Exhibit 10.2

 

INTERCREDITOR AGREEMENT

 

THIS INTERCREDITOR AGREEMENT, dated as of December 12, 2014 (as amended,
supplemented or otherwise modified from time to time, this “Agreement”), is by
and among CHARLES & COLVARD, LTD. (“C&C”), CHARLES & COLVARD DIRECT, LLC (“C&C
Direct”), MOISSANITE.COM, LLC (“Moissanite”; C&C, C&C Direct and Moissanite are
sometimes referred to herein individually as an “Obligor” and collectively as
“Obligors”), CREE, INC. (“Cree”), and WELLS FARGO BANK, NATIONAL ASSOCIATION
(“Wells Fargo”).

 

WITNESSETH:

 

WHEREAS, Cree sells certain silicon carbide raw materials to C&C from time to
time and provides trade credit to C&C in connection with such sales; and

 

WHEREAS, C&C has granted to Cree a security interest in the Collateral (as
defined below) in order to secure the unpaid purchase price owing by C&C to Cree
for such raw materials; and

 

WHEREAS, Obligors and Wells Fargo are parties to that certain Credit and
Security Agreement dated as of June 25, 2014 (as amended, supplemented, modified
or restated from time to time, the “Wells Fargo Credit Agreement”), pursuant to
which Wells Fargo has provided and may continue to provide financing to
Obligors; and

 

WHEREAS, the obligations of Obligors to Wells Fargo under the Wells Fargo Credit
Agreement are secured by the Collateral; and

 

WHEREAS, Cree has requested that Wells Fargo subordinate its security interest
in the Cree Priority Collateral (as defined below) to the security interest of
Cree therein; and

 

WHEREAS, Wells Fargo is willing to do so on the terms and conditions set forth
herein; and

 

WHEREAS, in order to induce Wells Fargo to continue to provide financing to
Obligors, Cree has agreed to subordinate its security interest in the Wells
Fargo Priority Collateral (as defined below) to the security interest of Wells
Fargo therein.

 

NOW, THEREFORE, in consideration of the premises, the parties hereto hereby
agree as follows:

 

ARTICLE 1

DEFINITIONS

 

Section 1.1          For purposes of this Agreement, (a) capitalized terms used
herein without definition shall have the meanings ascribed to such terms in the
UCC, and (b) in addition to the terms defined elsewhere in this Agreement, the
following terms shall have the following meanings:

 

 

 

 

“Bankruptcy Code” means Title 11 of the United States Code (11 U.S.C. § 101 et
seq.).

 

“Bankruptcy Event” means, with respect to any Obligor, any voluntary or
involuntary dissolution, winding-up, total or partial liquidation or
reorganization, or bankruptcy, insolvency, receivership or other statutory or
common law proceedings or arrangements involving any Obligor or the readjustment
of its liabilities or any assignment for the benefit of creditors or any
marshalling of its assets or liabilities.

 

“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.

 

“Contracts” means, collectively, all rights of each Obligor under all leases,
contracts and agreements to which such Obligor is now or hereafter a party,
together with any and all extensions, modifications, amendments and renewals of
such leases, contracts and agreements and all rights of such Obligor to receive
moneys due or to become due thereunder or pursuant thereto and to amend, modify,
terminate or exercise rights under such leases, contracts and agreements.

 

“Creditor” means each of Wells Fargo and Cree, subject to Section 3.1.

 

“Cree Debt” means all amounts payable by C&C to Cree relating to the sale of raw
materials by Cree to C&C from time to time.

 

“Cree Documents” means all supply agreements, security agreements, guaranties
and other agreements, documents and instruments executed in connection with any
trade credit or other financing provided by Cree to any Obligor.

 

“Cree Priority Collateral” means (a) all raw 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 this 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 this Agreement) shall constitute
Wells Fargo Priority Collateral.

 

“Cree Repayment” means the circumstance in which, subject to Section 2.4(g)(ii),
the Cree Debt has been repaid in full in cash.

 

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“Lien” means any interest in property securing an obligation owed to, or a claim
by, a Person other than the owner of such property, whether such interest is
based on the common law, statute or contract, and including a security interest,
charge, claim or lien arising from a mortgage, deed of trust, deed to secure
debt, encumbrance, pledge, hypothecation, assignment, deposit arrangement,
agreement, security agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes.

 

“Obligor” has the meaning provided in the introductory paragraph of this
Agreement and includes all successors in interest of each such Person, including
a trustee or debtor in possession in connection with a Bankruptcy Event.

