SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                           SCHEDULE 14A INFORMATION

                Proxy Statement Pursuant to Section 14(a) of the
                        Securities Exchange Act of 1934

Filed by the Registrant  |X|
Filed by a Party other than the Registrant  | |

Check the appropriate box:

| | Preliminary Proxy Statement
| | Confidential, for use of the Commission only (as permitted by 
    Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12


                             CREE RESEARCH, INC.
--------------------------------------------------------------------------------
               (Name of Registrant as Specified in Its Charter)

                                     N/A
--------------------------------------------------------------------------------
   (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

|X| No fee required.

| | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

    1) Title of each class of securities to which transaction applies:

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    2) Aggregate number of securities to which transaction applies:

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    3) Per unit price or other underlying value of transaction computed
       pursuant to Exchange  Act Rule 0-11 (set forth the amount on which the
       filing fee is calculated and state how it was determined):

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       | | Check box if any part of the  fee is offset as  provided by  Exchange
           Act Rule 0-11(a)(2) and identify the filing for which the  offsetting
           fee was paid previously. Identify the previous filing by registration
           statement number, or the form or schedule and the date of its filing.

           1)  Amount previously paid:

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<PAGE>
                               CREE RESEARCH, INC.
                               4600 Silicon Drive
                          Durham, North Carolina 27703
                                 (919) 313-5300

               ---------------------------------------------------

                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
               ---------------------------------------------------


To the Shareholders of Cree Research, Inc.:

     The Annual Meeting of Shareholders  of Cree Research,  Inc. will be held on
Tuesday, November 2, 1999, at 10:00 a.m. local time, at the Company's offices at
4600 Silicon Drive,  Durham,  North Carolina 27703. The items of business are as
follows:

     1.   Election of seven directors;

     2.   Approval of an amendment to the  Articles of  Incorporation  to change
          the corporate name to "Cree, Inc.";

     3.   Approval of amendments to the Equity Compensation Plan to increase the
          number of shares authorized for awards and to limit option awards to a
          participant in a fiscal year to a maximum number of shares;

     4.   Approval of the adoption of the Company's 1999 Employee Stock Purchase
          Plan;

     5.   Ratification  of  the  selection of  Ernst & Young LLP  as independent
          auditors for the current fiscal year; and

     6.   Such other matters as may properly come before the meeting.

     These items are more fully described in the  accompanying  Proxy Statement,
which is made a part of this Notice.  The Board of Directors has fixed September
14, 1999 as the record date for the meeting.  Accordingly,  only shareholders of
record at the close of business on September  14, 1999 are entitled to notice of
and to vote at the meeting.

     It is important  that your shares be represented at the meeting so that the
presence of a quorum may be  assured.  Even if you plan to attend the meeting in
person,  please  date and sign  the  enclosed  proxy  and  mail it  promptly.  A
postage-paid return envelope is enclosed.

                                             By order of the Board of Directors,

                                             /s/ Adam H. Broome

                                             Adam H. Broome
                                             Secretary

S
eptember 30, 1999


<PAGE>
                               CREE RESEARCH, INC.
                               4600 Silicon Drive
                          Durham, North Carolina 27703
                                 (919) 313-5300

                              ---------------------
                                 PROXY STATEMENT
                              ---------------------


                 INFORMATION CONCERNING SOLICITATION AND VOTING

General

     The enclosed  proxy is solicited by Cree  Research,  Inc., a North Carolina
corporation,  for use at the Annual  Meeting of  Shareholders  of the Company on
November 2, 1999, at 10:00 a.m. local time, and any  adjournments  thereof.  The
meeting  will be held  at the  Company's  principal  executive  offices  at 4600
Silicon Drive, Durham, North Carolina,  for the purposes set forth in the Notice
of Annual  Meeting  of  Shareholders.  The  Company's  telephone  number at that
location is (919) 313-5300.

     This Proxy  Statement  and the enclosed  proxy are being first mailed on or
about September 30, 1999 to shareholders entitled to vote at the Annual Meeting.
The Company's  Annual Report to Shareholders  for the fiscal year ended June 27,
1999,  including financial  statements,  accompanies this Proxy Statement but is
not part of the proxy solicitation materials.

Record Date and Quorum

     Shareholders  of record at the close of business on September  14, 1999 are
entitled to notice of and to vote at the Annual Meeting.  As of the record date,
there were 29,499,499  shares of Common Stock of the Company  outstanding.  Each
share of Common Stock  outstanding on the record date is entitled to one vote on
each matter presented for action at the meeting. Shares of Common Stock were the
only voting  securities of the Company  outstanding on the record date. A quorum
will be  present at the  Annual  Meeting  if a majority  of the shares of Common
Stock  outstanding  on the record date is present at the meeting in person or by
proxy.

Voting of Proxies

     The persons acting as proxies  pursuant to the enclosed proxy will vote the
shares represented as directed in the signed proxy. Unless otherwise directed in
the proxy, the proxyholders  will vote the shares  represented by the proxy: (i)
for election of the seven director nominees named in this Proxy Statement;  (ii)
for approval of the  amendment to the  Articles of  Incorporation  to change the
name of the  Company  from  "Cree  Research,  Inc." to "Cree,  Inc.";  (iii) for
approval of the amendments to the Company's Equity Compensation Plan to increase
the  number  of shares  authorized  for  awards  under the Plan and to limit the
number of shares  subject to options  that may awarded to a  participant  in any
fiscal year;  (iv) for approval of the adoption of the  Company's  1999 Employee
Stock Purchase Plan; (v) for  ratification of the selection of Ernst & Young LLP
as independent auditors to audit the financial statements of the Company for the
fiscal year ending June 25, 2000; and (vi) in the proxyholders'  discretion,  on
such other business as may come before the meeting and any  adjournments  of the
meeting.

     If a  shareholder  signs and returns the  enclosed  proxy marked to abstain
from voting or to withhold  authority to vote on a given matter,  or if a broker
or other  nominee  returns a proxy  indicating  a lack of authority to vote on a
given matter, the shares represented by such proxy will be deemed present at the
meeting  for  purposes  of  determining  a quorum  but will  not be  counted  in
calculating the vote on the matter.


<PAGE>
Revocability of Proxy

     A shareholder  who has signed and returned the enclosed proxy may revoke it
at any time  before it is voted by (i)  submitting  to the  Company  a  properly
executed  proxy bearing a later date,  (ii)  submitting to the Company a written
revocation of the proxy or (iii) voting in person at the Annual Meeting.

Expenses of Solicitation

     The Company will bear the entire cost of this proxy solicitation, including
the preparation,  printing and mailing of the Proxy Statement, the proxy and any
additional  soliciting  materials  sent  by  the  Company  to  shareholders.  In
addition,   the  Company  may  reimburse   brokerage  firms  and  other  persons
representing  beneficial  owners of shares for reasonable  expenses  incurred by
them in forwarding proxy soliciting materials to such beneficial owners. Proxies
may also be  solicited  by  certain of the  Company's  directors,  officers  and
employees, without additional compensation, personally or by telephone.

Shareholder Proposals for 2000 Annual Meeting

     Pursuant  to  the  rules  of  the  Securities   and  Exchange   Commission,
shareholder  proposals  submitted for inclusion in the Company's proxy statement
and form of proxy for the annual  meeting to be held in 2000 must be received by
the  Company by June 2, 2000,  and must comply  with the  Commission's  rules in
other respects.

     Other shareholder  proposals to be presented at the annual meeting in 2000,
including director nominations,  must comply with the notice requirements of the
Company's  Bylaws and be  delivered  to the Company not later than  September 3,
2000,  nor earlier than August 5, 2000.  Any such  proposals  should be sent via
means that afford proof of delivery to the Secretary at the Company's  principal
executive offices.

                                      -2-

<PAGE>
                           PRINCIPAL SHAREHOLDERS AND

                          SHARE OWNERSHIP BY MANAGEMENT

     The  following  table sets  forth  information  as of  September  20,  1999
relating to the beneficial  ownership of the Company's Common Stock by: (i) each
person  believed by the Company at that date to be the beneficial  owner of more
than 5% of the outstanding  shares of Common Stock,  (ii) each executive officer
named in the Summary  Compensation Table on page 8, (iii) each person serving as
a director or  nominated  for election as a director of the Company and (iv) all
executive  officers and  directors of the Company as a group.  Unless  otherwise
noted,  each person named is believed to hold sole voting and  investment  power
with respect to the shares shown as beneficially owned by such person.

 
                                                            Percentage of
                                       Common Stock           Outstanding
Name and Address (1)               Beneficially Owned (2)      Shares (2)
-------------------------------    ----------------------   ----------------

Trustees of General Electric             2,559,934                8.7%
   Pension Trust
   3003 Summer Street
   Stamford, CT 06904 (3)
Michael W. Haley (4)                       769,828                2.6%
John W. Palmour, Ph.D. (5)                 573,000                1.9%
Dolph W. von Arx (6)                       562,324                1.9%
Calvin H. Carter, Jr., Ph.D. (7)           515,300                1.7%
F. Neal Hunter (8)                         511,400                1.7%
Walter L. Robb, Ph.D. (9)                  307,000                1.0%
Charles M. Swoboda (10)                    130,400                   *
James E. Dykes (11)                        116,000                   *
Cynthia B. Merrell (12)                     54,800                   *
All directors and executive              3,540,052               11.5%
  officers as a group (9 persons)

--------------------
   * Represents less than one percent.

(1)  Unless  otherwise  noted  the  address  is in care of the  Company  at 4600
     Silicon Drive, Durham, North Carolina 27703.
(2)  Pursuant to rules of the Commission, shares which a person has the right to
     acquire  within 60 days are deemed  outstanding  for  purposes of computing
     beneficial  ownership  and the  percentage  ownership of that  person.  All
     directors and executive  officers as a group hold options,  exerciseable at
     or within 60 days after  September  20,  1999,  to acquire an  aggregate of
     1,164,800 shares of Common Stock. The percentages  shown above are based on
     the shares of Common Stock outstanding on September 20, 1999.
(3)  As  reported  in a Schedule  13G filed  with the  Securities  and  Exchange
     Commission  on February  19,  1997.  Includes  warrants to purchase  25,000
     shares of Common Stock.
(4)  Includes options to purchase 154,000 shares of Common Stock.  Also includes
     40,000  shares  held by a  charitable  foundation  of which Mr.  Haley is a
     director.  Mr.  Haley holds  shared  voting and  investment  power over the
     foundation's shares but disclaims beneficial ownership of the shares.
(5)  Includes options to purchase 128,000 shares of Common Stock.  Also includes
     20,000 shares held by Dr. Palmour's  spouse.  Dr. Palmour  disclaims voting
     and investment power over the shares held by his spouse.
(6)  Includes options to purchase 158,000 shares of Common Stock.
(7)  Includes options to purchase 116,000 shares of Common Stock.  Also includes
     102,660 shares held by members of Dr. Carter's  immediate  family but as to
     which he disclaims voting and investment power.
(8)  Includes options to purchase 164,000 shares of Common Stock.
(9)  Includes options to purchase 158,000 shares of Common Stock.  Also includes
     96,000  shares  held by a trust of which Dr.  Robb is a trustee.  Dr.  Robb
     holds shared voting and investment  power over the shares held in trust but
     disclaims beneficial ownership of the shares.
(10) Includes options to purchase 130,000 shares of Common Stock.
(11) Includes options to purchase 102,000 shares of Common Stock.
(12) Includes options to purchase 54,800 shares of Common Stock.

                                      -3-

<PAGE>

                     PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
                     ---------------------------------------

Nominees for the Board of Directors

     The seven  persons  nominated for election to the Board of Directors at the
Annual Meeting are currently serving as directors of the Company. The Company is
not  aware of any  nominee  who will be  unable  or will  decline  to serve as a
director.  If a nominee becomes unable or declines to serve,  the enclosed proxy
may be voted for a substitute  nominee,  if any, designated by the present Board
of  Directors.  The term of office of each  person  elected as a  director  will
continue  until the later of the next annual  meeting of  shareholders  or until
such time as his  successor has been duly elected and  qualified.  Directors are
elected by a plurality  of votes cast.  Assuming the presence of a quorum at the
Annual Meeting, abstentions and non-votes,  including proxies marked to withhold
authority to vote, will have no effect on the outcome of the election.

    The Company's nominees for director are as follows:

                                                                        Director
         Name               Age          Position with the Company       Since
----------------------      ---      ---------------------------------  --------

F. Neal Hunter               37      Director, Chairman and Chief         1987
                                       Executive Officer
Calvin H. Carter, Jr.,       44      Director, Executive Vice             1987
Ph.D.                                  President and Director of
                                       Materials Technology
John W. Palmour, Ph.D.       38      Director and Director of             1995
                                       Advanced Devices
Michael W. Haley             61      Director                             1989
Dolph W. von Arx             65      Director                             1991
James E. Dykes               61      Director                             1992
Walter L. Robb, Ph.D.        71      Director                             1993

     Mr.  Hunter,  a co-founder  of the  Company,  has served as Chairman of the
Board of Directors  since 1995, as Chief  Executive  Officer since 1994 and as a
Director  since the  Company's  inception  in 1987.  Mr.  Hunter  also served as
President  from 1994 until January 1999.  Prior to his election as President and
Chief  Executive  Officer in 1994,  Mr.  Hunter  served as General  Manager with
responsibility for the management of the Company's  optoelectronic  products and
as the  Company's  Secretary  and  Treasurer.  He  received  his B.S.  degree in
mechanical engineering from North Carolina State University.

     Dr. Carter, a co-founder of the Company,  has served as a Director and Vice
President since Cree's inception.  He currently holds the positions of Executive
Vice  President and Director of Materials  Technology.  As Director of Materials
Technology,  Dr. Carter is responsible for the Company's development of advanced
materials  growth  technology,  including the growth of silicon carbide material
for  semiconductor  and  other  applications.   He  previously  served  as  Vice
President,  New  Product  Development  from  1995 to  1997  and as  Director  of
Technology from 1987 to 1995. Dr. Carter holds B.S.,  M.S. and Ph.D.  degrees in
materials science and engineering from North Carolina State University.

     Dr. Palmour,  a co-founder of the Company,  currently serves as Director of
Advanced  Devices  and,  in that  capacity,  is  responsible  for the  Company's
development of advanced  silicon carbide  devices such as microwave  transistors
and power  devices.  Dr.  Palmour has served as a Director of the Company  since
October 1995 and  previously  served on the Board of Directors from October 1992
to April 1993.  He has been an employee of the Company since 1988.  Dr.  Palmour
received his B.S. and Ph.D.  degrees from North Carolina State University in the
fields of materials science and engineering.

     Mr.  Haley  became a Director of the  Company in April  1989.  He serves as
Chairman  and Chief  Executive  Officer of Triton  Management  Company  based in
Greensboro,  North Carolina,  which previously owned and operated 60 restaurants
and has been engaged principally in investment and property management since the
sale of the  restaurants  in  1993  and  1996.  Mr.  Haley  graduated  from  the
University  of North  Carolina at Chapel  Hill,  where he received a  bachelor's
degree in business administration.

                                      -4-

<PAGE>
     Mr. von Arx became a Director of the Company in October  1991. He served as
the  Non-Executive  Chairman of Morrison  Restaurants  Inc. from January 1996 to
July 1998 and is the former Chairman,  President and Chief Executive  Officer of
Planters LifeSavers Company, an affiliate of RJR Nabisco,  Inc., where he served
in such  capacities  for four years prior to his retirement in 1991. Mr. von Arx
is a graduate of Washington  University,  where he received a bachelor's degree.
He is  currently  a director of Ruby  Tuesday,  Inc.,  International  Multifoods
Corporation, MacKenzie Investment Management, Inc. and BMC Fund, Inc.

     Mr.  Dykes became a Director of the Company in January  1992.  He served as
Executive  Vice  President of Thomas  Group,  Inc., a publicly  held  management
consulting  group, from July 1997 through June 1998 and from 1994 to 1997 served
as President and Chief  Executive  Officer of Intellon  Corp.,  a privately held
start-up  company in the home automation  industry.  From January 1989 until his
retirement in December 1992,  Mr. Dykes served as President and Chief  Executive
Officer  of  Signetics   Company,   a  subsidiary  of  North  American   Philips
Corporation. Mr. Dykes received a B.S. degree in electrical engineering from the
University of Florida.  He is currently a director of EXAR  Corporation,  Thomas
Group, Inc. and Theseus Logic, Inc.

     Dr. Robb became a Director  of the Company in April 1993.  He is  currently
the President of Vantage  Management,  Inc., a consulting and investment firm in
Schenectady,  New York. From 1986 through 1992, Dr. Robb served as a Senior Vice
President for Corporate Research and Development for General Electric Company, a
diversified  technology  company.  From  1951 to  1986,  he held  various  other
positions with General  Electric  Company.  Dr. Robb received a B.S. degree from
Pennsylvania  State University and M.S. and Ph.D. degrees from the University of
Illinois. All of Dr. Robb's degrees were awarded in chemical engineering.  He is
currently  a director of Celgene Corporation, Neopath, Inc. and Mechanical Tech-
nology Incorporated.

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

Other Executive Officers

     Other  executive  officers of the Company not serving as directors  include
the following:

     Charles M. Swoboda (age 32) was  appointed  President  and Chief  Operating
Officer of the Company effective January 14, 1999 after serving as the Company's
Vice President and Chief  Operating  Officer since June 1997. Mr. Swoboda joined
the Company in 1993 and previously  served as the Company's  Operations  Manager
from July 1996 to June 1997,  as Wafer Fab Manager from April 1996 to July 1996,
as General Manager of the Company's subsidiary,  Real Color Displays, Inc., from
August  1994 to April 1996 and as LED Product  Manager  from July 1993 to August
1994.  Prior to 1993 he was employed by  Hewlett-Packard  Company.  Mr.  Swoboda
received his B.S. degree in electrical engineering from Marquette University.

     Cynthia B. Merrell (age 38) was named Chief Financial Officer and Treasurer
effective  July 1998 after  serving as the  Company's  Interim  Chief  Financial
Officer and  Assistant  Treasurer  since January 1998.  Ms.  Merrell  joined the
Company in 1996,  initially  serving as its  Controller.  From  January  1992 to
November  1996 she was  employed as the  controller  of Kaset  International,  a
subsidiary of The Times Mirror Company engaged in providing training, consulting
and  project  management  services  in the  field  of  customer  relations.  Ms.
Merrell's prior financial experience includes service in various capacities with
Tropicana  Products,  Inc. and the accounting  firm of Arthur Andersen & Co. She
received her B.S.  degree in accounting  from the University of Florida and is a
Certified Public Accountant in Florida.


