Exhibit 10.1

 

EXCLUSIVE SUPPLY AGREEMENT

 

This Exclusive Supply Agreement (“Agreement”) dated as of December 12, 2014 (the
“Effective Date”), is entered into by and between CHARLES & COLVARD, LTD., a
North Carolina corporation, with its principal place of business at 170
Southport Drive, Morrisville, North Carolina 27560 (“C&C”), CREE, INC., a North
Carolina corporation, with its principal place of business located at 4600
Silicon Dr., Durham, North Carolina 27703 (“Cree”), and, solely for purposes of
Section 6(c), Charles & Colvard Direct, LLC (“C&C Direct”) and Moissanite.com,
LLC (“Moissanite”; C&C, C&C Direct, and Moissanite may be referred to herein
individually as an “Obligor” and collectively as “Obligors”). C&C and Cree may
be referred to hereinafter individually as “Party” and collectively as
“Parties”.

 

WHEREAS, Cree is in the business of developing, manufacturing and selling
silicon carbide (SiC) substrates and materials for various electronic
applications; and

 

WHEREAS, C&C develops, manufactures and markets gemstones fabricated from SiC
material and desires to purchase such material from Cree; and

 

WHEREAS, C&C and Cree previously entered into an Amended and Restated Exclusive
Supply Agreement dated June 6, 1997, as such has been previously amended (the
“Expiring Agreement”). The Expiring Agreement will expire by its terms on July
14, 2015. Prior to expiration, the Parties desire to enter into this Agreement
to supersede and replace the Expiring Agreement as of the Effective Date.

 

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

 

1.    SUBJECT OF THE AGREEMENT

 

The subject of this Agreement is the procurement of [****] SiC materials by C&C
from Cree. The terms and conditions set forth in this Agreement apply to those
[****] SiC materials set forth on Exhibit A of this Agreement, as Exhibit A may
be modified by the Parties from time to time (individually, a “Product,” and
collectively, the “Products”). The specifications for each Product shall be as
set forth or referenced in Exhibit A (the “Specifications”). Exhibit A shall be
deemed modified if the Parties agree in writing on the terms and conditions
regarding a new [****] SiC Material to be supplied under this Agreement,
including among other things the applicable Specifications and prices therefor.
Upon execution by both Parties, this Agreement shall apply with respect to
Products to be purchased under Purchase Orders (as defined below) with an issue
date subsequent to the Effective Date of this Agreement, and previously issued
orders will be subject to and governed by the Expiring Agreement. As used in
this Agreement, “affiliate” of any particular party means any other person or
entity controlling, controlled by or under common control with such party, where
“control” means the possession, directly or indirectly, of the power to direct
the management and policies of a person or entity whether through the ownership
of voting securities, contracts, or otherwise.

 

2.    TERM

 

(a)    The term of this Agreement shall begin on the Effective Date and expire
on June 24, 2018 (the “Initial Term”), unless earlier terminated as provided
herein or extended by mutual written agreement of the Parties or extended as
provided in Paragraph 2(b). At least [****] months prior to the expiration date
of the Initial Term, the Parties will meet in person or by telephone to discuss
a possible extension to the Term. However, subject to Paragraph 2(b) below,
neither Party shall be obligated to agree to extend the Term.

 

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

 

 

 

 

(b)    Subject to the conditions set forth in this Paragraph 2(b), C&C shall
have one (1) option (the “Renewal Option”) to extend the term of this Agreement
for an additional two (2)-year period (the “Renewal Term”). The period from the
Effective Date until the expiration or termination of this Agreement in
accordance with its terms shall be referred to as the “Term.” The Renewal Option
shall be exercisable upon written notice (the “Option Notice”) given by C&C to
Cree not later than [****]. The right of C&C to exercise its Renewal Option is
subject to the following conditions precedent:

 

(1)the Agreement shall be in effect at the time the Option Notice is received by
Cree and on the last day of the Initial Term;

 

(2)C&C shall not be in material default beyond any applicable grace or cure
period under any provisions of this Agreement at the time the Option Notice is
given and on the last day of the Initial Term, and C&C shall not have failed to
timely cure any material default during the Initial Term (whether or not Cree
sought to enforce any remedy or consequences against C&C for such default); and

 

(3)C&C shall have timely paid all amounts due to Cree under this Agreement and
any Sales Agreement created hereunder. C&C will not be considered in violation
of this condition if no more than [****] payments are past due during any
[****]-month period and such past due amounts are paid within [****] days after
written or verbal notice from Cree that the amounts are past due.

 

3.    FORECAST

 

On or before the [****] during the Term of this Agreement, C&C will endeavor to
provide to Cree a rolling planning forecast of its anticipated requirements for
Products for the next [****] calendar months (each a “Planning Forecast”). Cree
will take Planning Forecast figures into consideration when planning the
utilization of its manufacturing capabilities and will notify C&C as soon as
reasonably practicable if Cree’s capacity to accept orders for such forecasted
quantities becomes constrained. The forecast quantities in the Planning
Forecasts are for planning purposes only, and except as otherwise provided in
this Agreement, C&C will not be committed to purchase these quantities, and Cree
will not be committed to supply these quantities.

 

4.    ORDER/DELIVERY

 

(a)    The terms and conditions of this Agreement will apply for all orders
(each a “Purchase Order”) for Products issued by C&C to Cree during the Term to
the exclusion of any additional or different terms and conditions included or
referenced in any order or confirmation documents issued by either Party (which
additional or different terms and conditions are hereby rejected by the
receiving Party). Unless otherwise agreed by the Parties, each Purchase Order
will be for the [****] in a Fiscal Quarter, shall request deliveries [****] or
upon such schedule as is mutually agreed upon by the Parties, and will be
submitted to Cree no later than [****] days prior to the [****] of the Fiscal
Quarter. As used in this Agreement, “Fiscal Year” (or “FY”) refers to the
fifty-two (52)-week period beginning on the day immediately following the last
day of the preceding Fiscal Year (which date is publicly available from Cree’s
filings with the Securities and Exchange Commission) and ending on the last
Sunday in June, and “Fiscal Quarter” refers to the thirteen (13)-week period
beginning on the day immediately following the last day of the preceding Fiscal
Quarter and ending on the thirteenth (13th) Sunday thereafter, where the first
Fiscal Quarter of a Fiscal Year commences on the first day of such Fiscal Year.
Every four or five years, Cree’s Fiscal Year will include fifty-three (53) weeks
in order for the period to end on the last Sunday in June. In such years, one
Fiscal Quarter will have fourteen (14) weeks. If such a Fiscal Year falls within
the Term of this Agreement, Cree will advise C&C in advance of the Fiscal
Quarter that will include fourteen (14) weeks.

 

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

 

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(b)    Within [****] days after the receipt of a Purchase Order, Cree will
provide C&C written notice of acceptance (by issuance of a written order
confirmation) if it can accept the Purchase Order as submitted. If Cree is
unable to accept the Purchase Order as submitted, Cree will contact C&C and
propose alternative quantities, sizes of Products, and/or delivery schedule. If
C&C agrees with the alternative quantities, sizes of Products, and/or delivery
schedule, it will issue a new Purchase Order reflecting such mutually-agreed
upon terms for acceptance by Cree, and Cree will promptly accept such Purchase
Order. No Purchase Order shall be deemed to be accepted unless and until Cree
issues a written order confirmation. Once accepted by Cree, Purchase Orders
shall be non-cancellable and non-reschedulable except as otherwise agreed to in
writing by Cree or as provided in Paragraph 14 below.

 

(c)    The terms that govern each accepted Purchase Order shall consist of (i)
the Specifications for the Product(s) as in effect on the date of Cree’s
acceptance of the Purchase Order (with such changes, if any, as may be expressly
agreed to in writing by C&C and Cree); (ii) the terms and conditions of this
Agreement; (iii) only the following terms and conditions manually entered on the
face of the accepted Purchase Order: Cree’s part number(s), price, quantity
ordered, and “ship to” and “bill to” instructions; and (iv) the delivery
schedule confirmed by Cree or mutually agreed upon by the parties as provided in
Section 4(b) above (collectively, a “Sales Agreement”). The documents listed in
the previous sentence are listed in the order of precedence in the event of any
conflict between them.

