Document:

Exhibit 10.2

 

Promissory note

 

$1,000,000.00July 12, 2018

 

FOR VALUE RECEIVED, WILHELMINA INTERNATIONAL,
INC., a Delaware corporation (“Borrower”), having an address at 200 Crescent Court, Suite 1400, Dallas,
Texas 75201 hereby promises to pay to the order of ZB, N.A. dba AMEGY BANK (together with its successors and assigns and
any subsequent holders of this Note, “Lender”), as hereinafter provided, the principal sum of ONE MILLION AND
NO/100 DOLLARS ($1,000,000.00) or so much thereof as may be advanced by Lender from time to time hereunder to or for the benefit
or account of Borrower, together with interest thereon at the Note Rate (as hereinafter defined), and otherwise in strict accordance
with the terms and provisions hereof.

 

1.                 
DEFINITIONS

 

1.1             
Definitions. As used in this Note, the following terms shall have the following meanings:

 

“Applicable Rate” means five
and 15/100 percent (5.15%) per annum.

 

“Borrower” has the meaning
set forth in the introductory paragraph of this Note.

 

“Business Day” means a weekday,
Monday through Friday, except a legal holiday or a day on which banking institutions in Dallas, Texas are authorized or required
by law to be closed. Unless otherwise provided, the term “days” when used herein means calendar days.

 

“Change” means (a) any change
after the date of this Note in the risk based capital guidelines applicable to Lender, or (b) any adoption of or change in any
other law, governmental or quasi governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not
having the force of law) after the date of this Note that affects capital adequacy or the amount of capital required or expected
to be maintained by Lender or any entity controlling Lender.

 

“Charges” means all fees,
charges and/or any other things of value, if any, contracted for, charged, taken, received or reserved by Lender in connection
with the transactions relating to this Note and the other Loan Documents, which are treated as interest under applicable law.

 

“Credit Agreement” means
the Credit Agreement dated April 20, 2011, executed by Lender and Borrower, as amended by that certain First Amendment to Credit
Agreement dated as of January 1, 2012, that certain Second Amendment to Credit Agreement dated as of October 24, 2012, that
certain Third Amendment to Credit Agreement dated as of July 31, 2014, that certain Fourth Amendment to Credit Agreement dated
effective October 24, 2015, that certain Fifth Amendment to Credit Agreement dated effective May 13, 2016, that certain Sixth Amendment
to Credit Agreement and First Amendment to Line of Credit Note dated effective November 9, 2016, that certain Seventh Amendment
to Credit Agreement dated effective May 4, 2017, that certain Eighth Amendment to Credit Agreement and Waiver dated effective August
1, 2017, that certain Ninth Amendment to Credit Agreement and Second Amendment to Line of Credit Note dated effective October 24,
2017, and that certain Tenth Amendment to Credit Agreement of even date herewith, and as may be further modified, amended, renewed,
extended, and restated from time to time.

 

    
PROMISSORY NOTE – Page 1

    

    

 

“Debtor Relief Laws” means
Title 11 of the United States Code, as now or hereafter in effect, or any other applicable law, domestic or foreign, as now or
hereafter in effect, relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement or composition,
extension or adjustment of debts, or similar laws affecting the rights of creditors.

 

“Default Interest Rate” means
a rate per annum equal to the Note Rate plus four percent (4%), but in no event in excess of the Maximum Rate.

 

“Event of Default” has the
meaning set forth in the Credit Agreement.

 

“Lender” has the meaning
set forth in the introductory paragraph of this Note.

 

“Loan Documents” has the
meaning set forth in the Credit Agreement.

 

“Maturity Date” means July
12, 2023.

 

“Maximum Rate” means, at
all times, the maximum rate of interest which may be charged, contracted for, taken, received or reserved by Lender in accordance
with applicable Texas law (or applicable United States federal law to the extent that such law permits Lender to charge, contract
for, receive or reserve a greater amount of interest than under Texas law). The Maximum Rate shall be calculated in a manner that
takes into account any and all fees, payments, and other charges in respect of the Loan Documents that constitute interest under
applicable law. Each change in any interest rate provided for herein based upon the Maximum Rate resulting from a change in the
Maximum Rate shall take effect without notice to Borrower at the time of such change in the Maximum Rate.

 

“Note” means this Promissory
Note.

 

“Note Rate” means the rate
equal to the lesser of (a) the Maximum Rate or (b) the Applicable Rate.

 

“Payment Date” means the
first day of each and every calendar month during the term of this Note.

 

“Related Indebtedness” means
any and all indebtedness paid or payable by Borrower to Lender pursuant to the Loan Documents or any other communication or writing
by or between Borrower and Lender related to the transaction or transactions that are the subject matter of the Loan Documents,
except such indebtedness which has been paid or is payable by Borrower to Lender under this Note.

 

1.2             
Rules of Construction. Any capitalized term used in this Note and not otherwise defined herein shall have the meaning
ascribed to such term in the Credit Agreement. All terms used herein, whether or not defined in Section 1.1 hereof, and
whether used in singular or plural form, shall be deemed to refer to the object of such term whether such is singular or plural
in nature, as the context may suggest or require. All personal pronouns used herein, whether used in the masculine, feminine or
neutral gender, shall include all other genders; the singular shall include the plural and vice versa.

 

    
PROMISSORY NOTE – Page 2

    

    

 

2.                 
PAYMENT TERMS

 

2.1             
Payment of Principal and Interest; Revolving Nature. All accrued but unpaid interest on the principal balance of
this Note outstanding from time to time shall be payable on each Payment Date commencing September 1, 2018 and continuing
on each Payment Date thereafter through and until July 12, 2019 (the “Conversion Date”). Thereafter, installments
of principal and accrued but unpaid interest, each in the amount sufficient to fully amortize the outstanding principal balance
under this Note over a sixty (60) month amortization period at the Note Rate, shall be due and payable on each Payment Date, commencing
on the first Payment Date following the Conversion Date and continuing on each Payment Date thereafter through and until the Maturity
Date. The then outstanding principal balance of this Note and all accrued but unpaid interest thereon shall be due and payable
on the Maturity Date. No amounts repaid hereunder may be re-borrowed. Borrower shall not be entitled to any advances hereunder
after the Conversion Date. The total outstanding borrowings under this Note shall not at any time exceed the principal amount stated
above. Subject to the terms and conditions hereof, the unpaid principal balance of this Note at any time shall be the total amount
advanced hereunder by Lender less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed
hereon from time to time by Lender or otherwise noted in Lender’s records, which notations shall be, absent manifest error,
conclusive evidence of the amounts owing hereunder from time to time. This Note is the Second Term Note referenced and defined
in the Credit Agreement.

 

2.2             
Application. Except as expressly provided herein to the contrary, all payments on this Note shall be applied in the
following order of priority: (a) the payment or reimbursement of any expenses, costs or obligations (other than the outstanding
principal balance hereof and interest hereon) for which either Borrower shall be obligated or Lender shall be entitled pursuant
to the provisions of this Note or the other Loan Documents; (b) the payment of accrued but unpaid interest hereon; and (c) the
payment of all or any portion of the principal balance hereof then outstanding hereunder, in the direct order of maturity. If an
Event of Default exists under this Note or under any of the other Loan Documents, then Lender may, at the sole option of Lender,
apply any such payments, at any time and from time to time, to any of the items specified in clauses (a), (b) or (c) above without
regard to the order of priority otherwise specified in this Section 2.2 and any application to the outstanding principal balance
hereof may be made in either direct or inverse order of maturity.

 

2.3             
Payments. All payments under this Note made to Lender shall be made in immediately available funds at 2501 N. Harwood,
Suite 1600, Dallas, Texas 75201 (or at such other place as Lender, in Lender’s sole discretion, may have established by delivery
of written notice thereof to Borrower from time to time), without offset, in lawful money of the United States of America, which
shall at the time of payment be legal tender in payment of all debts and dues, public and private. Payments by check or draft shall
not constitute payment in immediately available funds until the required amount is actually received by Lender in full. Payments
in immediately available funds received by Lender in the place designated for payment on a Business Day prior to 11:00 a.m. (Dallas,
Texas time) at such place of payment shall be credited prior to the close of business on the Business Day received, while payments
received by Lender on a day other than a Business Day or after 11:00 a.m. (Dallas, Texas time) on a Business Day shall not be credited
until the next succeeding Business Day. If any payment of principal or interest on this Note shall become due and payable on a
day other than a Business Day, then such payment shall be made on the next succeeding Business Day. Any such extension of time
for payment shall be included in computing interest which has accrued and shall be payable in connection with such payment.

 

    
PROMISSORY NOTE – Page 3

    

    

 

Borrower authorizes Lender to effect payments
due hereunder by debiting Borrower’s account(s) at Lender, which authorization shall not affect the obligation of Borrower
to pay such sums when due, without notice, if there are insufficient funds in such account(s) to make payment in full on the due
date, or if Lender fails to debit the account(s).

 

2.4             
Computation Period. Interest on the indebtedness evidenced by this Note shall be computed on the basis of a three
hundred sixty (360) day year and shall accrue on the actual number of days elapsed for any whole or partial month in which interest
is being calculated. In computing the number of days during which interest accrues, the day on which funds are initially advanced
shall be included regardless of the time of day such advance is made, and the day on which funds are repaid shall be included unless
repayment is credited prior to the close of business on the Business Day received as provided in Section 2.3 hereof. Each
determination by Lender of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest
error.

 

2.5             
Prepayment. Borrower shall have the right to prepay, at any time and from time to time, without fee, premium or penalty,
all or any portion of the outstanding principal balance hereof; provided, however, that such prepayment shall also include any
and all accrued but unpaid interest on the amount of principal being so prepaid through and including the date of prepayment, plus
any other sums which have become due to Lender under the other Loan Documents on or before the date of prepayment, but which have
not been fully paid. Prepayments of principal shall be applied in inverse order of maturity.

 

2.6             
Unconditional Payment. Borrower is and shall be obligated to pay all principal, interest and any and all other amounts
which become payable under this Note or under any of the other Loan Documents absolutely and unconditionally and without any abatement,
postponement, diminution or deduction whatsoever and without any reduction for counterclaim or setoff whatsoever. If at any time
any payment received by Lender hereunder shall be deemed by a court of competent jurisdiction to have been a voidable preference
or fraudulent conveyance under any Debtor Relief Law, then the obligation to make such payment shall survive any cancellation or
satisfaction of this Note or return thereof to Borrower and shall not be discharged or satisfied with any prior payment thereof
or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions
hereof, and such payment shall be immediately due and payable upon demand.

 

2.7             
Partial or Incomplete Payments. Remittances in payment of any part of this Note other than in the required amount
in immediately available funds at the place where this Note is payable shall not, regardless of any receipt or credit issued therefor,
constitute payment until the required amount is actually received by Lender in full in accordance herewith and shall be made and
accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the
collecting bank or banks. Acceptance by Lender of any payment in an amount less than the full amount then due shall be deemed an
acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default in
the payment of this Note.

 

2.8             
Default Interest Rate. For so long as any Event of Default exists under this Note or under any of the other Loan
Documents, regardless of whether or not there has been an acceleration of the indebtedness evidenced by this Note, and at all times
after the maturity of the indebtedness evidenced by this Note (whether by acceleration or otherwise), and in addition to all other
rights and remedies of Lender hereunder, interest shall accrue on the outstanding principal balance hereof at the Default Interest
Rate, and such accrued interest shall be immediately due and payable. Borrower acknowledges that it would be extremely difficult
or impracticable to determine Lender’s actual damages resulting from any late payment or Event of Default, and such late
charges and accrued interest are reasonable estimates of those damages and do not constitute a penalty

 

    
PROMISSORY NOTE – Page 4

    

    

 

2.9             
Change. If Lender determines that the amount of capital required or expected to be maintained by Lender or any entity
controlling Lender, is increased as a result of a Change, then, within fifteen (15) days of demand by Lender, Borrower shall pay
to Lender the amount necessary to compensate Lender for any shortfall in the rate of return on the portion of such increased capital
that Lender determines is attributable to this Note or the principal amount outstanding hereunder (after taking into account Lender’s
policies as to capital adequacy).

 

3.                 
EVENT OF DEFAULT AND REMEDIES

 

3.1             
Remedies. Upon the occurrence of an Event of Default, Lender shall have the right to exercise any rights and remedies
set forth in the Credit Agreement and the other Loan Documents.

 

3.2             
WAIVERS. EXCEPT AS SPECIFICALLY PROVIDED IN THE LOAN DOCUMENTS TO THE CONTRARY, BORROWER AND ANY ENDORSERS OR GUARANTORS
HEREOF SEVERALLY WAIVE AND RELINQUISH PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF NONPAYMENT OR NONPERFORMANCE, PROTEST, NOTICE
OF PROTEST, NOTICE OF INTENT TO ACCELERATE, NOTICE OF ACCELERATION OR ANY OTHER NOTICES OR ANY OTHER ACTION. BORROWER AND ANY ENDORSERS
OR GUARANTORS HEREOF SEVERALLY WAIVE AND RELINQUISH, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO THE BENEFITS OF ANY
MORATORIUM, REINSTATEMENT, MARSHALING, FORBEARANCE, VALUATION, STAY, EXTENSION, REDEMPTION, APPRAISEMENT, EXEMPTION AND HOMESTEAD
NOW OR HEREAFTER PROVIDED BY THE CONSTITUTION AND LAWS OF THE UNITED STATES OF AMERICA AND OF EACH STATE THEREOF, BOTH AS TO ITSELF
AND IN AND TO ALL OF ITS PROPERTY, REAL AND PERSONAL, AGAINST THE ENFORCEMENT AND COLLECTION OF THE OBLIGATIONS EVIDENCED BY THIS
NOTE OR BY THE OTHER LOAN DOCUMENTS.

 

4.                 
GENERAL PROVISIONS

 

4.1             
No Waiver; Amendment. No failure to accelerate the indebtedness evidenced by this Note by reason of an Event of Default
hereunder, acceptance of a partial or past due payment, or indulgences granted from time to time shall be construed (a) as a novation
of this Note or as a reinstatement of the indebtedness evidenced by this Note or as a waiver of such right of acceleration or of
the right of Lender thereafter to insist upon strict compliance with the terms of this Note, or (b) to prevent the exercise of
such right of acceleration or any other right granted under this Note, under any of the other Loan Documents or by any applicable
laws. Borrower hereby expressly waives and relinquishes the benefit of any statute or rule of law or equity now provided, or which
may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. The failure to exercise
any remedy available to Lender shall not be deemed to be a waiver of any rights or remedies of Lender under this Note or under
any of the other Loan Documents, or at law or in equity. No extension of the time for the payment of this Note or any installment
due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note, shall operate to release,
discharge, modify, change or affect the original liability of Borrower under this Note, either in whole or in part, unless Lender
specifically, unequivocally and expressly agrees otherwise in writing.

 

    
PROMISSORY NOTE – Page 5

    

    

 

4.2             
Interest Provisions.

 

(a)               
Savings Clause. It is expressly stipulated and agreed to be the intent of Borrower and Lender at all times to comply
strictly with the applicable Texas law governing the Maximum Rate or amount of interest payable on the indebtedness evidenced by
this Note and the Related Indebtedness (or applicable United States federal law to the extent that it permits Lender to contract
for, charge, take, reserve or receive a greater amount of interest than under Texas law). If the applicable law is ever judicially
interpreted so as to render usurious any amount (i) contracted for, charged, taken, reserved or received pursuant to this Note,
any of the other Loan Documents or any other communication or writing by or between Borrower and Lender related to the transaction
or transactions that are the subject matter of the Loan Documents, (ii) contracted for, charged, taken, reserved or received by
reason of Lender’s exercise of the option to accelerate the maturity of this Note and/or the Related Indebtedness, or (iii)
Borrower will have paid or Lender will have received by reason of any voluntary prepayment by Borrower of this Note and/or the
Related Indebtedness, then it is Borrower’s and Lender’s express intent that all amounts charged in excess of the Maximum
Rate shall be automatically canceled, ab initio, and all amounts in excess of the Maximum Rate theretofore collected by
Lender shall be credited on the principal balance of this Note and/or the Related Indebtedness (or, if this Note and all Related
Indebtedness have been or would thereby be paid in full, refunded to Borrower), and the provisions of this Note and the other Loan
Documents shall immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without
the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of
the fullest amount otherwise called for hereunder and thereunder; provided, however, that if this Note has been paid
in full before the end of the stated term of this Note, then Borrower and Lender agree that Lender shall, with reasonable promptness
after Lender discovers or is advised by Borrower that interest was received in an amount in excess of the Maximum Rate, either
refund such excess interest to Borrower and/or credit such excess interest against this Note and/or any Related Indebtedness then
owing by Borrower to Lender. Borrower hereby agrees that as a condition precedent to any claim seeking usury penalties against
Lender, Borrower will provide written notice to Lender, advising Lender in reasonable detail of the nature and amount of the violation,
and Lender shall have sixty (60) days after receipt of such notice in which to correct such usury violation, if any, by either
refunding such excess interest to Borrower or crediting such excess interest against this Note and/or the Related Indebtedness
then owing by Borrower to Lender. All sums contracted for, charged, taken, reserved or received by Lender for the use, forbearance
or detention of any debt evidenced by this Note and/or the Related Indebtedness shall, to the extent permitted by applicable law,
be amortized or spread, using the actuarial method, throughout the stated term of this Note and/or the Related Indebtedness (including
any and all renewal and extension periods) until payment in full so that the rate or amount of interest on account of this Note
and/or the Related Indebtedness does not exceed the Maximum Rate from time to time in effect and applicable to this Note and/or
the Related Indebtedness for so long as debt is outstanding. Notwithstanding anything to the contrary contained herein or in any
of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued
at the time of such acceleration or to collect unearned interest at the time of such acceleration.

