EXHIBIT 10. 1

                                   CREE, INC.

                      CHARLES SWOBODA EMPLOYMENT AGREEMENT


     This  Agreement  is entered  into as of October  13,  2004 (the  "Effective
Date") by and  between  Cree,  Inc.  (the  "Company")  and  Charles  M.  Swoboda
("Executive").

1. Duties and Scope of Employment.

     (a) Positions and Duties. As of the Effective Date, Executive will serve as
President  and Chief  Executive  Officer,  reporting to the  Company's  Board of
Directors  (the "Board").  Executive will render such business and  professional
services in the performance of his duties,  consistent with Executive's position
within the  Company,  as will  reasonably  be assigned to him by the Board.  The
period  Executive is employed by the Company under this Agreement is referred to
herein as the "Employment Term".

     (b) Board Membership.  At each annual meeting of the Company's stockholders
during the Employment  Term,  the Company will nominate  Executive to serve as a
member of the  Board.  Executive's  service  as a member  of the  Board  will be
subject  to any  required  stockholder  approval.  While a member of the  Board,
Executive  will be permitted  to attend all meetings of the Board and  executive
sessions thereof, on substantially the same basis as other members of the Board,
except as is prohibited by applicable law or listing  standard.  Notwithstanding
the preceding sentence,  Executive will not have the right to attend any portion
of a meeting  or  executive  session  where the item of  discussion  relates  to
Executive's  employment,  including  (but  not  limited  to)  his  compensation,
performance, and/or service on the Board.

     (c)  Obligations.   During  the  Employment  Term,  Executive  will  devote
Executive's full business  efforts and time to the Company.  For the duration of
the  Employment  Term,  Executive  agrees  not to  actively  engage in any other
employment,  occupation,  or  consulting  activity  for any  direct or  indirect
remuneration without the prior approval of the Board (which approval will not be
unreasonably  withheld);  provided,  however,  that Executive  may,  without the
approval of the Board,  serve in any capacity  with any civic,  educational,  or
charitable   organization,   provided  such  services  do  not  interfere   with
Executive's obligations to Company.

2.  At-Will  Employment.  Executive  and  the  Company  agree  that  Executive's
employment with the Company constitutes "at-will" employment.  Executive and the
Company  acknowledge that this employment  relationship may be terminated at any
time, upon written notice to the other party,  with or without good cause or for
any or no cause, at the option either of the Company or Executive.  However,  as
described in this  Agreement,  Executive  may be entitled to severance  benefits
depending  upon the  circumstances  of  Executive's  termination  of employment.
Executive  agrees  to  resign  from  his  position  as a  member  of  the  Board
immediately  following  the  termination  of  his  employment  if the  Board  so
requests.
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3. Term of Agreement.  This  Agreement  will have an initial term of three years
commencing on the  Effective  Date.  On the third  anniversary  of the Effective
Date,  and on each annual  anniversary of the Effective  Date  thereafter,  this
Agreement automatically will renew for an additional one-year term unless either
party  provides the other party with written  notice of non-renewal at least 120
days  prior to the  date of  automatic  renewal.  Notwithstanding  any  contrary
provision  in this  Section  3, in the event of a Change of  Control  during the
Employment  Term, this Agreement will continue for not less than 12 months after
the date of the Change of Control.

4. Compensation.

     (a) Base Salary.  As of the Effective  Date, the Company will pay Executive
an annual  salary of $500,000 as  compensation  for his  services  (such  annual
salary,  as is then effective,  to be referred to herein as "Base Salary").  The
Base Salary will be paid  periodically in accordance  with the Company's  normal
payroll  practices  and  be  subject  to  the  usual,   required   withholdings.
Executive's  salary will be subject to review by the  Compensation  Committee of
the Board (the "Committee") not less than annually, and adjustments will be made
in the discretion of the Compensation Committee.

     (b) Annual  Incentive.  Executive will be eligible to receive earned annual
incentives  payable for the achievement of performance  goals established by the
Committee.  Executive's  target  annual  incentive  will be at least 70% of Base
Salary,  as determined by the Committee.  The actual earned  incentive,  if any,
payable to  Executive  for any fiscal year of the  Company  will depend upon the
extent to which the applicable  performance  goal(s)  specified by the Committee
are achieved and will be decreased or increased for under- or  over-performance.
For each fiscal year of the Company,  the  Committee  will endeavor to establish
the applicable performance goal(s) no later than the 90th day of the fiscal year
to which the goals relate.  Executive  will have the  opportunity to discuss the
nature of such  performance  goals with the Committee prior to such  performance
goals being  established.  Except as specifically  provided herein,  Executive's
annual  incentive  will be subject to the terms and  conditions of the Company's
annual  incentive  plan  for  executive  officers,  including  payment  date and
continued employment obligations.