Compensation of Directors

     The  Company  does not pay cash  compensation  for  service on the Board of
Directors.  Directors  not employed by the Company are awarded  stock options as
compensation  for such service.  The current  non-employee  directors  were each
granted, on July 1, 1998, options to purchase 48,000 shares of Common Stock at a
price equal to the closing  market  price of the stock on the grant date;  these
options vest in equal  quarterly  increments  over a two-year period ending June
30, 2000,  subject to continued  service as a director.  Directors  who are also
employees  of the  Company  are not  separately  compensated  for service on the
Board. The Company  reimburses  directors for expenses  incurred in serving as a
director.

                                      -5-

<PAGE>
Board Meetings and Committees

     The Board of Directors of the Company held five meetings  during the fiscal
year ended June 27, 1999. The Board has a standing Audit Committee, Compensation
Committee  and  Executive  Committee.  It does  not have a  standing  nominating
committee  or committee  performing  similar  functions.  During the 1999 fiscal
year,  each director  attended or participated in 75% or more of all meetings of
the Board of Directors held during the period for which he served as a director,
and each director  (except Mr. von Arx) attended or  participated in 75% or more
of all meetings of Board committees on which he served that were held during the
period he served on the committee.

     The members of the Audit Committee during the 1999 fiscal year were Michael
W.  Haley,  Calvin H.  Carter,  Jr. and Dolph W. von Arx.  Mr.  Haley  served as
Chairman of the Audit Committee  throughout the fiscal year. The Audit Committee
is authorized by the Board of Directors to review with the Company's independent
auditors the annual financial statements of the Company prior to publication, to
review the work of and approve non-audit  services performed by such independent
auditors,  and to make annual  recommendations to the Board of Directors for the
appointment  of  independent  auditors for the ensuing year.  The Committee also
reviews  the   effectiveness   of  the  financial  and   accounting   functions,
organization, operations and management of the Company. The Audit Committee held
four meetings during the 1999 fiscal year.

     The members of the Compensation  Committee during the 1999 fiscal year were
James E. Dykes, Michael W. Haley, Walter L. Robb and Dolph W. von Arx. Mr. Dykes
served as Chairman of the Compensation Committee throughout the fiscal year. The
Compensation  Committee fixes the  compensation of the Company's chief executive
officer  and  reviews  and  approves  the  compensation  of all other  executive
officers.  In addition,  the Committee is responsible for  administration of the
Company's Equity Compensation Plan and, in that capacity,  reviewed and approved
proposed grants  of stock  options  during  the year.  The  Committee  generally
approves  option  grants on a  quarterly  basis by written  consent in lieu of a
meeting.  The Compensation  Committee held  two meetings  during the 1999 fiscal
year.

     The members of the Executive  Committee during the 1999 fiscal year were F.
Neal Hunter,  Dolph W. von Arx and James E. Dykes.  The Executive  Committee was
established to render advice and  recommendations to the Board of Directors with
regard to policies of the  Company and the conduct of its  affairs;  to consider
matters  submitted to the Committee  during  intervals  between  meetings of the
Board of Directors;  and,  subject to ratification by the full Board, to approve
contracts,  agreements  and other  material  corporate  matters.  The  Executive
Committee held no meetings during the 1999 fiscal year.

S
ection 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended  (the
"Exchange Act"),  requires that the Company's  directors and executive officers,
and  persons who own more than ten percent  (10%) of a  registered  class of the
Company's equity  securities,  file with the Securities and Exchange  Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and  other  equity   securities   of  the  Company.   Officers,   directors  and
greater-than-ten-percent  (10%)  beneficial  owners are  required by  Commission
rules to furnish the Company with copies of all reports they file under  Section
16(a).

    To the Company's knowledge, based solely on its review of the copies of such
reports  furnished  to the  Company and  written  representations  that no other
reports were required,  all Section 16(a) filing requirements  applicable to its
officers,  directors and beneficial  owners were complied with on a timely basis
during the fiscal  year ended June 27,  1999,  except  that a report of one gift
transaction by Dr. Carter was filed  approximately  six weeks after the date due
and a report of one transaction by Mr. Haley was filed  approximately four weeks
after the date due. The Company had initially  advised Mr. Haley the transaction
was eligible for year-end  reporting but later determined  earlier reporting was
required.

                                      -6-

<PAGE>
 
                         COMPARATIVE PERFORMANCE GRAPH

      The graph below  compares,  for the five-year  period ended June 27, 1999,
the  cumulative  total  return on the Common Stock of the Company at each fiscal
year end with returns on two indices -- a market index based on The Nasdaq Stock
Market  and an  industry  index  based on  Nasdaq-traded  stocks  of  electronic
components  businesses.  The indices were prepared by the Center for Research in
Security Prices  ("CRSP") of The University of Chicago.  The market index is the
CRSP Total Returns Index for The Nasdaq Stock  Market--U.S.  Companies,  and the
industry index is the CRSP Total Returns Index for Nasdaq Electronic  Components
Stocks--U.S.  and Foreign.  The graph  assumes an investment of $100 on June 30,
1994 in the  Company's  Common  Stock,  and in each index,  and also assumes the
reinvestment of all dividends during the period shown.

             Comparison of Five-Year Cumulative Total Return for
          Cree Research, Inc. Common Stock, Nasdaq Market Index and
                       Nasdaq Electronic Components Index


                        [PERFORMANCE GRAPH APPEARS HERE]



Performance Graph Data        6-30-94 6-30-95  6-30-96  6-30-97  6-28-98 6-27-99

Cree Research, Inc.            $ 100   $ 274    $ 286    $ 233    $ 298  $1,271
  Common Stock

Nasdaq Market Index            $ 100   $ 134    $ 171    $ 208    $ 271   $ 374

Nasdaq Electronic              $ 100   $ 206    $ 218    $ 358    $ 362   $ 590
  Components Index

                                      -7-

<PAGE>

                             EXECUTIVE COMPENSATION

Overview

     The  following  table  summarizes  the  compensation,  for the fiscal years
indicated,  of the Company's chief executive  officer and all other  individuals
serving as executive officers of the Company at June 27, 1999.

                           Summary Compensation Table

                                                      Long Term
                                                     Compensation
                               Annual Compensation      Awards
                               -------------------   ------------
                                                      Securities     All Other
     Name and          Year                           Underlying    Compensation
Principal Position     Ended   Salary ($) Bonus ($)   Options (#)     ($)(%)
------------------     -----   ---------- ---------  ------------   ------------

 F. Neal Hunter         1999    180,000   12,952        134,000          409
 Chairman of the        1998    150,000    7,053        180,000          690
 Board and Chief        1997    144,615      844            -0-          778
 Executive Officer (1)

 Charles M. Swoboda     1999    160,000   46,513         90,000          292
 President and Chief    1998    130,000    6,282        120,000          662
 Operating Officer (2)  1997     98,942      927         20,000          546

 Calvin H. Carter,      1999    125,000   14,354         66,000          428
 Jr., Ph.D., Executive  1998    122,000    5,700         90,000          673
 Vice President,        1997    108,605      565            -0-          688
 Director of
 Materials Technology
 and Director (3)

 Cynthia B. Merrell     1999    110,000   27,915         90,000          224
 Chief Financial        1998     87,865    3,143         28,000          485
 Officer and            1997     41,827      327          8,000           22
 Treasurer (4)

---------------------
(1) Mr. Hunter was appointed Chief Executive Officer in August 1994 and Chairman
    of the Board in August 1995.
(2) Mr.  Swoboda was  appointed  President in January  1999 and Chief  Operating
    Officer in June 1997 and  previously  served in other  management  positions
    with the Company.
(3) Dr.  Carter was  appointed  Executive  Vice  President  in June 1997 and was
    appointed as Director of Materials  Technology  in April 1997. He previously
    served as Vice President, New Product Development.
(4) Ms. Merrell was appointed Chief Financial Officer and Treasurer in July 1998
    after serving as the Company's Interim Chief Financial Officer and Assistant
    Treasurer  since January 1998. The 1997 annual  compensation  amount for Ms.
    Merrell  reflects  less  than a full  year,  since her  employment  date was
    November 5, 1996.
(5) These amounts represent term life insurance  premiums paid by the Company on
    behalf of the named executive officers.

                                      -8-

<PAGE>
Stock Option Awards

     The following  table provides  additional  information  about stock options
granted to the named  executive  officers  during the fiscal year ended June 27,
1999.

<TABLE>
<CAPTION>
                            Option Grants in Last Fiscal Year

                                    Individual Grants              Potential Realizable
                        -----------------------------------------    Value at Assumed
                                                                     Annual Rates of
                                     % Total                           Stock Price
                        Number of    Options     Exer-               Appreciation for
                        Underlying  Employees    cise     Expira-     Option Term (3)
                         Options    in Fiscal    Price     tion    -------------------
Name                     Granted     Year (1)    ($/sh)   Date(2)      5%        10%
----                    ----------  ----------  --------  -------  --------- ----------
<S>                     <C>         <C>         <C>       <C>      <C>       <C>
F. Neal Hunter (4)        134,000      7.8%      $7.625   7/1/08   $642,573  $1,628,406
Charles M. Swoboda (5)     90,000      5.3%      $7.625   7/1/08   $431,579  $1,093,706
Calvin H. Carter, Jr. (6)  66,000      3.9%      $7.625   7/1/08   $316,491  $  802,051
Cynthia B. Merrell (7)     90,000      5.3%      $7.625   7/1/08   $431,579  $1,093,706
</TABLE>

--------------------
(1) Options to acquire an  aggregate  of  1,712,000  shares of Common Stock were
    granted to all  employees  of the Company  during the fiscal year ended June
    27, 1999.
(2) With certain exceptions in cases of death or disability,  the options expire
    upon the earlier of 90 days after termination of the recipient's  employment
    or ten years from the grant date.
(3) The potential  realizable value was calculated by assuming 5% and 10% annual
    rates of appreciation of the underlying  Common Stock from the date of grant
    until  expiration  of  the  maximum  ten-year  option  term.  These  assumed
    appreciation  rates and valuation  methodology  are prescribed by Commission
    rules and are not  intended to forecast  future  appreciation  of the Common
    Stock.  The actual value, if any,  realized from the options could be higher
    or lower than the values reported above.
(4) Of the options listed 14,000 vested on July 1, 1999. The remainder will vest
    in equal annual  increments  on July 1, 2000 and July 1, 2001,  provided Mr.
    Hunter is employed by the Company at the vesting date.
(5) Of the options listed 10,000 vested on July 1, 1999. The remainder will vest
    in equal annual  increments  on July 1, 2000 and July 1, 2001,  provided Mr.
    Swoboda is employed by the Company at the vesting date.
(6) Of the options  listed 6,000 vested on July 1, 1999. The remainder will vest
    in equal annual  increments  on July 1, 2000 and July 1, 2001,  provided Dr.
    Carter is employed by the Company at the vesting date.
(7) Of the options listed 30,000 vested on July 1, 1999. The remainder will vest
    in equal annual  increments  on July 1, 2000 and July 1, 2001,  provided Ms.
    Merrell is employed by the Company at the vesting date.


Stock Option Exercises

    The following table provides  information about stock options exercised by
the named executive officers during the fiscal year ended June 27, 1999.

<TABLE>
<CAPTION>
                              Aggregated Option Exercises in Last
                          Fiscal Year and Fiscal Year-End Option Values

                                                  Number of Securities        Value of Unexercised
                        Shares                   Underlying Unexercised       In-the-Money Options
                       Acquired      Value        Options at FY-End (#)           at FY-End ($)
Name                  on Exercise  Realized(1)  Exercisable/Unexercisable  Exercisable/Unexercisable
--------------        -----------  -----------  -------------------------  -------------------------
<S>                   <C>          <C>          <C>                        <C>
F. Neal Hunter          71,572     $2,057,392       130,000 / 224,000       $3,466,852 / $5,869,952
Charles M. Swoboda      16,000     $  304,750        80,000 / 150,000       $2,136,668 / $3,930,468
Calvin H. Carter, Jr.   63,572     $1,363,444        65,000 / 111,000       $1,733,426 / $2,909,226
Cynthia B. Merrell         -0-            -0-        24,800 / 101,200       $  603,950 / $2,608,800
</TABLE>

---------------
(1)  Represents the market value of shares acquired at the date of exercise less
     the exercise  price paid to the Company,  without  adjustment for income or
     other  taxes  payable  upon  exercise.  All of the options  exercised  were
     non-qualified  options  and the value  realized  upon  exercise  taxable as
     ordinary income.

                                      -9-

<PAGE>
(2)  The  value of the  Common  Stock at  fiscal  year end on June 27,  1999 was
     $33.375 per share (as  adjusted for the July 1999 stock split) based on the
     last sale price on June 25, 1999 as reported  by The Nasdaq  Stock  Market.
     The option values were  determined by  subtracting  the aggregate  exercise
     price of the  options  from the value of the  Common  Stock  issuable  upon
     exercise.

R
eport of the Compensation Committee on Executive Compensation

     The Compensation  Committee reviews and establishes the compensation of the
Company's chief  executive  officer.  It also reviews and approves  compensation
recommendations submitted by the chief executive officer for all other executive
officers.  In addition,  the Committee  administers the Equity Compensation Plan
and, in that capacity,  is responsible for reviewing and approving stock options
awarded  under the plan. In the case of option grants to directors and executive
officers,  the Committee  may  recommend  such grants for approval with the full
Board serving as the committee for purposes of the plan.  The policies  followed
by the Committee with respect to compensation  of executive  officers during the
1999 fiscal year, and the bases for Mr. Hunter's fiscal 1999  compensation,  are
discussed below.

     Compensation Philosophies

     The  Compensation  Committee  seeks to adhere to practices that will enable
the Company to attract and retain qualified  executives,  align the interests of
executives  with the  long-term  interests  of the  Company's  shareholders  and
motivate  executives to achieve  targeted  objectives.  In  furtherance of these
goals,  base  salaries  are  generally  set  annually at levels  which take into
account both competitive and performance  factors.  The Company also relies to a
substantial  degree on stock  options to attract and  motivate  its  executives.
During the 1999 fiscal year,  compensation  arrangements for executive  officers
consisted of base salary,  stock option grants and other  benefits  available to
Company  employees  generally,  including  bonuses paid  pursuant to a quarterly
profit-sharing program in which all employees participated.  Executive officers,
other than Mr. Hunter,  were also awarded  bonuses at the fiscal year end on Mr.
Hunter's recommendation.

     Cash-Based Compensation

     The Committee determines the base salary of the chief executive officer and
reviews and approves base salaries for the Company's  other  executive  officers
annually.  In adjusting  salaries,  the Committee  examines both qualitative and
quantitative  factors  relating to corporate  and  individual  performance.  The
qualitative   factors  in  many  instances   necessarily  involve  a  subjective
assessment by the Committee.  The Committee does not base its  considerations on
any single performance  factor nor does it specifically  assign relative weights
to factors.  It instead considers a variety of factors and evaluates  individual
performance  against those factors both in absolute terms and in relation to the
executive's  peers at  similar  companies.  The  Committee  also  relies  on the
evaluations and recommendations of Mr. Hunter, who has served as Chief Executive
Officer  since  1994,  in  approving  salary  adjustments  for  other  executive
officers.

     As part of its review of fiscal 1999 salaries,  the Committee considered an
independent  survey  of  executive  officer  compensation  at a broad  group  of
companies in the electrical and electronics  industries.  The positions surveyed
included positions comparable to those of the Company's chief executive officer,
chief  operating  officer and chief  financial  officer.  Fiscal  1999  salaries
approved for these three officers were in the second quartile (below the median)
of the  salaries  reported  in the survey  for firms with $40 to $60  million in
annual revenues.

     The Company's  executive  officers,  including the chief executive officer,
also  participated  with other eligible  employees in a discretionary  incentive
compensation  program  during  fiscal 1999.  Under this program the Company paid
quarterly  bonuses based on pre-tax  operating  profits achieved in the quarter.
The aggregate  bonus pool was set at five percent (5%) of operating  profits and
prorated among  employees  based on wages earned during the quarter.  For fiscal
2000, the Committee has approved a modified  incentive  compensation  program to
link executive compensation more closely with shareholder  interests.  Under the
modified   program,   incentive   compensation   will  be  based  on   exceeding
pre-established earnings per share goals.

                                      -10-

<PAGE>
     Equity Incentives

     The Company  utilizes  stock options  granted  under the  Company's  Equity
Compensation Plan, which is administered by the Compensation Committee, to align
shareholder and management  interests by giving executive officers a substantial
economic  stake in long-term  appreciation  of the  Company's  stock.  Since the
Company's  initial public  offering in 1993, all options  granted under the plan
have been awarded with exercise prices set not less than the market value of the
underlying stock on the grant date. Generally,  option grants are awarded with a
ten-year term and are subject to vesting over three to five years.

     The  Compensation  Committee  takes  into  account  all  factors  it  deems
appropriate in reviewing proposed option grants to executive officers, including
the  officer's  position and level of  responsibility,  the  officer's  existing
unvested option holdings, the potential reward to the officer if the stock price
appreciates  and  the  competitiveness  of the  officer's  overall  compensation
arrangements,  including stock options. Outstanding performance by an individual
may also be taken  into  consideration.  Option  grants  are  often  made to new
executives upon  commencement  of employment and, on occasion,  to executives in
connection with a significant  change in job  responsibility.  The  Compensation
Committee relies on Mr. Hunter's  evaluations and  recommendations  in approving
option grants to other executive officers. Based on the factors described above,
during  fiscal  1999 the  Committee  recommended,  and the  Board  of  Directors
approved,  grants to  executive  officers of options to purchase an aggregate of
380,000 shares of Common Stock.