 

    
PROMISSORY NOTE – Page 6

    

    

 

(b)              
Ceiling Election. To the extent that Lender is relying on Chapter 303 of the Texas Finance Code to determine the
Maximum Rate payable on the Note and/or any other portion of the Obligations, Lender will utilize the weekly ceiling from time
to time in effect as provided in such Chapter 303, as amended. To the extent United States federal law permits Lender to contract
for, charge, take, receive or reserve a greater amount of interest than under Texas law, Lender will rely on United States federal
law instead of such Chapter 303 for the purpose of determining the Maximum Rate. Additionally, to the extent permitted by applicable
law now or hereafter in effect, Lender may, at its option and from time to time, utilize any other method of establishing the Maximum
Rate under such Chapter 303 or under other applicable law by giving notice, if required, to Borrower as provided by applicable
law now or hereafter in effect.

 

4.3             
WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE)
ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF LENDER IN THE
NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY
OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 4.3.

 

4.4             
GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS; PROVIDED THAT LENDER SHALL RETAIN ALL RIGHTS UNDER FEDERAL LAW. THIS AGREEMENT HAS BEEN ENTERED INTO IN
DALLAS COUNTY, TEXAS, AND IS PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY, TEXAS. THE PARTIES HEREBY AGREE THAT ANY LAWSUIT, ACTION,
OR PROCEEDING THAT IS BROUGHT (WHETHER IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS,
THE TRANSACTIONS CONTEMPLATED THEREBY, OR THE ACTIONS OF THE LENDER IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT OF ANY OF
THE LOAN DOCUMENTS SHALL BE BROUGHT IN A STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN DALLAS COUNTY, TEXAS. BORROWER
HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS, (B) WAIVES ANY OBJECTION IT MAY
NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH LAWSUIT, ACTION, OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND (C) FURTHER WAIVES
ANY CLAIM THAT IT MAY NOW OR HEREAFTER HAVE THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. EACH OF THE PARTIES HERETO AGREE THAT
SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED AT THE ADDRESS FOR NOTICES REFERENCED
IN SECTION 7.2 OF THE CREDIT AGREEMENT.

 

    
PROMISSORY NOTE – Page 7

    

    

 

4.5             
Relationship of the Parties. Notwithstanding any prior business or personal relationship between Borrower and Lender,
or any officer, director or employee of Lender, that may exist or have existed, the relationship between Borrower and Lender is
solely that of debtor and creditor, Lender has no fiduciary or other special relationship with Borrower, Borrower and Lender are
not partners or joint venturers, and no term or condition of any of the Loan Documents shall be construed so as to deem the relationship
between Borrower and Lender to be other than that of debtor and creditor.

 

4.6             
Successors and Assigns. The terms and provisions hereof shall be binding upon and inure to the benefit of Borrower
and Lender and their respective heirs, executors, legal representatives, successors, successors in title and assigns, whether by
voluntary action of the parties, by operation of law or otherwise, and all other persons claiming by, through or under them. The
terms “Borrower” and “Lender” as used hereunder shall be deemed to include their respective heirs, executors,
legal representatives, successors, successors in title and assigns, whether by voluntary action of the parties, by operation of
law or otherwise, and all other persons claiming by, through or under them.

 

4.7             
Time is of the Essence. Time is of the essence with respect to all provisions of this Note and the other Loan Documents.

 

4.8             
Headings. The Section and Subsection titles hereof are inserted for convenience of reference only and shall in no
way alter, modify, define, limit, amplify or be used in construing the text, scope or intent of such Sections or Subsections or
any provisions hereof.

 

4.9             
Controlling Agreement. In the event of any conflict between the provisions of this Note and the Credit Agreement,
it is the intent of the parties hereto that the provisions of the Credit Agreement shall control. In the event of any conflict
between the provisions of this Note and any of the other Loan Documents (other than the Credit Agreement), it is the intent of
the parties hereto that the provisions of this Note shall control. The parties hereto acknowledge that they were represented by
competent counsel in connection with the negotiation, drafting and execution of this Note and the other Loan Documents and that
this Note and the other Loan Documents shall not be subject to the principle of construing their meaning against the party which
drafted same.

 

4.10         
Notices. Whenever any notice is required or permitted to be given under the terms of this Note, the same shall be
given in accordance with Section 7.2 of the Credit Agreement.

 

4.11         
Severability. If any provision of this Note or the application thereof to any person or circumstance shall, for any
reason and to any extent, be invalid or unenforceable, then neither the remainder of this Note nor the application of such provision
to other persons or circumstances nor the other instruments referred to herein shall be affected thereby, but rather shall be enforced
to the greatest extent permitted by applicable law.

 

4.12         
Right of Setoff. In addition to all Liens upon and rights of setoff against the money, securities, or other property
of Borrower given to Lender that may exist under applicable law, Lender shall have and Borrower hereby grants to Lender a Lien
upon and a right of setoff against all money, securities, and other property of Borrower, now or hereafter in possession of or
on deposit with Lender, whether held in a general or special account or deposit, for safe-keeping or otherwise, and every such
Lien and right of setoff may be exercised without demand upon or notice to Borrower. No Lien or right of setoff shall be deemed
to have been waived by any act or conduct on the part of Lender, or by any neglect to exercise such right of setoff or to enforce
such Lien, or by any delay in so doing, and every right of setoff and Lien shall continue in full force and effect until such right
of setoff or Lien is specifically waived or released by an instrument in writing executed by Lender.

 

    
PROMISSORY NOTE – Page 8

    

    

 

4.13         
Costs of Collection. If any holder of this Note retains an attorney at law in connection with any Event of Default
or at maturity or to collect, enforce, or defend this Note or any part hereof, or any other Loan Document in any lawsuit or in
any probate, reorganization, bankruptcy or other proceeding, or if Borrower sues any holder in connection with this Note or any
other Loan Document and does not prevail, then Borrower agrees to pay to each such holder, in addition to the principal balance
hereof and all interest hereon, all costs and expenses of collection or incurred by such holder or in any such suit or proceeding,
including, but not limited to, reasonable attorneys’ fees.

 

4.14         
Statement of Unpaid Balance. At any time and from time to time, Borrower will furnish promptly, upon the request
of Lender, a written statement or affidavit, in form satisfactory to Lender, stating the unpaid balance of the indebtedness evidenced
by this Note and the Related Indebtedness and that there are no offsets or defenses against full payment of the indebtedness evidenced
by this Note and the Related Indebtedness and the terms hereof, or if there are any such offsets or defenses, specifying them.

 

4.15         
FINAL AGREEMENT. THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN THE PARTIES.

 

4.16         
Arbitration. All disputes, claims and controversies arising from this Note shall be governed by the terms of Section
7.15 of the Credit Agreement.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

SIGNATURE PAGE FOLLOWS]

 

    
PROMISSORY NOTE – Page 9

    

    

 

IN WITNESS WHEREOF, Borrower, intending to be
legally bound hereby, has duly executed this Note as of the day and year first written above.

 

BORROWER:

 

WILHELMINA INTERNATIONAL, INC.,

a Delaware corporation

 

By:/s/ James McCarthy_________________

James McCarthy

Chief Financial Officer

 

 

 

 

 

 

 

PROMISSORY NOTE – Signature PageExhibit 10.1

 

Execution Version

 

CREDIT AGREEMENT

 

THIS CREDIT AGREEMENT
(this "Agreement") is entered into as of July 13, 2018 (the “Closing Date”), by and among CHARLES
& COLVARD, LTD., a North Carolina corporation (“Company”), charlesandcolvard.com, LLC, a North Carolina
limited liability company (together with Company, “Borrowers”), CHARLES & COLVARD DIRECT, LLC, a North Carolina
limited liability company (“Guarantor”), and WHITE OAK COMMERCIAL FINANCE, LLC ("Lender").
Certain capitalized terms used in this Agreement are defined in Section 7.1.  The parties agree as follows:

 

ARTICLE I

CREDIT TERMS

 

SECTION 1.1.        LINE
OF CREDIT.

 

(a)           Line
of Credit.  Subject to the terms and conditions of this Agreement, Lender agrees to make advances to Borrowers under
this Section 1.1 (“Advances”), from time to time up to and including the Termination Date, in a total amount
at any time outstanding not to exceed the lesser of (a) $5,000,000 (the “Maximum Revolver Amount”), and (b)
the sum of the following (the “Borrowing Base”):

 

(i)            ninety
percent (90%) of Eligible Accounts, plus

 

(ii)           eighty-five
percent (85%) times the most recently determined Net Liquidation Percentage times the Value of Eligible Inventory consisting
of finished goods; not to exceed sixty percent (60%) of the aggregate Borrowing Base at any time; plus

 

(iii)          the
lesser of (A) $500,000 and (B) the Value of precious metal jewelry components located at the Principal Location; less

 

(iv)          the
Non-Revolving Advance Reserve; less

 

(v)           all
Reserves other than the Non-Revolving Advance Reserve, less

 

 (vi)          any other Obligations (other than amounts under the Line of Credit).

 

The Borrowing Base
will be calculated by Lender based upon receipt and review of all collateral reports required under this Agreement and such other
documents and collateral information as Lender may from time to time require. Notwithstanding anything to the contrary contained
in this Agreement, Eligible Inventory and the Value of precious metal jewelry components shall not be considered part of the Borrowing
Base until such time as Lender shall have received the acceptable Inventory appraisal described on Exhibit 1. If at any time the
Maximum Revolver Amount is less than the amount of the Borrowing Base, the amount of Advances available pursuant to this Section
may be reduced by the amount of any Reserves established by Lender with respect to amounts that may be payable by any Borrower
to third parties.  “Line of Credit” means the line of credit established under this Section 1.1. “Account”
means an account as that term is defined in the Code. “Account Debtor” means an account debtor as that term
is defined in the Code. “Inventory” means inventory as that term is defined in the Code. “Dilution”
means, as of any date of determination, a percentage that is the result of dividing the dollar amount of the aggregate of all bad
debt write-downs, discounts, allowances, credits, deductions and other dilutive items for such period as determined by Lender in
its Permitted Discretion with respect to each Borrower’s Accounts for such period, by each Borrower’s billings with
respect to Accounts for such period.  If, as of any date of determination, Dilution exceeds three percent (3%), or if
there at any time exists any other matters, events, conditions or contingencies which Lender reasonably believes may affect payment
of any portion of any Borrower’s Accounts, Lender may, in its Permitted Discretion, establish Reserves in the Borrowing Base
equal to one percentage point of the amount of Section 1.1(a)(i) above for every percentage point by which dilution exceeds 3%.  “Net
Liquidation Percentage” means the percentage of the Value of a Borrower’s Inventory that is estimated to be recoverable
in an orderly liquidation of such Inventory as set forth in the most recent appraisal received by, and acceptable to, Lender and
upon which Lender may rely, net of all operating expenses and associated costs and expenses of such liquidation, such percentage
to be as determined by an independent appraisal company approved by Lender with such appraisal to be in form, scope, methodology
and content acceptable to Lender in its Permitted Discretion.  “Reserves” means, as of any date of
determination, an amount or percentage of a specific category or item that Lender establishes in its Permitted Discretion from
time to time to reduce availability under the Line of Credit to reflect events, conditions, contingencies, or risks which may reasonably
be expected to affect the assets, business or prospects of any of the Borrowers or the value of any of the Collateral or the enforceability,
perfection or priority of Lender’s security interest in the Collateral, including without limitation reserves for Dilution.
“Value” means, as determined by Lender in good faith in the exercise of its Permitted Discretion, with respect
to Inventory, the lower of (a) cost computed on a weighted average cost basis in accordance with GAAP, or (b) market value, provided
that for purposes of the calculation of the Borrowing Base, the Value of Inventory will be computed in the same manner and consistent
with the most recent appraisal of Inventory received and accepted by Lender, if any.

 

     

     

    

 

(b)           Non-Revolving
Advances.  At the request of Borrowers and provided no Default or Event of Default shall have occurred, Lender may
make Advances under the Line of Credit as non-revolving Advances (each, a “Non-Revolving Advance”). Non-Revolving
Advances shall be deemed to be Advances under the Line of Credit and shall be subject to all of the term and conditions of the
Line of Credit. The aggregate outstanding principal amount of Non-Revolving Advances shall not exceed $1,000,000 at any time.  The
aggregate outstanding principal balance of Non-Revolving Advances from time to time shall be reserved against the Borrowing Base,
without duplication (the “Non-Revolving Advance Reserve”).

 

(c)           "Eligible
Accounts" consist solely of Accounts created and invoiced by a Borrower in the ordinary course of such Borrower’s
business that arise out of the sale of goods or the rendition of services, upon which Borrower’s right to receive payment
is absolute and not contingent upon the fulfillment of any condition, and in which Lender has a perfected first-priority security
interest, but will not include:

 

(i)             any
Account which is unpaid more than 90 days from original invoice date or original due date, not to exceed 60 days past due date;

 

(ii)           Accounts
with selling terms of more than 90 days;

 

(iii)          that
portion of any Account for which there exists any right of setoff, defense, dispute or discount (except regular discounts allowed
in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted;

 

(iv)          Accounts
with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not solvent, has gone out of business, or as
to which such Borrower has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition
of such Account Debtor;

 

(v)           any
Account which represents an obligation of the United States government, any state or any other political subdivision (except Accounts
which represent obligations of the United States government and for which the assignment provisions of the Federal Assignment of
Claims Act have been complied with to Lender's satisfaction);

 

(vi)          any
Account which represents an obligation of an Account Debtor located in a foreign country other than an Account Debtor located in
a Canadian province or territory (excluding Quebec), except to the extent any such Account, is supported by a letter of credit
or insured under a policy of foreign credit insurance, in each case in form, substance and issued by a party acceptable to Lender;

 

    	 	-2-	 

     

    

 

(vii)         any
Account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, Affiliate,
partner, member, parent or Subsidiary of any Borrower;

 

(viii)        that
portion of any Account, which represents interim or progress billings or title retention rights on the part of the Account Debtor;

 

(ix)           any
Account which represents an obligation of any Account Debtor or its Affiliates if
twenty-five percent (25%) or more of Borrowers’ Accounts from such Account Debtor or its Affiliates are not eligible under
clauses (i), (ii) or (iii) of this definition;

 

(x)            that
portion of any Account owing from an Account Debtor or its Affiliates which represents the amount by which Borrowers’ Accounts
owing from said Account Debtor and its Affiliates exceeds twenty-five percent (25%) of Borrowers’ total Eligible Accounts;
except with respect to Accounts owing by Helzberg Diamond Shops, Inc. and its Affiliates, and Stuller, Inc. and its Affiliates,
which shall not exceed thirty-five percent (35%) of Borrowers’ total Eligible Accounts;

 

(xi)           Accounts
representing “C.O.D.” sales;

 

(xii)          Accounts
arising in a transaction where Goods are placed on consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale
on approval, or any other terms by reason of which the payment by the Account Debtor may be conditional or contingent;

 

(xiii)         that
portion of Accounts which has been restructured, extended, amended or otherwise modified;

 

(xiv)         Accounts
that are not payable in U.S. Dollars or Canadian Dollars;

 

(xv)          bill
and hold invoices, except those with respect to which Lender shall have received an acceptable agreement in writing from the Account
Debtor confirming the unconditional obligation of the Account Debtor to take the goods related to the Account and pay such invoice,
so long as such Accounts satisfy all other criteria for Eligible Accounts;

 

(xvi)        Accounts
which have not been invoiced;

 

(xvii)       that portion
of any Account which represents finance charges, service charges, sales taxes, or excise taxes; or

 

(xviii)      any other Account
deemed ineligible by Lender in its Permitted Discretion.