 

(d)    C&C agrees that any delay in shipment or failure by Cree to ship or
perform any part of this Agreement will not be grounds for C&C to terminate this
Agreement or any Sales Agreement as provided in Paragraph 14(a) or, except as
explicitly contemplated and permitted by this Agreement, to refuse to comply
with any provisions herein or therein. Notwithstanding the foregoing, the
following provisions will apply in the event that Cree cannot adhere to the
previously scheduled delivery date for any quantity due to no reason reasonably
and directly attributable to C&C and not due to a delay caused by an event of
Force Majeure, as defined in Paragraph 22. If delivery of any Products will be
delayed from the originally scheduled date for delivery, Cree will, as soon as
reasonably possible, issue a rescheduling notice indicating the expected new
delivery date(s). If Cree issues a rescheduling notice in accordance with the
foregoing indicating that delivery of any Products will be delayed from the
originally scheduled date for performance or any previously agreed upon
rescheduled date for performance beyond the end of the then current Fiscal
Quarter, (i) the Purchase Order for the Fiscal Quarter within which the original
delivery date was to occur will be cancelled as to the delayed quantities, and
(ii) C&C will reissue its Purchase Order for the next Fiscal Quarter to include
the delayed quantities and the delayed quantities will be applied toward C&C’s
Minimum Purchase Commitment (as defined in Paragraph 9(a) below) as provided in
Paragraph 9(c)(ii) below. Adjustment of C&C’s Minimum Purchase Commitment as
provided in Paragraph 9(c)(ii) below, and C&C’s right to purchase Products from
third parties as contemplated by Paragraph 7(a), will be C&C’s sole and
exclusive remedies for any delay in delivery attributed to Cree or for Cree’s
failure to ship the Products, or to otherwise perform an accepted Purchase
Order, in a timely manner, provided that the foregoing shall not be construed to
limit C&C’s remedies, or Cree’s liability, for any other breach of this
Agreement by Cree.

 

5.    SHIPPING/TITLE/ACCEPTANCE

 

(a)    Unless the Parties mutually agree in writing on a different shipping
term, Products delivered by [****] will be shipped [****], and title and risk of
loss to the Products will pass to C&C when [****]. For any Products delivered
[****], the shipping terms will be [****], and title and risk of loss to the
Products will pass to C&C when [****] point.

 

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

 

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(b)    All Products delivered hereunder will be deemed accepted by C&C (without
waiving any rights under the warranty provided in Paragraph 10(a)) as conforming
to this Agreement and the Specifications, and C&C will have no right to revoke
any acceptance, unless written notice of the claimed nonconformity is received
by Cree within [****] days of delivery thereof. C&C’s sole and exclusive remedy,
and Cree’s sole obligation, with respect to properly rejected Products will be
to return the rejected Products for rework or replacement thereof and delivery
of corresponding reworked or replacement Products conforming to the
Specifications by Cree as soon as reasonably possible (and Cree shall perform
such rework or replacement as soon as reasonably possible) or, if such rework or
replacement is not possible within a commercially reasonable time, to receive a
refund of the purchase price paid by C&C for the rejected Products (or if not
yet paid for, Cree will reduce the amount owed by C&C under the relevant invoice
by the amount of the purchase price invoiced for such rejected Products and
[****]). In order to claim the remedy in the foregoing sentence, C&C must
request a return materials authorization (RMA) from Cree (which shall be
provided by Cree promptly upon such request) and return the rejected Products to
Cree, FOB Cree’s manufacturing facility, within ten (10) business days after
receipt of the RMA. Upon request, [****] will be [****] if C&C’s rejection is
appropriate (i.e., for Products not conforming to this Agreement and the
Specifications).

 

6.     PRICE/PAYMENT TERMS

 

(a)    Product prices shall be as set forth in Exhibit A and are subject to
modification as otherwise provided in this Agreement. All applicable sales, use,
excise or other taxes directly related to the sales of Products (other than
taxes on Cree's net income) will be paid by C&C unless C&C provides Cree with
appropriate tax exemption certificates. All reasonable, documented out-of-pocket
shipping expenses incurred by Cree for independent transportation companies will
be invoiced to and paid by C&C. All unit prices and price extensions are subject
to correction for clerical or mathematical errors.

 

(b)    Upon shipment of the Products, Cree will generate an invoice that will be
promptly provided to C&C. Each shipment shall be considered a separate and
independent transaction, and payment for each shipment shall be due accordingly.
Unless otherwise agreed upon in writing, C&C shall pay Cree net [****] days
following the invoice date. Cree reserves the right to revoke or modify these
credit terms if C&C’s credit rating significantly declines or its payments to
Cree are repeatedly overdue. All payments will be made in US dollars to a bank
account designated by Cree, with each Party being responsible for any fees or
charges incurred from its own bank.

 

(c)    Any portion of any invoice not paid by the applicable due date therefor
will accrue interest until paid at the rate of [****] per month or, if less, the
maximum rate permitted by law. Cree hereby reserves, and Obligors hereby grant
to Cree, a security interest in all Collateral (as defined below) to secure any
and all amounts due from C&C to Cree relating to the purchase of Products under
this Agreement or any Sales Agreement created hereunder until all amounts due
Cree therefor have been paid in full; provided that, except with respect to Cree
Priority Collateral (as defined below), Cree agrees that its security interest
in Collateral will be subordinate to Obligors’ lender’s security interest
therein. Obligors agree upon Cree’s request to sign appropriate financing
statements evidencing Cree’s security interest hereunder. Further, Obligors
authorize Cree to execute and file a financing statement to perfect Cree’s
security interest hereunder in the Collateral. In the event of default in
payment of any invoice, C&C agrees to pay Cree's reasonable, documented
out-of-pocket expenses, including reasonable attorney's fees and expenses,
incurred in enforcing payment thereof. The Parties acknowledge and agree that
(x) with respect to any overdue unpaid amount under this Agreement, Cree may
exercise its rights under its security interest in the Cree Priority Collateral
beginning on the day following the day on which the unpaid amount was due,
provided that, subject to and in accordance with the thirty (30)-day stand-by
period set forth in Section 2.3(a) of the IC Agreement (defined below), Cree
shall not take any remedial action against any Cree Priority Collateral (i.e.,
Cree shall not sell, lease, assign, transfer, remove or otherwise dispose of all
or any portion of the Cree Priority Collateral) prior to the day following the
expiration of such thirty (30)-day stand-by period and any of Obligors (or their
lender) will be permitted to cure any late payment during that 30-day period,
(y) neither Cree’s exercise of such rights nor taking of any such remedial
action shall itself be construed as a termination of this Agreement (under
Section 14(a) or otherwise), and (z) Cree’s rights with respect to Collateral
are subject to that certain intercreditor agreement among Cree, C&C, and Wells
Fargo Bank, National Association (the “IC Agreement”). For purposes of this
Section 6(c):

 

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

 

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(I) the capitalized terms “Accounts,” “Deposit Accounts,” and “Inventory” shall
have the meanings ascribed to such terms in the Uniform Commercial Code as in
effect in the State of Georgia;

 

(II) “Cree Priority Collateral” means all Collateral (as defined below)
constituting (a) all raw SiC materials in boule form purchased by C&C from Cree
from time to time and (b) SiC slabs created by cutting such raw materials
purchased by C&C from Cree. For the avoidance of doubt, all finished goods
Inventory of C&C, all Accounts, money and Deposit Accounts of C&C, all other
proceeds of the items described in the foregoing clauses (a) and (b) (except
proceeds arising from Cree’s disposition of Cree Priority Collateral in
accordance with the IC Agreement), and all assets of each of C&C Direct and
Moissanite (except assets specifically described in the preceding sentence that
are held by C&C Direct or Moissanite, and proceeds arising from Cree’s
disposition of such assets in accordance with the IC Agreement) shall not
constitute Cree Priority Collateral; and

 

(III) “Collateral” means any and all of the assets now owned or hereafter
acquired by any Obligor, together with all proceeds, products, accessions and
additions with respect to each of the foregoing from time to time, including,
without limitation, any insurance proceeds.

 

7.    BUYER’S EXCLUSIVITY COMMITMENT

 

(a)    Subject to the terms and conditions in this Paragraph 7, C&C agrees to
purchase from Cree in each Fiscal Quarter 100% of C&C's requirements for SiC
materials for the production of gemstones. C&C shall not be in breach of this
Paragraph 7(a) if purchases by C&C in a given Fiscal Quarter fall below such
100% due to Cree's failure to (i) deliver any Products within [****] days after
the originally scheduled date for delivery due to no reason reasonably and
directly attributable to C&C, provided that in such case, C&C shall only be
permitted to purchase quantities equal or approximately equal to the quantities
delayed, or (ii) accept Purchase Orders requesting delivery of any amount in the
Fiscal Quarter, provided that C&C's Purchase Orders do not request delivery
during the Fiscal Quarter for an aggregate quantity of Products [****] during
the preceding Fiscal Quarter, [****] a commercially reasonable [****] not to
exceed [****] and that C&C complies with the balance of this Paragraph 7(a). If
C&C places a Purchase Order for a quantity (up to the above-described [****]
limit) and delivery of the full order during the Fiscal Quarter is critical to
C&C, C&C must advise Cree in writing at the time the Purchase Order is placed
that C&C will need to purchase from another supplier if the full requirements
cannot be met on the requested delivery schedule. If Cree is unable to accept
such Purchase Order as requested by C&C within [****] days after the receipt
thereof, C&C and Cree will work together in good faith to try to determine a
mutually acceptable delivery schedule for the quantities and types of Products
required by C&C. If the parties are unable to reach agreement within [****]
business days, C&C may purchase any shortfall in its requirements for that
Fiscal Quarter (i.e., the difference between the amount C&C requested to
purchase and the amount Cree is able to supply) from a third party provided that
it purchases during such Fiscal Quarter all of the Products Cree offered to
supply to C&C that meet its requirements,

