exhibit101.htm


    
      Exhibit
10.1

       

      


       

      EMPLOYMENT
AGREEMENT

       

      THIS
EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into effective as of
November 5, 2009 by and between Charles & Colvard, Ltd., a North Carolina
company with its principal office at 300 Perimeter Park Drive, Suite A,
Morrisville, North Carolina, 27560 (the “Company”), and Randy N. McCullough, an
individual currently residing at 405 Palos Verdes Drive, Austin, Texas 73734
(“Executive”).

       

      Statement
of Purpose

       

      The
Company wishes to obtain the services of Executive on the terms and conditions
and with the benefits set forth in this Agreement.  Executive desires
to be employed by the Company on such terms and conditions and to receive such
additional consideration as set out herein.

       

      In
consideration of the mutual covenants contained in this Agreement and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Executive agree as follows:

       

             1. Employment.  The
Company hereby agrees to employ Executive, and Executive hereby accepts such
employment, on the terms and conditions set forth in this
Agreement.

       

             2. Term of
Employment.  The term of Executive’s employment under this
Agreement shall commence as of the date of this Agreement and shall continue for
one year.  Termination of employment shall be governed by Paragraph 7
of this Agreement, and unless terminated by either party as provided in
Paragraph 7, this Agreement shall automatically, at the expiration of each then
existing term, renew for successive additional one year terms (such annual
period being hereinafter referred to as the “Term”).

       

             3. Position
and Duties.  Executive shall serve as President and Chief
Executive Officer of the Company.  Executive will, under the direction
of the Board of Directors of the Company, faithfully and to the best of his
ability perform the duties as set as may be reasonably assigned by the Board of
Directors of the Company.  Executive agrees to devote his entire
working time, energy and skills to the Company while so employed, subject to
periods of vacation and sick leave.  Executive, subject to the prior
approval of the Board, may serve on the Board of Directors of corporations other
than the Company.

       

             4. Compensation
and Benefits.  Executive shall receive compensation and
benefits for the services performed for the Company under this Agreement as
follows:

       

                (a) Base
Salary.  Executive shall receive an initial base salary of
$325,000 annually, payable in accordance with Company policy (“Base
Salary”).

       

                (b) Executive
Benefits.  Executive shall receive such benefits as are made
available to the other Executives of the Company, including, but not limited to,
life, medical and disability insurance, retirement benefits, and such vacation
as is provided to the other Executives of the Company (the “Executive
Benefits”).  Employer reserves the right to reduce, eliminate or
change such Executive Benefits, in its sole discretion, subject to any
applicable legal and regulatory requirements.

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


        

                (c) Option
Grant.  The Company shall grant incentive stock options (ISOs)
to purchase 1% of the current outstanding Company shares at the closing price of
the stock on the day this Agreement is signed and Executive becomes an employee
of the Company, with vesting over a three-year period in accordance with the
following vesting schedule: 25% on date of grant, and 25% on each of the
following three anniversary dates of the date of grant.  On each of
the next two anniversary dates of employment, an equivalent ISO grant with
identical vesting schedule for 100,000 ISOs will be granted.  The ISO
treatment of options is subject to applicable tax law
limitations.

       

                (d) Incentive
Compensation.  For 2010 and each year thereafter for the term
of this Agreement, a mutually agreed upon incentive bonus plan up to 75% of
existing salary, based upon Company performance toward achieving targets in a
business plan and budget as submitted by the Executive and approved by the Board
of Directors.

       

                (e) Indemnification.  The
Executive will be eligible for indemnification to the fullest extent authorized
under the Company’s Articles of Incorporation and By-Laws (as applicable) and
will be eligible for coverage under the Company’s Director’s & Officer’s
liability insurance policy as approved by the Board, subject to the terms and
conditions contained therein.

