Exhibit 10.1


 


CHARLES & COLVARD, LTD.


FISCAL 2022 SENIOR MANAGEMENT EQUITY INCENTIVE
PROGRAM


 


Adopted September 15, 2021


 


The Charles & Colvard, Ltd. Fiscal 2022 Senior Management Equity
Incentive Program (the “Program”) is a compensatory program established pursuant to the Charles & Colvard, Ltd. 2018 Equity
Incentive Plan (the “2018 Plan”) for the 2022 fiscal year (i.e., July 1, 2021 through June 30, 2022). The Compensation Committee
(the “Committee”) of the Board of Directors of Charles & Colvard, Ltd. (the “Company”) is charged with administering
the Program. The Program covers performance-based restricted stock awards and cash bonus awards for Company personnel at the level of
Senior Vice-President and above (the “Eligible Employees”).


 


The Program supersedes and replaces all prior management incentive
plans or programs for all periods commencing on or after July 1, 2021.


 


Purpose and Objective


 


The Program is intended to further strengthen the Company’s pay
for performance philosophy and more closely align the Eligible Employees’ interests with those of the Company and its shareholders
by granting Eligible Employees significant equity and cash compensation awards that are tied to both Company and individual performance.
The Program provides for a mixture of both performance-based and time-based vesting of equity compensation awards to permit the Committee
to tie vesting to the attainment of specific performance measures under the 2018 Plan while also encouraging the longer-term retention
of Eligible Employees.


 


Description of Units1


 


Each award granted under this Program shall be expressed in “Units”
and each Unit shall consist of (1) a restricted stock award representing 65% of the Unit (the “Restricted Stock Component”),
to be granted to Eligible Employees upon approval of this Program, and (2) a cash bonus award representing 35% of the Unit (the “Cash
Component”), to be paid to Eligible Employees on the payroll date following the Vesting Date (as defined below) subject to achievement
of performance goals.


 


The value of the Restricted Stock Component of a Unit shall be set
on the grant date of the Unit under this Program. The value of the Cash Component of a Unit shall be calculated on the Vesting Date of
the Unit as the product of 0.35 multiplied by the closing price of one share of the Company’s Common Stock on the Vesting Date (the
 “Vesting FMV”).


 


For example, if an award is expressed as 100 Units and all performance
goals are achieved at the 100% level (as more fully described below), all 100 Units would fully vest. The Restricted Stock Component of
the 100 Units would equate to 65 fully vested shares of the Company’s Common Stock. Assuming the Vesting FMV is $2.00, the Cash
Component would equate to $70.00 (100 Units multiplied by 0.35 multiplied by $2.00).


 





 






1 “Share Equivalents” have been replaced with
the term “Units” to ensure that the Cash portion of the program which is now linked to a share price multiple is properly
characterized as “phantom stock” for tax purposes as opposed to being viewed as an equity incentive.


 






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For the avoidance of doubt, the Cash Component of a Unit does not represent
any security interest in the Company, and does not in any way represent an ownership interest in the Company, nor does it give an Eligible
Employee any rights as a shareholder of the Company.


 


Achievement of Units


 


Units granted under this Program have both performance and service
measures. Achievement of an Eligible Employee’s performance measures shall be measured by the Committee as follows: (1) 65% of each
Unit shall be based on the achievement of a shared Company goal regarding revenue (the “Revenue Measure”); (2) 20% of each
Unit shall be based on the achievement of a shared Company goal regarding EBITDA (the “EBITDA Measure” and together with the
Revenue Measure, the “Company Measures”); and (3) 15% of each Unit shall be based on the achievement of individual performance
goals (the “Personal Measures”), all for the period from July 1, 2021 through June 30, 2022 (the “Performance Measurement
Period”).


 


If the Company does not achieve 90% of the Revenue Measure, the Restricted
Stock Component of each Unit shall be forfeited and the Cash Component of each Unit shall not be paid. The Company must achieve at least
90% of the Revenue Measure in order for the portion of the Unit attributed to the EBITDA Measure and Personal Measures to be vested/paid,
as applicable. Achievement on a sliding scale from 90% to 125% of the Revenue Measure shall result in payment ranging from 75% to 150%
of the portion of the Unit attributed to the Revenue Measure. Eligible Employees may achieve from 0% to 100% of the EBITDA Measure and
his or her Personal Measures. The Restricted Stock Component and Cash Component of each Unit shall be reduced proportionately by any performance
that is measured below 100% accordingly. The Personal Measures and Company Measures are determined by the Committee and may be modified
by the Committee during, and after the end of, the Performance Measurement Period, subject to the terms of the 2018 Plan. In addition,
an Eligible Employee must remain in continuous service until July 31, 2022 (the “Vesting Date”) for restrictions to fully
lapse on the Restricted Stock Component and for the Cash Component to be paid.


 


Under this Program, the Eligible Employees shall be eligible to receive
the following target-level Units:


 


	Position	Target Units
	Chief Executive Officer	150,000
	Chief Financial Officer and Chief Operating Officer	75,000
	Senior Vice President(s)	50,000


 


The Program provides the Committee discretion to make additional awards
above the targeted award level in recognition of extraordinary performance.


 






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Committee Discretion in Granting Units and Administering the Program
for Future Employees


 


Any person who commences employment with the Company after July 1,
2021 may be designated an Eligible Employee for purposes of the Program at the discretion of the Committee and receive a pro-rated number
of Units.


 


Source of Equity Compensation Units; Coordination with 2018 Plan


 


The Restricted Stock Component and the Cash Component of all Units
granted pursuant to the Program shall be issued under and pursuant to the 2018 Plan. All terms, conditions, and requirements of the 2018
Plan are expressly incorporated into the Program by reference.


 


The Restricted Stock Component of all Units granted pursuant to the
Program shall be evidenced by an appropriate Restricted Stock Award Agreement in the form approved by the Committee for use under the
2018 Plan, and the Restricted Stock Component of each Unit hereunder shall be subject to the terms and conditions set forth in the applicable
Restricted Stock Award Agreement and the 2018 Plan. To the extent there is any conflict or ambiguity between the terms of this Program
and the 2018 Plan or between this Program and any applicable Restricted Stock Award Agreement, the terms of the 2018 Plan or the applicable
Restricted Stock Award Agreement shall control.


 


Amendment and Termination of the Program 


 


The Program may be amended or terminated at any time by the Committee
or the Company’s Board of Directors. The Committee shall have unilateral authority to amend the Program and any Unit granted pursuant
to the Program (without the recipient’s consent) to the extent necessary to comply with applicable laws, rules, or regulations or
changes to applicable laws, rules, or regulations (including but not limited to Section 409A of the Internal Revenue Code of 1986, as
amended, federal securities laws, or related regulations or other guidance).


 


Withholding; Tax Matters 


 


In accordance with the terms of the 2018 Plan
and applicable Restricted Stock Award Agreements thereunder, the Company shall withhold, or shall require the recipient to pay the Company
in cash, the amount of any local, state, federal, foreign, or other tax or other amount required by any governmental authority to be withheld
and paid over by the Company to such authority for the account of the recipient. The Company makes no warranties or representations with
respect to the tax consequences (including but not limited to income tax consequences) related to the transactions contemplated by this
Program and the 2018 Plan. A recipient should consult with his/her own attorney, accountant, and/or tax advisor regarding the decision
to accept equity compensation awards under the Program and the consequences thereof. The Company has no responsibility to take or refrain
from taking any actions in order to achieve a certain tax result for any recipient.


 






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