 

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

 

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(b)    C&C shall only be obligated to purchase from Cree under this Agreement,
and Cree shall only be obligated to sell to C&C, SiC material [****] following
the Effective Date, from Cree. Should C&C require SiC material in [****], C&C
will extend to Cree a right of first refusal with respect to the development,
manufacture and sale of such material as provided in this Paragraph 7(b). C&C
agrees that it will not purchase such material from, or otherwise enter into any
agreement for the development, manufacture or sale of such material with, any
person or entity other than Cree except in compliance with this Paragraph 7(b).
C&C will give Cree written notice referencing this Paragraph 7(b) setting out
the terms of the proposed transaction and extending an offer to contract with
Cree on such terms. If Cree does not accept such offer by written notice given
within [****] days after receipt of C&C's notice, C&C shall be free at any time
within the next [****] months after expiration of the [****]-day period to
conclude the transaction with any third party supplier, provided the [****])
thereof are not, taken as a whole, materially more favorable to the third party
supplier than those described in C&C's notice to Cree. If Cree accepts any offer
from C&C under this paragraph, then the terms described in such offer shall be
binding on Cree and, in addition to such terms, all terms and provisions of this
Agreement relating to the purchase of SiC material for the production of
gemstones not inconsistent with such offer shall apply to the development,
manufacture and sale of such material. The foregoing shall not be construed as
an assignment or other transfer by Cree of any rights in any intellectual
property.

 

(c)    C&C’s obligation to purchase 100% of its requirements for SiC materials
from Cree is conditioned upon the Product prices offered by Cree [****] as
determined in this Paragraph 7(c). Should C&C [****] of SiC materials, as
reasonably demonstrated by C&C based upon [****], C&C will extend to Cree a
right of first refusal as provided in this Paragraph 7(c) [****]. C&C agrees
that, without limitation of C&C’s rights under Paragraph 7(a) or 7(b), it will
not purchase such material from, or otherwise enter into any agreement for the
purchase of such material with, any person or entity other than Cree except in
compliance with this Paragraph 7(c). C&C will give Cree written notice
referencing this Paragraph 7(c) setting out the terms of the proposed
transaction, providing [****], and extending an offer [****]. If Cree does not
accept such offer by written notice given within [****] days after receipt of
C&C's notice, C&C shall be free at any time within the next [****] months after
expiration of the [****]-day period to conclude the transaction with any third
party supplier, provided [****]) thereof are not, taken as a whole, materially
more favorable to the third party supplier than those described in C&C's notice
to Cree. C&C understands and acknowledges that Cree’s [****] of SiC materials
assumes C&C’s [****] provided in Exhibit A. If C&C relies on this Paragraph 7(c)
to purchase [****] of Product offered by Cree, Cree reserves the right to [****]
of Product purchased from Cree.

 

(d)    Notwithstanding anything to the contrary, C&C shall be free, without
breach or default of this Paragraph 7 or any other provision of this Agreement,
to purchase [****] of SiC materials from third parties in such amounts
(collectively not to exceed in any Fiscal Quarter [****] percent ([****]%) of
the Minimum Purchase Commitment applicable to that Fiscal Quarter) and in such
[****] as may reasonably be necessary to enable C&C to compare such SiC
materials to Products supplied under this Agreement and/or evaluate such SiC
materials’ ability to be used in the manufacture of gemstones, for purposes
related to C&C’s evaluation of whether or not to exercise its rights under
Paragraph 2(b), 7(a), 7(b), or 7(c) or pursue discussions or negotiations with a
third party with respect to circumstances which may lead to the exercise of
C&C’s rights under Paragraph 7(a), 7(b) or 7(c) or otherwise related to a
potential manufacturing or supply relationship with such third party that would
not reasonably be anticipated to result in a breach of this Agreement by C&C
(e.g., a relationship that would go into effect after expiration or termination
of this Agreement). The foregoing sentence is not intended to waive or release
any breach or default of this Paragraph 7 or any other provision of this
Agreement that otherwise results from C&C entering into a manufacturing or
supply relationship with such third party.

 

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

 

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(e)    C&C will give Cree written notice upon the purchase from anyone other
than Cree any portion of its requirements of SiC material for the production of
gemstones. Thereafter Cree shall have the right, [****], to have an independent
public accounting firm reasonably acceptable to C&C audit C&C's purchases of SiC
material for the production of gemstones. The audit shall be conducted during
normal business hours and upon reasonable prior notice. The accounting firm
conducting the audit shall be required to enter into a mutually acceptable
nondisclosure agreement with C&C under which such firm will be obligated not to
disclose any information obtained during the course of the audit, except that it
may disclose to Cree its analysis of whether C&C has complied with its
obligations under this Paragraph 7. The audit right under this paragraph may be
exercised not more than [****] during any Fiscal Year of Cree and only with
respect to Fiscal Quarters ended within [****] preceding the request for an
audit. C&C shall provide reasonable assistance to the public accounting firm
including, but not limited to, providing a schedule of purchases, supporting
analyses and any supporting source documentation reasonably required by the
public accounting firm. The accounting firm will audit and report to Cree its
analysis of whether C&C has complied with its obligations under this Paragraph
7, but will not divulge to Cree any proprietary or confidential information
(including but not limited to supporting schedules and source documentation)
disclosed during the audit process.

 

(f)    Cree’s sole and exclusive remedies for breach of this Paragraph 7 by C&C
will be (i) to terminate the Parties’ exclusivity obligations as provided in
Paragraph 8(c) below or (ii) [****] for the [****] of Product purchased from
Cree.

 

8.    SELLER’S EXCLUSIVITY COMMITMENT

 

(a)    Subject to the terms and conditions in this Paragraph 8, and except as
permitted in Paragraphs 8(c) and (d), Cree agrees that during the Term of this
Agreement (i) it will not sell SiC material or crystals in any form to any
customer other than C&C if Cree knows or has reason to believe that such
customer intends to use such material for the purpose of fabricating,
distributing or selling gemstones (or enabling third parties to engage in such
activities), (ii) it will use commercially reasonable efforts to contractually
prohibit purchasers of its SiC material or crystals of a thickness that
reasonably could be used for gemstone manufacture from fabricating, distributing
or selling gemstones using such material or selling such materials to third
parties if such customer knows or has reason to believe such third party intends
to use the material for such purpose, and (iii) Cree will use commercially
reasonable efforts to enforce any such provisions.

 

(b)    Cree’s obligations in Paragraph 8(a) are conditioned upon: (i) C&C’s
compliance with its exclusivity commitment in Paragraph 7; (ii) notwithstanding
C&C’s compliance with its exclusivity commitment in Paragraph 7, C&C’s
satisfaction of its Minimum Purchase Commitment for each Fiscal Quarter
(including any permissible cure period) as provided in and determined by
Paragraph 9 below; and (iii) C&C’s timely payment of amounts due to Cree under
this Agreement and any Sales Agreement created hereunder. With respect to item
(iii), C&C will not be considered in violation of that condition if no more than
[****] payments are past due during any [****]-month period and such past due
amounts are paid within [****] days after written or verbal notice from Cree
that the amounts are past due.

 

(c)    If C&C fails to satisfy any condition in Paragraph 8(b), Cree, at its
sole discretion, may terminate the Parties’ respective exclusivity obligations
by providing written notice of termination to C&C (the “Exclusivity Termination
Notice”). Following issuance of the Exclusivity Termination Notice by Cree, C&C
shall be free to buy SiC materials from third party suppliers and Cree shall be
free to sell SiC material to others for use in the fabrication of gemstones. For
avoidance of doubt, except for the cure periods expressly provided in Paragraph
8(b) above for late payments and in Paragraph 9(b) below for satisfaction of
C&C’s Minimum Purchase Commitment, Cree shall not be required to give C&C any
cure period prior to issuing an Exclusivity Termination Notice terminating the
exclusivity provisions in this Agreement. Except for the exclusivity provisions
in Paragraphs 7 and 8, the remainder of this Agreement will continue in full
force and effect following any Exclusivity Termination Notice provided by Cree.

 

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

 

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(d)    Notwithstanding anything to the contrary, Cree shall be free, without
breach or default of this Paragraph 8 or any other provision of this Agreement,
to sell [****] of SiC materials to third parties in such amounts (collectively
not to exceed in any Fiscal Quarter [****] percent ([****]%) of the Minimum
Purchase Commitment applicable to that Fiscal Quarter) and in such [****] as may
reasonably be necessary to enable other potential customers to compare such SiC
materials to materials they are buying from other sources and/or to evaluate
Cree’s SiC materials’ ability to be used in the manufacture of gemstones, so
that Cree is able to evaluate whether or not to exercise its rights under
Paragraph 8(c) or 9 or pursue discussions or negotiations with a third party
with respect to circumstances which may result from the exercise of Cree’s
rights under Paragraph 8(c) or 9 or otherwise related to a potential
manufacturing or supply relationship with such third party that would not
reasonably be anticipated to result in a breach of this Agreement by Cree (e.g.,
a relationship that would go into effect after expiration or termination of this
Agreement). The foregoing sentence is not intended to waive or release any
breach or default of this Paragraph 8 or any other provision of this Agreement
that otherwise results from Cree entering into a manufacturing or supply
relationship with such third party.