 

“Permitted Subordination” means a voluntary subordination by Wells Fargo of its
Liens with respect to any or all Collateral, or by Cree of its Liens with
respect to any or all Collateral, in favor of depository banks, securities or
commodities intermediaries, landlords, warehouseman or other bailees,
mortgagees, customs brokers, freight forwarders, carriers, factors, Persons that
provide post-petition financing to any Obligor following a Bankruptcy Event, and
other Persons who provide goods or services to an Obligor in the ordinary course
of business.

 

“Person” means any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.

 

“UCC” means the Uniform Commercial Code as in effect in the State of Georgia.

 

“Wells Fargo Debt” means all liabilities of any Obligor to Wells Fargo from time
to time outstanding (including, without limitation, all principal, interest,
fees, reimbursement obligations with respect to letters of credit, obligations
with respect to credit cards, swaps, hedge agreements, deposit accounts and
other bank products, and all indemnities, fees, costs and expenses with respect
to any of the foregoing), whether arising under the Wells Fargo Documents or
otherwise, and whether incurred prior to, on or after the date of any filing by
or against any Obligor of any petition or complaint initiating a Bankruptcy
Event, regardless of whether Wells Fargo’s claim therefor is allowed or
allowable in any proceeding arising from such Bankruptcy Event, together with
all renewals, refundings, restructurings and other refinancings of all or any
portion of the foregoing.

 

“Wells Fargo Documents” means the Wells Fargo Credit Agreement and any note,
guaranty, letter of credit agreement, deposit agreement or other agreement,
document or instrument executed and/or delivered in connection with the Wells
Fargo Credit Agreement and/or any Wells Fargo Debt from time to time.

 

“Wells Fargo Priority Collateral” means all Collateral other than the Cree
Priority Collateral. For the avoidance of doubt, “Wells Fargo Priority
Collateral” shall include, without limitation, all of each Obligor’s Accounts,
Chattel Paper, Commercial Tort Claims, Contracts, Deposit Accounts, Documents,
Equipment, General Intangibles, finished goods Inventory, Investment Property,
Instruments, Letter-of-Credit Rights, Payment Intangibles, and Supporting
Obligations, in each case wherever located and whether now owned or existing or
hereafter acquired or arising, and all Proceeds of the foregoing.

 

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“Wells Fargo Repayment” means the circumstance in which (a) subject to Section
2.4(g)(i), the Wells Fargo Debt has been repaid in full in cash, and (b) the
commitment of Wells Fargo to make loans under the Wells Fargo Credit Agreement
has been terminated.

 

ARTICLE 2

GENERAL INTERCREDITOR PROVISIONS

 

Section 2.1           Consent to Liens; Agreement to Subordinate Liens.

 

(a)          Cree consents to each Obligor’s grant of Liens in the Collateral in
favor of Wells Fargo. Cree and Obligors hereby agree that, to the extent and in
the manner set forth in this Section 2.1, all Liens now or hereafter acquired by
Wells Fargo in any or all of the Wells Fargo Priority Collateral shall at all
times be prior and superior to any Lien now held or hereafter acquired by Cree
in the Wells Fargo Priority Collateral. Said priority shall be applicable
irrespective of the time or order of attachment or perfection of any Lien or the
time or order of filing of any financing statements, mortgages, or other
documents, or any statutes, rules or law, or court decisions to the contrary. In
the event that Cree receives any of the Wells Fargo Priority Collateral or any
payment or distribution with respect thereto (other than cash payments made by
C&C to Cree outside of a Bankruptcy Event in satisfaction of amounts due and
payable under the Cree Documents) prior to the Wells Fargo Repayment, Cree shall
hold such Wells Fargo Priority Collateral, payment or distribution in trust for
the benefit of Wells Fargo and promptly forward the same to Wells Fargo in the
form received, appropriately endorsed if necessary. The Lien subordination
provisions in this Agreement are for the benefit of and shall be enforceable
directly by Wells Fargo, and Wells Fargo shall be deemed to have extended the
Wells Fargo Debt in reliance upon this Agreement.

 

(b)         Wells Fargo consents to each Obligor’s grant of Liens in the
Collateral in favor of Cree. Wells Fargo and Obligors hereby agree that, to the
extent and in the manner set forth in this Section 2.1, all Liens now or
hereafter acquired by Cree in any or all of the Cree Priority Collateral shall
at all times be prior and superior to any Lien now held or hereafter acquired by
Wells Fargo in the Cree Priority Collateral. Said priority shall be applicable
irrespective of the time or order of attachment or perfection of any Lien or the
time or order of filing of any financing statements, mortgages, deeds of trust
or other documents, or any statutes, rules or law, or court decisions to the
contrary. In the event that Wells Fargo receives any of the Cree Priority
Collateral or any payment or distribution with respect thereto prior to the Cree
Repayment, Wells Fargo shall hold such Cree Priority Collateral, payment or
distribution in trust for the benefit of Cree and promptly forward the same to
Cree in the form received, appropriately endorsed if necessary. The Lien
subordination provisions in this Agreement are for the benefit of and shall be
enforceable directly by Cree, and Cree shall be deemed to have extended the Cree
Debt in reliance upon this Agreement.