     (c) Long-Term  Incentive.  Executive will be eligible to receive  long-term
incentives  subject to terms and conditions  established  by the Committee,  the
underlying  long-term  incentive plan document,  and the  Committee's  terms and
conditions for the applicable type of award,  including vesting criteria such as
continued service or performance objectives.

5. Employee  Benefits.  Executive  will be eligible to participate in accordance
with the terms of all Company employee benefit plans, policies, and arrangements
that are applicable to other executive  officers of the Company,  as such plans,
policies,  and  arrangements  may exist from time to time.  Notwithstanding  the
preceding  sentence,  Executive's  eligibility  for benefits  (other than annual
incentive, long term incentives or other long-term compensation (whether payable
in cash, stock, or otherwise),  salary, or similar) will be at least as great as
that of any other executive officer of the Company, provided,  however, that (a)
Executive  will be eligible for any enhanced  level of benefits that he approves
only upon subsequent Committee approval,  and (b) Executive will not be eligible
for any  extraordinary or unusual benefits provided to another executive officer
as part of a  negotiation  for such  executive  officer to  commence or continue
employment.

                                      -2-
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6.  Expenses.  The Company  will  reimburse  Executive  for  reasonable  travel,
entertainment,  and other expenses  incurred by Executive in the  furtherance of
the  performance  of  Executive's  duties  hereunder,  in  accordance  with  the
Company's expense reimbursement policy as in effect from time to time.

7.  Termination  of Employment.  In the event  Executive's  employment  with the
Company terminates for any reason,  Executive will be entitled to any (a) unpaid
Base Salary accrued up to the effective  date of  termination,  (b) unpaid,  but
earned and accrued  annual  incentive  for any  completed  fiscal year as of his
termination  of  employment,  (c) pay for accrued but unused  vacation  that the
Company is legally  obligated to pay Executive,  (d) benefits or compensation as
provided under the terms of any employee benefit and compensation  agreements or
plans applicable to Executive,  (e) unreimbursed  business  expenses required to
reimbursed to Executive,  and (f) rights to  indemnification  Executive may have
under the Company's Articles of Incorporation, Bylaws, the Employment Agreement,
or separate  indemnification  agreement,  as  applicable.  In  addition,  if the
termination  is by the Company  without  Cause or by Executive  for Good Reason,
Executive  will be entitled to the amounts and benefits  specified in Section 8,
subject to the limitation of Section 8(e).

8. Severance.

     (a) Termination  Without Cause or Resignation for Good Reason other than in
connection with a Change of Control. If Executive's  employment is terminated by
the Company  without Cause or by Executive for Good Reason,  and the termination
is not in  Connection  with a Change of  Control,  then,  subject  to Section 9,
Executive will receive: (i) continued payment of Base Salary for the Continuance
Period,  (ii) a lump sum payment,  paid at the time fiscal year bonuses are next
paid to other Company executive  officers following  Executive's  termination of
employment,  equal to twice the average of Executive's  earned annual incentives
for  the  two  most  recently  completed  fiscal  years  immediately   preceding
Executive's termination of employment,  (iii) reimbursement for premiums paid to
continued medical benefits for Executive,  Executive's  spouse,  and Executive's
eligible  dependents  under the Company's  Benefit Plans for twelve (12) months,
payable  when  such  premiums  are due  (provided  Executive  validly  elects to
continue  coverage  under  applicable  law), and (iv)  accelerated  vesting with
respect to 50% of Executive's then outstanding,  unvested equity awards that (y)
were granted  prior to the Effective  Date and have an exercise  price per share
lower than the per share fair market value of the  Company's  common stock as of
the Effective Date, or (z) are granted on or after the Effective Date.