     Chief Executive Officer Compensation

     The  Compensation  Committee  followed  the  policies  described  above  in
approving Mr. Hunter's cash  compensation  for fiscal 1999 and the stock options
awarded  him  during the year,  taking  into  consideration  a number of factors
relating to corporate and individual  performance.  Of chief importance were the
success of the Company,  under Mr. Hunter's  direction,  in achieving  increased
profitability and earnings per share in recent years. Based on these factors the
Committee   approved  Mr.  Hunter's  fiscal  1999  salary  of  $180,000,   which
represented a 20% percent increase over the prior year's salary.

     Mr.  Hunter also  received an option to purchase  134,000  shares of Common
Stock at $7.625 per share,  which was the closing  market  price on the date the
option was granted.  The option vested as to 14,000 shares in July 1999, and the
remainder  vests over the next two years in annual  increments of 60,000 shares,
subject to continued employment at the applicable vesting date. In addition, Mr.
Hunter earned  $12,952 in cash  compensation  during fiscal 1999 pursuant to the
profit-sharing plan described above.

                                    THE COMPENSATION COMMITTEE
                                    James E. Dykes, Chairman
                                    Michael W. Haley
                                    Walter L. Robb, Ph.D.
                                    Dolph W. von Arx


Compensation Committee Interlocks and Insider Participation

     None of the members of the  Compensation  Committee  during the 1999 fiscal
year has ever served as an officer or employee of the Company.  No  interlocking
relationships  exist  between the Company's  Board of Directors or  Compensation
Committee  and the board of  directors  or  compensation  committee of any other
company.  Certain  members of the  Compensation  Committee  own shares of common
stock of C3, Inc., a customer of the Company. See "Certain Transactions" at page
12.

                                      -11-

<PAGE>

                              CERTAIN TRANSACTIONS
                              --------------------

Supply and Related Agreements with C3, Inc.

     The  Company is a party to  certain  agreements  with C3,  Inc.  ("C3"),  a
customer of the Company  engaged in the  fabrication  and sale of gemstones made
from silicon  carbide.  Mr. Hunter,  the Company's  Chairman and Chief Executive
Officer, is a brother of Jeff N. Hunter, who serves as Chairman of the Board and
Chief  Executive  Officer of C3, and of C. Eric Hunter.  According to C3's proxy
statement  dated  April 7, 1999 (the "C3 Proxy  Statement"),  Jeff N.  Hunter at
March 1, 1999 beneficially  owned 4.3% of the outstanding shares of common stock
of C3. According to a Schedule 13G report filed with the Commission  January 20,
1999,  C.  Eric  Hunter at  January  18,  1999  beneficially  owned  9.4% of the
outstanding  shares of common stock of C3. General Electric Pension Trust, which
beneficially owns  approximately  8.7% of the outstanding shares of the Company,
at March 1, 1999 was the beneficial  owner of 8.3% of the outstanding  shares of
C3 common stock,  according to the C3 Proxy Statement.  At August 13, 1999, five
of the Company's directors (Messrs.  Carter,  Dykes,  Palmour, Robb and von Arx)
also held C3 shares,  representing  in the aggregate  approximately  1.5% of the
shares outstanding,  with the largest individual holding  representing less than
one percent.  No other directors or executive  officers of the Company presently
hold shares of C3 stock.

     The Company  supplies  silicon carbide to C3 pursuant to a supply agreement
originally  entered  into in 1995 and  amended and  restated  in June 1997.  The
agreement  provides  that the Company  will supply  silicon  carbide to C3 on an
exclusive  basis  for  use in the  fabrication  of  gemstones  and  that C3 will
purchase  certain of its  requirements  for such material  from the Company.  In
related  development  agreements  executed  in 1997 and 1998,  and  amended  and
restated in July 1998, the Company has undertaken to develop improved  processes
for manufacturing  large volume,  colorless silicon carbide material for sale to
C3. In  addition,  the Company and C3 are  parties to an  agreement  executed in
February 1996 under which the Company supplies certain  electronic devices to C3
for use in  gemstone  testing  equipment.  During the fiscal year ended June 27,
1999, C3 purchased approximately $11.4 million in products and services from the
Company under these agreements.

     The Company and C3 also executed  agreements in May 1998 and May 1999 under
which C3 agreed to  purchase  equipment  to be  constructed  by the  Company and
retained by the Company for use in  manufacturing  material  for sale to C3. The
purchase  price of the  equipment is equal to the  Company's  labor and material
costs  incurred in  construction,  plus a  reasonable  allocation  of  overhead,
subject to a maximum  price of $3.4 million and $2.8 million  under the 1998 and
1999 agreements,  respectively.  Construction under the 1998 agreement was begun
during  fiscal 1998 and  completed  in fiscal  1999.  C3 paid the  Company  $3.4
million  during fiscal 1999 as the purchase price of this  equipment,  which was
equal  to the  Company's  construction  costs  plus an  overhead  allocation  of
$603,000  (determined  using the same  methods as followed by the Company in its
cost accounting for government contracts). Construction under the 1999 agreement
was begun  during the 1999 fiscal year but has not been  completed;  the Company
charged C3 approximately $1.3 million (which included an overhead  allocation of
$202,000) for costs incurred under this agreement  during fiscal 1999. Under the
terms  applicable to these  purchases,  C3 is obligated to transfer title to the
equipment to the Company once it is fully depreciated.

E
mployment Agreement with C. Eric Hunter

     In May 1999 the Company  entered into an employment  agreement with C. Eric
Hunter,  a brother of the Company's  Chairman and Chief Executive  Officer.  Mr.
Hunter served as President and Chief Executive  Officer of the Company from 1987
until 1994 and served as Chairman of the Company's  Board of Directors from 1987
until  1995.  He was  engaged as a  consultant  to the  Company  from 1995 until
expiration of the  consulting  agreement in June 1998.  Mr. Hunter has developed
and filed patent  applications  on several  inventions  relating to wide bandgap
materials of interest to the Company. In view of the Company's interest in these
inventions and Mr.  Hunter's  knowledge and expertise in wide bandgap  materials
generally,  the Company  entered into  negotiations to acquire his rights in the
inventions  and to obtain his  assistance  on  technical  matters on a part-time
basis.

                                      -12-

<PAGE>
     Pursuant to the May 1999  agreement,  the Company  employed Mr. Hunter at a
salary of $15,000 per year as Senior  Technology  Advisor with  responsibilities
that include  conceiving  and evaluating  ideas and inventions  relating to wide
bandgap materials.  In the agreement,  Mr. Hunter assigned to the Company rights
to seven  pending  U.S.  patent  applications  and one  issued  U.S.  patent  on
inventions  relating to wide bandgap  materials,  subject to previously  granted
license rights.  In consideration of the assignment and other benefits under the
agreement,  the  Company  granted  Mr.  Hunter,  on May 11,  1999,  an option to
purchase  134,400  shares  of Common  Stock at an  exercise  price  equal to the
closing market price on the grant date  (adjusted for stock splits).  The option
vests  over  seven  years in  equal  annual  increments,  subject  to  continued
employment at the applicable  vesting date. The employment  agreement  obligates
Mr. Hunter not to engage in certain  competitive  activities during the ten-year
term  of the  agreement  and for  three  years  thereafter.  Neither  party  may
terminate  the  agreement  except for cause (as  defined in the  agreement)  and
except that Mr. Hunter may resign after seven years.



                   PROPOSAL NO. 2 -- APPROVAL OF AMENDMENT TO

                     ARTICLES OF INCORPORATION TO CHANGE THE
                         CORPORATE NAME TO "CREE, INC."
                   ------------------------------------------

General

     The Board of Directors  has deemed  advisable  and approved an amendment to
Article I of the Company's Articles of Incorporation changing the corporate name
from "Cree Research, Inc." to "Cree, Inc." The amendment would merely delete the
word  "Research"  from the Company's  current name. The text of Article I of the
Articles of Incorporation  would be amended to read, in its entirety:  "The name
of the Corporation is Cree, Inc."

     The Board of Directors  believes that the proposed  change in the Company's
name,  although  minor,  will  result  in  a  strengthened  corporate  identity,
broadening  the scope of the business  implied by the name beyond  research into
the practical application of technology created by the Company and the resulting
products manufactured and sold by the Company.

     Assuming  the  presence of a quorum,  approval of the proposal to amend the
Articles of  Incorporation to change the Company's name requires the affirmative
vote,  either in person or by proxy, of at least a majority of all shares of the
Common Stock voted at the Annual  Meeting.  Under North Carolina  corporate law,
abstentions are treated as non-votes in determining  whether  shareholders  have
approved a proposal.  Abstentions  and non-votes will have no effect on the vote
to approve this proposal.

     The Board of  Directors  has  unanimously  approved  the  amendment  to the
Company's Articles of Incorporation to change the corporate name to "Cree, Inc."

                        The Board of Directors recommends
 
                     shareholders vote FOR Proposal No. 2.



                          PROPOSAL NO. 3 -- APPROVAL OF
                     AMENDMENTS TO EQUITY COMPENSATION PLAN
                     --------------------------------------

General

     The Board of  Directors  on August 24,  1999  adopted an  amendment  to the
Equity  Compensation Plan, subject to approval of the shareholders,  to increase
the  number  of  shares of  Common  Stock  that may be issued  under the plan by
1,400,000 shares.  The proposed increase  represents less than 5% (approximately
4.7%) of the shares of Common Stock  outstanding  as of September  20, 1999.  At
that date, there were options to purchase 3,621,533 shares outstanding under the
Equity  Compensation  Plan and 274,704 shares authorized for future awards under
the plan. Of the shares available for future awards, 138,600 are authorized only
for grants  essential to the recruitment of new employees,  leaving a balance of
136,104 shares available for general use under the terms of the plan. The Equity

                                      -13-

<PAGE>
Compensation  Plan provides that the exercise price of options awarded under the
plan cannot be less than the market value of the Common Stock on the grant date.

     In addition, the Board of Directors on August 24, 1999 adopted an amendment
to the Equity  Compensation  Plan,  subject to  shareholder  approval,  to limit
option awards to a participant  in a fiscal year to a maximum  number of shares.
This amendment is intended to permit income recognized in connection with grants
of options  to  qualify as  "performance-based"  compensation  for  purposes  of
Section  162(m) of the Internal  Revenue Code of 1986,  as amended (the "Code").
The  amendment  provides  that options  covering no more than 200,000  shares of
Common Stock may be granted to a participant under the Equity  Compensation Plan
in any fiscal year of the Company  (beginning  with the  current  fiscal  year),
except that, in connection  with a  participant's  initial  employment  with the
Company,  the participant  may be granted  options  covering up to an additional
200,000 shares.  Section 162(m) of the Code limits the deductibility for federal
income tax purposes of compensation  paid to any named  executive  officer to $1
million, unless the compensation qualifies as performance-based compensation.

     The ability to offer stock through options has been and will continue to be
a necessary and  beneficial  method by which the Company can retain the services
of employees and attract competent  personnel.  The Board of Directors  believes
that the  Equity  Compensation  Plan will  continue  to  promote  the growth and
prosperity  of the Company by providing  employees and others with an additional
incentive  to  contribute  their  best  efforts  to the  Company.  The  Board of
Directors believes that options create this incentive by providing the recipient
an  opportunity  to acquire a  proprietary  interest  in the Company and thereby
providing a means to participate in the future growth of the Company.

     Assuming the presence of a quorum, approval of the amendments to the Equity
Compensation  Plan requires the affirmative  vote, either in person or by proxy,
of at least a  majority  of all  shares  of  Common  Stock  voted at the  Annual
Meeting.  Under  North  Carolina  corporate  law,  abstentions  are  treated  as
non-votes  in  determining  whether   shareholders  have  approved  a  proposal.
Abstentions  and  non-votes  will  have no effect  on the vote to  approve  this
proposal.

     The Board of  Directors  has  unanimously  approved the  amendments  of the
Equity Compensation Plan.

                        The Board of Directors recommends
 
                     shareholders vote FOR Proposal No. 3.


Description of Equity Compensation Plan

     The  following  description  of the  Equity  Compensation  Plan is merely a
summary of some of its terms and  provisions,  is not  intended to be a complete
description of the Equity  Compensation Plan and is qualified in its entirety by
reference to the full text of the Equity  Compensation  Plan.  This  description
assumes  approval of the  proposed  amendments,  tax matters  relating to awards
under the Equity  Compensation  Plan and benefits under the Equity  Compensation
Plan.

     The Equity  Compensation Plan is not generally subject to the provisions of
the Employee  Retirement Income Security Act of 1974, as amended ("ERISA").  The
Equity Compensation Plan is not a qualified plan under Section 401 of the Code.

     Nature and Purpose

     The Equity  Compensation  Plan provides for grants to  participants  in the
form of incentive stock options and nonqualified stock options.  All awards made
under the Equity  Compensation  Plan  prior to the date of this Proxy  Statement
have been nonqualified stock options.

     The Equity  Compensation Plan is designed,  for the benefit of the Company,
to attract  and retain  personnel  of  exceptional  ability;  to  motivate  such
personnel  through added  incentives to make a maximum  contribution  to greater
profitability;  to develop and maintain a highly competent  management team; and
to be  competitive  with other similar  companies  with respect to executive and
non-executive compensation.

                                      -14-

<PAGE>
     Administration

     The Equity Compensation Plan is administered by the Compensation  Committee
of the Board of  Directors  (the  "Committee").  Members  of the  Committee  are
appointed  by the Board of  Directors  from  among its  members  to serve at the
pleasure of the Board of Directors  and may be removed by the Board of Directors
in its discretion. The Committee has the exclusive right to interpret,  construe
and administer the Equity  Compensation  Plan and to select the persons eligible
to receive awards. The Committee  determines the number of stock options subject
to an award and the form,  terms,  conditions  and  duration of each award.  The
Committee's decisions are conclusive, final and binding upon all parties.

     The  Committee  has  broad  discretion  to  adopt  rules,  regulations  and
procedures  of  general   application  for  the  administration  of  the  Equity
Compensation  Plan.  In addition,  the Committee has full power and authority to
determine  whether,  to what extent and under what circumstances any award under
the Equity  Compensation  Plan may be canceled or  suspended  if a  participant,
without  the  Committee's  consent,  while  employed  by the  Company  or  after
termination,  becomes associated with,  employed by, renders services to or owns
any interest,  other than any insubstantial interest, in any business that is in
competition with the Company,  as determined by the Committee in its discretion,
or is terminated for cause, as determined by the Committee in its discretion.

     Securities To Be Offered

     The Company has been  authorized to issue an aggregate of 5,480,000  shares
of Common Stock under the Equity  Compensation  Plan since the  inception of the
plan in 1989.  The  proposed  amendment  to the  Equity  Compensation  Plan will
increase the number of authorized shares issuable under the Equity  Compensation
Plan by 1,400,000 shares.  Thus, an aggregate of 6,880,000 shares will have been
authorized for issuance pursuant to awards granted under the Equity Compensation
Plan. Common Stock subject to awards under the Equity  Compensation Plan will be
made available from the authorized and unissued shares of Common Stock. The last
sale  price of the  Common  Stock  on  September  20,  1999 as  reported  by the
Nasdaq-Amex Reporting Service was $43 per share.

     To the  extent any shares of Common  Stock  awarded or subject to  purchase
under the  Equity  Compensation  Plan are not  delivered  or  purchased,  or are
reacquired  by the Company,  such shares are not charged  against the  aggregate
number of shares available for awards under the Equity Compensation Plan and may
again be awarded  under the Equity  Compensation  Plan.  This would  occur,  for
example, upon a termination,  expiration or cancellation of a stock option under
the Equity Compensation Plan.

     The  Committee  will make  equitable  adjustments  upon the  occurrence  of
certain events that result in changes in the outstanding  shares of Common Stock
or that result in exchanges of shares of Common Stock for a different  number or
class of Common Stock or other securities of the Company or another corporation.
These   events   include,   without   limitation,   (i)  a   reorganization   or
recapitalization  of the Company or reclassification of its shares, (ii) a stock
split-up,  stock dividend or  consolidation  of shares of Common Stock,  (iii) a
merger, consolidation or sale of assets of the Company, or (iv) any distribution
to  shareholders  other  than  a  cash  dividend.   Under  such   circumstances,
adjustments  may be made by the  Committee in the  limitation  on the  aggregate
number  of  shares  of  Common  Stock  that  may be  awarded  under  the  Equity
Compensation  Plan,  the  number  and class of shares  that may be subject to an
award,  the terms,  conditions or restrictions  applicable to outstanding  stock
options,  including  the  purchase  price for  shares  of  Common  Stock and the
limitation on annual grants to an individual  participant  of a grant of options
to  purchase  in  excess of  200,000  shares of  Common  Stock  described  under
"Incidents of Stock Options" below.

     The Committee is also authorized to make  adjustments in  performance-based
criteria  or in the terms  and  conditions  of other  awards  under  the  Equity
Compensation Plan in recognition of unusual or nonrecurring events affecting the
Company or its financial  statements or changes in applicable laws,  regulations
or  accounting  principles.  The  Committee  may also  correct  any  defects  or
omissions or reconcile any  inconsistencies  in the Equity  Compensation Plan or
any  agreements  evidencing  awards  under the Equity  Compensation  Plan in the
manner and to the extent it shall deem desirable.  Moreover,  the Committee may,
in its discretion, make such adjustments in the terms of awards under the Equity
Compensation Plan as it deems appropriate if the Company assumes any outstanding

                                      -15-

<PAGE>
employee  benefit  awards or the right or  obligation  to make future  awards in
connection with the acquisition of any other entity.

     Eligible Participants

     The Committee has the exclusive right to determine  those persons  eligible
to  participate  in the Equity  Compensation  Plan and will  select the  persons
eligible  to receive  awards.  Subject to the  foregoing,  any  employee  of the
Company, as well as any other person,  including  directors,  may participate in
the Equity  Compensation Plan if the Committee  determines such participation is
in the best  interest  of the  Company,  subject  to any  limitations  as may be
provided by  applicable  law or the  Committee.  As of September  20, 1999,  the
Company had  approximately  437 employees  (including  part-time  employees) and
seven directors, four of whom were not employees of the Company.

     Types of Awards

     The Committee has broad discretion to determine the terms and conditions of
incentive stock options and nonqualified  stock options granted under the Equity
Compensation  Plan. Each option granted will be evidenced by a written agreement
setting forth the terms and  conditions of the option.  Each such agreement will
also be subject to and  incorporate  the applicable  terms and conditions of the
Equity  Compensation  Plan and any other terms and conditions,  not inconsistent
with the Equity Compensation Plan, required by the Committee.

