10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 29, 2003

CREE, INC.

(Exact name of registrant as specified in its charter)

North Carolina	0-21154	56-1572719
(State or Other Jurisdiction of Incorporation)	(Commission File No.)	(I.R.S. Employer Identification Number)

4600 Silicon Drive, Durham, North Carolina 27703

(Address of principal executive offices)

(919) 313-5300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.00125 par value

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the  Act). Yes x No ¨

The aggregate market value of common stock held by non-affiliates of the registrant as of December 29, 2002 was approximately $1,059,059,406 (based on the closing sale price of $17.13 per share).

The number of shares of the registrant’s Common Stock, $0.00125 par value per share, outstanding as of September 5, 2003 was 74,203,109.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held October 28, 2003 are incorporated by reference into Part III.

CREE, INC.

FORM 10-K

For the Fiscal Year Ended June 29, 2003

INDEX

		Page
Part I
Item 1.	Business	3
Item 2.	Properties	22
Item 3.	Legal Proceedings	23
Item 4.	Submission of Matters to a Vote of Security Holders	24
Part II
Item 5.	Market for Registrant’s Common Equity and Related Shareholder Matters	25
Item 6.	Selected Financial Data	25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	46
Item 8.	Financial Statements and Supplementary Data	47
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	82
Item 9A.	Controls and Procedures	82
Part III
Item 10.	Directors and Executive Officers of the Registrant	83
Item 11.	Executive Compensation	83
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	83
Item 13.	Certain Relationships and Related Transactions	85
Item 14.	Principal Accounting Fees and Services	85
Part IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	86
SIGNATURES		90

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PART I

Item 1.    Business

Introduction

Cree, Inc., a North Carolina Corporation established in 1987, develops and manufactures semiconductor materials and devices based on silicon carbide (SiC), group III nitrides (GaN), silicon, and related compounds. Our SiC and GaN materials technology is the basis for many of the core devices that we develop and produce. The physical and electronic properties of SiC and GaN, such as higher voltage and higher thermal conductivity, offer technical advantages over traditional silicon, gallium arsenide (GaAs), sapphire and other materials for certain electronic applications. We focus our expertise in SiC and GaN materials on four product areas: short wavelength light emitting diodes (LEDs), including blue, green and near ultraviolet (UV) products, power switching products, radio frequency (RF) and microwave devices, and near UV lasers. We have products commercially available in each of these categories except for near UV lasers. We also manufacture silicon RF transistors and modules.

As of the end of fiscal 2003, we derive the majority of our revenues from sales of our LED products. We also generate revenue from sales of SiC wafers and gemstone materials, and we earn revenue under government contracts that support certain of our research and development programs to the extent the contract funding exceeds our cost of performing those activities. In addition, we derive a small portion of revenues from our sales of devices for wireless infrastructure and power switching applications. We currently are working to develop near UV lasers that are targeted for future optical storage markets.

Most semiconductor devices are fabricated on wafers made from silicon crystals. Silicon evolved as the dominant semiconductor material because it is relatively easy to grow into large, high quality single crystals that are suitable for fabricating many types of electronic devices. Alternative semiconductors such as GaAs were developed to enable the fabrication of improved RF devices and optoelectronic products such as red LEDs and lasers. Wide bandgap semiconductors, such as SiC and GaN, have emerged to provide improved capabilities for solid state devices. SiC is most commonly targeted for power and RF devices, while GaN is generally targeted for optoelectronic applications such as blue, green or UV LEDs and near UV lasers, as well as higher frequency microwave devices.

We operate our business in two segments, the Cree segment, which consists of our SiC-based products and research contracts, and the Cree Microwave segment, which includes silicon-based RF transistors and RF transistor modules. Our Cree Microwave segment began operations with the December 2000 acquisition of the UltraRF business from Spectrian Corporation (Spectrian). The UltraRF acquisition was accounted for under the purchase method. We renamed the UltraRF business Cree Microwave during fiscal 2002. Additionally, our Cree segment acquired Nitres, Inc (Nitres) in May 2000 in a business combination accounted for as a pooling of interests. Our Cree segment products are manufactured in Durham, North Carolina in a six-part process, which include: SiC crystal growth, wafering, polishing, epitaxial deposition, fabrication and testing. Our Cree Microwave products are produced in Sunnyvale, California at our silicon wafer fabrication facility, where we buy silicon wafers from third parties, fabricate devices in a clean room environment and test/package finished products. Subcontractors located domestically and in foreign countries also package some of our products.

Products and Products under Development

Cree Segment:

The Cree segment produces blue, green and UV LEDs, SiC wafers, materials used for gemstone applications and RF and microwave transistors and power devices using our SiC and GaN materials. In addition, we currently are developing near UV laser devices in this segment.

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Blue, Green and UV LEDs

Our LED products include blue, green and UV devices made from GaN and related materials grown on SiC substrates. LEDs are solid-state electronic components used in applications such as indicator lights on consumer products, including stereos, printers, computers and other equipment. LEDs also are used to backlight handheld devices and automotive dashboards and groups of LEDs can make up single or full-color electronic displays. LEDs offer several advantages over small incandescent bulbs, including longer life, lower maintenance cost and energy consumption, and smaller space requirements. We currently sell our LEDs in chip form to customers who package them in a variety of applications. LEDs represented 75%, 58% and 65% of our revenue for the fiscal years ended June 29, 2003, June 30, 2002 and June 24, 2001, respectively.

Most manufacturers of nitride-based LEDs currently use sapphire substrates because historically SiC was perceived by the market to be more expensive than sapphire because of the external cost of the substrate. Sapphire devices have also traditionally offered a lower forward voltage than SiC based devices, which may extend battery lifetimes in handheld applications. We have continued to evolve our SiC-based products to offer lower forward voltage for our devices and believe that our current SiC-based devices are very competitive with sapphire-based devices. The conductive properties of SiC substrates also enable us to fabricate a less complex chip that is smaller than comparable LEDs grown on competing sapphire substrates. This feature allows SiC-based devices to have a greater number of potential chips per wafer, which can result in a lower cost for SiC-based devices compared to sapphire-based devices. Our LEDs offer other potential benefits such as an industry standard vertical chip structure and improved resistance to electrostatic discharge. We have continued to evolve our LED product line over time by offering higher performance devices and reducing the cost of our older products. As a result, we have developed and released several generations of GaN-based LED products that cover a broad spectrum of applications.

Our LEDs currently are available in three brightness ranges, which we refer to as: standard brightness, mid-brightness and our highest brightness range which comprises our XBright^® family of products. Our standard brightness LED products, offered in blue wavelengths only, target applications requiring high quality and high volume availability at a lower price point. End customers use this product for applications where higher brightness is not a significant factor, such as for indoor applications, automotive designs or as indicator lights. In fiscal 2003, these products comprised 10% of our LED revenues.

Our mid-brightness range includes our MegaBright^®, UltraBright^™ and SuperBright^™ LEDs. Our mid-brightness LEDs provide an option for applications where a higher level of brightness is required than our standard brightness LEDs. End user applications include the backlight source for mobile appliances, which includes mobile phones, personal digital assistants (PDA’s), digital cameras and other small hand-held devices, and automotive dashboards. Our customers also use mid-brightness LEDs in gaming displays, consumer products, office equipment, full color video displays, and as the green light in traffic signals. In the fourth quarter of fiscal 2003, we released our MegaBright Plus^™ LED for customer products that require a higher amount of brightness available in the price range for MegaBright LED products. Our mid-brightness LEDs are offered in blue, traffic green, true green and UV wavelengths. In fiscal 2003, this category of product comprised 87% of our LED revenue.

Our first XBright LED products originally were introduced in fiscal 2002, and our customers have recently begun to incorporate them into their products. The XBright LEDs are strategically important to our business because the chips deliver increased brightness by approximately 40 percent over the MegaBright family of LEDs. Target applications for XBright LEDs include mobile appliances, miniature white lights, traffic signals and video screens. In the fourth quarter of fiscal 2003, we released our XBright Plus^™ LED for customer products that require the maximum amount of brightness available to the marketplace. XBright Plus LEDs are only available in blue and are targeted primarily for white LED applications. We are in the process of expanding our product family of XBright LEDs to include blue, traffic green, true green and UV wavelengths. In fiscal 2003, this category of LEDs comprised 3% of our LED revenue.

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Some of our customers use our mid-brightness LEDs to create white light from blue LEDs by combining them with phosphors. We believe that one of the most significant opportunities over the next twelve months to grow revenue is to gain market share in the white LED market. In particular, as mobile appliance manufacturers move towards offering a greater percentage of their products featuring full color displays, we anticipate that white LEDs will be used in more of these products, including mobile phones and other handheld devices. We began offering our MegaBright Plus and XBright Plus LEDs to address this important market. Over the next twelve months our focus is to target our development efforts toward creating thinner chips while lowering the forward voltage of our LEDs to better serve the needs of the mobile appliance market. We believe that a lower forward voltage is desired to enable handheld products to have longer battery lifetimes. We also are developing LEDs with higher brightness with the goal of improving efficiency so that our LEDs can compete with incandescent and fluorescent lighting technology for conventional lighting markets in the future. In order to compete in these markets, the performance that our LEDs can achieve will need to increase significantly over what is currently available. Within the next few years, we do not anticipate that our LEDs will be available in a cost competitive product that will compete with conventional lighting markets. However, our LEDs may be used today to enable initial illumination applications such as colored light replacements for neon tubes.

We also continue development efforts with our XBright 900 Power Chip^™ LED. The XBright 900 Power Chip is about ten times larger than industry standard size (300 x 300 microns) LEDs and is the first large area version of our XBright chip technology. Once development is complete, these chips are expected to deliver approximately 10 times the light output due to operation at a much higher input power than our standard XBright chips, and could be used in a new range of lighting applications. These chips will require our customers to develop new packages to support these higher-powered chips. The targeted application for these chips is the solid state illumination market.

SiC Materials Products

Our SiC materials products consist of SiC wafers and bulk materials used for gemstone applications.

SiC Wafers.    We manufacture SiC wafers for sale to corporate customers who use the wafers in manufacturing products for optoelectronic and power device applications. Corporate, government and university programs also buy SiC wafers for research and development directed to optoelectronic, microwave and high power devices. We may sell our SiC wafers as a bare wafer or a customized wafer with additional epitaxial films of SiC or GaN materials, depending upon the nature of a customer’s needs. We currently sell both two-inch and three-inch wafers with the majority of sales as two-inch. Wafer products represented 9%, 11% and 11% of our revenue for the fiscal years ended June 29, 2003, June 30, 2002 and June 24, 2001, respectively.

In October 1999, we introduced our first three-inch wafer and we have continued to expand our product line of three-inch wafers, which are better suited for the manufacture of power and microwave devices. We use our internal sales staff and distributors to market SiC wafers directly to our customers. Over the past five years, we have continued to develop SiC wafers that are larger and have fewer defects to further improve the quality of our materials and lower the cost of devices made from our SiC wafers.

Bulk Materials Used for Gemstones.    We manufacture SiC crystals in near colorless form for use in gemstone applications. Single crystalline SiC has characteristics that are similar to diamond, including properties relating to color, hardness and brilliance. We sell SiC in bulk crystal form to Charles & Colvard, Ltd. (C&C), which produces and markets gemstone products made from SiC crystals. We sell our SiC materials used in gemstone applications exclusively to C&C. SiC materials sold for gemstone applications represented 3%, 2% and 3% of our revenue for the fiscal years ended June 29, 2003, June 30, 2002 and June 24, 2001, respectively.

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SiC-based Power Devices

SiC-based power devices can operate at significantly higher breakdown voltages than silicon-based power devices and provide faster switching speeds than comparable silicon-based power devices at similar breakdown voltages. These attributes create lower switching losses, which yield power savings due to higher efficiency that enable smaller, more efficient systems.

Our SiC-based power products are 600-volt Schottky diodes offered at 1, 4, 6, 10 and 20-amp ratings for applications such as power supplies used in computer servers. We also offer 1200-volt Schottky diodes at 5 and 10-amp ratings targeted for motor control applications. We are marketing these products to manufacturers of power conditioning and power switching equipment as potential replacements for silicon-based power devices in certain applications. SiC-based power devices represented less than 1% of revenue for each of the fiscal years ended June 29, 2003 and June 30, 2002.

We are developing additional prototype SiC-based power devices that could have many potential uses such as power conditioning and power switching applications. We are developing other types of SiC-based power devices, including PIN diodes and power MOSFETs, however, these devices are still at least several years away from being commercially available.

RF and Microwave Transistors

RF and microwave devices made from SiC can operate at higher voltages which allows for higher power densities as compared to silicon or GaAs based devices. Additionally, this characteristic allows SiC-based devices to be significantly smaller while carrying the same or greater power levels than silicon-based or GaAs-based devices. Currently, there is a higher cost associated with SiC than silicon or GaAs-based devices for RF and microwave transistors.

We currently offer a 10-watt transistor product, or MESFET product, made from SiC to our customers. During fiscal 2003, we introduced our second generation SiC MESFET process and introduced an improved 10-watt product with higher gain based on this new design. Additionally, we introduced the world’s first foundry service for wide bandgap monolithic microwave integrated circuits (MMIC). These SiC-based RF circuits can be used in a variety of wide bandwidth communications applications, high-powered radar amplifiers, electronic warfare, and wireless infrastructure. The MMIC foundry service allows a customer to design their own custom SiC RF circuit to be fabricated in our MMIC foundry, or have us provide custom MMIC design for the customer and fabricate the chips. We intend to focus future development efforts in this area on creating higher power SiC MESFETs and GaN RF devices. SiC MESFET and MMIC devices represented less than 1% of revenue for each of the fiscal years ended June 29, 2003, June 30, 2002 and June 24, 2001.

Near-UV Laser Diodes

We have demonstrated near UV lasers (sometimes referred to as blue lasers) that operate at power levels ranging from 3 milliwatts to greater than 30 milliwatts. Our development activity continues to focus on developing more reliable and higher performance devices. We target our first 30-milliwatt product to be released for customer sampling during calendar 2004. The primary target market for our lasers is optical disk drives for next generation digital versatile disk (DVD) and computer data storage applications. The shorter wavelength of near UV\blue lasers enables significantly higher storage capacity than the current generation of optical drives which employ red lasers. At this point, numerous standards are being proposed for the next generation of DVDs including Blu-ray and Advanced Optical Disk (AOD). Even if a commercially viable blue laser product were available in mass production, the new systems and standards are still in the development stage such that high volume component usage is forecasted to be a few years away.

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Cree Microwave Segment:

Our Cree Microwave segment produces bipolar and laterally diffused metal oxide semiconductor (LDMOS) devices made from silicon substrates. These products enable us to offer our customers an array of power transistors designed to meet a broad spectrum of the current and potential wireless infrastructure markets. These products represent the main semiconductor content of a power amplifier, which is used in a base station to boost the power of a signal so that it can reach a wireless phone or other device within a designated geography. Cree Microwave’s RF products represented 1%, 16% and 11% of our revenue for the fiscal years ended June 29, 2003, June 30, 2002 and June 24, 2001, respectively.

Prior to fiscal 2003, sales to Spectrian, represented 99% of Cree Microwave’s revenue. In November 2002, we entered into an agreement with Spectrian to terminate our supply contract. During fiscal 2003 we developed a new LDMOS device that is intended as a second source for parts currently available from one of our competitors. We continue to work to enhance the capabilities of our silicon-based LDMOS product family with module designs that combine our chips with additional circuit components to provide convenient building blocks for power amplifier manufacturers. We have recently introduced LDMOS products to the military and avionics markets and aim to expand these offerings during fiscal 2004.

Financial Information about Segments and Geographic Areas of Customers and Assets

For financial information about business segments and geographical areas of customers, please see Note 2, “Summary of Significant Accounting Policies and Other Matters” to our consolidated financial statements included in Item 8 of this report. All of our long-lived tangible assets currently are maintained in the United States.

Government Contract Funding

We derive a portion of our revenue from funding that we receive pursuant to research contracts with various agencies of the U.S. Government. We had 19, 18 and 13 government contracts in effect during the fiscal years ended June 29, 2003, June 30, 2002 and June 24, 2001, respectively.

These contracts typically cover work performed over several months up to four years. These contracts may be modified or terminated at the convenience of the government and typically are subject to appropriation and allocation of the required funding on an annual basis. The revenue that we recognize pursuant to these contracts represents reimbursement by various U.S. Government entities that aid in the development of new technology. The applicable contracts generally provide that we may elect to retain ownership of inventions made in performing the work, subject to a non-exclusive license retained by the U.S. Government to use the inventions for government purposes.

Contract funding may be based on either a cost-plus or a cost-share arrangement. The amount of funding under each contract is determined based on cost estimates that include direct costs, plus an allocation for research and development expenses, general and administrative expenses and cost of capital expenses. The specific reimbursement provisions of the contracts, including the portion of our general and administrative expenses and other operating expenses that are reimbursed, vary by contract. Cost-plus funding is determined based on actual costs plus a set percentage margin. For the cost-share contracts, based on the terms of the contract, the actual costs relating to activities we are to perform under the contract, are divided between the U.S. Government and us. The U.S. Government’s cost share is then paid to us. The contracts typically require the submission of a written report that documents the results of the research, as well as some material deliverables.

The revenue and expense classification for contract activities is based on the nature of the contract. For contracts where we anticipate that the U.S. Government funding will exceed our direct costs relating to the

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program over the life of the contract, funding is reported as contract revenue and all direct costs are reported as costs of contract revenue. For contracts under which we anticipate that direct costs of the activities subject to the contract will exceed amounts to be funded over the life of the contract, costs are reported as research and development expenses and related funding is reported as an offset of those expenses. For the fiscal years ended June 29, 2003, June 30, 2002 and June 24, 2001, U.S. Government funding represented 12%, 12% and 10% of total revenue, respectively.

We generally must compete with other companies for funding awards from the U.S. Government. In certain cases, such as when the value of a U.S. Government contract exceeds $100,000 and when highly technical research is required, the U.S. Government issues a request for proposal (RFP). In a typical RFP, the U.S. Government requests a product or service and solicits proposals from perspective contractors on how they intend to carry out that request, and at what price. Proposals received in response to an RFP can be subject to negotiation after they have been submitted. Many U.S. Government contracts are awarded on a type of RFP called a broad agency announcement (BAA). In a BAA, the U.S. Government requests a broad range of research and development services. Contractors submit bids for research in any of the technical areas mentioned in the BAA. Then the U.S. Government may select winners of the awards and negotiate contracts with those parties. The U.S. Government uses many methods to select contractors to receive awards. Some of these methods include choosing vendors who offer products or services that provide the best value, lowest price and highest level of technology. We also may be the recipients of a sole source contract from the U.S. Government if the U.S. Government determines that we are the only viable source for the work to be performed. In this case, the U.S. Government would publish their intent to award a sole source contract with us and if there are no viable challenges made to that publication, the U.S. Government may award the contract to us without a competitive bid process.

In June 2002, the Office of Naval Research (ONR), awarded us two contracts with a total value of approximately $14.4 million as part of the Wide Bandgap Semiconductor Technology Initiative of the Defense Advanced Research Projects Agency (DARPA). The first contract provided for up to $8.8 million in U.S. Government funding over an 18-month period, for work directed to microwave and related technologies. This effort is focused on the development of high quality 4-inch semi-insulating substrates, SiC MESFET and GaN HEMT epitaxial processes on large diameter wafers, and studies correlating material advances with device performance. The second ONR/DARPA contract provided for up to $5.6 million in U.S. Government funding over an 18-month period for work directed to SiC high voltage, high power switching devices for high power conversion and distribution technology. This contract is focused on the development of low defect density 4-inch, n-type 4H-SiC substrates, more uniform, thick SiC epitaxial processes, and power device development focused on high reliability, high voltage SiC PIN rectifiers and MOSFETs.

We may enter into a number of contracts for different projects with a single agency or enter into contracts addressing different parts of the same project with more than one agency. For example, we currently have several large contracts, with the ONR, and the Air Force Research Laboratories (AFRL). In July 2002, we were awarded U.S. Government contracts totaling $26.5 million, if fully funded, over a three-year period from ONR and AFRL for SiC MMIC process development. These contracts are jointly funded by the U.S. Navy, the Missile Defense Agency and the Department of Defense’s Title III program. Under our previously existing Title III contract with AFRL, the project added $3.2 million through a contract modification for additional tasks focused on improving yields of the three-inch diameter high purity semi-insulating SiC substrates to be used for MMIC devices. The remaining $23.3 million is being provided through the new contract with ONR. The goal of this contract is to provide enhanced producibility of SiC materials, both substrates and epitaxy, and cleanroom processing, in support of high-power MMIC amplifiers used in military radar applications. The majority of the work is directed to yield enhancement and cost reduction for MMICs fabricated on three-inch diameter SiC wafers. In fiscal 2003, revenues under the specific contracts (DARPA and producibility) with the ONR and AFRL combined were approximately 7% of total revenue.

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Additionally, we were awarded with another contract in June 2002 funded by DARPA through the United States Army Robert Morris Acquisition Center to pursue the development of UV LEDs and lasers for a variety of military communications and bio-threat detection applications under DARPA’s SUVOS program. This DARPA SUVOS contract provides for up to $14.4 million in U.S. Government funding over a four-year period. In fiscal 2003, this DARPA SUVOS contract accounted for approximately 2.5% of total revenue.

The DARPA SUVOS contract as well as the contracts with ONR and AFRL are cost share arrangements. The contracts require us to conduct the research effort described in the statement of work section of the contract. The contracts also require that we pay a contractually agreed upon portion of the costs of the work with the U.S. Government paying the balance. There are no milestones to be reached for payments from the U.S. Government. We invoice the U.S. Government monthly for their share of the costs of the work performed based on costs incurred for that month.

Distributorship Agreement with Sumitomo Corporation

In April 2002, we entered into a distributorship agreement with Sumitomo Corporation (Sumitomo), which was amended in March 2003. Under the agreement, Sumitomo became our strategic partner and the exclusive distributor of our LED and wafer products in Japan for fiscal years 2003, 2004 and 2005. Prior to the beginning of each fiscal year, the distributorship agreement requires Sumitomo to commit in advance to purchase a specified dollar value of our products during the next fiscal year. For fiscal year 2003, Sumitomo’s advance purchase commitment was approximately $23 million, and Sumitomo’s actual purchases were $54.6 million. For fiscal year 2004, Sumitomo’s current advance purchase commitment is approximately $100 million. Sumitomo may vary its commitment under certain circumstances, and, therefore, we only account for eight-weeks of purchase orders from Sumitomo as firm backlog. In addition, the distributorship agreement provides that Sumitomo may decrease its advance purchase commitment and/or terminate the agreement if its inventory of Cree products reaches a specified level. If Sumitomo does not purchase at least half of its advance purchase commitment for any fiscal quarter as a result of this inventory limitation, we have the option of terminating the distributorship agreement.

The distributorship agreement also requires us to establish two rolling reserves at the time we ship LED products to Sumitomo, each based upon a percentage of the total purchase price of such products. We defer revenue recognition on the amounts added to both rolling reserves each fiscal quarter. These reserves are used to reimburse Sumitomo for certain sales costs incurred in selling our products and for managing its inventory, up to the balance in these reserves. If Sumitomo makes a valid claim against these reserves, we write off or reduce the amount of the claim against the applicable reserve. Except to the extent Sumitomo makes a valid claim against the reserves, amounts added to these reserves during a fiscal quarter will expire on a rolling basis by at least the end of the second following fiscal quarter, and we recognize revenue equal to the expired amount at that time.

Research and Development

We invest significant resources in research and development aimed at improving our semiconductor materials and developing new device and production technology. Our core SiC materials research is directed to improving the quality and diameter of our SiC substrates. We also are working to improve the quality of the SiC and nitride epitaxial materials we grow to produce devices and to improve device yields by reducing variability in our processes. These efforts are in addition to on-going projects focused on brighter LEDs, higher power/higher linearity RF and microwave devices, UV laser devices and higher power diodes/switches as discussed above.

We recorded expenditures of $31.2 million in fiscal 2003, $28.0 million in fiscal 2002 and $13.0 million in fiscal 2001 for direct expenditures relating to research and development activities. The amount of recorded expenditures is supplemented by funding received from our customers and the U.S. Government, in certain

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cases, which is recorded as a reduction in research and development expenditures. When we receive payments from our customers for sponsoring research and development programs, we offset those payments against direct research and development expenditures. In addition, when we receive payments from the U.S. Government under contracts where direct expenses of the contract are estimated to exceed the funding award over the life of the program, we offset the payment against reported research and development expenditures. Customer funding that offset research and development costs was $500,000, $9.0 million and $11.9 million for fiscal 2003, 2002 and 2001, respectively. The majority of this funding was received from companies in which we have made investments. For example, in fiscal 2003, the entire customer funding we received came from an affiliate of Lighthouse Technologies, Inc. (Lighthouse), in which we hold a private company  equity investment. In fiscal 2002, Microvision, Inc. (Microvision), the Lighthouse affiliate and Xemod, Inc. (Xemod) funded $4.4 million, $3.0 million and $492,000, respectively, of our research and development. We held an investment in each of these companies at the time that they provided research and development funding to us. In addition, Spectrian, our largest customer for our Cree Microwave segment, also participated in funding our research and development programs for $1.1 million. When customers participate in funding our research and development programs, we record the amount funded as a reduction of research and development expenses. We do not expect funding for research and development during fiscal 2004 at this time from these or any other customers or third parties in which we invested. U.S. Government funding that offset costs included as research and development was $0, $276,000 and $1.3 million for fiscal 2003, 2002 and 2001, respectively.

Sales and Marketing

We actively market our LED, wafer, RF, microwave and power products through targeted promotions, select advertising and attendance at trade shows. Our direct sales force and senior management work with customers around the world. The production of lamp and display products incorporating LED chips is concentrated among a relatively small number of LED packaging manufacturers. Our sales and marketing team is primarily based in our Durham, North Carolina facility with additional sales support offices in Hong Kong and Tokyo, Japan.

Supported by our Japan office, Sumitomo is our exclusive distribution partner for nitride LED chip products and SiC wafers in Japan. We also use distributors to market our LED products in Hong Kong, China, Taiwan and South Korea in coordination with our sales support office in Hong Kong. We use a separate network of sales representatives to market our RF and microwave devices in North America, Europe, Asia and Japan. We have also started to build a network of sales representatives in Europe and Asia to market our SiC power devices in selected areas.

We sell SiC crystal materials for use in gemstone applications directly to C&C under an exclusive supply agreement.

Customers

During fiscal 2003, revenues from Sumitomo (which represent sales to approximately 20 Japanese LED customers as well as 60 additional wafer customers) accounted for 24% of our total revenue. Sumitomo imports, handles orders and distributes our products and manages our accounts receivable for our Japanese customer base. For fiscal 2003, three of our top ten end customers were located in Japan and their sales, as well as sales to our other Japanese customers, are reported as sales to Sumitomo. Cree Japan’s sales and engineering group is actively involved with Sumitomo in the sales process to accounts in Japan. Our relationship with our end customers in Japan is critical to our future success. Sales to Osram Opto Semiconductors GmbH (Osram) and Agilent Technologies (Malaysia) Sdn Bhd, (Agilent) were 21% and 10%, of revenue, respectively.

Sumitomo, Osram and Agilent were our only customers that comprised 10% or more of our revenue for fiscal 2003. Revenue from the U.S. Government, representing funding from several agencies, made up 12%

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of total revenue for fiscal 2003. As our U.S. Government contracts are with multiple agencies, the U.S. Government does not act as a single customer, and we do not regard it as such. Our purchase agreement with Osram expires in September 2003, and we are currently negotiating a new purchase agreement with Osram. The loss of Osram, Agilent or any of Sumitomo’s large customers could have a material adverse effect on the Company. During fiscal 2002, revenues from three customers, Osram, Spectrian, and Sumitomo were 19%, 16% and 14%, of total revenue, respectively. Revenue from the U.S. Government, representing funding from several agencies, made up 12% of total revenue for fiscal 2002. During fiscal 2001, revenues from three customers, Osram, Sumitomo and Spectrian, were 25%, 22% and 11%, of total revenue, respectively. Prior to fiscal 2003, sales to Spectrian were 99% of Cree Microwave’s revenue. We continue to pursue new customers for our Cree Microwave business and have had some recent success on small unit volumes. Due to long design qualification cycles that are typical to this industry, revenue reported at our Cree Microwave segment may remain low for several quarters.

For further financial information about foreign and domestic sales, please see Note 2, “Summary of Significant Accounting Policies and Other Matters” to our consolidated financial statements included in Item 8 of this report.

Backlog

As of June 29, 2003, we had a backlog of approximately $68.0 million consisting of approximately $24.4 million of product orders and $43.6 million under research contracts signed with the U.S. Government, for which a portion of the contracted funds have not yet been appropriated. As of June 30, 2002, we had backlog of approximately $138.7 million consisting of approximately $86.9 million of product orders and $51.8 million under research contracts signed with the U.S. Government, for which a portion of the contracted funds have not yet been appropriated. Our backlog could be adversely affected if the U.S. Government exercises its rights to terminate the government contracts or does not appropriate and allocate all of the funding contemplated by the contracts. We estimate our entire backlog could be filled during fiscal 2004, with the exception of approximately $19.6 million in U.S. Government funded contracts.

In April 2003, we signed an agreement with Sumitomo, which supplements our existing distributor agreement with Sumitomo and covers shipments through June 2004. For fiscal year 2004, Sumitomo’s current advance purchase commitment is approximately $100 million, subject to adjustment and cancellation provisions and end customer demand. Sumitomo may vary its commitment under certain circumstances, and, therefore, we only account for eight-weeks of purchase orders from Sumitomo as firm backlog. The orders cover demand for our products in Japan and represent sales to over 20 LED packagers including Stanley Electronics, Citizen Electronics, Sharp Corporation and Rohm, Inc. In addition, we are currently negotiating a new contract with Osram, since the present contract expires at the end of September 2003. In addition, Agilent orders have short lead times and therefore not a significant component of our reported backlog.

Sources of Raw Materials

We depend on a limited number of suppliers for certain raw materials, components and equipment used in our products, including certain key materials and equipment used in our crystal growth, wafering, polishing, epitaxial deposition, device fabrication and device assembly processes. We generally purchase these limited source items pursuant to purchase orders and have limited guaranteed supply arrangements with our suppliers.

Competition

Our success depends on our ability to keep pace with the rapidly evolving technology standards of the industries that we serve. These industries are characterized by rapid technological change, frequent introduction of new products, short product life cycles, and changes in end-user and customer requirements. If we are unable to keep pace with the rapidly changing technology standards, or competitors could invent

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new technologies, industry standards or end user or customer requirements that could have potential to replace or provide lower cost or high performance alternatives to our existing or future products. The evolving nature of these industries may render our existing or future products obsolete, noncompetitive or unmarketable. Any of these developments could have an adverse effect on our business, results of operations and financial conditions.

Blue, Green and Near-UV LEDs

The primary competition for our LED chip products comes from companies that manufacture and or sell nitride-based LED chips. We consider Nichia Corporation (Nichia) and Toyoda Gosei Co. Ltd. (Toyoda), to be our competitors. Nichia primarily sells packaged LEDs and most often competes directly with our chip customers. Toyoda sells both packaged LEDs and LED chips. These companies currently market LED products made using nitride materials on sapphire substrates. In addition, in recent years a number of other Asian-based companies have begun the production of blue, green and UV LEDs, on sapphire substrates and are becoming more significant competitors. These new competitors sell chip level products and have had success in securing new business over the last few years, especially in the keypad backlight market for mobile appliances. These competitors compete with us on pricing in the standard to mid-brightness range of products. We believe our approach to manufacturing blue, green and UV LEDs using SiC substrates enables us to also offer a cost-effective chip design as compared to our competitors who primarily use sapphire as their substrate. SiC materials are conductive and as a result, allow us to make vertical devices with a top and bottom contact to conduct electrical flow. Sapphire materials are insulating and therefore devices made from these materials require two contacts on one side to conduct electrical flow. The SiC single top contact device allows us to utilize less chip area for electrical contact generally resulting in a smaller chip size and thus more potential die per wafer than sapphire devices, which may allow our devices to be manufactured for a lower cost.

Our customers’ generally purchase nitride LEDs based on the combination of the lowest price for a certain level of brightness, for their intended application. At times other factors such as chip size, forward voltage, ESD resistance or device stability also can be competitive factors. In addition to being a large customer of our LED chips, Osram, which licensed certain LED technology from us in 1995, currently is producing LEDs using nitride materials on SiC substrates for use in their packages. Lumileds sells high power packaged LEDs that compete with our target customers for power chip devices for solid state illumination markets and selectively sell some chip products in the market.

SiC Materials Products

The market for SiC wafers also is becoming more competitive, as other companies in recent years have begun to offer SiC wafer products or have announced plans to do so, including Sterling Semiconductor, which is now operated by Dow Corning, II-VI, Sixon, Nippon Steel and other manufacturers. To our knowledge, none of these competitors currently offer SiC wafers that are being used for device production. We sell SiC wafers to Osram and Infineon, which compete with us in the LED and power diode markets, respectively. We are not aware of any other company who produces SiC materials for use in gemstones although we believe there are some companies pursuing research and development in this area.

SiC-based Power Devices

Our SiC-based power devices compete with similar devices offered by Infineon. There are also a number of other companies developing SiC based power devices. Our products also compete with existing silicon-based power devices offered by a variety of manufacturers.

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RF and Microwave Transistors

Currently, there are no companies offering products that compete directly with the Cree Segment’s SiC MESFET products and MMIC foundry service although a few companies have products under development. Although there are no direct competitors, there is competition from existing silicon and GaAs based products. We do not currently offer GaN microwave devices, but we are working to develop these products. In the GaN microwave area, there are a number of companies working to develop these products.

The markets served by Cree Microwave’s LDMOS and bipolar products are highly competitive. Currently Motorola dominates this marketplace, which we believe is due to the performance and pricing of its products in comparison to our products and others currently available in the market.

Near-UV Laser Diodes

We currently do not offer any laser products commercially. The major competitors in the near UV laser market are Nichia and Sony and a number of other companies have announced development activities in this area. The market for blue laser products is just beginning to emerge. In addition to our development efforts, there are also a number of companies working on developing near UV laser diodes.

Patents and Proprietary Rights

We seek to protect our proprietary technology by applying for patents where appropriate and in other cases by preserving the technology and related know-how and information as trade secrets. We have also from time to time acquired, through license grants or assignments, rights to patents on inventions originally developed by others. As of August 26, 2003, we owned or held exclusive rights licensed under a total of 207 issued U.S. patents, subject in some cases to nonexclusive license rights held by third parties. These patents expire between 2007 and 2021. Thirty-three of these patents are jointly owned with a third party. Thirty-one of these patents relate primarily to our Cree Microwave segment. In addition, we own or hold exclusive license rights under corresponding patents and patent applications in various foreign countries.

Among the patent licenses we hold are exclusive licenses granted by North Carolina State University, or NCSU, to U.S. and corresponding foreign patents and patent applications that relate to SiC materials and device technology and to GaN growth technology. These licenses include rights under patents and patent applications relating to processes for growing single crystal SiC and low defect GaN materials. The licenses are worldwide, exclusive licenses to manufacture, use and sell products and processes covered by the claims of patents issued on applications filed by NCSU relating to the licensed inventions. The U.S. Government holds non-exclusive licenses from us to use for government purposes for certain of our inventions that were developed under contracts with them. The licenses relating to the growth of bulk single crystal SiC and to other SiC materials and device technology are fully-paid, while the licenses relating to growth of low defect GaN materials require us to pay NCSU royalties on sales of products made using the licensed processes.

The patents that we have licensed from NCSU relating to bulk SiC growth expire beginning in 2007, and we may face increased competition in the market for SiC materials as these patents expire. In addition, in the event our licenses to the U.S. patents owned by NCSU relating to SiC growth were to be terminated under the terms of our license agreement, we could potentially be enjoined from practicing the patented process. In that event the business of our entire Cree segment could be disrupted since the segment is critically dependent on our ability to manufacture bulk single crystal SiC material. Similarly, if our license to the patents relating to growth of low defect GaN materials were to be terminated, it could have a material adverse effect on our ability to produce GaN-based laser diodes or other future products we expect to manufacture using the patented processes.

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We also have entered into license agreements with the licensing agencies of other universities, and with other companies, under which we have obtained exclusive or non-exclusive rights to practice inventions claimed in various patents and applications issued or pending in the U.S. and other foreign countries. We do not believe the financial obligations under any of these agreements, or the loss of the licensed rights under any of these agreements, would have a material adverse effect on our business, financial condition or results of operation. These license agreements include a patent cross-license agreement covering gallium nitride-based optoelectronic technology that we entered into with Nichia Corporation in November 2002 in connection with a settlement of patent and related litigation then pending between the parties in the United States and Japan. These license agreements also include license rights granted to us by the Trustees of Boston University, or Boston University, under certain U.S. patents and corresponding foreign patents and patent applications which relate to the manufacture of certain GaN-based structures on sapphire and other substrates. The license agreement with Boston University grants us an exclusive, worldwide royalty-bearing license under these patents and patent applications, subject to royalty payments and other obligations under the license agreement. As described in Item 3, “Legal Proceedings,” Cree and Boston University are parties to pending litigation in which they have alleged that AXT, Inc. is infringing one of the licensed patents. Termination of the license to this patent by Boston University would end our right to assert the patent against future infringements.

For proprietary technology that is not patented or otherwise published, we seek to protect the technology and related know-how and information as trade secrets and to maintain it in confidence through appropriate non-disclosure agreements with employees and others to whom the information is disclosed. There can be no assurance that these agreements will provide meaningful protection against unauthorized disclosure or use of our confidential information or that our proprietary technology and know-how will not otherwise become known or independently discovered by others. We also rely upon other intellectual property rights such as trademarks and copyright where appropriate.

Environmental Regulation

We are subject to a variety of federal, state and local provisions enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. These include statutory and regulatory provisions under which we are responsible for the management of hazardous materials we use and the disposition of hazardous wastes resulting from our manufacturing processes. Failure to comply with such provisions, whether intentional or inadvertent, could result in fines and other liabilities to the government or third parties, injunctions requiring us to suspend or curtail operations or other remedies, and could have a material adverse effect on our business.

Employees

As of June 29, 2003, we employed 1,121 people, including 865 in manufacturing operations, 168 in research and development and 88 in sales and general administration. None of our employees are represented by a labor union or subject to collective bargaining agreements.

Available Information

We maintain a website at the address www.cree.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission. These reports may be accessed by following the link under “News and Investors—SEC Filings” on our website.

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Certain Business Risks and Uncertainties

Described below are various risks and uncertainties that may affect our business. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us, that we currently deem immaterial or that are similar to those faced by other companies in our industry or business in general may also affect our business. If any of the risks described below actually occurs, our business, financial condition or results of future operations could be materially and adversely affected.

Our operating results and margins may fluctuate significantly.

Although we experienced significant revenue and earnings growth in the past year, we may not be able to sustain such growth or maintain our margins, and we may experience significant fluctuations in our revenue, earnings and margins in the future. For example, historically, the prices of our LEDs have declined based on market trends. We attempt to maintain our margins by constantly developing improved or new products which command higher prices or by lowering the cost of our LEDs. If we are unable to do so, our margins will decline. Our operating results and margins may vary significantly in the future due to many factors, including the following:

• our ability to develop, manufacture and deliver products in a timely and cost-effective manner;

• variations in the amount of usable product produced during manufacturing (our “yield”);

• our ability to improve yields and reduce costs in order to allow lower product pricing without margin reductions;

• our ability to ramp up production for our new products;

• our ability to produce higher brightness and more efficient LED products that satisfy customer design requirements;

• our ability to develop new products to specifications that meet the evolving needs of our customers, including smaller and thinner chips with lower forward voltage;

• our ability to generate customer demand for our LDMOS 8 products and ramp up production of those products accordingly;

• changes in demand for our products and our customers’ products;

• changes in the competitive landscape, such as higher volume production and lower pricing from Asian competitors;

• declining average sales prices for our products;

• changes in the mix of products we sell;

• inventions by other companies of new technology that may make our products obsolete;

• product returns or exchanges that could impact our short term results;

• changes in manufacturing capacity and variations in the utilization of that capacity;

• disruptions of manufacturing as a result of damage to our manufacturing facilities from causes such as fire, flood or other casualties, particularly in the case of our single site for SiC wafer and LED production; and

• our policy to reserve fully for all accounts receivable balances that are more than 90 days past due which could impact our short-term results.

These or other factors could adversely affect our future operating results and margins. If our future operating results or margins are below the expectations of stock market analysts or our investors, our stock price may decline.

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If we experience poor production yields, our margins could decline and our operating results may suffer.

Our SiC material products and our LED, power and RF device products are manufactured using technologies that are highly complex. We manufacture our SiC wafer products from bulk SiC crystals, and we use these SiC wafers to manufacture our LED products and our SiC-based RF and power semiconductors. Our Cree Microwave subsidiary manufactures its RF semiconductors on silicon wafers purchased from others. During our manufacturing process, each wafer is processed to contain numerous “die,” which are the individual semiconductor devices, and the RF power devices are further processed by incorporating them into a package for sale as a packaged component. The number of usable crystals, wafers, die and packaged components that result from our production processes can fluctuate as a result of many factors, including but not limited to the following:

• impurities in the materials used;

• contamination of the manufacturing environment;

• equipment failure, power outages or variations in the manufacturing process;

• losses from broken wafers or human errors; and

• defects in packaging either within our control or at our subcontractors.

We refer to the proportion of usable product produced at each manufacturing step relative to the gross number that could be constructed from the materials used as our manufacturing yield. Since many of our manufacturing costs are fixed, if our yields decrease, our margins could decline and our operating results would be adversely affected. In the past, we have experienced difficulties in achieving acceptable yields on new products, which has adversely affected our operating results. We may experience similar problems in the future and we cannot predict when they may occur or their severity. In some instances, we may offer products for future delivery at prices based on planned yield improvements. Reduced yields or failure to achieve planned yield improvements could significantly affect our future margins and operating results.

Litigation and SEC matters could adversely affect our operating results and financial condition.

On June 12, 2003, Eric Hunter, and his wife, Jocelyn Hunter filed a lawsuit in United States District Court for the Middle District of North Carolina in Greensboro, North Carolina naming us and Neal Hunter, Eric Hunter’s brother and our current chairman, as defendants. The complaint alleged claims for defamation and harassment, as well as violations of employment and federal securities laws related to transactions with C&C, and other matters. In addition, between June 16 and August 18, 2003, nineteen purported class action lawsuits were filed in the United States District Court for the Middle District of North Carolina by alleged purchasers of our common stock. The lawsuits name us, certain of our officers and current or former directors as defendants. These complaints allege, among other things, violations of federal securities laws, including violations of Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5. In addition, among other claims, one or more of the complaints allege that we made certain false and misleading statements in connection with our acquisition of the UltraRF division of Spectrian, our supply agreement with Spectrian, our investment in World Theater, Inc. and our agreements with C&C. These cases are still in their early stages, and we intend to defend them vigorously.

Defending against existing and potential securities and class action litigation will likely require significant attention and resources and, regardless of the outcome, result in significant legal expenses, which will adversely affect our results unless covered by insurance or recovered from third parties. If our defenses are ultimately unsuccessful, or if we are unable to achieve a favorable resolution, we could be liable for damage awards that could materially adversely effect our results of operations and financial condition.

In addition, the Securities and Exchange Commission (SEC) in July 2003 initiated an informal inquiry of us and requested us voluntarily to provide certain information. We are cooperating voluntarily with this

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informal inquiry and have provided the SEC with written responses and documents. If the SEC elects to pursue a formal investigation of us, responding to any such investigation could require significant diversion of management’s attention and resources in the future as well as significant legal expense. In addition, if the SEC elects to pursue an enforcement action against us, the defense against this type of action could be costly and require additional management resources. If we were unsuccessful in defending against any potential action that may arise, we may face civil or criminal penalties or fines that would materially adversely affect results of operations and financial condition.

Special Committee Investigation.

On June 14, 2003, our board of directors created a special committee, comprised of independent directors Dr. Robert J. Potter and Mr. William J. O’Meara. The scope of the special committee’s investigation encompasses allegations of corporate wrong doing made by the Hunters in court filings or otherwise brought to our attention by the Hunters. The board of directors granted the special committee the authority to: (i) retain and consult with independent and qualified legal counsel or other experts or advisers to participate and assist in such investigation, and to direct payment of corporate funds to compensate legal counsel and other experts and advisors; (ii) have full access to any and all books, records and files of Cree and any independent auditors heretofore utilized by Cree, and the opportunity to interview and question the directors, any employees and officers of Cree, either past or present; (iii) consult with any other independent specialists in appropriate fields of expertise or such other persons as may be deemed necessary or advisable in conducting an objective and informed investigation; and (iv) employ such other persons as may be necessary for the proper conduct of such investigation. Should the Special Committee conclude that corporate wrong doing has occurred, our business results of operations and financial conditions could be materially adversely affected.

Our business and our ability to produce our products may be impaired by claims we infringe intellectual property of others.

Vigorous protection and pursuit of intellectual property rights characterize the semiconductor industry. These traits have resulted in significant and often protracted and expensive litigation. Litigation to determine the validity of patents or claims by third parties of infringement of patents or other intellectual property rights could result in significant expense and divert the efforts of our technical personnel and management, even if the litigation results in a determination favorable to us. In the event of an adverse result in such litigation, we could be required to:

• pay substantial damages;

• indemnify our customers;

• stop the manufacture, use and sale of products found to be infringing;

• discontinue the use of processes found to be infringing;

• expend significant resources to develop non-infringing products and processes; and/or

• obtain a license to use third party technology.

There can be no assurance that third parties will not attempt to assert infringement claims against us with respect to our current or future products. From time to time we receive correspondence asserting that our products or processes are or may be infringing patents or other intellectual property rights of others. Our practice is to investigate such claims to determine whether the assertions have merit and, if so, we take appropriate steps to seek to obtain a license or to avoid the infringement. However, we cannot predict whether past or future assertions of infringement may result in litigation or the extent to which such assertions may require us to seek a license under the rights asserted. We also cannot determine whether a license will be available or that we would find the terms of any license offered acceptable or commercially reasonable. Failure to obtain a necessary license could cause us to incur substantial liabilities and costs and to suspend the manufacture of products. In addition, if adverse results in litigation made it necessary for us to

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seek a license or to develop non-infringing products or processes, there is no assurance we would be successful in developing such products or processes or in negotiating licenses upon reasonable terms or at all. Our results of operations, financial condition and business could be adversely affected if such problems were not resolved in a timely manner.

There are limitations on our ability to protect our intellectual property.

Our intellectual property position is based in part on patents owned by us and patents exclusively licensed to us by North Carolina State University, Boston University and others. The licensed patents include patents relating to the SiC crystal growth process that is central to our SiC materials and device business. We intend to continue to file patent applications in the future, where appropriate, and to pursue such applications with U.S. and foreign patent authorities. However, we cannot be sure that patents will be issued on such applications or that our existing or future patents will not be successfully contested by third parties. Also, since issuance of a valid patent does not prevent other companies from using alternative, non-infringing technology, we cannot be sure that any of our patents (or patents issued to others and licensed to us) will provide significant commercial protection, especially as new competitors enter the market.

In addition to patent protection, we also rely on trade secrets and other non-patented proprietary information relating to our product development and manufacturing activities. We try to protect this information through appropriate efforts to maintain its secrecy, including requiring employees and third parties to sign confidentiality agreements. We cannot be sure that these efforts will be successful or that the confidentiality agreements will not be breached. We also can not be sure that we would have adequate remedies for any breach of such agreements or other misappropriation of our trade secrets, or that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others.

Where necessary, we may initiate litigation to enforce our patent or other intellectual property rights. For example, on June 10, 2003, our Cree Lighting subsidiary and the Trustees of Boston University filed a patent infringement action against AXT, Inc. seeking enforcement of a patent relating to semiconductor devices manufactured using a GaN-based buffer technology. Any such litigation may require us to spend a substantial amount of time and money and could distract management from our day-to-day operations. Moreover, there is no assurance that we will be successful in any such litigation.

If we are unable to produce and sell adequate quantities of our mid-brightness and XBright LED products and improve our yields, our operating results may suffer.

We believe that our ability to gain customer acceptance of our mid-brightness and XBright LED products, including our new MegaBright Plus and XBright Plus products, and to achieve higher volume production and lower production costs for those products will be important to our future operating results. We must reduce costs of these products to avoid margin reductions from the lower selling prices we may offer due to our competitive environment and/or to satisfy prior contractual commitments. Achieving greater volumes and lower costs requires improved production yields for these products. We recently began to manufacture our improved XBright LED product in limited volumes, and we are continuing to make improvements to this product to help meet our customers’ design requirements. We may encounter manufacturing difficulties as we ramp up our capacity to make this product, as well as the MegaBright Plus and XBright Plus products. Our failure to produce adequate quantities and improve the yields of any of these products could have a material adverse effect on our business, results of operations and financial condition. Some of our customers may encounter difficulties with their manufacturing processes using our XBright devices due to die attachment issues, which could increase product returns and impact customer demand, each of which would have a material adverse effect on our business, results of operations and financial condition. In addition, our customer’s inability to secure an efficient phosphor for use in converting blue or near UV LEDs to white could limit our potential sales of high brightness LED chips for these applications.

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Our operating results are substantially dependent on the development of new products based on our core SiC technology.

Our future success will depend on our ability to develop new SiC solutions for existing and new markets. We must introduce new products in a timely and cost-effective manner, and we must secure production orders from our customers. The development of new SiC products is a highly complex process, and we have historically experienced delays in completing the development and introduction of new products. Products currently under development include larger, higher quality substrates and epitaxy, high power RF and microwave devices in both SiC and GaN, power devices, blue laser diodes and higher brightness and thinner LED products. The successful development and introduction of these products depends on a number of factors, including the following:

• achievement of technology breakthroughs required to make commercially viable devices;

• the accuracy of our predictions of market requirements and evolving standards;

• acceptance of our new product designs;

• the availability of qualified development personnel;

• our timely completion of product designs and development;

• our ability to develop repeatable processes to manufacture new products in sufficient quantities for commercial sales;

• our customers’ ability to develop applications incorporating our products; and

• acceptance of our customers’ products by the market.

If any of these or other factors become problematic, we may not be able to develop and introduce these new products in a timely or cost-efficient manner.

We must generate new customer demand for our LDMOS 8 products in order to offset expenses of our Cree Microwave segment.

Revenues of our Cree Microwave segment will depend on our ability to attract new customers for our LDMOS8 products. Prior to the termination of our supply agreement with Spectrian, Spectrian accounted for 99% of the revenues of our Cree Microwave segment. Due to the current market environment for microwave devices and the lengthy customer design-in and qualification process for our LDMOS products, it may take many quarters to develop new customers for our Cree Microwave segment and we may not succeed in doing so. Until we develop sufficient new business for Cree Microwave’s products, our expenses for this segment will exceed its revenues. In addition, if we are unable to generate sufficient customer orders for these products and expenses continue to exceed revenues for this segment, we may be required to write down certain assets associated with this business.

We depend on a few large customers and are subject to contract terms with them.

Historically, a substantial portion of our revenue has come from large purchases by a small number of customers. Accordingly, our future operating results depend on the success of our largest customers and on our success in selling large quantities of our products to them. The concentration of our revenues with a few large customers makes us particularly dependent on factors affecting those customers. For example, if demand for their products decreases, they may limit or stop purchasing our products and our operating results will suffer. Our purchase agreement with Osram expires in September 2003, and we are currently negotiating a new purchase agreement with Osram. If we lose a large customer such as Osram and fail to add new customers to replace lost revenue, our operating results may not recover. In addition, we often enter into contracts with large customers which may give rise to customer rights to reduce purchase commitments, return products, obtain reimbursement of certain costs, or terminate contracts. For example, our Sumitomo contract provides that Sumitomo may decrease its purchase commitment or terminate the contract if its inventory of our products reaches a specified level. The contract also requires us to establish two rolling

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reserves based upon a percentage of the total purchase price of our products. We defer revenue recognition on the amounts added to reserves. If claims are made against reserves, we may recognize lesser amounts of revenue or no revenue on substitute sales to Sumitomo and any product returned may not be saleable at the same price or at all. We also face risks related to contract terms with other large customers, which could have a negative impact on our financial results.

The markets in which we operate are highly competitive and have evolving technology standards.

The markets for our LED, laser, RF and microwave, and power semiconductor products are highly competitive. New firms have begun offering UV, blue and green LEDs. In the RF power semiconductor field, the products manufactured by Cree Microwave compete with products offered by substantially larger competitors who have dominated the market to date based on product quality and pricing. The market for SiC wafers is also becoming competitive as other firms have in recent years begun offering SiC wafer products or announced plans to do so. We also expect significant competition for products we are currently developing, such as those for use in microwave communications and power switching.

We expect competition to increase. This could mean lower prices for our products, reduced demand for our products and a corresponding reduction in our ability to recover development, engineering and manufacturing costs. Or competitors could invent new technologies that may make our products obsolete. Any of these developments could have an adverse effect on our business, results of operations and financial condition.

We face significant challenges managing our growth.

We have experienced a period of significant growth that has challenged our management and other resources. We have grown from 248 employees on June 28, 1998 to 1,121 employees on June 29, 2003 and from revenues of $44.0 million for the fiscal year ended June 28, 1998 to $229.8 million for the fiscal year ended June 29, 2003. To manage our growth effectively, we must continue to:

• implement and improve operating systems;

• maintain adequate manufacturing facilities and equipment to meet customer demand;

• improve the skills and capabilities of our current management team;

• add experienced senior level managers; and

• attract and retain qualified people with experience in engineering, design and technical marketing support.

We will spend substantial amounts of money in supporting our growth and may have additional unexpected costs. Our systems, procedures or controls may not be adequate to support our operations, and we may not be able to expand quickly enough to exploit potential market opportunities. Our future operating results will also depend on expanding sales and marketing, research and development, and administrative support. If we cannot attract qualified people or manage growth effectively, our business operating results and financial condition could be adversely affected.

Performance of our investments in other companies could negatively affect our financial condition.

From time to time, we have made investments in public and private companies that engage in complementary businesses. Should the value of any such investments we hold decline, the related write-down in value could have a material adverse effect on our financial condition as reflected in our balance sheets. In addition, if the decline in value is determined to be “other than temporary”, the related write-down could have a material adverse effect on our reported net income. For example, in the fourth quarter of fiscal 2002 we recorded a non-operating charge of $22 million (pre-tax) relating to the declines in the value of equity investments determined to be “other than temporary” as a result of continued depressed market conditions. We no longer hold any investments in public companies, but we continue to hold interests in

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certain private companies. Each of these investments is subject to the risks inherent in the business of the company in which we have invested and to trends affecting the equity markets as a whole. Our private company investments are subject to additional risks relating to the limitations on transferability of our interests due to the lack of a public market and to other transfer restrictions. As a result, we may not be able to reduce the size of our positions or liquidate our investments when we deem appropriate to limit our downside risk.

Our operating results could be adversely affected if we encounter difficulty transitioning production to a larger wafer size.

We are in the process of gradually shifting production of some LED products from two-inch wafers, to three-inch wafers. We must first qualify our production processes on systems designed to accommodate the larger wafer size, and some of our existing production equipment must be refitted for the larger wafer size. Delays in this process could have an adverse effect on our business. In addition, in the past we have experienced lower yields for a period of time following a transition to a larger wafer size until use of the larger wafer is fully integrated in production and we begin to achieve production efficiency. We anticipate that we will experience similar temporary yield reductions during the transition to the three-inch wafers, and we have factored this into our plan for production capacity. If this transition phase takes longer than we expect or if we are unable to attain expected yield improvements, our operating results may be adversely affected.

We rely on a few key suppliers.

We depend on a limited number of suppliers for certain raw materials, components and equipment used in manufacturing our products, including key materials and equipment used in critical stages of our manufacturing processes. We generally purchase these limited source items with purchase orders, and we have no guaranteed supply arrangements with such suppliers. If we were to lose such key suppliers, our manufacturing operations could be interrupted or hampered significantly.

If government agencies or other customers discontinue or curtail their funding for our research and development programs our business may suffer.

In the past, government agencies and other customers have funded a significant portion of our research and development activities. Government contracts are subject to the risk that the government agency may not appropriate and allocate all funding contemplated by the contract. In addition, our government contracts generally permit the contracting authority to terminate the contracts for the convenience of the government, and the full value of the contracts would not be realized if they are prematurely terminated. Furthermore, we may be unable to incur sufficient allowable costs to generate the full estimated contract values, and there is some risk that any technologies developed under these contracts may not have commercial value. If government and customer funding is discontinued or reduced, our ability to develop or enhance products could be limited, and our business, results of operations and financial condition could be adversely affected.

If our products fail to perform or meet customer requirements, we could incur significant additional costs.

The manufacture of our products involves highly complex processes. Our customers specify quality, performance and reliability standards that we must meet. If our products do not meet these standards, we may be required to replace or rework the products. In some cases our products may contain undetected defects or flaws that only become evident after shipment. We have experienced product quality, performance or reliability problems from time to time. Defects or failures may occur in the future. If failures or defects occur, we could:

• lose revenue;

• incur increased costs, such as warranty expense and costs associated with customer support;

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• experience delays, cancellations or rescheduling of orders for our products;

• write-down existing inventory; or

• experience product returns.

We are subject to risks from international sales.

Sales to customers located outside the U.S. accounted for approximately 80%, 65% and 69% of our revenue in fiscal 2003, 2002 and 2001, respectively. We expect that revenue from international sales will continue to be a significant part of our total revenue. International sales are subject to a variety of risks, including risks arising from currency fluctuations, trading restrictions, tariffs, trade barriers and taxes. Also, U.S. Government export controls could restrict or prohibit the exportation of products with defense applications. Because all of our foreign sales are denominated in U.S. dollars, our products become less price competitive in countries with currencies that are low or are declining in value against the U.S. dollar. Also, we cannot be sure that our international customers will continue to place orders denominated in U.S. dollars. If they do not, our reported revenue and earnings will be subject to foreign exchange fluctuations.

We depend on design trends in mobile phones to drive a large percentage of LED demand.

Our results of operations could be adversely affected by reduced customer demand for LED products for use in wireless handsets. We derive a significant portion of our LED product revenue from sales to customers who use our LED products in wireless handsets, and customer demand is dependent upon trends in the wireless market. Our ability to maintain or increase our LED product revenue depends in part on the number of models into which customers design our products. Also, design cycles in the handset industry are short and demand is volatile, which make production planning difficult to forecast.

If we fail to evaluate strategic opportunities successfully, our business will be harmed.

From time to time we evaluate strategic opportunities available to us for product, technology or business acquisitions. If we choose to make an acquisition, we face certain risks, such as failure of the acquired business in meeting our performance expectations, diversion of management attention, retention of existing customers of the acquired business, and difficulty in integrating the acquired business’s operations, personal and financial and operating systems into our current business. We may not successfully address these risks or other problems that arise from our recent or future acquisitions. For example, we experienced some of these risks in connection with our UltraRF acquisition. Any failure to successfully evaluate such strategic opportunities and address risks or other problems that arise related to any acquisition could adversely affect our business, results of operations and financial condition.

These or other factors could adversely affect our future operating results and margins. If our future operating results or margins are below the expectations of stock market analysts or our investors, our stock price may decline.

Item 2.    Properties

We own our facilities in Durham, North Carolina where the business for our Cree segment is conducted. We presently maintain approximately 48 acres of developed land, with total facility square footage of 521,747. This includes 289,772 square feet for production, 81,751 square feet for service and warehousing, and 150,224 square feet for administrative support. We also own approximately 80 acres of undeveloped land near our production facilities potentially for future expansion.

We maintain a three-year lease through our Cree Japan subsidiary for an office in Tokyo, Japan for sales and marketing activities that expires in June 2005. We also contract the use of a facility for sales and marketing efforts for our Cree Asia-Pacific subsidiary in Kowloon, Hong Kong that expires in July 2004.

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The Cree Microwave facility used for our Cree Microwave segment is approximately 49,600 square feet of administrative and manufacturing space located in Sunnyvale, California. Our Cree Microwave subsidiary currently maintains this space under a sublease agreement that expires in 2011. We have guaranteed the obligations of our subsidiary under the sublease.

We lease a facility for our Santa Barbara Technology Center in Goleta, California (formerly Cree Lighting Company) for our Cree segment. The facility, which covers 35,840 square feet, has a five-year lease that was signed in August 2000 with an option to extend the lease for another five-year period. This facility is used for research and development and administration. We have subleased 10,217 square feet of this facility to a third party under a two-year sublease agreement that was entered into in July 2002 and will expire in July 2004.

Item 3.    Legal Proceedings

Trustees of Boston University and Cree Lighting Company v. AXT, Inc.

On June 10, 2003, the Trustees of Boston University and Cree Lighting Company commenced a patent infringement lawsuit against AXT, Inc., a manufacturer of gallium nitride-based LEDs and other products, by filing a complaint in the U.S. District Court for the Northern District of California. In the complaint Boston University and Cree Lighting allege that AXT is infringing U.S. Patent No. 5,686,738, entitled “Highly Insulating Monocrystalline Gallium Nitride Thin Films,” by, among other things, importing, selling and/or offering for sale gallium nitride-based LEDs covered by one or more claims of the patent. Effective June 29, 2003, Cree Lighting Company was merged into Cree, Inc. The ‘738 patent is owned by Boston University and is licensed to the Company on an exclusive basis. The complaint seeks damages and an injunction against infringements. On July 23, 2003, AXT filed an answer and counterclaim. In its answer, AXT denies infringement and alleges that the patent is invalid. AXT also filed a counterclaim alleging among other things that the lawsuit is objectively baseless and was brought for improper purposes. AXT further alleges various antitrust, unfair competition, interference with contract and related claims. AXT’s counterclaim seeks damages, declaratory relief and an injunction against acts in violation of certain antitrust and other laws. The plaintiffs’ replies to AXT’s counterclaim denying the allegations were filed on August 29, 2003. We intend to pursue this complaint vigorously.

Eric Hunter and Jocelyn Hunter v. Cree, Inc. and F. Neal Hunter

On June 12, 2003, Eric Hunter, and his wife Jocelyn Hunter, filed a lawsuit in United States District Court for the Middle District of North Carolina in Greensboro, North Carolina naming us and Neal Hunter, Eric Hunter’s brother and our current chairman, as defendants. The complaint alleged claims for defamation and harassment as well as violations of employment and federal securities laws related to transactions with C&C, and other matters. The Hunters sought personally to recover damages in excess of $3 billion for unspecified harm resulting from the alleged conduct, as well as a preliminary injunction against future harassment. On June 26, 2003, we filed a motion to dismiss the lawsuit and requested a hearing on the motion. On the same date, the Hunters filed a motion to amend their complaint to add additional state law claims. The Hunters subsequently sought to file three further amendments to their complaint to add additional allegations and parties, including Bank of America N.A., CIBC Worlds Markets, Prudential Securities, Soundview Technology Group, Inc., Morgan Keegan & Company, Inc. and Ernst & Young. In a hearing on August 14, 2003, the court denied the Hunters’ motion for a preliminary injunction, finding that there was not enough evidence presented by the Hunters to even infer that Cree or Neal Hunter was responsible for the harassment that the Hunters alleged to have occurred. The court granted the Hunters’ motions to amend, but indicated that no further amendments would be allowed unless the Hunters could show extremely exceptional or unusual circumstances. On September 19, 2003, we filed a renewed motion to dismiss the Hunters’ complaint, as amended, and we will continue to vigorously defend the litigation. As a result of the commencement of the litigation, on June 14, 2003, our Board of Directors created a litigation

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committee, comprised of directors Mr. Dolph W. von Arx and Mr. James E. Dykes, to direct the litigation and any related litigation, including the shareholder class action lawsuits described below.

Shareholder Class Action Lawsuits

Between June 16 and August 18, 2003, nineteen purported class action lawsuits were filed in the United States District Court for the Middle District of North Carolina by certain alleged purchasers of our stock. The lawsuits name us, certain of our officers and current and former directors as defendants. These complaints allege, among other things, violations of federal securities laws, including violations of Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5. In addition, among other claims, one or more of the complaints allege that we made certain false and misleading statements in connection with our acquisition of the UltraRF division of Spectrian, our supply agreement with Spectrian, our investment in World Theater, Inc. and our agreements with C&C. The complaints seek unspecified damages, plus costs and expenses, including attorney fees and experts’ fees. As is usual in these types of cases, we anticipate that all of the pending class actions will be consolidated and that an amended consolidated complaint will be filed, to which we will respond in due course. We intend to defend the cases vigorously.

Regulatory Investigations

In July 2003, the SEC initiated an informal inquiry of us and requested that we voluntarily provide certain information. We are cooperating with the SEC in this informal inquiry and have provided the SEC with written responses and documents. At this time, we are unable to determine whether this informal inquiry may lead to potentially adverse action, although we do not believe that grounds justifying any enforcement action exist.

On August 7, 2003, the Nasdaq Stock Market, Inc. (“Nasdaq”) requested information from us regarding the informal inquiry being conducted by the SEC and our pending litigation. We are cooperating with this request and have provided Nasdaq with written responses and documents. At this time, we are unable to determine whether this request may lead to potentially adverse action.

Other Matters

We are currently a party to other legal proceedings incidental to our business. If an unfavorable resolution occurs in these other legal proceedings or on matters described above the Company’s business, results of operations and financial condition could be materially adversely affected.

Item 4.    Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2003.

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PART II

Item 5.    Market Price for Registrant’s Common Equity and Related Shareholder Matters

Common Stock Market Information.    Our common stock is traded in the Nasdaq National Market and is quoted under the symbol “CREE”. The following table sets forth, for the quarters indicated the high and low sales prices as reported by Nasdaq. Quotations represent interdealer prices without an adjustment for retail markups, markdowns or commissions.

	FY 2003				FY 2002
	High		Low		High		Low
First Quarter	$	17.720	$	10.870	$	27.500	$	14.090
Second Quarter		25.420		8.989		29.730		13.761
Third Quarter		20.640		14.701		33.320		12.400
Fourth Quarter		26.880		15.500		14.340		10.350

Holders and Dividends.    There were approximately 772 holders of record of our common stock as of September 5, 2003.

We have never paid cash dividends on our common stock and do not anticipate that we will do so in the foreseeable future. There are no contractual restrictions in place that currently materially limit, or are likely in the future to materially limit, us from paying dividends on our common stock, but applicable state law may limit the payment of dividends. Our present policy is to retain earnings, if any, to provide funds for the operation and expansion of our business.

Sale of Unregistered Securities.    There were no sales of unregistered securities during fiscal 2003.

Item 6.    Selected Financial Data

The consolidated statement of operations data set forth below with respect to the years ended June 29, 2003, June 30, 2002 and June 24, 2001 and the consolidated balance sheet data at June 29, 2003 and June 30, 2002 are derived from, and are qualified by reference to, the audited consolidated financial statements included elsewhere in this report and should be read in conjunction with those financial statements and notes thereto. The consolidated statement of operations data for the years ended June 25, 2000 and June 27, 1999 and the consolidated balance sheet data at June 24, 2001, June 25, 2000 and June 27, 1999 are derived from audited consolidated financial statements not included herein. All consolidated statement of operations and consolidated balance sheet data shown below are adjusted to reflect the acquisition of Nitres, later known as Cree Lighting, effective May 1, 2000. This transaction was accounted for under the “pooling of interests” method. We acquired the business comprising the Cree Microwave segment in December 2000. This transaction was accounted for under the purchase method. All share amounts have been restated to reflect our two-for-one stock splits effective July 26, 1999 and December 1, 2000.

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Selected Consolidated Financial Data

(In thousands, except per share data)

	Years Ended
	June 29, 2003		June 30, 2002			June 24, 2001		June 25, 2000		June 27, 1999
Statement of Operations Data:
Product revenue, net	$	202,962	$	136,230		$	159,533	$	96,742	$	53,424
Contract revenue, net		26,860		19,204			17,694		11,820		8,977
Total revenue		229,822		155,434			177,227		108,562		62,401
Net income (loss)	$	34,901	$	(101,723	)	$	27,843	$	30,520	$	12,448
Net income (loss) per share, basic	$	0.48	$	(1.40	)	$	0.39	$	0.46	$	0.21
Net income (loss) per share, diluted	$	0.46	$	(1.40	)	$	0.37	$	0.43	$	0.20
Weighted average shares outstanding:
Basic		73,196		72,718			72,243		65,930		58,030
Diluted		75,303		72,718			75,735		70,434		60,864
	As of
	June 29, 2003		June 30, 2002			June 24, 2001		June 25, 2000		June 27, 1999
Balance Sheet Data:
Working capital	$	181,064	$	151,851		$	244,178	$	265,957	$	59,889
Total assets		563,694		504,195			615,123		486,202		145,933
Long-term obligations		—		—			—		—		4,650
Shareholders’ equity	$	535,371	$	482,104		$	589,097	$	463,142	$	131,003

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

All information contained in the following discussion relative to future markets for our products and trends in and anticipated levels of revenue, gross margins, and expenses, as well as other statements containing words such as “may,” “will,” “anticipate,” “target,” “plan,” “estimate,” “expect,” and “intend” and other similar expressions constitute forward-looking statements. These forward-looking statements are subject to business, economic and other risks and uncertainties, both known and unknown, and actual results may differ materially from those contained in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Certain Business Risks and Uncertainties” in Item 1 of this report, as well as other risks and uncertainties referenced in this report.

Business Overview

We develop and manufacture compound semiconductor materials and electronic devices made from silicon carbide (SiC) and Group III nitrides (GaN). We derive the largest portion of our revenue from the sale of blue, green and near ultraviolet (UV) light emitting diodes (LEDs). We currently offer LEDs at three brightness levels:

• XBright blue products;

• mid-brightness blue, green and UV products, which include MegaBright, UltraBright and SuperBright devices; and

• standard brightness blue products.

Our LED devices are used by manufacturers as a lighting source for mobile appliances, automotive dashboard lighting, indicator lamps, miniature white lights, indoor and outdoor full color displays and signs, traffic signals and other lighting applications. LED products represented 75% of our revenue in fiscal 2003 and 58% in fiscal 2002.

We also derive revenue from the sale of semiconductor wafers made from SiC that are used by our customers for manufacturing LEDs and power devices or for research and development. Sales of SiC wafer products represented 9% of our revenue in fiscal 2003 and 11% of our revenue in fiscal 2002. We also sell SiC materials in bulk crystal form for use in gemstones to Charles & Colvard (C&C). Sales of SiC crystals for gemstones represented 3% of our revenue in fiscal 2003 and 2% of our revenue in fiscal 2002. Our other products include SiC-based power and radio frequency (RF) devices. We received less than 1% of total revenues from sales of power devices or SiC based RF devices in fiscal 2003 and fiscal 2002.

Through our Cree Microwave segment, we also develop and manufacture RF power transistors and modules using silicon technologies. During fiscal 2003 and fiscal 2002, approximately 1% and 16%, respectively, of our revenue came from the sale of RF devices from our Cree Microwave segment. These RF power transistors are a key semiconductor component for power amplifiers that are used in base stations for wireless networks.

The balance of our revenue, 12% for fiscal 2003 and 12% for fiscal 2002 is derived from contract research funding. Under various programs, U.S. Government entities assist us in the development of new technology by funding our research and development efforts. Contract revenue includes funding for direct research and development costs and a portion of our general and administrative expenses and other operating expenses for contracts under which we expect funding to exceed direct costs over the life of the contract. For contracts under which we anticipate that direct costs will exceed amounts to be funded over the life of the contract, we report direct costs as research and development expenses with related reimbursements recorded as an offset to those expenses.

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Fiscal 2003 Overview

We reported record revenue in fiscal 2003 primarily due to customer demand for our LED products for the mobile appliance and automotive markets. Our LED revenue and units sold increased 90% and 111%, respectively, in fiscal 2003 over the previous fiscal year. We saw the most significant increase in product sales in our mid-brightness LEDs, which our customers estimate, were used mostly in the keypads of handheld mobile appliances as well as dashboards for automobiles. We completed the introduction of our mid-brightness MegaBright LED product line during fiscal 2002. Much of the increase in our LED revenue was attributable to this product line, which offers higher brightness, as well a competitive pricing of our other mid-brightness devices. Mid-brightness products made up 87% of our LED revenue in fiscal 2003.

We continue to work with our customers toward design wins using our XBright LEDs. The XBright product family, which we initially introduced in fiscal 2002, targets applications that include miniature white lights, traffic signals and video screens. The XBright LED technology incorporates a junction down design and utilizes the optical benefits of SiC while maintaining the vertical structure advantages of a single top contact. This design allows for a standard size chip similar to our other LED devices, however, it does present significant packaging challenges for many of our traditional customers. We are making progress working with our customers to address die attachment issues in the packaging process which they encountered using our XBright products. As a result, XBright LEDs comprised 3% of LED revenue during fiscal year 2003. We are working to develop a lower temperature die attach compatible product to address some of our customers needs and we project that XBright products will be a greater percentage of our LED revenue during fiscal 2004.

Shipments of our standard brightness devices remained stable in fiscal 2003 in comparison to fiscal 2002 and were supported by automotive and indicator light designs from a number of customers, including Osram Opto Semiconductors GmbH (Osram). For fiscal 2003, standard brightness products were approximately 10% of our LED revenue.

During fiscal 2003, SiC materials revenue increased 11% over the prior year due to a 19% increase in the average sales price received for our wafers. The higher average sales price resulted from increased sales to research and development customers, who generally purchase higher priced wafers than volume customers using our product for commercial applications. Revenue from sales of SiC materials for use in gemstones was 190% higher in fiscal 2003 as C&C, our sole customer for such material, increased its demand, yet it still remained at 3% of our overall revenue.

Revenue from microwave products declined 88% in fiscal 2003 over fiscal 2002 as we entered into an agreement in November 2002 terminating our supply agreement with Spectrian. Prior to the termination of the supply agreement with Spectrian, revenue from Spectrian comprised 99% of our revenue for the Cree Microwave segment. In the second quarter of fiscal 2003, we received a $5.0 million one time payment from Spectrian associated with the termination of the supply agreement between Cree Microwave and Spectrian. This one time payment was recorded as “other operating income” on the statement of operations.

Government contract revenue increased 40% in fiscal 2003 over the prior year as we received several new contract awards in 2002. In June 2002, we were awarded two contracts by the Office of Naval Research (ONR), with a total value of approximately $14.4 million as part of the Wide Bandgap Semiconductor Technology Initiative of the Defense Advanced Research Projects Agency, or DARPA. The first contract provides for up to $8.8 million in government funding over an 18-month period for work directed to microwave and related technologies. The second ONR/DARPA contract provides for up to $5.6 million in government funding over an 18-month period for work directed toward SiC high voltage, high power switching devices for high power conversion and distribution technology. Additionally, we were awarded with another contract in June 2002 funded by DARPA, through the Army Research Laboratory (ARL) to pursue the development of UV LEDs and lasers for a variety of military communications and bio-threat detection applications under DARPA’s SUVOS program. This cost share contract provides for up to $14.4

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million in U.S. Government funding over a four-year period. In July 2002, we were awarded government contracts totaling $26.5 million, if fully funded, over a three-year period from ONR and the Air Force Research Laboratories (AFRL) for SiC microwave monolithic integrated circuit (MMIC) process development. These contracts are jointly funded by the U.S. Navy, the Missile Defense Agency and the Department of Defense’s Title III program.

In fiscal 2004, we anticipate that one of our best growth opportunities will be for blue LEDs that our customers would convert to white LEDs for mobile appliance and other applications. Based on trends in the industry, we believe there will be an increase for using white LEDs as a backlight for the keypad and for full color screens in mobile phones and other handheld electronics. We recently have introduced our MegaBright Plus, XBright Plus, and RazerThin products to target these and other applications.

Critical Accounting Policies

The following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing our financial statements, we must make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements.

Critical accounting policies include those policies that are reflective of significant judgments and uncertainties, which potentially could produce materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described below.

Valuation of Long-Lived Assets, Intangible Assets and Goodwill.    We have approximately $354.3 million of long-lived assets as of June 29, 2003, including approximately $258.4 million related to fixed assets and capitalized patents, $58.8 million in long-term investments held to maturity and $37.1 million of other long term assets that includes net investments in privately held companies of $15.6 million and deferred taxes of $20.9 million. In addition to the original cost of these assets, their recorded value is impacted by a number of management estimates that are determined based on our judgment, including estimated useful lives, salvage values and, in 2002, impairment charges. In accordance with Statement of Financial Accounting Standards (SFAS) #144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of”, or SFAS 144, we record impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets have been impaired. In making these determinations, we utilize certain assumptions, including, but not limited to: (i) estimations of the fair market value of the assets, and (ii) estimations of future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service the asset will be used in our operations and estimated salvage values. We recorded a $1.4 million impairment charge for long-lived assets for the three months ending December 29, 2002, due to the election by management to discontinue a novel epitaxy reactor project. During fiscal 2002, we determined certain property and equipment was impaired under SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of”, which was the relevant accounting pronouncement at the time, and as a result, we recorded impairment charges of $19.0 million.

During the third quarter of fiscal 2002, we completed an impairment analysis of the intangible assets and goodwill related to the acquisition of Cree Microwave. This analysis was performed due to significant changes in business conditions at the operating segment. First, Cree Microwave amended its supply agreement with Spectrian effective March 31, 2002, which resulted in a significant reduction in quarterly revenue expectations. In addition, Cree Microwave’s outlook for acquiring additional customers in the near term weakened due to delays in the development of laterally diffused metal oxide semiconductor (LDMOS) technology, the overall deteriorating economic conditions and long product qualification cycles. Also, the principal products that Spectrian indicated it would consider purchasing from Cree Microwave in the future

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were not fully qualified and, subsequently not released to production at the time. As a result of this impairment analysis, we estimated that the future cash flows of the Cree Microwave business would not be sufficient to provide for recovery of the carrying value of its intangible assets and goodwill. Therefore, the remaining balance of intangible assets and goodwill of $76.5 million was deemed fully impaired and was written off in March 2002. In November 2002, we entered into an agreement terminating our supply contract with Spectrian, and, due to the changed circumstances, management performed an impairment analysis of the tangible assets at Cree Microwave as of December 29, 2002 and June 29, 2003 in accordance with SFAS 144. Based on estimations of the fair market value of the assets, and estimations of future cash flows, we determined that the estimated undiscounted cash flow exceeded the amount of the book value of the long-term tangible assets. As a result, no additional Cree Microwave assets were determined to be impaired or written down at that time.

Accounting for Marketable and Non-Marketable Equity Securities.    From time to time, we evaluate strategic opportunities and potential investments in complimentary businesses and as a result may invest in marketable equity securities. At June 29, 2003, we held no marketable equity securities. During the second quarter of fiscal 2003, we sold our entire position in two publicly traded companies. We sold 356,000 common shares in Microvision, Inc. (Microvision) for $1.8 million, with a net loss on the sale of $36,000 recognized during the second quarter of fiscal 2003. We also sold 691,000 common shares in Emcore Corporation (Emcore) for $2.1 million, with a net loss on the sale of $2.0 million recognized during the second quarter of fiscal 2003.

We classify marketable securities that are not trading or “held-to-maturity” securities as “available-for-sale”. We carry these investments at fair value, based on quoted market prices, and unrealized gains and losses, net of taxes, are included in accumulated other comprehensive income, which is reflected as a separate component of shareholders’ equity. Realized gains and losses are recognized when realized upon sale or disposition. Declines in value that are deemed to be other than temporary in accordance with SFAS 115, “Accounting for Certain Debt and Equity Securities” are also recorded in the income statement. We have a policy in place to review our equity holdings on a periodic basis to evaluate whether or not each security has experienced an “other-than-temporary” decline in fair value. Our policy requires, among other things, a review of each company’s cash position, earnings and revenue outlook, stock price performance, liquidity, ability to raise capital and management and ownership changes. Based on this review, if we believe that an “other-than-temporary” decline exists in the value of one of our marketable equity securities, it is our policy to write down these equity investments to the market value. In addition, we record a write-down for investments in publicly held companies for an “other than temporary” impairment any time the market price of the security has remained below the Company’s average cost for two consecutive fiscal quarters, unless strong positive evidence exists that makes it clear that an “other than temporary” write-down would be inappropriate under the guidance of SFAS 115. The related write-down will then be recorded as an investment loss on our consolidated statements of operations. During fiscal 2003, we recorded a recognized loss of $2 million related to available for sale marketable securities as we sold our investments in Microvision and Emcore. During fiscal 2002, we recorded an “other-than-temporary” investment loss of $22.0 million related to available-for-sale marketable securities based primarily on sustained reductions in stock price performance.

We also make strategic investments in equity securities of privately held companies from time to time. Since we do not have the ability to exercise significant influence over the operations of these companies, these investment balances are carried at cost and accounted for using the cost method of accounting. The shares of stock we received in these investments are not presently publicly traded and there is no other established market value for these securities. We have a policy in place to review the fair value of these investments on a regular basis to evaluate the carrying value of such investments. This policy includes, but is not limited to, reviewing each of the companies’ cash position, financing needs, earnings and revenue outlook, operational performance, management or ownership changes, and competition. The evaluation

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process is based on information that we are provided by these privately held companies. Since these companies are not subject to the same disclosure regulations as U.S. public companies, the basis for these evaluations is subject to the timing and the accuracy of the data received from these companies. If the carrying value of an investment is at an amount in excess of our estimate of fair value, and we have determined that the decline is “other than temporary”, it is our policy to record a write-down of the investment. This write-down is estimated based on the information described above, and it is recorded as an investment loss on our consolidated statements of operations. During fiscal 2002, we recorded a write-down on these investments of $20.4 million, representing our estimate of “other-than-temporary” declines in value based on a review of those factors described above. Estimating the fair value of non-marketable investments in early-stage technology companies is inherently subjective and may contribute to significant volatility in our reported results of operations. There were no adjustments made to investment losses on our consolidated statements of operations during fiscal 2003 relating to our investments in privately held companies.

Inventories.    Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method for finished goods and work in process accounts and the average cost method is used for raw materials for the Cree segment. The Cree microwave segment uses a standard cost method. We evaluate our ending inventories for excess quantities, impairment of value and obsolescence. This evaluation includes analysis of sales levels by product and projections of future demand based upon input received from our customers, sales team and management estimates. We reserve for inventories on hand that are greater than twelve months old, unless there is an identified need for the inventory. In addition, we write off inventories that are considered obsolete based upon changes in customer demand, manufacturing process changes that result in existing inventory obsolescence or new product introductions, which eliminates demand for existing products. Remaining inventory balances are adjusted to approximate the lower of our manufacturing cost or market value. If future demand or market conditions are less favorable than our estimates, additional inventory write-downs may be required and would increase cost of revenue in the period the revision is made. We evaluate the adequacy of these reserves quarterly.

During the fourth quarter of fiscal 2003, we reserved $159,000 related to SiC wafer inventory that was slow moving as our customer demand for this type of product had slowed. As a result of the termination of the supply agreement with Spectrian in the second quarter of fiscal 2003, we recorded a $1.3 million reserve in the Cree Microwave segment for inventory that was slow moving or specifically identified to be sold to Spectrian, including customized parts. We also reserved an additional $522,000 of inventory at Cree Microwave during the first quarter of fiscal 2003. This inventory charge was taken because of change in demand from Spectrian. Spectrian initially indicated that they would have strong demand for this type of transistor and later determined that the demand had significantly weakened. During the three months ended December 29, 2002, we reserved $784,000 in the Cree segment for slow moving LED and wafer inventory. In addition, during the first quarter of fiscal 2003, we wrote down $185,000 of certain LEDs to an estimated market value calculation. In the third quarter of fiscal 2002, we recorded a $4.5 million reserve at our Cree Microwave segment for non-LDMOS and older LDMOS devices as a result of contract negotiations with Spectrian that identified these devices as obsolete. All of these adjustments were recorded through cost of revenue. In addition, we also wrote off $1.0 million of costs associated with initial XBright products and $417,000 of costs associated with LDMOS8 devices as research and development expenses in the first quarter of fiscal 2003. The $1.0 million write down was attributable to early generation XBright devices that were later determined to be non-saleable because of design deficiencies. The $417,000 write-down was associated with LDMOS8 products that were on hand and determined not to be saleable for similar reasons. In both cases, our customers had initially accepted the devices and we produced initial amounts of the product. Based on history with our customers, normally once products are accepted, they are ultimately qualified. Thus we concluded that capitalizing the cost of these items, as inventory was appropriate. However, in both cases, our customers later rejected the products. Therefore, we wrote off the entire amount of inventory as research and development expenses, because the materials were never qualified as completed devices or ultimately sold to customers. In the case of the LED devices, our customers returned all products shipped of that technology.

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Revenue Recognition and Accounts Receivable.    Revenue on product sales is recognized when persuasive evidence of a contract exists, such as when a purchase order or contract is received from the customer, the price is fixed, title of the goods has transferred and there is a reasonable assurance of collection of the sales proceeds. We obtain written purchase authorizations from our customers for a specified amount of product at a specified price and consider delivery to have occurred at the time of shipment. The majority of our products have shipping terms that are FOB or FCA shipping point, which means that we fulfill the obligation to deliver when the goods are handed over and into the charge of the carrier at our shipping dock. This means that the buyer bears all costs and risks of loss of or damage to the goods from that point. The difference between FOB and FCA is that under FCA terms, the customer designates a shipping carrier of choice to be used. In certain cases, we ship our product Cost Insurance Freight (CIF). Under this arrangement, revenue is recognized under FOB shipping point shipping terms, however, we are responsible for the cost of insurance to transport the product as well as the cost to ship the product. For all of our sales other than those with CIF terms, we invoice our customers only for shipping costs necessary to physically move the product from our place of business to the customer’s location. The costs primarily consist of overnight shipping charges. We incur the direct shipping costs on behalf of the customer and invoice the customer to obtain direct reimbursement for such costs. We account for our shipping costs as a part of cost of revenue and record the reimbursement of such costs by our customer as a direct offset and reduction to cost of revenue. Beginning in fiscal year 2004, we will record the amount of freight that is invoiced to our customers as revenue, with the corresponding cost recorded as cost of revenue. We estimate that this change will amount in an insignificant contribution to revenues. If inventory is maintained at a consigned location, revenue is recognized when our customer pulls product for its use. We provide our customers with limited rights of return for non-conforming shipments and warranty claims for up to 36 months for Cree Microwave products. Revenue is recognized from our customers at shipment. For certain customers we defer revenue for certain sales costs incurred in selling our products and for managing our inventory, up to the balance of the deferred revenue. This deferred revenue amounted to $5.5 million and $741,000 as of June 29, 2003 and June 30, 2002, respectively. Please see discussion in Item 1 of this report under “Distributorship Agreement with Sumitomo Corporation”, for further information.

Significant judgments and estimates made by management are used in connection with establishing the allowance for sales returns. Material differences may result in the amount and timing of our revenue for any period if management made different judgments or utilized different estimates. The allowance for sales returns at June 29, 2003 was $644,000.

Revenue from government contracts is recorded on the percentage-of-completion method as contract expenses are incurred. Contract revenue represents reimbursement by various U.S. Government entities to aid in the development of new technology. The applicable contracts generally provide that we may elect to retain ownership of inventions made in performing the work, subject to a non-exclusive license retained by the government to practice the inventions for government purposes. The contract funding may be based on either a cost-plus or a cost-share arrangement. The amount of funding under each contract is determined based on cost estimates that include direct costs, plus an allocation for research and development, general and administrative and the cost of capital expenses. Cost-plus funding is determined based on actual costs plus a set percentage margin. For the cost-share contracts, the actual costs relating to the activities to be performed by us under the contract are divided between the U.S. Government and us based on the terms of the contract. The government’s cost share is then paid to us. Activities performed under these arrangements include research regarding SiC and Group III nitride materials and devices. The contracts typically require the submission of a written report that documents the results of such research, as well as some material deliverables.

The revenue and expense classification for contract activities is based on the nature of the contract. For contracts where we anticipate that funding will exceed direct costs over the life of the contract, funding is reported as contract revenue and all direct costs are reported as costs of contract revenue. For contracts under

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which we anticipate that direct costs of the activities subject to the contract will exceed amounts to be funded over the life of the contract, costs are reported as research and development expenses and related funding is reported as an offset of those expenses.

Accruals for Liabilities and Warranties.    At times, we must make estimates for the amount of costs that have been incurred but not yet billed for general services, including legal and accounting fees, costs pertaining to our self-funded medical insurance, warranty costs and other expenses. Many of these expenses are estimated based on historical experience or information gained directly from the service providers.

Valuation of Deferred Tax Assets.    As of June 29, 2003, we had $22.8 million recorded as a deferred tax asset. This asset was recorded as a result of tax benefits associated with the $143.9 million of significant charges taken in fiscal 2002. These charges were recorded for the write-off of property and equipment, the impairment of goodwill and intangible assets at Cree Microwave and other charges resulting from the downturn in Cree Microwave’s business and the “other than temporary” charges taken on our investments.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited consolidated financial statements and notes thereto included in this Annual Report on Form 10-K which contain a discussion of our accounting policies and other disclosures required by accounting principles generally accepted in the United States.

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Results of Operations

The following table shows our consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:

	Years Ended
	June 29, 2003		June 30, 2002		June 24, 2001
Revenue:
Product revenue, net	88.3	%	87.6	%	90.0	%
Contract revenue, net	11.7		12.4		10.0
Total revenue	100.0		100.0		100.0
Cost of Revenue:
Product revenue, net	47.7		50.3		43.3
Contract revenue, net	9.1		8.9		7.3
Total cost of revenue	56.8		59.2		50.6
Gross margin	43.2		40.8		49.4
Operating expenses:
Research and development	13.6		18.0		7.3
Sales, general and administrative	11.5		16.5		10.2
Intangible asset amortization	—		4.4		2.6
In-process research and development costs	—		—		9.8
Impairment of goodwill	—		49.2		—
Loss on disposal of fixed assets	0.7		12.2		—
Other expense	0.1		1.2		—
Total operating expense	25.9		101.5		29.9
(Gain) on termination of supply agreement	(2.2	)	—		—
Income (loss) from operations	19.5		(60.7	)	19.5
Non-operating income (expense):
(Loss) gain on investments in marketable securities	(0.9	)	(13.8	)	3.4
Loss on long term investments	—		(13.1	)	(2.6	)
Other non-operating income (expense)	0.1		—		(0.8	)
Interest income, net	1.8		3.7		8.8
Income (loss) before income taxes	20.5		(83.9	)	28.3
Income tax expense (benefit)	5.3		(18.5	)	12.6
Net income (loss)	15.2	%	(65.4	)%	15.7	%

Comparison of Fiscal Years Ended June 29, 2003 and June 30, 2002

Revenue.    Revenue increased 48% to $229.8 million in fiscal 2003 from $155.4 million in fiscal 2002. Higher revenue was primarily attributable to greater product revenue, which increased 49% to $203.0 million in fiscal 2003 from $136.2 million in fiscal 2002. Much of the increase in revenue resulted from significantly higher unit shipments of our LED products due to stronger demand from our customers primarily for mobile appliance and automotive applications. LED revenue was $172.3 million and $90.5 million, for fiscal 2003 and 2002, respectively. The most significant increase in revenue in fiscal 2003 came from sales to our Japanese distributor, Sumitomo. Revenue from sales to Sumitomo increased by 153% or $33.3 million in fiscal 2003 as compared to fiscal 2002 due to strong demand among Japanese manufacturers for our products for mobile appliance, automotive, consumer products and indicator light applications. Revenue from sales to Osram and Agilent also increased by 63% and 64%, respectively, or $19.4 million and $8.9 million, respectively, in fiscal 2003 over the prior year comparative period. Much of this increased business was

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caused by demand for our products used in mobile appliances as well as automotive and other applications. During fiscal 2003, we also noted an increase in business from several smaller Asian LED packagers as our customer base became more diversified. The only significant decline in revenue came from Spectrian, which was acquired by Remec in December 2002, where revenue from sales declined 96% or $23.5 million in fiscal 2003 as compared to fiscal 2002. Spectrian or Remec purchases silicon RF transistors from our Cree Microwave segment. The distributorship agreement with Sumitomo requires us to establish reserves at the time we ship LED products to Sumitomo based upon a percentage of the total purchase price of such products. Revenue is recognized from our customers at shipment. For certain customers we defer revenue for certain sales costs incurred in selling our products and for managing our inventory, up to the balance of the deferred revenue. This deferred revenue amounted to $5.5 million and $741,000 as of June 29, 2003 and June 30, 2002, respectively.

Our LED revenue increased 90% in fiscal 2003 as compared to fiscal 2002 and made up 75% of our total revenue in fiscal 2003. Our average LED sales price declined 9% for the twelve months ended June 2003 compared to the prior year. This decrease was in line with our strategy to lower prices to our customers to expand applications using nitride LEDs. Our average sales price for LEDs also was lower due to increasing price competitiveness in the marketplace and a change in the product mix of our sales to customers. For fiscal 2003, our LED chip volume increased 111% over prior year shipments. The most significant increase to revenue occurred in our mid-brightness range of LED products including our high brightness, UltraBright and MegaBright products. Our lower range mid-brightness LED products have been incorporated into new designs in the keypads of several mobile phone models that feature a blue color as well as blue LEDs that are used as the backlight for blue displays. In addition, these LED chips are now used in other products targeting gaming equipment, consumer products and office automation applications. The introduction of the MegaBright blue, green and UV products in fiscal 2002 also has generated new design wins for our customers. The MegaBright chip is approximately two times brighter than our previous generation devices and is similar to the brightness that is currently offered by our primary competitors. These MegaBright products have replaced some existing demand for our previous generation high brightness devices. However, due to the MegaBright product line’s higher performance, it has also generated new opportunities in other markets, particularly mobile appliance applications for blue and white LED backlight designs. Blue and white LEDs have replaced a portion of the yellow-green LEDs that have traditionally backlit mobile handsets as more handsets now offer blue backlit keypads and full color displays backlit by white LEDs. The MegaBright product line also is being used in new automotive designs from both European and Asian manufacturers for the 2003 model year.

During fiscal 2002, we introduced our XBright family of LEDs, including blue, green and UV devices. These products offer a higher brightness than our MegaBright products. We completed the introduction of these devices in the second half of fiscal 2002; however, we continue to work with customers to optimize our chip design for use in their packages. While our XBright products did not contribute significantly to our revenue in fiscal 2003, we project that they will be more significant to our revenue in fiscal 2004 for high brightness applications such as mobile appliances, display signs, traffic signals and lighting applications. Shipments of our standard brightness products were flat in fiscal 2003 in comparison to the prior year due to stable demand for automotive and indicator light applications.

SiC wafer revenue was $19.5 million and $17.5 million, for fiscal 2003 and 2002, respectively. Wafer revenue increased 11% over the prior year due to greater sales to the corporate and university research customers. Wafer units declined 6% while the average sales price increased 19% during fiscal 2003, due to a lower mix of shipments to Osram, which uses wafers in commercial production. Since Osram uses the wafers in commercial high volume production, they receive volume discounts on their purchases, therefore, these sales have a lower average sales price. We also sold more wafers with epitaxial layers during fiscal 2003, which contributed to a higher average sales price. Wafer revenue made up 9% of our total revenue in fiscal 2003.

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SiC material revenue from material sold for gemstone use was $7.4 million and $2.6 million, for fiscal 2003 and 2002, respectively. Revenue from sales of our SiC materials for use in gemstones increased 190% during fiscal 2003 as compared to fiscal 2002 as C&C increased their orders to us. Revenue from gemstone materials was 3% of our total sales for fiscal 2003. During the fourth quarter of fiscal 2003, we experienced lower yields of useable materials in our production of gemstone material.

Revenue from microwave products was $3.0 million and $25.1 million, for fiscal 2003 and 2002, respectively. Microwave revenue made up 1% of our total revenue for fiscal 2003. Revenue from these products decreased 88% to $3.0 million in fiscal 2003 from $24.8 million in fiscal 2002. The decrease in revenue resulted from the termination of the supply agreement with Spectrian in November 2002. Approximately 99% of Cree Microwave revenues were derived from shipments to Spectrian in fiscal 2002. Prior to the termination of the supply agreement, Spectrian had reduced its purchase obligations beginning in March 2002 because our LDMOS8 products had not been qualified. We amended our agreement with Spectrian in March 2002, which resulted in Spectrian ordering fewer products each quarter until the agreement was terminated in November 2002. We also had little success in gaining new customers in fiscal 2003 due to the poor economic environment for wireless infrastructure spending. Our LDMOS8 products were released to production in November 2002 but these products have not yet contributed significantly to revenue. Design cycles can be 12 to 18 months for wireless infrastructure applications.

Product sales mix for our Cree Microwave products remained constant as LDMOS made up 55% and 54% of microwave revenue for fiscal 2003 and fiscal 2002, respectively. Revenue attributable to bipolar devices was 23% and 45% for fiscal 2003 and 2002, respectively. Approximately 22% of Cree Microwave’s revenue was from engineering services for fiscal 2003 as we continued to work with new customers toward design wins. Overall, our average sales price for Cree Microwave was fairly stable compared to the prior fiscal year. The most significant factor impacting revenue for our Cree Microwave segment was the 89% decline in units sold as a result of the termination of the Spectrian supply agreement and the overall slowdown in Spectrian’s business prior to the termination of the supply agreement. For fiscal 2004, we target higher revenue for Cree Microwave. However, if we are unable to secure new design wins for Cree Microwave, revenue from this segment may decline and the valuation of our assets may be impaired.

Contract revenue was 12% of total revenue for fiscal 2003. Contract revenue received from U.S. Government agencies increased 40% during fiscal 2003 compared to fiscal 2002, due to additional contract awards that we received in 2002. In June 2002, we were awarded two contracts by ONR, with a total value of approximately $14.4 million as part of the Wide Bandgap Semiconductor Technology Initiative of DARPA. In July 2002, the Company was awarded government contracts totaling $26.5 million, if fully funded, over a three-year period from ONR and the AFRL. In fiscal 2003, we recognized approximately $16.1 million in revenue from these contracts. Additionally, we were awarded with another contract in June 2002 funded by DARPA, through the United States Army Robert Morris Acquisition Center, to pursue the development of UV LEDs and lasers for a variety of military communications and bio-threat detection applications under DARPA’s SUVOS program. In fiscal 2003, this DARPA SUVOS contract from ARL accounted for approximately $5.7 million in total revenue. We target that contract revenue will remain essentially the same during fiscal 2004, as we expect to continue to recognize revenue under the majority of these contracts throughout fiscal 2004.

Gross Profit.    Gross profit increased 57% to $99.2 million in fiscal 2003 from $63.4 million in fiscal 2002. Compared to the prior year, gross margins increased from 41% to 43% of revenue. In fiscal 2003, gross profit included a $1.3 million write-down of inventory at Cree Microwave due to the termination of the supply agreement with Spectrian. In fiscal 2002, gross profit included a $5.1 million charge relating to an inventory write-off and other related costs that were recorded as a part of the downsizing of Cree Microwave’s operations. In fiscal 2003, gross margins were impacted by higher LED margins being offset by negative margins from the Cree Microwave segment. LED margins improved as our average sales price decreased by 9% while the average cost of our LEDs decreased by 17% due to higher throughput in the

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factory and improved yields. Because a significant portion of our factory cost is fixed, higher throughput typically results in lower costs per unit produced. In addition, during fiscal 2002, our LED costs per unit also were higher than during fiscal 2003 due to inefficiencies typically associated with new product introductions as we released both the MegaBright and XBright family of products during the year.

Negative gross profits were $9.3 million for our Cree Microwave business during fiscal 2003 as compared to gross profits of $10.1 million recorded during fiscal 2002, despite the $5.1 million write-off of inventory discussed above. Low factory throughput due to significantly reduced sales volume has dramatically impacted our cost per unit.

Wafer costs for our SiC materials sales were 19% higher in fiscal 2003 than 2002, due to the shift in product mix of wafers sold with epitaxy as compared to production volume wafers sold to Osram. Contract margins declined from 28% in fiscal 2002 to 22% in fiscal 2003 due to a higher percentage of cost share contracts being worked on during the year.

Research and Development.    Research and development expenses increased 11% in fiscal 2003 to $31.2 million from $28.0 million in fiscal 2002. The increase in research and development spending supported our XBright, MegaBright Plus, XBright Plus, and RazerThin product lines; and our power chip LEDs as well as higher brightness LED research programs. In addition, we funded development of our LDMOS, SiC and Group III nitride microwave devices, our Schottky diode power program and our near UV lasers. While research and development spending increased, customer support of certain research and development programs decreased by $8.5 million, thereby further increasing costs. From time to time, our customers and companies that we invest in participate in research and development funding for specific programs. We record this third party funding as an offset against research and development expenses. Customers and third parties in which we invested funded $500,000 and $9.0 million in fiscal 2003 and fiscal 2002, respectively. The majority of this funding was received from companies in which we have made investments. For example, in fiscal 2003, the entire customer funding we received came from an affiliate of Lighthouse, in which we hold a private company equity investment. In fiscal 2002, Microvision, the Lighthouse affiliate, and Xemod funded $4.4 million, $3.0 million and $492,000, respectively, of our research and development. We held an investment in each of these companies at the time that they provided research and development funding to us. In addition, Spectrian, our largest customer for our Cree Microwave segment, also participated in funding our research and development programs for $1.1 million. When customers participate in funding our research and development programs, we record the amount funded as a reduction of research and development expenses. We do not expect funding for research and development during fiscal 2004 at this time from these or any other customers or third parties in which we invested.

Sales, General and Administrative.    Sales, general and administrative expenses increased 3% in fiscal 2003 to $26.3 million from $25.6 million in fiscal 2002. The increase in expenses was due mostly to higher premiums for insurance and greater spending to support the growth of the business, including increased performance based compensation plans for all employees.

Intangible Asset Amortization.    Intangible asset amortization decreased 100% to $0 during fiscal 2003 from $6.8 million during fiscal 2002. Nine months of intangible asset amortization was included in fiscal 2002 resulting from the acquisition of Cree Microwave in December 2000. In March 2002 an analysis of goodwill and other intangible assets indicated that the carrying values of such assets had been fully impaired under Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of” (“SFAS 121”) (see “Impairment of goodwill and loss on disposal of fixed assets”). Therefore, we wrote off the entire amount of goodwill and other intangible assets in March 2002. Prior to the write-off of goodwill and intangible assets, we were amortizing these assets over periods ranging from five to ten years.

Impairment of Goodwill and Loss on Disposal of Fixed Assets.    Impairment of goodwill decreased 100% to $0 during fiscal 2003 from $76.5 million during fiscal 2002. In March 2002, we determined that

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impairment existed and wrote off the entire balance of goodwill and other intangible assets. An analysis was performed at that date and indicated that the carrying values of such assets had been fully impaired under SFAS 121. The analysis was performed as several impairment indicators had occurred during the March 2002 quarter as discussed below. One of the significant impairment indicators related to a change in outlook for business at Cree Microwave related to the supply agreement between Cree Microwave and Spectrian. Under the original terms of the agreement, if Cree Microwave were unable to supply components deemed competitive with components available from third party suppliers within a certain period, Spectrian’s quarterly minimum purchase commitment would be reduced each quarter by the dollar volume of the component that Spectrian purchased from other vendors. Cree Microwave and Spectrian agreed to enter into the first amendment to the supply agreement in October 2001 because Cree Microwave was delayed in fully qualifying and completing development of its new LDMOS8 technology. Technology similar to LDMOS8 was made available to Spectrian from a competitor in early 2001. As a result, the Company agreed to reduce Spectrian’s commitments for the December 2001 quarter. In addition, we amended the supply agreement to provide that if competitive components meeting the applicable requirements were not available from Cree Microwave on or after April 1, 2002, Spectrian’s quarterly minimum purchase commitment thereafter would be reduced by any purchases of such products from other vendors.

By March 2002, Cree Microwave had not yet completed development and qualification testing of any of the components using its LDMOS8-based transistors and thus had not released the components to production. Cree Microwave then executed a second agreement of the supply agreement with Spectrian in March 2002 and agreed to reduced minimum quarterly purchase commitments from Spectrian in return for additional time in which to complete development and qualification testing of the LDMOS8 components. In addition, many of the products that Spectrian indicated that it would purchase in the future had not yet been released to production. Under the amended supply agreement with Spectrian, if Cree Microwave was not able to produce LDMOS8 devices in a timely manner, revenue from Spectrian would be significantly reduced after the June 2002 quarter. In addition, the outlook for acquiring additional customers decreased due to the overall weakened economy and the length of qualification cycles. Due to the change in outlook for business at Cree Microwave and the reduction in expected revenue per quarter, we performed an asset impairment analysis under SFAS 121. As a result of this analysis, the full amount of goodwill and intangible assets of $76.5 million was written off and recorded as “impairment of goodwill” under operating expenses on our consolidated statements of operations. Please refer to the Business Combinations Footnote #2 “Summary of Significant Accounting Policies and Other Matters” in the consolidated financial statement included in Item 8 of this report for further information about the valuation of Cree Microwave.

Loss on the disposal of fixed assets decreased 92% to $1.6 million in fiscal 2003 from $19.0 million recorded in fiscal 2002. During fiscal 2003, we recorded a $1.4 million write-down for fixed assets associated with a novel epitaxy equipment project that we discontinued before the equipment was delivered to us by the vendor. The amount represented a deposit that we paid for the equipment. We also disposed of $200,000 of other assets during the year. During fiscal 2002, we took a $19.0 million charge to write down fixed assets due to decisions made based on changes in technology. This impairment reflected management’s decision to focus our technology in certain directions based on feedback from our research and development teams. After extensively testing certain reactor technology equipment, we narrowed a preference for certain processes, and as a result, we wrote-off non-producing reactor equipment that did not use the preferred processes. Also, in December 2001, management prepared for a 3” wafer transition over the next several years. As a result, during that period we wrote-off non-convertible 2” crystal growth equipment that was not expected to be used. Finally, yield improvements in our existing facility also resulted in the obsolescence of certain other equipment. All equipment written off in the second quarter of fiscal 2002 was dismantled and destroyed, if proprietary in nature, or sold by June 2002.

Severance Charges and Other Operating Expense.    Severance charges decreased by 54% to $400,000 in fiscal 2003 from $875,000 in fiscal 2002. In the first quarter of fiscal 2003, we incurred $400,000 of severance charges at our Cree Microwave segment. In the third quarter of fiscal 2002, we recorded an

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$875,000 severance charge also associated with Cree Microwave. In both periods we recorded the severance charge in the same period that the employees were laid off and received their severance payments.

Other operating expense decreased to $0 in fiscal 2003 from $840,000 in fiscal 2002. This reduction was primarily caused by a $700,000 one-time retention bonus paid to Cree Microwave employees pursuant to a contractual commitment made as a part of the acquisition of Cree Microwave from Spectrian in the second quarter of fiscal 2002.

Other Operating Income-Gain on Termination of Supply Agreement.    Gain on the termination of supply agreement increased to $5.0 million in fiscal 2003 from $0 in fiscal 2002. In the second quarter of fiscal 2003, we received a $5.0 million one time payment from Spectrian associated with the termination of the supply agreement between Cree Microwave and Spectrian.

Loss on Investments in Marketable Securities and Loss on Long-term Investments.    Loss on investments in marketable securities declined 90% to $2.1 million in fiscal 2003 from $21.5 million recorded in fiscal 2002. The $2.1 million recorded in fiscal 2003 related to marketable securities that we sold during the second quarter of fiscal 2003. The $21.5 million loss recorded in fiscal 2002 related to an entry to reclassify other comprehensive losses from equity to “loss on investments in marketable securities” in our consolidated statements of operations. In addition, we also recorded additional write-downs for “other-than-temporary” declines in the market value of these investments of these companies as well as the overall stock market declines. This charge was partially offset by a gain on the sale of marketable trading securities of $558,000.

Loss on long-term investments declined to $0 in fiscal 2003 from $20.4 million recorded in fiscal 2002. In fiscal 2002, we recorded write-downs for some investments we had made in privately held companies as many of the companies were experiencing deteriorating financial conditions and/or an inability to raise additional capital, which represented significant indicators of value impairment. In the second quarter of fiscal 2002, we recorded a write-down of $12.4 million in privately held investments. The majority of the write-down was taken on our investment in Xemod based on data regarding the company’s valuation. We recorded an $8.4 million write-down on the investment to bring the market capitalization estimate for the entire company to $3.8 million. In 2002, a third party purchased Xemod for approximately $4.5 million. We also took an additional $1.8 million write down on our investment in Lighthouse based on data regarding the company’s valuation. A $2.1 million write-down was also taken on our investment in World Theatre based on data regarding the company’s valuation. World Theatre also attempted to raise capital during the December 2001 quarter and only raised one half of the amount expected in a convertible debt round.

In the fourth quarter of 2002, we wrote down an additional $8.0 million related to our privately held investments. Our investment in EMF Limited (EMF) was fully written down by $1.1 million based on data regarding the Company’s valuation. We further wrote down our Lighthouse investment by $3.4 million, based on data regarding the Company’s valuation. During the fourth quarter of 2002, we also fully wrote down our investment in World Theatre based on data regarding the Company’s valuation. The amount of the additional write-down was $2.1 million. World Theatre has recently filed for bankruptcy protection. A $1.4 million charge was also taken to fully write down our investment in Kyma Technologies Inc. (Kyma) based on data regarding the Company’s valuation.

Other Non-operating Income.    Other non-operating income increased to $442,000 in fiscal 2003 from $0 in fiscal 2002. In the fourth quarter of fiscal 2003, we received a contractually agreed upon payment from one of our customers, representing a settlement for a foreign currency translation adjustment included in our sales contract.

Interest Income, net.    Interest income, net decreased 28% to $4.1 million in fiscal 2003 from $5.7 million in fiscal 2002. The reduction from the comparative period in the prior year resulted primarily from lower interest rates available for our liquid cash over the period.

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Income Tax Expense (Benefit).    Income tax expense for fiscal 2003 was $12.3 million compared to a $28.7 million tax benefit recorded in fiscal 2002. The income tax benefit resulted from the $130.4 million net pre-tax loss resulting mainly from the charges taken during the period. These charges included write downs for the impairment of fixed assets of $19.0 million, a $20.4 million charge to reserve for the decline in value of investments in privately held companies, a $21.4 million write down for “other than temporary” declines in the fair market value of our marketable securities, a $76.5 million write down of goodwill and other intangibles and a $5.1 million reserve taken for inventory and other items. Our effective income tax rate was 26% for fiscal 2003 compared to a 22% rate during the comparative period in fiscal 2002 due to greater tax benefits in fiscal 2002 associated with the losses reported in that year. At June 29, 2003, we also maintained $22.8 million in deferred tax assets that we did not reserve for as we target profitable operations over the next several periods and target being able to use the assets in their entirety.

The minimum amount of future taxable income that will be required to realize existing deferred tax assets is approximately $59.6 million, applicable within the next 20 years to offset existing net operating losses. The new tax act, “The Job Creation and Workers’ Assistance Act of 2002”, is expected to allow us to recover past alternative minimum tax that had been previously paid. This amount has been recorded as a tax receivable. The new legislation also allows us more favorable depreciation. Historically, our reported taxable income has been significantly lower than income reported for financial reporting purposes. The primary reasons for this difference are the timing differences for depreciation, stock option deductions for tax purposes, other tax planning strategies and impairment charges expensed for financial accounting purposes that are not tax deductible.

Comparison of Fiscal Years Ended June 30, 2002 and June 24, 2001

Revenue.    Revenue declined 12% to $155.4 million in fiscal 2002 from $177.2 million in fiscal 2001. This decrease was attributable to lower product revenue, which declined 15% to $136.2 million in fiscal 2002 from $159.5 million in fiscal 2001. This decrease included results of our mid-year fiscal 2001 acquisition of the UltraRF business from Spectrian, which subsequently reduced the overall decrease by approximately 2%. The decline in revenue from our traditional business was mainly attributable to lower average selling prices for our LED and SiC wafer products.

LED revenue was $90.5 million and $114.7 million for fiscal 2002 and 2001, respectively. LED revenue made up 58% of total revenue in fiscal 2002. Average LED sales prices declined 24% for the twelve months ended June 2002 compared to the prior year. This decrease was related to increased price competition in the marketplace due to weaknesses in the worldwide economy. The overall demand for nitride LEDs declined during our fiscal 2002. For fiscal 2002, our LED chip volume increased 5% over prior year shipments. The introduction of the MegaBright UV, blue, and green products in fiscal 2002 generated new design wins for our customers. The MegaBright product line was not fully introduced until February 2002, when our green devices in this line were released.

During fiscal 2002, we also introduced our new XBright family of LEDs. We completed the introduction of these devices in the second half of fiscal 2002. These devices did not contribute significantly to revenue in fiscal 2002, as we continued to work with customers to optimize our chip design in packaged solutions and to address die attach issues. Shipments of our standard brightness products were flat in fiscal 2002, in comparison to the prior year, due to stable demand for automotive and indicator light applications.

SiC wafer revenue was $17.5 million and $18.6 million, respectively for fiscal 2002 and 2001. Wafer revenue was 12% of total revenue for fiscal 2002. Overall, for fiscal 2002, SiC wafer sales decreased 6% from the prior year due to lower pricing for wafers sold to corporate and research communities, including certain customers using our wafers for commercial production. Wafer units increased 8%, while average sales prices declined 12% due to a higher mix of volume sales related to wafers used in commercial production by Osram and Infineon.

40

Revenue for SiC materials sold for gemstone applications was $2.6 million and $5.9 million for fiscal 2002 and 2001, respectively. Revenue for SiC materials for use in gemstones was 2% of total revenue for fiscal 2002. Sales of gemstone materials declined 57% during fiscal 2002 as compared to fiscal 2001 due to declining orders from C&C.

Microwave revenue was $25.1 million and $19.4 million in fiscal 2002 and 2001, respectively. Microwave revenue was 16% of total revenue in fiscal 2002. Revenue from Cree Microwave increased 29% to $24.8 million in fiscal 2002 from $19.2 million in fiscal 2001. The increase in revenue represented an additional six months of sales for the segment due to our mid-year acquisition of Cree Microwave from Spectrian in fiscal 2001. Our average quarterly revenue in fiscal 2002 was lower than fiscal 2001 due to the current market environment for wireless infrastructure spending. Product mix shifted to LDMOS during fiscal 2002, which comprised 54% of microwave revenue, an increase of 13% from fiscal 2001. Revenue attributable to bipolar devices was 45% and 1% related to other products during fiscal 2002. Approximately 99% of Cree Microwave revenues were derived from shipments to Spectrian in fiscal 2002 as well as fiscal 2001. Overall, our average sales prices for this business segment were fairly stable, with quarterly average volume being reduced in fiscal 2002 as compared to fiscal 2001.

Contract revenue was 12% of total revenue in fiscal 2002. Contract revenue received from U.S. Government agencies and non-governmental customers increased 9% during fiscal 2002 compared to fiscal 2001, due to additional contract awards received. In June 2002, we were awarded two contracts by ONR, with a total value of approximately $14.4 million as part of the Wide Bandgap Semiconductor Technology Initiative of DARPA. Additionally, we were awarded with another contract in June 2002 funded by DARPA, through ARL, to pursue the development of UV LEDs and lasers for a variety of military communications and bio-threat detection applications under DARPA’s SUVOS program.

Gross Profit.    Gross profit decreased 28% to $63.4 million in fiscal 2002 from $87.5 million in fiscal 2001. Compared to the prior year, gross margins declined from 49% to 41% of total revenue. In fiscal 2002, gross profit included a $5.1 million charge relating to an inventory write-off and other related costs that were recorded as a part of the downsizing of Cree Microwave’s operations. Lower margins were attributed to a combination of lower revenue and reduced profitability for LED and wafer products and lower profitability at Cree Microwave related to weak demand for RF devices. LED margins declined due to average sales prices decreasing at a faster rate than average costs. During fiscal 2002, LED average sales prices declined 24%, which was in line with our plans, while costs were only 16% lower. LED costs did not decline as quickly as revenue due to reduced worldwide demand for blue, green and UV LED products, this put pressure on average sales prices and lowered our factory throughput. Because a significant portion of our factory cost is fixed, lower throughput typically results in higher costs per unit produced. In addition, our LED costs per unit were higher due to inefficiencies typically associated with new product introductions as we released both the MegaBright and XBright family of products during the year. In the fourth quarter of fiscal 2002, we had product returns and inventory write-downs that resulted in a $948,000 reduction in gross profit. This reduction was related to packaging issues identified by some customers after the release of the XBright family of products. Despite the lower throughput of volume and new product inefficiencies, we were still able to reduce LED costs by 16% due to improved yield, cost cutting measures and other efficiencies.

Gross margin at Cree Microwave was 19% during fiscal 2002 and was impacted by the $5.1 million write-off of inventory discussed above which decreased said margin by approximately 21%. Low factory throughput due to reduced sales volumes and the qualification of LDMOS 8 significantly impacted our cost per unit during fiscal 2002.

Research and Development.    Research and development expenses increased 116% in fiscal 2002 to $28.0 million from $13.0 million in fiscal 2001. The increase in research and development spending supported our MegaBright and XBright product lines, our power chip LED devices as well as new higher brightness LED research programs. In addition, we funded development of our next generation LDMOS, SiC and GaN microwave devices, our Schottky diode power program and our near UV lasers. While research and

41

development spending increased, customer support of certain programs decreased by $2.9 million, thereby further increasing costs. From time to time, our customers and companies that we invest in participate in research and development funding for specific programs. We record this funding from third parties as an offset against research and development expenses. Customers and third parties in which we invested funded $9.0 million and $11.9 million in fiscal 2002 and fiscal 2001, respectively. The majority of this funding was received from companies that we had made investments in. Finally, the mid-year acquisition of Cree Microwave during fiscal 2001, which added approximately 8% to research and development expenses, also contributed to the higher spending variance. In fiscal 2002, Microvision, a Lighthouse affiliate and Xemod funded $4.4 million, $3.0 million and $492,000, respectively, of our research and development programs. We held an investment in each of these companies at the time that they provided research and development funding to us. In addition, Spectrian, which was the largest customer for our Cree Microwave segment, also funded our research and development programs for $1.1 million. In fiscal 2001, Microvision, a Lighthouse affiliate and Xemod funded $4.7 million, $2.5 million and $2.7 million, respectively, of our research and development. We held an investment in each of these companies at the time. In addition, Spectrian funded $1.2 million and C&C funded $720,000 of our research and development programs. When customers or third parties in which we invested fund our research and development, we record the amount funded as a reduction of research and development expenses.

Sales, General and Administrative.    Sales, general and administrative expenses increased 41% in fiscal 2002 to $25.6 million from $18.1 million in fiscal 2001. The increase in expenses was attributed mostly to costs associated with intellectual property litigation subsequently resolved in fiscal 2003. The mid-year acquisition of Cree Microwave during fiscal 2001 added approximately 5% to sales and general and administrative expenses, which also contributed to the higher spending variance. In addition, costs were higher due to higher premiums for insurance and greater spending to support the growth of the business.

Intangible Asset Amortization and In-Process Research and Development Costs.    Intangible asset amortization increased 49% to $6.8 million during fiscal 2002 from $4.5 million during fiscal 2001. Nine months of intangible asset amortization was included in fiscal 2002 and six months of amortization was included in fiscal 2001 resulting from the acquisition of Cree Microwave in December 2000. An analysis of goodwill and other intangible assets indicated that the carrying values of such assets had been fully impaired under SFAS 121 (see “Impairment of goodwill and loss on disposal of fixed assets”). Therefore, we wrote off the entire balance of goodwill and other intangible assets in March 2002. Prior to the write-off of goodwill and intangible assets, we were amortizing these assets over periods ranging from five to ten years.

As a result of the acquisition of Cree Microwave in December 2000, we recorded a charge of $17.4 million in the third quarter of fiscal 2001 associated with acquired in-process research and development costs (“IPR&D”). Management is primarily responsible for the valuation of IPR&D. The IPR&D projects ongoing at the acquisition date were LDMOS-non module technologies which were estimated to be 95% complete at the acquisition date and LDMOS-module technologies then estimated to be 85% complete at the acquisition date. At the acquisition date, we estimated that both of these technologies would be completed with in six months. The LDMOS-non module technology was abandoned in March 2002. The LDMOS-module device R&D was completed successfully in calendar 2001. The projections for revenue and costs for the LDMOS-non module technology as of the acquisition date (December 29, 2000) differed from actual results as the project was never completed and was abandoned in March 2002. The projections as of the acquisition date for revenue and cost for the LDMOS-module device also differed from actual results because even though the technology was completed in 2001, the devices are being customized for specific customers and have not generated significant revenue to date. The abandonment of the LDMOS-non module technology and our failure to obtain significant design wins for the LDMOS-module technologies to date has impacted our expected return on investment and our future results of operations and financial position. As a result, we wrote off all of the intangible assets for Cree Microwave in March 2002.

Impairment of Goodwill and Loss on Disposal of Fixed Assets.    Impairment of goodwill increased to $76.5 million during fiscal 2002 from $0 during fiscal 2001. In March 2002, we wrote off the entire balance

42

of goodwill and other intangible assets. An analysis was performed at that date and indicated that the carrying values of such assets had been fully impaired under SFAS 121. The analysis was performed as several impairment indicators had occurred during the quarter. One of the significant impairment indicators related to a change in outlook for business at Cree Microwave related to the supply agreement between Cree Microwave and Spectrian. Cree Microwave amended its supply agreement with Spectrian in the third quarter of fiscal 2002, which reduced quarterly revenue expectations. Also, many of the products that Spectrian indicated that it would purchase in the future had not yet been released to production. Under the amended supply agreement with Spectrian, if Cree Microwave were not able to produce LDMOS8 devices in a timely manner, revenue from Spectrian would be significantly reduced after the June 2002 quarter. In addition, the outlook for acquiring additional customers decreased due to the weakened economy and the long qualification cycles. Due to the change in outlook for business at Cree Microwave and the reduction in expected revenue per quarter, we performed an asset impairment analysis under SFAS 121. As a result of this analysis, the full amount of goodwill and intangible assets of $76.5 million was written off and recorded as “impairment of goodwill” under operating expenses on our consolidated statements of operations. Please refer to the Business Combinations Footnote #2 “Summary of Significant Accounting Policies and Other Matters” in the consolidated financial statement included in Item 8 of this report for further information about the valuation of Cree Microwave.

Loss on the disposal of fixed assets increased 100% to $19.0 million in fiscal 2002 from $62,000 recorded in fiscal 2001. During the fiscal 2002, we took a $19.0 million charge to write down fixed assets. This impairment reflected management’s decision to focus our technology in certain directions based on feedback from our research and development teams. After extensively testing certain reactor technology equipment, we redefined our preference for certain processes, and as a result, we wrote-off non-producing reactor equipment that did not use the preferred processes. Also, in December 2001, management prepared for a 3” wafer transition over the next several years. As a result, we wrote-off non-convertible 2” crystal growth equipment that was not used. Finally, yield improvements also resulted in the obsolescence of certain other equipment that could not meet our yield expectations. All equipment written off in the second quarter of fiscal 2002 was dismantled and destroyed, if proprietary in nature, or sold by June 2002.

Severance Charges and Other Operating Expense.    Severance charges increased to $875,000 in fiscal 2002 from $0 in fiscal 2001. In the third quarter of fiscal 2002, we recorded an $875,000 severance charge associated with employment reduction at Cree Microwave. We recorded the severance charge in the same period that the employees were laid off and received their severance payment.

