Document:

EXHIBIT 10.14

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                                MERGER AGREEMENT

                           DATED AS OF APRIL 10, 2000

                                  BY AND AMONG

                                   CREE, INC.,

                            CRYSTAL ACQUISITION, INC.

                                  NITRES, INC.

                                       AND

                       THOSE SHAREHOLDERS OF NITRES, INC.
                      LISTED ON THE SIGNATURE PAGES HERETO

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<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                            <C>
ARTICLE I - THE MERGER .........................................................................1
   1.1 The Merger ..............................................................................1
   1.2 Exchange Procedures .....................................................................4
   1.3 Parties' Intent .........................................................................5
   1.4 Issuances into Escrow ...................................................................5
   1.5 Closing .................................................................................6
   1.6 Transaction Documents ...................................................................6
   1.7 Dissenters'Rights .......................................................................6

ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS ......6
   2.1 Ownership of Stock ......................................................................7
   2.2 Existence and Good Standing .............................................................7
   2.3 Capital Stock ...........................................................................7
   2.4 Power and Authority .....................................................................7
   2.5 Subsidiaries and Investments ............................................................8
   2.6 Financial Statements; No Material Changes ...............................................8
   2.7 Books and Records .......................................................................9
   2.8 Title to Properties; Encumbrances ......................................................10
   2.9 Tangible Assets ........................................................................10
   2.10 Real Property .........................................................................10
   2.11 Leases ................................................................................10
   2.12 Contracts .............................................................................10
   2.13 Government Contracts ..................................................................11
   2.14 No Conflicts; Restrictive Documents; Consents .........................................14
   2.15 Litigation ............................................................................14
   2.16 Taxes .................................................................................14
   2.17 Independent Contractor Status .........................................................15
   2.18 Liabilities; Indebtedness .............................................................15
   2.19 Insurance .............................................................................16
   2.20 Intellectual Property .................................................................16
   2.21 Licenses ..............................................................................18
   2.22 Compliance with Laws ..................................................................19
   2.23 Accounts Receivable ...................................................................19
   2.24 Employee Relations ....................................................................19
   2.25 Employee Benefit Plans ................................................................19
   2.26 Environmental Matters .................................................................20
   2.27 Interests in Clients, Suppliers, Etc ..................................................22
   2.28 Bank Accounts, Powers of Attorney .....................................................22
   2.29 No Changes Since Balance Sheet Date ...................................................22
   2.30 Disclosure ............................................................................22
   2.31 Broker's or Finder's Fees .............................................................23
   2.32 Copies of Documents ...................................................................23
   2.33 Matters Affecting Employees ...........................................................23
   2.34 Pooling ...............................................................................23
   2.35 Affiliate Letters .....................................................................23
   2.36 Investment ............................................................................23

</TABLE>
                                        i
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<TABLE>
<S>                                                                                            <C>
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND MERGER SUB ..................24
   3.1 Existence and Good Standing ............................................................24
   3.2 Capital Stock ..........................................................................24
   3.3 Purchaser Shares .......................................................................24
   3.4 Power and Authority ....................................................................25
   3.5 No Conflicts; Restrictive Documents; Consents ..........................................25
   3.6 SEC Reports ............................................................................25
   3.7 Broker's or Finder's Fees ..............................................................26
   3.8 Litigation .............................................................................26
   3.9 No Prior Activities ....................................................................26

ARTICLE IV - CONDUCT OF BUSINESS; EXCLUSIVE DEALING; REVIEW ...................................26
   4.1 Conduct of Business of the Company .....................................................26
   4.2 Exclusive Dealing; Voting ..............................................................27
   4.3 Review of the Company ..................................................................28
   4.4 Best Efforts ...........................................................................28

ARTICLE V - CONDITIONS TO THE PURCHASER'S AND MERGER SUB'S OBLIGATIONS ........................28
   5.1 Truth of Representations and Warranties ................................................29
   5.2 Good Standing and Other Certificates ...................................................29
   5.3 Performance of Agreements ..............................................................29
   5.4 No Litigation ..........................................................................29
   5.5 Pooling Letter .........................................................................29
   5.6 Affiliate Letters ......................................................................29
   5.7 Pooling Opinion ........................................................................29
   5.8 Opinion of the Company's Counsel .......................................................30
   5.9 No Material Adverse Change .............................................................30
   5.10 Governmental and Other Approvals and Consents .........................................30
   5.11 State Securities Permit ...............................................................30
   5.12 Employment and Consulting Agreements ..................................................30
   5.13 Certain Agreements ....................................................................30
   5.14 Escrow Agreement ......................................................................30
   5.15 Shareholder Approval ..................................................................31
   5.16 Dissenters ............................................................................31
   5.17 Plan of Merger ........................................................................31
   5.18 Terms of Option Agreements and Restricted Shares ......................................31
   5.19 Tax Matters ...........................................................................31
   5.20 Resignations ..........................................................................31
   5.21 Intra-Company  Debt ...................................................................31
   5.22 Current Employees .....................................................................31
   5.23 Release of Security Interests .........................................................32
   5.24 Holders of Unexercised Options ........................................................32
   5.25 Restricted Shares .....................................................................32

ARTICLE VI - CONDITIONS TO THE COMPANY'S OBLIGATIONS ..........................................32
   6.1 Truth of Representations and Warranties ................................................32
   6.2 Good Standing and Other Certificates ...................................................32
   6.3 Performance of Agreements ..............................................................33
   6.4 Opinion of Purchaser's Counsel .........................................................33
   6.5 State Securities Permit ................................................................33
   6.6 Governmental and Other Approvals and Consents ..........................................33
</TABLE>

                                       ii
<PAGE>
<TABLE>
<S>                                                                                            <C>
   6.7 Shareholder Approval ...................................................................33
   6.8 Plan of Merger .........................................................................34
   6.9 Tax Opinion ............................................................................34
   6.10 Bank Loan .............................................................................34

ARTICLE VII - CERTAIN COVENANTS AND AGREEMENTS OF THE PARTIES .................................34
   7.1 Non-Competition; Non-Interference ......................................................34
   7.2 Fairness Hearing Application ...........................................................36
   7.3 Pooling Restrictions and Related Matters ...............................................36
   7.4 Compliance with Employment and Consulting Agreements ...................................37
   7.5 Supplemental Disclosure ................................................................37
   7.6 Employees; Continued Operations ........................................................37
   7.7 Form S-8 ...............................................................................38
   7.8 Listing of Additional Shares ...........................................................38
   7.9 401(k) Plan ............................................................................38
   7.10 Dissenters ............................................................................38
   7.11 Shareholder Meeting; Shareholder Approval; Information Statement ......................38
   7.12 Director and Officer Indemnification ..................................................39

ARTICLE VIII - SURVIVAL OF REPRESENTATIONS; INDEMNITY; SET-OFF ................................39
   8.1 Survival of Representations ............................................................39
   8.2 Indemnification ........................................................................39

ARTICLE IX - TERMINATION ......................................................................41
   9.1 Termination ............................................................................41

ARTICLE X - MISCELLANEOUS .....................................................................42
   10.1 Definitions of Certain Terms ..........................................................42
   10.2 Expenses ..............................................................................44
   10.3 Remedies Not Exclusive ................................................................44
   10.4 Governing Law .........................................................................44
   10.5 Further Assurances ....................................................................44
   10.6 Captions ..............................................................................44
   10.7 Publicity .............................................................................44
   10.8 Notices ...............................................................................44
   10.9 Recovery of Litigation Costs ..........................................................46
   10.10 Parties in Interest ..................................................................46
   10.11 Counterparts .........................................................................46
   10.12 Entire Agreement .....................................................................46
   10.13 Construction of Certain Disclosures ..................................................47
   10.14 Amendments ...........................................................................47
   10.15 Severability .........................................................................47
   10.16 Third Party Beneficiaries ............................................................47
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
Schedules

<S>                             <C>
Schedule 2.1                    Shareholders
Schedule 2.3                    Company Capitalization
Schedule 2.5                    Subsidiaries and Investments
Schedule 2.6                    Financial Statements; Backlog
Schedule 2.8                    Encumbrances
Schedule 2.9                    Tangible Assets
Schedule 2.11                   Leases
Schedule 2.12                   Contracts
Schedule 2.13                   Government Contracts
Schedule 2.14                   Restrictive Documents and Consents
Schedule 2.16                   Taxes
Schedule 2.17                   Company Contractors
Schedule 2.18                   Indebtedness
Schedule 2.19                   Insurance
Schedule 2.20(b)                Registered Proprietary Assets
Schedule 2.20(c)                Other Proprietary Assets
Schedule 2.20(d)                Licensed Proprietary Assets
Schedule 2.20(e)                Encumbrances on Proprietary Assets
Schedule 2.20(f)                Joint Development of Proprietary Assets
Schedule 2.20(g)                Employees or Consultants Not Subject to Confidentiality Agreement
Schedule 2.20(i)                Infringement
Schedule 2.20(j)                Licenses or Other Limitations on Proprietary Assets
Schedule 2.20(k)                Certain Technology Matters
Schedule 2.21                   Licenses
Schedule 2.24                   Employees
Schedule 2.25                   Employee Benefit Plans
Schedule 2.26(b)                Environmental Matters
Schedule 2.26(g)                Storage Tanks
Schedule 2.27                   Interests in Clients, Suppliers, etc.
Schedule 2.28                   Bank Accounts, Powers of Attorney
Schedule 2.29                   No Material Changes
Schedule 2.35                   Rule 145 Affiliates
Schedule 4.1                    Conduct of Business
Schedule 5.13                   Certain Agreements
Schedule 5.22(a)                Employees
Schedule 5.22(b)                Other Employees
Schedule 7.6                    Post-Closing Conduct of Business
Schedule 8.2                    Indemnification Matters
</TABLE>

Exhibits

Exhibit A                  - Plan of Merger
Exhibit B                  - Escrow Agreement
Exhibit C-1, C-2 and C-3   - Nondisclosure and Confidentiality Agreement
Exhibit D                  - Affiliate  Letter
Exhibit E                  - Opinion  of  Company's  Counsel
Exhibit F                  - Consulting Agreement
Exhibit G-1, G-2, G-3, G-4 - Employment  Agreements
Exhibit H                  - Opinion of Purchaser's Counsel

                                       iv
<PAGE>
                                MERGER AGREEMENT

THIS MERGER AGREEMENT (this "Agreement") is made and dated as of April 10, 2000,
by and among CREE, INC., a North Carolina corporation (the "Purchaser"), CRYSTAL
ACQUISITION,  INC., a North Carolina corporation and wholly-owned  subsidiary of
the  Purchaser  ("Merger  Sub"),  NITRES,  INC., a California  corporation  (the
"Company"),  and those  shareholders  of the Company as listed on the  signature
page to this Agreement (the "Principal Shareholders"). Capitalized terms used in
this  Agreement  and not  otherwise  defined are defined in Section  10.1 below.
Except  as  otherwise  specifically  stated,  references  in this  Agreement  to
schedules and exhibits are references to the documents attached as schedules and
exhibits to this Agreement, all of which form a part hereof.

                                   WITNESSETH:

     WHEREAS,  the  parties  to this  Agreement  desire  for  Merger Sub and the
Company to engage in, and the boards of directors of the  Purchaser,  Merger Sub
and the  Company  have  approved,  the  merger of  Merger  Sub with and into the
Company (the "Merger") upon the terms and subject to the conditions set forth in
this  Agreement  and in the related  Plan and  Agreement  of Merger  attached as
Exhibit A (the "Plan of Merger");

     WHEREAS,  the Principal  Shareholders are the owners of at least 95% of all
issued and outstanding  shares of capital stock of the Company and the owners of
at least a  majority  of the  issued  and  outstanding  shares of each  class of
capital stock of the Company, as set forth adjacent to their respective names on
Schedule 2.1; and

     WHEREAS,  the  parties  intend and desire  for the Merger to  constitute  a
"pooling  of  interests"  for  the   Purchaser's   accounting   purposes  and  a
reorganization  within  the  meaning  of  Section  368(a) of the Code for United
States federal income tax purposes;

     NOW, THEREFORE, in consideration of the premises,  covenants and agreements
set forth in this  Agreement and of other good and valuable  consideration,  the
receipt and legal sufficiency of which they hereby acknowledge, and intending to
be legally bound, the parties agree as follows:

                                    ARTICLE I
                                   THE MERGER

     1.1  The Merger

          (a) Upon the  performance  of all  covenants and  obligations  and the
     fulfillment of all conditions to the  obligations of the parties  contained
     herein (other than such covenants, obligations and conditions as shall have
     been waived in accordance  with the terms hereof),  and in accordance  with
     the North Carolina Business Corporation Act, as amended (the "NCBCA"),  and
     the California  Corporations  Code, as amended (the "California  Code"), at
     the Effective Time (as defined in subsection  (b) below),  Merger Sub shall
     be merged with and into the Company in accordance  with the Plan of Merger;
     the separate  existence of Merger Sub shall cease; and the Company shall be
     the surviving  corporation  (sometimes referred to herein as the "Surviving
     Corporation") and shall continue its corporate  existence under the laws of
     the State of  California.  The name of the Surviving  Corporation  shall be
     "Cree Lighting Company."

<PAGE>
          (b) The Merger  shall be  effected by the filing of articles of merger
     with  the  Secretary  of State of North  Carolina  in  accordance  with the
     provisions  of Article 11 of the NCBCA and the filing of the Plan of Merger
     with the Secretary of State of California in accordance with the provisions
     of Section 1103 of the California  Code. The Merger shall become  effective
     at the time set forth in such articles of merger and Plan of Merger,  which
     shall be filed  contemporaneously  with the closing  conducted  pursuant to
     Section 1.5 below (the "Closing").  The time and date when the Merger shall
     become effective is referred to in this Agreement as the "Effective Time."

          (c) At the  Effective  Time,  by virtue of the Merger and  without any
     action on the part of the  holders  of shares  of common  stock,  $.001 par
     value per share,  or  preferred  stock,  $.001 par value per share,  of the
     Company   ("Company   Common   Stock"  and   "Company   Preferred   Stock",
     respectively,  and  collectively the "Company  Stock"),  and subject to the
     withholding into escrow described in Section 1.4 below:

               (i) Each issued and  outstanding  share of Company  Common  Stock
          (other than treasury shares and Dissenting  Shares (as defined below))
          shall be converted into the right to receive shares of Common Stock of
          the  Purchaser  ("Purchaser  Common  Stock")  such that each holder of
          shares of Company Common Stock shall be entitled to receive the number
          of shares of Purchaser Common Stock (less any fractional share,  which
          shall be  eliminated)  determined  by  multiplying  (A) the  number of
          shares of Company  Common Stock set forth  opposite his or her name on
          Schedule 2.1 by (B) the Exchange Ratio (as defined below);

               (ii) Each issued and outstanding share of Company Preferred Stock
          (other than treasury shares and Dissenting  Shares) shall be converted
          into the right to  receive  the number of shares of  Purchaser  Common
          Stock  equal  to the sum of (A)  the  number  of  shares  obtained  by
          multiplying the number of shares of Company  Preferred Stock set forth
          opposite  his or her name on Schedule 2.1 by the  Preference  Exchange
          Ratio (as defined  below),  plus (B) the number of shares of Purchaser
          Common  Stock that the holder of such shares  would have  received had
          the Company  Preferred  Stock been converted into Company Common Stock
          immediately  prior to the Effective Time (less any  fractional  share,
          which shall be eliminated).

               (iii)  Each  outstanding  option to  purchase  shares of  Company
          Common  Stock  (a  "Stock   Option")  under  the  Company  1999  Stock
          Option/Stock  Issuance Plan (the "Company  Plan"),  whether  vested or
          unvested shall be assumed by Purchaser. Accordingly, each Stock Option
          shall be deemed to constitute an option to acquire,  on the same terms
          and conditions as were applicable under such Stock Option  immediately
          prior  to  the  Effective  Time  (including   without  limitation  any
          repurchase  rights),  the number of shares of  Purchaser  Common Stock
          determined by multiplying the number of shares of Company Common Stock
          that were purchasable immediately prior to the Effective Time upon the
          exercise  of  such  Stock  Option  by the  Exchange  Ratio  (less  any
          fractional  share,  which  shall be  eliminated)  at a price per share
          (rounded up to the nearest whole cent) equal to (A) the exercise price
          per share of Company Common Stock  immediately  prior to the Effective
          Time under  such  Stock  Option  divided  by (B) the  Exchange  Ratio;
          provided,  however,  that in the  case of any  Stock  Option  to which
          Section  422 of the Code  applies  ("incentive  stock  options"),  the
          option  price,  the  number of  shares  purchasable  pursuant  to such
          option,  and the terms and conditions of exercise of such option shall
          be determined  in order to comply with Section  424(a) of the Code. As
          soon as  practicable  after the Effective  Time,  the Purchaser  shall
          deliver to each

                                        2
<PAGE>
          holder of Stock Options a notice  confirming the foregoing  assumption
          and setting forth such holder's rights pursuant thereto, including the
          number of shares  of  Purchaser  Common  Stock  purchasable  under the
          assumed Stock Option and the corresponding exercise price thereunder;

               (iv)  Each  share of  Company  Common  Stock  (a)  acquired  by a
          Shareholder  on the exercise of Stock  Options  granted by the Company
          under the  Company  Plan or (b)  otherwise  issued by the Company to a
          Shareholder,  which  in each  case is  subject  to  repurchase  rights
          (collectively,  the "Repurchase Rights"), including without limitation
          Company  Common Stock issued  pursuant to the Company Plan or pursuant
          to certain  Common Stock  Issuance  Agreements or certain Common Stock
          Purchase  Agreements  between the  Company  and  certain  Shareholders
          (collectively,  the  "Restricted  Shares") shall be converted into the
          right to receive  shares of  Purchaser  Common  Stock as  described in
          Section 1.1(c)(i) above and the Repurchase Rights and any agreement or
          instrument  evidencing the Repurchase  Rights shall be deemed assigned
          by the  Company  to  Purchaser  and  shall be  deemed  assumed  by the
          Purchaser,  thereby  giving  the  Purchaser  all the  rights  that the
          Company  would  have had  under  the  terms of the  Repurchase  Rights
          including  the right to  repurchase  the shares upon the  happening of
          certain events.  As soon as practicable  after the Effective Time, the
          Purchaser  shall deliver to each holder of Restricted  Shares a notice
          confirming  the foregoing  assignment and assumption and setting forth
          such holder's rights pursuant thereto;

               (v) Each  outstanding  warrant  to  purchase  shares  of  Company
          Preferred Stock (a "Warrant")  shall be deemed to constitute a warrant
          to acquire,  on the same terms and conditions as were applicable under
          such Warrant  immediately  prior to the Effective  Time, the number of
          shares of Purchaser  Common Stock that would have been received by the
          holder  thereof had the warrant  been  exercised  to purchase  Company
          Preferred  Stock  immediately  prior to the  Effective  Time (less any
          fractional  share,  which  shall be  eliminated)  at a price per share
          (rounded up to the nearest whole cent) equal to (A) the exercise price
          per  share  of  Company  Preferred  Stock  immediately  prior  to  the
          Effective  Time  under  such  Warrant  multiplied  by a  fraction  the
          numerator of which shall be the number of shares of Company  Preferred
          Stock for which the  Warrant is  exercisable  and the  denominator  of
          which  shall be the  number of shares of  Purchaser  Common  Stock for
          which the Warrant is exercisable  after the Effective Time. As soon as
          practicable  after the Effective  Time, the Purchaser shall deliver to
          each holder of a Warrant a notice confirming the foregoing and setting
          forth such holder's rights pursuant  thereto,  including the number of
          shares of Purchaser Common Stock purchasable under the Warrant and the
          corresponding exercise price thereunder; and

               (vi) Each share of Company Stock that is owned by the Company, if
          any, shall  automatically  be cancelled and retired and shall cease to
          exist,  and no  Purchaser  Common Stock shall be delivered in exchange
          therefor.

