Exhibit 10.4


 


CHARLES & COLVARD, LTD. 


2008 STOCK INCENTIVE PLAN 


 


Employee Nonqualified Stock Option Agreement


For Grants Pursuant to Long-Term Incentive
Program 


 


THIS AGREEMENT (together with Schedule A,
attached hereto, the “Agreement”), effective as of                               .
20      (the “Grant Date”), between CHARLES & COLVARD, LTD., a North Carolina corporation
(the “Corporation”), and                                    
                                ,
an Employee of the Corporation or an Affiliate (the “Participant”);


 


RECITALS:


 


In furtherance of the purposes of the Charles &
Colvard, Ltd. 2008 Stock Incentive Plan, as it may be hereafter amended and/or restated (the “Plan”), the Charles &
Colvard, Ltd. Long-Term Incentive Program adopted April 17, 2014 (the “LTIP”), and in consideration of the services
of the Participant and such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
the Corporation and the Participant hereby agree as follows:


 


1.          Incorporation
of Plan. The rights and duties of the Corporation and the Participant under this Agreement shall in all respects be subject
to and governed by the provisions of the Plan, the terms of which are incorporated herein by reference. In the event of any conflict
between the provisions in the Agreement and those of the Plan, the provisions of the Plan shall govern. Unless otherwise defined
herein, capitalized terms in this Agreement shall have the same definitions as set forth in the Plan.


 


2.          Grant
of Option; Term of Option. The Corporation hereby grants to the Participant pursuant to the Plan and the LTIP, as a matter
of separate inducement and agreement in connection with his or her employment or service to the Corporation, and not in lieu of
any salary or other compensation for his or her services, the right and Option (the “Option”) to purchase all or any
part of such aggregate number of shares (the “Shares”) of common stock of the Corporation (the “Common Stock”)
at a purchase price (the “Option Price”) as specified on Schedule A, and subject to such other terms and conditions
as may be stated herein or in the Plan or on Schedule A. The Participant expressly acknowledges that the terms of Schedule A
shall be incorporated herein by reference and shall constitute part of this Agreement. The Corporation and the Participant further
acknowledge and agree that the signatures of the Corporation and the Participant on the Grant Notice contained in Schedule A shall
constitute their acceptance of all of the terms of this Agreement and their agreement to be bound by the terms of this Agreement.
The Option shall be designated as a Nonqualified Option. Except as otherwise provided in the Plan or this Agreement, this Option
will expire if not exercised in full by the Expiration Date specified on Schedule A.


 




    	 



    	 



    

 


3.           Exercise
of Option. Subject to the terms of the Plan and this Agreement, the Option shall vest and become exercisable on the date or
dates, and subject to such conditions, as are set forth on Schedule A. To the extent that the Option is exercisable but is not
exercised, the Option shall accumulate and be exercisable by the Participant in whole or in part at any time prior to expiration
of the Option, subject to the terms of the Plan and this Agreement. The minimum number of Shares that may be purchased under the
Option at one time shall be ten (10). The total number of shares that may be acquired upon exercise of the Option shall be rounded
down to the nearest whole share. The Participant expressly acknowledges that the Option shall vest and be exercisable only upon
such terms and conditions as are provided in this Agreement (including the terms set forth in Schedule A), the LTIP and the Plan.
Upon the exercise of the Option in whole or in part and payment of the Option Price in accordance with the provisions of the Plan
and this Agreement, the Corporation shall, as soon thereafter as practicable, deliver to the Participant a certificate or certificates
(or, in the case of uncertificated shares, other written notice of ownership in accordance with Applicable Laws) for the Shares
purchased. Payment of the Option Price may be made in the form of cash or cash equivalent; provided that, except where prohibited
by the Administrator and/or Applicable Laws (and subject to any terms and conditions that may be established by the Administrator),
payment may also be made as follows: (i) by delivery (by either actual delivery or attestation) of shares of Common Stock
previously owned by the Participant; (ii) by shares of Common Stock withheld upon exercise but only if and to the extent that
payment by such method does not result in variable accounting or other accounting consequences deemed unacceptable to the Corporation;
(iii) by delivery of written notice of exercise to the Corporation and delivery to a broker of written notice of exercise
and irrevocable instructions to promptly deliver to the Corporation the amount of sale or loan proceeds to pay the Option Price;
(iv) by such other payment methods as may be approved by the Administrator and which are acceptable under Applicable Laws;
or (v) by any combination of the foregoing methods. Shares tendered or withheld in payment on the exercise of the Option shall
be valued at their Fair Market Value on the date of exercise, as determined in accordance with the provisions of the Plan.


