actual Award as a Percent of Salary
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Gregg A. Lowe
1
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$
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859,904
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$ 859,904
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100
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%
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140%
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Michael E. McDevitt
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$
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364,000
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$100,000
2
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28
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%
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22%
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David T. Emerson
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$
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320,000
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$ 258,880
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81
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%
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65%
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Charles M. Swoboda
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$
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1,099,000
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0
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0
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%
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0%
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Daniel J. Castillo
3
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$
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340,000
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$ 340,000
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100
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%
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80%
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________________
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1
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Pursuant to the Change in Control Agreement, Mr. Lowe’s performance-based incentive cash award for achievement of the annual goals for fiscal 2018 was guaranteed to be at least at target, pro-rated based on the number of days he was employed during the fiscal year, so long as Mr. Lowe presented strategic and organizational plans to the Board prior to the end of fiscal 2018 (which condition was met).
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2
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The Compensation Committee exercised discretion to award Mr. McDevitt a cash incentive award of $100,000 for fiscal 2018.
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3
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Mr. Castillo separated from the Company in December 2018. Pursuant to the Severance and Release Agreement between Mr. Castillo and the Company dated December 21, 2018, Mr. Castillo received a lump sum payment equal to his total target annual incentive award for fiscal 2018.
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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 2018, in August 2017 the Committee approved grants of RSUs and PSUs as long-term equity compensation to the then serving named executive officers (with the exception of Mr. Swoboda). The Committee approved the long-term equity component of Mr. Lowe’s compensation package in September 2017 in connection with his engagement as our new CEO.
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 2018 Equity Awards
The Committee approved the following equity grants to the named executive officers below at its regularly scheduled August 2017 meeting. Except as noted below, the awards were granted on September 1, 2017:
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Executive Officer
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RSUs
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PSUs
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Gregg A. Lowe
1
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208,854
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208,854
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Michael E. McDevitt
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29,997
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29,997
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David T. Emerson
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20,687
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20,687
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Charles M. Swoboda
2
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—
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—
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Daniel J. Castillo
3
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24,304
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20,687
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________________
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1
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Mr. Lowe received his equity awards in connection with his appointment as our CEO on September 27, 2018.
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2
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Pursuant to the terms of the Swoboda Separation Agreement, Mr. Swoboda was not eligible for any equity awards for fiscal 2018.
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3
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Mr. Castillo received an additional RSU award of 3,617 shares that was approved by the Committee in late October 2017 and granted on November 1, 2017. Mr. Castillo forfeited unvested equity upon his separation from the Company in December 2017.
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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 Group companies. Specifically, the Committee determined that Cree’s annual burn rate, net of forfeitures, as of the end of fiscal 2017 had averaged approximately 3.5% of average weighted shares outstanding for fiscal 2017, and approximately 3.3% 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, 2017 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 determined that the subsequent 2018 equity award grants for Mr. Lowe in connection with his appointment as CEO were appropriate because the grants reflected a target TDC of the 75
th
percentile of the market data (based on the value of such equity at the time of grant). The Committee also determined that the sign-on grant to Mr. Lowe was appropriate to support a competitive compensation package necessary to retain a highly-qualified CEO candidate in a competitive marketplace. 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 2018 in accordance with applicable reporting requirements in the Summary Compensation Table on page 42 under the “Stock Awards” column and in the Grants of Plan-Based Awards table on page 43.
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 2017 to Messrs. McDevitt and Emerson for fiscal 2018 vest ratably in equal annual increments over four years from the grant date. The RSUs granted to Mr. Lowe in September 2017 as part of his annual equity grant in connection with his initial hiring vest ratably in equal annual increments over four years from the grant date. In addition, Mr. Lowe received a second sign-on RSU retention grant, which also vests ratably in equal annual increments over four years from the grant date. 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 SLT Severance Plan (or for Mr. Lowe, his Change in Control Agreement), however, vesting of RSUs may also be accelerated in certain circumstances as discussed below. Mr. Swoboda did not receive any long-term equity awards in fiscal 2018, but his 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 2018, in August 2017 the Committee approved the grant of PSUs to three of the named executive officers serving at that time (Messrs. McDevitt, Emerson and Castillo; Mr. Swoboda did not receive any fiscal 2018 equity grants, and Mr. Lowe did not receive any of the PSUs granted in August 2017) 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, modified based on Cree’s relative Total Shareholder Return (TSR) as compared to Cree’s percentile rank against the defined Peer Group (as noted in the table below), assuming the named executive officer had not terminated his service to Cree, as follows:
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•
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one-third of the PSUs would vest on September 1, 2018, if the Company achieves fiscal 2018 non-GAAP operating income of at least $30.0 million (i.e., at least a 50% increase in non-GAAP operating income for fiscal 2018 as compared to actual fiscal 2017 non-GAAP operating income of $20.0 million);
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•
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one-third of the PSUs would vest on September 1, 2019, if the Company achieves fiscal 2019 non-GAAP operating income of at least $33.0 million (i.e., at least a 10% increase in non-GAAP operating income for fiscal 2019 as compared to the minimum fiscal 2018 non-GAAP operating income target of $30.0 million); and
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•
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one-third of the PSUs would vest on September 1, 2020, if the Company achieves fiscal 2020 non-GAAP operating income of at least $36.3 million (i.e., at least a 10% increase in non-GAAP operating income for fiscal 2020 as compared to actual fiscal 2019 non-GAAP operating income of 33.0 million).
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These PSUs also have a modifier based on the Company's Relative Total Shareholder Return (“RTSR”) compared to a peer group of companies listed on the “Nasdaq Composite Index filtered by the Semiconductor, Semiconductor Equipment, and Electronics Equipment, Instruments and Components Sectors” (the “TSR Peer Group”) over the period beginning on the last trading day immediately before the grant date and ending immediately prior to the vesting date (the “Measurement Period”). The starting value for the calculation of the Payout Factor will be the average Company share price for the 30 trading days prior to the grant date and the ending value for the calculation will be the average Company share price for the 30 trading days prior to the end of the Measurement Period. The RTSR of the Company will then be compared to the TSR Peer Group over the Measurement Period and separated into quartiles for determining the Payout Factor as follows: (a) if the Company ends in the Top (first) performing quartile, the Payout Factor is 1.25, (b) if the Company ends in the Second or Third quartile, the Payout Factor is 1.0, and (c) if the Company ends in the Fourth quartile, the Payout Factor is 0.75.
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Relative Total Shareholder Return Ranking over Measurement Period
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Payout % Level
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75
th
Percentile or Higher
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125
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%
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25
th
– 74
th
Percentile
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100
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%
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0 – 24
th
Percentile
|
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75
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%
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Vesting of these PSUs granted in August 2017 ends upon termination of employment. Under the terms of the SLT Severance Plan, however, vesting of options, RSUs and PSUs may also be accelerated in certain circumstances as discussed below. Mr. Swoboda’s outstanding equity awards granted for years prior to fiscal 2018 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 2018 was $17 million, and as a result, the first tranche of the PSUs granted in August 2017 for fiscal 2018 financial performance was not earned or vested in September 2018; the second tranche of the PSUs granted in August 2016 for fiscal 2018 financial performance was not earned or vested as of such date; and the third tranche of the PSUs granted in August 2015 for fiscal 2018 financial performance was not earned or vested as of such date.
In connection with his appointment as CEO, Mr. Lowe received an award of PSUs for fiscal 2018 in addition to a sign-on retention award of PSUs, in each case that vest three years after the date of grant. The actual number of shares earned under the PSUs for both of his awards at the end of the three years will be the number of PSUs awarded times the “Payout Factor” described below. The performance thresholds for the PSUs will be based on the Company’s RTSR compared to TSR Peer Group over the period beginning on September 22, 2017 and ending immediately prior to the vesting date (the “Lowe Measurement Period”). The starting value for the calculation of the Payout Factor will be the 30 trading day average price for Cree common stock through September 22, 2017 and the ending value for the calculation will be the average Company share price for the 30 trading days prior to the end of the Lowe Measurement Period. The RTSR of the Company will then be compared to the peer group over the three-year period and separated into quartiles for determining the Payout Factor as follows: (i) if the Company ends in the first (top) performing quartile, the Payout Factor is 1.5; (ii) if the Company ends in the second quartile, the Payout Factor is 1.0; (iii) if the Company ends in the third quartile, the Payout Factor is 0.5; and (iv) if the Company ends in the fourth (worst) performing quartile, the Payout Factor is 0.