          (d) For purposes of this Article I:

               (i)  "Average  Share Price" shall mean the average of the closing
          price of Purchaser  Common Stock over the 30-day  period  ending three
          (3) days prior to the Closing,  taking into account any stock  splits,
          stock dividends or similar recapitalization.

               (ii)   "Company   Capitalization"   shall   mean  the   Company's
          fully-diluted  capitalization  immediately prior to the Effective Time
          (treating all then-outstanding Stock Acquisition Rights for securities
          of the Company as fully exercised or converted into shares of

                                        3
<PAGE>
          Company Common Stock),  comprised of 2,362,194 shares of Company Stock
          on the date hereof, as set forth on Schedule 2.3.

               (iii)  "Exchange  Ratio"  shall mean the number  (rounded to five
          decimal places) determined by dividing (A) 2,000,000 (the total number
          of  Purchaser  shares) less the  Preference  Shares by (B) the Company
          Capitalization.  In the event that between the date of this  Agreement
          and the Closing Date, the Purchaser  shall change the number of shares
          of Purchaser  Common Stock that are issued and outstanding as a result
          of any stock split,  stock dividend or similar  recapitalization,  the
          figures and  calculations  used to determine  the Exchange  Ratio each
          shall be  proportionately  adjusted  correspondingly.  Subject  to the
          foregoing sentence, the Purchaser shall have no obligation to issue in
          excess of 2,000,000  shares of Purchaser Common Stock pursuant to this
          Agreement.

               (iv) "Preference  Exchange Ratio" shall mean $1.48 divided by the
          Average Share Price.

               (v)  "Preference  Shares"  shall  mean  that  number of shares of
          Purchaser  Common  Stock  equal to the sum of (A) the total  number of
          shares of Company Preferred Stock outstanding immediately prior to the
          Effective Time and (B) the total number of shares of Company Preferred
          Stock that would have been  outstanding  had all of the Warrants  been
          exercised  immediately prior to the Effective Time,  multiplied by the
          Preference Exchange Ratio.

          (e) Capital Stock of Merger Sub. At the  Effective  Time, by virtue of
     the  Merger and  without  any action on the part of the holder of shares of
     common stock,  $.01 par value per share,  of Merger Sub ("Merger Sub Common
     Stock"),  each  share of Merger  Sub Common  Stock  issued and  outstanding
     immediately  prior  to the  Effective  Date  shall  be  converted  into and
     exchanged for one validly  issued,  fully paid and  nonassessable  share of
     common stock, par value $.001 per share of the Surviving Corporation.  Each
     stock  certificate  of Merger Sub  evidencing  ownership of any such shares
     shall continue to evidence ownership of such shares of capital stock of the
     Surviving Corporation.

     1.2  Exchange Procedures.

          (a)  Purchaser  hereby  designates  its  transfer  agent to act as the
     Exchange  Agent  hereunder  (the  "Exchange  Agent").  Promptly  after  the
     Effective  Time,  Purchaser  shall make available to the Exchange Agent for
     exchange  in  accordance  with this  Article  I,  through  such  reasonable
     procedures as the Purchaser and the Exchange Agent may adopt,  certificates
     evidencing  the shares of  Purchaser  Common  Stock  issuable  pursuant  to
     Section  1.1(c)(i)  and (ii)  above in  exchange  for the shares of Company
     Stock  outstanding  immediately prior to the Effective Time less the number
     of shares of Purchaser  Common  Stock to be deposited  into the Escrow Fund
     (defined  below)  pursuant to Section 1.4 below.  Upon surrender of a stock
     certificate  representing  shares of Company  Stock (a  "Certificate")  for
     cancellation  to the Exchange Agent in accordance  with the Purchaser's and
     Exchange  Agent's  procedures,  the  holder  of such  Certificate  shall be
     entitled  to  receive  in  exchange  therefor  (A)  the  number  of  shares
     represented  by  the  surrendered   Certificate,   multiplied  by  (B)  the
     applicable number of shares pursuant to Section 1.1(c).  The Certificate so
     surrendered shall forthwith be cancelled. Until surrendered as contemplated
     by this Section 1.2(a), each Certificate shall be deemed from and after the
     Effective  Time to represent  only the right to receive upon such surrender
     the merger consideration  described above for each share represented by the
     Certificate. In no

                                        4
<PAGE>
          event shall the holder of any such surrendered Certificate be entitled
     to  receive  interest  on  any  merger  consideration  to  be  received  in
     connection  with the Merger.  Neither the Exchange  Agent nor the Purchaser
     shall be liable to a holder of Company  Stock for any merger  consideration
     paid to a public official  pursuant to any applicable  abandoned  property,
     escheat or similar  law.  Any  payments  under  this  Section  1.2 shall be
     subject to applicable tax withholding requirements.

          (b) If any Certificate shall have been lost, stolen or destroyed, upon
     the  making  of an  affidavit  of that  fact by the  person  claiming  such
     Certificate  to be lost,  stolen  or  destroyed  and,  if  required  by the
     Purchaser  or its transfer  agent,  the posting by such person of a bond or
     other  indemnification,  in such  reasonable  and  customary  amount as the
     Purchaser or its transfer agent may direct,  as indemnity against any claim
     that may be made against it with respect to such Certificate,  the Exchange
     Agent will issue in exchange for such lost, stolen or destroyed Certificate
     the merger consideration described above.

     1.3  Parties'  Intent.  The  parties  to  this  Agreement  intend  for  the
transactions   contemplated  by  this  Agreement  to  qualify  for  "pooling  of
interests"   treatment  for  the  Purchaser's   accounting  purposes  and  as  a
reorganization  within  the  meaning  of  Section  368(a) of the Code for United
States federal income tax purposes.

     1.4  Issuances into Escrow.

          (a) When  making the  issuances  required  by Section  1.1 above,  and
     notwithstanding  any  provision  in this  Agreement  to the  contrary,  the
     Purchaser  shall  withhold  from  the  shareholders  of  the  Company  (the
     "Shareholders")  (on  a  pro  rata  basis  according  to  their  respective
     interests  therein)  and  deliver  to the Escrow  Agent (as  defined in the
     Escrow  Agreement  referred  to below) ten percent  (10%) of the  aggregate
     number of shares of  Purchaser  Common Stock  issuable  pursuant to Section
     1.1(c)(i) and (ii) above (the "Escrow Fund"), to be held and distributed by
     the Escrow  Agent  pursuant to the terms of this  Agreement  and the Escrow
     Agreement attached as Exhibit B (the "Escrow  Agreement").  All such shares
     shall be issued in the name of the Escrow Agent,  as escrow agent under the
     Escrow Agreement.

          (b)  Fred  A.  Blum  shall,  by  virtue  of the  Merger  and as of the
     Effective Time, be irrevocably appointed attorney-in-fact and authorized to
     act for and on behalf of any or all of the Shareholders (with full power of
     substitution  in the  premises)  with  respect  to all  matters  arising in
     connection  with the Escrow  Agreement,  including  without  limitation the
     power and authority on behalf of each  Shareholder to do or take any one or
     more of the actions  enumerated  in Section 1.4  thereof  (the  above-named
     representative, or any subsequent representative appointed under the Escrow
     Agreement,  the  "Representative").  Such  appointment  may be  changed  as
     provided  in the Escrow  Agreement.  Each of the  Purchaser  and Merger Sub
     shall be entitled to rely on such appointment and treat the  Representative
     as the duly appointed  attorney-in-fact  of each  Shareholder  for all such
     purposes.  Each Shareholder by receiving merger consideration  acknowledges
     and  agrees  that such  appointment  is  irrevocable  and  coupled  with an
     interest.

          (c) The Representative shall not be liable for any act done or omitted
     hereunder as Representative  while acting in good faith and in the exercise
     of reasonable judgment,  and any act done or omitted pursuant to the advice
     of  counsel  shall  be  conclusive   evidence  of  such  good  faith.  Each
     Shareholder shall jointly and severally indemnify the

                                        5
<PAGE>
     Representative and hold him harmless against any loss, liability or expense
     incurred  without  gross  negligence  or  bad  faith  on  the  part  of the
     Representative  and arising out of or in connection  with the acceptance or
     administration of his duties hereunder.

     1.5  Closing.  Consummation  of  the  Merger  and  the  other  transactions
contemplated by this Agreement (the  "Closing")  shall take place at the offices
of Smith, Anderson,  Blount, Dorsett,  Mitchell & Jernigan, L.L.P. on the second
business day after all of the  conditions  set forth in Article V and Article VI
shall  have been  satisfied  or  waived,  or at such  other time and date as the
Purchaser  and the Company shall  designate in writing (such  specified or other
time and date, the "Closing Date").

    1.6  Transaction Documents. As used in this Agreement, the term "Transaction
Documents" shall mean,  collectively,  this Agreement, the Escrow Agreement, the
Employment  and  Consulting  Agreements  (as defined in Section  5.12),  and all
agreements, instruments,  certificates and other documents executed or delivered
in accordance with the terms of this Agreement or any Transaction Document.

     1.7 Dissenters' Rights. Any shares of Company Stock which immediately prior
to the Effective Time are held by shareholders  who have properly  exercised and
perfected,  and  have not  withdrawn  or  otherwise  forfeited,  dissenters'  or
appraisal  rights  in  accordance  with  California  Code  Section  1300 et seq.
("Dissenting Shares") shall not be converted into the right to receive shares of
Purchaser  Common Stock at the Effective Time as provided in Sections  1.1(c)(i)
or (ii) above;  rather,  the holders of  Dissenting  Shares shall be entitled to
receive  consideration  determined  pursuant to California  Code Section 1300 et
seq.; provided, however, that if any such holder shall have failed to perfect or
shall withdraw or lose such holder's dissenter's rights, such holder's shares of
Company Stock thereupon shall be deemed to have been converted into the right to
receive  shares of Purchaser  Common Stock as provided in Sections  1.1(c)(i) or
(ii) above  (subject to the  withholding  into escrow  described  in Section 1.4
above),  and such shares shall no longer be Dissenting  Shares.  Company  agrees
that,  except with the prior written consent of Purchaser,  or as required under
the  California  Code,  the Company will not  voluntarily  make any payment with
respect  to, or settle or offer to settle,  any  purchase  demand by a holder of
Dissenting  Shares.  Each holder of  Dissenting  Shares who becomes  entitled to
payment for such shares  pursuant to California  Code Section 1300 et seq. shall
receive payment  therefor from the Surviving  Corporation from funds provided by
Purchaser (but only after the amount of the payment required therefor shall have
been agreed upon or finally determined pursuant to the California Code).

                                   ARTICLE II
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY
                         AND THE PRINCIPAL SHAREHOLDERS

     The Company (and not any Principal Shareholders) represents and warrants to
the  Purchaser and Merger Sub and agrees as set forth in this Article II, except
that each Principal  Shareholder  (and not the Company)  represents and warrants
severally,  and not jointly and  severally,  to the Purchaser and Merger Sub and
agrees as set forth in Sections 2.1(b), 2.4(b), and 2.36 as follows:

                                        6
<PAGE>
     2.1  Ownership of Stock.

          (a) Each  Shareholder  is the record  owner of the number of shares of
     Company Stock listed  opposite his or her name in Schedule 2.1,  which are,
     to the Company's knowledge, free and clear of all Encumbrances.

          (b) Each  Principal  Shareholder  is the lawful owner of the number of
     shares of the Company Stock listed  opposite of his or her name in Schedule
     2.1, free and clear of all Encumbrances.

     2.2  Existence  and  Good  Standing.  The  Company  is a  corporation  duly
organized,  validly existing and in good standing under the laws of the State of
California.  The Company has the power to own its properties and to carry on its
business as now being conducted.  The Company is not required to be qualified to
do business in any other jurisdictions under applicable Law.

     2.3 Capital Stock. The Company has an authorized  capitalization consisting
of the number and types of shares of capital  stock set forth in  Schedule  2.3,
with the par value  per  share  stated  therein.  The  Company  has  issued  and
outstanding  the  number  and  types of  shares  of  capital  stock set forth in
Schedule  2.3; no other shares of capital stock are issued or  outstanding;  and
there are no outstanding Stock Acquisition Rights for securities of the Company,
other than as  contemplated  by this  Agreement or set forth in Schedule 2.3. In
the case of Stock  Options and  Restricted  Shares,  Schedule 2.3 sets forth the
number of vested shares as of the date of this Agreement.  Set forth on Schedule
2.3 are the  following for each holder of capital stock and Stock Options of the
Company: (i) in the case of capital stock, whether such stock constitutes or has
constituted Restricted Shares at any time; (ii) in the case of Restricted Shares
or Stock Options,  the date of issuance or grant, the vesting commencement date,
the  date of  exercise  or  purchase,  and a brief  description  of the  vesting
provisions.  Except as set forth on Schedule  2.3, the Merger will not cause the
acceleration  of vesting of any Stock  Options or any  Restricted  Shares or the
termination or lapse of any Repurchase Rights. All of the issued and outstanding
shares of capital  stock of the Company  have been duly  authorized  and validly
issued,  are fully paid and  non-assessable,  were issued in accordance with the
registration or qualification  provisions of the Securities Act and any relevant
state  securities laws or pursuant to valid  exemptions  therefrom,  and none of
such shares have been issued in violation of the  preemptive  rights,  rights of
first refusal or other similar rights of any  Shareholder.  With respect to each
Person that received at any time  Restricted  Shares,  the Company  delivered to
such Person at or prior to the time of receipt by such Person of such Restricted
Shares a memorandum or other instrument  accurately  describing the consequences
of the failure by such Person to file timely an election  under Section 83(b) of
the Code. The requisite  shareholders of the Company have executed and delivered
to the Company proper  instruments such that the acceleration of the vesting (or
lapse of certain  repurchase  rights)  under the Stock  Options  and  Restricted
Shares do not  constitute  excess  parachute  payments under Section 280G of the
Code.

     2.4 Power and Authority.

          (a) The Company has all  requisite  power and  authority to enter into
     and deliver this Agreement and the other Transaction  Documents to which it
     is a party,  to perform its  obligations  hereunder and  thereunder  and to
     consummate the transactions  contemplated hereby and thereby. The Company's
     execution, delivery and performance of this Agreement

                                        7
<PAGE>
     and the other Transaction  Documents and the Company's  consummation of the
     transactions  contemplated  hereby and  thereby  have been duly and validly
     authorized  by all  corporate  action  required  by  applicable  Law or the
     Company's  Organizational  Documents,  other than  shareholder  approval as
     contemplated  by this Agreement.  This Agreement and the other  Transaction
     Documents to which the Company is a party  constitute the valid and legally
     binding  obligations  of the  Company,  enforceable  against the Company in
     accordance  with  their  respective  terms,  except as  enforcement  may be
     limited by general equitable  principles (whether raised in a proceeding at
     law or in equity), or by applicable bankruptcy,  insolvency,  moratorium or
     similar laws of general  application  relating to or  affecting  creditors'
     rights (including without limitation, the effect of statutory or other laws
     regarding fraudulent conveyances or transfers and preferential  transfers).
     As  of  the  Closing  Date,  the  Company  shall  have  complied  with  the
     requirements  of  the  California  Code  relating  to  dissenters'   rights
     applicable to the Merger or the other transactions contemplated hereby.

          (b) Each  Principal  Shareholder  has the full legal right,  power and
     authority  to  enter  into  and  deliver  this   Agreement  and  the  other
     Transaction  Documents  to which  such  Principal  Shareholder  is a party,
     perform such Principal  Shareholder's  obligations hereunder and thereunder
     and  consummate  the  transactions  contemplated  hereby and thereby.  Each
     Principal  Shareholder's  execution,   delivery  and  performance  of  this
     Agreement  and  the  other   Transaction   Documents  and  such   Principal
     Shareholder's  consummation  of the  transactions  contemplated  hereby and
     thereby  have been duly and validly  authorized  by all action  required of
     such  Principal  Shareholder  by  applicable  Law and, if  applicable,  its
     Organizational   Documents.   This  Agreement  and  the  other  Transaction
     Documents to which each  Principal  Shareholder  is a party  constitute the
     valid  and  legally  binding  obligations  of such  Principal  Shareholder,
     enforceable  against such Principal  Shareholder  in accordance  with their
     respective terms, except as enforcement may be limited by general equitable
     principles  (whether  raised in a  proceeding  at law or in equity),  or by
     applicable  bankruptcy,  insolvency,  moratorium or similar laws of general
     application  relating to or affecting  creditors' rights (including without
     limitation,  the effect of  statutory  or other laws  regarding  fraudulent
     conveyances or transfers and preferential transfers).

     2.5  Subsidiaries and Investments. Except as set forth in Schedule 2.5, the
Company does not own, directly or indirectly,  any capital stock or other equity
or  ownership  or  proprietary  interest in any Person and is not a party to any
joint venture or partnership Contract.

     2.6  Financial Statements; No Material Changes.

          (a) The Company has  furnished  the  Purchaser  with true and complete
     copies of the  unaudited  balance  sheet of the Company as of December  31,
     1999 (the "Balance Sheet") and the related statement of income for the year
     then ended (collectively,  the "Annual Financial Statements").  The Company
     also has  furnished  the  Purchaser  with true and  complete  copies of the
     unaudited  balance  sheet and  statement  of income for the Company for the
     one-month  period ending  January 31, 2000 and the one-month  period ending
     February 29, 2000,  each of which was prepared on a basis  consistent  with
     the corresponding  Annual Financial  Statements;  further, on or before the
     tenth day of each  calendar  month  after the date of this  Agreement,  the
     Company  will  use its  best  efforts  to  provide  the  Purchaser  with an
     unaudited  balance  sheet and  statement of income for the Company for each
     such calendar month,  each of which will be prepared on a basis  consistent
     with the corresponding  Annual Financial Statements (the "Interim Financial
     Statements,"  and  together  with  the  Annual  Financial  Statements,  the
     "Financial Statements"). The Financials Statements have been

                                        8
<PAGE>
     prepared in accordance with generally accepted accounting principles (GAAP)
     consistently  applied  throughout  the periods  indicated  (except that the
     Financial Statements do not contain footnotes),  and are correct, complete,
     and consistent  with the Company's books and records (which are correct and
     complete),  except that the  Interim  Financial  Statements  are subject to
     normal, recurring adjustments (which will not be material,  individually or
     in the aggregate).  The balance sheets  furnished  pursuant to this Section
     2.6 fairly present the financial condition of the Company at the respective
     dates thereof,  and reflect all claims against and debts and liabilities of
     the  Company,  fixed or  contingent,  as at the  respective  dates  thereof
     (including the Company management's  reasonable estimate in accordance with
     GAAP  of any  unliquidated  liability  required  by  GAAP  to be  reflected
     thereon);  and the related statements of income,  shareholders'  equity and
     cash flows fairly  present the results of the operations of the Company and
     the changes in financial position for the periods  indicated.  There are no
     transactions  between  the Company and any  Shareholder  (or any  affiliate
     thereof) which are not reflected in the Financial Statements or on Schedule
     2.6 or Schedule 2.12.

          (b) Since December 31, 1999 (the "Balance Sheet Date"), there has been
     no event, fact, condition,  circumstance or other development which has had
     or may have, individually or in the aggregate, a Material Adverse Effect on
     the Company, whether as a result of any Casualty, termination or impairment
     of any material Contract or business relationship, the enactment of any new
     Law,  or  otherwise;  nor is the  Company  aware of any such  event,  fact,
     condition,  circumstance or other development which is reasonably likely to
     occur in the foreseeable future.

