Exhibit 10.1

 

FOURTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT

 

This Fourth Amendment to Credit and Security Agreement, dated as of June 22,
2017 (this “Agreement”), is made by and among WELLS FARGO BANK, NATIONAL
ASSOCIATION (“Lender”), CHARLES & COLVARD, LTD., a North Carolina corporation
(“Parent”), CHARLES & COLVARD DIRECT, LLC, a North Carolina limited liability
company (“C&C Direct”), and CHARLESANDCOLVARD.COM, LLC, a North Carolina limited
liability company formerly known as MOISSANITE.COM, LLC (“C&C.com”; Parent, C&C
Direct and C&C.com are sometimes referred to herein individually as a “Borrower”
and collectively as the “Borrowers”).

 

W I T N E S S E T H :

 

WHEREAS, Borrowers and Lender are parties to a certain Credit and Security
Agreement dated as of June 25, 2014 (as amended, restated or otherwise modified
from time, the “Credit Agreement”); and

 

WHEREAS, Borrowers and Lender desire to amend the Credit Agreement and the other
Loan Documents pursuant to the terms and subject to the conditions set forth
herein.

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements herein contained, it is agreed as follows:

 

1.       Defined Terms. Capitalized terms used in this Agreement which are
defined in the Credit Agreement shall have the same meanings as defined therein,
unless otherwise defined herein.

 

2.       Extension of Stated Maturity Date. The Credit Agreement is hereby
amended by deleting the reference to “June 25, 2017” in clause (i) of Section
2.9 and substituting “June 25, 2018” in lieu thereof.

 

3.       Addition of EBITDA Covenant. The Credit Agreement is hereby amended by
inserting the following new Section 8(c):

 

(c)       EBITDA. Borrowers shall maintain EBITDA (as defined below), measured
monthly, of not less than the required amount set forth in the table below for
the applicable period set forth opposite thereto; provided, however, that
Borrowers shall not be required to comply with such EBITDA covenant unless and
until a Triggering Event (as defined below) occurs, in which case Borrowers
shall comply with such covenant for each calendar month beginning with the month
most recently ended prior to such Triggering Event:

 

Minimum EBITDA Applicable Period Negative $1,177,000 January 1, 2017 through and
including May 31, 2017 Negative $1,339,000 January 1, 2017 through and including
June 30, 2017 Negative $1,478,000 January 1, 2017 through and including July 31,
2017 Negative $1,339,000 January 1, 2017 through and including August 31, 2017

 

 

 

Negative $1,093,000 January 1, 2017 through and including September 30, 2017
Negative $925,000 January 1, 2017 through and including October 31, 2017
Negative $526,000 January 1, 2017 through and including November 30, 2017
$23,000 January 1, 2017 through and including December 31, 2017

 

As used herein, “EBITDA” means, with respect to any fiscal period, determined in
each case for Borrowers on a consolidated basis in accordance with GAAP:

 

(x)       the consolidated net income (or loss),

 

minus

 

(y)       without duplication, the sum of the following amounts for such period
to the extent included in determining consolidated net income (or loss) for such
period:

 

(i)extraordinary gains, and

 

(ii)interest income,

 

plus

 

(z)       without duplication, the sum of the following amounts for such period
to the extent included in determining consolidated net income (or loss) for such
period:

 

(i)non-cash extraordinary losses,

 

(ii)interest expense,

 

(iii)income taxes,

 

(iv)depreciation and amortization,

 

(v)stock based compensation, and

 

(vi)bonus expense.

 

As used herein, “Triggering Event” means either of (1) the cash position for
Borrowers’ demand deposit account number ______________ maintained with Lender
falls below $3,000,000 at any time, or (2) Revolver Usage is greater than zero
at any time.

 

4.       Decrease in Applicable Margin. The Credit Agreement is hereby amended
by deleting the definition of “Applicable Margin” set forth in Schedule 1.1 to
the Credit Agreement and substituting the following in lieu thereof:

 

 2 

 

“Applicable Margin” means 2.00 percentage points when the Interest Rate is based
on Daily Three Month LIBOR and 1.00 percentage points when the Interest Rate is
based on the Prime Rate.

 

5.       Increase in Advance Rate for Eligible Inventory; Appraisal as Condition
to Advances Based on Inventory. The Credit Agreement is hereby amended by
deleting the definition of “Borrowing Base” set forth in Schedule 1.1 to the
Credit Agreement and substituting the following in lieu thereof:

 

“Borrowing Base” means, as of any date of determination, the result of:

 

(a)85% of the amount of Eligible Accounts, plus

 

(b)the lowest of (i) 70% of Borrowers’ cost with respect to Eligible Inventory,
or (ii) 85% times the most recently determined Net Liquidation Percentage times
the Value of Eligible Inventory, plus

 

(c)the lowest of

 

(i)the Ex-Im Subfacility Amount, or

 

(ii)the sum of:

 

(A)90% of the amount of Eligible Foreign Accounts, plus

 

(B)the lowest of (1) 75% of Borrowers’ cost with respect to Eligible
Export-Related Inventory, or (2) 85% times the most recently determined Net
Liquidation Percentage times the Value of Eligible Export-Related Inventory;
minus

 

(b)the Ex-Im Bank Reserve, minus

 

(c)the aggregate amount of Reserves other than the Ex-Im Bank Reserve, if any.