     (b) Termination  Without Cause or Resignation for Good Reason in connection
with a Change of Control. If Executive's employment is terminated by the Company
without  Cause  or by  Executive  for Good  Reason,  and the  termination  is in
Connection with a Change of Control,  then, subject to Section 9, Executive will
receive: (i) continued payment of Base Salary for the Continuance Period, (ii) a
lump sum  payment  of an  amount  equal to  Executive's  current  target  annual
incentive,  prorated in the  proportion  that the days  elapsed  starting on the
first day of the  fiscal  year  during  which  the  termination  of  Executive's
employment  occurs  through the date of  Executive's  termination  of employment
bears to 365,  paid  within  thirty (30) days of  termination,  (iii) a lump sum
payment,  paid at the time  fiscal year  bonuses are next paid to other  Company
executive officers  following  Executive's  termination of employment,  equal to
twice the  average of  Executive's  earned  annual  incentives  for the two most
recently completed fiscal years immediately preceding Executive's termination of
employment,  (iv)  reimbursement for premiums paid to continued medical benefits

                                      -3-

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for Executive, Executive's spouse, and Executive's eligible dependents under the
Company's Benefit Plans for twenty-four (24) months,  payable when such premiums
are due (provided Executive validly elects to continue coverage under applicable
law),  and (v)  full  accelerated  vesting  with  respect  to  Executive's  then
outstanding, unvested equity awards.

               (i) Section 280G  Gross-up.  If any payment or benefit  Executive
          receives  pursuant to Section 8, this  Agreement,  or  otherwise,  but
          determined  without  regard to any additional  payment  required under
          this  Section  8(b)(i),   (collectively,   the  "Payment")  would  (y)
          constitute a "parachute payment" within the meaning of Section 280G of
          the Internal Revenue Code of 1986, as amended (the "Code"), and (z) be
          subject to the excise tax  imposed by Section  4999 of the Code or any
          interest or  penalties  payable  with respect to such excise tax (such
          excise  tax,  together  with  any such  interest  and  penalties,  are
          hereinafter  collectively  referred  to as  the  "Excise  Tax"),  then
          Executive  will be entitled to receive from the Company an  additional
          payment (the "Gross-Up  Payment," and any iterative  payments pursuant
          to this paragraph also will be "Gross-Up  Payments") in an amount that
          will fund the payment by  Executive  of any Excise Tax on the Payment,
          as well as all income and  employment  taxes on the Gross-Up  Payment,
          any Excise Tax imposed on the  Gross-Up  Payment  and any  interest or
          penalties  imposed with respect to income and employment taxes imposed
          on the Gross-Up  Payment.  For this purpose,  all income taxes will be
          assumed  to apply to  Executive  at the  highest  marginal  rate.  Any
          Gross-Up Payment will be paid to Executive, or for his benefit, within
          15  days  following  receipt  by  the  Company  of the  report  of the
          accounting firm described below.

               The  accounting  firm  engaged by the Company  for general  audit
          purposes  as of the day prior to the  effective  date of the Change of
          Control will perform the  foregoing  calculations.  If the  accounting
          firm so  engaged  by the  Company is also  serving  as  accountant  or
          auditor for the  individual,  entity or group  which will  control the
          Company upon the  occurrence of a Change of Control,  the Company will
          appoint  a  nationally  recognized  accounting  firm  other  than  the
          accounting  firm engaged by the Company for general audit  purposes to
          make the determinations required hereunder.  The Company will bear all
          expenses with respect to the  determinations  by such  accounting firm
          required to be made hereunder.

               The accounting firm engaged to make the determinations  hereunder
          will  provide its  calculations,  together  with  detailed  supporting
          documentation,  to the Company and Executive  within  thirty  calendar
          days after the date on which such  accounting firm has been engaged to
          make  such  determinations  or such  other  time as  requested  by the
          Company or Executive. If the accounting firm determines that no Excise
          Tax is payable with respect to a Payment,  it will furnish the Company
          and Executive with an opinion reasonably  acceptable to Executive that
          no Excise  Tax will be  imposed  with  respect  to such  Payment.  Any
          reasonable  good  faith  determinations  of the  accounting  firm made
          hereunder will be final,  binding, and conclusive upon the Company and
          Executive.