 

9.    BUYER’S PURCHASE COMMITMENTS

 

(a)    Each Fiscal Quarter, C&C agrees to purchase Products from Cree in
quantities at or above the Minimum Purchase Commitment amount for such Fiscal
Quarter. Failure to do so will, except as contemplated below, be considered a
breach of the Agreement. The “Minimum Purchase Commitment” for each Fiscal
Quarter will be [****] (i) at least [****]% of C&C's requirements for SiC
materials for the production of gemstones [****] from Cree, excluding from such
calculation any SiC materials purchased from third parties as expressly
permitted in Paragraph 7(a) (but including any SiC materials purchased from
third parties as expressly permitted in Paragraph 7(b) or 7(c)), or (ii) (A)
[****] kilograms in the [****] Quarter of [****]; (B) [****] kilograms in the
[****] Quarter of [****]; (C) [****] kilograms in [****] Quarter of [****]; (D)
[****] kilograms in [****] Quarter of [****]; and (E) [****] kilograms in [****]
Quarter of [****]. If C&C exercises its Renewal Option or the parties otherwise
agree to an extension of the Initial Term, no later than [****], the Parties
will begin good faith discussions seeking to mutually agree upon the Minimum
Purchase Commitment amounts for the Fiscal Quarters of the Renewal Term (or
other mutually agreed-upon extension of the Initial Term), but in no event will
the Minimum Purchase Commitment for any Fiscal Quarter during the Renewal Term
(or other mutually agreed-upon extension of the Initial Term) be less than
[****] kilograms. Notwithstanding any contrary language in the Agreement, if the
Parties have not agreed in writing on the Minimum Purchase Commitment amounts by
[****], or such later date as may be mutually agreed upon in writing by the
Parties, (x) C&C shall have the right, by written notice given to Cree within
[****] business days of [****] or such later agreed-upon date (if any), to have
the Minimum Purchase Commitment amount for each Fiscal Quarter of the Renewal
Term equal [****] kilograms for [****] Quarter of [****] and [****] kilograms
for [****] Quarter of [****] (in which case the Renewal Term shall be
effective), and (y) if C&C does not provide such written notice under the
preceding clause (x), either Party, in its sole discretion, may terminate this
Agreement as of the end of the Initial Term by providing the other Party notice
of such termination decision.

 

(b)    To maintain Seller’s exclusivity as provided in Paragraph 8 during the
Term of this Agreement, C&C must, except to the extent otherwise provided
herein, purchase Products from Cree in quantities at or above the applicable
Minimum Purchase Commitment amount each Fiscal Quarter. If C&C fails to purchase
Products from Cree in quantities at or above the applicable Minimum Purchase
Commitment amount for a particular Fiscal Quarter, C&C will be permitted the
opportunity to cure such shortfall by purchasing during the [****] an amount
equal to the sum of the purchase shortfall from [****] and the Minimum Purchase
Commitment for the new Fiscal Quarter. For example, if C&C only purchases [****]
kilograms of Product during the [****] Quarter of [****], C&C may cure its
purchase shortfall by purchasing at least [****] kilograms of Product during the
[****] Quarter of [****], (The foregoing example assumes that [****]% of C&C’s
requirements for SiC materials for the production of gemstones [****] from Cree
for both the [****] of [****] was less than [****] kilograms.) If C&C fails to
cure the purchase shortfall in [****], Cree, at its sole discretion, may
terminate the Parties’ respective exclusivity obligations by providing an
Exclusivity Termination Notice to C&C. If C&C fails to cure the purchase
shortfall in the same manner by the [****] in quantities at or above the
applicable Minimum Purchase Commitment amount, Cree, at its sole discretion, may
terminate this Agreement by providing written notice of termination to C&C. For
avoidance of doubt, unless otherwise agreed in writing by Cree, in order to cure
a purchase shortfall for any Fiscal Quarter, C&C must purchase the aggregate
amount of any prior shortfalls and the Minimum Purchase Commitment for the
then-current Fiscal Quarter (i.e., the cure shall not be effective unless and
until C&C has satisfied all Minimum Purchase Commitments for completed Fiscal
Quarters). It will be C&C’s responsibility to track its compliance with the
Minimum Purchase Commitments and to be aware of any opportunities to cure any
purchase shortfalls. Cree will have no obligation to give C&C written notice of
any purchase shortfall. Upon Cree’s written request, C&C will inform Cree in
writing if [****]% of C&C’s requirements for SiC materials for the production of
gemstones [****] from Cree during any Fiscal Quarter was greater than the fixed
quantity for such Fiscal Quarter set forth in clause (ii) of the first sentence
of Paragraph 9(a) above.

 

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

 

8

 

 

(c)    The following rules will apply in determining whether C&C has met its
Minimum Purchase Commitment in any Fiscal Quarter:

 

(i)If C&C orders Products for delivery in a particular Fiscal Quarter and Cree
proposes delivery of any of the requested quantities in a later Fiscal Quarter,
as provided in Paragraph 4, and any quantity of any deferred Products is needed
in order for C&C to meet its Minimum Purchase Commitment for the Fiscal Quarter
in which such Products were originally requested by C&C to be shipped, the
needed quantity of deferred Products will be [****] in the Fiscal Quarter [****]
to be shipped (rather than in the Fiscal Quarter [****]) solely for the purpose
of determining whether the Minimum Purchase Commitment has been met, provided
that C&C’s orders do not request delivery during the Fiscal Quarter for an
aggregate quantity of Products in excess of the quantity to be delivered during
the preceding Fiscal Quarter, [****] a commercially reasonable [****] not to
exceed [****]; and

 

(ii)If Products ordered by C&C are not shipped by Cree in the Fiscal Quarter for
which they were originally confirmed to be shipped by Cree, as provided in
Paragraph 4, and the quantity of any delayed Products is needed in order for C&C
to meet its Minimum Purchase Commitment for the Fiscal Quarter in which such
Products were originally confirmed by Cree to be shipped, the needed quantity of
delayed Products will be [****] in the Fiscal Quarter [****] to be shipped
(rather than in the Fiscal Quarter [****]) solely for the purpose of determining
whether the Minimum Purchase Commitment has been met, provided that shipment of
such Products is not delayed to the Fiscal Quarter in which the delayed Products
are later shipped due to any cause reasonably and directly attributable to C&C;
and

 

(iii)If C&C purchases more that its Minimum Purchase Commitment in any Fiscal
Quarter, it may apply the excess toward its Minimum Purchase Commitment in the
[****], but only up to the amount needed to achieve the Minimum Purchase
Commitment (i.e., application of the excess amount may not create a new excess).

 

10.    LIMITED WARRANTY

 

(a)    Cree warrants to C&C that each Product shall conform strictly to and
perform in accordance with the Specification for that Product (within the
deviations specified in such Specifications, if any). All breach of warranty
claims must be reported to Cree as soon as possible, but in any event not later
than 90 days after shipment. If not so reported, such claims will be deemed
waived. C&C must request a return materials authorization (RMA) from Cree and
return the non-conforming Products to Cree, FOB Cree’s manufacturing facility,
within ten (10) days after receipt of the RMA, and Cree shall promptly provide
an RMA upon C&C’s request. Cree will have no liability under this warranty
unless Cree is notified in writing promptly upon C&C's discovery of the defect
and the alleged defective Products are returned to Cree as provided above. All
breach of warranty claims are subject to verification by Cree, and both Parties
must agree on the existence and extent of any claimed defect or failure to
perform or, in the absence of such verification or agreement, the existence and
extent of any claimed defect or failure to perform shall have been found to
exist or occur pursuant to Paragraph 16(b). Cree's sole liability and obligation
and C&C's sole and exclusive remedy under this warranty is limited to repair or
replacement of items determined by Cree to be defective or, at Cree's sole
option, refund of (or if not yet paid, reduce the amount owed by C&C under the
relevant invoice by the amount of the purchase price invoiced for such defective
Products [****]) the purchase price charged by Cree for the defective Products.
ANY SCRAP MATERIAL OR NON-STANDARD PRODUCTS REQUESTED BY C&C AND SUPPLIED UNDER
THIS AGREEMENT WILL BE SUPPLIED "AS IS" AND WITHOUT WARRANTY OF ANY KIND.