The PSUs and the RSUs awarded to Mr. Lowe in fiscal 2018 will become fully vested in the case of death or disability; however, the PSUs will not pay out until the end of the applicable three-year period and the payout at that time will be determined as described above.
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 2018 are included in the Summary Compensation Table on page 42 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 per calendar year at a facility designated by Cree.
In connection with Mr. Lowe’s appointment as CEO, the Company provided Mr. Lowe a lump sum relocation allotment in the amount of $50,000 per quarter (at the beginning of each fiscal quarter) for the first four quarters of employment, grossed up for income and withholding taxes based on the marginal tax rate applicable to compensation disbursed at the time of payment. This allotment was to contribute to all transitional relocation expenses, including but not limited to current housing lease coverage, housing rental, storage expenses, and personal travel expenses. The Company also covered the costs of pre-approved house-hunting trips and the reasonable and customary expenses of moving Mr. Lowe’s household belongings. Mr. Lowe will be responsible for reimbursing the Company for the relocation amounts paid to him if he resigns voluntarily or the Company terminates his employment for cause before his second anniversary of employment.
Post-Termination Arrangements
. The Committee has approved the severance benefits described below 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. The Committee approved certain severance benefits in the context of a change in control for Mr. Lowe in connection with his appointment in September 2017. Following this time, the Committee determined to review all plans for severance benefits covering the other named executive officers, in addition to other employees of the Company, based in part on market data provided by Radford, with the goal of aligning the Company’s severance practices both internally and with peer company practices. The result of this review was the termination of the Company’s Section 16 Officer Severance Plan and individual change in control agreements with named executive officers. In
place of these arrangements, the Committee approved the SLT Severance Plan and conforming amendments to Mr. Lowe’s original Change in Control Agreement.
Under the Change in Control Agreement and the SLT Severance Plan, severance benefits in connection with a change in control are subject to a double-trigger feature, 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. See “Potential Payments upon Termination or Change in Control” on page 46 below for additional information on our severance arrangements with the named executive officers.
Change in Control Agreement with Mr. Lowe
The Company entered into the Change in Control Agreement with Mr. Lowe in connection with his appointment as Chief Executive Officer in September 2017, which was subsequently amended on May 4, 2018 to provide Mr. Lowe with severance benefits to replace those to which he would have been eligible to receive under the Company’s prior Section 16 Officer Severance Plan, which was terminated, and to make other revisions consistent with the benefits provided to other senior management under the SLT Severance Plan. If, during the term of the Change in Control Agreement, Mr. Lowe’s employment is terminated by the Company without cause (but not as a result of his death or long-term disability), or by Mr. Lowe for good reason, then he will receive the following benefits depending on whether or not the termination is in connection with a change in control of the Company.
|
|
|
|
|
|
Termination is not in connection with a change in control:
|
|
Termination is in connection with a change in control:
|
•
|
continued payment of his base salary for 18 months;
|
|
•
|
continued payment of his base salary for 24 months;
|
•
|
a lump sum payment equal to 1.5 times his target annual incentive award for the fiscal year in which the termination occur;
|
|
•
|
a lump sum payment equal to two times his target annual incentive award for the fiscal year in which the termination occurs;
|
•
|
a lump sum payment equal to 18 multiplied by the COBRA premium in effect for the type of medical, dental, and vision coverage then in effect for Mr. Lowe;
|
|
•
|
a lump sum payment equal to 24 multiplied by the COBRA premium in effect for the type of medical, dental, and vision coverage then in effect for Mr. Lowe;
|
•
|
continued vesting of RSUs and options granted to Mr. Lowe under the LTIP that are subject to time-based vesting requirements only during the 18 months following the date of employment termination as if Mr. Lowe’s employment had not terminated;
|
|
•
|
full accelerated vesting with respect to his then outstanding, unvested time-vested restricted stock and other equity awards that vest solely based on the passage of time;
|
•
|
continued vesting during the 18 months following the date of termination of PSUs in accordance with the terms of such awards as if Mr. Lowe’s employment had not terminated, although PSUs that may vest under this provision shall be paid out based upon actual Company performance in accordance with the terms of the 2013 Plan and the applicable award agreement, including prorating for the portion of time Mr. Lowe provided services to the Company over the course of the applicable performance period and such additional 18-month period, as applicable; and
|
|
•
|
full accelerated vesting with respect to his then outstanding, unvested performance based restricted stock units, with all performance objectives deemed to have been satisfied at the target level (target being a Payout Factor of 1); and
|
•
|
in the event that Mr. Lowe’s employment is terminated on or before October 31, 2019, reimbursement by the Company for any loss incurred in the sale of Mr. Lowe’s primary North Carolina residence.
|
|
•
|
reimbursement by the Company for any loss incurred in the sale of his primary North Carolina residence.
|
SLT Severance Plan
On April 30, 2018, the Compensation Committee terminated the Company’s Section 16 Officer Severance Plan and adopted in its place the SLT Severance Plan covering executives who report directly to the CEO and who serve on the senior leadership team (the “SLT Executives”), including the Company’s currently serving named executive officers other than Mr. Lowe. The SLT Severance Plan is designed to provide severance benefits to the SLT Executives in the event of their termination of employment without cause or their resignation for good reason. Pursuant to the terms of the SLT Severance Plan, if an SLT Executive’s employment is terminated by the Company without cause (but not as a result of his or her death or long-term disability), or by the SLT Executive for good reason, then he or she will receive the following benefits depending on whether or not the termination is in connection with a change in control of the Company.
|
|
|
|
|
|
Termination is not in connection with a change in control:
|
|
Termination is in connection with a change in control:
|
•
|
continued payment of the SLT Executive’s regular salary for 12 months;
|
|
•
|
continued payment of the SLT Executive’s regular salary for 18 months;
|
•
|
payment of an amount equal to the SLT Executive’s annual targeted bonus opportunity at the target level for the year in which termination occurred;
|
|
•
|
payment of an amount equal to 1.5 times the SLT Executive’s annual targeted bonus opportunity at the target level for the year of termination;
|
•
|
reimbursement for the additional costs of continuing the SLT Executive’s group medical, dental and vision coverage under COBRA for 12 months or until the SLT Executive is eligible for new healthcare coverage, whichever is shorter;
|
|
•
|
a lump sum payment equal to 18 multiplied by the COBRA premium in effect for the type of medical, dental, and vision coverage then in effect for the SLT Executive;
|
•
|
continued vesting of RSUs and options during the 12 months following the date of employment termination as if the SLT Executive’s employment had not terminated, and continued vesting of PSUs during the 12 months following the date of termination in accordance with the terms of such awards as if the SLT Executive’s employment had not terminated, although PSUs that may vest under this provision shall be paid out based upon actual Company performance in accordance with the terms of the LTIP and the applicable award agreement, including prorating for the portion of time the SLT Executive provided services to the Company over the course of the applicable performance period and such additional 12 month period, as applicable; and
|
|
•
|
accelerated vesting of RSUs and options that are subject to time-based vesting requirements only, so that they become vested by the date employment terminates, and deemed vesting of any unvested PSUs at the greater of (i) the target level and (ii) the actual performance level; and
|
•
|
outplacement benefits for 12 months.
|
|
•
|
outplacement benefits for 12 months.
|
Separation, General Release and Consulting Agreement with Mr. McDevitt
On June 5, 2018, Mr. McDevitt and the Company mutually agreed that Mr. McDevitt would retire as CFO following a transition period. Mr. McDevitt and the Company executed a Separation, General Release and Consulting Agreement (the “McDevitt Separation Agreement”) on June 7, 2018 in order to provide for an orderly transition to a new CFO; to govern the Company’s relationship with Mr. McDevitt during the transition period; and to establish that the separation benefits provided under the McDevitt Separation Agreement are in lieu of any benefits Mr. McDevitt might have been entitled to receive under any Company plan or agreement, including the SLT Severance Plan and the LTIP and its predecessor plan and Mr. McDevitt’s award agreements under each such plan.
The transition period ended on August 27, 2018 when Mr. Reynolds became the new CFO of the Company. Mr. McDevitt will remain a consultant of the Company for a 12-month period. The separation benefits described below will be compensation for Mr. McDevitt’s consulting services during the consulting term. Pursuant to the McDevitt Separation Agreement, since Mr. McDevitt was employed as the CFO during a portion of fiscal 2019, he will also be granted a new cash performance award for fiscal 2019, establishing a target award of $364,000 and making Mr. McDevitt eligible to receive, if earned based on Company performance for all of fiscal 2019, a pro-rata bonus for the portion of the fiscal year during which he served as the CFO.