               If the Excise Tax is subsequently  determined to be less than the
          amount taken into  account  hereunder  at the time of  termination  of
          employment,  the Executive shall repay to the Company, at the time the
          reduction  in Excise Tax is  finally  determined,  the  portion of the
          Gross-Up Payment attributable to such reduction.  If the Excise Tax is
          determined  to exceed the amount taken into  account  hereunder at the
          time  of  termination  of  employment,   the  Company  shall  make  an
          additional Gross-Up Payment to the Executive in respect of such excess
          at the time the amount of such excess

                                      -4-
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          is finally  determined.  The  Executive  shall  notify the  Company in
          writing  of any  claim  by  the  Internal  Revenue  Service  that,  if
          successful,  would  require the payment by the Company of the Gross-Up
          Payment.  Such notification  shall be given as soon as practicable but
          no later than ten (10)  business  days after the Executive is informed
          in writing of such claim and shall  apprise  the Company of the nature
          of such  claim and the date on which  such  claim is  requested  to be
          paid.  The Executive  shall not pay such claim prior to the expiration
          of the thirty  (30) day period  following  the date on which he or she
          gives such notice to the Company (or such shorter period ending on the
          date that any payment of taxes with respect to such claim is due).  If
          the Company  notifies the Executive in writing prior to the expiration
          of such period that it desires to contest  such claim,  the  Executive
          shall:


                    (a) give the Company any information reasonably requested by
               the Company relating to such claim;

                    (b) take such  action in  connection  with  contesting  such
               claim as the Company  shall  reasonably  request in writing  from
               time to time,  including,  without  limitation,  accepting  legal
               representation   with  respect  to  such  claim  by  an  attorney
               reasonably selected by the Company;

                    (c)  cooperate  with the  Company  in good faith in order to
               effectively contest such claim; and

                    (d) permit the  Company to  participate  in any  proceedings
               relating to such claim;

          provided,  however,  that the Company  shall bear and pay directly all
          costs and expenses (including legal and accounting fees and additional
          interest and penalties)  incurred in connection  with such contest and
          shall  indemnify  and hold the  Executive  harmless,  on an  after-tax
          basis, for any Excise Tax, FICA tax, or income tax (including interest
          and  penalties  with  respect  thereto)  imposed  as a result  of such
          representation  and payment of costs and expenses.  Without limitation
          on the foregoing provisions of this Section, the Company shall control
          all proceedings taken in connection with such contest and, at its sole
          option,  may  pursue  or  forgo  any and all  administrative  appeals,
          proceedings,  hearings,  and conferences  with the taxing authority in
          respect of such claim and may, at its sole option,  either  direct the
          Executive  to pay the tax  claimed and sue for a refund or contest the
          claim in any permissible manner, and the Executive agrees to prosecute
          such contest to a determination before any administrative tribunal, in
          a court of initial jurisdiction,  and in one or more appellate courts,
          as the Company shall determine; provided, however, that if the Company
          directs  the  Executive  to pay such  claim and sue for a refund,  the
          Company shall advance the amount of such payment to the Executive,  on
          an  interest-free  basis,  and shall  indemnify and hold the Executive
          harmless,  on an  after-tax  basis,  from any Excise Tax or income tax
          (including  interest or penalties with respect  thereto)  imposed with
          respect to such  advance or with  respect to any  imputed  income with
          respect to such advance; and provided,  further, that any extension of
          the  statute  of  limitations  relating  to  payment  of taxes for the
          taxable year of the  Executive  with  respect to which such  contested
          amount  is  claimed  to be due is  limited  solely  to such  contested
          amount.  Furthermore,  the  Company's  control of the contest shall be
          limited to issues with  respect to which a Gross-Up  Payment  would be

                                      -5-
<PAGE>
          payable  hereunder  and the  Executive  shall be entitled to settle or
          contest,  as the case may be,  other  issues  raised  by the  Internal
          Revenue Service or any other taxing authority.

               If any such  claim  referred  to in this  Section  is made by the
          Internal  Revenue  Service  and  the  Company  does  not  request  the
          Executive  to contest  the claim  within  the  thirty  (30) day period
          following  notice of the claim, the Company shall pay to the Executive
          the amount on any  Gross-Up  Payment  owed to the  Executive,  but not
          previously  paid  pursuant  to  this  Section,  immediately  upon  the
          expiration  of such thirty (30) day period.  If any such claim is made
          by the Internal Revenue Service and the Company requests the Executive
          to contest  such claim,  but does not advance the amount of such claim
          to the Executive  for purposes of such contest,  the Company shall pay
          to the  Executive  the  amount  of any  Gross-Up  Payment  owed to the
          Executive,  but not  previously  paid  under  the  provisions  of this
          Section, within five (5) business days of a Final Determination of the
          liability of the  Executive  for such Excise Tax. For purposes of this
          Agreement,  a "Final  Determination"  shall be  deemed  to occur  with
          respect to a claim when (i) there is a decision,  judgment, decree, or
          other order by any court of competent  jurisdiction,  which  decision,
          judgment, decree, or other order has become final, i.e., all allowable
          appeals  pursuant to this Section have been  exhausted by either party
          to the action,  (ii) there is a closing  agreement  made under Section
          7121 of the Code, or (iii) the time for instituting a claim for refund
          has expired,  or if a claim was filed,  the time for instituting  suit
          with respect thereto has expired.