       

             5. Moving
Expenses.  The Company will provide an allowance for the total
cost of moving your possessions and family from Austin, Texas to the Raleigh, NC
area up to $20,000 as long as moving occurs within 6 months of the date
hereof.  This allowance can cover the costs of travel to search for a
residence, moving personal property, and closing costs on the purchase/sale of a
residence.

       

             6. Reimbursement
of Expenses.  Commuting costs for lodging and travel for up to
a six month period will be reimbursed in accordance with our Travel
Policy.  Additionally, the Company shall reimburse Executive for all
reasonable out-of-pocket expenses incurred by Executive specifically and
directly related to the performance by Executive of the services under this
Agreement.

       

             7. Withholding.  The
Company may withhold from any payments or benefits under this Agreement all
federal, state or local taxes or other amounts as may be required pursuant to
applicable law, government regulation or ruling.

       

             8. Termination
of Employment.

       

                (a) Death
of Executive.  If Executive shall die during the Term, this
Agreement and the employment relationship hereunder will automatically terminate
on the date of death.

       

                (b) Termination
by the Company for Just Cause. The Company shall have the right to
terminate Executive’s employment under this Agreement at any time for Just
Cause, which termination shall be effective immediately.  Termination
for “Just Cause” shall include, termination for Executive’s personal dishonesty,
gross incompetence, willful misconduct, breach of a fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, regulation (other than traffic violations or similar
offenses), written Company policy or final cease-and-desist order, conviction of
a felony or of a misdemeanor involving moral turpitude, unethical business
practices in connection with the Company’s business, misappropriation of the
Company’s assets (determined on a reasonable basis), disability or material
breach of any other provision of this Agreement or any other conduct by
Executive of

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      a
similar nature.  For purposes of this subsection, the term
“disability” means the inability of Executive, due to the condition of his
physical, mental or emotional health, to satisfactorily perform the duties of
his employment hereunder for a continuous three month period; provided further
that if the Company furnishes long term disability insurance for Executive, the
term “disability” shall mean that continuous period sufficient to allow for the
long term disability payments to commence pursuant to the Company’s long term
disability insurance policy.  In the event Executive’s employment
under this Agreement is terminated for Just Cause, Executive shall have no right
to receive compensation or other benefits under this Agreement for any period
after such termination.

       

                (c) Termination
by the Company Without Cause.  The Company may terminate
Executive’s employment other than for “Just Cause,” as described in Subsection
(b) above, at any time upon written notice to Executive, which termination shall
be effective immediately.  For the avoidance of doubt, a notice by the
Company that the Agreement is not automatically renewing as provided in Section
2 hereof shall constitute a termination by the Company without cause under this
Subsection (c). In the event the Company terminates Executive pursuant to this
Subsection (c), Executive will continue to receive his Base Salary at time of
termination for a one (1) year period from such termination (the “Termination
Compensation”), so long as Executive complies with Section 9, 10 and 11 of the
Agreement.  Such amounts shall be payable at the times such amounts
would have been paid in accordance with Section 4. Notwithstanding anything in
this Agreement to the contrary, if Executive breaches Sections 9, 10 or 11 of
this Agreement, Executive will not be entitled to receive any further
compensation pursuant to this Section 8(c).

       

                (d) Change
of Control Situations.  In the event of a Change of Control of
the Company at any time after the date hereof, Executive may voluntarily
terminate employment with Company up until one (1) year after the Change of
Control for “Good Reason” (as defined below) and, subject to Section 8(f), be
entitled to receive in a lump sum within two (2) months of the consummation of
the Change of Control equal to (i) any compensation due but not yet paid through
the date of termination and (ii) in lieu of any further salary payments from the
date of termination to the end of the then existing term, an amount equal to the
Termination Compensation.  Any equity based incentive compensation
(including but not limited to stock options, restricted stock, SARs, etc.) shall
fully vest and be immediately exercisable in full upon a Change of Control, not
withstanding any provision in any applicable plan and whether “Good Reason”
exists or not.  Any such benefits shall be paid by the Company to the
same extent as they were so paid prior to the termination or the Change of
Control of Company.