 

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(c)          If either Wells Fargo or Cree makes a Permitted Subordination in
favor of any other Person with respect to any Collateral, the priority of the
Liens of the Creditor making such Permitted Subordination vis-à-vis the Liens
therein of the other Creditor shall not be affected, such that the provisions of
Sections 2.1(a) and (b) shall continue to govern the relative priority of Wells
Fargo and Cree in such Collateral.

 

Section 2.2           Disposition of Collateral and Other Remedial Actions by
Wells Fargo.

 

(a)          Cree hereby agrees that, until the Wells Fargo Repayment, Wells
Fargo may dispose of, and exercise any other rights with respect to, any or all
of the Wells Fargo Priority Collateral, free of the Liens of Cree (it being
agreed that Cree shall retain the right to receive any excess proceeds from any
such disposition of any Wells Fargo Priority Collateral after the occurrence of
the Wells Fargo Repayment). Upon any disposition of any of the Wells Fargo
Priority Collateral by Wells Fargo or by any Obligor, Cree (i) agrees, if
requested by Wells Fargo, to execute and immediately deliver any and all
releases or other documents or agreements which Wells Fargo deems necessary to
accomplish a disposition thereof free of the Liens of Cree, and (ii) authorizes
Wells Fargo to record, or cause to have recorded, any UCC financing statements
which Wells Fargo deems necessary to accomplish a disposition thereof free of
the Liens of Cree (it being understood that Wells Fargo shall not be authorized
to release any Lien of Cree with respect to any Cree Priority Collateral).

 

(b)          Until the Cree Repayment, Wells Fargo shall not exercise any rights
or remedies with respect to the Cree Priority Collateral (other than the use of
the Cree Priority Collateral for the purposes described in Section 2.3(a)),
including without limitation the right to (i) enforce any Liens or sell,
repossess or otherwise foreclose on any portion of the Cree Priority Collateral
or (ii) request any action, institute proceedings, give any instructions, or
make any election with respect to any portion of the Cree Priority Collateral.

 

(c)          Following the Cree Repayment, Wells Fargo may exercise any rights
or remedies with respect to the Cree Priority Collateral; provided, however,
that Wells Fargo shall not sell any Cree Priority Collateral consisting of
silicon carbide raw materials in boule form (“Boule Collateral”) without
providing at least 15 days’ prior written notice to Cree of Wells Fargo’s
intention to offer such Boule Collateral for sale. During such 15-day period,
Cree shall be obligated to either (i) repurchase the Boule Collateral for cash
in an amount equal to the price paid by Obligors to Cree for such Boule
Collateral, or (ii) cooperate with Obligors to have such Boule Collateral
converted into SiC slabs, all at the expense of Cree (including labor costs and
reasonably allocated overhead costs). If Cree does not consummate such
repurchase or such conversion for any reason during such 15-day period, then
Wells Fargo shall have the unrestricted right to sell or otherwise dispose of
the Boule Collateral. For avoidance of doubt, nothing herein shall be construed
as requiring Cree to sell any raw materials following a Bankruptcy Event, and,
without prejudice to the other provisions of this Agreement (including Section
2.4), nothing in this paragraph shall be construed as a waiver by Cree of any
rights it may have under the Bankruptcy Code or in respect of any Bankruptcy
Event. Except during any applicable 15-day period in which Cree has a repurchase
or conversion obligation as contemplated hereby, nothing contained in this
paragraph shall be construed to limit the right of Wells Fargo or any Obligor to
convert any Boule Collateral into finished goods Inventory at any time.

 

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Section 2.3          Disposition of Collateral and Other Remedial Actions by
Cree.

 

(a)          Cree hereby agrees that it shall not sell, lease, assign, transfer,
remove or otherwise dispose of all or any portion of the Cree Priority
Collateral, in each case unless, while an event of default exists under the Cree
Documents, Cree gives Wells Fargo at least 30 days’ prior written notice of
Cree’s intention to take such remedial action; provided, however, that if any
Obligor or Wells Fargo shall cure the underlying events of default under the
Cree Documents prior to the taking of such remedial action by Cree, Cree will
not take or continue any remedial action with respect to such event of default
after the date of such cure. Cree hereby agrees that, during such 30-day period,
Wells Fargo may have access to and may use the Cree Priority Collateral without
charge for purposes of holding, processing, manufacturing, selling, using,
storing, liquidating, completing, realizing upon or otherwise disposing of the
Wells Fargo Priority Collateral, and for related and incidental purposes
(including, without limitation, the conversion of the Cree Priority Collateral
into finished goods Inventory, which shall cause such Collateral to constitute
Wells Fargo Priority Collateral). Wells Fargo shall not be liable to Cree for
any diminution of value of the Cree Priority Collateral during such period, but
Wells Fargo shall pay to Cree the cost of repairing any damage to the Cree
Priority Collateral directly caused by Wells Fargo (ordinary wear and tear
excepted). If any stay or other order prohibiting the exercise of remedies with
respect to the Wells Fargo Priority Collateral has been entered by a court of
competent jurisdiction, such 30-day period shall be tolled during the pendency
of any such stay or other order.