     Incentive Stock Options

     The Company is authorized to grant  incentive  stock options  ("ISOs") that
may be entitled to favorable  tax treatment  under Section 422 of the Code.  See
"Tax Effects of Equity Compensation Plan" below. ISOs may be granted to eligible
participants  under  the  Equity  Compensation  Plan at such  time or  times  as
determined by the Committee  until July 1, 2005,  subject to certain  conditions
described below.

     The exercise price of an ISO under the Equity  Compensation Plan may not be
less than 100% of the fair market value of the Common Stock at the date of grant
(110% for 10% owners of the Company).  The fair market value of the Common Stock
for  any  day in  question  will  be  determined  for  purposes  of  the  Equity
Compensation  Plan based upon the closing  price of the Common Stock as reported
on the  exchange  on which the Common  Stock is traded,  if the Common  Stock is
traded on an exchange,  or the last sale price of the Common Stock on The Nasdaq
Stock  Market if the Common  Stock is traded on The  Nasdaq  Stock  Market.  The
Committee is also  authorized  to establish an alternate  method of  determining
fair market value of the Common Stock.

     An ISO granted  under the Equity  Compensation  Plan must be  exercised  in
whole or in part  from time to time  within  10 years  from the date of grant (5
years for 10% owners of the Company), or such shorter period as specified by the
Committee in the corresponding award agreement. Upon a termination of employment
of the  optionee  with  the  Company,  as  determined  by the  Committee  in its
discretion,  the ISO will lapse and cease to be exercisable upon, or within such
period following, the termination of employment,  as determined by the Committee
and provided in the award  agreement.  In no event,  however,  can the period of
time  during  which  an ISO  remains  exercisable  following  a  termination  of
employment exceed three months, unless employment is terminated because of death
or  disability  of the  optionee,  or  death  occurs  following  termination  of
employment and while an ISO was still exercisable. In either case, the period of
time during which an ISO right may be exercised cannot exceed one year after the
date of death or, if  termination  arose as a result of a  disability,  one year
from the date of  disability.  In no event can the  period of time  following  a
termination of employment during which an ISO may be exercised extend beyond the
original exercise period of the ISO.

     The amount of ISOs first exercisable by any one participant in any calendar
year that may receive  favorable tax  treatment as ISOs is generally  limited to
$100,000.  To the extent the aggregate fair market value of the shares of Common
Stock with respect to which ISOs are first  exercisable in a calendar year by an
eligible  participant  exceeds  $100,000,   such  options  will  be  treated  as
nonqualified stock options.  The aggregate fair market value of the Common Stock
for these purposes is determined as of the date the ISO is granted.

                                      -16-

<PAGE>
     An ISO granted under the Equity  Compensation  Plan also will be subject to
such other terms and  conditions as the Committee  deems  necessary to impose in
order to qualify  the ISO under  Section  422 of the Code,  as well as any other
terms and  conditions  not  inconsistent  with the ISO  provisions of the Equity
Compensation Plan as determined by the Committee.

     At any time, the Committee may offer to buy out any ISO previously granted,
based on such terms as are  communicated  to the  participant at the time of the
offer. Payment may be made in cash or Common Stock.

     Nonqualified Stock Options

     The Company may also grant nonqualified stock options ("NQSOs") to eligible
participants  to  purchase  shares  of  Common  Stock  at such  time or times as
determined  by the  Committee.  These stock options will not be eligible for the
favorable  tax treatment  available to ISOs under  Section 422 of the Code.  The
exercise price of an NQSO under the Equity Compensation Plan will be established
by the Committee in the agreement  evidencing the award but may not be less than
100% of the fair market value of the Common Stock on the date of grant.

     An NQSO under the Equity  Compensation  Plan will be exercisable in full or
in part from time to time as specified by the Committee or in the  corresponding
award agreement.  Upon termination of employment of the optionee,  the NQSO will
lapse and cease to be  exercisable  upon, or within such period  following,  the
termination  of  employment  as determined by the Committee and specified in the
award  agreement.  The period of time during  which the NQSO may be  exercisable
following termination of employment cannot exceed three months except in certain
circumstances.  If the  termination  of  employment  is as a result  of death or
disability,  such  period  may not  exceed  one year  after the date of death or
disability.  If death occurs following  termination of employment while the NQSO
remains  exercisable,  such  period  may not  exceed  one year after the date of
death.  In no event will such period extend the original  exercise period of the
NQSO.  An NQSO also may be  subject  to such  other  terms and  conditions,  not
inconsistent with the Equity Compensation Plan, as determined by the Committee.

     Incidents of Stock Options

     Each  stock  option  granted  under the  Equity  Compensation  Plan will be
subject  to  such  terms  and  conditions,  not  inconsistent  with  the  Equity
Compensation Plan, as may be determined by the Committee.

     Except as provided otherwise by the Committee, a stock option granted under
the Equity  Compensation  Plan will not be transferable by the participant other
than  by will or the  laws  of  descent  and  distribution,  or,  to the  extent
otherwise allowed by applicable law, pursuant to a qualified  domestic relations
order, as defined by the Code and the Employee Retirement Income Security Act of
1974, as amended,  or the rules thereunder,  and will be exercisable  during the
lifetime of the  participant  only by the  participant or his or her guardian or
legal  representative.  The Committee may permit the transfer of an NQSO by gift
conditioned upon and subject to compliance with applicable laws.

     The  purchase  price for shares of Common  Stock upon  exercise  of a stock
option under the Equity  Compensation  Plan will be payable in such amounts,  at
such times,  and upon such terms as will be  determined  by the  Committee.  The
Committee  may  establish  payment  terms for the exercise of stock options that
permit the  participant  to deliver  shares of Common  Stock with a fair  market
value equal to the stock option  exercise  price as payment  upon  exercise of a
stock option.

     No cash  dividends  will be paid on  shares  of  Common  Stock  subject  to
unexercised stock options under the Equity Compensation Plan. The Committee may,
in its discretion,  provide for the payment of "dividend  equivalents" on shares
of Common  Stock  subject  to an  exercisable  stock  option  under  the  Equity
Compensation Plan. The Committee may also, in its discretion,  authorize payment
of "interest  equivalents" on dividend equivalents under the Equity Compensation
Plan.

    To the extent a participant  may be required to pay the Company amounts with
respect to income and employment tax withholding in connection with the exercise
of NQSOs and/or with respect to certain  dispositions  of Common Stock  acquired
upon exercise of ISOs, the  Committee,  in its sole  discretion,  may permit the

                                      -17-

<PAGE>
participant to satisfy the  obligation by making an irrevocable  election that a
portion of the total fair market value of the applicable  shares of Common Stock
be applied to the satisfaction of the withholding obligations.

     No participant may be granted,  in any fiscal year of the Company,  options
to purchase more than 200,000 shares of Common Stock, except that, in connection
with a participant's initial employment with the Company, the participant may be
granted an additional 200,000 shares.

     Effects of Change in Control

     In the event of a change  of  control,  any or all of the  then-outstanding
options granted on or before January 31, 1999 shall  automatically  become fully
vested and,  except as cashed out (as described  below),  exercisable  effective
immediately  prior to the change in control.  Outstanding  stock options granted
after January 31, 1999 shall vest and become exercisable only as provided in the
applicable  stock option  agreement.  The Committee in its discretion may direct
that the value of all  outstanding  stock  options,  in each case to the  extent
vested, be cashed out on the basis of the change in control price as of the date
such change in control is  determined to have occurred or such other date as the
Committee  may  determine  prior to the change in control.  For these  purposes,
"change in control price" means the highest price per share of Common Stock paid
in any transaction  reported on The Nasdaq Stock Market or any exchange on which
the  Common  Stock is traded,  or paid or  offered in any bona fide  transaction
related to a change in control of the  Company,  at any time  during the 120-day
period  immediately  preceding  the  occurrence  of the  change in  control,  as
determined by the  Committee.  The Committee has discretion to take such actions
that are not  inconsistent  with these terms as the Committee deems necessary or
advisable in the event of a change in control.

     A "change in  control"  will be deemed to have  occurred if (a) any person,
including a group,  but not the Company or any  subsidiary  or employee  benefit
plan  thereof,  who together  with its  affiliates  and  associates  becomes the
beneficial owner of at least 20% of the then-outstanding  Common Stock or voting
power of the then-outstanding  securities of the Company entitled to vote in the
election of directors;  (b) a sale or disposition of all or substantially all of
the Company's assets is consummated, other than a sale or disposition that would
not have  constituted a change in control if it had been  structured as a merger
or consolidation;  (c) the Company's shareholders approve a definitive agreement
or plan to liquidate the Company; (d) the Company is merged with or consolidated
into  another  entity  unless,  immediately  following  such  transaction,   (i)
incumbent  directors  (described below) represent more than 50% of the governing
body  of the  surviving  entity  at the  time  the  initial  agreement  for  the
transaction  is  signed,  (ii) no  person,  together  with  its  affiliates  and
associates,  is the beneficial owner, directly or indirectly,  of 20% or more of
the  then-outstanding  equity interests of the surviving entity entitled to vote
generally in the election of members of its  governing  body and (iii) more than
50% of the  then-outstanding  equity  interests of the surviving  entity and the
combined voting power of the then-outstanding  equity interests of the surviving
entity  entitled to vote  generally in the election of members of its  governing
body is beneficially owned, directly or indirectly,  by all or substantially all
of the individuals and entities who were the beneficial  owners of the shares of
Common Stock  immediately  prior to such transaction in  substantially  the same
proportions as their ownership  immediately  prior to such  transaction;  or (e)
during any period of 24  consecutive  months,  the  incumbent  directors  at the
beginning of such period cease for any reason other than death to  constitute at
least a majority of the Board of  Directors,  provided  that a director  will be
deemed to be an incumbent director if such director,  although not a director at
the beginning of such 24-month period,  was elected by, or on the recommendation
of or with the approval of, at least  two-thirds of the directors then qualified
as incumbent directors.

     Amendment and Termination

     The Equity  Compensation  Plan will continue in effect until  terminated by
the Company.  Notwithstanding  the perpetual  nature of the Equity  Compensation
Plan, ISOs may only be granted under the Equity  Compensation Plan until July 1,
2005.

     Upon  the  recommendation  of the  Committee  or  otherwise,  the  Board of
Directors may amend the Equity Compensation Plan. To the extent required by Code
Section 422, no amendment  to the Equity Compensation Plan  may be  made without

                                      -18-

<PAGE>
approval  by  the  Company's  shareholders  that  would  make  certain  changes,
including  (i)  altering  the group of persons  eligible to  participate  in the
Equity Compensation Plan, (ii) increasing the maximum number of shares of Common
Stock or stock options  available for awards under the Equity  Compensation Plan
(except as otherwise provided in the Equity  Compensation Plan), (iii) extending
the period during which ISOs may be granted under the Equity  Compensation  Plan
beyond July 1, 2005, (iv) limiting or restricting the powers of the Committee in
administering  the Equity  Compensation  Plan,  (v) changing the  definition  of
participants  eligible  for ISOs or  increasing  the limit or value of shares of
Common  Stock for which  eligible  participants  may be  granted  ISOs under the
Equity  Compensation  Plan, (vi) materially  increasing the benefits accruing to
participants under the Equity Compensation Plan, (vii) materially  modifying the
requirements of eligibility for participation in the Equity Compensation Plan or
(viii) changing the amendment provisions of the Equity Compensation Plan.

     Notwithstanding  the foregoing,  no amendment to or  discontinuation of the
Equity Compensation Plan or any provision thereof may adversely affect any award
previously  granted to a participant under the Equity  Compensation Plan without
the written consent of such participant. The Committee is empowered to determine
whether an amendment or  discontinuation  adversely  affects any existing award.
The  Committee  retains the power to (i) annul any award if the  participant  is
terminated  for cause as  determined  by the  Committee,  (ii)  provide  for the
forfeiture  of shares of Common Stock or other gain under an award as determined
by the  Committee  for  competing  against  the  Company  and (iii)  convert any
outstanding ISO to an NQSO. If a change in control has occurred, no amendment or
termination  will impair the rights of any person with respect to an outstanding
award as discussed under "Effects of Change in Control" above.

     Resale Restrictions

     Participants  under the Equity  Compensation  Plan may be restricted  under
certain  circumstances  in their  ability  to  resell  shares  of  Common  Stock
purchased or awarded under the Equity  Compensation  Plan.  Resale  restrictions
maybe imposed by virtue of the  provisions of the Equity  Compensation  Plan and
the applicable  award  agreement  and/or by application of the federal and state
securities laws.

Tax Effects of Equity Compensation Plan

     The following  discussion of the federal income tax  consequences of awards
granted under the Equity  Compensation Plan is intended only as a summary of the
present  federal  income  tax  treatment  of  stock  options  under  the  Equity
Compensation Plan. The federal income tax laws pertaining to Equity Compensation
Plan are highly technical, and such laws are subject to change at any time. This
summary does not discuss the tax  consequences of a  participant's  death or the
provisions of the income tax laws of any municipality,  state or foreign country
in which a participant  may reside.  Some  variations on the federal  income tax
effects of Equity Compensation Plan participation described below may occur with
respect to  participation  by persons  subject to Section  16(b) of the Exchange
Act.

     Incentive Stock Options

     Although the Company has obtained  neither a letter ruling from the IRS nor
an opinion of counsel stating that the ISO provisions of the Equity Compensation
Plan  constitute  an incentive  stock option plan under the Code, it is expected
that the options  granted under the ISO  provisions  of the Equity  Compensation
Plan will qualify as ISOs for federal income tax purposes.

     In general,  no taxable  income will be  realized  by an  optionee,  and no
federal income tax deduction  will be allowed to the Company,  upon the grant or
exercise of an ISO. The federal  income tax  consequences  of a  disposition  of
Common  Stock  received  pursuant  to the  exercise  of an ISO will  depend upon
whether the optionee has held the shares for the requisite  holding  period.  If
the  optionee  disposes of such shares after the later to occur of (a) two years
from the date of the  grant  of the ISO or (b) one  year  after  the date of the
transfer of the shares to him (the "Holding  Period"),  then any gain or loss to
the optionee  will be taxed as a capital gain or loss  according to the rules of
sales and exchanges generally.  The amount subject to tax will be the difference
between  the  amount  realized and  the optionee's  cost basis  in the shares of

                                      -19-

<PAGE>
Common Stock,  which difference will be a capital gain or loss if the shares are
held as a capital  asset.  In such event,  the Company will not be entitled to a
tax  deduction by reason of the  disposition.  For purposes of this  discussion,
"disposition"  means a  lifetime  transfer  of  legal  title,  such as by  sale,
exchange,  or gift,  but does not include a transfer that is triggered by death,
such as one by bequest or inheritance or one made by a decedent to his estate.

     A  "disqualifying   disposition"  takes  place  if  the  optionee  makes  a
disposition  of the shares of Common Stock  acquired  through the exercise of an
ISO before  satisfying  the Holding  Period.  If a  "disqualifying  disposition"
occurs,  the optionee must include as ordinary  income the gain realized on that
disposition  to the  extent of the  lesser of (a) the fair  market  value of the
Common  Stock on the date of exercise  of the ISO minus the option  price or (b)
the amount realized on the disposition  minus the option price.  The excess,  if
any, of the realized gain over the ordinary income  component will be taxable as
capital gain. Upon the occurrence of a "disqualifying  disposition," the Company
will be  entitled to deduct,  as  compensation  paid,  the amount so included as
ordinary income by the optionee.

     The federal  alternative minimum tax consequences of the exercise of an ISO
under the Equity  Compensation  Plan may differ from the general  federal income
tax consequences of such exercise.  The difference  between the option price and
the fair market  value of the shares upon  exercise  will be a  preference  item
subject to the federal alternative minimum tax.

     Nonqualified Stock Options

     Holders of NQSOs will not be entitled to the special tax treatment afforded
by Sections 421 and 422 of the Code in connection with ISOs.  Under the Code, an
optionee  granted an NQSO will realize no taxable  income upon grant of the NQSO
but will be deemed to have realized  ordinary taxable income equal to the excess
of the fair market  value of the stock  acquired at the time of the  exercise of
the NQSO over the option price paid. If the optionee is an employee, the Company
is required  for federal  income tax  purposes to withhold  tax on the amount of
income realized by the optionee in the transaction. The Company will be entitled
to a deduction  for federal  income tax purposes in the year the  optionee  must
report the income in an amount  equal to the  ordinary  income  realized  by the
optionee as a result of exercise of his NQSO.

     An  optionee's  tax basis in shares  acquired  upon the exercise of an NQSO
will be the fair market  value of such shares  used to  determine  the amount of
ordinary taxable income reported by the optionee with respect to the exercise of
the NQSO.  Upon any sale of such shares of Common Stock,  the optionee's gain or
loss will  therefore  equal the  difference  between the sale price and such tax
basis.  Any such gain or loss will be short or  long-term  capital gain or loss,
depending on whether the shares have been held for at least 12 months.



                          PROPOSAL NO. 4 -- APPROVAL OF
                    ADOPTION OF EMPLOYEE STOCK PURCHASE PLAN
                    ----------------------------------------

General

     The Board of  Directors  adopted  the  Employee  Stock  Purchase  Plan (the
"Purchase Plan") on July 29, 1999,  subject to the approval of the shareholders.
The Purchase Plan will provide  employees of the Company and its  majority-owned
subsidiaries  with an  opportunity  to purchase  Common  Stock  through  payroll
deductions  at a price  that is 85% of the  lower  of the fair  market  value of
Common Stock at the beginning of a  participation  period or on a purchase date.
The Board of Directors has reserved  300,000 shares of Common Stock for issuance
under the Purchase Plan.

     At the Annual  Meeting,  the  shareholders  are being  asked to approve the
adoption of the Purchase Plan and the  authorization of 300,000 shares of Common
Stock to be issued under the Plan.

     Assuming the presence of a quorum, approval of the adoption of the Purchase
Plan requires the affirmative  vote, either in person or by proxy, of at least a
majority of all shares of the Common  Stock voted at the Annual  Meeting.  Under
North  Carolina   corporate  law,   abstentions  are  treated  as  non-votes  in

                                      -20-

<PAGE>
determining whether shareholders have approved a proposal.  Abstentions and non-
votes will have no effect on the vote to approve this proposal.

