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, INC.
                (Name of Registrant as Specified In Its Charter)

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


Payment of Filing Fee (Check the appropriate box):

|X|   No fee required.
| |   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
      1)   Title of each class of securities to which transaction applies:
      2)   Aggregate number of securities to which transaction applies:
      3)   Per unit  price or other  underlying  value of  transaction  computed
           pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
           filing fee is calculated and state how it was determined):
      4)   Proposed maximum aggregate value of transaction:
      5)   Total fee paid:
| |   Fee paid previously with preliminary materials.
| |   Check box if any part of the fee is offset as  provided  by  Exchange  Act
      Rule  0-11(a)(2)  and identify the filing for which the offsetting fee was
      paid  previously.  Identify the previous filing by registration  statement
      number, or the Form or Schedule and the date of its filing.
      1)   Amount Previously Paid:
      2)   Form, Schedule or Registration Statement No.:
      3)   Filing Party:
      4)   Date Filed:



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

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


                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

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



To the Shareholders of Cree, Inc.:

     The Annual Meeting of  Shareholders  of Cree, Inc. will be held on Tuesday,
October 31, 2000, at 10:00 a.m.  local time,  at the  Company's  offices at 4425
Silicon  Drive,  Durham,  North  Carolina  27703.  The items of business  are as
follows:

     1. Election of seven directors;

     2. Approval of an  amendment to the  Articles of Incorporation to  increase
        the number of authorized shares of Common Stock;

     3. Approval of an amendment to the Equity Compensation Plan to increase the
        number of shares authorized for awards;

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

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

     These items are more fully described in the  accompanying  Proxy Statement,
which is made a part of this Notice.  The Board of Directors has fixed September
12, 2000 as the record date for the meeting.  Accordingly,  only shareholders of
record at the close of business on September  12, 2000 are entitled to notice of
and to vote at the meeting.

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

                                          By order of the Board of Directors,

                                          Adam H. Broome
                                          Secretary

   
S
eptember 27, 2000
    


<PAGE>
   
    

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

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

                                 PROXY STATEMENT

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


                 INFORMATION CONCERNING SOLICITATION AND VOTING

General

     The  enclosed   proxy  is  solicited  by  Cree,   Inc.,  a  North  Carolina
corporation,  for use at the Annual  Meeting of  Shareholders  of the Company on
October 31, 2000, at 10:00 a.m. local time, and any  adjournments  thereof.  The
meeting will be held at offices of the Company  located at 4425  Silicon  Drive,
Durham,  North  Carolina,  for the  purposes  set forth in the  Notice of Annual
Meeting of  Shareholders.  The  meeting  location  is across the street from the
Company's principal executive offices,  which are located at 4600 Silicon Drive,
Durham,  North Carolina.  The main telephone  number at the Company's  principal
executive offices is (919) 313-5300.

   
     This Proxy  Statement  and the enclosed  proxy are being first mailed on or
about September 27, 2000 to shareholders entitled to vote at the Annual Meeting.
The Company's  Annual Report to Shareholders  for the fiscal year ended June 25,
2000,  including financial  statements,  accompanies this Proxy Statement but is
not part of the proxy solicitation materials.
    

Record Date and Quorum

   
     Shareholders  of record at the close of business on September  12, 2000 are
entitled to notice of and to vote at the Annual Meeting.  As of the record date,
there were 35,492,066  shares of Common Stock of the Company  outstanding.  Each
share of Common Stock  outstanding on the record date is entitled to one vote on
each matter presented for action at the meeting. Shares of Common Stock were the
only voting  securities of the Company  outstanding on the record date. A quorum
will be  present at the  Annual  Meeting  if a majority  of the shares of Common
Stock  outstanding  on the record date is present at the meeting in person or by
proxy.
    

Voting of Proxies

     The persons acting as proxies  pursuant to the enclosed proxy will vote the
shares represented as directed in the signed proxy. Unless otherwise directed in
the proxy, the proxyholders  will vote the shares  represented by the proxy: (i)
for election of the seven director nominees named in this Proxy Statement;  (ii)
for approval of the amendment to the Articles of  Incorporation  to increase the
number of authorized shares of Common Stock; (iii) for approval of the amendment
to the  Company's  Equity  Compensation  Plan to  increase  the number of shares
authorized for awards under the Plan; (iv) for  ratification of the selection of
Ernst & Young LLP as independent  auditors to audit the financial  statements of
the  Company  for  the  fiscal  year  ending  June  24,  2001;  and  (vi) in the
proxyholders'  discretion on such other  business as may come before the meeting
and any adjournments of the meeting.

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


<PAGE>
Revocability of Proxy

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

Expenses of Solicitation

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

Shareholder Proposals for 2001 Annual Meeting

     Pursuant  to  the  rules  of  the  Securities   and  Exchange   Commission,
shareholder  proposals  submitted for inclusion in the Company's proxy statement
and form of proxy for the annual  meeting to be held in 2001 must be received by
the  Company by June 1, 2001,  and must comply  with the  Commission's  rules in
other respects.

     Other  shareholder  proposals to be presented at the annual meeting in 2001
including director nominations,  must comply with the notice requirements of the
Company's  Bylaws and be  delivered  to the Company not later than  September 3,
2001,  nor earlier than August 2, 2001.  Any such  proposals  should be sent via
means that afford proof of delivery to the Secretary at the Company's  principal
executive offices.


                           PRINCIPAL SHAREHOLDERS AND

                          SHARE OWNERSHIP BY MANAGEMENT

     The following  table sets forth  information as of August 31, 2000 relating
to the  beneficial  ownership of the Company's  Common Stock by: (i) each person
believed by the Company at that date to be the beneficial  owner of more than 5%
of the outstanding  shares of Common Stock, (ii) each executive officer named in
the  Summary  Compensation  Table on page 8,  (iii)  each  person  serving  as a
director  or  nominated  for  election as a director of the Company and (iv) all
executive  officers and  directors of the Company as a group.  Unless  otherwise
noted,  each person named is believed to hold sole voting and  investment  power
with respect to the shares shown as beneficially owned by such person.

   
 
                                      Common Stock            Percentage of
Name and Address (1)              Beneficially Owned (2)  Outstanding Shares (2)
--------------------              ----------------------  ----------------------
Michael W. Haley (3)                     790,828                    2.2%
John W. Palmour, Ph.D. (4)               566,275                    1.6
Dolph W. von Arx (5)                     532,000                    1.5
F. Neal Hunter (6)                       512,452                    1.4
Calvin H. Carter, Jr., Ph.D. (7)         502,820                    1.4
Walter L. Robb, Ph.D. (8)                211,500                      *
Charles M. Swoboda (9)                   135,764                      *
James E. Dykes (10)                      130,000                      *
Cynthia B. Merrell (11)                   90,865                      *
William J. O'Meara                           -0-                      *
All directors and executive            3,498,983                    9.7%
officers as a group (9 persons)

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

(1)  Unless  otherwise  noted  the  address  is in care of the  Company  at 4600
     Silicon Drive,  Durham,  North Carolina 27703.




                                      -2-

<PAGE>
(2)  Pursuant to rules of the Commission, shares which a person has the right to
     acquire  within 60 days are deemed  outstanding  for  purposes of computing
     beneficial  ownership  and the  percentage  ownership of that  person.  All
     directors and executive officers as a group hold options, exercisable at or
     within 60 days after August 31, 2000,  to acquire an aggregate of 1,139,600
     shares of Common Stock. The percentages shown above are based on the shares
     of Common Stock outstanding on August 31, 2000.
(3)  Includes  options to purchase  9,000 shares of Common Stock.  Also includes
     47,000  shares  held by a  charitable  foundation  of which Mr.  Haley is a
     director.  Mr.  Haley holds  shared  voting and  investment  power over the
     foundation's shares but disclaims beneficial ownership of the shares.
(4)  Includes options to purchase 121,000 shares of Common Stock.  Also includes
     20,000  shares held by Dr.  Palmour's  spouse but as to which he  disclaims
     voting and investment power.
   