          (c) Schedule 2.6 sets forth a true and correct  report  describing the
     Company's  backlog  (calculated  based on fee  payments  anticipated  to be
     received under letters of intent and legally binding written agreements for
     the provision of services to third parties) ("Backlog").  The Backlog as of
     February 29, 2000 was at least  $4,430,000,  of which at least  $646,000 is
     attributable to the fiscal year ending December 31, 2000.

          (d)  Without   limiting  the  foregoing,   and  for  purposes  of  the
     Purchaser's  evaluation  whether  the  Purchaser  is  required  to  file  a
     notification  under the  Hart-Scott-Rodino  Antitrust  Improvements  Act of
     1976,  as  amended  (together  with all rules and  regulations  promulgated
     thereunder,   the  "HSR  Act"),   (i)  the  Company  is  not   "engaged  in
     manufacturing"  (as defined in the HSR Act);  (ii) the total  assets of the
     Company  and any Person  controlled  by the  Company,  taken  together  and
     calculated on the basis required by the HSR Act, are less than $10 million;
     (iii) the annual net sales of the Company and any person  controlled by the
     Company,  taken  together and  calculated on the basis  required by the HSR
     Act,  are less than $100  million;  and (iv) the  Company  does not have an
     "ultimate parent entity" (as defined in the HSR Act).

     2.7 Books and Records.  The minute books of the Company, as previously made
available to the Purchaser and its representatives,  contain accurate records of
all  meetings of and action  taken by the  shareholders  and board of  directors
(including  committees  thereof)  of the  Company.  The  Company has none of its
records, systems,  controls, data or information recorded,  stored,  maintained,
operated  or  otherwise  wholly  or partly  dependent  upon or held by any means
(including  any  electronic,   mechanical  or  photographic   process,   whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership and direct control of the Company.

                                        9
<PAGE>
     2.8 Title to Properties;  Encumbrances. Except as set forth in Schedule 2.8
and except for properties and assets  reflected in the Balance Sheet or acquired
since the  Balance  Sheet  Date  which in each case have been sold or  otherwise
disposed of in the ordinary course of business,  the Company has good, valid and
marketable  title to (a) all of its  properties  and assets (real and  personal,
tangible and intangible), including without limitation all of the properties and
assets  reflected in the Balance Sheet, and (b) all of the properties and assets
purchased by the Company  since the Balance  Sheet Date; in each case subject to
no Encumbrance, except for Permitted Encumbrances.

     2.9 Tangible Assets. Schedule 2.9 contains an accurate and complete list of
all tangible  assets of the Company,  whether owned or leased (as so indicated),
having a value  (individually  or in the  aggregate  with other  like  items) in
excess of $25,000,  and not  including  any  materials or similar items having a
useful life of less than one year.  The tangible  assets  listed in Schedule 2.9
are in a state of good maintenance and repair, are adequate and suitable for the
purposes for which they are  currently  being used,  and  constitute  all of the
tangible  assets  (having  such  value)  used in or  necessary  to  conduct  the
Company's business as currently conducted.

     2.10 Real  Property.  Except as described in Section 2.11 as to leased real
property,  the Company does not currently own, and has not at any time owned, in
whole or in part, any interest (direct or indirect) in any real property.

     2.11 Leases.  Schedule  2.11  contains an accurate  and  complete  list and
summary of the terms of each lease to which the Company is a party (as lessee or
lessor).  Each lease set forth in Schedule  2.11 (or required to be set forth in
Schedule 2.11) is in full force and effect;  all rents and additional  rents due
to date on each such lease have been paid; in each case,  the lessee has been in
peaceable  possession  since the commencement of the original term of such lease
and is not in default thereunder,  and no waiver,  indulgence or postponement of
the lessee's  obligations  thereunder has been granted by the lessor;  and there
exists no event of default or event, occurrence, condition or act (including the
transactions  contemplated by this Agreement)  which, with the giving of notice,
the lapse of time or the  happening  of any further  event or  condition,  would
become a default  under  such  lease.  To the  Company's  knowledge,  all of the
covenants  to be  performed  by any other  party  under any such lease have been
fully  performed.  The  property  leased  by the  Company  is in a state of good
maintenance  and repair and is adequate  and suitable for the purposes for which
it is presently being used.

     2.12  Contracts.  Except as set forth in Schedule 2.12, the Company neither
has nor is bound by (a) any Contract  relating to the performance by the Company
of services  for or on behalf of any person or entity  requiring  the Company to
provide more than $25,000 in such services,  or is not terminable by the Company
without  penalty within 30 days, (b) any Contract  relating to the engagement as
an  independent  contractor or  employment of any person by the Company,  or any
bonus, deferred compensation,  pension,  profit sharing, stock option,  employee
stock award or purchase,  retirement or other  employee  benefit  plan,  (c) any
Contract which contains restrictions with respect to the payment of dividends or
other  distributions  by the  Company,  (d) any  Contract  relating  to  capital
expenditures  exceeding  $25,000  individually  or in  the  aggregate,  and  not
terminable  by the  Company  without  penalty  within  30 days,  (e) any loan or
advance to, or investment in, any Person or any Contract  relating to the making
of any such loan,  advance or investment,  (f) any guarantee or other contingent
liability in respect of any indebtedness or obligation of any Person (other than
the endorsement of negotiable  instruments for collection in the ordinary course
of business), (g) any management service,

                                       10
<PAGE>
consulting or any other  similar type  Contract,  (h) any Contract  limiting the
freedom of the Company to engage in any line of business in any geographic area,
or to compete with any Person,  (i) any other Contract which involves $25,000 or
more that is not immediately  terminable by the Company without penalty,  or (j)
any  Contract  which might  reasonably  be expected to have a potential  adverse
impact on the business or operations of the Company.  Each Contract set forth in
Schedule  2.12 (or  required to be set forth in Schedule  2.12) is in full force
and effect and constitutes a valid and legally binding  obligation of each party
thereto, enforceable thereagainst in accordance with its terms; and there exists
no, and the Company has not received any notice or other communication asserting
the actual or alleged  existence  of any,  default or event of default or event,
occurrence,  condition or act (including the  consummation  of the  transactions
contemplated by this Agreement) which,  with the giving of notice,  the lapse of
time or the occurrence of any other event or condition would become a default or
event of default  thereunder.  The Company has not  violated any of the terms or
conditions of any Contract which would at any time since the Company's inception
have been required to be set forth in a schedule listing the types of agreements
and instruments set forth in Schedule 2.12 in any material respect.  The Company
is in good relations with each other party thereto,  and all of the covenants to
be performed by any other party thereto have been fully  performed.  The Company
is in good relations with and has not experienced,  and does not anticipate, any
dispute  with any  supplier,  vendor,  contractor,  or  customer  with which the
Company has conducted  business  during the one year period ending with the date
of this Agreement.

     2.13 Government Contracts.

          (a)  Capitalized  terms  used  in  this  Section  2.13  which  are not
     otherwise defined in this Agreement shall have the respective  meanings set
     forth below:

          "Affiliate" means with respect to a specified person,  any subsidiary,
     joint venture or  partnership  controlled  by the specified  person and any
     predecessors to the foregoing which had a Government  Contract  (during the
     period when the predecessor was under the control of the specified  person)
     which remains subject to possible government audit.

          "Bid" means any bid, proposal or quotation made by the Company,  or by
     a contractor  team or joint venture in which the Company is  participating,
     that,  if  accepted,  would  lead  to  a  Government  Prime  Contract  or a
     Government Subcontract.

          "Government Contract" means any Government Prime Contract,  Government
     Subcontract, Bid or Teaming Agreement.

          "Government  Prime Contract" means any prime contract,  basic ordering
     agreement,   letter  contract,  purchase  order,  delivery  order,  change,
     arrangement or other commitment of any kind, on which final payment has not
     been made,  between the Company and either the U.S.  Government  or a State
     Government.

          "Government   Subcontract"  means  any  subcontract,   basic  ordering
     agreement,  letter  subcontract,  purchase order,  delivery order,  change,
     arrangement or other commitment of any kind, on which final payment has not
     been made,  between the Company and any prime contractor to either the U.S.
     Government  or a State  Government or any  subcontractor  with respect to a
     Government Prime Contract.

                                       11
<PAGE>
          "State  Government"  means any state,  territory or  possession of the
     United  States  or any  department  or  agency  of any  of the  above  with
     statewide jurisdiction and responsibility.

          "Teaming Agreement" has the same meaning as the term, "Contractor team
     arrangement," as defined in Federal Acquisition Regulation ("FAR") 9.601.

          "U.S.   Government"   means  the  United  States   Government  or  any
     department, agency or instrumentality thereof.

          (b) A list of each and every Government  Contract to which the Company
     or any of its  subsidiaries  is a  party  is set  forth  in  Schedule  2.13
     attached hereto. Except as set forth in Schedule 2.13:

               (i) To the best of the Company's  knowledge and except for normal
          disallowances  and  exceptions  raised in past or future  DCAA or DCMC
          audits that would not be  material in amount (or exceed the  Company's
          reserves therefor),  the Company has fully complied with all terms and
          conditions  of  such  Government  Contract,   including  all  clauses,
          provisions and requirements  incorporated expressly by reference or by
          operation of law therein;

               (ii) The Company has fully complied with all  requirements of any
          statute,  rule,  regulation,  order or  agreement  pertaining  to such
          Government Contract;

               (iii)   All   representations   and   certifications    executed,
          acknowledged  or set forth by the  Company  in or  pertaining  to such
          Government  Contract were  current,  accurate and complete as of their
          effective  date,  and the  Company  has fully  complied  with all such
          representations and certifications;

               (iv) Neither the U.S.  Government,  any State  Government nor any
          prime  contractor,  subcontractor  or other  person has  notified  the
          Company in  writing  or  orally,  that the  Company  has  breached  or
          violated  any  Government   Contract,   statute,   rule,   regulation,
          certification,   representation,  clause,  provision,  requirement  or
          implied duty;

               (v) No termination for convenience, termination for default, cure
          notice,  show cause  notice,  or notice of breach of contract has been
          issued under or in connection with any Government Contract;

               (vi) No cost incurred by the Company under or in connection  with
          any Government Contract has been questioned or disallowed in writing;

               (vii) No money due to the Company under or in connection with any
          Government  Contract has been (or has attempted to be) withheld or set
          off;

               (viii) All amounts  previously  charged or at present  carried as
          chargeable by the Company to any Government Contract with an agency or
          instrumentality  of the U.S.  Government or any State  Government have
          been or will be  reasonable,  allowable  and  allocable  to each  such
          Government Contract, net of any applicable reserves established by the
          Company;

               (ix) No  notice  has  been  given of a cost  accounting  standard
          non-compliance  under or in connection  with any Government  Contract;
          and

                                       12
<PAGE>
               (x) The  Company's  business  as  currently  conducted  is in all
          respects  adequate  and  suitable  for  the  performance  of  existing
          Government Contracts.

          (c) Investigations and Audits. Except as set forth in Schedule 2.13:

               (i) None of the Company,  the Company's Affiliates nor any of the
          Company's directors, officers, employees, agents or consultants is (or
          for the last five (5) years has been) under  administrative,  civil or
          criminal investigation,  indictment or information,  audit or internal
          investigation with respect to any alleged  irregularity,  misstatement
          or omission arising under or relating to any Government Contract;

               (ii) Neither the Company nor any of the Company's  Affiliates has
          made a  voluntary  disclosure  to the  U.S.  Government  or any  State
          Government with respect to any alleged  irregularity,  misstatement or
          omission arising under or relating to a Government Contract;

               (iii)  The  Company  has  no  knowledge   of  any   irregularity,
          misstatement  or omission  arising under or relating to any Government
          Contract  that has led or  could  lead,  either  before  or after  the
          Closing  Date,  to any of the  consequences  set forth in (i) and (ii)
          above or any other damage,  penalty assessment,  recoupment of payment
          or disallowance of cost in excess of the reserves therefor established
          by the Company; and

               (iv) The  Company  has no reason to  believe  that any  employee,
          agent,  consultant,  representative  or Affiliate of the Company is in
          receipt or possession of any  competitor or government  proprietary or
          procurement  sensitive  information under circumstances where there is
          reason to believe  that such  receipt or  possession  is  unlawful  or
          unauthorized.

          (d) Financing  Arrangements and Claims Except as set forth in Schedule
     2.13, there exist:

               (i)  No  receivables  financing   arrangements  with  respect  to
          performance of any Government Contract;

               (ii) No notice of any  outstanding  claims  against the  Company,
          either by the U.S.  Government,  any State  Government or by any prime
          contractor,  subcontractor, vendor or other third party, arising under
          or relating to any Government Contract, which has been received by the
          Company;

               (iii) No facts  that are known by the  Company  upon which such a
          claim may be based in the  future  arising  under or  relating  to any
          Government Contract;

               (iv) No disputes between the Company and the U.S. Government, any
          State  Government  or any prime  contractor,  subcontractor  or vendor
          arising under or relating to any Government Contract; and

               (v) No facts  that are known by the  Company  over  which  such a
          dispute may arise in the future.

     The Company has no interest in any pending or potential  claim  against the
     U.S.   Government,   any  State   Government   or  any  prime   contractor,
     subcontractor  or  vendor  arising  under  or  relating  to any  Government
     Contract.

                                       13
<PAGE>

          (e) No  Suspension  or  Debarment.  Neither  the  Company,  nor to the
     Company's knowledge,  any of its directors,  officers of employees, nor any
     of the  Company's  Affiliates  is (or for the last five (5) years has been)
     suspended or debarred from doing  business with the U.S.  Government or any
     State  Government,  or has been declared  nonresponsible  or ineligible for
     U.S.  Government or State Government  contracting.  The Company knows of no
     circumstances that would warrant the institution of suspension or debarment
     proceedings or the finding of  nonresponsibility  or  ineligibility  on the
     part of the Company in the future.

     2.14 No Conflicts; Restrictive Documents; Consents . Except as set forth in
Schedule 2.14, the Company is not subject to, or a party to, any  Organizational
Document, Law (including without limitation the Worker Adjustment and Retraining
Notification Act, as amended) or Contract,  or any other restriction of any kind
or character,  which  adversely  affects the business  practices,  operations or
condition  of the  Company or any of its assets or  property,  or which would be
violated by or conflict with,  prevent or impair (whether by acceleration of any
liability, creation of any Encumbrance or otherwise) or require any declaration,
filing,  registration,  notice, approval or consent to, with or of any Person in
connection  with, the  consummation  of the  transactions  contemplated  by this
Agreement or any other Transaction Document,  compliance by the Company with the
terms,  conditions and provisions hereof or thereof, or the present or continued
operation of the Company's business after the date hereof or the Closing Date on
substantially the same basis as heretofore operated, or which would restrict the
ability of the Company to acquire any property or conduct business in any area.

     2.15 Litigation.  There is no action, suit, proceeding at law or in equity,
arbitration or  administrative or other proceeding or investigation by or before
any governmental or other instrumentality or agency pending or, to the Company's
knowledge, threatened against or affecting the Company, or any of its properties
or rights which could affect the right or ability of the Company to carry on its
business  as now  conducted,  or  which  could  affect  the  condition,  whether
financial or otherwise,  or  properties  of the Company;  and the Company is not
aware of any basis for any such action, proceeding or investigation. Neither the
Company nor any of its  affiliates is subject to any  judgment,  order or decree
entered in any  lawsuit  or  proceeding  which may  affect any of the  Company's
operations or business  practices,  or the ability of the Company to acquire any
property or conduct business in any area.

     2.16 Taxes.  The Company has filed or caused to be filed,  within the times
and  manners  prescribed  by law,  all  federal,  state,  local and  foreign tax
returns,  elections  and tax reports  which are required to be filed by, or with
respect to, the Company.  True and complete copies of all such returns have been
made available to the Purchaser.  Except as set forth on Schedule 2.16, (i) such
returns and reports  reflect  accurately  all liability for taxes of the Company
for the periods  covered  thereby,  (ii) all federal,  state,  local and foreign
income, profits,  franchise,  sales, use, occupancy,  excise and other taxes and
assessments  (including  interest  and  penalties)  payable  by or due  from the
Company have been fully paid or adequately  disclosed and fully  provided for in
the books and financial  statements of the Company,  and (iii) no examination of
any tax return of the Company is  currently  in  progress,  and no basis for any
assessment exists. There are no outstanding  agreements or waivers extending the
statutory period of limitation applicable to any tax return of the Company.

     2.17  Independent  Contractor  Status.  Schedule 2.17 sets forth a complete
list of the Persons  engaged by the Company at any time to render  consulting or
similar   services  to  the   Company  on  an   independent   contractor   basis
(collectively, the "Company Contractors"). The

                                       14
<PAGE>
Company has previously  made available to the Purchaser true and complete copies
of each and every  agreement  between the  Company  and any Company  Contractor.
Except as set forth on Schedule  2.17,  each  Company  Contractor  is and at all
times has been an independent contractor to, and not an employee of, the Company
for  purposes  of all  applicable  federal  and  state  income  tax  withholding
requirements and otherwise.

     2.18 Liabilities; Indebtedness.

          (a) Except as set forth on Schedule  2.18,  there are no  liabilities,
     obligations or indebtedness of or claims against the Company, whether known
     or  unknown,  due or not yet due,  asserted or  unasserted  (whether or not
     probable of  assertion),  actual or potential,  choate or inchoate,  fixed,
     contingent, or otherwise, arising from or in connection with, or based upon
     acts, omissions, events, things, facts, conditions,  matters or occurrences
     existing,  occurring or taking place on or before the Closing Date, whether
     or not discovered,  known, asserted,  expected or contemplated by any party
     or third party, or in any way choate on the Closing Date; and the Purchaser
     shall not suffer or be subject to any Losses (as defined in Section  8.2(a)
     below)  arising  from the  foregoing,  whether  such Losses occur before or
     after the Closing  Date,  except:  (i) those  liabilities  set forth in the
     Balance Sheet,  (ii)  liabilities  that are not greater than $25,000 in the
     aggregate,   and  (iii)   liabilities   actually  incurred  (not  including
     contingent liabilities (other than as permitted by Section 2.29) or acts or
     omissions  which  may give rise to future  liabilities)  subsequent  to the
     Balance Sheet Date and incurred prior to the Effective Time in the ordinary
     course  of the  Company's  business  and  consistent  with  past  practice;
     provided that, without limitation, any other act or omission which may give
     rise to liability in the future,  including without limitation,  any of the
     following or any act or omission which results in any of the following, are
     specifically  deemed not to be in the ordinary course of business:  (A) any
     action,  suit,  proceeding  at  law  or in  equity,  arbitration  or  other
     proceeding or  investigation by or before a governmental or other body, (B)
     violation  of Law,  breach of  contract,  tort,  violation of the rights of
     others,  acts or  omissions  causing  injury  to person  or  property,  (C)
     illegal, unlawful or criminal act or activity; or (D) any act in bad faith.

          (b)  Without  limiting  subsection  (a)  above,  the  Company  has  no
     liabilities of any kind or character incurred in connection with or arising
     from or in connection with the merger of Widegap  Technology,  LLC with and
     into the Company,  that are not reflected on the Balance Sheet or set forth
     on Schedule 2.18.