 

(d)           “Eligible
Inventory” means all finished goods Inventory owned by any Borrower and held for sale in the ordinary course of such
Borrower’s business, in which Lender has a perfected first priority security interest, but will not include:

 

(i)            Inventory
that is (A) in-transit, (B) located at any premises leased by a Borrower or any warehouse, unless Lender has received a Collateral
Access Agreement from such lessor or warehouseman, (C) located at job site or other premises not owned by a Borrower other than
premises permitted under (B) above, (D) covered by any negotiable or non-negotiable warehouse receipt, bill of lading or other
document of title; (E) on consignment from any consignor or (F) on consignment to any consignee or subject to any bailment unless
the consignee or bailee has executed such agreements with Lender in such form as Lender shall specify (and such other steps have
been taken as required by Lender to ensure that Lender maintains a first priority perfected security interest in such Inventory
at all times);

 

    	 	-3-	 

     

    

 

(ii)           supplies,
parts, packing, packaging or shipping materials, or sample Inventory, tooling Inventory, fabricated parts, customer-supplied Inventory,
or customized or customer specific Inventory not supported by a valid purchase order;

 

(iii)          work-in-process
and raw materials Inventory;

 

(iv)          Inventory
that is damaged, defective, obsolete, perishable, contaminated, discontinued, slow moving or not currently saleable in the ordinary
course of a Borrower’s business, or is past its expiration date, has been rejected or the amount of such Inventory that has
been reduced by shrinkage;

 

(v)           Inventory
that a Borrower has returned, attempted to return, is in the process of returning or intends to return to the vendor of the Inventory,
or inventory returned to Borrower;

 

(vi)          Inventory
manufactured or held for resale by a Borrower pursuant to a license unless the applicable licensor has agreed in writing to permit
Lender to exercise its rights and remedies against such Inventory;

 

(vii)          Inventory
consisting of bill and hold goods;

 

(viii)         Inventory
stored at locations holding less than $100,000 of the aggregate Value of such Borrower’s Inventory;

 

(ix)           Inventory
that is subject to a security interest or Lien in favor of any third party; or

 

(x)            Any
other Inventory deemed ineligible by Lender in its Permitted Discretion.

 

(e)           Borrowing
and Repayment. Each of the Borrowers may from time to time during the term of the Line of Credit request Advances, partially
or wholly repay amounts outstanding under the Line of Credit, and reborrow the same, subject to all of the limitations, terms and
conditions contained in this Agreement. Any request for Advance must be received by Lender no later than 11:00 a.m. (Eastern time)
on the Business Day that funding is to occur. If at any time the aggregate outstanding Advances under the Line of Credit exceeds
the lesser of (i) the Maximum Revolver Amount, minus the Non-Revolving Advance Reserve and all other Reserves in accordance with
Section 1.1(a) above or (ii) the Borrowing Base, Borrowers will immediately pay Lender such excess. No request for an Advance will
be deemed received until Lender acknowledges the request. All Advances will be repaid by Borrowers even if the Person requesting
the Advance on behalf of any Borrower lacks authorization.

 

(f)            Protective
Advances: Advances to Pay Obligations Due.  Lender may make Advances under the Line of Credit in its sole discretion
for any reason at any time without request of any Borrower and without any Borrower’s compliance with any of the conditions
of this Agreement, and (i) disburse the proceeds directly to third Persons in order to protect Lender’s interest in Collateral
or to perform any of Borrowers’ obligations under this Agreement, or (ii) apply the proceeds to any Obligations then due
and payable.

 

    	 	-4-	 

     

    

 

(g)          Payments;
Lockbox and Collection Account.  All payments by Borrowers will be made as directed by Lender or as otherwise specified
in the other Loan Documents, without setoff, counterclaim or defense.  Loan Parties will instruct all Account Debtors
and all merchant card payment processors to make payments either directly to the lockbox established with Lender (the “Lockbox”),
for deposit by Lender directly to a deposit account established with Lender (the “Collection Account”), or instruct
them to deliver such payments to Lender by wire transfer, ACH, credit card, or other means as Lender may direct for deposit to
the Lockbox or Collection Account or for direct application to reduce outstanding Advances. All payments received by Lender will
be applied to reduce outstanding Obligations (other than Non-Revolving Advances) in such manner as Lender determines in its sole
discretion. If any Loan Party receives payment or the proceeds of Collateral directly, such Loan Party will promptly deposit the
payment or proceeds into the Collection Account. Until deposited, each Loan Party will hold all such payments and proceeds in trust
for Lender without commingling with other funds or property. For purposes of calculating Availability, unless otherwise provided
in any cash management or other agreement between any of the Loan Parties and Lender, each payment will be applied to the Obligations
as of the first Business Day following the Business Day of deposit to the Collection Account of immediately available funds or
other receipt of immediately available funds by Lender, provided such payment is received in accordance with Lender’s usual
and customary practices as in effect from time to time.  Any payment received by Lender that is not a transfer of immediately
available funds will be considered provisional until the item or items representing such payment have been finally paid under applicable
law.  Should any payment item not be honored when presented for payment, then Borrowers will be deemed not to have made
such payment, and that portion of Borrowers’ outstanding Obligations corresponding to the amount of such dishonored payment
item will be deemed to bear interest as if the dishonored payment item had never been received by Lender.  Each reduction
in outstanding Obligations resulting from the application of such payment to the outstanding Obligations will be accompanied by
an equal reduction in the amount of outstanding Accounts. To the extent that no Default or Event of Default shall have occurred
and be continuing, there exist no outstanding Obligations and such Collections have not been applied by Lender to the Non-Revolving
Advance Reserve or other Reserves, such funds will be made available to the Borrowers. Lender shall use commercially reasonable
efforts to deposit such funds into Borrowers’ operating account on the Business day following the date such funds are determined
by Lender to be available to Borrowers.

 

(h)          Charges
to Loan Account; Clearance Charge.  Lender will maintain an account on its books and records in the name of Borrowers
(the “Loan Account”) in which will be recorded all Advances made by Lender, the Non-Revolving Advances, and
all other payment Obligations. Borrowers authorize Lender to collect all principal, interest and fees due under the Line of Credit
facility by charging the Loan Account, or any other deposit account maintained by any Borrower with Lender. Should there be insufficient
funds in the Loan Account or any such other account to pay all such sums when due, the full amount of such deficiency will be immediately
due and payable by Borrowers.  All cash, checks, notes, instruments, and other items of payment (including insurance
proceeds, cash proceeds of asset sales, rental proceeds, and tax refunds) (collectively, “Collections”) received
by Lender will be applied as provided in Section 1.1(g).  All monthly statements relating to the Loan Account or such
account will be conclusively presumed to be correct and accurate and constitute an account stated between Borrowers and Lender
unless Borrowers deliver written objection to Lender within 30 days after receipt by Borrowers. Obligations paid with Collections
will continue to accrue interest at the rate then applicable to Advances for two Business Days following the Business Day that
such Collections were applied to the Obligations.  This two Business Days clearance charge on all Collections is acknowledged
by the parties to constitute an integral aspect of the pricing of the financing of Borrowers (and will apply whether or not there
are any outstanding Obligations). The parties acknowledge and agree that the economic benefit of these provisions will accrue exclusively
to Lender.

 

(i)            Annual
Clean-Down of Non-Revolving Advances.  The outstanding principal balance of all Non-Revolving Advances shall be paid
in full on or before January 15 of each calendar year. Provided no Event of Default shall have occurred, such amounts may be paid,
at the request of Borrowers, by a release of the Non-Revolving Advance Reserve which shall be converted to revolving Advances,
subject to Availability under the Borrowing Base and subject to the other provisions of this Agreement.

 

SECTION 1.2.        INTEREST/FEES.

 

(a)            Initial
Interest Period.  During the first twelve (12) month period following the date of this Agreement (the “Initial
Interest Period”), the outstanding principal balance of Advances will bear interest, as follows:

 

(1)           Advances
other than Non-Revolving Advances will bear interest on the Daily Balance of such Advances at a variable per annum rate equal to
the LIBOR Index Rate plus 3.75%;

 

    	 	-5-	 

     

    

 

(2)           Non-Revolving
Advances will bear interest on the Daily Balance of the Non-Revolving Advances at a variable per annum rate equal to the LIBOR
Index Rate plus 4.75%.

 

(b)           Subsequent
Interest Period.  At all times after the expiration of the Initial Interest Period (the “Subsequent Interest
Period”) the outstanding principal balance of Advances will bear interest at a variable per annum rate equal to the LIBOR
Index Rate (or Prime Rate to the extent set forth herein) plus the Applicable Margin in accordance with the following pricing grid:

 

“Applicable Margin”
means, as of any date of determination, the applicable margin set forth in the following table that corresponds to the Fixed Charge
Coverage Ratio of Borrowers for the most recently completed fiscal quarter; provided further, that any time an Event of
Default has occurred and is continuing, the Applicable Margin shall be set at the margin in the row styled “Level 1”:

 

	Level	Fixed Charge 

Coverage Ratio	Applicable Margin 

Relative to all 

Advances that are 

not Non-Revolving 

Advances based 

on LIBOR Index 

Rate	Applicable Margin 

Relative to 

Advances which 

are Non-Revolving 

Advances based on 

LIBOR Index Rate	
        Applicable 

        Margin Relative 

        to Advances that 

        are not Non-

        Revolving based 

        on Prime Rate

         
	Applicable 

Margin 

Relative to 

Advances 

which are 

Non-Revolving 

Advances 

based on 

Prime Rate
	I	Less than 1.50 to 1.0	3.75 percentage points	4.75 percentage points	4.75 percentage points	5.75 percentage points
	II	Greater than or equal to 1.50 to 1.00	3.50 percentage points	4.50 percentage points	4.50 percentage points	5.50 percentage points

 

The Applicable Margin shall be re-determined
as of the first day of each calendar quarter following the date of delivery to Lender of the certified calculation of Fixed Charge
Coverage Ratio pursuant to Section 4.1 of the Agreement; provided, however, that if Borrowers fails to provide
such certification when such certification is due, the Applicable Margin shall be set at the margin in the row styled “Level
I” as of the first day of the first calendar month following the date on which the certification was required to be delivered
until the date on which such certification is delivered, on which date (but not retroactively), without constituting a waiver of
any Default or Event of Default occasioned by the failure to timely deliver such certification, the Applicable Margin shall be
set at the margin based upon the calculations disclosed by such certification.  In the event that the information regarding
Fixed Charge Coverage Ratio contained in any certificate delivered pursuant to Section 4.1 of the Agreement is shown to
be inaccurate, and such inaccuracy, if corrected, would have led to the application of a higher Applicable Margin for any period
than the Applicable Margin actually applied for such period, then (i) Borrowers shall immediately deliver to Lender a correct certificate
for such period, (ii) the Applicable Margin shall be determined as if the correct Applicable Margin (as set forth in the table
above) were applicable for such period, and (iii) Borrowers shall immediately deliver to Lender full payment in respect of the
accrued additional interest as a result of such increased Applicable Margin for such period, which payment shall be promptly applied
by Lender to the affected Obligations.

 

Notwithstanding anything to the contrary
contained herein, at no time will Advances bear interest at a rate less than 5.50%.

 

    	 	-6-	 

     

    

 

(c)           Default
Rate.  Upon the occurrence and during the continuation of an Event of Default (a “Default Period”)
and at any time following the Termination Date, at the sole discretion of Lender, (i) the outstanding principal balance of Advances
will bear interest on the Daily Balance of such Obligations at a per annum rate equal to 2.0% above the per annum rate otherwise
applicable under Section 1.2(a) (such rate, the “Default Rate”).

 

Lender may assess the Default Rate commencing
as of the date of the occurrence of an Event of Default or as of any date after the occurrence of an Event of Default regardless
of the date of reporting or declaration of such Event of Default.

 

(d)           Payment
of Interest.  Interest will be payable monthly in arrears on the first day of each month and on the Termination Date.

 

(e)           Payment
of Fees.  Borrowers will pay to Lender the fees set forth on Schedule A.

 

(f)            Computation
of Interest and Fees.  Interest and fees will be computed on the basis of a three hundred sixty (360)-day year for
the actual number of days elapsed.

 

SECTION 1.3.        ADDITIONAL COSTS.  

 

(a)            Capital
Requirements. Borrowers will pay Lender, on demand, for Lender's costs or losses arising from any Change in Law which are allocated
to this Agreement or any credit outstanding under this Agreement. The allocation will be made as determined by Lender, using any
reasonable method. The costs include, without limitation, (i) any reserve or deposit requirements (excluding any reserve requirement
already reflected in the calculation of the interest rate in this Agreement); and (ii) any capital requirements relating to Lender's
assets and commitments for credit. “Change in Law” means the occurrence, after the date of this Agreement, of
the adoption or taking effect of any new or changed law, rule, regulation or treaty, or the issuance of any request, rule, guideline
or directive (whether or not having the force of law) by any governmental authority; provided that (x) the Dodd-Frank Wall Street
Reform and Consumer Protection Act and all requests, rules, guidelines or directives issued in connection with that Act, and (y)
all requests, rules, guidelines or directives promulgated by Lender for International Settlements, the Basel Committee on Banking
Supervision (or any successor authority) or the United States regulatory authorities, in each case pursuant to Basel III, will
in each case be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued.

 

(b)           Illegality;
Impractibility; Increased Costs.  In the event that (i) any change in market conditions or any Change in Law make
it unlawful or impractical for Lender to fund or maintain extensions of credit with interest based upon the LIBOR Index Rate or
to continue to so fund or maintain, or to determine or charge interest rates based upon the LIBOR Index Rate, (ii) Lender determines
that by reasons affecting the London Interbank Eurodollar market, adequate and reasonable means do not exist for ascertaining the
LIBOR Index Rate, or (iii) Lender determines that the interest rate based on the LIBOR Index Rate will not adequately and fairly
reflect the cost to Lender of maintaining or funding Advances at the interest rate based upon the LIBOR Index Rate, Lender will
give notice of such changed circumstances to Borrowers and (a) interest on the principal amount of such extensions of credit will
then accrue interest at a rate equal to the Prime Rate plus the Applicable Margin set forth in Section 1.2(b), and (b) Borrowers
will not be entitled to elect the LIBOR Index Rate until Lender determines that the conditions described in clauses (i) through
(iii) no longer exist.

 

SECTION 1.4.        TERM
AND TERMINATION.  

 

(a)            Termination
Date.   Lender’s obligations under this Agreement will continue for a term ending on the earliest of the following
(the “Termination Date”): (i) July 13, 2021 (the “Maturity Date”) or (ii) the date the Line
of Credit has been terminated by Borrowers or (iii) the date the Lender’s obligation to extend further credit under this
Agreement terminates following an Event of Default. On the Termination Date, all obligations of Lender to provide Advances or other
extensions of credit under this Agreement will automatically terminate and all of the Obligations will immediately become due and
payable without notice or demand, and Borrowers will immediately repay all of the Obligations in full. No termination of the obligations
of Lender will relieve or discharge Borrowers of their duties, obligations, or covenants under this Agreement or under any other
Loan Document.

 

    	 	-7-	 

     

    

 

(b)           Termination
of Liens.  Provided that there are no suits, actions, proceedings or claims pending or threatened against any Person
who Borrowers have agreed to indemnify under this Agreement, Lender will, at Borrowers’ expense, release or terminate any
filings or other agreements that perfect the Lender’s Liens in the Collateral upon Lender’s receipt of each of the
following, in form and content satisfactory to Lender: (i) cash payment in full of all Obligations and completed performance by
Borrowers with respect to its other obligations under this Agreement and the other Loan Documents, (ii) evidence that any obligation
of Lender to make Advances to Borrowers, or provide any further extensions of credit to or for the benefit of Borrowers has been
terminated, (iii) a general release of all claims against Lender and its Affiliates by Borrowers relating to the Line of Credit
and Lender’s performance and obligations under the Loan Documents, and (iv) an agreement by Borrowers, each Loan Party, and
any new lender to Borrowers to indemnify Lender and its Affiliates for any payments received by Lender or its Affiliates that are
applied to the Obligations as a final payoff that may later be returned or otherwise not paid for any reason.

