Exhibit 10.42


REDACTED - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND IS
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DENOTED HEREIN BY *****.
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May 14, 2000



Charles & Colvard
P.O. Box 13533
Research Triangle Park, NC 27709-3533
Attn:  Robert S. Thomas, President

Gentlemen:

This letter, if accepted by C3, Inc., doing business as Charles & Colvard, will
serve as an agreement between Charles & Colvard and Cree, Inc. and an amendment
to our December 22,1999 letter agreement according to the following terms:

1.   Cree agrees to purchase and Charles & Colvard agrees to sell the ** crystal
     growth systems currently owned by Charles & Colvard for a total price of
     $5,000,000, subject to paragraphs 3 and 4 below.
     o   Cree will issue a purchase order for the systems and Charles & Colvard
         will sign and deliver to Cree a bill of sale and assignment in mutually
         acceptable form transferring ownership of the systems, free of any lien
         or other encumbrance, on May 15, 2000.
     o   Charles & Colvard will treat the $5,000,000 as a receivable and apply
         it against invoices from Cree received after May 15th. The purchase
         price will be payable as a credit against such invoices except that any
         balance not previously applied will become due and payable June 30,
         2001. Additionally, the outstanding balance of such receivable from
         Cree will bear interest at an annual rate of 4.75%, accruing pursuant
         to Charles & Colvard's standard policy in effect from time to time.

2.   Charles & Colvard will purchase the production crystals according to the
     pricing outlined in the December 22,1999 amendment with an additional
     charge per crystal delivered to Charles and Colvard as follows:

         $*** per 2" crystal
         $*** per 3" crystal

3.   Charles & Colvard and Cree each acknowledge and agree that, based on the
     information available to them as of the date hereof, each has performed
     their obligations to the other under the agreements, as amended, between
     the parties. Concurrently with the delivery of the bill of sale and
     assignment under paragraph 1, Charles & Colvard will sign and deliver to
     Cree a mutually acceptable form of release of any claim against Cree, its
     directors, officers, employees or representatives, based on or arising out
     of any prior circumstance or event known to Charles & Colvard, excluding
     claims based on intentional and knowingly wrongful actions or obligations
     due to be performed in the future under written agreements between the
     parties.

<PAGE>
Charles & Colvard
May 14, 2000
Page 2


4.   The parties' obligations under this letter agreement are subject to the
     condition that the Board of Directors of Charles & Colvard approve the
     execution, delivery and performance of this agreement by resolution duly
     adopted at a meeting duly held, or by unanimous written consent in lieu of
     a meeting. Concurrently with the delivery of the bill of sale and
     assignment under paragraph 1, Charles & Colvard will deliver to Cree a
     certificate of its Secretary, in mutually acceptable form, certifying such
     approval. Each party represents and warrants to the other that the
     execution, delivery and performance of this letter agreement and the
     transactions contemplated herein have been duly and validly authorized by
     all necessary corporate action.

5.   If Cree receives additional orders for production crystals from Charles &
     Colvard beyond those contemplated by the December 22, 1999 letter
     agreement, the companies will either negotiate a mutually agreeable
     delivery schedule and pricing or rely on the provisions set out in the
     Supply Agreement, as previously amended.

6.   Except as provided above, purchases will be subject to the terms and
     conditions of the Supply Agreement, as previously amended, and the
     development program will be subject to the terms and conditions of the
     Development Agreement, as previously amended.

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, as previously amended.


If acceptable, please sign below and date to indicate Charles & Colvard's
binding agreement to these terms.





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Charles M. Swoboda                                       Robert S. Thomas
President & COO                                          President & COO