          (c)  Schedule  2.18  is a  complete  and  correct  listing  of all (i)
     indebtedness  for money borrowed by the Company,  (ii)  guarantees by or of
     the Company, (iii) letters of credit and other credit enhancements extended
     to the Company,  and (iv) all capital lease  obligations  (all  obligations
     described by (i) through (iv) being referred to herein as  "Indebtedness").
     No default or event of default, or event or condition which with the giving
     of  notice,  the  lapse  of  time,  a  determination  of  materiality,  the
     satisfaction  of any other  condition or any  combination  of the foregoing
     would  constitute such a default or event of default exists with respect to
     any such  Indebtedness.  As of the date of this  Agreement,  the sum of the
     Indebtedness  of the Company does not exceed  $200,000 in principal  amount
     plus accrued interest at non-default rates.

     2.19 Insurance.  Set forth in Schedule 2.19 is a complete list of insurance
policies which the Company  maintains  with respect to its business,  properties
and employees,  together with a description of each claim made thereon in excess
of $25,000. All such policies are in full force and effect and are free from any
right of termination on the part of the applicable insurance carriers. Except as
set forth on Schedule 2.19, such policies, with respect to their

                                       15
<PAGE>
amounts and types of coverage,  are adequate to insure  fully  against  risks to
which the  Company  and its  property  and  assets are  normally  exposed in the
operation of its business,  including professional liability, and do not require
the payment of any unusual  premium,  surcharge,  or other increase above market
insurance  rates as a result of the  nature  of the  Company's  business  or the
manner in which such business has been  conducted,  including but not limited to
past loss or claim experience or risks of operations  pertinent to insurability.
There  are no  outstanding  unpaid  premiums  except in the  ordinary  course of
business,  and the  Company  has not  received  any  notice of  cancellation  or
non-renewal  of any such policy.  The Company is not aware of any  extraordinary
risks,  situations,  occurrences or other matters which have been disclosed,  or
should have been disclosed,  to insurance carriers or brokers in connection with
any applications for insurance. There has never been any material adverse change
in the  relationship of the Company with its insurers or in the premiums payable
pursuant  to  such  policies.  There  exists  no  event  of  default  or  event,
occurrence,  condition or act (including the  transactions  contemplated by this
Agreement) which, with the giving of notice,  the lapse of time or the happening
of any further event or condition  would become a default or occasion a material
premium  increase (other than an increase  anticipated as a result of the growth
and change in nature of the business) under any such policy or give rise to, and
the Company has no anticipation  of, any termination or cancellation  thereof or
premium increase therefor. Except as set forth on Schedule 2.19, the Company has
been  covered by one or more  policies of  insurance  of the types  described in
Schedule 2.19  continuously  since the  commencement  of its  operations for all
services provided by the Company at any time.

     2.20 Intellectual Property.

          (a) As used in this Section 2.20,  "Proprietary  Asset" means any: (a)
     patent, patent application, trademark (whether registered or unregistered),
     trademark  application,  trade name, fictitious business name, service mark
     (whether registered or unregistered),  service mark application,  copyright
     (whether  registered or  unregistered),  copyright  application,  maskwork,
     maskwork  application,  trade secret,  know-how,  customer  list,  computer
     software, source code, algorithm, invention, design, blueprint, engineering
     drawing,  proprietary  product,  technology,  proprietary  right  or  other
     intellectual  property  right or intangible  asset;  or (b) right to use or
     exploit any of the foregoing.

          (b)  Schedule  2.20(b) sets forth,  with  respect to each  Proprietary
     Asset  owned  by the  Company  that is  registered  with  any  Governmental
     Authority or for which an application has been filed with any  Governmental
     Authority,  (i) a brief description of such Proprietary Asset, and (ii) the
     names  of the  jurisdictions  covered  by the  applicable  registration  or
     application.

          (c) Schedule  2.20(c)  identifies and provides a brief  description of
     all other Proprietary  Assets owned by the Company that are material to the
     business of the Company.

          (d) Schedule  2.20(d)  identifies and provides a brief  description of
     each Proprietary  Asset that is licensed or otherwise made available to the
     Company by any Person  (other  than  commercially  available  business  and
     accounting  software  licensed  to  the  Company  under  software  licenses
     generally available to the public), and identifies the Contract under which
     such Proprietary Asset is being licensed or otherwise made available to the
     Company.

          (e) Except as set forth on Schedule 2.20(e),  the Company has good and
     valid title to all of the Proprietary  Assets  identified or required to be
     identified in Schedules

                                       16
<PAGE>
     2.20(b) and 2.20(c) (the "Company Proprietary  Assets"),  free and clear of
     all Encumbrances other than Permitted Encumbrances. The Company has a valid
     right  to  use,  license  and  otherwise  exploit  all  Proprietary  Assets
     identified in Schedule 2.20(d).

          (f)  Except as set forth in  Schedule  2.20(f),  the  Company  has not
     developed  jointly  with any other  Person  any  Proprietary  Asset that is
     material to the  business of the Company  with  respect to which such other
     Person has any rights. Except as set forth in Schedule 2.20(f), there is no
     Contract  pursuant  to which  any  Person  has any  right  (whether  or not
     currently  exercisable)  to use,  license or otherwise  exploit any Company
     Proprietary Asset.

          (g) The Company  has taken  reasonable  measures  and  precautions  to
     protect and maintain the confidentiality,  secrecy and value of all Company
     Proprietary  Assets  (except   Proprietary  Assets  whose  value  would  be
     unimpaired  by  disclosure).   Without   limiting  the  generality  of  the
     foregoing,  except as set forth in  Schedule  2.20(g),  (i) all current and
     former  employees  of the Company who are or were  involved in, or who have
     contributed  to, the  creation or  development  of any Company  Proprietary
     Asset have executed and  delivered to the Company an agreement  (containing
     no  exceptions to or  exclusions  from the scope of its  coverage)  that is
     substantially identical to the form of agreement attached hereto as Exhibit
     C-1,  C-2  or  C-3  (as  applicable),  and  (ii)  all  current  and  former
     consultants  and  independent  contractors  to the  Company who are or were
     involved in, or who have contributed to, the creation or development of any
     Company  Proprietary  Asset have  executed and  delivered to the Company an
     agreement  (containing no exceptions to or exclusions from the scope of its
     coverage) that is substantially identical to the form of agreement attached
     hereto as Exhibit  C-1,  C-2 or C-3 (as  applicable).  No current or former
     employee,  officer,  director,   stockholder,   consultant  or  independent
     contractor  has any  right,  claim or  interest  in or with  respect to any
     Company  Proprietary  Asset.  Each such agreement entered into by a present
     employee,  consultant or  independent  contractor of the Company is in full
     force and effect and constitutes a valid and legally binding  obligation of
     each party thereto, enforceable thereagainst in accordance with its terms.

          (h) With  respect to the pending  patent  applications  of the Company
     listed in Schedule 2.20(b) (the "Patent Applications"):

               (i)  all  prior  art  and  other  information   material  to  the
          patentability  of the claims in the Patent  Applications  of which the
          inventors  are aware has been duly  disclosed  to the U.S.  Patent and
          Trademark Office;

               (ii) the Company and the  inventors did not sell or offer to sell
          devices  covered by any claims of any of the Patent  Applications,  or
          manufactured   using  any  process   claimed  in  any  of  the  Patent
          Applications,  or disclose  the claimed  invention  to any third party
          other than patent counsel for the Company, prior to the filing date of
          such application;

               (iii) each of the Patent Applications  discloses the best mode of
          operation  of the  claimed  device or process as  contemplated  by the
          named inventors at the time of filing such application;

               (iv) the Persons  named as inventors  in each Patent  Application
          are the inventors of the invention described in such application; and

                                       17
<PAGE>
               (v) each inventor named in each Patent Application has executed a
          binding  assignment of his or her rights to such  application in favor
          of the Company, and each such assignment has been duly recorded in the
          U.S. Patent and Trademark Office.

          (i) Except as set forth in  Schedule  2.20(i),  insofar as the Company
     has knowledge of the matters referred to:

               (i) none of the Company  Proprietary  Assets,  and no Proprietary
          Asset that is  currently  being  developed  by the Company  (either by
          itself or with any other Person), infringes,  misappropriates or makes
          any  unauthorized  use of any  Proprietary  Asset owned or used by any
          other Person;

               (ii)  none of the  devices  that  have  been  designed,  created,
          developed, assembled or manufactured by the Company, nor any apparatus
          or  processes  used by the  Company  in the  manufacture  or  assembly
          thereof,  infringes,  misappropriates or makes any unauthorized use of
          any Proprietary  Asset owned or used by any other Person,  and none of
          such  devices,  apparatus  or  processes,  has at any time  infringed,
          misappropriated  or made any  unauthorized use of, and the Company has
          received no notice or other communication (in writing or otherwise) of
          any   actual,    alleged,    possible   or   potential   infringement,
          misappropriation  or unauthorized use of, any Proprietary  Asset owned
          or used by any other Person; and

               (iii) to the knowledge of the Company,  no Person is  infringing,
          misappropriating  or  making  any  unauthorized  use of,  any  Company
          Proprietary Asset.

          (j) The Company  Proprietary  Assets constitute all of the Proprietary
     Assets  necessary  to enable the  Company to conduct  its  business  in the
     manner in which such  business has been and is being  conducted.  Except as
     set forth in Schedule 2.20(j),  the Company has not (i) licensed any of the
     Company  Proprietary Assets to any Person or (ii) entered into any covenant
     not to compete  or  Contract  limiting  its  ability  to exploit  fully any
     Company  Proprietary  Assets  or to  transact  business  in any  market  or
     geographical area or with any Person.

          (k) The Company  further  represents and warrants to the Purchaser and
     Merger Sub as set forth on Schedule 2.20(k).

     2.21  Licenses.  Schedule  2.21  attached  hereto  contains an accurate and
complete list of all material licenses,  franchises,  permits,  rights and other
authorizations  (collectively,  "Licenses")  used, or anticipated to be used, in
the  operation of the business of the Company or otherwise  held by the Company.
The Company owns or otherwise  lawfully uses each License  necessary or required
by  applicable  law to conduct its  business as conducted as of the date of this
Agreement,  free and clear of all Encumbrances.  All of the Licenses are in full
force and effect,  not subject to any current default or right of  cancellation,
termination or revocation.

     2.22  Compliance  with Laws.  The Company is, and at all times has been, in
compliance  with all applicable Laws in all material  respects.  There exists no
event, occurrence,  condition or act which, with the giving of notice, the lapse
of time or the occurrence of any further event or condition  would  constitute a
violation of any applicable Law by the Company in any material respects. Neither
the Company nor any of its affiliates, nor any Person acting for or on behalf of
any  thereof,  has at any time made or  participated  in any bribe,  kickback or
illegal payment.

                                       18
<PAGE>
     2.23 Accounts  Receivable.  Without  duplication of the representations and
warranties set forth in Section 2.13, each of the Company's accounts  receivable
arises from a bona fide transaction occurring in the ordinary course of business
and to the knowledge of the Company will be collectible net of reserves shown on
the Balance Sheet or taken in the ordinary  course of business since the Balance
Sheet Date and there is no contest,  claim or right of set-off  contained in any
oral or written  agreement  with any  account  debtor  relating to the amount or
validity of any account  receivable.  There has been no material  adverse change
since the Balance Sheet Date in the amount of accounts receivable or other debts
due the Company or the allowances with respect  thereto,  or accounts payable of
the Company, from that reflected in the Balance Sheet.

     2.24 Employee Relations.  Schedule 2.24 contains an accurate list of all of
the  Company's  employees,  showing  for  each  his or  her  position,  date  of
employment, 1999 compensation,  and current annualized salary. The Company is in
substantial  compliance  with  all Laws  respecting  employment  and  employment
practices,  terms and conditions of employment and wages and hours,  and has not
and is not  engaged in any  unfair  labor  practice.  No unfair  labor  practice
complaint  against the Company is pending  before the National  Labor  Relations
Board or any other governmental  authority.  There is no labor strike,  dispute,
slowdown or stoppage actually pending or, to the Company's knowledge, threatened
against or involving the Company.  No representation  question exists respecting
the employees of the Company.  No grievance  which might have an adverse  effect
upon  the  Company  or  the  conduct  of its  business  exists,  no  arbitration
proceeding  arising  out of or under  any  collective  bargaining  agreement  is
pending,  and no claim  therefor has been  asserted.  No  collective  bargaining
agreement  is currently  being  negotiated  by the Company.  The Company has not
experienced  any labor  difficulty  during  the last  three  years.  No  current
employee has expressed or communicated  to the Company any current  grievance or
any intent to leave or  contemplation  of leaving the Company's  employ.  To the
Company's knowledge, there has not been and there will not be any adverse change
in relations  with employees of the Company as a result of any  announcement  or
the consummation of the transactions contemplated by this Agreement.

     2.25 Employee Benefit Plans.

          (a) Set forth in Schedule 2.25 is an accurate and complete list of all
     employee  benefit plans of any variety  whatsoever  (the "Employee  Benefit
     Plans"),  including  without  limitation  any within the meaning of Section
     3(3) of ERISA (whether or not any such Employee Benefit Plans are otherwise
     exempt from the provisions of ERISA),  as well as any bonus,  stock option,
     stock  purchase,  severance or incentive  plan,  arrangement  or agreement,
     established, maintained or contributed to by or with respect to the Company
     at any time.  The Company has provided the Purchaser with true and complete
     copies of all documents governing or relating to each such Employee Benefit
     Plan along with, to the extent  applicable,  the summary plan  description,
     IRS Form 5500 and IRS determination letter ("Determination Letter").

          (b) Each Employee  Benefit Plan has been  administered in all respects
     in accordance  with its terms and is in compliance in all respects with the
     applicable provisions,  if any, of ERISA and the Code. All reports, returns
     and similar  documents with respect to the Employee  Benefit Plans required
     to be filed  with any  government  agency or  distributed  to any  Employee
     Benefit Plan  participant  have been duly and timely filed or  distributed.
     There are no  investigations by any government  agency,  and no termination
     proceedings or other claims, suits

                                       19
<PAGE>
     or proceedings  against or involving any Employee Benefit Plan or asserting
     any rights or claims to benefits under any Employee Benefit Plan that could
     give rise to any  liability to the Company or such  Employee  Benefit Plan.
     Except as set forth on Schedule  2.25,  all of the Employee  Benefit  Plans
     that are intended to be  qualified  under  Section  401(a) of the Code have
     received a  Determination  Letter  and such  plans and the  trusts  related
     thereto are exempt from federal income taxes; no such Determination  Letter
     has  been  revoked  and  revocation  has not been  threatened;  and no such
     Employee  Benefit Plan has been  amended  since the date of its most recent
     Determination  Letter or  application  therefor in any  respect  that would
     adversely  affect its  qualification  or  increase  its cost.  No  Employee
     Benefit Plans have been terminated,  except for such amendments made by the
     sponsor of the  prototype  document  for which the  deadline  for filing an
     application for a Determination Letter has not yet expired.  There have not
     been any  "reportable  events" (as defined in Section 4043 of ERISA and the
     regulations  thereunder) with respect thereto; and no Employee Benefit Plan
     has an  "accumulated  funding  deficiency"  within  the  meaning of Section
     412(a) of the Code or any unfunded liability of any kind.

     2.26 Environmental Matters.

          (a) For purposes of this Section 2.26, "Hazardous Substance" means any
     of the  following:  (i) a  "hazardous  substance"  as  defined in 42 U.S.C.
     Section 9601(14), as amended from time to time, and all rules,  regulations
     and orders  promulgated  thereunder as in effect from time to time,  (ii) a
     "hazardous waste," as defined in 42 U.S.C. Section 6903(5), as amended from
     time to time, and all rules,  regulations and orders promulgated thereunder
     as in effect from time to time, (iii) if not included in (i) or (ii) above,
     "hazardous  waste  constituents"  as defined in 40 C.F.R.  Section  260.10,
     including,  without  limitation,  those  listed in Appendix VII and VIII of
     Subpart D of 40 C.F.R.  Section 261, as amended from time to time,  and all
     rules, regulations and orders promulgated thereunder as in effect from time
     to time,  (iv) "source,"  "special  nuclear" or  "by-product  material," as
     defined in 42 U.S.C.  Sections 3011, et seq., as amended from time to time,
     and all rules,  regulations and orders promulgated  thereunder as in effect
     from time to time,  and (v) any other waste,  substance  or  material,  the
     generation,  transportation,  treatment,  storage,  release, or disposal of
     which  is  regulated  under  or  by  applicable  Laws,   including  without
     limitation    petroleum    and    petroleum    products,    asbestos    and
     asbestos-containing  materials,  and low-level  radioactive  substances and
     wastes.

          (b)  Except as set forth in  Schedule  2.26(b),  the  Company  and its
     leased  real  property  set  forth  in  Schedule  2.11  (the  "Leased  Real
     Property")  are in  compliance,  and since the Company's  acquisition of an
     interest  in its  Leased  Real  Property  have been in  compliance,  in all
     material  respects,  and, to the  knowledge of the  Company,  prior to such
     acquisition  were  in  compliance,   in  all  material  respects  with  all
     applicable  Laws  relating to Hazardous  Substances.  Without  limiting the
     foregoing,  (i) the  operations  of the Company do not  violate,  and since
     commencement  of  operations  of the  Company  have  not  violated,  in any
     material respect, any Law relating to the generation,  storage, processing,
     utilization,  labeling,   transportation,   treatment,  disposal,  release,
     discharge,  emission or other disposition of Hazardous Substances, and (ii)
     the  Company or, to the  knowledge  of the  Company,  any current or former
     owner,  occupant or operator of any  property at any time owned,  leased or
     operated by the Company,  has not ever  utilized  any such  property or any
     portion  thereof  in  material   violation  of  any  Law  relating  to  the
     generation,  storage, processing,  utilization,  labeling,  transportation,
     disposal, treatment,  emission, release, discharge, or other disposition of
     Hazardous Substances. Schedule 2.26(b) hereto contains: (i) a true list and
     description of all  environmental  audits and assessments in the possession
     of, or available to, the Company relating to the Leased Real Property,  and
     (ii) any property at any time owned, leased or

                                       20
<PAGE>
     operated by the Company,  including,  with respect to any such  assessment,
     removal, remediation,  closure or other type of such operation, the date of
     commencement;  the date of  completion  or closure or  anticipated  date of
     completion or closure; and the estimated cost of any such operation.

          (c) The  Company  has not and does not  utilize,  store,  dispose  of,
     treat, generate, process, transport, release or own any Hazardous Substance
     in material violation of any applicable Law.

          (d) The  Company  has,  in a timely  manner,  obtained  all  licenses,
     permits,  consents and approvals from any foreign, federal, state, local or
     other governmental,  administrative or regulatory authority,  body, agency,
     court, tribunal or similar entity ("Governmental  Authority") and filed all
     reports  required  to be filed  under or  pursuant  to any  applicable  Law
     related to any Hazardous Substance.

          (e) The Company has not received  any notice of any writ,  injunction,
     claim, decree, order or judgment outstanding or of any action instituted or
     threatened under or pursuant to, or of any violation of, any  environmental
     Law  applicable  to  any  operations  or  property  of the  Company  or any
     predecessors thereof,  including,  without limitation,  any notice from any
     Governmental  Authority or other Person  advising the Company that it is or
     is  potentially  responsible  for  response  costs under the  Comprehensive
     Environmental Response,  Compensation, and Liability Act (42 U.S.C. Section
     9601 et  seq.)  (together  with  the  regulations  promulgated  thereunder,
     "CERCLA"), or any other Law with respect to a release or threatened release
     of any Hazardous Substances.