 

In addition to and without limiting any of the foregoing limitations: (y) the
aggregate outstanding amount of Advances made and Letters of Credit issued
against the value of Eligible Inventory and Eligible Export-Related Inventory
shall not exceed the Inventory Sublimit at any time, and (z) in addition to the
other terms and conditions set forth in this Agreement, Lender shall not have
any obligation to make any Advance or issue any Letter of Credit against the
value of any Eligible Inventory or any Eligible Export-Related Inventory unless
and until (i) Borrowers provide Lender with written notice of their intention to
borrower against such assets, (ii) Lender obtains a satisfactory appraisal of
Borrowers’ Inventory, and (iii) notwithstanding any other restrictions or
limitations on Borrowers’ obligation to reimburse Lender for Inventory
appraisals set forth herein, Borrowers have reimbursed Lender for the cost of
such appraisal.

 

6.       Reduction of Letter of Credit Fee. The Credit Agreement is hereby
amended by deleting the reference to “2.50%” in clause (c) entitled “Letter of
Credit Fees” in Schedule 2.12 to the Credit Agreement and substituting “2.00%”
in lieu thereof.

 

7.       No Other Changes. Except as explicitly amended or waived by this
Agreement, all of the terms and conditions of the Credit Agreement shall remain
in full force and effect and shall apply to any Loan or Letter of Credit
thereunder.

 

 3 

 

8.       Representations and Warranties. Each Borrower hereby represents and
warrants to Lender as follows:

 

(a)       Such Borrower has all requisite power and authority to execute this
Agreement and to perform all of its obligations hereunder, and this Agreement
has been duly executed and delivered by such Borrower and constitutes the legal,
valid and binding obligation of such Borrower, enforceable in accordance with
its terms.

 

(b)       The execution, delivery and performance by such Borrower of this
Agreement have been duly authorized by all necessary corporate and limited
liability company action and do not (i) require any authorization, consent or
approval by any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision of any law,
rule or regulation or of any order, writ, injunction or decree presently in
effect, having applicability to such Borrower, or the articles of incorporation,
by-laws, articles of organization or limited liability company agreement, as
applicable, of such Borrower, or (iii) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which such Borrower is a party or by which it or its
properties may be bound or affected.

 

(c)       All of the representations and warranties of the Borrowers contained
in the Credit Agreement are correct in all material respects on and as of the
date hereof as though made on and as of such date.

 

9.       References. All references in the Credit Agreement to “this Agreement”
shall be deemed to refer to the Credit Agreement as amended hereby; and any and
all references in the other Loan Documents to the Credit Agreement shall be
deemed to refer to the Credit Agreement as amended hereby.

 

10.       No Waiver. Except as expressly set forth herein, the execution of this
Agreement and acceptance of any documents related hereto or thereto shall not be
deemed to be a waiver of any Default or Event of Default under the Credit
Agreement or breach, default or event of default under any Loan Document or
other document held by Lender, whether or not known to Lender and whether or not
existing on the date of this Agreement.

 

11.       Release. Each Borrower hereby absolutely and unconditionally releases
and forever discharges Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents, attorneys and employees of any of the
foregoing, from any and all claims, demands or causes of action of any kind,
nature or description, whether arising in law or equity or upon contract or tort
or under any state or federal law or otherwise, which such Borrower has had, now
has or has made claim to have against any such Person for or by reason of any
act, omission, matter, cause or thing whatsoever arising from the beginning of
time to and including the date of this Agreement, whether such claims, demands
and causes of action are matured or unmatured or known or unknown.

 

12.       Costs and Expenses. Each Borrower hereby reaffirms its agreement under
the Credit Agreement to pay or reimburse Lender on demand for all costs and
expenses incurred by Lender in connection with the Loan Documents, including
without limitation all reasonable fees and disbursements of legal counsel.
Without limiting the generality of the foregoing, Borrowers specifically agree
to pay all reasonable fees and disbursements of counsel to Lender for the
services performed by such counsel in connection with the preparation of this
Agreement and the documents and instruments incidental hereto. Borrowers hereby
agree that Lender may, at any time or from time to time in its sole discretion
and without further authorization by Borrowers, make one or more Advances to
Borrowers under the Credit

 4 

 

Agreement, or apply the proceeds of any Advance, for the purpose of paying any
such fees, disbursements, costs and expenses in connection with this Agreement.

 

13.       Miscellaneous. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement on separate
counterparts, each of which, when so executed and delivered, shall be deemed an
original, and all of which counterparts, taken together, shall constitute one
and the same instrument. Any signature delivered by a party by facsimile or
electronic mail transmission shall be deemed to be an original signature hereto.
Delivery of an executed counterpart of this Agreement by facsimile or electronic
mail shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by facsimile or electronic mail also shall deliver an original
executed counterpart of this Agreement, but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and binding
effect of this Agreement.

 

14.       Governing Law. This Agreement shall be governed by and construed in
accordance with the substantive laws (other than conflict laws) of the State of
Georgia.

 

 

[SIGNATURES ON NEXT PAGE]

 5 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to
Credit and Security Agreement to be duly executed as of the date first written
above.

 

  Wells Fargo Bank, National Association                   By: /s/ Arthur R.
Cordwell, Jr.     Arthur R. Cordwell, Jr., Authorized Signatory                
  CHARLES & COLVARD, LTD.                   By: /s/ Clint J. Pete     Name:
Clint J. Pete   Title: Chief Financial Officer and Treasurer                  
CHARLES & COLVARD DIRECT, LLC                   By: /s/ Clint J. Pete     Name:
Clint J. Pete   Title: Manager                   CHARLESANDCOLVARD.COM, LLC    
              By: /s/ Clint J. Pete     Name: Clint J. Pete   Title: Manager

 

 6