       

                “Good Reason”
shall mean the occurrence of any of the following events without Executive’s
express written consent:

       

                   (i)           the
assignment to Executive of duties materially inconsistent with the position and
status of Executive with the Company immediately prior to the Change of
Control;

       

                   (ii)           a
material reduction by the Company in Executive’s pay grade or base salary as
then in effect, or the exclusion of Executive from participation in Company’s
benefit plans in which he previously participated as in effect at the date
hereof or as the same may be increased from time to time during the
Term;

       

                   (iii)           an
involuntary relocation of Executive more than 50 miles from the location where
Executive worked immediately prior to the Change of Control or the breach by the
Company of any material provision of this Agreement; or

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

                   (iv)           any
purported termination of the employment of Executive by Company which is not
effected in accordance with this Agreement.

       

                A “Change of
Control” shall be deemed to have occurred if (i) any person or group of persons
(as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934)
together with its affiliates, excluding Executive benefit plans of Company,
becomes, directly or indirectly, the “beneficial owner” (as defined in Rule
13d-3 promulgated under the Securities Exchange Act of 1934) of securities of
Company representing 51% or more of the combined voting power of Company’s then
outstanding securities; or (ii) during the then existing term of the Agreement,
as a result of a tender offer or exchange offer for the purchase of securities
of Company (other than such an offer by the Company for its own securities), or
as a result of a proxy contest, merger, consolidation or sale of assets, or as a
result of any combination of the foregoing, individuals who at the beginning of
any year period during such term constitute the Company’s Board of Directors,
plus new directors whose election by Company’s shareholders is approved by a
vote of at least two-thirds of the outstanding voting shares of the Company,
cease for any reason during such year period to constitute at least two-thirds
of the members of such Board of Directors; or (iii) the shareholders of the
Company approve a merger or consolidation of the Company with any other
corporation or entity regardless of which entity is the survivor, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or being converted into voting securities of the surviving
entity) at least 60% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation; or (iv) any event which the Company’s Board of Directors
determines should constitute a Change of Control.  Notwithstanding
anything in this Agreement to the contrary, in no event shall any of the
following occurrences constitute a “Change of Control”: (i) the Company’s making
any assignment for the benefit of its creditors or consenting to the appointment
of a receiver or commencing any proceeding in bankruptcy or for dissolution,
liquidation, winding-up, composition or other relief under state or federal
bankruptcy laws or (ii) any proceeding in bankruptcy or for dissolution,
liquidation, winding-up, composition or other relief under state or federal
bankruptcy laws being commenced against the Company, or a receiver or trustee
being appointed for the Company or a substantial part of its
property.

       

                (e) Executive’s
Right to Payments.  In receiving any payments pursuant to this
Section 8, Executive shall not be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to Executive hereunder,
and such amounts shall not be reduced or terminated whether or not Executive
obtains other employment.

       

                (f) Reduction
in Agreement Payments.  Notwithstanding anything in this
Agreement to the contrary, if any of the payments provided for under this
Agreement (the “Agreement Payments”), together with any other payments that
Executive has the right to receive (such other payments together with the
Agreement Payments are referred to as the “Total Payments”), would constitute a
“parachute payment” as defined in Section 280G(b)(2) of the Internal Revenue
Code of 1986, as amended (the “Code”) (a “Parachute Payment”), the Agreement
Payments shall be reduced by the smallest amount necessary so that no portion of
such Total Payments would be Parachute Payments.  In the event the
Company shall make an Agreement Payment to Executive that would constitute a
Parachute Payment, Executive shall return such payment to the Company (together
with interest at the rate set forth in Section 1274(b)(2)(B) of the
Code).  For purposes of determining whether and the extent to which
the Total Payments constitute Parachute Payments, no portion of the Total
Payments the receipt of which Executive has effectively waived in writing shall
be taken into account.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