 


4.           No
Right of Employment or Service. None of the Plan, the LTIP, this Agreement, the grant of the Option, or any other action or
documentation related to the Plan shall confer upon the Participant any right to continue in the employment or service of the Corporation
or an Affiliate or interfere with the right of the Corporation or an Affiliate to terminate the Participant’s employment
or service at any time. Except as otherwise provided in the Plan or this Agreement, all rights of the Participant with respect
to the Option shall terminate upon termination of the Participant’s employment or service.


 


5.           Termination
of Employment. The Option shall not be exercised unless the Participant is, at the time of exercise, an Employee or in service
as described in the Plan and has been an Employee or in service to the Corporation continuously since the date the Option was granted,
subject to the following:


 


(a)          The
employment or service relationship of the Participant shall be treated as continuing intact for any period that the Participant
is on military or sick leave or other bona fide leave of absence, provided that the period of such leave does not exceed three
months, or, if longer, as long as the Participant’s right to reemployment or service is guaranteed either by statute or by
contract. The employment or service relationship of the Participant shall also be treated as continuing intact while the Participant
is not in active service because of Disability. The Administrator shall determine whether the Participant is disabled under the
Plan and, if applicable, the Participant’s Termination Date.


 




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(b)          If
the employment or service of the Participant is terminated because of Disability or death, the Option may be exercised only to
the extent vested and exercisable on the Participant’s Termination Date. The Option must be exercised, if at all, prior to
the first to occur of the following, whichever shall be applicable: (i) the close of the one-year period following the Termination
Date; or (ii) the close of the Option Period. In the event of the Participant’s death, the Option shall be exercisable
by such person or persons as shall have acquired the right to exercise the Option by will or by the laws of intestate succession.


 


(c)          If
the employment or service of the Participant is terminated for Cause, the Option shall lapse and no longer be exercisable as of
his or her Termination Date, as determined by the Administrator. For purposes of the Agreement, “Cause” shall mean
the Participant’s termination of employment or service resulting from the Participant’s (i) termination for “cause”
as defined under the Participant’s employment, consulting or other agreement, if any, with the Corporation or an Affiliate
or (ii) if the Participant has not entered into any such employment, consulting or other agreement (or if any such agreement
does not define a “cause” termination), then the Participant’s termination shall be for “Cause” if
termination results due to the Participant’s: (A) personal dishonesty, (B) gross incompetence, (C) willful
misconduct, (D) breach of a fiduciary duty involving personal profit, (E) intentional failure to perform stated duties,
(F) willful violation of any law, rule, regulation (other than minor traffic violations or similar offenses), written Corporation
policy or final cease-and-desist order, (G) conviction of a felony or a misdemeanor involving moral turpitude, (H) unethical
business practices in connection with the Corporation’s business, (I) misappropriation of the Corporation’s assets,
or (J) engaging in any conduct that could be materially damaging to the Corporation without a reasonable good faith belief
that such conduct was in the best interest of the Corporation. The determination of “Cause” shall be made by the Administrator
and the Administrator’s determination shall be conclusive, final, and binding in all respects. Without in any way limiting
the effect of the foregoing, for purposes of the Plan and this Agreement, the 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 opinion of the Administrator, the Participant’s termination for Cause.