     The  Board of  Directors  has  unanimously  approved  the  adoption  of the
Purchase Plan and the number of shares reserved under the Purchase Plan.

                        The Board of Directors recommends
 
                     shareholders vote FOR Proposal No. 4.

Description of Purchase Plan

     The following is a summary of the terms of the Purchase Plan.

     Purpose

     The purpose of the Purchase  Plan will be to provide  employees  (including
officers) of the Company and its majority-owned subsidiaries with an opportunity
to purchase Common Stock through payroll deductions.

     Administration

     The Purchase  Plan will be  administered  by the Board of Directors or by a
committee  appointed by the Board of Directors.  All questions of interpretation
or application of the Purchase Plan will be determined by the Board of Directors
or its committee, whose decisions will be final, conclusive and binding upon all
parties.

     Eligibility and Participation

     Any individual who is an employee for tax purposes of the Company or any of
its  majority-owned  subsidiaries  designated  from time to time by the Board of
Directors will be eligible to participate in the Purchase Plan, provided that he
or she  begins  employment  at  least  30  days  prior  to the  date  his or her
participation  in the  Purchase  Plan is  effective,  and subject to  additional
limitations  imposed  by  Section  423(b) of the Code and  limitations  on stock
ownership described in the Purchase Plan. Eligible employees become participants
in the Purchase  Plan by delivering to the  Company's  human  resources  office,
prior to the commencement of the applicable participation period, a subscription
agreement authorizing payroll deductions.

     Participation Periods

     The  Purchase  Plan  will  be  implemented  by   consecutive,   overlapping
participation  periods  generally of 12 months duration,  with new participation
periods normally  beginning in November and May of each year. Each participation
period will have two purchase  dates,  one in October and the other in April. If
the Purchase  Plan is adopted by the  shareholders  at the Annual  Meeting,  the
first  participation  period will begin on the date of the Annual  Meeting.  The
Board  of  Directors   will  have  the  power  to  alter  the  duration  of  the
participation periods and purchase dates without shareholder approval.

     Purchase Price

     The purchase  price at which  shares will be sold on a purchase  date under
the  Purchase  Plan will be 85% of the lower of the fair market  value of Common
Stock (i) on the date of  commencement of the 12-month  participation  period or
(ii) on the purchase date. The fair market value of Common Stock on a given date
will be the closing sale price on the Nasdaq National Market for that date.

     Payroll Deductions

     The purchase  price of the shares to be acquired  under the  Purchase  Plan
will be accumulated by payroll  deductions over the  participation  period.  The
rate of  deductions  may  not  exceed  15% of a  participant's  compensation.  A
participant may discontinue his or her participation in the Purchase Plan or may
change the rate of payroll  deductions one time during any two purchase dates by
filing with the Company a new authorization for payroll deductions.  All payroll
deductions  made for a  participant will be credited to his or her account under

                                      -21-

<PAGE>
the Purchase Plan and  will be deposited   with the general funds of the Company
to be used for any corporate purpose.

     Grant and Exercise of Option

     At the  beginning  of a  participation  period,  each  participant  will be
granted an option to purchase on the purchase  dates up to that number of shares
equal to the participant's  accumulated payroll deductions for the participation
period divided by the  applicable  purchase  price;  provided that the number of
shares subject to an option shall not exceed 1,000 shares of Common Stock on any
purchase date. On each purchase date prior to a  participant's  withdrawal  from
the Purchase  Plan,  the maximum number of full shares subject to an option that
are purchasable  with the accumulated  payroll  deductions in the  participant's
account will be purchased for the participant at the applicable  purchase price.
If, on any purchase date the number of shares  available for purchase  under the
Purchase Plan exceeds the number of shares remaining available,  the Company may
make a pro rata allocation of the shares remaining  available for purchase in as
uniform a manner as  practicable,  and then either  terminate the  participation
periods then in effect or permit them to continue.

     No employee may participate in the Purchase Plan if,  immediately after the
grant of an  option,  the  employee  would own 5% or more of the total  combined
voting  power  or  value  of all  classes  of  stock  of the  Company  or of its
majority-owned  subsidiaries  (including  stock that may be purchased  under the
Purchase Plan or pursuant to any outstanding options),  nor will any employee be
entitled to buy more than $25,000 worth of stock  (determined  based on the fair
market value of the shares at the time the option is granted) under all employee
stock purchase plans of the Company or any subsidiary in any calendar year.

     Withdrawal

     An employee may terminate his or her participation in a given participation
period by  giving  written  notice  to the  Company  of his or her  election  to
withdraw at any time prior to the end of the  applicable  participation  period.
All payroll deductions taken during the participation period will be returned to
the  participant  upon receipt of the withdrawal  notice.  Such  withdrawal will
automatically  terminate the participant's interest in that participation period
but will not have any effect upon the  participant's  eligibility to participate
in subsequent participation periods.

     Termination of Employment

     Termination  of  a  participant's  employment  for  any  reason,  including
retirement or death,  will cancel his or her  participation in the Purchase Plan
immediately.

     Adjustments for Changes in Capitalization

     In the event any change is made in the  Company's  capitalization  during a
participation  period,  such as a stock split or stock dividend on Common Stock,
which results in an increase or decrease in the number of shares of Common Stock
outstanding  without  receipt  of  consideration  by  the  Company,  appropriate
adjustments  will be made in the  purchase  price  and in the  number  of shares
subject to purchase  under the Purchase Plan, as well as in the number of shares
reserved for issuance under the Purchase Plan.

     In the event of the proposed dissolution or liquidation of the Company, the
participation  periods then in progress will be  shortened.  A new purchase date
prior to the date of the proposed  dissolution or  liquidation  will be set, and
the Purchase Plan will terminate thereafter. In the event of a merger or sale of
substantially  all of the assets of the Company,  outstanding  options under the
Purchase Plan will be assumed by the successor corporation or equivalent options
will  be  substituted,  or the  participation  periods  then in  effect  will be
shortened and a new purchase date will be set.

                                      -22-

<PAGE>
     Nonassignability

     No  rights or  accumulated  payroll  deductions  of an  employee  under the
Purchase Plan may be pledged, assigned,  transferred or otherwise disposed of in
any way for any reason other than death.  Any attempt to do so may be treated by
the Company as an election to withdraw from the Purchase Plan.

     Amendment and Termination of Purchase Plan

     The Board of  Directors  may at any time amend or  terminate  the  Purchase
Plan, except that neither termination of the Purchase Plan nor any amendment may
adversely  affect options  previously  granted or the rights of any participant.
The  Company  will  seek  shareholder  approval  of the  Purchase  Plan  and any
amendments  thereto to the extent  that  shareholder  approval is  necessary  or
desirable to comply with the applicable  Code sections and rules and regulations
thereunder  governing employee stock purchase plans, as in effect at the time of
the  approval  of the  Purchase  Plan or any  proposed  amendment,  or any other
applicable laws, rules or regulations. The Purchase Plan will terminate 10 years
from the date it is adopted by the shareholders, unless sooner terminated.

Tax Effects of Purchase Plan

     The  Purchase  Plan is intended to qualify as an "employee  stock  purchase
plan"  under the  provisions  of Sections  421 and 423 of the Code.  Under these
provisions,  participants  will not  recognize  income  for  federal  income tax
purposes  either upon  enrollment  in the Purchase  Plan or upon any purchase of
stock  thereunder.  All tax consequences are deferred until a participant  sells
the stock acquired  under the Purchase  Plan,  disposes of such stock by gift or
dies.

     Upon  disposition of the shares,  a participant will be subject to tax, and
the amount of the tax will depend upon the  holding  period.  If the shares have
been  held by the  participant  for more  than two  years  after the date of the
option grant and more than one year after exercise of the option,  the lesser of
(a) the  excess  of the  fair  market  value of the  shares  at the time of such
disposition over the option price, or (b) the excess of the fair market value of
the shares at the time the  option was  granted  over the  option  price  (which
option  price  will be  calculated  as of the grant  date)  will be  treated  as
ordinary income,  and any further gain will be taxed as long-term  capital gain.
If the participant disposes of the shares before the expiration of these holding
periods,  the participant will generally  recognize  ordinary income for federal
income tax  purposes  equal to the excess of the fair market value of the shares
on the  exercise  date over the option  price.  Any further gain or loss will be
long-term or short-term capital gain or loss, depending on the holding period.

     The Company will be entitled to a deduction  for amounts  taxed as ordinary
income to a participant only to the extent that ordinary income must be reported
upon  disposition  of shares by the  participant  before the  expiration  of the
holding periods described above.

     The  foregoing  does not purport to be a complete  summary of the effect of
federal income taxation of Purchase Plan  transactions upon participants and the
Company.  It also does not discuss the tax consequences of a participant's death
or the provisions of the income tax laws of any  municipality,  state or foreign
country in which a participant may reside.



                        PROPOSAL NO. 5 -- RATIFICATION OF
                        SELECTION OF INDEPENDENT AUDITORS
                        ---------------------------------

     The Board of Directors  has selected  Ernst & Young LLP as the  independent
auditors of the Company for the current  fiscal  year.  The  selection  is being
submitted to the  shareholders  for  ratification at the Annual Meeting;  if the
shareholders  do not vote for  ratification,  the  Board  will  reconsider  such
selection.  Representatives  of Ernst & Young LLP are  expected to be present at
the Annual  Meeting,  will have the  opportunity  to make a statement if they so
desire and are expected to be available to respond to appropriate questions.

     The  Company  engaged  Ernst & Young LLP as its new  principal  independent
auditors on September 21, 1998. PricewaterhouseCoopers LLP, the Company's former
principal   independent  accountants,  reported  on   the   Company's  financial

                                      -23-

<PAGE>
statements for the fiscal year ended June 28, 1998.  The Audit  Committee of the
Board of Directors  recommended the change of accountants to the Board,  and the
Board approved the recommendation. Representatives of PricewaterhouseCoopers LLP
are not expected to be present at the Annual Meeting.

     The  reports  of  PricewaterhouseCoopers  LLP  on the  Company's  financial
statements  for the two  fiscal  years  ended  June 30,  1997 and June 28,  1998
contained no adverse  opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty,  audit scope or accounting principles. In connection
with its audit for the two fiscal  years  ended June 30,  1997 and June 28, 1998
and   through   September   21,   1998,   there  were  no   disagreements   with
PricewaterhouseCoopers  LLP on any matter of accounting principles or practices,
financial   statement   disclosure,   or  auditing  scope  or  procedure   which
disagreements,  if not resolved to the  satisfaction  of  PricewaterhouseCoopers
LLP,  would have caused it to make  reference to the subject  matter of the dis-
agreement in its report on the financial  statements for such years.  During the
two fiscal years ended June 30, 1997 and June 28, 1998 and through September 21,
1998,  there  were no  "reportable  events"  as that  term  is  defined  in Item
304(a)(1)(v) of Regulation S-K of the Securities and Exchange Commission. At the
Company's request,  PricewaterhouseCoopers LLP furnished the Company with a let-
ter addressed to the  Commission,  dated September 23, 1998, a copy of which has
been filed as an exhibit to the  Company's  Form 8-K dated  September  25, 1998,
pursuant to which PricewaterhouseCoopers LLP agreed with the above statements.

     During  the two fiscal  years  ended  June 30,  1997 and June 28,  1998 and
through  September 21, 1998,  the Company did not consult with Ernst & Young LLP
on matters (i) regarding the application of accounting principles to a specified
transaction or the type of audit opinion that might be rendered on the Company's
financial  statements,   or  (ii)  which  concerned  the  subject  matter  of  a
disagreement  or  reportable  event with the former  auditor  (as  described  in
Regulation S-K, Item 304).

     Ratification of the selection of Ernst & Young LLP requires the affirmative
vote of at least a  majority  of the  shares of the  Common  Stock  voted at the
Annual Meeting.  Under North Carolina corporate law,  abstentions are treated as
non-votes  in  determining  whether   shareholders  have  approved  a  proposal.
Abstentions  and  non-votes  will  have no effect  on the vote to  approve  this
proposal.

                        The Board of Directors recommends
 
                     shareholders vote FOR Proposal No. 5.


                                      -24-

<PAGE>
                                 OTHER BUSINESS

     The  Company  currently  knows of no other  matter to be  submitted  at the
Annual Meeting.  Under the Company's Bylaws, any shareholder desiring to present
a proposal for consideration at the meeting,  including any director nomination,
was  required to give the Company  written  notice of the  proposal by a certain
date. No timely proposals have been received. Should any other business properly
come  before  the  meeting,  it is the  intention  of the  persons  named in the
enclosed  form of  proxy to vote  the  shares  they  represent  as the  Board of
Directors may recommend except as noted below. Pursuant to the Company's Bylaws,
the size of the Board of  Directors  was fixed at nine members in 1988 but since
then no more  than  seven  persons  have  served  on the  Board at any one time.
Consistent  with prior  practice  only seven  persons  have been  nominated  for
election  at the  Annual  Meeting,  and under the  rules of the  Securities  and
Exchange  Commission  the  enclosed  proxy  cannot be voted for more than  seven
nominees.


                      AVAILABILITY OF REPORT ON FORM 10-K

     A copy of the Company's  report on Form 10-K for the fiscal year ended June
27, 1999 will be furnished  without charge to any person  solicited  hereby upon
written request directed to: Investor  Relations Manager,  Cree Research,  Inc.,
4600 Silicon Drive, Durham, North Carolina 27703.

Dated:  September 30, 1999


                                      -25-

<PAGE>
                               CREE RESEARCH, INC.

                    PROXY SOLICITED BY THE BOARD OF DIRECTORS
                   FOR THE 1999 ANNUAL MEETING OF SHAREHOLDERS

     The undersigned  hereby appoints F. Neal Hunter and Calvin H. Carter,  Jr.,
and  each  of  them  individually,  as  proxies  and  attorneys-in-fact  of  the
undersigned,  with full power of substitution,  to represent the undersigned and
to vote, in accordance  with the directions in this proxy,  all of the shares of
stock of Cree Research,  Inc.  which the  undersigned is entitled to vote at the
Annual Meeting of Shareholders of Cree Research,  Inc. to be held at the offices
of the corporation at 4600 Silicon Drive,  Durham,  North Carolina,  on Tuesday,
November  2, 1999,  at 10:00 a.m.  local time,  and at any and all  adjournments
thereof.

     THIS  PROXY WILL BE VOTED AS  DIRECTED  ON THE  REVERSE.  UNLESS A CONTRARY
DIRECTION  IS MARKED,  THE  PROXYHOLDERS  WILL VOTE FOR ELECTION OF THE DIRECTOR
NOMINEES AND  APPROVAL OF THE OTHER  MATTERS  LISTED ON THE REVERSE,  AND IN THE
PROXYHOLDERS' DISCRETION WITH RESPECT TO ANY OTHER MATTER THAT MAY PROPERLY COME
BEFORE THE MEETING,  ALL AS MORE  SPECIFICALLY SET FORTH IN THE NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT DATED SEPTEMBER 30, 1999, RECEIPT OF WHICH IS HEREBY
ACKNOWLEDGED.

             (Please sign and date on the reverse side and promptly
                        return in the enclosed envelope.)



<PAGE>
[X] Please mark your votes as in this example.

     PLEASE RETURN THIS PROXY IN THE ENCLOSED ENVELOPE. If you receive more than
one proxy,  please  date and sign each one and  return  all  proxies in the same
envelope.

                 FOR all
                 nominees
                  listed        WITHHOLD AUTHORITY
                 at right        to vote for all
                (except as          nominees
               marked below)     listed at right
               -------------    ------------------
                                                     Nominees:
1. Election of    [ ]            [ ]                 F. Neal Hunter
   of                                                Calvin H.Carter, Jr., Ph.D.
   Directors                                         John W. Palmour, Ph.D.
                                                     Walter L. Robb, Ph.D.
                                                     Michael W. Haley
                                                     Dolph W. von Arx
                                                     James E. Dykes

   To withhold authority to vote for fewer than  all nominees, write the name(s)
   here:
         -----------------------------------------------------------------------

                                          FOR           AGAINST       ABSTAIN

2. Approval of proposed amendment         [ ]             [ ]           [ ]
   of the Articles of Incorporation
   to change the corporate name to
   "Cree, Inc."
3. Approval of the proposed amendments    [ ]             [ ]           [ ]
   to the Equity Compensation Plan
4. Approval of adoption of the 1999       [ ]             [ ]           [ ]
   Employee Stock Purchase Plan
5. Ratification of the selection of       [ ]             [ ]           [ ]
   Ernst & Young LLP as auditors

Any proxy heretofore given by the undersigned is hereby revoked.

Please check box if you  intend to attend  the Annual Meeting in person.  Please
complete,  sign and  return this proxy  whether or not you  intend to attend the
meeting. [ ]

Signature:                                              Date:
          --------------------------------------------         -----------------
IMPORTANT: Please sign exactly as printed name appears above.  Executors, admin-
           istrators, trustees  and  other fiduciaries  should give full  titles
           when signing.   If  shares are  registered in two or more names, each
           person should sign.  If the shareholder is a corporation, please have
           an authorized officer sign, stating title.   If a partnership, please
           have signed in the partnership  name by an authorized representative,
           stating title.



<PAGE>

                                   APPENDIX A

                               CREE RESEARCH, INC.
                            EQUITY COMPENSATION PLAN

   (As amended and restated August 24, 1999, subject to shareholder approval
            with respect to amended Section 3.5 and new Section 6.9)

                         ARTICLE I - GENERAL PROVISIONS

1.1   The Plan is  designed,  for the  benefit of the  Company,  to attract  and
      retain for the Company personnel of exceptional  ability; to motivate such
      personnel  through added incentives to make a maximum  contribution to the
      Company;  to develop and maintain a highly competent  management team; and
      to  be  competitive   with  other  companies  with  respect  to  executive
      compensation.

1.2   Awards under the Plan may be made to Participants in the form of Incentive
      Stock Options and Nonqualified Stock Options.

1.3   The Cree Research,  Inc. Equity  Compensation  Plan was initially  adopted
      effective August 2, 1989, was amended and restated in the form of the Plan
      effective  as of July 1, 1995  (the  "Effective  Date")  and has been most
      recently amended and restated effective as of August 18, 1999.

