Exhibit 10.1


 


CHARLES & COLVARD, LTD.


 


2018 EQUITY INCENTIVE PLAN


 


1.           Purpose;
Eligibility.


 


1.1           General
Purpose. The name of this plan is the Charles & Colvard, Ltd. 2018 Equity Incentive Plan (the “Plan”).
The purposes of the Plan are to (a) enable Charles & Colvard, Ltd., a North Carolina corporation (the “Company”),
and any Affiliate to attract and retain the types of Employees, Consultants and Directors who will contribute to the Company’s
long-term success; (b) provide incentives that align the interests of Employees, Consultants and Directors with those of the shareholders
of the Company; and (c) promote the success of the Company’s business.


 


1.2           Eligible
Award Recipients. The persons eligible to receive Awards are the Employees, Consultants and Directors of the Company and its
Affiliates and such other individuals as may be designated by the Committee, in the Committee’s sole discretion, who are
reasonably expected to become Employees, Consultants and Directors after the receipt of Awards.


 


1.3           Available
Awards. Awards that may be granted under the Plan include: (a) Incentive Stock Options, (b) Nonqualified Stock Options, (c)
Stock Appreciation Rights, (d) Restricted Awards, (e) Performance Share Awards, (f) Cash Awards, and (g) Other Equity-Based Awards
not inconsistent with the terms of this Plan as the Committee, in the Committee’s discretion, may determine from time to
time.


 


2.           Definitions.


 


“Administrator” means the
Board, and upon its delegation of all or part of its authority to administer the Plan to the Committee, the Committee.


 


“Affiliate” means a corporation
or other entity that, directly or through one or more intermediaries, controls, is controlled by or is under common control with,
the Company.


 


“Applicable Laws” means
the requirements related to or implicated by the administration of the Plan under applicable state corporate law, United States
federal and state securities laws, the Code, any stock exchange or quotation system on which the shares of Common Stock are listed
or quoted, and the applicable laws of any foreign country or jurisdiction where Awards are granted under the Plan.


 


“Award” means any right
granted under the Plan, including an Incentive Stock Option, a Nonqualified Stock Option, a Stock Appreciation Right, a Restricted
Award, a Performance Share Award, a Cash Award, or an Other Equity-Based Award.


 


“Award Agreement” means
a written agreement, contract, certificate or other instrument or document (along with any amendments or supplements thereto) evidencing
the terms and conditions of an individual Award granted under the Plan which may, in the discretion of the Company, be transmitted
electronically to any Participant. Each Award Agreement shall be subject to the terms and conditions of the Plan as well as state
such other terms, conditions, and restrictions, including but not limited to terms, conditions and restrictions applicable to shares
or any other benefit underlying an Award, as may be established by the Committee.


 






     


     


    

 


“Beneficial Owner” has
the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular Person, such Person shall be deemed to have beneficial ownership of all securities that such Person
has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable
only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding
meaning.


 


“Board” means the Board
of Directors of the Company, as constituted at any time.


 


“Cash Award” means an Award
denominated in cash that is granted under Section 7.4 of the Plan.


 


“Cause” means:


 


With respect to any Employee or Consultant,
unless the applicable Award Agreement states otherwise:


 


(a) If the Employee or Consultant is a party
to an employment or service agreement with the Company or its Affiliates and such agreement provides for a definition of Cause,
the definition contained therein; or


 


(b) If no such agreement exists: (i) the commission
of, or plea of guilty or no contest to, a felony or a crime involving moral turpitude or the commission of any other act involving
willful malfeasance or material fiduciary breach with respect to the Company or an Affiliate; (ii) conduct that results in or is
reasonably likely to result in harm to the reputation or business of the Company or any of its Affiliates; (iii) gross negligence
or willful misconduct with respect to the Company or an Affiliate; or (iv) material violation of state or federal securities laws.


 


With respect to any Director, unless the
applicable Award Agreement states otherwise, a determination by a majority of the disinterested Board members that the Director
has engaged in any of the following:


 


(a) malfeasance in office;


 


(b) gross misconduct or neglect;


 


(c) false or fraudulent misrepresentation
inducing the director’s appointment;


 


(d) wilful conversion of corporate funds;
or


 


(e) repeated failure to participate in
Board meetings on a regular basis despite having received proper notice of the meetings in advance.


 






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Without in any way limiting the effect of
the foregoing, for purposes of the Plan and an Award, a Participant’s employment or service shall be deemed to have terminated
for Cause if, after the Participant’s employment or service has terminated, facts and circumstances are discovered that would
have justified, in the Committee’s opinion, a termination for Cause. The Committee, in the Committee’s absolute discretion,
shall determine the effect of all matters and questions relating to whether a Participant has been discharged for Cause.


 


“Change in Control” means,
unless the applicable Award Agreement expressly states otherwise, the occurrence of the following:


 


(a) One Person (or more than one Person
acting as a group) acquires ownership of stock of the Company that, together with the stock held by such person or group, constitutes
more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; provided, that,
a Change in Control shall not occur if any Person (or more than one Person acting as a group) owns more than fifty percent (50%)
of the total fair market value or total voting power of the Company’s stock and acquires additional stock;


 


(b) One person (or more than one person
acting as a group) acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition)
ownership of the Company’s stock possessing thirty percent (30%) or more of the total voting power of the stock of such corporation;


 


(c) A majority of the members of the Board
are replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the Board
before the date of appointment or election; or


 


(d) One person (or more than one person
acting as a group), acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition)
assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross
fair market value of all of the assets of the Company immediately before such acquisition(s).


 


“Code” means the Internal
Revenue Code of 1986, as it may be amended from time to time. Any reference to a section of the Code shall be deemed to include
a reference to any regulations promulgated thereunder.


 


“Committee” means the Compensation
Committee of the Board or such other committee comprised of one or more members of the Board and appointed to administer the Plan
in whole or in part in accordance with Section 3.3 and Section 3.4.


 


“Common Stock” means the
common stock, no par value per share, of the Company, or such other securities of the Company as may be designated by the Committee
from time to time in substitution thereof.


 


“Company” means Charles & Colvard, Ltd., a North Carolina corporation, and any successor thereto.


 






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“Consultant” means any
individual or entity which performs bona fide services to the Company or an Affiliate, other than as an Employee or Director, and
who may be offered securities registerable pursuant to a registration statement on Form S-8 under the Securities Act.


 


“Continuous Service” means
that the Participant’s service with the Company or an Affiliate, whether as an Employee, Consultant or Director, is not interrupted
or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in
the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or
a change in the entity for which the Participant renders such service, provided that there is no interruption or termination
of the Participant’s Continuous Service; provided further that if any Award is subject to Section 409A of the Code,
this sentence shall only be given effect to the extent consistent with Section 409A of the Code. For example, a change in status
from an Employee of the Company to a Director of an Affiliate will not constitute an interruption of Continuous Service. The Committee
or its delegate, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of
any leave of absence approved by that party, including sick leave, military leave or any other personal or family leave of absence.
The Committee or its delegate, in its sole discretion, may determine whether a Company transaction, such as a sale or spin-off
of a division or subsidiary that employs a Participant, shall be deemed to result in a termination of Continuous Service for purposes
of affected Awards, and such decision shall be final, conclusive and binding.


 


“Deferred Stock Units (DSUs)”
has the meaning set forth in Section 7.2 hereof.


 


“Director” means a member
of the Board.