          (f)  Except as set forth on  Schedule  2.26(b),  the  Company  has not
     received any notice of any violation of any environmental,  zoning,  worker
     safety or land use Law, including,  without  limitation,  under CERCLA, the
     Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901,
     et seq.),  the Oil  Pollution Act of 1990 (33 U.S.C.  2701,  et seq.),  the
     Emergency  Planning and Community  Right-to-Know Act, as amended (42 U.S.C.
     Section 11001, et seq.), the Clean Water Act, as amended (33 U.S.C. Section
     3121, et seq.),  the Clean Air Act, as amended (42 U.S.C.  Section 7401, et
     seq.),  the Toxic  Substances  Control  Act, as amended (15 U.S.C.  Section
     2601, et seq.),  Occupational  Safety and Health Act, as amended (29 U.S.C.
     Section 651, et seq.), together with the regulations promulgated under each
     respective law, and any state or local similar laws and regulations and any
     so-called local, state or federal "superfund" or "superlien" law.

          (g)  Except  as set  forth  on  Schedule  2.26(g),  to  the  Company's
     knowledge,  there are not now and never have been any under- or aboveground
     storage tanks located on any Leased Real Property or any other  property at
     any  time  owned,  leased  or  operated  by  the  Company  or  any  of  its
     predecessors or subsidiaries.

     2.27 Interests in Clients,  Suppliers, Etc. Except as described in Schedule
2.27, neither the Company, nor, to the knowledge of the Company, any Shareholder
possesses, directly or indirectly, any financial or other interest in any Person
which  is a  client,  supplier,  customer,  lessor,  lessee,  or  competitor  or
potential competitor of the Company (other than ownership of a minority interest
in a publicly traded entity).

     2.28 Bank  Accounts,  Powers of Attorney.  Set forth in Schedule 2.28 is an
accurate  and  complete  list  showing  (a) the name and address of each bank in
which the Company has

                                       21
<PAGE>
an account or safe  deposit  box, the number of any such account or any such box
and the  names of all  persons  authorized  to draw  thereon  or to have  access
thereto,  and (b) the names of all persons,  if any,  holding powers of attorney
(including  without limitation with respect to tax matters) from the Company and
a summary statement of the terms thereof.

     2.29 No Changes Since Balance Sheet Date.

          (a) Except as set forth on  Schedule  2.29,  since the  Balance  Sheet
     Date,  the Company has not (i) incurred any  liability or obligation of any
     nature  (whether  accrued,  absolute,   contingent,  known  or  unknown  or
     otherwise)  except in the ordinary  course of business or in an amount less
     than  $25,000  in the  aggregate  (ii)  permitted  any of its  assets to be
     subjected to any  Encumbrance  (other than Permitted  Encumbrances),  (iii)
     sold,  transferred  or  otherwise  disposed  of any  assets  except  in the
     ordinary  course of  business  or for an amount  less than  $25,000  in the
     aggregate,  (iv) made any capital expenditure or commitment therefor except
     in the ordinary course of business or in an amount less than $25,000 in the
     aggregate,   (v)   declared  or  paid  any   dividend  or  made  any  other
     distribution,   or  redeemed,  purchased  or  otherwise  acquired  any  its
     securities or Stock  Acquisition  Rights  therefor,  (vi) made any bonus or
     profit sharing  distribution  or payment of any kind,  (vii)  increased its
     indebtedness  for borrowed money,  except current  borrowings from banks in
     the  ordinary  course of business or in an amount less than  $25,000 in the
     aggregate,  or  made  any  loan  to  any  Person;  (viii)  written  off  as
     uncollectible  any notes or accounts  receivable  except  write-offs in the
     ordinary course of business charged to applicable  reserves,  none of which
     individually or in the aggregate exceeds $25,000, (ix) granted any increase
     in the  rate of  wages,  salaries,  bonuses  or other  remuneration  of any
     executive  employee or other employees,  (x) cancelled or waived any claims
     or rights,  (xi) made any change in any method of  accounting  or  auditing
     practice,  (xii)  otherwise  conducted  its  business  or entered  into any
     transaction,  except in the usual and  ordinary  manner and in the ordinary
     course of business, or (xiii) agreed,  whether or not in writing, to do any
     of the foregoing.

          (b) As of the date hereof,  the aggregate amount outstanding under the
     Bank  Loan is  $200,000  in  principal  amount  plus  accrued  interest  at
     non-default rates.

     2.30 Disclosure.  None of this Agreement, the Financial Statements,  or any
schedule, exhibit or certificate attached hereto or delivered in accordance with
the terms hereof or any document or statement in writing which has been supplied
by or on behalf of the Company in connection with the transactions  contemplated
by this Agreement, contains any untrue statement of a material fact or omits any
statement of a material fact necessary in order to make the statements contained
herein or therein not misleading.  All information  concerning the Company which
is material to the  transactions  contemplated  hereby has been  provided to the
Purchaser,  including  without  limitation any and all  appraisals,  valuations,
estimates or other projections concerning the Company or its securities,  except
that the Company has not provided to Purchaser certain information regarding its
Proprietary  Assets,  the effect of providing which would have, in the Company's
reasonable  opinion,  an adverse  effect on the  Company's  business  should the
transactions  contemplated hereby not be consummated.  There is no fact known to
the  Company  which  materially  adversely  affects  the  business,   prospects,
valuation or  financial  condition  of the Company or its  properties  or assets
which has not been set forth in this Agreement, the Financial Statements, or any
schedule, exhibit or certificate attached hereto or delivered in accordance with
the terms hereof.

                                       22
<PAGE>
     2.31  Broker's or Finder's Fees. No agent, broker, person or firm acting on
behalf  of the  Company  or any  Shareholder  is,  or will be,  entitled  to any
commission or broker's or finder's fees from any of the parties hereto,  or from
any person or entity controlling, controlled by or under common control with any
of the parties hereto,  in connection with any of the transactions  contemplated
by this Agreement.

     2.32 Copies of Documents.  The Company has caused to be made  available for
inspection  and copying by the  Purchaser  and its advisers  true,  complete and
correct  copies  of all  documents  referred  to in  this  Article  II or in any
schedule attached to this Agreement, other than certain documents related to the
Company's Proprietary Assets as described in Section 2.30.

     2.33 Matters  Affecting  Employees.  To the  knowledge  of the Company,  no
employee  of the  Company  is  subject to any  Contract  or Law which  adversely
affects or which might  adversely  affect such  employee's  ability to act as an
employee of the Purchaser or the Surviving Corporation following consummation of
the transactions contemplated by this Agreement.

     2.34 Pooling.  The pooling  letter  referred to in Section 5.6 will be true
and accurate as of the date of its  execution and delivery by the Company and as
of the Closing Date.

     2.35  Affiliate  Letters.  Set  forth  on  Schedule  2.35 is a list of each
"affiliate"  of the  Company  (within  the  meaning of Rule 145 of the rules and
regulations  promulgated  under the Securities Act, or applicable SEC accounting
releases with respect to pooling of interests accounting treatment) (a "Rule 145
Affiliate") as of the date of this  Agreement.  Each such Rule 145 Affiliate has
executed and  delivered  to the  Purchaser  and the  Purchaser's  accountants  a
letter,  dated  and as of the  date of this  Agreement,  in form  and  substance
satisfactory  to the  Purchaser  and its  accountants  in the form  attached  as
Exhibit D.

     2.36 Investment.  Each Principal  Shareholder  represents and warrants that
such  Principal  Shareholder  (i) is acquiring  Purchaser  Common Stock for such
Principal  Shareholder's  own account for  investment and not with a view to, or
for resale in connection with, any distribution of Purchaser Common Stock within
the  meaning of the  Securities  Act and does not  intend to  resell,  assign or
otherwise  dispose  of all or any  part  of the  Purchaser  Common  Stock  being
acquired;  (ii) understands  that such Principal  Shareholder may be required to
bear the economic risk of an  investment  in the Purchaser  beyond the time that
such Principal  Shareholder desires to liquidate such investment;  (iii) is able
to bear the economic  risk of  investment  in Purchaser  Common Stock and has no
need for liquidity with respect to the Purchaser Common Stock; (iv) has received
all information that such Principal Shareholder considers necessary or advisable
to make a decision  concerning an  investment in Purchaser  Common Stock and has
had adequate  opportunity  to ask questions and receive  answers  concerning the
terms and  conditions  of the Merger and to obtain  any  additional  information
which the Company or  Purchaser  possesses or can acquire  without  unreasonable
effort or expense that is  necessary  to verify the accuracy of the  information
provided by the Company or Purchaser; (v) has sought such accounting,  legal and
tax advice as such Principal  Shareholder  has  considered  necessary to make an
informed investment decision; (vi) such Principal Shareholder  acknowledges that
the Purchaser is a reporting  company under Section 12 of Exchange Act; and such
Principal  Shareholder has had an opportunity to review the Purchaser's  various
filings  previously  made  pursuant  to the  Exchange  Act  which  are  publicly
available.

                                       23
<PAGE>
     The subject matter covered by any section,  subsection or provision of this
Article  II shall not be  exclusive  as to such  subject  matter  to the  extent
covered by another section,  subsection or provision of this Article II, and the
specificity of any representation or warranty or other provision or part thereof
shall not affect or limit the generality of any other representation or warranty
or other  provision  or part  thereof.  The Company has used its best efforts to
identify correctly on each disclosure  Schedule  (including by  cross-reference)
each item of  disclosure  applicable  to such  Schedule,  but the  failure to so
cross-reference  shall not cause a  representation  to be untrue if the relevant
item is clearly disclosed on another Schedule and the applicability of such item
to another Schedule is clearly recognizable.

                                   ARTICLE III
         REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND MERGER SUB

     The Purchaser and Merger Sub jointly and severally represent and warrant to
the Company and agree as follows:

     3.1  Existence  and Good  Standing.  The  Purchaser is a  corporation  duly
organized,  validly existing and in good standing under the laws of the State of
North Carolina. Merger Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of North Carolina.

     3.2 Capital Stock. Merger Sub has an authorized  capitalization  consisting
of 100,000  shares of common  stock,  $.01 par value per share,  of which  1,000
shares  are  issued  and  outstanding  and are held by the  Purchaser.  All such
outstanding  shares have been duly  authorized  and validly issued and are fully
paid and nonassessable.

     3.3 Purchaser Shares.  The shares of Purchaser Common Stock to be issued to
the  Shareholders  pursuant to Section 1.1 above have been duly  authorized and,
when issued and delivered in accordance with the terms of this  Agreement,  will
be validly issued, fully paid and non-assessable. The shares of Purchaser Common
Stock to be issued upon the  exercise of those Stock  Options  under the Company
Plan which are to be assumed by the  Purchaser  pursuant to Section  1.1(c)(iii)
have been duly  authorized,  and when issued will be validly issued,  fully paid
and  non-assessable.  The shares of Purchaser Common Stock to be issued upon the
exercise of the Warrants  which shall  constitute  warrants to acquire shares of
Purchaser Common Stock pursuant to Section  1.1(c)(v) have been duly authorized,
and when issued will be validly issued and fully paid and non-assessable.

     3.4 Power and Authority.

          (a) The Purchaser has all requisite  power and authority to enter into
     and deliver this Agreement and the other Transaction  Documents to which it
     is a party,  to perform its  obligations  hereunder and  thereunder  and to
     consummate  the   transactions   contemplated   hereby  and  thereby.   The
     Purchaser's  execution,  delivery and performance of this Agreement and the
     other  Transaction  Documents  and  the  Purchaser's  consummation  of  the
     transactions  contemplated  hereby  and  thereby  will  have  been duly and
     validly  authorized  by all corporate  action  required of the Purchaser by
     applicable  Law or its  Organizational  Documents.  This  Agreement and the
     other  Transaction  Documents to which the Purchaser is a party  constitute
     the valid and legally  binding  obligations of the  Purchaser,  enforceable
     against the Purchaser in

                                       24
<PAGE>
     accordance  with  their  respective  terms,  except as  enforcement  may be
     limited by general equitable  principles (whether raised in a proceeding at
     law or in equity), or by applicable bankruptcy,  insolvency,  moratorium or
     similar laws of general  application  relating to or  affecting  creditors'
     rights (including without limitation, the effect of statutory or other laws
     regarding fraudulent conveyances or transfers and preferential transfers).

          (b) Merger Sub has all requisite power and authority to enter into and
     deliver this Agreement and the other Transaction Documents to which it is a
     party,  to  perform  its  obligations   hereunder  and  thereunder  and  to
     consummate the transactions  contemplated hereby and thereby.  Merger Sub's
     execution,  delivery  and  performance  of this  Agreement  and  the  other
     Transaction  Documents and Merger Sub's  consummation  of the  transactions
     contemplated  hereby and thereby will have been duly and validly authorized
     by all corporate  action  required of Merger Sub by  applicable  Law or its
     Organizational   Documents.   This  Agreement  and  the  other  Transaction
     Documents to which Merger Sub is a party  constitute  the valid and legally
     binding  obligations  of Merger  Sub,  enforceable  against  Merger  Sub in
     accordance  with  their  respective  terms,  except as  enforcement  may be
     limited by general equitable  principles (whether raised in a proceeding at
     law or in equity), or by applicable bankruptcy,  insolvency,  moratorium or
     similar laws of general  application  relating to or  affecting  creditors'
     rights (including without limitation, the effect of statutory or other laws
     regarding fraudulent conveyances or transfers and preferential transfers).

     3.5  No Conflicts; Restrictive Documents;  Consents.  Neither the Purchaser
nor Merger Sub is subject to, or a party to, any Organizational Document, Law or
Contract,  or any other  restriction  of any kind or  character,  which would be
violated by or conflict with,  prevent or impair (whether by acceleration of any
liability, creation of any Encumbrance or otherwise) or require any declaration,
filing,  registration,  notice, approval or consent to, with or of any Person in
connection  with, the  consummation  of the  transactions  contemplated  by this
Agreement or any other Transaction  Document,  or compliance by the Purchaser or
Merger Sub with the terms, conditions and provisions hereof or thereof.

     3.6  SEC Reports.  Since January 1, 1999,  the Purchaser has filed with the
United  States  Securities  and  Exchange  Commission  (the  "SEC")  all  forms,
financial  statements,  documents  and  reports  (collectively,  "SEC  Reports")
required to be filed by the  Purchaser  pursuant to the Exchange  Act.  Such SEC
Reports were prepared in all material  respects in accordance  with the Exchange
Act and, when filed,  did not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.

     3.7  Broker's or Finder's Fees.  Other than CIBC World  Markets  Corp.,  no
agent,  broker,  person or firm acting on behalf of the  Purchaser or Merger Sub
is, or will be, entitled to any commission or broker's or finder's fees from any
of the parties hereto, or from any person or entity  controlling,  controlled by
or under common control with any of the parties  hereto,  in connection with any
of the transactions contemplated herein.

     3.8  Litigation.  There is no action, suit, proceeding at law or in equity,
arbitration or  administrative or other proceeding or investigation by or before
any  governmental  or  other  instrumentality  or  agency  pending  or,  to  the
Purchaser's  knowledge,  threatened against or affecting the Purchaser or Merger
Sub,  or any of their  respective  properties  or rights,  which,  if  adversely
determined, would have a material adverse effect on the ability of the Purchaser
or Merger Sub to consummate the  transactions  contemplated by this Agreement or
to perform

                                       25
<PAGE>
their respective obligations hereunder.  Neither the Purchaser nor Merger Sub is
subject to any  judgment,  order or decree  entered in any lawsuit or proceeding
which may have a material  adverse  effect on the  ability of the  Purchaser  or
Merger Sub to consummate the  transactions  contemplated by this Agreement or to
perform their respective obligations hereunder.

     3.9  No Prior  Activities.  Merger Sub was formed solely for the purpose of
engaging  in the  transactions  contemplated  hereby,  has  engaged  in no other
business  activities  and has  conducted  its  operations  only as  contemplated
hereby.

                                   ARTICLE IV
                 CONDUCT OF BUSINESS; EXCLUSIVE DEALING; REVIEW

     4.1  Conduct of Business of the Company. During the period from the date of
this  Agreement to the Closing Date,  the Company  shall conduct its  operations
only according to its ordinary and usual course of business and preserve  intact
its  business  organization,  keep  available  the  services of its officers and
employees,  maintain  satisfactory  relationships  with  licensors,   suppliers,
distributors, clients and others having business relationships with the Company,
and perform in all material respects all of the Company's  obligations under all
Contracts to which the Company is a party or by which it or any of its assets or
properties are bound. Without limiting the foregoing, prior to the Closing Date,
except  as may be first  approved  in  writing  by the  Purchaser,  set forth in
Schedule 4.1 or otherwise  permitted or required by this Agreement,  the Company
shall not: (a) amend or modify the Company's Organizational Documents, (b) amend
or modify the  compensation  payable or to become payable by the Company to each
officer,  employee  or  agent of the  Company,  (c)  make  any  bonus,  pension,
retirement  or  insurance  payment or  arrangement  to or with any such  persons
except those that may have already been  accrued,  (d) enter into any  Contract,
except  Contracts in the ordinary course of business having a value of less than
$25,000,  (e) make any  change  affecting  any bank,  safe  deposit  or power of
attorney arrangements of the Company, (f) issue or sell, or issue any securities
of the Company or any Stock  Acquisition  Rights for, or  subdivide or otherwise
change in any respect,  any  securities  of the Company,  (g) merge,  combine or
consolidate with another entity, or acquire or purchase an equity interest in or
a substantial  portion of the assets of another  entity,  (h) modify or amend or
waive any benefit of any  non-competition  agreement to which the Company or any
of its  subsidiaries  is a party,  (i) permit any  insurance  policy  naming the
Company  or any  of its  subsidiaries  as a  beneficiary  or  loss  payee  to be
cancelled or terminated  unless replaced at termination  with similar  policies,
(j) incur  Indebtedness  except under the Company's  line of credit with Silicon
Valley Bank (the "Bank Loan") in the ordinary course of business consistent with
past  practices  in an  aggregate  amount  not in excess of  $300,000  including
principal  and interest,  or (k) take any of the actions  referred to in Section
2.29 hereof.  The Company  shall not take or fail to take any action which would
cause  the  representations  and  warranties  contained  in  Article  II of this
Agreement to be or become untrue or  incorrect.  During the period from the date
of this  Agreement to the Closing Date,  the Company shall confer at Purchaser's
request  on  a  regular  and  frequent   basis  with  one  or  more   designated
representatives of the Purchaser to report operational matters and to report the
general status of ongoing operations.  The Company shall notify the Purchaser of
any  unexpected  emergency or other change in the normal course of the Company's
business  or in  the  operation  of  its  properties  and  of  any  governmental
complaints,  investigations or hearings (or  communications  indicating that the
same  may  be  contemplated),   adjudicatory  proceedings,  budget  meetings  or
submissions  involving any property of the Company, and keep the Purchaser fully
informed of such events and permit its representatives prompt access to all

                                       26
<PAGE>
materials  prepared in  connection  therewith.  Notwithstanding  Section  4.1(f)
above,  with the prior written  consent of the Purchaser,  the Company may grant
options,  from the date of this  Agreement to the Closing Date,  exercisable  to
purchase  shares of Company  Common Stock to employees  employed by the Company,
but which shall in any event be on  comparable  terms as existing  Stock Options
and  consistent  with past  practices.  Upon obtaining the  Purchaser's  written
consent,  such  options  shall be deemed to be Stock  Options  for  purposes  of
Section 1.1(c)(iii) and shall be deemed listed in Schedule 2.3.