 

(c)           Termination
by Borrowers.   Borrowers may terminate the Line of Credit at any time prior to the Maturity Date, if they (i) deliver
a written notice to Lender of their intention at least 30 days prior to the proposed action, (ii) pay to Lender the applicable
termination and prepayment fees specified in this Agreement, and (iii) pay the Obligations in full. Any such termination will be
irrevocable.

 

SECTION 1.5.       SECURITY
AGREEMENT.   To secure the Obligations, each Loan Party and Lender are entering into one or more Security Agreements,
pursuant to which each Loan Party is granting Lender, for the benefit of Lender and Lender’s Affiliates, a security interest
in the Collateral (as amended from time to time, collectively, the “Security Agreement”).

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES

 

Each of the Loan Parties makes the following
representations and warranties to Lender, which representations and warranties will survive the execution of this Agreement and
will continue in full force and effect until the full and final payment, and satisfaction and discharge of all Obligations:

 

SECTION 2.1.       LEGAL
STATUS.   Each Loan Party is duly organized, validly existing and in good standing under the laws of the State of its
organization and is qualified or licensed to do business and is in good standing in all jurisdictions in which such qualification
or licensing is required or in which the failure to so qualify or to be so licensed could reasonably be expected to cause a Material
Adverse Change. Each Loan Party possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses
required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the
business in which it is now engaged in compliance with applicable law.

 

SECTION 2.2.       AUTHORIZATION
AND VALIDITY.      The Loan Documents have been duly authorized and constitute legal, valid and binding
agreements and obligations of each Loan Party or the party which executes the same, enforceable in accordance with their respective
terms. The execution, delivery and performance by each Loan Party of each of the Loan Documents to which it is a party do not violate
any provision of any law or regulation, or contravene any provision of such Loan Party’s organizational documents or result
in any breach of or default under any contract, obligation, indenture or other instrument to which such Loan Party is a party or
by which such Loan Party or its assets may be bound.

 

SECTION 2.3.       LITIGATION.  
There are no pending, or to the best of each Loan Party’s knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or administrative agency which involve more than $250,000
or which could reasonably be expected to cause a Material Adverse Change, other than those disclosed on Schedule B.

 

    	 	-8-	 

     

    

 

SECTION 2.4.        FINANCIAL
STATEMENTS.  The annual financial statements of each Loan Party dated for such Loan Party’s most recent fiscal
year ended, and all interim financial statements delivered to Lender since such date and prior to the date of this Agreement (a)
are complete and correct and present fairly in all material respects the financial condition of such Loan Party, (b) disclose all
liabilities of such Loan Party that are required to be reflected or reserved against under generally accepted accounting principles
(“GAAP”), whether liquidated or unliquidated, fixed or contingent, and (c) have been prepared in accordance
with GAAP consistently applied (except, in the case of interim financial statements, for footnotes and year-end audit adjustments).
Since the dates of such financial statements there has been no Material Adverse Change.

 

SECTION 2.5.        TAXES.  Each
Loan Party has timely filed all tax returns and reports of such Loan Party required to be filed by it, and paid when due all taxes
shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon such Loan Party and
its assets, income, businesses and franchises that are due and payable. None of the Loan Parties are aware of any unpaid tax or
assessment or proposed tax or assessment against any Loan Party except (i) as set forth on Schedule B and (ii) taxes owing
for current or future periods that are not yet due and payable.

 

SECTION 2.6.       ERISA.  Each
Loan Party is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended or recodified from time to time ("ERISA"); No Loan Party has violated any provision of
any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by such Loan Party (each, a "Plan");
no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by such Loan Party; each
Loan Party has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill
its benefit obligations as they come due in accordance with the Plan documents and under GAAP.

 

SECTION 2.7.        OTHER
OBLIGATIONS.  Except for matters which could not reasonably be expected to result in a Material Adverse Change, none
of the Loan Parties are in default on any instrument or obligation.

 

SECTION 2.8.        ENVIRONMENTAL
MATTERS.  Except as set forth on Schedule B, or as could not reasonably be expected to result in a Material Adverse Change,
each of the Loan Parties is in compliance in all material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations related to such statutes, which govern or affect any Loan Party's
operations and/or properties. None of the operations of any Loan Party is the subject of any federal or state investigation evaluating
whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste
or substance into the environment. No Loan Party has any material contingent liability in connection with any release of any toxic
or hazardous waste or substance into the environment.

 

SECTION 2.9.        COMPLIANCE
WITH LAWS, ETC.  No Loan Party is an “investment company” or a company “controlled” by an “investment
company” under the Investment Company Act.  No Loan Party is engaged as one of its important activities in extending
credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). Each Loan Party has complied in
all material respects with the Federal Fair Labor Standards Act. No Loan Party has violated any laws, ordinances or rules, the
violation of which could reasonably be expected to result in a Material Adverse Change or subject Loan Parties to costs or liability
in excess of $250,000

 

SECTION 2.10.      MATERIAL
CONTRACTS.  Set forth on Schedule B is a detailed description of the Material Contracts of each Loan Party as
of the Closing Date. Except for matters which could not reasonably be expected to result in a Material Adverse Change, each Material
Contract (a) is in full force and effect and is binding upon and enforceable against such Loan Party and, to such Loan Party’s
knowledge, each other Person that is a party in accordance with its terms, (b) has not been otherwise amended or modified, and
(c) is not in default due to the action or inaction of such Loan Party.

 

    	 	-9-	 

     

    

 

SECTION 2.11.     INFORMATION
CERTIFICATE.  All of the information, disclosures, representations, and warranties contained in the Information Certificate
are true, complete, correct and accurate in all material respects as of the Closing Date.

 

SECTION 2.12.      NO
EVENT OF DEFAULT.  No Default or Event of Default has occurred and is continuing under this Agreement.

 

SECTION 2.13.     NO
OTHER LIENS.    No Loan Party has mortgaged, pledged, granted a security interest in or otherwise encumbered
any of its assets or properties except in favor of Lender and except for Permitted Liens.

 

ARTICLE III

CONDITIONS

 

SECTION 3.1.       CONDITIONS
OF INITIAL EXTENSION OF CREDIT.  The obligation of Lender to make the initial Advance or other initial extension of credit
under this Agreement is subject to the fulfillment to Lender's satisfaction of each of the following conditions: (i) all Loan
Documents and all other documents relating to this Agreement will have been executed and delivered, and Lender will have received
copies of each Loan Party’s organizational documents, satisfactory authorizing resolutions and recent good standing certificates
for each Loan Party, (ii) Lender will have confirmed to its satisfaction that there has been no Material Adverse Change since
the date of the last financial statements provided to Lender, (iii) Uniform Commercial Code and other searches and all Uniform
Commercial Code and other filings deemed necessary by Lender will have been completed and will have confirmed Lender’s first-priority
Liens in the Collateral and the results thereof will be otherwise satisfactory to Lender, (iv) all insurance policies and other
documents, agreements and actions required by this Agreement and the other Loan Documents will have been completed and will be
in place, (v) no event which would constitute a Default or an Event of Default will have occurred, (vi) Lender will have received
all required Collateral Access Agreements, (vii) Lender shall have received all financial information of each Loan Party required
by this Agreement, including, without limitation, all financial projections, (viii) Lender will have completed its business, legal,
and Collateral due diligence, including (a) a Collateral examination, appraisals and review of each Loan Party’s books and
records and verification of each Loan Party’s representations and warranties to Lender, the results of which must be satisfactory
to Lender, and (b) an inspection of each of the locations where the Inventory of each Loan Party is located, the results of which
must be satisfactory to Lender; (ix) Borrowers will have Excess Availability of at least $500,000 after giving effect to (A) the
initial Advance and other initial extensions of credit under this Agreement, and (B) the payment of all fees and Lender Expenses
required to be paid by Borrowers on the Closing Date under this Agreement or the other Loan Documents; (x) Lender will have obtained
final credit approval, (xi) a letter, acceptable to Lender, from Wells Fargo Bank, National Association (“Existing
Lender”) to Lender confirming the amount necessary to repay in full all of the obligations of the Loan Parties and its
Subsidiaries owing to Existing Lender and obtain a release of all of the Liens existing in favor of Existing Lender in and to the
assets of the Loan Parties and their Subsidiaries, (xii) Lender shall have received an opinion of Borrowers’ counsel in form
and substance reasonably acceptable to Lender; (xiii) each Loan Party will have received all licenses, approvals and certifications
required by any governmental authority necessary in connection with the execution of this Agreement and the Loan Documents and
the completion of the transactions contemplated by this Agreement, and (xiv) all other conditions required by Lender shall have
been fulfilled to Lender’s satisfaction and all other deliverables required by Lender shall have been delivered to Lender’s
satisfaction, including without limitation the following:

 

		(a)	a Guaranty Agreement executed by each Guarantor on Lender’s
standard form;

 

		(b)	Control Agreements executed by the applicable Loan Party
and each Controlled Account Bank and implemented by the Controlled Account Bank;

 

    	 	-10-	 

     

    

 

		(c)	Lender shall have entered into an acceptable Intercreditor
Agreement with Cree   (“Cree Intercreditor Agreement”); and

 

		(d)	Lender shall have received a fully executed copy of the
Exclusive Supply Agreement by and between Charles & Colvard, Ltd. and Cree, Inc. (the “Cree Agreement”)
which shall (i) have a term of at least two (2) years following the Closing Date and permit Borrowers to unilaterally extend the
agreement for additional term of at least one year and (ii) effective on or prior to the Closing Date, replace all references
therein to “Wells Fargo” with “White Oak Commercial Finance, LLC.

 

SECTION 3.2.        CONDITIONS
OF EACH EXTENSION OF CREDIT.  The obligation of Lender to make any Advance or any other extension of credit requested
by Borrowers at any time will be subject to the fulfillment to Lender's satisfaction of each of the following conditions:

 

(a)            The
representations and warranties of the Loan Parties contained in this Agreement and in the other Loan Documents shall be true and
correct in all material respects (except that such materiality qualifier is not applicable to any representations or warranties
already qualified or modified by materiality) on and as of the date of such Advance or such extension of credit as though made
on and as of such date; and

 

(b)            No
Default or Event of Default shall have occurred and be continuing on the date of such Advance or such extension of credit, nor
shall either result from the making of such Advance or extension of credit.

 

Any request for an Advance or for any other
extension of credit will be deemed to be a representation by Borrowers that the statements set forth in this Section 3.2 are correct
as of the time of such request and if such request is for an Advance, sufficient Availability exists for such Advance to be made.

 

SECTION 3.3         CONDITIONS
SUBSEQUENT. The obligation of Lender to continue to make Advances or otherwise extend credit under this Agreement is subject to
the fulfillment, on or before the applicable date, of the conditions subsequent set forth on Exhibit 1. The failure by any
Borrower or any other Loan Party to so satisfy such conditions subsequent on or before the applicable date will constitute an Event
of Default.

 

ARTICLE IV

AFFIRMATIVE COVENANTS

 

Each Borrower and each
of the other Loan Parties covenants that so long as Lender remains committed to make any Advance or extend any other credit to
Borrowers or any Obligations remain outstanding, each Loan Party will:

 

SECTION 4.1.        FINANCIAL
STATEMENTS.  Provide to Lender the financial information set forth on Schedule C, on a consolidated basis and
otherwise in form and detail satisfactory to Lender, within the time periods set forth in Schedule C.

 

SECTION 4.2.        COLLATERAL
REPORTING.  Provide to Lender all of the information set forth on Schedule D, in form and detail satisfactory
to Lender, within the time periods set forth in Schedule D, and delivered electronically if Borrowers have implemented electronic
reporting.

 

SECTION 4.3.        FINANCIAL
COVENANT.  Comply with the following financial covenants:

 

(a)           Minimum
Excess Availability.  Borrowers shall at all times maintain a minimum Excess Availability of at least $500,000.

 

    	 	-11-	 

     

    

 

SECTION 4.4.        ACCOUNTING
RECORDS; INSPECTIONS.  Maintain a system of accounting that enables Loan Parties to produce financial statements in accordance
with GAAP. Each Loan Party will permit any representative of Lender, upon reasonable notice (so long as no Default or Event of
Default shall exist) and at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same,
and to inspect the Collateral and the other assets and properties of such Loan Party and to do inspections, exams and appraisals
of the Collateral and any other assets of such Loan Party.  Loan Parties will also permit Lender, in Lender's name or
in the name of a nominee of Lender, to verify the validity, amount or any other matter relating to any Account, by mail, telephone,
facsimile transmission or otherwise, and, at the request of Lender, Loan Parties will send requests for verification of Accounts
or send notices of assignment of Accounts to Account Debtors.

 

SECTION 4.5.       COMPLIANCE.  Preserve
and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its
business; and comply with the provisions of all documents under which each Loan Party is organized and/or which govern each Loan
Party's continued existence, and with the requirements of all laws, rules, regulations and orders of any governmental authority
applicable to each Loan Party and/or its business, the failure to maintain or comply with which could reasonably be expected to
cause a Material Adverse Change.

 

SECTION 4.6.        MAINTENANCE
OF PROPERTIES.  Keep all material properties useful or necessary to each Loan Party's business in good repair and condition,
and from time to time make necessary repairs, renewals and replacements so that such properties will be fully and efficiently preserved
and maintained.

 

SECTION 4.7.       TAXES
AND OTHER LIABILITIES.  Pay and discharge prior to delinquency or prior to the expiration of any extension period, any
and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state
income taxes and state and local property taxes and assessments.

 

SECTION 4.8.        NOTICE
TO LENDER.  Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give
written notice to Lender in reasonable detail of: (a) the occurrence of any Default or Event of Default; (b) any change
in the name or the organizational structure of any Loan Party; (c) the occurrence and nature of any Reportable Event or Prohibited
Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; (d) a violation of any law, rule or
regulation, the non-compliance with which reasonably could be expected to result in a Material Adverse Change; (e) any termination
or cancellation of any insurance policy which any Loan Party is required to maintain, or any loss through liability or property
damage, or through fire, theft or any other cause affecting such Loan Party's property in excess of an aggregate of $250,000; (f)
any litigation pending or threatened against any Loan Party which could reasonably be expected to cause a Material Adverse Change
or which involves more than $250,000; (g) any amendment to the Cree Agreement, or (h) (i) any dispute or claims by any of Borrowers’
customers exceeding $250,000 or (ii) any Inventory returned to or recovered by a Loan Party outside of the ordinary course of business
with a fair market value exceed $250,000 individually or in the aggregate.

 

SECTION 4.9.        INSURANCE.  Maintain
insurance customary for the business in which it is engaged and maintain all risk property insurance coverage covering the full
replacement cost of the Collateral, together with general liability insurance, in each case, in form, substance, amounts, under
agreements and with insurers acceptable to Lender. The insurance policies must be issued by an insurance company with an A-VII
A.M. Best rating or better and contain a lender loss payable endorsement acceptable to Lender naming Lender as first and sole loss
payee with regard to property coverage and as additional insured with regard to liability coverage.

 

    	 	-12-	 

     

    

 

SECTION 4.10.     DEPOSITORY
RELATIONSHIP.  Within 60 days following the Closing Date (the “Interim Treasury Period”), establish
and maintain its lockbox and cash collection accounts with Lender. During the Interim Treasury Period and until such time as such
accounts have been established at Lender, Loan Parties will maintain cash management services reasonably acceptable to Lender at
a bank (a “Controlled Account Bank”). Loan Parties will ensure that each Loan Party and all Account Debtors
will deposit all collections of Accounts and all other items of payment directly to a bank account of Loan Parties at such Controlled
Account Bank (a “Controlled Account”). Within thirty (30) days following the Closing Date, each Loan Party will
maintain a deposit account control agreement acceptable to Lender (a “Control Agreement”) with each Controlled
Account Bank with respect to each Controlled Account and each operating account of such Loan Party at such Controlled Account Bank.
Such Control Agreement covering the Controlled Account will provide that the Controlled Account Bank will forward, by daily standing
wire transfer, all amounts in the Controlled Account directly to a deposit account as directed by Lender. Borrowers will establish
Control Agreements over such other deposit accounts at Controlled Account Bank as Lender shall request from time to time in its
Permitted Discretion.