Other operating expense increased to $840,000 in fiscal 2002 from $0 in fiscal 2001. This increase was primarily caused by a $700,000 one-time retention bonus paid to Cree Microwave employees pursuant to a commitment made as a part of the acquisition of Cree Microwave from Spectrian in the second quarter of fiscal 2002.

Loss (Gain) on Investments in Marketable Securities and Loss on Long-term Investments.    In fiscal 2002, we recorded a $21.4 million loss on investments in marketable securities compared to a $6.0 million gain recorded in fiscal 2001. The $21.5 million loss recorded in fiscal 2002 related to an entry to reclassify other comprehensive losses from equity to “loss on investments in marketable securities” in our consolidated statements of operations related to write-downs for the “other than temporary” declines in the market value of investments in Microvision and Emcore. This charge was partially offset by a gain on the sale of marketable trading securities of $558,000. In fiscal 2001, we recognized a $6.0 million realized gain on the sale of marketable trading securities. See Note 6, to the Consolidated Financial Statements.

Loss on long-term investments increased 343% to $20.4 million in fiscal 2002 from $4.6 million recorded in fiscal 2001. In fiscal 2002, we reserved for some investments we had made in privately held companies as many of the companies were experiencing deteriorating financial conditions and/or an inability to raise additional capital, which represented significant indicators of value impairment. In the second quarter

43

of fiscal 2002, we reserved $12.4 million in privately held investments. The majority of the reserve was taken on our investment in Xemod, based on data regarding the company’s valuation and in 2001 the company had difficulty raising capital. We recorded an $8.4 million write-down on the investment to bring the market capitalization estimate to $3.8 million. In 2002, a third party purchased Xemod for approximately $4.5 million. We also took an additional $1.8 million write down on our investment in Lighthouse based on data regarding the company’s valuation. A $2.1 million write down was taken on our investment in World Theatre based on data regarding the company’s valuation. World Theatre also attempted to raise capital during the December 2001 quarter and only raised one half of the amount expected in a convertible debt round.

In the June 2002 quarter, we wrote down an additional $8 million related to our privately held investments. Our investment in EMF, was fully written down by $1.1 million based on data regarding the company’s valuation. We further wrote down our Lighthouse investment by $3.4 million, based on data regarding the company’s valuation. During the June 2002 quarter, we also fully wrote down our investment in World Theatre based on data regarding the company’s valuation. The amount of the additional write-down was $2.1 million. Finally, a $1.4 million charge was taken to fully write down our investment in Kyma during the quarter based on data regarding the company’s valuation.

During the fourth quarter of fiscal 2001, we took a $4.6 million reserve against our investments in privately held companies. A $2.4 million reserve was taken against our investment in Xemod based on data regarding the company’s valuation. In addition, a $1.4 million reserve was taken on our investment in Lighthouse based on data regarding the company’s valuation. Also, in the fourth quarter of fiscal 2001 a $750,000 write-down was taken for our investment in World Theater based on data regarding the company’s valuation.

Other Non-operating Expense.    Other non-operating expense decreased to $0 in fiscal 2002 from $1.3 million in fiscal 2001. In fiscal 2001, we made a one-time charitable contribution pledge of $1.2 million to the University of California at Santa Barbara to endow a Cree, Inc. chair in solid state lighting and displays and for other uses. In addition, a $100,000 charge was recorded related to one-time charges for expenses incurred for the acquisition of Nitres, Inc. We acquired Nitres, Inc. in May 2000 and these charges were adjustments to estimates for expenses that were made.

Interest Income, net.    Interest income, net decreased 64% to $5.7 million in fiscal 2002 from $15.7 million in fiscal 2001 due to significantly lower interest rates available in fiscal 2002. In addition, slightly lower cash amounts were available as $20.3 million was used to repurchase our own stock during fiscal 2002.

Income Tax Expense (Benefit).    Income tax expense (benefit) for fiscal 2002 was a benefit of $28.7 million compared to an expense of $22.3 million in fiscal 2001. The income tax benefit resulted from the $130.4 million net pre-tax loss resulting mainly from the charges taken during the period. These charges included write downs for the impairment of fixed assets of $19.0 million, a $20.4 million charge for the reserve for investments in privately held companies, a $21.4 million write down for “other than temporary” declines in the fair market value of marketable securities, a $76.5 million write down of goodwill and other intangibles and a $5.1 million reserve taken for inventory and other items. The effective tax rate during fiscal 2002 was 22% compared to 33% in fiscal 2001.

Liquidity and Capital Resources

We have funded our operations, to date, through sales of equity, bank borrowings and from product and contract gross profits. As of June 29, 2003, we had working capital of $181.1 million, including $140.0 million in cash, cash equivalents and short-term investments held to maturity. As of June 29, 2003, we invested $58.8 million in long term securities held to maturity in order to receive a higher interest rate on our cash. Operating activities generated $89.6 million in fiscal 2003 compared with $39.1 million generated

44

during fiscal 2002. This increase was primarily attributable to a $31.2 million increase in deferred income tax assets recorded in fiscal 2002 that was generated from the $143.9 million in pretax charges taken in fiscal 2002. Operating results were also more profitable in fiscal 2003 than fiscal 2002. Depreciation and amortization increased by $9.3 million in fiscal 2003, due to new equipment purchased. Prepaid and other current assets also declined by $2.9 million due to a reduction in short term tax receivable balances, while accrued expenses increased by $4.4 million due to timing. These inflows of cash were partly offset by a $12.7 million increase in accounts receivable due to higher revenue.

Cash used by investing activities in fiscal 2003 was $111.3 million. Net investments of $34.7 million were made in securities held to maturity and $77.6 million was invested in property and equipment and in additional deposits for property and equipment. The majority of the increase in spending was due to new equipment additions to increase manufacturing capacity in our crystal growth, epitaxy, clean room and package and test areas. Finally, $3.3 million was invested in patents and the purchase of patent rights.

Cash provided by financing activities included the receipt of $12.7 million for the exercise of stock options and shares issued under our employee stock purchase program.

We target approximately $50 to 60 million in capital spending in fiscal 2004, which is lower than fiscal 2003. We estimate lower spending despite higher revenue targets for fiscal 2004, including targeting $100 million of revenue from Sumitomo ending in June 2004. Capital expenses are expected to be lower as we aim to receive benefits in fiscal 2004 from capital expenditures made in fiscal 2003, and we target yield improvements in our factory. We anticipate that the majority of the expenditures will be made for new equipment and will be funded by cash from operations. We target that our cash from operations will be higher in fiscal 2004 than it was in fiscal 2003 due to higher targeted profitability resulting from greater revenue. We also project that we will be free cash flow (defined as cash from operations less capital spending) positive for fiscal 2004. Therefore, we plan to meet the cash needs for the business for fiscal 2004 through cash from operations. We also anticipate that long term cash needs will be met with cash flow from operations or cash on hand over the next two fiscal years. Actual results may differ from our targets for a number of reasons as we discuss herein. We may also issue additional shares of common stock for the acquisition of complementary businesses or other significant assets. From time to time, we evaluate potential acquisitions in complementary businesses as strategic opportunities and anticipate continuing to make such evaluations.

As of June 29, 2003, our cash and cash equivalents, short-term investments held to maturity and marketable securities accounts combined increased by $27.9 million or 25% over balances reported as of June 30, 2002 due to increased cash flow from operations. Our accounts receivable balance increased by $9.3 million or 27% over the accounts receivable balance as of June 30, 2002, which resulted from the overall increase in revenue. Our revenue in the fourth quarter of fiscal 2003 was $64.1 million, which was 70% higher than the fourth quarter of fiscal 2002 revenue of $37.8 million. Our net property and equipment has also increased by $39.7 million or 19% since June 30, 2002 due to investments made to expand production capacity. These investments are targeted to aid us in meeting current and what we view as increasing, future customer product demands on a cost-effective basis. We target that these investments in additional equipment will allow us to meet any increase in demand for our products and thus may lead to higher revenue for us. The higher property investment will also result in higher depreciation expense. The deferred income tax asset account declined by $6.4 million or 24% since June 30, 2003 due to the use of tax assets toward our current year tax provision, as we were profitable in fiscal 2003. Other assets declined by $6.6 million or 29% since June 30, 2002 due to a $5.2 million decrease in deposits that were related to fixed asset additions. Our deferred revenue account increased by $4.8 million to $5.5 million as a result of the distributorship agreement with Sumitomo which requires us to establish reserves at the time we ship LED products to Sumitomo based upon a percentage of the total purchase price of such products. Revenue is recognized from our customers at shipment. For certain customers we defer revenue for certain sales costs incurred in selling our products and for managing our inventory, up to the balance of the deferred revenue.

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Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

Quantitative Disclosures:

As of June 29, 2003, we no longer hold investments in marketable securities; however, an adverse movement of equity market prices would likely have an impact on our portfolio of non-marketable strategic equity securities, although the impact cannot be directly quantified. Such a movement and the related underlying economic conditions could negatively affect the prospects of the companies we invest in, their ability to raise additional capital and the likelihood of our being able to realize our investments through liquidity events such as initial public offerings, mergers and private sales. At June 29, 2003, our non-marketable strategic equity securities had a net book value of $15.6 million.

We have invested some of the proceeds from our January 2000 public offering into high-grade corporate debt, commercial paper, government securities and other investments at fixed interest rates that vary by security. These investments are A grade or better per our cash management policy. At June 29, 2003, we had $134.0 million invested in these securities. Although these securities generally earn interest at fixed rates, the historical fair values of such investments have not differed materially from the amounts reported on our consolidated balance sheets. Therefore, we believe that potential changes in future interest rates will not create material exposure for us from differences between the fair values and the amortized cost of these investments.

We currently have no debt outstanding. With two of our larger customers, we maintain a foreign currency adjustment to our sales price if certain exchange rates against the U.S. dollar are not maintained. During the fourth quarter of fiscal 2003, we recognized $442,000 of other non-operating income associated with proceeds received from one of these customers for foreign currency adjustments. These revenue adjustments represent our main risk with respect to foreign currency, since our contracts and purchase orders are denominated in U.S. dollars. We also have no commodity risk.

Qualitative Disclosures

We hold no investments in publicly traded equity securities at this time.

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Item 8.    Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

	Page
Report of Independent Auditors	48
Consolidated Balance Sheets as of June 29, 2003 and June 30, 2002	49
Consolidated Statements of Operations for the years ended June 29, 2003, June 30, 2002 and June 24, 2001	50
Consolidated Statements of Cash Flow for the years ended June 29, 2003, June 30, 2002 and June 24, 2001	51
Consolidated Statements of Shareholders’ Equity for the years ended June 29, 2003, June 30, 2002 and June 24, 2001	52
Notes to Consolidated Financial Statements	53

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REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders

Cree, Inc.

We have audited the accompanying consolidated balance sheets of Cree, Inc. as of June 29, 2003 and June 30, 2002, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended June 29, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cree, Inc. at June 29, 2003 and June 30, 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 29, 2003, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 16 to the consolidated financial statements, in 2003 the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets and changed its method of accounting for goodwill.

Raleigh, North Carolina

July 25, 2003

48

CREE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	June 29, 2003			June 30, 2002
ASSETS
Current assets:
Cash and cash equivalents	$	64,795		$	73,744
Short-term investments held to maturity		75,242			32,396
Marketable securities available for sale		—			6,008
Accounts receivable, net		43,901			34,592
Interest receivable		1,650			2,083
Inventories, net		17,674			17,966
Deferred income taxes		1,863			1,122
Prepaid expenses and other current assets		4,230			5,994
Total current assets		209,355			173,905
Property and equipment, net		251,346			211,685
Long-term investments held to maturity		58,794			64,225
Deferred income taxes		20,934			27,365
Patent and license rights, net		7,146			4,251
Other assets		16,119			22,764
Total assets	$	563,694		$	504,195
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	14,916		$	13,075
Accrued salaries and wages		5,756			4,010
Deferred revenue		5,533			741
Other accrued expenses		2,087			4,228
Total current liabilities		28,292			22,054
Long term liabilities:
Other long-term liabilities		31			37
Total long-term liabilities		31			37
Commitments and Contingencies (Note 13)
Shareholders’ equity:
Preferred stock, par value $0.01; 3,000 shares authorized at June 29, 2003 and June 30, 2002; none issued and outstanding		—			—
Common stock, par value $0.00125; 200,000 shares authorized at June 29, 2003 and June 30, 2002; 74,127 and 72,729 shares issued and outstanding at June 29, 2003 and June 30, 2002, respectively		92			90
Additional paid-in-capital		526,318			508,432
Deferred compensation		(218	)		(696	)
Retained earnings (accumulated deficit)		9,179			(25,722	)
Total shareholders’ equity		535,371			482,104
Total liabilities and shareholders’ equity	$	563,694		$	504,195

The accompanying notes are an integral part of the consolidated financial statements.

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CREE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Year Ended
	June 29, 2003			June 30, 2002			June 24, 2001
Revenue:
Product revenue, net	$	202,962		$	136,230		$	159,533
Contract revenue, net		26,860			19,204			17,694
Total revenue		229,822			155,434			177,227
Cost of revenue:
Product revenue, net		109,726			78,249			76,734
Contract revenue, net		20,926			13,827			12,967
Total cost of revenue		130,652			92,076			89,701
Gross profit		99,170			63,358			87,526
Operating expenses:
Research and development		31,203			28,026			12,980
Sales, general and administrative		26,326			25,618			18,111
Intangible asset amortization		—			6,765			4,537
In-process research and development costs		—			—			17,400
Impairment of goodwill		—			76,489			—
Loss on disposal of fixed assets		1,569			19,019			62
Severance charges		400			875			—
Other expense		—			840			—
Operating expenses		59,498			157,632			53,090
Gain on termination of supply agreement		5,000			—			—
Income (loss) from operations		44,672			(94,274	)		34,436
Non-operating income (expense):
(Loss) gain on investments in marketable securities		(2,067	)		(21,471	)		6,000
Loss on long term investments		—			(20,377	)		(4,600	)
Other non-operating income (expense)		442			—			(1,318	)
Interest income, net		4,117			5,708			15,668
Income (loss) before income taxes		47,164			(130,414	)		50,186
Income tax expense (benefit)		12,263			(28,691	)		22,343
Net income (loss)	$	34,901		$	(101,723	)	$	27,843
Earnings (loss) per share:
Basic	$	0.48		$	(1.40	)	$	0.39
Diluted	$	0.46		$	(1.40	)	$	0.37
Shares used in per share calculation:
Basic		73,196			72,718			72,243
Diluted		75,303			72,718			75,735

The accompanying notes are an integral part of the consolidated financial statements.

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CREE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(In thousands)

	Year Ended
	June 29, 2003			June 30, 2002			June 24, 2001
Net income (loss)	$	34,901		$	(101,723	)	$	27,843
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		41,705			32,400			21,948
Loss on retirement of property and equipment and patents		1,512			18,298			134
Amortization of patent rights		394			293			194
Amortization of intangible assets		—			6,796			4,537
Amortization of premium on investments held to maturity		2,328			157			—
Write-off of goodwill and other intangible assets		—			76,488			—
Acquired in-process research & development		—			—			17,400
Write-down of long-term investments		—			20,377			4,600
Purchase of marketable trading securities		—			(1,546	)		(17,498	)
Proceeds from sale of marketable trading securities		—			2,104			23,498
Loss (gain) on marketable trading securities		2,067			(558	)		(6,000	)
Loss (gain) on available for sale securities		—			22,028			—
Deferred income taxes		5,709			(31,200	)		13,514
Income tax benefits from stock option exercises		5,188			2,712			7,022
Amortization of deferred compensation		478			515			544
Changes in operating assets and liabilities:
Accounts and interest receivable		(13,289	)		(555	)		(18,432	)
Inventories		292			(2,764	)		(2,035	)
Prepaid expenses and other current assets		1,764			(3,773	)		(735	)
Other long-term assets		368			(833	)		—
Accounts payable, trade		1,840			(1,073	)		(924	)
Accrued expenses and other liabilities		4,392			987			(842	)
Net cash provided by operating activities		89,649			39,130			74,768
Investing activities:
Purchase of available for sale securities		—			(13,761	)		—
Proceeds from sale of available for sale securities		3,921			—			—
Costs associated with the acquisition of Cree Microwave		—			—			(1,946	)
Purchase of long-term investments held to maturity		(118,934	)		(118,807	)		(7,971	)
Proceeds from maturities of investments held to maturity		84,253			66,965			147,461
Purchase of and deposits for property and equipment		(77,643	)		(41,635	)		(106,194	)
Proceeds from sale of property and equipment		635			721			123
Purchase of patent rights		(3,289	)		(1,318	)		(1,150	)
Increase in other long-term assets		(241	)		(9,051	)		(26,910	)
Net cash (used in) provided by investing activities		(111,298	)		(116,886	)		3,413
Financing activities:
Net proceeds from issuance of common stock		12,700			7,235			10,346
Net proceeds from sale of put options		—			—			2,860
Repurchase of common stock		—			(20,297	)		(30,668	)
Net cash provided by (used in) financing activities		12,700			(13,062	)		(17,462	)
Net (decrease) increase in cash and cash equivalents		(8,949	)		(90,818	)		60,719
Cash and cash equivalents:
Beginning of year		73,744			164,562			103,843
End of year	$	64,795		$	73,744		$	164,562
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	800		$	1,901		$	1,492
Non-cash investing and financing activities:
Deferred compensation	$	478		$	515		$	544
Issuance of common stock in connection with the acquisition of Cree Microwave	$	—		$	—		$	113,717

The accompanying notes are an integral part of the consolidated financial statements.

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CREE, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

YEARS ENDED JUNE 29, 2003, JUNE 30, 2002 AND JUNE 24, 2001

(In thousands)

	Common Stock Par Value			Additional Paid-in Capital			Deferred Compensation			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders’ Equity
Balance at June 25, 2000	$	88		$	415,716		$	(1,755	)	$	48,158		$	935		$	463,142
Common stock options and warrants exercised for cash, 870 shares		2			7,368			—			—			—			7,370
Issuance of common stock for cash, 113 shares		—			2,976			—			—			—			2,976
Issuance of common stock in connection with purchase business combination, 2,657 shares		3			113,505			—			—			—			113,508
Purchase and retirement of 1,850 treasury shares		(2	)		(30,666	)		—			—			—			(30,668	)
Income tax benefits from stock option exercises		—			7,022			—			—			—			7,022
Amortization of deferred compensation		—			—			544			—			—			544
Premium Received Put Option buy back		—			2,860			—			—			—			2,860
Net income		—			—			—			27,843			—			27,843
Unrealized loss on securities available for sale, net of tax of $3,667		—			—			—			—			(5,500	)		(5,500	)
Comprehensive income		—			—			—			—			—			22,343
Balance at June 24, 2001		91			518,781			(1,211	)		76,001			(4,565	)		589,097
Common stock options exercised for cash, 1,053 shares		1			4,229			—			—			—			4,230
Issuance of common stock for cash, 245 shares		—			3,005			—			—			—			3,005
Purchase and retirement of 1,489 treasury shares		(2	)		(20,295	)		—			—			—			(20,297	)
Income tax benefits from stock option exercises		—			2,712			—			—			—			2,712
Amortization of deferred compensation		—			—			515			—			—			515
Net loss		—			—			—			(101,723	)		—			(101,723	)
Unrealized losses on securities available for sale, net of taxes of $3,174		—			—			—			—			(11,253	)		(11,253	)
Losses on available for sale securities reclassified from other comprehensive income, net of taxes of $6,210 due to an other than temporary decline in value		—			—			—			—			15,818			15,818
Comprehensive loss		—			—			—			—			—			(97,158	)
Balance at June 30, 2002		90			508,432			(696	)		(25,722	)		—			482,104
Common stock options exercised for cash, 1,093 shares		2			9,591			—			—			—			9,593
Issuance of common stock for cash, 306 shares		—			3,107			—			—			—			3,107
Income tax benefits from stock option exercises		—			5,188			—			—			—			5,188
Amortization of deferred compensation		—			—			478			—			—			478
Net income and comprehensive income		—			—			—			34,901			—			34,901
Balance at June 29, 2003	$	92		$	526,318		($	218	)	$	9,179		$	—		$	535,371

The accompanying notes are an integral part of the consolidated financial statements.

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CREE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 29, 2003

1.    Nature of Business

Cree, Inc., the “Company,” or “Cree,” a North Carolina corporation, develops, manufactures, and markets silicon carbide (SiC) and group III nitrides (GaN) including gallium nitride based semiconductor materials and devices, as well as radio frequency (RF) and microwave devices made from silicon. Revenues are primarily derived from the sale of blue, green and near ultra-violet, (UV) light emitting diodes (LEDs) and SiC based materials. The Company markets its blue, green and UV LED chip products principally to customers who incorporate them into packaged lamps for resale to original equipment manufacturers. The Company also sells SiC material products primarily to corporate, government, and university research laboratories. In addition, the Company is engaged in a variety of research programs related to the advancement of SiC and GaN process technology and the development of electronic and optoelectronic devices that take advantage of these materials’ unique physical and electronic properties.

2.    Summary of Significant Accounting Policies and Other Matters

Principles of Consolidation

The consolidated financial statements include the accounts of Cree, Inc., and its wholly-owned subsidiaries, Cree Microwave, Inc. (Cree Microwave), Cree Lighting Company (Cree Lighting), Cree Research FSC, Inc. (FSC), Cree Funding, LLC (Cree Funding), Cree Employee Services Corporation, Cree Technologies, Inc., CI Holdings, Limited, Cree Asia-Pacific, Inc and Cree Japan, Inc. All material intercompany accounts and transactions have been eliminated in consolidation.

Business Combination

On December 29, 2000, the Company completed the acquisition of the UltraRF division of Spectrian Corporation (Spectrian), through the purchase of assets of the business by Cree’s wholly owned subsidiary, now known as Cree Microwave, in a business combination accounted for using the purchase method. Under the terms of the Asset Purchase Agreement, Cree Microwave acquired substantially all of the net assets of the business from Spectrian. The Company paid a total of 2,656,917 shares of Cree common stock, which consisted of the initial commitment to pay 1,815,402 shares of Company common stock plus $30 million cash or a number of shares of the Company’s common stock equal to $30 million at the closing. At the closing of the transaction, the Company elected to provide Spectrian with 841,515 shares of additional Company common stock rather than $30 million in cash. Of the total shares issued, 191,094 shares were placed in escrow and proceeds from the sale of such shares were retained in escrow to secure Spectrian’s representations, warranties and covenants under the Asset Purchase Agreement. Under the terms of the escrow arrangement, one-half of the funds were released to Spectrian in June 2001 and the balance was released in December 2001 because no claims were made against the escrowed assets. The value of the Company’s common stock issued as consideration for the acquisition of Cree Microwave was determined based on the number of shares issued multiplied by the closing price of the Company’s common stock on November 20, 2000 (the “measurement date”). The total purchase price was valued at the measurement date closing price for the initial 1,815,402 shares plus the $30 million in additional consideration value. This resulted in a total purchase price valuation of $113.5 million for the transaction. The results of operations of Cree Microwave have been included in the consolidated results of the Company since the date of acquisition.

In the third quarter of fiscal 2001, the Company recorded a $17.4 million charge for the value of in process research and development projects, or “IPR&D,” acquired from Spectrian. IPR&D represents the value assigned in a purchase business combination to research and development projects of the acquired business that had commenced but had not yet been completed at the date of acquisition and which have no

53

CREE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 29, 2003

alternative future use. In accordance with SFAS No. 2, “Accounting for Research and Development Costs,” as clarified by FASB Interpretation No. 4, amounts assigned to IPR&D meeting the above-stated criteria must be charged to expense as part of the allocation of the purchase price of the business combination. The income approach was utilized to value the IPR&D projects.

Management is primarily responsible for this cash flow analysis and, as a part of its analysis, management considers the cost to complete the project, the relative risk of the project, the contribution of other assets and an appropriate risk adjusted discount rate. For purposes of the Company’s analysis, the standard income approach was modified. This analysis included the stage of completion of each project, the exclusion of value related to research and development yet-to-be completed as part of the ongoing IPR&D projects and the inclusion of only the incremental operating cash flows attributable to the IPR&D. As of the acquisition date, two projects targeted for completion within six months were considered as IPR&D. These IPR&D projects were known as LDMOS-Non module technology and LDMOS-Module technology. The LDMOS-Module project was completed in fiscal 2001 and the LDMOS-Non module project was abandoned in fiscal 2002.

Under the standard income approach, the fair value of an IPR&D project reflects the present value of the projected operating cash flows estimated to be generated by the project. Specific factors considered in the Company’s modified income approach were: 1) an analysis of the stage of completion of each project; 2) the exclusion of value related to research and development, or R&D yet-to-be-completed as part of the ongoing IPR&D projects and; 3) inclusion of only the incremental operating cash flows attributable to the IPR&D. The stage of completion for each IPR&D project was also analyzed by assessing: 1) costs incurred, 2) labor expended, 3) expected costs to complete, 4) calendar time or milestones elapsed and 5) remaining time to complete the projects. Based on this information, the Company estimated that the LDMOS-Non module project was 95% complete and the LDMOS-Module project was 85% complete. In the determination of the operating cash flows related to the IPR&D technologies, the Company considered the specific revenues and costs and operating profits specifically attributed to each IPR&D technology. The operating cash flows associated with the core technology in this analysis were separately identified and valued under the Income Approach as part of the developed proprietary technology valuation analysis. A discount rate of 20% was applied to the projected cash flows to reflect the time and components inherent in each IPR&D project.

The projections for revenue and costs for the LDMOS-Non module technology differed from actual results, as the project was never completed and was abandoned in March 2002. The projections for revenue and cost for the LDMOS-Module device differed from actual results as the technology has now been completed; however, the devices are being customized for specific customers and have not generated significant revenue to date. The abandonment of the LDMOS-Non module technology and the delay of gaining significant design wins for the LDMOS-Module technologies has negatively impacted the Company’s expected return on investment and the Company’s future results of operations and financial position. The Company wrote off all of the intangible assets for Cree Microwave in March 2002.

54

CREE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 29, 2003

Pro Forma Summary Data

The following pro forma summary data for the twelve months ended June 24, 2001 presents the consolidated results of operations as if the acquisition of Cree Microwave made during 2001 had occurred as of June 26, 2000. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made as of June 26, 2000 or of results that may occur in the future.

	Year Ended June 24, 2001 (in 000’s except per share data)
Pro forma revenue	$	194,357
Pro forma net income	$	42,065
Pro forma basic net income per share	$	0.58
Pro forma diluted net income per share	$	0.56

Business Segments

The Company operates in two business segments, Cree and Cree Microwave. The Cree segment incorporates its proprietary technology to produce wide bandgap compound semiconductors using SiC and GaN technology. Products from this segment are used in mobile appliances, automotive backlighting, indicator lamps, full color LED displays and other lighting applications as well as microwave and power applications. The Cree segment also sells SiC material products to corporate, government and university research laboratories and generates revenue from contracts with agencies of the U.S. Federal government.

The Cree Microwave segment designs, manufactures and markets a line of silicon-based laterally diffused metal oxide semiconductors (LDMOS) and bipolar radio frequency power semiconductors and modules, a critical component utilized in building power amplifiers for wireless infrastructure applications.

55

CREE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 29, 2003

Summarized financial information concerning the reportable segments as of and for the years ended June 29, 2003 and June 30, 2002 is shown in the following table. There were no intercompany sales between the Cree segment and the Cree Microwave segment during fiscal 2003, 2002 or 2001. The “Other” column represents amounts excluded from specific segments such as interest income, write-downs for investments made in marketable equity securities or long-term investments held to maturity and gains or losses on the sale of marketable securities. In addition, the “Other” column also includes corporate assets such as cash and cash equivalents, short-term investments held to maturity, marketable securities, interest receivable and long-term investments held to maturity which have not been allocated to a specific segment.

As of and for the Year Ended June 29, 2003 (in 000’s)	Cree			Cree Microwave			Other			Total
Highlights from the Statement of Operations:
Product revenue	$	200,165		$	2,797		$	—		$	202,962
Contract revenue		26,860			—			—			26,860
Total revenue		227,025			2,797			—			229,822
Cost of revenue		118,677			11,975			—			130,652
Gross profit (loss)		108,348			(9,178	)		—			99,170
Research and development		26,682			4,521			—			31,203
Selling, general and administrative		23,558			2,768			—			26,326
Income (loss) before income taxes		57,000			(11,886	)		2,050			47,164
Depreciation and amortization	$	39,450		$	2,255		$	—		$	41,705
Highlights from the Balance Sheet:
Inventory, net	$	17,257		$	417		$	—		$	17,674
Property and equipment, net		239,525			11,821			—			251,346
Additions to property and equipment		76,385			1,258			—			77,643
Total assets	$	334,049		$	13,576		$	216,069		$	563,694
As of and for the Year Ended June 30, 2002 (in 000’s)	Cree			Cree Microwave			Other			Total
Highlights from the Statement of Operations:
Product revenue	$	111,435		$	24,795		$	—		$	136,230
Contract revenue		19,204			—			—			19,204
Total revenue		130,639			24,795			—			155,434
Cost of revenue		71,994			20,082			—			92,076
Gross profit		58,646			4,713			—			63,359
Research and development		22,699			5,327			—			28,026
Selling, general and administrative		21,920			3,698			—			25,618
Amortization of purchased intangibles		—			6,765			—			6,765
Write off of intangible assets		—			76,489			—			76,489
Write off of fixed assets		18,917			102			—			19,019
Loss on marketable securities and long term asset investments		—			—			(41,848	)		(41,848	)
Loss before income taxes		(4,891	)		(89,384	)		(36,139	)		(130,414	)
Depreciation and amortization	$	30,168		$	2,232		$	—		$	32,400
Highlights from the Balance Sheet:
Inventory, net	$	14,835		$	3,131		$	—		$	17,966
Property and equipment, net		198,855			12,830			—			211,685
Additions to property and equipment		34,617			7,018			—			41,635
Total assets	$	289,921		$	19,187		$	195,087		$	504,195

56

CREE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 29, 2003

Quarterly Results of Operations—Unaudited

The following is a summary of the Company’s consolidated quarterly results of operations for each of the fiscal years ended June 29, 2003 and June 30, 2002 (in thousands, except per share data).

	September 29, 2002		December 29, 2002			March 30, 2003			June 29, 2003			Fiscal Year 2003
Net revenue	$	48,811	$	56,727		$	60,223		$	64,061		$	229,822
Cost of revenue		30,106		33,187			32,176			35,183			130,652
Net income	$	3,883	$	8,996		$	10,631		$	11,391		$	34,901
Earnings per share:
Basic	$	0.05	$	0.12		$	0.15		$	0.16		$	0.48
Diluted	$	0.05	$	0.12		$	0.14		$	0.15		$	0.46
	September 23, 2001		December 23, 2001			March 24, 2002			June 30, 2002			Fiscal Year 2002
Net revenue	$	43,166	$	41,092		$	33,376		$	37,800		$	155,434
Cost of revenue		23,262		21,717			24,999			22,098			92,076
Net income (loss)	$	6,460	$	(17,376	)(1)	$	(68,286	)(2)	$	(22,521	)(3)	$	(101,723	)
Earnings (loss) per share:
Basic	$	0.09	($	0.24	)	($	0.94	)	($	0.31	)	($	1.40	)
Diluted	$	0.09	($	0.24	)	($	0.94	)	($	0.31	)	($	1.40	)

1. The $17.4 million loss reported in the quarter ended December 23, 2001 includes a net of tax write-down for fixed assets of $12.8 million and a net of tax write down of $8.9 million for long-term investments. The write down for fixed assets was caused mostly by technology changes that made the assets obsolete. The write down for long term investments was for privately held company investments where business conditions had worsened and the Company wrote investments down to their estimated fair market value.

2. The $68.3 million loss reported in the quarter ended March 24, 2002 includes a net of tax write down for goodwill and intangible assets of $59.7 million relating to Cree Microwave’s business. In addition, the Company also recorded a $4.0 million write down net of tax for Cree Microwave inventory that was deemed obsolete and a $700,000 after tax severance charge. All of these charges resulted from the down turn in Cree Microwave’s business as its supply agreement with Spectrian was amended to record less revenue under the contract. In addition, the Company also adjusted charges taken in the previous quarter for fixed assets and long-term investments due to a change in the Company’s effective tax rate. This change resulted in an additional $1.3 million and $900,000 net of tax charge for fixed assets and long-term investments, respectively.

3. The $22.5 million loss reported in the quarter ended June 30, 2002 includes a $23.4 million charge, net of tax that was taken for “other than temporary” declines in value for long-term investments and marketable securities. The write down for long term investments was for privately held company investments where business conditions had worsened and the Company wrote investments down to their estimated fair market value. In addition, charges were also taken for investments in marketable equity securities for investments that were written down due to “other than temporary” declines in value.

57

CREE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 29, 2003

Reclassifications

Certain 2002 and 2001 amounts in the accompanying consolidated financial statements have been reclassified to conform to the 2003 presentation. These reclassifications had no effect on previously reported net income (loss) or shareholders’ equity.

Fiscal Year

The Company’s fiscal year is a 52 or 53-week period ending on the last Sunday in the month of June. The Company’s 2003 fiscal year extended from July 1, 2002 through June 29, 2003 and was a 52-week fiscal year. The Company’s 2002 fiscal year extended from June 25, 2001 through June 30, 2002 and was a 53-week fiscal year.

Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, at June 29, 2003 and June 30, 2002, and the reported amounts of revenues and expenses during the years ended June 29, 2003, June 30, 2002 and June 24, 2001. Actual amounts could differ from those estimates.

Revenue Recognition

Revenue on product sales is recognized when persuasive evidence of a contract exists, such as when a purchase order or contract is received from the customer, the price is fixed, title of the goods has transferred and there is a reasonable assurance of collection of the sales proceeds. The Company obtains written purchase authorizations from its customers for a specified amount of product at a specified price and considers delivery to have occurred at the time of shipment. The majority of its products have shipping terms that are FOB or FCA shipping point, which means that the Company fulfills the obligation to deliver when the goods are handed over and into the charge of the carrier at its shipping dock. This means that the buyer bears all costs and risks of loss of or damage to the goods from that point. The difference between FOB and FCA is that under FCA terms, the customer designates a shipping carrier of choice to be used. In certain cases, the Company ships its product Cost Insurance Freight (CIF). Under this arrangement, revenue is recognized under FOB shipping point shipping terms, however, the Company is responsible for the cost of insurance to transport the product as well as the cost to ship the product. For all of our sales other than those with CIF terms, the Company invoices its customers only for shipping costs necessary to physically move the product from its place of business to the customer’s location. The costs primarily consist of overnight shipping charges. The Company incurrs the direct shipping costs on behalf of the customer and invoices the customer to obtain direct reimbursement for such costs. The Company accounts for its shipping costs as a part of cost of revenue and records the reimbursement of such costs by its customers as a direct offset and reduction to cost of revenue. Beginning in fiscal year 2004, the Company will record the amount of freight that is invoiced to its customers as revenue, with the corresponding cost recorded as cost of revenue. If inventory is maintained at a consigned location, revenue is recognized when its customer pulls product for its use. The Company provides its customers with limited rights of return for non-conforming shipments and warranty claims for up to 36 months for Cree Microwave products. Revenue is recognized from the Company’s customers at shipment, and the Company records a reserve for estimated sales returns, which is reflected as a reduction of revenue at the time of revenue recognition. Certain of the Company’s distributor arrangements provide for limited product exchanges and reimbursement of certain sales costs. For one distributor, with these arrangements, the Company defers revenue equal to the level specified with these

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CREE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 29, 2003

contractual arrangements and recognizes the related revenue when deferred revenue reserves expire less any claims made against the reserves. In connection with the Company’s distributor agreement with Sumitomo, such deferred revenue amounted to $5.5 million and $741,000 as of June 29, 2003 and June 30, 2002, respectively. Please see discussion in Item 1 of this report under “Distributorship Agreement with Sumitomo Corporation”, for further information.

Based on historical activity, the Company has experienced only nominal credit losses from customers’ inability to pay. Any uncollectibility of receivables is primarily due to returned products. Therefore, the Company records an allowance for sales returns at the time of sale. Significant judgments and estimates made by management are used in connection with establishing the allowance for sales returns. Some of these judgments and estimates include reserving for all accounts greater than 90 days past due plus reserving for one half of one percent of all outstanding balances less than 90 days past due. Material differences may result in the amount and timing of the Company’s revenue for any period if management made different judgments or utilized different estimates. The allowance for sales returns at June 29, 2003 and June 30, 2002 was $644,000 and $455,000, respectively.

Revenue from government contracts is recorded on the percentage-of-completion method as contract expenses are incurred. Contract revenue represents contracts with various U.S. Government entities to perform research and development work related to the development of the Company’s technologies. The contract funding may be based on either a cost-plus or a cost-share arrangement. The amount of funding under each contract is determined based on cost estimates that include direct costs, plus an allocation for research and development, general and administrative and the cost of capital expenses. Cost-plus funding is determined based on actual costs plus a set percentage margin. The applicable contracts generally provide that the Company may elect to retain ownership of inventions made in performing the work, subject to a non-exclusive license retained by the government to practice the inventions for government purposes. Contract revenue includes funding of direct research and development costs and a portion of our general and administrative expenses and other operating expenses for contracts under which funding is expected to exceed direct costs over the life of the contract. The specific reimbursement provisions of the contracts, including the portion of the Company’s general and administrative expenses and other operating expenses that are reimbursed, vary by contract. Such reimbursements are recorded as contract revenue. For contracts under which the Company anticipates that direct costs will exceed amounts to be funded over the life of the contract (i.e., certain cost share arrangements), the Company reports direct costs as research and development expenses with related reimbursements recorded as an offset to those expenses.

Cash and Cash Equivalents

Cash and cash equivalents consist of unrestricted cash accounts and highly liquid investments with an original maturity of three months or less when purchased.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, available for sale securities, accounts and interest receivable, accounts payable, debt, and other liabilities approximate fair values at June 29, 2003 and June 30, 2002.

Inventories

Inventories are stated at the lower of cost or market, with cost determined using the first-in, first-out (FIFO) method for finished goods and work in process accounts and the Company used the average cost

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CREE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 29, 2003

method for raw materials for the Cree Segment. The Cree Microvision Segment uses a standard cost method to value its inventory. It is the Company’s policy to record a reserve against inventory once it has been determined that conditions exist which may not allow the Company to sell the inventory for its intended purpose, the inventory’s value is determined to be less than cost, or it is determined to be obsolete. The charge for the inventory reserves is recorded in cost of revenue on the consolidated statement of operations. The Company evaluates inventory levels quarterly against sales on the consolidated statement of operations. The Company evaluates inventory levels quarterly against sales forecasts on a part-by-part basis and its overall inventory forecasts on a part-by-part basis and its overall inventory risk. Reserves are adjusted to reflect inventory values in excess of forecasted sales, as well as overall inventory risk assessed by management.

As of June 29, 2003, the Company maintained a $2.1 million reserve for inventory. Of this total amount, $1.5 million is attributable to the Cree Microwave segment and $592,000 is attributable to the Cree segment.

The majority of the allowance at Cree Microwave was recorded during the second quarter of fiscal 2003 resulting from the termination of the supply agreement with Spectrian. In exchange for a one-time payment of $5.0 million recorded as “other operating income” on the consolidated statements of operations, the Company relieved Spectrian of further obligations to purchase product under the supply agreement that was originally signed in December 2000. For the three months ended December 29, 2002, Cree Microwave recorded an additional reserve of $1.3 million for inventory that was targeted for sale to Spectrian, including some customized parts. Additional reserves of $5.1 million were recorded in the third quarter of fiscal 2002, as contract negotiations at the time with Spectrian indicated that several parts on hand would not be salable. During these contract negotiations, Spectrian indicated that it would only purchase new generation LDMOS 8 and certain types of LDMOS7 devices from Cree Microwave after the fourth quarter of fiscal 2002. As a result, the Company fully reserved for inventories of non-LDMOS and other older devices maintained for Spectrian. The Company destroyed the majority of this inventory during the fourth quarter of fiscal 2002 and fiscal 2003 and as a result the related items were taken out of inventory and the related reserve. There was no financial impact to the statement of operations when these items were destroyed. The Company still maintains some packaging materials that were reserved for, that are no longer available from third party suppliers or are available only with lengthy lead timeframes. The Company also has “last time buy” contracts with Remec (who purchased Spectrian) for devices that use these packages. However, the Company plans to dispose of these remaining packages when the “last time buy” rights expire. Therefore, with the exception of the packaging materials covered under “last time buy” obligations, all items previously reserved at March 2002 have now been scrapped and removed from inventory and the related reserve account. These reserves were recorded as a cost of revenue when they were established. In addition, $417,000 of LDMOS8 product was also written off as a research and development expenditure during the first quarter of fiscal 2003 as it related to prototype devices that were initially accepted by Spectrian and later rejected. These parts were never sold to any customers.

Cree segment results for the three months ended December 29, 2002 include a $784,000 additional reserve for LED and wafer inventories as management assessed the inventory to be slow moving or obsolete. During the first quarter of fiscal 2003, the Company recorded a $185,000 lower of cost or market adjustment to certain LED products based on management’s estimate of an average sales price for the products. Both of these adjustments were recorded to cost of revenue. During the first quarter of fiscal 2003, the Company wrote-off $1.0 million of the initial XBright chips that were developed during fiscal 2002. An improved chip has replaced these devices and this write down was recorded as a research and development expense as the initial devices were prematurely launched and not commercially viable. In addition, customers had returned the entire product line that was initially shipped as they determined that the chips did not meet their specifications.

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June 29, 2003

Property and Equipment

Property and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets, which range from three to forty years. Leasehold improvements are amortized over the lesser of the asset life or the life of the related lease. Expenditures for repairs and maintenance are charged to expense as incurred. The costs for major renewals and improvements are capitalized and depreciated over their estimated useful lives. The cost and related accumulated depreciation of the assets are removed from the accounts upon disposition and any resulting gain or loss is reflected in operations. During the years ended June 29, 2003, June 30, 2002 and June 24, 2001, the Company recorded $1.6 million, $19.0 million and $100,000, respectively, as losses on retirement or impairments of property and equipment. These charges are reflected in other operating expense in the consolidated statements of operations.

Impairment of Long-Lived Assets

In accordance with SFAS 144, the Company reviews long-lived assets for impairment based on changes in circumstances that indicate their carrying amounts may not be recoverable. During the year ended June 30, 2002, the Company recorded impairment charges for property and equipment totaling $19.0 million for the Cree segment in accordance with SFAS 121 “Accounting for the Impairment of Long-Lived Assets and Long Lived Assets to be Disposed of”. This charge was included as a loss on the disposal of fixed assets that is included as an “other operating expense” in the consolidated statements of operations. These impairment charges were due to technology decisions or changes resulting in the obsolescence of the assets. The write-down included epitaxy reactors, nonconvertible two-inch crystal growers and other equipment. All of these assets were sold or disposed of by June 30, 2002. The Company also reviews the discounted cash flow analysis calculation for the Cree Microwave segment to test for impairment of its assets on a quarterly basis. During fiscal 2003 there was no impairment recorded for these assets. There can be no assurance that a future analysis of Cree Microwave’s discounted cash flow will not result in a change to earnings.

Patent and License Rights

Patent rights reflect costs incurred to enhance and maintain the Company’s intellectual property position. License rights reflect costs incurred to use the intellectual property of others. Both are amortized on a straight-line basis over the lesser of 20 years from the date of patent application or over the license period. The related amortization expense was $394,000, $293,000 and $194,000 for the years ended June 29, 2003, June 30, 2002 and June 24, 2001, respectively.

Total accumulated amortization for patents and license rights was approximately $1.7 million and $1.3 million at June 29, 2003 and June 30, 2002, respectively.

Goodwill and Intangible Assets

During the third quarter of fiscal 2002, the Company determined that business conditions for its Cree Microwave segment had changed due to several factors. First, Cree Microwave amended its supply agreement with Spectrian effective March 31, 2002, which resulted in a significant reduction in quarterly revenue expectations. Under the original supply agreement with Spectrian, if Cree Microwave was unable to supply components under the agreement that were deemed competitive with components available from third party suppliers within nine months, Spectrian’s quarterly minimum purchase commitment would be reduced. The amount of the reduction each quarter would be calculated by the dollar amount of the locked-in components that Spectrian purchased from other vendors. Cree Microwave was delayed in supplying Spectrian with LDMOS8 technology that had been available from third parties. Under the amended supply

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June 29, 2003

agreement signed in March 2002, Spectrian was no longer required to purchase parts from the Company or third parties because of the delays of the release of LDMOS8 technology from Cree Microwave. As a result, the amount of revenue expected from the contract with Spectrian was greatly reduced. In addition, because LDMOS8 technology was not completed, Cree Microwave’s outlook for acquiring additional customers in the near term weakened. At the same time, the overall market sustained deteriorating economic conditions and lengthened product qualification cycles. Also, many of the products that Spectrian initially indicated it would purchase in the future had not yet been released to production. Under the amended supply agreement, if Cree Microwave was not able to produce qualified LDMOS8 devices for Spectrian’s applications in a timely manner, revenue from Spectrian would be significantly reduced after the June 2002 quarter.

Based on these impairment indicators, the Company performed a discounted cash flow analysis in accordance with SFAS 121. As a result of this analysis, the remaining balance of goodwill and intangible assets of $76.5 million was deemed to be fully impaired, and was written off during the third quarter of fiscal 2002. This write-off was recorded as “other expense” in the consolidated statements of operations.

Prior to the impairment charge described in the preceding paragraph, intangible assets included goodwill, current technology and workforce-in-place associated with the acquisition of Cree Microwave accounted for under the purchase method in December 2000. Goodwill was capitalized at $81.5 million and represented the excess of cost over the fair value of assets acquired and was amortized using the straight-line method over ten years. Current technology and workforce-in-place represented assets that were assigned values of $5.5 million and $800,000, respectively. These intangibles were being amortized using the straight-line method over eight and five years, respectively. During the first three-quarters of fiscal 2002, prior to the impairment charge, the expense for intangible asset amortization was $6.8 million. During fiscal 2001, the Company recorded $4.5 million of intangible asset amortization. Please see the previous Business Combinations section of this Note 2 for the details of the valuation of the transaction under Accounting Principles Board Opinion #16 (APB #16).

Research and Development

The U.S. Government provides funding through research contracts for several of the Company’s current research and development efforts. The contract funding may be based on either a cost-plus or a cost-share arrangement. The amount of funding under each contract is determined based on cost estimates that include direct costs, plus an allocation for research and development, general and administrative and the cost of capital expenses. Cost-plus funding is determined based on actual costs plus a set percentage margin. For the cost-share contracts, the actual costs are divided between the U.S. Government and the Company based on the terms of the contract. The government’s cost share is then paid to the Company. Activities performed under these arrangements include research regarding SiC and GaN materials and devices. The contracts typically require the submission of a written report that documents the results of such research, as well as some material deliverables.

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June 29, 2003

The revenue and expense classification for contract activities is based on the nature of the contract. For contracts where the Company anticipates that funding will exceed direct costs over the life of the contract, funding is reported as contract revenue and all direct costs are reported as costs of contract revenue. For contracts under which the Company anticipates that direct costs will exceed amounts to be funded over the life of the contract, costs are reported as research and development expenses and related funding as an offset of those expenses. The following table details information about contracts for which direct expenses exceeded funding by period as included in research and development expenses:

	Year Ended (in 000’s)
	June 29, 2003		June 30, 2002		June 24, 2001
Net research and development costs	$	—	$	17	$	435
Government funding		—		276		1,306
Total direct costs incurred	$	—	$	293	$	1,741

Non-government contract related research and development is expensed as incurred. Customers contributed $500,000 in fiscal 2003, $9.0 million in fiscal 2002 and $11.9 million in fiscal 2001 toward product research and development activities. These amounts were recorded as an offset to research and development expense. As of June 29, 2003, there were no future customer commitments to fund research and development activities for the Company.

Credit Risk, Major Customers and Major Suppliers

Financial instruments, which may subject the Company to a concentration of credit risk, consist principally of short-term and long-term investments, marketable securities, cash equivalents and accounts receivable. Short-term and long-term investments consist primarily of high-grade corporate debt, commercial paper, government securities and other investments at interest rates that vary by security. The Company’s cash equivalents consist primarily of money market funds. Certain bank deposits may at times be in excess of the FDIC insurance limits.

The Company sells its products on account to manufacturers and researchers worldwide and generally requires no collateral. At the time of shipment, the Company records revenue and related accounts receivable. The Company also records at the time of sale, an allowance for sales returns which is recorded as an offset to accounts receivable and reduction in revenue. Such returns, in the aggregate, have generally been within management’s expectations. The Company presently derives its contract revenue from contracts with the U.S. Government. Approximately 5% and 18% of the Company’s accounts receivable balance at June 29, 2003 and June 30, 2002, respectively, was due from the U.S. Government. The Company had amounts due from Osram Opto Semiconductors GmbH, (Osram), totaling 20% and 13%, of accounts receivable balances at June 29, 2003 and June 30, 2002, respectively. The Company had amounts due from Remec (who purchased Spectrian) totaling 1% and 8% of accounts receivable balances at June 29, 2003 and June 30, 2002, respectively. The Company had amounts due from Sumitomo Corporation totaling 29% and 9% of accounts receivable balances at June 29, 2003 and June 30, 2002, respectively. The Company had amounts due from Agilent Corporation (Agilent), totaling 6% and 20% of accounts receivable balances at June 29, 2003 and June 30, 2002, respectively.

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June 29, 2003

The Company has derived its product and contract revenue from sales in the United States, Malaysia, Japan, Other Asian countries, and Europe based on ship-to locations for our products as follows:

	Year ended
	June 29, 2003		June 30, 2002		June 24, 2001
United States	20	%	35	%	31	%
Malaysia	28	%	23	%	17	%
Japan	24	%	14	%	22	%
Other Asian Countries	21	%	20	%	23	%
Europe	7	%	8	%	7	%

Sumitomo accounted for 24%, 14%, and 22% of revenue for fiscal 2003, 2002, and 2001, respectively. Osram accounted for 21%, 19%, and 25% of revenue for fiscal 2003, 2002, and 2001, respectively. Remec (who purchased Spectrian) accounted for less than 1%, 16%, and 11% of revenue for fiscal 2003, 2002, and 2001, respectively. The U.S. Government, representing various agencies accounted for 12%, 12%, and 9% of revenues during fiscal 2003, 2002, and 2001, respectively. Agilent accounted for 10%, 9% and 1% of revenue for fiscal 2003, 2002, and 2001, respectively.

In April 2003, the Company signed a supply agreement with Sumitomo that covers shipments through June 2004. The amount of the contract was $100 million, subject to adjustments and cancellation provisions and end customer demand. The orders cover demand for the Company’s products in Japan and represent sales to approximately 20 LED packagers including Stanley Electronics, Citizen Electronics, Sharp Corporation and Rohm, Inc. The Company’s purchase agreement with Osram expires in September 2003, and the Company is currently negotiating a new purchase agreement with Osram. The loss of Osram, Agilent or any of Sumitomo’s large customers could have a material adverse effect on the Company.

The Company depends on single or limited source suppliers for a number of raw materials, equipment and components used in manufacturing its products. Any interruption in the supply of these key materials or components could have a significant adverse effect on the Company’s operations.

Investments

Investments are accounted for using the specific identification method and in accordance with Statement of Financial Accounting Standards (“SFAS’) 115 “Accounting for Certain Investments in Debt and Equity Securities”. This statement requires certain securities to be classified into three categories:

(a) Securities Held-to-Maturity-Debt securities that the entity has the positive intent and ability to hold to maturity are reported at amortized cost.

(b) Trading Securities-Debt and equity securities that are bought and held principally for the purpose of selling in the near term are reported at fair value, with unrealized gains and losses included in earnings.

(c) Securities Available-for-Sale-Debt and equity securities not classified as either securities held-to-maturity or trading securities are reported at fair value with unrealized gains or losses excluded from earnings and reported as a separate component of shareholders’ equity.

Earnings (Loss) Per Share

Basic earnings (loss) per common share is computed using the weighted average number of common stock shares outstanding. Diluted earnings (loss) per common share is computed using the weighted average number of common stock shares outstanding adjusted for the incremental shares attributed to outstanding options and warrants to purchase common stock, unless such incremental shares would be antidilutive.

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June 29, 2003

Accounting for Stock Based Compensation

In accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), no compensation expense is recorded for stock options or other stock-based awards that are granted to employees with an exercise price equal to or above the common stock price on the grant date.

In October 1995, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards 123, “Accounting for Stock Based Compensation” (“SFAS 123”). SFAS 123 establishes fair value as the measurement basis for equity instruments issued in exchange for goods or services and stock-based compensation plans. Fair value may be measured using quoted market prices, option-pricing models or other reasonable estimation methods. SFAS 123 permits the Company to choose between adoption of the fair value based method or disclosing pro forma net income (loss) information. The Statement is effective for transactions entered into after December 31, 1995. The Company continues to account for stock-based compensation in accordance with APB 25, as amended, and provides the pro forma disclosures required by SFAS 123 as amended by Statements of Financial Accounting Standards 148 “Accounting for Stock-Based Compensation Incentive and Disclosure” (SFAS 148).

Pro forma information regarding net income (loss) and net income (loss) per share is required by SFAS 123. The Company computes fair value for this purpose using the Black-Scholes option valuation model. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The Company’s options have characteristics significantly different from traded options, and the input assumptions used in the model can materially affect the fair value estimate. The assumptions used in this model to estimate fair value and resulting values are as follows:

	Stock Option Plans									Employee Stock Purchase Plan
	June 29, 2003			June 30, 2002			June 24, 2001			June 29, 2003			June 30, 2002			June 24, 2001
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free interest rate		2.8	%		4.6	%		5.4	%		1.2	%		2.2	%		5.0	%
Expected volatility		90.0	%		90.0	%		90.0	%		90.0	%		90.0	%		90.0	%
Expected life (in years)		5.0			4.8			5.7			0.8			0.8			0.8
Weighted-average fair value per share	$	9.64		$	14.52		$	31.51		$	8.96		$	6.50		$	16.73

The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had applied the fair value recognition provisions of SFAS 123 (in thousands, except per share amounts):

	Year ended
	June 29, 2003			June 30, 2002			June 24, 2001
Net income (loss), as reported	$	34,901		$	(101,723	)	$	27,843
Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects		317			341			293
Deduct: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(44,865	)		(62,269	)		(49,635	)
Pro forma net income (loss)	$	(9,647	)	$	(163,651	)	$	(21,499	)
Basic earnings (loss) per share as reported	$	0.48		$	(1.40	)	$	0.39
Pro forma basic net income (loss) per share	$	(0.13	)	$	(2.25	)	$	(0.30	)
Diluted earnings (loss) per share as reported	$	0.46		$	(1.40	)	$	0.37
Pro forma diluted net income (loss) per share	$	(0.13	)	$	(2.25	)	$	(0.30	)

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June 29, 2003

Income Taxes

Income taxes have been accounted for using the liability method in accordance with SFAS109 “Accounting for Income Taxes”. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts.

Contingencies

The Company is involved in various legal proceedings. Although the final resolution of these matters cannot be determined, management’s opinion is that the final outcome of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations. If an unfavorable resolution occurs in these legal proceedings, our business, results of operations and financial condition could be materially adversely affected.

3.    Accounts Receivable, Net

The following is a summary of the components of accounts receivable, net:

	Year Ended (in 000’s)
	June 29, 2003			June 30, 2002
Billed trade receivables	$	42,702		$	32,708
Unbilled contract receivables		1,843			2,339
		44,545			35,047
Allowance for sales returns		(644	)		(455	)
Total accounts receivable, net	$	43,901		$	34,592

The following table summarizes the changes in the Company’s allowance for sales returns for the years ended June 29, 2003, June 30, 2002 and June 24, 2001:

	Year Ended (in 000’s)
	June 29, 2003		June 30, 2002		June 24, 2001
Balance at beginning of year	$	455	$	350	$	250
Charges to cost and expenses, net		189		105		100
Balance at end of year	$	644	$	455	$	350

4.    Inventory, Net

The following is a summary of inventory:

	Year Ended (in 000’s)
	June 29, 2003			June 30, 2002
Raw materials	$	4,410		$	3,908
Work-in-progress		5,397			6,629
Finished goods		9,944			9,724
		19,751			20,261
Inventory reserve		(2,077	)		(2,295	)
Total inventory, net	$	17,674		$	17,966

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June 29, 2003

The following table summarizes the changes in the Company’s inventory reserve for the years ended June 29, 2003, June 30, 2002 and June 24, 2001:

	Year Ended (in 000’s)
	June 29, 2003			June 30, 2002			June 24, 2001
Balance at beginning of year	$	2,295		$	793		$	—
Charges to cost and expenses		2,659			6,234			1,293
Disposals (write-offs to reserve)		(2,877	)		(4,732	)		(500	)
Balance at end of year	$	2,077		$	2,295		$	793

5.    Property and Equipment, Net

The following is a summary of property and equipment:

	Year ended (in 000’s)
	June 29, 2003			June 30, 2002
Furniture and fixtures	$	5,552		$	5,170
Land and buildings		99,917			93,148
Machinery and equipment		210,872			149,723
Computer hardware and software		7,160			5,810
Leasehold improvements		5,903			5,735
		329,404			259,586
Accumulated depreciation		(111,483	)		(69,830	)
		217,921			189,756
Construction in progress		33,425			21,929
Property and equipment, net	$	251,346		$	211,685

Depreciation and amortization of property and equipment totaled $41.7 million, $32.4 million and $21.9 million for the years ended June 29, 2003, June 30, 2002 and June 24, 2001, respectively.

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June 29, 2003

6.     Investments

At June 29, 2003, the Company held no marketable equity securities. At June 30, 2002, the Company held marketable equity securities available-for-sale in Microvision, Inc. (Microvision) and Emcore Corporation (Emcore). At June 30, 2002, the Company owned 356,000 common shares in Microvision at a total cost of $14.3 million. The fair market value of these shares as of June 30, 2002 was $1.9 million. At June 30, 2002, the Company owned 691,000 common shares in Emcore at a total cost of $13.8 million. The fair market value of these shares as of June 30, 2002 was $4.1 million.

During the second quarter of fiscal 2003, the Company sold its remaining position in these publicly traded companies. The Company recorded a charge through non-operating expense on the consolidated statements of operations in June 2002, for an “other than temporary” decline in value which reduced the value of the Microvision investment to $1.9 million, which was the market value as of June 28, 2002. These shares were sold during the three months ended December 29, 2002 for $1.9 million, with a net loss on the sale recognized for $36,000 during the second quarter of fiscal 2003.

During the second quarter of fiscal 2003, the Company also sold 691,000 common shares of Emcore. These shares were purchased between June 2001 and October 2001. The Company recorded a charge through non-operating expense on the consolidated statements of operations in June 2002, for an “other than temporary” decline in value which reduced the value of this investment to $4.1 million, which was the market value as of June 28, 2002. These shares were sold during the three months ended December 29, 2002 for $2.1 million, with a net loss on the sale recognized for $2.0 million during the second quarter of fiscal 2003.

Management viewed both of these investments as strategic in nature, and therefore, the shares were accounted for as “available-for-sale” securities under SFAS 115. The Company carried these investments at fair value, based on quoted market prices, while unrealized gains and losses, net of taxes, were included in accumulated other comprehensive income (loss), which is a separate component of shareholders’ equity. Realized gains and losses were recognized upon sale. Declines in value, which were deemed to be “other than temporary” where recognized as losses on the consolidated statements of operations. The Company reviews equity holdings on a regular basis to evaluate whether or not each security has experienced an “other-than-temporary” decline in fair value. This policy requires, among other things, the Company to review each company’s cash position, earnings and revenue outlook, stock price performance, liquidity, ability to raise capital and management and ownership and other relevant considerations. If the Company determined that an “other-than-temporary” decline existed in the value of marketable equity securities, it is the Company’s policy to write-down these equity investments to the respective market value. Any related write-down is recorded as an investment loss in the Company’s consolidated statements of operations. In the fourth quarter of fiscal 2002, the Company determined that an “other-than-temporary” decline in market value had occurred Microvision and Emcore marketable equity investments. Accordingly, the Company wrote down these equity investments to their market values at June 30, 2002 and recorded the unrealized losses, most of which had previously been recorded as a comprehensive loss in shareholders’ equity, as a non-operating loss on the Company’s consolidated statements of operations for the year then ended. The total amount of the charge to non-operating expenses in the consolidated statements of operations for the year ended June 30, 2002 relating to these investments was $22.0 million on a pre-tax basis. A corresponding amount that would have been recorded through other comprehensive income (loss) was $17.2 million on an after-tax basis. The amount reported through other comprehensive income (loss) on an after-tax basis was

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June 29, 2003

$15.8 million as the losses from the June 2002 period were directly charged to non-operating loss on the statement of operations. The Company recorded a combined realized net loss of $2.1 million to non- operating expense in the consolidated statement of operations for the fiscal year ended June 29, 2003 for the sale of these securities. The Company also recorded a $558,000 realized gain on the sale of other marketable trading securities in the second quarter of fiscal 2002.

At the time of the Company’s review to determine whether an “other-than-temporary” decline had occurred in the fair value of the Company’s investments in Emcore and Microvision, the Company considered that both investments had been made with a long-term investment horizon. The Emcore stock was determined to have experienced an “other-than-temporary” decline after Emcore indicated declining revenue as well as charges for write-downs taken in the quarter for inventory and other restructuring charges. Although Emcore’s stock price was less than the Company’s average cost for a period time at the end of March 2002, the Company determined that the decline was not “other-than-temporary” at that time in light of the high volatility of Emcore’s stock trading price, the significant potential advancements represented by its core technologies, its growth potential, the overall decline in the NASDAQ market, and the fact that none of the analysts following Emcore downgraded the stock during the quarter ended in March 2002.

The Company determined that the decline in its investment in Microvision was “other-than-temporary” at June 30, 2002 because the stock began trading negatively when compared to the NASDAQ market at that time. Moreover, a number of analysts forecast in June 2002 that the technology sector would not rebound until after the third quarter of 2002. Prior to that time, the Microvision stock had traded below our average cost for a prolonged time but the Company determined that the decline in Microvision stock prior to June 30, 2002 was not “other-than-temporary” for a number of reasons. First, the Company concluded that there were no Microvision specific factors that indicated that Microvision was not executing on its plan as expected. Microvision was incurring losses, but they were expected and the Company concluded that Microvision’s product development efforts were on track. The downward trend in Microvision’s stock price was reflective of the technology sector in general and, to the Company’s knowledge, did not result from reduced expectations of Microvision’s performance. Furthermore, each quarter prior to June 30, 2002, Microvision made public statements positively and aggressively promoting its current results and future prospects. The Company also considered that the Microvision stock price was highly volatile. Thus, the Company concluded that with high volatility and continued positive performance, a rapid rise in the stock price was possible.

The Company weighed these factors against the Microvision stock price decline and the decline in the overall market. The Company noted that the Microvision stock had experienced 100% volatility and that the analysts’ recommendations at the time included upgrades, not merely maintaining a buy rating. As far as the overall market, the events of September 11, 2001 required the Company to determine whether an “other-than-temporary” decline in the overall market had occurred. In September 2001, it was clear that the market and Microvision’s stock price had reacted to the events of that day. What was not clear, however, was whether the decline caused by September 11 was “other-than-temporary”. In fact, in the fourth quarter of calendar 2001, both the overall market and Microvision’s stock rose significantly. At year-end, Microvision’s stock price was at its quarterly high, with the prospects that the overall market and the Microvision stock price could continue to improve in the first quarter of calendar 2002. Accordingly, it was not until a number of analysts concluded in June 2002 that the technology sector would not rebound until after the third quarter of 2002 and the Microvision stock price fell below the NASDAQ trendline that the Company concluded that an “other-than-temporary” decline had occurred in the overall stock market and in the Company’s Microvision investment.

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June 29, 2003

Microvision, also is one of the companies in which the Company invested in funded a research and development project for custom light emitting diodes, or LEDs, and laser diodes. The amount of funding received by the Company in connection with the contracts was $4.4 million and $4.7 million for fiscal years ended June 30, 2002 and June 24, 2001, respectively. The amount of the research and development funding received from Microvision was recorded as an offset to research and development expense. There was no funding received from Microvision during the fiscal year ended June 29, 2003 as the contract expired during fiscal 2002. The Company does not anticipate additional funding for research and development from this company in the future.

As of June 29, 2003, the Company’s short-term investments held to maturity included $75.2 million in high-grade corporate bonds and other debt securities that mature within one year. As of June 30, 2002, the Company’s short-term investments held to maturity totaled $32.4 million consisting of high-grade corporate bonds. The Company purchased these investments with a portion of the proceeds from its public stock offering in January 2000. The Company has the intent and ability to hold these securities until maturity; therefore, they are accounted for as “securities held-to-maturity” under SFAS 115. The securities are reported on the consolidated balance sheets at amortized cost, as a short-term investment with unpaid interest included in interest receivable. The Company believes that there is no difference between the amortized cost of these securities and their fair value at the time the security is purchased because premiums or discounts are assigned to the securities if a different interest rate is paid than the current prevailing market rate. This premium or discount is amortized or accreted over the remaining life of the security and charged as an increase or decrease to interest income. Over time if interest rates continue to decline, the fair value of the security may be higher than the book value as the interest rate less the premium may be higher than current interest rates. As of June 29, 2003 and June 30, 2002, the Company calculated market value to be in excess of book value by approximately $1.1 million and $78,000, respectively, on combined short term and long term asset balances of $134.0 million and $97.0 million, respectively.

As of June 29, 2003, the Company’s long-term investments held to maturity consisted of $58.8 million in high-grade corporate bond holdings and other debt securities that mature after June 28, 2004. As of June 30, 2002, the Company’s long-term investments held to maturity consisted of $64.2 million in high-grade corporate bond holdings and other debt securities that mature after June 29, 2003. The Company purchased the corporate bonds with a portion of the proceeds from the public stock offering in January 2000. The Company has the intent and ability to hold these securities until maturity; therefore, they are accounted for as “securities held-to-maturity” under SFAS 115. The securities are reported on the consolidated balance sheets at amortized cost, as a long-term held to maturity investment with unpaid interest included in interest receivable if interest is due in less than 12 months, and as a long-term other asset if interest is due in more than 12 months. These investments mature over periods ranging from 13 to 24 months.

As of June 29, 2003, the Company maintained $15.6 million of net investments in privately held companies, which are included in other assets on the consolidated balance sheets. Since the Company does not have the ability to exercise significant influence over the operations of these companies, these investment balances are carried at cost and accounted for using the cost method of accounting. Because the shares of stock the Company received in these investments are not publicly traded, there is no established market for these securities. The Company reviews the fair value of these investments on a regular basis to evaluate the carrying value of such investments. This review includes, but is not limited to, an analysis of each of the companies’ cash position, financing needs, earnings and revenue outlook, operational performance, management or ownership changes and competition. The evaluation process is based on information requested from the privately held companies by the Company. This information is not subject to the same disclosure regulations as U.S. public companies, and as such, the basis for these evaluations is subject to the

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June 29, 2003

timing and the accuracy of the data received from these companies. If the Company determines that the carrying value of an investment is at an amount in excess of fair value, it is the Company’s policy to record a write-down of the investment. This write-down is estimated based on the information described above, and it is recorded as an investment loss on the Company’s consolidated statement of operations. During fiscal 2002 and fiscal 2001, the Company recorded write-downs of these investments of $20.4 million pre-tax and $4.6 million pre-tax, respectively, representing the Company’s best estimate of “other-than-temporary” declines in value. These impairment charges were included as an “other non-operating loss” on the consolidated statements of operations. During the fiscal year ended June 29, 2003, there were no additional write-downs taken on these investments and one of the private companies was sold to another company during the second quarter of fiscal 2003 with proceeds of $636,000 received from the sale. The Company’s investment in this company was written down to reflect the fair value based on the expected sales proceeds in the fourth quarter of fiscal 2002.

Two of these private companies in which the Company was a shareholder entered into contracts to fund development programs conducted by the Company. During the first quarter of fiscal 2003, Lighthouse, which is one of these companies, completed funding of a development program that commenced in a prior year and was directed to the development of brighter LEDs. Xemod, which was another of these companies also had commenced a research and development funding project in a prior year directed to the development of SiC RF transistors. The total amount of funding received by the Company from these companies was $500,000, $3.5 million and $5.2 million for the fiscal years ended June 29, 2003, June 30, 2002 and June 24, 2001, respectively. The amount of the research and development funding received from the companies was recorded as an offset to research and development expense. The Company does not anticipate additional funding from these companies in the future as both programs have now ended.

7.    Accrued Expenses

The following table reflects the components of other accrued expenses:

	Year ended (in 000’s)
	June 29, 2003		June 30, 2002
Accrued legal fees	$	444	$	1,806
Accrued taxes		805		945
Accrued warranty costs		341		673
Other accrued liabilities		497		804
Total accrued expenses	$	2,087	$	4,228

Accrued expenses include amounts accrued for product warranty expenses at the Cree Microwave segment. Cree Microwave accrues 0.5% of product revenue as a warranty liability each month and maintains the reserve for 36 months after the date of sale pursuant to our warranty terms with our customers. During fiscal year 2003, approximately $10,000 was accrued for additional warranty expense while $331,000 was reversed from the liability due to prior period overstatement of the reserve and $11,000 was used to satisfy warranty claims.

8.    Shareholders’ Equity

On January 18, 2001, Cree announced that its Board of Directors had authorized the repurchase of up to four million shares of its outstanding common stock through January 2002. Additionally, on March 22, 2001, Cree announced that its Board of Directors had increased the repurchase limits under the stock repurchase

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June 29, 2003

program announced in January 2001 to include an additional three million shares. In February 2002, the Board of Directors approved the renewal of this program through January 2003. In January 2003, the Board of Directors approved the renewal of this program through January 2004. During fiscal year ended June 30, 2002, the Company repurchased 1.5 million shares at an average price of $13.63 per share with an aggregate value of approximately $20.3 million. Since the inception of the stock repurchase program, Cree has repurchased 3.3 million shares of its common stock at an average price of $15.26 per share, with an aggregate value of $51.0 million.

The Company intends to use available cash to finance purchases under the program. At the discretion of the Company’s management, the repurchase program can be implemented through open market or privately negotiated transactions. The Company will determine the time and extent of repurchases based on its evaluation of market conditions and other factors.

On May 29, 2002, the Company’s Board of Directors adopted a shareholder rights plan, pursuant to which stock purchase rights were distributed to shareholders at a rate of one right with respect to each share of common stock held of record as of June 10, 2002. The rights plan is designed to enhance the board’s ability to prevent an acquirer from depriving shareholders of the long-term value of their investment and to protect shareholders against attempts to acquire the Company by means of unfair or abusive takeover tactics. The rights become exercisable based upon certain limited conditions related to acquisitions of stock, tender offers and certain business combinations involving the Company. The Company amended the Articles of Incorporation to designate 200,000 shares of preferred stock as “Series A Preferred Stock” in connection with the implementation of a shareholders’ rights plan. At June 30, 2002, rights to purchase 100,000 shares of Preferred Stock had been distributed to shareholders.

At June 29, 2003, the Company had reserved a total of 16,915,294 shares of its common stock and 100,000 shares of its Series A preferred stock for future issuance as follows:

	Number of shares
For exercise of outstanding common stock options	12,804,196
For future common stock option awards	3,504,277
For future issuance to employees under the Employee Stock Purchase Plan	606,821
Total common shares reserved	16,915,294
Series A Preferred Stock reserved for exercise of rights issued under shareholders’ rights plan	100,000

9.    Employee Stock Purchase Plan

The Company adopted an Employee Stock Purchase Plan (the “ESPP”) on November 2, 1999. The ESPP provides employees of the Company, and its majority-owned subsidiaries, with an opportunity to purchase common stock through payroll deductions. The purchase price is set at 85% of the fair market value of common stock at the beginning of the participation period, or 85% of the price on the purchase date, whichever is lower. Contributions are limited to 15% of an employee’s compensation. The participation periods have a 12 month duration, with new participation periods beginning in November and May of each year. Each participation period has two purchase dates, one in October and the other in April. The Board of Directors has reserved 1,350,000 shares of common stock for issuance under the ESPP. As of June 29, 2003, 743,179 shares of common stock had been purchased under the ESPP.

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June 29, 2003

10.    Stock Options and Stock Warrants

The Company has stock option plans to provide incentives to eligible employees, officers, and directors in the form of incentive stock options and non-qualified stock options. The Board of Directors determines the option price (not to be less than fair market value) at the date of grant. Options, particularly those assumed or exchanged as a result of acquisitions, have various vesting schedules and expiration dates. The majority of options vest and become exercisable over three to five years and have seven to ten year terms.

Stock option activity during the periods ending as indicated is as follows (in 000’s, except per share data):

	June 29, 2003				June 30, 2002				June 24, 2001
	Number of Options		Weighted Average Price		Number of Options		Weighted Average Price		Number of Options		Weighted Average Price
Outstanding—beginning of year	14,684		$	25.86	13,522		$	26.93	8,180		$	13.55
Granted	1,521		$	13.64	3,375		$	20.48	6,566		$	41.41
Exercised	(1,093	)	$	8.67	(1,054	)	$	4.01	(797	)	$	5.19
Forfeited	(2,308	)	$	48.65	(1,159	)	$	42.50	(427	)	$	33.80
Outstanding—end of year	12,804		$	21.77	14,684		$	25.86	13,522		$	26.93
Exercisable—end of year	6,628		$	21.35	5,947		$	20.39	3,878		$	11.83

As permitted by SFAS 123, the Company has elected to follow APB 25 and related interpretations and amendments in accounting for its employee stock option plans. In connection with restricted stock grants and discounted stock options assumed by the Company in its acquisition of Nitres, Inc. (“Nitres”) on May 1, 2000, the Company recognized compensation expense of $478,000, $515,000, and $501,000 during the years ended June 29, 2003, June 30, 2002, and June 24, 2001, respectively. As of June 29, 2003, June 30, 2002, and June 24, 2001, the Company had deferred compensation balances of $218,000, $696,000, and $1.2 million, respectively. This amount represents the difference between the grant price and the deemed fair value of stock and stock options granted previously.

Due to the cancellation of a stock option held by an employee during the year ended June 29, 2003, a separate stock option granted to the same employee less than six months previously is subject to variable accounting. Accordingly, the Company recognized compensation expense of $50,000 during the year ended June 29, 2003 and has included $11,000 in deferred compensation as of June 29, 2003.

Selected information regarding stock options as of June 29, 2003 is as follows (in 000’s, except per share data):

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Options	Weighted-Average Remaining Life in Years	Weighted-Average Exercise Price		Number of Options	Weighted-Average Exercise Price
$   0.01-$   6.16	2,407	4.64	$	3.53	2,218	$	3.55
$ 10.25-$ 13.92	2,341	6.03	$	12.63	295	$	12.52
$ 14.49-$ 20.24	2,310	5.82	$	18.90	928	$	18.76
$ 21.59-$ 33.50	3,137	5.62	$	25.62	1,527	$	26.17
$ 34.63-$ 71.53	2,609	7.14	$	44.71	1,660	$	43.74
	12,804	5.85	$	21.77	6,628	$	21.35

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June 29, 2003

On March 17, 2003, the Company made an offer to exchange options to purchase an aggregate of 3,482,128 shares of the Company’s common stock held by eligible employees (the “Offer”). Directors and executive officers were not eligible to participate in the Offer. The options subject to the Offer were granted under the Company’s Equity Compensation Plan and 2001 Stock Option Bonus Plan granted at exercise prices greater than $30.00 per share. The Offer, including all withdrawal rights, expired at 12:00 midnight Eastern Time on Friday, April 11, 2003. On April 12, 2003, the Company accepted for cancellation options to purchase 1,663,600 shares of its common stock, tendered by 91 eligible employees, representing approximately 48% of the options that were eligible to be tendered in the Offer. Subject to the terms and conditions of the Offer, the Company will grant new options to purchase approximately 562,852 shares of its common stock on October 13, 2003 in exchange for the options tendered and accepted. The new options will be granted under the Company’s Equity Compensation Plan with an exercise price equal to the last sale price of the Company’s common stock reported by the Nasdaq National Market on the new option grant date. The new options will not vest for six months after the new option grant date after which the vesting schedule of each new option will be the same as the corresponding canceled option in percentage terms.

In connection with the Company’s September 1995 private placement, the Company issued warrants to purchase 1.2 million shares of the Company’s common stock. These warrants had a 5-year term and an exercise price of $6.81 per share, which represents fair value on the date of grant. Warrants to purchase 462,000 shares of common stock were exercised during the fiscal year ended June 24, 2001. As of June 24, 2001, all warrants issued under this private placement had been exercised. In conjunction with the Company’s acquisition of Nitres in May 2000, the Company assumed outstanding warrants that had been previously issued by Nitres in February 2000. These warrants had a 7-year term and an exercise price of $1.28 per share. During the year ended June 24, 2001, the remaining warrants to purchase 31,360 shares of the Company’s common stock were exercised.

11.    Lease Commitments

The Company currently leases four facilities. These facilities are comprised of both office and manufacturing space. The first facility has a remaining lease term for approximately seven and one-half years. The second facility lease expires in approximately two years. The third and fourth leases are for sales offices that expire in June 2005 and July 2004, respectively. All of the remaining lease agreements provide for rental adjustments for increases in base rent (up to specific limits) property taxes and general property maintenance that would be recorded as rent expense if applicable. The Company has subleased a portion of one of the facilities that it currently leases to a third party. The sublease is a two year agreement that expires in July 2004.

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June 29, 2003

Rent expense associated with these and other expired operating leases totaled $1.8 million, $1.7 million and $1.2 million for the years ended June 29, 2003, June 30, 2002, and June 24, 2001, respectively. Sublease income was $173,000, $224,000 and $166,000 for the years ended June 29, 2003, June 30, 2002 and June 24, 2001, respectively. Future minimum rentals as of June 29, 2003 under these leases are as follows:

Fiscal Years Ended	Minimum Rental Amount (in 000’s)
June 27, 2004	$	1,783
June 26, 2005		1,766
June 25, 2006		1,085
June 24, 2007		961
June 30, 2008		961
Thereafter		3,285
Total	$	9,841

Future minimum sub lease rental income generated from subleases is targeted to be $194,000 and $16,000 for the fiscal years ended June 27, 2004 and June 26, 2005, respectively.

During July 2003, Cree entered into an agreement to lease certain research and development equipment to a customer for the following twelve-month period. As of June 29, 2003, the equipment cost is $1.7 million with accumulated depreciation of $632,000. The future minimum rental income as of June 29, 2003 under this lease is $484,000 and $21,000 for fiscal 2004 and fiscal 2005, respectively.

12.    Income Taxes

The Company accounts for its income taxes under the provisions of SFAS 109. Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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June 29, 2003

The actual income tax expense for the years ended June 29, 2003, June 30, 2002, and June 24, 2001, differed from the amounts computed by applying the U.S. federal tax rate of 35% to pretax earnings as a result of the following:

	Year Ended (in 000’s)
	June 29, 2003			June 30, 2002			June 24, 2001
Federal income tax provision at statutory rate	$	16,507		$	(45,644	)	$	17,565
State tax provision		318			(3,009	)		1,439
Increase (decrease) in income tax expense resulting from:
Foreign sales corporation		(1,800	)		—			(2,108	)
Investments		—			20,562			—
Research and development		(2,285	)		(600	)		(538	)
Amortization		(406	)		—			(203	)
In process research and development		—			—			6,090
Other		(71	)		—			98
Income tax expense (benefit)	$	12,263		$	(28,691	)	$	22,343

The following are the components of the provision for income taxes for the years ended June 29, 2003, June 30, 2002 and June 24, 2001:

	Year Ended (in 000’s)
	June 29, 2003		June 30, 2002			June 24, 2001
Current:
Federal	$	1,874	$	(2,200	)	$	7,111
State		388		—			832
		2,262		(2,200	)		7,943
Deferred:
Federal		9,291		(23,482	)		13,988
State		710		(3,009	)		412
		10,001		(26,491	)		14,400
Net Provision	$	12,263	$	(28,691	)	$	22,343

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	Year Ended (in 000’s)
	June 29, 2003			June 30, 2002			June 24, 2001
Current deferred tax asset:
Compensation	$	578		$	522		$	491
Inventory		1,068			374			544
Bad debt		275			230			129
Marketable equity securities and other		(58	)		(4	)		3,008
Net current deferred tax asset		1,863			1,122			4,172

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June 29, 2003

	Year Ended (in 000’s)
	June 29, 2003			June 30, 2002			June 24, 2001
Non current deferred tax asset (liability):
Alternative minimum tax		2,448			—			2,295
Net operating loss carryforwards		4,150			9,059			421
Research tax credits		5,046			2,869			2,369
Fixed assets		(16,421	)		(12,763	)		(7,925	)
Goodwill		28,898			31,501			—
State tax credits and other		(3,187	)		(3,301	)		(1,010	)
Net non current deferred tax asset (liability)		20,934			27,365			(3,850	)
Net deferred tax asset	$	22,797		$	28,487		$	322

As of June 29, 2003, the Company has federal net operating loss carryforwards of approximately $9.2 million and state net economic loss carryovers of approximately $20.0 million. The federal net operating loss will begin to expire in 2021. The state net economic loss carryforward will expire beginning in 2011. Research and development tax credits begin to expire in 2011. State incentive tax credits begin to expire in 2004.

13.    Contingencies

On June 10, 2003, the Trustees of Boston University and Cree Lighting Company commenced a patent infringement lawsuit against AXT, Inc., a manufacturer of gallium nitride-based LEDs and other products, by filing a complaint in the U.S. District Court for the Northern District of California. In the complaint Boston University and Cree Lighting allege that AXT is infringing U.S. Patent No. 5,686,738, entitled “Highly Insulating Monocrystalline Gallium Nitride Thin Films,” by, among other things, importing, selling and/or offering for sale gallium nitride-based LEDs covered by one or more claims of the patent. Effective June 29, 2003, Cree Lighting Company was merged into Cree, Inc. The ‘738 patent is owned by Boston University and is licensed to the Company on an exclusive basis. The complaint seeks damages and an injunction against infringements. On July 23, 2003, AXT filed an answer and counterclaim. In its answer, AXT denies infringement and alleges that the patent is invalid. AXT also filed a counterclaim alleging among other things that the lawsuit is objectively baseless and was brought for improper purposes. AXT further alleges various antitrust, unfair competition, interference with contract and related claims. AXT’s counterclaim seeks damages, declaratory relief and an injunction against acts in violation of certain antitrust and other laws. The plaintiffs’ replies to AXT’s counterclaim denying the allegations were filed on August 29, 2003. The Company intends to pursue this complaint vigorously.

On June 12, 2003, Eric Hunter, and his wife Jocelyn Hunter, filed a lawsuit in United States District Court for the Middle District of North Carolina in Greensboro, North Carolina naming the Company and Neal Hunter, Eric Hunter’s brother and the Company’s current chairman, as defendants. The complaint alleged claims for defamation and harassment as well as violations of employment and federal securities laws related to transactions with C&C, and other matters. The Hunters sought personally to recover damages in excess of $3 billion for unspecified harm resulting from the alleged conduct, as well as a preliminary injunction against future harassment. On June 26, 2003, the Company filed a motion to dismiss the lawsuit and requested a hearing on the motion. On the same date, the Hunters filed a motion to amend their complaint to add additional state law claims. The Hunters subsequently sought to file three further amendments to their complaint to add additional allegations and parties, including Bank of America N.A.,

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June 29, 2003

CIBC Worlds Markets, Prudential Securities, Soundview Technology Group, Inc., Morgan Keegan & Company, Inc. and Ernst & Young. In a hearing on August 14, 2003, the court denied the Hunters’ motion for a preliminary injunction, finding that there was not enough evidence presented by the Hunters to even infer that Cree or Neal Hunter was responsible for the harassment that the Hunters alleged to have occurred. The court granted the Hunters’ motions to amend, but indicated that no further amendments would be allowed unless the Hunters could show extremely exceptional or unusual circumstances. On September 19, 2003, the Company filed a renewed motion to dismiss the Hunters’ complaint, as amended, and the Company intends to continue to vigorously defend the litigation. As a result of the commencement of the litigation, on June 14, 2003, the Company’s Board of Directors created a litigation committee, comprised of directors Mr. Dolph W. von Arx and Mr. James E. Dykes, to direct the litigation and any related litigations, including the shareholder class action lawsuits described below.

Between June 16 and August 18, 2003, nineteen purported class action lawsuits were filed in the United States District Court for the Middle District of North Carolina by certain alleged purchasers of the Company’s stock. The lawsuits name the Company, certain of its officers and current and former directors. These complaints allege, among other things, violations of federal securities laws, including violations of Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5. In addition, among other claims, one or more of the complaints allege that the Company made certain false and misleading statements in connection with its acquisition of the UltraRF division of Spectrian, its supply agreement with Spectrian, its investment in World Theater, Inc. and its agreements with C&C. The complaints seek unspecified damages, plus costs and expenses, including attorney fees and experts’ fees. As is usual in these types of cases, the Company anticipates that all of the pending class actions will be consolidated and that an amended consolidated complaint will be filed, to which the Company intends to respond in due course. The Company intends to defend the cases vigorously.

In July 2003, the Securities and Exchange Commission (the “SEC”) initiated an informal inquiry of us and requested that the Company voluntarily provide certain information. The Company is cooperating with the SEC in this informal inquiry and has provided the SEC with written responses and documents. At this time, the Company is unable to determine whether this informal inquiry may lead to potentially adverse action, although it does not believe that grounds justifying any enforcement action exist.

On August 7, 2003, the Nasdaq Stock Market, Inc. (“Nasdaq”) requested information from the Company regarding the informal inquiry being conducted by the SEC and its pending litigation. The Company is cooperating with this request and have provided Nasdaq with written responses and documents. At this time, the Company is unable to determine whether this request may lead to potentially adverse action.

The Company currently is a party to other legal proceedings incidental to its business. If an unfavorable resolution occurs in these other legal proceedings or the matters described above, our business, results of operations and financial condition could be materially adversely affected.

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June 29, 2003

14.    Retirement Plan

The Company maintains an employee benefit plan (the “Plan”) pursuant to Section 401(k) of the Internal Revenue Code. Under the Plan, there is no fixed dollar amount of retirement benefits, and actual benefits received by employees will depend on the amount of each employee’s account balance at the time of retirement. All employees are eligible to participate under the Plan on the first day of a new fiscal month after date of hire. The Pension Benefit Guaranty Corporation does not insure the Plan. The Company may, at its discretion, make contributions to the Plan. However, the Company did not make any contributions to the Plan during the years ended June 29, 2003, June 30, 2002 and June 24, 2001.

15.    Earnings (Loss) Per Share

The following computation reconciles the differences between the basic and diluted earnings per share presentations:

	Year Ended (in 000’s, except per share data)
	June 29, 2003		June 30, 2002			June 24, 2001
Basic:
Net income (loss)	$	34,901	$	(101,723	)	$	27,843
Weighted average common shares		73,196		72,718			72,243
Basic earnings (loss) per share	$	0.48	$	(1.40	)	$	0.39
Diluted:
Net income (loss)	$	34,901	$	(101,723	)	$	27,843
Weighted average common shares-basic		73,196		72,718			72,243
Dilutive effect of stock options and warrants		2,107		—			3,492
Weighted average common shares-diluted		75,303		72,718			75,735
Diluted earnings (loss) per share	$	0.46	$	(1.40	)	$	0.37

Potential common shares that would have the effect of increasing diluted earnings per share are considered to be antidilutive. In accordance with SFAS 128, “Earnings Per Share”, these shares were not included in calculating diluted earnings per share. As of June 29, 2003, June 30, 2002 and June 24, 2001, there were 9.2 million, 10.4 million and 6.4 million shares, respectively, that are not included in calculating diluted earnings per share because their effect was antidilutive.

16.    Recent Accounting Pronouncements

Effective July 1, 2002, the Company adopted Financial Accounting Standards No 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually, or more frequently if impairment indicators arise for impairments. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their estimated useful lives. The nonamortization provisions of SFAS 142 apply to goodwill and indefinite lived intangible assets acquired after June 30, 2001. The Company wrote off all of its goodwill and intangible assets in March 2002, therefore amortization ceased beginning April 2002.

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June 29, 2003

Actual results of operations and pro forma results of operations for the years ended June 29, 2003, June 30, 2002 and June 24, 2001 had we applied the nonamortization provisions of SFAS 142 in the period are as follows:

	Year Ended
	June 29 2003		June 30, 2002			June 24, 2001
	(in thousands)
Reported net income (loss)	$	34,901	$	(101,723	)	$	27,843
Goodwill and intangible amortization, net of tax		—		5,277			3,040
Proforma net income (loss)	$	34,901	$	(96,446	)	$	30,883
Basic income (loss) per share:
Reported net income (loss)	$	0.48	$	(1.40	)	$	0.39
Goodwill and intangible amortization		—		0.07			0.04
Proforma net income (loss)	$	0.48	$	(1.33	)	$	0.43
Diluted income (loss) per share:
Reported net income (loss)	$	0.46	$	(1.40	)	$	0.37
Goodwill and intangible amortization		—		0.07			0.04
Proforma net income (loss)	$	0.46	$	(1.33	)	$	0.41

In August 2001, the FASB issued Statement of Financial Accounting Standards 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). SFAS 143 requires an entity to record a liability for an obligation associated with the retirement of an asset at the time that the liability is incurred. This is done by capitalizing the cost as part of the carrying value of the related asset and depreciating it over the remaining useful life of that asset. The Statement is effective for financial statements for fiscal years beginning after June 15, 2002 and has been adopted by the Company in fiscal 2003. The adoption of SFAS 143 did not have a material impact on the Company’s results of operations, financial position or cash flows.

In October 2001, the FASB issued Statement of Financial Accounting Standards 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of” (“SFAS 144”). SFAS 144 addresses how and when to measure impairment on long-lived assets and how to account for long-lived assets that an entity plans to dispose of either through sale, abandonment, exchange or distribution to owners. The new provisions supersede SFAS 121, which addressed asset impairment and certain provisions of APB 30 related to reporting the effects of the disposal of a business segment, including discontinued operations. This Statement requires future operating losses from discontinued operations to be recorded in the period in which the losses are incurred rather than at the measurement date. Under SFAS 144, more dispositions may qualify for discontinued operations treatment in the income statement. The provisions of SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company has adopted SFAS 144 in fiscal 2003. The adoption of SFAS 144 did not have a material impact on the Company’s results of operations, financial position or cash flows.

In April 2002, the FASB issued Statement of Financial Accounting Standards 145, “Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”). SFAS 145 requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under Statement 4. Extraordinary treatment will be required for certain extinguishments as provided in APB 30. SFAS 145 also amends Statement 13 to require that certain modifications to capital leases be treated as a sale-leaseback and

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CREE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 29, 2003

modifies the accounting for sub-leases when the original lessee remains a secondary obligor (or guarantor). In addition, SFAS 145 rescinded Statement 44 addressing the accounting for intangible assets of motor carriers and made numerous technical corrections. SFAS 145 is effective for all fiscal years beginning after May 15, 2002 and has been adopted by the Company in fiscal 2003. The adoption of SFAS 145 did not have a material impact on the Company’s results of operations, financial position or cash flow.

In July 2002, the FASB issued Statement of Financial Accounting Standards 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146, which nullified EITF Issue  94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”, requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost was recognized at the date of an entity’s commitment to an exit plan. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect the adoption of SFAS 146 to have a material impact on the Company’s results of operations or financial position or cash flows.

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure” (“SFAS 148”). SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS 148 requires disclosure of the pro forma effect in interim financial statements. The transition disclosure requirements of SFAS 148 are effective for fiscal year 2003. The interim and annual disclosure requirements were effective for the third quarter of 2003. The adoption of SFAS 148 did not have a material effect on the Company’s financial condition, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45,”Guarantor’s Accounting and Disclosure Requirements for Guarantees” (“FIN 45”). FIN 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation it has undertaken in issuing the guarantee. The Company will apply FIN 45 to guarantees, if any, issued after December 28, 2002. At adoption, FIN 45 did not have a material impact on the Company’s results of operations or financial position.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 requires an investor with a majority of the variable interests in a variable interest entity (“VIE”) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the equity investors do not have a controlling interest, or the equity investment at risk is insufficient to finance the entity’s activities without receiving additional subordinated financial support from the other parties. For arrangements entered into with VIEs created prior to January 31, 2003, the provisions of FIN 46 are required to be adopted at the beginning of the first interim or annual period beginning after June 15, 2003. The Company is currently reviewing its investments and other arrangements to determine whether any of its investee companies are VIEs. The Company does not expect to identify any significant VIEs that would be consolidated, but may be required to make additional disclosures. The provisions of FIN 46 are effective immediately for all arrangements entered into with new VIEs created after January 31, 2003. The Company has not invested in any new VIEs created after January 31, 2003.

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CREE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 29, 2003

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.    Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by Form 10-K, our disclosure controls and procedures provide reasonable assurances that the information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period required by the United States Securities and Exchange Commission’s rules and forms. There have been no changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART III

Item 10.    Directors and Executive Officers

Item 11.    Executive Compensation

Item 12.    Security Ownership of Certain Beneficial Owners and Management

Equity Compensation Plans

The following table provides information, as of June 29, 2003, for all of the Company’s compensation plans (including individual arrangements) under which we are authorized to issue equity securities.

Equity Compensation Plan Information

Plan Category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)		(b) Weighted average exercise price of outstanding options, warrants and rights		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(1)
Equity compensation plans approved by security holders	9,483,046	(2)	$	22.71	4,111,098	(3)
Equity compensation plans not approved by security holders	3,321,150	(4)	$	19.07	0
Total	12,804,196		$	21.77	4,111,098

(1) Refers to shares of the Company’s common stock. All amounts are as of June 29, 2003.

(2) Includes shares issuable upon exercise of outstanding options under the following plans in the amounts indicated: Equity Compensation Plan—9,291,046 shares; and Stock Option Plan for Non-Employee Directors—192,000 shares.

(3) Includes shares remaining for future issuance under the following plans in the amounts indicated: Equity Compensation Plan—3,504,277 shares and 1999 Employee Stock Purchase Plan—606,821 shares.

(4) Includes shares issuable upon exercise of outstanding options under the following plans in the amounts indicated: 2001 Nonqualified Stock Option Plan—2,876,120 shares; Fiscal 2002 Stock Option Bonus Plan—58,698 shares; Fiscal 2001 Stock Option Bonus Plan—245,515 shares; and Nitres, Inc. 1999 Stock Option/Issuance Plan—140,817 shares. The options outstanding under the Nitres, Inc. 1999 Stock Option/Issuance Plan, which have a weighted average exercise price of $0.01 per share, were assumed by the Company in connection with its acquisition of Nitres, Inc. in May 2000.

Other than the 1999 Employee Stock Purchase Plan, the only compensation plans or arrangements under which the Company is authorized to issue equity securities are the following (collectively, the “Option Plans”): (1) the Equity Compensation Plan; (2) the 2001 Nonqualified Stock Option Plan; (3) the Fiscal 2002 Stock Option Bonus Plan; (4) the Fiscal 2001 Stock Option Bonus Plan; (5) the Stock Option Plan for Non-Employee Directors; and (6) options assumed under the Nitres, Inc. 1999 Stock Option/Issuance Plan in connection with the Company’s acquisition of Nitres, Inc. in May 2000. The only Option Plan under which the Company remains authorized to make future awards is the Equity Compensation Plan.

The 1999 Employee Stock Purchase Plan and all of the Option Plans, have been previously approved by the shareholders with the exception of the 2001 Nonqualified Stock Option Plan, the two Stock Option Bonus Plans, and the options assumed under the Nitres, Inc. 1999 Stock Option/Issuance Plan. The Equity

83

Compensation Plan was originally adopted by the Board of Directors in 1989 and approved by the shareholders in 1995. As permitted by its terms, the Equity Compensation Plan was amended by the Board of Directors in 1999 and 2000, without a shareholder vote, to authorize an additional 859,800 shares for nonqualified stock option grants to newly hired employees where the grants were deemed essential to induce such individuals to accept employment with the Company. A further amendment of the Equity Compensation Plan, increasing the shares authorized for issuance under the plan since its adoption to a total of 19,819,800 shares (including the 859,800 shares previously authorized by the Board of Directors) was approved by the shareholders in October 2000.

The following description of the Company’s Option Plans is merely a summary of some of their respective terms and provisions, is not intended to be a complete description and is qualified in its entirety by reference to the full text of the applicable plan.

Option Plans—General.    The Option Plans are administered under the direction of the Compensation Committee of the Board of Directors, which is comprised entirely of directors not employed by the Company. The Committee has broad discretion to determine the terms and conditions of options granted under the Option Plans and must approve, among other things, recommendations regarding grants and grant guidelines with respect to: (1) the individuals to whom option grants are to be made; (2) the time or times at which options are granted; (3) the number of shares subject to each option; (4) the vesting terms of each option; and (5) the term of each option. The Option Plans prohibit the grant of options with an exercise price less than the fair market value of the Company’s common stock on the date of grant.

Each of the Option Plans provides that the option price, as well as the number of shares subject to options granted or to be granted under the plan, shall be appropriately adjusted in the event of any stock split, stock dividend, recapitalization or other specified events involving a change in the capitalization of the Company. The terms of the Option Plans generally permit the Board of Directors to amend or terminate the plans, provided that no modification or termination may adversely affect prior awards without the participant’s approval and subject, in the case of the Equity Compensation Plan, to obtaining shareholder approval to the extent required for incentive stock option grants under Section 422 of the Code.

Equity Compensation Plan.    The Equity Compensation Plan provides for grants to participants in the form of both incentive stock options and nonqualified stock options. Incentive stock options are awards intended to qualify for certain favorable tax treatment under Section 422 of the Internal Revenue Code, as amended (the “Code”). To date no incentive stock options have been granted under the plan and none are presently contemplated. The Compensation Committee has the exclusive right to determine those persons eligible to participate in the Equity Compensation Plan. Subject to the foregoing, any of the Company’s employees (including of our controlled subsidiaries) or 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. As of June 29, 2003, there were outstanding nonqualified stock options to purchase 9,291,046 shares, and 3,504,277 options remained available for future awards under the plan. During fiscal 2003, options to purchase a total of 1,139,931 shares were granted under the Equity Compensation Plan at an average exercise price of $13.47 per share.

Non-Employee Director Stock Option Plan.    The Stock Option Plan for Non-Employee Directors (the “Director Plan”) was adopted by the Board of Directors and approved by the shareholders in 1995. The Director Plan provided for fixed annual grants to the Company’s non-employee directors of nonqualified stock options to purchase shares of the Company’s common stock. The Director Plan was terminated as to future grants in 1997. As of June 29, 2003, there were options to purchase 192,000 shares outstanding under the Director Plan.

2001 Nonqualified Stock Option Plan.    The 2001 Nonqualified Stock Plan (the “Nonqualified Plan”) was adopted by the Board of Directors in April 2001. The Nonqualified Plan provided for grants to eligible

84

participants of nonqualified stock options to purchase shares of the Company’s common stock. None of the Company’s directors or officers were eligible to receive awards under the Nonqualified Plan. During fiscal 2003, options to purchase a total of 380,811 shares were granted under the Nonqualified Plan at an average exercise price of $14.17 per share. The Nonqualified Plan terminated as to additional grants in January 2003. As of June 29, 2003, there were options to purchase 2,876,120 shares outstanding under the Nonqualified Plan.

Fiscal 2001 and Fiscal 2002 Stock Option Bonus Plans.    The Board of Directors adopted the Fiscal 2001 Stock Option Bonus Plan (“Fiscal 2001 Bonus Plan”) in October 1999 in order to provide for grants of nonqualified stock options to the Company’s eligible employees (including its controlled subsidiaries) for each quarter of fiscal 2001 if we achieved pre-established financial targets for the quarter. None of the Company’s directors and officers were eligible to receive awards under the plan, and employees participating in the Company’s cash incentive compensation programs did not participate in the plan. Participants in the Fiscal 2001 Bonus Plan received stock option grants for all four quarters of fiscal 2001 representing rights to purchase a total of 372,400 shares at an average exercise price of $29.34 per share. The Fiscal 2001 Bonus Plan terminated as to additional grants in September 2001. As of June 29, 2003, there were options to purchase 245,515 shares outstanding under the Fiscal 2001 Bonus Plan.

The Fiscal 2002 Stock Option Bonus Plan (“Fiscal 2002 Bonus Plan”) was adopted by the Company’s Board of Directors in July 2001 with substantially the same terms as the Fiscal 2001 Bonus Plan. Under the Fiscal 2002 Bonus Plan, participants received only the first of the four potential option grants for fiscal 2002, with the options awarded representing rights to purchase a total of 84,306 shares at an average exercise price of $18.75 per share. The Fiscal 2002 Bonus Plan terminated as to additional grants in September 2002. As of June 29, 2003, there were options to purchase 58,698 shares outstanding under the Fiscal 2002 Bonus Plan.

Nitres, Inc. 1999 Stock Option/Issuance Plan.    In connection with the acquisition of Nitres, Inc. in May 2000, pursuant to which Nitres became a wholly-owned subsidiary of the Company and changed its name to Cree Lighting Company, the Company assumed certain outstanding stock options granted under the Nitres, Inc. 1999 Stock Option/Issuance Plan (the “Nitres Plan”). Since the closing of the acquisition, no additional stock options have been awarded, nor are any authorized to be awarded, under the Nitres Plan. As of June 29, 2003, there were 140,817 nonqualified stock options outstanding under the Nitres Plan.

Item 13.    Certain Relationships and Related Transactions

Item 14.    Principal Accounting Fees and Services

Information called for in items 10, 11, 12, 13 and 14 is incorporated by reference from our definitive proxy statement relating to its annual meeting of shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of fiscal 2003.

85

PART IV

Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) (1) and (2) Financial statements and financial statement schedule—the financial statements and reports of independent auditors are filed as part of this report (see index to Consolidated Financial Statements at Part II Item 8). The financial statement schedules are not included in this item as they are either not applicable or are included as part of the consolidated financial statements.

(a) (3) The following exhibits have been or are being filed herewith and are numbered in accordance with Item 601 of Regulation S-K:

Exhibit No.	Description
3.1	Articles of Incorporation, as amended (1)
3.2	Bylaws, as amended (2)
4.1	Specimen Common Stock Certificate (1)
4.2	Rights Agreement dated as of May 30, 2002 between the Company and American Stock Transfer & Trust Company, including the form of Rights Certificate and the Summary of Rights to Purchase Preferred Stock, attached thereto as Exhibits B and C, respectively (3)
10.1	Equity Compensation Plan, as amended and restated December 1, 2000 (4)*
10.2	Stock Option Plan for Non-Employee Directors (terminated as to future grants pursuant to Board action dated September 1, 1997) (5)*
10.3	Nitres, Inc. 1999 Stock Option/Issuance Plan (terminated as to future grants—following the acquisition of Nitres, Inc. by the Registrant effective May 1, 2000) (1)*
10.4	2001 Nonqualified Stock Option Plan (1)*
10.5	Fiscal 2001 Stock Option Bonus Plan (plan expired September 30, 2001) (1)*
10.6	Fiscal 2002 Stock Option Bonus Plan (plan expired September 30, 2002) (1)*
10.7	Fiscal 2004 Management Incentive Compensation*
10.8	Fiscal 2002 Management Incentive Compensation Plan (6)*
10.9	Fiscal Year 2003 Management Incentive Compensation Plan (7)*
10.10	Employment Agreement, dated as of December 1, 2000, between the Company and M. Todd Tucker (8)*
10.11	Letter Agreement, dated as of January 16, 2003, between the Company and M. Todd Tucker (9)*
10.12	License Agreement between the Company and North Carolina State University, dated December 3, 1987 (10)
10.13	Amendment to License Agreement between the Company and North Carolina State University, dated September 11, 1989 (10)
10.14	Sublease Agreement, dated December 29, 2000, between Zoltar Acquisition Inc. (now Cree Microwave, Inc.) and Spectrian Corporation (11)
10.15	Purchase and Supply Agreement, dated December 29, 2000, between Spectrian Corporation and Zoltar Acquisition, Inc. (now Cree Microwave, Inc.) (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)

86

Exhibit No.	Description
10.16	Amendment of Purchase and Supply Agreement, dated October 19, 2001, between Spectrian Corporation and UltraRF, Inc. (now Cree Microwave, Inc.) (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.17	Amendment No. 2 to Purchase and Supply Agreement, effective as of March 31, 2002, between Spectrian Corporation and UltraRF, Inc. (now Cree Microwave, Inc.) (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.18	Settlement Agreement and Release, effective as of November 15, 2002, among Spectrian Corporation, the Company and Cree Microwave, Inc.
10.19	Distribution Agreement, dated April 5, 2002, between the Company and Sumitomo Corporation (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.20	Letter Agreement, dated March 14, 2003, between the Company and Sumitomo Corporation (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.21	Letter Agreement, dated January 31, 1996, between C3 Diamante, Inc. and the Company (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.22	Letter Agreement, dated February 12, 1996, between C3 Diamante, Inc. and the Company (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.23	Amended and Restated Exclusive Supply Agreement, effective as of June 6, 1997, between C3, Inc. and the Company (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.24	Letter Agreement, dated July 14, 1997, between C3, Inc. and the Company (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.25	Letter Agreement, dated July 14, 1997, between C3, Inc. and the Company (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.26	Letter Agreement, dated August 5, 2002, between Charles & Colvard, Ltd. and Cree, Inc. (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.27	Contract No. N00014-02-C-0302, dated June 28, 2002, between the Company and the Office of Naval Research, as amended (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.28	Contract No. N00014-02-C-0306, dated June 28, 2002, between the Company and the Office of Naval Research, as amended (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)

87

Exhibit No.	Description
10.29	Contract No. N00014-02-C-0250, dated July 3, 2002, between the Company and the Office of Naval Research, as amended (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.30	Contract No. F33615-99-C-5316, dated August 30, 1999, between the Company and Air Force Research Laboratories, as amended (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.31	Contract No. DAAD17-02-C-0073, dated March 20, 2002, between the Company and US Army Robert Morris Acquisition Center, as amended (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
21.1	Subsidiaries of Registrant
23.1	Consent of Independent Auditors
31.1	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
31.4	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  (1) Incorporated by reference herein. Filed as an exhibit to the Company’s Annual Report filed on Form 10-K with the Securities and Exchange Commission on August 19, 2002.

  (2) Incorporated by reference herein. Filed as an exhibit to the Company’s Annual Report filed on Form 10-K with the Securities and Exchange Commission on August 27, 2001.

  (3) Incorporated by reference herein. Filed as an exhibit to the Company’s Registration Statement filed on Form 8-A with the Securities and Exchange Commission on May 30, 2002.

  (4) Incorporated by reference herein. Filed as an exhibit to the Company’s Quarterly Report filed on Form 10-Q with the Securities and Exchange Commission on February 2, 2001.

  (5) Incorporated by reference herein. Filed as an exhibit to the Company’s Registration Statement filed on Form S-8, Registration No. 33-98958, and effective with the Securities and Exchange Commission on November 3, 1995.

  (6) Incorporated by reference herein. Filed as an exhibit to the Company’s Quarterly Report filed on Form 10-Q with the Securities and Exchange Commission on February 5, 2002.

  (7) Incorporated by reference herein. Filed as an exhibit to the Company’s Quarterly Report filed on Form 10-Q with the Securities and Exchange Commission on October 29, 2002.

  (8) Incorporated by reference herein. Filed as an exhibit to the Company’s Quarterly Report filed on Form 10-Q with the Securities and Exchange Commission on November 2, 2001.

  (9) Incorporated by reference herein. Filed as an exhibit to the Company’s Quarterly Report filed on Form 10-Q with the Securities and Exchange Commission on April 29, 2003.

(10) Incorporated by reference herein. Filed as an exhibit to the Company’s Registration Statement filed on Form SB-2, Registration No. 33-55998, and declared effective by the Securities and Exchange Commission on February 8, 1993.

(11) Incorporated by reference herein. Filed as an exhibit to the Company’s Current Report filed on Form 8-K with the Securities and Exchange Commission on January 12, 2001.

  * Management Contract or Compensatory Plan

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(b) Reports on Form 8-K.

On June 13, 2003 the Company furnished a Current Report on Form 8-K attaching two press releases describing a lawsuit that had been filed in federal district court in Greensboro, North Carolina by former Company CEO and current part-time employee, Eric Hunter, and his wife, Jocelyn Hunter, naming Neal Hunter, Eric Hunter’s brother and current Company chairman, and the Company as defendants. Information furnished in the Form 8-K referenced in the prior sentence is not deemed to be filed with the SEC.

On April 29, 2003, the Company furnished a Current Report on Form 8-K containing the certifications of its chief executive officer and chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 its Quarterly Report related to the Company’s Quarterly Report for the quarter ended March 30, 2003 on Form 10-Q. Information furnished in the Form 8-K referenced in the prior sentence is not deemed to be filed with the SEC.

On April 16, 2003, the Company furnished a Current Report on Form 8-K containing its press release on its earnings results for the quarter ended March 30, 2003. Information furnished in the Form 8-K referenced in the prior sentence is not deemed to be filed with the SEC.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:    September 25, 2003

CREE, INC.
By:	/s/    CHARLES M. SWOBODA
	Charles M. Swoboda Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/S/    F. NEAL HUNTER         F. Neal Hunter	Chairman	September 25, 2003
/S/    CHARLES M. SWOBODA         Charles M. Swoboda	Chief Executive Officer and Director	September 25, 2003
/S/    CYNTHIA B. MERRELL         Cynthia B. Merrell	Chief Financial Officer and Chief Accounting Officer	September 25, 2003
/S/    JAMES E. DYKES         James E. Dykes	Director	September 25, 2003
/S/    WILLIAM J. O’MEARA         William J. O’Meara	Director	September 25, 2003
/S/    JOHN W. PALMOUR, PH.D.         John W. Palmour, Ph.D.	Director	September 25, 2003
/S/    ROBERT J. POTTER, PH.D.         Robert J. Potter, Ph.D.	Director	September 25, 2003
/S/    DOLPH W. VON ARX         Dolph W. von Arx	Director	September 25, 2003

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EXHIBIT INDEX

Exhibit No.	Description
3.1	Articles of Incorporation, as amended (1)
3.2	Bylaws, as amended (2)
4.1	Specimen Common Stock Certificate (1)
4.2	Rights Agreement dated as of May 30, 2002 between the Company and American Stock Transfer & Trust Company, including the form of Rights Certificate and the Summary of Rights to Purchase Preferred Stock, attached thereto as Exhibits B and C, respectively (3)
10.1	Equity Compensation Plan, as amended and restated December 1, 2000 (4)*
10.2	Stock Option Plan for Non-Employee Directors (terminated as to future grants pursuant to Board action dated September 1, 1997) (5)*
10.3	Nitres, Inc. 1999 Stock Option/Issuance Plan (terminated as to future grants—following the acquisition of Nitres, Inc. by the Registrant effective May 1, 2000) (1)*
10.4	2001 Nonqualified Stock Option Plan (1)*
10.5	Fiscal 2001 Stock Option Bonus Plan (plan expired September 30, 2001) (1)*
10.6	Fiscal 2002 Stock Option Bonus Plan (plan expired September 30, 2002) (1)*
10.7	Fiscal 2004 Management Incentive Compensation Plan*
10.8	Fiscal 2002 Management Incentive Compensation Plan (6)*
10.9	Fiscal Year 2003 Management Incentive Compensation Plan (7)*
10.10	Employment Agreement, dated as of December 1, 2000, between the Company and M. Todd Tucker (8)*
10.11	Letter Agreement, dated as of January 16, 2003, between the Company and M. Todd Tucker (9)*
10.12	License Agreement between the Company and North Carolina State University, dated December 3, 1987 (10)
10.13	Amendment to License Agreement between the Company and North Carolina State University, dated September 11, 1989 (10)
10.14	Sublease Agreement, dated December 29, 2000, between Zoltar Acquisition Inc. (now Cree Microwave, Inc.) and Spectrian Corporation (11)
10.15	Purchase and Supply Agreement, dated December 29, 2000, between Spectrian Corporation and Zoltar Acquisition, Inc. (now Cree Microwave, Inc.) (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.16	Amendment of Purchase and Supply Agreement, dated October 19, 2001, between Spectrian Corporation and UltraRF, Inc. (now Cree Microwave, Inc.) (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.17	Amendment No. 2 to Purchase and Supply Agreement, effective as of March 31, 2002, between Spectrian Corporation and UltraRF, Inc. (now Cree Microwave, Inc.) (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.18	Settlement Agreement and Release, effective as of November 15, 2002, among Spectrian Corporation, the Company and Cree Microwave, Inc.

Exhibit No.	Description
10.19	Distribution Agreement, dated April 5, 2002, between the Company and Sumitomo Corporation (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.20	Letter Agreement, dated March 14, 2003, between the Company and Sumitomo Corporation (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.21	Letter Agreement, dated January 31, 1996, between C3 Diamante, Inc. and the Company (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.22	Letter Agreement, dated February 12, 1996, between C3 Diamante, Inc. and the Company (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.23	Amended and Restated Exclusive Supply Agreement, effective as of June 6, 1997, between C3, Inc. and the Company (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.24	Letter Agreement, dated July 14, 1997, between C3, Inc. and the Company (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.25	Letter Agreement, dated July 14, 1997, between C3, Inc. and the Company (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.26	Letter Agreement, dated August 5, 2002, between Charles & Colvard, Ltd. and Cree, Inc. (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.27	Contract No. N00014-02-C-0302, dated June 28, 2002, between the Company and the Office of Naval Research, as amended (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.28	Contract No. N00014-02-C-0306, dated June 28, 2002, between the Company and the Office of Naval Research, as amended (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.29	Contract No. N00014-02-C-0250, dated July 3, 2002, between the Company and the Office of Naval Research, as amended (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.30	Contract No. F33615-99-C-5316, dated August 30, 1999, between the Company and Air Force Research Laboratories, as amended (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)
10.31	Contract No. DAAD17-02-C-0073, dated March 20, 2002, between the Company and US Army Robert Morris Acquisition Center, as amended (asterisks located within the exhibit denote information which has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)

2

Exhibit No.	Description
21.1	Subsidiaries of Registrant
23.1	Consent of Independent Auditors
31.1	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
31.4	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  (1) Incorporated by reference herein. Filed as an exhibit to the Company’s Annual Report filed on Form 10-K with the Securities and Exchange Commission on August 19, 2002.

  (2) Incorporated by reference herein. Filed as an exhibit to the Company’s Annual Report filed on Form 10-K with the Securities and Exchange Commission on August 27, 2001.

  (3) Incorporated by reference herein. Filed as an exhibit to the Company’s Registration Statement filed on Form 8-A with the Securities and Exchange Commission on May 30, 2002.

  (4) Incorporated by reference herein. Filed as an exhibit to the Company’s Quarterly Report filed on Form 10-Q with the Securities and Exchange Commission on February 2, 2001.

  (5) Incorporated by reference herein. Filed as an exhibit to the Company’s Registration Statement filed on Form S-8, Registration No. 33-98958, and effective with the Securities and Exchange Commission on November 3, 1995.

  (6) Incorporated by reference herein. Filed as an exhibit to the Company’s Quarterly Report filed on Form 10-Q with the Securities and Exchange Commission on February 5, 2002.

  (7) Incorporated by reference herein. Filed as an exhibit to the Company’s Quarterly Report filed on Form 10-Q with the Securities and Exchange Commission on October 29, 2002.

  (8) Incorporated by reference herein. Filed as an exhibit to the Company’s Quarterly Report filed on Form 10-Q with the Securities and Exchange Commission on November 2, 2001.

  (9) Incorporated by reference herein. Filed as an exhibit to the Company’s Quarterly Report filed on Form 10-Q with the Securities and Exchange Commission on April 29, 2003.

(10) Incorporated by reference herein. Filed as an exhibit to the Company’s Registration Statement filed on Form SB-2, Registration No. 33-55998, and declared effective by the Securities and Exchange Commission on February 8, 1993.

(11) Incorporated by reference herein. Filed as an exhibit to the Company’s Current Report filed on Form 8-K with the Securities and Exchange Commission on January 12, 2001.

  * Management Contract or Compensatory Plan

3

EX-10.7

CREE, INC.

Exhibit 10.7

FISCAL 2004

MANAGEMENT INCENTIVE COMPENSATION PLAN

The following Management Incentive Compensation Plan (the “Plan”) is adopted by Cree, Inc. and its consolidated subsidiaries (collectively, the “Company”) for its fiscal year ending June 27, 2004:

1.    Purpose:    The purpose of the Plan is to motivate and reward excellent performance, to attract and retain outstanding senior management personnel, to create a strong link between strategic and corporate operating plans and individual performance, to achieve greater corporate performance by focusing on results, not activities, and to encourage teamwork at the highest level within the organization. The Plan rewards participants with a cash bonus payment based on their contribution towards the attainment of corporate and individual performance goals. The bonus payment is calculated as a percentage of base salary and the target award percentage varies according the position level.

2.    Eligibility:    Eligible participants include the Chairman, the Chief Executive Officer and senior level managers of the Company who report directly to the Company’s Chief Executive Officer. Participation shall be determined solely by the Chief Executive Officer.

3.    Plan Awards:

        3.1    Target Award Levels:    The target award level represents the award for 100% achievement of objectives. The target awards are expressed as a percentage of salary and vary based on the position of the participant. The actual target award amount is determined by multiplying the participant’s base salary by the target award percentage. The target award is calculated on the base annual salary as of the payout date. Based on actual performance, a participant can earn between 0% to 100% of their target award.

        3.2    Determination of Awards:    For the positions of Chairman and Chief Executive Officer, awards are based 100% on achieving predetermined corporate goals. Awards for all other eligible positions are determined based on performance against measures in two categories: Corporate and Individual. Unless otherwise approved by the Compensation Committee, corporate goals are weighted at 60% of the individuals’ total award payout and individual goals are weighted at 40% of the individual’s total award payout.

        3.3    Corporate Measures:    The Corporate performance measures and corresponding goals are based on meeting or exceeding revenue targets for the current fiscal year and meeting or exceeding net income targets for the current fiscal year. This is measured and paid annually to coincide with the fiscal year end.

        3.4    Individual Measures:    Individual performance measures are established at the beginning of each fiscal quarter. For each performance measure a performance goal (as a percentage) is determined. Performance goals are standards for evaluating success associated with a specific performance measure and are expressed as either Minimum or Target goals. Minimum performance goals are the lowest level of competent performance that is eligible for the award. Performance at the minimum performance level will yield an award which is 25% of the target award. Target performance goals are the expected level of performance. Performance at the target performance level will yield an award which is equal to the target award. Performance below the minimum performance level will not be eligible for an award. Each participant, in conjunction with the Chief Executive Officer, will develop a minimum of three (3) performance measures specific to their unit’s performance.

4.    Other Provisions:

        4.1    Performance Threshold:    In order to be eligible for an award performance thresholds as determined by the Chief Executive Officer must be met. Without limiting the foregoing, the corporate-level incentive component will not be paid if revenue and net profit targets for the fiscal year are not met.

        4.2    Termination of Employment:    If a participant’s employment terminates prior to the end of an award period on account of death, disability under the Company’s long-term disability plan, or retirement, the award will be calculated on a pro rata basis based on the number of months employed during the period. If a participant terminates during the award period for other reasons that those stated above, no award will be made. Any participant whose employment is terminated for cause after the end of the award period but prior to the payment of an award will forfeit any unpaid award.

        4.3    New Hires:    Participants who participate for part of the award period will receive a pro rata portion of the award based on the number of months of employment with the Company.

        4.4    Exceptions:    In order to ensure that the Company’s best interests are met, the amount of a payment on an award otherwise calculated in accordance with this Plan can be increased, decreased or eliminated, at any time prior to payment, in the sole discretion of the Chief Executive Officer, except than no change with respect to any award to the Chairman, the Chief Executive Officer or any officer of the Company shall be made without Compensation Committee approval.

        4.5    Amendment; Termination:    The Plan can be amended, modified or terminated at any time by the Company without prior notice to participants.

        4.6    Earned Upon Payment:    No amounts shall be considered earned by any participant under the Plan until it is received by the participant from the Company.

- 2-

EX-10.15

EXHIBIT 10.15

PURCHASE AND SUPPLY AGREEMENT

This Purchase and Supply Agreement (“Agreement”) dated as of December 29, 2000 is entered into by and between Spectrian Corporation (“Spectrian”), a Delaware corporation, and Zoltar Acquisition, Inc. (“Newco”), a North Carolina corporation and a wholly-owned subsidiary of Cree, Inc., a North Carolina corporation (“Parent”).

RECITALS

WHEREAS, Spectrian, through its UltraRF division, is a developer and supplier of ultra linear, high-performance radio amplifiers for the wireless infrastructure market;

WHEREAS, Newco is a newly formed entity that intends to be a developer and supplier of high-performance radio frequency power semiconductors and integrated modules for the wireless infrastructure market;

WHEREAS, Spectrian, Parent and Newco have entered into an Asset Purchase Agreement, dated November 20, 2000 (the “Asset Purchase Agreement”), pursuant to which, among other things, Newco shall purchase Spectrian’s UltraRF business division; and

WHEREAS, following the purchase of Spectrian’s UltraRF business division, Newco wishes to supply Spectrian with high-performance radio frequency power semiconductors and integrated modules and related components and systems (collectively, “Components”) and Spectrian wishes to acquire such Components from Newco.

NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement and intending to be legally bound, Spectrian and Newco agree:

ARTICLE I.

TERM, QUANTITY, QUALITY, PRICING AND PAYMENT

Section 1.1 Term. The term of this Agreement shall commence on January 1, 2001 (the “Effective Date”) and shall end at the conclusion of the twenty four (24) month period following the Effective Date (the “Term.”).

Section 1.2 Minimum Commitment. In each calendar quarter during the Term, Spectrian agrees to purchase and accept delivery from Newco of, and Newco agrees to sell and ship to Spectrian, Components having an aggregate purchase price not less than the respective minimum commitment amounts set forth below:

Calendar Quarter Ending	Minimum Commitment
March 31, 2001	$[***]
June 30, 2001	$[***]
September 30, 2001	$[***]
December 31, 2001	$[***]
March 31, 2002	$[***]
June 30, 2002	$[***]
September 30, 2002	$[***]
December 31, 2002	$[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

(for each calendar quarter, and as it may be reduced or modified by the terms hereof, the “Minimum Commitment”). The Minimum Commitment shall be satisfied by Spectrian Purchases; provided, however, that, to the extent that Spectrian Purchases in a calendar quarter exceed the Minimum Commitment for that calendar quarter, such excess shall not carry over to be applied against the Minimum Commitment for any subsequent calendar quarter. As used herein, “Spectrian Purchases” means the aggregate amount the purchase price (without giving effect to the Shortfall Surcharge (defined below)) of purchases of Components from Newco and other of the Parent’s products that are shipped by Newco to Spectrian during a given calendar quarter or that have Original Delivery Dates (as defined in Section 3.1) or scheduled delivery dates otherwise mutually agreed upon in writing, in each case within such calendar quarter if not shipped during that calendar quarter. For purposes of this Section 1.2, Spectrian Purchases include purchase of Components from Newco by any subsidiary of Spectrian in which Spectrian owns over 50% or by an entity which controls Spectrian (owns 50% or greater ownership in Spectrian); provided, however, that purchases by any of the entities specified in Schedule 1.2 hereto shall not be included as Spectrian Purchases.