 

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

 

9

 

 

(b)    Cree’s warranty will not apply to any defect or failure to perform
resulting from misapplication, improper installation, improper operation, abuse,
or contamination, whether internal or external, and Cree will have no liability
of any kind for failures caused by services, materials and items not supplied by
Cree. Remedies of C&C for any breach of warranty under Paragraph 10(a) are
limited to those provided in Paragraph 10(a) to the exclusion of all other
remedies, including, without limitation, loss of profits, production or revenue,
business interruption or any consequential, incidental, special or punitive
damages. No representation, warranty, affirmation or agreement of Cree varying
or extending the foregoing warranty and limitation of remedy provisions may be
relied upon unless it is in writing and signed by the President or a Vice
President of Cree. C&C understands that, without limitation of the warranty
provided in Paragraph 10(a), the Products may not conform to any model or sample
shown to C&C.

 

(c)    Each Party represents and warrants to the other that, as of the date
hereof:

 

i.it is duly organized and validly existing under the laws of its jurisdiction
of organization, and has full corporate power and authority to enter into this
Agreement and to carry out the provisions hereof

 

ii.it is duly authorized to execute and deliver this Agreement and to perform
its obligations hereunder, and the person or persons executing this Agreement on
its behalf has been duly authorized to do so by all requisite corporate action;

 

iii.this Agreement is legally binding upon it and enforceable in accordance with
its terms. The execution, delivery and performance of this Agreement by it does
not conflict with any agreement, instrument or understanding, oral or written,
to which it is a party or by which it may be bound, nor violate any law or
regulation of any governmental authority having jurisdiction over it;

 

iv.it is aware of no action, suit or inquiry or investigation instituted by any
governmental agency or other third party that questions or threatens the
validity of this Agreement; and

 

v.all necessary consents, approvals and authorizations of all governmental
authorities and third parties required to be obtained by such Party to enter
into this Agreement and to perform under and pursuant to this Agreement have
been obtained (provided, however, that the foregoing shall not be construed as a
representation or warranty concerning non-infringement of intellectual property
rights of Third Parties).

 

(d)    THE FOREGOING WARRANTY PROVISIONS ARE EXCLUSIVE AND ARE GIVEN AND
ACCEPTED IN LIEU OF ANY AND ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION ANY WARRANTY AGAINST INFRINGEMENT OR ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. This
Paragraph 10 (as limited by other applicable terms and conditions of this
Agreement) shall survive with full force and effect after the termination or
expiration of this Agreement with respect to Products that are included in a
Sales Agreement prior to such termination or expiration.

 

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

 

10

 

 

11.    INDEMNIFICATION

 

(a)    Subject to the limitations set out in this Agreement, Cree will defend
C&C and its affiliates against any suit, action, or proceeding brought by any
third party (a “Claim”) against C&C or any affiliate thereof, and indemnify and
hold harmless C&C and its affiliates against any damages, liabilities, expenses
and/or losses, including reasonable legal expenses and attorneys’ fees, based on
or relating to such Claim (collectively, “Losses”), insofar as such Claim is
based on an allegation that the Products sold pursuant to this Agreement, or
their design or manufacture by Cree, infringe any United States [****] patent
issued as of the date of shipment [****]. Cree will have no obligation to pay
for C&C’s separate legal counsel once Cree has assumed the defense of the Claim;
however, C&C may continue to participate in the defense at its own expense
through counsel of its own choosing. Cree will pay all Losses based on or
relating to such a Claim, including but not limited to those finally awarded
against C&C in any such suit, action, or proceeding or paid by way of
settlement, but Cree shall have no liability whatsoever with respect to any
settlement made by C&C without Cree’s prior written consent, which consent shall
not be unreasonably withheld. These obligations of Cree are subject to the
conditions that Cree is promptly notified in writing of the Claim and given
control of the defense and that C&C provides such information and assistance as
Cree reasonably requests in connection therewith at Cree’s expense, provided
that if C&C fails to comply with any of the foregoing conditions, Cree will only
be relieved of its obligations under this Paragraph 11(a) to the extent
materially prejudiced by such failure. If the Products (or their design or
manufacture) are held to infringe any patent issued as of the date of shipment,
[****], or if in the opinion of Cree such Products are likely to become the
subject of such a claim of infringement, [****], then Cree will, at its own
expense, either procure a license to protect C&C against such claim without cost
to C&C, replace such Products with Products not subject to such infringement,
[****], or require return of such Products, at Cree’s expense, and refund the
price paid by C&C to Cree for such Products. The foregoing states Cree’s sole
liability and C&C’s sole and exclusive remedy for any Claim based upon or
related to any alleged infringement of any patent or other intellectual property
rights of a third party. Cree shall have no liability for any Claim of
infringement or damages to the extent based on (I) C&C’s or its affiliates’
custom designs or, to the extent proposed by C&C following the Effective Date,
not based on technical information provided by Cree, and differing from the
Specifications, specifications, or technical information for any Products, (II)
a combination of Products furnished under this Agreement with products,
equipment, or materials not furnished hereunder (and not based solely on the
Products, or their design or manufacture), or (III) any items made with Products
furnished under this Agreement (except to the extent such items are solely
comprised of Products and such Claims solely relate to Products as supplied by
Cree or their design or manufacture by Cree). In no event may Cree compromise,
settle, or enter into any voluntary disposition of any Claim subject to
indemnification under this Paragraph 11(a) in any manner that admits material
fault or wrongdoing on the part of C&C or any affiliate thereof or incurs
liability on the part of C&C or any affiliate thereof that is not covered by
Cree’s defense, indemnification, or hold harmless obligations without the prior
written consent of C&C

 

(b)    Subject to the limitations set out in this Agreement, C&C will defend
Cree and its affiliates against any Claim brought against Cree or any affiliate
thereof, and indemnify and hold harmless Cree and its affiliates against any
Loss, claiming infringement of a third party’s patents, trademarks or other
intellectual property rights to the extent arising out of any of the
circumstances described in (I), (II) or (III) in Paragraph 11(a). C&C will have
no obligation to pay for Cree’s separate legal counsel once C&C has assumed the
defense of the Claim; however, Cree may continue to participate in the defense
at its own expense through counsel of its own choosing. C&C will pay all Losses
based on or arising from such a Claim, including but not limited to those
finally awarded against Cree in any such suit, action, or proceeding or paid by
way of settlement, but C&C shall have no liability whatsoever with respect to
any settlement made by Cree without C&C’s prior written consent, which consent
shall not be unreasonably withheld. These obligations of C&C are subject to the
conditions that C&C is promptly notified in writing of the Claim and given
control of the defense and that Cree provides such information and assistance as
C&C reasonably requests in connection therewith, at C&C’s expense, provided that
if Cree fails to comply with any of the foregoing conditions, C&C will only be
relieved of its obligations under this Paragraph 11(b) to the extent materially
prejudiced by such failure. In no event may C&C compromise, settle, or enter
into any voluntary disposition of any Claim subject to indemnification under
this Paragraph 11(b) in any manner that admits material fault or wrongdoing on
the part of Cree or incurs liability on the part of Cree that is not covered by
C&C’s defense, indemnification, or hold harmless obligations without the prior
written consent of Cree.

 

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

 

11

 

 

12.    INTELLECTUAL PROPERTY

 

Other than those rights of Cree exhausted by the sale of Products hereunder,
Cree does not convey any express or implied license under any patent, copyright,
trademark or other proprietary rights owned or controlled by Cree, whether
relating to the Products sold or any manufacturing process or other matter.
Furthermore, nothing contained in this Agreement confers any right to use in
advertising, publicity or other promotional activities any name, trade name,
trademark or other designation of either Party (including contraction,
abbreviation or simulation of any of the foregoing). If such use is desired,
necessary or required, the Parties will enter into an appropriate customary
agreement governing such use.

 

13.    CONFIDENTIAL INFORMATION

 

(a)    The exchange of confidential information by the Parties and their
affiliates during the Term shall be governed by the terms and conditions of the
Non-Disclosure Agreement entered into by the Parties dated as of the Effective
Date, as such agreement has been or may be amended (the “NDA”), the terms and
conditions of which are incorporated as if fully set forth herein.
Notwithstanding any contrary language in the NDA, (i) the NDA will remain in
effect for the entire Term, and the NDA may not be terminated so long as this
Agreement remains in effect, and (ii) the receiving Party shall not be liable
for, and shall be entitled to engage in, (A) disclosure of Confidential
Information (as defined in the NDA) to its external legal counsel in the event
of a dispute concerning this Agreement, or (B) disclosure of non-technical,
non-trade secret Confidential Information (including the terms of this
Agreement) to its external auditors, consultants or other professional advisors
who have a need to know such information in connection with [****] (as such
terms are defined in Paragraph [****] below), provided that all such recipients
are bound by professional or contractual obligations to maintain such
information in confidence on substantially similar terms as found in this
Agreement. For avoidance of doubt, a receiving Party’s obligation to maintain
information in confidence will survive expiration or termination of the NDA as
provided in the NDA.