 

(b)          Wells Fargo hereby agrees that, following the expiration of the
30-day period contemplated by Section 2.3(a), until the Cree Repayment has
occurred, Cree may dispose of, and exercise any other rights with respect to,
any or all of the Cree Priority Collateral (including retention of the Cree
Priority Collateral as a full satisfaction of the Cree Debt), free of the Liens
of Wells Fargo (it being agreed that Wells Fargo shall retain the right to
receive, after the Cree Debt is repaid in full, any excess proceeds from any
disposition by Cree of any Cree Priority Collateral). Upon any disposition of
any of the Cree Priority Collateral by Cree or by any Obligor, Wells Fargo (i)
agrees, if requested by Cree, to execute and immediately deliver any and all
releases or other documents or agreements which Cree deems necessary to
accomplish a disposition thereof free of the Liens of Wells Fargo, and (ii)
authorizes Cree to record, or cause to have recorded, any UCC financing
statements which Cree deems necessary to accomplish a disposition thereof free
of the Liens of Wells Fargo (it being understood that Cree shall not be
authorized to release any Lien of Wells Fargo with respect to any Wells Fargo
Priority Collateral).

 

(c)          Cree and Obligors agree that Wells Fargo shall have no obligation
to effectuate any cure as contemplated by Section 2.3(a) and that any such cure
effectuated by Wells Fargo on any one occasion shall not obligate Wells Fargo to
effectuate any such cure on any other occasion. Obligors hereby authorize Wells
Fargo to make such payments as Wells Fargo reasonably deems necessary or
appropriate in connection with the Cree Documents in order to protect Wells
Fargo’s interests in the Collateral, and Obligors agree that any funds advanced
by Wells Fargo pursuant to this paragraph or otherwise in connection with the
Cree Documents shall constitute Obligations under and as defined in the Wells
Fargo Credit Agreement.

 

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(d)          Until the Wells Fargo Repayment, Cree shall not exercise any rights
or remedies with respect to the Wells Fargo Priority Collateral, including
without limitation the right to (i) enforce any Liens or sell, repossess or
otherwise foreclose on any portion of the Wells Fargo Priority Collateral or
(ii) request any action, institute proceedings, give any instructions, or make
any election with respect to any portion of the Wells Fargo Priority Collateral.

 

(e)          Nothing in this Agreement shall be construed to limit or impair in
any manner the right of (i) either Creditor otherwise having authority under
applicable law to do so, to bid for and purchase, for cash (in the case of a bid
by Cree with respect to any Wells Fargo Priority Collateral prior to the Wells
Fargo Repayment, or in the case of a bid by Wells Fargo with respect to any Cree
Priority Collateral prior to the Cree Repayment), any Collateral at any private,
public or judicial foreclosure or other sale initiated by the other Creditor,
(ii) either Creditor to seek to join (but not to control or unreasonably delay
in any manner) any foreclosure or other judicial Lien enforcement proceeding
with respect to any of the Collateral initiated by the other Creditor if such
joinder is required under applicable law for such Creditor to be entitled to
receive proceeds of Collateral to the extent allowed by this Agreement, (iii)
either Creditor to receive the proceeds of any authorized Lien enforcement
action in respect of any Collateral in accordance with the terms of this
Agreement, or (iv) either Creditor to file any pleadings, objections or motions
as provided in Sections 2.4(h) and (i). Notwithstanding the foregoing, no
Creditor shall be required at any time to initiate, participate or join in any
private, public or judicial foreclosure or other sale, or any foreclosure or
other judicial Lien enforcement proceeding at any time.

 

Section 2.4           Intercreditor Arrangements in Bankruptcy.

 

(a)          This Agreement shall remain in full force and effect and
enforceable pursuant to its terms in accordance with Section 510(a) of the
Bankruptcy Code, and all references herein to any Obligor shall be deemed to
apply to such Person as debtor in possession and to any trustee in bankruptcy
for the estate of such Person.