 


“Disability” means, with
respect to any Incentive Stock Option, disability as determined under Code Section 422(c)(6) and Code Section 22(e)(3), and with
respect to any other Award, unless provided otherwise in the Award Agreement or a Participant’s employment or consulting
agreement, (i) with respect to a Participant who is eligible to participate in the Company’s plan or program providing group
long-term disability (LTD) benefits, if any, a condition with respect to which the Participant is entitled to commence benefits
under such LTD program and which results in Participant’s Termination of Service, and (ii) with respect to any Participant
(including a Participant who is eligible to participate in the Company’s LTD program, if any), a determination of total disability
by the Social Security Administration. Notwithstanding the foregoing, if specified in an Award Agreement or otherwise required
in order for an Award to comply with Code Section 409A, a Disability shall not be deemed to occur unless the event also qualifies
as a disability under Code Section 409A(a)(2)(C).


 


“Disqualifying Disposition”
has the meaning set forth in Section 14.11.


 


“Effective Date” shall
mean the date as of which this Plan is adopted by the Board provided the Company’s shareholders approve this Plan before
the first anniversary of the Board’s adoption date.


 






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“Employee” means any person,
including an Officer or Director, legally employed by the Company or an Affiliate; provided, that, for purposes of
determining eligibility to receive Incentive Stock Options, an Employee shall mean an employee of the Company or a parent or subsidiary
corporation within the meaning of Section 424 of the Code in accordance with Treas. Reg. Section 1.421-1(h) (or any successor provision
related thereto). Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient
to constitute “employment” by the Company or an Affiliate.


 


“Exchange Act” means the
Securities Exchange Act of 1934, as amended.


 


“Fair Market Value” means,
as of any date, the value of the Common Stock as determined below. If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation, the New York Stock Exchange or the Nasdaq Stock Market, the Fair Market
Value shall be the closing price of a share of Common Stock (or if no sales were reported the closing price on the date immediately
preceding such date) as quoted on such exchange or system on the day of determination, as reported on the website maintained
by such stock exchange or national market system or such other source as the Committee deems reliable. In the absence of such an
established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Committee and such determination
shall be conclusive and binding on all persons. Notwithstanding the foregoing, if the Committee determines in the Committee’s
discretion that an alternative definition of Fair Market Value should be used in connection with the grant, exercise, vesting,
settlement or payout of any Award, it may specify such alternative definition in the Award Agreement. Such alternative definition
may include a price that is based on the opening, actual, high, low, or average selling price of a share of Common Stock on The
Nasdaq Stock Market or other securities exchange on the given date, the trading date preceding the given date, the trading date
next succeeding the given date, or an average of trading dates. Notwithstanding the foregoing, (i) in the case of a Nonqualified
Stock Option or Stock Appreciation Right, Fair Market Value shall be determined in accordance with a definition of fair market
value that permits the Award to be exempt from Section 409A of the Code, (ii) in the case of an Incentive Stock Option Fair Market
Value shall be determined in accordance with the requirements of Section 422 of the Code.


 


“Fiscal Year” means the
Company’s fiscal year.


 


“Free Standing Rights”
has the meaning set forth in Section 7.1(a).


 


“Good Reason” means, unless
the applicable Award Agreement states otherwise:


 


(a) If an Employee or Consultant is a party
to an employment or service agreement with the Company or its Affiliates and such agreement provides for a definition of Good Reason,
the definition contained therein; or


 


(b) If no such agreement exists or if such
agreement does not define Good Reason, the occurrence of one or more of the following without the Participant’s express written
consent, which circumstances are not remedied by the Company within thirty (30) days of its receipt of a written notice from the
Participant describing the applicable circumstances (which notice must be provided by the Participant within ninety (90) days of
the Participant’s knowledge of the applicable circumstances): (i) any material, adverse change in the Participant’s
duties, responsibilities, authority, title, status or reporting structure; (ii) a material reduction in the Participant’s
base salary or bonus opportunity; or (iii) a geographical relocation of the Participant’s principal office location by more
than fifty (50) miles.


 






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“Grant Date” means the
date on which the Committee adopts a resolution, or takes other appropriate corporate action, expressly granting an Award to a
Participant that specifies the key terms and conditions of the Award or, if a later date is set forth in such resolution, then
such date as is set forth in such resolution.


 


“Incentive Stock Option”
means an Option that is designated by the Committee as an incentive stock option within the meaning of Section 422 of the Code
and that meets the requirements set out in the Plan.


 


“Incumbent Directors” means
individuals who, on the Effective Date, constitute the Board, provided that any individual becoming a Director subsequent
to the Effective Date whose election or nomination for election to the Board was approved by a vote of at least two-thirds of the
Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for Director without objection to such nomination) shall be an Incumbent Director. No individual
initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect
to Directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than
the Board shall be an Incumbent Director.


 


“Independent Contractor”
means a Consultant or other independent contractor or advisor providing services to the Company or an Affiliate.


 


“Non-Employee Director”
means a Director who is a “non-employee director” within the meaning of Rule 16b-3.


 


“Nonqualified Stock Option”
means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.


 


“Officer” means a person
who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.


 


“Option” means an Incentive
Stock Option or a Nonqualified Stock Option granted pursuant to the Plan.


 


“Optionholder” means a
person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.


 


“Option Exercise Price”
or “Option Price” means the price at which a share of Common Stock may be purchased upon the exercise of an
Option.


 


“Option Period” means the
term of an Option as determined by the Committee at the time the Option is granted and set forth in the applicable Award Agreement.


 






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“Other Equity-Based Award”
means an Award that is not an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, or Performance Share Award
that is granted under Section 7.4 and is payable by delivery of Common Stock and/or which is measured by reference to the value
of Common Stock.


 


“Participant” means an
eligible person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding
Award.


 


“Performance Goals” means,
for a Performance Period, the one or more goals established by the Committee for the Performance Period based upon business criteria
or other performance measures determined by the Committee in its discretion.


 


“Performance Period” means
the one or more periods of time not less than one fiscal quarter in duration, as the Committee may select, over which the attainment
of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to and the payment
of a Performance Share Award or a Cash Award.


 


“Performance Share Award”
means any Award granted pursuant to Section 7.3 hereof.


 


“Performance Share” means
the grant of a right to receive a number of actual shares of Common Stock or share units based upon the performance of the Company
during a Performance Period, as determined by the Committee.


 


“Permitted Transferee”
means: (a) a member of the Optionholder’s immediate family (child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
including adoptive relationships), any person sharing the Optionholder’s household (other than a tenant or employee), a trust
in which these persons have more than 50% of the beneficial interest, a foundation in which these persons (or the Optionholder)
control the management of assets, and any other entity in which these persons (or the Optionholder) own more than fifty percent
(50%) of the voting interests; (b) third parties designated by the Committee in connection with a program established and approved
by the Committee pursuant to which Participants may receive a cash payment or other consideration in consideration for the transfer
of a Nonqualified Stock Option; and (c) such other transferees as may be permitted by the Committee in its sole discretion.


 


“Person” means a person
as defined in Section 13(d)(3) of the Exchange Act.


 


“Plan” means this Charles & Colvard 2018 Equity Incentive Plan, as amended and/or amended and restated from time to time.


 


“Prior Plan” or “Prior
Plans” mean the 1997 Omnibus Stock Plan of Charles & Colvard, Ltd., the 1996 Stock Option Plan of C3, Inc., the Charles & Colvard, Ltd. 2008 Stock Incentive Plan, each as amended, and any other stock incentive plan maintained by the Company prior
to the Effective Date of this Plan. (For the avoidance of doubt, this Plan is not meant to terminate or supersede any currently
outstanding awards under the Company’s Prior Plans nor under the Company’s Senior Management Equity Incentive Programs.)


