Exhibit 10.50
 
August 5, 2002
 
Robert S. Thomas
  
Charles M. Swoboda
President & CEO
  
President & CEO
Charles & Colvard, Ltd.
  
Cree, Inc.
3800 Gateway Blvd. Suite 310
  
4600 Silicon Drive
Morrisville, NC 27560
  
Durham, NC 27703

 
This letter, when signed on behalf of Charles & Colvard, Ltd. (formerly C3 Inc.)
and Cree, Inc., will serve as an agreement between Charles & Colvard and Cree
amending the parties’ March 8, 2002 letter agreement to provide the following
terms, effective on and after July 1, 2002. As defined in the March 8, 2002
letter agreement, the development agreement will expire upon Charles & Colvard’s
purchasing the quantity of SiC production crystals specified in that agreement.
 

 
1.
 
Cree will supply SiC production crystals to Charles & Colvard, and Charles &
Colvard will purchase SiC production crystals from Cree, according to the terms
stated in this agreement.

 

 
2.
 
Charles & Colvard will purchase “usable material” (determined in the manner
described in Paragraph3) at a price of $XXXX and according to the following
quantities and schedule for the period of six months beginning July 1, 2002.
Prices for purchases after calendar 2002 will be mutually agreed in writing from
time to time.

 
Delivery Period

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Quantity (kg)

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7/1/02–9/29/02
  
XX
9/30/02–12/29/02
  
XX

 
Provided that Cree uses its best commercially reasonable efforts to deliver the
quantities of usable material required by this agreement, Cree will not be held
in breach for delays in delivery.
 

 
3.
 
The quantity of “usable material” of crystals delivered to Charles & Colvard
pursuant to this agreement will be determined according to the following:

 

 
A.
 
Material will be graded according to specifications in Attachment A.

 

 
B.
 
Grams of usable material will be calculated on a crystal by crystal basis
according to the following equation: (usable mm) as a percent of total length of
the crystal in mm multiplied by the actual weight of the crystal in grams.
“Usable mm” means millimeters of usable material as defined in Attachment A.

 

 
C.
 
Crystals shipped to Charles & Colvard must contain at least XX grams of usable
material for the 2” crystals or XX grams for 3” crystals. This usable area must
be contiguous. Crystal diameter to be shipped will be 2” or 3” as determined by
Cree.

 

 
4.
 
Charles & Colvard agrees to purchase a minimum of XX of “usable material”
(calculated in the manner described in Paragraph 3) each quarter during calendar
2003. For each quarter in calendar 2003 and thereafter, Charles & Colvard will
provide Cree its minimum volume requirements in the form of firm purchase orders
at least 30 days in advance of the quarter. For each quarter during the period
beginning January 2003 and ending September 2007, in the event that (i) the
minimum volume requirements of Charles & Colvard fall below XX per quarter and
(ii) Cree has not utilized on a daily basis as described below, for production
for Charles & Colvard or for other

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Cree production, at least XX crystal growers designated by Cree for the
production of materials for Charles & Colvard, then Charles & Colvard agrees to
pay Cree an unused capacity charge for the under utilized portion such crystal
growers, up to a maximum charge of $111,222 per quarter. The charge per grower
will be calculated as the product of $XXXXXX per day times the number of days
during the quarter on which no production runs were started in the grower for
production for Charles & Colvard or for other Cree production. Cree will invoice
the unused capacity charge on a quarterly basis on or after the last business
day of each quarter; payment is due 30 days after the invoice date. As used in
this agreement, “quarter” refers to fiscal quarters of Cree ending during the
indicated period.
 

 
5.
 
Except as provided above, the supply and purchase of SiC material will be
governed by the terms and conditions of the parties’ Supply Agreement, as
amended.

 

 
6.
 
The contents of this letter shall be considered “Confidential Information” of
each party subject to the provisions of Section 5 of the Supply Agreement, as
amended.

 
CHARLES & COLVARD, LTD.
     
CREE, INC.
By:
 
/s/  Robert S. Thomas

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By:
 
/s/  Charles M. Swoboda

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Robert S. Thomas
President & CEO
Charles & Colvard Ltd.
         
Charles M. Swoboda
President & CEO
Cree, Inc.

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ATTACHMENT A
 
Specification of usable material as referenced in paragraph 2 above.
 
COLOR:  Usable material is calculated as “light gray” or “very light gray”.
Specifically tone/color number 20 and 10 1 as used in the Charles & Colvard
boule-grading screen will be considered acceptable tone and color material
(note: grade 10 is preferred. Grade 20 material will be valued at $XXXX
per-gram).
 
DEFECTS:
Material volume of acceptable color will be reduced by the percentage of the
defects listed in the table below. Charles & Colvard shall set the acceptable
standards for the quality of both the color and defects of all material
purchased pursuant to this letter agreement. For pricing purposes the grading of
the material by both Cree and Charles & Colvard will adhere to those standards
from which a baseline has been established during the grading of 206 crystals
during the first quarter of 2002. Should Charles & Colvard deem current
standards or new defects unacceptable, then it can request changes to the
standards or to the list of price reducing defects. At such time Cree has the
option to make changes to its materials pricing and/or volume commitments.
 
ID
  
D-Type
    
1
  
XXXX
  
Reduce
2
  
XXXX
  
Reduce
3
  
XXXXX
  
Reduce
4
  
XXXXX
  
No reduction
5
  
XXXXX
  
Reduce
6
  
XXXXXX
  
Reduce
7
  
XXXXXXXXXXXXXXXXXXXXXXXXX
  
No reduction
8
  
XXXX
  
Reduce
9
  
XXXXXXXXX
  
Reduce

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1
 
CH0257R 17.4mm tone/color 20 (lightest 20), new gray boules that are lighter
than this will grade as 10, CE0269R 9.5mm tone/color 30 (lightest 30), new gray
boules that are lighter than this will grade as 20

 
2
 
Grading standards representing xxxxxxxxxx = CF0228R (30%med.), CF0229R
(15%med.), CF0230R (50%med.), CE0270R (100%med.) & CE0264R (100%med.).

 
3
 
xxxxxxxxxxxxxxxxxxxxxxxxxx are represented by boule numbers CF0226R, CH0257R,
CH0258R, CH0260R, CH0262R, CJ0192R, CS0165R, CS0166R, CS0168R, CS0169R.

 
4
 
Crystals CC0213R, CH0165R and CH0215R represent xxxxxxxxxxx grading.