(5)  Includes options to purchase 179,000 shares of Common Stock.  Also includes
     10,000  shares held by a  charitable  foundation  of which Mr. von Arx is a
     director.  Mr. von Arx holds shared  voting and  investment  power over the
     foundation's shares but disclaims beneficial ownership of the shares.
    
(6)  Includes options to purchase 209,000 shares of Common Stock.
(7)  Includes options to purchase 106,000 shares of Common Stock.  Also includes
     102,815 shares held by members of Dr. Carter's  immediate  family but as to
     which he disclaims voting and investment power.
(8)  Includes options to purchase 167,000 shares of Common Stock.  Also includes
     12,500 shares  held by a  trust of which Dr. Robb is a  trustee.   Dr. Robb
     holds shared voting and investment power over the shares  held in trust but
     disclaims beneficial ownership of the shares.
(9)  Includes options to purchase 135,000 shares of Common Stock.
(10) Includes options to purchase 123,000 shares of Common Stock.
(11) Includes options to purchase 90,600 shares of Common Stock.



                     PROPOSAL NO. 1 -- ELECTION OF DIRECTORS

Nominees for the Board of Directors

   
     Five of the seven persons  nominated for election to the Board of Directors
at the Annual Meeting are currently serving as directors of the Company.  Calvin
H. Carter,  Jr. and Michael W. Haley,  who have served on the Board of Directors
since 1987 and 1989, respectively,  are not standing for re-election.  The Board
of Directors has nominated Charles M. Swoboda, the Company's President and Chief
Operating Officer,  and William O'Meara,  who has not previously been associated
with the Company, for election as directors to fill these two seats. The Company
is not aware of any  nominee  who will be unable or will  decline  to serve as a
director.  If a nominee becomes unable or declines to serve,  the enclosed proxy
may be voted for a substitute  nominee,  if any, designated by the present Board
of  Directors.  The term of office of each  person  elected as a  director  will
continue  until the later of the next annual  meeting of  shareholders  or until
such time as his  successor has been duly elected and  qualified.  Directors are
elected by a plurality  of votes cast.  Assuming the presence of a quorum at the
Annual Meeting, abstentions and non-votes,  including proxies marked to withhold
authority to vote, will have no effect on the outcome of the election.
    

     The Company's nominees for director are as follows:

   
         Name                Age   Position with the Company      Director Since
         ----                ---   -------------------------      --------------
F. Neal Hunter                38   Director, Chairman and              1987
                                   Chief Executive Officer
Charles M. Swoboda            33   President and                        N/A
                                   Chief Operating Officer
Calvin H. Carter, Jr., Ph.D.  45   Director, Executive Vice            1987
                                   President and Director of
                                   Materials Technology
John W. Palmour, Ph.D.        39   Director and Director of            1995
                                   Advanced Devices
Dolph W. von Arx              66   Director                            1991
James E. Dykes                62   Director                            1992
Walter L. Robb, Ph.D.         72   Director                            1993
William J. O'Meara            63   None                                 N/A
    

                                      -3-

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

   
     Mr.  Swoboda has served as President of the Company  since January 1999 and
as the Company's  Chief  Operating  Officer since June 1997. He served as a Vice
President of the Company from 1997 until his  appointment  as President in 1999,
as  Operations  Manager from 1996 to 1997,  as General  Manager of the Company's
former subsidiary, Real Color Displays,  Incorporated,  from 1994 to 1996 and as
LED  Product  Manager  from  1993  to  1994.  He  was  previously   employed  by
Hewlett-Packard  Company,  an electronics  company.  Mr. Swoboda received a B.S.
degree in electrical engineering from Marquette University.
    

   
     Dr. Palmour, one of the Company's founders, currently serves as Director of
Advanced  Devices,  a position he had held since 1995,  and in that  capacity is
responsible for the Company's development of microwave and power devices. He 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. Dr. Palmour received his
B.S. and Ph.D.  degrees from North  Carolina  State  University in the fields of
materials science and engineering.
    

   
     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 those  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 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,  in the field of chemical  engineering.  He is currently a Director of
Celgene Corporation, Neopath, Inc. and Mechanical Technology Incorporated.

     Mr. O'Meara retired in July 1995 as President and Chief  Executive  Officer
of C-Cube Microsystems,  Inc. ("C-Cube"),  a publicly-traded  company engaged in
designing and manufacturing  semiconductors for digital video  applications.  He
served as Vice  Chairman  of C-Cube  from  July 1995 to  February  1997 and as a
director of C-Cube from 1991 to February  1997. In addition,  Mr. O'Meara served
as President and Chief  Executive  Officer of C-Cube from September 1991 to June
1995. His previous  positions  include  Chairman,  Chief  Executive  Officer and
President of Headland  Technology,  Inc.,  an entity  affiliated  with LSI Logic
Corporation ("LSI Logic"), a semiconductor  company.  Mr. O'Meara co-founded LSI
Logic in January 1981

                                      -4-

<PAGE>
and served as its Vice President of Worldwide Sales and Marketing until founding
Headland Technology. Mr. O'Meara holds a B.S. in Military Sciences from the U.S.
Military Academy in West Point, New York.
    

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

   
Other Directors and Executive Officers
    

   
     Other directors not standing for  re-election,  and executive  officers not
serving or nominated for election as directors, include the following:
    

   
     Michael W. Haley (62) has served as a Director of the  Company  since April
1989. He is currently  Chairman and Chief Executive Officer of Triton Management
Company,  a privately-held  company based in Greensboro,  North Carolina,  which
until the mid-1990's  owned and operated 60 restaurants  and has been engaged in
investment and property management since the sale of the restaurants in 1993 and
1996.  Mr. Haley  graduated from the  University of North  Carolina-Chapel  Hill
where he received a bachelor's degree in business administration.

     Calvin H. Carter, Jr. (45), one of the Company's founders,  has served as a
Director and Vice President since the Company's  inception in 1987. 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 for use in semiconductor and gemstone applications. He
previously served as Vice President of 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.
    

     Cynthia B.  Merrell  (age 39) has  served as Chief  Financial  Officer  and
Treasurer of the Company since July 1998. Ms. Merrell joined the Company in 1996
and served as Interim  Chief  Financial  Officer and  Assistant  Treasurer  from
January 1998 until July 1998 and as Controller  from November 1996 until January
1998.  From January 1992 to November 1996, she was employed as the controller of
Kaset  International,  a  subsidiary  of The Times  Mirror  Company  engaged  in
providing  training,  consulting and project management services in the field of
customer relations. Ms. Merrell's prior financial experience includes service in
various  capacities  with Tropicana  Products,  Inc. and the accounting  firm of
Arthur  Andersen  & Co.  She  received  a B.S.  degree  in  accounting  from the
University  of Florida and is licensed as a certified  public  accountant in the
state of Florida.