 






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“Related Rights” has the
meaning set forth in Section 7.1(a).


 


“Restricted Award” means
any Award granted pursuant to Section 7.2(a).


 


“Restricted Period” has
the meaning set forth in Section 7.2(a).


 


“Rule 16b-3” means Rule
16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.


 


“Securities Act” means
the Securities Act of 1933, as amended.


 


“Stock Appreciation Right”
means the right pursuant to an Award granted under Section 7.1 to receive, upon exercise, an amount payable in cash or shares equal
to the number of shares subject to the Stock Appreciation Right that is being exercised multiplied by the excess of (a) the Fair
Market Value of a share of Common Stock on the date the Award is exercised, over (b) the exercise price specified in the Stock
Appreciation Right Award Agreement.


 


“Stock for Stock Exchange”
has the meaning set forth in Section 6.4.


 


“Substitute Award” has
the meaning set forth in Section 4.6.


 


“Ten Percent Shareholder”
means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.


 


“Termination Date” means
the date of termination of a Participant’s Continuous Service for any reason, as may be determined by the Committee, in the
Committee’s sole discretion.


 


“Termination of Service”
means, unless provided otherwise in an Award Agreement, the discontinuance of Continuous Service to the Company by any Non-Employee
Director, for any reason, whether voluntary or involuntary. If a Non-Employee Director becomes an Employee of or Consultant to
the Company or an Affiliate before or upon terminating service as a Non-Employee Director, such employment or consulting service
shall constitute a continuation of service with respect to Awards granted to the Participant while he or she served as a member
of the Board. The determination of whether a Participant has discontinued employment or service shall be made by the Committee
in its sole discretion. “Termination of Employment” as may be used in an Award Agreement shall mean Termination of
Service and vice-versa.


 


“Total Share Reserve” has
the meaning set forth in Section 4.1.


 


3.            Administration.


 


3.1           Authority
of Committee. The Plan shall be administered by the Committee or, in the Board’s sole discretion or failure to establish
or re-establish such Committee, by the Board. Subject to the terms of the Plan, the Committee’s charter and Applicable Laws,
and in addition to other express powers and authorization conferred by the Plan, the Committee shall have the authority:


 






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(a)          to
construe and interpret the Plan and apply its provisions;


 


(b)          to
promulgate, amend, and rescind rules and regulations relating to the administration of the Plan;


 


(c)          to
authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan;


 


(d)          to
delegate its authority to one or more Officers of the Company with respect to Awards that do not involve “insiders”
within the meaning of Section 16 of the Exchange Act;


 


(e)          to
determine when Awards are to be granted under the Plan and the applicable Grant Date;


 


(f)          from
time to time to select, subject to the limitations set forth in this Plan, those eligible Award recipients to whom Awards shall
be granted;


 


(g)          to
determine the number of shares of Common Stock to be made subject to each Award;


 


(h)          to
determine whether each Option is to be an Incentive Stock Option or a Nonqualified Stock Option;


 


(i)          to
prescribe the terms and conditions of each Award, including, without limitation, the exercise price and medium of payment and vesting
provisions, and to specify the provisions of the Award Agreement relating to such grant;


 


(j)          to
determine the target number of Performance Shares to be granted pursuant to a Performance Share Award, the performance measures
that will be used to establish the Performance Goals, the Performance Period(s) and the number of Performance Shares earned by
a Participant;


 


(k)          to
amend any outstanding Awards, including for the purpose of modifying the time or manner of vesting, or the term of any outstanding
Award; provided, however, that if any such amendment impairs a Participant’s rights or increases a Participant’s
obligations under his or her Award or creates or increases a Participant’s federal income tax liability with respect to an
Award, such amendment shall also be subject to the Participant’s consent;


 


(l)          to
determine the duration and purpose of leaves of absences which may be granted to a Participant without constituting termination
of their employment for purposes of the Plan, which periods shall be no shorter than the periods generally applicable to Employees
under the Company’s employment policies;


 






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(m)          to
make decisions with respect to outstanding Awards that may become necessary upon a Change in Control or an event that triggers
anti-dilution adjustments;


 


(n)          to
interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument
or agreement relating to, or Award granted under, the Plan; and


 


(o)          to
exercise discretion to make any and all other determinations which it determines to be necessary or advisable for the administration
of the Plan.


 


The Committee also may modify the purchase
price or the exercise price of any outstanding Award, provided that if the modification effects a repricing, shareholder
approval shall be required before the repricing is effective.


 


3.2           Committee
Decisions Final. All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on
the Company and the Participants, unless such decisions are determined by a court having jurisdiction to be arbitrary and capricious.


 


3.3           Delegation.
The Committee or, if no Committee has been appointed, the Board may delegate administration of the Plan to a committee or committees
of one or more members of the Board, and the term “Committee” shall apply to any person or persons to whom
such authority has been delegated. The Committee shall have the power to delegate to a subcommittee any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to the Board or the Committee shall thereafter be
to the committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as
may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration
of the Plan. The members of the Committee shall be appointed by and serve at the pleasure of the Board. From time to time, the
Board may increase or decrease the size of the Committee, add additional members to, remove members (with or without cause) from,
appoint new members in substitution therefor, and fill vacancies, however caused, in the Committee. The Committee shall act pursuant
to a vote of the majority of its members or, in the case of a Committee comprised of only two members, the unanimous consent of
its members, whether present or not, or by the written consent of the majority of its members and minutes shall be kept of all
of its meetings and copies thereof shall be provided to the Board. Subject to the limitations prescribed by the Plan and the Board,
the Committee may establish and follow such rules and regulations for the conduct of its business as it may determine to be advisable.


 


3.4           Committee
Composition. Except as otherwise determined by the Board, the Committee shall consist solely of two or more Non-Employee Directors.
The Board shall have discretion to determine whether or not it intends to comply with the exemption requirements of Rule 16b-3.
However, if the Board intends to satisfy such exemption requirements, with respect to any insider subject to Section 16 of the
Exchange Act, the Committee shall be a compensation committee of the Board that at all times consists solely of two or more Non-Employee
Directors. Within the scope of such authority, the Board or the Committee may delegate to a committee of one or more members of
the Board who are not Non-Employee Directors the authority to grant Awards to eligible persons who are not then subject to Section
16 of the Exchange Act. Nothing herein shall create an inference that an Award is not validly granted under the Plan in the event
Awards are granted under the Plan by a compensation committee of the Board that does not at all times consist solely of two or
more Non-Employee Directors.


 






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3.5           Indemnification.
In addition to such other rights of indemnification as they may have as Directors or members of the Committee, and to the extent
allowed by Applicable Laws, the Committee shall be indemnified by the Company against the reasonable expenses, including attorneys’
fees, actually incurred in connection with any action, suit or proceeding or in connection with any appeal therein, to which the
Committee may be party by reason of any action taken or failure to act under or in connection with the Plan or any Award granted
under the Plan, and against all amounts paid by the Committee in settlement thereof (provided, however, that the settlement
has been approved by the Company, which approval shall not be unreasonably withheld) or paid by the Committee in satisfaction
of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action,
suit or proceeding that such Committee did not act in good faith and in a manner which such person reasonably believed to be in
the best interests of the Company, or in the case of a criminal proceeding, had no reason to believe that the conduct complained
of was unlawful; provided, however, that within sixty (60) days after the institution of any such action, suit or proceeding,
such Committee shall, in writing, offer the Company the opportunity at its own expense to handle and defend such action, suit
or proceeding.