 

SECTION 4.11.      MATERIAL
CONTRACTS.  Deliver to Lender a copy of each Material Contract and amendment to Material Contract entered into since
the delivery of the previous Compliance Certificate, and at the request of Lender, a “no-offset” letter acceptable
to Lender from each customer of a Loan Party which is a party to any Material Contract. Each Loan Party shall maintain all Material
Contracts in full force and effect and shall not default in the payment or performance of any obligations under any Material Contract.

 

SECTION
4.12.      FUTURE SUBSIDIARIES.  Notify Lender within thirty (30)
days upon any Person becoming a Subsidiary and, if such Person is not a Foreign Subsidiary, cause it to guaranty the Obligations
in a manner reasonably satisfactory to Lender, and to execute and deliver such documents, instruments and agreements and to take
such other actions as Lender shall reasonably require to evidence and perfect a first priority Lien in favor of Lender on all assets
of such Person, including, to the extent required by Lender, delivery of such legal opinions, in form and substance satisfactory
to Lender, as it shall reasonably deem appropriate.

 

SECTION 4.13.      COOPERATION.  Take
such actions and execute and deliver to Lender such instruments and documents as Lender will reasonably request (including obtaining
agreements from third parties as Lender deems necessary) to create, maintain, preserve and protect Lender’s first-priority
security interest in the Collateral and Lender’s rights in the Collateral and to carry out the intent of this Agreement and
the other Loan Documents.

 

ARTICLE V

NEGATIVE COVENANTS

 

Each Loan Party covenants that so long
as Lender remains committed to make any Advance or extend any other credit to Borrowers, or any Obligations remain outstanding,
no Borrower and no Loan Party will:

 

SECTION 5.1.        USE
OF FUNDS.  Use any of the proceeds of any Advance or any other credit extended under this Agreement for purposes other
than (i) to repay in full, the outstanding principal, accrued interest, and accrued fees and expenses owing by Borrowers under
Borrowers’ existing credit facility with Existing Lender, (ii) to pay Lender Expenses incurred in connection with this Agreement
and the other Loan Documents, and (iii) thereafter, consistent with the terms of this Agreement, for working capital and other
business purposes of Borrowers.  The Borrowers will not use the proceeds of any extension of credit to purchase or carry
margin stock or for any other purpose that violates the terms of Regulation T, U, or X of the Board of Governors of the Federal
Reserve System.

 

SECTION 5.2.        OTHER
INDEBTEDNESS.  Create, incur, assume or permit to exist any Indebtedness of Borrowers, except (a) the Obligations and
(b) Permitted Indebtedness.  “Indebtedness” means the following, whether secured or unsecured,
matured or unmatured, liquidated or unliquidated, joint or several: (i) all obligations for borrowed money (including recourse
and other obligations to repurchase accounts or chattel paper under factoring, receivables purchase or similar financing arrangement
or for the deferred purchase price of property or services); (ii) all obligations in respect of surety bonds and letters of credit;
(iii) all obligations evidenced by notes, bonds, debentures or other similar instruments, (iv) all capital lease obligations; (v)
all obligations or liabilities of others secured by a Lien on any asset of any of the Loan Parties, whether or not such obligation
or liability is assumed; (vi) all obligations to pay the deferred purchase price of assets (other than trade payables incurred
in the ordinary course of business and repayable in accordance with customary trade practices); and (vii) all guaranties of the
obligations of another Person).  “Permitted Indebtedness” means (a) Indebtedness of Borrowers described
on Schedule B; (b) purchase money indebtedness incurred in connection with the financing of the purchase by Borrowers of
fixed assets (including capitalized leases) in an aggregate amount outstanding at any time not to exceed $500,000; and (c) unsecured
Indebtedness to financial institutions incurred in connection with hedging of the prices of precious metals covering 90 days of
purchases, provided such Indebtedness does not exceed the aggregate amount of $500,000 at any time outstanding.

 

    	 	-13-	 

     

    

 

SECTION 5.3.        MERGER,
CONSOLIDATION, TRANSFER OF ASSETS, TRANSACTIONS OUTSIDE THE ORDINARY COURSE OF BUSINESS.  Cause, permit, participate
in or suffer to occur, any of the following: (a) merge with or consolidate with any other Person; (b) make any substantial change
in the nature of any Loan Party's business as conducted as of the Closing Date; (c) liquidate or dissolve any Loan Party’s
business; (d) become a member or partner in a joint venture, partnership or limited liability company, except as set forth in clause
(g) below; (e) acquire all or substantially all of the assets of any other Person (or any division, business unit or line of business
of any other entity), or acquire any assets outside the ordinary course of any Loan Party’s business, except for Permitted
Acquisitions; (f) sell, lease, transfer or otherwise dispose of any of any Loan Party's assets, except for the sale of Inventory
in the ordinary course of its business and sale of obsolete Equipment no longer useful in Borrowers’ business, (g) create
or acquire any Subsidiary except for (i) Permitted Acquisitions, and (ii) the formation of Foreign Subsidiaries for the purpose
of establishing on-line website sales outlets, repair services, or services similar to the Loan Parties’ existing businesses
in such country; provided that investments in such Foreign Subsidiaries which are funded in whole or part by any Advance under
this agreement or any other borrowing permitted hereunder do not exceed $250,000 in the aggregate during any fiscal year; (h) with
respect to any Loan Party, enter into any other transaction involving an acquisition, divestiture, investment or incurrence of
Indebtedness outside the ordinary course of business (including any sale and leaseback transaction) except as specifically permitted
by the terms of this Agreement; or (i) liquidate, wind up, or dissolve itself or suspend or cease operation of a substantial portion
of its business.

 

SECTION 5.4.        GUARANTIES.  Guarantee
or become liable in any way as surety, endorser, accommodation endorser or otherwise for any liabilities or obligations of any
other Person.

 

SECTION 5.5.       LOANS,
ADVANCES, INVESTMENTS.  Make any investment in any Person, whether in the form of loans, advances, guarantees, capital
contributions, or other investment (except (a) those presently existing and disclosed on Schedule B, (b) investments by
a Loan Party in another Loan Party, (c) Permitted Acquisitions, (d) the investments in Foreign Subsidiaries described in Section
5.3(g) above, and (e) investments in Cash Equivalents, so long as not otherwise restricted or prohibited under any other Section
of this Agreement) or acquisition of Stock or Indebtedness of any Person.

 

SECTION 5.6.        DIVIDENDS,
DISTRIBUTIONS.  Declare or pay any dividend or distribution (either in cash or any other property in respect of any Stock
in any Loan Party other than Qualified Stock) or redeem, retire, repurchase or otherwise acquire any Stock of any Loan Party, except
for (a) dividends or distributions payable to a Loan Party by a Subsidiary of a Loan Party, and (b) dividends or distributions
declared or payable solely in Stock splits or reverse Stock splits and cash dividends in lieu of dividends of fractional shares
in connection with such Stock splits or reverse Stock splits, provided the aggregate amount of cash dividends payable does not
exceed $250,000 during the term of this Agreement and no Default or Event of Default shall occur or exist after giving effect to
any such dividends.

 

    	 	-14-	 

     

    

 

SECTION 5.7.        LIENS.  Mortgage,
pledge, grant or permit to exist a security interest in, or Lien upon, all or any portion of any Loan Party's assets now owned
or subsequently acquired, except (a) Liens in favor of Lender and (b) Permitted Liens. “Lien” means, with respect
to any property, any security interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such property
or its income, including, without limitation, the interest of a vendor or lessor under a conditional sale agreement, capital lease
or other title retention agreement, or any agreement to provide any of the above, and the filing of any financing statement or
similar instrument under the Uniform Commercial Code or comparable law of any jurisdiction.  “Permitted Lien”
means (a) Liens for unpaid taxes, assessments, or other governmental charges or levies that are not yet delinquent or for judgments,
orders or awards not otherwise constituting an Event of Default, (b) Liens set forth on Schedule B, provided the scope of
any such Lien shall not be increased, or otherwise expanded, to cover any additional property or type of asset, as applicable,
beyond that in existence on the Closing Date, except for products and proceeds of the foregoing; (c) the interests of lessors under
operating leases and non-exclusive licensors under license agreements; (d) purchase-money Liens or the interests of lessors under
capital leases to the extent that such Liens or interests secure Permitted Indebtedness consisting of purchase-money Indebtedness
and so long as (i) such Lien attaches only to the asset purchased or acquired and the cash proceeds thereof, and (ii) such Lien
only secures the purchase-money Indebtedness that was incurred to acquire the asset purchased or acquired; (e) Liens arising by
operation of law in favor of landlords warehousemen, carriers, mechanics, materialmen and suppliers arising in the ordinary course
of business and not in connection with borrowing and for sums not yet delinquent, and (f) a security interest in favor of Cree
pursuant to the Cree Agreement, but only to the extent that such security interest of Cree (i) is subject to the Cree Intercreditor
Agreement, (ii) is junior in priority to Lender’s Liens except with respect to Cree Priority Collateral (as defined in the
Cree Intercreditor Agreement), and (iii) secures only the outstanding and unpaid purchase price for goods purchased by Company
from Cree.

 

SECTION 5.8.        AGREEMENTS
NOT TO ENCUMBER.  Agree with any Person other than Lender not to grant or allow to exist a Lien upon any of its property,
or covenant to any other Person that such Loan Party in the future will refrain from creating, incurring, assuming or allowing
any Lien with respect to any of such Loan Party’s property, other than Permitted Liens.  

 

SECTION 5.9.        AFFILIATE
TRANSACTIONS.  Directly or indirectly enter into, or permit to exist, any material transaction with any Affiliate of
any Loan Party, except for (a) transactions that are in the ordinary course of such Loan Party’s business, and are on fair
and reasonable terms that are no less favorable to such Loan Party than would be obtained in an arm’s length transaction
with a non-affiliated Person, (b) transactions solely among Loan Parties, and transactions solely among Subsidiaries of Loan Parties
that are not Loan Parties, and (c) so long as it has been approved by such Loan Party’s board of directors (or comparable
governing body) in accordance with applicable law, any customary indemnities and reimbursements of directors, officers and managers,
the payment of reasonable compensation, severance, or employee benefit arrangements to employees, officers, and directors of such
Loan Party in the ordinary course of business and consistent with industry practice.

 

SECTION 5.10.    ORGANIZATIONAL
CHANGES.  Change its name, chief executive office, principal residence, organizational documents, organizational identification
number, state of organization, organizational identity or “location” as defined in Section 9-307 of the Code.

 

SECTION 5.11.      CHANGE
OF ACCOUNTING METHOD.  Modify or change its fiscal year or its method of accounting (other than as may be required to
conform to GAAP).

 

SECTION
5.12       SANCTIONS. Nor
will any Subsidiary of any Loan Party or any of their respective directors, officers, or to the
knowledge of any Loan Party or any such Subsidiary, any of their respective employees or Affiliates or any agent or representative
of any Loan Party which will act in any capacity in connection with or benefit from the Line of Credit provided hereunder (i)
become a Sanctioned Person or the target of any Sanctions, (ii) be controlled by or act on behalf of a Sanctioned Person, (iii)
have its assets in a Sanctioned Country, (iv) be under administrative, civil or criminal investigation for an alleged violation
of anti-corruption laws, anti-money laundering laws or Sanctions by a Governmental Authority that enforces such laws, or (v) directly
or indirectly derive revenue from investments in or transactions with, Sanctioned Persons.

 

    	 	-15-	 

     

    

 

ARTICLE VI

EVENTS OF DEFAULT

 

SECTION 6.1.        EVENTS
OF DEFAULT.  The occurrence of any of the following will constitute an "Event of Default" under this
Agreement:

 

(a)           Any
Borrower fails to pay when due any Obligation.

 

(b)           Any
financial statement or certificate furnished to Lender in connection with, or any representation or warranty made or deemed made
by any Borrower or any other Loan Party under this Agreement or any other Loan Document proves to be incorrect, false or misleading
in any material respect when furnished or made (or deemed made).

 

(c)           Any
default in the performance of or compliance with any obligation, covenant, agreement or other provision set forth in Sections 4.5
(other than if a Loan Party is not in existence in its jurisdiction of organization), Section 4.6 (other than with respect to (i)
taxes, assessments and other indebtedness and obligations involving an aggregate amount in excess of $100,000 or (ii) for which
the relevant taxing authority or creditor has filed, asserted or recorded a Lien), and such default continues for a period of 15
days after the earlier of (i) the date on which such failure shall have first become known to or should have been known by any
officer of any Loan Party (ii) the date on which written notice thereof is given to any Loan Party by Lender.

 

(d)           Any
default in the performance of or compliance with any other obligation, covenant, agreement or other provision contained in this
Agreement or in any other Loan Document (other than those specifically described elsewhere in this Section 6.1) or any other obligation
of any Loan Party to Lender or under Section 4.5, if a Loan Party is not in existence in its jurisdiction of organization or under
Section 4.6 with respect to (i) taxes, assessments and other indebtedness and obligations involving an aggregate amount in excess
of $100,000 or (ii) for which the relevant taxing authority or creditor has filed, asserted or recorded a Lien.

 

(e)           Any
default in the payment or performance of any obligation under, or any defined event of default occurs, under the terms of any contract,
instrument or document evidencing Indebtedness (other than any of the Loan Documents) of Loan Party to any third party or which
Loan Party has guaranteed involving an amount in excess of $250,000 in the aggregate.

 

(f)            Any
Loan Party becomes insolvent, or becomes the subject of an Insolvency Proceeding.

 

(g)           Any
one or more judgments, orders or awards for the payment of money (except to the extent fully covered by insurance pursuant to which
the insurer has not denied coverage) in an amount in excess of $250,000 in the aggregate is entered or filed against any Loan Party,
or with respect to any of their respective assets.

 

(h)           There
exists or occurs any of the following (each, a “Material Adverse Change”): (i) a material adverse change in
the business, operations, results of operations, assets, liabilities or condition (financial or otherwise) of any Loan Party, or
(ii) a material impairment of the ability of any Loan Party to perform its obligations under the Loan Documents or of Lender’s
ability to enforce the Obligations or realize upon any of the Collateral, or (iii) a material impairment of the enforceability
or priority of Lender’s Liens with respect to any of the Collateral.

 

(i)            If
any event or circumstance occurs that Lender in good faith believes may impair the prospect of payment or performance by any Borrower
of any of the Obligations or any other Loan Party of its obligations.

 

    	 	-16-	 

     

    

 

(j)            
(a) any person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the Closing
Date) shall have acquired beneficial ownership of 40% or more on a fully diluted basis of the voting interest in the Stock of the
Company on a fully diluted basis of the voting interest in the Stock of the Company or (b) during each period of twelve consecutive
months, the Company’s existing directors (or replacement directors approved by at least 51% of the existing directors) or
equivalent governing body, shall fail to comprise a majority of the board of directors of the Company, (b) Borrowers fail to own
and control, directly or indirectly, 100% of the Stock of each other Loan Party, and (c) Company fails to own and control, directly
or indirectly, 100% of the Stock of each other Borrower.

 

(k)           The
dissolution or liquidation of any Loan Party if a corporation, limited liability company, partnership, joint venture or other type
of entity; the death or incapacity of any Loan Party if an individual; any Loan Party, or any of its directors, stockholders or
members, takes action seeking to affect the dissolution or liquidation of any Loan Party; or the Company fails to own and control,
directly or indirectly, 100% of the Stock of charlesandcolvard.com, LLC and Charles & Colvard Direct, LLC having the right
to vote for the election of members of the board of directors (or comparable managers) of such entities.

 

(l)            Any
Loan Party makes any payment on any Indebtedness which is subject to a subordination agreement in favor of Lender, in violation
of such subordination agreement.

 

(m)          if
any officer or director of any Borrower or any Loan Party is convicted of a felony offense under state or federal law and is not
removed from such position promptly, but in any event, within 30 days following such conviction or any Borrower or any Loan Party
appoints an officer or director who has been convicted of any felony offense.

 

(n)           Lender
fails to have a first-priority security interest in the Collateral, subject to no other Liens except Permitted Liens.

 

(o)           Any
Loan Party repudiates or revokes or purports to repudiate or revoke any obligation under its Guaranty or under any other Loan Document
to which it is a party.

 

(p)           Any
failure to renew or termination of the Cree Agreement.