                            ARTICLE II - DEFINITIONS

      Except where the context otherwise  indicates,  the following  definitions
      apply:

2.1   "Act" means the  Securities  Exchange Act of 1934,  as now in effect or as
      hereafter  amended.  All  citations  to  sections  of  the  Act  or  rules
      thereunder  are to such sections or rules as they may from time to time be
      amended or renumbered.

2.2   "Agreement" means the written agreement evidencing each Award granted to a
      Participant under the Plan.

2.3   "Award"  means an award granted to a  Participant  in accordance  with the
      provisions  of  the  Plan,  including  an  Incentive  Stock  Option  or  a
      Nonqualified Stock Option.

2.4   "Board" means the Board of Directors of Cree Research, Inc.

2.5   "Change in Control"  means the  occurrence  of an event defined in Section
      7.1 of the Plan.

2.6   "Code"  means the Internal  Revenue  Code of 1986,  as now in effect or as
      hereafter amended.

2.7   "Committee"  means the  Compensation  Committee of the Board or such other
      committee  consisting  of two or  more  members  of  the  Board  as may be
      appointed by the Board to  administer  this Plan  pursuant to Article III.
      Committee  members may also be appointed for such limited  purposes as may
      be provided by the Board.

2.8   "Company" means Cree Research, Inc., a North Carolina corporation, and its
      successors and assigns.  The term "Company"  shall include any corporation
      which is a member of a  controlled  group of  corporations  (as defined in
      Section  414(b) of the Code,  as modified  by Section  415(h) of the Code)
      which  includes  the  Company;  any  trade  or  business  (whether  or not
      incorporated)  which is under common control (as defined in Section 414(c)
      of the Code, as modified by Section  415(h) of the Code) with the Company;
      any  organization  (whether or not  incorporated)  which is a member of an
      affiliated  service group (as defined in Section 414(m) of the Code) which
      includes the Company;  and any other entity required to be aggregated with
      the Company pursuant to regulations under Section 414(o) of the Code. With
      respect to all  purposes of the Plan,  including,  but not limited to, the
      establishment, amendment, termination, operation and administration of the
      Plan,  Cree  Research,  Inc.  shall be  authorized to act on behalf of all
      other entities included within the definition of "Company."

2.9   "Disability"  means (i) with respect to a  Participant  who is eligible to
      participate in the Company's program of long-term disability insurance,  a
      condition  with respect to which the  Participant  is entitled to commence
      benefits under such program of long-term  disability  insurance,  and (ii)
      with respect to any  Participant  (including a Participant who is eligible
      to   participate  in  the  Company's   program  of  long-term   disability
      insurance), a disability as determined under procedures established by the
      Committee or in any Award.

<PAGE>
2.10  "Early  Retirement"  shall mean retirement from active employment with the
      Company,  with the  express  consent of the  Committee,  pursuant to early
      retirement provisions established by the Committee or in any Award.

2.11  "Eligible  Participant"  means any  employee of the  Company,  as shall be
      determined  by the  Committee,  as well  as any  other  person,  including
      directors,  whose  participation  the Committee  determines is in the best
      interest of the Company,  subject to limitations as may be provided by the
      Code, the Act or the Committee.

2.12 "Fair Market Value" means, with respect to any given day, the following:

      (a)   If the Stock is not  listed for  trading  on a  national  securities
            exchange but is listed on the Nasdaq  National  Market or The Nasdaq
            Small-Cap  Market of The Nasdaq Stock  Market,  then the Fair Market
            Value  shall be the  last  sale  price  of the  Stock on the date of
            reference, as reported by the Nasdaq-Amex Reporting Service, or such
            other source as the Board deems reliable.

      (b)   If the  Stock is  listed  for  trading  on any  national  securities
            exchange,  then the Fair Market Value shall be the closing  price of
            the Stock on such exchange on the date of reference.

      The  Committee  may establish an alternative  method of  determining  Fair
      Market Value.

2.13  "Incentive  Stock Option" means a Stock Option granted under Article IV of
      the Plan, and as defined in Section 422 of the Code.

2.14  "Nonqualified  Stock Option" means a Stock Option  granted under Article V
      of the Plan.

2.15  "Normal  Retirement" shall mean retirement from active employment with the
      Company on or after age 65, or pursuant to such other  requirements as may
      be established by the Committee or in any Award.

2.16 "Option Grant Date" means, as to any Stock Option, the latest of:
 
      (a)   the  date on  which  the Committee  takes action  to grant the Stock
            Option to the Participant;

      (b)   the date the  Participant  receiving  the Stock  Option  becomes  an
            employee  of the  Company,  to the  extent  employment  status  is a
            condition of the grant or a requirement of the Code or the Act; or

      (c)   such  other  date  (later  than the dates  described  in (a) and (b)
            above) as the Committee may designate.

2.17  "Participant"  means an  Eligible  Participant  to whom an Award  has been
      granted and who has entered into an Agreement evidencing the Award.

2.18  "Plan" means the Cree Research, Inc. Equity Compensation Plan as set forth
      herein and as further amended or amended and restated from time to time.

2.19  "Retirement" shall mean Early Retirement or Normal Retirement.

2.20  "Stock" means shares of the Common Stock of Cree Research, Inc., par value
      $.0025 per share, as may be adjusted pursuant to the provisions of Section
      3.10.

2.21  "Stock  Option"  means an Award  under  Article  IV or V of the Plan of an
      option to purchase  Stock. A Stock Option may be either an Incentive Stock
      Option or a Nonqualified Stock Option.

2.22  "Termination of Employment"  means the  discontinuance  of employment of a
      Participant with the Company for any reason.  The determination of whether
      a Participant has  discontinued  employment shall be made by the Committee
      in its discretion.  In determining whether a Termination of Employment has
      occurred,  the  Committee  may provide  that  service as a  consultant  or
      service with a business  enterprise in which the Company has a significant
      ownership  interest shall be treated as employment  with the Company.  The
      Committee  shall have the discretion,  exercisable  either at the time the
      Award is granted or at the time the Participant terminates employment,  to
      establish as a provision  applicable to the exercise of one or more Awards
      that during the limited period of exercisability  following Termination of
      Employment, the Award may be exercised not only with respect to the number
      of  shares  of  Stock  for  which  it is  exercisable  at the  time of the
      Termination of Employment but also with respect to one or more  subsequent
      installments  for which the Award  would have become  exercisable  had the
      Termination of Employment not occurred.

<PAGE>
                          ARTICLE III - ADMINISTRATION

3.1   This Plan shall be  administered by the Committee.  The Committee,  in its
      discretion,  may delegate to one or more of its members such of its powers
      as it deems  appropriate.  The  Committee  also may limit the power of any
      member to the  extent  necessary  to comply  with any law.  Members of the
      Committee shall be appointed  originally,  and as vacancies  occur, by the
      Board,  to serve at the pleasure of the Board.  The Board may serve as the
      Committee,  if by the terms of the Plan all Board  members  are  otherwise
      eligible to serve on the Committee.

3.2   The  Committee  shall meet at such times and  places as it  determines.  A
      majority of its members shall  constitute a quorum,  and the decision of a
      majority  of those  present  at any  meeting  at which a quorum is present
      shall constitute the decision of the Committee. A memorandum signed by all
      of its members  shall  constitute  the decision of the  Committee  without
      necessity, in such event, for holding an actual meeting.

3.3   The Committee  shall have the exclusive  right to interpret,  construe and
      administer  the Plan, to select the persons who are eligible to receive an
      Award,  and to act in all matters  pertaining  to the granting of an Award
      and the contents of the Agreement evidencing the Award,  including without
      limitation,  the  determination of the number of Stock Options,  shares of
      Stock subject to an Award, and the form, terms, conditions and duration of
      each Award,  and any amendment  thereof  consistent with the provisions of
      the Plan. All acts,  determinations and decisions of the Committee made or
      taken  pursuant to grants of  authority  under the Plan or with respect to
      any  questions   arising  in  connection  with  the   administration   and
      interpretation  of the Plan,  including the severability of any and all of
      the provisions  thereof,  shall be conclusive,  final and binding upon all
      Participants, Eligible Participants and their beneficiaries.

3.4   The Committee may adopt such rules,  regulations and procedures of general
      application for the administration of this Plan, as it deems appropriate.

3.5   The number of shares of Stock which are available for Award under the Plan
      shall be Six Million  Eight  Hundred  Eighty  Thousand  (6,880,000).  Such
      shares of Stock  shall be made  available  from  authorized  and  unissued
      shares.  If, for any  reason,  any  shares of Stock  awarded or subject to
      purchase under the Plan are not delivered or purchased,  or are reacquired
      by the Company, for reasons including,  but not limited to, a termination,
      expiration or cancellation  of a Stock Option,  such shares of Stock shall
      not be charged  against the aggregate  number of shares of Stock available
      for Awards under the Plan,  and may again be available for Award under the
      Plan.

3.6   Each  Award  granted  under  the Plan  shall  be  evidenced  by a  written
      Agreement.  Each  Agreement  shall  be  subject  to  and  incorporate,  by
      reference or otherwise,  the applicable  terms and conditions of the Plan,
      and any other terms and conditions, not inconsistent with the Plan, as may
      be imposed by the Committee.

3.7   The Company shall not be required to issue or deliver any certificates for
      shares of Stock prior to:

      (a)   the listing of such shares on any stock  exchange on which the Stock
            may then be listed; and

      (b)   the completion of any  registration or  qualification of such shares
            of Stock under any federal or state law, or any ruling or regulation
            of any government  body which the Company shall,  in its discretion,
            determine to be necessary or advisable.

3.8   All  certificates  for shares of Stock delivered under the Plan shall also
      be subject to such  stop-transfer  orders  and other  restrictions  as the
      Committee  may deem  advisable  under the  rules,  regulations,  and other
      requirements of the Securities and Exchange Commission, any stock exchange
      upon which the Stock is then  listed and any  applicable  federal or state
      laws,  and the Committee may cause a legend or legends to be placed on any
      such certificates to make appropriate  reference to such restrictions.  In
      making  such  determination,  the  Committee  may rely upon an  opinion of
      counsel for the Company.

3.9   Except  as  provided  otherwise  in  the  Plan  or  in  an  Agreement,  no
      Participant  awarded a Stock Option shall have any right as a  shareholder
      with  respect  to any shares of Stock  covered by his or her Stock  Option
      prior  to  the  date  of  issuance  to him  or  her  of a  certificate  or
      certificates for such shares of Stock.

<PAGE>
3.10  If any reorganization, recapitalization, reclassification, stock split-up,
      stock  dividend,   or  consolidation   of  shares  of  Stock,   merger  or
      consolidation  of the Company or sale or other  disposition by the Company
      of all or a  portion  of its  assets,  any other  change in the  Company's
      corporate structure, or any distribution to shareholders other than a cash
      dividend  results in the  outstanding  shares of Stock,  or any securities
      exchanged  therefor or  received in their  place,  being  exchanged  for a
      different  number or class of shares of Stock or other  securities  of the
      Company,  or for  shares  of  Stock  or  other  securities  of  any  other
      corporation; or new, different or additional shares or other securities of
      the Company or of any other  corporation  being received by the holders of
      outstanding  shares of Stock, then equitable  adjustments shall be made by
      the Committee in:

      (a)   the  limitation on the aggregate  number of shares of Stock that may
            be awarded as set forth in Section 3.5 of the Plan;

      (b)   the number  and class of Stock that may be subject to an Award,  and
            which  have not been  issued  or  transferred  under an  outstanding
            Award;

      (c)   the terms,  conditions or  restrictions  of any Award and Agreement,
            including the price payable for the acquisition of Stock;  provided,
            however, that all adjustments made as the result of the foregoing in
            respect of each  Incentive  Stock  Option shall be made so that such
            Stock Option  shall  continue to be an Incentive  Stock  Option,  as
            defined in Section 422 of the Code; and

      (d)   the  limitations on grants of Stock Options set forth in Section 6.9
            of the Plan.

3.11  In addition to such other  rights of  indemnification  as they may have as
      directors  or as members of the  Committee,  the members of the  Committee
      shall be indemnified by the Company against reasonable expenses, including
      attorney's fees, actually and necessarily  incurred in connection with the
      defense of any  action,  suit or  proceeding,  or in  connection  with any
      appeal  therein,  to which they or any of them may be a party by reason of
      any action taken or failure to act under or in connection with the Plan or
      any Award  granted  thereunder,  and against  all amounts  paid by them in
      settlement  thereof,  provided such  settlement is approved by independent
      legal counsel selected by the Company,  or paid by them in satisfaction of
      a judgment or settlement in any such action, suit or proceeding, except as
      to matters as to which the Committee  member has been negligent or engaged
      in misconduct in the performance of his duties;  provided,  that within 60
      days after institution of any such action, suit or proceeding, a Committee
      member  shall in writing  offer the  Company the  opportunity,  at its own
      expense, to handle and defend the same.

3.12  The Committee may require each person  purchasing shares of Stock pursuant
      to an Award under the Plan to  represent  to and agree with the Company in
      writing  that he is  acquiring  the  shares  of  Stock  without  a view to
      distribution thereof and/or that he has met such other requirements as the
      Committee determines may be applicable to such purchase.  The certificates
      for such shares of Stock may include any legend which the Committee  deems
      appropriate to reflect any restrictions on transfer.

3.13  The Committee shall be authorized to make adjustments in performance-based
      criteria or in the terms and  conditions of other Awards in recognition of
      unusual or  nonrecurring  events  affecting  the Company or its  financial
      statements  or changes  in  applicable  laws,  regulations  or  accounting
      principles.  The Committee may correct any defect,  supply any omission or
      reconcile any inconsistency in the Plan or any Agreement in the manner and
      to the  extent it shall deem  desirable  to carry it into  effect.  In the
      event the Company shall assume outstanding  employee benefit awards or the
      right or  obligation  to make future such  awards in  connection  with the
      acquisition of another  corporation or business entity, the Committee may,
      in its discretion,  make such adjustments in the terms of Awards under the
      Plan as it shall deem appropriate.

3.14  The Committee shall have full power and authority to determine whether, to
      what extent and under what  circumstances,  any Award shall be canceled or
      suspended  if the  Participant  (a) without the consent of the  Committee,
      while  employed by the Company or after  termination  of such  employment,
      becomes  associated  with,  employed by, renders  services to, or owns any
      interest in, other than any insubstantial  interest,  as determined by the
      Committee,  any  business  that is in  competition  with  the  Company  as
      determined by the Committee in its  discretion;  or (b) is terminated  for
      cause as determined by the Committee in its discretion.

<PAGE>
                      ARTICLE IV - INCENTIVE STOCK OPTIONS

4.1   Each  provision  of this  Article IV and of each  Incentive  Stock  Option
      granted  hereunder shall be construed in accordance with the provisions of
      Section  422 of the  Code,  and any  provision  hereof  that  cannot be so
      construed shall be disregarded.

4.2   Incentive Stock Options shall be granted only to Eligible Participants who
      are in the active  employment of the Company,  each of whom may be granted
      one or more such  Incentive  Stock Options for a reason  related to his or
      her employment at such time or times determined by the Committee following
      the Effective Date through the date which is ten (10) years  following the
      Effective Date, subject to the following conditions:

      (a)   The Incentive Stock  Option price per share of Stock shall be set in
            the  Agreement,  but shall not  be less than 100% of the Fair Market
            Value of the Stock on the Option Grant  Date.  If the  Eligible Par-
            ticipant owns more than 10% of the outstanding Stock (as  determined
            pursuant to  Section 424(d) of the Code)  on  the Option Grant Date,
            the  Incentive Stock Option  price per  share shall not be less than
            110% of the Fair Market Value of the Stock on the Option Grant Date.

      (b)   Subject to any conditions on exercise set forth in the corresponding
            Agreement,  the Incentive Stock Option  may be exercised in whole or
            in part from  time to  time  within ten  (10) years from  the Option
            Grant  Date  (five (5) years if the  Eligible  Participant owns more
            than 10% of  the Stock on  the Option Grant Date),  or  such shorter
            period  as may be specified by the Committee in the Award; provided,
            that in any event, the Incentive Stock Option shall  lapse and cease
            to  be exercisable upon  a Termination  of Employment or within such
            period  following a  Termination  of  Employment as  shall have been
            specified  in the  Incentive Stock  Option Agreement,  which  period
            shall not exceed three months unless:

            (i)   employment  shall  have  terminated  as a  result  of death or
                  Disability,  in which event such  period  shall not exceed one
                  year after the date of death or Disability; or

            (ii)  death  shall  have  occurred   following  a   Termination   of
                  Employment  and while the  Incentive  Stock  Option  was still
                  exercisable,  in which event such period  shall not exceed one
                  year after the date of death;

            provided,  further,  that such  period  following a  Termination  of
            Employment shall in no event extend the original  exercise period of
            the Incentive Stock Option.

      (c)   To the extent the aggregate Fair Market Value,  determined as of the
            Option  Grant  Date,  of the shares of Stock  with  respect to which
            Incentive   Stock  Options   (determined   without  regard  to  this
            subsection)  are first  exercisable  during any calendar year by any
            Eligible Participant exceeds $100,000, such options shall be treated
            as Nonqualified Stock Options granted under Article V.

      (d)   The  Committee may adopt any other terms and conditions which it de-
            termines should be imposed for the Incentive Stock Option to qualify
            under Section 422  of the Code,  as well as any other terms and con-
            ditions not inconsistent  with this Article IV  as determined by the
            Committee.  If, for any reason, an Incentive Stock  Option  fails to
            meet  the requirements of  Section 422 of the Code, the Option shall
            automatically  be deemed  a Nonqualified  Stock Option granted under
            Article V herein.

4.3   The  Committee  may at any time offer to buy out for a payment in cash, or
      Stock an Incentive Stock Option  previously  granted,  based on such terms
      and  conditions as the Committee  shall  establish and  communicate to the
      Participant at the time that such offer is made.

4.4   If the  Incentive  Stock Option  Agreement so provides,  the Committee may
      require  that all or part of the  shares  of Stock to be  issued  upon the
      exercise of an Incentive  Stock  Option shall take the form of  restricted
      stock, which shall be valued on the date of exercise, as determined by the
      Committee,  on the basis of the Fair Market Value of such restricted stock
      without regard to the limitations on transfer and forfeiture  restrictions
      involved.

