DEVELOPMENT AGREEMENT DATED JUNE 6, 1997

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.

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