If Spectrian fails to satisfy the Minimum Commitment for any calendar quarter, Spectrian shall pay to Newco in cash, within thirty (30) days following such calendar quarter, an amount equal to the Shortfall Surcharge. As used herein, “Shortfall Surcharge” for any calendar quarter means the difference between the (a) Adjusted Minimum Commitment (defined as Minimum Commitment less (i) Performance and Component Availability Adjustments and (ii) Guaranteed Supply Adjustments) for such calendar quarter and (b) Spectrian Purchases for such calendar quarter. Spectrian agrees to promptly notify Newco in the event Spectrian expects to not achieve its Minimum Commitment in any period. In the event that a Shortfall Surcharge shall be payable with respect to any calendar quarter, the amount of the Shortfall Surcharge shall be deemed to have been allocated pro rata among all Components shipped during such calendar quarter as an increase in the purchase price thereof.

Section 1.3 Guaranteed Capacity. Newco agrees that it will allocate sufficient production capacity to Spectrian to meet [***] of the Minimum Commitment, subject to the other provisions of this Agreement, including the provisions of Section 2.4 regarding lead times.

Section 1.4 Performance and Component Availability. (a) Spectrian will provide Newco with quarterly product roadmaps and specifications for future Spectrian products. Spectrian will consider in good faith utilizing Components from Newco in products under development by Spectrian provided that such Components are Competitive. Spectrian and Newco shall in good faith discuss, and mutually agree in writing from time to time, upon the requirements for Components to be deemed “Competitive”. The requirements will be based upon whether such products (i) have key performance parameter limits that are within the key performance parameter limits for a third party component that Spectrian might otherwise utilize, (ii) meet the specification requirements of Spectrian’s product design, (iii) have been fully released to manufacturing by Newco, (iv) are to be projected to be available in quantities necessary to support the projected Spectrian production requirements and (v) have a competitive price. The parties agree that the Components listed on Schedule 1.4 hereto are deemed to be Competitive in the Spectrian products for which they currently are utilized as of the date hereof. Newco shall be afforded a period of [***] months from the date that production parts are commercially available (or, if later, from the date the parties have mutually agreed upon the

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

2

requirements for a Component to be Competitive) in which to develop and release such Competitive products to manufacturing.

(b) In the event that Spectrian determines to “lock in” a Component in its design of Spectrian products, it shall give written notice to Newco of its determination with respect to such Component (a “Locked In Component”). Thereafter, subject to the other provisions of this Agreement, if Locked In Components are not available from Newco that meet the Competitive requirements, and if other Components from the Newco portfolio are not available which would otherwise meet Spectrian’s Competitive requirements for the Minimum Commitment, then the dollar volume of these Components which are purchased by Spectrian from other vendors in a calendar quarter shall be deemed to be a “Performance and Product Availability Adjustment” for purposes of the Minimum Commitment for such quarter.

Section 1.5 Guaranteed Supply. Subject to the other provisions of this Agreement, Newco shall assure supply to Spectrian of all Components that have been designed into Spectrian’s products. In the event that Newco decides to discontinue manufacturing and delivery of certain Components (“End-of-Life”), Newco will accept all purchase orders provided by Spectrian (“Last Time Buy”) of the specific part number(s) subject to Newco’s End of Life notification for a period of twelve (12) months from the date of notification and Newco agrees that delivery will not exceed twenty four (24) months from the date of such notification. Spectrian’s Last Time Buy must be placed before the expiration of the twelve (12) month period following the End of Life notification. All Last Time Buy purchase orders shall be placed on a non-cancelable and non-refundable basis and marked as such on Spectrian’s purchase orders. The price for finished Components purchased under a Last Time Buy will be subject to the prices or pricing criteria, as outlined in Section 1.6.

Spectrian will make reasonable efforts to assess its Last Time Buy requirements for each product being subject to an End of Life notification and place an order for such requirement. In addition, Spectrian may request that a portion of the Life Time Buy be in the form of Qualified Die Bank. “Qualified Die Bank” is defined as die in wafer form which has been subjected to the wafer fabrication process and has had a sample of ten (10) die across the wafer selected and then packaged and tested for those specific ten (10) die to confirm that the wafer will yield good RF performance devices at an economic yield. The approval by Newco of such a Spectrian request for a portion of its Last Time Buy in the form of Qualified Die Bank will not be unreasonably withheld. Spectrian shall purchase the Qualified Die Bank under provisions of the Last Time Buy stated above, and will bear the risk for die yield. The price for Qualified Die Bank will be no greater than the lower of (i) market price and (ii) [***] of Newco’s standard manufacturing cost (which shall include a reasonable manufacturing overhead allocation).

In the event that Newco is unable to satisfy Spectrian’s Last Time Buy or Qualified Die Bank request for bipolar technology Components which have been designed into Spectrian products prior to the Effective Date, Newco agrees to transfer a royalty free license of the manufacturing process (including packaging technology, unless Newco agrees to provide such

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

3

services to Spectrian to complete the Qualified Die Bank at a reasonable cost) to such End of Life bipolar Components to Spectrian (or a designee approved by Newco, such approval not to be unreasonably withheld) to be manufactured exclusively for Spectrian and be for Spectrian’s own use, in order to ensure that the supply of such devices to Spectrian remains uninterrupted. The technical information to support such transfer will be provided at cost so as to ensure that there is no interruption in supply and in no event later than 24 months after the End of Life notification.

In the event that Spectrian purchases Components subsequent to an End of Life notification from another vendor by virtue of the fact that Newco could not deliver Components to Spectrian under Spectrian’s Last Time Buy purchase orders, then the purchases of such Components from another vendor other than Newco shall be deemed to be a “Guaranteed Supply Adjustment” for purposes of the Minimum Commitment.

Notwithstanding the foregoing, Newco agrees to not End of Life any Components during the 12 month period following the Effective Date except as disclosed on Schedule 1.5.

Section 1.6 Qualified Die Bank Purchases. From time to time, Spectrian may request that Newco provide it with Qualified Die Bank without regard to the Life Time Buy provisions above. The approval by Newco of such a Spectrian request will not be unreasonably withheld, but Spectrian shall bear the risk for die yield. The price for such Qualified Die Bank shall be [***] of Newco’s standard manufacturing cost (which shall include a reasonable manufacturing overhead allocation). Any such purchase of Qualified Die Bank shall be credited against the Minimum Commitment for the quarter in which such purchase is made. Such Qualified Die Bank may be held by Spectrian and thereafter submitted to Newco for Component finishing, in which case the price of the Component shall be the difference between the Component price determined pursuant to Section 1.7 and the price previously paid for such Qualified Die Bank. The differential in price shall be credited against the Minimum Commitment for the quarter in which such Component is shipped. Any Qualified Die Bank purchased by Spectrian hereunder may not be sold or transferred to any party other than Newco.

Section 1.7 Prices. (a) The prices for products purchased by Spectrian will be as set forth on Appendix A hereto, with the pricing determined as of the date of the Spectrian purchase order based upon the date of shipment from Newco. For shipments of bipolar products after the quarter ending June 30, 2001, the price for each bipolar product shall be the price set forth in the column for such quarter unless there shall have occurred a significant increase in packaging costs, in which case the parties shall negotiate in good faith the price for bipolar products having such increased packaging costs. For shipments of LDMOS products after the quarter ending June 30, 2001, the parties shall negotiate in good faith, not less than 90 days prior to the start of a calendar quarter, the price for LDMOS products to be shipped during such calendar quarter. The parties agree to negotiate in good faith (i) changes to the LDMOS prices set forth in Appendix A from time to time in the future and (ii) prices for new Components, in each case based to ensure best available commercial price at a similar volume purchase discount and a cost per watt benchmark for substantially equivalent products of any leading competitor where specific

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

4

comparable price is not available. In the event that Newco elects not to meet the best available commercial price for a particular product having equivalent specifications to the Newco Component, where such price is offered in writing to Spectrian for quantities not less than those

Spectrian would otherwise purchase from Newco under this Agreement, and Newco has had at least thirty (30) days after its receipt of a copy of the third party offer in which to meet such price, Spectrian may purchase such product from a third party vendor at such lower price, in which case such purchase will be credited against the Minimum Commitment.

Notwithstanding the foregoing, Newco shall provide Spectrian with its “most favored customers” pricing with respect all of Spectrian’s Component purchases (without regard to volume or mix) for all purchase orders placed during the (2) two consecutive 12 month periods following the Effective Date, with the “most favored customer pricing” determined at the time Spectrian submits its purchase order.

(b) The Component prices do not include sales, use, consumption or excise taxes of any taxing authority. The amount of such taxes, if any, will be added to the Component prices in effect at the time of shipment thereof and shall be reflected in the invoices submitted to Spectrian by Newco pursuant to this Agreement. Spectrian shall pay the amount of such taxes to Newco in accordance with the payment provisions of this Agreement.

Section 1.8 Payment. Spectrian shall pay Newco the applicable price for the Components that Newco ships to Spectrian hereunder within thirty (30) days from the date of the invoice therefor. All payments due to Newco under this Agreement shall be made in U.S. Dollars by Spectrian by wire transfer to an account to be designated in writing by Newco from time to time. All amounts not paid when due shall bear interest at the rate of one percent (1%) per month (or such other percentage, if lower, as shall not exceed the maximum rate permitted by law) commencing forty five (45) days from the date of the relevant invoice. Spectrian shall be responsible for reasonable attorneys’ feeds and any other reasonable expenses incurred by Newco in connection with the collection of any amounts due and payable hereunder.

ARTICLE II.

FORECASTS, LEAD TIMES AND ORDERS

Section 2.1 Rolling Forecasts. (a) Not less than ten (10) days prior to the end of each calendar month during the Term, Spectrian shall submit to Newco a forecast of its purchase of Standard Components (broken down by individual Standard Components) for each of the following six months (a “Standard Component Forecast”) and a forecast of its purchase of Custom Components (broken down by individual Custom Component) for each of the following six months (a “Custom Component Forecast” and, together with a Standard Component Forecast, the “Component Forecasts”). As used herein, “Standard Components” are Components that Newco makes generally available for sale to the public. “Custom Components” are all Components that are not Standard Components.

(b) Attached hereto as Schedule 2.1(a)(i) is Spectrian’s Standard Component Forecast for the period beginning on January 1, 2001 and ending on June 30, 2001. Attached

5

(c) hereto as Schedule 2.1(a)(ii) is Spectrian’s Custom Component Forecast for the period beginning on January 1, 2001 and ending on June 30, 2001 (the “Initial Custom Component Forecast”).¹

Section 2.2 Firm Orders. The first two months of each Standard Component Forecast and the first three months of each Custom Component Forecast shall be deemed to be a “Firm Order”, against which Newco shall ship Components to Spectrian. Firm Orders shall include a delivery date determined in accordance with Section 2.4 hereof. The Firm Orders shall be binding on both parties, and Spectrian shall be obligated to purchase and Newco shall be obligated to supply Components in the quantities indicated therein. Firm Orders may not be cancelled or modified by either party without the written consent of the other party.

Section 2.3 Cancelled Custom Orders. Spectrian may cancel any Custom Component order during the period ending on the date (the “Trigger Date”) that is the later to occur of (i) 90 days prior to the anticipated delivery date determined in accordance with Section 2.4 hereof and (ii) a date mutually agreed to by Spectrian and Newco. In such event, Spectrian shall be obligated to reimburse Newco for any packaging costs incurred by Newco with respect to such cancelled order (plus any restocking or similar penalty of any third party supplier). The amount of such reimbursement shall not be credited against the Minimum Commitment.

Section 2.4 Lead Times. Not later than ten (10) days prior to the end of each calendar quarter, Newco will publish and provide to Spectrian the lead times for delivery of Standard Components. For Standard Components, the lead time shall be [***] from the date that Spectrian shall submit a purchase order for such Standard Components to Newco; provided, however, that Newco in good faith may modify the lead time for a particular Component if (i) the amount of such Component ordered is more than 110% of the amount of such Component ordered by Spectrian within the preceding three month period and (ii) such Components had been fully released to manufacturing prior to the commencement of such three month period; and provided, further, that for Components that had not been so released, a reasonable lead time shall be established (and notice thereof provided to Spectrian) at the time such Components are released to manufacturing. For Custom Components, the lead time shall be [***] or such other time as may be mutually agreed in writing by the parties. Newco from time to time in good faith may modify the lead times for Components by giving written notice to Spectrian base on changes in Newco’s vendors’ lead times and Newco’s capacity (subject to the minimum capacity provisions above), except that the lead time in effect as of the date of the purchase order may not be modified without the consent of the parties. Newco shall not be obligated to accept purchase orders for Components requesting deliveries outside the lead time applicable under this Section 2.4.

Section 2.5 Existing Purchase Orders. Newco shall continue to honor the terms and conditions of all third party purchase orders as provided in the Asset Purchase Agreement.

¹ These two attachments will be provided by Spectrian not later than December 10, and will ensure that Spectrian satisfies the Minimum Commitment for the initial calendar quarter.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

6

Section 2.6 Future Purchase Orders. The terms and conditions of Spectrian’s standard purchase order and Newco’s standard purchase order acceptance form attached hereto as Schedule 2.6 shall be exchanged by the parties, in Spectrian’s case to confirm the Components and delivery dates ordered pursuant to the Component Forecasts, and in Newco’s case to confirm its acceptance of orders and agreement to the delivery dates, but shall otherwise be considered exchanged as an administrative convenience only, without adding to or modifying any of the provisions of this Agreement.

ARTICLE III.

DELIVERY AND SHIPPING

Section 3.1 Delivery. Newco shall deliver Components to Spectrian on the dates requested by Spectrian and agreed to by Newco in the purchase orders (the “Original Delivery Dates”); provided, however, that Newco may fill Firm Orders up to fourteen (14) days before or after the Original Delivery Dates and still be in compliance with the delivery terms hereof; provided, further, however, that for purposes of the Minimum Commitment the purchase date shall be deemed to be the Original Delivery Dates.

Section 3.2 Shipping. All sales of Components under this Agreement are made F.O.B. shipping point. Spectrian shall be responsible for all transportation costs and title and risk of loss shall pass to Spectrian upon shipment by Newco.

ARTICLE IV.

INSPECTION

Section 4.1 Prompt Notice. Promptly after receiving each shipment of Components, Spectrian shall examine such Components for any damage, defect, non-conformance or shortage. Spectrian shall notify Newco within fifteen (15) days of receipt of Component if the Component does not comply with the Component specification (determined by reference to UltraRF’s published specifications as in effect on the date hereof or as otherwise may be mutually agreed to in writing) and Newco shall, upon Spectrian’s request and as soon as reasonably possible, replace the non-conforming Component with a Component meeting the Component specification.

ARTICLE V.

PRODUCT WARRANTY

Section 5.1 Warranty Period. Newco agrees to assume the warranty obligation for UltraRF products which were shipped to external customers during the [***] period prior to the Effective Date. Spectrian represents to Newco that the aggregate amount of shipments to third parties prior to the date hereof does not exceed [***]² and that Spectrian is unaware of any defects therein and has not received notice of any warranty or similar claims with respect thereto

² As of the date of the Asset Purchase Agreement, the amount is not greater than [***]. The amount to be inserted will be the actual amount of such sales as of the Effective Date.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

7

which have not previously been remedied in accordance with the warranty obligations assumed by Newco hereunder or under the Asset Purchase Agreement. With respect to products shipped after the Effective Date, Newco agrees to a Component warranty period of [***] from the date of Component shipment. The warranty provided by Newco shall be as set forth on Schedule 5.1 hereto.

Section 5.2 Scope of Warranty. Newco agrees that the Components shipped by it pursuant to this Agreement shall be entitled to the warranty terms set forth on Schedule 5.2 hereto.

ARTICLE VI.

LIMITATION OF LIABILITY

Section 6.1 Limitation of Liability. IN NO EVENT SHALL ANY PARTY BE LIABLE TO ANY OTHER PARTY FOR ANY INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES INCLUDING, WITHOUT LIMITATION, LOST PROFITS, IRRESPECTIVE OF THE WAY IN WHICH SUCH DAMAGES MAY ARISE, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

ARTICLE VII.

CONFIDENTIALITY

Section 7.1 Confidentiality. Any information disclosed by one party or its Affiliates to the other party or its Affiliates in connection with the performance of this Agreement and designated in writing by the disclosing party at the time of the disclosure as confidential (collectively, the “Confidential Information”) shall be received and maintained in confidence by the receiving party using the same standard of care that the receiving party uses to protect its own like confidential information, but not less than reasonable care. The Confidential Information may be used by the receiving party only to perform its obligations under this Agreement, and shall not be disclosed to a third party without the prior written consent of the disclosing party. The disclosure of Confidential Information shall be restricted only to those employees of the receiving party requiring access to the Confidential Information to perform its obligations under this Agreement. As used herein, “Affiliate” shall mean, with respect to a party, any other person or entity which, directly or indirectly, controls, is controlled by or is under common control with such party, where “control” and “controlled” mean ownership of more than fifty percent (50%) of the outstanding equity interests having voting rights with

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

8

respect to the election of the board or directors or comparable governing authority. Each party shall be responsible for any breach by its Affiliates of the obligations of this Article VII.

The provisions of this Section 7.1 shall not apply to Confidential Information which is: (a) already known to the receiving party without an obligation of confidentiality (it being understood that information of either party in the possession of the other party prior to the Effective Date shall be covered by this exception); (b) publicly known or becomes publicly known through no unauthorized act of the receiving party; (c) rightfully received by the receiving party without obligation of confidentiality from a third party; (d) disclosed to a third party by the disclosing party without similar restrictions; (e) approved for disclosure by the disclosing party; or (f) required to be disclosed pursuant to a requirement of a governmental agency or by law as long as the receiving party provides to the disclosing party notice of the requirement prior to any disclosure.

Section 7.2 Return of Confidential Information. Upon the expiration or termination of this agreement for any reason, each party shall upon request return to the other party or certify in writing the destruction of all Confidential Information received in tangible form by it or its Affiliates from the other party or its Affiliates and cease any further use of such Confidential Information.

ARTICLE VIII.

DISPUTE RESOLUTION

Section 8.1 Dispute Resolution. All controversies, disputes or claims arising among the parties in connection with, or with respect to, any provision of this Agreement which has not been resolved within thirty (30) days after either Parent, on the one hand, or Spectrian, on the other hand, have notified the other in writing of such controversy, dispute or claim, shall be submitted for arbitration in accordance with the rules of the American Arbitration Association or any successor thereof. Arbitration shall take place at an appointed time and place in Sunnyvale, California.

Section 8.2 Selection of Arbitrators. Newco and Spectrian each shall select one independent arbitrator (who shall not be counsel for such party), and the two so designated shall select a third independent arbitrator. If either party shall fail to designate an arbitrator within seven calendar days after arbitration is requested, or if the two arbitrators shall fail to select a third arbitrator within 14 calendar days after arbitration is requested, then such arbitrator shall be selected by the American Arbitration Association or any successor thereto upon application of either party. Judgment upon any award of the majority of arbitrators shall be binding and shall be entered in a court of competent jurisdiction. Subject to the provisions of this Agreement, the award of the arbitrators may grant any relief that a court of general jurisdiction has authority to grant, including, without limitation, an award of damages and/or injunctive relief, and shall assess, in addition, the cost of the arbitration, including the reasonable fees of the arbitrator, reasonable attorneys’ fees and costs of all prevailing parties, against all non-prevailing parties.

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Section 8.3 Temporary Injunctive Relief. Nothing herein contained shall bar the right of any of the parties to seek and obtain temporary injunctive relief from a court of competent jurisdiction in accordance with applicable law against threatened conduct that will cause loss or damage, pending completion of the arbitration, and the prevailing party therein shall be entitled to an award of its reasonable attorneys’ fees and costs.

Section 8.4 Arbitration Rules. All disputes and claims shall be determined by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “Rules”) in effect on the date hereof, except that such Rules shall be modified by this Agreement.

Section 8.5 Arbitration Proceedings. All arbitral proceedings arising under, or in connection with, this Agreement shall be governed by the Federal Rules of Civil Procedure. Notwithstanding the previous sentence, the arbitrators’ award shall be made no later than ninety (90) days after their appointment. Subject to the parties’ right to be treated fairly, the arbitrators may shorten the periods of time otherwise applicable to the arbitral proceedings under the Rules or the Federal Rules of Civil Procedure to permit the award to be made within the time limitation set forth in the previous sentence.

ARTICLE IX.

MISCELLANEOUS

Section 9.1 No Agency. The relationship between Newco and Spectrian is that of independent contractors and nothing herein shall be deemed to constitute the relationship of partners, joint venturers, nor of principal and agent, between Newco and Spectrian. Neither party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other or to bind the other to any contract, agreement or undertaking with any third party.

Section 9.2 Notices. All notices required or permitted to be given under this Agreement shall be in writing and shall be sent by facsimile transmission or mailed by registered or certified mail addressed to the party to whom such notice is required or permitted to be given as set forth in the Asset Purchase Agreement. Any party may, by written notice to the other parties, as provided herein designate a new address to which notices to the party giving the notice shall thereafter be mailed.

Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one Business Day after being timely delivered to a next-day air courier; five business days after being deposited in the mail, postage prepaid, if mailed.

Section 9.3 Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, without the written consent of each party. The failure by any party at any time to enforce any of the terms or conditions of this Agreement shall not constitute or be

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construed as a waiver of the terms and conditions. Each party expressly reserves the right to enforce the terms and conditions of this Agreement at any time.

Section 9.4 Successors And Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, provided that this Agreement and the rights and obligations contained herein or in any exhibit or schedule hereto shall not be assignable, in whole or in part, without the prior written consent of the parties hereto and any attempt to effect any such assignment without such consent shall be void, provided, further, that other party’s consent shall not be necessary for the assignment of a party’s rights and obligations hereunder to a person or entity which has acquired all or substantially all of such party’s assets if the purchaser assumes and agrees in writing for the benefit of the other party to perform the selling party’s obligations hereunder. In the event that more than fifty percent (50%) of the outstanding capital stock of Parent or Spectrian shall be acquired by a third party, Newco or Spectrian, as applicable, shall be obligated to cause such third party to acknowledge and to assume and agree in writing, for the benefit of the other party hereto, to perform the obligations of Newco or Spectrian, as the case may be.

In the event that more than fifty percent (50%) of the equity interest of Parent or Spectrian shall be acquired by a third party, such third party shall be required to acknowledge the obligations of Newco or Spectrian, as the case may be.

Section 9.5 No Third Party Beneficiaries. This Agreement is solely for the benefit of the parties, and is not intended to confer upon any other person any rights or remedies.

Section 9.6 Titles and Headings. The Article and Section headings in this Agreement are inserted for convenience of reference only, and are not intended to constitute a part of or to affect the meaning or interpretation of this Agreement.

Section 9.7 Attachments. The attachments to this Agreement shall be construed with and as an integral part of this Agreement to the same extent as if they had been set forth in full in this Agreement.

Section 9.8 Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

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Section 9.9 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, as applied to contracts made and performed within the State of North Carolina without regard to principles of conflicts of law.

Section 9.10 Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement.

Section 9.11 Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof. This Agreement supercedes all prior agreements and understandings, oral and written, with respect to its subject matter.

Section 9.12 Force Majeure. No party shall be liable to the other party for any failure to perform any obligation under this Agreement (other than the payment of money owed hereunder) where such failure is due to causes beyond the reasonable control of the party. Such causes include, but are not limited to acts of war, government export controls, other governmental acts (including without limitation changes in applicable law), industrial dispute, lock-out, accident, fire, explosion, transport delays, acts of a third party, or loss or damage to any equipment due to acts of God. Each party shall use its best efforts to comply with its respective obligations under this Agreement despite the intervention or occurrence of any such cause, and to resume compliance with those obligations as soon as any such cause ceases to affect the performance of its obligations under this Agreement.

Section 9.13 Termination. Either party may terminate this Agreement in the event that (a) the other party materially breaches this Agreement; (b) the other party becomes insolvent or enters bankruptcy, receivership, liquidation, composition of creditors, dissolution or any similar proceeding; or (c) a significant portion of the assets of the other party necessary for the performance of this Agreement become subject to attachment, embargo or expropriation.

A party intending to terminate this Agreement pursuant to this Article IX (other than clause (b) of the preceding paragraph) shall first notify the other party of the grounds for the intended termination. If the other party fails to remedy such grounds for termination within thirty (30) days of such notice (or any longer period of time as mutually agreed by the parties), then the terminating party may terminate this Agreement effective upon notice to the other party without the need for any judicial action.

The provisions of this Article IX are without prejudice to any other rights or remedies either party may have by reason of the default of the other party.

In the event a competitor of Spectrian in the wireless infrastructure market acquires a significant interest in Newco (directly or indirectly), Newco will provide Spectrian with reasonable assurances that Newco will utilize its best efforts to preserve

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the confidentiality of all information related to products produced for Spectrian and Spectrian product programs.

The provisions of Articles VI and VII shall survive termination of the Agreement. The termination of this Agreement shall not affect any rights either party has accrued at the time the termination becomes effective.

Section 9.14 Attorneys’ Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the prevailing party, as determined by the court, shall be entitled to recover its reasonable attorneys’ fees in addition to any other available remedy.

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IN WITNESS WHEREOF, Spectrian and Newco have caused this Agreement to be executed in multiple counterparts by their duly authorized representatives.

ZOLTAR ACQUISITION, INC.		SPECTRIAN CORPORATION
By:	/s/ Charles M. Swoboda	By:	/s/ Michael D. Angel
Name: Charles M. Swoboda Its: Chief Operating Officer		Name: Michael D. Angel Its: Executive Vice President, Finance and Administration, Secretary, and Chief Financial Officer
Date: December 29, 2000		Date: December 29, 2000

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Schedule 1.2

Purchases Not Considered Spectrian Purchases

For purposes of Section 1.2, Spectrian Purchases include purchase of Components from Newco by any subsidiary of Spectrian in which Spectrian owns over 50% or by an entity which controls Spectrian (owns 50% or greater ownership in Spectrian); provided, however, that purchases by any of the entities specified below shall not be included as Spectrian Purchases:

1.         [***]

2.         [***]

3.         [***]

4.         [***]

5.         [***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Schedule 1.4

Performance and Component Availability

The following products are deemed to be Competitive:

PART NUMBER		PRODUCT NAME	FREQUENCY
[***]	[***]	[***]	[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Schedule 1.5

Guaranteed Supply

Newco may elect to End of Life the following products during the 12 month period following the Effective Date:

[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Schedule 2.1(b)(i)

Spectrian’s Standard Component Forecast

For the Period Beginning on January 1, 2001 and Ending on June 30, 2001

[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Schedule 2.1(b)(ii)

Spectrian’s Custom Component Forecast

For the Period Beginning on January 1, 2001 and Ending on June 30, 2001

[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Schedule 2.6

Future Purchase Orders

Terms and conditions of Spectrian’s standard purchase order and Newco’s standard purchase order acceptance form:

See Insert—Spectrian’s Standard Purchase Order Forms.

See Insert—Newco’s Standard Purchase Order Acceptance Form.

	SHIP TO:
[SPECTRIAN SPECTRIAN			PURCHASE ORDER
LOGO		PURCHASE ORDER	REVISION	PAGE
DEPICTED
HERE] 350 West Java Drive
Sunnyvale, CA 94089 Phone 408-745-5400 FAX 408-541-0257 Resale No~ SRGH 26-753509		THIS PUHCHASE ORDER NUMSER MUST APPEAR ON ALL INVOICES PACKING LISTS! CARTONS AND CORRESPONDENCE RELATED TO THIS ORDER
		DATE OF ORDER	BUYER
		DATE OF REVISION	BUYER
VENDOR		BILL TO:
CUSIOMER ACCT NO. VENDOR NO. PAYMENT TERMS FREIGHT TERMS FOB. SHIP VIA
CONFIRM TO /TELEPHONE/		P0 TYPE

LINE PART NUMBER/DESCRIPTION REV DELIVERY DATE QUANTITY UNIT UNIT PRICE EXTENSION TAX

TOTAL                                    

AUTHORIZED SIGNATURE

SUPPLIER

TERMS AND CONDITIONS OF PURCHASE ORDER

1. All portions of this purchase order which do not have a definite scheduled delivery date stated may be cancelled at any time by Spectrian without additional charge or recourse to Spectrian.

2. Our part number must appear on all packages, packing list and invoice.

3. Ship per instructions, unless otherwise specifically instructed in writing.

4. Do not declare extra value, unless otherwise specifically instructed in writing.

5. Packing list must accompany each shipment.

6. Last shipment on order must be marked “Final Shipment” on packing list and on invoice.

7. This order will become a binding contract upon the receipt of the acceptance signed by the seller. This acceptance must be made within 10 days of the date of the purchase order. Said contract shall constitute the entire agreement of the parties hereto and shall supersede all prior offers, negotiations, and agreements on the articles covered by this order. No changes shall be made in terms conditions, prices or deliveries without Spectrian’s written consent and Spectrian shall not be bound by any terms and conditions on sellers acknowledgement forms and/or on invoices which impose terms or conditions at variance with those hereof. NO CONFIRMATION OR ACCEPTANCE OF THIS ORDER BY SELLER WHICH STATES TERMS ADDITIONAL TO OR DIFFERENT FROM THOSE SET OUT HEREIN SHALL OPERATE AS AN ACCEPTANCE OF THIS ORDER UNLESS SPECTRIAN SPECIFICALLY ASSENTS IN WRITING TO SUCH ADDITIONAL OR DIFFERENT TERMS.

8. No charge will be allowed for packing, crating, drayage or storage unless stated herein.

9. Spectrian reserves the right to cancel any portion of this order if not received on dates specified.

10. Payment for material on this order shall not constitute any acceptance thereof but all material shall be received subject to Spectrian inspection and rejection. Defective material or material not in accordance with Spectrian’s specification will be held for seller’s instructions and at his risk and expense. All goods rejected shall at Spectrian’s option be promptly replaced or be deleted from this purchase order with price being reduced accordingly.

11. By acceptance of this purchase order and shipment of product called for harem, seller expressly warrants that: (A) all materials and work will conform to specifications, drawings, or descriptions furnished and or adopted by Spectrian and will be of good workmanship material, and free of defects. (B) test and inspection data and other objective evidence required to prove compliance to buyer’s specifications referenced herein will be retained for a minimum of three years after shipment. (C) such objective evidence including test and inspection data will be made available to buyer or buyer’s authorized representative upon request at any time during that period.

12. Unless otherwise herein agreed, special dies, tools, and patterns used in the manufacture of said articles shall be furnished by and at the expense of the seller. Said dies, tools, and patterns shall be kept in good condition and from time to time when necessary shall be replaced by the seller without expense to Spectrian. However, Spectrian has the option at any time to reimburse the seller for the whole or any part of said dies, tools, and patterns and replacements and become the owner and entitled to the possession of same.

13. Spectrian shall have the privilege to make changes in (A) the specifications, drawings, and samples, if any; (B) the method of shipment or packaging; (C) the place and time of delivery and (D) the articles and materials, including the quantity thereof to be furnished by seller. If any such changes cause an increase or decrease in the cost of, or time required for, performance of this purchase order, an equitable adjustment shall be made in the contract price or delivery schedule, or both by mutual consent. Any claim by seller for adjustment under this clause must be in writing, and asserted within thirty (30) days from the date of receipt by seller of the notification.

14. Vendor shall be liable to Spectrian for all consequential and incidental damages and expenses (including attorneys’ fees) actually or proximately arising from any breach of Vendor’s representations, warranties or covenants herein. Vendor hereby agrees to defend, indemnify and hold Spectrian, its owners, officers, directors, employees and agents harmless from and against any and all claims and suits for property damage, personal injury, death, expenses (including attorneys’ fees), economic loss, foregone profits, losses or damages of any kind whatsoever actually or proximately arising from (A) any breach of Vendors’ representations, warranties or covenants herein, or (B) infringements or alleged infringements by any products, materials or designs purchased or furnished by Vendor of the United States or foreign patents, trademarks, copyrights, trade secrets or other proprietary rights.

15. Spectrian shall not be held liable for manufacture or shipment of quantities in excess of authorized releases. However, Spectrian reserves the right to accept excess quantities in subject to the terms of the sale. Any such acceptance shall not constitute a revision of the order and Spectrian shall not be held liable for any further quantities manufactured or shipped in excess of authorized releases.

16. Spectrian shall not be liable for any cost, loss, or expense incurred by seller in connection with any material not specifically authorized by written release unless a scheduled date has been established for subject material in this purchase order.

17. The remedies of Spectrian under this purchase order are not exclusive and the exercise by Spectrian of any remedy shall not limit Spectrian in pursuing other remedies provided for in law.

18. Spectrian reserves the right to gain access to vendor’s production facilities and witness any activities and/or test required to verify compliance to purchase order and/or drawing specifications.

UltraRF’s
Terms and Conditions
RELEASED
DRAWN BY:	Customer Service	APPROVAL: Vice President APPROVAL:
Mandel Berenberg	Sheryle Henson	Chris Tubis
DATE:	DATE:	DATE:
		UItraRF
		160 Gibraltar Court, Sunnyvale, CA 94089
TITLE:	DWG NUMBER:         REV:
UItraRF’s Terms and Conditions		040201         A
		SHEET I OF 6

UltraRF CONFIDENTIAL

1. TERMS AND CONDITIONS. Products and services furnished by UltraRF are sold only on the terms and conditions stated herein. Notwithstanding any terms or conditions in Customer’s order, UltraRF’s assent and agreement and performance of any contract is expressly made conditional on Customer’s assent to UltraRF’s Terms and Conditions of Sale, whether in writing or by contract, unless otherwise specifically agreed to in writing by UltraRF. Acceptance or payment for Product shall constitute assent. All contracts for the sale of Products shall be construed and governed by the internal laws of the State of California where UltraRF has its principal place of business.

2. DELIVERY AND PAYMENT, TITLE, RISK OF LOSS & TAXES. Shipping will be FOB UltraRF’s point of shipment, with title and risk of loss passing to Customer at that point. Shipping shall be by UltraRF’s shipping agent in normal commercial packaging. Payment will be due thirty (30) days from the date of invoice. Past due balances shall be subject to a monthly service charge equal to 12% of the unpaid amount of the invoice, but not more than the amounts allowed by law. UltraRF will use all reasonable efforts to deliver Products to a mutually agreeable schedule. However, delivery dates are approximate and UltraRF is not liable for delays in delivery for any reason. Notwithstanding anything in this document to the contrary, UltraRF reserves the right to adopt an equitable plan of allocation and to adjust delivery schedules accordingly in the event of shortages. Products must be scheduled for delivery within six months of date of Customer’s order Customer agrees to pay all applicable taxes.

3. ACCEPTANCE. The furnishing by UltraRF of a Product to Customer shall constitute acceptance of that Product by Customer, unless notice of a defect or nonconformity is received by UltraRF within thirty (30) days of the receipt of the Product at Customer’s designated receiving address. Any use of a Product by Customer, its agents, employees, contractors or licensees, for any purpose after receipt thereof, shall constitute acceptance of that Product by Customer. UltraRF may repair or, at its option, replace defective or nonconforming parts after receipt of notice of defect or nonconformity.

4. WARRANTY. UltraRF warrants that its Products sold, at the time of shipment, to be free from defects in material and workmanship and conform to UltraRF’s specifications. For Products that fail to meet warranty, UltraRF shall, at its option, and as Customer’s exclusive remedy, either replace defective Products with the same or equivalent Products that meet this warranty or refund the purchase price. Customer must provide written notice of and return nonconforming Product. This warranty does not apply to Products that have been subjected to misuse, including, but not limited to, improper testing, assembly, and mishandling. This warranty shall not be expanded, and no obligation or liability will arise, due to technical advice, assistance, or service, written or otherwise, that UltraRF may provide.

THIS WARRANTY EXTENDS TO CUSTOMER ONLY. WARRANTY RETURNS FROM THE CUSTOMER’S CUTOMER WILL NOT BE ACCEPTED. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS.

(a) Time Period—Product is warranted for a period of three (3) years from date of shipment.

(b) Exceptions—Device chips and wafers that have received electrical probe/test and visual inspection are warranted to conform to UltraRF’s specifications or specifications accepted by UltraRF for a period of ninety (90) days from date of shipment This warranty shall not apply to device chips or wafers improperly removed from their original shipping container, not stored per UltraRE’s recommended procedures, and/or subjected to testing or operational procedures not accepted by UltraRF in writing. Chips and wafers that are purchased untested and development Products and licensed programs are provided ‘AS IS’ and without warranty.

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5. RESALE. Customer shall not resell any UltraRF Products to brokers or exporters. If Customer breaches the terms of this paragraph, in addition to UltraRF’s cancellation rights, Customer agrees to fully indemnify UltraRF, its officers, employees and distributors, from any and all liability, including attorneys’ fees and costs. -

6. CRITICAL APPLICATIONS DISCLAIMER. Products are not intended or authorized for use in Products surgically implanted into the body, for life support Products or for other Products for which a Product failure could cause personal injury or death. If Customer or Customer’s customers use Products for such unintended or unauthorized uses, Customer agrees to fully indemnify UltraRF, its officers, employees and distributors from all liability, including attorneys’ fees and costs.

7. PATENTS AND OTHER INDUSTRIAL PROPERTY RIGHTS. UltraRF will hold Customer harmless as set forth herein, in respect to any claim that the design or manufacture of any Product in UltraRF’s commercial line of Products or manufactured to specifications set by UltraRF and furnished hereunder constitutes an infringement of any patent or other industrial property rights of the United States or Canada. UltraRF will pay all damages and costs either finally awarded in a suit, or paid in UltraRF’s sole discretion, by way of settlement, which are based on such claim of infringement, provided that UltraRF is notified promptly in writing of such claim of infringement and is given full authority, information and assistance in settling or defending such claim. UltraRF shall have no liability whatsoever hereunder with respect to claims settled by Customer without UltraRF’s prior written consent. In the event that UltraRF is required to hold Customer harmless hereunder, UltraRF will in its sole discretion and at its own expense, either procure for Customer the right to continue using the Product, replace it with a non-infringing Product, or remove it and refund an equitable portion of the selling price and transportation costs thereof. THIS SHALL CONSTITUTE ULTRARF’S ENTIRE LIABILITY FOR ANY PATENT OR COPYRIGHT INFRINGEMENT OR CLAIM THEREOF BASED UPON MODIFICATION OF THE PRODUCTS PERFORMED BY OTHERS THAN ULTRARF, USE OF PRODUCTS IN COMBINATION WITH OTHER EQUIPMENT OR FOR ANY CLAIM BASED UPON OR RELATED TO ANY ALLEGED INFRINGEMENT OF ANY PATENT OR OTHER INDUSTRIAL PROPERTY RIGHTS. Customer shall hold UltraRF harmless against any expense, loss, costs or damages resulting from claimed infringement of patents, trademarks or other industrial property rights arising out of compliance by UltraRF with Customer’s design, specifications, or instructions. Except for Customer’s implied license to use and sell a Product incident to its purchase and the implied license of Customer to sell or otherwise dispose of possession of a copy of a copyrighted work from UltraRF, the sale of Products does not convey any license by implication, estoppel, or otherwise. ULTRARF DISCLAIMS LIABILITY FOR ANY U.S. PATENT OR COPYRIGHT INFRINGEMENT, ARISING FROM USE OR MANUFACTURE BY ANYONE OF INVENTIONS IN CONNECTION WITH PRODUCTS OR SERVICES SOLD, USED OR INTENDED FOR SALE OR USE IN PERFORMING CONTRACTS WITH THE UNITED STATES OR RELATED SUBCONTRACTS.

Customer, without the express prior written consent of UltraRF, does not have the right to use UltraRFs trademarks, trade names, corporate slogans, corporate logos, or corporate designations in the sale, lease or advertising of any Products, or any Product container, component part, business forms, sales, advertising or proffiotional materials, other business supplies or materials, whether in writing, orally or otherwise.

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8. LIABILITY. ULTRARF’S TOTAL LIABILITY, EXCEPT FOR PERSONAL INJURY, AND EXCEPT FOR THE LIMITED LIABILITIES OTHERWISE PROVIDED IN SECTIONS 4 AND 7, WHETHER FOR BREACH OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY IN TORT OR OTHERWISE, IS LIMITED TO THE PRICE OF THE PARTICULAR PRODUCTS SOLD HEREUNDER WITH RESPECT TO WHICH LOSSES OR DAMAGES ARE CLAIMED. IN NO EVENT SHALL ULTRARF BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES OR LIABILITY TO THIRD PARTIES TO THE FULL EXTENT SUCH MAY BE DISCLAIMED BY LAW.

9. QUOTATIONS AND PRICES. All quotations are subject to the terms and conditions stated herein as well as any additional terms and conditions that may appear in UltraRF’s quotations or proposals. In the case of a conflict between the terms and conditions stated herein and those appearing in the quotation or proposal, the latter shall control. UltraRF’s prices and quotations are subject to the following:

(a) All published prices are subject to change without notice.

(b) UNLESS OTHERWISE SPECIFIED IN WRITING, ALL QUOTATIONS ARE FIRM FOR, AND EXPIRE, THIRTY (30) DAYS AFTER DATE THEREOF AND CONSTITUTE OFFERS. Budgetary quotations and estimates are for preliminary information only and shall neither constitute offers, nor impose any responsibility or liability upon UltraRF.

(c) Unless otherwise stated in writing by UltraRF, all prices quoted shall be exclusive of transportation, insurance, taxes (including without limitation, any sales, use or similar tax levied on or on an interest in Products), license fees, customs fee, duties and other charges related thereto, all of which shall be born by Customer who shall hold UltraRF harmless therefrom, provided that, if UltraRF, in its sole discretion chooses to make any such payment, customer shall reimburse UltraRF in full upon demand.

(d) Stenographical, typographical and clerical errors are subject to correction.

(e) Prices quoted are for Products only and do not include technical data, proprietary rights of any kind, patent rights, qualification, environmental or other than UltraRF’s standard tests, and other than UltraRF’s normal domestic commercial packaging unless expressly agreed to in writing by UltraRF.

(f) Published weights and dimensions are approximate only. Certified dimension drawings can be obtained upon request. Manuals, programs, listings, drawings or other documentation required hereunder must be referenced specifically.

10. ORDERS. All orders shall be subject to acceptance by UltraRF only at its principal place of business.

11. CANCELLATION.

(a) Standard Product: Customer may cancel an order with thirty (30) days written notice prior to UltraRF’s shipment date at no charge.

(b) Special Product (non-standard, custom, or Product unique to a customer): Customer may cancel order with ninety (90) days written notice prior to UltraRF’s shipment date at no charge. Nevertheless, Customer shall remain liable to pay for all non-transferable and non-cancelable raw materials and work in process as of the date that UltraRF receives customer’s written notification of cancellation.

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(c) UltraRF reserves the right to cancel all or any part of an order, without any liability to Customer, if e Customer provides inaccurate information as to its intended use of the Product, or if Customer is in default under any of the terms and conditions of this document.

12. SPECIAL PRODUCT. Shipment of Special Product within 5% of the quantity ordered constitutes full shipment

13. CONFIDENTIAL INFORMATION. All materials and Products furnished by UltraRF or Customer and identified as containing confidential information must be held in confidence by the recipient using at least the degree of care the recipient uses for its own confidential information, but no less than reasonable care. Recipient may not disclose such materials or confidential information except to employees who require use of the materials in the performance of their duties. Confidential information does not include information in the public domain, information known to the recipient prior to any disclosure hereunder, information developed independently of any disclosure hereunder, information later communicated to the recipient by another without obligation of confidence, or information communicated by the owner to a third party free of any obligation of confidence. All confidential information and materials containing confidential information shall be held in confidence by the recipient for five (5) years after receipt.

14. EXPORT CONDITIONS. If, at the time or times of UltraRF’s performance hereunder, an export license is required for UltraRF to lawfully export Products or technical data, then the issuance of the appropriate licenses to UltraRF or its subcontractor shall constitute a condition precedent to UltraRF’s obligations hereunder. Customer agrees to comply with all applicable export laws, regulations and orders. Specifically, but without limitation, Customer agrees that it will not resell, re-export or ship, directly or indirectly, any Products or technical data in any form without obtaining appropriate export or re-export licenses from the U.S. Government. Customer acknowledges that the applicable export laws, regulations and orders may differ from item to item and/or from time to time.

15. GOVERNMENT CONTRACT COMPLIANCE. If Customer sells Products to the U.S. Government, UltraRF makes no representations, certifications, or warranties whatsoever about compliance with acquisition statutes or regulations, except UltraRF will comply with the following clauses applicable to subcontracts for commercial items: FAR 52.222-26, Equal Opportunity; FAR 52.222-35, Affirmative Action for Special Disabled Vietnam Era Veterans; and FAR 52.222-36, Affirmative Action for Handicapped Workers. Notwithstanding, if Customer sells Products to any other public entity, state, or local or international, or to a prime contractor or subcontractor of such entities, Customer remains solely and liable for compliance with all acquisition statutes and regulations. Except as expressly provided in this paragraph, UltraR.F makes no representations, certifications, or warranties whatsoever about compliance with acquisition statutes and regulations, including, without limitation, those that may relate to pricing, quality, origin or content.

16. LICENSED PROGRAMS. In the absence of a separate software license between Customer and UltraRF, the following terms and conditions apply to UltraRF’s licensed programs:

a. Licensed programs include computer software and firmware, Title to the licensed programs delivered hereunder remain vested in UltraR.F or UltraRF’s licensor and cannot be assigned or transferred without UltraRF’s written authorization. Customer agrees not to reverse engineer, disassemble, de-compile, or modify any programs.

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b. For stand alone licensed programs, UltraRF grants to Customer a non-exclusive license to use the licensed programs for its internal use in single computer system. Customer may make up to (5) copies of the licensed programs for Customer’s internal use, so long as Customer has paid UltraRF’s then current licensing fee and faithfully reproduces all of UltraRF’s copyright notices and proprietary legends on the copies. Customer agrees not to disclose, in any form, the licensed programs or any portion thereof to any person other than employees of Customer.

c. For licensed programs embedded in Products, UltraRF grants Customer a license to use such embedded licensed programs in Products subject to the terms and conditions herein.

d. If Customer is in default of any of the terms and conditions of this document, the rights granted herein by UltraRF may be terminated on one month’s prior written notice. Within one month after termination, Customer will furnish to UltraRF a certificate certifying that the original and all copies of the licensed programs and derivative versions thereof, in whole or in part and in any form, have been destroyed.

17. GENERAL.

(a) Entire Agreement; Amendment. This document constitutes the entire and final agreement and supercedes all other communications. No modifications shall be binding unless made in a written agreement signed by both parties.

(b) Serviceability. If any provision is held invalid, all other provisions shall remain valid.

(c) No Assignment. Neither party may assign its rights and obligations hereunder without the prior written consent of the other.

(d) Excusable Delay. UltraRF shall not be liable for any delay or failure to perform due to any cause beyond its control.

(e) Dispute Resolution. UltraRF and Customer will attempt to settle all claims through negotiation or non-binding mediation prior to commencement of arbitration proceedings. All disputes concerning any contract or Product hereunder not otherwise resolved between UltraRF and Customer shall be resolved by binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association or such other rules as may be agreed upon by the parties. The arbitration shall be conducted by a single arbitrator who is an attorney, chosen and agreed upon by the parties. Arbitration shall be held at the location of UltraRF’s principal place of business. The parties shall be entitled to reasonable discovery in the discretion of the arbitrator. The arbitrator shall make a reasoned award stating his conclusions and reasons for the award. The prevailing party shall be entitled to costs including arbitrator fees and reasonable attorney fees. Customer consents to exclusive venue and to personal jurisdiction in the State of California for purposes of litigation of any matter arising out of this document. No action, regardless of form, arising out of or in any way connected with the Products or Services furnished by UltraRF, may be brought by Customer more than one (1) year after the cause of action has accrued. If any part, provision or clause of the Terms and Conditions of Sale, or the application thereof to any person or circumstances, is held invalid, void or unenforceable, such holding shall not affect and shall leave valid all other parts, provisions, clauses or applications of the terms and conditions remaining, and to this end the terms and conditions shall be treated as serviceable.

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[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Schedule 5.1

Warranty Period

[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Schedule 5.2

Scope of Warranty

[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Appendix A

Prices

PART NUMBER	PRODUCT NAME	FREQUENCY	Jul-Sep ‘00 Pricing	Oct-Dec ‘00 Pricing	Jan-Mar ‘01 Pricing	Apr-Jun ‘01 Pricing
[***]                                [***]	[***]	[***]	[***]	[***]	[***]	[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

EX-10.16

EXHIBIT 10.16

AMENDMENT OF

PURCHASE AND SUPPLY AGREEMENT

This Agreement, dated as of October 19, 2001 (referred to below as this “Amendment”), is entered into by and between Spectrian Corporation (“Spectrian”), a Delaware corporation, and UltraRF, Inc. (“UltraRF”), a North Carolina corporation, as an amendment of the Purchase and Supply Agreement dated as of December 29, 2000 (the “Supply Agreement”) previously entered into by Spectrian and UltraRF (then known as Zoltar Acquisition, Inc.). All capitalized terms used in this Amendment without definition shall have the meanings set forth in the Supply Agreement.

Recitals

WHEREAS, Spectrian and UltraRF desire to amend the Supply Agreement to adjust the Minimum Commitment for certain calendar quarters and to agree upon certain other matters relating to the Supply Agreement, all as set forth below;

NOW, THEREFORE, in consideration of the foregoing and the mutual provisions hereof, and intending to be legally bound, Spectrian and UltraRF agree as follows:

1. Section 1.2 of the Supply Agreement is hereby amended by revising the table of Minimum Commitments contained therein to read as follows:

“Calendar Quarter Ending	Minimum Commitment
March 31, 2001	$	6,800,000
June 30, 2001	$	7,500,000
September 30, 2001	$	8,300,000
December 31, 2001	$	7,500,000
March 31, 2002	$	[***	]
June 30, 2002	$	[***	]
September 30, 2002	$	[***	]
December 31, 2002	$	[***	]”

2. Notwithstanding anything herein or in the Supply Agreement to the contrary, including, without limitation, the provisions of Sections 1.2, 2.2 and 3.1 of the Supply Agreement, during each of the calendar quarters ending December 31, 2001 (referred to below as “Q4 2001”), March 31, 2002 (referred to below as “Q1 2002”) and June 30, 2002 (referred to below as “Q2 2002”) UltraRF will not and is not obligated to ship Components to Spectrian having an aggregate purchase price that exceeds the respective Minimum Commitment amount referred to above in Section 1.2 of this Amendment for such calendar quarters.

3. Notwithstanding anything herein or in the Supply Agreement to the contrary, including, without limitation, the provisions of Sections 1.2, 2.2 and 3.1 of the Supply Agreement, approximately $[***] of Firm Orders which had Original Delivery Dates in Q4 2001

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

shall be deemed amended hereby such that these Firm Orders shall now have Original Delivery Dates in Q1 2002 and shall be deemed Spectrian Purchases for Q1 2002.

4. Notwithstanding anything herein or in the Supply Agreement to the contrary, including, without limitation, the provisions of Sections 1.2, 2.2 and 3.1 of the Supply Agreement, the approximately $[***] of Components sold and shipped by UltraRF to Spectrian on September 29, 2001, and received by Spectrian on October 2, 2002, shall be deemed Spectrian Purchases for Q4 2001.

5. Concurrent with the execution of this Amendment, Spectrian has delivered to UltraRF and UltraRF has accepted Firm Orders for Components to be delivered during Q1 2002 having an aggregate purchase price of approximately $[***] (inclusive of the approximately $[***] of Components referred to above in Section 3 of this Amendment) (referred to below as the “Q1 Orders”) and that the Q1 Orders have been made in accordance with the provisions of the Supply Agreement, including, without limitation, Sections 2.2 and 2.4. The Q1 Orders include Components in the form of finished goods having an aggregate purchase price of approximately $[***] that are to incorporate devices based on UltraRF’s LDMOS 8 technology and conform to the applicable Competitive Specifications (as defined below) (referred to below as the “New Device Finished Goods”). The New Device Finished Goods included in the Q1 Order include approximately [***] units. Spectrian and UltraRF hereby acknowledge and agree that UltraRF has not yet qualified the New Device Finished Goods for production, that the qualification of such Components may not occur in time to permit delivery during Q1 2001, and that such Components may never be qualified or delivered. UltraRF will use all commercially reasonable efforts to qualify, produce and deliver New Device Finished Goods to Spectrian and to do so during Q1 2002 in accordance with the Q1 Orders, but shall have no liability, except as expressly provided in paragraph 7 of this Amendment, due to any delay in delivery or failure to deliver such Components.

6. In the event UltraRF is unable to deliver the New Device Finished Goods during Q1 2001 in accordance with the Q1 Orders, then Spectrian shall purchase and accept delivery from UltraRF, and UltraRF shall sell and deliver to Spectrian, die for use in manufacturing the New Device Finished Goods (referred to below as the “Spectrian Die Bank”) on [***], having an aggregate purchase price of $[***] minus the aggregate purchase price of New Device Finished Goods delivered by UltraRF to Spectrian during Q1 2002 (such difference being referred to below as the “Aggregate Die Purchase Price”). In the event that UltraRF delivers the Spectrian Die Bank to Spectrian, then UltraRF agrees that it will not deliver any further New Device Finished Goods to Spectrian from [***] until [***]. The Spectrian Die Bank shall include the equivalent number of units in die form necessary to deliver units of New Device Finished Goods to Spectrian in Q2 2002, representing the difference between (1) [***] times the number of units of New Device Finished Goods specified in the Q1 Order, and (2) [***] times the number of units of New Device Finished Goods delivered to Spectrian in Q1 2002 on or before March 22, 2002. The price per unit for the Spectrian Die Bank shall be [***] of the unit price on the Q1 Order for the New Device Finished Goods. The parties hereby acknowledge and agree that the Aggregate Die Purchase Price shall count towards the Q1 2002 Minimum Commitment. UltraRF

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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will hold the Spectrian Die Bank for use in manufacturing New Device Finished Goods for Spectrian, but title and risk of damage or loss will remain with Spectrian. UltraRF will use all commercially reasonable efforts to complete the manufacture of all the Spectrian Die Bank into units of New Device Finished Goods (referred to below as “Completed Die Into Finished Goods”) within a 90 day period ending [***] (referred to below as “Completion Period”), but shall have no liability due to any delay in delivery or failure to deliver such Components except as expressly provided in paragraph 7 of this Amendment. Spectrian shall purchase and accept delivery of the Completed Die Into Finished Goods for an additional price per unit equal to [***] of the unit price for the New Device Finished Goods (that is, an aggregate purchase price of up to $[***] for the Completed Die Into Finished Goods which together with the Aggregate Die Purchase Price represents an aggregate purchase price of up to $[***] for all New Device Finished Goods made from the Spectrian Die Bank). Spectrian shall have the right to designate different packaging types for packaging the Spectrian Die Bank than the packaging types previously designated on its purchase orders for the New Device Finished Goods, provided that UltraRF receives written notice of the change not later than November 30, 2001 for the Q1 Order of New Device Finished Goods and not later than January 31, 2002 for the mix of products of Completed Die Into Finished Goods from the Spectrian Die Bank and provided further that new packaging type designated by Spectrian is a standard package type offered by UltraRF. The parties acknowledge and agree that the aggregate purchase price of Completed Die Into Finished Goods (not including the Die Purchase Price) shall count as Spectrian Purchases towards the Q2 2002 Minimum Commitment.

7. In the event UltraRF is unable to deliver some portion or all of the Completed Die Into Finished Goods to Spectrian during the Completion Period, then upon the expiriation of the Completion Period all units of the Spectrian Die Bank not incorporated into Completed Die Into Finished Goods delivered to Spectrian will become the property of UltraRF and Spectrian will receive a credit (referred to below as the “Spectrian Credit”) from UltraRF equal to the difference of (i) [***] of the Die Purchase Price and (ii) the product of (A) [***] of the Die Purchase Price and (B) a fraction whose numerator is the purchase price of the Completed Die Into Finished Goods which are manufactured in the Completion Period and whose denominator is the Die Purchase Price. The Spectrian Credit shall be applied, at Spectrian’s election, to reduce the Minimum Commitment in any calendar quarter starting with Q3 2002 (provided UltraRF receives written notice of Spectrian’s election to do so not later than the first day of the quarter for which the Minimum Commitment is being reduced) as a credit towards future purchases of Components by Spectrian, or as a credit against any payment due for Components received by Spectrian but not yet paid. In the event that Spectrian is unable to use the balance of the Spectrian Credit as provided above, it shall so notify UltraRF, and UltraRF shall then promptly deliver to Spectrian a cash payment equal to the Spectrian Credit.

8. Spectrian shall be considered to have provided UltraRF written notice effective on [***], pursuant to Section 1.4(b) of the Supply Agreement, of Spectrian’s determination to “lock in” Components corresponding to Motorola Part Nos. [***] and [***]. Such Locked In Components shall be deemed “Competitive” with such Motorola parts, within the meaning of Section 1.4 of the Supply Agreement, if such Locked In Components meet or exceed Motorola’s

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange

Commission. Omitted portions have been filed separately with the Commission.

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published specifications applicable to the corresponding Motorola part as in effect [***] (“Competitive Specifications”). As such, if UltraRF does not have Locked In Components identified above available on or after [***] which meet or exceed the applicable Competitive Specifications, and if Spectrian thereafter purchases such products from other vendors, then such purchases from other vendors in a calendar quarter shall be deemed to be a Performance and Product Availability Adjustment, as defined in Section 1.4 (b) of the Supply Agreement, for purposes of the Minimum Commitment for such quarter.

9. Spectrian shall be considered to have given UltraRF written notice effective on [***], pursuant to Section 1.4(b) of the Supply Agreement, of Spectrian’s determination to “lock in” Components corresponding to Motorola Part Nos. [***] and [***]. Such Locked In Components shall be deemed “Competitive” with such Motorola parts, within the meaning of Section 1.4 of the Supply Agreement, if the Locked In Components meet or exceed Motorola’s published specifications applicable to the corresponding Motorola part as in effect [***] (“Competitive Specifications”). As such, if UltraRF does not have Locked In Components identified above available on or after [***] which meet or exceed the applicable Competitive Specifications, and if Spectrian thereafter purchases such products from other vendors, then such purchases from other vendors in a calendar quarter shall be deemed to be a Performance and Product Availability Adjustment, as defined in Section 1.4 (b) of the Supply Agreement, for purposes of the Minimum Commitment for such quarter.

10. Except as set forth above, the Supply Agreement shall continue in effect in accordance with its original terms.

11. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Amendment shall be governed by and construed and enforced in accordance with the laws of the same state as apply under the terms of the Supply Agreement.

[Remainder of Page Intentionally Left Blank]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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IN WITNESS WHEREOF, Spectrian and UltraRF have caused this Amendment to be executed in one or more counterparts by their respective duly authorized representatives.

ULTRARF, INC.		SPECTRIAN CORPORATION
By:	/s/    CHRIS TUBIS	By:	/s/    MICHAEL ANGEL
Name:	Chris Tubis	Name:	Michael Angel
Its:		Its:	Executive VP & CFO
Date:	November 12, 2001	Date:	November 12, 2001

EX-10.17

EXHIBIT 10.17

AMENDMENT NO. 2 TO PURCHASE AND SUPPLY AGREEMENT

This Amendment No. 2 to Purchase and Supply Agreement (“Amendment No. 2”) is entered into by and between Spectrian Corporation, a Delaware corporation (“Spectrian”) and UltraRF, Inc., a North Carolina corporation (“UltraRF”) formerly known as Zoltar Acquisition, Inc. and a wholly-owned subsidiary of Cree, Inc., effective as of March 31, 2002 (“Amendment Effective Date”).

Recitals

A. Spectrian and UltraRF previously have entered into a Purchase and Supply Agreement dated December 29, 2000 and with an effective date of January 1, 2001 (the “Supply Agreement”), which was amended by the Amendment of Purchase and Supply Agreement dated October 19, 2001 (“Amendment No. 1”). (As used herein, “Agreement” refers to the Supply Agreement, as amended by Amendment No. 1 and by this Amendment No. 2.)

B. Under the Supply Agreement and Amendment No. 1, UltraRF agreed to supply to Spectrian certain electronic components, and Spectrian agreed to purchase a number of those components equal to a minimum price within a defined time period.

C. The parties wish to, among other things, adjust the minimum purchase amounts, to extend the term of the Agreement, to revise which products will be delivered under existing purchase orders, and to modify and clarify certain provisions regarding future deliveries and adjustments in the minimum purchase commitments, on the terms and conditions of this Amendment No. 2.

Agreement

In consideration for the mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1. Term of Agreement. Section 1.1 of the Supply Agreement is amended to extend the term by replacing Section 1.1 in its entirety with the following:

Section 1.1 Term. The term of this Agreement commences on January 1, 2001 (the “Effective Date”) and ends at the conclusion of a thirty (30) month period following the Effective Date, which is June 30, 2003 (the “Term”).

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2. Minimum Commitments.

(a) Section 1.2 of the Supply Agreement, as modified by Section 1 of Amendment No. 1, is amended by revising the table of Minimum Commitments to read as follows:

Calendar Quarter Ending	Minimum Commitment
March 31, 2001 (Q1’01)	$	6,800,000
June 30, 2001 (Q2’01)	$	7,500,000
September 30, 2001 (Q3’01)	$	8,300,000
December 31, 2001 (Q4’01)	$	7,500,000
March 31, 2002 (Q1’02)	$	3,400,000
June 30, 2002 (Q2’02)	$	5,000,000
September 30, 2002 (Q3’02)	$	5,000,000
December 31, 2002 (Q4’02)	$	5,000,000
March 31, 2003 (Q1’03)	$	5,000,000
June 30, 2003 (Q2’03)	$	1,250,000

(b) UltraRF acknowledges that Spectrian has satisfied the Minimum Commitment for each of the five calendar quarters from the Effective Date of the Supply Agreement through March 31, 2002.

(c) For each of the calendar quarters beginning on or after October 1, 2002, if the aggregate purchase price for Components delivered in any such calendar quarter exceeds the Minimum Commitment, then up to $[***] of such excess will be carried forward and used to reduce the Minimum Commitment for the immediately succeeding calendar quarter. Notwithstanding anything in the Agreement to the contrary, including, without limitation, the provisions of Sections 1.2, 2.2 and 3.1 of the Supply Agreement, and Section 2 of Amendment No. 1, unless otherwise agreed to in writing by the parties, during each of the calendar quarters ending June 30, 2002, September 30, 2002 and December 31, 2002, UltraRF will not and is not obligated to ship Components to Spectrian having an aggregate purchase price that exceeds the respective Minimum Commitment amount referred to above in Section 2(a) of this Amendment No. 2 for such calendar quarters.

3. Certain Defined Terms.

(a) For purposes of this Agreement, “New Components” are discrete Components that incorporate devices based on UltraRF’s LDMOS 8 or LDMOS 8.5 process technology.

(b) For purposes of this Agreement, “Older Components” are discrete Components that incorporate devices based on UltraRF’s LDMOS 7 process technology, or on its bi-polar process technology.

(c) For purposes of this Agreement, “Development Period” means the nine-month period referred to in Section 1.4(a) of the Supply Agreement as such period may be modified or extended by the terms of this Amendment No. 2.

4. Revisions to Existing Firm Orders for Delivery in Q1 2002.

(a) Section 5, Section 6 and Section 7 of Amendment No. 1 are deleted in their entirety. To the extent any credit would have been earned by UltraRF from Spectrian pursuant to Section 7 of Amendment No. 1, that credit is considered cancelled.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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(b) Spectrian previously delivered to UltraRF and UltraRF accepted (pursuant to Sections 2.2 and 2.4 of the Supply Agreement) Firm Orders for Components to be delivered during Q1 2002 having an aggregate purchase price of approximately $7,500,000 (inclusive of the $[***] of Components referred to in Section 3 of Amendment No. 1). Those orders were for New Components with an aggregate purchase price of $[***] and Older Components with an aggregate purchase price of $[***].

(c) In Q1 2002, UltraRF delivered and Spectrian accepted Older Components pursuant to the Firm Orders described in paragraph (b) above with an aggregate purchase price of approximately $3,400,000. All remaining portions of the Firm Orders for Components for delivery in Q1 2002 are cancelled and neither party has any further obligation therefor with respect to products not delivered prior to the execution date of this Amendment No. 2.

5. Revisions to Existing Firm Orders for Delivery in Q2 2002.

(a) Spectrian previously delivered to UltraRF and UltraRF accepted (pursuant to Sections 2.2 and 2.4 of the Supply Agreement) Firm Orders for Components to be delivered during Q2 2002 having an aggregate purchase price of $[***]. Those orders were for New Components with an aggregate purchase price of $[***] and Older Components with an aggregate purchase price of $[***]. All such Firm Orders are cancelled and neither party has any further obligation therefor.

(b) Within five business days after the execution of this Amendment No. 2 Spectrian will deliver, and UltraRF will accept, new Firm Orders for Components to be delivered during Q2 2002 for which the aggregate purchase price will be $[***], based on the Component prices separately agreed upon by the parties, in accordance with the following, subject to adjustment pursuant to Section 8 below:(i) New Components will represent no more than $[***] of the $[***] total aggregate purchase price, of which 30 Watt New Components will represent at least $[***] of the total aggregate purchase price, and (ii) Older Components will represent at least $[***] of the $[***] total aggregate purchase price, of which approximately $[***] will be for LDMOS 7 Components and approximately $[***] will be for bi-polar Components (with the exact mix of those Older Components as agreed upon by the parties).

6. Qualification of Drop-in Compatible Parts.

(a) Section 8 and Section 9 of Amendment 1 are deleted in their entirety.

(b) UltraRF shall use all commercially reasonable efforts to produce and fully qualify (i.e., successfully passing the 1000 hour burn-in test) by June 30, 2002, and to deliver to Spectrian by June 30, 2002 in the quantities ordered pursuant to Section 5 above, New Components that are Drop-in Compatible Parts (as defined below). Each party shall provide timely access to each other’s personnel and relevant technical information and equipment as necessary or helpful to produce and fully qualify Drop-in Compatible Parts and shall cooperate in good faith to produce and fully qualify New Components that are Drop-in Compatible Parts by June 30, 2002. UltraRF’s sole liability and Spectrian’s sole remedy for delay or failure in delivery of New Components ordered for delivery in Q2 2002 is the reduction of the Minimum Commitments set forth in Section 8 below.

(c) (i) For purposes of this Agreement, a Component will be considered to be a “Drop-in Compatible Part” and will be deemed to meet the “Competitive” requirements within the meaning of Section 1.4(a) of the Supply Agreement (other than subparagraphs (iii), (iv) and (v) thereof) if it can be placed into a Spectrian product and meets all of the following requirements: (A) it must have comparable yield (equal to or greater) and consistency required by the system which would be achieved using the other vendor’s Locked-in Component, (B) it must have mechanically compatible packages and (C) it meets performance requirements as specified in the Spectrian Source Control Document (“SCD”) in the application circuit, as designed using the Locked In Components (it being understood that the SCD must reflect the system and application requirements and be met by the Locked-in Component). Should it be necessary, Spectrian agrees to allow limited circuit changes to the application circuit to achieve the system and application performance relative to the above requirements. These limited changes may include changes to the printed circuit pattern, re-positioning of components and transistors and/or changes of component values, provided those changes

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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conform to currently employed design practices. These limited changes shall not include: (x) changes to the printed circuit board substrate material (either manufacturer or specification) or (y) changes to the absolute external dimensions of the product subassembly. The SCD must be delivered to UltraRF within a two-week period after Spectrian provides UltraRF with the lock-in notice and may change after that date without extending the Development Period. However, if Spectrian makes significant changes to the SCD during the last three months of the Development Period, then the Development Period shall be extended by a period of up to three months from the effective date of the change to allow for adaptation to accommodate the significant change. UltraRF acknowledges that Spectrian will be deemed to have timely delivered the SCD to UltraRF within the required two weeks after the lock-in date for Locked In Components [***] and [***] (which are listed in Section 7(a)), if such SCD is delivered within five days after the date that this Amendment No. 2 is signed. For all other Locked In Components listed in Sections 7(a) and 7(b), Spectrian will be deemed to have timely delivered the SCD to UltraRF within the required two weeks after the lock-in date, if such SCD is delivered within 15 days after this Amendment No. 2 is signed.

(ii) In the event that the parties, acting in good faith, are unable to agree on whether a Component supplied by UltraRF meets all of the criteria in Section 6(c)(i), then the Component will be considered a “Drop Compatible Part” only if it meets the “Competitive” requirements established in accordance with Section 1.4(a) of the Supply Agreement.

(iii) The parties shall cooperate in good faith to timely determine whether an UltraRF device qualifies as a “Drop-in Compatible Part” hereunder.

(d) A “Replacement Part” is either (i) a Locked In Component identified in Section 7(b) of this Amendment No. 2 that is not available from UltraRF as a Drop In Compatible Part at any time after the expiration of the Development Periods set forth in Section 7 below, or (ii) a Drop In Compatible Part available from a third party to replace a Component that UltraRF had been delivering regularly (whether a New Component or an Older Component), but that it no longer delivers or that is no longer a Drop in Compatible Part (other than End of Life Components covered under Section 1.5 of the Supply Agreement, which continue to be subject to that Section 1.5), provided that Spectrian furnishes written notice to UltraRF of the lack of compatibility and UltraRF has a 30 day period thereafter to cure or, if the SCD should change as described in Section 6(c), the Development Period shall be extended for the period therein stated. The Minimum Commitment will be reduced by the aggregate invoice purchase price of all like Replacement Parts ordered by Spectrian for delivery in that quarter, with the reduction effective in the quarter that Spectrian accepts delivery of the Replacement Parts from the vendor, provided that the reduction shall not exceed Spectrian’s internally forecasted demand as approved by Spectrian’s Board of Directors or senior management, a copy of which shall be furnished to UltraRF upon request. If UltraRF later makes available a fully qualified Drop-in Compatible Part to replace the Replacement Part, then Spectrian will order those Components from UltraRF, for delivery after (x) a reasonable design-in time in the case of Locked In Components (taking into account the type of Component and customary industry design-in standards) plus (y) a reasonable lead time; provided that if the lead time is greater than UltraRF’s lead time and cancellation or rescheduling of the order would require payment of a fee, UltraRF may (at its option) pay that fee and deliver Components under this Agreement beginning as soon as the end of the design-in time.

(e) Locked In Components identified in Section 7(a) below are not eligible to become Replacement Parts under this Section 6.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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7. Identification of Locked In Components.

(a) For all purposes under this Agreement except Section 6(d) of this Amendment No. 2, the parties acknowledge that, to the extent the following Components are based on the Motorola equivalent process to UltraRF’s LDMOS 8.0 or 8.5 process, the following parts are Locked In Components as of July 1, 2001, with a Development Period ending on April 1, 2002:

[***]

[***]

[***]

[***]

(b) For all purposes under this Agreement, the parties acknowledge that following parts are Locked In Components, with a Notice or Lock In Date and an expected end of Development Period set forth below:

Part	Notice or Lock In Date	Expected End of Development Period
[***]	[***]	[***]
[***]	[***]	[***]
[***]	[***]	[***]
[***]	[***]	[***]
[***]	[***]	[***]
[***]	[***]	[***]
[***]	[***]	[***]
[***]	[***]	[***]
[***]	[***]	[***]

(c) Notwithstanding Section 1.4 of the Supply Agreement, after the Amendment Effective Date a component will be considered a Locked In Component pursuant to Section 1.4(b) of the Supply Agreement: (i) if production parts of such component are commercially available, then upon written notice given by Spectrian to UltraRF identifying the particular component, provided that Spectrian provides UltraRF substantially complete Source Control Documents for such component within two weeks thereafter, and (ii) if production parts of such component are not commercially available, then when Spectrian has provided UltraRF a substantially complete Source Control Document for such component.

8. Effect on Firm Orders in Q2 2002 of Failure to Produce and Qualify New Components Drop-in Compatible Parts. If UltraRF does not deliver the fully qualified New Component Drop-in Compatible Parts (including either or both of the 30 Watt versions and 45 Watt versions) on or before June 30, 2002, then the Firm Orders for Q2 2002 will be modified as follows:

(a) If by June 30, 2002 UltraRF delivers 30 Watt versions of New Component Drop-in Compatible Parts but not 45 Watt versions of New Component Drop-in Compatible Parts, then Spectrian’s orders for delivery in Q2 2002 will be amended by canceling the orders for the 45 Watt versions and by adding an additional amount of 30 Watt versions of New Components (but only to the extent UltraRF is capable of supplying such Components) and Older Components based on the LDMOS 7 process such that the aggregate purchase price of Components delivered in Q2 2002 will be $[***], or Spectrian may alternatively pay UltraRF cash in an amount equal to the Shortfall Surcharge as defined in Section 1.2 of the Supply Agreement. In other words, assuming the foregoing mix is delivered, the Minimum Commitment for Q2 2002 will be reduced to $[***] and the total Minimum Commitments will be reduced by $[***].

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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(b) If by June 30, 2002 UltraRF does not deliver any New Component Drop-in Compatible Parts, then Spectrian’s orders for delivery in Q2 2002 will be amended by canceling the orders for the New Components and by adding an additional amount for Older Components based on the LDMOS 7 process such that the aggregate purchase price of Components delivered in Q2 2002 will be $[***], or Spectrian may alternatively pay UltraRF cash in an amount equal to the Shortfall Surcharge as defined in Section 1.2 of the Supply Agreement. In other words, assuming the foregoing mix is delivered, the Minimum Commitment for Q2 2002 will be reduced to $[***] and the total Minimum Commitments will be reduced by $[***].

(c) Spectrian is not required to purchase additional components from another vendor to obtain a reduction in the Minimum Commitment under this Section 8.

9. Effect on Firm Orders in Q3 2002 and Thereafter of Failure to Produce and Qualify New Component Drop-in Compatible Parts.

(a) If UltraRF does not deliver any fully qualified New Component Drop-in Compatible Parts on or before June 30, 2002, then for orders for delivery in Q3 2002 and thereafter, the Minimum Commitment will be reduced by $[***] for each calendar month thereafter in which fully qualified New Component Drop-in Compatible Parts are not delivered on or before the last day of that month. Reductions in the Minimum Commitment under this paragraph may be up to $[***] per quarter, up to a maximum of the total Minimum Commitment for that quarter.

(b) If UltraRF does not deliver fully qualified 45 Watt versions of New Component Drop-in Compatible Parts on or before June 30, 2002, then for orders for delivery in Q3 2002 and thereafter, Spectrian will accept delivery of fully qualified 30 Watt versions of New Component Drop-in Compatible Parts up to the greater of (i) $[***] or (ii) the purchase order amount of 30 Watt versions in each calendar month thereafter that the 45 Watt versions are not available. The Minimum Commitment will be reduced by $[***] less the amount of delivered fully qualified 30 Watt versions for each month in which fully qualified 45 Watt versions of New Component Drop-in Compatible Parts are not delivered on or before the last day of the month. Reductions in the Minimum Commitment may be up to $[***] per quarter, up to a maximum of the total Minimum Commitment for that quarter. Spectrian is not required to order any 30 Watt versions of New Components for delivery after September 30, 2002, or to accept delivery of any 30 Watt versions after that date if the 45 Watt versions remain unavailable.

(c) Spectrian is not required to purchase additional components from another vendor to obtain a reduction in the Minimum Commitment under this Section 9.

10. Payment Terms. Section 1.8 of the Supply Agreement is deleted and replaced in its entirety with the following:

Section 1.8 Payment. Spectrian shall pay UltraRF the applicable price for the Components that UltraRF ships to Spectrian hereunder within [***] days after the date of the invoice for those Components. Payments due to UltraRF must be made in U.S. Dollars by Spectrian by wire transfer to an account designated in writing by UltraRF from time to time. All amounts not paid when due bear interest at the rate of one percent per month (or such other percentage, if lower, as shall not exceed the maximum rate permitted by law), commencing immediately upon the due date (i.e., the date [***] days after the invoice date). Spectrian shall be responsible for reasonable attorneys’ fees and other reasonable expenses incurred by UltraRF in connection with the collection of any amounts due and payable hereunder.

11. Cancellation. All Firm Orders canceled pursuant to this Amendment No. 2 are considered canceled pursuant to Section 2.2 of the Supply Agreement. No penalties, restocking fees, or any other fees that otherwise might apply to cancellation, rescheduling, failure to accept, or failure to submit an order apply to those cancellations.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

-6-

12. Entire Agreement. The Supply Agreement, as modified by, and together with, Amendment No. 1 and this Amendment No. 2, is the entire agreement between the parties with respect to the subject matter, and references to “Agreement” in this Amendment No. 2, and in Amendment No. 1 or the Supply Agreement are references to the Supply Agreement, as modified by, and together with, Amendment No. 1 and this Amendment No. 2.

13. Supply Agreement Remains in Effect. Except as otherwise specified, all terms used in this Amendment have the same meaning as such terms have in the Agreement. Except as specifically set forth in this Amendment, the relationship between the parties with respect to the subject matter of the Supply Agreement, and the rights and obligations of the parties thereunder, continues to be governed by the terms of the Supply Agreement (as amended by Amendment No. 1), the provisions of which remain in full force and effect, including, without limitation, Spectrian’s rights and obligations under Section 1.2 of the Supply Agreement with respect to the Shortfall Shortage. In the event of a conflict between the terms of the Supply Agreement (as amended by Amendment No. 1) and the terms of this Amendment, the terms of this Amendment control.

(signature page follows)

-7-

(signature page to Amendment No. 2 to Purchase and Supply Agreement)

Accepted and Agreed:

SPECTRIAN CORPORATION		ULTRARF, INC.
By:	/s/    MICHAEL D. ANGEL	By:	/s/    M. TODD TUCKER
	Michael Angel, Executive Vice President and Chief Financial Officer		M. Todd Tucker, President
Date:	April 5, 2002	Date:	April 5, 2002

-8-

EX-10.18

EXHIBIT 10.18

SETTLEMENT AGREEMENT AND RELEASE

This Settlement Agreement and Release (“Agreement”) is effective as of November 15, 2002 (the “Effective Date”) among Spectrian Corporation (“Spectrian”), Cree, Inc., and Cree Microwave, Inc., a wholly owned subsidiary of Cree, Inc. that was formerly known as UItraRF, Inc. and, prior to that, as Zoltar Acquisition, Inc. (Cree, Inc. and Cree Microwave, Inc. shall be collectively referred to herein as “Cree.” Spectrian and Cree shall be referred to collectively herein as the “Parties.”)

WHEREAS, the Parties entered into an Asset Purchase Agreement dated November 20, 2000 (the “Asset Purchase Agreement”); and

WHEREAS, Spectrian and Cree Microwave, Inc. entered into a Purchase and Supply Agreement dated December 29, 2000, and subsequently entered into Amendments to the Purchase and Supply Agreement dated October 19, 2001 and March 31, 2002 (collectively, the “Purchase and Supply Agreement”); and

WHEREAS, in a letter dated September 25, 2002, Cree gave Spectrian formal notice of alleged claims against Spectrian under the Purchase and Supply Agreement and its intent to arbitrate such claims if they were not otherwise resolved; and

WHEREAS, in a letter dated September 30, 2002, Spectrian responded to Cree’s September 25 letter and informed Cree of alleged claims against Cree under the Purchase and Supply Agreement; and

WHEREAS, the Parties desire to settle certain claims relating to the Asset Purchase Agreement and the Purchase and Supply Agreement pursuant to the terms and conditions set forth herein below;

SETTLEMENT AGREEMENT AND RELEASE 1

IT IS HEREBY AGREED by and among the Parties, in consideration of the mutual covenants and undertakings set forth in this Agreement, as follows:

1. Spectrian shall pay to Cree Microwave, Inc. a total of $5,000,000 (five million dollars) (the “Settlement Payment”) in cash. The Settlement Payment shall be paid by wire transfer, to an account designated by Cree Microwave, Inc., within five days of the Effective Date.

2. Provided that the Settlement Payment is paid to Cree Microwave, Inc. within five days of the Effective Date, then as of the Effective Date, Cree and Spectrian, along with their respective affiliates, subsidiaries, attorneys, insurers, reinsurers, predecessors, successors, directors, officers, parents, subsidiaries, employees and assigns, release and forever discharge each other and their respective affiliates, subsidiaries, attorneys, insurers, reinsurers, predecessors, successors, directors, officers, parents, subsidiaries, employees and assigns, from all claims arising from or in any way relating to the Purchase and Supply Agreement, except as set forth in Paragraph 3 herein. For purposes of clarity, and without limiting the foregoing in any way, the Parties acknowledge that the release set forth in this Paragraph 2 includes but is not limited to: (i) all claims referenced in Cree’s letter to Spectrian dated September 25, 2002 indicating its intent to arbitrate; (ii) all claims referenced in Spectrian’s letter to Cree dated September 30, 2002 responding to Cree’s September 25 letter; (iii) the remaining Minimum Commitment for the periods after September 30, 2002 of approximately $11.3 million; (iv) any and all Minimum Commitments not already purchased for all periods prior to September 30, 2002; and (v) any previously existing obligation on the part of Spectrian under the Purchase and

SETTLEMENT AGREEMENT AND RELEASE 2

Supply Agreement to use, purchase, or qualify any Cree Microwave or UltraRF products, including but not limited to LDMOS 8, LDMOS 8.5 30-watt or 125-watt parts.

3. The Parties agree that the Purchase and Supply Agreement shall be terminated as of the Effective Date, provided that the Settlement Payment is paid to Cree Microwave, Inc. within five days of the Effective Date. Article V (including the warranties set forth in Schedules 5.1 and 5.2), Article VI, and Article VII of the Purchase and Supply Agreement shall survive termination. Notwithstanding anything else in this Agreement, any claims arising from or relating to Articles V and VII of the Purchase and Supply Agreement shall be preserved, and are not waived or released. Any purchase of products by Spectrian from Cree Microwave, Inc. after termination of the Purchase and Supply Agreement shall instead be governed by the terms set forth in the Volume Purchase Agreement executed concurrently herewith, so long as the Volume Purchase Agreement remains in effect, unless otherwise mutually agreed in writing by the Parties.

4. In consideration of and subject to its receipt of the Settlement Payment, and as of the Effective Date, Cree and its affiliates, subsidiaries, attorneys, insurers, reinsurers, predecessors, successors, directors, officers, parents, subsidiaries, employees and assigns release and forever discharge Spectrian and its affiliates, subsidiaries, attorneys, insurers, reinsurers, predecessors, successors, directors, officers, parents, subsidiaries, employees and assigns from all claims arising from or relating to the representations and warranties made by Spectrian in the Asset Purchase Agreement, with the exception of the representations and warranties set forth in Sections 5.18 and 5.20 thereof. Any claims arising from the representations and warranties set forth in Sections 5.18 and 5.20 of the Asset Purchase Agreement shall survive this Agreement

SETTLEMENT AGREEMENT AND RELEASE 3

and are not released. Cree acknowledges and agrees that, as of the Effective Date, it is not aware of any breaches of the representations and warranties made by Spectrian in Sections 5.18 and 5.20 of the Asset Purchase Agreement.

5. Spectrian acknowledges that Cree’s LDMOS 8 family of products has successfully passed Cree’s internal process and reliability qualification tests and the Parties will include such acknowledgment in a mutually acceptable form in the press release contemplated by Paragraph 20.

6. The Parties expressly waive and relinquish any and all rights and benefits they now have or may have in the future under the terms of Section 1542 of the Civil Code of the State of California, which section reads in full as follows: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.” The Parties being aware of said Code Section, hereby expressly, knowingly and intentionally waive any rights they may have thereunder, as well as any other statute or common law of similar effect. The Parties and each of them understand and acknowledge the significance of this specific waiver of California Civil Code Section 1542, and thereby assume full responsibility for any damages or losses that they have incurred or hereafter incur in connection with the facts and claims which are the subject of the releases as set forth in Paragraphs 2,3, and 4 above.

SETTLEMENT AGREEMENT AND RELEASE 4

7. Each Party understands that if the facts with respect to which this Agreement is executed are found hereafter to be other than or different from the facts now believed by them to be true, the Parties expressly accept and assume the risk of such possible differences in facts and agree that this Agreement shall be and remain effective notwithstanding such difference in facts.

8. Each Party denies any liability for all claims against it referenced in this Agreement and this compromise and settlement thereof shall never be treated as an admission of liability or responsibility for such claims at any time for any purpose.

9. Each party hereto declares that its decision in executing this Agreement is not predicated on, or influenced by, any declaration or representation of any other party hereto, but solely on the conditions, covenants, and agreements contained or referred to in this Agreement.

10. The undersigned Parties each warrant and represent that it has the right and authority to execute this Agreement as to the claims, demands, obligations, or causes of action referred to in its release set forth in this Agreement; and that it has not sold, assigned, transferred, conveyed, or otherwise disposed of any of such claims, demands, obligations or causes of action and will not do so concurrently with the execution of this agreement or after its execution. It is agreed and acknowledged among the Parties that Spectrian’s execution on May 19, 2002 of an Agreement and Plan of Merger and Reorganization with REMEC, Inc., a California corporation, and Reef Acquisition Corp., a Delaware corporation, and its execution on October 29, 2002 of an amendment and restatement thereof, shall not be deemed contrary to Spectrian’s representations and warranties in this Paragraph 10.

SETTLEMENT AGREEMENT AND RELEASE 5

11. This Agreement shall inure to the benefit not only of the Parties, but also to each and every one of their respective agents, representatives, employees, attorneys and insurers, whether primary or excess, and also to the respective assigns and successors in interest of each Party.

12. This Agreement contains the entire agreement among the parties hereto relating to the subject matter within the scope of the release contained in this Agreement and is intended by the parties hereto to be the final and exclusive statement thereof. This Agreement shall not be construed as conferring on any party hereto, by implication, estoppel, or otherwise, any rights except the rights expressly granted herein. All prior or contemporaneous agreements, written or oral, among the parties hereto regarding the subject matter within the scope of the release contained in this Agreement are superseded by this Agreement, except for the Volume Purchase Agreement referenced above. This Agreement may not be modified except by written document signed by an authorized representative of each party hereto.

13. It is expressly understood and agreed that no promises or representations relating to the subject matter within the scope of the release contained in this Agreement shall be binding on any Party except as expressly provided herein.

14. All controversies, disputes or claims arising among the parties in connection with, or with respect to, any provision of this Agreement shall be submitted for arbitration in accordance with the rules of the American Arbitration Association or any successor thereof. Arbitration shall take place in Sunnyvale, California. Cree, on the one hand, and Spectrian, on the other hand, each shall select one independent arbitrator (who shall not be counsel for such

SETTLEMENT AGREEMENT AND RELEASE 6

party), and the two so designated shall select a third independent arbitrator. If either party shall fail to designate an arbitrator within seven calendar days after arbitration is commenced by filing a demand with the American Arbitration Association, or if the two arbitrators shall fail to select a third arbitrator within 14 calendar days after arbitration is commenced by filing a demand with the American Arbitration Association, then such arbitrator shall be selected by the American Arbitration Association or any successor thereto upon application of either party. Judgment upon any award of the majority of arbitrators shall be binding and may be entered in any court of competent jurisdiction. Subject to the provisions of this Agreement, the award of the arbitrators may grant any relief that a court of general jurisdiction has authority to grant, including, without limitation, an award of damages and/or injunctive relief. Nothing herein contained shall bar the right of any of the parties to seek temporary injunctive relief from a court of competent jurisdiction in accordance with applicable law against threatened conduct that will cause imminent loss or damage before relief can be obtained through the arbitration process.

15. No term of this Agreement shall be considered waived and no breach excused by any party hereto unless waived or excused in writing. No waiver or excuse of a breach by any party hereto, express or implied, shall constitute a waiver or excuse of any subsequent breach.

16. This Agreement shall be interpreted, enforced, and governed by and under the laws of the State of California, notwithstanding its choice of law rules.

17. The parties hereto acknowledge and agree that this Agreement may be executed in one or more counterparts, and that all such counterparts shall constitute one and the same Agreement. This Agreement may be executed by exchange of facsimile signatures to be

SETTLEMENT AGREEMENT AND RELEASE 7

followed with the originals being signed and exchanged by regular mail or courier, which facsimile signatures the parties hereto agree shall be deemed for all purposes as originals.

18. If any provision of this Agreement, or any portion thereof, is held invalid, illegal or unenforceable, that provision of the Agreement shall be enforced to the maximum extent permissible so as to effect the intention of the parties hereto, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.

19. The parties hereto agree to act in good faith in carrying out all of the terms of this Agreement.

20. The Parties agree to cooperate in the preparation of mutually acceptable press releases announcing the execution of this Agreement but shall otherwise make no public announcement or disclosure of the execution or terms of this Agreement without the written consent of the other Parties, except that a Party may, upon notice to the others Parties, make such public disclosures regarding this Agreement as, in the Opinion of counsel for such Party, are required by applicable securities laws.

SETTLEMENT AGREEMENT AND RELEASE 8

(Signature page to Settlement Agreement and Release)

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

Spectrian Corporation		Cree, Inc.
By:	/s/ Michael D. Angel	By:	/s/ M. Todd Tucker
	Michael D. Angel Executive Vice President, Finance and Administration, and Chief Financial Officer		M. Todd Tucker Executive Vice President, Operations
Date: November 15, 2002		Date: November 15, 2002

Cree Microwave, Inc.
By:	/s/ M. Todd Tucker
	M. Todd Tucker President
Date: November 15, 2002

SETTLEMENT AGREEMENT AND RELEASE 9

EX-10.19

EXHIBIT 10.19

DISTRIBUTORSHIP AGREEMENT

THIS AGREEMENT is made and entered into this the 5th day of April 2002 (the “Effective Date”) by and between CREE, INC., a corporation organized and existing under the laws of the State of North Carolina, U.S.A., having its principal place of business at 4600 Silicon Drive, Durham, North Carolina 27703 (“Manufacturer”), and SUMITOMO CORPORATION, a corporation organized and existing under the laws of Japan, having its principal place of business at [***], Tokyo 104-8610, Japan (“Distributor”).

Recitals

WHEREAS, Manufacturer is engaged in, among other things, the business of manufacturing and selling the products described herein; and

WHEREAS, Manufacturer desires to promote the sale of such products in the territories described herein; and

WHEREAS, Distributor is a trading company and desires to market and distribute the products in such territories, including having the exclusive right to distribute the products in Territory A, as defined below;

NOW, THEREFORE, the parties hereto, in consideration of the premises, covenants and undertakings herein contained, mutually agree as follows:

1. DEFINITIONS

1.1. For purposes of this Agreement, the capitalized terms defined below and elsewhere in this Agreement have the meaning so defined, and such definitions apply to both singular and plural forms:

(a) “Products” means both LED Products and Wafer Products.

(b) “LED Products” means visible or ultraviolet light emitting diodes (LEDs) in die form which are fabricated by or for Manufacturer using Group III-nitride materials on silicon carbide wafers and which Manufacturer makes generally available to customers for purchase during the term of this Agreement.

(c) “Wafer Products” means silicon carbide wafers, either without epitaxial layers or with silicon carbide epitaxial layers deposited thereon, made by or for Manufacturer and which Manufacturer makes generally available to customers for purchase during the term of this Agreement.

(d) “Territory A” means the country of Japan.

(e) “Territory B” means the countries of the Republic of China (Taiwan), the Republic of Singapore and the Republic of the Philippines.

(f) “Territory” means both of Territory A and Territory B.

(g) “Liaison Office” means the representative office to be established by Manufacturer, directly or through an Affiliate, in the Tokyo, Japan area pursuant to 6.1(b) of this Agreement.

(h) “Affiliate” of a designated person means any person which controls, is controlled by, or is under common control with the named person, whether directly or through one or more intermediaries, where “control” means possession of the

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.
Distributorship Agreement Dated April 5, 2002	Page 1

power to direct the management, operations or policies of the controlled person through stock ownership, contract or other arrangements.

1.2. For purposes of this Agreement, “person” shall be construed broadly to mean any individual, corporation, partnership or other legal entity.

2. TERM

2.1. Subject to Section 9.2, the term of this Agreement (the “Term”) shall extend for a period of three (3) years commencing June 23, 2002 and ending June 30, 2005, unless sooner terminated in accordance with the provisions of this Agreement. This Agreement will be legally binding on the parties when executed on behalf of both parties, notwithstanding the later commencement of the Term.

2.2. Subject to Section 9.2, the Term shall be renewed from year to year thereafter unless one party gives the other party a written notice electing not to renew this Agreement at least ninety (90) days prior to the expiration of the then existing term or any renewal thereof.

2.3. The parties acknowledge and agree that neither is obligated to continue its business relationship with the other after the effective date of any termination of this Agreement or the expiration date if this Agreement is not renewed.

3. DESIGNATION

3.1. Distributor will serve as the strategic partner and exclusive distributor of Manufacturer for distribution of Products in Territory A during the Term of this Agreement. Section 4.1 below defines the exclusive nature of Distributor’s appointment in Territory A.

3.2. Distributor will serve as a non-exclusive distributor for distribution of the Products in Territory B during the Term of this Agreement.

4. EXCLUSIVITY

4.1 During the Term of this Agreement and subject to Distributor’s compliance with its obligations in Section 5 below, except as permitted by Section 4.2 below and as otherwise provided in Sections 8.3 and 9.4 below, Manufacturer will not, without Distributor’s written consent, directly or through any Affiliate sell Products to any person other than Distributor for shipment by Manufacturer into Territory A. This Section 4.1 shall not be construed to restrict Manufacturer or its Affiliates from selling or authorizing the sale of Products to persons outside Territory A.

4.2 Manufacturer previously granted exclusive license rights for certain of its [***] Products in Territory A to [***] pursuant to the License and Technology Transfer Agreement dated September 30, 1996 between Manufacturer and [***] (The “License Agreement”). Beginning upon commencement of the Term of this Agreement and continuing through the expiration of the License Agreement on September 30, 2003, Manufacturer may sell Distributor such [***] Products only with [***] prior written approval, and Manufacturer shall not be obligated by this Agreement to sell such Products to Distributor if [***] approval cannot be obtained. The License Agreement does not restrict Distributor from selling such Products in its inventory that were purchased from Manufacturer prior to the commencement of the Term of this Agreement, or that are purchased during the Term hereof if such purchase is approved by [***] or is made after September 30, 2003. The License Agreement does not affect Manufacturer’s [***] Products, including its recently released MegaBright and XBright Products. In addition, Manufacturer committed to supply [***] certain [***] pursuant to a related Supply Agreement dated September 30, 1996 among Manufacturer, [***], Distributor and an Affiliate of Distributor (the “Supply

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Distributorship Agreement Dated April 5, 2002 Page 2

Agreement”) for use by [***] in [***] pursuant to the License Agreement. The sale by Manufacturer of [***] in accordance with the Supply Agreement shall not be restricted by this Agreement

5. DUTIES OF DISTRIBUTOR

5.1 Distributor agrees to perform and comply with the following during the Term of this Agreement:

(a) It will use its best efforts, to the fullest extent commercially reasonable, to promote the sale of the Products within the Territory through its sales and merchandising programs in order to obtain and sustain the maximum sales of Products in the Territory and will solicit orders for and sell the Products within the Territory.

(b) Distributor will furnish Manufacturer with reports on the following matters in writing not less frequently than the period shown, and promptly upon request at such other times as Manufacturer may request in writing, with the report to be delivered to Manufacturer and/or the Liaison Office as indicated below unless otherwise requested by Manufacturer:

Report	Frequency	Delivered To
General market situation for the Products in the Territory	[***]	Cree Japan
[***] -month forecast of anticipated sales of the Products	[***]	Cree Japan
Inventory on hand, including volume by Product type and assigned value	[***]	Cree Japan
Summary of meetings with customers and prospective customers, including current and anticipated Product applications by customer and quantity requirements	[***]	Cree Japan
Summary of significant customer inquiries	[***]	Cree Japan
Information, to the extent known, regarding the activities of competitors with respect to the Products in the Territory	[***]	Cree Japan

(c) In addition, in its role as the strategic partner of Manufacturer for distribution of the Products in Territory A, Distributor will cooperate with Manufacturer and the Liaison Office to establish, to the fullest practicable extent, a “transparent interface” between Manufacturer and customers for the Products such that the Liaison Office is kept fully informed of all developments relating to customers for the Products and that the Product sales and marketing efforts of Distributor are coordinated with the efforts of the Liaison Office. Without limiting the foregoing, upon request Distributor will make available to the Liaison Office copies of all quotes, invoices, customer correspondence and other records relating to the sale and marketing of the Products in Territory A.

(d) Distributor will at all times conduct its affairs under this Agreement in accordance with the highest standards of business ethics and propriety. It will comply with all applicable laws and regulations in performing its obligations under this Agreement and will apply for and obtain (at its own expense) all licenses and approvals necessary to perform its obligations hereunder except as provided in Section 12.2.

(e) Distributor will not, without Manufacturer’s prior written consent, sell or otherwise

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Distributorship Agreement Dated April 5, 2002 Page 3

distribute within the Territory [***], other than Products purchased from Manufacturer under this Agreement.

(f) It will not market, sell or otherwise distribute Products purchased under this Agreement outside the Territory except as may be authorized by Manufacturer in writing from time to time. Distributor will not, without Manufacturer’s prior written consent, which consent will not be unreasonably withheld, sell or otherwise distribute the Products purchased under this Agreement to a person other than an end user customer.

(g) It will appoint at least one employee within its organization to coordinate the performance of its responsibilities under this Agreement.

(h) Distributor shall be responsible for obtaining any required licenses, permits and other governmental approvals necessary for the export of Products from the United States and their import into the Territory, except as provided in Section 12.2, and will otherwise comply with all export and import laws and regulations applicable to its activities under this Agreement.

6. DUTIES OF MANUFACTURER

6.1 Subject to Section 4.2 above, Manufacturer agrees to use its best efforts, to the fullest extent commercially reasonable, to meet the requirements of Distributor for Products during the Term of this Agreement and to perform and comply with the following during the Term of this Agreement:

(a) Manufacturer shall [***] unless Distributor’s exclusivity with respect to such Product(s) is no longer in effect as otherwise provided in this Agreement.

(b) Manufacturer shall establish and maintain, either directly or through an Affiliate, a representative office in the Tokyo, Japan area (the “Liaison Office”), staffed by one or more full-time personnel, to provide support for sales of the Products in Territory A.

(c) Manufacturer shall furnish to Distributor, at no cost, such catalogues, specifications and technical data literature as Manufacturer makes available to its customers generally and shall provide the materials in such quantities as Distributor may reasonably request to support is sales of the Products in the Territory.

(d) Manufacturer will invite Distributor to participate in any discussions between the Liaison Office or Manufacturer and customers in Territory A concerning Products to be purchased in connection with this Agreement provided that Distributor agrees to be bound by the same restrictions on information disclosed in such discussions as the customer and in any event, such discussions will be subject to the provisions in Section 14 below.

(e) Subject to availability, Manufacturer shall supply Distributor Products in accordance with this Agreement in quantities adequate to the Distributor’s reasonable requirements for sales in the Territory. In the event orders for Products exceed Manufacturer’s ability to manufacture and deliver them, Manufacturer will allocate to the Distributor [***], which allocation Manufacturer shall determine in its sole discretion exercised in good faith; provided, however, that in no event shall Manufacturer treat the Distributor less favorably than it will

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Distributorship Agreement Dated April 5, 2002 Page 4

any of Manufacturer’s other customers for the Products in allocating such supply.

(f) Manufacturer shall provide training services to sales and service personnel of Distributor at the Liaison Office or at Manufacturer’s principal offices to such scope and extent as reasonably necessary for the Distributor to promote sales and service of the Products in the Territory. Nothing in this clause or elsewhere in this Agreement shall be construed to require Manufacturer to disclose proprietary and confidential information.

(g) Manufacturer shall be responsible for furnishing to Distributor [***] such packing material as may be reasonably required for re-packing Products received from Manufacturer for shipment to Distributor’s customers.

7. SALES OF PRODUCTS

7.1 All sales of the Products from Manufacturer to Distributor shall be made pursuant to written purchase orders submitted by Distributor to Manufacturer and accepted in writing by Manufacturer. Each order placed by Distributor and accepted by Manufacturer hereunder shall constitute an individual sales contract (each hereinafter an “Individual Contract”) and be subject to the following terms, except as may be otherwise mutually agreed in writing by the parties:

(a) Products shall be delivered F.O.B. Seller’s manufacturing facilities by delivery to a transportation company designated by Purchaser. Title and risk of loss shall pass to Distributor upon delivery to the transportation company. All transportation charges and expenses, including the cost of insurance against loss or damage in transit, shall be Distributor’s responsibility.

(b) Except for any warranty claim covered by Section 7.1(d) below, in the event any Product does not conform to the terms of the Individual Contract, the non-conformity will be reported in writing to Manufacturer as soon as possible. In the case of shipping damage or other non-conformity discoverable upon reasonable inspection (such as, by way of illustration, broken wafers and torn tape), the non-conformity shall in any event be reported in writing no later than [***] after the date Products are shipped by Manufacturer to Distributor. In all other cases, the non-conformity shall be reported in writing within [***] after shipment of the Product. Any non-conformity not reported as required by this Section shall be deemed waived.

(c) Manufacturer’s sole obligation with respect to Products determined to be non-conforming shall be, at its option, to replace the non-conforming Products [***] or to issue a credit memorandum to Distributor in the amount of the price paid for such Products. Credit memoranda issued under this Section 7.1(c) may be exchanged only to purchase additional Products from Manufacturer, and Manufacturer is not required to refund money pursuant to such credit memoranda. This Section 7.1(c) states the exclusive remedy of Distributor with respect to non-conforming Products, except as to any warranty claim covered by Section 7.1(d) below.

(d) Manufacturer warrants to Distributor that Products shipped hereunder will meet such specifications as have been expressly agreed to in writing by the parties hereto, provided the Products are used in accordance with the applicable specifications. This warranty is extended only to Distributor and does not constitute a warranty to either Distributor’s customers or other end-users or to any sub-distributor, [***]. All claims under this warranty must be reported in writing to Manufacturer (with such report accompanied by the Product claimed to be

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Distributorship Agreement Dated April 5, 2002 Page 5

defective, including die “package” in the case of Products sold in die form) as soon as possible, but in any event no later than [***] after the date Products are shipped by Manufacturer to Distributor and if not so reported, such claims shall be deemed waived. Manufacturer’s sole obligation with respect to Products determined not to meet the terms of this warranty shall be, at its option, to replace such Products or to issue a credit or refund to the purchaser in the amount of the price received by Manufacturer for such Products. This Section 7.1(d) states the exclusive remedy against Manufacturer with respect to breach of the warranty given herein or other alleged defects in Products. This Section 7.1(d) (as limited by Section 7.1(e) and other applicable terms and conditions of this Agreement) shall survive with full force and effect after the termination or expiration of this Agreement with respect to Products purchased prior to such termination or expiration.

(e) THE WARRANTY IN SECTION 7.1(d) IS IN LIEU OF ALL OTHER WARRANTIES RELATING TO THE PRODUCTS, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED, OR IMPOSED BY STATUTE OR OTHERWISE. ALL IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND MERCHANTABILITY, ARE EXPRESSLY DISCLAIMED BY MANUFACTURER. Distributor shall make no representations or warranties on behalf of the Manufacturer with respect to the Products or otherwise.

8. PRICES AND PAYMENT TERMS

8.1 Pricing for LED Products purchased under this Agreement will be determined as follows:

(a) The unit price payable by Distributor for LED Products will be [***]

(b) The initial “Resale Price” of LED Products shall be [***]. Manufacturer may, after consultation with Distributor, reduce its suggested Resale Price of a Product effective upon written notice to Distributor. In that event, [***]. In the event of a significant change in market conditions or in prices for products of a competitor of Manufacturer, the parties will review and discuss possible changes to the terms of this Agreement or the Resale Prices as needed to allow Distributor to offer its customers competitive prices [***].

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Distributorship Agreement Dated April 5, 2002 Page 6

8.2 Pricing for Wafer Products purchased under this Agreement will be determined as follows:

(a) The price payable by Distributor for Wafer Products will be [***]:

[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]

(b) [***]. Credit memoranda issued under this Section 8.2 may be exchanged only to purchase additional Products from Manufacturer, and Manufacturer is not required to refund money pursuant to such credit memoranda.

(c) If the cumulative Wafer Product orders by Distributor [***] do not equal or exceed [***], then, notwithstanding any language herein to the contrary, Manufacturer either directly or through any Affiliate shall be permitted to sell Wafer Products to any person for shipment by Manufacturer into Territory A.

8.3 All taxes, duties and the like now or hereafter imposed by any jurisdiction with respect to the sale, manufacture, delivery or transportation of Products (except income taxes of Manufacturer) will be for the account of Distributor, and if paid or required to be paid by Manufacturer, the amount thereof will be added to and become part of the price payable by Distributor.

8.4 Products will be invoiced upon shipment, and payment will be due [***]. Invoiced amounts not paid when due will accrue interest, at the lesser of [***] per annum or the maximum rate permitted by law, from the date of the invoice until the date paid. Payment shall be made in U.S. dollars by T/T remittance to an account designated by Manufacturer, without reduction for any currency exchange or other changes, except that Manufacturer and Distributor will share the risk of currency exchange rate fluctuations as follows.

(a) The unit price for shipped Products shall be adjusted by the applicable percentage below according to the value of the Average Exchange Rate (as defined below) calculated as of [***] and the value of the Base Rate (as defined below) in effect at the time of shipment:

Average Exchange Rate	Percentage Price Adjustment
Equal to or greater than Base Rate [***]	[***]
Less than Base Rate [***] and greater than Base Rate [***]	[***]
Equal to or less than Base Rate [***]	[***]

(b) The “Base Rate” means the Average Exchange Rate calculated as of the first day of the Term and adjusted each [***] thereafter to reflect the then current Average Exchange Rate. The “Average Exchange Rate” means the [***] -day average of the daily foreign exchange rate quotations by The Bank of Tokyo-Mitsubishi, Ltd. (the “Bank”) for buying and selling spot U.S. dollars by telegraphic transfer

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Distributorship Agreement Dated April 5, 2002 Page 7

against Japanese yen. For each date on which the Average Exchange Date is to be calculated, Distributor will provide to Manufacturer on such date the daily exchange rate quotations by the Bank during the applicable [***] -day period, which quotations must be verifiable by Manufacturer. In the event that the Bank ceases to make this information publicly available, the parties will mutually agree upon another source.

(c) Within fifteen (15) days after the end of Manufacturer’s fiscal month, Manufacturer will issue Distributor a credit or debit memorandum, as appropriate, reflecting all required price adjustments with respect to shipments made during the fiscal month. Credit memoranda issued under this Section 8.4 may be exchanged only to purchase additional Products from Manufacturer. Manufacturer is not required to refund money pursuant to a credit memorandum. Distributor will pay Manufacturer the amount of any debit memoranda in the same manner as invoices.

8.5 To protect Distributor against [***], if any, as it may incur on sales of LED Products purchased under this Agreement [***] a [***] Reserve [***] will be established and applied as follows:

(a) The [***] Reserve will be a balance denominated in U.S. dollars and calculated as set forth in this Section 8.5. The [***] Reserve will be credited with an amount equal to [***] the purchase price of all LED Products shipped to Distributor under this Agreement [***]. The [***] Reserve will be maintained on a rolling [***] basis [***]. Amounts credited [***] will expire and be deducted from [***] Reserve [***].

(b) [***]

(c) [***]

(d) [***]

(e) [***]

8.6 To protect Distributor against [***] a [***] Reserve [***] will be established and applied as follows:

(a) The [***] Reserve will be a balance denominated in U.S. dollars and calculated as set forth in this Section 8.6. At the end of each fiscal month, Manufacturer shall credit the Reserve with an amount equal to [***]. The [***] Reserve will be maintained on a rolling [***] basis [***] will expire and be deducted from the [***] Reserve [***].

(b) [***]

(c) [***]

(d) [***]

(e) [***]

8.7 The provisions in Sections 8.3 through 8.6 shall survive with full force and effect after the termination or expiration of this Agreement with respect to Products purchased prior to such termination or expiration provided that the provisions in Sections 8.5 and 8.6 shall only continue for so long as there is a balance in the applicable Reserve.

9. MINIMUM PURCHASE COMMITMENTS

9.1 Subject to this Section 9, Distributor shall purchase under this Agreement, during Manufacturer’s fiscal year ending June 29, 2003 (“FY03”), LED Products having an aggregate purchase price of at least $23,000,000 (US), of which not less than (a) $[***] (US) will be purchased in the fiscal quarter of Manufacturer ending September 29, 2002, (b) $[***] (US) will be purchased in the fiscal quarter of Manufacturer ending December 29, 2002, (c) $[***] (US) will be purchased in the fiscal quarter of Manufacturer ending March 30, 2003, and (d) $[***] (US) will be purchased in the fiscal quarter of Manufacturer ending June 29, 2003. Products purchased using credit memoranda issued under Sections 8.3 and 8.4 shall not be included for purposes of this Section 9.1.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Distributorship Agreement Dated April 5, 2002 Page 8

9.2 Beginning no later than the end of January of each year of the Term of this Agreement, the parties will discuss in good faith and seek to mutually agree upon a minimum purchase commitment for Products for the twelve months (12) of the Term of this Agreement beginning in July of that same year. If the parties have not agreed in writing on the minimum purchase commitment by [***] of such year, this Agreement will terminate on the next anniversary of the Effective Date notwithstanding the provisions in Sections 2.1 and 2.2 hereof.

9.3. Notwithstanding any language herein to the contrary, in no event shall Distributor be required to purchase any LED Products under this Section 9 if Distributor has in its inventory New Products (as defined below) valued at more than $[***] (US) (the “Inventory Cap”) or if such purchase would cause Distributor’s inventory of New Products to meet or exceed the Inventory Cap. If the full purchase commitment for a fiscal quarter would cause Distributor’s inventory of New Products to meet or exceed the Inventory Cap, the purchase commitment shall be reduced to the maximum amount allowable without causing Distributor to meet or exceed the Inventory Cap. “New Products” refers to LED Products shipped by Manufacturer to Distributor on or after [***]. [***] Effective as of the first day of Manufacturer’s fiscal year 2004 (i.e., June 30, 2003), the Inventory Cap will be [***]. Any further [***] the Inventory Cap will be negotiated in good faith by the parties.

9.4. If Distributor’s inventory of New Product meets or exceeds the Inventory Cap, Distributor may at its option terminate this Agreement by providing Manufacturer with [***] prior written notice, in which case Distributor shall not have any further purchase obligations for Products under Section 9.1 hereof beginning [***]. If, as a result of the above Inventory Cap provisions, Distributor has not purchased during any fiscal quarter beginning on or after September 30, 2002 an amount of LED Products equal to at least [***] percent ([***] %) of its original purchase commitment set forth in Section 9.1 above for such quarter , then Manufacturer may at its option terminate this Agreement by providing Distributor with [***] prior written notice, in which case Distributor shall not have any further purchase obligations for Products under Section 9.1 hereof beginning [***]. If this Agreement is terminated in accordance with the provisions of this Section 9.4, notwithstanding any language herein to the contrary, beginning [***], Manufacturer either directly or through any Affiliate or any third party shall be permitted to sell Products to any person for shipment by Manufacturer into Territory A.

10. ASSISTANCE OUTSIDE THE TERRITORY

10.1 Manufacturer may from time to time request that Distributor provide assistance, within Japan, in making sales outside of Japan to Affiliates of customers in Japan.

10.2 If Manufacturer makes a written request to Distributor that refers to this Section 10 and requests such assistance with respect to a designated Affiliate, and if Distributor provides the requested assistance, then, unless otherwise agreed in writing by the parties, [***].

10.3 Manufacturer will issue Distributor a credit memorandum within fifteen (15) days after the end of Manufacturer’s fiscal month reflecting the amount of any credit earned during the month under this Section 10. Credit memoranda issued under this Section 10 may be exchanged only to purchase additional Products from Manufacturer, and Manufacturer is not obligated to pay Distributor the amount of such credit memoranda.

11. TRADE NAMES AND TRADEMARKS

11.1 Distributor shall have the non-exclusive right to use the trade names and trademarks of Manufacturer in the promotion and sale of the Products under this Agreement until termination or expiration of this Agreement; provided, however, that Distributor may, even

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Distributorship Agreement Dated April 5, 2002 Page 9

after termination or expiration of this Agreement, use the trade names and trademarks of Manufacturer only in connection with the sale of the Products purchased from Manufacturer during the existence of this Agreement. Notwithstanding the foregoing, Manufacturer reserves the right to restrict any such use which is detrimental to the names or marks.

11.2 Distributor acknowledges that Manufacturer is the owner of its trade names and trademarks and that Manufacturer may obtain registrations of the same in jurisdictions within the Territory. Distributors shall not assign, sublicense or otherwise permit the use of such trade names and trademarks by third parties. Distributor shall at all times recognize, respect and protect Manufacturer’s ownership of any and all trademarks, trade names, trade secrets, copyrights, patents and know how of Manufacturer (collectively, Manufacturer’s “Intellectual Property”) in connection with the sale of Products in the Territory and shall not in any way derogate, diminish or weaken Manufacturer’s sole proprietary rights in said Intellectual Property. Should the law or regulations of any jurisdiction in the Territory invest Distributor with any proprietary rights to any of said Intellectual Property, Distributor shall promptly, freely and cooperatively relinquish to Manufacturer any and all such rights upon expiration or termination of this Agreement for any reason without recourse or cost to Manufacturer and shall thereafter refrain from any further usage of said Intellectual Property. Distributor shall execute any assignments or other documents necessary to relinquish fully said Intellectual Property to Manufacturer.

11.3 Distributor shall not remove, alter or obliterate any trade name or trademark affixed to the package of the Products, nor shall it add any other names or marks, except with the prior written consent of Manufacturer.

11.4 Distributor shall promptly notify Manufacturer of any and all infringements of Manufacturer’s Intellectual Property in connection with Products in the Territory that may come to Distributor’s attention and shall assist Manufacturer in taking such action against such infringement as Manufacturer in its discretion may decide, with all expenses and cost incident thereto being defrayed by Manufacturer.

11.5 Distributor shall not adopt any corporate name, assumed name, or “doing business as” name containing the word “CREE,” whether in English or any other language.

12. INDEMNITY

12.1 Manufacturer shall indemnify and hold harmless Distributor from and against [***] which are based on [***] provided, however, that Distributor shall in every instance refrain from making any admission of liability, shall give to Manufacturer prompt written notice of any claim made, shall assist in the defense of such claim in accordance with this Section 12, and shall refrain from proposing or entering into any compromise or settlement of such claim without the written consent of Manufacturer and, [***].

12.2 If any Products are determined to be infringing and their sale by a Distributor within the Territory permanently enjoined by a court of competent jurisdiction, pursuant to a final judgment not subject to further judicial review, Manufacturer, at its expense and without cost to Distributor, shall be obligated as follows [***].

12.3 Distributor shall indemnify and hold Manufacturer harmless from and against [***] provided, however, that Manufacturer shall in every instance refrain from making an admission of liability, shall give to Distributor prompt written notice of any claim made, shall assist in the defense of any such claim in accordance with this Section 12 and shall refrain from proposing or entering into any compromise or settlement of such claim without the written consent of Distributor.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Distributorship Agreement Dated April 5, 2002 Page 10

12.4 Manufacturer shall indemnify and hold harmless Distributor from and against [***] provided, however, that Distributor shall in every instance refrain from making any admission of liability, shall give to Manufacturer prompt written notice of any claim made, shall assist in the defense of such claim in accordance with this Section 12, and shall refrain from proposing or entering into any compromise or settlement of such claim without the written consent of Manufacturer.

12.5 Manufacturer shall have no obligation under this Section 12 with respect to any claim arising from [***].

12.6 The provisions of this Section 12 shall survive with full force and effect after the termination or expiration of this Agreement.

12.7 A party entitled to indemnification under this Section 12 (the “Indemnified Party”) shall permit the party required to provide indemnification (the “Indemnifying Party”) to participate in the defense of the claim and any litigation or other proceeding before any court or governmental agency based thereon, including investigation of the claim and any negotiations for compromise or settlement; shall promptly inform the Indemnifying Party of all developments relating thereto and furnish such information as the Indemnifying Party may reasonably request in connection therewith; and, [***], shall permit the Indemnifying Party at any time upon its request to assume control of the defense thereto. The Indemnified Party and the Indemnifying Party shall cooperate with each other in the defense, including investigation of the claim and any negotiations for compromise or settlement. [***].

13. LIMITATION OF LIABILITY; FORCE MAJEURE

13.1 Except as expressly provided otherwise in this Agreement, neither party to this Agreement shall be liable to the other, or to any other person or entity, for special, incidental or consequential damages [***], regardless of whether it has been advised of the possibility of such damages and notwithstanding the failure of any limited remedy provided in this Agreement to achieve its essential purpose.

13.2 Any other provision contained herein to the contrary notwithstanding, neither party shall be liable to the other for any delay or failure to perform any of its obligations under this Agreement caused by compliance with governmental regulations or directions, outbreak of a state of emergency, Act of God, war, warlike hostilities, civil commotions, riots, epidemics, storms, fires, strikes, lockouts, and any other cause or causes beyond the reasonable control of such party; [***].

14. CONFIDENTIALITY

14.1 The parties shall keep in strict confidence from any third party, and duly safeguard in the same manner as they safeguard their own like information, any and all proprietary and confidential business and technical information received from the other party concerning the business affairs and transactions covered by this Agreement, including, without limitation, all proprietary and confidential technical information received from Manufacturer or its Affiliates pertaining to the Products, and shall not at any time knowingly disclose such information to others or use such information for any purpose other than as permitted under this Agreement.

14.2 A party may disclose information subject to this Section 14 to its directors, officers, employees and advisors (collectively, “Representatives”) and to its Affiliates, if and to the extent the Representative or Affiliate has a need to know in connection with the performance or enforcement of this Agreement and is obligated to maintain the information in confidence in accordance with this Agreement. A party will be responsible

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Distributorship Agreement Dated April 5, 2002 Page 11

for any breach of this Section 14 by its Representatives or Affiliates.

14.3 Each party shall maintain information subject to this Section 14 in complete confidence until such time as it is publicly known through no act, omission or contribution of such party. Notwithstanding any prior expiration or termination of this Agreement, it is expressly understood that the provisions of this Section 14 shall survive with full force and effect until [***].

14.4 Notwithstanding the foregoing, any of the parties may disclose such information if required by laws, regulations or orders of the Government of Japan or the United States Government, or any of their competent agencies. In the event such disclosure is required by a party hereto, the party shall give written notice of such disclosure as soon as possible prior to making the disclosure.

14.5 Information shall be considered subject to this Section 14 only if it is disclosed: (i) in written or other tangible form and labeled or otherwise expressly identified as “confidential” or “proprietary” at the time of disclosure, or (ii) in oral form if expressly identified as “confidential” or “proprietary” at the time of disclosure and confirmed as such by written notice within thirty (30) days after the verbal disclosure. A party shall not be liable for use or disclosure of information under this Section 14 if the recipient demonstrates that the information was in the recipient’s possession at the time of its receipt hereunder and was not acquired, directly or indirectly, from the disclosing party, or if the recipient receives the information from a third party having the lawful right to disclose the same, or if the information is independently developed by the recipient without use of any confidential information received from the other party.

15. INDEPENDENT CONTRACTOR

15.1 The relationship created by this Agreement is that of seller and buyer, and not that of agency, partnership or employment. References in this Agreement to “strategic partner” are not intended to and shall not be construed to refer to the legal relationship among members of a partnership.

15.2 Distributor shall not represent itself to be an agent, partner or employee of Manufacturer for any purpose nor shall Distributor have any right or authority to bind Manufacturer or to assume any obligation or responsibility in the name of or on behalf of Manufacturer.

15.3 Manufacturer shall not represent itself to be an agent, partner or employee of Distributor for any purpose nor shall Manufacturer have any right or authority to bind Distributor or to assume any obligation or responsibility in the name of or on behalf of Distributor.

16. TERMINATION

16.1 Either party may terminate this Agreement by giving a written notice of termination to the other party:

(a) if the other party breaches any of the material provisions of this Agreement or any Individual Contract and does not cure the breach within [***], after a written notice is given by the non-breaching party requiring such party to cure the breach;

(b) if the other party becomes insolvent, or any voluntary or involuntary petition for bankruptcy or for corporate reorganization is filed by or against the other party, or a receiver is appointed with respect to any of the assets of the other party, or a liquidation proceeding is commenced by or against the other party; provided that, in the case of any involuntary petition or proceeding filed or commenced against a party, only if the same is not dismissed within sixty (60) days;

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Distributorship Agreement Dated April 5, 2002 Page 12

(c) if the whole or any substantial part of the business of the other party relating to this Agreement is transferred to a third party by agreement, order of court of otherwise; or

(d) if the whole or any substantial part of the ownership, control or management of the other party is changed.

16.2 Nothing in this Section 16 shall affect, be construed or operate as a waiver of any right of the party aggrieved by any breach of this Agreement to recover any loss or damage incurred as a result of such breach, either before or after the termination or non-renewal hereof.

16.3 No termination of this Agreement shall release either party from any liability or obligation which has theretofore accrued and remains to be performed as of the date of such termination.

16.4 Neither party to this Agreement shall be liable to the other by reason of any termination or non-renewal of this Agreement for compensation, reimbursement, or damages on account of any loss of prospective profits on anticipated sales or on account of expenditures, investments, or other commitments relating to the business or goodwill of any party.

17. AUTHORITY

Each party represents and warrants to the other that it has full corporate power and authority to enter into and perform this Agreement, and neither the execution nor performance of this Agreement violates or conflicts with any agreement, contract or covenant of such party with or in favor of any other person or entity.

18. AMENDMENT

This Agreement may not be amended except in a writing signed by authorized representatives of both parties. No oral explanation or oral information by any of the parties hereto shall alter the meaning or interpretation of this Agreement.

19. WAIVER

No waiver of any provision of this Agreement shall be effective unless made in writing and signed by an authorized representative of the party sought to be charged therewith. The failure of either party to enforce any provision of this Agreement shall not constitute or be construed as a waiver of such provision or of the right to enforce it at a later time.

20. SEVERABILITY

Every provision of this Agreement is intended to be severable so that if any provision hereof is unenforceable or invalid, for any reason whatsoever, such unenforceability or invalidity shall not affect the validity of the remainder of this Agreement.

21. ASSIGNMENT

This Agreement may not be assigned by either party without the prior written consent of the other, which consent shall not be unreasonably withheld. Any unauthorized attempt to assign shall be null and void. Notwithstanding the foregoing, either party may assign this Agreement without such consent to any Affiliate of such party or to any purchaser of all or substantially all assets of the assigning party used in the business of such party to which this Agreement relates. Any permitted assignee shall assume all obligations of its assignor under this Agreement. An assignment shall

Distributorship Agreement Dated April 5, 2002 Page 13

not relieve the assigning party of responsibility for the performance of its obligations hereunder. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assignees of the parties hereof.