Compensation of Directors

     The  Company  does not pay cash  compensation  for  service on the Board of
Directors.  Directors  not employed by the Company are awarded  stock options as
compensation  for such service.  The current  non-employee  directors  were each
granted, on July 3, 2000, options to purchase 12,000 shares of Common Stock at a
price equal to the closing  market  price of the stock on the grant date;  these
options vest in equal  quarterly  increments  over a one-year period ending June
30, 2001,  subject to continued  service as a director.  Directors  who are also
employees  of the  Company  are not  separately  compensated  for service on the
Board. The Company  reimburses  directors for expenses  incurred in serving as a
director.

Board Meetings and Committees

     The Board of Directors of the Company held nine meetings  during the fiscal
year ended June 25, 2000. The Board has a standing Audit Committee, Compensation
Committee  and  Executive  Committee.  It does  not have a  standing  nominating
committee  or committee  performing  similar  functions.  During the 2000 fiscal
year,  each director  attended or participated in 75% or more of all meetings of
the Board of Directors held during the period for which he served as a director,
and each  director  attended or  participated  in 75% or more of all meetings of
Board  committees  on which he served that were held during the period he served
on the committee.

                                      -5-

<PAGE>
     The members of the Audit Committee during the 2000 fiscal year were Michael
W. Haley,  James E. Dykes and Dolph W. von Arx.  Mr. Haley served as Chairman of
the  Audit  Committee  throughout  the  fiscal  year.  The  Audit  Committee  is
authorized  by the Board of Directors to review with the  Company's  independent
auditors the annual financial statements of the Company prior to publication, to
review the work of and approve non-audit  services performed by such independent
auditors,  and to make annual  recommendations to the Board of Directors for the
appointment  of  independent  auditors for the ensuing year.  The Committee also
reviews  the   effectiveness   of  the  financial  and   accounting   functions,
organization, operations and management of the Company. The Audit Committee held
five meetings during the 2000 fiscal year.

     The members of the Compensation  Committee during the 2000 fiscal year were
James E. Dykes, Michael W. Haley, Walter L. Robb and Dolph W. von Arx. Mr. Dykes
served as Chairman of the Compensation Committee throughout the fiscal year. The
Compensation  Committee fixes the  compensation of the Company's chief executive
officer  and  reviews  and  approves  the  compensation  of all other  executive
officers.  In addition,  the Committee is responsible for  administration of the
Company's Equity Compensation Plan and, in that capacity,  reviewed and approved
proposed  grants of stock  options  during  the year.  The  Committee  generally
approves option grants by written consent in lieu of a meeting. The Compensation
Committee held four meetings during the 2000 fiscal year.

     The members of the Executive  Committee during the 2000 fiscal year were F.
Neal Hunter,  Dolph W. von Arx and James E. Dykes.  The Executive  Committee was
established to render advice and  recommendations to the Board of Directors with
regard to policies of the  Company and the conduct of its  affairs;  to consider
matters  submitted to the Committee  during  intervals  between  meetings of the
Board of Directors;  and,  subject to ratification by the full Board, to approve
contracts,  agreements  and other  material  corporate  matters.  The  Executive
Committee held no meetings during the 2000 fiscal year.

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 25, 2000,  except that Dr.  Carter  reported a
gift of 2,000 shares made during fiscal year 1999  approximately  six weeks late
and  reported  an  exercise  of  options  to  purchase  20,000  shares  and  the
same-day-sale of the shares filed approximately three weeks late.

























                                      -6-

<PAGE>
 
                         COMPARATIVE PERFORMANCE GRAPH

     The graph below compares, for the five-year period ended June 25, 2000, the
cumulative  total  return on the Common Stock of the Company at each fiscal year
end with  returns on two  indices -- a market  index  based on The Nasdaq  Stock
Market  and an  industry  index  based on  Nasdaq-traded  stocks  of  electronic
components  businesses.  The indices were prepared by the Center for Research in
Security Prices  ("CRSP") of The University of Chicago.  The market index is the
CRSP Total Returns Index for The Nasdaq Stock  Market--U.S.  Companies,  and the
industry index is the CRSP Total Returns Index for Nasdaq Electronic  Components
Stocks--U.S.  and Foreign.  The graph  assumes an investment of $100 on June 30,
1995 in the  Company's  Common  Stock,  and in each index,  and also assumes the
reinvestment of all dividends during the period shown.

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








                        [PERFORMANCE GRAPH APPEARS HERE]






   
Performance Graph Data

                     June 1995 June 1996 June 1997 June 1998 June 1999 June 2000
                     --------- --------- --------- --------- --------- ---------
Cree, Inc.       
   Common Stock         $100      $105       $85     $109       $465    $2,222
Nasdaq Market Index     $100      $128      $156     $203       $281      $423
Nasdaq Electronic       $100      $106      $174     $175       $284      $768
  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 25, 2000.


<TABLE>
                                     Summary Compensation Table
<CAPTION>
                                                                         Long Term
                                                                        Compensation
                                               Annual Compensation         Awards
                                           --------------------------   ------------
                                                                         Securities      All Other
                                   Year                                  Underlying     Compensation
  Name and Principal Position      Ended   Salary ($)    Bonus ($)(1)    Options (#)      ($)(3)
  ---------------------------      -----   -----------   ------------    ------------   ------------

<S>                                <C>     <C>           <C>             <C>            <C>
  F. Neal Hunter                   2000     $230,000       $138,000        120,000         $216
  Chairman of the Board and        1999      180,000         12,952        134,000          409
  Chief Executive Officer          1998      150,000          7,053        180,000          690

  Charles M. Swoboda               2000      210,000        100,800        120,000          192
  President and Chief Operating    1999      160,000         46,513         90,000          292
  Officer                          1998      130,000          6,282        120,000          662

  Calvin H. Carter, Jr., Ph.D.     2000      140,000         42,000         50,000          360
  Executive Vice President,        1999      125,000         14,354         66,000          428
  Director of Materials            1998      122,000          5,700         90,000          673
  Technology and Director

  Cynthia B. Merrell               2000      135,000         48,600         46,400          240
  Chief Financial Officer and      1999      110,000         27,915         90,000          224
  Treasurer (2)                    1998       87,865          3,143         28,000          485
</TABLE>


-----------------
   
(1)  Includes  bonuses  accrued  during  the fiscal year  but paid after the end
     of the year.
    
(2)  Ms.  Merrell was appointed  Chief  Financial  Officer and Treasurer in July
     1998 and served as Interim Chief Financial Officer and Assistant  Treasurer
     from January 1998 until July 1998.
(3)  Represents group term life insurance premiums paid by the Company.

Stock Option Awards

     The following  table provides  additional  information  about stock options
granted to the named  executive  officers  during the fiscal year ended June 25,
2000.