 

(b)          (i) Except as otherwise specifically permitted in this Section 2.4,
until the Wells Fargo Repayment, Cree shall not assert without the written
consent of Wells Fargo any claim, motion, objection, or argument in respect of
any Wells Fargo Priority Collateral in connection with any Bankruptcy Event
which could otherwise be asserted or raised in connection with such Bankruptcy
Event by Cree as a secured creditor of any Obligor, including without limitation
any claim, motion, objection or argument seeking adequate protection or relief
from the automatic stay in respect of any Wells Fargo Priority Collateral. (ii)
Except as otherwise specifically permitted in this Section 2.4, until the Cree
Repayment, Wells Fargo shall not assert without the written consent of Cree any
claim, motion, objection, or argument in respect of any Cree Priority Collateral
in connection with any Bankruptcy Event which could otherwise be asserted or
raised in connection with such Bankruptcy Event by Wells Fargo as a secured
creditor of any Obligor, including without limitation any claim, motion,
objection or argument seeking adequate protection or relief from the automatic
stay in respect of any Cree Priority Collateral; provided, however, that Wells
Fargo may assert and exercise the use and access rights with respect to the Cree
Priority Collateral contemplated by Section 2.3(a).

 

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(c)          Without limiting the generality of the foregoing, Cree agrees that
if a Bankruptcy Event occurs, (i) Wells Fargo may consent to the use of cash
collateral on such terms and conditions and in such amounts as Wells Fargo, in
its sole discretion, may decide without seeking or obtaining the consent of
Cree; (ii) Wells Fargo may (A) provide post-petition financing to any Obligor or
(B) consent to the granting of a priming Lien to secure post-petition financing,
in each case pursuant to Section 364 of the Bankruptcy Code or other applicable
law and on such terms and conditions and in such amounts as Wells Fargo, in its
sole discretion, may decide without seeking or obtaining the consent of Cree;
(iii) Cree shall not oppose any Obligor’s use of cash collateral to the extent
that Wells Fargo has consented thereto; and (iv) Cree shall not oppose any sale
or other disposition of any assets comprising part of the Wells Fargo Priority
Collateral (or the sale or bidding procedures with respect thereto) free and
clear of Liens or other claims of any party, including Cree, under Section 363
of the Bankruptcy Code if Wells Fargo has consented to such sale or disposition
of such assets. Cree shall not provide or participate in any post-petition
financing to any Obligor.

 

(d)          Wells Fargo shall not oppose any sale or other disposition of any
assets comprising part of the Cree Priority Collateral free and clear of Liens
or other claims of any party, including Wells Fargo, under Section 363 of the
Bankruptcy Code on the basis that Wells Fargo’s interest in such Cree Priority
Collateral is impaired by such sale or inadequately protected as a result of
such sale if Cree has consented to such sale or disposition of such assets;
provided, however, that any such sale or other disposition of any of the Cree
Priority Collateral shall be subject to Wells Fargo’s use and access rights with
respect to the Cree Priority Collateral contemplated by Section 2.3(a).

 

(e)          Cree agrees that it will not initiate, prosecute, encourage, or
assist with any other Person to initiate or prosecute any claim, action or other
proceeding (i) challenging the validity or enforceability of this Agreement
(whether before, during or after any Bankruptcy Event), (ii) challenging the
validity or enforceability of Wells Fargo’s claim in connection with any
Bankruptcy Event, (iii) challenging the perfection or enforceability of any of
Wells Fargo’s Liens on any of the Collateral (subject to the relative priorities
and limitations on remedies set forth herein), or (iv) asserting any claims
which any Obligor may hold with respect to Wells Fargo or the Wells Fargo Debt,
if any.

 

(f)          Wells Fargo agrees that it will not initiate, prosecute, encourage,
or assist with any other Person to initiate or prosecute any claim, action or
other proceeding (i) challenging the validity or enforceability of this
Agreement (whether before, during or after any Bankruptcy Event), (ii)
challenging the validity or enforceability of Cree’s claim in connection with
any Bankruptcy Event, (iii) challenging the perfection or enforceability of any
of Cree’s Liens on any of the Collateral (subject to the relative priorities and
limitations on remedies set forth herein), or (iv) asserting any claims which
any Obligor may hold with respect to Cree or the Cree Debt, if any.

 

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(g)          (i) To the extent that Wells Fargo receives payments or transfers
on the Wells Fargo Debt or proceeds of the Collateral which are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law, or equitable cause, then, to
the extent of such payment or proceeds received, the Wells Fargo Debt, or part
thereof, intended to be satisfied shall be revived and continue in full force
and effect as if such payments or proceeds had not been received by Wells Fargo.
(ii) To the extent that Cree receives payments or transfers on the Cree Debt or
proceeds of the Collateral which are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law, or equitable cause, then, to the extent of such payment or proceeds
received, the Cree Debt, or part thereof, intended to be satisfied shall be
revived and continue in full force and effect as if such payments or proceeds
had not been received by Cree.