22. GOVERNING LAW; ARBITRATION

This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, the United States. All disputes arising out of or relating to this Agreement or any breach thereof shall be settled exclusively by arbitration to be held in the City of New York, in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. The award of Arbitration rendered shall be final and binding upon both parties, and be enforceable by any court having jurisdiction. The arbitrators shall apply the internal laws of the State of New York, the United States, as specified above in determining the rights, obligations and liabilities of the parties and shall not have the power to alter, modify, amend, add to or subtract from any term or provision of this Agreement nor to rule upon or grant any extension, renewal or continuance of this Agreement, nor to award damages or other remedies expressly prohibited by this Agreement, nor to grant injunctive relief, including interim relief, of any nature, notwithstanding any contrary provisions of the Rules of Conciliation and Arbitration specified above. If, under applicable law, this arbitration provision is not enforceable as to a particular claim brought by one party against the other, then legal proceedings involving only that claim may be instituted solely in the United States District Court of the Eastern District of North Carolina or, if such court may not exercise jurisdiction, a court of the State of North Carolina. For all purposes of this Agreement, all parties hereby irrevocably consent to the jurisdiction of such court and waive any defense based on improper or inconvenient venue or lack of personal jurisdiction.

23. ENTIRE AGREEMENT

This Agreement sets forth the entire agreement between the parties hereto as to the subject matter hereof, and supersedes any and all prior agreements, understanding, arrangements, promises, representations, warranties, and/or any contracts of any form or nature whatsoever, whether oral or in writing and whether explicit or implicit, which may have been entered into prior to the execution hereof between the parties, their officers, directors, or employees as to the subject matter hereof. Neither of the parties hereto has relied upon any oral representation of the other party.

24. NOTICE

Any notice or communication required or permitted to be given by any party to the other pursuant to this Agreement shall be sent to such party’s address for notices set forth below the signature of that party below, shall be given by facsimile or by prepaid airmail post and shall be deemed to have been given upon receipt at the address of the party to whom addressed.

Distributorship Agreement Dated April 5, 2002 Page 14

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written.

CREE, INC.		SUMITOMO CORPORATION
By	/s/ [***]	By	/s/ [***]
	[***] [***]		[***] [***] [***]
Date	April 5, 2002	Date	April 5, 2002
Address for Notices		Address for Notices
CREE, INC. 4600 Silicon Drive Durham, NC 27703 USA Attention: [***] Fax: [***] With a copy to: General Counsel, Cree, Inc. 4600 Silicon Drive Durham, North Carolina 27703 Fax: [***]		SUMITOMO CORPORATION [***] Tokyo 104-8610 Japan [***] [***] [***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Distributorship Agreement Dated April 5, 2002 Page 15

EX-10.20

EXHIBIT 10.20

CONFIDENTIAL

March 14, 2003

[***]

[***]

[***]

Sumitomo Corporation

[***]

Tokyo 104-8610, Japan

[***]

Re: Annual Renewal of Distributorship Agreement

Dear Mr. [***]:

This letter will serve to document the following agreements and understandings reached between Sumitomo Corporation (“Sumitomo”) and Cree, Inc. (“Cree”) in connection with the annual renewal of the Distributorship Agreement dated April 5, 2002 between Cree and Sumitomo (the “Distributorship Agreement”):

1. Sumitomo’s purchase of LED Products from Cree pursuant to this letter agreement (“Letter Agreement”) will be subject to the terms and conditions of the Distributorship Agreement, except as otherwise modified as provided herein. Notwithstanding anything to the contrary in the Distributorship Agreement, in the event of a conflict between the terms and conditions of this Letter Agreement and those contained within the Distributorship Agreement, the terms and conditions of this Letter Agreement shall prevail. Except as expressly modified by this Letter Agreement, all other terms and conditions of the Distributorship Agreement shall remain unchanged and in full force and effect.

2. Pursuant to Section 9.1 and Section 9.2 of the Distributorship Agreement, Cree and Sumitomo agree that, subject to Sections 9.3 and 9.4 of the Distributorship Agreement, as amended hereby, during Cree’s fiscal year ending June 27, 2004 (“FY04”), Sumitomo shall purchase LED Products from Cree having an aggregate purchase price of at least $100,000,000 (US), of which not less than (a) $[***] (US) will be purchased in the fiscal quarter of Cree ending September 28, 2003 (the First Quarter”), (b) $[***] (US) will be purchased in the fiscal quarter of Cree ending December 28, 2003, (c) $[***] (US) will be purchased in the fiscal quarter of Cree ending March 28, 2004, and (d) $[***] (US) will be purchased in the fiscal quarter of Cree ending June 27, 2004. If LED Products ordered by Sumitomo are not shipped [***],

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

such LED Products will be deemed purchased [***] for the purpose of determining whether the purchase commitment for such quarter has been met, provided that (i) shipment of such LED Products is not delayed due to any cause attributable to Sumitomo, (ii) [***] and (iii) in no event shall shipment delays reduce Sumitomo’s aggregate purchase commitment hereunder. LED Products purchased using credit memoranda issued under Sections 7.1, 8.4 and 8.5 of the Distributorship Agreement will not be included for purposes of satisfying these purchase commitments. If during any fiscal quarter of FY04 Sumitomo purchases more than the amount specified above for such fiscal quarter, the excess purchase amount will be applied to reduce Sumitomo’s quarterly purchase commitments for FY04 [***]. If during any fiscal quarter Sumitomo’s inventory of LED Products meets or exceeds of the Inventory Cap (as defined below) and Sumitomo has not purchased an amount of LED Products equal to [***] of its original purchase commitments specified above in this Paragraph 2 for such fiscal quarter, Cree has a right to terminate the Distributorship Agreement in accordance with Section 9.4 of the Distributorship Agreement, as amended hereby. [***]. After the termination of the Distributorship Agreement, as amended hereby, for any reason, Sumitomo shall have the right to sell the LED Products then in its inventory pursuant to terms and conditions determined [***].

3. (a) On or before May 5, 2003, Sumitomo will issue to Cree a blanket purchase order (“Blanket PO”) pursuant to Section 7.1 of the Distributorship Agreement, as amended hereby, setting forth a purchase quantity of LED Products for the First Quarter equal to the amount of the purchase commitment for such quarter. Thereafter, Blanket POs for subsequent fiscal quarters will be issued by Sumitomo no later than [***] before the start of the quarter. Blanket POs are for billing and administrative purposes only and do not constitute a firm commitment by Sumitomo to purchase LED Products. Cree will reference the Blanket PO on its shipping and billing documents. If the aggregate purchase price of LED Products actually purchased by Sumitomo during a fiscal quarter (as provided below) is not equal to the quarterly purchase commitment, the Blanket PO for such quarter will be revised by Sumitomo to reflect the amount of LED Products actually purchased by Sumitomo.

(b) On or before May 5, 2003, Sumitomo will issue to Cree a [***]forecast of its LED Product requirements beginning as of [***] (the “Product Forecast”). The quantities indicated in the Product Forecast represent the number of units of each LED Product that Sumitomo requests to be shipped by Sunday of the stated week. The Product Forecast will be updated by Sumitomo [***]during the term of the Distributorship Agreement. The aggregate purchase price of LED Products requested for any fiscal quarter may not exceed [***] without Cree’s prior written approval of such increase. If Sumitomo fails to timely update the Product Forecast[***]the quantities for the new week of the rolling Product Forecast will be deemed to be zero unless and until advised otherwise. Subject to Sections 9.3 and 9.4 of the Distributorship

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Agreement, as amended hereby, the quantities and types of LED Products forecasted to be required within [***] (the “Firm Commitment Portion”) shall be firm and may not be modified by Sumitomo[***]. Cree is authorized to accept and ship LED Products against the Firm Commitment Portion of the Product Forecast unless Sumitomo has notified Cree that the Inventory Cap has been reached pursuant to Section 9.3 of the Distributorship Agreement, as amended hereby. Cree will target to ship in accordance with the Product Forecast all quantities and types of LED Products which have been a firm commitment for at least [***].

(c) In determining the quantity of LED Products to be included in the Firm Commitment Portion, Sumitomo will evaluate its Inventory (as defined in Paragraph 4 below), the Inventory Cap, the Firm Commitment Portion for the remainder of the fiscal quarter and the minimum purchase commitment for that fiscal quarter (“MPC”). [***]

(d) Notwithstanding the foregoing, Sumitomo’s purchase commitment in Paragraph 2 above is not conditioned upon its issuance of Blanket POs or Product Forecasts, and Cree makes no guarantee regarding shipment or delivery dates.

4. The parties agree that, beginning on the first day of Cree’s 2004 fiscal year (i.e., June 30, 2003) and continuing until otherwise mutually agreed, the Inventory Cap in Section 9.3 of the Distributorship Agreement will be [***]. For purposes of determining when Sumitomo’s inventory meets or exceeds the Inventory Cap, “Inventory” shall mean the aggregate value of all units of LED Products shipped by Cree to Sumitomo on or after [***] which are in Sumitomo’s inventory at the time of measurement.

5. Effective June 30, 2003, the second sentence in Section 9.3 of the Distributorship Agreement is hereby deleted in its entirety and replaced with the following:

“If shipment of a quantity of LED Products requested in a Product Forecast (as defined in the Letter Agreement between the parties dated March 14, 2003 (the “First Letter Agreement”)) would cause Distributor’s inventory of New Products to meet or exceed the Inventory Cap, Distributor must notify Manufacturer in writing [***] that it is invoking the Inventory Cap limitation and that some (the excess over the Inventory Cap) or all of such amounts in the Product Forecast should not be shipped as forecasted. [***] If Distributor is unable to meet the full purchase commitment for a fiscal quarter because of the Inventory Cap limitation, [***].”

6. Effective June 30, 2003, Section 9.4 of the Distributorship Agreement is hereby deleted in its entirety and replaced with the following:

“If Distributor’s inventory of New Products meets or exceeds the Inventory Cap, Distributor may at its option terminate this Agreement by providing Manufacturer with [***] prior written notice, in which case Distributor shall not have any further purchase obligations for Products under Section 9.1 hereof or Paragraph 2 of the First Letter Agreement, as applicable, [***]. If, as a result of the above Inventory Cap provisions,

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Distributor has not purchased during any fiscal quarter [***] an amount of LED Products equal to [***] of its original purchase commitment set forth in Section 9.1 or Paragraph 2 of the First Letter Agreement, as applicable [***], then Manufacturer may at its option terminate this Agreement by providing Distributor with [***] prior written notice, in which case Distributor shall not have any further purchase obligations for Products under Section 9.1 hereof or Paragraph 2 of the First Letter Agreement, as applicable, [***]. Such termination right of Manufacturer as provided above, shall be exercised by Manufacturer within [***]. If this Agreement is terminated in accordance with the provisions of this Section 9.4, notwithstanding any language herein to the contrary, [***] Manufacturer either directly or through any Affiliate or any third party shall be permitted to sell Products to any person for shipment by Manufacturer into Territory A.”

7. Notwithstanding the foregoing, in the event that Distributor’s ability to sell LED Products is substantially compromised as a direct result of [***], Sumitomo shall immediately notify Cree of such situation and, after such notification, the parties shall try to resolve the compromised situation in good faith or, if such resolution is not possible, [***].

8. (a) Notwithstanding the provisions in Section 8.2 of the Distributorship Agreement, as amended hereby, pricing for Wafer Products that are ordered pursuant to purchase orders placed on or after June 30, 2003 under the Distributorship Agreement, as amended hereby, will be determined in the following manner:

(i) The unit price payable by Distributor for Wafer Products will be [***].

(ii) The initial “Resale Price of Wafer Products” shall be [***]. Manufacturer may, after consultation with Distributor, reduce its suggested Resale Price of Wafer Products effective upon written notice to Distributor. In that event, [***]. In the event of a significant change in market conditions or in prices for products of a competitor of Manufacturer, the parties will review and discuss possible changes to the terms of the Distributorship Agreement, as amended hereby, this Letter Agreement and/or the Resale Price of Wafer Products, as needed, to allow Distributor to offer its customers competitive prices [***].

(b) In addition, Distributor will be entitled to a bonus at the end of each fiscal quarter of FY04 equal to [***]. Such bonus shall be paid only by issuance of a credit memorandum. Credit memoranda issued under this Paragraph 8 may be exchanged only to purchase additional Products from Manufacturer, and Manufacturer is not required to refund money pursuant to such credit memoranda. The [***] for earning bonuses in subsequent fiscal periods will be increased accordingly to take into consideration prevailing market conditions and Cree’s manufacturing capabilities.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

(c) Notwithstanding the foregoing, Section 8.2(c) of the Distributorship Agreement shall remain in full force and effect.

9. The Distributorship Agreement, as amended hereby, sets forth the entire agreement between the parties hereto as to the subject matter hereof, and supersedes any and all prior agreements, understandings, arrangements, promises, representations, warranties, and/or any contracts of any form or nature whatsoever, whether oral or in writing and whether explicit or implicit, which may have been entered into prior to the execution hereof between the parties, their officers, directors, or employees as to the subject matter hereof. Neither of the parties hereto has relied upon any oral representation of the other party.

If you are in agreement with the foregoing, please sign below on behalf of Sumitomo and return a copy of the signed letter by to my attention at 919-313-5558. When executed by both parties, this letter will serve as a binding agreement between Cree and Sumitomo with respect to the matters set forth above.

Very truly yours,

CREE, INC.

/s/ [***]

[***]

[***]

AGREED:
SUMITOMO CORPORATION
By:	/s/ [***]
	[***]
	[***]
Date:	March 14, 2003

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

EX-10.21

EXHIBIT 10.21

January 31, 1996

C3 Diamante, Inc.

3104 Hillsborough St., Suite 216

Raleigh, North Carolina 27607-5458

Attention: C. Eric Hunter, President

Re: Invention Relating to [***] for

Growth of Highly-Transparent Silicon Carbide Crystals

Gentlemen:

This letter will serve to evidence the agreement between C3 Diamante, Inc. (“C3”) and Cree Research, Inc. (“Cree”) concerning the invention made by Cree employees relating to [***] for growth of highly-transparent silicon carbide crystals (the “Invention”).

C3 and Cree have agreed as follows:

1. Cree and C3 will cooperate in the preparation, filing and prosecution of a U.S. patent application or applications claiming the Invention and applications in such foreign countries as may be mutually agreed. All applications filed claiming the Invention (the “Applications”), and all filings made in the prosecution of the Applications, will be subject to review and approval by the parties and their respective counsel prior to filing. All information disclosed by either party to the other party or its counsel in connection with the Applications will subject to the confidentiality provisions of the Exclusive Supply Agreement dated September 15, 1995 between C3 and Cree.

2. C3 will reimburse Cree for all fees and expenses of Cree’s counsel incurred in connection with the Applications and for all filing fees, issue fees, maintenance fees, annuities and other out-of-pocket expenses paid by on or behalf of Cree in connection with the preparation, filing and prosecution of the Applications and the maintenance of any patents issued thereon. C3 will be solely responsible for all fees and expenses of its own counsel.

3. Cree will grant C3 an irrevocable, royalty-free nonexclusive license, without the right to sublicense, to use the Invention to make, have made, use and sell gemstones of silicon

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

C3 Diamante, Inc.

January 31, 1996

Page 2

carbide. The license will be evidenced by a License Agreement reflecting the foregoing terms and such other provisions as are customary or may be mutually agreed. If the parties do not execute a License Agreement within 30 days from the date hereof, the license will be considered granted on the terms and conditions contained in this letter agreement.

If the foregoing accurately states our agreement, please have a copy of this letter agreement signed on behalf of C3 below and returned to Cree.

Very truly yours,

CREE RESEARCH, INC.

/s/ F. Neal Hunter

F. Neal Hunter, President

ACCEPTED AND AGREED TO:
C3 DIAMANTE, INC.
By:	/s/ Jeff Hunter
	Secretary/ Treasurer
Date:	1/31/96

EX-10.22

EXHIBIT 10.22

February 12, 1996

C3 Diamante, Inc.

3104 Hillsborough St., Suite 216

Raleigh, North Carolina 27607-5458

Attention: C. Eric Hunter, President

Re: Agreement Regarding Advanced Diamond Detector

Gentlemen:

This letter will serve to evidence the agreement between C3 Diamante, Inc. (“C3”) and Cree Research, Inc. (“Cree”) concerning the development of an advanced diamond tester conceived by C3, specifically, a device that distinguishes diamond from other materials by means of [***] testing (referred to below as the “Detector”).

C3 and Cree have agreed as follows:

1. Cree may from time to time provide engineering services as requested by C3 for the further development and testing of the Detector, including support for refining the optics and electronics associated with the device. C3 agrees to pay Cree a fee at an hourly rate for all engineering services so performed, together with any out-of-pocket expenses incurred in carrying out the work. The rate for the first [***] hours of work will be $[***] per hour; thereafter the rate will be Cree’s best rate for like services and quantities. Invoices for fees and expenses will be due within 30 days from the invoice date.

2. All information disclosed by either party to the other in connection with work under Paragraph 1 will be subject to the confidentiality provisions of the Exclusive Supply Agreement dated September 15, 1995 between C3 and Cree (the “Exclusive Supply Agreement”).

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

C3 Diamante, Inc.

February 12, 1996

Page 2

3. Cree agrees to assign to C3 all rights in any inventions, discoveries or improvements relating to the Detector that are conceived by Cree personnel, either alone or jointly with C3, in the course of performing any work under Paragraph 1.

4. Cree agrees to grant C3 the exclusive right to purchase from Cree [***] or emitter devices made from silicon carbide and/or [***] for use in gemstone analysis and verification equipment. C3 agrees to purchase 100% of its requirements for such silicon carbide and/or [***] devices from Cree at prices to be mutually agreed but not to exceed Cree’s current list price. The parties’ obligations under this paragraph will extend for a term of 20 years from the date of this letter agreement. As additional consideration to Cree, C3 agrees to pay Cree on a quarterly basis 2.5% of all net sales of the Detector by C3, its sublicensees and assignees during the period ending 20 years from the date of this letter agreement. The obligation to pay a percentage of net sales of the Detector is independent of whether Cree develops any inventions to be assigned to C3 under Paragraph 3 above. The parties agree to negotiate and enter into an amendment to the Exclusive Supply Agreement, or alternatively a new agreement, embodying the terms of this paragraph and such other provisions as may be customary or mutually agreed.

If the foregoing accurately states our agreement, please have a copy of this letter agreement signed on behalf of C3 below and returned to Cree.

Very truly yours,

CREE RESEARCH, INC.

/s/     F. NEAL HUNTER        

F. Neal Hunter,

President

ACCEPTED AND AGREED TO: C3 DIAMANTE, INC.
By:	/s/    C. ERIC HUNTER
	C. Eric Hunter, Its Authorized Agent
Date:	2/12/96

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

EX-10.23

EXHIBIT 10.23

AMENDED AND RESTATED EXCLUSIVE SUPPLY AGREEMENT

THIS AMENDED AND RESTATED EXCLUSIVE SUPPLY AGREEMENT (this “Agreement”) is made and entered into effective as of the 6th day of June, 1997, by and between CREE RESEARCH, INC. (“Cree”), a North Carolina corporation having its principal offices at 2810 Meridian Parkway, Suite 144, Durham, North Carolina, 27713, and C3, INC. (“C3”), a North Carolina corporation formerly known as C3 Diamante, Inc. and having its principal offices at P.O. Box 13533, Research Triangle Park, North Carolina 27709-3533.

Recitals

WHEREAS, Cree is engaged in the business of developing, manufacturing and selling silicon carbide (SiC) substrates and material for various electronic applications; and

WHEREAS, C3 intends to develop, manufacture and market gemstones fabricated from SiC material and desires to purchase such material from Cree; and

WHEREAS, Cree and C3 entered into an Exclusive Supply Agreement dated September 15, 1995 and a First Amendment to Exclusive Supply Agreement dated July 10, 1996 wherein Cree and C3 agreed, inter alia, for Cree to supply C3 SiC material and C3 agreed to purchase certain SiC material as provided therein; and

WHEREAS, Cree and C3 desire to amend and restate the Exclusive Supply Agreement, as amended as set out herein; and

WHEREAS, Cree and C3 shall simultaneously with the execution of this Agreement enter into a Development Agreement (the “Development Agreement”);

NOW, THEREFORE, the parties hereto, in consideration of the foregoing premises and the covenants and undertakings herein contained, mutually agree as follows:

1. Duties of C3

1.1 C3 agrees to purchase from Cree in each calendar quarter at least 50% (by dollar volume) of C3’s requirements for SiC material for the production of gemstones in each calendar quarter. A purchase shall be considered to be made on the shipment date requested by C3 in any order submitted by it and accepted by Cree, or as otherwise mutually agreed by C3 and Cree. C3 shall not be in breach of this Section 1.1 if the dollar volume of purchases by C3 in a given calendar quarter falls below such 50% due to Cree’s failure to accept orders requesting delivery in the quarter, provided that C3’s orders do not request delivery during the quarter for an aggregate number of boules in excess of the number delivered during the preceding quarter, plus a commercially reasonable increase (taking into consideration the time periods for capacity increases specified in Sections 1.6 and 1.7 which are intended to address capacity increases demanded for normal growth). C3 shall be obligated to purchase from Cree under this

Agreement, and Cree shall be obligated to sell to C3, only SiC material in colors available from Cree. As used in this Agreement, “colors available from Cree” means:

(a) SiC material in colors that result from standard processes Cree may from time to time employ for manufacturing SiC semiconductor material; and

(b) Transparent or nearly transparent SiC material that results from either the process claimed in U.S. Patent Application Serial No. 08/596,526 entitled “Growth of Colorless Silicon Carbide Crystals” or any other process using then standard crystal growth equipment and processes of Cree capable of producing transparent or nearly transparent SiC material, which processes are currently under development by Cree or as such processes may be developed by Cree from time to time. References in this Agreement to “transparent” and “nearly transparent” material are understood to mean colorless material (and vice versa) and references in this Agreement to “gemstones” are understood to mean “gems” (and vice versa).

As of June 6, 1997, the colors available from Cree are green, blue, amber, and colorless, with processes for significantly improved colorless material under development by Cree pursuant to the Development Agreement. Cree will give C3 written notice of the availability of other colors as they become available. Without limiting the foregoing, when Cree notifies C3 that it has developed a “Repeatable Process,” as defined in the Development Agreement, for producing SiC boules that meet specifications set forth in the Specifications and Timetable Chart in Section 1.3 of the Development Agreement, boules meeting such specifications shall be deemed standard products in colors available from Cree under this Agreement.

1.2 Should C3 require SiC material in a color other than the colors available from Cree, C3 will extend to Cree a right of first refusal with respect to the development, manufacture and sale of such material as provided in this paragraph. C3 agrees that it will not purchase such material from, or otherwise enter into any agreement for the development, manufacture or sale of such material with, any person or entity other than Cree except in compliance with this paragraph. C3 will give Cree written notice referencing this Section 1.2 setting out the terms of the proposed transaction and extending an offer to contract with Cree on such terms. If Cree does not accept such offer by written notice given within thirty (30) days after receipt of C3’s notice, C3 shall be free at any time within the next six (6) months after expiration of the thirty-day period to conclude the transaction with any third party, provided the terms are no more favorable to the supplier than those described in C3’s notice to Cree. If Cree accepts any offer from C3 under this paragraph, then notwithstanding anything to the contrary in such offer or herein, (i) all other terms and provisions of this Agreement relating to the purchase of SiC material for the production of gemstones not inconsistent with such offer shall apply to the development, manufacture and sale of such material as provided in this paragraph, and (ii) Cree shall have a perpetual, irrevocable, royalty-free, exclusive (including exclusive of C3) license to

use, manufacture, sell and otherwise practice (including the right to sublicense) any process or other work developed for C3 for all applications other than the manufacture of gemstones. The foregoing shall not be construed as an assignment or other transfer by Cree of any rights in any intellectual property. Development work performed by Cree pursuant to the Development Agreement shall be governed by the terms of such Development Agreement and not this Section 1.2.

1.3 C3 agrees to place orders that in the aggregate total a minimum purchase price to C3 of $10,000 for SiC material to be shipped before December 31, 1995.

1.4 C3 agrees that it will not, without Cree’s written consent, use any SiC material supplied by Cree as a seed for bulk crystal growth or for any purpose other than fabricating gemstones from such material. C3 further agrees that it will not, without Cree’s written consent, resell or otherwise transfer bulk SiC material supplied by Cree to any third party and that it will not, without Cree’s written consent, sell or otherwise transfer SiC gemstones fabricated from material supplied by Cree to any third party that C3 knows or has reason to believe intends to use the material as a seed for the growth of SiC.

1.5 C3 grants Cree a perpetual, irrevocable, royalty-free, exclusive (including exclusive of C3) license to use, manufacture, sell and otherwise practice (including the right to sublicense), for electronic applications only, any inventions developed by employees of C3 or acquired by C3 during the term of this Agreement which relate to SiC or gallium nitride (GaN) material, including without limitation inventions relating to bulk crystal growth, cutting or polishing of SiC or GaN material.

1.6. For so long as Cree has more than [***] but less than [***] crystal growth systems in use for the production of SiC material under this Agreement, if the order and delivery requirements from C3 exceed the capacity of the crystal growth systems then being used by Cree for the production of SiC material under this Agreement, then Cree shall notify C3. C3 may elect to either (i) reduce the order size or extend the delivery schedule so as not to require additional crystal growth systems or (ii) upon submission to Cree of a written request and the binding commitment of C3 to purchase a minimum of six (6) months’ output from such crystal growth system(s) (and subject to the condition that specifications for any processes under development have been established), require Cree to provide the additional crystal growth system(s), up to a total of [***] systems needed to meet the order and delivery requirements of C3. Any such additional crystal growth systems provided under this Section 1.6 (up to a total of [***] systems) shall be provided by Cree at its expense within four months after receipt of such written request from C3.

1.7 If the order and delivery requirements from C3 exceed the capacity of [***] crystal growth systems, then Cree may, but shall not be obligated to, notify C3 of a request for additional capital equipment to supply such capacity.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

(a) Cree shall provide written notice to C3 identifying the particular system or systems to be constructed for which funding is required and an estimate of the cost for all work as set out in this Section 1.7.

(b) C3 may elect to either (i) reduce the order size or extend the delivery schedule so as not to require additional crystal growth systems or (ii) purchase the designated system or systems from Cree at Cree’s cost. Systems purchased by C3 are referred to below as the “Purchased Equipment” and shall be provided by Cree within four months after receipt of C3’s election. C3 will loan the Purchased Equipment back to Cree.

(c) Cree will use the Purchased Equipment exclusively for the production of SiC material for C3, except that from time to time Cree may give 7 days prior written notice to C3 of available production time for the Purchased Equipment, and if C3 does not by the end of such 7-day period demonstrate an immediate need for use of the Purchased Equipment, then Cree will be free to use the Purchased Equipment for other purposes until the Purchased Equipment is next required to meet C3’s orders under this Agreement.

(d) The price to be paid by C3 for the Purchased Equipment will include all labor and material costs incurred by Cree in the construction of the systems purchased, plus reasonable overhead, and will specifically include, without limitation, all costs of piping, electrical and mechanical systems required for the operation of the Purchased Equipment. Cree will be responsible solely for costs of providing light industrial shell space (i.e., space upfit with only lay-in lighting, drop ceiling, sprinklers, tile floor and walls).

(e) Cree will invoice C3 on a monthly basis for all costs to be paid by C3 during construction of a system designated to be purchased by C3. Any costs not previously billed will be invoiced to C3 once the Purchased Equipment is placed in service. Amounts invoiced under this paragraph will be due within thirty (30) days from the date of invoice.

(f) Upon payment of C3 of all costs incurred in the construction of Purchased Equipment, Cree will execute and deliver to C3 an

assignment transferring title to such system to C3, subject to reservation of a security interest in favor of Cree as provided below.

(g) Purchased Equipment will at all times remain at Cree’s facilities. C3 shall not sell or otherwise transfer to any third party any rights in or to any Purchased Equipment and shall at all times keep such Purchased Equipment free and clear of any claim, lien or other encumbrance, other than the security interest in favor of Cree. C3 acknowledges that the Purchased Equipment embodies confidential and proprietary information of Cree and shall at all times remain in Cree’s possession and control, notwithstanding any ownership interest of C3.

(h) Cree hereby reserves, and C3 hereby grants to Cree, a security interest in and to all Purchase Equipment, including all accessions thereto and replacements thereof and all parts and supplies associated therewith. This security interest secures the performance by C3 of the obligations owed to Cree, arising under this Agreement. If C3 attempts to sell or otherwise transfer to any third party any rights in or to any such property, or fails to keep the same free and clear of any claim, lien or other encumbrance in favor of any third party, C3 shall be deemed in default under this Agreement, and Cree shall have all of the rights and remedies afforded a secured party upon default by Chapter 25 of the North Carolina General Statutes. C3 agrees to execute and deliver to Cree, from time to time upon Cree’s request, appropriate financing statements for filing in the public records to evidence Cree’s security interest hereunder.

(i) Cree will, at its expense, maintain the Purchased Equipment in good operating condition. The Purchased Equipment shall be conspicuously marked as property of C3. Cree shall not sell or otherwise transfer to any third party any rights in or to any Purchased Equipment and shall at all times keep such Purchased Equipment free and clear of any claim, lien or other encumbrance in favor of any third party. Cree agrees to execute and deliver to C3, from time to time, upon C3’s request, appropriate financing statements for filing in the public records to evidence C3’s ownership of the Purchased Equipment. Cree shall not, however, be obligated to repair or replace any Purchased Equipment damaged as a result of fire, lightning, flood or other casualty of any

kind unless C3 or its insurer agrees to pay the cost of such repair or replacement.

(j) C3 will be responsible for and shall timely pay all property taxes due with respect to Purchased Equipment during the period of C3’s ownership thereof.

(k) C3 will transfer ownership of the Purchased Equipment to Cree, without charge, when such equipment is fully-depreciated. If ownership has not been transferred prior to the termination of this Agreement, (i) in the event this Agreement is terminated through no fault of Cree, upon such termination C3 shall transfer ownership of the Purchased Equipment to Cree without charge, or (ii) in the event this Agreement is terminated due to the breach of this Agreement by Cree, C3 shall transfer the Purchased Equipment to Cree and Cree shall pay to C3 the book value of the Purchased Equipment.

1.8 C3 shall not and shall cause its shareholders to not accept any payment, or enter into any contract or other arrangement, for the purpose of discontinuing or substantially curtailing its business of producing and selling gemstones other than in connection with a sale of its business (whether by stock sale, asset sale, merger or otherwise), subject to Section 6.5.

1.9 For the purpose of determining whether C3 has purchased at least 50% of its SiC material as provided in Section 1.1, the dollar value of SiC material required by C3 and not purchased from Cree shall be equal to:

(a) If the material is purchased from a person other than Cree, the purchase price of such material paid by C3; or

(b) If such material is produced by C3, an amount calculated using the price calculation as set forth in the first sentence of Section 2.2, as then used by Cree, using C3’s loaded manufacturing cost.

1.10 Upon the request of Cree, which request shall occur no more than twice per year, C3 shall, within two weeks of such request, provide non-binding projections regarding SiC material to be ordered hereunder.

1.11 C3 will give Cree written notice upon the purchase from anyone other than Cree, or producing for itself, any portion of its requirements of SiC material for the production of gemstones. Thereafter Cree shall have the right, at Cree’s expense, to have an independent public accounting firm reasonably acceptable to C3 audit C3’s purchases of SiC material for the

production of gemstones and the calculation of dollar value under Section 1.9. The audit shall be conducted during normal business hours and upon reasonable prior notice. The accounting firm conducting the audit shall be required to enter into a mutually acceptable nondisclosure agreement with C3 under which such firm will be obligated not to disclose any information obtained during the course of the audit, except that it may disclose to Cree its analysis of whether C3 has complied with its obligations under Section 1.1. The audit right under this paragraph may be exercised not more than once during any fiscal year of C3 and only with respect to calendar quarters ended within one year preceding the request for an audit. C3 shall provide reasonable assistance to the public accounting firm including, but not limited to, providing a schedule of purchases and the dollar value calculation under Section 1.9 (which shall provide reasonable detail, but not divulge proprietary or confidential information of C3, as to the calculation of loaded manufacturing costs), supporting analyses and any supporting source documentation reasonably required by the public accounting firm. Such accounting firm will audit and report to Cree on the schedule of purchases and the dollar value calculation under Section 1.9, but will not divulge to Cree any proprietary or confidential information (including but not limited to supporting schedules and source documentation) disclosed during the audit process.

2. Duties of Cree

2.1 Cree agrees to supply to C3, in accordance with C3’s orders from time to time submitted to and accepted by Cree in writing, such quantities of SiC material (“material sales grade” and scrap) as C3 is obligated to purchase from Cree under this Agreement for the purpose of developing and manufacturing gemstones. Cree shall be obligated to supply SiC material from the production capacity of [***] crystal growth systems and any growth systems purchased by Cree or C3 pursuant to Section 1.6 or Section 1.7 of this Agreement. Without limiting the foregoing, if Cree elects not to give notice under Section 1.7 above, Cree will obtain additional capacity to fill C3’s orders under this Agreement as promptly as commercially reasonable.

2.2 Cree agrees to provide “material sales grade” SiC material at its “loaded manufacturing cost” plus [***] and to provide reject (scrap) material at $[***] per crystal. Cree also agrees to cut the SiC material for a price equal to its loaded manufacturing cost plus [***], provided that the cutting utilizes Cree’s standard equipment and processes. All “material sales grade” material supplied by Cree under this Agreement shall be SiC crystals of the quality and defect density that Cree supplies as standard products to its SiC semiconductor wafer customers; provided, however, that transparent or nearly transparent SiC material shall be considered “material sales grade” if it is of the quality and defect density that results from either the process claimed in U.S. Patent Application Serial No. 08/596,526 entitled ‘Growth of Colorless Silicon Carbide Crystals’ as currently under development and as approved by C3 or by any other process using then standard Cree crystal growth equipment capable of producing transparent SiC material, as those processes are developed by Cree and as approved by C3. Cree will be

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

obligated to supply SiC material under this Agreement in cut form and in bulk crystal form, subject to compliance by C3 with the terms of Section 1.4 and the other terms of this Agreement.

2.3 For purposes of this Agreement,

(a) “Loaded manufacturing cost” shall be determined in accordance with Cree’s standard accounting practices using allocations, conditions and calculations no less favorable than those available to any other person or entity from Cree, and in all events “loaded manufacturing cost” shall exclude any costs and expenses related to capital equipment funding paid by C3 pursuant to Section 1.7 hereunder and costs related to the production of crystals that do not meet “minimum specifications,” as provided herein, or elsewhere if mutually agreed upon in writing by Cree and C3 in a document referencing this Section 2.3. The “minimum specifications” for colorless material shall be determined as set forth in Section 2.4 below.

(b) The loaded manufacturing cost applicable to an order will be Cree’s average loaded manufacturing cost (as determined in accordance with this Section 2.3) during the three (3) calendar months preceding the month in which the order is received by Cree.

(c) In manufacturing SiC material for sale to C3 under this Agreement, Cree agrees to employ substantially the same processes it employs in the manufacture of SiC material for semiconductor applications for the purpose of maximizing productivity and minimizing costs, except insofar as such processes may be modified for the production of transparent or nearly transparent SiC material or otherwise modified by mutual agreement. Cree shall use its best commercially reasonable efforts to incorporate into its production processes those advances obtained from work pursuant to the Development Agreement.

2.4 For the purposes of Section 2.3 above, “minimum specifications” for colorless SiC material means:

(a) Prior to such date as Cree notifies C3 that it has developed a “Repeatable Process,” as defined in the Development Agreement, for producing SiC boules that meet the specifications for January 1, 1998 set forth in the first row of the Specifications and Timetable Chart in Section 1.3 of the Development Agreement, no “minimum specifications” shall apply unless otherwise mutually agreed by the parties as provided in Section 2.3; and

(b) When Cree notifies C3 that it has developed a “Repeatable Process,” as defined in the Development Agreement, for producing SiC boules that meet the specifications for January 1, 1998 set forth in the first row of the Specifications and Timetable Chart in Section 1.3 of the Development Agreement, “minimum specifications” shall mean a [***] or larger diameter crystal with at least a [***] slice comprised of material in the color grade range of GHIJ, with no less than [***] in the GH range, or better, according to the standards generally accepted by the diamond industry for color using pregraded master color stones (it being understood that while the minimum specifications do not require the absence of inclusions, blemishes or other defects affecting clarity, Cree shall use its best commercially reasonable efforts to minimize such defects since such defects can have an impact on the color grade); and

(c) On the first day of the calendar month immediately following each anniversary of the date Cree notifies C3 it has achieved the specification as stated in Subsection (b) above, the “minimum specifications” shall be revised to require that each boule contain a contiguous volume of material (with a minimum height of [***]) in the GHIJ range, with no less than [***] in the GH range, or better, according to the standards generally accepted by the diamond industry for color using pregraded master color stones, with such volume equal to at least [***] of the average volume of such material contained in all boules that met the minimum specifications over the previous twelve months (the “Minimum Specifications Adjustment”) (it being understood that while the minimum specifications do not require the absence of inclusions, blemishes or other defects affecting clarity, Cree shall use its best commercially reasonable efforts to minimize such defects since such defects can have an impact on the color grade). However, the minimum specifications shall never decrease from the previous period. A Minimum Specifications Adjustment shall occur each year for so long as C3 continues funding SiC material development at Cree in an amount not less than C3 funded during the previous twelve month period. No Minimum Specifications Adjustment will occur if such funding requirement is not fulfilled.

2.5 Should the price to C3 for production SiC boules calculated pursuant to Section 2.2 become $[***] per cubic millimeter for SiC boules having a contiguous volume of material of at least [***] cubic millimeters of colorless material with a minimum height of [***] in the

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

comparable diamond color grade range of GHIJ, with no less than [***] in the GH range, in each case in accordance with the standards generally accepted by the diamond industry for color using pregraded master color stones (it being understood that while the minimum specifications do not require the absence of inclusions, blemishes or other defects affecting clarity, Cree shall use its best commercially reasonable efforts to minimize such defects since such defects can have an impact on the color grade), notwithstanding the provisions of Section 2.2 hereof, the price to C3 for such boules shall not drop to less than [***] per cubic millimeter, except to the extent that such price yields to Cree an amount in excess of Cree’s loaded manufacturing cost plus [***].

2.6 Upon the request of C3, which request shall occur no more than twice per year, Cree shall, within two weeks of such request, provide non-binding updated projections regarding the cost of SiC material to be supplied hereunder.

2.7 Cree is under no obligation to share any technical information regarding crystal growth technology and/or crystal growth processes with any C3 personnel.

2.8 C3 shall have the right, at its expense, to have an independent public accounting firm reasonably acceptable to Cree audit Cree’s loaded manufacturing cost determination and the price to be paid by C3 under Section 1.7 for the Purchased Equipment. The audit shall be conducted during normal business hours and upon reasonable prior notice. The accounting firm conducting the audit shall be required to enter into a mutually acceptable nondisclosure agreement with Cree under which such firm will be obligated not to disclose any information obtained during the course of the audit, except that it may disclose to C3 its analysis of the correctness of the loaded manufacturing cost as calculated by Cree. The audit right under this paragraph may be exercised not more than once during any fiscal year of Cree and only with respect to costs applicable to shipments made within one year preceding the request for an audit. Cree shall provide reasonable assistance to the public accounting firm, including but not limited to, providing a schedule of the loaded manufacturing costs (which shall provide reasonable detail, but not divulge proprietary or confidential information of Cree, as to the calculation of loaded manufacturing costs), supporting analyses and any supporting source documentation reasonably required by the public accounting firm. Such accounting firm will audit and report to C3 on the schedule of loaded manufacturing costs, but will not divulge to C3 any proprietary or confidential information (including but not limited to supporting schedules and source documentation) disclosed during the audit process.

2.9 During the term of this Agreement, Cree shall not sell SiC material or crystals in any form to any customer other than C3 if Cree knows or has reason to believe such customer intends to use such material for the purpose of fabricating, distributing or selling gemstones.

2.10 Notwithstanding Section 2.9, if C3 has not placed orders to purchase SiC material from Cree having a combined purchase price to C3 of at least $100,000 by April 15, 1998, with shipment of such quantity to be made not later than July 15, 1998, this Agreement shall become

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

non-exclusive and Cree shall be free to sell SiC material to others for use in the fabrication of gemstones.

3. Term and Termination

3.1 The term of this Agreement shall extend for ten (10) years beginning July 15, 1995, unless sooner terminated in accordance with Section 3.3 or by written mutual consent of both parties.

3.2 If C3 submits and Cree accepts orders to purchase SiC material having an aggregate purchase price in excess of $1,000,000 for delivery during any thirty-six (36) consecutive months, then C3 and Cree shall each have an option to extend this Agreement for one (1) additional term of ten (10) years. Such option shall become exercisable at such time as the volume purchase condition specified in the preceding sentence has been satisfied and may be exercised by written notice given at any time thereafter prior to expiration of the initial ten-year term.

3.3 In the event of a material breach by either party of any obligation to the other party, whether arising under this Agreement or otherwise, the other party may terminate this Agreement upon written notice if the breach is not cured within thirty (30) days after giving written notice to the party in breach setting out the nature of the breach in reasonable detail.

4. Terms and Conditions of Purchase

4.1 All orders under this Agreement shall be submitted to Cree in writing. Cree will advise C3 in writing within ten (10 ) days after receipt of each order whether Cree accepts the order. If not accepted within such 10-day period the order will be deemed rejected.

4.2 C3 shall submit all orders at least thirty (30) days prior to the requested shipping date. Subject to the foregoing, Cree shall use all reasonable efforts to ship standard products on or before the date requested by C3 in its order, but will not be obligated to make delivery under any order earlier than forty-five (45) days after receipt of the order. Lead times for non-standard products shall be subject to mutual agreement.

4.3 Cree shall invoice C3 upon shipment of each order. Payment of each invoice is due within thirty (30) days after the invoice date. Any portion of any invoice not paid when due will accrue interest until paid at the rate of 1.5% per month or, if less, the maximum rate permitted by law. Until receipt of payment for each shipment Cree reserves a security interest in such shipment to secure the purchase price and all taxes and shipping and other expenses relating to such shipment. In the event of default in payment of any invoice, C3 agrees to pay Cree’s expenses, including reasonable attorney’s fees and expenses, incurred in enforcing payment thereof.

4.4 All applicable sales, use and other taxes with respect to purchases under this Agreement (other than taxes on Cree’s net income) will be invoiced to and paid by C3.

4.5 All shipping expenses, including insurance against loss or damage in transit, will be invoiced to and paid by C3.

4.6 Material shall be shipped F.O.B. Cree’s manufacturing facilities to any U.S. location designated by C3. Subject to Cree’s reserved security interest, title and risk of loss shall pass to C3 upon delivery to the carrier at the shipping point.

4.7 Cree shall not be liable for or be in default of this Agreement for any delay in delivery or failure to perform due to strike, lockout, riot, war, fire, act of God, accident, delays caused by any subcontractor or supplier or by C3, technical difficulties, failure or breakdown of machinery or components necessary to order completion, inability to obtain or substantial rises in the price of labor or materials or manufacturing facilities, curtailment of or failure to obtain sufficient electrical or other energy supplies, or compliance with any law, regulation, order or direction, whether valid or invalid, of any governmental authority or instrumentality thereof, or due to any unforeseen circumstances or any causes beyond its control, whether similar or dissimilar to the foregoing and whether or not foreseen. C3 agrees that such delay in delivery or failure to deliver or perform any part of this Agreement shall not be grounds to terminate or refuse to comply with any provisions hereof and no penalty of any kind shall be effective against Cree for delay or failure; provided, however, that if the delay or failure extends beyond six (6) months from the originally scheduled date either party may, with written notice to the other, terminate this Agreement without further liability.

4.8 All standard “material sales grade” products supplied by Cree under this Agreement shall conform to Cree’s published specifications for such products in effect at the time of shipment. Non-conforming products shall be replaced by Cree upon return of the defective product, if such product is returned within 90 days after shipment; such replacement shall be C3’s sole remedy for breach of the foregoing warranty. All scrap material and non-standard products supplied under this Agreement will be supplied “AS IS.” EXCEPT AS PROVIDED ABOVE, CREE MAKES NO WARRANTY OF ANY KIND WITH RESPECT TO ANY MATERIAL SUPPLIED HEREUNDER AND DISCLAIMS ANY IMPLIED WARRANTIES, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT OF PATENT OR SIMILAR RIGHTS.

4.9 In no event shall either party be liable to the other for incidental, consequential or special loss or damages of any kind, however caused, or any punitive damages.

5. Confidential Information; Joint Inventions and Nonsolicitation

5.1 “Confidential Information” for purposes of this Agreement means any information, not generally known in the relevant trade or industry, which was obtained from the other party or which falls within any of the following categories:

(a) information constituting trade secrets, including but not limited to internal costs and margins;

(b) information relating to existing or contemplated products, services, technology, designs, processes, formula, computer systems, computer software, algorithms, media and research or development.

(c) information relating to the business of the party, including but not limited to, business plans, sales or marketing methods, methods of doing business, customer lists, customer usages and/or requirements, and supplier information; or

(d) information marked “Confidential” or “Proprietary.”

5.2 Each party agrees that the other shall not be liable hereunder for disclosure or use of any information which it establishes, by legally sufficient evidence:

(a) was already known to the receiving party at the time of receipt; or

(b) was rightfully obtained from a third party without similar restriction and through no wrongful act of the receiving party; or

(c) was at the time of receipt generally available to the public or thereafter becomes so available without breach hereof; or

(d) was used or disclosed with the prior written authorization of the owner; or

(e) was disclosed pursuant to the requirement or request of a governmental agency, which disclosure cannot be made in confidence, or the disclosure of which was required by law or judicial order; provided that, in such instance, the disclosing party shall first give the other notice of such requirement or request.

5.3 Each party agrees to keep the Confidential Information of the other in the strictest confidence, in the manner set forth below:

(a) The receiving party shall not, directly or indirectly, disclose, divulge, reveal, report or transfer the Confidential Information to any third party or to any individual employee other than an employee having a need to know.

(b) The receiving party shall not use any Confidential Information or the concepts therein for its own benefit or for the benefit of a third party or for any purpose other than the purposes authorized in writing by the disclosing party.

(c) Any tangible materials which are or which contain any Confidential Information shall be kept confidential in accordance with the terms hereof, and all such materials shall be returned or destroyed upon satisfaction of the purpose for which such material was originally provided or upon the earlier request of the disclosing party.

(d) The receiving party agrees to use at least the same degree of care to protect the other party’s Confidential Information as it uses to protect its own Confidential Information.

5.4 Each party shall appropriately notify each employee, agent or consultant to whom any disclosure of received Confidential Information is made and shall obtain their agreement that they will maintain Confidential Information in confidence in accordance with the provisions set forth herein. Each party represents and warrants to the others that its employees, agents and consultants to whom any disclosure of received Confidential Information is made shall be subject to a valid, binding and enforceable agreement to maintain such Confidential Information in confidence in accordance with the provisions set forth herein.

5.5 Except as expressly provided herein or in other written agreements between the parties, neither party shall have any obligation of confidentiality with respect to information received from the other. The obligations of confidentiality set forth in this Section 5 shall continue for so long as the Confidential Information continues to come within the definition thereof set forth in Section 5.1 and shall survive the expiration or any termination of this Agreement.

5.6 Nothing in this Agreement is or shall be construed to require either party to disclose proprietary or confidential information to the other. The parties agree that the terms of this Agreement shall be treated as Confidential Information of each other subject to Section 5;

provided, however, that either party may, upon notice to the other, make such public disclosures regarding this Agreement as in the opinion of counsel for such party are required by applicable securities laws or regulations or other applicable law.

5.7 The parties will mutually agree on patenting procedures for any inventions made jointly by employees of both parties during the term of this Agreement. The parties do not presently anticipate that any such joint inventions will be made under either this Agreement or the Development Agreement.

5.8 Notwithstanding the ultimate determination of ownership, the invention known by the parties as the “post faceting process” and any improvements made thereon by either party during the term of this Agreement shall be licensed to the nonowning party as follows:

(a) If to C3, a perpetual, irrevocable, royalty-free, exclusive (including exclusive of Cree, except Cree shall have the right to use and practice the invention to manufacture or process material for C3) license to use, manufacture, sell and otherwise practice (including the right to sublicense) the invention and any improvement exclusively for gemstones and gemological instrumentation; or

(b) If to Cree, a perpetual, irrevocable, royalty-free, exclusive (including exclusive of C3) license to use, manufacture, sell and otherwise practice (including the right to sublicense) the invention and any improvement exclusively for electronic applications.

For all other uses and application, each party shall have full rights to use, manufacture, sell and otherwise practice the invention and any improvement, but neither party may sublicense any such use, manufacture, sale or practice.

5.9 Each party agrees that during the term of this Agreement, without the prior written consent of the other party, it will not employ or otherwise engage the services (as a consultant or in any other capacity) of any individual who within one (1) year prior to being so engaged served as an employee of the other party, or as a consultant to the other party providing services, in the case of Cree, relating to bulk growth of SiC or GaN material or the processing of such material (including without limitation, wafering and polishing), or, in the case of C3, relating to gemstones or gemological instrumentation.

6. General

6.1 This Agreement (which includes any Exhibits referenced herein), constitutes the complete and exclusive statement of the understanding and agreement of the parties with respect to the subject matter hereof and supersedes all prior written or oral agreements between the parties concerning such subject matter (including without limitation the Exclusive Distribution Agreement dated June 6, 1995 between Cree and C. Eric Hunter, to which C3 succeeded by assignment). This Agreement shall not be amended, modified or altered except pursuant to a document signed by both parties.

6.2 This Agreement is made in and shall be construed in accordance with and governed by the laws of the State of North Carolina.

6.3 Neither party shall permit any “Affiliate” of such party (as defined below) to act or fail to take action when such action or failure to take action, if by the party, would be a breach of this Agreement. Pursuant to but without limiting the foregoing, purchases of SiC material by Affiliates of C3 will be considered purchases by C3 for purposes of Section 1 of this Agreement and sale of SiC material by Affiliates of Cree shall be considered sales by Cree for purposes of Section 2.9 of this Agreement. For purposes of this Agreement, “Affiliate” of a designated party means any corporation, partnership, limited liability company or other business entity which: (a) controls, is controlled by, or is under common control with the designated party, whether directly or through one or more intermediaries; and (b) is sublicensed by either party under Section 5.8 of this Agreement, by Cree under Section 1.5 of this Agreement, or by C3 under Section 4.2 of the Development Agreement. For purposes of this definition “controlled” and “control” mean ownership of more than fifty percent (50%) of the voting capital stock or other interest having voting rights with respect to the election of the board of directors or similar governing authority. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and permitted assigns.

6.4 The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted.

6.5 Neither this Agreement nor any rights hereunder may be assigned by either party without the other party’s prior written consent, which consent shall not be unreasonably withheld except that either party may, in its sole discretion, withhold consent to assignment to any Prohibited Assignee (as defined below). Any attempted assignment in violation of this Section 6.5 is void and shall constitute a breach of this Agreement. “Prohibited Assignee” means (i) De Beers or any corporation, partnership or other entity or individual which in the reasonable belief of Cree is affiliated with the De Beers, and the Central Selling Organization, (ii) any party whose primary business is the development, manufacture, marketing or sale of diamond gemstones or (iii) any non-gemstone and non-jewelry industry competitor of the non-assigning party. A grant

by C3 to a Prohibited Assignee of exclusive rights to distribute or market moissanite gemstones shall be an assignment for purposes of this Section 6.5.

The occurrence of any Change in Control (as defined below) with respect to a transaction with a Prohibited Assignee involving a party shall be deemed an “assignment” of this Agreement by such party, subject to the provisions of this Section 6.5. A “Change in Control” shall be deemed to have occurred with respect to a party if:

(a) any person or group (as that term is used in Section 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended), together with all affiliates of such person or group, becomes the beneficial owner of more than 50% of the outstanding capital stock of that party, and such person or group was not, at June 15, 1996, the beneficial owner of more than 50% of the outstanding capital stock of that party and is not an employee benefit plan sponsored or maintained by that party; or

(b) that party merges or consolidates with or into another corporation, or sells or otherwise disposes of all or substantially all of its assets, except as part of a reorganization in which the shareholders owning more than 50% of the outstanding capital stock of that party immediately prior to the effectiveness of the merger, consolidation or sale own more than 50% of the outstanding capital stock of the successor purchaser (as the case may be) immediately after the effectiveness of such event.

6.6 Neither party shall issue any press release or otherwise make any public announcement concerning this Agreement without the prior consent of the other party, except as may be required by law. Neither party shall use the name of the other party in any advertising, marketing or similar material without the other party’s prior written consent.

6.7 The parties acknowledge and agree that in the event of a breach of the Agreement, in addition to any other rights and remedies available to it at law or otherwise, the parties shall be entitled to seek equitable relief in the form of a temporary restraining order (“TRO”) from any court of competent jurisdiction; provided however, that in the event a TRO is obtained, the parties shall request that any hearing on the merits of the dispute shall be stayed pending arbitration of the dispute as provided in this Section 6.7. In the event a party seeks a TRO or in the event of any other controversy or claim (including, without limitation, any claim based on negligence, misrepresentation, strict liability or other basis) arising out of or relating to this Agreement or its performance or breach, a party shall give the other party notice of the dispute, setting out the circumstance in reasonable detail, and requesting a meeting of the representatives of the parties to attempt to resolve the dispute or to reduce the scope of the issues subject to

dispute. The chief executive officers of the parties, and such other representatives as each may desire to have attend, shall meet at a mutually agreeable time within five business days from the date the meeting request was received and shall hold such meeting at the offices of the party not requesting the same, or at some mutually agreeable alternative location. In the event the parties do not resolve the dispute at such meeting, or any mutually agreed upon adjournment thereof, the dispute shall be settled exclusively by arbitration in the City of Raleigh, North Carolina pursuant to the expedited procedures of the Commercial Arbitration Rules of the American Arbitration Association (other than notice requirements which shall be as provided in Section 6.8 below and the expedited procedures for selection of arbitrators which shall be as provided in Sections 14 and 15 of such Rules) . There shall be three arbitrators, one selected by each of C3 and Cree and a third selected by the arbitrators selected by the parties. The arbitrators shall in no event make any damage award that contravenes Section 4.9 of this Agreement, but shall order the losing party to pay all of the charges of the American Arbitration Association for such arbitration and all of the prevailing party’s costs of the arbitration, including reasonable attorneys’ fees. In the event of a breach of this Agreement by a party, the arbitrators may award equitable relief against such party to the extent the nonbreaching party is entitled to such relief under applicable law. The decision in such arbitration shall be final and binding and judgment on any award rendered therein may be entered in any court having jurisdiction.

6.8 All notices under this Agreement shall be in writing and addressed to the other party at the address shown below or to such other address as the party may hereafter designate by notice under this Agreement. All notices so addressed shall be deemed given five (5) days after mailing if sent by certified mail, return receipt requested, postage prepaid, or when sent via facsimile if receipt is acknowledged in writing or otherwise when actually received.

IN WITNESS WHEREOF, the parties have executed this Agreement by and through their duly authorized representatives.

CREE RESEARCH, INC.		C3, INC.
By:	/s/ Charles M. Swoboda	By:	/s/ Jeff N. Hunter
	Charles M. Swoboda, Vice President and		Jeff N. Hunter, President
	Chief Operating Officer
Address for Notices:			Address for Notices:
Cree Research, Inc.			C3, Inc.
2810 Meridian Parkway, Suite 144			P.O. Box 13533
Durham, North Carolina 27713			Research Triangle Park, NC 27709-3533
Attention: President			Attention: President
Fax No. (919) 361-5415			Fax No.: (919) 468-0486

EX-10.24

EXHIBIT 10.24

July 14, 1997

C3, Inc.

One Dominion Drive, Suite 106

Morrisville. NC 25670

Re: Development Agreement Dated as of June 6, 1997 (the “Development Agreement”), and Amended and Restated Supply Agreement Dated as of June 6, 1997 (the “Supply Agreement”), between C3, Inc. and Cree Research, Inc.

Gentlemen:

This letter confirms the following representations made by, and understandings reached between, C3, Inc. (“C3”) and Cree Research, Inc. (“Cree”) in connection with the execution of the Development Agreement and Supply Agreement referenced above:

1. Notwithstanding any other provision of the Supply Agreement, the price to C3 for [***] diameter production silicon carbide (SIC) boules purchased under the Supply Agreement on an “as is” basis prior to July 1, 1998 shall not exceed [***] per boule, including the cost of removal of the seed.

2. For purposes of Section 5.8 of the Supply Agreement, “post Faceting process” means the process of oxidizing SiC gems after faceting in order to reduce the effects of cutting damage, using the methods developed before June 6, 1997, and “improvements” means any modification of such process useful for reducing the effects of cutting damage in SiC gems.

3. C3 acknowledges that it has not given Cree any notice under Section 1.2 of the Supply Agreement prior to the date of this letter.

4. C3 acknowledges and agrees that, except as provided otherwise in the letter agreements between C3 and Cree dated January 31, 1996, and February 12, 1996, the Assignment Agreement dated June 28, 1995 (as amended September 15, 1995), and Section 5.8 of the Supply Agreement, nothing in any agreement, purchase order or other arrangement between Cree and C3 gives C3 ownership rights in or any license with respect to any invention made or conceived by Cree personnel prior to the date hereof, whether alone by Cree personnel or jointly with Cree and C3 personnel.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

July 14, 1997

Page 2

5. Cree shall have [***] as the lead scientist (100% of his effort) for the work to be performed for C3 pursuant to the Development Agreement through June 30, 1998, provided that [***] remains an employee of Cree and C3 does not reduce its funding obligations under Section 2.3 of the Development Agreement.

6. C3 acknowledges that the license granted pursuant to the letter agreement between C3 and Cree dated January 31, 1996 does not include a license to any invention other than that claimed in U.S. Patent Application Serial No. 08/596,526, entitled “Growth of Colorless Silicon Carbide Crystals,” and, in particular, does not include a license to practice the methods claimed in U.S. Patent No. Re34,861, entitled “Sublimation of Silicon Carbide to Produce Large, Device Quality Single Crystals of Silicon Carbide.”

7. The contents of this letter shall be considered “Confidential Information” of each party subject to the provisions of Section 5 of the Supply Agreement.

If you agree that the foregoing accurately states our understanding regarding the subject matter addressed above, please indicate your agreement on behalf of C3 by signing below.

Very truly yours,
CREE RESEARCH, INC.
By:	/s/    CHARLES M. SWOBODA
	Charles M. Swoboda, Vice President and Chief Operating Officer

Agreed:
C3, INc.
By:	/s/    JEFF N. HUNTER
	Jeff N. Hunter, President

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

EX-10.25

EXHIBIT 10.25

July 14, 1997

C3, Inc.

One Dominion Drive, Suite 106

Morrisville. NC 25670

Re: Development Agreement Dated as of June 6, 1997 (the “Development Agreement”), and Amended and Restated Supply Agreement Dated as of June 6, 1997 (the “Supply Agreement”), between C3, Inc. and Cree Research, Inc.

Gentlemen:

This letter confirms the following representations made by, and understandings reached between, C3, Inc. (“C3”) and Cree Research, Inc. (“Cree”) in connection with the execution of the Development Agreement and Supply Agreement referenced above:

1. Notwithstanding any other provision of the Supply Agreement, the price to C3 for [***] diameter production silicon carbide (SIC) boules purchased under the Supply Agreement on an “as is” basis prior to July 1, 1998 shall not exceed [***] per boule, including the cost of removal of the seed.

2. C3 acknowledges that it has not given Cree any notice under Section 1.2 of the Supply Agreement prior to the date of this letter.

3. C3 acknowledges and agrees that, except as provided otherwise in the letter agreements between C3 and Cree dated January 31, 1996, and February 12, 1996, the Assignment Agreement dated June 28, 1995 (as amended September 15, 1995), and Section 5.8 of the Supply Agreement, nothing in any agreement, purchase order or other arrangement between Cree and C3 gives C3 ownership rights in or any license with respect to any invention made or conceived by Cree personnel prior to the date hereof, whether alone by Cree personnel or jointly with Cree and C3 personnel.

4. Cree shall have [***] as the lead scientist (100% of his effort) for the work to be performed for C3 pursuant to the Development Agreement through June 30, 1998, provided that [***] remains an employee of Cree and C3 does not reduce its funding obligations under Section 2.3 of the Development Agreement.

5. C3 acknowledges that the license granted pursuant to the letter agreement between C3 and Cree dated January 31, 1996 does not include a license to any invention other than that claimed in U.S. Patent Application Serial No. 08/596,526, entitled “Growth of Colorless Silicon Carbide Crystals,” and, in particular, does not include a license to practice the methods claimed in U.S. Patent No. Re34,861, entitled “Sublimation of Silicon Carbide to Produce Large, Device Quality Single Crystals of Silicon Carbide.”

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

July 14, 1997

Page 2

6. The contents of this letter shall be considered “Confidential Information” of each party subject to the provisions of Section 5 of the Supply Agreement.

If you agree that the foregoing accurately states our understanding regarding the subject matter addressed above, please indicate your agreement on behalf of C3 by signing below.

Very truly yours,
CREE RESEARCH, INC.
By:	/s/    CHARLES M. SWOBODA
	Charles M. Swoboda, Vice President and Chief Operating Officer

Agreed:
C3, INC.
By:	/s/    JEFF N. HUNTER
	Jeff N. Hunter, President

EX-10.26

EXHIBIT 10.26

August 5, 2002

Robert S. Thomas	Charles M. Swoboda
President & CEO	President & CEO
Charles & Colvard, Ltd.	Cree, Inc.
3800 Gateway Blvd. Suite 310	4600 Silicon Drive
Morrisville, NC 27560	Durham, NC 27703

This letter, when signed on behalf of Charles & Colvard, Ltd. (formerly C3 Inc.) and Cree, Inc., will serve as an agreement between Charles & Colvard and Cree amending the parties’ March 8, 2002 letter agreement to provide the following terms, effective on and after July 1, 2002. As defined in the March 8, 2002 letter agreement, the development agreement will expire upon Charles & Colvard’s purchasing the quantity of SiC production crystals specified in that agreement.

1. Cree will supply SiC production crystals to Charles & Colvard, and Charles & Colvard will purchase SiC production crystals from Cree, according to the terms stated in this agreement.

2. Charles & Colvard will purchase “usable material” (determined in the manner described in Paragraph 3) at a price of $[***] and according to the following quantities and schedule for the period of six months beginning July 1, 2002. Prices for purchases after calendar 2002 will be mutually agreed in writing from time to time.

Delivery Period	Quantity (kg)
7/1/02 – 9/29/02	[***]
9/30/02 – 12/29/02	[***]

Provided that Cree uses its best commercially reasonable efforts to deliver the quantities of usable material required by this agreement, Cree will not be held in breach for delays in delivery.

3. The quantity of “usable material” of crystals delivered to Charles & Colvard pursuant to this agreement will be determined according to the following:

A. Material will be graded according to specifications in Attachment A.

B. Grams of usable material will be calculated on a crystal by crystal basis according to the following equation: (usable mm) as a percent of total length of the crystal in mm multiplied by the actual weight of the crystal in grams. “Usable mm” means millimeters of usable material as defined in Attachment A.

C. Crystals shipped to Charles & Colvard must contain at least [***] grams of usable material for the 2” crystals or [***] grams for 3” crystals. This usable area must be contiguous. Crystal diameter to be shipped will be 2” or 3” as determined by Cree.

4. Charles & Colvard agrees to purchase a minimum of [***] of “usable material” (calculated in the manner described in Paragraph 3) each quarter during calendar 2003. For each quarter in calendar 2003 and thereafter, Charles & Colvard will provide Cree its minimum volume requirements in the form of firm purchase orders at least 30 days in advance of the quarter. For each quarter during the period beginning January 2003 and ending September 2007, in the event that (i) the minimum volume requirements of Charles & Colvard fall below [***] per quarter and (ii) Cree

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

has not utilized on a daily basis as described below, for production for Charles & Colvard or for other Cree production, at least [***] crystal growers designated by Cree for the production of materials for Charles & Colvard, then Charles & Colvard agrees to pay Cree an unused capacity charge for the under utilized portion such crystal growers, up to a maximum charge of $111,222 per quarter. The charge per grower will be calculated as the product of $[***] per day times the number of days during the quarter on which no production runs were started in the grower for production for Charles & Colvard or for other Cree production. Cree will invoice the unused capacity charge on a quarterly basis on or after the last business day of each quarter; payment is due 30 days after the invoice date. As used in this agreement, “quarter” refers to fiscal quarters of Cree ending during the indicated period.

5. Except as provided above, the supply and purchase of SiC material will be governed by the terms and conditions of the parties’ Supply Agreement, as amended.

6. The contents of this letter shall be considered “Confidential Information” of each party subject to the provisions of Section 5 of the Supply Agreement, as amended.

CHARLES & COLVARD, LTD.		CREE, INC.
By:	/s/    ROBERT S. THOMAS	By:	/s/    CHARLES M. SWOBODA
	Robert S. Thomas President & CEO Charles & Colvard Ltd.		Charles M. Swoboda President & CEO Cree, Inc.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT A

Specification of usable material as referenced in paragraph 2 above.

COLOR: Usable material is calculated as “light gray” or “very light gray”. Specifically tone/color number 20 and 10 ¹ as used in the Charles & Colvard boule-grading screen will be considered acceptable tone and color material (note: grade 10 is preferred. Grade 20 material will be valued at $[***] per-gram).

DEFECTS:

Material volume of acceptable color will be reduced by the percentage of the defects listed in the table below. Charles & Colvard shall set the acceptable standards for the quality of both the color and defects of all material purchased pursuant to this letter agreement. For pricing purposes the grading of the material by both Cree and Charles & Colvard will adhere to those standards from which a baseline has been established during the grading of 206 crystals during the first quarter of 2002. Should Charles & Colvard deem current standards or new defects unacceptable, then it can request changes to the standards or to the list of price reducing defects. At such time Cree has the option to make changes to its materials pricing and/or volume commitments.

ID	D-Type
1	[***]	Reduce
2	[***]	Reduce
3	[***]	Reduce
4	[***]	No reduction
5	[***]	Reduce
6	[***]	Reduce
7	[***]	No reduction
8	[***]	Reduce
9	[***]	Reduce

1 CH0257R 17.4mm tone/color 20 (lightest 20), new gray boules that are lighter than this will grade as 10, CE0269R 9.5mm tone/color 30 (lightest 30), new gray boules that are lighter than this will grade as 20

2 Grading standards representing [***]= CF0228R (30%med.), CF0229R (15%med.), CF0230R (50%med.), CE0270R (100%med.) & CE0264R (100%med.).

3 [***] are represented by boule numbers CF0226R, CH0257R, CH0258R, CH0260R, CH0262R, CJ0192R, CS0165R, CS0166R, CS0168R, CS0169R.

4 Crystals CC0213R, CH0165R and CH0215R represent [***] grading.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

EX-10.27

Exhibit 10.27

AWARD / CONTRACT		1. THIS CONTRACT IS A RATED ORDER UNDER DPAS (15 CFR 350)			è	RATING DO-C9(T)		PAGE  OF  PAGES 1                16
2. CONTRACT (PROC. INST. IDENT.) NO. N00014-02-C-0302		3. EFFECTIVE DATE SEE BLCOK 20C		4. REQUISITION / PURCHASE REQUEST / PROJECT NO. 02PR10530-00
5. ISSUED BY		CODE	N00014	6. ADMINISTERED BY (IF OTHER THAN ITEM 5)				CODE      S1103A
OFFICE OF NAVAL RESEARCH ONR 251: EVELYON T. FIELDS (703) 696-4515 BALLSTON TOWERS ONE 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660				DCM ATLANTA 805 WALKER STREET SUITE 1 MARIETTA, GA 30060-2789		SCD-C
7. NAME AND ADDRESS OF CONTRACTOR (NO., STREET, COUNTY, STATE AND ZIP CODE) CREE INC. 4600 SILICON DRIVE DURHAM, NC 27703						8. DELIVERY ¨ FOB Origin        ¨ Other (see below) 9. DISCOUNT FOR PROMPT DELIVERY N.A.
CAGE CODE    OC9J8			FACILITY CODE			10. SUBMIT INVOICES (4 COPIES UNLESS OTHERWISE SPECIFIED) TO THE ADDRESS SHOW IN        è		ITEM     See SECTION G
11. SHIP TO / MARK FOR PROGRAM OFFICER SEE SECTION F – DELIVERIES OR PERFORMANCE		CODE	N00014	12. PAYMENT WILL BE MADE BY DFAS COLUMBUS CENTER DFAS CO SOUTH ENTITLEMENT OPERATIONS PO BOX 182264 COLUMBUS OH 43218-2264				CODE      HQ0338
13. AUTHORITY FOR OTHER THAN FULL AND OPEN COMPETITION				14. ACCOUNTING AND APPROPRIATION DATA See Attached Financial Accounting Data Sheet
15A. ITEM NO.	15B. SUPPLIES/SERVICES See SECTION B of Schedule			15C. QUANTITY	15D. UNIT	15E. UNIT PRICE	15F. AMOUNT
				15G. TOTAL AMOUNT OF CONTRACT		è	$See SECTION B of Schedule

16. Table of Contents
	SEC	DESCRIPTION	PAGE(S)	(X)	SEC	DESCRIPTION	PAGE(S)
		PART I – THE SCHEDULE				PART II – CONTRACT CLAUSES
Ö	A	SOLICITATION/CONTRACT FORM	1	Ö	I	CONTRACT CLAUSES	9-16
Ö	B	SUPPLIES OR SERVICES AND PRICES/COSTS	2		PART III – LIST OF DOCUMENTS, EXHIBITS & ATTACHMENTS
Ö	C	DESCRIPTION/SPECS./WORK STATEMENT	2-3	Ö	J	LIST OF ATTACHMENTS	16
Ö	D	PACKAGING AND MARKING	3		PART IV – REPRESENTATIONS AND INSTRUCTIONS
Ö	E	INSPECTION AND ACCEPTANCE	3	Ö	K	REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS	16
Ö	F	DELIVERIES’ OR PERFORMANCE	3-4
Ö	G	CONTRACT ADMINISTRATION DATA	4-7		L	INSTRS., CONDS., AND NOTICES TO
Ö	H	SPECIAL CONTRACT REQUIREMENTS	7-9		M	EVALUATION FACTORS FOR AWARD

CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
17. x Contractor’s Negotiated Agreement (Contractor is required to sign this document and return 2 copies to issuing office). Contractor agrees to furnish and deliver all items or perform all services set forth or otherwise identified above and on any continuation sheets for the consideration stated herein. The rights and obligations of the parties to this contract shall be subject to and governed by the following documents: (a) this award/contract, (b) the solicitation, if any, and (c) such provisions, representations, certifications, and specifications, as are attached or incorporated by reference herein. (Attachments are listed herein.)		18. ¨ Award (Contractor is not required to sign this document). Your offer on solicitation Number             , including the additions or changes made by you which additions or changes are set forth in full above, is hereby accepted as to items listed above and on any continuation sheets. This award consummates the contract which consists of the following documents: (a) the Government’s solicitation and your other, and (b) this award/contract. No further contractual
19A. NAME AND TITLE OF SIGNER (TYPE OR PRINT) DENISE S. HOLLIDAY Contracts Manager		20A. NAME OF CONTRACTING OFFICER BONA TILAHUN Contracting Officer
19B. Name of Contractor	19C. Date Signed	20B. United States of America	20C. Date  Signed
by               /s/Denise S. Holliday	6/27/02	by                           /s/Bona Tilahun	6/28/02
(Signature of person authorized to sign)		(Signature of Contracting Officer)

NSN 7540-01-152-8069 Previous Editions unusable ConWrite Version 3.11 STANDARD FORM 26 (REV. 4-85) Prescribed by GSA FAR (48 CFR) 53.214(a))

SECTION B – SUPPLIES OR SERVICES AND PRICES/COSTS

BASE EFFORT
ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COSTS
0001	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.1 and C.2.	[***]	[***]	[***]
	000101: AA [***]
0002	Deliverables for Quarters 1-6 in accordance with Attachment Number 2			NSP
0003	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP

*Note: [***] out of the estimated contractor’s cost share amount of [***] represents a [***] discount on the projected price of the [***]. The [***] shall be used in support of this contract and charged at the current catalog price at the time of consumption less a [***] discount. Therefore, these items are not subject to a DCAA incurred cost audit.

OPTION EFFORT
ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COSTS
0004	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.1 and C.3.	[***]	[***]	[***]
0005	Deliverables for Quarters 7-8 in accordance with Attachment Number 2			NSP
0006	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP
TOTAL ESTIMATED CONTRACT CONSIDERATION:		[***]	[***]	[***]

SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT

1) The research effort to be performed hereunder shall be subject to the requirements and standards contained in Exhibit A and the following paragraph(s).

2) The Contractor shall conduct the base effort research in accordance with the base effort tasks on pages 1-2 of Attachment Number 1, entitled “3.A. Statement of Work First 18 months”. The contractor shall provide the deliverables described under Quarters 1-6 of Attachment Number 2 of the contract.

Contract Number: N00014-02-C-0302

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

2

3) The Contractor shall condition the option research effort in accordance with the optional tasks described on pages 3-4 of Attachment Number 1, entitled “3.A. Statement of Work Optional [***]”. The contractor shall provide the deliverables described under Quarters 7-8 of Attachment Number 2 of the contract.

SECTION D - PACKAGING AND MARKING

Preservation, packaging, packing and marking of all deliverable contract line items shall conform to normal commercial packing standards to assure safe delivery at destination.

SECTION E - INSPECTION AND ACCEPTANCE

Inspection and acceptance of the final delivery under this contract will be accomplished by the Program Officer designated in Section F of this contract, who shall have at least thirty (30) days after contractual delivery for acceptance.

SECTION F - DELIVERIES OR PERFORMANCE

1) The research effort performed under this contract shall be conducted during the period from the effective date (See Block 20C of the Standard Form 26) through eighteen (18) months thereafter. A final report will be prepared, submitted, reproduced and distributed by sixty days thereafter unless the contract is extended, in which case, the final report will be prepared in accordance with the terms of such extension.

a) Item No. 0002 of Section B (Deliverables) shall be delivered within the time periods stated in Attachment Number 2, F.O.B. Destination.

b) Item No. 0003 of Section B (Reports and Data) shall be delivered within the time periods stated in Exhibit A, F.O.B. Destination.

2) If the Option (OLIN 0004) is exercised, that research effort shall be conducted during the period from the date the option is exercised through [***] thereafter. A final report will be prepared, submitted, reproduced and distributed by sixty days thereafter unless the contract is extended, in which case, the final report will be prepared in accordance with the terms of such extension.

a) Item No. 0005 of Section B (Deliverables) shall be delivered within the time periods stated in Attachment Number 2, F.O.B. Destination.

b) Item No. 0006 of Section B (Reports and Data) shall be delivered within the time periods stated in Exhibit A, F.O.B. Destination.

3) Distribution, consignment and marking instructions for Deliverables 2, 3, 13, and 14 under OLIN 0002 and if the option is exercised, OLIN 0005, shall be in accordance with the following address. In addition, the Data Sheets required under these CLINS shall also be delivered to the Program Officer stated in paragraph 5.

Tri-Service Correlation Team

Attn: Thomas Jenkins

AFRL/SNDM, Bldg 620, Area B

2241 Avionics Circle, Rm C2G69

Wright-Patterson AFB OH 45433

Ref: Contract N00014-02-C-0302

Contract Number: N00014-02-C-0302

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

3

4) Distribution, consignment and marking instructions for Deliverables 1 and 4 through 13 under CLIN 0002 and if the option is exercised, CLIN 0005, shall be in accordance with the following address. In addition, the Data Sheets required under these CLINS shall also be delivered to the Program Officer stated in paragraph 5.

U.S. Army Research Laboratory

Attn: AMSRL-SE-DP / Scozzie

2800 Powder Mill Road

Adelphi, MD 20783-1197

Ref: Contract N00014-02-C-0302

5) Distribution, consignment and marking instructions for CLIN 0003 and if the option is exercised, CLIN 0006, shall be in accordance with Enclosure Number 1 and the following:

Program Officer

Office of Naval Research

Ballston Tower One

800 North Quincy Street

Arlington, Virginia 22217-5660

Attn: Dr. Harry Dietrich, Code 312, Telephone (703) 696-0240

Ref: Contract N00014-02-C-0302

SECTION G - CONTRACT ADMINISTRATION DATA

1.   NAPS 5252.232-9001 SUBMISSION OF INVOICES (COST REIMBURSEMENT, TIME-AND MATERIALS, LABOR-HOUR, OR FIXED PRICE INCENTIVE) (JUL 1992)

(a) “Invoice” as used in this clause includes contractor requests for interim payments using public vouchers (SF 1034) but does not include contractor requests for progress payments under fixed price incentive contracts.

(b) The Contractor shall submit invoices and any necessary supporting documentation, in an original and 4 copies, to the contract auditor at the following address:

Defense Contract Audit Agency

DCAA/MABO

P.O. Box 891

Arnold, MD 21012-0891

Telephone: (410) 260-5420

Fax: (410) 260-5986

unless delivery orders are applicable, in which case invoices will be segregated by individual order and submitted to the address specified in the order. In addition, an information copy shall be submitted to the Program Officer identified in Section F.2a of this contract. Following verification, the contract auditor* will forward the invoice to the designated payment office for payment in the amount determined to be owing, in accordance with the applicable payment (and fee) clause(s) of this contract.

(c) Invoices requesting interim payments shall be submitted no more than once every two weeks, unless another time period is specified in the Payments clause of this contract. For indefinite delivery type

Contract Number: N00014-02-C-0302

4

contracts, interim payment invoices shall be submitted no more than once every two weeks for each delivery order. There shall be a lapse of no more than 30 calendar days between performance and submission of an interim payment invoice.

(d) In addition to the information identified in the Prompt Payment clause herein, each invoice shall contain the following information, as applicable:

(1) Contract line item number (CLIN)

(2) Subline item number (SLIN)

(3) Accounting Classification Reference Number (ACRN)

(4) Payment terms

(5) Procuring activity

(6) Date supplies provided or services performed

(7) Costs incurred and allowable under the contract

(8) Vessel (e.g., hip, submarine or other craft) or system for which supply/service is provided.

(e) A DD Form 250, “Material Inspection and Receiving Report”,

¨ is required with each invoice submittal.

x is required only with the final Invoice.

¨ is not required.

(f) A Certificate of Performance

¨ shall be provided with each invoice submittal.

x is not required

(g) The Contractor’s final invoice shall be identified as such, and shall list all other invoices (if any) previously tendered under this contract.

(h) Costs of performance shall be segregated, accumulated and invoiced to the appropriate ACRN categories to the extent possible. When such segregation of costs by ACRN is not possible for invoices submitted with CLINS/SLINS with more than one ACRN, an allocation ratio shall be established in the same ratio as the obligations cited in the accounting data so that costs are allocated on a proportional basis.

2. Submission of Invoices Direct to Payment Office

a) Pursuant to DFARS 242.803(b)I)(C), if the cognizant Government auditor has notified the contractor of its authorization to do so, the contractor may submit interim vouchers under this contract direct to the payment office shown in Block 12 of SF-26 instead of to the address shown in subparagraph (b) of section G.1 above.

b) Such authorization does not extend to the first and final vouchers. The contractor shall continue to submit first vouchers to the cognizant auditor shown in subparagraph (b) of section G.1 above. The final voucher shall be submitted to the Administrative Contracting Officer (SF-26 block 6) with a copy to the cognizant auditor.

Contract Number: N00014-02-C-0302

5

3. Method of Payment

As consideration for the proper performance of the work and services required under this contract, the Contractor shall be paid as follows:

a) Costs, as provided for under the contract clause entitled “Allowable Cost and Payment,” not to exceed the amount set forth as “Estimated Cost” in Section B, subject to the contract clause entitled “Limitation of Cost” or “Limitation of Funds” whichever is applicable.

4. Procuring Office Representatives

a) In order to expedite administration of this contract, the Administrative Contracting Officer should direct inquiries to the appropriate office listed below. Please do not direct routine inquiries to the person listed in Item 20A on Standard Form 26.

Contract Negotiator	Evelyon T. Fields, ONR 251, (703).696-4515, DSN 426-4515
	E-Mail Address: fieldse@onr.navy.mil
Inspection and Acceptance -	Dr. Harry Dietrich, ONR 312, (703) 696-0240
	DSN 426-0240, E-Mail Address: dietrih@onr.navy.mil
Security Matters - Ms. Jennifer Ramsey, ONR 43, (703) 696-4618, DSN 426-4618
Patent Matters - Mr. Tom McDonnell, ONR OOCC, (703) 696-4000, DSN 426-4000.

b) The Administrative Contracting Officer will forward invention disclosures and reports directly to Corporate Counsel (Code OOCC), Office of Naval Research, Department of the Navy, Arlington, Virginia 22217-5660. The Corporate Counsel will return the reports along with a recommendation to the Administrative Contracting Officer. The Corporate Counsel will represent the Contracting Officer with regard to invention reporting matters arising under this contract.

5. Allotment of Funds

It is hereby understood and agreed that the Government’s share of this contract will not exceed a total amount of [***]. The total amount presently available for payment and allotted to this contract is [***]. It is estimated that the amount allotted of [***]will cover the period from the effective date of the contract (See date in Block 20C of the Standard Form 26) through eleven (11) months thereafter.

6. Consent to Subcontract and/or Hire Consultants

The services of the following subcontractors have been identified as necessary for the performance of this contract:

Identified Subcontactor	Estimated Cost Base	Estimated Cost Option
Case Western University	[***]	[***]
Carnegie Mellon University	[***]	[***]
Purdue University	[***]	[***]

Contract Number: N00014-02-C-0302

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

6

The preceding listing shall constitute the written consent of the Contracting Officer required by Paragraphs (c), (d) and (e) of the contract clause at FAR 52.244-2 entitled “Subcontracts”. The Contracting Officer’s written consent to subcontract is required for:

(i) services acquired under a cost-reimbursement, time-and-materials, or labor-hour type subcontract or agreement;

(ii) fixed price contracts that exceed the greater of [***] of the total estimated cost of the contract;

This consent is based upon the information submitted by the prime contractor in accordance with FAR 52.244-2 (f) (1) (i) through (vii).

7. Tvpe of Contract

This is a cost sharing (completion) contract.

SECTION H - SPECIAL CONTRACT REQUIREMENTS

1. ONR 5252.235-9714 REPORT PREPARATION (FEB 2002)

Scientific or technical reports prepared by the Contractor and deliverable under the terms of this contract will be prepared in accordance with format requirements contained in ANSI/NISO Z39.18-1995, Scientific and Technical Reports: Elements, Organization, and Design.

[NOTE: All NISO American National Standards are available as free, downloadable pdf(s) at http://www.niso.org/standards/index.html. NISO standards can also be purchased in hardcopy form from NISO Press Fulfillment, P. O. Box 451, Annapolis Junction, MD 20701-0451 USA. Telephone U.S. and Canada: (877) 736-6476; Outside the U.S. and Canada: 301-362-6904; Fax: 301-206-9789.]

2. ONR 5252.210-9708 METRICATION REQUIREMENTS (DEC 1988)

a) All scientific and technical reports delivered pursuant to the terms of this contract shall identify units of measurement in accordance with the international System of Units (SI) commonly referred to as the “Metric System”. Conversion to U.S. customary units may also be given where additional clarity is deemed necessary. Guidance for application of the metric system is contained in the American Society of Testing Materials document entitled “Standard Practice for Use of the International System of Units (The Modernized Metric System)” (ASTM Designation E 380-89A)

b) This provision also applies to journal article preprints, reprints, commercially published books or chapters of books, theses or dissertations submitted in lieu of a scientific and/or technical report.

3. Invention Disclosures and Reports

The Contractor shall submit all invention disclosures and reports required by the Patent Rights clause of this contract to the Administrative Contracting Officer.

Contract Number: N00014-02-C-0302

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

7

4. ONR 5252.242-9718 TECHNICAL DIRECTION (FEB 2002)

a) Performance of the work hereunder is subject to the technical direction of the Program Officer/COR designated in this contract, or duly authorized representative. For the purposes of this clause, technical direction includes the following:

1) Direction to the Contractor which shifts work emphasis between work areas or tasks, requires pursuit of certain lines of inquiry, fills in details or otherwise serves to accomplish the objectives described in the statement of work;

2) Guidelines to the Contractor which assist in the interpretation of drawings, specifications or technical portions of work description.

b) Technical direction must be within the general scope of work stated in the contract. Technical direction may not be used to.

1) Assign additional work under the contract;

2) Direct a change as defined in the contract clause entitled “Changes”;

3) Increase or decrease the estimated contract cost, the fixed fee, or the time required for contract performance; or

4) Change any of the terms, conditions or specifications of the contract.

c) The only individual authorized to in any way amend or modify any of the terms of this contract shall be the Contracting Officer. When, in the opinion of the Contractor, any technical direction calls for effort outside the scope of the contract or inconsistent with this special provision, the Contractor shall notify the Contracting Officer in writing within ten working days after its receipt. The Contractor shall not proceed with the work affected by the technical direction until the Contractor is notified by the Contracting Officer that the technical direction is within the scope of the contract.

d) Nothing in the foregoing paragraphs may be construed to excuse the Contractor from performing that portion of the work statement which is not affected by the disputed technical direction.

5. ONR 5252.237-9705 Key Personnel (DEC 88)

a) The Contractor agrees to assign to the contract tasks those persons whose resumes were submitted with its proposal and who are necessary to fulfill the requirements of the contract as “key personnel”. No substitutions may be made except in accordance with this clause.

b) The Contractor understands that during the first ninety (90) days of the contract performance period, no personnel substitutions will be permitted unless these substitutions are unavoidable because of the incumbent’s sudden illness, death or termination of employment. In any of these events, the Contractor shall promptly notify the Contracting Officer and provide the information described in paragraph (c) below. After the initial ninety (90) day period the Contractor must submit to the Contracting Officer all proposed substitutions, in writing, at least 30 days in advance (60 days if security clearance must be obtained) of any proposed substitution and provide the information required by paragraph (c) below.

Contract Number: N00014-02-C-0302

8

c) Any request for substitution must include a detailed explanation of the circumstances necessitating the proposed substitution, a resume for the proposed substitute, and any other information requested by the Contracting Officer. Any proposed substitute must have qualifications equal to or superior to the qualifications of the incumbent. The Contracting Officer or his/her authorized representative will evaluate such requests and promptly notify the Contractor in writing of his/her approval or disapproval thereof.

d) In the event that any of the identified key personnel cease to perform under the contract and the substitute is disapproved, the contract may be immediately terminated in accordance with the Termination clause of the contract.

Labor Category	Name of Key Person
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]

6. Controlled Unclassified Information

The parties understand that information and materials provided pursuant to or resulting from this contract may be export controlled, sensitive, for official use only, or otherwise protected by law, executive order or regulation. The Contractor is responsible for compliance with all applicable laws and regulations. Nothing in this Contract shall be construed to permit any disclosure in violation of those restrictions.

7. [***]  [***]

SECTION I - CONTRACT CLAUSES

Cost Sharing     (MAY 2002) (1)

Attention: Prime Contractors. If a subaward is made to an educational institution, Prime Contractors are directed to please refer to the ONR Mode .Award for appropriate flow-down clauses to universities. See http://www.onr.navy. mil. click Contracts & Grants Icon. Click Model Awards Link Click Section I clauses that flowdown to University subcontractors.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Contract Number: N00014-02-C-0302

9

(A) FAR 52.252-02 CLAUSE INCORPORATED BY REFERENCE FEB 1998)

This contract incorporates one or more clauses by reference, with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. Also, the full text of a clause may be accessed electronically at these addresses:

http://www.arnet.gov/far/

http://webl.deskbook.osd.mil/htmlfiles/DBY far.asp

http://web2.deskbook.osd.mil/htmlfiles/DBY dfars.asp

http://farsite.hill.af mil/farsite_script.html

For instance, a dollar threshold may trigger the applicability of the clause or a certain condition of the research may trigger the applicability of the clause. In order to provide some assistance, as to when a dollar threshold triggers a clause, we have associated certain symbols with dollar thresholds. The symbols and their appropriate dollar thresholds are as follows:

*	Applies when contract action exceeds $10,000
**	Applies when contract action exceeds $100,000
+	Applies when contract action exceeds $500,000
++	Applies when contract action exceeds $500,000 and subcontracting possibilities exist. Small Business Exempt.
x	(DD 250)
xx	Not applicable

I. FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES:

**	FAR 52.202-1	Definitions (DEC 2001)
**	FAR 52.203-3	Gratuities (APR 1984)
**	FAR 52.203-5	Covenant Against Continent Fees (APR 1984)
**	FAR 52.203-6	Restrictions on Subcontractor Sales to the Government (JUL 1995)
**	FAR 52.203-7	Anti-Kickback Procedures (JUL 1995)
**	FAR 52.203-8	Cancellation, Rescission, and Recovery of Funds for Illegal or Improper Activity (JAN 1997)
**	FAR 52.203-10	Price or Fee Adjustment for Illegal or Improper Activity (JAN 1997)
**	FAR 52.203-12	Limitation on Payments to Influence Certain Federal Transactions (JUN 1997)
**	FAR 52.204-4	Printing/Copying Double-Sided on Recycled Paper (AUG 2000)
	FAR 52.211-15	Defense Priority and Allocation Requirements (SEP 1990)
**	FAR 52.215-2	Audit and Records -Negotiation (JUN 1999) and Alternate II (APR 1998) (Alternate II is only applicable with cost reimbursement contracts with State and local Governments, educational institutions, and other non-profit organizations.)
	FAR 52.215-8	Order of Precedence - Uniform Contract Format (OCT 1997)
+	FAR 52.215-10	Price Reduction for the Defective Cost or Pricing Data (OCT 1997) (The clause is applicable to subcontracts over $550,000.)
+	FAR 52.215-.12	Subcontractor Cost or Pricing Data (OCT 1997) (Applicable to subcontracts over $550,000 only)
**	FAR 52.215-14	Integrity of Unit Prices (OCT 1997) and Alternate I (OCT 1997) (Alternate I is applicable if the action is contracted under Other Than Full and Open Competition)
+	FAR 52.215-15	Pension Adjustments and Asset Reversions (DEC 1998)
+	FAR 52.215-18	Reversion or Adjustment of Plans for Postretirement Benefits (PRB) Other than Pensions (OCT 1997)
+	FAR 52.215-19	Notification of Ownership Changes (OCT 1997) (Applicable when Cost or Pricing Data is required)
	FAR 52.216-7	Allowable Cost and Payment (FEB 2002)

Contract Number: N00014-02-C-0302

10

	FAR 52.216-8	Mixed Fee (MAR 1997)
**	FAR 52.219-4	Notice of Price Evaluation Preference for HUBzone Small Business Concerns (JAN 1999)
**	FAR 52.219-8	Utilization of Small Business Concerns (OCT 2000)
++	FAR 52.219-9	Small Business Subcontracting Plan (JAN 2002)
++	FAR 52.219-16	Liquidated Damages - Subcontracting Plan (JAN 1999)
	FAR 52.222-1	Notice to the Government of Labor Disputes (FEB 1997)
**	FAR 52.222-2	Payment for Overtime Premiums (JUL 1990) (Note: The word “zero” is inserted in the blank space indicated by an asterisk)
	FAR 52.222-3	Convict Labor (AUG 1996) (Reserved when FAR 52.222-20 Walsh Healy Public Contracts Act is applicable)
**	FAR 52.222-4	Contract Work Hours and Safety Standards Act - Overtime Compensation (SEP 2000)
	FAR 52.222-21	Prohibition of Segregated Facilities (FEB 1999)
	FAR 52.222-26	Equal Opportunity (APR 2002)
*	FAR 52.222-35	Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (DEC 2001 1998)
*	FAR 52.222-36	Affirmative Action for Workers with Disabilities (JUN 1998)
*	FAR 52.222-37	Employment Reports on Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (DEC 2001)
**	FAR 52.223-14	Toxic Chemical Release Reporting (OCT 2000)
	FAR 52.225-13	Restrictions on Certain Foreign Purchases (JUL 2000)
**	FAR 52.227-1	Authorization and Consent (JUL 1995) and Alternate I (APR 1984)
**	FAR 52.227-2	Notice and Assistance Regarding Patent and Copyright Infringement (AUG 1996)
	FAR 52.228-7	Insurance Liability to Third Persons (MAR 1996) (Further to paragraph (a)(3), unless otherwise stated in this contract, types and limits of insurance required are as stated in FAR 28:307-2)
	FAR 52.232-9	Limitation on Withholding of Payments (APR 1984)
**	FAR 52.232-17	Interest (JUN 1996)
	FAR 52.232-23	Assignment of Claims (JAN 1986) and Alternate I (APR 1984)
	FAR 52.232-25	Prompt Payment (FEB 2002) and Alternate I (FEB 2002) (The words “the 30th day” are inserted in lieu of “the 7th day” at (a)(5)(i). [When Alternate I is applicable (a)(5)(i) does do not apply] [Alternate I applies when awarding a cost reimbursement contract for services]
	FAR 52.232-33	Payment by Electronic Funds Transfer- Central Contractor Registration (MAY 1999)
	FAR 52.233-1	Disputes (DEC 1998)
	FAR 52.233-3	Protest After Award (AUG 1996) and Alternate I (JUN 1985)
	FAR 52.242-1	Notice of Intent to Disallow Costs (APR 1984)
+	FAR 52.242-3	Penalties for Unallowable Costs (MAY 2001)
	FAR 52.242-4	Certification of Final Indirect Costs (JAN 1997)
**	FAR 52.242-13	Bankruptcy (JUL 1995)
	FAR 52.242-15	Stop Work Order (AUG 1989) and Alternate I (APR 1984)
	FAR 52.244-2	Subcontracts (AUG 1998) and Alternate I (AUG 1998) [Insert in cost-reimbursement contracts, and letter, time-and-material, and labor- hour contracts exceeding SAP, and fixed price contracts exceeding SAP where unpriced actions are anticipated. Use Alternate I for cost-reimbursement contracts]
**	FAR 52.244-5	Competition in Subcontracting (DEC 1996)
	FAR 52.244-6	Subcontracts for Commercial Items and Commercial Components (APR 2002)
	FAR 52.245-5	Government Property (Cost-Reimbursement, Time-and-Materials, or Labor-Hour Contracts) (JAN 1986) and ALT I (JUL 1985) (As modified by DoD Class Deviation 99-00008 dated 13 July 1999) (ALT I is applicable if the contractor is a nonprofit organization whose primary purpose is the conduct of scientific research)
**	FAR 52.247-64	Preference for Privately Owned U.S. Flag Commercial Vessels (JUN 2000)

Contract Number: N00014-02-C-0302

11

	FAR 52.249-6	Termination (Cost-Reimbursement) (SEP 1996)
	FAR 52.249-14	Excusable Delays (APR 1984)
	FAR 52.251-1	Government Supply Sources (APR 1984)
	FAR 52.253-1	Computer Generated Forms (JAN 1991)
II. DEPARTMENT OF DEFENSE FAR SUPPLEMENTAL (DFARS) (48 CFR CHAPTER 2) CLAUSES:
**	DFARS 252.203-7001	Prohibition On Persons Convicted of Fraud or Other Defense-Contract-Related Felonies (MAR 1999)
	DFARS 252.204-7003	Control of Government Work Product (APR 1992)
	DFARS 252.204-7004	Required Central Contractor Registration (NOV 2001)
**	DFARS 252.209-7000	Acquisition from Subcontractors subject to On-Site Inspection under the Intermediate Range Nuclear Forces (INF) Treaty (NOV 1995)
**	DFARS 252.209-7004	Subcontracting with Firms That Are Owned or Controlled by the Government of a Terrorist Country (MAR 1998)
+	DFARS 252.215-7000	Pricing Adjustments (DEC 1991)
++	DFARS 252.219-7003	Small, Small Disadvantaged and Women-owned Small Business Subcontracting Plan (DoD Contracts) (APR 1996)
**	DFARS 252.225-7012	Preference for Certain Domestic Commodities (APRIL 2002)
	DFARS 252.225-7031	Secondary Arab Boycott of Israel (JUN 1992)
	DFARS 252.227-7013	Rights in Technical Data - Noncommercial Items (NOV 1995), and Alternate I (JUN 1995)
	DFARS 252.227-7014	Rights In Noncommercial Computer Software and Noncommercial Computer Software Documentation (JUN 1995)
	DFARS 252.227-7016	Rights in Bid or Proposal Information (JUN 1995)
	DFARS 252.227-7019	Validation of Asserted Restrictions - Computer Software (JUN 1995)
	DFARS 252.227-7025	Limitations on the Use or Disclosure of Government-Furnished Information Marked with Restrictive Legends (JUN 1995)
	DFARS 252.227-7028	Technical Data or Computer Software Previously Delivered to the Government (JUN 1995)
	DFARS 252.227-7030	Technical Data - Withholding of Payment (MAR 2000
	DFARS 252.227-7036	Declaration of Technical Data Conformity (JAN 1997)
	DFARS 252.227-7037	Validation of Restrictive Markings on Technical Data (SEP 1999)
	DFARS 252.231-7000	Supplemental Cost Principles (DEC 1991)
	DFARS 252.242-7000	Post-Award Conference (DEC .1991)
**	DFARS 252.243-7002	Requests for Equitable Adjustment (MAR 1998)
	DFARS 252.245-7001	Reports of Government Property (MAY 1994)
X	DFARS 252.246-7000	Material Inspection and Receiving Report (DEC 1991)
	DFARS 252.251-7000	Ordering from Government Supply Sources (MAY 1995)
**	DFARS 252.247-7023	Transportation of Supplies by Sea (MAR 2000)
**	DFARS 252.247-7024	Notification Of Transportation Of Supplies By Sea (MAR 2000) (Applicable when the Contractor has made a negative response to the inquiry in the representation at DFARS 252.247-7022.)
	DFARS 252.251-7000	Ordering from Government Supply Sources (MAY 1995)

(B) ADDITIONAL FAR AND DFARS CLAUSES

This contract incorporates one or more clauses by reference as indicated by the mark of (X), with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. Also, the full text of a clause may be accessed electronically at this address: http://www.arnet.gov/far

Contract Number: N00014-02-C-0302

12

	FAR 52.204-2	Security Requirements (AUG 1996) (Applicable if contract will generate or require access to classified information and DD Form 254, Contract Security Classification Specification, is issued to the contractor)
X	FAR 52.209-6	Protecting the Government’s Interest when Subcontracting with Contractors Debarred, Suspended, or Proposed for Debarment (JUL 1995) (Applicable to contracts exceeding $25,000 in value.)
	FAR 25.215-17	Waiver of Facilities Capital Cost of Money (OCT 1997) (Applicable if the Contractor did not propose facilities capital cost of money in the offer)
X	FAR 52.215-20	Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data (OCT 1997) (Applicable if cost or pricing data or information other than cost or pricing data are required)
X	FAR 52.215-21	Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data – Modifications (OCT 1997) (Applicable if cost or pricing data or information other than cost or pricing data will be required for modifications)
X	FAR 52.217-9	Option to Extend the Term of the Contract (MAR 2000) (In paragraph (a), insert “the period of performance”, and in paragraph (c), insert “24 months”) (Applicable if contract contains line item(s) for option(s)) (Complete the spaces in parentheses)
	FAR 52.219-3	Notice of Total HUBZone Set-Aside (JAN 1999)
	FAR 52.219-5	Very Small Business Set-Aside (MAR 1999) (For actions between $2,500 and $50,000)
	FAR 52.219-6	Notice of Total Small Business Set-Aside (JUL 1996), and Alternate I (OCT 1995) (Applicable to total small business set-asides, including SBIR)
	FAR 52.219-7	Notice of Partial Small Business Set-Aside (JUL 1996) and Alternate I (OCT 1995)
	FAR 52.219-10	Incentive Subcontracting Program (OCT 2001) (Applicable at the PCO’s discretion to contract actions exceeding $500,000 and when subcontracting possibilities exist. The clause is small business exempt) (In paragraph (b), insert the appropriate number between 0 and 10 – “N.A.”) (Complete the space in the parentheses)
	FAR 52.219-25	Small Disadvantaged Business Participation Program – Disadvantaged Status and Reporting (OCT 1999) (Applicable if contract includes FAR 52.219-24)
	FAR 52.219-26	Small Disadvantaged Business Participation Program – Incentive Subcontracting Program (OCT 2000) (Applicable at the PCO’s discretion to contract actions exceeding $500,000 and when subcontracting possibilities exist. The clause is small business exempt) (In paragraph (b), insert the appropriate number between 0 and 10 – “N.A.”) (Complete the space in the parentheses)
X	FAR 52.222-20	Walsh Healy Public Contracts Act (DEC 1996) (Applicable if the contract includes deliverable materials, supplies, articles or equipment in an amount that exceeds or may exceed $10,000)
	FAR 52.223-5	Pollution Prevention and Right-to-Know Information (APR 1998) (Applicable if contract provides for performance, in whole or in part, on a Federal facility)
X	FAR 52.223-6	Drug-Free Workplace (MAY 2001) (Applies when contract action exceeds $100,000 or at any value when the contract is awarded to an individual)

Contract Number: N00014-02-C-0302

13

	FAR 52.230-2	Cost Accounting Standards (APR 1998) (Applicable when contract amount is over $500,000, if contractor is subject to full CAS coverage, as set forth in 48 CFR Chapter 99, Subpart 9903.201-2(a) (FAR Appendix B)
X	FAR 52.230-3	Disclosure and Consistency of Cost Accounting Practices (APR 1998) (Applicable when contract amount is over $500,000 but less than $25 million, and the offeror certifies it is eligible for and elects to use modified CAS coverage as set forth in 48 CFR Chapter 99, Subpart 9903.201-2 (FAR Appendix B)
X	FAR 52.230-6	Administration of Cost Accounting Standards (NOV 1999) (Applicable if contract is subject to either clause at FAR 52.230-2, FAR 52.230-3 or FAR 52.230-5)
X	FAR 52.232-20	Limitation of Cost (APR 1984) (Applicable only when contact action is fully funded)
X	FAR 52.232-22	Limitation of Funds (APR 1984) (Applicable only when contract action is incrementally funded)
	FAR 52.239-1	Privacy or Security Safeguards (AUG 1996) (Applicable to contracts for information technology which require security of information technology, and/or are for the design, development, or operation of a system of records using commercial information technology services or support services.)
	FAR 52.245-18	Special Test Equipment (FEB 1993) Applicable when it is anticipated that the contractor will acquire or fabricate special test equipment but the exact identification of the equipment is not know)
X	DFARS 252.203-7002	Display of DoD Hotline Poster (DEC 1991) (Applicable only when contract action exceeds $5 million or when any modification increases contract amount to more than $5 million)
X	DFARS 252.204-7000	Disclosure of Information (DEC 1991) (Applies when Contractor will have access to or generate unclassified information that may be sensitive and inappropriate for release to the public)
	DFARS 252.204-7005	Oral Attestation of Security Responsibilities (NOV 2001) (Applicable if FAR 52.204-2, Security Requirements Applies)
X	DFARS 252.205-7000	Provision of Information to Cooperative Agreement Holders (DEC 1991) (Applicable only when contract action exceeds $500,000 or when any modification increases total contract amount to more than $500,000)
X	DFARS 252.215-7002	Cost Estimating System requirements (Oct 1998) (Applicable only to contract actions awarded on the basis of certified cost or pricing data)
	DFARS 252.223-7004	Drug-Free Work Force (SEP 1988) (Applicable (a) if contract involves access to classified information: or (b) when the Contracting Officer determines that the clause is necessary for reasons of national security or for the purpose of protecting the health or safety of performance of the contract.
	DFARS 252.223-7006	Prohibition on Storage and Disposal of Toxic and Hazardous Materials (APR 1993) (Applicable if work requires, may require, or permits contractor performance on a DoD installation)
	DFARS 252.225-7001	Buy American Act and Balance of Payments Program (MAR 1998) (Applicable if the contract includes deliverable supplies) (This clause does not apply if an exception to the Buy American Act or Balance of Payments Program is known or if using the clause at 252.225-7007, 252.225-7021, or 252.225-7036.)
	DFARS 252.225-7002	Qualifying Country Sources as Subcontractors (DEC 1991) (Applicable when clause at DFARS 252.225-7001, 252.227-7007, 252.227-7021, or 252.227-7036 applies)

Contract Number: N00014-02-C-0302

14

	DFARS 252.225-7007	Buy American Act – Trade Agreements – Balance of Payments Program (SEP 2001) (Use instead of FAR 52.225-5, Trade Agreements (Include in contracts valued at $186,000 or more, if the Trade Agreements Act applies (see 25.401 and 25.403) and the agency has determined that the restrictions of the Buy American Act or Balance of Payments Program are not applicable to U.S. – made end products, unless the acquisition is to be awarded and performed outside the Untied States in support of a contingency operation or a humanitarian or peacekeeping operation and does not exceed the increase simplified acquisition threshold of $200,000.) The clause need not be used where purchase from foreign sources is restricted (see 225.401 (b)(ii)). The clause may be used where the contracting officer anticipates a waiver of the restriction.)
	DFARS 252.225-7008	Supplies to be Accorded Duty-Free Entry (MAR 1998) (Applicable when the contract provides for duty-free entry and includes FAR 52.225-8 – Duty-Free Entry)
	DFARS 252.225-7009	Duty-Free Entry – Qualifying Country Supplies (End Products and Components) (AUG 2000) (Applicable if contract includes deliverable supplies)
	DFARS 252.225-7010	Duty-Free Entry – Additional Provisions (AUG 2000) (Applicable when FAR 52.225-8 – Duty-Free Entry is included in the contract.)
	DFARS 252.225-7016	Restriction On Acquisition Of Ball And Roller Bearings (DEC 2000) (Applicable if contract includes deliverable supplies, unless Contracting Officer knows that items being acquired do not contain ball or roller bearings)
X	DFARS 252.225-7026	Reporting of Contract Performance Outside the United States (JUN 2000) (Applicable only when contract value exceeds $500,000 or when any modification increases contract value to more than $500,000)
	DFARS 252.226-7001	Utilization of Indian Organizations and Indian-Owned Economic Enterprises (SEP 2001) [(Applicable if FAR Part 12 not used, and for supplies and services expected to exceed SAP thresholds) (This Interim Rule replaces FAR 52.226-1 (JUN 2000) via DFARS Chg Ntc 200110911]
	DFARS 252.227-7018	Rights in Noncommercial Technical Data and Computer Software – Small Business Innovation Research (SBIR) Program (JUN 1995) (Applicable when technical data or compute software will be generated during performance of contracts under the SBIR Program)
X	DFARS 252.242-7004	Material Management and Accounting System (DEC 2000) (Applicable to contract actions exceeding $100,000) (Not applicable to contracts set aside for exclusive participation by small business and small disadvantaged business concerns)
C. COST SHARING -NO FEE RESEARCH AND DEVELOPMENT CLAUSFS
The following FAR and DFARS clauses apply to Cost Sharing - No Fee Research and Development Contracts and are either required by regulation or are required when the circumstances of the contract warrant that they apply. The FAR and DFARS clauses for Cost- Sharing Research and Development Contracts only apply when specifically marked with an (X).:
	FAR 52.216-11	Cost Contract – No Fee (APR 1984) and Alternate I (APR 1984) Replace 52.216-8) [This clause may be modified by substituting “$10,000” in lieu of “$100,000” as the maximum reserve in paragraph (b) if the Contractor is a nonprofit organization.]
X	FAR 52.216-12	Cost Sharing Contract – No Fee (APR 1984)

Contract Number: N00014-02-C-0302

15

	FAR 52.227-10	Filing of Patent Applications – Classified Subject Matter (APR 1984) (Applicable if contract is subject to FAR clause 52.204-02 and either 52.227-11 or 52.227-12)
	FAR 52.227-11	Patent Rights – Retention by the Contractor (Short Form) (JUN 1997) (Applicable if contractor is a small business or non profit organization)
	OR
X	FAR 52.227-12	Patent Rights – Retention by the Contractor (Long Form) (JAN 1997) (Applicable if contractor is a large business)
X	FAR 52.246-9	Inspection of Research and Development (Short Form) (Apr 1984)
	FAR 52.247-63	Preference for U.S.-Flag Air Carriers (JAN 1997)
	DFARS 252.227-7034	Patents – Subcontracts (APR 1984) (Applicable when FAR 52.227-11 applies)
	DFARS 252.227-7039	Patents – Reporting of Subject Inventions (APR 1990) (Applicable when FAR 52.227-11 applies)
X	DFARS 252.235-7011	Final Scientific Or Technical Report (Sep 1999)

SECTION J - LIST OF ATTACHMENTS

1) EXHIBIT A entitled, “Contract Data Requirements List” (DD Form 1423) - 1 page with Enclosure Number 1 entitled, “Contract Data Requirements List - Instructions for Distribution” - 3 pages.

2) Attachment Number 1 entitled, “Statement of Work” - 6 pages.

3) Attachment Number 2 entitled, “Deliverables” - 1 page.

4) Attachment Number 3 entitled, “Master Small Business Subcontracting Plan,” and “Contract Specific Subcontracting Plan” - 13 pages.

5) Attachment Number 4 entitled, “Financial Accounting Data Sheet,” I page.

SECTION K - REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFEROR

The Contractor’s Representations and Certifications, dated 03 APR 2002, are hereby incorporated into this contract by reference.

Contract Number: N00014-02-C-0302

16

CONTRACT DATA REQUIREMENTS LIST

Form Approved OMB No. 0704-0188

Public reporting burden for this collection of information is estimated to average 440 hours per response, including the time for reviewing instructions, searching existing data source, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection or information, including suggestions for reducing this burden, to Washington Headquarters Services Directorate for information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302.

A. CONTRACT LINE ITEM NO.	B. CONTRACT LINE ITEM NO.	C. CATEGORY
0003 (and Option CLIN 0006 if exercised)	A	TOP	TM	OTHER	x

D. SYSTEM/ITEM [***] E. CONTRACT/PR NO. N00014-02-0302 F. CONTRACTOR CREE INC. .

1. DATA ITEM NO. A001 2. TITLE OF DATA ITEM Monthly Status Reports* 3. SUBTITLE

4. AUTHORITY (Data Acquisition Document No.)		5. CONTRACT REFERENCE Section H.1 of Schedule					6. REQUIRING OFFICE See Section F.4
7. DD 250 REQ LT*	9. DIST STATEMENT REQUIRED	10. FREQUENCY Monthly	12. DATE OF FIRST SUBMISSION 30 days after the effective date of the Contract		14.                 DISTRIBUTION       ADDRESSEE                 b. COPIES
8. APP CODE		11. AS OF DATE See Blk 12,	13. DATE OF SUBSEQUENT SUBMISSION Every 30 days thereafter					Draft                     REQ	Final     REPRO
16. REMARKS * These monthly reports shall contain the following major accomplishments, issues, problems, monthly dollar expenditures on a comprehensive/cumulative basis as well as a comparison of projected versus actual expenditures, and plans for next month and next 3 months. The reports may be submitted electronically, may be approximately two pages in length, and can be in contractor format.					See Enclosure Number 1 15. TOTAL
1. DATA ITEM NO. A002	2. TITLE OF DATA ITEM Presentation Materials*						3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)			5. CONTRACT REFERENCE Section H.1 of Schedule				6. REQUIRING OFFICE See Section F.4
7. DD 250 REQ LT*	9. DIST STATEMENT REQUIRED	10. FREQUENCY As Required	12. DATE OF FIRST SUBMISSION *		14. DISTRIBUTION       ADDRESSEE        b. COPIES
8. APP CODE		11. AS OF DATE *	13. DATE OF SUBSEQUENT SUBMISSION *					Draft             REQ	Final     REPRO
16. REMARKS * The presentation materials will be on an as-required basis in a format to be requested by the Program Officer.					See Enclosure Number 1 15. TOTAL
1. DATA ITEM NO. A003	2. TITLE OF DATA ITEM Final Report*						3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)			5. CONTRACT REFERENCE Section H.1 of Schedule				6. REQUIRING OFFICE See Section F.4
7. DD 250 REQ DD	9. DIST STATEMENT REQUIRED	10. FREQUENCY ONE/R	12. DATE OF FIRST SUBMISSION See Section F		14. DISTRIBUTION       ADDRESSEE    b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION					Draft             REQ	Final     REPRO
16. REMARKS * DD 250 required only for acceptance by the Program Officer designated in Section F.2. Information copies of this report shall be distributed in accordance with Enclosure Number 1.					See Enclosure Number 1 15. TOTAL
1. DATA ITEM NO. A004	2. TITLE OF DATA ITEM Semi-Annual Progress Report*						3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)			5. CONTRACT REFERENCE Section H.1 of Schedule				6. REQUIRING OFFICE See Section F.4
7. DD 250 REQ LT*	9. DIST STATEMENT REQUIRED	10. FREQUENCY Semi-Annual	12. DATE OF FIRST SUBMISSION 6 Months after contract effective date		14. DISTRIBUTION         ADDRESSEE            b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION Every 6 months thereafter					Draft             REQ	Final     REPRO
16. REMARKS * DD 250 required only for acceptance by the Program Officer designated in Section F.2. Information copies of this report shall be distributed in accordance with Enclosure Number 1.					See Enclosure Number 1 15. TOTAL
G. PREPARED BY             Evelyon T. Fields, ONR 251		H. DATE Presentation Materials*		I. APPROVED BY ONR 251				J. DATE 26-Jun-02
DD Form 1423-2, JUN 90 OVERPRINT (1-91)		Previous editions are obsolete				Page 1 of 1 NAVOCNR

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250 PAGE 17

ENCLOSURE NUMBER I

CONTRACT DATA REQUIREMENTS LIST

INSTRUCTIONS FOR DISTRIBUTION

DISTRIBUTION OF MONTHLY STATUS REPORTS PRESENTATION MATERIALS AND CONTRACT FUNDS STATUS REPORTS

The minimum distribution for monthly reports, presentation materials, and contract funds status reports is as follows:

		NUMBER OF COPIES
ADDRESSEE	DODAAD CODE	UNCLASSIFIED/ UNLIMITED	UNCLASSIFIED/ LIMITED AND CLASSIFIED
Program Officer E-Mail: dietrih@onr.navy.mil	N00014	1	1
Administrative Contracting Officer*	S1103A	1	1

* Send only a copy of the transmittal letter to the Administrative Contracting Officer; do not send actual reports to the Administrative Contracting Officer.

SEMI-ANNUAL REPORTS

The minimum distribution of semi-annual reports is as follows:

		NUMBER OF COPIES
ADDRESSEE	DODAAD CODE	UNCLASSIFIED / UNLIMITED	UNCLASSIFIED/ LIMITED AND CLASSIFIED
Program Officer E-Mail: dietrih@onr.navy.mil	N00014	3	3
Administrative Contracting Officer*	S1103A	1	1
Director, Naval Research Lab Attn: Code 5227 4555 Overlook Avenue, SW Washington, D.C. 20375-5320 E-Mail: reports@library.nrl.navy.mil	N00173	1	1
Defense Technical Information Center 8725 John J. Kingman Road STE 0944 Ft. Belvoir, VA 22060-6218 E-mail: tr@dtic.mil	S47031	2	2
Dr. Edgar J. Martinez Defense Advanced Research Projects Agency Microsystems Technology Office 3701 Fairfax Drive Arlington, VA 22203	MDA972	1	1
Thomas Jenkins AFRL/SNDM 2241 Avionics Circle RM C2G69 Wright-Patterson AFB, OH 45433-7322	F33615	1	1

CONTRACT NUMBER: N00014-02-C-0302 ATTACHMENT NUMBER 3 PAGE 1

Daniel Judy Army Research Laboratory 2800 Powder Mill Road AMSRL-SE-RE Adelphi, MD 20783-1197	DAAD17	1	1
Evan Glaser Naval Research Laboratory 4555 Overlook Avenue SW Code 6877 Washington, DC 20375-5347	N00173	1	1
Dr. John C. Zolper Defense Advanced Research Projects Agency Microsystems Technology Office 3701 Fairfax Drive Arlington, VA 22203	MDA972	1	1

* Send only a copy of the transmittal letter to the Administrative Contracting Officer, do not send actual reports to the Administrative Contracting Officer.

FINAL REPORT DISTRIBUTION

The minimum distribution of the final report submitted in connection with this contract is as follows:

		NUMBER OF COPIES
ADDRESSEE	DODAAD CODE	UNCLASSIFIED / UNLIMITED	UNCLASSIFIED/ LIMITED AND CLASSIFIED
Program Officer E-Mail: dietrih@onr.navy.mil	N00014	5	5
Administrative Contracting Officer*	S1103A	1	1
Director, Naval Research Lab Attn: Code 5227 4555 Overlook Avenue, SW Washington, D.C. 20375-5320 E-Mail: reports@library.nrl.navy.mil	N00173	1	1
Defense Technical Information Center 8725 John J. Kingman Road STE 0944 Ft. Belvoir, VA 22060-6218 E-mail: tr@dtic.mil	S47031	2	2
Dr. Edgar J. Martinez Defense Advanced Research Projects Agency Microsystems Technology Office 3701 Fairfax Drive Arlington, VA 22203	MDA972	1	1
Thomas Jenkins AFRL/SNDM 2241 Avionics Circle RM C2G69 Wright-Patterson AFB, OH 45433-7322	F33615	1	1
Robert Kemerley AFRL/SND 2241 Avionics Circle, Bldg. 620 Wright-Patterson AFB, OH 45433-7322	F33615	1	1

CONTRACT NUMBER: N00014-02-C-0302 ATTACHMENT NO. 3 PAGE 2

Daniel Judy Army Research Laboratory 2800 Powder Mill Road AMSRL-SE-RE Adelphi, MD 20783-1197	DAAD17	1	1
H. Bruce Wallace Army Research Laboratory 2800 Powder Mill Road AMSRL-SE-R Adelphi, MD 20783-1197	DAAD17	1	1
Dr. John C. Zolper Defense Advanced Research Projects Agency Microsystems Technology Office 3701 Fairfax Drive Arlington, VA 22203	MDA972	1	1
Gerald Borsuk Naval Research Laboratory 4555 Overlook Avenue SW Code 6800 Washington, DC 20375	N00173	1	1
C. J. (Skip) Scozzie US Army Research Laboratory AMSRL-SE-DP 2800 Powder Mill Road Adelphi, MD 20783-1197	DAAD17	1	1

* Send only a copy of the transmittal letter to the Administrative Contracting Officer; do not send actual reports to the Administrative Contracting Officer.

ELECTRONIC SUBMISSIONS OF TECHNICAL REPORTS IS PREFERRED AND ENCOURAGED. ELECTRONIC SUBMISSION SHOULD BE SENT TO THE E-MAIL ADDRESSES PROVIDED IN THE ABOVE TABLE, HOWEVER PLEASE NOTE THE FOLLOWING:

• Only Unlimited/Unclassified document copies may be submitted by e-mail.

• Unclassified/Limited has restricted distribution and a classified document (whether in its entirety or partially) is to be distributed in accordance with classified material handling procedures.

• Electronic submission to DIRECTOR, NAVAL RESEARCH LAB, shall be unclassified/unlimited reports and 30 pages or less. If unclassified and more than 30 pages, hardcopies of reports must be mailed.

• Electronic submission to DTIC shall be unclassified/unlimited reports. If submission is for limited documents, please send them in on a disk or sign up for DTIC’s web-based document submission system at http://www.dtic.mil/dtic/submittingelec_subm.html.

If the Program Officer directs, the Contractor shall make additional distribution of technical reports in accordance with a supplemental distribution list provided by the Program Officer.

CONTRACT NUMBER: N00014-02-C-0302 ATTACHMENT NO. 3 PAGE 3

CONTRACT NUMBER N00014-02-C-0302

ATTACHMENT NUMBER 1

STATEMENT OF WORK

(4 pages)

3.A. STATEMENT OF WORK First 18 months

Task Area 1. [***]

Cree will develop [***] to meet the high demands of [***]. The primary 18-month goal is to reduce the [***] in [***].

TASK 1.1: Ultra High Quality [***] for [***]

Cree will develop [***] material with [***] material.

Subtask 1.1.1 We will improve the [***] to allow [***]. In addition, in this sub-task Cree will also [***].

Subtask 1.1.2 Methods of [***] will be developed.

Task 1.2. [***]

Cree will generate [***]. [***] order of [***] lower than our typical [***] material will be demonstrated.

Subtask 1.2.1 We will design a system that will enable [***], subsequently we will [***].

Subtask 1.2.2 Cree will develop a [***] for [***] that will permit [***] and [***].

Task Area 2. [***]

Cree will develop [***] to [***] on [***] suitable for [***] production. This will be accomplished via the following tasks.

TASK 2.1: [***]

We will increase the [***] and [***] rate of the [***] while maintaining/improving the [***].

Subtask 2.1.1. We will design and commission [***] to minimize [***] and permit growth of [***] rates. [***] goal for both [***] and [***] is [***] variation.

Subtask 2.1.2. The [***] process will be [***] and [***] processes will also be evaluated to accelerate the [***] and improve [***].

TASK 2.2: [***]

We will improve the [***] of the [***]. We will also investigate methods to minimize the [***] during operation.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Subtask 2.2.1. [***] will be evaluated for [***] and [***].

Subtask 2.2.2. We will [***] to [***]. [***] on [***] will be evaluated for [***] including [***] and [***].

Task Area 3. [***]

Cree will develop [***] and fabricate [***] structures

Task 3.1 [***] Development

We will carry out [***] and [***] studies on both the [***] and the [***] with an objective of improving the [***] in an [***] in order to obtain an [***] in the range [***].

Task 3.2 [***]

Cree will develop [***] with a [***]. The size of these devices will be [***] with a reasonable [***].

Subtask 3.2.1[***]: Purdue will: (1) use computer simulations to investigate [***], (2) propose and investigate [***], (3) explore a [***] process for [***] and [***], and (4) act as liaison with the Purdue/Auburn/Vanderbilt program investigating [***] related to [***].

Task 3.3. [***]

Cree will fabricate a total of [***]. These [***] will utilize the [***] grown to reduce [***]. The [***] will be sized to carry [***] so that the [***] can be established [***]. The [***] will be packaged in a package which is suitable for [***] and will be [***].

Table 1 Goals for SOW

Task/Goal
1.1	[***]
1.2	[***]
2.2	[***]
3.2	[***]
3.3	[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

2

3.A. STATEMENT OF WORK Optional [***]

“The optional tasks stated below represent a continuation of the base program required to meet the overall goals of the Phase I DARPA Thust lI WBG program. As such, the task descriptions are, broadly stated, similar to the base program. The overall goals of the option are more strigent then those for the base effort and focus on across the board improvements in: [***].”

Task Area 1. [***]

Cree will develop [***] to meet the high demands of [***]. The primary goal is to reduce [***] in [***].

TASK 1.1: Ultra High Quality [***]

Cree will develop [***] material with [***] material.

Subtask 1.1.1 We will improve the [***] to allow [***]. In addition, in this sub-task Cree will also [***].

Subtask 1.1.2 Methods of [***] will be optimized.

Task 1.2. [***].

Cree will generate [***]. [***] orders of [***] lower than our present [***] material will be demonstrated.

Subtask 1.2.1 We will develop [***] in a system that will enable [***].

Subtask 1.2.2 Cree will optimize [***] for [***] that will permit [***] and [***].

Task Area 2. [***]

Cree will develop [***] to [***] or [***] suitable for [***] production. This will be accomplished via the following tasks.

TASK 2.1: [***]

We will increase [***] and [***] while maintaining/improving the [***].

Subtask 2.1.1. We will design and commission [***] to minimize [***] and permit [***] rates [***] goal for both [***] and [***] variation.

Subtask 2.1.2. The [***] process will be [***] and [***] processes will also be evaluated to accelerate the [***] and improve [***].

TASK 2.2: [***]

We will improve the [***] of the [***]. We will also investigate methods to minimize the [***] during operation.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

3

Subtask 2.2.1. [***] will be evaluated for [***] and [***].