 


(d)          If
the employment or service of the Participant is terminated for any reason other than Disability, death or for Cause (which are
addressed in (b) and (c) above), to the extent the Option is not then vested and exercisable, the Option will lapse.
To the extent the Option is vested and exercisable, the Option must be exercised, if at all, prior to the first
to occur of the following, whichever shall be applicable: (i) the close of the period of three months next succeeding
the Termination Date; or (ii) the close of the Option Period. If the Participant dies following such termination
of employment or service and prior to the earlier of the dates specified in (i) or (ii) of this subparagraph (d), the
Participant shall be treated as having died while employed under subparagraph (b) above (treating for this purpose the Participant’s
date of termination of employment or service as the Termination Date). In the event of the Participant’s death, the Option
shall be exercisable by such person or persons as shall have acquired the right to exercise the Option by will or by the laws of
intestate succession.


 




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(e)          Notwithstanding
the above provisions of Section 5, unless the Administrator determines otherwise, if the Participant terminates employment
with the Corporation (for any reason other than death or for Cause) but enters into a written agreement to provide continuing services
without interruption to the Corporation or an Affiliate as an Independent Contractor, he shall continue to be treated as an Employee
of or in service to the Corporation and his Termination Date shall not be treated as occurring until the later of the date he is
no longer an Employee of the Corporation or an Affiliate or the date he is no longer in service as an Independent Contractor (as
determined by the Administrator in its discretion).


 


6.           Effect
of Change of Control.


 


(a)          In
the event of a Change of Control (as defined in the Plan), the Option, if outstanding as of the date of such Change of Control,
shall become fully exercisable, whether or not then otherwise exercisable. In such event, the Administrator may: (i) determine
that the Option must be exercised, if at all, within a fixed time period (as determined by the Administrator) following or prior
to such Change of Control, and/or (ii) determine that the Option shall terminate after such time period, and/or (iii) make
other similar determinations regarding the Participant’s rights with respect to the Option.


 


(b)          Notwithstanding
the foregoing, in the event that a Change of Control event occurs, the Administrator may, in its sole and absolute discretion,
determine that the Option shall not vest or become exercisable on an accelerated basis, if the Corporation or the surviving or
acquiring corporation, as the case may be, shall have taken such action, including but not limited to the assumption of Awards
granted under the Plan or the grant of substitute awards (in either case, with substantially similar terms or equivalent economic
benefits as Awards granted under the Plan), as the Administrator determines to be equitable or appropriate to protect the rights
and interests of Participants under the Plan. For the purposes herein, if the Committee is acting as the Administrator authorized
to make the determinations provided for in this Section 6(b), the Committee shall be appointed by the Board of Directors,
two-thirds of the members of which shall have been Directors of the Corporation prior to the Change of Control event.


 


(c)          The
Administrator shall have full and final authority, in its discretion, to determine whether a Change of Control of the Corporation
has occurred, the date of the occurrence of such Change of Control and any incidental matters relating thereto.


 


7.           Nontransferability
of Option. The Option shall not be transferable (including by sale, assignment, pledge or hypothecation) other than by will
or the laws or intestate succession, except as may be permitted by the Administrator in a manner consistent with the registration
provisions of the Securities Act. The Option shall be exercisable during the Participant’s lifetime only by the Participant
or by the Participant’s guardian or legal representative or a permitted transferee as provided in this Section 7. The
designation of a beneficiary in accordance with the Plan does not constitute a transfer.


 




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8.           Superseding
Agreement. This Agreement supersedes any statements, representations or agreements of the Corporation with respect to the grant
of the Option, any other equity-based awards or any related rights, and the Participant hereby waives any rights or claims related
to any such statements, representations or agreements. This Agreement does not supersede or amend any confidentiality agreement,
non-solicitation agreement, non-competition agreement, employment agreement or any other similar agreement between the Participant
and the Corporation, including, but not limited to, any restrictive covenants contained in such agreements.


 


9.           Governing
Law. Except as otherwise provided in the Plan or herein, this Agreement shall be construed and enforced according to the laws
of the State of North Carolina, without regard to the conflict of laws provisions of any state, and in accordance with applicable
federal laws of the United States.