 

(h)          Notwithstanding any other provision of this Section 2.4, (i) Cree
shall be entitled to file any necessary responsive or defensive pleadings in
opposition to any motion, claim, adversary proceeding or other pleading made by
any Person objecting to or otherwise seeking the disallowance of the claims of
Cree, including without limitation any claims secured by the Collateral, if any,
and (ii) Cree shall be entitled to file any pleadings, objections, motions or
agreement which assert rights or interests available to unsecured creditors of
the applicable Obligor arising under either the Bankruptcy Code or applicable
non-bankruptcy law.

 

(i)          Notwithstanding any other provision of this Section 2.4, (i) Wells
Fargo shall be entitled to file any necessary responsive or defensive pleadings
in opposition to any motion, claim, adversary proceeding or other pleading made
by any Person objecting to or otherwise seeking the disallowance of the claims
of Wells Fargo, including without limitation any claims secured by the
Collateral, if any, and (ii) Wells Fargo shall be entitled to file any
pleadings, objections, motions or agreement which assert rights or interests
available to unsecured creditors of the applicable Obligor arising under either
the Bankruptcy Code or applicable non-bankruptcy law.

 

Section 2.5           Relative Rights.

 

(a)          Nothing contained in this Agreement is intended to or shall affect
the relative rights of Wells Fargo or Cree, on the one hand, and other creditors
of any Obligor, on the other hand.

 

(b)          All rights and interests of Wells Fargo and Cree hereunder, and all
agreements and obligations of Cree and Wells Fargo hereunder, shall remain in
full force and effect irrespective of:

 

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(i)          any lack of validity or enforceability of any Wells Fargo Document
or any other agreement or instrument relating thereto, or of any Cree Document
or any other agreement or instrument relating thereto;

 

(ii)         any change in the time, manner or place of, or in any other term
of, all or any of the Wells Fargo Debt, or any amendment or waiver of or any
consent to departure from any provision of the Wells Fargo Credit Agreement or
any other Wells Fargo Document;

 

(iii)        any change in the time, manner or place of, or in any other term
of, all or any of the Cree Debt, or any amendment or waiver of or any consent to
departure from any provision of any Cree Document;

 

(iv)      any exchange, release, nonperfection, or unenforceability of any Lien
on any Collateral, or any release or amendment or waiver of or consent to
departure from any guarantee, for all or any of the Wells Fargo Debt or the Cree
Debt; or

 

(v)          any other circumstances which might otherwise constitute a defense
available to, or a discharge of, any Obligor in respect of the Wells Fargo Debt,
or of the Cree Debt, in respect of this Agreement.

 

Section 2.6           No Other Beneficiaries of Lien Subordination. This
Agreement and the subordination provisions contained herein are intended only
for the benefit of Wells Fargo and Cree, but not any Obligor or any other
creditor of any Obligor.

 

Section 2.7           Waivers.

 

(a)          Neither Wells Fargo nor Cree shall have any liability or duty of
any kind, nature or origin to the other with respect to the subject matter of
this Agreement, express or implied, except as set forth in this Agreement.

 

(b)          Cree hereby waives and releases any claim which Cree may now or
hereafter have against Wells Fargo arising out of any and all actions which
Wells Fargo takes or omits to take with respect to any Obligor, any Collateral
or any Wells Fargo Document (so long as such action or inaction does not
constitute a breach by Wells Fargo with respect to any of its obligations
hereunder), including without limitation, (i) actions with respect to the
creation, perfection or continuation of Liens on the Collateral and other
security for the Wells Fargo Debt, (ii) actions with respect to the occurrence
of any default or event of default by any Obligor under the Wells Fargo Credit
Agreement or the other Wells Fargo Documents, (iii) action with respect to the
repossession of, foreclosure upon, sale, release, or depreciation of, or failure
to realize upon, any of the Wells Fargo Priority Collateral, (iv) actions with
respect to the collection of any claim for all or any part of the Wells Fargo
Debt from any account debtor, guarantor or any other party, (v) any other action
with respect to the enforcement of the Wells Fargo Documents or the valuation,
use, protection or disposition of the Collateral or any other security for the
Wells Fargo Debt and (vi) the election of Wells Fargo, in any proceeding
instituted under Chapter 11 of the Bankruptcy Code, for application of Section
1111(b) of the Bankruptcy Code.