Subtask 2.2.2. We will [***]. [***] on [***] will be evaluated for [***] including [***]and [***].

Task Area 3. [***]

Cree will develop [***] and fabricate [***] structures

Task 3.1 [***] Development

We will carry out [***] and [***] studies on both the [***] and the [***] with an objective of improving the [***] in an [***] in order to obtain an [***] in the range [***].

Task 3.2 [***]

Cree will develop [***] with a [***]. The size of these devices will be [***] with a [***].

Subtask 3.2.1[***]: Purdue will: (1) use computer simulations to investigate [***], (2) propose and investigate [***], (3) explore [***] process for [***] and [***], and (4) act as liaison with the Purdue/Auburn/Vanderbilt program investigating [***] related to [***].

Task 3.3. [***]

Cree will fabricate a total of [***]. These [***] utilize the [***] grown to reduce [***]. The [***] will be sized to carry a [***] so that the [***] can be established [***]. The [***] will be packaged in a package which is suitable for [***] and will be [***].

Table 1A. Task Goals for SOW

Task/Goal
1.1	[***]
1.2	[***]
2.2	[***]
3.2	[***]
3.3	[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

4

CONTRACT N00014-02-C-0302

ATTACHMENT NUMBER 2

DELIVERABLES

		Quantity	(Base Effort, Q1-6)				(Option Effort, Q7-8)
			Q1	Q2	Q3	Q4	Q5	Q6	Q7	Q8	Comment
	Deliverable
1	[***]		X								5
2	[***]	5	X	X	X	X					1
3	[***]	5					X	X	X	X	1
4	[***]	5		X	X	X	X	X	X	X	1
5	[***]	5		X	X	X	X	X	X	X	Best Effort
6	[***]	1		X	X	X	X	X	X	X	Best Effort
7	[***]	5		X	X	X	X	X	X	X
8	[***]	10		X							Best Effort
9	[***]	5				X		X		X	Best Effort
10	[***]	5				X		X		X	2
11	[***]	1		X		X		X		X
12	[***]	1		X		X		X		X
13	[***]		X	X	X	X	X	X	X	X	3
14	[***]	5		X		X		X		X	1,4

1. Deliverables must demonstrate that the goals called out in Table 1, Task Goals for SOW, has been met.

2. Deliverables must meet specs called out in SOW of Optional Task document, submitted 6 March 2002

3. The contractor shall deliver data summaries for all tests run on the deliverables and/or representative companion [***] and devices that were tested.

4. At least one of these [***] is to be a companion [***] to those used for PIN deliverables.

5. This design must be submitted no later than one month after the effective date of the contract.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0302

ATTACHMENT NUMBER 3- (13 pages)

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

FOR THE DEPARTMENT OF DEFENSE CONTRACTS AND

MAJOR SUBCONTRACTS

Small Business Concerns/Veteran Owned Small Business Concerns and Service-Disabled Veteran-Owned Small Business/Hubzone Small Business Concerns/Small Business Concerns Owned and Controlled By Socially and Economically Disadvantaged Individuals Small Business Concerns Owned and Controlled by Women

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

Contractor:	Cree, Inc. (Cree)
Address:	4600 Silicon Drive
	Durham, NC 27703-8475

This is a Master Small Business Subcontracting Plan. This Plan contains all the required elements of an individual contract plan except individual goals established for each Government contract or major subcontract. In addition, Cree shall submit a contract specific Plan to the contracting officer/buyer for final negotiation and approval. The contract specific plan will include goals based on the planned subcontracting for that contract.

STATEMENT OF POLICY:

It is the policy of Cree that small business concerns, veteran-owned small business concerns and service-disabled veteran-owned small business concerns, HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women shall have the maximum practicable opportunity to participate in subcontracting at Cree. Cree hereby agrees to carry out this policy in awarding of subcontracts to the fullest extent, consistent with the efficient performance of Government contracts and subcontracts. Cree further agrees to cooperate in any studies or surveys as may be conducted by the Small Business Administration, or the awarding agency/department of the United States, as may be necessary to determine the extent of compliance with Federal Acquisition Regulation (FAR) 52.219-8 clause titled, “Utilization of Small Business Concerns (OCT 2000 Oct 1999).”

1. CONTRACT SPECIFIC GOALS

Cree shall submit proposed contract specific subcontracting goals for the term of each Government contract or major subcontract. The Contract Specific Plan submittal shall include goals for small business concerns (SB), veteran-owned small business concerns (VOSB) small business concerns owned and controlled by socially and economically disadvantaged individuals (SDB), HUBZone small business concerns (HUB), and small business concerns owned and controlled by women (WOSB). Service-disabled veteran-owned small business concerns meet the definition of veteran-owned small business concerns, and they will be included within the subcontracting plan goal for veteran-owned small business concerns. The negotiated and established goals of the Contract Specific Plan will be incorporated into this Master Plan by this reference, upon signature of the parties, and will not require contract modification.

The proposed goals shall be based upon an established percentage of estimated commercial purchases, which will be derived from the current fiscal year budget. Goals for the utilization of SB, VOSB, SDB, HUB, and WOSB subcontractors shall be expressed in both dollars and percentages for total planned dollars to be subcontracted; total dollars planned to be subcontracted to SB; total dollars planned to be subcontracted to VOSB, total dollars planned to be subcontracted to HUB; total dollars to be subcontracted to SDB; and total dollars planned to be subcontracted to WOSB concerns, unless otherwise required by the Contracting Officer buyer.

Page 1 of 7

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

Cree’s subcontracting goals shall be set at a level that the parties reasonably expect can result from expending good faith efforts to use SB, VOSB, SDB, HUB, and WOSB subcontractors

2. DESCRIPTION OF SUPPLIERS AND SERVICES

The principal products and/or services to be subcontracted for the Contract Specific Plan, and the types of businesses supplying them shall be identified in an Attachment A to the Contract Specific Plan.

3. METHODOLOGY- GOALS

a) The type of products/services typically needed by Cree is reviewed periodically to establish additional materials and services that are likely to be performed by a concern other than Cree.

b) The Scope of Work for each Contract/subcontract is reviewed to establish potential material and services that could likely be performed by a concern other than Cree.

c) From the total estimate of potential subcontracted items, a list of those items that are candidates for small businesses is established.

d) From the total estimate of potential subcontracted items to small businesses, a list of those items that could be subcontracted to veteran-owned small business concerns is established

e) From the total estimate of potential subcontracted items to small businesses, a list of those items that could be subcontracted to small disadvantaged business concerns is established.

f) From the total estimate of potential subcontracted items, a list of those items that are candidates for HUSZone small business concerns is established.

g) From the total estimate of potential subcontracted items to small business, a list of those items that could be subcontracted to women-owned small business concerns is established.

4. METHODOLOGY - POTENTIAL SOURCES

In the establishment of potential SBVOSB/SDB/HUB/WOSB sources for solicitation purposes, the following resources are used:

a) Cree Company Approved Supplier List;

Page 2 of 7

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

b) the Small Business Administration’s (SBA) Pro-Net system, (http://pro-net.sba.gov/);

c) the National Minority Business Council Vendor Information Service, (http://www.nmbc.orq);

d) the Minority Business Development Administration’s Phoenix database, (http://www.mbda.gov/vendors.htrn’);

e) the HUBZone database in the Pro-Net system, http://prp-net.sba.gov/);

f) the 8(a) search database available through Pro-Net (http://pro-net.sba.gov);

g) the Woman-Owned Small business database available through Pro-Net (http://pro-net.sba.gov/);

h) the Information Division of the Minority Business Development Agency in the Department of Commerce;

i) the local Industrial Services Directory;

j) other small and minority business associations; and

k) Networking opportunities with the local Chamber of Commerce.

1) Office of Veterans Business Development (httpa1www.sba.govJVETSI)

5. INDIRECT COSTS

In accordance with FAR 52.219-9 (OCT 2000) Cree has decided not to include indirect costs in the goals specified for its individual contracts, however, for reporting purposes on the SF295 we will allocate a portion of indirect cost in accordance with the portion of DOD sales versus total company sales.

6. RESPONSIBILITIES FOR IMPLEMENTATION

This Master Subcontracting Plan and Contract Specific Plan there under, are to be administered by Cree to assure that the provisions of applicable Law and the plan are implemented and performed. Any change in the name of the administrator will be communicated without delay to the Contracting Officer/buyer by letter and will not require a contract modification.

The following individual will administer the subcontracting program:

Name: Carmen L. Hayes

Title: Contract Administrator/Small Business Utilization Specialist

Address: 4600 Silicon Drive

       Durham, NC 27703

Telephone: (919)-313-5644

Email: carmen_hayes@cree.com

This individual’s specific duties as they relate to this Subcontracting Program shall include, but are not limited to:

a) Oversee compliance with the content of this Plan;

Page 3 of 7

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

b) Ensure that all Government subcontracts placed contain the latest provisions regarding small business and small disadvantaged business subcontracting and that the requirements of FAR 52.219-9 as implemented by this Plan are being fulfilled by Cree’s large business subcontractors;

c) Assure inclusion of SB, VOSB, SDB, HUB, WOSB concerns in all solicitations for products or services which they are capable of providing;

d) Review solicitations to remove statements, clauses, etc. which may tend to restrict or prohibit SB, VOSB, SDB, HUB, WOSB participants;

e) Participate in Business Opportunity Workshops, Minority Business Enterprise Seminars, Trade Fairs, etc., to assist SB, VOSB, SDB, HUB and WOSB concerns, and to discuss subcontracting opportunities with them. Plan to attend one DOD southeast council meeting per year;

f) Perform periodic audit of sub-tier subcontracting plans to measure progress of goals and monitor attainment of goals under each Contract Specific Plan;

g) Prepare and submit periodic subcontracting reports including SF 294/295, and cooperate in studies and surveys as required;

h) Assist in developing and maintaining bidders list of SB, VOSB, SDB, HUB and WOSB concerns from all possible sources;

i) Participate in procuring, planning and selection of potential sources to ensure that SB, VOSB, SDB, HUB and WOSB concerns are offered every opportunity to participate to the program; and,

j) Coordinate and participate with the SBA small business utilization specialist, and other groups to locate capable firms.

k) Facilitate the use of SB/VOSB /SDB/HUB/WOSB by ensuring that adequate time is allowed for preparation of bids and that solicitation quantities, specifications, and delivery schedules facilitate the participation by such concerns.

1) Counsel and discuss subcontracting opportunities with representatives of SB/VOSB/ SDB/HUB/WOSB firms.

m) Provide notice to subcontractors concerning penalties and remedies for misrepresentations of business size status as SB/VOSB/ SDB/HUB/WOSB for the purpose of obtaining a subcontract that is to be included as part or all of a goal.

n) Coordinate and participate in annual program review.

o) Maintain vendor certification.

Page 4 of 7

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

7. DESCRIPTION OF EFFORTS

In the establishment of the SB, VOSB, SDB, HUB and WOSB goals, the following resources are used: the Company Approved Supplier List; the Small Business Administration’s Pro-Net system, (http://pro-net.sba.gov/); the National Minority Purchasing Council Vendor information Service; the Minority Business Development Administration’s Phoenix database, http://www.mbda.gov/vendors.html); the Research and information Division of the Minority Business Development Agency in the Department of Commerce, and other small and minority business associations.

Outreach efforts include:

a) Assignment by name of specific individuals to carry out the requirements of company polities and procedures;

b) Provision of technical and management assistance to small business, small disadvantaged business concerns and women-owned business concerns to ensure complete understanding of requirements;

c) Assuring that Cree will consider small business concerns in all “make-or-buy decisions” and maintain records of these processes;

d) Institute a program to recognize purchasing personnel who excel in administering the Cree subcontracting program;

e) Participation in local small Business Opportunity Fairs;

f) Institute a program that recognizes small business participation in the success of performing Government contracts and major subcontracts; and

g) Where additional bidders are required, the following publications will be used to search for capable firms:

a. Minority Business Enterprise, published by the Defense Logistics Agency.

b. University Information Resources, National Business Campaign, 1201 12th Ave. N, Minneapolis, MN 55411 (http://www.tryusdir.com)

c. The Regional Minority Purchasing Council’s listings.

d. The Women-Owned Business directory.

e: National Minority Council mailing list.

f. An outreach effort will be made to solicit the assistance of local, state, and federal officers, trade and manufacturing associations, and labor organizations in identifying qualified firms.

Page 5 of 7

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

8. COMPLIANCE WITH FEDERAL ACQUISITION REGULATIONS (FAR)

Cree will include the FAR clause 52.219-8, titled “Utilization of Small Business Concerns, (OCT 2000),” in all subcontracts supporting Government contracts that offer further subcontracting opportunities, except contracts for personal services or subcontracts to be performed outside any territory or possession of the United States. Cree will :require all subcontractors (except small business concerns) who support Government contracts and who receive subcontracts of $500,000 or in the case of a subcontract for the construction of any public facility, $1,000,000, and which offer further subcontracting possibilities to adopt and submit a plan similar to the Cree Plan, and one that complies with the requirements of the stated FAR clause.

9. REPORTING

Cree gives assurance of:

a) Cooperation in any studies or surveys that may be required by the contracting agency, or the SBA.

b) Submission of periodic reports that show compliance with the subcontracting plan. Cree may utilize the GSA “Formfill” web site http://fillform.gsa.gov/ to complete and submit required reports.

c) Submission of Standard Form (SF) 294, “Subcontracting Report for Individual Contracts,” and SF-295, “Summary Subcontract Report,” in accordance with the instructions on the forms.

d) Ensuring that large business subcontractors with subcontracting plans agree to submit Standard Forms 294 and 295.

Reporting Period	Report Due	Due Date
Oct 1 - Mar 31	SF 294	April 30
Apr 1 - Sep 30	SF 294	October 30
Oct 1 - Mar 31	SF 295	April 30 (DoD only)
Oct 1 - Sep 30	SF 295	October 30
Subcontract Closeout	SF 294	Subcontract Completion

10. RECORDS

Cree agrees to maintain at least the following types of records to document compliance with this Subcontracting Plan:

a) Source lists, guides and other data identifying SB, VOSB, SDB, HUB and WOSB concerns;

b) Organizations contacted in an attempt to locate sources that are SB, VOSB, SDB, HUB and WOSB concerns;

Page 6 of 7

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

c) On a subcontract-by-subcontract basis, records on all subcontract solicitations over $100,000, indicating on each solicitation whether any SB, VOSB, SDB, HUB and WOSB concerns were solicited, and if not, why not,

d) On a subcontract-by-subcontract basis, records indicating the reason an award was not made to a SB, VOSB, SDB, HUB and WOSB concern;

e) Records to support other outreach efforts: contacts with minority and small business trade associations, contacts with business development organizations, attendance at small and minority business: procurement conferences and trade fairs to locate SB, VOSB, SDB, HUB and WOSB concerns;

f) Records to support internal activities to guide and encourage buyers through workshops, seminars, training programs and monitoring performance activities to evaluate compliance; and

g) Records to support award data, including the name, address, and business size of each subcontractor.

Cree hereby submits a request for approval of this Master Subcontracting Plan. This Plan shall be effective for three years after approval, or for the life of any contract/major subcontract that incorporates this Master Subcontracting Plan.

PLAN SUBMITTED BY:
/s/ Cynthia Merrell	Date    12/8/00
NAME:        Cynthia Merrell
Chief Financial Officer
PLAN CONCURRED BY:
/s/ Carmen Hayes	Date    11/21/00
Small Business Utilization Specialist
PLAN ACCEPTED BY:
/s/ Marjorie Hockstetler	Date    1/8/01
Contracting Officer

Page 7 of 7

CREE, INC.

CONTRACT/MAJOR SUBCONTRACT

SPECIFIC

SB/HUB/SDB/WOB/VOSB

SUBCONTRACTING PLAN

CREE, INC.

SB/HUB/SDB/WOB

SUBCONTRACTING PLAN

FOR

CONTRACT/SUBCONTRACT NO.: BAA 01-35, Entitled: Development of [***]

Contractor:	Cree, Inc. (Cree)
Address:	4600 Silicon Drive
	Durham, NC 27703

Product:

Contract Estimated Value: [***]

1. GOALS-PERCENTAGE

This Contract Specific Plan relates specifically to the scope of work to be performed under this contract/major subcontract, including support services. Subcontracting opportunities have been found to exist in the scope of work as noted below. Further, Cree will continue to expand subcontracting opportunities for small business concerns, HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women, as they become known to Cree.

This Contract Specific Plan, hereby incorporated into the Cree Master Subcontracting Plan are the following goals:

	Base	Option
Small Business (SB)	[***]%	[***]% [***]
HUBZone Business	[***]%
Small Disadvantaged Business (SDB)	[***]%
Woman-Owned Small Business (WOSB)	[***]%	[***]% [***]
Veteran-Owned Small Businss(VOSB)	[***]%

2. GOALS-DOLLAR

Total dollars planned to be subcontracted is [***]. Total dollars planned to be subcontracted to small business concerns is [***]. Total dollars planned to be subcontracted to HUBZone’s is [***]. Total dollars planned to be subcontracted to small disadvantaged business concerns is [***]. Total dollars planned to be subcontracted to woman-owned small business is [***]. Total dollars planned to be subcontracted to veteran-owned small business is [***].

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Page 2 of 4

CREE, INC.

SB/VOSB/ SDB/HUB/WOSB

SUBCONTRACTING PLAN

3. DESCRIPTION OF SUBCONTRACTING OPPORTUNITIES

The principal products and/or services to be subcontracted and the types of businesses to be utilized are included in Attachment 1:

Due to the specialized types of materials and supplies Cree purchases, we have been unable to locate vendors with the SDB status to meet our needs. We have sent a needs assessment to the Small Business & Technology Development Center in Raleigh as well as other agencies to aide us in locating these types of business as well as others. Additionally, on the internal front, our Small Business Liaison Officer and Purchasing department continue to review our needs and search for SDBs as well as other networking opportunities that might help us locate SDBs.

Page 3 of 4

CREE, INC.

SB/HUB/SDB/WOB

SUBCONTRACTING PLAN

For

CONTRACT/SUBCONTRACT NO: BAA 01-35, Entitled [***]

Approved:
/s/ Carmen Hayes	6/25/02
Small Business Utilization Specialist, Cree, Inc	Date
Contracting Officer/Buyer	Date

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Page 4 of 4

Item No.	Product	Quantity Total	Price $ Amount		Total	Attachment 1	Business Type
						Vendor
1a	[***]	78.00	1,673.00		130,494.00	[***]	Large
1	[***]	220.00	1,870.00		411,400.00	[***]	Large
2	[***]	22.00	1,200.00		26,400.00	[***]	Large
3	[***]	16.00	17.90		286.40	[***]	Large
4	[***]	13.00	75.00		975.00	[***]	Large
8	[***]	25,078.00	0.25		6,269.50	[***]	Large
9	[***]	2.00	28,300.00		56,600.00	[***]	large
12	[***]	8.00	7,400.00		59,200.00	[***]	Large
13	[***]	693.00	1.17		810.81	[***]	Large
15	[***]	39.00	426.85		16,647.15	[***]	Large
16	[***]	670.00	1.94		1,299.80	[***]	Large
19	[***]	10.00	655.00		6,550.00	[***]	Large
11	[***]	1,580.00	71.41		112,827.80	[***]	Non Profit
5	[***]	21.00	66.00		1,386.00	[***]	small
6	[***]	18.00	47.00		846.00	[***]	small
7	[***]	27,268.00	0.19		5,180.92	[***]	small
10	[***]	62.00	375.00		23,250.00	[***]	small
14	[***]	11.00	211.50		2,326.50	[***]	Small
17	[***]	652.00	38.56		25,141.12	[***]	Small
18	[***]	3.00	4,250.00		12,750.00	[***]	Small
	Travel				108,490.00		WOSB
					1,009,131.00	[***]		[***]    [***]
	Travel				(108,490.00)	[***]		[***]    [***]
	[***] Cost- Deduct				(541,894.00)	[***]		[***]    [***]
	Non Profit-NCSU		(112,827.80	)		[***]		[***]    [***]
	Total-Subcontracted				[***]	[***]		[***]    [***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

FINANCIAL ACCOUNTING DATA SHEET - NAVY

1. CONTRACT NUMBER (CRITICAL) N0001402C0302

2. SPIN (CRITICAL)

3. MOD (CRITICAL)

4. PR NUMBER 02PR10530-00

Page 1 OF 1

CLIN/ SLIN

6. LINE OF ACCOUNTING

7.

A. ACRN (CRITICAL)

B. APPROPRIATION (CRITICAL)

C. SUBHEAD (CRITICAL)

D. OBJ CLA

E. PARM

F. RFM

G. SA

H. AAA (CRITICAL)

I. IT

J. PAA

K. COST CODE

AMOUNT (CRITICAL)

NAVY INTERNAL USE ONLY REF DOC/ACRN

PROJ UNIT

MCC

PDLI & SUF

AA

9720400

1304

255

RA

313

0

068342

2D

000000

R2Y10

000

N132

[***]

PR#02PR10530-00 FRC:A124

PAGE TOTAL

[***]

GRAND TOTAL

[***]

PREPARED/AUTHORIZED BY: DATE:

COMPTROLLER APPROVAL: FOR FISCAL DATA AND SIGNATURE BY                                               for COMPTROLLER, ONR CONTRACT REVIEWED DATE:

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ONR AWARD FORM (2/00) – version 1.1

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1.  CONTRACT ID CODE D0-C9(T) PAGE OF PAGES     1                    1

2.  AMENDMENT/MODIFICATION NO. P00001		3.  EFFECTIVE DATE SEE BLK 16C	4.  REQUISITION/PURCHASE REQ. NO. 02PR10530-01/20 SEP 2002	5.  PROJECT NO. (if applicable)   N.A.
6.  ISSUED BY	CODE	N00014	7.  ADMINISTERED BY (if other than Item 6)	CODE                S1103A
OFFICE OF NAVAL RESEARCH, ONR 251, EVELYON FIELDS (703) 696-4515, E-MAIL: FIELDSE@ONR.NAVY.MIL BALLSTON TOWER ONE, 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660			DCM ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789

8.  NAME AND ADDRESS OF CONTRACTOR (No., street, country, State and Zip Code)		(Ö)	9A.  AMENDMENT OF SOLICITATION NO: N.A.
CREE INC. 4600 SILICON DRIVE DURHAM, NC 27703			9B.  DATED (SEE ITEM 11)
		X	10A.  MODIFICATION OF CONTRACT/ORDER NO.       N00014-02-C-0302
CODE         0C9J8	FACILITY CODE		10B.  DATED (SEE ITEM 11) 28 JUN 2002
11.  THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
¨     The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers     ¨  is extended,     ¨  is not extended.
Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning              copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which included a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12.  ACCOUNTING AND APPROPRIATION DATA (if required) N.A.
13.  THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(Ö)	A.	THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify Authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
	B.	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
	C.	THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: AUTHORITY FOR OTHER THAN FULL AND OPEN COMPETITION
X	D.	OTHER (Specify type of modification and authority) FAR 43.103(B), MUTUAL AGREEMENT OF PARTIES, AND CONTRACTORS E-MAIL DATED 20 SEP 2002
	E.	IMPORTANT: Contractor ¨ is not, x is required to sign this document and return     2     copies to the issuing office.
14.  DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)
The purpose of this modification is to delete the mandatory flow down of DFARs clause 252.204-7000 to any subaward to Carnegie Mellon University, Purdue University, and Case Western University under N00014-02-C-0302. Under any subaward, Carnegie Mellon University, Purdue University, and Case Western University would still be required to submit their papers and other public releases to the government for review prior to release. This modification makes no change to the total estimated costs of this contract. All other terms and conditions of this contract remain unchanged.
Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A.  NAME AND TITLE OF SIGNER (Type or print) John W. Palmour Director of Advanced Devices		16A.  NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Evelyon T. Fields Contracting Officer
15B.  CONTRACTOR/OFFEROR	15C.  DATE SIGNED 9/20/02	16B.  UNITED STATES OF AMERICA			16C.  DATE SIGNED 9/20/02
/s/ John W. Palmour			BY	/s/ Evelyon T. Fields
(Signature of person authorized to sign)				(Signature of Contracting Officer)

NSN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE 30-105 STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR 53.243)

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1.  CONTRACT ID CODE D0-C9(T) PAGE OF PAGES     1                    3

2.  AMENDMENT/MODIFICATION NO. P00002		3.  EFFECTIVE DATE SEE BLK 16C	4.  REQUISITION/PURCHASE REQ. NO. 03PR06340-00/30 DEC 2002	5.  PROJECT NO. (if applicable)   N.A.
6.  ISSUED BY	CODE	N00014	7.  ADMINISTERED BY (if other than Item 6)	CODE                S1103A
OFFICE OF NAVAL RESEARCH, ONR 251, EVELYON FIELDS (703) 696-4515, E-MAIL: FIELDSE@ONR.NAVY.MIL BALLSTON TOWER ONE, 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660			DCM ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789

8.  NAME AND ADDRESS OF CONTRACTOR (No., street, country, State and Zip Code)		(Ö)	9A.  AMENDMENT OF SOLICITATION NO: N.A.
CREE INC. 4600 SILICON DRIVE DURHAM, NC 27703			9B.  DATED (SEE ITEM 11)
		X	10A.  MODIFICATION OF CONTRACT/ORDER NO.       N00014-02-C-0302
CODE         0C9J8	FACILITY CODE		10B.  DATED (SEE ITEM 13) 28 JUN 2002
11.  THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
¨     The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers     ¨  is extended,     ¨  is not extended.
Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning              copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which included a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12.  ACCOUNTING AND APPROPRIATION DATA (if required) N.A.
13.  THIS ITEM APPLIES ONLY TO MODIFICATION OF CONTRACTS/ORDERS,   IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(Ö)	A.	THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify Authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
	B.	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
	C.	THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: AUTHORITY FOR OTHER THAN FULL AND OPEN COMPETITION
X	D.	OTHER (Specify type of modification and authority) LIMITATION OF FUNDS CLAUSE
E.	IMPORTANT: Contractor x is not, ¨ is required to sign this document and return              copies to the issuing office.
14.  DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)
SEE PAGE 2
Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A.  NAME AND TITLE OF SIGNER (Type or print)		16A.  NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Susan M. Sutherland, Contracting Officer
15B.  CONTRACTOR/OFFEROR	15C.  DATE SIGNED	16B.  UNITED STATES OF AMERICA			16C.  DATE SIGNED 1/2/03
			BY	/s/    Susan M. Sutherland
(Signature of person authorized to sign)				(Signature of Contracting Officer)

NSN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE 30-105 STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR 53.243)

The purpose of this Modification is to revise Section B and provide the final increment of funding under Contract N00014-02-C-0302. Effective as of the date of this Modification:

1. The funds available for performance of this contract are increased by the amount set forth in the attached Financial Accounting Data Sheet.

2. Section B entitled “Supplies or Services and Prices/Costs” is revised to read:

BASE EFFORT
ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COSTS
0001	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.1 and C.2.	[***]	[***]	[***]
	000101: AA [***]
	000102: AB [***]
0002	Deliverables for Quarters 1-6 in accordance with Attachment Number 2			NSP
0003	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP

* Note: [***] our of the estimated contractor’s cost share amount of [***] represents a [***] discount on the projected price of the [***]. The [***] shall be used in support of this contract and charged at the current catalog price at the time of consumption less a [***] discount. Therefore, these items are not subject to a DCAA incurred cost audit.

OPTION EFFORT
ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COSTS
0004	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.1 and C.3.	[***]	[***]	[***]
0005	Deliverables for Quarters 7-8 in accordance with Attachment Number 2			NSP
0006	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP
TOTAL ESTIMATED CONTRACT CONSIDERATION:		[***]	[***]	[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER: N00014-02-C-0302/-00002 Page 2

3. In Section G entitled “Contract Administration Data, Paragraph 5 entitled “Allotment of Funds” is deleted in its entirety.

This Modification has no effect on the total estimated cost of the Contract. All other terms and conditions of the Contract remain unchanged.

CONTRACT NUMBER: N00014-02-C-0302/-00002 Page 3

FINANCIAL ACCOUNTING DATA SHEET - NAVY

1. CONTRACT NUMBER (CRITICAL) N0001402C0302

2. SPIN (CRITICAL)

3. MOD (CRITICAL) P00002

4. PR NUMBER 03PR06340-00

Page 1 OF 1

CLIN/SLIN

6. LINE OF ACCOUNTING

7. AMOUNT (CRITICAL)

NAVY INTERNAL USE ONLY REF DOC/ACRN

A. ACRN (CRITICAL)

B. APPROPRIATION (CRITICAL)

C. SUBHEAD (CRITICAL)

D. OBJ CLA

E. PARM

F.   RFM

G.   SA

H. AAA (CRITICAL)

I.   IT

J. PAA

K. COST CODE

PROJ UNIT

MCC

PDLI & SUF

AB

9730400

1304

255

RA

313

0

068342

2D

000000

R3Y10

000

N132

[***]

PR#03PR06340-00 FRC:A105

PAGE TOTAL

[***]

GRAND TOTAL

[***]

PREPARED/AUTHORIZED BY: DATE:

COMPTROLLER APPROVAL: FOR FISCAL DATA AND SIGNATURE BY                                          for COMPTROLLER, ONR CONTRACT REVIEWED DATE:

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ONR AWARD FORM (2/00) - version 1.1

EX-10.28

EXHIBIT 10.28

AWARD/CONTRACT

1. THIS CONTRACT IS A RATED ORDER UNDER DPAS (15 CFR 350)

RATING DO-C9(U)

PAGE OF PAGES 1        18

2.

CONTRACT (Proc. Inst. Ident.) No.

3. EFFECTIVE DATE

4. REQUISITION/PURCHASE REQUEST/ PROJECT NO.

N00014-02-C-0306

SEE BLOCK 20C

02-PR09637-00

5.

ISSUED BY

CODE

N00014

6. ADMINISTERED BY (If other than Item 5)

CODE

S1103A

OFFICE OF NAVAL RESEARCH ONR 251: Bona Tilahun (703) 696-2591 BALLSTON TOWER ONE 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660

DCM ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789

7.

NAME AND ADDRESS OF CONTRACTOR (No., street, city, county, State and ZIP Code.)

8. DELIVERY

CREE, INC. 4600 SILICON DRIVE DURHAM, NC 27703

See SECTION F of Schedule ¨  FOB ORIGIN        ¨  OTHER (See below)

9. DISCOUNT FOR PROMPT PAYMENT

N.A.

10. SUBMIT INVOICES (4 copies unless otherwise specified) TO THE ADDRESS SHOWN IN  ¨

ITEM SEE SECTION G

CODE

0C9J8

FACILITY CODE

11.

SHIP TO/MARK FOR                    CODE

N00014

12.

PAYMENT WILL BE MADE BY

CODE

HQ0338

PROGRAM OFFICER SEE SECTION F – DELIVERIES OR PERFORMANCE

DFAS COLUMBUS CENTER DFAS CO SOUTH ENTITLEMENT OPERATIONS PO BOX 182264 COLUMBUS, OH 43218-2264

13.

AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION:

14. ACCOUNTING AND APPROPRIATION DATA

¨ 10 U.S.C. 2304(c)(N/A)

¨ 41 U.S.C. 253(c)( N/A )

See Attached Financial Accounting Data Sheet(s)

15A. ITEM NO.	15B. SUPPLIES/SERVICES	15C. QUANTITY	15D. UNIT	15E. UNIT PRICE	15F. AMOUNT
	See SECTION B of Schedule
15G. TOTAL AMOUNT OF CONTRACT					See SECTION B of Schedule

16. TABLE OF CONTENTS
(X)	SEC	DESCRIPTION	PAGE(S)	(X)	SEC.	DESCRIPTION	PAGE(S)
		PART I — THE SCHEDULE		PART II - CONTRACT CLAUSES
X	A	SOLICITATION/CONTRACT FORM	1	X	I	CONTRACT CLAUSES	11-17
X	B	SUPPLIES OR SERVICES AND PRICES/COSTS	2	PART III – LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.
X	C	DESCRIPTION/SPECS./WORK STATEMENT	3	X	J	LIST OF ATTACHMENTS	18
X	D	PACKAGING AND MARKING	3	PART IV- REPRESENTATIONS AND INSTRUCTIONS
X	E	INSPECTION AND ACCEPTANCE	3	X	K	REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS	18
X	F	DELIVERIES OR PERFORMANCE	3-4
X	G	CONTRACT ADMINISTRATION DATA	4-7		L	INSTRS., CONDS., AND NOTICES TO OFFERORS
X	H	SPECIAL CONTRACT REQUIREMENTS	7-10		M	EVALUATION FACTORS FOR AWARD
CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
17.	x	CONTRACTOR’S NEGOTIATED AGREEMENT		18.	¨	AWARD
(Contractor is required to sign this document and return _2_ copies to issuing office.) Contractor agrees to furnish and deliver all items or perform all the services set forth or otherwise identified above and on any continuation sheets for the consideration stated herein. The rights and obligations of the parties to this contract shall be subject to and governed by the following documents: (a) this award/contract, (b) the solicitation, if any, and (c) such provisions, representations, certifications, and specifications, as are attached or incorporated by reference herein. (Attachments are listed herein.)						(Contractor is not required to sign this document.) Your offer on Solicitation Number             . including the additions or changes made by you which additions or changes are set forth in full above, is hereby accepted as to the items listed above and on any continuation sheets. This award consummates the contract which consists of the following documents: (a) the Government’s solicitation and your offer, and (b) this award/contract. No further contractual document is necessary.

19A. NAME AND TITLE OF SIGNER (Type or print)			20A. NAME OF CONTRACTING OFFICER
John W. Palmour, Dir. Of Advanced Devices			Bona Tilahun Contracting Officer
19B. NAME OF CONTRACTOR		19C. DATE SIGNED	20B. UNITED STATES OF AMERICA		20C. DATE SIGNED
BY	/s/ John W. Palmour	26 June 02	BY	/s/ Bona Tilahun	6/28/02
	(Signature of person authorized to sign)			(Signature of Contracting Officer)

NSN 7540-01-152-8069 PREVIOUS EDITION UNUSABLE NAVONR OVERPRINT (4-85) STANDARD FORM 26 (REV. 4-85)             Prescribed by GSA FAR (48 CFR) 53.214(a)

SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS

BASE EFFORT
ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COSTS
0001	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.1 and C.2.	[***]	[***]	[***]
	000101: AA [***]
0002	Deliverables for Quarters 1-6 in accordance with Attachment Number 2			NSP
0003	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP

Note: [***] out of the estimated contractor’s [***] amount of [***] represents a [***] discount on the projected price of the [***]. The [***] shall be used in support of this contract and charged at the current catalog price at the time of consumption less a [***] discount. Therefore, these items are not subject to a DCAA incurred cost audit.

OPTION EFFORT
ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COSTS
0004	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C. 1 and C .3.	[***]	[***]	[***]
0005	Deliverables for Quarters 7-8 in accordance with Attachment Number 2			NSP
0006	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP

Note: [***] out of the estimated contractor’s [***] amount of [***] represents a [***] discount on the projected price of the[***]. The [***] shall be used in support of this contract and charged at the current catalog price at the time of consumption less a [***] discount. Therefore, these items are not subject to a DCAA incurred cost audit.

TOTAL ESTIMATED CONTRACT
CONSIDERATION: [***] [***] [***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0306 PAGE 2

SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT

1) The research effort to be performed hereunder shall be subject to the requirements and standards contained in Exhibit A and the following paragraph(s).

2) The Contractor shall conduct the base effort research in accordance with the base effort tasks on pages 1-4 of Attachment Number 1, entitled “Statement of Work.” The contractor shall provide the deliverables described under Quarters 1-6 of Attachment Number 2 of the contract.

3) The Contractor shall conduct the option research effort in accordance with the optional tasks described on pages 5-8 of Attachment Number 1, entitled “Statement of Work.” The contractor shall provide the deliverables described under Quarters 7-8 of Attachment Number 2 of the contract.

SECTION D - PACKAGING AND MARKING

Preservation, packaging, packing and marking of all deliverable contract line items shall conform to normal commercial packing standards to assure safe delivery at destination.

SECTION E - INSPECTION AND ACCEPTANCE

Inspection and acceptance of the final delivery under this contract will be accomplished by the Program Officer designated in Section F of this contract, who shall have at least thirty (30) days after contractual delivery for acceptance.

SECTION F - DELIVERIES OR PERFORMANCE

1) The research effort performed under this contract shall be conducted during the period from the effective date (See Block 20C of the Standard Form 26) through eighteen (18) months thereafter. A final report will be prepared, submitted, reproduced and distributed by sixty days thereafter unless the contract is extended, in which case, the final report will be prepared in accordance with the terms of such extension.

a) Item No. 0002 of Section B (Deliverables) shall be delivered within the time periods stated in Attachment Number 2, F.O.B. Destination.

b) Item No. 0003 of Section B (Reports and Data) shall be delivered within the time periods stated in Exhibit A, F.O.B. Destination.

2) If the Option (CLIN 0004) is exercised, that research effort shall be conducted during the period from the date the option is exercised through [***] thereafter. A final report will be prepared, submitted, reproduced and distributed by sixty days thereafter unless the contract is extended, in which case, the final report will be prepared in accordance with the terms of such extension.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0306 PAGE 3

a) Item No. 0005 of Section B (Deliverables) shall be delivered within the time periods stated in Attachment Number 2, F.O.B. Destination.

b) Item No 0006 of Section B (Reports and Data) shall be delivered within the time periods stated in Exhibit A, F.O.B. Destination.

3) Distribution, consignment and marking instructions for CLIN 0002 and if the option is exercised, CLIN 0005, shall be in accordance with the following address In addition, the Data Sheets required under these CLINS shall also be delivered to the Program Officer stated in paragraph 4.

Tri-Service Correlation Team

Attn: Thomas Jenkins

AFRL/SNDM, Bldg 620, Area B

2241 Avionics Circle, Rm C2G69

Wright-Patterson AFB OH 45433

Ref: Contract N00014-02-C-0306

4) Distribution, consignment and marking instructions for CLIN 0003 and if the option is exercised, CLIN 0006, shall be in accordance with Enclosure Number 1 and the following:

Program Officer

Office of Naval Research

Baliston Tower One

800 North Quincy Street

Arlington, Virginia 222 17-5660

Attn: Dr. Harry Dietrich, Code 312, Telephone (703) 696-0240

Ref: Contract N00014-02-C-0306

SECTION G - CONTRACT ADMINISTRATION DATA

1.   NAPS 5252.232-                        9001 SUBMISSION OF INVOICES (COST REIMBURSEMENT, TIME-AND-MATERIALS, LABOR-HOUR, OR FIXED PRICE INCENTIVE) (JUL 1992)

(a) “Invoice” as used in this clause includes contractor requests for interim payments using public vouchers (SF 1034) but does not include contractor requests for progress payments under fixed price incentive contracts.

(b) The Contractor shall submit invoices and any necessary supporting documentation, in an original and 4 copies, to the contract auditor at the following address:

Defense Contract Audit Agency

DCAA/MABO

CONTRACT NUMBER N00014-02-C-0306 PAGE 4

P.O. Box 891

Arnold, MD 21012-0891

Telephone: (410) 260-5420

Fax: (410) 260-5986

unless delivery orders are applicable, in which case invoices will be segregated by individual order and submitted to the address specified in the order. In addition, an information copy shall be submitted to the Program Officer identified in Section F.2a of this contract. Following verification, the contract auditor* will forward the invoice to the designated payment office for payment in the amount determined to be owing, in accordance with the applicable payment (and fee) clause(s) of this contract.

(c) Invoices requesting interim payments shall be submitted no more than once every two weeks, unless another time period is specified in the Payments clause of this contract. For indefinite delivery type contracts, interim payment invoices shall be submitted no more than once every two weeks for each delivery order. There shall be a lapse of no more than 30 calendar days between performance and submission of an interim payment invoice.

(d) In addition to the information identified in the Prompt Payment clause herein, each invoice shall contain the following information, as applicable:

(1) Contract line item number (CLIN)

(2) Subline item number (SLIN)

(3) Accounting Classification Reference Number (ACRN)

(4) Payment terms

(5) Procuring activity

(6) Date supplies provided or services performed

(7) Costs incurred and allowable under the contract

(8) Vessel (e.g., ship, submarine or other craft) or system for which supply/service is provided.

(e) A DD Form 250, “Material Inspection and Receiving Report”,

¨ is required with each invoice submittal.

x is required only with the final Invoice.

¨ is not required.

(f) A Certificate of Performance

¨ shall be provided with each invoice submittal.

x is not required

(g) The Contractor’s final invoice shall be identified as such, and shall list all other invoices (if any) previously tendered under this contract.

(h) Costs of performance shall be segregated, accumulated and invoiced to the appropriate

CONTRACT NUMBER N00014-02-C-0306 PAGE 5

ACRN categories to the extent possible. When such segregation of costs by ACRN is not possible for invoices submitted with CLINS/SLINS with more than one ACRN, an allocation ratio shall be established in the same ratio as the obligations cited in the accounting data so that costs are allocated on a proportional basis.

2. Submission of Invoices Direct to Payment Office

a) Pursuant to DFARS 242.803(b)(I)(C), if the cognizant Government auditor has notified the contractor of its authorization to do so, the contractor may submit interim vouchers under this contract direct to the payment office shown in Block 12 of SF-26 instead of to the address shown in subparagraph (b) of section G. 1 above.

b) Such authorization does not extend to the first and final vouchers. The contractor shall continue to submit first vouchers to the cognizant auditor shown in subparagraph (b) of section G. 1. above. The final voucher shall be submitted to the Administrative Contracting Officer (SF-26 block 6) with a copy to the cognizant auditor.

3. Method of Payment

As consideration for the proper performance of the work and services required under this contract, the Contractor shall be paid as follows:

a) Costs, as provided for under the contract clause entitled “Allowable Cost and Payment,” not to exceed the amount set forth as “Estimated Cost” in Section B, subject to the contract clause entitled “Limitation of Cost” or “Limitation of Funds” whichever is applicable.

4. Procuring Office Representatives

a) In order to expedite administration of this contract, the Administrative Contracting Officer should direct inquiries to the appropriate office listed below Please do not direct routine inquiries to the person listed in Item 20A on Standard Form 26.

Contract Negotiator -	Bona Tilahun, ONR 251, (703) 696-2591, DSN 426-2591, E-Mail Address: tilahub@onr.navy.mil
Inspection and Acceptance -	Dr. Harry Dietrich, ONR 312, (703) 696-0240, DSN 426-0240, E-Mail Address: dietrih@onr.navy.mil
Security Matters - Ms. Jennifer Ramsey, ONR 43, (703) 696-4618, DSN 426-4618
Patent Matters - Mr. Tom McDonnell, ONR 00CC, (703) 696-4000, DSN 426-4000.

b) The Administrative Contracting Officer will forward invention disclosures and reports directly to Corporate Counsel (Code 00CC), Office of Naval Research, Department of the Navy, Arlington, Virginia 222 17-5660. The Corporate Counsel will return the reports along with a recommendation to the Administrative Contracting Officer. The Corporate Counsel will represent the Contracting Officer with regard to invention reporting matters arising

CONTRACT NUMBER N00014-02-C-0306 PAGE 6

under this contract.

5. Allotment of Funds

It is hereby understood and agreed that the Government’s share of this contract will not exceed a total amount of [***]. The total amount presently available for payment and allotted to this contract is [***]. It is estimated that the amount allotted of [***] will cover the period from the effective date of the contract (See date in Block 20C of the Standard Form 26) through [***] thereafter.

6. Consent to Subcontract and/or Hire Consultants

The services of the following subcontractors have been identified as necessary for the performance of this contract:

Identified Subcontractor	Estimated Cost Base	Estimated Cost Option I
Cree Lighting Company	[***]	[***]
SUNY - Stony Brook	[***]	[***]

The preceding listing shall constitute the written consent of the Contracting Officer required by Paragraphs (c), (d) and (e) of the contract clause at FAR 52 244-2 entitled “Subcontracts” The Contracting Officer’s written consent to subcontract is required for:

(i) services acquired under a cost-reimbursement, time-and-materials, or labor-hour type subcontract or agreement;

(ii) fixed price contracts that exceed the greater of $100,000 or 5 percent of the total estimated cost of the contract;

This consent is based upon the information submitted by the prime contractor in accordance with FAR 52.244-2 (f) (1) (i) through (vii).

7. Type of Contract

This is a [***] (completion) contract.

SECTION H - SPECIAL CONTRACT REQUIREMENTS

1. ONR 5252.235-9714 REPORT PREPARATION (FEB 2002)

Scientific or technical reports prepared by the Contractor and deliverable under the terms of this contract will be prepared in accordance with format requirements contained in ANSI/NISO Z39.18-1995, Scientific and Technical Reports: Elements, Organization, and Design.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0306 PAGE 7

[NOTES: All NISO American National Standards are available as free, downloadable pdf(s) at http://www.niso.org/stanards/index.html. NISO standards can also be purchased in hardcopy form from NISO Press Fulfillment, P. O. Box 451, Annapolis Junction, MD 20701-0451 USA. Telephone U.S. and Canada: (877) 736-6476; Outside the U.S. and Canada: 301-362-6904; Fax: 301-206-9786.]

2. ONR 5252.210-9708 METRICATION REQUIREMENTS (DEC 1988)

a) All scientific and technical reports delivered pursuant to the terms of this contract shall identify units of measurement in accordance with the International System of Units (SI) commonly referred to as the “Metric System”. Conversion to U.S. customary units may also be given where additional clarity is deemed necessary. Guidance for application of the metric system is contained in the American Society of Testing Materials document entitled “Standard Practice for Use of the International System of Units (The Modernized Metric System)” (ASTM Designation E 30-89A)

b) This provision also applies to journal article preprints, reprints, commercially published books or chapters of books, theses or dissertations submitted in lieu of a scientific and/or technical report.

3. Invention Disclosure and Reports

The Contractor shall submit all invention disclosures and reports required by the Patent Rights clause of this contract to the Administrative Contracting Officer.

4. ONR 5252.242-9718 TECHNICAL DIRECTION (FEB 2002)

a) Performance of the work hereunder is subject to the technical direction of the Program Officer/COR designated in this contract, or duly authorized representative. For the purposes of this clause, technical direction includes the following:

1) Direction to the Contractor which shifts work emphasis between work areas or tasks, requires pursuit of certain lines of inquiry, fills in details or otherwise serves to accomplish the objectives described in the statement of work;

2) Guidelines to the Contractor which assist in the interpretation of drawings, specifications or technical portions of work description.

b) Technical direction must be within the general scope of work stated in the contract. Technical direction may not be used to:

1) Assign additional work under the contract;

2) Direct a change as defined in the contract clause entitled “Changes”;

3) Increase or decrease the estimated contract cost, the fixed fee, or the time required for contract performance; or

4) Change any of the terms, conditions or specifications of the contract.

c) The only individual authorized to in any way amend or modify any of the terms of this contract shall be the Contracting Officer. When, in the opinion of the Contract, any

CONTRACT NUMBER N00014-02-C-0306 PAGE 8

technical direction calls for effort outside the scope of the contract or inconsistent with this special provision, the Contractor shall notify the Contracting Officer in writing within ten working days after its receipt. The Contractor shall not proceed with the work affected by the technical direction until the Contractor is notified by the Contracting Officer that the technical direction is within the scope of the contract.

d) Nothing in the foregoing paragraphs may be construed to excuse the Contractor from performing that portion of the work statement which is not affected by the disputed technical direction.

5. ONR 5252.237-9705 Key Personnel (DEC 88)

a) The Contractor agrees to assign to the contract tasks those persons whose resumes were submitted with its proposal and who are necessary to fulfill the requirements of the contract as “key personnel”. No substitutions may be made except in accordance with this clause.

b) The Contractor understands that during the first ninety (90) days of the contract performance period, no personnel substitutions will be permitted unless these substitutions are unavoidable because of the incumbent’s sudden illness, death or termination of employment. In any of these events, the Contractor shall promptly notify the Contracting Officer and provide the information described in paragraph (c) below. After the initial ninety (90) day period the Contractor must submit to the Contracting Officer all proposed substitutions, in writing, at least 30 days in advance (60 days if security clearance must be obtained) of any proposed substitution and provide the information required by paragraph (c) below.

c) Any request for substitution must include a detailed explanation of the circumstances necessitating the proposed substitution, a resume for the proposed substitute, and any other information requested by the Contracting Officer. Any proposed substitute must have qualifications equal to or superior to the qualifications of the incumbent. The Contracting Officer or his/her authorized representative will evaluate such requests and promptly notify the Contractor in writing of his/her approval or disapproval thereof.

d) In the event that any of the identified key personnel cease to perform under the contract and the substitute is disapproved, the contract may be immediately terminated in accordance with the Termination clause of the contract.

The following are identified as key personnel:

Labor Category	Name of Key Person
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]

6. Controlled Unclassified Information

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0306 PAGE 9

The parties understand that information and materials provided pursuant to or resulting from this contract may be export controlled, sensitive, for official use only, or otherwise protected by law, executive order or regulation. The Contractor is responsible for compliance with all applicable laws and regulations Nothing in this Contract shall be construed to permit any disclosure in violation of those restrictions.

7. [***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER: N00014-02-C-0306

PAGE 10

SECTION I - CONTRACT CLAUSES

Cost Sharing (MAY 2002) (1)

Attention: Prime Contractors. If a subaward is made to an educational institution, Prime Contractors are directed to please refer to the ONR Model A ward for appropriate flow-down clauses to universities. See http://www.onr.navy.nijL click Contracts & Grants Icon. Click Model Awards Link Click Section I clauses that flow-down to University subcontractors.

(A) FAR 52.252-02 CLAUSES INCORPORATED BY REFERENCE (FEB 1998)

This contract incorporates one or more clauses by reference, with the same force and effect as if they were given in full text Upon request, the Contracting Officer will make their full text available Also, the full text of a clause may be accessed electronically at these addresses:

http://www.arnet.gov/far/

http://web1.deskbook.osd.mil/htmlfiles/DBY_far.asp

http://web2.deskbook.osd.mil/htmlfiles/DBY_dfars.asp

http //farsite.hill.af.mil/farsite_script.html

For instance, a dollar threshold may trigger the applicability of the clause or a certain condition of the research may trigger the applicability of the clause. In order to provide some assistance, as to when a dollar threshold triggers a clause, we have associated certain symbols with dollar thresholds. The symbols and their appropriate dollar thresholds are as follows:

* Applies when contract action exceeds $10,000

** Applies when contract action exceeds $100,000

+ Applies when contract action exceeds $500,000

++ Applies when contract action exceeds $500,000 and subcontracting possibilities exist Small Business Exempt

x (DD250)

xx Not applicable

I. FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES:

**	FAR 52 202-1	Definitions (DEC 2001)
**	FAR 52 203-3	Gratuities (APR 1984)
**	FAR 52 203-5	Covenant Against Contingent Fees (APR 1984)
**	FAR 52.203-6	Restrictions on Subcontractor Sales to the Government (JUL 1995)
**	FAR 52 203-7	Anti-Kickback Procedures (JUL 1995)
**	FAR 52 20 3-8	Cancellation, Rescission, and Recovery of Funds for Illegal or
**		Improper Activity (JAN 1997)
**	FAR 52 203-10	Price or Fee Adjustment for illegal or Improper Activity (JAN 1997)
**	FAR 52 203-12	Limitation on Payments to Influence Certain Federal Transactions (JUN 1997)
**	FAR 52 204-4	Printing/Copying Double-Sided on Recycled Paper (AUG 2000)
	FAR 52 211-15	Defense Prionty and Allocation Requirements (SEP 1990)

CONTRACT NUMBER N00014-02-C-0306 PAGE 11

**	FAR 52.215-2	Audit and Records - Negotiation (JUN 1999) and Alternate II (APR 1998) (Alternate II is only applicable with cost reimbursement contracts with State and local Governments, educational institutions, and other non-profit organizations.)
	FAR 52.215-8	Order of Precedence - Uniform Contract Format (OCT 1997)
+	FAR 52.215-10	Price Reduction for the Defective Cost or Pricing Data (OCT 1997) (The clause is applicable to subcontracts over $550,000.)
+	FAR 52.215-12	Subcontractor Cost or Pricing Data (OCT 1997) (Applicable to subcontracts over $550,000 only)
**	FAR 52.215-14	Integrity of Unit Prices (OCT 1997) and Alternate I (OCT 1997) (Alternate I is applicable if the action is contracted under Other Than Full and Open Competition)
+	FAR 52.215-15	Pension Adjustments and Asset Reversions (DEC 1998)
+	FAR 52.215-18	Reversion or Adjustment of Plans for Postretirement Benefits (PRB) Other than Pensions (OCT 1997)
+	FAR 52.215-19	Notification of Ownership Changes (OCT 1997) (Applicable when Cost or Pricing Data is required)
	FAR 52.216-7	Allowable Cost and Payment (FEB 2002)
	FAR 52.216-8	Fixed Fee (MAR 1997)
**	FAR 52.219-4	Notice of Price Evaluation Preference for HUBzone Small Business Concerns (JAN 1999)
**	FAR 52.219-8	Utilization of Small Business Concerns (OCT 2000)
++	FAR 52.219-9	Small Business Subcontracting Plan (JAN 2002)
++	FAR 52.219-16	Liquidated Damages - Subcontracting Plan (JAN 1999)
	FAR 52.222-1	Notice to the Government of Labor Disputes (FEB 1997)
**	FAR 52.222-2	Payment for Overtime Premiums (JUL 1990) (Note: The word “zero” is inserted in the blank space indicated by an asterisk)
	FAR 52.222-3	Convict Labor (AUG 1996) (Reserved when FAR 52.222-20 Walsh Healy Public Contracts Act is applicable)
**	FAR 52.222-4	Contract Work Hours and Safety Standards Act - Overtime Compensation (SEP 2000)
	FAR 52.222-21	Prohibition of Segregated Facilities (FEB 1999)
	FAR 52.222-26	Equal Opportunity (APR 2002)
*	FAR 52.222-35	Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (DEC 2001 1998)
*	FAR 52.222-36	Affirmative Action for Workers with Disabilities (JUN 1998)
*	FAR 52.222-37	Employment Reports on Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (DEC 2001)
**	FAR 52.223-14	Toxic Chemical Release Reporting (OCT 2000)
	FAR 52.225-13	Restrictions on Certain Foreign Purchases (JUL 2000)
**	FAR 52.227-1	Authorization and Consent (JUL 1995) and Alternate I (APR 1984)
**	FAR 52.227-2	Notice and Assistance Regarding Patent and Copyright Infringement (AUG 1996)
	FAR 52.228-7	Insurance Liability to Third Persons (MAR 1996) (Further to paragraph (a)(3), unless otherwise stated in this contract, types and limits of insurance required are as stated in FAR 28.307-2)
	FAR 52.232-9	Limitation on Withholding of Payments (APR 1984)
**	FAR 52.232-17	Interest (JUN 1996)
	FAR 52.232-23	Assignment of Claims (JAN 1986) and Alternate I (APR 1984)

CONTRACT NUMBER N00014-02-C-0306 PAGE 12

	FAR 52.232-25	Prompt Payment (FEB 2002) and Alternate I (FEB 2002) (The words “the 30th day” are inserted in lieu of “the 7th day” at (a)(5)(i). [When Alternate I is applicable (a)(5)(i) does do not apply] [Alternate I applies when awarding a cost reimbursement contract for services]
	FAR 52.232-33	Payment by Electronic Funds Transfer - Central Contractor Registration (MAY 1999)
	FAR 52.233-1	Disputes (DEC 1998)
	FAR 52.233-3	Protest After Award (AUG 1996) and Alternate I (JUN 1985)
	FAR 52.242-1	Notice of Intent to Disallow Costs (APR 1984)
+	FAR 52.242-3	Penalties for Unallowable Costs (MAY 2001)
	FAR 52.242-4	Certification of Final Indirect Costs (JAN 1997)
**	FAR 52.242-13	Bankruptcy (JUL 1995)
	FAR 52.242-15	Stop Work Order (AUG 1989) and Alternate I (APR 1984)
	FAR 52.244-2	Subcontracts (AUG 1998) and Alternate I (AUG 1998) [Insert in cost-reimbursement contracts, and letter, time-and-material, and labor-hour contracts exceeding SAP, and fixed price contracts exceeding SAP where unpriced actions are anticipated. Use Alternate I for cost-reimbursement contracts]
**	FAR 52.244-5	Competition in Subcontracting (DEC 1996)
	FAR 52.244-6	Subcontracts for Commercial Items and Commercial Components (APR 2002)
	FAR 52.245-5	Government Property (Cost-Reimbursement, Time-and-Materials, or Labor-Hour Contracts) (JAN 1986) and ALT I (JUL 1985) (As modified by DoD Class Deviation 99-00008 dated 13 July 1999) (ALT I is applicable if the contractor is a nonprofit organization whose primary purpose is the conduct of scientific research)
**	FAR 52.247-64	Preference for Privately Owned U.S. Flag Commercial Vessels (JUN 2000)
	FAR 52.249-6	Termination (Cost-Reimbursement) (SEP 1996)
	FAR 52.249-14	Excusable Delays (APR 1984)
	FAR 52.251-1	Government Supply Sources (APR 1984)
	FAR 52.253-1	Computer Generated Forms (JAN 1991)

II. DEPARTMENT OF DEFENSE FAR SUPPLEMENTAL (DFARS) (48 CFR CHAPTER 2) CLAUSES:

**	DFARS 252.203-7001	Prohibition On Persons Convicted of Fraud or Other Defense-Contract-Related Felonies (MAR 1999)
	DFARS 252.204-7003	Control of Government Work Product (APR 1992)
	DFARS 252.204-7004	Required Central Contractor Registration (NOV 2001)
**	DFARS 252.209-7000	Acquisition from Subcontractors subject to On-Site Inspection under the Intermediate Range Nuclear Forces (INF) Treaty (NOV 1995)
**	DFARS 252.209-7004	Subcontracting with Firms That Are Owned or Controlled by the Government of a Terrorist Country (MAR 1998)
+	DFARS 252.215-7000	Pricing Adjustments (DEC 1991)
++	DFARS 252.219-7003	Small, Small Disadvantaged and Women-owned Small Business Subcontracting Plan (DoD Contracts) (APR 1996)
**	DFARS 252.225-7012	Preference for Certain Domestic Commodities (APRIL 2002)
	DFARS 252.225-7031	Secondary Arab Boycott of Israel (JUN 1992)
	DFARS 252.227-7013	Rights in Technical Data – Noncommercial Items (NOV 1995), and Alternate I (JUN 1995)
	DFARS 252.227-7014	Rights In Noncommercial Computer Software and Noncommercial Computer Software Documentation (JUN 1995)

CONTRACT NUMBER N00014-02-C-0306 PAGE 13

	DFARS 252.227-7016	Rights in Bid or Proposal Information (JUN 1995)
	DFARS 252.227-7019	Validation of Asserted Restrictions – Computer Software (JUN 1995)
	DFARS 252.227-7025	Limitations on the Use or Disclosure of Government-Furnished Information Marked with Restrictive Legends (JUN 1995)
	DFARS 252.227-7028	Technical Data or Computer Software Previously Delivered to the Government (JUN 1995)
	DFARS 252.227-7030	Technical Data – Withholding of Payment (MAR 2000)
	DFARS 252.227-7036	Declaration of Technical Data Conformity (JAN 1997)
	DFARS 252.227-7037	Validation of Restrictive Markings on Technical Data (SEP 1999)
	DFARS 252.231-7000	Supplemental Cost Principles (DEC 1991)
	DFARS 252.242-7000	Post-Award Conference (DEC 1991)
**	DFARS 252.243-7002	Requests for Equitable Adjustment (MAR 1998)
	DFARS 252.245-7001	Reports of Government Property (MAY 1994)
X	DFARS 252.246-7000	Material Inspection and Receiving Report (DEC 1991)
	DFARS 252.251-7000	Ordering from Government Supply Sources (MAY 1995)
**	DFARS 252.247-7023	Transportation of Supplies by Sea (MAR 2000)
**	DFARS 252.247-7024	Notification Of Transportation Of Supplies By Sea (MAR 2000) (Applicable when the Contractor has made a negative response to the inquiry in the representation at DFARS 252.247-7022.)
	DFARS 252.251-7000	Ordering from Government Supply Sources (MAY 1995)

(B) ADDITIONAL FAR AND DFARS CLAUSES

This contract incorporates one or more clauses by reference as indicated by the mark of (X), with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. Also, the full text of a clause may be accessed electronically at this address: http://www.arnet.gov/far/

	FAR 52.204-2	Security Requirements (AUG 1996) (Applicable if contract will generate or require access to classified information and DD Form 254, Contract Security Classification Specification, is issued to the contractor)
X	FAR 52.209-6	Protecting the Government’s Interest when Subcontracting with Contractors Debarred, Suspended, or Proposed for Debarment (JUL 1995) (Applicable to contracts exceeding $25,000 in value.)
	FAR 52.215-17	Waiver of Facilities Capital Cost of Money (OCT 1997) (Applicable if the Contractor did not propose facilities capital cost of money in the offer)
X	FAR 52.215-20	Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data (OCT 1997) (Applicable if cost or pricing data or information other than cost or pricing data are required)
X	FAR 52.215-21	Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data - Modifications (OCT 1997) (Applicable if cost or pricing data or information other than cost or pricing data will be required for modifications)
X	FAR 52.217-9	Option to Extend the Term of the Contract (MAR 2000) (In paragraph (a), insert “the period of performance”, and in paragraph (c), insert “24 months”) (Applicable if contract contains line item(s) for option(s)) (Complete the spaces in parentheses)
	FAR 52.219-3	Notice of Total HUBZone Set-Aside (JAN 1999)

CONTRACT NUMBER N00014-02-C-0306 PAGE 14

	FAR 52.219-5	Very Small Business Set-Aside (MAR 1999) (For actions between $2,500 and $50,000)
	FAR 52.219-6	Notice of Total Small Business Set-Aside (JUL 1996), and Alternate I (OCT 1995) (Applicable to total small business set-asides, including SBIR)
	FAR 52.219-7	Notice of Partial Small Business Set-Aside (JUL 1996) and Alternate I (OCT 1995)
	FAR 52.219-10	Incentive Subcontracting Program (OCT 2001) (Applicable at the PCO’s discretion to contract actions exceeding $500,000 and when subcontracting possibilities exist. The clause is small business exempt) (In paragraph (b), insert the appropriate number between 0 and 10 – “XX”) (Complete the space in the parentheses)
	FAR 52.219-25	Small Disadvantaged Business Participation Program - Disadvantaged Status and Reporting (OCT 1999) (Applicable if contract includes FAR 52.219-24)
	FAR 52.219-26	Small Disadvantaged Business Participation Program - Incentive Subcontracting Program (OCT 2000) (Applicable at the PCO’s discretion to contract actions exceeding $500,000 and when subcontracting possibilities exist. The clause is small business exempt) (In paragraph (b), insert the appropriate number between 0 and 10 – “XX”) (Complete the space in the parentheses)
X	FAR 52.222-20	Walsh Healy Public Contracts Act (DEC 1996) (Applicable if the contract includes deliverable materials, supplies, articles or equipment in an amount that exceeds or may exceed $10,000)
	FAR 52.223-5	Pollution Prevention and Right-to-Know Information (APR 1998) (Applicable if contract provides for performance, in whole or in part, on a Federal facility)
X	FAR 52.223-6	Drug-Free Workplace (MAY 2001) (Applies when contract action exceeds $100,000 or at any value when the contract is awarded to an individual)
	FAR 52.230-2	Cost Accounting Standards (APR 1998) (Applicable when contract amount is over $500,000, if contractor is subject to full CAS coverage, as set forth in 48 CFR Chapter 99, Subpart 9903.201-2(a) (FAR Appendix B)
X	FAR 52.230-3	Disclosure and Consistency of Cost Accounting Practices (APR 1998) (Applicable when contract amount is over $500,000 but less than $25 million, and the offeror certifies it is eligible for and elects to use modified CAS coverage as set forth in 48 CFR Chapter 99, Subpart 9903.201-2 (FAR Appendix B)
X	FAR 52.230-6	Administration of Cost Accounting Standards (NOV 1999) (Applicable if contract is subject to either clause at FAR 52.230-2, FAR 52.230-3 or FAR 52.230-5)
X	FAR 52.232-20	Limitation of Cost (APR 1984) (Applicable only when contract action is fully funded)
X	FAR 52.232-22	Limitation of Funds (APR 1984) (Applicable only when contract action is incrementally funded)
	FAR 52.239-1	Privacy or Security Safeguards (AUG 1996) (Applicable to contracts for information technology which require security of information technology, and/or are for the design, development, or operation of a system of records using commercial information technology services or support services.)
	FAR 52.245-18	Special Test Equipment (FEB 1993) Applicable when it is anticipated that the contractor will acquire or fabricate special test equipment but the exact identification of the equipment is not known)

CONTRACT NUMBER N00014-02-C-0306 PAGE 15

X	DFARS 252.203-7002	Display of DoD Hotline Poster (DEC 1991) (Applicable only when contract action exceeds $5 million or when any modification increases contract amount to more than $5 million)
X	DFARS 252.204-7000	Disclosure of Information (DEC 1991) (Applies when Contractor will have access to or generate unclassified information that may be sensitive and inappropriate for release to the public)
	DFARS 252.204-7005	Oral Attestation of Security Responsibilities (NOV 2001) (Applicable if FAR 52.204-2, Security Requirements Applies)
X	DFARS 252.205-7000	Provision of Information to Cooperative Agreement Holders (DEC 1991) (Applicable only when contract action exceeds $500,000 or when any modification increases total contract amount to more than $500,000)
X	DFARS 252.215-7002	Cost Estimating System requirements (Oct 1998) (Applicable only to contract actions awarded on the basis of certified cost or pricing data)
	DFARS 252.223-7004	Drug-Free Work Force (SEP 1988) (Applicable (a) if contract involves access to classified information: or (b) when the Contracting Officer determines that the clause is necessary for reasons of national security or for the purpose of protecting the health or safety of performance of the contract.
	DFARS 252.223-7006	Prohibition on Storage and Disposal of Toxic and Hazardous Materials (APR 1993) (Applicable if work requires, may require, or permits contractor performance on a DoD installation)
	DFARS 252.225-7001	Buy American Act and Balance of Payments Program (MAR 1998) (Applicable if the contract includes deliverable supplies) (This clause does not apply if an exception to the Buy American Act or Balance of Payments Program is known or if using the clause at 252.225-7007, 252.225-7021, or 252.225-7036.)
	DFARS 252.225-7002	Qualifying Country Sources as Subcontractors (DEC 1991) (Applicable when clause at DFARS 252.225-7001, 252.227-7007, 252.227-7021, or 252.227-7036 applies)
	DFARS 252.225-7007	Buy American Act – Trade Agreements – Balance of Payments Program (SEP 2001) (Use instead of FAR 52.225-5, Trade Agreements (Include in contracts valued at $186,000 or more, if the Trade Agreements Act applies (see 25.401 and 25.403) and the agency has determined that the restrictions of the Buy American Act or Balance of Payments Program are not applicable to U.S.– made end products, unless the acquisition is to be awarded and performed outside the United States in support of a contingency operation or a humanitarian or peacekeeping operation and does not exceed the increase simplified acquisition threshold of $200,000.) The clause need not be used where purchase from foreign sources is restricted (see 225.401 (b)(ii)). The clause may be used where the contracting officer anticipates a waiver of the restriction.)
	DFARS 252.225-7008	Supplies to be Accorded Duty-Free Entry (MAR 1998) (Applicable when the contract provides for duty-free entry and includes FAR 52.225-8 – Duty-Free Entry)
	DFARS 252.225-7009	Duty-Free Entry – Qualifying Country Supplies (End Products and Components) (AUG 2000) (Applicable if contract includes deliverable supplies)
	DFARS 252.225-7010	Duty-Free Entry – Additional Provisions (AUG 2000) (Applicable when FAR 52.225-8 – Duty-Free Entry is included in the contract.)

CONTRACT NUMBER N00014-02-C-0306 PAGE 16

	DFARS 252.225-7016	Restriction On Acquisition Of Ball And Roller Bearings (DEC 2000) (Applicable if contract includes deliverable supplies, unless Contracting Officer knows that items being acquired do not contain ball or roller bearings)
X	DFARS 252.225-7026	Reporting of Contract Performance Outside the United States (JUN 2000) (Applicable only when contract value exceeds $500,000 or when any modification increases contract value to more than $500,000)
	DFARS 252.226-7001	Utilization of Indian Organizations and Indian-Owned Economic Enterprises (SEP 2001) [(Applicable if FAR Part 12 not used, and for supplies and services expected to exceed SAP thresholds) (This Interim Rule replaces FAR 52.226-1 (JUN 2000) via DFARS Chg Ntc 200110911]
	DFARS 252.227-7018	Rights in Noncommercial Technical Data and Computer Software – Small Business Innovation Research (SBIR) Program (JUN 1995) (Applicable when technical data or computer software will be generated during performance of contracts under the SBIR Program)
X	DFARS 252.242-7004	Material Management and Accounting System (DEC 2000) (Applicable to contract actions exceeding $100,000) (Not applicable to contracts set aside for exclusive participation by small business and small disadvantaged business concerns)

C. COST SHARING – NO FEE RESEARCH AND DEVELOPMENT CLAUSES

The following FAR and DFARS clauses apply to Cost Sharing – No Fee Research and Development Contracts and are either required by regulation or are required when the circumstances of the contract warrant that they apply. The FAR and DFARS clauses for Cost-Sharing Research and Development Contracts only apply when specifically marked with an (X).:

	FAR 52.216-11	Cost Contract - No Fee (APR 1984) and Alternate I (APR 1984) Replace 52.216-8) [This clause may be modified by substituting “$10,000” in lieu of “$100,000” as the maximum reserve in paragraph (b) if the Contractor is a nonprofit organization.]
X	FAR 52.216-12	Cost Sharing Contract - No Fee (APR 1984)
	FAR 52.227-10	Filing of Patent Applications –Classified Subject Matter (APR 1984) (Applicable if contract is subject to FAR clause 52.204-02 and either 52.227-11 or 52.227-12)
	FAR 52.227-11	Patent Rights – Retention by the Contractor (Short Form) (JUN 1997) (Applicable if contractor is a small business or non profit organization)
	OR
X	FAR 52.227-12	Patent Rights – Retention by the Contractor (Long Form) (JAN 1997) (Applicable if contractor is a large business)
X	FAR 52.246-9	Inspection of Research and Development (Short Form) (Apr 1984)
	FAR 52.247-63	Preference for U.S.-Flag Air Carriers (JAN 1997.
	DFARS 252.227-7034	Patents – Subcontracts (APR 1984) (Applicable when FAR 52.227-11 applies)
	DFARS 252.227-7039	Patents – Reporting of Subject Inventions (APR 1990) (Applicable when FAR 52.227-11 applies)
X	DFARS 252.235-7011	Final Scientific Or Technical Report (Sep 1999)

CONTRACT NUMBER N00014-02-C-0306 PAGE 17

SECTION J - LIST OF ATTACHMENTS

1) Attachment Number 1 entitled, “Statement of Work,” 8 pages.

2) Attachment Number 2 entitled, “Deliverables,” 1 page.

3) EXHIBIT A entitled, “Contract Data Requirements List,” (DD Form 1423), 1 page.

4) Enclosure Number I entitled, “Contract Data Requirements List - Instructions for Distribution,” 3 pages.

5) Attachment Number 3 entitled, “Master Small Business Subcontracting Plan,” and “Contract Specific Subcontracting Plan” 14 pages.

6) Attachment Number 4 entitled, “Financial Accounting Data Sheet,” 1 page.

SECTION K - REPRESENTATIONS, CERTIFICATIONS AND. OTHER STATEMENTS OF OFFEROR

1) The Contractor’s Representations and Certifications, dated 03 April 2002, are hereby incorporated into this contract by reference.

CONTRACT NUMBER N00014-02-C-0306 PAGE 18

Attachment Number 1:

Statement of Work

Base Period

Task Area: [***]

Task 1 Develop high quality [***] for [***]

Cree will develop [***] to support the [***] of task 3 and of Cree’s DARPA Power program (01-35-5 1). This will be accomplished by the following subtasks:

Task 1.1 [***].

Task 1.2 [***].

Task 1.3 [***].

Task 1.4 [***].

Task 2: Develop high quality [***] for [***]

Cree will develop [***] to support the [***] of task 3 and of Cree’s DARPA Power program (01-35-51). This will be accomplished by the following subtasks to:

Task 2.1 [***].

Task 2.2 [***].

Task 3: Develop low-defect [***]

The development of [***] will be accomplished as follows:

Task 3.1 [***].

Task 3.2 [***].

Task 3.3 [***].

Task 4: Reduce [***] in [***] by [***] to enhance [***].

To achieve highly uniform reproducible [***] behavior in [***], Cree will work to attain a [***] in background [***] in [***]. This task will be comprised of the following subtasks:

Task 4.1 [***].

Task 4.2 [***].

Task 4.3 [***].

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 1 CONTRACT NUMBER N00014-02-C-0306 PAGE 1

Task 5: Enhance the concentration of [***] by active control of [***].

Cree will develop a [***] process comprising manipulation of the concentration of [***] to achieve highly controlled [***]. This task will rely on the following subtasks:

Task 5 1 [***].

Task 5.2 [***].

Task Area: [***] Development

Task 6: Develop [***] capability

Task 6.1 Convert [***] from a [***] to [***] configuration and develop the latter [***] capability with [***] uniformity.

Task 6.2 Develop process for [***] capability with [***] uniformity.

Task Area: [***]

Task 7: Provide [***] studies by fabricating and characterizing [***]

Task 7.1 Fabricate [***] containing a dense array of [***] and [***] to support the [***] and [***] development tasks.

Task 7.2 Characterize all [***] with [***] load-pull testing.

Table 1: Task Goals for [***] Effort

Task(s) lGo al	[***] months
3-5	[***]
6	[***]

Task 8: Growth Optimization of [***]

Growth conditions will be optimized in the novel [***] with special attention to the [***], namely the [***] will be investigated in the [***]. A [***] configuration will be analyzed towards the end of the program. Throughout all of the optimization of materials properties for device performance, extensive use of DOE (design of experiments) methodology will be used. At the end of [***], the [***] will be evaluated for hardware modification based on the results to date.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 1 CONTRACT NUMBER N00014-02-C-0306 PAGE 2

The [***] goals are:

- [***] with better than [***] uniformity in [***].

- [***] with [***].

Task 9. [***] interaction with [***]

[***] properties can influence the quality of [***]. For the most direct comparisons, [***] will be grown upon in the same [***]. These [***] will then be processed in the same [***]. These [***] will minimize the relative influence of the [***] and process so that the effects of different [***] can be discerned. [***] maps of [***] will be correlated with maps of [***].

The [***] goals are:

- [***]

Task 10. [***]

This task will concentrate on the optimization of the growth parameters of the thin [***] and the [***] above it. Growth optimization of the [***] structure will be addressed by investigating the effects of [***] and related [***] and the effect of [***] and [***] in the [***]. The goal of this task is [***] to demonstrate [***] without sacrificing [***], resulting in [***].

The [***] goals are:

- [***].

- [***].

In addition to the [***] structure, the [***] layer also enables the growth of [***] structures. These structures potentially will combine the advantages of the [***] approach with the growth of [***] offering improved [***] characteristics and [***] performance. For the [***] growth, effect of variation of [***] and the [***] on the above [***] structures will be investigated. [***] targets for [***] resistance are better than [***] on a [***] in [***]. [***] with a [***] charge of [***] will be targeted.

Task 11. Reduced [***]

[***] has high [***] when grown on highly [***]. The goal of this task is to reduce [***].

The goal of this task is to make [***] of sufficient quality to determine whether improvements are evident in the characteristics of simple devices.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 1 CONTRACT NUMBER N00014-02-C-0306 PAGE 3

The [***] goals are: [***].

Task 12. Device fabrication for material-device correlation in support of tasks 8-11

Device fabrication for performing matenal-device correlation shall be done for each of the [***] tasks. Approximately [***] lots will be fabricated each month. In addition, approximately [***]/month shall also be fabricated using [***] for [***] definition to aid in the material-device correlation for [***] targeting [***] devices.

Measurements for detailed material-device correlation will be done

Task	Activity	Milestones 12 Months
8	[***]: [***]	• [***] • [***]
9	[***]	• [***]
10	[***]	• [***]
11	[***]	• [***]

Table 2. Summary of Tasks & associated milestones for [***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 1 CONTRACT NUMBER N00014-02-C-0306 PAGE 4

Option Period

The optional tasks stated below represent a continuation of the base program required to meet the specified goals of the option period As such, the task descriptions are broadly stated similar to the base program However, the established goals under the option period are higher than the goals of the base period because the contractor is anticipated to enhance the accomplishments of the base program to obtain the desired increases in [***] technologies The optional tasks will also complete the work required to address the [***] goals of the program.

Task Area: [***]

Task 1 Develop high quality [***] for [***]

Cree will develop [***] to support the [***] of task 3 and of Cree’s DARPA Power program (01-35-51). This will be accomplished by the following subtasks:

Task 1.1 [***].

Task 1.2 [***].

Task 1.3 [***].

Task 1.4 [***].

Task 2: Develop high quality [***] for [***]

Cree will develop [***] to support the [***] of task 3 and of Cree’s DARPA Power program (01-35-51). This will be accomplished by the following subtasks to:

Task 2.1 [***].

Task 2.2 [***].

Task 3: Develop low-defect [***]

The development of [***] will be accomplished as follows:

Task 3.1 [***].

Task 3.2 [***].

Task 3.3 [***].

Task 4: Reduce [***].

To achieve highly uniform reproducible [***] behavior [***], Cree will work to attain a [***] in background [***] in [***]. This task will be comprised of the following subtasks:

Task 4.1 [***].

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 1 CONTRACT NUMBER N00014-02-C-0306 PAGE 5

Task 4.2 [***].

Task 4.3 [***].

Task 5 Enhance the concentration of [***] by active control of [***].

Cree will develop a [***] process comprising manipulation of the concentration of [***] to achieve highly controlled [***]. This task will rely on the following subtasks:

Task 5.1 [***].

Task 5 2 [***].

Task Area: [***]

Task 6: Develop [***]

Task 6.1 Convert [***] from a [***] to [***] configuration and develop the latter [***] growth capability with [***].

Task 6.2 Develop process for [***] capability with [***].

Task Area: [***]

Task 7: Provide [***] studies by fabricating and characterizing [***]

Task 7.1 Fabricate [***] containing a dense array of [***] and [***] to support the [***] and [***] tasks.

Task 7.2 Characterize [***] with [***].

Table 1 (option period): Task Goals for [***] Effort

Task(s) Goal	[***]Option
3-5	[***] [***]
6	[***]

Task 8. Growth Optimization of [***]

Growth conditions will be optimized in the novel [***] with special attention to the [***], namely the [***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 1 CONTRACT NUMBER N00014-02-C-0306 PAGE 6

will be investigated in the [***]. A [***] configuration will be analyzed towards the end of the program Throughout all of the optimization of materials properties for device performance, extensive use of DOE (design of experiments) methodology will be used. At the end of [***], the [***] will be evaluated for hardware modification based on the results to date.

The [***] goals are:

- [***] with better than [***] uniformity in [***] over a [***] usable area

- [***] with [***]

Task 9. [***] interaction with [***]

[***] properties can influence the quality of [***]. For the most direct comparisons, [***] will be grown upon in the same [***]. These [***] will then be processed in the same [***] run. This will minimize the relative influence of the [***] and process so that the effects of different [***] can be discerned. [***] maps of [***] will be correlated with maps of [***].

Task 10. [***]

This task will concentrate on the optimization of the growth parameters of the thin [***] and the [***] above it. Growth optimization of the [***] structure will be addressed by investigating the effects of [***] and related [***] and the effect of [***] and [***] in the [***]. The goal of this task is to demonstrate [***] without sacrificing [***], resulting in [***].

In addition to [***] structure, the [***] layer also enables the growth of [***] structures. These structures potentially will combine the advantages of the [***] approach with the growth of [***] offering improved [***] characteristics and [***] performance. For the [***] growth, effect of variation of [***] and the [***] on the above [***] structures will be investigated. [***] targets for [***] are better than [***] on a [***] in [***] with a [***] will be targeted.

Task 11. Reduced [***]

[***] has high [***] when grown on highly [***]. The goal of this task is to reduce the [***].

The goal of this task is to make [***] of sufficient quality to determine whether improvements are evident in the characteristics of simple devices.

Task 12. Device fabrication for material-device correlation in support of tasks 8-11

Device fabrication for performing material-device correlation shall be done for each of the [***] tasks.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 1 CONTRACT NUMBER N00014-02-C-0306 PAGE 7

Approximately [***] lots will be fabricated each month. In addition, approximately [***]/month shall also be fabricated using [***] for [***] definition to aid in the material-device correlation for [***] targeting [***] devices.

Measurements for detailed material-device correlation will be done

The milestones targeted for the various tasks at 24 months are described in Table 2.

Task	Activity	Milestones [***] Months
8	[***]	• [***] • [***]
9	[***]	• [***]
10	[***]	• [***]
11	[***]	• [***]

Table 2. Summary of Tasks & associated milestones for [***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 1 CONTRACT NUMBER N00014-02-C-0306 PAGE 8

Attachment Number 2:

Deliverables

		Base Period						Option		Comment
	Type of Deliverable	Q1	Q2	Q3	Q4	Q5	Q6	Q7	Q8
1	[***]	6	6	6	4	4	2	2	2	1,4
2	[***]				2	2	4	4	4	1,4
3	[***]		4
4	[***]			4	4	6	6	6	6
5	[***]								2	1
6	[***]	5	5	4	2	4	2			1,4
7	[***]				1	1	2	5	4	1,4
8	[***]	3	3	3	3		3		3
9	[***]						3		3
10	[***]			1						1,4
11	[***]				2	1	2	1	2	1,4
12	[***]				3	6		6	6
13	[***]				4					5
14	[***]								2	5
15	[***]	X	X	X	X	X	X	X	X	2
16	[***]									3

The numbers under the column for each quarter represent the number of units to be delivered each quarter.

COMMENTS

1. Deliverables must demonstrate that the contract goals and/or milestones have been met.

2. The contractor shall deliver data summaries for all tests run on the deliverables and/or representative companion [***] and devices that were tested.

3. Mask set designs, excluding proprietary mask levels, shall be submitted to the government for review no later than one month after the effective date of the contract.

4. Attempt should be made to have [***] representative of those used for the processed [***].

5. Attempt should be made to have [***] representative of those used for the processed [***].

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0306

CONTRACT DATA REQUIREMENTS LIST Form Approved                 OMB No. 0704-0188                

Public reporting burden for this collection of information is estimated to average 440 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection or information, including suggestions for reducing this burden, to Washington Headquarters Services Directorate for information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget Paperwork Reduction Project (0704-0188), Washington, DC 20503

A. CONTRACT LINE ITEM NO. 0003 (and Option CLIN 0006 if exercised)	B. EXHIBIT A		C. CATEGORY      TOP      ¨	TM      ¨	OTHER      x
D. SYSTEM/ITEM [***]		E. CONTRACT/PR NO.         N00014-02-C-0250		F. CONTRACTOR CREE, INC.

1. DATA ITEM NO. A001	2. TITLE OF DATA ITEM Monthly Status Reports*	3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)	5. CONTRACT REFERENCE Section H.1 of the Schedule	6. REQUIRING OFFICE             See Section F.4

7. DD 250 REQ	9. DIST STATEMENT REQUIRED	10. FREQUENCY	12. DATE OF FIRST SUBMISSION	14. DISTRIBUTION
LT*		Monthly	30 days after the effective date of the Contract	ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE See Blk 12.	13. DATE OF SUBSEQUENT SUBMISSION Every 30 days thereafter		Draft	Final
						REQ            REPRO
16. REMARKS *These monthly reports shall contain the following: major accomplishments, issues, problems, monthly dollar expenditures on a comprehensive/cumulative basis as well as a comparison of projected versus actual expenditures, and plans for the next 3 months. These reports may be submitted electronically, may be approximately two pages in length, and can be in contractor format.				See Enclosure Number 1
				15. TOTAL

1. DATA ITEM NO. A002	2. TITLE OF DATA ITEM Presentation Materials	3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)	5. CONTRACT REFERENCE Section H.1 of the Schedule	6. REQUIRING OFFICE             See Section F.4

7. DD 250 REQ	9. DIST STATEMENT REQUIRED	10. FREQUENCY	12. DATE OF FIRST SUBMISSION	14. DISTRIBUTION
LT*		As Required	*	ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION		Draft	Final
		*	*			REQ            REPRO
16. REMARKS * These presentations materials will be on as-requested basis in a format to be requested by the Program Officer.				See Enclosure Number 1
				15. TOTAL

1. DATA ITEM NO. A003	2. TITLE OF DATA ITEM Final Report*	3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)	5. CONTRACT REFERENCE Section H.1 of the Schedule	6. REQUIRING OFFICE             See Section F.4

7. DD 250 REQ	9. DIST STATEMENT REQUIRED	10. FREQUENCY	12. DATE OF FIRST SUBMISSION	14. DISTRIBUTION
DD*		ONE/R	See Section F	ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION		Draft	Final
						REQ            REPRO
16. REMARKS * DD 250 required only for acceptance by the Program Officer designated in Section F.2. Information copies of this report shall be distributed in accordance with Enclosure Number 1.				See Enclosure Number 1
				15. TOTAL

1. DATA ITEM NO. A004	2. TITLE OF DATA ITEM Semi-Annual Progress Report*	3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)	5. CONTRACT REFERENCE Section H.1 of the Schedule	6. REQUIRING OFFICE             See Section F.4

7. DD 250 REQ	9. DIST STATEMENT REQUIRED	10. FREQUENCY	12. DATE OF FIRST SUBMISSION	14. DISTRIBUTION
		Semi-Annual	6 Months after date contract effective date	ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION		Draft	Final
			Every 6 months thereafter			REQ            REPRO
16. REMARKS * These semi-annual (i.e., every 7 months) reports shall contain a comprehensive/cumulative description of the major accomplishments to date. The reports can be in contractor format.
				15. TOTAL

G. PREPARED BY Bona Tilhun, ONR 251 H. DATE 26-Jun-02 L. APPROVED BY ONR 251 J. DATE 26-Jun-02

DD Form 1423-2, JUN 90 NAVOCNR OVERPRINT (1-91)	Previous editions are obsolete	Page 2 of 2
[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ENCLOSURE NUMBER 1

CONTRACT DATA REQUIREMENTS LIST

INSTRUCTIONS FOR DISTRIBUTION

DISTRIBUTION OF MONTHLY STATUTS REPORTS, PRESENTATION MATERIALS, AND CONTRACT FUNDS STATUS REPORTS

The minimum distribution of technical reports and the final report submitted in connection with this contract is as follows:

	DODAAD CODE	NUMBER OF COPIES
ADDRESSEE		UNCLASSIFIED/ UNLIMITED	UNCLASSIFIED/ LIMITED AND CLASSIFIED
Program Officer E-Mail: dietrih@onr.navy.mil	N00014	1	1
Administrative Contracting Officer*	S1103A	1	1

* Send only a copy of the transmittal letter to the Administrative Contracting Officer; do not send actual reports to the Administrative Contracting Officer.

SEMI- ANNUAL REPORTS

The minimum distribution of semi-annual reports is as follows:

	DODAAD CODE	NUMBER OF COPIES
ADDRESSEE		UNCLASSIFIED/ UNLIMITED	UNCLASSIFIED/ LIMITED AND CLASSIFIED
Program Officer E-Mail: dietrih@onr.navy.mil	N00014	3	3
Administrative Contracting Officer*	S1103A	1	1
Director, Naval Research Lab Attn: Code 5227 4555 Overlook Avenue, SW Washington, D.C. 20375-5320 E-Mail: Reports@library.nrl.navy.mil	N00173	1	1
Defense Technical Information Center 8725 John J. Kingman Road STE 0944 Ft. Belvoir, VA 22060-6218 E-Mail: tr@dtic.mil	S47031	2	2
Dr. Edgar J. Martinez Defense Advanced Research Projects Agency Microsystems Technology Office 3701 Fairfax Drive Arlington, VA 2203	MDA972	1	1
Thomas Jenkins AFRL/SNDM 2241 Avionics Circle RM C2G69	F33615	1	1

CONTRACT NUMBER N00014-02-C-0306 ATTACHMENT NUMBER 3 PAGE 1

Wnght-Patterson AFB, OH 45433-7322
Daniel Judy Army Research Laboratory 2800 Powder Mill Road AMSRL-SE-RE Adeiphi, MD 20783-1197	DAADI7	1	1
EvanGlaser Naval Research Laboratory 4555 Overlook Avenue SW Code 6877 Washington, DC 20375-5347	N00173	1	1
Dr. John C. Zolper Defense Advanced Research Projects Agency Microsystems Technology Office 3701 Fairfax Drive Arlington, VA 22203	MDA972	I	I

* Send only a copy of the transmittal letter to the Administrative Contracting Officer; do not send actual reports to the Administrative Contracting Officer.

FINAL REPORT DISTRIBUTION

The minimum distribution of the final report submitted in connection with this contract is as follows:

	NUMBER OF COPIES
ADDRESSEE	DODAAD CODE	UNCLASSIFIED / UNLIMITED	UNCLASSIFIED! LIMITED AND CLASSIFIED
Program Officer E-Mail dietrih@onr navy mil	N00014	5	5
Administrative Contracting Officer*	S1103A	I	I
Director, Naval Research Lab Attn: Code 5227 4555 Overlook Avenue, SW Washington, D.C. 20375-5320 E-mail: reports@library.nrl.navy.mil	N00173	I	I
Defense Technical Information Center 8725 John J. Kingman Road STE 0944 Ft. Belvoir, VA 22060-6218 E-mail: tr@dtic.mil	S4703 1	2	2
Dr. Edgar J. Martinez Defense Advanced Research Projects Agency Microsystems Technology Office 3701 Fairfax Drive Arlington, VA 22203	MDA972	I	I
Thomas Jenkins AFRL/SNDM 2241 Avionics Circle RM C2G69 Wright-Patterson AFB, OH 45433-7322	F33615	I	I
Robert Kemerley	F33615	1	1

CONTRACT NUMBER N00014-02-C-0306 ATTACHMENT NUMBER 3 PAGE 2

AFRL/SND 2241 Avionics Circle, Bldg 620 Wright-Patterson AFB, OH 45433-7322
Daniel Judy Army Research Laboratory 2800 Powder Mill Road AMSRL-SE-RE Adelphi, MD 20783-1197	DAADI7	I	I
H. Bruce Wallace Army Research Laboratory 2800 Powder Mill Road AMSRL-SE-R Adelphi, MD 20783-1197	DAADI7	I	I
Dr. John C. Zolper Defense Advanced Research Projects Agency Microsystems Technology Office 3701 Fairfax Drive Arlington, VA 22203	MDA972	1	1
Gerald Borsuk Naval Research Laboratory 4555 Overlook Avenue Code 6800 Washington, DC 20375	N00 173	1	1
C. J. (Skip) Scozzie US Army Research Laboratory AMSRL-SE-DP 2800 Powder Mill Road Adeiphi, MD 20783-1197	DAADI7	I	I

* Send only a copy of the transmittal letter to the Administrative Contracting Officer; do not send actual reports to the Administrative Contracting Officer.

ELECTRONIC SUBMISSIONS OF TECHNICAL REPORTS IS PREFERRED AND ENCOURAGED ELECTRONIC SUBMISSION SHOULD BE SENT TO THE E-MAIL ADDRESSES PROVIDED IN THE ABOVE TABLE, HOWEVER PLEASE NOTE THE FOLLOWING:

• Only Unlimited/Unclassified document copies may be submitted by e-mail.

• Unclassified/Limited has restricted distribution and a classified document (whether in its entirety or partially) is to be distributed in accordance with classified material handling procedures.

• Electronic submission to DIRECTOR, NAVAL RESEARCH LAB, shall be unclassified/unlimited reports and 30 pages or less. If unclassified and more than 30 pages, hardcopies of reports must be mailed.

• Electronic submission to DTIC shall be unclassified/unlimited reports If submission is for limited documents, please send them in on a disk or sign up for DTIC’s web-based document submission system at http //www dtic mil/dtic/submittrnglelec_subm html

If the Program Officer directs, the Contractor shall make additional distribution of technical reports in accordance with a supplemental distribution list provided by the Program Officer.

CONTRACT NUMBER N00014-02-C-0306 ATTACHMENT NUMBER 3 PAGE 3

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

FOR THE DEPARTMENT OF DEFENSE CONTRACTS AND

MAJOR SUBCONTRACTS

Small Business Concerns Veteran Owned Small Business Concerns and Service Disabled Veteran-Owned Small Business/Hubzone Small Business Concerns/Small Business Concerns Owned and Controlled By Socially and Economically Disadvantaged Individuals/Small Business Concerns Owned and Controlled By Women

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

Contractor:	Cree, Inc. and its wholly-owned subsidiaries (Cree)
Address:	4600 Silicon Drive
	Durham, NC 27703-8475

This is a Master Small Business Subcontracting Plan for Cree, Inc. and its wholly owned subsidiaries including but not limited to, Cree Lighting Company and UltraRF, Inc. As used herein, “Cree” refers to the Cree company (Cree, Inc Cree Lighting Company, UItraRF, Inc, or other subsidiary) that is a party to the contract in question. This Plan contains all the required elements of an individual contract plan except individual goals established for each Government contract or major subcontract. In addition Cree shall submit a contract specific Plan to the contracting officer/buyer for final negotiation and approval. The contract specific plan will include goals based on the planned subcontracting for that contract.

STATEMENT OF POLICY:

It is the policy of Cree that small business concerns, veteran-owned small business concerns and service-disabled veteran-owned small business concerns, HUBZone small business concerns small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women shall have the maximum practicable opportunity to participate in subcontracting at Cree. Cree hereby agrees to carry out this policy in awarding of subcontracts to the fullest extent, consistent with the efficient performance of Government contracts and subcontracts. Cree further agrees to cooperate in any studies or surveys as may be conducted by the Small Business Administration or the awarding agency/department of the United States, as may be necessary to determine the extent of compliance with Federal Acquisition Regulation (FAR) 52 219-8 clause titled “Utilization of Small Business Concerns (OCT 2000 Oct 1999).”

1. CONTRACT SPECIFIC GOALS

Cree shall submit proposed contract specific subcontracting goals for the term of each Government contract or major subcontract. The Contract Specific Plan submittal shall include goals for small business concerns (SB), veteran-owned small business concerns (VOSB) small business concerns owned and controlled by socially and economically disadvantaged individuals (SDB), HUBZone small business concerns (HUB), and small business concerns owned and controlled by women (WOSB). Service-disabled veteran-owned small business concerns meet the definition of veteran-owned small business concerns and they will be included within the subcontracting plan goal for veteran-owned small business concerns. The negotiated and established goals of the Contract Specific Plan will be incorporated into this Master Plan by this reference, upon signature of the parties, and will not require contract modification.

The proposed goals shall be based upon an established percentage of estimated commercial purchases which will be derived from the current fiscal year budget. Goals for the utilization of SB, VOSB, SDB, HUB, and WOSB subcontractors shall be expressed in both dollars and

Page 1 of 8

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

percentages for total planned dollars to be subcontracted; total dollars planned to be subcontracted to SB; total dollars planned to be subcontracted to VOSB, total dollars planned to be subcontracted to HUB; total dollars to be subcontracted to SDB; and total dollars planned to be subcontracted to WOSB concerns, unless otherwise required by the Contracting Officer/buyer.

Cree’s subcontracting goals shall be set at a level that the parties reasonably expect can result from expending good faith efforts to use SB, VOSB, SDB, HUB, and WOSB subcontractors.

2. DESCRIPTION OF SUPPLIERS AND SERVICES

The principal products and/or services to be subcontracted for the Contract Specific Plan, and the types of businesses supplying them shall be identified in an Attachment A to the Contract Specific Plan.

3. METHODOLOGY-GOALS

a) The type of products/services typically needed by Cree is reviewed periodically to establish additional materials and services that are likely to be performed by a concern other than Cree.

b) The Scope of Work for each Contract/subcontract is reviewed to establish potential material and services that could likely be performed by a concern other than Cree.

c) From the total estimate of potential subcontracted items, a list of those items that are candidates for small businesses is established.

d) From the total estimate of potential subcontracted items to small businesses, a list of those items that could be subcontracted to veteran-owned small business concerns is established.

e) From the total estimate of potential subcontracted items to small businesses, a list of those items that could be subcontracted to small disadvantaged business concerns is established.

f) From the total estimate of potential subcontracted items, a list of those items that are candidates for HUBZone small business concerns is established.

g) From the total estimate of potential subcontracted items to small business, a list of those items that could be subcontracted to women-owned small business concerns is established.

4. METHODOLOGY –POTENTIAL SOURCES

In the establishment of potential SBNOSB/SDBIHUB/WOSB sources for solicitation purposes, the following resources are used:

Page 2 of 8

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

a) Cree Company Approved Supplier List;

b) the Small Business Administration’s (SBA) Pro-Net system, (http:llpro-net.sba.gov/);

c) the National Minority Business Council Vendor Information Service (http://www.nmbc.org/);

d) the Minority Business Development Administration’s Phoenix database, (httri://www.mbda.qov/vendors.html);

e) the HUBZone data base in the Pro-Net system, (http //pro-net sba gov/);

f) the 8(a) search database available through Pro-Net (http://pro-net.sba.qov/);

g) the Woman-Owned Small business database available through Pro-Net (http //pronet.sba.qov/);

h) the Information Division of the Minority Business Development Agency in the Department of Commerce;

i) the local Industrial Services Directory;

j) other small and minority business associations; and

k) Networking opportunities with the local Chamber of Commerce.

l) Office of Veterans Business Development (http://www.sba.gov/VETS/)

5. INDIRECT COSTS

In accordance with FAR 52.219-9 (OCT 2000) Cree has decided not to include indirect costs in the goals specified for its individual contracts however for reporting purposes on the SF295 we will allocate a portion of indirect cost in accordance with the portion of DOD sales versus total company sales.

6. RESPONSIBILITIES FOR IMPLEMENTATION

This Master Subcontracting Plan and Contract Specific Plan there under, are to be administered by Cree to assure that the provisions of applicable Law and the plan are implemented and performed. Any change in the name of the administrator will be communicated without delay to the Contracting Officer/buyer by letter and will not require a contract modification.

The following individual will administer the subcontracting program:

Name:             Carmen L. Hayes

Title:     Contract Administrator/Small Business Utilization Specialist

Address: 4600 Silicon Drive

        Durham, NC 27703

Telephone:   (919) 313-5644

Email:     carmen_hayes^©cree.com

This individual’s specific duties as they relate to this Subcontracting Program shall include, but are not limited to:

Page 3 of 8

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

a) Oversee compliance with the content of this Plan;

b) Ensure that all Government subcontracts placed contain the latest provisions regarding small business and small disadvantaged business subcontracting and that the requirements of FAR 52 219-9 as implemented by this Plan are being fulfilled by Cree’s large business subcontractors;

c) Assure inclusion of SB, VOSB, SDB, HUB, WOSB concerns in all solicitations for products or services which they are capable of providing;

d) Review solicitations to remove statements, clauses, etc. which may tend to restrict or prohibit SB, VOSB, SDB, HUB, WOSB participants;

e) Participate in Business Opportunity Workshops, Minority Business Enterprise Seminars, Trade Fairs, etc, to assist SB, VOSB, 8DB, HUB and WOSB concerns and to discuss subcontracting opportunities with them Plan to attend one DOD southeast council meeting per year;

f) Perform periodic audit of sub-tier subcontracting plans to measure progress of goals and monitor attainment of goals under each Contract Specific Plan;

g) Prepare and submit periodic subcontracting reports including SF 294/295, and cooperate in studies and surveys as required;

h) Assist in developing and maintaining bidders list of SB, VOSB, SDB, HUB and WOSB concerns from all possible sources;

i) Participate in procuring, planning and selection of potential sources to ensure that SB, VOSB, 8DB, HUB and WOSB concerns are offered every opportunity to participate in the program; and,

j) Coordinate and participate with the SBA small business utilization specialist, and other groups to locate capable firms.

k) Facilitate the use of SB/ VOSB /SDB/HUB/WOSB by ensuring that adequate time is allowed for preparation of bids and that solicitation quantities, specifications, and delivery schedules facilitate the participation by such concerns.

I) Counsel and discuss subcontracting opportunities with representatives of SB/ VOSB /SDB/HUB/WOSB firms.

m) Provide notice to subcontractors concerning penalties and remedies for misrepresentations of business size status as SB/ VOSB B/SDB/HUB/WOSB for the purpose of obtaining a subcontract that is to be included as part or all of a goal.

n) Coordinate and participate in annual program review.

Page 4 of 8

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

o) Maintain vendor certification.

7. DESCRIPTION OF EFFORTS

In the establishment of the SB, VOSB, 8DB, HUB and WOSB goals, the following resources are used the Company Approved Supplier List, the Small Business Administration’s Pro-Net system, (http //pro-net sba govf), the National Minority Purchasing Council Vendor Information Service, the Minority Business Development Administration’s Phoenix database, (http //www mbda gov/vendors html), the Research and Information Division of the Minority Business Development Agency in the Department of Commerce, and other small and minority business associations.

Outreach efforts include:

a) Assignment by name of specific individuals to carry out the requirements of company policies and procedures;

b) Provision of technical and management assistance to small business, small disadvantaged business concerns and women-owned business concerns to ensure complete understanding of requirements;

c) Assuring that Cree will consider small business concerns in all “make-or-buy decisions” and maintain records of these processes;

d) Institute a program to recognize purchasing personnel who excel in administering the Cree subcontracting program;

e) Participation in local Small Business Opportunity Fairs;

f) Institute a program that recognizes small business participation in the success of performing Government contracts and major subcontracts; and

g) Where additional bidders are required, the following publications will be used to search for capable firms:

a. Minority Business Enterprise, published by the Defense Logistics Agency.

b. Diversity Information Resources, National Business Campaign, 12011 2th Ave. N, Minneapolis, MN 55411. (http://www.tryusdir.com)

c. The Regional Minority Purchasing Council’s listings.

d. The Women-Owned Business directory.

e. National Minority Council mailing list.

Page 5 of 8

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

f. An outreach effort will be made to solicit the assistance of local, state, and federal officers, trade and manufacturing associations, and labor organizations in identifying qualified firms.

8. COMPLIANCE WITH FEDERAL ACQUISITION REGULATIONS (FAR)

Cree will include the FAR clause 52.219-8, titled “Utilization of Small Business Concerns, (OCT 2000),” in all subcontracts supporting Government contracts that offer further subcontracting opportunities, except contracts for personal services or subcontracts to be performed outside any territory or possession of the United States Cree will require all subcontractors (except small business concerns) who support Government contracts and who receive subcontracts of $500,000 or in the case of a subcontract for the construction of any public facility, $1,000,000, and which offer further subcontracting possibilities to adopt and submit a plan similar to the Cree Plan, and one that complies with the requirements of the stated FAR clause.

9. REPORTING

Cree gives assurance of:

a) Cooperation in any studies or surveys that may be required by the contracting agency, or the SBA.

b) Submission of periodic reports that show compliance with the subcontracting plan. Cree may utilize the GSA “Formfill” web site http://fillform.gsa.gov/ to complete and submit required reports.

c) Submission of Standard Form (SF) 294, “Subcontracting Report for Individual Contracts,” and SF-295, “Summary Subcontract Report,” in accordance with the instructions on the forms.

d) Ensuring that large business subcontractors with subcontracting plans agree to submit Standard Forms 294 and 295.

Reporting Period	Report Due	Due Date
Oct 1 - Mar 31	SF 294	April 30
Apr 1 - Sep 30	SF 294	October 30
Oct 1 Mar 31	SF 295	April 30 (DoD only)
Oct 1 - Sep 30	SF 295	October 30
Subcontract Closeout	SF 294	Subcontract Completion

Page 6 of 8

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

10. RECORDS

Cree agrees to maintain at least the following types of records to document compliance with this Subcontracting Plan:

a) Source lists, guides and other data identifying SB, VOSB, SDB, HUB and WOSB concerns;

b) Organizations contacted in an attempt to locate sources that are SB, VOSB, SDB, HUB and WOSB concerns;

c) On a subcontract-by-subcontract basis, records on all subcontract solicitations over $100,000, indicating on each solicitation whether any SB, VOSB, SDB, HUB and WOSB concerns were solicited, and if not, why not;

d) On a subcontract-by-subcontract basis, records indicating the reason an award was not made to a SB, VOSB, SDB, HUB and WOSB concern;

e) Records to support other outreach efforts: contacts with minority and small business trade associations, contacts with business development organizations attendance at small and minority business procurement conferences and trade fairs to locate SB, VOSB, SDB, HUB and WOSB concerns;

f) Records to support internal activities to guide and encourage buyers through workshops seminars, training programs and monitoring performance activities to evaluate compliance; and

g) Records to support award data, including the name, address, and business size of each subcontractor.

Page 7 of 8

CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

a) On a subcontract-by-subcontract basis, records on all subcontract solicitations over $100,000, indicating on each solicitation whether any SB, VOSO, SDB, HUB and WOSB concerns were solicited, and if not, why not;

d) On a subcontract-by-subcontract basis, records indicating the reason an award was not made to a SB, VOSB, SDB, HUB and WOSS concern;

e) Records to support other outreach efforts: contacts with minority and small business trade associations, contacts with business development organizations, attendance at small and minority business procurement conferences and trade fairs to locate SB, VOSB, SDB, HUB and WOSB concerns;

f) Records to support internal activities to guide and encourage buyers through workshops, seminars, training programs and monitoring performance activities to evaluate compliance; and

g) Records to support award data, including the name, address, and business size of each subcontractor.

Cree hereby submits a request for approval of this Master Subcontracting Plan. This Plan shall be effective for three years after approval, or for the life of any contract/major subcontract that incorporates this Master Subcontracting Plan.

PLAN SUBMITTED BY:
	/s/ Cynthia Merrell	Date	12 /8/00
	NAME    Cynthia Merrell
	Chief Financial
PLAN CONCURRED BY:
	/s/ Carmen Hays	Date	11/21/00
	Carmen Hays
	Small Business Utilization Specialist
PLAN ACCEPTED BY:
	/s/ Marjorie Hockstetler	Date	1/8/01
	Contracting Officer

Page 7 of 7

CREE, INC.

Contract/Major Subcontract

Specific

SB/HUB/SDB/WOB/VOSB

SUBCONTRACTING PLAN

CREE, INC.

SB/HUB/SDB/WOB

SUBCONTRACTING PLAN

For

Contract/Subcontract No;

DARPA BAA 01-35

Contractor:	Cree, Inc. (Cree)
Address:	4600 Silicon Drive
	Durham, NC 27703
Procuct:
Contract Value	$    [***]

1. GOALS- PERCENTAGE

This Contract Specific Plan relates specifically to the scope of work to be performed under this contract/major subcontract, including support services. Subcontracting opportunities have been found to exist in the scope of work as noted below. Further, Cree will continue to expand subcontracting opportunities for small business concerns, HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women, as they become known to Cree.

This Contract Specific Plan, hereby incorporated into the Cree Master Subcontracting Plan are the following goals:

Small Business (SB)	[***]%
HUBZone Business	[***]%
Small Disadvantaged Business (SDB)	[***]%
Women-Owned Small Business (WOSB)	[***]%
Veteran-Owned Small Business (VOSB)	[***]%

2. GOALS-DOLLAR

Total dollars planned to be subcontracted is $ [***] Total dollars planned to be subcontracted to small business concerns is $ [***]. Total dollars planned to be subcontracted to HUBZone concerns is $          [***]        . Total dollars planned to be subcontracted to small disadvantaged business is $          [***]        . Total dollars planned to be subcontracted to women-owned small business is $ [***]. Total dollars planned to be subcontracted to veteran-owned small business is $          [***]        .

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

Page 2 of 4

CREE, INC.

SB/HUB/SDB/WOB

SUBCONTRACTING PLAN

3. DESCRIPTION OF SUBCONTRACTING OPPORTUNITIES

The principal products and/or services to be subcontracted and the types of businesses to be utilized are included in Attachment 1.

Page 3 of 4

CREE, INC.

SB/HUB/SDB/WOB

SUBCONTRACTING PLAN

for

CONTRACT/SUBCONTRACT NO.:

DARPA BAA 01-35

Approved:
/s/    Carmen Hayes	5/21/2002
Small Business Utilization Specialist, Cree, Inc	Date
Contracting Officer/Buyer	Date

Page 4 of 4

Item No. Product	Quantity	$ Amount	Total	Vendor	Business Type
1 [***]	91.00	250.00	22,750.00	[***]	Small
2 [***]	212.00	375.00	79,500.00	[***]	Small
3 [***]	90.00	208.80	18792.00	[***]	Large
4 [***]				[***]	Large
5 [***]	8.00	780.00	6,240.00	[***]	Large
5a [***]	38.00	127.00	4,826.00	[***]	Large
5b [***]	18.00	780.00	14,040.00	[***]	Large
5c [***]	48.00	210.00	10,080.00	[***]	Large
5d [***]	47.00	27.00	1,269.00	[***]	Large
5e [***]	12.00	152.50	1,830.00	[***]	Large
5f [***]	13.00	90.00	1,170.00	[***]	Large
6 [***]	9,00	2,117.00	19,053.00	[***]	Small
6a [***]	65.00	40.00	2,600.00	[***]	Small
6b [***]	22.00	190.95	4,200.90	[***]	Small
6b [***]	3.00	278.30	834.90	[***]	Small
7 [***]	9.00	218.60	1,967.40	[***]	Small
8 [***]	26.00	585.00	15,210.00	[***]	Large
9 [***]	77.00	426.82	32,865,14	[***]	Large
10 [***]	17.00	630.00	10,710.00	[***]	Large
lOa [***]	17.00	25.00	425.00	[***]	Large
12 [***]		100.00		[***]	Non Profit
12a [***]		342.00		[***]	Non Profit
13 [***]		698.00		[***]	Large
14 [***]			128,444.00	[***]	WOSB

Attachment 1

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

    FINANCIAL ACCOUNTING DATA SHEET - NAVY

1. CONTRACT NUMBER (CRITICAL) 2. SPIN (CRITICAL) 3. MOD (CRITICAL) 4. PR NUMBER Page 1 of 1

N0001402C0306

02PR10579-00

CLIN/SLIN

6. LINE OF ACCOUNTING

A.

B.

C.

D.

E.

F.

G.

H.

I.

J.

K. COST CODE

ACRN (CRITICAL)

APPROPRIATION (CRITICAL)

SUBHEAD (CRITICAL)

OBJ CLA

PARM

RFM

SA

AAA (CRITICAL)

IT

PAA

PROJ UNIT

MCC

PDU & SUF

AMOUNT (CRITICAL)

Navy Internal use only REF Doc/acrn

AA

9720400

1304

255

RA

313

0

68342

2D

0

R2Y10

0

N132

[***]

PR#02PR10579-00 FRC:A124

PAGE TOTAL

[***]

GRAND TOTAL

[***]

PREPARED/AUTHORIZED BY:

COMPTROLLER APPROVAL

DATE

FOR FISCAL DATA AND SIGNATURE

BY

ONR AWARD FORM (2/00) - version 1.1

DATE:

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

AMENDMENT OF SOLICIT. ON//MODIFICATION OF CONTRACT                     CONTRACT ID CODE                     DO-C9(T) PAGE OF PAGES     1            3

2. AMENDMENT/MODIFICATION NO.             P00001	3. EFFECTIVE DATE SEE BLOCK 16C	4. REQUISITION/PURCHASE REG. O3PR05549-00/30DEC 2002	NO.5. PROJECT NO. (If applicable) na
6. ISSUED BY    CODE OFFICE OF NAVAL RESEARCH ONR 251: Michael Shimoff (703) 696-5639 BALLSTON TOWER CENTRE ONE 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660	N00014	7. ADMINISTERED BY (If other than Item 6) SCD-C DCM ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789	CODE S1103A

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code) CREE INC. 4600 SILICON DRIVE, DURHAM, NC 27703		(X)	9A. AMENDMENT OF SOLICITATION NO. N.A.
		(  )	9B. DATED (SEE ITEM 11)
ODE 0C9J8	FACILITY CODE	X	10A. MODIFICATION OF CONTRACT/ORDER NO N00014-02-C-0306
			10B. DATED (SEE ITEM 13) 28 JUN 2002
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers              is extended              is not extended

Offers must acknowledge receipt of this amendment prior to the hour and data specified in the solicitation or as amended, by one of the following methods:(a) By completing items 8 and 15, and returning — copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference the solicitation and this amendment, and is received prior to the opening hour and data Specified.

12. ACCOUNTING AND APPROPRIATION DATA (If required)  

      SEE THE ATTACHED FINANCIAL ACCOUNTING DATA (FAD) SHEET

— 13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED ITEM 14.

(    ) A. THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.

(    ) B.— THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES

(such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).

(    ) C. SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: N.A.

    — AUTHORITY FOR OTHER THAN FL LL AND OPEN COMPETITION

(X) D OTHER (Specify type of modification and authority)

FAR 43.103(a) and Mutual Agreement of the Parties

E. IMPORTANT; Contractor X is not,      is required to sign this document and return _ copies to the issuing office.

(    ) A. THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.

(    ) B.— THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES

(such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).

(    ) C. SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: N.A.

    —    AUTHORITY FOR OTHER THAN FL LL AND OPEN COMPETITION

(X) D OTHER (Specify type of modification and authority)                                                         funding under Contract No N00014-02-C-0306

FAR 43.103(a) and Mutual Agreement of the Parties

E. IMPORTANT; Contractor     X     is not,      is required to sign this document and return 2 copies to the issuing office.

    14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

The Purpose of this notification is to provide for the final increment of

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)	16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Margaret Graves, Contracting Officer
15B. CONTRACTOR/OFFEROR              15C. DATE SIGNED	16B. UNITED STATES OF AMERICA    16C.   DATE SIGNED By: /s/ Margaret Graves                                   31 DEC 02 (Signature of Contracting Officer)
N 7540-01.152-8070 PREVIOUS EDITION UNUSABLE NAVOCNR OVERPRINT (3-88)	STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243
30-105

Effective as of the date of this Modification:

1. The funds available for performance of this Contact are increased by the amount set forth In the

attached Financial Accounting              Sheet.

2. Section B Supplies or Services and Prices/Costs is revised to read as follows:

BASE EFFORT
ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COST
0001	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Sections C.1 and C.2	$[***]	$[***]	$[***]
	000101 ACRN; AA [***] 000102 ACRN; AB [***]
	0002 Deliverables for Quarters 1-6 in accordance with Attachment Number 2			NSP
0003	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP

** Note: $628,200 Out of the estimated contractor’s [***] amount of [***] represents a discount on the projected price of the [***] and [***]. The [***] and [***] shall be used in support of this contract and charged at the current [***] price at the time of consumption less a [***]% discount. Therefore, these items are not subject to a DCAA incurred cost audit

OPTION EFFORT
ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COST
0004	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Sections C.1 and C.3	[***]	[***]	[***]
0005	Deliverables for Quarters 7-8 in accordance with Attachment Number 2			NSP
0006	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

AWARD NUMBER: N00014-02-C-0306 MODIFICATION NUMBER: P00001 PAGE 2

•Note: $ [***] out of the estimated contractor’s [***] amount of $ [***] represents a [***] discount on the projected price of the [***] The [***] shall be used in support of this contract and charged at the current catalog price at the time of consumption less a [***] discount. Therefore, these items are not subject to a DCAA incurred cost audit.

TOTAL	ESTIMATED	[***]	[***]	[***]
CONTRACT                             CONSIDERATION

3. Section G “Contract Administration Data” is revised as follows:

a. Paragraph 4. a), entitled, Procuring Office Representatives”, is revised as follows:

Contract_Negotiator: Ms. Margaret L. Graves, ONR 251, (703) 696-2602, DSN 426-2602,

E-Mail Address: gravesm@onr.navy.mil

b. Paragraph 5. entitled, “Allotment of Funds”, is hereby deleted in its entirety.

4. This modification makes no change to the Government’s share of this Contract.

5. All other terms and conditions remain unchanged.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

AWARD NUMBER: N00014-02-C-0306 MODIFICATION NUMBER: P00001 PAGE 3

 FINANCIAL ACCOUNTING DATA SHEET - NAVY

1. CONTRACT NUMBER (CRITICAL) 2. SPIN (CRITICAL) 3. MOD (CRITICAL) 4. PR NUMBER Page 1 of 1

N0001402C0306

02PR10579-00

CLIN/SLIN

6. LINE OF ACCOUNTING

A.

B.

C.

D.

E.

F.

G.

H.

I.

J.

K. COST CODE

ACRN (CRITICAL)

APPROPRIATION (CRITICAL)

SUBHEAD (CRITICAL)

OBJ CLA

PARM

RFM

SA

AAA (CRITICAL)

IT

PAA

PROJ UNIT

MCC

PDU & SUF

AMOUNT (CRITICAL)

Navy Internal use only REF Doc/acrn

AB

9720400

1304

255

RA

313

0

68342

2D

0000

R2Y10

000

N132

[***]

PR#02PR10579-00 FRC:A124

PAGE TOTAL

[***]

GRAND TOTAL

[***]

PREPARED/AUTHORIZED BY:

COMPTROLLER APPROVAL

DATE

FOR FISCAL DATA AND SIGNATURE

BY

ONR AWARD FORM (2/00) - version 1.1

DATE:

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

AMENDMENT OF SOLICIT. ON//MODIFICATION OF CONTRACT CONTRACT ID CODE DO-C9(T) PAGE OF PAGES I

2. AMENDMENT/MODIFICATION NO.             P00002	3. EFFECTIVE DATE SEE BLOCK 16C	4. REQUISITION/PURCHASE REG. O3PR05549-01	NO.5. PROJECT NO. (If applicable) na
6. ISSUED BY    CODE OFFICE OF NAVAL RESEARCH ONR 251: Michael Shimoff (703) 696-5639 BALLSTON TOWER CENTRE ONE 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660	N00014	7. ADMINISTERED BY (If other than Item 6) SCD-C DCM ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789	CODE S1103A

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code) CREE INC. 4600 SILICON DRIVE, DURHAM, NC 27703—		(X)	9A. AMENDMENT OF SOLICITATION NO. N.A.
(  )		(  )	9B. DATED (SEE ITEM 11)
ODE 0C9J8	FACILITY CODE	X	10A. MODIFICATION OF CONTRACT/ORDER NO N00014-02-C-0306
			10B. DATED (SEE ITEM 13) 28 JUN 2002
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers          is extended          is not extended

Offers must acknowledge receipt of this amendment prior to the hour and data specified in the solicitation or as amended, by one of the following methods:(a) By completing items 8 and 15, and returning — copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference the solicitation and this amendment, and is received prior to the opening hour and data Specified.

    12. ACCOUNTING AND APPROPRIATION DATA (If required)

 N/A

— 13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED ITEM 14.

(    ) A. THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.

(    ) B.— THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES

(such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).

(    ) C. SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: N.A.

    —    AUTHORITY FOR OTHER THAN FL LL AND OPEN COMPETITION

(X) D OTHER (Specify type of modification and authority)

FAR 43.103(a) and Mutual Agreement of the Parties

E. IMPORTANT; Contractor              is not, X is required to sign this document and return 2 copies to the issuing office.

    14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

See Page 2.

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print) John W. Palmour—Director of Advanced Devices	16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Susan M. Sutherland, Contracting Officer
15B. CONTRACTOR/OFFEROR              15C. DATE SIGNED /s/ John W. Palmour                                              2/14/03	16B. UNITED STATES OF AMERICA    16C.   DATE SIGNED By: /s/ Susan M. Sutherland                                   2/25/03 (Signature of Contracting Officer)
SN 7540-01.152-8070 PREVIOUS EDITION UNUSABLE NAVOCNR OVERPRINT (3-88)	STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

The purpose of this modification is to add a Residual Materials paragraph to Section H of Contract N000 14-02-C-0306.

Effective as of the date of this Modification:

1. The following is added to Section H, Special Contract Requirements, of the Contract

8. Residual Materials

The contractor may retain any residual materials (such as excess [***], masks) resulting from its efforts to produce the [***] deliverables specified in Section B to be delivered to the Government The contractor is encouraged to utilize these residual materials as it sees fit for the further dual-use development of the underlying technology.

2. This Modification has no affect on the Total Estimated Cost of the contract.

3. All other terms and conditions remain unchanged.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0306 / P00002 PAGE 2

EX-10.29

EXHIBIT 10.29

AWARD / CONTRACT		1. THIS CONTRACT IS A RATED ORDER UNDER DPAS (15 CFR 350)				RATING DO-C9(T)		PAGE  OF  PAGES 1                17
2. CONTRACT (Proc. Inst. Ident.) NO. N00014-02-C-0250		3. EFFECTIVE DATE SEE BLCOK 20C		4. REQUISITION / PURCHASE REQUEST / PROJECT NO. 02PR09637-00 & 01
5. ISSUED BY		CODE	N00014	6. ADMINISTERED BY (If Other Than Item 5)				CODE      S1103A
OFFICE OF NAVAL RESEARCH ONR 251: WADE WARGO (703) 696-2574 BALLSTON TOWER ONE 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660				DCM ATLANTA 805 WALKER STREET SUITE 1 MARIETTA, GA 30060-2789		SCD-C
7. NAME AND ADDRESS OF CONTRACTOR (NO., street, city, county, State and ZIP Code.)						8. DELIVERY See SECTION F of Schedule
CREE INC. 4600 SILICON DRIVE DURHAM, NC 27703						¨ FOB ORIGIN        ¨ OTHER (see below) 9. DISCOUNT FOR PROMPT PAYMENT N.A.
CODE    OC9J8			FACILITY CODE			10. SUBMIT INVOICES (4 Copies Unless Otherwise Specified) TO THE ADDRESS SHOW IN        ¨		ITEM     SEE SECTION G
11. SHIP TO / MARK FOR PROGRAM OFFICER SEE SECTION F – DELIVERIES OR PERFORMANCE		CODE	N00014	12. PAYMENT WILL BE MADE BY DFAS COLUMBUS CENTER DFAS CO SOUTH ENTITLEMENT OPERATIONS PO BOX 182264 COLUMBUS, OH 43218-2264				CODE      HQ0338
13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION:				14. ACCOUNTING AND APPROPRIATION DATA
¨ 10 U.S.C. 2304(c)( N/A)	¨ 41 U.S.C. 253(c)( N/A)			See Attached Financial Accounting Data Sheet(s)
15A. ITEM NO.	15B. SUPPLIES/SERVICES See SECTION B of Schedule			15C. QUANTITY	15D. UNIT	15E. UNIT PRICE	15F. AMOUNT
				15G. TOTAL AMOUNT OF CONTRACT			See SECTION B of Schedule

16. TABLE OF CONTENTS
(X)	SEC	DESCRIPTION	PAGE(S)	(X)	SEC.	DESCRIPTION	PAGE(S)
		PART I – THE SCHEDULE				PART II – CONTRACT CLAUSES
x	A	SOLICITATION/CONTRACT FORM	1	x	I	CONTRACT CLAUSES	10
x	B	SUPPLIES OR SERVICES AND PRICES/COSTS	2		PART III – LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.
x	C	DESCRIPTION/SPECS./WORK STATEMENT	2	x	J	LIST OF ATTACHMENTS	17
x	D	PACKAGING AND MARKING	2		PART IV – REPRESENTATIONS AND INSTRUCTIONS
x	E	INSPECTION AND ACCEPTANCE	2	x	K	REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS	17
x	F	DELIVERIES OR PERFORMANCE	2
x	G	CONTRACT ADMINISTRATION DATA	3		L	INSTRS., CONDS., AND NOTICES TO OFFERORS
x	H	SPECIAL CONTRACT REQUIREMENTS	6		M	EVALUATION FACTORS FOR AWARD

CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
17. [XX] CONTRACTOR’S NEGOTIATED AGREEMENT (Contractor is required to sign this document and return 2 copies to issuing office). Contractor agrees to furnish and deliver all items or perform all the services set forth or otherwise identified above and on any continuation sheets for the consideration stated herein. The rights and obligations of the parties to this contract shall be subject to and governed by the following documents: (a) this award/contract, (b) the solicitation, if any, and (c) such provisions, representations, certifications, and specifications, as are attached or incorporated by reference herein. (Attachments are listed herein.)		18. ¨ AWARD (Contractor is not required to sign this document). Your offer on Solicitation Number             , including the additions or changes made by you which additions or changes are set forth in full above, is hereby accepted as to the items listed above and on any continuation sheets. This award consummates the contract which consists of the following documents: (a) the Government’s solicitation and your offer, and (b) this award/contract. No further contractual document is necessary.
19A. NAME AND TITLE OF SIGNER (Type or Print) Denise S. Holliday Contracts Manager		20A. NAME OF CONTRACTING OFFICER Susan M. Sutherland, Contracting Officer
19B. NAME OF CONTRACTOR	19C. DATE SIGNED	20B. UNITED STATES OF AMERICA	20C. DATE  SIGNED
BY               /s/    Denise S. Holliday	7/3/02	BY                           /s/    Bona Filahun	7/3/02
(Signature of person authorized to sign)		(Signature of Contracting Officer)

NSN 7540-01-152-8069 PREVIOUS EDITIONS UNUSABLE NAVONR OVERPRINT (4-85) STANDARD FORM 26 (REV. 4-85) Prescribed by GSA FAR (48 CFR) 53.214(a)

SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS

ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COSTS
0001	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.	[***]	[***]	[***]
	000101 ACRN: AA [***]
	000102 ACRN: AB [***]
	000103 ACRN: AC [***]
0002	Deliverables as specified in Attachment Number 2			NSP
0003	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP
TOTAL ESTIMATED CONTRACT CONSIDERATION:		[***]	[***]	[***]

SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT

1) The research effort to be performed hereunder shall be subject to the requirements and standards contained in Exhibit A and the following paragraph(s).