 


4.           Shares
Subject to the Plan.


 


4.1           Subject
to adjustment in accordance with Section 11, no more than 3,300,000 shares of Common Stock plus the number of shares of Common
Stock underlying any award granted under the Prior Plans that expires, terminates or is canceled or forfeited under the terms of
the Prior Plans shall be available for the grant of Awards under the Plan (the “Total Share
Reserve”). Any shares of Common Stock granted in connection with any Award under the Plan shall be counted against
this limit as one (1) share for every one (1) share of Common Stock granted in connection with such Award. During the terms of
the Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Awards.


 


4.2           Shares
of Common Stock available for distribution under the Plan may consist, in whole or in part, of authorized and unissued shares,
treasury shares or shares reacquired by the Company in any manner.


 


4.3           Subject
to adjustment in accordance with Section 11, no more than 3,300,000 shares of Common Stock may be issued in the aggregate pursuant
to the exercise of Incentive Stock Options (the “ISO Limit”).


 


4.4           The
maximum number of shares of Common Stock subject to Awards granted during a single Fiscal Year to any Director, together with any
cash fees paid to such Director during the Fiscal Year shall not exceed a total value of $300,000 (calculating the value of any
Awards based on the grant date fair value for financial reporting purposes).


 






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4.5           Any
shares of Common Stock subject to an Award that expires or is canceled, forfeited, or terminated without issuance of the full number
of shares of Common Stock to which the Award related will again be available for issuance under the Plan. Any shares of Common
Stock that again become available for future grants pursuant to this Section 4.5 shall be added back as one (1) share available
for issuance under the Plan. Notwithstanding anything to the contrary contained herein: shares subject to an Award under the Plan
shall not again be made available for issuance or delivery under the Plan if such shares are (a) shares tendered in payment of
an Option, (b) shares delivered or withheld by the Company to satisfy any tax withholding obligation, or (c) shares covered by
a stock-settled Stock Appreciation Right or other Awards that were not issued upon the settlement of the Award.


 


4.6           Awards
may, in the sole discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding awards
previously granted by an entity acquired by the Company or with which the Company combines (“Substitute
Awards”). Substitute Awards shall not be counted against the Total Share Reserve; provided, that, Substitute Awards
issued in connection with the assumption of, or in substitution for, outstanding options intended to qualify as Incentive Stock
Options shall be counted against the ISO limit. Subject to applicable stock exchange requirements, available shares under a shareholder-approved
plan of an entity directly or indirectly acquired by the Company or with which the Company combines (as appropriately adjusted
to reflect such acquisition or transaction) may be used for Awards under the Plan and shall not count toward the Total Share Reserve.


 


5.           Eligibility.


 


5.1           Eligibility
for Specific Awards. Incentive Stock Options may be granted only to Employees. Awards other than Incentive Stock Options may
be granted to Employees, Consultants and Directors and those individuals whom the Committee determines are reasonably expected
to become Employees, Consultants and Directors following the Grant Date to the extent permitted by Applicable Law.


 


5.2           Ten
Percent Shareholders. A Ten Percent Shareholder shall not be granted an Incentive Stock Option unless the Option Exercise
Price is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the Grant Date and the Option
is not exercisable after the expiration of five years from the Grant Date.


 


6.           Option
Provisions. Each Option granted under the Plan shall be evidenced by an individual Award Agreement. Each Option
so granted shall be subject to the conditions set forth in this Section 6, and to such other conditions not inconsistent with
the Plan as may be reflected in the applicable Award Agreement. All Options shall be separately designated Incentive Stock Options
or Nonqualified Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will
be issued for shares of Common Stock purchased on exercise of each type of Option. Notwithstanding the foregoing, the Company
shall have no liability to any Participant or any other person if an Option designated as an Incentive Stock Option fails to qualify
as such at any time or if an Option is determined to constitute “nonqualified deferred compensation” within the meaning
of Section 409A of the Code and the terms of such Option do not satisfy the requirements of Section 409A of the Code. The provisions
of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference
in the Option or otherwise) the substance of each of the following provisions:


 






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6.1           Term.
Subject to the provisions of Section 5.2 regarding Ten Percent Shareholders, no Incentive Stock Option shall be exercisable after
the expiration of ten (10) years from the Grant Date. The term of a Nonqualified Stock Option granted under the Plan shall be
determined by the Committee; provided, however, no Nonqualified Stock Option shall be exercisable after the expiration
of ten (10) years from the Grant Date.


 


6.2           Exercise
Price of an Incentive Stock Option. Subject to the provisions of Section 5.2 regarding Ten Percent Shareholders, the Option
Exercise Price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the
Common Stock subject to the Option on the Grant Date. Notwithstanding the foregoing, an Incentive Stock Option may be granted
with an Option Exercise Price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption
or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.


 


6.3           Exercise
Price of a Nonqualified Stock Option. The Option Exercise Price of each Nonqualified Stock Option shall be not less than one
hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the Grant Date. Notwithstanding the
foregoing, a Nonqualified Stock Option may be granted with an Option Exercise Price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions
of Section 409A of the Code.


 


6.4           Consideration.
The Option Exercise Price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by Applicable
Laws and not prohibited by any agreements evidencing indebtedness entered into by the Company from time to time, either: (a) in
cash or by certified or bank check at the time the Option is exercised; or (b)the Option Exercise Price may be paid: (i) by delivery
to the Company of other Common Stock, duly endorsed for transfer to the Company, with a Fair Market Value on the date of delivery
equal to the Option Exercise Price (or portion thereof) due for the number of shares being acquired, or by means of attestation
whereby the Participant identifies for delivery specific shares of Common Stock that have an aggregate Fair Market Value on the
date of attestation equal to the Option Exercise Price (or portion thereof) and receives a number of shares of Common Stock equal
to the difference between the number of shares thereby purchased and the number of identified attestation shares of Common Stock
(a “Stock for Stock Exchange”); (ii) a “cashless” exercise program established with a broker; (iii)
by reduction in the number of shares of Common Stock otherwise deliverable upon exercise of such Option with a Fair Market Value
equal to the aggregate Option Exercise Price at the time of exercise; (iv) by any combination of the foregoing methods; or (v)
in any other form of legal consideration that may be acceptable to the Committee. Unless otherwise specifically provided in the
Option, the exercise price of Common Stock acquired pursuant to an Option that is paid by delivery (or attestation) to the Company
of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the
Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge
to earnings for financial accounting purposes). Notwithstanding the foregoing, during any period for which the Common Stock is
publicly traded (i.e., the Common Stock is listed on any established stock exchange or a national market system) an exercise by
a Director or Officer that involves or may involve a direct or indirect extension of credit or arrangement of an extension of
credit by the Company, directly or indirectly, in violation of Section 402(a) of the Sarbanes-Oxley Act of 2002 shall be prohibited
with respect to any Award under this Plan.


 






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6.5           Transferability
of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the laws of descent
and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate
a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.


 


6.6           Transferability
of a Nonqualified Stock Option. A Nonqualified Stock Option may, in the sole discretion of the Committee, be transferable
to a Permitted Transferee, upon written approval by the Committee to the extent provided in the Award Agreement. If the Nonqualified
Stock Option does not provide for transferability, then the Nonqualified Stock Option shall not be transferable except by will
or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise
the Option.


 


6.7           Vesting
of Options. Each Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need
not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which
may be based on performance or other criteria) as the Committee may deem appropriate. The vesting provisions of individual Options
may vary. No Option may be exercised for a fraction of a share of Common Stock. The Committee may, but shall not be required to,
provide for an acceleration of vesting and exercisability in the terms of any Award Agreement upon the occurrence of a specified
event.