             9. Covenant
Not to Compete.  Executive agrees that during his employment
with the Company and for a period of one (1) year following the termination of
his employment with the Company, for whatever reason:

       

                (a) Executive
shall not, directly or indirectly, own any interest in, manage, operate,
control, be employed by, render advisory services to, or participate in the
management or control of any business that operates in the
Business.  For purposes of this Agreement, the Executive and the
Company specifically agree that the “Business” shall mean the business of: (i)
marketing or distributing jewelry, diamonds or gemstones or (ii) fabricating
(wafering, preforming and faceting), marketing and distributing moissanite
gemstones or other diamond simulants to the gem and jewelry industry, unless
Executive’s duties, responsibilities and activities for and on behalf of such
business are not related in any way to products which are in competition with
the Company’s products.  For purposes of this section, “competition
with the Company” shall mean competition for customers in the United States and
in any country in which the Company is selling the Company’s products at the
time of termination.  Notwithstanding any other provision of this
Agreement to the contrary, the following shall NOT be deemed to be a violation
of this Agreement:  (i) Executive’s ownership of less than one percent
of the issued and outstanding stock of a public corporation engaged in the
Business; (ii) the ownership of less than four percent of the stock of Samuels
Jewelers, Inc.; (iii) the ownership of a limited partnership interest in Diamond
Fire Ltd., a Texas limited partnership, a family owned and managed wholesale
business which engages in the business of trading in stocks, diamonds and
diamond jewelry and as for which Executive does not manage, operate, control,
act as an employee, provide advisory services to, nor participate in the
management, nor control the management, of this entity; and (iv) upon
termination of this Agreement for any reason, Executive’s ownership and
operation of a privately owned, brick and mortar, retail jewelry
business.  Executive
recognizes that the possible restriction on his activities which may occur as a
result of his performance of his obligations under Paragraph 8(a) are
substantial, but that such restriction is required for the reasonable protection
of the Company.

       

                (b) Executive
shall not, directly or indirectly, influence or attempt to influence any
customer of the Company to discontinue its purchase of any product of the
Company which is manufactured or sold by the Company at the time of termination
of Executive’s employment or to divert such purchases to any other person, firm
or employer.

       

                (c) Executive
shall not, directly or indirectly, interfere with, disrupt or attempt to disrupt
the relationship, contractual or otherwise, between the Company and any of its
suppliers.

       

                (d) Executive
shall not, directly or indirectly, solicit any Executive of the Company to work
for any other person, firm or employer.

       

             10. Confidentiality.  In
the course of his employment with the Company, Executive will have access to
confidential information, records, data, customer lists, lists of product
sources, specifications, trade secrets and other information which is not
generally available to the public and which the Company and Executive hereby
agree is proprietary information of the Company (“Confidential
Information”).  During and after his employment by the Company,
Executive shall not, directly or indirectly, disclose the Confidential
Information to any person or use any Confidential Information, except as is
required in the course of his employment under this Agreement.  All
Confidential Information as well as records, files, memoranda, reports, plans,
drawings, documents, models, equipment and the like, including copies
thereof,
relating to the Company’s business, which Executive shall prepare or use or come
into contact with during the course of his employment, shall be and remain the
Company’s sole property, and upon termination of Executive’s employment with the
Company, Executive shall return all such materials to the Company.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

             11. Proprietary
Information.  Executive shall assign to the Company, its
successors or assigns, all of Executive’s rights to copyrightable works and
inventions which, during the period of Executive’s employment by the Company or
its successors in business, Executive makes or conceives, either solely or
jointly with others, relating to any subject matter with which Executive’s work
for the Company is or may be concerned (“Proprietary
Information”).  Executive shall  promptly disclose in
writing to the Company such copyrightable works and inventions and, without
charge to the Company, to execute, acknowledge and deliver all such further
papers, including applications for copyrights and patents for such copyrightable
works and inventions, if any, in all countries and to vest title thereto in the
Company, its successors, assigns or nominees.  Upon termination of
Executive’s employment hereunder, Executive shall return to the Company or its
successors or assigns, as the case may be, any Proprietary
Information.  The obligation of Executive to assign the rights to such
copyrightable works and inventions shall survive the discontinuance or
termination of this Agreement for any reason.

