Exhibit 10.83

 

QUARTERLY & ANNUAL INCENTIVE PLAN FOR NON-OFFICER EMPLOYEES

(2005)

 

The Board of Directors (the “Board”) recognizes that each employee plays an
important role in the growth and financial success of Charles & Colvard, Ltd.
(the “Corporation”) and wishes to provide each of those employees with
meaningful incentives to work to accomplish the goals established by the Board
on an annual basis. This Quarterly & Annual Incentive Plan for Non-Officer
Employees Plan (the “Plan”) outlines the provisions of those incentives.

 

I. General Incentives

 

Effective January 1, 2005, each full time employee, including the employees of
the Hong Kong subsidiary, who is not a participant in another annual incentive
plan, shall be eligible to receive five days’ pay and a stock option award for
60 shares of the common stock of the Corporation (“Common Stock”) for each
fiscal quarter when both the operating income and revenue goals of the
Corporation are achieved. Should the Corporation achieve the quarterly operating
income goal, but fail to meet the quarterly revenue target, each employee shall
receive three days’ pay and a stock option award for 30 shares of Common Stock.
Sales staff employees are eligible to receive the stock option awards, but shall
not be eligible for the cash portion of this incentive because they are eligible
to receive other cash bonuses based on their individual and team sales results.
For purposes of this incentive plan, the Hong Kong employees will be judged 80%
on the results of the Hong Kong subsidiary and 20% on the results of the
Corporation as a whole.

 

Additionally, each employee shall be eligible to receive an additional incentive
based on the annual results of the Corporation. Should the Corporation attain
the annual goals for operating income and revenue, irrespective of whether one
or more of the quarterly goals are not attained, the employee shall receive five
days’ pay and a stock option award for 60 shares of Common Stock. Should the
Corporation reach the operating income for the year, but fail to reach the
revenue goal, the employee shall be awarded three days’ pay and a stock option
award for 30 shares of Common Stock.

 

The restrictions on the stock awarded under this incentive program will require
the individual to remain an employee on a continuous basis, and shall vest over
a three-year period, one third each on the anniversary date of the award, so
that the award will vest in full on the third anniversary of the date of grant.
Unless the Committee determines otherwise, if the employment of the employee is
terminated for any reason (whether by the Corporation or the employee) prior to
vesting of his stock option award, the unvested portion(s) of his stock option
award shall be forfeited and the employee shall have no right to the shares
subject to the unvested portion of the award.

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II. Director Level Incentives

 

There are several key positions representing important leadership roles in the
Corporation; the contributions of the individuals occupying these positions are
critical to the success of the Corporation. For 2005, these positions are: Sales
Directors; Director of Manufacturing; Director of Information Technology;
Comptroller; and Managing Director, Asia. For purposes of the Plan, the Managing
Director, Asia will be judged 80% on the results of the Hong Kong subsidiary and
20% on the results of the Corporation as a whole.

 

The Committee, in its discretion, may determine that individuals occupying other
positions within the Corporation may also be eligible to participate in the
Plan. Participation in the Plan in any one year does not guarantee the right to
participate in any other year.

 

The Committee wishes to provide each of the employees in these positions with
meaningful incentives to work to accomplish the goals established by the Board
on an annual basis. The following outlines the provisions of those incentives.

 

Effective January 1, 2005, each of those employees shall be eligible to receive
five days’ pay and a stock option award for 100 shares of Common Stock for each
fiscal quarter when both the operating income and revenue goals of the
Corporation are achieved. Should the Corporation achieve the operating income
goal, but fail to meet the revenue target, each employee shall receive three
days’ pay and a stock option award for 50 shares of Common Stock. The Sales
Directors are eligible for the stock option awards, but shall not be eligible
for the cash portion of this incentive because they are eligible to receive
other cash bonuses based on their individual and team sales results.

 

Additionally, each of these employees shall be eligible to receive an additional
incentive based on the annual results of the Corporation. Should the Corporation
attain the annual goals for operating income and revenue, irrespective of
whether one or more of the quarterly goals is not attained, the employee shall
receive five days’ pay and a stock option award for 100 shares of Common Stock.
Should the Corporation reach the operating income for the year, but fail to
reach the revenue goal, the employee shall be awarded three days’ pay and a
stock option award for 50 shares of Common Stock. The Sales Directors are
eligible for the stock option awards, but shall not be eligible for the cash
portion of this incentive because they are eligible to receive other cash
bonuses based on their individual and team sales results.