 


6.8           Termination
of Continuous Service. Unless otherwise provided in an Award Agreement or in an employment agreement the terms of which have
been approved by the Committee, in the event an Optionholder’s Continuous Service terminates (other than upon the Optionholder’s
death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise
such Option as of the date of termination) but only within such period of time ending on the earlier of: (a) the date three (3)
months following the termination of the Optionholder’s Continuous Service; or (b) the expiration of the term of the Option
as set forth in the Award Agreement; provided that, if the termination of Continuous Service is by the Company for Cause,
all outstanding Options (whether or not vested) shall immediately terminate and cease to be exercisable. If, after Termination
of Service, the Optionholder does not exercise his or her Option within the time specified in the Award Agreement, the Option
shall terminate.


 






    	 	14	 



     


    

 


6.9           Extension
of Termination Date. An Optionholder’s Award Agreement may also provide that if the exercise of the Option following
the termination of the Optionholder’s Continuous Service for any reason would be prohibited at any time because the issuance
of shares of Common Stock would violate the registration requirements under the Securities Act or any other state or federal securities
law or the rules of any securities exchange or interdealer quotation system, then the Option shall terminate on the earlier of:
(a) the expiration of the term of the Option in accordance with Section 6.1; or (b) the expiration of a period after termination
of the Participant’s Continuous Service that is three (3) months after the end of the period during which the exercise of
the Option would be in violation of such registration or other securities law requirements.


 


6.10         Disability
of Optionholder. Unless otherwise provided in an Award Agreement, in the event that an Optionholder’s Continuous Service
terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent
that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time
ending on the earlier of: (a) the date twelve (12) months following such termination; or (b) the expiration of the term of the
Option as set forth in the Award Agreement. If, after termination, the Optionholder does not exercise his or her Option within
the time specified herein or in the Award Agreement, the Option shall terminate.


 


6.11         Death
of Optionholder. Unless otherwise provided in an Award Agreement, in the event an Optionholder’s Continuous Service
terminates as a result of the Optionholder’s death, then the Option may be exercised (to the extent the Optionholder was
entitled to exercise such Option as of the date of death) by the Optionholder’s estate, by a person who acquired the right
to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder’s
death, but only within the period ending on the earlier of: (a) the date twelve (12) months following the date of death; or (b)
the expiration of the term of such Option as set forth in the Award Agreement. If, after the Optionholder’s death, the Option
is not exercised within the time specified herein or in the Award Agreement, the Option shall terminate.


 


6.12         Incentive
Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of
Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar
year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions
thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonqualified Stock Options.


 


7.           Provisions
of Awards Other Than Options.


 


7.1          Stock
Appreciation Rights.  


 


(a)          General


 


Each Stock Appreciation Right granted under
the Plan shall be evidenced by an Award Agreement. Each Stock Appreciation Right so granted shall be subject to the conditions
set forth in this Section 7.1, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable
Award Agreement. Stock Appreciation Rights may be granted alone (“Free Standing Rights”) or in tandem with an
Option granted under the Plan (“Related Rights”).


 






    	 	15	 



     


    

 


(b)          Grant
Requirements


 


Any Related Right that relates to a Nonqualified
Stock Option may be granted at the same time the Option is granted or at any time thereafter but before the exercise or expiration
of the Option. Any Related Right that relates to an Incentive Stock Option must be granted at the same time the Incentive Stock
Option is granted.


 


(c)          Term
of Stock Appreciation Rights


 


The term of a Stock Appreciation Right granted
under the Plan shall be determined by the Committee; provided, however, no Stock Appreciation Right shall be exercisable
later than the tenth anniversary of the Grant Date.


 


(d)          Vesting
of Stock Appreciation Rights


 


Each Stock Appreciation Right may, but need
not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Stock Appreciation Right
may be subject to such other terms and conditions on the time or times when it may be exercised as the Committee may deem appropriate.
The vesting provisions of individual Stock Appreciation Rights may vary. No Stock Appreciation Right may be exercised for a fraction
of a share of Common Stock. The Committee may, but shall not be required to, provide for an acceleration of vesting and exercisability
in the terms of any Stock Appreciation Right upon the occurrence of a specified event.


 


(e)          Exercise
and Payment


 


Upon exercise of a Stock Appreciation Right,
the holder shall be entitled to receive from the Company an amount equal to the number of shares of Common Stock subject to the
Stock Appreciation Right that is being exercised multiplied by the excess of: (i) the Fair Market Value of a share of Common Stock
on the date the Award is exercised, over (ii) the exercise price specified in the Stock Appreciation Right or related Option. Payment
with respect to the exercise of a Stock Appreciation Right shall be made on the date of exercise. Payment shall be made in the
form of shares of Common Stock (with or without restrictions as to substantial risk of forfeiture and transferability, as determined
by the Committee in its sole discretion), cash or a combination thereof, as determined by the Committee.


 


(f)          Exercise
Price


 


The exercise price of a Free Standing Right
shall be determined by the Committee, but shall not be less than one hundred percent (100%) of the Fair Market Value of one share
of Common Stock on the Grant Date of such Stock Appreciation Right. A Related Right granted simultaneously with or subsequent to
the grant of an Option and in conjunction therewith or in the alternative thereto shall have the same exercise price as the related
Option, shall be transferable only upon the same terms and conditions as the related Option, and shall be exercisable only to the
same extent as the related Option; provided, however, that a Stock Appreciation Right, by its terms, shall be exercisable
only when the Fair Market Value per share of Common Stock subject to the Stock Appreciation Right and related Option exceeds the
exercise price per share thereof and no Stock Appreciation Rights may be granted in tandem with an Option unless the Committee
determines that the requirements of Section 7.1(b) are satisfied.


 






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(g)          Reduction
in the Underlying Option Shares


 


Upon any exercise of a Related Right, the
number of shares of Common Stock for which any related Option shall be exercisable shall be reduced by the number of shares for
which the Stock Appreciation Right has been exercised. The number of shares of Common Stock for which a Related Right shall be
exercisable shall be reduced upon any exercise of any related Option by the number of shares of Common Stock for which such Option
has been exercised.


 


7.2          Restricted
Awards.  


 


(a)          General


 


A Restricted Award is an Award of actual shares
of Common Stock (“Restricted Stock”) or hypothetical Common Stock units (“Restricted Stock Units”)
having a value equal to the Fair Market Value of an identical number of shares of Common Stock, which may, but need not, provide
that such Restricted Award may not be sold, assigned, transferred or otherwise disposed of, pledged or hypothecated as collateral
for a loan or as security for the performance of any obligation or for any other purpose for such period (the “Restricted
Period”) as the Committee shall determine. Each Restricted Award granted under the Plan shall be evidenced by an Award
Agreement. Each Restricted Award so granted shall be subject to the conditions set forth in this Section 7.2, and to such other
conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.