               If, after the receipt by the  Executive of an amount  advanced by
          the Company pursuant to this Section,  the Executive  becomes entitled
          to receive any refund with respect to such claim,  the Executive shall
          (subject to the  Company's  complying  with the  requirements  of this
          Section)  within five (5) business  days of receiving  any such refund
          pay to the  Company  the  amount  of such  refund  (together  with any
          interest paid or credited thereon after taxes applicable thereto).  If
          after  the  receipt  by the  Executive  of an amount  advanced  by the
          Company  pursuant  to this  Section,  a  determination  is made by the
          Internal  Revenue  Service  that the  Executive is not entitled to any
          refund with  respect to such claim and the Company does not notify the
          Executive  in writing of its intent to contest  such  denial of refund
          prior to the  expiration of thirty (30) days after the Company  learns
          of such  determination,  then such advance shall be forgiven and shall
          not be  required  to be repaid  and the amount of such  advance  shall
          offset, to the extent thereof, the amount of Gross-Up Payment required
          to be paid.

     (c) Voluntary  Termination  without Good Reason;  Termination for Cause. If
Executive's  employment  with the Company  terminates  voluntarily  by Executive
without Good Reason or is terminated for Cause by the Company,  then,  except as
provided in Section 7, (i) all further vesting of Executive's outstanding equity
awards will  terminate  immediately,  (ii) all payments of  compensation  by the
Company to Executive hereunder will terminate  immediately,  and (iii) Executive
will be eligible for severance  benefits  only in accordance  with the Company's
then established plans, programs, and practices.

     (d)  Termination  due to Death or  Disability.  If  Executive's  employment
terminates by reason of death or Disability, then, except as provided in Section
7, (i) Executive's  outstanding  equity awards will terminate in accordance with
the terms and conditions of the applicable award agreement(s); (ii) all payments
of   compensation   by  the  Company  to  Executive   hereunder  will  terminate
immediately,  and (iii)  Executive will be entitled to receive  benefits only in
accordance with the Company's then established plans, programs, and practices.

                                      -6-

<PAGE>
     (e) Sole Right to  Severance.  This  Agreement  is  intended  to  represent
Executive's  sole  entitlement to severance  payments and benefits in connection
with the termination of his employment. If however, the Company adopts a written
program that provides for  severance  payments or benefits that in the aggregate
are greater than the payments and benefits  provided under this Agreement,  then
to the extent  Executive is entitled to receive  severance  payments or benefits
under such  Company  program,  severance  payments and benefits due to Executive
under this Agreement will be so reduced.

9. Conditions to Receipt of Severance; No Duty to Mitigate.

     (a)  Separation  Agreement  and  Release  of  Claims.  The  receipt  of any
severance  pursuant  to Section 8 will be subject to  Executive  signing and not
revoking a separation  agreement and release of claims in substantially the form
attached  as  Exhibit  A,  but with any  appropriate  modifications,  reflecting
changes in applicable law, as is necessary or appropriate to provide the Company
with the  protection  it  would  have if the  release  were  executed  as of the
Effective  Date.  No  severance  will be paid or provided  until the  separation
agreement and release agreement becomes effective.

     (b) Nondisparagement.  During the Employment Term and for the longer of (i)
12  months  thereafter  or (ii)  the  Continuance  Period,  Executive  will  not
knowingly  disparage,  criticize,  or otherwise make any  derogatory  statements
regarding  the  Company,   its  directors,   or  its  officers.   The  foregoing
restrictions  will not  apply to any  statements  that  are made  truthfully  in
response to a subpoena or other compulsory legal process.

     (c) Other Requirements. Executive's receipt of continued severance payments
will be  subject  to  Executive  continuing  to  comply  with  the  terms of the
Confidential Information Agreement as amended by this Agreement.

     (d) No Duty to  Mitigate.  Executive  will not be required to mitigate  the
amount of any payment contemplated by this Agreement, nor will any earnings that
Executive may receive from any other source reduce any such payment.