     4.2 Exclusive Dealing; Voting.

          (a) During the period from the date of this  Agreement  to the Closing
     Date,  the Company (and its  officers,  directors,  employees,  affiliates,
     agents and  representatives)  and the Principal  Shareholders shall refrain
     from  taking any action  directly  or  indirectly  to  encourage,  solicit,
     initiate or engage in  discussions  or  negotiations  with,  or provide any
     information  to, any person or entity other than the  Purchaser  concerning
     any  proposal  for,  or  consummate,  the sale of the  capital  stock in or
     substantially  all  of  the  assets  of,  or  other  business   combination
     involving,  the Company. The Company shall notify the Purchaser immediately
     if any proposal  concerning  any such  proposed  transaction  involving the
     Company or any  significant  assets of the Company (any such proposal being
     referred  to  herein  as an  "Acquisition  Proposal")  or any  request  for
     confidential  information  regarding  the  Company is  received,  and shall
     provide to the Purchaser such  information  regarding any such  Acquisition
     Proposal or request as the Purchaser shall request.

          (b) At any  meeting  of the  Shareholders  called  for the  purpose of
     voting  on the  Merger  (or  any  written  consent  solicited  in lieu of a
     meeting),  each Principal Shareholder agrees to vote his, her or its shares
     in favor of the Merger and against any competing  Acquisition  Proposal, or
     any other  proposal  that would  result in a breach of any  representation,
     warranty, covenant or agreement of the Company hereunder.

     4.3 Review of the Company.  The Purchaser  may,  prior to the Closing Date,
directly  and  through its  representatives,  review the  properties,  books and
records of the  Company and its  financial  and legal  conditions  as and to the
extent they deem  necessary  or advisable to  familiarize  themselves  with such
properties  and other matters;  such review,  and any  information  known to the
Purchaser,  shall not, however, affect the binding nature of representations and
warranties  made by the Company or the Principal  Shareholders  hereunder or the
remedies of the Purchaser for breaches of those  representations and warranties.
With respect to Intellectual Property,  notwithstanding anything to the contrary
in this  paragraph,  Purchaser's  access to the  Intellectual  Property shall be
limited to review of summary  documents  regarding patents and trade secrets and
engineering  documents  that show the  capability  and  performance  of  Company
technology, all as the Company may reasonably determine to provide to Purchaser.
In furtherance of the foregoing, and notwithstanding anything to the contrary in
this  paragraph,  Purchaser's  access to the  Company's  facilities,  equipment,
technical  data,  books,  records and  employees may be limited in the Company's
reasonable   discretion.   The  Company  shall  permit  the  Purchaser  and  its
representatives  to have,  after the date of this Agreement,  full access to the
premises,  personnel,  accountants  and all books and records of the Company and
cause the officers of the Company to furnish the Purchaser  with such  financial
and  operating  data and other  information  with  respect to the  business  and
properties of the Company as the Purchaser  from time to time  reasonably  shall
request.  In the event of termination of this Agreement without  consummation of
the transactions  contemplated hereby, the Purchaser shall keep confidential any
information obtained from the Company concerning

                                       27
<PAGE>
the Company's properties,  operations and business (unless readily ascertainable
from public or published  information  or trade sources) until the or becomes so
ascertainable  and, at the request of the  Company,  shall return to the Company
all copies of any schedules,  statements, documents or other written information
obtained in connection  therewith.  In the event that Purchaser in the course of
its  investigation  obtains  actual  knowledge  of a  matter  and  if  Purchaser
recognizes that such matter constitutes a material breach of a representation or
warranty of the Company,  Purchaser  shall  promptly  notify the Company of such
breach. Within ten (10) days after the date of this Agreement, the Company shall
deliver  to the  Purchaser  a  complete  and  accurate  list,  certified  by the
President of the Company,  of each Person that at any time  received  Restricted
Shares  which  timely  filed an election  under  Section  83(b) of the Code with
respect to such Restricted Shares,  together with copies of such elections,  and
any other related  documents  reasonably  requested by and  satisfactory  to the
Purchaser.

     4.4  Best  Efforts.  Each of the Company, the Principal  Shareholders,  the
Purchaser  and Merger Sub shall use his, her or its  respective  best efforts in
good faith to satisfy  the various  conditions  to Closing  and  consummate  the
Merger  as  soon as  practicable  after  the  date  hereof  in  accordance  with
applicable laws.

                                    ARTICLE V
           CONDITIONS TO THE PURCHASER'S AND MERGER SUB'S OBLIGATIONS

     The  Purchaser's  and Merger Sub's  obligations to engage in the Merger are
conditioned upon  satisfaction,  on or prior to the Closing Date, of each of the
following conditions:

     5.1  Truth of  Representations  and  Warranties.  The  representations  and
warranties  of the  Company and the  Principal  Shareholders  contained  in this
Agreement or in any schedule  attached hereto that are qualified by reference to
materiality shall be true and correct,  and the  representations  and warranties
that are not so qualified shall be true and correct in all material respects, on
and as of the Closing  Date with the same effect as though such  representations
and  warranties had been made on and as of such date, and the Company shall have
delivered to the Purchaser a certificate, dated the Closing Date, to such effect
as to the Company.

     5.2 Good Standing and Other Certificates.  The Company shall have delivered
to  the  Purchaser  (a) a copy  of  the  Company's  Articles  of  Incorporation,
including  all  amendments  thereto,  certified  by the  Secretary  of  State of
California as of the Closing Date or any of the five  preceding  business  days,
(b) a certificate  from the Secretary of State of California  and the California
Franchise  Tax Board to the  effect  that the  Company  is in good  standing  in
California,  (c) a copy of the bylaws of the Company, certified by the Secretary
of the Company as being true and correct and in effect on the Closing Date,  and
(d) a copy of resolutions,  certified as of the Closing Date by the Secretary of
the Company,  adopted by the Board of Directors and  Shareholders of the Company
and  authorizing the execution and delivery by the Company of this Agreement and
the other Transaction Documents to which the Company is a party, the performance
by the Company of its obligations  hereunder and thereunder and the consummation
by the Company of the transactions contemplated hereby and thereby.

     5.3 Performance of Agreements. All of the agreements of the Company and the
Shareholders to be performed on or before the Closing Date pursuant to the terms
of this Agreement shall have been duly performed in all material  respects,  and
the Company shall

                                       28
<PAGE>
have delivered to the Purchaser a  certificate,  dated the Closing Date, to such
effect as to the Company.

     5.4  No Litigation.  No action or proceedings shall have been instituted or
threatened  before a court or other government body or by any public  authority,
and no claim shall have been asserted or threatened to be asserted,  to restrain
or prohibit any of the transactions  contemplated  hereby, and the Company shall
have delivered to the Purchaser a  certificate,  dated the Closing Date, to such
effect.

     5.5  Pooling Letter.  The Company  shall have executed and delivered to the
Purchaser and the Purchaser's  accountants a representations letter, in form and
substance  satisfactory  to the  Purchaser  and  its  accountants,  relating  to
"pooling of interests" accounting.

     5.6  Affiliate  Letters.  Each Rule 145  Affiliate  shall have executed and
delivered to the Purchaser and the Purchaser's accountants a letter, in form and
substance satisfactory to the Purchaser and its accountants in the form attached
as Exhibit D.

     5.7  Pooling Opinion. The Purchaser shall have received a letter, dated the
Closing Date, from Ernst & Young LLP, accountants for the Purchaser, in form and
substance  satisfactory  to the  Purchaser,  regarding  the  appropriateness  of
pooling  of  interests  accounting  for the  transactions  contemplated  by this
Agreement.

     5.8  Opinion of the Company's Counsel. The Company shall have furnished the
Purchaser  with an  opinion,  dated and as of the  Closing  Date,  of  Riordan &
McKinzie,  a  professional  corporation,  counsel  to the  Company,  in the form
attached as Exhibit E.

     5.9 No Material Adverse Change. Since the date of this Agreement, no event,
fact, change,  condition,  circumstance or other development shall have occurred
that has had, or could  reasonably be expected to have,  individually  or in the
aggregate,  a Material Adverse Effect on the Company, and the Company shall have
delivered  to the  Purchaser  a  certificate,  dated the Closing  Date,  to such
effect.

     5.10  Governmental  and Other Approvals and Consents.  All governmental and
other consents and approvals,  if any,  necessary to permit the  consummation of
the transactions contemplated by this Agreement, the absence of which would have
a Material Adverse Effect on the Company, shall have been received.

     5.11  State Securities Permit.  Purchaser shall have received all necessary
states  securities  permits or other  authorizations  or confirmations as to the
availability  of an exemption from  registration  of the Purchaser  Common Stock
under the North Carolina  Securities Act and Section  3(a)(10) of the Securities
Act, and no  proceedings  shall be pending,  or to the  knowledge of  Purchaser,
threatened  in  writing  by  any  securities   administration   to  suspend  the
effectiveness  of such exemption for the issuance of the Purchaser  Common Stock
in the Merger.  Without limiting the foregoing,  the North Carolina Secretary of
State or her delegate (the "Administrator") shall have issued an Order approving
the fairness of the terms and  conditions  of the  Agreement and the issuance of
the Purchaser Common Stock in connection  therewith after a hearing conducted in
accordance with Section 78A-30 of the General Statutes of North Carolina.

                                       29
<PAGE>
     5.12  Employment and Consulting  Agreements.  The person  identified in the
Consulting  Agreement  in the form of  Exhibit  F  attached  hereto  shall  have
executed and delivered to the Purchaser  such  Consulting  Agreement and each of
the persons identified in the Employment  Agreements in the form of Exhibit G-1,
G-2,  G-3 and  G-4,  respectively,  attached  hereto  shall  have  executed  and
delivered to the Purchaser  such  Employment  Agreements  (all such persons each
being  referred to as a "Key  Person",  and such  agreements  being  referred to
collectively as the "Employment and Consulting Agreements").

     5.13  Certain  Agreements.  Each Shareholder and holder of Stock Options as
listed on  Schedule  5.13 shall have  either  signed  the  Merger  Agreement  or
executed and  delivered an  agreement  having terms  identical to Section 7.1 of
this Agreement.

     5.14 Escrow Agreement. The Shareholders and the Escrow Agent (as defined in
the Escrow  Agreement)  shall have  executed and  delivered to the  Purchaser an
escrow  agreement in the form of Exhibit B, with such  modifications  thereto as
are  reasonably  requested by the Escrow  Agent prior to execution  thereof (the
"Escrow Agreement," as defined in Section 1.4 above).

     5.15  Shareholder  Approval.  The Merger,  this  Agreement  and the Plan of
Merger shall have been approved by the vote required of the  Shareholders of the
Company by applicable Law and the Company's  Organizational  Documents,  and the
Company shall have delivered to the Purchaser a  certificate,  dated the Closing
Date, to such effect.

     5.16 Dissenters.  As of the Effective Time, the holders of not more than 5%
of the Company Stock  (calculated on a fully-diluted  basis) shall have demanded
or otherwise purported to exercise their respective  dissenter's rights, if any,
pursuant to the California Code with respect to any shares of Company Stock.

     5.17 Plan of Merger. The Company shall have executed and delivered the Plan
of Merger to the Purchaser.

     5.18 Terms of Option  Agreements  and  Restricted  Shares.  Each  agreement
evidencing a Stock Option  outstanding under the Company Plan and each agreement
evidencing a Repurchase Right regarding a Restricted Share shall provide for and
permit  the  assumption  of  each  such  Stock  Option  and the  assignment  and
assumption of each such  Repurchase  Right by the Purchaser as  contemplated  by
Section 1.1 above;  no agreement or other action of the holder of any such Stock
Option or Restricted Share shall be necessary to effect the same (or the Company
shall have  delivered to the Purchaser  proof that each such  agreement has been
made or action  taken);  and the Company shall have delivered to the Purchaser a
certificate, dated the Closing Date, to such effect.

     5.19 Tax Matters.  The Purchaser shall have received assurances  reasonably
satisfactory to it that the Merger will qualify as a  reorganization  within the
meaning of Section 368(a) of the Code.

     5.20 Resignations. The Purchaser shall have received a written resignation,
satisfactory  in form and  substance  to the  Purchaser,  from each  officer and
director of the Company  requested by the Purchaser to resign on or prior to the
Closing Date.

                                       30
<PAGE>
     5.21  Intra-Company  Debt. All indebtedness,  other than travel and similar
advances outstanding in the ordinary course of business, of the employees of the
Company to the Company, shall have been repaid in full.

     5.22 Current Employees.

          (a) All of the  employees  listed in  Schedule  5.22(a)  hereto  shall
     continue to be employees of the Company,  and none shall have  expressed or
     communicated  to the  Company  any  grievance  or any  intent  to  leave or
     contemplation of leaving the Company's employ.

          (b) At least ninety percent (90%) of the employees  listed in Schedule
     5.22(b)  hereto shall  continue to be  employees  of the Company,  and such
     ninety  percent  (90%)  of such  employees  shall  not  have  expressed  or
     communicated   to  the  Company  any   grievance  or  intent  to  leave  or
     contemplation of leaving the Company's employ.

     5.23 Release of Security  Interests.  The guarantors of the Bank Loan shall
have executed and  delivered to the Purchaser a release of the related  security
interests in form and substance reasonably  satisfactory to the Purchaser,  upon
payment of the Bank Loan in accordance with Section 6.10.

     5.24  Holders  of  Unexercised   Options.   Each  holder  of   outstanding,
unexercised  Stock  Options  shall have executed and delivered to the Company an
instrument in the form agreed to by the Purchaser and the Company on the date of
this Agreement regarding the tax treatment of such Stock Options.

     5.25  Restricted Shares.  The Company shall have delivered to the Purchaser
(i) evidence  reasonably  satisfactory to the Purchaser that each Person that at
any time received Restricted Shares timely filed an election under Section 83(b)
of the  Code  with  respect  to such  Restricted  Shares  or (ii) an  instrument
executed and delivered by each such Person with respect to the  consequences  of
the failure by such Person to file timely such election,  including, in form and
substance reasonably  satisfactory to the Purchaser a release of the Company and
addressing  payment of any tax  obligations  and such other matters  required by
Purchaser.

                                   ARTICLE VI
                     CONDITIONS TO THE COMPANY'S OBLIGATIONS

     The  Company's  obligations  to engage in the Merger are  conditioned  upon
satisfaction,  on or  prior  to the  Closing  Date,  of  each  of the  following
conditions:

     6.1  Truth of  Representations  and  Warranties.  The  representations  and
warranties of the Purchaser and Merger Sub contained in this  Agreement that are
qualified  by  reference  to  materiality  shall  be true and  correct,  and the
representations  and  warranties  that  are not so  qualified  shall be true and
correct in all  material  respects,  on and as of the Closing Date with the same
effect as though such  representations and warranties had been made on and as of
such date, and the Purchaser  shall have delivered to the Company a certificate,
dated the Closing Date, to such effect.

                                       31
<PAGE>
     6.2 Good Standing and Other Certificates.

          (a) Purchaser. The Purchaser shall have delivered to the Company (i) a
     copy of the Purchaser's Articles of Incorporation, including all amendments
     thereto,  certified by the  Secretary of State of North  Carolina as of the
     Closing Date or any of the five preceding business days, (ii) a certificate
     from  the  Secretary  of State of North  Carolina  to the  effect  that the
     Purchaser exists in North Carolina and listing all charter documents of the
     Purchaser  on file as of the  Closing  Date  or any of the  five  preceding
     business days, (iii) a copy of the bylaws of the Purchaser, certified by an
     officer of the  Purchaser  as being true and  correct  and in effect on the
     Closing Date, and (iv) a copy of  resolutions,  certified as of the Closing
     Date by an officer of the  Purchaser,  adopted by the Board of Directors of
     the Purchaser and  authorizing  the execution and delivery by the Purchaser
     of  this  Agreement  and the  other  Transaction  Documents  to  which  the
     Purchaser is a party,  the  performance by the Purchaser of its obligations
     hereunder  and  thereunder  and the  consummation  by the  Purchaser of the
     transactions contemplated hereby and thereby.

          (b) Merger Sub.  Merger Sub shall have  delivered to the Company (i) a
     copy of Merger Sub's  Articles of  Incorporation,  including all amendments
     thereto,  certified by the  Secretary of State of North  Carolina as of the
     Closing Date or any of the five preceding business days, (ii) a certificate
     from the Secretary of State of North Carolina to the effect that Merger Sub
     exists in North Carolina and listing all charter documents of Merger Sub on
     file as of the Closing  Date or any of the five  preceding  business  days,
     (iii) a copy of the bylaws of Merger Sub, certified by an officer of Merger
     Sub as being true and correct and in effect on the Closing Date, and (iv) a
     copy of  resolutions,  certified  as of the  Closing  Date by an officer of
     Merger Sub, adopted by the Board of Directors and shareholder of Merger Sub
     and  authorizing the execution and delivery by Merger Sub of this Agreement
     and the other  Transaction  Documents to which  Merger Sub is a party,  the
     performance by Merger Sub of its  obligations  hereunder and thereunder and
     the consummation by Merger Sub of the transactions  contemplated hereby and
     thereby.

     6.3  Performance of Agreements.  All of the agreements of the Purchaser and
Merger Sub to be performed  on or before the Closing Date  pursuant to the terms
hereof  shall  have  been  duly  performed  in all  material  respects,  and the
Purchaser  shall have delivered to the Company a certificate,  dated the Closing
Date, to such effect.

     6.4  Opinion of Purchaser's Counsel. The Purchaser shall have furnished the
Principal  Shareholders  with an opinion,  dated and as of the Closing  Date, of
Smith,  Anderson,  Blount,  Dorsett,  Mitchell & Jernigan,  L.L.P.,  in the form
attached as Exhibit H.

     6.5  State Securities  Permit.  Purchaser shall have received all necessary
states  securities  permits or other  authorizations  or confirmations as to the
availability  of an exemption from  registration  of the Purchaser  Common Stock
under the North Carolina  Securities Act and Section  3(a)(10) of the Securities
Act, and no  proceedings  shall be pending,  or to the  knowledge of  Purchaser,
threatened  in  writing  by  any  securities   administration   to  suspend  the
effectiveness  of such exemption for the issuance of the Purchaser  Common Stock
in the Merger.  Without  limiting the foregoing,  the  Administrator  shall have
issued an Order  approving  the  fairness  of the terms  and  conditions  of the
Agreement and the issuance of the Purchaser Common Stock in connection therewith
after a hearing  conducted  in  accordance  with  Section  78A-30 of the General
Statutes of North Carolina.

                                       32
<PAGE>
     6.6  Governmental  and Other Approvals and Consents.  All  governmental and
other  consents and  approvals  concerning  the Purchaser or Merger Sub, if any,
necessary to permit the  consummation of the  transactions  contemplated by this
Agreement shall have been received,  and all applicable waiting periods (and any
extensions  thereof)  under the HSR Act shall  have  expired or  otherwise  been
terminated satisfactorily to the Company.

     6.7  Shareholder  Approval.  The  holders  of a majority  of the  Company's
outstanding voting shares, and the holders of a majority of the shares of Series
A Preferred Stock, voting as a separate class, shall have approved the Merger in
accordance with the California Code.

     6.8  Plan of Merger. The  Purchaser  and Merger Sub shall have executed and
delivered the Plan of Merger to the Company.

     6.9  Tax Opinion.  The Company shall have received a written opinion of the
Company's  legal counsel,  Riordan & McKinzie,  dated as of the Closing Date, to
the effect that the Merger will constitute a  reorganization  within the meaning
of Section 368(a) of the Code,  and such opinion shall not have been  withdrawn.
In rendering such opinion,  counsel shall be entitled to rely upon,  among other
things,  reasonable  assumptions and  representations by the parties;  provided,
however, that if Riordan & McKinzie does not render such opinion, this condition
shall nonetheless be satisfied if Smith, Anderson,  Blount, Dorsett,  Mitchell &
Jernigan, LLP, or other counsel reasonably satisfactory to the Company,  renders
such opinion in form and substance reasonably satisfactory to the Company.