   

<TABLE>
                                      Option Grants in Last Fiscal Year

<CAPTION>
                                              Individual Grants
                         -------------------------------------------------------  Potential Realizable Value
                             No. of        % Total Options                        at Assumed Annual Rates of
                           Securities         Granted to     Exercise   Expira-    Stock Price Appreciation
                           Underlying       Employees in       Price      tion        for Option Term (3)
Name                     Options Granted   Fiscal Year (1)    ($/sh)    Date (2)       5%            10%
----                     ---------------   ---------------   --------   --------  -----------    -----------
<S>                      <C>               <C>               <C>        <C>       <C>            <C>
F. Neal Hunter (4)           120,000             6.9%        $83.9375    1/3/10   $ 6,334,541    $16,052,971
Charles M. Swoboda (5)        40,000             2.3          37.7500    7/1/09       949,631      2,406,551
Charles M. Swoboda (6)        80,000             4.6          83.9375    1/3/10     4,223,027     10,701,981
Calvin H. Carter, Jr. (7)     50,000             2.9          83.9375    1/3/10     2,639,392      6,688,738
Cynthia B. Merrell (8)        46,400             2.7          83.9375    1/3/10     2,449,356      6,207,149
</TABLE>

    
-------------------
   
(1)  Options to acquire an aggregate  of  1,727,792 shares of  Common Stock were
     granted to all  employees of the Company  during the fiscal year ended June
     25, 2000.
(2)  The options listed  in  the table  are non-qualified  stock options granted
     under the Company's  Equity  Compensation  Plan.  As non-qualified options,
     the  difference  between  the market  value  of the stock  at  the time  of
     exercise and the exercise price is  taxed  as ordinary income under current
     federal tax law.  With

                                      -8-

<PAGE>
     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. Each option becomes  exercisable to purchase
     a number of shares on the date it vests as to those  shares.  Upon a change
     in control of the Company,  as defined in the Equity Compensation Plan, the
     options  become fully vested and  exercisable  to the extent not previously
     vested and exercisable.
(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, in accordance with
     Commission  rules and are not intended to forecast  future  appreciation of
     the Common Stock.  The actual gain,  if any,  realized from exercise of the
     options may be higher or lower than amount shown.
(4)  The option  vested as to 30,000  shares on July 1, 2000. It will vest as to
     30,000 additional shares on July 1, 2001 and 60,000 shares on July 1, 2002,
     provided Mr. Hunter is employed by the Company on the vesting date.
(5)  The option  vested as to 20,000  shares on July 1, 2000. It will vest as to
     the remaining  20,000 shares on July 1, 2001,  provided Mr. Swoboda is then
     employed by the Company.
(6)  The option  vested as to 15,000  shares on July 1, 2000. It will vest as to
     15,000 additional shares on July 1, 2001 and 50,000 shares on July 1, 2002,
     provided Mr. Swoboda is employed by the Company on the vesting date.
(7)  The option  vested as to 10,000  shares on July 1, 2000. It will vest as to
     10,000 additional shares on July 1, 2001 and 30,000 shares on July 1, 2002,
     provided Dr. Carter is employed by the Company on the vesting date.
(8)  The option  vested as to 8,800  shares on July 1, 2000.  It will vest as to
     8,800 additional  shares on July 1, 2001 and 28,800 shares on July 1, 2002,
     provided Ms. Merrell is employed by the Company on the vesting date.
    

Stock Option Exercises

     The following table provides  information  about stock options exercised by
the named executive officers during the fiscal year ended June 25, 2000.


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

                                                       Number of Securities         Value of Unexercised
                          Shares                      Underlying Unexercised        In-the-Money Options
                       Acquired on      Value         Options at FY-End (#)               FY-End ($)
Name                     Exercise    Realized (1)   Exercisable/Unexercisable   Exercisable/Unexercisable (2)
----                   -----------   ------------   -------------------------   -----------------------------
<S>                    <C>           <C>            <C>                         <C>
F. Neal Hunter           115,000     $ 7,453,673        119,000 / 240,000         $18,192,069 /$27,292,500
Charles M. Swoboda        50,000       3,070,715        100,000 / 200,000          15,289,452 / 23,065,000
Calvin H. Carter, Jr.     50,000       5,254,967         66,000 / 110,000          10,091,718 / 12,890,625
Cynthia B. Merrell         4,800         577,500         53,200 / 114,400           8,032,900 / 13,834,600

</TABLE>

-------------------
(1)   Represents  the market  value of shares  acquired  at the date of exercise
      less the exercise price paid to the Company, without adjustment for income
      or other taxes payable upon  exercise.  All of the options  exercised were
      non-qualified  options and the value  realized  upon  exercise  taxable as
      ordinary income.
(2)   The  value of the  Common  Stock at fiscal  year end on June 25,  2000 was
      $159.50  per  share  based on the  last  sale  price  on June 23,  2000 as
      reported by The Nasdaq Stock Market.  The option values were determined by
      subtracting the aggregate  exercise price of the options from the value of
      the Common Stock issuable upon exercise.

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

                                      -9-

<PAGE>
under  the  plan.  In the case of  option  grants  to  directors  and  executive
officers,  the Committee  may  recommend  such grants for approval with the full
Board serving as the committee for purposes of the plan.  The policies  followed
by the Committee with respect to compensation  of executive  officers during the
2000 fiscal year, and the bases for Mr. Hunter's fiscal 2000  compensation,  are
discussed below.

     Compensation Philosophies

     The  Compensation  Committee  seeks to adhere to practices that will enable
the Company to attract and retain qualified  executives,  align the interests of
executives  with the  long-term  interests  of the  Company's  shareholders  and
motivate  executives to achieve  targeted  objectives.  In  furtherance of these
goals,  base  salaries  are  generally  set  annually at levels  which take into
account both competitive and performance  factors.  The Company also relies to a
substantial  degree on stock  options to attract and  motivate  its  executives.
During the 2000 fiscal year,  compensation  arrangements for executive  officers
consisted of base salary,  incentive cash compensation,  stock option grants and
other benefits available to Company employees generally.

     Cash-Based Compensation

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

     As part of its review of fiscal 2000 salaries,  the Committee considered an
independent  survey  of  executive  officer  compensation  at a broad  group  of
companies in the electrical and electronics  industries.  The positions surveyed
included positions comparable to those of the Company's chief executive officer,
chief  operating  officer and chief  financial  officer.  The fiscal 2000 salary
approved for Mr.  Hunter was in the third  quartile of the salaries  reported in
the survey for comparable chief executive officer positions in firms with $60 to
$100 million in annual revenues.

     The Company's  executive  officers,  including the chief executive officer,
also participated in a management incentive compensation program approved by the
Committee  for the 2000 fiscal  year.  Under the program  each  participant  was
assigned a target award for the fiscal year,  expressed as a percentage  of base
salary,  to be paid if the Company achieved a certain  pre-established  earnings
per share  goal for the year (net of amounts  paid  pursuant  to the  plan).  No
awards  were to be paid if actual  earnings  per share were less than 93% of the
pre-established goal, and awards were to be decreased 20% if actual earnings per
share were between 93% and 100% of the goal and increased 20% if actual earnings
per share were 110% or more of the goal.  The  Company's  reported  earnings per
share for the 2000 fiscal year exceeded 110% of the year's goal,  and the awards
were increased accordingly under the plan terms. Participation in the management
incentive  compensation  program was in lieu of  participation  in the Company's
incentive  compensation  program for other employees,  in which the Company paid
quarterly  bonuses based on pre-tax  operating  profits  achieved in the quarter
subject to meeting quarterly earnings per share goals.

     Equity Incentives

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

                                      -10-

<PAGE>
     The  Compensation  Committee  takes  into  account  all  factors  it  deems
appropriate in reviewing proposed option grants to executive officers, including
the  officer's  position and level of  responsibility,  the  officer's  existing
unvested option holdings, the potential reward to the officer if the stock price
appreciates  and  the  competitiveness  of the  officer's  overall  compensation
arrangements,  including stock options. Outstanding performance by an individual
may also be taken  into  consideration.  Option  grants  are  often  made to new
executives upon  commencement  of employment and, on occasion,  to executives in
connection with a significant  change in job  responsibility.  The  Compensation
Committee relies on Mr. Hunter's  evaluations and  recommendations  in approving
option grants to other executive officers. Based on the factors described above,
during  fiscal  2000 the  Committee  recommended,  and the  Board  of  Directors
approved,  grants to  executive  officers of options to purchase an aggregate of
336,400 shares of Common Stock.