 

The restrictions on the stock awarded under this incentive program will require
the individual to remain an employee on a continuous basis and shall vest over a
three-year period, one third each on the anniversary date of the award, so that
the award will vest in full on the third anniversary of the date of grant.
Unless the Committee determines otherwise, if the employment of the employee is
terminated for any reason (whether by the Corporation or the employee), the
unvested portion(s) of his stock option award shall be forfeited and the
employee shall have no right to the shares subject to the unvested portion of
the award.

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III. Terms and Conditions of the Plan

 

Unless otherwise stated, the following terms and conditions apply to any
incentives awarded under the Plan:

 

A. Administration of the Plan

 

1. The Plan shall be administered by the Board or, upon its delegation, by the
Committee. For the purposes of the Plan, the term “Committee” shall, unless
otherwise required by applicable law, refer to the Board and, upon its
delegation to the Committee of all or part of its authority to administer the
Plan, to the Committee.

 

2. In addition to action by meeting in accordance with applicable law, any
action of the Committee with respect to the Plan may be taken by a written
instrument signed by all of the members of the Committee and any such action so
taken by written consent shall be as fully effective as if it had been taken by
a majority of the members at a meeting duly held and called. Subject to the
provisions of the Plan, the Committee shall have full and final authority in its
discretion to take any action with respect to the Plan including, without
limitation, the authority (a) to determine all matters relating to any awards
under the Plan, including selection of individuals to be granted awards, the
types of awards, the number of shares of Common Stock, if any, subject to an
award, and all terms, conditions, restrictions and limitations of an award; (b)
to prescribe the form or forms of any agreements evidencing any awards granted
under the Plan; (c) to establish, amend and rescind rules and regulations for
the administration of the Plan; and (d) to construe and interpret the Plan and
any agreements evidencing awards granted under the Plan, to establish and
interpret rules and regulations for administering the Plan and to make all other
determinations deemed necessary or advisable for administering the Plan. In
addition, except to the extent otherwise required under Internal Revenue Code
(“Code”) Section 409A, related regulations or other guidance, the Committee
shall have authority, in its sole discretion, to accelerate the date that any
award that was not otherwise exercisable or vested shall become exercisable or
vested in whole or in part without any obligation to accelerate such date with
respect to any other awards granted to any recipient. In addition, the Committee
shall have the authority and discretion to establish terms and conditions of
awards (including but not limited to the establishment of subplans) as the
Committee determines to be necessary or appropriate to conform to the applicable
requirements or practices of jurisdictions outside of the United States.

 

B. Board Authority to Reduce or Eliminate Awards

 

The Board shall have full authority to reduce or eliminate all awards hereunder.
Unless the Committee determines otherwise, a participant who terminates
employment for any reason prior to the completion of the time period on which an
award is based or vesting period applicable to the award shall not be eligible
for the award.

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C. Source of Stock option Awards

 

Any stock option awards made under the Plan are issued under and pursuant to the
1997 Omnibus Stock Plan of Charles & Colvard, Ltd. as amended (“Omnibus Plan”).
With respect to any stock option awards made under the Plan, all terms,
conditions, and requirements of the Omnibus Plan are incorporated into the Plan
by reference. For any stock option awards, to the extent that there is a
contradiction between the Plan and the Omnibus Plan or an ambiguity as to the
provisions of the Plan, the terms of the Omnibus Plan shall control. All shares
issued under the Plan are drawn from the shares reserved under the Omnibus Plan
for issuance of awards (see section 4 of the Omnibus Plan).

 

D. Compliance with Code Section 409A

 

1. Notwithstanding any other provision in the Plan or an award to the contrary,
if and to the extent that Section 409A of the Code is deemed to apply to the
Plan or any award granted under the Plan, it is the general intention of the
Corporation that the Plan and all such awards shall comply with Code Section
409A, related regulations or other guidance, and the Plan and any such award
shall, to the extent practicable, be construed in accordance therewith.
Deferrals of shares issued under the Plan in a manner that would cause Code
Section 409A to apply shall not be permitted. Without in any way limiting the
effect of the foregoing, in the event that Code Section 409A, related
regulations or other guidance require that any special terms, provisions or
conditions be included in the Plan or any award, then such terms, provisions and
conditions shall, to the extent practicable, be deemed to be made a part of the
Plan or award, as applicable. Further, in the event that the Plan or any award
shall be deemed not to comply with Code Section 409A or any related regulations
or other guidance, then neither the Corporation, the Board nor its or their
designees or agents shall be liable to any participant or other person for
actions, decisions or determinations made in good faith.