<PAGE>
                     ARTICLE V - NONQUALIFIED STOCK OPTIONS

5.1   One or more Stock Options may be granted as Nonqualified  Stock Options to
      Eligible  Participants  to purchase  shares of Stock at such time or times
      determined by the Committee,  following the Effective Date, subject to the
      terms and conditions set forth in this Article V.

5.2   The  Nonqualified   Stock  Option  price  per  share  of  Stock  shall  be
      established  in the  Agreement and shall not be less than 100% of the Fair
      Market Value at the time of the grant.

5.3   The  Nonqualified  Stock  Option may be  exercised in full or in part from
      time to time within such period as may be specified by the Committee or in
      the Agreement; provided, that, in any event, the Nonqualified Stock Option
      shall lapse and cease to be  exercisable  upon a Termination of Employment
      or within such period  following a Termination of Employment as shall have
      been specified in the Nonqualified  Stock Option  Agreement,  which period
      shall not exceed three months unless:

      (i)   employment shall have terminated as a result of death or Disability,
            in which event such period  shall not exceed one year after the date
            of death or Disability; or

      (ii)  death shall have occurred  following a Termination of Employment and
            while the Nonqualified Stock Option was still exercisable,  in which
            event such period shall not exceed one year after the date of death;

      provided,  further, that such period following a Termination of Employment
      shall in no event extend the original  exercise period of the Nonqualified
      Stock Option.

5.4   The  Nonqualified  Stock Option  Agreement may include any other terms and
      conditions  not  inconsistent  with this  Article V or in  Article  VI, as
      determined by the Committee.

                   ARTICLE VI - INCIDENTS OF STOCK OPTIONS

6.1   Each Stock Option shall be granted  subject to such terms and  conditions,
      if any, not  inconsistent  with this Plan,  as shall be  determined by the
      Committee,   including  any  provisions  as  to  continued  employment  as
      consideration  for the grant or  exercise  of such  Stock  Option  and any
      provisions  which  may  be  advisable  to  comply  with  applicable  laws,
      regulations or rulings of any governmental authority.

6.2   Except as provided  below, a Stock Option shall be exercisable  during the
      lifetime  of  the  Participant  only  by  him or  his  guardian  or  legal
      representative and shall not be transferable by the Participant other than
      (i) by will or by the laws of  descent  and  distribution,  or (ii) to the
      extent  otherwise  allowed by  applicable  law,  pursuant  to a  qualified
      domestic  relations  order  as  defined  by  the  Code  and  the  Employee
      Retirement  Income  Security  Act  of  1974,  as  amended,  or  the  rules
      thereunder.  However,  the Committee may, in its sole  discretion,  either
      pursuant to an Agreement or otherwise,  permit a Participant to transfer a
      Nonqualified  Stock  Option  by gift or other  donative  transfer  without
      payment of consideration,  conditioned upon and subject to compliance with
      all applicable law (including, but not limited to, securities law).

6.3   Shares of Stock  purchased  upon  exercise of a Stock Option shall be paid
      for in such  amounts,  at such  times  and  upon  such  terms  as shall be
      determined by the Committee, subject to limitations set forth in the Stock
      Option  Agreement.  Without  limiting the  foregoing,  the  Committee  may
      establish payment terms for the exercise of Stock Options which permit the
      Participant to deliver shares of Stock,  or other evidence of ownership of
      Stock  satisfactory to the Company,  with a Fair Market Value equal to the
      Stock Option price as payment.

6.4   No cash dividends  shall be paid on shares of Stock subject to unexercised
      Stock Options. The Committee may provide,  however,  that a Participant to
      whom a Stock Option has been granted which is  exercisable  in whole or in
      part at a future  time for shares of Stock shall be entitled to receive an
      amount per share equal in value to the cash  dividends,  if any,  paid per
      share on issued and  outstanding  Stock,  as of the dividend  record dates
      occurring  during  the period  between  the date of the grant and the time
      each such share of Stock is  delivered  pursuant to exercise of such Stock
      Option.  Such amounts (herein called "dividend  equivalents")  may, in the
      discretion of the Committee, be:

<PAGE>
      (a)   paid in cash or Stock  either  from time to time prior to, or at the
            time of the delivery of, such Stock, or upon expiration of the Stock
            Option if it shall not have been fully exercised; or

      (b)   converted into  contingently  credited shares of Stock, with respect
            to which dividend  equivalents may accrue,  in such manner,  at such
            value,  and  deliverable at such time or times, as may be determined
            by the Committee.

      Such Stock, whether delivered or contingently  credited,  shall be charged
      against the limitations set forth in Sections 3.5 and 6.9 hereof.

6.5   The Committee,  in its sole discretion,  may authorize payment of interest
      equivalents on dividend  equivalents which are payable in cash at a future
      time.

6.6   In the event of Disability or death,  the  Committee,  with the consent of
      the Participant or his legal  representative,  may authorize  payment,  in
      cash or in Stock,  or partly in cash and partly in Stock, as the Committee
      may direct,  of an amount equal to the  difference at the time between the
      Fair Market  Value of the Stock  subject to a Stock  Option and the option
      price in consideration of the surrender of the Stock Option.

6.7   If a Participant  is required to pay to the Company an amount with respect
      to income and employment tax  withholding  obligations in connection  with
      exercise of a  Nonqualified  Stock Option,  and/or with respect to certain
      dispositions  of Stock  acquired  upon the exercise of an Incentive  Stock
      Option,  the Committee,  in its discretion and subject to such rules as it
      may adopt, may permit the Participant to satisfy the obligation,  in whole
      or in part, by making an irrevocable  election that a portion of the total
      Fair Market Value of the shares of Stock subject to the Nonqualified Stock
      Option and/or with respect to certain  dispositions of Stock acquired upon
      the exercise of an Incentive Stock Option,  be paid in the form of cash in
      lieu of the issuance of Stock and that such cash payment be applied to the
      satisfaction  of the  withholding  obligations.  The amount to be withheld
      shall not  exceed  the  statutory  minimum  federal  and state  income and
      employment   tax  liability   arising  from  the  Stock  Option   exercise
      transaction.

6.8   The Committee  may permit the  voluntary  surrender of all or a portion of
      any  Stock  Option  granted  under  the  Plan to be  conditioned  upon the
      granting  to the  Participant  of a new  Stock  Option  for the  same or a
      different  number of shares of Stock as the Stock Option  surrendered,  or
      may require such  surrender  as a condition  precedent to a grant of a new
      Stock Option to such  Participant.  Subject to the provisions of the Plan,
      such new Stock  Option  shall be  exercisable  at such price,  during such
      period and on such other  terms and  conditions  as are  specified  by the
      Committee at the time the new Stock Option is granted. Upon surrender, the
      Stock  Options  surrendered  shall be  canceled  and the  shares  of Stock
      previously subject to them shall be available for the grant of other Stock
      Options.

6.9 The following limitations shall apply to grants of Stock Options:

      (a)   No Participant shall be granted,  in any fiscal year of the Company,
            Options to purchase more than 200,000 Shares.

      (b)   In connection with his or her initial service,  a Participant may be
            granted Stock Options to purchase up to an additional 200,000 Shares
            that shall not count  against the limit set forth in Section  6.9(a)
            above.

                         ARTICLE VII - CHANGE IN CONTROL

7.1   A "Change in Control"  shall be deemed to have occurred upon the happening
      of any of the following events:

      (a)   Any "Person" as defined in  Section 3(a)(9) of the Act,  including a
            "group" (as that term is used in  Sections 13(d)(3) and  14(d)(2) of
            the Act),  but excluding the Company  (as defined in  Section 2.8 of
            this Plan)  and any employee benefit plan sponsored or maintained by
            the Company  (including any trustee of such plan acting as trustee),
            who together with  its "affiliates" and "associates" (as those terms
            are  defined in  Rule  12b-2 under the Act)  becomes the "Beneficial
            Owner"  (within the meaning of  Rule 13d-3 under the Act) of  20% or
            more of the  then-outstanding shares of Stock or the combined voting
            power of the then-outstanding  securities of the Company entitled to
            vote generally in the election  of its  directors.   For purposes of
            calculating the number of shares or voting power held by such Person

<PAGE>
            and  its affiliates and  associates under this Section 7.1(a), there
            shall be  excluded any  securities acquired  by such  Person  or its
            affiliates or associates directly from the Company.

      (b)   A sale  or  other  disposition  of all or  substantially  all of the
            Company's  assets  is  consummated,   other  than  such  a  sale  or
            disposition  that  would not have  constituted  a Change of  Control
            under  subsection  (d) below had it been  structured  as a merger or
            consolidation.

      (c)   The  shareholders of the Company  approve a definitive  agreement or
            plan to liquidate the Company.

      (d)   A merger  or consolidation of the  Company with and into another en-
            tity is consummated, unless  immediately following  such transaction
            (1) more than 50%  of the members of  the governing body of the sur-
            viving entity were Incumbent Directors (as defined in subsection (e)
            below) at  the time of execution  of the initial agreement providing
            for such transaction, (2) no  "Person" (as defined in Section 7.1(a)
            above), together with its  "affiliates" and "associates" (as defined
            in Section 7.1(a) above),  is the "Beneficial  Owner" (as defined in
            Section 7.1 (a) above),  directly or indirectly,  of 20% or  more of
            the then-outstanding equity interests of the surviving entity or the
            combined  voting power of the  then-outstanding equity  interests of
            the  surviving entity  entitled to vote generally in the election of
            members of its  governing body,  and (3) more  than 50% of the then-
            outstanding  equity  interests of  the surviving entity and the com-
            bined  voting power of the  then-outstanding equity interests of the
            surviving  entity entitled to vote generally in the election of mem-
            bers of its  governing body is "Beneficially Owned", directly or in-
            directly,  by all or  substantially all of the individuals and enti-
            ties who were the "Beneficial Owners" of the shares of Stock immedi-
            ately  prior to such  transaction in  substantially the same propor-
            tions as their ownership immediately prior to such transaction.

      (e)   During  any period of  24 consecutive months during the existence of
            the Plan, the  individuals  who,  at the  beginning of  such period,
            constitute  the  Board  (the  "Incumbent Directors")  cease  for any
            reason other than death to constitute at least  a  majority thereof;
            provided,  however,  that a  director who was not a  director at the
            beginning  of such 24 month period shall be deemed to have satisfied
            such 24  month  requirement,  and  be an Incumbent Director, if such
            director  was  elected by,  or on the  recommendation of or with the
            approval of, at least two-thirds of the directors who then qualified
            as Incumbent Directors either actually,  because they were directors
            at the beginning of such 24 month period,  or by prior  operation of
            this Section 7.1 (e),  but excluding for this purpose any such indi-
            vidual whose initial  assumption of office is in  connection with an
            actual  or threatened  election context  subject to  Rule 14a-11  of
            Regulation 14A promulgated under the Act or other actual or  threat-
            ened  solicitation  of  proxies  or consents  by  or  on behalf of a
            "Person" (as defined in Section 7.1(a) above) other than the Board.

7.2   In the event of a Change in Control: (a) any or all then outstanding Stock
      Options  having an Option Grant Date on or before January 31, 1999, to the
      extent not previously  fully vested and exercisable,  shall  automatically
      become fully vested and,  except to the extent such Options are cashed out
      pursuant to Section 7.3 below,  exercisable effective immediately prior to
      the Change in Control;  and (b) outstanding Stock Options having an Option
      Grant Date after January 31, 1999 shall vest and become  exercisable  only
      to  the  extent  and in  such  manner  as is  provided  in the  applicable
      Agreement evidencing the Stock Option.

7.3   Upon the occurrence of a Change in Control,  the Committee may in its sole
      discretion and consistent  with the  requirements of applicable law decide
      to cash-out the value of all  outstanding  Stock Options,  in each case to
      the extent  vested  pursuant to Sections  7.2 above or  otherwise,  on the
      basis of the "Change in Control  Price" (as  defined in Section  7.4) less
      the exercise price under such Award (if any) as of the date such Change in
      Control is  determined  to have  occurred  or such other date prior to the
      Change in Control as the Committee may determine.

<PAGE>
7.4   For purposes of Section 7.3,  "Change in Control  Price" means the highest
      price per share of Stock paid in any transaction  reported on the exchange
      on which the Stock is then traded or on the Nasdaq  Stock  Market,  as the
      case may be, or paid or offered in any bona fide transaction  related to a
      Change in  Control,  at any time  during  the 120 day  period  immediately
      preceding the  occurrence  of the Change in Control,  as determined by the
      Committee.

7.5   The Committee is authorized to take such actions that are not inconsistent
      with  Sections  7.2, 7.3 and 7.4 above as the  Committee  determines to be
      necessary  or  advisable,  and fair and  equitable to  Participants,  with
      respect to an Award in the event of a Change in  Control.  Such action may
      include,  but shall not be limited to,  establishing,  amending or waiving
      the forms,  terms,  conditions and duration of an Award and the Agreement,
      so as to provide for  earlier,  later,  extended or  additional  times for
      exercise  or  payment,  differing  methods for  calculating  payments  and
      alternate  forms and  amounts  of  payment.  The  Committee  may take such
      actions  pursuant to this Section 7.5 by adopting rules and regulations of
      general  applicability  to all  Participants  or to certain  categories of
      Participants, by including, amending or waiving terms and conditions in an
      Award and the  Agreement,  or by taking  action with respect to individual
      Participants.

                   ARTICLE VIII - AMENDMENT AND TERMINATION

8.1   The Board, upon recommendation of the Committee, or otherwise, at any time
      and from time to time,  may amend or  terminate  the Plan.  To the  extent
      required  by Code  Section  422,  no  amendment,  without  approval by the
      Company's shareholders, shall:

      (a)   alter the group of persons eligible to participate in the Plan;

      (b)   except as provided in Section 3.5,  increase  the maximum  number of
            shares of Stock or Stock  Options  which are  available  for  Awards
            under the Plan;

      (c)   extend the period during which  Incentive Stock Option Awards may be
            granted  beyond  the  date  which is ten (10)  years  following  the
            Effective Date.

      (d)   limit or restrict  the powers of the  Committee  with respect to the
            administration of this Plan;

      (e)   change the definition of an Eligible  Participant for the purpose of
            an  Incentive  Stock  Option or  increase  the limit or the value of
            shares of Stock for which an Eligible  Participant may be granted an
            Incentive Stock Option;

      (f)   materially increase the benefits accruing to Participants under this
            Plan;

      (g)   materially   modify  the   requirements   as  to   eligibility   for
            participation in this Plan; or

      (h) change any of the provisions of this Article VIII.

8.2   No amendment to or discontinuance of this Plan or any provision thereof by
      the Board or the  shareholders  of the Company shall,  without the written
      consent of the Participant,  adversely  affect,  as shall be determined by
      the Committee, any Award previously granted to such Participant under this
      Plan; provided, however, the Committee retains the right and power to:

      (a)   annul any Award if the Participant is terminated for cause as deter-
            mined by the Committee;

      (b)   provide for the forfeiture of shares of Stock or other gain under an
            Award as  determined  by the  Committee  for  competing  against the
            Company; and

      (c)   convert any  outstanding  Incentive  Stock Option to a  Nonqualified
            Stock Option.

8.3   If a Change in Control has  occurred,  no amendment or  termination  shall
      impair the rights of any person with  respect to an  outstanding  Award as
      provided in Article VII.

<PAGE>
                      ARTICLE IX - MISCELLANEOUS PROVISIONS

9.1   Nothing in the Plan or any Award granted  hereunder  shall confer upon any
      Participant  any right to  continue  in the employ of the  Company,  or to
      serve as a director thereof, or interfere in any way with the right of the
      Company  to  terminate  his  or  her   employment  at  any  time.   Unless
      specifically provided otherwise,  no Award granted under the Plan shall be
      deemed salary or compensation for the purpose of computing  benefits under
      any  employee  benefit  plan or other  arrangement  of the Company for the
      benefit of its employees unless the Company shall determine otherwise.  No
      Participant  shall have any claim to an Award until it is actually granted
      under the Plan. To the extent that any person  acquires a right to receive
      payments  from the Company  under the Plan,  such right  shall,  except as
      otherwise  provided by the  Committee,  be no greater than the right of an
      unsecured  general  creditor  of the  Company.  All  payments  to be  made
      hereunder  shall be paid from the  general  funds of the  company,  and no
      special or separate fund shall be established and no segregation of assets
      shall be made to assure  payment  of such  amounts,  except  as  otherwise
      provided by the Committee.

9.2   The  Company may make such  provisions  and take such steps as it may deem
      necessary  or  appropriate  for the  withholding  of any  taxes  which the
      Company  is  required  by  any  law  or  regulation  of  any  governmental
      authority,  whether  federal,  state or local,  domestic  or  foreign,  to
      withhold in  connection  with any Stock  Option or the  exercise  thereof,
      including,  but not limited to, the  withholding  of payment of all or any
      portion  of such  Award  or  another  Award  under  this  Plan  until  the
      Participant  reimburses the Company for the amount the Company is required
      to withhold  with respect to such taxes,  or canceling any portion of such
      Award  or  another  Award  under  this  Plan in an  amount  sufficient  to
      reimburse itself for the amount it is required to so withhold,  or selling
      any  property  contingently  credited  by the  Company  for the purpose of
      paying such Award or another  Award under this Plan,  in order to withhold
      or reimburse itself for the amount it is required to so withhold.

9.3   The Plan and the  grant of  Awards  shall  be  subject  to all  applicable
      federal and state laws,  rules,  and  regulations and to such approvals by
      any United States government or regulatory agency as may be required.

9.4   The  terms  of the  Plan  shall  be  binding  upon  the  Company,  and its
      successors and assigns.

9.5   No award  shall be  transferable  except as provided  for  herein.  Unless
      otherwise  provided  by  the  Committee  or  in  an  Agreement,   transfer
      restrictions  shall only apply to Incentive  Stock  Options as required in
      Article  IV and to the  extent  otherwise  required  by  federal  or state
      securities  laws.  If any  Participant  makes such a transfer in violation
      hereof, any obligation of the Company shall forthwith terminate.