     Chief Executive Officer Compensation

     The  Compensation  Committee  followed  the  policies  described  above  in
approving Mr. Hunter's cash  compensation  for fiscal 2000 and the stock options
awarded  him  during the year,  taking  into  consideration  a number of factors
relating to corporate and individual  performance.  Of chief importance were the
success of the Company,  under Mr. Hunter's  direction,  in achieving  increased
profitability and earnings per share in recent years. Based on these factors the
Committee  approved an increase in Mr.  Hunter's  fiscal 2000 salary to $230,000
from his prior  year's  salary of  $180,000.  In  addition,  Mr.  Hunter  earned
$138,000  in  incentive  compensation  during  the 2000  fiscal  year  under the
management incentive compensation program described above.

     Mr.  Hunter also  received an option to purchase  120,000  shares of Common
Stock at $83.9375 per share,  which was the closing market price on the date the
option was granted.  The option vested as to 30,000 shares in July 2000, and the
remainder  vests  over the next two years in  annual  increments  of 30,000  and
60,000 shares,  respectively,  subject to continued employment at the applicable
vesting date.

                                        THE COMPENSATION COMMITTEE

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

Compensation Committee Interlocks and Insider Participation

     None of the members of the  Compensation  Committee  during the 2000 fiscal
year has ever served as an officer or employee of the Company.  No  interlocking
relationships  exist  between the Company's  Board of Directors or  Compensation
Committee  and the board of  directors  or  compensation  committee of any other
company.  Certain  members of the  Compensation  Committee  own shares of common
stock of Charles &  Colvard,  Ltd.,  a customer  of the  Company.  See  "Certain
Transactions" below.






















                                      -11-

<PAGE>

                              CERTAIN TRANSACTIONS

Supply and Related Agreements with Charles & Colvard, Ltd.

     The Company is a party to certain  agreements with Charles & Colvard,  Ltd.
(formerly C3, Inc.) ("Charles & Colvard"),  a customer of the Company engaged in
the fabrication and sale of gemstones made from silicon carbide. F. Neal Hunter,
the  Company's  Chairman and Chief  Executive  Officer,  is a brother of Jeff N.
Hunter,  who  served as  Chairman  of the Board and Chief  Executive  Officer of
Charles & Colvard until May 2000, and of C. Eric Hunter,  formerly a substantial
shareholder  of Charles & Colvard.  According to Schedule 13G reports filed with
the  Commission,  Jeff N. Hunter in August 2000  beneficially  owned 4.8% and C.
Eric Hunter in January 2000 beneficially owned 0% (74 shares) of the outstanding
shares of Charles & Colvard.  During its most recent  fiscal  year,  five of the
Company's directors (Messrs. Carter, Dykes, Palmour, Robb and von Arx) also held
Charles & Colvard shares,  representing in the aggregate  approximately  1.5% of
the shares outstanding.

     The Company  supplies  silicon  carbide to Charles & Colvard  pursuant to a
supply agreement  originally  entered into in 1995 and subsequently  amended and
restated. The agreement provides that the Company will supply silicon carbide to
Charles & Colvard on an exclusive  basis for use in the fabrication of gemstones
and that Charles & Colvard will purchase  certain of its  requirements  for such
material from the Company.  In related  development  agreements executed in 1997
and 1998, and subsequently  amended and restated,  the Company has undertaken to
develop improved  processes for  manufacturing  large volume,  colorless silicon
carbide  material for sale to Charles & Colvard.  In  addition,  the Company and
Charles & Colvard are parties to an  agreement  executed in 1996 under which the
Company has supplied certain  electronic devices to Charles & Colvard for use in
gemstone testing  equipment.  Charles & Colvard  purchased  approximately  $16.2
million in products and services from the Company under these agreements  during
the Company's fiscal year that ended June 25, 2000.

     The Company and Charles & Colvard also executed agreements in 1998 and 1999
under which Charles & Colvard agreed to purchase  equipment to be constructed by
the Company and retained by the Company for use in manufacturing silicon carbide
for sale to Charles & Colvard.  Construction  under these  agreements  was begun
during fiscal 1998 and completed in fiscal 2000,  at a total  purchase  price to
Charles & Colvard of approximately  $6.1 million,  of which  approximately  $1.4
million  was  charged in fiscal  2000.  In May 2000,  the  Company and Charles &
Colvard  executed an agreement  under which the Company  repurchased all of this
equipment for a purchase price of $5.0 million,  payable as a credit to be taken
by Charles & Colvard  against  subsequent  purchases of silicon carbide from the
Company, with any unapplied balance due June 30, 2001.

E
mployment Agreement with C. Eric Hunter

   
     C. Eric  Hunter,  a brother of the  Company's  current  Chairman  and Chief
Executive  Officer,  is employed by the Company on a part-time basis pursuant to
an employment  agreement signed in May 1999. Mr. Hunter previously served as the
Company's  President  and  Chief  Executive  Officer  from  1987 to 1994  and as
Chairman of the Company's  Board of Directors  from 1987 to 1995. He was engaged
as a consultant to the Company from 1995 until 1998.  Under the terms of the May
1999 employment agreement, the Company employs Mr. Hunter as a Senior Technology
Advisor at an annual salary of $15,000.  Pursuant to the  agreement,  Mr. Hunter
also  assigned to the  Company  ownership  of certain  patent  applications  and
patents on inventions relating to wide bandgap materials,  subject to previously
granted  license  rights,  and in  consideration  of the  assignment  and  other
benefits  the Company  granted  Mr.  Hunter a  non-qualified  option to purchase
134,400  shares of Common  Stock.  The option  was  granted  May 11,  1999 at an
exercise price equal to the closing market price on the grant date (adjusted for
stock splits) and vests in seven equal annual  increments,  subject to continued
employment on 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.
    




                                      -12-


<PAGE>
World Theatre, Inc. Investment

     In April  2000,  the  Company  purchased  shares of  common  stock of World
Theatre,  Inc., a North Carolina  corporation ("World Theatre"),  for a purchase
price of $5  million.  The  shares  represent  less than 10% of World  Theatre's
outstanding  shares and were  purchased in a private  placement  transaction  in
which World  Theatre  raised  approximately  $19 million.  The price paid by the
Company  was  the  same  as that  offered  to  other  investors  in the  private
placement.  C.  Eric  Hunter,  a brother  of the  Company's  Chairman  and Chief
Executive  Officer,  is a substantial  shareholder of World Theatre,  which is a
development stage company engaged in developing  businesses based on the concept
of providing "on-demand" access for the purchase of products and services.



                          PROPOSAL NO. 2 -- APPROVAL OF

                     AMENDMENT TO ARTICLES OF INCORPORATION
                          TO INCREASE AUTHORIZED SHARES

Proposed Amendment

     The Board of Directors on July 31, 2000  adopted  resolutions  approving an
amendment of the Company's  Articles of Incorporation to increase the authorized
shares  of  Common  Stock  from  60,000,000  shares to  100,000,000  shares  and
directing that the proposed amendment be submitted to a vote of the shareholders
at the Annual Meeting.  The Board of Directors  determined that the amendment is
i
n the best interests of the Company and unanimously  recommends approval by the
shareholders. If the amendment is approved by the shareholders, the Company will
file Articles of Amendment with the North Carolina Secretary of State reflecting
the amendment, which will become effective on the date the Articles of Amendment
are accepted for filing by the Secretary of State.