 

SECTION 6.2.        REMEDIES.  Upon
the occurrence and during the continuation of an Event of Default, Lender may (in each case under clause (a) or (b) by written
notice to Borrowers; provided that no such notice shall be required with respect to an Event of Default with respect to Borrowers
under Section 6.1(f)): (a) declare the Obligations immediately due and payable, at which time such Obligations shall be immediately
due and payable and each Borrower shall be obligated to immediately repay all of such Obligations in full, without presentment,
demand, protest, notice of dishonor, or other notice of any kind or other requirement of any kind, all of which are hereby expressly
waived by Borrowers; (b) declare the obligations, if any, of Lender to make further Advances or other extensions of credit
under this Agreement and any of the Loan Documents terminated, at which time such obligations will immediately cease and terminate;
and (c) exercise any or all rights, powers and remedies available under the Security Agreement and each of the other Loan Documents,
or accorded by law or equity.  All rights, powers and remedies of Lender may be exercised at any time by Lender and from
time to time after the occurrence and during the continuation of an Event of Default, and the same are cumulative and not exclusive,
and will be in addition to any other rights, powers or remedies provided by law or equity.  Upon the occurrence of any
Default or Event of Default described in Section 6.1(e) with respect to Borrowers, any obligation of Lender to make Advances or
provide any further extensions of credit hereunder shall automatically terminate and the Obligations shall automatically and immediately
become due and payable.

 

ARTICLE VII

MISCELLANEOUS

 

SECTION 7.1.        CERTAIN
DEFINITIONS.  The following terms will have the following meanings:

 

“Account”  has
the meaning set forth in Section 1.1(a).

 

    	 	-17-	 

     

    

 

“Account Debtor”
has the meaning set forth in Section 1.1(a).

 

“Acquisition”:
by any Person, means the acquisition by such Person, in a single transaction or in a series of related transactions, of (i) all
or any substantial portion of the assets of another Person, (ii) all or a portion of a division or operating group of another Person,
or (iii) all or substantially all of the Stock of another Person, in each case whether or not involving a merger or consolidation
with such other Person and whether for cash, property, services, assumption of Indebtedness, Stock or otherwise.

 

“Advances”
has the meaning set forth in Section 1.1(a).

 

“Affiliate”
means, as applied to any Person, any other Person who controls, is controlled by, or is under common control with, such Person.  For
purposes of this definition, “control” means the possession, directly or indirectly through one or more intermediaries,
of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise;
provided, however, that, for purposes of the definition of Eligible Accounts and Section 5.9; (a) any Person which owns directly
or indirectly 10% or more of the Stock having ordinary voting power for the election of the board of directors or equivalent governing
body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of
such Person) shall be deemed an Affiliate of such Person, (b) each director (or comparable manager) of a Person shall be deemed
to be an Affiliate of such Person, and (c) each partnership in which a Person is a general partners shall be deemed an Affiliate
of such Person.

 

“Agreement”
has the meaning in the preamble hereto.

 

“Applicable
Margin” has the meaning set forth in Section 1.2(b).

 

“Availability”
means, as of any date of determination, the amount that Borrowers are entitled to borrow as Advances under Section 1.1(a) after
giving effect to all then outstanding Obligations.

 

“Bankruptcy
Code” means Title 11 of the United States Code as in effect from time to time.

 

“Borrowers”
has the meaning set forth in the preamble to this Agreement.

 

“Borrowing
Base” has the meaning set forth in Section 1.1(a).

 

“Business Day” means
any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close under to the rules and
regulations of the Federal Reserve System.

 

“Capital Expenditures”
means, with respect to any Borrower for any period, the aggregate of all expenditures by such Borrower during such period that
are capital expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or financed.

 

“Cash Equivalents”
means, collectively, (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency
thereof maturing within one hundred twenty (120) days from the date of acquisition thereof, (b) commercial paper maturing
no more than one hundred twenty (120) days from the date of creation thereof and currently having the highest rating obtainable
from either S&P or Moody’s, (c) certificates of deposit maturing no more than one hundred twenty (120) days from
the date of creation thereof issued by commercial banks incorporated under the laws of the United States, each having combined
capital, surplus and undivided profits of not less than $500,000,000 and having a rating of “A” or better by a nationally
recognized rating agency; provided that the aggregate amount invested in such certificates of deposit shall not at any time
exceed $5,000,000 for any one such certificate of deposit and $10,000,000 for any one such bank, (d) time deposits maturing
no more than thirty (30) days from the date of creation thereof with commercial banks or savings banks or savings and loan associations
each having membership either in the FDIC or the deposits of which are insured by the FDIC and in amounts not exceeding the maximum
amounts of insurance thereunder; or (e) investments in money market funds whose assets are primarily comprised of cash and Cash
Equivalents.

 

    	 	-18-	 

     

    

 

“Change in
Law” has the meaning set forth in Section 1.3(a).

 

“Closing Date”
has the meaning set forth in the preamble to this Agreement.

 

“Code”
means the New York Uniform Commercial Code, as in effect from time to time. To the extent that defined terms set forth in this
Agreement have different meanings under different Articles under the Uniform Commercial Code, the meaning assigned to such defined
term under Article 9 of the Uniform Commercial Code will control.

 

“Collateral”
means all real and personal property in which Lender has been granted a security interest or Lien pursuant to the Security Agreement
or any other Loan Document, together with any products and proceeds of the foregoing, including, without limitation, the “Collateral”
as defined in the Security Agreement.

 

“Collateral
Access Agreement” means a landlord waiver, bailee letter, or acknowledgment agreement of any lessor, warehouseman, processor,
consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the books, Equipment, Accounts
or Inventory of any Loan Party in favor of Lender with respect to the Collateral at such premises or otherwise in the custody,
control or possession of such lessor, warehouseman, processor, consignee or other Person and in form and substance satisfactory
to Lender.

 

“Collection
Account” has the meaning set forth in Section 1.1(g).

 

“Collections”
has the meaning set forth in Section 1.1(h).

 

“Company”
has the meaning set forth in the preamble to this Agreement.

 

“Compliance
Certificate” means a certificate in the form of Schedule E executed by the president or chief financial officer of Company
and delivered to Lender.

 

“Control Agreement”
has the meaning set forth in Section 4.10.

 

“Controlled
Account” has the meaning set forth in Section 4.10.

 

“Controlled
Account Bank” has the meaning set forth in Section 4.10.

 

“Cree”
means Cree, Inc. a North Carolina corporation.

 

“Cree Agreement”
has the meaning set forth in Section 3.1.

 

“Cree Intercreditor
Agreement” has the meaning set forth in Section 3.1.

 

“Daily Balance”
means, as of any date of determination and with respect to any Obligation, the amount of such Obligation owed at the end of such
day.

 

“Default” means an event,
condition or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.

 

“Default Period” has
the meaning set forth in Section 1.2(c).

 

“Default Rate” has the
meaning set forth in Section 1.2(c).

 

“Dilution” has the meaning
set forth in Section 1.1(a).

 

    	 	-19-	 

     

    

 

“Disqualified
Stock” means any Stock that, by its terms (or by the terms of any security or other Stock into which it is convertible
or for which it is exchangeable), or upon the happening of any event or condition (a) matures or are mandatorily redeemable (other
than solely for Qualified Stock), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control
or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall
be subject to the prior repayment in full of the Obligations and the termination of this Agreement), (b) are redeemable at the
option of the holder thereof (other than solely for Qualified Stock), in whole or in part, (c) provide for the scheduled payments
of dividends in cash, or (d) are or become convertible into or exchangeable for Indebtedness or any other Stock that would constitute
Disqualified Equity Interests, in each case, prior to the date that is 180 days after the Maturity Date.

 

“Eligible Accounts” has
the meaning set forth in Section 1.1(c).

 

“Eligible Inventory”
has the meaning set forth in Section 1.1(d).

 

“EBITDA” means, with
respect to any fiscal period, the net income (or loss), of Borrowers, minus non-cash extraordinary gains, interest income, non-operating
income and income tax benefits, plus non-cash extraordinary losses, interest expense, income taxes, depreciation and amortization
and stock-based compensation for such period, in each case, determined in accordance with GAAP.  

 

“ERISA” has the meaning
set forth in Section 2.6.

 

“Equipment” means equipment
as that term is defined in the Code.

 

“Event of Default” has
the meaning set forth in Section 6.1.

 

“Excess Availability”
means, as of any date of determination, the amount equal to Availability minus the aggregate amount, if any, of all trade
payables and other obligations of Borrowers aged in excess of 30 days beyond their terms as of the end of the immediately preceding
month, and all book overdrafts and fees of Borrowers, in each case as determined by Lender in its sole discretion.

 

“Existing Lender” shall
have the meaning set forth in Section 3.1.

 

“Fixed Charge Coverage Ratio”
means, with respect to the Borrowers for any period, the ratio of (i) EBITDA for such period, minus (a) Non-Financed Capital
Expenditures made (to the extent not already incurred in a prior period) or incurred during such period, and (b) cash taxes paid
during such period, to the extent greater than zero, to (ii) Fixed Charges for such period.

 

“Fixed Charges” means,
with respect to any fiscal period and with respect to Borrowers determined in accordance with GAAP, the sum, without duplication,
of (a) cash interest expense paid during such period (other than interest paid-in-kind, amortization of financing fees, and other
non-cash interest expense), (b) principal payments paid in cash in respect of Indebtedness paid during such period, including cash
payments with respect to capital leases, but excluding principal payments made with respect to the Line of Credit, and (c) all
distributions specifically permitted under this Agreement paid in cash during such period.

 

Foreign Subsidiary:
a Subsidiary that is (i) not organized under the laws of any political subdivision of the United States, (ii)  a “controlled
foreign corporation” under Section 957 of the Internal Revenue Code of 1986, as amended (a “CFC”), (iii)
a direct or indirect Subsidiary of a CFC or (iv) a Subsidiary that is treated as a disregarded entity or as a partnership for United
States Federal income tax purposes and all or substantially all of whose assets consist of Stock of one or more Foreign Subsidiaries
that are CFCs and conducts no material business other than the ownership of such Stock.

 

“GAAP” has the meaning
set forth in Section 2.4.

 

    	 	-20-	 

     

    

 

“Guarantor”
means Charles & Colvard Direct, LLC and each other Person that has guaranteed all or any part of the Obligations, and “Guarantor”
means any one of them.

 

“Guaranty” means the
Guaranty in favor of Lender executed and delivered by the Guarantors.

 

“Indebtedness” has the
meaning set forth in Section 5.2.

 

“Information Certificate”
means the Information Certificate dated July 13, 2018 completed and executed by Borrowers and delivered to Lender.

 

“Initial Interest Period”
has the meaning set forth in Section 1.2(a).

 

“Insolvency Proceeding”
means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or
federal bankruptcy or insolvency law, assignments for the benefit of creditors, receiverships, formal or informal moratoria, compositions,
extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

 

“Interim Treasury Period”
has the meaning set forth in Section 4.10.

 

“Inventory” has the meaning
set forth in Section 1.1(a).

 

“Lender” has the meaning
set forth in the preamble to this Agreement.

 

“Lender Expenses” has
the meaning set forth in Section 7.4.

 

“LIBOR Index
Adjustment Date:  the Closing Date and the first Business Day of each calendar month as long as any Advances remain
outstanding.

 

LIBOR Index Rate:
means, as of any LIBOR Index Adjustment Date, the greater of (a) 1.25% or (b) the rate per annum, (rounded upwards, if necessary,
to the next higher one hundred-thousandth of one percentage point) for deposit in U.S. Dollars for a period equal to one (1) month,
which appears on the LIBOR01 Page on the LIBOR Index Adjustment Date; and LIBOR 01 Page means the display designated as LIBOR01
Page on the Reuters (or on any successor or substitute page of such service, or any successor to or substitute for such service,
providing rate quotations comparable to those currently provided on such page of such service, as determined by Lender from time
to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market).

 

“Lien” has the meaning
set forth in Section 5.7.

 

“Line of Credit” has
the meaning set forth in Section 1.1(a).

 

“Loan Account” has the
meaning set forth in Section 1.1(h).

 

“Loan Documents” means
this Agreement, the Security Agreement, the Guaranty, the Cree Intercreditor Agreement, the Control Agreements and each contract,
instrument, agreement and other document required by this Agreement or at any time entered into or delivered to Lender in connection
with this Agreement or the Line of Credit.

 

“Loan Parties” means
collectively, each Borrower and each Guarantor and each of them is a “Loan Party”.

 

“Lockbox” has the meaning
set forth in Section 1.1(g).

 

“Material Adverse Change”
has the meaning set forth in Section 6.1(h).

 

    	 	-21-	 

     

    

 

“Material Contract” means
each contract or agreement to which any Loan Party is a party involving aggregate consideration payable to or by such Loan Party
of $500,000 or more (other than purchase orders in the ordinary course of the business of such Loan Party), and (ii) all other
contracts or agreements, the loss of which could reasonably be expected to result in a Material Adverse Change.

 

“Maturity Date” has the
meaning set forth in Section 1.4(a).

 

“Maximum Revolver Amount”
has the meaning set forth in Section 1.1(a).

 

“Net Liquidation Percentage”
has the meaning set forth in Section 1.1(a).

 

“Non-Financed Capital Expenditures”
means Capital Expenditures not financed by the seller of the capital asset, by a third party lender or by means of any extension
of credit by Lender other than by means of an Advance under the Line of Credit.

 

“Non-Revolving Advances”
has the meaning set forth in Section 1.1(b).

 

“Non-Revolving Advance Reserve”
has the meaning set forth in Section 1.1(b).

 

“Obligations” means (a)
all loans (including the Advances and the Non-Revolving Advances), debts, principal, interest (including any interest that accrues
after the beginning of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any
such Insolvency Proceeding), premiums, liabilities (including all amounts charged to the Loan Account pursuant to the Loan Documents),
obligations (including indemnification obligations), fees, Lender Expenses (including any fees or expenses that accrue after the
commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such
Insolvency Proceeding), guaranties, and all covenants and duties of any other kind and description owing by Borrowers under or
evidenced by this Agreement or any of the other Loan Documents or otherwise owing to Lender under any other present or future document,
instrument or agreement, and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent,
liquidated or unliquidated, determined or undetermined, voluntary or involuntary, due, not due or to become due, sole, joint, several
or joint and several, incurred in the past or now existing or hereafter arising, however arising, and including all interest not
paid when due, and all other expenses or other amounts that Borrowers are required to pay or reimburse by the Loan Documents or
by law or otherwise in connection with the Loan Documents. Any reference in this Agreement or in the Loan Documents to the Obligations
will include all or any portion of the Obligations and any extensions, modifications, renewals, or alterations of the Obligations,
both prior and subsequent to any Insolvency Proceeding.

 

“OFAC” means The Office
of Foreign Assets Control of the U.S. Department of the Treasury.

 

“Patriot Act” means Uniting
and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001).