 


10.         Amendment
and Termination; Waiver. Subject to the terms of the Plan, the LTIP, and this Section 10, this Agreement may be amended,
altered, suspended and/or terminated only by the written agreement of the parties hereto. Notwithstanding the foregoing, the Administrator
shall have unilateral authority to amend the Plan and this Agreement (without Participant consent) to the extent necessary to comply
with Applicable Laws or changes to Applicable Laws (including but not limited to Code Section 409A and federal securities
laws). The waiver by the Corporation of a breach of any provision of the Agreement by the Participant shall not operate or be construed
as a waiver of any subsequent breach by the Participant.


 


11.         No
Rights as Shareholder. The Participant and the Participant’s legal representatives, legatees or distributees shall not
be deemed to be the holder of any Shares subject to the Option and shall not have any rights of a shareholder unless and until
certificates for such Shares have been issued and delivered to him or her or them (or, in the case of uncertificated shares, other
written notice of ownership in accordance with Applicable Laws shall have been provided).


 


12.         Withholding;
Tax Matters.


 


(a)          The
Participant acknowledges that the Corporation shall require the Participant to pay the Corporation 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
Corporation to such authority for the account of the Participant, and the Participant agrees, as a condition to the grant of the
Option and delivery of the Shares or any other benefit, to satisfy such obligations. Notwithstanding the foregoing, the Administrator
may establish procedures to permit the Participant to satisfy such obligations in whole or in part, and any other local, state,
federal, foreign or other income tax obligations relating to the Option, by electing (the “election”) to have the Corporation
withhold shares of Common Stock from the Shares to which the Participant is entitled. The number of Shares to be withheld shall
have a Fair Market Value as of the date that the amount of tax to be withheld is determined as nearly equal as possible to (but
not exceeding) the amount of such obligations being satisfied. Each election must be made in writing to the Administrator in accordance
with election procedures established by the Administrator.


 




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(b)          The
Participant acknowledges that the Corporation has made no warranties or representations to the Participant with respect to the
tax consequences (including but not limited to income tax consequences) related to the transactions contemplated by this Agreement,
and the Participant is in no manner relying on the Corporation or its representatives for an assessment of such tax consequences.
The Participant acknowledges that there may be adverse tax consequences upon the grant of the Option and/or the acquisition or
disposition of the Shares subject to the Option and that the Participant has been advised that he or she should consult with his
or her own attorney, accountant, and/or tax advisor regarding the decision to enter into this Agreement and the consequences thereof.
The Participant also acknowledges that the Corporation has no responsibility to take or refrain from taking any actions in order
to achieve a certain tax result for the Participant.


 


13.         Administration.
The authority to construe and interpret this Agreement and the Plan, and to administer all aspects of the Plan, shall be vested
in the Administrator, and the Administrator shall have all powers with respect to this Agreement as are provided in the Plan. Any
interpretation of this Agreement by the Administrator and any decision made by the Administrator with respect to this Agreement
shall be conclusive, final, and binding in all respects.


 


14.         Notices.
Except as may be otherwise provided by the Plan, any written notices provided for in this Agreement or the Plan shall be in writing
and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first
class mail. Notices sent by mail shall be deemed received three business days after mailed but in no event later than the date
of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated on Schedule A
(or such other address as may be designated by the Participant in a manner acceptable to the Administrator), or, if to the Corporation,
at the Corporation’s principal office, attention Chief Financial Officer.


 


15.         Severability.
If any provision of the Agreement shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect
the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision
had not been included.