     Assuming  the  presence  of a  quorum,  approval  of the  amendment  to the
Company's Articles of Incorporation requires that the votes cast in favor of the
amendment  exceed the votes cast  opposing the  proposal.  Under North  Carolina
corporate  law,  abstentions  are treated as  non-votes in  determining  whether
shareholders  have approved a proposal.  Abstentions  and non-votes will have no
effect on the vote to approve this proposal.

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

Background and Reasons for the Proposal

   
     The Articles of  Incorporation  presently  authorize  the issuance of up to
60,000,000  shares of Common Stock and 3,000,000  shares of Preferred  Stock. No
shares of Preferred Stock are issued and outstanding.  Of the 60,000,000  shares
of Common Stock  authorized,  as of the close of business on September  12, 2000
there  were  35,492,006  shares  issued and  outstanding  and  5,372,495  shares
reserved for future  issuance.  Of the shares then reserved for future issuance,
(i) 216,840 shares were reserved for issuance pursuant to outstanding  warrants,
including  warrants  assumed by the Company in its  acquisition of Nitres,  Inc.
(now known as Cree  Lighting  Company)  in May 2000;  (ii)  144,000  shares were
reserved for issuance  pursuant to outstanding  options  granted to non-employee
directors  under the  Company's  Stock  Option Plan for  Non-Employee  Directors
(which was  terminated as to future grants in 1997);  (iii) 277,361  shares were
reserved for issuance  under the Company's  1999 Employee  Stock  Purchase Plan;
(iv) 132,543  shares were reserved for issuance  pursuant to options  assumed by
the Company in its acquisition of Nitres, Inc. in May 2000; (v) 4,492,447 shares
were reserved for issuance  pursuant to  outstanding  options  granted under the
Company's  Equity  Compensation  Plan; and (vi) 109,304 shares were reserved for
future awards under the Equity Compensation Plan.
    

   
     After deducting  outstanding and reserved shares,  of the 60,000,000 shares
of Common Stock presently authorized there are 19,135,499 authorized shares that
have not been issued and are not reserved for a specific  purpose.  The Board of
Directors  believes that it is in the Company's  best  interests to increase the
number of authorized  shares of Common Stock to make additional shares available
for issuance to meet the Company's



                                      -13-

<PAGE>
future  business  needs.  The  increase in shares not  reserved for any specific
purpose would give the Company  flexibility to meet business needs as they arise
in the future.
    

     The  Company's   management  has  no  present   arrangements,   agreements,
understandings  or plans for the  issuance  or use of the  additional  shares of
Common Stock proposed to be authorized by the amendment.  The Board of Directors
believes the  availability  of such shares will benefit the Company by providing
flexibility to issue stock for a variety of other proper  corporate  purposes as
the  Board of  Directors  may  deem  advisable  without  further  action  by the
Company's  shareholders,  except as may be required by law,  regulation or stock
exchange rule.  These purposes  could include,  among other things,  the sale of
stock to  obtain  additional  capital  funds,  the  purchase  of  property,  the
acquisition or merger into the Company of other companies, the use of additional
shares for various equity  compensation  and other employee  benefit plans,  the
declaration of stock  dividends or  distributions  and other bona fide corporate
purposes.  Were any of these  situations  to arise,  the issuance of  additional
shares of stock could have a dilutive  effect on earnings per share,  and, for a
person who does not purchase  additional  shares to maintain his or her pro rata
interest, on a shareholder's  percentage voting power in the Company. Holders of
the  Common  Stock do not have  preemptive  rights to  subscribe  to  additional
securities  that  may be  issued  by  the  Company,  which  means  that  current
shareholders do not have a prior right to purchase any new issue of stock of the
Company in order to maintain their proportionate ownership interest.

     Although an increase in the authorized shares of Common Stock could,  under
certain  circumstances,  have an anti-takeover  effect (for example, by diluting
the stock ownership of a person seeking to effect a change in the composition of
the Board of Directors  or  contemplating  a tender  offer or other  transaction
directed to the  combination of the Company with another  company),  the current
proposal to amend the Articles of Incorporation is not in response to any effort
to accumulate  the Company's  stock or to obtain control of the Company by means
of  a  merger,  tender  offer,  solicitation  in  opposition  to  management  or
otherwise.  As of the date of this Proxy  Statement,  management is not aware of
any actions  taken by any person or group to obtain  control of the Company.  In
addition,  the  proposal is not part of any plan by  management  to  recommend a
series of similar amendments to the Board of Directors and the shareholders.

     Although  the purpose of seeking an  increase  in the number of  authorized
shares of Common Stock is not intended for anti-takeover  purposes, the rules of
the Securities and Exchange  Commission  require disclosure of the provisions of
the  Articles  of  Incorporation  and the  Company's  Bylaws  that could have an
anti-takeover  effect. The Equity Compensation Plan and the laws of the State of
North Carolina  contain  additional  provisions that also may have the effect of
delaying,  deterring or  preventing  a change in control of the  Company.  These
provisions are described below.

     Articles  and Bylaws.  The  Articles of  Incorporation  and Bylaws  contain
provisions  that may have the effect of  delaying,  deterring  or  preventing  a
change in control of the  Company,  including:  (i) the  ability of the Board of
Directors under the Articles of Incorporation to authorize the issuance of up to
3,000,000  shares  of  Preferred  Stock,  in one or  more  series,  having  such
preferences,  limitations  and relative rights as are determined by the Board of
Directors;  and (ii) under the  Bylaws,  a  shareholder  who wishes to  nominate
directors at an annual or special meeting or submit a proposal for consideration
at an annual  meeting must provide notice to the Company during a certain period
before the meeting.

     Equity  Compensation  Plan. The Equity  Compensation Plan provides that, in
the  event of a change in  control  of the  Company,  options  granted  prior to
January 31,  1999,  and  options  granted  thereafter  which so provide by their
terms,  to the extent not  previously  vested and  exercisable,  shall be deemed
fully vested and exercisable  effective  immediately.  Substantially  all of the
options granted under the Equity  Compensation Plan provide for such accelerated
vesting upon a change in control of the Company.

     Shareholder  Protection  Act. The North Carolina  Business  Corporation Act
(the  "NCBCA")  includes  provisions  that  may  have the  effect  of  delaying,
deterring or  preventing  a change in control of the  Company.  Article 9 of the
NCBCA sets forth the North Carolina Shareholder Protection Act (the "Shareholder
Protection  Act"). The Shareholder  Protection Act requires the affirmative vote
of the  holders  of 95% of the  voting  shares of a  corporation,  voting as one
class, for the adoption or authorization of a business  combination (i) with any
other  entity if, as of the record date for the  determination  of  shareholders
entitled to vote on such

                                      -14-

<PAGE>
business  combination,  the other entity is the  beneficial  owner,  directly or
indirectly,  of more than 20% of the voting shares of the  corporation  and (ii)
with any affiliate of the corporation which at any time has been a 20% holder of
such voting shares. A "business combination" is defined to include any merger or
consolidation of a corporation with or into any other  corporation,  or the sale
or lease of all or any substantial part of the  corporation's  assets to, or any
payment, sale or lease to the corporation or any subsidiary thereof, in exchange
for  securities  of the  corporation  of any  assets  (except  assets  having an
aggregate fair market value of less than  $5,000,000)  of any other entity.  The
95% voting  requirement  is not  applicable if certain fair price and procedural
requirements  are  satisfied.  The  Shareholder  Protection  Act  applies to the
Company  since  the  Company  did  not,  within  90 days of  becoming  a  public
corporation,  adopt a bylaw  stating  that  the  provisions  of the  Shareholder
Protection Act do not apply to the Company.