Upon termination of the transition period (such date of termination, the “separation date”), Mr. McDevitt was entitled to the following separation benefits under the McDevitt Separation Agreement:
|
|
•
|
$455,000, which amount is equal to Mr. McDevitt’s base salary to be paid in equal monthly installments over the 12 months following the separation date;
|
|
|
•
|
$364,000, which amount is equal to Mr. McDevitt’s annual targeted bonus opportunity at target for fiscal 2019;
|
|
|
•
|
reimbursement for the additional costs of continuing Mr. McDevitt’s Company-sponsored group medical, dental, and vision coverage under COBRA applicable to the type of medical, dental, and vision coverage in effect for Mr. McDevitt as of the separation date for the 12-month period following the separation date, or until he is eligible for new group healthcare coverage, whichever is shorter;
|
|
|
•
|
outplacement benefits for a 12-month period; and
|
|
|
•
|
conditioned on Mr. McDevitt’s fulfillment of his obligations for consulting, continued compliance with all other terms of the McDevitt Separation Agreement through each applicable vesting date, and upon execution and delivery of a supplemental release, (i) any RSUs granted to Mr. McDevitt under the LTIP that are subject to time-based vesting requirements only and that are unvested as of the separation date will continue to vest during the consulting term and will continue to vest or settle and pay out in accordance with the time-based vesting schedule that would have applied had Mr. McDevitt’s employment not terminated; and (ii) any unvested PSUs granted to Mr. McDevitt under the LTIP prior to the separation date will continue to vest during the consulting term in accordance with the terms of the awards and will be paid out, if at all, based upon actual Company performance in accordance with the terms of the LTIP and the applicable award agreement, including prorating for the portion of time Mr. McDevitt provided services to the Company over the course of the applicable performance period and the consulting term, as applicable. At the end of the consulting term, any remaining unvested RSUs that are subject to time-based vesting will accelerate and will immediately vest in full and any remaining unvested PSUs will be forfeited (other than the pro-rated portion of any such unvested PSUs for which Mr. McDevitt provided services to the Company over the course of the applicable performance period and the consulting term, as applicable).
|
Separation, General Release and Consulting Agreement with Mr. Swoboda
During fiscal 2017, Mr. Swoboda and the Company entered into the Swoboda Separation Agreement in connection with our CEO succession plan. Pursuant to the Swoboda Separation Agreement, Mr. Swoboda was entitled to the following compensation upon the appointment of Mr. Lowe as CEO: (i) 18-months’ pay, based on his annual salary of $785,000 per year, or a total of $1,177,500, which amount will be paid in equal monthly installments over the 18 months following Mr. Swoboda’s termination from his executive positions; (ii) $1,648,500, which amount is equal to 1.5 times Mr. Swoboda’s annual bonus amount at target; 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 time of his termination. The separation benefits provided under the Swoboda Separation Agreement replaced any separation benefits Mr. Swoboda might have been entitled under the Section 16 Officer Severance Plan, the LTIP, or his Change in Control Agreement. Mr. Swoboda will remain a consultant of the Company until September 30, 2019. During 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.
Section 162(m) Treatment Regarding Performance-Based Equity Awards
. The Committee has historically reviewed and considered 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 (“covered employees”). For taxable years ending December 31, 2017 and earlier, this limitation did not apply to compensation that was considered “performance-based compensation,” including certain stock and cash incentive compensation under the LTIP, under the rules of Section 162(m). Historically, Cree sought to structure the performance-based portion of the compensation of the executive officers in a manner that complied with Section 162(m) when Cree considered it to be in Cree’s best interests, taking into account all relevant factors. The exemption from Section 162(m)’s deduction limitation for performance-based compensation has been repealed by the Tax Legislation, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered employees in excess of $1,000,000 will not be deductible unless it qualifies for transition relief applicable to certain written binding arrangements in place as of November 2, 2017 and not materially modified or renewed thereafter. The definition of “covered employees” was also expanded to include a company’s chief financial officer (in addition to the chief executive officer and three other most highly paid executive officers), plus any individual who has been a “covered employee” in any taxable year beginning after December 31, 2016. The Committee continues to evaluate the changes to Section 162(m) and their significance to our compensation programs. While the Committee seeks to preserve the deductibility of compensation
payable to the executive officers, the Committee also believes that it is important to maintain flexibility in administering compensation programs in a manner designed to promote varying corporate goals and tax deductibility 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 are within these 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 20, 2018 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
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 2018.
Summary Compensation Table
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|
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|
|
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|
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|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Stock
Awards
($) (1)
|
|
Non-Equity Incentive Plan
Compensation
($)
|
|
All Other Compensation
($) (2)
|
|
Total
($)
|
(a)
|
|
(b)
|
|
(c)
|
|
(e)
|
|
(g)
|
|
(i)
|
|
(j)
|
Gregg A. Lowe
|
|
2018
|
|
$
|
580,666
|
|
|
$
|
11,583,043
|
|
|
$
|
859,904
|
|
|
$
|
399,651
|
|
(4)
|
|
$
|
13,423,264
|
|
CEO and President (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael E. McDevitt
|
|
2018
|
|
$
|
455,004
|
|
|
$
|
1,464,454
|
|
|
$
|
100,000
|
|
|
$
|
9,450
|
|
|
|
$
|
2,028,908
|
|
Former Executive Vice President and CFO
|
|
2017
|
|
$
|
455,004
|
|
|
$
|
1,336,999
|
|
|
—
|
|
|
$
|
8,901
|
|
|
|
$
|
1,800,904
|
|
|
|
2016
|
|
$
|
440,000
|
|
|
$
|
1,484,165
|
|
|
$
|
129,536
|
|
|
$
|
8,559
|
|
|
|
$
|
2,062,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David T. Emerson
|
|
2018
|
|
$
|
397,223
|
|
|
$
|
1,009,939
|
|
|
$
|
258,880
|
|
|
$
|
7,875
|
|
|
|
$
|
1,673,917
|
|
Executive Vice President–LED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles M. Swoboda
|
|
2018
|
|
$
|
328,866
|
|
|
—
|
|
|
$
|
274,750
|
|
|
$
|
2,144,682
|
|
(6)
|
|
$
|
2,748,298
|
|
Former Chairman, CEO and President
|
|
2017
|
|
$
|
785,000
|
|
|
$
|
4,507,033
|
|
|
—
|
|
|
$
|
21,458
|
|
|
|
$
|
5,313,491
|
|
|
|
2016
|
|
$
|
785,000
|
|
|
$
|
5,003,146
|
|
|
$
|
252,770
|
|
|
$
|
7,984
|
|
|
|
$
|
6,048,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel J. Castillo
|
|
2018
|
|
$
|
218,414
|
|
|
$
|
1,134,907
|
|
|
—
|
|
|
$
|
205,407
|
|
(8)
|
|
$
|
1,558,728
|
|
Former Executive Vice President and
|
|
2017
|
|
$
|
425,000
|
|
|
$
|
2,739,083
|
|
|
—
|
|
|
$
|
171,218
|
|
|
|
$
|
3,335,301
|
|
President–Lighting Products (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________
|
|
(1)
|
Represents the aggregate grant date fair value of service-based RSUs and PSUs 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 12 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended June 24, 2018 for assumptions used in the calculations. There can be no assurance that the ASC Topic 718 grant date fair value amounts will never be realized. In fact, because the PSUs did not pay out for fiscal 2018, the amount in the Stock Awards for Messrs. McDevitt and Emerson (as well as Mr. Castillo, who departed prior to the end of the applicable performance period) reflect $732,227, $504,970 and $504,970, respectively, that will not be realized by the executives.
|
|
|
(2)
|
Amounts listed in column (i) include matching contributions to the 401(k) retirement plan. Except as otherwise described below, no named executive officer received perquisites and personal benefits valued, in the aggregate, at $10,000 or more. 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 2016 through 2018 unless otherwise noted or previously disclosed.
|
|
|
(3)
|
Mr. Lowe was appointed as Chief Executive Officer and President on September 27, 2017.
|
|
|
(4)
|
The amount reported includes (i) relocation and housing expenses of $345,898 in connection with Mr. Lowe’s hiring and tax gross-ups in connection therewith and (ii) reimbursement for attorneys’ fees in the amount of $40,426 Mr. Lowe incurred in connection with the preparation and negotiation of the Change in Control Agreement.
|
|
|
(5)
|
Mr. Emerson was appointed as Executive Vice President–LED Products on September 1, 2017.
|
|
|
(6)
|
The amount reported includes $2,144,290 paid pursuant to the Swoboda Separation Agreement (see “Compensation Discussion and Analysis—Additional Information—Post-Termination Arrangements—Separation, General Release and Consulting Agreement with Mr. Swoboda” above for more information).
|
|
|
(7)
|
Mr. Castillo served as Executive Vice President and President–Lighting Products from November 7, 2016 to December 5, 2017.
|
|
|
(8)
|
The amount reported includes $201,842 paid pursuant to the Separation and General Release Agreement between us and Mr. Castillo (see “Potential Payments upon Termination or Change in Control—Castillo Separation and General Release Agreement with Mr. Castillo” below for more information).
|
Grants of Equity and Non-Equity Incentive Awards
The following table provides information about RSUs, PSUs and non-equity incentive plan awards granted to the named executive officers during fiscal 2018. All RSUs and PSUs were granted under the LTIP. No stock options were granted to the named executive officers in fiscal 2018.