2) The Contractor shall conduct the research effort in accordance with Attachment Number 1, entitled “Statement of Work”. The contractor shall provide the deliverables specified in Attachment Number 2 of the contract.

SECTION D - PACKAGING AND MARKING

Preservation, packaging, packing and marking of all deliverable contract line items shall conform to normal commercial packing standards to assure safe delivery at destination.

SECTION E - INSPECTION AND ACCEPTANCE

Inspection and acceptance of the final delivery under this contract will be accomplished by the Program Officer designated in Section F of this contract, who shall have at least thirty (30) days after contractual delivery for acceptance.

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250 PAGE 2

SECTION F - DELIVERIES OR PERFORMANCE

1) The research effort performed under this contract shall be conducted during the period from 20 MAY 2002 through 30 JUN 2005. A final report will be prepared, submitted, reproduced and distributed by sixty days thereafter unless the contract is extended, in which case, the final report will be prepared in accordance with the terms of such extension.

a) Item No. 0002 of Section B (Deliverables) shall be delivered as specified in Attachment Number 2, F.O.B. Destination.

b) Item No. 0003 of Section B (Reports and Data) shall be delivered within the time periods stated in Exhibit A, F.O.B. Destination.

2) Distribution, consignment and marking instructions for all items shall be in accordance with Enclosure Number 1 and the following:

Program Officer

Office of Naval Research

Ballston Tower One

800 North Quincy Street

Arlington, Virginia 22217-5660

Attn: Dr. Harry Dietrich, Code 312, Telephone (703) 696-0240

Ref: Contract N00014-02-C-0250

SECTION G - CONTRACT ADMINISTRATION DATA

1.     NAPS 5252.232-9001 SUBMISSION OF INVOICES (COST REIMBURSEMENT, TIME-AND-MATERIALS, LABOR-HOUR, OR FIXED PRICE INCENTIVE) (JUL 1992)

(a) “Invoice” as used in this clause includes contractor requests for interim payments using public vouchers (SF 1034) but does not include contractor requests for progress payments under fixed price incentive contracts.

(b) The Contractor shall submit invoices and any necessary supporting documentation, in an original and 4 copies, to the contract auditor* at the following address:

Defense Contract Audit Agency

DCAA/MABO

P.O. Box 891

Arnold, MD 21012-0891

Telephone: (410) 260-5420

Fax: (410) 260-5986

CONTRACT NUMBER N00014-02-C-0250 PAGE 3

unless delivery orders are applicable, in which case invoices will be segregated by individual order and submitted to the address specified in the order. In addition, an information copy shall be submitted to the Program Officer identified in Section F.2a of this contract. Following verification, the contract auditor* will forward the invoice to the designated payment office for payment in the amount determined to be owing, in accordance with the applicable payment (and fee) clause(s) of this contract.

(c) Invoices requesting interim payments shall be submitted no more than once every two weeks, unless another time period is specified in the Payments clause of this contract. For indefinite delivery type contracts, interim payment invoices shall be submitted no more than once every two weeks for each delivery order. There shall be a lapse of no more than 30 calendar days between performance and submission of an interim payment invoice.

(d) In addition to the information identified in the Prompt Payment clause herein, each invoice shall contain the following information, as applicable:

(1) Contract line item number (CLIN)

(2) Subline item number (SLIN)

(3) Accounting Classification Reference Number (ACRN)

(4) Payment terms

(5) Procuring activity

(6) Date supplies provided or services performed

(7) Costs incurred and allowable under the contract

(8) Vessel (e.g., ship, submarine or other craft) or system for which supply/service is provided.

(e) A DD Form 250, “Material Inspection and Receiving Report”,

¨ is required with each invoice submittal.

x is required only with the final Invoice.

¨ is not required.

(f) A Certificate of Performance

¨ shall be provided with each invoice submittal.

x is not required

(g) The Contractor’s final invoice shall be identified as such, and shall list all other invoices (if any) previously tendered under this contract.

(h) Costs of performance shall be segregated, accumulated and invoiced to the appropriate ACRN categories to the extent possible. When such segregation of costs by ACRN is not possible for invoices submitted with CLINS/SLINS with more than one ACRN, an allocation ratio shall be established in the same ratio as the obligations cited in the accounting data so that costs are allocated on a proportional basis.

CONTRACT NUMBER N00014-02-C-0250 PAGE 4

* In contracts with the Canadian Commercial Corporation, substitute “Administrative Contracting Officer” for “contract auditor”.

2. Submission of Invoices Direct to Payment Office

a) Pursuant to DFARS 242.803(b)I)(C), if the cognizant Government auditor has notified the contractor of its authorization to do so, the contractor may submit interim vouchers under this contract direct to the payment office shown in Block 12 of SF-26 instead of to the address shown in subparagraph (b) of section G.1 above.

b) Such authorization does not extend to the first and final vouchers. The contractor shall continue to submit first vouchers to the cognizant auditor shown in subparagraph (b) of section G.1. above. The final voucher shall be submitted to the Administrative Contracting Officer (SF-26 block 6) with a copy to the cognizant auditor.

3. Method of Payment

As consideration for the proper performance of the work and services required under this contract, the Contractor shall be paid as follows:

a) Costs, as provided for under the contract clause entitled “Allowable Cost and Payment,” not to exceed the amount set forth as “Estimated Cost” in Section B, subject to the contract clause entitled “Limitation of Cost” or “Limitation of Funds” whichever is applicable.

4. Procuring Office Representatives

a) In order to expedite administration of this contract, the Administrative Contracting Officer should direct inquiries to the appropriate office listed below. Please do not direct routine inquiries to the person listed in Item 20A on Standard Form 26.

Contract Negotiator – Wade Wargo, ONR 251, (703) 696-2574, DSN 426-2574, E-Mail Address: wargow@onr.navy.mil

Inspection and Acceptance – Dr. Harry Dietrich, ONR 312, (703) 696-0240, DSN 426-0240, E-Mail Address: dietrih@onr.navy.mil

Security Matters - Ms. Jennifer Ramsey, ONR 43, (703) 696-4618, DSN 426-4618

Patent Matters - Mr. Tom McDonnell, ONR 00CC, (703) 696-4000, DSN 426-4000.

b) The Administrative Contracting Officer will forward invention disclosures and reports directly to Corporate Counsel (Code 00CC), Office of Naval Research, Department of the Navy, Arlington, Virginia 22217-5660. The Corporate Counsel will return the reports along with a recommendation to the Administrative Contracting Officer. The Corporate Counsel will represent the Contracting Officer with regard to invention reporting matters arising under this contract.

CONTRACT NUMBER N00014-02-C-0250 PAGE 5

5. Allotment of Funds

It is hereby understood and agreed that the Government’s share of this contract will not exceed a total amount of [***]. The total amount presently available for payment and allotted to this contract is [***]. It is estimated that the amount allotted of [***] will cover the period from [***].

6. Controlled Unclassified Information

The parties understand that information and materials provided pursuant to or resulting from this contract may be export controlled, sensitive, for official use only, or otherwise protected by law, executive order or regulation. The Contractor is responsible for compliance with all applicable laws and regulations. Nothing in this Contract shall be construed to permit any disclosure in violation of those restrictions.

7. Precontract Costs

In accordance with FAR 31.205-32, all costs which have been incurred by the Contractor on or after 20 MAY 2002 and before the effective date of this contract, where their incurrence is necessary to comply with the proposed contract delivery schedule, will be considered allowable only to the extent that they would have been allowable if incurred after the date of contract award and only to a maximum of [***], through the date of contract award. The maximum amount of [***] is to be split between the Government’s share of [***] and the Contractor’s share of [***]. This cost share ratio for the maximum amount is [***] for the Government and [***] for the Contractor.

8. Transfer of Government Furnished Property from AFRL Contract F33615-99-C-5316 to ONR Contract N00014-02-C-0250

Upon completion of AFRL Contract F33615-99-C-5316, the accountability of all non-deliverable materials, property, and equipment from the AFRL contract shall be transferred to this ONR contract.

9. Master Subcontracting Plan

The contractor’s Master Small Business Subcontracting Plan, submitted on 08 DEC 2000 and accepted by the ACO, Majorie Hockstetler (DCM Raleigh Durham), on 08 JAN 2001, is applicable to this contract. Specific goals for this contract are in accordance with Attachment Number 3, entitled “Addendum to Master Subcontracting Plan”, of this contract.

10. Type of Contract

This is a [***] (completion) contract.

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0306 PAGE 6

SECTION H - SPECIAL CONTRACT REQUIREMENTS

1. ONR 5252.235-9714 REPORT PREPARATION (FEB 2002)

Scientific or technical reports prepared by the Contractor and deliverable under the terms of this contract will be prepared in accordance with format requirements contained in ANSI/NISO Z39.18-1995, Scientific and Technical Reports: Elements, Organization, and Design.

[NOTE: All NISO American National Standards are available as free, downloadable pdf(s) at http://www.niso.org/standards/index.html . NISO standards can also be purchased in hardcopy form from NISO Press Fulfillment, P. O. Box 451, Annapolis Junction, MD 20701-0451 USA. Telephone U.S. and Canada: (877) 736-6476; Outside the U.S. and Canada: 301-362-6904; Fax: 301-206-9789.]

2. ONR 5252.210-9708 METRICATION REQUIREMENTS (DEC 1988)

a) All scientific and technical reports delivered pursuant to the terms of this contract shall identify units of measurement in accordance with the International System of Units (SI) commonly referred to as the “Metric System”. Conversion to U.S. customary units may also be given where additional clarity is deemed necessary. Guidance for application of the metric system is contained in the American Society of Testing Materials document entitled “Standard Practice for Use of the International System of Units (The Modernized Metric System)” (ASTM Designation E 380-89A)

b) This provision also applies to journal article preprints, reprints, commercially published books or chapters of books, theses or dissertations submitted in lieu of a scientific and/or technical report.

3. Invention Disclosures and Reports

The Contractor shall submit all invention disclosures and reports required by the Patent Rights clause of this contract to the Administrative Contracting Officer.

4. ONR 5252.242-9718 TECHNICAL DIRECTION (FEB 2002)

a) Performance of the work hereunder is subject to the technical direction of the Program Officer/COR designated in this contract, or duly authorized representative. For the purposes of this clause, technical direction includes the following:

1) Direction to the Contractor which shifts work emphasis between work areas or tasks, requires pursuit of certain lines of inquiry, fills in details or otherwise serves to accomplish the objectives described in the statement of work;

2) Guidelines to the Contractor which assist in the interpretation of drawings, specifications or technical portions of work description.

b) Technical direction must be within the general scope of work stated in the contract.

CONTRACT NUMBER N00014-02-C-0250 PAGE 7

Technical direction may not be used to:

1) Assign additional work under the contract;

2) Direct a change as defined in the contract clause entitled “Changes”;

3) Increase or decrease the estimated contract cost, the fixed fee, or the time required for contract performance; or

4) Change any of the terms, conditions or specifications of the contract.

c) The only individual authorized to in any way amend or modify any of the terms of this contract shall be the Contracting Officer. When, in the opinion of the Contractor, any technical direction calls for effort outside the scope of the contract or inconsistent with this special provision, the Contractor shall notify the Contracting Officer in writing within ten working days after its receipt. The Contractor shall not proceed with the work affected by the technical direction until the Contractor is notified by the Contracting Officer that the technical direction is within the scope of the contract.

d) Nothing in the foregoing paragraphs may be construed to excuse the Contractor from performing that portion of the work statement which is not affected by the disputed technical direction.

5. ONR 5252.237-9705 Key Personnel (DEC 88)

a) The Contractor agrees to assign to the contract tasks those persons whose resumes were submitted with its proposal and who are necessary to fulfill the requirements of the contract as “key personnel”. No substitutions may be made except in accordance with this clause.

b) The Contractor understands that during the first ninety (90) days of the contract performance period, no personnel substitutions will be permitted unless these substitutions are unavoidable because of the incumbent’s sudden illness, death or termination of employment. In any of these events, the Contractor shall promptly notify the Contracting Officer and provide the information described in paragraph (c) below. After the initial ninety (90) day period the Contractor must submit to the Contracting Officer all proposed substitutions, in writing, at least 30 days in advance (60 days if security clearance must be obtained) of any proposed substitution and provide the information required by paragraph (c) below.

c) Any request for substitution must include a detailed explanation of the circumstances necessitating the proposed substitution, a resume for the proposed substitute, and any other information requested by the Contracting Officer. Any proposed substitute must have qualifications equal to or superior to the qualifications of the incumbent. The Contracting Officer or his/her authorized representative will evaluate such requests and promptly notify the Contractor in writing of his/her approval or disapproval thereof.

d) In the event that any of the identified key personnel cease to perform under the contract and the substitute is disapproved, the contract may be immediately terminated in accordance with the Termination clause of the contract.

The following are identified as key personnel:

CONTRACT NUMBER N00014-02-C-0250 PAGE 8

Labor Category	First/M/Last Name
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250 PAGE 9

SECTION I - CONTRACT CLAUSES

[***] (MAY 2002) (1)

Attention: Prime Contractors. If a subaward is made to an educational institution, Prime Contractors are directed to please refer to the ONR Model Award for appropriate flow-down clauses to universities. See http://www.onr.navy.mil, click Contracts & Grants Icon. Click Model Awards Link. Click Section I clauses that flow-down to University subcontractors.

(A) FAR 52.252-02 CLAUSES INCORPORATED BY REFERENCE (FEB 1998)

This contract incorporates one or more clauses by reference, with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. Also, the full text of a clause may be accessed electronically at these addresses:

http://www.arnet.gov/far/

http://web1.deskbook.osd.mil/htmlfiles/DBY_far.asp

http://web2.deskbook.osd.mil/htmlfiles/DBY_dfars.asp

http://farsite.hill.af.mil/farsite_script.html

For instance, a dollar threshold may trigger the applicability of the clause or a certain condition of the research may trigger the applicability of the clause. In order to provide some assistance, as to when a dollar threshold triggers a clause, we have associated certain symbols with dollar thresholds. The symbols and their appropriate dollar thresholds are as follows:

* Applies when contract action exceeds $10,000

** Applies when contract action exceeds $100,000

+ Applies when contract action exceeds $500,000

++ Applies when contract action exceeds $500,000 and subcontracting possibilities exist. Small Business Exempt.

x (DD 250)

xx Not applicable

I. FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES:

**	FAR 52.202-1	Definitions (DEC 2001)
**	FAR 52.203-3	Gratuities (APR 1984)
**	FAR 52.203-5	Covenant Against Contingent Fees (APR 1984)
**	FAR 52.203-6	Restrictions on Subcontractor Sales to the Government (JUL 1995)
**	FAR 52.203-7	Anti-Kickback Procedures (JUL 1995)
**	FAR 52.203-8	Cancellation, Rescission, and Recovery of Funds for Illegal or Improper Activity (JAN 1997)
**	FAR 52.203-10	Price or Fee Adjustment for Illegal or Improper Activity (JAN 1997)
**	FAR 52.203-12	Limitation on Payments to Influence Certain Federal Transactions (JUN 1997)
**	FAR 52.204-4	Printing/Copying Double-Sided on Recycled Paper (AUG 2000)
	FAR 52.211-15	Defense Priority and Allocation Requirements (SEP 1990)
**	FAR 52.215-2	Audit and Records—Negotiation (JUN 1999) and Alternate II (APR 1998) (Alternate II is only applicable with cost reimbursement contracts with State and local Governments, educational institutions, and other non-profit organizations.)

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250 PAGE 10

	FAR 52.215-8	Order of Precedence—Uniform Contract Format (OCT 1997)
+	FAR 52.215-10	Price Reduction for the Defective Cost or Pricing Data (OCT 1997) (The clause is applicable to subcontracts over $550,000.)
+	FAR 52.215-12	Subcontractor Cost or Pricing Data (OCT 1997) (Applicable to subcontracts over $550,000 only)
**	FAR 52.215-14	Integrity of Unit Prices (OCT 1997) and Alternate I (OCT 1997) (Alternate I is applicable if the action is contracted under Other Than Full and Open Competition)
+	FAR 52.215-15	Pension Adjustments and Asset Reversions (DEC 1998)
+	FAR 52.215-18	Reversion or Adjustment of Plans for Postretirement Benefits (PRB) Other than Pensions (OCT 1997)
+	FAR 52.215-19	Notification of Ownership Changes (OCT 1997) (Applicable when Cost or Pricing Data is required)
	FAR 52.216-7	Allowable Cost and Payment (FEB 2002)
	FAR 52.216-8	Fixed Fee (MAR 1997)
**	FAR 52.219-4	Notice of Price Evaluation Preference for HUBzone Small Business Concerns (JAN 1999)
**	FAR 52.219-8	Utilization of Small Business Concerns (OCT 2000)
++	FAR 52.219-9	Small Business Subcontracting Plan (JAN 2002)
++	FAR 52.219-16	Liquidated Damages—Subcontracting Plan (JAN 1999)
	FAR 52.222-1	Notice to the Government of Labor Disputes (FEB 1997)
**	FAR 52.222-2	Payment for Overtime Premiums (JUL 1990) (Note: The word “zero” is inserted in the blank space indicated by an asterisk)
	FAR 52.222-3	Convict Labor (AUG 1996) (Reserved when FAR 52.222-20 Walsh Healy Public Contracts Act is applicable)
**	FAR 52.222-4	Contract Work Hours and Safety Standards Act—Overtime Compensation (SEP 2000)
	FAR 52.222-21	Prohibition of Segregated Facilities (FEB 1999)
	FAR 52.222-26	Equal Opportunity (APR 2002)
*	FAR 52.222-35	Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (DEC 2001 1998)
*	FAR 52.222-36	Affirmative Action for Workers with Disabilities (JUN 1998)
*	FAR 52.222-37	Employment Reports on Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (DEC 2001)
**	FAR 52.223-14	Toxic Chemical Release Reporting (OCT 2000)
	FAR 52.225-13	Restrictions on Certain Foreign Purchases (JUL 2000)
**	FAR 52.227-1	Authorization and Consent (JUL 1995) and Alternate I (APR 1984)
**	FAR 52.227-2	Notice and Assistance Regarding Patent and Copyright Infringement (AUG 1996)
	FAR 52.228-7	Insurance Liability to Third Persons (MAR 1996) (Further to paragraph (a)(3), unless otherwise stated in this contract, types and limits of insurance required are as stated in FAR 28.307-2)
	FAR 52.232-9	Limitation on Withholding of Payments (APR 1984)
**	FAR 52.232-17	Interest (JUN 1996)
	FAR 52.232-23	Assignment of Claims (JAN 1986) and Alternate I (APR 1984)
	FAR 52.232-25	Prompt Payment (FEB 2002) and Alternate I (FEB 2002) (The words “the 30th day” are inserted in lieu of “the 7th day” at (a)(5)(i). [When Alternate I is applicable (a)(5)(i) does do not apply] [Alternate I applies when awarding a cost reimbursement contract for services]
	FAR 52.232-33	Payment by Electronic Funds Transfer—Central Contractor Registration (MAY 1999)
	FAR 52.233-1	Disputes (DEC 1998)
	FAR 52.233-3	Protest After Award (AUG 1996) and Alternate I (JUN 1985)
	FAR 52.242-1	Notice of Intent to Disallow Costs (APR 1984)
+	FAR 52.242-3	Penalties for Unallowable Costs (MAY 2001)

CONTRACT NUMBER N00014-02-C-0250 PAGE 11

	FAR 52.242-4	Certification of Final Indirect Costs (JAN 1997)
**	FAR 52.242-13	Bankruptcy (JUL 1995)
	FAR 52.242-15	Stop Work Order (AUG 1989) and Alternate I (APR 1984)
	FAR 52.244-2	Subcontracts (AUG 1998) and Alternate I (AUG 1998) [Insert in cost-reimbursement contracts, and letter, time-and-material, and labor-hour contracts exceeding SAP, and fixed price contracts exceeding SAP where unpriced actions are anticipated. Use Alternate I for cost-rembursement contracts]
**	FAR 52.244-5	Competition in Subcontracting (DEC 1996)
	FAR 52.244-6	Subcontracts for Commercial Items and Commercial Components (APR 2002)
	FAR 52.245-5	Government Property (Cost-Reimbursement, Time-and-Materials, or Labor-Hour Contracts) (JAN 1986) and ALT I (JUL 1985) (As modified by DoD Class Deviation 99-00008 dated 13 July 1999) (ALT I is applicable if the contractor is a nonprofit organization whose primary purpose is the conduct of scientific research)
**	FAR 52.247-64	Preference for Privately Owned U.S. Flag Commercial Vessels (JUN 2000)
	FAR 52.249-6	Termination (Cost-Reimbursement) (SEP 1996)
	FAR 52.249-14	Excusable Delays (APR 1984)
	FAR 52.251-1	Government Supply Sources (APR 1984)
	FAR 52.253-1	Computer Generated Forms (JAN 1991)

II. DEPARTMENT OF DEFENSE FAR SUPPLEMENTAL (DFARS) (48 CFR CHAPTER 2) CLAUSES:

**	DFARS 252.203-7001	Prohibition On Persons Convicted of Fraud or Other Defense-Contract-Related Felonies (MAR 1999)
	DFARS 252.204-7003	Control of Government Work Product (APR 1992)
	DFARS 252.204-7004	Required Central Contractor Registration (NOV 2001)
**	DFARS 252.209-7000	Acquisition from Subcontractors subject to On-Site Inspection under the Intermediate Range Nuclear Forces (INF) Treaty (NOV 1995)
**	DFARS 252.209-7004	Subcontracting with Firms That Are Owned or Controlled by the Government of a Terrorist Country (MAR 1998)
+	DFARS 252.215-7000	Pricing Adjustments (DEC 1991)
++	DFARS 252.219-7003	Small, Small Disadvantaged and Women-owned Small Business Subcontracting Plan (DoD Contracts) (APR 1996)
**	DFARS 252.225-7012	Preference for Certain Domestic Commodities (APRIL 2002)
	DFARS 252.225-7031	Secondary Arab Boycott of Israel (JUN 1992)
	DFARS 252.227-7013	Rights in Technical Data – Noncommercial Items (NOV 1995), and Alternate I (JUN 1995)
	DFARS 252.227-7014	Rights In Noncommercial Computer Software and Noncommercial Computer Software Documentation (JUN 1995)
	DFARS 252.227-7016	Rights in Bid or Proposal Information (JUN 1995)
	DFARS 252.227-7019	Validation of Asserted Restrictions – Computer Software (JUN 1995)
	DFARS 252.227-7025	Limitations on the Use or Disclosure of Government-Furnished Information Marked with Restrictive Legends (JUN 1995)
	DFARS 252.227-7028	Technical Data or Computer Software Previously Delivered to the Government (JUN 1995)
	DFARS 252.227-7030	Technical Data – Withholding of Payment (MAR 2000)
	DFARS 252.227-7036	Declaration of Technical Data Conformity (JAN 1997)
	DFARS 252.227-7037	Validation of Restrictive Markings on Technical Data (SEP 1999)
	DFARS 252.231-7000	Supplemental Cost Principles (DEC 1991)
	DFARS 252.242-7000	Post-Award Conference (DEC 1991)
**	DFARS 252.243-7002	Requests for Equitable Adjustment (MAR 1998)
	DFARS 252.245-7001	Reports of Government Property (MAY 1994)

CONTRACT NUMBER N00014-02-C-0250 PAGE 12

X	DFARS 252.246-7000	Material Inspection and Receiving Report (DEC 1991)
	DFARS 252.251-7000	Ordering from Government Supply Sources (MAY 1995)
**	DFARS 252.247-7023	Transportation of Supplies by Sea (MAR 2000)
**	DFARS 252.247-7024	Notification Of Transportation Of Supplies By Sea (MAR 2000) (Applicable when the Contractor has made a negative response to the inquiry in the representation at DFARS 252.247-7022.)
	DFARS 252.251-7000	Ordering from Government Supply Sources (MAY 1995)

(B) ADDITIONAL FAR AND DFARS CLAUSES

This contract incorporates one or more clauses by reference as indicated by the mark of (X), with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. Also, the full text of a clause may be accessed electronically at this address: http://www.arnet.gov/far/

	FAR 52.204-2	Security Requirements (AUG 1996) (Applicable if contract will generate or require access to classified information and DD Form 254, Contract Security Classification Specification, is issued to the contractor)
X	FAR 52.209-6	Protecting the Government’s Interest when Subcontracting with Contractors Debarred, Suspended, or Proposed for Debarment (JUL 1995) (Applicable to contracts exceeding $25,000 in value.)
	FAR 52.215-17	Waiver of Facilities Capital Cost of Money (OCT 1997) (Applicable if the Contractor did not propose facilities capital cost of money in the offer)
X	FAR 52.215-20	Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data (OCT 1997) (Applicable if cost or pricing data or information other than cost or pricing data are required)
X	FAR 52.215-21	Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data - Modifications (OCT 1997) (Applicable if cost or pricing data or information other than cost or pricing data will be required for modifications)
	FAR 52.217-9	Option to Extend the Term of the Contract (MAR 2000) (In paragraph (a), insert “ ”, and in paragraph (c), insert “ ”) (Applicable if contract contains line item(s) for option(s)) (Complete the spaces in parentheses)
	FAR 52.219-3	Notice of Total HUBZone Set-Aside (JAN 1999)
	FAR 52.219-5	Very Small Business Set-Aside (MAR 1999) (For actions between $2,500 and $50,000)
	FAR 52.219-6	Notice of Total Small Business Set-Aside (JUL 1996), and Alternate I (OCT 1995) (Applicable to total small business set-asides, including SBIR)
	FAR 52.219-7	Notice of Partial Small Business Set-Aside (JUL 1996) and Alternate I (OCT 1995)
	FAR 52.219-10	Incentive Subcontracting Program (OCT 2001) (Applicable at the PCO’s discretion to contract actions exceeding $500,000 and when subcontracting possibilities exist. The clause is small business exempt) (In paragraph (b), insert the appropriate number between 0 and 10 – “XX”) (Complete the space in the parentheses)
	FAR 52.219-25	Small Disadvantaged Business Participation Program - Disadvantaged Status and Reporting (OCT 1999) (Applicable if contract includes

CONTRACT NUMBER N00014-02-C-0250 PAGE 13

		FAR 52.219-24)
	FAR 52.219-26	Small Disadvantaged Business Participation Program—Incentive Subcontracting Program (OCT 2000) (Applicable at the PCO’s discretion to contract actions exceeding $500,000 and when subcontracting possibilities exist. The clause is small business exempt) (In paragraph (b), insert the appropriate number between 0 and 10 – “XX”) (Complete the space in the parentheses)
X	FAR 52.222-20	Walsh Healy Public Contracts Act (DEC 1996) (Applicable if the contract includes deliverable materials, supplies, articles or equipment in an amount that exceeds or may exceed $10,000)
	FAR 52.223-5	Pollution Prevention and Right-to-Know Information (APR 1998) (Applicable if contract provides for performance, in whole or in part, on a Federal facility)
X	FAR 52.223-6	Drug-Free Workplace (MAY 2001) (Applies when contract action exceeds $100,000 or at any value when the contract is awarded to an individual)
	FAR 52.230-2	Cost Accounting Standards (APR 1998) (Applicable when contract amount is over $500,000, if contractor is subject to full CAS coverage, as set forth in 48 CFR Chapter 99, Subpart 9903.201-2(a) (FAR Appendix B)
X	FAR 52.230-3	Disclosure and Consistency of Cost Accounting Practices (APR 1998) (Applicable when contract amount is over $500,000 but less than $25 million, and the offeror certifies it is eligible for and elects to use modified CAS coverage as set forth in 48 CFR Chapter 99, Subpart 9903.201-2 (FAR Appendix B)
X	FAR 52.230-6	Administration of Cost Accounting Standards (NOV 1999) (Applicable if contract is subject to either clause at FAR 52.230-2, FAR 52.230-3 or FAR 52.230-5)
X	FAR 52.232-20	Limitation of Cost (APR 1984) (Applicable only when contract action is fully funded)
X	FAR 52.232-22	Limitation of Funds (APR 1984) (Applicable only when contract action is incrementally funded)
	FAR 52.239-1	Privacy or Security Safeguards (AUG 1996) (Applicable to contracts for information technology which require security of information technology, and/or are for the design, development, or operation of a system of records using commercial information technology services or support services.)
	FAR 52.245-18	Special Test Equipment (FEB 1993) Applicable when it is anticipated that the contractor will acquire or fabricate special test equipment but the exact identification of the equipment is not known)
X	DFARS 252.203-7002	Display of DoD Hotline Poster (DEC 1991) (Applicable only when contract action exceeds $5 million or when any modification increases contract amount to more than $5 million)
X	DFARS 252.204-7000	Disclosure of Information (DEC 1991) (Applies when Contractor will have access to or generate unclassified information that may be sensitive and inappropriate for release to the public)
	DFARS 252.204-7005	Oral Attestation of Security Responsibilities (NOV 2001) (Applicable if FAR 52.204-2, Security Requirements Applies)
X	DFARS 252.205-7000	Provision of Information to Cooperative Agreement Holders (DEC 1991) (Applicable only when contract action exceeds $500,000 or when any modification increases total contract amount to more than $500,000)

CONTRACT NUMBER N00014-02.C-0250 PAGE 14

X	DFARS 252.215-7002	Cost Estimating System requirements (Oct 1998) (Applicable only to contract actions awarded on the basis of certified cost or pricing data)
	DFARS 252.223-7004	Drug-Free Work Force (SEP 1988) (Applicable (a) if contract involves access to classified information: or (b) when the Contracting Officer determines that the clause is necessary for reasons of national security or for the purpose of protecting the health or safety of performance of the contract.
	DFARS 252.223-7006	Prohibition on Storage and Disposal of Toxic and Hazardous Materials (APR 1993) (Applicable if work requires, may require, or permits contractor performance on a DoD installation)
	DFARS 252.225-7001	Buy American Act and Balance of Payments Program (MAR 1998) (Applicable if the contract includes deliverable supplies) (This clause does not apply if an exception to the Buy American Act or Balance of Payments Program is known or if using the clause at 252.225-7007, 252.225-7021, or 252.225-7036.)
	DFARS 252.225-7002	Qualifying Country Sources as Subcontractors (DEC 1991) (Applicable when clause at DFARS 252.225-7001, 252.227-7007, 252.227-7021, or 252.227-7036 applies)
	DFARS 252.225-7007	Buy American Act – Trade Agreements – Balance of Payments Program (SEP 2001) (Use instead of FAR 52.225-5, Trade Agreements (Include in contracts valued at $186,000 or more, if the Trade Agreements Act applies (see 25.401 and 25.403) and the agency has determined that the restrictions of the Buy American Act or Balance of Payments Program are not applicable to U.S.– made end products, unless the acquisition is to be awarded and performed outside the United States in support of a contingency operation or a humanitarian or peacekeeping operation and does not exceed the increase simplified acquisition threshold of $200,000.) The clause need not be used where purchase from foreign sources is restricted (see 225.401 (b)(ii)). The clause may be used where the contracting officer anticipates a waiver of the restriction.)
	DFARS 252.225-7008	Supplies to be Accorded Duty-Free Entry (MAR 1998) (Applicable when the contract provides for duty-free entry and includes FAR 52.225-8 – Duty-Free Entry)
	DFARS 252.225-7009	Duty-Free Entry – Qualifying Country Supplies (End Products and Components) (AUG 2000) (Applicable if contract includes deliverable supplies)
	DFARS 252.225-7010	Duty-Free Entry – Additional Provisions (AUG 2000) (Applicable when FAR 52.225-8 – Duty-Free Entry is included in the contract.)
	DFARS 252.225-7016	Restriction On Acquisition Of Ball And Roller Bearings (DEC 2000) (Applicable if contract includes deliverable supplies, unless Contracting Officer knows that items being acquired do not contain ball or roller bearings)
X	DFARS 252.225-7026	Reporting of Contract Performance Outside the United States (JUN 2000) (Applicable only when contract value exceeds $500,000 or when any modification increases contract value to more than $500,000)
X	DFARS 252.226-7001	Utilization of Indian Organizations and Indian-Owned Economic Enterprises (SEP 2001) [(Applicable if FAR Part 12 not used, and for supplies and services expected to exceed SAP thresholds) (This Interim Rule replaces FAR 52.226-1 (JUN 2000) via DFARS Chg Ntc 200110911]

CONTRACT NUMBER N00014-02.C-0250 PAGE 15

	DFARS 252.227-7018	Rights in Noncommercial Technical Data and Computer Software – Small Business Innovation Research (SBIR) Program (JUN 1995) (Applicable when technical data or computer software will be generated during performance of contracts under the SBIR Program)
X	DFARS 252.242-7004	Material Management and Accounting System (DEC 2000) (Applicable to contract actions exceeding $100,000) (Not applicable to contracts set aside for exclusive participation by small business and small disadvantaged business concerns)

C. COST SHARING – NO FEE RESEARCH AND DEVELOPMENT CLAUSES

The following FAR and DFARS clauses apply to Cost Sharing – No Fee Research and Development Contracts and are either required by regulation or are required when the circumstances of the contract warrant that they apply. The FAR and DFARS clauses for Cost-Sharing Research and Development Contracts only apply when specifically marked with an (X).:

	FAR 52.216-11	Cost Contract — No Fee (APR 1984) and Alternate I (APR 1984) Replace 52.216-8) [This clause may be modified by substituting “$10,000” in lieu of “$100,000” as the maximum reserve in paragraph (b) if the Contractor is a nonprofit organization.] FAR 16.307 (e) (2): Use the Alternate I when using a cost-reimbursement research and development contract with an educational institution or a nonprofit organization that provides no fee or other payment above cost and is not a cost-sharing contract is contemplated, and if the contracting officer determines that withholding of a portion of allowable costs is not required.
X	FAR 52.216-12	Cost Sharing Contract — No Fee (APR 1984) Insert Immediately following 52.216-8 [ This clause may be modified by substituting “$10,000” in lieu of “$100,000” as the maximum reserve in paragraph (b) if the contract is with a nonprofit organization.] FAR 16.307 (f) (2): Use Alternate I when a cost-sharing research and development contract with an educational institution or a nonprofit organization is contemplated, and if the contracting officer determines that withholding of a portion of allowable costs is not required.
	FAR 52.227-10	Filing of Patent Applications –Classified Subject Matter (APR 1984) (Applicable if contract is subject to FAR clause 52.204-02 and either 52.227-11 or 52.227-12)
	FAR 52.227-11	Patent Rights – Retention by the Contractor (Short Form) (JUN 1997) (Applicable if contractor is a small business or non profit organization)
X	FAR 52.243-2	Changes — Cost-Reimbursement (Aug. 1987) and Alternate V (APR 1984) FAR 43.205 (b)(6): Include clause in research and development contracts with Alternate V.
X	FAR 52.246-9	Inspection of Research and Development (Short Form) (Apr 1984) FAR 46.309: Include in contract when FAR 52.246-7, Inspection of Research and Development — Fixed-Price; & FAR 52.246-8, Inspection of Research and Development — Cost-Reimbursement, are not used. FAR 52.246-8 is not applicable when FAR 52.246-9 is used.
	FAR 52.247-63	Preference for U.S.-Flag Air Carriers (JAN 1997) FAR 47.405: Use

CONTRACT NUMBER N00014-02.C-0250 PAGE 16

		in contracts whenever it is possible that U.S. Government-financed international air transportation of personnel (and their personal effects) or property will occur in the performance of the contract.
	OR
X	FAR 52.227-12	Patent Rights – Retention by the Contractor (Long Form) (JAN 1997) (Applicable if contractor is a large business)
	DFARS 252.227-7034	Patents – Subcontracts (APR 1984) (Applicable when FAR 52.227-11 applies)
	DFARS 252.227-7039	Patents – Reporting of Subject Inventions (APR 1990) (Applicable when FAR 52.227-11 applies)
X	DFARS 252.235-7011	Final Scientific Or Technical Report (Sep 1999)

SECTION J - LIST OF ATTACHMENTS

1) Attachment Number 1 entitled, “Statement of Work,” 5 pages.

2) Attachment Number 2 entitled, “Deliverables,” 1 page.

3) EXHIBIT A entitled, “Contract Data Requirements List,” (DD Form 1423), 2 pages.

4) Enclosure Number 1 entitled, “Contract Data Requirements List—Instructions for Distribution,” 2 pages.

5) Attachment Number 3 entitled, “Addendum to Master Subcontracting Plan,” 2 pages.

6) Attachment Number 4 entitled, “Financial Accounting Data Sheet,” 2 pages.

SECTION K - REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFEROR

1) The Contractor’s Representations and Certifications, dated 13 MAR 2002, are hereby incorporated into this contract by reference.

CONTRACT NUMBER N00014-02.C-0250 PAGE 17

Attachment Number 1:

Statement of Work

2.0 [***]

Note, for the [***] of this program work on [***] will be conducted under a Title III program. At the end of this period the work will be transferred to this program and the following tasks undertaken.

2.1 Increase [***]

Cree will optimize the [***] process to achieve [***]. This will be accomplished by the following subtasks to:

2.1.1 Scale up to [***]. – We will develop appropriate systems to provide [***].

2.1.2 Transfer the [***] from [***] to [***].—We will follow [***] procedures to [***] the [***] process to [***] in the [***] of this program.

2.2 Increase [***]

Cree will transition it current [***] into a [***].

2.2.1 [***]. - We will optimize [***] through a DOE approach to produce [***] whilst [***]. Variables to be examined include; [***].

2.3 Reduce [***]

We will improve both [***] and [***] to yield [***] with [***]. The development of [***] will be accomplished as follows:

2.3.1 R&D [***] to [***]. - We will follow [***] to transition the [***] to [***] of this program.

2.3.2 [***] in the [***] process. - Cree will use the same approaches as in our prior Title III program to identify and eliminate [***] in the [***] material. Goal: [***].

2.4 [***]

Cree will modify its current [***] process for [***] material. We will also refine the process to make it capable of [***] appropriate for [***] levels.

2.4.1 Implement [***] process for [***] material.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 1 CONTRACT NUMBER N00014-02-C-0250 PAGE 1

2.4.2 Develop [***] specifications. Cree will drive the development of an international set of specifications for [***] material.

2.5 [***]

Cree will apply its expertise in [***] processes into [***] processes to [***] material system.

2.5.1 Enact value management for [***] process. – Cree will include the [***] process in its company wide ongoing effort to implement [***] practices.

3.0 [***]

3.1 [***]

Enlarge and refine current [***] design to develop the necessary capability for [***] capability.

3.2 [***]

Use [***] and [***] to improve [***] to [***].

3.3 [***]

Improve [***] to achieve [***], respectively.

3.4 [***]

3.4.1 Increase [***] by optimizing [***] to enable [***]

3.4.2 Employ [***] to improve [***] and improve [***].

3.4.3 Establish [***] capability for [***].

4.0 [***].

4.1 [***]

4.1.1 [***]—Implement [***] for all tools on the [***] line and establish appropriate [***] and [***].

4.1.2 [***]—Establish [***] for all [***] and develop [***] programs for comparing [***] data to [***] data.

4.1.3 [***] – Document the [***] process to be compatible with [***] process and integrte the process flow into Cree’s [***].

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 1 CONTRACT NUMBER N00014-02-C-0250 PAGE 2

4.1.4 [***]—Establish [***] for each of the [***] components and implement a [***] for [***] yield.

4.2 [***]

4.2.1 Optimize [***].

4.3 [***]

4.3.1 Upgrade [***] to [***] by designing [***] and define process [***].

4.3.2 Optimize [***] for [***] by reducing [***] and by reducing edge effects.

4.3.3 Evaluate [***] – work with [***] to develop a system to enable [***].

4.4 [***]

4.4.1 [***]—Automate [***] and gather [***] and develop program [***] to perform [***]; evaluate [***]; optimize [***].

4.4.2 [***]—Evaluate impact [***]; optimize [***].

4.5 [***]

4.5.1 [***]—Reduce [***] in all equipment associated with the [***]; adjust [***] to minimize [***]; evaluate [***].

4.5.2 [***]—Evaluate impact of [***]; define [***]; fabricate [***] with new process.

4.5.3 [***]—Evaluate impact of [***]; fabricate [***] with [***].

4.6 [***]

4.6.1 Improvement to the [***]—Convert process from [***]; improve [***]; employ [***]

4.6.2 [***]; optimize [***].

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 1 CONTRACT NUMBER N00014-02-C-0250 PAGE 3

4.6.3 [***]—Implement processes on [***] and improve [***].

4.6.4 [***]—Modify [***] to enable [***]; optimize process for [***]; evaluate effectiveness of [***].

4.6.5 [***] – Reduced [***] in order to minimize [***] during the [***]; implement [***], if necessary, into backside metal process

4.7 [***]

4.7.1 Develop software for [***] with [***] to capture gain, power and efficiency across the band.

4.7.2 Develop [***] with [***] to enable [***] of [***] that do not have [***].

4.7.3 Design an [***] so that all [***] of the [***] can be performed in [***].

4.8 [***]

4.8.1 Define [***] – From the [***] from the other tasks, create a [***] that defines all [***].

4.8.2 [***] – generate a [***] that conform to all of [***]; define process tolerances to enable ability to optimize [***].

4.9 [***]

4.9.1 Component [***] – Perform [***] for each of the [***].

4.9.2 [***] – Perform [***] sampled from every lot; determine process capability from the [***] of failures.

4.9.3 [***] – Perform [***] from [***].

4.10 [***]

4.10.1 [***] at the end of [***] – In the [***], all of the process modules will be [***] and a [***] will be performed using these processes. This [***] will consist of [***] each using the [***] that is agreed upon. [***] statistics will be reported after the completion of all [***].

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 1 CONTRACT NUMBER N00014-02-C-0250 PAGE 4

4.10.2 [***] – In the [***], all of the process modules will be [***] and a [***] will be performed using these processes. This [***] will consist of [***] each using the [***] that is agreed upon. [***] statistics will be reported after the completion of all [***].

4.10.3 [***] – In the [***], all of the process modules will be [***] and a [***] will be performed using these processes. This [***] will consist of [***] each using the [***] that is agreed upon. [***] statistics will be reported after the completion of all [***].

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 1 CONTRACT NUMBER N00014-02-C-0250 PAGE 5

Attachment Number 2:

Deliverables

Table 4 lists the deliverables for the crystal growth effort on this program. The [***] that will be delivered will be representative for that time period. Table 5 lists the deliverables for the [***] growth effort on this program. The [***] that will be delivered will be representative of the epi growth process during that time period. Table 6 lists the deliverables for the manufacturing effort on this program. The discrete [***] that will be delivered will be [***] devices mounted in [***] packages. The [***] that will be delivered will be of the amplifier design that will have been selected as the [***] test vehicle for the program during that time period, and they will be a minimum of [***] peak power.

Table 4: Deliverables for the [***] effort.

[***]	[***]
[***]	[***]

Table 5: Deliverables for the [***] effort.

[***]	[***]	[***]
[***]	[***]	[***]

Table 6: Deliverables for the [***] effort.

[***]	[***]	[***]
[***]	[***]	[***]

Additional Deliverables

• Unpackaged devices will be deliverable under this contract, as required by the Program Officer. These unpackaged devices requested by the Program Officer can be from the [***].

• [***] representative of current process will be deliverable [***] after the effective date of this contract.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NUMBER 2 CONTRACT NUMBER N00014-02-C-0250 PAGE 1

CONTRACT DATA REQUIREMENTS LIST Form Approved OMB No. 0704-0188

Public reporting burden for this collection of information is estimated to average 440 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection or information, including suggestions for reducing this burden, to Washington Headquarters Services Directorate for information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget Paperwork Reduction Project (0704-0188), Washington, DC 20503.

A. CONTRACT LINE ITEM NO. 0003 B. EXHIBIT A C. CATEGORY     TOP            TM                    OTHER     X

D. SYSTEM/ITEM E. CONTRACT/PR NO. N00014-02-C-0250 F. CONTRACTOR CREE, INC.

1. DATA ITEM NO. A001 2. TITLE OF DATA ITEM Monthly Status Reports* 3. SUBTITLE

4. AUTHORITY (Data Acquisition Document No.) 5. CONTRACT REFERENCE Section H.1 of Schedule 6. REQUIRING OFFICE See Section F.3

7. DD 250 REQ	9. DIST  STATEMENT REQUIRED	10. FREQUENCY	12. D ATE OF FIRST SUBMISSION 1 Month after contract effective date	14. DISTRIBUTION
LT*		Monthly		ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION		Draft	Final
			Every month thereafter			REQ	REPRO
16. REMARKS * These monthly reports shall contain the following: major accomplishments, issues, problems, monthly dollar expenditures on a comprehensive/cumulative basis as well as a comparison of projected versus actual expenditures, and plans for next month and next 3 months. The reports may be submitted electronically, may be approximately two pages in length, and can be in contractor format.				See Enclosure Number 1 15. TOTAL

1. DATA ITEM NO. A002 2. TITLE OF DATA ITEM Presentation Materials* 3. SUBTITLE

4. AUTHORITY (Data Acquisition Document No.) 5. CONTRACT REFERENCE Section H.1 of the Schedule 6. REQUIRING OFFICE See Section F.3

7. DD 250 REQ LT*	9. DIST  STATEMENT REQUIRED	10. FREQUENCY As Required	12. DATE OF FIRST SUBMISSION	14. DISTRIBUTION ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION		Draft	Final
						REQ	REPRO
16. REMARKS *The presentation materials will be on an as-required basis in a format to be requested by the Program Officer.				See Enclosure Number 1 15. TOTAL

1. DATA ITEM NO. A003 2. TITLE OF DATA ITEM Progress/Management Reports* 3. SUBTITLE

4. AUTHORITY (Data Acquisition Document No.) 5. CONTRACT REFERENCE Section H.1 of Schedule 6. REQUIRING OFFICE See Section F.3

7. DD 250 REQ LT*	9. DIST  STATEMENT REQUIRED	10. FREQUENCY Semi-Annually	12. DATE OF FIRST SUBMISSION 6 Months after contract effective date	14. DISTRIBUTION ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION		Draft	Final
			Every 6 Months thereafter			REQ	REPRO
16. REMARKS * These semi-annual reports shall contain a comprehensive/cumulative description of the major accomplishments to date. The reports can be in contractor format.				See Enclosure Number 1 15. TOTAL

1. DATA ITEM NO. A004 2. TITLE OF DATA ITEM Reliability Test Plan 3. SUBTITLE

4. AUTHORITY (Data Acquisition Document No.) 5. CONTRACT REFERENCE Section H.1 of Schedule 6. REQUIRING OFFICE See Section F.3

7. DD 250 REQ LT*	9. DIST  STATEMENT REQUIRED	10. FREQUENCY 3 Reports	12. DATE OF FIRST SUBMISSION 45 days prior to each [***] reliability test	14. DISTRIBUTION ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION		Draft	Final
			Every month thereafter			REQ	REPRO
16. REMARKS *There will be three (3) of these reports required, which shall be submitted as required by the Program Officer. These reports can be submitted in contractor format.				See Enclosure Number 1 15. TOTAL

G. PREPARED BY WADE WARGO / ONR 251 H. DATE L. APPROVED BY WADE WARGO / ONR 251 J. DATE

DD Form 1423-2, JUN 90 OVERPRINT (1-91)	Previous editions are obsolete	Page 1 of 2 NAVOCNR
[***]   Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT DATA REQUIREMENTS LIST Form Approved                 OMB No. 0704-0188                

Public reporting burden for this collection of information is estimated to average 440 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection or information, including suggestions for reducing this burden, to Washington Headquarters Services Directorate for information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget Paperwork Reduction Project (0704-0188), Washington, DC 20503.

A. CONTRACT LINE ITEM NO. 0003	B. EXHIBIT A		C. CATEGORY      TOP      ¨	TM      ¨	OTHER      x
D. SYSTEM/ITEM		E. CONTRACT/PR NO.         N00014-02-C-0250		F. CONTRACTOR CREE, INC.

1. DATA ITEM NO. A005	2. TITLE OF DATA ITEM Producibility Test Reports	3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)	5. CONTRACT REFERENCE Section H.1 of the Schedule	6. REQUIRING OFFICE             See Section F.3

7. DD 250 REQ	9. DIST STATEMENT REQUIRED	10. FREQUENCY	12. DATE OF FIRST SUBMISSION	14. DISTRIBUTION
LT*		Annually	60 days after [***]	ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION		Draft	Final
						REQ            REPRO
16. REMARKS *There will be three (3) of these reports required, which are to be submitted annually. These reports can be submitted in contractor format.				See Enclosure Number 1
				15. TOTAL

1. DATA ITEM NO. A006	2. TITLE OF DATA ITEM Reliability Test Reports	3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)	5. CONTRACT REFERENCE Section H.1 of the Schedule	6. REQUIRING OFFICE             See Section F.3

7. DD 250 REQ	9. DIST STATEMENT REQUIRED	10. FREQUENCY	12. DATE OF FIRST SUBMISSION	14. DISTRIBUTION
LT*		3 Reports	90 days after start of reliability test	ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION		Draft	Final
						REQ            REPRO
16. REMARKS *There will be three (3) of these reports required, which shall be submitted as required by the Program Officer. These reports can be submitted in contractor format.				See Enclosure Number 1
				15. TOTAL

1. DATA ITEM NO. A007	2. TITLE OF DATA ITEM Final Report*	3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)	5. CONTRACT REFERENCE Section H.1 of the Schedule	6. REQUIRING OFFICE             See Section F.3

7. DD 250 REQ	9. DIST STATEMENT REQUIRED	10. FREQUENCY	12. DATE OF FIRST SUBMISSION	14. DISTRIBUTION
DD*		ONE/R	30 Days after the contract end date	ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION		Draft	Final
			60 days after the contract end date			REQ            REPRO
16. REMARKS * DD 250 required only for acceptance by the Program Officer designated in Section F.3. Information copies of this report shall be distributed in accordance with Enclosure Number 1.				See Enclosure Number 1
				15. TOTAL

1. DATA ITEM NO.	2. TITLE OF DATA ITEM	3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)	5. CONTRACT REFERENCE	6. REQUIRING OFFICE

7. DD 250 REQ	9. DIST STATEMENT REQUIRED	10. FREQUENCY	12. DATE OF FIRST SUBMISSION	14. DISTRIBUTION
				ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION		Draft	Final
						REQ            REPRO
16. REMARKS
				15. TOTAL

G. PREPARED BY WADE WARGO / ONR 251 H. DATE L. APPROVED BY WADE WARGO / ONR 251 J. DATE

DD Form 1423-2, JUN 90 OVERPRINT (1-91)	Previous editions are obsolete	Page 2 of 2 NAVOCNR
[***]   Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ENCLOSURE NUMBER 1

CONTRACT DATA REQUIREMENTS LIST

INSTRUCTIONS FOR DISTRIBUTION

DISTRIBUTION OF TECHNICAL REPORTS AND FINAL REPORT

The minimum distribution of technical reports and the final report submitted in connection with this contract is as follows:

ADDRESSEE	DODAAD CODE	NUMBER OF COPIES
		UNCLASSIFIED/ UNLIMITED	UNCLASSIFIED/ LIMITED AND CLASSIFIED
Program Officer E-Mail: dietrih@onr.navy.mil	N00014	1	1
Administrative Contracting Officer*	S1103A	1	1
Director, Naval Research Lab Attn: Code 5227 4555 Overlook Avenue, SW Washington, D.C. 20375-5320 E-mail: reports@library.nrl.navy.mil	N00173	1	1
Defense Technical Information Center 8725 John J. Kingman Road STE 0944 Ft. Belvoir, VA 22060-6218 E-mail: tr@dtic.mil	S47031	2	2

* Send only a copy of the transmittal letter to the Administrative Contracting Officer; do not send actual reports to the Administrative Contracting Officer.

ELECTRONIC SUBMISSIONS OF TECHNICAL REPORTS IS PREFERRED AND ENCOURAGED. ELECTRONIC SUBMISSION SHOULD BE SENT TO THE E-MAIL ADDRESSES PROVIDED IN THE ABOVE TABLE, HOWEVER PLEASE NOTE THE FOLLOWING:

• Only Unlimited/Unclassified document copies may be submitted by e-mail.

• Unclassified/Limited has restricted distribution and a classified document (whether in its entirety or partially) is to be distributed in accordance with classified material handling procedures.

• Electronic submission to DIRECTOR, NAVAL RESEARCH LAB, shall be unclassified/unlimited reports and 30 pages or less. If unclassified and more than 30 pages, hardcopies of reports must be mailed.

CONTRACT NUMBER: N00014-02-C-0250 ENCLOSURE NUMBER 1 PAGE 1

• Electronic submission to DTIC shall be unclassified/unlimited reports. If submission is for limited documents, please send them in on a disk or sign up for DTIC’s web-based document submission system at http://www.dtic.mil/dtic/submitting/elec_subm.html.

If the Program Officer directs, the Contractor shall make additional distribution of technical reports in accordance with a supplemental distribution list provided by the Program Officer.

DISTRIBUTION OF PROGRESS REPORTS, which are NOT, Technical Reports

The minimum distribution for reports that are not technical reports is as follows:

ADDRESSEE		NUMBER OF COPIES
	DODAAD CODE	UNCLASSIFIED/ UNLIMITED	UNCLASSIFIED/ LIMITED AND CLASSIFIED
Program Officer E-Mail: dietrih@onr.navy.mil	N00014	1	1
Administrative Contracting Officer*	S1103A	1	1

* Send only a copy of the transmittal letter to the Administrative Contracting Officer; do not send actual reports to the Administrative Contracting Officer.

CONTRACT NUMBER: N00014-02C-0250 ENCLOSURE NUMBER 1 PAGE 2

ADDENDUM TO MASTER SUBCONTRACTING PLAN

ATTACHMENT NUMBER 3

Contractor:    Cree, Inc. (Cree)

Address:        4600 Silicon Drive

                        Durham, NC 27703

Estimated Contract Value: [***]

1. GOALS-PERCENTAGE

This Contract Specific Plan relates specifically to the scope of work to be performed under this contract/major subcontract, including support services. Subcontracting opportunities have been found to exist in the scope of work as noted below. Further, Cree will continue to expand subcontracting opportunities for small business concerns, HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women, as they become known to Cree.

This Contract Specific Plan, hereby incorporated into the Cree Master Subcontracting Plan, are the following goals:

Small Business (SB)	[***]%
HUBZone Business	[***]%
Small Disadvantaged Business (SDB)	[***]%
Woman-Owned Small Business (WOSB)	[***]%
Veteran-Owned Small Business (VOSB)	[***]%

2. GOALS-DOLLAR

Total dollars planned to be subcontracted is [***]. Total dollars planned to be subcontracted to small business concerns is [***] (including WOSBs). Total dollars planned to be subcontracted to HUBZone’s is [***]. Total dollars planned to be subcontracted to small disadvantaged business concerns is [***]. Total dollars planned to be subcontracted to woman-owned small business is [***]. Total dollars planned to be subcontracted to veteran-owned small business is [***].

3. DESCRIPTION OF SUBCONTRACTING OPPORTUNITIES

The principal products and/or services to be subcontracted and the types of businesses to be utilized are included on the following page.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER: N00014-02-C-0250 ATTACHMENT NUMBER 3 PAGE 1

Item No. Product	Quantity	$ Amount	Total	Vendor	Business Type	Comments
1. [***]	418.50	375.00	156,937.50	[***]	Small
2. [***]	37,395.00	2.20	82,269.00	[***]	Large	Per Liter
3. [***]	1,180.00	71.41	84,263.80	[***]	Large	Per Hour
4. [***]	130.00	208.80	27,144.00	[***]	Large
5. [***]	48.00	585.00	28,080.00	[***]	Small
6. [***]	27.00	184.00	4,968.00	[***]	Large
7. [***]	21.00	502.00	10,542.00	[***]	Large
8. [***]	9.00	500.00	4,500.00	[***]	Large
9. [***]	3.00	1,475.00	4,425.00	[***]	Large	per user
10. [***]	51,000.00	2.26	115,260.00	[***]	Large	per gram
11. [***]	852.30	426.82	363,778.69	[***]	Large	Ad
12. [***]	22.95	4,542.58	104,252.21	[***]	Large	Ad
13. [***]	345.00	38.40	13,248.00	[***]	Small
14. [***]	9.00	926.00	8,334.00	[***]	Small
15. [***]	13.00	1,600.00	20,800.00	[***]	Large
16. [***]	267.00	100.00	26,700.00	[***]	Small
17. [***]	51.00	98.00	4,998.00	[***]	Small
18. [***]	172.00	25.00	4,300.00	[***]	Large
19. [***]	172.00	630.00	108,360.00	[***]	Large
20. [***]	67.00	900.00	60,300.00	[***]	Large	Samples
21. [***]	22.00	1,600.00	35,200.00	[***]	Large
22. [***]	10.00	1,800.00	18,000.00	[***]	Small
23. [***]	23.00	1,030.00	23,690.00	[***]	Small
24. [***]	3,540.00	8.99	31,824.60	[***]	Small
25. [***]	120,695.00	0.25	30,173.75	[***]	Large
26. [***]	49,615.00	0.19	9,426.85	[***]	Small
27. [***]	37.00	46.80	1,731.60	[***]	Small	per case
28. [***]	37.00	65.64	2,428.68	[***]	Large
29. [***]	37.00	74.82	2,768.34	[***]	Small
30. [***]	94.00	17.90	1,682.80	[***]	Large
31. [***]	9.00	1,200.00	10,800.00	[***]	Large
Total Materials and Supplies			1,401,186.62
32. Travel			192,785.00	[***]	WOSB	Travel to Mantech, DC…
Total subcontracted $			1,593,971.62

Attachment 1

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT CONTRACT ID CODE DO-C9(T) PAGE OF PAGES 1/2

2. AMENDMENT/MODIFICATION NO.		3. EFFECTIVE DATE	4. REQUISITION/PURCHASE REQ. NO.	5. PROJECT NO. (If applicable)
P00001		SEE BLOCK 16C	02PR09637-02	N.A.
6. ISSUED BY	CODE	N00014	7. ADMINISTERED BY (If other than Item 6)	CODE	S1103A
				SCD-C
OFFICE OF NAVAL RESEARCH ONR 251: Lynn Christian (703) 696-1575 BALLSTON TOWER CENTRE ONE 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660			DCM ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code)		(X)	9A. AMENDMENT OF SOLICITATION N.A.
CREE, INC. 4600 SILICON DRIVE DURHAM, NC 27703			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER N00014-02-C-0250
CODE OC9J8	FACILITY CODE		10B. DATED (SEE ITEM 13) 03 JUL 2002

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers         ¨ is extended,         ¨ is not extended. Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning      copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment your desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required)       N.A.
	13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(X)	THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
	C. SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: NA AUTHORITY FOR OTHER THAN FULL AND OPEN COMPETITION:
X	D.	OTHER (Specify type of modification and authority) MUTUAL AGREEMENT OF THE PARTIES

E.     IMPORTANT: Contractor    ¨ is not,    x is required to sign this document and return   2   copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)
The purpose of this modification is to incorporate the attached DD Form 254, Contract Security Classification Specification, without additional cost to the Government under Contract Number N00014-02-C-0250.
Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.
15A. NAME AND TITLE OF SIGNER (Type or print)		16A. NAME AND TITLE OF SIGNER (Type or print)
/s/    John W. Palmour Director of Advanced Devices		/s/    WADE D. WARGO Contracting Officer
15B. CONTRACTOR/OFFEROR	15C. DATE SIGNED	16B. UNITED STATES OF AMERICA	16C. DATE SIGNED
/s/    John W. Palmour	01 August 2002	/s/    Wade D. Wargo	8/1/02
(Signature of person authorized to sign)		(Signature of person authorized to sign)
SN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE NAVOCNR OVERPRINT (3-88)		30-105	STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

Effective as of the date of this Modification:

1. Revise SECTION 1 – CONTRACT CLAUSES to add the following checked clauses to subsection (B):

X	FAR 52.204-2	Security Requirements (AUG 1996) (Applicable if contract will generate or require access to classified information and DD Form 254, Contract Security Classification Specification, is issued to the contractor)
X	DFARS 252-204-7005	Oral Attention of Security Responsibilities (NOV 2001) (Applicable if FAR 52.204-2, Security Requirements Applies)
X	DFARS 252.223-7004	Drug-Free Work Force (SEP 1988) (Applicable (a) if contract involves access to classified information: or (b) when the Contracting Officer determines that the clause is necessary for reasons of national security or for the purpose of protecting the health or safety of performance of the contract.
2. Revise SECTION 1 – CONTRACT CLAUSES to add the following checked clauses to subsection (C):
X	FAR 52.227-10	Filing of Patent Applications – Classified Subject Matter (APR 1984) (Applicable if contract is subject to FAR clauses 52.204-2 and either FAR 52.227 or FAR 52.227.12)

3. Revise SECTION J – LIST OF ATTACHMENTS to add the following paragraph:

“5. Attachment Number 5, entitled “Contract Security Classification Specification (DD Form 254),” 3 pages.”

This modification makes no change to the Estimated Cost or Fixed Fee of this contract. All other terms and conditions remain unchanged.

CONTRACT NUMBER N00014-02-C-0250 MODIFICATION NUMBER: P00001 PAGE 2

ATTACHMENT NO. 5, PAGE 1 OF 3, CONTRACT N00014-02-C-0250

DEPARTMENT OF DEFENSE CONTRACT SECURITY CLASSIFICATION SPECIFICATION (The requirements of the DoD industrial Security Manual apply to all security aspects of this effort.)	1. CLEARANCE AND SAFEGUARDING
	a. FACILITY CLEARANCE REQUIRED     SECRET
	b. LEVEL OF SAFEGUARDING REQUIRED     SECRET

2. THIS SPECIFICATION IS FOR: (X and complete as applicable)			3. THIS SPECIFICATION IS: (x and complete as applicable)
x	a. PRIME CONTRACT NUMBER N00014-02-C-0250		x	a. ORIGINAL (complete date in all areas)		Date (YYMMDD) 020723
	b. SUBCONTRACT NUMBER			b. REVISED (Supersedes all previous specs)	Revision No.	Date (YYMMDD)
	c. SOLICITATION OR OTHER NUMBER	DUE DATE		c. FINAL (Complete item 5 in all cases)		Date (YYMMDD)

4. IS THIS A FOLLOW-ON CONTRACT?            ¨  YES        x  NO.        If Yes, complete the following:

Classified material received or generated under                                                                                    (Preceding Contract Number) is transferred to this follow-on contract.

5. IS THIS A FINAL DD FORM 254?             ¨  YES        x  NO.        If Yes, complete the following:

In response to the contractor’s request dated                          retention of the identified classified material is authorized for the period of                                 .

6. CONTRACTOR (Include Commercial and Government Entity (CAGE) Code)

a.    NAME, ADDRESS AND ZIP CODE CREE, Inc, 4600 Silicon Drive Durham, NC 27703 (classified Mailing Address: P.O. Box 12448 Durham, NC 27709) b. CAGE CODE OC9J8 b.    COGNIZANT SECURITY OFFICE (Name, Address and Zip Code) Defense Security Service (S21VB) Pembroke 5, Suite 525 263 Independence Blvd Virginia Beach, VA 23462-5400

7. SUBCONTRACTOR

a. NAME, ADDRESS AND ZIP CODE b. CAGE CODE c. COGNIZANT SECURITY OFFICE (Name, Address and Zip Code)

8. ACTUAL PERFORMANCE

a. LOCATION b. CAGE CODE c. COGNIZANT SECURITY OFFICE (Name, Address and Zip Code)

9. GENERAL IDENTIFICATION OF THIS PROCUREMENT

Effort directed toward improving the productibility of [***].

10.	THIS CONTRACT WILL REQUIRE ACCESS TO:	YES	NO	11.	IN PERFORMING THIS CONTRACT, THE CONTRACTOR WILL:	YES	NO
a.	COMMUNICATIONS SECURITY (COMSEC) INFORMATION		X	a.	HAVE ACCESS TO CLASSIFIED INFORMATIN ONLY AT ANOTHER CONTRACTOR’S FACILITY OR A GOVERNMENT ACTIVITY		X
b.	RESTRICTED DATA		X	b.	RECEIVE CLASSIFIED DOCUMENTS ONLY		X
c.	CRITICAL NUCLEAR WEAPON DESIGN INFORMATION		X	c.	RECEIVE AND GENERATE CLASSIFIED MATERIAL		X
d.	FORMAERLY RESTRICTED DATA		X	d.	FABRICATE, MODIFY OR STORE CLASSIFIED HARDWARE	X
e.	INTELLIGENCE INFORMATION		X	e.	PERFORM SERVICES ONLY		X
	(1)  Sensitive Compartmented Information (SCI)		X	f.	HAVE ACCESS TO U.S. CLASSIFIED INFORMATION OUTSIDE THE U.S. PUERTO RICO, U.S. POSSESSIONS AND TRUST TERRITORIES		X
	(2)  Non-SCI		X	g.	BE AUTHORIZED TO USE THE SERVICES OF DEFENSE TECHNICAL INFORMATION CENTER OR OTHER SECONDARY DISTRIBUTION CENTER	X
f.	SPECIAL ACCESS INFORMATION		X	h.	REQUIRE A COMSEC ACCOUNT		X
g.	NATO INFORMATION		X	i.	HAVE TEMPEST REQUIRMENTS		X
h.	FOREIGN GOVERNMENT INFORMATION		X	j.	HAVE OPERATIONS SECURITY REQUIRMENTS		X
i.	LIMITED DISSEMINATION INFORMATION		X	k.	BE AUTHORIZED TO USE DEFENSE COURIER SERVICE		X
j.	FOR OFFICIAL USE ONLY INFORMATION	X		l.	OTHER ( Specify)		X
k.	OTHER (Specify)		X	Item 11g: Submit request to official in item 16.
Item 10j: See Attachment No. 1.

[***]  Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

ATTACHMENT NO. 5, PAGE 2 OF 3, CONTRACT N00014-02-C-0250

12. PUBLIC RELEASE. Any information (classified or unclassified) pertaining to this contract shall not be released for public dissemination except as provide by the Industrial Security Manual or unless it has been approved for public release by appropriate U.S. Government authority. Proposed public releases shall be submitted for approval prior to release.

¨Direct            xThrough (specify):

Office of Naval Research, ONR 43, Ballston Centre Tower One,

800 Quincy Street, Arlington, VA 22217-5660

to the Directorate for Freedom of Information and Security Review, Office of the Assistant Secretary of Defense (Public Affairs)* for review

*In the case of non DoD User Agencies, requests for disclosure shall be submitted to that agency.

13. SECURITY GUIDANCE. The security classification guidance needed for this classified effort is identified below. If any difficulty is encountered in applying this guidance or if any other contributing factor indicates a need for changes in this guidance, the contractor is authorized and encouraged to provide recommended changes; to challenge the guidance or the classification assigned to any information or material furnished or generated under this contract; and to submit any questions for interpretation of this guidance to the official identified below. Pending final decision, the information involved shall be handled and protected at the highest level of classification assigned or recommended. (Fill in as appropriate for the classified effort. Attach, or forward under separate correspondence, any documents/guides/extracts referenced herein. Add additional pages as needed to provide complete guidance.)

1. Information generated under this contract shall be classified in accordance with OPNAVINST S5513, enclosure (18.1), and OPNAVINST S5513.3B, enclosure (11.2).

2. Document preparation and distribution shall be only as prescribed by the Program Officer.

3. The official in item 16 will certify need-to-know (e.g., for visit request/documents) for contractor.

(Program Officer:

Office of Naval Research

Harry B. Dietrich/ONR 312

Ballston Centre Tower One

800 North Quincy Street

Arlington, VA 22217-5600

(703) 696-0240; DSN 426-0240

14. ADDITIONAL SECURITY REQUIREMENTS. Requirements, in addition to ISM requirements, are established for this contract.	¨	Yes	x	No
(If Yes, identify the pertinent contractual clauses in the contract document itself, or provide an appropriate statement which identifies the additional requirements. Provide a copy of the requirements to the cognizant security office. Use Item 13 if additional space is needed.)
15. INSPECTIONS. Elements of this contract are outsides the inspection responsibility of the cognizant security office.	¨	Yes	x	No
(If yes, explain and identify specific areas or elements carved out and the activity responsible for inspections. Use Item 13 if additional space is needed.)
16. CERTIFICATION AND SIGNATURE: Security requirements stated herein are complete and adequate for safeguarding the classified information to be released or generated under this classified effort. All questions shall be referred to the official named below.

a. TYPED NAME OF CERTIFYING OFFICIAL Jennifer G. Ramsey ramseyj@onr.navy.mil b. TITLE Contracting Officer for Security Matters c. TELEPHONE (Include Area Code) DSN 426-4618 (703) 696-4618 FAX (703) 696-5126

d. ADDRESS (Include Zip Code) Office of Naval Research, ONR 43, Ballston Centre Tower One, 800 North Quincy Street, Arlington, VA 22217-5660	17. REQUIRED DISTRIBUTION
	x	a. CONTRACTOR
	¨	b. SUBCONTRACTOR
	x	c. COGNIZANT SECURITY OFFICE FOR PRIME AND SUBCONTRACTOR
	¨	d. U.S. ACTIVITY RESPONSIBLE FOR OVERSEAS SECURITY ADMINISTRATION
e. SIGNATURE	x	e. ADMINISTRATIVE CONTRACTING OFFICER
/s/ Jennifer G. Ramsey	x	f. OTHERS AS NECESSARY

DD Form 254 Reverse, DEC 90

ATTACHMENT NO. 1 TO DD FORM 254 DATED 020723, PAGE 3 OF 3, CONTRACT N00014-02-C-0250

“FOR OFFICIAL USE ONLY” INFORMATION SHEET

1. General

a. The “For Official Use Only” (FOUO) marking is assigned to information at the time of its creation by a DoD Agency. It is not authorized as a substitute for a security classification marking but is used on official government information that may be withheld from the public under exemptions 2 through 9 of the Freedom of Information Act.

b. Use of the FOUO marking does not mean that the information cannot be released to the public, only, that it must be reviewed by the Government prior to its release to determine whether a significant and legitimate government purpose is served by withholding the information or portions of it.

2. Identification Markings

a. An unclassified document containing FOUO information will be marked “For Official Use Only” at the bottom of the front cover (if any), on the first page on each page containing FOUO information on the back page and on the outside of the back cover (if any). No portion markings will be shown.

b. Within a classified document, an individual page that contains both FOUO and classified information will be marked at the top and bottom with the highest security classification of information appearing on the page If an individual portion contains FOUO information but no classified information, the portion will be marked “FOUO.”

c. Any “For Official Use Only” information released to a contractor by a DoD Agency is required to be marked with the following statement prior to transfer:

This document contains information EXEMPT FROM MANDATORY DISCLOSURE under the FOLA. Exemption(s)              apply.

d. Removal of the “For Official Use Only” marking can only be accomplished by the originator or other competent authority. When the “For Official Use Only” status is terminated, all known holders will be notified to the extent practical.

3. Dissemination Contractors may disseminate “For Official Use Only” information to their employees and subcontractors who have a need for the information in connection with a classified contract.

4. Storage. During working hours, “For Official Use Only” information shall be placed in an out-of-sight location if the work area is accessible to persons who do not have a need for the information. During non-working hours the information shall be stored to preclude unauthorized access. Filing such material with other unclassified records in unlocked files or desks is adequate when internal building security is provided during non-working hours. When such internal security control is not exercised, locked buildings or rooms will provide adequate after-hours protection or the material can be stored in locked receptacles such as file cabinets, desks, or bookcases.

5. Transmission. “For Official Use Only” information may be sent via first-class mail or parcel post. Bulky shipments may be sent by fourth-class mail.

6. Disposition. When no longer needed, FOUO information may be disposed of by tearing each copy into pieces to preclude reconstructing, and placing it in a regular trash container or as directed by the DoD Agency.

7. Unauthorized Disclosure. Unauthorized disclosure of “For Official Use Only” information does not constitute a security violation but the releasing agency should be informed of any unauthorized disclosure. The unauthorized disclosure of FOUO information protected by the Privacy Act may result in criminal sanctions.

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT CONTRACT ID CODE DO-C9(T) PAGE OF PAGES 1/2

2. AMENDMENT/MODIFICATION NO.		3. EFFECTIVE DATE		4. REQUISITION/PURCHASE REQ. NO.	5. PROJECT NO. (If applicable)
P00002		SEE BLOCK 16C		02PR09637-03	N.A.
6. ISSUED BY	CODE		N00014	7. ADMINISTERED BY (If other than Item 6)	CODE SCD-C	S1103A
OFFICE OF NAVAL RESEARCH ONR 251: Lynn Christian (703) 696-1575 BALLSTON TOWER CENTRE ONE 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660				DCM ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code)		(X)	9A. AMENDMENT OF SOLICITATION N.A.
CREE, INC. 4600 SILICON DRIVE DURHAM, NC 27703			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER N00014-02-C-0250
CODE OC9J8	FACILITY CODE		10B. DATED (SEE ITEM 13) 03 JUL 2002

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers         ¨ is extended,         ¨ is not extended. Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning      copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment your desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required)       SEE FINANCIAL ACCOUNTING DATA SHEET(S)
	13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(X)		THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
		THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
	C.	THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: NA AUTHORITY FOR OTHER THAN FULL AND OPEN COMPETITION:
X	D.	OTHER (Specify type of modification and authority) FAR 43.103(b) and LIMITATION OF FUNDS CLAUSE

E.     IMPORTANT: Contractor x is not, ¨ is required to sign this document and return   2   copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)
The purpose of this modification is to provide an increment of funding under Contract Number N00014-02-C-0250. Accordingly, the funding cited in the attached Financial Accounting Data Sheet is made available.
Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.
15A. NAME AND TITLE OF SIGNER (Type or print)		16A. NAME AND TITLE OF SIGNER (Type or print)
		WADE D. WARGO Contracting Officer
15B. CONTRACTOR/OFFEROR	15C. DATE SIGNED	16B. UNITED STATES OF AMERICA		16C. DATE SIGNED
		/s/    Wade D. Wargo		8/13/02
(Signature of person authorized to sign)		(Signature of person authorized to sign)
SN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE NAVOCNR OVERPRINT (3-88)		30-105	STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

Effective as of the date of this Modification:

1. The funds available for performance of this contract are increased by the amount set forth in the attached Financial Accounting Data sheets.

2. Revise SECTION B— SUPPLIES OR SERVICES AND PRICES/COSTS to read as follows:

ITEM NO.	SUPPLIES/SERVICES[***][***]	ESTIMATED GOVERNMENT COST SHARE		ESTIMATED CONTRACTOR COST SHARE		TOTAL ESTIMATED COSTS
0001	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.	[	***]	[	***]	[	***]
	000101 ACRN: AA [***]
	000102 ACRN: AB [***]
	000103 ACRN: AC [***]
	000104 ACRN: AD [***]
0002	Deliverables as specified in Attachment Number 2					NSP
0003	Reports and Data in accordance with Exhibit A (DD Form 1423)					NSP
TOTAL ESTIMATED CONTRACT CONSIDERATION:		[	***]	[	***]	[	***]

3. Under SECTION G – CONTRACT ADMINISTRATION DATA, paragraph 5,entitled “Allotment of Funds”, is revised to read as follows.

“5. Allotment of Funds

It is hereby understood and agreed that Government’s share of this contract will not exceed a total amount of [***]. The total amount presently available for payment and allotted to this contract is [***]. It is estimated that the amount allotted of [***] will cover the period from [***].”

This modification makes no change to the Total Estimated Cost of this contract. All other terms and conditions remain unchanged.

CONTRACT NUMBER N000 l4-02-C-0250 / P00002

PAGE 2

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

FINANCIAL ACCOUNTING DATA SHEET – NON-NAVY DoD ACTIVITIES

1. CONTRACT NUMBER (CRITICAL)	2. SPIN (CRITICAL)	3. MOD (CRITICAL)	4. PR NUMBER	PAGE 1 OF 1
N0001402C0250		P00002	02PR09637-03

5. CLIN/SLIN	6. ACRN (CRITICAL)	7. ACCOUNTING CITATION		8. AMOUNT (CRITICAL)	NAVY INTERNAL USE ONLY REF DOC/ACRN
	AD	5723600 0000 255 292 47WL 624348 6MP,COX 007000 62102F 503000 2D F03000 FRC: Z141    PR#02PR09637-03    DOC#NGWSML00272323 Sub. Date: 02 AUG 2002.		[***]
			PAGE TOTAL	[***]
			GRAND TOTAL	[***]

PREPARED/AUTHORIZED BY: DATE: COMPTROLLER APPROVAL:     FOR FISCAL DATA AND SIGNATURE     BY                              for COMPTROLLER, ONR CONTRACT REVIEWED DATE:

ONR AWARD FORM (2/00) – version 1.1

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT CONTRACT ID CODE DO-C9(T) PAGE OF PAGES 1/2

2. AMENDMENT/MODIFICATION NO.		3. EFFECTIVE DATE		4. REQUISITION/PURCHASE REQ. NO.	5. PROJECT NO. (If applicable)
P00003		SEE BLOCK 16C		02PR09637-05	N.A.
6. ISSUED BY	CODE		N00014	7. ADMINISTERED BY (If other than Item 6)	CODE SCD-C	S1103A
OFFICE OF NAVAL RESEARCH ONR 251: Lynn Christian (703) 696-1575 BALLSTON TOWER CENTRE ONE 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660				DCM ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code)		(X)	9A. AMENDMENT OF SOLICITATION N.A.
CREE, INC. 4600 SILICON DRIVE DURHAM, NC 27703			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER N00014-02-C-0250
CODE OC9J8	FACILITY CODE		10B. DATED (SEE ITEM 13) 03 JUL 2002

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers         ¨ is extended,         ¨ is not extended. Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning      copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment your desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required)       SEE FINANCIAL ACCOUNTING DATA SHEET(S)
	13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(X)		THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
		THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
	C.	THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: NA AUTHORITY FOR OTHER THAN FULL AND OPEN COMPETITION:
X	D.	OTHER (Specify type of modification and authority) FAR 43.103(b) and LIMITATION OF FUNDS CLAUSE

E.     IMPORTANT: Contractor    x is not,    ¨ is required to sign this document and return   2   copies to the issuing office.

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

The purpose of this modification is to provide an increment of funding under Contract Number N00014-02-C-0250. Accordingly, the funding cited in the attached Financial Accounting Data Sheet is made available.

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)		16A. NAME AND TITLE OF SIGNER (Type or print)
		WADE D. WARGO Contracting Officer
15B. CONTRACTOR/OFFEROR	15C. DATE SIGNED	16B. UNITED STATES OF AMERICA	16C. DATE SIGNED
		/s/    Wade D. Wargo	9/27/02
(Signature of person authorized to sign)		(Signature of person authorized to sign)

SN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE NAVOCNR OVERPRINT (3-88) 30-105 STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

Effective as of the date of this Modification:

1. The funds available for performance of this contract are increased by the amount set forth in the attached Financial Accounting Data sheets.

2. Revise SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS to read as follows:

ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARES	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COSTS
0001	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.	[***]	[***]	[***]
	000101 ACRN: AA [***]
	000102 ACRN: AB [***]
	000103 ACRN: AC [***]
	000104 ACRN: AD [***]
	000105 ACRN: AE [***]
0002	Deliverables as specified in Attachment Number 2			NSP
0003	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP
TOTAL ESTIMATED CONTRACT CONSIDERATION:		[***]	[***]	[***]

3. Under SECTION G – CONTRACT ADMINISTRATION DATA, paragraph 5,entitled “Allotment of Funds”, is revised to read as follows.

“5. Allotment of Funds

It is hereby understood and agreed that Government’s share of this contract will not exceed a total amount of [***]. The total amount presently available for payment and allotted to this contract is [***]. It is estimated that the amount allotted of [***] will cover the period from [***].”

This modification makes no change to the Total Estimated Cost of this contract. All other terms and conditions remain unchanged.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N000 14-02-C-0250 / P00003 PAGE 2

FINANCIAL ACCOUNTING DATA SHEET – NON-NAVY DoD ACTIVITIES

1. CONTRACT NUMBER (CRITICAL) N0001402C0250

2. SPIN (CRITICAL)

3. MOD (CRITICAL) P00003

4. PR NUMBER 02PR09637-05

PAGE 1 OF 1

6. LINE OF ACCOUNTING

7. AMOUNT (CRITICAL)

NAVY INTERNAL USE ONLY REF DOC/ACRN

CLIN/SLIN

A. ACRN (CRITICAL)

B. APPROPRIATION (CRITICAL)

C. SUBHEAD (CRITICAL)

D. OBJ CLA

E. PARM

F. RFM

G. SA

H. AAA (CRITICAL)

I. IT

J. PAA

K. COST CODE

PROJ UNIT

MCC

PDLI & SUF

AE

1721319

W7RS

255

RA

369

0

068342

2D

00000

01050

000

UDRO

[***]

PR#0PRO9637 -05FRC:6UDR

PAGE TOTAL

[***]

GRAND TOTAL

[***]

PREPARED/AUTHORIZED BY:

COMPTROLLER APPROVAL:

FOR FISCAL DATA AND SIGNATURE

DATE:

BY                      for COMPTROLLER, ONR CONTRACT REVIEWED

DATE:

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT DATA REQUIREMENTS LIST Form Approved OMB No. 0704-0188                

Public reporting burden for this collection of information is estimated to average 440 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection or information, including suggestions for reducing this burden, to Washington Headquarters Services Directorate for information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget Paperwork Reduction Project (0704-0188), Washington, DC 20503.

A. CONTRACT LINE ITEM NO. 0003	B. EXHIBIT A		C. CATEGORY      TOP      ¨	TM      ¨	OTHER      x
D. SYSTEM/ITEM		E. CONTRACT/PR NO.         N00014-02-C-0250		F. CONTRACTOR CREE, INC.

1. DATA ITEM NO. A001	2. TITLE OF DATA ITEM Monthly Status Reports*	3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)	5. CONTRACT REFERENCE Section H.1 of Schedule	6. REQUIRING OFFICE             See Section F.3

7. DD 250 REQ LT*	9. DIST STATEMENT REQUIRED	10. FREQUENCY Monthly	12. DATE OF FIRST SUBMISSION 1 Month after contract effective date	14. DISTRIBUTION
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION	ADDRESSEE	b. COPIES
					Draft	Final
			Every month thereafter			REQ
				See Encl Number 1
16. REMARKS *These monthly reports shall contain the following: major accomplishments, issues, problems, monthly dollar expenditures on a comprehensive/cumulative basis as well as a comparison of projected versus actual expenditures, and plans for next month and next 3 months. The reports may be submitted electronically, may be approximately two pages in length, and can be in contractor format. This Data Item Number applies to both the CLIN 0001 and 0004 efforts.				15. TOTAL

1. DATA ITEM NO. A002	2. TITLE OF DATA ITEM Presentation Materials*	3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)	5. CONTRACT REFERENCE Section H.1 of the Schedule	6. REQUIRING OFFICE             See Section F.3

7. DD 250 REQ LT*	9. DIST STATEMENT REQUIRED	10. FREQUENCY As Required	12. DATE OF FIRST SUBMISSION	14. DISTRIBUTION
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION	ADDRESSEE	b. COPIES
					Draft	Final
						REQ
				See Enclosure Number 1
16. REMARKS * The presentation materials will be on an as-required basis in a format to be requested by the Program Officer. This Data Item Number applies to both the CLIN 0001 and 0004 efforts.				15. TOTAL

1. DATA ITEM NO. A003	2. TITLE OF DATA ITEM Progress/Management Reports*	3. SUBTITLE
4. AUTHORITY (Data Acquisition Document No.)	5. CONTRACT REFERENCE Section H.1 of the Schedule	6. REQUIRING OFFICE             See Section F.3

7. DD 250 REQ LT*	9. DIST STATEMENT REQUIRED	10. FREQUENCY Semi-Annually	12. DATE OF FIRST SUBMISSION 6 Months after contract effective date	14. DISTRIBUTION
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION	ADDRESSEE
16. REMARKS *These semi-annual reports shall contain a comprehensive/cumulative description of the major accomplishments to date. The reports can be in a contractor format. This Data Item Number applies to only the CLIN 0001 effort.				15. TOTAL

1. DATA ITEM NO. A004 2. TITLE OF DATA ITEM Reliability Test Plan             3. SUBTITLE

4. AUTHORITY (Data Acquisition Document No.)			5. CONTRACT REFERENCE Section H.1 of the Schedule	6. REQUIRING OFFICE See Section F.3
7. DD 250 REQ LT*	9. DIST STATEMENT REQUIRED	10. FREQUENCY 3 Reports	12. DATE OF FIRST SUBMISSION 45 days prior to each [***] test	14. DISTRIBUTION
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION Every 6 months thereafter	ADDRESSEE
16.REMARKS *There will be three (3) of these reports required, which shall be submitted as required by the Program Officer. Thesee reports can be submitted in contractor format. This Data Item Number applies to only the CLIN 0001 efforts.				15. TOTAL
G. PREPARED BY WADE WARGO / ONR 251	H. Date 10-Dec-02		1. APPROVED BY WADE WARGO / ONR 251	J. DATE 10-Dec-02
DD Form 1423 2, JUN 90		Previous editions are obsolete

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT DATA REQUIREMENTS LIST Form Approved 0MB No. 0704-0188

Public reporting burden for this collection of information is estimated to average 440 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection or information, including suggestions for reducing this burden, to Washington Headquarters Services Directorate for information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget Paperwork Reduction Project (0704-0188), Washington, DC 20503.

A. CONTRACT LINE ITEM NO.                         0003 B. EXHIBIT A C. CATEGORY TOP            TM            OTHER X

D. SYSTEM/ITEM	E. CONTRACT/PR NO. N00014-02-C-0250	F. CONTRACTOR CREE, INC.
1. DATA ITEM NO. A005	2. TITLE OF DATA ITEM Producibility Test Plan	3. SUBTITLE

4. AUTHORITY (Data Acquisition Document No.			5. CONTRACT REFERENCE Section H.1 of Schedule	6. REQUIRING OFFICE See Section F.3
7.DD 250 REQ LT*	9. DIST STATEMENT REQUIRED	10. FREQUENCY ANNUALLY	12. DATE OF FIRST SUBMISSION 60 Days after [***]	14. DISTRIBUTION
				ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION		Draft	Final
						REQ
				See Encl Number 1
16. REMARKS *There will be three (3) of these reports required, which shall be submitted as required by the Program Officer. These reports can be submitted in contractor format. This Data Item Number applies to only the CLIN 0001 effort.				15. TOTAL
1. DATA ITEM NO. A006	2. TITLE OF DATA ITEM Reliability Test Report			3. SUBTITLE

4.AUTHORITY (Data Acquisition Document No.)			5. CONTRACT REFERENCE Section H.1 of the Schedule	6.REQUIRING OFFICE See Section F.3
7.DD 250 REQ LT*	9. DIST STATEMENT REQUIRED	10. FREQUENCY 3 Reports	12. DATE OF FIRST SUBMISSION 90 Days after start of reliability test	14. DISTRIBUTION
				ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION		Draft	Final
						REQ
16. REMARKS *There will be three (3) of these reports required, which are to be submitted as required by the Program Officer. These reports can be submitted in contractor format. This Data Item Number applies to only the CLIN 0001 effort.				15. TOTAL
1. DATA ITEM NO. A007	2. TITLE OF DATA ITEM Final Report*			3. SUBTITLE

4.AUTHORITY (Data Acquisition Document No.)			5. CONTRACT REFERENCE Section H.1 of the Schedule	6.REQUIRING OFFICE See Section F.3
7.DD 250 REQ LT*	9. DIST STATEMENT REQUIRED	10. FREQUENCY ONE/R	12. DATE OF FIRST SUBMISSION 30 Days after the contract end date	14. DISTRIBUTION
				ADDRESSEE	b. COPIES
8. APP CODE		11. AS OF DATE	13. DATE OF SUBSEQUENT SUBMISSION 60 Days after the contract end date		Draft	Final
						REQ
16. REMARKS * DD250 required only for acceptance by the Program Officer designated in Section F.3. Information copies of this report shall be distributed in accordance with Enclosure Number 1. This Data Item Number applies to both the CLIN 0001 and 0004 efforts.				15. TOTAL

G. PREPARED BY WADE WARGO / ONR251 H. DATE 10-Dec-02 I. APPROVED BY WADE WARGO / ONR251 J. DATE 10-Dec-02

DD Form 1423-2, JUN 90                                                                              Previous editions are obsolete

NAVOCNR OVERPRINT (1-91)

AMENDMENT OF SOLICITATION /MODIFICATION OF CONTRACT CONTRACT ID CODE
DO-C9(T) PAGE OF PAGES 1/11

2. AMENDMENT/MODIFICATION NO. P00004 3. EFFEC TIVE DATE         SEE BLOCK 16C 4. REQUISITION/PURCHASE REG. NO. 02PR09637-04 5. PROJECT NO. (If applicable)                     N.A.

6. ISSUED BY	CODE	N00014	7. ADMINISTERED BY (If other than Item 6)		CODE	S1103A
				SCD-C
OFFICE OF NAVAL RESEARCH ONR 251: Lynn Christian (703) 696-1575 BALLSTON TOWER CENTRE ONE 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660			DCM ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code)						(X)	9A. AMENDMENT OF SOLICITATION N.A
							9B. DATED (SEE ITEM 11)
CREE, INC. 4600 SILICON DRIVE DURHAM, NC 27703						X	10A. MODIFICATION OF CONTRACT/ORDER N00014-02-C-0250
CODE 0C9J8		FACILITY CODE					10B. DATED (SEE ITEM 13) 03 JUL 2002
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers    ¨ is extended    ¨ is not extended Offers must acknowledge receipt of this amendment prior to the hour and data specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning — copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and data specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required)       SEE FINANCIAL ACCOUNTING DATA SHEET(S)
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACTOR/ORDER NO. AS DESCRIBED ITEM 14.
(X)	THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE                     IN THE CONTRACT ORDER NO. IN ITEM 10A
	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATWE CHANGES                     (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
	C. SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: N.A. AUTHORITY FOR OTHER THAN FULL AND OPEN COMPETITION:
	D. OTHER (Specify type of modification and authority)
X	MUTUAL AGREEMENT OF PARTIES AS PER FAR 43.103(a)
E. IMPORTANT: Contractor		¨ is not,	x	is required to sign this document and return 2 copies to the issuing office
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.) The purpose of this modification is to expand the research work being performed under the contract by providing for CLIN 0004, increase the Estimated Government Cost Share and Total Estimated Costs, revise the Allotment of Funds paragraph in Section G, update the clauses in Section I, revise Section J, revise the deliverables in Attachment 2, revise the contract data requirements in Exhibit A, and fully fund CLIN 0004 under Contract Number N00014-02-C-0250. Accordingly, the funding cited in the attached Financial Accounting Data Sheet is made available. Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.
15A. NAME AND TITLE OF SIGNER (Type or print) JOHN W. PALMOUR Executive Vice President					16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)         WADE D. WARGO         Contracting Officer
15B. CONTRACTOR/OFFEROR /s/ John W. Palmour     (Signature of person authorized to sign)		15C. DATE SIGNED 1/03/03			16B. UNITED STATES OF AMERICA /s/ Wade D. Wargo     (Signature of person authorized to sign)		16C. DATE SIGNED 1/6/03
SN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE NAVOCNR OVERPRINT (3-88)					30-105	STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

Effective as of the date of this Modification:

1. The funds available for performance of this contract are increased by the amount set forth in the attached Financial Accounting Data sheets.

2. Revise SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS to read as follows:

ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COSTS
0001	The Contractor shall furnish the necessary personnel andfacilities to conduct the research effort as described in Section C.1. and C.2.	[***]	[***]	[***]
	000101 ACRN: AA [***]
	000102 ACRN: AB [***]
	000103 ACRN: AC [***]
	000104 ACRN: AD [***]
	000105 ACRN: AE [***]
0002	Deliverables as specified in Attachment Number 2			NSP
0003	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP
0004	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.1. and C.3.	[***]	[***]	[***]
	000401 ACRN: AF [***]
TOTAL ESTIMATED CONTRACT CONSIDERATION:		[***]	[***]	[***]

3. Revise SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT to include the following paragraph:

“3) The Contractor shall conduct the research effort in accordance with Attachment Number 6, entitled “Statement of Work- [***]”. The contractor shall provide the deliverables specified in Attachment Number 2 of the contract.”

4. Under SECTION G - CONTRACT ADMINISTRATIONDATA, paragraph 5, entitled “Allotment of Funds”, is revised to read as follows:

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250 / P00004 PAGE 2

“5. Allotment ofFunds

It is hereby understood and agreed that the Government’s share of CLIN 0001 will not exceed a total amount of [***]. The total amount presently available for payment and allotted to CL1N 0001 is [***]. It is estimated that the amount allotted of [***] will cover the period from [***].

CLIN 0004 is fully funded.”

5. Revise SECTION I - CONTRACT CLAUSES to read as follows:

“SECTION I - CONTRACT CLAUSES

Cost Sharing (NOV 2002) (1)

Attention: Prime Contractors. If a subaward is made to an educational institution, Prime Contractors are directed to please refer to the ONR Model Award for appropriate flow-down clauses to universities. See http://www.onr.navy.mil, click Contracts & GrantsIcon. Click Model Awards Link. Click Section I clauses that flow-down to University subcontractors.

(A) FAR 52.252-02 CLAUSES INCORPORATED BY REFERENCE (FEB 1998)

This contract incorporates one or more clauses by reference, with the same force and effect as if they were given in full text Upon request, the Contracting Officer will make their full text available Also, the full text of a clause may be accessed electronically at these addresses:

http://www.arnet.gov/far/

http://web1.deskbook.osd.mil/htmlfiles/DBY_far.asp

http://web2.deskbook.osd.mil/htmlfiles/DBY_dfars.asp

http://farsite.hill.af.mil/farsite script.html

For instance, a dollar threshold may trigger the applicability of the clause or a certain condition of the research may trigger the applicability of the clause In order to provide some assistance, as to when a dollar threshold triggers a clause, we have associated certain symbols with dollar thresholds. The symbols and their appropriate dollar thresholds are as follows:

* Applies when contract action exceeds $10,000

** Applies when contract action exceeds $100,000

+ Applies when contract action exceeds $500,000

++ Applies when contract action exceeds $500,000 and subcontracting possibilities exist. Small Business Exempt.

x (DO 250)

xx Not applicable

I. FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES:

**	FAR 52.202-1	Definitions (DEC 2001)
**	FAR 52.203-3	Gratuities (APR 1984)
**	FAR 52 203-5	Covenant Against Contingent Fees (APR 1984)

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250/P00004 PAGE 3

**	FAR 52.203-6	Restrictions on Subcontractor Sales to the Government (JUL 1995)
**	FAR 52.203-7	Anti-Kickback Procedures (JUL 1995)
**	FAR 52.203-8	Cancellation, Rescission, and Recovery of Funds for illegal or Improper Activity (JAN 1997)
**	FAR 52.203-10	Price or Fee Adjustment for Illegal or Improper Activity (JAN 1997)
**	FAR 52.203-12	Limitation on Payments to Influence Certain Federal Transactions (JUN 1997)
**	FAR 52.204-4	Printing/Copying Double-Sided on Recycled Paper (AUG 2000)
	FAR 52.211-15	Defense Priority and Allocation Requirements (SEP 1990)
**	FAR 52.215-2	Audit and Records—Negotiation (JUN 1999) and Alternate II (APR 1998) (Alternate II is only applicable with cost reimbursement contracts with State and local Governments, educational institutions, and other non-profit organizations.)
	FAR 52.215-8	Order of Precedence—Uniform Contract Format (OCT 1997)
+	FAR 52.215-10	Price Reduction for the Defective Cost or Pricing Data (OCT 1997) (The clause is applicable to subcontracts over $550,000.)
+	FAR 52.215-12	Subcontractor Cost or Pricing Data (OCT 1997) (Applicable to subcontracts over $550,000 only)
**	FAR 52.215-14	Integrity of Unit Prices (OCT 1997) and Alternate I (OCT 1997) (Alternate I is applicable if the action is contracted under Other Than Full and Open Competition)
+	FAR 52.215-15	Pension Adjustments and Asset Reversions (DEC 1998)
+	FAR 52.215-18	Reversion or Adjustment of Plans for Postretirement Benefits (PRB) Other than Pensions (OCT 1997)
+	FAR 52.215-19	Notification of Ownership Changes (OCT 1997) (Applicable when Cost or Pricing Data is required)
	FAR 52.2 16-7	Allowable Cost and Payment (FEB 2002)
	FAR 52.2 16-8	Fixed Fee (MAR 1997)
**	FAR 52.219-4	Notice of Price Evaluation Preference for HTJBzone Small Business Concerns (JAN 1999)
**	FAR 52.2 19-8	Utilization of Small Business Concerns (OCT 2000)
++	FAR 52.219-9	Small Business Subcontracting Plan (JAN 2002)
++	FAR 52.219-16	Liquidated Damages—Subcontracting Plan (JAN 1999)
	FAR 52.222-1	Notice to the Government of Labor Disputes (FEB 1997)
**	FAR 5 2.222-2	Payment for Overtime Premiums (JUL 1990) (Note: The word “zero” is inserted in the blank space indicated by an asterisk)
	FAR 52.222-3	Convict Labor (AUG 1996) (Reserved when FAR 52.222-20 Walsh Healy Public Contracts Act is applicable)
**	FAR 52.222-4	Contract Work Hours and Safety Standards Act—Overtime Compensation (SEP 2000)
	FAR 52.222-21	Prohibition of Segregated Facilities (FEB 1999)
	FAR 5 2.222-26	Equal Opportunity (APR 2002)
*	FAR 52.222-35	Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (DEC 2001 1998)
*	FAR 52.222-36	Affirmative Action for Workers with Disabilities (JUN 1998)
*	FAR 52.222-37	Employment Reports on Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (DEC 2001)
**	FAR 52.223-14	Toxic Chemical Release Reporting (OCT 2000)
	FAR 52.225-13	Restrictions on Certain Foreign Purchases (JUL 2000)
**	FAR 52.227-1	Authorization and Consent (JUL 1995) and Alternate I (APR 1984)

CONTRACT NUMBER N00014-02-C-0250 / P00004 PAGE 4

**	FAR 52.227-2	Notice and Assistance Regarding Patent and Copyright Infringement (AUG 1996)
	FAR 52.228-7	Insurance Liability to Third Persons (MAR 1996) (Further to paragraph (a)(3), unless otherwise stated in this contract, types and limits of insurance required are as stated in FAR 28.307-2)
	FAR 52.232-9	Limitation on Withholding of Payments (APR 1984)
**	FAR 52.232-17	Interest (JUN 1996)
	FAR 52.232-23	Assignment of Claims (JAN 1986) and Alternate I (APR 1984)
	FAR 52.232-25	Prompt Payment (FEB 2002) and Alternate I (FEB 2002) (The words “the 30th day” are inserted in lieu of “the 7th day” at (a)(5)(i). [When Alternate I is applicable (a)(5)(i) does do not apply] [Alternate I applies when awarding a cost reimbursement contract for services]
	FAR 52.232-33	Payment by Electronic Funds Transfer—Central Contractor Registration (MAY 1999)
	FAR 52.233-1	Disputes (DEC 1998)
	FAR 52.233-3	Protest After Award (AUG 1996) and Alternate I (JUN 1985)
	FAR 52.242-1	Notice of Intent to Disallow Costs (APR 1984)
+	FAR 52.242-3	Penalties for Unallowable Costs (MAY 2001)
	FAR 52.242-4	Certification of Final Indirect Costs (JAN 1997)
**	FAR 52.242-13	Bankruptcy (JUL 1995)
	FAR 52.242-15	Stop Work Order (AUG 1989) and Alternate I (APR 1984)
	FAR 52.244-2	Subcontracts (AUG 1998) and Alternate I (AUG 1998) [Insert in cost-reimbursement contracts, and letter, time-and-material, and labor-hour contracts exceeding SAP, and fixed price contracts exceeding SAP where unpriced actions are anticipated. Use Alternate I for cost-rembursement contracts]
**	FAR 52.244-5	Competition in Subcontracting (DEC 1996)
	FAR 52.244-6	Subcontracts for Commercial Items and Commercial Components (APR 2002)
	FAR 52.245-5	Government Property (Cost-Reimbursement, Time-and-Materials, or Labor-Hour Contracts) (JAN 1986) and ALT I (JUL 1985) (As modified by DoD Class Deviation 99-00008 dated 13 July 1999) (ALT I is applicable if the contractor is a nonprofit organization whose primary purpose is the conduct of scientific research)
**	FAR 52.247-64	Preference for Privately Owned U.S. Flag Commercial Vessels (JUN 2000)
	FAR 52.249-6	Termination (Cost-Reimbursement) (SEP 1996)
	FAR 52.249-14	Excusable Delays (APR 1984)
	FAR 52.251-1	Government Supply Sources (APR 1984)
	FAR 52.253-1	Computer Generated Forms (JAN 1991)

II. DEPARTMENT OF DEFENSE FAR SUPPLEMENTAL (DFARS) (48 CFR CHAPTER 2) CLAUSES:

**	DFARS 252.203-7001	Prohibition On Persons Convicted of Fraud or Other Defense-Contract-Related Felonies (MAR 1999)
	DFARS 252.204-7003	Control of Government Work Product (APR 1992)
	DFARS 252.204-7004	Required Central Contractor Registration (NOV 2001)
**	DFARS 252.209-7000	Acquisition from Subcontractors subject to On-Site Inspection under the Intermediate Range Nuclear Forces (INF) Treaty (NOV 1995)
**	DFARS 252.209-7004	Subcontracting with Firms That Are Owned or Controlled by the

CONTRACT NUMBER N00014-02.C-0250/P0004 PAGE 5

		Government of a Terrorist Country (MAR 1998)
+	DFARS 252.215-7000	Pricing Adjustments (DEC 1991)
++	DFARS 252.219-7003	Small, Small Disadvantaged and Women-owned Small Business Subcontracting Plan (DoD Contracts) (APR 1996)
**	DFARS 252.225-7012	Preference for Certain Domestic Commodities (APRIL 2002)
	DFARS 252.225-7031	Secondary Arab Boycott of Israel (JUN 1992)
	DFARS 252.227-7013	Rights in Technical Data — Noncommercial Items (NOV 1995), and Alternate I (JUN 1995)
	DFARS 252.227-7014	Rights In Noncommercial Computer Software and Noncommercial Computer Software Documentation (JUN 1995)
	DFARS 252.227-7016	Rights in Bid or Proposal Information (JUN 1995)
	DFARS 252.227-7019	Validation of Asserted Restrictions — Computer Software (JUN 1995)
	DFARS 252.227-7025	Limitations on the Use or Disclosure of Government-Furnished Information Marked with Restrictive Legends (JUN 1995)
	DFARS 252.227-7028	Technical Data or Computer Software Previously Delivered to the Government (JUN 1995)
	DFARS 252.227-7030	Technical Data — Withholding of Payment (MAR 2000)
	DFARS 252.227-7036	Declaration of Technical Data Conformity (JAN 1997)
	DFARS 252.227-7037	Validation of Restrictive Markings on Technical Data (SEP 1999)
	DFARS 252.231-7000	Supplemental Cost Principles (DEC 1991)
	DFARS 252.242-7000	Post-Award Conference (DEC 1991)
**	DFARS 252.243-7002	Requests for Equitable Adjustment (MAR 1998)
	DFARS 252.245-7001	Reports of Government Property (MAY 1994)
X	DFARS 252.246-7000	Material Inspection and Receiving Report (DEC 1991)
	DFARS 252.251-7000	Ordering from Government Supply Sources (OCT 2002)
**	DFARS 252.247-7023	Transportation of Supplies by Sea (MAY 2000)
**	DFARS 252.247-7024	Notification Of Transportation Of Supplies By Sea (MAR 2000) (Applicable when the Contractor has made a negative response to the inquiry in the representation at DFARS 252.247-7022.)

(B) ADDITIONAL FAR AND DFARS CLAUSES

This contract incorporates one or more clauses by reference as indicated by the mark of (X), with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. Also, the full text of a clause may be accessed electronically at this address: http://www.arnet.gov/far/

X	FAR 52.204-2	Security Requirements (AUG 1996) (Applicable if contract will generate or require access to classified information and DD Form 254, Contract Security Classification Specification, is issued to the contractor)
X	FAR 52.209-6	Protecting the Government’s Interest when Subcontracting with Contractors Debarred, Suspended, or Proposed for Debarment (JUL 1995) (Applicable to contracts exceeding $25,000 in value.)
	FAR 52.215-17	Waiver of Facilities Capital Cost of Money (OCT 1997) (Applicable if the Contractor did not propose facilities capital cost of money in the offer)
X	FAR 52.215-20	Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data (OCT 1997) (Applicable if cost or pricing data or information other than cost or pricing data are required)

CONTRACT NUMBER N00014-02.C-0250/P00004 PAGE 6

X	FAR 52 215-21	Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data —  Modifications (OCT 1997) (Applicable if cost or pricing data or information other than cost or pricing data will be required for modifications)
	FAR 52 217-9	Option to Extend the Term of the Contract (MAR 2000) (In paragraph (a), insert “XX”, and in paragraph (c), insert “XX”) (Applicable if contract contains line item(s) for option(s)) (Complete the spaces in parentheses)
	FAR 52 219-3	Notice of Total HUBZone Set-Aside (JAN 1999)
	FAR 52 219-5	Very Small Business Set-Aside (MAR 1999) (For actions between $2,500 and $50,000)
	FAR 52 2 19-6	Notice of Total Small Business Set-Aside (JUL 1996), and Alternate I (OCT 1995) (Applicable to total small business set-asides, including SBIR)
	FAR 52 219-7	Notice of Partial Small Business Set-Aside (JUL 1996) and Alternate I (OCT 1995)
	FAR 52 219-10	Incentive Subcontracting Program (OCT 2001) (Applicable at the PCO’s discretion to contract actions exceeding $500,000 and when subcontracting possibilities exist. The clause is small business exempt) (In paragraph (b), insert the appropriate number between 0 and 10 —  “XX”) (Complete the space in the parentheses)
	FAR 52 219-25	Small Disadvantaged Business Participation Program —  Disadvantaged Status and Reporting (OCT 1999) (Applicable if contract includes FAR 52.2 19-24)
	FAR 52 219-26	Small Disadvantaged Business Participation Program —  Incentive Subcontracting Program (OCT 2000) (Applicable at the PCO’s discretion to contract actions exceeding $500,000 and when subcontracting possibilities exist. The clause is small business exempt) (In paragraph (b), insert the appropriate number between 0 and 10 — “XX”) (Complete the space in the parentheses)
X	FAR 52 222-20	Walsh Healy Public Contracts Act (DEC 1996) (Applicable if the contract includes deliverable materials, supplies, articles or equipment in an amount that exceeds or may exceed $10,000)
	FAR 52 223-5	Pollution Prevention and Right-to-Know Information (APR 1998) (Applicable if contract provides for performance, in whole or in part, on a Federal facility)
X	FAR 52 223-6	Drug-Free Workplace (MAY 2001) (Applies when contract action exceeds $100,000 or at any value when the contract is awarded to an individual)
	FAR 52 230-2	Cost Accounting Standards (APR 1998) (Applicable when contract amount is over $500,000, if contractor is subject to full CAS coverage, as set forth in 48 CFR Chapter 99, Subpart 9903 ..201-2(a) (FAR Appendix B)
X	FAR 52 230-3	Disclosure and Consistency of Cost Accounting Practices (APR 1998) (Applicable when contract amount is over $500,000 but less than $25 million, and the offeror certifies it is eligible for and elects to use modified CAS coverage as set forth in 48 CFR Chapter 99, Subpart 9903.20 1-2 (FAR Appendix B)
X	FAR 52 23 0-6	Administration of Cost Accounting Standards (NOV 1999) (Applicable if contract is subject to either clause at FAR 5 2.230-2, FAR 52.230-3 or FAR 52.230-5)
X	FAR 52 232-20	Limitation of Cost (APR 1984) (Applicable only when contract action is fully funded)

CONTRACT NUMBER N00014-02.C-0250 PAGE 7

X	FAR 52 232-22	Limitation of Funds (APR 1984) (Applicable only when contract action is incrementally funded)
	FAR 52 239-1	Privacy or Security Safeguards (AUG 1996) (Applicable to contracts for information technology which require security of information technology, and/or are for the design, development, or operation of a system of records using commercial information technology services or support services.)
	FAR 52 245-18	Special Test Equipment (FEB 1993) Applicable when it is anticipated that the contractor will acquire or fabricate special test equipment but the exact identification of the equipment is not known)
X	DFARS 252 203-7002	Display of DoD Hotirne Poster (DEC 1991) (Applicable only when contract action exceeds $5 million or when any modification increases contract amount to more than $5 million)
X	DFARS 252 204-7000	Disclosure of Information (DEC 1991) (Applies when Contractor will have access to or generate unclassified information that may be sensitive and inappropriate for release to the public)
X	DFARS 252 204-7005	Oral Attestation of Security Responsibilities (NOV 2001) (Applicable if FAR 52.204-2, Security Requirements Applies)
X	DFARS 252 205-7000	Provision of Information to Cooperative Agreement Holders (DEC 1991) (Applicable only when contract action exceeds $500,000 or when any modification increases total contract amount to more than $500,000)
X	DFARS 252 215-7002	Cost Estimating System requirements (Oct 1998) (Applicable only to contract actions awarded on the basis of certified cost or pricing data)
X	DFARS 252.223-7004	Drug-Free Work Force (SEP 1988) (Applicable (a) if contract involves access to classified information: or (b) when the Contracting Officer determines that the clause is necessary for reasons of national security or for the purpose of protecting the health or safety of performance of the contract.
	DFARS 252 223-7006	Prohibition on Storage and Disposal of Toxic and Hazardous Materials (APR 1993) (Applicable if work requires, may require, or permits contractor performance on a DoD installation)
	DFARS 252 225-7001	Buy American Act and Balance of Payments Program (MAR 1998) (Applicable if the contract includes deliverable supplies) (This clause does not apply if an exception to the Buy American Act or Balance of Payments Program is known or if using the clause at 252.225-7007, 252.225-7021, or 252.225-7036.)
	DFARS 252 225-7002	Qualifying Country Sources as Subcontractors (DEC 1991) (Applicable when clause at DFARS 252.225-7001, 252.227-7007, 252.227-7021, or 252.227-7036 applies)
	DFARS 252 225-7007	Buy American Act - Trade Agreements - Balance of Payments Program (OCT 2002) (Use instead of FAR 52.225-5, Trade Agreements (Include in contracts valued at $186,000 or more, if the Trade Agreements Act applies (see 25.401 and 25.403) and the agency has determined that the restrictions of the Buy American Act or Balance of Payments Program are not applicable to U.S.— made end products, unless the acquisition is to be awarded and performed outside the United States in support of a contingency operation or a humanitarian or peacekeeping operation and does not exceed the

CONTRACT NUMBER N00014-02-C-0250 / P00004 PAGE 8

		Increase simplified acquisition threshold of $200,000.) The clause need not be used where purchase from foreign sources is restricted (see 225.401 (b)(ii)). The clause may be used where the contracting officer anticipates a waiver of the restriction.)
	DFARS 252.225-7008	Supplies to be accorded Duty-Free Entry (MAR 1998) (Applicable when the contract provides for duty-free entry and includes FAR 52.225-8-Duty-Free Entry)
	DFARS 252.225-7009	Duty-Free Entry — Qualifying Country Supplies (End Products and Components) (AUG 2000) (Applicable if contract includes deliverable supplies)
	DFARS 252.225-7010	Duty-Free Entry — Additional provisions (AUG 2000) (Applicable when FAR 52.225-8—Duty-Free Entry is included in the contract.)
	DFARS 252.225-7016	Restriction On Acquisition Of Ball And Roller Bearings (DEC 2000) (Applicable if contract includes deliverable supplies, unless Contracting officer knows that items being acquired do not contain ball or roller bearings.)
x	DFARS 252.225-7026	Reporting of Contract Performance Outside the United States (JUN 2000) (Applicable only when contract value exceeds $500,000 or when any modification increases contract value to more the $500,000)
	DFARS 252.225-7001	Utilization of Indian Organizations and Indian-Owned Economic Enterprises (SEP 2001) ñ(Applicable if FAR Part 12 is not used, and for supplies and services (but not R&D) expected to exceed SAP thresholds) ( This Final Rule replaces FAR 52.226-1 (JUN 2000) via DFARS Chg Ntc 20020531ñ
	DFARS 252.225-7018	Rights in Noncommercial Technical Data and Computer Software-Small Business Innovation Research (SBIR) Program (JUN 1995) (Applicable when technical data or computer software will be generated during performance of contracts under the SBIR Program)
X	DFARS 252.225-7004	Material Management and Accounting System (DEC 2000) (Applicable to contract actions exceeding $100,000) (Not applicable to contracts set aside for exclusive participation by small business and small disadvantage business concerns)

C. COST SHARING – NO FEE RESEARCH AND DEVELOPMENT CLAUSES

The following FAR and DFARS clauses apply to Cost Sharing – no Fee Research and Development Contracts and are either required by regulation or are required when the circumstances of the contract warrant that they apply. The FAR and DFARS clauses for Cost-Sharing Research and Development Contracts only apply when specifically marked with an (X).

x	FAR52.216-12	Cost Sharing Contract – No Fee (APR 1984) Insert Immediately following 52.216-8 ñThis clause may be modified by substituting “$10,000” in lieu of “$100,000” as the maximum reserve in paragraph (b) if the contract is with a nonprofit organization.ñ FAR 16.307 (f) (2): Use Alternate I when a cost-sharing research and development contract with an educational institute or a nonprofit organization is contemplated, and if the contracting officer determines that withholding of a portion of allowable costs is not required.
x	FAR 52.227-10	Filing of Patent Applications Classified Subject Matter (APR 1984) (Applicable if contract is subject to FAR clause 52.204-02 and either 52.227-11 or 52.227-12)

CONTRACT NUMBER N00014-02-C-0250/P00004 PAGE 9

	FAR 52.227-11	Patent Rights — Retention by the Contractor (Short Form) (JUN 1997) (Applicable if contractor is a small business or non profit organization)
X	FAR 52.243-2	Changes — Cost-Reimbursement (Aug. 1987) and Alternate V (APR 1984) FAR 43.205 (b)(6): Include clause in research and development contracts with Alternate V.
X	FAR 52.246-9	Inspection of Research and Development (Short Form) (Apr 1984) FAR 46.309: Include in contract when FAR 52.246-7, Inspection of Research and Development—Fixed-Price; & FAR 52.246-8, Inspection of Research and Development — Cost-Reimbursement, are not used. FAR 52.246-8 is not applicable when FAR 52.246-9 is used.
	FAR 52.247-63	Preference for U.S.-Flag Air Carriers (JAN 1997) FAR 47.405: Use in contracts whenever it is possible that U.S. Government-financed international air transportation of personnel (and their personal effects) or property will occur in the performance of the contract.
	OR
X	FAR 52.227-12	Patent Rights - Retention by the Contractor (Long Form) (JAN 1997) (Applicable if contractor is a large business)
	DFARS 252.227-7034	Patents - Subcontracts (APR 1984) (Applicable when FAR 52.227-11 applies)
	DFARS 252.227-7039	Patents - Reporting of Subject Inventions (APR 1990) (Applicable when FAR 52.227-11 applies)
X	DFARS 252.235-7011	Final Scientific Or Technical Report (Sep 1999)

6. Revise SECTION J -LIST OF ATTACHMENTS to incorporate Attachment Number 6 (which is attached to this modification) as follows:

“1) Attachment Number 1 entitled, “Statement of Work,” 5 pages.

2) Attachment Number 2 entitled, “Deliverables,” 1 page.

3) EXHIBIT A entitled, “Contract Data Requirements List” (DD Form 1423), 2 pages.

4) Enclosure Number 1 entitled, “Contract Data Requirements List—Instructions for Distribution,” 2 pages.

5) Attachment Number 3 entitled, “Addendum to Master Subcontracting Plan,” 2 pages.

6) Attachment Number 4 entitled, “Financial Accounting Data Sheet,” 5 pages.

7) Attachment Number 5 entitled, “Contract Security Classification Specification” (DD 254), 3 pages.

8) Attachment Number 6 entitled, “Statement of Work: [***],” 2 pages.”

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250/ P00004 PAGE 10

7. Revise Attachment Number 2 entitled, “Deliverables,” as shown in the attachment to this modification.

8 Revise Exhibit A entitled “Contract Data Requirements List” (DD Form 1423), as shown in the attachment to this modification.

This modification increases the Total Estimated Costs of this contract by [***]. All other terms and conditions remain unchanged.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014.-02-C-0250/ P00004 PAGE 11

Attachment Number 2:

Deliverables

Deliverables from CLIN 0001 effort:

Table 4 lists the deliverables for the [***] effort on this program. The [***] that will be delivered will be representative for that time period. Table 5 lists the deliverables for the [***] effort on this program. The [***] that will be delivered will be representative of the [***] process during that time period. Table 6 lists the deliverables for the [***] manufacturing effort on this program. The discrete [***] that will be delivered will be [***] devices mounted in [***] packages. The [***] that will be delivered will be of the amplifier design that will have been selected as the [***] test vehicle for the program during that time period, and they will be a minimum of [***].

Table 4: Deliverables for the crystal growth effort.

24 Months ARO	36 Months ARO
[***]	[***]

Table 5: Deliverables for the [***] growth effort.

12 Months ARO	24 Months ARO	36 Months ARO
[***]	[***]	[***]

Table 6: Deliverables for the [***] manufacturing effort.

12 Months ARO	24 Months ARO	36 Months ARO
[***]	[***]	[***]

Additional Deliverables from CLIN 0001 effort:

• Unpackaged devices will be delivered under this contract, as required by the Program officer. These unpackaged devices requested by the Program Officer can be from the process development runs and/or the [***].

• Five (5) packaged [***] representative of current process will be delivered [***] after the effective date of this contract.

Deliverables from CLIN 0004 effort:

Deliverable	Delivery Date
(Qty=5) 1st iteration [***] (1)	[***] after execution of P00004 of this contract
(Qty=5) 2nd iteration [***]	[***] after execution of P00004 of this contract

(1) – The balance of any remaining functional or on-functional devices will be supplied as required.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250/ P00004 PAGE 1

Attachment Number 6

Statement of Work: [***]

1.0 Scope: This Statement of Work (SOW) defines the effort required for Cree, Inc. to develop a [***] to assess [***] as originally planned in CLIN 0001 of this program. Specifically, the [***] will serve as the [***] for the program. The driver will also be designed to be compatible with the [***] such that the combination may be used to support [***] demonstrations on separately funded activities if desired. The major thrusts of this effort include [***]. The electrical specifications for the [***] will be supplied in a [***] along with the appropriate classification guidance (DD-254). [***] design/fabrication lots are planned.

2.0 Development Tasks

2.1 [***] Design and Layout

2.1.1 Task Description Cree will design a [***] per specification (TBD) to be supplied as a classified addendum to this SOW. Two design iterations are planned. The following tasks will be performed:

• [***]

• [***]

• [***]

• [***]

• [***]

• [***]

A design review will be conducted prior to releasing the design for mask fabrication.

2.2 [***] Fabrication

2.2.1 Task Description: [***] is planned for each of two (2) design iterations. The fabrication tasks will include the purchase of the required [***], the purchase of [***] for each iteration ([***] total) and [***] runs in the fabrication facility.

2.3 [***] Test/Evaluation

2.3.1 Task Description: Cree will evaluate each of [***] lots as they become available from the fabrication facility. This task will include the following:

• [***]

• [***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250/P00004 ATTACHMENT NUMBER 6 PAGE 1

• [***]

• [***]

• [***]

• [***]

2.4 Program Management: Standard cost and schedule controls shall be employed to monitor program status.

2.5 Milestones: [***] will be conducted prior to releasing the each of the [***] designs to the fabrication process The performance of the [***] will be reviewed at the design review for [***].

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250/P00004 ATTACHMENT NUMBER 6 PAGE 2

FINANCIAL ACCOUNTING DATA SHEET – NON-NAVY DoD ACTIVITIES

1. CONTRACT NUMBER (CRITICAL) N0001402C0250			2. SPUN (CRITICAL)	3. MOD (CRITICAL) P00004		4. PR NUMBER 02PR09637-04		PAGE 1 OF 1
5. CUN/SLIN	6. ACRN (CRITICAL)	7. ACCOUNTING CITATION					8. AMOUNT (CRITICAL)	NAW INTERNAL USE ONLY REF DOC/ACRN
	AF	9720400 8ABB 255 SA452 0 068342 2D 064510 106180000000 FRC:Z148 PR#02PR09637-04 DOC#N0002402RC12638 Sub. Date: 06 SEP 2002					[***]
PAGE \TOTAL GRAND TOTAL							[***] [***]
PREPARED/AUTHORIZED BY: DATE:					COMPTROLLER APPROVAL:     FOR FISCAL DATA AND SIGNATURE     BY                                  for COMPTROLLER, ONR CONTRACT REVIEWED DATE:

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

AMENDMENT OF SOLICITATION /MODIFICATION OF CONTRACT	CONTRACT ID CODE	PAGE OF PAGES
	DO-C9(T)	1/3

2. AMENDMENT/MODIFICATION NO.	3. EFFECTIVE DATE	4. REQUISITION/PURCHASE REG. NO.	5. PROJECT NO. (If applicable)
P00005	SEE BLOCK 16C	03PR08533-00	N.A.