     6.10  Bank Loan.  Purchaser shall pay the Bank Loan at Closing  (subject to
Section 4.1), and deliver, or caused to be delivered, to the Company evidence of
such payment.

                                   ARTICLE VII
                 CERTAIN COVENANTS AND AGREEMENTS OF THE PARTIES

     7.1 Non-Competition; Non-Interference. Each Principal Shareholder listed on
Schedule  5.13  agrees,  in partial  consideration  for the  performance  by the
Purchaser and Merger Sub of the transactions  contemplated by this Agreement and
in recognition of the fact that such  transactions  reflect the  acquisition for
value by the Purchaser and Merger Sub of the Company and its rights,  assets and
liabilities, that such Principal Shareholder shall not:

          (a) from the Closing  Date until the second (2nd)  anniversary  of the
     Closing Date, directly or indirectly, as an officer, director, shareholder,
     partner, associate, owner, employee, consultant, or otherwise, become or be
     interested in or associated with, work for and/or assist (including without
     limitation  participating  in  academic  or other  research  for the direct
     benefit  of,  or  pursuant  to an  arrangement  under  which  rights in the
     products  of such  research  are held by) any  other  corporation,  firm or
     business  engaged in the same or a competitive  business with the Company's
     or the Purchaser's  business, as conducted as of the date of this Agreement
     or at any time prior to the  expiration  of the second  anniversary  of the
     Closing Date,  including,  without  limitation,  any  Competing  Activities
     (defined below),  in a capacity  connected with such entities'  competitive
     activities  in any  county of any state of the  United  States,  any of the
     United States or any other nation in which the Company or the Purchaser has
     an office or does business  (directly or indirectly) or in any geographical
     area in which the Company or the  Purchaser  is engaged in,  soliciting  or
     doing  business.  For purposes of this  subsection  (a), direct or indirect
     ownership of not more than one percent (1%) of the

                                       33
<PAGE>
     issued  and  outstanding  stock of a  corporation,  the shares of which are
     regularly   traded   on  a   national   securities   exchange   or  in  the
     over-the-counter  market,  shall  not be deemed  to be a  violation  of the
     preceding  sentence.  For  purposes  of  this  subsection  (a),  "Competing
     Activities"   shall   mean   the   development,   manufacture,   marketing,
     distribution  or sale of,  or  research  directed  to,  Group  III  nitride
     materials or devices fabricated on or from such materials;

          (b) from the Closing  Date until the second (2nd)  anniversary  of the
     Closing Date, directly or indirectly, solicit, interfere with the Company's
     or the Purchaser's  relationships  with, or entice away from the Company or
     the Purchaser any customer,  supplier,  person,  firm or corporation who or
     which  has,  at any  time  during  the  eighteen  (18)  months  immediately
     preceding  the date of this  Agreement  or at any time  during  which  such
     Shareholder  was  an  employee  of or  consultant  to the  Purchaser,  done
     business  with the  Company or the  Purchaser,  or offer  employment  to or
     procure  employment  for any person who has at any time during the eighteen
     (18) months immediately preceding the date of this Agreement or at any time
     during  which such  Shareholder  was an  employee of or  consultant  to the
     Purchaser been employed or engaged by the Company or the Purchaser;

          (c) use for any purpose or knowingly divulge,  directly or indirectly,
     to any entity or person, any material information concerning the Company or
     the  Purchaser's  device  designs,   device  structures,   package  design,
     epitaxial equipment and processes and other "know-how", processes, methods,
     research, development or marketing techniques, programs, standard operating
     procedures  and practices,  materials or plans,  customer or vendor list or
     any other of the Company's or the Purchaser's  trade secrets,  confidential
     information,  price lists or pricing policies,  except information which is
     (i) in the public domain or (ii) becomes public knowledge  through no fault
     of such Principal Shareholder or (iii) is required to be disclosed by court
     order or other  government  process or the disclosure of which is necessary
     to enable such Principal  Shareholder to comply with applicable law. In the
     event that such Principal  Shareholder shall be required to make disclosure
     pursuant to the provisions of clause (iii) of the preceding sentence,  such
     Principal  Shareholder promptly shall notify the Surviving  Corporation and
     the Purchaser and take, at the expense of the Surviving  Corporation or the
     Purchaser,  all  reasonably  necessary  steps  requested  by the  Surviving
     Corporation  or the  Purchaser to defend  against the  enforcement  of such
     court  order  or  other  government  process,   and  permit  the  Surviving
     Corporation and the Purchaser to participate  with counsel of its choice in
     any proceeding relating to the enforcement thereof; or

          (d) take or engage in any form or manner, directly or indirectly,  any
     action  which  directly or  indirectly  is  materially  detrimental  to the
     goodwill,  name, business relationships and prospects,  or operation of the
     Company or the  Purchaser  or is  otherwise  intended  to be adverse to the
     Company or the Purchaser.

     It is the  desire  and intent of the  parties  to this  Agreement  that the
provisions  of  this  Section  7.1  shall  be  enforced  to the  fullest  extent
permissible  under the laws and public policies applied in each  jurisdiction in
which  enforcement is sought.  If any  particular  provisions or portion of this
Section 7.1 shall be  adjudicated to be invalid or  unenforceable,  this Section
shall  be  deemed  amended  to  delete   therefrom  such  provision  or  portion
adjudicated  to be invalid or  unenforceable,  such amendment to apply only with
respect to the operation of such Section in the particular jurisdiction in which
such adjudication is made.

     The parties  recognize that the performance of the  obligations  under this
Section  7.1 by  each of the  Principal  Shareholders  is  special,  unique  and
extraordinary in character, and

                                       34
<PAGE>
that in the  event  of the  breach  by any such  Shareholder  of the  terms  and
conditions of this Section 7.1 to be performed, the Purchaser shall be entitled,
if it so  elects,  to  institute  and  prosecute  proceedings  in any  court  of
competent  jurisdiction,  either in law or in equity,  to obtain damages for any
breach of this Section 7.1, to enforce the specific  performance thereof by such
Shareholder or to enjoin such Shareholder from performing  services for any such
other person, firm or corporation.

     For purposes of this Section 7.1 only, the term  "Purchaser"  shall include
the  Purchaser  and all  affiliates  of the  Purchaser,  including the Surviving
Corporation, and the term "Company" shall include the Company and all affiliates
of the Company.

     7.2  Fairness Hearing  Application.  Each of the parties to this  Agreement
shall, and shall cause their Affiliates to, use all reasonable  efforts to cause
the issuance of the Purchaser Common Stock to be exempt from registration  under
applicable federal and state securities Laws by filing as soon as practicable an
application with the Secretary of State of the State of North Carolina  pursuant
to N.C.  Gen.  Stat.  Section  78A-30  requesting  a hearing  upon the terms and
conditions of the Merger to be held as soon as  practicable  after the filing of
such application and taking all actions  necessary or appropriate to comply with
the  requirements  set forth  therein.  The Company and the  Shareholders  shall
furnish to Purchaser the information to be included in such application. None of
the  parties to this  Agreement  shall make at such  hearing,  or include in any
information  supplied with such application or distributed at such hearing,  any
untrue  statement of a material fact or omit to state any material fact required
to be stated  therein or necessary in order to make the statements  therein,  in
light of the circumstances under which they were made, not misleading.

     7.3 Pooling Restrictions and Related Matters.

          (a)  Pooling of  Interests  Accounting.  Neither  the  Company nor any
     Shareholder  shall take, or fail to take, any action which would disqualify
     the  transactions  contemplated by this Agreement from pooling of interests
     accounting  treatment by the Purchaser or to be treated as a reorganization
     within the  meaning of Section  368(a) of the Code.  Without  limiting  the
     foregoing,  no  Shareholder  shall sell,  transfer,  pledge,  or  otherwise
     dispose of such  Shareholder's  interests  in or reduce such  Shareholder's
     risk  relative to any of the shares of Purchaser  Common Stock to be issued
     to such Shareholder pursuant to Section 1.1 above commencing as required by
     pooling of interests  accounting and continuing  until the Purchaser  shall
     have  published  financial  results  covering  at least 30 days of combined
     operations  of  the  Purchaser   and  the   Surviving   Corporation   after
     consummation of the Merger.

          (b) Stop  Transfer  Order.  The  Purchaser  shall  not be bound by any
     attempted  transfer,  sale or other  disposition in violation of any of the
     restrictions  set forth in this  Section 7.3,  and the  Purchaser  shall be
     entitled to deliver to the Purchaser's  transfer agent an appropriate  stop
     transfer  order in  connection  therewith,  pursuant to which such transfer
     agent shall refrain from registering any such attempted  transfer,  sale or
     disposition.

          (c) Certificate Legends.  The certificates  representing any shares of
     the  Purchaser's  Common Stock issued to a Rule 145  Affiliate set forth on
     Schedule  2.35  pursuant  to  Section  1.1  above  shall  bear  legends  in
     substantially the following form:

         "The shares  represented by this  certificate were issued pursuant to a
         business combination  accounted for as a "pooling of interests" and may
         not be sold, nor may the

                                       35
<PAGE>
         owner thereof reduce his risks relative  thereto in any way, until such
         time as Cree, Inc. ("Cree") has published financial results covering at
         least 30 days of combined  operations  after the effective  date of the
         exchange  through  which the  business  combination  was  effected.  In
         addition,  the shares  represented by this certificate may not be sold,
         transferred or otherwise disposed of except or unless (1) covered by an
         effective  registration  statement under the Securities Act of 1933, as
         amended, or an exemption therefrom,  or (2) in accordance with Rule 145
         (in the case of shares issued to an individual  who is not an affiliate
         of Cree).

         The  certificates  issued  representing  any shares of Purchaser Common
         Stock to a person  who is not a Rule 145  Affiliate  shall not bear any
         restrictive  legend so long as the exemption under Section  3(a)(10) of
         the Securities Act with respect to the issuance of the Purchaser Common
         Stock is available at the Effective Time.

     7.4  Compliance with Employment and Consulting Agreements.  Each of the Key
Persons shall comply in all respects with any of the  Employment  and Consulting
Agreements to which he is a party.

     7.5  Supplemental Disclosure. Subject to Section 4.3, each party shall give
prompt  notice to the other of (i) the  occurrence,  or  non-occurrence,  of any
event the occurrence,  or  nonoccurrence,  of which would be likely to cause (x)
any  representation  or warranty  contained  in this  Agreement  to be untrue or
inaccurate  or (y)  any  covenant,  condition  or  agreement  contained  in this
Agreement not to be complied with or satisfied and (ii) any failure of the other
party to comply with or satisfy  any  covenant,  condition  or  agreement  to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice  pursuant  to this  Section  7.5 shall not have any effect for the
purpose of determining the satisfaction of the conditions set forth in Article V
of this Agreement or otherwise limit or affect the remedies available  hereunder
to any party.

     7.6 Employees; Continued Operations.

          (a) Prior to the Closing, the Company shall use its reasonable efforts
     to ensure that each  person who is an officer or  employee of the  Company,
     and each  person  who is a  consultant  of the  Company,  shall,  after the
     Closing,  remain  an  employee  or  consultant,  as the case may be, of the
     Company,  until such person's employment or consulting  arrangement expires
     or is  terminated  in accordance  with its terms.  Nothing  herein shall be
     deemed  or  construed  to give  rise to a right  of  employment.  As of the
     Closing, the Purchaser will make available to employees who continue in the
     employ,  or become  employed  by,  the  Company,  terms and  conditions  of
     employment,  including  employee benefit plans, that, taken as a whole, are
     comparable to the terms and  conditions of employment,  including  employee
     benefit  plans,  provided to employees of the Company as of the date hereof
     and which are no less favorable  than such  employees'  current  employment
     terms;  provided,  however,  that the terms and conditions of such employee
     benefit  plans may be varied or  eliminated  at any time  subsequent to the
     first  anniversary  of the  Closing  Date  in a  manner  determined  by the
     Compensation  Committee of the Purchaser.  Each such employee or consultant
     shall  receive  credit  for his or her  service  with the  Company  for all
     purposes under such employee benefit plans.

          (b) It is the present  intent of the parties that, as of and after the
     Closing,  the  Purchaser  will  conduct  the  business  of the  Company  as
     described in Schedule 7.6.

                                       36
<PAGE>
          (c) The provisions of this Section 7.6 represent the present intent of
     the Purchaser, and the Purchaser will exercise good faith efforts to comply
     with the  provisions of this Section 7.6.  Notwithstanding  anything to the
     contrary  contained  herein,  it is understood  that the Purchaser  retains
     discretion   to  manage  its   business  in  the  best   interests  of  its
     shareholders,  and that good faith modifications of or variances from these
     provisions  in  the  exercise  of  such   discretion  are  appropriate  and
     permitted.

     7.7  Form S-8.  Promptly after the Effective Date,  Purchaser shall use its
reasonable  best  efforts to file a  Registration  Statement on Form S-8 (or any
successor  form) under the  Securities  Act,  covering  the shares of  Purchaser
Common Stock issuable  pursuant to  outstanding  Stock Options under the Company
Plan  assumed  by  Purchaser  pursuant  to  Section  1.1(c)(iii).   As  soon  as
practicable after the date hereof and prior to the Closing, the Company will use
its  reasonable  best efforts to cause all holders of assumed  Stock  Options to
agree in writing not to  exercise  their  options  until  Purchaser  has filed a
registration  statement on Form S-8 in accordance with this section. The Company
shall   cooperate  with  and  assist   Purchaser  in  the  preparation  of  such
registration statement.

     7.8  Listing of Additional  Shares.  Promptly  following  the date  hereof,
Purchaser shall use its reasonable best efforts to file with the Nasdaq National
Market,  to the extent required,  a Notification  Form for Listing of Additional
Shares  with  respect to the shares of  Purchaser  Common  Stock  issuable  upon
conversion  of the Company  Stock as a result of the Merger and upon exercise of
Stock  Options and Warrants to acquire  Company  Stock assumed by Purchaser as a
result of the Merger.

     7.9  401(k) Plan.  Prior to Closing, the Company's Board of Directors shall
take all necessary and  appropriate  actions to approve the  termination  of the
Company's  401(k) plan so that,  after the Closing,  Purchaser may complete such
termination  and  provide  for (i) a  rollover  of the  assets  of such  plan to
Purchaser's 401(k) plan or (ii) the distribution of the assets of such plan in a
lump  sum  form  to  the  plan's  participants,  as  may  be  directed  by  such
participants.

     7.10  Dissenters.  During the period from the date of this Agreement to the
Closing Date, the Company (and its officers, directors,  employees,  affiliates,
agents and  representatives)  shall comply with all provisions of the California
Code  relating  to  dissenters'  rights  applicable  to  the  Merger  and  other
transactions contemplated hereby.

     7.11  Shareholder Meeting; Shareholder Approval; Information Statement.

          (a) The Company shall,  subject to and in accordance  with  applicable
     Law and the Company's Organizational  Documents, duly call, give notice of,
     convene  and hold a meeting  of the  holders of  Company  Common  Stock and
     Company  Preferred  Stock,  voting as a  separate  class,  as  promptly  as
     practicable  after  the  date  of  this  Agreement,   for  the  purpose  of
     considering  and voting to approve  and adopt this  Agreement,  the Plan of
     Merger  and  the  transactions   contemplated   hereby  and  thereby.   The
     shareholder  vote required for the adoption and approval of this Agreement,
     the Plan of Merger and the  transactions  contemplated  hereby and thereby,
     shall  be the  vote  required  by the  California  Code  and the  Company's
     Organizational  Documents.  The Board of  Directors  of the  Company  shall
     recommend to the  Shareholders  that they vote in favor of the approval and
     adoption  of this  Agreement,  the  Plan  of  Merger  and the  transactions
     contemplated hereby and thereby and take all action reasonably necessary to
     solicit and obtain such approval.

                                       37
<PAGE>
          (b)  In  connection  with  such  shareholder   meeting,   as  soon  as
     practicable after the date of this Agreement,  the Company shall prepare an
     information statement (the "Information Statement") for distribution to its
     Shareholders.  The Information  Statement shall be subject to review by the
     Purchaser.  The  Company  will  cooperate  with  the  Purchaser  so  as  to
     coordinate the distribution on a timely basis of the Information  Statement
     with any materials  related to the fairness  hearing referred to in Section
     7.2.

     7.12 Director and Officer Indemnification. Purchaser agrees that all rights
to  indemnification  now  existing  in favor of any  director  or officer of the
Surviving  Corporation,  as provided in its Articles of Incorporation or bylaws,
for  acts or  omissions  occurring  at or  prior to the  Effective  Time,  shall
continue  in full force and effect and that  Purchaser  shall not cause or allow
the Surviving Corporation to modify such rights to indemnification.

                                  ARTICLE VIII
                 SURVIVAL OF REPRESENTATIONS; INDEMNITY; SET-OFF

     8.1  Survival  of  Representations.   The  respective  representations  and
warranties  of the  Company,  the  Shareholders,  the  Purchaser  and Merger Sub
contained in this Agreement or in any schedule attached hereto shall survive the
consummation of the Merger and the other  transactions  contemplated  hereby and
shall  remain in full  force and effect  notwithstanding  any  investigation  or
examination  of, or knowledge  with respect to, the subject matter thereof by or
on behalf of the Company, the Shareholders,  Merger Sub or the Purchaser, as the
case may be, until the first  anniversary of the Closing Date (the period ending
on such date is referred to as the  "Representations  Period"),  except that (i)
the  representation  and warranty in Section 2.20(i)(i) and (ii) shall expire at
and as of the  Effective  Time,  and (ii) such  representations  and  warranties
(including Section 2.20(i)(i) and (ii)) shall survive  indefinitely in the event
of fraud or intentional  misrepresentation  with respect  thereto.  No claim for
indemnification  pursuant to Section 8.2(a) or (f) based on an alleged breach of
any such  representation  or warranty may be brought after the expiration of the
Representations  Period,  except  that  claims made in good faith in writing and
setting forth in reasonable detail the claim prior to such expiration, including
without  limitation  claims  made with  respect to actions  anticipated  in good
faith,  regardless  of whether any action or demand has in fact been  commenced,
shall be  deemed to have been  brought  prior to the end of the  Representations
Period (it being understood, without limitation, that any and all Losses arising
after the expiration of the  Representations  Period shall be  recoverable  upon
notice properly given prior to the expiration of the  Representations  Period in
accordance with this Section 8.1).

     8.2 Indemnification.

          (a) Subject to the  limitations  set forth in this Article  VIII,  the
     Shareholders  shall  indemnify,  defend and hold  harmless  the  Purchaser,
     Merger Sub and their  Affiliates  (including the Company after the Merger),
     and all of their respective officers, directors,  employees (other than the
     Key Persons),  agents and shareholders (other than the Shareholders) (each,
     an "Indemnitee") to the fullest extent permitted in law or equity, from and
     against any and all losses, claims, actions,  damages,  liabilities,  costs
     and expenses  (including  reasonable  attorneys'  fees and expenses) net of
     actual  tax  benefits,  and net of  actual  cash  insurance  recoveries  or
     recoveries  from  indemnities  of third  parties  (collectively,  "Losses")
     relating   to  or   arising   from   or  in   connection   with   (i)   any
     misrepresentation,  breach  or  violation  of,  or  default  in  any of the
     representations, warranties, covenants, or agreements given or made by

                                       38
<PAGE>
     the Company or any  Shareholder  in or pursuant to this Agreement or any of
     the other  Transaction  Documents  or in any other  agreement  or officer's
     certificate  delivered to the  Purchaser or Merger Sub in  connection  with
     this  Agreement,  (ii)  the  enforcement  by the  Purchaser  of its  rights
     pursuant to this Section  8.2,  including  any  litigation,  proceeding  or
     investigation  relating thereto, and (iii) any matter described in Schedule
     8.2. The Purchaser  shall have no obligation to seek an insurance  recovery
     or third party  indemnification  and if the Purchaser does so and obtains a
     recovery, the Purchaser's indemnity claim shall not be offset to the extent
     of the Purchaser's  expenses in obtaining such recovery and an amount equal
     to anticipated premium increases for the following three (3) years.