Grants of Plan-Based Awards in Fiscal 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
Approval Date
|
|
Estimated
Possible Payouts
Under Non-Equity
Incentive Plan
Awards (1)
|
|
Estimated
Possible Payouts
Under Equity
Incentive Plan
Awards (2)
|
|
All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#) (3)
|
|
All Other Option
Awards:
Number of Securities Underlying Options
(#)
|
|
Exercise
or Base
Price of Option Awards
($/Sh)
|
|
Grant
Date Fair
Value of
Stock and Option
Awards
($)
|
Name
|
|
|
Threshold ($)
|
|
Target
($)
|
|
Maximum ($)
|
|
Threshold (#)
|
|
Target
(#)
|
|
Maximum (#)
|
|
Gregg A.
|
|
|
|
|
|
—
|
|
|
$
|
859,904
|
|
|
$
|
1,719,808
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Lowe
|
|
9/27/2017
|
|
9/22/2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
104,427
|
|
|
208,854
|
|
|
313,281
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
5,791,521
|
|
|
|
9/27/2017
|
|
9/22/2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
208,854
|
|
|
—
|
|
|
—
|
|
|
$
|
5,791,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael E.
|
|
|
|
|
|
$
|
182,002
|
|
|
$
|
364,003
|
|
|
$
|
728,007
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
McDevitt
|
|
9/1/2017
|
|
8/28/2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,498
|
|
|
29,997
|
|
|
37,496
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
732,227
|
|
|
|
9/1/2017
|
|
8/28/2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,997
|
|
|
—
|
|
|
—
|
|
|
$
|
732,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David T.
|
|
|
|
|
|
$
|
160,000
|
|
|
$
|
320,000
|
|
|
$
|
640,000
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Emerson
|
|
9/1/2017
|
|
8/28/2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,515
|
|
|
20,687
|
|
|
25,859
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
504,970
|
|
|
|
9/1/2017
|
|
8/28/2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,687
|
|
|
—
|
|
|
—
|
|
|
$
|
504,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles M.
|
|
|
|
|
|
—
|
|
|
$
|
1,099,000
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Swoboda
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel J.
|
|
|
|
|
|
$
|
170,000
|
|
|
$
|
340,000
|
|
|
$
|
680,000
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Castillo
|
|
9/1/2017
|
|
8/28/2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,515
|
|
|
20,687
|
|
|
25,859
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
504,970
|
|
|
|
9/1/2017
|
|
8/28/2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,687
|
|
|
—
|
|
|
—
|
|
|
$
|
504,970
|
|
|
|
11/1/2017
|
|
10/25/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,617
|
|
|
—
|
|
|
—
|
|
|
$
|
124,967
|
|
________________
|
|
(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. The actual amounts earned are disclosed in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table.” Mr. Lowe’s cash incentive award for fiscal 2018 was guaranteed at no less than target level based on the number of days employed during the fiscal year. Threshold payment amounts under the performance units awarded to Messrs. McDevitt, Emerson, Swoboda, 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. Annual corporate financial targets for Messrs. Lowe, McDevitt, and Swoboda for fiscal 2018 were solely based on Cree-wide financial targets. Annual corporate financial targets for Messrs. Emerson and Castillo for fiscal 2018 were weighted equally on Cree-wide and business unit specific targets. For additional information regarding the LTIP and performance units, see “Compensation Discussion and Analysis” above.
|
|
|
(2)
|
PSUs are granted at target on the grant date. For Mr. Lowe, actual shares awarded on the third anniversary of the grant date is based on the payout factor that corresponds with the Company’s RTSR percentile rank compared to the TSR Peer Group. Maximum opportunity is 150% of the target if the Company ranks in the top quartile, target is 100% if the Company ranks in the second quartile, threshold is 50% if the Company ranks in the third quartile and no payout if the Company ranks in the fourth (worst) quartile. For Messrs. McDevitt, Emerson and Castillo, the PSUs granted in fiscal 2018 vest in three equal tranches commencing on the first anniversary of the grant date based on the achievement of non-GAAP operating income of $30.0 million for fiscal 2018, $33.0 million for fiscal 2019, and $36.3 million for fiscal 2020. Actual shares awarded on each anniversary, assuming the goal is achieved, are based on the payout factor that corresponds with the Company’s RTSR percentile rank compared to the TSR Peer Group. Maximum opportunity is 125% of the target if the Company ranks at or above the 75
th
percentile, target is 100% if the Company ranks at or above the 25
th
percentile but below the 75
th
percentile, and threshold of 75% if the Company ranks below the 25
th
percentile. For additional information regarding the PSUs granted during fiscal 2018, see “Compensation Discussion and Analysis” above.
|
|
|
(3)
|
The RSUs granted to Messrs. Lowe, McDevitt, Emerson and Castillo vest in four annual installments commencing on the first anniversary of the date of grant, provided the recipient continues service as an employee, consultant or as a member of the Board of Directors.
|
Outstanding Equity Awards
The following table provides information about outstanding equity awards held by the named executive officers as of June 24, 2018.
Outstanding Equity Awards at 2018 Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards (1)
|
|
Stock Awards (1)
|
Name
|
|
Number of Securities Underlying Unexercised Options (#)
Exercisable
|
|
Number of Securities Underlying Unexercised Options (#)
Unexercisable
|
|
Option
Exercise
Price
($/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
($) (3)
|
|
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested (#)
|
|
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested ($)
|
Gregg A.
|
|
|
|
|
|
|
|
|
|
|
208,854
|
|
(4)
|
|
$
|
9,953,982
|
|
|
|
|
|
|
Lowe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,427
|
|
(5)
|
|
$
|
9,953,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael E.
|
|
30,000
|
|
|
|
|
|
$
|
23.62
|
|
|
6/1/2019
|
|
75,753
|
|
(6)
|
|
$
|
3,610,388
|
|
|
|
|
|
|
McDevitt
|
|
20,000
|
|
|
|
|
|
$
|
27.77
|
|
|
9/4/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
16,000
|
|
|
|
|
|
$
|
54.60
|
|
|
9/3/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
16,000
|
|
|
|
|
|
$
|
45.13
|
|
|
9/2/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,712
|
|
(7)
|
|
$
|
2,488,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David T.
|
|
30,000
|
|
|
|
|
|
$
|
30.92
|
|
|
9/1/2018
|
|
70,931
|
|
(8)
|
|
$
|
3,380,571
|
|
|
|
|
|
|
Emerson
|
|
40,000
|
|
|
|
|
|
$
|
27.77
|
|
|
9/4/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000
|
|
|
|
|
|
$
|
54.60
|
|
|
9/3/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000
|
|
|
|
|
|
$
|
45.13
|
|
|
9/2/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,771
|
|
(9)
|
|
$
|
1,570,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles M.
|
|
40,000
|
|
|
|
|
|
$
|
27.77
|
|
|
9/4/2019
|
|
155,763
|
|
(10)
|
|
$
|
7,423,665
|
|
|
|
|
|
|
Swoboda
|
|
50,000
|
|
|
|
|
|
$
|
54.60
|
|
|
9/3/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
64,000
|
|
|
|
|
|
$
|
45.13
|
|
|
9/2/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,884
|
|
(11)
|
|
$
|
3,568,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel J.
|
|
—
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Castillo (12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________
(1) The option awards, RSUs and PSUs listed were granted under the LTIP or the Company’s 2004 Long-Term Incentive Compensation Plan, as amended, or the 2004 LTIP.