 


(b)          Restricted
Stock and Restricted Stock Units


 


(i)          Each
Participant granted Restricted Stock shall execute and deliver to the Company an Award Agreement with respect to the Restricted
Stock setting forth the restrictions and other terms and conditions applicable to such Restricted Stock. If the Committee determines
that the Restricted Stock shall be held by the Company or in escrow rather than delivered to the Participant pending the release
of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company: (A)
an escrow agreement satisfactory to the Committee, if applicable; and (B) the appropriate blank stock power with respect to the
Restricted Stock covered by such agreement. If a Participant fails to execute an agreement evidencing an Award of Restricted Stock
and, if applicable, an escrow agreement and stock power, the Award shall be null and void. Subject to the restrictions set forth
in the Award, the Participant generally shall have the rights and privileges of a shareholder as to such Restricted Stock, including
the right to vote such Restricted Stock and the right to receive dividends; provided that, any cash dividends and stock
dividends with respect to the Restricted Stock shall be withheld by the Company for the Participant’s account, and interest
may be credited on the amount of the cash dividends withheld at a rate and subject to such terms as determined by the Committee.
The cash dividends or stock dividends so withheld by the Committee and attributable to any particular share of Restricted Stock
(and earnings thereon, if applicable) shall be distributed to the Participant in cash or, at the discretion of the Committee, in
shares of Common Stock having a Fair Market Value equal to the amount of such dividends, if applicable, upon the release of restrictions
on such share and, if such share is forfeited, the Participant shall have no right to such dividends.


 






    	 	17	 



     


    

 


(ii)         The
terms and conditions of a grant of Restricted Stock Units shall be reflected in an Award Agreement. No shares of Common Stock shall
be issued at the time a Restricted Stock Unit is granted, and the Company will not be required to set aside funds for the payment
of any such Award. A Participant shall have no voting rights with respect to any Restricted Stock Units granted hereunder. The
Committee may also grant Restricted Stock Units with a deferral feature, whereby settlement is deferred beyond the vesting date
until the occurrence of a future payment date or event set forth in an Award Agreement (“Deferred Stock Units”).
At the discretion of the Committee, each Restricted Stock Unit or Deferred Stock Unit (representing one share of Common Stock)
may be credited with an amount equal to the cash and stock dividends paid by the Company in respect of one share of Common Stock
(“Dividend Equivalents”). Dividend Equivalents shall be withheld by the Company and credited to the Participant’s
account, and interest may be credited on the amount of cash Dividend Equivalents credited to the Participant’s account at
a rate and subject to such terms as determined by the Committee. Dividend Equivalents credited to a Participant’s account
and attributable to any particular Restricted Stock Unit or Deferred Stock Unit (and earnings thereon, if applicable) shall be
distributed in cash or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount
of such Dividend Equivalents and earnings, if applicable, to the Participant upon settlement of such Restricted Stock Unit or Deferred
Stock Unit and, if such Restricted Stock Unit or Deferred Stock Unit is forfeited, the Participant shall have no right to such
Dividend Equivalents.


 


(c)          Restrictions


 


(i)          Restricted
Stock awarded to a Participant shall be subject to the following restrictions until the expiration of the Restricted Period, and
to such other terms and conditions as may be set forth in the applicable Award Agreement: (A) if an escrow arrangement is used,
the Participant shall not be entitled to delivery of the stock certificate; (B) the shares shall be subject to the restrictions
on transferability set forth in the Award Agreement; (C) the shares shall be subject to forfeiture to the extent provided in the
applicable Award Agreement; and (D) to the extent such shares are forfeited, the stock certificates shall be returned to the Company,
and all rights of the Participant to such shares and as a shareholder with respect to such shares shall terminate without further
obligation on the part of the Company.


 


(ii)         Restricted
Stock Units and Deferred Stock Units awarded to any Participant shall be subject to: (A) forfeiture until the expiration of the
Restricted Period, and satisfaction of any applicable Performance Goals during such period, to the extent provided in the applicable
Award Agreement, and to the extent such Restricted Stock Units or Deferred Stock Units are forfeited, all rights of the Participant
to such Restricted Stock Units or Deferred Stock Units shall terminate without further obligation on the part of the Company; and
(B) such other terms and conditions as may be set forth in the applicable Award Agreement.


 






    	 	18	 



     


    

 


(iii)        The
Committee shall have the authority to remove any or all of the restrictions on the Restricted Stock, Restricted Stock Units and
Deferred Stock Units whenever it may determine that, by reason of changes in Applicable Laws or other changes in circumstances
arising after the date the Restricted Stock or Restricted Stock Units or Deferred Stock Units are granted, such action is appropriate.


 


(d)          Restricted
Period


 


With respect to Restricted Awards, the Restricted
Period shall commence on the Grant Date and end at the time or times set forth on a schedule established by the Committee in the
applicable Award Agreement.


 


No Restricted Award may be granted or settled
for a fraction of a share of Common Stock. The Committee may, but shall not be required to, provide for an acceleration of vesting
in the terms of any Award Agreement upon the occurrence of a specified event.


 


(e)          Delivery
of Restricted Stock and Settlement of Restricted Stock Units


 


Upon the expiration of the Restricted Period
with respect to any shares of Restricted Stock, the restrictions set forth in Section 7.2(c) and the applicable Award Agreement
shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an
escrow arrangement is used, upon such expiration, the Company shall deliver to the Participant, or his or her beneficiary, without
charge, the stock certificate evidencing the shares of Restricted Stock which have not then been forfeited and with respect to
which the Restricted Period has expired (to the nearest full share) and any cash dividends or stock dividends credited to the Participant’s
account with respect to such Restricted Stock and the interest thereon, if any. Upon the expiration of the Restricted Period with
respect to any outstanding Restricted Stock Units, or at the expiration of the deferral period with respect to any outstanding
Deferred Stock Units, the Company shall deliver to the Participant, or his or her beneficiary, without charge, one share of Common
Stock for each such outstanding vested Restricted Stock Unit or Deferred Stock Unit (“Vested Unit”) and cash
equal to any Dividend Equivalents credited with respect to each such Vested Unit in accordance with Section 7.2(b)(ii) hereof and
the interest thereon or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to such
Dividend Equivalents and the interest thereon, if any; provided, however, that, if explicitly provided in the applicable
Award Agreement, the Committee may, in its sole discretion, elect to pay cash or part cash and part Common Stock in lieu of delivering
only shares of Common Stock for Vested Units. If a cash payment is made in lieu of delivering shares of Common Stock, the amount
of such payment shall be equal to the Fair Market Value of the Common Stock as of the date on which the Restricted Period lapsed
in the case of Restricted Stock Units, or the delivery date in the case of Deferred Stock Units, with respect to each Vested Unit.


 






    	 	19	 



     


    

 


(f)          Stock
Restrictions


 


Each certificate representing Restricted
Stock awarded under the Plan shall bear a legend in such form as the Company deems appropriate.


 


7.3          Performance
Share Awards.  


 


(a)          Grant
of Performance Share Awards


 


Each Performance Share Award granted under
the Plan shall be evidenced by an Award Agreement. Each Performance Share Award so granted shall be subject to the conditions set
forth in this Section 7.3, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award
Agreement. The Committee shall have the discretion to determine: (i) the number of shares of Common Stock or stock-denominated
units subject to a Performance Share Award granted to any Participant; (ii) the Performance Period applicable to any Award; (iii)
the conditions that must be satisfied for a Participant to earn an Award; and (iv) the other terms, conditions and restrictions
of the Award.


 


(b)          Earning
Performance Share Awards


 


The number of Performance Shares earned by
a Participant will depend on the extent to which the performance goals established by the Committee are attained within the applicable
Performance Period, as determined by the Committee.


 


7.4          Other
Equity-Based Awards and Cash Awards. The Committee may grant Other Equity-Based Awards, either alone or in tandem with other
Awards, in such amounts and subject to such conditions as the Committee shall determine in its sole discretion. Each Equity-Based
Award shall be evidenced by an Award Agreement and shall be subject to such conditions, not inconsistent with the Plan, as may
be reflected in the applicable Award Agreement. The Committee may grant Cash Awards in such amounts and subject to such Performance
Goals, other vesting conditions, and such other terms as the Committee determines in its discretion. Cash Awards shall be evidenced
in such form as the Committee may determine.