10. Definitions.

     (a) Benefit Plans.  For purposes of this  Agreement,  "Benefit Plans" means
plans,  policies, or arrangements that the Company sponsors (or participates in)
and that  immediately  prior to Executive's  termination  of employment  provide
Executive,  Executive's  spouse,  and/or  Executive's  eligible  dependents with
medical, dental, or vision benefits. Benefit Plans do not include any other type
of  benefit  (including,  but not by way of  limitation,  financial  counseling,
disability,  life insurance,  or retirement  benefits).  A requirement  that the
Company  provide  Executive,   Executive's  spouse,  and  Executive's   eligible
dependents  with coverage  under the Benefit Plans will not be satisfied  unless
the coverage is no less favorable  than that provided to Executive,  Executive's
spouse,  and Executive's  eligible  dependents  immediately prior to Executive's
termination of employment.  Subject to the immediately  preceding sentence,  the
Company may, at its option,  satisfy any  requirement  that the Company  provide
coverage under any Benefit Plan by instead  providing  coverage under a separate
plan  or  plans  providing  coverage  that  is no less  favorable  or by  paying
Executive a lump-sum  payment  which is, on an after-tax  basis,  sufficient  to
provide Executive and Executive's eligible

                                      -7-

<PAGE>
dependents with equivalent  coverage under a third party plan that is reasonably
available to Executive, Executive's spouse, and Executive's eligible dependents.

     (b) Cause.  For purposes of this  Agreement,  "Cause" means (i) Executive's
willful and continued failure to perform the duties and  responsibilities of his
position that is not corrected  within a thirty (30) day correction  period that
begins upon delivery to Executive of a written demand for  performance  from the
Board that  describes  the basis for the Board's  belief that  Executive has not
substantially performed his duties; (ii) any act of personal dishonesty taken by
Executive in connection with his  responsibilities as an employee of the Company
with the intention or reasonable expectation that such may result in substantial
personal  enrichment of Executive;  (iii) Executive's  conviction of, or plea of
nolo contendre to, a felony that the Board  reasonably  believes has had or will
have a material detrimental effect on the Company's  reputation or business,  or
(iv)  Executive  materially  breaching  Executive's   Confidential   Information
Agreement  as modified by this  Agreement,  which breach is (if capable of cure)
not cured within thirty (30) days after the Company  delivers  written notice to
Executive of the breach.

     (c) Change of Control. For purposes of this Agreement,  "Change of Control"
will  have  the  same  meaning  as  in  Section  7.1  of  the  Company's  Equity
Compensation  Plan (as amended and restated August 5, 2002 and without regard to
any subsequent amendments).

     (d)  Continuance  Period.  For  purposes  of this  Agreement,  "Continuance
Period"  means the period of time  beginning on the date of the  termination  of
Executive's  employment and ending on the later of (i) the date twenty-four (24)
months following the termination of Executive's employment or (ii) the date that
the term of this  Agreement  otherwise  expires.  Notwithstanding  the preceding
sentence,  in  the  event  of a  termination  of  Executive's  employment  where
Executive is not entitled to severance  under Section 8(a) or Section 8(b),  the
Continuance Period shall be of no duration.

     (e) Disability.  For purposes of this  Agreement,  Disability will have the
same defined meaning as in the Company's long-term disability plan.

     (f) Good Reason.  For purposes of this  Agreement,  "Good Reason" means the
occurrence  of  any  of  the  following,  without  Executive's  consent:  (i)  a
significant  reduction of Executive's  duties or  responsibilities,  a change in
Executive's position as Chief Executive Officer or President,  or the removal of
Executive  from  any of such  duties,  positions,  or  responsibilities;  (ii) a
reduction in  Executive's  Base Salary or target annual  incentive  compensation
other than a one-time  reduction that also is applied to substantially all other
executive  officers of the Company on Executive's  recommendation or approval if
Executive's reduction is substantially proportionate to, or no greater than, the
reduction  applied to  substantially  all other  executive  officers;  (iii) the
Company  requiring  Executive  to  report  to  anyone  other  than the  Board of
Directors; (iv) the Company eliminating from reporting to Executive any position
that previously  directly  reported to Executive;  or (v) the Company  requiring
Executive to relocate his principal place of business or the Company  relocating
its  headquarters,  in  either  case to a  facility  or  location  outside  of a
thirty-five  (35)  mile  radius  from  Executive's  current  principal  place of
employment;  provided, however, that Executive only will have Good Reason if the
event  or  circumstances  constituting  Good  Reason  specified  in  any  of the
preceding  clauses is not cured within  thirty (30) days after  Executive  gives
written  notice  to  the  Board.   Executive's  actions  approving  any  change,
reduction,  requirement, or occurrence in his role as Chief Executive Officer or

                                      -8-
<PAGE>
a director  (that  otherwise may be  considered  Good Reason) will be considered
consent for the purposes of this Good Reason definition.