(2) Each option expires on the earlier of the expiration date shown or 90 days after termination of the recipient’s employment, except in cases of death or termination due to a long-term disability. Mr. McDevitt’s outstanding options will continue to be exercisable during the consulting period described in the McDevitt Separation Agreement and for the 90 day period thereafter. Mr. Swoboda’s outstanding options will continue to be exercisable during the consulting period described in the Swoboda Separation Agreement and for the 90 day period thereafter.
(3) Market value of shares that have not vested is based on $47.66 per share (the closing price of our common stock as reported by Nasdaq on June 22, 2018, the last business day of fiscal 2018).
(4) Includes RSUs that vest as to 52,214 shares cumulatively on September 27, 2018, as to 52,214 shares cumulatively on September 27, 2019, as to 52,214 shares cumulatively on September 27, 2020, and as to 52,214 shares on September 27, 2021.
(5) Includes PSUs that vest as to 104,427 shares cumulatively on September 27, 2020, if the applicable threshold performance target for the period is satisfied (assuming a payout factor of 0.5).
(6) Includes RSUs that vest as to 28,265 shares cumulatively on September 1, 2018, as to 24,264 shares cumulatively on September 1, 2019, as to 15,725 shares cumulatively on September 1, 2020, and as to 7,499 shares on September 1, 2021. Pursuant to the McDevitt Separation Agreement, any RSUs granted to Mr. McDevitt under the LTIP that are subject to time-based vesting requirements only and that are unvested as of his separation date from the Company will continue to vest during his consulting term and will continue to vest or settle and pay out in accordance with the time-based vesting schedule that would have applied had Mr. McDevitt’s employment not terminated. At the end of Mr. McDevitt’s consulting term, any remaining unvested RSUs that are subject to time-based vesting will accelerate and will immediately vest in full.
(7) Includes PSUs that vest as to 24,901 shares cumulatively on September 1, 2018, as to 17,311 shares cumulatively on September 1, 2019, as to 9,999 shares cumulatively on September 1, 2020, if the applicable threshold performance targets for each period are satisfied (assuming a TSR modifier of 75% for awards made in
fiscal 2018). As described above, the performance targets for the PSUs scheduled to vest on September 1, 2018 were not achieved and therefore these awards will never vest. Pursuant to the McDevitt Separation Agreement, any unvested PSUs granted to Mr. McDevitt under the LTIP prior to his separation date from the Company will continue to vest during his consulting term in accordance with the terms of the awards and will be paid out, if at all, based upon actual Company performance in accordance with the terms of the LTIP and the applicable award agreement, including prorating for the portion of time Mr. McDevitt provided services to the Company over the course of the applicable performance period and the consulting term, as applicable.
(8) Includes RSUs that vest as to 16,672 shares cumulatively on September 1, 2018, as to 8,319 on June 1, 2019, as to 14,421 shares cumulatively on September 1, 2019, as to 8,319 on June 1, 2020, as to 9,710 shares cumulatively on September 1, 2020, as to 8,319 on June 1, 2021, and as to 5,171 shares on September 1, 2021.
(9) Includes PSUs that vest as to 15,118 shares cumulatively on September 1, 2018, as to 10,930 shares cumulatively on September 1, 2019, and as to 6,895 shares on September 1, 2020, if the applicable threshold performance targets for each period are satisfied (assuming a TSR modifier of 75% for awards made in fiscal 2018). As described above, the performance targets for the PSUs scheduled to vest on September 1, 2018 were not achieved and therefore these awards will not vest.
(10) Includes RSUs that vest as to 71,517 shares cumulatively on September 1, 2018, as to 56,516 shares cumulatively on September 1, 2019, and as to 27,730 shares on September 1, 2020.
(11) Includes PSUs that vest as to 50,236 shares cumulatively on September 1, 2018 and as to 24,648 shares on September 1, 2019, if the applicable threshold performance targets for each period are satisfied. As described above, the performance targets for the PSUs scheduled to vest on September 1, 2018 were not achieved and therefore these awards will not vest.
(12) Mr. Castillo forfeited all unvested equity awards upon his separation from the Company in December 2017.
Stock Option Exercises and Vesting of Restricted Stock
The following table provides information about option exercises and vesting of RSUs held by the named executive officers during fiscal 2018.
Option Exercises and Stock Vested in Fiscal 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of
Shares Acquired
on Exercise(#)
|
|
Value
Realized on
Exercise ($)
|
|
Number of
Shares Acquired
on Vesting (#)
|
|
Value
Realized on
Vesting ($)
|
Gregg A. Lowe
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael E. McDevitt
|
|
127,000
|
|
|
$
|
1,770,701
|
|
|
24,766
|
|
|
$
|
604,538
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
David T. Emerson
|
|
—
|
|
|
—
|
|
|
11,501
|
|
|
$
|
280,739
|
|
(1)
|
|
|
|
|
|
|
8,320
|
|
|
$
|
393,702
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
Charles M. Swoboda
|
|
—
|
|
|
—
|
|
|
68,787
|
|
|
$
|
1,677,027
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
Daniel J. Castillo
|
|
—
|
|
|
—
|
|
|
12,623
|
|
|
$
|
447,107
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
________________
|
|
(1)
|
For RSUs, the value realized on vesting is based on $24.41 per share (the closing price of our common stock as reported by Nasdaq on September 1, 2017).
|
|
|
(2)
|
For this grant of RSUs, the value realized on vesting is based on $47.32 per share (the closing price of our common stock as reported by Nasdaq on June 1, 2018).
|
|
|
(3)
|
For this grant of RSUs, the value realized on vesting is based on $35.42 per share (the closing price of our common stock as reported by Nasdaq on November 7, 2017).
|
Potential Payments upon Termination or Change in Control
We have various arrangements that provide the named executive officers with specified benefits if their employment is terminated under certain circumstances, as described below. In addition, these named executive officers participate in various benefit plans that may provide them with acceleration of equity awards or payments under certain circumstances, as described below.
Payments to the Currently Employed Named Executive Officers Made Upon Termination Without Cause or Resignation for Good Reason in Connection with a Change in Control
The Change in Control Agreement with Mr. Lowe and the SLT Severance Plan for the other currently employed named executive officers (for fiscal 2018, Mr. Emerson) in each case provide for certain payments to be made upon termination without cause or resignation for good reason in connection with a change in control. Mr. Lowe (under the Change in Control Agreement) and Mr. Emerson (under the SLT Severance Plan), if his employment is terminated by us without cause but not as a result of his death or long-term disability, or by the executive for good reason, and the termination was in connection with a change in control, will be entitled to receive the following benefits:
|
|
|
|
|
|
Change in Control Agreement (Mr. Lowe):
|
|
SLT Severance Plan:
|
•
|
continued payment of Mr. Lowe’s base salary for 24 months;
|
|
•
|
continued payment of the executive’s regular salary for 18 months;
|
•
|
a lump sum payment equal to two times his target annual incentive award for the fiscal year in which the termination occurs;
|
|
•
|
a lump sum payment equal to 1.5 times the executive’s target annual incentive award for the year in which the termination occurs;
|
•
|
a lump sum payment equal to 24 multiplied by the COBRA premium in effect for the type of medical, dental, and vision coverage then in effect for Mr. Lowe;
|
|
•
|
a lump sum payment equal to 18 multiplied by the COBRA premium in effect for the type of medical, dental, and vision coverage then in effect for the executive;
|
•
|
full accelerated vesting with respect to his then outstanding, unvested RSUs and other equity awards that vest solely based on the passage of time, and full accelerated vesting with respect to his then outstanding, unvested PSUs, with all performance objectives deemed to have been satisfied at the target level (target being a Payout Factor of 1); and
|
|
•
|
accelerated vesting of RSUs and options that are subject to time-based vesting requirements only, so that they become vested by the date employment terminates, and deemed vesting of any unvested PSUs at the greater of (i) the target level and (ii) the actual performance level; and
|
•
|
reimbursement by the Company for any loss incurred in the sale of Mr. Lowe’s primary North Carolina residence.
|
|
•
|
outplacement benefits for 12 months.
|
In the event amounts payable under the Change in Control Agreement or SLT Severance Plan, as applicable or otherwise are contingent on a change in control for purposes of Section 280G of the Internal Revenue Code of 1986, as amended, or the Code, and it is determined that any payment or benefit made or provided to the executive would be subject to the excise tax imposed by Section 4999 of the Code, the payments to such executive under the Change in Control Agreement or SLT Severance Plan, as applicable, will either be (i) paid in full or (ii) reduced to an amount that would not trigger the Section 280G-related excise tax, whichever results in the executive receiving the greatest after tax payment.