 


8.           Securities
Law Compliance. Each Award Agreement shall provide that no shares of Common Stock shall be purchased or sold
thereunder unless and until: (a) any then applicable requirements of state or federal laws and regulatory agencies have been fully
complied with to the satisfaction of the Company and its counsel; and (b) if required to do so by the Company, the Participant
has executed and delivered to the Company a letter of investment intent in such form and containing such provisions as the Committee
may require. The Company shall use reasonable efforts to seek to obtain from each regulatory commission or agency having jurisdiction
over the Plan such authority as may be required to grant Awards and to issue and sell shares of Common Stock upon exercise of
the Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act
the Plan, any Award or any Common Stock issued or issuable pursuant to any such Award. If, after reasonable efforts, the Company
is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure
to issue and sell Common Stock upon exercise of such Awards unless and until such authority is obtained.


 






    	 	20	 



     


    

 


9.           Use
of Proceeds from Stock. Proceeds from the sale of Common Stock pursuant to Awards, or upon exercise thereof,
shall constitute general funds of the Company.


 


10.         Miscellaneous.


 


10.1         Acceleration
of Exercisability and Vesting. The Committee shall have the power to accelerate the time at which an Award may first be exercised
or the time during which an Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in
the Award stating the time at which it may first be exercised or the time during which it will vest.


 


10.2         Shareholder
Rights. Except as provided in the Plan or an Award Agreement, no Participant shall be deemed to be the holder of, or to have
any of the rights of a holder with respect to, any shares of Common Stock subject to such Award unless and until such Participant
has satisfied all requirements for exercise of the Award pursuant to its terms and no adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property) or distributions of other rights for which the record date is
prior to the date such Common Stock certificate is issued, except as provided in Section 11 hereof.


 


10.3         No
Employment or Other Service Rights. Nothing in the Plan or any instrument executed or Award granted pursuant thereto shall
confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the
Award was granted or shall affect the right of the Company or an Affiliate to terminate: (a) the employment of an Employee with
or without notice and with or without Cause; or (b) the service of a Director pursuant to the By-laws of the Company or an Affiliate,
and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the
case may be.


 


10.4         Transfer;
Approved Leave of Absence. For purposes of the Plan, no termination of employment by an Employee shall be deemed to result
from either: (a) a transfer of employment to the Company from an Affiliate or from the Company to an Affiliate, or from one Affiliate
to another; or (b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company,
if the Employee’s right to reemployment is guaranteed either by a statute or by contract or under the policy pursuant to
which the leave of absence was granted or if the Committee otherwise so provides in writing, in either case, except to the extent
inconsistent with Section 409A of the Code if the applicable Award is subject thereto.


 


10.5         Withholding
Obligations. To the extent provided by the terms of an Award Agreement and subject to the discretion of the Committee, the
Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common
Stock under an Award by any of the following means (in addition to the Company’s right to withhold from any compensation
paid to the Participant by the Company) or by a combination of such means: (a) tendering a cash payment; (b) authorizing the Company
to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Award, provided, however, that no shares of Common Stock are withheld with a value
exceeding the minimum amount of tax required to be withheld by law; or (c) delivering to the Company previously owned and unencumbered
shares of Common Stock of the Company.


 






    	 	21	 



     


    

 


11.         Adjustments
Upon Changes in Stock. In the event of changes in the outstanding Common Stock or in the capital structure of
the Company by reason of any stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate
transaction such as any recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change
in capitalization occurring after the Grant Date of any Award, Awards granted under the Plan and any Award Agreements, the exercise
price of Options and Stock Appreciation Rights, the Performance Goals to which Performance Share Awards and Cash Awards are subject,
the maximum number of shares of Common Stock subject to all Awards stated in Section 4 will be equitably adjusted or substituted,
as to the number, price or kind of a share of Common Stock or other consideration subject to such Awards to the extent necessary
to preserve the economic intent of such Award. In the case of adjustments made pursuant to this Section 11, unless the Committee
specifically determines that such adjustment is in the best interests of the Company or its Affiliates, the Committee shall, in
the case of Incentive Stock Options, ensure that any adjustments under this Section 11 will not constitute a modification, extension
or renewal of the Incentive Stock Options within the meaning of Section 424(h)(3) of the Code and in the case of Nonqualified
Stock Options, ensure that any adjustments under this Section 11 will not constitute a modification of such Nonqualified Stock
Options within the meaning of Section 409A of the Code. Any adjustments made under this Section 11 shall be made in a manner which
does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant
notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes.


 


12.         Effect
of Change in Control.


 


12.1        Unless
otherwise provided in an Award Agreement or a Participant’s employment agreement or services agreement, notwithstanding any
provision of the Plan to the contrary:


 


(a)          In
the event of a Participant’s termination of Continuous Service without Cause or for Good Reason during the six (6) month
period following a Change in Control, notwithstanding any provision of the Plan or any applicable Award Agreement to the contrary,
all outstanding Options and Stock Appreciation Rights shall become immediately exercisable with respect to one hundred percent
(100%) of the shares subject to such Options or Stock Appreciation Rights, and/or the Restricted Period shall expire immediately
with respect to one hundred percent (100%) of the outstanding shares of Restricted Stock or Restricted Stock Units as of the date
of the Participant’s termination of Continuous Service.


 


(b)          With
respect to Performance Share Awards and Cash Awards, in the event of a Participant’s termination of Continuous Service without
Cause or for Good Reason, in either case, within six (6) months following a Change in Control, all Performance Goals or other vesting
criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions will be deemed
met as of the date of the Participant’s termination of Continuous Service.


 






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To the extent practicable, any actions taken
by the Committee under the immediately preceding clauses (a) and (b) shall occur in a manner and at a time which allows affected
Participants the ability to participate in the Change in Control with respect to the shares of Common Stock subject to their Awards.


 


12.2        In
addition, in the event of a Change in Control, the Committee may in its discretion and upon at least ten (10) days’ advance
notice to the affected persons, cancel any outstanding Awards and pay to the holders thereof, in cash or stock, or any combination
thereof, the value of such Awards based upon the price per share of Common Stock received or to be received by other shareholders
of the Company in the event. In the case of any Option or Stock Appreciation Right with an exercise price that equals or exceeds
the price paid for a share of Common Stock in connection with the Change in Control, the Committee may cancel the Option or Stock
Appreciation Right without the payment of consideration therefor.


 


12.3        The
obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger,
consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to all or substantially
all of the assets and business of the Company and its Affiliates, taken as a whole.


 


13.         Amendment
of the Plan and Awards.


 


13.1        Amendment
of Plan. The Board at any time, and from time to time, may amend or terminate the Plan. However, except as provided in Section
11 relating to adjustments upon changes in Common Stock and Section 13.3, no amendment shall be effective unless approved by the
shareholders of the Company to the extent shareholder approval is necessary to satisfy any Applicable Laws. At the time of such
amendment, the Board shall determine, upon advice from counsel, whether such amendment will be contingent on shareholder approval.


 


13.2        Shareholder
Approval. The Board may, in the Board’s sole discretion, submit any other amendment to the Plan for shareholder approval.


 


13.3        Contemplated
Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable
to provide eligible Employees, Consultants and Directors with the maximum benefits provided or to be provided under the provisions
of the Code and the regulations promulgated thereunder relating to Incentive Stock Options or to the nonqualified deferred compensation
provisions of Section 409A of the Code and/or to bring the Plan and/or Awards granted under it into compliance therewith.