 

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(c)          Wells Fargo hereby waives and releases any claim which Wells Fargo
may now or hereafter have against Cree arising out of any and all actions which
Cree takes or omits to take with respect to any Obligor, any Collateral or any
Cree Document (so long as such action or inaction does not constitute a breach
by Cree with respect to any of its obligations hereunder), including without
limitation, (i) actions with respect to the creation, perfection or continuation
of Liens on the Collateral and other security for the Cree Debt, (ii) actions
with respect to the occurrence of any default or event of default by any Obligor
under the Cree Documents, (iii) action with respect to the repossession of,
foreclosure upon, sale, release, or depreciation of, or failure to realize upon,
any of the Cree Priority Collateral, (iv) actions with respect to the collection
of any claim for all or any part of the Cree Debt from any account debtor,
guarantor or any other party, (v) any other action with respect to the
enforcement of the Cree Documents or the valuation, use, protection or
disposition of the Collateral or any other security for the Cree Debt and (vi)
the election of Cree, in any proceeding instituted under Chapter 11 of the
Bankruptcy Code, for application of Section 1111(b) of the Bankruptcy Code.

 

Section 2.8           Remedies.

 

(a)           Rights Cumulative. (i) The rights and remedies of Wells Fargo
under this Agreement, the Wells Fargo Credit Agreement and the other Wells Fargo
Documents shall be cumulative and not exclusive of any rights or remedies which
Wells Fargo would otherwise have. In exercising such rights and remedies Wells
Fargo may be selective and no failure or delay by Wells Fargo in exercising any
right shall operate as a waiver of such right, nor shall any partial or single
exercise of any power or right preclude its other or further exercise or the
exercise of any other power or right. (ii) The rights and remedies of Cree under
this Agreement and the Cree Documents shall be cumulative and not exclusive of
any rights or remedies which Cree would otherwise have. In exercising such
rights and remedies Cree may be selective and no failure or delay by Cree in
exercising any right shall operate as a waiver of such right, nor shall any
partial or single exercise of any power or right preclude its other or further
exercise or the exercise of any other power or right.

 

(b)           Waiver of Marshalling. Each of Wells Fargo and Cree hereby waives
any right to require marshalling of assets by Wells Fargo or Cree and any
similar rights.

 

Section 2.9           Provisions Concerning Insurance. Proceeds of Collateral
include insurance and condemnation proceeds (including proceeds of business
interruption insurance), and therefore the priorities set forth in Section 2.1
govern the ultimate disposition of insurance and condemnation proceeds. Proceeds
of business interruption insurance shall be deemed for the purposes hereof to be
Wells Fargo Priority Collateral. Wells Fargo shall have the sole and exclusive
right, as against Cree, to adjust settlement of insurance claims in the event of
any covered loss, theft or destruction of any Wells Fargo Priority Collateral
and any insurance proceeds in respect of any business interruption insurance.
Cree shall have the sole and exclusive right, as against Wells Fargo, to adjust
settlement of insurance claims in the event of any covered loss, theft or
destruction of any Cree Priority Collateral. Each of Wells Fargo and Cree shall
cooperate with the other Creditor to facilitate the payment of insurance and
condemnation proceeds to the Creditor having priority in such insurance and
condemnation proceeds. Wells Fargo shall have the right, as against Cree, to
determine whether insurance proceeds which constitute Wells Fargo Priority
Collateral or direct proceeds thereof may be used to replace any affected Wells
Fargo Priority Collateral. Cree shall have the right, as against Wells Fargo, to
determine whether insurance proceeds which constitute Cree Priority Collateral
or direct proceeds thereof may be used to replace any affected Cree Priority
Collateral.

 

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ARTICLE 3

MISCELLANEOUS

 

Section 3.1           Successors; Continuing Effect. This Agreement is being
entered into for the benefit of, and shall be binding upon, (a) Wells Fargo and
its successors and assigns, including subsequent holders of Wells Fargo Debt,
and the term “Wells Fargo” shall include any such subsequent or additional
holder of Wells Fargo Debt, wherever the context permits, and (b) Cree and its
successors and assigns, including subsequent holders of the Cree Debt, and the
term “Cree” shall include any such subsequent or additional holder of Cree Debt,
wherever the context permits. Cree shall not assign all or any portion of the
Cree Debt or any Lien of the Cree securing any Cree Debt unless the proposed
assignee executes and delivers to Wells Fargo a written acknowledgment in form
and substance reasonably acceptable to Wells Fargo that such assignee is bound
by the terms and conditions of this Agreement. Wells Fargo shall not assign all
or any portion of the Wells Fargo Debt or any Lien of Wells Fargo securing any
Wells Fargo Debt unless the proposed assignee executes and delivers to Cree a
written acknowledgment in form and substance reasonably acceptable to Cree that
such assignee is bound by the terms and conditions of this Agreement.