 


16.         Restrictions
on Option and Shares. The Corporation may impose such restrictions on the Option, the Shares and/or any other benefits underlying
the Option as it may deem advisable, including, without limitation, restrictions under the federal securities laws, the requirements
of any stock exchange or similar organization and any blue sky, state or foreign securities laws applicable to securities. Notwithstanding
any other provision in the Plan or the Agreement to the contrary, the Corporation shall not be obligated to issue, deliver or transfer
shares of Common Stock, make any other distribution of benefits, or take any other action, unless such delivery, distribution or
action is in compliance with all Applicable Laws (including but not limited to the requirements of the Securities Act). The Corporation
will be under no obligation to register shares of Common Stock or other securities with the Securities and Exchange Commission
or to effect compliance with the exemption, registration, qualification or listing requirements of any state or foreign securities
laws, stock exchange or similar organization, and the Corporation will have no liability for any inability or failure to do so.
The Corporation may cause a restrictive legend or legends to be placed on any certificate for Shares issued pursuant to the exercise
of the Option in such form as may be prescribed from time to time by Applicable Laws or as may be advised by legal counsel. Further,
the Administrator may suspend the right to exercise the Option or dispose of shares of Common Stock at any time when the Administrator
determines that allowing issuance of Common Stock (or distribution of other benefits) would violate any federal or state securities
laws, and the Administrator may provide in its discretion that any time periods to exercise the Option are tolled during a period
of suspension.


 




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17.         Counterparts;
Further Instruments. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. The parties hereto agree to execute such further instruments
and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.


 


18.         Effect
of Changes in Duties or Status. Notwithstanding the other provisions of the Plan or this Agreement, the Administrator has discretion
to determine, at the time of grant of the Option or at any time thereafter, the effect, if any, on the Option (including but not
limited to the vesting and/or exercisability of the Option) if the Participant’s duties and/or responsibilities change or
the Participant’s status as an Employee changes, including but not limited to a change from full-time to part-time, or vice
versa, or if other similar changes in the nature or scope of the Participant’s employment occur. In addition, unless otherwise
determined by the Administrator, in the Administrator’s discretion, for purposes of the Plan, a Participant shall be considered
to have terminated employment and to have ceased to be an Employee if his employer was an Affiliate at the time of grant and such
employer or other party ceases to be an Affiliate, even if he continues to be employed by such employer or party.


 


19.         Rules
of Construction. Headings are given to the Sections of this Agreement solely as a convenience to facilitate reference. The
reference to any statute, regulation or other provision of law shall be construed to refer to any amendment to or successor of
such provision of law unless the Administrator determines otherwise.


 


20.         Successors
and Assigns. The Agreement shall be binding upon the Corporation and its successors and assigns, and the Participant, and his
or her executors, administrators and permitted transferees and beneficiaries.


 


21.         Right
of Offset. Notwithstanding any other provision of the Plan or this Agreement (and taking into account any Code Section 409A
considerations), the Corporation may at any time reduce the amount of any distribution or benefit otherwise payable to or on behalf
of the Participant by the amount of any obligation of the Participant to the Corporation or an Affiliate that is or becomes due
and payable (including, but in no way limited to, any obligation that may arise under Section 304 of the Sarbanes-Oxley Act
of 2002).


 




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22.         Forfeiture
of Shares and/or Gain from Shares.


 


(a)          Notwithstanding
any other provision of this Agreement, if, at any time during the Participant’s employment with the Corporation or an Affiliate
or during the 12-month period following termination of employment for any reason (regardless of whether such termination was by
the Corporation or the Participant, and whether voluntary or involuntary), the Participant engages in a Prohibited Activity (as
defined herein), then: (i) the Option shall immediately be terminated and forfeited in its entirety; (ii) any Shares
shall immediately be forfeited and returned to the Corporation (without the payment by the Corporation of any consideration for
such Shares), and the Participant shall cease to have any rights related thereto and shall cease to be recognized as the legal
owner of such Shares; and (iii) any Gain (as defined herein) realized by the Participant with respect to any Shares shall
immediately be paid by the Participant to the Corporation.