 


13.4        No
Impairment of Rights. Rights under any Award granted before amendment of the Plan shall not be impaired by any amendment of
the Plan unless: (a) the Company requests the consent of the Participant; and (b) the Participant consents in writing.


 


13.5        Amendment
of Awards. The Committee at any time, and from time to time, may amend the terms of any one or more Awards; provided, however,
that the Committee may not affect any amendment which would otherwise constitute an impairment of the rights under any Award unless:
(a) the Company requests the consent of the Participant; and (b) the Participant consents in writing.


 






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14.         General
Provisions.


 


14.1        Forfeiture
Events. The Committee may specify in an Award Agreement that the Participant’s rights, payments and benefits with respect
to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain events, in addition
to applicable vesting conditions of an Award. Such events may include, without limitation, breach of non-competition, non-solicitation,
confidentiality, or other restrictive covenants that are contained in the Award Agreement or otherwise applicable to the Participant,
a termination of the Participant’s Continuous Service for Cause, or other conduct by the Participant that is detrimental
to the business or reputation of the Company and/or its Affiliates.


 


14.2        Clawback.
Notwithstanding any other provisions in this Plan, the Company may cancel any Award, require reimbursement of any Award by a Participant,
and effect any other right of recoupment of equity or other compensation provided under the Plan in accordance with any Company
policies that may be adopted and/or modified from time to time (“Clawback Policy”). In addition, a Participant
may be required to repay to the Company previously paid compensation, whether provided pursuant to the Plan or an Award Agreement,
in accordance with the Clawback Policy. By accepting an Award, the Participant is agreeing to be bound by the Clawback Policy,
as in effect or as may be adopted and/or modified from time to time by the Company in its discretion (including, without limitation,
to comply with applicable law or stock exchange listing requirements).


 


14.3        Other
Compensation Arrangements. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation
or benefits arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.


 


14.4        Sub-Plans.
The Committee may, from time to time, establish sub-plans under the Plan for purposes of satisfying securities, tax or other laws
of various jurisdictions in which the Company intends to grant Awards. Any sub-plans shall contain such limitations and other
terms and conditions as the Committee determines are necessary or desirable. All sub-plans shall be deemed a part of the Plan,
but each sub-plan shall apply only to the Participants in the jurisdiction for which the sub-plan was designed.


 


14.5        Unfunded
Plan. The Plan shall be unfunded. Neither the Company, the Board nor the Committee shall be required to establish any special
or separate fund or to segregate any assets to assure the performance of its obligations under the Plan.


 


14.6        Recapitalizations.
Each Award Agreement shall contain provisions required to reflect the provisions of Section 11.


 


14.7        Delivery.
Upon exercise of a right granted under this Plan, the Company shall issue Common Stock or pay any amounts due within a reasonable
period of time thereafter. Subject to any statutory or regulatory obligations the Company may otherwise have, for purposes of
this Plan, thirty (30) days shall generally be considered a reasonable period of time.


 






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14.8        No
Fractional Shares. No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan. The Committee shall
determine whether cash, additional Awards or other securities or property shall be issued or paid in lieu of fractional shares
of Common Stock or whether any fractional shares should be rounded, forfeited or otherwise eliminated.


 


14.9        Other
Provisions. The Award Agreements authorized under the Plan may contain such other provisions not inconsistent with this Plan,
including, without limitation, restrictions upon the exercise of Awards, as the Committee may deem advisable.


 


14.10      Section
409A. The Plan is intended to comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the
maximum extent permitted, the Plan shall be interpreted and administered to be in compliance therewith. Any payments described
in the Plan that are due within the “short-term deferral period” as defined in Section 409A of the Code shall not
be treated as deferred compensation unless Applicable Laws require otherwise. Notwithstanding anything to the contrary in the
Plan, to the extent required to avoid accelerated taxation and tax penalties under Section 409A of the Code, amounts that would
otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six- (6-) month period immediately
following the Participant’s termination of Continuous Service shall instead be paid on the first payroll date after the
six- (6-) month anniversary of the Participant’s separation from service (or the Participant’s death, if earlier).
Notwithstanding the foregoing, neither the Company nor the Committee nor the Board shall have any obligation to take any action
to prevent the assessment of any additional tax or penalty on any Participant under Section 409A of the Code and neither the Company
nor the Committee nor the Board will have any liability to any Participant for such tax or penalty.


 


14.11      Disqualifying
Dispositions. Any Participant who shall make a “disposition” (as defined in Section 424 of the Code) of all or
any portion of shares of Common Stock acquired upon exercise of an Incentive Stock Option within two (2) years from the Grant
Date of such Incentive Stock Option or within one (1) year after the issuance of the shares of Common Stock acquired upon exercise
of such Incentive Stock Option (a “Disqualifying Disposition”) shall be required to immediately advise the
Company in writing as to the occurrence of the sale and the price realized upon the sale of such shares of Common Stock.


 


14.12      Section
16. It is the intent of the Company that the Plan satisfy, and be interpreted in a manner that satisfies, the applicable requirements
of Rule 16b-3 as promulgated under Section 16 of the Exchange Act so that Participants will be entitled to the benefit of Rule
16b-3, or any other rule promulgated under Section 16 of the Exchange Act, and will not be subject to short-swing liability under
Section 16 of the Exchange Act. Accordingly, if the operation of any provision of the Plan would conflict with the intent expressed
in this Section 14.12, such provision to the extent possible shall be interpreted and/or deemed amended so as to avoid such conflict.


 


14.13      Beneficiary
Designation. With the Committee’s approval, each Participant under the Plan may from time to time name any beneficiary
or beneficiaries by whom any right under the Plan is to be exercised in case of such Participant’s death. Each designation
will revoke all prior designations by the same Participant, shall be in a form reasonably prescribed by the Committee and shall
be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime.


 






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14.14      Expenses.
The costs of administering the Plan shall be paid by the Company.


 


14.15      Severability.
If any of the provisions of the Plan or any Award Agreement is held to be invalid, illegal or unenforceable, whether in whole
or in part, such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability
and the remaining provisions shall not be affected thereby.


 


14.16      Plan
Headings. The headings in the Plan are for purposes of convenience only and are not intended to define or limit the construction
of the provisions hereof.


 


14.17      Non-Uniform
Treatment. The Committee’s determinations under the Plan need not be uniform and may be made by it selectively among
persons who are eligible to receive, or actually receive, Awards. Without limiting the generality of the foregoing, the Committee
shall be entitled to make non-uniform and selective determinations, amendments and adjustments, and to enter into non-uniform
and selective Award Agreements.


 


15.         Effective
Date of Plan. The Plan shall become effective as of the Effective Date, but no Award shall be exercised (or,
in the case of a stock Award, shall be granted unless granted as a Restricted Stock Unit for which vesting is made expressly contingent
upon shareholder approval in accordance with Applicable Law) unless and until the Plan has been approved by the shareholders of
the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.


 


16.         Termination
or Suspension of the Plan. The Plan shall terminate automatically on September 20, 2028. No Award shall be granted
pursuant to the Plan after such date, but Awards theretofore granted may extend beyond that date. The Board may suspend or terminate
the Plan at any earlier date pursuant to Section 13.1 hereof. No Awards may be granted under the Plan while the Plan is suspended
or after it is terminated.


 


17.         Choice
of Law. The law of the State of North Carolina shall govern all questions concerning the construction, validity
and interpretation of this Plan, without regard to such state’s conflict of law rules.


 


As adopted by the Board of Directors of
Charles & Colvard, Ltd. on September 20, 2018.


 


As approved by the shareholders of Charles & Colvard, Ltd. on November 8, 2018.


 






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