The Change in Control Agreement also provides that, if Mr. Lowe becomes generally disabled and his employment is terminated before he becomes eligible for benefits under our long-term disability program or if he elects to resign for good reason because the Company does not restore him to his prior position and level of authority after he ceases to be generally disabled, in each case in connection with a change in control, he will be entitled to severance benefits under the Change in Control Agreement.
Payments to the Currently Employed Named Executive Officers Made Upon Termination Without Cause or Resignation for Good Reason Not in Connection with a Change in Control
The Change in Control Agreement with Mr. Lowe and the SLT Severance Plan for the other currently employed named executive officers (for fiscal 2018, Mr. Emerson) in each case provide for certain payments to be made upon termination without cause or resignation for good reason not in connection with a change in control. Mr. Lowe (under the Change in Control Agreement) and Mr. Emerson (under the SLT Severance), if his employment is terminated by us without cause but not as a result of his death or long-term disability, or by the executive for good reason, and the termination was not in connection with a change in control, will be entitled to receive the following benefits:
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Change in Control Agreement (Mr. Lowe):
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SLT Severance Plan:
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•
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continued payment of Mr. Lowe’s base salary for 18 months;
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•
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continued payment of the executive’s base salary for 12 months;
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•
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a lump sum payment equal to 1.5 times his target annual incentive award for the fiscal year in which the termination occur;
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•
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a lump sum payment equal to the executive’s annual incentive award for the fiscal year in which the termination occurred;
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•
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a lump sum payment equal to 18 multiplied by the COBRA premium in effect for the type of medical, dental, and vision coverage then in effect for Mr. Lowe;
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•
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reimbursement for the additional costs of continuing the executive’s group medical, dental and vision coverage under COBRA for 12 months or until he is eligible for new healthcare coverage, whichever is shorter;
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•
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continued vesting of RSUs and options granted to Mr. Lowe under the LTIP that are subject to time-based vesting requirements only during the 18 months following the date of employment termination as if Mr. Lowe’s employment had not terminated, and continued vesting during the 18 months following the date of termination of PSUs in accordance with the terms of such awards as if Mr. Lowe’s employment had not terminated, although PSUs that may vest will be paid out based upon actual Company performance in accordance with the terms of the LTIP and the applicable award agreement, including prorating for the portion of time Mr. Lowe provided services to the Company over the course of the applicable performance period and such additional 18-month period, as applicable; and
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•
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continued vesting of RSUs and options during the 12 months following the date of employment termination as if the executive’s employment had not terminated, and continued vesting of PSUs during the 12 months following the date of termination in accordance with the terms of such awards as if the executive’s employment had not terminated, although PSUs that may vest will be paid out based upon actual Company performance in accordance with the terms of the LTIP and the applicable award agreement, including prorating for the portion of time the executive provided services to the Company over the course of the applicable performance period and such additional 12-month period, as applicable; and
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•
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in the event that Mr. Lowe’s employment is terminated on or before October 31, 2019, reimbursement by the Company for any loss incurred in the sale of Mr. Lowe’s primary North Carolina residence.
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•
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outplacement benefits for 12 months.
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Further Conditions to Severance Benefits
As a condition to the receipt of the benefits described above under the Change in Control Agreement, Mr. Lowe must (i) sign and not revoke a release of claims, (ii) refrain from disparaging the Company, its directors, or its officers for 24 months after termination, and (iii) continue to comply with the terms of the standard form of employee agreement regarding confidential information, intellectual property and noncompetition between Mr. Lowe and the Company (the “Confidential Information Agreement”), as amended by the Change in Control Agreement. Pursuant to the Change in Control Agreement, the period during which such noncompetition provisions
of the Confidential Information Agreement apply will be (x) 24 months following Mr. Lowe’s termination (or such longer period used to calculate continued salary payments) in the event that he is entitled to severance payments in connection with a change in control as described above or (y) 18 months in the event that Mr. Lowe is entitled to severance payments not in connection with a change in control.
As a condition of eligibility to participate in the SLT Severance Plan, each executive must (i) sign and not revoke a release of claims, (ii) sign a participation agreement under which, among other things, such executive (a) acknowledges and agrees that the Section 16 Officers Severance Plan has been properly terminated and that he has been provided with proper notice of such termination and that he waives any and all benefits to which he may have been entitled to receive under the Section 16 Officers Severance Plan and (b) agrees to terminate and waive any rights he might still have in a change in control agreement previously entered into with us, in each case if applicable to such executive; and (iii) continue to comply with the terms of the executive’s Confidential Information Agreement, which, in the event that the executive is entitled to severance payments in connection with a change in control as described above, will be amended by the release to provide that the post-separation restrictive period applicable to the noncompetition and nonsolicitation provisions contained therein will extended until the end of the 18-month period following the executive’s termination date (or such longer period used to calculate continued salary payments).
Definitions
The terms “cause,” “good reason,” “change in control” and “in connection with a change in control” are defined in the Change in Control Agreement and SLT Severance Plan as follows:
“Cause” means:
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Change in Control Agreement (Mr. Lowe):
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SLT Severance Plan:
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•
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Mr. Lowe’s willful and continued failure to substantially perform the reasonable and lawful duties and responsibilities of his position that is not corrected after one written warning detailing the concerns and offering Mr. Lowe a reasonable period of time to cure;
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•
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an executive’s willful and continued failure to substantially perform the reasonable and lawful duties and responsibilities of the executive’s position that is not corrected after one written warning detailing the concerns and offering him a reasonable period of time to cure;
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•
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any material and willful violation of any federal or state law by Mr. Lowe in connection with his responsibilities as an employee of the Company;
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•
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any material and willful failure of an executive to comply with Company policies (including but not limited to the Company’s Code of Conduct), applicable government laws, rules and regulations and/or reasonable directives of the CEO or Board of Directors;
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•
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any act of personal dishonesty taken by Mr. Lowe in connection with his responsibilities as an employee of the Company with the intention or reasonable expectation that such may result in his personal enrichment;
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•
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any dishonest or illegal action (including, without limitation, embezzlement) or any other action whether or not dishonest or illegal by an executive which is materially detrimental to the interest and well-being of the Company, including, without limitation, harm to its reputation;
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•
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Mr. Lowe’s conviction of, or plea of nolo contendere to, or grant of prayer of judgment continued with respect to, a felony that the Board of Directors reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business; or
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•
|
an executive’s conviction of, or plea of nolo contendere to, or grant of prayer of judgment continued with respect to, a felony that the Board of Directors reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business;
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•
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Mr. Lowe materially breaching his Confidential Information Agreement, which breach is not cured.
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•
|
an executive’s material breach of his Confidential Information Agreement.
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|
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Change in Control Agreement (Mr. Lowe):
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SLT Severance Plan:
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•
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an executive’s failure to fully disclose any material conflict of interest that he may have with the Company in a transaction between the Company and any third party which is materially detrimental to the interest and well-being of the Company; or
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•
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an executive’s commission of any act or omission that has caused or could cause material reputational damage to the Company.
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“Good reason” generally mean the occurrence of any of the following without the executive’s consent, and not due to cause, within the timeframes specified in the definition of “in connection with a change in control” below, if applicable, subject to certain notice and cure provisions:
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Change in Control Agreement (Mr. Lowe):
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|
SLT Severance Plan:
|
•
|
a material reduction in Mr. Lowe’s authority, duties or responsibilities, including removal from, or a failure to elect Mr. Lowe to, the Board of Directors;
|
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•
|
a material reduction in the executive’s authority, duties or responsibilities, provided however, that this will not apply to the sale, transfer or other disposition of all or substantially all of the stock or assets of a business unit for which the applicable executive was not the primary executive responsible;
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•
|
a material reduction in Mr. Lowe’s base salary or target annual and long-term incentive compensation, other than a one-time reduction in either case that also is applied to substantially all other executive officers of the Company, provided that Mr. Lowe’s reduction is substantially proportionate to the reduction applied to substantially all other executive officers;
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•
|
a material reduction in the executive’s annual base salary, target annual compensation (bonus), or long-term incentive compensation (including, but not limited to equity compensation);
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•
|
the Company requiring Mr. Lowe to report to anyone other than the Board of Directors; or
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•
|
the Company requiring the executive to report to anyone other than the CEO; or
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•
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the Company requiring Mr. Lowe to relocate his principal place of business or the Company relocating its headquarters, in either case to a facility or location outside of a 35 mile radius (or such longer distance that is the minimum permissible distance under the circumstances for purposes of the involuntary separation from service standards under the Treasury Regulations or other guidance under Section 409A of the Code) from Mr. Lowe’s current principal place of employment.