 

“Permitted
Acquisitions”: means an Acquisition by any Loan Party; provided that:

 

		(i)	the assets acquired (or the assets of the Person acquired)
in such Acquisition are used or useful in the same line of business as Borrowers and their Subsidiaries were engaged in on the
Closing Date,

 

		(ii)	the Lender shall have received not less than thirty (30)
days prior notice of such Acquisition, which notice shall contain a summary, in reasonable detail, of the acquisition terms and
conditions, including price (or the manner in which the price will be determined and including an estimate of such price) and
Borrowers’ projections prepared in connection with such Acquisition,

 

    	 	-22-	 

     

    

 

		(iii)	all assets or Stock of the acquisition target shall be classified as Collateral (unless Excluded
Collateral), and at or prior to the closing of such Permitted Acquisition, Lender shall be granted a first priority perfected Lien
(subject to Permitted Liens) in such assets and Stock of such acquisition target and such acquisition target shall join this Agreement
and the other relevant Loan Documents as a Loan Party pursuant to the terms of Section 4.12; provided that (A) the value of any
assets acquired through the Permitted Acquisition shall not be credited towards the Borrowing Base until such time as Lender has
conducted and received the results of an acceptable field exam and Inventory appraisal of such assets (or as otherwise approved
by Lender in its sole discretion), and (B) none of the assets of any Foreign Subsidiary shall be credited toward the Borrowing
Base,

 

		(iv)	in the case of an Acquisition of the Stock of another Person, the board of directors (or other
comparable governing body) of such other Person shall have duly approved such Acquisition,

 

		(v)	Borrowers shall have delivered to Lender a Compliance Certificate demonstrating that, upon giving
effect to such Acquisition on a pro forma basis, Borrowers would be in compliance with this Agreement and no Default or Event of
Default exists,

 

		(vi)	the representations and warranties made by the Loan Parties in each Loan Document shall be true
and correct in all material respects at and as if made as of the date of such Acquisition (after giving effect thereto) except
to the extent such representations and warranties expressly relate to an earlier date,

 

		(vii)	immediately after giving effect to such Acquisition, Availability shall be at least $2,000,000,

 

		(viii)	Borrower shall have delivered to the Lender a collateral assignment of agreement with respect to
the purchase agreement governing the Acquisition,

 

		(ix)	Borrower shall have certified on or before the closing date of such Acquisition, in writing and
in a form reasonably acceptable to Lender, that such Acquisition is not hostile;

 

		(x)	the Total Consideration paid by the Borrower and any Subsidiary for all Acquisitions prior to the
Termination Date shall not exceed the sum of (A) $1,000,000 in the aggregate (or such greater amount as Borrowers and Lender shall
agree in writing) with respect to Acquisitions where the purchase price is funded in whole or in part by any Advance under this
Agreement or other borrowing, plus, (B) in each case, any amounts funded with the net cash proceeds from a Qualified Stock issuance
by Company or with available cash on hand, provided that immediately following such use of cash on hand, Borrowers will have sufficient
working capital (without borrowing) to operate their businesses in the ordinary course,

 

		(xi)	the maximum earn out or similar obligation that may be paid (or estimated to be paid, if it is
not possible to determine the exact amount of the obligation on the date of determination) under any circumstance may not exceed
30% of the Total Consideration for any particular Acquisition,

 

		(xii)	the business and assets acquired by an Loan Party in such Acquisition shall be free and clear of
all Liens (other than Permitted Liens), and

 

		(xiii)	if the EBITDA (calculated for the twelve (12) consecutive calendar months most recently ended)
for such Persons, division or line of business to be so acquired is:

 

    	 	-23-	 

     

    

 

		(x)	less than $1,000,000, Borrowers shall have delivered to the Lender historical financial information
(including income statements, balance sheets and cash flows) covering at least the three (3) most recently ended fiscal years for
which financial statements have been prepared for such Persons, division or line of business to be so acquired prior to the effective
date of the acquisition or the entire financial history for such Persons, division or line of business to be so acquired, whichever
period is shorter; or

 

		(y)	greater than or equal to $1,000,000, Borrowers shall have delivered to the Lender such financial
information, together with a quality of earnings report, in form and results acceptable to the Lender, with respect to each Person
or any division or line of business being acquired in connection with any proposed Acquisition.    

 

“Permitted Discretion”
means a determination made in the exercise of Lender’s reasonable (from the perspective of a secured lender) business judgment.

 

“Permitted Indebtedness”
has the meaning set forth in Section 5.2.

 

“Permitted Lien” has
the meaning set forth in Section 5.7.

 

“Person” means natural
persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships,
joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities,
and governments and agencies and their political subdivisions.

 

“Plan” has the meaning
set forth in Section 2.6.

 

“Principal Location”
means Borrowers’ manufacturing premises located at 170 Southport Drive, Morrisville, North Carolina.

 

“Prime Rate” means at
any time the rate of interest most recently announced by Lender at its principal office as its Prime Rate, with the understanding
that the Prime Rate is one of Lender’s base rates, and serves as the basis upon which effective rates of interest are calculated
for those loans making reference to it, and is evidenced by its recording in such internal publication or publications as Lender
may designate.  Each change in the rate of interest will become effective on the date each Prime Rate change is announced
by Lender.

 

“Qualified
Stock” means and refers to any Stock issued by Company (and not by one or more of its Subsidiaries) that is not a Disqualified
Stock.

 

“Reserves” has the meaning
set forth in Section 1.1(a).

 

“Sanctions”
means any and all economic or financial sanctions, sectoral sanctions, secondary sanctions, trade embargoes and anti-terrorism
laws, including but not limited to those imposed, administered or enforced from time to time by the U.S. government (including
those administered by OFAC or the U.S. Department of State), the United Nations Security Council, the European Union, Her Majesty’s
Treasury, or other relevant sanctions authority with jurisdiction over Lender, any Loan Party or any of their Subsidiaries or Affiliates.

 

“Sanctioned
Country” means at any time, a country or territory which is itself the subject or target of any Sanctions (including,
as of the Closing Date, Cuba, Iran, North Korea, Sudan, Syria and Crimea).

 

    	 	-24-	 

     

    

 

“Sanctioned
Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC
(including, without limitation, OFAC’s Specially Designated Nationals and Blocked Persons List and OFAC’s Consolidated
Non-SDN List), the U.S. Department of State, the United Nations Security Council, the European Union, Her Majesty’s Treasury,
or other relevant sanctions authority, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person
owned or controlled by any such Person or Persons described in clauses (a) and (b), including a Person that is deemed by OFAC to
be a Sanctions target based on the ownership of such legal entity by Sanctioned Person(s).

 

“SEC” means The United
States Securities and Exchange Commission and any successor thereto.

 

“Security Agreement”
has the meaning set forth in Section 1.5.

 

“Stock” means all shares,
options, warrants, equity interests, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting,
including common stock, preferred stock, or any other equity security.

 

“Subsequent Interest Period”
has the meaning set forth in Section 1.2(b).

 

“Subsidiary” of a Person
means a corporation, partnership, limited liability company or other entity in which that Person directly or indirectly owns or
controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable
managers) of such corporation, partnership, limited liability company or other entity.

 

“Taxes” has the meaning
set forth in Section 7.5.

 

“Termination Date” has
the meaning set forth in Section 1.4(a).

 

“Total Consideration”:
with respect to any Acquisition, all cash and non-cash consideration, including the amount of Indebtedness assumed by the buyer
and the amount of Indebtedness evidenced by notes issued by the buyer to the seller, the maximum amount payable (or estimated to
be payable, if it is not possible to determine the exact amount on the date of determination) in connection with any deferred purchase
price obligation (including any earn-out obligations) and the value of any Stock of any Loan Party issued to the seller in connection
with such Acquisition.

 

“Value” has the meaning
set forth in Section 1.1(a).

 

SECTION 7.2.        NO
WAIVER.  No delay, failure or discontinuance of Lender in exercising any right, power or remedy under any of the Loan
Documents will affect or operate as a waiver of such right, power or remedy; nor will any single or partial exercise of any such
right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, permit, consent or approval of any kind by Lender of any breach of or default (including any Default
or Event of Default) under any of the Loan Documents must be in writing and will be effective only to the extent set forth in such
writing.

 

SECTION 7.3.        NOTICES.  All
notices, requests and demands which any party is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the address for such party set forth below each party’s name on the
signature pages of this Agreement or to such other address as any party may designate by written notice to all other parties. Each
such notice, request and demand will be deemed given or made as follows:  (a) if sent by hand delivery or overnight
courier, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the
U.S. mail, first class and postage prepaid; (c) if sent by telecopy, upon receipt; and (d) if sent by electronic mail, upon
sender’s receipt of an acknowledgment from the intended recipient (such as by “return receipt requested” function,
as available, return email or other written acknowledgment).

 

    	 	-25-	 

     

    

 

SECTION 7.4.        COSTS,
EXPENSES AND ATTORNEYS' FEES.  Each Borrower and each other Loan Party will pay to Lender immediately upon demand the
full amount of the following (collectively, “Lender Expenses”): all payments, advances, charges, costs and expenses,
including without limitation reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Lender's in-house
counsel), appraisal fees, consultant fees, audit fees, and exam fees expended or incurred by Lender in connection with (a) the
negotiation and preparation of this Agreement and the other Loan Documents, perfection of Lender’s Liens in the Collateral,
Lender’s continued administration of this Agreement and the other Loan Documents, and the preparation of any amendments,
waivers or other agreements, instruments or documents relating to this Agreement or the other Loan Documents, or in connection
with any “workout” or restructuring, (b) the enforcement of Lender's rights and/or the collection of any amounts
which become due to Lender under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related
to any of the Loan Parties or any of the Loan Documents, including without limitation, any action for declaratory relief, whether
incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the above incurred in
connection with any Insolvency Proceeding (including without limitation, any adversary proceeding, contested matter or motion brought
by Lender or any other Person) relating to any of the Loan Parties or any other Person and (d) any of the Collateral and other
examinations, appraisals, evaluations, audits and inspections. Each Loan Party’s obligations set forth in this Section 7.4
will survive any termination of this Agreement or repayment of the Obligations and will for all purposes continue in full force
and effect.

 

SECTION 7.5.        TAXES.  All
payments made by Borrowers hereunder or under any note or other Loan Document will be made without setoff, counterclaim, or other
defense. In addition, all such payments will be made free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or subsequently imposed by any
jurisdiction or by any political subdivision or taxing authority and all related interest, penalties or similar liabilities (collectively,
“Taxes”) and in the event any deduction or withholding of such Taxes is required, each Borrower agrees to pay
the full amount of such Taxes.

 

SECTION 7.6.        GENERAL.  This
Agreement will be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors
and assigns of the parties; provided that no Borrower and no Loan Party may assign or transfer any of its interests, rights or
obligations under this Agreement without Lender's prior written consent. Lender reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in, Lender’s rights and benefits under this Agreement
and the other Loan Documents. This Agreement and the other Loan Documents constitute the entire agreement between Borrowers and
the Loan Parties and Lender with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions
and correspondence concerning the subject matter of this Agreement. This Agreement may be amended or modified only in writing
signed by each party to this Agreement. This Agreement is made and entered into for the sole protection and benefit of the parties
hereto and their respective permitted successors and assigns, and no other Person will be a third party beneficiary of, or have
any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which
it is not a party. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents.  If
any provision of this Agreement or any other Loan Document will be prohibited by or invalid under applicable law, such provision
will be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision
or any remaining provisions of this Agreement or the other Loan Documents. This Agreement may be executed in any number of counterparts,
each of which when executed and delivered will be deemed to be an original, and all of which when taken together will constitute
one and the same Agreement. Delivery of an executed counterpart of this Agreement by facsimile or other
electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement
and any party’s failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding
effect of this Agreement.

 

    	 	-26-	 

     

    

 

SECTION 7.7.        MULTIPLE
BORROWERS.

 

(a)            Joint
and Several Liability.           Each Borrower agrees that it is jointly and severally
liable for, and absolutely and unconditionally guarantees to Lender the prompt payment and performance of, all Obligations under
this Agreement and all agreements under the Loan Documents.  Each Borrower agrees that its guaranty obligations hereunder
constitute a continuing guaranty of payment and not of collection, that such obligations shall not be discharged until cash payment
in full of the Obligations, and that such obligations are absolute and unconditional, irrespective of (i) the genuineness, validity,
regularity, enforceability, subordination or any future modification of, or change in, any Obligations or Loan Document, or any
other document, instrument or agreement to which any Borrower is or may become a party or be bound; (ii) the absence of any action
to enforce this Agreement or any other Loan Document, or any waiver, consent or indulgence of any kind by Lender; (iii) the existence,
value or condition of, or failure to perfect any of Lender’s Liens or to preserve rights against, any security or guaranty
for the Obligations or any action, or the absence of any action, by Lender in respect thereof (including the release of any security
or guaranty); (iv) the insolvency of any Borrower; (v) any election by Lender in an Insolvency Proceeding for the application of
Section 1111(b)(2) of the Bankruptcy Code; (vi) any borrowing or grant of a Lien by any other Borrower, as debtor-in-possession
under Section 364 of the Bankruptcy Code or otherwise; (vii) the disallowance of any claims of Lender against any Borrower for
the repayment of any Obligations under Section 502 of the Bankruptcy Code or otherwise; or (viii) any other action or circumstances
that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, except cash payment in full
of all Obligations.

 

(b)            Contribution.           Each
Borrower hereby agrees that it will not enforce any of its rights of contribution or subrogation against any other Borrower with
respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to Lender with
respect to any of the Obligations or any collateral security until such time as all of the Obligations have been paid in full in
cash.  

 

(c)            No
Limitation on Liability.           Nothing contained in this Section 7.7
shall limit the liability of any Borrower to pay extensions of credit made directly or indirectly to that Borrower (including revolving
loans advanced to any other Borrower and then re-loaned or otherwise transferred to, or for the benefit of, such Borrower), Obligations
relating to Letters of Credit issued to support such Borrower’s business, and all accrued interest, fees, expenses and other
related Obligations with respect thereto, for which such Borrower shall be primarily liable for all purposes hereunder. Lender
shall have the right, at any time in its discretion, to condition an extension of credit hereunder upon a separate calculation
of borrowing availability for each Borrower and to restrict the disbursement and use of such extensions of credit to such Borrower.

 

SECTION 7.8.        INDEMNITY.  Each
Borrower and each other Loan Party indemnifies Lender and its Affiliates, Subsidiaries, directors, officers, employees, representatives,
agents, and attorneys, and holds them harmless from and against any and all claims, debts, liabilities, demands, obligations, actions,
causes of action, penalties, costs and expenses (including reasonable attorneys' fees), of every kind, which they may sustain or
incur based upon or arising out of any of the Obligations, this Agreement, any of the Loan Documents, or the Collateral or any
relationship or agreement between Lender and the Loan Parties, or any other matter, relating to any Loan Party, the Obligations
or the Collateral; provided that this indemnity will not extend to damages that a court of competent jurisdiction finally determines
in a non-appealable judgment to have been caused by the indemnitee’s own gross negligence or willful misconduct.  Regardless
of any provision in this Agreement to the contrary, the indemnity agreement set forth in this Section will survive any termination
of this Agreement or repayment of the Obligations and will for all purposes continue in full force and effect.

 

SECTION 7.9.        GOVERNING
LAW.  The validity of this Agreement and the other Loan Documents (unless otherwise expressly provided in such Loan Document)
and the construction, interpretation, and enforcement of this Agreement and the other Loan Documents, and the rights of the parties,
as well as all claims, controversies or disputes arising under or related to this Agreement and the other Loan Documents will be
determined under, governed by and construed in accordance with the laws of the State of New York without regard conflicts of laws
principles.

 

    	 	-27-	 

     

    

 

SECTION 7.10.      CONSEQUENTIAL DAMAGES.  No
claim may be made by any party to this Agreement or any Affiliate, Subsidiary, director, officer, employee, representative, agent,
attorney or attorney-in-fact of any of them against any other party to this Agreement or any Affiliate, Subsidiary, director, officer,
employee, representative, agent, attorney or attorney-in-fact of such other party for any special, indirect, consequential, or
punitive damages in respect of any claim for breach of contract or other theory of liability arising out of or related to the transactions
contemplated by this Agreement or any other Loan Document or any related act, omission, or event, and each party to this Agreement
waives, releases, and agrees not to sue upon any claim for such damages, whether or not accrued and whether or not known or suspected
to exist in its favor.

 

SECTION 7.11.     SAVINGS
CLAUSE.  If at any time the interest rate set forth in any of the Loan Documents exceeds the maximum interest rate allowable
under applicable law, the interest rate will be deemed to be such maximum interest rate allowable under applicable law.  

 

SECTION 7.12.     RIGHT
OF SETOFF; DEPOSIT ACCOUNTS.  Upon and after the occurrence of an Event of Default, (a) each Loan Party authorizes Lender,
at any time and from time to time, without notice, which is hereby expressly waived by such Loan Party, and whether or not Lender
will have declared any extension of credit under this Agreement to be due and payable in accordance with the terms of this Agreement,
to set off against, and to appropriate and apply to the payment of, the Obligations (whether matured or unmatured, fixed or contingent,
liquidated or unliquidated), any and all amounts owing by Lender to such Loan Party (whether payable in U.S. dollars or any other
currency, whether matured or unmatured, and in the case of deposits, whether general or special (except trust and escrow accounts),
time or demand and however evidenced), and (b) pending any such action, to the extent necessary, to hold such amounts as collateral
to secure such the Obligations and to return as unpaid for insufficient funds any and all checks and other items drawn against
any deposits so held as Lender, in its sole discretion, may elect. Each Loan Party grants to Lender a security interest in all
deposits and accounts maintained with Lender to secure the payment of all Obligations.