 

(b)    Nothing in this Agreement is or shall be construed to require either
Party to disclose proprietary or confidential information to the other. The
Parties agree that the terms of this Agreement shall be treated as Confidential
Information of each other subject to the NDA; provided, however, that either
Party may, upon prior notice and after providing the other Party an opportunity
to review the intended disclosure, make such public disclosures regarding this
Agreement as, based on the advice of counsel for such Party, are required by
applicable securities laws or regulations, other applicable law, or the rules of
any securities exchange to which such Party is subject.

 

14.    TERMINATION/EXPIRATION

 

(a)    This Agreement and/or any Sales Agreement may be terminated by mutual
written agreement of the Parties. In addition, either Party may terminate this
Agreement by written notice to the other Party upon the occurrence of one of the
conditions below:

 

(i)If the other Party materially breaches this Agreement and fails to cure that
breach within [****] days after receiving notice of the breach from the
non-breaching Party; or

 

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

 

12

 

 

(ii)If the other Party becomes insolvent, or any voluntary or involuntary
petition for bankruptcy or for reorganization is filed by or against the other
Party, or a receiver is appointed with respect to all or any substantial portion
of the assets of the other Party, or a liquidation proceeding is commenced by or
against the other Party; provided that, in the case of any involuntary petition
or proceeding filed or commenced against a Party, the same is not dismissed
within sixty (60) days.

 

If a Party elects to unilaterally terminate the Agreement for one of the
foregoing reasons, that Party may concurrently terminate any Sales Agreement to
the extent of Products not yet shipped. Further, either Party may terminate any
Sales Agreement to the extent of Products not yet shipped (without terminating
this Agreement) by giving written notice of termination to the other Party if
the other Party commits a material breach of its obligations under the Sales
Agreement and does not cure such breach within [****] days after receipt of
written notice of the breach from the non-breaching Party.

 

(b)    In addition, either Party may terminate this Agreement and any Sales
Agreements by written notice to the other Party in the event the other Party’s
performance is delayed by more than one hundred eighty (180) days due to an
event of Force Majeure.

 

(c)    Except as expressly provided otherwise in this Agreement, each Party will
remain obligated to fully perform all Sales Agreements that are executory at the
time of termination or expiration of this Agreement, and the applicable terms
and conditions of this Agreement (including Exhibits) will survive with respect
to the continued and full performance of such Sales Agreements. Further,
expiration or termination will not affect (i) C&C’s obligation to pay all
amounts accrued or earned by Cree prior to expiration or termination after
resolution of disputed amounts, if any, or (ii) any accrued obligations of Cree
with respect to any amounts to be refunded, canceled, or credited for the
benefit of C&C (and Cree shall, to the extent any amounts to be credited against
amounts due Cree under this Agreement exceed the amounts due Cree under this
Agreement, promptly pay C&C such excess following termination or expiration of
this Agreement after resolution of disputed amounts, if any).

 

15.    COMPLIANCE AND OTHER OBLIGATIONS OF THE PARTIES

 

(a)    Each Party agrees to comply with all laws, rules, orders, treaties, and
regulations related to the production, manufacture, packaging, generation,
processing, distribution, transport, treatment, storage, disposal, installation,
sale, use, import, and export, and other handling of all Products, or products
incorporating the Products, that are applicable to its activities in connection
with or in furtherance of this Agreement, to the extent not inconsistent with
United States law.

 

(b)    Cree will not be obligated under this Agreement or any Sales Agreement to
export, transfer or deliver any Products or related technical information to C&C
if prohibited by applicable law or until all necessary governmental
authorizations have been obtained. Cree will not be liable under this Agreement
or any Sales Agreement for any expenses or damages resulting from failure to
obtain or delays in obtaining any required government authorizations. C&C will
comply fully with all export administration and control laws and regulations of
the U.S. government as may be applicable to the export, re-export, resale or
other disposition of any Products purchased from Cree.

 

(c)    C&C agrees that it will not, without Cree's written consent, use any SiC
material supplied by Cree as a seed for bulk crystal growth or for any purpose
other than fabricating gemstones from such material. Growth of one or more
silicon carbide or Group III-nitride epitaxial layers on a single substrate
having an aggregate epitaxial thickness of less than 150 microns will not be
considered bulk growth for purposes of this Agreement. C&C further agrees that
it will not, without Cree's written consent, resell or otherwise transfer bulk
SiC material supplied by Cree (including, without limitation, SiC materials in
boule or slab form) to any third party other than [****]. Notwithstanding the
foregoing, any buyer or transferee of bulk SiC material must also [****] and C&C
must (i) not know or have reason to believe the buyer/transferee intends to use
the SiC material as a seed for the bulk growth of SiC or for any purpose other
than fabricating gemstones from such material, (ii) use commercially reasonable
efforts to contractually prohibit the buyers/transferees from using the SiC
material as a seed for the bulk growth of SiC or for any purpose other than
fabricating gemstones from such material and from further transferring the bulk
SiC material to another party, and (iii) use commercially reasonable efforts to
enforce any such provisions.

 

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

 

13

 

 

(d)    Each Party agrees that during the term of this Agreement, without the
prior written consent of the other Party, it will not employ or otherwise engage
the services (as a consultant or in any other capacity) of any individual who
within [****] year prior to being so engaged served as an employee of the other
Party, or as a consultant to the other Party providing services, in the case of
Cree, [****] (including without limitation, [****]), or, in the case of C&C,
[****].

 

(e)    Neither Party shall issue any press release or otherwise make any public
announcement concerning this Agreement without the prior consent of the other
Party; provided, however, that nothing in this provision shall prevent a Party
from making any disclosures that may be required by applicable securities
regulations or law or applicable listing standards. Neither party shall use the
name of the other Party in any advertising, marketing or similar material
without the other Party's prior written consent.

 

16.    GOVERNING LAW; DISPUTE RESOLUTION

 

(a)    This Agreement is governed by the laws of the State of North Carolina,
without regard to its conflicts of laws provisions. The Parties expressly
disclaim the application of the United Nations Convention on Contracts for the
International Sale of Goods.

 

(b)    All disputes arising out of or relating to this Agreement or any Sales
Agreement, or any breach or alleged breach hereof or thereof, that cannot be
settled amicably by the Parties will, upon written notice by either Party, be
settled exclusively by arbitration to be held in (or within thirty (30) miles
of) Durham, NC under the Commercial Arbitration Rules of the American
Arbitration Association (the “Rules”), as such Rules may be modified by mutual
agreement of the Parties as contemplated herein; provided, however, that a Party
may seek provisional, injunctive, or equitable remedies, including but not
limited to preliminary injunctive relief, from a court having jurisdiction,
before, during or after the pendency of any arbitration proceeding, or join the
other Party to existing litigation or any Claim brought by a third party. A
single independent, neutral arbitrator selected by the Parties shall preside
over the proceeding. If a single arbitrator cannot be agreed upon by the Parties
within fifteen (15) days of a Party’s notice triggering arbitration hereunder, a
panel of three (3) arbitrators shall preside. This panel shall be comprised of
one independent, neutral arbitrator selected by Cree, one independent, neutral
arbitrator selected by C&C, and a third independent, neutral arbitrator selected
by the two arbitrators appointed by the Parties; if either Party does not select
an arbitrator in accordance with the foregoing within five (5) business days of
the expiration of the above-referenced fifteen (15)-day period, such arbitrator
shall be selected in accordance with the Rules. If elected by either Party by
written notice to the other Party within five (5) business days of the notice
initiating dispute resolution under this Paragraph 16(b), the Parties shall
negotiate in good faith in an effort to mutually agree as to the rules and
procedures which shall govern such proceeding. In the event the Parties cannot
agree as to the rules and procedures which shall govern arbitration hereunder
within thirty (30) days of such written election, the arbitrator(s) shall
determine such governing rules and procedures. The arbitrator(s) shall have no
right to award damages or provide remedies that are expressly excluded in this
Agreement. The award shall be final and binding upon the Parties. Judgment upon
the award may be entered in any court having jurisdiction thereof. The
prevailing party in any suit or arbitration proceeding will be entitled to
recover its reasonable and necessary attorney fees and other reasonable,
documented out-of-pocket costs and expenses incurred in such proceeding.

 

(c)    Except for actions to enforce a right under Paragraph 11, no action,
regardless of form, arising under or relating to this Agreement or a Sales
Agreement may be brought by either Party more than [****] after the date the
claim arises.