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•
|
the Company requiring the executive to relocate his principal place of business or the Company relocating its headquarters, in either case to a facility or location outside of a 35 mile radius from his current principal place of employment.
|
“Change in control” generally means any of the following events:
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•
|
any person or group of persons becomes the beneficial owner of 50% or more of our outstanding common stock or the combined voting power of our securities entitled to vote generally in the election of directors;
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•
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a sale or other disposition of all or substantially all of our assets;
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•
|
shareholder approval of a definitive agreement or plan to liquidate our company;
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•
|
a merger or consolidation of our company with and into another entity, unless immediately following such transaction (1) more than 50% of the members of the governing body of the surviving entity were incumbent directors at the time of execution of the initial agreement providing for such transaction; (2) no person or group of persons is the beneficial owner, directly or indirectly, of 50% or more of the equity interests of the surviving entity or the combined voting power of the equity interests of the surviving entity entitled to vote generally in the election of members of its governing body; and (3) more than 50% of the equity interests of the surviving entity and the combined voting power of the equity interests of the surviving entity entitled to vote generally in the election of members of its governing body is beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the shares of common stock immediately prior to such transaction in substantially the same proportions as their ownership immediately prior to such transaction;
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•
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A change in the majority of the incumbent directors of the Board of Directors during a consecutive 24-month period during the executive’s employment term, excluding such changes resulting from directors who are elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors qualifying as incumbent directors; or
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•
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in the case of the SLT Severance Plan, the sale, transfer or other disposition of all or substantially all of the stock or assets of a business unit of Cree or a similar transaction as the Board of Directors, in its sole discretion, may determine to be a “change in control”; provided, however, that “change in control” will not include (1) a transaction the sole purpose of which is to change the state of our incorporation; or (2) the initial public offering of the stock of a Business Unit of our company, and any subsequent sell down of the stock of the Business Unit by our company.
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“In connection with a change in control” means either:
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•
|
within the period of time between the commencement of a tender offer or our entry into a written agreement with another party that contemplates a transaction, the consummation of either of which would result in a change in control and the occurrence of either the resulting change in control or the termination or expiration of the tender offer or the written agreement without the occurrence of a change in control; or
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•
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within 24 months following a change in control.
|
McDevitt Separation Agreement
On June 5, 2018, Mr. McDevitt and the Company mutually agreed that Mr. McDevitt would retire as CFO following a transition period. Mr. McDevitt and the Company executed the McDevitt Separation Agreement on June 7, 2018 in order to provide for an orderly transition to a new CFO; to govern the Company’s relationship with Mr. McDevitt during the transition period; and to establish that the separation benefits provided under the McDevitt Separation Agreement are in lieu of any benefits Mr. McDevitt might have been entitled to receive under any Company plan or agreement, including the SLT Severance Plan and the LTIP and its predecessor plan and Mr. McDevitt’s award agreements under each such plan. Please see “Compensation Discussion and Analysis—Additional Information—Post-Termination Arrangements—Separation, General Release and Consulting Agreement with Mr. McDevitt” above for a description of the McDevitt Separation Agreement.
Swoboda Separation Agreement
During fiscal 2017, Mr. Swoboda and the Company entered into the Swoboda Separation Agreement in connection with our CEO succession plan. Please see “Compensation Discussion and Analysis-Additional Information-Post-Termination Arrangements-Separation, General Release and Consulting Agreement with Mr. Swoboda” above for a description of the Swoboda Separation Agreement.
Separation and General Release Agreement with Mr. Castillo
On December 21, 2017, the Company entered into a Separation and General Release Agreement with Mr. Castillo in connection with his separation from the Company (the “Castillo Separation Agreement”). Pursuant to the Castillo Separation Agreement, Mr. Castillo was entitled to the following post-employment benefits: (i) $425,000, to
be paid in equal installment payments in accordance with the Company’s regular payroll schedule over the 12-month period following the separation date; (ii) $340,000, to be paid in two lump sums, with the first half in a lump sum on the first such payroll date occurring after September 1, 2018 and the second half in a lump sum in the last paycheck in which monthly severance payments are be made to Mr. Castillo as described above; (iii) reimbursement for the additional costs of continuing Mr. Castillo’s group medical, dental and vision coverage, for the 12-month period following the separation date, applicable to the type of medical, dental and vision coverage in effect for Mr. Castillo as of the separation date; and (iv) on the condition that Mr. Castillo fully complies with his obligations under the Castillo Separation Agreement, the Company will waive Mr. Castillo’s obligation under his offer letter to repay to the Company one-third of his signing bonus in the amount of $50,000 and the relocation bonuses in the amount of $180,000.
LTIPs
The LTIP and the 2004 LTIP (collectively, the “LTIPs”) provide for potential acceleration of equity awards in the event of a proposed sale of all or substantially all of our assets or stock, the merger of our company with or into another corporation such that our shareholders immediately prior to the merger exchange their shares of stock for cash and/or shares of another entity or any other corporate transaction to which the Compensation Committee deems appropriate. Upon such an event, if the successor corporation does not agree to assume the outstanding equity awards or to substitute equivalent awards, the Compensation Committee has discretion to provide for the participants in the LTIPs to have the right to exercise, for a period of 15 days, their stock options or other awards as to all shares, including shares as to which the options or other awards would not otherwise be exercisable (or with respect to restricted stock or stock units, provide that all restrictions will lapse). The stock options or other awards will terminate upon the expiration of the 15-day period to the extent not exercised.
The award agreements under the LTIPs provide for accelerated vesting of nonqualified stock options, RSUs, and PSUs in the event of a participant’s death or upon the effective date of the determination of the executive officer’s long-term disability. For PSUs, vesting is on a pro rata basis based on the number of days elapsed during the applicable performance period for awards made in fiscal 2017 and earlier and at the greater of the target level or the actual performance level for awards made in fiscal 2018 (with the date of death or on the effective date of the determination of disability being treated as the ending date for the measurement period).
Amounts of Potential Payments upon Termination or Change in Control
The following table provides information concerning the estimated payments and benefits that would be provided to each of the named executive officers who were serving Cree as executive officers at the end of fiscal 2018 in the event of a termination of employment or change in control, or both.
Payments and benefits are estimated using the following assumptions: (1) the triggering event took place on June 24, 2018, the last business day of fiscal 2018, or the Trigger Date; (2) the price per share of our common stock on the Trigger Date was $47.66, which represents the closing price of our common stock as reported by Nasdaq on the last trading day preceding such date; and (3) all amounts are based on compensation and benefit agreements, plans and arrangements in effect on the Trigger Date notwithstanding subsequent changes in such agreements, plans and arrangements for fiscal 2019. There can be no assurance that a triggering event would produce the same or similar results as those estimated below if such event occurs on any other date or if the actual results differ from the assumptions described herein.