9.6   This Plan and all actions taken hereunder shall be governed by the laws of
      the State of North Carolina.

9.7   The Plan is intended to constitute  an  "unfunded"  plan for incentive and
      deferred  compensation.  With  respect to any  payments  not yet made to a
      Participant by the Company,  nothing  contained herein shall give any such
      Participant  any rights that are greater than those of a general  creditor
      of the Company.  In its sole  discretion,  the Committee may authorize the
      creation of trusts or other  arrangements to meet the obligations  created
      under the Plan to deliver  shares of Stock or  payments in lieu of or with
      respect to Awards hereunder; provided, however, that, unless the Committee
      otherwise  determines  with the consent of the affected  Participant,  the
      existence  of such trusts or other  arrangements  is  consistent  with the
      "unfunded" status of the Plan.

9.8   Each  Participant  exercising  an  Award  hereunder  agrees  to  give  the
      Committee  prompt written notice of any election made by such  Participant
      under Section 83(b) of the Code, or any similar provision thereof.

9.9   If any  provision  of this Plan or an Agreement is or becomes or is deemed
      invalid, illegal or unenforceable in any jurisdiction, or would disqualify
      the  Plan  or  any  Agreement  under  any  law  deemed  applicable  by the
      Committee,  such provision shall be construed or deemed amended to conform
      to applicable laws or if it cannot be construed or deemed amended without,
      in the determination of the Committee,  materially  altering the intent of
      the Plan or the  Agreement,  it shall be stricken and the remainder of the
      Plan or the Agreement shall remain in full force and effect.

<PAGE>
                                   APPENDIX B

                               CREE RESEARCH, INC.
                        1999 EMPLOYEE STOCK PURCHASE PLAN

           (As adopted July 29, 1999, subject to shareholder approval)

1. Purpose.  The purpose of the Plan is to provide  employees of the Company and
   its Designated  Subsidiaries  with an opportunity to purchase Common Stock of
   the Company through accumulated  payroll  deductions.  It is the intention of
   the Company to have the Plan qualify as an  "Employee  Stock  Purchase  Plan"
   under  Section  423 of  the  Internal  Revenue  Code  of  1986,  as  amended.
   Accordingly,  the  provisions  of the Plan shall be construed so as to extend
   and limit  participation in a manner consistent with the requirements of that
   section of the Code.

2. Definitions.

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

   (b) "Code" shall mean the Internal Revenue Code of 1986, as amended.

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

   (d) "Company" shall mean Cree Research,  Inc., a North Carolina  corporation,
       and any Designated Subsidiary of the Company.

   (e) "Compensation" shall mean all compensation  other than gain  attributable
       to stock options, including any  amounts  the participant elects to defer
       or exclude from income under a deferred compensation  plan or an employee
       benefit plan of the Company.

   (f) "Designated  Subsidiary"   shall  mean  any  Subsidiary   that  has  been
       designated by the  Board  from  time to time in its  sole  discretion  as
       eligible to participate in the Plan.

   (g) "Employee" shall mean any  individual  who is an  employee of the Company
       for tax purposes.  For purposes of the Plan, the employment  relationship
       shall be treated as  continuing  intact while the  individual  is on sick
       leave or other leave of absence approved by the Company. Where the period
       of leave exceeds 90 days and  the individual's  right to  reemployment is
       not guaranteed either by statute or by contract, the employment relation-
       ship shall be deemed to have terminated on the 91st day of such leave.

   (h) "Enrollment Date" shall mean the first day of a Participation Period.

   (i) "Fair Market Value" shall mean,  as of any date,  the value of the Common
       Stock determined as follows:

     (i)  If the Common Stock is listed on any  established  stock  exchange  or
          national  market  system,  including  without  limitation  the  Nasdaq
          National  Market or The Nasdaq  SmallCap  Market of The  Nasdaq  Stock
          Market,  its Fair Market  Value  shall be the closing  sales price for
          such stock (or the closing bid, if no sales are reported) as quoted on
          such exchange or system for the regular trading session on the date of
          determination  (or, if such date is not a Trading Day, the most recent
          prior Trading Day), as reported by the Nasdaq-Amex  Reporting  Service
          or such other source as the Board deems reliable;

     (ii) If the Common  Stock is regularly  quoted by a  recognized  securities
          dealer but selling  prices are not  reported,  its Fair  Market  Value
          shall be the mean of the closing  bid and asked  prices for the Common
          Stock  for  the   regular   trading   session  on  the  date  of  such
          determination  (or, if such date is not a Trading Day, the most recent
          prior Trading Day), as reported by the Nasdaq-Amex  Reporting  Service
          or such other source as the Board deems reliable; or

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

   (k) "Participation  Periods" shall mean the 12-month  periods during which an
       option granted pursuant to the Plan may be exercised beginning November 1
       and May 1 of each year and ending  October 31 and April 30, respectively,
       12  months later.  The first Participation Period  under the  Plan  shall
       begin  on  the date the  shareholders  of the  Company  approve the  Plan
       (expected November 2, 1999) and shall end October 31, 2000.  The duration
       and  timing of Participation Periods may be changed pursuant to Section 4
       of this Plan.

   (l) "Plan" shall mean this 1999 Employee Stock Purchase Plan.

   (m) "Purchase Dates" shall mean October 31 and April 30 of each year.

   (n) "Purchase  Price"  shall  mean an amount  equal to 85% of the Fair Market
       Value  of  a share  of Common  Stock on  the  Enrollment Date  or  on the
       Purchase Date,  whichever is lower. The Purchase Price may be adjusted by
       the Board pursuant to Section 19 hereof.

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

   (p) "Subsidiary" shall mean a corporation, domestic or foreign,  of which not
       less than  50% of  the  voting  shares  are  held  by  the  Company  or a
       Subsidiary, whether or not such  corporation  now exists or is  hereafter
       organized or acquired by the Company or a Subsidiary.

   (q) "Trading Day" shall mean a day on which national stock  exchanges and the
       Nasdaq System are open for trading.

3. Eligibility.

   (a) Any Employee employed by the Company 30 days prior to a given  Enrollment
       Date shall be eligible to participate in the Plan.

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

4. Participation   Periods.  The  Plan  shall  be  implemented  by  consecutive,
   overlapping   Participation   Periods  of  12  months'  duration,   with  new
   Participation  Periods  beginning  November 1 and May 1 each year.  The first
   Participation  Period under the Plan shall begin on the date the shareholders
   of the  Company  approve the Plan  (expected  November 2, 1999) and shall end
   October 31, 2000.  Each  Participation  Period shall have two Purchase Dates,
   October  31 and April 30. The Board may  change  the  duration  and timing of
   Participation  Periods and Purchase  Dates,  provided that any such change is
   announced  at least 10 days  prior to the  scheduled  beginning  of the first
   Participation Period to be affected thereafter.

5. Participation.

   (a) An eligible Employee may become a participant in the Plan by completing a
       subscription agreement  in a form  provided  by the  Company  authorizing
       payroll deductions  and  filing  it with the  Company's  human  resources
       department prior to the applicable Enrollment Date.

   (b) Payroll deductions  for a participant  shall begin with the first pay day
       following the Enrollment  Date and shall end with the last pay day in the
       Participation Period to which such  authorization  is applicable,  unless
       sooner terminated by the participant as provided in Section 10 hereof.

6. Payroll Deductions.

   (a) At the time a participant files a subscription agreement, the participant
       shall elect to have  payroll  deductions  made on each pay day during the
       Participation Period  not  exceeding  15% of the  Compensation  that  the
       participant receives on each pay day during the Participation Period.

   (b) All payroll deductions  made for a  participant  shall be credited to the
       participant's account  under  the Plan and  shall  be  withheld  in whole
       percentages only. A participant may not make any additional payments into
       such account.

   (c) A participant may  discontinue  his or her  participation  in the Plan as
       provided  in Section 10 hereof, or  may increase or  decrease the rate of
       his or her payroll deductions, by completing and filing  with the Company
       a new  subscription agreement  authorizing a  change in payroll deduction
       rate. A participant shall not be  permitted  to  change  the  rate of his
       or her payroll  deductions more than once between any two Purchase Dates.
       A  change in rate shall  be effective with  the first full payroll period
       that begins  after the Company receives the new subscription agreement. A
       participant's  subscription agreement  shall remain in effect for succes-
       sive Participation Periods  unless terminated  as provided  in Section 10
       hereof.

   (d) Notwithstanding the foregoing, to the extent necessary to comply with the
       $25,000 calendar-year  accrual and the 5% ownership limitations set forth
       in Section 3(b),  a participant's payroll deductions may  be decreased to
       0% at any time prior to a Purchase Date.  Payroll deductions shall resume
       at the rate provided in such participant's subscription agreement immedi-
       ately following such Purchase Date,  unless terminated by the participant
       as provided in Section 10 hereof.

7. Grant of Option.

   (a) On the Enrollment Date of each  Participation  Period,  each  participant
       shall be granted  an  option to  purchase  on each  Purchase  Date of the
       Participation Period at the applicable Purchase Price up to the number of
       shares of  the  Company's   Common  Stock   determined  by  dividing  the
       participant's payroll deductions  accumulated prior to such Purchase Date
       and  retained in the  participant's  account by the  applicable  Purchase
       Price; provided,  however,  that  in no  event  shall  a  participant  be
       permitted to  purchase  on any  Purchase  Date more than 1,000  shares of
       Common Stock (subject to adjustment pursuant to Section 18), and provided
       further that such purchase shall be subject to the limitations  set forth
       in Sections 3(b) and 13. The Board may, in its absolute  discretion,  for
       future Participation  Periods  increase or decrease the maximum number of
       shares of the  Company's Common  Stock a  participant  may  purchase on a
       Purchase Date.  Exercise of an option shall occur as provided in  Section
       8, unless the participant has withdrawn pursuant to Section 10.

   (b) To the extent permitted by any  applicable  laws,  regulations,  or stock
       exchange rules, if the Fair Market Value of the Common Stock on the first
       Purchase Date in a  Participation  Period is lower  than the Fair  Market
       Value of the  Common Stock on  the Enrollment  Date,  all participants in
       such Participation Period shall be automatically  withdrawn after the ex-
       ercise of their options and automatically reenrolled in the next succeed-
       ing Participation Period as of the first day thereof.

8. Exercise of Option.

   (a) Unless a participant  withdraws  from the Plan as provided in Section 10,
       the  participant's option  shall be  exercised automatically on each Pur-
       chase Date, and the maximum  number of full shares  subject to the option
       shall be  purchased for the participant  at the applicable Purchase Price
       with the accumulated payroll deductions  in the participant's account. No
       fractional shares shall be purchased.  Any payroll deductions accumulated
       in  a participant's account  that are not  sufficient to purchase  a full
       share shall  be retained in the participant's account until the next Pur-
       chase Date, subject to earlier  withdrawal by the participant as provided
       in Section 10.

   (b) If the Board  determines  that on a given  Purchase  Date the  number  of
       shares with respect to which options are to be  exercised exceed the num-
       ber of shares of Common Stock available for sale under the Plan either as
       of  the Enrollment  Date of the applicable  Participation Period or as of
       such Purchase Date, the Board may in its sole discretion (i) provide that
       the  Company shall make  a pro rata  allocation of the  shares of  Common
       Stock available for purchase on such Enrollment Date or Purchase Date, as
       applicable,  in as uniform a  manner  as shall be  practicable and  as it
       shall determine in its sole discretion to be equitable among all partici-
       pants and permit all Participation  Periods then in effect to continue or
       (ii) provide, as above, that the Company shall make a pro rata allocation
       of the shares available for purchase on such Enrollment  Date or Purchase
       Date,  as  applicable,  and terminate  the Participation  Periods then in
       effect. The Company may make pro rata allocations of the shares available
       on the Enrollment Date of any applicable Participation Period pursuant to
       the preceding  sentence,  notwithstanding any authorization of additional
       shares  for  issuance  under the  Plan by the Company's shareholders sub-
       sequent to such Enrollment Date.

<PAGE>
9.  Delivery.  As promptly as  practicable after each Purchase Date, the Company
    shall arrange the delivery, electronically or otherwise,  to accounts in the
    participants'  names at a  brokerage company  selected by the Company of the
    shares purchased upon exercise of options.

10. Withdrawal.

   (a) A participant  may  withdraw  all,  but not less than all, of the payroll
       deductions credited  to the  participant's  account at any time by giving
       written notice to the  Company in a form  provided by the  Company.  Such
       payroll  deductions  shall  be  paid to  the participant  promptly  after
       receipt of  the  participant's notice of  withdrawal.  The  participant's
       option for the Participation Period shall automatically terminate, and no
       further  payroll deductions for  the purchase of shares shall be made for
       such Participation Period.  If a  participant withdraws from a Participa-
       tion Period, payroll  deductions for the participant's  account shall not
       resume at the beginning of the succeeding Participation Period unless the
       participant delivers to the Company a new subscription agreement.

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

11. Termination of Employment.  Upon a  participant's  ceasing to be an Employee
    for any reason, the participant  shall be deemed to have elected to withdraw
    from the Plan, and the  payroll  deductions  credited  to the  participant's
    account during the  Participation  Period but not yet used to  exercise  the
    participant's option shall be returned to the participant.

12. Interest.  No interest shall accrue on the payroll deductions of a partici-
    pant in the Plan.

13. Stock.

   (a) The maximum number of shares of the Company's Common Stock authorized for
       issuance under the Plan shall be three hundred thousand (300,000) shares.

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

   (c) At the election of the  participant, shares  purchased  by a  participant
       under the Plan shall be registered in the name of  the participant or the
       names of the participant and his or her spouse.

14. Administration.

   (a) The shall be administered  by the  Board.  The Board  shall have full and
       exclusive discretionary  authority to construe,  interpret  and apply the
       terms of the Plan to determine eligibility and to adjudicate all disputed
       claims filed under the Plan.  Every  finding, decision and  determination
       made  by the Board shall, to the full  extent permitted by law,  be final
       and binding upon all parties.

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

15. Transferability.  Neither  payroll  deductions  credited to a  participant's
    account  nor any rights with regard to the  exercise of an option  under the
    Plan may be assigned, transferred,  pledged or otherwise  disposed of in any
    way by the  participant (other  than  by will or the  laws  of  descent  and
    distribution).  Any such attempt at  assignment,  transfer,  pledge or other
    disposition shall be without effect,  except that the Company may treat such
    act as an election to withdraw from the Plan in  accordance  with Section 10
    hereof.

16. Use of Funds.  Payroll  deductions received or held by the Company under the
    Plan may be used by the Company for any corporate purpose. The Company shall
    not be obligated to segregate such payroll deductions.

<PAGE>
17. Reports.  Individual accounts shall  be maintained  for each  participant in
    the Plan.  Statements of  account shall be given  to participants  following
    each Purchase Date, which statements shall set forth the amounts of  payroll
    deductions,  the  Purchase  Price,  the  number of shares purchased  and the
    remaining cash balance, if any.

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

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

   (b) In the event of the proposed  dissolution  or liquidation of the Company,
       the Participation Periods then in progress shall be shortened by  setting
       a new Purchase Date (the  "New  Purchase   Date")  and  shall   terminate
       immediately  prior to the  consummation of such proposed  dissolution  or
       liquidation, unless  provided  otherwise  by the Board.  The New Purchase
       Date shall be prior to the date of the Company's proposed dissolution  or
       liquidation.  The Board shall notify each participant in writing at least
       10 business days prior  to the  New  Purchase Date that the Purchase Date
       for the participant's  option has been  changed to the  New Purchase Date
       and that the participant's option shall be exercised automatically on the
       New  Purchase  Date, unless prior  to such date the participant has with-
       drawn from the Participation Period as provided in Section 10.

   (c) In the event of a proposed sale of all or substantially all of the assets
       of the Company,  or the  merger  of the  Company  with  or  into  another
       corporation, outstanding  options shall be assumed or equivalent  options
       substituted by the successor corporation or a parent or Subsidiary of the
       successor corporation.  In  the event that the successor  corporation re-
       fuses to assume or substitute for the  options, the Participation  Period
       then in progress shall be shortened by setting a new  Purchase  Date (the
       "New Purchase Date").  The New Purchase Date shall be  before the date of
       the Company's proposed sale  or merger.  The Board shall notify each par-
       ticipant in  writing at least  10 business days prior to the New Purchase
       Date that the Purchase Date for the participant's option has been changed
       to the New Purchase Date and  that  the  participant's  option  shall  be
       exercised automatically on the New Purchase  Date,  unless  prior to such
       date the  participant has withdrawn from the Participation Period as pro-
       vided in Section 10.

19. Amendment or Termination.

   (a) The Board of Directors  of the Company may at any time and for any reason
       terminate or amend the Plan.  Except as  provided  in Section 18 and this
       Section 19, no such termination may adversely  affect options  previously
       granted;  provided, however, that the Board may terminate a Participation
       Period on any Purchase Date if the Board determines  that the termination
       of the  Participation  Period or the Plan is in the best interests of the
       Company  and its  shareholders.  To the extent  necessary to comply  with
       Section 423 of the Code (or any successor  rule or provision or any other
       applicable  law,  regulation or stock exchange  rule),  the Company shall
       obtain shareholder approval of amendments to the Plan as required.

   (b) Without shareholder consent and without regard to whether any participant
       rights may be considered to have been "adversely affected," the Board (or
       the Compensation Committee) shall be entitled to change the Participation
       Periods,  limit the frequency and/or  number of changes  permitted in the
       amount  withheld  during a Participation  Period,  establish the exchange
       ratio  applicable  to  amounts withheld  in a  currency  other than U. S.
       Dollars,  permit payroll  withholding in excess of the  amount designated
       by  a  participant in  order to  adjust for  delays  or mistakes  in  the
       Company's  processing of properly completed withholding elections, estab-
       lish reasonable waiting and adjustment periods and/or accounting and cre-
       diting  procedures to ensure that amounts applied  toward the purchase of
       Common Stock for each participant properly correspond to amounts withheld
       from the participant's Compensation, and establish such other limitations
       and procedures that the Board or the Compensation Committee determines in
       its sole discretion advisable and that are consistent with the Plan.

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

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

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

     (iii) Allocating shares.

     Such modifications or amendments shall not require shareholder approval or
     the consent of any Plan participants.

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

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

22. Term of Plan.  The Plan shall become effective on the date the  shareholders
    of  the Company  first approve the Plan.  It shall  continue in effect for a
    term of 10 years unless sooner terminated under Section 19 hereof.