     Control Share  Acquisition  Act. Article 9A of the NCBCA Act sets forth the
North Carolina  Control Share  Acquisition  Act (the "Control Share  Acquisition
Act"). The Control Share Acquisition Act generally  provides that any person who
acquires  beneficial  ownership of the shares of a corporation which, when added
to all other shares of the corporation  beneficially owned by the person,  would
increase  that  person's  voting power in the election of directors to an amount
equal to or greater than one-fifth, one-third or a majority of all voting power,
is not entitled to vote the shares acquired unless the right to vote such shares
is  approved  by a majority  of all the  outstanding  shares of the  corporation
entitled to vote for the election of  directors,  excluding  interested  shares.
Interested  shares  include any shares  owned by any person who has  acquired or
proposes to acquire a controlling  interest,  any officer of the corporation and
any employee of the  corporation  who is also a director.  The decision to grant
voting rights to the control  shareholder must be voted upon at the next special
or annual shareholders  meeting.  Unless otherwise provided in the corporation's
articles of incorporation or bylaws, if voting rights are granted to the control
shares and the holders of the control shares have a majority of voting power for
the election of directors,  other shareholders may have their shares redeemed by
the  corporation at their fair value  calculated as of the day prior to the date
the vote was taken to accord the control shares such voting  rights,  as long as
certain procedural requirements are satisfied. The Control Share Acquisition Act
does not apply to  acquisitions  of stock pursuant to a merger or share exchange
if effected pursuant to a written agreement to which the corporation is a party.
The  Act  applies  only  to  certain  covered   corporations   that  are  public
corporations  incorporated  in and with  substantial  ties to the State of North
Carolina  and that have not opted out of the  provisions  of the  Control  Share
Acquisition  Act. The Company has not opted out of the provisions of the Control
Share Acquisition Act.



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

General

   
     The Board of  Directors on July 31, 2000 adopted an amendment to the Equity
Compensation  Plan,  subject to approval of the  shareholders,  to increase  the
number of shares of Common  Stock that may be issued under the plan by 3,000,000
shares.  At September 12, 2000, there were options to purchase  4,492,447 shares
outstanding under the Equity Compensation Plan and 109,304 shares authorized for
future awards, for a total of 4,601,751 shares reserved for issuance pursuant to
the  plan.  Of the  shares  reserved  for  issuance  pursuant  to  options  then
outstanding,  372,000 were  reserved for grants to  non-employee  directors  and
4,120,447  were  reserved  for employee  grants.  The Equity  Compensation  Plan
provides  that the exercise  price of options  awarded  under the plan cannot be
less than the market value of the Common Stock on the grant date.
    

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

                                      -15-

<PAGE>
     Assuming the presence of a quorum,  approval of the amendment to the Equity
Compensation  Plan requires that the votes cast in favor of the amendment exceed
the votes cast  opposing the  proposal..  Under North  Carolina  corporate  law,
abstentions are treated as non-votes in determining  whether  shareholders  have
approved a proposal.  Abstentions  and non-votes will have no effect on the vote
to approve this proposal.

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


Description of Equity Compensation Plan

     The  following  description  of the  Equity  Compensation  Plan is merely a
summary of some of its terms and  provisions,  is not  intended to be a complete
description of the Equity  Compensation Plan and is qualified in its entirety by
reference to the full text of the Equity Compensation Plan.

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

     Nature and Purpose

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

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

     Administration

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

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

     Securities To Be Offered

   
     The Company has been  authorized to issue an aggregate of 6,909,900  shares
of Common Stock under the Equity  Compensation  Plan since the  inception of the
plan in 1989. Of that amount, as of September 12, 2000 there have been 2,308,149
shares issued  pursuant to exercises of previously  granted  options,  4,492,447
shares are  reserved for issuance  pursuant to  outstanding  options and 109,304
shares are available  for future  awards.  The proposed  amendment to the Equity
Compensation  Plan will increase the number of authorized  shares issuable under
the Equity Compensation Plan by 3,000,000 shares. Common Stock subject to awards
under the Equity  Compensation  Plan will be made  available from the authorized
and unissued shares of Common

                                      -16-

<PAGE>
Stock.  The last sale price of the Common  Stock on  September  12,  2000 on the
Nasdaq Stock Market was $116.50 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
employee  benefit  awards or the right or  obligation  to make future  awards in
connection with the acquisition of any other entity.

     Eligible Participants

     The Committee has the exclusive right to determine  those persons  eligible
to  participate  in the Equity  Compensation  Plan and will  select the  persons
eligible  to receive  awards.  Subject to the  foregoing,  any  employee  of the
Company, as well as any other person,  including  directors,  may participate in
the Equity  Compensation Plan if the Committee  determines such participation is
in the best  interest  of the  Company,  subject  to any  limitations  as may be
provided by applicable law or the  Committee.  As of August 31, 2000 the Company
had  approximately  746  employees  (including  part-time  employees)  and seven
directors, four of whom were not employees of the Company.

     Types of Awards

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

     Incentive Stock Options

     The Company is authorized to grant  incentive  stock options  ("ISOs") that
may be entitled to favorable  tax treatment  under Section 422 of the Code.  See
"Tax Effects of Equity Compensation Plan" below. ISOs

                                      -17-

<PAGE>
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 may not exceed  $100,000.
To the extent the aggregate fair market value of the shares of Common Stock with
respect to which ISOs are first  exercisable  in a calendar  year by an eligible
participant exceeds $100,000, such options will be treated as nonqualified stock
options.  The aggregate fair market value of the Common Stock for these purposes
is determined as of the date the ISO is granted.

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

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

     Nonqualified Stock Options

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

     An NQSO under the Equity  Compensation  Plan will be exercisable in full or
in part from time to time as specified by the Committee or in the  corresponding
award agreement.  Upon termination of employment of the optionee,  the NQSO will
lapse and cease to be  exercisable  upon, or within such period  following,  the
termination  of  employment  as determined by the Committee and specified in the
award  agreement.  The period of time during  which the NQSO may be  exercisable
following termination of employment cannot exceed three months except in certain
circumstances.  If the  termination  of  employment  is as a result  of death or
disability,  such  period  may not  exceed  one year  after the date of death or
disability.  If death occurs following  termination of employment while the NQSO
remains exercisable, such period may not exceed one

                                      -18-

<PAGE>
year after the date of death.  In no event will such period  extend the original
exercise period of the NQSO. An NQSO also may be subject to such other terms and
conditions, not inconsistent with the Equity Compensation Plan, as determined by
the Committee.

     Incidents of Stock Options

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

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

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

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

     To the extent a participant may be required to pay the Company amounts with
respect to income and employment tax withholding in connection with the exercise
of NQSOs and/or with respect to certain  dispositions  of Common Stock  acquired
upon exercise of ISOs, the  Committee,  in its sole  discretion,  may permit the
participant to satisfy the  obligation by making an irrevocable  election that a
portion of the total fair market value of the applicable  shares of Common Stock
be applied to the satisfaction of the withholding obligations.

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

     Effects of Change in Control

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

     A "change in  control"  will be deemed to have  occurred if (a) any person,
including a group,  but not the Company or any  subsidiary  or employee  benefit
plan thereof, who together with its affiliates and associates

                                      -19-

<PAGE>
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
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

                                      -20-

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

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

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

     Nonqualified Stock Options

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

                                      -21-

<PAGE>
withhold  tax  on  the  amount  of  income  realized  by  the  optionee  in  the
transaction.  The Company will be entitled to a deduction for federal income tax
purposes in the year the  optionee  must report the income in an amount equal to
the  ordinary  income  realized  by the  optionee as a result of exercise of his
NQSO.