 

Section 3.2           Further Assurances. Each party hereto will, at any time
and from time to time, promptly execute and/or authorize and deliver all further
instruments and documents, and take all further action, that any other party
hereto may reasonably request in order to perfect or otherwise protect any right
or interest granted or purported to be granted hereby or to enable Wells Fargo
or Cree to exercise and enforce its rights and remedies hereunder, including,
without limitation, appropriate amendments to financing statements authorized by
any Obligor in favor of Cree or Wells Fargo in order to refer to this Agreement
(but this Agreement shall remain fully effective notwithstanding any failure to
execute any additional documents or instruments). Without limiting the
generality of the foregoing, in connection with any refinancing or replacement
of all or any portion of the Wells Fargo Debt, Cree agrees, if requested by
Wells Fargo, to promptly execute an intercreditor and lien subordination
agreement substantively similar to this Agreement in favor of the new lender.

 

Section 3.3           Expenses. Obligors shall pay to Wells Fargo, upon demand,
the amount of any and all expenses, including, without limitation, the
reasonable fees and expenses of counsel for Wells Fargo, which Wells Fargo may
incur in connection with the exercise or enforcement of any of its rights or
interests vis-à-vis any Obligor or Cree, and all such amounts shall constitute
part of the Wells Fargo Debt. Obligors shall pay to Cree, upon demand, the
amount of any and all expenses, including, without limitation, the reasonable
fees and expenses of counsel for Cree, which Cree may incur in connection with
the exercise or enforcement of any of its rights or interests vis-à-vis any
Obligor or Wells Fargo, and all such amounts shall constitute part of the Cree
Debt.

 

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Section 3.4           Notices; Amendments, Etc.

 

(a)          All notices, requests and demands to or upon the parties to this
Agreement to be effective shall be in writing and shall be deemed to have been
duly given or made (i) when delivered by hand or (ii) three business days after
being deposited in the mail, postage prepaid or (iii) one business day after
being sent by priority overnight mail with an internationally recognized
overnight delivery carrier, at the address for the applicable party set forth
below:

 

If to Wells Fargo at:

 

Wells Fargo Bank, National Association

1100 Abernathy Road, NE - Suite 1600

MAC Code: G0189-60

Atlanta, Georgia 30328

Attn: Portfolio Manager (Charles & Colvard)

 

If to Cree at:

 

Cree, Inc.

4600 Silicon Drive

Durham, North Carolina 27703

Attn.: General Counsel

 

If to one or more Obligors at:

 

Charles & Colvard, Ltd.

170 Southport Drive

Morrisville, North Carolina 27560

Attn: Chief Financial Officer

 

The parties to this Agreement may change their addresses for notices by
providing written notice of such new address to the other parties hereto.

 

(b)          This Agreement may be amended and the terms hereof may be waived
only with the written consent of Cree and Wells Fargo, or their authorized
successors and assigns, and no consent of any Obligor shall be required in order
to amend this Agreement except to the extent any such amendment materially
affects any rights or obligations of such Obligor under any Cree Documents or
Wells Fargo Documents.

 

Section 3.5           Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction, shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or invalidity without
invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.

 

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Section 3.6           GOVERNING LAW; WAIVER OF JURY TRIAL. THIS AGREEMENT HAS
BEEN DELIVERED AND ACCEPTED IN AND SHALL BE DEEMED TO HAVE BEEN MADE IN ATLANTA,
GEORGIA AND SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES
HERETO DETERMINED, IN ACCORDANCE WITH THE LAWS AND DECISIONS OF THE STATE OF
GEORGIA WITHOUT REGARD TO ITS CONFLICTS OF LAW RULES. WELLS FARGO, CREE AND
OBLIGORS EACH CONSENT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT
LOCATED IN FULTON COUNTY, GEORGIA AND WAIVES TRIAL BY JURY AND WAIVES ANY
OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER, AND
FURTHER AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE.

 

Section 3.7           Entire Agreement. This Agreement embodies the entire
agreement and understanding of the parties hereto regarding the subject matter
hereof.

 

Section 3.8          Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one agreement.

 

[Signatures appear on following pages]

 

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IN WITNESS WHEREOF, the undersigned have caused this Intercreditor Agreement to
be duly executed and delivered by their respective duly authorized officers on
the date and year first above written.

 

  CHARLES & COLVARD, LTD.         By: /s/ Kyle S. Macemore   Kyle S. Macemore,
Senior Vice President and Chief Financial Officer         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
        CREE, INC.         By: /s/ David T. Emerson   Name:  David T. Emerson  
Title: Vice-President -LEDs         Wells Fargo BANK, NATIONAL ASSOCIATION      
  By: /s/ Arthur R. Cordwell, Jr.   Arthur R. Cordwell, Jr., Authorized
Signatory