 

SECTION 7.13.     CONFIDENTIALITY.  Lender
agrees that all non-public information regarding each Loan Party, its operations, assets, and existing and contemplated business
plans will be treated by Lender in a confidential manner, and will not be disclosed by Lender to Persons who are not parties to
this Agreement, except (i) to Lender’s Affiliates, attorneys, representatives, agents and other advisors and to officers,
directors and employees of Lender, (ii) as required by law or by any court, governmental or regulatory authority, (iii) as agreed
by any Loan Party, (iv) if such information becomes generally available to the public other than through Lender or its Affiliates,
attorneys, representatives, agents, other advisors, officers, directors and employees, (v) as necessary in connection with any
litigation or adversary proceeding involving claims related to this Agreement, (vi) the assignment, participation or pledge of
Lender’s interest in this Agreement, and (vii) as necessary in connection with the exercise by Lender of any right or remedy
under this Agreement, any other Loan Document or at law. Lender may use the name, logos, and other insignia of the Borrowers and
the maximum amount of the credit facilities provided under this Agreement in any “tombstone” or comparable advertising,
on its website or in other marketing materials of Lender.

 

SECTION 7.14.     PATRIOT
ACT NOTICE.  Lender notifies each Loan Party that pursuant to the requirements of the Patriot Act, Lender is required
to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each
Loan Party and other information that will allow Lender to identify each Loan Party in accordance with the Patriot Act. In addition,
if Lender is required by law or regulation or internal policies to do so, it shall have the right to periodically conduct (a) Patriot
Act searches, OFAC/PEP searches, and customary individual background checks for each Loan Party, and (b) OFAC/PEP searches and
customary individual  background checks of each Loan Party’s senior management and key principals, and each Loan
Party agrees to cooperate in respect of the conduct of such searches and further agree that the reasonable costs and charges for
such searches shall constitute Lender Expenses.

 

SECTION 7.15.     JURISDICTION.  All
actions or proceedings arising in connection with this Agreement and the other Loan Documents may be tried and litigated in the
State of New York and, to the extent permitted by applicable law, federal courts located in the City of New York and the County
of New York, State of New York; provided that any suit seeking enforcement against any Collateral or other property may be brought,
at Lender’s option, in the courts of any jurisdiction where Lender elects to bring such action or where such Collateral or
other property may be found. Each Loan Party and Lender waive, to the extent permitted under applicable law, any right they may
have to assert the doctrine of forum non conveniens or to object to venue to the extent any proceeding is brought in accordance
with this Section 7.15.

 

    	 	-28-	 

     

    

 

SECTION
7.16.     WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH LOAN
PARTY AND LENDER WAIVE THEIR RESPECTIVE RIGHTS, IF ANY, TO A JURY TRIAL OF ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION
DIRECTLY OR INDIRECTLY BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THE
LOAN DOCUMENTS, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS
(EACH, A “CLAIM”). EACH LOAN PARTY AND LENDER REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

    	 	-29-	 

     

    

 

The parties have caused this Agreement
to be executed as of the date on page 1.

 

	WHITE OAK COMMERCIAL FINANCE, LLC	 	CHARLES & COLVARD, LTD.
	 	 	 
	By	/s/ Carlos Acedo	 	By	/s/ Clint J. Pete
	Name:	Carlos Acedo	 	Name:	Clint J. Pete
	Title:	Vice President	 	Title:	Chief Financial Officer
	 	 	 
	Address:	 	charlesandcolvard.com, LLC
	White Oak Commercial Finance, LLC	 	 
	11121 Carmel Commons Blvd., #270	 	By	/s/ Clint J. Pete
	Charlotte, NC  28226	 	Name:	Clint J. Pete
	Attention: Carlos Acedo	 	Title:	Manager
	Fax No.: 980.233.3544	 	 
	Email: CAcedo@whiteoakcf.com	 	GUARANTOR:
	 	 	 
	 	 	CHARLES & COLVARD DIRECT, LLC
	 	 	 
	 	 	By	/s/ Clint J. Pete
	 	 	Name:	Clint J. Pete
	 	 	Title:	Manager
	 	 	 
	 	 	Address:
	 	 	Charles & Colvard Direct, LLC
	 	 	170 Southport Drive
	 	 	Morrisville, NC  27560
	 	 	Attention: Clint J. Pete
	 	 	Fax No.: 919.468.5052
	 	 	Email: cpete@charlesandcolvard.com

 

    	 	-30-	 

     

    

 

SCHEDULE A  TO CREDIT AGREEMENT

 

FEES

 

	
        On the Closing Date:

         

        Origination Fee.  A
        non-refundable origination fee of $125,000, which will be fully earned on the date of this Agreement and payable in the amount
        of $41,667.00 on the date of execution of this Agreement; $41,667.00 on the first anniversary date of this Agreement or the date
        of termination of this Agreement, whichever is sooner; and $41,667.00 on the second anniversary date of this Agreement or the Termination
        Date, whichever is sooner.  

         

	
        Monthly:

         

        (a)        Collateral
        Monitoring Fee.  A fee at the rates established from time to time by Lender as its Collateral monitoring fees (which
        fees are currently $1,250.00 per month), will be due and payable monthly in arrears on the first day of the month and on the Termination
        Date.

         

        (b)        Cash
        Management and Other Service Fees.  Fees for cash management services provided to Borrowers by Lender, if any, in
        accordance with the agreements entered into between any of the Borrowers and Lender from time to time, including Lender’s
        customary fees and charges with respect to the disbursement of funds or the receipt of funds to or for the account of any of the
        Borrowers (whether by wire transfer or otherwise).

         

	
        Upon
        demand by Lender or as otherwise specified in this Agreement:

         

        (a)        Collateral
        Exam Fees, Costs and Expenses.  Lender’s fees, costs and expenses in connection with any collateral exams or
        inspections conducted by or on behalf of Lender at the current rates established from time to time by Lender as its fee for collateral
        exams, or inspections (which fees are currently $1,000 per day per collateral examiner), plus all actual out-of-pocket costs and
        expenses incurred in conducting any collateral exam or inspection; provided, however, so long as no Default or Event
        of Default shall have occurred and be continuing, Borrowers shall be obligated to reimburse Lender for fees, costs and expenses
        related to not more than three (3) such collateral exams and inspections per fiscal year if any Advances are outstanding under
        the Line of Credit or not more than one (1) such collateral exam and inspection per fiscal year if no Advances are outstanding
        under the Line of Credit, which collateral exams and inspections will include those performed prior to the Closing Date. Applicable
        fees related to electronic collateral reporting will also be charged.

         

        (b)        Appraisal
        Fees, Costs and Expenses.   Lender’s fees, costs and expenses (including any fees, costs and expenses incurred
        by any appraiser) in connection with any appraisal of all or any part of the Collateral conducted at the request of Lender. In
        addition, Borrowers will be obligated to reimburse Lender for all fees, costs and expenses related to appraisals obtained prior
        to the Closing Date.

         

        (c)        Line
        of Credit Termination Fees.  If (i) Lender terminates the Line of Credit after an Event of Default, or (ii) Borrower
        terminates the Line of Credit on a date other than the Maturity Date, then Borrower will pay Lender a termination fee in an amount
        equal to a percentage of the Maximum Revolver Amount calculated  as  follows:  (A)  2.0%,
        if the termination occurs on or before the first anniversary date of this Agreement; (B) 1.0%, if the termination occurs after
        the first anniversary date of this Agreement and on or before the second anniversary date of this Agreement; and (C) 0%, if the
        termination occurs after the second anniversary date of this Agreement.

         

        (d)        Minimum
        Interest Charge.  Notwithstanding the other terms of Section 1 of this Agreement to the contrary, Borrowers shall
        pay to Lender at least $2,396.00 of interest each calendar month (the “Minimum Interest Charge”) during the
        term of this Agreement, and Borrowers shall pay any deficiency between the Minimum Interest Charge and the amount of interest otherwise
        payable on the first day of each month and on the Maturity Date and continuing until all of the Obligations are paid in full in
        cash.  When calculating this deficiency, the Default Rate set forth in Section 1.2(c), if applicable, shall be
        disregarded.

         

        (e)        Other
Fees and Charges.  Lender may impose additional fees and charges during a Default Period  for  (i)  waiving
an  Event  of  Default,  or (ii)  the administration of Collateral by Lender.
All such fees and charges will be imposed at Lender’s sole discretion on either an hourly, periodic, or flat fee basis,
and in lieu of or in addition to imposing interest at the Default Rate, and any Borrower's request for an Advance following such
notice will constitute each Borrower's agreement to pay such fees and charges.

         

	 

 

    	 	-31-	 

     

    

 

SCHEDULE B  TO CREDIT AGREEMENT

 

DISCLOSURE SCHEDULE

 

Section 2.3             Pending
Litigation

 

  None

 

Sections 2.4, 5.8    Existing
Liens

 

  None

 

Section 2.8             Environmental
Matters

 

  None

 

Section 2.10           Material
Contracts

 

  1. Cree Agreement

 

  2. Agreements with Helzberg Diamond
Shops, Inc. as set forth in Section l to the Information Certificate

 

Section 5.2             Existing
Indebtedness

 

  None

 

Section 5.5             Existing
Loans, Advances, and Investments

 

  None

 

    	 	-32-	 

     

    

 

SCHEDULE C  TO CREDIT AGREEMENT

 

FINANCIAL STATEMENTS

 

	as soon as available, but within 25 days after the end of each month 	
        (a)  an unaudited
        balance sheet, income statement, statement of cash flow, and statement of owner’s equity with respect to the Borrowers and
        their respective Subsidiaries during such period and compared to the prior period and plan, prepared in accordance with GAAP, subject
        to year-end audit adjustments and the absence of footnotes, together with a corresponding discussion and analysis of results from
        management; and

         

        (b)  a Compliance Certificate
along with the underlying calculations, including the calculations to establish compliance with the financial covenants set forth
in this Agreement and certain other covenants under this Agreement and a certificate of the president or chief financial officer
of Company attesting that the financial statements are accurate and that there exists no Default or Event of Default.

	as soon as available, but within 90 days after the end of each fiscal year	
        (a)  financial statements
        of Borrowers and their respective Subsidiaries for such fiscal year, audited by independent certified public accountants reasonably
        acceptable to Lender, prepared in accordance with GAAP, and certified, without any qualifications (including any (A) “going
        concern” or like qualification or exception, (B) qualification or exception as to the scope of such audit, or (C) qualification
        which relates to the treatment or classification of any item and which, as a condition to the removal of such qualification, would
        require an adjustment to such item), by such accountants to have been prepared in accordance with GAAP (such audited financial
        statements to include a balance sheet, income statement, statement of cash flow, and statement of owner’s equity and, if
        prepared, such accountants’ letter to management); and

         

        (b) a Compliance Certificate with
the underlying calculations, including the calculations to establish compliance with the financial covenants set forth in this
Agreement and a certificate of the president or chief financial officer of Company attesting that the financial statements are
accurate and that there exists no Default or Event of Default.

	As soon as available, but no later than 30 days before  the start of each of Borrowers’ fiscal years,	Copies of Borrowers’ and their respective Subsidiaries’ forecasted (a) balance sheet, (b) profit and loss statement, (c) availability projection, and (d) cash flow statement, all prepared on a basis consistent with Borrowers’ historical financial statements, together with appropriate supporting details and a statement of underlying assumptions, in form and detail satisfactory to Lender, for the next fiscal year, on a monthly basis, certified by the chief financial officer of Borrowers as being such officer’s good faith estimate of the financial performance of the Borrowers and their respective Subsidiaries during the period covered.
	On request of Lender	Such other information as Lender may reasonably request.

 

    	 	-33-	 

     

    

 

	If and when filed by Company, unless publicly available on the SEC’s website or Company’s website, 	
        (a) Form 10-Q quarterly reports,
        Form 10-K annual reports, and Form 8-K current reports,

         

        (b) any other filings made by
        Borrower with the SEC; and

         

        (c) any other information that
is provided by Borrower to its shareholders generally.

	Read Only Access	Lender shall have read-only access to Borrowers’ cash accounts and check history at all times.

 

    	 	-34-	 

     

    

 

SCHEDULE D TO CREDIT AGREEMENT

 

COLLATERAL REPORTING

 

	On the first Business Day of each week or more frequently as Lender requests. 	
        (a)     a
        borrowing base certificate or daily collateral report in form and substance acceptable to Lender, together with an Account roll-forward
        with supporting details supplied from sales journals, collection journals, credit registers and any other records, and notice of
        all claims, offsets, or disputes asserted by Account Debtors with respect to any Loan Party’s Accounts; and

         

        (b)      notice of any return
of goods with a Value individually or in the aggregate exceeding $100,000.

	No later than the 20th day of each month.	
        (a)      a
        monthly Account roll-forward, in a format acceptable to Lender;

         

        (b)      a detailed aging
        of each Loan Party’s Accounts, together with a reconciliation to the monthly Account roll-forward and supporting documentation
        for any reconciling items noted;

         

        (c)      a
        detailed calculation of those Accounts and Inventory that are not eligible for the Borrowing Base;

         

        (d)      a
        detailed Inventory system/perpetual report; and

         

        (e)      a
summary aging, by vendor, of each Loan Party’s and its Subsidiaries’ accounts payable.

	Upon request by Lender.	
        (a)      copies
        of invoices with corresponding shipping and delivery documents, purchase orders, and vendor invoices for Inventory acquired by
        Loan Parties, and

         

        (b)      such
other reports and information as to the Collateral and as to Loan Parties, as Lender may request.

 

    	 	-35-	 

     

    

 

SCHEDULE E TO CREDIT AGREEMENT

 

FORM OF COMPLIANCE CERTIFICATE

 

[on Borrowers’ Letterhead]

 

To:

_______________________________

_______________________________

Attn: ___________________________

 

		Re:	Compliance Certificate dated [_____________________]

 

Ladies and Gentlemen:

 

Reference is made to
that certain Credit Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”
dated as of July ____, 2018 by and between White Oak Commercial Finance, LLC (“Lender”), Charles & Colvard,
Ltd. and charlesandcolvard.com, LLC (“Borrowers”) .  Capitalized terms used in this Compliance Certificate
have the meanings set forth in the Credit Agreement unless specifically defined herein.

 

Pursuant to Schedule
C of the Credit Agreement, the undersigned officer of Borrowers hereby certifies that:

 

1.            Attached
is the financial information of Loan Parties which is required to be furnished to Lender pursuant to Section 4.1 of the Credit
Agreement for the period ended _________________ (the “Reporting Date”).  Such  financial
information has been prepared in accordance with GAAP [(except for year-end adjustments and the lack of footnotes)]1
and fairly presents in all material respects the financial condition of Loan Parties.

 

2.            Such
officer has reviewed the terms of the Credit Agreement and has made, or caused to be made under his/her supervision, a review in
reasonable detail of the transactions and condition of Loan Parties during the accounting period covered by the financial statements
delivered pursuant to Schedule C of the Credit Agreement.

 

3.            Such
review has not disclosed the existence on and as of the date of this Certificate, and the undersigned does not have knowledge of
the existence as of the date of this Certificate, of any event or condition that constitutes a Default or Event of Default.2

 

4.            The
representations and warranties of each of the Loan Parties set forth in the Credit Agreement and the other Loan Documents are true
and correct in all material respects on and as of the date of this Certificate (except to the extent they relate to a specified
date).

 

5.            As
of the Reporting Date, each of the Loan Parties is in compliance with the applicable covenants contained in Article IV and Article
V of the Credit Agreement as demonstrated on Schedule 1.

 

[Signature Page Follows]

 

 

1
Exclude bracketed language with annual audits.

2
With respect to Paragraphs 3, 4 and 5, note any non-compliance.

 

    	 	-36-	 

     

    

 

IN WITNESS WHEREOF,
this Compliance Certificate is executed by the undersigned this [____] day of [______________________].

 

	 	CHARLES & COLVARD, LTD.
	 	 
	 	By:______________________________
	 	Name: ___________________________
	 	Title:_____________________________

 

	 	charlesandcolvard.com, LLC
	 	 
	 	By:______________________________
	 	Name: ___________________________
	 	Title:_____________________________

 

    	 	-37-	 

     

    

 

EXHIBIT 1

 

CONDITIONS SUBSEQUENT

 

1.    Within thirty (30) days following
the date of this Agreement, we shall deliver to you, at our sole cost and expense, an inventory appraisal prepared by an appraisal
firm acceptable to you and in form and substance acceptable to you.

 

2.     Within forty five (45) days following
the date of this Agreement, we shall use commercially reasonable efforts to deliver to you an acceptable Accountant’s Access
Letter from BDO USA, LLC, it being agreed that the form of revised letter forwarded to Lender on July 5, 2018 by Company’s
counsel is acceptable to Lender.

 

    	 	-38-

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