6. ISSUED BY                     CODE        N00014	7. ADMINISTERED BY (If other than Item 6)		CODE	S1103A
		SCD-C
OFFICE OF NAVAL RESEARCH ONR 251: Lynn Christian (703) 696-1575 BALLSTON TOWER CENTRE ONE 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660	DCM ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code) CREE, INC. 4600 SILICON DRIVE DURHAM, NC 27703	(X	)	9A. AMENDMENT OF SOLICITATION  N.A.
			9B. DATED (SEE ITEM 11)
	X		10A. MODIFICATION OF CONTRACT/ORDER N00014-02-C-0250
CODE                                         FACILITY CODE 0C9J8			10B. DATED (SEE ITEM 13) 03 JUL 2002

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers ¨ is extended ¨ is not extended

Offers must acknowledge receipt of this amendment prior to the hour and data specified in the solicitation or as amended, by one of the following methods:

(a) By completing items 8 and 15, and returning — copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and data specified.

12. ACCOUNTING AND APPROPRIATION DATA (If required)

    SEE FINANCIAL ACCOUNTING DATA SHEET(S)

13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS,

IT MODIFIES THE CONTRACTOR/ORDER NO. AS DESCRIBED ITEM 14.

(X)	THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A
	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
	C. SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: N.A. AUTHORITY FOR OTHER THAN FULL AND OPEN COMPETITION:
X	D. OTHER (Specify type of modification and authority) FAR 43.103(b) and LIMITATION OF FUNDS CLAUSE

E. IMPORTANT: Contractor             x is not,             ¨ is required to sign this document and return 2 copies to the issuing office

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.) The purpose of this modification is to provide an increment of funding to CLIN 0001 under Contract Number N00014-02-C-0250. Accordingly, the funding cited in the attached Financial Accounting Data Sheet is made available. Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.
15A. NAME AND TITLE OF SIGNER (Type or print)			16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) WADE D. WARGO Contracting Officer
15B. CONTRACTOR/OFFEROR	15C. DATE SIGNED		16B. UNITED STATES OF AMERICA		16C. DATE SIGNED
(Signature of person authorized to sign)			/s/ Wade D. Wargo (Signature of person authorized to sign)		2/20/03
SN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE NAVOCNR OVERPRINT (3-88)		30-105		STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

Effective as of the date of this Modification:

1. The funds available for performance of this contract are increased by the amount set forth in the attached Financial Accounting Data sheets.

2. Revise SECTION B – SUPPLIES OR SERVICES AND PRICES/COSTS to read as follows:

ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COSTS
0001	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.1. and C.2.	[***]	[***]	[***]
	000101 ACRN:AA [***]
	000102 ACRN: AD [***]
	000103 ACRN: AC [***]	.
	000104 ACRN:AD [***]
	000105 ACRN: AE [***]
	000106 ACRN:AF [***]
0002	Deliverables as specified in Attachment Number 2			NSP
0003	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP
0004	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.1. and C.3.	[***]	[***]	[***]
	000401 ACRN: AF [***]
TOTAL ESTIMATED CONTRACT CONSIDERATION:		[***]	[***]	[***]

3. Under SECTION G - CONTRACT ADMINISTRATION DATA, paragraph 5, entitled “Allotment of Funds”, is revised to read as follows:

“5. Allotment of Funds

It is hereby understood and agreed that the Government’s share of CLIN 0001 will not exceed a total amount of [***]. The total amount presently available for payment

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250/P00005 PAGE 2

and allotted to CLIN 0001 is [***]. It is estimated that the amount allotted of [***] will cover the period from [***].

CLIN 0004 is fully funded.”

This modification makes no change to the Total Estimated Costs of the contract. All other terms and conditions remain unchanged.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250/P00005 PAGE 3

FINANCIAL ACCOUNTING DATA SHEET – NON-NAVY DoD ACTIVITIES

1. CONTRACT NUMBER (CRITICAL) N0001402C0250			2. SPUN (CRITICAL)	3. MOD (CRITICAL) P00005		4. PR NUMBER 03PR08533-00		PAGE 1 OF 1
5. CUN/SLIN	6. ACRN (CRITICAL)	7. ACCOUNTING CITATION					8. AMOUNT (CRITICAL)	NAW INTERNAL USE ONLY REF DOC/ACRN
	AF	9720400 8ABB 255 SA452 0 068342 2D 064510 106180000000 FRC:148    PR#02PR09637-04    DOC#N0002402RC12638 Sub. Date: 06 SEP 2002					[***]
PAGE TOTAL GRAND TOTAL							[***] [***]
PREPARED/AUTHORIZED BY: DATE:					COMPTROLLER APPROVAL: FOR FISCAL DATA AND SIGNATURE BY                      for COMPTROLLER, ONR CONTRACT  REVIEWED DATE:

AMENDMENT OF SOLICITATION /MODIFICATION OF CONTRACT				CONTRACT ID CODE		PAGE OF PAGES
				DO-C9(T)			1/3
2. AMENDMENT/MODIFICATION NO.		3. EFFECTIVE DATE	4. REQUISITION/PURCHASE REG. NO.			5. PROJECT NO. (If applicable)
P00006		SEE BLOCK 16C	03PR08533-00			N.A.
6. ISSUED BY	CODE	N00014		7. ADMINISTERED BY (If other than Item 6)		CODE	S1103A
						SCD-C
OFFICE OF NAVAL RESEARCH ONR 251: Lynn Christian (703) 696-1575 BALLSTON TOWER CENTRE ONE 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660				DCM ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code)					(X)	9A. AMENDMENT OF SOLICITATION
						N.A.
CREE, INC. 4600 SILICON DRIVE DURHAM, NC 27703						9B. DATED (SEE ITEM 11)
					X	10A. MODIFICATION OF CONTRACT /ORDER
						N00014-02-C-0250
CODE		FACILITY CODE				10B. DATED (SEE ITEM 13)
0C9J8						03 JUL 2002
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers ¨ is extended ¨ is not extended Offers must acknowledge receipt of this amendment prior to the hour and data specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning — copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and data specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required)
SEE FINAL ACCOUNTING DATA SHEET(S)
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACTOR/ORDER NO. AS DESCRIBED ITEM 14.
(X)        THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE                             IN THE CONTRACT ORDER NO. IN ITEM 10A
THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES                             (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
C. SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: N.A.
AUTHORITY FOR OTHER THAN FULL AND OPEN COMPETITION:
D. OTHER (Specify type of modification and authority)
X		FAR 43.103(b) and LIMITATION OF FUNDS CLAUSE
E. IMPORTANT: Contractor	x is not,	¨ is required to sign this document and return _ copies to the issuing office
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)
The purpose of this modification is to provide an increment of funding to CLIN 0001 under Contract Number N00014-02-C-0250. Accordingly, the funding cited in the attached Financial Accounting Data Sheet is made available.
Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.
15A. NAME AND TITLE OF SIGNER (Type or print)				16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
				SUSAN M. SUTHERLAND Contracting Officer
15B. CONTRACTOR/OFFEROR		15C. DATE SIGNED		16B. UNITED STATES OF AMERICA		16C. DATE SIGNED
				/s/ Susan M. Sutherland		4/22/03
(Signature of person authorized to sign)				(Signature of person authorized to sign)
SN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE NAVOCNR OVERPRINT (3-88)				30-105	STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

Effective as of the date of this Modification:

1. The funds available for performance of this contract are increased by the amount set forth in the attached Financial Accounting Data sheets.

2. Revise SECTION B – SUPPLIES OR SERVICES AND PRICES/COSTS to read as follows:

ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COSTS
0001	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.1. and C.2.	[***]	[***]	[***]
	000101 ACRN:AA [***]
	000102 ACRN: AD [***]
	000103 ACRN: AC [***]	.
	000104 ACRN:AD [***]
	000105 ACRN: AE [***]
	000106 ACRN:AF [***]
	000107 ACRN: AG [***]
0002	Deliverables as specified in Attachment Number 2			NSP
0003	Reports and Data in accordance with Exhibit A (DD_Form_1423)			NSP
0004	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.1. and C.3.	[***]	[***]	[***]
	000401 ACRN: AF [***]
TOTAL ESTIMATED CONTRACT CONSIDERATION:		[***]	[***]	[***]

3. Under SECTION G - CONTRACT ADMINISTRATION DATA, paragraph 5, entitled “Allotment of Funds”, is revised to read as follows:

“5. Allotment of Funds

It is hereby understood and agreed that the Government’s share of CLIN 0001 will not

exceed a total amount of [***]. The total amount presently available for payment

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250/P00006 PAGE 2

and allotted to CLIN 0001 is [***]. It is estimated that the amount allotted of [***] will cover the period from [***].”

This modification makes no change to the Total Estimated Cost of this contract. All other terms and conditions remain unchanged.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250/P00006 PAGE 3

0FINANCIAL ACCOUNTING DATA SHEET – NON-NAVY DoD ACTIVITIES

1. CONTRACT NUMBER (CRITICAL) N0001402C02500			2. SPUN (CRITICAL)	3. MOD (CRITICAL)                   P00006		4. PR NUMBER 03PR08533-01		PAGE 1 OF 1
5. CUN/SLIN	6. ACRN (CRITICAL)	7. ACCOUNTING CITATION					8. AMOUNT (CRITICAL)	NAW INTERNAL USE ONLY REF DOC/ACRN
	AG	1731319 A5XB 255 SASTC 0 068342 20 064110 K92230000010 FRC:Z122 PR#032R08533-01 DOC*N0002403RX11809 Sub. Date: 28 MAR 2003					[***]
PAGE TOTAL GRAND TOTAL							[***] [***]
PREPARED/AUTHORIZED BY: DATE:					COMPTROLLER APPROVAL: FOR FISCAL DATA AND SIGNATURE BY                      for COMPTROLLER, ONR CONTRACT  REVIEWED DATE:

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

AMENDMENT OF SOLICITATION /MODIFICATION OF CONTRACT CONTRACT ID CODE DO-C9(T) PAGE OF PAGES 1/3

2. AMENDMENT/MODIFICATION NO. P00007 3. EFFECTIVE DATE SEE BLOCK 16C 4. REQUISITION/PURCHASE REG. NO. 03PR08533-02 5. PROJECT NO. (If applicable) N.A.

6. ISSUED BY	CODE	N00014	7. ADMINISTERED BY (If other than Item 6) SCD-C	CODE	S1103A
OFFICE OF NAVAL RESEARCH ONR 251: Lynn Christian (703) 696-1575 BALLSTON TOWER CENTRE ONE 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660			DCM ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code) CREE, INC. 4600 SILICON DRIVE DURHAM, NC 27703		(X)	9A. AMENDMENT OF SOLICITATION N.A.
			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER N00014-02-C-0250
CODE         0C9J8	FACILITY CODE		10B. DATED (SEE ITEM 13) 03 JUL 2002

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers ¨ is extended ¨ is not extended

Offers must acknowledge receipt of this amendment prior to the hour and data specified in the solicitation or as amended, by one of the following methods:

(a) By completing items 8 and 15, and returning — copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and data specified.

12. ACCOUNTING AND APPROPRIATION DATA (If required)

SEE FINANCIAL ACCOUNTING DATA SHEET(S)

13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS,

IT MODIFIES THE CONTRACTOR/ORDER NO. AS DESCRIBED ITEM 14.

(X)	THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A
	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
	C. SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: N.A. AUTHORITY FOR OTHER THAN FULL AND OPEN COMPETITION:
X	D. OTHER (Specify type of modification and authority) FAR 43.103(b) and LIMITATION OF FUNDS CLAUSE

E. IMPORTANT: Contractor         x is not,            ¨ is required to sign this document and return    copies to the issuing office

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

The purpose of this modification is to provide an increment of funding under Contract Number N00014-02-C-0250. Accordingly, the funding cited in the attached Financial Accounting Data Sheet is made available.

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)		16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) SUSAN M. SUTHERLAND Contracting Officer
15B. CONTRACTOR/OFFEROR     (Signature of person authorized to sign)	15C. DATE SIGNED	16B. UNITED STATES OF AMERICA /s/ Susan M. Sutherland     (Signature of person authorized to sign)	16C. DATE SIGNED 5/6/03

SN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE NAVOCNR OVERPRINT (3-88) 30-105 STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

Effective as of the date of this Modification:

1. The funds available for performance of this contract are increased by the amount set forth in the attached Financial Accounting Data sheets.

2. Revise SECTION B – SUPPLIES OR SERVICES AND PRICES/COSTS to read as follows:

ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COSTS
0001	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.	[***]	[***]	[***]
	000101 ACRN:AA [***]
	000102 ACRN: AD [***]
	000103 ACRN: AC [***]		.
	000104 ACRN:AD [***]
	000105 ACRN: AE [***]
	000106 ACRN:AF [***]
	000107 ACRN: AG [***]
	000107 ACRN: AH [***]
0002	Deliverables as specified in Attachment Number 2			NSP
0003	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP
0004	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.1. and C.3.	[***]	[***]	[***]
	000401 ACRN: AF [***]
TOTAL ESTIMATED CONTRACT CONSIDERATION:		[***]	[***]	[***]

3. Under SECTION G - CONTRACT ADMINISTRATION DATA, paragraph 5, entitled “Allotment of Funds”, is revised to read as follows:

“5. Allotment of Funds

It is hereby understood and agreed that the Government’s share of CLIN 0001 will not

exceed a total amount of [***]. The total amount presently available for payment and allotted to CLIN 0001 is [***]. It is estimated that the amount allotted of [***] will cover the period from [***].

CLIN 0004 is fully funded at [***].

This modification makes no change to the Total Estimated Cost of this contract. All other terms and conditions remain unchanged.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250/P00007 PAGE 2

FINANCIAL ACCOUNTING DATA SHEET – NON-NAVY DoD ACTIVITIES

1. CONTRACT NUMBER (CRITICAL) N0001402C0250			2. SPUN (CRITICAL)	3. MOD (CRITICAL) P00007		4. PR NUMBER 03PR08533-02		PAGE 1 OF 1
5. CUN/SLIN	6. ACRN (CRITICAL)	7. ACCOUNTING CITATION					8. AMOUNT (CRITICAL)	NAW INTERNAL USE ONLY REF DOC/ACRN
	AH	9730400 2520 40603880C 2525 BMD00134934283 012123 FRC: Z127    PR#03PR08533-02 DOC#BMD00134934283 Sub.     Date: 05 MAY 2003					[***]
PAGE TOTAL GRAND TOTAL							[***] [***]
PREPARED/AUTHORIZED BY: DATE:					COMPTROLLER APPROVAL: FOR FISCAL DATA AND SIGNATURE BY                      for COMPTROLLER, ONR CONTRACT REVIEWED DATE:

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

AMENDMENT OF SOLICITATION /MODIFICATION OF CONTRACT CONTRACT ID CODE DO-C9(T) PAGE OF PAGES 1/3                              

2. AMENDMENT/MODIFICATION NO. P00008     3. EFFECTIVE DATE SEE BLOCK 16C 4. REQUISITION/PURCHASE REG. NO. 03PR08533-03     5. PROJECT NO. (If applicable)     N.A.

6. ISSUED BY	CODE	N00014	7. ADMINISTERED BY (If other than Item 6)	CODE SCD-C	S1103A
OFFICE OF NAVAL RESEARCH ONR 251: Lynn Christian (703) 696-1575 BALLSTON TOWER CENTRE ONE 800 NORTH QUINCY STREET ARLINGTON, VA 22217-5660			DCM ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code) CREE, INC. 4600 SILICON DRIVE DURHAM, NC 27703		(X)	9A. AMENDMENT OF SOLICITATION N.A.
			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER N00014-02-C-0250
CODE         0C9J8	FACILITY CODE		10B. DATED (SEE ITEM 13) 03 JUL 2002

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

¨  The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers    ¨ is extended ¨   is not extended

Offers must acknowledge receipt of this amendment prior to the hour and data specified in the solicitation or as amended, by one of the following methods:

(a) By completing items 8 and 15, and returning — copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and data specified.

12.   ACCOUNTING AND APPROPRIATION DATA (If required)

  SEE FINAL ACCOUNTING DATA SHEET(S)

13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS,

IT MODIFIES THE CONTRACTOR/ORDER NO. AS DESCRIBED ITEM 14.

(X)	THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A
	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
	C. SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: N.A. AUTHORITY FOR OTHER THAN FULL AND OPEN COMPETITION:
X	D. OTHER (Specify type of modification and authority) FAR 43.103(b) and L IMITATION OF FUNDS CLAUSE

E. IMPORTANT: Contractor         x is not,            ¨ is required to sign this document and return     copies to the issuing office

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

The purpose of this modification is to provide an increment of funding under Contract Number N00014-02-C-0250. Accordingly, the funding cited in the attached Financial Accounting Data Sheet is made available.

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)		16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)     SUSAN M. SUTHERLAND     Contracting Officer
15B. CONTRACTOR/OFFEROR (Signature of person authorized to sign)	15C. DATE SIGNED	16B. UNITED STATES OF AMERICA /s/ Susan M. Sutherland (Signature of person authorized to sign)	16C. DATE SIGNED 7/8/03

SN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE NAVOCNR OVERPRINT (3-88) 30-105 STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

Effective as of the date of this Modification:

1. The funds available for performance of this contract are increased by the amount set forth in the attached Financial Accounting Data sheets.

2. Revise SECTION B – SUPPLIES OR SERVICES AND PRICES/COSTS to read as follows:

ITEM NO.	SUPPLIES/SERVICES	ESTIMATED GOVERNMENT COST SHARE	ESTIMATED CONTRACTOR COST SHARE	TOTAL ESTIMATED COSTS
0001	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.	[***]	[***]	[***]
	000101 ACRN:AA [***]
	000102 ACRN: AB [***]
	000103 ACRN: AC [***]		.
	000104 ACRN:AD [***]
	000105 ACRN: AE [***]
	000106 ACRN:AF [***]
	000107 ACRN: AG [***]
	000107 ACRN: AH [***]
	000107 ACRN: AJ [***]
0002	Deliverables as specified in Attachment Number 2			NSP
0003	Reports and Data in accordance with Exhibit A (DD Form 1423)			NSP
0004	The Contractor shall furnish the necessary personnel and facilities to conduct the research effort as described in Section C.1. and C.3.	[***]	[***]	[***]
	000401 ACRN: AF [***]
TOTAL ESTIMATED CONTRACT CONSIDERATION:		[***]	[***]	[***]

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

3. Under SECTION G - CONTRACT ADMINISTRATION DATA, paragraph 5, entitled “Allotment of Funds”, is revised to read as follows:

“5. Allotment of Funds

It is hereby understood and agreed that the Government’s share of CLIN 0001 will not exceed a total amount of [***]. The total amount presently available for payment and allotted to CLIN 0001 is [***]. It is estimated that the amount allotted of [***] will cover the period from [***].

CLLIN is fully funded at [***].

This modification makes no change to the Total Estimated Cost of this contract. All other terms and conditions remain unchanged.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250/P00008 PAGE 2

FINANCIAL ACCOUNTING DATA SHEET – NON-NAVY DoD ACTIVITIES

1. CONTRACT NUMBER (CRITICAL) N0001402C0250			2. SPUN (CRITICAL)	3. MOD (CRITICAL)                     P00008	4. PR NUMBER         03PR08533-03	PAGE 1 OF 1
5. CUN/SLIN	6. ACRN (CRITICAL)	7. ACCOUNTING CITATION			8. AMOUNT (CRITICAL)	NAW INTERNAL USE ONLY REF DOC/ACRN
	AJ	5733600 293 47WL 624348 6MPCAA 00700 62102F 503000 F03000 FRC: Z137 PR#03PR08533-03 DOC#NGWSML00372312 Sub. Date : 03 JUL 2003			[***]
				PAGE TOTAL GRAND TOTAL	[***] [***]
PREPARED/AUTHORIZED BY: DATE:				COMPTROLLER APPROVAL: FOR FISCAL DATA AND SIGNATURE BY                          for COMPTROLLER, ONR CONTRACT REVIEWED DATE:

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

EX-10.30

EXHIBIT 10.30

AWARD / CONTRACT			1. THIS CONTRACT IS A RATED ORDER UNDER DPAS (15 CFR 350)			è	RATING DO-C9	PAGE  OF  PAGES 1                16
2. CONTRACT (PROC. INST. IDENT.) NO. F33615-99-C-5316			3. EFFECTIVE DATE		4. REQUISITION / PURCHASE REQUEST / PROJECT NO. See Schedule
5. ISSUED BY	AFRL/MLKT		CODE	FA8650	6. ADMINISTERED BY (IF OTHER THAN ITEM 5)			CODE	S1103A
USAF/AFMC AIR FORCE RESEARCH LABORATORY/ 2530 C STREET, BUILDING 7 WRIGHT-PATTERSON AFB OH 45433-7607 WILLIAM O. BEEMAN 937-255-3506					DCMC ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789 EFT:T            SCD: C            PAS. (NONE)
7. NAME AND ADDRESS OF CONTRACTOR (NO., STREET, CITY, COUNTY, STATE AND ZIP CODE)							8. DELIVERY
CREE RESEARCH INC. 4600 SILICON DRIVE DURHAM NC 27703 (910) 929-5922 DURHAM COUNTY							¨ FOB Origin        x Other (see below)
							9. DISCOUNT FOR PROMPT DELIVERY N
							10. SUBMIT INVOICES (4 COPIES UNLESS OTHERWISE SPECIFIED) TO THE ADDRESS SHOW IN        è		ITEM See Block  12
CAGE CODE     OC9J8				FACILITY CODE
11. SHIP TO / MARK FOR			CODE		12. PAYMENT WILL BE MADE BY			CODE	HQ0338
See Section F					DFAS-CO/SOUTH ENTITLEMENT OPER P O BOX 182264 COLUMBUS OH 43218-2264
13. AUTHORITY FOR OTHER THAN FULL AND OPEN COMPETITION					14. ACCOUNTING AND APPROPRIATION DATA See Section G
15A. ITEM NO. See Section B		15B. SUPPLIES/SERVICES			15C. QUANTITY	15D. UNIT	15E. UNIT PRICE	15F. AMOUNT
				15G. TOTAL AMOUNT OF CONTRACT			è

16. Table of Contents
	SEC	DESCRIPTION		PAGE(S)		SEC	DESCRIPTION		PAGE(S)
		PART I – THE SCHEDULE					PART II – CONTRACT CLAUSES
Ö	A	SOLICITATION/CONTRACT FORM		1	Ö	I	CONTRACT CLAUSES		12
Ö	B	SUPPLIES OR SERVICES AND PRICES/COSTS		2		PART III – LIST OF DOCUMENTS, EXHIBITS & ATTACHMENTS
Ö	C	DESCRIPTION/SPECS./WORK STATEMENT		4	Ö	J	LIST OF ATTACHMENTS		16
Ö	D	PACKAGING AND MARKING		5		PART IV – REPRESENTATIONS AND INSTRUCTIONS
Ö	E	INSPECTION AND ACCEPTANCE		6		K	REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS
Ö	F	DELIVERIES OR PERFORMANCE		7
Ö	G	CONTRACT ADMINISTRATION DATA		9		L	INSTRS., CONDS., AND NOTICES TO
Ö	H	SPECIAL CONTRACT REQUIREMENTS		11		M	EVALUATION FACTORS FOR AWARD
CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
17.     x Contractor’s Negotiated Agreement (Contractor is required to sign this document and return 1 copies to issuing office). Contractor agrees to furnish and deliver all items or perform all services set forth or otherwise identified above and on any continuation sheets for the consideration stated herein. The rights and obligations of the parties to this contract shall be subject to and governed by the following documents: (a) this award/contract, (b) the solicitation, if any, and (c) such provisions, representations, certifications, and specifications, as are attached or incorporated by reference herein. (Attachments are listed herein.)					18.     ¨ Award  (Contractor is not required to sign this document). Your offer on solicitation number         including the additions or changes made by you which additions or changes set forth in full above, is hereby accepted as to items listed above and on any continuation sheets. This award consummates the contract which consists of the following documents: (a) the Government’s solicitation and your offer, and (b) this award/contract. No further contractual document is necessary.
19A. NAME AND TITLE OF SIGNER (TYPE OR PRINT) CALVIN H. CARTER, JR. DIRECTOR, MATERIALS TECHNOLOGY					20A. NAME OF CONTRACTING OFFICER BRUCE J. MILLER
19B. Name of Contractor			19C. Date Signed		20B. United States of America			20C. Date Signed
by           /s/ Calvin H. Carter, Jr.			22AUG99		by                           /s/ Bruce J Miller			30AUG99
(Signature of person authorized to sign)					(Signature of Contracting Officer)

NSN 7540-01-152-8069 Previous Editions unusable ConWrite Version 3.11 STANDARD FORM 26 (REV. 4-85) Prescribed by GSA FAR (48 CFR) 53.214(a))

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

PART I - THE SCHEDULE

SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS

ITEM	SUPPLIES OR SERVICES	Qty Purch Unit	Unit Price Total Item Amount
0001		1	[***]
		LO	[***]
	Noun:	RESEARCH AND DATA
	ACRN:	9
	Security	U
	NSN	N – Not Applicable
	Contract type:	T – [***]
	Inspection:	DESTINATION
	Acceptance:	DESTINATION
	FOB:	DESTINATION
	Descriptive Data:
	Conduct Research entitled “Silicon Carbide Substrates” in accordance with Section C, Description/Specifications dated 7JUN1999. Deliver data in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999.
000101
	Noun:	Funding Info Only
	ACRN:	AA                                           [***]
000102
	Noun:	Funding Info Only
	ACRN:	AB                                             [***]
0002		1	NSP
		LO	NSP
	Security	U
	NSN	N – Not Applicable
	Contract type:	T – [***]
	Inspection:	DESTINATION
	Acceptance:	DESTINATION
	FOB:	DESTINATION
	Descriptive Data:
	Deliver hardware in accordance with Section C Description/Specifications entitled, “Silicon Carbide Substrates”, dated 7JUN1999.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

SECTION B F33615-99-C-5316

PAGE 2 of 16

PART I - THE SCHEDULE

SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS

I. NOTICE: The following contract clauses pertinent to this section are hereby incorporated by full text:

A. OTHER CLAUSES IN FULL TEXT

B037 CONTRACT TYPE: COST-SHARING (FEB 1997)

Estimated Cost [***]

Government Share [***]

Contractor’s Share [***]

Applicable to following Line Items: ALL

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

SECTION B F33615-99-C-5316

PAGE 3 of 16

PART I – THE SCHEDULE

SECTION C – DESCRIPTION/SPECS/WORK STATEMENT

NO CLAUSES OR PROVISIONS IN THIS SECTION

SECTION B F33615-99-C-5316

PAGE 4 of 16

PART I – THE SCHEDULE

SECTION D – PACKAGING AND MARKING

1. NOTICE: The following contract clauses pertinent to this section are hereby incorporated by reference:

A. AIR FORCE MATERIEL COMMAND FAR CONTRACT CLAUSES

5352.247-9007 SPECIFICATION COMMERCIAL PACKAGING (AFMC) (SEP 1998)

SECTION D F33615-99-C-5316

PAGE 5 of 16

PART I – THE SCHEDULE

SECTION E – INSPECTION AND ACCEPTANCE

I. NOTICE: The following contract clauses pertinent to this section are hereby incorporated by reference:

A. FEDERAL ACQUISITION REGULATION CONTRACT CLAUSES

52.246-09       INSPECTION OF RESEARCH AND DEVELOPMENT (SHORT FORM) (APR 1984)

B. DEFENSE FEDERAL ACQUISITION REGULATION SUPPLEMENT CONTRACT CLAUSES

252.246-7000 MATERIAL INSPECTION AND RECEIVING REPORT (DEC 1991)

II. NOTICE: The following contract clauses pertinent to this section are hereby incorporated by full text:

A. OTHER CLAUSES IN FULL TEXT

E006 RECEIVING REPORT (DD FORM 250) MAILING ADDRESS (APR 1998)

(a) Submit original DD Form(s) 250 for all items deliverable under this contract (e.g. hardware, software, exhibit line items, status reports, services, etc.) to the following address:

John Blevins

AFRL/MLMP

2700 D Street, Suite 2

Building 22B

Wright Patterson AFB, OH 45433

(b) In addition, a copy of the DD Form 250 shall accompany each shipment for all deliverable items. Shipment addresses are specified in Section F of the schedule and/or on the Contract Data Requirements List.

(c) PROCESSING STATUS. Any inquiry as to the processing status of a DD Form 250 should be made to the following office:

John Blevins

AFRL/MLMP

2700 D Street, Suite 2

Building 22B

Wright Patterson AFB, OH 45433

E007 INSPECTION AND ACCEPTANCE AUTHORITY (APR 1998)

Inspection and acceptance for all Contract and Exhibit Lines or Subline Items shall be accomplished by the Program Manager, Air Force Research Laboratory, John Blevins

AFRL/MLMP

2700 D Street, Suite 2

Building 22B

Wright Patterson AFB, OH 45433.

SECTION E F33615-99-C-5316

PAGE 6 of 16

PART I - THE SCHEDULE

SECTION F - DELIVERIES OR PERFORMANCE

ITEM	SUPPLIES SCHEDULE DATA	QTY	SHIP TO	MARK FOR	TRANS PRI	DATE
0001		1	U		0	28 MARO
	RESEARCH AND DATA
	ACRN:	9
	Sec. Class:	U
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 28 months after mailing date. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 24 months after mailing date. See DD Form 1423 for mailing address.
0002		1	U		0	28 MARO
	Sec. Class	U
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 28 months after mailing date. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 24 months after mailing date. See DD Form 1423 for mailing address.

SECTION F F33615-99-C-5316

PAGE 7 of 16

PART I - THE SCHEDULE

SECTION F - DELIVERIES OR PERFORMANCE

I. NOTICE: The following contract clauses pertinent to this section are hereby incorporated by reference:

A. FEDERAL ACQUISITION REGULATION CONTRACT CLAUSES

52.242-15	STOP-WORK ORDER (AUG 1989) - ALTERNATE I (APR 1984)
52.247-34	F.O.B. DESTINATION (NOV 1991)

II. NOTICE: The following contract clauses pertinent to this section are hereby incorporated by full text:

A. OTHER CLAUSES IN FULL TEXT

F003 CONTRACT DELIVERIES (FEB 1997)

The following terms, if used within this contract in conjunction with contract delivery requirements (including data deliveries), are hereby defined as follows:

(a) “MAC” and “MARO” mean “months after the effective date for award of the contractual action (as shown in block 3, Section A, SF 26)”.

(b) “WARO” means “weeks after the effective date for award of the contractual action”.

(c) “DARO” means “days after the effective date for award of the contractual action”.

(d) “ASREQ” means “as required”. Detailed delivery requirements are then specified elsewhere in Section F.

F005 DELIVERY OF REPORTS (OCT 1998)

(i) All data shall be delivered in accordance with the delivery schedule shown on the Contract Data Requirements List, attachments, or as incorporated by reference.

(ii) All reports and correspondence submitted under this contract shall include the contract number and project number and be forwarded prepaid. A copy of the letters of transmittal shall be delivered to the Procuring Contracting Officer (PCO) and Administrative Contracting Officer (ACO). The addresses are set forth on the contract award cover page. All other address(es) and code(s) for consignee(s) are as set forth in the contract or incorporated by reference.

SECTION F F33615-99-C-5316

PAGE 8 of 16

PART I - THE SCHEDULE

SECTION G - CONTRACT ADMINISTRATION DATA

ACRN	Appropriation/Lmt Subhead/Supplemental Accounting Data		Obligation Amount
AA			[***]
	97 X0360 1102 D50 47WL P010A0 000000 00000 000000 503000 F03000
	Funding breakdown:	On Clin 000101: +[***]
	PR/MIPR:	GWSML997201077             [***]
	Descriptive data:
	JON: 10A00017
AA			[***]
	97 X0360 1102 D50 4742 10DEFA 000000 00000 000000 503000 F03000
	Funding breakdown:	On Clin 000102:                [***]
	PR/MIPR:	GWSML997201077          [***]
	Descriptive data:
	JON: 10A00017

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

SECTION G F33615-99-C-5316

PAGE 9 of 16

PART I - THE SCHEDULE

SECTION G - CONTRACT ADMINISTRATION DATA

I. NOTICE: The following contract clauses pertinent to this section are hereby incorporated by full text:

A. OTHER CLAUSES IN FULL TEXT

G002 PROGRAM MANAGER (MAY 1997)

Program Manager: John Blevins

AFRI/MLMP

2700 D Street, Suite 2

Building 22B

Wright Patterson AFB, OH 45433

G005 PAYMENT INSTRUCTIONS FOR MULTIPLE ACCOUNTING CLASSIFICATION CITATIONS (FEB 1997)

Payment for all effort under this contract should be made in the order and amounts shown in the informational subline(s) in Section B, CLIN 0001 of the contract and recapped below. Exhaust the funds in each ACRN before using funds from the next listed ACRN.

ACRN	SUBCLIN NO.	TOTAL OBLIGATED
AA	000101	[***]
AB	000102	[***]

G0006 INVOICE AND PAYMENT - COST REIMBURSEMENT (FEB 1997)

Invoices (or public vouchers), supported by a statement of cost for performance under this contract, shall be submitted to the cognizant Defense Contract Audit Agency (DCAA) office. Under the provisions of DFARS 242.803(b), the DCAA auditor, is designated as the authorized representative of the contracting offices (CO) for examining vouchers received directly from the contractor.

G014 FINAL PATENT REPORT (OCT 1997)

In accordance with 5327.305-3(b)90, the Administrative Contracting Officer shall forward the final patent report (e.g., DD Form 882, Report of Inventions and Subcontracts) and any related information to AFMC LO/JAZI

2240 B St., Rm 100

Wright-Patterson AFB OH 45433-7109.

G015 IMPLEMENTATION OF TAXPAYER IDENTIFICATION NUMBER (APR I998)

In accordance with FAR 52.204-03, Taxpayer Identification Number is 56-1572719.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

SECTION G F33615-99-C-5316

PAGE 10 of 16

PART I - THE SCHEDULE

SECTION H - SPECIAL CONTRACT REQUIREMENTS

I. NOTICE: The following contract clauses pertinent to this section are hereby incorporated by full text:

A. OTHER CLAUSES IN FULL TEXT

H025 INCORPORATION OF SECTION K (OCT 1998)

Section K of the solicitation is hereby incorporated by reference.

H029 IMPLEMENTATION OF DISCLOSURE OF INFORMATION (OCT 1997)

In order to comply with DFARS 252.204-7000, Disclosure of Information, the following copies of the information to be released are required at least 45 days prior to the scheduled release date:

(a) 1 copy(ies) to: Office of Public Affairs, ASC/PA

Wright Patterson AFB, OH 45433

(b) 1 copy(ies) to: Contracting Officer, AFLR/MLKT

2530 C Street

Wright Patterson AFB, OH 45433-7607

(c) 1 copy(ies) to: Program Manager, John Blevins

AFRL/MLMP

2700 D Street, Suite 2

Wright Patterson AFB, OH 45433.

H033 SOLICITATION NUMBER (APR 1998)

Solicitation Number: 99-3-MLK

SECTION H F33615-99-C-5316

PAGE 11 of 16

PART II - CONTRACT CLAUSES

SECTION I - CONTRACT CLAUSES

Contract Clauses in this section are from the FAR, Defense FAR Sup, Air Force FAR Sup, and the Air Force Materiel Command FAR Sup, and are current through the following updates:

FAR: FAC 97-12; DFAR: DCN19990772; DL.: DL 98-021; Class Deviations: CD 98-O0014; AFFAR: 1996 Edition; AFMCFAR: AFMCAC 97-3; AFAC: AFAC 96-2; IPN: 98-009

I. NOTICE: The following contract clauses pertinent to this section are hereby incorporated by reference:

A. FEDERAL ACQUISITION REGULATION CONTRACT CLAUSES

52.202-01	DEFINITION (OCT 1995)
52.203-03	GRATUITIES (APR 1984)
52.203-05	COVENANT AGAINST CONTINGENT FEES (APR 1984)
52.203-06	RESTRICTIONS ON SUBCONTRACTOR SALES TO THE GOVERNMENT (JUL 1995)
52.203-07	ANTI-KICKBACK PROCEDURES (JUL 1995)
52.203-08	CANCELLATION, RESCISSION, AND RECOVERY OF FUNDS FOR ILLEGAL OR IMPROPER ACTIVITY (JAN 1997)
52.203-10	PRICE OR FEE ADJUSTMENT FOR ILLEGAL OR IMPROPER ACTIVITY (JAN 1997)
52.203-12	LIMITATION ON PAYMENTS TO INFLUENCE CERTAIN FEDERAL TRANSACTIONS (JUN 1997)
52.204-04	PRINTING/COPYING DOUBLE-SIDED ON RECYCLED PAPER (JUN 1996)
52.209-06	PROTECTING THE GOVERNMENT’S INTEREST WHEN SUBCONTRACTING WITH CONTRACTORS DEBARRED, SUSPENDED, OR PROPOSED FOR DEBARMENT (JUL 1995)
52.211-05	MATERIAL REQUIREMENTS (OCT 1997)
52.211-15	DEFENSE PRIORITY AND ALLOCATION REQUIREMENTS (SEP 1990)
52.215-02	AUDIT AND RECORDS—NEGOTIATION (JUN 1999)
52.215-08	ORDER OF PRECEDENCE—UNIFORM CONTRACT FORMAT (OCT 1997)
52.215-11	PRICE REDUCTION FOR DEFECTIVE COST OR PRICING DATA-MODIFICATIONS (OCT 1997)
52.215-13	SUBCONTRACTOR COST OR PRICING DATA—MODIFICATIONS (OCT 1997)
52.215-14	INTEGRITY OF UNIT PRICES (OCT 1997)
52.215-15	PENSION ADJUSTMENTS AND ASSET REVERSIONS (DEC 1998)
52.215-18	REVERSION OR ADJUSTMENT OF PLANS FOR POSTRETIREMENT BENEFITS (PRB) OTHER THAN PENSIONS (OCT 1997)
52.215-19	NOTIFICATION OF OWNERSHIP CHANGES (OCT 1997)
52.216-07	ALLOWABLE COST AND PAYMENT (APR 1998)
52.216-12	COST-SHARING CONTRACT—NO FEE (APR 1984)
52.219-08	UTILIZATION OF SMALL BUSINESS CONCERNS (JUN 1999)
52.222-01	NOTICE TO THE GOVERNMENT OF LABOR DISPUTES (FEB 1997)
52.222-02	PAYMENT FOR OVERTIME PREMIUMS (JUL 1990) Para (a), Dollar amount is’$0.00’
52.222-03	CONVICT LABOR (AUG 1996)
52.222-21	PROHIBITION OF SEGREGATED FACILITIES (FEB 1999)
52.222-26	EQUAL OPPORTUNITY (FEB 1999)
52.222-35	AFFIRMATIVE ACTION FOR DISABLED VETERANS AND VETERANS OF THE VIETNAM ERA (APR 1998)
52.222-36	AFFIRMATIVE ACTION FOR WORKERS WITH DISABILITIES (JUN 1998)
52.222-37	EMPLOYMENT REPORTS ON DISABLED VETERANS AND VETERANS OF THE VIETNAM ERA (JAN 1999)
52.223-02	CLEAN AIR AND WATER (APR 1984)
52.223-06	DRUG-FREE WORKPLACE (JAN 1997)
52.225-11	RESTRICTIONS ON CERTAIN FOREIGN PURCHASES (AUG 1998)
52.227-01	AUTHORIZATION AND CONSENT (JUL 1995)—ALTERNATE I (APR 1984)

SECTION I F33615-99-C-5316

PAGE 12 of 16

PART II - CONTRACT CLAUSES

SECTION I - CONTRACT CLAUSES

52.227-02	NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT INFRINGEMENT (AUG 1996)
52.227-11	PATENT RIGHTS—RETENTION BY THE CONTRACTOR (SHORT FORM) (JUN 1997) Para (1), Communications: ‘AFMC LO/JAZI
	2240 B St., Rm 100
	Wright-Patterson AFB OH 45433-7109’
52.228-07	INSURANCE — LIABILITY TO THIRD PERSONS (MAR 1996)
52.232-09	LIMITATION ON WITHHOLDING OF PAYMENTS (APR 1984)
52.232-17	INTEREST (JUN 1996)
52.232-20	LIMITATION OF COST (APR 1984)
52.232-23	ASSIGNMENT OF CLAIMS (JAN 1986) — ALTERNATE I (APR 1984)
52.232-25	PROMPT PAYMENT (JUN 1997)
	Para (b)(1), Contract financing payments shall be made on the ‘30th’
52.232-33	PAYMENT BY ELECTRONIC FUNDS TRANSFER—CENTRAL CONTRACTOR REGISTRATION (MAY 1999)
52.232-34	PAYMENT BY ELECTRONIC FUNDS TRANSFER—OTHER THAN CENTRAL CONTRACTOR REGISTRATION (MAY 1999)
	CO shall insert date, days after award, days before first request, date specified for receipt of offers or “concurrent with first request”; otherwise, if not prescribed, insert “no later than 15 days prior to submission of the first request for payment. ‘No later than 15 days prior to submission of the first request for payment.’
52.233-01	DISPUTES (DEC 1998)
52.233-03	PROTEST AFTER AWARD (AUG 1996) — ALTERNATE I (JUN 1985)
52.242-01	NOTICE OF INTENT TO DISALLOW COSTS (APR 1984)
52.242-03	PENALTIES FOR UNALLOWABLE COSTS (OCT 1995)
52.242-04	CERTIFICATION OF FINAL INDIRECT COSTS (JAN 1997)
52.242-13	BANKRUPTCY (JUL 1995)
52.243-02	CHANGES — COST-REIMBURSEMENT (AUG 1987) — ALTERNATE V (APR 1984)
52.243-06	CHANGE ORDER ACCOUNTING (APR 1984)
52.243-07	NOTIFICATION OF CHANGES (APR 1984)
	Para (b), Number of calendar days is ‘30 days’
	Para (d), Number of calendar days is ‘30 days’
52.244-02	SUBCONTRACTS (AUG 1998) — ALTERNATE I (AUG 1998)
	Para (e), Contractor shall obtain the Contracting Officer’s written consent before placing the following subcontracts: ‘all’
	Para (k), the following subcontracts which were evaluated during negotiations: ‘none’
52.244-05	COMPETITION IN SUBCONTRACTING (DEC 1996)
52.244-06	SUBCONTRACTS FOR COMMERCIAL ITEMS AND COMMERCIAL COMPONENTS (OCT 1998)
52.245-05	GOVERNMENT PROPERTY (COST-REIMBURSEMENT, TIME-AND-MATERIAL, OR LABOR-HOUR CONTRACTS) (DEVIATION) (JAN 1986)
52.246-23	LIMITATION OF LIABILITY (FEB 1997)
52.247-01	COMMERCIAL BILL OF LADING NOTATIONS (APR 1984)
52.247-67	SUBMISSION OF COMMERCIAL TRANSPORTATION BILLS TO THE GENERAL SERVICES ADMINISTRATION FOR AUDIT (JUN 1997)
52.249-06	TERMINATION (COST-REIMBURSEMENT) (SEP 1996)
52.249-14	EXCUSABLE DELAYS (APR 1984)
52.252-06	AUTHORIZED DEVIATIONS IN CLAUSES (APR 1984)
52.253-01	COMPUTER GENERATED FORMS (JAN 1991)

B. DEFENSE FEDERAL ACQUISITION REGULATION SUPPLEMENT CONTRACT CLAUSES

252.203-7001	PROHIBITION ON PERSONS CONVICTED OF FRAUD OR OTHER DEFENSE-CONTRACT-RELATED FELONIES (MAR 1999)
252.204-7000	DISCLOSURE OF INFORMATION (DEC 1991)
252.204-7003	CONTROL OF GOVERNMENT PERSONNEL WORK PRODUCT (APR 1992)

SECTION I F33615-99-C-5316

PAGE 13 of 16

PART II - CONTRACT CLAUSES

SECTION I - CONTRACT CLAUSES

252.204-7004	REQUIRED CENTRAL CONTRACTOR REGISTRATION (MAR 1998)
252.205-7000	PROVISION OF INFORMATION TO COOPERATIVE AGREEMENT HOLDERS (DEC 1991)
252.209-7000	ACQUISITION FROM SUBCONTRACTORS SUBJECT TO ON-SITE INSPECTION UNDER THE INTERMEDIATE-RANGE NUCLEAR FORCES (INF) TREATY (NOV 1995)
252.209-7004	SUBCONTRACTING WITH FIRMS THAT ARE OWNED OR CONTROLLED BY THE GOVERNMENT OF A TERRORIST COUNTRY (MAR 1998)
252.215-7000	PRICING ADJUSTMENTS (DEC 1991)
252.225-7012	PREFERENCE FOR CERTAIN DOMESTIC COMMODITIES (MAY 1999)
252.225-7016	RESTRICTION ON ACQUISITION OF BALL AND ROLLER BEARINGS (AUG 1998)
252.225-7026	REPORTING OF CONTRACT PERFORMANCE OUTSIDE THE UNITED STATES (MAR 1998)
252.225-7031	SECONDARY ARAB BOYCOTT OF ISRAEL (JUN 1992)
252.227-7013	RIGHTS IN TECHNICAL DATA—NONCOMMERCIAL ITEMS (NOV 1995)
252.227-7016	RIGHTS IN BID OR PROPOSAL INFORMATION (JUN 1995)
252.227-7030	TECHNICAL DATA—WITHHOLDING OF PAYMENT (OCT 1988)
252.227-7034	PATENTS—SUBCONTRACTS (APR 1984)
252.227-7036	DECLARATION OF TECHNICAL DATA CONFORMITY (JAN 1997)
252.227-7037	VALIDATION OF RESTRICTIVE MARKINGS ON TECHNICAL DATA (NOV 1995)
252.227-7039	PATENTS—REPORTING OF SUBJECT INVENTIONS (APR 1990)
252.231-7000	SUPPLEMENTAL COST PRINCIPLES (DEC 1991)
252.235-7010	ACKNOWLEDGMENT OF SUPPORT AND DISCLAIMER (MAY 1995)
	Para (a), name of contracting agency(ies): ‘United States Air Force’
	Para (a), contract number(s): ‘F33615-99-C-5316’
	Para (b), name of contracting agency(ies): United States Air Force’
252.235-7011	FINAL SCIENTIFIC OR TECHNICAL REPORT (MAY 1995)
252.242-7000	POSTAWARD CONFERENCE (DEC 1991)
252.242-7004	MATERIAL MANAGEMENT AND ACCOUNTING SYSTEM (SEP 1996)
252.243-7002	REQUESTS FOR EQUITABLE ADJUSTMENT (MAR 1998)
252.245-7001	REPORTS OF GOVERNMENT PROPERTY (MAY 1994)
252.247-7023	TRANSPORTATION OF SUPPLIES BY SEA (NOV 1995)
252.247-7024	NOTIFICATION OF TRANSPORTATION OF SUPPLIES BY SEA (NOV 1995)

C. AIR FORCE FEDERAL ACQUISITION REGULATION SUPPLEMENT CONTRACT CLAUSES

5352.235-9000 SCIENTIFIC/TECHNICAL INFORMATION (STINFO) (MAY 1996)

D. AIR FORCE MATERIEL COMMAND FAR CONTRACT CLAUSES

5352.227-9000 EXPORT-CONTROLLED DATA RESTRICTIONS (AFMC) (JUL 1997)

5352.228-9001 INSURANCE CLAUSE IMPLEMENTATION (AFMC) (JUL 1997)

II. NOTICE: The following contract clauses pertinent to this section are hereby incorporated by full text:

A. FEDERAL ACQUISITION REGULATION CONTRACT CLAUSES IN FULL TEXT

52:219-04 NOTICE OF PRICE EVALUATION PREFERENCE FOR HUBZONE SMALL BUSINESS CONCERNS (JAN 1999)

(a) Definition. HUBZone small business concern, as used in this clause, means a small business concern that appears on the List of Qualified HUBZone Small Business Concerns maintained by the Small Business Administration.

(b) Evaluation preference. (1) Offers will be evaluated by adding a factor of 10 percent to the price of all offers, except –

(i) Offers from HUBZone small business concerns that have not waived the evaluation preference;

SECTION I F33615-99-C-5316

PAGE 14 of 16

PART II - CONTRACT CLAUSES

SECTION I - CONTRACT CLAUSES

(ii) Otherwise successful offers from small business concerns;

(iii) Otherwise successful offers of eligible products under the Trade Agreements Act when the dollar threshold for application of the Act is exceeded (see 25.402 of the Federal Acquisition Regulation (FAR)); and

(iv) Otherwise successful offers where application of the factor would be inconsistent with a Memorandum of Understanding or other international agreement with a foreign government.

(2) The factor of 10 percent shall be applied on a line item basis or to any group of items on which award may be made. Other evaluation factors described in the solicitation shall be applied before application of the factor.

(3) A concern that is both a HUBZone small business concern and a small disadvantaged business concern will receive the benefit of both the HUBZone small business price evaluation preference and the small disadvantaged business price evaluation adjustment (see FAR clause 52.219-23). Each applicable price evaluation preference or adjustment shall be calculated independently against an offeror’s base offer. These individual preference amounts shall be added together to arrive at the total evaluated price for that offer.

(c) Waiver of evaluation preference. A HUBZone small business concern may elect to waive the evaluation preference, in which case the factor will be added to its offer for evaluation purposes. The agreements in paragraph (d) of this clause do not apply if the offer or has waived the evaluation preference.

[] Offeror elects to waive the evaluation preference.

(d) Agreement. A HUBZone small business concern agrees that in the performance of the contract, in the case of a contract for

(1) Services (except construction), at least 50 percent of the cost of personnel for contract performance will be spent for employees of the concern or employees of other HUBZone small business concerns;

(2) Supplies (other than procurement from a nonmanufacturer of such supplies), at least 50 percent of the cost of manufacturing, excluding the cost of materials, will be performed by the concern or other HUBZone small business concerns;

(3) General construction, at least 15 percent of the cost of the contract performance incurred for personnel will be spent on the concern’s employees or the employees of other HUBZone small business concerns; or

(4) Construction by special trade contractors, at least 25 percent of the cost of the contract performance incurred for personnel will be spent on the concern’s employees or the employees of other HUBZone small business concerns.

(e) A HUBZone joint venture agrees that in the performance of the contract, the applicable percentage specified in paragraph (d) of this clause will be performed by the HUBZone small business participant or participants.

(f) A HUBZone small business concern nonmanufacturer agrees to furnish in performing this contract only end items manufactured or produced by HUBZone small business manufacturer concerns. This paragraph does not apply in connection with construction or service contracts.

52.252-02 CLAUSES INCORPORATED BY REFERENCE (FEB 1998)

This contract incorporates one or more clauses by reference, with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. Also, the full text of a clause may be accessed electronically at this/these address(es): http://farsite.hill.af mil/

SECTION I F33615-99-C-5316

PAGE 15 of 16

PART III - LIST OF DOCUMENTS, EXHIBITS & ATTACHMENTS

SECTION J - LIST OF ATTACHMENTS

DOCUMENT	PGS	DATE	TITLE
EXHIBIT A	3	16 JUN 1999	Contract Data Requirements List, DD Form 1423
ATTACHMENT 1	4	11 AUG 1999	Statement of Work, Entitled, “Silicon Carbide Substrates”

SECTION J F33615-99-C-5316

PAGE 16 of 16

STATEMENT OF WORK (SOW)

7 JUN 99

1.0 Objective

The objective of this project is to establish a viable, world class, domestic, merchant manufacturing capability that is responsive to customer requirements with respect to quality, price and delivery, for large diameter, electronic grade, silicon carbide substrates.

1.1 Scope

This project is aimed at establishing an economically viable production capability for silicon carbide substrates. This effort shall consist of the following tasks:

Task 1: [***]

Task 2: [***]

Task 3: [***]

Task 4: 100-mm [***]

  Task 5: [***]

  Task 6: [***]

2.0 Applicable Documents

International Standards Organization (ISO 9000)

3.0 Requirements

3.1 [***]

The contractor shall implement a [***] plan that utilizes [***] which addresses [***] (CDRL Data Item # A001, A003, A005 & A006).

3.1.1 [***]

The contractor shall develop and implement strategies to [***] on [***] vs. Cree’s current process for producing [***]. The contractor shall [***] and continuously track all [***] throughout the duration of the project (CDRL Data Item # A001, A003, A005 & A006).

3.1.2 [***]

The contractor shall develop and implement strategies to [***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

1 of 4

F33615-99-C-5316

Attachment 1

[***] vs. Cree’s current process for producing [***]. The contractor shall [***] and continuously track all [***] throughout the duration of the project (CDRL Data Item # A001, A003, A005 & A006).

3.1.3 [***]

The contractor shall develop and implement strategies to [***] theoretical. The contractor shall [***] and continuously track [***] throughout the duration of the project (CDRL Data Item # A001, A003, A005 & A006).

3.1.4 [***]

The contractor shall develop and implement strategies to attempt to [***]. The contractor agrees it will use its best efforts to achieve the [***]. The contractor shall [***] and continuously track [***] throughout the duration of the project (CDRL Data Item # A001, A003, A005 & A006).

3.1.5 [***]

The contractor shall develop and implement strategies to [***]. The contractor shall [***] and continuously track [***] throughout the duration of the project (CDRL Data Item # A001, A003, A005 & A006).

3.1.6 [***]

The contractor shall develop and implement strategies to [***] vs. Cree’s current process for producing [***]. The contractor shall [***] and continuously track [***] throughout the duration of the project (CDRL Data Item # A001, A003, A005 & A006).

3.1.7 [***]

The contractor shall develop and implement strategies to [***] (CDRL Data Item # A001, A003, A005 & A006).

3.1.8 [***]

The contractor shall develop and implement strategies to [***]. The contractor shall [***] and continuously track [***] throughout the duration of the project

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

(CDRL Data Item # A001, A003, A005 & A006).

SECTION B F33615-99-C-5316

PAGE 2 of 16

3.2 [***]

The contractor shall establish subcontracts to [***] (CDRL Data Item # A001, A003, A005 & A006).

3.3 [***]

The contractor shall develop and implement a [***] in accordance with [***] (CDRL Data Item # A001, A003, A005 & A006).

3.4 [***]

The contractor shall develop and demonstrate [***] and [***] (CDRL Data Item # A001, A003, A005 & A006).

3.5 [***]

The contractor shall perform [***] analysis and planning with the objective of [***]. The contractor shall implement the [***] as appropriate with the state of readiness of the product and process. The contractor shall aggressively [***] (CDRL Data Item # A001, A003, A004, A005 & A006).

3.5.1 [***]

The contractor shall perform [***] to enhance the level of [***] (CDRL Data Item # A001, A003, A004, A005 & A006).

3.6 [***]

The contractor shall provide [***] to the Government for evaluation purposes. The contractor shall propose a [***] (CDRL Data Item # A001, A003, A005 & A006).

3.7 Management Functions

The contractor shall exercise administrative and financial management functions during the course of this effort (CDRL Data Item # A001, A002, A003, A004, A005 & A006).

3.8 Visual Aids

The contractor shall prepare presentation materials for project reviews and other

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

SECTION B F33615-99-C-5316

PAGE 3 of 16

Government requirements (CDRL Data Item # A002).

3.9 Project Visibility

The contractor shall conduct in-depth technical, business, marketing, financial and management reviews with the Government to examine the status and progress of the project. The project reviews shall be held, at a minimum, every three months at either Wright-Patterson AFB or the contractor site.

SECTION B F33615-99-C-5316

PAGE 4 of 16

CONTRACT DATA REQUIREMENTS LIST (1 Data Item) Form Approved OMB No. 0704-0188

Public reporting burden for this collection of information is estimated to average 220 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Defense, Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188), Washington, DC 20503. Please DO NOT RETURN your form to either of these addresses. Send completed form to the Government Issuing Contracting Officer for the Contract/PR No. listed in Block E.

A. CONTRACT LINE ITEM NO. 0001 B. EXHIBIT A C. CATEGORY: N/A REF:     DOD 5010.12-L AMSDL       TDP              TM              OTHER         

D. SYSTEM/ITEM                             10A00018	E. CONTRACT/PR NO. F33615-99-C-5316		F. CONTRACTOR Cree Research
1. DATA ITEM NO. A001		2. TITLE OF DATA ITEM STATUS REPORT	3. SUBTITLE	17. PRICE GROUP
4. AUTHORITY  (Data Acquisition Document No.) DI-MGMT 80368/T		5. CONTRACT REFERENCE Sec C, Para 3.1; 3.1.1; *	6. REQUIRING OFFICE                          AFRL/MLMP	18. ESTIMATED       TOTAL PRICE

7. DD 250 REQ LT	9. DIST STATEMENT     REQUIRED	10. FREQUENCY QRTLY	12. DATE OF FIRST SUBMISSION **	14.     DISTRIBUTION
8. APP CODE N/A	D	11. AS OF DATE **	13. DATE OF SUBSEQUENT   SUBMISSION **

		b. COPIES
	a. ADDRESSEE	Draft	Final
16. REMARKS			Reg	Repro
Tailored to allow contractor’s format and to delete Block 10 para 10.2.2.3.	AFRL/MLMP		3
	ACO ***
*      3.1.2, 3.1.3, 3.1.4, 3.1.5, 3.1.6, 3.1.7, 3.1.8, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7	CO		1
**    Submit on the last day of the contractor’s monthly accounting period nearest the end of the government’s fiscal year quarter, except when final report is due to be submitted, then omit this item.	AFRL/MLPO NRL ARL		1 1 1
***  Letter of Transmittal only.
		15. TOTAL	7

G. PREPARED BY JOHN D. BLEVINS AFRL/MLMP, (937) 255-3701 H. DATE 16JUN99 I. APPROVED BY Leslie J. Steadman, 57466 Data Mgr., Det 1, AFRL/WSPT J. DATE 16JUN99

DD Form 1423-1, JUN 90 Previous editions are obsolete Page 1 of 8 Pages

CONTRACT DATA REQUIREMENTS LIST (1 Data Item)

Form Approved OMB No. 0704-0188

Public reporting burden for this collection of information is estimated to average 220 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Defense, Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188), Washington, DC 20503. Please DO NOT RETURN your form to either of these addresses. Send completed form to the Government Issuing Contracting Officer for the Contract/PR No. listed in Block E.

A. CONTRACT LINE ITEM NO. 0001 B. EXHIBIT A C. CATEGORY: N/A REF: DOD    5010.12-L AMSDL TDP              TM              OTHER             

D. SYSTEM/ITEM 10A00018 E. CONTRACT/PR NO. F33615-99-C-5316 F. CONTRACTOR Cree Research

1. DATA ITEM NO. A002 2. TITLE OF DATA ITEM PRESENTATION MATERIAL 3. SUBTITLE 17. PRICE GROUP

4. AUTHORITY (Data Acquisition Document No.) DI-ADMN-81373/T 5. CONTRACT REFERENCE Sec C, Para 3.7 and 3.8 6. REQUIRING OFFICE AFRL/MLMP 18. ESTIMATED TOTAL PRICE

7. DD 250 REQ LT	9. DIST STATEMENT     REQUIRED D	10. FREQUENCY ASREQ	12. DATE OF FIRST SUBMISSION *
8. APP CODE N/A		11. AS OF DATE *	13. DATE OF SUBSEQUENT   SUBMISSION *

	14.         DISTRIBUTION
		b. COPIES
	a. ADDRESSEE	Draft	Final
			Reg	Repro
16. REMARKS Tailored to require only negatives and slides. ASREQ means as required to document topics under discussion at each review. *      Submit at each review. Maximum # of slides and negatives combined shall not exceed 100 for this contact. Submit reproducible on 3.5” floppy disk, or CD-ROM compatible with MS-Office for Windows.	AFRL/MLMP	1	1	1
	15. TOTAL	1	1	1

G. PREPARED BY JOHN D. BLEVINS AFRL/MLMP,     (937) 255-3701 H. DATE 16JUN99 I. APPROVED BY Leslie J. Steadman, 57466 Data Mgr., Det 1, AFRL/WSPT J. DATE 16JUN99

DD Form 1423-1, JUN 90 Previous editions are obsolete Page 2 of 8 Pages

CONTRACT DATA REQUIREMENTS LIST (1 Data Item)							Form Approved OMB No. 0704-0188
Public reporting burden for this collection of information is estimated to average 220 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Defense, Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188), Washington, DC 20503. Please DO NOT RETURN your form to either of these addresses. Send completed form to the Government Issuing Contracting Officer for the Contract/PR No. listed in Block E.
A. CONTRACT LINE ITEM NO.		B. EXHIBIT		C. CATEGORY:    N/A REF:        DOD    5010.12-L AMSDL
0001		A		TDP             TM             OTHER
D. SYSTEM/ITEM			E. CONTRACT/PR NO.		F. CONTRACTOR
10A00018			F33615-99-C-5316		Cree Research
1. DATA ITEM NO.	2. TITLE OF DATA ITEM				3. SUBTITLE			17. PRICE GROUP
A003	FUNDS AND MAN-HOUR EXPENDITURE REPORT
4. AUTHORITY (Data     Acquisition Document No.)			5. CONTRACT REFERENCE			6. REQUIRING OFFICE		18. ESTIMATED         TOTAL PRICE
DI-FNCL-80331/T			Sec C, Para 3.1; 3.1.1; *			AFRL/MLMP

7. DD 250 REQ LT 9. DIST STATEMENT     REQUIRED E 10. FREQUENCY
MTHLY 12. DATE OF FIRST SUBMISSION ***             14. DISTRIBUTION

					b. COPIES
8. APP CODE N/A	11. AS OF DATE **	13. DATE OF SUBSEQUENT       SUBMISSION             ***		a. ADDRESSEE	Draft	Final
						Reg	Repro
16. REMARKS Tailored to allow contractor’s format. *      3.1.2, 3.1.3, 3.1.4, 3.1.5, 3.1.6, 3.1.7, 3.1.8, 3.2, 3.3, 3.4, 3.5, 3.6., 3.7, 3.8 **    At the close of the contractor’s monthly accounting period ***  30 days after Block 11 time.				AFRL/MLMP ACO CO AFRL/MLF AFRL/MLPO NRL ARL		3 1 1 1 1 1 1
				15. TOTAL		9
G. PREPARED BY	H. DATE		I. APPROVED BY			J. DATE
JOHN D. BLEVINS AFRL/MLMP, (937) 255-3701	16JUN99		Leslie J. Steadman, 57466 Data Mgr., Det 1, AFRL/WSPT			16JUN99
DD Form 1423-1, JUN 90	Previous editions are obsolete				Page 3 of 8 Pages

CONTRACT DATA REQUIREMENTS LIST (1 Data Item)							Form Approved OMB No. 0704-0188
Public reporting burden for this collection of information is estimated to average 220 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Defense, Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188), Washington, DC 20503. Please DO NOT RETURN your form to either of these addresses. Send completed form to the Government Issuing Contracting Officer for the Contract/PR No. listed in Block E.
A. CONTRACT LINE ITEM NO.		B. EXHIBIT		C. CATEGORY: N/A REF:    DOD 5010.12-L AMSDL
0001		A		TDP          TM          OTHER
D. SYSTEM/ITEM			E. CONTRACT/PR NO.		F. CONTRACTOR
10A00018			F33615-99-C-5316		Cree Research
1. DATA ITEM NO.	2. TITLE OF DATA ITEM				3. SUBTITLE			17. PRICE GROUP
A004	SCIENTIFIC AND TECHNICAL REPORTS				STRATEGIC BUSINESS PLAN
4. AUTHORITY (Data Acquisition Document No.) DI-MISC-80711/T			5. CONTRACT     REFERENCE Sec C, Para 3.5; 3.7;			6. REQUIRING OFFICE AFRL/MLMP		18. ESTIMATED TOTAL PRICE

7. DD 250 REQ LT	9. DIST STATEMENT     REQUIRED D	10. FREQUENCY 2 Time	12. DATE OF FIRST SUBMISSION 9 MAC		14. DISTRIBUTION
						b. COPIES
8. APP CODE A		11. AS OF DATE 0	13. DATE OF SUBSEQUENT       SUBMISSION 21 MAC		a. ADDRESSEE	Draft	Final
							Reg	Repro
16.REMARKS Tailored to document the contractor’s long term strategy of becoming viable producer of silicon carbide substrates. Approval/disapproval by letter from the Air Force Program Manager within 45 days after receipt. Disapproval requires correction/resubmission within 30 days after receipt of Air Force comments. Submit reproducible on 3.5” floppy disk, or CD-ROM compatible with MS-Office for Windows.					AFRL/MLMP AFRL/MLPO NRL ARL	3 1 1 1	1	1
					15. TOTAL	6	1	1
G. PREPARED BY		H. DATE		I. APPROVED BY			J. DATE
JOHN D. BLEVINS AFRL/MLMP, (937) 255-3701		16JUN99		Leslie J. Steadman, 57466 Data Mgr., Det 1, AFRL/WSPT			16JUN99

DD Form 1423-1, JUN 90 Previous editions are obsolete Page 4 of 8 Pages

CONTRACT DATA REQUIREMENTS LIST (1 Data Item)							Form Approved OMB No. 0704-0188
Public reporting burden for this collection of information is estimated to average 220 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Defense, Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188), Washington, DC 20503. Please DO NOT RETURN your form to either of these addresses. Send completed form to the Government Issuing Contracting Officer for the Contract/PR No. listed in Block E.
A. CONTRACT LINE ITEM NO.		B. EXHIBIT		C. CATEGORY: N/A REF:         DOD 5010.12-L AMSDL
0001		A		TDP              TM            OTHER
D. SYSTEM/ITEM		E. CONTRACT/PR NO.			F. CONTRACTOR
10A00018			F33615-99-C-5316		Cree Research
1. DATA ITEM NO.	2. TITLE OF DATA ITEM				3. SUBTITLE			17. PRICE GROUP
A005	SCIENTIFIC AND TECHNICAL REPORTS				Project Final Report
4. AUTHORITY (Data Acquisition Document No.)     DI-MISC-80711/T		5. CONTRACT REFERENCE Sec C, Para 3.1; 3.1.1; *				6. REQUIRING OFFICE AFRL/MLMP		18. ESTIMATED       TOTAL PRICE

7. DD 250 REQ LT	9. DIST STATEMENT     REQUIRED	10. FREQUENCY ONE/R	12. DATE OF FIRST SUBMISSION 26 MAC	14.     DISTRIBUTION
	D				b. COPIES
8. APP CODE A		11. AS OF DATE 24 MAC	13. DATE OF SUBSEQUENT      SUBMISSION 28 MAC	a. ADDRESSEE	Draft	Final
						Reg	Repro
16. REMARKS Tailored to require the official AFRL emblem to be placed in the upper right hand corner of the front cover with affected entries adjusted as required (AFRL will supply a copy of the emblem); Block 10, para 10.3 is clarified so that distribution to DTIC will be through Air Force distribution channels. Approval/disapproval by letter from the Air Force Program Manager within 60 days after receipt. Disapproval requires correction/resubmission within 60 days after receipt of Air Force comments. * 3.1.2, 3.1.3, 3.1.4, 3.1.5, 3.1.6, 3.1.7, 3.1.8, 3.2, 3.3, 3.4, 3.5, 3.6., 3.7 Draft report shall be unbound, in standard size type, double-spaced and single-sided. Reproducibles shall be 1). a CAMERA READY, unbound, suitable for offset reproduction, and 2). on 3.5” floppy disk (or CD-ROM, or ZIP drive disk) compatible with MS-Office for Windows, and both shall incorporate all changes made in the corrected draft. All photos shall be glossy finished. Submit the reproducibles with the final corrected version only. The contractor is reminded that the National Industrial Security Program Operating Manual, DOD 5220.22-M, Chapter 4, Paragraph 4-208(a), dated January 1995 requires that records be maintained when documents derive classified from multiple sources. **    Letter of Transmittal only.				AFRL/MLMP ACO ** CO ** AFRL/MLPO NRL ARL	3	1 1 1 1 1 1	1
				15. TOTAL	3	6	1

G. PREPARED BY	H. DATE	I. APPROVED BY	J. DATE
JOHN D. BLEVINS AFRL/MLMP, (937) 255-3701	16JUN99	Leslie J. Steadman, 57466 Data Mgr., Det 1, AFRL/WSPT	16JUN99

DD Form 1423-1, JUN 90 Previous editions are obsolete Page 5 of 8 Pages

CONTRACT DATA REQUIREMENTS LIST (1 Data Item)							Form Approved OMB No. 0704-0188
Public reporting burden for this collection of information is estimated to average 220 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Defense, Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188), Washington, DC 20503. Please DO NOT RETURN your form to either of these addresses. Send completed form to the Government Issuing Contracting Officer for the Contract/PR No. listed in Block E.
A. CONTRACT LINE ITEM NO.		B. EXHIBIT		C. CATEGORY: N/A REF:        DOD 5010.12-L AMSDL
0001		A		TDP              TM            OTHER
D. SYSTEM/ITEM		E. CONTRACT/PR NO.				F. CONTRACTOR
10A00018		F33615-99-C-5316				Cree Research
1. DATA ITEM NO.	2. TITLE OF DATA ITEM				3. SUBTITLE			17. PRICE GROUP
A006	PROJECT PLANNING CHART
4. AUTHORITY (Data Acquisition Document No.)                                 DI-MGMT-80507A/T			5. CONTRACT REFERENCE Sec C, Para 3.1; 3.1.1; *			6. REQUIRING OFFICE AFRL/MLMP		18. ESTIMATED       TOTAL PRICE

7. DD 250 REQ LT	9. DIST STATEMENT     REQUIRED	10. FREQUENCY QRTLY	12. DATE OF FIRST SUBMISSION **	14. DISTRIBUTION
	D				b. COPIES
8. APP CODE N/A		11. AS OF DATE         **	13. DATE OF SUBSEQUENT      SUBMISSION **	a. ADDRESSEE	Draft	Final
						Reg	Repro
16. REMARKS Tailored to allow contractor’s format, and to delete Block 10 paras 10.3.15, 10.3.16 and 10.4. *      3.1.2, 3.1.3, 3.1.4, 3.1.5, 3.1.6, 3.1.7, 3.1.8, 3.2, 3.3, 3.4, 3.5, 3.6., 3.7 **    Submit with Data Item #A001.				AFRL/MLMP AFRL/MLPO NRL ARL		3 1 1 1
				15. TOTAL		6

G. PREPARED BY	H. DATE	I. APPROVED BY	J. DATE
JOHN D. BLEVINS AFRL/MLMP, (937) 255-3701	16JUN99	Leslie J. Steadman, 57466 Data Mgr., Det 1, AFRL/WSPT	16JUN99

DD Form 1423-1, JUN 90 Previous editions are obsolete Page 6 of 8 Pages

CONTRACT DATA REQUIREMENTS LIST (1 Data Item)							Form Approved OMB No. 0704-0188
Public reporting burden for this collection of information is estimated to average 220 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Defense, Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188), Washington, DC 20503. Please DO NOT RETURN your form to either of these addresses. Send completed form to the Government Issuing Contracting Officer for the Contract/PR No. listed in Block E.
A. CONTRACT LINE ITEM NO.                         0001		B. EXHIBIT             A		C. CATEGORY: N/A REF:    DOD 5010.12-L AMSDL     TDP          TM          OTHER
D. SYSTEM/ITEM			E. CONTRACT/PR NO.		F. CONTRACTOR
10A00018			F33615-99-C-5316		Cree Research
1. DATA ITEM NO.                   A007	2. TITLE OF DATA ITEM   SCIENTIFIC AND TECHNICAL REPORTS				3. SUBTITLE Contractor’s Billing Voucher						17. PRICE GROUP
4. AUTHORITY (Data Acquisition Document No.) DI-MGMT-80711/T			5. CONTRACT REFERENCE Sec C, Para 3.1; 3.1.1; *			6. REQUIRING OFFICE AFRL/MLMP					18. ESTIMATED       TOTAL PRICE
7. DD 250 REQ   LT	9. DIST STATEMENT       REQUIRED D	10. FREQUENCY ASREQ		12. DATE OF FIRST SUBMISSION   **		14.             DISTRIBUTION
								b. COPIES
8. APP CODE  N/A		11. AS OF DATE **		13. DATE OF SUBSEQUENT      SUBMISSION **		a. ADDRESSEE		Draft	Final
									Reg	Repro
16. REMARKS						AFRL/MLMP			3
Tailored to require only a photocopy of the contractor’s billing voucher which is prepared by the contractor to receive payment for this contract’s work.						AFRL/MLPO			1
						NRL			1
ASREQ means as generated.						ARL			1
						ACO			1
*   3.1.2, 3.1.3, 3.1.4, 3.1.5, 3.1.6, 3.1.7, 3.1.8, 3.2, 3.3, 3.4, 3.5, 3.6., 3.7, 3.8						CO			1
** Submit voucher information monthly, through normal mail channels to all Block 14 addresses, with Data Item #A003.
						15. TOTAL			8
G. PREPARED BY   JOHN D. BLEVINS   AFRL/MLMP, (937) 255-3701		H. DATE 16JUN99		I. APPROVED BY   Leslie J. Steadman, 57466   Data Mgr., Det 1, AFRL/WSPT					J. DATE 16JUN99
DD Form 1423-1, JUN 90			Previous editions are obsolete					Page 7 of 8 Pages

EXHIBIT A – ADDENDUM 1

MAILING ADDRESSES

John Blevins

AFRL/MLMP

2977 P Street, Suite 6

Wright-Patterson AFB OH 45433-7739

Walt Gibson

AFRL/MLMP

2977 P Street, Suite 6

Wright-Patterson AFB OH 45433-7739

Laura Rea

AFRL/MLPO

3005 P Street Suite 6

Wright-Patterson AFB OH 45433-7739

Dr. Ken Jones

Army Research Laboratory

AMSRL-SE-RL

2800 Powder Mill Road

Adelphi MD 20783

Dr. Ben Shanabrook

Naval Research Laboratory

Code 6870

Washington DC 20375

F33615-99-C-5316 Page 8 of 8

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT						1. CONTRACT ID CODE			PAGE OF PAGES
						T - CS			1 of 3
2. AMENDMENT/MODIFICATION NO.			3. EFFECTIVE DATE		4. REQUISITION/PURCHASE REQ. NO.			5. PROJECT NO. (if applicable)
P00001
6. ISSUED BY         AFRL/MLKT		CODE	FA8650		7. ADMINISTERED BY (if other than Item 6)			CODE	S1103A
USAF/AFM AIR FORCE RESEARCH LABORATORY/MLKT 2310 EIGHTH STREET, BUILDING 167 WRIGHT-PATTERSON AFB OH 45433-7801 WILLIAM O. BEEMAN (937) 255-5413 william.beeman@wpafb.af.mil					DCMC ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code)						(X)	9A. AMENDMENT OF SOLICITATION NO.
CREE, INC. 4600 SILICON DRIVE DURHAM NC 27703 (910) 929-5922 DURHAM COUNTY					MAILING DATE SEP 26 2001 DUPLICATE ORIGINAL		9B. DATED (SEE ITEM 11)
						X	10A.MODIFICATION OF CONTRACT/ORDER NO. F33615-99-C-5316
							10B. DATED (SEE ITEM 13)
CODE	OC9J8			FACILITY CODE
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers             ¨ is extended,             ¨ is not extended. Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning      copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment your desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (if required)
13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(X)	A.	THIS CHANGE ORDER IS ISSUED PURSUANT TO: (                 ) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. ITEM 10A.
	B.	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
(X)	C.	THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
	D.	OTHER (Specify type of modification and authority)

E.     IMPORTANT: Contractor ¨ is not, x is required to sign this document and return   1   copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)
Subject: No Cost Impact Extension to the Period of Performance
Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.
15A. NAME AND TITLE OF SIGNER (Type or print)			16A. NAME AND TITLE OF SIGNER (Type or print)
Calvin H. Carter, Jr. Director, Materials Technology			Stephen C. Davis Contracting Officer
15B. CONTRACTOR/OFFEROR		15C. DATE SIGNED 09/11/2001	16B. UNITED STATES OF AMERICA			16C. DATE SIGNED 21 SEP 2001
	/s/ Calvin H. Carter, Jr. (Signature of person authorized to sign)		BY	/s/ Stephen C. Davis (Signature of Contracting Officer)
NSN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE ConWrite Version 4.1.4 Created 06 Sep 2001 9:31 AM					STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

ITEM	SUPPLIES OR SERVICES	Qty Purch Unit	Unit Price Total Item Amount
0001	CLIN Change		[	***]
		LO	[	***]
	Noun:	RESEARCH AND DATA
	Total Quantity:	1
	Total Item Amount:	[***]
	ACRN:	9
	Security:	U
	NSN	N – Not Applicable
	DD1423 is Exhibit:	A
	Contract type:	T – [***]
	Inspection:	DESTINATION
	Acceptance:	DESTINATION
	FOB:	DESTINATION
	Descriptive Data:
	Conduct Research entitled “Silicon Carbide Substrates” in accordance with Section C, Description/Specifications dated 7JUN1999. Deliver data in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999.
0002	CLIN Change		NSP
		LO	NSP
	Noun:	HARDWARE
	Total Quantity:	1
	New Total Item Amount:	[***]
	ACRN:	U
	Security:	U
	NSN	N – Not Applicable
	Contract type:	T – [***]
	Inspection:	DESTINATION
	Acceptance:	DESTINATION
	FOB:	DESTINATION
	Descriptive Data:
	Deliver hardware in accordance with Section C Description/Specifications entitled, “Silicon Carbide Substrates,” dated 7JUN1999.

1. SECTION F – DELIVERIES OR PERFORMANCE: The period of performance is hereby extended to 1JUN2002.

2. There are no other changes as a result of this action.

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00001

Page 2 of 3

ITEM	SUPPLIES SCHEDULE DATA	QTY	SHIP TO	MARK FOR	TRANS PRI	DATE
0001		1	U			01 Jun 2002
	Noun:	RESEARCH AND DATA
	ACRN:	9
	Sec. Class:	U
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 1JUN2002. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 1MAR2002. See DD Form 1423 for mailing address.
0002		1	U			01 Jun 2002
	Noun:	HARDWARE
	ACRN:	U
	Sec. Class:	U
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 1JUN2002. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 1MAR2002. See DD Form 1423 for mailing address.

F33615-99-C-5316 P00001

Page 3 of 3

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT		1. CONTRACT ID CODE                         T - CS	PAGE OF PAGES                                 1 of 6
2. AMENDMENT/MODIFICATION NO. P00002	3. EFFECTIVE DATE         25FEB2002	4. REQUISITION/PURCHASE REQ. NO.         SEE SCHEDULE	5. PROJECT NO. (if applicable)
6. ISSUED BY        AFRL/MLKT        CODE	FA8650	7. ADMINISTERED BY (if other than Item 6)	CODE                    S1103A
USAF/AFMC AIR FORCE RESEARCH LABORATORY/MLKT 2310 EIGHTH STREET, BUILDING 167 WRIGHT-PATTERSON AFB OH 45433-7801 WILLIAM O. BEEMAN (937) 255-5413 william.beeman@wpafb.af.mil		DCMC ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code)		(X)	9A. AMENDMENT OF SOLICITATION NO:
CREE, INC. 4600 SILICON DRIVE DURHAM NC 27703 (919) 313-5366			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER NO. F33615-99-C-5316
			10B. DATED (SEE ITEM 13)
CODE     OC9J8	FACILITY CODE

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
¨  The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers        ¨  is extended        ¨  is not extended. Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning        copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment your desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (if required)       SEE SCHEDULE
13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)	A.    THIS CHANGE ORDER IS ISSUED PURSUANT TO: (                     ) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT         ORDER NO. ITEM 10A.
	B.    THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying         office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
X	C.    THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:         52.243-2 Changes – Cost Reimbursement
	D.    OTHER (Specify type of modification and authority)
E.     IMPORTANT: Contractor ¨ is not, x is required to sign this document and return   1   copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.) SUBJECT: Additional Process Improvement CHANGE IN GOVERNMENT SHARE: [***] from [***] to [***] CHANGE IN CONTRACTOR’S SHARE: [***] from [***] to [***] CHANGE IN OBLIGATION: [***] from [***] to [***]
Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains  unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print) John W. Palmour, Director of Advanced Devices		16A. NAME AND TITLE OF SIGNER (Type or print) Stephen C. Davis Contracting Officer
15B. CONTRACTOR/OFFEROR	15C. DATE SIGNED     18 March 2002	16B. UNITED STATES OF AMERICA		16C. DATE SIGNED     02 Apr 02
/s/    John W. Palmour		BY	/s/    Stephen C. Davis
(Signature of person authorized to sign)			(Signature of Contracting Officer)

NSN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE ConWrite Version 4.2.7 Created 18 Mar 2002 10:01 AM [***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission. STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR 53.243)

1. The following changes are hereby made:

2. SECTION B – SUPPLIES OR SERVICES:

ITEM	SUPPLIES OR SERVICES	Qty Purch Unit	Unit Price Total Item Amount
0001	CLIN Change		[***]
		LO	+[***]
	Noun:	RESEARCH AND DATA
	Total Quantity:	1
	New Total Item Amount:	[***]
	ACRN:	9
	NSN	N – Not Applicable
	DD1423 is Exhibit:	A
	Contract type:	T – [***]
	Inspection:	DESTINATION
	Acceptance:	DESTINATION
	FOB:	DESTINATION
	Descriptive Data:
	Conduct Research entitled “Silicon Carbide Substrates” in accordance with Section C, Description/Specifications dated 7JUN1999 as amended on 28JAN2002. Deliver data in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999.
0002	CLIN Change		NSP
		LO	NSP
	Noun:	HARDWARE
	Total Quantity:	1
	Total Item Amount:	[***]
	ACRN:	U
	NSN	N – Not Applicable
	Contract type:	T – [***]
	Inspection:	DESTINATION
	Acceptance:	DESTINATION
	FOB:	DESTINATION
	Descriptive Data:
	Deliver hardware in accordance with Section C Description/Specifications entitled, “Silicon Carbide Substrates”, dated 7JUN1999 as amended on 28JAN2002.
0003	CLIN Establish	1	[***]
		LO	[***]
	Noun:	RESEARCH AND DATA
	ACRN:	9
	NSN	N – Not Applicable
	Contract type:	T – COST SHARING
	Inspection:	DESTINATION
	Acceptance:	DESTINATION
	FOB:	DESTINATION
	Descriptive Data:
	Conduct Research entitled “Silicon Carbide substrates” in accordance with Section C, Description/Specifications paragraph 3.10, dated 7JUN1999 as amended 28JAN2002. Deliver data in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00002

Page 2 of 6

ITEM	SUPPLIES OR SERVICES	Qty Purch Unit	Unit Price Total Item Amount
000301	CLIN Establish
	Noun:	Funding Info Only
	ACRN:	AC            +[***]
000302	CLIN Establish
	Noun:	Funding Info Only
	ACRN:	AD            +[***]

3. Section B Clause 1.A.B037 – CONTRACT TYPE: COST-SHARING (FEB1997)

The following changes are hereby made:

Estimated Cost: Is increased by [***] from [***] to [***]

Government Share: Is increased by [***] from [***] to [***]

Contractor’s Share: Is increased by [***] from [***] to [***]

4. SECTION C – DESCRIPTION/SPECIFICATION/WORK STATEMENT:

The follow paragraph is hereby added:

Paragraph 1.1 add the following dated 28JAN2002:

“Task 7: [***]”

Paragraph 3.0 Requirements to include the following:

3.10 Task 7 - [***]

The objective of this task is to develop, and transition to production a [***]

manufacturing process.

3.10.1 Production [***]

The contractor shall [***] their current [***] capability.

3.10.2 [***]

The contractor shall develop, scale up and continuously improve their [***]. The contractor shall optimize [***]

3.10.3 [***]

The contractor shall develop, scale up and continuously improve their [***]. The contractor shall improve the [***]. The contractor shall establish [***]

3.10.4 [***]

The contractor shall provide [***] to the Government for evaluation purposes. These will be provided semi-annually beginning 6 mos ARO. The contractor shall propose a [***] specification.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00002

Page 3 of 6

5. SECTION E—INSPECTION AND ACCEPTANCE:

a. The addresses in paragraphs II.A.E006 (a) and (c) are hereby changed to read:

Robert Drerup

AFRL/MLME

2977 P Street, Rm 215

Wright-Patterson AFB, OH 45433-7739

b. The address In paragraph II.A.E007 is hereby changed to:

Robert Drerup

AFRL/MLME

2977 P Street, Rm 215

Wright-Patterson AFB, OH 45433-7739

6 SECTION F - DELIVERIES OR PERFORMANCE:

The period of performance is hereby extended to 1 OCT 2003.

ITEM	SUPPLIES SCHEDULE DATA	QTY	SHIP TO	MARK FOR	TRANS PRI	DATE
0001		1	U			01 Oct 2003
	Noun:	RESEARCH AND DATA
	ACRN:	9
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 1 OCT 2003. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 1JUN2003. See DD Form 1423 for mailing address.
0002		1	U			01 Oct 2003
	Noun:	HARDWARE
	ACRN:	U
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 1 OCT 2003. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 1JUN2003. See DD Form 1423 for mailing address.

F33615-99-C-5316 P00002

Page 4 of 6

ITEM	SUPPLIES SCHEDULE DATA	QTY	SHIP TO	MARK FOR	TRANS PRI	DATE
0003		1	U			01 Oct 2003
	Noun:	RESEARCH AND DATA
	ACRN:	9
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 1 OCT 2003. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 1JUN2003. See DD Form 1423 for mailing address.

7. SECTION G – CONTRACT ADMINISTRATION PAYMENT DATA:

a. Incremental funding is hereby added, as noted below, to the contract in the amount of [***] for a new total incremental funding of [***] which will last until 30JUN2002 per the contractor’s email dated 22FEB2002.

b. Paragraph I.A.G005 - Payment Instructions for Multiple Accounting Classification

Citations is changed to read:

ACRN	SUBCLIN	Total
AA	000101	[***]
AB	000102	[***]
AC	000301	[***]
AD	000302	[***]

ACRN	Appropriation/Lmt Subhead/Supplemental Accounting Data		Obligation Amount
AC	ACRN Establish		[***]
	97 20400 25FF YL2 47WL 107101 000000 00000 63880C 503000 F03000
	New ACRN Amount:	[***]
	Funding breakdown:	On CLIN 000301:            +[***]
	PR/MIPR:	GWSML027205106         [***]
	Descriptive data:
	PR Complete
AD	ACRN Establish		[***]
	97 20400 8ABC 255SA42600683422D960390302210000030
	New ACRN Amount:	[***]
	Funding breakdown:	On CLIN 000301:            +[***]
	PR/MIPR:	GWSML027205105         [***]
	JON: 10A0017
	Descriptive data:
	PR Complete
	Navy MIPR number N0002402MP10973, dated 10JAN2002

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00002

Page 5 of 6

8. SECTION H – SPECIAL CONTRACT REQUIREMENTS:

The address in paragraph 1.A.H029(c) is hereby changed to read:

Robert Drerup

AFRL/MLME

2977 P Street, Rm 215

Wright-Patterson AFB, OH 45433-7739

9. SECTION J – ATTACHMENTS/EXHIBITS:

a. Exhibit B – Mailing Addresses

This list of mailing addresses provides detailed mailing addresses for data deliverables.

b. Attachment 2 – This Statement of Work addendum is hereby added to the contract.

10. There are no other changes as a result of this action.

F33615-99-C-5316 P00002

Page 6 of 6

Exhibit B

Mailing Address

F33615-99-C-5316 P00002

Page 1 of 1

Technical Report Recipients

CDRLs 0001, 0002, 0003, 0004, 0005, 0006 and 0007

Robert Drerup

AFRL/MLME

2977 P Street, Rm 215

Wright-Patterson AFB, OH 45433-7739

John Blevins

AFRL/MLPS

3005 P Street, Rm 254

Wright Patterson AFB, OH 45433-7707

Laura Rea

AFRL/MLPSM

3005 P Street, Rm 254

Wright Patterson AFB, OH 45433-7707

Dr. Ken Jones

Army Research Laboratory

AMSEL-SE-RL

2800 Powder Mill Rd.

Adelphi, MD 20783

Dr. Ben Shanabrook

Naval Research Laboratory

Code 6870

Washington DC, 20375

Harry Dietrich

Naval Research Laboratory

Code 6856

Washington DC 20375

Robert Coffman

Naval Sea Systems Command

PMS 426

1333 Isaac Hull Avenue, SE Stop 1100

Washington Navy Yard, DC 20375-1100

Greg Stottlemeyer

Missile Defense Agency

7100 Defense, The Pentagon

Washington DC 20301-7100

Financial Report Recipients

CDRLs 0003 and 0007

Robert Drerup

AFRL/MLME

2977 P Street, Rm 215

Wright-Patterson AFB, OH 45433-7739

Suzanne Freese

Exhibit B in F33615-99-C-5316 P00002

Page 1 of 2

AFRL/MLFT

2977 P Street, Rm 215

Wright-Patterson AFB, OH 45433-7739

Northrop Grumman Information Technology

Attn: Amy Carmody

80 M Street, SE Suite 500

Washington DC 20003-3513

Jerry Welsh

SAF/AQPC

1060 Air Force Pentagon

Washington, DC 20330-1060

Exhibit B in F33615-99-C-5316 P00000

Page 2 of 2

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT				1. CONTRACT ID CODE		PAGE OF PAGES
				T-CS		1         2
2. AMENDMENT/MODIFICATION NO.		3. EFFECTIVE DATE	4. REQUISITION/PURCHASE REQ. NO.		5. PROJECT NO. (if applicable)
P00003			SEE SCHEDULE
6. ISSUED BY         AFRL/MLKT	CODE	FA8650	7. ADMINISTERED BY (if other than Item 6)		CODE	S1103A
USAF/AFMC AIR FORCE RESEARCH LABORATORY/MLKT 2310 EIGHTH STREET, BUILDING 167 WRIGHT-PATTERSON AFB OH 45433-7801 WILLIAM O. BEEMAN (937) 255-5413 william.beeman@wpafb.af.mil			DCMC ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)	MAILING DATE APR 16 2002	(X)	9A. AMENDMENT OF SOLICITATION NO:
CREE, INC. 4600 SILICON DRIVE DURHAM NC 27703 (919) 313-5366			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER NO. F33615-99-C-5316
			10B. DATED (SEE ITEM 13)
CODE     OC9J8	FACILITY CODE

11. THIS ITEM APPLIES TO AMENDMENTS OF SOLICITATIONS
¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers         ¨ is extended,         ¨ is not extended. Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning      copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which included a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment your desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (if required)       SEE SCHEDULE
	13. THIS ITEM APPLIES ONLY TO MODIFICATION OF CONTRACTS/ORDERS. IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(X)	A.	THIS CHANGE ORDER IS ISSUED PURSUANT TO: (                 ) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. ITEM 10A.
	B.	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
	C.	THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
X	D.	OTHER (Specify type of modification and authority) Limitation of Funds Clause

E.     IMPORTANT: Contractor x is not, ¨ is required to sign this document and return      copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible)
Subject: Incremental Funding
Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.
15A. NAME AND TITLE OF SIGNER (Type or print)			16A. NAME AND TITLE OF SIGNER (Type or print)
			Stephen C. Davis Contracting Officer
15B. CONTRACTOR/OFFEROR		15C. DATE SIGNED	16B. UNITED STATES OF AMERICA			16C. DATE SIGNED
						15APR02
			BY	/s/ Stephen C. Davis
	(Signature of person authorized to sign)			(Signature of Contracting Officer)
NSN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE ConWrite Version 4.2.7 Created 09 Apr 2002 7:26 AM					STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR 53.243)

1. The above numbered contract is hereby modified by increasing the amount set forth by [***], thereby making a revised amount allotted of [***] which covers all contractual items through 21JUL2002. The dollar amount and time specified are in accordance with the contractors message dated 8APR2002, incorporated herein by reference.

2. SECTION G – CONTRACT ADMINISTRATION/PAYMENT DATA:

Payment for all effort under this contract should be made in the order and amounts shown in the informational subclin(s) in Section B, CLINs 0001, 0002 and 0003 of the contract and recapped below. Exhaust the funds in each ACRN before using funds from the next listed ACRN.

ACRN	SUBCLIN NO.	TOTAL OBLIGATED
AA	000101	[***]
AB	000102	[***]
AC	000301	[***]
AD	000302	[***]
Total		[***]

ACRN	Appropriation/Lmt Subhead/Supplemental Accounting Data		Obligation Amount
AC	ACRN Establish		+[***]
	97 20400 25FF YL2 47WL 107101 000000 00000 63880C 503000 F03000
	New ACRN Amount:	[***]
	Funding breakdown:	On CLIN 000301:        +[***]
	PRIMIPR:	GWSML027205131      [***]
	Descriptive data:
	PR Complete

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00003

Page 2 of 2

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT		1. CONTRACT ID CODE                         T-CS	PAGE OF PAGES                                 1             2
2. AMENDMENT/MODIFICATION NO. P00004	3. EFFECTIVE DATE	4. REQUISITION/PURCHASE REQ. NO.         SEE SCHEDULE	5. PROJECT NO. (if applicable)
6. ISSUED BY        AFRL/MLKT        CODE	FA8650	7. ADMINISTERED BY (if other than Item 6)	CODE	S1103A
USAF/AFMC AIR FORCE RESEARCH LABORATORY 2310 EIGHTH STREET, BUILDING 167 WRIGHT-PATTERSON AFB OH 45433-7801 WILLIAM O. BEEMAN (937) 255-5413 william.beeman@wpafb.af.mil		DCMC ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)		(X)	9A. AMENDMENT OF SOLICITATION NO:
CREE, INC. 4600 SILICON DRIVE DURHAM NC 27703 (919) 313-5366	MAILING DATE JUN 03 2002		9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER NO. F33615-99-C-5316
			10B. DATED (SEE ITEM 13)
CODE     OC9J8	FACILITY CODE

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
¨  The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers     ¨  is extended     ¨  is not extended. Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning        copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment your desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (if required)       SEE SCHEDULE
13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS. IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)	A.    THIS CHANGE ORDER IS ISSUED PURSUANT TO: (                     ) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT         ORDER NO. ITEM 10A.
	B.    THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying         office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
	C.    THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
X	D.    OTHER (Specify type of modification and authority)         Limitation of Funds Clause
E.     IMPORTANT: Contractor x is not, ¨ is required to sign this document and return      copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.) Subject: Incremental Funding
Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains  unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)		16A. NAME AND TITLE OF SIGNER (Type or print) Stephen C. Davis Contracting Officer
15B. CONTRACTOR/OFFEROR	15C. DATE SIGNED	16B. UNITED STATES OF AMERICA		16C. DATE SIGNED     3 MAY 02
		BY	/s/    Stephen C. Davis
(Signature of person authorized to sign)			(Signature of Contracting Officer)

NSN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE ConWrite Version 5.0.4 Created 31 may 2002 7:52 AM 30-105 STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

1. The above numbered contract is hereby modified by increasing the amount set forth by [***], thereby making a revised amount allotted of [***] which covers all contractual items through 15AUG2002. The dollar amount and time specified are in accordance with the contractors message dated 8MAY2002, incorporated herein by reference.

ITEM	SUPPLIES OR SERVICES	Qty Purch Unit	Unit Price Total Item Amount
000303	CLIN Establish
	Noun:	Funding Info Only
	ACRN:	AG            +[***]

2. SECTION G – CONTRACT ADMINISTRATION/PAYMENT DATA:

Payment for all effort under this contract should be made in the order and amounts shown in the informational subclin(s) in Section B, CLINs 0001, 0002 and 0003 of the contract and recapped below. Exhaust the funds in each ACRN before using funds from the next listed ACRN.

ACRN	SUBCLIN NO.	TOTAL OBLIGATED
AA	000101	[***]
AB	000102	[***]
AC	000301	[***]
AD	000302	[***]
AE	000303	[***]
Total		[***]

ACRN	Appropriation/Lmt Subhead/Supplemental Accounting Data		Obligation Amount
AE	ACRN Establish		[***]
	97 30400 8ABC 255 SA426 0 068342 2D 960390 302210000030
	New ACRN Amount:	[***]
	Funding breakdown:	On CLIN 000303:            +[***]
	PRIMIPR:	GWSML027205149          [***]
	JON: 10A00017
	Descriptive data:
	PR Complete
	MIPR Number N0002402MP10973, Dated 4APR2002
	MIPR Fund Cite 9720400 8ABC 255 SA 426 0 068342 2D 960390 302210000030
	Reference number: N0002402AF18ABC

3. There are no other changes as a result of this action.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00004

Page 2 of 2

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT				1. CONTRACT ID CODE	PAGE OF PAGES
				T-CS	1                 2
2. AMENDMENT/MODIFICATION NO.		3. EFFECTIVE DATE	4. REQUISITION/PURCHASE REQ. NO.	5. PROJECT NO. (if applicable)
P00005
6. ISSUED BY         AFRL/MLKT	CODE	FA8650	7. ADMINISTERED BY (if other than Item 6)	CODE	S1103A
USAF/AFMC AIR FORCE RESEARCH LABORATORY/MLKT 2310 EIGHTH STREET, BUILDING 167 WRIGHT-PATTERSON AFB OH 45433-7801 WILLIAM O. BEEMAN (937) 255-5413 william.beeman@wpafb.af.mil			DCMC ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)		(X)	9A. AMENDMENT OF SOLICITATION NO:
CREE, INC. 4600 SILICON DRIVE DURHAM NC 27703 (919) 313-5366			9B. DATED (SEE ITEM 11)
	MAILING DATE JUN 24 2002	X	10A. MODIFICATION OF CONTRACT/ORDER NO. F33615-99-C-5316
			10B. DATED (SEE ITEM 13)
CODE     OC9J8	FACILITY CODE

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers         ¨ is extended,         ¨ is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:

(a) By completing items 8 and 15, and returning      copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which included a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment your desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

12. ACCOUNTING AND APPROPRIATION DATA (if required)

13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS.

IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(X)	A.	THIS CHANGE ORDER IS ISSUED PURSUANT TO: (                 ) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. ITEM 10A.
	B.	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
X	C.	THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: Changes Clause
	D.	OTHER (Specify type of modification and authority)

E.     IMPORTANT: Contractor ¨ is not, x is required to sign this document and return   1   copies to the issuing office.

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible)

Subject: Disposition of Government Property Instructions, Correction to Specification

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed,

remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)			16A. NAME AND TITLE OF SIGNER (Type or print)
Denise Holliday, Contracts Manager			Stephen C. Davis Contracting Officer
15B. CONTRACTOR/OFFEROR	15C. DATE SIGNED		16B. UNITED STATES OF AMERICA	16C. DATE SIGNED
Denise J. Holliday	6/20/02	BY	/s/    Stephen C. Davis	21JUN02
(Signature of person authorized to sign)			(Signature of Contracting Officer)
NSN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE ConWrite Version 5.0.6 Created 20 Jun 2002 10:43 AM				STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR 53.243)

1. Property or other items produced under this contract in excess of the quantities required under this contract, shall be transferred to contract N00014-02-C-0220 as soon as practicable.

2. The reference in Statement of Work paragraph 3.10.2, “…,[***].” is hereby changed to read “…,[***].”.

3. There are no cost impacts or other change to terms and conditions as a result of this action.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT		1. CONTRACT ID CODE                         T - CS	PAGE OF PAGES                                 1 of 2
2. AMENDMENT/MODIFICATION NO. P00006	3. EFFECTIVE DATE	4. REQUISITION/PURCHASE REQ. NO.	5. PROJECT NO. (if applicable)
6. ISSUED BY        AFRL/MLKT        CODE	FA8650	7. ADMINISTERED BY (if other than Item 6)	CODE	S1103A
USAF/AFMC AIR FORCE RESEARCH LABORATORY/MLKT 2310 EIGHTH STREET, BUILDING 167 WRIGHT-PATTERSON AFB OH 45433-7801 WILLIAM O. BEEMAN (937) 255-5413 william.beeman@wpafb.af.mil		DCMC ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)		(X)	9A. AMENDMENT OF SOLICITATION NO:
CREE, INC. 4600 SILICON DRIVE DURHAM NC 27703 (919) 313-5366			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER NO. F33615-99-C-5316
			10B. DATED (SEE ITEM 11)
CODE     OC9J8	FACILITY CODE

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
¨  The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers        ¨  is extended        ¨  is not extended. Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning        copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (if required)
13. THIS ITEM APPLIES ONLY TO MODIFICATION OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)	A.    THIS CHANGE ORDER IS ISSUED PURSUANT TO: (                     ) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT         ORDER NO. ITEM 10A.
X	B.    THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying         office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
	C.    THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
	D.    OTHER (Specify type of modification and authority)
E.     IMPORTANT: Contractor x is not, ¨ is required to sign this document and return      copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.) Subject: Disposition of Government Property Instructions, Correction to Contract Number which the Material will be held accountable
Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains  unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)		16A. NAME AND TITLE OF SIGNER (Type or print) STEPHEN C. DAVIS Contracting Officer
15B. CONTRACTOR/OFFEROR	15C. DATE SIGNED	16B. UNITED STATES OF AMERICA		16C. DATE SIGNED     01JUL02
		BY	/s/    Stephen C. Davis
(Signature of person authorized to sign)			(Signature of Contracting Officer)

F33615-99-C-5316 P00006

Page 5 of 66

NSN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE ConWrite Version 5.0.6 Created 26 Jun 2002 9:24 AM 30-105 STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

F33615-99-C-5316 P00006

1. The instructions under P00005 are corrected to read, “Property or other items produced under this contract in excess of the quantities required under this contract, shall be transferred to contract N00014-02-C-0250 as soon as practicable.”

2. There are no cost impacts or other change to terms and conditions as a result of this action.

F33615-99-C-5316 P00006

Page 2 of 2

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT				1. CONTRACT ID CODE	PAGE OF PAGES
				T - CS	1 of 6
2. AMENDMENT/MODIFICATION NO.		3. EFFECTIVE DATE	4. REQUISITION/PURCHASE REQ. NO.	5. PROJECT NO. (if applicable)
P00007			SEE SCHEDULE
6. ISSUED BY         AFRL/MLKT	CODE	FA8650	7. ADMINISTERED BY (if other than Item 6)	CODE	S1103A
USAF/AFMC AIR FORCE RESEARCH LABORATORY/MLKT 2310 EIGHTH STREET, BUILDING 167 WRIGHT-PATTERSON AFB OH 45433-7801 WILLIAM O. BEEMAN (937) 255-5413 william.beeman@wpafb.af.mil			DCMC ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)		(X)	9A. AMENDMENT OF SOLICITATION NO:
CREE, INC. 4600 SILICON DRIVE DURHAM NC 27703 (919) 313-5366			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER NO. F33615-99-C-5316
			10B. DATED (SEE ITEM 13)
CODE     OC9J8	FACILITY CODE

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers         ¨ is extended,         ¨ is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:

(a) By completing items 8 and 15, and returning      copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

12. ACCOUNTING AND APPROPRIATION DATA (if required)

    SEE SCHEDULE

13. THIS ITEM APPLIES ONLY TO MODIFICATION OF CONTRACTS/ORDERS,

IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(X)	A.	THIS CHANGE ORDER IS ISSUED PURSUANT TO: (                 ) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. ITEM 10A.
	B.	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
X	C.	THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: Changes Clause
	D.	OTHER (Specify type of modification and authority)

E.     IMPORTANT: Contractor ¨ is not, x is required to sign this document and return   1   copies to the issuing office.

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

Subject: Incremental Funding, Establishment of new CLIN and reallocation of funds between CLINS.

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)			16A. NAME AND TITLE OF SIGNER (Type or print)
JOHN W. PALMOUR, Director of Advanced Devices			STEPHEN C. DAVIS Contracting Officer
15B. CONTRACTOR/OFFEROR	15C. DATE SIGNED		16B. UNITED STATES OF AMERICA	16C. DATE SIGNED
/s/    John W. Palmour	09 OCT 2002	BY	/s/    Stephen C. Davis	10OCT02
(Signature of person authorized to sign)			(Signature of Contracting Officer)
NSN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE ConWrite Version 5.1.2 Created 09 Oct 2002 2:56 PM	30-105			STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

SCHEDULE OF CHANGES

1. This action creates CLIN 0004 by moving [***] from CLIN 0001 to CLIN 0004. CLIN 0003 will encompass only paragraphs 3.10.2 and 3.10.4 of the statement of work where CLIN 0004 will perform paragraphs 3.10.1 and 3.10.3. Incremental funds are also added to CLINS 0003 and 0004.

2. Section G – Contract Administration Data is modified as follows:

PAYMENT INSTRUCTIONS

Payment for all effort under this contract should be made in the order and amounts shown in the informational subclin(s) in Section B, CLINs 0001, 0003 and 0004 of the contract and recapped below. Exhaust the funds in each ACRN before using funds from the next listed ACRN.

ACRN	SUBCLIN NO.	TOTAL OBLIGATED
AA	000101	[***]
AB	000102	[***]
AC	000301	[***]
AD	000302	[***]
AE	000303	[***]
AF	000401	[***]
TOTAL		[***]

3. [***]

CLIN	Govt Share	Funding	Contractor Share	Total	Share%
1					Gov	Cree
Basic	[***]	[***]	[***]	[***]	[***]	[***]
P00002	[***]	[***]	[***]	[***]	[***]	[***]
Total	[***]	[***]	[***]	[***]	[***]	[***]
P00007	[***]	[***]	[***]	[***]	[***]	[***]
Total	[***]	[***]	[***]	[***]	[***]	[***]
2	NSP	NSP	NSP	NSP
3
P00002	[***]	[***]	[***]	[***]	[***]	[***]
P00003	[***]	[***]	[***]	[***]
P00004	[***]	[***]	[***]	[***]
Total	[***]	[***]	[***]	[***]	[***]	[***]
P0007	[***]	[***]	[***]	[***]
Total	[***]	[***]	[***]	[***]	[***]	[***]
	3.10.2 and 3.10.4
4
P0007	[***]	[***]	[***]	[***]	[***]	[***]
	3.10.1 and 3.10.3
	[***]	[***]	[***]	[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00007

Page 2 of 6

SCHEDULE OF CHANGES

ITEM	SUPPLIES OR SERVICES	Qty Purch Unit	Unit Price Total Item Amount
0001	CLIN Change		[***]
		Lot	[***]
	Noun:	RESEARCH AND DATA
	Total Quantity:	1
	New Total Item Amount:	[***]
	ACRN:	9
	NSN	N – Not Applicable
	DD1423 is Exhibit:	A
	Contract type:	T – [***]
	Inspection:	DESTINATION
	Acceptance:	DESTINATION
	FOB:	DESTINATION
	Descriptive Data:
	Conduct Research entitled “Silicon Carbide Substrates” in accordance with Section C, Description/Specifications dated 7JUN1999 as amended on 28JAN2002. Deliver data in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999.
0003	CLIN Change		[***]
		Lot	[***]
	Noun:	RESEARCH AND DATA
	Total Quantity:	1
	New Total Item Amount:	[***]
	ACRN:	9
	NSN	N – Not Applicable
	DD1423 is Exhibit:	A
	Contract type:	T – [***]
	Inspection:	DESTINATION
	Acceptance:	DESTINATION
	FOB:	DESTINATION
	Descriptive Data:
	Conduct Research entitled “Silicon Carbide Substrates” in accordance with Section C, Description/Specifications paragraphs 3.10.2 and 3.10.4 dated 7JUN1999 as amended 28JAN2002. Deliver data in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999.
000301	CLIN Change
	Noun:	Funding Info Only
	ACRN:	AC            [***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00007

Page 3 of 6

SCHEDULE OF CHANGES

ITEM	SUPPLIES OR SERVICES	Qty Purch Unit	Unit Price Total Item Amount
0004	CLIN Establish	1	[***]
		Lot	[***]
	Noun:	RESEARCH AND DATA – TITLE III FUNDS
	Total Quantity:	9
	NSN	N – Not Applicable
	DD1423 is Exhibit:	A
	Contract type:	T – [***]
	Inspection:	DESTINATION
	Acceptance:	DESTINATION
	FOB:	DESTINATION
	Descriptive Data:
	Conduct Research entitled “Silicon Carbide Substrates” in accordance with Section C, paragraphs 3.10.1 and 3.10.3 of Description/Specifications dated 7JUN1999 as amended on 28JAN2002. Deliver data in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999.
000401	CLIN Establish
	Noun:	Funding Info Only
	ACRN:	AF [***]

ITEM	SUPPLIES SCHEDULED DATA	QTY	SHIP TO	MARK FOR	TRANS PRI	DATE
0001		1	FA8650			01 Oct 2003
	Noun:	RESEARCH AND DATA
	ACRN:	9
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 1 OCT 2003. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 1JUN2003. See DD Form 1423 for mailing address.
0003		1	FA8650			01 Oct 2003
	Noun:	RESEARCH AND DATA
	ACRN:	9
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 1 OCT 2003. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 1JUN2003. See DD Form 1423 for mailing address.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00007

Page 4 of 6

SCHEDULE OF CHANGES

ITEM	SUPPLIES SCHEDULED DATA	QTY	SHIP TO	MARK FOR	TRANS PRI	DATE
0004		1	FA8650			01 Oct 2003
	Noun:	RESEARCH AND DATA – TITLE III FUNDS
	ACRN:	9
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 1 OCT 2003. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than1JUN2003. See DD Form 1423 for mailing address.

4. SECTION G – CONTRACT ADMINISTRATION/PAYMENT DATA:

ACRN	Appropriation/Lmt Subhead/Supplemental Accounting Data			Obligation Amount
AC	ACRN Change			[***]
	97 20400 25FF YL2 47WL 107101 000000 00000 63880C 503000 F03000
	New ACRN Amount:	[***]
	Funding breakdown:	On CLIN 000301:	[***]
	PR/MIPR:	GWSML027205252	[***]
	Descriptive data:
	PR Complete
AF	ACRN Establish			[***]
	97 X0360 1102 D547WLP010A06MM01000000000000503000F03000
	New ACRN Amount:	[***]
	Funding breakdown:	On CLIN 000401:	[***]
	PR/MIPR:	SWSML027205252	[***]
	JON: 2865MGMT
	Descriptive data:
	PR Complete
	FSR: 015277
	PSR: 822019
	DSR: 181818

5. SECTION J – ATTACHMENTS/EXHIBITS: Attachment 2 is here by added to replace the current mailing list.

6. There are no other changes as a result of this action.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00007

Page 5 of 6

LIST OF ATTACHMENTS

DOCUMENT	PGS	DATE	TITLE
ATTACHMENT 2	1	03 SEP 2002	REVISED MAILING LIST

F33615-99-C-5316 P00007

PAGE 6 OF 6

Exhibit A – Addendum I     3SEP2002

Mailing Address

Technical

Robert Drerup

AFRL/MLME

2977 P Street, Rm 215

Wright-Patterson AFB, OH 45433-7739

John Blevins

AFRL/MLPS

3005 P Street, Rm 254

Wright Patterson AFB, OH 45433-7707

Laura Rea

AFRL/MLPSM,

3005 P Street, Rm 254

Wright Patterson AFB, OH 45433-7707

Dr. Ken Jones

Army Research Laboratory

AMSEL-SE-RL

2800 Powder Mill Rd.

Adelphi, MD 20783

Dr. Ben Shanabrook

Naval Research Laboratory

Code 6870

Washington DC, 20375

Harry Dietrich

Navel Research Laboratory

Code 6856

Washington DC 20375

Robert Coffman

Naval Sea Systems Command

PMS 426

1333 Isaac Hull Avenue, SE Stop 1100

Washington Navy Yard, DC 20375-1100

Greg Stottlemeyer

Missile Defense Agency

7100 Defense, The Pentagon

Washington DC 20301-7100

Northrop Grumman Corporation

Attn: Stephanie Mathis

2555 University Boulevard

Fairborn, OH 45324-6228

F33615-99-C-5316 P0007

PAGE 1 OF 2

Financial

Robert Drerup

AFRL/MLME

2977 P Street, Rm 215

Wright-Patterson AFB, OH 45433-7739

Suzanne Freese

AFRL/MLFT

2977 P Street, Rm 215

Wright Patterson AFB, OH 45433-7739

Northrop Grumman Information Technology

Attn: Amy Carmody

80 M Street, SE Suite 500

Washington DC 20003-3513

Jerry Welsh

SAF/AQPC

1060 Air Force Pentagon

Washington, DC 20330-1060

Northrop Grumman Corporation

Attn: Stephanie Mathis

2555 University Boulevard

Fairborn, OH 45324-6228

Attachment 2 in F33615-99-C-5316 P00007

PAGE 2 of 2

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT				1. CONTRACT ID CODE	PAGE OF PAGES
				T-CS	1 of 3
2. AMENDMENT/MODIFICATION NO.		3. EFFECTIVE DATE	4. REQUISITION/PURCHASE REQ. NO.	5. PROJECT NO. (if applicable)
P00008			SEE SCHEDULE
6. ISSUED BY         AFRL/MLKT	CODE	FA8650	7. ADMINISTERED BY (if other than Item 6)	CODE	S1103A
USAF/AFMC AIR FORCE RESEARCH LABORATORY 2310 EIGHTH STREET, BUILDING 167 WRIGHT-PATTERSON AFB OH 45433-7801 BRITANNY A. WALDMAN 937-255-5435 britanny.waldman@wpafb.af.mil			DCMC ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)		(X)	9A. AMENDMENT OF SOLICITATION NO:
CREE, INC. 4600 SILICON DRIVE DURHAM NC 27703 (919) 313-5366			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER NO. F33615-99-C-5316
			10B. DATED (SEE ITEM 11)
CODE     OC9J8	FACILITY CODE

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers         ¨ is extended,         ¨ is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:

(a) By completing items 8 and 15, and returning      copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

12. ACCOUNTING AND APPROPRIATION DATA (if required)

      SEE SCHEDULE

13. THIS ITEM APPLIES ONLY TO MODIFICATION OF CONTRACTS/ORDERS,

IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(X)	A.	THIS CHANGE ORDER IS ISSUED PURSUANT TO: (                 ) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. ITEM 10A.
	B.	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
	C.	THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
X	D.	OTHER (Specify type of modification and authority) Limitation of Funds Clause

E.     IMPORTANT: Contractor x is not, ¨ is required to sign this document and return      copies to the issuing office.

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

Subject: Incremental Funding

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed,

remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)			16A. NAME AND TITLE OF SIGNER (Type or print)
			FREDERICK D. RUETH Contracting Officer
15B. CONTRACTOR/OFFEROR	15C. DATE SIGNED		16B. UNITED STATES OF AMERICA	16C. DATE SIGNED
		BY	/s/    Frederick D. Rueth	DEC 24, 2002
(Signature of person authorized to sign)			(Signature of Contracting Officer)
NSN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE ConWrite Version 5.2.5 Created 24 Dec 2002 11:25 AM	30-105			STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

SCHEDULE OF CHANGES

1. The above numbered contract is hereby modified by increasing the amount set forth by [***]; thereby making a revised amount allotted of [***], which covers all contractual items through 31 Jan 02. The dollar amount and time specified are in accordance with the contractor’s e-mail dated 20 Dec. 02, incorporated herein by reference.

2. SECTION G – CONTRACT ADMINISTRATION/PAYMENT DATA:

Payment for all effort under this contract should be made in the order and amounts shown in the informational subclin(s) in Section B, CLINs 0001, 0003 and 0004 of the contract and recapped below. Exhaust the funds in each ACRN before using funds from the next listed ACRN.

ACRN	SUBCLIN NO.	TOTAL OBLIGATED
AA	000101	[***]
AB	000102	[***]
AC	000301	[***]
AD	000302	[***]
AE	000303	[***]
AF	000401	[***]
AG	000304	[***]
TOTAL		[***]

ITEM	SUPPLIES OR SERVICES		Qty Purch Unit	Unit Price Total Item Amount
000304	CLIN Change
	Noun:	Funding Info Only
	ACRN:	AG	[***]
000401	CLIN Change
	Noun:	Funding Info Only
	ACRN:	AF	[***]

3. SECTION G – CONTRACT ADMINISTRATION/PAYMENT DATA:

ACRN	Appropriation/Lmt Subhead/Supplemental Accounting Data		Obligation Amount
AF	ACRN Change		[***]
	97 X0360 1102 D547WLP010A06MM01000000000000503000F03000
	New ACRN Amount:	[***]
	Funding breakdown:	On CLIN 000401:    [***]
	PR/MIPR:	GWSML037205021    [***]
	JON: 2865MGMT
	Descriptive data:
	PR Complete
	FSR: 015277
	PSR: 822019

[***]    Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00008

PAGE 2 OF 3

SCHEDULE OF CHANGES

ACRN	Appropriation/Lmt Subhead/Supplemental Accounting Data		Obligation Amount
	DSR: 070167
AG	ACRN Establish		[***]
	9730400 25FF YL3 47WL 107101 000000 00000 63880C 503000 F03000
	New ACRN Amount:	[***]
	Funding breakdown:	On CLIN 000304:    [***]
	PR/MIPR:	GWSML037205021    [***]
	JON: 2865MGMT
	Descriptive data:
	PR Complete

4. There are no other changes as a result of this action.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00008

PAGE 2 OF 3

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE T-CS PAGE OF PAGES 1 of 3

2. AMENDMENT/MODIFICATION NO.             P00009	3. EFFECTIVE DATE	4. REQUISITION/PURCHASE REG. NO.      SEE SCHEDULE	5. PROJECT NO. (If applicable)
6. ISSUED BY    AFRL/MLKT     CODE USAF/AFMC AIR FORCE RESEARCH LABORATORY/MLKT 2310 EIGHTH STREET, BUILDING 167 WRIGHT-PATTERSON AFB OH 45433-7801 WILLIAM O. BEEMAN (937) 255-5413 william.beeman@wpafb.af.mil	FA8650	7. ADMINISTERED BY (If other than Item 6) DCMC ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789	CODE             S1103A

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code) CREE INC. 4600 SILICON DRIVE DURHAM, NC 27703 (919) 313-5366		(X)	9A. AMENDMENT OF SOLICITATION NO. 9B. DATED (SEE ITEM 11)
CODE         OC9J8	FACILITY CODE	X	10A. MODIFICATION OF CONTRACT/ORDER NO F33615-99-C-5316
			10B. DATED (SEE ITEM 13)

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

¨  The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers             ¨ is extended,             ¨ is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:

(a) By completing items 8 and 15, and returning      copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

12. ACCOUNTING AND APPROPRIATION DATA (If required)

SEE SCHEDULE

13. THIS ITEM APPLIES ONLY TO MODIFICATION OF CONTRACTS/ORDERS,

IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED ITEM 14.

(X) A.    THIS CHANGE ORDER IS ISSUED PURSUANT TO: (              ) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. ITEM 10A.

       B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).

       C.    THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:

 X   D. OTHER (Specify type of modification and authority)

                Limitation of Cost Clause

E. IMPORTANT; Contractor    x  is not,    ¨  is required to sign this document and return      copies to the issuing office.

14.   DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

Subject: Incremental Funding

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)	16A. NAME AND TITLE OF SIGNER (Type or print) Stephen C. Davis Contracting Officer
15B. CONTRACTOR/OFFEROR              15C. DATE SIGNED (Signature of person authorized to sign)	16B. UNITED STATES OF AMERICA    16C.   DATE SIGNED BY     /s/ Stephen C. Davis                                           (Signature of Contracting Officer)
NSN 7540-01-152-8070                                             30-105 PREVIOUS EDITION UNUSABLE ConWrite Version 5.2.8 Created 28 Feb 2003 12.:35 PM	STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

SCHEDULE OF CHANGES

1. The above numbered contract is hereby modified by increasing the amount set forth by ^[***]; thereby making a revised amount allotted of ^[***].

2. SECTION G – CONTRACT ADMINISTRATION/PAYMENT DATA:

Payment for all effort under this contract should be made in the order and amounts shown in the informational subclin(s) in Section B, CLINs 0001, 0003 and 0004 of the contract and recapped below. Exhaust the funds in each ACRN before using funds from the next listed ACRN.

ACRN	SUBCLIN NO.	TOTAL OBLIGATED
AA	000101	[***]
AB	000102	[***]
AC	000301	[***]
AD	000302	[***]
AE	000303	[***]
AF	000401	[***]
AG	000304	[***]
TOTAL		[***]

ITEM	SUPPLIES OR SERVICES		Qty Purch Unit	Unit Price Total Item Amount
0001	CLIN Change			[***]
			Lot	[***]
	Noun:	RESEARCH AND DATA
	Total Quantity:	1
	New Total Item Amount:	[***]
	ACRN:	9
	NSN	N – Not Applicable
	DD1423 is Exhibit:	A
	Contract type:	T – [***]
	Inspection:	DESTINATION
	Acceptance:	DESTINATION
	FOB:	DESTINATION
	Descriptive Data:
	Conduct Research entitled “Silicon Carbide Substrates” in accordance with Section C, Description/Specifications dated 7JUN1999 as amended on 28JAN2002. Deliver data in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999.
000304	CLIN Change
	Noun:	Funding Info Only
	ACRN:	AG	[***]
000401	CLIN Change
	Noun:	Funding Info Only
	ACRN:	AF	[***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00009

PAGE 2 OF 3

SCHEDULE OF CHANGES

ITEM	SUPPLIES SCHEDULED DATA	QTY	SHIP TO	MARK FOR	TRANS PRI	DATE
0001		1	FA8650			01 Oct 2003
	Noun:	RESEARCH AND DATA
	ACRN:	9
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 1OCT2003. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 1JUN2003. See DD Form 1423 for mailing address

3. SECTION G – CONTRACT ADMINISTRATION/PAYMENT DATA:

ACRN	Appropriation/Lmt Subhead/Supplemental Accounting Data		Obligation Amount
AF	ACRN Change		[	***]
	97 X0360 1102 D547WLP010A06MM01000000000000503000F03000
	New ACRN Amount:	[***]
	Funding breakdown:	On CLIN 000401:        [***]
	PRIMIPR:	GWSML037205051    [***]
	JON: 10A00017
	Descriptive data:
	PR Complete
	FSR: 015277
	PSR: 822019
	DSR: 191302
AG	ACRN Revision		[	***]
	97 30400 25FF YL3 47WL 107101 000000 00000 63880C 503000 F03000
	New ACRN Amount:	[***]
	Funding breakdown:	On CLIN 000401:        [***]
	PRIMIPR:	GWSML037205051    [***]
	JON: 10A00017
	Descriptive data:
	PR Complete

4. There are no other changes as a result of this action.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

F33615-99-C-5316 P00009

PAGE 3 OF 3

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE T - CS PAGE OF PAGES 1 of 3

2. AMENDMENT/MODIFICATION NO. P00010	3. EFFECTIVE DATE	4. REQUISITION/PURCHASE REQ. NO.	5. PROJECT NO. (if applicable)
6. ISSUED BY    AFRL/MLKT    CODE             FA8650 USAF/AFMC AIR FORCE RESEARCH LABORATORY/MLKT 2310 EIGHTH STREET, BUILDING 167 WRIGHT-PATTERSON AFB OH 45433-7801 WILLIAM O. BEEMAN (937) 255-5413 william.beeman@wpafb.af.mil		7. ADMINISTERED BY (if other than Item 6)    CODE    S1103A DCMC ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)	(X)	9A. AMENDMENT OF SOLICITATION NO.
CREE, INC. 4600 SILICON DRIVE DURHAM NC 27703 (919) 313-5366		9B. DATED (SEE ITEM 11)
	X	10A. MODIFICATION OF CONTRACT/ORDER NO.
		F33615-99-C-5316
		10B. DATED (SEE ITEM 13)
CODE            OC9J8                             FACILITY CODE

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

¨    The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers            ¨  is extended,             ¨   is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:

(a) By completing items 8 and 15, and returning      copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER.