 

2. Without limiting the effect of Section D.1., herein, except to the extent
otherwise required or permitted under Code Section 409A, related regulations or
other guidance, distributions of Awards under the Plan must be made no later
than the later of (a) the date that is 2 1/2 months from the end of the
employee’s first taxable year in which the amount is no longer subject to a
substantial risk of forfeiture; or (b) the date that is 2 1/2 months from the
end of the Corporation’s first taxable year in which the amount is no longer
subject to a substantial risk of forfeiture.

 

E. Applicable Law

 

The Plan shall be governed by and construed in accordance with the laws of the
State of North Carolina, without regard to the conflicts of laws provisions of
any state, and in accordance with applicable federal laws of the United States.

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F. Amendment and Termination of the Plan

 

1. The Plan and any award may be amended or terminated at any time by the Board
or the Committee. No action to amend or terminate the Plan or an award shall
permit the acceleration of the time or schedule or any payment of amounts deemed
to involve the deferral of compensation under Code Section 409A, except as may
be otherwise permitted under Section 409A, related regulations or other
guidance.

 

2. Without limiting the effect of Section F.1., herein, the Board shall have
unilateral authority to amend the Plan and any award (without Participant
consent) to the extent necessary to comply with applicable laws, rules or
regulations or changes to applicable laws, rules or regulations (including but
not limited to Code Section 409A, federal securities laws or related regulations
or other guidance).

 

G. No Right or Obligation of Continued Employment

 

Nothing contained in the Plan shall require the Corporation or a related
corporation to continue the employment or service of an employee, nor shall any
such individual be required to remain in the employment or service of the
Corporation or a related corporation.

 

H. Compliance with Laws

 

The Board may impose such restrictions on any shares or other payments or awards
hereunder as it may deem advisable, including without limitation restrictions
under the Securities Act of 1933, as amended (the “Securities Act”), under the
requirements of any stock exchange or similar organization and under any blue
sky, state or foreign securities laws applicable to such shares. Notwithstanding
any other Plan provision to the contrary, the Corporation shall not be obligated
to issue, deliver or transfer shares of Common Stock under the Plan, make any
other distribution of benefits under the Plan or take any other action, unless
such delivery, distribution or action is in compliance with all applicable laws,
rules and regulations (including but not limited to the requirements of the
Securities Act). The Corporation may cause a restrictive legend to be placed on
any certificate issued hereunder in such form as may be prescribed from time to
time by applicable laws and regulations or as may be advised by legal counsel.

 

I. Unfunded Plan; No Effect on Other Plans

 

1. The Plan shall be unfunded, and the Corporation shall not be required to
create a trust or segregate any assets that may at any time be represented by
awards under the Plan. The Plan shall not establish any fiduciary relationship
between the Corporation and any employee or other person. Neither an employee
nor any other person shall, by reason of the Plan, acquire any right in or title
to any assets, funds or property of the Corporation or any related corporation,
including, without limitation, any specific funds, assets or other property that
the Corporation or any related corporation, in their discretion, may set aside
in anticipation of a liability under the Plan. A participant shall have only a
contractual right to the Common Stock or other amounts, if any,

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payable under the Plan, unsecured by any assets of the Corporation or any
related corporation. Nothing contained in the Plan shall constitute a guarantee
that the assets of such entities shall be sufficient to pay any benefits to any
person.

 

2. The amount of any compensation deemed to be received by a participant
pursuant to an award shall not constitute compensation with respect to which any
other employee benefits of such participant are determined, including, without
limitation, benefits under any bonus, pension, profit sharing, life insurance or
salary continuation plan, except as otherwise specifically provided by the terms
of such plan or as may be determined by the Board or Committee.

 

3. The adoption of the Plan shall not affect any other compensation plans in
effect for the Corporation or any related corporation, nor shall the Plan
preclude the Corporation from establishing any other forms of compensation for
employees or service providers of the Corporation or any related corporation.

 

J. Withholding; Tax Matters

 

1. The Corporation shall withhold, or shall require the participant to pay the
Corporation in cash, the amount of any local, state, federal, foreign or other
tax or other amount required by any governmental authority to be withheld and
paid over by the Corporation to such authority for the account of the
participant.

 

2. The Corporation makes no warranties or representations with respect to the
tax consequences (including but not limited to, income tax consequences) related
to the transactions contemplated by this Plan. A participant should consult with
his or her own attorney, accountant, and/or tax advisor regarding the decision
to participate in the Plan and the consequences thereof. The Corporation has no
responsibility to take or refrain from taking any actions in order to achieve a
certain tax result for any participant.