 


(b)          For
purposes of this Agreement, a “Prohibited Activity” shall mean: (i) the Participant’s solicitation or assisting
any other person in so soliciting, directly or indirectly, of any customers, suppliers, vendors or other service providers to or
of the Corporation or any Affiliate within the United States that the Participant learned confidential information about or had
contact with through his employment or service with the Corporation or an Affiliate for the purpose of inducing that customer,
supplier, vendor or other service provider to terminate or alter his or its relationship with the Corporation or an Affiliate;
(ii) the Participant’s inducement, directly or indirectly, of any employees or service providers to terminate their
employment with or service to the Corporation or an Affiliate for the purpose of performing services for, assisting, advising or
otherwise supporting any business which is competitive with the business of the Corporation or an Affiliate; (iii) the Participant’s
violation of any noncompetition, nonsolicitation or confidentiality restrictions or other restrictive covenants applicable to the
Participant; (iv) the Participant’s violation of any of the Corporation’s policies, including, without limitation,
the Corporation’s insider trading policies; (v) the Participant’s violation of any material (as determined by
the Administrator) federal, state or other law, rule or regulation; (vi) the Participant’s disclosure or other misuse
of any confidential information or material concerning the Corporation or an Affiliate (except as otherwise required by law or
as agreed to by the parties herein); (vii) the Participant’s dishonesty in a manner that negatively impacts the Corporation
in any way; (viii) the Participant’s refusal to perform his duties for the Corporation or an Affiliate; (ix) the
Participant’s engaging in fraudulent conduct; or (x) the Participant’s engaging in any conduct that is or could
be materially damaging to the Corporation or its Affiliates without a reasonable good faith belief that such conduct was in the
best interest of the Corporation or any of its Affiliates. The Administrator shall have sole and absolute discretion to determine
if a Prohibited Activity has occurred.


 


(c)          For
purposes of this Agreement, “Gain” shall mean, unless the Administrator determines otherwise, an amount equal to (i) the
greater of (A) the Fair Market Value per Share of the Shares (or portion thereof) at the time of exercise or (B) the
disposition price per Share of any Shares sold or disposed at the time of disposition, multiplied by (ii) the number of Shares
sold or disposed of, minus (iii) the Option Price paid for the Shares (or portion thereof).


 




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(d)          Notwithstanding
the provisions of Section 22(a) herein, the waiver by the Corporation in any one or more instances of any rights afforded
to the Corporation pursuant to the terms of Section 22(a) herein shall not be deemed to constitute a further or continuing
waiver of any rights the Corporation may have pursuant to the terms of this Agreement or the Plan (including, but not limited,
to the rights afforded the Corporation in Section 21 herein).


 


(e)          The
Corporation and the Participant hereby expressly agree that, notwithstanding the other provisions of this Section 22, if the
Participant has entered into an employment agreement, consulting agreement or other agreement containing noncompetition, nonsolicitation,
confidentiality or similar covenants, then the provisions contained in such agreement(s) with respect to the scope (e.g., duration,
territory, or prohibited activity) of such restrictive covenants shall control (and thus prevail over Section 22(b)(i), Section 22(b)(ii)
and Section 22(b)(iii) herein), unless the Administrator should determine otherwise. In any event, the Corporation shall retain
the forfeiture and recoupment rights provided in Section 22(a) in the event of a violation of such restrictive covenants unless,
and then only to the extent prohibited by, or restricted under, Applicable Laws.


 


(f)          By
accepting this Agreement, and without limiting the effect of Section 21 herein, the Participant consents to a deduction (to
the extent permitted by Applicable Law) from any amounts the Corporation or an Affiliate may owe the Participant from time to time
(including amounts owed to the Participant as wages or other compensation, fringe benefits, or vacation pay, as well as any other
amounts owed to the Participant by the Corporation or an Affiliate), to the extent of the amounts the Participant owes the Corporation
pursuant to this Agreement, including but not limited to this Section 22. Whether or not the Corporation elects to make any
set-off in whole or in part, if the Corporation does not recover by means of set-off the full amount owed by the Participant pursuant
to this Agreement, the Participant agrees to immediately pay the unpaid balance to the Corporation. Further, by executing and returning
this Agreement to the Corporation, the Participant acknowledges and agrees that: (i) Participant has read the Plan and this
Agreement in its entirety; (ii) Participant has had the opportunity to consult with legal counsel prior to execution of this
Agreement; (iii) this Agreement is valid and binding upon, and enforceable against, the Participant in accordance with its
terms, including, but not limited to, the restrictions contained in this Section 22; and (iv) the consideration for this
Agreement is valuable and sufficient consideration.