          (b) Except with respect to any misrepresentation or non-fulfillment of
     the  representations and warranties in Section 2.1 above, any breach of any
     post-Closing covenant, or any Losses resulting from or arising out of fraud
     or other  intentional  or knowing  misconduct or  misrepresentation,  as to
     which (in each case) the  Shareholders  shall be liable to the  Indemnities
     without  limitation,  notwithstanding  the foregoing  provisions of Section
     8.2(a),  (i)  recovery  from the  Escrow  Fund  shall be the sole  monetary
     recourse of any  Indemnitee for claims under Section  8.2(a),  and (ii) the
     Indemnitees shall not be entitled to  indemnification  under Section 8.2(a)
     above for any amount  unless and until the  aggregate  of all  amounts  for
     which the Indemnitees would otherwise be entitled to be indemnified exceeds
     $500,000 (in the aggregate), all amounts in excess of which the Indemnitees
     shall  be  indemnified  for as  provided  in this  Section  8.2;  provided,
     however,  that any amounts  arising under Schedule 8.2 shall be immediately
     subject to a claim of indemnity  hereunder  and shall not be subject to the
     $500,000  threshold  set  forth  in this  Section  8.2(b)(ii).  Solely  for
     purposes of determining  whether the aggregate of all amounts for which the
     Indemnitees would otherwise be entitled to be indemnified exceeds $500,000,
     the  amount of each  indemnifiable  claim and the  aggregate  amount of all
     indemnifiable  claims shall not be limited by the  definition of "material"
     in Section  10.1(i) below, or the use of the term "material" or its related
     forms in any  representations  or  warranties.  Accordingly,  indemnifiable
     claims may consist of Losses  (whether  or not arising  from a breach of an
     individual   representation,   warranty,   covenant  or   indemnity)   that
     individually  or in the  aggregate  do  not  constitute  material  amounts,
     provided such amounts in the aggregate exceed  $500,000.  In no event shall
     the  indemnification  of Purchaser by the Shareholders be deemed to include
     indemnification  against  potential third party claims described in Section
     2.20(i)(i) and (ii); provided,  however, that for any such claims resulting
     from or arising out of the  Company's or the  Shareholders'  fraud or other
     intentional or knowing misrepresentation, the Shareholders shall be jointly
     and severally liable to the Indemnitees without limitation.

          (c) The obligations of the  Shareholders  under this Section 8.2 shall
     be secured pursuant to the Escrow Agreement.

          (d) As of and after the Closing, the Surviving  Corporation shall have
     no liability  under this  Agreement,  and no Shareholder  shall threaten or
     bring any claim or action whatsoever against the Surviving  Corporation for
     contribution  to any  amounts  payable  under  this  Section  8.2  by  such
     Shareholder.

          (e) The obligations to indemnify, defend and hold harmless pursuant to
     this  Section  8.2  shall  survive  the  consummation  of the  transactions
     contemplated by this Agreement.

                                       39
<PAGE>
          (f)  After  the  Closing, subject  to  Section  8.1,  Purchaser  shall
     indemnify  and hold harmless the  Shareholders  from and against any Losses
     relating to, arising from or in connection with (i) any  misrepresentation,
     breach  or  violation  of  or  default  in  any  of  the   representations,
     warranties,  covenants or  agreements  given or made by Purchaser or Merger
     Sub in this Agreement and (ii) the enforcement of the Shareholder's  rights
     under this Section 8.2(f). Except in the case of fraud or other intentional
     or knowing misconduct or misrepresentation,  the maximum aggregate recourse
     by the Company and the Shareholders  (collectively)  on account of breaches
     of this  Agreement  by the  Purchaser  or Merger  Sub shall not  exceed the
     amount  determined by multiplying  ten percent (10%) by the aggregate value
     (calculated  with  reference to the closing  prices on the Closing Date) of
     the Purchaser  Common Stock issued in the Merger at the Effective Time, and
     no claim  shall be made  unless the  aggregate  losses of the  Shareholders
     exceeds  $500,000,  and only to the  extent  of such  excess.  No claim for
     indemnification  pursuant to this Section  8.2(f) may be brought  after the
     expiration of the Representations  Period,  except that claims made in good
     faith in writing and setting forth in reasonable  detail the claim prior to
     such expiration,  including without  limitation claims made with respect to
     actions  anticipated  in good  faith,  regardless  of whether any action or
     demand  has in fact been  commenced,  shall be deemed to have been  brought
     prior to the end of the  Representations  Period.  No claim  for  indemnity
     shall be made without the consent of the  Shareholder  Representative,  who
     shall have the power to settle or otherwise  resolve any claim on behalf of
     the Shareholders. In no event shall the Purchaser be obligated to indemnify
     the  Shareholders  for the  reasonable  fees and  expenses of more than one
     counsel for all Shareholders (and local counsel, if appropriate).

                                   ARTICLE IX
                                   TERMINATION

     9.1 Termination.

          (a) The parties  hereto shall be entitled to terminate  this Agreement
     as follows,  provided that no such termination shall limit or terminate any
     liability  of one party to another  for any  breach  hereof,  and  provided
     further  that the  provisions  of Sections  7.1(c)  (confidentiality),  8.2
     (indemnification) and 10.7 (publicity) shall survive any such termination:

               (i) the parties  hereto may  terminate  this  Agreement by mutual
          written consent at any time;

               (ii) the Purchaser may terminate this Agreement by written notice
          to the Company on or prior to the  Closing  Date if the Company or any
          Shareholder   shall  have   breached  in  any  material   respect  any
          representation,  warranty,  covenant or  agreement  contained  in this
          Agreement  and  failed to cure the same  within  ten (10)  days  after
          written notice thereof from the Purchaser;

               (iii) the Company may terminate  this Agreement by written notice
          to the  Purchaser  on or prior to the  Closing  Date if the  Purchaser
          shall  have  breached  in any  material  respect  any  representation,
          warranty, covenant or agreement contained in this Agreement and failed
          to cure the same  within ten (10) days after  written  notice  thereof
          from the Company;

                                       40
<PAGE>
               (iv) the Purchaser or the Company may terminate this Agreement by
          written  notice to the other if the  consummation  of the Merger shall
          not have  occurred  on or before May 31, 2000  (provided,  that if the
          Secretary  of State of North  Carolina  shall not have issued a permit
          with respect to the fairness of the Merger to the  Shareholders of the
          Company  prior to such date,  the date shall be  extended  to June 30,
          2000;  provided,  however,  that the right to terminate this Agreement
          pursuant to this  subsection  (iv) shall not be  available  to a party
          whose (or whose affiliate's)  action or failure to act shall have been
          a principal cause of or resulted in the failure of the Merger to occur
          on or before such date; and

               (v) the Purchaser or the Company may terminate  this Agreement by
          written  notice to the other parties hereto on or prior to the Closing
          Date if any court or other  governmental  instrumentality of competent
          jurisdiction shall have issued an order, decree or ruling or taken any
          other  action  restraining,  enjoining or  otherwise  prohibiting  the
          transactions  contemplated by this Agreement which order or injunction
          shall not have been lifted within ten (10) days of issuance thereof.

          (b) Notwithstanding  approval of this Agreement and the Plan of Merger
     by the shareholders of Merger Sub and the Company, the parties hereto agree
     that termination of this Agreement shall constitute mutual  termination and
     abandonment  of the Plan of  Merger  and that,  upon any such  termination,
     neither  Merger  Sub nor the  Company  shall  have any  further  rights  or
     obligations  under or arising out of the Plan of Merger;  provided  that in
     the event of termination under clauses  9.1(a)(ii) or (iii), no party shall
     be relieved of liability for its breach of this Agreement.

                                    ARTICLE X
                                  MISCELLANEOUS

     10.1 Definitions of Certain Terms. As used in this Agreement, the following
capitalized terms shall have the respective meanings set forth below:

          (a) "Casualty"  shall mean any fire,  explosion,  accident,  casualty,
     labor trouble,  flood, drought, riot, storm,  condemnation or act of God or
     other public force.

          (b) "Code" shall mean the United States Internal  Revenue Code of 1986
     and all rules and regulations  promulgated thereunder from time to time, in
     each case as amended.

          (c)  "Contract"  shall  mean  any  contract,   agreement,   indenture,
     instrument or other binding commitment or arrangement of any kind.

          (d) "Encumbrance" shall mean any lien, encumbrance, security interest,
     mortgage, pledge, lease, option, easement, servitude,  covenant, condition,
     restriction  under any Contract,  or other charge,  restriction or claim of
     any kind.

          (e) "ERISA" shall mean the Federal Employee Retirement Income Security
     Act of 1974 and all rules and regulations  promulgated thereunder from time
     to time, in each case as amended.

                                       41
<PAGE>
          (f) "Exchange Act" shall mean the federal  Securities  Exchange Act of
     1934 and all  rules and  regulations  promulgated  thereunder  from time to
     time, in each case as amended.

          (g) "HSR  Act"  shall  mean the  Federal  Hart-Scott-Rodino  Antitrust
     Improvements  Act  of  1976  and  all  rules  and  regulations  promulgated
     thereunder from time to time, in each case as amended.

          (h) "Law" shall mean any national,  federal,  state,  local or foreign
     law, rule, regulation, statute, ordinance, order, judgment, decree, permit,
     franchise,  license or other governmental restriction or requirement of any
     kind.

          (i) "Material  Adverse Effect" shall mean any material  adverse effect
     on the business,  financial condition,  results of operations, or prospects
     of the  affected  party,  including  without  limitation  any effect  which
     prevents or impairs materially such party's  performance of its obligations
     under, or the consummation of, this Agreement.  When the term "material" is
     used with reference to the Company,  a matter shall be deemed "material" if
     the matter involves or affects (i) in the case of Section 5.9, an amount or
     amounts in excess of $500,000  individually or in the aggregate and (ii) in
     all other  cases,  an amount in excess of  $25,000  individually  or in the
     aggregate with other like matters.

          (j)  "Organizational  Document" shall mean any certificate or articles
     of incorporation,  bylaw, board of directors' or shareholders'  resolution,
     or other  corporate  document or action  comparable to any of the foregoing
     currently in effect.

          (k)  "Permitted  Encumbrance"  shall mean such of the  following as to
     which no enforcement, collection, execution, levy or foreclosure proceeding
     shall have been commenced (except as otherwise  provided below):  (i) liens
     reflected in the Balance Sheet; (ii) liens consisting of zoning or planning
     restrictions,  easements,  permits and other restrictions or limitations on
     the use of real  property or  irregularities  in title thereto which do not
     detract  from the  value of, or impair  the use of,  such  property  by the
     Company in the  operation of its business;  (iii) liens for current  taxes,
     assessments or  governmental  charges or levies on property not yet due and
     delinquent  or that are  being  contested  in good  faith;  (iv)  statutory
     Encumbrances, such as materialmen's,  mechanics',  carriers', workmens' and
     repairmens' liens and other similar liens arising in the ordinary course of
     business for amounts that are not yet due and  delinquent or that are being
     contested  in good faith;  (v)  pledges or  deposits to secure  obligations
     under  workers'   compensation  laws  or  similar  legislation;   and  (vi)
     Encumbrances related to bank credit facilities,  capital lease obligations,
     obligations for borrowed money and purchase money mortgages and conditional
     sales contracts  entered into in the ordinary course of business which will
     be retired at Closing.

          (l) "Person" shall mean any  individual,  partnership,  joint venture,
     corporation, trust, limited liability company, unincorporated organization,
     government (or subdivision thereof) or other entity.

          (m)  "Securities  Act" shall mean the United States  Securities Act of
     1933 and all  rules and  regulations  promulgated  thereunder  from time to
     time, in each case as amended.

                                       42
<PAGE>
          (n) "Stock  Acquisition Right" shall mean any option,  warrant,  right
     (preemptive or otherwise),  call,  commitment,  conversion right,  right of
     exchange,  plan or  other  agreement  of any  character  providing  for the
     purchase, issuance or sale of any securities.

     10.2 Expenses. Each party hereto shall pay all of its own expenses relating
to the transactions contemplated by this Agreement, including without limitation
the fees and expenses of its respective counsel.

     10.3 Remedies Not  Exclusive.  Except as  specifically  provided in Section
8.2,  nothing in this Agreement  shall limit or restrict in any manner any other
rights or remedies  any party  hereto may have against any other party hereto at
law,  in equity or  otherwise,  including  without  limitation  any such  rights
pursuant  to the  Escrow  Agreement  or any of  the  Employment  and  Consulting
Agreements.

     10.4 Governing Law. The  interpretation and construction of this Agreement,
and all matters relating  hereto,  shall be governed by the laws of the State of
North  Carolina,  without  regard to the choice of law principles  thereof.  The
parties  acknowledge  and  agree  that  this  Agreement  is being  executed  and
delivered in North Carolina.

     10.5  Further  Assurances.  In  addition  to  the  actions,  documents  and
instruments  specifically  required by this  Agreement or any other  Transaction
Document to be taken or  delivered on or before the Closing Date or from time to
time thereafter,  each of the parties to this Agreement shall,  before and after
the Closing Date,  without  further  consideration,  take such other actions and
execute and deliver such other documents and instruments as another party hereto
reasonably  may  request  in  order  to  effect  and  perfect  the  transactions
contemplated by this Agreement and the other Transaction Documents.

     10.6 Captions.  The Article and Section captions used in this Agreement are
for  reference  purposes  only and shall not in any way  affect  the  meaning or
interpretation of this Agreement.

     10.7  Publicity.  Except as otherwise  required by applicable law, no party
and no  affiliate  of any party shall issue any press  release or make any other
public statement relating to, connected with or arising out of this Agreement or
the matters  contained  herein without the other parties' prior written approval
of the contents and the manner of presentation and publication thereof.

     10.8  Notices.   Notice  or  other  communications  required  or  permitted
hereunder shall be sufficiently given if delivered in person or sent by telecopy
or by registered or certified mail or by recognized  overnight courier,  postage
prepaid, addressed as follows:

         If to the Purchaser or Merger Sub, to:

          Cree, Inc.
          4600 Silicon Drive
          Durham, North Carolina 27703
          Attention:  Adam H. Broome, General Counsel and Secretary

                                       43
<PAGE>
         with a copy to its counsel,

                   Smith, Anderson, Blount, Dorsett, Mitchell &
                    Jernigan, L.L.P.
                   2500 First Union Capitol Center
                   Raleigh, North Carolina 27601
                   Attention: Gerald F. Roach, Esq.

         If to the Company or any Shareholder, to:

                   Nitres, Inc.
                   5655 Lindero Canyon Road
                   Suite 404
                   Westlake Village, California 91362
                   Attention: Fred A. Blum

         with a copy to its counsel:

                   Riordan & McKinzie
                   300 South Grand Avenue, 29th Floor
                   Los Angeles, California 90071
                   Attention: Thomas A. Waldman, Esq.

or to such other  address or number as shall be furnished in writing by any such
party in such manner,  and such notice or communication  shall be deemed to have
been given as of the date so delivered, sent by telecopier or mailed.

     10.9  Recovery of Litigation Costs.  If any legal action or  arbitration or
other  proceeding is brought for the enforcement of this Agreement,  or based on
an alleged dispute,  breach, default or misrepresentation in connection with any
of the  provisions of the  Agreement,  the  successful  or  prevailing  party or
parties shall be entitled to recover reasonable  attorneys' fees and other costs
incurred in that action or proceeding,  in addition to any other relief to which
it or they may be entitled.

     10.10 Parties in Interest. This Agreement may not be transferred, assigned,
pledged or  hypothecated  by any party hereto  without the other  parties' prior
written  consent.  This  Agreement  shall be binding upon and shall inure to the
benefit  of  the  parties  hereto  and  their   respective   heirs,   executors,
administrators, successors and permitted assigns.

     10.11 Counterparts.  This  Agreement  may  be  executed  in  two  or  more
counterparts,  all of which taken together shall constitute one instrument. This
Agreement  may be executed  and  delivered  by  facsimile  or  telecopy  and any
signature delivered by such means shall be deemed an original.

     10.12 Entire Agreement.  This  Agreement,  including  the other  documents
referred to herein which form a part hereof,  contains the entire  understanding
of the parties  hereto with respect to the subject matter  contained  herein and
therein.  This  Agreement  supersedes all prior  agreements  and  understandings
between  the  parties  with  respect  to such  subject  matter,  other  than the
Confidentiality Agreement between the parties dated February 8, 2000, as

                                       44
<PAGE>
amended.  All exhibits and schedules  referred to in this Agreement are intended
to be and hereby are specifically made a part of this Agreement.

     10.13  Construction  of  Certain   Disclosures.   The  representations  and
warranties set forth in Articles II and III above, respectively, are cumulative.
The subject  matter  covered by any section of either such article  shall not be
exclusive as to such subject matter to the extent covered by another  section of
such article,  and the specificity of any  representation  or warranty shall not
affect or limit the generality of any other  representation  or warranty made or
given by the same party.

     10.14 Amendments.  This Agreement may be waived,  amended,  supplemented or
modified only by a written agreement executed by each of the parties hereto.

     10.15  Severability.  In case any provision in this Agreement shall be held
invalid, illegal or unenforceable,  the validity, legality and enforceability of
the  remaining  provisions  hereof  will not in any way be  affected or impaired
thereby.

     10.16  Third  Party  Beneficiaries.  Each party  hereto  intends  that this
Agreement  shall not  benefit  or  create  any right or cause of action in or on
behalf of any person or entity other than the parties hereto.

                        [signatures appear on next page]

                                       45
<PAGE>
                      [signature page to Merger Agreement]

     IN  WITNESS  WHEREOF,  the  Purchaser,  Merger  Sub,  the  Company  and the
Principal  Shareholders  have  caused  their  respective  names  to be  hereunto
subscribed   individually  or  by  their  respective   officers  thereunto  duly
authorized, as the case may be, all as of the day and year first above written.

                           CREE, INC.

                             By: /s/ F. Neal Hunter

                               -------------------------------------
                               F. Neal Hunter
                               Chairman and Chief Executive Officer

                           CRYSTAL ACQUISITION, INC.

                           By: /s/ Charles M. Swoboda
                               -------------------------------------
                               Charles M. Swoboda
                               President

                           NITRES, INC.

                           By: /s/ Fred A. Blum
                               -------------------------------------
                               Fred A. Blum
                               President and Chief Executive Officer

                       [signatures continue on next page]
<PAGE>
                      [signature page to Merger Agreement]

                             PRINCIPAL SHAREHOLDERS

                          [signature lines to follow]CONSENT OF INDEPENDENT AUDITORS

We have issued our report dated December 14, 1999 (except as to notes 8 and 14
which are as of August 1, 2000), with respect to the consolidated financial
statements of Haemacure Corporation as at October 31, 1999 and 1998, for each of
the years in the three-year period ended October 31, 1999, referred to in items
8 and 17 of the Registration Statement on Form 20-F. We consent to the use of
the aforementioned report in the Registration Statement on Form 20-F.

/s/  Ernst & Young LLP

[Signed] Ernst & Young LLP
Chartered Accountants

Montreal, Canada
December 14, 1999

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