 

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

 

14

 

 

17.    ASSIGNMENT

 

(a)    Neither this Agreement nor any rights hereunder may be assigned or
transferred, including without limitation by means of a merger, change of
control, or similar transaction that results in a different party possessing,
directly or indirectly, the power to direct the management and policies of such
Party whether through the ownership of voting securities, contract(s), or
otherwise, (collectively an “Assignment”) by either Party without the other
Party's prior written consent, which consent shall not be unreasonably withheld,
provided that, notwithstanding the foregoing, (i) Cree shall be entitled,
without C&C’s prior written consent, to make an Assignment of this Agreement and
its rights and obligations hereunder in connection with the transfer or sale of
all or substantially all of Cree’s assets or business relating to the
performance of this Agreement, a merger transaction to which Cree is a party, a
change of control of Cree, or a similar transaction, and (ii) C&C shall be
entitled, without Cree’s prior written consent, to make an Assignment of this
Agreement and its rights and obligations hereunder to a Permitted C&C Assignee
in connection with [****].  Any attempted assignment in violation of this
Paragraph 17(a) is void and shall constitute a material breach of this
Agreement.  A “Permitted C&C Assignee” shall mean any person or entity other
than a person or entity that is a [****]. “[****]” shall mean any corporation,
partnership, university, government agency or other entity or person that is
conducting [****]:

 

(1)[****];

 

(2)[****];

 

(4)[****];

 

(5)[****];

 

(6)[****];

 

(7)[****];

 

(8)[****]; and

 

(9)[****].

 

For purposes of the [****] in (2) above, a corporation, partnership, university,
government agency or other entity or person shall not be considered a [****].
Notwithstanding the foregoing or any contrary language in this Agreement, (i) a
corporation, partnership, or other entity or person shall [****], and (ii) Cree
shall be entitled to immediately terminate this Agreement, without notice or
opportunity to cure, if subsequent to such permitted Assignment the Permitted
C&C Assignee or its affiliate becomes engaged in a [****].

 

(b)    It will be a condition of any permitted assignment that the assignee will
assume all obligations of its assignor under this Agreement or Sales Agreement,
as applicable, arising following such assignment. Unless otherwise agreed by the
Parties in writing, no assignment will relieve any Party of responsibility for
the performance of its obligations hereunder. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the Parties, and, notwithstanding any
contrary language herein, the term “C&C” as used herein shall refer to any
successor or permitted assignee of C&C, and the term “Cree” as used herein shall
refer to any successor or permitted assignee of Cree.

 

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

 

15

 

 

18.    LIMITATIONS ON LIABILITY

 

CREE’S AGGREGATE LIABILITY TO C&C IN DAMAGES OR OTHERWISE ARISING OUT OF THIS
AGREEMENT OR ANY SALES AGREEMENT WITH RESPECT TO THE SALE OF ANY PARTICULAR
PRODUCTS WILL IN NO EVENT EXCEED THE AMOUNT, IF ANY, RECEIVED BY CREE FOR THE
PRODUCT(S) THAT ARE THE CAUSE OF SUCH DAMAGES. IF ANY REMEDY IS FOUND TO FAIL OF
ITS ESSENTIAL PURPOSE OR IF CREE’S PRODUCTS ARE NOT THE CAUSE OF THE DAMAGES,
CREE’S AGGREGATE LIABILITY IN DAMAGES OR OTHERWISE TO C&C WILL IN NO EVENT
EXCEED $[****] USD. C&C’S AGGREGATE LIABILITY TO CREE ARISING OUT OF THIS
AGREEMENT OR ANY SALES AGREEMENT WITH RESPECT TO THE PURCHASE OF ANY PARTICULAR
PRODUCTS WILL IN NO EVENT EXCEED THE PURCHASE PRICE FOR SUCH PRODUCTS, PLUS
OTHER AMOUNTS EXPRESSLY PROVIDED IN THIS AGREEMENT FOR TAXES, TRANSPORTATION
COSTS, INTEREST, AND COLLECTION COSTS. IN NO EVENT SHALL EITHER PARTY HAVE
LIABILITY IN CONNECTION WITH THIS AGREEMENT OR ANY SALES AGREEMENT FOR ANY
CONSEQUENTIAL, INDIRECT, OR INCIDENTAL, SPECIAL, OR PUNITIVE DAMAGES (WHICH MAY
INCLUDE LOST PROFITS, PRODUCTION, OR REVENUE, OR BUSINESS INTERRUPTION) ARISING
OUT OF OR IN CONNECTION WITH THIS AGREEMENT, ANY SALES AGREEMENT OR THE
MANUFACTURE, USE OR PERFORMANCE OF THE PRODUCTS, EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES; PROVIDED THAT THE FOREGOING SHALL IN NO WAY LIMIT
C&C’S OBLIGATION TO PAY FOR PRODUCTS PURCHASED HEREUNDER IN ACCORDANCE WITH THE
TERMS HEREOF. THE LIMITATIONS IN THIS PARAGRAPH 18 APPLY REGARDLESS OF WHETHER
SUCH CLAIM IS BASED ON TORT, CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR
ANY OTHER THEORY, PROVIDED THAT, NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE
LIMITATIONS IN THIS PARAGRAPH 18 SHALL NOT IN ANY EVENT APPLY TO A PARTY’S
OBLIGATION PURSUANT TO THE PROVISIONS IN PARAGRAPH 11 TO DEFEND THE OTHER PARTY
AGAINST OR TO INDEMNIFY OR HOLD HARMLESS THE OTHER PARTY FOR AMOUNTS CLAIMED BY,
OWED TO, OR RECOVERED BY A THIRD PARTY OR ANY BREACH OF PARAGRAPH 13, 15(c) or
17(a).

 

19.    ENTIRE AGREEMENT

 

This Agreement, including the Exhibits (which are hereby incorporated herein),
and the NDA contain the entire agreement between C&C and Cree with respect to
subject matter of this Agreement and supersede all other prior written or oral
agreements relating to the purchase and sale of Products, including without
limitation the Expiring Agreement. Any additional or different terms stated on
any other correspondence, document or form of either Party, including Purchase
Orders, order confirmations and invoices, are material alterations of this
contract and are expressly rejected. The terms of this Agreement cannot be
modified unless done so in a writing signed by both Parties. A waiver by a Party
of any breach or default by the other Party is not a waiver of any other breach
or default, and no course of dealings between the Parties or trade usage will
modify this Agreement. In addition to the provisions that expressly or by their
nature contemplate performance or observance of obligations subsequent to any
expiration or termination of this Agreement, the provisions regarding warranty,
indemnification, intellectual property, confidential information, compliance,
limitations of liability, and dispute resolution survive the termination of this
Agreement. This Agreement and any amendment or modification hereto may be
executed in counterparts with the same force and effect as if the Parties had
executed one instrument, and each such counterpart will be deemed to constitute
an original hereof. The Parties agree that the delivery of any executed copy of
this Agreement or any amendment hereto by electronic portable document format
(.pdf) or facsimile will be legal and binding and will have the same full force
and effect as if an original executed copy of this Agreement or amendment had
been delivered.

 

20.    AUTHORITY

 

Each Party represents that it has the right to enter into and perform its
obligations under this Agreement and entering this Agreement will not breach any
obligation it has to any third party.

 

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

 

16

 

 

21.    SEVERABILITY

 

If any provision of this Agreement is invalid, illegal, or unenforceable in any
jurisdiction, for any reason, the invalidity, illegality, or unenforceability of
that provision will not affect any other provision of this Agreement, and the
invalid provision will be substituted with a valid provision that most closely
approximates the intent and the economic effect of the invalid provision and
that would be enforceable to the maximum extent permitted in the jurisdiction.

 

22.    FORCE MAJEURE

 

Neither Party will be in default or liable for any delay or failure to comply
with its obligations under this Agreement or any Sales Agreement (other than an
obligation to pay money) due to an event of Force Majeure. The affected Party
will provide the other Party prompt notice of any such anticipated delay or
failure of compliance; provided, however, that any such event of Force Majeure
will not relieve the affected Party’s obligations hereunder and such Party
agrees to perform its obligations as soon as reasonably practicable after the
conditions causing such delay or failure have subsided. As used in this
Agreement, “Force Majeure” means a force beyond the fault or reasonable control
of the affected Party, which may include, but shall not be limited to: any fire,
flood, or other natural disaster; strikes or work stoppages; wars (declared or
undeclared); acts of God; inability to procure or general shortage of labor,
equipment, facilities, materials or supplies in the open market; acts, omissions
or failure or refusal to act of any government agency or authority (de jure or
de facto) acting in either its sovereign or contractual capacity; terrorists
acts or acts of public enemies; epidemics or quarantine restrictions; freight
embargoes; and public disorders or riots. For avoidance of doubt, a Party’s lack
of, or inability to procure, monies to fulfill its commitments and obligations
under this Agreement shall not constitute an event of Force Majeure, and Force
Majeure shall in no event apply to or excuse a Party’s obligations to pay
amounts due hereunder.

 

23.    NOTICES

 

All notices required under this Agreement will be in writing and sent by
reputable national or international courier service, or by facsimile or
electronic message (with a confirmation copy concurrently dispatched by prepaid
post or courier service), to the address(es) of the respective Party as set
forth below its signature hereto or to such other address as a Party may later
specify by written notice so given. Notices will be effective upon receipt at
the location of the specified address; provided that, notices will be effective
on the date of receipt only if such day is a business day for the recipient and
the notice was received before or during business hours on such day. If not,
such notice will be effective on the recipient’s next business day after the
date of receipt.