Potential Payments and Benefits to Named Executive Officers upon
Termination of Employment or Change in Control
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Name
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|
Triggering Event
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|
Type of Payment/Benefit
|
|
Amount
|
Gregg A. Lowe
|
|
Death or termination of employment due to
|
|
Annual incentive award (1)
|
|
$
|
859,904
|
|
|
|
long-term disability
|
|
Vesting acceleration (100%) (2)
|
|
24,884,954
|
|
|
|
|
|
|
|
$
|
25,744,858
|
|
|
|
Change in control (not involving
|
|
Annual incentive award (4)
|
|
$
|
859,904
|
|
|
|
termination of employment) (3)
|
|
|
|
$
|
859,904
|
|
|
|
Termination without cause or resignation
|
|
Base salary (18 months)
|
|
$
|
1,237,500
|
|
|
|
for good reason not in connection with a
|
|
Incentive awards
|
|
1,732,500
|
|
|
|
change in control (5)
|
|
COBRA premiums (18 months)
|
|
18,527
|
|
|
|
|
|
Continued vesting (18 months)
|
|
4,976,991
|
|
|
|
|
|
|
|
$
|
7,965,518
|
|
|
|
Termination without cause or resignation
|
|
Base salary (24 months)
|
|
$
|
1,650,000
|
|
|
|
for good reason in connection with a
|
|
Incentive awards
|
|
2,310,000
|
|
|
|
change in control (5)
|
|
COBRA premiums (24 months)
|
|
24,702
|
|
|
|
|
|
Vesting acceleration (100%)
|
|
24,884,954
|
|
|
|
|
|
Outplacement services (12 months)
|
|
6,500
|
|
|
|
|
|
|
|
$
|
28,876,156
|
|
Michael E. McDevitt
|
|
Compensation pursuant to the McDevitt
|
|
Base salary (12 months)
|
|
$
|
455,000
|
|
|
|
Separation Agreement (6)
|
|
Annual incentive award
|
|
364,000
|
|
|
|
|
|
COBRA Premiums (12 months)
|
|
18,487
|
|
|
|
|
|
Outplacement services (12 months)
|
|
6,500
|
|
|
|
|
|
Continued vesting (12 months)
|
|
1,347,074
|
|
|
|
|
|
|
|
$
|
2,191,061
|
|
David T. Emerson
|
|
Death or termination of employment due to
|
|
Annual incentive award (1)
|
|
$
|
258,880
|
|
|
|
long-term disability
|
|
Vesting acceleration (100%) (2)
|
|
5,197,120
|
|
|
|
|
|
|
|
$
|
5,456,000
|
|
|
|
Change in control (not involving
|
|
Annual incentive award (4)
|
|
$
|
320,000
|
|
|
|
termination of employment) (3)
|
|
|
|
$
|
320,000
|
|
|
|
Termination without cause or resignation
|
|
Base salary (12 months)
|
|
$
|
400,000
|
|
|
|
for good reason not in connection with a
|
|
Incentive awards (6)
|
|
320,000
|
|
|
|
change in control (7)
|
|
COBRA premiums (12 months)
|
|
12,219
|
|
|
|
|
|
Outplacement services (12 months)
|
|
6,500
|
|
|
|
|
|
Continued vesting (12 months)
|
|
1,191,059
|
|
|
|
|
|
|
|
$
|
1,929,778
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|
|
|
Termination without cause or resignation
|
|
Base salary (18 months)
|
|
$
|
600,000
|
|
|
|
for good reason in connection with a
|
|
Annual incentive award
|
|
480,000
|
|
|
|
change in control (7)
|
|
COBRA premiums (18 months)
|
|
18,329
|
|
|
|
|
|
Vesting acceleration (100%)
|
|
5,197,120
|
|
|
|
|
|
Outplacement services (12 months)
|
|
6,500
|
|
|
|
|
|
|
|
$
|
6,301,949
|
|
________________
|
|
(1)
|
Based on actual results for performance period using 0% performance measurement for the Cree-wide financial goals and 162% for the LED Products business unit financial goals applicable to Mr. Emerson, in each case prorated to the Trigger Date for the annual incentive portion. Assumes no prior leave of absence in the case of death. In the case of termination due to long-term disability, assuming 180 days prior leave of absence, payment would have been $859,904 for Mr. Lowe and $131,213 for Mr. Emerson. Actual amount will vary based on performance measurement and the duration of any leave of absence prior to death or termination due to long-term disability.
|
|
|
(2)
|
Vesting is automatically accelerated for nonqualified stock options, RSUs, and PSUs in the event of death or upon the effective date of the determination of the executive officer’s long-term disability pursuant to the terms of the award agreements under the LTIPs, which terms apply equally to all participants. For PSUs, vesting is on a pro rata basis based on the number of days elapsed during the applicable performance period for awards made in fiscal 2017 and earlier and at the greater of the target level or the actual performance level for awards made in fiscal 2018 (with the date of death or on the effective date of the determination of disability being treated as the ending date for the measurement period).
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|
|
(3)
|
No accelerated vesting will occur for equity awards under the LTIP in connection with a change in control not involving termination of employment
unless
the outstanding awards are not assumed by the successor in connection with a change in control, and the Compensation Committee, in its discretion, accelerates vesting of the outstanding but unvested awards. If awards were not assumed by the successor and the Compensation Committee exercised its discretion to the fullest extent possible and determined that 100% of the outstanding awards should be vested, the named executive officers would have received the following additional amounts: $859,904 for Mr. Lowe and $131,213 for Mr. Emerson.
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|
|
(4)
|
The performance units granted to Messrs. Lowe and Emerson provide that the performance measurement for determining his annual incentive award will be no less than 100% if a change in control occurs during the performance period. The amount in the table represents the additional amount each of Messrs. Lowe and Emerson would have received as a result of this provision and excludes any amount he would otherwise be entitled to receive based on actual performance results.
|
|
|
(5)
|
The triggering event, along with resulting benefits, is defined in the Change in Control Agreement.
|
|
|
(6)
|
Represents amounts to which Mr. McDevitt is entitled pursuant to the McDevitt Separation Agreement, following the termination of the transition period.
|
|
|
(7)
|
The triggering event, along with resulting benefits, is defined in the SLT Severance Plan.
|
CEO Pay Ratio Disclosure
Beginning in 2018, Securities and Exchange Commission rules require the Company to disclose the ratio of the total annual compensation of our CEO to the total annual compensation of our median employee.
We employ approximately 7,000 individuals located primarily in the United States and China (including Hong Kong) with less significant representation in Taiwan, South Korea, Japan, Malaysia, and Europe. In determining the median employee, we included our global employee population as of April 1, 2018.
The median employee compensation was identified first using a consistently applied compensation measure of target annual compensation for fiscal 2018, consisting of base salary, estimated profit sharing or incentive compensation with a performance period of one year or less, as applicable, and allowance, calculated using internal human resources records. As allowed under Securities and Exchange Commission rules, base pay was annualized for full-time or part-time permanent employees hired during fiscal 2018 to reflect a full year of service.
We selected the median employee to determine the required ratio by:
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|
•
|
Calculating the compensation based on the consistently applied measure of target annual compensation as described above of all of our employees except the CEO;
|
|
|
•
|
Determining the median employee from our employee population based on this consistently applied compensation measure; and
|
|
|
•
|
Identifying the ten employees whose target annual compensation was situated above and below this median and calculating total annual compensation for this subset of employees using the same methodology we use for our named executive officers as set forth in the fiscal 2018 Summary Compensation Table in this proxy statement in accordance with Item 402 of Regulation S-K (the “Item 402 Rules”), excluding any employee who had anomalous compensation characteristics, to ensure that our selected median employee reflects our population as a whole and support the reasonableness of our consistently applied compensation measure.
|
We calculated the total annual compensation of our CEO and of the median employee using the Item 402 Rules. Because Mr. Lowe served as our CEO during only a portion of the year including April 1, 2018, we annualized his compensation to reflect his compensation as if he were CEO for the full fiscal year, including adjustments to his salary, annual incentive award, and contributions to the 401(k) retirement plan. As a result, the annualized total compensation for our CEO for purposes of this pay ratio disclosure differs from the annual total compensation reflected in the Summary Compensation Table appearing on page 42 of this proxy statement. The total annualized compensation for our CEO for fiscal 2018 was $13,962,694, the total annual compensation for the median employee was $42,178, and the resulting ratio of these amounts is 331 to 1. This ratio includes a one-time, sign-on equity grant awarded to Mr. Lowe as part his new hire compensation package in September 2017 that will not be part of his ongoing compensation arrangements. If we exclude the value of this sign-on grant from the total annual compensation of our CEO, his annual compensation (annualized for the full fiscal year as described above) would have been $8,171,173, resulting in a ratio of 194 to 1.
This pay ratio is a reasonable estimate calculated in a manner consistent with the Securities and Exchange Commission Item 402 Rules based on our payroll and employment records and the methodology described above. Because the Securities and Exchange Commission Item 402 Rules for identifying the median-compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the amount of compensation of the median-compensated employee and the pay ratio reported by other companies may not be comparable to our estimates reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
Equity Compensation Plans
As of September 4, 2018:
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There were options to purchase 5,731,980 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 3.03 years, and the weighted average exercise price was $39.98.
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There were 4,113,733 shares subject to outstanding stock awards that remain subject to forfeiture.
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There were 5,141,381 shares available for future grants under the LTIP, 1,948,611 shares available for future issuance under the 2005 Employee Stock Purchase Plan, or ESPP, and 55,020 shares available for future issuance under the Non-Employee Director Stock Compensation and Deferral Program, or the Deferral Program.
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The following table provides information, as of June 24, 2018, for all of the Company’s compensation plans (including individual compensation arrangements) under which it is authorized to issue equity securities.
Equity Compensation Plan Information
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Plan Category
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(a)
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights (1)
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(b)
Weighted average
exercise price of
outstanding options,
warrants and rights (2)
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(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) (1)
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Equity compensation plans approved by security holders
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9,972,898
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(3)
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$
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39.58
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8,025,107
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(4)
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Equity compensation plans not approved by security holders
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43,468
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(5)
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—
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56,532
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(6)
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Total
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10,016,366
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$
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39.58
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8,081,639
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