     In  addition,  "Good  Reason"  also  means  the  occurrence  of  any of the
following,  without  Executive's  express written consent,  in Connection with a
Change of Control: (i) a substantial  reduction by the Company of the facilities
and  perquisites  (including  office space and location)  available to Executive
provided such reduction is not applied to all executive officers of the Company;
(ii) a material  reduction  in the kind or level of  employee  benefits to which
Executive is entitled with the result that Executive's  overall benefits package
is   significantly   reduced;   provided  such   reduction  is  not  applied  to
substantially all executive officers of the Company; or (iii) the failure of the
Company to obtain the  assumption of the  Employment  Agreement by the successor
(as defined in Section  13).

     (g) In Connection with a Change of Control. For purposes of this Agreement,
a termination of Executive's  employment with the Company is "in Connection with
a Change of Control" if Executive's  employment is terminated within twelve (12)
months following a Change of Control.

11.  Indemnification.  Subject to  applicable  law,  Executive  will be provided
indemnification  to the maximum  extent  permitted by the  Company's  bylaws and
Certificate  of  Incorporation,   with  such  indemnification  to  be  on  terms
determined by the Board or any of its committees, but on terms no less favorable
than provided to any other Company  executive officer or director and subject to
the terms of any separate written indemnification agreement.

12. Confidential Information. Executive will execute the Company's standard form
of Employee Agreement Regarding Confidential Information, Intellectual Property,
and Noncompetition  appended hereto as Exhibit B (the "Confidential  Information
Agreement");  provided, however, that Executive agrees he will be subject to the
noncompetition/nonsolicitation  provision of such  agreement  (paragraph  11(a))
during the Employment Term and,  except as provided in Section 20 hereof,  until
the later of (a) the date  twelve  (12)  months  following  the  termination  of
Executive's employment, or (b) the expiration of the Continuance Period.

13. Assignment.  This Agreement will be binding upon and inure to the benefit of
(a)  the  heirs,   executors,   and  legal  representatives  of  Executive  upon
Executive's  death, and (b) any successor of the Company.  Any such successor of
the Company will be deemed  substituted  for the Company under the terms of this
Agreement for all  purposes.  For this  purpose,  "successor"  means any person,
firm,  corporation,  or other  business  entity  which at any time,  whether  by
purchase,  merger,  or  otherwise,   directly  or  indirectly  acquires  all  or
substantially  all of the assets or business of the Company.  None of the rights
of  Executive  to receive  any form of  compensation  payable  pursuant  to this
Agreement may be assigned or  transferred  except by will or the laws of descent
and distribution. Any other attempted assignment, transfer, conveyance, or other
disposition of Executive's  right to compensation or other benefits will be null
and void.

14. Notices. All notices, requests, demands, and other communications called for
hereunder  will be in  writing  and  will be  deemed  given  (a) on the  date of
delivery if delivered  personally,  (b) one day after being sent  overnight by a
well  established  commercial  overnight  service,  or (c) four days after being
mailed by registered or certified mail,  return receipt  requested,  prepaid and

                                      -9-

<PAGE>
addressed to the parties or their successors at the following  addresses,  or at
such other addresses as the parties may later designate in writing:

                  If to the Company:

                  Attn: Chairman of the Compensation Committee
                  c/o Corporate Secretary
                  Cree, Inc.
                  4600 Silicon Drive
                  Durham, NC 27703

                  If to Executive:

                  at the last residential address known by the Company.

15.  Severability.  If any provision hereof becomes or is declared by a court of
competent  jurisdiction  to be illegal,  unenforceable,  or void, this Agreement
will continue in full force and effect without said provision.