 


[Signatures of the Corporation and the
Participant follow on Schedule A / Grant Notice.] 


 




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Exhibit 10.4


 


CHARLES & COLVARD, LTD. 


2008 STOCK INCENTIVE PLAN


 


Employee Nonqualified Stock Option Agreement


For Grants Pursuant to Long-Term Incentive
Program


 


Schedule A / Grant Notice 


 


1. Pursuant to the terms and conditions
of the Corporation’s 2008 Stock Incentive Plan (the “Plan”) and the Corporation’s Long-Term Incentive
Program adopted April ___, 2014 (the “LTIP”), you (the “Participant”) have been granted an option (the
“Option”) to purchase              shares (the
“Shares”) of our Common Stock as outlined below.





	 	 	 
	Name of Participant:	 	 
	Address:	 	 
	 	 	 
	 	 	 
	Grant Date:	 	      _                                                     , 20        
	Number of Shares Subject to Option:	 	 
	Option Price:	 	$  	 
	Type of Option:	 	Nonqualified Stock Option
	Expiration Date (Last day of Option Period):	 	                                                           , 20        










 


Performance and Service Conditions / Vesting Schedule: 


Vesting in any portion of the Option is contingent upon the
Corporation’s achievement of one hundred percent (100%) of the EBITDA Target (specified below) for the Corporation’s
fiscal year in which the Option is granted.


 


If 100% of the EBITDA Target is not achieved, the entire Option
shall be immediately forfeited and the Participant shall have no further rights or interest in the Option.


 


If 100% of the EBITDA Target is achieved, the Opition shall
vest in accordance with the following service-based vesting schedule provided Participant remains in continuous employment with
the Corporation or Affiliate through each vesting date:


 


		·	1/3 of the Option (rounded down to the nearest whole share, as applicable) shall vest on the first anniversary of the Grant
Date;



		·	1/3 of the Option (rounded down to the nearest whole share, as applicable) shall vest on the second anniversary of the Grant
Date; and



		·	The remaining portion of the Option shall vest in full on the third anniversary of the Grant Date.



 


EBITDA Target:_________________________ 


 


Schedule A-1 




    	 



    	 



    

 


2. By my signature below, I, the Participant,
hereby acknowledge receipt of this Grant Notice and the Option Agreement (the “Agreement”) dated                     
     , 20     , between the Participant and Charles & Colvard,
Ltd. (the “Corporation”) which is attached to this Grant Notice. I understand that the Grant Notice and other provisions
of Schedule A herein are incorporated by reference into the Agreement and constitute a part of the Agreement. By my signature
below, I further agree to be bound by the terms of the Plan and the Agreement, including but not limited to the terms of this Grant
Notice and the other provisions of Schedule A contained herein. The Corporation reserves the right to treat the Option and the
Agreement as cancelled, void and of no effect if the Participant fails to return a signed copy of the Grant Notice within 30 days
of grant date stated above.


 


	Signature:	 	
         
        (SEAL)
	 	Date:	 	
 
	 	 	Participant	 	 	 	 


 


	 	Agreed to by:
	 	 
	 	CHARLES & COLVARD, LTD.
	 	 	 
	 	By:	

	 	 	 
	 	Title:	 


 


	Attest:	 
	 	 
	
        By:
	

	 	 
	Title:	 
	 	 
	[Corporate Seal]	 


 


Note: If there are any discrepancies in the name or address
shown above, please make the appropriate corrections on this form. Please retain a copy of the Agreement, including a signed copy
of this Grant Notice, for your files.


 


Schedule A-2