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



                        PROPOSAL NO. 4 -- RATIFICATION OF
                        SELECTION OF INDEPENDENT AUDITORS

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

     The  Company  engaged  Ernst & Young LLP as its new  principal  independent
auditors on September 21, 1998. PricewaterhouseCoopers LLP, the Company's former
principal   independent   accountants,   reported  on  the  Company's  financial
statements for the fiscal year ended June 28, 1998.  The Audit  Committee of the
Board of Directors  recommended the change of accountants to the Board,  and the
Board approved the recommendation. Representatives of PricewaterhouseCoopers LLP
are not expected to be present at the Annual Meeting.

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

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

     Ratification  of the selection of Ernst & Young LLP requires that the votes
cast in favor of ratification exceed the votes cast opposing the proposal. Under
North  Carolina   corporate  law,   abstentions  are  treated  as  non-votes  in
determining  whether  shareholders  have  approved a proposal.  Abstentions  and
non-votes will have no effect on the vote to approve this proposal.

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


                                      -22-

<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
25, 2000 will be furnished  without charge to any person  solicited  hereby upon
written  request  directed to:  Investor  Relations  Manager,  Cree,  Inc., 4600
Silicon Drive, Durham, North Carolina 27703.

   
Dated:  September 27, 2000
    















































                                      -23-

<PAGE>
                                   CREE, INC.
                    PROXY SOLICITED BY THE BOARD OF DIRECTORS
                   FOR THE 2000 ANNUAL MEETING OF SHAREHOLDERS

   
The undersigned  hereby  appoints F. Neal Hunter and Calvin H. Carter,  Jr., and
each of them individually,  as proxies and attorneys-in-fact of the undersigned,
with full power of  substitution,  to represent the  undersigned and to vote, in
accordance  with the  directions  in this  proxy,  all of the shares of stock of
Cree,  Inc.  which the  undersigned is entitled to vote at the Annual Meeting of
Shareholders  of Cree, Inc. to be held at the offices of the corporation at 4425
Silicon Drive,  Durham, North Carolina,  on Tuesday,  October 31, 2000, at 10:00
a.m. local time, and at any and all adjournments thereof.
    

   
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  27,  2000,   RECEIPT  OF  WHICH  IS  HEREBY
ACKNOWLEDGED.
    

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



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

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

                             FOR         WITHHOLD
                             all         AUTHORITY
                           nominees       to vote
                           listed at      for all
                         right (except    nominees
                          as marked      listed at
                            below)         right

   
1. Election of Directors     [ ]            [ ]     Nominees:
                                                    F. Neal Hunter
                                                    Charles M. Swoboda
                                                    John W. Palmour, Ph.D.
                                                    Dolph W. von Arx
                                                    James E. Dykes
                                                    Walter L. Robb, Ph.D.
                                                    William J. O'Meara
    


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

                                                      FOR      AGAINST   ABSTAIN
   
2.   Approval of proposed amendment of the            [ ]        [ ]       [ ]
     Articles of Incorporation to increase
     the authorized shares of Common Stock
    
3.   Approval of proposed amendment to the Equity     [ ]        [ ]       [ ]
     Compensation Plan to increase shares
     authorized for issuance under the Plan

4.   Ratification of the selection of Ernst &         [ ]        [ ]       [ ]
     Young  LLP as auditors for the fiscal year
     ending June 24, 2001


Any proxy heretofore given by the undersigned is hereby revoked.

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

Signature:                                              Date
          ---------------------------------------------      -------------------

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

<PAGE>

                                                                      APPENDIX A

                                   CREE, INC.
                            EQUITY COMPENSATION PLAN

     (As amended and restated July 31, 2000 subject to shareholder approval)

                         ARTICLE I - GENERAL PROVISIONS

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

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

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

                           ARTICLE II - DEFINITIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2.16 "Option Grant Date" means, as to any Stock Option, the latest of:

      (a)   the date on which the  Committee  takes  action to grant the Stock
            Option to the Participant;

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

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

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

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

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

2.20  "Stock" means shares of the Common Stock  of Cree, Inc., par value  $0.025
      per share, as may be adjusted pursuant to the provisions of Section 3.10.

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

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

                         ARTICLE III - ADMINISTRATION

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

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

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

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

<PAGE>
   
3.5   The number of shares of Stock which are available for Award under the Plan
      shall be Nine Million Nine Hundred Nine Thousand Nine Hundred (9,909,900).
      Such shares of Stock shall be made available from authorized and  unissued
      shares.  If, for any  reason,  any  shares of Stock  awarded or subject to
      purchase under the Plan are not delivered or purchased,  or are reacquired
      by the Company, for reasons including,  but not limited to, a termination,
      expiration or cancellation  of a Stock Option,  such shares of Stock shall
      not be charged  against the aggregate  number of shares of Stock available
      for Awards under the Plan,  and may again be available for Award under the
      Plan.
    

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                     ARTICLE IV - INCENTIVE STOCK OPTIONS

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

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

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

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

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

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

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

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

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

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

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

                    ARTICLE V - NONQUALIFIED STOCK OPTIONS

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

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

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

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

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

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

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

                   ARTICLE VI - INCIDENTS OF STOCK OPTIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                       ARTICLE VII - CHANGE IN CONTROL

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

     (a)  Any  "Person"  as defined in Section  3(a)(9) of the Act,  including a
          "group" (as that term is used in Sections 13(d)(3) and 14(d)(2) of the
          Act),  but  excluding  the  Company (as defined in Section 2.8 of this
          Plan) and any employee  benefit plan  sponsored or  maintained  by the
          Company  (including  any trustee of such plan acting as trustee),  who
          together with its  "affiliates"  and  "associates" (as those terms are
          defined in Rule 12b-2 under the Act)  becomes the  "Beneficial  Owner"
          (within the meaning of Rule 13d-3 under the Act) of 20% or more of the
          then-outstanding  shares of Stock or the combined  voting power of the
          then-outstanding  securities of the Company entitled to vote generally
          in the  election of its  directors.  For purposes of  calculating  the
          number  of  shares  or  voting  power  held  by  such  Person  and its
          affiliates and associates  under this Section  7.1(a),  there shall be
          excluded any  securities  acquired by such Person or its affiliates or
          associates directly from the Company.

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

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

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

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

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

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

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

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

                   ARTICLE VIII - AMENDMENT AND TERMINATION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                    ARTICLE IX - MISCELLANEOUS PROVISIONS

9.1   Nothing in the Plan or any Award granted  hereunder  shall confer upon any
      Participant  any right to  continue  in the employ of the  Company,  or to
      serve as a director thereof, or interfere in any way with the right of the
      Company  to  terminate  his  or  her   employment  at  any  time.   Unless
      specifically provided otherwise,  no Award granted under the Plan shall be
      deemed salary or compensation for the purpose of computing  benefits under
      any  employee  benefit  plan or other  arrangement  of the Company for the

<PAGE>
      benefit of its employees unless the Company shall determine otherwise.  No
      Participant  shall have any claim to an Award until it is actually granted
      under the Plan. To the extent that any person  acquires a right to receive
      payments  from the Company  under the Plan,  such right  shall,  except as
      otherwise  provided by the  Committee,  be no greater than the right of an
      unsecured  general  creditor  of the  Company.  All  payments  to be  made
      hereunder  shall be paid from the  general  funds of the  company,  and no
      special or separate fund shall be established and no segregation of assets
      shall be made to assure  payment  of such  amounts,  except  as  otherwise
      provided by the Committee.

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

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

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

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

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

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

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

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