       

             12. Entire
Agreement.  This Agreement contains the entire agreement of the
parties with respect to Executive’s employment by the Company and supersedes any
prior agreements between them, whether written or oral.

       

             13. Waiver.  The
failure of either party to insist in any one or more instance, upon performance
of the terms and conditions of this Agreement, shall not be construed as a
waiver or a relinquishment of any right granted hereunder or of the future
performance of any such term or condition.

       

             14. Notices.  Any
notice to be given under this Agreement shall be deemed sufficient if addressed
in writing and delivered personally, by telefax with receipt acknowledged, or by
registered or certified U.S. mail to the address first above appearing, or to
such other address as a party may designate by notice from time to
time.

       

             15. Severability.  In
the event that any provision of any paragraph of this Agreement shall be deemed
to be invalid or unenforceable for any reason whatsoever, it is agreed such
invalidity or unenforceability shall not affect any other provision of such
paragraph or of this Agreement, and the remaining terms, covenants, restrictions
or provisions in such paragraph and in this Agreement shall remain in full force
and effect and any court of competent jurisdiction may so modify the
objectionable provision as to make it valid, reasonable and
enforceable.

       

             16. Amendment.  This
Agreement may be amended only by an agreement in writing signed by each of the
parties hereto.

       

             17. Arbitration.  Any
controversy or claim arising out of or relating to this Agreement, or breach
thereof, shall be settled by arbitration in Raleigh, North Carolina in
accordance with the expedited procedures of the  Rules of the American
Arbitration Association, and judgment upon the award may be rendered by the
arbitrator and may be entered in any court having jurisdiction
thereof.

       

             18. Governing
Law.  This Agreement shall be governed and construed in
accordance with the laws of the State of North Carolina.  Each of the
parties hereto irrevocably submits to the exclusive jurisdiction of the courts
located in North Carolina for the purposes of any suit, action or other
proceeding contemplated hereby or any transaction contemplated
hereby.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

             19. Benefit.  This
Agreement shall be binding upon and inure to the benefit of and shall be
enforceable by and against the Company, its successors and assigns, and
Executive, his heirs, beneficiaries and legal representatives.  It is
agreed that the rights and obligations of Executive may not be delegated or
assigned except as may be specifically agreed to by the parties
hereto.

       

             20. Compliance
with Section 409A.  The parties hereto intend that this
Agreement comply with Section 409A of the Internal Revenue Code of 1986, as
amended (including any applicable regulations, proposed regulations, guidance or
other interpretive authority thereunder (for purposes of this section,
collectively, “Section 409A”)), to the extent applicable.  The parties
hereby agree that this Agreement shall be construed in a manner to comply with
Section 409A and that should any provision be found not in compliance with
Section 409A, the parties are hereby contractually obligated to execute any and
all amendments to this Agreement deemed necessary and recommended by legal
counsel for the Company to achieve compliance with Section 409A.  By
execution and delivery of this Agreement, the Company and Executive each
irrevocably waive any objections it or he may have to the amendments required or
necessitated, in the reasonable opinion of the Company, by Section
409A.

       

      <signature
page follows>

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.

       

       

      CHARLES
& COLVARD, LTD.

       

      By:           /s/
George R.
Cattermole                                                                                     

      George R. Cattermole, Interim Chief Executive
Officer

       

      EXECUTIVE

      


      


      /s/
Randy N.
McCullough                                                                                                

      Randy
N. McCullough