 

[Signature page to follow.]

 

17

 

 

IN WITNESS WHEREOF, each of the parties has duly executed this Agreement
effective as of the Effective Date, notwithstanding a later execution date.

 

CREE, INC. CHARLES & COLVARD, LTD.

 

By: /s/ David Emerson   By: /s/ Randy N. McCullough             David Emerson  
  Randy  N. McCullough           Title: Vice President - Chips & Materials  
Title: President and CEO           Date: 12/4/14   Date: 12/12/14

 

Address for Notices Address for Notices     Cree, Inc. Charles & Colvard, Ltd.
4600 Silicon Drive 170 Southport Drive Durham, North Carolina 27703 Morrisville,
North Carolina 27560 Attn:  David Emerson Attn: Randy N. McCullough
Email:  [****] Email: [****] Fax No.:  919-[****] Fax No.: 919-[****]     With
copy of any notices With copy of any notices of a legal nature to: of a legal
nature to:     Cree, Inc. Wyrick Robbins Yates & Ponton LLP Attn: General
Counsel Attn: Jason Wood 4600 Silicon Dr. 4101 Lake Boone Trail Durham, North
Carolina 27703 Raleigh, NC 27607 Email:  [****] Email:  [****] Fax
No.:  919-[****] Fax No.:  919-[****]       For purposes of Section 6(c):

 

  CHARLES & COLVARD DIRECT, LLC

 

  By: /s/ Kyle S. Macemore   Kyle S. Macemore, Manager

 

  MOISSANITE.COM, LLC

 

  By: /s/ Kyle S. Macemore   Kyle S. Macemore, Manager

 

CGS-D040-7

 

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

 

18

 

 

EXHIBIT A

Products:

 

SiC [****] crystals in sizes [****]”,[****] ", or [****]". Notwithstanding
[****] in its Purchase Orders, shipments of Products will be [****], provided
that [****] may not be more than [****] of the total crystals delivered by Cree
in any shipment unless mutually agreed to in advance by C&C. All delivered
orders [****] will be applied toward C&C’s outstanding Purchase Orders [****]
based on useable material shipped (not Product price).

 

Pricing for [****] SiC crystals (all prices are per gram):

 

Tiered Pricing Schedule Volume kg/ Qtr  [****]” Boule   [****]” Boule   Larger
Diameters
([****]”,[****]”[****]”)  Up to [****] kg  $[****]   $[****]    [****]  Next
[****] kg  $[****]   $[****]    [****]  Next [****] kg  $[****]   $[****]  
 [****]  Next [****] kg  $[****]   $[****]    [****]  Next [****] kg  $[****]  
$[****]    [****]  Next [****] kg  $[****]   $[****]    [****]  Additional
Volume   [****]    [****]    [****] 

 

The Parties agree that the foregoing pricing shall be subject to change from
time to time, as mutually agreed upon in writing by the Parties, based upon
improvements made by Cree to the Specifications of the SiC Materials.

 

As used in the Tiered Pricing Schedule above, “Volume” refers to the quantity of
Products ordered by C&C for delivery in a particular Cree Fiscal Quarter that
are originally confirmed or accepted by Cree for delivery in that quarter and
actually delivered in that quarter, except as provided below. For example, if
C&C orders [****] kg for delivery in the fourth Fiscal Quarter of FY15, the
Tiered Pricing Schedule would be applied as follows if all of the Products are
confirmed for delivery and actually delivered in the fourth Fiscal Quarter:

 

Volume  Quantity in kg  

Applicable price per kg

(assuming all [****]” boules)

   Extended Cost  Initial Volume Component 1   [****]   $[****]   $[****] 
Incremental Volume Component 2   [****]   $[****]   $    [****]  Incremental
Volume Component 3   [****]   $[****]   $    [****]  Total   [****]       
$[****] 

 

If any Products are not shipped in the Fiscal Quarter in which they were
originally confirmed or accepted for shipment due to no fault of or other reason
attributable to C&C, then the Product pricing in the order confirmation, which
was based on the Volume in the Fiscal Quarter in which the Products were
originally confirmed or accepted for shipment, will remain in effect. If
Products are not shipped in the Fiscal Quarter in which they were originally
confirmed or accepted for shipment solely due to the fault of or other reason
directly attributable to C&C (including any agreement by Cree to delay shipment
at C&C’s request), the price of such delayed Products will equal the price
applicable to such Products if they had been ordered for and delivered in the
Fiscal Quarter in which they are actually shipped. For example, if C&C orders
[****] kg of Product for delivery in the fourth Fiscal Quarter of FY15 and
midway through the Fiscal Quarter requests Cree to delay delivery of [****]kg
until the first Fiscal Quarter of FY16 and Cree agrees, then the delayed Product
will be considered part of the initial Volume component for the first Fiscal
Quarter of FY16, and the Product pricing will be $[****] per kg (assuming all
[****]” boules and no other Product delivered during the first fiscal Quarter of
FY16). The parties agree to cancel and reissue Purchase Orders and order
confirmations as needed for accurate recordkeeping purposes to reflect any such
pricing changes.

 

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

 

19

 

 

Specifications:

 

For Purchase Orders received and accepted prior the Effective Date, Product
pricing and Specifications will be determined as provided in the Expiring
Agreement. For Purchase Orders received and accepted on or after the Effective
Date, Product pricing and Specifications will be determined as provided in this
Agreement.

 

Quantity: The quantity of “usable material” of SiC crystals delivered to C&C
pursuant to the Agreement and any Sales Agreements will be determined according
to the following:

 

A.Grams of usable material will be calculated on a crystal-by-crystal basis
according to the following equation: [****]. “[****]” means [****] as defined in
section A under “Defects” (below).

 

B.Crystals shipped to C&C must contain at least [****] grams of usable material
for the [****]" crystals and [****] grams of usable material for the [****]"
crystals. The usable material for the [****]” crystals will be determined and
mutually agreed upon in writing at a later date. This usable area must be
contiguous.

 

Color: Tone/color number [****] and [****] as used in the C&C boule-grading
screen will be considered acceptable tone and color material. The Parties agree
that Grade [****] should represent [****] and Grade [****] should represent
[****]. (Note: Grade [****] is preferred. Grade [****] material is acceptable.)

 

Mix: Unless otherwise agreed in writing by the Parties, at least [****]% of the
usable material in each shipment will meet the grading standards for [****]
gemstones provided that C&C purchases at least the Minimum Purchase Commitment
in a Fiscal Quarter.

 

Defects:

 

(A)Material volume of acceptable color will be reduced by the percentage of the
defects listed in the table below. C&C shall set the acceptable standards for
the quality of both the color and defects of all material purchased pursuant to
this Agreement. Unless otherwise mutually agreed by the parties in writing,
however, the grading of the material by both Cree and C&C will adhere to those
standards and methods identified in Notes 1 & 2 below, or otherwise mutually
agreed in writing by the Parties, applied on a consistent basis.

 

ID   D-Type     1   [****]   Reduce 2   [****]   Reduce 3   [****]   Reduce 4  
[****]   No reduction 5   [****]   Reduce 6   [****]   Reduce 7   [****]   No
reduction 8   [****]   Reduce 9   [****]   Reduce

 

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

 

20

 

 

(B)Within a given color band ([****] or [****]) grade depth across the height of
the boule, when the concentration of reduced defects in aggregate as noted above
exceeds [****]% cross sectional area (concentrated or dispersed), the discount
on the affected band shall be [****].

 

(C)Within a given color band grade ([****] or [****]) depth across the height of
the boule, if the reduced defect percent in aggregate is greater than [****]%,
but less than [****]% and is [****] as per diagram below, the slab shall be
priced at [****].

 

[****]

 

Physical Dimensions:

 

Side View of Boule shall be [****]:

1)Dome: Top of boule shall be [****]. Boules [****] shall not exceed [****]. For
boules delivered with [****] exceeding [****], the total usable length will be
calculated based on the [****].

 

[****]

 

2)Perpendicularity of bottom to side (as measured at sides and/or at windows):
With boule resting on [****], largest allowable [****] shall be [****]. If boule
does not meet this standard, it will be rejected and Cree will have the option
to rework the boule to meet this standard.

 

[****]

 

Notes

 

1Master Boule [****]: new boules as [****] this will grade as [****]. Master
Boule [****]: new boules as [****] this (but [****] Master Boule [****]) will
grade as [****]. Unless otherwise mutually agreed, any boules darker than grade
[****] will not be purchased by C&C.

 

2Micropipe grading will be performed according to the Cree document identified
as the [****]. The area determined according to this procedure multiplied by
[****], defines the area of non-usable material for micropipes.

 

The Parties acknowledge and agree that any changes to the foregoing
Specifications must be mutually agreed upon by the parties in writing and could
impact Cree’s manufacturing process, leading to changes in the price or delivery
of SiC Materials hereunder.

 

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

 

21