16. Arbitration.  The Parties agree that any and all disputes arising out of the
terms of this  Agreement,  Executive's  employment  by the Company,  Executive's
service as an officer or director of the Company,  or  Executive's  compensation
and benefits, their interpretation, and any of the matters herein released, will
be subject to binding arbitration in Durham,  North Carolina before the American
Arbitration   Association  under  its  National  Rules  for  the  Resolution  of
Employment  Disputes,   supplemented  by  the  North  Carolina  Rules  of  Civil
Procedure.  The Parties agree that the prevailing  party in any arbitration will
be entitled  to  injunctive  relief in any court of  competent  jurisdiction  to
enforce the arbitration  award. The Parties hereby agree to waive their right to
have any  dispute  between  them  resolved in a court of law by a judge or jury.
This paragraph will not prevent either party from seeking  injunctive relief (or
any other  provisional  remedy)  from any  court  having  jurisdiction  over the
Parties  and the  subject  matter  of  their  dispute  relating  to  Executive's
obligations under this Agreement and the Confidential Information Agreement.

17. Legal and Tax Expenses.  The Company will reimburse  Executive up to $15,000
for reasonable legal and tax advice expenses  incurred by him in connection with
the negotiation,  preparation,  and execution of this Agreement. In addition, in
the event of a dispute relating to any provision of this Agreement following the
Effective  Date,  the Company will  reimburse  Executive's  fees and expenses as
incurred  quarterly,  including  reasonable  attorneys' fees, in connection with
such dispute, provided Executive prevails on at least one material issue in such
dispute,  or provided an arbitrator  does not determine that  Executive's  legal
positions were  frivolous or without legal  foundation.  In the event  Executive
does not so prevail or in the event of such determination,  Executive will repay
to the Company any  amounts  previously  reimbursed  by it, and  Executive  will
reimburse the Company for its fees and expenses, including reasonable attorneys'
fees, incurred in connection with the dispute.

18.  Integration.  This Agreement,  together with the  Confidential  Information
Agreement and the standard forms of equity award grant that describe Executive's

                                      -10-

<PAGE>
outstanding  equity awards,  represents the entire  agreement and  understanding
between the parties as to the subject  matter herein and supersedes all prior or
contemporaneous  agreements whether written or oral. No waiver,  alteration,  or
modification  of any of the  provisions of this Agreement will be binding unless
in a writing  and is signed by duly  authorized  representatives  of the parties
hereto.

19.  Waiver of Breach.  The waiver of a breach of any term or  provision of this
Agreement, which must be in writing, will not operate as or be construed to be a
waiver of any other previous or subsequent breach of this Agreement.

20.  Survival.  The  Confidential   Information  Agreement,  the  Company's  and
Executive's responsibilities under Sections 7, 8 and 9, and Sections 11, 12, 16,
and 17 will  survive the  termination  of this  Agreement.  Notwithstanding  the
preceding  sentence,  in the event this  Agreement  expires  because the Company
delivers notice of non-renewal of the term of this Agreement pursuant to Section
3, the amendment of the Confidential  Information  Agreement provided by Section
12 will expire as of the expiration of the term of this Agreement.

21.  Headings.  All captions and Section headings used in this Agreement are for
convenient reference only and do not form a part of this Agreement.

22. Tax  Withholding.  All  payments  made  pursuant to this  Agreement  will be
subject to withholding of applicable  taxes.

23.  Governing  Law. This Agreement will be governed by the laws of the State of
North Carolina (with the exception of its conflict of laws provisions).

24.  Acknowledgment.  Executive  acknowledges that he has had the opportunity to
discuss this matter with and obtain  advice from his private  attorney,  has had
sufficient  time to,  and has  carefully  read  and  fully  understands  all the
provisions of this  Agreement,  and is knowingly and  voluntarily  entering into
this Agreement.

25.  Counterparts.  This  Agreement  may be executed in  counterparts,  and each
counterpart  will  have  the same  force  and  effect  as an  original  and will
constitute  an  effective,  binding  agreement  on  the  part  of  each  of  the
undersigned.








                                      -11-
<PAGE>
     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by a duly authorized officer, as of the day and year written
below.

COMPANY:

CREE, INC.



       /s/ James E. Dykes                           Date:    October 13, 2004
------------------------------------------
James E. Dykes
Compensation Committee Chairman



EXECUTIVE:


         /s/ Charles M. Swoboda                     Date:    October 13, 2004
-------------------------------------------
Charles M. Swoboda























               [SIGNATURE PAGE TO C. SWOBODA EMPLOYMENT AGREEMENT]


                                      -12-