If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

12. ACCOUNTING AND APPROPRIATION DATA (if required)

13. THIS ITEM APPLIES ONLY TO MODIFICATION OF CONTRACTS/ORDERS.

IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(X)	A.	THIS CHANGE ORDER IS ISSUED PURSUANT TO: (            ) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. ITEM 10A.
	B.	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
	C.	THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
X	D.	OTHER (Specify type of modification and authority) 52.243-2 Changes - Cost Reimbursement

E.    IMPORTANT: Contractor  x  is not,  ¨  is required to sign this document and return      copies to the issuing office.

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

Subject: Extension to Period of Performance

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print) 16A. NAME AND TITLE OF SIGNER (Type or print) Stephen C. Davis Contracting Officer

15B. CONTRACTOR/OFFEROR	15C. DATE SIGNED	16B. UNITED STATES OF AMERICA		16C. DATE SIGNED
(Signature of person authorized to sign)		BY	/s/ Stephen C. Davis (Signature of Contracting Officer)	30 Apr 03

NSN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE ConWrite Version 5.2.10 Created 30 Apr 2003 11:40 AM 30-105 STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

SCHEDULE OF CHANGES

1. This contractual action extends the contract period of performance to 1JUN2004. The revised Technical performance shall be completed by 1FEB2004 with the final technical report delivered by 1JUN2004 as evidenced in the changes noted below.

2. This contractual action is executed unilaterally as the contractor had requested the contract extension in their 23APR2003 letter. This letter is hereby incorporated by reference.

ITEM	SUPPLIES SCHEDULED DATA	QTY	SHIP TO	MARK FOR	TRANS PRI	DATE
0001		1	FA8650			01 Jun 2004
	Noun:	RESEARCH AND DATA
	ACRN:	9
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 1FEB2004. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 1JUN2004. See DD Form 1423 for mailing address.
0002		1	U			01 Jun 2004
	Noun:	HARDWARE
	ACRN:	U
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 1FEB2004. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 1JUN2004. See DD Form 1423 for mailing address.
0003		1	FA8650			01 Jun 2004
	Noun:	RESEARCH AND DATA
	ACRN:	9
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 1FEB2004. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 1JUN2004. See DD Form 1423 for mailing address

F33615-99-C-5316 P000010

PAGE 2 OF 3

ITEM	SUPPLIES SCHEDULED DATA	QTY	SHIP TO	MARK FOR	TRANS PRI	DATE
0004		1	FA8650			01 Jun 2004
	Noun:	RESEARCH AND DATA – TITLE III FUNDS
	ACRN:	9
	Descriptive Data:
	The scheduled delivery date for the approved final technical report is 1FEB2004. All data shall be delivered in accordance with Exhibit A, Contract Data Requirements List, DD Form 1423, dated 16JUN1999. The technical effort must be completed no later than 1JUN2004. See DD Form 1423 for mailing address.

3. This modification is administrative in nature and does not relinquish any substantive rights of the Government. There are no other changes to the terms and conditions of the contract.

F33615-99-C-5316 P00010

PAGE 3 OF 3

EX-10.31

Exhibit 10.31

AWARD / CONTRACT 1. THIS CONTRACT IS A RATED ORDER UNDER DPAS (15 CFR 350) RATING DO PAGE     OF     PAGES 1          50

2. CONTRACT (PROC. INST. IDENT.) NO. DAAD17-02-C-0073 3. EFFECTIVE DATE 01 Feb 2002 4. REQUISITION / PURCHASE REQUEST / PROJECT NO. W71B7J-2030-B325

5. ISSUED BY CODE W71B7J 6. ADMINISTERED BY (IF OTHER THAN ITEM 5) CODE S1103A

US ARMY ROBERT MORRIS ACQUISITION CENTER RMAC - ADELPHI 2800 POWDER MILL ROAD AMSSB-ACA ADELPHI MD 20783-1197 DCM - ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789

7. NAME AND ADDRESS OF CONTRACTOR (NO., STREET, CITY, COUNTY, STATE AND ZIP CODE) CREE INC. Charles M. Swoboda 4600 SILICON DRIVE DURHAM NC 27703 8. DELIVERY ¨ FOB Origin        x Other (see below) 9. DISCOUNT FOR PROMPT DELIVERY NET 30

CAGE CODE     OC9J8 FACILITY CODE 10. SUBMIT INVOICES 8 (4 COPIES UNLESS OTHERWISE     SPECIFIED) TO THE ADDRESS SHOW IN:è ITEM Section  G

11. SHIP TO / MARK FOR US ARMY RESEARCH LABORATORY DR PAUL AMIRTHARAJ/AMSRL-SE-EM 2800 POWDER MILL ROAD ADELPHI MD 20783-1197	CODE	W71B7J	12. PAYMENT WILL BE MADE BY DFAS-COLUMBUS CENTER DFAS-CO/SOUTH ENTITLEMENT OPERATIONS P O BOX 182264 COLUMBUS OH 43218-2264	CODE	HQ0338
13. AUTHORITY FOR OTHER THAN FULL AND OPEN COMPETITION ¨ 10 U.S.C. 2304(c) ( )    ¨ 41 U.S.C. 253(c)( )			14. ACCOUNTING AND APPROPRIATION DATA See Schedule

15A. ITEM NO. 15B. SUPPLIES/SERVICES SEE SCHEDULE 15C. QUANTITY 15D. UNIT 15E. UNIT PRICE 15F. AMOUNT

15G. TOTAL AMOUNT OF CONTRACT     è [***]

16. Table of Contents
(X)	SEC	DESCRIPTION	PAGE(S)	(X)	SEC	DESCRIPTION	PAGE(S)
		PART I – THE SCHEDULE				PART II – CONTRACT CLAUSES
Ö	A	SOLICITATION/CONTRACT FORM	1 - 1	Ö	I	CONTRACT CLAUSES	17
Ö	B	SUPPLIES OR SERVICES AND PRICES/COSTS	2	PART III – LIST OF DOCUMENTS, EXHIBITS & ATTACHMENTS
Ö	C	DESCRIPTION/SPECS./WORK STATEMENT	6	Ö	J	LIST OF ATTACHMENTS	33
Ö	D	PACKAGING AND MARKING	9	PART IV – REPRESENTATIONS AND INSTRUCTIONS
Ö	E	INSPECTION AND ACCEPTANCE	10	Ö	K	REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS	By ref.
Ö	F	DELIVERIES OR PERFORMANCE	11
Ö	G	CONTRACT ADMINISTRATION DATA	12		L	INSTRS., CONDS., AND NOTICES TO OFFERORS
Ö	H	SPECIAL CONTRACT REQUIREMENTS	14		M	EVALUATION FACTORS FOR AWARD

CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE

17. x Contractor’s Negotiated Agreement		18. ¨ Award    (Contractor is not required to sign this document).
(Contractor is required to sign this document and return 1 copies to issuing office). Contractor agrees to furnish and deliver all items or perform all services set forth or otherwise identified above and on any continuation sheets for the consideration stated herein. The rights and obligations of the parties to this contract shall be subject to and governed by the following documents: (a) this award/contract, (b) the solicitation, if any, and (c) such provisions, representations, certifications, and specifications, as are attached or incorporated by reference herein. (Attachments are listed herein.)		Your offer on solicitation number      including the additions or changes made by you which additions or changes set forth in full above, is hereby accepted as to items listed above and on any continuation sheets. This award consummates the contract which consists of the following documents: (a) the Government’s solicitation and your offer, and (b) this award/contract. No further contractual document is necessary.
19A. NAME AND TITLE OF SIGNER (TYPE OR PRINT) Charles M. Swoboda President and CEO		20A. NAME AND TITILE OF CONTRACTING OFFICER Theodore Weitzman/Contracting Officer
19B. Name of Contractor	19C. Date Signed	20B. United States of America	20C. Date Signed
by            /s/ Charles M. Swoboda. (Signature of person authorized to sign)	18MAR2002	by        /s/ Theodore Weitzman                 (Signature of Contracting Officer)	20-Mar-2002
NSN 7540-01-152-8069 Previous Editions unusable	26-107 GPO 1985 O-469-794	STANDARD FORM 26 (REV. 4-85) Prescribed by GSA FAR (48 CFR) 53.214(a)

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

CONTRACT NUMBER N00014-02-C-0250 PAGE 1

DAAD17-02-C-0073        

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SECTION B Supplies or Services and Prices

ITEM NO	SUPPLIES/SERVICES	QUANTITY	UNIT	UNIT PRICE	AMOUNT
0001			Lot		$	$
	SEMICONDUCTOR UV OPTICAL SOURCES (SUVOS) CS - BAA 02-03, Technical Area II, UV Emitters: Contractor shall perform research and development for Semiconductor UV Optical Sources (SUVOS) in accordance with Section C, Statement of Work.
	See Sections B and G, [***] [***]. PURCHASE REQUEST NUMBER W71B7J-2030-B325
				ESTIMATED COST		$	[	***]
	ACRN AA Funded Amount					$	[	***]

ITEM NO	SUPPLIES/SERVICES	QUANTITY	UNIT	UNIT PRICE	AMOUNT
0002			Lot		$	$	NSP
	Data IAW DD 1423, Contract Data Requirements List CS - Data in accordance with Contract Data Requirements List, DD Form 1423, Exhibit A to Section J. PURCHASE REQUEST NUMBER W71B7J-2030-B325
				ESTIMATED COST		$

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

DAAD17-02-C-0073        

Page 3 of 50

ITEM NO	SUPPLIES/SERVICES	QUANTITY	UNIT	UNIT PRICE	AMOUNT
0003			Lot		$	$
	OPTION - SEMICONDUCTOR UV OPTICAL SOURCES (SUVOS) CS - BAA 02-03, Technical Area II, UV Emitters: Contractor shall continue to perform research and development for Semiconductor UV Optical Sources (SUVOS) in accordance with Section C, Statement of Work.
	See Sections B and G, [***]. PURCHASE REQUEST NUMBER W71B7J-2030-B325
				ESTIMATED COST		$	[	***]

ITEM NO	SUPPLIES/SERVICES	QUANTITY	UNIT	UNIT PRICE	AMOUNT
0004			Lot		$	$
	OPTION - SEMICONDUCTOR UV OPTICAL SOURCES (SUVOS) CS - BAA 02-03, Technical Area II, UV Emitters: Contractor shall continue to perform research and development for Semiconductor UV Optical Sources (SUVOS) in accordance with Section C, Statement of Work.
	See Sections B and G, [***]. PURCHASE REQUEST NUMBER W71B7J-2030-B325
				ESTIMATED COST		$	[	***]

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

DAAD17-02-C-0073

Page 4 of 50

CLAUSES INCORPORATED BY FULL TEXT

[***]

Contract Line Item #	Government’s Share	Contractor’s Share	Total Estimated Contract Cost
CLIN 0001	[***]	[***]	[***]
CLIN 0003	[***]	[***]	[***]
CLIN 0004	[***]	[***]	[***]
TOTAL	[***]	[***]	[***]

Audit Procedures

[***]

52.004-4401 RMAC POINT OF CONTACT (MAR 2000)

The RMAC point of contact for this action is:

Contract Specialist: Joyce McDonald

Telephone Number: 301-394-3438

Fax Number: 301-394-2852

Email: jmcdonald@arl.army.mil

Contracting Officer: Theodore H. Weitzman

Telephone Number: 301-3165

Fax Number: 301-394-3184

Email: tweitzman@arl.army.mil

(End of clause)

52.004-4403 CONTRACTING OFFICER’S REPRESENTATIVE (COR) (JUN 2001)

The COR appointed to this contract is identified below. See formal letter of appointment for authorized duties/responsibilities.

COR Name: Dr. Paul Amirtharaj

COR Telephone: 301-394-0940

COR Email address: pamirtharaj@arl.army.mil

(End of clause)

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange

Commission. Omitted portions have been filed separately with the Commission.

52.016-4407 TYPE OF CONTRACT (SEP 1999)

DAAD17-02-C-0073        

Page 5 of 50

This is a [***] type of contract.

(End of clause)

52.032-4421 INCREMENTAL FUNDING - PERFORMANCE PERIOD (SEP 1999)

This contract is incrementally funded. The amount presently available for payment and allotted to the contract is $[***]. It is estimated that the allotted funds will cover all areas of contract performance for the period from award of contract through 12 months.

(End of clause)

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

DAAD17-02-C-0073        

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SECTION C Descriptions and Specifications

Statement of Work

C.0 Introduction

The development of [***] is of critical importance to the military. [***] have application in biological agent detection, non-line-of-sight (NLOS) covert communications, water purification, equipment/personnel decontamination, and white light generation. It is the goal of the [***] program to exploit the unique characteristics [***] that can be integrated into modules and subsystems to address these applications. The Government is interested in novel ideas that will result in the demonstration of deep [***] sources. This effort focuses on exploiting the material qualities of the [***] to produce an [***] compatible with the applications cited above.

This program will be conducted in two phases. Phase I (Years 1 and 2) will concentrate on the development of [***] by exploiting the unique characteristics of [***]. Emphasis will be placed on materials needed to realize [***] [***]. These materials are considered to be on the materials development critical path (MDCP). Also included in the Phase I effort is the [***] of innovative [***] [***] with [***] in the [***]. In Option Phase II (Option Years 3 and 4), the emphasis shifts to the optimization of [***] and [***] with [***]. It is expected that the ultimate goal of [***] will be achieved through materials development and device innovation initially in the [***] portion of the [***] as part of the Phase I effort. Based on advances in science, materials, and devices in Phase I, the optimization of devices to meet or exceed Option Phase II goals will be realized.

Year 1

C. 1. The Contractor shall develop [***] for [***] of [***] necessary for [***] and [***] on [***].

C.1.1 The Contractor shall deliver representative [***] on the MDCP to the Government.

C.2. The Contractor shall grow [***] to reduce [***] effects.

C.2.1 The Contractor shall deliver representative [***] on the MDCP to the Government.

C.3. The Contractor shall fabricate [***].

C.3.1 The Contractor shall deliver representative devices to the Government.

C. 4. The Contractor shall develop optically efficient [***] and [***] comprised of [***] in the [***] family.

C.4.1 The Contractor shall deliver representative [***] on the MDCP to the Government.

C.4.2 The Contractor shall deliver to the Government [***] with [***] and [***] nine (9) months after the start of the contract.

C.4.3 The Contractor shall deliver to the Government [***] with [***] and [***] nine (9) months after the start of the contract.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

DAAD17-02-C-0073        

Page 7 of 50

C.4.4 The Contractor shall deliver to the Government [***] with [***] and [***] nine (9) months after the start of the contract.

C.4.5 The Contractor shall deliver to the Government [***] with [***] and [***] nine (9) months after the start of the contract.

Year 2

C.5 The Contractor shall develop [***] and [***] comprised of [***] in the [***] family,

C.5.1 The Contractor shall deliver representative [***] on the MDCP to the Government.

C.6 The Contractor shall grow of [***] to reduce [***] effects.

C.6.1 The Contractor shall deliver representative [***] on the MDCP to the Government.

C.7 The Contractor shall fabricate [***].

C.7.1 The Contractor shall deliver to the Government [***] with [***] and [***] 23 months after the start of the contract.

C.8 The Contractor shall develop [***].

C.8.1 The Contractor shall deliver to the Government [***] and [***] with diameter greater than or equal to [***] months after the start of the contract.

C.9 The Contractor shall develop [***] including the [***].

C.9.1 The Contractor shall deliver to the Government [***] with [***] and [***] 17 months after the start of the contract.

Year 3 (Option CLIN 0003)

C.10 The Contractor shall develop device design for high [***] and optimize fabrication process to produce it.

C.10.1 The Contractor shall deliver to the Government [***] with [***] and [***] 35 months after the start of the contract.

C.11 The Contractor shall develop device design for [***] and optimize fabrication process to produce it.

C.11.1 The Contractor shall deliver to the Government [***] with [***] and [***] 35 months after the start of the contract.

C.12 The Contractor shall develop growth of [***].

C.12.1 The Contractor shall deliver to the Government [***] and [***] with diameter greater than or equal to [***] 35 months after the start of the contract.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

DAAD17-02-C-0073        

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Year 4 (Option CLIN 0004)

C.13 The Contractor shall develop design for [***] and optimize fabrication process to produce it.

C.13.1 The Contractor shall deliver to the Government [***] with [***] and [***] 47 months after the start of the contract.

C.13.2 The Contractor shall deliver to the Government [***] with [***] and [***] 41 months after the start of the contract.

C.13.3 The Contractor shall deliver to the Government [***] with [***] and [***] 47 months after the start of the contract.

C.14 OTHER CONTRACT DELIVERABLES

C.14.1 The contractor shall provide copies of all technical reports submitted for publication (in journals, conference proceedings and other technical reports) under this contract to the technical POC

C.14.2 The Contractor shall complete and submit quarterly and cost expenditure reports throughout the duration of the contract in accordance with DD Form 1423, Contract Data Requirements List, Exhibit A to Section J. Reports shall be marked with the following Distribution Statement:

DISTRIBUTION STATEMENT C: Distribution authorized to U.S. Government Agencies and their contractors, proprietary information, 7 Feb 02. Other requests for this document shall be referred to U.S. Army Research Laboratory, Attn: AMSRL-SE-EM, 2800 Powder Mill Road, Adelphi, MD 20783-1197.

C14.3 The contractor shall provide a comprehensive Final Report at the close of the contract. The report shall detail all activities performed under the contract and provide results and conclusions for each task.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

DAAD17-02-C-0073        

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SECTION D Packaging and Marking

D.1. Preservation, Packing and Packaging shall be of a standard commercial type providing for damage-free shipment to destination.

(End of Clause)

DAAD17-02-C-0073        

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SECTION E Inspection and Acceptance

INSPECTION AND ACCEPTANCE TERMS

Supplies/services will be inspected/accepted at:

CLIN	INSPECT AT	INSPECT BY	ACCEPT AT	ACCEPT BY
0001	Destination	Government	Destination	Government
0002	Destination	Government	Destination	Government
0003	Destination	Government	Destination	Government
0004	Destination	Government	Destination	Government

CLAUSES INCORPORATED BY REFERENCE:

52.246-8 Alt I Inspection Of Research And Development-Cost                     Reimbursement (May 2001) - Alternate I APR 1984

CLAUSES INCORPORATED BY FULL TEXT

52.046-4400 GOVERNMENT INSPECTION AND ACCEPTANCE (SEP 1999)

Government Inspection and Acceptance shall be performed at Army Research Laboratory by an authorized Government Representative.

(End of clause)

DAAD17-02-C-0073        

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SECTION F Deliveries or Performance

DELIVERY INFORMATION

CLINS	DELIVERY DATE	UNIT OF ISSUE	QUANTITY	FOB	SHIP TO ADDRESS
0001	POP 01-FEB-02 TO 31-JAN-04	Lot		Dest.	W71B7J US ARMY RESEARCH LABORATORY DR PAUL AMIRTHARAJ / AMSRL-SE-EM 2800 POWDER MILL ROAD ADELPHI MD 20783-1197
0002	POP 01-FEB-02 TO 31-JAN-04	Lot		Dest.	Same as CLIN 0001
0003	POP 01-FEB-04 TO 31-JAN-05	Lot		Dest.	Same as CLIN 0001
0004	POP 01-FEB-05 TO 31-JAN-06	Lot		Dest.	Same as CLIN 0001

CLAUSES INCORPORATED BY REFERENCE:

52.242-15 Alt I Stop-Work Order (Aug 1989) - Alternate I            APR 1984

I

52.247-34 F.O.B. Destination                                                               NOV 1991

CLAUSES INCORPORATED BY FULL TEXT

52.017-4400 EXERCISE OF OPTION (SEP 1999)

The Contracting Officer may exercise the option(s) contained at CLIN(s) 0003 and 0004 by written modification to the contract anytime prior to contract completion.

(End of clause)

52.027-4400 DELIVERY OF DATA ITEMS (SEP 1999)

All technical data shall be delivered in accordance with the DD 1423s attached to Section J of this contract. Data items which require distribution to DTIC shall be mailed to the following address:

Defense Technical Information Center (DTIC)

8725 John J. Kingman Road, Suite 0944

Ft. Belvoir, VA 22060-6218

(End of clause)

SECTION G Contract Administration Data

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ACCOUNTING AND APPROPRIATION DATA

AA:	972040013012RPARGO2H20M891000255YANEM00W71B7J2030B3252NDKGGS18129	000000000000
AMOUNT:	[***]

  CLAUSES INCORPORATED BY FULL TEXT

Audit Procedures

[***]

[***]

[***]

Contract Line Item #	Government’s Share	Contractor’s Share	Total Estimated Contract Cost
CLIN 0001	[***]	[***]	[	***]
CLIN 0003	[***]	[***]	[	***]
CLIN 0004	[***]	[***]	[	***]
TOTAL	[***]	[***]	[	***]

52.032-4405 DISTRIBUTION OF VOUCHERS (JAN 2002)

a. In accordance with DCAA Procedures DCAAP 7641.90, paragraph 5-302a., all vouchers for cost-type contracts must be submitted using the Standard Form (SF) 1034 “Public Voucher for Purchases and Services Other Than Personal”. See http://www.dcaa.mil Information for Contractors.

b. The contractor shall forward vouchers to the addresses below in a simultaneous mailing. NOTE: All vouchers must identify the CLIN under which payment is being requested. VOUCHERS WHICH DO NOT IDENTIFY THE PROPER CLIN(s) WILL BE REJECTED BY THE PAYMENT OFFICE AS IMPROPER.

All vouchers must clearly identify the Contractor’s [***] that was incurred during the billing cycle.

(1) The original and six (6) copies to Defense Contract Audit Agency (DCAA) Office. The cognizant Office address is:

Defense Contract Audit Agency

DCAA/MABO

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P.O. Box 891

Arnold, MD 21012-0891

(2) One copy to the Government Technical Representative, addressed to:

U.S. Army Research Laboratory

Attn: AMSRL-SE-EM (Paul Amirtharaj)

2800 Powder Mill Rd.

Adelphi, MD 20783

c. The contract completion voucher will be forwarded by the DCAA Contract Auditor to the Defense Contract Management (DCM) Administrative Contracting Officer (ACO), or to the PCO who signed this contract if no DCM ACO has been designated, for approval and transmittal to the cognizant disbursing office.

(End of clause)

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SECTION H Special Contract Requirements

CLAUSES INCORPORATED BY FULL TEXT

52.004-4400 FOREIGN NATIONALS PERFORMING UNDER CONTRACT (FEB 2002)

In accordance with Title 8 U.S.C. 1324a, local Foreign Disclosure Officers (FDOs) may approve access by foreign nationals working on unclassified public domain contracts for the duration of the contract, provided the foreign nationals have appropriate work authorization documentation.

In those instances where foreign nationals are required to perform under any resultant contract and employment eligibility documentation was not submitted with an Awardee’s proposal, the employment eligibility documentation specified at 8 CFR 274a.2 shall be submitted to the Contracting Officer at least two weeks prior to the foreign national’s performance for review and approval. Awardees not employing foreign nationals in performance of any resultant contract may disregard this clause.

For further information, please contact:	Army Research Laboratory
	Adelphi Laboratory Center
	ATTN: AMSRL-CS-IO-FI
	2800 Powder Mill Road
	Adelphi, MD 20783-1197

(End of clause)

52.005-4401 RELEASE OF INFORMATION (AUG 2001)

Army Regulations AR530-1 and 360-1 prescribe Department of the Army policies and clearance procedures with respect to release of any information on Army contracts. This information can include news stories, articles, sales literature, advertisements, radio-TV spots, etc., on unclassified contracts as well as on the classified contracts governed in this respect by DD Form 254. Army Materiel Command (AMC) Supplement 1 to AR 530-1 requires operations security (OPSEC) review and approval prior to public release of any information on AMC contracts.

Your organization shall clear with the Information Office any public release of information on this contract by first completing ARL Form 1-A (JUN 2001) and forwarding the form and the material to be released to the address shown below.

U.S. Army Research Laboratory	U.S. Army Robert Morris
Public Affairs Office	Acquisition Center
ATTN: AMSRL-CS-PA	Adelphi Contracting Division
2800 Powder Mill Road	ATTN: AMSSB-ACA-C/T. Weitzman
Adelphi, Maryland 20783-1197	Adelphi, Maryland 20783-1197

M/F: Contract No.: DAAD17-02-C-0073

The contractor shall assure that an acknowledgment of Government support and disclaimer of Government endorsement as set forth below shall appear on each publication or presentation of material based on or developed under this program. These statements shall appear either on the title/first page or the final page of such documents -

“The research reported in this document/presentation was performed in connection with contract DAAD17-02-C-0073 with the U.S. Army Research Laboratory. The views and conclusions contained in this document/presentation are those of the authors and should not be interpreted as presenting the official policies or position, either expressed or implied, of the U.S. Army Research Laboratory or the U.S.

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Government unless so designated by other authorized documents. Citation of manufacturer’s or trade names does not constitute an official endorsement or approval of the use thereof. The U.S. Government is authorized to reproduce and distribute reprints for Government purposes notwithstanding any copyright notation hereon.”

(End of clause)

52.028-4400 REQUIRED INSURANCE COVERAGE (AUG 1999)

Pursuant to the clause entitled “Insurance - Work on a Government Installation”, FAR 52.228-5, or the clause entitled “Insurance - Liability to Third Persons”, FAR 52.228-7, the Contractor shall procure and maintain the following kinds of insurance coverage in the amounts herein indicated, throughout the period of performance under this contract.

(a) The Contractor shall comply with the Workmen’s Compensation statute of the State(s) where work is to be performed.
(b) Employer’s Liability Insurance $		100,000.00.
(c) General Liability Insurance (Comprehensive)
(1) Bodily injury	$	500,000.00	per accident
(d) Automobile Liability Insurance (Comprehensive)
(1) Bodily injury	$	200,000.00	per person
	$	500,000.00	per accident
(2) Property damage	$	50,000.00	per accident

(End of clause)

52.031-4400 AUTHORIZATION OF PRECONTRACT COSTS (AUG 1999)

Subject to FAR 31.205-32, “Precontract Costs”, the Contractor is authorized precontract costs, effective 01 Feb 2002.

(End of clause)

52.032-4400 LIMITATION OF COST/LIMITATION OF FUNDS (AUG 1999)

This contract is incrementally funded. The Contract Clauses Section hereof include both of the FAR clauses at 52.232-20, “Limitation of Cost”, and 52.232-22, “Limitation of Funds”. The latter clause is operative as long as this contract is incrementally funded. If and when the contract becomes fully funded, the “Limitation of Cost” clause shall become effective and the “Limitation of Funds” clause shall cease to be operative.

Both of the above cited clauses (52.232-20 and 52.232-22), apply to each CLIN separately. Costs of performing work set forth in one CLIN shall not be chargeable or payable under any other CLIN.

(End of clause)

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52.039-4402 YEAR 2000 COMPLIANCE—NEW PRODUCTS OR SYSTEMS (OCT 1997)

The contractor shall ensure products provided under this contract, to include hardware, software, firmware, and middleware, whether acting alone or combined as a system, are Year 2000 compliant as defined in FAR Part 39.

(End of clause)

52.046-4401 KEY PERSONNEL (FEB 00)

The Contractor shall notify the Government in the event of a transition (replacing or removal) of key personnel (those individuals addressed in the Contractors proposal) working under this contract. The Government reserves the right to review the qualifications of any Contractor personnel proposed to replace existing personnel and accept/reject the individual based on its judgment that the individual can perform similarly as the transitioned personnel.

(End of clause)

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SECTION I Contract Clauses

CLAUSES INCORPORATED BY REFERENCE:

52.202-1	Definitions	MAY 2001
52.203-3	Gratuities	APR 1984
52.203-5	Covenant Against Contingent Fees	APR 1984
52.203-6	Restrictions On Subcontractor Sales To The Government	JUL 1995
52.203-7	Anti-Kickback Procedures	JUL 1995
52.203-8	Cancellation, Rescission, and Recovery of Funds for Illegal or Improper Activity	JAN 1997
52.203-10	Price Or Fee Adjustment For Illegal Or Improper Activity	JAN 1997
52.203-12	Limitation On Payments To Influence Certain Federal Transactions	JUN 1997
52.204-4	Printed or Copied Double-Sided on Recycled Paper	AUG 2000
52.209-6	Protecting the Government’s Interest When Subcontracting With Contractors Debarred, Suspended, or Proposed for Debarment	JUL 1995
52.211-15	Defense Priority And Allocation Requirements	SEP 1990
52.215-2	Audit and Records—Negotiation	JUN 1999
52.215-8	Order of Precedence—Uniform Contract Format	OCT 1997
52.215-10	Price Reduction for Defective Cost or Pricing Data	OCT 1997
52.215-12	Subcontractor Cost or Pricing Data	OCT 1997
52.215-13	Subcontractor Cost or Pricing Data—Modifications	OCT 1997
52.215-15	Pension Adjustments and Asset Reversions	DEC 1998
52.215-18	Reversion or Adjustment of Plans for Postretirement Benefits (PRB) Other than Pensions	OCT 1997
52.215-19	Notification of Ownership Changes	OCT 1997
52.215-20	Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data	OCT 1997
52.215-21	Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data—Modifications	OCT 1997
52.216-7	Allowable Cost And Payment	MAR 2000
52.219-8	Utilization of Small Business Concerns	OCT 2000
52.219-9	Small Business Subcontracting Plan	OCT 2000
52.222-3	Convict Labor	AUG 1996
52.222-21	Prohibition Of Segregated Facilities	FEB 1999
52.222-26	Equal Opportunity	FEB 1999
52.222-35	Affirmative Action For Disabled Veterans And Veterans of the Vietnam Era	APR 1998
52.222-36	Affirmative Action For Workers With Disabilities	JUN 1998
52.222-37	Employment Reports On Disabled Veterans And Veterans Of The Vietnam Era	JAN 1999
52.223-6	Drug Free Workplace	MAY 2001
52.223-14	Toxic Chemical Release Reporting	OCT 2000
52.225-1	Buy American Act—Balance of Payments Program - Supplies	FEB 2000
52.225-13	Restrictions on Certain Foreign Purchases	JUL 2000
52.225-16	Sanctioned European Union Country Services	FEB 2000
52.226-1	Utilization Of Indian Organizations And Indian-Owned Economic Enterprises	JUN 2000
52.227-1 Alt I	Authorization And Consent (Jul 1995) - Alternate I	APR 1984
52.227-2	Notice And Assistance Regarding Patent And Copyright Infringement	AUG 1996
52.228-7	Insurance—Liability To Third Persons	MAR 1996

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52.230-2	Cost Accounting Standards	APR 1998
52.230-6	Administration of Cost Accounting Standards	NOV 1999
52.232-9	Limitation On Withholding Of Payments	APR 1984
52.232-17	Interest	JUN 1996
52.232-20	Limitation Of Cost	APR 1984
52.232-22	Limitation Of Funds	APR 1984
52.232-23	Assignment Of Claims	JAN 1986
52.232-25	Prompt Payment	MAY 2001
52.232-33	Payment by Electronic Funds Transfer—Central Contractor Registration	MAY 1999
52.233-1	Disputes	DEC 1998
52.233-3 Alt I	Protest After Award (Aug 1996) - Alternate I	JUN 1985
52.237-8	Restriction on Severance Payments to Foreign Nationals	OCT 1995
52.242-1	Notice of Intent to Disallow Costs	APR 1984
52.242-3	Penalties for Unallowable Costs	MAY 2001
52.242-4	Certification of Final Indirect Costs	JAN 1997
52.242-13	Bankruptcy	JUL 1995
52.243-2 Alt V	Changes—Cost-Reimbursement (Aug 1987) - Alternate V	APR 1984
52.244-5	Competition In Subcontracting	DEC 1996
52.244-6	Subcontracts for Commercial Items	MAY 2001
52.245-5	Government Property (Cost-Reimbursement Time-And-Materials, Or Labor Hour Contracts)	JAN 1986
52.246-23	Limitation Of Liability	FEB 1997
52.249-6	Termination (Cost Reimbursement)	SEP 1996
52.249-14	Excusable Delays	APR 1984
52.253-1	Computer Generated Forms	JAN 1991
252.201-7000	Contracting Officer’s Representative	DEC 1991
252.203-7001	Prohibition On Persons Convicted of Fraud or Other Defense-Contract-Related Felonies	MAR 1999
252.203-7002	Display Of DOD Hotline Poster	DEC 1991
252.204-7003	Control Of Government Personnel Work Product	APR 1992
252.205-7000	Provisions Of Information To Cooperative Agreement Holders	DEC 1991
252.209-7000	Acquisition From Subcontractors Subject To On-Site Inspection Under The Intermediate Range Nuclear Forces (INF) Treaty	NOV 1995
252.209-7004	Subcontracting With Firms That Are Owned or Controlled By The Government of a Terrorist Country	MAR 1998
252.215-7000	Pricing Adjustments	DEC 1991
252.215-7002	Cost Estimating System Requirements	OCT 1998
252.219-7003	Small, Small Disadvantaged and Women-Owned Small Business Subcontracting Plan (DOD Contracts)	APR 1996
252.225-7002	Qualifying Country Sources As Subcontractors	DEC 1991
252.225-7007	Buy American Act—Trade Agreements—Balance of Payments Program	SEP 2001
252.225-7012	Preference For Certain Domestic Commodities	AUG 2000
252.225-7026	Reporting Of Contract Performance Outside The United States	JUN 2000
252.225-7031	Secondary Arab Boycott Of Israel	JUN 1992
252.227-7013	Rights in Technical Data—Noncommercial Items	NOV 1995
252.227-7016	Rights in Bid or Proposal Information	JUN 1995
252.227-7030	Technical Data—Withholding Of Payment	MAR 2000
252.227-7034	Patents—Subcontracts	APR 1984
252.227-7036	Declaration of Technical Data Conformity	JAN 1997
252.231-7000	Supplemental Cost Principles	DEC 1991
252.235-7011	Final Scientific or Technical Report	SEP 1999
252.242-7004	Material Management And Accounting System	DEC 2000
252.243-7002	Requests for Equitable Adjustment	MAR 1998

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252.245-7001	Reports Of Government Property	MAY 1994
252.247-7023	Transportation of Supplies by Sea	MAR 2000
252.247-7024	Notification Of Transportation Of Supplies By Sea	MAR 2000

CLAUSES INCORPORATED BY FULL TEXT

52.216-12 COST-SHARING CONTRACT—NO FEE (APR 1984)

(a) The Government shall not pay to the Contractor a fee for performing this contract.

(b) After paying 80 percent of the Government’s share of the total estimated cost of performance shown in the Schedule, the Contracting Officer may withhold further payment of allowable cost until a reserve is set aside in an amount that the Contracting Officer considers necessary to protect the Government’s interest. This reserve shall not exceed one percent of the Government’s share of the total estimated cost shown in the Schedule.

(End of clause)

52.222-2 PAYMENT FOR OVERTIME PREMIUMS (JUL 1990)

(a) The use of overtime is authorized under this contract if the overtime premium cost does not exceed or the overtime premium is paid for work —

(1) Necessary to cope with emergencies such as those resulting from accidents, natural disasters, breakdowns of production equipment, or occasional production bottlenecks of a sporadic nature;

(2) By indirect-labor employees such as those performing duties in connection with administration, protection, transportation, maintenance, standby plant protection, operation of utilities, or accounting;

(3) To perform tests, industrial processes, laboratory procedures, loading or unloading of transportation conveyances, and operations in flight or afloat that are continuous in nature and cannot reasonably be interrupted or completed otherwise; or

(4) That will result in lower overall costs to the Government.

(b) Any request for estimated overtime premiums that exceeds the amount specified above shall include all estimated overtime for contract completion and shall—

(1) Identify the work unit; e.g., department or section in which the requested overtime will be used, together with present workload, staffing, and other data of the affected unit sufficient to permit the Contracting Officer to evaluate the necessity for the overtime;

(2) Demonstrate the effect that denial of the request will have on the contract delivery or performance schedule;

(3) Identify the extent to which approval of overtime would affect the performance or payments in connection with other Government contracts, together with identification of each affected contract; and

(4) Provide reasons why the required work cannot be performed by using multishift operations or by employing additional personnel.

(End of clause)

52.225-11 BUY AMERICAN ACT—BALANCE OF PAYMENTS PROGRAM—CONSTRUCTION MATERIALS UNDER TRADE AGREEMENTS (FEB 2000)

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(a) Definitions. As used in this clause—

Component means any article, material, or supply incorporated directly into construction materials.

Construction material means an article, material, or supply brought to the construction site by the Contractor or subcontractor for incorporation into the building or work. The term also includes an item brought to the site preassembled from articles, materials, or supplies. However, emergency life safety systems, such as emergency lighting, fire alarm, and audio evacuation systems, that are discrete systems incorporated into a public building or work and that are produced as complete systems, are evaluated as a single and distinct construction material regardless of when or how the individual parts or components of those systems are delivered to the construction site. Materials purchased directly by the Government are supplies, not construction material.

Cost of components means—

(1) For components purchased by the Contractor, the acquisition cost, including transportation costs to the place of incorporation into the end product (whether or not such costs are paid to a domestic firm), and any applicable duty (whether or not a duty-free entry certificate is issued); or

(2) For components manufactured by the Contractor, all costs associated with the manufacture of the component, including transportation costs as described in paragraph (1) of this definition, plus allocable overhead costs, but excluding profit. Cost of components does not include any costs associated with the manufacture of the end product.

Designated country means any of the following countries: Aruba, Austria, Bangladesh, Belgium, Benin, Bhutan, Botswana, Burkina Faso, Burundi, Canada, Cape Verde, Central African Republic, Chad, Comoros, Denmark.

Djibouti, Equatorial Guinea, Finland, France, Gambia, Germany, Greece, Guinea, Guinea-Bissau, Haiti, Hong Kong, Ireland, Israel, Italy, Japan.

Kiribati, Korea, Republic of, Lesotho, Liechtenstein, Luxembourg, Malawi, Maldives, Mali, Mozambique, Nepal, Netherlands, Niger, Norway, Portugal, Rwanda.

Sao Tome and Principe, Sierra Leone, Singapore, Somalia, Spain, Sweden, Switzerland, Tanzania U.R., Togo, Tuvalu, Uganda, United Kingdom, Vanuatu, Western Samoa, Yemen.

Designated country construction material means a construction material that—

(1) Is wholly the growth, product, or manufacture of a designated country; or

(2) In the case of a construction material that consists in whole or in part of materials from another country, has been substantially transformed in a designated country into a new and different construction material distinct from the materials from which it was transformed.

Domestic construction material means—

(1) An unmanufactured construction material mined or produced in the United States; or

(2) A construction material manufactured in the United States, if the cost of its components mined, produced, or manufactured in the United States exceeds 50 percent of the cost of all its components. Components of foreign origin of the same class or kind for which nonavailability determinations have been made are treated as domestic.

Foreign construction material means a construction material other than a domestic construction material.

North American Free Trade Agreement country means Canada or Mexico.

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North American Free Trade Agreement country construction material means a construction material that—

(1) Is wholly the growth, product, or manufacture of a North American Free Trade Agreement (NAFTA) country; or

(2) In the case of a construction material that consists in whole or in part of materials from another country, has been substantially transformed in a NAFTA country into a new and different construction material distinct from the materials from which it was transformed.

United States means the 50 States and the District of Columbia, U.S. territories and possessions, Puerto Rico, the Northern Mariana Islands, and any other place subject to U.S. jurisdiction, but does not include leased bases.

(b) Construction materials. (1) This clause implements the Buy American Act (41 U.S.C. 10a-10d) and the Balance of Payments Program by providing a preference for domestic construction material. In addition, the Contracting Officer has determined that the Trade Agreements Act and the North American Free Trade Agreement (NAFTA) apply to this acquisition. Therefore, the Buy American Act and Balance of Payments Program restrictions are waived for designated country and NAFTA country construction materials.

(2) The Contractor shall use only domestic, designated country, or NAFTA country construction material in performing this contract, except as provided in paragraphs (b)(3) and (b)(4) of this clause.

(3) The requirement in paragraph (b)(2) of this clause does not apply to the construction materials or components listed by the Government as follows: [Contracting Officer to list applicable excepted materials or indicate “none”]

(4) The Contracting Officer may add other foreign construction material to the list in paragraph (b)(3) of this clause if the Government determines that—

(i) The cost of domestic construction material would be unreasonable. The cost of a particular domestic construction material subject to the restrictions of the Buy American Act is unreasonable when the cost of such material exceeds the cost of foreign material by more than 6 percent. For determination of unreasonable cost under the Balance of Payments Program, the Contracting Officer will use a factor of 50 percent;

(ii) The application of the restriction of the Buy American Act or Balance of Payments Program to a particular construction material would be impracticable or inconsistent with the public interest; or

(iii) The construction material is not mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities of a satisfactory quality.

(c) Request for determination of inapplicability of the Buy American Act or Balance of Payments Program. (1)(i) Any Contractor request to use foreign construction material in accordance with paragraph (b)(4) of this clause shall include adequate information for Government evaluation of the request, including—

(A) A description of the foreign and domestic construction materials;

(B) Unit of measure;

(C) Quantity;

(D) Price;

(E) Time of delivery or availability;

(F) Location of the construction project;

(G) Name and address of the proposed supplier; and

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(H) A detailed justification of the reason for use of foreign construction materials cited in accordance with paragraph (b)(3) of this clause.

(ii) A request based on unreasonable cost shall include a reasonable survey of the market and a completed price comparison table in the format in paragraph (d) of this clause.

(iii) The price of construction material shall include all delivery costs to the construction site and any applicable duty (whether or not a duty-free certificate may be issued).

(iv) Any Contractor request for a determination submitted after contract award shall explain why the Contractor could not reasonably foresee the need for such determination and could not have requested the determination before contract award. If the Contractor does not submit a satisfactory explanation, the Contracting Officer need not make a determination.

(2) If the Government determines after contract award that an exception to the Buy American Act or Balance of Payments Program applies and the Contracting Officer and the Contractor negotiate adequate consideration, the Contracting Officer will modify the contract to allow use of the foreign construction material. However, when the basis for the exception is the unreasonable price of a domestic construction material, adequate consideration is not less than the differential established in paragraph (b)(4)(i) of this clause.

(3) Unless the Government determines that an exception to the Buy American Act or Balance of Payments Program applies, use of foreign construction material is noncompliant with the Buy American Act or Balance of Payments Program.

(d) Data. To permit evaluation of requests under paragraph (c) of this clause based on unreasonable cost, the Contractor shall include the following information and any applicable supporting data based on the survey of suppliers:

Foreign and Domestic Construction Materials Price Comparison

Construction material description	Unit of measure	Quantity	Price (dollars) \1\
Item 1:
Foreign construction material
Domestic construction material
Item 2:
Foreign construction material
Domestic construction material

\1\ Include all delivery costs to the construction site and any applicable duty (whether or not a duty-free entry certificate is issued).

List name, address, telephone number, and contact for suppliers surveyed. Attach copy of response; if oral, attach summary.

Include other applicable supporting information.

(End of clause)

52.227-12 PATENT RIGHTS—RETENTION BY THE CONTRACTOR (LONG FORM) (JAN 1997)

(a) Definitions. “Invention” means any invention or discovery which is or may be patentable or otherwise protectable under title 35 of the United States Code or any novel variety of plant that is or may be protectable under the Plant Variety Protection Act (7 U.S.C. 2321, et seq.).

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“Made” when used in relation to any invention means the conception or first actual reduction to practice of such invention.

“Nonprofit organization” means a domestic university or other institution of higher education or an organization of the type described in section 501(c)(3) of the Internal Revenue Code of 1954 (26 U.S.C. 501(c)) and exempt from taxation under section 501(a) of the Internal Revenue Code (26 U.S.C. 501(a)) or any nonprofit scientific or educational organization qualified under a state nonprofit organization statute.

“Practical application” means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are, to the extent permitted by law or Government regulations, available to the public on reasonable terms.

“Small business firm” means a small business concern as defined at section 2 of Pub. L. 85-536 (15 U.S.C. 632) and implementing regulations of the Administrator of the Small Business Administration. For the purpose of this clause, the size standards for small business concerns involved in Government procurement and subcontracting at 13 CFR 121.3-8 and 13 CFR 121.3-12, respectively, will be used.

“Subject invention” means any invention of the Contractor conceived or first actually reduced to practice in the performance of work under this contract; provided, that in the case of a variety of plant, the date of determination (as defined in section 41(d) of the Plant Variety Protection Act, 7 U.S.C. 2401(d)) must also occur during the period of contract performance.

(b) Allocation of principal rights. The Contractor may elect to retain the entire right, title, and interest throughout the world to each subject invention subject to the provisions of this clause and 35 U.S.C. 203. With respect to any subject invention in which the Contractor elects to retain title, the Federal Government shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the subject invention throughout the world.

(c) Invention disclosure, election of title, and filing of patent applications by Contractor. (1) The Contractor shall disclose each subject invention to the Contracting Officer within 2 months after the inventor discloses it in writing to Contractor personnel responsible for patent matters or within 6 months after the Contractor becomes aware that a subject invention has been made, whichever is earlier. The disclosure to the Contracting Officer shall be in the form of a written report and shall identify the contract under which the invention was made and the inventor(s). It shall be sufficiently complete in technical detail to convey a clear understanding, to the extent known at the time of the disclosure, of the nature, purpose, operation, and physical, chemical, biological, or electrical characteristics of the invention. The disclosure shall also identify any publication, on sale, or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure. In addition, after disclosure to the Contracting Officer, the Contractor shall promptly notify the Contracting Officer of the acceptance of any manuscript describing the invention for publication or of any on sale or public use planned by the Contractor.

(2) The Contractor shall elect in writing whether or not to retain title to any such invention by notifying the Federal agency at the time of disclosure or within 8 months of disclosure, as to those countries (including the United States) in which the Contractor will retain title; provided, that in any case where publication, on sale, or public use has initiated the 1-year statutory period wherein valid patent protection can still be obtained in the United States, the period of election of title may be shortened by the agency to a date that is no more than 60 days prior to the end of the statutory period.

(3) The Contractor shall file its initial patent application on an elected invention within 1 year after election or, if earlier, prior to the end of any statutory period wherein valid patent protection can be obtained in the United States after a publication, on sale, or public use. The Contractor shall file patent applications in additional countries (including the European Patent Office and under the Patent Cooperation Treaty) within either 10 months of the corresponding initial patent application or 6 months from the date permission is granted by the Commissioner of

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Patents and Trademarks to file foreign patent applications where such filing has been prohibited by a Secrecy Order.

(4) Requests for extension of the time for disclosure to the Contracting Officer, election, and filing may, at the discretion of the funding Federal agency, be granted, and will normally be granted unless the Contracting Officer has reason to believe that a particular extension would prejudice the Government’s interest.

(d) Conditions when the Government may obtain title. The Contractor shall convey to the Federal agency, upon written request, title to any subject invention—

(1) If the Contractor elects not to retain title to a subject invention;

(2) If the Contractor fails to disclose or elect the subject invention within the times specified in paragraph (c) above (the agency may only request title within 60 days after learning of the Contractor’s failure to report or elect within the specified times);

(3) In those countries in which the Contractor fails to file patent applications within the time specified in paragraph (c) above; provided, however, that if the Contractor has filed a patent application in a country after the times specified in paragraph (c) above, but prior to its receipt of the written request of the Federal agency, the Contractor shall continue to retain title in that country; or

(4) In any country in which the Contractor decides not to continue the prosecution of any application for, to pay the maintenance fees on, or defend in reexamination or opposition proceeding on, a patent on a subject invention.

(e) Minimum rights to Contractor. (1) The Contractor shall retain a nonexclusive, royalty-free license throughout the world in each subject invention to which the Government obtains title except if the Contractor fails to disclose the subject invention within the times specified in paragraph (c) above. The Contractor’s license extends to its domestic subsidiaries and affiliates, if any, within the corporate structure of which the Contractor is a part and includes the right to grant sublicenses of the same scope to the extent the Contractor was legally obligated to do so at the time the contract was awarded. The license is transferable only with the approval of the funding Federal agency except when transferred to the successor of that part of the Contractor’s business to which the invention pertains.

(2) The Contractor’s domestic license may be revoked or modified by the funding Federal agency to the extent necessary to achieve expeditious practical application of the subject invention pursuant to an application for an exclusive license submitted in accordance with applicable provisions in the Federal Property Management Regulations and agency licensing regulations (if any). This license shall not be revoked in that field of use or the geographical areas in which the Contractor has achieved practical application and continues to make the benefits of the invention reasonably accessible to the public. The license in any foreign country may be revoked or modified at the discretion of the funding Federal agency to the extent the Contractor, its licensees, or its domestic subsidiaries or affiliates have failed to achieve practical application in that foreign country.

(3) Before revocation or modification of the license, the funding Federal agency shall furnish the Contractor a written notice of its intention to revoke or modify the license, and the Contractor shall be allowed 30 days (or such other time as may be authorized by the funding Federal agency for good cause shown by the Contractor) after the notice to show cause why the license should not be revoked or modified. The Contractor has the right to appeal, in accordance with applicable agency licensing regulations and 37 CFR 404 concerning the licensing of Government-owned inventions, any decision concerning the revocation or modification of its license.

(f) Contractor action to protect the Government’s interest. (1) The Contractor agrees to execute or to have executed and promptly deliver to the Federal agency all instruments necessary to (i) establish or confirm the rights the Government has throughout the world in those subject inventions to which the Contractor elects to retain title, and (ii) convey title to the Federal agency when requested under paragraph (d) above and subparagraph (n)(2) below, and to enable the Government to obtain patent protection throughout the world in that subject invention.

(2) The Contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees, to disclose promptly in writing to personnel identified as responsible for the administration of patent

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matters and in a format suggested by the Contractor each subject invention made under contract in order that the Contractor can comply with the disclosure provisions of paragraph (c) above, and to execute all papers necessary to file patent applications on subject inventions and to establish the Government’s rights in the subject inventions. This disclosure format should require, as a minimum, the information required by subparagraph (c)(1) above. The Contractor shall instruct such employees through employee agreements or other suitable educational programs on the importance of reporting inventions in sufficient time to permit the filing of patent applications prior to U.S. or foreign statutory bars.

(3) The Contractor shall notify the Federal agency of any decision not to continue the prosecution of a patent application, pay maintenance fees, or defend in a reexamination or opposition proceeding on a patent, in any country, not less than 30 days before the expiration of the response period required by the relevant patent office.

(4) The Contractor agrees to include, within the specification of any United States patent application and any patent issuing thereon covering a subject invention, the following statement: “This invention was made with Government support under (identify the contract) awarded by (identify the Federal agency). The Government has certain rights in this invention.”

(5) The Contractor shall establish and maintain active and effective procedures to assure that subject inventions are promptly identified and disclosed to Contractor personnel responsible for patent matters within 6 months of conception and/or first actual reduction to practice, whichever occurs first in performance of work under this contract. These procedures shall include the maintenance of laboratory notebooks or equivalent records and other records as are reasonably necessary to document the conception and/or the first actual reduction to practice of subject inventions, and records that show that the procedures for identifying and disclosing the inventions are followed. Upon request, the Contractor shall furnish the Contracting Officer a description of such procedures for evaluation and for determination as to their effectiveness.

(6) The Contractor agrees, when licensing a subject invention, to arrange to avoid royalty charges on acquisitions involving Government funds, including funds derived through Military Assistance Program of the Government or otherwise derived through the Government, to refund any amounts received as royalty charges on the subject invention in acquisitions for, or on behalf of, the Government, and to provide for such refund in any instrument transferring rights in the invention to any party.

(7) The Contractor shall furnish the Contracting Officer the following:

(i) Interim reports every 12 months (or such longer period as may be specified by the Contracting Officer) from the date of the contract, listing subject inventions during that period and stating that all subject inventions have been disclosed or that there are no such inventions.

(ii) A final report, within 3 months after completion of the contracted work, listing all subject inventions or stating that there were no such inventions, and listing all subcontracts at any tier containing a patent rights clause or stating that there were no such subcontracts.

(8) The Contractor shall promptly notify the Contracting Officer in writing upon the award of any subcontract at any tier containing a patent rights clause by identifying the subcontractor, the applicable patent rights clause, the work to be performed under the subcontract, and the dates of award and estimated completion. Upon request of the Contracting Officer, the Contractor shall furnish a copy of such subcontract, and no more frequently than annually, a listing of the subcontracts that have been awarded.

(9) In the event of a refusal by a prospective subcontractor to accept one of the clauses in subparagraph (g)(1) or (2) below, the Contractor (i) shall promptly submit a written notice to the Contracting Officer setting forth the subcontractor’s reasons for such refusal and other pertinent information that may expedite disposition of the matter and (ii) shall not proceed with such subcontracting without the written authorization of the Contracting Officer.

(10) The Contractor shall provide, upon request, the filing date, serial number and title, a copy of the patent application (including an English-language version if filed in a language other than English), and patent number and

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issue date for any subject invention for which the Contractor has retained title.

(11) Upon request, the Contractor shall furnish the Government an irrevocable power to inspect and make copies of the patent application file.

(g) Subcontracts. (1) The Contractor shall include the clause at 52.227-11 of the Federal Acquisition Regulation (FAR), suitably modified to identify the parties, in all subcontracts, regardless of tier, for experimental, developmental, or research work to be performed by a small business firm or nonprofit organization. The subcontractor shall retain all rights provided for the Contractor in this clause, and the Contractor shall not, as part of the consideration for awarding the subcontract, obtain rights in the subcontractor’s subject inventions.

(2) The Contractor shall include this clause (FAR 52.227-12) in all other subcontracts, regardless of tier, for experimental, developmental, or research work.

(3) In the case of subcontracts, at any tier, when the prime award with the Federal agency was a contract (but not a grant or cooperative agreement), the agency, subcontractor, and the Contractor agree that the mutual obligations of the parties created by this clause constitute a contract between the subcontractor and the Federal agency with respect to those matters covered by this clause.

(h) Reporting utilization of subject inventions. The Contractor agrees to submit on request periodic reports no more frequently than annually on the utilization of a subject invention or on efforts at obtaining such utilization that are being made by the Contractor or its licensees or assignees. Such reports shall include information regarding the status of development, date of first commercial sale or use, gross royalties received by the Contractor, and such other data and information as the agency may reasonably specify. The Contractor also agrees to provide additional reports as may be requested by the agency in connection with any march-in proceedings undertaken by the agency in accordance with paragraph (j) of this clause. To the extent data or information supplied under this paragraph is considered by the Contractor, its licensee or assignee to be privileged and confidential and is so marked, the agency agrees that, to the extent permitted by law, it shall not disclose such information to persons outside the Government. (i) Preference for United States industry. Notwithstanding any other provision of this clause, the Contractor agrees that neither it nor any assignee will grant to any person the exclusive right to use or sell any subject invention in the United States unless such person agrees that any products embodying the subject invention will be manufactured substantially in the United States. However, in individual cases, the requirement for such an agreement may be waived by the Federal agency upon a showing by the Contractor or its assignee that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible.

(j) March-in rights. The Contractor agrees that with respect to any subject invention in which it has acquired title, the Federal agency has the right in accordance with the procedures in FAR 27.304-1(g) to require the Contractor, an assignee, or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the Contractor, assignee, or exclusive licensee refuses such a request, the Federal agency has the right to grant such a license itself if the Federal agency determines that—

(1) Such action is necessary because the Contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;

(2) Such action is necessary to alleviate health or safety needs which are not reasonably satisfied by the Contractor, assignee, or their licensees;

(3) Such action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the Contractor, assignee, or licensees; or

(4) Such action is necessary because the agreement required by paragraph (i) of this clause has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in

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breach of such agreement.

(k) Special provisions for contracts with nonprofit organizations. [Reserved]

(l) Communications.

NOT APPLICABLE

(m) Other inventions. Nothing contained in this clause shall be deemed to grant to the Government any rights with respect to any invention other than a subject invention.

(n) Examination of records relating to inventions. (1) The Contracting Officer or any authorized representative shall, until 3 years after final payment under this contract, have the right to examine any books (including laboratory notebooks), records, and documents of the Contractor relating to the conception or first reduction to practice of inventions in the same field of technology as the work under this contract to determine whether—

(i) Any such inventions are subject inventions;

(ii) The Contractor has established and maintains the procedures required by subparagraphs (f)(2) and (f)(3) of this clause; and

(iii) The Contractor and its inventors have complied with the procedures.

(2) If the Contracting Officer determines that an inventor has not disclosed a subject invention to the Contractor in accordance with the procedures required by subparagraph (f)(5) of this clause, the Contracting Officer may, within 60 days after the determination, request title in accordance with subparagraphs (d)(2) and (d)(3) of this clause. However, if the Contractor establishes that the failure to disclose did not result from the Contractor’s fault or negligence, the Contracting Officer shall not request title.

(3) If the Contracting Officer learns of an unreported Contractor invention which the Contracting Officer believes may be a subject invention, the Contractor may be required to disclose the invention to the agency for a determination of ownership rights.

(4) Any examination of records under this paragraph shall be subject to appropriate conditions to protect the confidentiality of the information involved.

(o) Withholding of payment (this paragraph does not apply to subcontracts). (1) Any time before final payment under this contract, the Contracting Officer may, in the Government’s interest, withhold payment until a reserve not exceeding $50,000 or 5 percent of the amount of the contract, whichever is less, shall have been set aside if, in the Contracting Officer’s opinion, the Contractor fails to—

(i) Establish, maintain, and follow effective procedures for identifying and disclosing subject inventions pursuant to subparagraph (f)(5) above;

(ii) Disclose any subject invention pursuant to subparagraph (c)(1) above;

(iii) Deliver acceptable interim reports pursuant to subdivision (f)(7)(i) above; or

(iv) Provide the information regarding subcontracts pursuant to subparagraph (f)(8) of this clause.

(2) Such reserve or balance shall be withheld until the Contracting Officer has determined that the Contractor has rectified whatever deficiencies exist and has delivered all reports, disclosures, and other information required by this clause.

(3) Final payment under this contract shall not be made before the Contractor delivers to the Contracting Officer all

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disclosures of subject inventions required by subparagraph (c)(1) above, an acceptable final report pursuant to subdivision (f)(7)(ii) above, and all past due confirmatory instruments.

(4) The Contracting Officer may decrease or increase the sums withheld up to the maximum authorized above. No amount shall be withheld under this paragraph while the amount specified by this paragraph is being withheld under other provisions of the contract. The withholding of any amount or the subsequent payment thereof shall not be construed as a waiver of any Government right.

(End of clause)

52.244-2 SUBCONTRACTS (AUG 1998) - ALTERNATE II (AUG 1998)

(a) Definitions. As used in this clause—

Approved purchasing system means a Contractor’s purchasing system that has been reviewed and approved in accordance with Part 44 of the Federal Acquisition Regulation (FAR).

Consent to subcontract means the Contracting Officer’s written consent for the Contractor to enter into a particular subcontract.

Subcontract means any contract, as defined in FAR Subpart 2.1, entered into by a subcontractor to furnish supplies or services for performance of the prime contract or a subcontract. It includes, but is not limited to, purchase orders, and changes and modifications to purchase orders.

(b) This clause does not apply to subcontracts for special test equipment when the contract contains the clause at FAR 52.245-18, Special Test Equipment.

(c) When this clause is included in a fixed-price type contract, consent to subcontract is required only on unpriced contract actions (including unpriced modifications or unpriced delivery orders), and only if required in accordance with paragraph (d) or (e) of this clause.

(d) If the Contractor does not have an approved purchasing system, consent to subcontract is required for any subcontract that—

(1) Is of the cost-reimbursement, time-and-materials, or labor-hour type; or

(2) Is fixed-price and exceeds—

(i) For a contract awarded by the Department of Defense, the Coast Guard, or the National Aeronautics and Space Administration, the greater of the simplified acquisition threshold or 5 percent of the total estimated cost of the contract; or

(ii) For a contract awarded by a civilian agency other than the Coast Guard and the National Aeronautics and Space Administration, either the simplified acquisition threshold or 5 percent of the total estimated cost of the contract.

(e) If the Contractor has an approved purchasing system, the Contractor nevertheless shall obtain the Contracting Officer’s written consent before placing the following subcontracts:

(f)(1) The Contractor shall notify the Contracting Officer reasonably in advance of placing any subcontract or modification thereof for which consent is required under paragraph (c), (d), or (e) of this clause, including the following information:

(i) A description of the supplies or services to be subcontracted.

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(ii) Identification of the type of subcontract to be used.

(iii) Identification of the proposed subcontractor.

(iv) The proposed subcontract price.

(v) The subcontractor’s current, complete, and accurate cost or pricing data and Certificate of Current Cost or Pricing Data, if required by other contract provisions.

(vi) The subcontractor’s Disclosure Statement or Certificate relating to Cost Accounting Standards when such data are required by other provisions of this contract.

(vii) A negotiation memorandum reflecting—

(A) The principal elements of the subcontract price negotiations;

(B) The most significant considerations controlling establishment of initial or revised prices;

(C) The reason cost or pricing data were or were not required;

(D) The extent, if any, to which the Contractor did not rely on the subcontractor’s cost or pricing data in determining the price objective and in negotiating the final price;

(E) The extent to which it was recognized in the negotiation that the subcontractor’s cost or pricing data were not accurate, complete, or current; the action taken by the Contractor and the subcontractor; and the effect of any such defective data on the total price negotiated;

(F) The reasons for any significant difference between the Contractor’s price objective and the price negotiated; and

(G) A complete explanation of the incentive fee or profit plan when incentives are used. The explanation shall identify each critical performance element, management decisions used to quantify each incentive element, reasons for the incentives, and a summary of all trade-off possibilities considered.

(2) If the Contractor has an approved purchasing system and consent is not required under paragraph (c), (d), or (e) of this clause, the Contractor nevertheless shall notify the Contracting Officer reasonably in advance of entering into any (i) cost-plus-fixed-fee subcontract, or (ii) fixed-price subcontract that exceeds either the simplified acquisition threshold or 5 percent of the total estimated cost of this contract. The notification shall include the information required by paragraphs (f)(1)(i) through (f)(1)(iv) of this clause.

(g) Unless the consent or approval specifically provides otherwise, neither consent by the Contracting Officer to any subcontract nor approval of the Contractor’s purchasing system shall constitute a determination—

(1) Of the acceptability of any subcontract terms or conditions;

(2) Of the allowability of any cost under this contract; or

(3) To relieve the Contractor of any responsibility for performing this contract.

(h) No subcontract or modification thereof placed under this contract shall provide for payment on a cost-plus-a-percentage-of-cost basis, and any fee payable under cost-reimbursement type subcontracts shall not exceed the fee limitations in FAR 15.404-4(c)(4)(i).

(i) The Contractor shall give the Contracting Officer immediate written notice of any action or suit filed and prompt notice of any claim made against the Contractor by any subcontractor or vendor that, in the opinion of the

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Contractor, may result in litigation related in any way to this contract, with respect to which the Contractor may be entitled to reimbursement from the Government.

(j) The Government reserves the right to review the Contractor’s purchasing system as set forth in FAR Subpart 44.3.

(k) Paragraphs (d) and (f) of this clause do not apply to the following subcontracts, which were evaluated during negotiations:

NOT APPLICABLE

52.247-1 COMMERCIAL BILL OF LADING NOTATIONS (APR 1984)

If the Contracting Officer authorizes supplies to be shipped on a commercial bill of lading and the Contractor will be reimbursed these transportation costs as direct allowable costs, the Contractor shall ensure before shipment is made that the commercial shipping documents are annotated with either of the following notations, as appropriate:

(a) If the Government is shown as the consignor or the consignee, the annotation shall be:

“Transportation is for the U.S. Army Research Laboratory and the actual total transportation charges paid to the carrier(s) by the consignor or consignee are assignable to, and shall be reimbursed by, the Government.”

(b) If the Government is not shown as the consignor or the consignee, the annotation shall be:

“Transportation is for the U.S. Army Research Laboratory and the actual total transportation charges paid to the carrier(s) by the consignor or consignee shall be reimbursed by the Government, pursuant to cost-reimbursement contract no. DAAD17-02-C-0073. This may be confirmed by contacting the contracting officer.”

52.252-2 CLAUSES INCORPORATED BY REFERENCE (FEB 1998)

This contract incorporates one or more clauses by reference, with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. Also, the full text of a clause may be accessed electronically at this/these address(es):

http://farsite.hill.af.mil/VFDFARa.htm

http://www.arnet.gov/far

52.252-6 AUTHORIZED DEVIATIONS IN CLAUSES (APR 1984)

(a) The use in this solicitation or contract of any Federal Acquisition Regulation (48 CFR Chapter 1) clause with an authorized deviation is indicated by the addition of “(DEVIATION)” after the date of the clause.

(b) The use in this solicitation or contract of any DFAR (48 CFR Part 2) clause with an authorized deviation is indicated by the addition of “(DEVIATION)” after the name of the regulation.

252.235-7010 Acknowledgment of Support and Disclaimer. (MAY 1995)

(a) The Contractor shall include an acknowledgment of the Government’s support in the publication of any material based on or developed under this contract, stated in the following terms: This material is based upon work supported by the U.S. ARMY RESEARCH LABORATORY under Contract No. DAAD17-02-C-0073.

(b) All material, except scientific articles or papers published in scientific journals, must, in addition to

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any notices or disclaimers by the Contractor, also contain the following disclaimer: Any opinions, findings and conclusions or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the U.S. ARMY RESEARCH LABORATORY.

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SECTION J List of Documents, Exhibits and Other Attachments

Section J Table Of Contents

DOCUMENT TYPE	DESCRIPTION	PAGES	DATE
Exhibit A	CLIN 0002 CDRL(s)	4	FEB-07-2002
Attachment 1	Approved Subcontracting Plan	13	MAR-09-2002
Attachment 2	Evidence of Bilateral Award	1	FEB-28-2002

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Exhibit A

CONTRACT DATA REQUIREMENTS LIST (1 Data Item)

Form Approved OMB No. 0704-0188

Public reporting burden for this collection of information is estimated to average 200 hour per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Defense, Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188), Washington, DC 20503. Please DO NOT RETURN your form to either of these addresses. Send completed form to the Government Issuing Contracting Officer for the Contract/PR No. listed in Block E.

A. CONTRACT LINE ITEM NO.

B. EXHIBIT

0002

TOP

D. SYSTEM/ITEM

E. CONTRACT/PR NO.

F. CONTRACTOR

Data IAW DD 1423, Contract Data

W71B7J-2030-B325

1. DATA ITEM NO.

2. TITLE OF DATA ITEM

3. SUBTITLE

17. PRICE GROUP

A001

STATUS REPORT

TECH & COST EXPENDITURE REPORT

4. AUTHORITY (Date Acquisition Document No.)

5. CONTRACT REFERENCE

6. REQUIRING OFFICE

18. ESTIMATED TOTAL PRICE

DI-MGMT-80368

SOW C.14.2

AMSRL-SE-EM

7. DD 260 REQ LT

9. DIST STATEMENT REQUIRED C

10. FREQUENCY QRTLY

12. DATE OF FIRST SUBMISSION 105 DAYS ACA

14.      DISTRIBUTION

b. COPIES

8. APP CODE N/A

11. AS OF DATE NA

13. DATE OF SUBSEQUENT SUBMISSION SEE BLK 16

a. ADDRESSEE

Draft

Final

Reg

Repro

16.REMARKS

AMSSB-ACA-P

0

0

0

BLK D: SEMI CONDUCTOR UV OPTICAL SOURCES (SUVOS)

COPY OF LTR

0

0

0

AMSRL-SE-EM

0

1

0

BLK 4: EACH REPORT SHALL BE DELIVERED ELECTRONICALLY AS AN EMAIL ATTACHMENT MS WORD COMPATIBLE DOCUMENT. REPORT SHALL CONSIST OF NO MORE THAN TEN (10) PAGES. EMAIL ADDRESSES ARE AS FOLLOWS: PAMIRTHARAJ@ARL.ARMY.MIL AND jcarrano@da.pa.mil BLK 9: DISTRIBUTION STATEMENT C. DISTRIBUTION AUTHORIZED TO U.S. GOVERNMENT AGENCIES AND THEIR AUTHORIZED CONTRACTORS. FURTHER DISTRIBUTION ONLY AS AUTHORIZED BY ARL FORM 1A. BLK 13: SUBSEQUENT SUBMISSIONS SHALL BE MADE NLT THE 10TH DAY OF THE MONTH FOLLOWING THE PERIOD OF PERFORMANCE REPORTING ON.

DARPA/MTO

0

1

0

15. TOTAL

0

2

0

G. PREPARED BY

H. DATE

I. APPROVED BY

J. DATE

DR PAUL AMIRTHARAJ

07-Feb-2002

NORMAN LEKANG

07-Feb-2002

DD Form 1423-1, AUG 96 (EG)

Previous editions are obsolete

DAAD17-02-C-0073    

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CONTRACT DATA REQUIREMENTS LIST (1 Data Item)

Form Approved OMB No. 0704-0188

Public reporting burden for this collection of information is estimated to average 200 hour per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Defense, Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188), Washington, DC 20503. Please DO NOT RETURN your form to either of these addresses. Send completed form to the Government Issuing Contracting Officer for the Contract/PR No. listed in Block E.

A. CONTRACT LINE ITEM NO.

B. EXHIBIT

0002

TOP

D. SYSTEM/ITEM

E. CONTRACT/PR NO.

F. CONTRACTOR

Data IAW DD 1423, Contract Data

W71B7J-2030-B325

1. DATA ITEM NO.

2. TITLE OF DATA ITEM

3. SUBTITLE

17. PRICE GROUP

A001

STATUS REPORT

TECH & COST EXPENDITURE REPORT

4. AUTHORITY (Date Acquisition Document No.)

5. CONTRACT REFERENCE

6. REQUIRING OFFICE

18. ESTIMATED TOTAL PRICE

DI-MGMT-80368

SOW C.14.2

AMSRL-SE-EM

7. DD 260 REQ LT

9. DIST STATEMENT REQUIRED C

10. FREQUENCY QRTLY

12. DATE OF FIRST SUBMISSION 105 DAYS ACA

14.      DISTRIBUTION

b. COPIES

8. APP CODE N/A

11. AS OF DATE NA

13. DATE OF SUBSEQUENT   SUBMISSION SEE BLK 16

a. ADDRESSEE

Draft

Final

Reg

Repro

16.REMARKS

AMSSB-ACA-P

0

1

0

BLK D: SEMI CONDUCTOR UV OPTICAL SOURCES (SUVOS)

COPY OF LTR

0

1

0

AMSRL-SE-EM

1

2

0

BLK 4: EACH REPORT SHALL BE DELIVERED ELECTRONICALLY AS AN EMAIL ATTACHMENT MS WORD COMPATIBLE DOCUMENT. REPORT SHALL CONSIST OF NO MORE THAN TEN (10) PAGES. EMAIL ADDRESSES ARE AS FOLLOWS: PAMIRTHARAJ@ARL.ARMY.MIL AND jcarrano@da.pa.mil BLK 9: DISTRIBUTION STATEMENT C. DISTRIBUTION AUTHORIZED TO U.S. GOVERNMENT AGENCIES AND THEIR AUTHORIZED CONTRACTORS. FURTHER DISTRIBUTION ONLY AS AUTHORIZED BY ARL FORM 1A. BLK 13: SUBSEQUENT SUBMISSIONS SHALL BE MADE NLT THE 10TH DAY OF THE MONTH FOLLOWING THE PERIOD OF PERFORMANCE REPORTING ON.

DARPA/MTO

0

1

1

15. TOTAL

0

2

0

G. PREPARED BY

H. DATE

I. APPROVED BY

J. DATE

DR PAUL AMIRTHARAJ

07-Feb-2002

NORMAN LEKANG

07-Feb-2002

DD Form 1423-1, AUG 96 (EG)

Previous editions are obsolete

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ATTACHMENT 1

ARMY RESEARCH LABORATORY

Report Title Goes Here

Any Subtitles Go Here

By Some Author and Another Author

ARL-CR-XXX Month XXXX

Prepared by

Whatever Technology Corporation

0000 Research Drive

Anywhere, ST 20006-1000

Under contract

DAAD17-XX-C-XXXX

DISTRIBUTION STATEMENT GOES HERE

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ATTACHMENT 2

The findings in this report are not to be construed as an official Department of the Army position unless so designated by other authorized documents.

Citation of manufacturer’s or trade names does not constitute an official endorsement or approval of the use thereof.

DESTRUCTION NOTICE: For classified documents, follow the procedures in DoD 2500.22-M, Industrial Security Manual, Section 11-19 or DoD 5200.1-R, Information Security Program Regulation, Chapter IX. For unclassified, limited documents, destroy by any method that will prevent disclosure of contents or reconstruction of the document.

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CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

FOR THE DEPARTMENT OF DEFENSE CONTRACTS AND

MAJOR SUBCONTRACTS

Small Business Concerns/Veteran Owned Small Business Concerns and Service-Disabled Veteran-Owned Small Business/Hubzone Small Business Concerns/Small Business Concerns Owned and Controlled By Socially and Economically Disadvantaged Individuals/Small Business Concerns Owned and Controlled By Women

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CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

Contractor    Cree,Inc.(Cree)

Address:        4600 Silicon Drive

     Durham, NC 27703-8475

This is a Master Small Business Subcontracting Plan. This Plan contains all the required elements of an individual contract plan except individual goals established for each Government contract or major subcontract. In addition, Cree shall submit a contract specific Plan to the contracting officer/buyer for final negotiation and approval. The contract specific plan will include goals based on the planned subcontracting for that contract.

STATEMENT OF POLICY:

It is the policy of Cree that small business concerns, veteran-owned small business concerns and service-disabled veteran-owned small business concerns, HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women shall have the maximum practicable opportunity to participate in subcontracting at Cree. Cree hereby agrees to carry out this policy in awarding of subcontracts to the fullest extent, consistent with the efficient performance of Government contracts and subcontracts. Cree further agrees to cooperate in any studies or surveys as may be conducted by the Small Business Administration, or the awarding agency/department of the United States as any be necessary to determine the extent of compliance with Federal Acquisition Regulation (FAR) 52.219-8 clause titled, “Utilization pf Small Business Concerns (UCT 2000 Oct 1999).”

1. CONTRACT SPECIFIC GOALS

Cree shall submit proposed contract specific subcontracting goals for the term of each Government contractor major subcontract. The Contract Specific Plan submittal shall include goals for small business concerns (SB), veteran-owned small business concerns (VOSB) small business concerns owned and controlled by socially and economically disadvantaged individuals (BD8). HUBZone small business concerns (HUB), and small business concerns owned and controlled by women (WOSB). Service-disabled veteran-owned small business concerns meet the definition of veteran-owned small business concerns, and they will be included within the subcontracting plan goal for veteran-owned small business concerns. The negotiated and established goals of the Contract Specific Plan will be incorporated into this Master Plan by this reference, upon signature of the parties, and will not require contract modification.

The proposed goals shall be based upon an established percentage of estimated commercial purchases, which will be derived from the current fiscal year budget. Goals for the utilization of SB, VOSB, SDB, HUB, and WOSB subcontractors shall be expressed in both dollars and percentages for total planned dollars to be subcontracted; total dollars planned to be subcontracted to SB; total dollars planned to be subcontracted to VOSB, total dollars planned to be subcontracted to HUB; total dollars to be subcontracted to SDB; and total dollars planned to

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CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

be subcontracted to WOSB concerns, unless otherwise required by the Contracting Officer/buyer.

Cree’s subcontracting goals shall be set at a level that the parties reasonably expect can result expending good faith efforts to use SB, VOSB, SDB, HUB and WOSB subcontractors.

2. DESCRIPTION OF SUPPLIERS AND SERVICES

The principal products and/or services to be subcontracted for the Contract Specific Plan, and the types of businesses supplying them shall be identified in an Attachment A to the Contract Specific Plan.

3. METHODOLOGY – GOALS

a) The type of products/services typically needed by Cree is reviewed periodically to establish additional materials and services that are likely to be performed by a concern other than Cree.

b) The Scope of Work for each Contract/subcontract is reviewed to establish potential material and services that could likely be performed by a concern other than Cree.

c) From the total estimate of potential subcontracted items, a list of those items that are candidates for small businesses is established.

d) From the total estimate of potential subcontracted items to small businesses, a list of those items that could be subcontracted to veteran-owned small business concerns is established

e) From the total estimate of potential subcontracted items to small businesses, a list of those items that could be subcontracted to small disadvantaged business concerns is established.

f) From the total estimate of potential subcontracted items, a list of those items that are candidates for HUBZone small business concerns is established.

g) From the total estimate of potential subcontracted items to small business, a list of those items that could be subcontracted to women-owned small business concerns is established.

4. METHODOLOGY—POTENTIAL SOURCES

In the establishment of potential SB/V0SB/SDB/HUB/V0SB sources for solicitation purposes, the following resources are used:

a) Cree Company Approved Supplier List:

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CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

b) the Small Business Administration’s (SBA)Pro-Net system, (http://pro-net.sba.gov/);

c) the National Minority Business Council Vendor Information Service, (http://www.nmbc.org/)

d) the Minority Business Development Administration’s Phoenix database, (http://www.mbda.gov/vendors.html);

e) the HUBZone data base in the Pro-Net system, (http://pro-net.sba.gov/):

f) the 8(a)search database available through Pro-Net (http://pro-net.sba.gov/);

g) the Woman-Owned Small business database available through Pro-Net (http://pro-net.sba.gov/)

h) the Information Division of the Minority Business Development Agency in the Department of Commerce

i) the local Industrial Services Directory:

j) other small and minority business associations, and

k) Networking opportunities with the local Chamber of Commerce.

1) Office of Veterans Business Development (http://www.sba.govNETS/)

5. INDIRECT COSTS

In accordance with FAR 52.219-9(OCT2000) (Cree has decided not to include indirect costs in the goals specified for its individual contracts, however, for reporting purposes on the SF295 we will allocate a portion of indirect cost in accordance with the portion of DOD sales versus total company sales.

6. RESPONSIBILITIES FOR IMPLEMENTATION

This Master Subcontracting Plan and Contract Specific Plan there under, are to be administered by Cree to assure that the provisions of applicable Law and the plan are implemented and performed. Any change in the name of the administrator will be communicated without delay to the Contracting Officer/buyer by letter and will not require a contract modification.

The following individual will administer the subcontracting program:

Name:	Carmen L. Hayes
Title:	Contract Administrator Small Business Utilization Specialist
Address:	4600 Silicon Drive
	Durham, NC 27703
Telephone:	919-313-5644
Email:	Carmen_hayes@cree.com

This individual’s specific duties as they relate to this Subcontracting Program shall include, but are not limited to

a) Oversee compliance with the content of this Plan:

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b) Ensure that all Government subcontracts placed contain the latest provisions regarding small business and small disadvantaged business subcontracting and that the requirements of FAR 52.219-9 as implemented by this Plan are being fulfilled by Cree’s large business subcontractors;

c) Assure inclusion of SB, VOSB, SDB, HUB, WOSB concerns in all solicitations for products or services which they are capable of providing;

d) Review solicitations to remove statements, clauses, etc. which may tend to restrict or prohibit SB, VOSB, SDB, HUB, WOSB participants;

e) Participate in Business Opportunity Workshops, Minority Business Enterprise, Seminars, Trade Fairs, etc., to assist SB, VOSB, SDB, HUB and WOSB concerns, and to discuss subcontracting opportunities with them. Plan to attend one DOD southeast council meeting per year;

f) Perform periodic audit of sub-tier subcontracting plans to measure progress of goals and monitor attainment of goals under each Contract Specific Plan:

g) Prepare and submit periodic subcontracting reports including SF 294/295, and cooperate in studies and surveys as required;

h) Assist in developing and maintaining bidders list of SB, VOSB, SDB, HUB and WOSB concerns from all possible sources;

i) Participate in procuring, planning and selection of potential sources to ensure that SB, VOSB, SDB, HUB and WOSB concerns are offered every opportunity to participate in the program;

j) Coordinate and participate with the SBA small business utilization specialist, and other groups to locate capable firms.

k) Facilitate the use of SB/VOSB/SBD/HUB/WOSB by ensuring that adequate time is allowed for preparation of bids and that solicitation quantities, specifications, and delivery schedule facilitate the participating by such concerns.

l) Counsel and discuss subcontracting opportunities with representatives of SB/VOSB/SDB/HUB/WOSB firms.

m) Provide notice of subcontractors concerning penalties and remedies for misrepresentations of business size status as SB/VOSB/B/SDB/HUB/WOSB for the purpose of obtaining a subcontract that is to be included as part or all of a goal.

n) Coordinate and participate in annual program review.

o) Maintain vendor certification.

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MASTER SMALL BUSINESS

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7. DESCRIPTION OF EFFORTS

In the establishment of the SB, VOSB, SDB, HUB, WOSB goals, the following resources are used: the Company Approved Supplier List; the Small Business Administration’s Pro-Net system, (http://pro-net.sba.gov/); the National Minority Purchasing Council Vendor Information Service; the Minority Business Development Administration’s Phoenix database, (http://www.mbda.gov/vendors.html); the Research and Information Division of the Minority Business Development Agency in the Department of Commerce, and other small and minority business associations.

Outreach efforts include:

a) Assignment by name of specific individuals to carry out the requirements of company policies and procedures;

b) Provision of technical and management assistance to small business, small disadvantaged business concerns and women-owned business concerns to ensure complete understanding of requirements;

c) Assuring that Cree will consider small business concerns in all “make-or-buy decisions-’ and maintain records of these processes;

d) Institute a program to recognize purchasing personnel who excel in administering the Cree subcontracting program,

e) Participation in local Small Business Opportunity Fairs;

f) Institute a program that recognizes small business participation in the success of performing Government contracts and major subcontracts: and

g) Where additional bidders are required, the following publications will be used to search for capable firms:

a. Minority Business Enterprise published by the Defense Logistics Agency.

b. Diversity Information Resources, National Business Campaign, 1201 12th Ave, N, Minneapolis, MN 55411, (http://www.tryusdir.com)

c. The Regional Minority Purchasing Council’s listings.

d. The Women-Owned Business directory.

e. National Minority Council mailing list.

f. An outreach effort will be made to solicit the assistance of local, state, and federal officers, trade and manufacturing associations, and labor organizations in identifying qualified firms.

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CREE, INC.

MASTER SMALL BUSINESS

SUBCONTRACTING PLAN

8. COMPLIANCE WITH FEDERAL ACQUISITION REGULATIONS (FAR)

Cree will include the FAR clause 52.219-8, titled “Utilization of Small Business Concerns, (OCT 2000), in all subcontracts supporting Government contracts that offer further subcontracting opportunities, except contracts for personal services or subcontracts to be performed outside any territory or possession of the United States. Cree will require all subcontractors (except small business concerns) who support Government contracts and who receive subcontracts of $500,000 or in the case of a subcontract for the construction of any public facility, $1,000,000, and which offer further subcontracting possibilities to adopt and submit a plan similar to the Cree Plan, and one that complies with the requirements of the stated FAR clause.

9. REPORTING

Cree give assurance of:

a) Cooperation in any studies or surveys that may be required by the contracting agency, or the SBA.

b) Submission, of periodic reports that show compliance with the subcontracting plan. Cree may utilize the GSA “Formfill” web site http://fillform.gsa.gov/            to            complete and submit required reports,

c) Submission of Standard Form (SF) 284 “Subcontracting Report for Individual. Contracts,” and SF-295, ‘Summary Subcontract Report,” in accordance with the instructions on the forms.

d) Ensuring that large business subcontractors with subcontracting plans agree to submit Standard Forms 294 and 295.

Reporting Period	Report Due	Due Date
Oct 1 – Mar 31	SF 294	April 30
Apr 1 – Sep 30	SF 294	October 30
Oct 1 – Mar 31	SF 295	April 30 (DoD only)
Oct 1 – Sep 30	SF 295	October 30
Subcontractor Closeout	SF 294	Subcontract Completion

10. RECORDS

Cree agrees to maintain at least the following types of records to document compliance with this Subcontracting Plan:

a) Source lists, guides, and other data identifying SB, VOSB, SDB, HUB and WOSBV concerns;

b) Organizations contacted in an attempt to locate sources that are SB, VOSB, SDB, HUB and WOSB concerns;

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c) On a subcontract-by-subcontract basis, records on all subcontract solicitations over $100,000; indicating on each solicitation whether any SB, VOSB, SDB, HUB, and WOSB concerns were solicited, and if not, why not;

d) On a subcontract-by-subcontract basis, records indicating the reason an award was not made to SB, VOSB, SDB, HUB and WOSB concern;

e) Records to support other outreach efforts; contacts with minority and small business trade associations, contacts with business development organizations, attendance at small and minority business procurement conferences and trade fairs to locate SB, VOSB, SDB, HUB, and WOSB concerns;

f) Records to support internal activities to guide and encourage buyers through workshops, seminars, training programs and monitoring performance activities to evaluate compliance; and

g) Records to support award data, including the name, address, and business size of each subcontractor.

Cree hereby submits a request for approval of this Master Subcontracting Plan. This Plan shall be effective for three years after approval, or for the life of any contract/major subcontract that incorporates this Master Subcontracting Plan.

PLAN SUBMITTED BY:
/s/ Cynthia Merrell	Date	12/8/00
NAME
PLAN CONCURRED BY
/s/ Carmen Hayes	Date	11/21/00
Small Business Utilization Specialist
PLAN ACCEPTED BY
/s/ Margerie HocKstetler	Date	1/8/01
Contracting Officer

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CREE, INC.

Contract/Major Subcontract

Specific

SB/HUB/SBD/WOB/VOSB

SUBCONTRACTING PLAN

DAAD17-02-C-0073        

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CREE, INC.

SB/HUB/SDB/WOB

SUBCONTRACTING PLAN

FOR

CONTRACT/SUBCONTRACT NO: DARPA BAA 02-03

Contractor: Cree, Inc. (Cree)
Address: 4600 Silicon Drive
	Durham, NC 27703
Contract Value:	$ [***]

1. GOALS-PERCENTAGE

This Contract Specific Plan relates specifically to the scope of work to be performed under this contract/major subcontract, including support services. Subcontracting opportunities have been found to exist in the scope of work as noted below. Further, Cree will continue to expand subcontracting opportunities for small business concerns, HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women, as they become known to Cree.

This Contract Specific Plan, hereby incorporated into the tree Master Subcontracting Plan are the following goals:

Small Business (SB)	[***]%
HUBZone Business	[***]%
Small Disadvantaged Business (SDB)	[***]%
Woman-Owned Small Business (WOSB)	[***]%
Veteran-Owned Small/ Business(VOSB)	[***]%

2. GOALS-DOLLAR

Total dollars planned to be subcontracted is $[***] Total dollars planned to be subcontracted to small business concerns is $ [***]. Total dollars planned to be subcontracted to HUBZone’s is $[***]. Total dollars planned to be subcontracted to small disadvantaged business concerns is $ [***]. Total dollars planned to be subcontracted to woman-owned small business is $[***]. Total dollars planned to be subcontracted to veteran-owned small business is $ [***].

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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CREE, INC.

SB/HUB/SDB/WOB

SUBCONTRACTING PLAN

2. DESCRIPTION OF SUBCONTRACTING OPPORTUNITIES

The principal products and/or services to be subcontracted and the types of businesses to be utilized are included in Attachment 1.

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CREE INC.

SB/HUB/WOB

SUBCONTRACTING PLAN

For

CONTRACT/SUBCONTRACT NO.: DARPA BAA 02-03

Approved:
/s/ Carmen Hayes		2-1-02
Small Business Utilization Specialist, Cree, Inc.	Date
Contracting Officer/Buyer	Date

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Attachment 1

Product	Quantity	$ Amount	Total	Vendor	Business Type	Comments
[***]	228	3.36	766.08	[***]	W	Women owned 3%
[***]	228	90.94	20,734.32	[***]	S	Small Business-33%
[***]	36	375.00	13,500.00	[***]	S	Large Business-64%
[***]	41	1,600.00	65,600.00	[***]	L
[***]	4	500.00	2,000.00	[***]	W
			102,600.40

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1.  CONTRACT ID CODE U PAGE 1 OF 6

2. AMENDMENT/MODIFICATION NO.             P00001	3. EFFECTIVE DATE 24-Sep-2003	4. REQUISITION/PURCHASE REQ. NO. W71B7J-2030-B325	5. PROJECT NO. (If applicable)
6. ISSUED BY                                                     CODE US ARMY ROBERT MORRIS ACQUISITION CENTER RMAC – ADELPHI 2800 POWDER MILL ROAD AMSSB-ACA ADELPHI MD 20783-1197	W71B7J	7. ADMINISTERED BY (If other than Item 6) DCMC - ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789	CODE         S1103A

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code) CREE, INC. CHARLES M. SWOBODA 4600 SILICON DRIVE DURHAM NC 27703			9A. AMENDMENT OF SOLICITATION NO.
			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER NO. DAAD17-02-C-0073
CODE     OC9J8	FACILITY CODE	X	10B. DATED (SEE ITEM 13) 01-Feb-2002
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers         ¨ is extended,        

¨ is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:

(a) By completing items 8 and 15, and returning      copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER.  If by virtue of this amendment your desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

12. ACCOUNTING AND APPROPRIATION DATA (If required)

13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS,

IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

       A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. ITEM 10A.

       B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES

(such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)

       C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:

X    D. OTHER (Specify type of modification and authority)

Unilateral Modification pursuant to 10 USC 2304 and Contractor’s e-mail dated 24 SEP 2002.

E. IMPORTANT; Contractor x is not, ¨ is required to sign this document and return          copies to the issuing office.

    14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

The purpose of this modification is threefold:

A. 52.005-4401 RELEASE OF INFORMATION (AUG 2001) is deleted and replaced with 52.005-4401 RELEASE OF INFORMATION (JUL 2002) and 52.004-4400

FOREIGN NATIONALS PERFORMING UNDER CONTRACT – ALTERNATE I (AUG 1999) is incorporated to apply to Educational Institutions only.

B. The USARMAC Contracting Point of Contact has changed from Joyce McDonald to Robin Stoltz.

C. In addition, this modification also contains administrative changes to comply with automated contracting system requirements and in no way impacts any of the

terms and conditions of the contract.

D. All other terms and conditions of the contract remain unchanged.

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)		16A. NAME AND TITLE OF SIGNER (Type or print) THEODORE WEITZMAN/CONTRACTING OFFICER
15B. CONTRACTOR/OFFEROR              (Signature of person authorized to sign)	15C. DATE SIGNED	16B. UNITED STATES OF AMERICA     By: /s/ Theodore Weitzman                                    (Signature of Contracting Officer)	16C.   DATE SIGNED 24-Sep-2002
NSN 7540-01-152-8070 PREVIOUS EDITION UNUSABLE ConWrite Version 4.1.4 Created 06 Sep 2001 9:31 AM		STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

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SECTION SF 30 BLOCK 14 CONTINUATION PAGE

SUMMARY OF CHANGES

Changes in Solicitation/Contract/Order Form

The discount terms has changed from NET 30 to Net 30 Days

Changes in Section B

CLIN 0001

The acceptance terms number of days has increased from 0 by 7 to 7

CLIN 0002

The acceptance terms number of days has increased from 0 by 7 to 7

CLIN 0003

The acceptance terms number of days has increased from 0 by 7 to 7

CLIN 0004

The acceptance terms number of days has increased from 0 by 7 to 7

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Changes in Section B

The following clauses which are incorporated by full text have been added or modified:

52.004-4401 RMAC POINT OF CONTACT (MAR 2000)

The RMAC point of contact for this action is:

Contract Specialist: Robin Stoltz

Telephone Number: 301-394-3381

Fax Number: 301-394-2852

Email: rstoltz@arl.army.mil

(End of clause)

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Changes in Section G

Summary for the Payment Office

The total funded amount of the contract remains unchanged.

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Changes in Section H

The following clauses which are incorporated by full text have been added or modified:

52.004-4400 FOREIGN NATIONALS PERFORMING UNDER CONTRACT - ALTERNATE I

                      (AUG 1999) (APPLIES TO EDUCATIONAL INSTITUTIONS ONLY)

In accordance with 8 USC 1324a, it is unlawful to hire for employment in the US an individual without verifying that individual’s employment authorization. 8 CFR 274a.2 VERIFICATION OF EMPLOYMENT ELIGIBILITY identifies the official documents that establish employment eligibility.

Prior to performance of work by a foreign national as a result of this contract, the employer shall provide the Contracting Officer the name of the foreign national and identify the type of form (s) produced for verification of employment status. Should the foreign national’s performance require access to DoD facilities, the employer shall coordinate with the sponsor providing access, in order to submit the following:

1. Individual’s Name

2. Citizenship

3. Date and Location of the Visit

4. Purpose of the Visit

5. Passport Number

6. Employer’s Verification of Work Authorization

(End of clause)

52.005-4401 RELEASE OF INFORMATION (JUL 2002)

Army Regulations (AR) 530-1 and AR 360-1 prescribe Department of the Army policies for operations security (OPSEC) review prior to public release. These include:

(1) Procurement instruments and solicitations (including grants, cooperative agreements, etc.), abstracts, papers, technical reports, articles, point papers, news releases, short items to be included in other publications, academic papers on work-related subject matter, speeches, briefings, media presentations, training materials, munitions cases, environmental impact statements, and other forms of information, including film, audio tapes and video cassettes which could divulge non-releasable, unclassified information

(2) Information posted on electronic bulletin boards, passed over unsecured electronic mail systems, or posted in a manner to the World Wide Web

These policies are applicable to unclassified contracts/instruments as well as the classified contracts/instruments governed in this respect by DD Form 254.

Army policy is to make available to the public the maximum accurate information on Army contract/instrument relationships, industry/academic accomplishments, and scientific achievements. In furtherance of this policy, each party agrees to confer and consult with each other prior to publication or any other disclosure of information relating to efforts under this contract/instrument. Prior to any public publication or disclosure, each party will offer the other

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party ample opportunity to review the proposed publication or disclosure, to submit objections, and to file application letters for patents in a timely manner. The contractor shall allow 60 days for completion of this process.

Your organization will provide the Public Affairs Office any public release of information on this contract/instrument by forwarding the material to be released and a transmittal letter identifying the contract/instrument number the specific information to be released, the medium to be used, the purpose of the release, the cognizant Science Officer, Technical Monitor, or Contracting Officer’s Representative to the addresses shown below.

U.S. Army Research Laboratory	U.S. Army Robert Morris Acquisition Center
Public Affairs Office	Adelphi Contracting Division
ATTN: AMSRL-CS-PA	ATTN: AMSSB-ACA-C
2800 Powder Mill Road	2800 Powder Mill Road
Adelphi, Maryland 20783-1197	Adelphi, Maryland 20783-1197

M/F: Contract No.: DAAD17-02-C-0073

The contractor shall assure that an acknowledgment of Government support and disclaimer of Government endorsement as set forth below shall appear on each publication or presentation of material based on or developed under this program. These statements shall appear either on the title/first page or the final page of such documents -

“The research reported in this document/presentation was performed in connection with contract/instrument DAAD17-02-C-0073 with the U.S. Army Research Laboratory. The views and conclusions contained in this document/presentation are those of the authors and should not be interpreted as presenting the official policies or position, either expressed or implied, of the U.S. Army Research Laboratory or the U.S. Government unless so designated by other authorized documents. Citation of manufacturer’s or trade names does not constitute an official endorsement or approval of the use thereof. The U.S. Government is authorized to reproduce and distribute reprints for Government purposes notwithstanding any copyright notation hereon.”

(End of clause)

AMENDMENT OF SOLICITATION//MODIFICATION OF CONTRACT 1.  CONTRACT ID CODE T PAGE 1 OF 3

2. AMENDMENT/MODIFICATION NO.             P00002	3. EFFECTIVE DATE 16-Dec-2002	4. REQUISITION/PURCHASE REQ. NO. SEE SCHEDULE	5. PROJECT NO. (If applicable)
6. ISSUED BY                                                     CODE US ARMY ROBERT MORRIS ACQUISITION CENTER RMAC – ADELPHI 2800 POWDER MILL ROAD AMSSB-ACA ADELPHI MD 20783-1197	W71B7J	7. ADMINISTERED BY (If other than Item 6) DCMC - ATLANTA 805 WALKER STREET, SUITE 1 MARIETTA, GA 30060-2789	CODE S1103A

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code) CREE INC. CHARLES M. SWOBOA 4600 SILICON DRIVE DURHAM, NC 27703			9A. AMENDMENT OF SOLICITATION NO.
			9B. DATED (SEE ITEM 11)
		(X)	10A. MODIFICATION OF CONTRACT/ORDER NO DAAD17-02-C-0073
CODE 0C9J8	FACILITY CODE	(X)	10B. DATED (SEE ITEM 13) 20-MAR-2002
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers                                    ¨ is extended,

¨ is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:

(a) By completing items 8 and 15, and returning          copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER.

If by virtue of this amendment your desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

12.   ACCOUNTING AND APPROPRIATION DATA (If required)

        See Schedule

13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS,

IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED ITEM 14.

 A. THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. ITEM 10A.

B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).

 C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:

D. OTHER (Specify type of modification and authority)

Unilateral Modification pursuant to 10 USC 2304 and Contractor’s e-mail dated 24 SEP 2002.

E. IMPORTANT; Contractor x is not, ¨ is required to sign this document and return      copies to the issuing office.

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

The purpose of this modification is to add an increment of funds in the amount of $ [***], as follows:

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)	16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) THEODORE WEITZMAN/CONTRACTING OFFICER TEL: 301-394-3165    EMAIL: tweitzman@arl.army.mil
15B. CONTRACTOR/OFFEROR              15C. DATE SIGNED /s/                                                      (Signature of person authorized to sign)	16B. UNITED STATES OF AMERICA    16C.   DATE SIGNED By: /s/ Theodore Weitzman                                  24-Sep-2002 (Signature of Contracting Officer)

EXCEPTION TO SF 30                                         30-105-04 APPROVED BY FORM 11-84 STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the

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SECTION SF 30 BLOCK 14 CONTINUATION PAGE

SUMMARY OF CHANGES

SECTION B - SUPPLIES OR SERVICES AND PRICES

CLIN 0002

The test type No Test has been added.

SUBCLIN 000101 is added as follows:

ITEM NO	SUPPLIES/SERVICES	QUANTITY	UNIT	UNIT PRICE	AMOUNT
000101
	Incremental Funding for CLIN 0001
	CS
	PURCHASE REQUEST NUMBER: W71B7J-2347-B321
				ESTIMATED COST SHARE RATIO	[***]
	ACRN AC Funded Amount				[***]

FOB: Destination

SECTION E - INSPECTION AND ACCEPTANCE

The following Acceptance/Inspection Schedule was added for SUBCLIN 000101:

INSPECT AT	INSPECT BY	ACCEPT AT	ACCEPT BY
N/A	N/A	N/A	Government

SECTION G - CONTRACT ADMINISTRATION DATA

Accounting and Appropriation

Summary for the Payment Office

As a result of this modification, the total funded amount for this document was increased by $[***] from $[***] to $[***].

SUBCLIN 000101:

Funding on SUBCLIN 000101 is initiated as follows:

ACRN: AC

Acctng Data:

973040013010RPARGO3H20M891000255YANEM00W71B7J2347B3213N17GGS18129

Increase: $[***]

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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Total: $[***]

(End of Summary of Changes)

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1.  CONTRACT ID CODE T PAGE 1 OF 8

2. AMENDMENT/MODIFICATION NO.             P00003	3. EFFECTIVE DATE 05-May-2003	4. REQUISITION/PURCHASE REQ. NO. SEE SCHEDULE	5. PROJECT NO. (If applicable)
6. ISSUED BY     US ARMY ROBERT MORRIS ACQUISITION CENTER RMAC – ADELPHI 2800 POWDER MILL ROAD AMSSB-ACA ADELPHI MD 20783-1197	CODE W71B7J	7. ADMINISTERED BY (If other than Item 6) DCMC - ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789	CODE S1103A

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code) CREE, INC. CHARLES M. SWOBODA 4600 SILICON DRIVE DURHAM NC 27703			9A. AMENDMENT OF SOLICITATION NO.
			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER NO DAAD17-02-C-0073
CODE OC9J8	FACILITY CODE	X	10B. DATED (SEE ITEM 13) 20-Mar-2002
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers            ¨ is extended,

¨ is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:

(a) By completing items 8 and 15, and returning      copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER.

If by virtue of this amendment your desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

12. ACCOUNTING AND APPROPRIATION DATA (If required)

 See Schedule

13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS,

IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

 X  A.  THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT

ORDER NO. ITEM 10A.

FAR 52.243-2 Changes Alt V (AUG 1987)

B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)

C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:

D. OTHER (Specify type of modification and authority)

E. IMPORTANT; Contractor x is not, ¨ is required to sign this document and return          copies to the issuing office.

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

The purpose of this modification is as follows:

(Note: This modification may contain extraneous administrative changes as a result of the Government’s automated contracting system. These extraneous changes do not affect the terms and conditions of the contract.)

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)	16A. NAME AND TITLE OF SIGNER (Type or print) THEODORE WEITZMAN/CONTRACTING OFFICER TEL: 301-394-3165        EMAIL: tweitzman@arl.army.mil
15B. CONTRACTOR/OFFEROR              15C. DATE SIGNED (Signature of person authorized to sign)	16B. UNITED STATES OF AMERICA    16C.   DATE SIGNED By: /s/ Theodore Weitzman                                   05-May-2003 (Signature of Contracting Officer)
EXCEPTION TO SF 30                                30-105-04 APPROVED BY OIRM 11-84	STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

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SUMMARY OF CHANGES

SECTION SF 30 - BLOCK 14 CONTINUATION PAGE

The following have been added by full text:

MODIFICATION TEXT

A. The purpose of this modification is to fully fund the Government’s share of CLIN 0001, to correct a typographical error in Section B, Cost-Share Explanation, and to issue a Change Order to the Statement of Work, Section C.7.

B. The Contractor has 30 days to submit a cost and schedule impact proposal as a result of the Change Order. The Contractor is advised that unless the estimated cost of this contract is increased in accordance with the provisions of the Limitation of Cost clause or by subsequent written supplemental agreement, any cost incurred by the Contractor in excess of the present cost or funding limit shall be at the Contractor’s sole risk.

SECTION A - SOLICITATION/CONTRACT FORM

The ‘issued by’ organization has changed from

US ARMY ROBERT MORRIS ACQUISITION CENTER

RMAC - ADELPHI

2800 POWDER MILL ROAD

AMSSB-ACA

ADELPHI MD 20783-1197

to

US ARMY ROBERT MORRIS ACQUISITION CENTER

RMAC - ADELPHI

2800 POWDER MILL ROAD

AMSSB-ACC-AC

ADELPHI MD 20783-1197

The ‘Payment will be made by’ organization has changed from

DFAS - COLUMBUS CENTER

DFAS-CO/SOUTH ENTITLEMENT OPERATIONS

P.O. BOX 182264

COLUMBUS OH 43218-2264

to

DFAS - COLUMBUS

SOUTH ENTITLEMENTS OPERATIONS

P.O. BOX 182264

COLUMBUS OH 43218-2264

SECTION B - SUPPLIES OR SERVICES AND PRICES

SUBCLIN 000102 is added as follows:

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AMOUNT

ITEM NO	SUPPLIES/SERVICES	QUANTITY	UNIT	UNIT PRICE	AMOUNT
000102
	Incremental Funding for CLIN 0001
	CS
	Incremental Funding for CLIN 0001
	PURCHASE REQUEST NUMBER: W71B7J-3122-B321
				ESTIMATED COST SHARE RATIO	[***]
	ACRN AD Funded Amount				[***]

FOB: Destination

The following have been modified:

[***]

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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[***]

Contract Line	Government’s Share	Contractor’s Share	Total Estimated Item # Contract Cost
CLIN 0001	[***]	[***]	[***]
CLIN 0003	[***]	[***]	[***]
CLIN 0004	[***]	[***]	[***]
TOTAL	[***]	[***]	[***]

52.032-4421 INCREMENTAL FUNDING—PERFORMANCE PERIOD (SEP 1999)

This contract is incrementally funded. The amount presently available for payment and allotted to the contract is $ [***]. It is estimated that the allotted funds will cover all areas of contract performance for the period from award of contract through completion of CLIN 0001.

(End of clause)

SECTION C—DESCRIPTIONS AND SPECIFICATIONS

The following have been modified:

STATEMENT OF WORK

Statement of Work

C.0 Introduction

The development of [***] is of critical importance to the military. [***] have application in biological agent detection, non-line-of-sight (NLOS) covert communications, water purification, equipment/personnel decontamination, and white light generation. It is the goal of the [***] program to exploit the unique characteristics of [***]that can be integrated into modules and subsystems to address these applications. The Government is interested in novel ideas that will result in the demonstration of deep [***]. This effort focuses on exploiting the material qualities of the [***] to produce an [***] compatible with the applications cited above.

This program will be conducted in two phases. Phase I (Years 1 and 2) will concentrate on the development of [***] by exploiting the unique characteristics of [***]. Emphasis will be placed on materials needed to realize [***] and [***]. These materials are considered to be on the materials development critical path (MDCP). Also included in the Phase I effort is the [***] of innovative [***] with [***] the [***]. In Option Phase II (Option Years 3 and 4), the emphasis shifts to the optimization of [***] and [***] with [***]. It is expected that the ultimate goal of [***]

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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will be achieved through materials development and device innovation initially in the near UV portion of the [***] as part of the Phase I effort. Based on advances in science, materials, and devices in Phase I, the optimization of devices to meet or exceed Option Phase II goals will be realized.

Year 1

C. 1. The Contractor shall develop [***] for [***] necessary for [***] and [***] on [***].

C.1.1 The Contractor shall deliver representative [***] on the MDCP to the Government.

C.2. The Contractor shall grow [***] to reduce [***].

C.2.1 The Contractor shall deliver representative [***] on the MDCP to the Government.

C.3. The Contractor shall fabricate [***].

C.3.1 The Contractor shall deliver representative devices to the Government.

C. 4. The Contractor shall develop optically efficient [***] and [***] comprised of [***] family.

C.4.1 The Contractor shall deliver representative [***] on the MDCP to the Government.

C.4.2 The Contractor shall deliver to the Government [***] with [***] and [***] nine (9) months after the start of the contract.

C.4.3 The Contractor shall deliver to the Government [***] with [***] and [***] nine (9) months after the start of the contract.

C.4.4 The Contractor shall deliver to the Government [***] with [***] and [***] nine (9) months after the start of the contract.

C.4.5 The Contractor shall deliver to the Government [***] with [***] and [***] nine (9) months after the start of the contract.

Year 2

C.5 The Contractor shall develop [***] and [***] comprised of [***] family,

C.5.1 The Contractor shall deliver representative [***] on the MDCP to the Government.

C.6 The Contractor shall grow of III-nitrides on [***] to reduce [***].

C.6.1 The Contractor shall deliver representative [***] on the MDCP to the Government.

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

C.7 The contractor shall substantially improve the reliability and lifetimes of [***].

C.7.1 The contractor shall deliver [***] after the start of the contract.

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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C.7.2 The contractor shall deliver 20 packaged laser diodes (LDs) with peak output wavelength of 360 nm under CW operation and with lifetimes of at least 300 hrs 23 months after the start of the contract.

C.7.3 The contractor shall fabricate and deliver [***] 23 months after the start of the contract.

C.8 The Contractor shall develop [***].

C.8.1 The Contractor shall deliver to the Government [***] with [***] 23 months after the start of the contract.

C.9 The Contractor shall develop [***] including the [***].

C.9.1 The Contractor shall deliver to the Government [***] and [***] 17 months after the start of the contract.

Year 3 (Option CLIN 0003)

C.10 The Contractor shall develop device design for [***] and optimize fabrication process to produce it.

C.10.1 The Contractor shall deliver to the Government [***] and [***] 35 months after the start of the contract.

C.11 The Contractor shall develop device design for [***] and optimize fabrication process to produce it.

C.11.1 The Contractor shall deliver to the Government [***] and [***] 35 months after the start of the contract.

C.12 The Contractor shall develop growth of [***].

C.12.1 The Contractor shall deliver to the Government [***] and [***] with [***] 35 months after the start of the contract.

Year 4 (Option CLIN 0004)

C.13 The Contractor shall develop design for [***] and optimize fabrication process to produce it.

C.13.1 The Contractor shall deliver to the Government [***] and [***] 47 months after the start of the contract.

C.13.2 The Contractor shall deliver to the Government [***] and [***] 41 months after the start of the contract.

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

C.13.3 The Contractor shall deliver to the Government [***] and [***] 47 months after the start of the contract.

C.14 OTHER CONTRACT DELIVERABLES

[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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C.14.1 The contractor shall provide copies of all technical reports submitted for publication (in journals, conference proceedings and other technical reports) under this contract to the technical POC

C.14.2 The Contractor shall complete and submit quarterly and cost expenditure reports throughout the duration of the contract in accordance with DD Form 1423, Contract Data Requirements List, Exhibit A to Section J. Reports shall be marked with the following Distribution Statement:

DISTRIBUTION STATEMENT C: Distribution authorized to U.S. Government Agencies and their contractors, proprietary information, 7 Feb 02. Other requests for this document shall be referred to U.S. Army Research Laboratory, Attn: AMSRL-SE-EM, 2800 Powder Mill Road, Adelphi, MD 20783-1197.

C14.3 The contractor shall provide a comprehensive Final Report at the close of the contract. The report shall detail all activities performed under the contract and provide results and conclusions for each task.

SECTION E—INSPECTION AND ACCEPTANCE

The Acceptance/Inspection Schedule for SUBCLIN 000101 has been changed from:

INSPECT AT	INSPECT BY	ACCEPT AT	ACCEPT BY
N/A	N/A	N/A	Government

To:

INSPECT AT	INSPECT BY	ACCEPT AT	ACCEPT BY
Destination	Government	Destination	Government

The following Acceptance/Inspection Schedule was added for SUBCLIN 000102:

INSPECT AT	INSPECT BY	ACCEPT AT	ACCEPT BY
Destination	Government	Destination	Government

SECTION F - DELIVERIES OR PERFORMANCE

The following Delivery Schedule item has been added to SUBCLIN 000101:

DELIVERY DATE	QUANTITY	SHIP TO ADDRESS	UIC
31-JAN-2004		US ARMY RESEARCH LABORATORY DR PAUL AMIRTHARAJ 2800 POWDER MILL ROAD ADELPHI MD 20783-1197 301-394-0940 FOB: Destination	W71B7J

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

The following Delivery Schedule item has been added to SUBCLIN 000102:

DELIVERY DATE	QUANTITY	SHIP TO ADDRESS	UIC
31-JAN-2004		US ARMY RESEARCH LABORATORY	W71B7J

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DR PAUL AMIRTHARAJ

2800 POWDER MILL ROAD

ADELPHI MD 20783-1197

301-394-0940

FOB: Destination

SECTION G - CONTRACT ADMINISTRATION DATA

Accounting and Appropriation

Summary for the Payment Office

As a result of this modification, the total funded amount for this document was increased by $ [***] from $[***] to $ [***].

SUBCLIN 000102:

Funding on SUBCLIN 000102 is initiated as follows:

ACRN: AD

Acctng Data:

973040013010RPARGO3H20M891000255YANEM00W71B7J3122B3213N17GGS18129

Increase: $ [***]

Total: $ [***]

(End of Summary of Changes)

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1.  CONTRACT ID CODE U PAGE 1 OF 8

2. AMENDMENT/MODIFICATION NO.             P00004	3. EFFECTIVE DATE 01-Jul-2003	4. REQUISITION/PURCHASE REQ. NO. SEE SCHEDULE	5. PROJECT NO. (If applicable)
6. ISSUED BY                                                         CODE	W71B7J	7. ADMINISTERED BY (If other than Item 6)	CODE	S1103A
US ARMY ROBERT MORRIS ACQUISITION CENTER RMAC – ADELPHI 2800 POWDER MILL ROAD AMSSB-ACA ADELPHI MD 20783-1197		DCMC - ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code)			9A. AMENDMENT OF SOLICITATION NO.
CREE, INC. CHARLES M. SWOBODA 4600 SILICON DRIVE DURHAM NC 27703
			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER NO. DAAD17-02-C-0073
CODE        OC9J8	FACILITY CODE	X	10B. DATED (SEE ITEM 13) 20-Mar-2002

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers                         ¨ is extended,

¨ is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:

(a) By completing items 8 and 15, and returning      copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER.

If by virtue of this amendment your desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

12. ACCOUNTING AND APPROPRIATION DATA (If required)

See Schedule

13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS,

IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

	A.	THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. ITEM 10A.
	B.	THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
	C.	THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
X	D.	OTHER (Specify type of modification and authority) DFAR 252.217-7027 CONTRACT DEFINITIZATION OCT 1998)
E. IMPORTANT; Contractor ¨ is not, x is required to sign this document and return     1     copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.) The purpose of this modification is to definitize the change order issued in Modification P00003 as follows:

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print) Denise S. Holliday Contracts Manager	16A. NAME AND TITLE OF SIGNER (Type or print) THEODORE WEITZMAN/CONTRACTING OFFICER TEL: 301-394-3165        EMAIL: tweitzman@arl.army.mil
15B. CONTRACTOR/OFFEROR              15C. DATE SIGNED /s/ Denise S. Holliday                                         6/30/03 (Signature of person authorized to sign)	16B. UNITED STATES OF AMERICA    16C.   DATE SIGNED By: /s/ Theodore Weitzman                                   01-Jul-2003 (Signature of Contracting Officer)
EXCEPTION TO SF 30                                30-105-04 APPROVED BY OIRM 11-84	STANDARD FORM 30 (REV. 10-83) Prescribed by GSA FAR (48 CFR) 53.243

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SECTION SF 30 BLOCK 14 CONTINUATION PAGE

SUMMARY OF CHANGES

SECTION A - SOLICITATION/CONTRACT FORM

The total cost of this contract was increased by $ [***] from $ [***] to $ [***].

SECTION B—SUPPLIES OR SERVICES AND PRICES

CLIN 0001

The estimated/max cost has increased by $ [***] from $[***] to $[***].

The total cost of this line item has increased by $[***] from $[***] to $[***].

SUBCLIN 000103 is added as follows:

ITEM NO	SUPPLIES/SERVICES	QUANTITY	UNIT	UNIT PRICE	AMOUNT
000103
	Funding for Change Order
	CS
	Funding for Change Order
				ESTIMATED COST SHARE RATIO	[	***]
	ACRN AE Funded Amount				[	***]

FOB: Destination

The following have been modified:

[***]

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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[***]

Contract Line Item #	Government’s Share	Contractor’s Share	Total Estimated Contract Cost
CLIN 0001	[***]	[***]	[	***]
CLIN 0003	[***]	[***]	[	***]
CLIN 0004	[***]	[***]	[	***]
TOTAL	[***]	[***]	[	***]

52.032-4421 INCREMENTAL FUNDING—PERFORMANCE PERIOD (SEP 1999)

This contract is incrementally funded. The amount presently available for payment and allotted to the contract is $ [***]. It is estimated that the allotted funds will cover all areas of contract performance for the period from award of contract through completion of CLIN 0001.

(End of clause)

SECTION E—INSPECTION AND ACCEPTANCE

The following Technical Office was added for SUBCLIN 000102:

US ARMY RESEARCH LABORATORY

DR PAUL AMIRTHARAJ

2800 POWDER MILL ROAD

ADELPHI MD 20783-1197

The following Acceptance/Inspection Schedule was added for SUBCLIN 000103:

INSPECT AT	INSPECT BY	ACCEPT AT	ACCEPT BY
Destination	Government	Destination	Government

The following Technical Office was added for SUBCLIN 000103:

US ARMY RESEARCH LABORATORY

DR PAUL AMIRTHARAJ

2800 POWDER MILL ROAD

ADELPHI MD 20783-1197

SECTION F - DELIVERIES OR PERFORMANCE

The following Delivery Schedule item for CLIN 0001 has been changed from:

DELIVERY DATE QUANTITY SHIP TO ADDRESS UIC

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

POP 01-FEB-2002 TO 31-JAN-2004 N/A US ARMY RESEARCH LABORATORY DR PAUL AMIRTHARAJ W71B7J

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2800 POWDER MILL ROAD

ADELPHI MD 20783-1197

301-394-0940

FOB: Destination

To:

DELIVERY DATE	QUANTITY	SHIP TO ADDRESS	UIC
POP 01-FEB-2002 TO 31-JAN- 2004	N/A	US ARMY RESEARCH LABORATORY DR PAUL AMIRTHARAJ 2800 POWDER MILL ROAD ADELPHI MD 20783-1197 301-394-0940 FOB: Destination	W71B7J

The following Delivery Schedule item has been added to SUBCLIN 000103:

DELIVERY DATE	QUANTITY	SHIP TO ADDRESS	UIC
31-JAN-2004		US ARMY RESEARCH LABORATORY DR PAUL AMIRTHARAJ 2800 POWDER MILL ROAD ADELPHI MD 20783-1197 301-394-0940 FOB: Destination	W71B7J

SECTION G - CONTRACT ADMINISTRATION DATA

Accounting and Appropriation

Summary for the Payment Office

As a result of this modification, the total funded amount for this document was increased by $[***] from $[***] to $[***].

SUBCLIN 000103:

Funding on SUBCLIN 000103 is initiated as follows:

ACRN: AE

Acctng Data: 973040013010RPARGO3H20M891000255YANEM00W71B7J3122B3223N17GGS18129

Increase: $ [***]

Total: $ [***]

SECTION J—LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACHMENTS

^[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

DAAD17-02-C-0073        

P00004

Page 5 of 6

Exhibit/Attachment Table of Contents

DOCUMENT TYPE	DESCRIPTION	PAGES	DATE
Attachment 1	Evidence of Bilateral Award		30-JUN-2003

The following have been added by full text:

EVIDENCE OF BILATERAL AWARD

(End of Summary of Changes)

DAAD17-02-C-0073    

P00004

Page 6 of 6

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1.  CONTRACT ID CODE U PAGE 1 OF 4

2. AMENDMENT/MODIFICATION NO.             P00004	3. EFFECTIVE DATE 01-Jul-2003	4. REQUISITION/PURCHASE REQ. NO. SEE SCHEDULE	5. PROJECT NO. (If applicable)
6. ISSUED BY     US ARMY ROBERT MORRIS ACQUISITION CENTER RMAC – ADELPHI 2800 POWDER MILL ROAD AMSSB-ACA ADELPHI MD 20783-1197	CODE W71B7J	7. ADMINISTERED BY (If other than Item 6) DCMC - ATLANTA 805 WALKER STREET SUITE 1 MARIETTA GA 30060-2789	CODE S1103A

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and Zip Code) CREE, INC. CHARLES M. SWOBODA 4600 SILICON DRIVE DURHAM NC 27703			9A. AMENDMENT OF SOLICITATION NO.
			9B. DATED (SEE ITEM 11)
		X	10A. MODIFICATION OF CONTRACT/ORDER NO DAAD17-02-C-0073
CODE OC9J8	FACILITY CODE	X	10B. DATED (SEE ITEM 13) 20-Mar-2002
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

¨ The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers             ¨ is extended,

¨ is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:

(a) By completing items 8 and 15, and returning          copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER.

If by virtue of this amendment your desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

12. ACCOUNTING AND APPROPRIATION DATA (If required)

 See Schedule

13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS,

IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. ITEM 10A.

B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)

C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:

 X  D. OTHER (Specify type of modification and authority) DFAR 252.217-7027 CONTRACT DEFINITIZATION OCT 1998)

E. IMPORTANT; Contractor ¨ is not, x is required to sign this document and return     1     copies to the issuing office.

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

The purpose of this modification is to definitize the change order issued in Modification P00003 as follows:

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print) Denise S. Holliday Contracts Manager	16A. NAME AND TITLE OF SIGNER (Type or print) THEODORE WEITZMAN/CONTRACTING OFFICER TEL: 301-394-3165        EMAIL: tweitzman@arl.army.mil
15B. CONTRACTOR/OFFEROR              15C. DATE SIGNED /s/ Denise S. Holliday                                         6/30/03 (Signature of person authorized to sign)	16B. UNITED STATES OF AMERICA    16C.   DATE SIGNED By: /s/ Theodore Weitzman                                   01-Jul-2003 (Signature of Contracting Officer)
EXCEPTION TO SF 30                                30-105-04 APPROVED BY OIRM 11-84	STANDARD FORM 30 (REV. 10-83) Prescribed by GSA

EX-21.1

Exhibit 21.1

Subsidiaries of the Registrant

Cree Lighting Company, a California corporation (effective June 29, 2003, Cree Lighting Company was merged into Cree, Inc.)

Cree Microwave, Inc., a North Carolina corporation

Cree Technologies, Inc., a North Carolina corporation

Cree Employee Services Corporation, a North Carolina corporation

CI Holdings, Limited, a North Carolina corporation

Cree Funding, LLC, a Delaware limited liability company

Cree Research FSC, Inc., a Barbados corporation

Cree Asia-Pacific, Inc., a North Carolina corporation

Cree Japan, Inc., a North Carolina corporation

EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-104863, 333-72774, 333-48830, 333-43490, 333-92479 and 33-98958) of Cree, Inc. of our report dated July 25, 2003, with respect to the consolidated financial statements of Cree, Inc. included in the Annual Report (Form 10-K) for the year ended June 29, 2003.

/s/  Ernst & Young LLP

Raleigh, North Carolina

September 24, 2003

EX-31.1

Exhibit 31.1

Certification

Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002

I, Charles M. Swoboda, certify that:

1. I have reviewed this annual report on Form 10-K of Cree, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986;]

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s

auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September     , 2003

                /s/ Charles M. Swoboda

Charles M. Swoboda

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002

I, Cynthia B. Merrell, certify that:

1. I have reviewed this annual report on Form 10-K of Cree, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986;]

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September     , 2003

                /s/ Cynthia B. Merrell

Cynthia B. Merrell

Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant To

18 U.S.C. Section 1350,

As Adopted Pursuant To

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Cree, Inc. (the “Company”) on Form 10-K for the year ending June 29, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles M. Swoboda, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

    /s/ Charles M. Swoboda

Charles M. Swoboda

President and Chief Executive Officer

September     , 2003

This Certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing.

A signed original of this written statement required by Section 906, or other documents authenticating, acknowledging, or otherwise adopting the signature that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification Pursuant To

18 U.S.C. Section 1350,

As Adopted Pursuant To

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Cree, Inc. (the “Company”) on Form 10-K for the year ending June 29, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Cynthia B. Merrell, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

                /s/ Cynthia B. Merrell

Cynthia B. Merrell

Chief Financial Officer

September     , 2003

This Certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing.

A signed original of this written statement required by Section 906, or other documents authenticating, acknowledging, or otherwise adopting the signature that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.